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P162119

 The World Bank India Climate Change Mitigation Action Support (P162119) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) Appraisal Stage | Date Prepared/Updated: 15-Jan-2019 | Report No: PIDISDSA21695 Dec 10, 2018 Page 1 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) India P162119 India Climate Change Mitigation Action Support Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) SOUTH ASIA 31-Jan-2019 20-Mar-2019 Social, Urban, Rural and Resilience Global Practice Financing Instrument Borrower(s) Implementing Agency Investment Project Financing DEA, Ministry of Finance, Ministry of Environment, Goverment of India Forests, and Climate Change Proposed Development Objective(s) The development objective is to strengthen the readiness of the Government of India for the assessment, design, preparation and implementation of new and existing carbon pricing instruments\. Components Climate Change Mitigation Policy Landscape Core Market Readiness Component Framework for Designing New Market Based Mechanism Project Management and Outreach PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 5\.20 Total Financing 5\.20 of which IBRD/IDA 0\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 Non-World Bank Group Financing Trust Funds 5\.20 Dec 10, 2018 Page 2 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) Partnership for Market Readiness 5\.20 Environmental Assessment Category C-Not Required Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B\. Introduction and Context Country Context 1\. India continues to be the world’s fastest growing major economy\. While growth dipped to 6\.7 percent in FY17/18, it has accelerated in the last two quarters to reach 7\.1 percent in Q2 FY18/2019\. This was supported by a revival in industrial activity, strong private consumption, and a rise in exports of goods and services\. Going forward, growth is projected to reach 7\.3 percent in FY18/19 and to firm up thereafter at around 7\.5 percent, primarily on account of robust private and public consumption expenditure, a rise in exports of goods and services and a gradual increase in investments\. However, the current account deficit is also projected to remain elevated in FY18/19\. 2\. Since the 2000s, India has made remarkable progress in reducing absolute poverty\. Between FY2011/12 and 2015, poverty declined from 21\.6 to an estimated 13\.4 percent at the international poverty line (2011 PPP US$ 1\.90 per person per day), continuing the earlier trend of robust reduction in poverty\. Aided by robust economic growth, more than 90 million people escaped extreme poverty and improved their living standards during this period\. Despite this success, poverty remains widespread in India\. Recent trends in the construction sector and rural wages, a major source of employment for the poorer households, suggest that the pace of poverty eradication may have moderated\. Sectoral and Institutional Context 3\. India is already experiencing a warming climate, a decline in monsoon rainfalls since the 1950s, overexploitation of groundwater resources, retreating Himalayan glaciers, floods and growing pressure on food, water and other agricultural resources due to the growing population and increase in private consumption\. While India’s absolute GHG emissions show an increasing trend, its per capita emissions are still one of the lowest in the world\. India’s per capita GHG emissions in 2010 were 1\.56 tCO2 equivalent, which is less than one-third of the world’s average per capita emissions\. The overall approach in climate change policy making in India is to prioritize policies that yield greater de-carbonization without compromising on the developmental imperatives of the country\. India has shown leadership in global efforts to limit climate change including the early ratification of the Paris Agreement among the parties\. India’s Nationally Determined Contribution (NDC) presents four major mitigation goals, namely (i) Reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from 2005 level, (ii) Achieve about 40 percent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030, (iii) Create an Dec 10, 2018 Page 3 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) additional carbon sink of 2\.5 to 3 billion tons of CO2 equivalent through additional forest and tree cover by 2030, and (iv) Propagate a healthy and sustainable way of living based on traditions and values of conservation and moderation\. India is not relying solely on budgetary resources to achieve such ambitious goals but also experimenting a mix of market mechanisms together with fiscal instruments and regulatory interventions to mobilize finance for dealing with climate change\. 4\. India currently has two domestic market mechanisms: the Perform, Achieve, Trade (PAT) scheme, which aims to achieve greater energy efficiency by adopting a mechanism akin to cap-and-trade for identified industries that account for a majority of emissions by setting emission allowances and issuing tradable energy saving certificates or ESCerts; and the Renewable Energy Certificate (REC) mechanism which aims to allow state governments with scarce renewable energy resources to fulfil their obligation to purchase a certain minimum amount of renewable energy\. To build domestic capacity to undertake low carbon development actions within the country, the Indian government has also set up two important funds: The National Clean Energy Fund (NCEF) through a coal cess (which acts like a carbon tax), and the National Adaptation Fund (NAF) on Climate Change to support imperative adaptation requirements in the country\. Given that India needs to mobilize a large amount of resources to meet the ambitious targets under its NDC, there is a strong need to take stock and provide additional resources or measures to make the existing mechanisms more effective and to put in place a new supplemental mechanism towards achieving them\. 5\. The World Bank Group has been proactive in supporting and promoting carbon pricing as an effective tool to achieve mitigation goals and helping client countries build financial and technical capacity to leverage necessary resources\. Multiple complementary initiatives are being conducted in support of this vision such as Partnership for Market Readiness (PMR), Networked Carbon Markets (NCM) initiative, the Carbon Pricing Leadership Coalition (CPLC), and the Carbon Finance-Assist\. The PMR is a grant-based, country-led, capacity building multi-donor trust fund that provides funding and technical assistance for increasing readiness of countries for introducing cost-effective carbon pricing instruments for greenhouse gas emissions reduction\. India submitted its expression of interest to the Partnership Assembly to participate in the PMR in 2012\. Since then, the World Bank has provided technical assistance to help formulate the discussion and preparation for scaling up climate change efforts with the support of the PMR (P133805)\. As a result of the successful implementation of the NLTA, the government of India (GoI) has submitted their market readiness proposal to the Partnership Assembly of the PMR in February 2017 and seek for its PMR implementation grant to realize some of the ambitious plans on the market-based mechanisms\. C\. Proposed Development Objective(s) PDO Statement 6\. The development objective is to strengthen the readiness of the Government of India for the assessment, design, preparation and implementation of new and existing carbon pricing instruments\. Key Results 7\. The expected key results of the project are: a\. Implementation of no-regret measures such as infrastructure set-ups in the form of a national registry to support data collection and management efforts of climate change actions and mitigation results; and b\. Identification of expansion of the existing and new market-based mechanisms in the Indian context\. Dec 10, 2018 Page 4 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) D\. Project Description 8\. The project’s financing instrument will be a Recipient Executed Trust Fund grant in the amount of US$5 million to the GoI\. It is funded through the PMR\. The project will consist of the following components: Component 1 - Climate Change Mitigation Policy Landscape 9\. The component will support the upstream analytical work to develop policy instruments to achieve India’s GHG mitigation objectives along with assessment of interplay and alignment of different existing and future policy instruments and to assess how they could impact the development of sectors, mainly the energy sector and its emissions\. As part of development of an optimum policy landscape, sector-wise diagnostics will be undertaken to develop a new market-based mechanisms (MBM) in the sectors where potential GHG emission reductions are still untapped\. Micro, Small, and Medium Enterprise (MSME) and Municipal Solid Waste (MSW) are the chosen sectors to be covered under India’s MRP as these are key priorities sectors offering opportunity for significant GHG emissions reduction\. MSME sector has been creating Approx\. 110 million jobs across the country and contributes with approximately 29 percent to India’s GDP\. Thus, it significantly contributes to employment generation and poverty alleviation\. Similarly, sectors, such as solid waste, which is high on the national priority, offer immense opportunities for emission reductions\. Most MSW is disposed at landfills or unmanaged dumpsites causing GHG emissions and other environmental, social and economic problems\. Developing more sustainable practices in the MSW sector in India, thus, directly relates to the NDC goals of India and overall policy framework\. The waste sector can be tapped significantly for GHG emission reductions and sustainable development co-benefits such as improved sanitation, environment and health\. Component 2 - Core Market Readiness Component 10\. This Component will support development of a centralized data management and registry platform in India\. The emissions trading registry will track emissions and avoid double counting across market-based mechanisms (MBM)\. The platform will function as an online database that issues, records and keeps track of tradable units\. Since registries typically require significant technical and financial capacity for their design and implementation, it is essential to plan their specific regulatory, administrative, functional and technical roles while designing MBM\. Each market mechanism will have the ability to generate units that can be traded\. However, in order to maintain environmental integrity, databases need to complement the MBMs by recording the issuance, transfer, and retirement of tradable units generated\. This will ensure compliance in market-based programs\. It will also make it possible to link different MBMs\. Linking the registry with a national inventory management system (NIMS) will enhance the robustness of GHG accounting by creating bottom-up data\. The objectives of the registry and data management system are: (i) Develop systems and processes to collect, organize, report, and analyze the necessary data to support the MBMs; (ii) Implement hosting infrastructure with specific functional and non-functional requirements including adequate security controls; and (iii) Provide adequate flexibility provisions to support future MBMs, link various MBMs together, and to link the registry with the NIMS\. Component 3 – Framework for Designing New Market Based Mechanism 11\. Sub-Component 3\.1\. Design of a new MBM: The MBM will comprise four key components, namely (i) institutional, (ii) legal and regulatory, (iii) operational, and (iv) data management and registry\. The design of a new MBM will be based on an evaluation of various low carbon alternatives, an analysis of their cost-benefit, and relative merits and demerits\. The proposed project will consider elements on: (i) Institutional setup and governance; (ii) Modalities Dec 10, 2018 Page 5 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) and procedures, detailing potential operational elements; (iii) Approaches to assess the GHG and sustainable development benefits of the proposed MBM; (iv) Possible timelines and targets; and (v) Relationship with existing MBMs and the overall policy framework\. Suitable selection criteria will be developed, and a shortlisted set of MBMs will be identified, analyzed and developed further\. The shortlisted options will be discussed with relevant stakeholders with support from NCM and CPLC\. The final choice of MBM will depend on stakeholder response, analytical rigor of the proposed MBM, and support from relevant line ministries\. The relevant line ministries will be responsible for coordinating committee approvals, for the new MBM\. Approval from the Prime Minister (PM)’s council on climate change and cabinet approval would be required for implementation of the MBM\. 12\. Sub-Component 3\.2\. Piloting: After the selection and design of a new MBM, the GoI will consider a pilot at a small scale\. Since relevant stakeholders will be engaged in the process of designing the MBM, it is envisaged that there will already be institutional readiness to implement the pilot\. While existing pilots may be implemented for a short duration under the PMR activities, the alignment of new MBM with broader climate policy objectives of India will ensure that the activities will continue even beyond the PMR support\. Component 4 – Project Management and Outreach 13\. The project will be implemented by Ministry of Environment, Forests, and Climate Change (MoEFCC), which will assume overall responsibility as the Implementing Agency\. MoEFCC will designate a senior official as the National Project Director (NPD) for the project\. The NPD will be responsible for overall guidance for project management, including adherence to the Annual Work Plans (AWP), achievement of planned results, and for the use of PMR funds through effective management and well-established project monitoring mechanisms\. E\. Implementation 14\. MoEFCC will be PMR focal point for the all communications to the PMR Secretariat and would also be responsible for overall implementation of the project\. A Project Management Unit (PMU) will be set-up at MoEFCC, headed by the NPD and comprising of theme leaders and project support officers for day-to-day supervision of the PMR grant funded project activities\. 15\. An inter-ministerial Project Steering Committee (PSC) will be constituted under the Chairmanship of Additional Secretary of the MoEFCC to oversee project implementation\. The PSC has representation from Ministry of Finance, Ministry of Power, Ministry of New and Renewable Energy, Ministry of Housing and Urban Affairs, Ministry of Medium and Small Enterprises, Bureau of Energy Efficiency, Power System Operation Corporation Limited\. Additional experts may be nominated by the Chairman as per the requirement\. \. Dec 10, 2018 Page 6 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) F\. Project location and Salient physical characteristics relevant to the safeguard analysis (if known) This grant-funded operation consists solely of technical assistance for the development and inter-linkage of market-based mechanisms for climate change mitigation in India; it will not have any physical footprint, nor is it expected to lead to investments on the ground\. As project activities are not located in any particular place, there are no salient physical characteristics to speak of\. G\. Environmental and Social Safeguards Specialists on the Team Kennan W\. Rapp, Social Specialist Suiko Yoshijima, Environmental Specialist SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/BP 4\.01 No Performance Standards for Private Sector No Activities OP/BP 4\.03 Natural Habitats OP/BP 4\.04 No Forests OP/BP 4\.36 No Pest Management OP 4\.09 No Physical Cultural Resources OP/BP 4\.11 No Indigenous Peoples OP/BP 4\.10 No Involuntary Resettlement OP/BP 4\.12 No Safety of Dams OP/BP 4\.37 No Projects on International Waterways No OP/BP 7\.50 Projects in Disputed Areas OP/BP 7\.60 No Dec 10, 2018 Page 7 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) KEY SAFEGUARD POLICY ISSUES AND THEIR MANAGEMENT A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: This grant-funded operation consists solely of technical assistance for the development and inter-linkage of market based mechanisms for climate change mitigation in India\. The planned pilot is to test out new system to evaluate emission reduction values or credits in targeted sectors, and will not involve physical investments\. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: Once the system to evaluate emission reduction values or credits is formally launched with support from PMR, the new system would likely promote physical investments in the future\. However, the environmental impacts are likely to be positive with reduced carbon footprints\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. Not relevant\. 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. N/A as the project is category C\. The proposed PMU will communicate with the Ministry of Environment, Forests and Climate Change and with the World Bank around dealing with any safeguard issues that may arise during the implementation phase\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. Not relevant\. B\. Disclosure Requirements C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OPS_ PDI_ COMP_TA BLE The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank for disclosure? Dec 10, 2018 Page 8 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Have costs related to safeguard policy measures been included in the project cost? Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? CONTACT POINT World Bank Keisuke Iyadomi Climate Change Specialist Chandra Shekhar Sinha Lead Climate Change Specialist Borrower/Client/Recipient DEA, Ministry of Finance, Goverment of India Implementing Agencies Ministry of Environment, Forests, and Climate Change Ravi Shankar Prasad Joint Secretary ravis\.prasad@nic\.in Dec 10, 2018 Page 9 of 10  The World Bank India Climate Change Mitigation Action Support (P162119) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Keisuke Iyadomi Task Team Leader(s): Chandra Shekhar Sinha Approved By Safeguards Advisor: Practice Manager/Manager: Armando Guzman 25-Jan-2019 Country Director: Luc Lecuit 25-Jan-2019 Dec 10, 2018 Page 10 of 10

APPROVAL

P006278

Document of FILE COpy The World Bank FOR OFFICIAL USE ONLY Report No\. P-19 30-BR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE STATE OF MINAS GERAIS WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR AN INTEGRATED RURAL DEVELOPMENT PROJECT December 29, 1976 This document has a\. restricted distribution and may be used by recipients only In the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (As of November 25, 1976) Currency Unit Cruzeiro (Cr$) US$1 Cr$11\.99 Cr$l US$\.083 Cr$1,000 US$83\.00 Cr$1,000,000 = US$83,000 ABBREVIhATIONS AID ACRONYMS ACAR-MG - Associacao de Credito e Assistencia Rural (Rural Credit and Assistance Agency, Minas Gerais) RURALMINAS - Fundacao Rural Mineira (State Rural Development Agency) SEPLAN-MG - Secretaria de Planejamento (State Secretariat of Planning) SUDECOOP - Superintendencia de Cooperativismo (Superintendency of Cooperatives) FINANCIAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS IN A PROPOSED LOAN TO THE STATE OF MINAS GERAIS FOR AN INTEGRATED RURAL DEVELOPMENT PROJECT 1\. I submit the following report and recommendation on a proposed loan to the State of Minas Gerais, with the guarantee of the Federative Republic of Brazil, for the equivalent of US$42 million to help finance an integrated rural development project in the Zona da Mata region of the State of Minas Gerais\. The loan would have a term of 17 years, including 5 years of grace, with interest at 8\.7% per annum\. PART I - THE ECONOMY 2\. A report, entitled "Economic Memorandum on Brazil" (812-BR), dated July 7, 1975, was distributed to the Executive Directors on July 21, 1975\. Country data sheets are attached as Annex I\. 3\. During 1967-74 the combination of excellent domestic economic manage- ment and a buoyant world economic environment produced a period of high and sustained income growth, strong balance of payments perform-ance and gradually decelerating inflation\. Brazil's average annual rate of growth of about 10% over this period resulted in a 60% increase in per capita income, a 130% in- crease in manufacturing output and a 380% increase in the US dollar value of exports\. However, international economic events in 1974 and 1975 forced a slowdown in the pace of economic growth\. With the sharp deterioration of the country's terms of trade and the disruption of the world capital market, the balance of payments become a severe constraint on Brazil's growth\. As a result, the pace of growth slowed to little more than 4% in 1975\. In 1976, however, despite a number of measures designed to keep under control the aggregate level of demand, it appears that growth accelerated to some 7-8%\. The resulting pressure of demand has aggravated inflation and caused the Government to seek yet further ways of restraining growth to a level commensurate with the persisting balance of payments constraints\. 4\. The fourfold increase in the price of crude oil (adding some US$2 billion to the import bill), the steep rise in the price of most imported raw materials, as well as the hardening of terms of external financial credits, have made management of the external sector difficult since 1974\. These factors caught Brazil at the time when its economy was overheated and growth of import demand was very high because, after a prolonged period of rapid growth some key industrial sectors were approaching capacity levels of output\. The current account deficit, which averaged just US$1 billion in 1969-73, or 2% of GDP at current prices\. It widened to about US$7 billion or 7% of GDP in 1974, reflecting the sizeable differential between import growth (about 100%) and export growth (roughly 30%) and the increasing level of interest payments This document has a restricted distfibution and may b msd by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank Authorization\.  - 2 - on debt\. The bulk of the deficit was financed by a large increase in the inflow of external financial credits of considerably shorter maturity than was generally available during 1971-73\. 5\. The Government attempted to narrow the balance-of-payments current account deficit in 1975\. It was successful in keeping imports somewhat below the 1974 level in nominal terms by maintaining a balanced budget, continu- ing the crawling peg exchange rate policy and introducing direct import controls\. This implied a substantial reduction in the real level of imports and was accompanied by a decline in the rate of GDP growth to 4%\. Export growth of about 9% was somewhat disappointing, largely due to the frost in Southern Brazil in July 1975, which adversely affected production of some key crops, including coffee and sugar, and a slowdown in manufactured export growth as a consequence of the recession in the consuming countries\. Nevertheless, because of import restraint, the trade deficit declined from US$4\.7 billion in 1974 to US$3\.5 billion in 1975\. However, improvement in the trade account was virtually offset by a large increase in interest payments reflecting the growth of the external debt and higher Eurodollar interest rates\. 6\. The Government monitored the balance-of-payments situation very closely and in the second half of 1975 adopted several new measures designed to produce a further contraction of imports in 1976\. The new measures estab- lished advance import deposit requirements on approximately 40% of merchandise imports, further increased import duties, increased gasoline prices by 25% and continued restriction of public sector imports\. In addition, as a longer term measure, the Government has given the state petroleum monopoly, PETROBRAS, permission to undertake service contracts with foreign oil companies\. As a result of these measures, the nominal value of merchandise imports is likely to remain virtually stable during 1976 for the second year in succession\. When viewed within the context of worldwide inflation this represents a significant reduction of imports in real terms under the 1974 level\. Exports, on the other hand, have expanded during 1976 so that the trade deficit may be reduced to some US$2 billion\. While the improvement is not as great as was hoped it constitutes a significant advance from the US$4\.7 billion trade deficit of 1974\. The persistant, albeit diminishing, trade deficit over a period of three years has given rise to a significant increase in the total (public and private) foreign debt, which the Government now forecasts will reach US$26 billion by the end of the year, up from US$21\.2 billion at the end of 1975\. In addition, inflation averaged 3\.5% per month in the first ten months of 1976 (significantly higher than the rate of recent years) and this prompted the Government to adopt a series of increasingly more restrictive monetary measures\. These include higher compulsory reserve requirements, increased Central Bank re-discount rates, higher short-term rates of interest, and a prior deposit of Cr$12,000 which is required of all residents of Brazil travelling abroad and which is to be held for a year without monetary correction or interest\. Parallel to these monetary measures the Government recently announced measures to reduce the gap between saving and investment in the public sector by Cr$40 billion (in 1977 prices) or 2\.2% of GDP with a view to limiting the expansionary effect of the public sector finances\.  -3 - 7\. Over the longer run Brazil's economic growth prospects are very favorable but it is unlikely that growth will return to the 10% pace attained in the 1967-74 period\. Brazil was seriously affected by the changes in its terms of trade and by the world recession in the past few years\. While the large increase in external borrowing since 1974 has permitted Brazil to soften the effects of external developments upon the levels of domestic economic activity, the need for prudent management of the resulting debt inevitably constrains future economic policies\. Finally, the Government is now directing increasing attention to broadening the distribution of the benefits of growth\. All of these factors suggest more moderate growth rates in the future, although Brazil is still expected to be among the most rapidly growing of the developing countries\. This will require, however, a continuing large inflow of medium and long-term capital\. Although below the US$5\.8 billion average in 1974 and 1975, it is estimated that the average annual net inflow of medium and long-term capital (that is, direct foreign investment and net disbursements from official and private sources) should be on the order of US$4\.7 billion annually in 1977-80\. 8\. At the end of 1975, Brazil's public external debt reached about US$11 billion\. The public debt service ratio for 1975 is estimated at 16\.7% which is in line with that of other countries at a similar stage of devel- opment\. Brazil's total (public and private) external debt reached about US$21 billion at the end of 1975, of which about two-thirds, or US$15 billion was in the form of financial credits\. The debt service ratio during 1975 on this to- tal external debt was about 43% (c\.f\. an average of 41% in the previous 3 years) However, it should be noted that net foreign exchange reserves at the end of 1975 were still large, about US$4\.8 billion, equivalent to some four months of the 1975 imports of goods and non-factor services\. The total debt service ratio can be expected to rise to about 44% in 1976 and may rise slightly further in the following two or three years\. However, if an export growth rate of around 17% per year in dollar terms can be maintained over the 1975-80 period and if average maturities of new financial credits gradually improve from six to eight years, the debt service ratio in 1980 can be expected to return to the 44% level and can be expected to fall yet further in subsequent years to somewhat less than 30% in 1985\. Despite Brazil's heavy debt service burden, both the large foreign exchange reserves accumulated in previous years and the bolstering of these reserves by an increase of capital inflows during the second half of 1976 ensure that the country will have the liquidity to meet its debt service obligations in the short term, while the country's record of financial management provides grounds for confidence in the main- tenance of creditworthiness over the longer run\. There can be no doubt, how- ever, that very careful management of the external account will be necessary in the coming two to three years\. 9\. Despite its recent growth and vast potential, Brazil is still a country with a very unequal distribution of income and extensive absolute poverty\. The present Government acknowledges the gravity of the country's income distribution problem and accepts the responsiblity for its alleviation\. While like the previous Government it believes that a high rate of growth is necessary to increase the income of the poor, it does not believe that the "trickle down" effects of rapid growth are enough and has formulated a new policy which could be labeled as "redistribution along with growth"\. To  - 4 - implement this policy in addition to pursuing some of the social programs initiated by its predecessor, the Government is also taking new measures for improving income distribution\. These can be classified into three broad areas: (a) regional development; (b) provision of social services; and (c) wage policy\. In addition, recent tax changes have tended to have a favorable, although marginal, impact on income distribution\. 10\. As one of its measures to help promote development in poorer regions, the Government has formulated a program known as POLONORDESTE for rural devel- opment in the Northeast\. The program envisages investment expenditures of about US$2\.5 billion during 1975-79 and is designed to raise the productivity and incomes of small farmers through, inter alia, formulation and execution of integrated rural development projects, which are likely in some cases to include changes in land tenure\. POLONORDESTE is based on the assumption that the rural Northeast cannot be regarded as a homogeneous whole and, therefore, standard- ized programs are inadequate\. The Government identified 28 sub-regions cover- ing large portions of the Northeast on which POLONORDESTE funds would be used initially\. The Rio Grande do Norte project (Ln 1195-BR approved in December, 1975) is one of the first under POLONORDESTE, and the Government intends to present additional similar projects for Bank consideration in the future\. 11\. Active consideration is being given to a major modification in the state value added tax system to redistribute fiscal resources from the richer to the poorer states, in order to give the latter the fiscal resources which they badly need to accelerate social programs, particularly in education\. In the area of social services, the Government has created a new Ministry of Social Security in order to consolidate its social benefit programs and to extend these programs to a larger share of the population\. The Government is also strengthening the nutrition program which, under the previous Government, got off to a slow start\. Greater emphasis is being given by the National Housing Bank to low-income housing, whose beneficiaries will enjoy better financial terms than in the past\. The bank is also developing a site and services program to encourage construction of self-helped housing by families which cannot afford builder-constructed units\. In agriculture, the recently reorganized rural extension agency will expand and strengthen its activities directed specifically toward the small-scale farmer; and the new federal agri- culture research institution is defining its program to include a selection of crops and farming-systems which will ensure that small-scale farms benefit from research efforts\. Overall, the Government's public investment program for 1975-77 gives high priority to education, health, agriculture and regional development, which account for about 30% of total public investment\. Finally, the Government intends to pursue a more liberal wage policy to maintain the real value of the minimum wage and improve personal income distribution\. For this purpose it has revised the formula governing the adjustment of the union wage scale\. The real minimum wage increased by 6\.5% in 1975 and by 3% in May 1976, based on the rate of inflation over the previous 12 months\. In 1977 the Government may be obliged to hold back wages as part of a policy package designed to control overall demand and to combat inflation\. This expedient of short-term economic management does not signify, however, any change in the Government's longer term goal of improving income distribution\.  -5- PART II - BANK OPERATIONS IN BRAZIL 11\. By November 30, 1976 the Bank had approved 66 loans for Brazil, amounting to US$2,967\.5 million, of which 38 have not been fully disbursed\. During FY65-69, disbursements averaged only US$10 million per year, increasing to an average of US$136 million per year during FY70-74, reaching US$225 million in FY74, US$248 million in FY75 and IJS$20:' million in FY76\. So far in FY77, USS56\.8 million has been disbursecd\. The decline in disbursements in FY76 was due primarily to the reduced level of lending in FY73-74\. Disbursements are expected to increase during the next: few years\. Annex II contains a summary statement of Bank loans as of November JO, 1976 and notes on the execution of ongoing projects\. 12\. Bank lending to Brazil was very active in FY72, when seven loans were approved totalling US$437 million, including three loans totalling US$192 million for the Stage II expansion of the steel industry\. In FY73-74 nine loans amounting'to US$429\.7 million; in FY75, five loans totalling US$426\.5 million; and in FY76 ten loans totalling US$498 million were approved\. So far in FY77 three loans have been approved: US$40 million for a second Minas Gerais water supply and sewerage project, US$83 million for a second agro-industries credit project and US$82 million for a power transmission in the south of Brazil\. We are working actively with t:he Brazilians on the preparation of two additional fertilizer projects, a project in support of a non-flat steel industry, a pollution control project for the metropolitan area of Sao Paulo, a vocational education project and several rural deve'lopment projects\. 13\. Of Brazil's external public debt outstanding and disbursed at the end of 1975, amounting to US$11 billion, the Bank held about 10%\. The Bank's share of the service on this debt was about 4\.5%\. If present trends continue as expected, the Bank's share in total external public debt outstanding would increase to 12% by 1980\. The Bank's share of public: debt service would rise in 1980 to about 6% while its share of Brazil's total (public and private) external debt service would remain at the present level of 2\.7%\. 140 IFC has committed more financial resources to Brazil than to any other country\. As of November 30, 1976, IFC had made 29 commitments to Brazil, totalling US$276\.3 million, of which US$32\.6 million has been can- celled, US$23\.3 million repaid and US$126\.9 million sold\. Of the balance of US$93\.e5 million, US$70\.0 million represents loans and US$23\.5 million equity\. A summary of IFC's investments up to Ncvember 30, 1976 is given in Annex II\. Lending Strategy 15\. In its lending to Brazil, the Bank has sought to help the Govern-- ment achieve a number of important development objectives which are inter- dependent and complementary\. An important lending objective in Brazil is  - 6 - to support the effort of the Government to identify and develop projects designed to increase productivity and incomes of the lowest income segment of the population, to broaden the economic opportunities open to those groups, and to alleviate poverty\. By its positive impact on employment and on agri- cultural productivity, the proposed Minas Gerais integrated rural development project would contribute to the attainment of these objectives\. The recently approved loans for the nutrition research and development, agricultural research, Rio Grande do Norte integrated rural development, and Lower Sao Francisco Polders projects were also designed to assist low-income groups in rural areas\. Government authorities, with the collaboration of Bank staff, are making a particular effort to help Brazil develop additional integrated rural development projects of this type\. The recently approved water supply and sewerage project for the State of Minas Gerais was designed particularly to help reach low-income groups in towns and cities as would proposed sites and services and water supply and pollution control projects\. We are also actively working with the Government on the preparation of vocational and rural education projects\. 16\. A second Bank lending objective in Brazil is to support institu- tional development and policy reform, designed inter alia to help maximize public savings and ensure that they are used economically\. The proposed project will contribute to a substantial improvement in the planning, coor- dination and project execution capabilities of the major participating agen- cies, the local rural extension and cooperative agencies, and the state secretariats concerned\. In helping to strengthen the regional and state development banks, the recently approved development banking and agro- industries projects also have institutional development as a primary objec- tive\. The institution-building objective has also been important in Bank assistance to the transportation sector where emphasis has been given to the rational selection of investment, the strengthening of railway operations, and the improvement of the railways' financial performance\. 17\. Another lending objective is to ease the foreign exchange constraint on development, a constraint that has become more critical since the increase in petroleum prices, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for imports\. As a result of the deterioration in Brazil's terms,of trade and balance of payments in the past two years, this objective has been placed in the forefront of the Government's economic policy\. Bank lending for agro- industries in the center and south of Brazil has supported this objective and much of the Bank-supported investments in the transport sector--railways, ports and highways--is designed to facilitate the smooth and economical flow of exports\. Also, support of the steel expansion program is helping Brazil to expand domestic output of a traditional import commodity which can be produced efficiently in Brazil due to the country's ample supply of high grade iron ore and the scale of its internal markets\. The balance-of-payments would also be aided by Bank support of the fertilizer projects\.  -7- 18\. A final objective which applies to all i3ank lending to Brazil is to provide part of the very large volume of medium- and long-term capital inflows that Brazil has needed and will continue for some years to need in order to sustain rapid growth and achieve its employment creation and regional development objectives\. In some sectors, especially in electric power and steel, the Bank's participation has helped Brazil obtain addi- tional bilateral resources in greater amounts and on more favorable terms\. PART III - THE AGRICULTURAL SECTOR The Physical Environment 19\. Brazil is the largest naticn in South America in area (8\.5 million km2) and in population (110 million inhabitants) and its ecology is very diverse\. Essentially there are five main ecological zones, namely, (i) the wet tropics, (ii) the dry tropics, (iii) the woodland savannah, (iv) the humid temperate zone, and (v) the grassland zone\. The wet tropics include about 250 million hectares of tropical rain forest of the Amazon Basin and the narrow strip along the east coast known as the "Mata"\. The latter was the first part of Brazil to be settled and is the most heavily populated\. The dry tropics cover about 150 million hectares and includes most of the Northeast\. The vegetation is dorninated by thorny deciduous shrub and drought resistant grasses and trees\. The region includes the "Sertao", where periodic and very severe droughts pose major problems\. The woodland savannah includes about 200 millior\. hectares and is known as the "Campo Cerrados" region\. It includes the Central Plateau (Planalto), whose average elevation is about 1,000 m, and part of the Brazilian escarpment as well as the headwaters of two of the three major river systems\. The humid-temperate zone covers about 200 million hectares of the central highlands and the southeastern escarpment\. It in- cludes a large but heavily depleted area of tropical hardwood forest on the eastern coast and the temperate rainforest in the south\. The grassland zone includes about 50 million hectares in the south which are similar to the Argentine and Uruguayan "Pampas", as well as the tropical tall grass prairies such as the "Pantanal" of Mato Grosso\. Agricultural Products 20\. A wide range of crops are grown\. The most important for the domes- tic market include manioc (cassava), maize, rice, wheat, beans, potatoes, vegetables, bananas, citrus fruit, dairy products, poultry, beef and swine\. In addition, coffee, sugar, soybeans, cotton, and cocoa are important for both the export and domestic markets\. In fact, three of these commodities, (coffee, soybeans and sugar) generate 40% of the country's total export earnings\. If unprocessed or semiprocessed agricultural exports are included, the agricul- tural sector accounts for more than 60% of the total value of exports\.  -8 - 21\. Brazil is still the largest exporter of coffee in the world, although its share of the world market has declined from 50% in the early 1950s to about 30% at present\. Due to over capacity, and the large build- up of stocks in 1966, the Government initiated a coffee eradication program\. However, after the frosts of 1969, which reduced the 1970 crop to less than 11 million bags, the Government was forced to reverse its policy\. The impact of the reversal was felt in 1974 with the production of some 26 million bags\. The severe frosts of 1975, which drastically reduced production to an esti- mated 9 million bags in 1976, may result in coffee producers gradually moving out of frost-prone areas\. 22\. With the decline in Cuban production since 1970, Brazil is now the largest producer of sugar in the world\. Until that year, sugar production increased very slowly, but in response to very high world prices, large increases took place in 1972 and 1973\. Due to unusually bad weather (drought and frosts in the Center-South and heavy, unseasonable rains in the Northeast), production declined in 1974 and 1975, yet sugar in 1974 surpassed coffee as Brazil's principal foreign exchange earner\. 23\. The production of soybeans has increased from less than 1 million tons in 1968 to almost 10 million tons in 1975, making Brazil the third largest producer in the world\. This expansion has taken place mainly in the States of Sao Paulo, Parana and Rio Grande do Sul, and has been instru- mental in restructuring agriculture in southern Brazil\. The area under soy- bean cultivation is expected to increase from 5\.7 million hectares in 1975 to 10\.5 million hectares by 1980, and production is expected to reach 18 mil- lion tons, with exportable surplus at 11-12 million tons compared to 7 million tons in 1975\. Recent Sectoral Performance 24\. Over the 1967-74 period, the agricultural sector performed well in supplying domestic demand for food and fiber as well as a rising volume of export commodities, with output growing at 5\.7% annually despite adverse climatic conditions in three out of seven years\. The agriculture sector's contribution to GDP has declined from 20% in 1967 to about 15% at present, but its contribution to exports has remained significant (about 60% of the total value)\. Until 1970 growth in agricultural production was attributed almost entirely to expansion of land under cultivation and relatively little effort was made to improve unit productivity\. Inflation, price controls, erratic Government intervention in marketing of products, overvalued exchange rates and export controls tended to distort prices, particularly in the early 1960s, discouraging increased production and exports\. Expansion of agricul- tural activity into the interior of the country created a need for new infra- structure to handle product distribution, but this need was largely neglected until the mid-1960s, when overall changes in economic management helped to eliminate some of these distortions and improve incentives for farmers\.  -9- Government Policy 26\. The agricultural strategy of the Government's National Development Plan (1975-79) is to increase agricultural output by 40% during 1975-79\. This is to be accomplished by stimulating increased production for export to continue the agricultural sector's substantial contribution to foreign exchange earnings, and providing a means for raising income levels of the rural poor\. To achieve these ends the Government has: (i) allocated sub- stantial public resources to incorporate new areas into production through programs such as the National Integration Program (PIN) and the new POLAMAZONIA and POLOCENTRO programs which provide agricultural credit and financing of transport and rural infrastructure in the North and Center-West, respectively; (ii) promoted a significant expansion in the overall supply of agricultural credit; (iii) reorganized federal research and extension ser- vices to intensify efforts to improve productivity and to serve a broader segment of the rural population; and (iv) introduced special programs such as POLONORDESTE, which is designed to improve small farmers' productivity in the Northeast through the formulation and execution of integrated rural development projects\. For the POLONORDESTE program alone, the Government has committed resources of about US$2\.5 billion equivalent\. Bank Participation in Brazil's Agricultural Sector 27\. The proposed loan for the Minas Gerais Rural Development Project would be the Bank's tenth loan for the development of Brazil's agricultural sector\. The Bank has made two loans, totalling US$66 million, for live- stock development; three amounting to US$167 million in support of agro- industry and grain storage credit programs; one for US$6\.7 million for the Alto Turi Land Settlement project in the State of Maranhao; one for US$23 million for the Lower Sao Francisco Polders project; one for US$12 million for the Rio Grande do Norte rural development project; and one for US$40 million for agricultural research\. The proposed loan would be the second loan made for an integrated rural development project in Brazil\. Although still in its initial year, implementation of the first Project (Rio Grande do Norte, Ln 1195-BR) is progressing satisfactorily\. Other rural develop- ment projects are under preparation in several Northeast states\. PART IV - THE PROJECT Project Area 28\. The project would be implemented in the Zona da Mata in the eastern part of the State of Minas Gerais, and would cover an area of some 3\.5 million hectares comprising 128 municipalities (counties)\. The area is characterized by a rolling to hilly topography with areas of poor drainage (varzeas) in the valleys\. No more than 10% of the project area is flat land\. Temperature in the region varies little, maintaining an average of about 220C\. Rainfall averages 1,400 mm per year, occurring chiefly from October through March with a six-month drier period from April to September\. About 70% of the area is under pasture, practically all natural pasture\. Annual crops (corn, beans and  - 10 - rice) cover about 13%, while permanent crops (mainly sugar, coffee and fruit trees) account for 4% of the land\. Forest covers about 10% and the rest is unused or unexploitable\. 28\. During the 18th and 19th centuries, due to good climate and proxi- mity to large consumer centers in Rio de Janeiro and Sao Paulo, agriculture in the Zona da Mata flourished, particularly the production of dairy products, sugar and coffee\. In the last 50 years, development of the flat lands of southern Brazil through mechanization and large-scale production reduced the relative competitiveness of coffee production, bringing about a steady decline in the agricultural fortunes of the region\. Today it is a depressed area, with poorly developed social services, chronic poverty, and substantial emigration by people in search of work and better opportunities elsewhere in Brazil\. However, partially as a result of its historical background, the Zona da Mata has a fairly equitable land tenure system under which about 87% of the land is concentrated in holdings of not more than 100 hectares of rainfed land, which are small-sized holdings by Brazilian standards\. The total number of farm owners is estimated at 74,600, most of whom practice some kind of seasonal cattle or small dairy operations, complemented by food or cash crops\. In addition, some 24,000 sharecroppers engage mainly in the production of subsistence food crops\. Rural per capita income for the area was estimated in 1975 at about US$250 equivalent, which is about 25% that of the country as a whole\. Hence the rural per capita income is well below the national relative poverty level (considered to be one-third of per capita national income) of US$340 equivalent\. Project Objectives and Execution 29\. The objectives of the project would be to improve living standards and incomes of small farmers in the Zona da Mata through (a) increasing farm production by expanding the area under cultivation and raising yields, and (b) expanding and improving social services to farmers and the general rural population\. These objectives would be achieved by an integrated project, which would include the following elements: (a) agricultural credit for the production of crops, livestock (cattle and pigs), reforestation, land reclamation, and rural electrification; (b) agricultural support services such as extension services, agricultural research and demonstration facilities, and cooperative development; (c) social infrastructure for health and education; and (d) arrangements to administer, monitor, and evaluate the project\. 30\. The project would be implemented by the State Secretariat of Planning (SEPLAN), as policy planner and overall coordinator, through the State Rural Development Agency (RURALMINAS)\. The project concept and its concomitant  - 11 - operating policies have been entirely produced by the Brazilian experts of RURALMINAS and SEPLAN in Minas Gerais\. This had led to a close identification with the project and to an early start of operations, which were initiated on June 1, 1976\. It is estimated that by December 31, 1976, no less than US$12\.7 million of incremental project funds will have been disbursed\. Project Components 31\. Agricultural Credit\. A crucial element for the success of the project is the ready availability and proper administration of agricultural credit, which represents about 60% of estimated total project costs\. Such credit would be made available to farmers and sharecroppers through one federal bank (Banco do Brasil) and three state banks (Caixa Economica do Estado de Minas Gerais, Banco de Credito Real do Estado de Minas Gerais, Banco do Estado de Minas Gerais), which would distribute funds through 146 existing branch offices\. The banks would operate the credit under contractual arrangements with the Borrower which are satisfactory to the Bank (see Section 3\.03 (b) of the draft Loan Agreement)\. Loans to farmers would be financed in accordance with procedures similar to those established by the Central Bank for rural lending in Minas Gerais\. In those cases where loans are refinanced by the Central Bank, the participating banks would retain remuneration equivalent to around 6%\. Except for interest rates, any modification in the lending pro- cedures would require the agreement of the Bank (see Section 3\.03 (a) of the draft Loan Agreement)\. The lending terms are described in paragraph 33 below\. Production credit would be used to finance on-farm investment, mainly breeding stock, livestock handling equipment, machinery, fencing and nursery stock and annual working capital requirements for hired labor, consumption credit, seeds, fertilizer, pesticides, and other seasonal production requirements\. Credit would also be available for on-farm investment in reforestation, land reclama- tion, and for the installation of power distribution lines to provide electri- city for home, farm and small agro-industrial use\. 32\. Project credit would be incremental, i\.e\., the value of loans granted to small farmers (defined in this project as those with holdings up to 100 hectares) over and above the equivalent average value disbursed by the participating banks in the project area during the two previous years (deter- mined to be US$18 million per year)\. A condition of effectiveness of the proposed Bank loan would be that the State Government had entered into agree- ment with the Banco do, Brasil (which wouLd provide about 70% of the project credit funds) whereby it undertook to participate in the project under terms and conditions agreed upon with the Bank (see Section 5\.01 (a) of the draft Loan Agreement)\. It is estimated that credit would be supplied to some 25,500 farm families (including 9,000 sharecroppers) with landholdings of up to 100 hectares\. In the case of credit for reforestation, an estimated 500 partici- pants with holdings of up to 200 hectares may also qualify\. For credit granted for land reclamation, not more than one-half such loans may be granted to farmers with holdings of more than 100 hectares but not more than 200 hectares (the maximum) see para\. 2 of Schedule 4 to the draft Loan Agreement\. The project would also support reforestation activities by providing assistance to the State  - 12 - Forestry Institute in its plant nurseries expansion program\. In order to ensure that the lowest income participants benefit from the credit available, not less than one-third of the credit would be earmarked for sharecroppers and farm families with land holdings of not more than 50 hectares (see para\. 2 of Schedule 4 to the draft Loan Agreement)\. All credit beneficiaries would be required by the participating banks to adopt farm development programs prepared with the assistance of the state agricultural extension agency\. 34\. Lending terms and conditions of the credit component would be those already in application in the project area under present banking procedures\. They include a complex set of rates and terms which are reviewed annually\. Seasonal production loans of more than 50 times the state minimum monthly salary (equivalent at the time of appraisal to Cr$26,640 or US$3,134) would carry an annual nominal interest rate of 15%, unindexed\. Loans of smaller size would carry an annual nominal rate of 13%\. In addition, small amounts of short-term credit to finance the purchase of "modern" inputs such as seeds and pesticides would be non-interest bearing\. Loans for investment purposes would carry maturities of 5-12 years (including appropriate periods of grace), depending upon the nature of investment, with an interest rate of 7% un- indexed,except that partial monetary correction would be applied for those loans requiring longer term investment (10-12 years)\. At present, correction of 8% per annum is applied, subject to review and modification by the National Monetary Council\. Consistent with terms already prevailing for the project area, loans for rural electrification would have maturities of 6 years at an annual nominal interest rate of not less than 10%, depending upon the size of the farm\. In the case of loans for reforestation, the interest rate would be 10%, unindexed\. Given Brazil's inflation rate, the interest rates proposed for the project, which are standard for agricultural lending in the region, would be negative in real terms\. However, the overwhelming majority of beneficiaries would be low-income farmers and the investments being financed would be closely supervised\. Agricultural lending conditions for Brazil as a whole, particularly those for small farmers, are presently under review\. This review is expected to result in regulations that would reach a larger number of beneficiaries, and would simplify and streamline terms and conditions\. 35\. An important feature of the project is an attempt to deliver insti- tutional credit to a significant number of the sharecroppers and small income farmers who form a large part (89%) of the project target beneficiaries\. Under present conditions, this group has limited access to credit mainly be- cause they lack adequate real collateral and generate insufficient income to meet the required cost of services of agricultural extension agencies and lending institutions\. The project would aim at overcoming these difficulties by (a) direct funding of the cost of extending agricultural extension services to the target beneficiaries and (b) collaboration among the Borrower, the Guarantor and the participating banks to assist and encourage lending to this group\. Toward this end, assurances were received from the Government that the project would aim at annual lending to the specific target group (some 9,000 sharecroppers and 14,000 farmers with land holdings less than 50 hectares) of not less than US$5 million equivalent each year, or an aggregate amount of US$30 million during 1976-80\. In order to monitor the progress made in achieving this objective, it was agreed that the Borrower would conduct an  - 13 - would conduct an annual review of the credit activities of the project, with particular reference to the specified target group, and submit by November 30 of each year a report to the Bank which would form the basis for deciding upon action required to ensure that the objectives of the project are met (see Section 3\.03 (d) of the draft Loan Agreement)\. The agreement of the Federal Go-Prnment and the participating banks to support this initiative would be stated in supplemental letters 1 and 2 to the Loan Agreement\. 35\. Land Reclamation\. A program to reclaim 8,000 hectares of individ- ually owned, poorly drained varzeas would be undertaken by RURALMINAS\. The project would finance the cost of land clearing equipment, to be owned and operated by RURALMIINAS, as well as other costs such as engineering design, surveying, labor, supervision, and construction of flood control, irrigation and drainage structures\. Through agricultural credit made available under the project, benefitting farmers would be required to repay to RURALMINAS the costs of on-farm investment\. The State Government has given assurances that the varzeas to be reclaimed would be in accordance with criteria agreed upon with the Bank during negotiations (see Section 3\.05 of the draft Loan Agree- ment)\. 36\. Agricultural Extension\. The state agricultural extension service, ACAR-MG, would be expanded by an additional 200 technical and professional staff, about two-thirds of whom have already been recruited and are under- going training\. It is expected that by June 1, 1977, 150 of the additional staff would have been recruited and deployed in the project area, the remaining 50 by the end of the project life\. Assurances to this effect were received from the State Government during negotiations (see Section 3\.04 of the draft Loan Agreement)\. As far as possible, extensionists would attempt to work with groups of small farmers thereby increasing the coverage of participants\. They would use relatively simple improved technological measures, developed through years of applied agricultural research\. In so doing, the additional staff would help in meeting the target ratio of one agricultural extensionist per 80 farmers in the state\. Social extensionists, recruited to implement the health activity under the project, would work closely with the agricultural extension- ists\. The project would finance the cost of incremental salaries during the 1976-81 project period, training costs, vehicles and equipment\. With the costs of their new operations fully covered by the project, the new extension staff would be able to focus on the participating small farmers rather than on higher income farmers who can afford to pay for their services\. 37\. Agricultural Research and Demonstration\. A program to develop and demonstrate improved agronomic practices (many of which have already been in use by some farmers for at least 5 years and are well proven) would be estab- lished by the state research agency\. The project would finance the cost of field trials, incremental staff salaries, equipment purchases and operating costs\. Technical assistance would be provided by the state agricultural extension service\. This testing and demonstration program is complementary to the basic commodity research which the Bank is supporting through a recently approved loan\.  - 14 - 39\. Cooperatives\. The State Superintendency of Cooperatives, SUDECOOP, would be strengthened and expanded by establishing a new regional office in the project area to (a) establish and promote cooperation among small farmers cooperatives; (b) provide technical assistance to existing cooperatives; (c) organize training courses for cooperative managers and administrators; and (d) offer courses to cooperative members, especially on marketing and pro- duction\. The project costs would include salaries for incremental staffing, training, vehicles and equipment\. The State Government has given assurances that SUDECOOP would receive the necessary means to support the project effec- tively and that not later than June 1, 1977, SUDECOOP would be reorganized and adequately staffed (see Section 3\.08 of the draft Loan Agreement)\. 40\. Health Services\. The project would include the construction or upgrading of 275 simple health posts and 99 more elaborate health centers, the purchase of equipment, medical supplies and food supplements, the construc- tion of simple on-farm sanitation works, and part of the costs of incremental salaries for the expanded health program\. The State Secretariat of Health would be responsible for implementing the health component\. The program would be directed specifically to a target population composed primarily of pregnant and lactating women and children under 5 years of age\. At full implementa- tion, 90% of this group would be covered by the program\. To a lesser degree, the program would reach children from 5-14 years (40%), and persons over 14 (25%)\. The health posts would administer four basic services: (i) primary curative health care with emphasis on maternal and child health care; (ii) pre- liminary preventive care comprising vaccination against communicable diseases such as tetanus, measles, whooping cough, diptheria, smallpox and polio; (iii) improvements to sanitary conditions which would aim at reducing the incidence of waterborne diseases (in particular schistosomiasis) and would include 15,000 on-farm pit latrines, and 18,000 fresh water filters; and (iv) a program of food supplementation, including the distribution of enriched flour, beans, milk and sugar, to the primary target group of pregnant and lactating women and young children\. The food supplementation program would be carried out in conjunction with the National Institute of Food and Nutri- tion (INAN)\. Other elements of INAN's national nutrition program are also being financed by a recently approved Bank loan\. The Fundo de Assistencia ao Trabalhador Rural (FUNRURAL) would supervise and manage the project's health sanitation program which forms a part of the overall health program for the state\. The conclusion of agreements between SEPLAN and INAN and FUNRURAL would be a condition of disbursement for this component (see Section 3\.07 and Paragraph 4(b) to Schedule 1 to the draft Loan Agreement)\. 41\. Education\. As a part of the State Government's ongoing program to expand and improve education services, the project would extend basic rural primary education as well as agricultural and technical training opportunities to the participating farm families\. The basic objective of this activity would be to assist the local population to make more efficient use of their existing resources\. The program would be implemented by the State Secretariat of Education assisted by the extension services, and would include the follow- ing elements: (i) construction, furnishing and equipping of 28 community  - 15 - learning centers to serve 5,600 primary students and 840 students in voca- tional training; (ii) in-service training for 200 technicians and 25 voca- tional and science teachers; (iii) formal and nonformal short courses for instructors in agricultural technology, farm management and related subjects to serve 21,000 farm families; (iv) construction, furnishing and equipping of a common facilities center of 350 student places; (v) provision of equipment for the training of farmers in cooperative activities under the supervision of the Superintendency of Cooperatives; (vi) provision of training materials and supplies; and (vii) technical assistance involving 20 man-years of consultancy services and 15 man-years of fellowships for training of vocational teachers\. Assurances were obtained from the State Government that the selection of sites for the community learning centers would be in accordance with criteria acceptable to the Bank (see Section 3\.09 to the draft Loan Agreement)\. Also, the state has agreed (see Section 3\.10 (a-c) and 3\.11 of the draft Loan Agreement) to submit, or cause to be submitted, by June 1, 1977, for Bank approval: (a) the details of the training program for cooperative and agri- cultural technicians, and for vocational teachers; (b) the details of the training program, including the criteria on which it is based and evaluation proposals, for the farmers and young adults to be trained under the project; and (c) the details of the plans for the selection of technical assistance specialists and their local counterparts and the fellowship program for those who would be carrying out the proposed education activities\. Project Costs and Financing 42\. Costs\. Over a five-year period (1976-81) the project would require financing of US$139 million equivalent, excluding taxes, of which US$20\.6 mil- lion or 15%, would be foreign exchange\. The estimated costs, summarized below, include physical contingencies of 15% on civil works and price contin- gencies aggregating about 31% on baseline costs\.  - 16 - Summary of Cost Estimates (US$ Million) Local Currency Foreign Exchange Total Agricultural Credit 56\.6 9\.8 66\.4 Land Reclamation 5\.5 1\.4 6\.9 Of which credit (4\.0) (\.7) (4\.7) Productive Support Agriculture Research and Development 1\.0 \.2 1\.2 Agriculture Extension 8\.7 1\.6 10\.3 Cooperative Development 1\.5 \.3 1\.8 Plant Nurseries and Forestry Development 1\.4 \.2 1\.6 Social Infrastructure Health 4\.9 \.6 5\.5 Education 7\.0 1\.0 8\.0 Organizational Support Project Administration 1\.4 \.2 1\.6 Monitoring and Evaluation \.9 \.2 1\.1 Baseline Costs 88\.9 15\.5 104\.4 Physical Contingencies (15% of civil works costs) 2\.0 \.3 2\.3 Price Contingencies (31% of baseline costs) 27\.5 4\.8 32\.3 Total Project Costs 118\.4 20\.6 139\.0 li3\. Financing\. The proposed Bank loan of US$42 million would finance about 30% of total project costs, the balance to be provided by the Federal Government through the participating financial institutions\. The loan would cover the full foreign exchange costs of US$20\.6 million equivalent, as well as US$21\.4 million equivalent in local costs\. In a country like Brazil, which is making a vigorous effort to mobilize domestic resources, it appears appro- priate for the Bank to give some assistance in the financing of local currency expenditures on projects which, like the present one, have very high priority and yet have a very low foreign exchange content (in the present case 15 per- cent)\. This situation typically arises in agricultural projects in Brazil in view of the high capability of the Brazilian economy for the production of the inputs required for investment in this sector\. If the Bank is to be effective in supporting a project of this kind it seems reasonable for it to contribute at least 30 percent of the costs even though this entails financing some local currency expenditures\.  - 17 - During negotiations, assurances were received from the Federal and State Governments that adequate funds would be available for the effective and timely execution of the project (see Sections 3\.01 of the draft Loan Agreement and 2\.02 of the draft Guarantee Agreement)\. In addition, the Federal Govern- ment gave assurances that the participating banks would not be prevented from making adequate credit available for purposes of the project (see Section 3\.02 of the draft Guarantee Agreement)\. 44\. Procurement\. Farm inputs financed under the credit component would be procured through normal commercial channels\. Food supplements, instruc- tional materials and office supplies would be purchased according to local procurement procedures which are satisfactory\. Due to the relatively small size of individual construction works and their geographic dispersion such works would be contracted through a combination of local competitive bidding, force account and self help\. Because of the need for specialization and local servicing, equipment (including vehicles) for a total value of about US$1 million equivalent, would be procured through local competitive bidding, advertised only in the national press but not excluding foreign suppliers, many of whom are represented in Brazil\. Foreign consulting services would be contracted on terms and conditions satisfactory to the Bank\. 45\. Disbursement\. The Bank would reimburse SEPLAN for 30% of all approved project expenditures\. The credit portion of the project would be financed from the normal resources of the banks participating in the credit program, including rediscount facilities from the Central Bank\. The Bank would disburse to the Borrower, the Stateb Government, an amount equal to 30% of the incremental credits made by these banks upon certification that the credits had been disbursed\. The funds thus disbursed from the Bank's loan would be retained by the State Government to finance part of the balance of its contribution to the project\. For the most part, disbursements would be made against statements of expenditure with full documentation retained for ex-post review by Bank supervision missions\. In the case of expenditures for permanent fixtures, equipment and installation, detailed documentation would be required prior to disbursement\. Expenditures for a total value of not more than US$3\.8 million equivalent made between June 1976 and the signing of the loan would also qualify\. 46\. Auditing\. RURALMINAS, through the State Secretariat of Planning, would submit within four months of the end of its fiscal year, annual audited financial statements prepared by independent auditors satisfactory to the Bank\. Other participating agencies would submit to the Secretariat of Planning, for transmission to the Bank, within four months of the cLose of each fiscal year, audited statements of expenditures of project funds\. The State Government has given assurances that the audit procedures would be followed (see Section 4\.01 of the draft Loan Agreement)\.  - 18 - Organization and Management 47\. SEPLAN would serve as policy planner and overall coordinator for the project\. RURALMINAS, the technical arm of the State Secretariat of Agriculture, which has been responsible for the preparation of the project, would be the executing agency coordinating day-to-day project implementation\. RURALMINAS has been in existence since 1955, has a large staff engaged in settlement and general agricultural development activities, and has already established an administrative unit to undertake the project\. The 39 federal and state agencies involved in implementing different aspects of the project have entered into administrative agreements with RURALMINAS for carrying out the respective parts of the project\. The Federal University of Vicosa, which is located in the project area, would be responsible for monitoring and eval- uating the project\. This would include evaluating the impact of the project on agricultural production and farmers income as well as the impact of the social components\. RURALMINAS has established a project unit with a full- time project Manager directly responsible to the Director-General of RURALMINAS\. Because of the complexity of the social components of the project, the State Government has appointed special health and education coordinators who report directly to the State Secretaries for Health and Education\. In addition, in order to strengthen RURALMINAS and SEPLAN, the State Government has given assurances that by June 1, 1977 they would conclude (through SEPLAN) an agreement with the Instituto Latinamericano de Planificacion (ILPES) for technical assistance for project management, including provision of approxi- mately 300 expert-months (see Section 3\.06 of the draft Loan Agreement)\. Benefits and Beneficiaries 48\. The main benefits of the prDject would be increased agricultural production and higher incomes for small farmers and sharecroppers\. This would be accomplished through increased yields on 65,800 hectares of land presently under cultivation, and the expansion of cropped lands through reclamation of 8,000 hectares of varzeas\. Production would be increased on approximatley 3,300 dairy farms and 220 swine-breeding and fattening units\. Newly established eucalyptus plantations on 7,900 farms would provide large quantities of timber for local building requirements, wood pulp for the local paper industry and charcoal for the steel industry\. Overall, the annual incremental aggregate production in the Zona da Mata resulting from increased production and better productivity should amount to about 16% at full development\. 49\. The financial rates of return that participating farmers can expect have been calculated on the basis of six farm models representative of the crop, livestock and forestry enterprises to be financed under the project and these range from 16 to 29%\. In the case of the sharecroppers, the financial rates of return would average around 29%\. The price and cost sensitivity of the models was tested under various assumptions to obtain the best estimate for each model\. On the basis of the weighted average of the six models the average annual family income of project beneficiaries after full development would be 60% over the present level, and would approximate US$390 per capita, or roughly US$2,060 per family\. The project's important institutional and  - 19 - social benefits are virtually impossible to quantify\. Therefore an estimation of the overall economic rate of return was made taking into account only the costs and benefits of the agricultural component (whose cost is estimated at US$116 million equivalent)\. On that basis, the economic rate of return is estimated at 22%\. 50\. Direct beneficiaries of the project would be the 25,500 (16,500 small-scale owner-operators and 9,000 sharecroppers) participating families\. Of these, 89% are farmers owning or working less than 50 hectares, with aver- age annual per capita income of around US$250, which is below the relative poverty line\. The remaining 11% with holdings up to 100 hectares have per capita income of a slightly higher amount\. While more striking conditions of poverty can be found among, say, the landless migrant workers of Northeast Brazil, there is no doubt that the project beneficiaries are poor by both Brazilian and international standards\. Indirect beneficiaries, estimated to total 300,000 people, would be reached by the education and health components\. The project would result in appreciable expansion in employment, around 8,200 new permanent jobs, representing an increase of 4\.6% in the present work force of the project area\. It would also help to reduce underemployment\. Project Risks 51\. A risk associated with the project would be the difficulty in achieving smooth working relationships among the many institutions involved in the project\. However, since most project activities would be undertaken by existing experienced agencies, and since the State Government has already implemented the most important measures to insure proper coordination of the project, this risk does not appear unreasonable\. Another risk would be whether the proposed mechanism to ensure that credit reaches the really small farmers and sharecroppers works effectively since it represents a departure from existing practices\. The Bank has however received assurances from the Central Bank, and the participating banks, that determined efforts will be made in this direction\. In addition annual targets have been agreed for specific amounts of money to be lent to specific types of beneficiaries, and it has been agreed that such targets will be reviewed annually\. With such assurances it is believed that reasonable steps have been taken to achieve the desired objectives of the project\. PART V - LEGAL INSTRUMENTS AND AUTHORITY 52\. The draft Loan Agreement between the State of Minas Gerais and the Bank and the draft Guarantee Agreement between the Federative Republic of Brazil and the Bank, the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the text of a draft resolution approving the proposed loan, are being distributed to the Executive Directors separately\. Features of the draft Loan Agreement of special interest are described in paragraphs 31 to 46 of this report\.  - 20 - 53\. A condition of effectiveness of the loan would be that the state had entered into agreement with the Banco do Brasil providing for its participation in the project on the terms and conditions agreed with the Bank (see Section 5\.01(a) of the draft Loan Agreement)\. A condition of dis- bursement for the health component would be that SEPLAN had entered into agreement with INAN and FUNRURAL (see Section 3\.07 and para\. 4 (b) of Schedule 1 to the draft Loan Agreement)\. 54\. I am satisfied that the proposed loan will comply with the Articles of Agreement of the Bank\. PART VI - RECOMMENDATION 55\. I recommend that the Executive Directors approve the proposed loan\. Robert S\. McNamara President by J\. Burke Knapp Attachments December 29, 1976  AlNNEX I Page I of 4~ pages DRAZIL - CESAL INOICTORO DATA $HEET L AND AfteA (THOU KMal) \.e\.fb\. \. BRAZIL REFERENCE COUNTRIFS (1970) TOTAL 0012\.0 54057~~~NOS RECENT AII2IC\. \.1960 1970 ESTIMATE MEXICO URUGUAY JAPAN 4 GNP PER CAPITA (U15 -000-----100 78\. \.0 960\.0( 260\.0 4OPULIATION AND VITAL SYATtOTICS POPULATION (HWYR\. IILLION) ~~~~~69\.o 92\.8 107\.0 50\.4L 2\.7 104\.3 POPULATION OENSITY PER SQUARE KM\. 8\. 0 11\.0 13\.0 26\.0 15\.0 202\.0 PIOt SQEAE M0\. AGOIC\. UII 51\.0 66\.0 ;2\.0 18\.0 1575\.0 VITAL STTISTIC CRUDE BRHRAT PE TOUSAND 40O\.8 38\.4s 37\.1 4~3\.8 22\.1 17\.5 CRUDE DEATH RATE PER i HOUSAND 111\.7 9\.9 8\.8 10\.2 9\.2 7\.1 INFANT m ORTALITY RATE (1THOU) 180\.0 110\.0 \.68\.5 *\. 13\.1 LIFE ExPECTANCY Ar BIRTH (YR5) 56\.0 59\.7 61`\.I~ 61\.0 69\.3 71\.1 GROSS REPRODUCTION RATE 2\.6 2\.6 2\.5 3\.1 1\.Q 1\.0 POPULATION GROWTH RkTE (8) TOTAL 3\.0 2\.9 293\.4 0\.7 1\.0 URBAN 5*5 5*0 4\.3 4\.8 1\.? 4A\.0 JRBAN POPULAT\.ION (I 'If TOTAL) 46\.0 56\.0 59\.1 58\.7 78\.1 8I\.4I AESTRUCTURE (PERCENT) 0 TO 1A YEARS 0 3 \.0 42\. 0 L1\.7 4~6\.2 28\.3 24 \.0 15 TO 64 YEA RS sa*0 s5\.o 55\.1' 50\.1 63\.5 68 9 65 YEARS AND OVER 3\.0 3\.0 3\.2 3\.7 8\.2 7\.1 AGE DEPENDENCY RAIO 9 o\. 0\.8 1\.0 0\.6 ECONOHIe DEPENDENCY RATIO 16 15\. 2\.0 \.0 0\.6 FA4ILY PLANNING\. ACCEPTORS (CURULATIVE\. THOU)\. 200\. 55\.5 USERS (I OF '4ARRIE5 WOMEN) \. 1\.6 \. EMP'LnY'ENT TOTAL LAORo FORCE (THOUSAND) 227 00 \.0 29600\.0 \. 13D00\.0 1020\.0 51330 0 \.0 LABOR FORCE IN AGRICULYURE 15) 52\.0 48\.0 \. 40\.0 17\.0 19\.0 UNEMPLOYED IX OF LABOR FORCE) \. \. \.0 /a 1\.2 INCOME DISTRIBUTION C OF PRIVATE INCOME REC'D BY\. Kamm T0 TOr OUEHLD m j\.0 o/a 62\.0 7 7\.8 19\.04/ 1 4\.2 \. 6~~~ ~ ~~~~~~3\. 2 47 \.5 37\.6 L~~~~ST2~~I0F~~~US2H0LW IA~~~5\.0 6 3\.0 1 \. 4A \. IDMST 40% 0i? IDUSDDLD 1 2\.0L 1\.0 :102 10\.2 22\.3\. DISTRIBUTION OF LANO OWNERSHIP I OWNED By TOP 108 OF OWNERS' \. &\.0 37\.1 X OeNED BY SMALLEST 10% OWNERS \. \.5 0\.3 \.IEOLT,- A4D NUTRITION -OPULATION PER PHYSICIAN 2170\.0 1950\.0 1660\.0 /a I1 4 0 \.0 880\.0 RRaO\.I0 POPULATION PER 41URSIMG PERSON \. 33o00 \.o 2920\.0a 1 570\. 0 3340\.0 2400\. 0 'OPULATION PER HOSPITAL BED 275,0 2b0\.0 \. 930 \.0 150\.0 80\.0 PER CAPITA SUPPLYROF CA LORIES( OOF REQU7REMENTS) 102\.0 109\. 1i\.0ct0\. 107\.0 106\.0 PROTEIN (GRAMS PER DAY) 61\.0 64:00 65\.o:0c 65\.0 96\.0 76\.0 \.ClP HNICH4 ANIMAL AND PULSE 38\. 0 39\.0 \. 26\.OLS\. 64 \.0 45\. 0 DEATH RATE (/THOU) AGES 1-0 \. 9\.8 1 \.3 1 \.0 EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 1 000 87\.0 71\.0/ dA 106\.0 110\.0 101\.0 SECONDARY SCHOOL 11\.0 ~ 28\.0L/d 71\.0 r- 23\.0 59\.0 91 \.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 13\.0 13\.0 13\.0 12\.0 12,0 12\.0 VOCATIONAL ENROLLMENT (% OF SECONDARY) 19\.0 17\.0 to 0i 20 \.0 21\.0 ~ 0\.0 ADULT LITERACY RATE (11 61\.0 68\.0 \.76\.0 91\.0 q9\.0 HOUSING ";;;;;NS PER ROOM (AVERAGE) I \.0 I1\.1 /a\. 2\. 2 1\.0 OCCUPIED DWELLINGS WITH0UT PIPED HATER (8 \. 73\. 0 /c 67 \.0 6~,\.e 61\. 0 S, \. \.0 ACCESS TO ELECTRICITY II OF ALL DWELLINGS) \. 48\.0 53\.0A &\. 9\.0 RURAL DwELLINGS CONNECTED YO ELECTRICITY (8) \. \. 0 it1\.01/a 280\.0 C0ASUMPTION fIADIO RECFINERS IEPE THOUJ POP) 66\.0 60\.0 61\.0 276\.0 306\.0 551\.0 PASSENGER CARE (PER THOuI POP) 7\.0 25 \.0 31\.0t 24\.01 15\.cl 8L\.0 ELECTRICITY IXWHHYR PER CAP) 325\.0 L91\.0 66L \.0 567\.0 762\. 0 3391\.0 VEWSPRINT (K~G/YR PER CAP) 3\.3 2\.7 2\.6 3\.1 7\.0 08\.9 SEE NOTES AND DEFINITIONS ON REVERSE  AMNEX I page 2 of 4 pagee NOTES Unleen otherw,ise \.oted, d\.ta for 1960 refer to sany year bet\.een 1959 and 1961, for 1970 betwe\.n 1968 and 1970 and for Moat Recent lEtioutat between 19 73ad1975\. 0*Japan has been selected as\.a objective country since the Brazilian Go-r-ment has show particular interest in Japan's dee-lop \.n\.ta1 experience; also the two9 ovron-nte hove conducted Joint studies to identify po\.Ible future economic problem of Brazil on the basis of the experience in Japan\. BRAZIL 1960 E oonoolcally active poplation; \.Lb 7-10 an 11-17 years of age reepectiveIy\. 1970 L Economically active population, \.Lb Hospital personnel; / Inside only; Lid 12-18 year of age\. MOST RECENT ESTIMATE: Ia 1972; \.Lb 1971; Li\. 1969-71 averag; /d 7-14 and 15-17 years of age respectively; /a Inside only\. mEXiCO 1970 /s1964-66; L\.b I\.aida only\. URUrUA) 1970 KaSotevideo only; lb 1967\. RISO, Deoneb\.r 27, 1976 DEFINITIONS OP SOCIAL INDICATORS Lund Arra (thou lot2) Pepulartlon\. pe,rmnreina pereon - Population divided by uaber of practicing Torol1 Total surface srea conpriing land are\.an ed inland waters\. mae In feml g\.raduate nurses, "trained" or "certified" euss,ad Agric\. -Most recent estimaste of ogricuIt\.rs1i aree und temporarily or ancilry personnel with traieing or experience\. poreaccocly for crpe, pauturca, market & kcitchec gardens or to lie Poueinprbuita1 bad - Pop\.1ation, divided by noober of boopitoI bad\. fallow, eveilable in pub~~~~~~~~~~~~~~~~~~~~~:liad private gen\.rai e nd epci alised hospital and rehabilitation centers; emcludes nrsoring home and eetabliehmet\. for HX u cacita (US$1 - GUP per ca\.pita e tiae a torrent narket prices, csoiladpeetv ae calclatd by sam cooversIonathod a World Baok Atlaa (1973-75 Per capita supply ofZclories (\. of ranuirenata) - Coaputed from onergy bouiu), 1960, 1970 and 1975 data, equivalent of net fen8eppie ava"ilable in cometry par capita per day, avilable supI e cotaprina dmomeetir production,, inporte less enportn, Popul\.tioc and-ita1 statietci end changIn in stck; eat supplies esnuda animal feed, seeds, quanti- P'op\.l\.tion (\.id-yr\. oilimon) - 6 of July first: if not available, ties used in food processing and IUsanee In distribution; requiremets averge f Ow en-ye-ar s iets 1960,17 n 197 dte wrn etimated by FAO base d-on physiological usedn for norma actriry --ge f t\. \.d I 0,1970 \.d 975 ::~~~ad health oniderieg enironmmt\.1 temperatrer, body weighte, age an,d ens distributIons of population, and allowing 10% for wante at bouehId Poculotico denoIy - par ououro los - Midy\.er population per square kilo- Feleve l\.t,spl fpoen(rceprdy rtt otn metur (100 hecta real of total area, Pr capit sueyo rti aaaprde rti otn f per P'oPc1atic densit - Per lusre lkm of asric, land - Computed \.s abov for capita net sspply of food per day; net supply of food is defined so agricultural land only\. above; requirements for all couacrime eetabliehed by USDA Econmic geeearch larvIne proide Per a mOntan allace 0P A - m oftoa VI,\.) statistics ip\.~~~~~~~~~~~rosi per day, and 20 r-s ef aniIma and pulse protein, of hbih C~rcd,_birth rateprtosn - Annua lIve1 births per thou\.aan of \.id- 10 grea should be animalI protein, these ntandards are Issur then those \.'yoor PopuIetion, ten-year eithontic avstagee ending in 1960 and 1970, of 75 gr-n of total protein end 23 gren of animal protein ae an a\.d fiv\.-year\. averaqe en Inin 1975 for mat-recent satimtle\. average for, the word, propneed by FAO in the Third World Food lS\.vey\. Crude dath rot ou-r thousan\.d\.- Annul\.deaths pkth-uaad\. of mid-year PR aiapoen unyfoaia n ue Prott Iaupl f fond jo ltion,7 te-year artmeti a veragee ading,f 1960 and1970, and deLrI~ved fprom ans al aPd pulses i, grosd per day\. five-yea average eoigin,1975 f6r maui, recent saCIifatA\. Death rote\. (/then) ages 1-4 - Annual deaths par thousand in age group v\.an oraltr\.r (/thou) - Annual\.death\. of infants noder One year of 1-4 years , to children in thisaoge group; auggested as an indicator of 080 far cho\. d live births\. malnutritio\. Life -co-cc-ny at birth lyr,) - Average nuaber of yearn of life rnn\.ainie \.tc birth, usua lly five-year \.avraes\. nding in\. 1960, 1970 and 1975 for t4gi!0%nl ntrio deve~1Plopig coontries Hjuoated erlnntrte rismar, school - Enrollment ef all agee me Crssrerdct'ion rate - Average snmber of live daughtrer a--omae will percentage of primary ehslaepopulation, innludee children aged bear in her eurnal reproductive period if she ecperiencee praenet age- 6-li yeare-but\.adjusted for different lengths of primary education; epocific forti lity rates, uoualy fi-e-year averaseoending In 1960, for cootries with omiereal education-, enrollment may eaneed 100% 1970 and 1975 for developing coontriee\. sice,\.masnepupile ar\.'bels, or above the official school age\. Pocp\.h\.c- grouth rtev (7) - total -Compound annual1 growth rates of aide Adiusted'enrollment ratie\.- secondary school - Computed as above; year p\.pulation for 190-60,16-0 a7 d 197075\. eecendarycedunation;requir\.a at'leat four yearn of approvd primaory Population olrowh rots (7\.) - urb\.c Conputed liko growth rate of total intruction; pruvtdeo general, vocatioua1 or teacher training puoulotioc, difietrsat definitions of urban, sreas may sffect conpara- Instructiosn for pupils of 12 to 17 yearn of age; correspond\.e bility of data a"ong coontr ies\. cour~ses are genera11y\.exciuded\. Urbao p\.puiati\.n ft, Of total) - Ratio of urban to total population; Yfeare of flch\.olininprovided ffirstsnod second levle) - Total yearn of different deflnitionu of urban areau sy aYffect conparability of data schooling; at\.eeendary level, vocational instruction may be par- amonicounirten\. ~~~~~~~~t ia I -rnomletly excluded\. coo utrotufe (percent) - Children (0-14 yearn), uoihng-age,(15-64 years), voctoa nolet fZ of secondary) - Vocational Institutione and reitied (65 yearn and over) an percentages oi41nid-yar Ppoplation, include\.tecbni\.al, indus trial or other progr-m which operate All, depeo\.denc ratio - URatio of populotion oundr 15 and 65 and over to independently -or a\. depernta\.t of \.oond\.ry institutione\. thos ofages15 hruugh 64\. Adult lit\.r\.or rate(\.) -Literate adults (able to read ad write) as icononic d epedency ratio - Notio, of population under 15 and 65 and over percentage of total dult population aged IS years and over\. totelbor force is age group of 15-64 yeorn\. F=ily planning - sceot\.r\. fc,anI\.ti-e thou) - C-nlative n-ober of Hous Ing acceptors of birth-control devices -nder auspices of national fanily Person per roome- average) - Average nnbar of persons per rome In pl,anniof progr!n since inception, occpid onvetional dwellings in urbae -rsa; dwellings occlude fe_ily planning cors7\. of married womn) - Percentages of married noncupied cn eutue n'ouuidprs woe fchild-bearing age (15-44 years)who uce bir th-control devioa Occupied dwllns ihetpie water (1) - Occupied conventional to oil married coen\. in sane age group, dwellings i-urbanmad rural, ereas without ineide or outside piped wo\.tertfacIlities ao percentageof,all cc\.up ied dwllings\. _npl___\._t Accei toeetrct (7\. of allIdwel\.maa - Covetional dwelings i Total labor force (thousand)-Econmical ly active persona , including wth electriciny In living quartrer es percent of total duelngei Marmd for\.ea and oun-plyed hot e-ldnghueives, students, etc\.; urban and rural aresa\. deilnitiono to vsros onri essenot coparable\. eAlrdwellings conneted to electricityi)- Coapotad a\.shaove fur Labor force in agriculture t)-Agricultural labor force (in f\.arming, ruraldeligsoly\. fo\.1restry (hunting and fishing) as percentage of total lsbor force\. _nonIovod (7\. oflabor force) - oM-pboyed ere usually defined as perason ganto \.ho ore ob- and toilling to take a Job, out of a Joh on s given day, 1!d5!rceiere (per thou pop) - All types of receivers for radio broad- remained Out of a Job, and u\.eking tootk for a specified ninimome period casts to general public per thousand of population; eseludes nut \.ceeding Me week; nay not be cmparable between couosties due to unlicensed recivrs in countries end in years w,hen registration of diff\.ot def initIons ofunomployed end uource of data, e\.g\., employ- radio nets was In effect, data far renent years may not be comparable _et Office statictics, eanple survys, compulsory unemployment ineuranog\. since mot cotatries abolishad licemaing\. Pasener ar (pe\.r then\. pop) - Passenger careaemaprise motor cars I\.con\. distribution, - Percentage ef private inco,me (both in cash and kind) saigless the eightrpaeon xcludes ambulances,\. hea\.e end received by ric~hest It\. richest 201\. poorest 201, and poorest 40% of military vehicle\. households\. ghLetricit (bhyr par cap) - Annual mosomptiom of industrial, co-- mrcia,publi and private electricit-y In kilowtt hours per capita\. Diatribution of land ownrship - Percenteges of land ownd by wesithient gene\.rally base\.d on Production data, withontalo nc for looase in lit\. and poorest lOt\. of loand onr\.gride but all1wing for imports sod eparts of electricity\. No-eprint (ha/yr pet cap) - Per capita annual coneomptlon in kilogreas Health and Nutrition eetimated from doesttic production pins set Laporte of newprint\. Popu':latin pvcr physician - population divided by n-mber nf practicing Pbyiian _uaif led from medical echool at uni-arsitv le,el\.  Et\.t 3 of 4 EC\.COtf 0 OtEtPC02IT 8\.03 SI1 EET 10 A-to1 Et\.- Pr ooe--tt, h a 197 1974 ff75 1976 I980 1985 1096-73 1937907-0 9003 f7 7976 7900 ff05 Iroos ttc\.eeatfo Erotfote ~~~~~77\.8ff tS,St tf9 93:,323 ff,89 lt\.t0 9 7 0 6_ f A 0 oo 0 103 A 3 9 f172 3\. Cros\. Do-tett Itott 77\.d91 84,7 87,044 92,745 ff:72,77 179\.03 113 0 6 8 7 f80\.tt 100 0 704\.0 000\.0 4\. foporto 7,577 ~~~~~~ ~~~~~~ ~ ~~~~9:,757l 8,847 7\.5 9\.03 3 7,8 270 09Sf 84N7 87 7 7 0 tIo- - oos ,8 ,76 7296,2 11\.757 I7\.944 12 1 7I 9\. 3 8\.8 85 8 9 10 0 00\.0 Etors-TOAd6'ed8,96 5 \.515 5,302 564 8\.393 14\.,138 6 9 -4 tof84 tf\. 0 B\.5 8\.I 7 Rsoocof(d4-890 4\.43 \.45 I\.1 7 9 , 0 7 C21 8 Cooao I'llo 61,329 66\.866 89,708 7 3\.23 88\.58 73fl\.07 9 9 6 0 4\.9 8 2 79\. 79 0 75 3 73 9 froo- = 57t fo\.343 2ff946 78,38 27\.' E ,I423 30,003D 4 7,772 tO a 7 3 8 8 41 0223 2 3 7 25 5 2 6 3I 00 fotnfSott 3,3 6953 18\.86 7,03 0,93 45\.57 8 4 8 10\.0 707 07 19 4 23 3 25 ft Orororoc tartoto fATAl~~~~~~~~~5 17 ,706 17,0358 79 \.3:2 29,3 707 7 8 t 02 2 10 2 6 Cora,,rorloodt 7735 1,638 7,358 1\.346 7,64 3\.l4 6\.2 32 70 70 'I2 80 7 Peorolo,\.too,l Oerloottooa 727 2,873 fONt 3\.740 5,878 8,789 370 7ff ff0 773 ItO 370 305 2365 0 fotD- ot (P8 ,9 344 219 0,4 218,2 382457 247 8301\.3 05o 5 too o 00 8 40 O CotOc 7\.3I 880 9302 3,202438\.0 123 16 -1 31 317 7 2 1 Other Ogoto\. Itoro I Goodo 3,404 3,415 7\.479 3\.023 7,382 18\.883 92 2 7 f 24\.9 178 2 38 02 28'ID Il6 30 2 3 I 3 3 I' -d 27to39 841 2,7 7,'4 2,37,6 20 3\.0 34 134 0 OCoT/tdOt/ro,lfood- 0,763~~~~~I 108 2,388 4 2,87 ,t8 73 ,407 3726 350 0\.1 209I 220 284 27014 1 D8 f 0 0021 55 7\. 2 37g f 7 7 2 30 70 , 4 C Ooiol 6-\.2 4 790 ' 7,99 8,632 3 7 10,11 9,2037 43,373 29 0 Il2 1 4 7 7 70 030 O I g -rtfr 73\. 6 1 1,I12137 130 1 740 1 392 277 387 3\.8 63\. 37 5 100 1\.0 10 0 2 tooar 333 28-30 337 34 351tOT 74 53 8 575 320 332 53,4 52\.0 529 ~~~~ ~~~ ~~~~ ~~~~~~~~~~~~~~~106 764 6\.5 Ed1 21 221 1 3\. Eoroe PrIor rdoo 70 138-83 7360 34 360 73I5 79 32 7 60 82D,7 Irport Proro rIot ~~~~ ~~~~~1005 2356 2307 19047 2431473 87 331I 160 640 0 2 1 2 3 Tr,,oooofradotodoo tOO~~~~~~~~61 9 2\. 74 67 3f 725 -2 tOO 15 7726 10 4 0000001 Prtoa lodro 700~~~~~~~6Ig 72'95I ' 5 164 - 9 23 ,3 3-2\. - 77 -1 I-I 10 0 0 5\. 600060EOoI-l- tte-10 II 133 3 \. - -\.,- - h-\.- - loOt 7 80 9\.40 4 10 2\.88 1 fofol lOIIltoo\.7 2I 22 14657I386545 2 ArrgNtrtaoTott 2 19 72 ,\.76 1\.3 lodo3oryttl 7308 778 4\.D\. glotP toolorr- Rt 031 09 437313\. foote () 33 39 5 E Peoporto/CEP 0 078 t \.2 8 07 17 2, 1 17 4C\. __9lo P _ror 30d for o 8 I Selected indic\.,tars 1~~96\.73 t974-7 197w848 i F ~ - -1"1 707 t iCooo tcaro 7 1740 700 f7 1I \.,l til\. L 9ItOS 2olIt5lor It So io, 0 -It 09 ff O4LNPOfC508 \.1837D ta odE 23 0A000011opood 2t rIa_3 4 14 5O3 8 40 \. "1 \. PuItSoo ItocS--tottroa o 11, 17 t3 - DSootl Soetora 4,50 103 11 229 21 21~ ~ ~ ~ ~ ~ ~~~~~~~6,rotrelO Public Finance It F-- f C\., ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Torrofan looo,lOttr\. ,3/ I 1873 1974 t9f5 Rotro locoocr 44 11I 4 11I~ ~ ~~~~~~01c / Li\. 371 3\. Ae IroE\. 2 1 1,, 94 3\.006 28 8\. Othar F\.,ICPf~ F -l 76 0 16 7 78\.4 Ooooat1 Oo- oo- 5t, 01 9 toa leorot3,8 tOOT 37 Podaro I Goocortoor Ooroe,6c0 31, 1976~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~M\. / 1 7 :311 0/ fnof,±daa Ofoorroof IrocototeotI 9- T l \. ll,, 3 , 8, 10  BALNCE OF PA OT,CT8~6 SITNEAND DEBT\." ANND I O\. II "\. \.1 S\. d'II"\. ~~~~~~~~~~~~~Page 4 of A 1971 19 72 1973 1974 1973 1976 1987198 A\. toat of WOLD of Paomaot 1\. EspOrBe tINs1\. BPN( ~~~~~~ ~~~~~~~3,7 4,272 6,596 8:,4B 9,255 10,771 20,749 46,841 2\. EpOrt (IO\. P) ,2 5,2 5 767T l4\.B 14,296 14,218 22,1 AN,274 3\. Baso\.ro -Eas\. -953 -933 Al -\.27 5 B04 -347 \.- ,1 , 4\. ee- Fasro Seroo brI\.- -468 -561 -734 -91T -1,711 -2,212 -3\.A'S -4, 95 1\. ties Internal PeyneeBs -302~ ~~~~~ ~~~ -359 -514 -652 -1,639 -1,955 -3,116 -4,7 2 Brt "ONBOB BM -(8 -1I -9 -248 - 235 -237 -350 -565 3DB,ar, Fo-so Serolce I\.-O -4B 4 -22 -16 -37 2 50-so -20 5\. Corse- Tronstefr- 79\.I7 14 5 27 I - DO ID If B\. Bala-so\. on\.o\.reo A\.o\. -1,307 -1,489 -1,688 -7,122 -6,751 -5-3649 -4,7Bs -3\.3al 7\. Prlc\. Diretloe- on 188 318 940 89 7 890 950 1,455 2\.340 8, I,s',,soasa411 4 25 56 47 97 1,0(0' 1,395169 9 Aoosta 212 -199 -21'7 19I -9273 -462 -552 -1,19 lB Be BIlab \.o\. , 199 231 7 345 756 634 548 945 491 It\. Dteb-rse-Ist -1,876 4,0191 3,998 9\.680 5,974 6,459 75335 9,569 I12 Aiot aIS-91I -1,21 -l\.29 -1,7~16 -1\.868 -2,0DB 5\.346 7, 345 13\. No Dibrene995 2BBI 2469 4,364 4,106 4,451 2,499 2,:224 14 Dsol aoco48 47 7 - 15 Ibort-tero Capital Transatltoos ~~~~ ~~~507 47 -130 464 424 lOOD0 16 CapItal TeaNeon ions Nfl -81~ ~~~~ ~~~~ ~ 391 243 -285 \.25 61 ChooI rasa -looa)50 -243 -2,179 93 950 -1,300 --1,674 (nd ofPeId) 2\.019 4,457 6 636 3,70D 4,750 6,050 6,050 11, 319 \. Tota M42\. Lo\. 2,526 5,203 496 7,012 7,180 AC39AL 'a\. BI 256 455 199 140 426 DEBT AND DEBT SERVICE 1972 1973 1974 1975 1 2\. 1DB 108 182 242 181 215 1 5\. Gos__t\.ot 225 390 440 475 525 A Bedl- so t-Tr Db 14\. Soppll\.re 496 694 957 1,088 1,376 (Dlsborsd'oslp) 1I5\. B449 - 96 37 25 - 1\.86\. Fl=octl C-edfta 1,441 3,3 96 3\.151 5,'103 4,638 1, sT-l IoN 0,telatAlog (aDd of pestod 9,21 12,571 17,166 21:171 1, PiBonclal CredIts 5\.529 ~~~~ ~~~~7,4 11\.211 4,561 f\. ttoneracdoo Is,,\. 1 Bthara 1811 \.84161\. ,Bosds,torpllarsl 3\.993 4\.723 5,955 6,610~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~998 4 283 I': 3\. DrllsadPutty%-std - 6:496 8,5313 191461 1\. rs leeto Totl~ coiaet \. \. 0\.5l 0\.5 2\.5 4\.? P -ste- 6\.5 8,33 9,1 0\. DAr_oIt_ose -PeDet 6\.5 7\.4 1, 9\.5 9\.5 2 Total Debt Se-tre 1,887 2,586~ 3,277 3,9415 3\. A--rgs Bos-rty (Tear) 6\.1 6\.t 7\.2 9\.0 9\.9 1 Tota \.asa 489 847 1,370 1, 804 2 Net Ittra 359 514 652 1439 QOtat-diso D\.oneba 31\. 1975 3 PobIIc bleb S-jo-t -- -- 1\. 287 1,550 F\. Oot\.o176 DsosdOl)As,unt P__-__ 1\. IBID 1,094 5\.2 0\.Otlhs- otl tr 416 2 01 TtlDBSroeaIo44\.2 39\. 38\.7 42 6 53 Dot,,sott 2,567 12\.1 2 Toa ebt StoeI aI 479 42\. 41\.6 4\. 4 Soppllasa ~~~~~~~~~~~~~~~~~~~~~1,98 9\.3 3\. P blic Dsbt Srvloe Batlo - - 5\.2 16 27 5 BAnda 16~~~~~~~~~~~~~~~I1 0\.8 4\. LiqoldIty Rotto3l 25\.4 22\.0 31\.2 3 6\. Plostll f,edtss 14,3161 68 a 5\. Tot\., Dabs irscioS 3\.2 3\.3 3\.1 3\.2' 7 Dtbe 392 1\.8 6 PobIto -ob Sar-rs/CPS4 -- -\. 1\.2 1\.2 8 ToDal ttd\. Debt, 2171 100 0 7 Tota Io3 DICDFi±' 16\.2 16 1 26 4 17\.0 9 TotalPobIc\.04LT DoNt 11\.461 54\.1 C\. Term C otProfits 1\. Ioeeto Ira OB/Tota 507 7\.4 a B 17\.9 10\.65 1\. Total Debt SarD I- 1976-80/Toto BAD end of (975 153 8 2\. Tota DeT S 7leW/Tota1 LXI 19 B 20\. 6 19\.1 8\.8 1\. Groat Dleborsooet-a/Iport (t\.s 8PS) 86\.8 602 47\.,9 48\.!1 2\. Bet Tsoafer/l,porto los\.:BS) SD\.5 26 0 255 70\. 3\. Net Trosf\./\. oasDO6tfnInat 58\.2 43,3 53\.4 42 7 1\. I1MD Diab\./Cr-o 5T61 Ot-b 3\.6 4,2 3\.5 3\.6 2 IBO BAD/TotaliBAD 5\.1 5 1 5\.1 52 3\. I\.BA DBB~ Sarit/Totol Deb Service 2\.7 2\.7 2\.6 2 4 i! CoInte mo otst\.ty ttl besae of \.o\.odieg 2/I-rldiog net dEtc \.i---,ttttooe 3/ Dabt 6TeIroic epar--D of export pica --arod Inscoo f 3 -oohe eise\.Oc\.e 21\. 1976 C IBBteB1973 prlr- N\.,to A-itlable  ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A\. SUMMARY STATEMENT OF LOANS (As of November 30,1976) Loan Amount Less Undis- No\. Year Borrower Purpose Cancellations bursed (US$ million) Twenty-Eight Loans Fully Disbursed 743\.9 403 1965 Furnas - Centrais Eletricas Estreito I Power 57\.0 0\.1 474 /1 1966 Furnas - Centrais Eletricas Estreito II Power 39\.0 0\.7 677 1970 Furnas - Centrais Eletricas Marimbondo Power 80\.0 4\.2 728 1971 Centrais Eletricas do Sul do Brasil - Salto Osorio Power 70\.0 9\.6 755 1971 Brazil Education 8\.4 3\.5 756 1971 Brazil Ports 45\.0 30\.0 757 1971 Superintendencia de Agua e Esgotos da Capital Water Supply 22\.0 0\.9 758 1971 Companhia Metropolitana de Pollution Saneamento de Sao Paulo Control 12\.0 4\.2 786 1971 Rede Ferroviaria Federal Railways 46\.0 5\.2 797 1972 Companhia Siderurgica Nacional Industry 64\.5 3\.7 812 1972 Usiminas Siderurgicas de Minas Gerais Industry 63\.0 9\.3 813 1972 Brazil Roads 89\.0 2\.8 828 1972 Companhia Siderurgica Paulista Industry 64\.5 5\.5 829 1972 Centrais Eletricas de Minas Gerais - Sao Simao Power 60\.0 9\.4 853 1972 Brazil Land Settl\. 6\.7 5\.7 854 1972 Brazil Roads 51\.0 0\.4 887 1973 LIGHT-Servicos de Eletricidade Power 20\.0 16\.5 923 1973 Furnas Centrais Eletricas - Itumbiara Power 125\.0 92\.7 924 1973 Brazil Agro-Indus\. 54\.0 33\.8 1008 1974 Cia Hidro Eletricas do Sao Francisco - Paulo Afonso IV Power 81\.0 81\.0 /1 In two tranches\.  ANNEX II Page 2 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A\. SUMMARY STATEMENT OF LOANS (As of November 30, 1976) Loan Amount Less Undis- No\. Year Borrower Purpose Cancellations bursed (US$ million) 1009 1974 Banco Nacional de Habitacao Water Supply 36\.0 25\.9 1067 1974 Brazil Education 23\.5 23\.3 1074 1975 Rede Ferroviaria Federal Railways 175\.0 170\.2 1075 1975 Brazil Roads 110\.0 93\.6 1151 1975\. Companhia Siderurgica Nacional Industry 95\.0 95\.0 1152 1975 Companhia Siderurgica Paulista Industry 60\.0 59\.6 1153 1975 Brazil Agriculture 23\.0 22\.8 1171 1975 FEPASA-Ferrovia Paulista Railways 75\.0 75\.0 1195 1976 Brazil Rural Develop\. 12\.0 12\.0 1206 1976 Brazil Develop\. Bank 85\.0 85\.0 1207 1976 Brazil Feeder Rds\. 55\.0 55\.0 1249 1976 Brazil Agriculture 40\.0 40\.0 1256 1976 Petrobras Fertilizantes Fertilizer 50\.0 47\.9 1257 1976 Companhia Paranense de Energia Eletrica - COPEL Power 52\.0 52\.0 1300 /2 1976 Eletrobras Power 50\.0 50\.0 1302 /2 1976 Brazil - Nutrition 19\.0 19\.0 1309 /2 1976 Banco Nacional de Habitacao Water Supply 40\.0 40\.0 1317 /2 1976 Brazil Agro\. Indus\. 83\.0 83\.0 Total 2,885\.5 /1 1,368\.5 Of which has been repaid to the Bank 324\.1 Total now outstanding 2,561\.4 Amount Sold 45\.2 of which has been repaid 15\.8 29\.4 Total now held by Bank 2,532\.0 Total undisbursed 1,368\.5 /1 No IDA credits have been made to Brazil\. A US$82\.0 million loan for a power transmission project was approved on November 23, 1976\. /2 Not yet effective\.  ANNEX 11 Pace 3 B\. STATEMENT OF IFC INVESTMENTS ,AS OF NOVEI 300 30\. 197_) Fiscal Year Obliger Type of Bonine-s Amount In iUS million Loans Eq-ty Total 1957 St emes do Brasil Cia\. de Eletricidade Elnotrical lIqip-tenc 2 00 2 00 1958 Oliakraft, S\.A\. CWlnloso e Papsl Pulp and Paper 1 20 - 1\.20 1958 D\.L\.R\. Platirna do Brasil, S\.A\. AutomotIve Parts 0\.45 \. 0\.45 1958 Willyn-Ov-rlsnd do B-asil, 0\.A\. Indostris e C-mercio Motor Vehictes 2\.45 2 45 1959 Componhia Mtinirs do Cimento Portland, S\.A\. Cement 1\.20 - 1 20 1959 Champion Celnlose, S\.A\. NIp 4\.00 - 4\.00 1966/1968/ 1972 Acos Vill-res, S\.A\. Steal 8\.00 1 93 9 93 1966/1969 Pupal e Ceinlose Catarin\.nse, S\.A\. Pulp sad Faper 4 06 3 13 7 19 1967/1972 Ultroforril, S\.A\. - Industria a Co=ercio de Ferrili\.a\.tes F-rtili-ern 8\.22 3\.03 11\.25 1969 Pe-rrqulica Unsao, S\.A\. Pert-chenic\.sls 5\.50 2\.88 8\.38 1970 Poli\.lfioss, S\.A Indoetrir a Cnmercin Petrochemic\.lsl 5\.50 2\.88 8 38 1971 Oniteno, S\.A\. Induntris e Co\.er\.oi Petrochemiouln 4 60 1\.44 6 04 1971 Iodartria do Cellose Borro-gard, S\.A\. Pulp 4\.90 - 4 90 1972/1975 ConpashIia do Cineton Narinoal de MiEms Cement 29\.14 3 20 32\.34 1973/1974 Coapanhis Sidororgina da Gs\.asbars - COSIGUA Steel 67\.00 6 50 73 50 1973 Capital Market D-oelopt\.nt Fund - FUHCAP Capital Maruot De-elopst\.t 5 00 - 5\.00 1973 Empr-aa de D--snoolviie-to de Rorura\.s Misorais - CODRMIN, S\.A\. Nickel Miatsi sad Refimiog 26\.00 4\.40 30 40 1974 ISdostrtss Villaroa, S\.A\. Elova-tra and Indoatrial Eqlpunost 6\.00 - 6\.00 1974 Fabricn de Tecidos Tatospe, S\.A\. Testiles 31\.00 - 31 00 1975 Capoava Carbonos Induatrtais Ltd\. Carbko Black 6\.18 1\.08 7\.26 1975 Oittns Nordeste, S\.4\. Petrochainuls 10\.00 - 10 00 1976 Sastiata Industria - Toxtil do Nordeate, S\.A\. Tontil\.a 6\.45 1\.00 7 45 1976 Toca\.or S\.A\. - Textil Catarinosas do Nordosts Te-til\. 6\.00 - 6\.00 Total Gross Commitments 244 85 31\.47 276\.32 Less Canrollattoas, Tomlasttnons, Repaymen\.t and Sales 174\.92 7\.93 182\.85 Tatal Cossitments Nt\. Held by IPC 69\.93 23\.54 93\.47 Total Undiaborsod 22\.10 1\.33 23\.43  ANNEX II Page 4 C\. PROJECTS IN EXECUTION 1/ (As of November 30, 1976) There are now 35 effective Bank loans under disbursement: Loan No\. 403/474 Estreito Hydroelectric Project: US$57 and US$39 million loans of February 26, 1965 and December 19, 1966; Effective Dates: July 8, 1965 and June 1, 1967; Closing Date: December 31, 1976\. The project is completed and the loan is almost fully disbursed\. Equipment costs were substantially below estimates\. The original Closing Date was April 1, 1971\. 677 Mlarimbondo Hydroelectric Project: US$80 million loan of May 25, 1970; Effective Date: September 29, 1970; Closing Date: May 31, 1977\. Construction work is proceeding on schedule\. The cost of the project has increased by US$42 million, or 15% over the original estimate, because of increased excavation and concrete work, resulting from poor rock foundation, and increased equipment prices\. This has not significantly affected the economic justi- fication of the project\. 728 Salto Osorio Hydroelectric Project: US$70 million loan of April 5, 1971; Effective Date: July 19, 1971; Closing Date: May 31, 1977\. The construction of the Salto Osorio hydroelectric plant is pro- gressing satisfactorily and the first two of the planned four generating units are now in commercial operation\. A cost overrun of about US$127 million, due to increased equipment and construction costs, is foreseen, but this does not significantly affect the economic justification of the project\. The cost overrun is being financed by loans from ELETROBRAS and a commercial bank\. The construction of the transmission system, delayed to allow required modifications, is proceeding satisfactorily\. The project is expected to be completed by end-1976\. 755 Education Project: US$8\.4 million loan of June 21, 1971; Effective Date: October 28, 1971; Closing Date: December 31, 1977\. Prog- ress on the construction and equipping of the project schools is now proceeding satisfactorily\. However, the project implementation is behind the original schedule due to initial delays in establish- ing and staffing the project unit and because of subsequent changes in project content\. The original Closing Date was December 31, 1975\. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them\. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution\.  ANNEX II Page 5 Loan No\. 756 Santos Port Project: US$45 million loan of June 21, 1971; Effective Date: October 29, 1971; Closing Date: June 30, 1979\. Execution of the project is now proceeding satisfactorily, although there have been further delays and cost overruns which will be financed by the Borrower\. The Government has approved legislation which converted DNPVN from a government agency to a public corporation, PORTOBRAS\. PORTOBRAS, with the assistance of management consultants, has been improving port operations in Santos\. The National Port Development Study financed under the project is now completed\. 757 Sao Paulo Water Supply Project: US$22 million loan of June 21,1971; Effective Date: January 13, 1972; Closing Date: June 30, 1977\. The project suffered initial delays caused by the State of Sao Paulo not furnishing the required counterpart funds, which are now in- cluded in the state budget\. The Government has consolidated all the water and sewerage companies in the state into a single company, SABESP, and a loan assumption agreement with the new company, SABESP, was concluded on December 18, 1974\. Because of the reorganization of the sector and of management problems which are now resolved, the Closing Date, originally June 30, 1975 has been postponed to June 30, 1977\. Progress of the project has improved with new management of the company which took office in March 1975\. 758 Sao Paulo Pollution Control Project: US$15 million loan of June 21, 1971; Effective Date: January 13, 1972; Closing Date: June 30, 1977\. A review of the original design resulted in its modification to ex- clude the discharge of raw sewage and a related treatment facility\. As a result of the modifications in the project, the loan amount was reduced to US$12 million\. The Government has consolidated all the water and sewerage companies in the state into a single company, SABESP, and a loan assumption agreement with the new company was concluded December 18, 1974\. The Description of the Project has been slightly modified again because of changes in the Investment Plan\. Because of the reorganization of the sector and of management problems which are now resolved, the Closing Date, originally June 30, 1975, has been postponed to June 30, 1977\. Progress of the project has improved with new management which took office in March 1975\. 786 Railway Project - MBR: US$46 million loan of August 25, 1971; Effective Date: February 4, 1972; Closing Date: March 31, 1978\. The project is now completed, except for the construction and equip- ping of the Borrower's main workshop at Jaceaba\. The purchase of equipment for this workshop was delayed because of a change in the  ANNEX II Page 6 Loan No\. location of the workshop resulting from the Government's decision to build a new railway line between the cities of Belo Horizonte and Volta Redonda\. To allow additional time required for the purchase of this equipment, the Closing Date, originally September 30, 1975, was postponed to March 31, 1978\. 797 CSN Steel Expansion Project, Stage II: US$64\.5 million loan of February 8, 1972; Effective Date: August 31, 1972; Closing Date: December 31, 1976\. The latest cost estimate, is US$736 million, an increase of about 72% over the appraisal estimate due to design evolution, unforeseen site works and increases in local construc- tion costs\. This cost increase will not significantly affect the economic justification of the project\. The project is now 90% complete and is about one year behind the appraisal schedule\. The Closing Date, originally July 1, 1976, has been postponed to December 31, 1976\. 812 USIMINAS Steel Expansion Project, Stage II: US$63 million loan of April 11, 1972; Effective Date: July 28, 1972; Closing Date: June 1, 1977\. The latest cost estimate is US$975 million, an increase of about 70% over the appraisal estimate, due primarily to design evolution and increases in local construction costs\. This cost increase will not significantly affect the economic j\.ustification 6f the project\. The project is 90% complete and is about twelve months behind the original schedule\. Implementation of Stage III, which is not being financed by the Bank, is well underway\. The original Closing Date was June 1, 1976\. 813 Third Highway Construction\. Project: US$89 million loan of April 11, 1972; Effective Date: December 4,\. 1972; Closing Date: June 30, 1977\. Construction works are more than 98% completed but are slightly behind schedule; the estimated total contract cost is about 2% above the appraisal estimate\. The feasibility studies and detailed engineering financed under the loan were started later than planned, but are now completed at a cost substantially below the appraisal estimate\. Disbursements have improved during the past year, but are still lagging behind the appraisal forecast\. The Closing Date originally June 30, 1976, has been postponed to June 30, 1977\. 828 COSIPA Steel Expansion Project, Stage II: US$64\.5 million loan of June 14, 1972; Effective Date: October 5, 1972; Closing Date: January 15, 1977\. The latest cost estimate is US$758 million, an increase of about 60% over the appraisal estimate due primarily to increased local construction costs\. This will not significantly affect the economic justification of the project\. The project is now 75% complete and is about nine months behind the original schedule\.  ANNEX II Page 7 Loan No\. 829 Sao Simao Hydroelectric Project: US$60 million loan of June 14, 1972; Effective Date: September 20, 1972; Closing Date: September 30, 1979\. Construction of the project is proceeding according to schedule\. An anticipated 50% cost overrun, which does not affect the economic justification of the project, is being covered by local and foreign borrowing\. 853 Alto Turi Land Settlement Project: US$6\.7 million loan of July 24, 1972; Effective Date: February 15, 1973; Closing Date: December 1, 1978\. COLONE has prepared revised farm development plans whose credit component, to be financed by public financial institutions, w\.ill be significantly higher than originally estimated, although still low in comparison to other settlement projects\. Administra- tive delays in the release of public funds for farm credit and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution\. Settlement, however, has now begun and the project should be completed in 1978 as envisaged\. 854 Fourth Highway Construction Project: US$51 million loan of August 4, 1972; Effective Date: March 21, 1973; Closing Date: December 31, 1976\. Construction is more than 75% completed but behind schedule\. However, disbursement is expected to be com- pleted by the Closing Date\. The estimated total contract cost is 11% above the appraisal estimate\. 887 Power Distribution Project: US$20 million loan of April 16, 1973; Effective Date: July 31, 1973; Closing Date: June 30, 1977\. Prin- cipally due to difficulties encountered in preparing bidding docu- ments and delays in deliveries of equipment and materials, the project is about two years behind schedule\. Complete delivery and installation of equipment and materials to be financed by the loan will probably take until July 1977 and a postponement of the Closing Date will be required\. 923 Itumbiara Hydroelectric Project: US$125 million loan of August 1, 1973; Effective Date: October 30, 1973; Closing Date: December 31, 1982\. Contracts for penstocks, turbines, and concrete and earth works have been awarded\. Commissioning of the first generating unit is scheduled for March 1980, four months behind original schedule due to delay in awarding the civil works contracts\.  ANNEX II Page 8 Loan No\. 924 Agro-Industries Credit Project: US$54 million loan of August 1, 1973; Effective Date: March 11, 1974; Closing Date: December 31, 1978\. The project is proceeding according to schedule\. 1008 Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: December 31, 1978\. A Bank mission recently reviewed the progress of the preparation and implementation of plans for resettlement of the 9,700 families to be displaced by the Sobradinho reservoir\. Execution of these plans is underway, and construction of new towns to house the urban portion of the population has begun\. The rural population is being offered the opportunity of resettlement in a promising new agricultural area in the Corrente River region in the western part of the State of Bahia\. Those who prefer to remain near their present houses will be resettled in new villages on the edge of the future reservoir\. The construction of the underground power station and Sobradinho Dam is proceeding on schedule\. 1009 Minas Gerais Water Supply Project: US$36 million loan of June 17, 1974; Effective Date: January 9, 1975; Closing Date: August 15, 1977\. The State Water Supply Company changed its name from Companhia Mineira de Agua e Esgotos (COMAG) to Companhia de Saneamento de Minas Gerais (COPASA-MG)\. Due to subproject preparation problems that are now resolved, disbursements have been substantially behind schedule\. However, the loan is now fully committed to 43 sub- projects selected by the company, out of which 20 are already under construction\. The project will probably be completed by June 1978 and a postponement of the Closing Date will be required\. 1067 Second Education Project: US$23\.5 million loan of December 27, 1974; Effective Date:\. April 17, 1975; Closing Date: December 31, 1979\. Project execution has started reasonably well, and is ex- pected to be completed by the target date\. Project implementation units have been established in all eight project states and these, together with the main project unit, PREMEN, are working well\. The pre-investment studies in the Northeast, financed under the loan, have been completed and are expected to yield useful information for future sector investment planning\.  ANNEX II Page 9 Loan No\. 1074 Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: December 31, 1979\. Project execution is progressing satisfactorily and appropriate steps are being taken to strengthen project management and control\. Cost estimates for the Investment Plan, of which the project is a part, have increased substantially on severaL items\. Therefore, the Plan has been revised and several items have been deleted or postponed\. This revision is not expected to affect significantly the items included under Bank financing\. The financial situation of the Borrower deteriorated seriously in 1975 and 1976 because of increased costs of materials and higher social charges which were not matched by adequate tariff increases\. Procurement is progres- sing reasonably well, although slower than expected\. 1075 Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975; Closing Date: December 31, 1979\. Project execution is proceeding satisfactoriLy\. Contracts for civil works for all 21 lots have now been awarded and construction works are proceeding according to schedule\. Implementation of the road maintenance component of the project is slightly delayed due to protracted negotiations for the hiring of consultants\. 1151 CSN Steel Expansion Project - Stage III: US$95\.0 million loan of August 4, 1975; Effective Date: April 30, 1976; Closing Date: June 30, 1980\. The latest cost estimate is US$3,530 million, an increase of about 67% over the appraisal estimate due to a slower than expected start of project implementation, higher than expected construction costs, difficulties in holding the scope of the project to its essentials and some problems in the management of the expan- sion program\. As a result of these difficulties CSN has contracted special consultancy services to review the project scope with a view to trimming capital costs and to helping improve project management\. The project is about nine months behind the original schedule\. 1152 COSIPA Steel Expansion Project - Stage III: US$60\.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: June 30, 1980\. Procurement for equipment is underway\.  ANNEX II Page 10 Loan No\. 1153 Lower Sao Francisco Polders,Project: US$23\.0 million loan of August 4, 1975; Effective Date: November 25,-1975\.; Closing Date: December 31, 1979\. Construction of dikes and the irrigation and drainage system for the Betume varzea has begun\. Bidding for most of the other civil works and equipment procure- ment is underway\. Preliminary estimates, prior to bid evalua- tion, are that project costs might increase considerably over the appraisal estimate due to partial design changes and more rapid than expected increases in equipment and construction prices and in costs of land expropriation\. The emergency works remain the least cost way to offset the effects of the upstream hydroelectric developments on the project area population\. Nevertheless, further possible modifications in the design of emergency and irrigation works are being studied by CODEVASF and its consultants with a view to limiting cost increases\. 1171 Third Railway Project (FEPASA): US$75\.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: June 30, 1979\. Project execution is proceeding satisfactorily\. Terms of reference have been approved for the Transport Master Plan for Sao Paulo, and for the technical assistance program intended to improve FEPASA's operations, marketing and data processing systems\. Procurement is progressing reasonably well\. The financial situation of FEPASA deteriorated in 1975 due to lower than forecast traffic, cost inflation and salary increases, while tariffs were not increased correspondingly\. 1195 Rio Grande do Norte Rural Development Project: US$12\.0 million loan of March\. , 1976; Effective Date: July 30, 1976; Closing Date: June 30, 1981\. The project is proceeding according to schedule\. 1206 Development Banking Project: US$85\.0 million loan of March 1, 1976; Effective Date: August 26, 1976; Closing Date: March 31, 1979\. The project is proceeding according to schedule\. 1207 Secondary and Feeder Roads Project: US$55\.0 million loan of March 1, 1976; Effective Date: July 13, 1976; Closing Date: December 31, 1978\. The project is proceeding according to schedule\. 1249 Agricultural Research I Project: US$40\.0 million loan of April 27, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1981\. The project is proceeding according to schedule\. Civil engineering for 21 experiment stations is well advanced\.  ANNEX II Page 11 Loan No\. 1256 Araucaria Fertilizer Project: US$52 million loan of March 19, 1976; Effective Date: July 20, 1976; Closing Date: December 31, 1980\. The project is proceeding according to schedule\. 1257 COPEL Power Distribution Project: US$52\.0 million loan of May 19, 1976; Effective Date: August 17, 1976; Closing Date: December 31, 1976\. The project is proceeding according to schedule\.  ANNEX III Page 1 BRAZIL MINAS GERAIS (ZONA DA MATA) RURAL DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: The State of Minas Gerais Guarantor: The Federative Republic of Brazil Amount: US$42 million equivalent Terms: Payable in 17 years including 5 years of grace at 8\.7% interest per annum\. Project About 60% of the project funds would be utilized to Lending Terms: finance, credit to be made to small farmers through four intermediary banks, including the Banco do Brasil\. In cases where loans are refinanced by the Central Bank, the intermediary banks will retain a remuneration of 6% per annum on credit outstanding under the project\. Credit terms to farmers would be the same as those prevailing for small farmer credit in central Brazil: 13-15% nominal interest rate without monetary correction and repayment according to production cycle for seasonal production credit, with 0% interest rate without monetary correction on certain modern inputs such as pesticides; 7% nominal interest rate and up to 12 years maturity (including appropriate periods of grace) for investment credits, with partial monetary correction on longer term loans\. For reforestation and rural electrification the interest rate would range between 10-15% without monetary correction and with maturities of up to 10 years (including appropriate periods of grace)\. Project Description: The project includes: (i) The provision of agricultural credit for on-farm investments, seasonal working capital requirements, reforestation, land reclamation and installation of electrical feeder lines and house connections to small farms; (ii) the expansion and improvement of rural extension services;  ANNEX III Page 2 (iii) the development of marketing facilities, including group-cooperative support; (iv) the field testing and demonstration of improved agricultural production techniques; (v) the construction and equipping of health posts and health centers and the provision of primary health care, basic nutrition education, kitchen gardens, food supplements to pregnant and lactating women and children under five years of age, and fresh water filters and pit latrines; (vi) the construction, furnishing and equipping of community learning centers and a common facilities center; furnishing and equipping of two teacher training centers; the provision of equipment for training farmers in cooperative activities; the training of school teachers, on-farm instructors and administrators; and the establishing of short courses in agricultural technology, farm management and related subjects; and (vii) the provision of technical assistance to the State Government for project administration, monitoring and evaluation\. Estimated Cost: (US$ Million) Local Foreign Total Agricultural Credit 56\.6 9\.8 66\.4 Land Reclamation 5\.5 1\.4 6\.9 Productive Support Agriculture Research and Demonstration 1\.0 \.2 1\.2 Agricultural Extension 8\.7 1\.6 10\.3 Cooperative Development 1\.5 \.3 1\.8 Plant Nurseries and Forestry Development 1\.4 \.2 1\.6 Social Infrastructure Education 4\.9 \.6 5\.5 Health 7\.0 1\.0 8\.0 Project Administration and Evaluation 2\.3 \.4 2\.7 Sub-Total 88\.9 15\.5 104\.4 Contingencies 29\.5 5\.1 34\.6 Total 118\.4 20\.6 139\.0  ANNEX III Page 3 Financing Plan: US$ Million Bank 42\.0 State and Federal Government 97\.0 of which through banks (71\.1) Total 139\.0 Estimated US$ Million by Calendar Year Disbursements: 1977 1978 1979 1980 1981 Annually 10\.3 7\.4 9\.3 12\.0 3\.0 Cumulative 10\.3 17\.7 27\.0 39\.0 42\.0 Procurement: Farm inputs financed under the credit component would be procured through normal local commercial channels\. Food supplements, instructional materials and office supplies would be purchased according to satisfactory local procure- ment procedures\. Civil works would be executed by a combination of community self-help, force account and local bidding\. Equipment and small vehicles would be procured through local competitive bidding, but not excluding foreign suppliers\. Rate of Return: The estimated financial rate of return to participating farm families (except sharecroppers) would range from 16% to 29%; the economic rate of return on the agricultural component of the project is estimated at about 22%\. Completion Project completion is expected by June 30, 1981\. Date: Staff Project Report No\. 1291-BR dated December 28, 1976\. Report:  ANNEX IV BRAZIL MINAS GERAIS (ZONA DA MATA) RURAL DEVELOPMENT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I Timetable of Key Events (a) Time taken by country to prepare the project: approximately 11 months (from November 1974 to October 1975) (b) Project prepared by: Fundacao Rural Minera (RURALMINAS), the State Rural Development Agency (c) First presentation to the Bank: October 1974 (d) Departure of Appraisal Mission: October 5, 1975 (e) Completion of Negotiations: November 26, 1976 (f) Planned Deadline for Effectiveness: March 31, 1977 Section II Special Bank Implementing Actions None Section III Special Conditions (e) As conditions of loan effectiveness, the State Government would (1) enter into an agreement with the Banco do Brasil, whereby it undertook to participate in the project under terms and conditions agreed with the Bank\.   e z xr /A)_~~~~ L A q | A 1>Olo-;/ ; rXr ~~~~~~~~sr r ffi 2SJ ToGowa: udo / roGow Xodows <Q ~,BR 1244 CNly't>r(F/f 1?-X< --' sJ' ,'Z SAS ,< V tr~~~OUT -i- <\ ~~~-\ vfXAMERIC > / ~~~M I N A SGE R AI =S C-\ \ / \ h D ~~~~Vics,Ftd@t-\.EoeiX /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~BA I__di L (~~~~~~~~~~~~~~~~~~~~~~~~Zn do Mat Rua Development(Project

APPROVAL

P006906

RESTRICTED Report No\. PA-125a Tlis report is for official use only by the Bank Group and specificafly authorized orgarizations or persons\. It may not be published, quoted or cited without Bank Group authorization\. The Bank Group does not acoept responsibility for the accuracy or completeness of the report\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMEN INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF SECOND AGRICULTURAL CREDIT PROJECT COSTA RICA April 12, 1972 Agriculture Projects Department   COSTA RICA SECOND AGRICUILTURAL CREDIT PROJECT TABLE OF CONTENTS Page No\. SUMMARY AND CONCLUSIONS \.1 i-i 1\. INTRODUCTION \. 1 II\. BACKGROUND \. 1 A\. General \. 1 B\. The Agricultural Sector \. \. 2 III\. PROJECT PERFORMANCE UNDER TRE FIRST LOAN, 538-CR \. 5 IV\. THE PROJECT \. 8 A\. General Description \. \. \. 8 B\. Detailed Features \. \. 9 C \. Cost Estimates\. \. 12 D\. Financíng\. 13 E\. Procurement \.13 P\. Disbursement\. \. 14 Y\. PROJECT ADMINISTRATION \. \. 14 VI\. PRODUCTION, MARKETS, PRICES, AND PRODUCER BENEFITS\. 17 VII\. BENEFITS AND JUSTIFICATION \.20 VIII\. AGREEMENTS REACRED AND REOOMKKNDATION \.21 This appraisal report is based on the findinga of two missions\. The first visited Costa Rica in October/November 1970 and was composed of Messrs\. R\. R\. Rossi, J\. Bazo, S\. J\. Khoo and H\. Vieilhescaze (Bank); and C\. Percival (consultant), who all contributed to the report\. The second mission, to update the report, was in September/October 1971 snd was composed of Messrs\. M\. Walden, R\. R\. Rossi, R\. Arrivillaga, and J\. Bazo\.  - *2 - ANNEXES 1\. Agricultural Growth in Costa Rica, 1965-1970 Table 1 The Contribution of Agriculture to Groas Domestic Product at Market Prices, 1965-70 Table 2 Total Value, Quantity and Unit Value of Agricultural Ex- ports, and Total Exporta, 1966-70 Table 3 Employed Population by Sector, 1950, 1963 and 1967, and by Size of Farme, 1963 2\. Supporting Services 3\. The Banking System Schedule A - Lending Terma and Conditiona Schedule B - Allocation of Loan Proceeda Schedule C - Central Bank Agricultural Credit Departnent Table 1 Consolidated Annual Balance Sheets of the Four State Commercial Banks Table 2 Credit Ceilings and Credit Used Within Cellinge for Years 1967-71 Table 3 Agricultural Loans Portfolio of the State Cowmercial Banks Distributed According to Departments and Agri- cultural Activity Table 4 State Commercial Banks' Portfolio Distributed According to Terms Table 5 Agricultural Loans Approved by the Four State Commercial Banks and BNCR's Rural Credít Department Table 6 Agricultural Loans Disbursed and Collected by the State *ommercial Banks Table 7 Arrears and Outstanding Portfolio of Couqercíal Depart- ments of the State Commercial Banks Table 8 Consolidated Statement of Earninga and Expenditures of the Four State Comercíal Banks 4\. Livestock 5\. Estímates of Proposed Investment Program - Livestock 6\. Farm Modela Livestock - Beef Cattle - Dairy Cattle 7\. Estimates of Proposed Investment Program - Crops  -3- 8\. Farm Models Crops - Annual Crops - Bananas/Plantains - Fruit Trees - Pineapples 9\. Estimates of Proposed Investment Program - Forestry 10\. Farm Model - Forestry 11\. Estimates of Proposed Investment Program - Agro-industries 12\. Estimates of Proposed Investment Progran - Technical Services 13\. Project Cost 14\. Project Cash Flow 15\. Estimated Schedule of Disbursements 16\. Estimated Increase in Utilized Area and Production 17\. Markets and Marketing 18\. Financial Rates of Return to the Enterprises Beef Cattle Dairy Cattle Annual Crops Bananas/Plantains Fruit Trees Pineapples Forestry 19\. Economic Rate of Return CRARTS 1\. Central Bank Organization 2\. Ministry of Agriculture Organization MAP   COSTA RICA SECOND AGRIC$JTURAL CREDIT PROJECT SUMMAKY AND CONCLUSIONS i\. Thís report appraises an Agricultural Credit Project to support a three-year lending program for investmepts in farms producing livestock, crops and tímber, and ín agro-industries\. A loan of US$9\.0 million is proposed\. This amount represents the foreign exchange cost of medium- and long-term investments estimated at US$16\.5 million\. Agriculture ís the largest sector in the Costa Rican economy, accounting for about one-fourth of gross domestic product and three-fourths of export receipts and providing employment for about 40% of the employed population\. Accordingly, the Government has given top priority to ite development and diversification\. The Central Bank would be the Borrover and respongible for Project adminis- tration\. It vould on-lend Bank funda to four autonomous state-ovned commercial banks\. it\. Thís would be the Second Agricultural Credit Project financed by the Bank in Costa Rica\. It would be essentially a continuation of Loan 538-CR for US$3\.0 million made ti June 1968 for the development of beef, banana, cotton, and pineapple, but would &l8o provide loans for dairy production, a wider range of crops and forestry, and certain types of agro- industries\. It would also include technical assistance to ensure effective administration of the Project\. After a rather «low start, the First Project progreased satisfactorily and loan funds were fully comiitted in August 1971\. iii\. The Project would be financed as follows: 55% by the Bank, 26% by the four commercíal banks (participating banks), and 19% by the sub-borrowera\. The Bank loan would be made available to the Central Bank at the prevailing interest rate\. The Central Bank would bear the foreign exchange risk and on-lend to participating banks at not less than 7\.25% interest p\.a\. Partici- pating bank lending to borrowera would be at an effective interest rite of not leas than 9\.75% p\.a\. Project loans by the participating banks would be committed over a three-year períod though actual loan diabursementa would extend for four years\. Project loanr above US$100,000 as well as proposals for oil palm and agro-Industries would be submitted to the Bank for approval accompanied by technical and financial justifications\. iv\. The participating institutions in the Project have competent management and are in sound financial condition\. Together with additíonal Costa Rican technical personnel to be recruited under the Project, the technical supporting services and administrative arrangements would be adequate to implemnent the Project efficiently\. Y\. The investment items in the Project are amall and varied and would not be suitable for bulk procurement\. The country, moreover, has a well established group of importera and dealera for the necessary inputs\. Facilí- ties to service machinery and equípment are also adequate and prices are competitive\. In view of this, procurement would be through normal conmer- cial channels\.  - ii - vi\. The investments under the Project are of hígh priority and technically feasible, with financial rates of return ranging between 18% and 35%\. The economic rate of return ranges from 20% to 37%\. The necessary assurances having been obtained during negotiatíons, the Project 18 suítable for a loan of US$9\.0 million, repayable over 18 years, including a five-- year grace period\.  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT 1\. INTRODUCTION 1\.01 The Government of Costa Rica has requested a Bank loan of US$9\.0 million to help finance a Second Agricultural Credit Project for intensified development of about 350 commercial farms, covering about 73,000 ha, and 20 agro-industrial enterprises\. The Project would be essentially a continuation of the First Agricultural Credit Project (Loan 538-CR for US$3 million), which provided finance for investments in beef, banana, píne- apple and cotton production\. All funds under the First Project were fully committed in August 1971\. The proposed Project would cover a wide range of crops as well as dairy farming, forestry and agro-industries\. It would finance land and crop development; machinery and equipment; constructions and installations; planting material and breeding stock; and capital goods and services for technical assistance\. Government plano to concentrate Bank funds mainly on a selected group of commercially viable farms operated efficiently to enable achievement of a quícker and higher growth rate in the agricultural sector\. 1\.02 This report ls based on the findings of two missions that visited Costa Rica; the first in October/November 1970 was composed of Messrs\. R\. R\. Rossí, J\. Bazo, S\. J\. Khoo and H\. Vieilhescaze (Bank); and C\. Percival (consultant)\. An updating miesion composed of Mesars\. M\. Walden, R\. R\. Rossi, R\. Arrivillaga and J\. Bazo visited Costa Rica in Septenber/October 1971\. II\. BACKGROUND A\. General 2\.01 Costa Rica is one of the more prosperous and progressive countries in Latín Amerlca\. It experíenced rapid economic growth during the 1960's, wíth GDP at current market prices inereasing from an annual average of 7\.5% in the first half of that decade to 9\.5% in the second\. Corresponding rateo for real CDP growth were 6% and 8%, respectively\. In 1970, per capita real GDP reached an estimated US$520 compared with US$39O in 1960\. At this level, Costa Rica has reached a stage of development where the economy can be expected to become more diversífied and less dependent on traditional forms of agricultural production\. There has been, in fact, a gradual ahifting of labor out of the agricultural sector\. 2\.02 Costa Rica has an open economy with exports accounting for well over 30% of GDP and imports supplying about the same proportion of aggregate demand\. Except for limited exchange control, there are virtually no restríctions governíng imports or capital movemente\. Consequently, with rapid economic expansion and increases in incomes, excesa demand has led to substantial increases in importe and subsequent deterioration in the  -2- balance of payments\. The disequilibrium in the balance of paymenta has become iracreasingly acute In recent years\. 2\.03 Because of the importance of expanding exports in Costa Rica's economic grolth performance, continued efforta are needed to sustain export grawth if the present momentum ls to be maintained\. With production and export of tradítional products facing lover prices and unfavorable market prospects, a major effort ís required to ínerease the production of ímport substitutes as well as of non-traditional export commoditíes\. The proposed Project would assist in achleving these objectives\. B\. The Agricultural Sector 2\.04 Agriculture remalns one of the most important sectors in the Costa Rican economy\. It still accounts for one-fourth of the gross domestie product (GDP), contributes about three-fourtha of export receipta, and provides employment for a declining but still signifícant proportion (about 40%, Annex 1, Table 3) of the working population\. Agrículture's share in CDP has remained relatively stable for the last five years, decreasing only slightly (about 24 to 23%)\. Main export cropa are coffee, bananas, sugar and cocoa and basic food crops are rice, corn, and beana\. Beef cattle and dairv are the two major livestock enterprises, wíth the former becc>ming íncreasingly important as an export commodity\. In terma of value, coffee and bananas are the leading export crops and together account \.for about 80% of agricultural exports and 60% of total exporto\. 2\.05 Although most of Costa Rica is ecologically suitable for agriculture 1/ and forestry, only about one-thírd la under cultívation or pasture\. lhe four main climatic zones -- hot and dry tropical (Dry Tropics: Guanacaste, North Puntarenas); hot and monsoonal tropical (Southern Puntarenas and Southern San Jose); hot and humíd tropical (Wet Tropics: Atlantíc); and subtropical (Central Plateau) -- also mark the geographical concentration of agricultural production\. Bananas, cocoa, and oil ptlT 4ro ímportallt tin the Atlantíc and South Pacífíc; coffee, sugar, and dairy in thie Central Plateau; and beef cttle, cotton, and basic gráina in the i)ry Tropics, maínly Guanaraste\. Forest products, corn, and field crop mi- 'iarvested throughout the country\. According to the latest Agricultural Cen\.sus (1963), Costa Rica has about 65,000 farms, 53% being lees than 10 ha in size, 14% hetween 10 and 20 ha, 18% between 20 and 50 ha, 9% between 50 and 100 ha, -ind 6% larger than 100 ha\. There are three major centers of small farms: (a) Peninsula Nicoya (Dry Tropics), (b) Central Plateau, and (c) Province of Limon (cocoa growers)\. 2\.06 Agricultural output, whích has been growvng at an annual average rate of nearlv S\.59% (1965-70), received ite main ímpetus from expansion of banana and beet cattle\. This was accomplished under govenunent's policy of dlverstflcaclon to crops other than coffee and sugarcane, which in five years added beef and bananas to the liot of the most important cormodities I1/ The term "agriculture" includes crop and animal production\.  - 3 - produced\. Between 1966 and 1970, the volume of bananas exportea more than doubled, while meat, a non-traditional export, almost tripled (Annex 1, Table 2)\. 2\.07 Government has been actively encouraging the deveiopment of agriculture\. Except for coffee, íncreases in agricultural production, based mostly on expansion of cropped hectareage rather than on yield increases, have been confined mainly to export commodities, which increased from US$106\.0 million in 1966 to US$175\.9 míllian in 1970\. However, other crops (fruit trees, pineapples), beef and dairy, forestry, and agro-industries have great potential for development and are receiving increasing government financial and technical support\. Improved agro-industries, particularly packing facilities, would greatly strengthen Costa Rica's marketing capabili- ties\. Supporting Services (Annex 2) 2\.08 The agricultural sector ia served by several government and private institutions\. Besides the banking system, the principal institutiona are the Ministry of Agriculture, Consejo Agropecuario Nacional, Consejo Nacional de la Produccion, Camara Nacional de Agricultores and Camara Nacional de Ganaderos\. The Central Bank's Training Center conducts regular courses on appraisal and supervision techniques for selected candidates from participating banks and, occasionally, from government and private institutions\. 2\.09 The Mínistry of Agriculture (MAG) has a technical staff of about 300 and provides countrywide technical assistance through extension and research activities\. It is in charge of plant and animal sanitation and coordinates the efforts of all the national and international institutions providing services to farmers\. Ita extension service is actively engaged ín assisting borrowers under the First Project\. Using funda from USAID and 1DB loans (paras 3\.09 and 3\.10), MAG started a four-year program in 1971 to reinforce its technical services\. Costa Rica has qualified and experienced technicíans for the production of bananas, coffee, pineapple, beef and milk, but it ís short of expertise in sorne areas, particularly processing industries and forestry\. 2\.10 The Consejo Nacional de la Produccion (CNP) is an autonomous government institution set up in 1956\. Its objectives related to agriculture are to (a) promote development; and (b) stabílize prices of food products consumed domestícally in the interest of both producers and consumers\. To achieve these objectives, CNP purchases and sells basic items such as rice, maize, beans, fish products and seeds\. These are acquired through 34 buying agencies throughout the country\. CNP sella much of ita produce directly to consumers and the rest to wholesalers and retailere, mainly at the large storage centers in San Jose and the provinces\. CNP builds, rents and operates processing, storage and transport facilities; it also regulates the domestic beef market by determining the quantity of cattle that can be exported\. CNP also provides guarantees of up to 0 20,000 as collateral for productíon loans by small farmers borrowing from commercial banks and lacking  -\.4- security\. Recently, rice has constituted three-quarters of the approximate C 4 milllon guaranteed iri this way Agricultural Credit 2\.11 The banking system consists of the Central Bank (CB), four autonomous state-owned commercial banks and two private banks\. State-owned institutions are Banco Anglo Costarricense (BACR); Banco de Costa Rica (BCR); Banco de Credito Agrícola de Cartago (BCAC); and Banco Nacional de Costa Rica (BNCR)\. The two private banks are not permitted to accept deposits and their lending to agriculture is negligible\. The state-owned banks have been in business for over 50 years, are well organized and operate accordíng to good banking practices\. They have a total of 171 offices throughout the country, 130 of which belong to BNCR\. All have experience in agrícultural credit\. Provisiorks of the basic bank law are presented in Annex 3\. 2\.12 Froin 1967 to 1970, the conmmercial banks' total portfolios rose from ¢ 1,316 million to * 1,750 million\. Their resources increased by 26% during the last three years, mainly because of a substantial rise in depostes and borrowing\. Interest on deposits varies from 4% p\.a\. to 7% p\.a\., depending on maturity; short-term deposité represent 48% of resources, and seasonal fluctuation le very small\. After deposits, borrowings (31%) are the major component of total resources, while capital and reserves account for 15%\. 72\.13 Up to the end of 1970, CB tightly controlled credit expansion through a set of ceilíngs ímposed on the commercial banks' loan portfolios\. These ceilings conbined quantítative and qualitative controlé through subceilings on credit to the various sectors of the econony and even to specífic industries within a sector\. Early in 1971, the system was substantially simpl\.ified\. It now fixes percentage diotribution aÉonig the actívittes that cach commercial bank should have in ite loan portfolio according to rnational priorities and the bank's traditional loan pattern\. During 1971, however, the system proved incapable of controlling over-all ,-redit expansion, ancl nodlfications were introduced for 1972\. The `min one placed individual ceillngs on banks and required that they be reviewed quarterly\. Lending unider the First Project was initially clasified under agriculture\. it has since been shifted to the maximum priority catesory, which ls not subject to limite\. 2,14 T!he state commercial bánking system has more tlian half of it8 total portfolio in agriibi (ture development, production, and marketing\. Agricultural lending grew from ¢ 701 míllion at the end of 1967 to e 953 million at thé end of 1970 (Annex 3, Table 3)\. Two-thirds of the loans are medium- and lor\.g-term, principally to large- and medium-sized farns\. Smsll faruera have credit facilities in the commercial departments of the banks or in the BNCR rural credit department, opened especially to deal with this type of applicant (17% of the agricultural portfolio of the four banks)\. About 60% of agricultural lending is through BNCR and 25% through BCR\. 2\.15 In additlon to controlling lending by a system of categories (para 2\.13), CB determines the, interest rates that the coumercial banks may charge\. This is 8% for agrículture and industry and 12% for moet other  - 5 - purposes, plus, at the optíon of the commercial bank, a commission of up to 1% per annum\. Interest and commission are charged quarterly in advance, which effectively raises the rate payable in total by about 1/4 of 1%\. Hígher interest rates are charged by non-institutional sources and by a number of financial companies (mining, agriculture and industry, 12%, other purposes 16%) which are not governed by the basic bank law\. CB's rediscount rates also carry a differential between sectors: agriculture and industry, 4% and for other purposes, 8%\. 2\.16 In addition to the Bank's First Project, other agricultural credit projects have been supported by USAID and IDB\. These projecta and the role and performance of the conmercial banks under the First Project are considered in Chapter III\. III\. PROJECT PERFORMANCE UNDER THE FIRST LOAN, 538-CR Puzpose of Loan 3\.01 The First Agricultural Credit Project helped finance a CB three-year lending program to finance medium- and long-term investments, estimated at US$6 million, to increase the productlon of beef cattle, banana, cotton, and pineapple\. The Bank loan of US$3 million (effective December 1968) supported this program and covered total foreign exchange costs\. Loans to commercial farmers have been made through the four state-owned commercial banks\. Policies and Procedures 3\.02 Under Loan 538-CR, CB reimbursed viable operations appraised by the participating bank (PB) technicians under the guidance of CB technicians\. Loan maturities conformed to the particular repayment capacities of sub-projects, but did not exceed asset life, according to financial projectiona and grace periods recommended by PB technicians in farm plans they helped prepare\. Loans were made only if beneficiaries provided an average of at least 20% of the estimated cost of their development plans\. It was intended at first that sub-borrowers would pay interest rates, including commissiona, of between 8 and 9%; CB, however, allowed a higher rate so that PBs could meet their administrative costs and most farmers, as a result, have paid an effective total rate of 9-3/4%\. Bank funds at 6-1/4% to CB have been passed on to PBs at 6-1/2%, together with the Bank commltment charge\. Under the First Project, the financing plan called for farmers to pay 20%; PBs, 30%; and the Bank, 50%\. Pr-ogres of Operations 3\.03 The First Project went slowly at first for various reasona, the most slgnificant being that there were delays in setting up the organizational arrangements manifested in unsatisfactory staffing and coordínation arrange- ments in the CB technical unit\. Further, the PBs and their technicians were not yet familiar with the concepts of lending based upon detailed farm plans and thus required a level of supervision that CB was not staffed to provide\. CB therefore became a bottleneck\. However, in 1970, these problems  -- - were overcome and all Bank funds were cc-\.maítLeú by August 1971, ro montha after the original closing date\. PBs, wí'th CB's approval, bave continued comnimtting funds ín anticipation of a Second Project and by September 30, 1971 had made total loan commitments of US$6 million, US$t\.3 million beyond their First Project lending program of US$4\.7 million\. 3\.04 The pattern of Firsi Project lending has varied substantially from that envisaged at the time of appraisal\. It was expected then that beef lending would be 37%, bananas 34%, and cotton and pineapp3e 29%\. However, because banana and pineapple producers had a source of alternative financing up to the end of 1970 from two private banks (US and Canadían) 1/ and cottCEl areas were adversely affected by floods and volcanic eruptiona, the demand for loans under the Project carne mainly from beef producers\. As ef September 30, 1971, 102 loans have been made -- two for banana development (US$400,000), one for pineapple (US$20,000), and 99 for beef cattle develop- ment (US$5\.6 millaon)\. 3\.05 Until recently, partícipating banks had no problem In providing their share of funds to support the Project\. However, in early 1971, CB altered the classificatíon system that controlled the old credit cellíngs and the First Project was placed in a non-prlorlty category (para 2\.13)\. This caused difficulties for PBs close to their ceilinga\. The situation has since been corrected by placíng the First Project in a prlority category\. The Second Loan would be similarly treated\. Another funde problem arose when BCAC approached the límits of ita lending resources for all purposes, but government provided the solution by lncreasing the bank's capital\. It is not expected that the problem wíll recur ín the near future\. Impact 3\.06 The Project has been in operation too short a time for a flrm judgment to be made as to its impact\. There are indications, however, that investments will show satisfactory returns\. Project funds are financing the development or lmprovement of about 60,000 ha of land and pasture9 about 1,400 km of fences and about 70 ¡m o: ln1ernal roada\. Some 16 000 head of additional cattle have been purchased and all the water facílities and installations needed for handling them have been financed\. Many of these lmprovements are completed and some are 8till ín progreso; the rate of impleientation is satisfactory\. 3\.07 As ímportant as the physical assetS establíshed Is the fact that the Project has succeeded in introducing into the banking system a new approach to lending for farm development, based on farm plans, incorporating a "package" of well integrated agrículturzl and fínancial príncinI3ea Application of this approach, welcomed by most progresoive farmers, ha8 oeen made possible by creating the technlcal unlt i CR and matching it with competent technical staffs in the PBs\. This uaít ln CB ha sunce been upgraded and is now the Agricultural Credit Department through which mnost agricultural lending is being handled\. Sub-loans froo Project funds 1/ Chase Manhattan Bank loan for US$(5\.0 milIion end Baklk of Nova Se,otla loan for US$2\.0 million\. Banana producere were pa\. ing up to 132 lnterest per annum\.  are not yet due for collection but interest payments are being made on time, and the four participatíng banks have a satisfactory record of collections on other lending\. As of December 31, 1970, less than 4% of loans from a portfolio amounting to US$1,254 million were in arrears for over one year, and actual losses from bad debts are negligible\. Other International Agencies 3\.08 BNCR fully disbursed by May 1971 a US$5\.2 million loan made directly to it by IDB in 1965, with over 80% of the funds going to beef cattle production\. A new IDB loan to BNCR for US$6 million, also mainly for beef, was approved in February 1972\. There lo a maximum ceíling on sub-loans of US$40,000 and only farmera with groas assets below US$60,000 wíll qualify\. The terms to BNCR and to farmers are significantly more attractive (farmers' interest rate between 8 and 9% per annum) than i8 possible under the proposed Second Project as funda are derived from IDB's Fund for Special Operations\. Thus, the IDB loan will, to some extent, compete wlth the Second Project as its predecessor did with the First Project\. This was one of the difficulties in getting the First Project moving as BNCR ís the largest co=mercial bank\. It has used some First Project funds recently as it has not had lower cost IDB funde available, but now it has again under the new IDB project, BNCR's Bank usage will fall or cease\. Estimates of total credit demand are, however, much greater than could be met only by the IDB loan and, further, IDB funds will be channelled only through BNCR\. Since farmers tend to remain customers of their usual coimnercial banks for loans even when they are at sllghtly greater cost, no signlficant drift of customers from the other three PBs is expected\. Further, although the maximum size of IDB's farmers' loans is larger than the average loan expected under the proposed Second Project, a number of Second Project borrowers would be íneligible for IDB funds for reasons of size\. 3\.09 An IDB loan of US$2\.5 million, approved in 1970, is not competitive wíth the Bank but, rather, ls expected to be complementary in that it will strengthen agricultural research and extension actívities and construct MAG regional centers\. 3\.10 Another complementary loan was made by USAID at the end of 1970\. Total program cost is US$30 million, approximately US$7 million of which is for credit through the bankíng system\. Much of the program íB devoted to improvement of the agricultural ínfrastructure, with particular emphasis on small farmers, and a major component wlll enable such farmers to obtain land títles, the lack of whích has been a constraint in granting credit to them (from all sources, including the Bank)\. The USAID miesion in Costa Rica, with its staff of eight professionals in agriculture, is well suited to supervise the program and lf it la successful, the demand for credit ia likely to exceed the sum available\. Accordingly, there are reasonable prospects that credítworthy farmers who are conducting viable operations would be interested in participating in the Second Project\.  -8 - 3\.11 The lending portion of the USAID program is adminIstered by the Agricultural Credit Unit in the CB establíshed under the Flrst Project\. The close association of the two lending prograas la benefici\.al to both\. IV\. THE PROJECT A\. General Description 4\.01 The Second Agricultural Credit Project (totalling about US$16\.5 million) would help finance mned!um- and long-term Investments over a period o: three years to increase production of livestock, crope, and torestry, and to establish agro-lndustries\. Items included under major Investnent categoríes are shown in Annex 3, Schedule B\. Livestock would be mainly beef and dairy cattle (46%), and crops (41%) would include annuals (mainly rice and maize), fruit trees, other tree crops (banana, plantaina, oíl palrn), and pineapples\. Investments would be made by individual farmers; thte Central Bank would be responsible for administration of the lendlng program through participating conmercial banks\. Technical servícea (2%) would be provided ts strengthen the work of the Central Bank and participating bank technicians, 4\.02 The following table shows the major investments expected to be made over the three-year period: Typical Size of Number Investment Individual of Per Total Investment _roject Sub-loans Total Sub-borrower Investment (ha) (ha) \. \.e'7o0o) \. Livestock Beef 300 180 54,000 218\.5 39,330 Dairy 40 50 2,000 158\.9 7,945 ,om,lementarv _evelop¿ment -- -- 9,930 _ C ropKs Annual Crops 50 60 3,000 82\.7 4,965 Fruit Trees 15 30 450 119\.2 3,575 other Tree Crops 300 l0 3,000 2,422\.9 24,230 Pineapple 100 10 1,000 496\.5 4,965 Forestry 1,000 10 10,000 529\.6 5,295 ear!-industr --^ 20 -- 327\.5 Total 370 73L450 106, 785  - 9 4\.03 Investme"nts under the Second Project would be mainly to support beef breeding and fattentn$ operation's es under the First Project and to extend lnto dairyin; (Annexep 4, 5, nd 6)\. Investmenta for beef development would be main1y in the Dry and Wet Tropico on available land suitable for pasture develop;aent *pd close to p rts that would give access to large foreign markets\. The PrQject wQul4 fin*nce expan_ion of livestock operations through the upgrading 4f bveeding otoclk (nias 4nd plfnt8) re,lted to land develop- ment\. PNstYre Improvqient wouid be ;chieved through legume-grass asuociations with phosph;tic fort1ilters, which hay bceen deu»n8trated to be en efficient form of devolopmopt, 4\.04 Under the First Project, loans to farmera for livestock develop- ment included as a precondition, pyot,ctiln of ani=m4 health\. This would continue to be a requireuent unter the proposed Project end aseurances to this effect were obtezned during ngoQti\.tIouns\. Regul*r vaccination programa *gainat epizOQ~,tcs, *opei#lly q#tc"lo4i and tvblrculosi, operete vel under the supervtsoit of M1AG\. Cropa 4\.05 Loens for crop development (Annexes 7 and 8) would finance cotton, bananas, 8n4 pine4pple and would addiLtionaly cover other annual crops, mainly iaize and rice, oilseçds (qeoame and groundnuts), beans, --vegetables, iwshrois, fruits and fruit trees (qvocados, citrus and mangos), and oil pala\. Invesernts for annal Crops would be mainly In the Dry and Wet Tropica, banu4a *nd oil palm in the Wet Tropice, and pineapple ín the Central Plateau\. These loanq would he usde on the basis of farm development plans for eílsting farms\. Oil palm i8 a spe*ial casç, since the minimum viable nucleus (*bout 2,000 ha of oil p;lm) would be established in a selected area in the Wet Tropics (<tlantic waterohed)\. Potential oil pala farmer8 would be current b4nana and coqoa growera wiuhing to diversify\. The former would particip4te indivídually, while the latter, mainly small farmers, would participate as membqrs of a cooperative yet to be organized\. Because of the time interval betwçen planting anid uignificant production (i»ore than three yeara) , it is unnecessary and ín*ppropriate to provide finance for processing facilitieo qn4er the propgsqd Project\. It would be sufficient to require careful coordination to ensure that oporadic development by individual farmers did not inhibit efficient harvesting and procesing arrangements\. For these reasons, «a,urances were obtd\.ned during negotiations that technical and financi4l juotficatíions for Qi1 pg4, developm*nt would be drawn up in consultatiQn with MA4G end the MWn$!tWy of Industry and Commerce and be submitted for prior Bne)c ipproyg\. 4\.06 Frult f4rws would be located in ecologically suitable areas selected in the inter\.oVnta4in plateau and piedionto of the Central Plateau and ln the Dry Tropics Avocados and citruv w9ulo be 8orn iín frost-free ;reas and in deep and vell dreined solsg\. Tr*e* yoy1d be propqrly protected by windbreake\.  4\.07 CB would ensurc that borrowers for crop development had acquired selected seeds and seedlings from a source acceptable to MAG and that they carry out a fertilízer program appropriate to soil coOditiono and crop requirements\. Assurances were obtained duríng negotiations that the procedures set out in this and the preceding paragraph would be followed\. Forestry 4\.08 Loans for forestry development (Annexes 9 and 10) would be made throughout the country\. About 50% of the forestry lendíng program wouUd cover producers in the Wet Tropics and the rest would be distributed between the Dry Tropics and the Central Plateau, where Costa Rica la well endowed with indígenous forests\. 4\.09 In the forest areas commercial species of timber would be extracted and measures taken to replace cut crees through reforestation and afforestation, whlch generally have been neglected\. While the present legal\. base 1/ for protectíng the ecology through conservation of forest resources Is adequate, enforcement ls difficult and there la presently little incentive for producers to follow the sound principles contained in the forestry legislation\. Government, through CB, would therefore support an approach to forest management that would encoarage and protect the forest resour¢ee and the natural environment of the country\. Proposed on-farn infrastructcre lnvestments would be common to the three types of land use (cropping, grazing, and forestry)\. To qualify for a loan, each farmer vould submit a development plan, lnciuding an inventory of forest resources aS well as the commercially usable volume (as required by lav), on the basis of which certain investments would be financed under the Project: (a) land and forest development; (b) machinery and equipment; and (c) small nurseries to produce the needed number of trees for re-Zorestation\. During negotiationa, aJaur- ances vere obtained that development plana for forestry would be carried out in consultatlon with MAC\. Compglementary Development 4\.10 Under the Second Project, lt would be feasible and desirable to carry out additional investments on commercially viable farms, already possessing most assets necessary for effícient operatíon, to consolidate cheir position\. Investmenta would rmainiv involve completion, expansion, or renovation actívities related to farm machínery and equiprient, planting, cattle handllng facilities, anc installatíons, as well as rehabilitation works linked both to land asud crops\. !he cost and benefits derived from such ínvestments would be justífied on indivídual bases through complementary tarm development plans\. This is dlstinct f1ox tie large-scale establishlent of new farmnland and major development of exlsting farms, which has comprised the whole of the First Proiect and la expected to attract the large"t nuFber of sub-borrowers under che Second Proiect\. Present informatIon is in- adequate, l¡owever, to p;edict a priori, wlti ¿ substantial degree of accuracy, the nwnber of loans likely to be made in each Investment category\. 1/ Forestry Law No\. 44óo of November 25, 1969\.  - 11 - Their identification would depend on the results of field appraisal which would differ from farm to farm\. However, based on requests received by CB and PBs during the First Project, many potential participants are expected to apply\. The total of this type of investment ís expected to be of the order of US$1\.5 million and this la included in the categories of livestock, annual and tree crops, other than fruit, described above\. In particular, this approach would be relevant to lending to amaller farmers benefitting under the USAID project referred to in paragraph 3\.10\. Agro-industries 4\.11 Agro-industry 15 still on a small and inadequate scale\. Part of the Project aims at assisting farmers to develop or improve different agro-industrial enterprises (Annex 11)\. Among these are 11 packing plants for banana and pineApple\. These processing, storage, and handl\.ing facilities would either be used only for Project operations or to provide services to other farmers (small and mediím), thereby strengthening the marketing of theír farm products\. 4\.12 The remaining ínve8tments would be for the expansion and improve- ment of slaughterhouses, milk pasteurization plants, feed concentrate mixing plant, grain storage, sawmills, and small planes for pesticide and fertilizer spraying, for which there i8 an increasing demand\. Most proposed agro-indus- tries would be privately owned and operated mainly by individual producers\. Except for the fruit packing plants, no feasibility studies or proposals have been made\. During negotiations, assurances were obtained that technical and financial justifications for agro-industry sub-loans would be drawn up in consultation with CNP and the Ministry of Industry and Comerce and submitted for prior Bank approval\. Technical Services and Training 4\.13 Strengtheníng of the Agricultural Credit Department of CB is described in paragraph 5\.04\. Of the four additional professional staff required on a full-time basís, it is unlikely that any would be expatriate\. llowever, CB expects to require forelgn technical expertíse, either by way of short-term assignments or by engagement of foreign consulting firms, parti- cularly in the areas of forestry development snd agro-industry\. Accordingly, about US$145,000 is provided for such expatriate staff or consultants\. A number of additional vehicles for CB and PB staff would also be supplied under the Project\. 4\.14 Fellowships wíll be required for further training of CB, PB and Government staff in institutiong abroad\. Detalls of the costo and the nature of technical services and training are set out in Annex 12\. On average, the periods of training are expected to be for one year per trainee, but longer or shorter periods may be appropríate\. It ls expected that about 15 trainees from CB, PB, MAG and other agencies would participate -- five in agro-indus- try, three each In marketing and farm mnaagement/agricultural credit, and two each in livestock and forestry\. kxcept for lívestock, these allocations reflect areas in which Costa Rica lacks sufficlent expertise to support  its growing requirements\. Benefits of sucn training wolildQ not acerue :o the proposed Project but are intended to strengthen the teehnological base for future agricultural efforts\. During negotiations, assurances were obtained that the fellwship program would be establlshed in agreement with the Bank\. C\. Cost Estinates 4\.15 Total project cost is estimated at about < 109\.2 i1lioon (V3$16\.5 million), of which 0 59\.5 million (US$9\.0 million) would be the forel\.gn exchange component\. Cost estimates are summarized below: 0 US(million) Category Local Foreign Total Local Foreig Total I1C Livestock Beef 16\.9 24\.5 41\.4 2\.5 3\.7 6\.2 38 Daíry 3\.2 6\.0 9\.2 0\.5 0\.9 1\.4 8 20\.1 30\.5 50\.6 3\.0 4\.6 7\.6 46 Crops Annual 3\.3 4\.3 7\.6 0\.5 0\.7 1\.2 7 Fruit Trees 2\.3 1\.3 3\.6 0\.3 0\.2 0\.5 3 Other Tree Crops 15\.8 12\.4 28\.2 2\.4 1\.9 4\.3 26 Pineapple 3\.1 1\.8 4\.9 0\.5 0\.2 0\.7 4 24\.5 19\.8 44\.3 3\.7 3\.0 6\.7 41 Forestry 2\.4 2\.9 5\.3 0\.4 0\.4 0\.8 5 Agro-industries 2\.5 4\.1 6\.6 0\.4 0\.6 1\.0 6 Technical Services 0\.2 2\.2 2\.4 12 0\.4 0e4 2 Total 49\.7 59\.5 109\.2 7\.5 9\.0 16\.5 100 _1 Percent of Total Project Cost\. /2 Less than US$0\.1 million\. Detaíls of the cost estimates are shown in Annex 13\. Although Costa Rica has recently introduced multiple exchange rates, the lower official rate has been used in this report as all Project importa fall within the category of goods for which transactíons are made at the official rate\. Siuilarly, export benefits will accrue at that rate\. Costa Rica has suffered little inflation in recent year asnd, although sone increases in local costa can be expected to follow the introducti\.on of the multiple rates, it ís not anticipated that they will be substantial\. Project cost estimates are based on present prices, including a 107' allowance for cost increases\.  - 13 - D\. Financing 4\.16 The total Project cost of US$16\.5 million would be financed by a Bank loan of US$9\.0 million (55%); PBs' contribution of US$4\.3 million, or 26%; and sub-borrower contributions of US$3\.2 million, or 19%\. A summary of the financing plan of the Project follows: Participating Sub-borrowers Banks IBRD Total Category Livestock 1\.5 2\.0 4\.1 7\.6 Crope 1\.3 1\.8 3\.6 6\.7 Forestry 0\.2 0\.2 0\.4 0\.8 Agro-industries 0\.2 0\.3 0\.5 1\.0 Total Lending Program 3\.2 4\.3 8\.6 16\.1 Percentage of Lending Program 20% 27Z 53% 100% Technical Services - L 0\.4 0\.4 Total Project Cost 3\.2 4\.3 9\.0 16\.5 Percentage of Project Cost 19% 26% 55% 100% L1 Less than US$0\.1 million\. cB would be the borrower and bear the foreign exchange risk\. The Bank loan would be for 18 years, including five years of grace\. The lending terms and conditions applicable to CB, PBs and sub-borrowers are detailed in Annex 3, Schedule A\. If demand for credit under any category should decrease, the unutilized amount of the loan allocated to such category could be reallocated to another category\. During negotiations, asaurances were obtained that CB would reimburse 67% of PBs' eligible loans and PBs would, in turn, require sub-borrowers to contribute at least 20% to the cost of their investments\. PBs would, in addition to providing funda other than those supplied by sub-borrowers and the Bank, undertake to make avaílable the necessary seasonal finance to Project sub-borrowers\. E\. Procurement 4\.17 The investment items are small and varied and unsuitable for bulk procurement\. The country has many well established importers and dealers in the machinery and equipment required under the Project\. There are at least a dozen large agricultural suppliers in San Jose, who are represented by a total of about 25 regional dealers in urban centers throughout the country\. These suppliers sell the major brands of agricultural machinery and equipment,  - 'í 4 - fencing material, hardware, veterinary products, seeds, ferilíizers, and pesticídes imported mainly from Western Europe and the U\.S\. Spare parta and repair services for the varíous types of machinery and equlpment are adequate\. 4\.18 Importe of these producto are freely permitted, and lmport taxes are low, generally not exceeding 10%, with few exceptíons\. Procurement of all Project itema would, therefore, be through normal comercial channels\. F\. Disbursement 4\.19 CB'9 disbursements to PBs would take about four years\. The dís- bursement schedule (Annex 15) takes into account retroactive financlng (not exceedlng US$500,000) of disbursementa made by CB after September 1971 following full commitment of the First Loan\. Loan proceeds would reimburse CB for 67% of the payments made by PBs for sub-loans\. The requests for withdrawals prepared by CB would be supported by documentation, includling recorda showing disbursements by investment categories and certification by PB technicians that such disbursements were for approved development plane\. Reimbursement for support services, technicians, fellowships, and vehícles would be made on the basís of foreign exchange co0ts\. V\. PROJECT ADMINISTRATION 5\.01 Organization and management for the Project would be similar to that in the First Project, with certain adjustments (para 5\.04)\. The CB would administer the Project and make funds available to the four PBs\. It would be assisted by the Ministry of Agriculture (MAG) and the Consejo Nacional de la Produccion (CNP)\. Detalls on CB and PBs are given in Annex 3, snd the organizational structures of CB and MAG are showm in Annex 3, Schedule C, and Charts 1 and 2\. Ministry of Agriculture and Consejo Nacional de la Produccion 5\.02 The Project would be carríed out by the PBs\. MAG and £NP would advise PB technicians in matters related to the preparation and appraisal of farm development plans and assist farmers in implementing their invest- ments\. Coordination between the CB, MAG, and CNP ia adequate; they meet through a commlttee at least once a month\. Central Bank 5\.03 CB ls administered by a Board olf Directora composed of seven members, including a representative of the \4inístry of Finance\. Each PB may appoint a delegate to attend Board meetings, wlthi volce but no voting power\. The Board of Directors appoints the CB Manager and Deputy Manager\. The First Project was implemented by a unit under a Director who reported to CB's Manager\. The unit presently consists of credit, lívestock, and crop specialists who review each loan appralsal, guide PB technicians and supervise their work\. In víew of the expanded scope of operatione envi- saged under the Second Project and the USA')\.) project ti ara 3\.10), GB  - 15 - recently changed the unit to an Agricultural Credit Department (para 3\.07), which will concentrate mainly on agricultural credit policy with less emphasis on tight supervision of PB technicians\. 5\.04 The Agricultural Credit Department is operating effectively\. However, in order to cope with the increased lending volume under the Second Project, more staff will be required\. The net increase would be four pro- fessionals specialized in farm management and credit\. In addition, there should be a staff reallocation within the Department\. At its present size, it requires a Deputy Director and a second regional resident officer (Annex 3, Schedule C)\. Staff numbers, however, cannot be too closely defined be- cause of the USAID project work in the Department and an expansion of more than four additional professionals may be necessary\. Accordingly, a condl- tion of loan effectiveness would be the recruitment and allocation of addi- tíonal professional staff as set out in Annex 3, Schedule C\. An assurance was also obtained during negotiations that a staff development plan would be prepared by CB before September 30, 1972, and the Bank would review its suitability as the Project proceeds\. 5\.05 CB would ensure the continuance of sound appraisal, supervision, and disbursement, and it would supervise the execution of the program\. It would also ensure the provision of domestic bank financing and act as a residual source of such funds\. PBs would be primarily obliged to contribute these funds (para 4\.16), but to avoid any problem such as the one referred to in paragraph 3\.05, assurances had been obtained during negotiations that GB would make available to PBs, when necessary, counterpart funda to match investments as well as lhcremental working capital, and that fundo required for the Project would not be included in the credit ceilings or similar mechanism allocated to each PB\. Participating Banks 5\.06 As mentioned earlier, the four state-owned commercial banks have played a dominant role in agricultural credit and are consequently ex- perienced in lending in this field\. Their sound financial positions are reflected in good and consistent earning records\. They are also adequately staffed and have competent technical personnel to appraise and supervise agricultural loans (para 2\.11)\. Lending Policies and Procedures 5\.07 PIS staffs would assist individual applicants in the preparation of detailed farm plans, income and expenditure estimates, and cash flows; appraise all sub-projects in terms of incremental returns, and submit re- commendations to their management\. PBs would extend loans to borrowers not exceedlng 80% of their investments\. Sub-loans in excess of US$100,000 or for oil palm and agro-industries would require prior approval by the Bank (paras 4\.05 and 4\.12)\. Technical staff of CB and PBs would periodically visit borrowers to ensure that fundo were being used for intended purposes\. Assurances to this effect were obtained durlng negotiations\.  5\.08 The following maximum repayment perio<s to suil-borrowers vould be appropriate: Years Repayment Grace Total Beef 7 5 12 Dairy 7 5 12 Annual Crops 3 3 6 Fruit Trees 7 5 12 Other Tree Crops 7 5 12 Bananas/Plantains 10 2 12 Pineapple 6 2 8 Forestrv 7 5 12 Agro-industries 7 3 10 During negotiations, assurances were obtained that these peri\.ods would iot be exceeded\. The total period for beef 1s slightly longer than that allowed under the First Project which, while adequate for most sub-loans, was a little short for some investmenta\. Interest Rates 5\.09 Government, through CB, has made credit available at preferentia\.l rates by the commercial banks for agriculture and industry\. Taken togetlier with the system for credit ceilinga referred to in paragraph 2\.13, these measures cause more than the usual difficulty in arriving at a true rarket rate of interest\. Interest rates on most agricultural and industrial loana have since 1966 remained without change At 8Z per annum, compared with 9 to 12% for other loans\. On all lending, the comercial banks %ay also charge, at their option, up to 1I per annum comuission (para 2\.15)\. The differential between agricultural and industrial lending and other lending is maintained in the CB discount rates, which, broadly speaking, are 4Z for agriculture and industry and 8% for other pposes\. 5\.10 An exception to the above rates has been ¡mde in the case of the First Project\. As observed ín paragraph 3\.02, CB has allowed en effec- tive rate to farmera of 9-3/4%, 3/4% more than originally envisaged by the Bank\. Thís has been used to give a higher margin to the cormercial banks and CB to help cover admínistrative costa\. The comercial banks consider they have operated the First Project profitably\. The Bank interest rate for the Second Loan would probably be 1% more than for the First Loan ard CB proposed to pass on Bank funds at the :4nk ¡' standard rate plus coiit~ent charges (without necessarily adding a a4rgln of 1/4 of 1% &a at present)\. CB and PBs preferred not to change thelr rates to farmera ao they believe the narrover apread would be sufficient to operate a larger volume of funda profitably\. 5\.11 The interest rate to stib--borrowers could be Increased to be more in line with the opportunity cost of capl,tal, which, on the basis of free- market interest rates, vould appear to be at least 12%\. Although an ínterest  - 17 - rate of 12% would be well within commercial\. farmers' debt repayment capacity (financial rates of return range from 18% to 35%), it would raise the medium- and long-term lending rate to almost 50% above rates charged on most agricultural loans, including those made by IDB (8%) to miedium-sized farmers similar to those under the Project\. Since suct a drastic upward adjustment could adversely affect the willingness of farmiers to borrow under the Project, the rate should remain the same as under the First Project, 9-3/4%\. CB would bear the foreign exchange risk and oI-lend Bank funds to PBs at not less than 7-114% interest; the rate of interest charged to farmera (including coimissío11s) would not be less than an effective 9-3/4%\. CB may decide to continue charging PBs for its administrative costs and IBRD's conmitment fees\. Accounts and Auditing 5\.12 The PBs have good accounting proceduzes\. Project accounts a-e kept separately, but are handled through their rormal accounting systers and the CB's; an accountant in the CB Agricultural Credit Department works in a liaison capacity with the CB'3 Accounting Department\. All PBs are subject to audit by the Auditor General of Banks, appointed by the Central Bank Board of Directors under the Central Bank Law\. Full details of audit arrangements are set out in Annex 3\. A series of interim audita comprisíng regular and unscheduled visits to commercial hanka and their customers culminates in a final audit, with a report produced relatively promptly\. In addition, each bank maintains an internal auditing unit\. Assurances were obtained that separate accounts would be maintained and audited by independ- ent auditors acceptable to the Bank\. The arrangements for audit by the Auditor General of Banks were deemed satisfactory under the First Project and would be acceptable for the Second Project\. VI\. PRODUCTION, MARKETS, PRICES, AND PRODUCER BENEFITS Product ion 6\.01 Incremental production due to the Project would be important\. It is estimated that Project beneficiaries would, at full development, produce annually, In addition to their present production, about 13,000 tona of beef; 7 million litera of milk; 8,000 tono of maíze; 2,000 tons of rice; 3,000 tons cach of avocados, mangoes and citrus fruita; 82,000 tons of bananas and plantains; 24,000 tons of fresh pineapples; and 400 million m3 of timber (Annex 16)\.  Markets and Prlces (Annex 173 6\.02 Beef\. The increases ln output from the Project would easlhy be absorbed by rislng domestic demand and strong external markets, as reflected in the upward trend in prices\. Projectiona to 1980 show that world import demand for beef would contínue te rise faster than export avallabillties\. Unlike many suppliere, Costa Rica, free of foot and mouth disease, has access to lmportant markets such as the US\. The expected buoyanLt tnterna tional trade during this decade would\. therefore, give Costa Rica ar\. opportunilty to export all the beef ¡t can, especially to the high priced US market\. In fact, domestic consumptíon requirementa and anticípated exporte to the US market alone would be sufficlent to absorb Costa Rica ts output durlng the 1970's\. 6\.03 Current prices received by producera have been used in estl\.atlng the financíal rate of return\. These prices average US$0\.39 (¢ 2\.60) per kg liveweíght, but because of anticipated shortfalls in world supplies ra1atíve to demand during the 1970's, they are expected to increase\. The projected hlgher prices have been used in calculating the economic rate of return\. 6\.04 Milk\. The increment in milk output would be consumed do\.:esticaRllJ\. since, on a per capita basis, the additional production would lncrease supply avaílabillties by only about 3 kg per annum at the time of full\. development\. Thís la a relatively amall amount, considering the fact that this product has a high income elastícity of demand\. Producer prices are fíxed by the Government\. Currently, producers receive a príce of US$0\.133 per kg, whnr' has been used to estimate the financial rate of return\. Costa Rica la cae of the lower cost producers among Central American countries, lower than Nicaragua and Honduras, and in comparison with many countries, ita producer príces are aleo lower\. Accordingly, current producer prices can be used to estimate the economic rate of return\. 6\.05 Basic Grains - Rice and Corn, Becanse domestic produc,-lori of rice and corn has been *nable to keep up wíth consumption requirements, the addítiona]\. output from the Project wou1\.d be readlly absorbed by the doomestlc market and help reduce Importe\. The current guaranteed minimum support príces for rice and corn paid to producera are used in estimating the financial rate of return\. Hovever, projected world prices for rice and corn are lower than current producer prices by about 15% and 20%, respec- tively, and have therefore been used "£n estimating the economlc rate of return\. 6\.06 Bananas\. The international prices of bananas have declined iln recent years\. Production for export ¡o expected to resume its strong upward trend ln the next few years, however, which would lead to seríous imbalances and marketlng diffículties unleas consumption can be expanded in countries (the centrally planned countries of Eastern Europe) where per capita intake remains low\. Per capita importes into the high income developed countries of North Ameríca and Western Europe appear to have stabilized\. Furthermore, the increasing competition among producing cauntries ls reflected in the  - 19 - International trade requírement that supplies of fruit be regular, of a consístently good qualíty, free of blemiqhes, attractive in appearance, and of good keeping quality\. Costa Rica meets this requirement with the Cavendish variety and seems to have made significant inroads in the market for the Gros Michel variety in recent years\. 6\.07 The estimated financial rate of return has been based on current producer prices but, fromn 1975 onwards, a 10% lower price for bananas has been assumed\. However, ín view of the increasing competition and weakening in prices that can be expected ln the ne4r future, a projected price that ls lower than the current producer price has been used to estimate the econpmic rate of return\. At the projected price level, Costa Rican productíon would remain profitable as it is low cost and there ís increasing emphasis on the pro4uction of the desirable high-ylelding Cavendish varíety and on good quality fruit\. 6\.08 Pineapple\. Part of the production la beíng absorbed domestically (fresh fruit and preserves) while the rest ia exported as fresh frult to the Federal Republic of Germany\. The first shipments encountered some technical problemis connepted with temperature and humídity but they have since been solved\. It is expected that additional production generated by the Project would be largely absorbed by the expanding German market and posslbly by other Western European countries\. Current volumes of plneapple domestícally consumed and exported 4re about 0\.7 milllon kg (O 160,000) and 1\.5 million kg (O 400,000), respectively\. 6\.09 Forestry\. Basically, Costa Rica's timber production is used doomestically\. A small volume of selected woods (mrahogany and Costa Rican oak) is exported as furniture or barrels for wine and some sawn timber is exported to Panama\. The additional production expected under the Project would be absorbed ln the country, mainly for rural housíng\. Producer Benefits 6\.10 Production and incomes of the farms and agricultural processíng facilíties financed by the Project would increase signifícantly\. The return on all incremental Project investments would range from 18% for bananas to 35% for forestry\. Financíal returna and income to farmers have been estimated on the basis of farm model calculations (Annex 18)\. On the basis of invest- ment costs, yield, and price assumptions detailed in the models, incremental farm incomes after debt service and income tax líabilities are estimated to be as follows, at full development:  20 - Farm Model 1 II IV v Beef Dairy Banaias Foreatry_ Farm size (ha) 300 40 300 1,000 Capital Investment in Colónes 218,500 158,900 2,422,920 529,600 Full Development Year: 10 8 3 4 ------colones--------------- Gross Income 191,600 153,900 3,505,500 363,000 Production Cost 42,800 61,100 3,150,000 185,000 Net Income Before Debt Service and Income Tax 148,800 92,800 355,500 178,000 Debt Service (Principal and Interest) 32,310 23,500 283,910 78,320 Net Income After Debt Service and Before Income Tax 116,490 69,300 71,590 99,680 Income Tax 25,850 12,070 14,320 20,970 Net Income After Debt Service and Income Tax 90,640 57,230 57,270 78,710 6\.11 The net incremental income has been derived after taking into consideration taxes, duties, and other relevant levíes\. ThIe magnitude ot the net incremental income would be sufficient in all Project components to pro- vide adequate incentive to invest under the Project on the termas and condí- tions proposed\. During the first three years, Government vouid collect about t 1\.8 million from duties on Lmported machínery and other investment items\. In addition, the export tax, generated uaLnly by increaental beef and banana output, is estimated to reach about 0 340,000 in year 3 and to atabilize at about 0 500,000 annually on present tax ratea, once beef and bananas have reached full development\. Annual income tax recelvable by government would total about 0 8 míllion by year 10\. VII\. BENEFITS AND JUSTIFICATION 7\.01 The Project would increase agricultural production for domestic consumptíon and export significantly as shown la Annex 16\. The agricultural processing facilities would also increase the value added of agricultural production\. Since it í8 expected that about 40% of the beef and all the bananas and pineapples produced under the Project would be exported, their net foreígn exchange value would amount to about US$8\.0 million per annwn at full development\. In addition, the iaport substitution of rice amd corn corresponding to the lncremental quantUties produced aunually at full production would mean an annual net forelgn exch age savings equivalent to US$0\.6 million\.  - 21 - 7\.02 The economic benefita and costs of the Project are set out in Annex 19\. The economic rate of return for the Project at projected world market prices has been estimated to range from 20% to 37%\. As the incremental incomes and rates of return have been based on representative modelo, a nuaber of them may, in practice, range higher than indicated, while some would expectedly be lower\. 7\.03 The sensitivity of the Project was tested by assuming that the net lnvestment value of production would be 10% below the estimates used in the models, and the results still showed an adequate rate of return ranging from 14 to 35% (Annex 19)\. 7\.04 Proper lmplementation and execution of the proposed investment program would allow diffusion of effective experience now possessed by only a few, to a larger number of producers\. Beneficial environmental effects would be obtained by protection of the forest resources and the natural ecology of the country (para 4\.09)\. Social benefita of increasing employnent on farms and in processing facilities, which would increase Costa Rica's employment opportunities, cannot be accurately measured; these factors enhance the Project's already satisfactory rate of return to the economy\. VIII\. AGREEMENTS REACHED AND RECOMMENDATION 8\.01 During negotiationa, the following principal points were agreed to that CB would: (a) lend to PBs under the Project at not lees than 7-1/4Z lnterest per annum, and ensure that PBs lend to sub- borrowera for not less than an effective 9-3/4% interest per annum\. CB would bear the foreign exchange risk (para 5\.11); (b) submit to the Bank for prior approval all sub-loana exceeding US$100,000 or for agro-industries or oíl palm (para 5\.07); (c) establish a fellowship program in agreement with the Bank (para 4\.14), and prepare a ataff development plan of ita Agricultural Credit Department before September 30, 1972 for review by the Bank (para 5\.04); and (d) ensure that the PBs follow the other lendíng terma and conditiona as set out in Annex 3, Schedule A\. 8\.02 As a condition of credit effectiveness, CB would: (a) employ four additional qualified experts, who are apecialized in farm management or agricultural credit; and  - 22 - (b) appolnt a Deputy Director and a Regional Resident Officer for th¿ Atlantic Coast area (para 5\.04)\. 8\.03 The proposed Project is suitable for a Bank loan of US$9\.0 mill1on for a term of 18 years, including a five-year grace period\. April 12, 1972  ANNEX 1 Page 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Agricultural Growth in Costa Rica, 1965-70 1\. The economy of Costa Rica is heavily dependent on agriculture\. The sector acgounts for about one-quarter of Costa Rica's groas domestic product, contributes between 75% and 80% of total export receipts, and pro- vides employment and income to some 40% of the employed population\. The economic growth of Costa Rica, therefore, would depend, to a large extent, on increases in agricultural production, exports, and productivity\. 2\. The value of agricultura1 production rooe from US$147 million in 1965 to US$219 million in 1970, 4n increase of about 49%\. Annual growth rates at current prices averaged 8% during this períod\. Since agriculture is the most important sector in the economy, ita rapid expansion has been prl- marily responsible for the significant growth rates in the country's groas domestic product, which increasqd by an annual average of about 9\.5% during the period concerned (Table l)\. 3\. Expansion in agricultural production has been confined mainly to commodities for export, as can be seen in Table 2\. Total agricultural exports increased from US$106\.0 million in 1966 to US$175\.9 million in 1970, or at an average annual rate of about 14%\. If price levels for the two most important exports, coffee and bananas, had not generally declined, total receipts would have been much higher\. The five major agricultural commodities -- coffee, bananas, meat, sugar, and cacao -- all registered general increases in quantity exported, particularly bananas and meat (essentially beef)\. Between 1966 and 1970, the volume of bananas exported more than doubled 1/, while meat nearly tripled\. On an annual rate basis, the increase averaged 23% and 37% for these two producta, respectively\. The high rate of increase in beef production in recent yeara has been mainly the result of strong external demand and higher prices\. Milk productíion, mostly for domestic consumption, also increased gteadily from about 142 million kg to 165 million kg or at an annual rate of about 4% during the period concerned\. 4\. In the near future, Costa Rica's export prospects would continue to be mainly determined by the behavior of the traditional exporta - coffee, bananas, sugar and cocoa - which still account for about two-thirda of total exporta\. It is envisaged that the rate of expansion In the production and 1/ Production in 1969 was about 700,000 tona (21 million bunches), still below the 1934 peak level when about 1 million tono (34 millian bunches) were produced\.  ANNX 1 Page 2 exports of the traditional products would decline signifirantly i\. the future because less favorable market prospecto and lower prices are anticipated\. Thus, in order not to slow down the momentum of economic grovth, a major effort required would be to expand the production of import substitutes as well as other non-traditional exports\. The proposed credit project would help increase agricultural production, mainly the non-traditlonal exporto\. 5\. The Government has been actively encouraging the development of the agricultural sector\. Probably the most effective measure taken has been the Central Bank's regulation of commercial bank credit in favor of the agricultural sector, particularly for export commodities, such as bananasr and beef cattle, which have the greatest domestíc value added\. Thus, 57% of the total loan portfolio of the banks at the end of 1970 went to the agri- cultural sector, compared with 54% at the end of 1965\. The increasing emphasis given to the development of beef cattle is even more marked\. Of the 0954 million extended to agriculture by the banks as of the end of 1970, 41% went to livestock as against 32% as of the end of 1965\. 6\. The employed population engaged in agricultural production declined from about 55% in 1950 to an estimated 46% in 1967 and la expected to decline further (Table 3), while the other sectors have gradually absorbed an increasing ahare\. 7\. In order to sustain a continuing high rate of agricultural devel- opment, the Government, with the asaistance of IDB and USAID, has recently embarked on a scheme to provide expanded and more effectíve technical services for agricultural producera (Annex 23\. April 5, 1972  ANNEX 1 Table 1 COSTA RICA SECOND AGRICULTURAL CREDIT PRWOECT The Contribution of Agriculture to Gross Domestic Product at Market Prices, 1965-70 (in US$ Million) Percent Share of Agricultural Groas Domestic Agricultural Pro- Production mL Product duction to GDP 1965 146\.7 596\.7 24\.6 1966 150\.8 640\.9 23\.5 1967 165\.0 694\.2 23\.8 1968 181\.9 764\.2 23\.8 1969 209\.7 854\.1 24\.5 1970 219\.1 944\.7 23\.2 /1 Including forestry, fishing and hunting\. Source: Banco Central de Costa Rica, Cifras de Cuentas Nacionales de Costa Rica, Serie 1959/1968 Estimacion 1969\. April 5, 1972  ANNEX 1 Table 2 COST1A RICA Second Agricultural Credit Project Total Value, Quantity ard Unit Value of Agricultural Exporte, and Total Mcports, 1966-70 Agriculturo Exporte 1966 1967 1968 1969 1970 Coffee: Total value (US$'000) 52,64s9 54,841 55,264 55,833 72, Lr Quantity (tono) 54,849 66,163 68,539 67,649 68,862 Unit value (US$/kg) 0\.960 0\.829 0\.806 0\.825 1\.05P Banana: Total value (US$o000) 29,186 30,928 42,778 51,5148 66,770 Quantity (tons) 358,739 371,046 553,251 694,575 8O8,5155 Unit value (US$/kg) 0\.081 0\.083 0\.077 0\.074 0\.075 Meat: Total value (US$1000) 5,610 8,868 12,000 15,082 17?983 Quantity (tone) 7,273 10,885 14,628 16,632 17,473 Unit value (USgkg) 0\.771 0\.815 0\.820 0\.896 1\.03 Sugar: Total value (u$oo000) 8,693 8,390 8,710 9,099 10,144 Quantity (torn) 64L61o 62,404 62,820 62,820 67,390 Unit value (US$/kg) 0\.135 0\.1334 0\.139 o\.1145 0\.1 51 Cocoas Total value (US$'OO0) 3,103 3,146 2,955 7,063 1,942 wQuantity (tons) 7,743 7,194 5,200 9,060 3,266 Unit value (US$/kg) O\.4ol 0\.1437 0\.568 0\.780 0\.595 0ther: (US$l000) 6,800 4,400 5,200 6,0oo0/ 6,200 1/ Total Agricul tural Exporte (US$'o0o) 106,041 1í0,573 126,907 144,625y- 175,879 Total Exporta (US$'000) 135,500 1143,800 170,800 189,700 231,163 1/ Estimated Source: 1966-1968 from Provision for Social and Economic Development 1969-72 Vol 1, Planning Office (Costa Rica), 1970; 1969-1970 data from the Central Bwnk of Costa Ríca\. November 22, 1971  ANNEX 1 Table 3 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Employed Population by Sector 1950, 1963, and 1967, and by Size of Farms, 1963 1950 1963 1967 No\. of No\. of No\. of Sector Persona % Persona % Persona % Agricultural /1 149,591 55\.0 201,641 49\.5 209,271 45\./2 Manufacturing, Construction, and Public Utilities 43,102 15\.8 75,164 18\.4 85,378 18\.7 Other 79,291 29\.2 131,019 32\.1 162,029 35\.5 Total 271,984 100\.0 407,824 100\.0 456,678 100\.0 Size of Farme (ha) % Share of Agricultural Employment 1963 Leas than 10 33 10 to less than 20 11 20 to less than 50 17 50 to leses than 100 12 100 and above 27 Total 100 /1 Including a negligible number of persona engaged in mining\. /2 Estimated to decline to 41\.6% in 1972\. Source: Provision for Social and Economic Development 1969-1972, Vol\. I Planning Office (Costa Rica) 1970\. Censo Agro-Pecuario 1963, Ministerio de Economic y Hacienda, Costa Rica, 1965\. IBRD Report CA-7a, 1971\. Aprll 5, 1972   ANNEX 2 Page 1 COSTA RICA SECOND AGRICULTtJR CR\.TIT PROJECT Supporting Sorvices 1\. The agricultural sector in Copta Rica ls servçd by many governen*t, private and international institutions\. Within the Governmept, the most important is the M\.nistry of Agriculture and Anímal Husbandry (Ministerio de Agricultura y Ganaderia, MAG)\. The National Planning Office and the Ministry of Industries and Commerce a4so have some activities related to agriculture, the former in regard to the short-, medium- and long-term programo ard the latter in connection with agricultural statistico and census\. 2\. Another group of government institutions are the so-called au- tonomous offices, fully financed by the government but a4uiniutered and operated by their own boards of directors\. Among these institutlons, the National Council of Production (Consejo Nacional de la Produccion, CNP); the University of Costa Rica, through ita f4culty of Agronomy; and the banking system (essentially the CB's Training Cçnter) provide services to the agrí- cultural sector through commodíty price stabilizatíon, education, and financing\. 3\. Agricultural producer associationa, sometimes called chambers (camaras), exist at local and national levels\. The most irportant of these are the National Chamber of Agriculturists (Camara Nacional de Agricultores), the National Chamber of Livestock Producera (Capara Nacional de Ganaderos), and the Coffee Growers' Chamber\. Also important are the Cooperatives, such as the Federation of Coffee Producers' Coops, the Milk Producers' Coop, and the National Slaughterhouse Cooperative of Montecillos\. 4\. Costa Rica receives substantial economic and technical asaistance from international institutions\. The U\.S\. Agency for International Develop- ment (AID) has programa with the Ministry of Agriculture and the University of Costa Rica for the expansion and improvement of extension and research services\. The Inter-American Development Bank io very active in financial asaistance for agriculture through credit programa with the Banco Nacional de Costa Rica\. The Inter-American Institute of Agrícultural Sciences (IICA) of the Organization of American States (OAS) has ite headquartera at the Inter-American Research Station and Post-Graduate Agriculture College in Turrialba, Costa Rica\. The Food and Agriculture Organization (FAO) also conducta programa through MAG in cooperation with IICA\. 5\. MAG ís the main government ipatitution serving the agricultural sector, and has as its principal functions the formulation of agricultural policy, the provision of technícal assistance through extension and research activities, the prom»tion and control of plant and animal sanitation, and the coordination of the activities of all the national and foreign institutiona  ANNEX 2 Page 2 connected with the agricultural devwdnpment effort of the country\. To carry out these functions (see organization chart 2), MAC is asaisted by a National Agrarian Council, formed by representatives of the Natlonal Planning Office, Central Bank, A&ronomy Faculty of the Universlty of Costa Rica, and commercial banks, Natioval Productíon Council, the President of the Republic and the private sector\. The Agricultural Planning and Coordi- nation office of MAG acts as the executive secretariat for the Council\. 6\. At the executive level of MAG there are four main bureaus: Livestock, concerned mainly with aiímal sanitation; Agricultural Researct and Services; Forestry; and Agricultural Extension\. The sub-diviaions of these bureaus are shown in Chart 2\. Of recent creation is the new Ger\.eral Bureau for Regional Centers\. According to the policy of the new Goverrment, in 1971 most of the activities of MAG will be decentralized Into five or sl\.x regional centers, each headed by a Director represeuting the Minister\. On each Director's staff will be sub-directora representing the bureaus whoac activities are necessary in each particular region\. The extension offices are under the admínistration of the Regional Centers\. 7\. To gtrengthen MAG's supporting services, the Inter-MAericaa Develop- ment Bank two years ago granted a loan of US$2 million, whích la being used to construct offices for the Regional Centers and extension offices\. In October of 1970, AID loaned US$16 million to MAG to help finance a US$31 million four-year program to properly equip and train personnel in the five Regional Centers and 60 county extension agencies\. This expansion program is underway, and the national budget has the necessary allocationa to provide posts for five technicians and necessary administrative persoanel in each Regional Center and two technlcians, an office assistant and a secretary in each county office\. S\. Agricultural research la expected to Improve greatly, since, by agreement between the OAS aid the Government of Costa Rica, the Turrialba Inter-American Research Statlon will aim its work only to tie areas of interesc to Costa Rica and other Central Anaerícan countries Interested in this effort\. Also, AID ls financing the Unlversíty of Costa Rica ln taking over research work at MAC's atations\. 9\. According to a study made by the IICA-U\.N\. in September 1969, the technical personnel engaged in agriculture in Costa Rica, at the end of 1968, numbered 80 executives and 600 profeasional and techuical personnel\. Between MAC, the National Banking System, and the Consejo Nacional de la Produccion, there were 216 agronomist engineere, 113 agronorists, 14 veterinarians, 5 chemists, 22 4-H club apecíalista, 21 hore economistea, 14 accountants, and 3 civil engineera\. 1W\. Costa Rica has sufflicent qualified and experienced experta for the production of bananas, coffee, pineapple, tropical grasses, beef, or milk\. There are in each of these fielda a number of producers that use the most advanced technology that it is posaIble or econonical to cxnploy under the given environment\. Tlere is know-how In the country, not oaly among the farmers but at the level of national and international  ANNEX 2 Page 3 institutions providing services to the agricultural sector\. In fact, for guidance in banana, pineapple, and cattle production, Costa Rican experta are being used in other countries\. Productivity targeta for the average farmer are already obtained by the more progressive; the problem, however, iS how to make technical know-how and financial resources accessible to a larger number of producers\. These taaks are the responsíbility of MAG in the first instance and the-banking systea in the second\. 11\. Costa Rica needs addltional qualified and experienced technicians and additional training in the fields of non-traditional agricultural production such as cotton, citruw fruit8, poultry, food processing industries, and forestry industries\. Another arca in which assistance ¡s needed is research on Costa Rican native legume pastures using phosphate fertilizers\. April 5, 1972   ANNEX 3 Page 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT The Banking System A\. Introductíon 1\. Costa Rica has no specific agricultural credit institution\. Its banking system is composed of a Central Bank (CB) created by law in April 1953; four autonomous state-owned commercial banks, and two prívate banks\. The state owned are: Banco Anglo Costarricense (BACR); Banco de Costa Rica (BCR): Banco de Credito Agricola de Cartago (BCAC) and Banco Nacional de Costa Rica (BNCR)\. The two private banks (Banco Lyon, S\.A\. and Bank of America) are not permitted to accept deposita and their lendíng to agricul- ture la negligible\. They are not equipped for, or lnterested in, partici- pating in the Project and accordingly the remainder of this Annex deals only with the four state-owned banks\. Before 1953, the funetione of a Central Bank were performed by the Issuing Department of BNCR, the largest of the commercial banks\. In September, 1953 a separate law for the organi- zation of the national banking system was approved\. B\. The Central Bank Funetiona 2\. CB has the usual functions of such an institution and in particular: (a) promote the development of the Costa Rican economy; (b) promote monetary stability and a sound financial structure in the country; and (c) maintain the external stability of the national currency and assure ita convertibility\. The most recent amendment to the organic law (October 1970) stipulates that it ís the obligation of QB to prevent any decline in production because of a lack of credit and to promote the diversification of national production that would aleo strengthen the balance of payments position of the country\. 3\. Other specific duties of CB are to: (a) determine the interest ratee for all operations of the banking system; (b) establish limits on the volume of lending and investment of all banks; and  ANNEX 3 Page 2 (c) support a department for a General Auditor of Banks that supervises and controla the different departments of the CB and other banks\. 4\. CB rediscounts state-owned commercial Government banks' credit documents that originate from operations related to: (a) the productíon and processing of fazrm and Industrial products; (b) the import, export, purchase, or sale of producta and merchandise; and, (c) the storage of producto\. The date of maturity for these rediscount8 cannot exceed three years for the operations stated under item (a) or one year for the cases indicated in (b) and (c)\. 5\. CB is authorized to lend for price-\.tabilizing with Government guarantee and mortgage of products purchased\. 6\. CB can also guarantee the state-owned counercial banks and other institutions for medium- and long-term loan agreements with foreign finan- cial institutions, íf and when such loans are to be used to finance economic development programs\. In specíal cases, CB may advance funda from ite own resources to the state-owned banks and other institutions for developaent\. Credit Limítations 7\. Up to the end of 1970, CB tightly controlled credit expanslo through a set of ceilings imposed on the commerclal bankst loan portfollos\. These ceilings combined quantitative and qualitative controls through subcellings on credit to the various sectora of the economy and even to speclfic industries within a sector\. Eariy in 1971, the system was substantially simplified\. It now fixes percentage distribution among the actlvities that each conmmercial bank should have in its loan portfolio according to national priorities and the bank's tradltional loan pattern\. During 1971, however, the system proved incapable of controlling over-all credit expansion, and nodifícations were Introduced for 1972\. The main one placed Individual ceilinga on banks ánd requtired that they be revlewed quarterly\. The credit priority categortes are divided In four groupm a$ follows: Group I - Preferential Lines, includlng matnly the flnancing of coffee harvest, the marketing of coffee, sugar, cotton, cacao, rice, tobacco, banana, the fattenlng of beef cattle, pack\.In plante, production and export of industrial goo>cls, uníversity atudies\.  ANNEX 3 Page 3 Group II - Agro-Industrial Activities, - includes Agriculture and Porestry, Livestock and Pishing, Manufacture and extractive industry\. Group III - Other Activities and Financial Investment in Stock, includes Commerce, ínvestment in urban property, personal credit, electricity and transport and services\. Group IV - Economic Development Programe The amount set for group I, constitutes a minimum, in the case of groups II and III, the amounts set are to be maxima of financing permitted\. Group IV is considered outside the total amount set for the program and has no limitation for ita financing other than availability of resources\. The credit program for 1971 has a limit of 0 1,367 millions which was assigned by categories as set out in Table 2\. 8\. With regard to the maximum limits on credit to natural or juridic persons, the law prescribes that this shall not exceed 15% of the capital and reserves of the bank except in special cases\. In such cases, the ceiling could be raised to 25%, with the previous approval of CB'8 Board of Directors\. Organization 9\. The Central Bank of Costa Rica is an autonomous institution\. The Bank is governed by a Board of Director8, which is composed of seven members, as follows: (a) the Minister of Hacienda (economy); (b) the Director of the Planning Office; and (c) five persona with experience and knowledge of banking, appointed for an eight-year period by the Counsel of Government\. Each of the conmercial state banks may also appoint a delegate to participate in the meetings of the Board with voice but no voting power\. The Board of Directora appoints a Manager and a Deputy Manager for a six-year period\. 10\. CB has a department under the Board of Directora in charge of auditing ita other departments and those of commercial banks; below the Manager, there are five departmentg - Administration, Accounting, Agricul- tural Credit, Foreign Commerce, and Economic Studies - as well as a General Secretariat and a Treasury office (Chart l)\. C\. State Commercial Banks 11\. The four state commercial banks were established from 1863 to 1918 Banco Anglo Costarricense (BACR) in 1863, Banco de Costa Rica (BCR) In 1877, Banco Nacional de Costa Rica (BNCR) in 1914 and Banco Credito Agricola de Cartago (RCAC) in 1918\. These institutione are governed by their ovn boarda of dlrectors according to the general policy and administrative procedures set up under the organic law establishing the national banking system\. The Board of Directors of each bank ís composed of seven members, all of  ANNEX 3 Page 4 whom are ippoíntad by the Gove-nmXint ior a period of eight years\. lle M1anagers of these banks are appoirted by thelr respective boards of directors for a períod of six years\. 12\. The latest amendment to the organlc law (October 29, 1970) pro- vides that, in order to ipeed up transactiona in credit applications, the Board of Directors of each bank chall appoint a Credit Comrnittee\. Each committee consists of the General Manager, the other department managers, and the head of the credit unit\. They can approve loans for up to 0500,000\. The Board of Dírectors also csíigns Individual limits on loan approvals to managers and deputy managers\. 13\. The four banks each haye a Commercial Department through which they make their loans to agriculture, industry, and commerce, and a Mortgage Department for loans de8tined for real estate transactions\. BNCR, in addi- tion, has a Rural Credit Department, which, ,-hrough the Juntas Rurales de Credito, deals exclusively with small farmers, and a Cooperatives Depart- ment\. Each department, by law, has its own allocatlon of cápital, whtich requires CB permission to alter, and independent accounts\. 14\. Tbree of the four banks have their main offtces ln San Jose, the country's capital; the other bank (BCAC) la located in the nearby city of Cartago\. Besides these, the banks have branches, agencies, or officee in other parta of the country\. The branches are the only ones that make loans, and each in run by a branch manager\. Branches that are located in the capital of a province must also have thelr own boarda of directots, composed of three local people appointed by the bank's Board for a period of four years\. They hbve power to approve loans up to 0150,000\. With the exception of one agency of the BCR, agency and city or country offices dÓ fiot make loaná\. rthe exception vas made because of the isolated locatioh in'oi1d atid coyers loans of up to <15,000\. 15\. The four banks have a total of 21 fíeld branches that make loana: BNCR has 13, BCR 7, and BCAC 1\. None, houever, can approve loá±s aiounting to more than <150,000 of accumulated balance to one applicant\. Except for the branches of BCR, vhich make their own studies, appraising ahd supervis- ing of the larger loans are done by the main office tedhni¿ál staffs\. The 9mall size of the country and the efficient air traneport seríice make it poesible to operate In thie manner ln most cases\. 16\. Besides branches, banks also ope-ate agencies, and warehouses for commodities taken in lien\. Three of the hanks lend to small faríierá through their commercial departments, but BNCR, the largest, has a separate depárt- ment, the Rural Credit Department, which operatee through Juntas Rutales (local credit comaittees for small farmers)\. In total, the cdultty' l served by 171 bank units that provide different kinds of banking sétvicea\. The size and functione of the offices are determíned by the líportaxxce of their locations and the kind of service that ls required by the comminity\. Geographic locationa of bank officea are shovn in the fbo'toÉing táble\.  ANNEX 3 Page 5 BNCR BCR BACR BCAC Dpto\. Juntas Provinces Commercíal Rurales San Jose 14 10 10 6 1 Alajuela 17 16 3 1 - Cartago 7 6 - - 5 Limon 4 3 3 - - Heredia 8 3 1 - - Punta Arenas 11 9 3 3 - Guanacaste 11 11 3 2 - 72 58 23 12 6 17\. The four state-owned banks employ over 2,500 people, of whom more than 250 are qualified professionals, (50% in the fleld at branch level) with education and experience in the flelds of agricultural aciences, (120) veterinary acience, (40) economics, (40) and others (50)\. The four banks have been in business for over 50 years, are vell organized, and operate according to sound banking practices\. They all have experlence in agricul- tural credit in Costa Rica, and their standard\. of operationa 8nd accomplish- ments compare favorably with the Latín American average\. Resources 18\. As of December 31, 1970, the total resources of the four atate commnercial banks amounted to 02,210 million (Table 1)\. Compared to 1967 (01,683 million), they show an increase of 31%, oainly because of a substan- tial rise in the deposita (0252 million) and in borrowings\. 19\. Deposits (01,052 million) represent about 50% of the resources\. / They developed steadily and, although they are represented almost entirely (95%) by sight and leas-than-30-day-notice depoeits, their seasonal fluctuation is too emall to generate liquidity problems (Table l)\. 20\. After deposita, borrowings (lncluding bonda and CE rediscounting) are the major components of the total resources, with 31% (0685 million)\. They have increased by 0222 million since 1967 (0464 million)\. By law CB can rediscount up to 50% of etate-owned banks current asseta and could go up to 80% in case of emergency\. 21\. Capital and reserves account for 15% of the total resources, with 0333 million against 0311 millíon in 1967\. Other liabilities, 0140 million, represent precollected interest, dífferent paynents In abeyance, and also provisions for depreciation and bad debts\. 1/ Interest on deposits: 3 to 6 months 4% p\.a\.; 7 to 12 nonthes 6% p\.a\.; more than 12 months to 24 months 7% p\.a\.; slght savinge up to 0 15,000: 3% p\.a\.  ANNEX 3 Page 6 Lendín Policy snd Procedure 22\. The atate commercial banking system devotes more resources to agriculture than to other sector* of aetivity\. 55% of ite loan port- folío te diteeted at the flnancing of agricultural fsrclng, development, or market£ng opérations, againet 45% to commerce and industry\. 23\. Lw No\. 4646 of October 29, 1970, amending the two organic bank- ing lava, fi*ed the coiposition of the credit commfttee and ita limit of power (mxiímum I500,000 per loan), for each bank, but each establishes the loan approval powers to be allocated to ite head office manager, branch managers, and branch credit comíittees\. 24\. The rate of lnterest and commission charged on agricultural and industrial credits are, 8% and up co 1% per annum, whatever the term\. They are fixed by CB for all banks and are much lover than comercial ratea (12%)\. No penalty is charged on delinquent loans\. CB's rediícount rate lo 4% for agriculture and fndustry, and 8% for moet other actlvities\. Interest is calculated on the outatanding balance, and is charged quarterly and in advance thereby increasung the effective ínterest rate by about 1/4% of 1% per annum\. Although based on farm return and borroers' expetlence and creditworthineat, final repayment la secured maínly by mortgge, lien, or chattel mortgage and, sometimes, a joínt guarantee\. 25\. Practícally all lending procedures in agriculture are the same for the four state comercíal banks\. The credit department makes a prelimtíary study of the application and attached docimente\. Then the appr*i\.al oectten proceeda tO the fleld investigations and project evaluatíon\. It rq¡ort and the section head's comments are handed over to the credit \.rtment, w-hich, after careful review, oubmits the file, together with the dpartm~eiit head's recnnendation, to the manager, the branch or head #ffice cro«St comnnittee, or the Board of Directora, according to the size of the loan i'srplied for\. Credit committees meet about twice a week and boardo twice \.r three tunes a month\. At the local branch or ageney level, where the rianager knows the positlon5 experience, and creditworthineas of each farmer, ,,,e procedure for small Joan approval la simplifled\. The applUcaticn for i s used \.also as an evaluation report and contains recoimnendatlons to the muanager or credit corunittee\. Loans are supervised and, es far es possible, repayment dates are fixed In accordance with crop harvestíng\. 26\. The largest portíon of funde loaned goes to a few large and medium sized conmercial\. farms\. Although amall farmers haye acceso to credit facilitíes íth the conmercial departments of the banks, most of them are financed through the Rural Credít Department speclally opened in BNCR to deal\. with thls category of applicant\. At June 1971, outatanding loano of this department represented 90% in number (41,000) but only 31% in imount (0182 million) of total\. agrictiltural loans outstanding by BNCR (45,600 loans for É585 million)\. Comparable figures for loan8 to amall faimrs are aot nvallable for the three other banks\.  ANNEX 3 Page 7 Lending ActLvity 27\. From 1967 to 1969, total bank loans outstanding progreased from 1,316 million to 01,459 million and amounted to 01,710 million as of Deceiber 31, 1970\. Loans outstanding to the agricultural sector accounted for more than half, progresslng from 0701 million in 1967 to 953 millíon in 1970\. Two-thirds exceeded 12 months (Table 4)\. Livestock loans have aleo increased duríng the last three years: from 0252 million to 0388 million\. \.nvestment for on-land development represented the major part of the increase, with beef and dairy cattle accounting, respectively, for 80% and 7% of the credits\. Two-thirds of the agricultural loans approved over the last four years (excluding livestock) went to coffee growera\. Rice, banana8, cotton, and sugarcane combíned received leas than 12%, and cocoa, tobacco, corn, and beans lees than 8% (Table 5)\. 28\. About 59% of agrícultural credits are made through BNCR and 25% througii BCR\. BACR and BCAC's shares are, respectively, 11% and 5%\. Their commercíal departments made 73% of the loans and the BNCR's rural credit departnent handled 17%\. Arrears 29\. As of December 31, 1970, loans past due in all sectora for more than one year represented less than 4% of banks' portfolios (Table 7)\. The actual rate of delinquency is lower, however, since loans reported delin- quent include not only installments past due but also the unmatured loan balances\. The number of loans written off as uncollectable in recent years has been nil\. All loans are secured by mortgage or other charge and the banking law provides that such commercial banks' security realization shall be expedited\. At the end of every fiícal year banks, and the Auditor General of Banks, make an analysis of portfolios and accordingly charge against profits amounts transferred to an account called Provisions for Loans and Interest of Doubtful Collection\. As of December 31, 1971, this provision for possible bad debts totalled 033\.6 million for the four participating banks (Table 1)\. Results 30\. From 1967 to 1970, the four atate owned commercial banks net operating income progressed from 014\.2 million to 019\.3 million (Table 8)\. In compliance with Article 12 of the Bank law, net earnings after payment of income tax are allocated to the staff's retirement fund (10% of annual salaries), to BNCR's cooperative department (10%), and to legal reserves\. As shown in Table 1, capital and reserves have grown slowly from 0311 mil- lion ín 1967 to 0333 million In 1970, st an average of 06 million per year\. Audit 31\. All the participating banks under the First and proposed Second Projects are subject to audit by the Auditor General of Banks who la appointed by the Board of Directora of the Central Bank under Article 16  ANNEX 3 Page 8 of the Central Bank Lay\. The Auditor General's office fe composed of professiónal bank examinera and auditora and their work 18 conducted both by program visita on interim audita and by a certain number of unscheduled visitS to the various departments and branches of the commercial banks\. The final audit is completed relatively promptly (that for the year ended December 31, 1970, was completed and reported to the Central Bank Board of Director* in April 1971 although the final formal report was published two months later)\. The report seta out full detalls of the financial condition of the báaka and also lista field visita made by audit staff, including visits tó botro*tes of the coamercial banks\. The report ls deficient in one respect; no adverse comments regarding management or defalcatione appear\. The final réeort however refers to the detailed reporte made throughout the year whlch are perhape mote suitable vehlcles for such comments\. In addition to the Auditor General's Audit, each bank maíntains an Internal auditing unit\. Under the First Project, the above provisions were conaidered appropriaté aad they would be acceptable for the Second Project\. April 5, 1972  ANNEX 3 SCHEDULE A Page 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Lending Termo and Conditiona IBRD to Central Bank 1\. Interest rate at 7\.25% p\.a\. 2\. Conmitment charge at 0\.75%\. 3\. Repayment of loan In 18 years íncluding fíve years of grace\. 4\. CB would carry foreign exchange risk\. 5\. IBRD would disburse 67% of eligible loana made by PBs, and 100% of foreign exchange costo for Technical Services incurred by CB\. Central Bank to Participatlng Banks 1\. Interest rate at not less than 7-1/4% p\.a\. 2\. CB would refínance 67% of eligible loans\. 3\. Repayment to CB same as borrowers to PB\. 4\. PBs would have responsibílity for loan approval and would assume financial responsibility of loans granted to borrowers\. 5\. CB may decide to charge PBs a margin\. to help cover ite administrative costa (margin of 114 of 1% under the First Project) and charge them with IBRD's commltment fee\. Participating Banks to Subborrowers 1\. Interest rate at effective minimum of 9\.75% p\.a\. 2\. Subborrowers would provide a minimum of 20% of total medium- and long-term ínvestment costS from their own resources\. 3\. Repayment periodo as follows:  ANNEX 3 SCHEDULE A Page 2 Enterprises Years Grace Total Beef 7 5 12 Dairy 7 5 12 Annual crops 3 3 6 Frult trees 7 5 12 Other tree crops 7 5 12 Bananas/Plantaina 10 2 12 Pineapple 6 2 8 Forestry 7 5 12 Agro-industries 7 3 10 OTHER CONDITIONS Financial 1\. PBs would be primarily responeible for providing counterpart funde (including requiremento for additional seasonal capital generated by the Project) other than those provided by IBRD, but in the event they are unable to do so, CB would make such funde available (para 5\.05)\. Administrative 1\. All subloanS in exceso of US$100,000 or for agro-industry and oil palo would require prior approval by IBRD (para 5\.07)\. 2\. PB staff would assist individual applicants in the preparation of detailed farm plane, income and expenditure estimates and cash flows, and appraise subprojects in terms of incremental retumns (para 5\.07)\. 3\. Technical staff of Central Bank and participating banks would periodically visit borrowers to ensure funds were being used for intended purposes (para 5\.07)\. Technical 1\. Livestock subborrowers vould take measures for protection of animal health to the atandards maintaíned under the Pirst Project (para 4\.04)\.  ANNEX 3 SCHEDULE A Page 3 2\. For oil palm development, technical and financial justifications drawn up in consultation vith the Ministry of Agriculture and the Ministry of Industry and Comerce would be submitted for prior IBRD approval (paras 4\.05 and 5\.07)\. 3\. Fruit farma would be located in the ecologically suitable inter-mountain plateau and piedtonts of the Central Plateau and in the dry tropics\. Avocado and citrus would be grown in frost-free areas and in deep and well drained soils\. Trees would be properly protected by vindbreaks (para 4\.06)\. 4\. Subborrowers for fleld crop development would acquire selected seeds and seedlings from a source acceptable to the Ministry of Agriculture and they would carry out a fertilizer program appropriate to soil conditiona and crop requirements (para 4\.07)\. 5\. In forestry subloans, subborrowers would take measures to replace trees cut through reforestation and afforestation\. Crop diversification matters and development plans for forestry would be carried out in consultation with the Ministry of Agriculture (para 4\.09)\. 6\. All subloans for agro-industries would require that technical and financial justifications, drawn up in consultation with CNP and the Ministry of Industry and Commerce, vould be submitted for prior approval to IBRD (para 4\.12)\. April 5, 1972   ANNEX 3 SCHEDULE B COSTA RICA SEC0ND AGRICULTURAL CREDIT PRWOECT Allocation of Loan Proceeds Maximum Amount to be Used in Each Category CATEGORY US$ Equívalent 1\. LIVESTOCK Pasture establishment and improvement, fertilizers during pasture establishment, buildings, fencing, water and handling facilities, selected breeding stock and semen, and agricultural machinery and equipment 4,100,000 2\. CROPS Land preparation, drainage, buíldinge, machinery and equipment, wells, and on-farm irrigation, as well as fertilizers, insecticides, fungicides and herbicides for the establishment of tree crops including bananas and plantaina 3,600,000 3\. FORESTRY Road construction, tree establishment, machinery and equipment, construction and installations, nurseries, and fertilizer for nurseries and during tree establishment 400,000 4\. AGRO-INDUSTRIES Buildings, machinery and equipment, and up to five aircraft primarily for crop spraying 500,000 5\. TECHNICAL SERVICES Salaries and fees of staff and consultants, Central Bank vehicles (four-wheel drive vehicles) and foreign exchange costo of training fellowships for technical staff 400,000 Total 9\.000\.000 April 5, 1972   ANNEX 3 SCHEDULE C COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Central Bank Agricultural Credit Department In Post Required For Now Second Project Additions Director 1 1 Deputy Director - 1 1 Regional Resident Offi¿er 1 2 1 Agricultural Promoters) Farm Management 3 3 - and Livestock Promoters ) Credit Specialista 1 3 2 Economist 1 1 Accountant 1 1 _ Total 8 12 4 Secretaries/Clerks 2 4 April 5\. 1972   COSTA RICA SSCO0f A&RICULTURAL CIT PCT Consolidsted Annual Balance Sbats cf the Four 8tate Camrcial Banks (D*ecber 31, 1967-1970) (9 iton) 1y f18££1969, 1970 AS S E TS Cah 55\.0 3\.3 62\.2 3\.4 80\.7 4\.1 72\.2 3 Centr&l B*nk i06\.9 6\.4 126\.2 7\.0 160\.9 8\.2 134\.6 6 Foreign Currency 58\.4 3\.5 72\.0 L%o 63,8 ' 72\.6 3 220\.3 13- 260\.4 14\.1\.43 156 279\.4 12 Bonds, Stoeks\. Share^ 1 274\.3 1\.4 32-7 1\.8 30\.1 1\.5 39\.0 2 LosnE to Crops Pro4qction/' 450\.0 26\.7 460\.9 25\.6 4t¶8\.4 24\.4 5s;s- 26 Loans to Livestock 14\.9 285\.2 15\.8 332\.3 17\.0 3J7;9 17 Loans to Other Sectora2:/ 6-5_ 621\.9 34\.L 643\.1 331 757\.0 34 1\.339\.8 79\.5 1,400\.7 7717 1488\.9 76\.0 1,749\.4_ 79 Fixed Ascets 74\.1 4\.4\. 81\.3 4\.6 90\.3 4\.6 101\.8 5 Other Asaets 49\.2 2\.9 60\.2 3\.3 73\.1 3\.8 79\.0 4 100\.0 112L_ 100-0 1_9 100\.0 2,209\.6 100 L I A B I L } T I E S Deposita on Demnd 714\.8 42\.5 789\.0 43\.8 895\.8 45\.8 982\.8 45 Deposits up to 30-y Notice 47\.5 2\.8 32\.0 1\.8 24\.4 1\.2 23\.9 1 Deposlts over 30-day Notíce 2\.2 40\.1 2\.2 45\.9 2 45\.0 2 799\.8 47\.5 861\.1 47\.8 966\.1 4!9\. 1,051\.7 48 80rrovings through Central Bm Rediscount 47\.8 2\.8 31\.4 1\.7 3\.4 0\.2 151\.5 7 IBRD Loans 17\.4 1\.0 14\.2 0\.8 11\.0 o\.6 10\.4 - Other CB Loans 123\.0 73 128\.7 7\.1 139\.8 7\.1 125\.0 6 188\.2 11\.1 174\.3 9\.6 154\.2 7\.9 286\.9 13 Borrowings from Foreígn Banks 140\.2 8\.3 186\.9 10\.4 240\.9 12\.4 243\.9 11 Bonds in Circulatior 135\.6 8\.1 145\.3 8\.1 147\.1 7\.5 154\.1 7 Other Liabilities\. ! 108\.4 6\.5 116\.3 6\.4 124\.0 6\.3 139\.8 6 Capital 148\.3 8\.8 148\.3 8\.2 149\.5 7\.6 151\.0 7 Reserves 3162\.9 9\.7 -170\.4 9\.5 175\.9 9\.0 182\.2 8 1\.683\.4 100\.0 1\.802\.6 100\.0 1\.957\.7 100\.0 2,209\.6 100 lJ Include loans made by comercíal departmente to other departments for relending program\. I lncludes pro"isiis for bad debtl; 33\.6 millon *a of Dhc_er 31, 1970\. November 16, 1971  COSTA RICA SECOND AGRICULTUhAL CREDIT PROJECT Credit Ceilin& and Credit Used Within Ceilinas For Years 1967\. 1968\. 1969, 1970 and 1971* (t Million) 1967 1968 1969 1970 Ceiling Z Used Cetlinp % Usd Ceiltni I Ueed Ceiling 7 Used Agriculture 148\.1 17 143\.5 225\.7 22 193\.3 228\.2 21 199\.0 222\.9 20 207\.8 Livestock 148\.2 17 143\.5 295\.1 29 247\.9 321\.9 30 290\.8 352\.8 31 339\.5 296\.3 34 287\.0 520\.8 51 441\.2 550\.1 51 489\.8 575\.7 51 547\.3 Rural Credit Sections 163\.3 19 160\.6 22\.7 2 20\.9 23\.3 2 22\.0 26\.7 2 22\.9 Total Agricultural Sector: 459\.6 53 447\.6 543\.5 53 462\.1 573\.4 53 511\.8 602\.4 53 570\.2 Other Economic Sectors 405\.9 47 392\.3 479\.9 47 452\.6 501\.8 47 467\.9 532\.5 47 506\.2 Grand Total 865\.5 100 839\.9 1,023\.4 100 914\.7 1,075\.2 100 979\.7 1,134\.9 100 1,076\.4 #===t==wWCs flD= «-= « wan se nasas assss Sá _ n n=__ _= saas 1971 Reguired Portfolio Structure Croup Ce i1, X MaxwE\.7n\. I\. Preferential Lines 402 29 Mtni\.i II\. Agro-Industrial Actí- vities 725 53 Maxiije A&ricult4re 202 15 Mini\.ru Livestock 207 15 Minimum Industry 234 17 I«nlmiw Rossíble variatiotso 82 6 - H1l\. O,ther Activtties 240 18 M4ximuo IV\. Economic D2e'\. P-ro\.gra NO# - - Total 1,367 100%\. ant t=s w *1971 according to new ceiling system November 16, 1971  COSTA RICs SECmD ACRICULTUvAL CIIDIT POJCT Acríoo1roraI Loaos Portfolto of th\. State Co\.rcld baokk DiotrIbuted Arcotrdía to Dee\.rtenta ad Aríc"Iturta Artiíiti (\. of Dece~cr 31\. 1967168\. 1969 6 19701 ~IWCO NACIONAL DE COSTA RICA AI~ DE COSTA RICA kU~CO AIICLO COSTAPIIIC13E RSCO CIZOITO :OIA DE=s ~& TL Aari lrore Llveatock Tmtal A*ricoítore Livaatotk Total A*rctlture Ll\.estock Total báiooclturf LI',etock Total- Aarlte\.t19 Liveoeak litel - 1967 Co_erceal Deprtmnt 134\.9 77\.4 212\.3 129\.3 52\.0 181\.3 42\.1 21\.5 63 6 19\.7 7\.1 26\.8 326\.0 158\.0 484\.0 69 Hortía Dapart_nt 53\.9 - 53\.9 6\.3 3\.0 9\.3 5\.3 3\.5 8\.8 0\.3 0\.4 0\.7 65\.8 6\.9 72\.7 10 fl\.rel Credit Dep\.rtíno 52\.6 85\.2 137\.8 - - - - - - - - - 52\.6 85\.2 137\.8 20 Copratia Uart_nt 5\.6 1\.5 7\.1 - \. - - - - - - - 5\.6 1\.5 - 7\.1 1 total 247\.0 164\.1 411\.1 135\.6 55\.0 190\.6 47\.4 25\.0 72\.4 20\.0 7\.5 27\.5 450\.0 251\.6 701\.6 100 7 55 65 59 30 22 27 11 10 10 4 3 6 100 100 100 1968 CortIal Depart\.at 141\.7 97\.6 239\.3 132\.6 53\.7 186\.3 47\.4 25\.4 72\.8 18\.2 8\.0 26\.2 339\.9 186\.7 524\.6 70 Hor-tg*a D\.part_\.t 54 9 _ 54\.9 8\.2 3\.4 11\.6 5\.9 3\.8 9\.7 0\.3 0\.4 0\.7 69\.3 7\.6 76\.9 10 kvral Cr\.dtr Departurnt 46\.5 91\.4 137\.9 - - - - - - - - 46\.5 91\.4 137\.9 19 Cop\.ttitv Deepart_\.t 5\.2 1\.5 6\.7 - - - - - - _ _5\.2 1\.5 6\.7 1 Total 248\.3 190\.5 438\.8 140\.8 57\.1 197\.9 53\.3 29\.2 82\.5 18\.5 8\.4 26\.9 460\.9 285\.2 746\.! I00 7 54 67 34 30 20 26 12 10 11 4 3 4 100 100 t00 1969 Co_rc-dal Departent 156\.2 113\.4 269\.6 127\.1 62\.7 189\.8 53\.3 33\.0 86\.3 16\.8 10\.7 27\.5 353\.4 219\.8 573\.2 76 Hortgx\.¡e D\.porttent 63\.4 - 63\.4 8\.3 3\.1 11\.4 5\.5 3\.9 9\.4 0\.3 0\.6 0\.9 77\.5 7\.8 n5\.! al Rorel Credit Deprt_\.nt 42\.5 103\.4 145\.9 - - _ _ - - - - - 42\.5 103\.4 145\.9 18 Coe,rat1te Depart_nt 5\.0 1\.5 6 5 - - - - - - - - 5\.0 1\.5 6\.5 1 Total 267 1 218\.3 485\.4 135\.4 65\.8 201\.2 58\.8 36\.9 95\.7 17\.1 11\.3 28\.4 478\.4 332\.3 n8\.07 100 7 56 66 60 28 20 25 12 11 12 4 3 3 100 100 1t0 - 1970 C - {1l D\.p\.rt-nt 203\.0 127\.1 330\.3 148\.4 82\.0 230\.4 62\.8 34\.5 97\.3 26\.8 16\.4 45\.2 441\.0 262\.2 703\.2 73 Morstgag Departaet 62\.1 - 62\.1 7\.4 3\.3 10\.6 5\.4 3\.9 9\.3 0\.3 0\.5 0\.8 75\.2 7\.7 82\.9 9 flral Cr\.dit Depart\.eot 43\.9 116\.7 160\.6 \. - - - - - - 43\.9 116\.7 160\.6 17 Cooperativa Departeen- 5\.4 1\.3 6\.7 - - - - - - - - 5\.4 1\.3 6\.7 1 Total 314\.4 245\.3 559\.7 155\.8 85\.3 241\.0 68\.2 38\.4 i06\.6 27\.1 18\.9 46\.0 565\.5 387\.9 955\.4 100 X\. 56 63 59 27 22 25 12 10 11 S 5 5 '°° 100 100 October 21\. 1971  Sitat C rtol b _otiflol± 8stlibuLtd *~dsa to T~ (a of r\.rb~r 31, 1967\. 1968, 1969 & 1970) (e iNillior) - 1967 ---------------- -- --- 1968-1---- ----- - --'------ ------ -64----------------- ------ ------ 1970 - fhr \.i3 end Other, - Total Short Ter and Othre a Totc1 Sbort ter- cd Otierg Total 8bot T~ ad Oter\. - Tot\.1 i'_ L Tr\.4/ J - - Te B6423( NAC :7,IAL DC COSTA RICA (Ce\. \. is "tp4rtwent 16<\.0 160\.4 52\.3 374\.7 194\.4 146\.0 51\.3 391\.7 214\.0 166\.2 50\.4 430\.6 257\.3 201\.2 59\.9 518\.4 Rura! Credtt Depoítuort 16\.9 118\.6 3\.9 139\.4 14\.4 122\.9 3\.6 140\.9 14\.6 132\.6 4\.0 151\.2 19\.0 145\.4 4\.1 168\.5 178\.9 279\.0 56\.2 514\.1 208\.a 268\.9 54\.9 532\.6 228\.6 296\.8 54\.4 581\.8 276\.3 346\.6 \. 696\.6 Cooperativw tep&Tteo,< - 35\.2 35\.2 38\.5 38\.5 36\.4 36\.4 37\.8 37\.8 OKM~c ME 001aRY 6 C Co-rc-141 Dep\.rt\.et 141\.8 164\.3 39\.7 345\.8 150\.7 16891 36\.0 354\.8 150\.3 173\.8 33\.2 357\.3 210\.6 194\.6 23\.5 428\.7 SAICO S!iw ~CO~tIR IClEIS Co_-r-1al De0rtiot 91\.6 60\.8 8\.7 161\.1 94\.2 65\.6 10\.2 87O x--7\.9 94\.0 10\.3 202\.1 106\.7 119\.0 9\.6 235\.1 i1AICO C1ÉDIT0 AdI7COLA CARTAGO Corertaíl Depurt nt 19\.2 27 1 1\.7 49\.0 19\.2 27\.0 1\.0 46\.2 19\.5 27\.8 0\.7 44\.0 34\.0 35\.6 2\.1 71\. ?otor 9\.-a24' 3org,\.gt, bep\.rrw\.e\.t _2 211\.3 _- 2\.1\.3 _ 225\.9 Y_ 22 \.9 _ 233\.2 _ 23\. \.2 259\. __50__\.0 TOtAL OTATE CtRi IL\. BiS 431\.5 777,7 106\.3 1,315,5 471\.9 794\.0 102\.1 1,368\.0 4ff\.2 864\.0 9g\.6 1,458\.8 627\.6 983\.6 99\.2 1,710,4 13% S,9'b n1 1Ot 351 Sl 72 100% 347 381 71 ion 371 577, 67 lOOt 1/ Include \.1e-141 lo\.- tade by BRCR *nd iCR'- c~rfal dAp*ortimos to ot\. 6r tb p\.1i6té\. 2/ I\.a-s of theoe depx,t \. toA- --- otb-divided *oc0rVog to the ter\. By oáitre they *Yre il4o\.- h md qot-t\.ao la~\. 3; 8p -o one >er, 4i <'ore Chan one je-ar Co E loe ye0rv edloth ret - toro Ie tn S -ro tr6ot- t¿r\. NoveoO\.r 19/ 1971  ANNEZ 3 Table 5 COSTA RICA SESCOND AGRICULTU1U CREDIT PROJEDT Agricultural Loans Approved br the Four State Comercial Banks and BNCR's Rural Credlt D2artment 1967 1968 1969 1970 Agriculture 1\. Rice 22\.3 4 24\.0 4 20\.3 4 24\.4 4 2\. Cotton 8\.6 2 14\.4 3 7\.2 1 2\.0 3\. Banana 18\.7 4 13\.2 3 23\.7 4 14\.7 3 4\. Cocoa 0\.7 - 1\.7 - 2\.2 - 1\.6 5\. Coffee 311\.7 60 330\.7 62 337\.6 62 468\.9 82 6\. Sugar cane 13\.2 3 13\.3 2 15\.8 3 27\.6 5 7\. Beans 0\.7 - 0\.8 - 0\.3 - 1\.7 - 8\. Corn 4\.7 1 4\.0 1 3\.3 1 2\.3 1 9\. Tobacco 1\.7 - 2\.1 - 1\.4 - 3\.0 1 10\. Othera 137\.4 26 130\.5 24 129\.7 24 24\.2 4 519\.7 100 534\.7 100 541\.5 100 570\.4 loo Livestock 1\. Beef cattle 86\.1 67 111\.7 80 NA 173\.4 2\. Dairy cattle 9\.9 8 9\.9 7 NA NA 3\. Others 32\.1 25 18\.1 13 NA NA 128\.1 100 139\.7 100 177\.6* 184\.8* Total Approved 647\.8 674\.4 719\.1 755\.2 *Breakdown not available 9turce: Central Bank\. April 6, 1972  COOTA RICA SECOND 4RIC(UL1'L CREDIT PROJECT Axricultural Loans Disburaed atd Collected bv the State Caamercial Banks During 1968 1969 and 1970 (O Míllian ) Balance Loans Disbursed Loans Collected Balance Loans Diabursed Loana Collected Balance s of Dece*er 31\. 1968 durina 1969 during 1969 as of Deceber 31\. 1969 duríns 1970 durinpg 1970 as of December 31 __197 An~urnt 7\. Auount % Arnount % Afount % A~ount % Awount 7 Aanunt % BANCO NACIOKNAL DF C<~A RICA Agriculture 248,3 33 245\.5 43 226\.7 45 267\.1 33 334\.6 48 287\.3 52 314\.4 33 Livestock 190\.6 25 102\.7 18 75\.0 15 218\.3 27 103\.0 15 76\.0 13 245\.3 26 438\.9 58 348\.2 61 301\.7 60 485\.4 60 437\.6 63 363\.3 65 559\.7 59 BANCO DE COSTA RICA Agriculture 140\.8 19 88\.9 16 94\.3 19 135\.4 17 101\.8 14 81\.4 15 155\.8 16 Livestock 57\.' 8 34\.5 6 25\.8 5 65\.8 8 44\.3 7 26\.8\. 5 85\.3 9 i97\.9 27 123\.4 22 120\.1 24 201\.2 25 148\.1 21 108\.2 20 241\.1 25 BANCO ANGLO COSTARRICENSE Agriculture 53\.2 7 48\.5 9 42\.9 8 58\.8 7 54\.9 8 45\.5 8 68\.2 7 Livestock 29\.2 4 26\.4 5 18\.7 4 36\.9 5 18\.3 2 16\.8 3 38\.4 4 82\.4 11 74\.9 14 61\.6 12 95\.7 12 73\.2 10 62\.3 11 106\.6 11 BANCO CREDITO KRIC9UM C4IAOO Agriculture 18\.5 3 13\.0 2 14\.4 3 17\.1 2 21:7 4 16\.7 3 27\.1 3 Livestock 8\.4 1 6\.3 1 3\.4 1 11\.3 1 11\.9 2 4\.3 1 _ 18\.9_ 2 26\.9 4 19\.3 3 17\.8 4 28\.4 3 38\.6 6 21\.0 _ 4 41¾0 5 TOTAL STATE COtlMERCIAL 3AH\. 746\.] IC) 565\.8 100 501\.2 11S0 810\.7 lco 697\.5 10 55h\.8 100 953\.4 100 Loans collected as % of loans disbursed 8w7\. 80% October 21, 1971 e él!  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Arrears and Outstanding Portfolio of Commercial Departments of the State Comercial Bariks (As of December 31, 1970) (1 Million) Banco Nacional Banco de Banco Anglo- Banco de Credíto Arrears de Costa Rica Costa Rica Costarricense Agricola de Cartago Total ~~c 7\.0 7 0 %0 7% O From 1 to 30 days 45\.2 8\.7 50\.4 11\.7 30\.2 12\.8 12\.1 16\.9 137\.9 11\.0 From 31 to 60 days 17\.3 3\.3 14\.6 3\.4 15\.0 6\.4 3\.8 5\.3 50\.7 4\.0 From 61'to 90 days 11\.6 2\.2 13\.8 3\.2 6\.9 2\.9 4\.4 6\.1\. 36\.7 2\.9 From 91 to 180 days 28\.2 5\.4 11\.4 2\.7 14\.1 6\.0 4\.7 6\.5 58\.4 4\.7 From 181 days to 1 year 14\.8 2\.9 20\.0 4\.7 8\.1 3\.4 2\.3 3\.2 45\.2 3\.6 More than 1 year 9\.6 1\.9 23\.1 5\.4 12\.6 5\.4 1o 1J4 46 3 3\.7 Total Arrears: 126\.7 24\.4 133\.3 31\.1 86\.9 36\.9 28\.3 39\.4 375\.2 29\.9 Loans not yet due 391\.8 75\.6 295\.3 68\.9 148\.[ 63\.1 43\.5 60\.6 879\.0 21\.L1 Total Portfolio _f 518\.5 100\.0 428\.6 100\.0 235\.3 100\.0 71\.8 100\.0 12254\.2 100\.0 1/ These figures represent 70% of the total loan portfolio as shown in Annex 3, Table 4\. Information was not available for the remaining 30% (Mortgage Department, Cooperation Department and Rural Credit Department) April 6, 1972 O >  COSTA RICA SBEOND AGRICULTURAL CREDIT PROJECT Consolidated Statement of Eam i!8 and e nditures of the Four State Comrcial Banks (for the lears Ended Decenibr 31, 1967, 1968 196 i Y970 (g' MíUJJon) 1967 % 1968 1969 1970 Interest 90\.7 82 100\.5 80 111\.1 80 126\.1 80 Fbreígn Ecchange 1\.1 1 1\.9 1 2\.7 2 3\.4 2 C«missions 11\.6 10 14\.6 12 16\.3 12 18\.3 12 Other earnings 7\.5 7 8\.4 7 8\.9 6 9\.7 6 110\.9 100 *125\.4 100 139\.0 100 157 5 100 D"pndi tures Interest paíd 28\.0 29 30\.9 28 35\.4 29 37\.7 27 Comiissions 1\.3 1 1\.3 1 1\.3 1 1\.4 1 Board of Directors' fees 1\.0 1 1\.0 1 1\.1 1 1\.0 1 Staff Salary 38\.4 40 43\.0 39 48\.9 40 57\.6 42 Loanrs Servicing 1\.3 1 1\.3 1 1\.2 1 1\.2 1 Other Administrative Expenses 11\.8 13 13\.5 12 15\.1 12 16\.5 12 Provision for depreciat on 9\.7 10 13\.9 13 13\.6 11 16\.6 12 Various expenses 5\.2 5 5\.3 5 6\.3 5 6\.2 4 96\.7 100 110\.2 100 122\.9 100 138\.2 100 14\.2 15\.2 16\.1 19\.3 Incorne Tax 4\.4 3\.5 3\.0 5\. 2 Net Earni2a a\.fter Tax 1/ 9\.8 11\.7 13\.1 14\.1 1/ Allocated to Staff Retirement FVurds, BNCR's Cooprative Departent, and legal reserve, November 24, 1971  ANNEX 4 Page 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Livestock Cattle Production 1\. Accordlng to the 1968 agricultural census, the cattle population in Costa Rica totalled some 1\.4 million animals, indicating an increase of 50% in the last decade\. This high growth rate has been the result of an in- creased domestic consumption by the growing population (3\.3% per annum) and an expanding export market for boneless beef in the United States\. About one-quarter of 1970's total agricultural output was livestock products, US$69 million out of a total of US$219 míllion\. Total llvestock production In 1960 was valued at US$28 million and total agricultural output at US$136 million\. The value of beef exporta has increased about ten times in the last decade, from US$2 million in 1960 to about US$20 million in 1970\. The 1970 total values represent about 53,500 tons of carcaso beef and 215,000 tono of milk\. 2\. About 90% of the cattle are classified as beef-type animals and 10% as dairy type\. Some 75% of the beef cattle are located in the Dry Trop- ic8, 20% in the Wet Tropics, and 5% in the Central Plateau\. The Dry Tropics supply the bulk of the meat for export as well as for domestic consumption\. Cattle of the apecialized dairy breeds total 140,000 head and are concen- trated in the Central Plateau and peripheral areas\. This 18 also the area in which more than half the country's population i8 located\. These herds supply about two-thirds of the country's milk requirementa, particularly those of the cities of San Jose and Cartago\. The other third is produced in the tropics by about 200,000 beef-type cows\. Breeds 3\. The beef cattle in the Wet and Dry Tropics are predominantly cebu and crosses with descendants of Spanish introductions during the early days of colonization\. They are hardy and resistant to endemic diseases but their beef potential could be markedly increased by better feeding and management as well as by breed *Improvement\. To this end, Brahman, Santa Gertrudis, and Charolais bulls are now being introduced, with commercial beef producets favot'ing crossing the br"eds\. Brown Swias croases are preferred for tropical milk production\. In the Central Plateau, Hereford and Aberdeen Angus are being brought in to upgrade beef herds, while the Friesian breed accounts for over 50% of the dairy-type animals\. The remainder comprises Guernseys, Jerseys, Ayrshires, and their crosses\. Grading up to Friesians ia accelerating through the use of artificial insemination\.  ANNEX 4 Page 2 Pastures 4\. Out of a country total of 5 míllíon ha, grazing land occupies ¿around 1\.4 million ha although a high proportion of farms have areas of forest or secondary growth tlhat could be developed into suitable pastures\. lle Atlantíc Wet Tropics partlcularly has vast areas of native forest, covering about 1\.2 million ha, a substantial part of which could be con- verted to pasture\. By doing this and also improvlng exísting pastures, bcef production could be greatly expanded\. In the Dry Tropics, Jaragua (IUyparrhenía Rufa) is the dominant grass\. Although protein levels of pastures are low (7%) because of the lack of legumes and the uncontrolled ";razing conditions brought about by insufficient subdivisional fencing, many ranchers have small areas of their farms in improved grasses such as Pangola, Guinea and Africian Star, which are usually fertilized with nitrogenous fertilizer and used as fattening pastures\. 5\. Natural pastures and fertilized improved pastures carry about one and two animal units per ha, respectively\. A drought period lasting up to 5 months (Dec-April), however, imposes nutritional stress on all stock, especially as there is little attempt to conserve surplus grass as hiay or silage\. In the Wet Tropics, Guinea and Elephant grass are the dlominant species and cattle performance ls more affected during the heavieii raínfall montlhs (May July) than during the short dry period (March and April)\. In the dairy area of the Central Plateau, pasture management has been uindergoing radlcal changes during the last 10 to 15 years\. Where previout¡ly elephant grass (Pennisetum purpureum) and imperial grasa (Axonopus scopatius) were cut and fed indoors, now many farmers are developing kikuyu (Pennulsetum clandestinum) and wild clover grazing pastures\. This change has lowered operating costs and improved milk yields through higher feed quality\. As most solls are phosphate-deficient, low fertility species such as Sporobulus and íolcus Lanatus also predominate\. 6\. Until recently, increasing production per uuít area ín Costa Rica as a whole had not been very important because of the undeveloped areas available on many beef ranchers\. Now, however, farma are becvolrg aware of production responses when nitrogenous fertilixers are used, largely through the efforts of the local nitrogen oased fertilizer indus- try\. On the other hand, they are aware thit the cheapest form of grasa production is through legume gras3 associations with phosphatic fertilizera\. rIany legumes exist in Costa Rica, such as Calopogonium and Desuodium specles, as well as white dlover, but their real value remaíns unexploited\. Beef Production 7\. Commercial offtake has averaged about 14% since 1960\. Over the same perlod, the national beef herd has been increasing at the rate of 5Z per annum\. The inadequacles in animal hiusbandry, nutrition and disease control, however, result in a calvíng rate of about 60%, which could be Increased to 75Z and a slaughter age of between 2-1/2 to 3 years\. Steers for export as boneless beef are of reasorable qua J\.ity and average 440 kg liveweight, but stock for domestic cons&nption, particularly cull cows, are of indifferent quallty, averaging 360 kg liveweight\. "Altamira,"  ANNEX 4 Page 3 a Project Participating Ranch in the Wet Tropics, 18 an outstanding example of what could be achieved by extending improved techinology, as envisaged in the second loan\. The ranich has good farm building8, corral, dip and cattle scale, and there is adequate subdivision of pastures and access roads, with machinery and implements for bush clearance, pasture sowing and renewal\. The herd has been upgraded and good veterinary practices are used\. Altamira has excellent legume pastures, comprising mixtures of kudzu (Pueraria Phaoseolides) wlth the grasses para and Echinochloa polystachya (Aleman)\. Seasonal calving and controlled grazing are practiced resulting ín an effective calving rate of 90% and a slaughter age for steers of around 2 years\. Likewise, "La Pacífica" ranch is a good example of efficient beef production obtained by a similar development program applied to the ecologically different Dry Tropics\. This ranch is beginning to obtain gainS of more than 1 kg of liveweight per day, grazing young steers (10 to 20 months old) on legume-grass mixtures (Centrosema- Pangola and Siratro-african star)\. Dar1y Production 8\. Milk production on the high value land of the Central Plateau has been very dependent upon large amounts of concentrate feedstuffs (1 kg meal/2 kg milk) to supplement the poor pastures\. On average, only 60% of the cows are in milk, and daíly production te low at around 5 kg per cow, although most have a high production potential\. Calving ratea are about 70%, and calves are reared indoors at high cost\. On small portions of some farms, farmers apply heavy applications of nitrogenous fertilizers, with intensive subdivision of kikuyu pastures and carry three to five milking cows per ha\. Daíly milk productíon per cow under such circumstances aver- ages 14 kg under reduced levels of concentrate feeding (1 kg meal/4 kg milk)\. In the zones where kikuyu is lese dominant, legume-based (white clover and Desmodiums) pastures fertilized with phosphates could achieve simllar stocking and production levels at even lower coste of production\. Animal Health 9\. The country is free of foot and mouth disease and, to avoid in- troduction, enforces preventive measúres at all pointe of entry\. This is vital to the continuation and expansion of beef exports to the United States\. Internal parasites and tick infestation affect animal performance, particularly that of young cattle, duying periode of nutritional stress\. Anthrax and blackleg are present, and cow fertility i8 lowered by the pres- ence of brucellosis, trichomoníasis and vibriosis\. Mastitis and tubercu- losis occur in dairy herds\. Nutritional diseases have been insufficiently investin,ate(1\. 14hile claims are made that animals suffer from deficiencies of protein, minerals and vitamins, with the exception of tuberculosis, most anima]\. diseases found on Costa Rican farms can be prevented by modern veterinary control measures, such as vaccination, spraying, drenching and artificial breeding\. Improving the nutritional status of animals would reduce ticir vulnerability to some of these diseases\.  ANNEX 4 Page 4 Livestock Services 10\. Government services to the livestock industry are administered ¡nainl\.y through the Research Department or the Extension Department of the Ministry of Agriculture\. The Research Department includes the Division for Livestock Research, while the Extension Department has the Veterinary Serv- ices Branch and the Livestock Extension Division\. A11 these services operate well\. Research 11\. The Division of Livestock Research maintains research stationa at El Alto near San Jose to service the Central Plateau, Los Diamantes near Guapiles for the Wet Tropics, and Tobago near Canas for the Dry Trop- ícs\. The El Alto station maintaina a small dairy herd, but has too small an area of grazing land to undertake dairy research\. Los Diamantes and Tobago stations personnel have been collaborating with the Uníversity of Florida's staff to identify adaptable legume 9pecie8 and conduct grazing and seed production trials\. Livestock management trials are also in progress\. Research needs improvement\. The U\. S\. AID has program8 with the Minis,try of Agriculture and the University of Costa Rica for expansion and improvement of research (Annex 2, para 4)\. 12\. The University of San Jose is at present negotiactng with the Ministry of Agriculture to play a more active role in animal production research\. Applied demonstration-type field studies on pasture development and livestock management are also being conducted by fertilizer companies\. Extension 13\. The Livestock Extension Division covera the fielda of animal nu- trition, pasture management, milk hygiene, breed registrti9x reproduc- tion and on-farm demonstrations and meetings\. It Qoh1aborates with the Project Development Program, controls the entry of hIvest9çk a4 fp;en semen into the country and the export of live cattle by gr;nting lic~n es, \.m11d administers an artificial breeding service\. These servicçs are under ¿1anned expansion for seven regional centers, with financial and technical assístance througlh AID\. Ve ten nary 14\. In 1968, the Veterinary Services Branch was reorganized ínto four sections -- animal health, quarantine, diagnostic and weat tnspection\. Animal health projects for the control of brucellosis and tuberculosi9 are about to be assisted through an IDB loan, extendling over 4 to 5 years\. Quarantine control is established at ports, airportg And bordera to prevent tie entry of foot and mouth disease and other exotic diseases\. Piagostic \.111d investigation laboratories are located at the E1 Alto researcb station to service the regional veterinaríans and meat inspection is concentrated largely on animal and plant hygiene at tlhe five export meat p;clcing planta\. tlliese plants are also subject to U\.S\. inspection and fcensiwxg for beef ex- ports\.  ANNEX 4 Page 5 Education 15\. Costa Rica's university, the University of San Jose, has an agricultural but no veterinary faculty\. It annually graduates more than 100 agricultural students but they lack suifficient training in animal pro- duction\. Many Costa Ricans have been graduated by overseas universities, mainly in the United States, while others have received advanced training abroad, mainly at the University of Florida in the departments of agronomy and animal production\. Some students have received a 2-year practical course at the agricultural techuical achool (Zamorano), located in Honduras, for Central American students\. 16\. The headquarters of the Inter-American Institute of Agricultural Sciences (IICA) was established at Turrialba in 1942 and has provided post- graduate agriculture training up to a masterls degree to selected atudents from all Central and South Amerícan countries\. Few Costa Ricans, however, have specialized in the animal production field\. The role of IICA ia at present undergoing reorganization and, while ita future role will be Central-American orientated, it ia expected to become more identified as a national institution\. With its excellent facilities, it is the logical site for the agricultural faculty of the University of San Jose\. April 5, 1972   COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT ESTlMATES OF PROPOSED INVESTHENT PROGRAM LIVESTOCK -------------PROPOSED TOTAL INVESTMENT COSTS (COLONES'000)------------ ------(US$ '000)------- Investment BEEF CATTLE DAIRY CATTLE TOTAL Sub- Estimated Foreign Invetmegoíe Dry- Wet- Central Dry- Wet- Central Borrowers' Lendiag Total Exchange Component Categories Tropics Tropica Plateau Tropics Tropics Plateau (Amount) (%) Investment Program Investment (7\.) (Amount) 1\. Land & Pasture Develooment 7984 2281 1141 190 190 1519 13305 28 402 1608 2010 68 1375;0 New pasture 3780 1080 540 - - - 5400 11 164 656 820 65 533\.0 Pasture renovation 1890 540 270 15 15 120 2850 6 86 344 430 65 279\.5 Road construction 882 252 126 30 30 240 1560 3 48 192 240 65 156\.0 Fertilizer 756 216 108 105 105 840 2130 5 64 256 320 85 272\.0 Pesticides - - - 23 23 179 225 1 6 24 30 80 24\.0 Others 676 193 97 17 17 140 1140 2 34 136 170 65 110\.5 2\. Machinery & Eauiíment 6461 1862 980 143 143 1100 10689 23 322 1288 1610 70 1127\.0 Tractor 4410 1260 630 - - - 6300 13 190 760 950 70 665\.0 Mover 504 144 72 - - - 720 2 22 88 110 70 77\.0 Bailer 504 144 72 - - - 720 2 22 88 110 70 77\.0 Milking equipment 504 144 72 120 120 960 1920 4 58 232 290 70 203\.0 Dairy equipment - - - 10 10 80 100 - 2 8 10 70 7\.0 Scales 30 10 10 - - - 50 - 2 6 8 70 5\.6 Others 509 160 124 13 13 60 879 2 26 106 132 70 92\.4 3\. Constructions & Installations 6183 1766 883 154 154 1230 10370 22 314 1256 1570 50 785\.0 Implement shed & workshop 630 180 90 - - - 900 2 28 112 140 50 70\.0 Farm buildinga 1134 324 162 35 35 280 1970 4 60 240 300 50 150\.0 Working corrals 378 108 54 - - - 540 1 16 64 80 50 40\.0 Dips 378 108 54 - - - 540 1 16 64 80 50 40\.0 Fencing 1134 324 162 50 50 400 2120 5 64 256 320 50 160\.0 Scale site 630 180 90 - - - 900 2 28 112 140 50 70\.0 Well pump & pipe 1260 360 180 15 15 120 1950 4 58 232 290 50 145\.0 Water Reservoir - - - 25 25 200 250 - 8 32 40 50 20\.0 Troughs 126 36 18 15 15 120 330 1 10 40 50 50 25\.0 Others 513 146 73 14 14 110 870 2 26 104 130 50 65\.0 4\. Planting Material & Breeding Stock 6883 1967 9 308 2461 12910 2Z 90 15 1295 la 1017\.0 Breeding age females 4032 1152 576 200 200 1600 7760 17 234 936 1170 50 585\.0 Breeding age males 2268 648 324 - - - 3240 7 98 392 490 50 245\.'J Semen - - - 80 80 635 795 1 24 96 120 85 102\.0 Others 583 167 83 28 28 226 1115 2 34 136 170 50 85\.0 GRAND TOTAL 27511 7876 3987 795 795 6310 47274 100 1428 5712 140 4304\.0 % of Total Investment Cost: 58 17 8 2 2 13 100 20 80 leo 60 April 6, 1972  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT FARM NODELS LIVESTOCK AREA YIELD p\.a\. Live w\. Gross Production Production Cost Net Production Incremental In Hectares Live w\. kg/ha Price Value p\.a\. e p\.a\. in e value p\.a\. ¢ Net value p\.a\. Without With Without With e/kg Without With Without With Without With Project Project Project Project Project )ODEL Beef cattle PAEM SIZZ: 300 ha\. IUVESTI s Land & Hbrd Development USEUL tIFE: 20 yeara\. Beef Meat 200 300 88\.4 303\.8 2\.6 46,000 237,000 30,000 73,000 16,000 164,000 148,000 Carrying capacity AU/ha II 1\.2 2\.1 I«DZL Dalry cattle FARM SIZZ: 40 ha IVESTMNBT: Land & Herd Developnent USEFUL LIDE: 20 years Beef Neat 40 40 77\.5 295\.0 2\.6 8,000 31,000 ) ) 69,000 131,000 70,000 163,000 93,900 Milk 40 40 3,722 7,471 0\.88 131,000 263,000 ) 139,000 294,000 Carrying capacity AU/ha 1/ 1\.8 3 3,722/ 7,471 2/1 1/ Animal unita per hectare\. (Cow and Calfl\. 0' 2/ These yielda correspond to 1500 kg/cow (vithout project) and 3000 kg/cow (vith project)\. ADril 6, 1972  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT ESTIMATES OF PROPOSED INVESTMENT PROGRAM 1/ CROPS PROPOSED TOTAL INVESTMENT COSTS (CWLONES',qq0 us$'000 Investment ANNUAL CROPS Bananas/ FRUIT TREES PINEAPPLES TOTAL Sub- Estiíated Foreien Categories Dry Wet Central Plantains Dry Central Central borrowers' Lending Total Exchange Component Tropics Tropics Plateau Wet Tropics Tropics Plateau Plateau (Amount) (%) Investment Program Investment (%) (Amnount' 1\. Land and Crop Development 1050 525 175 15547 674 1530 2625 22126 59 668 2672 3340 40 1323 Feasibility study - - - 400 - - - 400 1 12 48 60 00 00 Land Clearing 144 72 24 950 11 25 10 1236 3 38 152 190 65 124 Farm Drainage 162 81 27 2000 - - - 2270 6 68 272 340 65 221 On-Farm irrigation works - - - - 108 252 - 360 1 10 40 50 35 18 Soil erosion control 180 90 30 - - - - 300 1 10 40 50 60 30 Flood control 144 72 24 - - - - 240 1 8 32 40 60 24 Road construction 216 108 36 1100 22 53 15 1550 4 46 184 230 65 150 Fíeld crop establishment - - - 700 44 100 400 1244 3 38 152 190 20 38 Pre-production - - - 9380 440 1000 1965 12785 34 386 1544 1930 30 579 Fertilizer 2/ 108 54 18 - - - - 180 1 6 24 30 80 24 Others 96 48 16 1017 49 100 235 1561 4 46 184 230 50 115 2\. Mgchinery & Equipment 990 495 165 3745 48 113 656 6212 16 188 752 940 70 658 Tractors 315 158 52 350 - - 350 1225 3 36 144 180 70 126 Ploughs 36 18 6 60 - - 60 180 1 6 24 30 70 21 Harrows 36 18 6 40 - - 40 140 - 4 1E 20 70 14 Drainage equipment 360 180 60 200 - - - 800 2 24 96 120 70 84 Trailers 45 22 8 50 - - 50 175 - 6 24 30 70 21 Spraying equipment 45 22 8 120 45 105 100 445 1 14 56 70 70 49 Others 153 77 25 2925 3 8 56 3247 9 98 392 490 70 343 3\. Constructions & Installations 790 390 135 1820 207 484 700 4526 12 136 544 680 48 325 Farm buildirgs 360 180 60 1200 90 210 100 2200 6 66 264 330 50 165 Fencing 390 195 63 80 44 100 90 962 3 30 120 150 50 75 Workshops - - - 300 - - 250 550 1 16 64 80 50 40 Windbreaks - - 100 58 134 100 392 1 12 48 60 20 12 WeIl, Pumps & Pipe - - - 40 - - 100 140 - 4 16 20 65 13 Others 40 15 12 100 15 40 60 282 1 8 32 40 50 20 4\. Planting Material 150 75 25 3117 156 363 984 4870 13 148 592 740 13 94 Improved seeds 140 70 20 - - - - 230 - 8 32 40 50 20 Plante & Cuttings - - 3000 144 336 900 4380 12 132 528 660 10- 66 Others 10 5 5 117 12 27 84 260 1 8 32 40 20 8 TOTAL 2980 1485 500 24229 1085 2490 4965 37734 100 1140 4560 5700 42 2400 Perrer\.tage of Total Investnent Costs 8 4 1 64 3 7 13 100 20 80 100 - 42 1/ Figures are rounded\. 2/ Fertilizer for fruits, bananas and pineapples are included in pre-production costs\. Januaziy 26, 1971  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT FARM MODELS CROPS Area Yield Gross Production Production Cost Net Production In Hectares in M\.T\. Per Hectare Price Value in ¢ ín ¢ Value in e Incremental Without With Without With </M\.T\. Without With Without With Without With Net Value Prolect Project Projert Project Pro_ect _ NODEL Annual Crops FARM SIZE: 50 Hectares INVESTMENT: Land & Crop Development USEFUL LIFZ: 10 years Maize (First crop) - 35 - 3\.6 517 - 65,142 Rice (Second crop) 40 35 1\.8 3 738 53,136 77,490 ) 40,000 101,500 13,136 41,132 27,996 Woodland 10 - - - - - 53,136 142,632 MODEL Bananas/plantains FARM SIZE: 300 Hectares INVESTMENT: Development of a Unit USEFUL LIFE: 15 years Bananas/Plantains 100 300 32 38 450 1,440,000 5,130,°0\. 1,350,000 4, 5%,000 90,000 630,000 540,000 Woodland 200 MODEL Fruit trees FARM SIZE: 15 Hectares INVESTMENT: Development of an Orchard USEFULL LIFE: 25 years Avocados 1 5 11 21 800 8,800 84,000 ) Citrus 2 5 15 28 400 12,000 56,000 ) 15,000 60,000 15,400 138,500 123,10 Mangos 2 5 16 29 300 9,600 43,500 ) Intercrop - 10 1\.2 1\.5 1000 - 15,000 ) Woodland & Fallow 10 - - - - 30,400 198,500 MODEL Pineapples FARM SIZE: 100 Hectares INVESTMENT: Basic infrastructure on 100 ha and development of a 50 ha unit USEFUL LIFE: 15 years Pineapples 50 100 12 30 310 186,000 930,000 175,000 650,000 11,000 280,000 269,000 Bushland & Fallow 50 - - - - - - - _ \. _ January 27, 1971  COSTA RICA SEOND AGRICULrTRA1CgRDIT JECT ESTITES OF PROPOSED IVESTHU(T ROGRAM FORBSTRY PROPOSED TOTAL INVEST<ENT COSTS (COLONES'OOO) (u$03,00) Investent Central Total Sub-borrowera' Lending Total Ectimted Foreign Categoriea D]r-Tropica Wet-Tropics Plateau (Aount) (%) Investment Prograz Inveat\.mt Eoh%ange Coont 1\. Land & Tree Develoent 171 1190 591 2352 44 71 284 Feasibility studles 35 75 40 150 3 5 18 23 50 12 Rad Construction 185 385 200 770 14 23 93 116 65 75 Forest tree eastabliahment 135 270 135 540 10 16 65 81 20 16 Pre-Production 180 360 180 720 14 22 87 0og 30 33 Otheru 36 100 36 172 3 5 21 26 60 16 2\. Machine! & EQ2!ent 430 1125 656 2211 42 67 267 33 70 23 Tractora 310 775 465 1550 29 47 187 234 70 164 4-wheel drive vehicles 70 175 105 350 7 11 42 53 70 37 Motor-saus 114 35 21 70 1 2 9 11 70 8 Tools & Implesrta 16 40 24 80 2 2 10 12 70 8 Others 20 100 41 161 3 5 19 24 70 17 3\. Coxutructiona & Inmtalationa 139 327 181 647 12 19 z9 28 LO 49 Fam bufldinga 20 50 30 100 2 3 12 15 50 7 Fencing 45 90 45 180 3 5 22 27 50 14 Workshopai 60 150 90 300 6 9 37 46 50 23 Well, Pwp & Pipes 4 10 6 20 - 1 2 3 50 1 Othera 10 27 10 47 1 1 6 7 50 4 4\. Planting Material 17 44 25 86 2 3 10 13 40 Forest Nurseries 16 40 24 80 2 3 9 12 40 5 Otheru 1 4 1 6 - \. 1 1 40 - TOTAL 1157 2686 1453 5296 loo 160 640 800 55 440 Percentage of Total 7nve2tent Costa 22 51 27 100 20 80 100 55 Arsril 6, 1972  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT FARM !DDEL EORESTRY Area Production Gross Production Production Cost Net Production In Hectares M3 of Sawn Wood Price Value in ¢ ín e Value in e Ir\.cremer,tal Without With Without With 97 Without With Without With Without With Net Value Prolect Proiect Pro1ect e MDEL Woodland FARM SIZE: 1,000 Hectares INVESTMENT: Basic infrastructure for rational use of forest resources USEFUL LIFE: 50 years Woodland under Use 200 1,000 11,000 41,250 12 132,000 495,000 100,000 285,000 32,000 210,000 178,000 Woodland under Reserve 800 &pril 6, 1972 1F' o  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT ESTIMATES OF PROPOSED INVESTMENT PROGRAM AGRO-INDUSTRIES --------------------------PROPOSED TOTAL INVESTMENT COSTS (COLONES'000)-------------------------- - - -(US $ '000\- ínvestment Slaughter- Milk Plants Mixíng Plants Grain Storage Fruit Agro- Saw- Sub- Lend- EstiLate0 Investment Mills Total ~~~~~~Pant AiatonBorrowers' ing Total F\.z\.reigi~ Categories houses V'entral Central Platealu Dry-Tropics Packing Plants Aviation MilToa Brows'ng otlF-ix Wet-Tropics Plateau Wet- Central Countryside Country- (Amount) (%> Investment Pro- Invest- xchaiie 2 1 1 1 Tropics Plateau 2 side 3% 07 (Y) CnAmount) 1\. Machinery & Equipment 90 814 440 304 1,180 46 396 700 3970 61 180 420 600 70 420 Slaughter equipment Office equipment 2\. Construction & Installations 94 625 280 560 806 75 40 100 2580 39 117 273 390 52 202 Buildings Installations TOTAL 184 1439 720 864 1,986 121 436 800 6550 100 297 693 990 63 622 April 6, 1972 H~  CO'\.TA RICA ,SECO"1 AGRICULTURAL CREDIT PROJECT Technical Services Year 1 Year 2 Year 3 Total Local Foreign Total ( - (000 Colones) -----('00- ------------( 0 S$)------------- Consultants and short-term staff 1/ 200 300 460 960 36 109 145 Vehicles 2/ 405 153 105 663 - 100 100 Fellowships 2/ 275 275 275 825 - 125 125 Total 880 728 840 2 448 36 334 370 1/ Foreign technical staff by wav of short-term assignments and foreign consulting firms\. / 25 four-wheel-drive vehicles for C'3 and P3s\. 3/ Up to one-year fellowship for 15 trainees during the 3-year project: 2 for forestry, 3 for falm management/agricultural credit, 5 for agro-industries, 2 for livestock and 3 for marketing\. Per diem allowances of US$20 plus travel exbenses and insurance\. Trainees would be professionals of the participating banks or Central Bank\. April 6, 1972  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT PROJECT COST (COLONES '000) (US$'000) Percentage Foreign Exchange of Total Component Local Foreign Total Local Foreign Total Project Cost % A\. LENDING PROGRAM 1\. LIVESTOCK 18782 28492 47274 2836 4304 7'lb0 43 60 Land and pasture develooment 4203 9102 13305 635 1375 2010 12 68 Machinery & implements 3228 7461 10689 483 1127 1610 10 70 Construction & Installations 5173 5197 10370 785 785 1570 9 50 Planting material & Breeding Stock 6178 6732 12910 933 1017 1950 12 52 2\. CROpS 21846 15888 37734 3300 2400 5700 35 42 Land and crop development 13368 8758 22126 2017 13a3 3340 2! 40 Machinery & equipment 1856 4356 6212 282 658 940 6 70 Construction & Installations 2374 2152 4526 355 325 680 5 48 Planting material 4248 622 4870 646 94 740 4 13 3\. FORESTRY 2383 2913 5296 360 440 800 5 55 Land and tree development 1346 1006 2352 203 152 355 2 43 Machinery & equipment 662 1549 2211 100 234 334 2 70 Constructions & Installations 32 32 647 49 49 98 - 50 Planting material 53 33 86 8 5 13 - 40 4\. COMPLEMENTARY DEVELOPMENT -/ 3972 5958 9930 600 900 1500 9 60 5\. AGROINDUSTRIES 2432 4118 6550 368 622 990 6 63 Machinery & equipment 1190 2780 3970 180 420 600 4 70 Construction & Installations 1242 1338 2580 188 202 390 2 52 Sub-Total 49415 57369 106784 7464 8666 16130 98 54 B\. TECHNICAL SERVICES 237 2211 2448 36 334 370 2 90 Consultant and short-te-m staff 237 7? ghn 36 109 145 1 85 Vehicles and equipment - hb3 663 - 100 100 - 100 Fellowships - 825 825 - 125 125 1 100 GRAND TOTAL 49652 59580 109232 7500 9000 16500 100 55 _/ Complemnentary Development costs have been included in Livestock and Crops in para 4\.15 ADr¡! 6, 1'7,  CWTA RICA SECa8D AhRICULTURAL CREDIT PR08ECT nOJECT CASH FLW OF PARTICIPATING &AUXS (o '000) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Total LhPLCU DR\.D ln for On-Lending 13,339 17,522 18,129 8,379 57,369 Loan Principal Revadd by Sub-4orrors - - 1,726 4,210 6,628 8,153 9,253 10,385 10,337 9,050 7,660 6,e49 5,495 3,795 1\.670 360 85,491 Loan Intereot Paid by Sub-Borrors (9-3/41) 967 3\.217 5\.639 7\.155 7\.122 6\.336 5\.442 4\.440 3,418 2\.542 1\.795 1\.129 600 213 53 34 50\.106 TOTAL IUFlLOi 14,306 20,739 25,494 19,744 13,750 14,489 14,695 14,825 13,755 11,572 9,455 7,978 6,095 3,950 1\.725 394 192,966 OUTFLOW Loan\. to Sub-borrovers 19,825 26,213 26,991 12\.462 a09 85,491 Pr palRepayint to CB - - 1,158 2,825 4,448 5,471 6,209 6,969 6,936 6,060 5,141 4,595 3,688 2\.307 1,121 241 57,369 Comitmnt Feas Paid to IBRD thru CB 395 276 137 33 - - - - - - - - - - - 641 Inter\.at Paid to CB at 7-1/41 484 1,601 2,892 3,852 4,157 4,157 3,863 3\.547 3,207 2,842 2,450 2,028 1,575 1,087 563 38,305 PBe* Project Adin6\.tratlvv Cost 100 500 800 800 500 __0 300 200 80 - - 3 \.780 TOrAL WTFLCW 21,004 28,590 31,978 19,972 9,105 9,928 10,372 10,716 10,223 8\.902 7,591 6,623 5,263 5,994 1,684 241 185,786 …* - - \. \. \. - - - \. \. \. \. ___ Annual Cash Surplu (Definit) (6,698) (7,851) (6,484) (228) 4,645 4\.561 4\.323 4,109 3,532 2,670 1,864 1,535 832 356 41 153 7\.180 C,^Itlve Cash Surpl\.o (Defltcí) (6,698) (14,549) (21,033) (21,261) (16,616) (12,055) (7,732) (3,623) (91) 2,579 4,443 5,798 6,630 6,986 7,027 7,180 April 6, 1972  ANNEX 15 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Estimated Schedule of Disbursements Cuuulative Disbursement _tend_of Quarter IBRD Fiscal Year & Quarter (U5$'000) 1971/ 72 June 30, 1972/ 1972/73 September 30, 1972/ December 31, 1972 500 March 31, 1973, 1,000 June 30, 1973 1,500 1973/74 September 30, 1973 2,000 Deceiber 31, 1973 2,500 March 31, 1974 3,000 June 30, 1974 3,500 1974/75 September 30, 1974 4,000 December 31, 1974 4,700 March 31, 1975 5,400 Jure 30, 1975 6,100 1975/76 September 30, 197 3 6,800 December 31, 1975- 7,300 March 31, 1976 7,800 June 30, 1976 8,300 1976/77 September 30, 1976 8,700 December 31, 1976/h 9,000 /1 Estimated Date of Signing\. /2 Estimated Date of Effectivenese\. /3 Estimated Project Completion\. /4 Closing Date\. April 5, 1972  l ~ A RI Ca SECCUND ,\.P: R C' 3IT P\.OJES'l Estimated Increase in Utilized Area and Production Incremental Production Área Develod _ Production at Full Development Before lfter Bofore After (1981) (ha) (ha) Metric tons Metric tone Metric Tons B*e* 369000 54,9000 3,182 16oUO5 13,222 Daíry¡ >1k 2,000 2,000 7,744 14,942 7,198 Besf 2,000 2,000 155 590 435 Crop \.& Muize - 2,100 - 7,560 7,560 Rice 2\.,400 2,100 4,320 6,300 1,980 Banana/Plantain 1,000 3,000 32,000 114,000 82,000 P±neapple 500 1,000 6,000 30,000 24,000 Fru±t treso Avocados 30 150 330 3,150 2,820 Citru 60 150 900 4J,200 3,300 Mangos 60 150 960 4,350 3,390 Intercrop i - 300 - 450 450 Porestry 1,000 10,000 22 410 388 a/ Maize is planted as the first crp and rice as the second\. Intercrops are planted on the area planted to fruit trees before the plantations reach full development\. b/ Million M3 timber\. December 6, 1971  ANNEX 17 Paae 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Markets and Marketing Bananas 1\. Facilities for export and marketíng to foreign consuming countries is probably the most crucial factor in the production of bananas for ex- port\. This is because the fruit is highly perishable and apecial handling techníques and facilities are required to preserve the quality of the fruit when it is being transported to the consuming markets\. Arrangements to speed delivery to the consumer as well as the handling of large supplies are also necessary for an effícient marketing system\. These characteristics have led to the virtual domination of the international trade in bananas by a few firms, principally United Fruit and Standard Fruit\. 2\. During the most recent 3-year period, 1967-69, four producer- exporter fírms accounted for an estimated 97% of Costa Rica's export of bananas, with United Fruit and Standard Fruit the two largest, accounting for 51% and 37%, respectively\. The remaining 9% was accounted for by Afrikanische, a firm that exports to the European markets, and Bandeco, a subsidiary of Del Monte\. In addítíon to their own production, United Fruít buys from four independent producers without export facilities, Standard Fruit from 18, Afrikanische from 12, and Bandeco from 21\. The independent producer or producing unit, which ís mainly locally owned, usually enters into a 10-year contract to sell its output at agreed prices to one of the exporting fírms\. Though the contracted prices are agreed to in advance, they are, however, subject to re-negotiation whenever there are significant departures from the normal movements in world market prices and production costs\. Some of the exporting firms also supply tec'lnical assistance and certain production inputs to independent producers, so th\.at the contracted purchase prices vary among the exporting firms accor,iing to the value of the inputs supplied\. It ís estimated that the averae* export unit value was 30 to 35% higher than the price paid to the producer in recent years\. The high cost of domestie transportation (about onie hal f of thie margin) is certainly an important contributory [actor to the relatively high margin between producer and export prices\. Prices paid to banana growers are as follows:  ANNEX 1 7 Page 2 PRICES OF BANANA - FOB PUERTO LIMON (US7Ibox - 42 pounds Mínimum) Standard Fruit/ Cobal Bandeco First class 1\.05 1\.53 1\.53 Second class \.80 1\.49 1\.03 Third class \.60 /1 Standard Fruit Co\. prices do not include servíces rendered by the company to the grower\. Technical assistance, bulk purchasing of inputs, lower trans-- portation costs, increase the prices received by farmers considerably\. 3\. Costa Rican banana exports more than doubled between 1966 and 1970, increasing from 359,000 tons to about 889,000 tons\. Due to market preference the Cavendish variety, attractive in appearance and of good keeping quality, have mnade significant inroads into the market for the Gros Michel variety in recent years\. Costa Rica has placed increasing emphasis on the produc- tion of the desirable Cavendish variety as well as on the supply of good quality fruit\. These factors have reportedly been responsible for the significant inroads made by Costa Rican exports into certain European markets at the expense of other South American suppliers\. The geographic position of Costa Rica represents an added advantage to the country's exports to the maín consuming markets\. Therefore banana production by independent growers can be a profitable enterprise in Costa Rica\. However, due to the nature of the r\.irketing process it is necessary to overcome certain limitations in order to operate efficiently\. Some independent banana growers are having finanicial problenis due to a profit squeeze\. Yields have been hampered by unusually bad w7eather in the last couple of years while costs have risen for those growers marketing through Bandeco and Cobal\. Those growers marketing througlh 'tandard Fruit have not been affected significantly because their costs ¿ere lowered by technical assistance, bulk purchasing of inputs, packing materials, and equipment, and lower transportation costs which are provided by the mnarketing firm\. A Banana Growers Association is being considered in order to attempt to deal with the two basic elements in a profitable operation: high level technical assistance, and bulk purchasing of inputs\. Beef Cattle 4\. The sale of beef cattle for both domestic consumption and export rose from about 158,000 head in 1966 to an estimated 208,000 head in 1970, or an increase of about 32%\. Sales for domestic consumption, however, in- creased by less than 2%, from about 117,000 to 119,000 head, while sales for export, mostly as boneless beef, more than doubled, increasing from 41,000 to an estimated 89,000 head\. The share of the export market, therefore, rose from 26% to 43% during the period concerned\. The negligible  ANNEX 17 Page 3 increase in domestic consumption has led to a decline in per capita consump- tion from 19 kg in 1966 to an estimated 16 kg in 1970\. Strong externa! demand and rising price levels have been the main contributory £actors\. 5\. Individual producers annually submit their estimates of the nurn- ber of aniinals that would be available for sale durIng the coming year to the Consejo Nacional de la Produccion (CNP) or National Productíon Counc:i, an autonomous Government corporation responsible for allocatin, quotas for export and domestic consumption of cattle\. CNP estimates of total avaíla- bilities are based on these submissions by producers\. From the total avail- able supply, CNP deducts what it estimates would be required for domestic consuniption, and the residual is taken as the amount available for export\. The latter has, however, no practical significance, since the anc-nts ex- ported would depend mainly on external demand, principally the quotas on ex-- ports to tlie U\.S\. market established annually by the U\.S\. Goverrnent\. Distribution of the export quotas among producers is based on their respec- tive capacities\. Each producer receives from the CNP individual certífi- cates corresponding to the number of animals represented in the quota al- lotted to him\. When the producer sells his animals for export to a meat packing company, he surrenders the relevant certificates to the company, which records the details of the sale on the certificates\. This is an ef- fective device for CNP to use in checking the meat packing companies' ex- ports to the U\.S\. though domestic prices are free, they are influenced by export prices\. 6\. Six companies handle beef exports, shipping mainly to Miami and Puerto Rico\. There are four packing plants operating only for the export market and one (Montecillos) for both export and domestic consumption\. All plants are modern in design and have good standards of hygiene as well as facilities for processing by-products\. Two packing plants (Colorado and Barranca) are located in the main cattle province of Guanacaste (Dry Trop- ics); the others are in the Central Plateau close to the capital city, San Jose\. The Montecillos plant also handles about 45% (53,000 head) of the cattle slaughtered for domestic consumption (119,000 head)\. Though the packing plants have sufflcient capacity or are planning additions to service increased killings, not all cattle producing areas have easy access to these plants, e\.g\. the Atlantic region, which appears to be of increasing importance as a cattle producing area, has no slaughter and packing facility for export and would, consequently, require the establishment of one in the very near ftuture unless the present poor transport system in the area is greatly improved\. Municipal slaughterhouses exist in the larger towns but havo a low thiroughput\. 7\. The Alajuela salesyard, alongside the Montecillos packing plant, is the only central livestock market In Costa Rica for domestic cattle sales\. Market facilities are owned by the municipality of Alajuela\. which receives a yarding and weighing fee of US$0\.60 (04\.00) per head\. Becatuse of poor roads, cattle trucked long distances lose condition and are subject to bruising\. Transport costs are high\.  ANNEX 17 Page 4 8\. From 1965 to 1969, an increase of approximately 30% in export prices stimulated the expansion of boneless beef exports\. This price in- crease has been largely passed on to the producer because competition for cattle increased as more export packinr plants were built\. The present price is about US$0\.39 (0 2\.60) per kg liveweight\. Producers have responded by inereasing herd numbers at the rate of 5% per annum, while maintaining a 14% extraction rate\. 9\. The export packing plants adjust tlheir buying prices weekly, according to the Chicago market price for cutter cow grade boreless beef\. Ia effect, the Costa Rican producer receives about 18% leas than the Chicago boneless beef price, which represents a price differential of around US$0\.10 per pound\. In contrast to Australia aud New Zealand, which supply 70% of the U\.S\. boneless beef imports, obtained mainly from cutter qual4ty cows, Costa Rica exports a higher grade from fat steers but has received no price premium\. Recently, producers have been offered prices up to 40% higher than ruling rates for beef from European breeds as exporters intend supplying a higher grade market\. 10\. Donestic producer beef prices have paralleled export prices but be- cause of lower quality, particularly for cows, domestic prices have averaged about 80% of export prices\. Project cattle prices (US$0\.39 per kg live- weight) are based on a composite of the present export and domestic prices\. Milk 11\. Nillc production in Costa Rica in the last decade lhas increased at the rate of 4% per annum to the 1969 level of 165,000 tons of milk\. It is estimated that about 70% is eonsumed as fluid milk ind the remainder ¡s processed into butter, cheese, milk powder, and other dairy products\. There is virtually only one milk processing company (Dos Pinos)\. Ir han- ¿les approximately one-third of the country's milk production, pasteurizes 25,' of consumed milk and processes about 55% for manufacturing purposes\. M11k produced in the tropical areas from beef-type cows is generally con- sum'ed as raw milk within neighboring rowns\. This milk ¡s retailed by ln- ter,mediaries under unhygienic conditions\. 12\. Tite Dos Pinos factory has enforced high standards for inílk qualí- tv, but raw milk sold through other intermediaries is ot 1i different qual- ity\. Government has stated that when more pasteurization plants are ín operation, it will prohibit the sale cf raw milk\. Present annual consump- tion level of all milk products is about 97 kg per capita, of which 68 kg represents fluid ;nilk consumption\. Ir is estimated that the growth of the dlairy indtustry in Costa Rica will closely follow the -rcwth of the popula- tion and GNP\. 13\. For fluid milk consuniptIon, the prices paid ro producers by Dos Pinos anml the retail prices of its pasteurized milk are regulated by the Government through the Mini\.stry of Commerce\. Untll a few months ago, pro- ducers were paid US13\.97 cents per kg for that parr of cheir irilk sales thaE would go intu fluid Tmlilk consuwmlt-on and U\. S\. 72\.41 c'nts per kg  ANNEX 17 Page 5 for milk that would be processed into dairy products\. The blended price averaged US13\.31 cents per kg and a butter fat content of 4% minimum was required\. The retail price of milk with a 3% butter fat content was US19\.95 cents per kg\. 14\. Recently, the Ministry of Commerce allowed Dos Pinos to increase the retall price to US22\.15 cents, but directed that the whole of the price increase be passed on to producers, who are now, therefore, getting a blended price of US15\.51 cents a kg 1/\. Don Pinos requested the price increase on the claim that production costo had increased\. Since it was not able to share in the price increase, it decided to lover the butter fat content of ite milk sales from 3 to 2\.5% in order to obtain some of the benefit\. Basic Grains 15\. CNP i8 an autonomous institution set up by legislation in 1956\. Its objectives are to: (a) promote agricultural and industrial production and development; (b) achieve price stabilization of food products consumed domestically and raw materials required by local industry in the interest of both producers and consumere\. To achieve the latter objective, one of its function is to regulate the price of basic grains\. CNP regulates the domestic prices of the basic grains, rice, corn, and beans, by (a) establish- ing minimum support prices for these commodities at the begiuning of each crop year; (b) the príces it charges for its sales of the grains at the retail level; and (c) the monopoly it has on the importa of these grains from countries outside the Central American Comnon Market\. Once established, the minimum support prices cannot be revised downwards during the period of the crop year, although a revision upwards is permissible\. 16\. Mínimum support príces are for grains of good quality (specified minimum levels of dirt and moisture content) and delivered to CNP ware- houses in San Jose\. Prices actually received by producers are therefore, lower than the support prices, due to differentials for transportation, moisture content, and generally lower quality of the grains brought in by producers\. The minimum support prices for the seven crop years, 1964-65 to 1970-71, are shown below: 1/ Producers whose milk output is sold to íntermediaries other than Dos Pinos receive an average of US13\.3 cento per kg\.  ANNEX 17 Page 6 CNP: _upkort Prices for Rice, Corn, and Beans, 1964-65 to 1970-71 (in US cents per kg) Support Prices Crop Year Rice Corn Beans 1964-65 22\.59 7\.63 18\.28 1965-66 22\.59 8\.32 18\.28 1966-67 20\.94 8\.32 14\.96 1967-68 22\.59 8\.32 19\.93 1968-69 22\.59 8\.65 21\.60 1969-70 19\.62 9\.85 18\.55 1970-71 19\.70 n\.a\. 24\.60 Source: Consejo Nacional de la Produccion (CNP)\. For the period under consideration, support prices for rice, corn, and beans averaged 28, 11 and 11% higher than respective prices paid to pro- ducers\. The higher margin for rice can be attributed to milling charges (from padi to rice) and to higher moisture content\. 17\. The CNP operates a chain of stores to sell basic grains at the retail level\. The unit value of its annual retail sales for rice averaged about 15% higher than the average annual unit price paid to producers in the period 1965-69\. For corn and beans, respective margina were 20 and 21¡J\. This shows tliat Costa Rican production of basic grains, which is relatively high cost, has been paid for directly by the consumer in the form of high domestic prices\. 18\. The purpose of the price support scheme ¡8 to provide mínimum orice guarantees to producers for their basic grains\. Thus, though CNP would be obliged to buy from the producer at the minimum support price levels, the producer, in turn, need not sell to the CNP\. He can, instead, deposit bis grain wíth any one of several storage facilities and use it as collateral for a loan from the storage facility\. 19\. The storage facilities or almacenes de deposito are warehouses which not only store goods, but also make loans against these goods\. There are six principal operators -- the four state-owned commercial banks and two private companies\. The conditions of credit are the same for all operators because of legal requirements\. Loans granted would normally not exceed 75% of the value of the goods deposited\. Tle normal loan term is 6 months, but extensions of up to 2 years are given\. The annual interest rate is 8% but there are additional charges for storage, insurance, handling and the like that may amount to another 87\. In the event of a default, the stored goods concerned may be sold to recover the loan\.  ANNEX 17 Paga 7 20\. Originally established to help stabllize grain prices over the crop year, the storage facilities have since been expanded to store all kinds of goods, including imported products\. The value of loans against agricultural comnmodities has been relatively small (about US$2 million an- nually in recent years)\. Moreover, it has gone prímarily to marketing intermediaries and a few large producers\. However, the importance of such credit should not be overlocked, especially insofar as it serves to facili- tate the marketing function\. The warehouse storage of agrícultural prod- ucts would be difficult for many marketing agente if this type of financing were not available\. In fact, there ¡8 room for expansion in this area, in- cluding extension of the facilities to small and medlum sized as well as large farmers\. April 5, 1972   COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT FINANCIAL RATES OF RETURN TO THE ENTERPRISE (COLONES) Y E A R S 1 2 3 4 5 6 7 8 9 10 11-14 15 LIVESTOCK BEEF CATTLE - 300 ha farm\. Investment on 100 ha: Land and Herd Development Incremental Sales 2500 7200 9200 39500 68400 96800 121500 134800 170700 191600 191600 191600 Incremental Expenses 4000 12200 20100 23500 35600 37100 39600 41500 42500 42800 42800 42800 Net Value (1500) (5000) (10900) 16000 32800 59700 81900 93300 128200 148800 148800 148800 Capital Investment 134000 51000 33500 - - - - 47000 - - - - Increase in Herd Value - - - - - - - - - - - 393000 Net Investmental Flow (135500) (56000) (44400) 16000 32800 59700 81900 46300 128200 148800 148800 541800 Financial rate of return: 23% Dairy Cattle - 40 ha Investment: Land and Herd Development Incremental Sales 8600 26900 28900 29600 80900 92400 129600 153900 153900 153900 153900 153900 Incremental Expenses 6500 2300 26000 27500 44300 51900 57100 61100 61100 61100 6110C 6110C Net Value 2100 24600 2900 2100 36600 40500 72500 92800 92800 92800 92800 ,2800 Capital Investment 79000 59200 20700 - - - - 26000 - - - - Increase in Herd Value - - - - - - - - - - - 103200 Net Incremental Flow (76900) (34600) (17800) 2100 96600 40500 72500 66800 92800 92800 92800 196000 Financial rate of return: 27% CROPS Annual Crops - 50 ha\. Investment: Land and Crop Development_ Incremental Sales 22374 44748 67122 89496 89496 89496 89496 89496 89496 89496 Incremental Expenses 15375 30750 46125 61500 61500 61500 61500 61500 61500 61500 Net Value 6999 13998 20997 27996 27996 27996 27996 27996 27996 27996 Capital Investment 47050 17600 18100 - - - - 40000 - - Net Incremental Flow (40051) (3602) 2897 27996 27996 27996 27996 (12004) 27996 27996 Financial rate of return: 29 T/ 10-20 Bananas/Plantains - 300 ha\. Investment: Development of a Unit Incremental Sales 1845000 2767500 3690000 3505500 3505500 3505500 3505500 3505500 3505500 3505500 x Tncremental Expenses 1575000 2362500 3150000 3150000 3150000 3150000 3150000 3150000 3150000 3150000 Net Value 270000 405000 540000 355500 355500 355500 355500 355500 355500 35s500 Capital Investment 1530000 892920 - - - - - 100000 - - Net Incremental Flow (1260000) (487920) 540000 355500 355500 355500 355500 255500 355500 355500 Financial rate of return: 18% February 7, 1972  COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT FINANCIAL RATES OF RETURN TO TIIE ENTERPRISE (COLONES) Y E A R S 10-15 1 2 3 4 5 6 7 8 9 & 17-23 16 & 24 9 U, Fruit Trees - 15 ha Investment: Development of an Orchard Incremental Sales 20240 23480 25720 32305 38890 51580 76960 103340 127720 153100 15\.10s 1i53100 Incremental Expenses 15200 16400 17600 15800 17000 20200 23400 26600 29800 33000 33000 330n, Net Value 5040 7080 8120 16505 21890 31380 53560 76740 97920 120100 120100 12010( Capital Investment 63700 23160 16150 16150 - - - 5000 - - 5000 - Net Incremental Flow (56660) (16080) (8030) 355 21890 31380 53560 717U0 97920 120100 115100 120I00 Financial rate of return: 347¾ 10 Pineapsles - 100 ha Investment: Basic Infrastructure on 100 ha and Development of a 50 ha Unit Incremental sales - 356500 744000 744000 744000 744000 744000 744000 744000 744000 Incremental Expenses 142500 285000 475000 475000 475000 475000 475000 475000 475000 475000 Net Value (142500) 71500 269000 269000 269000 269000 269000 269000 269000 269000 Capital Investment 292500 204000 - - - - - - - - Net Ii,cremental Flow (435000) (132500) 269000 269000 269000 269000 269000 269000 269000 269000 Financial rate of return: 34% FORESTRY ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~11\.13-14, F\.ORESTRY i0 li 17 ar< 1 12 15 Woodland -,1000 ha Investment: Basic Infrastructure for Rational Use of Forest Resources Incremental Sales 90750 181500 272250 363000 363000 363000 363000 363000 363000 363000 363000 363000 363000 Incremental Expenses 46250 92500 138750 185000 185000 185000 185000 185000 185000 185000 185000 185?00 185000 Net Value 44500 89000 133500 178000 178000 178000 178000 178000 178000 178000 178000 178000 178000 Capital Investment 320000 62700 96500 7200 10700 45700 ?200 167200 7200 10700 - 38500 3500 Net Incremental Flow (275500) 26300 37000 170800 167300 132300 170800 10800 170800 167300 178000 139500 174500 16 18 20 Incremental Sales 363000 363000 363000 M Incremental Expenses 185000 185000 185000 (D Net Value 178000 178000 178000 Capital Investment 160000 38500 3500 Net Incremental Flow 18000 139500 174500 Financial rate of return: 35% 1/ Replacement of machinery and equipment included in years 10 to 20 as required\. January 27, 1971  ANNEX 19 Page 1 COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT Economic Rate of Return 1\. The ratea of return from the Project to the economy have been calculated, as shown in table below\. These have been made on the following aasumptlons: (a) Inputs: Operating costs as well as investment costo were calculated at present market prices\. Investment costo ínclude a contingency of 10%\. (b) Outputs: The\. maín production to be generated by the Project would be beef, mílk, banana, rice and corn\. Projected world market prices, 1/ adjusted for Costa Rica, have been used in estimating the benefita\. In the case of milk, it is envisaged that the incremental milk produced would all be consumed domestically\. Present producer prices have been used for calculating the economic rate of return for milk and timber, while values for annual crope, bananas, fruits and pineapples have been adjusted downward where appropriate according to world market projectiona given below\. Por beef, the forecasted higher price has also been taken into account\. 1975 Projected CIF World Present Price Market Price AdJusted for Costa Rica Costa Rica Beef 390\.00 410\.00 Banana 68\.00 60\.00 Rice 170\.00 153\.00 Corn 78\.00 70\.00 2/ (c) Financial net benefits have been adjusted for import, export, lncome and excise taxes\. 1/ Price projections are based on estimates of the Trade Policíes and Export Projectione Division of the Bank's Economics Departmact\. 2/ The ocean frelght ratee for grain used in estimating these CIP prices were those prevailing for importe from North America to Atlantic coaet ports\. The source used was the Central American Porte Study by Transportation and Publíc Utilities Division of the Bank's Economics Department, October 1, 1971 (Economic Staff working paper No\. 117)\.  ANNEX 19 Page 2 2\. Based on the above, the economic rate of return of the Project, over the life of the enterprises la 25% for beef; 27% for dairy; 20% for annual crops; 21% for bananas/plantains; 32% for fruit trees, 28% for pine- apples and 37% for timber\. The sensitivity of the Project was tested by ¿\.siuming that the net incremental value of production would be 10% below the estimates used and the results still ahowed an adequate rate of return ranging from 14 to 35%\. For further details, see table on page 3\. April 5, 1972  C03TA ROla 230074D AGRIC00TURL CRt0 T 7907CT 550N011} RATK OF RETS Ts THI IYTBPRISE (Coly esA 856 RS 1 2 3 5 S 6 7 8 9 10 11-7\. 15 Ras!e Sattls - 300 6\. aro; Oovostl\.nt so ''Y 9a; too4 sol ilsod Oeoeloa,ot Dor\.entai S\.0\. 2,590 7,200 9,2- 3, b 77 71,820 101,63O 727,570 13,530 179,230 291,189 2071 80 201,780 tuoreastafrpsee 3,960 12,080 19,900 23,260 35,2bO 36,730 39,200 h1,080 b2,070 42,370 b2,370 42,370 N\.t Value (17,3603 l,,893 (71',7003 8,21D 36\.580 6U,910 88\.370 100,460 137,160 158,810 158,810 158,810 COpitu 1 na0tsst 130,650 39,720 32,660 __ __ 45,820 _ -- -- -- inansas La lord Vala- -- -- \.- -- -- _- -- -- -- -- -- Net O--r- OntAi 1fico (132,110) (5,,600) (b3,360) 18,210 36,580 62,913 868,370 5,640 137,160 153,810 18,871i 1586,80 ZLcngel R\.ta of Ratarns 253 D\.ír3 Cattle - 39 ha* Oov-elat ;ind sd Herd \.s\.elooPmnt Iscruiasta)\. Sales 8,600 26,900 28,900 24,600 80\.909 92,400 129,600 153,00 153,900 153,900 153,900 153,200 aoz,e\. ntel RonsE ea-' 6\.30 2,280 2S,7bo 27\.229 L33860 51,380 56,530 60,4iO 60,390 60\.490 60,490 60,90 Viet Value 2,170 2b,620 3,160 2,38i 37,900 b7,020 73,070 93,0 93,410 93,bl0 03,319 93,410 Cqita1 Iavs1 ts,t 77,020 57,720 20,180 ,_ -- -- 25,350 __ - -- -- ¡¡son fa\. a 8aMd Valu __ -- __ _- _ -- -- -_ -- -- 103,200 reot in-rse- ta Vi o (7b,850) (33,100) (170\.203 2,380 37,03O 07 ,O20 73,070 68,060 93,70o 93,37O 93,bl0 196,610 Soasaste R t1 of Retorn 27% 2ws lanosO Cr-P\. - 50 bs; 3D ¡ent Lod sd Crop Dé-elopdi nt 10 1n-r-- itna 3ale\. 22,370 33,750 67\.120 80,550 80,550 80,55 80,55o 80,550 80,550 80,550 aor\.esta, EtnR\. 15,220 30,b3O b5,660 60,980 60,880 60,880 60,880 60,880 60,880 60,980 860 Value 7\.159 73,310 271,60 1,670 1\.,670 109,670 178670 19,670 79\.670 19,670 Capital ¡nos\.t¿sent \.5\.870 177160 17,6 -- _- -- -- 39,000 -- -- rst ls\.ne\.tsl Fo- (38,720) (2,850) 3,810 19\.670 19,670 19,670 19,670 (19,3393) 10,67 17 ,670 EopNoo- Rau of Retor, 205 10\.29 B \. \./PlI\.o~a - 3cO h\.; Opveot, De-r1ePeot of a U\.t, ICor\.waeotal Salas 7\.S1\. ,009 2,767,500 3,690,000 3\.505,530 3,505,500 3\.505,500 3\.50, 590 3\.505,500 3,50S,500 3,505,500 ,a,resst\.a OUpe-ses 1\.5S9,250 7\. 338,870 3 118,500 3,71 8,50C 3\.118, cn 3\.118,500 3,118,500 3\.118,500 3,18,50s 3\.118,500 74\. V\.luo 285,757 b28,630 571 ,500 87,00O 387,000 387,900 387,000 387\.300 387,000 387,000 2\.6O al nses,t¿seno 7\.7 b91 703 P70,600 -- -- -- -- -- 97,500 -- -\. Net cr---etal frle (1 \.9,90" 3 3L1,070) S71 ,S20 397\.i00 387,9r9 387,000 387,000 789,500 387,5s0 387\.500 Foouolsie Rato of Returo 211 1-175 F-ujo frese\. - 78 6; Iotes nt \.r eeepn-t\.t of a; 3 OrehafO f7-23 76-3 27-30 Coersenntal Sales 20,29 273,h80 25,720 29\.070 1Se,e b6,320 69,260 93,910 13 ,050 137,79% 137,790 1 37,790 loeree;stal Sotanees 7\. 350 76,20 177\.230 í5,63n 16,830 20,000 23\.170 26,330 290500 32,670 32,670 32,670 Net Valu 5, 99, 7,2O 8,303' 3,2,30 18,70 26,420 46,030 66,680 85,450 705,120 135,17 105,129 Capital lonsta\.ot 62,71 2 72,580 15,053 75,750 -- -- 4\.870 -- -_ h,870 -- NRt In6re,ssota fleo 06,2) (23 O,0) 37,oO"3 39,320) 3 ,tl - 7,h20 13,090 65,8,- 85,40 1709,120 412,070 17n0,120 8congo Rc ato of Rettrn, 338 P~eaples - 7O ha; oe\.aest Boato nfrastroetore u7 100 ad Dee sios-et -f a 50 ho Unt 13 Inorsmesotal Solee _- 56,5'9 7L3\.'0~ 6695,00\. 669,600 669,60o 669,6o0 669,600 6¿9\.600 669\.600 | n-------ntal E¡oeoses u1l,77 782,150 (79,00, ,179,2S' 17','50 370,250 370,250 37n0,50 b7,3250 h70 250 85t Valuo 17 1 ,-27) 7b3\.59 273,75' í9\.35 1 0,350 179,350 7199,935 1 9,350 7 s,3C3 199,359 Capital -vest-\.ent 795,7 - 1 4,9 \. \.- - -- _ __ _ _ NVt Zooros,e1ntaO Fleo (326,26D) 3193, 503 271,7S^ 749 35 14- 3, 0 17:,350 1,350 199,350 149,350 179,350 REoneSto Rato of Retoo: 71d 11, 13-7h, k00aod - 1,330 oJ;C h\. -s--etp Buole l-fraatruco:e 1,: Ratiocel Uso ,r 540007 R-oog,toa 19% 77 9 73 12 75 16 208 20 Coerupeoleal Sales 4,759 97,591, ?72\.2 351, '3 3bl1 7 369,", 116 \.0309 169,'792l 063,090 363,20 4 633\.01 363,020 363 300 363,700 363,000 363,000 en1fo1senttl \.nses bb,79 7 336 131 1 -' 7\.1 5 , < ,o 103,759 '09,759 I73,75 19 j83ío í83\.9so 159, So 183 ,150 e07 ¿aloe6,3,6\. 44,4599\.5 1 17\. '590 i,'4 77 1,059 17 ,850 1774,59 174,59q 179,859 1771,050 779,850 179,880 179,850 Capital loee,lsso' 31?,90\.4 »: 9 M\. 9 '"' 7 '\.7,) 'o 1"D bl\.06' '\.9\.? 5 77, 20 l,7"0 l,o - 37,5b7 3,310 106,00o 37,530 3,310 dt ncoreoooouI Fleo ,'67,3 o ,,', 1 93 o 7\.0? 1'20?3" 16,59' 170,990 16\.3L?0 17\.,5053 b,379 76\.3bO 23,950 742,310 176,j,n3 Econt-- Rote of Reuro 3' 1\.Reolaceodnt 00 s40i445097- ucd 0q910050 :00nc 0 17e 3n 0 e 1ç -: fi' 71q_ 41\.z7 nr ,   COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT CENTRAL BANK ORGANIZATION CHART | OARD Of DIRECTORS NATIONL BANKS SYSTEM GENERAL AUDITOR__ -- BANKS COORDINATING BALANCE OF PAYMENTS JURIDIC COMMISSION CREDIT PONICY FISCAL COMMISSION AGRICULTURE BANKS fLEGATES r COMMISSION COI~~~~~~~~~~ISSIOMISIONCOMMISSION FISCL SSION ONTO =SRDO DIECL E g C~~~~~~~~~CMISONCMISON OFRECrR i SUf COMMITTEE GENERAL MANAGER BANANAS BANWS JAJBRCO MAR _ ,_ TTTSCM l EANK'S ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AGRICULTURAL CREDIT DEPANTMEN1 ¡L_______\.… COORDINATING COMMISSION ILTURAol C,\.djl UnHR D EPoj\.lT EXECUJTIVE SECR ETARY 1ED od AID Prn GROUP SfECIAL RESEARCH LEGAL A|VIO, ORGANIZATION | f EGAL AmSOIIY l \. | ~~~~~~~~~~~~~~~~AND METHODS AEPMINISTRATION SCEAYEEALCCUTNTREASURY FOEC OMRLECONOMIC STUOE D|PARTMENT DEPARTMENT EARTMEN DEPARTMENT DEPARTMENT IBRD-5536(2R)   COSTA RICA SECOND AGRICULTURAL CREDIT PROJECT MINISTRY OF AGRICULTURE ORGANIZATION CHART |MINI STER PRESS AND PUBLICRELATIONS VICE -MINISTER _ NATIONAL AGRARIAN ADVISERS _ t_______________« S COUNCIL EXECUTIVE COMMITTEE GENERAL BUREAU OF REGIONAL CENTERS -PLANNING ADMINISTPRATIVE UNIT LEGAL OFFICE AND COORDINATION - MINISTRY - IDB OFFICE PROGRAM ADMINISTRATION LIVESTOCK ANRICUE R|ES E UFORESTRY GRICtATUREAU BUJREAU BUJREAU "EUBUREAU BUREAU BUREAUS' MAIN DEPARTMENTS: 1 ANIMAL SANITATION, ANIMAL HUSBANDRY REGIONAL CENTERS 3 NATIONAL PARKS, RESEARCH, FOREST SERVICES, ANIMAL RESEARCH\. EXPLOITATION, PROTECTION, FISH AND 2 AGRONOMY, COFFEE, PHYTOPATHOLOGY, WILDLIFE\. I ENTOMOLOGY, ENGINEERING IRRIGATION 4 EXTENSION AGENCIES, AGRICULTURAL AND DRAINAGE, PLANT SANITATION, AGRICULTURE INFORMATION, FARMERS ORGANIZATIONS\. QUARANTINE ANO REGISTRATION, EXTENSION AGENCIES METEOROLOGY, RESEARCH\. IBRD 5537   [Z6L U 3 LW~ DLO r -NoS9 : QZC 4- QQ O)Oi - 3X W: S)INV9 NIVW :0 NOIIV)01 GNV 1<V~ ) i 49 i i d¡~SN0193d 35Sn ONV1-lVD19010D9 0 < ¿ ) S : E i»T lO3gOdd 1lOT38 1V 110ID189V INODS X - ; a <g_ D05 '~~~~~~~~~~~~wu ---di -1 -- o o ~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 1 9 _0J 3 oioo L 8~i w 00\.13 109 00004 Il~~ 03004 1001 ~~~jjj jj0 0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~oc,o hl~~~~~~~~~~~~~~~~~~~~~~~~f N 00 Ln _ =~~00003 =K_ VÑ VV I \ o'8\.io8iXna ,Ne -

APPROVAL

P005097

Document of The World Bank FOR OFFICIAt USE ONLY 'j s 3/03 - r Report No\. 6641-EGT STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT FOURTH POWER PROJECT MAY 30, 1989 Industry and Energy Operations Division Country Department III Europe, Middle East and North Africa Regional Office This document has a retrcted distibtion and may be used by reeipIen only in the performance of their officid dudes\. Its contents may not otherwise be disclosed wthout Wodd Bank *uthiohaid\.  CURRENCY EQUIVALENTS Currency Unit = Egyptian Pound (LE) LE 1\.00 = 1000 Milliemes = US$0\.42 (Average FY88) US$1\.00 = LE 2\.41 (Average FY88-89) LE 1\.00 = 100 Piastres (PT) FISCAL YEAR July 1 - June 30 WEIGHTS AND MEASURES MVA = Megavolt ampere (thousand kilovolt amperes = 103kVA) MW = Megawatt (thousand kilowatts - kW) kWh = Kilowatt hour (= 860\.42 kcal) GWh = Gigawatt hour (million kilowatt hours) TWh = Terawatt hour (thousand GWh) kcals = Ki\.localories (1 kcal = 3\.97 Btu) m = Meter (3\.281 feet) km = Kilometer (0\.62 miles) ton = Tonne (1\.1 short ton) TOE = Tons oil equivalent (10\.415 x l'6 kcal) MTOE = Million TOE kV = Kilovolt (1,000 volts) Hz = Herz (cycle/second) sec = second 1 _ Liter (61\.024 cubic inches) Nm3 = Normal m3 (35\.31 cubic feet) rpm = Revolution per minute pf = Power factor I barrel (bbl) = 158\.987 liters bar = bar (14\.50 pounds/square inch) m2 = Square meter (10\.7b square feet) Ppm = parts per million PRINCIPAL ABBREvIATIONS AND ACRONYMS USED ADB = African Development Bank API = American Petroleums Institute BOD = Biological Oxygen Demand (ppm) COD = Chemical Oxygen Demand (ppm) EDA = Electricity Distribution Authority EDC = Electricity Distribution Company EEA = Egyptian Electricity Authority (Borrower) EGPC = Egyptian General Petroleum C\.rporation EPS = Electric Power Systems of Egypt ESB = Electricity Supply Board of Ireland ISO = International Standards Organization (Geneva) LPG = Liquefied Petroleum Gas MEE = Ministry of Electricity and Energv MUV = Manufacturing Unit Value Indcx OBI = Overseas Bechtei Incorporated of USA OEP = Organization of Energy Planning PPC = Petroleum Pipeline Corporation ROR = Financial Rate of Return SW = Stone and Webster of USA  FOR OFmFCIAL USE ONLY EGYPT FOIrRIlH POWER PROJECT STAFF APPRAISAL REPORT Table of Contents I\. THE ENERGY SECTOR \. \. I Introduction \. 1 \.*1 Resource Base and Development Prospects \.2\. 2 Ernergy Sector Institutions \.2 Energy Demand and Supply \. \. 3 Energy Sector Policy \. 6 Energy Prices 6\.6 H\. THE POWER SUBSECTOR \.9\.9 Institutionial Framework \. \. 9 Egyptian Electricity Authority \.9 Electricity Distribution Authority \.10 Existitig Power Facilities \.11 Electricity Consumption \.11 Electticity Demand Forecast \. \. 11 Electricity Tariffs \. \. \.12 Power System Planning and I\.'vestment Program \. \.13 Role of IDA/Bank \. \.14 Sector Issues and Bank Strategy \. \.14 111\. THE PROJECT\. 16 objectives and Rationale for Bank Financing \.16 Project Description \.16 Project Cost \. \. 18 Project Financing \.20 Procurement \.1 Disbursements and Special Accounts \.25 Project Implementation\. 26 Environment \.28 This report is based on the findings of a reappraisal mission to Egypt in April 1989, comprising Ms\. R\. Vedavalli, Senior Economist (Mission Leader), Meesrs\. K\.N\. Sheorey, Senior Power Engineer, J\. Maweni, Financial Analyst, and S\. Hossain (Consultant)\. Secretarial support was provided by Mrs\. E\. Dennis\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  -iii- Table of Conitents (Cont'd\.) Page No\. IV\. FINANCIAL ASPECTS \. \. 30 Accounting and Management Information Systems \. 30 Audit \. 0 \. 0 \. 0\. 30 Insurance \. \. \. \. \. \.*\. \. \.*\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 31 Past Financial Performance \. \. \. \. \. \. 31 Future Financial Performance \. \. \. 34 Sources of Finance \. \. \. \. \. \. *\. \. 36 V\. PROJECT JJUSTIFICATION \. \. \. \. \. \. 38 Load Forecast \. \. \. \. 38 Least Cost Analysis \. \. # \. 38 Return on Investment \. \. \. \. 38 Risks \. \. 39 VI\. AGREEMENTS REACHED AND RECOMMENDATION \. 40 Recommendation \. \. \. \. 41 0 S6 911  - iv - ANNEXES 1\.1 History of Domestic Fuel Prices 2\.1 EEA Organization Chart (IBRD 30867:2) 2\.2 EDA Organization Chart (IBRD 30867:1) 2\.3 Variot\.s Data for Steam Turbine Power Stations, Various Data for Combustion Turbines, and Selected Data on Hydropower Stations 2\.4 Electricity Demand 2\.5 Electricity Tariffs 2\.6 Power Subsector Investment Program 3\.1 Project Description 3\.2 Project Cost Tables 3\.3 Disbursement Schedule 3\.4 Project Implementation Schedule 3\.5 Project Monitoring Guidelines 3\.6 Environmental Aspects 4\.1 EEA: Actual and Projected Income Statements 4\.2 EEA: Actual and Projected Balance Sheets 4\.3 EEA: Actual and Projected Statement of Sources and Applications of Funds 4\.4 EDCs: Actual and Projected Income Statements 4\.5 EDCs: Actual and Projected Balance Sheets 4\.6 EDCs: Actual and Projected Statement of Sources and Applications of Funds 4\.7 Assumptions Underlying Financial Projections 5\.1 Rate of Return Analysis 6\.1 Selected Docuients and Data Available in Project File MAP IBRD 19891R - Egyptian Interconnected Power System I) 6 911  EGYPT STAFF APPRAISAL REPORT FOURTH POWER PROJECT I\. THE ENERGY SECTOR Introduction 1\.01 Egypt is a net oil exporter and its energy sector, in particular, its petroleum subsector, plays a key role in Egypt's development\. Even with declining oil prices since 1985-86, the petroleum seccor at present accounts for 5\.4h of total GDP, 37% of total merchandise exports and continues to be a major source of external earnings\. Despite the Government of Egypt's (GOE) energy policy goal to maintain the current level of oil production at 44 MTOE per year in the current plan period to 1991-92, GOE faces a number of serious problems in the energy sector that are causing severe strains on the economy and threatening Egypt's prospects for economic development\. Some of these problems such as low world oil prices are outside Egypt's control, while others, such as rapid growth in energy demand and inefficiencies in energy use result from low level of domestic energy prices\. Since world oil prices are a moving target, domestic energy prices as percenta-e of world market prices continue to vary with changes in international oil prices\. With world oil prices averaging around $18 per barrel at present, the weighted average of domestic petroleum product prices in Egypt is about 36%\. Electricity tariffs average about 24% of the long-run marginal cost (LRMC)\. Low energy prices have encouraged rapid growth in demand and wasteful use of energy; promoted questionable industrial investments because artificially low energy prices conceal the true economic costs of investments; placed a severe strain on Governmenit finances, and finally, diverted potential petroleum exports to the domestic market with adverse impact on the balance of payments and the economy\. There is, therefore, an urgent need to address the major issues facing the sector and develop a coherent energy sector strategy\. The energy sector issues include: energy pricing, demand management and conservation, investment strategy and resource development, in particular gas development, institutional reforms and operational efficiency\. 1\.02 Over the last five years, energy policy dialogue between the Bank and the GOE have focussed on the issues outlined above (Para 1\.01) and emphasized the need for the adoption by the Government of a comprehensive long-term energy policy, including a program to adjust domestic prices to economic levels\. In 1987, the Bank and the Government mutually agreed to the 0-OE's objective of raising energy prices to economic levels latest by the end of fiscal year 1994-95, as part of a medium term economic reform program\. As a OS6 9M  -2 - first step, the GOE increased petroleum product prices by an average of 66% and electricity tariffs by 29% with effect from May 1, 1987\. Subsequent to the May 1987 comprehensive increases, gasoline prices were increased by about 40% in May 1988\. Again with effect from March 24, 1989, GOE increased gas oil prices by 44b, kerosene prices by 40b, fuel oil and natural gas prices by 252 and raised electricity tariffs by an average of 31b\. In addition, in May 1989 the GOE has reaffirmed its official medium-term energy sector strategy which includes three major objectives: (a) to adjust energy prices to reach the level of international prices by June 30\. 1995; (b) to encourage efficient use of energy through demand management and energy conservation measures; and (c) to provide economic and diversified domestic energy supplies and increase exportable oil surpluses by implementing an effective natural gas development strategy\. Resource Base and Development Prospects 1\.03 Egypt's main energy resources include oil, natural gas, coal and hydropower\. As of January 1989, proved oil reserves were 480 million tons\. Proved xiatural gas reserves were 250 million ton oil equivalent (MTOE)\. Reserves of coal are limited and the only mining project now being considered at the Maghara Mine in Sinai, would produce 600,000 tons per year (0\.4 MTOE) by 1995\. Most of the hydropower potential of the Nile Rivtr is already being exploited and in normal hydrological years produces about 10,500 GWh (equivalent to 2\.6 MTOE of primary energy if fuel had to be used to produce the same electricity)\. 1\.04 Egypt has been successful in attracting foreign oil companies to explore, develop and produce oil\. Presently, there are some 134 agreements with 50 international companies functioning as operators with the State Oil Company, Egyptian General Petroleum Corporation (EGPC)\. Successful oil development has enabled Egypt to supply domestic requirements and export about 12 MTOE in 1987-88\. However, 1987-88 production of 44\.0 million tons is at the plateau rate which Egypt at best, could try to maintain until 1995\. 1\.05 Natural gas production in 1987-88 was 5\.2 MTOE\. There are a number of discovered non-associated gas fields which would require about $800 million to be developed over the next five years\. The Government's policy accords priority for gas exploration and development\. EGPC has successfully amended terms for gas exploration with international companies\. Following these amendments in December 1986, EGPC has signed 30 agreements for oil and gas exploration with ten international oil companies\. The assured market and pricing of newly discovered natural gas linked to international fuel oil prices should provide adequate incentives for other international companies in gas exploration activities\. EnerKy Sector Institutions 1\.06 Egypt's energy sector is the responsibility of the Ministry of 05 6 9 Ii  - 3 - Petroleum and Mineral Resources (MOP) and the Ministry of Electric Power and (Nuclear) Energy (MEE)\. In addition, in 1983 the Organization for Energy Planning (OEP) was established in order to create an energy data base, prepare forecasts, develop a national energy plan, coordinate the energy research program in the country, and promote energy conservation by carrying out energy audits, pri\.7iding technical advice, organizing training programs and carrying out publicity campaigns\. At piresent, OEP is mainly engaged in promoting energy conservation by carrying out energy audits\.The OEP is an autonomous institution under the Supreme Energy Council (SEC), which consists of all Cabinet Miaisters concerned with energy\. 1\.07 The Government-owned Egyptian General Petroleum Corporat on (EGPC) functions as a holding company under the control of MOP\. EGPC is responsible ior managing all exploration, production, refining, transportation, distribution and marketing of oil and gas in Egypt through 14 affiliates\. Four of these affiliates are partnerships in oil production with foreign companies, seven (totally owned by EGPC) are involved in refining, transport, marketing and distribution of oil and gas, and the remaining three are joint ventures in engineering, construction and drilling\. 1\.08 MEE oversees the power subsector through the following five authorities: (a) the Egyptian Electricity Authority (EEA), a publicly-owned enL-erprise responsible for almost all of the electricity generated and transmitted in Egypt; (b) the Electricity Distribution Authority (EDA) which coordinates seven regional distribution companies (EDCs); (c) the Hydro Power Plants Executive Authority (HPPEA) which is responsible for constructing new hydroelectric projects in coordination with the Ministry of Irrigation; (d) the Rural Electrification Authority (REA), responsible for the construction of distribution networks in urban and rural areas; and (e) the Nuclear Power Plants Authority (NPPA), responsible for planning and construction of nuclear plants\. EEA and the distribution companies are the only entities holding assets in the power subsector\. Projects completed by HPPEA and REA have been turned over for operation to either EEA or one of the distribution companies\. Energy Demand and Supply 1\.09 Egypt at present is an energy surplus country and a net exporter of oil\. In 1987-88, total commercial energy production was about 53\.0 MTOE\. Oil accounted for 83%, natural gas and condensates 12% and hydro electricity 5%\. Most of Egypt's hydropotential has already been harnessed\. There will therefore be no significant increase in the production of hydro electricity between 1988-95\. Following successful oil exploration activities, crude oil production in the decade 1976-1986 increased faster than the rate of consumption during the same period\. Consequently, Egypt became a significant net oil exporter and, in 1985-1986 oil exports accounted for 66% of total exports\. The current volume of oil production in Egypt at 44 million tons in 1987-88 has reached a plateau and, in the absence of new large discoveries, at best, Egypt could maintain the plateau rate of production to 1996\. With domestic consumption accounting for 50% of oil production in 1987-88, any increase in domestic oil consumption in the future will reduce exportable surplus\. Natural gas potential is a long-run solution to the trade-off between domestic consumption and export of petroleum\. The government has 056 911  - 4 \. given high priority to tlh development of its already discovered natural gas reserves and, gas prodtictior is expeeted to increase from 5\.2 MTOE in 1987-88 to 10\.7 MTOE in 1995-96\. 1\.10 Over the last decadt- Egypt has experienced a relatively high growth in energy consumption\. Comnmervial energy consumption increased at an annual rate of about 11% p\.a\. from 1974-75 to 1984-85\. This high growth of commercial energy consumption is mainly in response to rapid economic growth (8\.4% per year) and to falling real ;rices for petroleum products (a decline of 21% between 1974-85) and electricity tariffs\. However, the growth rates for consumption of petroleum products slowed in 1984-85, and the rate of growth turned negative in 1985-86 due to the lower growth in the economy\. Consumption of petroleum products and natural gas picked up and rose by 6\.1% p\.s\. between 1985-86 and 87-88\. The total commercial energy consumption in 1987-88 was approximately 27\.0 MTOE; 672 from oil, 24% (6\.4 MTOE) from natural gas and condensates aaid 9% (2\.3 MTOE) from hydropower\. Total electricity consumption was 33 million GWh\. Industry is the single largest consumer of petroleum products and electricity, accounting for close to 452 of total commercial energy consumption in 1987-88\. The largest energy consuming subsectors (in descending order) are chemicals and fertilizers, metals, textiles and cement\. Total consumption of non-commercial energy sources was estimated at about 3 MTOE\. 1\.11 Egyptian authorities have estimated that primary commercial energy consumption will increase at an average rate of 5% per year through 2000\. At this rate, commercial ene;gy consumption will be 37 MTOE by 1995 and 47\.5 MTOE by 2000\. This rate of growth in domestic energy demand threatens to erode the foreign exchange earniiigs by diverting exportable oil to domestic consumption\. If consumption continues to grow at 5% p\.a\. and natural gas production is not rapidly expanded, then Egypt could become a net oil importer by as early as 1996\. It is therefore necessary to adopt demand management, conservation and pricing measures to improve efficieticy in energy use and reduce the rate of growth in energy consumption\. With GDP growth rates projected to average 3\.82 p\.a\. to 1995, and assuming implementation of energy sector reform measures as reaffirmed by the GOE (Para 1\.02), energy demand is projected to grow at a lower rate of 32 p\.a\. to 1995\. Table 1\.1 shows commercial energy balance projections\. 0569M  - 5 - Table 1\.1 Summary Energy Balances: 1987-88 -95-96 (MTOE) Actual Proiections 1987-88 1991-92 1995-96 Crude Oil Production 44\.075 b' \.048 44\.000 of which EGPC's share of oil\. 30\.544 28\.200 28\.000 Natural gas 5\.148 8\.700 10\.700 Gas CondensatWs/Butane 1\.264 2\.200 2\.200 Primary Electricity 2\.300 2\.400 2\.400 Net Exports of Crude Oil & Products 12\.000 11\.500 11\.500 Stock changes 0\.256 0\.500 0\.500 Gross Domestic Supply and Consumption 27\.000 29\.500 31\.300 Conversion, transmission and distribution losses 7\.500 7\.400 7\.100 Net Domestic Consumption 19\.500 22\.100 24\.200 Source: Mission estimates besed on data from MEE, MOP, EGPC and EEA\. 056 9M  -6- Enery Sector Po1ic\. 1\.12 Promoting efficient energy uso, pricing energy products and electricity to reflect their economic costs, diversifying domestic energy supplies by developing natural gas, and improving the management and operational efficiency of energy sector institutions have been the principal ingredients of Bank's policy dialogue in the energy sector\. As outlined in Para 1\.02 above, GOE's plan incorporates these policy objectives and is making efforts to implement these policy goals with specific action programs\. In pursuance of energy efficiency GOE has successfully designed and adopted an energy rationalization program which includes three inter-relaLed measures: (a) carrying out energy audits to help identify and evaluate campaigns aimed at creating an awareness in industry and the general public of the potential benefits from energy saving; (c) investing in energy technology for retrofitting for fuel substitution; and finally (d) adjusting energy prices to reflect economic costs\. Under an USAID grant for energy rationalization, more than 100 selected industrial and other entities are being audited\. A Swedish Government grant is helping to finance the preinvestment studies (including energy audits) of five selected industrial plants, and a survey of the potential for improving the combustion efficiency of industrial boilers\. UNDP has provided $200,000 to the Organization of Energy Planning (OEP) to carry out energy audits in selected glass factories which are currcntly using outdated technologies\. 1\.13 GOE has pursued policies to accelerate gas exploration, development and production by liberalizing gas terms in production sharing agreements to encnurage International Oil Companies (IOC's) to explore for and develop gas fields\. Following liberalization of gas clause in December 1986, GOE has signed thirty new agreements with ten IOCs for undertaking oil and gas exploration development\. As a result of GOE's policies natural gas production is expected to double from 5\.2 MTOE in 1987-88 to 10\.7 MTOE in 1995-96\. Energy Prices 1\.14 Egypt's historical abundance of cheap hydropower, oil and gas has allowed the Government to maintain domestic energy prices far below economic levels\. Between 1973-83, while the price of oil and other energy sources increased substantially, in Egypt, domestic energy prices declined by 50% in real terms\. Since 1984, Government decided to begin increasing energy prices\. Between 1985-86 and 1988-89 the weighted average energy prices in nominal terms increased by 2172 for petroleum products and natural gas, and by 180b for electricity\. The CPI increased by 115% during the same period\. Thus, energy prices overall have increased faster than inflation\. Table 1\.2 below shows the current status of energy prices\. These reflect the recent (March 24, 1989) price increases for gas oil, kerosene, fuel oil, natural gas and electricity\. Between 1985-86 and 1988-89, domestic prices of petroleum products and natural gas increased from 15% of world market prices in FY85-86 to 27% prices in 1986-87, and to 332 in 1987-88, and, to 36% in 1988-89\. Since world oil prices, and LE/US$ exchange rate are moving targets, domestic energy prices as percentage of world oil prices continue to vary with changes in these parameters\. Based on present estimates of future world oil prices, 0569M  domestic inflation and exchange rate movements, a credible path to reach economic energy price level to 1995 requires average annual price increases ot about 35% in current Egyptian pounds\. Table 1\.2 Energy Prices LE/ton Z Increase 1985-86 1986-87 1987-88 1988-89 1985-86/88-89 Gasoline (80 oct) 280\.0 350\.0 490\.0 490\.0 175 Kerosene 37\.8 63\.0 63\.0 88\.0 233 Gas Oil 36\.0 60\.0 60\.0 84\.0 233 Fuel Oil 18\.0 28\.0 28\.0 35\.0 194 LPG 52\.0 52\.0 52\.0 52\.0 - Natural Gas 19\.1 30\.0 33\.0 42\.5 222 Weighted Ave\. LE/con 45\.2 73\.1 83\.8 98\.0 217 X of world price 15\.0 27\.0 33\.1 36\.3 - Electricity Tariffs Mils/kwh 22\.6 29\.1 31\.40 40\.9 180 Sources: Data from MOP and EEA\. 1\.15 The Government's objective is to adjust energy prices gradually, so that by June 1995 they will reach their economic levels, i\.e\., international levels for petroleum products and long-run marginal cost (LRMC) for electricity tariffs\. However, given the socio-political sensitivities of large increases in LPG and kerosene prices, the objective will be to reach economic levels on a weighted average basis thereby allowing the Government to continue to protect the poorest groups from the total impact of these increases\. 0S 6 9M  To x U V AIR\. All + A D =A Pqd t3^~~~~~~~~~a 3 IcUS3~~~~~ Pobn x ppnA v pxaoe s" sto J\.d,kZ 3 U C4PX1~~~~ JUdAD3  - 9 - I\. THE POWER SUBSECTOR Institutional Framework Egyptian Electricity Authority (EEA) 2\.01 EEA was established in early 1976 under Law No\. 12 of 1976 as part of the general reorganization of the power sector by the Ministry of Electricity and Energy\. Under this law, EEA was made responsible for implementation, management, operation and maintenance of all public service electric power facilities in Egypt and it became financially autonomous from the Government to the extent that it was able to prepare its own annual budget and five-year plan subject to Government approval, retain any surplus revenues for its development and contract loans from both foreign and local sources\. 2\.02 EEA is a government-owned enterprise regulated by the Ministry of Electricity and Energy\. It is managed by the chairman of the Board of Directors assisted by five Deputy Chairmen, one for each of the main functional areas (i\.e\., Projects, Operations, Personnel ane Administration, Planning and Finance, Economic and Commercial Affairs Departments)\. The Organization Chart of EEA is given in Annex 2\.1\. Geographically, EEA's operations are divided between the Head Office in Cairo with responsibility for overall planning and coordination and five regional offices or zones with responsibility for operational matters\. Each Zone is headed by a President who manages the zone with the help of a Deputy Chairman from each of the main functional areas\. 2\.03 EEA remains a highly centralized organization with cumbersome administrative systems, little delegation of authority and little coordination between technical and financial staff especially in planning matters\. However, EEA in general is reasonably well managed and rapidly being modernized, in particular, in planning and setting up of a management information system\. EEA has launched a major program to improve the management information system to allow management decision to be based on more accurate and up-dated information\. The program known as energy/electricity Data Bank Program is being financed by UNDP and the GOE; and is being executed by EEA/UNDTCD\. The program implementation started in October 1984 and is being executed in two phases for completion in 1991\. Phase I has made a preliminary assessment of EEA's planning/economic and financial functions and made recommendations to upgrade EEA's technical/financial planning skills and to improve coordination through reorganization of respective task units\. Phase I was completed in early 1987\. The second phase which started in July 1987 is geared to developing a comprehensive and computerized energy/electricity data Bank and setting up of the Management Information System (MIS)\. 2\.04 In the last decade EEA's permanent staff has increased at an average rate of 3% p\.a\. It's total staff at present is about 33,000\. Inspite of the fast expansion of EEA's operations, the growth rate is modest\. The staff strength of EEA is characterized by shortage of qualified and experienced 05 6 911  - 10 - staff for certain functiors such as engineers, technicians and accountants and over staffing in clerical and semi-skilled functions\. EEA is minimizing these problems over the years by intensifying its training program and provision of bonus to retain qualified and experienced staff on one hand and restricting the recruitment of staff for activities which are already overmanned\. 2\.05 Presently, EEA has two adequately equipped training centers (in Cairo North and Cairo South) specialized in generation and transmission respectively\. The latter is in the process of being developed to be a National Training Center for Transmission\. Since 1984/85 a training center has become operational in Cairo North for training of staff in financial and administrative functions\. The traiiiing center in Cairo North provides four- week ceurses in accounting and administrative functions\. There is a plan to train 4000 staff over the plan period in basic accounting and management functions\. Moreover, EEA had, with World Bank financing (Ln\. 1886-I-EGT), concluded a training program with \.he Electricite de France (EDF) for training accountants\. This program has involved training of a total of 30 middle level accountants in three groups of 10 each for a period of 3 months; 10 top level accountants in five groups of 2 each for a period of 3 weeks and one financial manager for one month to supervise the progress of the training program\. 2\.06 Fcor more technical training centers (in Uppe- Egypt, Delta Zone Alexandria Zone, and Canal Zone) are now under implementation\. The one in Alexandria (financed by the British Government) is expected to start operation by the end of 1989\. The training center in the Canal Zone is financed by West Germany\. The World Bank Loan 1886-EGT is financing the Upper Egypt Zone training center\. The feasibility study for a training center for Lower Egypt Zone have already been completed and the financing is being secured from Czechoslovakia\. These centers will provide training in both generation and transmission\. EEA plans to provide training in its centers for not less than 3000 engineers and 5000 technicians during the plan period (19871/88-1991/92)\. Electricity Distribution Authority (EDA) 2\.07 The authority was established in November 1983 under Law No\. 97, to act as a holding company with overall management and control functions over all the seven Distribution Companies (EDCs)\. The management of the EDA consists of a chairman and a Board of Directors appointed by the President of Egypt on the recommendation of the Minister of Electricity and Energy\. The Organization chart of EDA is given in Annex 2\.2\. The Board of Directors consists of the Chairman of the EDA, five Chairmen from the EDCs, the chairman of REA, one legal expert, one financial expert and representative of the employees\. 2\.08 Distribution Companies are Government-owned enterprises under the regulation of the Ministry of Electricity and Energy which exercises overall management control functions through the EDA\. Shareholdings in the EDCs are held by EEA and local governments\. Each EDC is headed by a Chairman who presides over an Executive Board of Directors of no less than five and not more than nine members\. The EDCs are responsible for preparing their annual budgets and five-year plans, submitting them to the EDA, which consolidates 056914  - ii - the budgets and five-year plans of all the companies before submitting them to the Ministries of Planning and Finance for approval\. 2\.09 Under previous and ongoing loans, a major problem with implications for suhsector planning and management has been t'l\.e lack of an adequate and coherent accounting and management information system for the subsector as a whole\. The problem worsened by the fact that while EEA had the need and obligation to collect information from the EDCs, it had no formal control over the companies\. The formation of the EDA may now provide a formal channel through which EEA can assemble subsector data necessary for management and planning decisions\. Existing Power Facilities 2\.10 EEA owns and operates 38 generating stations linked to the interconnected grid\. In 19:7-88 the total installed capacity was 8963 MW, of which 52% (4655 MW) was oil-fired steam units, 17% tl563 MW) combustion turbine units and 311 (2745 MW) hydro units\. EEA also has generating capacity at isolated centers\. The largest isolated station is at Marsa Matruh where the existing capacity is 13 MW\. Statistical iaformation on power plants is given in Annex 2\.3\. 2\.11 EEA's transmission system includes 1576 kilometers of 500-kv line to connect the hydro plants in the south (Aswan) with the load cen;ers and thermal plants in the northern part of the country (Cairo and the Nile Delta)\. A 220-kv network, totalling 3872 kilometers, serves mainly the northern Egypt loads, and 132-kv lines (2294 km) serve the loads in upper Egypt\. 2\.12 The distribution networks belong to the distribution companies with a substation capacity of 13,260 MVA and total distribution line length of 7,438/kms\. Electricity Consumption 2\.13 During 1974/5-84/5 electricity consumption grew at an average annual rate of 12% p\.a\. This high rate of growth was mainly due to high GDP rates of growth averaging 8\.4% p\.a\., low electricity tariffs, expansion of electricity distribution and starting up of new energy intensive aluminium (Nag Hammadi) smelter\. The rate of growth in electricity generation declined to 6\.72 in 85-86, mainly because of reduced economic growth\. However, in 1986-87, the rate of growth in electricity consumption increased to 121 and fell again to 7\.1% in 1987-88\. Annex 2\.4 shows historical electricity consumption and sectoral pattern of consumption\. Electricity Demand Forecast 2\.14 Assuming implementation of economic reforms including adjustment of domestic energy prices to their economic levels, industrial restructuring and J,ad-management to reduce peak demand electricity consumption is projected to slow down and grow at about 7\.0% p\.a\. between 1987/88 and 1991/92, and slowing down further to 6\.01 p\.a\. during 1991/1992-96/97\. This projection is 0 5 6 9MH  - 12 - consistent with key assumptions of projected lower rates of growth in GDP, industrial oroduction and government's energy policy focussing on tariff increases, demand management and conservation measures\. Electricity consumption in the industrial sector is projected to increase on average at a very low rate of growth of 1\.6% p\.a\. to 1990 and improve thereafter, to about 3\.5% p\.a\. to 1997, reflecting the impact of electricity price increases and more efficient energy use\. and low projected rates of growth in industrial production\. 2\.15 Residential/commercial demand shows less relationship with economic growth and could grow rapiely for some time even with slow economic growth as new customers are attached and existing customers increase demand from current low levels (in 1986/87 647 of residential customers took less than 100 kWh per month)\. From 1980/81 to 1985/86 residential/commercial demand grew by an average 197 per year, although the growth slowed to 127 between 1985/86 and 1987/88 which, however, reflected declining rate of growth in gross national energy consumption\. Residential/commercial energy consumption is projected to grow at 11\.57 per year between 1987/88 and 1991/92 but gradually slow down to 97 by 1997/98 as the current high rate of household electrification would decrease\. Key assumptions and demand forecast are shown in Annex 2\.4\. Electrcity Taiffs 2\.16 The electricity tariff structure in Egypt is relatively simple\. Very high voltage and high voltage customers pay only a kwh rate\. Public sector customers who use electricity at medium or low voltage pay both a kwh rate and demand charge per kw\. Residential and commercial customers pay a kwh rate which increases for successively higher blocks of consumption per month\. The current tariff structure is provided in Annex 2\.5\. 2\.1i The Ministry of Electricity and Energy has taken several steps since 1982 for increasing the tariff of all types of consumers\. Between 1982 and 1989 cumulative rates of tariff increases for : very high voltage, for high voltage, for medium voltage were 4677, 436%, and 206% respectively\. The average cumulative tarift Increase for all consumers was 3242 or about 19% p\.a\. on an average during the same period\. Despite these large increases, because of the very low base the levels of electricity tariffs in Egypt are substantiall- below the levels that would convey to consumers the cost of resources (both in economic and financial terms) used to supply electricity\. The Bank's efforts are being directed towards improving both the structure and level of electricity tariffs\. As a result the Government/MEE have initiated several steps in this direction\. These include: (i) government's proposed objective to raise fuel prices and electricity tariffs to reach economic levels by June 1995; (ii) 352 increase in electricity tariffs implemented in 1985/86; (iii) 29\. increase in electricity tariffs implemented in 1986/87; and (iv) and 30\.57 increase in electricity tariff implemented as of March 24, 1989; and (v) improvement in tariff structure by design and implementation of load management measures to all Extra High, High and Medium Voltage consumers including the implementation of peak load pricilsg\. Further measures to improve load management will be implemented under this proposed Loan\. 2\.18 Electricity tariffs designed to reflect the longrun marginal cost (LRMC) of electricity supply is a desirable economic objective for eliminating 056 9 tt  - I] - subsidies, for correcting distort ,ons; ill the economy, for promoting energy conservation, and, finally, for revenue goneration and resource mobilization to ease the budgetary constraints\. Using international price for fuel oil, the LRMC of electricity is aplI)ximaLtely 16\.8 piastres per kwh\. The current average tariff rate after March 24, 1989 increase is 242 of the economic cost\. It must be emphasized that a review of the electricity pricing policies should be based on an update ot the tariff study carried out by EEA by EEA's consultants Sofrelec (France) in 1982/83\. An update of the tariff study should e:xtamine not only the structure and behavior of consumer groups but also the diversified sources of available fuel, including natural gas\. EEA is currently in the process of updating the tariff study\. USAID is financing the consultancy services for the study\. The Terms of Reference for the study have been prepared and the study is expectad to be completed by 1990/91 which would then form the basis for periodic tariff adjustments\. Such tariff adjustments should generate sufficient internal resources to finance a reasonable proportion of the investment program\. Assurances from the Government have been obtained requiring: (i) for FY90 and subsequent years annual tariff increases to be implemented to ensure a gradual improvement in the financial performance of the power subsector such that the subsector would achieve internal cash generation targets of 35% by FY94 and thereafter (Chapter IV)\. The effect of these increases would ensure progressive adjustments in the cost of supply for all categories of constumers except for residential consumers using less than 100 kwh per month, thereby providing protection for the poor in furtlierance of the Government\.'s social objectives\. Power System Planning and Lnvestmen'; Proga 2\.19 Generation and transmission system planning is done by EEA with the assistance of consultants\. The generation planning is currently done by EEA using the WASP Tii model\. The principal generation and transmission planning personnel are sufficiently trained and experienced\. Under the UNDP/EEA energy Data Bank Project, EVA has acquired the Electric Generaticn Expansion Analysis System (EGEAS), load flow, statistical and decision analysis models that operate on a personal computer\. With the acquisition of these models, EEA has the necessary tools to perform system planning studies and least cost investment programs\. 2\.20 Based on the modest rate of growth in electricity consumption averaging 7\.0% p\.a\. to 1992 and to 6\.0%, thereafter, the power subsector's total investment program for the period 1987/88 to 1994/95 is estimated to be LE 12\.8 billion (in 1989 prices)\. The Bank has reviewed the investment program and finds it to be least cost and reasonable in relation to the demand forecast\. The Government has reviewed the program in the five year plan context and is responsible for securing the necessary financing from external and internal sources\. Annex 2\.6 gives a list of major planned and/or committed generation and transmission projects durirg 1987/88 to 1994/95\. Approximately 2900 MW equivalent of generating plants including rehabilitation are at different stages of construction with financing from ADB, EIB, Arab Fund, Islamic Development Bank and USAID and bilateral financing from West Germany, Italy, France, Switzerland, Hungary and Japan, etc\., (Chapter IV)\. 0 5 6 9 ;i  - 14 - Role of IDA/Bank 2\.21 The World Bank group has been involved in nine operations in Egypt's energy sector of which five are in the power subsector, three in the gas subsector, and one IFC operation in the oil development and exploration project\. These operations include: FY77 - Loan 1453-EGT - Regional Electrification (US$48 million) FY79 - Loan 1732-EGT - Gulf of Suez Petroleum & Gas Exploration (US$75 million) FY79 - Credit 935-EGT/Loan 1733-EGT/Special Action Cr\. 20-EGT - Power II Shoubrah El Kheima (Credit US$37 million, Loan US$102 million, Special Action Credit US$35 million) FY80 - Credit 1052-EGT/Loan 1886-EGT - Power III (Credit US$120 million, Loan US$7 million) FY81 - Loan 1928-EGT - Western Desert Exploration Project (US$25 million) FY82 - Loan 2103-EGT - Abu Qir Gas Development (US$90 million) FY84 - Loan 1886-1-EGT - Power Supplemental (US$59 million) FY86 - Loan 2594-EGT - Vocational Training III (US$19\.3 million) IFC has made one investment\. FY86 - Investnent Nc\. 873-EGT - Meleiha Oil Development and Exploration Project (US$19\.5 million)\. 2\.22 These operations have made substantial contributions to the development of Egypt's energy sector\. They have (i) financed exploration of oil and gas in the Western Desert, leading to the discovery of commercial gas reserves; (ii) facilitated associated gas utilization, which otherwise would have been flared, from oil fields in the Gulf of Suez, by financing gathering, processing and marketing of associated gas; (iii) financed the extension of natural gas to domestic consumers in Cairo and industrial customers in Alexandria; (iv) facilitated the extension of electricity service in urbar, and rural areas; (v) supported the construction of three 300 MW units at Shoubrah El Kheima power station and four 67\.5 MW hydropower units at the old Aswan Dam; (vi) financed technical assistance for improved planning for the development to the power subsector including the formulation of a least-cost investment program; improved financial reporting and cost-accounting systems and implementation of various training programs\. Sector Issues and Bank Strategy 2\.23 Bank group operations in the power subsector have been designed to support the development of a rapidly expanding and modern power system\. The issues fa^ing the subsector are mainly in the areas of electricity pricing and conservation, choice of generation technology, investment planning and financing of investment program, institutional reforms and efficiency improvements\. The last five operations in the power subsector have addressed these issues and progress has been made 4n all these areas\. The progress made thus far includes: introduction of load management measures, efficiency improvement measures, improvement in EEA's planning and demand forecasting systems and annual tariff increases since 1982-83\. However, more remains to be done\. The major objectives of Bank's involvement in the power sector would be institutional development of the power entities, introduction of a pricing policy that would ensure their financial viability and economic efficiency in O s 6 9 11  - is - power consumption and system efficiency to provide reliable and economic power supply\. Through our lending operations, our objectives in the subsector are to achieve the goal of economic pricing, to rationalize tariff structure so that supply in each category of consumer reflects economic costs, to implement specific action program for annual electricity tariff increase to ensure progressive improvement in financial cost recovery and internal cash generation of EEA, to improve operating efficiency through rehabilitation, load management programs, power system controls, reducing power losses; and to improve power system planning and coordination of demand forecasting, investment planning, accounting, reporting and management information systems\. The proposed project would enable the Bank to continue its efforts towards achieving the above objectives, while building on the achievements under the previous loans and the power investment study carried out in 1985 and updated in 1987\. * 56 9\.  - l It) III\. THE PROJECT Objectives and Rationale for Bank Financing 3\.01 The project would assist EEA to alleviate power shortages and meet growing demand and to improve the efficiency of the existing power plant\. The project also transfers technology, particularly in high efficiency combined cycle power plant construction and operation\. Further objectives would be the establishment of an improved accounting system, management information system (Paras\. 4\.01 through 4\.03), and a comprehensive training and technical assistance programs to address various sectoral/subsectoral issues such as energy pricing (Paras\. 1\.14 and 1\.15), load management, electricity tariffs (Paras\. 2\.17 through 2\.18), environmental activities (Para\. 3\.27 through 3\.31) and establishment of a computerized energy data bank for systematic reporting\. The Bank's invoivement would provide a continuing dialogue with the Government and EEA with the objective of ensuring rational investments in power development, that energy resources are priced correctly and allocated efficiently, and the Bank's presence would provide a strong incentive to mobilize foreign financial resources for power subsector development through effective cofinancing\. Project Description 3\.02 The project, which is described in detail in Annex 3\.1, would consist of the following components: (a) construction of a combined cycle power plant with a total capacity of about 1080 MW at Faraskur (Damietta) in the Delta Region and a housing colony nearby for the plant operating staff; (b) providing 138 MW of net additional generating capacity by conversion to combined cycle of the existing industrial tyDe combustion turbines at Mahmoudia and Damanhour power stations; (c) construction of 380 km of 220-kv transmission lines and addition cf 500 MVA of transformer capacity in the substations for efficient transmission of the generation in the power plants (a) and (b) to the load centers; and (d) providing technical assistance to the Borrower for: (i) the engineering consulting services for (a), (b) and (c) above; (ii) load research and load management techniques; (iii) the installation of tower testing facilities for transmission lines; (iv) the installation of the energy/electricity data bank and management information system; and (v) the environmental activities\. 3\.03 Damietta Power Station Component\. The combined cycle power plant (Paras\. 2 through 7 of Annex 3\.1) will have three combined cycle modules with a total nominal site rating of 1080 MW\. Each 360 MW module consisting of two 120 MW combustion turbine/generator and 120 MW steam turbine/generator capacity together with auxiliaries and peripheral facilities\. The plant is situated to the north of the Faraskur town and about 2\.5 km southeast of Kafr El Battikh in the Damietta Governorate, and adjacent to the Damietta branch of 056 911  - 17 - the River Nile\. Selected land for the project has already been acquired by the Government for the construction without any resettlement issues\. The primary fuel will be natural gas from the Abu Maadi gas field\. An underground gas pipeline of about 45 km for supplying natural gas to the power station has already been completed\. The combustion turbines are also capable of burning distillate fuel oil (solar oil) as an alternate and emergency back-up fuel\. The station would use about 3\.6 x l06Nm3 of gas per day for 1,080 MW capacity (or about 4 x 106Nm3 p\.d\. for 1,188 MW output that is at 10% over load)\. Water for the condenser cooling system will be drawn from the Nile by an intake and the pump house to be constructed on the river bank\. The condenser cooling water will be discharged back to the Nile\. The power plant has been connected to the interconnected power system via two 220-kV double circuit transmission lines to the Damietta town substation (about 13 km) and to the Kasabi substation (about 44 km)\. The third 220-kV double circuit transmission line being constructed under the project would connect the power station to the Mahalla substation (about 80 km)\. In addition, the project provides for the construction of 380 km of 220-kV double circuit transmission lines and for the addition of 500 MVA transformer capacity in the substations to efficiently transmit the generation from Damietta, Mahmoudia and Damanhour power stations\. 3\.04 Mahmoudia and Damanhour Power Stations Component\. At present, Mahmoudia power station has eight industriel type combustion turbines (in open cycle) with a nominal site rating of 24 MW each and four aero-derivative type combustion turbines (open cycle) with a nominal site rating of 50 MW each; the nearby Damanhour power station has four combustion turbines of industrial type similar to those at the Mahmoudia power station\. These open cycle combustion turbines, with low capital cost per kw and low net thermal efficiency (about 24 to 26X), were meant for peak load operations with an annual plant load factor of less than 30X\. However, due to inadequate installed generation capacity in the interconnected system, the industrial type combustion turbines at Mahmoudia and Damanhour power stations are run at annual load factors (of about 60%) meant for generating plant operating at base load\. The areo- derivative type combustion turbines at Mahmoudia, however, operate at low load factors due to low availability and maintenance problems\. The situation regarding inadequate generating capacity in EEA's interconnected system is not likely to improve till the end of the century\. Therefore, with the availability of natural gas for power generation, the conversion of open cycle combustion turbines to more efficient combined cycle operation (about 40% net thermal efficiency) offered considerable economic benefits\. The study completed in May 1987 by the consultants, Electricity Supply Board (ESB), Ireland and reviewed by the Bank confirmed the economics of converting to combined cycle, the existing 12 open cycle industrial type combustion turbines at Mahmoudia and Damanhour power stations\. The conversion to combined cycle would improve the net thermal efficiency of these combustion turbines from 26% to about 40X\. The heat from the exhaust gases of the combustion turbines would be utilized to produce steam in the Heat Recovery Steam Generators (HRSGs) which are basically unfired boilers\. The steam, in turn would drive the steam turbines to generate additional power\. There would be two combined cycle modules at the Mahmoudia power station and one similar module at the Damanhour power station\. Each module comprises four (existing) 24-MW combustion turbines, four (new) HRSGs and one (new) steam turbine of 46 MW (net) capacity\. Thus, there tfould be an addition of 92 MW (net) capacity at Mahmoudia and an addition of 46 MW (net) capacity at the Damanhour power 0 5 6 911  - 18 - station\. Simply stated, for the same gas consumption, the combined cycle operation would produce 50b more electricity than the open cycle operation in the two power plants\. The project component is discussed in detail in Annex 3\.1 (Paras\. 8 through 12)\. 3\.05 Transmission Lines and Substations Component\. The proposed transmission lines would strengthen the interconnection system around the Talkha, Tanta, Tahrir Badr (Tahrir I) , Mahmoudia, Mahalla and Etay-El-Barod substations\. In addition, the component includes two 220/66-kV stepdown substations (Faraskur and El Boustan) which are essential for improving the voltage conditions and for meeting the future load demand around these substations\. The project component is discussed in detail in Annex 3\.1 (Paras 13 and 14)\. 3\.06 Technical Assistance Component\. The component includes pre- construction phase and construction phase engineering consultancy services required for the Damietta, Mahmoudia and Damanhour, and thi transmission lines and substations components\. In addition, the component provides for the following: (a) consultancy services, computer hardware and software, and instruments required for the implementation of the load measurement/load management proposals recommended by EEA's consultant, ESB, Ireland under the study financed by the Bank from the Shoubrah El Kheima and the Third Power projects (Para 15 of Annex 3\.1); (b) consultancy services and measuring instruments required for tower testing facility being established by EEA (Para\. 15 of Annex 3\.1); (c) consultancy services and training facilities for EEA's technical and financial staff; (d) additional technical assistance required (Para\. 17 of Annex 3\.1) for preparation and implementation of the management information system (MIS) by EEA and the DCs; and (e) a technical nssistance program regarding environmental activities of EEA (Para 3\.30)\. The technical assistance component does not include the training for EEA's operation and maintenance staff for the project which is provided under the major supply and erection contracts\. Project Cost 3\.07 The total project cost excluding interest during construction (US$127\.2) is estimated to be about LE 2,255\.1 million (US$721\.3 million) of which 82%, amounting to LE 1,832\.1 million (U$588\.8 million), is in foreign exchange\. A summary of the cost estimate for the principal components of the project is shown below and a detailed estimate is given in Annex 3\.2\. 0569M  - 19 - 8wv at the PtaJest coat LE ili @ a Fillp ftl t lml fFm to%l 1"1 FoM ll TOW 1\. t tii3E Ct lE Sitat ad Civil 8th 42\.5 03\.1 12\.5 It\.? 31\. 5 2\.2 66\.0 Cohrnt tWbM U1Wat, US\. 3S\.9 450\.5 23\.5 163\.r 186\.9 e8\.0 kd 1, 8 8w u oI 10\.3 9t\.3 117\.6 8\.4 40\.4 48\.8 83\.0 stm t dwdm/Swtas 16\.4 119\.8 136\.2 6\.5 48\.7 5\. SS\.0 f ]rthm Eqpm 1I\.S 7\.1 6R\.6 *\.a 30\.3 35\.1 B6\.0 - ido\. 7\.5 5\.2 M2\.7 3\.1 22\.9 2\.0 69\.0 Pro3jet t1r 0\.0 12\.8 12\.8 0\.0 5\.3 5\.3 100\.0 i9 57 IS4\.8 89\.2 180\.0 64\.3 346\.5 410\.8 8\.0 PN al Cutalsa 12\.0 56s5 69\.3 5\.3 23\.5 26\.9 52\.0 jg37 167\.6 691\.7 109\.3 659\.6 3\.0 439\.6 84\.0 Pric tigci e 46\.5\.6 229\.1 M\.7 4\.1 20\.1 24\.2 03\.0 lOt 1 214\.2 110\.8 M3\.0 7\.7 390\.1 4e\.8 84\.0 11\. Cobslw to Coabimdj VI,e Sw i41 tl s 15\.6 20\.8 X\.4 6\.5 8\.6 IS\.1 57\.0 kb gmu atp ollto 15\.1 64\.1 79\.2 6\.3 26\.6 32\.8 81\.0 13 T _moVs 13\.5 61\.4 14\.9 5\.6 5\.5 31\.1 62\.0 Elc d Epamat I &dtdjr 7\.M 20\.6 3\.4 3\.2 0\.6 11\.8 13\.0 Proit 1in 0\.0 3\.3 3\.3 0\.0 1\.3 1\.3 10\.0 lo w0 52\.0 170\.2 222\.2 21\.6 70\.6 8\.2 Tn\.o Pflial ialqal 8\.0 17\.7 23\.? 2\.5 7\.4 9\.9 1S\.0 1INL S9\.0 1q?\.9 24S\.9 24\.1 t8\.0 102\.1 15\.0 Prim Cwt1gp ua 44\.7 151\.4 116\.1 4\.2 14\.2 11\.4 77\.0 MOtN U 102\.7 339\.3 442\.0 21\.3 92\.2 12O\.S n7\.0 Ill\. iramotl UL I st6tiow '-'t;afi;1\.3s ' ~' 3S\.9 101\.8 140\.7 15\.1 42\.2 59\.3 72\.0 &bstdUe 9\.1 43\.4 53\.1 4\.0 18\.0 22\.0 62\.0 Project lm_ 0\.0 2\.2 2\.2 0\.0 0\.9 O,9 100\.0 3/IS 48\.6 137\.4 196\.0 20\.1 61\.1 81\.2 5\.0 Physic Cbtp uja S\.1 IS\.1 20\.2 2\.1 6\.3 8\.4 75\.0 6UAtOh 531 162\.5 215\.2 22\.2 65\.4 89\.6 75\.0 Prime Catiem i Z\.8 119\.3 156\.1 3\.4 11\.1 14\.5 77\.0 TOTIL 111 90\.S 291\.8 M\.3 25\.6 78\.5 10\.1 75\.0 IQ\. tecncl Asistoo OCioulteecy Suiv;ict (C_wst 1) 7\.3 2\.1 \.o 3\.0 15\.2 18\.2 84\.0 cmaltm Services lCtntu 11\.111) 2\.4 16\.1 18\.5 1\.0 6\.7 7\.7 87\.0 Lowd _ a t I Twr Testing 1\.0 3\.6 4\.6 0\.4 1\.5 1\.9 79\.0 Irwuing 0\.0 2\.1 2\.1 O\.l 0\.9 0\.9 100\.0 Cob Bck\. RI! I Eavirontul SItaion 0\.1 2\.4 2\.5 0\.1 1\.0 1\.1 91\.0 Is5 51B 10\.8 60\.9 71\.7 M\.5 25\.3 29\.8 SS\.0 Phlyscl betipmts 0\.1 0\.3 0\.4 0\.0 0\.1 0\.1 100\.0 SUIOtRL 10\.9 61\.2 72\.1 4\.5 25\.4 29\.9 5\.0 Prv Coatipn 421 29\.0 33\.7 0\.4 2\.6 3\.0 87\.0 TOTIA LU 15\.6 90\.2 105\.8 4\.9 28\.0 32\.9 SS\.0 TOTA\. PJECI CM 5(1411\.11141U) 423\.0 1832\.1 2255\.1 132\.5 58\.8 721\.3 82\.0 Q\. Intiemt Delta nztx ib Fi 0\.0 47\.7 47\.7 0\.0 19\. 19\.1 100\.0 Ottun 58\.9 240\.4 299\.3 20\.3 87\.8 108\.1 81\.0 TOTAL U S8\.9 298\.1 347\.0 20\.3 106\.9 Im\.: 4\.0 lOtL r=I*ws 481\.9 2120\.2 2502\.1 152\.8 695\.7 840\.5 82\.0  2,1 The base project cost is in April 1, 1989 prices and as estimated by the two pre- construction phase engineering consultants for components I and II, and by EEA for the components III and IV\. These estimates were reviewed by the Bank's mission and are considered to be reasonable for this type of project\. The cost estimates include customs duties and taxes as shown in Annex 3\.2\. Except for the actual expenditure incurred in 1988 (Annex 3\.2), overall physical contingencies of 102 are added exce ?t for the civil works for which 152 physical contingencies have been added\. An exchange rate of I US$ = LE2\.41 has been used for converting base cost and physical contingencies from one currency to another\. Price contingencies are added to the base cost plus physical contingencies on the following annual inflation rate projections: Year 1989 1990 1991 1992 1993 1994 1995 Cost expressed in: US$ (X) 5\.3 5\.3 4\.1 4\.1 4\.1 4\.1 4\.1 LE (2) 30 17 15 12 12 12 12 Disbursement Profile (X) 3 7 15 25 28 18 4 It is estimated that about 2,300 man-months of consultancy services would be required and are included in the technical assistance component (para\. 3\.06)\. The project cost does not include US$4\.5 million funded by the Bank (tinder Loani 1733-EGT) for the preconstruction phase consultancy services for the component\. Proect Financng 3\.08 The tinancing plan for the project is summarized in Table 3\.2\. The Bank funding would mainly cover the foreign exchange requirements of: (a) component 11 (Table 3\.1) for Mabmoudia and Damanhour power stations; (b) the component III for transmission lines and substations, except for US$1S million (Table ' ") from the Islamic Development Bank (IDB) for the Faraskur- Mahalla 220-kV transmission line; and (c) component IV for the technical assistance except for consultancy services for component I (Damietta combined cycle)\. The African Development Bank (ADB) is mainly funding the foreign exchange requirements of component I for (i) combustion turbines (modules land 2); (ii) site piling works (modules I and 2); and (iii) switchyard (modules 1 and 2)\. The Arab Fund for Economic and Social Development (AF) is mainly covering the foreign exchange requirements of component I for: (a) I4RSCs (modules I and 2 and 3); (b) steam turbines (modules 1, 2 and 3); and a portion of the consultancy services\. European Investment Bank (EIB) would mainly cover the foreign exchange requirements of component I for: (a) civil works/electro- mechanical equipment (depending on the contractor being from an eligible country); and (b) a portion of the consultancy services\. EEA would cover all local currency requirements of the project and, in addition, would cover the foreign _\.xchange requirements for: (i) the project insurance for the components I, II, ana III; (ii) combustion turbines, site piling works and switchyard for module 3 of the compoaent I; (iii) civil works/electro- mechanical equipment (portions not covered by EIB) for the component I; (iv) portion of the consultancy services for the component I (which are not covered by AF and EIB; and (v) interest during construction (local and foreign)\. /I No physical or price contingencies are added for the actual expenditure incurred in 1988 (Annex 3\.2)\. OS6SM  - 21 - 3\.09 EEA has alrvAdy signed the agreements with ADB, AF and IDB; agreement with EIB is likely to be signed by the end of June 1989\. Table 3\.2 Project Financing Plan US$ Million % of the Financing Sources of Funds Local Foreign Total Plan IBRD - 165\.0 165\.0 19 ADb - 124\.0 124\.0 15 AF - 123\.0 123\.0 14 EIB - 57\.0 57\.0 7 IDB - 15\.0 15\.0 2 GOE/EEA 152\.8 211\.7 364\.5 43 152\.8 695\.7 848\.5 100 Procurement 3\.10 All Bank-financed procurement for civil works, and supply and installation of materials and equipment would be according to Bank's Procurement Guidelines\. Procurement of technical assistance services would follow Bank's Guidelines for use of consultants by World Bank Borrowers in Bank-financed projects\. 3\.11 Bank financing is proposed for the following eight main procurement packages: (a) civil works for component II (Table 3\.1) for conversion to combined cycle of the existing open cycle industrial type combustion turbines at Mahmoudia and Damanhour power stations; (b) supply and installation of the 12 HRSGs (including instrumentation and controls) for component II; (c) supply and installation of the steam turbines for component II; (d) electrical equipment (including switchyard) for component II; (e) supply of materials for the transmission lines (except for 80 km of transmission line funded by IDB) under component III; (f) supply and installation of substation material and equipment (including associated civil works) for component III; (g) engineering consultancy services (preconstruction phase and construction phase) for components II and III; and (h) consultancy services including equipment and instruments for implementing EEA's program for: load management and tower testing; training; data bank; and environmental services\. 0 56 9 pi  - 22 - Except for small value items under (d), (e), (f) and (h), International Competitive Bidding (ICB) procedure according to Bank's Procurement Guidelines would be folloved for items (a), (b), (c), (d), (e), (f), and equipment and instruments for item (h); procurement of technical assistance services would follow Bank's Guidelines for use of consultants by World Bank borrowers\. International shopping, according to Bank's Procurement Guidelines would be followed for procurement of small-value items such as: (i) tools, instruments, relays and fittings required for the packages (d), (e) and (f); and (ii) tools, instruments, computer hardware and software for carrying out the program under the package (h)\. Procurement following International Shopping procedure would involve obtaining three price offers for the required gaods from at least two eligible source countries - such procurement being limited to US$40,000 per contract and US$600,000 in the aggregate\. 3\.12 Direct contracting following Bank's Procurement Guidelines would be followed for: (i) the extension of the contract for switchyard (under component I) by US$ 4\.0 million for providing matching Gas Insulated Switchgear (GIS) for the 220/66-kV Faraskur substation (under component III) funded by the Bank; and (ii) obtaining instruments, relays, recorders and fittings (about US$100,000) to match the existing equipment in the Mahmoudia and Damanhour power stations (package (d))\. The switchyard contract was awarded to the lowest evaluated !)idder, AEG, Federal Republic of Germany following ICB procedures of ADB (the financing agency) for an amount of about US$26 million\. The proposed extension would mean addition of three GIS circuit breakers (with associated control panels and relays) to the existing 26 GIS circuit breakers\. In order to maintain uniformity and standardization of equipment EEA requested for direct contracting with AEG for the extension of the GIS switchgear\. The request was reviewed and found to be reasonable\. Accordingly, the total foreign expenditure under this procedure would be limited to about US$4\.1 million\. 3\.13 Before appointing engineering consultants for the construction phase for components II and III (if needed), EEA would submit to the Bank a short-list of consultants according to bank's guidelines by the end of August 1989\. EEA should invite offers and award contract for the consultancy services by the end of December 1989\. 3\.14 EEA has in its possession all the land necessary for the project\. However, a token provision of about US$0\.4 million in local currency is provided for land acquisition, if required\. EEA would follow appropriate regulations prevailing in the country when acquiring additional land that may be required for the project\. Since the land requirement, if any, for the substations would be modest, no resettlement problems are foreseen\. 3\.15 EEA would follow its own bidding procedure for award of contract financed by EEA for the installation of transmission lines under package (e)\. In view of the scattered nature of the work, the proposed arrangement is satisfactory\. Similar arrangement was followed for the regional electrification component funded by IDA under Credit 1052-EGT\. 3\.16 Procurement arrangements are summarized in Table 3\.3\. 0 S6 911 j;Q-' L  - 23 - Table 3\.3 Summary of Procurement Arrangementsj-'l in US$ million Procurement Method Total Project Element ICB LCB O\.her INA Cost A\. Bank Funding Component II 1\. Civil Works 20\.2 - - - 20\.2 (11\.5) (-) (-) (-) (11\.5) 2\. HRSGs 42\.0 - - - 42\.0 (34\.0) (-) (-) (-) (34\.0) 3\. Steam Turbines 40\.8 - - - 40\.8 (33\.6) ( - ) ( - ) ( - ) (33\.6) 4\. Electrical Equip\. 15\.6 - 0\.2 - 15\.8 (11\.3) ( - ) (0\.2)/2 ( - ) (11\.5) Component III 5\. Transmission Lines 41\.0 ( - ) 13\.4/3 - 54\.4 (38\.9) ( - ) (0\.1) ( - ) (39\.0) 6\. Substations 24\.5 - 4\.1/1 0\.4 /4 29\.0 (19\.6) ( - ) (4\.1) ( - ) (23\.7) Component IV 7\. Engineering Consultants - - 9\.0 9\.0 Services (Components II and III) ( - ) ( _ ) (7\.8) /5 (7\.8) 8\. Other Technical Assistance (except consultancy services for the 1\.8 2\.7 /6 4\.5 Component I, II and III) (1\.4) (2\.5) (3\.9) Subtotal A 185\.9 - 29\.4 0\.4 215\.7 (150\.3) ( - ) (14\.7) ( - ) (165\.0) 0 S6 9 ti *j, ,; -S;9 -4 gs i , wa \.&4\.m-\.,  -24 - B\. Funded by others Component I 1\. Site Piling work 10\.8 - - - 10\.8 2\. Civil works 52\.1 - - - 52\.1 3\. Combustion Turbines 196\.2 - - - 196\.2 4\. HRSGs 59\.1 - - - 59\.1 5\. Steam Turbines 68\.6 - - - 68\.6 6\. Electro-mech Equip\. 43\.8 - - - 43\.8 7\. Switchyard 27\.3 - - - 27\.3 Component III 8\. Transmission Lines 16\.4 - 3\.4 - 19\.8 Component IV 9\. Engineering Consultancy - - 19\.5 - 19\.5 Services for Component I -) (-) (-) (-) (_) Component (I,II,III & IV 10\. Project Insurance - - 8\.4 - 8\.4 Subtotal B 474\.3 - 31\.3 - 505\.6 Total A + B 660\.2 - 60\.7 0\.4 721\.3 (150\.3) ( - ) (14\.7) ( - ) (165\.0) /1 Figures in parenthesis are the amounts to be financed by IBRD\. /2 Small-value items to be procured following international shopping procedure and those to be procured by direct contracting (Paras\. 3\.11 and 3\.12)\. /3 EEA would follow its own procedure for award of contract (US$13\.3 million) for erection of the transmission lines\. The Bank funding for US$0\.1 million is for small-value items to be procured according to inter\.ational shopping procedure (Paras\. 3\.11 and 3\.12)\. /4 Even though EEA has all the land for the project, a token amount of US$0\.4 million is provided, if required\. /5 EEA would continue the services of the consultant (ESB, Ireland), who prepared the basic bidding documents (Para\. 3\.22), for the preconstruction phase assistance (estimated at about US$0\.7 million out of US$ 7\.8 million for the consultancy services)\. /6 Out of US$2\.5 million, US$ 2\.2 is for consultancy services and the balance amount of US$0\.3 million is for small-value items to be procured following international shopping\. OS69M -4 -  ^25 Disbursements and Special Accounts 3\.17 The proceeds of the loan would be disbursed over a period of seven years (1989-1995) on the following basis: (a) lC01% of foreign (US$11\.5 million) expenditures for civil works of component II; (b) 1002 of foreign (US$34\.0 million) expenditures for the supply and inst^llat on of HRSGs for component II; (c) 1002 of foreign expenditures (US$33\.6 million) for the supply and installation of steam turbines for component 11; (d) 100l of 'oreign expeniditures (US$11\.3 million) for the supply and instailation of electrical equipment for component II; (e) 103% of foreign expenditures (US$38\.9 million, c\.i\.f\.or 100% of local e: \.enditure, ex-factory) for the supply of transmission line material f\.- component III; (f) 1002 of foreign expenditures US$23,6 million) for the supply ond installation of equipmeuit (including civil works for the substations undez component III; (g) 100? of foreign expenditures for the preconstruction and construction phase engineering consultancy services (US$7\.8 million) for components II and III; (h) 100% of foreign expenditures (US$2\.2 million) for the consultancy services to be provided under component IV for: (i) load management and power testing; (ii) training; (iii) Data Bank and Management In`orm&tion System (MIS); (i) 1007 of foreign expenditures (US$2\.1 million c\.i\.f\.) for supply of ir\.s_\.ruments, recorders, and equipment to be provided for project components II, III and IV\. 3\.18 The disbursement schedule (Annex 3\.3) follows generally the Bank's standard disbursement profiles for EMENA power projects\. In order to enable EEA to effectively implement the project and to ensure prompt payments to contracto's and consultants, the Bank would advance funds as needed to a special as\.ount to be opened at a commercial bank in Egypt for a maximum amount of "S$10\.0 million which is expected to cover the Bank's share of eligible expenditures over a period of four months\. The account will be denominated in US dollars and replenished against withdrawal applications of at least US$100,000\. Applications with appropriate supporting documentation should be submitted when appioximately half of the maximum allocated amount of the account has been spent\. All disbursements under the project would be made against standard documentation except for contracts less than US$100,000 equivalent\. These would be claimed under statement of expenditures; related documentation would be retained for review by the Bank missions/representative and audited by independent auditors acceptable ti the Bank\. 05 6 9 II  - 26 - 3\.19 Retroactive Financing and Advance Contracting\. Retroactive financing of up to U$400,000 would be allowed to cover expenditures incurred for the activities of the consu3tants contracted for preconstruction phase assistance to EEA (Para 3\.22)\. 3\.20 The Loan Closing Date would be December 31, 1995\. Projeet Implementation 3\.21 Damietta Combined Cycle (Component I)\. The contract for the combustion turbines was awarded in December 1987 and four combustion tulrbines out of the six to be installed have been commissioned in the open cycle mode\. The remaining two turbines are scheduled to be commissioned in the open cycle mode by September 1989\. The contract for the HRSGs was signed in April 1989; the contract for steam turbines is scheduled to be signed in June 1989\. The contracts for civil works and electro-mechanical equipment is scheduled to be awarded in 1989\. The operation of the power plant is scheduled for 1992\. 3\.22 Mahmoudia and Damanhour Power Stations (component II)\. The feasibility studyz-'- and the basic bidding documents for the component were completed by the consultant, ESB, Ireland in May 1987\. To save time, EEA proposed to continue the services of the consultant, ESB, Ireland for the pre- construction phase of the project\. The consultant would assist EEA in the procurement process till the award and signing of the contracts for the four bid packages\. For the construction phase engineering consultancy services EEA shall prepare a short list of the consultants and submit it to the Bank for its review by the end of August 1989, so as to ensure contract award for the consultancy services by the end of December 1989\. To maintain the proposed project schedule for the component (Annex 3\.4), it is essential that the natural gas pipeline at the Mahmoudia power station is relocated by the end of November 1989; the present route of pipeline within the power station interferes with the proposed layout for the combined cycle operation\. It is also advisable to replace the existing low pressure pipeline at the Damanhour power station by a high pressure pipeline from the neighboring Damanhour thermal power station\. This will avoid the use of gas compressors for supplying the gas at the desired pressure to the combustion turbines\. Further, it would also reduce the station auxiliary consumption at Damanhour by half (from 22 to less than 1X)\. EEA had scheduled to complete this work in 1987 but the work has not been started as yet\. To avoid the interference with the contractors' work, it is advisable that EEA completes the work of providing high pressure gas pipeline to Damanhour power station by the end of June 1990\. The power stations of Mahmoudia and Damanhour are about 18 km apart and, therefore, it is advantageous to issue one tender for both power stations for similar type of work\. The procurement action takes this into account (Table 3\.3)\. The contracts for the four bid packages under component II are scheduled to be awarded in the first half of 1990 and the combined cycle operation at both power stations is scheduled for completion by the end of March 1994 (Annex 3\.4)\. Assurance has been obtained from EEA that adequate quantity of natural gas would be allocated for /1 The funding for the efficiency upgrading of the existing power plants study and preparation of the bidding documents was provided by UNDP (EGY/85/003) and the Bank was the executing agency\. 0569M  - 27 - the economic combined cycle operations at Mahmoudia and Damanhour power station\. 3\.23 Transmission lines and Substations (component III)\. EEA has been satisfactorily planning and executing the work of 220-kV t ansmission lines and substations\. Therefore, no provision is made for the :econstruction phase engineering consultancy services\. No need for engiE: ering consultancy services is anticipated for the construction phase\. However, a nominal amount of US$0\.5 million is provided in the project cost for technical assistance, if needed\. Component III is scheduled for commissioning by the end of 1993\. 3\.24 Technical Assistance (component IV)\. EEA has continued the services of the preconstruction phase engineering consultants, Overseas Bechtel Incorporated/Electric Power System of Egypt (OBI/EPS) for the construction phase of the Damietta combined cycle power station (component I)\. EEA has proposed to continue the services of the consultant ESB, Treland for the preconstruction phase engineering consultancy services for the component II (Para 3\.22)\. For the construction phase engineering consultancy services for the component II, EEA will short-list the consultants and ensure that the consultancy contract is awarded by the end of December 1989 (Para 3\.13)\. As regards other activities of component II EEA will follow the Bank's Guidelines for use of consultants in Bank-financed projects for award of contracts\. The load management and load research activities would continue till the end of 1992\. Agreement has been reached that by December 31, 1990 EEA will prepare and provide the Bank, a plan for implementation of measures of the Load Management Study taking into account Bank's comments thereon\. The tower testing facilities and training activities are scheduled for completion by the end of June 1992\. The training activity would provide assistance for training EEA's staff and for manpower planning\. Technical assistance under component IV would provide supplemental support for the ongoing Data Bank and MIS activities carried out under the UNDP project (EGY/81/037 Electricity Data Bank)\. These activities are scheduled for completion by June 30, 1993\. 3\.25 Project Management\. Deputy Chairman for Projects located at EEA's headquarters would be responsible for management of project components I, II and III and engineering consultancy services under component IV\. The day-to-day construction activities at site would be the responsibility of the President, Delta Zone assisted by the Power Station Superintendent for Damietta combined cycle power station (component I)\. Similarly, the President, Alexandria Zone, assisted by the Power Station Superintendents of Mahmoudia and Damanhour, would be responsible for the site activities of the component II\. The transmission lines and substations of component III are spread over Alexandria and Delta ones\. The respective presidents would be responsible for construction activities of the transmission lines and substation located within their zonal boundaries\. These arrangements have been employed by EEA for previous projects and are satisfactory\. The technical assistance activities under component IV (except for the engineering consultancy services for components I, II and III and training) shall be under the Deputy Chairman for studies, research and planning loce\.ted at the headquarters\. The technical assistance activities for training will be the responsibility of the Deputy Chairman for Administration and Training located at the headquarters\. 9569 M  - 28 - 3\.26 Project Implementation Schedule\. The project implementation schedule is given in Annex 3\.4 with a project completion date of March 31, 1994\. Annex 3\.5 gives the broad requirements for monitoring the project\. These would assist EEA in providing the Bank, at regular semi-annual intervals, the information required during supervision of the project\. On completion of the project EEA will prepare a project completion report based on the outlines agreed with the Bank\. Environment 3\.27 Damiettd Combined Cycle (component I)\. The proposed site at Faraskur (Damietta) was found to be environmentally acceptable\. The land requirement was modest (only 20,000 m2) since the combustion turbines would normally burn gas and use distillate fuel oil (solar oil) in case of emergencies only\. There were no resettlement problems for the land acquired for the power station\. The plant design meets the air and water pollution standards acceptable to the Bank\. Unlike the conventional thermal power plant where the total installed capacity is in the steam turbines which require large quantities of circulating water, the combined cycle operation lhas only 1/3rd of the installed capacity in the steam turbines and 2/3rd of the capacity is in the combustion turbines\. Therefore, for the same capacity of power station, the combined cycle operation requires about 1/3rd of the cooling water compared to a conventional thermal power plant\. Only the condenser cooling water will be discharged in the Nile river\. The cold water inlet and warm water outlet of the cooling water system have been designed to meet the regulations of the country\. All wastewater will be treated prior to discharge into drainage canals located in the area and would meet the standards laid down by the Government (Law 48 - Ministry of Irrigation)\. 3\.28 Mahmoudia and Damanhour Power Stations (component II)\. The open cycle combustion turbines at the two power stations meant for peaking load operation are, however, run like base load units (Para 3\.04)\. After conversion to combined cycle operation, these combustion turbines would still be running as base load units burning similar amounts of natural gas\. However for the same quantity of natural gas used, the combined cycle operation would generate 502 more electricity compared to the open cycle operation\. As a result, per unit of generation, combined cycle mode would release less pollution to the atmosphere\. The source of cooling water for the Mahmoudia power station would be the Mahmoudia canal\. The total cooling water requirement (5\.68 m3/sec) for the two 46-MW steam turbines at Mahmoudia, represents less than 5% of the present maximum flow of canal (120m3/sec) in summer months\. Therefore the warm cooling water discharged in the canal would produce a fully mixed temperature rise of only 0\.24°c and the maximum temperature of the warm cooling water discharged into the canal would not exceed 35°c\. These results are based on a model test carried out by the consultants ESB, Ireland\. During the winter months on occasions, the canal water flow rate may drop to 23m3/sec\. Even under these conditions, it would be ensured that the warm cooling water outlet is located such that the mixed canal temperature rise does not exceed 1°c\. The cooling water source for Damanhour power station would be near the influence of the Mahmoudia and Khandak El Sharky canals\. There are two thermal power plants of 195 MW (existing) and 300 MW (under construction) capacities and take its cooling water requirements from the same source\. Before starting construction of the 300 MW power station, oS 6 9SM  29 ENEL, Italy carried out a study of the hydrothermal impact of the 300 mw mnit on the Mahmoudia and Khandak El Sharky canals\. The consultants ESB, Ireland superimposed the cooling water requirements of the additional 46-MW (compared to 495 mw of the two thermal plants) steam turbine of the Damanhour power station\. The results indicate that temperature would increase from 37\.3°c to 38°c and is within requirements laid down in the Government standards\. Further studies would be carried out by the consultants, ESB Ireland during the preconstruction phase to ensure that that the design of cooling water inlet and outlet would conform to the standards laid down by the Government\. The consultants would incorporate in the design a waste water treatment facility to ensure that the discharge from the treatment plant would meet the Government standards (Para\. 3\.27)\. 3\.29 With the additional generating capacity being installed every year, it is appropriate that EEA has established an Environmental Coordinating Committee to ensure compliance of the environmental standards of the country\. The details about the committee are given in Annex 3\.5 (Para\. 8)\. 3\.30 To ensure proper functioning of the environmental activities of the committee (Para 3\.29) necessary technical assistance of about US$600,000 is provided (including instruments and testing facilities) under component IV of the project\. The details of the items to be initially procured for commencement of the activities of the committee are given in Annex 1\.5 (Para 9)\. Assurance has been obtained from EEA that EEA procures the required testing equipment to commence its project related environmental activities at tne power station sites (components I and II) by June 30, 1991\. 3\.31 The proposed transmission lines (component III) generally follow the existing transmission belt in the region and would have no adverse effect on the environment\. Possible adverse aesthetic effects would be kept to the minimum by rerouting of the lines if necessary\. 3\.32 Satisfactory health, safety and emergency management measures will be adopted under the proposed project by the borrower (See Para\. 6 Annex 3\.6)\. 3\.33 In compliance with the Bank's policy no polychlorinated biphenyls be used in any facilities funded under the proposed project\. O 5 6 9 tt  - 30 - IV\. FINANCIAL ASPECTS Accounting and Management lnformation Systems 4\.01 The accounting and management information systems of EEA and EDCs are reasonably satisfactory in comparison to utilities of similar size in other developing countries\. However, some deficiencies exist in such areas as cost accounting and budgeting, property accounting, year end accruals of revenues and expense- and management reporting\. EEA has initiated actions to analyze, redesign and better document its accounting and management information systems as well as to train its acz-ountants, commercial and finance staff\. These activities are being carried out as part of the UNDP's Electricity and Energy Data Bank Project (Project EGY/81/037) whose primary focus is to strengthen the subsector's capacity to plan and manage the supply of electricity based on accurate and timely data\. The first phase of the project which included a preliminary database design, computer hardware selection and procurement, functional database design, detailed definition of economic and financial data inputs as well as a preliminary assessment of the management information system requirements of the subsector has been completed\. 4\.02 The second phase of the Energy Data Bank Project which is currently underway includes a detailed feasibility study of the management information system requirements of EEA, EEA Zones, EDA and EDCs, detailed systems analysis and design and equipment specification\. A prioritization of application systems would be made so that during implementation priority will be accorded to computerized financial and cost accounting system modules of the MIS\. Since EEA has obtained from other sources the required financing for consultants services needed for the design and implementation phase, acquisition of computer equipment and for training with manufacturers of computer hardware and software, only a modest US$0\.5 million is included in this project to help EEA develop a detailed training program for its finance, accounting and commercial staff and for implementing a part of the program\. Consultants services of about two man-months would be utilized to develop the program\. The balance of the remaining funds would be utilized to implement high priority aspects of the training program\. Audt 4\.03 Individual entity accounts of EEA and EDCs are audited by the Government's Central Auditing Organization\. The audits are comprehensive and thorough although the timely completion and submission to the Bank of audited consolidated accounts of the power subsector has been a problem, due mainly to accounting problems in EDCs and sometimes due to reluctance by auditors to issue an audit report on consolidated accounts of EEA and the EDCs\. Under Egyptian law, the auditors are required to audit the accounts of EEA and of the EDCs and to issue separate audit reports\. Accordingly, it has been agreed that under this project EEA and EDCs would submit separate accounts and audit reports\. In addition, EEA would be required to submit to the Bank pro forma consolidated accounts for EEA and the EDCs at the same time it submits the separate accounts and audit reports\. Delays in submitting audited consolidated accounts should be reduced substantially when the actions to improve the MIS (Para\. 4\.02) are taker,\. Under ongoing loans, audited 0 S 6 911  - 31 - accounts of EEA and EDCs should be received by the Bank within 6 months of the end of each fiscal year\. This provision would be retained under the proposed loan\. Insurance 4\.04 EEA insures, through a Government-owned insurance corporation to cover business risks normally covered by the Government and public authorities in Egypt, e\.g\., motor vehicles and stores and materials\. It does not, however, provide insurance coverage against certain business risks normally covered by public utilities, e\.g\., fire and machinery breakdown\. EEA considers the two insurance options, market insurance and in-house insurance (through creation of reserve funds) to be impracticable since the former would involve substantial costs while the latter is not consistent with the Government's regulations under the uniform accounting system\. The Bank recommended and EEA agreed that it would carry out a study to identify and quantify the risks associated with its operations and to recommend the most appropriate methods consistent with industry practice for minimizing and managing such risks\. Past Financial Performance 4\.05 Actual and projected income statements, balance sheets and sources and application of funds statements of EEA are shown in Annexes 4\.1 through 4\.3\. Similar statements consolidated for all the EDCs are also shown in Annexes 4\.4 through 4\.6\. For the projected performance, the main underlying assumptions are detailed in Annex 4\.7\. 4\.06 The historical performance of EEA and EDCs is summarized in Tables 4\.1 and 4\.2 below respectively\. 0s sM s 9  - 39 - Table 4\.1 EEA: Summaryf Past Financial Performance 1984/85 1985/86 1986/87 1987/88 --(LE Millions Unless Stated Otherwise)- Sales (GWh) 26,168 28,655 31,215 33,422 Ave\. Tariff (M/kWh) 10\.99 15\.37 16\.44 21\.99 Net Operating Income 15\.82 60\.15 46\.20 182\.49 Net Non-Operating Income /1 35\.73 18\.28 81\.05 1\.98 Interest Expenses 41\.54 70\.40 114\.20 171\.06 Net Income/(Loss) 10\.01 8\.03 13\.05 13\.41 Self-Financing Level (2) /2 (4\.0) (14\.0) (9\.0) 37\.0 Rate of Return (X) /3 1\.4 3\.5 2\.0 5\.0 Debt/Equity Ratio /4 65 71 71 82 /1 Includes LE 30 million representing an annual compensation payment received by EEA from the Government for high costs associated with utilization of diesel oil and of operations in some uneccnomical areas\. /2 The apparently good performance in 1987/88 is due to inclusion in the self-financing calculation of substantial decreases in working capital as a source of funds\. The threefold decrease in working capital in fact reflects a severe liquidity constraint which obliged EEA to increase its short-term liabilities substantially\. /3 Substantial increase in debt/equity ratio in 1987i88 resulted from revaluation of EEA's foreign currency loans to take account of changes in exchange rates in that fiscal year\. /4 Calculated on historic cost assets\. Table 4\.2 EDCs: Summary of Past Financial Performance 1984/85 1985/86 1986/87 1987/88 --(LE Millions Unless Stated Otherwise)- Sales (GWh) 17,382 19,305 21,091 22,447 Ave\. Tariff (N/kWh) 20\.25 26\.79 28\.87 36\.97 Energy Purchases (GWh) 19,747 21,756 23,792 25,314 Line Losses (X) 13\.6 12\.7 12\.8 12\.8 Cost of Sales (M/kWh) 12\.1 17\.d 18\.0 23\.9 Net cperating Income 22\.87 40\.24 58\.44 47\.13 Net Non-Operating Income (5\.97) (16\.61) (28\.14) (24\.43) Interest Expenses 7\.62 8\.68 12\.39 14\.23 Net Income/Loss 9\.28 14\.95 17\.91 8\.47 Self-Financing Level (%) 169 62 104 104 Rate of Return (%) 9\.5 6\.1 6\.4 3\.6 Debt/Equity Ratio 35 39 46 53 0 S 6 I fT  - 33 - EEA's rate of return calculated on historic cost assets shows a moderate improvement from 1\.42 in 1984/85 to 5\.0 in 1987/88\. The rates of return for the EDCs varied from 9\.5% in 1984/85 to 3\.62 in 1987/88\. Other performance measures, self-financing and debt/equity ratios indicate a decline in performance since 1984/85 for EEA but satisfactory performance for EDCs\. Thus although the Eu;Cs rate of return of 3\.62 in 1987/88 appears low, the performance of the EDCs is satisfactory given the size of their investment requirements\. When compared to the subsector target rate of return of 5% p\.a\. on revalued assets, the actual rates of return of 2\.4% in 1983/84, negative in 1984/85, 1% in 1985/86 and 1\.6% in 1987/88 indicate the need for improvement\. The lack of substantive improvement in financial performance in t-he last few years is attributable to a doubling of fuel prices in 1985/86 and a further 66\.5% increase in 1986/87 which outweighed an average tariff increase of 742 in the same period\. The substantially better performance by EDCs compared to EEA calls for a review of the transfer pricing policy within the subsector\. This review would be based on the results of the tariff study to be carried out by EEA by 1990/91 (para\. 2\.18)\. 4\.07 Collection of Accounts Receivable\. Tables 4\.3 and 4\.4 summarize the subsector and EEA's accounts receivables collection performance respectively during the years 1984/85 - 1987/88\. The average collection period for EEA has gradually increased from 2\.9 months in 1984/85 to 4\.9 months in 1987/88 and that of the EDCs from 5\.8 months to 6\.9 months in the same period\. These increasing arrears have contributed to the subsector's liquidity problems and reflect recent tariff increases\. However, the current arrears of accounts receivables represent a substantial improvement from 1979 when the arrears represented 8 months sales\. Also starting in fiscal year 1989, the Government has started a practice of setting aside a budgetary provision to enable the subsector to recover directly from the Ministry of Finance those public sector balances which have become non-current\. Table 4\.3 Egyptian Electricity Authority and Electricity Distribution Companies: Accounts Receivables Collection Performance (1984/85 - 1987/88 1984/85 1985/86 1986/87 1987/88 --(LE Millions Unless Stated Otherwise)- Electricity Revenues EEA 287\.72 440\.33 513\.28 734\.88 EDCs 352\.02 517\.15 608\.81 829\.86 Accounts Receivables/L EEA 69\.03 131\.93 191\.47 305\.02 EDCs 170\.32 251\.38 340\.91 497\.80 No\. of months sales EEA 2\.9 3\.6 4\.5 4\.9 EDCs 5\.8 5\.8 6\.7 6\.9 /1 Accounts receivables include small amounts levied as fixed monthly charges which are not included in the sales revenue amounts\. These amounts are very small and do not significantly affect the calculation of no\. of months sales outstanding\. 0569M  - 34 - Table 4\.4 Egyptian Electricity Authority: Accounts Receivables Collection Performance (1984/85 - 1987/88 1984/85 1985/86 1986/87 1987/88 (LE million unless stated otherwise) Sales Revenues 287\.72 440\.33 513\.28 734\.89 of which: Electricity Dist\. Companies 238\.48 366\.89 424\.24 606\.03 Industry 42\.07 63\.59 78\.48 115\.19 Agriculture 6\.45 9\.65 10\.56 13\.67 Government 0\.26 0\.20 - - Accounts Receivables 69\.04 131\.93 191\.47 305\.02 of which due from: Electricity Dist\. Companies 56\.54 100\.42 151\.61 239\.98 Industry 8\.82 24\.21 28\.35 44\.59 Agriculture 3\.68 7\.3 11\.51 20\.45 Government 0\.02 - - - No\. of months sales in Receivables 2\.9 3\.6 4\.5 4\.9 of which in: Electricity Dist\. Companies 2\.8 3\.3 4\.3 4\.8 Industry 2\.5 4\.6 4\.3 4\.7 Agriculture 6\.8 9\.1 13\.1 17\.9 Government 0\.9 - - - Future Financial Performance 4\.08 Although the current and recent past financial performance of the power subsector is generally not adequate, future performance is expected to improve substantially\. The Government's declared policy of adjusting energy prices to economic levels by 1994/95, its commitment to restructure EEA's capital structure as well as other efficiency improvement measures (paras\. 4\.01 and 4\.02) constitute an adequate basis for expecting improved financial performance in he future\. 4\.09 Financial Targets\. During appraisal of the project, EEA and the Bank agreed that a summary measure of EEA's financial performance would be the internal cash generation ratio\. Agreement has been reached on internal cash generation targets of 20% in FY92, 30% in FY93 and 35% in FY94 and each year thereafter\. However, since internal cash generation targets are sensitive to variations in investment expenditures, computation of these targets would be based on a three year (current, prior and following year) moving average of investment expenditures\. Fiscal years 1989/90 and 1990/91 would be an adjustment period during which the Government plans to adjust energy prices in 0569M  - 35 - a manner consistent with its objective of raising them to economic levels by 1994/95\. The proposed financial targets therefore constitute an agreed statement of objectives which are designed to improve the subsector's financial performance over a reasonable period of time\. 4\.10 Financial Projections\. The detailed financial projections for EEA (Annexes 4\.1 thtuugh 4\.3) and EDCs (Annexes 4\.4 through 4\.6) are prepared on the basis of average electricity tariff increases of 30% in FY90 and FY91 and average fuel price increases of 25% in both years\. In FY92-95, all fuel prices are assumed to increase in equal annual percentages needed to reach economic cost in FY95\. Thereafter they are assumed to increase at the rate of inflation\. In the same period the average electricity tariff is assumed to increase at rates required to generate self-financing levels of 20% in FY92, 30% in FY93 and 35% in FY94 and each year thereafter\. Although the tariff increases assumed to take place in FY90-FY91 would not immediately transform EEA into a financially sound utility, they represent a continuation since 1985/86 of the Government's efforts to move the power subsector to a better system of management and to pricing policies which would increasingly provide correct signals for sound investment decisions and would in due course require customers to pay the full cost of goods and services provided to them\. Moreover, the magnitude of the increases is broadly the same as those which have been implemented in 1985/86, 1986/87, and in 1988/89, and therefore t;\.e probability that they will be implemented is high\. The Government also recognizes that the transition from low prices (energy prices, and an overvalued exchange rate) to economic levels would cause the power subsector short-term financial difficulties and is considering different alternatives for providing support to EEA including possibilities of increasing its equity through debt/equity conversion or new capital injections (Para 4\.08)\. 4\.11 Financial Covenants\. Agreement has been reached with the Government/EEA on internal cash generation targets for EEA of at least 20% in FY92, 30% in FY93 and 35% in FY94 and each year thereafter, and on an annual review of the financial position of EEA\. Starting in FY90/91 (for FY91/92) EEA would submit the results of its review to the Bank no later than six months before the beginning of each fiscal year\. On the basis of the review, the Bank and EEA would agree on a plan of action for implementation in the following year to ensure achievement of the financial targets\. 4\.12 Collection of Accounts Receivables\. The objective of maintaining accounts receivables from final consumers of electricity at levels not exceeding three months of sales would be continued under the proposed loan and agreement to this effect has been reached\. The Government recognizes that given the anticipated frequency and magnitude of future tariff increases and their consequent impact on consumers' finances, greater efforts would be needed by it, EEA and EDCs to ensure achievement of the proposed targets\. In particular, the Government would ensure that public and large industrial consumers settle their bills within the granted credit periods\. 4\.13 Debt Service Coverage\. During the annual consultations with the Bank (para\. 4\.11) it would also be determined whether EEA's net internal cash generation for the preceeding 12 months would amount to at least 1\.5 times its debt service requirements for the following yeRr taking into account any expected new loans\. Based on such a review EEA would be obliged not to 0S69M  - 36 - contract new long-term debt without consulting the Bank unless its net cash generation is expected to equal at least 1\.5 times its debt service requirements\. The financial projections indicate that EEA's debt service coverage ratio is expected to improve gradually to about 2\.40 times in 1993/94\. 4\.14 Other Covenants\. EEA would be required to: (a) submit to the Bank within 6 months of the end of each fiscal year its audited accounts and audited accounts of all the EDCs together with the auditor's reports thereon, as well as (Para 4\.03! pro forma consolidated accounts of the subsector as a whole; and (b) to carry out a tariff study to determine the economic costs of supplying power to its consumers which would form the basis of policy decisions on tarift structures and levels (Para 4\.06)\. Sources of Finance 4\.15 EEA's investment program for FY88-FY96 totals about LE 31,328 million of which LE 26,629 million or 85% represents foreign costs\. The balance of the investment program, LE 4,699 million or 15% in local currency costs would be met from a combination of internal cash generation and local loans from the Treasury and the National Investment Bank\. The Internal cash generation would contribute about 23% of the total investment program\. The foreign currency costs are expected to be financed from a combination of foreign loans, suppliers credits, and grants\. A summarized financing plan for the investment program is shown below\. The detailed financing plan is shown in Annex\. 4\.3\. 056 9 M &a4QA=z ; s ES 9L e\.Yi~ ~ =s 1WIA1 s!%, 7s21 -7r *\. -t W M\. \._- o  - 37 - Table 4\.5 Summary Financing Plan for Years 1987/88 - 1995/96 As % of Capital Expenditure LE Million Construction Expenditure For Project 8 2,602 Other Projects 92 28,726 Total Construction Expenditures 100 31,328 Increase/(Decrease) in Other Assets - 73 Total Required Expenditures 100 31,401 Sources of Funds Gross Internal Cash Generation Less: 14,113 Increase/(Decrease) in Working Capital 804 Debt Service ll 7,668 Net Internal Cash Generation 19 5,641 Grants 2 766 Equity 5 1,489 Project Loans IBRD 2 606 African Dev\. Bank 1 308 Islamic Dev\. Bank - 38 Arab Fund 1 387 European Investment Bank 1 177 EEA/Govt\. 4 1,086 Other Borrowings 66 20,903 Total Borrowings & Grants 80 25,760 Total Sources 100 31,401 1/ Includes about LE 1\.5 billion of Government Loans to EEA which is expected to be converted into equity at end of 1988/89\. When this amount is excluded from debt service the net internal cash generatior becomes 23b of total capital expenditures\. 0 56 9M I\. -\. v ' \. - ,\.:-\. 97-\. , \.-\.7 ,,, , -e> TM M -W,  - 38 - V\. PROJECT JUSTIFICATION Load Forecast 5\.01 EEA's projected maximum demand for electricity for the period 1987-88 to 1996-97 is presented in Annex 2\.5\. Net generation and maximum demand are projected to grow by an av,rage of 6% a year from 1987-88 to 1996-97\. The relatively conservative forecast used in this report is based on projections of slow economic growth to 1991-92 and anticipated electricity price increases, both of which would limit future electricity demand growth\. The proposed project will meet about 1,218 MW of incremental demand for electricity and will help avoid current load sheddings\. Least Cost Analysis 5\.02 The project forms part of EEA's least cost investment program for meeting the projected requirements\. Furthermore, the choice of the proposed project is fully in line with a key Government objective of improving fuel efficiency of power plants using natural gas\. EEA through its consultants executed studies to examine: (a) the feasibility of constructing three modules of Damietta combined cycle totalling 1,080 MW, consisting of 720 MW of gas turbines and 360 MW of steam turbines; and (b) the feasibility of converting the open cycle plants at Damanhour and Mahmoudia to combined cycles for a net addition of 3 x 46 MW\. In 1985, Montreal Engineering Company, Ltd, Canada prepared a "Lower Egypt Thermal Plant Study" to examine the prospects of introducing combined cycle, simple cycle gas turbines and oil field steam plants and concluded that the two module combined cycle project (720 MW) using natural gas as the least cost solution\. In 1989, EEA through its consultants BecI'tel of USA examined the feasibility of adding a third module consisting of 240 MW gas turbine and 120 MW of steam turbine a total of 1,080 MW combined cycle project\. The Electricity Supply Board (1987) of Ireland prepared two feasibility reports: "Damanhour Power Station; Conversion Cycle; Efficiency Upgrading"; and Mahmoudia Power Station: conversion cycle: efficiency upgrading in 1987\. T'hese reports examined the feasibility of conversion of Damanhour and Mahmoudia open cycle to combined cycle by adding 3 x 46 MW of additional capacity and found that this would result in 62 percent improvement in efficiency and benefits from fuel savings resulting in 29% rate of return on investment of this component\. The Bank has reviewed these studies and agrees with the findings\. Return on Investment 5\.03 Since the project components are part of Egypt's 1987-92 power system expansion program, the Economic Rate of Return (ERR) was calculated on the required power investment program for the incremental demand met by the investment program\. 5\.04 The measurable costs include: (a) the capital cos* of ERA's expansion program for 1987-92; (b) operating and maintenance costs; mid (c) the fuel cost\. The measurable benefits are the incremental revenue attributable to the program based on average domestic tariffs\. The electricity tariff rates are assumed to increase in real terms by 15% p\.a\. 0s6sn  - 39 - between 1990-1994\. Thereafter, from 1994, the tariff rate is assumed to increase by 8% p\.a\. (including 32 for fuel adjustment) during the life of the project\. The resulting rate of return is 10% (Annex 5\.1)\. The low rate of return is not a true measure of the economic worth of the project but reflects the low electricity tariffs in Egypt and indicates that tariff levels are set below the economic cost of the resources used to produce electricity, a result of the system of subsidized prices for essential goods and services\. In the analysis the tariffs and, in turn, a major proportion of the benefits, are based on domestic prices, while thie costs associated with the project, including the price of fuel, are based on international prices\. Since the domestic prices are set below economic costs by the Government, the value of the benefits attributed to the project is depressed, relative to economic costs\. If tariffs are set to reflect the full economic cost of supply, the rate of return would increase to 17%\. The economic benefits not included in the: benefit stream are considerable\. These include savings to the economy through efficiency gains, progressive correction of distortion in electricity tariff structure, longer term gain through improved planning and operational efficiency, and, finally, benefits to the economy through reduction of costs in the unserved energy and associated linkage effects of the project which forms an integral component of the sectoral development and economic reform program\. Riss 5\.05 No risk that could be a potential problem for the physical construction of the project is anticipated\. Foreseeable construction risks have been taken into consideration in the design of the project and in the cost estimates\. However, there are risks related to possible delays in implementation of expected and agreed energy/electricity tariff adjustment by the Government due viainly to socio-political reasons\. Reconfirmation of GOE's objectives has been obtained regarding energy/electricity tariff adjustments indicated in this report towards reaching economic levels by 1995\. 0569M  - 40 - VI\. AGREEMENTS REACHED AND RECOMMENDATION 6\.01 During negotiations, the Government reconfirmed its policy to adjust energy prices so as to reach their economic levels by June 1995 and to exchange views with the Bank on annual adjustments consistent with that objective (Para 1\.15)\. Agreement was also reached with the Government and EEA on the following: (a) EEA would submit to tht Rank by December 31, 1990, a plan for the extension of load management measures to all Extra High, High and Medium Voltage users, including peak load pricing and thereafter implement the plan taking into account the Bank's comments (Para\.2\.17); (b) EEA would implement the training and the technical assistance programs under the project (Paras\. 3\.06 and 4\.02); (c) EEA would operate a special account (revolving fund) for Bank loan disbursement (Para\. 3\.18); (d) EEA would employ engineering consultants throughout the project implementation period for construction supervision (Paras\. 3\.24 and 3\.25); (e) EEA would maintain adequate records and reports necessary to monitor the progress of the project and its evaluation would be submitted to the Bank, semi-annual progress reports based on an outline to be agreed with the Bank (Para\. 3\.26); (f) EEA would establish an environmental coordinating committee to implement by December 31, 1990, a program for pollution control including the provision of necessary equipment and materials (Paras 3\.29 and 3\.30); (g) EEA would submit to the Bank its audited accounts and also separate audited accounts of EDCs and EDA together with pro-forma consolidated accounts of the power subsector within six months of the end of each fiscal year (Para\.4\.03); (h) EEA would obtain Bank's prior consent to any further borrowing whenever its internal cash generation is not sufficient to cover its debt service at least 1\.5 times in any future year; (i) EEA would generate from internal sources funds equivalent to 20% and 30% of its expenditures (computed on a three-year moving average basis) in FY92 and FY93 and 35% in each fiscal year thereafter; and; 0 569M1  - 41 - (j) EEA and EDCs would reduce their accounts receivables, and maintain them at levels not exceeding three months sales (Para\. 4\.12)\. 6\.02 As a condition of effectiveness for the Bank loan: The conclusion of the EIB loan would be met (Paras\. 3\.08 and 3\.09)\. Recommendation 6\.03 Subject to the foregoing, the project would be suitable for a Bank loan of US$165 million equivalent for a term of 20 years including a grace period of five years\. 0o5 6 911  -42 - AN \.1 FOURTH POVER PROJECT History of Domestic Fuel Prices /a /b /i FY83 FY84 FY85 FY86 FY87 May 1988 April 1989 Gasoline (Rg\.) LE/ton 154\.0 154\.0 210\.0 280\.0 350 490\.0/c 490\.0 X of world price (60\.6) (55\.0) 43\.0) (55\.0) (88\.6) (137\.0) (135\.0) Kerosene LE/ton 36\.0 36\.0 36\.0 37\.8 63\.0 60 88\.2 X of world price (14\.3) (13\.0) (10\.0) (10\.0) (18\.9) (16\.3) (27\.8) Gas Oil LE/ton 36\.0 36\.0 36\.0 36\.0 60\.0 60 84\.0 % of world price (15\.4) (14\.0) (11\.0) (10\.0) (19\.0) (18\.0) (27\.8) EFtl Qil LE/ton 7\.5 7\.9 12\.4 17\.6 28\.0 28 35\.0 \. of world price (5\.2) (5\.0) (6\.0) (8\.0) (12\.0) (14\.0) (23\.3) Natural Can LE/ton oil equiv\. 7\.6 8\.0 12\.5 19\.6 30\.3 33\.0 42\.5 2 of world price La (5\.0) (5\.0) (6\.0) (8\.0) (13\.0) (13\.0) (25\.0) Weighted Averase LE/ton 30\.9 31\.1 33\.8 44\.0 73\.1 83\.8 98\.0 X of world price (17\.0) (15\.0) (13\.0) (16\.0) (27\.0) (33\.0) (36\.0) \. change 1\.0 9\.0 30\.2 66\.0 15\.0 16\.7 Crude Qil Price (US$/bbl) 28\.0 27\.0 27\.0 22\.3 17\.5/d 14\.81f 15\.1 LE/ton /h 231 233 272 283 277 246 2;0 Averase Electricity tariff piastre/kwh 1\.24 1\.45 1\.68 2\.26 2\.91 3\.07 4\.01 7 of chanse 17\.1 16\.4 34\.7 29\.0 5\.0 30\.5 7 Change CPI 18\.6 19\.7 12\.3 19\.3 23\.1 20\.0 20\.0 Average Exchanae Rate (LE/US$) 1\.13 1\.18 1\.38 1\.74 2\.17 2\.28 2\.45 7 change 4\.0 17\.0 26\.0 30\.0 5\.0 7\.5 /A Using May 1, 1987 Italian Spot Export prices from PLATTS for World Market Prices\. /b Using May 5, 1988 PLATTS data for comparison\. /c Include May 15 price increase for gasoline of 40%\. /d Average OPEC price April-June 1987 (Bank Statistics)\. /e Average OPEC price January-March 1988 (Bank Statistics)\. If As of March 1988\. La On a fuel oil equivalent basis\. /h 7\.3 bbl * 1 ton Esyptian Crude Oil\. Li Using Ministry of Petroleum and Mineral Wealth eite for comparison\. Li As of April 1989\.  -43- ANNEX 2\.1 W~~~~~~~i Ei II AS J~~~~~~~ iiIWIj1 jW * '~ I jj ill II' II ~~~~~II'HI~~'I Li~~~~~_____  EGYPT ELECTRICITY DISTRIBUTION AUTHORITY ORGANIZATION CHART Iamwi Cw~~~~~~~~\. t~~ 4 %9X OWOCWCvw & toonmm comakw"~~~~~~~~~~~~~~~~~~~~~~~J~\. G dS~~~~~~~~~~~~ LI I lc I f : I  EGYPT FOURTH POWER PROJECT EEA: Various Data for Steam Turbine Power Stations No\. & Size Installed Gross Effective Gross Effective Losses in Average Thermal Plant Load Conuiissioning of Units Capacity Capacity in 1988 Capacity in 1989 Auxiliaries (% of fues Consumption Efficiency ractor in Time ful\.l/ A (MWl (NW) (W (MW) Gross Generation in 1988 ta/kWh) J\.1 1988 LX) Cairo West(old) 1966 HFO 3X87\.5 262\.5 240 240 5\.0 269 32\.6 68 Cairo West(new) 1979 HFO lx87\.5 87\.5 80 80 Cairo South 1957 HFO 2x7\.5 15 180 220 6\.0 338 26\.0 82 1965 HFO 4X,60 240 Cairo North 1952- HFO 2x30 60 S0 - 6\.0 402 22\.0 82 19ss 1x20 20 2xlO 20 Talkha (old) 1955/56 HFO 3x12\.5 37\.5 35 - 6\.5 383 23\.0 61 Talkha (new) 1966/67 HFO 3x30 90 75 80 11\.0 359 25\.0 77 Damanhour (old) 1960 HFO 2xlS 30 - 20 30\.0 285 31\.0 71 Damanhour (new) 1968 HFO/NG 3X65 195 110 155 10\.0 328 27\.0 67 El Siuf (1) 1961 HFO 2x26\.5 53 12 40 8\.0 431 21\.0 62 E' Siuf (2) 1969 HfO 2x30 60 13 50 570 15\.4 18 Assiut 1966/67 HFO 3X30 90 80 85 10\.0 324 27\.0 66 El Tebbin 1958 HFO 3x1S 45 20 40 5\.0 392 23\.0 44 KarmoU2 1949/56 HFO 4x16 64 - - 14\.5 27 Suez 1965 HFO,coal 4X25 100 - 80 17\.0 612 18\.4 45 X"%fr-El-Dawar 1979 HFO 3xllO 330 80 270 8\.0 275 32\.0 70 abu Qir 1983/84 HFO\. NG 4x150 600 430 540 6\.0 226 40\.0 60 Abu Sultan 1983/84 HFO, NG 3xlS0 450 405 405 7\.0 226 39\.0 70 t Shoubrah ElKheima 1984/85 HFO\. NG 3x315 900 945 945 5\.0 238 36\.8 67 \., Attaka 1985 HFO 2xls0 300 290 290 6\.0 221 40\.0 41 U' Kafr-El-Dawar 1986 HFO lx11O 110 - 85 278 - - Abufultan 1986 HFO/NG IxlSO 150 315 315 226 Shoubra Elkheina 1988 HFO/NG lx315 3\.5 4 310 Total 4,624 3,3S0 4,010 La HFO = Heavy Fuel Oil, NG Natural Gas Source: EEA cI:f P0\. w  EEA: Various Data for Combustion Turbine Units/A No\. & Size Installed Gross Effective Gross Effective Losses in Average Thermal Plant Load Comsnissioning of Units Capacity Capacity in 1988 Capacity in 1989 Auxiliaries (S of Fuel Consumption Efficiency Factor in lime Fue1 tMW\. \. ilM\. im" ___ (__ c aross ceneration tn 1988 la/kWhA tX 1988 \.jZ Cairo North 1977 Solar/c 1x23 23 - - 0 394 22\.3 40 Cairo East 1979 Solar\.NG 2x23 46 40 40 0\.4 359 25\.8 10 Neliopolis 1980 Solar\.NG 3x12\.S 37\.5 10 30 3\.0 375 24\.0 9 El Tebbin 1979 Solar,NG 2x23 46 40 40 0 402 22\.1 36 Helwan 1980 Solar\.NG 5x24 120 100 \.100 2\.0 380 24\.0 65 Talkha 1979/80 Solar\.NG 8x24 192 170 168 0\.2 360 25\.1 77 El Mahmoudia (1) 1981 Solar,NG 8x24 192 168 168 0\.4 300 26\.5 31 El Mahmoudia (2) 1983 Solar,NG 4x50 200 145 140 Karmouz 1980 Solar 2xl2\.5 25 - 20 El Siuf (1) 1980 Solar,NG 1x26 26 20 20 0\.6 432 21\.3 62 El Stuf (2) 1981/83 Solar\.NG 6x33 198 150 150 :smailia 1977 Solar 1x20 20 19 19 0\.1 308 28\.4 82 Suez 1976 Solar lx17 17 9 12 0\.6 600 1S\.0 1 Sl Shabab 1982 Solar 3x33 100 90 90 1\.0 369 24\.0 80 Jort Said 1984 Solar 3x20 60 38 50 0\.7 325 27\.0 61 t'ayoum 1983 Solar lx20 20 16 16 0\.2 372 23\.6 21 \.ad, Hof 1985 Solar,NG 3x33 toO 90 90 1\.0 378 23\.2 11 Damanhour 1985 Solar\.NG 4x25 100 90 90 2\.0 328 26\.7 67 Shoubrah ElKheima 1987 NG lx27 2\. 'otal 1549\.5 119S 1240 Source: EEA La Excludes El Max (retired in 1986), Abu El Matamir (to be transferred off the grid) and Abu Qir (to be used for black start for steam turbine)\. Lk Winter operating conditions\. Summer capacity would be about IS less because of the effects of heat\. L_Q Solar = gas oil\. 0\. Itd Qg  ANNEX 2\.3 - 47 - Page 3 of 3 Selected Data on Hydropower Stations Commissioning Number & Size Power Station Time of Units Installed Capacity (MW) (MW) Aswan Dam 1 1960 7x46+2x11\.5 345 Aswan Dam 2 1985 3x75 225 Aswan Dam 2 1986 lx75 75 High Dam 1967 12x175 2100 Energy Generated by Hydro Stations (GWh)\. Aswan (1) Aswan (2) High Dam 1975 1780 5011 1976 1918 6085 1977 1885 7152 1978 1782 8153 1979 1639 7969 1980 1730 8071 1981 1879 8336 1982 1852 8632 1983 1880 7937 1984 2003 7630 1985 1785 297 6581 1986 1196 1573 6512 1987 1222 1472 5963 1988 1358 1508 5885 OO1 ZN  ECYPT FOMtTH PWR PROJoCT El ectricei ty Oeand 4tuniei- Residen- Totsl Nt cra, "Xaimum Load Networt Kim_ A Totsl Ari- Public Go\.'rn~t polities tiel & S\.1\. C\.eneration Generation iemnd Factor Loa_ Yeor Aluminium bWdusty culture Utility Housing commercial (OGh) (Oeh) (Gab) (ash) (Osh) (Cwh) (Orb) (0m) (Gab) (Cab) (SW) (O) (C) 1978 1,718 4,004 o77 886 248 1,010 987 8,807 9,484 9,787 1,78S 64\.8 18\.2 1976 2,872 8,247 671 540 280 1\.870 1\.000 9,058 11\.299 11640 1\.09 69\.7 17\.0 1907 8,817 7,180 698 S84 282 1,688 1\.110 114809 13\.184 18\.840 2,284 67\.7 18\.8 1978 8446 7,868 697 S79 849 2,197 1,848 12\.728 15\.S24 15\.798 2\.449 78\.6 15\.7 1979 8\.866 7,99s 704 1,170 410 210 2,704 1S\.103 18\.706 16,sso 2\.742 68\.1 11\.1 198/8l 8,998 9,186 777 1, I4 688 259 S,8s 15,892 19,860 20\.167 8\.179 72\.4 12\.6 1981/82 S\.787 9\.598 es 1,324 708 837 4,878 17,166 21,021 21,8907 ,694 6s\.r 1r\.2 1902/88 8,988 10\.280 897 1,820 728 371 8,484 19\.680 25\.607 24,891 3\.981 70\.5 16\.9 10/84 4,526 11,494 1,048 1,712 888 411 6\.780 22\.290 29 6,1 27\.741 467 67\.8 16\.6 19048 4,414 11,772 1,079 1\.772 866 S00 7,780 28,7M 2S\.925 30,180 S\.1la 66\.7 16\.6 1°os/6 4,4\.684 12,152 1,°198 1\.944 892 507 a/ 8,644 25,884 80,90 5 32,248 5\.61 68\.? 18\.6 1986/s7 44609 14,46S 1,165 2\.192 940 9o735 28,810 88,794 88\.202 5\.868 72\.2 18\.0 1987/68 4\.706 10\.812 1\.221 2,067 1,122 10,824 80,42 86,214 37,844 6,182 70\.2 18\.0 projected 1968/89 4,760 11,856 1,858 2,099 1,201 11,906 32,s690 8,706 40\.445 6,618 69\.8 14\.9 19904,760 11,698 1,484 2\.183 1,848 18,885 34,955 41\.878 48,288 7,089 89\.6 14\.8 10 4,760 12,478 1,489 2\.270 1,506 14,916 37,414 44,149 46\.183 7\.585 69\.4 14\.6 11/24,760 12,968 1,5S2 2,861 1\.687 16,706 40,084 48\.901 49,060 0,102 69\.1 14\. 0 1992/98 4,760 138,51 1,681 2,456 1885U 16,207 42\.440 49,728 S2\.012 8\.604 69\.0 14\.0 1998/94 48400 13\.987 1,714 2,554 2\.078 1o,848 44\.931 52\.639 SS,062 9\.7 68\.8 14\.0 1994/95 4,850 14,868 1,000 2,656 2,827 21,688 47,688 S5\. 70 ss8,77 9,704 68\.7 13\.9 19O/96 4,900 14,770 1,898 2762 2,607 28,882 S0,814 89,118 1,904 10\.296 68\.S 1\.9 1998/97 4,900 1\.098 1,979 2,878 2,919 25,754 58,820 62\.6S7 6S8s8 10,924 68\.8 18\.9 AnnualOrorth Rotes (S) b/ 197848 7\.7 5\.8 13\.8 13\.8 22\.7 10\.9 11\.0 198488 4\.8 8\.8 s\.7 6\.8 11\.6 8\.1 7\.7 1989-97 8\.8 4\.6 8\.9 11\.0 9\. 8 \.0 6\.1 S/ "his subsector was traneferred to other cDtegory b/ Least Square\. Growth Rates Source: ENA and Mission Estimate\. 'I  0568Mt i 49 - mNEX 2\.4 Page 2 of 3 Assumptions Electricity Demand Projections Real GDP Growth (M/- Year Industry Agriculture Total GDP 1987/88 3\.3 1\.5 2\.0 1988/89 1\.8 1\.6 2\.0 1989/90 3\.5 1\.5 1\.7 1990/91 4\.5 3\.0 2\.8 1991/92 6\.0 3\.1 3\.5 1992/93 7\.3 3\.0 4\.0 1993/94 8\.8 2\.7 4\.8 1994/95 8\.5 2\.7 5\.8 1995/96 8\.5 2\.7 5\.8 1996/97 8\.5 2\.7 1/ Arab Republic of Egypt Country Economic Memorandunm - Economic Readjustment With Growth - September 30, 1988 - Report No\. 7447-EGT\.  50 - ANNEX 2\.4 Page 3 of 3 The electricity demand projection fot the customer groups of the EEA and the distribution companies is based on multiple regression on related variables (econometric) and pure auto regression (Box-Jenkins) procedures\. The former method yielded better estimates in terms of values of explanatory variables and statistical significance, key assumptions are as follows: - Based on the data from 19871/88 to 1996/97, the average electricity/GDP elasticity is 1\.46\. - Industrial consumption was projected using an industrial electricity/GDP elasticity of 0\.88 from 1974/75 to 1987/88\. In the period under projection, demand for power in industrial sector is expected to grow at a slower rate of 3\.52 p\.a\. reflecting the impact of energy pricing, demand management and conservation measures and industrial restructuring efforts\. - To appreciate the significance of residential/commercial subsector, the econometric approach of the demand projection accounts for more economic and demographic variables than hitherto\. At present, market saturation in urban areas is apparent and owing to sluggish growth in the economy, the electricity consumption among residential customers would be lower and is expected to grow by 9\.5X p\.a\. during the period of 1988/89-97 (Annex 2\.4)\. Furthermore, continuation of better control over power theft is expected to reduce "waste" consumption in the commercial/residential groups\. - Owing to the completion of most of the infrastructure development projects by 1990 and absence of new large scale projects in the next 5-7 years, demand for electricity in public utilities is forecast to grow by a modest 3\.9% p\.d\. power demand by government subsector would be somewhat lower in the next five years due to cuts in government expenditure as a part of economic reforms, but would be higher in the later part of the projection period\. - Agricultural consumption was projected using a log linear equation with an agriculture/GDP elasticity of 0\.266\. - Total sales were adjusted downwards through applying the effect of a price elasticity of demand coupled with the recent tariff increases sufficient to allow the real tariff level to rise three times higher in the next five years\. The impact of higher prices was assumed to occur after a mean lag of 1\.5 years from the date of each price increase\. - Network losses are expected to remain at between 14% to 15% with load factor of 68\.52 to 69\.8%, over the period of 1988/89-97\. MIMI , \. Y,111;==-'p7i _  - 51 - ANNEX 2\.5 Page l of 2 Electricity Tariffs twilliehlh) ril percent 1297/9 19 Increoae I ED 1 ey hJhi UDolbge Kim 12\.j0 12\.20 0\.0 Rlwinue 10\. 19\.99 8561 Smd 13\.40 22\.24 66\.0 oilt Ceent 1 23\.33 23\.33 0,0 RuitCaaant 2 23\.33 23\.33 0,0 ferrecilicon 12\.20 20\. 665\.0 Iron I Steel 26\.60 29\.79 12\.0 1 bl0ow "erage 14\.11 19\.68 39\.5 2 his Voltage Imksr 17\.10 28\.39 66\.0 1=y 29\.65 29\.65 A\.0 Abiria Spiniag 24\.50 26\.46 8\.0 PUratw 24\.50 26\.46 8\.Q Agriculture 17\.10 28\.D 66\.0 Zovicrmnt 17\.10 28\.39 66\.0 2 bighbtd Arge 20\.04 28\.46 42,0 3 IWi Voltag SWes Cuent 42\.00 47\.0 ,0 4ricultura 32\.30 53\.62 S\.o kAnit Pipe Lim 33\.00 54,7 f68\.0 3 aightad Aerase 37\.25 50\.50 X5\.6 LEA NM E 16\.31 22t83 40\.0 11 K/9 Mausli Voltage piower 33\.14 55\.01 66\.0 7iM her 55\.00 55\.00 0,0 =rt 45\.00 50\.40 12\.0 Ileightad Average 39\.55 54\.58 30\.0 bsidntiaJ 100 kbh 18\.00 19\.01 5\.6 101-200 kwh 30\.00 32\.01 6,7 201-250 kWh 18\.00 41\.99 10\.5 351-500 kWh 4,00 50\.00 9\.7 501-650 kw 650\.00 66\.00 10\.0 651-8 kw 70\.0 800 O 14\.3 801-1000 kh 80\.00 90\.00 12\.5 1001-2000 kw 100\.00 112\.00 12\.0 20014000 kwh 120\.00 129\.96 8\.3 '4000 kwh 140\.00 140,00 0\.0 eighted Avrage 25\.41 27,24 1\.2 aouercial 100 kWh 21\.00 28\.01 33\.4 101-200 kh 16\.00 47\.02 30\.6 2t1-350 kIh 64\.00 80\.00 25\.0 3510 kh 88\.00 99\.97 13\.6 501-1O00 khd 100\.00 120,00 20\.0 1031-2OO0 kWh 120\.00 140\.04 16\.7 2001-000 kuh 140\.00 150\.09 7\.2 > QOO kwh 160\.00 170\.08 6\.3 \.ightad Arage 58\.98 ,0\.22 19\.1 bement 64,00 100\.03 55\.3 Pthlic Lishting 6',00 100\.03 56\.3 Haying Cmpies 22\.60 29\.83 32, 0 Veitd Arage 51\.70 82\.56 53\.76 DCS NE E 55\.92 4\.31 ^8\.50 iIgIERAGE ?,77 '\.14 30\.45 Sourc: EE  OSSSMl(4) 052 - ANNEX 2\.5 Page 2 of 2 Trends of Electricity Tariffs (Mills/Kwh) 82/83 83/84 84/85 85/86 86/87 87/88 88/89 Very High Voltage 4\.2 5\.4 5\.9 8\.5 10\.0 14\.1 19\.6 2 Increase 28\.6 9\.3 44\.1 17\.6 41\.0 39\.5 High Voltage 6\.5 8\.7 9\.9 14\.6 15\.7 20\.1 28\.4 X Increase 33\.8 13\.8 47\.5 7\.5 28\.0 42\.0 Medium Voltage 24\.5 35\.1 29\.8 32\.3 31\.0 37\.2 50\.5 %Increase 43\.3 -15\.1 8\.4 -4\.0 20\.0 35\.6 EEA Weighted Average 4\.9 6\.4 7\.5 10\.6 12\.5 16\.3 22\.8 DCs Weighted Average 15\.3 17\.7 20\.3 26\.8 27\.9 35\.9 46\.3 Weighted Average (EEA and DC) 12\.4 14\.5 16\.8 22\.6 29\.1 30\.7 40\.1 X Increase 16\.9 15\.9 34\.5 28\.8 5\.5 30\.5 s_ _EM  EGYPT FOURTH POWER PROJECT POWER SUBSECTOR INVESTMENT PROGRAM 1988-89/1994-95 (LE Million, 1988 Prices) 1988/89 1989/90 1990/91 1991492 1992/93 1995/9\.4 1494/95 CAPACrTY t#OATION STATION (1Q) Local foreign Loa,I Foreign Local Porcign LAl Foroejg Local Foreign Loal Foreign Loal Foreign ReabilIltatAon 18\.00 75,60 18\.00 75\.60 10\.00 75\.60 18\.00 76\.60 18\.00 78\.60 18\.00 75\.60 18\.00 78\.60 Sboibrob El Khotcm 4 815 18\.00 129\.80 1\.25 10\.80 Suez (PoSrecoko) 100 S 99 1\.S 29\.7 1 19\.8 Tatkhe C\.C 200 11\.00 97\.20 6\.50 7\.20 Dr ehSUt C\.c 1O 8\.10 50\.40 5\.40 21\.20 1eo 7 20 EAietta C,C 3 10 47\.15 641\.23 21\.47 18\.4 1 1 20\.e4 olod nOe)oo ExL aco 1S0 o 120 60 125 10 e1 Maheal_t C\.C 100 8 t0 64 80 6\.40 4S\.f SI \.80 14\.40 Ac\.ult 0 900 12\.0 t28\.00 13575 72\.00 1l\.26 80\.0 Atteko 4 Op0 SOO 12\.50 108\.00 3\.76 32\.40 1\.25 10\.80 Alm Ktr S O/7\. aco 40\.0 108\.00 18\.70 ss\.oo 1\.0 00\.80 Caio North & SSO e\.12 29s\.e8 \.12 2a\.so 6\.12 28\.eo Cal ro SaNw 90 2?\.00 51\.00 81\.00 243\.00 18\.00 7t2\.00 16\.00 S4\.co Caliro West 0 7o 14\.70 9000 1\.00 70\.00 \. 0\.0050\.00 Ayun FtATZ C So6 82\.54 145\.44 24\.40 14\.76 a4\.90 $24\.40 21\.00 13\.60 21\.10 1-\.00 150\.29 860 Kur teDt C nOO lS\.OO IS2\.00 S8\.818 1S5\.52 61\.64 5S7\.00 23\.00 1s0\.00 2efarDn C 200 S8\.88 15S\.52 S2\.00 207\.00 98\.10 JCO\.OO, 79\.eo 490\.00 tRblta SOO 1\.00 7\.40 1\.00 5\.40Q 18\.00 5M\.40 10\.00 5\.40 1\.0 \.40 1\.0 50 \.0 l0re 200 r1uh l3\.25 41\.20 102\.0 02\.10 El A Sich 13\.00 47\.16 22\.14 61\.26 Tol*ce Osto9l Unit2\. (07) \.45 1\.650 At\. '2 S 0 \. 9\.00 8\.27 0\.8o0 0M\.70 17\.00 85\.70 03\.50 100\.00 S;d; Kr00 \. \.3\.00 0\.00 s1\.00 0\.30 3 0\.00 030 48\.00 0\.82 254\.04 Fl Tebbin 0\.10 57\.00 lS\.00 92\.00 18\.00 70\.00 1\.00 \. 0\.09 \. T llkha Ext 200 14\.70 so\.00 14\.11 70\.OO U3\.S4 eO\.OO TWAL TS>Mir 24\.12 1701\.66 S2V\.s 1790\.33 271\.40 14S32\.76 24\.s2 3241\.32 212\.00 M\.eo 2:2\.10 116\.10, 159\.22 988\.64 R^to'il;*t;0in 1\.00 S\.40 1\.00 S\.40 1\.00 5\.40 1\.eo S\.40 1\.00 S\.40 1\.00 S\.40 1\.00 S\.40 Eeo, 200 kV tS\.2S I"152\. lO\.tO 103\.32 t\.sS 7r\.49 ?\.ff n\.49 7\.95 77\.40 ?\.OS ?7\.40 7\.015 7t\.49 So kVt \.10 0S\.1O 1\.20 12\.24 0\.10 0\.18 0\.1 0\.16 o\.1 0\.18 0\.90 0\.18 0\.10 0\.18 WJL RA 347\.18 1906\.1 6\.37 1 \. 5 156 19\.07 8\.09 869\.92\. 29067 o\.e 1\.07 806 14\.00 2\.8 13\.04 ostSRaBUTlCN SS\.91 4s\.689 6\.69 46\.21 t2\.§5 4t\.aB $8\.47 47\.30 E4\.0 4t\.3S 4\.ttl 4\.311 u4\.7n 47\.36 SoiBes A _echr 0\.eo s\.70 0\.80 6\.70 o\.eo 5\.70 o\.eo b\.70 0\.80 S\.70 0\.eo s\.70 0\.80 S\.70 Tr;nttle o\.ao a\.oo o\.ao a\.oo o\.so S\.oo 0\.80 8\.CO o\.so a\.oo o\.ao a\.oo0 o\.so a\.oo NM¢E; daltn O\.1S o\.0g 0\.1 o\.oe O\.1S 0\.09 0\.1 0\.09 O\.Ui 0\.09 0\. is 0\.00 O\.Ui 0\.00 MOtr CorAAtion 0\.10 0\.18 0\.10 0\.18 0\.10 O\.U2 0\.10 0\.is1 0\.10 0\.19 0\.10 0\.i16 0\.30 0\.la CA TmrAL a47\.1u t906\.16 418\.S7 1908\.48 356\.5S lS81\.16 8e4\.ss M9@\.42 27\.ff 1475\.00 5D8\.0S lJl4\.00, 219\.18 108\.04 a * Oil C Cool C C a Combined Cycle a a Cc  - 54 - Annex 3\.1 Page 1 of 5 EGYPT FOURTH POWER PROJECT Project Description A\. Introduction 1\. The project consists of the following four components: I\. Damietta combined cycle power station\. II\. Conversion to combined cycle of the existing industrial open cycle combustion turbines at Mahmoudia and Damanhour power stations\. III\. Transmission lines and substations\. IV\. Technical assistance\. B\. Component I\. Damietta Combined Cycle Power Station 2\. The power station consists of three combined cycle modules with a nominal site rating of 1080 MW\. Each module consists of two industrial combustion turbines of 120 MW (nominal site rating) each and two Heat Recovery Steam Generators (HRSGS), and one steam turbine of 120 MW capacity, associated electro-me\.hanical equipment, piping, and instrumentation and controls\. The combustion turbine under International Standards Institute conditions has a (15°C and 1\.013 bars) rating of 134 MW\. The primary fuel for the combustion turbines is natural gas from the Abu Maadi gas field and in case of emergencies the combustion turbines could use distillate fuel oil (solar oil)\. The combustion turbines are housed in an enclosed turbine hall\. The combustion products (at a temperature of about 520°C) of the combustion turbine exhausts into a duct which incorporates a damper to direct the flue gases either into the Heat Recovery Steam Generator (HRSG) or up the bypass stack into the atmosphere\. The HRSG produces low (about 59 kg/cm2) and high pressure (74 kg/cm2) steam which is used in the dual pressure steam turbine to generate power\. The power produced by the combustion turbines and steam turbine generators is sent to the interconnected electrical system through the 220-kV switchyard\. The switchyard is connected to the interconnected system by two 220-kV double circuit transmission lines to Damietta town and Kasabi substations\. The third 220-kV transmission line, funded by IDB, would connect the power station to Mahalla substation\. The line is scheduled for commissioning by 1992\. 3\. At present four out of six combustion turbines have been commissioned at the site and work in an open cycle mode\. The combustion turbine thermal efficiency (higher heating value) in the open cycle mode is expected to be about 32% or 2,652 kcal/kwh generated\. When the combustion turbine operates in the combined cycle mode, the thermal efficiency is expected to be about 45b or 1,900 kcal/kwh\.  5' C\.Annex 3\.1 Page 2 of 5 4\. The 220-kV switchyard is of indoor gas insulated type (GIS) and is located adjacent to the power house\. The switchyard design is based on one and one-half breaker system\. 5\. Natural gas is supplied by pipeline from the Abu Madi gas field (40 km) to the site at a pressure of 70 bars and reduced in the reducing station to about 17 bars\. The higher calorific value of the Abu Madi gas is 9,545 kcal/m3 (1\.053 Nm3 of gas = 1 ton of fuel oil)\. In combined cycle operations Im3 of gas would generate about 5 kwh of electricity\. Hence for 6,000 hours of operation in combined cycle mode, the power station would produce 6,480 Gwh of electricity requiring 1,296 x 10? m3 of natural gas/year (or 3\.55 x 106 m3/day for 1,080 MW)\. 6\. The housing colony for the plant operating stall and their families is included in the project component\. 7\. The major contracts for the component includes training program for operation staff\. The training would be provided onshore in EEA's training schools, onshore at the plant site, offshore in the suppliers workshops, and offshore in the utilities using similar equipment\. C\. Component II\. Mahmoudia and Damanhour Power Stations 8\. The Mahmoudia power station has four aero-derivative type combustion turbines each with a nominal site rating of 50 MW and eight industrial type combustion turbines each with a nominal site rating of 24 MW each; Damanhour power Stahon has four industrial type combustion turbines with a nominal rating of 24 MW each\. These turbines meant for open cycle operation have a thermal efficiency of about 26%\. Due to low thermal efficiency, these turbines were suitable for operation during the peak load period (less than 302 load factor) while more efficient turbines were allotted the base load duties (about 602 load factor)\. However, due to shortage of power, EEA allocated base load duties to the industrial combustion turbines of Mahmoudia and Damanhour power stations; the aero-derivative type combustion turbines of Mahmoudia are, however, operated during peak load hours only due to poor availability and difficulties of maintaining these turbines at site\. Since the shortage of installed capacity is likely to continue till the end of the century, it was necessary to improve the efficiency of the industrial combustion turbine at Mahmoudia and Damanhour power station so that they could be economically utilized for the base load duties\. Accordingly, a study funded by the UNDP (Egy/85/003, Efficiency Upgrading of the Existing Power Plants) was carried out by ESB, Ireland\. The Bank was the executive agency for the study which was completed in May 1987 and reviewed by the Bank\. The Bank agreed with the consultant's recommendation for conversion to combined cycle operation of the 12 industrial combustion turbines at Mahmoudia and Damanhour power stations\. 9\. In combined cycle mode, the thermal efficiency of the plant is expected to be 39% compared to 26% in the open cycle operation\. Therefore, for the same quantity of gas used, the combined cycle operation would generate 50% more electricity compared to the simple cycle operation\. There would be two combined cycle modules at Mahmoudia and one combined cycle module at  56 - Annex 3\.1 Page 3 of 5 Damanhour power station\. Each module would consist of four existing industrial combustion turbines (24 MW each), four new HRSGS and one new steam turbine (46 MW net output)\. Therefore, the conversion to combined cycle would increase the net generation capacity by 92 MW and 46 MW at the Mahmoudia and Damanhour power stations respectively\. These "add-on" facilities could be accommodated in the existing available land at the two power stations\. Housing facilities are already available at the two sites\. 10\. The cooling water requirements are modest (5\.68 m3/sec for Mahmoudia and 2\.84 m3/sec for Damarhour) and would be obtained from: Mahmoudia canal (for Mahmoudia); and Khandak El Sharky canal for Damanhour\. The consultant, ESB carried out a model study for the cooling water systems at Damanhour\. The proposed design would meet the concerned standards laid down by the Government\. At Damanhour, there are three power stations located near each other: the combustion turbine power station (the project component), the 195 MW thermal power station (existing) and the 300 MW thermal power station (under construction)\. All the three power stations are located near the conference of Khandak-El-Sharky and Mahmoudia Canal\. Before commencing construction of the 300 MW thermal power plant, ENEL, Italy carried out a study (February 1988) on the hydrothermal impact on Mahmoudia and Khandak Channels due to the construction of 300 MW power plant at Damanhour\. The study found that adequate cooling water was available and the maximum canal temperature, due to operation of the 195 MW and 300 MW thermal plants, did not exeeed 37\.30 C\. The cooling water requirements for the 4b MW "add-on" steam turbine unit for the combined cycle represents only 10% of that needed by the two thermal plants\. A rough check by superimposing the cooling water requirement of 46 MW steam turbine on those of the two thermal plants indicate that there would be an additional temperature rise of 0\.70C due to the 46 MW steam turbine and the canal water temperature would not exceed 380C\. The consultant, ESB found that the cooling water system is designed to meet the standards of the Government (Law 48, 1982-Ministry of Irrigation)\. In general, the air and water pollution standards of the Government are much stricter than the Bank's\. 11\. The HRSG's would be of single pressure type and would be designed for quick starting of the combustion turbines\. The temperature of exhaust gases from the combustion turbine is 4900C at the exhaust gas flow rate of 120 kg/sec\. The exhaust gases from HRSG would be discharged to the atmosphere at about 170°C\. HRSG would produce steam at about 35 bars and 4500C; the expected steam flow being about 13 kg/sec\. 12\. Before commencement of construction work at Mahmaudia power station, it is essential that the existing natural gas pipeline is relocated and the gas compressors (not in use) removed since the high pressure gas supply is already available to the power station\. However, the gas supply at Damanhour power station is tapped after the reducing station located in the nearby thermal power station\. Therefore, to feed the combustion turbine at proper pressure, the gas has to be pushed through the gas compressors\. This results in high station auxiliary consumption of 2% at Damanhour compared to less than 1% at the Mahmoudia power station\. The high station auxiliary consumption could be avoided if a high pressure natural gas supply was tapped from the neighboring thermal power station\. EEA is aware of the problem and had  - - Annex 3\.1 Page 4 of 5 scheduled the activity of high pressure pipeline to be completed in 1987\. However, the activity should be completed before the project contractors start work at site\. D\. Components III\. Transmission Lines and Substations 13\. The following transmission lines and substations are included in the projt\.,t component: (a) Talkha - Mahalla - Tanta (60 km) (b) Tanta - Tahrir 1 (50 km) (c) Talkha - Zagzig (60 km) (d) Mahmoudia - Mahalla (50 km) (e) Tanta - E\. Baroud (50 km) (f) Tahrir I - E\. Baroud (15 km) (g) Damanhour - E\. Baroud (15 km) (h) Faraskur - Mahalla (80 km)"' 'i) Faraskur 220-kV/66-kV substation (2x125 MVA transformers) (j) El Boustan 220-kV/66-kV/ll-kV substation (2x125 MVA transformers) 14\. The transmission lines would assist in efficient transfer of generation from Damietta, Mahmoudia and Damanhour power stations to the load centers\. The 220-kV/66-kV Faraskur substation would improve the voltage condition of the 66-kV/1l-kV substations in the Damietta region\. The El Boustan 220-kv/66-kv substation is located in the land reclamation Boustan project area\. However, the nearest substations to the Boustan project area are Sadat and Tahrir I\. These two substances are fully loaded hence there is an urgent need for establishment of the EL Boustan substation with 2x125 MVA transformer capacity\. E\. Component IV\. Technical Assistance 15\. The component consists of the following: (a) preconstruction and construction phase engineering consultancy services for component I (Damietta); (b) preconstruction and construction phase engineering consultancy services for component II (Mahmoudia and Damanhour) and for component III (if required); (c) consultancy services, instruments, recorders and equipment required for implementing the recommendations of the load management and load research study (funded by the Bank under Ln/Cr 1733/935 and Ln 1886-1-EGT); 1/ Except for the Faraskur-Mahalla line (funded by IDB) other lines and substations are funded by the Bank\.  Annex 3\.1 - 58 - Page 5 of 5 (d) consultancy services, instruments and equipment for the tower testing facility being established in the EEA's high voltage testing laboratory in Cairo; (e) consultancy services for providing training for EEA's staff; (f) consultancy services and equipment for the Data Bank and MIS activities being funded by UNDP (EGY/81/037); and (g) conisultancy services, instruments and the equipment for the environmental protection activities being undertaken by EEA\. 16\. EEA had appointed OBI/EPS for the preconstruction phase consultancy services for Component I (Damietta)\. OBI/EPS services are being continued for the construction phase of the project component\. It is estimated that about 1200 expert man-months of OBI and 600 man-months of EPS would be required for both phases of the consultancy services\. In case of preconstruction phase and construction phase consultancy services for the component II, about 400 expert man-months of services would be required to complete the job\. As regards Component III, EEA does not expect any need for consultancy services\. However, about 25 expert man-months of consultancy services have been provided in the project for the component\. 17\. About 50 expert man-months of consultancy services are provided for implementation of the recommendation of the load management and load research study, and for tower testing facilities\. For training of EEA's staff, about 20 expert man-months of services are provided the balance being for overseas training expenditure for the EEA's staff\. For Data Bank and MIS system activities, only supplemental assistance of about 10 expert man-months of services is being provided since the ma ri funding for this activity is provided by UNDP\. In case of environmental protection activities of the committee being established by EEA, about 10 expert man-month of consulting services has been provided\. 18\. In addition to the consultancy services (para 17), about US$400,000 have been provided for the load research equipment such as load recorders, controllers, and computer hardware and software\. An equal amount is provided for the instruments and equipment required for the tower testing facilities\. For Data Bank and MIS activities, about US$400,000 have been provided for computer hardware and software requirements, for the environmental activities about US$400,000 have been provided for recording and measuring instruments, and equipment\.  FIlTH PM PR PIOECT MJECT COST Aso15 IN TISMS LE tsm /1 1990 1931 1li2 1993 199413 19988M-1995 LCd\. FKIEJN LOCAL FOREIGN 1DMA FUEIGN LOCMA FRIEHM W A1 FOREIGN 3\.0CM FOREIGN 10CM\. fIDEISH 10CM FIIIGN LOA FOREI6N TOtAL I\. (961577 dm1m0CY \.sitowek eu1 Pt1lqs 1\. Lewlirugand Piling 437 30360 1i65 42? 593 140? 0 0 0 0 0 0 0 0 0 0 683 16214 23049 2\. htiesand Tans 882 0\.376 0 12 0 0 0 0 0 0 0 0 C 0 0 3I78 0 131 3\. Sitntal 5259 1030 2241 427 713 140? 0 0 0 0 0 0 0 0 0 0 8213 16214 2442? 4\. physcl clnning,acl 0 0 336 664 14? 211 0 0 0 0 0 0 0 0 0 0 443 61 1318 S\.Ihtotal 525 10380 2MT 509 920 1618 0 0 0 0 0 0 0 0 0 0 ON5 37089 2574 6\. Price Contingenices 0 0 280 57 270 53 0 0 0 0 0 0 0 0 0 0 560 116 1665 T\. TotalA 525 10380 2961 56W 1090 2151 0 0 0 0 0 0 0 0 0 0 92116 J613527411 3\.civil Iab* 1\. civil Unw*s 0 0 6298 14074 13095 3844 6218 ~462 3049 7112 0 0 0 0 0 0 2965 6695 955W 2\. Otieeand Tome 0 0 124? 0 258 0 1243 0 606 0 0 0 0 0 0 0 5632 0 168 3\. ahtot\. 0 0 Ms3 1464 I56O 3044 7513 1462 365 7112 0 0 0 0 0 0 34332 6GM5 30135 4\. Phyuical Contiqmnces 0 0 113D 2201 234 4166 1121 2194 go6 36 0 0 0 0 0 0 535 Io02 15179 S\.6eMntal 0 0 8B6 1681 179? 3500 am3 16823 420 6179 0 0 0 0 0 0 3948 788 11635 S\. Price C\.nt1qumIes 0 0 915 1898 591? 11522 4671 909? 3138 6111 0 0 0 0 0 0 3410 2163 43330 \.Total I 0 0 9840 1IB7 23894 4652 33309 2592 7341 14290 0 0 0 0 0 0 54169 105512 159695 C\. Codwutloo Turblnee/GSiurtors 3\. 9tpl amd Ermction 1459 24609 6505 11056 070M 3220 0 0 0 0 0 0 0 0 0 0 23168 3386 417035 2\. Dti" emdlex\. 21087 0 8398 0 2994 0 0 0 0 0 0 0 0 0 0 03347 0 33919 3\.8dftnta1 3568 240061 1590 31056 506 3522 0 0 0 0 0 0 0 0 0 0 5664 3286 450514 4\. PlpiwCaldce icpce 0 0 1590 3305? 596 352 0 0 0 0 0 0 0 0 0 0 209 3619 1MM7 5\. S'htatl 35680 2408 17493 121623 657 3842 0 0 0 0 0 0 0 0 0 0 5873 40844 4619 6\. PriceContingencies 0 0 196 13683 183 1215 0 0 0 0 0 0 0 0 0 0 3801 26434 30235 7\.To0tai C 356680296816 19461 13530 7403 51493 0 0 0 0 0 0 0 0 0 0 62644 43963 497424 o0 0\.84NW Renvvp stu n Ouatar 1\. IStfly and Erakl 0 0 3644 13306 1996 36072 6871 553 1516 1227 0 0 0 0 0 0 32017 9729 10X930 2\. OtileandT M$a 0 0 1131 0 1356 0 4129 0 10oo 0 0 0 0 0 0 0 DM7 0 Om0 3\. 8'Mntu 0 0 277 13306 3352 38012 11600 563 2160 1221 0 0 0 0 0 0 2026 91292 11151 4\. Ptpi~mca Cowtlagucift 0 0 278 1331 3MS 30 116 0 5669 0 216 1226 0 0 0 0 0 0 202 9gm 31159 5\. 6,A4tul 0 0 305 1463 366 1179 1216 61199 2916 130 0 0 0 0 0 0 22336 107022 12933 6\. PriceContingencims 0 0 343 1647 1214 5019 690 33093 2104 10091 0 0 0 0 0 0 10561 SM 61211 7\. low10 0 0 3396 1629 4901 2391 3100 99292 43 2351 0 u0 0 0 0 3287 15161 1906Q /1Local and Foreign columns under 1988 indicate actual expenditure incurred during 1988\.  IN TUIOMI L\.E is\.e 1969 1592m 99 19ss j99t 1996 98 95 LOCl IEC 0U FOREIGN L OAcal\.4 FOEIN 11 FOREI GN L OLFlg )aL FOREIGN LOCal FOREIGN LOCA FORIGN LOCA FREIGN LOCAl FOREIGN TOTALj E\. Stabt Turbioes1lawators 1\. iwplyaad Erection 0 0 735 14113 993 15151 365 70417 82 16010 0 0 0 0 0 0 5209 119811 161 2\. buieumsod Tom 5 0 1205 0'1630 0 5so 0 1351 0 0 0 0 0 0 010T8M 0 10161 3\. sbtouta 0 0 V140 14173 2623 19181 9639 704 2190 16010 0 0 0 0 0 0 16392 119811 1IS20 l\. Piwu1 c1Cmtiagwxcae 0 0 194 1417 26 1515 964 704 21 1501 0 0 0 0 0 0 153 11991 1362 S\.Su4total ~ ~ ~~ ~~0 0 2134 15590 299 21089 10603 77492 2409 17611 0 0 0 0 0 0 19031 131792 14982 S\. Price CorAtfgmcjes 0 0 240 1154 960 6944 573 41903 1900 13158 0 0 0 0 0 0 972 63759 72482 T\. Total E 0 0 2314 1734A 383 2343 1633 11939 4298 30169 0 0 0 0 0 0 2754 19555 22m6 F\. Elstio-ndmcbacal Equpa1wu I & W Y and Erwtugu 0 0 0 0 1115 15269 1627 22479 1171 24531 709 919 0 0 0 0 529 7306 7935 2\.OuMine NWTame 0 0 0 0 1383 0 1911 0 2085 0 832 0 0 0 0 0 621 0 6211 3\. oubttl 0 0 0 0 2558 1626 3538 22419 386% 24531 1541 979 0 0 0 0 11494 73069 8456 4\. R"Lm Coutiqgacies0 0 0 0 256 1627 354 224 386 2453 154 979 0 0 0 0 1150 130? 8457 0% S\.Wabttal 0 0 0 0 2915 11895 3892 2472 4242 2698 1655 10171 0 0 0 0 12644 WM37 9302 6\. Price Contirqs inc 0 0 0 0 927 5S9 2105 13370 3169 20161 1535 9155 0 0 0 0 1136 49177 56913 1\. Total F 0 0 0 0 3142 23185 59 3909 7411 l?L4 372 20527 0 0 0 0 20380 129553 149933 C\. &ultW"ed 1\. Bp1y andErect1on 1791 34764 798 1541 255 4933 0 0 0 0 0 0 0 0 0 0 2944 55199 5903 2\. htls and Ton 2955 0 1311 0 419 0 0 0 0 0 0 0 0 0 0 0 4691 0 4691 3\.Subtotal 4746 34764 2115 15491 "'674 4993 0 0 0 0 0 0 0 0 0 0 7535 55199 5272 4\. Physical Cmotipcius 0 0 212 1549 67 493 0 0 0 0 0 0 0 0 0 0 279 2042 2321 5\. Subtotal 47~~~ ~~46 34764 2327 17040 741 5426 0 0 0 0 0 0 0 a0 0 7914 5723 55044 6\. Price otIgat iesi 0 0 26 1917 244 1786 0 0 0 0 0 0 0 0 0 0 506 370 4209 ?\. Total G ~ ~4746 34764 258 1895 985 7212 0 0 0 0 0 0 0 0 0 0 832 60933 5925 N\. Project Inwancrm 1AA vo1aCnlout\. I rrga0 651 0 1301 0 3080 0 480 0 2211 0 0 0 0 0 0 0 12797 12M9 2\. Price Contingencius 0 0 0 146 0 1253 0 2660 66 000 61 81 -5 3\. Total N 0 651 0 144? 0 5051 0 7426 0 3973 0 0 0 0 0 0 019458 16459t'LA TOTAL I (W+4D\.E+4FG ) 4568 2937 4032 213775 4585 18771 5530 296128 zM 11967 3230 2052 0 0 0 0 214275 112075 133502  £958 1989~ 1990 198 199 153 1994 1995 1U8-L995 LOAOS F0RE1N LOll F08EIGN LOINA FONELN LOGS F541UN L\." FWIG LOCAL\. F06E1 LOGOS FOR\.EI6N LOGS 31616N LOGOS FOREIGNI MTOL 11\. COO=919 TO =1010 MYCE MUDS1106 C1MUSTIOU TURBINES AT NA0 m505~e ens M $\. 1\. civIl verb 1\. civil1Iuk 0 0 0 0 1374 207 TM1 415 4W2 6M M7 7M1 137 554 0 0 1354 2015 360 2\. bAin ar lous 0 0 0 0 116 0 352 0 63 0 656 0 47 0 0 0 316 0 1754 3\. Mtotal 0 0 0 0 IS60 2073 406 4145 5353 626 3235 7712 1421 554 0 0 1IS2 20150 M37 4\. ftwvic csLmtwiqsu 0 0 0 0 233 311 M0 i2n 9 940 485 1357 213 83 0 0 234 3113 5469 S\. Mtotul 0 0 0 0 178 2394 467 476 IL56 720 312 M6 lo3 53? 0 0 179655 2333 3 828 S\. Price otluipsclos 0 0 0 0 W? 75 202 267 459 539 336 so3 to5 72 0 0 L2535 11503 3043 7\. loutl I 0 0 0 0 2370 3369 T19 7345 30755 1250 7089 16902 348 1369 0 0 3800 41366 7226 Ioc1\. Iastiae\.tetoa S Cantels 1\. Suply andErctlao 0 0 0 5013 954 378 232 1270 2410 2075 2410 32749 1012 723 0 130 953 6063 131M 2\. DM" and Tamu 0 0 45 0 322 0 LUs 0 176 0 L0OP 0 615 0 a6 0 5Si9 0 5649 3\. Matstal 0 0 42 65013 1216 378 3972 £2701 4172 20725 349 1274 162 123 160 lo4 5513 6608 7922 4\. P6*cal CeetrinpwAl 0 0 43 50I 129 37 W9 127 43? 201 349 121 11o M2 15 1 1 6608 192 S\. MitotsM 0 0 465 5514 1416 416 4359 121 499 2Y1 3843 146024 IM9 7?W 175 2030 154 70491 87142 6\. Puce Cmtwqmnce 0 0 53 no0 466 1370 23S2 36 3428 1703 381 1270 2031 902 205 281 1206 5119 632N ?\. Totat J 0 0 52 613 13 5532 573 23526 8018 3983 732 2672 3821 1657 421 494 28718 M257 1503 K\. $tmes TurbilmOsu/Sssrau 3\. sioLy ad SettIcs 0 0 0 0 819 332 221? 6266 2410 10869 2049 19521 619 1543 0 2892 8314 61431 6974 2\. DIU" asdTw4ae 0 0 0 0 495 0 533 0 924 0 11M 0 126 0 246 0 522 0 521 3\. k48totl 0 0 0 0 1315 583 275 6266 334 £086 3708 19521 2183 15051 246 232 1353 61431 1495 4, flyscol Ceatik4pscLe 0 0 0 0 132 US3 275 62 3M3 08? 371 1152 218 16M 25 2 IS6 6143 M49 5\.84W045 0 0 0 0 44?\. 6415 3025 - 326? £116 409 *21473 2401 17656 271 3181 1480 67M 8266 6\. Price Contingencies 0 0 0 0 416 2111 15S5 372 214 M4 3695 1341 2724 20029 377 4423 11548 5857 70320 T\. Total 0 0 0 0 1933 so2 466 10620 SW0 2085 ?77 4012 S15 M5 548 750 WA 1252 16270 L\. Electrical EApipa louLsalm sdut*terd Eatmaosi 1\.Spl y WAmiErctiua 0 0 0 0 0 0 603 Me 1M6 32 1S42 6746 1518 621 603 158 5074 203 570 2\. ht£e smilass 0 0 0 0 0 0 IN4 0 328 0 574 0 53 0160O 0 1756 0 1715 3\. Wota 0TV 0 0 0 6 1 2336 3966 2WL 674 2047 5218 T53 180 782 20630 28659 4\. "W" chlC ioetL sin 0 0 0 0 0 0 1? 193 214 396 212 615 205 622 r6 In8 M8 2064 286N W\.t\.te 0 0 0 0 0 0 644 2121 8350 424 223 743 225 6860 83 2068 61 2264 3330 6\. PMmc Cetageactee 0 0 0 0 0 0 4a 1147 1756 3159 21)9 SW2 32 71O lIS 281 9043 215 2371 7\. TotaL 0 0 0 0 0 0 130 8 $410 7411 441? 14146 480? 14600 200 4904 155 4436 6105 8\. prowec lrave\. 1\. atelLeCont\. Imwmce 0 0 0 161 0 33 0 976 0 51i 0 651 0 35 0 161 0 325 no0 2,Phim CcelOPcas 0 0 0 18 0 10? 0 63 0 4a5 0 we0 0 369 0 224 0 2322 22 3\. TOW I 0 0 0 179 0 432 0 150 I 11? 0 1243 0 694 0 33S 0 551 557 101L011 (1,J44L40 0 0 52 6313 6174 1761 990 ISO " 23M 81660 Om2 9953 3724 71314 391 178? 10212 33922 442035  IN TUMM LE 1988 1989 1990 1981 1292 1993 1994 1995 ISN- 195 LWA FOREIGN LWA FOKION LOtA FOREZOI LOM FOkEIGN LM FWZSN LXK FOREIGN LOCtU FORE16H LOM FNIGH LOCK FORIGN TOTAL - - - ----- - ------ N\. Tramission Lim M14 0 2892 MM IOIM 122013 1\. Supply and Erectitm 0 0 0 2169 Sal lm 11306 WA SM 16075 50 202" ZM 2\. Outtis atid Texas 0 0 104 0 1432 0 245 0 M 0 im 0 IM 0 246 0 smi 0 ami 3\. Subt" 0 0 184 2169 SW im 13M 200 7M 19M 70 2o244 M L1014 246 2692 38885 LOITIS 1400 4\. R"ical Coutiopwin 0 0 le 217 669 ISM 1373 2953 724 10 741 2024 me isof 25 269 20M 10177 140M S\. W" 0 0 202 226 7363 100 15106 31385 M IM 8150 =9 3721 1431S 271 not 49M 1119SB 154729 S\. Price Contiopwin 0 0 23 268 N23 $101 else 169?l SB47 1455 W 20169 4221 16M V? 4423 2ffAl TM IM ?\. Total N 0 0 225 2VA SM 24639 23274 WA 13907 3472 150 42437 7942 3054 640 TM T1314 j9W M296 0\. Substotiom W Civil goft 1\. FcoWdim I Buildiro 0 0 0 333 47S M 1422 1658 lies 2762 1183 30 470 1908 0 "I 47S tioso ism 2\. Duties ad TM= 0 0 29 0 66 0 141 0 235 0 m 0 169 0 37 0 M9 0 939 3\. Buwtel 0 0 28 0 541 ?74 ism lo 1421 2M 1446 3M 0 1986 3? 441 sm 11050 IFO 4\. Physical Contiremies 0 0 4 so of 116 234 249 213 414 217 4p S 298 6 S6 au 1657 25508 S\. Subtatal 0 0 32 0 0 0 lm LW 104 3176 lo 30 735 2286 43 SOT 6M 12707 L42M S\. PriOD COWSWift 0 0 4 43 20S 293 972 1031 ml 2373 IRS 3m 834 25M 60 705 4802 10261 ISM T\. Total W 0 0 2 43 OV 1183 2M 20 2OSS M 3169 FMI M9 4079 103 im II= 2290 34236 00 SdtclVard 1\. Bupply wA Erection 0 0 0 9se is 2m M 4849 316 m 316 9052 130 m 0 1294 1265 2M ZS 2\. win arA Tam 0 0 82 0 192 0 412 0 BIT 0 769 0 495 0 Ito 0 2741 0 2747 3\. Subtatal 0 0 82 969 317 m Im 4849 1003 8083 1025 9M 0 so tio 1294 4012 320 302 4\. P*t"I Winpocia 0 0 a 97 \.,22 229 79 4% to so 109 SOS 63 982 It 129 4a 36% S\. suttotal 0 0 so 10% 349 m 869 S334 1103 8891 1194 m see 602 121 1423 4414 3M MM 6\. Price Contiramies 0 0 10 120 is Big 470 204 824 043 1081 BUB m ?m 166 1979 306 20M 32174 ?\. Total (it) 0 0 100 1186 464 MOB 1339 8216 10 150 2M 10975 1468 1395 289 3402 M 920 72150 0\. low 0 CM0 0 0 LIS 16it 1291 091 4100 LIISB 4M 210 SW 2M 3W 18%4 M #614 19130 PM JOP46 P\. proir-t lowsm 651 0 034 0 217 0 217 0 0 0 Ulm tiM 1\. udnila inowm 0 0 0 217 0 434 0 2\. Prim t4atimpacies 0 0 0 24 0 142 0 3S2 0 324 0 Is? 0 246 0 0 0 M6 1286 3\. TOW P 0 0 0 bi 0 sn 0 lm 0 768 0 414 0 463 0 0 0 34ss 349 TOTAL fit (W) 0 0 XI 407 tiOn MM VW 605IS IMB9 90 nO SW 109B 4991 mo i2218 SW 2USS 2nlgB  IN THIYAK LE 193 1999 I990 1991 1952 1993 1994 199S 19811 55 LAL FIEI6N LlCAL FORE1GN LCAL fME16N LOCAL f16181 LOCAL fP0ICtN LOCRL FP0816A LOrAL FOREIGN LOCAL FORE16N LCAL fREIREW TOIAL Q\. t Eu (Ai\. I) (1) Pi onti Pbim 1\.C tamlta acvlc\. 506 1205 93 2410 0 0 0 0 0 0 0 0 0 0 0 0 149 3615 S109 2\. Prmce Cuetucit\. 0 0 1ll 271 0 0 0 0 0 0 0 0 0 0 0 0 111 271 392 3\. ToblW(V 506 12G5 1099 2681 0\. 0 0 0 0 0 0 0 0 0 0 0 1605 3886 5491 () C tnctiol Ph\.se 1\. Comatec 9mvinc 0 1205 1364 80Z9 2250 1089e 1827 10758 347 2244 0 0 0 0 0 0 5796 33133 38929 2\. Price Coatipmip 0 0 153 903 743 368 goo S1? 259 1677 0 0 0 0 0 0 2143 11984 14127 3\. Total (i) 0 1205 1517 8931 3001 14436 281S 16551 606 3921 0 0 0 0 0 0 7939 45117 5305 4\. T7t*ld aii) 506 2410 2616 11612 3001 14485 216 51575 606 3921 0 0 0 0 0 0 954 4400359541 A\. Coceantmtcy sravia (Co\. 11+111) (1) PRu cn w Pb\. 1\. Cnmalt\. Srvicus 0 0 128 8g4 128 8 0 0 0 0 0 0 0 0 0 0 256 1WsB 14s 2\. Pric Cminmpwlis 0 0 14 95 42 m 0 0 0 0 0 0 0 0 0 0 56 37 429 3\. Toabl ) 0 0 142 939 170 1122 0 0 0 0 0 0 0 0 0 0 312 2061 2373 (ii) Coutnrutio Phas 1\. Comlascy Iec 0 0 65 434 152 1012 325 2163 642 3615 607 4049 390 2603 0 7 57 2168 144 60 I629 2\. Prim Ca n *paiia 0 0 7 49 50 333 171 1173 406 2701 650 3267 442 2953 121 904 1751 11680 3I431 3\. Trbu Oi) 0 0 n 493 202 1345 501 3342 947 6316 1157 7T16 032 5556 208 1392 3919 26140 3co0s 4\. tatul R i4) 0 0 214 1422 m 246r 501 332 947 6318 1157 m6 832 5558 201 1382 4231 29201 32432 S\. Load lNap_ant I Tmr Testing Ui) CoGAtuy Svices 1\. Csuta acysrvicrs 0 0 24 241 48 492 9C 964 24 241 0 0 0 0 0 0 192 192B 2120 2\. Price CC otpwAie 0 0 3 27 16 159 52 21 1s 180 0 0 0 0 0 0 889 m 976 3\. Itl (1) 0 0 2? 29 2 , 64, 54 146 1495 42 421\. 0 0 0 0 0 0 281 2915 3096 (11) £9Apomt and 9otta 1\. swol adEr\.e*t 0 0 87 241 174 402 347 723 87 241 0 0 0 0 0 0 695 1687 2392 2\. etia ad Tl e 0 0 20 0 41 0 61 0 20 0 o 0 0 0 0 0 342 0 142 3\. UA*ttl 0 0 107 241 215 482 408 723 to0 241 0 0 0 0 0 0 37 1687 2524 4\. Pysicalaiqprgc1i 0 0 11 24 22 4e 41 72 It 24 0 0 0 0 0 0 95 169 253 5S\.thta 0 0 119 295 237 530 449 79 l19 265 0 0 0 0 0 0 922 15 2m > 6\. PicaC oneai 0 0 13 30 78 174 243 430 89 199 0 0 0 0 0 0 422 032 1S4 ° 7\. Total () 0 0 131 295 315 7T4 692 122s 26 463 0 0 0 0 0 0 1344 268? 4031 9\. ToW S WMi) 0 0 5 563 319 14S 84 mo 2 834 0 0 0 0 0 0 T\. Training 1\. Comulteuy9 m c a Truldol 0 0 0 0 0 482 0 9a0 0 462 0 241 0 0 0 0 0 2a3 213 2\.PrlceCeatlqAa 0 0 0 0 0 16 0 eS0 0 31t 0 219 0 0 0 0 0 1240 14 3\. T"t T 0 0 0 0 0 641 0 1433 0 6t2 0 459 0 0 0 O 0 3315 3375  i\. u9n ISO 199 ISS2 19is [is 1911-isf uLO FOION LWA FEUW ,I 9N L , FMAw L0CAL FOIUS L0cL fK10i L0L HE166 LOl FVMI0 LOtll F W A 1011 R 1N TOTAL R ~~~~~U\. beaW - ,GStirao c\. \. (~~~ ~~i) 0m14cp 3vu C 1\.oM1tmcyhrvicg 0 0 0 0 0 241 0 241 0 241 0 0 0 0 0 0 0 123 123 2\.him CwtiWwi\.S 0 0 0 0 0 o9 0 LID 0 10 0 0 0 0 0 0 0 3D 3D 3\. Totwl (M) 0 0 0 0 0 320 0 V1 0 421 0 0 0 0 0 0 0 1112 1112 (i)Eqatd VASe" 1\. &pyi tio 00 0 0 0 24 o 0 4 0 20 4 0 1 0 201 0 0 0 11 1 2\. Stit ad Tom 0 0 0 0 2e o u o el 0 20 0 0 O O 0 1t2 0 I t 3\. Mtow 0 0 0 0 20 241 41 42 41 42 20 24 20 241 0 0 342 18? 1B 4JbF*iu1Catiac1\. 0 0 0 0 2 24 4 4 2 24 2 24 0 0 14 1 102 5\. sd5 tol 0 0 0 0 22 ?65 S S3u 4S 530 22 265 22 265 0 0 ISS 1955 2011 S\. 6Pr1i wtiaC ivpw4 0 0 0 0 1 OT 24 281 34 35S 20 240 25 301 0 0 l1 1311 1421 7\. ToW (ii) 0 0 0 0 29 32 69 81? 9 o2n 42 SS 4? SC 0 0 266 2156 3e32 8\. TOWa U Wli) 0 0 0 0 29 612 6a I18 7t 13? 42 5SS 4? 56 0 0 255 41 44 TOTAL IQ ("+StT4ID 906 2410 21 1358? 3t81 15UO 4225 2524 1580 12310 1199 865e 8t9 £122 218 1312 15656 9G3So 1S025 TOTiL PBCT 8 46191 292 44198 238192 82 2?4148 106199 41SIS 131M8 21742e St20 1SM51 259G 1219? 4323 31471 423S1 1802 22553? V\.Bl2ow 3( 1 5 CISTIROllTIm0I 1\. ki* Fitmd 0 0 5124 68±? 135X 15170 0 4*mo 47110 2\. OUm 1247 800 3588 220S6 661 2147 111 4912 15251 161S5 1556 ES52Z 585 24023 299318 3\. 1T01L 31247 000 8308 223c 40211 11315 51A 1551 7513 156 OeM 0 0 0 0 SEXIS 288132 31028 TOTAL FIlIPlS "EQVII 4E438 304266 478S6 260238 1355 25019 19IS 4730M5 8898? 453 71155 202443 25099 1259? 4323 31477 482152 2120163 t6m3,s I\.o, x  FOM POO F "1CT A la1 98 1991 ISO198 1941 15 30M\. IMEiN L\.0M\. FIREIC 108 3\.C FEEI0N LOM\. FOKEIN LOOM FOEION LML FOUEN LOM\. FElTS LOM\. FIET LM\. FIRES lOMt 1\. OmIEa M M011 CYCII Si' I'- ut am Piling I\. Lealing ad Piliag 1816 420 774 1827 246 584g 628 9 2\.hDties AsdTaxces 366 0 1I6 a so 0 0 0 0 0 0 0 0 0 0 0 572 0 512 3\. Subttal 2182 430 MD0 M83 296 584 0 0 0 0 0 0 0 0 0 0 3408 61361013 4\.Php\.llcoatlngsaiea 0 0 140 216 44 0 0 0 0 0 a 0 0 0 0 3to 384l SIB S\. 9ubtotsl ~2182 4307 1070 2113 340 612 0 0 0 0 0 0 0 0 0 03592 708 10634 6\. Price C;oatimpacies 0 0 21 42 23 45 0 0 0 0 0 0 0 0 0 0 vi T\.TotAl A 2182 4307 1091 2355 363 ?1? 0 0 0 0 0 0 0 0 0 0 383 1119 10815 I\. civil Vogra15 214 82 1\. civil 8\.4\. 0 0 2609 6089 5413 12631 3301 60M 128 2341 IW V4 2\.htul Asa Tolma 0 0 no8 0 1074 0 516 8 53 0 0 0 0 0 0 0 2359 0 349 3\. "htota 0 0 3127 68 6S"1 32u3 3117 6070 151 2861 0 a 0 0 0 0 1424? 2771 4198 4\. tpicelCmtlapacl 0 0 469 913 913 31m 4161 911 92 443 0 0 0 0 0 0 233 4162 3 S\.SMtmota1 0 0 359 700 740 1462 355 60 174 338 0 0 0 0 0 0363431903482 S\. Price Ceatinpnci 0 0 11 1!9 502 978 421 619 234 5S4 0 0 0 0 9 0 i21 25 371 C\. I" 00 0 3861 7141 7962 19504 4008 780 2027 3968 0 0 0 0 0 0 I= 333 S 1\. 8aoppy and Etectiu\. s05 30293 2699 4581 85 14614 0 0 9513 163430 11304 2\. hutinad Tax" 815 0 390 0 1242\. 0 0 0 0 0 0 0 0 0 0 01380 0 3339 3\. Subtatal 180 10293 659 4581 2101 14614 0 0 0 0 0 a 0 0 0 0 340 11330 1893 4\.Ph" mCal Cuatlqsul, 0 0 660 4588 210 1461 0 0 0 0 0 0 0 0 0 0 80 60o 891 S\. Subtaal 180 10293 725950WA 2311 1601 0 0 0 0 0 0 0 0 0 0 2431536310919L4 6\. Primce nttLegnia 0 0 144 1003 156 1oo 0 0 0 0 a 0 0 0 0 0 300 208 33 7\. TtabIC 3480 302938 740 5146 2467 17157 0 0 0 0 0 0 0 0 0 024615735649ism 0\. Hoot AuMier stmom togators 1\. Iplymfad tsctls 0 0 682 5521 824 6669 2851 23065 629 SO 458 403M 452 3 2\. tes adlaTom 0 0 469 0 S6P 0 3352 0 438 0 0 0 0 0 0 0 *342 0 3431- 3\. 8d*du1 0 0 3351 5521 1181 666 4813 236 18 50 0 0 0 0 0 0 8617 40370 481? % 4\. Pt*jpcal Ceutioln1au 0 0 315 552 138 66? 461 2308 106 51 0 0 0 0 0 0 861 40 481 S\. Subtotul 0 0 12s 601 15O 73 52362533 11ie s6o 0 0 0 0 0 0 928444085566 6\. PrlcetCoatlupnclea 0 0 25 121 103 484 621 291 18 914 0 0 0 0 0 0 9M0 408 544 7\. low1I 0 0 1331 631 1633 71 MM5101 I58 6519 0 0 0 0 0 0 10198 48916 59114 /1 Local and Foreign columns under 1988 indicate actual expenditure incurred during 1968\.  1IS8 1989 1990 1953 1992 1953 1994 1955 108--1996 LOCAL FOREIGN LOCAL FOREION LOCKL FOREIGN LOCA FOREIGN LOCAL FOREIGN LOCKL FOREIGO LOCAL FOREIGN LoCa FOREIGN LOCAL FOREIGN TOTAL E\. Stem Tturbines/Cenertors 1\. Supply and Erectom 0 0 305 588 412 9569 Isis 2523 344 6643 2576 49714 5229 2\. Dtiesand Tmxes 0 0 500 0 6on 0 248 0 56s 0 0 0 0 0 0 0 4227 0 422? 3\. Subtotal 0 0 es 5881 1089 795 4000 25231 90m 6643 0 0 0 0 0 0 6803 49714 56517 4\. Physical Contlnomnies 0 0 81 58 109 798 400 292 91 684 0 0 0 0 0 0 681 4971 5652 S\.SUbtotal 0 0 986 6459 1199 81M 4000 32154 1IW0 1307 0 0 0 0 0 0 748 568 62169 6\. Pr1iceCont1n minje 0 0 18 125 8l 589 516 311 163 1192 0 0 0 0 0 0 77 5682 6460 7\. TotalIE 0 0 904 555 1239 5344 4916 35926 1163 8499 0 0 0 0 0 0 9262 6036 6862 F\. Electro-Ile nchan l Equipment 3\. Supply and ErectIon 0 0 0 0 489 6760 67 932? 735 10119 294 063 2192 30319 22511 2\. Outies a~dTom 0 0 0 0 574 0 15 0 865 0 345 0 0 0 0 0 2677 0 2577 3\.Subtotai 0 0 0 0 1062 6750 1468 532 1600 10179 639 406 0 0 0 0 4769 30215 3508 4\.ftyuIca1 Ccnt1ngemes 0 0 0 0 1os 675 04? 933 160 1018 64 406 0 0 0 0 477 303 3509 S\. Sihtet 0 0 0 0 1169 7426 16I5 10260 1760 11197 M0 4469 0 0 0 0 624833 51 3359 S\. PrlcCO n0tiA900cift 0 0 0 0 79 s00 389 1203 287 182 149 942 0 0 0 0 703 4471 6174 T\. TOtalF 0 0 0 0 1247 792 1804 11463 2047 13023 853 6411 0 0 0 0 5949 3182 43111 3\. Supply and Erection 743 14425 331 6428 106 2047 1180 2290 24080 2\. Otim and Tame 122 0 546 0 174 0 0 0 0 0 0 0 0 0 0 0 1946 0 1946 3\. Sbtatal 1955 34425 87n 6428 280 2047 0 0 0 0 0 0 0 0 0 0 31262290260S 4\. pt"ia1caConut"ngese 0 0 8s 643 28 206 0 0 0 0 0 0 0 0 0 0 116 949 584 S\.9 "total 1969 14426 966 7071 309 22S2 0 0 0 0 0 0 0 0 0 0 3242 23748 26990 6\. Price Catotlgeies 0 0 19 143 21 152 0 0 0 0 0 0 0 0 0 0 40 293 M33 7\.ITotal G 1969 14425 984 1212 329 240 0 0 0 0 0 0 0 0 0 0 3282 2404 2132 RI\. Project Insrance 1\. bbrullaConst\. Inuance 0 270 0 540 0 1580 0 200 0 920 0 0 0 0 0 0 0 5310 5310 2\. Price Contingencies 0 0 0 13 0 106 0 235 0 150 0 0 0 0 0 0 0 602 602 S\. TotaIl 0 270 0 551 0 1686 0 223 0 1070 0 0 0 0 0 0 0 5812 5812 MOAL I (848404OE+G\.CH) 199583121940153O0813201ISM06256611641 8579 6S96 3305 863 5411 0 0 0 073663500 4463158  LOCAL FOREIGN LOCAL TUIGI LOCA FREIGN LOCAL FOREIGN LOLa FW6u LOCAL FRECON LoCa F(3ION LOCA FINCON LOCAL FRECKON TOTAL WlSCo1IBSIta TUIDINES AT 1\. civil htc 0 0 0 0 50 50 1W0 I120 200 2640 107 3200 510 23 0 0 515 6010 143 2\. Dties Tavela 0 0 0 0 13 0 146 0 221 0 27 0 20 0 0 0 132 0 M3 3\. Sutotal 0 0 0 0 643 10 Isle 1?20 ml2 260 134 320 59D 230 0 0 so0 66101iW 4\.1 plchICoatubgbocla 0 0 0 0 16 129 263 a5 233 300 201 410 U9 2 0 0 5112 121 2264 S\.IqMobteI 0 0 0 12 13 1339 1116 214 290 1543 3630 619 as5 0 0 T4O 2602 11356 S\. Price C\.aiopxc1s 0 0 0 'so 67 22? 232 411 433 325 M7 ITT 61 0 0 1US 163 2623 ?\. Total I 0 0 0 0 199 1056 2166 2210 2911 3473 low 44M 656 334 0 0 g0 i1s53 20194 J\. Nest covery wtev cewamton ladl\. lnstruiAOm\.tt I Controls I\. &Iqzp SWam Eewtlo 0 0 0 2080 tOt i s151 120 521 1tw0 Om 10co 523 420 34000 0 M6 4020 25590 61 2\. btimuandlu To0 0 171 0 1332 0 443 0 731 0 450 0 231 0 a6 0 226 0 m 3\. Sutat I 0 8 11 2080 53 15T0 IN4 527 1131 0600 1450 5280 615 3400 66 M9 620 2050 3211 4\. Fh"1ce1Cst1iooes1e 0 0 to 203 53 15? 1t5 52? 113 a0 145 528 63 30 7 is 6 201 323 S\. Subtotal 0 0 116 2280 so 112 1013 511 1104 960 1596 5611 143 3300 73 aS 6M 29249 3159 6\. Price Cimtlngeocies 0 0 4 45 39 I16 23 680 311 1543 333 122? 11% a8 23 263 l12 138 5990I 1\. TOtal J 0 0 199 23M 52 1043 2066 641? 221S 11003 112 106 13? 4158 16 1125 602 3383? 4201S 4 K\.Stem Twrblumpo/uasao 1\. S1ty d Eret1g 0 0 0 0 3W4 2420 120 2600 100 4510 050 8100 3W0 606 0 120 36 50 1102 an66 2\. htla andToo"v 0 0 0 0 M0 0 221 0 36 0 US9 0 in 0 102 0 216 0 216? 3\. stt" 0 0 0 ~ ~~~~~~0 %64 31151 M 115 150 1931096 60 0 2 o? z 10 S\. sublotal ~~0 0 0 0 60 6 S 20 SI 10 1693 20 6 263 112 1O 357 2162 3218 S\. Prioce a vtlg ices 0 0 0 0 0 0? 141 133 18 2O7 04 I4n 2s3 739 10 426 1 204 23021 \.lowal 0K 0 0 0 0 38 241 140 813 113 2047 1170 3I21 11 97 45? 1125 432 1146 15012 Elects3m urial usp*lcld l\. Suppl 3eCbmt\.n n 0 0 0466 60 N 70 2M 0N 2100 0m 135 20 6M 0 134 l31 2\. OPimloda ftlrel 0 0 0 40 0 so 0 LIS 0 350 0 219 0 215M 21 3\. SubAIII 0 0 0 63 0 14 01 45 0 3oo 0y 32? 09 10 0 To 0? 1Om t554 TOTA 11sco (1*JEiDn 0 0 13 401 206 53 532 1331 19 t26o so1 25M 42S 17e7 00 ?01 374 120? 11203  1983 1989 1990 1993 IS92 1993 1994 1S 19 5 LOCAL FOlIlN LOCKL FOEGN LOtA FOREItN LOCA L FOUIN L[A MM LOA FEIII LA FIEG L0A F0WN 0k FI0 TOtf 111\. TLI SI1 E LIO & SWATION N\. Ttomisjo Lim 1\. Swply ad Erotion 0 0 0 900 2193 693 * 13 235 1500 2310 9600 %S s0 0 1200 1295 2232 54A 2\. l m ud toave 0 0 77 0 594 0 106 0 6 0 n14 0 45 0 l0t 0 3550 0 300 3\. Subttal 0 a 7? 900 2m 693 559 138 30 70 307 Bo00 104 o00 102 1200 SI65 42232 US 4\. Pbsiul Cotinpecies 0 0 8 so 2 59 57 I8 3 750 0 4 140 50 10 t20 1613 43 US 5\. Subttal 0 0 05 990 3055 1592 626 1303 3303 O0m 3331 20 1544 900 112 1320 17T 45 64203 6\. Pric Contagemcip 0 0 2 20 206 Si 735 1523i 535 1M36 n1 i0 402 14? 3S 412 2632 1319 95 7\. Total 4 0 0 1 1010 3263 0210 1003 1455 3342 9596 409 31316 396 7487 147 1732 20310 53774 74154 0\. Subotations (i) civil hike 1\. Fowstio I Buildiqp 0 0 0 136 17 321 590 6S8 492 1146 491 19 195 925 0 103 115 458 6550 2\. Duti ad Tam 0 0 12 0 27 0 U 0 97 0 10o 0 70 0 16 0 319 0 399 3\. Sitotal 0 0 12 133 224 321 6so 0 ss 1146 600 129a 265 82s 16 193 2354 49 669 4\. Pta1l Co*ia4pcies 0 0 2 21 34 4 9? 103 Us m 5) t93 0 l2 2 27 33 C tO4l S\. "Itotal 0 0 14 1S9 259 351 745 19 61? 1313 690 147 305 949 is 213 270? 5273 ?9a0 6\. Pric bowtlpacies 0 0 0 3 17 2 B7 33 110 21s 145 311 19 24? 6 I6 44 9S 14 T Total (1) 0 0 14 162 275 394 832 S8 73? 15 Ss 78 34 l1 24 276 3351 623 934 (ii) ltcjid 1\. Suply a Ereetloa 0 0 0 402 52 939 1S? 2012 133 3354 131 3756 54 2415 0 53 53 13135 3330 2 \.luties Sd TMe 0 0 34 0 Bo 0 I37 0 265 0 319 0 205 0 46 0 114 0 1140 3\. Sutotal 0 0 34 402 '132\. 939 328 2012 416 3354 450 3756 25; 2415 46 53t 1555 13415 1500 4\. P"iMcl Contiqgicn 0 0 3 40 1U S 33 201 42 335 4s 36 26 42 5 St 15 1342 tSG 5S Subtotal 0 0 3? 42 If5 1033 321 2213 458 33 45 41:32 25 257 S1 so1 1332 14757 59 6\. Pric Cmntineciws 0 0 I 9 t0 70 42 260 75 602 104 Pn 74 652 16 94 322 238 3010 \. Total (i) 0 0 33 451 ISS 1103 403 2473 533 4291 599 so03 359 3341 C? m 2154 17s I59 3\. Total 0 (ifii) 0 0 52 613 430 149? 1 33? 1320 so 1434 6s11 743 4545 91 1051 S3XS 2313 no9 a : I~~~~~~~P Projet I\. aae 1\. 3*rella l sec 0 0 0 90 0 10 0 270 0 1u0 0 90 0 90 0 0 0 69 900 2\. Price Contirgnciu 0 0 0 2 0 12 0 32 0 20 0 19 0 23 0 0 0 11m II? X 3\. WIobP 0 0 0 92 0 12 0 302 0 209 0 109 0 113 0 0 0 101? 101? r) TO?TA III (N'0O) 0 0 139 15I 3i91 so9 1233 381o S562 35629 5523 103 2610 12145 230 27S3 2565 78061 104154  IN T33008ND us8 1988 1999 3i90 1991 1892 1i93 1994 398-1995 LOCAL FOREIGN LOCAL\. FORE1GN LOCAL FOREIGN LOCAL\. FOREIGN LOCAL FOREIGN LOCAL FOREIGN LOLAL FOREIGN LOCAL FOREIGN LOCAL FOREIGN TOTAL IV\. IEICMIC AB8I6TAIE Q\.Coewtancy hrw'1cg (Cowp\. I) (1) Precootruction Phean 1\. Coouultancy8eevices 210 500 410 1000 0 0 0 0 0 0 0 0 0 0 0 0 620 1500 2120 2\. Price Cootiqenies 0 0 8 20 0 0 0 0 0 0 0 0 0 0 0 0 8 20 28 3\. TOWal( 210 s00 418 102 0 0 0 0 0 0 0 0 0 0 0 0 62 152 2148 * (ii)~0 Coctrucioc Pbes 1\. Couantaoy erwics 0 500 566 m33 931 1522 758 4464 144 931 0 0 0 0 0 0 240 33148 15153 2\.Price Cotiogsocls 0 0 11 66 63 304 es 524 23 152 0 0 0 0 0 0 196 1046 1232 3\. Total (it) 0 500 571 339? 1000 4826 8? 4998 167 1083 0 0 0 0 0 0 2691 14794 1736 *\. otui q(i+11) 210 1000 995 4411 1000 482 94? 4998 16T 103 0 0 0 0 0 0 321 16314 1Is3 R\. Coosutancy servcee (Camp\. 114111) (1 ptemonsruclo Pbea 1\. Comw1tarmy eruico\. 0 0 531 350 53 350 0 0 0 0 0 0 0 0 0 0 IDS 100 806 2\. Prime Loottlogencis 0 0 1 1 4 24 0 0 0 0 0 0 0 0 0 0 6 31 36 3\. TOtalI 0 0 54 35? 5? 314 0 0 0 0 0 0 0 0 0 0 III 131 842 * (Ii)~~0 Camtruction Phas 1\. Cons1tanyhryices 0 0 2? 180 63 420 135 900 225 1500 252 168 162 1080 36 240 900 600 680 2\. Price Coutingenies 0 0 1 4 4 28 16 186 37 245 53 354 42 231 11 15 164 1093 1251 3\. Total (if) 0 0 28 184 67 448 151 1006 262 1145 305 203 204 1361 41 315 1064 1083 8151 4\. total I(1+i1) 0 0 82 541 124 82 151 100 26 145 305 203 204 1361 47 315 1175 182 8999 8\. Lead Uanageusnt I Toaie Testing (1) Cowsultasy Ser$ice * ~~~~~~1\. Consutarscy Sevcu 0 0 L0 100 20 200 40 400 10 100 0 0 0 0 0 0 80 800 80 2\. Price Ccntingmnies 0 0 0 2 1 13 5 47 2 t6 0 0 0 0 0 0 a 78 88 3\.lotal(1 0 0 10 102 21 213 46 44? 12 116 0 0 0 0 0 0 89 87 96 (11 EgeIpount end Sofwae I \. 1\. Stpply van ErectIo 0 0 36 1oo 72 200 144 300 36 100 0 0 0 0 0 0 288 100 so8 2\. Dties id taxes 0 0 9 0 1? 0 26 0 9 0 0 0 0 0 0 0 B1 0 61 3\.Sehtotal 0 0 45 100 89 200 110 300 45 100 0 0 0 0 0 0 349 100 1049 4\. RPiy&la\. C0ooti 83uca 0 0 5 10 8 20 11 30 5 10 0 0 0 0 0 0 38 10 106 ~~~~i\.~ ~ ~ S Subetotal 0 0 s0 310 98 220 18? 330 50 110 0 0 0 0 0 0 385 770 1156 6\. Price Contngeocies 0 0 1 2 7 Is 22 39 8 l8 0 0 0 0 0 0 38 74 112 1 \.TOWal(11 0 0 51 112 106 236 209 36 so 128 0 0 0 0 0 0 423 844 1261 8\. TOW lS(W41) 0 0 61 214 126 448 24 836 10 244 0 0 0 0 0 0 513 112 2m 7\. twa1s1rg l\. Caasultancy 6ervicnasllralnfog 0 0 0 0 0 200 0 386 0 200 0 100 0 0 0 0 0 89s 886 Z\. rlce cotflngmoies 0 0 0 0 0 13 0 45 0 33 0 21 0 0 0 0 0 112 112 2\.roWI I 0 0 0 0 0 213 0 431 0 223 0 121 0 0 0 0 0 923 92  IN THNO UB0 198 1989 1990 191 192 1993 1994 195 138-1995 UMA FOREION 10A FOREIN LOCM FOREIN Mt FOREIGN LOCAL FEIN Mt FOEIN CM FOREIGN LOCIL FRIGN 1831 FOME TOTe U\. Data B , NIS a E,wiit\.I at\. (1) Coemty Swvice 1\. CcestwtwSevlcus 0 0 0 0 0 100 0 100 0 100 0 0 0 0 0 0 0 300 300 2\. Pricel tiutel 0 0 0 0 0 7 0 12 0 16 0 - 0 0 0 0 0 0 35 35 3\. Totul () 0 0 0 0 0 107 0 112 0 116 0 0 0 0 0 0 0 335 335 (it) EApnt aind 80ftwe 1\. &$ply ad Erlmttw 0 0 0 0 0 lot 0 200 0 200 0 100 0 100 0 0 0 700 700 2\. Dti\.sM d tOM 0 0 0 0 9 0 17 0 17 0 9 0 9 0 0 0 61 0 61 3\. S ttal 0 0 0 0 9 100 17 200 17 200 9 100 9 100 0 0 61 700 761 1 4\. pbhsical oisnpuc1 0 0 0 0 1 10 2 20 2 20 1 10 1 10 0 0 7 70 77 5\. N*Dtn1 0 0 0 0 10 110 19 220 19 220 10 110 10 110 0 0 68 770 838 6\. Pric aiatqiac 0 0 0 0 1 7 2 26 3 26 2 23 3 29 0 0 11 121 132 7\. Total (i0 0 0 0 0 11 117 21 206 22 2S6 12 133 13 139 0 0 79 at 970 B\. Tobl lI li 0 0 0 0 it 224 21 3568 22 372 12 133 13 139 0 0 79 1226 1305 TOTAL IQ (Qft6+T\.U) 210 1000 1139 s12 1291 6533 Im 7599 521 367? 317 2219 217 1500 47 315 4984 28091 330M8 TOtL FllO CtST 19166 I22900 16816 90609 22297 90883 3213? 12924 206 74977 13715 52133 7133 31119 985 7170 13260? 5875 72361 V\. INlTEEST OIUNC CIII"UORTON 1\. S finced 0 0 1563 3210 5s64 Om2 0 19119 19119 2\. Ot0r 51? 3319 1409 8958 2951 13261 4014 17960 5432 21611 6352 22705 203*9 914 108163 3\. TOTAt V St? 3319 1489 8958 2545 15224 4014 21170 5432 27075 632 31187 0 0 0 0 20319106933 127292 TOTAL FI!MNCIIS REUlED 19683 126259 1i305 995I6 24832 100107 36151 146094 25B00 102062 20067 83320 7133 31119 995 7170 152966 695687 908443 0 X M-h  - 71 Annex 3\.3 EGYPT FOURTH POWER PROJECT Loan Disbursement Schedule /1 (US$ Million) Bank Fiscal Year Quarterly Cumulative Disbursement Quarter Ending Disbursement Disbursement as b of Total FY 1990 September 30, 1989 0\.0 0\.0 0\.0 December 31, 1989 10\.0 10\.0 6\.1 March 31, 1990 0\.6 10\.6 6\.4 June 30, 1990 1\.2 11\.8 7\.2 FY 1991 September 30, 1990 1\.8 13\.6 8\.2 December 31, 1990 2\.5 16\.1 9\.8 March 31, 1991 3\.0 19\.1 11\.6 June 30, 1991 4\.3 23\.4 14\.2 FY 1992 September 10, 1991 7\.1 30\.5 18\.5 December il, 1991 10\.0 40\.5 24\.5 March 31, 1992 9\.0 49\.5 30\.0 June 30, 1992 10\.7 60\.2 36\.5 FY 1993 September 30, 1992 9\.9 70\.1 42\.5 December 31, 1992 10\.7 80\.8 49\.0 March 31, 1993 11\.6 92\.4 56\.0 June 30, 1993 10\.7 103\.1 62\.5 FY 1994 September 30, 1993 12\.4 115\.5 70\.0 December 31, 1993 11\.6 127\.1 77\.0 March 31, 1994 8\.2 135\.3 82\.0 June 30, 1994 8\.3 143\.6 87\.0 FY 1995 September 30, 1994 7\.4 151\.0 91\.5 December 31, 1994 6\.9 157\.9 95\.7 March 31, 1995 2\.1 160\.0 97\.0 June 30, 1995 1\.7 161\.7 98\.0 FY 1996 September 30, 1995 1\.6 163\.3 99\.0 December 31, 1995 1\.7 165\.0 100\.0 /1 Based on the disbursement profile for EMENA power sector and modified to take into account the establishment of the Special Fund\. C>\.-lf\. Cr-4;'U5_ -1-4-'4 \. \., S r ___j=_  g ~~~~u%SI' t EGYPT FOURTH POWER PROJECT Prolect Imolementation Schedule Year 89 1990 1991 1992 1993 _9_ 1995 Description Duarter I _ _ IV _ L IX _ I _ _ _ X _ _IV J _ _ _ lIZ I\. Damietta Combined Cvcel Plant 1\. Sitework and Piling---- 2\. Civil Works I -Open Bids ----- - Evaluate & Award Contract ------------- 3\. Combustion Turbines I I _ _ _ \.rect & Comuission ------ 4\. Heat Recovery Steam Generators i l ~~~~- Award Contract __ -CommissionI/ 5\. Steam Turbines/Generators j I | I | | -Award Contract i I I I I I - Supply and Erect | |---------------------- - Commission ------------- 6\. Electro-techanical II I | | ~~~~~- Openi Bids Douet-____----- | 1 ! | | |lll l - Evaluate & Award Contract I /-/ I H H ' - Fabricate\. Deliver s Erect - -------------------- --------- 7\. SwitchyardI - Coaniniss ion/ I!\. Conversion to Combined Cycle Existing Combustion Turbines at Mathmoudia & Damanhour Plants 1\. Civil Works - Revise Bid Documents _---------- - Review & Issue Bid Documents------- - Open, Evaluate 8 Award Contracts - Design, Fabricate & Erect /------------ -------- --- 2\. Heat Recovery Steam Generators I I I - Revise Bid Documents ----/ - Review & Issue Bid Documents - ------ -Open, Evaluate & Award Contracts - Supply and Erect I--------------- -------- - Commission --------------it \.  Year 18 ,9 9119 " 9419 Description Ouarter UI I IIII L IV I III IV L I I IIZ JY Il\.II I I IV\. I I IZII I III T IY 3\. Steam Turbines/Generators - Revise Bid Documents - Review & Issue Bid Documents ----------/ - Open, Evaluate 8 Award Contracts - Supply and Erect /----------------------------____-__-__-_-- / - -- Comnission ---------- 4\. Electrical Equipment including - Revise Bid Documents -_------ - Review & Issue Bid Documents ------------- - Open, Evaluate & Award Contracts /---/ I I I I - Supply and Erect /----------------- ------- --- I _ _ 1 - Comm,ission ----- ------- III\. Transmission Lnes 8 Substations I I I I I I I i l, Transmissison Lines | | | i | | | | | I t) Supply of Material II - Prepare Bid Documents ____-------- I -RQeview 8 Issue Bid Documents ------------I I z W | I g W Z0 - Open\. Evaluate & Award Contracts I … i /------I lI|lIllIll - Supply Material I I /-------------/ (ii) Erection (LCB) I I I I I I I J , -Prepare Bid Documents ------I I I I I I I I I - Review & Issue Bid Documents ---- - / -- I I |I | -Open\. Evaluate S Award Contracts | | | |/-- -Erection I /- ------------- ------- 2\. Substations I I | - Prepare Bid Documents / I - Review & Issue Bid Documents ----------------/ - Open, Evaluate & Award Contracts /----I I I I - Supply and Erect --------/------------------- I -Comission |-------/ IV\. Technical Assistance 1II 7\. Consultancy Services Comp\. I - Pre-Constr\. & Constr\. Phase -- - -/ I I 1 2\. Consultancy Services Comp\. II I I I I | (1) Pre-Constr\. Phase Services --------_-_---/-- (ii) Constr\. Phase Services - Short List Consultants -------- | - Invite Offers 8 Award Contracts | |/--- | I I I I I I | I I I I I I I 1 | I I 1 1 1 - Constr\. Phase Services /--------- 3\. Balance Technical Assistance C A 1 l iI1ItI I - Consultancy Services I ----------------------------------------------------/ I I I I 1 1 1 - Procure Instruments & Equipment [--------| I\.,  - 74 _ Annex 3\.5 Page 1 of 2 EGYPT FOURTH POWER PROJECT Project Monitoring Guidelines 1\. The monitoring guidelines given below indicate the broad requirements and supplement the Borrower's obligation according to the Loan and Project Agreements\. These requirements could be modified if circumstances so require\. General 2\. Records will be maintained giving planned and actual achievements, to be reviewed annually or at agreed intervals for the following: (a) installed and derated capacity in MW for each of the power stations and according to types (such as hydro, thermal, diesel, rombtistion tirbines); (b) energy capabilities in MW GWh/year by each power station; (c) maximtumi demand in MW and units g-ierated in GWh by each power station; (d) station use in GWh by each power station; (e) fuel consumed in mt/m3 by fuel type and type of units in each power station; (f) sales in GWh to consumers and number of consumers according to consumer categories; (g) transmission and distribution (line) losses; (h) planned and forced outages (by classification) in power stations and in transmission and distribution network; (i) monthly maximum demand in MW (gross) for the interconnected system; (j) quality of supply to the consumers (number of interruptions, duration classified according to causes and voltage conditions at the consumer end); (k) annual system load duration curve for the interconnected system; (1) plant and load factors and plant availability; (m) the results of the environmental monitoring of Damietta, Mahmoudia and Damanhour power stations (6 monthly report);  _ 75 _ Annex 3\.5 Page 2 of 2 (n) EEA's inv\.ctment plan and annual budget by activity in local and foreign costs\. Project Implementation 3\. Records will be maintained showing original schedule against actual achievements and supplied to the Bank at agreed intervals on the fo"'owing aspects: (a) procurement action by bid packages (bid specifications, bid invitation, opening of bids, bid evaluation, award of contract, signing of contract and contract price as amended from time to time); (b) physical progress according to project components and contracts (highlighting critical activities and bottlenecks); (c) actual project costs and expenditures (local and foreign) and estimated remaining expenditure (local and foreign) projected quarterly through project completion; (d) disbursement schedule (for the Bank loans and other loans); (te) information on problems encountered during implementation (including major mishaps) and expected impact on commissioning schedules; and (f) minutes of the meetings and progress reports of the consultants\.  - 76 - Annex 3\.6 Page 1 of 2 EGYPT FOURTH POWER PROJECT Environmenital Aspects Site AcceptabilitY 1\. The Damietta combined cycle power station (component I) site was found to be environmentally acceptable and no resettlement issues were involved\. As regards the Mahmoudia and Damanhour power stations (component II), the available land at the two power stations is adequate for installing the 'add-on' facilities for converting the existing open cycle industrial type combustion turbines into combined cycle\. The right of way for transmission lines and the land for the two substations (component III) is already available and no land acquisition issues are involved\. Egyptian Environmental Standards 2\. Egyptian air quality standards are much stricter than the World Bank's\. Egyptian standards will be used for completion of the final design of the project\. Air Pollution 3\. The Damietta, Mahmoudia and Damanhour power stations are to be primarily fired on gas, and only occasionally utilizing distillate fuel oil ("solar") with modest sulfur levels\. Stack heights will be determined for compliance of the emission standards\. 4\. A monitoring station and a meteorological tower (similar to those that exist at the Shoubrah-El-Kheima Power Plant) are included in the project\. An EEA employee will be given full-time responsibility to maintain these instruments and collect data\. Water Pollution 5\. For Damietta combined cycle power station, condenser cooling waters will be discharged into the Nile in accordance with the Egyptian temperature standards\. The manner in which cooling waters are returned to the Nile would be such that it will have a minimal influence on: (i) local aquatic ecology; and (ii) Damietta drinking water plant\. To meet these objectives, a limited ecological survey of the Nile in the vicinity of the proposed discharge is to be conducted by EEA through its local consultants\. All other wastewaters are to be treated to meet the appropriate Egyptian standards prior to discharge into drainage cana]\.s\. A secondary wastewater treatment plant will be installed for all domestic wastewaters\. An American Petroleum Institute (API) separator will be installed to treat oily wastewaters\. A small laboratory and sampling program will be established on-site for monitoring effluents and ensulring compliance with standards\. No cbromate chemicals will be used for biocides and/or corrosion inhibitors\. In the case of Mahmoudia and Damanhour  _ 77 - Annex 3\.6 Page 2 of 2 projects the condenser \.tling watetr woult le discharged into the canals in compliance with standards laid do%n hy "he Government\. For discharge of wastewaters measures similar to that tor DItmietta would be taken\. Health, Safety and Emergency Mana&emeut 6\. All facilities supported under the proposed project will adopt: (a) health and safety standards; and (b) a plan for emergency prevention, planning, and management acceptable to the Bank\. 7\. In compliance with the Bank's policy no polychlorinated biphenyls will be used in any facilities funded under the proposed project\. Institutional 8\. Operation of all environmental control systems and monitoring program at Damietta should be the responsibility of EEA\. Currently, the EEA environmental unit is located within the Studies and Research Group\. Their expertise lies wholly with air pollution\. Water pollution is handled by the Egyptian General Inspectorate for Control Laboratories\. Under the project, EEA has taken initiative to establish an Environmental Coordinating Committee to review all aspects of any environmental issues and advise EEA's management\. 9\. Staff fiom both the Studies and Research Group and the Control Laboratory would also possess necessary skills for maintenance and simple repair of environmental monitoring equipment through the proposed technical assistance program\. 10\. EEA has formed an Environmental Coordinating Committee to strengthen its environment capability\. The Committee will include representatives from the current environmental unit (only concerned with air pollution), the Central Laboratory (water pollution), and each Zone Office\. The Committee would ensure all company-related environmental activities are properly addressed, designed and executed\. 11\. To assist the Environmental Coordinating Committee in its activities the following instruments would be funded under the project component: meterorological tower; air quality monitoring station; software for mathematical modelling of stack height to meet the country's air quality standards; software for thermal plume modelling; and waste water package treatment plant and an API separator\.  Amnex 4\.1 - 78 - EGYPT Egyptian Electricity Authority Actual and Projected Inc\. Statenents (For Tears 1984185---1995/96) \. \. -- ---\.-------------- \. - ---------------------------------Actual ----- -----Projected --- ------------------~-- \. \. ~~~ ~~ 94/85 05186 86/87 97198 9/99 89 90 90191 91/92 92193 9314 94/95 95/96 (LE Millions unless othervise stated) Sales (61h) 26,1a9 28,655 31,215 33,422 36,264 39,933 41,597 44,541 47,253 50,076 53,142 56\.419 Sales Srowth i7) 6\.3? 9\.5S 8\.91 7\.11 8\.51 7\.1? 7\.11 7\.1? 6\.11 6\.01 6\.1? 6\.27 Ave\.Price N/hkh sold 10\.99 15\.37 16\.44 21\.99 23\.66 30\.85 40\.10 72\.16 74\.56 93\.66 113\.50 149\.08 operating Revenues Saln of Electricity 297\.71 440\.33 513\.29 734\.88 848\.71 1,197\.84 1,668\.05 3,213\.88 3,523\.04 4,689\.91 6,031 79 8,411\.11 Other Operating revenues 0\.38 0\.19 0\.21 0\.38 0\.44 0\.50 0\.58 0\.66 0\.76 0\.89 1\.01 1\.16 _ \. \. \. \._ … … \. \. _\. \._\.,,__\. Total operatini evenues 289\.09 440\.51 513\.49 735\.26 849\.15 1,198\.35 1,668\.63 3,214\.54 3,523\.81 4,690\.79 6,032\.80 8,412\.27 Oprating Expe\.s Fuel 89\.11 123\.4 147\.45 256\.09 m\.24 410\.09 619\.52 935\.52 1,399\.71 2,091\.95 3,130\.90 4,379\.24 nages I Salarin 38\.79 43\.77 48\.32 58\.06 69\.67 79\.00 88\.96 98\.75 109\.61 121\.67 135\.05 149\.91 Materials I S ercs 31\.23 37\.25 80\.59 62\.11 71\.43 82\.14 94\.46 108\.63 124\.93 143\.66 165\.21 I90\.00 Aduin\.Expenss 41\.99 49\.58 38\.19 43\.38 49\.89 57\.37 65\.98 75\.87 87\.25 100\.34 115\.39 132\.70 Depreciation 71\.15 126\.28 152\.75 133\.13 196\.83 226\.S0 292\.50 350\.57 430\.70 539\.03 668\.40 828\.92 _ \. \.…\. _\. _-\.--------,----,_,\._\. \. \. Total Owrating Expenses 272\.27 380\.36 467\.29 552\.77 673\.05 955\.58 1,151\.41 1,569\.34 2,156\.20 2,996\.66 4,214\.96 5,690\.68 Operating Inco"/Los) 15\.82 60\.15 46\.20 182\.49 176\.09 342\.77 517\.22 1,645\.20 1,367\.61 1,694\.13 1,817\.84 2,731\.59 Net Non Operating Inca\. 35\.73 18\.28 91\.05 I\.98 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Net Incoe /(Loss) Before Intertst 51\.55 78\.43 127\.25 184\.47 176\.09 342\.77 517\.22 1,645\.20 1\.367\.61 1,694\.13 1,817\.84 2,731\.59 Gross Interet 68\.35 116\.86 149\.74 247\.01 331\.90 403\.95 562\.58 675\.25 728\.82 799\.98 918\.95 1,077\.93 Less lOt 26\.91 46\.46 34\.54 '6\.02 104\.07 208\.59 295\.65 198\.78 258\.87 212\.79 353\.28 401\.41 Interet Expens 41\.54 70\.40 114\.20 171\.06 227\.94 195\.37 266\.93 476\.47 469\.94 507\.19 565\.66 676\.51 Net Incoe /ILoss) 10\.01 9\.03 13\.05 13\.41 (51\.74) 147\.40 250\.28 1,168\.72 897\.67 1\.106\.94 1,252\.19 2\.055\.08 Net Internal Cash 6eneration (25\.291 (92\.60) (139\.62) 641\.18 (1,837\.39)S 88\.13 414\.39 589\.70 820\.33 1,140\.64 1,689\.3) 2\.095\.29 Average Construction Exp 718\.56 682\.44 1,496\.84 1,720\.51 2,500\.84 2,798\.32 2,989\.46 2,949\.49 2,734\.43 3,234\.77 4,950\.87 6,004\.86 Self-financing LevelMl -4? -14? -9 37 -73S 31 14? ,07 30? 357 35? 35? \._\._\. - \. \. - _ - _ - - - \. \. \. _ - ------------- - ----- - - - _ - --------\.- I Includes about LE 1\.499 sillion of local currncy loans which ire expecyed to he convetrtd into equity as of June 30, 1989\.Excluding this amunt the self financing ratio would he negative 14?\.  Annex 4\.2 - 79 - E6 iPT Egyptial Electricitv Authority Actual and Projected Balance Sheets (For fears 1984/85---1995i961 -------------------- --- ------------------------------------------- -Actual ---------- Projected -------------------------------------------------------------------- 84/85 85/86 86/87 87/89 DO889 89/90 90/91 91/92 92/93 93/94 94/95 95/96 ILE Millions unless otherwise stated) Fixed Assets 1,731\.06 2,600\.62 3,081\.99 5,634\.222 6,617\.11 8,261\.73 10,262\.54 1I,725\.55 15,779\.68 19,5t6\.81 24,262\.84 30,0857\.2 Accut\.Depr\. 366\.43 481\.15 629\.79 746\.60 933\.43 1\.160\.34 1\.442\.83 1,793\.40 2\.228\.10 2,767\.14 3,435\.54 4,264\.36 - ------- -------- ---- \. \. \. \. \. \. \. _\. \. \. \. Not Fixed Assets 1,364\.63 2\.119\.47 2\.452\.2\.0 4\.887\.62 5,683\.68 7,101\.39 8,819\.71 10,932\.15 13,551\.58 16\.799\.67 20,827\.30 25,821\.56 Yotk in pogress 1,i03\.65 1,037\.d3 1,054\.69 1,^0\.99 2,182\.87 3,377\.47 5,427\.67 5\.042\.81 4,705\.00 4,326\.65 5,066\.63 5,379\.43 \. \. -------- \. ----- ----- \. \.---\.-\.- \. \. \. \._\. Total Fixed Assets 2,468\.28 3,157\.30 3,506\.89 6,548\.61 7,866\.55 10,479\.87 14,247\.34 15,974\.96 18,256\.57 21,126\.32 25,893\.93 31,201\.00 Investaents 53\.47 53\.47 53\.47 56\.47 e6\.47 56\.47 56\.47 56\.47 56\.47 56\.47 56\.47 56\.47 Long -Tare Loans 36\.58 39\.15 36\.15 105\.75 105\.15 105\.75 105\.75 105\.75 105\.75 105\.75 105\.75 105\.75 \.---- ----- \. \. ----- \. \. _\. --- -- ----- --- -- ----- ------- ------- -- -- Total Long -Tern Assets 2,558\.33 3,249\.92 3,596\.51 6,71O\.87 8\.028\.77 10,641\.09 14,409\.So 16,137\.18 18,418\.79 21,288\.54 26,056\.15 31,363\.22 aUZZ2\.4 nss: s \.n88t t\.ntnng sz:\.s\.nn4 \.n2*9*898 \.*nft Xssss8333 : SS*S:S gauS\.* SSh *SSZ# SS Sfhlfh SZ 383284 Current Assets Cash 55\.17 150\.45 165\.2d 134\.87 155\.10 178\.37 205\.12 235\.89 271\.27 311\.96 358\.76 412\.57 Accs\.Rteuivable 69\.04 131\.73 191\.47 d05\.0: 339\.48 419\.25 500\.41 803\.47 dN0\.76 1,172\.48 1,507\.95 2,102\.78 Other Acc\.Rectivable 68\.06 121\.02 210\.11 204\.42 *55\.53 319\.41 3"\.26 499\.07 623\.84 779\.80 974\.75 1,218\.44 Inventorie 132\.41 158\.03 197\.03 242\.14 262\.73 281\.34 301\.37 322\.69 742\.34 362\.79 285\.01 40\.75 324\.68 56i\.43 763\.89 886\.45 1,012\.84 1,198\.36 1,406\.16 1,861\.12 2,\.18\.21 2,627\.03 3,226\.46 4,142\.54 Current Liabilities Accounts Pavable 13\.33 20\.30 18\.09 23\.56 82\.93 122\.08 180\.60 258\.06 ;59\.39 500\.71 703\.21 943\.38 Othter Accounts Payable 82\.91 133\.24 147\.80 604\.31 560\.28 657\.66 938\.83 657\.79 614\.36 799\.00 1,270\.68 1,433\.62 Accruals 5\.05 25\.40 22\.80 79\.74 9\.56 10\.92 12\.40 13\.97 15\.75 17\.76 20\.04 22\.61 Custoser Deposits 24\.12 23\.95 20\.75 25\.16 29\.55 36\.89 45\.83 56\.83 70\.47 87\.38 108\.35 134\.35 IIin\.of Finance 183\.36 280\.55 339\.88 590\.13 590\.13 590\.13 590\.13 590\.13 590\.13 590\.13 590\.13 590\.13 30\.77 483\.44 549\.32 1,322\.90 1,272\.45 1,418\.48 1,767\.79 1\.7S\.78 1,650\.09 1,994\.X' 2\.692\.40 3,124\.09 iet Current Asuts 15\.91 77\.99 214\.57 1436\.45) (259\.61) 1220\.12) (361\.631 284\.35 468\.12 632\.06 534\.06 t,018\.45 Total Assets 2,574\.24 3,327\.91 3,811\.08 6,274\.38 7,769\.16 10,420\.97 14,047\.94 16,421\.52 18,886\.91 21,920\.60 26,590\.21 -2,381\.66 :ass-SUS Xasusawtu #gasuzzaa 8 StS t*tX S :S t Financed as Followts Capital 651\.03 650\.98 650\.98 650\.98 2,140\.42 2,140\.42 2,140\.42 2,140\.42 2,140\.42 2,140\.42 2,140\.42 2,140\.42 Reserves 212\.87 271\.56 401\.70 409\.71 467\.07 532\.46 607\.00 691\.98 788\.86 899\.30 1,025\.20 1,168\.73 Provisions 3\.65 4\.40 4\.05 3\.30 3\.30 3\.30 3\.30 3\.30 3\.30 3\.30 3\.30 3\.30 Profit KLoss 27\.61 35\.65 48\.71 62\.13 10\.39 157\.79 408\.08 1,576\.80 2,474\.47 3,581\.42 4,833\.60 6,88\.68 895,16 962\.59 1,105\.44 1,126\.12 2,621\.18 2,833\.97 3,158\.80 4,412\.51 5,407\.05 6,624\.4 8,002\.52 10,201\.13 Loans Foreign 1,072\.4 1,456\.80 1,574\.06 3,606\.73 4,955\.26 7,166\.01 10,238\.28 11,254\.71 12,591\.46 14,241\.1' 17,319\.19 20,837\.29 Local 606\.64 908\.52 1,131\.58 1,541\.53 192\.73 420\.99 650\.86 754\.32 888\.41 1,055\.00 1,268\.51 1,343\.25 \.- -----\. ---- -\. _\. --- - -\. ------ \. _ - _ _ _ \. ---- ---- ---- Suotatl 1,677\.08 2,365\.32 2,705\.64 5,148\.26 5,147\.99 7,587\.00 10,889\.14 12,009\.03 13,479\.87 15,296\.17 18,587\.70 22,180\.54 Total Financing 2,574\.24 3,327\.91 3,811\.08 6,274\.38 7,769\.17 10,420\.98 14,0"\.95 16,421\.53 18,886\.92 21,920\.61 26,590\.22 32,381\.67 *nflns *8tflflSnzs l tSZ$SAS SfSl8 ZflDShZf:lSt f*SDSSfSlSSS fl3WS**t SfUS * s 0 SZSXS I\.Debt/Equity 651 712 71 82? 662 732 782 73 71t 707\. 70t 682 2\.Current Ratio 1\.05 1\.16 1\.39 0\.67 0\.80 0\.84 0\.80 1\.18 1\.28 1\.32 1\.20 1\.33 3,Total ssets say not exactly satch Total Financing due to rounding off difference  - 80- ESIPt fURTH POER PROJECT \.,\._\._\._\. Egyptian Electritity Authority _\._\. Atual and Projectd Statonots of Sources and Aoplication of Funhd (For fears l984/ -l8*995/961 ------------------------------------------ *------------ ktual -----Pr-- ojected \. 841a5 85186 86187 871,8 88189 89/90 90/91 91192 92193 93/94 94/95 95196 (LE Nillion unless otherwiu stattd) Internal Sources Not Incoot Before Interest 51\.54 78\.44 127\.25 184\.48 176\.09 342\.77 511\.22 1,645\.20 1,367\.61 1,694\.13 1,817\.84 2,731\.59 Otporataion 66\.50 115\.72 149\.81 117\.86 186\.83 226\.iO 282\.50 350\.57 434\.70 539\.03 668\.40 828\.82 Gross Internal Cih Generation 118\.04 194\.16 277\.06 302\.34 362\.9n 569\.67 79\.71 1,915\.77 1,802\.31 2,233\.17 2,486\.24 3,560\.41 Increaso/lOecrsml mf horking Capital 34\.82 61\.07 136\.59 1651\.02? 176\.84 39\.49 (141\.51\ 645\.97 13\.77 163\.94 (98\.00? 484\.38 83\.22 133\.09 140\.47 953\.36 IB6\.09 530\.18 941\.22 1349\.79 1618\.54 2069\.22 2514\.24 3076\.03 Debt Sarvice: ortilation 66\.97 155\.29 165\.89 141\.12 1\.795\.64 A 246\.69 259\.90 283\.62 328\.27 341\.39 330\.27 304\.22 Interest 41\.54 70\.40 114\.20 171\.06 227\.84 195\.37 266\.93 476\.47 4t9\.94 587\.19 565\.66 676\.51 __\._ - - _\. -- - \.--\.--\. \. \.- _- Total Debt Service 108\.51 225\.69 280\.09 312\.18 2,023\.49 442\.06 526\.63 760\.09 799\.21 928\.58 895\.93 90\.074 Not Intrnal Cash maration (25\.29? (92\.60) (139\.62) 641\.18 (1,8379? 88\.13 414\.39 58S\.70 820\.33 1,140\.64 1,88\.31 2,095\.29 External Sources \. \. \. ;rants 22\.14 57\.69 128\.98 6\.97 57\.36 65\.39 74\.54 84\.98 96\.88 110\.44 125\.90 143\.53 Equity 0\.00 0\.06 0\.00 0\.00 1,489\.44 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Provisions 0\.42 (0\.271 (0\.35? (0\.75) 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Project Lans tl 0\.00 000 0\.00 0\.00 0\.00 12\.12 34\.54 80\.60 146\.05 175\.75 126\.05 30\.91 African Inv\. Eank 0\.00 0\.00 0\.00 249\.14 58\.83 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Arab FunA 0\.00 0\.00 0\.00 0\.00 29\.87 85\.67 227\.75 43\.65 0\.00 0\.00 0\.00 0\.00 European ln'vstont hant 0\.00 0\.00 0\.00 0\.00 0\.00 82\.39 4\.71 0\.00 0\.00 0\.0 0\.00 0\.00 Other Borrowings 70\.51 841\.54 506\.21 2,334\.1 1,706\.66 2,505\.53 3,205\.03 1,279\.26 1,653\.06 1,981\.95 3,495\.74 3,866\.16 total Borrowings 730\.51 841\.54 506\.21 2,583\.73 1,795\.36 2,685\.70 3,562\.04 1,403\.50 1,799\.12 2,157\.70 3,621 0 3\.897\.07 Total Sourcets 727\.79 806\.42 49\.22 3,231\.13 1,504\.77 2,839\.22 4,050\.97 2,078\.18 2,716\.32 3,408\.78 5,436\.01 6\.135\.89 \.SSfl*82 3968898 hussaS*f *8823a *W\.smnXh n\.nnss* X8mas* nsamsss SnttflSi sasssas *:SSS S\.X\.vs Application of Funds Construction Exptnditure for Project 0\.00 0\.00 0\.00 351\.73 308\.16 369\.59 591\.28 436\.55 354\.12 156\.10 55\.80 0\.00 Other Projects 745\.36 ao3\.15 498\.22 2,806\.81 1,196\.60 2,470\.t3 3,459\.70 1,641\.64 2,362\.20 3,252\.6N 5,400\.21 6,135\.89 Total Construction Expenditures 745\.36 803\.75 498\.22 3,158\.54 1,504\.77 2\.839\.22 4,050\.97 2,078\.18 2,716\.32 3,408\.78 5,436\.01 6,135\.89 txcreat\(DecreaW tin Other Assets (17\.58) 2\.67 (3\.001 72\.59 0,00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Total Apolications 727\.8 06,42 495\.22 3,231\.13 1,504\.77 2,939\.22 4,050\.97 2,078\.18 2,716\.32 3,408\.78 5,436\.01 c\.135\.89 *_*a, gas\.sm a,a53S*SSSS** ass\.,? S?a,0"J###*$#S aSS\. Wz,,??S l\.kebt Service CoveragetRatio 0\.77 0\.59 0\.50 3\.05 0\.09 1\.20 1\.79 1\.78 2\.03 2\.23 2\.88 314 2\.0 Includos about LE 1\.489 sillion of local currency loans which are xpwted to be convtrted into equity as of Jue 30, 1989\. Thte se aount is shn as an equity source of funds in FY8\.  Aim"B 4\.4 - 81 - FOIITN P'OtE PlJCt Electricit Distribution Cosp an \. \. \. \._ \._ ktIal and Pro)Ktd Incoms Statentb (For years 196418--1990196) \.___\._--_\._-------\. - - -- - ------kt - - --Pr\.j\.t 84/85 65194 8687 87/S 88/89 89/90 90/91 91/92 92/93 9314 94/95 9n196 (LE Nillioas unlss otlerua stated) Sale l t;li 17,382 19,305 21,091 22,447 23,912 25,36 27,942 30\.269 32,329 34,593 37\.045 39,710 Sales Grouth 17) 9\.52 11\.1? 9\.3t \.41 4\.52 8\.0S 8\.21 8\.32 6\.92 7\.01 7\.it 7\.22 Ave\.Prite N/ttb sold 20\.25 26\.79 28\.07 36\.97 39\.32 51\.12 66\.46 119\.54 123\.50 155\.12 186\.00 246\.85 OpOWItAg ReVemues Sales of Electricity 352\.02 517\.15 608\.81 829\.86 940\.32 1,320\.77 19,8\.97 3,618\.87 3,992\.66 5,365\.96 6,964\.52 9,602\.28 Other Operating reuvm 94\.89 126\.03 162\.50 175\.79 202\.16 232\.48 267\.35 307\.44 353\.50 4064\.1 447\.60 537\.75 Total Operating rengetn 446\.91 643\.16 771\.31 1,005\.65 1,142\.48 1,553\.25 2,124\.32 3,924\.33 4,346\.24 S,772\.S 7,432\.12 10,340\.02 Oprating Expes\., \. Purchsed Energy 238\.48 310\.63 428\.16 606\.26 693\.90 974\.64 1,370\.33 2,670\.50 2,946\.34 959\.75 5,139\.39 12,33\.46 VW I Salaries 75\.86 96\.03 102\.34 127\.23 152\.68 173\.29 1"\.95 216\.39 240\.20 266\.62 295\.95 318\.50 Plateials I Services 63\.11 99\.89 127\.37 152\.03 205\.24 250\.39 300\.47 351\.55 411\.32 481\.24 563\.05 658\.77 Adsin\.E nuses 26\.54 10\.65 21\.17 25\.72 34\.72 42\.36 5\.8 59\.47 69\.59 81\.41 95\.26 111\.45 Dpreciation 20\.05 25\.74 33\.83 47\.29 S3 19 34\.24 3/\.34 tt\.89 44\.80 49\.19 54\.21 S9\.83 Total Operating Expeses 424\.04 602\.94 712\.97 958\.52 1,117\.83 1,474\.92 1,953\.92 3\.5S\.82 3,712\.23 4\.ltS\.21 4,147\.85 8,392\.03 Operating lncoelLoss) 22\.87 40\.24 58\.44 47\.13 24\.65 78\.32 170\.t0 87\.51 634\.00 934\.37 1,284\.27 1,947\.99 Net on Operating Incom (5\.971 (16\.611 (20\.141 (24\.431 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Net Income /(Eoss) Before Interest 16\.90 23\.63 30\.30 22\.70 24\.65 78\.32 170\.0 587\.51 644\.00 934\.37 1\.284\.27 1\.947\.99 Broat Interest 8\.85 10\.15 12\.39 14\.33 15\.05 17\.48 20\.64 24\.44 29\.75 33\.44 38\.55 47\.09 Less IC 1\.23 1\.47 0\.00 0\.10 5\.02 6\.16 7\.14 9\.10 9\.9S 11\.17 12\.52 14\.02 Interest Exponse 7\.62 8\.6t 12\.39 14\.23 10\.03 11\.32 13\.50 16\.34 18\.77 22\.27 26\.04 33\.07 Net into" lMoss) 9\.28 14\.95 17\.91 9\.47 14\.6? 67\.00 156\.91 571\.17 615\.23 917\.10 1,258\.24 1,914\.92 Not Internal Ca I SenOration 194\.32 93\.10 137\.07 226\.67 33\.58 41\.03 48\.07 54\.50 75\.73 84\.72 94\.79 39\.9B Average Construction ELp 115\.15 149\.89 132\.24 217\.97 60\.70 99\.47 116\.18 134\.90 158\.79 178\.52 199\.95 216\.04 Self4inancing Levell 1692 621 1042 1042 552 411 412 401 4* 47t 472 18t  - 82- Ahmuxo 4\.5 EGYPT FOURTH POKER PROJECT ElectriCitY DiStrIbution CONPanies \.ktual and Projected Walnce Sheets (For ,ears 1984/05--1995/961 - ------ - ------- --- - - ctual -*-----Poetd ------ -- -- - - - -- -- ----------------------\. 84/85 85184 86187 87/88 88489 69/90 90i91 91192 92193 93:94 9419S 95/96 iLE Hilllimn uLesm othervise statedi Fixd kAsets 452\.93 544\.73 708\.78 976\.48 11475\.60 1,169\.59 1,278\.89 1,402\.65 1,534\.84 1,690\.48 1,864\.50 2,059\.10 kcuo\.Oepr\. 97\.97 129\.94 113\.14 240\.69 271\.9 306\.22 343\.56 384\.44 429\.25 478\.44 532\.65 592\.49 Net Fixed Assets 354\.96 416\.79 535\.4o4 735\.79 803\.62 863\.37 935\.33 1,018\.19 1,105\.59 1,212\.04 1,331\.85 1,466\.61 Mark int proaress 63\.64 77\.69 66\.25 77\.86 40\.51 66\.84 73\.85 61\. 98 112\.29 138\.64 168\.45 202\.14 Total Fixed Assets 418\.60 494\.48 601\.89 813\.65 864\.12 930\.21 1,009\.17 1,100\.18 1,217\.8? 1,350\.68 1,500\.29 1,668\.75 Investeents 1\.14 I\.o2 21\.09 15\.29 15\.29 15\.219 15\.29 15\.29 15\.29 15\.29 15\.29 15\.29 Total Long -Tore Assts 419\.74 496\.10 60M\.0 828\.94 879\.41 945\.50 1,024\.46 1,115\.47 1,233\.16 1,365\.97 1,515\.58 1,684\.04 Current Assets Cush 40\.81 56,16 35\.85 58\.84 1137\.27) (110\.691 (11\.78) 681\.39 1,267\.12 2,131\.20 3,33\.74 5,244\.04 kccs\.Rectivahle 170\.30 251\.36 348\.90 479\.80 310\.31 435\.85 612\.00 904\.72 998\.17 1,341\.49 1,741\.13 2,450\.57 Other Acc\.Rectivible 39\.03 56\.75 72\.93 83\.3 30\.32 34\.87 40\.10 46\.1: 53\.04 60\.99 70\.14 80\.66 Inventories 91\.67 126\.82 161\.50 210\.01 231\.33 251\.54 275\.05 301\.67 330\.10 363\.57 401\.00 442\.85 341\.81 491\.09 611\.18 832\.37 434\.68 611\.58 916\.17 1,933\.89 2,648\.42 3,897\.33 5,546\.01 8,218\.12 Current Liabilities Accouts Payable 72\.40 131\.06 166\.22 270\.54 318\.03 445\.79 616\.40 1,088 93 1,228\.11 1,619\.09 2,072\.79 2,837\.28 Other Accounts Payable 127\.83 192\.23 277\.48 448\.56 38\.37 47\.06 54\.58 61\.90 76\.26 85\.41 95\.66 107\.14 Accruals 12\.68 74\.33 18\.78 35\.49 9\.37 10\.78 12\.29 13\.79 15\.49 17\.40 19\.56 22\.00 Otoor Liabilities 304\.85 300\.74 401\.74 501\.74 501\.73 501\.73 501\.73 501\.73 501\.73 501\.73 501\.73 501\.73 513\.76 698\.36 864\.22 1,256\.33 867\.51 1,005\.39 1,185\.01 1,666\.36 1,821\.59 2,223\.6 2,689\.74 3,468\.14 Met Current kssts i171\.95l (207\.27) (25\.04) (423\.96) (432\.82) (393\.81) (268\.84) 267\.54 826\.83 1,673\.71 2,\.836\.27 4,749\.98 Total Assets 247\.79 288\.83 350\.94 404\.99 444\.59 551\.69 755\.63 1,383\.04 21,059\.99 3,039\.68 4,371\.86 6,434\.02 Financed as Follows\. Capital 136\.47 137\.97 137,97 138\.32 138\.32 138\.232 138\.32 138\.32 158\.32 138,32 138\.32 136\.42 Resrves 6\.18 8\.85 11\.99 16\.28 28\.04 23\.76 27\.48 30\.87 35\.20 40\.12 45\.74 52\.15 Provisions 14\.34 18\.76 25\.59 27\.64 27\.64 27\.64 27\.64 27\.64 27\.64 27\.64 27\.64 27\.64 Profit ALoss 4\.81 11\.06 15\.16 7\.76 22\.38 89\.38 246\.29 81744 1,432\.70 2,344\.719 3,643\.03 5,517\.95 161\.80 176\.64 190\.71 192\.00 209\.18 279\.10 439\.33 1,014\.29 1,6313\.85 2,550\.88 3,814\.73 5,736\.06 Loans Foreign 16\.94 2\.1\.86 16\.77 27\.20 44\.01 65\.27 90\.36 119\.18 150\.15 183\.36 2,18\.99 257\.31l Local 69\.05 90\.33 143\.46 185\.78 193\.40 207\.32 225\.94 249\.53 275\.99 305\.44 338\.14 440\.65 Subtotal 85\.00 12\.1q 160\.23 :12\. 98 237\.41 272\.59 3,16\.30 368\.7 426\.14 488\.80 557\.13 697\.96 Total financing 247\.79 2808\.8 3350\.94 404\.98 446\.59 551\.69 755,04 1\.383\.O0 :,059\.99 3,039\.68 4,371\.86 o\.434\.02 \.S\.sSSS4 \.a:\. St a-Ss :Sa tatts"a\. ts \.nn \.a\.: \.tSnSSn saS \. t:sStt:tasaS ssa 1\.JshtlEwjtv 35% 3392 41 533 53% 49l 42? 27? 212 16? 13n ill\. 2\.Current Ratio ;'\.67 1\.74 0\.71 0\.40 0\.50 0\.61 0\.77 1\.16 1\.45 1\.715 2\.06 2\.37  - 83 - Annex 4\.6 EGYPT FOURTH POIIE PROJECT Electricitv Distribution Coopanies \. \. \. \. \. _ \.__ ktual and Projected Statmnt ot Sources and Application of Funds (For Years 1984185--1995196i \.----------------------------------------------------\.- Actual----------------Projected-------\.----- --\.---- - 84185 85186 86187 87/8 89189 89/90 90/91 91/92 92/93 93/94 94195 95196 (IlE Millions unless othernise stated) Internal Sources Gross lncne 16\.89 23\.64 30\.31 22\.o9 24\.65 78\.32 170\.40 587\.51 634\.00 934\.37 1,284\.27 1,947\.99 Dk9reciation A Reserves 26\.39 32\.51 44\.24 67\.74 31\.29 34\.24 37\.34 40\.89 44\.80 49\.19 54\.21 59\.83 \.--- ----- ----- \._\. \.__\. ------ \. \.-----\.__\. Bross Internal Cash Generation 43\.28 56\.15 74\.55 90\.43 55\.94 112\.56 207\.74 628\.40 678\.80 983\.55 1,338\.48 2,007\.83 Increase/ (DecreaseI in Morking Capital 1151\.40) ,27\.12\. (44\.801 170\.921 i8\.86) 39\.01 124\.9? 536\.37 559\.29 846\.88 1,182\.57 1,893\.70 \. \. -- -- - ------- -- -- - -- -- - -- -- - -------- ------- \. -- - - __ -- - -- _ __ - -- -- 194\.68 83\.27 119\.35 261\.35 64\.81 73\.55 82\.77 92\.03 119\.51 136\.67 155\.92 114\.12 Debt Service Asortization 1\.05 0\.00 5\.08 0\.00 21\.20 21\.20 21\.20 21\.20 25\.01 29\.68 35\.09 41\.23 Interest 7\.57 8\.68 12\.39 14\.23 10\.03 11\.32 13\.50 16\.34 19\.77 22\.27 26\.04 33\.07 -- __ -- - - - - - - _\. - - - -- _ _ - -- _ \. - - \. ----- - - - -- - - -- - - Total Debt Service 8\.62 8\.68 17\.47 14\.23 31\.23 32\.52 34\.70 37\.54 43\.78 51\.95 61\.13 74\.30 Net Internal Cash Gneration 186\.06 74\.59 101\.88 ;47\.12 33\.58 41\.03 48\.07 54\.50 75\.73 84\.72 94\.79 39\.83 External Sources Long Term Dorouings 6\.98 26\.19 53\.12 52\.75 45\.62 56\.39 64\.91 73\.61 82\.44 92\.34 103\.42 182\.06 Equity 0\.00 1\.50 (13\.83) ( 5\.51I 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Fronlsion5 3\.69 4\.32 7\.83 2\.04 0\.00 0\.0G 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Grants I4\.62I 1\.73 2\.09 6\.11 2\.56 2\.92 3\.33 3\.79 4\.32 4\.93 5\.62 6\.40 Total External Surces 6\.05 33\.74 49\.21 45\.39 48\.18 59\.30 68\.24 77\.40 86\.76 97\.27 109\.04 188\.46 Total Sources 192\.11 108\.33 IS1\.09 292\.51 81\.76 100\.32 116\.31 131\.90 162\.49 181\.99 203\.83 229\.29 a:s* \.ss= i \. \.a: S *8* i s: :: *:* :5::::\. 3SS : 1:1'::::::: Applicatioa of Funds Construction Expenditure IqO\.63 106\.39 150\.61 279\.32 76\.74 94\.16 109\.17 123\.80 152\.51 170\.82 191\.31 214\.27 Capitalized Finance Charges 1\.28 1\.47 0\.00 0\.00 5\.02 6\.16 7\.14 8\.10 9\.98 11\.17 12\.52 14\.02 total Construction Expeaditures 191\.91 107\.86 150\.61 279\.32 81\.77 100\.32 116\.31 131\.90 162\.49 181\.99 203\.83 228\.29 in Other Assets 0\.20 0\.47 0\.48 13\.19 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Total Applications 1l2\.11 108\.33 151\.09 :92\.I1 81\.77 100\.32 116\.31 11\.90 102\.49 181\.99 203\.83 228\.29 ::Dt:Se r:::e:: o::e::: ::ag::e :::::\.:: ::::::::: ::6::4:: :3::::::: S:9:::9 ::::::: :n 9 ::: : ::::::::1 Debt Service Co:erage Ratio 5\.02 6\.47 4\.27 6\.35 1\.79 3\.46 5\.99 10\.71 15\.50 18\.93 2\.1\.0 2\.2  ANNEX 4\.7 - 84 - Page 1 of 3 FOURTH POWER PROJECT Assumpotins Underlyina Financial Pro1ections A\. Income Statements fY8 flE £Y8 F9 Y1 flES fL Y29 F (Actual) 1\. Sales and Revenues Sales (Gwh) /I 30,542 32,754 35,040 37,495 40,097 42,507 44,998 47,704 50,590 of which: EEA 8,101 8,842 9,204 9,553 9,828 10,178 10,405 10,659 10,880 EOCs 22,441 23,912 25,836 27,942 30,269 32,329 34,593 37,045 39,710 Sales growth rate (%) 7\.1 7\.2 7\.0 7\.0 6\.9 6\.0 5\.8 6\.0 6\.1 Revenues ILE millions) LZ 959 1,095 1,544 2\.155 4,162 4,569 6,096 7,858 10,980 of which EEA 129 155 223 298 543 576 730 893 1,178 EDCs 830 940 1,321 1,857 3,619 3 993 5,366 6,965 9\.802 Ave, Tariffs (mlhwh) /3 31\.40 33\.43 44\.06 57\.47 103\.80 107\.49 135\.47 164\.72 217\.04 EEA 15\.91 17\.53 24\.23 31\.19 55\.25 56\.59 70\.16 83\.78 108\.27 EOCs 36\.99 39\.32 51\.13 66\.46 119\.56 123\.50 155\.12 188\.01 246\.84 LI Sales to final consumers (excluding sales to EOCs) are estimated to grow at 6\.S p\.a\. on average during FY88-FY96 mainly due to the predicted slowdown in economic performance which is expected to reduce the growth rate of industrial demand substantially and resource constraints which are expected to limit the rate of connection of new consumers\. LZ Revenues from electricity sales (excluding internal transfers for EEA's sales to EDCs) are based on average electricity tariff increases of about 31% p\.a\. during FY89 through FY96\. The financial projections assume that the FY89 increase of about 31% was implemented with effect from April 1, 1989\. Annual increases for FY90 and FY91 are assumed at 30% p\.a\. Starting in FY92 the financial projections assume that tariff increases would be based on self-financing levels for EEA of 20% in FY92\. 30X in FY93 and 40% in FY94\. LI Average tariff for the subsector's sales to final consumers excluding internal transfers\.  ANNEX 4\.7 - 85 - Page 2 of 3 2\. Other Operating Revenues are estimated to grow at about 15% p\.a\. in line with past experience\. 3\. Fuel Expenses For the principal fuels, i\.e\. fuel oil, natural gas a\.ad diesel oil, fuel costs are based on consumption forecasts and sales growth estimates prepared by EEA and the mission and on annual fuel price increases of 25% in 1989/90 and 1990/91\. For FY1991/92 through 1993/94 fuel prices are assumed to increase in equal annual percentages needed to raise the prices to international levels by FY94\. The fuel price increases for FY95 and FY96 are assumed to be at the rate of inflation\. 4\. Salaries and Waxes are based on the subsector's salaries and wages bill in FY88 and escalated at about 11% p\.a\. This is in accordance with the Government's commitment to restrict public sector expenditures, as part of its economic reform program\. 5\. Materials and Services, and Administrative Expenses are assumed to increase at 15% p\.a\. 6\. Depreciation is computed at an average annual rate of 3\.1% of average gross fixed assets in service during the year\. 7\. Interest Expense Interest on all existing foreign loans has been calculated on the basis of data on loan amounts, repayment terms and interest rates, as provided by EEA\. Interest on new loans is assumed at 9\.0% for local loans from the National Investment Bank and the Treasury\. Interest added to construction is calculated on an actual basis\. B\. Balance Sheets 1\. Gross Fixed Assets in Service are valued on the historic cost convention\. Transfers from work-in-progress to fixed assets in service have been determined on a detailed analysis of the subsector's investmeat program and on estimated comkiletion dates of the assets to be acquired or constructed in the period 1989/90 through 1995/96\. Foreign exchange differences on account of construction expenditures resulting from a loan revaluation exercise at the end of FY88 amounting to about LE1\.54 billion have been included in fixed assets\. These are written off over the life of the assets or loan whichever is shorter\. 2\. Inventories are estimated to increase at the same rate as the growth in kWh sales\. 3\. Accounts Receivables The forecasts assume receivables would be collected faster than in the past and outstanding balances would improve gradually to levels not exceeding 3 months' sales by 1991/92\. 4\. Accruals represent about a half month's administration expenses and wages and salaries, which is the normal outstanding liability at the year-end\.  ANNEX 4\.7 - 86 - Page 3 of 3 5\. Accounts Payable are assumed to represent 2 months worth of fuel and material and services consumption\. 6\. Other Accounts Payable are assumed to grow at the same rate as the growth in construction expenditures\.  - 87 - ANNEX 5\.1 Page 1 of 3 EGYPT FOURTH POWER PROJECT Rate of Return Analysis Introduction 1\. The calculation of the Economic Rate of Return (ERR) is based on the costs and benefits associated with the time slice of Electricity Investment Program covering the period of 1988/89-95 of which the proposed project is a part\. Costs 2\. All costs are based on 1988 prices and calculated at official exchange rate of LE2\.4 per US$\. Each components of costs are described below: (a) Capital: Capital costs include generation, transmission and distribution costs based on Egypt's electricity subsector investment progrAm\. (b) Fuel: Fuel costs are based on average projected fuel consumption of new plants in the investment program\. Fuel costs were projected on the basis of Bank's projections of international fuel prices till 1995\. Beyond 1995, fuel price escalation is assumed at 3% per year\. (c) Operation and Maintenance (O & M): Operation and maintenance costs were estimated at 3X of cumulative capital cost for generation, transmission and distribution\. Benefits 3\. Benefits are based on incremental revenues valued at proposed annual real increase in tariffs: Increase in Base Case Tariff 2 FY90 15 91 15 92 15 93 15 94 15 95 15 Beyond 1995 82 (includes 3b for fuel adjustment)  ANNEX 5\.1 - 88 - Page 2 of 3 Real Alternative Increase Case Tariff % FY90 15 91 92 15 93 35 94 35 95 35 Beyond 1995 8% (includes 3% for fuel adjustment) Economic Rate of Return 4\. The estimated ERR of 10% on base case reflects the fact that tariff are lower than long-run marginal cost\. The estimate of ERR is more a reflection of the inadequacy of tariffs than of the economic merit of the investment program\. Accordingly, in the alternative case if the tariffs are adjusted to reach LRMC by 1993-94 the ERR is about 17%\. Sensitivity Analysis 5\. Results of sensitivity analysis are shown below: ERR Base Case 10% 10% reduction in Revenue 8\.2% 20% reduction in revenue 6\.5% 5% increase in fuel price 6\.0% 20% increase in Generation Investment 8\.5%  -89 - ANNEX 5\.1 Page 3 of 3 FORTH POWR PROJECT REULiW ON KV lM ANALYSIS (LE Hi I) --- -INVESTMe4T--- -Incroeent l- Enera InereintIl Si10 Not GOnera- Trana\. & OH Fuel Ttotl Sales Solos Revenueo BSenfito Fiscal Year ti\.n Distr Coet (O\.h) (Osh) 19S 878a\.16 452\.2 0\.00 o\.oo 1a3o\.3e 80,s84 @\.oo -1880\.86 1989 1821\.16 1865\.69 188\.82 48\.90 Ss6\.49 82,708 2, 6 8\.14 -8281\.8 1990 1468\.86 1027\.86 210\.41 219\.80 2926\.16 84,975 4,891 202\.69 -272a\.46 1991 S46\.18 892\.31 288\.86 511\.44 2208\.48 87,474 6,890 868\.76 -1687\.70 1992 848\.60 288\.10 271\.01 660\.21 12\.92 40,099 9,815 860\.87 -982\.05 199 207\.10 144\.97 281\.38 721\.02 1884\.S7 42,4651 11,861 979\.17 475\.50 1994 938\.0 68\.82 286\.58 764\.28 1209\.78 44 97 14,892 1364\.08 154\.28 1995 93\.00 69\.78 291\.28 810\.14 1264\.12 47,696 17,112 1781\.87 4S7\.48 1996 291\.28 884\.44 1125\.68 80,S89 17 112 1801\.69 766\.02 1997 291\.28 859\.48 1180\.71 88,868 17\.112 2048\.06 892\.82 1996 291\.2 8985\.26 1176\.49 88,8683 17,112 2206\.47 1029\.98 1999 291\.28 911\.62 120\.08 88,865 17,112 2862\.99 1179\.94 200 291\.28 989\.17 125O\.40 88,5S6 17,112 2578\.68 1848\.22 2001 291\.28 967\.85 18\.88 88,868 17,112 277\.82 1820\.94 2002 291\.28 9S\.887Io67\.80 88,88 17,112 8001\.6 1714\.28 200s 291\.28 1028\.26 1817\.49 88,868 17,112 8242\.08 1924\.54 2004 291\.28 1087\.08 1848\.28 88,565i 17,112 8801\.89 2188\.11 2005 291\.2s 08 1\.76 1879M\.9 28,865 17,112 O871\.80 2401\.81 2006 291\.28 1121\.42 1412\.65 88,8U 17s112 4094\.02 2671\.37 2007 291\.28 1188\.08 1448\.29 WI,86 17,112 4410\.75 2964\.45 2006 291\.28 1169\.72 1480\.98 88,86 17,112 47M\.61 3822\.68 2009 291\.28 1228\.41 1816\.64 58\.568 17,112 5144\.69 862\.06 2010 291\.28 1282\.17 18\.40 38,8S8 17,112 86\.27 4002\.67 2011 291\.28 1800\.04 1591\.27 88,568 17,112 6000\.77 4409\.51 2012 291\.28 1889\.04 1660\.27 8,US6 17,112 6480\.98 4850\.57 2018 291\.28 187\.21 1670\.44 88,868 17,112 6999\.80 S\. se\.86 Economic Rate Of Return a 10%  ANNEX 6\.1 - 90 - Page 1 of 2 EGYPT FOURTH POWER PROJECT Selected Documents and Data Available in Project Files General Reports and Documents Related to the Sector - "Future Requirements for Coal Reception and Inland Transportation\. June 1984" prepared by PACER consultants, Cairo, in association with DHV Consulting Engineevs, Holland\. - '"1200 MW Thermal Power Plant Engineering/Economic Feasibility Study for El-Kureimat, December 1985" prepared by Stone & Webster, Inc\. of USA\. - "Kima Fertilizer Plant Preinvestment Analysis of Increasing Nitrogen Fertilizer Production in Upper Egypt, December 1985" prepared by Stone & Webster Inc\. of USA\. - "Load Measurement and Load Management, December 1984" prepared by ESB of Ireland\. - "Electricity Energy Data Bank Project, March 1983" prepared by UNDP consultants\. - "Preliminary Engineering for the Conversion to Combined Cycle/Efficiency Upgrading of Mahmoudia Power Station,\. August 1986" prepared by ESB of Ireland\. "Preliminary Engineering for the Conversion to Combined Cycle/Efficiency Upgrading of El Damanhour Power Station, August 1986," prepared by ESB of Ireland\. "Shoubrah El-Kheima Power Station Unit 4 Feasibility Study Report, March 1984," prepared by Overseas Bechtel Incorporated of USA\. General Reports and Studies Related to the Project "Lower Egypt Thermal Plant Study," dated 1985 in three volumes: Volume I - Introduction and Site Selection; Volume 2 - Conceptual Design and Implementation Station A - Combined Cycle Plant; and Volume 3 - Conceptual Design and Implementation Station B - Coal-Fired Plant, prepared by MONENCO Company, Montreal Engineering Company Limited of Canada for Egyptian Electricity Authority\.  ANNEX 6\.1 -91- Page 2 of 2 "Damietta Combined Cycle Unit 3: Feasibility Study Report\. September 1987, Overseas Bechtel Incorporated, USA\. "Damanhour Power Station: Converzion to Combined Cycle/Efficiency Upgrading - ESB, Ireland, May 1987\. Mahmoudia Power Station: Efficiency Upgrading Conversion to Cembined Cycle - ESB, Ireland August 1987\. "Lower Egypt Thermal Plant Study - Co-financing Report," dated December 1985, prepared by MONENCO Company, Montreal Engineering Company Limited of Canada for Egyptian Electricity Authority\. Selected Working Papers Computer printouts and discounted cash-flow studies for various economic analyses\. Project cost estimates and sensitivity analyses\. Financial and accounting statements\. 0012M  r !iF R !? A 3b - A S \.4E \.,' A4 E A A Qottarra DepresDsion ror Deto\.i 6 \ ,r- ~~~~~~~~ ~ ~ ~~S\. InI\.t --)-I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C ARAB REPUBLiC OF EGYPT INTERCONNECTED POWER SYSTEM NlANEDROR RSW SWWNRDEhlR UE - kV hE RANSSSSS ON LINES _ -- I32 kl TILPNSMSSSION LINES Crnt Focton O = 5W lV SUBSTATIONS 3D 2 32 220 kV SUBSTATIONS ° \. 132 kV SUBSRATI NS - - - ~~POWER RLANES o ~~~~LrTES ALND TOphs>N _INIERFNATONAL BOUNDARY 2p- 3PI~ ~ ~~\.BIN - j U~ 25 10 75 I 0 YE I~~~~~~~~~~~~~~~~~d _ Bt _ l i <~~~1mg | sstomEn3ts >\. (; 2 r=_ £~~ S-\.

APPROVAL

P008695

Document of The World Bank FOR oMCIAL USE ONLY Report No\. 5838 PROJECT PERFORMANCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) August 30, 1985 Operations Evaluation Department IT1is doeument Ass a restrlete isribu sad may be aed by recplemts aely in the prfra=ne of their effic dutie\. Its coemi may met oherwise be dlsmd without World Bank uhasdto\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT , THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) TABLE OF CONTENTS Page No\. Preface \. \. \. \. \. i Basic Data Sheet \. *\. \. \.* \. ii Highlights -o \. oo \. \. o \. iv PROJECT PERFORMANCE AUDIT MEMORANDUM I\. PROJECT SUMMARY \. \. 1 Procurement \. \. \. \. \. 2 Energy Sales o\. \. 4 Tariffs \. \. \. \. \.-\. 5 II\. SUPPLEMENTARY COMMENTS \. \. \. 6 Prices \. 6 Exchange Rates \. \. \. \. 7 Impact on Procurement \. \. 7 Financial and Economic Analysis \. 8 Least-Cost Solution \. \.-\. \. \. \.-\. 8 Lignite o\. 8 Economir Rate of Return \. \. \. 9 III\. CONCURRENT POWER LENDING EXPERIENCE \. \. 9 Ruil Mare Hydroelectric Project \. 9 Second Turceni Project \. \. \. 10 Power IV Project \. \. 10 Sustainability \. \. \. 11 Appendix - Comments by Banca de Investiti \. 1\. \. 13 PROJECT COMPLETION REPORT I\. Introduction \. \. 23 II\. Project Appraisal and Description \. 23 III\. Project Implementation \. - \. 25 IV\. Operating Performance \.oo\. \. 29 V\. Financial Performance \.-\. \. \. 30 VI\. Institutional Performance\. \. \. 31 VII\. Bank Performance \.- \. \. \. \. 31 VIII\. Economic Evaluation \. \. 32 IX\. Conclusions and Lessons Learned \. 33 This document has a restricted distrbuton and may be used by recipients only in the performace of the ofrcal duties\. Its contents may not othewe be disclosed without World Baak authorization\. TABLE OF CONTENTS (continued) Page No\. Annexes 1\. Contracts Financed under the Loan \. 34 2\. Comparison of Estimated and Actual Cumulative Disbursements \. 3 3\. Comparison of Appraisal Estimate and Actual Project Cost \. 37 4\. Status of Compliance with Major Loan Covenants \. 38 5\. Comparison of Estimated and Actual Operating Results and Plant Capacity \.e\. 40 6\. Actual Fuel Consumption and Expense \. 41 7\. Economic Rate of Return on the First Turceni Thermal Power Project \. \. 42 8\. Summary and Background Information from Draft Project Completion Report by the Investment Bank and the Turceni Enterprise \. 43 Mp- IBRD No\. 10830RI (PCR) PROJECT PERFORMAiCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) PREFACE This is a Project Performance Audit Report (PPAR) on the First Turceni Thermal Power Project (Loan 1028-RO for US$ 60 million to Banca de Investita), one of three loans1/ made simultaneously in 1974, the first loans to Romania\. The project was scheduled for completion in March 1979 but was in fact completed in December 1983\. The closing date was June 30, 1979, and the loan was fully disbursed on July 13, 1979\. There were subsequently three additional power loans, all of which have been fully disbursed, and the projects are nearing completion\. Since no further Bank loans for power have been requested by the Government, and inas- much as the factors which affected the project, until its completion in December 1983, were sometimes common to the other three power projects, this PPAR includes a retrospective of the Bank's power sector role in Romania, including consideration of aspects of the national economy which influenced sector operations\. The PPAR comprises the Project Completion Report (PCR) dated June 29, 1984, prepared by the Europe, Middle East and North Africa Regional Office and an Audit Memorandum (PPAM)\. The PPAM is intended to complement the PCR and not to repeat it\. The PPAM is based on the Bank's PCR, a Project Completion Report dated October 1983, prepared by the Borrower, the Appraisal Report, No\. 391a-RO dated June 17, 1974, the President's Report, No\. P-1416a-RO dated June 29, 1974, the Loan Agreement dated July 10, 1974, the project correspondence files and the Minutes of the Meeting of the Executive Directors at which the loan was approved\. Information on the other power projects was briefly reviewed for commonality with the main issues arising under the project\. In particular, the Economic Memorandum, Romania, dated March 5, 1984, was reviewed to obtain the current perspective on economic related issues arising during the project's history\. The engineers, finan- cial analysts and economists associated with the project have been inter- viewed to the extent possible\. Finally, an audit mission visited Romania in September 1984 and discussed the project with the Borrower, specifically with the Investment Bank and representives of the Ministry of Electrical Energy, the Ministry of Mines, the Industrial Centrals and ROMELECTRO (procurement)\. Following standard procedures, OED sent a copy of the draft report to the Borrower for its comments\. The comments which were received have been taken into account in preparing the final report and they are reproduced as an Appendix to the PPAM\. l/ The other two loans were for fertilizer (Loan 1020-RO) and steel (Loan 1027-RO) plants\. PROJECT PERFORMANCE AUDIT REPOT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (USS million) 353\.5 378\.2 /a Overrun (%) - 7% /a Loan Amount (USS million) 60\.0 60\.0 Disbursed ) 60 60 Cancelled )- - Date Physical Components Completed 3/79 12/83 Proportion Completed by Appraisal Target 100% 90% Proportion of Time Overrun - 79% Economic Rate of Return 92 /b 6% /b Financial Performance - - /c Institutional Performance Cumulative Estimated and Actual Disbursements (USS million" Year Ending 12/31 1974 1975 1976 1977 1978 1979 /d (i) Appraisal Estimate 2\.4 24\.0 40\.7 54\.1 60\.0 60\.0 (ii) Actual - 6\.8 36\.0 54\.2 59\.0 60\.0 (iii) (ii) as Z of (i) - 28 88 100 99 100 OTHER PROJECT DATA Actual or Item Original Plan Current Estimate First Mention in Files 05/31/73 Negotiations 04/25/74 Board Approval 6/04/74 07105/74 Loan Agreement Signed 07/10/74 Effectiveness Date 10/08/74 11/06/74 Closing Date 06/30/79 /d Borrower Investment Bank of S\.R\. of Roman5a Guarantor Socialist Republic of Romania Executing Agencies Turceni Enterprise; construction trusts of Ministry of Electrical Energy; Romene~rgo Follow on Project Second Turceni Thermal Project (Loan 2652-RO) /a Meaningfulness of costs in dollars (US) uncertain because of probable undervaluation of local currency and the Romanian pricing system (PPAM, paras\. 15-17)\. b Figures from appraisal report and PC do not represent actual ERRs as conventionally calculated because of Roanian controlled pricing system and the manner of setting tariffs (PPAM, para\. 19)\. /c Meaningfulness of financial performance uncertain, for same reasons as given in footnote A c /d thile disbursements were completed 07/13/79, project was completed in 1983\. MISSION DATA Month/ No\. of No\. of Date of Item Year Weeks Persons Man-Weeks Report Identification 06/73 1\.0 1 1 06/22/73 Appraisal 11/73 3\.0 4 12 06/17/74 Supervision I 07/75 3\.0 2 6 09/18/75 Supervision II 11/75 1\.0 1 1 12/05/75 Supervision III 05/76 1\.0 2 2 06/15/76 Supervision IV 05/77 0\.5 2 1 06/22/77 Supervision V 06/78 1\.0 3 3 06/16/78 Supervision VI 08/79 1\.5 3 4\.5 08/10/79 /a Supervision VII 05/81 1\.0 2 2 08/21/81 Supervision VIII 09/81 0\.5 2 1 10/15/81 Supervision IX 10/82 1\.0 2 2 12/15/82 Supervision X 05/83 0\.5 2 1 07/13/83 Supervision XI 10/83 0\.5 2 1 11/02/83 COUNTRY EXCHANGE RATES (Lei/US$) Appraisal Estimate 20 Actual 1974 - 1977 20 1978 19 1979 - 1980 18 1981 - 1983 15 /a All mission beginning in 1979 include some time spent suparvising Loan 1652-RO, Second Turceni Thermal Project\. - iv - PROJECT PERFORMANCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) HIGHLIGHTS The 1320 KW First Turceni Thermal Power project (Loan 1028-RO, US$60 million), for the provision of generation infrastructure, was a quali- fied success\. The thermal plant was designed to burn low-quality lignite from the extensive deposits found in Romania and was a mine-mouth plant\. After Turceni's installation was completed the operating trials disclosed problems with the boilers, associated with burning the supplied lignite, which led to a two-year delay for redesign and modification (PCR, para\. 3\.04)\. Altogether, Turceni was delayed about four years\. The lack of Turceni during this period did not create a basic capacity shortage as load growth was substantially less than had been expected\. Indeed, the load growth was negligible during the 1979-84 period following institution of structural adjustments by the Government\. There were power limitations resulting in load shedding, however, because the structural adjustments also restricted the use of oil-fired plants to reduce fuel oil imports (PPAM, para\. 9)\. Turceni was completed in 1983 and since then has operated satisfactorily\. The project experienced difficulties with procurement (PPAM, paras\. 6-8, 17-18 and 29) which were continued to some extent in the three power loans which followed\. The lignite mining development associated with Turceni proceeded, and is providing the requisite fuel\. However, the mining program has been slowed down in the past and it will have to be given high priority if the generation needs of Turceni, following the doubling of its size under the Second Turceni Project (Loan 1562-RO), are to be met (PPAM, paras\. 23-25)\. A number of deviations from the usual experiences on Bank-financed projects developed in conjunction with this project\. Primarily, they were a product of Romania's centrally planned economy as demonstrated by: - tariffs for electric energy which did not reflect the cost of power but were set well below economic prices in the interest inter alia of industrial development (PPAM, paras\. 11, 12); - energy sales did not nearly reach forecast level, lagging through the first few years of the forecast due to constraints originating in the Government-controlled economy (PCR, para\. 4\.05) and being virtually frozen at the 1978 level following structural adjustments by the Government\. In the circumstances, comparison between fore- cast and actual load is hardly meaningful as would be a discussion -v - of whether the Turceni project was, premature\. This is not to suggest that Government was mistaken\. Rather, it was taking economic measures it thought necessary or advisable; - the calculation of Lhe IRR and/or ERR were not necessarily indica- tive of economic utility in this centrally planned economy as the prices underlying raw materials and manufacturing processes during project implementation were not determined by market forces (PPAM, paras\. 15-16); likewise electric utility financial analysis did not have the same meaningfulness, or usefulness as it does in market economy countries and therefore played little role in the project (PPAM, para\. 19)\. Procurement was a major problem\. The priorities and practices of the agencies involved were inconsistent with the spirit and intent of the Bank's Guidelines for Procurement, and in a number of cases, differences were settled with considerable difficulty through mutual concessions\. In the end, the Bank accepted the contract awards and disbursed against them\. There is no way to determine whether the Bank could have forestalled procurement irregularities, some very serions, by being firm about the use of the Bank's guidelines and refusal to finance the relevant awards, or prospective awards\. Had it been possible, earlier Bank involvement in project planning might have resulted in better understanding and fewer problems (PPAM, para\. 6-8)\. The completion of the project was prolonged to the extent that two of the three subsequent Bank financed power projects were fully disbursed, and largely implemented, concurrently with it\. It is evident that there were somewhat similar experiences and problems, with all four projects (PPAM, paras\. 29-32)\. Conventional market economy economic analysis is not readily appli- cable to the Romanian centrally planned economy\. Nor are the Bank's conven- tions with respect to project financial analysis meaningful in the Romanian situation\. The result was that Bank evaluations and expectations regarding pricing, financial and economic performance were unrealistic and of limited value (PPAM, paras\. 3, 6-12, 14, 15, 17, 19-22 and 27)\. In deference to the Government's views, some of the Bank's conven- tions routinely formulated in loan agreements were omitted from the loan documents\. In addition, most of the conventional utility financial covenants were excluded as being inapplicable to Romania's systems of dealing with assets, revenues and profits (PPAM, para\. 3; PCR, paras\. 2\.03, 2\.04 and 5\.01)\. PROJECT PERFORMANCE AUDIT MEMORANDUM THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) I\. PROJECT SUMMARY 1\. The construction of the Turceni Thermal project was well underway when the Bank appraised the project in November 1973, reflecting the strong desire of Government and Bank to mount a first lending operation\. Romania had joined the Bank in January 1973, and the loan was approved by the Executive Directors in July 1974, so that the relationship between the Bank and Government had been a short one up to that point (PCR, para\. 2\.01)\. 2\. The project comprised the construction of a very large thermal station, Turceni, with a capacity of 1320 MW, provided by four 330 MW thermal units, and of 600 km of 400 kv and 110 kv transmission lines\. The project was designed to assist in meeting the future growth in power system demand\. Construction was scheduled in four years, about standard for this type of plant\. Turceni was to burn lignite, a very low heat content coal, and the thermal plant was therefore to be located near a large lignite mining site, which was to be further developed\. However, the mine was not part of the Bank assisted project\. 3\. Several loan provisions of usually a boiler-plate character were, after lengthy discussions, either dropped or modified (PCR, paras\. 2\.03, 2\.04 and 5\.01)\. For example: - the Bank asked for a power sector study to be made to enable it to assess Turceni and other prospective projects in context but it was not forthcoming for several years (PCR, para\. 2\.03(c));I - the Investment Bank of Romania was ultimately determined to be the most appropriate borrower, although this entity did not have direct involvement in the technical aspects of project preparation and would not be responsible for operation) following commissioning2/ (PCR, para 2\.03 (d)); 1/ The Borrower has stated (Appendix, page 5, item 7) that a sector study was furnished to the Bank in 1977 and updated in 1984, but Bank staff consider that the documents furnished did not constitute a complete and fully adequate study\. 2/ The power sector is under the authority of the Ministry of Electric Energy, which has a sector planning unit under its direct authority\. The electric utility facilities are designed, built and operated by autonomous agencies under the purview of the Ministry\. Procurement is handled by a separate agency\. The Turceni Generation Enterprise, established at the outset of the project, functioned as the owner and operates Turceni\. -2- at negotiations, the Government was concerned that the contents of the loan documents address, solely, the project itself, and and that there should be no sector binding conditions\. The loan agreement was drafted accordingly (PCR, para\. 2\.04)\. 4\. The project experienced serious delays\. In 1977 an earthquake devastated Bucharest\. The project, which was under construction, was distant from the shock and was not affected\. However, two thermal plants in the fault zone had their roofs cave in\. Turceni's work was halted for six months pending technical investigation\. Eventually the design and support of its roof were modified\. A second factor in the delays, to be experienced in other power loans as well, was the shortage of skilled labor\. Bank staff consider that the turnover in general directors appointed to manage the Turceni project (three in 18 months) also was a major cause of delay (PCR, para\. 3\.03), but the Borrower denies the importance of these changes (Appen- dix, page 7, item 1)\. Delays in the delivery of equipment were largely due to manufacturing problems\. Much of the equipment, for example, valves, was manufactured under license in Romania from imported parts and materials and, while baseJ on foreign design, was often first-of-a-kind (that is prototype) equipment\. 5\. The most important delay occurred when the plant was being commissioned and the boilers were found to be inefficient\. One of the most serious consequences was that the oil/lignite ratio was almost six times the design ratio of 7%\. Boilers burning low heat content lignite fuel are of a much larger size and substantially modified design compared with conventional large thermal plant boilers\.3/ At the time, there were a number of lignite burning thermal plpnts in Europe including two In Germany and, approaching in size the Turceni boilers, one in Yugoslavia\. In this case, the boiler manufacture was based on a foreign manufacturer's license, taking into consideration changed conditions\. There is some difference of opinion on the causes of the initial problems with the Turceni plant; the Borrower states that the licensor had inadequate experience in milling and burning Romanian lignite and therefore implies that the licensor's design was deficient, while Bank staff state that the problem arose also because the lignite supplied was at the low end of the design calorific value\. It is beyond the scnpe of the audit to decide which opinion is correct, but more communication might have avoided such a disagreement\. In any case, the Turceni boilers were shut down and, in consultation with the manufacturers, a number of changes proposed by the Romanians agreed, and the boilers modified successfully\. The process covered about two years (PCR, paras\. 3\.04-3\.05 and 4\.01-4\.02)\. The boilers are now operating satisfactorily\. The high ash content, is very corrosive, and the resulting corrosion of refractory material, evaporators and tubes increases boiler maintenance\. So far, this condition has been dealt with during the ariual thermal unit maintenance shutdown of about one month but could prove eventually a serious problem\. About 5,000 GWR were generated in 1983 corresponding to a plant factor of 43%\. 3/ The Borrower noted that for the same heat production a conventional large thermal boiler burns I t of Pennsylvania hard (coal) whereas 3\.75 t of lignite is needed, with ash content of 6% and 27% respectively\. -3- Procurement 6\. The loan was to be disbursed against imported goods, divided into equipment and components for Turceni station (US$25\.5 million) and supplies for the manufacture of the plant (US$34\.5 million)\. A list of the contract awards is given in the PCR, Annex 1\. The actual amounts disbursed were, respectively, US$17\.9 million for equipment/components and US$42\.1 million for imported supplies\. Indeed half the supplies, US$20 million, were not procured under the Bank Guidelines, but had already been purchased, and it was only after long argument that the Bank agreed to disburse against them\. According to the authorities, from the analysis made at the Heavy Machinery Producing Enterprises in question, it was found that US$40 million of sup- plies had been already purchased from the West for the production of equip- ment for Turceni, with borrowed foreign funds\. This was a striking example of a series of procurements which were not consistent with what the Bank usually found acceptable and which, in the opinion of the audit, the Bank might have refused to finance in some cases\. 7\. The Bank had in fact made a special effort to initiate the Borrower into the Guidelines for procurement (PCR, para\. 2\.03-b)\. Nevertheless, there was much difficulty in trying to reconcile the Borrower's normal procedure with the Bank's guidelines, and mutual concessions were made\. Procurement devolved into a considerable variety of procedures which, in the end, the Bank accepted, sometimes ex-post, lacking a practical alternative and/or being faced with a fait accompli\.4/ The following was not untypical: - very long delays by the Borrower in sending bid evaluation reports, contracts ard applications for disbursement;5/ - in some of the 17 bids for cranes and equipment for the boilers, only two firms of those invited submitted bids, bometimes only one of them complying with the tender; the Bank queried the reason for such poor response, but eventually gave its approval to proceed to direct negotiations of the price or of direct purchase;6/ - in a few cases, of obtaining bids under ICB, and Bank agreement on the award, and then deciding (sometimes much later) to manufacture in Romania the bulk of equipment bid upon because of the imputed high cost of the t!ndered equipment, and/or the finding that it 4/ The Borrower has asked (Appendix, page 2, item 3) for the PPAM to point out that procurement on this first project generated extensive dialogue in an effort to secure better mutual understanding of procedures used and means of observing the Bank's guidelines taking into account the specifics of the Romanian socialist planned economy\. Also, that it was the Borrower's firm wish to observe the spirit of the guidelines irre- spective of their restricted and sometimes limited framework\. 5/ See Appendix, page 3, item 7\. The records clearly show long delays\. 6/ Appendix, page 3\. -4- could be manufactured domestically and, therefore, of rejecting all bids and calling new tenders on a greatly reduced contract (e\.g\., the fuel handling plant bids for about US$22\.2 million were rejected and retendering eventually celled for a contract of US$1\.3 million, an outstanding example);6f/ - the calling into play, ex-post, of import restrictions7/ to limit or reduce the amount of the award of contracts already agreed or committed (e\.g\., to apply an import limit of US$20 million to bids aggregating US$32\.5 million)\. 8\. The Borrower's explanation of some procurement actions might appear justifiable\. But, taken in their entirety, the result of these actions was that the Borrower generally followed his usual practices, which involved a much different set of considerations\. The Borrower and Bank staff are of the opinion that there were no irregularities in the procurement, the Bank having approved all the awards\.8/ In the opinion of the audit, however, some of the approvals resulted, at best, from very exceptive application of the procurement guidelines\. There was little improvement in procurement in the subsequent three power projects, contrary to the opinion of the Borrower (Appendix, page 4, item 8)\. In spite of the difficulties, however, there were possible long-term benefits from this experience in that it brought the Romanian export agencies into contact with international competitive bidding practices (PCR, para\. 9\.01)\. Procurement is further discussed in paras\. 17-18 in the context of national pricing policy, the rate of exchange and Romanian competitiveness in the international market\. Energy Sales 9\. Actual power sales on the national system proved much less than appraisal estimate: SALES - GWR 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Appraisal 37\.7 43\.5 47\.8 54\.3 59\.7 65\.4 71\.6 78\.3 Actual 35\.5 38\.7 43\.4 47\.6 49\.6 52\.1 53\.1 54\.5 55\.0 57\.9 57\.2 57\.7 The flat demand experienced in 1981-1983 was the result of structural adjust- ments made by the Government to cope with the severe balance of payments problems which began to develop in 1979/80\. Among other consequences, 6/ Appendix, page 3\. 7/ The Borrower has stated (Appendix, page 3, item 7) that national import restrictions were not a factor\. However, Bank records show that such restrictions were cited by the Borrower at the time\. 8/ See Appendix, page 4, item 8\. - 5 - imports were all but halted, and industries using large amounts of imported materials curtailed, e\.g\., chromium smelters, and the import of oil and its \. use in heating applications restricted\. Indeed thermal power generator units burning oil were not allowed to operate\. In effect, the electric power load was not allowed to grow, whereas, a growth in electric power of 9% per year \. was experienced in 1973-79\. 10\. Power and energy growth were succinctly reviewed in the Bank's Economic Memorandum (1984) in which the following conclusions were reached\. The ratio of primary energy consu1ption to GNP in Romania is about twice as high as in Western countries and higiter than other Eastern European countries due to the large share of industry in GNP and the energy intensive structure of industry\. Energy prices have traditionally been low and to improve energy efficiency, major u;ward adjustments in energy prices have been made in recent years\. However in 1984, they still remained below world equivalent levels; e\.g\., natural gas is priced at 50% of the world equivalent oil price\. Tariffs 11\. The tradition of price stability in Romania led to a t ndency for prices to be fixe4 for extended periods\. Electricity tariffs remained fixed throughout 1963-75\. They were increased in 1975 but in 1977, the Government made a significant reduction in the prices of goods and services, national- ly\. The intention of the Government, it was said, was to increase the profits of industry, particularly the less viable ones, and make them more competitive\. Electricity tariffs were reduced as well, lowering utility earnings and profits\. The tariff reduction was overtaken by the subsequent increases in 1981 and 1982 in conjunction with the structural adjustments made by the Government and a move toward less energy intensive industry: Domestic Industrial Commercial (lei/kwh) 1975 0\.40 0\.25 0\.30 1977 tariff reduction (figures not available) 1981 0\.50 0\.27 0\.34 1982 0\.75 0\.40 0\.51 12\. The low cost of electric energy, and the fact that it was less- than-marginal, raises the question whether tariffs were driving the demand in Romania\. The PPAR for two Romanian irrigation projects (Loan 1247-RO and 1368-RO) queries whether off-peak rates were appropriate for energy used in irrigation components and what the economic cost of electricity is by conven- tional Bank standards\. It states that the Rasova-Vederoasa irrigation proj- ect (Loan 1247-RO) uses 35 million KWh monthly during April-September, with peak use in July, and that the consumption of about 3600 KWh per ha is much higher than the national average for irrigation schemes\. It questions the meaningfulness of irrigation project evaluation lacking knowledge of the eco- nomic cost of electricity and given the use of a commercial exchange rate which undervalues the local currency\. It implies that irrigation projects of - 6 - the type analyzed in the audit might be less economic than other agriculture options, or even uneconomic, if power were coated at its economic worth\. 13\. Bank supervision was in a sense a learning experience, given that Romania's economic regime was fundamentally different from those of the Bank's market economy borrowers\. In this respect, the following illustrates the changing Bank thinking from appraisal to the present, some 10 years later: - Project Appraisal (1974): the exposition and calculation of the Economic Rate of Return was done on a conventional basis, the financial analysis on a quasi-conventional one - "the forecast financial performance is satisfactory,- "however, the debt/equity ratio concept is not relevant\.- The position in the balance sheet is sound" and "in view of the satisfactory performance of the entire power sector, no financial covenants have been sought"\. - Appraisal Report, Riul Mare Hydro (1976): "the IRR of 6-1/2 is not susceptible to the interpretation that could be placed upon it in a market economy in which it could be compared with the opportunity cost of capital;" and - President's Report, Turceni II project (1979): "with the changes (reductioa) in prices and power tariffs in 1977, power sector profits were reduced in essence, and part of the former power sector benefits were being transferred to industry\. For this reason performance of the pc-er sector must not be viewed in isolation from the rest of the economy\. Since it is impossible to separate these former benefits from the total benefit accruing to electricity it is not possible to calculate the ERR (or IRR)-; (also in 1979) "in Romania, tariff levels do not convey to major power consumers the value of the resource inputs used for electric- ity production, nor do they affect the level of electricity con- sumption, which is controlled by strong and effective penalties, and which encourage conservation\." II\. SUPPLEMENTARY COMMENTS 14\. Compared with the average Bank power project, there were striking differences which to some extent would be factors in other Bank operations in Romania\. These were the result of the manifestations of Romania's controlled economic system on the Bank's standard approach to projects, with regard to ERR, financial targets, procurement, least cost solutions and the like\. Distortions existed as the result of fixed prices and their control, multiple exchange rates, the quest to be a major industrial exporter, the building-up of foreign exchange reserves and, in part, constraints about providing infor- mation to 'outsiders', including the Bank\. -7- Prices * 15\. Prices of goods, supplies and services, including electricity tariffs, were kept stationary in Romania through much of the sixties and seventies through the process of centralized planning and were low compared \. with those in market economy countries\. This necessitated considerable subsidization\. While the policy kept the price of Romanian products low, giving an export advantage over the products of other countries, where prices rose sharply in the seventies, it entailed indirect subsidization of many imports, which led to the massive balance of payments problem experienced at the start of the eighties\. Exchange Rates 16\. In association with price control and import export objectives, Romania maintained a complex foreign exchange rate system\. The Economic Memorandum observes that prior to the economic reforms in the early eighties there were 35 different exchange rates, 20 for imports and 15 for exports, covering nearly all major commodities and types of transaction, the margin between the highest and lowest of the import rates being 18 Lei, and of exports rates, 10 Lei\. Under the exchange rate reform in 1981 in response to the economic crisis, the combined number of import and export rates were reduced to 16 then 10, etc\., over 1981-83, and the spread to 3 Lei\. By 1984, there were but two exchange rates, the commercial and non-commercial, the former being by far the most important\. The Economic Memorandum also observes that the average of the export rates appeared to have substantially undervalued the hard currencies in the later part of the seventies\. Impact on Procurement 17\. The apparent overvaluation of the Lei when the project loan was made likely continued through the procurement phase of other Bank financed projects\. The unit cost per KW of Turceni, about US$ 245 would have been extraordinarily low for a thermal plant manufactured at the time the estimate was prepared, and undervaluation of the lei in converting the local currency component was likely a contributing factor, as would have been the indirect foreign exchange subsidies on import goods going into the plant and Romania's pricing system\.9/ 9/ Thus the comparison given in the PCR (paras\. 3\.11 and 3\.12) to the effect that the thermal station cost was 22% above estimate--the civil works being 75% lower than estimate, cost of equipment, 39% higher, and that prices were reset three different times--have not the same signifi- cance as price comparisons in a market economy and cannot be interpreted in the same way\. This applies to the comparison of total costs as well\. The increase in total costs of only 7% also reflects the fact that the bulk of the transmission component was not found necessary at that time\. - 8 - 18\. This was in a sense academic in the case of the project, since the Bank financed only foreign exchange\. But it may have had an important impact on subsequent Bank financed power projects where procurement was open to Romanian bidders\. In the Riul Hare Hydro Project the turbine and generator contract awards were won by Romanian suppliers, as were nearly all the awards\. A Bank analysis in 1984 of procurement under all Bank loans to Romania disclosed that only 5% of the total amount was disbursed against foreign contracts, 95% going to domestic contractors \. Part of the explana- tion is that the bulk of disbursements were for agriculture projects which fall largely into the domestic category\. Even so this is not sufficient to explain the small amount of foreign procurement\. At any rate, this situation led the Bank to advise Government in 1983 of its discomfiture, and indicate that future loan size would be determined by the extent of the direct foreign imports to be financed, i\.e\., loans would be predominantly for direct foreign imports\. Financial and Economic Analysis 19\. In view of the numerous differences between the economic system in Romania and those of the countries with which the Bank was accustomed to lending at that time, the financial analysis and statements prepared by the Bank at appraisal and during supervision appear to have been of relatively notional significance\. The comparison of yearly statements shows changing directions but individual statements of themselves, are not as meaningful as they are in a market economy\. The situation is much the same for the ERR calculation, as the Bank came to perceive (para\. 13)\. 20\. In fact, the Economic Memorandum expresses some doubt about the economic justification of the lignite mining program of which Turceni is the major user (para\. 25)\. It observes that a comprehensive review of the energy sector, complemented by studies of the coal and power subsector, is necessary to make a more definite assessment of Romania's energy sector\. 21\. The question may arise whether the Bank at appraisal should have taken the time to methodically explore the country's economic universe and come to know the situation better before making the loan (and the two others made almost simultaneously)\. However, the consensus appears to be that it would be very difficult in practice to ascertain the underlying economic mechanisms and parameters, even over a long period, without first having an active lending relationship\. Least-Cost Solution 22\. The Bank continually asked the Borrower for "least-cost" project analyses and least-cost development programs to enable the Bank to consider proposed loans for power in context\. As far as can be seen, the Bank was never provided with a 'least-cost" exposition\. The Government had a power development program which most likely took into account its own form of eco- nomic analysis, and was responsive to the perceived priorites and political considerarions\. But the Bank's emphasis on conventional 'least-cost' - 9 - appears debatable\. A least-cost analysis in conventional Bank terms could have had little significance when prices, costs and tariffs that could be used-the actual ones--were not set by the market or responsive to it, as described heretofore\. Lignite 23\. Two questions arise about the lignite mining program: how economic it is and whether the development of the mines will be carried out as planned, that is, to enable sufficient lignite to be provided to operate Turceni II, an extension of Turceni I of the same size (1,320 MW) when it is completed\. The cost of mine develcpment is known to be very large but has not been estimated\. The issue is a matter of Government financal priori- ties, and of the availability of labor and materials, as the mining extension proceeds\. Experiences elewhere illustrate the scale of possible problems\. Unforeseen difficulties in developing the mine could limit the production of lignite so much that operation of the new thermal plant at needed capacity could be del?yed for years, with consequent very substantial monetary losses from having to use oil imports tc operate thermal plants\.10/ 24\. riduction of liguite is now plann-d to reach 95 million tcas (t) per year in Romania in 1990, cf which 15 millLun t is not bultaole f!r uti\.- ity purposes\. Production of 51 million t is planned in 1985\. lirceai I and II will use 25 million t, and other existing thermal plants, abnut 24 million t annually\. Under the 1980-8i plan, lignite production was to have cxpanded from 27 million t to 74 million t\. The 1985 target of 74 million t was lowered to 70 million t In 1982, and now, again, to 51 millic,- t as noted\. The reductions were caused by changes in investment p-iorities, equipment difficulties and labor shortages, but in any case the plan was much too ambitious\. In the event, oil and gas production had to be ircroased to offset the reductions\. The Government expects to meet the most recently established targets, but the question is whether there will continue to be an erosion\. 25\. The Government's objective is to substitute the use of oil and gas for fuel in ele-' icity generation by lignite in the interest of conserving its hydrocarbon taerves and limiting their import\. The objective has been to reduce the share of oil and gas used in electricity production from over 50% in 1980 to 28% in 1985 and 5% in 1990, increasing lignite based produc- tion of electricity correspondingly from 26% in 1980 to 44% in 1985\. This is a massive program and must be viewed as a longer term goal\. Economic Rate of Return 26\. As noted, the Economic Memorandum considers that the economic justification for the development of lignite is still unclear (para\. 20), a view the audit shares\. However the only practical substitute for lignite for 10/ See Appendix, page 7, item 10\. - 10 - power production would be gas and oil\. It is conceivable that imported oil might be found, in real terms, to be cheaper than lignite and that imported high grade coal burned in thermal plant located on the Black Sea coast could be an option\. But the deciding factor in the Government's strategy is the conservation of foreign exchange, to which imports would be inimical\. The audit considers that the project probably was the proper course of develop- ment even if a reliable economic calculation justifying this view is not feasible at this juncture\. III\. CONCURRENT POWER LENDING EXPERIENCE 27\. The current (1985) status of the three other power projects is as follows: Riul Mare Hydroelectric Project (Loan 1242-RO), with a capacity of 335 MW and associated transmission, will become operable in 1985, two years behind schedule, but the dam will only be comp\.eted in 1987\. Much difficulty was experienced constructing the 18\.4 km long pressure tunnel which should be completed ea7ly in 1985\. However, the main delay, 18 months, was due to the flood in 1978, which attained a one in 100 year peak discharge (the basis of design), overtopping the cofferdam\. Construction equipment was destroyed and, further downstream, the equipment park and construction workmen's housing cnlony were destroyed\. Second Turceni Project (Loan 1652-RO), with the same power capacity as Turceni I, should also be completed about mid-1985, three years behind schedule\. Whereas the main delay in Turceni I was due to redesign and modification of the boilers, Turceni II boilers were duplicates of the re- designed units\. Rather, the Turceni II delay was due to sequencing problems in conjunction with Turceni I, delayed deliveries of main equipment, such as boilers, coal handling mills, and materials (for example, the extremely large volume of insulation which had to be manufactured for high temperature piping and boilers)\.11/ Power IV Project (Loan 1936-RO), a time slice of the 1980-85 power investment program, is much behind schedule due to insufficient or delayed construction equipment and materials, availability of funds, and changing priorities\. 28\. The four power projects are marked by some commonality of experi- ence\. All have been fully disbursed long before project completion\. This reflects the lengthy delays in completion and the fact that Bank financing 11/ The Borrower states (Appendix, item 11 and page 8, item 5) that the high volume of insulating materials was not a cause of delay\. Bank staff, supported by the files, maintain that the provision and installation was a major problem due to sheer volume and, probably, insufficient quali- fied installation personnel\. - 11 - was for equipment and supplies rather than for civil works\. The procurement experience was similar as well\. The remarks made about ERR, the Least-cost investment program and the relevance of financial statements with respect to Turceni I are generally applicable to the other projects as well\. Moreover, the projects' implementation has been similar in that all have experienced delays of about three years\. Common to the delays was the effect of late deliveries of equipment, materials and supplies, which had their source in shortages of labor, money and shifting priorities in industry\. Notable are the two most acute problems of implementation, the boiler redesign and modification of Turceni I, which impacted in a secondary manner to delay Turceni II, and the major problems at the Riul Mare Hydro plant\. These expe- riences suggest that, while much credit may be given to the technical experts for eventually solving the problems, the projects as planned tended to involve very advanced technology or were at the limits of experience and practice in the country\. Therefore, there were risks of major delays, sub- stantial increases in project costs and revenues foregone\. 29\. The project did not include an institution building component which is understandable in view of the advanced state of Romanian power facilities and supply and the different structure of the industry\. This was likewise the case in the other power projeLts and, for the most part, in other sectors\. Sustainability 30\. There is no reason to expect that the Turceni I will not fulfill its function of operating at a high plant factor to provide energy for load growth, as well as energy which displaces oil fired thermal generators at less cost\. The power sector itself, long established, can be expected to continue to grow and function consistent with the already high standards\. While problems could arise in the development of the lignite mines, lignite for Turceni I is well provided for\. \./ 2 \. 片零軫 Z夕亡 綽쟈닒孑’ 13 APPENDIX Page I of 9 MWESTUNT BANK Foreign Relations Department Mr\.Yukinori Watanabe Director Operations Evaluation Department Re:Project Performance Audit 10part, Turceni Thermal Power I \. Loan lo28-RO Dear Mr\.Watanebe: 0E) Notes: iWe acknowledge with thanks receipt of your March 13,1985 letter submitting the first draft of the Project Performance Audit Report(PPAR) for Turceni Thermal Power I Project\. In drawing up the final draft of the above mentioned report we would kindly ask you to take into account our comments introduced further and aiming at better reflecting tte actual realities related to the implementation of the PJ oject and the owall economic climate during the several stages\.from the identification to the Project's commiasionning\. and Back- The Table of Contents of PPAR,Annex S,stetes that the Project summary Completion Haport(PCRI for Turceni I,prepared by the Investment Bank ground Infomation and Turceni Bnterprlze,is enclosed,while the material you furmished reproduced in us contains only 4 pages of this Report\.To that end,with a view to Aunex B\. Bulk of offering a balanced Image of the realities concerning the Implement- draft report is in Bank ftles\. tation of the Project,we would kindly ask you to Inelude In the final PPAR,integrally the PCR prepared by the Investment Bonk In cooperation with the Ministry of Electricity and Turceni Enterprise\. With reference to the PPAR we are surprised by the approach of the staff furnishing the elements required for the Hoport,in preasn, ting thm RDmanian economic realities as wall as the unusual language used when considering the mechanisms of operation of a centrally planned economy\.1t is well known the fact that Romania, socialist country\.nagptisted with the World 3ank also Projects in other fields\. the Bank being aware of ftmanials planned econoaW specific and the results of the Projects s2-ready complated\.favourably appreciated - 14 - APPENDIX Page 2 of 9 OED Notes: we do not accordingly understandthe criticism and unsubstantiated Evaluation of any Im- comments uaed in the PPAR with reference to the Romanian economy\.We portant power project era otherwise surprised finding out that the PPAR Is mostly considering cannot be made in iso- the problems at the macroeconomic level while the share,in our opinion, lation; in this case, had to deal with issues directly connected with the implementation of eviroen o be Turceni I Project\.ae shown very clearly in your letter stating that eni nt aco in "These performance audits are intended to evaluate the extent of an effort to understand achievements of project objectives\.reasons for lhortfalls or outstan- and explain the project ding achievements,and the general effectiveness of the World Bank experience\. support for the lending operation"\. In this constructive and of a good cooperation spirit we would like to ask you,and insist to that end,reviaing the PPAR for Turceni I Project,taking into account our comments as follows: 1\.The references to an 'austerity program" introduced in Romania Text of Preface, High- (Preface\.page i,pere\.2,line 9;Highlights,page v,pera\.l\.lines 11-12 and lights, and PPAM paras\. page vi,par\.],line 12;FPAM,Chapter I,Project Summary\.Bnergy Salee,item 9 and 11, amended\. 9,line 4 and TarrIffe,item 11\.1ine 9)ahould be deleted since there could not be the case of an austerity program undcr the conditions of Romania's maintaining a high rate of economic development,experiencing iL 1984 en important increase as compared to 1983: national income 7%\. iindstatrial production 6,4_,gross agricultural production 13\.3 %,total inveatments voluue 6\.1%\. The evolution of the Romanian economy during the last years could Lot be characterized by an austerity prograc as erroneously mentioned in the PPAR but,by several structural adjustemets due to the impact of the world energy and economic crisia,affording the further echievement of high growth rates\. 2\.IL Preface,papei\.pare\.2\.lines4--,the phrase "One of the Text of Preface amended\. decisions\." should be deleted since Romania didn't take such a decision of discontinuing borrowing from the borld Bank and we consider we have allways had a good cooperation with the Bank\.The fact that Romania didn't requested orld Bank Loans during the last few years,is the expression of the difficult situation in the international financia markets and high level of the intereat rates,including for the World Bank Loans\. 3\.In relation to Procurement,we kindly request your reconsidering the comments in order to avoid exaggerations and to reflect the reality,as follows : in the Highlighte,pag v\.per\.2,we kindly ask you to delete the The records show clearly first phrase "The project txperienced difficulties with procurerent\." that there were diffi- since this unilateral point of view does not effectively express the culties with procure- realities of procurement process for botn Tarceri I and the other ment\. tae\.nt1couti -15 - APPENDIX Page 3 of 9 OED Notes: power projects financed by the Bank\.If during the procurement process for the Project occured situations requiring dialogue and cooperation between the Borrower and the Bank,we consider these did not represen- ted difficulties but effective ways of solving the issues between institutions just beginning their cooperation with this Project\. At peg! vii\.pare\.1,we would suggest to integrally reword this ot ofgfoigth paragraph as follows :"Procurement inittiated an extensive dialogue of andh fotntt between the Bank and the Borrower for this first Project beginning aeded an fott the activity with the Bank,with a view to securing better mutual arde t\. knowledges of the procedures used and observance of Bank's Procurement Guidelines\.Awarding of contracts and disbursements of Loan amounts, constituted in some situations the object of this constructive dialogue aiming at the requirement of adaptability with a view to observing the procedures imposed by the Bank,taking into account the specific of the Romanian socialist planned economy"\.We consider this is the spirit in wording the above mentioned paragraph,the Borrower's firm wish being to abserve the spirit of the Bank's Procurement Guidelines irrespective of their restrictive and sometimes limited framework,and not to allow "irregularities" in procurement as shown by the staff supplying the information for the PPAR\. At Chapter I,Project SumaryProcurement,item 6,kindly request to Text of PPAK, pars\. 6 delete the last phrase "This marked the culmination of \." and reword the item 7 as follows: "7\. The Bank and the Borrower undertook efforts to mutually initiate Text of PPAM, pars\. 7 on the procurement procedurea used and finding the adequate solutions amended and footnotes to the situations resulted during the procurement process,such as: added\. - in the case of the bidding for cranes and equipment for the boilere,only two firms of those invited submitted bida,due to the specific character of the equipment;under the circumstances, the Bank gave its approval to proceed to direct price negotiations or direct purchase; - there were cases whn,after the approval of the award by the Bank, the volume of the supply was reduced due to the high price of the bids submitted by the foreign cvmpaniea,the decision being taken to manufacture them locally;under the circumstances, the volume of the supplies was broken down,the Romanian industry participating to a larger extent in delivering the equipment required for the implementation of the Project;the Romanian supplies were not financed out of the proceeds of the Loan,uaed integrally for paymeate related to imported supplies"\. In rewording this item,we have in mind that the Borrower constantly undertook efforts in timely submitting the bid evaluation Tetoffurhpaa - 16 - APPENDIX Page 4 of 9 OED Notes: reports\. contracts and withdrawal applicatione,the delays encountered being irrelevant to justify the appreciation that thes were not submitted "over a long time"-page 49itam 7;t the same time ,when restructuring the categories of the Loangone took into accoun the financing of imports already made,used for manufacturing the equipment required for Waroeni I and not fnational government import restriotion,to limit or reduce \. \. At the same Chapter\.we would request the complete rewording of Footnote referring the item easn follows I to this para\. " 8\.The detailed documentation supplied by the Borrower for the added to PPAM, justification of procurement,and also the reply furnished for the para\. 7\. Justification requested by the Bank,offered the Bank the elements required to approve the bid evaluation reports and the contracts coanded\. The Borrower undertook special efforts to met all the requeste of the Bank regarding procurement, the promptness in solving the aspects occured during procurement being a common feature for the Bank and the Borrower as well\. In this context, is surprisingly exaggerated and nonralist Text of PPAM, the wording of this item which stating that "The Bozrower was alloed para\. 8, Amended to follow his usual practices \. \. \. ", and the procurement have and footnote been performed under the conditions of "\. \. \. many irregularities referring to this and the Bank could well have refused to finance some of the con- para added\. tracts", an inacceptable wording for us\. Also, the statement that "\. \. \. There was little improvement in procurement in the subsequent three power projects\. \. \.", is not according to reality; the mea- sures have been according taken in cooperation with the Bank for the observance of the fundamental conditions of the Bank in this respect\. 4\. In the chapter "Highlights" it is mentioned that the Text aMended\. mining program was reduced and slow down\. This statement is meaning- less: as the request for coal increased, through the commissioning of the power units, it was not possible to simultaneously take measures to "reduce and slow down the mining program"\. The IRD missions, which visited our country, could see on the site and actually positively appreciated the measures taken for the increase of the production at the open mines, the activities to open new mine, commissioning, in a rapid growth rate the bucket wheel equipment and other similar measures\. adedtoPPM - 17 - APPENDIX Page 5 of 9 OED Notes: 5\. As concerns the refferenoes to "manomalies" and "obvious Texts amended\. an-malies regarding the tariffs control and price setting for raw materials and manitfactured products, which would not be "economical" and would be " the result of the manifestations of Romania's controlled economic system" (Bighlights, page VI\. pare 2v chapter II supplementary comments, page lo,item 14, lines 1-2 and page 12, Pinancial and Rconomic Analysis,item 19,1ine 1), we request to delete such a wording because does not reflect the reality\. We woul; like to mention that the tariffs for electric power as well as the prices for raw materials and manufactured products are based on rational economic criteria, following up the balanced and harmonious development of different branches of the Romanien national economy, and also the stead increase of the efficiency in all the sectors of activities\. We are convinced that yourself will reach the conclusion that these unrealistic appreciations are not to be included in the wording of the final form of PEAR\. An additional argument will be, of course, the fact the commitment to the Bank concerning the ensurance by the power sector of the agreed level of self-financing of the investments within the sector, shd been always observed\. 6\. Highlightex page viii, we suggest that the paragraph of Text amended\. this page should be reworded as follows: "The Government and the Bank proved mutual understanding on the terms and provisions which were to be included in the loan documents adopting to that end the working systems with a view to allowing a reasonable reflection of the standard requests of the Bank at the conclusion of the Loan and Guaratee Agreements and the Supplemental Letters thereto\." ie consider that this wordin- cor- rectly shows the arguments which have been taken into considez,%tion by both parties\. 7\. Chapter I "Project Summary",page 1 we kindly ask you to delete the item 3 or to be reworded, taking into account the fol- lowing: - being at the beginning of their activities, the Romanian Text amended\. agencies involved and the Bank as well, needed time and work together to better know the working system of both, exploring all the time modes for mutual agreement ; to that end the statement - 18 \.PPENDIx Page 6 of 9 OED Notes: that "the Government was clearly under some apprehension in dealing with the Bank \. \. \. ", is totally unjustified and we wan not agree to such an idea; - a study concerning the development of the sector on See footnote to the basis of least costs was furnished to the Bank in 1977 PPAM, pars\. 3\. and updated in 1984; the statement that this study was not furnished to the Bank is not according\.y based on real facts, and to that and the item 22 - Least Cost Solution,Chapter II - Supplementary Commente,page 13, and also the item 2\.03 (c) of PCR drawn up by the Bank should be revised, - with reference to the wish of the Bank to "deal directly PPAM, par\. 3 with the Project implementing body", we consider that this has amended\. been satisfied; the Bank had always been offered direct access to all the bodies involved in the Project implementation, There- fore, kindly accept the revision of para 2\.03 (d) of the Project Completion Report drawn up by the Bank; - with reference to affirmation that during the negotia- tions the Government was preocupied to limit the content of the documents only to the Project, in our opinion, this does not reflect the reality eince the Bank has been offered all the opportunities to have a deep and fruitful exchange of views in the Power sector; in this respect kindly review item 2\.04 of the Bank's Project Completion Ieport\. 8\. Prom chapter I\.pars 5, it results that the design of Text amended\. Turceni boilers was not well understood\. The boiler was manufac- tured on basis of foreign manufactures license rather than on "extrapolation of foreign designs under license\. Although the Romanian coal burned in the boilers was within the standards communicated to the licensor, in practice it was proved that the licensor did not posseeed enough experience in milling and burning Romanian lignite, the nominal flow being less than esta- blished and the fuel oil consumption much too high\. Under these circumstances, the Romanian researchers and designers were compelled to find solution to improve the boiler in order to reach the nominal flow for any quality of coal rhich was within limits communicated to the licensor and to reduce substantially the consumption of fuel oil\. - 19 - APPENDIX Page 7 of 9 OED Notes: 9\. In Chapter "Energy Sales" - para 9 it is specified that Text amended\. the imports of spare parts had been stopped\. We have to underline that the domestic manufacturing of spare parts, mainly of worn out ones, has always been a feature of the Romanian energetics\. As a matter of fact, all the serious firms, make available to their clients together with the supply the designs for spare parts which were out rapidly\. lo\. In Chapter "lignite" - pare 23 the concern to the Footnote added to lignite production and the lignite requirements of the power PPAt, para\. 23\. stations is expressed\. A basic feature of the planned economy is the correlation of the coal produc4ion with the power stations and other consumptions; we consider the affirmation from the PCR are exaggerated\. 11\. Chapter III,"Concurrent power lending experience", as Footnote added to mentioned above, should not have been included in the PPAR for PPAt, para\. 27\. Turceni I Project\. However, please note that the example regarding the extremly high volume of insulating materials for high pressure pipes and boilers which had not been a cause for delaying the commissioning\. Moreover, we consider necessary to delete from the PCR the referaces to the irrigation projects from Chapter "Tariffs" since the Investment Bank is not the Borrower for these projects\. In respect of the PCR drawn up by the Bank we have the following comments: 1\. We propose the deletion of item 3\.03, because the PPAK, para\. 4 turnover of the Turceni Enterprise management could not have been amended\. a "main factor" in delaying the Broject commissioning\. 2\. In sub-chapter "Change in Project Design" - item 3\.04 Footnote added to the average heat content of the lignite is not 1,400 kcol/kg\. PCE, pam\. 3\.04\. The tests performed have shown 1,400 - 1,600 kcal/kg and even higher; one cannot say that this was the low end of the range provided for in the design\. 3\. Item 3\.05 - The high fuel oil consumption at the beginning of the operation was caused by the possible atop of fire in the boiler because of the nonomogenous mixture of the coal introduced in a furnace with low temperature\. The change of fuel oil injectors with miniinjectors and the introduction of - 20 - APPENDIX fage 8 of 9 OED Notes: the post-burning grill,1eading to the increase of the temperature Footnote added to in the furnace and ensuring the stability of the burning process PCR, para\. 3\.05\. in the furnace\. created the conditions for reducing the fuel oil consumption to les then 7%\. 4\. Item 3\.06 - the phrase "The reconstruction of Bucharest after the 1977 earthquake led to a aubstantial shortage of skilled construction workers at the Turceni project eite" should be deleted being not realistic\. 5\. Item 3\.07 - it was 'he volume of ine:slating material Footnote added to constituting a problem, but the concentration - during certain PPM, para\. 27\. periods - of skilled workers in carrying out insulating works\. 6\. Item 4\.02 - Besides the explanations furnished at item 3 above, as concerns the so-called "inadequate lignite qualityO we have to underline that the rea- -uality of the lignite fram=d within the initial date of the project, so that the "major changes" did represented nothing but the improvement of the initial boiler's design\. 7\. Item 4\.04 - The excess of sulphur dioxide and fly PCR does not exLra- ash, found out during the measurements, depended also on the meteo- polate data over rologycal oconditions at that time\. The extrapolation of these project life\. values over the Project'a life is not scientifically based\. 8\. Item 4\.05 - references are made again to t!e lack of Footnote added to spare parts\. One has to underline the high degree of waring out PCR, Was 4\.05\. of some arts, mainly in the coal milling plant, due to the erro- neous conception of the licensing firm, inadequate to the coals indicated in the design, and the inadequate material supplied by the same firm\. As concerns the "poor maintenance " we are surprised how the Bank's missions could have reached this unsubstantiated conclusion\. 9\. Item 6\.02 - the conclusions concerning the so-called Footnote added to "dificulties in coordination between the mining and the power PCR, para\. 6\.02\. enterprises" are erroneous\. The coordination between the coal production and consump- tion is a problem permanently controlled by the coordinating minis- tries and there was never the case of Turceni I having to reduce electricity productpion due to the lack of coal\. proecIlfe - 21 APPENDIX Page 9 of 9 OED Notes: lo\. Item 7\.01 - in relation to the Bank's suggestion aiming at "inducing Romanis to modernise its system expansion planning by the use of modern date processing modelling techniques", we could make available to the Bank additional data and demonstra- tions in order to convince that such a recomandation is neither required or opportune\. 11\. As concerns the reduction of the volume of high voltage Footnote added to lines constructed and operated, it is to be mentioned that their PcR, para\. 3\.01\. construction took into account the implementation of the lines required to deliver electricity to the system, adopting an optimum and very economical solutions\. Besides our comments above, we would like to draw your attention to the following general comments - The references to the Government in the PPAR and the PCR should be replaced by "agencies involved", thereby meaning: the Borrower, the Ministry, the Design Institute,etc\. - Starting 1981, updated production and delivery price\. Amendments made to and tariffs were introduced in Romania, established on the basis nighlights and of economic principles, taking into account the level of the pPA1, paras\. 12, 19 production cost, 'the foreign prices for raw materials and im- and 22\. porsed materials, so that prices and tariffs would really exprese the efforts and results of the enterprises\. The World Bank's missions have been accordingly informed about these modi- fications\. We do accordingly consider that the comments in the PPAR, stating that prices and tariff\. would not have an economical basis, as well as the conclusions reaebod in connection with Project's economic and financial analysis, do not have a real basis and are unsubstantiated\. We would accordingly request revision of the PPAR and the PCR in the light of our comments above, as well as the full reproduction of our letter in the document to be submitted to the Ezecutive Directors, with a view to eliminating some errore and exaggerations and more accurately reflecting the reality\. We would appreciate your letting us have the final form of the revised PPAR, accordingly enabling us to inform our agencies involved\. With our thanks for your coope tion, 4-Alexa=r teanu Director 、夕夕一 必《，&＇→。二多了知＇ 23 - ROMANIA LOAN 1028-RO FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT I\. INTRODUCTION 1\.01 Since the mid 1960s, the Government's electric energy policy emphasizes the use of indigeneous energy resources - lignite and hydropower - in the production of electric energy\. The First Turceni Thermal Power Project is one of several projects designed to burn lignite from Romania's extensive lignite deposits\. The Project introduced Romania to advances in technology in the manufacture of boilers designed to burn low-quality lignite\. Similarly, the development of the associated lignite mines (though not part of the Project) involved the manufacture of large bucket-wheel excavators\. II\. PROJECT ORIGIN, DESCRIPTION AND PROCESSING Proiect Origin 2\.01 Soon after Romania joined the Bank (January 2, 1973), identification of a project for a possible first loan to Romania for the power sector began\. At the Government's suggestion, the Bank first considered as possible candidates the Iron Gates II hydroelectric power plant on the Danube River (432 MW), a multi-purpose power and irrigation project on the Lower Olt River, and a nuclear power plant\. However, feasibility studies for the projects originally proposed were not yet available in early 1973\. Furthermore, agreement had not yet been reached between Romania and Yugoslavia on the approach to construction of Iron Gates II, which would span the river at the border\. Although the Bank had limited access to data on the power sector it had found the Romanian agencies and trusts involved in electric energy to be highly competent\. Also both the Bank and the Government were eager to proceed with the first lending operation in the sector\. The Turceni project was then suggested by the Government as another candidate for a Bank loan, the power plant being already in the detailed design stage and being of significant importance to Romania's strategy of building increased electricity generating capacity based on the use of domestic resources\. At the time of appraisal, site works were well advanced (work at site had commenced in November 1972)\. - 24 - Project Description 2\.02 The Project originally consisted of the following: Part A: Construction of the first stage of a thermal power station at Turceni in the Gorg district with four 330-MW lignite-fired units, complete with a realignment of the Jiu River for cooling water intake purposes and flood control, and road and rail links required for construction\. Part B: Construction of 400-kV and 110-kV transmission lines with a combined length of about 600 km, connecting the station with Mintia and Brazi substations, including a switching station and interconnection with the existing 400-kV system out of Iron Gates I power station\. During project implementation, some changes were made in the definition of Part B of the Project; these changes are explained in para 3\.01 below\. Appraisal 2\.0\. Once the project had been identified, most of the issues at appraisal arose out of the fact that the Bank and the Government had little experience working together\. These issues were: (a) whether the mine should be included in the project definition, (b) procurement, (c) the economic analysis carried out in Romania to establish the electric power investment program, and (d) deciding which entity would be the borrower\. These issues were resolved as follows: (a) Regarding project definition, the Bank had proposed including the adjacent mine which would feed the Turceni plant as part of the project because mining equipment would need to be imported, whereas for much of the equipment required for the power plant local suppliers could be expected to bid and win following ICB procedures\. However, because the Government preferred to take advantage of German financing available for mining equipment, the direct foreign financing for the project would be necessarily reduced\. The definition of the project was also important in that the Bank sought to indicate to the Government the importance of evaluating the power plant and mine as a whole even though Bank financing was not being sought for the mine\. In the event, the mine was not included in the Project; (b) A separate mission was held following the appraisal mission to review in detail the Bank's procurement guidelines and assist with the drafting of the bidding documents which would be used for the project (para\. 3\.09)\. (c) At the time of the Bank's first reconnaissance mission in Romania in early 1973, the Bank requested an economic study of the development program for the power sector showing the effect on the system of the - 25 - different projects proposed for Bank financing\. In the absence of such a study, the Bank instead proceeded to evaluate the proposed project in relation to alternative generating possibilities, while still continuing to seek further information on the sector which would be needed to justify future projects; and (d) The Bank sought to identify a borrower which would be directly involved in assuring successful implementation of the project as well as being experienced in handling disbursement and procurement matters\. The Investment Bank was ultimately determined to be the most appropriate borrower, although this entity did not have direct involvement in the technical aspects of project preparation and would not be responsible for operation following commissioning\. This became a precedent for future Bank lending to Romania in all sectors except agriculture\. Negotiations 2\.04 Negotiations for the Project were carried out in April/May, 1974, in parallel with those for two other projects, the Otelinox Special Steel Project and the Tecuci Fertilizer Project\. While the Bank had originally proposed having a Project Agreement to assure full and open exchange of technical and sector information with the Industrial Centrals, the agreement to carry out this exchange was instead established in a supplemental letter to the Loan Agreement\. Emphasis was given to uniformity between the provisions of the legal documents for the three projects\. The Government sought to assure that the legal documents addressed only the project being financed, and did not establish any binding guidelines related to the sector (e\.g\., a commitment to follow "sound public utility practices")\. Effectiveness 2\.05 Because of delays in preparation of a complete legal opinion, and in approval by the Council of Ministers of the technical and economic indicators of the project, including the authorized amount of imports, the effectiveness date was postponed by one month to November, 1974\. III\. PROJECT IMPLEMENTATIO4 Change of Project Scope 3\.01 During project implementation, the scope of Part B of the Project was reduced, namely, the length of the transmission lines was reduced to 169 km of 400 kV and 110 kV lines instead of the 600 km originally planned\. The balance of lines has been deferred to the 1981/85 Five-Year Investment Program to be ready by the time all units of the second phase of Turceni (Second Turceni Thermal Power Project - Loan 1652-RO)\. The transmission lines built during the first phase of the Turceni program adequately tie in the power station to the national Romanian electric grid\. I/ 1/ OED Note: See also Appendix, page 9, item 11\. - 26 - \.Implementation Schedule 3\.02 Although actual disbursements followed the estimated schedule closely (para 3\.10), physical completion was significantly delayed\. CommissioninR Date Completion of Boiler Estimated Actual Modification Unit 1 9/77 12/78 82 Unit 2 3/78 2/79 83 Unit 3 9/78 2/81 83 Unit 4 3/79 3/82 82 Transmission Lines 77-78 9/79 (partial) Delays in project construction and commissioning are attributable to the following factors: (a) skilled labor shortage; (b) late deliveries of equipment (e\.g\. boiler feed pumps, valves) mainly because of manufacturing problems since these were prototypes for the Romanian manufacturers; (c) required modifications to the boilers and lignite handling equipment (see para\. 3\.04); and (d) the need to review structural design of the power station after Zhe March 1977 earthquake\. 3\.03 Another major contributing factor for the slow-down of project execution was the turnover in the mane,ement of the Turceni enterprise\. For example, from mid-1979 to early 1981, three different general directors were appointed\. \./ Channe in Project Deagn 3\.04 According to information supplied to Bank missions and confirmed in the Borrower's PCR, the average heat content of the lignite supplied to the Turceni plant has been 1,400 kcal/kg, the low end of the 1,400-1,800 range provided for in the original design\. 3/ The modifications introduced to the boilers and peripheral equipment, developed largely by the Romanian Design Institute for Thermal Studies (ISPE), were extremely successful, leading to improved operating efficiency and stabilization of the flame in the furnaces\. The major changes consisted of: (i) installation of traveling grates below the furnace hopper\. This device reduced the amount of unburned fuel reaching the furnace hopper and guaranteed a controlled flow of ash into the ash conveyor, thus preventing the development of explosive pressures and overloading of the ash conveyor; (ii) elimination of the coal dust separator originally provided to separate the coarser lignite particles; (iii) reinforcement of the driving gears for the ash conveyors; 2/ OED Note: See PPAM, para\. 4 and Appendix, page 7, item 1\. 31 OED Note: The Borrower contends that tests have shown higher values (Appendix, page 7, item 2)\. 27 - (iv) increase in the capacity of the motors driving the grinding mills from 1,150 kW to 1,400 kW; and (v) installation of larger pumps (50% additional capacity) to pump the ash from the power plant to the ash disposal pit\. 3\.05 The long duration tests conducted on unit No\. 4 did show that the full output of 330 MI can be sustained continuusly\. The tests also indicated that fuel oil consumption was around 7% during a three-month period for loads averaging 200 MW\. Before the modifications were installed in the boiler, consumption of fuel oil was as high as 40% for the same level of loads\. The lack of ability to produce components of the needed quality which were novel to the Romanian manufacturing enterprises is probably the principal reason why ISPE, responsible for the design, had to find alternative design solutions to make use of certain components which would match the high technology equipment which the Romanian industry was capable of supplying at that time\. 4/ 3\.06 Because the Turceni site is in an area of potentially large earthquakes, ISPE had to redesign the structures and foundations in view of the need to revise the criteria and standards for earthquake proof designs\. This caused delay in delivery of structural elements leading to work stoppage at the site for some 7 months\. The reconstruction of Bucharest after the 1977 earthquake led to a substantial shortage of skilled construction workers at the Turceni project site\. 3\.07 Another problem area has been the provision and installation of suitable insulation of the boilers, gas ducts, and high temperature piping because of the very large volume of insulation required\. 3\.08 Other changes in project design introduced early on (1978) included the elimination of one of the four cooling towers originally planned, a redesign of the turbine hall, and reduced standards for the finish of the power station building\. These changes led to a savings of 50 million lei\. Procurement 3\.09 A number of corrections were required to the draft bidding documents in order for them to comply with Bank procurement requirements\. (For more discussion see the draft PCR prepared by the Borrower, para\. 4\.01-4\.05)\. The list of contracts financed under the loan is shown in Annex 1\. Disbursement 3\.10 Disbursements were for components of the thermal power station (Category 1) and for supplies for manufacturing equipment in Romania (Category 2), for contracts as listed in Annex 1\. Disbursements began about a year later, and were completed about nine months later, than originally forecast (Annex 2)\. As shown in Table 3\.1 below, Bank funds were reallocated from Category 1 to Category 2 of the project due to the procurement of a relatively larger proportion of equipment manufactured in Romania than originally envisaged\. About 70% of the loan proceeds were disbursed to German suppliers; the remainder of the contracts were with other Erropean and American suppliers\. 4/ OED Note: The Borrower has noted (Appendix, page 7, item 3), and Bank staff agree, ttat the reduction in fuel oil consumption was the direct result of the boiler improvements\. - 28 - Table 3\.1: Disbursements Category 1/ Original Allocation Actual --- US9 Million -- I\. Components of the thermal power station and related 25\.5 17\.9 works II\. Supplies for manufacture of thermal power station equipment 34\.5 42\.1 1/ Loan Agreement, Schedule 1\. Project Cost 3\.11 A detailed breakdown of estimated and actual project cost in both lei and dollars is shown in Annex 3, and a summary appears in Table 3\.2\. Table 3\.2: Project Cost (USt million) (1) Thermal Power Appraisal Estimate Actual Statior Local Foreign Total Local Foreign Total Civil Works 63\.0 0\.4 63\.4 56\.5 1\.2 57\.7 Equipment 128\.4 62\.4 190\.8 227\.4 60\.9 288\.3 Modifications - - - 13\.2 - 13\.2 Base Cost 191\.4 62\.8 254\.2 297\.1 62\.1 359\.2 Physical Contingencies 13\.0 - 13\.0 - - - Price Contingencies - 26\.2 26\.2 - - - Total (1) 204\.4 89\.0 293\.4 297\.1 62\.1 359\.2 (2) Transmission Lines and Associated Works 57\.4 0\.2 57\.6 18\.9 0\.1 19\.0 Physical Contingencies 2\.4 - 2\.4 - - - Price Contingencies - 0\.1 0\.1 - - - Total (2) 59\.8 6\.3 60\.1 18\.9 0\.1 19\.0 TOTAL PROJECT CSr(1)+(2) 264\.2 89\.3 353\.5 316\.0 62\.2 378\.2 - 29 - For the thermal power station, the actual cost was 22% over the estimated cost\. While the cost of civil works was lower than estimated (75%), the cost of equipment was much higher (1391)\. No price contingencies had been added to the base estimate of local costs because of the fixed price regime in Romania\. However, prices were reset in 1976, 1981, and 1982 and as a result inflation did have an impact on local costs\. Most of the increase in project costs is due to the changes in the project design\. The cost of the design improvements added during project implementation amounted to 316 million lei or about US$16\.6 million\. 3\.12 The actual cost shown in Table 3\.2 for transmission lines and associated works was considerably lower than the estimated cost\. The installation of several 400-kV sections, originally expected to be part of the project, was postponed (para\. 3\.01)\. These sections were the Slatina-Brazi line and the Rovinari-Mintia line, which are being built in association with Turceni Thermal Station II, as part of the 1981-85 investment program\. IV\. OPERATING PERFORMANCE Lignite Quality and Supply 4\.01 Initial operating problems at the Turceni power plant occurred due to the poor quality of the lignite supplied by the mining enterprises, which was inferior to the quality for which the Turceni boilers had been designed (para\. 3\.04)\. 4\.02 Some of the problems of inadequate lignite quality originated from the thin size of the lignite seams in relation to the original size of the excavator buckets\. Furthermore, the xylite 5/ content of the lignite was higher than had been apparent from the geological surveys done at the time of appraisal\. Because of the quality of lignite supplied and its inconsistent composition, a higher amount of fuel oil was needed than was planned for stabilizing the boiler flame produced by the lignite which is pulverized in mills at the last stage of preparation\. The design oil/lignite ratio was 7%, but ratios of up to 40% were needed because of poor lignite quality, which also caused some of the lignite pulverizing mills to fail\. This poor quality necessitated the major changes in boiler design for all Turceni units\. Progress Reporting 4\.03 The quarterly progress reports were submitted on a timely basis\. However, the Bank found these reports often contained inadequate information to monitor the project carefully\. This point was stressed regularly by the supervision missions, but no real progress was achieved\. IV Xylite is a fibrous mineral reflecting the lignite vegetable origin\. -30- Environmental Impact 4\.04 In accordance with the agreement reached with the Bank, the Turceni Enterprise was to carry out baseline miasurements of air pollution in preparation for monitoring and controlling any harmful environmental effect of Turceni plant discharges\. These measurements were to be carried out before starting operation on lignite fuel and, in fact, they were done in a timely fashion\. Concentrations of nitrogen oxides and fly ash were found to be within the safety levels\. Concentrations of sulphur dioxide and depositable fly ash exceeded the health norms by 10-301\. Growth of Energy and Capacity Demand 4\.05 Annex 5 gives a comparison of the actual and estimated plant capacity and load growth through 1980\. Although in 1980, the installed capacity exceeded the estimate made at time of appraisal, actual supply was constrained by the decision of the Government to stop operation of a number of oil-fired power stations and by poor maintenance and lack of spare parts\. 6/ Sales of electric energy were thus affected by tais policy and by 1980 had only reached 70Z of the appraisal estimate\. V\. FINANCIAL PERFORMANCE Debt Service Coverage 5\.01 At the time of project appraisal, it was difficult for the Bank to determine which financial covenants would be appropriate to the Romanian economic environment and the structure of the power sector\. Allocations from the State Budget were said by the Government to be unconstrained for this sector and would thus be available as needed to meet any funds requirements of the Industrial Centrals and its Enterprises which could not be met by inLernally generated funds\. The Investment Bank was responsible for meeting the debt service obligations on the loan\. Ultimately, the only financial covenant consisted of a commitment to assure that the sum of the net income and provision for depreciation of the Turceni Enterprise would be sufficient to cover the debt service payments on the loan\. While, according to the Loan agreement, this covenant was to apply after 1979, in fact debt service coverage could not be monitored until 1983, the first year of commercial operation of the Turceni I plant\. If the actual results of the first six months of 1983 are prorated, debt service coverage appears to have been inadequate in 1983, largely due to the low sales volume and the relatively high fuel oil/lignite mix\. For 1984 and afterwards, annual net income plus depreciation is forecast to be about 300 million lei, compared with 85 million lei (US$5\.7 million) in debt service on the loan\. Debt service coverage is thus expected to be about 3\.5 times, in compliance with the covenant\. Internal Cash Generation 5\.02 In a side letter (No\. 1), the Government indicated its intention to ensure that from 1970 to 1980 more than 40% of the investments in the sector would be financed from funds generated by power sector enterprises (net income 6/ OED Note: The Borrower denies that there is poor maintenance (Appendix, page 8, item 8), but Bank staff insist that this is a factor in constraining the availability of power\. - 31 - plus depreciation)\. Between 1970 and 1980, annual internal cash generation f-inanced a substantial share of investments, generally ranging between 40% and 60% of capital expenditures, dropping below 40Z in 1979 and 1980 (Annex 4, page 2)\. Following 1980, with the continued expansion of the sector investment program, this ratio dropped to an average of 30%\. VI\. \.NSTITUTIONAL PERFORMANCE 6\.01 The power sector of Romania is controlled by the Ministry of Electric Energy (MEE), which is responsible for the overall performance of the subsector and which translates national economic objectives and policies for electrical \.nergy and heat into specific physical, financial, and efficiency targets for its organizational units 77 Through its research, design and engineering institutes, and construction trusts MEE is also responsible for the design and execution of its projects to provide for the future public demand for electric energy and heat\. Generally the staff of the enterprise is capable and experienced and competently exercises delegated authority and responsibility\. The very rapid growth of the Romanian power system over the last decade has somewhat strained the staff of the enterprisess Nevertheless, their performance in solving the difficult technical problems posed by the burning of low quality lignite at Turceni can be considered outstanding\. 6\.02 Some difficulties did develop in coordination between the mining and the power enterprises\. The mining enterprises in Romania are responsible for extracting, loading and delivering the lignite to the power plant\. The Turceni enterprise is then responsible for the unloading, storing or feeding directly to coal crushers or mills, and for other lignite handling and preparation\. Initially, the mining enterprise failed to notify the power plant in advance of the characteristics of the lignite being shipped; this problem has now been remedied\. 8/ 6\.03 The staffing for the plant numbers about 1,900, 25% higher than the appraisal estimate, largely due to greater than anticipated need for repair and coal handling personnel\. VII\. BANK PERFORMANCE 7\.01 The Bank's assistance to the Romanian power sector, although relatively modest as the lending is to a relatively sophisticated sector, nevertheless has: (a) introduced the sector's associated supply industries to international competition and international competitive bidding; (b) helped, and should continue to help, transfer of up-to-date technology; and (c) made, aad should continue to make, a useful contribution to planning by inducing 7/ CIPEET (Industrial Central for the Production of Electric Energy and Heat)\. CIRE (Industrial Central for Power Distribution)\. DEN (National Electric Dispatch System)\. 8/ OED Note: The Borrower denies that there were coordination problems (Appendix, page 8, item 9), but the problem did exist at one time according to statements made by Turceni Enterprise personnel to Bank staff\. - 32 - Romania to modernize its system expansion planning by the use of modern data processing modelling techniques\. The Bank could possibly have assisted more in recommending systems for better coordination between the Turceni enterprise and the mining enterprise with regard to lignite delivery\. VIII\. ECONOMIC EVALUATION Economic Rate of Return 8\.01 The calculation of the economic rate of return of the Project takes into account the sales attributable to Turceni I as set out in Annex 7 on the assumption that operating efficiency would improve gradually to reach the design level of 34% by 1989\. Energy used by the power station's auxiliaries has been taken at 17% of gross generation, which was the level experienced in the first half of 1983, and the same level assumed at appraisal\. Energy losses in transmission and distribution are expected to continue at the current level of 6%\. The lignite price used in the calculation - Lei 187 per ton (US$40 per ton coal equivalent) -- corresponds to the average purchase price for lignite having an average calorific value of 1,629 kcal per kg as furnished to the power station by a combination of open-cast and underground lines\. As proxy for benefits it uses the current average tariff for the entire power supply in Romania, both at high and low voltages\. The computed rate of return under this assumption is 6%, while at appraisal the rate of return was 8\.6%\. The lower rate of return reflects the longer than estimated project implementation period, and consequently, the delay in reaping the benefits from the Project\. However, the incremental revenue understates the benefits consumers receive from the Project\. The incremental revenue also does not take into consideration the impact of the Project in fostering expanded industrial employment through adequate power supply and the mining of indigenous lignite resources\. Comparison of Alternatives 8\.02 The Turceni Power Station operating at its design efficiency will be able to deliver electricity to the Romanian national grid at a cost of Lei 0\.46 per kWh (equivalent to US$0\.025/kWh)\. Tne cost of generati-n is lower than the cost of generation in an equivalent oil-fired power station using imported fuel oil at US$170 per ton (US$0\.0454/kWh), or imported oal at US$65 per ton (US$0\.032/kWh), 9/ compared with US$40 per ton coal equivalent for the lignite used at Turceni\. 9/ While no data is available on the cost of imported coal to Romania, the estimates used in the analysis are based upon known contracts for coal delivered to other EMENA countries\. For example: (i) Portugal is currently importing coal from the USA at $45/ton (FOB USA) + $14/ton (freight) + $6/ton (port handling); and (ii) Ireland is currently importing coal from Colombia at $55/ton (CIF Bantry Bay, Ireland) + $5/ton (internal handling)\. - 33 - IX\. CONCLUSIONS AND LESSONS LEARNED Conclusions 9\.01 The Project has successfully achieved its major objective of expanding Romania's electric power generating capacity using an indigeneous resource: low-quality lignite\. It has furthermore introduced up-to-date technology into the machine building industry of Romania\. Another aspect in which the Project has had a significant impact is the introduction of competitive bidding in the procurement of equipment for large infrastructure projects\. This aspect of the Project is particularly important since it has brought the Romanian export agencies into contact with international competitive bidding processes\. Lessons Learned 9\.02 Although Romania possesses a sophisticated power sector, the introduction of new technologies is bound to cause difficulties in the learning phase as exemplified by the Project's initial technical problems\. The following two lessons emerge from the Project\. The implementation schedule for a Project such as this involving the introduction of new technologies should recognize the difficulties attendant on the introduction of such technologies and provide adequate time for commissioning and possible modifications to novel equipment\. In addition, ample physical contingencies should be provided in the Project cost estimate to cover the sort of eventualities that affected the Project\. Finally, price contingencies should be estimated even under the conditions of a centrally planned economy in which prices are administered\. June 29, 1984 (1714P) ,i}:l！一，,,&,,& 挨 l刈”‘當當‘&&& ‘馴”&&&&&&& 。，11謝，響奮響豐。響豐當 l尸，I―盪煙―!―寫熙馨豐鑿栽妝妝 ,{&,,&!,&!,!&&;,,&! 中1．露l 馴I蠶。i…― 1 11〕111，氫，!111！【111〔―。＿ 興‘―籰二；＇誡J、‘捶―眉邑 ．斤 AM= 1 35 - Page 2 of 2 ROMANIA LOAN 1028-RD FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION RSPORT Contracts Financed Under the Loan Item Amounts Paid -No\. Descripti From The Loan (US$ thousands) Category 11: Supplies for manufacturinz the equipment of the thermoeower station 1\. Special steel plates and pipes alloy steel and stainless steel, additional materials for boilers, measuring and control devices, different deliveries\. 35,500 2\. Expansion compensators 200 3\. Fittings 100 4\. Vacuum pumps 100 5\. Low Pressure by-pass 2,200 6\. Excilation static system 100 7\. Hydraulic couplings 1,000 8\. Industrial Fittings 2,900 9\. Additional Materials TOTAL CATEGORY 11 42,100 TOTAL FOR PROJECT 60,000 June 1984 (1714P) ANEX 2 ROMANIA LOAN 1028-R0 FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT Estimated and Actual Disbursements Schedule US$ Million Fiscal Cumulative Disbursements at End of Quarter Year/Quarter Original Forecast Actual 1975 Sept\. 30, 1974 - - Dec\. 31, 1974 2\.4 - March 31, 1975 7\.0 - June 30, 1975 13\.0 - 1976 Sept\. 30, 1975 19\.7 - Dec\. 31, 1975 24\.0 6\.80 March 31, 1976 27\.6 10\.40 June 30, 1976 32\.4 28\.30 1977 Sept\. 30, 1976 37\.1 35\.00 Dec\. 31, 1976 40\.7 36\.00 March 31, 1977 44\.0 41\.50 June 30, 1977 47\.6 44\.20 1978 Sept\. 30, 1977 50\.9 48\.80 Dec\. 31, 1977 54\.1 54\.20 March 31, 1978 56\.5 57\.10 June 30, 1978 58\.8 57\.90 1979 Sept\. 30, 1978 60\.0 59\.10 Dec\. 31, 1978 - 59\.90 March 31, 1979 59\.95 June 30, 1979 60\.00 June 1984 (1714P) 認＇;！Â。Â’Â？ &&’〕〕‘〕‘〕’〕〕〕〕〕〕〕’&―。 AIR= 4 38 - page 1 of 2 ROMANIA LOAN 1028-RO FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT COMPLIANCE WITH LOAN CONDITIONS Reference Financial Conditions Date Due Compliance L\.A\. Annual net income plus Annually\. starting Not applicable until 4\.01(h) depreciation provision in 1980 delayed start-up of of Turceni Enterprise commercial activity in to be at least 1983\. Not complied with in sufficient to cover 1983\. According to debt service for this forecast, coverage adequate loan during each year\. from 1984 on\. Side Letter Internal cash Annually Complied with (see p\.2 of No\. 1 generation for sector this Annex)\. to finance at least 40% of power investments\. Reporti L\.A\. Financial statements Annual audit report Reports for Turceni 6\.01(e) of Turceni Enterprise due 3 months after Enterprise received on end of fiscal year; irregular basis, incomplete\. quarterly unaudited Financial statements of reports due 60 days Industrial Centrals after end of each received 6 mouths after end quarter\. of fiscal year\. L\.A\. Audit report and Due 3 months after Received with delays\. 6\.01(f) financial statements end of each fiscal of Investment Bank year\. Attachment Technical and 45 days after close Received regularly, on to Side financial progress of each Tiarter time\. Letters reports Atacbment Environmental Report 2 months after Covered in 12/80 letter to Side close of each from Investment Bank\. Letters semester Conclusions shown in Borrower's PCR, 10/83\. Attachment Fuel Supply Report 2 mouths after Not received\. Some to Side close of each information received during Letters semester Bank missions\. June 1984 (1714P) -39 - poe 2 af 2 LNO 1028-R0 PFIR CIE w Re!fE P~K ECr PIEzær aae1ia,I liR IRIE1ECL GASEEMERUIK (F IIKUSIl[ GREI\.S (1970-19M) (millions of lei) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Net Iaan 1,563 1,640 2,127 2,287 1,631 1,950 2,036 1,519 1,964 855 1,702 Plus 1pe,im _ 1\.735 1,Y 2\.231 2466 2 2 9 2 M Gross Internal Cash Geneatia» 3,078 3,375 4,061 4,518 4,097 4,654 4,%2 3,907 4,583 3,754 4,823 Less Pd Paymts 34 56 64 52 40 41 29 37 49 65 816 (A) Net Intrnal Cas Genetic 3,04 3,319 3,997 4,466 4,CS7 4,613 4,913 3,870 4,5\.% 3,69 4,007 (B) Capital Epenlitares in Por Se:tor (irm1hng inteest durn conistrztian) 5,788 6,332 6,458 7,329 8,463 9,839 10,059 9,640 9,539 10,963 11,532 % Intmrna Cas Geatim (A/B) 53 52 62 61 48 47 49 40 48 34 35 J 1984 (1714P) ~40- 5 LON 1028-D FIRSr 'IICN 'lERMfL 10M! P wKL PmmUlcr cxlf13IWz xrHER cM!MÃ¥isi æ KIAL A10 ESEDftED PLAMr CæACI1Y A10 æEIMSB 1EaSIL 1973 1974 1975 1976 1977 1978 19-19 1980 FiPrC=MitTa Estimated - - 10,332 11,234 12,450 13,356 14,493 15,623 Actual - - - 11,914 13,184 13,620 - 16,012 Mariu De~an (M Einst r - - 9,917 11,077 11,960 12,880 13,855 14,900 Actual - - - 8,719 9,102 9,460 9,900 10,043 !E Sals (Gih) Esifie 37,740 43,520 47,780 54,340 59,720 65,440 71,Lo 78,3|) Actuul 35,501 38,741 43,435 47,589 49,6490 52,521 - 54,Y47 _a ntermcted Mz = Ministry of Electric Enrgy June 1984 (1714P) -41- Ata6 Im~N 1028-æ FIRSr 1U1IE1![ 31\.DIL !1E PEOJET PEGEcT (D!RE19 HI!R AIUAL 5U!L 00SJKrzEl AE 1!PEE FIsR SER i 8 Fuel Oil LgieNahbm1 Gas Ttll Geeratiæ (Glï) ---1,380 Fuel Conswiption 62,363 tons 3,001,5æ tons 55,456 103 m3 (46,028 tons) /1 Awrelal/lig 9,52) 1,600 8,565- CnswptiLo in millions of kcal 593\.7 4,82\.5 394*\.2 5,790\.4 Finsræ-al Cost to Tureemni Enterprise (1,000 1ei) 159,337 516,270 %6,62271,2 Uinit Price 2,555 leitn 172 lei/ton 1,742 lei/103 m3 /1For dry natnmal gas, 106 2 = \.83 x 10æmtric tæs\. JSEm 1984 (1714P) - 42 - Ã¥S 7 F It~m in~m ~!mi PENr Tabulatim fr Rate c \.trn Cffi ~ Net Invue~t in Cm\. Sals Pouer Subtnaw- Operati~ ikel Toal Net Clu Year Cainr u ffi Lei x UP Statin & Distrib\. \.6 Maint\. Cost Osts Flw No\. Yer a/ b/ c/ d/ e/ -- -- -- -- - - -Leix 106- - -- -- -- ----- 1 1972 8 8 (8) 2 1973 88 88 (88) 3 1974 237 237 (237) 4 1975 440 440 (440) 5 1976 1,0L2 1,012 (1,012) 6 1977 1,468 1,468 (1,468) 7 1978 1,602 1,602 (1,602) 8 1979 600 564 298 878 60 148 1,086 (788) 9 1980 1,517 1,426 756 230 169 328 727 29 10 1981 2,072 1,98 1,032 192 750 348 791 1,290 (258) 11 1982 2,455 2,338 1,223 86 750 195 1,185 2,OB (85) 12 1983 4,700 4,418 2,342 47 750 524 2,171 3,492 (1,150) 13 1984 7,150 6,721 3,562 89 750 590 2,728 3,902 (340) 14 1985 7,150 6,721 3,562 - 590 2,600 3,190 372 15 1986 7,150 6,721 3,562 590 2,472 3,062 500 16 1987 7,150 6,721 3,562 590 2,364 2,936 628 17 1988 7,150 6,721 3,562 590 2,216 2,86 756 18-43 190- (25 yrs) 2014 7,150 6,721 3,%2 590 2,O8 2,678 884 RATE OF RETURN - 6 a/ Stmtion ue 172\. b/ Lses in tUe i cnaimn distributin: 6\. / Amerae revenue per Mau Lei 0\.53 per MIuh\. Ntiona imesUt in "btisasin ad distributwi: US$150 per 1W aE peak d~xnr (\.quivalt to Lei 3,000~/\. e/ Lignite at Lei 187 per te (US$40 per tn cmal equivale~t)\. MME\. Full eperetion of the pmer static started in 1986\. It is assed for this calclation that full efficiency (34%) vill be atteinad gradally in fiv years startirg in 198<\. (1714P) - ANNEX 8 Page 1 of 4 TURCERI TEENW0WPO STA!T3DN -I\.t STAGE fl0JE0T 09MPLU110N IBFORT LOAN 1e28-20 1\. DATA ELATED TO TE BEK LOAX 1\.el\. The general data related te the ak len for the Impemeate- tion of Turoeni Theraepower Projeot - lat stage bre summarised hereinwfter: zorrwor :Iavestment Bank of the S\.Rof lEeada (13) ~uarater :S~ialies Repablie of Ibmanla Loen omoun t US$ Go millien equlvaleat Dlatv of signing the Leen Agreemeat tuly 1\.,1974 Date of loa effectivenem: November 6,1974 Cloging dat@ g June 30,1979 lean period s 25 yeare,ef which: Gra e perled : 5 years an munthe lterest rate 7\.25 % Comittemcet hrge 1 0,75 5 Lean repaymeat : in 39 semi-annsl payment a startig January 15,1980 xchange rete u 8at Opprisal tlas: US&I\. Lol 20 sterting March 6,1978: 28$ 1 5 Lei 38 starting January 1,1981: Vs$ 1 a l 15 IBRD Appralaal Bport & W 391e, dated Junt 17,1974 Piol year *tart& January let endIng December 31\. II\. 4(CIMGUWD IKPORMATOF 2\.ol\. The US$ 6o millien equivalent Bank leen made in 1974 tor tb implemntotion ef the lat stage of Tumeni Therppewor Stelan, represented the Sauk's sesad loan in Romania sinoe the eeuntry joinmd the 3Mak,being the first lean for flaanoiag a power project, followed by three other loeea,amounting to US$ 245 million equivaleat, for uapperting the developmeat of power &eter\. ANINkK 5 Page 2 of 4 2\.02\. e ?rejeot ensled ef : a) the implemeatistln of a thermoPwer atatiea wlth 4 Got* of 33n I esh burnigg ligite,iLnoinig related freil- *is and alos related rallwa and ro~ad toneotieni b) bulding *f 400 an 110 Xy tranmission ilin0 with a total leagth fr Go b, wenmecting the power stetien with ntina and Babi ustations,lfonding a swit\.hiag and L'faanooting etatlen wlth the 400 IT system fr~m Irom ates I powmr station\. 2\.e3\. The Bank's Loan was ased soording to the provialonø of thw Loan Agreement Omd gubsquent agreomatø between the Bank and the Sorrower for flaMinIg foreign ezpenditure relmted to the preocuremen Of Geveral oDEponents Of the thermepower atation *ad uMpplies require for mauf8oaring ln bmana the 1035 t/k bollers end th~ 330 M tur'1ines Ad gnars (>are\.401 - 4\.04 )\.Diursemnt of e an amounte is shown under Annezes 1\.1\. -1\.3\. III\. sun 3\.01\. y the time the preent report Wan drafted (June 3,1983) all 330 N alt provided ts be imtalled vere omiss1eed,a tollows 8 aIt no\.1 Deoenber 1978 unit Se\.2 * OstOber 1979 Milt LO\.3 a Pebruary 1981 ult ao\.4 a Mareh 1982 Commisslinig of tho 330 Ki nit& was deløyed *a oapared to the target dateg foremegn whmn s00luding the Loea Agreemant and provided for ia the P^Ã¥*otta appraial r*port,he seasons or the delays being explansed nder para\.4\.o9\. TM experiene« ganed In the operation of fhm first 3 Mitg o 330 ]m ad noveral te~hnical modificetton lmplemented at =nit no\.4a wel, afrded ebtaiaing a higher fiabIllty a th~ perlod af \.peratiøn by the time of tis report better resute sa oared to the unltd o\. 1-3,amlX due to r AMNEX 8 n - ?U of 4 - 45 - u eIntredmsolem of the post burni~g grill @nd fbtaL~ni b higher effisioney la Operate n and stabilislis sf the burning at the burners,ee\.rtiagly atsbilisag the Operatis et the uniti that 91 lead te the pegaibility et Operatiea witheat ödding tuel eil for stabilising the flge,st wpercting rtas reagig betweea 6o-le %uvalues whieh prov* to be higher than othera experine ta the world for thi qua1ity cf lignite * \. - giviMg up te the 8e«l dust separaters la the grindig sirouit ba aooordigly cbtainng 9a ubutantial inorcsas the mils' sapaaity,the =nit 4 rsehing levele ot 3*9-319 EN with enly 4 ills in GpeutiOn ( eah boller being equipped with 6 ill* this was an approech affording the epeation ef the a It et higher rates burning low salerifio pwer 0sal (12*o koal/kg) compared ta the lever lilt provided for tn the das~ of the Project (149o kecA/kg)\. 3\.e2\. The atual lavestet *est ef the thersposer statien ta of 14 6,258,5 8ilin1 (GUMetG atually spenat as of jme \.3,1983, are et let 6,128\.7 millien) ma epared te the emot estisted by the appraisl misiean ( 1*i 5,9e millien la 1973 prise)\. TakiUg als* ate osceunt the laventwmat expeaditures related to the improvement aohieved and under way for lcrenasing the fiabi- lity In operatin,a uating to Lai 316 milliM ( et hish by Jne 3e, 1983 the mmonts opend ar et Lai 162 millien),ths total seat et the therwpower statio is at i1 6,574\.6 mllion,the ameunta motually spant as of Jun* 3 ,1983, inluding expenditures lurred tor increasing the flability,rais to li 6,29e\.6 milllen (Amer@* 4 and 4\.1)\. The diterens betwena the laitial 0sta estiMated by the ]bnk at apparisal,is de te the prieo resetting motions aMoeediag in 1976,1981 and 1988\. 3\.o3\. The provisions included in the lan Agreement and related Supplemwatal letters,have been generelly met\. Thert have been informatien not aubnitted te the 3enk given the Project's implementation status at that time,mot requiring subission et such informtion\. Such inforation have been sÃ¥beitted ANNEX 8 Page 4 of 4 - 46 - te the Mank Mn other eesion,»during the analysio ter ether preet (*g\. data senserna,g lignite produotion tor ftr»e«i po- jet,an *sel baeiag\.ubmitted te the lank with the gppgrtunity et rinulising the appraisal mnlysis for pewer IT projeet\. In Gonneotia with the information requested by the ~ank, there wer* Deveral aigundertanings between the Bank the the Borrower enoernig the pellatien mnétoxing informtin and their subission to the Bank\.he maln aisunderetanding wea du@ to the feet that the Appreisal Iport specified that " the Teroken RnterpriNe will establish pellution mnitorlng stationa an will report te the Bank the resulta and corrective mseasures takn" while the loan Areement provided only the obligation of reporting information enoermifg pollut2on monitoring\.he misunderstuding ocoured was fully elerified with the oppartunity of the diaouanins the Bank's upecilist in pollutim Ienitering,Nr\.Tixhon,ked in September and December 198o,with relÃ¥ted R£maian authorities: Na tional Counoil for Eavironemnt Pro teot ien, the Intitute tfr Eydrology Institute\.Tis was a good pportunity 99 olerf1y th way pollution »onitori~g is performed ln territerial profile throtgh above meationed institutions for Turoeni Therumopewer gtutima,the Dank's specialiet being supplied with all information rometed la oonnection with pollution mnitorng for this Projecta urther information en this subject concerning pollution monitoring for the firgt otage of Turoeni Preject are detailed under ~hpter VI of the present repert\. \.W1 lav ~fl et-,\. -s--a\.-m nas~ res mm - - ~/ SIOHETU MARMATIEI -- 1 -- - aSEINI- - U - - - -HUA RIT'A TG\. MURES RKJI MARE RETEZAT LOTU -GES BELGRDE NINAINA \.-f-N GATES SECOND TUCENITHER AL LPT LU ARO TG UE D\. SE" v INR REES\. CHAAOV <RON GATES\. SECOND REP\. CTT SEt\. PN\.AN una ulin~ cat AFA T TfUG~SLVWA, \.- IPR ~ - Q Vmair XUSTING" 4\.- \. \.:3 :NOVEMBEtt 1980 \.T9ERMALFOWER STATION EXTENSIN S TERMALP\.WER STAIONS- HHDROOWER STAT INS - - SUSTATIONS T 400kY TRANSMISSION LINES- 220kV TRANSMISSION LINES 110kV TRANSMISSION LINES EUROPEAN HIGHWAYS MAJOR NATrDNALIølHWAYS -------RAILROADS - - INTERNATIONAL citNDA RIES PROVIN CIAL CAPITA\.LS P~TRA NEAMT-- -- -- MUNICIPALITIES ROMAN- X 7 RIVERS VASLUI 0 20 40 Un -* too GIU KILOMETERS ROMANIA POWER\. TRANSMISSION SYSTEM EICUCI 1 FOCSANI', ÇýE5-n A ØUZAU1 TIRGOVtM| o\. - SITORMAN REST 4 - NSTANTA - - - - \.- - - PALAS D JRI- GIURGIU 2AV\.

APPROVAL

P146312

PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Public Disclosure Copy Report No\.: PIDC1177 Project Name Yemen Civil Society Organization Support Project (P146312) Region MIDDLE EAST AND NORTH AFRICA Country Yemen, Republic of Sector(s) Other social services (50%), Sub-national government administration (50%) Theme(s) Other social development (100%) Lending Instrument Investment Project Financing Project ID P146312 Borrower(s) Ministry of Social Affairs and Labor Implementing Agency Ministry of Social Affairs and Labor Environmental C-Not Required Category Date PID Prepared/ 26-Aug-2013 Updated Date PID Approved/ 27-Jan-2014 Disclosed Estimated Date of 03-Jan-2014 Appraisal Completion Public Disclosure Copy Estimated Date of 28-Feb-2014 Board Approval Concept Review Track II - The review did authorize the preparation to continue Decision I\. Introduction and Context Country Context In 2011, Yemen ranked 154 out of 187 countries on the Human Development Index and had a GDP of US$ 1,209 (Purchasing Power Parity (PPP))\. Having just emerged from a difficult and protracted transition, Yemen today faces a complex set of developmental challenges\. Rapid population growth of over 3 percent a year, lack of clear alternatives to an oil economy, rapidly depleting water reserves, poor infrastructure with inadequate access to basic services for the majority of the population and acute gender inequality are amongst the most critical of these development challenges\. According to the 2012 World Economic Forum’s Global gender gap report, “Yemen continues to occupy the last place in the region as well as in the overall ranking of 135 countries\.” For example, women’s illiteracy in Yemen is 76 percent, compared to 30 percent for men and only 7\.6 percent of women over 25 have completed secondary education\. Since the unification in 1990, Yemen has been grappling with establishing a pluralistic political system within a unified nation- state\. With the onset of the Arab Spring in 2010, Yemen witnessed a strong and wide-based wave of Page 1 of 6  protests and demands for jobs, good governance and political and social change\. Following a subsequent power transfer agreement, President Ali Abdullah Saleh stepped down after 33 years in power\. Elections took place on February 21, 2012, and Abdo Rabbo Mansoor Hadi assumed office Public Disclosure Copy as the new President\. Yemen has embarked on a political transition process since the transfer of power in February 2012\. One of the most important elements in the transition process, was the initiation of the National Dialogue mid-March, a process in which all forces and political actors, including youth, the Southern Movement, the Houthis, other political parties, civil society representatives and women participate to address fundamental issues in Yemen’s future\. These issues include drafting a new constitution, Southern concerns over centralized governance in Sanaa, relations with Houthi combatants, concerns over governance (civil service, judiciary, and local governance), national reconciliation and priorities for sustainable economic development and the rights of vulnerable groups such as women and children\. Although the implementation of the National Dialogue is progressing well, Yemen faces significant risks if reforms do not materialize quickly and if substantive changes are not perceived by the population\. Although fragmented along various social and political fault lines, civil society organizations (CSOs) in Yemen are amongst the most vibrant and dynamic in the MNA region\. Before the transition process in 2011, about 7,000 CSOs were registered across different sectors, most of them being welfare oriented and located in urban centers\. Limited participation of women, youth and marginalized groups, as well as growing attempts by the Government to control CSO activities characterized the CSO sphere\. CSOs did not have a strong role in service delivery and had limited impact in holding the Government accountable or in establishing appropriate mechanisms to voice community needs and grievances\. The current transition has brought new opportunities for CSOs to engage constructively with the Government and donors on development and reform programs\. Similarly, the Government of National Reconciliation (GNR) has a unique opportunity to harness the constructive engagement emerging in Yemeni civil society in order to collectively address Public Disclosure Copy complex reform issues and support the immediate transition and longer term state-building\. The World Bank’s 2010 Yemen Civil Society Landscape report highlighted CSOs’ aspiration to creating a participation mechanism to promote CSOs’ participation, and the Government’s interest to work with committed CSOs as development partners\. Sectoral and Institutional Context The GNR and International donors are supportive of an augmented role for CSOs in effective service delivery, participation, and decentralization programs\. In the Riyadh conference in September 2012, the GNR and donors reaffirmed their commitment to work with CSOs as key development partners\. This was specifically mentioned as one of the pillars in Yemen’s Mutual Accountability Framework (MAF) , which also emphasized the need to focus on women and youth in both economic and governance realms\. These developments signal an increasing recognition among the GNR and the donor community that CSOs’ constructive engagement, particularly in areas that impact women, youth as well as other marginalized groups, will contribute to a peaceful and successful transition and to more inclusive and sustainable development in Yemen\. The political transition in Yemen has created opportunities for CSOs to engage constructively with the Government and donors – although the GNR and CSOs remain uncertain how to take advantage of these opportunities\. Engaging with Yemeni CSOs is increasingly being seen as a necessity and an important link between the state and citizens\. The opportunity for CSOs to play their role as social Page 2 of 6  intermediaries is creating space for constructive dialogue between the Government and CSOs and highlighting new needs and demand for technical assistance from the donor community to ensure such collaboration occurs in an effective and productive manner\. Public Disclosure Copy CSO Mapping and Capacity Assessment findings show that at present, 8317 CSOs are registered in Yemen, with 24 percent of this total coming into existence since 2010\. It suggests that local CSOs suffer from a number of deficits including: a high turnover rate of membership and employees, poor internal governance, and a lack of transparency and consistency in administrative processes and financial management\. A strong dependence on donor funding also impacts CSO’s work with many frequently adjusting their portfolios to donor priorities rather than to their constituencies' needs and priorities or their particular expertise\. Strengths in the CSO community include geographic diversity and the multi-sectoral focus of many organizations\. Many CSOs have young and energetic leadership intent on improving the effectiveness of their organizations and have an increased familiarity with new technologies and social media\. CSOs also enjoy a relatively good reputation in regard to their field presence, advocacy and service delivery practices in the communities where they work and thus have a high potential for channeling the voices of citizens to government and vice versa for more participation and inclusion in development programs\. There is also an important opening in Yemen at present to encourage the integration of social accountability approaches in CSOs work, including increased CSO engagement in monitoring and assessing government performance, particularly providing feedback on, and voicing demand for, improved service delivery\. Citizen engagement through CSOs as social intermediaries enables communities to voice their needs and priorities to policymakers and enables service providers to be more responsive\. CSOs also see the present transition as an important opportunity to participate in setting standards within the CSO sector, and to advocate for reforms such as a new Law of Associations, and a transparent registration process\. Public Disclosure Copy Relationship to CAS The proposed CSO Support Project links to the ISN pillar (iii) enhancing governance and local service delivery, accountability, capacity building, and institutional strengthening\. Additionally, the proposed project is in line with the ISN’s implementation principles of: (a) intensifying participation and inclusion, especially among women and young people; (b) strengthening institutional capacity, internal governance, transparency, and accountability; and (c) establishing accountable institutional systems, certification of CSOs and their network partners, to ensure a level playing field in the respective sectoral/geographical areas of engagement\. Through reforming both the regulatory framework and the registration process, and by supporting networking, capacity building and small grants for action-learning, the proposed project will improve the legal and institutional operating environment of CSOs\. In parallel it will equip CSOs with greater capacity to help them become viable development partners\. As mentioned in the ISN, this will help promote a more inclusive implementation of various sectoral development programs, complementary to those of the Government, conduct third-party monitoring activities, and increase citizen voice and participation\. Women especially will stand to benefit from the project\. The recent Yemen Civil Society Assessment (June 2013) revealed that of the CSOs surveyed, 60 percent reported the topic of gender equality and empowerment in their current scope of work – ranking the concentration on gender as number 1 among a list of 21 development topics\. As such, the improved Page 3 of 6  operating environment as well as increased legal support and capacity building availed to CSOs is expected to have a positive impact on the ability of such organizations to deliver targeted services to their female beneficiaries\. Public Disclosure Copy The establishment of transparent and accountable institutional systems, capacity building and certification of CSOs, will enhance good governance and ensure a level playing field in the respective sectoral and geographical areas of engagement\. The design of the proposed project will be informed by the findings of the FY13 CSO Mapping and Capacity Assessment (P143633), and will contribute directly to enhancing the development impact of the FY13-15 Government-CSO Partnership Project (P144665) by promoting the necessary enabling environment to facilitate stronger collaboration and partnership between the public entities and civic sectors\. More broadly, it will also complement and bridge other donor supported programs\. Inclusive partnerships will give voice to various groups, including women and youth, and promote responsive and accountable service delivery\. These activities are critical for rebuilding trust as well as the legitimacy of state institutions, and will contribute to reducing social tensions\. II\. Proposed Development Objective(s) Proposed Development Objective(s) (From PCN) The proposed project aims to strengthen transparency and governance in the CSO sector and, enhance CSO capacity to support social accountability and development\. Key Results (From PCN) The expected key results of the CSO Support Project at the PDO level are: a\. Establishment of a transparent and accessible CSO registration and licensing system as well as an updated CSO database under MoSAL;(progress will be measured by the increase in the number of registered CSOs, their geographic distribution, their gender focus and the time it takes for them to complete the registration process) Public Disclosure Copy b\. Enhanced awareness of regulatory requirement for creating a CSO enabling environment c\. Establishment of a CSO capacity-building and certification program that integrates social accountability approach and tools; (progress will be measured by Number of CSOs disaggregated data by geography, sector, and related subsectors, etc\. that are trained and certified) d\. Enhanced engagement of citizens in social accountability practices used by certified CSOs engaged in delivery of basic services through the action-learning small-grants program; (progress will be measured by the number of direct project beneficiaries engaged in small grant program activities, disaggregated by gender, and age group, and poverty level as documented in government records for the purpose of national poverty reduction); e\. Projects implemented by CSOs that incorporate social accountability approaches and tools into their activities; (progress will be measured by number of certified CSOs that integrate social accountability approach and tools into their projects)\. III\. Preliminary Description Concept Description The project will consist of two mutually reinforcing components that will address the enabling environment at the national level, and CSO engagement at the local level: Component One - Enabling Institutional and Legal Environment Page 4 of 6  For CSOs to operate transparently and engage constructively with development partners, the project will: (i) support MoSAL in reforming the legal and institutional framework concerning CSO Public Disclosure Copy activity, (ii) establish an E-registration process by providing hardware and adapted software in Arabic to improve transparency in, outreach of, and accessibility to the CSO registration process\. Alternative design elements would be considered to ensure accessibility of CSOs with limited Internet access\. This component will also support MoSAL in terms of outreach and consultation on institutional and regulatory frameworks to build stakeholder buy-in, knowledge of, and ownership of the reforms as well as improve transparency and participation by building sustainable channels of communications with CSOs\. Component Two- CSOs Capacity Building, Certification and Small Grants for Action Learning Component 2 will consist of a three-phased capacity building program that will be complemented by Small Grants for Action Learning\. CSOs will receive a certification that will make them eligible to apply for small grants in order to implement projects that integrate social accountability mechanisms, processes and tools\. Component 2 will be implemented in partnership with Sana’a and Aden Universities\. This component will utilize a multi-phased approach around the following three modules and subsequent small grant: i\. Module 1: CSO Project Management, Procurement and Financial Management, ii\. Module 2: CSO Networking and Self-Regulation, iii\. Module 3: Social Accountability Concept and Tools iv\. Small Grants Program for Action Learning IV\. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4\.01 ✖ Public Disclosure Copy Natural Habitats OP/BP 4\.04 ✖ Forests OP/BP 4\.36 ✖ Pest Management OP 4\.09 ✖ Physical Cultural Resources OP/BP 4\.11 ✖ Indigenous Peoples OP/BP 4\.10 ✖ Involuntary Resettlement OP/BP 4\.12 ✖ Safety of Dams OP/BP 4\.37 ✖ Projects on International Waterways OP/BP 7\.50 ✖ Projects in Disputed Areas OP/BP 7\.60 ✖ V\. Financing (in USD Million) Total Project Cost: 8\.00 Total Bank Financing: 8\.00 Financing Gap: 0\.00 Financing Source Amount BORROWER/RECIPIENT 0\.00 IDA Grant 8\.00 Page 5 of 6  Total 8\.00 Public Disclosure Copy VI\. Contact point World Bank Contact: Najat Yamouri Title: Senior Social Development Specialist Tel: 458-1340 Email: nyamouri@worldbank\.org Borrower/Client/Recipient Name: Ministry of Social Affairs and Labor Contact: Dr\. Nabeel Alshoybe Title: Tel: 9671274922 Email: Implementing Agencies Name: Ministry of Social Affairs and Labor Contact: Nabeel Alsohybe Title: Deputy Minister of Labor Tel: Email: VII\. For more information contact: Public Disclosure Copy The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop Page 6 of 6

APPROVAL

P005635

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 8754 PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) JUNE 13, 1990 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. COUNTRY EXCHANGE RATES Tunisian Dinar (DT)IUS$ Appraisal Estimate US$1\.00 0\.400 Actual July 1981 = 0\.425 April 1982 = 0\.526 Average 1984 = 0\.7768 Average 1985 - 0\.8345 Average 1986 = 0\.7940 Average 1987 = 0\.8207 Average 1988 = 0\.8578 ACRONYMS AND ABBREVIATIONS Bbla - Barrels of 42 US gallons BOPD - Barrels of oil per day ERR - Economic rate of return FRR - Financial rate of return MMCM - Million cubic meters MEM - Ministry of Energy and Mines PCR - Project Completion Report PPAR - Project Performance Audit Report SAR - Staff Appraisal Report STEG - Societe Tunisienne de VElectricite et du Gaz TMP - Trans-Mediterranean Pipeline TOE - Ton oil equivalent To* WORLD 8ANK M0OMIM1KOHLY Washington\. DC 20433 US\.A\. June 13, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Tunisia Second Natural Gas Pipeline Project (Loan 1864-TUN) Attached, for information, is a copy of a report entitled OProject Performance Audit Report on Tunisia - Second Natural Gas Pipeline Project (Loan 1864-TUN)* prepared by the Operations Evaluation Department\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) TABLE OF CONTENTS Page No\. Preface \. \. Basic Data Sheets \.1 Evaluation Summary \. v PROJECT PERFORMANCE AUDIT REPORT I\. BACKGROUND \. Origin of the Project \. 1 Project Objectives \. 2 Project Description\. 3 Implementation Arrangements \. \. 3 Experience Under Previous Projects \. 3 II\. IMPLEMENTATION EXPERIENCE \. 4 Changes in Project Scope \. 4 Implementation Delays \. 5 Procurement and Disbursement \. 6 Project Cost and Financing \. 7 The Performance of the Borrover \. 8 The Performance of the Bank \. 8 III\. PROJECT OUTCOME\. 9 Operating Performance \. 9 Economic Reevaluation \. 10 Financial Performance\. 10 IV\. FINDINGS AND ISSUES \. 11 Overall Assessment \. 11 Project Design and Preparation \. 12 Sustainability \. 15 Lessons of Experience \. \. 15 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. TABLE OF CONTENTS (Cont'd) Page No\. PROJECT COMPLETION REPORT \. 17 I\. THE SECTOR AND BANK ROLE \. 19 II\. THE TRANS-MEDITERRANEAN PIPELINE AND GAS AVAILABILITY\. 20 A\. The Trans-Mediterranean Pipeline \. 20 B\. Gas Availability \. 21 III\. GAS DEMAND AND PRICING \. 23 A\. Gas Demand \. 23 B\. Price of Imported Gas \. 25 C\. Domestic Prices \. \. \. \. 26 IV\. PROJECT PRICING AND APPRAISAL \. 27 A\. Project Origin \. 27 B\. Project Description \. 27 C\. Changes in Project Scope \. 28 V\. PROJECT IMPLEMENTATION \. 29 A\. Project Cost \. 29 B\. Procurement and Disbursement \. 29 VI\. IMPLEMENTATION PERFORMANCE \. 31 A\. Spurlines \. 31 B\. Distribution \. 32 C\. Conversion \. \. 32 D\. Sales Engineering Activities \. 32 E\. Project Appraisal and Supervision by the Bank \. 33 F\. Performance of Consultants, Suppliers and Contractors \. 33 G\. Training \. 33 VII\. OPERATIONAL PERFORMANCE \. 34 A\. Gas System Operation \. 34 B\. Environmental Aspect and Safety \. 34 VIII\. INSTITUTIONAL ASPECTS \. 35 IX\. FINANCIAL ASPECTS \. 36 A\. Separation of Accounts \. 36 B\. Financial Performance \. 38 C\. Financing Plan \. 40 D\. Conclusion \. 41 X\. ECONOMIC REEVALUATION \. 41 XI\. CONCLUSIONS \. \. 42 PCR ANNEXES 1\. Consumption of Petroleum Products \. 45 2\. Northern Gas Activity \. 46 3\. The Pricing of Natural Gas \. 47 4\. Detailed Project Description \. 58 5\. Disbursement Performance Analysis \. 60 6\. Project Implementation Chart \. 61 7\. STEG - Imported Gas Operations \. 62 8\. Economic Rate of Return Calculation \. 65 MAP: IBRD 148491 PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) PREFACE 1\. This is a Project Performance Audit Report (PPAR) on the Second Natural Gas Pipeline Project, involving an IBRD loan in the amount of US$37\.0 million to Societe Tunisienne de l'Electricite et du Gaz (STEG), with the objective of assisting the construction of a natural gas transmission and distribution infrastructure\. The loan was approved on June 5, 1980\. The Loan Agreement was amended on July 15, 1981, and became effective on December 9, 1981\. US$10\.0 million of the loan amount was cancelled in September 1985 at the request of the Borrower\. The clsing date of December 31, 1983 was extended to December 31, 1986\. Final disbursement was made on January 25, 1988\. Cofinancing in the amount of US$16\.0 million was provided by suppliers and commercial banks\. 2\. The PPAR was prepared by the Operations Evaluation Department (OED) and the Project Completion Report (PCR) was prepared by the Europe, Middle East and North Africa Regional Office\. The PPAR is based on the attached PCR, the Staff Appraisal and the President's Reports, the loan documents, the transcripts of the Executive Directors' meetings at which the project was considered, on a study of project files, and on discussions with Bank staff\. An OED mission visited Tunisia in November 1989, and discussed the effectiveness of the Bank's assistance with STEG and the Ministry of Planning\. Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged\. 3\. The PCR provides a very good account and assessment of the project experience, and discusses the performances of the Bank and the project executing agency\. The PPAR elaborates on particular aspects of project implementation, the design and definition of the project and the performance of the Bank\. 4\. Following standard OED procedures, copies of the draft PPAR were sent to the Borrower\. No comments were, however, received\. - iii - PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) REY PROJECT DATA Appraisal Actual or Actual as 2 of Item Expectation Current Estimate Appr\. Estimate Total Project Cost (US$ million) 88\.0 45\.6 51\.8 Loan Amount (US$ million) 37\.0 27\.0 72\.9 Cofinancing-Total (US$ million) 30\.0 16\.0 53\.3 Suppliers'/Commercial Credits 30\.0 16\.0 53\.3 Date Physical Components Completed 03/82 12/87 282 La Economic Rate of Return (Z) 28 14 50\.0 Institutional Performance Satisfactory Satisfactory /a From loan signing to project completion\. CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) As of June 30, 1981 1982 1983 1984 1985 1986 1987 1988 (i) Appraisal Estimate 20\.0 34\.0 37\.0 37\.0 37\.0 37\.0 37\.0 37\.0 (ii) Actual 0\.0 8\.2 16\.1 18\.1 21\.3 22\.8 26\.2 27\.0 (iii) (ii) as X of (i) 0\.0 24\.1 43\.5 48\.9 57\.6 61\.6 70\.8 73\.0 Date of Final Disbursement: 01/25188 PROJECT DATES Original Plan Revised Actual First Mention in Files 02/05/79 Negotiations 04/00/80 - 04/21/80 Board Approval 06/05/80 - 06/05/80 Loan Agreement Date 10/22/80 - 10/22/80 Amendment Date - - 07/15/81 Effectiveness Date 09/01/80 12/09/81 12/09/81 Closing Date 12/31/83 12/31/86 12/31/86 - iv - STAFF INPUT (Staff-Weeks) Bank FY 1980 1981 1982 1983 1984 1985 1986 1987 1988 Totals Preappraisal 8\.4 8\.4 Appraisal 34\.5 34\.5 Negotiations 15\.2 15\.2 Supervision 0\.6 31\.7 9\.2 5\.9 53\.7 15\.7 14\.8 9\.6 10\.1 151\.3 Other 1\.0 1\.0 Totals 59\.7 31\.7 9\.2 5\.9 53\.7 15\.7 14\.8 9\.6 10\.1 210\.4 MISSION DATA month/ No\. of No\. of Date of Year Weeks Persons Manweeks Report Identification 06/79 3\.0 2 6\.0 07/10/79 Preappraisal 10/79 2\.0 4 8\.0 11/08/79 Appraisal I 11/79 1\.0 2 2\.0 11/27/79 Appraisal II 02/80 1\.0 3 3\.0 02/29/80 Supervision I 04/82 1\.0 2 2\.0 04129/82 Supervision II 03/83 1\.0 1 1\.0 04/13/83 Supervision III 07/84 1\.0 3 3\.0 07/27/84 Supervision IV 01/85 1\.5 4 6\.0 02/13/85 Supervision V 07/85 2\.0 4 8\.0 08/30/85 Supervision VI 06/86 2\.0 2 4\.0 08/14/86 Total 15\.5 43\.0 OTHER PROJECT DATA Borrower: Societe Tunisienne de l'Electricite et du Gaz (STEG) Executing Agencys STEG Fiscal Year of Borrower: January 1 - December 31 Follow-on Projects: None - v - PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) EVALUATION SUMMARY Introduction 1\. The Second Natural Gas Pipeline Project was the Bank's second operation in Tunisia's petroleum subsector\. The first project was a US$7\.5 million loan to finance a pipeline to deliver gas from the El Bormah field to the industrialized Gabes area\. The El Bormah's declining production did not make worthwhile, however, to extend the network northward\. When the Trans-Mediterranean Pipeline carrying Algerian gas to Italy was near completion (with delivery to begin in 1981), the Government of Tunisia realized that it offered a unique opportunity to increase gas usage in the northern part of the country\. The Second Natural Gas Pipeline Project supported the Government's energy sector strategy (PCR, para\. 1\.01; PPAR, para\. 3)\. It comprised the construction of part of the infrastructure needed for the transmission and distribution of the natural gas to be supplied through the Trans-Mediterranean Pipeline (TMP) between Algeria and Italy, as well as the gas to be available in the future from the development of domestic gas fields, along with studies and technical assistance (PCR, para\. 4\.02-4\.06; PPAR, para\. 9)\. The project was implemented by the Societe Tunisienne de 'Electricite et du Gaz (STEG), with assistance from expatriate consultants (PCR, paras\. 1\.04 and 5\.04; PPAR, para\. 10)\. The total project cost was estimated originally at US$88\.0 million, of which 422 (US$37\.0 million) would be financed by the Bank loan\. Cofinancing in the amount of US$30\.0 million was expected from various official export credit agencies and commercial banks (PCR, paras\. 9\.12-9\.14; PPAR, para\. 24)\. Obiectives 2\. The principal objectives of the project were to improve Tunisia's energy situation by substituting imported natural gas for fuel oil, and to introduce energy planning and pricing measures required for the development of a rational energy policy (PPAR, para\. 4)\. Implementation Experience 3\. Soon after the approval of the loan, the economic viability of the project was impaired due to prospects of a large increase in the price of the Algerian gas\. As a result, the scope of the project was modified to - vi - suit the new objective of using smaller volumes of imported gas to replace premium fuels, instead of high-sulphur fuel oil as originally intended (PCR, paras\. 4\.05-4\.08; PPAR, paras\. 13-16)\. Pipeline construction was deferred pending the finalization of a new gas supply agreement with Algeria\. This resulted in a project completion delay of about two years (PCR, paras\. 2\.02, 2\.06, 6\.01, and Annex 6; PPAR, para\. 17)\. The disbursement of the loan took three years longer than estimated, due to late start of procurement and construction and delays in the implementation of the gas distribution and customer conversion components of the project (PCR, Annex 5 and 7; PPAR, para\. 20)\. As a result, the availability of loan funds as measured by the average loan life was significantly reduced (PPAR, para\. 21)\. 4\. Actual project costs (US$49\.4 million) were 44Z lower than the appraisal estimates in U\.S\. dollar terms, but there was a 4Z cost overrun in terms of Tunisian dinars\. The main reason for the cost underrun in terms of U\.S\. dollars was the strong appreciation of the dollar vis-a-vis European currencies in which major contracts were denominated (PCR, paras\. 5\.01-5\.03, 6\.02, 11\.03, and Table 2; PPAR, paras\. 22-23)\. Due to lower actual project costs, only US$16\.0 million of cofinancing in suppliers' credits and commercial borrowing was used\. The unused portion of the Bank loan (US$10\.0 million) was cancelled in September 1985 at the request of the Borrower (PCR, paras\. 5\.06 and 9\.12-9\.16; PPAR, para\. 24)\. Results 5\. The branch pipelines constructed under the project became operational toward the end of 1983 and early 1984\. Gas delivery to Tunisia from the TMP started in November 1983 and built up to 911,000 tons of oil equivalent (TOE) in 1987\. This is about 38% of the appraisal estimate\. The short-fall is due mainly to STEG's policy )f not using gas when it is priced higher than the fuel oil\. and the slow penetration of natural gas into the premium fuels market\. So far, the imported gas has replaced mainly a portion of the fuel oil and only a modest portion of the premium fuels which it was intended to substitute (P:?, paras\. 2\.05-2\.07, 3\.01-3\.08, and 6\.01; PPAR, para\. 29)\. Due to low imported gas consumption, the utilization of the system capacity has remained low, and this excess capacity is expected to persist in the medium term (PCR, para\. 7\.02; PPAR, para\. 32)\. The mechanical operation of the pipeline system is satisfactory, except three measurement centers whose operations continue to be affected by design and construction faults (PCR, paras\. 5\.06-6\.07; PPAR, para\. 33)\. 6\. The reevaluated economic rate of return (ERR) of the project (14%) is lower than the appraisal estimates (28-50%), due mainly to the higher- than-expected cost of the Algerian gas, small amounts of premium fuels substituted, and the low pipeline capacity utilization (PCR, paras\. 10\.01-10\.04 and Annex 8; PPAR, para\. 34)\. At present STEG is the main user of the imported gas\. Although it does not prepare separate cash accounts for its imported gas activities and does not revalue its assets on an annual basis, accounts prepared at the Bank's urging for the Algerian Gas - vii - division indicate that the project's financial rate of return (FRR) remains considerably below the covenanted 81 return on revalued assets (PCR, paras\. 9\.01-9\.08 and Annex 7s PPAR, paras\. 35-36)\. Sustainability 7\. The sustainability of the economic benefits derived from the project appears to be assured, since even under currcnt unfavorable conditions the project shows an acceptable ERR, and SThG has already developed the technical skills required for a gas distribution concern (PCR, paras\. 7\.04 and 8\.02-8\.05; PPAR, para\. 48)\. Although half of the level anticipated at appraisal, the ERR was still relatively high for an infrastructure project (14Z)\. This is mainly due to the gap between the cost of the Algerian gas and the price billed to users which accrues to the economy\. Financial sustainability is, however, in doubt given that debt service in principal and interest absorb all cash flows (PPAR, paras\. 36 and 51)\. Findings and Lessons 8\. This was a successful project on technical grounds, but its financial viability has yet to be demonstrated\. It has achieved its primary objective of installing a gas distribution infrastructure in Northern Tunisia where most of the country's population lives\. Although less than expected, imported natural gas has made significant inroads into Tunisia's premium fuels market\. With the exception of ensuring separately the financial viability of STEG's purchased gas and power activities, the institutional objectives of the project were also attained through training and consultancy services\. The project's main policy objective of rationalizing domestic petroleum product prices was achieved to a large extent, both as a result of the gradual increase in domestic prices and the collapse of international oil prices after 1986 (PCR, paras\. 3\.13, 6\.08, 7\.04, 8\.05, 9\.06, and Annex 3; PPAR, para\. 17)\. 9\. The project was related to one of the largest international gas projects (TP), with all the complexities which are inherent to such projects, such s long lead planning time, heavy front end investment, long-term contractual arrangements, as well as pricing issues\. Nevertheless, the Bank and the Borrower committed themselves to the project before uncertainties surrounding the size of the potential gas market, the volume and the price of the Algerian gas, and the domestic gas development plans were clarified\. Later, some of the assumptions on which the project concept was based proved to be unrealistic, necessitating the redesign of the project in mid-course (PCR, paras\. 3\.01, 3\.09, 11\.01, 11\.04 (a), and Annex 3; PPAR, paras\. 38-46)\. The project was prepared, amended, and implemented under considerable time pressure, and this resulted in overlooking several important aspects, such as customer conversion, market development, gas distribution and utilization standards, and reliable supervisory control and data acquisition system (PPAR, para\. 28)\. Due to the prevalence of long lead time activities, such as pipe manufacturing, - viii - contractor mobilization, etc\., little time was available for adequate consideration of all critical project issues (PCR, para\. 11\.04(a); PPAR, para\. 46)\. 10\. A lesson drawn from previous Bank-financed natural gas transmission and distribution projects is the need for careful planning and timely implementation of those activities that are critical to building up sales rapidly in early years, such as market development and conversion of customers' equipment\. Experience under the project reinforces this lesson (PPAR, para\. 49)\. Another lesson emerging from the project experience relates to the need to assess through concrete risk analysis all the factors which can affect negatively the project performance before embarking on a project involving long lead time activities (PPAR, para\. 50)\. If, as it is the case for this project, well into the repayment period of the loan the corresponding project barely covers debt service an(4 has no margin to self-finance future investments, the future creditworthiness of that borrower is impaired\. This undesirable side- effect could be prevented if project site and financing are better -ailored to a more realistic assessment of the ability to borrow (PPAR, para\. 51)\. PROJECT PERFORMANCE AUDIT REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-TUN) I\. BACKGROUND Origin of the Project 1\. Hydrocarbons are the major source of energy in Tunisia, representing about 95% of the commercial energy consumption\. For the foreseeable future, Tunisia will have to depend on these sources of energy because opportunities for greater use of hydropower and coal or renewable sources are limited\. When the Second Natural Gas Pipeline Project was prepared in 1979, the country was a net exporter of oil\. However, consumption had been growing at 8% per annum since 1972, and was expected to maintain the same growth rate through the 1980s, while production from known reserves was anticipated to decline sharply\. 2\. Although relatively large reserves of natural gas had been discovered at the offshore Miskar gas field, the Government had deferred the ex-'oitation of this field, mostly because of the high cost of develop:- \.t, estimated at US$620 million, including its related onshore distribution system (President's Report, para\. 36)\. Given the estimated consumption growth, the forecast decline in crude oil production was expected to result in a net petroleum import position by the mid-1980s\. In order to maintain to the extent possible oil exports at their then current level, Tunisia intended to substitute imported natural gas for fuel oil (President's Report, para\. 24)\. 3\. Under an existing international agreement, Tunisia would be receiving royalty gas (or its equivalent in cash) from the Trans- Mediterranean Pipeline (TMP) between Algeria and Italy, beginning October 1981\. Depending on the throughput of gas in the TMP, the amount of royalty gas was expected to increase from 200 million cubic meters (MMCM) in 1982 to 800 MMCM in 1986\. In addition, Tunisia and Algeria were in the process of finalizing a gas purchase agreement enabling Tunisia to import an additional 500-1,200 MMCM per year of Algerian gas via the TMP (PCR, paras\. 2\.01-2\.07, and Table 1)\. It was expected that the availability of favorably priced natural gas and its substitution for oil would help ensure Tunisia's energy supply up to the 1990s and, by making more fuel oil available for export, would reduce the impact of the decline in crude oil production (President's Report, para\. 25)\. -2- Project Objectives 4\. The President's Report (para\. 41) lists the objectives of the project ass (i) to help improve Tunisia's energy situation by substituting natural gas for fuel oil, thereby decreasing domestic fuel oil consumption and increasing fuel oil exports; and (ii) to introduce energy planning and pricing measures which would permit Tunisia to develop a rational energy policy for its future, beyond mid-1990s, when it might no longer be able to rely or, domestic hydrocarbons as its major primary energy resource\. 5\. Aeplacing domestic fuel oil with imported natural gas, or royalty gas '\.: did not need to be taken in kind, was economically viable only when tsi Algerian natural gas destined to both the Italian and Tunisian markets was priced significantly below fuel oil, and the surplus fuel oil could be exported without incurring heavy price penalties into the already saturated European market\. 6\. During project appraisal, Bank staff were shown the pricing clauses of the gas supply contract between Algeria and Italy\. Although they were awarel/ of the Algerian government's intention of narrowing over time the gap between the gas price at the border and the international fuel oil price, they chose to accept the price to Italy as an imautable ceiling for the cost of the Algerian gas to Tunisia\. The risks connected with exporting large amounts of displaced fuel oil were dismissed summarily (President's Report, para\. 57)\.2/ 7\. However, the description given in the President's Report shows clearly that the project was part of a long-term master plan for gas development\. It was to constitute the first phase in the construction of a gas distribution network in Tunisia\. A second phase, to start up by 1985, would extend the system by adding connecting lines to Bizerte and Gafsa (see Hap IBRD 14849R1)\. At a later stage Sousse would be linked, and eventually the Miskar gas field would be connected to the onshore system\. Pipe diameters had been optimized on the basis of 1990 forecast demands\. The final system was expected to provide maximum operational flexibility and would be capable of receiving gas from almost any field off Tunisia's east coast (President's Report, paras\. 44-45)\. Within this concept the project made good economic sense since (i) in late 1979 after the so-called Osecond oil price shock* expectations were for continually rising energy prices, and (ii) large amounts of natural gas had already been discovered offshore Tunisia and prospects for additional discoveries were judged to be favorable (SAR, paras\. 1\.02-1\.05)\. 11 Project Brief and Issues Paper, November 9, 1979, para\. 2\.05\. 2/ The President's Memorandum (Secretary's No\. R81-179, June 22, 1981, para\. 11) notes that the amendment of the project in a way to substitute premium fuels with royalty gas had fliz1minated the risk of not finding export markets for large quantities of fuel oil, thus implying that the fuel oil export issue was not satisfactorily resolved at appraisal\. - 3 - 8\. The second objective has been one of the major goals of the Bank's energy program\. It was already incorporated into the Second Power Loan (Loan No\. 1355-TUN of 1977), under which the Government had agreed to undertake a pricing policy study for oil, gas and electricity\. The scope of this study was later expanded into a sectoral planning study for preparing an energy master plan covering all potential sources of energy as well as detailed demand analysis\. A foreign consultant had been selected to perform the study and to develop an energy planning model which was expected to be ready by the end of 1980 (President's Report, para\. 32)\. Project Description 9\. The project consisted of the construction of part of the infrastructure needed for the transmission and distribution of the natural gas to be supplied through the TMP and to be available in the future from the development of domestic gas fields\. It included approximately 290 km of 18-200 diameter branch pipelines to main consumption centers (North Tunis, Sousse, Gafsa, Kasserine and Tadjerouine), 170 km of distribution mains and service connections with ancillary facilities, an unspecified number of conversions of customers' oil-using plants to dual firing, consultancy services, and training of the Borrower's staff (PCR, paras\. 4\.02-4\.04)\. Implementation Arrangements 10\. The project was implemented by the Societe Tunisienne de 1'Electricite et du Gaz (STEG), the national utility in charge of electric power activities and gas distribution, with assistance from international consultants for design, engineering, construction supervision, special studies and training\. The construction work was entrusted to prequalified international pipeline contractors (PCR, paras\. 1\.04 and 5\.04)\. Experience Under Previous Projects 11\. The project was the Bank's second operation in Tunisia's natural gas subsector\. The first Bank loan (Loan No\. 724-TUN, approved in January 1971) financed the natural gas pipeline from the El Borma field to Gabes, also implemented by STEG\. The PPAR on this project has found that the project was completed with minor delays and cost overruns\. Excepting initial operating problems in the compression and gas and cooling water treatment plants, which took a relatively long time to solve, the operating performance of the project was generally satisfactory and the ERR was higher than the appraisal estimate due to higher petroleum prices\. STEG's implementation performance had been satisfactory\. However, the loan covenant about preparing a study on power tariffs and adjusting them according to the results of the study was not completely adhered to\. The study was completed after the lengthy delays, but tariffs were not revised\.3/ 3/ PPAR - Tunisias El Borma-Gabes Gas Pipeline Project (Loan No\. 724-TUN), IBRD Report No\. 1078, March 12, 1976, paras\. 3\.01, 3\.03-3\.04, and 5\.05\. 12\. The aforementioned PPAR (para\. 3\.07) also noted that *time pressure at all stages of pipeline design and construction had a number of undesirable side effects\. It meant that the Bank approval had to be given for tender documents before the loan was signed and at very short notice\. There was, therefore, little time available for extended consideration of the technical factors involved\.* Time pressure was a factor adversely affecting also the implementation of the Second Natural Gas Pipeline Project (PPAR, para\. 16)\. II\. IMPLEMENTATION EXPERIENCE Changes in Project Scope 13\. Before the Loan Agreement was signed, the Government informed the Bank that, in the light of the new situation created by the prospect of a large increase in the price of Algerian gas, it had opted to build a distribution system for the use of the royalty gas only\.4/ Subsequently, a Bank mission visited Tunisia in September 1980 to discuss with the Government and the Borrower the details of a revised project\.5/ While the revised project concept was still under review in the Bank, the Loan Agreement was signed on October 22, 1980\.6/ 14\. By that time, the Borrower had entered into major contracts for engineering and supervision and for part of the materials and equipment\.7/ Therefore the Government's options to cancel or even drastically restructure the project were constrained\. Although the Bank had the option of reconsidering its involvement in the project, it chose not to do so for the following reasons: (a) the basic objective of the project (i\.e\., to help improve Tunisia's energy situation by substituting imported gas for petroleum derivatives and to introduce energy planning and pricing measures leading to a rational energy policy) remained unchanged; (b) the configuration of the distribution network was only partially altered; and (c) the Tunisians had relied on the previous Bank commitment in their contract discussions with certain suppliers of materials\. STEG hoped to sign the first contracts in late February 1981 and would not wish to go 4/ Memo to Files, August 13, 1980, paras\. 1-2\. I/ Back-to-Office Report, October 2, 1980, paras\. 1-4\. 6/ The PCR (para\. 4\.05) should be read in the light of this chronology to avoid the mistaken impression that the Bank became aware of the Government's decision to revise the project after the signing of the Loan Agreement\. 7/ The SAR (para\. 2\.21) estimates the value of contracts placed during the first five months of 1980 at US$24 million (27Z of the project cost)\. -5- back to its suppliers on this point\.81 Subsequently, the scope of the Bank project was modified to suit the new objective of using royalty gas to replace premium fuels, instead of high-sulphur fuel oil as originally intended (PCR, para\. 4,05)\. 15\. The major changes in the project content were the addition of a branch line to Cap Don and the deferral of the pipeline to Gafsa\. This resulted in relatively minor changes in the lengths of the branch lines, distribution mains and service connections\. However, the number of consumer metering and regulating stations increased approximately eight- fold (PCR, paras\. 4\.06-4\.07)\. Since the pipelines constructed under the project were to constitute an essential part of the country's future gas infrastructure, pipe diameters were left unchanged\. 16\. Given the uncertainty surrounding the value of royalty gas, the Bank reserved the right of not disbursing against the Sousse and Tadjerouine branch lines until the value of the royalty gas would be known, and the Bank would be satisfied that these lines would yield satisfactory rates of return\.91 Due to the constrained implementation schedule and the need for awarding contracts for materials as well as mobilizing pipeline contractors in advance of the actual construction work, the above conditionality imposed immense pressure on both the Borrower and the Bank staff\.10/ In a sense, this open-ended project definition was instrumental in the Bank's failure to have any significant impact on the physical aspects of the project\. A case in point is the Kasserine-Tadjerouine pipeline which the Bank refused to finance because of its dubious economic viability\. Nevertheless STEG went ahead and built it without using Bank financing (PCR, para\. 4\.10)\. Implementation Delays 17\. The project was completed with a delay of about two years compared to appraisal estimates (PCR, para\. 6\.01 and Annex 6)\. This delay was due essentially to deferring the actual construction pending the finalization 81 Memorandum by Vice President, EMENA, to Senior Vice President, Operations, January 30, 1981, para\. 3\. 91 President's Memorandum, Secretary's No\. R81-179, June 22, 1981, para\. 9\. 10/ As an example, the Bank agreed to the economic viability of the North Tunis distribution network and parts of the Sousse-Monastir gas distribution system on August 6, 1984, about ten months after the delivery of Algerian gas to Tunisia st%rted (Letter to STEG dated August 6, 1984\. Despite this, the Bank was requesting a copy of the feasibility study for gas distribution in Sousse and Monastir as late as November 1985 (Telex to STEG, November 27, 1985, para\. bbb)\. - 6 - of a new gas supply agreement between Algeria and Italy (PCR, paras\. 2\.02 and 2\.06)\. The actual construction times for the major branch pipelines were comparable to appraisal estimates, which were realistic\. Procurement and Disbursement 18\. The original Loan Agreement dated October 22, 1980 (Schedule 4, Section A, para\. 1) stipulated that all procurement under the loan would be through international competitive bidding (ICB)\. Although provision was made for the Bank to forego prior review of bidding documents, no clear criterion, such as contract amount, was given for this to happen (Loan Agreement, Schedule 4, Section C, para\. 3)\. This omission remained uncorrected in the amended Loan Agreement dated July 15, 1981\. 19\. The ambiguity of the loan documents regarding prior review resulted in a certain amount of confusion between the Bank staff and the Borrower\. The correspondence files are replete with examples of the Borrower informing the Bank of its decision to award important contracts before the Bank had formally reviewed and cleared bidding documents and contract award decisions as stipulated by the Loan Agreement\.11/ However, expost reviews by the Bank staff confirmed that, with the exception of the contract for metering stations which the Bank refused to finance because of irregularities in procurement, all the contracts submitted to the Bank had been awarded in accordance with the Bank's Procurement Guidelines\. 20\. Disbursement of the loan started with a delay of 18 months and, despite the cancellation of part of the loan in September 1985, took six years instead of three years foreseen at appraisal (PCR, Annex 5)\. The initial delay was due to the late start of procurement and construction (PPAR, para\. 17)\. Later lags in loan disbursement are explained by the delays which occurred in the implementation of the distribution and customer conversion components (PCR, Annex 7)\. The closing date of the loan was extended to December 31, 1986, and the loan account was kept open until December 31, 1987, on an exceptional basis, to enable payment for laboratory and maintenance equipment and spare parts\.121 11/ Some of these cases are illustrated by STEG telexzs to the Bank dated December 9, 1980 (valves), March 13, 1985 (North Tunis engineering), July 2, 1985 (laboratory equipment), December 26, 1985 (extension of gas network), February 26, 1986 (materials for North Tunis), November 4, 1986 (valves), December 30, 1986 (conversion equipment); STEG letters to the Bank dated May 18, 1984 (conversion and pipe laying), April 10, 1986 (spare parts for conversion), April 23, 1986 (North Tunis, Monastir and Sousse pipe laying); and Bank telexes to STEG dated December 3, 1980 (line pipe), December 19, 1986 (burners), and February 19, 1987 (trucks)\. 12/ Telex to STEG, June 29, 1987\. - 7 - 21\. The Bank loan had an expected average loan life at the time of appraisal of 9\.5 years\. The average loan life is the sum until maturity of the loan balances outstanding at the end of each year divided by the loan amount\. This indicator measures the number of years during which the entire loan proceeds lay effectively at the borrower's disposal\. The faster the disbursements and the slower the repayments, the longer the availability of loan funds\. In the case of Loan 1864-TUN, the delays in starting construction cut this availability to 6\.6 years, and the exchange risk due to the currency-pooling system both realized on past repayments and accumulated until September 1989 cut it further to 5\.1 years\. This indicates that the actual terms of the Bank loan were not matching the requirements of the project which assumes a very long cash-flow generation horizon\. In terms of Tunisian dinars, the Bank loan had an average life of only 3\.4 years which underscores a significant refinancing problem in the currency of operations\. Project Cost and Financing 22\. The actual project cost compares with the appraisal estimates as follows (PCR, para\. 5\.01, and Table 2): Currency SAR Revised Actual US$ million 88\.0 75\.7 49\.4 DT million 35\.2 32\.2 36\.8 Thus, there is a cost underrun on the order of 44% in dollar terms, but, in terms of Tunisian Dinars (DT), there is a cost overrun of about 4%\. 23\. The PCR attributes cost savings in dollar terms to: (M) significant reductions in pipeline construction costs as a result of favorable terms obtained from international competitive bidding (ICB); (ii) substantial devaluation of the Tunisian Dinar vis-a-vis the U\.S\. dollar; and (iii) changes in project scope (PCR, paras\. 5\.01-5\.03 and 11\.03)\. Apparently ail of these factors affected the actual project cost\. However, the audit would caution against imputing much meaning to the cost underrun in dollar terms because, first, during project implementation the U\.S\. dollar appreciated considerably vis-a-vis European currencies in which major contracts were denominated; and, second, important project elements, such as gas distribution facilities and conversion, were not clearly defined either in the SAR or the amended loan documents, thus precluding a meaningful comparison of estimated and actual costs (PCR, para\. 6\.02)\. 24\. The original project financing plan included US$30 million of export credits and commercial borrowings representing approximately 33% of the estimated total financing required (PCR, paras\. 9\.12-9\.14)\. At project completion STEG had used US$16 million of suppliers' credits and commercial borrowings, corresponding to about 31% of the actual project cost (PCR, para\. 9\.14)\. This is roughly comparable to original expectations\. Due to the decrease in project costs, the Government's contribution was reduced - 8 - from US$25 million equivalent to US$9 million equivalent (PCR, para\. 9\.16)\. Upon the request of the Government and the Borrower, US$10 million of the Bank loan was cancelled in September 1985 (PCR, para\. 5\.06)\. Except for some limited advances repaid by the Government, STEG did not self-finance any portion of the investment although it is its main beneficiary\. The Performance of the Borrower 25\. The Bank has had a long standing involvement with STEG both in the power sector and in the financing of the El Borma-Gabes pipeline\. During that period STEG had developed into one of the most important state economic enterprises in Tunisia, setting an example in efficiency and effective management\. In the implementation of the Second Natural Gas Pipeline, STEG has given proof of its considerable project implementation capability\. Nevertheless, the sudden change of the project's character in mid-course (PPAR, paras\. 13-15), and the need to take a series of quick actions under conditions of uncertainty have imposed undue strain on STEG\. Partly because of these pressures and partly because of its limited gas distribution experience, STEG failed to provide for a satisfactory gas market and network development plan and conversion program (PCR, para\. 11\.04(c))\. This deficiency was one of the reasons for the sub-optimal utilization of the facilities built under the project (PCR, paras\. 3\.03-3\.08; PPAR, para\. 29)\. 26\. The gas conversion initially lagged behind forecasts, but since the project was completed (1985) conversion targets have been better approached every year: 20% in 1985, 41Z in 1986, 88% in 1987, and 96% in 1988\. Domestic conversion targets have always been over-achieved, mainly due to the conversion of all Tunis households completed in mid-1988, while commercial targets proved too ambitious\. A sustained effort has yielded impressive results with hotels where all new projects are connected to gas\. Results have been disappointing with industry because several large gas- consuming projects did not materialize\. Since 1988, the effort has been refocussed on small and medium-size enterprises, but the campaign has met some resistance when owners realize that they have to pay for connections and conversion of their equipments\. The Performance of the Bank 27\. Throughout project implementation, the Bank staff maintained satisfactory working relationship with the Government and the Borrower\. However, project supervision in the field was somewhat inadequate\. Considering the number and importance of issues left unresolved at appraisal (PPAR, paras\. 40-45), intervals of 11-16 months between supervision missions during the first two years were probably too long for the Bank to have a significant impact on project implementation\. 28\. The Bank's performance during project appraisal and subsequent amendment of the Loan Agreement left much to be desired\. When the project was first appraised, it was at a very advanced stage of preparation\. Pipeline route serveys and optimization studies had already been undertaken - 9 - by a foreign consultant, and most of the detailed design had been completed\. Consultants were selected and contracts were signed for consultancy, engineering, and construction supervision services (SAR, paras\. 2\.13 and 2\.15)\. Therefore, prospects for any significant impact by the Bank on the shaping of the project or on the implementing institution were rather slim\. Nevertheless, the Bank could have pressed for coordinated action on the distribution and conversion aspects of the project, the installation of a dependable supervisory control and data acquisition system, and the adoption of national standards for gas distribution and utilization, when these aspects assumed a critical importance at the time the Loan Agreement was modified in 1981 (PCR, paras\. 3\.07, 6\.02, and 7\.04)\. This illustrates the difficulties inherent in restructuring a project in mid-course, especially when it includes major long lead time activities, and emphasizes the need for adeqiate project preparation and appraisal, including systematic risk/uncertainty analyses (PPAR, para\. 50)\. III\. PROJECT OUTCOME Operating Performance 29\. The branch pipelines constructed under the project became operational toward the end of 1983 and early 1984 (PCR, para\. 6\.01)\. Gas delivery to Tunisia from the TMP started in November 1983 and built up to 911,000 tons of oil equivalent (TOE) in 1987\. This is about 38Z of the appraisal estimate (PCR, paras\. 2\.05-2\.07)\. The shortfall is due mainly to STEG's policy of not using gas when it is priced higher than the fuel oil, and the slow penetration of natural gas into the premium fuels market\. So far, the imported gas has replaced mainly a portion of the fuel oil and only a modest portion of the premium fuels which it was intended to substitute (PCR, paras\. 3\.01-3\.08)\. 30\. The main user for gas was intended and still is STEG\. The gas price charged to STEG is based on the market price of a basket of crude oils, thus generally reflecting the price of fuel oil on a heat equivalent basis\. However, in the past there were instances of the gas price being higher than the landed cost of fuel oil (PCR, Annex 3, para\. 11)\." 31\. Although STEG is in the process of implementing programs to increase the penetration of natural gas into the premium fuels market, the amount of premium fuels substituted by natural gas is expected to remain considerably below appraisal estimates, casting doubt on the quality of gas market studies on which the modified project was based (PCR, para\. 3\.05)\. - 10 - 32\. Due to low imported gas consumption, the system capacity utilization vas about 301 in April 1988, indicating substantial overcapacity (PCR, para\. 7\.02)\. This excess capacity was unavoidable since pipeline diameters were left unchanged at the time the project was modified (PPAR, para\. 17)\. It was thought then that any excess capacity would disappear if and when the already discovered domestic gas fields were developed\. The sharp decline of the international petroleum prices and the expectation of low energy prices till the end of the current century make this a remote possibility\. Therefore, barring any developments favoring higher gas consumption, such as a sudden jump in international petroleum prices or discovery of inexpensive domestic gas resources, the overcapacity is likely to persist in the medium term\. 33\. The mechanical performance of the pipeline system is in general satisfactory, with the exception of three measurement centers\. It appears that the unsatisfactory performance of these centers is due to faulty design and construction, reflecting on the performance of STEG's engineering and supervision consultants (PCR, paras\. 6\.06-6\.07)\. However, given the qualification and experience of these consultants, the audit tends to consider this shortcoming as one of those imperfections which creep into large construction projects implemented under time pressure\. The PCR (para\. 6\.07) rightly argues that, due to their high-technology content, the measurement centers should have been packaged separately from the pipeline construction and handled directly by specialized contractors\. The Borrower drew the same conclusion and has replaced all measurement units through separate procurement\. Economic Reevaluation 34\. The reevaluated economic rate of return (ERR) of the project is 141\. This compares with 282 forecast for the original project (SAR, para\. 5\.08; and PCR, paras\. 10\.01-10\.04 and Annex 8)\.13/ The decline in the project's ERR is due mainly to the higher-than-expected cost of the Algerian gas, small amounts of premium fuels substituted, and the low pipeline capacity utilization\. Although substantially lower than the forecasts, the ERR is still acceptable for an infrastructure project\. Financial Performance 35\. At present STEG is the main user of the imported gas\. It does not prepare separate cash accounts for its imported gas activities and does not revalue its assets on an annual basis\. Therefore, a comparison of the project's financial rate of return (FRR) with appraisal estimates is of necessity conjectural\. Nevertheless, diagnostic gas accounts prepared at 13/ As the feasibility of certain branch pipelines depended on the then unknown cost of the Algerian gas, no overall ERR for the amended project was calculated\. It was estimated, however, that at a gas price of US$6 per MOBtu, the economic rates of return of individual branch lines would vary between 152 and 50% (President's Memorandum, Secretary's No\. R81 179, June 22, 1981, para\. 10)\. - 11 - the Bank's urging indicate that the project's FRR remains considerably below the covenanted 82 return on revalued assets (PCR, paras\. 9\.01-9\.08)\. However, there appears to be a steady improvement, since the estimated financial return on STEG's northern gas activities increased from a negative 262 in 1984 to a positive 62 in 1987 in parallel to the improvement of the margin between the weighted average selling price and the purchase price of the Algerian gas (PCR, Annex 7)\. 36\. Independently audited accounts for the gas activities during 1986 and 1987 are available for the Algerian Gas division which corresponds to the Northern Tunisia\. Although this is short of the objective of having separate accounts for the entire gas operations, these accounts provide a reliable financial picture of the pipeline network financed with the Bank loan\. In 1986, STEG's Algerian Gas division posted a net loss (US$3\.6 million equivalent at the average exchange rate for 1986) although it was mostly not related directly to operations\. For the first time after four years of losses, 1\.7 showed a profit (US$2\.2 million) for the same reason, mainly a decrease in provisions for exchange risk\. Results related to operations were positive In both years, but by small amounts (US$0\.8 million in 1986 and 0\.2 million in 1987)\. The returns on sales of gas was poor: 5\.1% in 1986 and 1\.2Z in 1987\. Cash flows from operations were substantial (US$3\.5 million in both years), which allowed potential self- financing (before debt-service) of 68\.12 of investment (excluding fixed assets revaluation) made in 1987\. After debt-service, however, self- financing was reduced to 20\.0%; exceptioAl, thus non-recurrent, gains lifted it to a respectable 58\.62 in 1987\. Financial expenses amounted to 15\.4% of average long-term debts in 1987; together with scheduled principal repayments they consumed 1632 of operational cash flows or 992 of total cash flows\. Under these conditions, financial sustainability of the project is threatened\. Overall gas activities show a surplus, but it is mainly because the El Bormah gas consumed by STEG is costed at zero\. In addition, no provision is set aside for the replacement cost of the dwindling field\. Combined electricity and gas operations are loss-making and the trend has worsened in 1988\. Losses amounted to US$54\.8 million on sales of US$277\.5 million (or 19\.72)\. Accounts receivable totalled US$36\.4 million, or over 1\.5 months of sales\. The current ratio was lower than 0\.5 and debt service in principal scheduled for 1989 was greater than cash flows, which both raised a solvency issue\. TV\. FINDINGS AND ISSUES Overall Assessment 37\. The project has achieved its primary objective of installing a gas distribution infrastructure in Northern Tunisia where most of the country's population lives\. Although less than expected, imported nadfral gas has made significant inroads into Tunisia's premium fuels market (PCR, para\. 7\.04)\. With the exception of ensuring separately the financial viability of STEG's purchased gas and power activities, the institutional objectives - 12 - of the project were also attained through training and consultancy services (PCR, par4s\. 6\.08\. 8\.05 and 9\.06)\. The project's main policy objective of rationalizing domestic petroleum product prices was achieved to a large extent, both as a result of the gradual increase in domestic prices and the collapse of international oil prices after 1986 (PCR, para\. 3\.13, Annex 3, paras\. 13-15)\. Given these achievements, the audit considers the project successful\. Project Desian and Preparation 38\. Despite adversities in project implementation and unexpected developments in international commercial relations (PPAR, paras\. 13-16), the project still has an ERR slightly above the opportunity cost of capital in Tunisia\. This can be taken as a proof of the soundness of the basic project concept\. Notwithstanding this, it is clear that the project was not prepared to standards adequate for a Bank project\. The timing of the project was certainly less than optimal\. 39\. The PCR (para\. 11\.01) notes that the project was related to one of the largest international gas projects (the Trans-Mediterranean Pipeline), with all the complexities which are inherent to such projects, such as long lead planning time, heavy front end investment, long-term contractual arrangements, as well as pricing issues\. These complexities should have normally deterred both the Borrower and the Bank from rushing the project\. However, this was not the case\. The Borrower and the Bank committed themselves to the project before uncertainties surrounding the size of the potential gas market, the volume and the price of the Algerian gas, and the domestic gas development plans were clarified\. 40\. Gas Market\. The abundant supply of hydrocarbons over the 1970s and the lack of alternative energy sources had led to a limited Government role in energy planning and coordination (Pr-jsident's Report, para\. 31)\. The Energy Department of the Ministry of Energy and Mines had only recently been reorganized to handle long-term energy planning and the study and review of the economic, financial, and legal aspects of alternative energy development plans (SAR, para\. 1\.28)\. The energy master plan for Tunisia under preparation by a foreign consultant was not expected to be ready before the end of 1980, about one year later than the start of the project appraisal (PPAR, para\. 8)\.141 Feasibility studies for the supply of gas to 141 This study had a curious fate\. Due to inadequate input data and the poor performance of the consultant, the completion of the study was delayed\. Before the work was completed the consultant declared bankruptcy\. The study was, however, continued by another consultant which prepared a preliminary report of a very poor quality\. The Government rejected the conclusions of this report, and all efforts to complete this study were abandoned (PCR - Tunisia: Second Power Project (Loan No\. 1355-TUN), April 22, 1983, IBRD Report No\. 4456, para\. 7\.4)\. - 13 - households and small scale industrial consumers in selected areas of Tunisia were to be done under the project (Loan Agreement, Schedule 2, Part C, para\. 1)\. As a result, the SAR contained only limited information on the potential gas market to be served by the project, and this was based mostly on the assumptions that the natural gas would replace fuel oil used in the power sector and in certain industries (PCR, para\. 3\.01 and Footnote 1)\. The project's failure to meet demand targets forecasted at appraisal is to some extent a presentational problem\. This evaluation ascertained that the 2\.4 million TOE target was for the whole country after completing the second phase of investments\. Given that only the first phase supported by the Bank loan has been implemented, a pro rata target is more appropriate to evaluate the accuracy of the market studies used to recommend the project\. 41\. Volume and Price of Algerian Gas\. The economic viability of the project depended on the provisions of three international agreements governing the volume and the price of the Algerian gas to be supplied to Tunisia\. These were the Algeria-Tunisia gas supply contract, still under negotiation at the time of appraisal, the Algeria-Italy gas supply agreement, which would be renegotiated soon after Board presentation, and the Tunisia-Italy common carrier and royalty agreement\. The Bank needed these contracts to ascertain, among other things, (a) the security of gas supply, on which the whole project hinged, (b) the basis on which the price of the Algerian gas would be established and adjusted, which was a critical element for the economic and financial aspects of the project, and (c) the exact amount of gas to be made available to Tunisia 3n terms of royalties and purchases, and the nature of transit rights and obligations of Tunisia\. 42\. Throughout the appraisal of the project, the Tunisian authorities refused to give the Bank copies of these contracts on grounds of confidentiality\.151 Nevertheless, the Bank proceeded with the processing of the loan without an in-depth examination of the relevant international contracts\.16/ Instead, it was agreed that the Tunisian authorities would confirm that the SAR reflected the substance of the supply contracts, and that the Tunisian legal opinion to be subsequently submitted would certify that the contracts were effective and binding (PCR, para\. 3\.10 and Annex 3, para\. 5)\. 43\. In the absence of exact gas price data, the Bank based project appraisal on the optimistic assumption that the Algerian gas would cost 60-70Z of the international fuel oil price (PCR, para\. 3\.09)\. This 151 Project Brief and Issues Paper, November 9, 1979, para\. 3\.17\. 161 Before starting negotiations, the Tunisian delegation allowed the Bank staff to review the contracts in their presence, but not to keep copies (Memorandum to Vice President, EMENA, April 30, 1980, para\. 2)\. The royalty agreement between Tunisia and Italy was finally given to the Bank in October 1980 on condition that its contents be kept secret (Back-to-Office Memorandum dated October 17, 1980)\. - 14 - optimism was proven to be unwarranted soon after the Board presentation of the project (PCR, Annex 3, para\. 7)\. In retrospect, the audit finds it difficult to justify the appraisal mission's optimism on natural gas price, since the Bank was well aware of the Algerian Government's declaration of narrowing, over time, the gap between the gas price at the border and the international fuel oil price\.17/ 44\. Despite the uncertainty regarding the cost of the Algerian gas supplies, no sensitivity analyses showing the price ranges within which importing gas and exporting domestic fuel oil would be advantageous were given\. The only information that can be obtained from the SAR in this respect is that, "should the gas purchase contracts be renegotiated such that the only saving was the differential between transmission costs to Italy and Tunisia (which is seen as the minimm benefit in the long-term), the project's rate of return would be 28Z\.' The fact that the project failed to achieve even this predicted minimum (PPAR, para\. 34) underlines the urgency for the Bank to refine its risk assessment techniques, as suggested in past Annual Reviews of Project Performance Results\.18/ 45\. Development of Domestic Gas Resources\. The project was designed to accommodate also the development of domestic gas resources in the future (PPAR, para\. 7), but no firm gas development plans were at hand at the time of project appraisal\. The only certainty was the Government's decision to defer for an unspecified length of tine the development of the offshore Miskar gas field for "both strategic and economic considerations (President's Report, para\. 24)\.0 Thus, future domestic gas development plans and the project's relevance to them were not to be known until the completion of the previously mentioned energy master plan\.19/ 46\. As the previous discussion shows, the project was prepared under considerable time pressure, because it was accepted a priori that the timing of the pipeline construction had to fit with the commissioning of the TMP expected to take place in late 1981\.20/ This is rather difficult to explain since the gas purchase contract between Tunisia and Algeria had not been finalized, and Tunisia had the option of taking the royalty in cash\. Due to the prevalence of long lead time activities, such as pipe manufacturing, contractor mobilization, etc\., little time was available for adequate consideration of all critical project issues\. The PCR (para\. 11\.04(a)) concludes that the implementation of the project should have been delayed until agreement was reached on gas pricing\. The audit agrees with 17/ Project Brief and Issues Paper, November 9, 1979, para\. 2\.05\. 18/ See, for example, Annual Review of Project Performance Results 1986, October 19, 1987, IBRD Report No\. 6976, paras\. 1\.46-1\.48\. 19/ Back-to-Office Report, October 2, 1980, para\. 9\. 20/ Project Brief and Issues Paper, November 9, 1979, para\. 3\.20\. \. 15 - this view, since the proposed approach would have eliminated the need for ad hoc changes in project scope and design after Board presentation, and have prevented idle investment for about one year\. This experience illustrates the need for a clear basis for project evaluation and planning (PPAR, para\. SO)\. 47\. The Bank has later incorporated the lessons of its experience under the project into its Guidelines for Petroleum Lending\.11/ The Bank now requires long-term salesipurchase contracts as a pre-condition for presenting a loan for the construction of gas using facilities to its Board of Executive Directors, except when firm preliminary commitment from the producer and purchaser is cesidered satisfactory\. In this latter case, the execution of a satisfactory sales/purchase contract becomes a condition of loan effectiveness\. If the OMS 3\.82 were In force at the time this project was prepared, it is highly likely that many of the surprises encountered during project implementation would have been avoided\. Sustainability 48\. Despite unfavorable circumstances, such as long implementation delays, underutilization of the facilities built, and slow entry of gas into the premium fuels market, the project shows an acceptable ERR (PPAR, para\. 31)\. This economic benefit is derived from the difference between the cost of the Algerian gas and the landed cost of the fuels it replaces\. Since the contract price of the imported gas is tied to crude oil prices and the prices of the petroleum products is a function of international crude oil prices, the future economic benefits of the project should remain at least at their current levels\. Moreover, STEG has already developed the technical skills required for a gas distribution concern (PCR, paras\. 8\.02-8\.05), and satisfactory national standards for gas distribution and utilization are either in force or under preparation (PCR, para\. 7\.04)\. The audit, therefore, considers the sustainability of the project benefits assured at the technical level\. Lessons of Experience 49\. No detailed gas market development and customer conversion programs were provided in either the orivinal project or the amended project (PPAR, para\. 28)\. As a result, the major portion of the imported gas is still being used to replace fuel oil, instead of premium fuels, to the detriment of the project's ERR (PPAR, paras\. 27-31)\. This experience reinforces the following lesson drawn from previously reviewed natural gas transmission and distribution projects\.221 211 Operational Manual Statement (OMS) No\. 3\.82, November 1984, para\. 44\. 22) See PPAR - Egypt: Cairo Gas Distribution Proiect (Credit 1024-EGT), June 24, 1987, IBRD Report No\. 6860, para\. 30; and PPAR - Bangladesh: Bakhrabad Gas Development Project (Credit 1091-BD), October 14, 1987, IBRD Report No\. 6975, para\. 44\. - 16 - Because of heavy front-end investment requirements for gas distribution systems, it is particularly important to build up sales rapidly in the early years\. Therefore, related activities that are critical to the achievement of this goal, such as market development and conversion of customers' equipment, should be carefully planned, and provisions made for their timely implementation\. 50\. The project experience also shows the difficulties inherent in changing in mid-course the scope of a project involving activities with long lead times, such as pipeline construction\. When the gas price assumptions made at appraisal did not materialize, and the objective and scope of the project had to be modified, the Bank could only check to see if certain project elements were still economically viable, without ascertaining their optimality\. Under time pressure, several elements critical to the success of the modified project were overlooked (PPAR, para\. 28)\. The following lesson, which may also apply to other infrastructure projects with long lead times, emerges from the project experience: In preparing projects with long lead time activities, every effort should be made to ascertain all the factors which are critical to successful project performance\. In case some of these cannot be sufficiently ascertained before committing to a project, advanced risk/uncertainty analysis techniques should be utilized to better account for uncertainties in the planning environment and their potential impact on the project\. 51\. On financial grounds, the pipeline project financed by the Bank loan has failed to strengthen STEG yet\. The refusal by STEG up to this day to disclose unconsolidated financial results for its gas and electricity activities has prevented a full assessment of the financial viability of gas operations\. With its full share if debt service and a provision for the replacement cost of the El Bormah field, gas is in recurrent deficit (PPAR, para\. 36)\. The following lesson, which may apply to other infrastructure projects which require large debt financing, can be suggested: In preparing capital-intensive projects with corresponding large debt financing, special attention should be paid to the financial prerequisite to sustainability\. If it can be anticipated that the project will not be able to generate enough cash flows to, concomitantly, cover the debt service (including foreign exchange losses) and finance depreciations, measures should be scheduled in advance to assist the borrower in meeting its obligations (e\.g\., recapitalization, refinancing of debts, insurance for the exchange risk, tariff increase, sale of some assets)\. - 17 - PROJECT COMPLETION REPORT TUNISIA SECOND NATURAL GAS PIPELINE PROJECT (LOAN 1864-5-TUN) November 3, 1988 Industry and Energy Division Technical Department Europe, Middle East & North Africa Regional Office - 19 - TUNISIA Second Natural Gas Pipeline Project (Loan 1864-5 TUN) Project Completion Report I\. THE SECTOR AND BANK ROLE 1\.01 The El Bormah field, in southwest Tunisia, accounts for most of the domestic production of natural gas, all in the form of associated gas\. The gas is used for the most part for power generation, but also for a number of industries in the vicinity of Gabes (see map IBRD 14849R1)\. In the northern part of the country, gas became available only in the early 1980's, with the completion of the Trans-Mediterranean Pipeline (TMP), a major multinational undertaking involving gas exports from Algeria to Italy which not only entitles Tunisia to royalties (for the rights of passage) but also gives Tunisia the option to buy gas under separate arrangements\. The Project was designed to enable Tunisia to take advantage of these new opportunities by developing the infrastructure required to transport and distribute the gas domestically, and by acquiring the equipment required to convert major plants to natural gas\. 1\.02 While this Project was designed to use imported gas, it also took into account the impact, at a future date, of the development of the offshore Miskar gas field, the largest undeveloped hydrocarbon field in Tunisia with reserves of about 60 billion m3\. Consideration had already been given as early as the mid-1970's to develop that field, and the Project was reexamined at various times until the mid-1980's, but its economics were found marginal at best\. The collapse of oil prices of 1986 could postpone the development of Miskar further, although an international oil company has recently indicated tentative interest in developing the field\. 1\.03 The Bank has been active in Tunisia's gas sector since the early 1970's when it made a US$7\.5 million loanto finance the gas pipeline from the El Bormah field to Gabes\. In the late 1970's, the Bank encouraged the Government to consider gas supply options other than Miskar when the cost of developing that field became excessive\. This ultimately resulted in the decision to develop the market for gas in northern Tunisia on the basis of imported gas, in retrospect a wise decision, which led to the present Project\. 1\.04 The gas sector in Tunisia is closely intertwined with the power sector, since most of the gas is used for power generation, and the power utility Societe Tunisienne de l'Electricite et du Gaz (STEG) is also in charge of the acquisition, transport and distribution of natural gas\. In addition to 1/ Loan 724-TUN of Feb\. 1971\. Project Performance Audit Report No\. 1078 of March 12, 1976\. - 20 - two loans for gas transport and distribution, the Bank has made three loans to STEG for electricity generation, transmission and distribution\.1' II\. THE TRANS-MEDITERRANEAN PIPELINE AND GAS AVAILABILITY A\. The Tran,;-Mediterranean Pipeline 2\.01 The Hassi R'Mel gas field in Algeria, discovered in 1956, remains one of the largest gas fields in the world\. This field is the source of gas for a number of ongoing major international liquefied natural gas (LNG) or pipeline gas projects including the TMP\. 2\.02 A memorandum of agreement signed betwean Algeria and Italy in 1973 provided for 25 years export of natural gas from Hassi R'Mel to Italy\. The agreement was contingent upon technical feasibility of a state-of-the-art deep undersea pipeline crossing the Sicily Channel and Straits of Messina at depths of 550 m\. and 350 m\., respectively\. The technical feasibility which included short pipe laying tests, was completed in 1974 and showed that the deep undersea crossings were feasible\. This led to tri-country agreements in 1977 among SNAM (ENI Group of Italy), Sonatrach (Algeria) and the Tunisian Government for the export of 12 billion cubic meters (M3) of Algerian natural gas per year to Italy plus delivery of about 600 million m3 royalty gas per year to Tunisia in the plateau periods \. Delivery was to begin in 1981, reaching full capacity at the end of 1984\. As a result of the oil price upheaval in the early 1980's, gas pricing became a contentious issue between Italy -and Algeria\. Consequently, it took two years to reach a new agreement on gas prices, with a corresponding delay in gas deliveries\. 2\.03 The TMP from Hassi R'Mel in Algeria to Minirbio in Italy is about 2,500 km long of which 550 km is in Algeria, 370 km in Tunisia, 160 km in the Sicily Channel and 1,420 km in Italy\. The pipeline is 48" in Algeria, Tunisia, Sicily and the greater part of its route through Italy, while decreasing gradually on the last section connecting it to the Northern Italian network\. The Sicily Channel has three 20" subsea lines plus a 20" spare, the Messina Straits have three 20" lines and a 10" spare\. The transmission system includes 8 compressor stations with a total installed horsepower of 425 MW of which three stations, including the 120 MW Cap Bon station, are installed in Tunisia\. The pipeline design allows for adding compressor stations in order to increase the capacity to about 18 billion m3 per year\. Although construction of the pipeline progressed as planned with commissioning scheduled in October 1981, because of the protracted renegotiations primarily aimed at price adjustment, delivery of gas started in August 1983 and the 1/ Loan 815-TUN of March 19, 1972, Loan 1355-TUN of December 23, 1976, Loan 2003-TUN of May 26, 1981, and Loan 2455-TUN of June 27, 1984\. Project Performance Audit Reports have been issued for the first three (Report 2521 of May 24, 1979, Report 4456 of April 22, 1983 and Report 7326 of June 23, 1988)\. In general, they concluded that project implementation was satisfactory, but that, on the other hand, the financial and economic objectives of Bank lending had not been attained fully\. - 21 - total delivery to Italy in that year was only about 2 billion M3\. By 1987,however, gas delivery through the pipeline had increased to about 11 billion m3\. 2\.04 Sonatrach was responsible for the building of the Algerian section of the gas pipeline (550 km\. of 48")\. In Tunisia, SNAM was responsible, through its wholly-owned Tunisian subsidiary, Scogat, for the building of 370 km\. of 48" pipeline and the construction of three compressor stations\. The crossing of the Sicily Channel was carried out by a company jointly-owned by SNAM and Sonatrach and the Italian section of the pipeline, including the crossing of the Straits of Messina, was built by SNAM\. B\. Gas Availability 2\.05 The SAR reflects the original agreement among the three parties according to which supply of gas to Tunisia was to start in October 1981, simultaneously with the beginning of regular supplies to Italy which was to increase gradually from about 800 million m3 (equivalent to about 800,000 TOE) in 1982 to 2,400 million m3 in 1987\. 2\.06 As a result of the delay in the commissioning of the TMP, the ongoing bidding process for the construction of the spurlines in Tunisia was delayed from June 1980 to March 1982\. Actual gas delivery to Tunisia started in November 1983 with only 6 million m3 of royalty gas delivered in that year\. The Tunisian entitlement for royalty gas is 5\.25% up to 12,000 million M3 of the gas leaving Tunisia and 6% for the quantities in excess\. 2\.07 A contract was signed between Tunisia and Algeria in January 1984 for additional annual delivery of 100,000 TOE increasing to 300,000 TOE (contracted gas) within three fiscal years starting from October 1, 1984\. A second contract signed in December 1986 stipulated the annual deliveries for the following three calendar years\. These deliveries were: Year MTOE 1987 150 1988 200 1989 250 In addition, the same contract gave the right to Tunisia to request from time to time, gas in addition to the contracted quantities (excess gas)\. The actual gas delivered to Tunisia increased from 380,000 TOE in 1984 to 911,000 TOE in 1987\. This compares with SAR estimates of 835,000 TOE in 1982, increasing to 1,145,000 TOE in 1984 and 2,400,000 TOE in 1987, respectively\. Table 1 compares the actual royalty gai and contracted gas deliveries with the SAR estimates\. \. 22 - Table 1\. GAS SUPPLY TO TUNISIA FROM TRANS-MEDITERRANEAN PIPELINE Actual vs SAR Estimatg (Thousand Tons of Oil Equivalent) 1982 ZRal 1 18 1985 -198 _JUZ aa AuUal IM Actual 9 &Aa M Acnal a& AcItal fM Actual Rnvaty Gas (i) Entitlement - - - 114 - 352 - 460 - 436 - 579 (ii) Delivery 200 - 370 6 k/ 52S 254 620 408 800 142 800 311 Contracted Gas (Mii) Contract Qty\. - - - - - 100 - 250 - 300 C/ - 150 (iv) Delivery 635 - 490 - 620 100 1,175 237 1\.200 195 1\.200 150 (v) Excess Gas - - - - - 26 - - 400 - 400 450 4/ Total Actual Deli- very (ii)+(iv)+(v) 835 - 860 6 1\.145 380 1,795 678 2\.400 337 2,400 911 A/ Gas delivery to Tunisia started in November 1983 (para 2\.06)\. h/ Includes the line pack, about 2\.7 TOE\. c/ This quantity includes deliveries for three additional months (October\. November and December) for transition from fiscal year to calendar year\. d/ Of this quantity, about 120 KTOE was a gift from Algeria to Tunisia\. - 23 - III\. GAS DEMAND AND PRICING A\. Gas Demand 3\.01 When the project was appraised, expectations were that gas would essentially replace fuel oil in the power sector and in certain industries-'\. Therefore, fuel oil consumption was forecast to decrease from an estimated 1,040 thousand TOE (44% of the total consumption of petroleum products) in 1980 to 155 thousand tons (less than 8% of total consumption of petroleum products) in 1987, with imported gas amounting that year to 2,400 thousand TOE'\. In other words, gas was expected to replace 85% of the fuel oil consumed in 1980, and meet the full demand growth in the 1980-87 period (limited substitution was anticipated since the consumption of diesel oil was forecast to increase by 5-6% per annum over 1980-87, and that of LPG by 10% per annum during the same period)\. 3\.02 As a result of the significant increase in the price of Algerian gas, the Project was restructured during 1980-81 and targeted to the premium fuels substitution market, instead of the fuel oil market\. The potential market was estimated at 300 thousand TOE annuallyl'; it was also envisaged to replace fuel oil in the power plant at Sousse, up to 500 thousand TOE annually, subject to the prices in effect\. Annex 1 shows the actual 1980-87 demand for petroleum products, and indicates that: (a) while demand for hydrocarbon over the period 1980-87 grew on average by 4% per annum, demand for gas increased by 17% per annum (essentially because of the introduction of northern gas), and fuel oil demand declined on average by 4% annually; (b) the combined share of gas and fuel oil increased from 48% in 1980 to 52% in 1987; and (c) demand for northern gas varied considerably from one year to the next, because of its price in relation to that of fuel oil\. 1/ The Appraisal Report contains limited information on the potential market for natural gas, which could be attributed to the lack of domestic experience in energy forecasting (para\. 1\.17)\. This was expected to be remedied with the help of the consultants\. 2/ Source: SAR, Annex 1\.01\. It was further assumed that Tunisia would not be in a position to take all the royalty gas available to it in kind, and that 400 thousand tons would be taken in the form of cash\. Of course, the quantity of royalty gas available to Tunisia depends on the pipeline throughput over which Tunisia has no control\. 3/ President's Memorandum of June 22, 1981 (para 4)\. - 24 -\. 3\.03 Therefore, northern gas has mainly taken up a portion of the fuel oil market, and only a modest share of the market for premium fuels, its priority target from an economic standpoint\. 3\.04 A breakdown of northern gas sales appears at Annex 2, and can be summarized as follows: Gas Market (Thousand TOE) Growth Rate (Z) Target 1984 1987 1984-87 1991 1\. Prime Fuels Replacement Domestic Consumption 18 28 14% 41 Hotels 0 18 n\.a\. 25 Miscellaneous 1 11 n\.a 16 Subtotal 19 57 32 82 Add: STEG Gas Turbines 169 89 -19% - a/ Total Premium Fuels 188 146 -8% 82 2\. Fuel Oil Replacement Heavy Industries 33 61 24% 155 Add: STEG Steam Plants 157 688 63% - a/ Total Fuel Oil Rep\. 190 749 58% 155 Total Sales 379 894 33% Source: STEG, Gas Directorate, May 1988 a/ STEG expects to use between 200 thousand TOE And 1,120 thousand TOE by 1991 depending on the price of imported gas in r4lation to fuel oil\. 3\.05 The premium fuels replacement market (mostly domestic, hotels, small industries and crafts) has increased from 19 thousand TOE in 1984 to 57 thousand TOE in 1987\. It is increasing fast, but on the other hand started from a low base\. Considering that this market segment includes the Tunis town gas (27,000 connections) for which the distribution network was already in place, results have been less than impressive\. By 1991 (last year of the Seventh National Development Plan), the target of 82 thousand TOE appears particularly low considering that in 1981 expectations were for a potential premium fuel market of 300 thousand TOE (no target year was mentioned)\. - 25 - 3\.06 Regarding fuel oil replacement, STEG has connected a number of cement plants and other major industries\. Another important cement plant is expected to be supplied starting in 1988 so that the consumption in this industrial activity is anticipated to increase significantly in the coming years\. 3\.07 For power generation, one has to make a distinction between the gas turbines and steam units\. Regarding the former, their consumption is dictated by economic considerations, and certainly does not represent a significant market for imported gas in the long term unless they are converted to combined cycle\. Regarding steam units, STEG is aware of the necessity to monitor continuously the prices of gas and fuel oil in order to ensure that they use the fuel that is cheapest to the economy; this explains wide annual variations in the consumption of gas in STEG's steam units\.-' In order to better optimize load dispatch, STEG is now considering the acquisition of a modern Supervisory Control and Data Acquisition system (SCADA) that will enable it to switch fuels more rapidly and efficiently than in the past\. 3\.08 In conclusion, the growth of the premium fuels market has been much slower than anticipated in 1981, with power generation accounting for most of the utilization of northern gas\. This situation is likely to continue in the foreseeable future\. Supervision missions, particularly following the beginning of the conversion activity, urged STEG to initiate appropriate promotional efforts\. STEG's Gas Directorate is presently strengthening its capability in the areas of market surveys and prefeasibility studies which may improve the future situation\. B\. Price of Imported Gas 3\.09 The price of imported gas had a considerable impact on the project's design, implementation and economic rate of return, as well as the formulation of most covenants\. Throughout project preparation and appraisal, it was thought that the price of imported gas would be highly attractive, i\.e\., 60-70% of the international price of fuel oil\. In view of the importance of gas pricing, its evolution during the implementation of the Project is reviewed in detail in Annex 3\. Tunisia is, through a contract with Italy, entitled to royalty gas (para 2\.05); part or all of royalty gas could be taken in kind or cash at the contract price of gas to Italy\. In addition, under a take-or-pay contract with Algeria, Tunisia is committed to buy certain quantities of gas (para 2\.07), at a price linked to a basket of 8 crudes which changes every quarter\. 3\.10 Throughout the appraisal process, the Bank, with considerable reluctance, decided to accept Tunisia's position to proceed with the Project without examining formally the gas supply contracts on confidentiality grounds, and, instead, received a confirmation that the Staff Appraisal Report reflect the substance of the supply contracts, and made the submission of a Tunisian legal opinion certifying that the contracts are in effect, a condition of effectiveness of the Loan\. However, the Bank was informed 1/ Monthly data given to the mission indicate that gas was also used in steam units during 1986, and the last two months of 1987 when that option was clearly uneconomic\. However, STEG was forced to this decision because test runs were conducted at the new power station at Rades and because the availability of other power plants was low\. - 26 - shortly after Board Presentation (June 1980) of a possible substantial increase in the price of Algerian gas and the Project had to be redesigned for the premium fuels market\. Tunisia was also to forego the option of purchasing gas from Algeria and only use its royalty gas for the premium market when economically justified\. The amended Project was approved by the Board on a no-objection basis in July 1981\. 3\.11 Since the price of gas was still uncertain at the time the loan was amended, the justification of certain Project components was in doubt\.Analyses made at the time indicated that three pipelines were justified,", but for two, the submission of satisfactory evidence on their economic viability was made a condition of disbursements\. This approach seems to have been appropriate under the circumstances\. 3\.12 Data presently available suggest that Algerian gas was, with the exception of the first quarter of 1986 (when prices declined rapidly), more attractive on a calorific eqvivalent basis than LPG, naphtha or diesel oil\. But, this was not the case for fuel oil substitution particularly in 1982, 1986, and early 1988 (out of 25 quarters, fuel oil was a more attractive source of heat than natural gas during 9, or 36% of the time)\. The Bank's concern with pricing in general and the gas contracts in particular was undoubtedly justified\. C\. Domestic Prices 3\.13 At appraisal, domestic prices of petroleum products to be replaced by natural gas were considerably below border prices so that imported gas could only be sold domestically if correspondingly subsidized\. As a result, agreements were reached during negotiations (April 1980) whereby: (i) the price charged by the Government to STEG for royalty gas would be gradually raised to reach full import parity by the end of 1986 (Section 3\.03 of initial Guarantee Agreement); and (ii) the domestic price of fuel oil would be at least equivalent to that of natural gas\. These two covenants together ensured, from the Bank's standpoint, that the price of fuel oil would reach import parity by early 1987\. When the loan was first amended (July 1981), these agreements were replaced by new covenants providing for gradual increases in the prices paid by STEG for royalty gas to reach international levels by early 1987, and increases to international levels in the prices of oil products gas was intended to replace, to be reached by the same target date\. Calculations made by the mission indicate that: () in 1987, STEG paid on average a higher price for royalty gas than the border price of purchased gas; and (ii) as a result of both the gradual increases in domestic prices, and the collapse of international oil prices in 1986, domestic prices are now above import parity for all products; for instance, the price of fuel oil was 18% above import parity in early 1987 and 55% in early 1988\. All in all, considering the pricing policies in effect when the loan was approved (the price of fuel oil was about 33% of its opportunity cost), considerable progress was achieved in restructuring petroleum products prices with a view to stop their subsidization\. 3\.14 Progress was also achieved in introducing a gas tariff in June 1987 (Annex 3, Appendix 2)-until then, the structure of gas tariffs was informal\. 1/ Subject to the installation of a gas turbine in one location (Kasserine)\. - 27 - An important outstanding issue, however, is the tariff being charged for gas used for power generation\. In the South, STEG acquires considerable albeit declining quantities of gas from the El Bormah field (about 260,000 TOE in 1987) at virtually no cost; the appraisal mission was aware of the issue but consciously decided not to raise it since El Bormah's gas production was anticipated to cease in 1986 (SAR, para 4\.10)\. With the slower depletion of the reserves, El Bormah gas production is now expected to remain above 100,000 TOE until 1994\. There are, therefore, valid grounds for concern that southern gas will be used to subsidize the power sector\. IV\. PROJECT PREPARATION AND APPRAISAL A\. Project Origin 4\.01 The possibility of importing gas from Algeria has been an issue sincethe conclusion of the Algeria/Italy gas supply contract in 1973 and the corresponding transit agreement for a pipeline from Algeria across Tunisia to Italy\. In 1974, the Miskar structure was discovered\. During appraisal of the Miskar project in 1977, the Bank suggested investigation of purchasing gas from Algeria as an alternative to investing US$600 million in a single gas field\. On this basis the Second Natural Gas Pipeline Project was prepared\. A Bank appraisal mission in 1979 concluded that investment in the onshore gas pipeline project was feasible, and project implementation was formulated\. However, as mentioned in para 2\.02, the agreement between Italy and Algeria was renegotiated in response to the oil price upheaval in 1980-81\. As a result, project implementation was delayed for about two years\. B\. Project Description 4\.02 The SAR describes the project under which the Bank considered financing, among other things, the construction of four pipelines (spurlines) tapping the TMP and delivering gas to Tunis, Sousse, Gafsa and Tadjerouine\. 4\.03 The project was described as follows: (a) a 70-km 20" spurline heading north to Tunis; (b) a 70-km 20" spurline heading south to Sousse; (c) a 60-km 18" spurline to Gafsa; (d) a 90-km 8" spurline to Kasserine and Tadjerouine; (e) 170-km of laterals (distribution mains and service connections connecting the spurlines to consumers; () cathodic protections, block valves, scrapes, trays for the pipelines; (g) three injection terminals (measurement centers) at the offtake points; (h) conversion of customers' oil-using plants to dual firing (oil and gas); (i) consultancy services for both project engineering and feasibility studies; and (j) training both in Tunisia and abroad\. 4\.04 The project did not provide a well-defined description for distribution (item (e)) and a well-defined program for the conversion component\. These two items are particularly important for market development and penetration of gas in the premium market which was an essential objective - 28 - of this project\. The distribution component should have defined explicitly the system by which gas could be transmitted from the spurlines to the consumer gates, and the conversion component should have indicated explicitly the type and number of consumers to be converted in each year, i\.e\., a well-defined conversion program\. Experience shows that lack of detailed planning for conversion has always caused significant delay in market development, despite timely completion of the main project components such as transmission and distribution networks\. In view of the above and the two years delay in project implementation (para 2\.02), the project scope and conditionalities went through a number of changes\. These are discussed below\. C\. Changes in Project Scope 4\.05 The Loan Agreement was signed in October 1980\. In 1981, the Government informed the Bank that renegotiation of the agreement between Algeria and Italy remained inconclusive\. To avoid further delays, the Government wished to modify the project to rely on royalty gas alone, substituting premium fuels such as gas oil, liquefied petroleum gas (LPG) and naphtha (reformed for production of town gas for the city of Tunis), rather than primarily replacing high-sulphur, heavy fuel oil as originally envisaged\. 4\.06 The modification to the original project added a spur line to Cap Bon for replacing premium fuels used by commercial consumers, particularly hotels in the area, while deleting the pipeline to Gafsa which was intended to replace non-premium fuels\. This change increased the total estimated length of the spurlines from about 290 km to 300 km, while the total length of lateral pipes (distribution mains and service connections) decreased from about 170 km to 90 km\. Due to the increase in the number of prospective consumers, most of which used less gas than under the original project, the number of consumer metering and regulating stations increased from 18 to 150\. 4\.07 As a result, the Project scope was ultimately as follows: (a) Tunis, Cap Bon and Kasserine, spurlines including conversion and studies; (b) Tadjerouine spurline; and (c) Sousse spurline\. 4\.08 Disbursement against the portion for Kasserine was made subject to the condition of installing the gas turbine, and for the Sousse and Tadjerouine portions, the condition of disbursement was made subject to their economic viability being satisfactory to the Bank\. 4\.09 Since the wording of the project description in the Loan Agreement was not clear on the distribution component, which resulted in the Bank putting disbursements on hold, a second amendment was agreed between the Bank and the Borrower in July 1984 under which: (a) clarifications were given for financing the distribution system including the installation of gas customers' connection, carcassing and the conversion of appliance/burners; and (b) financing of the Kasserine-Tadjerouine pipeline and a distribution system in Sousse/Monastir was subjected to an economic justification satisfactory to the Bank\. - 29 4\.10 Upon review of the economic merits of the Kasserine-Tadjerouine pipeline, the Bank decided that construction of this pipeline was not economically justified, and no disbursement was made for this component\. However, the government financed this component from other sources\. 4\.11 The project as completed now consists of four gas systems which include three measurement centers at the off-take points of the TMP, four high pressure spurlines, distribution mains and service lines for supply of gas to 5 power plants, 6 industrial plants, and about 35,000 commercial and residential consumers\. The four gas systems are: (i) Tunis, (ii) Sousse, (iii) Cap Bon and (iv) Kasserine-Tadjerouine\. These four systems are described in detail in Annex 4 and are shown on Map No\. 14849R1\. V\. PROJECT IMPLEMENTATION A\. Project Cost 5\.01 The actual total project cost was US$49\.4 million against the appraipal and loan amendment estimates of US$88\.00 million and US$75\.7 millior-, respectively\. Table 2 gives a comparison of the estimated and actual costs of the project itemized by major items\. 5\.02 The above project cost comparison is based on the completion of the four gas systems (para 4\.11) and consumer conversions as of end-1987\. The SAR does not explicitly quantify the conversion component which is an ongoing activity\. 5\.03 The project was completed with a 44% underrun in dollar terms which is due mainly to: (a) significant reductions in pipelaying cost as a result of favorable terms obtained from the ICB procurement-the actual cost was US$15\.7 million compared with US$41\.7 million (including contingencies), in the SAR estimates; (b) substantial devaluation of the Tunisian currency vis-a-vis the US dollar--one dinar which was equivalent to 2\.5 dollars at the tisee of the project appraisal has now decreased to 1\.24 dollars; and (c) marginal changes in the project scope (paras 4\.05 through 4\.11)\. B\. Procurement and Disbursement 5\.04 Equipment, materials, construction and consultant services financed under the Bank loan were procured in accordance with the Bank procurement guidelines in 51 packages\. Procurement delays were caused by the unforeseen and protracted price renegotiation between Algeria and Italy\. Consequently, the bidding process which was progressing on schedule, stagnated between June 1980 and March 1982\. Bidders for the pipelaying, the largest single package, were permitted to bid separately for the four pipelines or in combination\. As a result of bid evaluation and with Bank concurrence, the contract was awarded on the basis of the combined lowest bid which seemed to be fair and Table 2\. COMPARISON OF ESTIMATED AND ACTUAL PROJECT COSTS Tunisian Dinar Million USs Million a/ SAR Estimate Amended / Actual SAR Estimate Amended Actual Local Enrein Iotal LoUl Earisn 101 Locaal Loaoreig IgW l Eari Iotal Local Fares lotal Lacal acon Ilal Studies 0\.9 0\.8 1\.7 0\.5 0\.5 1\.0 0\.9 1\.0 1\.9 2\.2 2\.0 4\.2 1\.4 1\.2 2\.6 1\.4 1\.6 3\.0 Line Pine 0\.2 4\.7 4\.9 0\.2 5\.4 5\.6 0\.0 10\.2 10\.2 0\.5 11\.7 12\.2 0\.6 13\.7 14\.3 0\.0 14\.5 14\.5 Pipelaying and Cathodic Protection 6\.9 6\.3 13\.2 5\.4 4\.7 10\.0 6\.8 6\.3 13\.2 18\.4 16\.0 34\.4 13\.6 11\.8 25\.4 8\.2 7\.5 15\.7 Valves and Fittings 0\.1 1\.4 1\.5 0\.1 1\.8 1\.9 0\.0 0\.7 0\.7 0\.2 3\.6 3\.8 0\.2 4\.5 4\.7 0\.0 1\.0 1\.0 Land and Right of Way 0\.2 0\.0 0\.2 0\.3 0\.0 0\.3 0\.0 0\.0 0\.0/ 0\.5 0\.0 0\.5 0\.7 0\.0 0\.7 0\.0 0\.0 0\.0\./ Measurement Centers 0\.7 0\.7 0\.8 0\.6 2\.0 2\.5 0\.2 0\.6 0\.8 2\.1 7\.5 9\.6 1\.4 6\.0 6\.4 0\.1 1\.1 1\.2 Conversion g/ Consumers (Tunis) 1\.2 1\.5 2\.7 1\.5 1\.9 3\.4 Gas Turbines 0\.7 0\.4 1\.1 1\.1 0\.5 1\.6 "otels ---- - - RA Z- R 1 LA Sub-total 1\.1 2\.0 3\.1 0\.7 1\.2 1\.9 1\.9 3\.9 5\.8 2\.9 4\.9 7\.8 1\.8 3\.1 4\.9 2\.6 6\.2 8\.8 0 Spare Parts 0\.0 2\.0 2\.0 0\.0 2\.5 2\.5 Miscellaneous - - - - - - -\.3 \.1 0 W - - - - - - LA L L2 Total Base Costs 10\.7 18\.3 29\.0 7\.8 IS\.S 23\.3 11\.1 25\.7 36\.8 26\.8 45\.7 72\.5 19\.7 39\.3 59\.0 13\.8 35\.6 49\.4 Physical Contingencies 0\.6 1\.1 1\.7 0\.6 1\.0 1\.7 1\.6 2\.7 4\.3 1\.6 2\.6 4\.2 Price Contingencies \.LA M L\. LA Id L2 - - - 1\.A L 1W LA A UA -1- Total Costs 13\.0 22\.2 35\.2 10\.2 19\.7 29\.9 11\.1 25\.7 36\.8 32\.5 SS\.S 88\.0 25\.8 49\.9 75\.7 13\.8 35\.6 49\.4 a/ Exchange rates prevailing during period: SAR Estimates: US$1 = 0\.4 OT Amended Estimate: US;1 = 0\.395 OT Actual (Weighted Ave\.):US$1 = 0\.747 DT k/ Local/Foreign currency breakdown assumed to be in same proportion as SAR estimates\. C/ Included in Miscellaneous\. d/ No details provided in SAR Estimates and the Loan Amendment\. - 31 - practical\. The procurement table (Table 4) compares the SAR and actual Bank loan used for various components of the project\. The SAR estimates i \.Iluded US$5 million unallocated\. This, combined with the lower actual project cost and non-disbursement for the Tadjerouine spurline, resulted in the cancellation of US$10 million of the Bank loan and an actual disbursement of US$27 million compared to the SAR estimate of US$37\.0 million\. Table 4\. Procurement Table (US$ Million) SAR Actual 1\. Studies 0\.60 0\.55 2\. Line pipes ( 9\.00 3\. Pipelaying ( 17\.30 11\.20 4\. Valves and fittings ( 8\.50 5\. Regulating stations ( 3\.8 0\.55 6\. Spare parts ( 1\.28 7\. Measurement centers 8\.1 1\.10 (metering main off-takes) 8\. Conversion, Tunis ( 0\.64 9\. Conversion, gas turbines ( 2\.2 0\.52 10\. Miscellaneous - 1\.31 11\. Unallocated 5\.0 - Total 37\.0 27\.00 5\.05 On disbursement performance, the Project exceeded revised appraisal estimates only in its first semester, when actual disbursements run at 109% of estimates\. Thereafter, actual disbursements averaged about 66\.7% of estimates as shown in Annex 5\. 5\.06 Under the revised estimates, the Project was to have been fully disbursed on December 31, 1985\. In September 1985, US$10 million of the loan was cancelled at the Government's request because of anticipated project cost savings (paras 5\.03 and 5\.04)\. Despite the cancellation, the loan was not fully disbursed until January 1988 because of the major delay in the project implementation (para 2\.06)\. VI\. IMPLEMENTATION PERFORMANCE A\. Spurlines 6\.01 The project implementation chart (Annex 6) compares the actual implementation performance with that originally planned for the individual major components\. The project was delayed by about two years (para 2\.02 and para 2\.06) and some major components were changed and/or clarified after the project was appraised\. Construction of Tunis, Sousse and Kasserine- Tadjerouine spurlines which were planned for completion in late 1981 early 1982, were completed in July, May and April 1983, respectively, and commissioning took place a few months later toward the end of 1983 and early 1984\. The spurline to Gafsa was replaced by the spurline to Cap Bon which was completed in December 1983 and commissioned in February 1984\. Disregarding the two years postponement of the project which was beyond STEGs control, construction of the spurlines was completed in about the same length of time as foreseen in the SAR and appears to be satisfactory\. - 32 - B\. Distribution 6\.02 The distribution and conversion components of the project were not well defined and the project did not provide sufficient financing for these components, even though the SAR and loan amendments recognized and emphasized the importance of the premium markets\. These components, along with an active market development strategy, are the only means for penetrating gas into the premium markets of commercial, residential and small industrial consumers who are the users of high value fuels, such as LPG, kerosene, gas oil or naphtha (for town gas consumers)\. C\. Conversion 6\.03 Table 3 shows that in a four-year period (1984-87), about 28,000 consumers were converted from liquid fuel or town gas to natural gas\. A review of this table along with the distribution network development indicated that despite STEG's effort, growth in the number of consumers has been slow and consequently the share of gas being utilized in the premium markets is still small, i\.e\., 13% in 1987\. This is primarily caused by the relatively inadequate sales engineering activities, slow conversion program and lack of sufficient distribution network infrastructure\. Table 3\. CONVERSION TABLE (No\. of Consumers, Cumulative) 1983 1984 1985 1986 1987 1\. Power Plants - 3 4 5 5 c/ 2\. Large Industries - 2 3 4 6 c/ 3\. Town Gas Manufacturing Plant, Naphtha-based a/ 1 1 0 0 0 4\. Town Gas Manufacturing Plant, Natural Gas-based a/ 0 0 1 1 1 c/ 5\. Residential and Commercial, Town Gas 27,000 27,000 25,875 18,357 6,300 6\. Residential and Commercial, Natural Gas 6,000 b/ 8,400 11,325 20,543 34,200 c/ 7\. Hotels 9 b/ 13 80 94 122 c/ a/ The town gas manufacturing plant was converted from naphtha to natural gas\. b/ These consumers were using indigenous gas\. c/ All these consumers are now using natural gas from Trans-Med\. Pipeline\. D\. Sales Engineering Activities 6\.04 STEG has one gas sales engineer who regularly visits industries and large commercial consumers to promote gas sales\. STEG has developed special tables which provide the potential gas consumers with detailed calculations showing the cost savings resulting from conversion to natural gas\. While this activity is a step in the right direction, it has not been sufficiently - 33 - effective, because the sales engineer is not responsible for providing the potential consumers with conversion cost and relative payout time calculations\. Cost calculation is done by another section under the Gas Directorate of STEG and usually reaches the consumer about two months after the sales engineer's visit\. It appears that a sales engineering group should be established in order to carry out activities such as consumer load survey, interfuel calculations, conversion cost estimate, as well as gas sales contract negotiations\. This group should be capable of handling all the sales activities for industrial and large commercial consumers, including hotels\. E\. Project Appraisal and Supervision by the Bank 6\.05 The total Bank's staff time spent in Tunisia on the project from identification to appraisal amounted to about 19 staff weeks\. Recognizing that a lot of time had been spent on Miskar, yet it appears that for a complex project which involved imported gas, more time was required to focus on various issues such as market development\. Six supervisions were carried out between April 1982 and June 1986\. Most of the supervision reports and aide memoires were comprehensive and issues-oriented\. F\. Performance of Consultants, Suppliers and Contractors 6\.06 According to STEG, except for the following cases, all consultants, suppliers and contractors performed their tasks in a satisfactory manner: (a) there were two tragic accidents during the pipelines construction: one as a result of the crane's arm short circuiting the high voltage overhead line and the other caused by overlifting and rolling over of the crane\. Both incidents were caused by human negligence and lack of observance of the industry standards; and (b) STEG is not satisfied with the performance of the three measurement centers\. Review of the situation indicated: i) numerous measurement errors; (ii) frequent power failures lasting beyond the standby battery capacity which provides for only two hours supply; and (iii) lack of availability of spare parts because of discontinuation of the instruments manufacturer's production line\. 6\.07 STEG is in the process of replacing all the mechanical and electronic devices and computers with up-to-date equipment\. Measurement centers which are usually referred to in the industry for measurement of large international gas deliveries such as those in Tunisia involve sensitive operation and high technology devices\. It appears that this component should have been packaged separately from the pipeline construction and handled directly by specialized contractors\. G\. Training 6\.08 STEG's employees were trained both outside\. and inside the country which included training of two engineers in France and twelve in Algeria\. STEG is particularly satisfied with the training in Algeria\. - 34 - VII\. OPERATIONAL PERFORMANCE A\. Gas System Operation 7\.01 With the exception of the measurement centers, the gas systems installed under this project are working satisfactorily\. These systems include the high pressure spurlines, distribution mains, service connections and customer meters and regulators, and piping installations and appliance/burners\. The three measurement centers are operational, but performance is unsatisfactory (para 6\.06, item (b))\. STEG is in the process of modifying these measurement centers\. 7\.02 Table 5 shows the design and utilization capacities for each of the four spurlines\. About 30% of the capacity is currently being used and there is ample excess capacity for future market development\. Table 5\. System Capacity Utilization Maximum Design Utilization Spurlines Capacity April 1988 m'/hr m' /hr Tunis 250,000 80,000 Sousse 200,000 60,000 Cap Bon 80,000 40,000 Tadjerouine 60,000 30,000 Total 590,000 210,000 B\. Environmental Aspect and Safety 7\.03 The project did not cause any major environmental problems\. Any damages during construction along the spurlines' right-of-way were of a temporary nature and were corrected after completion\. Adequate compensation was provided for damaged crop and property which were relatively minor\. A major part of the natural gas being utilized through this project is substituting fuel oil with 1-2% sulphur content\. This would alleviate the air pollution\. 7\.04 In the course of conversion of the town gas consumers' facilities to natural gas (about 20,000 customer facilities were converted as of end-1987), one tragic accident involving human life happened on November 25, 1987\. The mission expressed its deep concern and stressed the importance of safety and its impact on the future of the gas industry in Tunisia\. Accordingly, the mission discussed the following steps with STEG: (a) National standards - STEG has already adopted standards for transmission systems and is in the process of preparing standards for distribution and gas utilization\. - 35 - (b) Consumer piping installation and appliance/burner conversion - The mission recommended that STEG prepare booklets for standards and safety measures for consumer piping installation and appliance conversion\. The mission also recommended that these standards be made obligatory by law\. (c) Qualified contractors - STEG has prepared a list of qualified contractors for consumers' piping installation and appliance/burners conversion\. The mission recommended that these contractors and their technical staff, i\.e\., mechanics and welders be tested periodically to make sure that they are familiar with the standards and that they carry out their activities accordingly\. (d) Consumers' installation inspection - As a matter of standard operating procedure, STEG approves the contractoi's plan for piping installation and inspects the final work (including pressure test) before opening the gas to the consumer premises\. VIII\. INSTITUTIONAL ASPECTS 8\.01 STEG is primarily the national power utility of Tunisia in tharge of public supplies of electricity\. It is also in charge of the public distribution of gas in Tunisia\. In this respect, in the South it acquires domestic gas at El Bormah (at no charge), and small quantities of associated gas from Algeria at a relatively low price which it uses essentially to feed its power plant at Gabes and a small industrial market in the vicinity; in the North, it acquires Algerian gas to feed 5 power plants at Kasserine, Rades (near Tunis) and Sousse, 6 large industries and to serve a small but with large market potential comprising residential, commercial and small industrial consumers (para 6\.03)\. Gas sales in 1987, including southern gas, estimated at TD 21 million, represent less than 10% of total annual revenues of TD 223 million\. 8\.02 STEG employs a staff of about 6,700 of which 600, or 9%, are employed by the Gas Directorate\. The Gas Directorate, headed by a Director reporting to the Company's President, is in charge of the technical aspects of gas transport and distribution, as well as of the LPG extraction plant in the South\. Supporting functions, including personnel, accounting and budgeting, meter reading, billing and collections are undertaken by the appropriate divisions of STEG entrusted with the same functions for electric power\. 8\.03 Until the Project came about, STEG's gas activities in the north were confined to the distribution of town gas in Tunis (produced from the reforming of naphtha) and the distribution of minor quantities of indigenous natural gas in the Tunis and Cap Bon areas\. As a result, it was recognized at appraisal that it would be necessary to strengthen the Gas Directorate, inter alia, by che training of staff in Tunisia and abroad\. It was anticipated that Gaz de France would provide preliminary training in respect of construction work, maintenance, operations and commercial aspects of gas activities, and that suppliers of equipment will arrange for specialized training programs\. - 36 - 8\.05 The Gas Directorate is equipped adequately to handle its operating responsibilities, but needs to expand its market development skills and technical resources to a higher level to implement a more ambitious development program\. The management is aware of this and is planning to expand the Gas Directorate's capabilities to cope with the country's gas distribution network development plan particularly in the Tunis area\. 8\.06 The mission believes that the time is ripe for the Government to explore the possibility of giving more autonomy to the country's gas operations\. Some justifications for this proposal are: (i) Gas will continue to take an increasing role in the energy balance of Tunisia as petroleum reserves are expected to last only through the early 1990's; (ii) Gas and electricity technology and operation are different and their combined operation under STEG, particularly when gas is a minor activity within STEG's domain, constrains the gas industry's development in Tunisia; (iii) Future gas activities such as city gas distribution in Tunis and other cities would be expedited\. This is beneficial to the country's economy as more gas would shift from the fuel oil market to the premium fuels market; (iv) An established gas institutional framework would already be in place once a decision is made to develop the country's large offshore gas reserve in Miskar; and (v) A separate gas entity would eliminate the problem of the separate accounts and implicit subsidies between the gas and electricity sectors\. 8\.07 It appears that the potential benefits of a gas operation with more autonomy for Tunisia far outweigh the costs\. This move would ensure that issues concerning the future of the gas industry in Tunisia would be appropriately addressed and that its future development would be given the attention that it rightfully deserves\. IX\. FINANCIAL ASPECTS A\. Separation of Accounts 9\.01 It was recognized at appraisal that STEG's accounting and management systems were efficient, that accounts are produced promptly, and that the main issue relates to the separation of gas and electricity accounts\.1' As a result, agreement was reached during negotiations that separate non-statutory itemized accounts (including separate annual cash accounts) would be maintained for imported gas operations, El Borman gas operations, and other operations\. Furthermore, it was also agreed that the audited accounts (on a 1/ Under Loan IBRD 724-TUN of February 1971, STEG agreed to maintain separate (non-statutory) accounts for El Bormah, and had done so, although accounts were not always produced promptly (SAR, para\. 3\.07)\. - 37 - consolidated basis) would be submitted to the Bank within six months from the end of the fiscal year, and that the audited accounts related to purchased gas would be submitted to the Bank within 9 months\. These arrangements wereanticipated to come into effect in FY82, but were deferred by a year under the first amendment of the loan to take into account the delay in project execution\. 9\.02 As gas started to flow only at end-1983, STEG initiated the preparation of separate accounts for imported gas for that year (consisting only of an opening Balance Sheet), and for the subsequent years prepared full accounts (therefore incorporating Income Statements and Sources and Application of Funds statements)\. The audited accounts were unqualified and ready on a timely basis, except for the FY83 accounts which vere submitted one year late\. 9\.03 Still, an examination of STEG's compliance with the financial covenants becomes somehow theoretical, particularly since STEG did not: (a) prepare separate accounts for its activities other than purchased gas as provided for under the loan agreement; (b) maintain separate cash accounts (on an annual basis) for its imported gas activities; and (c) revalue assets on an annual ba is in accordance with the methodology agreed upon at negotiations\.l' As a result, supervision missions, and the completion report mission had to perform their own calculations to assess STEG's performance under the financial covenants, but could not assess the impact of gas prices on the power sector (see also para\. 3\.06 above in this respect) or establish whether cross subsidies within STEG's different operations take place, and, if so, their extent\.-' 9\.04 Bank supervision missions since 1984 emphasized to STEG the urgency to prepare separate statements for purchased gas, and this was repeatedly mentioned in the correspondence with the borrower\. Furthermore, three supervision missions 1' had to use preliminary data to reach tentative conclusions regarding the financial position of the gas activity (the 1/ In accordance with a recent regulation, assets in operation in 1982 were revalued, and a provision introduced in the fiyed assets and consumer contributions accounts of the FY87 balance sheet\. In view of the small value of gas investments made until 1982, the financial impact is minimal\. 2/ Under section 5\.06 of the Loan Agreement, the financial covenants related to STEG under the Second Power Project (Loan *1355-TUN of December 23, 1976) were redefined to specifically exclude STEG's purchased gas operations from July 1982 onwards\. 3/ June 1984, December 1984 and July 1985\. - 38 - complexity of the financial mechanisms, particularly pricing and taxes also proved to be a considerable handicap in this work)\. 9\.05 With respect to STEG's power generation activities, while the financial covenants under the three most recent power loans apply exclusively to the power sector due to the non-availability of separate accounts, the financial appraisal and supervision of these projects have been predicated on a review of STEG's finances in their entirety, as a result of which subsidies from purchased gas to power generation cannot be readily identified\. 9\.06 In conclusion, it would appear that the objectives of the Bank in terms of ensuring separately the financial viability of STEG's purchased gas, and STEG's power activities has not been attained because important accounting data needed for that exercise is not being generated\. STEG is, however, aware of the problem, as consideration if now being given to transferring the accounting for gas to the Gas Directorate\. This would represent an important step, and reelect recommendations made by supervision missions in the past, (including the appointment of a qualified accountant to coordinate all gas related accounts, to prepare separate budgets, to monitor compliance with financial covenants, etc\.)\. B\. Financial Performance 9\.07 A comparison of expectations at appraisal and actual results has limited financial significance particularly because of: (a) the considerable reduction in project scope, and cost estimates together with the delay in project implementation (para 6\.01); (b) the large reduction in sales resulting from the switch from fuel oil to premium fuels replacement (para 3\.02); and (c) the large drop in oil prices (as an indication, the price of fuel was expected to reach US$235/TOE in 1987, against an average price of US$105/TOE during that year)\. As a result, the comparison of the appraisal forecast over 1982-87, with actual results over 1983-87, which appears at Annex 7 should be read with the above caveats in mind\. I' 9\.08 The main financial covenant provides for an 8% rate of return on average net revalued assets from FY82 onwards; under the first amendment of the Loan, this covenant was modified to become effective in FY83\. Since gas became available only at end-1983, compliance with the covenant could only be monitored from FY84\. STEG was never able to attain the 8% rate of return target-from a negative 22% return on assets in FY84, the rate increased to slightly below 4% in 1987\. This is essentially because the purchase price of gas in the early years was too high in relation to the valuation of gas used for power generation\. As a matter of fact, as indicated in Annex 2, the 1/ Actual results differ from STEG's audited accounts for purchased gas to reflect the revaluation of assets, and to correct some errors in STEG's gas account\. - 39 - average purchase price of gas was higher than the value of gas assigned to power generation in FY84 and FY85\. In FY86, that margin was positive, but the volume of STEG's consumption in power declined dramatically, so that the gross income was insufficient to attain the target\. FY87 was the first year in which the purchased gas operations showed a profit, on account of higher sales, and a positive margin for power generation\. Of course, taking into account the issue of transfer pricing of purchased gas used for power generation (para 3\.14),\.L and the limitations of the separated accounts for purchased gas under the present procedures (paras 9\.01-9\.06 above), the interpretation of the covenant is limited\. 9\.09 Another covenant provided that STEG could not borrow long term for its purchased gar operations without the prior agreement of the Bank unless the debt service coverage ratio exceeded 1\.2 from 1983 onwards\. Bank supervision missions became aware that the debt service coverage ratio was considerably below 1\.2 and the Bank notified STEG on February 13, 1985, that the prior agreement of the Bank should be sought prior to securing new long-term debt\. The covenant was complied with to the extent that STEG did not incur new long-term loans for purchased gas activities after that date\. 9\.10 Another covenant provided that transfers from the purchased gas operations to other activities could only take place once the financial targets have been reached\. The covenant is not enforceable as long as accounts are not prepared separately for the other activities of STEG, and separate cash accounts are established (para\. 9\.03 above)\. 9\.11 Regarding STEG's failure to meet the the financial targets of the loan, the following recommendations appear appropriate under the circumstances: (a) The reporting requirements under the Project (spelled out in the agreed minutes of negotiations dated May 2, 1980) make no reference to financial reporting\. By including at least semi-annual financial reports to be submitted in a timely manner, STEG would have been required to carry out more financial analyses of the purchased gas operations than it has, and establish on its own (instead of through Bank supervision missions) its performance under the financial covenants; (b) The Bank's analysis did not reflect in full the implications of the transfer price in the formulation of the covenants; with hindsight, it would have been more appropriate to spell out the basis for transfer pricing so that the rules are known well in advance, and that such prices cannot be established arbitrarily; (c) The audit covenant should have been broadened to encompass not only STEG's consolidated accounts and, separately, the accounts for purchased gas, but also the el\.ztricity/El Bormah activities;1' 1/ Had the gas 3ed by STEG's gas turbines been valued at the cost of diesel oil, the conclusion would have been different\. 2/ Understandably, this approach was not adopted under the Fourth Power Project (Loan 2455 of June 27, 1984) so that the Bank is not in a position to assess the financial performance of STEG's power activities per se\. - 40 - C\. Financing Plan 9\.12 It was anticipated at appraisal that the Project would be financed by way of export credits (US$12 million), commercial banks (TD 7 million equivalent to about US$18 million at the then exchange rate), Government equity (TD 10 million-US$25 million) and the Bank (US$37 million)\.L' STEG was not expected to participate in the financing of the Project\. The financing plan was supported by several legal undertakings, and in particular, the signature of US$5 million of export credits was made a condition of effectiveness of the Bank loan\. 9\.13 Following the reduction in the scope of the Project, and the amendment of the Loan, the financing plan was revised, with the deletion of export credits, and an increase in the amount of commercial borrowings (TD 8\.2 million)\. The amount of the Government's equity contribution and of the Bank Loan remained unchanged\. 9\.14 The evolution of the financing plan can thus be summarized as follows: Financing Plans (US$ million) a/ Initial b/ Amendment c/ Actual d/ IBRD 37 37 27 Suppliers Credit 12 - 4 Commercial Borrowings 18 19 12 Government 25 24 9 Total 92 80 52 a/ Including interest during construction 11/ Exchange rate of US$2\.5/TD (SAR) c/ Exchange rate of US$2\.35/TD (Memorandum Amending the Loan) d/ Actual exchange rate at time of disbursements (STEG's accounts) 9\.15 The reduction in the Bank loan, the commercial borrowings, and the equity contribution are all explained by the reduction in the Project's cost and are therefore reasonable under the circumstances\. 9\.16 The government participation in the financing plan amounted to US$9 million (equivalent to 17%)\. But, STEG, the implementing agency, did not participate in the financing of the Project (except for a nominal amount of interest during construction)\. This is possibly because STEG's power operations were not sufficiently profitable at the time and the gas activities too small to yield financing for a new activity\. The Bank records are not clear on this point\. Yet one could have argued equally well that STEG's gas activities in the South which were not insignificant in terms of gas utilization (in excess of 200,000 TOE per annum), and the Tunis town gas network ought to have contributed to the purchased gas activity as well\. 1/ SAR, para 2\.19; PR, para 49\. - 41 - D\. Conclusion 9\.17 It seems that, at least from a legal standpoint, the Bank has obtained under this Project all the undertakings required for a financial separation of the electricity and purchased gas activities\. Some progress has been made in preparing separate accounts for purchased gas, but considerable progress remains to be made to establish separate accounts for STEG's other activities, and introduce the measures required to ensure separately the financial soundness of STEG's gas and electricity activities\. X\. ECONOMIC REEVALUATION 10\.01 It was anticipated at appraisal that natural gas would essentially replace fuel oil used for power generation and industrial purposes, that sales of gas will increase rapidly (2\.4 million TOE in 198t, 0\.9 million TOE in reality), and that the economic price of gas would be approximately 70% of the price of fuel oil\. With these assumptions, the SAR's economic rates of return was 28%\. 10\.02 The economic rate of return of the Project was recalculated on the basis of actual costs and performance to date\. The benefits of the project reflect the CIF and distribution costs of petroleum products natural gas replaces (essentially LPG, diesel oil and fuel oil)\. The cost of the Project includes the investment and operating expenses, as well as gas purchases which were all valued at the selling price of Algerian gas (since royalty gas sold to Italy is priced at that level, too)\. Beyond 1987, the following assumptions were made: (a) purchased gas would only be used in gas turbines, for peaking in the coming 5 years, by which time STEG would switch its peaking needs to more efficient plants; (b) for uses other than power generation, STEG's forecast was used; and (c) the price of imported gas was assumed to remain constant at the level anticipated for e second quarter of 1988, while fuel oil, diesel oil and LPG were priced respectively 6%, 52% and 68% higher on a calorific equivalent basis, in line with experience acquired over 1982-87\."' 10\.03 Under these asaumptions, the economic rate of return of the Project turned out to be 14% against SAR's 28%\. This significant reduction was primarily caused by a lower gas utilization than that of SAR's forecast (para 2\.07, Table 1)\. However, the system provides ample capacity for future requirements (para 7\.02)\. The calculation appears at Annex 8\.3' STEG would 1/ This is considered appropriate under the circumstances since the benefits of gas use are essentially dependent on relative and not absolute prices\. 2/ Since there is more than one sign change in the net cash flow, there might be more than one discount rate which equalizes benefits and costs\. However, between 0% and 14%, the net present value of the cash flow remains positive, so that 14% is the first positive discount rate which equalizes costs and benefits, so that it can be taken to be the economic rate of return of the project\. - 42 - have saved the national economy about US$4 million and the rate of return of the Project would have increased by 1% had STEG abstained from using gas in the steam units during 1986, when oil was cheaper than imported gas during the whole year\. 10\.04 Despite the relatively low rate of return, the northern part of Tunisia has now the requisite basic infrastructure for gas to supply the most important industrial and commertial centers where most of Tunisia's population live\. The addition of new customers to the grid, can be done in most cases at a relatively low cost, and the economic return can be extremely high for those using fuels other than fuel oil\. Proper institutional arrangements would be required to accelerate systematic effort to convert such consumers to natural gas\. XI\. CONCLUSIONS 11\.01 The project was related to one of the largest international gas projects (the Trans-Mediterranean Pipeline) with all the complexities which are inherent to these projects such as long lead planning time, heavy front end investment, long term and complex contractual arrangements, as well as pricing issues\. 11\.02 Overall, the objectives of this complex project which underwent several changes were substantially met\. The project as completed consisted of four new gas systems serving Tunis, Sousse, Cap Bon and Kasserine- Tadjerouine\. It also included three measurement centers at the off-take points of the TMP, four high-pressure spurlines, distribution mains and service lines for supply of gas to five power plants, six industrial and about 35,000 commercial and residential consumers\. 11\.03 There was a critical variable, the renegotiation of the pricing of Algerian gas during the early stages of the project that delayed project implementation by about two years (para 2\.02)\. The project was, however, completed with a 44% cost underrun, mainly due to favorable ICB procurement and changes in project scope (para 5\.03) and a substantial appreciation of the US$ vis-a-vis the Tunisian dinar during project implementation\. Lessons Learned 11\.04 There are lessons to be learned from this project as follows: (a) When the project was appraised, there was a firm and long-term gas sales and purchase agreement in place between Algeria and Italy\. However, as a result of the early 1980's oil price upheaval, the pricing of the agreement became a crucial issue between the parties concerned\. When the Loan Agreement was amended in 1981, pricing was still under renegotiation\. It appears that the project implementation should have been retarded until agreement on pricing was reached\. This would have prevented an idle gas grid investment for one year and would have provided a clear basis for project evaluation and planning; - 43 - (b) It would be useful for similar projects based on natural gas imports, whose price is subject to complex formulas, to: (M) retard the implementation of domestic gas networks until a satisfactory agreement on pricing has been reached between the parties concerned\. This would have given Tunisia more leverage during negotiations (it would not have had an idle gas grid during one year), with minimal adverse repercussions, since the royalty gas could be sold to Italy; and (ii) carry out computerized simulations of gas pricing formulas over long enough periods to test the bahavior of gas prices in relation to alternative fuels\. (c) Originally, the main objective of the project was to substitute gas for fuel oil\. However, because of the steep rise in the price of Algerian gas during the initial stages, the project was amended to substitute gas for the premium market, primarily LPG, naphtha and gas oil\. During this switch, however, the project failed to provide for an elaborate distribution network development plan and conversion program, two aspects critical to the success of any gas project\. As a result, actual sales averaged only 30% of SAR estimates for the period 1984-87, or the share of premium market was only about 16% of the total gas sales in 1987 which adversely affected the project's e\.onomic performance\. This brings to light the critical importance of responding to the changing scope/objectives of a project\. As the target markei was rightfully shifted to the premium fuels market in response to a change in a critical aspect of the project (pricing), a detailed market survey for the domestic market should have been developed and from there, a distribution network development plan tailored to the target market should have been prepared\. These twin actions would have provided the appropriate response to the shift in priority objectives of the project\. (d) In tandem with the market survey and distribution network development plan, the project should have also provided for a conversion program\. The conversion program should have explicitly indicated the type and number of consumers to be converted in each year\. Experience shows that lack of detailed planning for conversion has always caused significant delays in market development, despite timely completion of main project components such as transmission and distribution network\. In other words, a conversion program if not properly planned and executed becomes a bottleneck to the market development of a gas project\. (e) Another critical project component concerns the institutional aspects, particularly the maintenance of separate accounts for STEG's gas activities\. 11f timely implemented, this measure would have afforded both STEG and the Bank the means to effectively monitor the efficiency of STEG's electricity and gas operations\. As it turned out, the absence of a separate account meant that the missions had to -44 - rely on preliminary data to reach conclusions regarding the financial position of the gas activity\. Furthermore, possible cross-subsidies between purchased gas and power activities of STEG could not be ascertained as review of STEG's finances could only be done in their entirety\. With the benefits of hindsight, there should have been closer coordination within the Bank regarding the supervision of STEG's gas and power accounts, and the Bank should have exercised more pressure on the authorities on this matter, possibly in connection with adjustment lending\. STEG, however, is now much aware of the problem and consideration is being given to transferring the accounting for gas to the Gas Directorate\. (f) Virtually all the financial targets of the loan could not be attained for a variety of reasons, including reduced sales volume, STEG's reluctance to consider gas as a separate profit center, the adoption of pricing policies which do not reflect the true value of gas, and the use of gas as a fuel oil substitute even when not justified economically\. As a result, the following recommendations (spelled out in more detail at para 9\.11) seem pertinent under the circumstances: (i) the reporting requirements for the project should require at the minimum semi-annual financial reports incorporating inter alia a statement of compliance with financial covenants; (ii) in cases such as STEG's when the implementing agency is also the main user of a product, appropriate guarantees should be sought on transfer pricing policies; (iii) when a separation of accounts is sought, the audit covenant should, in addition to the audited accounts, provide for the separate audit of each activity (and not one of the activities as was the case in this instance), as well as a statement on keys used to separate accounts\. (g) There is a need to strengthen the institutional framework for Tunisia's gas resources\. The mission believes that the time is ripe for the government to assess the possibility of giving more autonomy to the country's gas operation\. The precise form of this autonomy should be investigated\. - 45 - TUNISIA Cansuaption of Ndrocarbos (thouad of tet) Grawth Rate 1980-07 1990 1981 1982 1983 1984 1905 1986 1997 Natural Gas North 0 0 0 3 379 650 322 994 South 4119 464 500 501 489 447 433 393 -11 Total Natural as 419 464 500 504 968 1,098 774 1,277 172 LP6 106 118 132 143 165 186 199 211 10% Iasline 159 168 177 196 210 229 229 227 5 Jet Fuel 186 165 32 143 165 186 199 211 22 Kerosne 112 116 126 131 137 140 143 145 41 Disel Oil 795 917 834 919 940 987 949 975 31 Light Fuel Oil 143 135 109 86 76 64 47 33 -191 Fuel Oil 969 989 896 1,179 98 847 1,100 72 -41 Total Liquids 2,471 2,508 2,405 2,797 2,682 2,638 2,866 2,526 0 Total Coasuption 2,99 2,972 2,906 3,301 3,550 3,736 3,640 3,9803 41 Fuel Oil/Total (1) 33\.541 33\.27 30\.852 35\.70 27\.831 22\.67 30\.231 19\.041 Fuel Oil + Natural Gas/Total (1) 48\.032 48\. 48\.07 50\.97 52\.282 52\.052 S1\.502 52\.621 Northern Oas/Total 02 0 02 02 112 172 92 242 22-ay-88 a - 46 - TUNISIA Annex 2 Societe Tunisienne de L'Electricite et du Saz (STES) Northern Sas Activity Oas Purchases and Sales ACTUAL Prov\. Budget 1983 1984 1985 1986 1987 1988 I\. Supplies A\. Guantities Jebel Abdelrrahman 5 2 1 1 1 1 Royalty Gas 6 254 408 133 311 520 Purchased Gas 126 237 182 600 387 Total 11 382 646 316 912 907 8\. Cost (Dinars Thousands) Royalty gas 438 18,241 28,871 9,219 23,077 39,416 Purchased Gas 15,580 26,375 13,002 45,594 29,335 Total 438 33,821 55,246 22,220 69,471 68,751 C\. Average Price (Dinarltoe) Royalty as 77\.2 71\.7 70\.8 69\.3 76\.7 75\.8 Purchased Sao 123\.3 111\.2 71\.4 76\.0 75\.8 Overall Average 77\.2 88\.8 85\.6 70\.5 76\.2 75\.8 II\. Gas Utilization A\. eantities STES - TV (steam turbine) 157 404 186 688 STEG TAS (Gas Turbine) 2 169 145 19 89 STES Consumption 2 327 548 204 776 750 Domestic Consumption 1 18 23 26 28 31 Heavy Industries 33 66 69 61 95 Hotels 0 6 14 18 19 Niscellaneous 0 1 6 9 11 12 Subtotal 1 52 102 117 118 157 Total Use 3 379 650 322 094 907 8\. Revenues (Dinars thousands) STEG Consumption 203 23,913 43,219 17,473 68,447 66,199 Demestic Consuption 1,995 2,026 2,374 2,328 2,774 4,123 eavy Industries 0 5,615 6,051 5,018 7,600 Hotels 12 68 1 676 2 246 2 527 Other 2,808 881 243 1,964 1,596 Subtotal 1,995 4,846 9,559 11,298 12,003 15,846 Total North 2,199 20,759 52,778 28,771 80,450 82,035 C\. Average Revenue (Dinars/toe) STE C insuption 73\.1 78\.8 85\.5 88\.2 88\.3 Domestic Consumption 110\.0 101\.9 91\.0 100\.7 133\.0 Heavy Industries 0\.0 84\.7 87\.6 81\.7 80\.0 Hotels 112\.7 121\.3 126\.3 133\.0 Other 3421\.3 139\.1 142\.5 174\.4 133 Average (other than power gen\.) 93\.7 93\.7 96\.4 101\.7 100\.9 Average 75\.9 81\.1 89\.5 90\.0 90\.4 08-Sep-88 ANNER 3 - 47 - Page 1 of 10 TUNISIA Second Natural Gas Pipeline Project (Lan 1864 - TUN) The Pricing of Natural Gas I\. Introduction 1\. The pricing of natural gas is a complex issue since, unlike oil products, natural gas is not a freely traded commodity\. As a matter of fact, natural gas prices vary considerably from one country to the next, and in most instances, are largely influenced by those of competing fuels, and to a lesser degree by costs considerations\. 2\. In Tunisia's case, further complications arise from the following: (a) the price of Algerian gas to Tunisia, in the final analysis, is largely dictated by the contract between Algeria and Italy, which inter alia reflects a basket of 8 international crudes adjusted on a quarterly basis\. As a result, particularly at times of large fluctuations in international oil prices, the price of Algerian gas may become unattractive to the economy when compared to that of imported oil products gas can replace1'; and (b) like some other net exporters of petroleum products, Tunisia has historically maintained domestic prices for liquid fuels (other than gasoline) well below international levels\. Under such circumstances, Algerian gas would only be marketable in Tunisia if priced below its border price, i\.e\., subsidized\. The price of imported gas had a considerable impact on the project's design, implementation and economic rate of return, as well as the formulation of most covenants\. In view of its importance, this Annex therefore reviews the evolution of gas pricing during the implementation of the project in detail\. II\. The Price of Algerian Gas A\. Contractual Aspects 3\. Tunisia is entitled to natural gas through: (i) a "take or pay" contract with Algeria under which Tunisia imports gas at a price determined 1/ Tunisia is an exporter of crude oil but an importer of all oil products, so that the cost of Algerian gas to the economy -has to be compared to CIF oil products prices\. ANNEX 3 -48 - Page 2 of 10 through a contractual formula (this gas is referred to as purchased gas)L"; and (ii) an agreement with Italy, which provides Tunisia with royalties for transmitting gas (in cash or in kind) equivalent to 5\.250' of the throughput of the intercontinental pipeline\. In the event that Tunisia decides to take the royalty gas in cash, Italy would compensate Tunisia on the basis of the price paid to Algeria for purchased gas\. These arrangements are prima facie advantageous to Tunisia, to the extent that they allow for considerable flexibility in the national consumption of imported gas\. On the other hand, one should note that Tunisia has relatively little control over two important elements, i\.e\., the price of gas, and the quantity of royalty gas available\. 4\. The tripartite negotiations involving Algeria, Italy and Tunisia for the contract had already started in 1973, and the terms of the transit agreement between Italy and Tunisia had been agreed upon already in 1977\.' By appraisal time (October 1979), the most important contract binding Algeria and Italy was effective although this contract was under renegotiation in July 1981 when the Loan Amendment was signed (para\. 2\.02)\. At the time, construction of the transcontinental pipeline was well underway, at a cost in excess of US$3 billioni' with an anticipated completion for October 1981\. 5\. In view of the total dependence of the project on the gas supply contract, the Bank anticipated receiving a copy of the document during Project processing\. The Appraisal mission reported that despite the assurances given, it did not receive copies of the contracts; following appraisal, receipt of the contracts was made a condition of negotiations\. However, the 1/ "Take or pay" contracts are frequent for gas projects and commit the buyer to acquire a minimum quantity (i\.e\. 60-90%) of gas on a continuous basis\. They usually also allow the buyer to take daily quantities in excess, provided that adquate notice is given\. 2/ For quantities exceeding 12 billion m3 per annum, the royalty increases to 6%\. 3/ Source: SAR, para\. 2\.01\. 4/ Memorandum of the President to the Board of June 22, 1981 (para\. 11)\. - 49 - ANNEX 3 Page 3 of 10 Government informed the Bank in March 1980-' that its contractual partners in Algeria and Italy had objected to the disclosure of the contracts to the Bank, and that in any event, Bank staff were already aware of their salient features\. The Bank eventually agreed to negotiate the loan without having had formal access to the contracts, a position which was not shared by all\.-V At negotiations (April 1980), it was agreed instead that a confirmation that the Staff Appraisal Report reflect the substance of the supply contracts, and the subsequent submission of a legal opinion certifying that the royalty and gas purchase contracts are effective would be satisfactory\. The Project was submitted to the Board (June 1980) on this basis\. B\. The Contractual Prices 6\. Throughout project preparation and appraisal, it was anticipated that the price of imported gas would be highly attractive to the Tunisian economy, i\.e\., considerably below the economic cost of liqaid fuels to be substituted\. An internal memorandum refers to 66% to 80% of international oil prices, and the SAR makes a reference to a border price equivalent to 60-70% of the "present international price for fuel oil" (para\. 2\.07) which is even more appealing\.3' 7\. The Bank was informed shortly after Board presentation of a substantial increase in the price of Algerian gas so that the utilization of natural gas to substitute fuel oil as intended initially was no longer economically attractive\. - The Government, following a careful examination of all its options, decided to redesign the Project in July 1980, and aim it at the replacement of diesel oil (gas turbines, industries) and naphtha (Tunis town-gas network); Tunisia would then forego the option to purchase gas from 1/ Covering Memorandum of Loan Committee Package dated April 2, 1980, para\. 9\. 2/ Memorandum of March 28, 1980\. 3/ As the 1979-80 period coincided with the second oil shock, it was in all likelihood anticipated at the time that there would be a continuous lag in the adjustment of the price of Algerian gas (on a quarterly basis) to international prices, which explains partly the low levels of gas prices quoted\. 4/ The SAR provides little information about the specific market for the imported gas but it is implicit that the bulk of the supplies would be used to replace fuel oil (paras\. 1\.17 and 5\.05)\. Furthermore, the economic analysis of the Project was predicated on fuel oil replacement exclusively, at a price equivalent to US$180/ton\. ANNEX 3 -50- Page 4 of 10 Algeria and only use its royalty gas for the premium market when economically justified\. The Project was then redesigned into Stage I (essentially replacement of premium fuels) and Stage II (replacement of fuel oil)\. The Government gave high priority to proceeding with Stage I at the earliest\. Obviously, this necessitated an amendment to the loan agreement, which was approved by the Board on a non-objection basis in July 1981\. Furthermore, submission of a legal opinion, as condition of effectiveness of the loan (para\. 5 above) was confined to the royalty gas contract\. 8\. One should note that at the time the loan was amended, the value of royalty gas was still uncertain' so that the justification of the Project was in doubt for certain components\. Analyses made at the time indicated that the Tunis, Cap Bon and Kasserine lines were justified-'; the lines to Tadjerouine and Sousse (altogether about 30% of the anticipated uses of the Loan proceeds) on the other hand were subjected to the submission of satisfactory evidence on their economic viability, as a condition of disbursement\. This approach was probably appropriate under the circumstances, given the lack of data on the value of royalty gas when compared to liquid fuels\. 9\. Supervision missions in 1982 and 1983 reported on difficulties in the reaching of an agreement on gas prices between Algeria and Italy, while the domestic transmission and distribution network was under construction, and for certain portions, ready for commissioning\. Algeria, Italy and Tunisia finalized the agreements in July 1983, and gas started to flow in December 1983, i\.e\., with a two years delay when compared to appraisal expectations\. C\. Actual Prices Bid 10\. It is understood that the contract between Algeria and Italy (which determines also the price of gas purchased by Tunisia, and the price paid to Tunisia when it declines to receive the gas in kind) is based on a basket of 8 crudes updated on quarterly basis\. Prices can be estimated well in advance (for instance by applying the formula on a 3-months moving average basis) which gives Tunisia some flexibility to establish a strategy for gas utilization, on a quarterly basis, in accordance with economic criteria\. 11\. STEG carefully monitors the prices of imported natural gas and the prices of oil products it substitutes such as LPG, diesel oil and fuel 1/ The value of royalty gas being the price Italy would pay should Tunisia decline to use it (para\. 3\.09)\. 2/ Subject to the installation of a gas turbine at Kasserine\. -51 - ANNE 3 Page 5 of 10 oil\." The graph at Appendix 1 of this Annex depicts the price of gas in relation to liquid fuels over 1982-88 on a quarterly basis\. Those data can be summarized as follows: Comparison of Imported Gas Prices and Alternative Fuels (US$/TOE) 1982 1983 1984 1985 1986 1987 1988 '' Diesel Oil 275 234 228 225 130 148 134 Fuel Oil 173 173 185 157 79 105 76 LPG 283 299 235 234 139 167 162 Algerian Gas 185 161 147 144 101 83 89 a/ Prices for the first quarter of 1988 Source: STEG, Gas Directorate, Quarterly Price Data Tables, May 1988 During the period under review, Algerian gas was, with the exception of the first quarter of 1986 (when prices declined rapidly) more attractive, on a calorific equivalent basis, than LPG and diesel oil\. But, this was not the case for fuel oil substitution particularly in 1982, 1986 and the first quarter of 1988, when the landed cost of fuel oil was lower on average than the price of gas at the border\. Based on the same data, a quarterly comparison indicates that out of 25 quarters (January 1982 - March 1988), fuel oil was a more attractive source of heat than natural gas during 9, or 36% of the time\. The authorities are very aware of the issue, and STEG's two swing power stations (at Rades, near Tunis - 480 MW, and Sousse - 320 MW) aim to operate accordingly\. D\. Conclusion 12\. On the basis of the events to date, the Bank's cautious attitude in relation to pricing in general and the gas contracts in particular was undoubtedly justified\. The authorities also acted promptly to redesign the scope of the project once they became aware, around mid-1980, of the higher price of Algerian gas\. With the benefit of hindsight, it would be useful for similar projects based on natural gas imports to: 1/ The economic prices of these products are based on f\.o\.b\. Genova, plus transport and distribution\. In the case of fuel oil used by STEG, no provision is made for distribution, the fuel oil based power plants being located at the coast\. - 52- ANNEX 3 page 6 of 10 (M) carry out computerized simulations of gas pricing formulas over long enough periods to test the behavior of gas prices in relation to those of alternative fuels; and (ii) retard the implementation of domestic gas networks until a satisfactory agreement on pricing has been reached with the parties concerned (in this instance both Algeria and Tunisia)\. This would have given Tunisia more leverage during negotiations (it would not have had an idle grid during one year), with minimal adverse repercussions, since the royalty gas could be sold to Italy\. III\. Domestic Prices A\. Domestic Pricing Covenants 13\. At appraisal time, domestic prices of petroleum products to be replaced by natural gas were considerably below border prices-/ so that imported gas could only be sold domestically if subsidized correspondingly; otherwise a conversion to natural gas would have been unattractive from the standpoint of consumers\. As a result, agreements were reached during negotiations (April 1980) whereby: (i) the priced charged by the Government to STEG for royalty gas would be gradually raised to reach full import parity by the end of 1986 (Section 3\.03 of initial Guarantee Agreement); and (ii) the domestic price of fuel oil will be at least equivalent to that of natural gas (Section 3\.04 of initial Guarantee Agreement)\. These two covenants together ensured, from the Bank's standpoint, that the price of fuel oil would reach import parity by early 1987\. When the loan was first amended (July 1981), these agreements were replaced by new covenants providing for gradual increases in the prices paid by STEG for royalty gas to reach international levels (defined as the price paid by Italy to Tunisia for royalty gas, Section 3\.03 of Guarantee Agreement) by early 1987, and increases in the prices of oil products gas is intended to replace to international levels, to be reached by the same target date (Section 3\.04 of Guarantee Agreement)\. 14\. It was thought at appraisal time that STEG would purchase imported gas from the Algerian party, Sonatrach, and for a limited period receive the royalty gas free or at a subsidized price (this approach was used in the financial analysis)\. In reality, two institutional arrangements have been in effect since gas supplies started: (i) until September 1985, STEG bought purchased gas from Sonatrach; in addition, it had to pay customs duties and transportation fees in the international pipeline\. Obviously, as the cost of purchased gas to 1/ The January 1980 domestic price of fuel oil was US$60/ton against an Italian spot price of US$182/ton\. The domestic price of heating oil (98% diesel oiL and 21 fuel oil) was US$158/ton which compares to an Italian spot price of US$365/ton\. (Source: SAR, Annex 1\.06) - 53 -AN 3 Page 7 of 10 STEG exceeded by far the domestic price of fuel oil until 1985, STEG was compensated for the difference\. For royalty gas, STEG had to pay the State a fee broadly similar to the domestic price of fuel oil, and a "fiscal fee"\.l (it) Since October 1985, the contract of Sonstrach has been with ETAPV and STEG has been charged the same price for purchased gas and royalty gas\. These arrangements are far simpler, and allow ETAP to adjust gas prices through the fund that stabilises oil product prices\. Calculations made by the mission indicate that the target has been reached in 1987-'; for that year, STEC paid on average a higher price for royalty gas than the price paid by ETAP for purchased gas\. 15\. Domestic prices of oil products can be compared to international levels as follows: Evolutlon of Domestic Prices of Products in Relation to CIF Prices Domestic Prices CIF Prices Dinars/TOE US$/TOE US$/TOE 1982 1987 % 1982 1987 2 1982 1987 % LPG 151 192 5% 243 228 -1% 289 175 -101 Diesel Oil 136 283 16% 220 336 9% 272 142 -121 Fuel Oil 63 92 8% 102 109 1% 171 102 -10% a/ Early 1982 and early 1987 Source: STEG, Gas Directorate, May 1988 In dinar terms, the policy followed over 1982-87 has been to increase moderately the price of LPG (on social grounds), and increase at a faster rate that of diesel oil\. The price of fuel oil was increased at an intermediate 1/ The "fiscal fee" (forfait fiscal) compensates the Italian party for the 5\.25% being taken at the Algerian border, and not the Italian border\. It is therefore equivalent to 5\.25% of the royalty gas taken at the Algerian border\. 2/ ETAP is the national company in charge inter alia of oil imports\. 3/ From the total payment paid by STEG for gas (net of subsidies received from the government), the theoretical cost of imported gas at the official price was deducted\. The balance was divided by the volume of royalty gas, in order to establish its theoretical price to STEG of royalty gas\. ANNEX 3 Page 8 of 10 rate\. The increase in US$ terms, except for diesel oil, are less apparent in view of the appreciation of the US$\. Of course, with the collapse of oil prices in 1986, CIF prices declined on average by 10% over 1982-87, so that domestic prices are now above import parity for all products; for instance, the price of fuel oil was 18% above import parity in early 1987 and 552 in early 1988\. All in all, considering the pricing policies in effect when the loan was approved (the price of fuel oil was about 33% of its opportunity cost), considerable progress was achieved in the restructuring of petroleum products prices with a view to stopping their subsidization\. B\. Gas Tariffs 16\. The behavior of domestic gas prices when compared to liquid fuels to be substituted can be summarized as follows: Comparison of Domestic Gas Prices and Alternative Fuels (US$/TOE) 1983 1984 1985 1986 1987 1988 ' LPG 257 218 236 240 237 246 Diesel Oil 234 218 264 323 35& 375 Fuel Oil$' 125 108 117 121 123 128 Gas - Domestic 197 166 163 166 168 179 Gas - Commercial 197 166 163 166 150 145 Gas - Industrial - 98 107 111 114 120 Gas Import Price 156 142 139 96 78 84 a/ Domestic prices expressed at mid-year exchange rates\. b/ Prices in effect since April 29\. 1988, reflecting the end-1987 exchange rate\. c/ On the basis of posted domestic prices plus US$10/TOE to reflect the cost of transport (to be paid separately by the user)\. Source: STEG, Gas Directorate, May 1988\. As the above table indicates, the prices of LPG and diesel oil (i\.e\. the domestic and commercial gas markets) were always considerably higher than the price of gas, on a calorific equivalent basis, so that (excluding other charges, including connection cost, monthly charge, etc\.), users had an incentive to switch to gas\. With respect to fuel oil replacement (i\.e\. the industrial market), the policy in place was to price natural gas at the posted price of fuel oil, so that in effect, the end-user would save on the transportation cost (equivalent to US$10/TOE)\. Furthermore, since 1986, the domestic price of gas has been considerably higher than its opportunity cost\. 55 - ANNEX 3 page 9 of 10 17\. Until June 1987, pricing policies for imported gas had not been formalized\. Regarding the industrial market, STEG had applied the calorific equivalent price of fuel oil, as explained above, while in relation to the domestic market (i\.e\. largely LPG replacement), STEG had maintained the tariff in effect for town gas\. In June 1987, a new structure of gas prices was introduced by decree, providing for 3 tariffs (high, medium and low pressure), and including a fixed charge, a capacity charge (not applicable to low pressure customers) and energy charge\. They appear at Appendix 2 of this Annex\. This structure is appropriate since it segregates the fixed and variable costs of supplying gas to different consumer categories (the appropriateness of the tariff structure to the long range marginal cost of supply remains to be ascertained)\. 18\. An important outstanding issue, however, both from economic and financial standpoints is the tariffs to be charged for gas used for power generation which, in turn, has major implications not only for the financial position of the gas activity but also for the power sector (particularly power tariffs, optimization of investments in generation -')\. STEG is not only a buyer and distributor of natural gas, but also the major user of gas in Tunisia\. Gas used for power generation results therefore in an internal transfer within STEG, for which the price can be set arbitrarily, with restricted financial or economic implications\. As agreed with the Bank, STEG now prepares separate accounts for the imported gas activity, for which the transfer price it applies is the financial price of fuel oil (official price less 10% production tax from which it is exempted)\. This practice would not be unreasonable if gas were used fully as a fuel substitute; as a matter of fact, about 10% of the gas was used in gas turbines in 1986 and 1987, but in 1984, in excess of 50% of the gas was used for this purpose\. Under such circumstances, the proper transfer price would have been that of diesel oil, and not of fuel oil\. C\. Conclusion 19\. Considerable progress was achieved in the domestic pricing of natural gas, as well as oil products, as they are all sold above their opportunity costs\. It would also appear, prima facie, that the relative price of gas 1/ Power plants (gas turbines, steam plants) which can operate on natural gas represent some 90% of the installed capacity in Tuaisia\. In the South, STEG acquires considerable albeit declining quantities of gas from the El Bormah field (about 260,000 TOE in 1987) at virtually no cost; the appraisal mission was aware of the issue but did not raise it since El Bormah's gas production was anticipated to cease in 1986 (SAR, para\. 4\.10) with the depletion of the reserves - El Bormah gas production is now expected to remain above 100,000 TOE until 1994\. There are therefore valid grounds for concern that Northern gas will be used also to subsidize the power sector, particularly since the royalty gas is acquired "free" (but at the very real cost of foregone compensation from Italy)\. - 56 - ANNEX 3 paso 10 of 10 (excluding the one-time cost of connection, and fixed monthly charges) is adequate to give appropriate incentives to present users of liquid fuels to the vicinity of the pipeline network to carry out the conversion\. As a result, the pricing targets agreed upon with the Bank have been attained\. 20\. On the other hand, the issue of gas pricing for power generation remains to be addressed fully\. In particular, it would not be appropriate to price gas at its fuel oil equivalent, when in reality it is used in gas turbines\. STEG officials are concerned about the financial implications of such a pricing policy since the Government might decide to price gas to STEG according to end use\. On the other hand, it would have possibly modified STEG's load managemement practicies, which would have been beneficial to the economy\. ~57 \. AlMl! 3 Appendix 3 Intarnational Prices c-f Irnported Gos und Uquid tle (Us$4sluf sug - lou - 150 100 - 48 \.F- Jan-o 2 Jon-fi 3 Jon--64 Jun--65 jon--i 5 Jen-87 an-c 8 A l iml n rp 4\. LP 3 ' N 8 i -58 - ANNEX 4 Page 1 of 2 DETAILED PROJECT DESCRIPTION The project consists of four systems as follows: A\. Tunis System 1\. Tunis System which is the largest of the four consists of: (a) a measurement system with 300,000 m3 per hour capacity at the off-take point in Zibra, including four measurement rumps equipped with electronic and mechanical measurement instruments; (b) 55\.3 km 20" high pressure (75 bar) pipeline downstream of the measurement center for supply of gas to Tunis area; (c) a city gate station for primarily reducing the gas pressure to 20 bar; and (d) a 30 km 20", 20 bar distribution main downstream of the city gate station with seven regulating stations for supply of gas to: two power plants (TAG and Rades), a medium pressure n-w network, an old cast iron network (converted from town gas), and an old gas works\. The gas works which was previously manufacturing naphtha-based town gas is now using natural gas instead of naphtha\. This plant is supplying town gas to the remaining 5,000 consumers which are being gradually converted to natural gas\. B\. Sousse System 2\. This system which has a common measurement center with Tunis consists of: (a) a 70 km 20" high pressure spurline downstream of Zibra measurement center to M'Saken; (b) a 10 km 16" high pressure pipeline between M'Saken and Sousse; and (c) service line to the Sousse power plant, two distribution mains, one in North Sousse and another in the South for supply of gas to hotels and domestic consumers\. - 59- ANNEX 4 Page 2 of 2 C\. Cap Bon System 3\. The Cap Bon system includes: (a) a measurement center with 4 rumps and 100,000 m 3 per hour capacity; (b) a 10 km 10" high pressure pipeline downstream of the measurement center to Korba; (c) a 44 km 10" 20-bar pipeline between Korba and Hammamet; (d) service line for supply of gas to Korba gas turbine power plant; and (e) medium pressure distribution pipelines in Nabeul and Hammamet areas for supply to small industries and hotels\. D\. Kasserine-Tadierouine System 4\. This system consists of: (a) a measurement center at the off-take point in Kasserine with 2 rumps and 100,000 m2c meters per hour capacity; (b) 90 km 8" high pressure pipeline downstream of the measurement center to Kasserine and Tadjerouine; and (c) service lines for supply to a gas turbine power plant and four industries in Kasserine and Tadjerouine\. Second Natural Gas Pineline Proect tLoan 1864-TuM) Disburseent!PerormanceAnal Ysis (US$ Mi Ion) SAR_ Actual Ata Period Endine Estate Amnded Artual As % of e,Sed 1980/81 September 30\. 1980 4\.0 December 31, 1980 10\.0 March 31\. 1981 15\.0 June 30, 1981 20\.0 1981/82 September 30, 1981 23\.0 December 31\. 1981 28\.0 March 31\. 1982 32\.0 5\.0 6\.6 21 132 June 30\. 1982 34\.0 9\.0 8\.2 24 91 1982/83 September 30, 1982 35\.0 12\.0 10\.2 29 85 December 31, 1982 36\.0 16\.0 12\.5 35 78 March 31, 1983 36\.5 20\.0 13\.1 36 66 June 30, 1983 37\.0 25\.0 16\.1 44 64 1983/84 September 30, 1983 28\.0 16\.8 45 60 C December 31, 1983 28\.5 18\.0 49 63 March 31, 1984 29\.0 18\.1 49 62 June 30, 1984 30\.0 18\.1 49 60 1984/85 September 30\. 1984 32\.0 18\.7 S1 58 December 31\. 1984 33\.0 19\.4 52 59 March 31\. 1985 34\.0 20\.9 56 61 June 30\. 1985 35\.0 21\.3 58 61 1985/86 September 30, 1985 * 27\.0 27\.0 21\.8 81 81 December 31\. 1985 22\.3 83 83 March 31\. 1986 22\.8 84 84 June 30\. 1986 22\.8 84 84 1986/87 September 30, 1986 23\.2 86 86 December 31, 1986 24\.4 90 90 March 31, 1987 25\.4 94 94 June 30\. 1987 26\.2 97 97 1987/88 September 30\. 1987 26\.7 99 99 December 31\. 1987 26\.9 100 100 March 31\. 1988 27\.0 100 100 $10 million of loan proceeds was cancelled in September 1985\. TUNiSIA SECOND NATURAL GAS PIPEUNE PROJECT Implemntation Chart 1980 1981 1982 i1m3 1984 195 16 987 01 03 Os 04 01 02 0301 021 02 03 04 01 02 03 001 1 02 03 040 O0» 01 0 03 04 01 02 03 04 MATERIALSAND i ir ry ,\.EMGem Tt (1) TUNISOUSSE l =m (2) TADJEAOUUNE \. 1 •a•a=,s (2 m~maew (3) G~FS (4) CAP ODM Riummmmumm (5)1*4 DI" "TR" B• T *O* (1) NEWOCGNSUMERS -- Si=mm m=r=raaa=a (2) TOWNAS CONSUMERS = u m- - ecaaa a a- sm -=a==u u ae=m EKMf4301W, Adig - - - - \. (0B) \.Oenn 0' - 62- Ton1s14 Ann,, 7 Second Iatural as Pipeline Project Pag of 3 S7ES - leported as Gperations Incom Statesents (Dinar§ Thouands 1982 1983 194 1985 1986 1987 Appresal Actual AIppraIsal Actuel Appratsul Actual Appreisal Actual Appr1ta 8tute A iprsjal ktuel salts of Sm ('000 t0) STE 346\.0 320\.0 557\.0 326\.9 822\.0 548\.5 1,065\.0 204\.4 1,030\.0 776\.3 other 489\.0 510\.0 588\.0 51\.7 973\.0 102\.0 1,095\.0 117\.2 1,370\.0 118\.0 835\.0 860\.0 1,145\.0 378\.7 1,795\.0 650\.5 2,160\.0 321\.6 2,400\.0 894\.4 Averae elling Price (I/ta\.) '7Er 36 44 53 73 64 79 77 85 92 88 Other 36 44 53 94 64 94 77 % 92 JUA melghted Averag 36 44 53 76 64 81 77 89 92 90 Avera Purchase Price 58 63 68 99 73 96 79 70 85 76 Rvenes fras fales StEO 12,532 14,078 29,496 23,913 52,407 43,219 81 776 17,473 95,110 68,447 other 17,712 23,757 31,138 4,846 62,034 9,559 84,080 11,298 126,506 12,003 Revenues fror Sales 30,244 0 37,835 60,634 28,759 114,441 52,778 165,856 28,771 221,616 80,450 Subsidies 25,098 23,199 24,584 6,454 30,280 7,878 7, 774 uther Operating Revenus 239 204 710 1,029 Total Revenuus 55,342 61,034 85,218 35,452 144,721 60,860 186,630 29,481 221,616 81,479 E= rchaus Cst ,4 53,922 77,545 34 603 131 286 56,476 170,618 22,220 204,744 69,471 1~888tÃ¥lleft eftt k,om 1,074 I,f44 I,N34 2,'29 1,538 3,102 0 3,6m6 0 Total Operating Expe 52,312 58,002 82,209 39,656 139,260 61,611 180,760 28,475 215,896 79,006 Operating Incom\. 3,030 3,032 3,009 (4,204) 5,461 (750) 5,870 1,0^ 5,720 2,472 Interst 2,079 2,588 3,242 2,054 3,858 2,442 3,918 2,298 3,544 2,502 Eschange Losss 2,793 (2,297) 1,793 (1,927) Met lnces 951 444 (233) (9,051) 1,603 (895) 1,952 (3,084) 2,176 1,898 RDR en Rev\. Assats 8\.01 8\.01 8\.02 -25\.91 8\.02 -2\.32 8\.02 2\.61 8\.01 5\.92 - 63 - Second Natural Oas Pipeline Project Page 2 of 3 STEO - loported Oss Operations Sources and Applications of Funds Statesets (iners Thousands) 1992 1983 1984 1985 1936 1987 Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual appraisal Actual Appressal Actual Sources of Funds Net Inceme Before late 3,030 3,033 3,008 (4,204) 5460 (1SO) 5,170 1,006 5,720 2,472 Depreciation 2,533 2,723 2,913 1,636 5,137 1,019 5,792 2,391 6,139 2,587 Internal Cash Seners 5,563 5,736 5,921 (2,368) 10,597 1,069 11,662 3,397 11,859 5,059 Long Tere Debt raing 6,200 6,700 14,650 5,045 6,650 2,321 6,500 1,700 2,038 Consonr Cotributions 1,639 819 19 1,011 STE8 Contributions (3,024) 7,294 6,455 (1,060) Increase in Accounts P (2,482) 1,122 3,903 13,617 327 (4,903) 4,216 (7,985) 4,710 6,054 Increase in Capital 0 0 0 0 Total Sources 11,281 13,578 24,474 15,509 17,574 6,600 22,378 3,726 16,569 15,110 *ass amm ass*= s\. " Sa Uses of Funds Capital Expenditures 5,104 7,359 15,301 6,093 S,000 3,076 6,400 4,219 3,336 Increase in ventorle 9 237 27 669 29 653 31 420 33 104 Increase in Accounts 8 2 590 612 1,936 4,730 4,561 (2,545) 4,363 46,626) 4,734 (168) Increase in Cash (t0) 1387) 230 38 551 657 Increase in Current As 2,493 462 2,193 5,599 4,978 (1,692) 4,945 (6,406) 5,624 (64) Interest Lan2 T or eb 2,079 2,568 3,242 2,054 3,838 2,442 3,918 2,296 3,544 2,302 eleburseten1 Log Ter 1,600 3,169 3,738 1,762 3,738 2,974 7,115 3,615 7,401 9,337 Debt Service 3,679 5,757 6,980 3,816 7,596 3,416 11,033 1,913 10,945 11,838 Total Uses -- -- -- -- - - -- - -- - 11,281 13,578 24,474 15,509 17,574 6,600 22,318 3,726 16,569 15,110 *ass" smm mm a\. se=n\. mm ino\.a Debt Service Coverage 1\.5 1\.0 0\.6 -0\.7 1\.4 0\.2 1\.1 0\.6 1\.1 0\.4 Wp-88 - 64 - Tunisia Second Natural Uas Pipeline Project Page 3 of 3 STES - laparted Gas Operations Balance Sheets (Diners Thousands) 1982 1993 1984 1985 1986 1987 ASSETS Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Gross Fixed Assets 39,072 42,002 14,354 44,942 36,976 60,062 13,135 91,697 57,390 97,188 65,95 Less: Acc: Dep\. 2,533 5,446 6,327 8,740 6,400 14,409 10,896 21,223 13,819 28,63 14,65 Net Fixed Assets 36,539 36,556 8,027 36,202 29,577 65,593 42,239 10,464 43,571 66,552 49,319 dark in Progress 1,785 9,279 29,394 25,226 14,408 - 3,264 - 6,301 - 3,341 Current Assets Inventory 94 31 1,496 334 9 ,9 1 ~ 44 47 Accounts Receivable 2,5 S,o 2 765402 9,6% 1 14, 02 t\. 7 ** S-T\. Deposits 655 469 34 698 40 1,086 49 1,637 46 2 ,494 19 Subtotal 3,539 4,001 3,406 6,194 6,987 11,172 7,079 16,117 5,185 21,741 5,227 Other Assets 4,699 4,717 4,734 222 116 Total Assets 41,863 49,835 44,526 67,624 56,689 76,765 57,336 86,561 5$,279 90,293 58,003 ""am3 63833s WSM=3 33333 33=33 3333z 33383 33 nu33 Mon"3 333 Mo333m Liabilities and Equity Equity Capital 10,000 10,000 7,500 10,000 7,500 10,000 7,500 10,000 7,500 10,000 7,500 Revaluation Reserve 3 935 6,809 4,604 10 017 5,094 14,317 4,937 18,580 9,134 22,807 10,206 Retained Earnings 490) (45) 0 1279) (9,051) 1,323 19,946) 3,275 (13,030) 5,451 (11,132) STES 1,567 (1,458) 3,836 12,291 11,230 Total Equity 13,445 16,764 13,670 19,738 2,077 25,640 10,327 31,855 15,894 38,258 17,604 Long Tere Debt 21,931 24,793 17,576 35,705 24,275 35,240 19,524 34,339 20,303 29,138 12,955 Current Liabilities Accounts Payable 3,416 4,540 5,593 9,443 17,649 8,770 14,604 12,96 11,560 17,696 19,559 Current Portion of L 3,169 3,736 31 3,738 1,832 7,115 3,063 7,401 2,487 6,201 1,576 Subtotal 6,587 6,276 5,624 12,16 1 19491 15,665 17,947 20,397 14,046 23,897 21,135 Other 7,656 10,856 9,617 5,035 6,109 Total Liabilities and Eq 41,863 49,935 44,526 67,624 56,689 76,765 57,336 66,581 5,219 90,293 56,003 3\.8\.88 33*=\. 88\. 333 33383 3 33838 3a3 \. sm3 Current Ratio 0\.5 0\.5 0\.6 0\.5 0\.5 0\.7 0\.4 0\.6 0\.4 0\.9 0\.2 ebulebt 4 Equity (1) 65? 631 561 671 931 62? 69? 57? 56? 47? 451 08-Sep-99 擺許騙吃 綢闢呂矓譽攤遝彎，”•號，“露 劉闢露鰓蠱養首曇―”•黑，札， 邊―露名離蠱糁舀藝―。•號零“蠶 織―認名矓黑養口藝l。•魚零枓認 夠峰名矓藝養養藝i”蠶發零料認 劉―露呂矓蠱糁養藝！”•翁響鰓釁 目―。名矓里糁貧藝―”•號零“登 劉爐呂離雙蔆亂藝―”•號零料離 目―發名矓里藕邊騙―&8焜“囀纔 自降名鰓蠱養劉藝―”•名”&& 觀陽寫矓豐響劉讓―&”視”料法 ç”隱•矓望養糅藝“，號”私翅 U禺造l華寫å’纔鳥發綺藝禹號響號網視翁擊 認屆馴―總•藝發ç¨è—å¯©è‘—禺黑斗賽為啊規認 互劍霎暑織―藝寫遞震視藝驕藝“胎富竇èšé–€ç™¼éŸ‹ Hd遲訪賽I賽名邊露嘗蔆規絕騙零認，雲啊魚養 。倡馴蓄ç¨å¥®â€¢é…’呈季舀鬍盡翅親縱•召，規畏法 觀視購話賽購芻遞攙彎蘊雙”養”胞萬，發群 劉擊鰓居蓬養響牘姿劉擊革翅奮”蠶’，發婦 目涌頸寫露響響選趁劉遲狗禹馳，&&,”各 劉”藝話藝。荊藝 ç”織藝藝”〕翁 目蘊å―讓 賽露奮―豐 ,l;_ 萬＿纏審二藝露規煙言奮渥壇！ ,!;!!!!!;!!;!!‘。！;;&,，。，,; •66一A潤股胞XS 讓，號言，鳥雙””擊藝織綢垂奪Pase之”f& 劉，,&,&,&”寧碧織潤舞響 胡，,,,&，。。參藝藝綢舞藝 潤，,,,&，。。華邊藝織賽藝 織，,,,,,”。華邊藝賽藝擊 寫，,,,&,&”寧藝藝綱蘿擊 劉，,,&&&&”讓藝醫ç¨éˆå°Ž 觀，,,,&，。”讓藝蔥織藝審 賽，,&,&,&”症參蘊網萋毒 弱，,,&&,”。待壅蒙網藝攤 劉，。，,&,&”囊蠶專開藝獲 劉，,,,&,”擊邊當響潤萋藝 。。。”,&&,’藝韋醒藝網奪萋 三」劉，寫言，號寫’彗蘿參響荊藝提 。纏蒙碧獨’規，，鳥雙”藝å藝鬍網藝響 萬蠶蔆目劉，賽震，馳豐”釁擊羅話馴響藝 透攤劉織寫鳥規餐鳥éè—éŸ¿é›œå¯©å•Šæ›‡è³½ 。。。，,,&，。變．審響賽禹藝藝 賽，。。，&”萋這邊鑒蚤啊藝藝 賽，。。”&”讓織藝摻。界雜藝 鰓視‘朧’&&&&”。’1‘藝 劉―。薑 ç¨â€•â€è— 劉―。奮雙g 畸I。萬＿婦 呂必 號三 å¥®ï¼Ÿå¤ã€‚é¨ é†’è¬è¨€ï¼Žè¨€è¬è¨€ï¼šï¼¿æ—¥æ—¥æ—¥å¢è˜Š 不革I權：甚萬審權：&I廈蔆豐。邊甲 星萬瘁選響！屆j壇讓．盞―仕言江g森論 ．亡三1廈11看：三】蠶暹蓬遼i-i濫邊11權 自牌牌”雲蠶寫屆騰轎。雲’‘、惡婪―露•湯邊韭遝， :&:”遲J藝―；一盒 ”蓬邊―蓬甚 MAP SECTION IBRD 14849R1 M r F A V é N (OTabarkia ICAP i9i - - Nohegi ( E!Kef Tderovine 0Kafrouan \Deua \ 0Dn A LGERI A El DSomo- K\.ss\.rin\. } WO 64 ~ ~ - -%:Gaso Chott el Jerid TUNISIA FRNENATURAL GAS TRANSPORTATION NETWORK - -Fture PIpenes, L\.org Term PossthIfes \. ExtIng Trans-Medierranean Plpelines Other Existng Pipelines c\.omss\.rSt\. Solt Lakes * National Copital --\. -- Internatonal londarYes ALGERIA 1\. 9\.wL OCTOBE 1988

APPROVAL

P007959

The World Bank FOR OFFICIAL USE ONLY Peport No\. 6331 PROJECT PERFORMANCE AUDIT REPORT PERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) June 30, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS BVP u Banco de la Vivienda del Peru ELECTROLIMA - Electricidad de Lima EMADI = Empresa de Administracion de Inmuebles (MVC) ENACE - Empresa Nacional de Edificaciones (MVC) ESAL = Empresa de Saneamiento de Lima ESAR m Empresa de Saneamiento de Arequipa MITI - Ministerio de Industria y Turismo MS - Ainisterio de Salud MVC = Ministerio de Vivienda y Construccion ORAMS - Oficina Regional de Apoyo a la Movilizacion Social PCR - Project Completion Report by LAC Regional Staff PCRBVP = Project Completion Report by BVP SEAL = Sociedad Electrica de Arequipa SEDAPAL m Sistema de Agua Potable y Alcantarillado de Lima SEDAPAR = Sistema de Agua Potable y Alcantarillado de Arequipa "* W LD 6N0 F OFFMCAL in3 ONLY TIE WORLD SANK Wastwlon\.DC 30433 U\.A Opesetum lushsmM June 30, 1986 MEMORANDUM TO THE EXECMTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Peru Urban Sites and Services Prole'\.t (Loan 1283-PE) Attached, for information, is a copy of a report entitled "Project Performance Audit Rep6rt on Peru Urban Sites and Services Project (Loar 1283-PE)" prepared by the Operations Evaluaticn Department\. A::a :c\._ \.: ! This document has a resticted distnbution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorizatin FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) TABLE OF CONTENTS Page No\. Basic Data Sheet\. 11 Evaluation Summary\. v PROJECT PERFORMANCE AUDIT MEMORANDUM I\. BACKGROUND \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 - The Economic Context \. \. 1 - Urban Development \. 2 II THE PROJECT \. \. \. \. \. \. \. \. \. \. \. \. 3 III\. PROJECT IMPLEMENTATION AND ACHIEVEMENTS \. \. 5 - General \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 5 - Physical Accomplishments and Their Impact \.,\. 6 IV\. POINTS OF SPECIAL INTEREST \.oo\. 10 - Procurement \. 10 - Project Costs, Financing and Disbursements \.*\. 10 - Cost Recovery \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 11 - Econonic Evaluation *\.o\.o\.e\. \. 12 - Sustainability \. \. \.,,\. 13 V\. THE ROLE OF THE BANK \. \. \. , ,\. 13 VI\. CONCLUSIONS AND LESSONS TO BE LEARNED \.ose\. 14 CHART - Disbursements Profile - Estimated and Actual \. 17 ANNEX Borrower Comments \. \. \. 18 PROJECT COMPLETION REPORT I\. Introduction ************************ **** *** * * * 19 II\. Project Identification, Preparation and Appraisal\. 19 A\. The Process \.**********************\. ********* 19 B\. Objectives and Description of Project \.,* 20 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization, Project Completion Report (Cont'd\.) Pge No\. A\. History\. \. \. 20 B\. Completed Project \. 22 C\. Implementation Schedule\. 23 D\. Reporting \. \. \. 23 E \. Pr o curement \. 23 F\. Cost and Financing \. 23 IV\. Physical Performance\.,,\.,\. 27 A\. Water Supply and Sewerage \. 27 B\. Electrification \. 28 C\. Access Roads \. 28 D\. Health Centers \. 29 E\. Industrial Parks \. 29 F\. Shelter \. \. \.9\. \. \. \. \. \. \. \. \. \. \. \. 29 G\. Supervised Credits in Arequipa \. 30 H\. Technical Assistance \. \. 30 V\. Institutional Analysis \. A\. Implementing Agencies \. 31 VI\. Financial, Social and Economic Performance \. 32 A\. Cost Recovery \. 32 B\. Description of Benefits and Rate of Return \. 32 C\. Affordability \. \. \. \. \. \. 33 VII\. Bank Performance \. \. \. \. 33 VIII\. Conclusions \. \. \. \. \. \. \. 34 ANNEXES 1\. Economic Reevaluation \. 35 2\. Institutional Changes \. 39 3\. Cost Recovery \. \. \. \. \. \. 40 MAP IBRD 17478 PROJECT PERFORMANCE AUDIT REPORT MERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) PREFACE This Project Performance Audit Report (PPAR) constitutes a perfor- mance audit of the Peru Urban Sites and Services Development Project for which Loan 1283-PE for US$21\.6 million equivalent was made in October 1976 and final disbursements were made in September 1984\. The PPAR consists of a Prolect Performance Audit Memorandum (PPAM) prepared by the Operations Evaltation Departent (0ED) and a Project Completion Repcrt (PCR) dated July 19, 1985, prepared by the Latin America and Caribbean Regional Office\. Th*, audit included reviews of the PCR, Appraisal and President's Reports, the transcript of the Executive Directors' meeting when the project was considered, Project Completion Report prepared by the Banco de la Vivienda del Peru (PCRBVP) dated August 1984, Bank files and records, and field inspections and discussions by OED staff with officials of the Government during an audit mission in March 1986\. The audit found that the PCR covers many important aspects of the project and agrees generally with its substance\. On the basis of further analysis of the available data, however, the audit has drawn some additional conclusions concerning the performance of the project\. The draft audit report was sent to the Borrower for comments\. The Borrower's comments are attached as an annex to the PPAM\. PROJECT PERFORMANCE AUDIT REPORT PERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) BASIC DATA SHEET Key Project Data Original Actual/ Item Plan Reestimate Total Project Cost (US$ million) 43\.2 62\.3 Cost Overrun (2) - 44% Loan Amount (US$ million) 21\.6 21\.6 Disbursed - 21\.6 Cancelled - - Repaid (US$ million) ) Outstanding (US$ million) ) Date Physical Components Completed 8/31/79 8/31/84 Proportion Completed by Above Date (%) 11% 100% Financial Performance - Fair Institutional Performance Fair Proportion of Time Overrun - 167% Economic Rate ot Return (%) 29\.7 31\.5 STAFF INPUT Staff-Weeks 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 TOTAL Identification/ Preparation 59\.3 45\.3 104\.6 Appraisal 81\.1 81\.1 Supervision \.2 24\.8 \.12\.1 17 19\.2 18\.3 11\.6 8\.7 9\.6 11\.0 132\.5 Total 59\.3 126\.6 24\.8 12\.1 17 19\.2 18\.3 11\.6 8\.7 9\.6 11\.0 318\.2 Cumulative Estimated and Actual Disbursements (US$ million) FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 (i) Estimated 8\.3 19\.2 21\.6(3/79) (ii) Actual 0\.1 1\.0 1\.63 5\.70 9\.51 12\.45 17\.90 21\.59 % of (ii) to (i) 0\.5 4\.6 7\.6 26\.4 44\.0 57\.6 82\.9 100/a /a Except for US$10,000 consultant's fee that was paid in September 1984 - iii - Other Project Data Original Item Plan Actual First Mention in Files - 11/08/74 Government's Application - 05/03/72 Negotiations - 05/10/76 Board Approval - 06/08/76 Loan Agreement - 10/12/76 Effectiveness - 01/10/77 Closing Date 06/30/80 12/31/83 Borrower BVP BlP Executing Agency ESAL/SINAMOS SEDAPAL ESAR SEDAPAR ELECTROLIMA/ ELECTROLIMA SINAMOS SEAL/SINAMOS Department of Energy & Mines/ ENACE Ministry of Ministry of Health Housing/ENACE Ministry of Housing ENACE EMADI ETADI/ENACE Ministry of Industry EMADI ETADI/ENACE Ministry of Industry SINAMOS/ Ministry of ORAMS IX Housing/ENACE Ministry of Ministry of Housing - Housing - EMADI, ESAR ENACE and Ministry of BANVIP Health and BANVIP Fiscal Year of Borrower Jan\. 1- Dec\. 31 Follow-on Project None - iv - MISSION DATA Month/ No\. of No\. of Date of Performance Item Year Weeks Persons Staff-Weeks Report Rating Preidentification 11/74 2 3 6 01/10/75 Identific\. tion 05/75 3 4 12 Preappraisal 08/75 3 4 12 09/08/75 Appraisal 11/75 3 6 18 12/05/75 Postappraisal 02/76 1 3 3 02/27/76 Supervision I 08/76 1\.5 2 3 09/21/76 - Supervision II 01/77 1\.5 2 3 03/15/77 1 Supervision III 05/77 0\.5 3 1\.5 - - Supervision IV 12/77 1 1 1 02/16/78 2 Supervision V 04/78 2 2 4 05/25/78 2 Supervision VI 09/78 1 2 2 10/13/78 2 Supervision VII 01/79 1 3 3 02/16/79 2 Supervision VIII 11/79 1 3 3 11/30/79 3 Supervision IX 06/80 1 2 2 06/23/80 3 Supervision X 09/80 2 4 8 09/22/80 2 Supervision XI 01/81 2 1 2 02/26/81 2 Supervision XII 05/81 0\.5 1 0\.5 06/04/81 2 Supervision XIII 11/81 0\.5 2 1 11/18/81 2 Supervision XIV 04/82 1\.5 2 3 04/29/82 2 Supervision XV 09/82 1\.5 2 3 09/24/82 1 Supervision XVI 06/83 0\.5 1 0\.5 06/10/83 1 Supervision XVII 12/83 0\.5 1 0\.5 01/09/84 1 Supervision XVIII 07/84 0\.5 1 0\.5 07/23/84 1 Total 92\.5 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Sol de Oro (S/\.) Year Exchange Rate Dec\. Appraisal Year (1975) US$1 = 45\.0 Intervening years (1976) US$1 = 69 (1977) US$1 - 130 (1978) US$1 - 196 (1979) US$1 - 250 (1980) US$1 - 342 (1981) US$1 - 507 (1982) US$1 - 990 (1983) US$1 - S/\.2,271 Completion year (July 1984) US$1 - S/\.4,067 -v - PROJECT PERFORMANCE AUDIT REPORT PERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) EVALUATION SUMMARY The Project reviewed in this report was the first urban development project in Peru\. The Project was identified in 1974 and appraised one year later\. The Bank loan of US$21\.6 million equivalent to thr Banco de la Vivienda del Peru (BVP), approved in 1976, was to finance 50 percent of total project costs\. The project had a broad scope that included serviced sites, provision og urban services (water, sewer and electricity), access roads, industrial and comercial serviced sites, credit, health centers, and techni- cal assistance to the key implementing agencies\. The Project involved some eight different agencies, with overall coordination entrusted to BVP, in two citiess Lima and Arequipa\. Oblectives The main objectives of the project were to provide the urban poor with basic facilities and employment opportunities to increase their capacity to be productively absorbed in the urban economy\. The project focused on three areas of assistance to achieve these objectives: (a) basic and produc- tive support infrastructure, (b) directly productive investments, and (c) technical assistance\. The project was expected to be completed by December 31, 1979\. Implementation Experience Implementation of the Project was delayed, mainly due to delays in signing subsidiary loan agreemens with the various implementing agencies, a lack of counterpart funds from the Covernment, and changes in the institu- tional arrangements for project implementation brought about largely by changes in the Government\. Other than the standard conditions, the only specific covenants in the Loan Agreement dealt with the Government's contribu- tion to the share capital of the Banco de la Vivienda del Peru (BVP) and the establishment of a revolving fund by the Government and BVP; both conditions were met\. The closing date for the Project was extended twice, which resulted in an expansion in the implementation period from 3 to 7-1/2 years\. Results The Project was successful in providing services to the urban poor in Lima and Arequipa; in fact the project far exceeded the targets establisbed at appraisal for electric, water and sewer connections, as well as the number of sites and services provided in Lima\. The industrial site in Arequipa was fully built and sold and is 50 percent occupied\. The industrial site in Lime was fully built; less than 50 percent of the plots have been sold and only 5 percent are occupied\. 0aly one of the five health centers in Lima was com- pleted, with the other four at various stages of completion; due to a lack of - vi - equipment which was never procured, none have been utilized\. The access roads componeat was deleted halfway through the iProject\. Only a small portion of the technical assistance envisaged under the Project was provided due to institutional and economic changes anc the funding of some activities with bilateral grant funds\. The Project fell short of its objective with respect to cost recovery, because of negative real interest rates\. Sustainability Reliance on an established institutional framework for the implemen- tation of the project has proven effective for the achievement of physical targets which far exceeded the targets set at appraisAl\. However, the infla- tionary economic condition and the Government's unwillingness to diminish the resulting heavy subsidy of interest rates resulted in the cancellation of plans to finance a proposed second urban project in 1982 which would have replicated this project's experience on a ccuntry-wide basis by providing urban services to some 57,000 low-income urban families in several cities\. Conclusions and Lessons to be Learned I (a) The project vas successful in strengthening a delivery system for the provision of urban services to low-income areas\. While the a-tes and services component provided a net increase in the quantity of Lima's housing stock by providing additional units, slum improvement in both Lima and Arequipa raised substantially the average quality of the existing stock\. The project also brought about a significant shift in emphasis in existing shelter policies by encouraging low-cost solutions aimed at low-income urban dwellers\. The political commitment to slum improvement at both the central and local level, and the ready understanding of the technical solutions proposed under the project contributed to this achievement\. However, the clear focus- ing on one area (lowering of service standards and costs for shelter and urban services) to the exclusion of attention to cost recovery mechanisms results in a failure to be able to adapt the project to changing economic circumstances; when there is a severe economic deterioration, the sustainability of the project, as i this case, can be totally compromised\. (b) The project fell short of its objective in the development of indus- trial sites and the employment opportunities for the urban poor which these industrial sites were expected to create\. Employment creation and industrial site development components require much more detailed preparation than was accorded in this project, particularly in terms of market demand analysis, financial analysis, and institutional and managerial arrangements\. The fact that this type of devel- opment was a high priority of the Government at the time should not have precluded objective analysis of the viability and risks of such an investment\. (c) The project fell short of its objectives in the area of cost recov- ery, and reliance on the institutional model established by the project for the provision of urban and shelter services, in the absence of significantly higher cost recovery achievements, will not lead to sustainability for this type of project\. - vii - Although full cost recovery was in accordance with the declared economic objectives of the Government, the macroeconomic conditions prevalent in Peru at the time made it difficult for the Government to implement these policies\. Nonetheless, more attention could have been paid to this issue dur- ing supervision which would have led to greater policy dialogue between the Government and the Bank regarding cost recovery; this was apparently not the case as the proposed second project foundered on the issue of cost recovery prior to appraisal\. (d) Supervision needs to be tailored to the needs of the project in terms of emphasis, staffing and frequency\. The problems that arose in project implementation should have resulted in both more Bank supervision and Bank supervision specifically focused on the financial issues\. (e) The economic reevaluation of the project shows an overall economic rate of return which does not reflect the serious financial effect of negative interest rates on the borrower, BVP\. In such a case it is therefore necessary to analyze the financial rate of return for BVP, which in this case is nega- tive\. 1 PROJECT PERFORMANCE AUDIT MEMORANDUM PERU URBAN SITES AND SERVICES DEVELOPMENT PROJECT (LOAN 1283-PE) I\. BACKGROUND A\. The Economic Context 1\. Preparation and appraisal of the first Bank assisted urban develop- ment project in Peru in the mid 1970s coincided with a period when the govern- ment adopted an inward-looking development strategy and greatly extended the role of the state in economic activity\. The central government, the military and the public exterprises greatly increased their claims on the country's resources\. However, these events took place against a bi\.ckground of economic growth (GDP growth of 4\.5% per year between 1970 and 1975), low inflation and stable exchange rates\. As pointed out in the Bank's Country Economic Memorandum (CEM) dated December 17, 1985, (Report No\. 5806-PE), the 1975 world recession resulted in stagnating exports, tightening monetary condi- tions, and a severe cutback in both public and private investment while con- currently Peru faced a severe balance of payments crisis\. This coincided with the early years of project implementation and accounted for the lack of avail- ability of counterpart funds which hindered project start-up, a situation which lasted until the Belaunde Government took office in mid-1980\. The new Government espoused a liberal, pro-market philosophy and aimed at the gradual deregulation and structural transformation of the Peruvian economy\. Shortly after taking office, the Government was confronted with the 1981-83 world recession, accompanied by declines in metals prices and export volumes\. 2\. Partly due to adverse economic conditions, but also because of powerful political opposition and inconsistencies between policies, few of the Government's intended policy reforms were carried far into effect and a number of those that were, were subsequently reversed\. However, due to the President's personal interest in shelter, this project received a strong impetus at this point\. Although as a result of the severe recession, manage- ment limitations, and inconsistent policies, the Belaunde Government was unable to make inroads into resolving public social service deficits through the public sector as it intended, substantial progress was made in expanding the stock and improving the quality and availability of low-income shelter and urban services\. The deterioration in incomes (according to the above-men- tioned CEM, real wages in Lima fell 45% from December 1973 to February 1984) and vital Government services exacerbated the plight of the poorest segments of society in particular\. The lack of normal job opportunities forced Peru's poor, particularly the Indian urban pcor, to turn increasingly to the informal economy\. The plight of the urban poor can be readily seen when one compares the deterioration in real household income between 1971/72 and 1983\. Accord- ing to a memorandum from the World Bank resident mission in Peru during pre- paration of the CEM in 1985, "when average real household income dropped by 2 about 19 percent, that of the lowest 25 percent of households fell by 29 percent while that of the highest 10 percent dropped by only 14 percent\." This meant that it was politically difficult for the Government to respond to growing inflation by raising interest rates on shelter and services; this fact seriously compromised cost recovery (see para\. 33)\. R\. Urban Development 3\. Urbanization in Peru has increased rapidly over the last forty years in association with industrialization, modernization and higher rates of economic growth\. Rural-urban migration has been the main force fueling urban growth; outmigration from the rural Sierra (highlands) to the urban coast, particularly Lima, has been the most rapid\. 4\. The Lima metropolitan area, with a population of 4\.4 million, accounts for 60 percent of the total urban population and is expected to reach over 9 million by the year 2000\. Most of the rural migrants have settled-- often by squatting--in desert areas on the outskirts of Lima, creating new slum settlements (Pueblos Jovenes) where housing conditions are very poor and urban services highly deficient\. As described in the President's Report, dated May 27, 1976, these new slum settlements are "established by organized occupation of public land, generally in the outskirts of the cities\. (In general, prior to land occupation, a group of squatters form an association to organiLe the settlement, plan the land use, and allot to each family a plot of land\. The association represents its members before government agen- cies for the legalization of the settlement and for the installation of urban services and community facilities)\." It was against this background that the project's objectives evolved: to establish an institutional mechanism to provide the flow of shelter and services needed to meet the growing demand and to promote income-generating activities for the urban poor to enable them to afford adequate shelter services\. 5\. In the 1980s, a decline in rural urban migration, combined with a stronger decline in urban than in rural fertility rates, has slowed the growth of metropolitan Lima to about 3\.5 percent per year, as compared to over 5 percent in the 1960s and 1970s\. The previously expected flood of rural migrants into Lima and the subsequent rapid growth of the area will thus be on a somewhat reduced scale and total urban population growth is expected to average 2\.7 percent yearly to the end of the century, thus far less than anticipated at the time of project preparation and early implementation\. Although the urgency with which these problems were viewed in the mid 1970s may have diminished somewhat, there is still a need to continue to expand shelter and urban services and the project's objectives remain valid\. 6\. The Belaunde Government, which coincided with implementation of the greater part of the project, in an attempt to meet some of the country's enormous housing needs, devoted a significant share of its public sector investment program to the housing sector\. A large part of this program--which represented about 5 percent of public investment--consisted of the construc- tion of units affordable by middle income families only\. The selling prices of these units have been subsidized aitd the Government also provided highly 3 subsidized mortgages (17-22 percent interest during a period when inflation averaged 89 percent per year)\. During this period the resources available for housing construction by the public sector were provided mainly by FONAVI, a special Government fund that received the proceeds of an earmarked payroll tax\. As a result of the high use of the subsidies for the housing being constructed, relatively few units have been built and FONAVI resources, which amount to about US$100 million annually, have benefitted only a very small fraction of its contributors\. In addition, because of the very low interest rates charged, FONAVI resources are subject to rapid decapitalization\. At the same time, the savings and loan associations, which in the past financed the bulk of housing, virtually stopped lending for construction and turned to the financing of consumer durables, as the high rates of inflation and the resulting high nominal interest rates increased annual payments on mortgages from commercial banks and drastically reduced their affordability\. II\. THE PROJECT 7\. This was the Bank's first urban development project in Peru and was prepared in response to a request made by the Peruvian Government for assis- tance in implementing \.n urban project aimed at alleviating urban needs and developing employment opportunities\. A Bank reconnaissance mission reviewed the Government's urban development program in November 1974 and found that its objectives and strategies for developing urban areas were basically consistent with Bank policies\. (A review of the Bank's policy documents from that period shows that the clear focus was on appropriate standards and cost reduction\.) A preappraisal mission in August 1975 reviewed Government sponsored plans and feasibility studies (prepared under the coordination of the Ministry of Housing and Construction (MVC) and the Housing Bank (BVP)\. Appraisal of the project took place in November 1975, within one year of the reconnaissance miszion\. 8\. The objectives of the project as presented in the SAR (para\. 3\.01) were as follows: to provide the urban poor with basic facilities and employ- ment opportunities to increase their capacity to be productively absorbed in the urban economy\. 9\. Schedule II of the Loan Agreement describes the project as consist- ing of the following components: Part A: Sites and Services (a) The preparation of, and provision of the necessary infrastructure such as water supply, sewerage facilities, electrical connections, public lighting, access roads and green areas for about 706 plots for dwellings and 161 plots for shop-dwellings in the Funda Vasquez area in Lima\. (b) The development of about 50 hectares of land in the Villa El Salvador area in Lima and 13\.5 hectares of land in Arequipa for indus- trial sites by providing the necessary infrastructure such as water 4 supply, sewerage facilities, electrical connections, public lighting, access roads and green areas, and the construction of a few standard factories and common services buildings\. Part B: Credit Program (a) The provision of about 870 loans for self-help construction of dwellings and shop-dwellings to individuals having acquired plots referred to in Part A\. (b) The provision of about 1,000 loans to low-income individuals who own in Arequipa plots in Pueblos Jovenes or in other areas approved by SINAMOS, to enable them to erect or upgrade modest shelter units through a program of mutual aid, 50% of such loans to be in building materials rather than cash\. Part C: Community Facilities The construction and equippping of about seven community facilities in the Fundo Vasquez sites and service area of Lima\. Part D: Primary Infrastructure (a) Construction of water supply and sewerage facilities in four Pueblos Jovenes in Lima and eight Pueblos Jovenes in Arequipa, consisting of the extension of water trunk lines, on-site water and sewerage reticulation and individual dwelling connections\. (b) Construction of electric facilities, including distribution networks and individual dwelling connections, and primary 10 kv networks, where necessary, te provide electricity to about 12,400 lots in Pueblos Jovenes in Lima and 3,900 lots in Pueblos Jovenes in Arequipa\. (c) Improvement of about 86 kilometers of existing secondary road net works in eight Pueblos Jovenes in Lima\. (d) Construction and equipping of three health and nutrition centers and expansion (including equipment) of two existing health and nutrition centers and expansion (including equipment) of two existing health and nutrition centers in Pueblos Jovenes in Lima\. Part E: Technical Assistance The provision of technical services to: (a) BVP to assist it in carrying out the Project and in strengthening its capacity to promote future projects in the urban sector; (b) the Technical Assistance Unit, with regard to Parts A(a) and B(a) of the Project; 5 (c) EMADI, with regard to Part A(b) of the Project; (d) ESAR, for assisting it in the review and preparation of a project that shall meet the future needs for water supply and sewerage in metro- politan Arequipa; and (e) the Ministry of Health with regard to Part D(d) of the Project\. 10\. The Project was to be wholly financed by the Bank loan (50%), by BVP (44%) and by downpayments from beneficiaries (5%)\. BVP, as executing agency for the project, had overall management responsibi\.lity for the execution of the project\. Responsibility for execution of the various components lay rith some eight other agencies (see Annex 2, PCR) and subsidiary loan agreements which were subject to prior Bank approval were to be entered into between BVP and these agencies\. 11\. Procurement conditions did not differentiate between civil works and equipment\. ICB was required for all ci-il works and equipment except for locally manufactured equipment up to $80,000 in Lima and up to $160,000 in Arequipa\. 12\. The project was expected to be completed by December 31, 1979\. III\. PROJECT IMPLEMENTATION AND ACHIEVEMENTS General 13\. Although the Loan was signed in 1976, project start was delayed due to a lack of counterpart funds from the Government, delays in signing the subsidiary loan agreements with the various executing agencies, changes in the institutional arrangements for project implementation (see Annex 2, Table 6, PCR), and a lack of political support until the beginning of the Belaunde Government in 1980\. In March 1980, the loan closing date was formally extended to December 31, 1982\. During the '980-82 period, the new Government gave high priority to the urban sector, particularly reflected by the commit- ment of the Ministry of Housing and Construction (MVC) and BVP officials to the implementation of the projeit\. 14\. Restructuring of the project in 1981 resulted in: an increase in the number of serviced plots in Lima and Arequipa which was financed by savings which resulted from the deletion of 86 km paved access roads to the Pueblos Jovenes; an increase from 1,000 to 1,500 supervised self-help con- struction loans, a change in procurement conditions which modified ICB requirements to contracts of US$1 million or more and Bank review of contract and procurement documents was raised from US$150,000 to US$1 million\. The project's closing date was further extended to December 1983 and a realloca- tion of loan proceeds resulted in the construction of an additional 3,500 serviced sites in Lima and an increase in loan disbursement percentages for civil works\. 6 15\. Implementation of the project lasted 7-1/2 years instead of the 3 years envisaged at appraisal\. This 150% increase in implementation period can be ascribed to a number of causes: an overly optimistic implementation sched- ule, delays in signing subsidiary loan agreements, insufficient counterpart funds, lack of government support during the initial years of the project and changes in the institutional arrangements for implementation of the different components\. Cost overruns in US dollars amounted to 44 percent, caused in part by cost overruns for the Lima industrial site but primarily by the expanded scope of the project for water, sewerage and electricity connections in the Pueblos Jovenes and sites and service plots and core units in Lima\. Physical Accomplishments and Their Impact (a) Sites and Services in Lima 16\. The original component was to develop the second phase of the Fundo Vasquez site in Lima providing 867 serviced plots, supervised credits for self-help construction for dwelling and shop core units\. This component was plagued with numerous problems: in addition to the delay in start-up of the project as a whole, there were additional delays in the pceparation of detailed designs; the institutional arrangements for implementation of the component envisaged the creation of a technical assistance unit which did not occur, due to a Government austerity decree which discouraged the use of consultants paid in foreign exchange\. By March 1980 title to the land was returned to its original owners as the expropriation period had elapsed; the shelter component could therefore not be executed on the land originally envisaged\. A Loan Agreement amendment dated January 16, 1981, pro7ided for the substitution of 3,200 dwelling and shops-dwelling plots at Vi1la El Salvador in Lima for the Fundo Vasquez site\. In fact, by reducing the st&n- dards of services, some 7,059 plots were serviced on this site (eight times more than targeted at appraisal), of which 3,170 were financed by the Bank under the project and the others by BVP utilizing the same development cri- teria established under the project\. The execution of the component by ENACE provided a means for institutionalizing the provision of serviced shelter sites for low income dwellers in Lima\. Based on an average family size of 5 persons, this component benefited more than 35,000 low income dwel- lers\. However, a serious handicap to the replicability of this experience has been the high interest rate subsidy provided to the beneficiaries (see para\. 37)\. (b) Industrial Sites in Lima and Areguipa 17\. The physical accomplishments of this component comprise the develop- ment of 109 industrial sites (of a smaller size than the 65 sites targeted at appraisal) in the Villa El Salvador area in Lima and 25 in6ustrial sites as an expansion of an existing industrial zone in Arequipa, providing them with the necessary infrastructure such as water, sewerage, electricity, public lighting, and access roads suitable for industrial use\. The site in Lima was selected because of its close proximity to the Pueblos Jovenes and the expec- tation that it would become a primary source of new employment in the Lima 7 metropolitan region\. This component was slated to be a pilot area of 50 ha\. which constituted an initial phase of a 175 ha\. new industrial area to be established in the southern part of Lima\. Enterprises operating under a new framework of Social Property (similar to the Yugoslavian model of worker-owned enterprises) were expected to establish their activities in this zone\. The site in Arequipa was selected as a third phase expansion of 13\.5 ha\. located adjacent to an existing industrial site\. It wai expected that the industrial site in Lima would generate some 3,000 new jobs while the site in Arequipa would generate some 1,000 new jobs\. The general coordination and promotion of the two industrial sites was entrusted to EMADI, a government agency under the Ministry of Housing and Construction (MVC) which was responsible for adminis- tering all government properties\. 18\. These two sites suffered the start-up delays experienced by the project as a whole\. A Bank supervision mission in May 1981 found that while 67% of the Lima industrial park was completed, the contract for off-site electrical infrastructure had as yet not been signed with Electrolima and technical assistance in sales and development promotion to EMADI had not been provided\. In 1981 EMADI was replaced as implementing agency by ENACE, an agency also under MVC responsible for regional and decentralized development; by new legislation in May 1982 ENACE was replaced by the Ministry of Industry\. 19\. By completion of the project, all the plots of the Arequipa site had been sold\. The audit shows that over 50% are occupied and 60% have been all paid off\. It is expected that by the end of 1986 all will be paid off\. The purchasers were not under any real obligation to develop the plots purchased; once the plots are totally paid off the owner, under Peruvian law, may do whatever he wants with it--the purchasers have therefore not been committed to develop the plots they purchased\. The audit ascertained that the indus- tries which have already established themselves in this industrial zone and seek to purchase more plots for expansion of their industries have no choice but to purchase the plots from an existing non-user owner who holds onto his plot for speculative purposes\. 20\. The Lima industrial site has fared less well\. By completion of the project some 46 of the 109 plots had been sold; since then less than five more plots have been sold\. Auditor's site visit, however, found that only five percent of these plots were occupied\. The reasons given for the slowness of sale and the non-occupancy are several: plots are too large (10,000 m2) and not suited to demand (1,000-2,000 m2), economic recession in the country as a whole, lack of necessary utilities (water is apparently available only 6 hours per day), frequent changes in institutional arrangements, non-participation of the Ministry of Industry in the preparation and implementation of this compo- nent, and poor location with respect to port accessibility\. These ptoblems could have been averted through adequate markct analysis and sales promotion, sale contracts conducive to the development of the plots, and a time limit by which the site must be developed or returned to the developer for sale to another user, and institutional leadership which would be more development oriented\. 8 21\. The audit found that the Lima industrial site component, which at appraisal represented 14 percent of total base cost of the project, lacked the level of detailed market demand and financial analysis generally associated with the development of an industrial site\. Minutes of the Bank Board meeting of June 9, 1976, show that some Executive Directors had concerns in his area\. One speaker in particular stated that the job creation part of the pZoject was the weakest and that there was a considerable lack of precision about how the job creation would come about\. The audit ascertained that a detailed analysis of the industrial sites component had been carried out by a Bank consultant at the time of appraisal\. However, none was found in the project files nor is referred to in the appraisal documents\. A memo to files after a Bank review of the bidding documents for this site in April 1978 noted that: "the plans call for some fully-paved four-lane roads, asphalted parking areas, and con- crete curbs\. A progressive or staged development approach to the urbanization of the site with somewhat lower standards would not have affected the project negatively\. However, to change the project now would not only result in serious delays in its implementation but would even be rather difficult to do, for the following reasons: (a) We agreed to the project in the appraisal report--although it was appraised on the basis of only very preliminary plans; (b) We did not provide adequate supervision that would have allowed us to make improvements at a more convenient time; (c) We have recently approved the Arequipa Industrial Park with similar standards and made no comment\." Fur- thermore, it is the audit's view, given the experience in the development of such sites in other countries, that this component suffered from the non-par- ticipation of the Ministry of Industry during preparation and early implemen- tation\. According to the Ministry of Industry, some 450 new jobs were created in the Arequipa industrial site; no estimates were available for the Lima site, and the audit estimates that less than 50 new jobs were created\. Hence, at a cost of US$8\.9 million for this component, the cost per job created amounted of US$17,800\. 22\. Overall, while taking into account the effect that the recession in Peru may have had on this component, the fact that this component failed to achieve its objectives may be traced directly to inappropriate identification, and inadequate preparation and supervision (see para\. 38)\. (c) Credit Program 23\. The project was to provide some 1,000 loans to low-income plot owners in Arequipa to enable them to erect or upgrade modest shelter units through a program of mutual aid with 50% of the loan made in building materi- als rather than cash\. An increase in the number of loans was approved in 1981 to 1,500\. By project completion, a total of 1,281 loans had been made or 13 percent more than targetted at appraisal\. The project was also to provide sone 870 loans for self-help construction of dwellings and shop-dwellings in Lima\. As stated in the PCR, 3,150 core units were sold in January 1983 and 3,889 were sold in 1985, or a total of 7,039 core units, a 700 percent increase over the target set at appraisal\. These core units, built on the Villa El Salvador site, provided housing for an estimated 35,000 low-income urban dwellers at a time when almost no credit opportunities existed for 9 low-income housing in Peru\. However, as pointed out in par&\. 33, the provi- sion of thia low-income shelter was at a negative interest rate and represents a windfall gain to the lucky beneficiaries; hence, the replicability of such a program is doubtful\. (d) Health Centers 24\. The project provided for the construction and equipping of three health and nutrition centers and the expansion (including equipment) of two existing health and nutrition centers in Pueblos Jovenes of Lima\. It was envisaged at appraisal that one of the health centers would be equipped with training facilities for "health promoters" who were volunteers from the commu- nity and would be trained as paramedical personnel\. Technical assistance funds were provided under the Project to finance this training\. The Ministry of Health decided not to proceed with this training program (see para\. 28)\. Delays occurred in the construction of the health centers; this issue is alluded to throughout project supervision and was apparently due to ineffi- ciencies in implementation by the Ministry of Health\. By project completion only one of the health centers had been completed, with the other four in various stages of construction; none were equipped\. (e) Primary Infrastructure 25\. The component consisted of (i) he construction of water supply and sewerage facilities in four Pueblos ^venes in Lima and to eight Pueblos Jovenes in Arequipa consisting of the exL,; don of water trunk lines, on-site water and sewerage reticulation and indivi \. dwelling connections; (ii) the construction of electric facilities, including distribution networks and individual dwelling connections and primary 10 kv networks, where necessary, to provide electricity to about 12,400 lots in Pueblos Jovenes in Lima and 3,900 lots in Pueblos Jovenes in Arequipa; and (iii) improvement of about 86 kilometers of existing secondary road networks in eight Pueblos Jovenes in Lima\. 26\. Two main trunk lines were built in Lima; the number of water and sewerage connections in Lima far exceeded appraisal estimates\. As shown in Table III-1 of the PCR, over 44,000 individual connections were made, repre- senting an increase of more than 170% of appraisal estimates\. In Arequipa, the data provided to the audit mission shows that more than 3,200 individual connections were made, representing an increase of 27% over appraisal esti- mates\. The electrification component also far outpaced appraisal estimates in terms of individual connections made in both Lima (197% greater) and Arequipa (170% greater)\. 27\. The secondary access roads component expected that the beneficiaries in the Pueblos Jovenes would make a down payment of 10% of project costs, which was similar to the down payment for other services such as water, sewer- age and electricity\. The residerts of the Pueblos Jovenes viewed road con- struction as a public service to be provided by the government and were unwil- ling to make the downpayment\. The government, having tried for several years 10 during the early part of project implementation to modify this view, but to no avail, requested the Bank to cancel this component from the project; this was done in 1981 when the project was restructured\. (f) Technical Assistance 28\. This component consisted of a total of 95 man-months of consultant services to the Ministry of Housing and Construction in the execution of the sites and services component in Lima, to EMADI for implementation of the industrial zone component in Lima, to BVP for planning and studies, to the water and sewerage agen,y in Arequipa (ESAR) to prepare a water and sewer project in Arequipa, and to the Ministry of Health regarding the health and nutrition component\. Only a small amount of the technical assistance envis- aged at appraisal was provided\. BVP established an international affairs department responsible for the coordination and appraisal of all foreign financed projects\. This measure strengthened BVP's ability to implement the project\. The audit ascertained a number of key reasons for the non-utilization of technical assistance funds: in particular, during a period of high infla- tion and devaluation of the Sol, consultant fees paid in dollars were viewed as too costly, a German bilateral grant was used to finance the water and sewer study in Arequipa, and the details for implementation of the technical assistance were vague--no terms of reference were made available at appraisal for any part of the support\. IV\. POINTS OF SPECIAL INTEREST Procurement 29\. The project called for contracts for all civil works and goods under the project to be on the basis of ICB with the exception of (i) water and electric meters and other locally manufactured materials for the residential and industrial sites costing up to US$80,000; (ii) building materials pur- chased for the self-help construction credit component; and (iii) civil works related to electric facilities in Arequipa costing up to US$160,000 which would be awarded on the basis of local competitive bidding\. Bank review of all bidding and contract documents was required for all contracts above US$150,000\. Early implementation experience demonstrated that bids were not received from international contractors\. The PCR points out that procurement requirements caused problems with the numerous implementing agencies and delays; however, these were not q',antified\. Upon restructuring of the loan in 1981, ICB requirements were ra'sed to contracts of US$1 million or more and prior Bank review of biddin,- and contract documents was raised to contracts of US$1 million or more\. According to the PCR, these two measures were instru- mental in speeding up execution of the project\. Proipct Costs, Financing and Disbursements 30\. As pointed out in the PCR, the total cost of the project exceeded appraisal estimates by 44 percent in US dollars\. A thorough breakdown of the 11 appraisal and final costs is well documented in Tables 111-3 and 111-4 of the PCR\. (As a result of the high inflation at this time, cost comparisons are clearer in US dollars\.) The cost overruns are due primarily to the expanded scope of the project in the provision of sites and services with core shelter and urban services (water, sewer and electric connections) but also to a 39% cost overrun !n the Lima industrial site component\. 31\. Due to a lag of some three months between expenditure by BVP and Bank reimbursement at a time when the Sol was being devalued by approximately 6% per month, Bank loan disbursements against the project were well below the 50% determined at appraisal\. On August 9, 1983, the Bank disbursement percen- tages were increased to 76% for civil works, credit and local consultant expenditures\. However, this modification in the Bank disbursement percentages came at the close of the project when most of the expenditures had been made\. A comparison of the actual and proposed financing of the Project shows that BVP financed 56% of total project costs as compared to 44% targeted, benefici- ary downpayments amounted to 9% instead of 6% and Bank financing amounted to 35% instead of the 50% planned at appraisal (see Table 111-5, PCR)\. 32\. The disbursement profile shows a significant lag between estimated and actual disbursements, as might be expected from the overly optimistic appraisal estimates of project implementation (see Chart 1)\. Cost Recovery 33\. Recovery of costs of the project was to be based on a deposit of 10% of the total cost of works and monthly charges to final users for water, sewerage and electrification in the Pueblos Jovenes and sites and services\. Supervised credits would be recovered by monthly payments by beneficiaries\. The households in the Pueblos Jovenes were to pay a 10% deposit on roads, the balance to be recovered by the Government from user charges\. Recovery from the industrial sites would be made by the sale of plots\. Health and nutrition centers and technical assistance would be recovered from general tax revenues\. It was expected at appraisal that 65% of the total project costs would be recovered directly and the remaining 35% recovered indirectly through tax revenues\. According to the Loan Agreement, beneficiaries "were to repay their proportional costs of the improvements in ten to twenty years with annual interest rates of not less than 12% per annum and with a down payment of not less than 5%"\. During implementation, the interest rate charged amounted to 25% per annum; however, this could hardly offset inflation rates which approx- imated 80% per annum\. As pointed out in the PCR, therefore, while cost recov- ery has followed appraisal objectives in nominal terms, in real terms cost recovery has been negative\. The macroeconomic instability which reigned in Peru during implementation of the project seriously jeopardized cost recov- ery\. As inflation increased, the real wages of the urban poor decreased\. Although the cost recovery mechanisms could have been better designed and more clearly expressed in a loan covenant, it is unclear, given the declining real wages of the project beneficiaries, to what extent the Government could have raised interest rates to compensate for the high rate of inflation\. As it stands therefore, the project provided large subsidies to a significant number of beneficiaries--the large industries which benefited from these subsidies 12 would probably have participated without the subsidy 3iven the speculative benefits which they stood to gain--for this group receipt of these large subsidies may be termed inequitable\. For the large number of low-income beneficiaries who obtained urban services and shelter at a high subsidy, this represe\.ited a Government giveaway which does not allow for replicability\. Economic Evaluation 34\. The economic evaluation carried out at appraisal and the reevalua- tion by BVP and the PCR followed the same methodology for estimating the economic rates of return of the various components\. The methodology is based on the following: total costs are calculated as all capital costs, including land and maintenance costs\. Benefits are calculated as: the estimated value of the shelter units for the sites and services and supervised credits; esti- mates of the savings in the consumption of alternative means of illumination for electrification; the differential price of water and the average rate of the water consumed for water and sewerage; the revenues from selling the serviced sites for the industrial site component; time savings and reduction in operating cost of vehicles for the access roads component\. All components were deemed to have a 20-year life\. This methodology had been adopted under previous similar projects elsewhere\. While the appraisal did not take account of foreign exchange scarcity, the reevaluation has done so which is appropri- ate in view of the over-valuation of the Sol by some 20% to 25%\. The apprai- sal and reevaluated economic rates of return (ERR) are provided below: Appraisal Reevaluation Sites and Services 32\.2% 31\.1% Water & Sewerage 16\.9% 62\.8% Electricity 23\.7% 25\.4% Industrial sites 34\.4% 4\.8% Access Roads 29\.2% - Overall Project 29\.7% 31\.5% 35\. The overall ERR at project completion appears to compare favorably to that obtained at appraisal\. However, a closer comparison of the individual EP for each of the components shows a significant difference\. The water and sewerige component has an ERR of 62\.8% which is far greater than originally anticipated due to tne much larger number of connections than originally targeted and the reduction in average cost of connections\. Given these rates of return, higher prices could have been charged to the beneficiaries, hence a greater scope existed for cost recovery; however, as pointed out in para\. 37, the Government was unwilling to do so\. The industrial sites component how- ever, has an ERR of 4\.8% which is far below the appraisal calculation\. 36\. In view of the negative interest rates charged by BVP on all compo- nents (see Table 8, Annex III, PCR), for BVP the financial rate of return (FRR) on this project is negative (see para\. 47)\. 13 Sustainability 37\. The project was prepared during a period of growth and economic stability in Peru and was implemented under recession and macroeconomic insta- bility\. The project's success can be clearly noted in a large scale reduction of physical standards for shelter and the provision of urban services for slum upgrading\. Reliance on an established institutional framework for the implementation of the project has proven effective for the achievement of physical targets which far exceeded the targets set at appraisal\. However, the project, which focused on the reduction of standards to make shelter and services affordable to the urban poor, did not lay the groundwork for coping with inflationary economic conditions\. BVP would not be able to sustain this type of activity because of the impact of the disparity of interest rates charged by them and the resulting decapitalizatioL of their funds\. Govern- ment's unwillingness to diminish the heavy subsidy of interest rates has significantly compromised the replicability of the project's achievements\. V\. THE ROLE OF THE BANK 38\. The Appraisal devoted considerable efforts to the establishment of a delivery system which would enable the Government to provide shelter and services to the urban poor\. These efforts were continued throughout implemen- tation\. Bank supervision of the project was significantly lower than the supervision coefficients for other urban projectG in the Latin America region (for fiscal years 1977 through 1983, supervision of the project never ex- ceeded 10\.5 btaffweeks/year and averaged less than 6 staffweeks/year compared to approximately 20 staffweeks/year for other urban projects in the region)\. Furthermore, with the exception of one sapervision mis&ion in September 1980, during which time one economist and one financial analyst participated in the mission, all other missions were staffed exclusively by architact/urban plan- ners and engineers\. A report prepared by the financial consultant following the September 1980 mission analyzed the financial condition of BVP and high- lighted two main reasons for BVP's deteriorating financial situation: "the effect of devaluation on its equity position and its inability to invest the funds from its external loans in a timely manner\." Bank preparation missions for the proposed second project carried out detailed analysis of the financial implications of the investment program being envisaged in light of the eco- nomic problems which Peru faced; this is borne out by thorough reports in this area on file\. 39\. Given the enormous macroeconomic problems which Peru faced during implementation and their clear repercussion on the project as a whole, the audit is left with the following observations: (a) the project was under- supervised; (b) the focus of supervision lay on the implementation of the physical aspects of the project; (c) supervision did not take account of the significant macroeconomic issues and their effect on the financial and econo- mic viability of the project as a whole; and (d) restructuring was not carried out with the objective of introducing changes in the financial viability of the project\. 14 VI\. CONCLUSIONS AND LESSONS TO BE LEARNED 40\. (a) The project was successful in strengthening L delivery system for the provision of urban services to low-income areas\. While the sites and services component provided a net increase in the quantity of Lima's housing stock by providing additional units, slum improvement in both Lima and Arequipa raised substantially the average quality of the existing stock\. The project also brought about a significant shift in emphasis in existing shelter policies by encouraging low cost solutions aimed at low-income urban dwellers\. 41\. The political commitment to slum improvement at both the central and local level, and the ready understand!ng of the technical solutions proposed under the project contributed to this achievement\. However, the clear focus- ing on one area (lowering of service standards and costs for shelter and urban services) to the exclusion of attention to cost recovery mechanisms results in a failure to be able to adapt the project to changing economic circumstances; when there is a severe economic deterioration, the sustainability of the project, as in this case, can be totally compromised\. 42\. (b) The project fell short of its objective in the development of indus- trial sites and the employment opportunities for the urban poor which these industrial sites were expected to create\. 43\. Employment creation and industrial site development components require much more detailed preparation than was accorded in this project, particularly in terms of market demand analysis, financial analysis, and institutional and managerial arrangements\. The fact that this type of devel- opment was a high priority of the Government at the time should not have precluded objective analysis of the viability and risks of such an investment\. 44\. (c) The project fell short of its objectives in the area of cost recov- ery, and reliance on the institutional model established by the project for the provision of urban and shelter servi:es, in the absence of significantly higher cost recovery achievements, will not lead to sustainability for this type of project\. 45\. Although full cost recovery was in accordance with the declared economic objectives of the Government, the macroeconomic conditions prevalent in Peru at the time made it difficult for the Government to implement these policies\. Nonetheless, more attention could have been paid to this issue during supervision which would have led to greater policy dialogue between the Government and the Bank regarding cost recovery; this wts apparently not the case as the proposed second project foundered on the issue of cost recovery prior to appraisal\. 46\. (d) Supervision needs to be tailored to the needs of the project in terms of emphasis, staffing and frequency\. The problems that arose in project implementation should have resulted in both more Bank supervision and Bank supervision specifically focused on the financial issues\. 15 47\. (e) The economic reevaluation of the project shows an overall economic rate of return which does not reflect the serious financial effect of negative interest rates on the borrower, BVP\. In such a case it is therefore necessary to analyze the financial rate of return for BVP, which in this case is nega- tive\. 一／ご－ メぐ・，がいぐ多応ノグ PERU URBAN SnS AND SERVICES PROJECT DISBURSEMENTS: LOAN 1283-PE KUCENT 100- so- 60- 40 20- o i ii iii iv i 11 1;1 1ý i ii in iv i 11 111 1ý i ii iii 1ý 11 111 Iv l 11 111 Iv l 11 111 Iv l 11 111 Iv l 1976 1977 1978 1979 1980 1981 1982 1983 1984 1965 - 18 - E-997/86 June 23, 198b Spanish (Peru) OEDD3 ENMcM:bas Translation of incomiql telex Lima, June 20, 1986 Telex 2819/DCRF From: BANVIP Mr\. Otto Maiss Acting Director Operations Evaluation Department International Bank for Reconstruction and Development (World Bank) Washington, D\.C\. Reference: Your letter of May 21, 1986 Sub ect: IBRD Project Performance Audit Report on Loan 1283-PE Dear Mr\. Maiss: As the document in question indicates, the Project Performance Audit Report on the Urban Sites and Services Development Project (Loan 1283-PE) is based on the sources of information listed in that report including, inter alia, the appraisal report, the project completion report dated July 19, 1985 prepared by the Latin America and Caribbean Regional Office, and the project completion report prepared by Banco de Ia Vivienda del Peru--BANVIP (BVP) dated August 1984\. We wish to stress that the BANVIP project completion report was prepared in compliance with an instruction communicated by IBRD in a telex dated January 20, 1984 reading as follows: "Mr\. Federico Melo, Banco de Ia Vivienda del Peru\. Ref\.: Loan 1283-PE\. The Bank hereby officially confirms the request made by the most recent supervision missions regarding preparation of the project completion report for the referenced project\. This report should be submitted to the Bank before June 30, 1984\. The Bank bases its request on the provisions of Section 3\.10 of the Loan Agreement\. Regards, ran Scott, Chief, Urban Projects Division, Latin America and the Caribbean\. INTBAFRAD\." As you know, BANVIP is a state development bank that gears its : tions to the economic and financial policies of the Min:stry ot Economy indt F iance, in harmony with the housing policy determined by the Ministry at Rousing and Construction\. Accordingly, our institution tc'uses primarily >n Low-income families\. Current inflation rates stemming from the interest rate policy being pursued in Peru and in BANVIP have brought about situations differing trom those that obtained during the period the project under review was being implemented\. We cherish the hope that we may in due *ourse De ible to \.ubtmit a new project to IBRD, when the Peruvian authorities ind tnuse or HANVIP deem this appropriate\. We again express our gratitude tor the upport extended to us by IBRD under Loan 1283-PE which enabled both 1BRD and BANVIP to adopt the measures the economic situation required\. We also take this opportunity to inform you that, in continuing our policy Of serving low-income families, between August 1985 and June 1986 we made loans to finance electrification and/or water and/or sewerage wor&s to approximately 125,)00 families; this was in addition to Lending under BANVIP's :ommercial line of credit, the housing cooperatives (mutuales de vivienda) and FONAVr operations\. Vtry truly yours, Os\.ar Bauer Cotrina Federico Melo Vega General Manager Manager 19 PERU - LOAN 1283-PE SITES AND SERVICES DEVELOPMENT PROJECT Completion Report I\. Introduction 1\. Loan 1283-PE for the Peru Sites and Services Development project was the Bank's response to the request made by the Peruvian Government for assistance in implementing an urban sites and services program\. The objectives of the project were aimed at alleviating the urban needs and developing employment opportunities\. Bank missions had found, prior to this request, that the Government's objectives for developing urban areas were consistent with Bank policies\. 2\. Urban growth in the city of Lima is one and one-half times larger than the national average, but on the city's outskirts the rate of growth of low-income areas, called pueblos jovenes (young settlements), it is almost three times larger than that of the city itself\. These low-income areas are characterized by a major lack of basic urban services (such as piped water, sewers and trash collection) and the absence of community facilities, (such as schools and health centers)\. 3\. This report covers the history of the project and analyzes its outcome particularly in regard to the stated project focus on three areas of assistance: "basic and productive support infrastructure, directly productive investments, and technical assistance"; 1/ and the institutionalization of "a delivery system for urban services to low-income areas"\. The report is based on information in the Staff Appraisal Report (Report No\. 1065a-PE), the project files (including a completion report prepared by Banco de la Vivienda del Peru (BVP)), and data gathered by a project completion mission which visited Peru in October 1984\. The report was prepared by Antonio Zuniga with assistance from Sandra Joss and Donald Stout (Consultant)\. II\. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL A\. The Process 4\. At the request of the Government of Peru, a Bank reconnaissance mission reviewed the Government's urban development program in November 1974 and found that its objectives and strategies for developing urban areas were basically consistent with Bank policies\. A preappraisal mission of August 1975 reviewed Government sponsored plans and feasibility studies (the preparation of which was coordinated through the Ministry of Housing and Construction (KVC) and the Housing Bank (BVP), and confirmed these findings\. Appraisal of the project took place within a year of the reconnaissance 1/ All quotes in Section I are from the Appraisal Report 20 mission, in November 1975, followed by a post-appraisal mission in February 1976\. No,gotiationaves held in May 1976 and the Board approved the loan on June 8, 1976, which became qffective in January 1977\. The relatively short time (1 1/2 years) elapsod botweer the reconnaissance mission and Board presentation could be attributd lbo the Government's firm commitment to its own formulated objectives and to the consistency between the Bank's policies and the Government's oblectives and strategies\. B\. Objectives and Description of Project 5\. The project's major objectives were the establishment of an institutional capability for the delivery of basic services to the urban poor, generation of employment opportunities for the low-income workers and improvement of the productive capacity of residents in pueblos jovenes\. To achieve these objectives the proposed components were: (a) Basic and productive support infrastructure in pueblos jovenes in Lima and Arequipa: water, sewerage, electrification, upgrading existing roads, and construction of new access roads and health centers\. (b) Directly productive investments in Lima and Arequipa: industrial, commercial and residential sites and services and supervised credits\. (c) Technical assistance for the: - establishment of a unit in the MVC to assist settlers in self-help construction; - provision of advice in the planning, management and monitoring of the industrial sites and services in Lima; - review of plans and in the preparation of water supply and sewerage components in Arequipa; - provision of advice as well as related vehicles and equipment for training programs for community health and nutrition in pueblos jovenes; and - assistance to the BYP in overall project implementation, financial planning and related studies for the mobilization of additional resources for urban development and future projects\. III\. IMPLMENTATION A\. History 6\. The project got off to a slow start (1976-1979) in part because there was a lack of political support from the new Government and due to a weak management in BVP, the borrowing agency\. The main contributing factor to many of the delays during this period was the lack of counterpart funds from the Government\. in addition, the initial start-up period was hampered by the delay in government ratification of the loan agreement and decree enabling BVP to proceed with the project as well as delays in approving and signing the contracts with the executing agencies (ELECTROLIMA, ESAL, ESAR, MVP, EMADI, STNAMOS, ORAMS and MS)\. It is interesting to note that the purchase and titling of the land for this project was never a problematic factor, which is more often the case\. 21 7\. As implementation progressed some inconsistencies arose between local tendering and procurement procedures via a via Bank requirements which resulted in some delays\. In addition, difficulties arose between the consultant seconded by the Bank to EMADI and EMADI, which finally resulted in termination of the consaltant's contract\. It appears these difficulties were caused by the Government's reluctance to engage in very costly technical assistance at a time of great financial difficulties in Peru\. 8\. In the latter part of the start-up period delays in the implementation of the health centers and the access roads caused some concern\. The delays in the construction of the health centers was an issue throughout implementation of the project; this was due in part to initial financing uncertainties, changes in policies and the inefficient management of this component by the Ministry of Health\. Due to the unwillingness of the pueblos jovenes' residents to make any contribution towards the access roads component, it was finally dropped and replaced by additional housing units\. 9\. The project did not really get the necessary political support until the beginning of the Belaunde Government 2/ in 1980\. After the first project restructuring (para\. 10), construcTion substantially increased\. During the 1980-1982 period the new Government gave high priority to the urban sector particularly reflected by the commitment of new MVC and BVP officials to the implementation of the project\. MVC moved quickly to complete lagging components of the sites and services, industrial parks, supervised credits, and health centers\. The Government hoped this action would open the doors for a second urban loan which was requested in mid-1978, but the Bank did not proceed with its identification until further progress could be made on this project\. In March 1980 there was a formal extension of the loan closing date to December 31, 1982\. 10\. In 1981 a formal restructuring of the project took place which resulted in 3200 lots for the sites and services component (replacing 900 lots in Villa El Salvador); deletion of the paving of 86km of access roads for the pueblos jovenes; supervised credit program for self-help construction was increased from 1000 to 1500 loans; ICB was required only for contracts of $1 million or more; and Bank review of contract and procurement documents was to be raised from $150,000 to $1 million\. 11\. The restructuring of the project led to an improved rate of execution of the project during this period\. Apart from difficulties in the contracting of technical assistance for the management of the industrial parks, construction of the health centers, and procurement of their equipment, the project components encountered no major problems\. 12\. At some point during this perioe the Bank proceeded with the identification and preparation of a possible second project as a result of the improvement in implementation program of this project\. To this effect, funds available in the Technical Assistance diabursement category of this project were used to finance the production of practically all the final designs of the sites and services plots that were to be included in the contemplated second project\. However, the second project was never appraised as agreement cculd not be reached with the Government regarding interest rates to be charged to beneficiaries\. 2/ The Belaunde Government 2cisidered the shelter component a priority to provide experience for future expansion of this program under a future second project\. 22 13\. In January 1983 the Bank agreed to the Borrowers' request for a second extension of the loan closing date to December 31, 1983, and a reallocation of loan proceeds (finalized in October 1983)\. This reallocation was to result in the construction of an additional 3500 sites and services units and the increase of the percentage of disbursement for civil works (all equipment had been included in the civil works contracts and practically no use had been made of Category 3 for vehicles and equipment)\. B\. Completed Project 14\. With the exception of the Access Roads project component all the original physical targets of the project were either met or are in the process of being met\. In fact, in most cases these targets were substantially surpassed\. The exceeding of target of urban solutions is the result of the utilization of the loan proceeds that were originally earmarked for the Access Roads project component (dropped after the first restructuring of the loan), and a larger investment on the part of the BVP\. Table III-1 shows the comparison between the original estimate and the actual physical targets\. PERU - LOAN 1283-PE SITES AND SERVICES DEVELOPMENT PROJECT Table III-1: Physical Targets Number of Solutions Increase (Decrease) Component Appraisal Actual Number Water and Sewerage in Lima 16,500 44,685 28,185 170\.8 Water and Sewerage in Arequipa 2,600 3,053 453 17\.4 Electrific ation in Lima 12,400 36,760 24,360 196\.5 Electrification in Arequipa 3,900 10,523 6,623 169\.8 Access Roads in Lima 86km 0 1/ (86km) (100%) Health and Nutrition Centers in Lima 5 1 j/ (4) ( 80%) Industrial Site in Lima 65 In9 3/ 44 67\.7 Industrial Site in Arequipa 25 25 0 0 Sites and Services in Lima 867 7,059 4/ 6,192 714\.2 Supervised Credits in Arequipa 1,000 1,281 - 281 28\.1 Total 37,362 103\.496 66,134 177\.0 1/ This component was excluded from the project in the January 16, 1981 Amendment to the Loan Agreement\. 2/ Only one of the Centers is completed, the other four are at various stages - (from 59% to 96%) of completion and their equipmen, was never procured\. 3/ Only 60 lots have been sold and none has been improved\. 4/ Of this total 3,170 sites were fully financed to completion by the project and the others were partially financed with proceeds from the loan and completed with BVP financing\. 23 C\. Implementation schedule 15\. The project was scheduled to be completed in 3 years (see Figure 111-2), however, implementation took 7 1/2 years\. The time overruns were caused principally by the following: an overly optimistic implementation schedule at appraisal, delays in signing the inter-institutional agreements, lack of support by the Government for the project at the beginning, insufficient counterpart funds, and governmental restructuring that shifted responsibilities between agencies\. D\. REPORTING 16\. Semiannual progress reports, which were received rather regularly particularly after 1980, assisted the Bank in following progress on the project, and were also used by the project unit for internal management purposes\. Annual audited reports of BVP and for the project account, as required by the Loan Agreement, were also satisfactorily submitted to the Bank\. Although not expressly required by the Loan Agreement, BVP has done a good job in reviewing the project experience through the preparation of a completion report that save for the guidance of a consultant, expressly hired for this purpose, was produced entirely by BVP personnel in its Foreign Borrowing Department\. E\. PROCUREMENT 17\. With a few minor exceptions international competitive bidding (ICB) was to be used for all works and equipment purchases\. Initially BVP encountered seriou3 problems in getting the executing agencies to follow Bank procurement procedures, particularly with the MVC\. There were therefore some procurement delays while the BVP ironed out these problems\. Thus, BVP is to be credited with having succeeded in ensuring that all parties involved carried out procurement under the project as stipulated in the loan documents\. However, during three years of inviting international competitive bidding not one single foreign contractor showed any interest in participating\. Given this situation, the Bank agreed to a ceiling of US$1 million below which bids could be invited according to the local competitive bidding compatible with the Bank's guidelines and also raised the ceiling for procurement decisions from $150,000 to $1 million\. Both of these decisions by the Bank were instrumental in speeding up execution of the project\. F\. COST AND FINANCING 18\. Total project cost exceeded the appraisal estimate by 44% in US dollars 3/ (see Table 111-3)\. The cost overrun was caused primarily by the fact thaT the project financed many more solutions than were originally estimated\. As there were some changes when the project was restructured, the causes for cost overrun can be more clearly appreciated in Table 111-4, were the actual project costs have been scaled down in the same ratio as the division of the number of solutions estimated at appraisal over the actual number of solutions attained\. As this table shows, if the project had been stopped once the appraisal physical targets were reached a cost under-un of nearly 27% (or US$ 9 million) would have been achieved\. 3/ Due to the very high inflation that affected the country throughout almost the entire project duration, cost comparison between appraisaL estimate and actual cost is clearer in US$ (the corresponding figure in Soles is 2526%) 屆．寫寫••．••，,,,,& 調間同d勿令馴H磚◆馴H磚◆◆ 寥口唱開留口 虜華鳥口 ，一區甚å¨æ—¥å“¥ç¾¹æ‰ä½œåŠ 一目由華辯月 不而i兩「面神而面面神痲三祈仔寫，•二 面藪瀾「面面崗面面蒲面面可面兩面 萬兩涵面面面兀耐涌 25 w SIM AND SMCM twma4m PRwEgr TARZ 111-3: Fiml-bpLwt Costs Appvisal Estimates al Actual b/ % Chwo between aod Actual Calpment S/\.m Us$ m % S/\.m Us$ m % S/\.m M Water and Samm4p in Lin 657\.7 14-62 33 9975\.3 18\.4 30 1,01 26\.0 Water and Severvp in Arequipa 75\.5 1\.68 4 171\.0 0\.7 1 126 (58-0) Electrification in Lira 183\.3 421 10 9,251\.6 9\.6 15 4,947 1 28b Electrification in Arequipa 46\.2 1\.03 2 3,013\.8 2\.9 5 6,423 162\.0 Access Roads 246\.3 5\.47 13 - - 0 - - Health Centers 93\.8 2\.08 5 1,113\.9 1\.0 2 1,089 (52\.0) Shelter Units 187\.1 4\.16 10 19,629\.2 15\.0 23 10,391 261\.0 Industrial Park Arequipa 47\.4 1\.05 2 657\.1 1\.1 2 1,286 5\.0 Industrial Park Lim M8\.2 6\.40 15 3,165\.9 8\.9 14 999 39\.0 Supervised Credits 80\.8 1\.80 4 3,461\.3 4\.1 7 4,184 128\.0 Tedwdcal Assistance 31\.5 0\.70 2 713\.1 0\.6 1 2,164 (14-0) Total 1,943\.8 43\.2 100 51 052\.2 62\.3 100 2,526 44\.0 a/ IncludIng Contim&ncies ' / Actual expenditum including portions finwiced exclusively by BVP 26 ! - IMAN 12E3-PE SM AND SEICES ZLOPMR PROJE TWE 111-4: Adjlad Project Costs / Cost Appraisal Actual Increase (Decrease) Cpoment Total U\.Cost per Total Scale Down U\.Cost per US$ m solution US$ m S m\. 2/ solution % US$ US$ Water and Semerae in Lim 14\.61 886 18\.4 6\.79 412 (53\.6) Water and Swere in Arequipa 1\.68 646 0\.7 0\.60 231 (64\.3) Eeetrification in Lim 4\.21 339 9\.6 3\.24 261 (23\.0) Electrification in Arequipa 1\.03 264 2\.9 1\.07 274 3\.9 Access Roads in Lim (5\.47) (63,605Am) - - - - Health Centers in Lim 1\.20 3/ 240,000 1\.0 1\.25 4/ 250,000 4\.2 Shelter Units 2\.175/ 2,500 15\.0 2\.32 6/ 2,676 7\.0 Industrial Park Arequipe 1\.05 42,000 1\.1 1\.10 44,000 4\.8 Indtstrial Park Lim 6\.40 98,460 8\.9 5\.31 7/ 81,692 (17\.0) Supervised Credits 1\.80 1,800 4\.1 3\.20 3,200 77\.8 Tednical Assistance (0\.70) - (0\.6) - - - Total 34\.15 - 61 \.70 24\.88 - (27\.1) 1/ Adjusted as per foot-notes to obtain realisticaly cmpamble figures 2/ Scaled down in the ratio of rumber of solutions estimated at appraisal divided ty actual number of solutions attained\. 3/ Deducting equipoent and vehicles emnts as th were never pardhased (2\.080\.88) 4/ Increased by 0\.25 to accour\. for estimted amont needed for coppletion\. 5/ Deducting budpt allocations for ComuniVy facilities (1\.99) that were not constructed\. / Including proportional allowance for shelter conetruction to caupensate for the units sold as norupgraded sites and services\. 7/ Does not include additional expences needed to decrease the size of lots to met maiket denand for saller lots\. 27 19\. Practically all of this amount of cost underrun comes from the lower unit of the water and sewerage in Lima and Arequipa and the Lima electrification com- vonents\. As stipulated in the SAR all the pueblos jovenes to be upgraded were taken care of and as the additional ones that were added had similar characteristics, it is clear that, at least in part, the lower costs attained were duo to over-estimation of the construction costs at appraisal time\. For the water and sewerage components two additional considerations also explain the savings: (a) as more solutions were implemented in Lima, the influence that the cost of the trunk mains had on the unit cost of the individual solution diminishee; and (b) as more solutions were added the ratio of water/sewerage solutions changel drastically and so did the unit cost of the individual solutions\. 20\. At the same time the Bank's portion of financing fell from the anticipated 50% to under 35% (as shown in Table 111-5)\. At least two reasons explain this lower Bank participation: (a) a lag of three months between capital investments by the BVP and reimbursements by the Bank was not atypical; with the dollat rate of exchange varying practically in parallel with the differential inflation rates (between Peru and the USA) this represented during the years of higher disbursements a shortfall in the order of 20% in dollar equivalent figures 4/ and; (b) towards the end of the project a number of contracts were aot financed in their entirety by the Bank (notably Lima electrification and housing contracts) as the loan proceeds were exhausted\. The creation of a special account (as done elsewhere in countries with similar inflation problems) would have been very instrumental in maintaining the anticipated share of Bank financing\. Table 111-5: Financing Source Appraisal Actual US$ % US$ % IBRD 21\.6 50\.0 21\.6 34\.7 BVP 19\.1 44\.0 35\.0 56\.2 Down Payment 2\.5 6\.0 5\.7 9\.1 43\.2 100\.0 62\.3 100\.0 IV\. PHYSICAL PERFORMANCE A\. Water Supply and Sewerage 21\. In Lima, in addition to providing water connections to 16,500 households, the component covered the construction of two trunk mains, both 4/ A typical disbursement request whose expenditures were made when the rate of exchange was Soles 600\. to US$1 was reimbursed by the Bank at the rate of exchange of Soles 750 to US$1\. 28 of which were constructed by ESAL/SEDAPAL 5/\. The target of household connections was substantially exceeded as 44685 household connections were actually constructed (or 271% of the original target)\. In Arequipa, although at a more modest scale, the original target of 2,600 household connections was also exceeded by 17%, as 3,053 household connections were constructed\. It is important to highlight the fact that in both cities all the pueblos jovenes initially considered for upgrading were taken care of, and that the increases in household connections were attained in developments similar to those originally appraised 22\. The Financing of this major increase in physical targets can be attributed to the lower unit cost of this component, (see para\. 19 and Table 111-4), but also to the elimination of the access roads component, whose allotted funds were in part utilized in financing the increases in this component\. B\. Electrification 23\. As was the case with the water and sewerage component the execution of the electrification components in Lima and Arequipa was suocressful\. In Lima 36,760 household connections were constructed and 10,523 in Arequipa which represent an increase in the physical targets of 197% and 170% respectively\. In Lima the unit cost was obtained substantially lower than initially contemplated which, together with additional funds from the eliminated access roads component, account for the financing of the increases\. Similarly, as with the water -d sewerage component, 4)l the pueblos jovenes considered for upgrading at appraisal were developed a\.i6 the additional ones had similar characteristics\. C\. Access Roads 24\. Similar to the other components for the upgrading of pueblos jovenes, beneficiaries (residents of the pueblos jovenes) in this component were expected to make a down payment towards the construction costs of the component\. The down payment for access works to improve pueblos jovenes was to be 10% of project costs which would have represented the entirety of the beneficiaries financing--this requirement was (in contrast with the acceptance in the case of the other components) never accepted by the residents\. It appears that the residents considered such works should be financed entirely by the government in tha same fashion as are schoolc or health centers\. In addition, they did not percive the construction of the access roads as having the same level of priority as did the water, sewerage and electrification components\. 25\. The Government's efforts to obtain a solution to this situation spanned several years until a clear realization of the impasse was reached\. The Government then requested and the Bank accepted the cancellation of the component and the utilization of the allotted funds to expand the execution of the two additional components mentioned in paragraphs 10 and 13\. 5/ See paragraph 40 where the Institutional changes of the executing agencies throughout the project years are discussed\. 29 D\. Health Centers 26\. This component was to finance the construction of three new health ceters and the expansion of two existing ones, all of them in the southern portion of Metropolitan Lima\. One of the new centers was to have particularly innovative fef,tures in that it was to be closely coordinated with the needs and prioritie of the community as defined by the people themselves\. This center was also to be outfitted through the project, with equipment and vehicles to carry out the proposed program of training to over 900 health promoters for paramedical training\. 27\. As mentioned in para\. 8 delays in the construction of the centers was an issue throughout the project's implementation, Although all of them may eventually be completed o/, it is also clear that the Ministry of Health has changed its policies and all five centers will be operated in the conventional fashion and the paramedical training program will not be implemented\. E\. Industrial Parks 28\. This component met with varied degree of success\. In Arequipa, not withstanding considerable delays, the park w: s completed an' the lots promptly sold\. At present all lots have been upgraded and industrial concerns have been operating in the new installations since 1983\. On the other hand, the park in Lima has been everything but successful\. Only 49 lots out of 109 have been sold and less than 5 have been upgraded\. The Government is convinced that the most important reason for the lack of demand hinges on the size of the lots being offered\. A program to correct this situation was proposed in 1984, but dropped for lack of the needed funds necessary to adapt the constructed infrastructure to the smaller lot size to meet the public demand\. Given the current fiscal situation of the country, it is not at all clear when said program can be implemented\. F\. Shelter 29\. The original component was specifically oriented to the development of the second phase of Fundo Vazquez in Lima, the first stage of which had originally been developed by MVC\. The project component consisted of 867 serviced lots, supervised credit for the construction of dwelling units and the necessary community facilities\. All kinds of problems hindered the implementation of this component\. To the slow start-up of the overall project (para\. 6), for this component in particular there were additional number of circumstances resulting in delays: tardiness in the production of final engineoring drawings, indecision in the creation of the technical assistance group that was to coordinate the work, and the emergency austerity decree, that in the end, prevented the contracting of the consultants that were to integrate it\. 30\. With all these delays, in March 1980 the Fundo Vazquez expropriatiou decree was prescribed and the land title was returned to its original owners, thereby prvventing the --ecution of the shelter component in the land originally contemplated\. 6/ As noted in Table III-1 only one of the five Health Centers is completdd, the other four are at various stages of completion\. 30 31\. With the Belaunde Government, low income shelter programs received clear Government support and BVP proposed and the Bank agreed to substitute the now unavailable fundo Vazquez with developments in the "Cono Sur de Lima"\. 32\. In the Loan Agreement modification, the construction of 3,200 shelter solutions was stipulated\. In the end, 7,059 solutions were implemented of which 3,170 were fully financed to completion by the Bank and the others were only partially financed with proceeds from the loan and completed with BVP financing\. G\. Supervised Credits in Arequipa 33\. The original target of 1,000 loans that constituted this component was increased to 1,500 in the same Loan AgreemerL modification mentioned in the previous paragraph\. Finally only 1,281 loans were granted or 13% more than originally targeted\. H\. Technical Assistance 34\. In general, this component of the project was not particularly successful\. Nevertheless, at least some of the benefits expected were indeed obtained through actions that were not financed by the project\. 35\. As stated in para\. 29 the Technical Assistance Unit to be established within the MVC in support of the development of Fundo Vazquez was never implemented\. And when the Fundo's expropriation decree was prescribed and the component was restructured (para\. 30) there was no further need of it\. 36\. The technical assistance to ESAR to review future water supply and sewerage needs for Arequipa's metropolitan area was successfully obtained as a grant through a bilateral agreement reached with the Federal Republic of Germany, and as such was not financed by the project\. 37\. The termination of the consultant's contract that advised EMADI on the subject of the Industrial Park in Lima (para\. 7) was the end of the technical support for said component that as presented in para\. 28 produced the worst results of the entire project\. 38\. The Ministry of Health never implemented the paramedics training facilities that were to be incluaed in one of the Health Centers and consequently the assistance in preparing the training program was never provided (para\. 26)\. Finally, the advisory assistance to the BVP for overall project implementation was never provided\. It should be pointed out, nevertheless, that the BVP improved its performance tremendously since the creation of its Foreign Borrowing Department that took place at the beginning of the Belaunde Government (para\. 9)\. 39\. Although as expressed in para\. 13 the contemplated second project was never appraised, the final engineering drawings financed with the first project's loan have been (in its majority) used by ENACE in its ongoing shelter program\. To the extent that the Bank's criteria regarding service standards had been incorporated in those designs, at least some benefits of technical assistance have been extended to the country's housing sector\. 31 V\. INSTITUTIONAL ANALYSIS A\. Implementing Agencies 40\. During the life of the loan many Government changes took pi-ce as the country was undergoing a transition period\.7/ \.n some instances the changes were more apparent than real but in some others they were real and had an important impact on the project's implementation\. 41\. The initial phaseout of SINAMDS begun at loan effectiveness and its final disappearance had quite an impact on the project\. SINAMOS was to be in charge of the promotion and negotiation of the agreements to be signed with the beneficiaries of five of the project's components: water and sewerage in Lima, electrification in Lima and Arequipa and supervised credits in Arequipa\. 42\. Unquestionably, SINAMDS' disappearance was one of the reasons for the delays in the execution of the mentioned components but, at least in some respect, this probably turned out to be a blessing in disguise if one is to judge by the end results\. At first, the agencies that ended up promoting the components were handicapped by not having the experience nor the needed staff to promote the projects at the beneficiaries' level\. However, once this obstacle was overcome, the promotional function became institutionalized within the organization and is presently operating in great form and in a more direct and simplified manner that it would ever have been possible had SINAMOS not disappeared\. 43\. With the administrative changes undergone by the Government, the actual construction responsibility for the Health Center was shifted from the Ministry of Health to ENACE (under MVC)\. ENACE is now the Government's constructing agency\. Nevertheless, the poor performance of the Health Centers component is not due to this change but rather to changes in the Ministry of Health's policies and inefficient management (para\. 8), although this change did create some further delays\. 44\. EMADI, who was in charge of the execution of the Industrial Parks components, performed with mixed results\. The Arequipa component, although with delays, was implemented reasonably well while the one in Lima was not properly handled\. When EMADI disappeared, its assets and liabilities were transferred to ENACE\. Unfortunately, if the proper actions had been taken when this transfer took place the Lima component probably could have been corrected\. ENACE, reasonably unwilling to accept responsibilities until after all financial and accounting matters had been clarified, failed to act promptly on the issues\. In fact, the said transfer was never perfected\. Towards the end of the loan's life, before it was completed, a further administrative change transferred the responsibility for all the Industrial Sites of the couintry to the Ministry of Industry\. By this time, the additional investment needed to alter the infrastructure in order to acommodate smaller size lots was unavailable (para\. 28)\. 7/ Annex 2 shows a comparative table for executing agencies at appraisal and actual for the various components\. 32 45\. In the early years of the project MVC was not efficient in discharging its responsibilities for execution of the shelter component (Fundo Vazquez)\. This situation was corrected once the Belaunde Government was in charge and the shelter component restructured to produce shelter units in the Cono Sur de Lima where the MVC and ENACE performed reasonably well\. VI\. FINANCIAL, SOCIAL AND ECONOMIC PERFORMANCE A\. Cost Recovery 46\. Recovery of costs for the project were to be made from charges to final users with the exception of sub-projects on access roads,8/ health centers, and technical assistance, all of which would be recovered from general tax revenues\. It was, therefore, expected that about 65% of original investments would be directly recovered and the remaining 35% ricovered indirectly through tax revenuee 47\. For those components that were to be directly recovered, the individuals participating in the project were to repay their proportional costs of the improvements in ten to twenty years with annual interest rates of not less than 12% per annum and with a down payment of not less than 5%\. 48\. In the project as executed, these criteria for cost recovery were adhered to and implemented in all cases\. However, the interests charged were never sufficiently high to offset the very high inflation rate that afflicted the country practically throughout project implementation\. The unwillingness on the part of the Government to diminish the interest rate subsidy was at the heart of the negotiations during the preparation of the second project\. The failure to reach a satisfactory agreement on this issue brought the second project initially to a halt and eventually to its dismissal\. 49\. The impact that inflation had on cost recovery can be appreciated in detail in the two tables attached in ANNEX 3\. As measured in million of soles of 1975, total project costs were 1,689\.6 of which it is estimated that only 510\.1 (or 30%) would be directly recovered\. This situation was brought about by the fact that the average nominal interest rat, charged to final beneficiaries was 25% while, at the same time, inflation rates reached levels as high as 80-100% per annum\. Consequently, it is estimated that the real average interest rate will be around -70%\. B\. Descripti-, of Benefits and Rate of Return 50\. The project as a whole continues to appear to be economically worthwhile\. Some factors which could not easily have been foreseen at the time of appraisal have prejudiced the project; others have had offsetting beneficial effects\. The overall project IRR at the time of appraisal was estimated to be 29\.7%\. The current estimate of the overall project IRR is 31\.5%\. This is well within the sensitivity analysis rrnge of 26\.1% - 36\.1% at the time of appraisal\. Details of the economic reevaluation are given in Annex 1\. 8/ Residents of the upgraded pueblos jovenes were expected to pay 10% of the costs of the access roads component\. 33 51\. Novertheless, there were major changes in some components of the project\. Tle access roads component was dropped because of the lack of effective demand by the target group\. That money, together with additional funds provided by the BVP, was used to finance a much greater number of solutions for water, sewerage, electrification, shelter units in Lima and supervised credits in Arequipa\. 52\. The water and sewerage components served 47,738 families (or 2\.5 times the number anticipated at appraisal) and the IRE we much higher (62\.8%) than estimated at appraisal (16\.9%) 9/\. On the othor hand the industrial parks component now appear to havi an uneconomically low IRR of 4\.8%\. The reasons for the failure of the industrial parks component lie in the delays in implementing the Lima industrial park and the lack of effective demand for the size of lota in said park\. Changes in Government policies and in the agency responsible fo execution also contributed to the failure\. The benefits (non quantified at appraisal) of expected employment generation by the industrial parks component as a whole have not been realized, although in Arequipa it can be said that they were met\. C\. Affordability 53\. The target groups contemplated at appraisal were in all cases reached as all the pueblos jovenes listed in the SAR were improved and the new ones added to the project had the very same socio-economic characteristics\. On the other hand, as discussed before (para\. 19 and Table 111-4), construction costb resulted lower than that estimated at appraisal, therefore requiring no bigger share of the household budget to meet payments than was estimated at appraisal\. In fact, inflation and subsidized interest rates have reduced the proportion that mortgage payments represent of the household budget\. Therefore, interest rate subsidies should be reduced if Peru is to produce shelter solutions for the majority of its residents through programs that are congruent with the resources of the country\. VII\. BANK PERFORMANCE 54\. At the time of appraisal neither the Bank nor the Government could have foreseen the inflationary economic environment in which the project had to be executed\. Similarly, it would have been impossible for the Bank to predict the drastic institutional changes that the Government underwent\.With the benefit of hindsight, on the other hand, it is clear today that the project's execution schedule considered at appraisal was overly optimistic, as was the Bank's perception of the time needed to produce the final designs (needed for most of the components) and for the review and approval of the contracts BVP had to enter with the executing agencies\. 55\. The frequent supervision missions were thorough and contributed substantially to improvements in the implementation of some components once the project received Government support\. On the other hand, hard as it tried and inspite of having - in numerous cases - escalated the issues to the Ministerial level, the Bank was unable to resolve the issues that affected some of the components, notably Lima's Industrial Park and Health Centers components\. 9/ See paragraph 5 of Annex 1 34 56\. Although it could probably have been done earlier, the Bank reacted with reasonable promptness to restructuring the loan once the rejection of the road component by the beneficiaries was presented by the BVP\. The same can be said in regard to the Fundo Vazquez issue and the amendments to the procurement schedule\. VIII\. CONCLUSIONS 57\. The original rationale for the project was the institutionalization of "a delivery system for urban services to low-income areas"\. Although with delays and changes and not through the original agency contemplated (SINAMOS primarily), the project has accomplished the appraisal's main goal\. 58\. At present, the installed capacity to promote and manage, at the beneficiaries' level, subprojects for the delivezy of basic infrAstructure services in the low-income areas exist in all executing agencies\. 59\. Lessons learned from this project reaffirm those learned elsewhere, many of which have already been applied in the later projects of the Bank's ten years of experience with urban projects\. Nevertheless, some specific points of interest are: (a) much time and effort was expended in trying to resolve the impasse reached with the access roads component\. This could possibly have been prevented (with the consequent savings) if the heart of the issue (usuaries rejection) had been predetermined and assessed at appraisal as it has been done in several recent Bank projects\. (b) the restructuring of the loan agreement's procurement schedule was instrumental in speeding up project <xecution\. In most of the recent Bank urban projects ceilings allowing for LCB and ex-post review by the Bank have been incorporated\. 60\. The replicability of the project was prejudiced by the inflationary economic situation (this hampered the project through basically all its life and still is present in the country) and the Government's unwillingness to diminish the heavily subsidized interest rates\. 61\. In summary, the achievement of the appraisal's goal to establish an institutional capability for the delivery of basic services to the urban poor has been successful\. As a matter of fact, many more lower income families were helped through the project than anticipated at the time of appraisal\. On the other hand, considering that all components were heavily subsidized by charging negative real interest rates, they are only replicable (due to budgetary reasons) in as much as and to the extent that the Government can keep making free funds available to BVP\. Therefore, the Government cannot, given the country's realities, make a major impact on shelter services for the poor until it adopts a viable financial policy for the sector\. 35 ANNEX I Page 1 of 4 PERU SITES AND SERVICES DEVELOPMENT PROJECT ECONOMIC REEVALUATION Introduction 1\. The economic reevaluation in this Project Completion Report (PCR) uses the same methodology that was used in the Staff Appraisal Report (SAR)\. Except where noted in the text, the basic assumptions are those used in the SAR\. Financial costs and benefits were used in the SAR\. The internal rates of return (IRRa) ranged from 16\.9% to 34\.4% and was 29\.7% for the project as a whole at the time of appraisal\. Sensitivity of the project to change in projected costs and benefits produced a range of 26\.1% - 36\.1% for the IRR\. These are all well above the opportunity cost of capital in Peru\.1/ 2\. A reestimation of the IRRs confirms that the project as a whole was worthwhile\. The total project IRR is slightly higher (31\.5%) than estimated in the SAR (29\.7%) because of the much higher IRRe on the water and sewerage components\. Sensitivity of the project to changes in benefits for the remaining useful life of the project ranged from 28\.3% (for a 15% decrease in benefits) to 35\.2% (for a 25% increase in benefits)\. This is despite the disappointment in the implementation of the Lima industrial park component, which decreased the SAR ertimate of a 34\.4% IRR for the combined Lima and Arequipa industrial parks components to 4\.8%\. Each component is examined briefly below\. 3\. Table I at the end of this Annex summarizes the principal quantifiable aspects of the project\.2/ The total projeot \.jat in constant Soles of December 1975 exceeded the SAR estimate by about 25%, and the component for access roads in Lima was eliminated\. All of the cost overrun plus the money released by abandoning the access roads were used to finance greater-than-expected number of solutions of electrification, sites and services in Lima and supervised credit in Arequipa\. These components accounted for 64\.7% of the larger total actual cost compared with 32\.4% of the smaller cost in the SAR\. Table II: Project Cost(%) Increase % Component SAR PCR (Decrease) % Water and Sewerage (Lima and Arequipa) 29\.6 19\.9 (33) Electrification (Lima and Arequipa) 14\.6 32\.5 123 Access Roads 17\.8 0 (100) Industrial Sites (Lima and Arequipa) 20\.2 15\.4 (24) Sites and Services (Lima) and Super- vised Credit (Arequipa) 17\.8 32\.2 (81) Total 100\.0 100\.0 1/ The use of economic costs and benefits would have increased the IRRs of each component and of the project as a whole\. 2/ All monetary figures in the Economic Reevaluation are in December 1975 Soles\. 36 ANNE 1 Page 2 of 4 4\. The income distribution implication of the changed project composition is that many more lover-income families were helped than anticipated in the SAR\. Nearly 3 times as many families received electricity and more than 4 times as many were benefitted by the sites and services and supervised credit components than was anticipated in the SAR\. Individual Components 5\. Water and sewerage in Lima and Arequipa The combined net benefit stream produces a new estimate of 62\.8% for the IRR on these components\. The Lima component was responsible for the high IRR\. The IRR for Arequipa actually now appears to be 0\.2%\. The informal source of water without the project is much cheaper in Arequipa than in Lima (mostly wells rather than tanker trucks); and the transport distances are less in Arequipa\. This translates into a much smaller measure of benefits per family with the project in Arequipa than in Lima\.3/ As of now, the Arequipa water and sewerage component can be justTfied only on the grounds of political judgment to cross subsidize between Lima and Arequipa\. The very high cost of informal water (tanker trucks) on the one hand, and the relatively low investment (mostly distribution lines of small diameter without any real major mains) account for the high IRR of the Lima component\. 6\. The sharply higher than expected IRR for the water and sewerage components as a whole can be attributed to several factors\. a\. The unit cost was a third (33\.6%) of the SAR estimate\. b\. A higher percentage of the components was water rather than sewerage (52\.6% versus the SAR estimate of 37\.7%)\. Since sewerage benefits are not quantified, the PCR quantifies a higher percentLge of the total subproject benefits\. c) A higher percentage of the components was in Lima than projected in the SAR (93\.2% versus 83\.3%); and the IRR is much higher in Lima than in Arequipa\. d) The surveys of water consumption in the pueblos jovenes which were done for the PCR produced somewhat different results from the surveys which were done for the SAR\. Monthly water consumption for the households which were surveyed were (cubic meters per month): PCR SAR Lima Arequipa Without project 4\.6 9 13 With project 22\.8 15 17 Since most of the quantified benefits are due to the difference in price with and without the project on the amount of water consumed without the project, the PCR benefits are substantially greater than those estimated in the SAR\.4/ e\. The BVP also points out that infrastructure costs are about 50% higher per connection for sewerage than for water\. The higher proportion of water solutions in the water/aewerage mix would decrease the unit average fixed costs\. 3/ Benefits per family in Arequipa are estimated to be 21% of the benefits per family in Lima\. 4/ In Lima, for example, 72% of total water benefits are due to the price differential; 18% to the increased consumption effect\. 37 ANNEX 1 Page 3 of 4 7\. Electrification in Lima and Arequipa The IRR for these components is nearly identical to that in the SAR (25\.4% and 23\.7% respectively)\. Although the number of families benefitted increased from 16,300 to 48,283, the costs and benefits per family are nearly identical to those in the SAR\. SAR PCR Benefits per year 2,883 2,815 Capital cost 10,730 10,300 8\. The PCR estimate of the IRR is hirher for Lima (28\.9%) than for Arequipa (16\.4%)\. The cost of illumination (candles) used is higher in Lima than in Arequipa\. The benefits per family, therefore, are greater in Lima; unit capital costs are less in Lima; and the number of families benefitted is three times greater in Lima\. These considerations explain the higher IRR for Lima\. 9\. As in the case ni' water, the minimum monthly consumption charge subsidizes low-income families; the project target population\. This would tend to decrease the IEhR both in the SAR and in the PCR\. Contrary to expectations, the electricity tariffs are more heavily subsidized now than in 1976 at the time of the SAR\. 10\. The SAR and the PCR quantify only the price differential effect on benefits with and without the project\. No benefits are included for increased consumption of illumination nor for the improved quality of it\. To this extent, the IRR is understated\. 11\. Industrial Parks in Lima and Arequipa\. The lots in the industrial park in Lima are not yet totall\.y sold or in use\. It is expeu\.ed that sales will produce benefits beginning in 1986 and reach a stable peak in 1989\. If this occurs, the present PCR estimate of the IRR for Lima is 3\.6%\. Similarly, the IRR is 15\.9% for the Aroquipa industrial park\. 12\. On the other hand, the benefit streams in these components are significantly understated because of the heavily subsidized interest rates charged (2% commission plus 40% in Lima and 22% in Arequipa)\. These are severely negative real interest rates\. The going market rates in Lima are about 112%\. The financing terms for the Lima industrial park (20% down, 7 years amortization) require a monthly payment S/\.442\.7 per S1\.1,000 of mortgage at 42% compared with S/\.1,120\.6 at 112%\. The monthly payments (and hence benefits) would be multiplied by about 2\.5 times in calculating an IERR\. 13\. The IRR calculations for these components are less meaningful than for the other components\. They only demonstrate what is evident from the implementation experience\. Arequipa is a good project, as expected\. The difficulties in Lima -changing governments, institutions, and policies- rendered the Lima industrial park an unsuccessful undertaking\.5/ 5/ This does not imply, of course, that the Lima Industrial Park component should be discontinued at this point\. Since almost all of the capital costs already have been incurred and must be considered sunk costs, the marginal 'RR of completing the project is some 490%\. 38 ANNEX 1 Page 4 of 4 14\. Sites and Services in Lima and Supervised Credit in Arequipa\. 3,150 units of the core houses (nucleos basicos) were sold in January 1983\. The remaining 3,889 are to be sold in 1985\. The size of the basic unit is smaller than provided for in the SAR but many more units were built than planned (867)\. Unit costs are about 46% of the projected unit costs\. 15\. The IRR for the Lima component is calculated to be 30\.7%\. This is higher than the reconstructed IRR in the SAR (24\.4%)\. The Arequipa IRR for supervised credits (32\.4%), on the other hand, is well below the implicit, reconstructed IRR in the SAR (50\.5%) which can be explained by the Larger size of the individual loans\. The combined net benefit streams for Lima and Arequipa produce an IRR (31\.1%) very close to that in the SAR (32\.2%)\. Conclusions and Observations 16\. The project as a whole continues to appear to be economically worthwhile\. Some factors which could not easily have been foreseen at the time of appraisal have prejudiced the project; others have had offsetting beneficial effects\. They largely wash out in the overall project IRR\. 17\. All subprojects are heavily subsidized by charging negative real interest rates\.6/ The subprojects are not replicable for budgetary reasons\. The Government cannot make a major impact on shelter services for the poor until it adopts a viable financial policy for the sector\.7/ To some extent this has diluted the potential value of the learning experience in implementing the project\. 18\. Project costs were increased and benefits were delayed by the longer than expected implementation periods\. This is most dramatically illustrated by the Lima industrial sites subproject\. 6/ The inability to persuade the Government to accept a policy of less subsilized interests was a major consideration in the decision of the Bank to suspend preparation of a second urban development project in Peru\. 7/ A policy which included cross subsidies, as for water and electricity, can be compatible with a sound sector financial policy\. 39 ANNEX 2 Page 1 of I PERU LOAN 1283-PE SITES AND SERVICES DEVELOPMENT PROJECT Table 6: Institutional Changes EXECUTING AGENCY Component Appraisal Actual Water and Sewerage in Lima ESAL/SINAMOS SEDAPAL Water and Sewerage in Arequipa ESAR SEDAPAR Electrification in Lima ELECTROLIMA/SINAMOS ELECTROLIMA Electrification in Arequipa SEAL/SINAMOS Direccion Regional de Energia y Minas /ENACE Health Centers Ministry of Health ENACE Industrial Park in Lima EMADI EHADI/ENACE/Ministry of Industry\. Industrial Park in Arequipa EMADI 3MADI/ENACE/Ministry of Industry Shelter Units MVC/EMADI MVC/ENACE Supervised Credits SINAMOS/ORAMS MVC/ENACE 40 ANNEX 3 Page 1 of 2 PERU LOAN 1283-PE SITES AND SERVICES DEVELOPMENT PROJECT Table 7: Cost Recovery (in millions of soles of Dec\. 1975) Total Payments Accounts Cost Component Costs Received Receivable Recovery Water and Sewerage in Lima 489\.8 - 65\.3 65\.3 Water and Sewerage in Arequipa 21\.7 11\.2 0\.6 11\.8 Electrification in Lima 317\.8 76\.2 69\.6 145\.8 otrification in Arequipa 116\.5 7\.8 31\.9 39\.7 Vealth Centers 30\.8 - - \. Industrial Park in Lima 207\.2 - 22\.8 22\.8 Industrial Park in Arequipa 23\.9 5\.3 3\.9 9\.2 Shelter Units 338\.1 - 141\.7 141\.7 Supervised Credits 126\.7 6\.8 37\.2 44\.0 Technical Assistance 17\.1 - M Total 1,689\.6 107\.3 373\.0 480\.3 41 ANNEX 3 Page 2 of 2 PERU LOAN 1283-PE SITES AND SERVICES DEVELOPMENT PROJECT Table 8: Interest Rates Charged to Beneficiaries INTEREST RATE Component Nominal() Real() Water and Sewerage in Lima 23\.5 -86\.7 Water and Sewerage in Arequipa 22\.5 -45\.6 Electrification in Lima 27\.0 -54\.1 Electrification in Arequipa 26\.0 -65\.9 Health Centers n/avail -29\.2 Industrial Park in Lima n/avail -89\.0 Industrial Park in Arequipa 14\.4 -61\.5 Shelter Units 26\.5 -58\.1 Supervised Credits 25\.0 -65\.3 Technical Assistance 32\.0 -53\.2 Total 30\.0 -69\.8 4- T&ør x I- , - -- I i i I5 ~C9 \.PHYSICkILREGIONSr ¼uno \.A~0''\. L-JCOSTA /¯,oSøE RR- tÅC nCb *L -____＿な“

APPROVAL

P007788

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22029 IMPLEMENTATION COMPLETION REPORT (IDA-287 10) ON A CREDIT IN THE AMOUNT OF SDR17\.2 MILLION (US$25\.0 MILLION EQUIVALENT) TO THE REPUBLIC OF NICARAGUA FOR A ROAD REHABILITATION & MAINTENANCE PROJECT May 23, 2001 Finance, Private Sector and Infrastructure Central America Country Management Unit Latin America and Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their l official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 2001) Currency Unit = C6rdoba C$13\.1 = US$ 1\.00 US$ 0\.076 = C$1:00 (US$ 1:00 = C$7\.8 in December, 1995) FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADT Average Daily Traffic ARI Acuerdo de Reestructuraci6n Institucional Institutional Restructuring Agreement CAS Country Assistance Strategy COERCO Corporaci6n de Empresas Regionales de Construcci6n Regional Highway Construction Agencies DANIDA Danish International Development Agency DGP Direcci6n General de Planificaci6n - Directorate General of Planning DGTT Direcci6n General de Transporte Terrestre - DG of Transport DGV Direcci6n General de Vialidad - Directorate General of Roads EAT Equipo Apoyo Tecnico - Technical Support Team ERR Economic Rate of Return HDM Highway Design and Maintenance Model IDB Inter-American Development Bank MCT Ministry of Construction and Transport MTI Ministry of Transport and Infrastructure PPMM Proyecto Piloto de Microempresas de Mantenimiento Pilot Project of Microenterprises for Maintenance RMF Road Maintenance Fund UNDP United Nations Development Program VOC Vehicle Operating Cost Vice President: David de Ferranti Country Manager/Director: Donna Dowsett-Coirolo Sector Manager/Director: Danny Leipziger Task Team Leader/Task Manager: Emmanuel James  FOR OFFICLAL USE ONLY NICARAGUA ROAD REHABILITATION & MAINTENANCE PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 1 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 8 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Learned 13 9\. Partner Comments 16 10\. Additional Information 20 Annex 1\. Key Performance Indicators/Log Frame Matrix 21 Annex 2\. Project Costs and Financing 23 Annex 3\. Economic Costs and Benefits 24 Annex 4\. Bank Inputs 25 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 26 Annex 6\. Ratings of Bank and Borrower Performance 27 Annex 7\. List of Supporting Documents 28 Annex 8\. Personnel Turnover, 1996 - 2000 29 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: P007788 Project Name: ROAD REHAB & MAINT Team Leader: Emmanuel A\. James TL Unit: LCSFT ICR Type: Core ICR Report Date: May 23, 2001 1\. Project Data Name: ROAD REHAB & MAINT L/C/TFNumber: IDA-28710 CountiylDepartment: NICARAGUA Region: Latin America and Caribbean Region Sector/subsector: TT - Transportation Adjustment KEY DATES Original Revised/Actual PCD: 07/27/1995 Effective: 10/17/96 11/14/96 Appraisal: 00/00/0000 MTR: 09/15/98 Approval: 05/30/1996 Closing: 12/31/2000 12/31/2000 Borrower/lImplementing Agencv: GOVERNMENT OF NICARAGUA/MIN\. OF CONSTRUCTION AND TRANSPORT Other Partners: STAFF Current At Appraisal Vice President: David De Ferranti Javed Burki Country Manager: D-M Dowsett-Coirolo Edilberto Segura Sector Manager: Danny Leipziger Martin Staab Team Leader at ICR: Emmanuel James Emmanuel James ICR Primary Author: Emmanuel Njomo 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainabilitv: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The original project objectives were to: (i) strengthen the institutions that are responsible for road transport in Nicaragua; (ii) improve the planning, funding and implementation of road maintenance; and (iii) improve the quality and the capacity of selected trunk roads on a sustainable basis so as to enhance Nicaragua's export competitiveness\.  The Project's Objectives were consistent with the Government's extensive program of institutional changes relating to the role of the Ministry of Communications and Transport ( MCT - later restructured and transformed to the Ministry of Transport and Infrastructure - MTI), and that of the role of the private sector in infrastructure facilities rehabilitation and modernization, most of which had fallen into an advanced state of disrepair, following a difficult ten-year period of civil strife and political turmoil between 1980-1990\. 3\.2 Revised Objective: The Project Objectives were not revised; however, for poverty alleviation reasons, the objectives were broadened slightly so as to include the participation of community groups in the undertaking of minor routine maintenance works\. 3\.3 Original Components: The original project components, which did not undergo any significant changes during project implementation comprise the following: (a) Institutional Strengthening, Technical Assistance, Training and Studies\. Under this component the project supported: (i) the supervision of the construction of road rehabilitation works and the establishment and training of the staff of the microenterprises; (ii) the improvement of the MCT maintenance management, planning and operations as well as the training of staff; (iii) promoting the use of the private sector and communities in the execution of road maintenance activities; (iv) the implementation of transport studies in the international corridors and in major urban centers; (v) monitoring and evaluation activities; and (vi) the preparation of future projects\. (b) Road Maintenance\. The project included a three-year pilot program for routine road maintenance with the participation of local communities through the formation of microenterprises\. It was expected that about 10-12 microenterprises (microempresas), composed of 12-14 persons each from communities along the 40-50 km road section to be maintained, would be established, trained and equipped to carry out routine maintenance along a total of 500 km of trunk, secondary and feeder roads\. The microenterprises were to be established under a Pilot Plan for the Maintenance by Microenterprises (PPMM) in order to undertake routine maintenance in a systematic way\. Periodic maintenance was handled then entirely by the Corporaci6n de Empresas Regionales de Construcci6n (COERCO) that had been established by the Sandinista Administration to construct and maintain public infrastructure\. Given the significant fluctuations in the budgetary allocations for road maintenance, the project included plans for the development of a reliable funding mechanism for road maintenance through the establishment of a Road Maintenance Fund (RMF)\. (c) Road Network Rehabilitation and Improvement\. This component of the project, aimed at enhancing Nicaragua's export competitiveness, entailed the rehabilitation and improvement of the Izapa-Chinandega road section located in the middle-third of the Natural Corridor connecting Nicaragua with Honduras in the north\. During project appraisal it was expected that the Izapa-Chinandega road section would be divided into two contracts (Izapa-Leon & Leon-Chinandega) and contracted on the basis of ICB\. Specifically, the project was expected to support the rehabilitation of all damaged sections, the widening of substandard sectors to provide -2-  adequate shoulders, and rebuild major bridge substructures\. At appraisal the project costs were estimated as follows: COMPONENT COST (US$mln) Izapa-Leon 5\.8 Leon-Chinandega 10\.9 Sub-total Road Rehabilitation 16\.7 Road Maintenance Pilot (PPMM) 1\.6 TA/Trg/Studies 4\.1 Total Base Cost 22\.4 Contingencies 6\.0 Total Project Cost 28\.4 3\.4 Revised Components: The project's components were not revised\. However on June 10, 1998 due to a drought emergency in the Segovias there was a relatively minor change in the road maintenance component when an agreement was reached between the Government and the Association to extend eligibility to community organizations to carry out minor road maintenance activities by contract\. This change enhanced the poverty alleviation and short term employment creation aspects of the project by allowing communities to immediately organize themselves to participate in the maintenance program\. The activities of the communities were limited to simple routine maintenance related to clearance of the right-of-way, pothole repairs, drainage works cleaning, etc\. About 160 people benefited from their employment through the community organizations\. 3\.5 Quality at Entry: The quality at entry was rated as satisfactory\. The project objectives were consistent with the CAS objectives and Government Priorities\. The project objectives were designed to complement the institutional strengthening objectives of other IDA projects already underway, such as the Institutional Development Project, which entailed the preparation of restructuring agreements (ARI) for several Government Departments\. In terms of physical investments, the project components were chosen following a feasibility study and detailed engineering financed under a then on-going IDB project (REMECAR I, NI-0003) and represented one section of the highest priority corridor among the road sections studied\. ( The other priority section in the natural corridor connecting Nicaragua to Costa Rica in the south was rehabilitated with the financial assistance of the Danish International Development Agency (DANIDA))\. Since this was the first IDA operation in the transport sector following the resumption in lending by IDA in Nicaragua after a 10 year lapse, the project design drew on the IDA's extensive experience with countries whose infrastructure had undergone severe deterioration after years of neglect\. In the case of Nicaragua, this was accomplished by: (i) focusing on the economically viable segments of the network; (ii) using project conditionality to increase the level and reliability of budgetary -3-  allocations for maintenance; and (iii) designing a system of contract road maintenance that emphasized the role of the private sector while tackling the issues of employment creation and, to some extent, poverty alleviation\. 4\. Achievement of Objective and Outpuis 4\.1 Outcome/achieve,nent ofobjective: Overall the project objectives were achieved fully despite the fact that this was the first IDA project in the transport sector\. Furthermore this success is remarkable given the fact that the Government changed prior to the effectiveness of the Credit, causing startup delays, and that Nicaragua was subjected to several natural disasters during the project implementation period, including Hurricane Mitch in October 1998; El Nifio Drought in 1997-98; and, Hurricane Keith in late September 2000\. Despite these setbacks the road rehabilitation was completed with a cost overrun of less than 10% overall and 6 weeks ahead of schedule, and in addition, new technologies were introduced to Nicaragua\. (a) Institutional Strengthening of MTI The project was successful in reorienting the MCT away from emphasizing construction and maintenance solely by state-owned enterprises and operation of road transport to its present focus on regulation, safety and the environment\. This was accomplished through staff training, consultancy and technical support under this project (and a second project that was approved in June 1998)\. The MCT was reorganized in September 1998 and transformed into the Ministry of Transport and Infrastructure (MTI)\. Given that this was the first project in the transport sector following the resumption of IDA activities, knowledge of Bank procedures was non-existent\. Consequently MTI staff had to be provided with training in IDA procurement procedures, which to some extent have been adopted for the Government's other procurement activities\. Staff of MTI have also been trained in the use of the IDA-developed HDM model for road investment and prioritization, as well as in transport planning, and project financial management systems\. A purely private initiative - the PPMM - was developed and perfected for the carrying out of road maintenance by contract\. Furthermore consultants were engaged to carry out a variety of studies and technical assistance related to: urban transport in 8 cities; the preparation of the National Transport Plan (IDB financed); technical support for the Planning Department (DGP); and institutional strengthening of the DGP\. (b) Improvement in the Planning, Funding and Implementation of Maintenance After 1979, the provision of road construction and maintenance services became-the responsibility of the COERCO, which had been specifically created by the then Government for this purpose\. The end result was that most construction companies either left the country or folded up their operations\. The weakness of the Ministry, lack of budgetary resources and poor quality of staff and equipment among the COERCOs combined to cause a severe deterioration in the road network\. Through the Pilot Plan of Maintenance by Microenterprises, the project supported the re-introduction and enhancement of the private sector involvement in the maintenance of roads\. This entailed the design of procedures for the establishment of microenterprises and the development of a program for the training of the staff and administration of the program\. Microenterprises and community organizations were successfully established to undertake road maintenance by contract\. The project strengthened the financing of road maintenance - 4 -  expenditures through budgetary allocations\. In addition legislation was prepared and submitted to the Parliament for the establishment of the Road Maintenance Fund to help make the funding of maintenance dependable and sustainable\. The RMF law was passed in June 2000 and specific charges and levies have been identified as possible sources of a more reliable funding for road maintenance\. However, the Government did provide the agreed budgetary allocations for maintenance\. (c) Improvement of the quality and capacity of key trunk roads\. The road sections from Izapa - Le6n (27\.4 km) and from Le6n - Chinandega (40\.3 km) were successfully improved\. The project also introduced a new road paving technology that was aimed at utilizing existing pavements through the use of recycled asphalt, a process that is both cost effective and much more environmentally acceptable than previous practices\. Traffic flow was significantly improved through the provision of road shoulders (given the mix of trucks and slow-moving vehicles), the construction of bus stops, and improved maintenance\. 4\.2 Outputs by conmponents: (a) Institutional Strengthening of MTI MTI staff were trained in IDA procurement procedures, which have been adopted to some extent for the Government's other procurement activities\. Staff of MTI were trained in the use of the IDA-developed HDM model for road investment and prioritization\. Staff were also trained in transport planning and project financial management systems\. A total of 362 staff at MTI (and the microenterprises) were trained as follows: 69 in 1997, 119 in 1998, 91 in 1999 and 83 in 2000\. In addition, international consultants were hired to assess the transport situation in 8 urban centers\. The study established an urban transport development plan covering a 15-year horizon as well as investment priorities linked to expected vehicular traffic growth in terms of quantity and composition\. A mathematical model was also developed for forecasting traffic trends which would serve as the basis for regional plans\. Consultants designed a financial management system and prepared a financial administration manual to help guide the implementation of policies, norms, and procedures for preparing the operational plans, budgets, accounts, financial statements and audits\. The Ministry's project management capacity was strengthened through the establishment of the Technical Support Team (EAT)\. Ministry staffing was rationalized leading to a reduction of staff from about 8,000 in the 1980's to under 1,400 at present\. With DANIDA assistance MTI undertook a condition inventory of the paved road network and developed the first version of the Pavement Management System (PMS)\. The IDA's Roads Economic Decision model was introduced also and used to analyze roads with low traffic volumes and to advise the concerned municipalities on likely budgetary requirements for their maintenance\. The integration of the PMS in the normal budget planning cycle of MTI is being undertaken under the second project (Credit 3085-NI)\. DANIDA also financed two long term consultants to assist the MTI staff in Transport Planning\. DANIDA is continuing its assistance to the PMS program which would lead to the extension of the PMS to 8,000 km of the road network and the provision of a specialist for 5 years\. (b) Improvement in the Planning, Funding and Implementation of Maintenance The Plan Piloto de Mantenimiento por Microempresas( Pilot Plan for the Maintenance by Microenterprises - PPMM) was put in place with the assistance of an expert from Colombia\. The - 5 -  original plan was to set-up 10 microenterprises\. Two microenterprises were set-up in 1996 and about 95 km of roads were maintained by them under contract\. By the end of the project in 2000, 12 microenterprises had been set up under the project and over 900 km of roads were being maintained under contract\. The process had become so successful that it was continued under the next project (Credit 3085-NI Second Road Rehabilitation and Maintenance Project)\. Under the project itself the concept of the microenterprises was complemented by the inclusion of temporary community organizations\. Other donors have set up microenterprises to undertake road maintenance under contract under their assistance programs\. For example, DANIDA helped established 2 microenterprises in the Puerto Cabezas - Waspam sector\. Following a study tour in 2000 to Nicaragua by Honduran officials, the maintenance by microenterprises program is also being set up in Honduras\. The highlight of the PPMM was on June 18, 1999 when the President held a ceremony in the National Stadium in Managua to present awards to the top performing microenterprises\. There are now about 25 microenterprises responsible for the maintenance of 1,250 kin of roads\. The PPMM has had other benefits beyond improved road maintenance\. The clearance of vegetation from the right-of-way dramatically lowered the number of accidents caused by grazing animals\. Furthermore the continuous presence of maintenance workers has reportedly discouraged highway robberies and other crimes and hence enhanced the security of the inhabitants of wayside villages\. The COERCOs have been downsized and medium term plans made to confine their role in construction or maintenance to remote regions where adequate private contractor participation was not expected\. The legislation for the Road Maintenance Fund (RMF) was finalized and sent to the President on March 24, 1998\. In February 1999 RMF Law (Ley 355 de 2000) was reviewed by a Parliamentary Commission\. Its approval was delayed in the Parliament due to the multiple natural disasters facing the country that put a considerable strain on the budgetary resources of the Government\. In February 2000, the law was reviewed by an Inter-Ministerial Committee in order to vary the options for raising resources for the RMF\. The law was finally approved in June 2000 but the Government could not get approval of a surcharge on petroleum products (the preferred funding source for the RMF) through congress, due to the impact of rising prices for fuel on the Nicaraguan economy\. The Government had hoped that it could take advantage of the expected decline of import prices for petroleum to generate the needed funds without raising the retail prices of petroleum products\. While approval of the RMF Law is an important first step, the project runs the risk of losing the considerable momentum and progress that have so far been attained, unless dependable domestic sources of funding for road maintenance can be identified and tapped\. (c) Improvement of the quality and capacity of key trunk roads Work on the Izapa-Leon-Chinandega road sections was initially delayed by 6 months because of the lack of experience by the new Government ( which took office on January 10, 1997) with IDA procurement rules\. It was subsequently awarded to an Italian firm to serve as the main contractor, in a joint venture with several Nicaraguan construction firms\. There were several construction set backs\. The original design had called for pavement recycling using a cold emulsion technique\. But as pavement recycling was new to Nicaragua this design concept was expected to be tested -6 -  and proven in small sections of the road before its adoption\. Testing of the initial works using this method revealed minor cracking of the road surface\. After further testing and persistent cracking, it was decided to switch to a hot mix technique\. With the switch in construction technique the cracking disappeared and the road pavement has since performed as expected\. In addition, due to a mislabeling problem, the subcontractor procured imported steel beams in the local market that did not meet specifications and quality standards that had been called for in the bidding documents\. The sub-standard steel was used in 7 of the project bridges, and later had to be further reinforced or retrofitted with steel beams of the required quality at the contractors' expense\. Finally, after a significant portion of the works had been completed, they were damaged severely by hurricane Mitch in 1998\. This led to the diversion of the contractors' resources, in particular during a 3-month period between November 1998 to January 1999, when the contractor spent time cleaning roads and landslides and building bypasses in an effort to restore basic traffic flow\. The projects works and the maintenance program were also affected by the drought caused by the El Niuto phenomenon and Hurricane Keith\. Despite these set-backs the Izapa-Leon-Chinandega road sections were successfully completed with a cost overrun of about 14%, but within the project time frame\. The Izapa-Leon (27\.4 km) section comprising 4 bridges, 5 culverts, 48 drainage structures, 9 diversions, about 500 signs, 9 bus loading bays, etc\. was completed and opened to traffic in June, 1999\. The Leon-Chinandega section ( 40\.3 km) comprising 4 bridges, 10 major and 22 simple culverts, 78 drainage structures, 7 diversions, 1,310 signs, 19 bus loading bays, etc\. was completed in May 2000, 6 weeks ahead of schedule\. The road surface was significantly improved as indicated by the progressive decline in the Roughness Index from\. 6\.8 IRI in 1996 to 1\.5 IRI in 2000\. The right-of-way was cleared of vegetation, road shoulders were expanded and bus stops were added to enhance safety and improve traffic flow\. These facility upgrading efforts led to the improvement in management of different types of motorized and non-motorized traffic such as bicycles, carts and animal traffic as the previous narrow, shoulderless two lane road, with no bus bays was finally upgraded in a manner consistent with the type of traffic present\. 4\.3 Net Present Value/Economic rate of return: An ex-post evaluation of the Izapa-Leon-Chinandega road sections was carried out following the completion of the project works\. The results of the evaluation was compared to the forecast included in the Staff Appraisal Report and presented below: NPV NPV ERR ERR SAR Actual Road Section: (SAR) (Actual) US$M US$M Izapa-Leon Road Section 84\.6 118\.0 42\.1 48\.3 Leon-Chinandega R\.S\. 96\.7 78\.0 66\.3 56\.9 The average daily traffic (ADT) on the Izapa-Leon Road Section reached 4,305 in 2000, and for the Leon-Chinandega road sectioni reached 4,702 in 2000\. The project resulted in the reduction of vehicle operation costs and time savings due to the attendant decline in the IRI\. The increase in the ADT, despite a rise of nearly 50% in the price of petroleum products, was the result of the -7 -  overall growth in the Nicaraguan economy and possibly induced by improvements that resulted from the project investments (widening of the shoulders, construction of bus stops, improved road alignment and signage)\. The qualitative improvement in transport services as well as safety resulted from the clearing of vegetation from the right-of-way thereby improving visibility and limiting grazing by livestock, and the continuous presence of the employees of the microenterprises under the PPMM\. The project also resulted in other significant benefits such as the introduction' of systematic road maintenance planning procedures that can not be directly quantified\. In addition, the rehabilitation of the two road sections helped revitalize a crucial economic development growth pole which contains a significant portion of Nicaragua's agriculture, livestock and agro-industrial investments\. The project also helped improve access to the Port of Corinto, which is one of the key outlets for Nicaragua's exports on its Pacific coast\. 4\.4 Financial rate of return: N\.A\. 4\.5 Instittitional development impact: Substantial\. The project was instrumental in bringing discipline and accountability to the MCT and later to the MTI\. During the civil war and in its aftermath, sector facilities deteriorated severely and the country's capacity to construct and maintain roads was almost completely lost\. Staff were trained in all phases of transport sector management and the private sector was returned to its proper role in road construction and maintenance\. The various studies supported under the project led to the improvement and application of traffic laws and prioritization of investments\. A system of maintenance by contract utilizing microenterprises and community groups has been set-up and is fully implemented\. The framework for the establishment of a dependable source of funding for road maintenance with the'passage of RMF Law (Ley 355 de 2000) in June 2000 would help ensure that maintenance program would always have the resources to finance routine and periodic maintenance by contract\. Partly because of the natural disasters that led to unplanned expenditures, the Government could not obtain approval for the special surcharge needed to fund the RMF automatically from domestic sources\. However, for MTI, the legislative approval of the RMF represented the achievement of a major institutional milestone\. 5\. Major Factors Affecting Implementation and Outcome 5\. 1 Factors outside the control of governmentel or implementing agency: (a) Natural Disasters\. Between 1996-2000, Nicaragua was subjected to three natural disasters: Hurricane Mitch in October, 1998, the El Nifio Phenomenon in 1997-98 and Hurricane Keith in late September 2000\. As indicated above (see para\.4\.2c), Hurricane Mitch led to a diversion of the contractor resources and led to an overall delay of the project by almost 6 months\. The El Nifio phenomenon changed rainfall and drought patterns and affected mostly rural roads, while indirectly influencing the maintenance program through the extension of the concept of the PPMM to the TES\. Hurricane Keith directly affected the northern part of the corridor of the Izapa-Leon-Chinandega road sections\. However, the most significant impact of the natural disasters was that they delayed the approval of the RMF Law and created such high demands on the resources of the Government\. -8 -  In reality, the extent of the damage brought on by these natural disasters will take the MTI up to 10 years to restore the damaged facilities to their prior state\. (b) Changes in Government\. The project start-up was delayed by nearly 6 months as a result of the 1996 elections and the transition to a new administration which came to office on January 10, 1997\. Because this was the first project in the sector since the suspension of IDA operations following the Sandinista Administration, IDA staff had to interact extensively with the new Government officials in order to clarify IDA's procurement and other lending policies, and the use of the HDM, etc\. Despite these efforts the bidding documents for the main project works took considerable time to get approved\. (c) Sub-Standard Steel\. The use of sub-standard steel in the construction of 7 project bridges led to problems between the contractor/sub-contractors and the consulting firm supervising the construction\. The subcontractors had bought the steel beams in the local market\. However, despite their being labeled as meeting the specifications, their performance during construction raised the suspicion of the supervising consultant\. Subsequent tests in laboratories in the United States and Italy confirmed that the quality of the beams did not conform to specifications\. The sub-contractors had to reinforce the load bearing flanges of the defective steel or retrofit the affected bridges with steel of the specified quality\. These changes were made at the contractors' expense\. Although this problem was resolved without significantly affecting the project's outcome, it led to ill-will and mistrust between the contractor, sub-contractor, and the supervising consultant while it lasted\. 5\.2 Factors generally subject to government control: (a) Frequent Turnover of the Key Staff During implementation of the project, there were 7 Ministers and 9 Vice Ministers of MCT/MTI, 5 Directors of Highways and 5 Directors of Planning\. Overall combined staff turnover amounted to about 50 in the higher level staff in MTI dealing with the project\. Fortunately there was no turnover in the positions of Coordinator of IDA Projects and the Director of Microenterprises\. While these staff turnovers were not critical to the project implementation and outcome per se, they nonetheless had an adverse impact in the speed with which consultants were hired and studies were undertaken, and typically made it difficult to maintain momentum for changes in the execution of road maintenance (away from COERCO's)\. Furthermore, changes in the second tier of staff due to changes in the Government have meant that the newly acquired skills by the staff from project-financed training would be lost to the project\. (b) Delay in the Approval of RMF Law Despite being finalized by consultants on March 28, 1998, the Road Maintenance Fund Law (Ley 355 de 2000) was not approved until June, 2000\. Furthermore, dependable (in the long term) domestic funding sources have not yet been identified\. However, the delay and lack of funding sources have not materially affected the implementation of the maintenance by contract through microenterprises, because of the availability of funding from external funding agencies such as the IDA, IDB and DANIDA and Government's adherence, so far, to agreements with IDA on the provision of counterpart funds\. The issue of the lack of a dependable domestic source of funding -9-  remains troublesome since lack of sufficient funding in the future could adversely affect an otherwise highly successful experiment\. This issue needs to be addressed in the on-going follow-up projects\. 5\.3 Factors generally subject to implementing agency control: Delay in Contracting the Project Works\. Following the approval of the project by IDA's Executive Directors, Nicaraguan officials requested time to carry out a detailed review of all aspects of the project because they lacked experience in working with IDA\. In addition, the MTI staff were slow in approving the bidding documents partly based on the then prevailing belief that prior approval of the budget by Congress was necessary before staff at the technical level could review and approve procurement actions\. These factors combined to produce a one year delay in contracting the project works: 5\.4 Costs and financing: Project cost details are given in\.Annex 2 (Project Costs by Component)\. Despite the natural disasters that affected the project and the initial quality control problems, the project costs were not significantly affected and the project was implemented exactly as originally conceived with an overall project cost overrun of only 9%\. The final project cost was US$30\.96 million distributed as follows: civil works, US$24\.85 million; maintenance works US$1\.07 million; goods and materials US$0\.35 million; consulting services, US$4\.04 million; training, US$0\.32 million; and microenterprise training, US$0\.33 million\. Similarly, the project was financed broadly as originally envisaged during appraisal with IDA providing US$25\.0 million (or 80%) which is slightly less than the 880/o expected during appraisal and the Government providing just under US$6 million (or 20%) or slightly more than the 12% expected at appraisal\. The main civil works contract amounting to US$24\.85 million or 80% of the total project cost, comprising the construction of Izapa-Leon-Chinandega road sections, was awarded on the basis of ICB\. 6\. Sustainability 6\.1 Rationale for sLstainability rating: Likely\. The prospects for maintaining the achievements attained under the project are supported by the project outcomes (under this and subsequent projects in the sector)\. From the sectoral perspective, a new transport sector law was passed that converted MCT and reoriented the functions of the MTI by emphasizing its regulatory role and enhancing the role of the private sector\. Furthermore transport policies have been significantly improved by several project financed studies that resulted in the decentralization of municipal transport\. Through the involvement of the IDA, the MTI has been strengthened through training and technical assistance and sector investments have been properly prioritized\. The rehabilitation of the Izapa-Leon-Chinandega road sections represents the initiation of the rehabilitation of the network that had become severely deteriorated following years of neglect during the civil war and the Sandinista Government\. Most importantly through the PPMM, the system of maintenance by contract through microenterprises has been put in place\. The PPMM will ensure that roads are maintained effectively in a manner that will generate employment and facilitate poverty alleviation\. As of present, 25 microenterprises have been established and are under contract to rnaintain 1,200 km of roads\. The chances of the sustainability of the project are greatly enhanced with the - 10-  approval by the Parliament of the Road Maintenance Fund Law in June, 2000\. The identification of a dependable domestic source of funding for the RMF would help to assure the sustainability of all of the newly implemented maintenance arrangements in the sector\. 6\.2 Transition arrangement to regular operations: All the main objectives of this project: (i) institutional strengthening of MTI; (ii) improvement in the planning, funding and implementation of maintenance; and (iii) improvement of the quality and capacity of key trunk roads are all being continued under a second project (Credit 3085-NI, Transport II) as well as a third project (Credit 3464-NI, Road Rehabilitation and Maintenance III) that was approved by IDA's Executive Directors on February 15, 2001\. The technical assistance to MTI was continued under the second project and is proceeding satisfactorily\. The project has helped put in place a program of adoquinado ("paving block") which is durable and has a high local cost content, thereby addressing the issue of resource constraints\. In addition, consultants financed under the project have assisted Nicaraguan authorities in establishing the legal framework for annual emergency standby contracts for areas prone to natural disasters\. Models of documents for emergency standby contracts have been drafted, which should facilitate the handling of future natural disasters\. Routine road maintenance by contract under the PPMM through microenterprises has been expanded under the second project and continues to perform well\. Furthermore, the systematic rehabilitation of the major trunk roads continues to be undertaken under the second project\. The rehabilitation of Aeropuerto - San Benito sections and the Aeropuerto - Portezuelo sections have been started after being delayed by Hurricane Mitch\. The Third project would continue to support the improvement of transportation infrastructure along the key international trunk road corridors\. It would also help improve rural roads in order to increase access to productive agricultural areas and to rural communities\. The Third project would continue the institutional strengthening of MTI, improving the planning and priortization of projects, expanding the implementation of routine and periodic maintenance by contract and strengthening environmental and social analysis\. It also includes specific actions to help operationalize the RMF\. 7\. Bank and Borrower Performance Bansk 7\.1 Lending: Satisfactoiy\. Project preparation drew from IDA's experience with countries whose infrastructure had suffered severe deterioration following years of neglect by emphasizing institutional strengthening, prioritization of investments and putting in place\.a suitable mechanism for addressing road maintenance, which entailed an enhanced role for the private sector, while facilitating employment generation and poverty alleviation\. Consequently the project design included sector studies to develop the sector's overall plans along with investment\.strategy and technical assistance for institutional strengthening\. It also included measures and policy changes to make the road maintenance program in Nicaragua sustainable, with a dependable source of long-term funding\. The maintenance program was designed as a pilot with the assistance of consultants from Colombia who had previous extensive hands-on experience with maintenance by contract using microenterprises and community groups\. The initial experimental nature of the program was appropriate for a society just emerging from an extended civil conflict\. Also using a seasoned consultant from the region was important in facilitating a buy-in into the PPMM by Nicaraguan authorities\. Despite the fact that the preparation team was dealing with a fluid - 11 -  political situation, the pre-qualification of contractors was finalized before the approval of the project by IDA's Executive Directors\. This was significant in limiting the delay in project start-up to only 6 months\. The initial feasibility study and detailed engineering of the road section that was rehabilitated under the project was financed under an on-going IDB project (REMECAR 1, NI-0003)\. IDA spent about 44\.2 staff weeks from its internal budgetary resources to prepare and appraise the project at a cost of about US$154,000\. 7\.2 Supervision: Highly Satisfactory\. IDA supervision effort was highly satisfactory and thorough\. About 40 staff weeks were used for supervision costing approximately US$126,000\. The approval of a follow-up project in June 1998 resulted in a cost savings in supervision as the supervision of the first project was combined with the preparation and supervision of the second project\. Even though the project was approved at the end of May 1996, and became effective in November 1996 the project launch was not held until April 1997 largely to help ensure that officials of the new Government were appointed before a formal project launch took place\. The dialogue was excellent and there was continuity in task management\. IDA assisted in resolving the initial problems with hiring of the contractor for the main trunk road rehabilitation and the quality problems that arose with asphalt recycling and steel beams used for construction of some the project bridges\. IDA's prompt and flexible response following Hurricane Mitch was highly appreciated by the Government\. The formal mid-term review that had been planned for late 1998 was not undertaken due to the fact that a thorough review of the status of the project was an integral part of the preparation of the second project that had just been approved three months earlier and the pre-occupation of MTI officials with the Hurricane Mitch Emergency\. 7\.3 Overall Bank performance: Satisfactory\. Despite the fact that this project was the first operation in the sector following the resumption of Bank Group operations in Nicaragua in 1990 and despite the several natural disasters that produced impacts on the project, the project was successfully completed within the original closing date of December 31, 2000 without experiencing significant cost overruns\. The PPMM that started as an experimental program to initiate maintenance by contract through microenterprises and community groups could be judged as successful, given its emulation by other donors and its expansion under subsequent donor-financed projects, including IDA's\. The sector dialogue has also been successful and productive: a Second Transport project was approved in 1998 which builds on the objectives of this project, and a Third Transport project was approved in February, 2001\. Borrower 7\.4 Preparation: Satisfactory\. The Government's performance during project preparation was varied over time\. The MCT worked quite closely with IDA in the preparation of the project\. Government officials participated in the preparation of feasibility studies and transport corridor studies\. However, the Government's impact and involvement were limited given the change in government prior to Credit effectiveness, its relative inexperience in transportation project management and its lack of familiarity with IDA policies and procedures\. 7\.s Government implementation perfonnance: Satisfactory\. The Government's implementation performance was satisfactory, after the initial - 12-  problems with the pavement recycling and the quality problems with the construction steel beams\. The Government restructured MCT by transforming it to MTI, reduced staff, and satisfactorily implemented the findings and recommendations of the Staff Appraisal Report\. The Government reformed the operations of the COERCOs and implemented the PPMM program satisfactorily\. After several years of preparation and design, the Government finally passed the RMF law in June, 2000\. However, due to the concerns about likely negative impact of additional fuel taxes on Nicaraguan exports, the Government has still to take a definitive decision on a dependable domestic source (fuel surcharge) of funding for the Road Fund\. 7\.6 Implementing Agency: Satisfactory\. Overall the performance of the MTI is rated as satisfactory, after a slow start\. The performance of MTI and its role in implementation improved significantly after: (i) the technical assistance was in place; (ii) the familiarity with IDA procurement procedures increased; and (iii) the project financed training began to bear fruit in the MTI\. 7\.7 Overall Borrower perjbrmance: Satisfactory\. Overall, Borrower performance was satisfactory\. Initially, the Government performance was uneven\. This was due to its relative inexperience in transportation projects management, the lack of familiarity with IDA procedures and the transition to a new administration that took over soon after project approval\. After the initial problems were addressed, the Borrower performed satisfactorily\. Given the passage of the RMF law, which represented a landmark achievement by the MTI, it is recommended that the issue of the automatic funding of the RMF be resolved under the succeeding projects\. 8\. Lessons Learned The main lessons learned as a result of the implementation of the project can be summarized as follows: (a) The Importance of Institution Building The implementation of this first project which began in 1995 reached its completion in December 2000 just prior to the approval of the Third project in February 2001\. As a result of the technical assistance, training and mentoring of MTI staff, MTI has been transformed from a tentative organization that emphasized, at the project's inception, the own-account construction and operation of physical infrastructure to one that is more oriented toward sector planning and regulation\. Its new orientation has begun to bear fruit\. Construction and periodic maintenance are being awarded increasingly to the private sector while microenterprises are fully accepted as the leading approach for routine maintenance\. Routine maintenance has been systematized and a whole new class of enterprises have been created under this project to provide this critical service\. As an illustration of how far MTI has evolved one only needs to note that while it took over one year after loan effectiveness to issue the bidding documents under this first project, the bidding documents for over 50% of the works to be constructed under the Third project have already been sent to IDA for review, even though the Credit has not yet been declared effective\. The transformation of MTI can be attributed to: (i) targeted technical assistance, training and studies; (ii) integration of the project unit within the Ministry itself, (iii) continuity in key positions both in Nicaragua and at the IDA; and (iv) sustained involvement by the IDA in coordination with other donors active in the sector\. - 13 -  (b) The Importance of a Dependable Long-term Source of Funding for the RMF Even though the PPMM has been quite successful and is being continued under subsequent projects as well as emulated by other donors, there is some long term sustainability risk derived from its current reliance on budgetary financing\. The sustainability of the PPMM was linked to a fully functioning RMF and while the Law was approved, the automatic funding mechanisms are not yet in place\. However, now that the RMF Law has been passed, it is recommended that IDA agree on a time bound program for the Government to ensure the automatic funding of the RMF\. Under the Third project, IDA funding for the RMF Works has been made contingent on IDA approval of the first year work plan and the employment of key managerial and support staff\. This is an important first step to provide a good operational basis for the RMF\. The availability of a regulatory framework would ensure that there is an accountability system in place to control the proper utilization of the funds after they have been mobilized\. (c) Substantial Non-Economic Benefits of Maintenance By Contract When the IDA designed the PPMM, the primary aim was to develop a cost effective and sustainable method to maintain the road network in a resource constrained environment\. However once the system of maintenance by contract using microenterprises and community groups was fully in place, several additional benefits materialized\. First, the continuous presence of the employees of the microenterprises on the roads being maintained resulted in an increase in the security of the roads, as their presence reportedly deterred roadside criminals\. Second, the clearance of the right-of-way reduced the grazing of animals and erratic road crossings which significantly reduced the number of vehicular/animal accidents\. In addition pedestrian accidents were also significantly reduced due to the improved visibility around road curves that were previously hindered by high vegetation growth\. Third, the use of microenterprises created over 500 direct new jobs, thereby favorably affecting the lives of over 3,500 inhabitants, assuming that one worker supports 7 dependents\. Finally, a few of the microenterprises have taken advantage of the training and equipment acquired under the program to branch out to other lines of business and to perform community services such as repairing school facilities, etc\.; they were also the first group to provide assistance to flood stricken and isolated victims after Hurricane Mitch\. Some of the microenterprises have expanded the scope of their operations thereby increasing employment and their impact on poverty reduction\. The PPMM has thus initiated a virtuous cycle of training, microenterprises establishment, employment creation, income generation and poverty alleviation andbeing local, it leaves a community better endowed, after project\.completion, in terms of skills acquired\. It is recommended that these other benefits be studied in greater detail and quantified under the two follow-up projects in Nicaragua and elsewhere\. It is also recommended that baseline data be developed during this early phase in the implementation of the Third project, to facilitate a full assessment of the project impact following completion\. (d) Need for Flexibility in Disaster Prone Areas Project implementation confirmed the need for flexibility in project execution in areas that are prone to natural disasters\. Between 1996-2000, Nicaragua was subjected to 2 hurricanes and the El Nifio phenomenon plus several earthquakes and volcanic eruptions\. Hurricane Mitch resulted in considerable damage to the on-going works under construction\. The contractors spent about 3 - 14-  months building bypasses and diversions to facilitate a quick resumption of traffic on the affected roads\. The Government's efforts in this regard were greatly facilitated by IDA's reallocating approximately US$20 million from Credit 3085-NI (Second Roads Rehabilitation Project) to finance the remedial works\. IDA's action was highly appreciated by the Government\. The quick response by IDA helped mitigate losses that would have occurred if work had been stopped on the road sections under construction due to lack of funding\. (e) Importance of Procurement Planning The completion of the pre-qualification of the contractors before Board approval facilitated the start of the project\. The lack of familiarity with IDA procurement procedures caused a six month delay in hiring the prime contractor for the Izapa-Leon-Chinandega road sections\. Even though the effectiveness of the Credit was delayed by 5 months and the approval of the bidding documents was also delayed, it is clear that road construction would have been further delayed an additional 6-9 months had the task team not undertaken the pre-qualification at that stage of the project cycle\. Early completion of the procurement planning aspects of a project is one of the best insurance provisions against delayed execution\. (f) Importance of Experienced Supervision The use of sub-standard steel beams in the construction of 7\.of the project bridges, because of a mislabeling problem, had the potential of causing costly consequences in the future, if corrective measures were not taken to address the problem\. This potential problem had been identified by an experienced firm that was providing the construction supervision\. Despite the ill-will generated during the search for a solution and the insistence on testing the quality in two laboratories, both in the US and the prime contractor's home country, the test results from both laboratories confirmed the standards shortfall\. The corrective action subsequently taken was beneficial not only for the project but also for other construction activities in Nicaragua as well\. (g) Safety Benefits from Simple Design Adaptation Road safety was significantly enhanced when the designs where adapted to the local conditions existing in Nicaragua where various types of traffic (vehicular, agricultural, non-motorized, pedestrians, animals) share the same road by adding shoulders in and around towns and villages not called for in the traditional Nicaraguan designs\. This proved especially useful in isolating pedestrian and animal traffic from fast moving motorized traffic\. (h) The Need to Mainstream Training The project included a successful training program for staff of the MTI and of the microenterprises\. As noted above (see para\.4\.2) approximately 362 staff were trained in various fields during the project period\. However, unless permanent arrangements are made to continue the training program, the acquired skills will be gradually lost through obsolescence, staff turnover and attrition\. It is important that sustainable arrangements be made to continue the training programs during the subsequent projects and beyond\. (i) Local Involvement in Strategy Formulation Counterpart staff would have preferred to be mote involved in the studies of the 8 municipalities and the other studies that defined strategy for the sector\. A deeper involvement would ensure a -15-  much smoother implementation of the recommendations\. Furthermore more intensive involvement of local personnel also facilitates greater domestic ownership of the policy recommendations\. (j) Continuity in Task Management\. The continuity in task management both on the part of the IDA and the Government of Nicaragua was a significant factor in the project's implementation success\. The project had only one IDA task manager and only one Head of World Bank Projects Coordinating Unit within MTI, during the entire project implementation period\. Together, these two key individuals coordinated the briefing of incoming top Government officials (Ministers, Vice Ministers, etc\.) as they concluded their assignments (see Annex 8)\. Under their guidance, the project was implemented in accordance with the original objectives despite the difficult, natural disaster-strewn time period and the fact that this was the first project in the sector following the resumption of IDA lending to Nicaragua after over 10 years of internal civil strife\. 9\. Partner Comments (a) Borrower/implementing agency: The following is the unedited Spanish-version Executive Summary of the Borrower's ICR INFORME DE TERMINACION DE PROYECTO (ICR) (Credito Cr-287 1 NI) INFORME RESUMEN I- INTRODUCCION La ejecuci6n de este proyecto, bajo el convenio de credito 2871 NI, tuvo lugar despues del restablecimiento de la democracia participativa, entre el Gobierno de Nicaragua y la Asociaci6n Internacional de Fomento (AIF) del Banco Mundial (1995)\. Este es el primer convenio de credito despues de muchos anios en el pais, cuando se inici6 el apoyo fmanciero del Banco Mundial al sector transporte\. Se implement6 a partir del afno 1996, el cual vino a apoyar el desarrollo de Nicaragua, en un ambiente en que era necesario introducir responsabilidad, eficacia y eficiencia en la utilizaci6n de los fondos puiblicos\. Mediante el decreto de la ley El antes Ministerio de Comunicaciones y Transporte se transform6 en el actual Ministerio de Transporte e Infraestructura - MTI, que incluye al sector vivienda, transporte y comunicaciones\. Durante Ia ejecuci6n de este Convenio se llev6 a cabo la descentralizaci6n de las funciones relevantes al manejo del transporte intramunicipal, y se redujeron substancialmente las n6minas de personal y funciones regionales del Ministerio\. Al mismo tiempo, se continu6 la utilizacion de las Empresas del Ministerio, coordinadas por la COERCO (Corporaci6n de Empresas Regionales de la Construcci6n)\. Para la ejecuci6n del proyecto se acord6 crear una unidad coordinadora, para llevar acabo las actividades principales de planeaci6n, programaci6n fisica - financiera y coordinaci6n entre las diferentes direcciones generales, principalmente: planificaci6n, unidad ambiental, sistema integral de carreteras y otras coordinaciones con organismos extemos como: Ministerio de Hacienda y -16-  Credito Publico, MARENA, SETEC, Banco Central, etc\. II- OBJETIVOS DEL PROYECTO Los objetivos generales del proyecto son: apoyar la rehabilitacion de la red vial principal, mantenimiento rutinario de la red vial a traves de microempresas, el fortalecimiento de la planificacion y programacion de inversiones en el desarrollo y fortalecimiento institucional\. Los principales objetivos generales y especificos del proyecto fueron lievados a cabo conforme el convenio de credito y el SAR, destacandose la rehabilitacion de la carretera Izapa - Le6n - Chinandega, la creaci6n de mas de 12 microempresas y la creacion de 16 m6dulos comunitarios para el mantenimiento de carreteras, desarrollo de estudios, programas de capacitaciones, etc\. Los objetivos planeados originalmente al ser evaluados con los objetivos alcanzados al finalizar el proyecto, son satisfactorios y consistente con los objetivos planteados con las estrategias del pais EAP del 23 de junio de 1994, como es la de respaldar los esfuerzos del Gobiemo de Nicaragua, para llevar a cabo la transformacion hacia una economia de mercado para obtener crecimientos sostenibles y reducir la pobreza\. Los componentes del programa son: - La rehabilitacion de la carretera Izapa -Le6n -Chinandega (67\.7 km\.) - El establecimiento del Programa de Mantenimiento Rutinario con Microempresas, PPMM, lo que incluye la capacitacion de los Microempresarios\. Inicialmente se planteo un Proyecto Piloto de Mantenimiento de 500 km de vias troncales\. - El fortalecimiento tecnico y gerencial de la entidad, mediante asistencias tecnicas y una asesoria permanente a la Unidad Coordinadora, - La elaboracion de estudios y la supervision de los proyectos - La adquisicion de bienes, para la gerencia del proyecto III- PRINCIPALES EXPERIENCIAS Y RESULTADOS OBTENIDOS DURANTE LA IMPLEMENTACION DEL PROGRAMA El Convenio ha culminado con exito, facilitando la ejecuci6n de los proyectos en que se da un tratamiento "equitativo" y mas seguro, a los distintos tipos de trAfico en las vias rehabilitadas\. La interacci6n del trafico motorizado y del trafico no-motorizado (peatones, bicicletas, carretas, etc) es comun en las carreteras nicaraguienses y es una de las causas principales de los accidentes en las mismas\. En los proyectos incluidos en este Convenio (especialmente el proyecto Izapa-Le6n-Chinandega) se han proporcionado hombros para que el trifico mencionado anteriormente pueda desplazarse sin mayores complicaciones y en forma segura\. Esto ha causado una disminucion de los probables accidentes, sobre todo teniendo en cuenta que con las vias mejoradas se tiende a transitar a mayores velocidades\. En el aspecto tecnico se ha introducido el reciclado de pavimentos existentes, como un mecanismo de reduccion de costos y del impacto ambiental que implica la disminucion de - 17 -  utilizaci6n de recursos no renovables, como son el material petreo, equipo, combustibles y lubricantes que se utilizan en el proceso para la ejecuci6n de la obra\. Las experiencias en la construcci6n en los espesores de la estructura del pavimento del proyecto Izapa -Le6n - Chinandega son un buen ejemplo para la industria de construcci6n nacional\. En este mismo proyecto se han utilizado las emulsiones asfalticas y se han desarrollado esquemas para enfrentar situaciones de mala calidad de las mismas, para hacerlas utilizables en las carreteras nacionales\. Se ha logrado que las firmas nacionales trabajen con las firmas internacionales, en el disenlo, supervisi6n y ejecuci6n de proyectos, con la idea de que se logre un buen grado de transferencia tecnol6gica, tanto en equipo como en mano de obra\. Se ha logrado que el personal del MTI mejore su nivel academico, principalmente a traves de la asistencia a cursos y seminarios especializados, tanto fuera del pais como a nivel nacional\. Las experiencias obtenidas en la construcci6n de puentes con vigas de acero estructural ha sido importantes\. Aunque por lo general el desempeiio del contratista fue aceptable se presentaron problemas de calidad de las vigas principales y de otros elementos, los cuales fueron detectados por el Personal del MTI, todavia el periodo de correcci6n de defectos del contrato\. Esto permiti6 obligar al contratista a realizar las reparaciones pertinentes a satisfacci6n del cliente y con la venia de la firma supervisora\. La lecci6n importante es que es necesario asegurar la calidad de las obras verificando los parametros de resistencia y los documentos de garantia de las mismas, aunque el contratista presente certificados de origen, es necesario comprobar la calidad de estos materiales en laboratorios de otros paises, ya que los pocos existentes en este pais no tienen el equipo id6neo, para realizar tales pruebas\. Esto nos confirma tarnbi6n la necesidad de exigir garantias a mediano plazo por la calidad de todas las obras viales que ejecutan los contratistas\. Durante la ejecuci6n de este Convenio se cre6 el Programa de Microempresas Asociativas de Mantenimiento vial - PPMM, que actualmente ya incluye a unas 25 empresas cubriendo unos 1,250 kms de red vial\. Tambien se crearon m6dulos comunitarios para llevar a cabo obras de mantenimiento en caminos rurales\. Este programna ha permitido demostrar los beneficios de un buen mantenimiento rutinario, a la vez que se ha mejorado el nivel de vida de muchas personas en el medio rural\. El programa ha servido de ejemplo para otras entidades nacionales y tambien esta incluido en el Tercer Convenio de Credito CR-3464 NI\. El Convenio ha facilitado la orientaci6n futura de otros convenios, en un marco de eficacia y eficiencia en el uso de los recursos, dando el adecuado nivel al mantenimiento vial\. Es importante mencionar que con este proyecto se implement6 la automatizaci6n de los registros contables financieros de todas las operaciones en referencia al convenio de credito\. Esto ha permitido tener los informes financieros conforrne a los requerimientos de la AIF, para efectos de auditoria, como una herramienta de trabajo para la toma de decisiones\. IV- PAPEL DEL BANCO La identificacion del programa 2871 se bas6 en la evaluacion del estado de la red vial en las 18 -  etapas de identificaci6n y formulacion del Convenio, y la selecci6n de tramnos de alta importancia al nivel nacional para su rehabilitaci6n\. Igualmente se identificaron las necesidades mas apremiantes en materia de mantenirniento vial y de fortalecimiento tecnico y gerencial de la entidad, para lo que se incluyeron los recursos correspondientes en el cr6dito\. Se ha dado especial atenci6n al mejoramiento de la planificaci6n y evaluaci6n econ6mica de las inversiones viales en el pais\. Aunque se ha logrado un cierto avance en este campo, todavia se requiere un mayor fortalecimiento de la entidad, para lo que se estan asignando recursos adicionales en los convenios siguientes\. Durante la ejecuci6n de este convenio el Banco financi6 el estudio para formular la estrategia del sector a ser presentada a los donantes en Estocolmo, Suecia, en mayo de 1999 (ver informe de LAVIAL, 1999)\. Este esfuerzo represento un paso hacia delante en el aspecto de la evaluaci6n de los distintos problemas del sector vial, en coordinaci6n con otras instancias nacionales, tales como el Ministerio de Economia (MIFIC), el Comite de Reconstruccion - creado despues del Mitch-, y la Secretaria Tecnica de la Presidencia\. Tambien se llev6 a cabo el Plan Nacional de Transporte, que debe servir para orientar la toma de decisiones en el campo vial y de transporte de carga y pasajeros en el pais\. Desafortunadamente, no se ha logrado una adecuada participaci6n del MTI en este esfuerzo, a fin de poder actualizarlo posteriormente\. El entrenamiento a los funcionarios de la DGP ha sido regular, y por tanto se tienen que capacitar, para utilizar los modelos matematicos empleados en tal estudio\. Ademas de su papel financiero, el Banco ha insistido en la introducci6n de mecanismos contables que permitan la supervisi6n y monitoreo permanentes de las transacciones fmancieras dentro de la entidad\. El Banco ha promovido la participaci6n del personal de la Unidad y del MTI en general en diferentes cursos de entrenamiento en materia de adquisiciones, desembolsos, procedimientos administrativos y demas, con el objeto de fortalecer las habilidades administrativas del personal de la entidad\. Ademas de las diferentes misiones de seguimiento, misiones anuales de evaluaci6n y medio termino del programa, el Banco proporcion6 apoyo al Gobierno de Nicaragua durante la emergencia provocada por el Huracin Mitch en octubre de 1998, permitiendo la reorientaci6n de fondos existentes en las operaciones vigentes, asi como la posibilidad de ampliar los contratos de obra existentes, con el objeto de dar respuesta inunediata a los desastres provocados en la red vial\. V- PAPEL DEL PRESTATARIO A partir de la entrada en vigencia del Programa y con la capacitaci6n proporcionada por el Banco, el organismo ejecutor desarroll6 una mejor capacidad de ejecucion\. Luego de un comienzo lento en la ejecuci6n del proyecto, las principales obras se lograron culminar con exito\. El prestatario ha tenido una mayor participaci6n en la preparaci6n de los siguientes programas\. La Unidad Coordinadora se ha fortalecido y ha mantenido buenas relaciones con el personal del Banco, cumpliendo con todas las normas y compromisos adquiridos, los que incluyen las 19-  evaluaciones de auditoria del programa, las cuales se han Ilevado a cabo con exito y a satisfacci6n del Banco\. El prestatario ha aportado recursos adicionales a la participaci6n minima establecida en el convenio, para cubrir costos adicionales, bonificaciones y otros gastos\. VI- RESUMEN DE LOS RESULTADOS En general, los objetivos propuestos en el Informe de Evaluaci6n de Proyecto (Staff Appraisal Report) fueron alcanzados\. La obra civil ejecutada contribuy6 a la expansi6n y mejoramiento del servicio de transporte y a la rehabilitaci6n de la red vial nacional; y se ha logrado un relativo fortalecimiento tecnico y gerencial de la entidad, que debe ser afianzado en las operaciones siguientes\. El analisis econ6mico de los proyectos de obra civil ejecutados ha mostrado que efectivamente se lograron las tasas de crecimiento y la rentabilidad esperada de los proyectos, aunque las tarifas de transporte no hayan disminuido en forma paralela con la reducci6n de los costos a los transportistas\. Esto filtimo es comun en la mayoria de proyectos en la regi6n, ya que los transportistas no transmiten a los usuarios los beneficios por reducci6n de costos de operaci6n\. Durante la ejecuci6n del proyecto se ha reducido la plantilla de personal del MTI y se han introducido iniciativas para mejorar tecnica y gerencialmente la planificaci6n y la utilizaci6n de los recursos entre las distintas modalidades de contrataci6n\. Se ha reducido a un minimo la presencia directa del MTI en las regiones, se llevan a cabo acciones en las regiones apartadas mediante la utilizaci6n de las Empresas de la COERCO, que utilizan su propio personal y su equipo, aunque tambien utilizan el equipo del MTI\. Esta Corporaci6n estA en proceso de transformaci6n, y la actual administracion del MTI ha sometido un documento de estrategia para los comentarios del Banco\. La asesoria permanente a la EAT fue descontinuada, pero se esta preparando un concurso de mrritos para reiniciarla\. VII- OPERACIONES FUTURAS El Tercer Convenio de Credito, ha sido firmado el 07 de Abril del 2001, igualmente fortalecera las funciones de planificaci6n y de ejecuci6n de obras de rehabilitaci6n, estabilizaci6n y mantenimiento del MTI\. Se ha previsto el financiamiento de un programa substancial de estabilizaci6n de caminos secundarios y terciarios a traves del adoquinado vial - iniciado como parte del Convenio 3085 actualmente en ejecuci6n -, y se han preparado las bases para el establecimiento de mecanismos para la adecuada planificaci6n y estructuraci6n de programas intensivos de mantenimiento vial en toda la red vial nacional\. (b) Cofinanciers: NA (c) Other partners (NGCOs/private sector): NA - 20 -  10\. Additional Information None - 21 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Annex i-A Key Performance Monitoring Indicators A\. input Indicators: I\. Establish Fondo Rotatorio (month) Planned June Actual Nov 2\. Deposit Counterpart Funds (Smil\.; gross) Planned 0\.5 2\.8 2\.8 1\.0 a Actual 0 1\.4 2\.8 1i5 1\.4 3\. Establish Technical Support Team (month): Planned August Actual \. \. Nov 4\. Total Road Maintenance Budget (Smil\.): Planned 12 12 12 12 b Actual 12 12 12 b 5\. % of Budget Allocated to Contract\. Maintenance Planned 10 20 30 40 50 Actual 0; 0\.2 10 15c lOc 6\. Number of maintenance contracts signed: Planned 0 12 12 12 a Actual 0 14 42 25 25 B\. Output indicators: 7\. Establish and maintain microempresaus Planned (M in\. Total no\.) 0 12 12 12 a Actual 0 6 12 16 24 8\. Roads maintained by PPM M (km):\. Planned 0 500 620 760 1100 Actual 300 600 800 1200 9\. Overall maintenance by contractors (km): Planned 300 400 600 1000 1600 Actual 0 350 1100 1400 1400 10\. Trunk roads rehabilitated (km): Planned 10 30 2S - a Actual 0 0 Is 50 67\.7 C\. Outcome indicators: II\. Avg\. delay in counterpart funding (vs\. the quarterly target dates)-in days: Planned 0 0 0 0 a Actual 100 80 10 10 10 12\. % of road network maintainable (1994-12%): Planned 20 23 26 30 a Actual 14 is Is 15 15 13\. Presentation of road fund legislation (month) Planned June Actual M arch D\. Impact indicators 14\. Traffic growth (%) Forecast 5 5 5 5 Actual 5 5 6 7 7 15\. Reduced transport costs (%): Plannedd \. \. 0 0 4 2 a Actua l I 0 1 0 0 0 12\.5 a There were no planned targets for year 2000; b Not ipplicable\. Adherence to targets suspended temporarily due to Hurricane Mitch c Refers to Pre-planned maintenance\. Actual expenditures higher due to Hurricane induced Repairs; d Managua - Corinto freighi tariffs -22-  Annex 1-B Technical Assistance, Training and Studies List 6\.TA\. Person- i\.mplementaiion ContratctActivity Purpose/Objective Montb - \. \. \. \. Shrhid iComsle~~~~~~~&gted A\. Supervision: 1\. Civil Works Implementation Assistance for Design and Supervision Planned 70F 1997 2000 120L Actual 90F 1997 2000 400L B\. Technical Support: Setup and Train "microempresas' 2\. PPMM Planned 15F 1996 1998 IOL Actual 9F 1997 1998 30L 3\. Maintenance Management Design and implementation of contract Planned maintenance 15F 1996 1999 IOL Actual 2F 1997 2000 OL 4\. Institutional Support Performance monitoring, training Planned program design and administration, 5OF 1996 2000 preparation of data and organizing 15L Annual Coordination reviews, PCR Actual preparation, etc\. 12F 1997 2000 OL C\. Training: 5\. Fellowships and study tours Planned PPMM needs 1996 1996 Professional training of MCT staff 1997 1999 Actual PPMM needs 1997 1998 Professional training of MCT staff 1997 2000 D\. Studies: 6\. Transport and feasibility Planned Urban Transport 4SF 1998 2000 and Corridor O-D Studies 25L Actual Urban Transport 60F 1998 2000 and Corridor O-D Studies 48L TOTALS Planned 375 Actual 651 F: Foreign Professional L: Local Professional -23 -  Annex 2\. Project Costs and Financing Annex 2 Project Cost and Financing Sje t I ,bCaaeC' otA'ta Izapa - Leon 63\.9 72\.9 14\.1 Leon - Chinandega 113\.2 126\.1 11\.3 Subtotal 177\.1 199\.0 12\.4 71 Road Maintenance Pilot (PPMM) 12\.5 10\.9 -13\.2 89 Technical Assistance, Training and Studies 31\.7 31\.5 0 95 Total Project Cost 221\.3 241\.3 9\.0 76 Training Cost Natio 'pi ee ' ' I'lp\.T Toa Total -46ta1 Year Sessi8ns -pants Cost U tSessionsCo -Ps Sesoons sots Cost Cst SsiosPartlcip- 1997 2 26 3,450 16 43 89,110 92,560 18 69 1998 10 85 14,569 17 37 59,843 74,412 27 119 1999 14 63 17,709 17 28 84,119 101,828 31 91 2000 7 79 14,646 2 4 17,216 31,851 9 83 Total 33 250 50,374 52 112 250,288 300,651 85 362 Project Costs by Procurement Arrangement ________________________ (in USS millio eapuivalent) _____ Deseription iTtal \.Total Share Civil Works 21\.2 0 21\.2 24\.85 0 24\.85 17\.74 Maintenance works 0 1\.1 1\.1 1\.07 1\.07 0\.95 Goods and Materials 0 0\.6 0\.6 0\.35 0\.35 0\.30 PPMM training 0 0\.5 0\.5 0\.33 0\.33 0\.16 Consultants 0 4\.7 4\.7 4\.04 4\.04 3\.98 Training 0 0\.3 0\.3 0\.32 0\.32 0\.29 Total 21\.2 7\.2 28\.4 24\.85 6\.11 30\.96 *23\.42 Estimated and Actual Disbursements 'in US$ million eauivalent) Dnesi&Apton _ t57 FVJ6M2 -ItI444 iV v20n0 {i" vnno Appraisal Estimates 4\.0 14\.0 5\.0 2\.4 0\.0 Actual Disbursements 1\.01 3\.87 12\.50 5\.69 1\.9 - 24 -  Annex 3: Economic Costs and Benefits Annex 3 Economic Costs and Benefits Izapa - Leon (CS at 1 96 prices) Ytir Investments Maintenance Sings; Time Ssvings Total Net Cost COV Benefits 1997 80 -80 1998 13,910 -13,910 1999 40,994 -40,994 2000 16 77,804 1,840 79,628 2001 -135 83,250 1,968 85,354 2002 255 89,078 2,106 90,929 2003 330 95,313 2,254 97,237 2004 16 101,985 2,411 104,380 2005 103 109,124 2,580 111,601 2006 19 116,763 2,761 119,504 2007 1,498 124,936 2,954 126,392 2008 253 133,682 3,161 136,589 2009 -135 143,039 3\.382 146,556 2010 22 153,052 3,619 156,649 2011 567 163,766 3,872 167,071 2012 16 175,229 4,143 179,357 2013 -129 187,624 4,433 192,058 2014 1,649 200,620 4,743 203,715 TIR 118% Economic Costs and Benefits Leon - Chinandega (CS at 1996 prices) Year Investatents MaIhtlnance SOIngs Time Savings Totial Nit Cost COV \._ Brettits 1997 75 1998 15,695 -15,695 1999 41,177 -41,177 2000 31,906 -31,906 2001 160 111,481 3,926 115,246 2002 -1,156 116,207 4,122 121,485 2003 5,312 121,144 4,328 120,160 2004 3\.705 126,302 4,544 127,141 2005 160 131,691 4,772 136,302 2006 3,955 137,321 5,010 138,376 2007 270 143,205 5,261 148,195 2008 15,923 149,353 5,524 138,953 2009 5,271 155,778 5,800 156,306 2010 -1,156 162,493 6,090 169,738 2011 1,563 169,511 6,394 174,342 2012 7,524 176,847 6,714 176,037 2013 160 184,516 7,050 191,406 2014 -1,046 192,533 7,402 200,982 2015 17,239 200,915 7,772 191,449 T IR _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 78% -25-  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performa ce Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation April, 1995 1 Eng\. Appraisal/Negotiation December, 1995 3 IF, lEng, lEc April, 1996 3 2 Eng, IEc Supervision June, 1996 I TTL S S September, 1996 1 TTL S S January, 1997 3 TTL, IEng, ISL S S April, 1997 3 TTL, IEng, IPA S S November, 1997 1 TTL S S May 1998 2 lEng, IF S S August, 1998 4 TTL, IEng, IF, IPA S S February, 1999 2 TTL, IPA S S May, 1999 1 TTL S S June, 1999 2 TTL, IPA S S April, 2000 2 TTL, I Eng S S December, 2000 1 TTL S S ICR No Field Visit TTL = Task Team Leader; Eng = Engineer; PA = Procurement Analyst; SL = Sector Leader F = Financial Analyst/Accountant (b) Staff r Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 24\.3 93\.2 Appraisal/Negotiation 19\.8 61\.2 Supervision 38\.2 126\.4 ICR 3\.73 15\.8 Total 86\.03 296\.6 -26-  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating 13 Macro policies O H OSUOM ON *NA 0 Sector Policies O H *SUOM O N O NA II Physical OH *SUOM ON ONA r Financial O H OSUOM O N * NA El Institutional Development 0 H * SU O M 0 N 0 NA LI Environmental O H *SUOM O N O NA Social El Poverty Reduction O H O SU * M O N O NA El Gender O H OSUOM O N * NA F1 Other (Please specify) O H OSUOM O N * NA L Private sector development 0 H 0 SU 0 M 0 N 0 NA El Public sector management 0 H O SU O M 0 N 0 NA LI Other (Please specify) O H OSUOM O N * NA - 27 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank perfbrmance Rating El Lending OHS OS OU OHU E Supervision OHS OS OU OHU EL Overall OHS OS O U O HU 6\.2 Borrower performance Rating El Preparation OHS OS O U O HU O Government implementation perfbrmance OHS *0S O U 0 HU E Implementation agency performance 0 HS OS 0 U 0 HU El Overall OHS OS 0 U O HU - 28 -  Annex 7\. List of Supporting Documents I Staff Appraisal Report N° 15281 -NI 2 Development Credit Agreement 2871 NI 3 Memorandum of the President N° P-6786 4 Mapas BIRF N° 27723 y 27724 5 Plan Nacional de Transporte 1995 6 PNT - Diagn6stico del Transporte Acuatico 1989 7 Censos Nacionales 1995 INEC 8 Estudio de Factibilidad Tecnica Econ6mica 1993 (Louis Berger) 9 Estudio de Factibilidad Tecnica Econ6mica de Izapa - Le6n - Chinandega - Guasaule 1995 10 Estudios de Mejoras y Rehabilitaci6n Vial en Nicaragua JICA 1994 11 Feasibility Study on the Development and Strengthening of the Directorate of Maintenance and Improvement of Road Maintenance Performance, DANIDA, Febrero de 1994 12 Mantenimiento de Vias de Microempresas Asociativas Dra\. Martha Lobo Soler, Noviembre 1995 13 Estudio de Diagnostico Institucional y Reestructuraci6n MCT, Coopers & Lybrand, Noviembre 1995 14 Convenio de Reestructuraci6n Institucional MCT\. Agosto de 1995 15 Estudio del Marco Juridico y la Factibilidad Financiera para concesi6n de Proyectos Pilotos de Mantenimiento y/o Rehabilitaci6n de la Red Vial, Louis Berger de 1995 16 Proyecto Rehabilitacion Y Mantenimiento de Carreteras - Informe Final Del Proyecto 17\. Borrower's Comments on IDA's Draft of the ICR -29-  Annex 8 Personnel Turnover, 1996 - 2000 XUnit Title~f - - - 8 'Turneritl Ministry Minister 2 1 2 1 1 6 Vice Minister 1 2 2 2 2 8 Sec\. Gen\. I 0 0 2 2 4 Legal Affairs Div\. Division Chief 1 2 0 0 0 2 Pub\. Rel\. Div\. Division Chief I 0 2 2 0 4 Intemal Audit Division Division Chief I 0 0 0 2 2 Dept\. of Human Res\. Manager I 0 0 0 0 0 Dept\.of Env\. & Tc\.Cont\. Manager I 0 0 0 2 2 Dept\. of Planning Manager I 0 0 2 2 4 Dept\. of Fin\. Mgt\. Manager I 0 0 2 0 2 DG of Nat\. Water Tpt\. Director General I 0 0 0 0 0 DG of Construction Regs\. Director General I 0 0 0 0 0 DG of Land Transport Director General I 0 2 2 2 6 DG of Civil Aviation Director General 1 2 2 0 2 6 DG of Roads Director General I 0 0 2 2 4 WB Projects PCU Coordinator I 0 0 0 0 0 Drtrt\. of Microent\. Microent\. Dir\. 1 0 0 0 0 0 - 30 -  IBRD 27723 NICARAGOA RQAD MAINTENANCE A NO REHADJUTATION ::H 0 N D U k A: 5 15- PROJECT ftn Amri \.m mqh
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FEBRUARY 1996   CENTRAL AMERICA ROADS MAINTENANCE AND REHABILITATION PROJECT Natural Corridor |- Naturol Corridor (Corredor Natural) L- -2rrs ; ° -* National Capitals Santo Tomd (is Main Ports / de Costldae International Boundaries ) GUATEMALA \Xgj >, ~Guatemolo HONDURAS r Teguciga Puerto -Caribbean i, >,f Tegucigalpa / _4~~~~~~~Cabezas S e a EL SALVAD54 NICARAGUA L\. Managua Rama Corito El aga HBlff L\. Nicaragua The bundares, clors denoinatins an anyotherinrordiio -) COSTA \. V S ~~~Rl*A wLmn-Moin Gup, any jmnothaSan Josny tr oCo \<CaldS '0 ~~~Panama Canal O 100 200 300 400 500 10LOMETERS Ai b } t - / >j ~~~~~~~~~~~~~~~Balboa 07> ~0 100 200 300 tCLES jB o alboa0 _ The boundaries, colors, denomineotons ond ony/ other inforrnation P ona\.a {i shown on this nmap do not impl%y on the part of The World Bank -C C L M I = rop\.eany judgment on the 1egol storus of any territory, or any COlOMBIA endorsement or acceptance of such boundories\.

APPROVAL

P127507

 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I\. Basic Information Date prepared/updated: 11/16/2011 Report No\.: AC6534 1\. Basic Project Data Country: Ethiopia Project ID: P127507 Project Name: Agricultural Growth Project - Additional Financing Task Team Leader: Achim Fock Estimated Appraisal Date: October 12, Estimated Board Date: December 1, 2011 2011 Managing Unit: AFTAR Lending Instrument: Specific Investment Loan Sector: General agriculture, fishing and forestry sector (45%);Irrigation and drainage (35%);Agricultural extension and research (20%) Theme: Rural services and infrastructure (39%);Rural markets (22%);Land administration and management (16%);Water resource management (16%);Rural policies and institutions (7%) SPF Amount (US$m): 0\.00 GEF Amount (US$m\.): 0\.00 PCF Amount (US$m\.): 0\.00 Other financing amounts by source: Borrower 0\.00 Global Agriculture and Food Security Program 50\.00 50\.00 Environmental Category: B - Partial Assessment Repeater [] Is this project processed under OP 8\.50 (Emergency Recovery) Yes [ ] No [X] or OP 8\.00 (Rapid Response to Crises and Emergencies) 2\. Project Objectives The development objective of the proposed AGP is to increase agricultural productivity and market access for key crop and livestock Products in targeted woredas with increased participation of women and youth\. The objective of the Additional Financing (AF) of the AGP is identical to that of the original AGP; and the design / component-structure also remains as originally designed\. The Project Appraisal Document (PAD) of the AGP already identified a financing gap of US$50 million and this AF closes this financing gap\. In addition, and given that additional resources were secured from bilateral donors, the AF allows for an intensification of selected AGP interventions and the involvement of a newly-created Government Agricultural Transformation Agency (ATA)\. 3\. Project Description Approach\. To achieve its PDO, the AGP will: (i) focus on smallholder famers that contribute to the majority (around 90 percent) of agricultural production in the country; (ii) adopt an approach that seeks to scale up existing best practices and innovations among public sector institutions as well as among farmers and the private sector in both agricultural production and post harvest value addition with due emphasis on natural resource conservation and rehabilitation; (iii) strengthen the ability of public and private advisory service providers to respond to smallholder demand for new technologies, advice on improved practices and investment in infrastructure; (iv) focus on improving knowledge of and access to existing technologies that have proved to be effective among some farmers;(vi) invest in rural infrastructure such as small scale irrigation; watershed management, including water harvesting and micro-irrigation technologies; rural roads; market infrastructure and possibly other areas such as the development of alternative energy sources\. Most interventions will be implemented in a decentralized manner, based on bottom up planning by local communities or farmer groups (whether formal cooperatives and cooperative unions or informal common interest groups)\. Expected Benefits\. Specific benefits expected to arise from the AGP interventions include: improved production and productivity, value addition and market opportunities, resulting in increased incomes, employment opportunities and food security of the smallholder households engaged in the commodities targeted by the AGP\. These benefits will primarily result from: (i) increased production and productivity; (ii) reduced post- harvest losses; (iii) improved access to goods, services, markets and information; (iv) reduced transaction costs; (v) improved product quality and increased producer (farm gate) prices; and (vi) improved economies of scale\. Increased output, income and employment in the AGP woredas is expected to result in increased demand for goods and services, which is expected to generate additional income and employment effects, and increase GoE tax revenues\. As the AGP is supporting relatively high potential areas in the production of major crops and livestock, the increased output from the targeted areas will increase national production, and thereby contribute to growth in the overall GDP and national food security\. In addition, increased exports and/or reduced imports will result in foreign exchange earnings/savings\. Furthermore, it is expected that consumers will benefit from reduced consumer prices and improved availability of food commodities of better quality, which would in turn improve food security\. Beneficiaries\. The primary beneficiaries of the AGP are the small- and medium-size farmers in the 83 selected AGP woredas (districts) which have a total population of 9\.8 million\. An estimated 2 million agricultural households in 2,109 kebeles (villages) will primarily benefit in the following ways: (i) directly, through capacity building, support to farmer sub-projects, value chain enterprises and irrigated agriculture; and (ii) indirectly, through improved public and private advisory services, road and market infrastructure, and sustainable watershed management\. The project will focus on the participation of women and women-headed households (about 19 percent of total) as well as the youth\. Other beneficiaries of the AGP are farmer organizations, large commercial farms, traders, agro-processors and public and private advisory services\. Component Design\. The AGP has two technical components, Component 1: Agricultural Production and Commercialization and Component 2: Small scale Rural Infrastructure Development and Management, and a Project Management and Monitoring and Evaluation Component\. Component 3\.  Component 1: Agricultural Production and Commercialization\. The objective of this component is to strengthen the capacity of farmer organizations and their service providers to scale up best practices and adopt improved technologies in production and processing, and to strengthen marketing and processing of selected commodities through engagement with private sector stakeholders\. It would support strengthening farmer- market linkages and promote agri-business enterprises\. The component would have the following three sub-components: Sub-component 1\.1: Institutional Development and Strengthening; Sub-component 1\.2: Scaling-up of Best Practices; and Sub-component 1\.3: Market and Agribusiness Development (to be funded through USAID and, possibly other development partners)\. Component 2: Small scale Rural Infrastructure Development and Management\. The objective of this component is to support the construction, rehabilitation and/or improvement, and management of small-scale rural infrastructure to improve productivity, and to further develop and increase the efficiency of key value chains through improved access to markets\. The component would have the following two sub- components: Sub-component 2\.1: Small Scale Agricultural Water Development and Management; and Sub-component 2\.2: Small Scale Market Infrastructure Development and Management Component 3: Project Management and Monitoring and Evaluation\. The objective of this component is to support effective coordination and management of the AGP at all levels of implementation, to establish an effective monitoring and evaluation (M&E) system, and to create a learning environment for continuous improvement of the AGP design and other agricultural growth interventions\. The component would have the following two sub-components: Sub-component 3\.1: Project (AGP) Management; and Sub-component 3\.2: Monitoring and Evaluation\. The ATA would focus on three areas : household irrigation (under Component 2\.1), monitoring and evaluation (under Component 3\.2) and strengthening of policy linkages (under Component 3\.2)\. 4\. Project Location and salient physical characteristics relevant to the safeguard analysis AGP is a five-year program implemented in the four major regions\. Specific sites for the implementation of project activities are not yet known\. To achieve maximum impact in the specified period and given limited resources, the program targets clusters of high agricultural potential areas (AGP woredas) in the four main regional states; namely, Amhara, Oromia, Southern Nations, Nationalities and Peoples Region (SNNPR) and Tigray\. Based on criteria such as suitability for agriculture, potentials for irrigation, access to infrastructure and institutional capacity, a total of 83 woredas are selected; i\.e\., 22 woredas in Amhara, 34 woredas in Oromia, 19 woredas in SNNPR and 8 woredas in Tigray\. 5\. Environmental and Social Safeguards Specialists Ms Yasmin Tayyab (AFTCS) Mr Edward Felix Dwumfour (AFTEN) 6\. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4\.01) X Natural Habitats (OP/BP 4\.04) X Forests (OP/BP 4\.36) X Pest Management (OP 4\.09) X Physical Cultural Resources (OP/BP 4\.11) X Indigenous Peoples (OP/BP 4\.10) X Involuntary Resettlement (OP/BP 4\.12) X Safety of Dams (OP/BP 4\.37) X Projects on International Waterways (OP/BP 7\.50) Projects in Disputed Areas (OP/BP 7\.60) X II\. Key Safeguard Policy Issues and Their Management A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: The Environmental Category assigned to the AGP is Category B, predicated on the fact that environmental risks and social impacts may be minimal, manageable and, in most cases, reversible\. The proposed operation will impact positively on the biophysical environments since it will support land management (improvement of soil and water as well as watersheds)\. In so much as the operation will impact positively on the biophysical, this project still triggers six World Bank safeguard policies namely: Environmental Assessment (OP/BP 4\.01), related to possible risks associated with the biophysical environment; Pest Management (OP/BP 4\.09), although AGP funds will not be used to manufacture, purchase and distribute agrochemicals, it is likely that support through AGP to agriculture would encourage farmers to use more inorganic fertilizers and pesticides, so triggering OP/BP 4\.09 is predicated on the possibility of agrochemical application and disposal\. The Pest Management Guideline in the ESMF is being updated to include additional details on the risks, potential impacts, and mitigation measures, as well as triggers for the preparation of site-specific Pest Management Plans; Physical Cultural Resources (OP/BP 4\.11), because based on the finding of the Social Assessment chance find seem likely and cannot be ruled out; Involuntary Resettlement (OP/BP 4\.12), predicated on the assumption that the subprojects are likely to result in land take, loss of income and sources of livelihood; The proposed AGP will not undertake any sub-projects that will displace people\. While individual sub-projects are not yet identified, there will be support for activities such as small scale infrastructure to improve productivity as well as other rural infrastructure such as feeder roads that will affect land holdings of individual farmers\. The AGP has developed an ESMF which includes a resettlement policy framework (RPF) prior to appraisal of the original project\. While the project has not required land acquisition/involuntary resettlement to date, given the increasing possibility that some land acquisition activities may take place during project implementation, the RPF is being updated to include additional information about the legal and institutional framework, eligibility, entitlements, and implementation arrangements\. This updated RPF will be used for this project and other similar projects in the agricultural sector\. All Community Action Plans will be assessed and screened based on the guidelines provided in the existing RPF and the Project Implementation Manual (PIM)\. Safety of Dams (OP/BP 4\.37), while AGP would not finance any new establishment or rehabilitation of large-scale irrigation facilities and dams above 15 meters, AGP might finance check dams or small dams for water storage and will finance activities that may rely on the performance of an existing dam\. Projects on International Waterways (OP/BP 7\.50), because AGP woredas are located in international water basins such as that of the Blue Nile and Omo Rivers, and while the impact of individual sub-projects such as small-scale irrigation would be negligible and the cumulative abstractions minor, the policy is triggered\. In accordance with OP/BP 7\.50, riparian countries have therefore been formally informed\. AGP activities will not be undertaken in the natural habitats; neither will AGP support cutting down of forests and converting these into agricultural lands\. The ESMF would suggest screening criteria to be used when selecting AGP sites so that natural habitats and forests are completely avoided\. AGP will not finance any activities that would impact adversely in forests, natural and sensitive habitats\. The same principle and process applies for areas under dispute between Ethiopia and any of its neighbors, so Projects in Disputed Areas (OP/BP 7\.60) is not triggered\. Finally, the social assessment has determined that there are no indigenous groups in the woredas that the sub-projects will be implemented in\. This operation will finance activities, especially those related to groundwater abstraction, small-scale irrigation schemes, establishment of product storage facilities and large-scale adoption of innovative agricultural and livestock productivity-enhancing approaches\. Likely environmental (loss of vegetation cover, biodiversity loss, pollution, contamination, etc), health (e\.g\., pesticide poisoning) and safety (e\.g\., accidents at work camps) risks may be associated with pre-construction, construction/rehabilitation and operation of facilities, use and disposal of agrochemicals\. Inappropriate use of groundwater resources (through over-use, agrochemical sippage, etc\.) could result in aquifer depletion and contamination, affecting water quantity and quality in neighboring communities and downstream in riparian countries\. Recognizing that AGP could result in potential adverse risks, AGP has formulated an Environmental and Social Management Framework (ESMF) that describes in broad terms how potential project related risks and impacts associated with all the World Bank safeguard policies would be mitigated and addressed before and during implementation of project activities\. In addition, it describes the institutional responsibilities, capacities, financial resources and monitoring needs essential to implement mitigation measures\. Also, to guide implementation at the woreda and kebele level, the ESMF has a simple, easy to use checklist that woreda level environmental and social experts could use to screen and vet subprojects against their environmental and social soundness before these are approved for support\. Furthermore, the ESMF has emphasized the need to undertake site-specific Environmental and Social Impact Assessments (ESIAs) and Resettlement Action Plans (RAPs) for those subprojects that are likely to cause significant negative environmental and social impacts\. While it is unlikely that the sub-projects will cause any potential large scale, significant and/or irreversible environmental and social safeguard impacts, there is a likely chance of small scale impacts\. There are community groups and households who are victims of tribal and administrative boundary conflicts\. Earlier inhabitants and local groups land, trees, and natural resources are at stake due to high influx of migrants\. Resentments are observed among farmers whose communal land is given out to large scale commercial farms in a situation where an extreme land shortage exists\. The first category of those identified groups are being marginalized, others are in a stiff competition for natural resources (grazing and open land, water and trees) that will affect the implementation of AGP Component 2 (PIM 5\.2\. Rural Infrastructure Development and Management) as well some aspects of Component 1 (PIM 5\.1\.) to support farmers# sub-projects in activities related to livestock\. The project triggers OP 4\.12 Involuntary Resettlement in line with the Bank safeguard policies\. The access to and use of common or natural resources need to be safeguarded through public consultations\. Consultations must take place between all those traditionally inhabiting an area with those external people who made agricultural investments in the area\. The ESMF has developed mechanisms through which kebele-based arbitrations and compensations are implemented\. At kebele level, grievance redressing complaints and issues related to the implementation of sub-projects that affect private and community properties will be incorporated in participatory sub- project planning guidelines and screening criteria in the Project Implementation Manual\. In connection with its support of small dams, per the requirements of OP 4\.37, the AGP has developed Small Dams Safety Guideline, which helps provide potential owners of small dams with the requirements that they must meet to construct, operate and manage small dams\. Substantial numbers of community-based sacred and ritual sites of religious and cultural importance, (sacred trees, springs, rivers, ritual sites, etc) have been identified by Social Assessment in all target locations, thereby triggering of OP4\.11 Physical Cultural Resources\. Implementation of AGP sub-components in the area of small irrigation schemes, water reservoir and dam excavation and rural roads construction may likely affect physical cultural resources (PCRs)\. A set of procedures and measures for ensuring that PCRs are considered in the designing process of AGP sub-projects is part of the ESMF\. Mandatory measures are detailed when a PCR safeguard is triggered during a sub project screening process\. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: AGP resources are expected to support institutional building of farmer organizations, processing and marketing entities and strengthening advisory and extension services, sustainable land management (including soil & water conservation, watershed protection), improvement in agricultural and livestock productivity and socially and environmentally sound subprojects such as crop and fodder production, agro-forestry\. This operation will also finance small-scale rural infrastructure including micro-irrigation and market related infrastructure such as foot paths, footbridges, rural side drainage, rural roads, market centers, and community warehouses\. Woreda experts and kebele members will receive training in environmental and social safeguard management during implementation of AGP and if any potential long-term or cumulative impacts are anticipated it is believed that these could be detected early enough so that they can easily be avoided or mitigated\. In view of this, there is no anticipation of any indirect and/or long-term negative impact in the areas where AGP will be operating\. It is anticipated that AGP will result in long-term positive safeguard impacts in the project area because of the emphasis the project places on ensuring sustainable agricultural production practices\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. The formulation of the Environmental and Social Management Framework (ESMF) as a screening and vetting tool for assessing the environmental and social soundness of subprojects is designed to eliminate subprojects likely to have irreversible environmental and social impacts upfront\. The ESMF also contains a positive and negative list of subprojects to be supported or rejected under the AGP financing\. 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. The Recipient and, specifically, the Ministry of Agriculture (MoA) has experience working with Bank projects but would need support to augment safeguards management and oversight capacity\. In early 2009, the federal EPA delegated safeguard review authority to seven technical line Ministries and MoA was one of them\. Safeguard management augmentation would likely be sourced and secured from country-based allies including the federal Environmental Protection Authority (EPA), the regional authorities responsible for environmental management and protection and local consulting firms\. In some of the targeted regions, these public agencies are also responsible for land management/administration and land-use planning\. The federal EPA and the regional level entities do have reasonably good safeguard management capacities, especially in environmental safeguards and particularly in areas related to conducting reviews of safeguard reports and monitoring implementation of safeguard management action plans (e\.g\., environmental management plans, pest management plans, resettlement action plans, etc)\. MoA capacity in both environmental and social safeguard management in general is weak\. This has been duly recognized by the MoA as well as the Bank\. Cognizant of this, various measures have already been taken to improve safeguards implementation, including the recruitment of environmental specialists both at the federal (MoA) and regional (Bureaus of Agriculture (BoA)) levels as well as training organized by the MoA on the ESMF for experts in the AGP Implementing Agencies (IAs)\. The upcoming safeguards training program for Ethiopia will include all the newly recruited safeguards staff from the MoA and BoA\. It is expected that such measures i\.e\. training and capacity building will continue to be undertaken during implementation phase to enhance the capacities of public, private and civil society capacity for environmental and social management, including those outside safeguards such as gender, participation, inclusion, elite capture, etc\. The Ministry of Agriculture has also developed a Small Dams Safety Guideline to guide the proper construction, operation and management of small dams\. Overall, the preparation for implementing safeguard policy under the overall AGP so far is rated as satisfactory\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. -- B\. Disclosure Requirements Date Environmental Assessment/Audit/Management Plan/Other: Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 03/01/2010 Date of "in-country" disclosure 03/05/2010 Date of submission to InfoShop 11/15/2011 For category A projects, date of distributing the Executive Summary of the EA to the Executive Directors Resettlement Action Plan/Framework/Policy Process: Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 03/01/2010 Date of "in-country" disclosure 03/05/2010 Date of submission to InfoShop 11/15/2011 Indigenous Peoples Plan/Planning Framework: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Pest Management Plan: Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 03/01/2010 Date of "in-country" disclosure 03/05/2010 Date of submission to InfoShop 11/15/2011 * If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: The ESMF referred to above is that for the overall AGP\. It includes chapters on RPF and Pest Management Guidelines and has been received by the Bank on March 1, 2010, and disclosed in-country on March 5, 2010\. I was resubmitted to Infoshop under this AGP Financing and received on November 15, 2011\. C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OP/BP/GP 4\.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? No If yes, then did the Regional Environment Unit or Sector Manager (SM) N/A review and approve the EA report? Are the cost and the accountabilities for the EMP incorporated in the Yes credit/loan? OP 4\.09 - Pest Management Does the EA adequately address the pest management issues? Yes Is a separate PMP required? No If yes, has the PMP been reviewed and approved by a safeguards specialist or N/A SM? Are PMP requirements included in project design? If yes, does the project team include a Pest Management Specialist? OP/BP 4\.11 - Physical Cultural Resources Does the EA include adequate measures related to cultural property? Yes Does the credit/loan incorporate mechanisms to mitigate the potential Yes adverse impacts on cultural property? OP/BP 4\.12 - Involuntary Resettlement Has a resettlement plan/abbreviated plan/policy framework/process Yes framework (as appropriate) been prepared? If yes, then did the Regional unit responsible for safeguards or Sector Yes Manager review the plan? OP/BP 4\.37 - Safety of Dams Have dam safety plans been prepared? No Have the TORs as well as composition for the independent Panel of Experts No (POE) been reviewed and approved by the Bank? Has an Emergency Preparedness Plan (EPP) been prepared and arrangements No been made for public awareness and training? OP 7\.50 - Projects on International Waterways Have the other riparians been notified of the project? Yes If the project falls under one of the exceptions to the notification N/A requirement, has this been cleared with the Legal Department, and the memo to the RVP prepared and sent? Has the RVP approved such an exception? N/A The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank's Yes Infoshop? Have relevant documents been disclosed in-country in a public place in a Yes form and language that are understandable and accessible to project-affected groups and local NGOs? All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities Yes been prepared for the implementation of measures related to safeguard policies? Have costs related to safeguard policy measures been included in the project Yes cost? Does the Monitoring and Evaluation system of the project include the Yes monitoring of safeguard impacts and measures related to safeguard policies? Have satisfactory implementation arrangements been agreed with the Yes borrower and the same been adequately reflected in the project legal  documents? D\. Approvals Signed and submitted by: Name Date Task Team Leader: Mr Achim Fock 08/22/2011 Environmental Specialist: Mr Edward Felix Dwumfour 08/23/2011 Social Development Specialist Ms Yasmin Tayyab 08/23/2011 Additional Environmental and/or Social Development Specialist(s): Approved by: Regional Safeguards Coordinator: Ms Alexandra C\. Bezeredi 10/20/2011 Comments: Sector Manager: Ms Karen Mcconnell Brooks 10/20/2011 Comments:

APPROVAL

P037383

IVI STRICTLY Document io\. X C 0NdIDENTIAL PECONWEIATIONS OF THE PRESIDETT TO TIM EXECUTIV2 DIRECTORS OF TE BAIKI INTER1ATIONA\.Lw BANK FOR RECONSTRUCTION AND DEVELOPME1T Recommendations of the President to the Dxecutive Directors on the Application of October8, 1946 by the Minister of Finance of the Republic of France for a loan of $500 million, to be granted to the Credit Uational pour faciliter la Reparation des Dommages causes par la Guerre, and to be guarantee4 by the Re-oblic of Fr,ance\. I, RECOMM4ENDATIONTS The request for a loan of $500 million, submitted by the French Minister of Finance, has been carefully examined by the President of the Bank and by his staff with reference to the Bank's Articles of Agreement, to the needs of 7rance and to the funds at the Bankis disposal\. The President recommends an immediate loan of $250 million, to be granted to the Credit Ntational pour faciliter la Reparation des Dommages causes par la Guerre, and to be guaranteed by the Republic of France\. The loan is to be for a period of 30 years; it is to carry interest at the rate of 34 per cent; interest is to be charged from the date of dis- bursement and a commitment commission of 1F per cent is to be charged on the unditbursed portion; also, in accordance with Section 4(a) of Article IV of the Articles of Agreement, a commission of one per cent, is to be charged on the outstanding portion of the loan\. The terms of repayment provide for the suispension of amortisation for the first five years, a low rate of repayment during the next nine and a half years and a higher one during the last fifCteen and a half years of the currency of the loaA\. The proceeds of the loan are to be applied to the financing of the purchase agd import of equipment and materials that are Document 71o, X req\.ired and will be uased exclusively for productive purposes in the carrying out Pf FPranQels program for the reconstruction and modernisation of its economy\. The detailed terms and conditions on which it is proposed that the 3ank grant the loan are set out in the draft Loan Agreement dated 1May 6, 1947, between the Bank and the Credit National, and in the draft Guarantee Agreement dated May 6, 1947, between the Republic of France and the Bank\. In recommending an immediate loan of $250 million, instead of the full amount requested, the President has been guided, first by the limited resources presently at the disposal of the Bank and by the requests of other applicants, and, secondly, by the responsibility entrusted to the Bank under Section 4(v) of Article III to act prudently both in the interests of the member that guarantees the loan and of the members as a whole\. The President has stated to the French authorities that although the Bank is not now pre- pared to make any commitmients with regard to a further loan, it will be pre- pared to consider an additional application for a further loan at a later stage, though not bef6re Octoberl, 1947 in the light of the funds which the Bank shall then have available for lending and of the progress then achieved by France in carrying out its economic and financial program\. Accordingly the President formally recommends to the Board of Executive Directors the approval of a loan of $250 million to the Cr6dit Fa- tional pour faciliter la Reparation des dommages causes par la Guerre, in the form and on the conditions substantially as specified in the Draft Loan Agree- ment, the draft Guarantee Agreement and accompanying documents submitted here- with, (Appendix "131)\. II\. 00MPLIANCE 1ITH TEE CODITIOUS OF LENDIBG The loan recommended complies with Section 4 of Article III of the Articles of Agreement, setting out the conditions on which the Bank may Document Wo\. X guarantee or make loans\. (i) Although the Republic of France is not itself the 'borrower, it fully gappe\.ntees the repayment of the principal and t3,e payment of interest and other charges on the loan\. (ii) The Bank is satisfied that in the -prevailing market conditions the borrower, the Credit National, is unable otherwise to obtain the loan on conditions that, in the opinion of the Bank, are reasonable for the borrower\. (iii) A competent committee, as provided for in Article V Section 7, of the Articles of Agreement, has submitted a written report recommending the purpose of the loan after a careful study of the merits of the -roposal\. The report of the Committee is attached as AOpondix "A0\. (iv) In the opinion of the Bank the rate of interest and other charges are reasonable and such rate, charges and the schedule of repayment of principal are ap-propriate to the purpose of the loan\. The schedule of repayment has been specially designed to ease the transfer prpb- lem of France until 19624 On the basis of the conventional 30-year constant annuity Pt 3t per cent, the total amount to be paid in interest and amortisation during the first 15 years would be $196\.6 million; under the terms recommended the amount to be paid during the same ocriod will be $156\.4 million\. (v) In making the recommendation for an immediate loan of $250 million$ the Proident is satisfied that he is acting prudently in the in- terests of France$ in those of the other members of the Bank, and in the interests of the potential investors in the Bank's deben- tures, Due regard has been paid to the prospects that the Credit National and the Republic of France will be in a position to meet their obligations under the loan\. Document 'Yo\. X (vi) The loan recommonded is not intended to finance a specific project for reconstruction or development; it falls within the general -ur- poses of the Bank as set forth in Article I of the Articles of Agroc- mont\. Specifically, it is a loan required to finnnce the import of specific goods necessary to the rehabilitation of the French economy\. III\. THE JUSTFICATIOIT FOR TM LOA\T The Bankls approach to the examination of the aOolic\.tion for the loan has been guided by its policy to give first consideration to the most ur- gent requirements, whether for reconstruction or development, to supply funds for this our-ose that private capital is not now willing or able to furnish, and to ensure that its funds are used for productive purposes\. In this ai- proach, the Bank has been faced with three basic issuos, a) The first is the need for the loan\. b) The second is the recovery pros-oct of France\. c) The third concerns the conditions on which the loan should be granted\. (a) The Need for the Loan The first consideration must be the need for the proposed loan\. This has been examined under two headings; (i) the need of France for financial assistance and (ii) the importance to the rest of Europe of economic re- covery in France\. (i) France's oeed of Foreign Zxchan:e Francols need for the proposed loan arises directly from the inade- quacy of its exorts and other means at its disposal for the purchase and im- port of materials and\. equipment essential to economic rehabilitation\. Docu\.ient 1o, X The Fronch econony was seriously weakened by the cumulative effoct of the wars of 1914-18 and of 1939-45, by heavy expenditure on defenco btwooi the two wars and by the low rate of exenditure on the replacement and modern- iOtion of industriaj equipment in the fthirtiesl\. At the time of tho country's liberation, its productive capacity was, on an average, about 20 per cento smaller than before the war, and much of the remrining equipment was in neod of replacement4 Farther, the country had been denudod under the occupation of its stocks of raw Matorialå - its working capi- tal, Industrial production was baroly one-third of the pre-war rate and =X- ports - the main source of foreign excharge for the purchaso of imports - wore virtually suspended\. The country was thus faced with the task of restoring production from its existing equipment and, in order to ro-croate prosperity, with the modern- isstion of its equipment and methods\. This involved heavy irnorts of materials and oquipment and, pending the restoration of food production, of cerorls and other food\.s\. By the cad of 1946, the volume of production had been restored\. to bout 90 per cent, of the level of 1938 and the volume of exports to 75 Ter cent\. This expansion in productio\.n and exports could only be achieved, apart from in- ternal efforts, by heavy imports of essential materials and equipment, Es>orts, though incressing, have hitherto fallen far short of providing the foreign ex- change for the purchase of necessary iimort8t Hence, the country was correlled (a) to d\.raw heavily on the gold and foreign assets at its disposal and (b) to raise loans abroad\. The official gold and "hard" currency holdings were reduced from the equivalent of $2,614 million at the liberation to about $1,000 million at the end of 1946\. (They have since been reduced to less than $900 nillion)\. In 1946, a belinning was made with the requisitioning and liquidation of Document No\. X declared Drivato balances ind invöstnents abroad to the equivalent of $130 mil- lion\. In addition, since its liberation, France has borrowed abroad the civo lont of $2,600 million nainly in the United States, Yet, France is still far from having restored equilibrium in its cur- ront transactions with other countries\. According to official French estimatos, the income of foreirn 1xchango from exports, from the liquidpation of private balances and investments abroad, fror, the oroceeds of existing loans, and from other sources, is ex2ectod\. to fall below the oxenditures on imports of essential goods and services, by $540 ¤il- lion in 1947, $428 million in 1948 and $198 million in 1949\. Even these figures assune the liqidation of the greater part of declared -rivr,tely held forcign balances and investments\. By 1950, France expects to restore eqluilibriuma in the transactions of the franc aren with the rest of the world\. The astinates of the gap between the income and cxenditure of foreign exchange during 1947-49 are, of course, based on a series of assurntions that mey be modified by actual experience, But the gap exists; and it is a serious one\. In other words, France needs the proposed loan of $250 million if the country is to have the oppor'tunity to finance imports essential to the exvansion of donestic Troduction and the modornisation of its industry and agriculture\. (ii) The Imuortance of Economic Recovery in France By renson of its sizo and productive capacity, France is nivotal in the western par't of Euro9e, The economic rehabilitation of France would\. specd the recovery of surround\.ing countries and, through an expansion in trade, would be beneficial to the rest of the world\. First, by reason of an expansion in production, France will be able to supply part of the needs of surrounding countries and to provide a market Document No\., X for part of their exports, The development of the interchange of goods and ser- vices will depend, in a large measure, on the success achieved in the division of labour between France and its neighbours\. Such a division of labour seems a pro-requisite of the rehabilitation of Europe\. Secondly, in contributing to the rehabilitation of surrounding coun- tries, economic rocovery in France will indirectly benefit the rest of the world\. Before the war, in 1938, continental Euroio imported some 32 per cont, of the exports of the rest of the world, and it supnlios 26 per cent\. of the imports of the rest of the world\. At the same time, French imports wore oquivalont to 17 per cent, of continental European imports from all sources, while its etports were equivalent to 15 per cent, of continental European exorts to all other countries\. At present France and other countries in Europe depend on American and other foreign loans and credits to finance a substantial proportion of their imports\. Equilibrium can only be restored by an expansion in European exoorts and this is conditional on an increaiso in production\. (b) The Recovery Pros-ect of France (i) The Noed to expand Production While the need for the loan arises from the fact that exports and other means at the disposal of France are still inadequate to pay for necessary im- ports, its ultimate purpose will only be served if France succeeds in crrrying out the present GovornmentIs policy of economic rehabilitation\. In other words, the pre-requisite of recovery is an expansion in prod\.uction\. The Rap)ort Gen\.eral sur le Premier 4lan de Modernisation et Equiment adopteod\. by the French Government in January, 1947 is designed to rally fll classes of the French -people in a common effort tQ rehabilitate the French econ- omy\. Its ultimate objective is to achieve an increase in the production of we"'lth per head, thus im3roving the standard of living and, by wy of increased Document No\. X\. exports, restoring equilibrium to the French balance of payments\. Although the progr-nt fixos definite production targets for the major industries - the levol of national production is to be raised to the 1938 level this year and 30 per cent above that level by 1950 - it may bo rc- garded as a policy rather than as a rigid series of production targets\. The program envisages the investmont of the equivalent of some $18,900 million during the four years 1947-50; of the totai, about $800 million are des- tined for investmont in overseas territories\. As much as 84 per cent of this proposod invostrent expnditure is e,pccted to conc from domestic resourccs, that is from tho savings of the French people and of corporn,te entor-lrisos, This is equivalent, according to Fronch calculations, to about one-fifth of the estimated net resources availablo fQr domestic utilisation (total domostic ijro- duction, plus inports, less exports and maintenancc expencliture)\. It is clear, therefore, that the successful achievemcnt of this program will depend mainly on the efforts and self,discipline of the French peQplc\. Of the remaining 16 per cento of the proposed invostment it is contempltod that nearly throc-;uar- ters (11½ per cent\.) will be financed from the sale of foreign assets and loan\.s alro7dy obtained, and one-quarter (4' per cent\.) from new loans and credits, While the policy of modernising the French economy adcPted by tha Government is an indication of the will of France to recover, the goals will not bo easy to reach\. First, the proposal to set aside for invostment one-fifth of the coun- tryls avail-ble resources apjears to demand a degroc ,f austerity on tho part of tho French pcoplo th-,t it will be difficult to achieve\. Secondly, the program assumes a volume of import of coal rnd other materials that may iot be forthcoming in full, even if the requisite foreign Document yon x exchange could be made available\.' Indeed the stcol production targot for 1947 has already boon reduced\. (ii) The Need to Arrest Inflation A most urgent condition of recovery is the restoration of confidence in the countryls finances\. Wage rates and prices have substantially increased since the liberation and, as a result, confidence has been undermined\. Ie difficulty of avoiding inflation in a period of scarcity must not be under- estlmatQd,but firmness is necessary to face the problem squarely\. It will have to be attacked from many sides, but psychologically the most important point of attack is the national budget, Last year the current expendithre of the French Government, estimated at Frs\. 573,000 million ($4,815 million) exceeded revenue by Frs\. 153,000 million ($1,285 million)6 The ordinary budget for 1947 has been under consideration for several months and the Government has stated th,-t it ex- pocts to balance it\. Unless the bud0',t is balanced, the lack of confidence in the countryts finances would continue and the difficulties in the way of securt ing anything like one-fifth of the nationrl resources for )ur)oqe of invostment would be seriously increasedq Behind the problems of expanding prod-vtion, balancing the c-tornal accounts and improving the cou ntry's finances lies a more general -roblon: the problem of a country which has been deeply shaken by four years of forcicn occu- pation -nd has to recteato a climate of cooperation in the connon aim of nation, al recovery, France has shown much of its customary resilience since its libera- tion4 But only a sustained and common effort can brinC it again into the line of progressive nations\. The Bank is fully alive to the uncertainties in the pjrospects of France, the difficulties of exnanding )rocuction, of inmroving the countrys Documbnt No, X finonces int of balancing the accounts with foreign countrics, in the rcsent circumstances\. These difficulties are the result of the develoymcnts in the past thirty yenrs and cannot be overcome in the short space of a few years\. Some of the factors impeding recovery, such as the low level of coal inDorts, are beyond the control of France\. But the fundamental fact that emerges from any detailed analysis of the countryfs economy is that it is master of its own future\. The adUitional foreign exchange expectea to be required by France in 1947 and, even nove, pending the balancing of its external accounts in 1950, exceeds the amount of the loan recommended\. True, those needs can be modified, for examnle by a more rapid expansion in exDorts and by a further curtailment of imoorts or by both\. But given its available funds and the requests of other countries, the Bank cannot now commit itself beyond the amount recomponded\. (c) The Condition of the Loan The detailed conditions of the loan recommonlod are set out in the accompanying Draft Loan Agreement and in the Draft Guarantee Agreement\. Atten- tion is particularly called to the fact that the terns of repayment have becn designed to meet French needs, It is recommencled that there shall be no revay- ment for the first five years and only small payments on account of DrinciDal during the subsequent nine and a half years, when FWance already has heavy com- mitments on other loans\. In accordance with Section 5 (b) of Article III of the Articles of Agreement, arrangements are also proposed to ensure that the proceeds of the loan are used for productive purposes and only for the pur?oses for which the loan is recommended\. International Bank for Reconstruction and DevoloDment by (signed) John J\. McCloy President\.

APPROVAL

P162789

 The World Bank Forest Investment Program (P162789) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) Appraisal Stage | Date Prepared/Updated: 27-Nov-2017 | Report No: PIDISDSA23402 Nov 08, 2017 Page 1 of 16  The World Bank Forest Investment Program (P162789) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Cote d'Ivoire P162789 Forest Investment Program Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA 22-Nov-2017 25-Jan-2018 Environment & Natural Resources Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Cote d'Ivoire Ministry of Environnement and Sustainable Development Proposed Development Objective(s) The Development Objective is to conserve and increase the forest stock and improve access to income sources from sustainable forest management for selected communities in target zones Components Forest Cover Restoration in the Gazetted Forests and Adjacent Lands Support to Sustainable Management of the Tai National Park Project Management and Monitoring and Evaluation Financing (in USD Million) Finance OLD Financing Source Amount Climate Investment Funds 15\.00 Total Project Cost 15\.00 Environmental Assessment Category B - Partial Assessment Decision The review did authorize the preparation to continue Nov 08, 2017 Page 2 of 16  The World Bank Forest Investment Program (P162789) Other Decision (as needed) B\. Introduction and Context Country Context 1\. Côte d’Ivoire is located in West Africa and has a total surface area of 322,463 km²\. It is bordered by Liberia and Guinea to the west, Mali and Burkina Faso to the north, and Ghana to the east\. To the south, the country’s long coastline of 550 km runs along the Gulf of Guinea\. Côte d’Ivoire is divided into two main geographic regions: a forest zone in the south (48\.2% of the surface area), and a savanna zone in the north (51\.8% of the surface area)\. 2\. The country’s population, which was estimated at 6\.7 million in 1975, increased to 23\.8 million in 2017\. This rapid growth results from a combination of high natural population growth and significant immigration from neighboring countries (with non-native born Ivorians making up 24% of the population)\. The country’s population is young, with 75% under the age of 35\. About half of the population lives in urban areas (50\.3%), and urbanization is increasing, going from 32% of the population living in urban areas in 1975 to 42\.5% in 1998\. This demographic dynamic has put increasing pressure on the country’s natural resources, especially in the forest zone, where the vast majority of the population lives (75\.5% versus 24\.5% in the savanna zone)\. 3\. The long political-military crisis (2002-2011) had a significant economic and social impact on the country\. The poverty rate was estimated at 46% in 2015 (INS, 2015), and the country ranked 170nd (out of 188) on the 2015 Human Development Index (HDI) of the United Nations Environment Program (UNEP)\. Since 2012, Côte d’Ivoire has shown new economic momentum, with a GDP growth rate estimated at 8\.8% in 2016\. 4\. The agricultural sector is the main driver for economic growth employing more than two thirds of the active population, and producing approximately 28% of its GDP and over 50% of its export earnings\. Côte d’Ivoire is the world’s largest producer and exporter of cocoa and the sector accounts for about a third of total exports\. Sectoral and Institutional Context 5\. Côte d’Ivoire, located in the inter-tropical zone of West Africa, is divided into three main ecological zones: (i) in the north, the Sudanese sector, characterized by alternating wooded and grassy savannas, clear forests and lateritic plateaus; (ii) in the center, the mesophilic sector, a transition zone consisting of a mosaic of savannas, clear forests and semi-deciduous dense forests; and (iii) in the south, the ombrophile area, characterized by dense rainforest\. Added to these three main zones, are the swamp forests, the montane forests to the west and the mangroves along the coast\. 6\. The country’s forest areas are administered by three different entities based on the following statuses: (a) the Permanent Forest Estate of the State/Domaine Forestier Permanent de l’Etat which covers 6,267,730 ha (19% of the total country area) and includes: (i) 233 "Forêts Classées" (Gazetted Nov 08, 2017 Page 3 of 16  The World Bank Forest Investment Program (P162789) Forests (GFs), 4\.196 million ha), managed by the National Forest Development Agency (SODEFOR1) and; (ii) eight National Parks (including Taï, the largest reservoir of biodiversity in West Africa) and six natural reserves totaling 2,071,730 ha, managed by OIPR2; and; (b) the Rural Forest Domain of the State/Domaine Forestier Rural de l’Etat, managed by the Ministry of Water and Forests (MINEF) which constitutes a reserve of lands where priority is given to agriculture and which may be granted for forest exploitation\. 7\. The forest cover, estimated at 37% of the country’s territory in 1960, decreased to less than 14% in 2010 (AFD3, 2013)\. The average deforestation rate increased from 1\.5%/year between 1900 and 1980 to around 4\.3%/year between 1990 and 2015 (BNETD 2016), becoming the highest in the World at the time\. Between 2000 and 2008, during the political crisis, the deforestation rate reached 25% in the Gazetted Forest reserves (SOFRECO 2009)\. According to SODEFOR (2014), the encroachment rate in Gazetted Forests increased from 18% of the total area in 1996 to around 50% in 2014\. 8\. The main direct causes of deforestation and forest degradation are: (i) the massive expansion of extensive slash-and-burn agriculture; (ii) the uncontrolled harvesting of forests, in particular for firewood (currently estimated at 20 million m3 per year, a figure that continues to grow fueled by the lack of protection for GFs and to a lesser extent protected areas, and significant shortcomings in the management of forest resources); (iii) bushfires (accidental or intentional, often for agriculture or hunting); and (iv) mining, notably illegal small-scale gold mining\. 9\. The main indirect causes, which have a broader yet highly significant impact on forestry resources, are: (i) the growing demographic pressure which is increasing urbanization in the forested part of the country, where 75\.5% of the country’s population currently lives; and (ii) the generalized poverty of rural households, which leads to overexploitation of available natural resources in order to compensate both the lack of productivity of smallholder farming and the lack of opportunities of non- agricultural rural revenues\. 10\. To reverse the trend of deforestation and forest degradation, since 2011 Côte d'Ivoire has engaged in the REDD+ process, with support from the World Bank and other partners such as UN-REDD, AFD and FAO\. This led to an initial grant for the country in 2014 of US$3\.8 million and an additional financing in 2017 of US$5\.0 million from the Forest Carbon Partnership Facility (FCPF)-Readiness Fund managed by the World Bank and US$3\.2 million from the UN-REDD\. The Readiness Fund and the UN- REDD fund are designed to assist forest countries to: (i) prepare a national REDD+ strategy and policy framework, (ii) establish a reference baseline of emissions from deforestation and forest degradation, and (iii) set up a national monitoring, reporting and verification (MRV) system for emissions reduction\. The Readiness Fund recognizes that emission reductions require basic reforms and investments in the forest sector and other influencing sectors, and helps countries prepare to access longer-term financing sources, including results-based financing\. In this context, the country was accepted in October 2015 in the pipeline of the FCPF-Carbon Fund and is preparing an Emission Reduction Program in the Agriculture sector in the South West around the Taï National Park for performance-based payments of future emissions reductions by the FCPF-Carbon Fund\. 1 Société de Développement des Forêts 2 Office Ivoirien des Parcs et Réserves/Ivorian Agency for National Parks and Reserves 3 Agence Française de Développement Nov 08, 2017 Page 4 of 16  The World Bank Forest Investment Program (P162789) 11\. In parallel to the FCPF, Côte d'Ivoire successfully applied for the Forest Investment Program (FIP), a targeted program under the Strategic Climate Fund (SCF) to catalyze policies and measures and mobilize significantly increased funds in order to facilitate the reduction of deforestation and forest degradation and to promote sustainable management of forests, leading to emissions reduction and the protection of carbon stocks\. The FIP provides developing countries with up-front bridge financing for readiness reforms and public and private investments in order to support their REDD+ efforts while helping them to adapt to the impacts of climate change and to contribute to biodiversity conservation and achieving other development goals\. The FIP also supports community engagement in forest and REDD+-related consultations, decision-making and implementation through a Dedicated Grant Mechanism for Indigenous Peoples and Local Communities (DGM)\. 12\. The FIP Sub-Committee endorsed the Côte d'Ivoire Forest Investment Plan (IP) in a total amount of US$80 million at its meeting in June 2016\. The Côte d'Ivoire IP is designed to combine different interventions in short and medium terms\. Its programmatic nature is based on two key focuses: (i) a medium and long-term national vision aimed to balance the economic interests of a range of stakeholders with the goal of emissions reduction and sustainable conservation and management of the country’s forests; and (ii) a focus on the sectors which have become the main drivers of deforestation in the country\. The Côte d'Ivoire IP comprises a 5-year first phase financed by the FIP trust fund in the amount of US$24 million and a second 5-year phase of US$56 million to be raised by the Government to consolidate, sustain and expand the first phase interventions\. It also comprises an additional US$4\.5 M for the DGM\. 13\. This project contributes to the first phase of the FIP\. The World Bank and the African Development Bank (ADB) are the two executing agencies supporting the Government of Côte d’Ivoire (GoCI) prepare and implement forest investment projects derived from the IP\. The World Bank was selected by the GoCI to be in the lead role\. The two institutions have agreed on the following arrangements: (i) ADB will focus on interventions in the Rural Domain (RD); and (ii) the World Bank will focus on the GFs as well the Taï National Park\. The WB project budget is US$15 million comprising a US$9\.44 million concessional loan and a US$5\.56 million grant; and the ADB project amounts to US$9 million consisting of a US$6\.36 million concessional loan and a US$2\.64 million grant\. The WB is also the implementing agency responsible for the DGM project, which is a US$4\.5 million grant to be prepared in parallel with the FIP\. C\. Proposed Development Objective(s) Development Objective(s) (From PAD) The Project Development Objective is to conserve and increase the forest stock, and improve access to income sources from sustainable forest management for selected communities in target zones\. Key Results a) Net greenhouse gas emissions (in metric tons/year of CO2 eq) b) Average volume of forest stock (by ha); c) Communities adjacent to targeted GFs with increased access to income sources (number)\. Nov 08, 2017 Page 5 of 16  The World Bank Forest Investment Program (P162789) d) Satisfaction of beneficiaries (level of engagement, by gender and age)\. D\. Project Description 14\. The two geographic regions of project interventions were selected for both their high rates of deforestation and their connection through the migration of cocoa producers from one region (center) to the other (southwest)\. 15\. The Center region covers some 3\.5 million ha (about 11% of the country’s land area) and includes the administrative regions of Gbèkè, Bélier, Iffou, and N’Zi\. The region contains 42 relatively small Gazetted Forests (GFs) with a total area of about 0\.23 million ha, while the Rural Domain (RD) accounts for around 3\.3 million ha of land\. The Center region was once the most productive area, home to the former cocoa belt\. However, due to overuse and unsustainable exploitation of resources, the area lost its attraction for both agriculture and forestry as trees gradually disappeared from the landscape and soil quality and biodiversity became degraded, and many among the region’s rural population joined the heavy migration toward the southwest from the 1970s on\. As a result, due to lower agricultural pressure, the Center region has today a major potential for regenerating its forest cover\. 16\. The South-West region covers an area of approximately 4 million ha (about 12\.5% of the country’s land area) and includes the five administrative sub-regions of San-Pedro, Gboklè, Guémon, Cavally, and Nawa\. The region encompasses 17 GFs (for a total area of around 1\.1 million ha) while the Rural Domain covers approximately 2\.4 million ha\. The last decades have seen a huge growth in populations through migration from both within the country (many from the Center, former cocoa belt) and from outside its borders for reasons both economic and political\. This led to the exponential expansion of cocoa crop to the severe detriment of the GFs\. Political instability in the years 2000-2010 created even greater incursions into the region and its Gazetted Forests\. 17\. The country has recently launched a new forest sector policy (Déclaration de Politique Forestière 2017) focused on a zero-deforestation agriculture and sustainable management of the country’s protected areas (GFs and National Parks)\. The strategy encompasses in particular: (i) restoration of degradation GFs; (ii) concessions of highly degraded GFs by cocoa farming to the private sector for sustainable agroforestry (through introduction of trees and intensification on existing cocoa plantations); (iii) GF concessions for sustainable production of timber and fuelwood; (iv) agricultural intensification; and (v) creation of new protected areas or agroforestry protected areas in the rural domain\. 18\. The FIP is the first program to pilot the implementation of the new forest sector policy: While the ADB project supports the policy execution in the rural domain, the WB focusses on its implementation in protected areas (GFs and the Taï National Park)\. E\. Implementation Nov 08, 2017 Page 6 of 16  The World Bank Forest Investment Program (P162789) Institutional and Implementation Arrangements 19\. An Integrated Project Management Unit (IPMU) responsible for the implementation of all environmental, forestry and NRM projects, including the FIP, under the responsibility of the Ministry of Environment and Sustainable Development was established a year ago and currently manages two World Bank financed projects: (i) the FCPF-Readiness grant managed by a REDD+ focal point who is also the Permanent Secretary of the REDD+ (SEP-REDD+); and (ii) the Obsolete Pesticides Management Project under a dedicated project manager\. 20\. The projects are supported by the following shared units: Financial Management, Procurement, Monitoring & Evaluation, Communication, Safeguards and technical\. The IPMU is currently being strengthened with a General Coordinator (GC) responsible for overall coordination of all projects under the IPMU\. The GC will be supported in his daily tasks by a seasoned International Technical Assistant to enhance technical soundness of all project outputs as well as financial oversight of projects spending\. 21\. The FIP will be under the IPMU and will have a dedicated focal point within the umbrella of the SEP-REDD+ supported by the same shared units\. Furthermore, National entities with mandates for managing Gazetted Forests (SODEFOR), National Parks (OIPR) and the Rural Domain (MINEF) will also be involved with implementation of FIP activities through Memoranda of Understanding with the project\. A monitoring group made of civil society members, such as NGOs will also provide independent oversight of project activities\. 22\. The National REDD+ Committee, chaired by the Prime Minister’s office and composed of key Sectoral Ministries involved with the FIP (Ministries of Environment, Agriculture and Rural Development, Water and Forestry, Industry and Mining) as well as elected local representatives (regional councils and city countries) and community representatives, will be the FIP Steering Committee\. The mandate of this committee includes: (i) approving policy guidelines and providing overall supervision for project implementation; (ii) approving the annual work plans and budget; (iii) approving the annual procurement plan; and (iv) reviewing the annual implementation performance report to be prepared by the IPMU, and overseeing the implementation of corrective actions, when necessary\. \. F\. Project location and Salient physical characteristics relevant to the safeguard analysis (if known) Project sites: (a) Center region: (i) Gazetted Forest (GF) of Ahua in the Nzi sub-region, department of Dimbokro, (ii) GF of Proungbo-Sérebi, sub-region of Moronou, department of Mbatto, (iii) network of GFs of Laka-Fetekro-Mafa-Besse-Boka, sub region of Gbèkè in the departments of Bouaké, and; (iv) the network of GFs of Kouabo Boka-Soungourou-Boka Go, Iffou sub-region in the department of Bouaké and M’bahiakro; (b) South-West region: (i) GFs of Cavally and Goin Debe in the sub-region of Cavally, department of Taï, (ii) GF of Duekoué, sub-region of Guémon, in the department of Duekoué, (iii) GF of Rapides Grah in the sub regions of San-Pedro and Nawa, departments of Soubré, Méagui and San-Pédro, and (iv) GF of Haut-Dodo in the sub-region of San-Pédro, departments of Tabou and San-Pédro\. As the FIP aims at safeguarding gazetted Forests as well as restoring degraded areas, no major safeguard issues are expected\.in the opposite, Nov 08, 2017 Page 7 of 16  The World Bank Forest Investment Program (P162789) expected impacts will be essentially positive \. G\. Environmental and Social Safeguards Specialists on the Team Fatoumata Diallo, Social Safeguards Specialist Abdoulaye Gadiere, Environmental Safeguards Specialist SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) The restoration of degraded areas in gazetted forests by women and youth associations through agro-forestry (for example combining selected forest species with vegetable gardening) may impact environmental components if precautionary measures are not anticipated\. Additionally, the demarcation of the Laka-Fetekro-Mafa-Besse-Boka GFs in order to clarify boundaries with the Rural Domain could also impact environment\. Besides, the project intends to finance also finance small works to rehabilitate Park Tai access roads to facilitate surveillance (component 3)\. Basically, potential Environmental Assessment OP/BP 4\.01 Yes adverse impacts associated which such activities may be moderate, site-specific and manageable at an acceptable level\. Consequently, the project is rated as a category “Bâ€? project\. While the exact locations of these investments are not yet known, the Borrower has developed an Environmental and Social Management Framework (ESMF)\. After its preparation, the ESMF has been reviewed, consulted upon and disclosed both in Cote d’Ivoire on November 17, 2017and at the World bank website on November 20, 2017\. The project aims to enhance the quality of the management of forest and woodlands\. But, some Natural Habitats OP/BP 4\.04 Yes activities will take place in gazetted forests and, those activities may affect natural habitats\. Nov 08, 2017 Page 8 of 16  The World Bank Forest Investment Program (P162789) Consequently, the policy is triggered with the aim of taking particular attention to these particular ecosystems\. Then, the conception of the subprojects should take into account this issue\. None activity of the project is expected to promote woods’ exploitation or to finance activities which will contribute to destroy the forest\. As the above policy, OP4\.36 is triggered to pay attention on the forest resources during the project preparation and its implementation\. Forest policy and management are Forests OP/BP 4\.36 Yes a primary focus of this project\. While the project will explore integrated forest management as part of a strategy of increasing carbon sequestration potential the expected results are of improved forest management\. The ESMF includes a section guiding on forests integrity safeguarding\. Agricultural intensification such as the "agriculture zero deforestation "of cocoa production and reforestation activities, for instance, could require pest management in the course of project implementation\. The ESMF prepared in compliance Pest Management OP 4\.09 Yes with OP4\.01, includes a chapter focused on pest management\. That section sets up guidance and guidelines with the aim to protect population health and environment integrity in promoting best practices\. This policy is triggered because some of the project activities could take place in areas containing sites deemed physical or cultural resources by local communities (holy/secret sites such as sacred Physical Cultural Resources OP/BP 4\.11 Yes groves, sacred forests etc\.)\. It is not anticipated that the project will have negative impacts on any such sites\. During implementation phase, particular attention will be paid to ensure that project activities do not affect such sites\. There are no indigenous people as defined by the Indigenous Peoples OP/BP 4\.10 No World Bank in Cote d’Ivoire The development and implementation of local land use plans promoted may potentially reduce the access to natural resources or created potentially some restriction of access for some households\. Involuntary Resettlement OP/BP 4\.12 Yes Therefore, a Process Framework and a resettlement policy framework (RPF) have been prepared as due diligence to ensure the appropriate measures will be taken in elaborating and implementing those plans Nov 08, 2017 Page 9 of 16  The World Bank Forest Investment Program (P162789) to ensure appropriate guidance on how to address and potential loss of income or livelihood impact\. These reports (PF and RPF) have thereafter been reviewed, consulted upon and disclosed both in Cote d’Ivoire on November 17, 2017 and at the World bank website on November 20,2017\. Safety of Dams OP/BP 4\.37 No The project will not finance dams nor rely on dams\. Projects on International Waterways The project is not expected to affect international No OP/BP 7\.50 waterways\. Projects in Disputed Areas OP/BP 7\.60 No The project will not be located in a Disputed Area\. KEY SAFEGUARD POLICY ISSUES AND THEIR MANAGEMENT A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: Overall, the Forest Investment Project (FIP) aims at safeguarding gazetted Forests as well as restoring degraded areas\. Based on that, it will induce essentially positive impacts\. Nonetheless, through the achievement of positive impacts on forest protection and restoration, some activities might produce potential adverse impacts\. However,such adverse impacts are expected to be moderate, site specific and manageable at an acceptable level\. That is why the project is rated as a category B\. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: The FIP aims to protect the forests by limiting significantly their degradation\. This measure could involve a reduction of the agricultural productions' yield by stopping the itinerant agriculture\. The impossibility to expand henceforth farming areas in conjunction with demographic explosion could exacerbate land disputes\. However, the project activities will allow the vegetable cover reconstitution of the country with a possible improvement of rainfalls and the water resources which could be used for the social and economic activities development\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. N/A 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. As the exact geographic locations of project specific interventions are not yet determined with certainty, the Borrower has developed three environmental and social safeguards instruments, namely an Environmental and Social Management Framework (ESMF)including a Pest Management Plan, in compliance with the triggering of OP/BP 4\.01 (Environmental Assessment) and OP 4\.09 (Pest Management) , a Process Framework(PF) and, a Resettlement Policy Framework(RPF) as per OP/BP 4\.12 (Involuntary Resettlement) triggering\. Further to that, the ESMF includes two chapters focusing on Natural Habitats and Forests safeguarding\. Both chapters Nov 08, 2017 Page 10 of 16  The World Bank Forest Investment Program (P162789) make the PIF fully in compliance with the OP4\.04 and OP4\.36\. Additionally, a section related to a procedure of “chance findâ€? was also included in the ESMF in line with the triggering of the OP4\.11\. The ESMF lays out procedures for screening and mitigating impacts from construction and operation of the irrigation schemes, and includes the following: (a) checklists of potential environmental and social impacts and their sources; (b) procedures for participatory screening of proposed sites and activities and the environmental and social considerations; (c) procedures for assessing potential environmental and social impacts of the planned project activities; (d) institutional arrangements for mitigating, preventing, and managing the identified impacts; (e) typical environmental management planning process for addressing negative externalities in the course of project implementation; (f) a system for monitoring the implementation of mitigation measures; and (g) recommended capacity building measures for environmental planning and monitoring of project activities\. The Pest management’s section deals with safeguard measures to be taken in the case of the use of pesticide to fight against agriculture predators\. However, organic fertilizers and biological technics are supplies recommended to be use first\. Moreover, that section sets up guidance and guidelines with the aim to protect population health and environment integrity in promoting best practices\. The RPF outlines the principles and procedures for resettlement and or compensation of subproject-affected people, and establishes standards for identifying, assessing and mitigating negative impacts of program supported activities\. In addition, the RPF will guide the preparation and implementation of RAPs for each individual sub project that triggers the involuntary resettlement policy\. Specific ESIAs and RAPs will be prepared for relevant activities before project implementation along with Environmental and Social Management Plans (ESMPs)\. The ESIAs will provide mitigation measures for all the potential impacts as a result of the triggering of the above-mentioned safeguard policies\. The Process Framework will guide new modalities of gazetted forest as well as restored areas access and use of their resources\. Responsibility and oversight of the Project’s overall compliance with national and Bank safeguard policies will rest with the environmental and social specialists in the PIU, as the main persons in charge of project implementation and monitoring of safeguard aspects\. They will be working in close collaboration with the national entity responsible for ensuring the compliance of the project’s activities with the national legislation namely ANDE\. That government’s body will conduct periodic monitoring of project’s compliance with proposed mitigation\. It also receive guidance and technical support from bank’s environmental and social safeguard specialist during implementation support missions or through sessions of training\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. The populations who will be impacted by the project activities are mainly the rural communities\. They are the forest owners, the farmers, the hunters, the coalmen and forest loggers\. During the project preparation, these various socio- professional layers have been consulted\. In addition, these consultations have concerned the Civil Society Organizations (CSO) such as the NGOs opening in the environmental management and the natural resources fields , producers organizations, associations, private operators, deputies, etc\. These meetings are held in the form of workshops, of meetings, meetings of work\. After the preparation of safeguard instruments, a validation workshop with the participation of the national agency of Nov 08, 2017 Page 11 of 16  The World Bank Forest Investment Program (P162789) environment (ANDE) and all the above-mentioned stakeholders was held on October 20,2017\. At this occasion, comments and suggestions from participants were taken in each document B\. Disclosure Requirements OPS_EA_DISCLOSURE_TABLE Environmental Assessment/Audit/Management Plan/Other For category A projects, date of Date of receipt by the Bank Date of submission for disclosure distributing the Executive Summary of the EA to the Executive Directors 16-Oct-2017 09-Nov-2017 "In country" Disclosure OPS_RA_D ISCLOSURE_T ABLE Resettlement Action Plan/Framework/Policy Process Date of receipt by the Bank Date of submission for disclosure 20-Oct-2017 07-Nov-2017 "In country" Disclosure OPS_ PM_D ISCLOSURE_TA BLE Pest Management Plan Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of submission for disclosure NA "In country" Disclosure OPS_PM_ PCR_TABLE If the project triggers the Pest Management and/or Physical Cultural Resources policies, the respective issues are to Nov 08, 2017 Page 12 of 16  The World Bank Forest Investment Program (P162789) be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OPS_EA_COMP_TABLE OP/BP/GP 4\.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Practice Manager (PM) review and approve the EA report? Yes Are the cost and the accountabilities for the EMP incorporated in the credit/loan? Yes OPS_ NH_COM P_TA BLE OP/BP 4\.04 - Natural Habitats Would the project result in any significant conversion or degradation of critical natural habitats? No If the project would result in significant conversion or degradation of other (non-critical) natural habitats, does the project include mitigation measures acceptable to the Bank? NA OPS_ PM_COM P_TA BLE OP 4\.09 - Pest Management Does the EA adequately address the pest management issues? Yes Is a separate PMP required? No If yes, has the PMP been reviewed and approved by a safeguards specialist or PM? Are PMP requirements included in project design? If yes, does the project team include a Pest Management Specialist? NA OPS_ PCR_COM P_TA BLE OP/BP 4\.11 - Physical Cultural Resources Does the EA include adequate measures related to cultural property? Yes Does the credit/loan incorporate mechanisms to mitigate the potential adverse impacts on cultural property? Yes OPS_IR_ COMP_TA BLE OP/BP 4\.12 - Involuntary Resettlement Nov 08, 2017 Page 13 of 16  The World Bank Forest Investment Program (P162789) Has a resettlement plan/abbreviated plan/policy framework/process framework (as appropriate) been prepared? Yes If yes, then did the Regional unit responsible for safeguards or Practice Manager review the plan? Yes OPS_F O_COM P_TA BLE OP/BP 4\.36 - Forests Has the sector-wide analysis of policy and institutional issues and constraints been carried out? Yes Does the project design include satisfactory measures to overcome these constraints? Yes Does the project finance commercial harvesting, and if so, does it include provisions for certification system? No OPS_ PDI_ COMP_TA BLE The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank for disclosure? Yes Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? Yes All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Yes Have costs related to safeguard policy measures been included in the project cost? Yes Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? Yes Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? Yes CONTACT POINT Nov 08, 2017 Page 14 of 16  The World Bank Forest Investment Program (P162789) World Bank Salimata D\. Follea Sr Natural Resources Mgmt\. Spec\. Borrower/Client/Recipient Republic of Cote d'Ivoire Adama Kone Minister of Economy and Finance finances@Gouv\.ci Implementing Agencies Ministry of Environnement and Sustainable Development Anne Desiree Ouloto Minister of Environment and Sustainable Development b\.kanate@salubrite\.gouv\.CI FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Task Team Leader(s): Salimata D\. Follea Approved By Safeguards Advisor: Maman-Sani Issa 22-Nov-2017 Practice Manager/Manager: Benoit Bosquet 26-Nov-2017 Country Director: Pierre Laporte 28-Nov-2017 Nov 08, 2017 Page 15 of 16  The World Bank Forest Investment Program (P162789) Nov 08, 2017 Page 16 of 16

APPROVAL

P007032

g C - / 3 7 R E S T R I C T E D Report No\. T\.O\. 102-a This document was prepared for internal use in the Bank\. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE POWER EXPANSION PROJECT IN QUITO, ECUADOR March 9, 1956 Department of Technical Operations  TABLE OF EQUIVALENTS U\.S\. $1\.00 - EcuadorianSucres 15\.15 Ecuadorian Sucre 1\.00 U\.S\. $0\.066 Ecuadorian Sucres 1,000,000 U\.S\. $66,000  TABLE OF CON2E\.ITS Page No\. I, Introduction I IIo The Company and Its Facilities 1 III\. The Power iMiarket 2 Existi ng Market 2 Estimated Future Market 4 IV\. Tihe Project 4 V\. Cost of the Project 6 VI\. Method and Schedule of Construction 7 VII\. Method of FinanciLng the Project 8 V1III\. Financial Aspects 8 Earnings Record 8 Rate Structure 9 Estimated Future Earnings 9 Forecast of Cash Flow 10 Future Financial Position 10 rebt Service 11 Security 11 TX\. Relation of Projeet to National Economy 11 X\. Conclusions and Recorrmendations 12 Map  POI_ER EXPAINSEJCN P`IOJECT QCII TO, ECUADOR I\.- Introduction 1\. This report covers an appraisal of a project for the expansion of the generation, transmission and distribution facilities of the Empresa Electrica Quito, S\.A\. an autonomous pub'icly owned corporation, whnich supplies the city of Quito Nith electricity\. The appraisal is based on field investigations by a Bank engineer, data supplied by the Empresa, and a prelimin- ary engineering study prepared by the John J\. -larte Company, con- sulting engineers of Atlanta, Oeorgia\. The project is estimated to cost the equivalent of about si9\.2 million0 The Banlk has been requested to finance the foreign exchange cost of the project, estimated at the equivalent of $5\.0 million\. II\. - The Company and Its Facilities 2, The Empresa Electrica Quito, S\.xi\. is a new cor- poration organized under an Executive Decree dated June 18, 1955\. Its charter became effective in September, 195> after having been revie-wued by the Bank\. The new corporation is the successor to the Empresa blectrica 1:unicipal whicn was a department of the 1uiunicipal- ity of Quito\. The Empresa Slectrica Xunicipal was established in 1934 for the purpose of building the 3,400 kw G-uangopolo hydro plant cn the San Pedro River, a transmission line and a distribution system in Quito, to supplement the capacity of the American owned Quito Electric LJ ght and power Company which was then supplying the city of euito iLth electricity frora two hydro plants having a total installed capacit,y of 2,680 kw\. In 19L6 the Zmpresa Electrica Mun- icipal purchased all of tlhe facil_ties of the American Company, in- cludinig its se-arately operated distribution system, and increased its own hydro generati;ng caipacity by h,000 lkw,\. In l953 the Empresa adde-d 2,000 kw nore or hydro power to its capacity which brought its total installed capacity up to 12,080 kW\. There have been no further additions since 1953\. The ace of the equipment in each of the Erm,presa's plants, all of which are hydro, is given below:  -2- Year Years of °lant Capacity Installed Service Guapolo 600 Kw 1900 55 11 320 "t 1920 35 Los Ch sllo5 1,760 " 1923 32 Guangopolo 3,1400 1937 18 t 4,O000 1946 9 2,000 ' 1953 3 3\. The new company has a subscribed capital of 137 mi'llion sucres (the equivalent of $9 million), 101 million sucres or 73\.72% of which was subscribed by the MIunicipality of Quito, 18 rmillion sucres or 13\.14% each by tiie 11ational 1-ension Fund and the National Insurance Fund\. The subscription of tle Municipality consisted of plants, machine- ry, tools, real estate and movable property belonging to the fonmsr Empresa Electrica uniciDal\. The value of these assets was detenTined by an appraisal made by a local consulting engineer\. The appraisal was based on replacement value aiad therefore is on the high side but is not con- sidered to be unreasonable\. The suabscriptions of tlhe Pension Fund and the Insurance Fund ac-e payable in cash in the years 1955-1958\. Payments totalling 10 millicn sucres were made in September 1955\. The opening balance sheet after thnese paymrents is shown in Annex A\. The new company started its operations debt free as i\.t assumed nore of the debte of the Empresa Electrica hiunicipal\. 4\. The company has a Board of Directors which is elected by the shareholders\. One of the Tembers of the Board is elected by the Board as President of the Ccmpzny\. The General Manager and the Auditor are selected by the shareholders from candidates submitted bty the Board of Directors and the Technical Director of the Company, who must be an electrical engineer, is appointed by the Board of Directors\. The manage- rial and technical staff of the comDpany appear to be competent\. The technical staff is adequate for normal operations and routine expansion work but the nurnber not engaged in operations and available for super- vision cf the construction of the proposed project is relatively small\. To supplenment its technical staff during the construction of the project the compnny plans to en-age a firm of consulting engineers\. In 'November 1955 the company had a permanent staff of 578, consisting of 265 plant and office employees and 313 workmen\. Of 265 employees, 166 were engaged in general admi\.nistrative work, 54 in the three hydro plants, and the remainder operating and m;aintainiiig the transi\.ission and distribution system\. The vxrLanen are enployed primarily on the maintenance of the plant and equipment\. The number of employees and workmen is on the high side, but not excessive\. III\. The Power Market Existing Plarke t 5\. The city of Quito has a population of about 225,000\. In 1955 the Empresa supplied about 55\.1 million kwh to 32,500 consumers in the city and adjoining suburbs The consumption was about 240 kwh per capita, a very low rate for a system serving no rural consumers\.  - 3 - Of the 3235MO ,onsumers, 12,838 or 4c% were unmetered\. 6\. The maximumr demand actually recorded in 1955 on the 12,080 kw installed generating capacity was 13,400 kw, or an over- load of llo, but as 3,600 kt of the demand is disconnected at peak hours, the actual demand was 17,000 kw or 41% in excess of the system eapacity\. Even with 3,600 kJ of the maximum demand disconnected, there wras a voltage drop of 12 to 3N6 in various parts of the city during peak hours\. 7\. The city is supplied through two separate distribution systems\. One was constructed by the American Company to deliver energy from its tw\.ro generating plants, Guapolo and Los Chillos\. The other system was built by the Empresa Electrica M1unicipal to deliver energy from its Guangopolo plant\. The older American system is obso- lete and must be replaced\. The other system is in reasonably good condition and can be strengthened and expanded\. 8\. In soite of the overloaded condition of the Empresals system the generation in 1955 increased 5\.6% over chat in 1954\. This was accomplished by increasing the system load factor from 62\.1 to 64\.7%\. From 1947 through 1954 the increase in generation averaged 9% per year compounded, furing this period the capacity of the system increased only 2,\.00 kw, but the load factor increased from 51\.1 to 62\.1%\. (For further details see Ainex B\.) The principal load on the system at -oresent is the residential demand, but until new capacity i\.s added no new industrial loads con be absorbed\. The largest single load on the system is l,5RN kbr from the city water pumpirg plant\. 9\. Sales to corsumers in 1955 amounted to 55\.1 million kwh or 73% of the 75\.3 million kwh generated\. The lnss of 20\.2 million kwh, or 27%, from generation to sales is excessive\. A part of this loss is attributed to illegal use\. NIormally losses from station use, trans- mission and distributicn should not exceed 18 to 2C% of generation\. Illegal use is estimated to account for the remaining 7 to 9% of the total generation, a very high figure\. The unmetered consumers who are charged flat rates and who constitute a relatively high proportion of the total, a\.c6ount for most of the illegal use\. Sales to the various classes of consumers in 1947 and 1955 are given below: 1947 Sples 1955 Sales Class of Gonsumer 100O kwh lC'1O kwh go Residential 8,981 32\.60 21,092 38\.26 Commercial 3,757 13\.64 7,2C6 13\.07 Induztrial 6,734 24\.45 12,17e 22\.07 ,Water Pumping 4,G32 14\.52 7,817 14\.18 Street Lighting 2,080 7\.56 3,939 7\.14 Municipal 171 \.63 434 \.79 Government 1,819 6\.60 2,474 J 4\.49 Total 27,544 1\.0n\.00 55,132 100\.00  - 4- Estimlated Futare Market 10\. As the present generating capacity of the company is over- loaded to the extent of about 1,400 kw even after 3,600 kw of the load is disconnected at the peak period, at least 5,000 kw of new capacity should be added merely to service the existing load\. In addition, industrial concerns in Quito with 825 kw of expensive diesel car,acity and other potential loads of about 700 kw are ready to be served as scon as power becomes available\. After these loads are connected the consultants estimate that both the demand and energy requirements will increase at a rate of about 7% per year in the future\. ConsLdering t'ne average increase of 91 per year in consumption of energy in tlhe period 1947 to 1954 when stringent supply conditions prevailed, the consultants' estimates are conservative, Even at this conservative rate the energy require\.ents would increase from 75\.4 million kwh in 1955 to 142 million kwh in 1965\. Sales are estimated to increase at a sli2htly higher rate than generation as losses are expected to decrease with adequate distribution facilities and the proposed decrease in unmetered consumers from 40% to 12 to 1%\. Thle demand on the system is estiniated to reach 30,000 kw by 1965 or about 18,000 kw in excess of the capacity of the existing system\. (See Annex C for further details\.) IV, The Project 11\. To supply the estimated future demand, the company proposes to increase the capacity of its system by 18,980 kw by constructing a 3,000 kw diesel plant, a 14,480 kw hydro plant, and bringing 1,500 kw from the nearby town of IKachachi over a 22 kv transmission line 25 kilo- meters (15\.5 miles) long\. It also proposes to strengthen and expand its distribution system0 12\. As the generating facilities are overloaded at present, the 3,000 kf diesel plant and the 1,500 kw line from hlachachi are planned to provide for most of thle existing pent-up demand prior to the completion of tile 'nydro project\. Replacement of the older distribution system and strengthening, of the other system will keep pace with the expansion of the generating capacity\. 13\. The hydro plant, known as the Cunucyacu project,, will be con- structed on the San pedro about four miles downstream from the existing Guangopolo hydro plant\. It is to be operated as a base load plant at a daily load factor of about 68%,\. At this load factor and with the regulating reservoir to be constructed in conjunction with t1he plant, the required flow for full operation at 14,430 kw would be 18 cubic meters per second, The flowy of the can Fedro River during the seven and a half im,onth rainy season generally reaches about 200 cubic meters per second, with a maximum of 3C0 cubic meters recorded\. During the latter part of the dry season, the flow of the river may fa'l below 18 cubic  - 5 - meters per second for a few weeks\. The minimulm recorded in the 19 years of record was 12\.2 cibic meters per second\. The firm capacity of the plant with the rL-nimum flow and with water drawn from the regulating reservoir will be 10,360 kw\., When necessary during the dry season the diesel plant will be operated to supplement the hydro capacity\. Fortunately, the seasonal peak occurs in December waen ample water is available, 14\. Practically all of the low water flow of the San Pedro River and up to 20 cubic meters per second during the high water season are diverted through the existing Guangopolo plant by a small dam and intake structure atove the plant\. 4ater froin the discharge of the Guangopolo plant will be carried with very little fall through 6173 meters (20,200 feet) of non-pressure tunrniel and 387 mieters (1270 feet) of open canal to the regulating reservoir situated on a plateau above the Cunucyacu power house s-ite\. The fall of the San Pedro River from the Cuangopolo River to the site of the Cunucyacu power house site is 87 rimeters\. 1Iost of tnis fall will be utilized to provide a head of about 74 neters (242 feet) for the Cunucyacu plant\. This l-ill be accomplished by drop! ring the water frorm the regula ting reservoir or directly from the canal through two steel penstocks to four generating units of 3620 kw each to be installed in the underground power house which will discharge into the San Pedro River\. (For further de- tails see Annex D\.) 15, A 22 kv double circuit transmission line on steel towers 6\.1 kilometers (3-75 miles) long w\.ill tie the plant in-to an existing 22 kv line now serving several substatiors in the city and suburbs\. 16\. The older of the two di-stributicn sys tems in Quito will be completely replaced and the other system will be strengthened and ex- panded\. To deliver the adAltiona\.l energy from the diesel slant, the unucyracu hy,dro plant and fromn Eaclhachi to the renovated distributicn system, three new step dov;n substations will be constructed\. PNeters will be installed for all consumers except for about 5,000 who can afford only one lamap\. T'he number of cons} mers in this category is not expected to rise above 5,000 in the future\. 17\. The mnimnur or firrm capacity of the Empresa's four hy7dro plants after the completion of the project iil' be 22,100 kw and the maximur capacity will ;;e 26,500 wr\. However, if the old Guapolo plant built in 1900 is scrapped, as it should be, the minimum hydro capacity would be 21,100 ktux and the maximun 25,500 kw\. All delmands above the hydro capacity must be carired by the diesel plant and the capacity available from- Ilachachi\. The total maximum capacity of the system with the 4,500 kw of diesel and Machachi power added will, therefore, be 30,000 kw and the minimuim 26,600 kw\. The minimum capacity will be exceeded in 1962 and the maximum will be reached in 1965\. There will be reserve capacity in the system only from 1959 to 1962\. The :Empresa is planning tv add hydro capacity to the system after 1962\.  --6 - V\. Cost of the Project 18\. The estimated cost of the project is given in the table below in U\. S\. dollar equivalents\. The figures include contingencies, freight, insurance, engineering and overhead costs\. Foreign Local Total Exchange Currency Cost (TFousand\.TMoTT\.-S\. Dollars) A\. Cunucyacu Hydro Plant 2,206\.4 3,519-o 5,725\.4 B\. Transmission Tine to Quito 91\.6 43\.1 134\.7 C\. Diesel plant 474,6 223,9 698\.5 D\. Distribution System Expansion 742\.8 191\.5 934\.3 E\. New riaeters and meter testing 16421 16\.4 180\.5 and repairing equipment F\. New substations and connecting 431\.2 176\.O 607\.2 Trans\. Line G\. Trans\. Line Machachi to Quito 84\.1 47a2 131\.3 Ho Engineering and Contractors 50ov0 2947 529\.7 Services Sub-total 4,694\.8 4,246\.8 8,941\.6 Interest during con- struction 305\.2 - 305\.2 5100o0o 4,246\.8 9,246\.8 19\. The consulting engineers who reviewed the original cost estimates made by the Empresals engineers concluded that the basic estimates were reasonable, but recomb;end that additional construction equirment be purchased to speed up the construction schedule, that minor changes in the design be made which would increase the cost of the hydro plant slightly and that an additional amount for contingencies be added\. All of these recommendations were accepted by the Empresa and in addition to these increases, the original cost estimates were adjusted to include recent increases in wages and salaries\. Furthermore, 11% was added to the estimated labor costs for contemplated increases during the years of con- struction, 20\. The cost estimates, which now include contingencies of at least 10% on imported equipment and somewhat more than 10% on local currency costs, are adequate and reasonable\. 21\. The Cunucyacu hydro project, including tunnels and regula- ting reservoir, will cost about t\.425 per kw installed with interest during construction added\. This cost is not unreasonable for a project of this type, but it is on the high side\. The cost of generation at the plant will be about 12\.3 centavos ($0\.008 U\.S\.) per kwh\. This is cheaper thin the cost of generation would be from an equivalent thermal installatione  - 7 - VI\. Method and SceLedule of Construction 22\. The Ernpresa proposes to retain consulting engineers to review all of the design work previously prepared, to assist its technical staff in preparin- the necessary plans and specifications for the equipmerit to be purchased abroad, to assist in the selection of the construction equipment to be imported,to provide purchasing services and to supervise the construction of the underground power house and tne ins tallation therein\. 23\. The tunnel, canal and reservoir will be excavated and lined with concrete by competent contractors uuder the supervision of Empresa's consultant;s\. Enpresa will supply r\.csst of the construction equipment\. Loc\.al ci,:itractLrs had, as at the end cf rPovember, 1955, excavated with laboe\. s usirg mo-stly Land tcols, pilot tinnels which extended for a distance eqc l to abrout 70% of the total lengtl of tbe final tunnel\. This aff'orded geologists employred by the consultants an opportunity to study thoroughly tne geologcal condictions to be en- countered during construction\. The material through which the pilot tunnel was driven is co\.1pacted volcanic ash which is relatively easy to work\. 2h4 The unIerr,round pc-;er house will he designed by the con- sultants and co:nstrun -ed under th'eir supervis-on by foreign contractors, 25\. The dLesel pl2nt will be erected by thle supplier of the equipment on a 'lturn-key" basis\. 26, The transnission lines, substations and the expansion of the distribution system will be built by the Dmpresa, 27\. The consultants estimate that the entire project, in- cluding the tunnel, can be completed in three years\. The controlling feature of the rroiect as far as the tiIne of completion is concerned is the tunnel\. It has been thoroughly explored through the access affcrded by the pilot tlnnel\. The consultants alcd their geologist cons-der it entire' -r feasi'le to ocnt:-\.ct t\.e tunnel as planned and that no unusual difficl7ties w:1\.l be encot \.uAered, 2& The sc\.'h3eda for startiu\.g and completing the various features of the project follows: S tarting Completion I t_r_ DZ6t\. Date Diesel Plant 2nd Quarter,1956 3rd Quarter, 1957 Trans, Line £rom 1,achachi 3rd " 1' June, 1957 Cunucyacu Power Plant & 'ITLnnel Under construction December, 1958 New Substations 3rd Quarter, 1956 September, 1958 Distribution Network hid, 1956 June, 1958 Trans\. Line to -uito 1st Quarter, 1958 September, 1958  -8- 29\. 1nternatisnal bids for the 3,000 kw diesel plant have been received\. An order w_ l soon Le placed for the equiprent\. The terms of delivery are exrected to be: shipment of the first unit in nine months, second unit in ten months and third unit in eleven months\. 30\. Orders for the lIachachi-^-uito transmission line and sub- station will be placed in the second quarter of 1956\. 31\. The widaning cf the pilot tunnel is already in progress on a small scale\. This yiork will be stepped up early in 1956\. 32 The expansion of the distribution system w111 keep pace with the increase in ge,ierating caLacity\. 33\. Internati3onal bidding cn all contracts in-volving forsign exchanue expenditures is contemplated\. VII\. >;ethod of Financing the Proj'ect 34\. The Dank loan is expected to cover th- foreign exchange recuiremerits of the project and the cashl subscriptions of the Pension Fund and Insursnce Fund supplamnented by income frcm operations in 1956, 1957 and 1958 are ex,ected\. to cover the local curreney costs\. The cash flow fc:recast (Annex G) indicates that sufficient local funds will be available from these sources for the completion of the project\. If suafficient funds should not be availablre fromn these sources, the Pension Fund and the Insuran^e Fund have agreed to make loans to the Elmlpresa to cover any deficits\. VITT\. F-inancial Aspects Earnings Record 35\., Ihe earninas record for the former '"Empresa Electrica 11unicipal"' for the yae-rs 19i\.9/1955 is giVen in Annex E of this report\. The net incomie figures shown are after deduction of provision for de- preciation on plant ir\. servlce, wnich in actual practice was not re- corded on the books of the municipal enterprise\. in this connection attention is drawn to foo tnote , of Anrne:' E\. E The figures, however, in- dicate that if adequate depreciation had been charged during the years ln questicn the departii\.entts operations would still nave shown profitable results with a nore than adecuate coverage of interest paid during these years on outstanding indebtedness\.,  9- Rate Structure 36\. The tariffs in ef ect at the end of 1955 for the sale of electricity by the Exnrresa provided for flat rates to unmetered residential and ,olmnercial consumers, which rangeci from three sucres (20 U\. S\. cents) to 10 sucres (66 U\. S\. cents) per month\. The pri\.ncipal rates for metered services per kwh were: Equivalent in Sucres U\. S\. Dollars Class of Service Fromr o From To Residential 0\.65 - 0\.L 0\.b043 - 0,009 corimmercial o095 _ 0o45 OeO63 - 0\.030 I ndus trial inergy Charge 0\.30 - 0\.i4 0\.020 - 0\.009 Montlly Derrmand Charge per BP 13\.0r - 9\.10 o\.858 - 0\.60 37\. In 1955 these rates produced an averag-e revenue of 0\.280 sucres ($0\.018) per kwh sold 1/V The cost of generation, transmission and distribution averaged 0\.207 sucres ($0\.0136) per kwh\. The net in- come from sales was 5\.1 million sucres (\.343,000) or about 0,073 sucres (¢o\.0048) per kiwh sold\. 38\. The electricity rates are low, particularly for a Latin American country\. The residential rates in Managua, Nicaragua, for examuple, vary from the equivalent of 5\.6 to 10\.7 U\. S\. cents per kwh as compared with 0\.9 to 4\.3 U\. S\. cents in Quito\. Empresa recognizes the fact that its present rates are low, that its new hydro facilities will require a much larger investment per kilowatt installed than its existing facilities and therefore will entail heavier carryin charges and that if it is to comply with the conditions in its charter -\. it must increase its rates\. Consequently, the Empresa requested authority from the MIunicipal Council to increase its rates\. The Municipal Council authorized an increase in rates of 25% effective when the new diesel plant is put into operation 31 and an add1,ional 25% increase when the new hydro plant is put into operation 1/ The company had c-ther income from rental of transformers, installation charges, etc\., which am,iounted to about 7\.3% of the revenue from energy sales\. 2/ Clause Six states that rates shall be so astablished as to allow the company sufficient revenue to cow er all operating costs including maintenance and depreciation; debt service and a reasonable excess for financing expansion and for the payment of dividendsg 3/ Scheduled for Mid 1957\. hI Scheduled for end of 1958,  _ 10 - D s timated Futur E£arnings 39\. A forecast of future earnings for the period 1956/1963 is given in Annex F\. The revenue figures shown in this Annex are based on an increace ir\. the 195'7 rate; of 25%6 in 1957 as explained abo-re\. With this rate increase the Empresals earningsld be more than sufficient to cover all operatinZ expenses, depreciation, interest charges and the payr\.ent of some dividends during the construction period\. The share- holders have agreed, however, to foreg dividends during the construction period unless the \.mpresa's cash position would permit such payments\. The earnin&s forecast, howtzever, indicates that a dividend of 2i2 could be paid in 1957, 1958 and 1959 and it is t4he Empresals intention to make such paymenets\. ifter the co-rmpletion of the project, the Empresa plans to pay an annual dividend of 7%:2\. iNJet earnings are estimated to be sufficient to pay such a di4Vidend, i%ith the exception of earnings for the first full year after comple t,on (1960)\. In this year net profits are estimated to be Lbout 8\.4' million sucres, whereas a 7, dividend would require 9\.6 rillion sucres\. The differenice of 1\.2 rillion sucres however, could be paid out of accumulated surprlus which will be more than sufficient to cover this shortage in net earningse The second increase in rates mentioned atove has not been taken into account in the financial projections included in this report\. Forecast of Cash Flow 40\. A forecast of receiDts ard expenditures has been prepared for the period 1956/1963 and is given in Annex G\. It shows that the pro- posed loan from the Bank plus the subscriptions from the Insurance and pension Funds, supplemented by the net income ancd dlepreciation allowances of the Empresa would be sufficient to cover the cost of the pro'ect in- cluding interest during construction\. In this forecast no further ex- pansion bayond the present project ha& been assumed\. As already mentioned, such further expansion will be required very soon after the present project is completed\. The projection indicates that substantial funds from reven- ues could be accumulated by the time the expansion becomes necessary\. Future Financial Position 41\. The estimated financial position of the Company at completion of the project is shown in the pro forma balance sheet in Annex H\. By that time total assets of the company are estimated to amount to 227\.5 million sacres (Q1\.0 million), represented by fixed assets of 213\.7 million sucres (4l1h\.l million), and net current assets of 15\.9 million sucres ($1\.1 million)\. TIhe debt/equity ratio of the com\.pany would be 33/67 as shown below\. This reflects a sound position\. Estimated Capitalization middle of 1959 millions of Stlores Equitys Share Capital and Surpltw 151\.7 67\.0 Proposed IBRD Loan 75;8 33\.0 85 \.0 nnwll\.) 27M5 IM\.  - 11 - This position could deteriorate when further expansion of Empresats facilities becomes necessary\. To assure that the Empresa will main- tain its sound financial position in the future, the Zmpresa has agreed to l:nmit its lcng term indebtedness to an amount equal to its total capital and surpluso Debt Service 42\. knnual debt service (including amortization) on the proposed IBRD loan of 5\."50 million would arrount to approLrmaately ,4 32,000 on the assumption that the loan will have a term of 20 years including t\.ree and a half years of grace with an interest rate of 4-3/Lg% per annum\. Debt service would be covered by net income from operations (before deduction of deprecetiuon and interest) about 3\.1 times d-luring the first year after completion of the project\. This coverage woulld increase to about 3\.6 times by 1963\. This is a satis- factory position, Security 143\. There a2e no cutstand ing mortgages on the E'mpresals property and the Erapresa has not pledged its revenues for any purpose\. As a negative nledge has been obtained fromn the company, no positive security has been requested\. :a\. Relation of4 Project to National Economy 414\. Quito, the capital and, second largest cirty of Ecuador, is an im:Cortant centre of comizerce and industry in the Ecuadorian economy\. In recent years, power shortages have been a factor limiting the fuller utilization of the facilities in small industries\. New investr\.ent in facilities dependent on central station power is also retarded by supl ly uncertainties\. The alternative of equipping each new small plant -with its own thermal power source would be manifestly wasteful from the standpoint of the whole economy, even if capital were available for such purposes\. 45t The needs of the murilcipality, particularly for water pumping, are expected to increase in connection with the water project al y\.under construction\. Thiere has also been a steady growth of residential and corntercial use in the past decade\. 46\. In these circumstances, the economic benefits of an ex- panded and dependable supply of power are such as to warrant a high lnvestment priority for the proposed project\.  - 12 - X\. Conclusions and Recoramendatior\.s 147\. The proJect is sound and its estimated cost is reasonable\. The engineering work coripleted to date is satisfactory\. The employment of consultants and contractors satisfactory to the Bank should ensure that the project will be soundly erecuted, Although the market es,timate is conservative, it indicates an urgeiit need for the project\. 48\. The Empresa Blectrica Quito should be the borrower\. 49\. The project is sulitable for a Bank loan equivalent to $5\.0 million, which voald cover th- estimated foreign exchange cost of the project\. Based on the estimated financial results of the project and the useful L3fe of the equiprr\.ent, a term of 20 years is appropriate for thJ loan and the construction schedule indicates a grace period of 3-1/2 years on amortization paymentso  Anniex A El'iPRESA ETLECTRICIC "QULT"0' S\.A, Opening Ealance Sheet - September 27, 1955 (in millions of Sucres) Fixed Assets: Ger4eratizig Plants 55\.24 Transrmission System 4\.77 ristribution System 27,70 General Equipment 3\.20 90\.91 Surteys and Projects 1\.69 92\.60 Materials and tools 8 33 Cash 10>07 Share Capital: Authorized and Subscribed l/ 27,400 ordinary shares of 5,000 Sucres each 137\.- Less: Unpaid subscrptions 26\.- Paid in l/ Shareholders Subscribed Paid in Still to be Paid in (in millons of Sucres) IMIunicipality of Quito 101 101 - Caja de Pensiones (Pension 18 6 12 a/ Fund) - Caja de Seguro (Insurance 18 14 14 a/ Fund) T5r 2 3 a/ payable in period 1956/1958  Annex B Generation, Sales, Losses and Customers 1947-1955 Generation Sales Losses Loss as Maximuma rO of year 1000 KMH 1000 ET!H 1000 KWJH % of Gen\. Demand I'51 Custoiers 1947 39,010 27,550 11,460 29\.8 8,700 18,200 1948 42,120 29,750 12,270 29\.2 9,600 20,370 1949 44,050 30,910 13,140 29\.8 10,300 22,480 1950 50,100 33,590 16,510 33\.0 10,500 24,650 1951 55,650 38,770 16,880 3093 10,900 26,910 1952 59,080 41,740 17,340 29\.4 10,900 28,740 1953 64,710 46,2240 18,h70 28\.5 12,900 30,780 1954 710330 50,,870 20,,460 28\.7 13,100 33,f120 1955 75,370 55,130 20,240 26,9 13,300 32,50O  Annex C E,stimated Generation, Sales and Maximum Deanand 1956-1965 Hydro Diesel Puzrchased Total Gen\. Sales Maximum Year l)on 0 v\.H C0O J1WH lOC KCJH 1000 FvJH 1000 KWH Demand KW 1956 76,880 76,800 56,120 13,400 1957 73,800 7/50') 3;0( 83,800 62,860 16,6oo 1958 77,020 8,000 5,500 90,520 67,890 17,500 1959 1o1,960 3,500 105,o460 79,)PO 22,500 1960 110,000 40n 3,500 113,900 85,430 24,000 1961 1143\.870 3,00 414\.000 121,870 91,Ioo 25,700 1962 122,600 4,3(',0 4\.,500 130,1LOO 97,800 27,500 1963 123,800 5,000 5,500 1341,30C 1/),730 29,400 1964 127,8180 5,000 5,500 138,314c 103,760 29,900 1965 132 ,00o 5,000 5,500 i42,,5Q0 106,370 30\.,000  AnneX D CUI?JCYACU HYDRO PRCJEC T Location - On San Pedro River - 10 Km\. S\. E\. of Quito Length of Tunnel - 6173 Meters Size of Tunnel - Height 4\.7 Meters; iWidth 3\.1 Meters Length of Carnal _ 387 ie te rs Size of Canal - Bottom width 1\.55 mi\. Top width 4\.65 m\. Depth 3\.1 meters\. Capacity of lunnel 21 cu\. meters per sec\. and Cna\. Slope of Tunnel and 1\.2% C anal - Reservoir C;7ipacity - 110,000 cu\. miters Penstocks - 2 - Steel, each 172 meters long; inside diam\. 2\.05 to 2\.25 m\. Bower Plant - Underground Head - Gross - 76\.15 meters; Net 73\.9 meters Turbines - 4 Francis trpe - 5145 UP each Generators - 4 - Each 3,620 Kw (4,525 'VA @ \.8 P\.F) 3 phase 60cy\. a\.c\. L,160 volts TZansforir,ers - 4 - Each 4,525 KVA - Step up to 22 VW\.  ANNEX E CONDENSED INCOME STATEMENTS - EMPRESA ELECTRICA MIENICIPAL QU-ITO (in thousands of Sucres) 1949 1950 1951 1952 1953 1954 1955 A ,/ 1\. KWH's sold (thousands) 30,922 33,590 38,774 41,741 4l64 ___ 866_532 2\. Revenue from Sale of Energy 7,315 9,605 10,600 11,475 12,570 13,820 15,450 3\. Other Income 625 905 865 840 795 1,050 1,130 4\. Total Revenues 7,940 10,510 11,465 12,315 13,365 14,870 16,560 5\. Cperating Expenses 4,205 4,390 4,705 5,060 6,100 6,655 6,475 6\. Depreciation Y 1256 1,539 1,713 1,825 2,197 2,650 3,64i 7\. Total Cost of Operations 5,\.461 5,929 6,410 6,885 8,297 9,305 10,116 8\. Net Income from Operations 2,479 4,581 5,047 5,430 5,068 5,565 6,464 9\. Less: Interest 810 835 935 960 845 705 n\.a\. 10\. Net Profit 1,669 3,746 4,112 4,470 4\.223 4,860 11\. Number of times interest covered 3\.- 5\.4 5\.4 5\.7 6\.- 7\.9 Notes:- - Figures shown for 1955 are total figures for the operations of the municipal and new company combined (from Augst 1, 1955 operations have been carried on for account of the new company)\. 2/ Includes estimated figures for last two months of year\. The published annual income statements of the municipal company for the years 1949/1954 show depreciation charges considerably less than the amounts shown in this table\. Depreciation during these years was only recorded in respect of trucks, office and some other minor equipment, but not in respect of plant in service\. However, an adequate allowance for such depreciation based on original cost has been estimated for the years in question and has been included in the above table for the purpose of analysis only\. v Not available\.  ANNEX F EARNINC-S FORECAST - alPRESA ELECTRICA "QUITO" S\.A\. (in thousands of Sucres) 1956 1957 1958 1959 1960 1961 1962 1963 1\. EWH's sold (thousands) 56,120 62,860 67,890 79,100 85,430 91,400 97\.800 100,730 2\. Revenue from Sale of Energy 15,714 19,4114 a/ 23,055 26,862 29,046 31,076 33,252 34,248 3\. Other Income 1,190 1\.257 1,358 1,582 1,709 1,828 1,956 2,015 4\. Total Revenues 16,904 20,671 24,413 28,444 30,755 32,904 35,200 36,263 5\. Operating Expenses (including maintenance, general expenses and cost of purchased power) 6,985 9,978 j 10,654 9,698 S/ 10,077 11,025 11,799 12,267 6\. Depreciation d/ 4,959 5,438 5,576 9,669 8,952 e/ 8,917 8,986 9,055 7\. Total Cost of Operations 11,944 15,416 16,230 19,367 19,029 19,942 20,785 21,322 8\. Net Income from Operations 4,960 5,255 8,183 9,077 11,726 12,962 14,423 14,941 9\. Less: lnterest -- -- -- 3\.364 3,313 3,166 3,013 2,853 10\. Net Profit 4,960 5,255 - 1M3 5,713 3,4U 9t79 11 0 12,08 11\. Number of times interest covered 2\.7 3\.5 4\.1 4\.8 5\.2 12\. Dividend | -- 3,425 3,425 3,425 9,590 9,590 9,590 9,590 13\. Accrual to Surplus 4,960 1,830 4,758 2,288 (-) 1,177 206 1,820 2,498 Notes:- - / Based on increases in rates, averaging 25%, to become effective at the time that the diesel plant comes into operation (estimated by middle of 1957)\. i Increase in operating expenses mainly represented by fuel cost as a result of putting diesel plant into operation\. c/ Decrease in operating expenses as compared with 1958 figure reflects decrease in fuel cost as a result of the substitution of diesel generation by hydro generation (Cunucyacu Plant)\. V Depreciation charges calculated on a straight line basis (averaging 3\.8' on the total cost of the investment after completion of project)\. i/ The Company's old distribution system (Los Chillos) wMl have been entirely written off by the end of 1959\. This explains the reduction in the item depreciation in 1960 as compared with the 1959 figure\. t/ Assuding an annual dividend of 2i-% for period 1957/1959 and 7% thereafter\.  ANNEX G FORECAST OF RECEIFTS AŽDS E?XliLI1TJERS - jiJi\.irSA IELECTRICA "1UITu" S\.A\. (in thousands of Sucres) 1956 1957 1958 1959 1960 1961 1962 1963 RECEIPTS 1\. Net Incor\.e from Operations 4,960 5,255 8,183 9,077 11,726 12,962 14,423 14,941 2\. Depreciation allowances 4,959 5,438 5,576 9,669 8,952 8,917 8,986 _ 0 3\. Receipts from Operations (1 f 2) 9,919 10,693 13,759 10,746 20,678 21,879 23,409 23,996 4\. Withdrawals proposed IBRD Loan 22,227 25,813 27,710 5\. Payment of Capital Subscriptions by: (i) Caja del Seguro a/ 5,000 9,000 (ii) Caja de Pensiones i/ 6,ooo 6,000 6\. Total Receipts 43,146 51,506 41,469 18,746 20,678 21,879 23,409 23,996 EXPENDITURES 7\. Capital Expenditures: (i) Proposed IBRD Project i 43,148 47,604 44,537 4,797 (ii) Other 1 243 1,000 1,000 1,000 2,000 2, 000 2,000 2,000 Total Capital Expenditures 44,391 48,604 45,537 5,797 2,000 2,000 2,000 2,000 8\. Debt Service proposed IBRD Loan f/ 4,811 6,676 6,676 6,676 6,676 9\. Other expenditures 329 294 340 178 382 484 555 600 10\. Dividend payments e/ -- 3,425 3,425 3,425 9,590 9,590 9,590 9\.590 11\. Total Expenditures 44,720 52,323 49,302 14,211 18,748 18,750 18,821 18,866 12\. Annual Cash Surplus or Deficit C-) (-) 1,574 (-) 817 (-) 7,833 4,535 2,030 3,129 4,588 5,130 13\. Cash Balance at beginning of year 12,596 11,022 10,205 2,372 6,907 8,937 12,066 16,654 14\. Cash Balance at end of year 11,022 10,205 2,372 6,907 8,937 12,066 16,654 21,784 15\. Number of times debt service covered by receipts from operations 3\.1 3\.3 3\.5 3\.6 Notes:- 2/ Total subscription amounts to 18 million Sucres, of which 4 million Sucres paid in 1955\. Total subscription amounts to 18 million Sucres, of which 6 million Sucres paid in 1955\. i Includes interest IBRD loan during construction period\. / Interest for 1956, 1957, and 1958 included in amount of loan and charged to construction\. i Assuming an annual dividend of 221% for period 1957/1959 and 7% thereafter\.  Annex H ElZSk = I2 hIqA;_P0"QIf S\.A\. Pro form,a nalpnce Sheet as of Jurs 30J1959 (in millions of Sucres) Fixed Assets 235\.81 less De,oreciation 22\.09 Net Bookv>nlue 2213,72 'Jet Current Assets (inventories, cash, receivables less current liabilit!\.es) 13\.76 Share Canital: Authorized and Paid in: 27,400 ordinary shares of Sucres 5,000 each 137\.- l/ Proposed IBRD Loan ($5,000,000) 75\.75 Surplus 14\.73 227\.48 ,/ Shareholders: MKunicipality of Quito 101 million sucres Caja de Pensiones 18 i Caja de Seguro8 18 i s' 137 million sucres  vjer PROPOSED ----- ------ ~~~~~~-S CUNUCYACU PLANP& *\.(UNDERGROUND) - - ------- P~~~~~~~~ROPFSEDU ----- C~~~~~~~~~~~~UNUCYACI RESERVOIR POWER EXPANSION P ROJEC QUITO, ECUADOR POPOSED DIESEL STATION~ SBSTATIONS TANSMISSION LINES POPOSED TRANSMISSIONV LINES ----- HAVILY POPULATED AREA ,-\.--- MOUNTAINOUS AREAS RSERVOiRS ( 0 2 31M LOS CHILLOS PLANT JANUARY, 956 I BRD-243/FR

APPROVAL

P176360

 The World Bank STEP Third Additional Financing (P176360) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) Appraisal Stage | Date Prepared/Updated: 25-May-2021 | Report No: PIDISDSA32055 May 25, 2021 Page 1 of 17  The World Bank STEP Third Additional Financing (P176360) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Congo, Democratic Republic of P176360 STEP Third Additional P145196 Financing Parent Project Name Region Estimated Appraisal Date Estimated Board Date DRC Eastern Recovery Project AFRICA EAST 29-Apr-2021 04-Jun-2021 Practice Area (Lead) Financing Instrument Borrower(s) Implementing Agency Social Protection & Jobs Investment Project Democratic Republic of DRC Social Fund (FSRDC) Financing Congo Proposed Development Objective(s) Parent The project development objective is to improve access to livelihoods and socio-economic infrastructure in vulnerable communities in the eastern provinces of DRC\. Components 1\. Community Support 2\. Livelihoods and Employment Generation 3\. Capacity Building 4\. Project Management 5\. Contingency Emergency Response PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 250\.00 Total Financing 250\.00 of which IBRD/IDA 250\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 250\.00 May 25, 2021 Page 2 of 17  The World Bank STEP Third Additional Financing (P176360) IDA Grant 250\.00 Environmental Assessment Category B-Partial Assessment Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B\. Introduction and Context 1\. This US$250 million equivalent Additional Financing (AF) to the Eastern Recovery Project in the Democratic Republic of Congo (DRC) responds to the Government’s request for support to face the combined effects of the COVID- 19 crisis and a new inflow of refugees\. The parent Project is known locally as Projet pour la Stabilisation de l’Est de la RDC pour la Paix (STEP) and is the main social protection instrument to respond to DRC’s overlapping crises\. 2\. This third operation (STEP 3) will foster an integrated approach – education, health, and social protection – to protect human capital of both refugees and host communities\. An immediate focus will be to strengthen the project in North Ubangui and expand it to South Ubangui, two provinces where refugees from the Central African Republic (CAR) have recently arrived in large numbers again\. Country Context 3\. The current level of vulnerability and poverty is unprecedented in DRC’s history, jeopardizing peacebuilding and development efforts\. The fast-growing DRC population is repeatedly exposed to covariate shocks with devastating economic and social consequences\. Two-thirds of the population lives below the poverty line\. About 20 million people need humanitarian assistance (United Nations Office for the Coordination of Humanitarian Affairs (OCHA) 2021)\. 4\. Political instability, poor governance, and weak state institutions are the main factors that explain the persistent poverty in DRC (WB 2018)\. Despite the action of the United Nations Organization Stabilization Mission in the DRC (MONUSCO), parts of the territory continue to be disputed by violent armed groups\. Chronic conflict and high levels of violence have had a devastating impact: as an example, two million children in eastern DRC do not have access to education due to the conflict that has destroyed or damaged schools\. Gender-Based Violence (GBV) is prevalent (United Nations Population Fund 2020) and represents a significant barrier to women’s full engagement in social and economic life\. 5\. DRC hosts over 527,000 refugees, one of the largest numbers in Africa\. Almost all refugees live in rural areas and 72 percent live outside camps; 63 percent are children (UNHCR 2021)\. Refugees are concentrated in remote and insecure border areas, where they account for a large share of the local population\. In particular, DRC’s refugees include about May 25, 2021 Page 3 of 17  The World Bank STEP Third Additional Financing (P176360) 200,000 from CAR, primarily located in rural areas of the northwest; 50,000 of them have arrived in the last quarter\. The COVID-19 pandemic has weakened coping mechanisms among refugees and host communities, as many people have lost their sources of livelihoods\. Population movement and additional pressure on social services is also increasing exposure to diseases, including COVID-19\. 6\. The COVID-19 pandemic has taken a toll in the DRC, as it has globally, and is impacting negatively its people and its economy\. There have been 29,000 COVID-19 cases and 750 deaths in DRC since the declaration of the pandemic (World Health Organization (WHO) 2021)\. The Government swiftly declared a state of emergency, implementing strict containment measures including the closure of schools\. COVID-19 is expected to hit DRC’s economy hard, with a projected contraction of 0\.8 percent in the country’s GDP in 2020\. The socio-economic impacts of the containment measures have included increased loss of employment and income for people and decrease in revenues for businesses in both the formal and informal sectors (DRC National Statistics Institute (INS) 2020)\. Nearly 75 percent of low-income households in DRC reported having lower income in January 2021 than pre-pandemic\. 7\. Despite these formidable challenges, the country experienced its first peaceful transfer of power in 2018 and may be at a turning point\. Support for the Government’s efforts to address overlapping crises may catalyze more sustainable pro-poor policies, e\.g\. free primary education, and initiate a cycle of positive, self-reinforcing initiatives to increase the resilience of the country and its population\. A dynamic response to shocks like the COVID-19 pandemic and a new refugee influx is key to protecting the poor and vulnerable, including refugees, and preventing the reform effort from derailing at a critical juncture for the country’s peaceful development\. Sectoral and Institutional Context 8\. A child born in the DRC today will be 37 percent as productive when she grows up as she could be if she enjoyed complete education and full health\. With a Human Capital Index (HCI) score of 0\.37 percent, DRC ranks 135 out of 157 countries (WB 2020)\. DRC is below the average for the Sub-Saharan Africa region and slightly below the average for low income countries\. This low HCI is similar for girls and boys\. Congolese children spend an average of 9\.1 years in school and 43 percent of children are malnourished\. A lack in health and education infrastructures characterizes the situation in many of the provinces\. Households have limited to no financial risk protection from catastrophic health expenditures\. The school fees system burdens the poor and the most vulnerable households and limits children’s access to school, yet progress has been made with the free primary education reform, implemented with WB financing\. Despite investing in human capital being a pillar of DRC’s new National Strategic Development Plan (NSDP, 2019 -2024), the COVID-19 pandemic now threatens to reverse any progress in human capital\. 9\. Initial data simulations suggest that COVID-19 may reverse years’ worth of human capital progress\. In education, early data indicate that school closures (affecting 18 million DRC children) combined with family hardship are significantly affecting the accumulation of human capital for the current generation of school-age children\. 30 percent of households who did not enroll their children in school for 2020-2021 state a lack of money as the main reason (INS 2020)\. In the health and nutrition sector, COVID-19’s disruption of health services, losses in income, and worsened nutrition are expected to increase child mortality and stunting, with effects that will be felt for decades to come (WB 2020)\. 10\. In the social protection sector, some progress on policy and institutional development has been made over the recent years, with sustained financial and technical support from the international community\. In 2017, the Government adopted a comprehensive Social Protection National Policy\. Last year, MINAS developed a Standard Eligibility Questionnaire for social programing, a first step toward the harmonization of social protection instruments\. bilateral donors, UN agencies, and international NGOs have engaged in the recovery and resilience agenda\. May 25, 2021 Page 4 of 17  The World Bank STEP Third Additional Financing (P176360) 11\. However, DRC has no national social protection system to identify and register vulnerable people\. There is not a national registry yet and safety net programs remain fragmented, poorly funded, and with limited impact\. They cover just two percent of the country’s population, below the five percent average in Central Africa (WB 2018)\. The unit cost for delivering social safety net services is high due to limited physical and technological infrastructure, constrained access to the vulnerable population because of insecurity, and lack of country delivery mechanisms\. Total spending on social safety nets is low even by regional standards: only about 0\.7 percent of GDP is invested in social safety nets, virtually all of it funded by international organizations through emergency programs (WB 2019)\. 12\. The WB, in consultation with UNCHR, has concluded that the refugee protection framework continue to be adequate\. DRC has ratified most international conventions on refugees, including (i) the 1951 Geneva Convention and its additional protocol of 1967 and (ii) the 1969 African Union Convention\. In its 2018 Letter of Development Policy, the Government commits to promoting the socio-economic inclusion of refugees at the provincial and local levels, allowing refugees to access all services and giving them the right to move and work\. The National Commission for Refugees (CNR) is the key Government institution responsible for the legal and administrative protection of refugees and the coordination of related government programs\. C\. Proposed Development Objective(s) Original PDO The project development objective is to improve access to livelihoods and socio-economic infrastructure in vulnerable communities in the eastern provinces of DRC\. Current PDO The project development objective is to improve access to livelihoods and socio-economic infrastructures in selected vulnerable communities in the DRC\. Key Results 13\. The AF will enable the project to reach an additional 350 communities with a high density of refugees, bringing the total number of STEP beneficiary communities to 1,780\. The additional communities will be selected in North Ubangui and South Ubangui, two northwestern provinces which are the most affected by a combination of poverty and forced displacement\. These provinces are hosting the new inflow of CAR refugees\. 14\. While the AF will help the overall population of these communities, it will specifically support 175,000 direct beneficiaries and 875,000 indirect beneficiaries\. This will bring total project beneficiaries to more than 3\.3 million\. The direct users of the improved social infrastructures (students, patients, etc\.) are projected at 70,000 individuals, while the safety net program will cover 105,000 individuals\. Calculations of indirect beneficiaries are based on the household size of direct beneficiaries, accounting for possible duplicates, e\.g\. schooling of multiple children from the same household\. 15\. The achievement of the PDO will continue to be measured against the following Key Performance Indicators (KPIs) for the additional financing: a\. Number of vulnerable communities benefiting from the project (+350) b\. Number of improved community infrastructures (+700) c\. Total amount of social transfers distributed by safety net programs (+US$35 million) d\. Number of persons enrolled in the social registry (+630,000) May 25, 2021 Page 5 of 17  The World Bank STEP Third Additional Financing (P176360) 16\. All indicators will continue to be disaggregated by gender, status, and location as needed and the methodology for data collection and analysis (using remote supervision) will remain the same\. D\. Project Description 17\. Building on STEP’s operational delivery model, this AF will provide a timely response by rapidly expanding social safety nets and protecting human capital in refugee hosting areas\. STEP 3 will contribute to preventing a reversal of the still fragile progress made in human development in recent years, while providing much-needed emergency support to refugees and host communities at high risk of negative outcomes from the COVID-19 pandemic\. 18\. STEP 3 is a straight scale-up, also addressing the financing gap created by activation of the CERC\. The parent project (STEP 1) was set up as a crisis response instrument, and the following restructuring (STEP 2) reinforced that feature\. Consequently, there is no need for changing the project’s components and activities\. 19\. Revised Component 1: Community Support (additional US$58\.0 million equivalent; new total: US$261\.0 million equivalent) will finance the maintenance, rehabilitation and/or construction of additional priority social infrastructures in 350 targeted communities in North Ubangui and South Ubangui\. Component 1 will also sustain support to local governance through the CLDs\. 20\. Revised Component 2: Livelihoods and Employment Generation (additional US$127\.0 million equivalent; new total: US$342\.0 million equivalent) will expand the coverage of STEP’s social safety net to an extra 100,000 direct beneficiaries, among host communities and refugees, in North Ubangui and South Ubangui\. US$50 are to replenish funds that had been reallocated to the CERC\. 21\. Revised Component 3: Capacity Building (additional US$0\.0 million equivalent; total: US$57\.1 million equivalent) structures the social protection sector through a partnership between MINAS, FSRDC, and CNR\. STEP 2 financing already includes provisions for CNR to coordinate the development action of the sectoral ministries to promote refugee inclusion\. 22\. Revised Component 4: Project management (additional US$15\.0 equivalent; new total: US$59\.9 million equivalent) finances all additional costs related to the management, audits, communication, and M&E of the project, including the opening of a new FSRDC office in South Ubangui\. The overall project’s management cost remains capped at 10 percent of the financing\. 23\. Revised Component 5: CERC (additional US$50\.0 million equivalent new total: US$100\.0 million equivalent) allows the government to quickly reallocate and mobilize funds in the event of an emergency\. It is anticipated that the government will request activation of the CERC immediately after the effectiveness of STEP 3 to expand the coverage of the emergency cash transfer in Kinshasa in response to COVID-19\. E\. Implementation Institutional and Implementation Arrangements 24\. The overall implementation arrangements of the project will remain the same, with FSRDC as the Project Implementation Entity under a subsidiary agreement with the Ministry of Finance\. The FSRDC team is in place in North Ubangui and it can deploy rapidly to South Ubangui\. Dedicated staff will be recruited for the new provincial team\. As in May 25, 2021 Page 6 of 17  The World Bank STEP Third Additional Financing (P176360) each STEP benefiting province, a Provincial Consultative Committee will serve as a steering committee in South Ubangui\. The project will also continue to support CLDs in communities where it intervenes\. 25\. Drawing from lessons learned under the parent project, STEP 3 will continue to emphasize close coordination with humanitarian and peace actors\. Aside from operational effectiveness, the goal of this effort is to avoid the creation a dual social protection system, whereby one is operated by international actors and another by the Government\. It is especially true for crises like the COVID-19 pandemic and support for refugees\. UNHCR, with whom the project is already coordinating action, will be a key partner\. Furthermore, the team will engage with other relevant sectors, in particular education and health, around the design of key delivery mechanisms\. \. F\. Project location and Salient physical characteristics relevant to the safeguard analysis (if known) STEP 3 will be implemented in two provinces of DRC: North Ubangui and South Ubangui, which are located in the northwest of the country\. The selected provinces have a high number of poor, important infrastructure needs, and are affected by forced displacement\. The project has adopted a revised geographic targeting strategy to concentrate activities in areas where the project can have a stronger development impact\. Sub-provincial areas will be selected using a project targeting index (PTI)\. The PTI will allow to identify priority zones according to a vulnerability score, which will be calculated based on poverty levels, displacement, and access to infrastructures\. Security, access, as well as colocation with other WB- funded or donor-funded projects, constitute weights in the PTI\. The 350 additional communities benefiting from STEP 3 will be selected in these priority zones\. All project’s sites for public works and community infrastructure undergo an environment and social screening\. An environmental and social management plan (ESMP) is conducted before works start\. The project’s climate change and disaster risk screening revealed that the key relevant vulnerability for this region is seasonal flooding\. G\. Environmental and Social Safeguards Specialists on the Team Christophe Ngongo Muzyumba, Environmental Specialist Shamard Ya Jua Mungu Shamalirwa, Social Specialist SAFEGUARD POLICIES THAT MIGHT APPLY SAFEGUARD _TBL Safeguard Policies Triggered? Explanation (Optional) The proposed operation is a category B project\. This Environmental Assessment OP/BP 4\.01 Yes policy is triggered because the activities of component 1 (Community Support) and component May 25, 2021 Page 7 of 17  The World Bank STEP Third Additional Financing (P176360) 2 (Livelihoods and Employment Generation) of the project may induce negative environmental and social risks and impacts\. The potential environmental and social risks and impacts remain those of the on-going project and include : (i) health and safety for workers and beneficiaries; (ii) air pollution; (iii) exclusion and inclusion errors in beneficiary selection; (iv) risks pertaining to the protection of beneficiaries, including GBV and SEA/SH and refugees; (v) disturbance of social cohesion and livelihood of indigenous people; (vi) involuntary resettlement and temporary restriction of access during civil works\. These activities will not induce major or irreversible environmental and social impacts\. In order to identify the impacts of the project and to propose the appropriate mitigation measures, the Environmental and Social Management Framework (ESMF) approved and disclosed for STEP 2 (in 2020) will be updated and redisclosed to reflect the inclusion of Sud Ubangui\. The updated ESMF will consider risks and approaches tailored to operating in the COVID-19 context, including risks and mitigation measures applicable to SEA/SH and GBV, occupational health and safety, road safety, labor, social inclusion, stakeholder engagement\. In addition, it will include any changes in national environmental laws and regulations, the environmental challenges associated with Sud Ubangui and GRM requirements\. Performance Standards for Private Sector No Activities OP/BP 4\.03 Natural Habitats OP/BP 4\.04 No Forests OP/BP 4\.36 No The distribution of assets to rural households was discontinued\. Therefore, the safeguards policy on Pest Management OP 4\.09 No pest management (OP/BP 4\.09) does no longer be triggered\. This policy is triggered as the proposed works might involve, excavation, which may result in chance finds of physical cultural resources\. Thus, this policy will Physical Cultural Resources OP/BP 4\.11 Yes be addressed in the Environmental and Social Assessment, and “chance findsâ€? procedures should be part of every civil works contract, even where risks are deemed low\. May 25, 2021 Page 8 of 17  The World Bank STEP Third Additional Financing (P176360) There are communities of Indigenous Peoples (IPs) in all six provinces targeted by the project\. An Indigenous Peoples OP/BP 4\.10 Yes Indigenous Peoples Planning Framework (IPPF) that was prepared for the parent project has been updated with information on IPs in all six provinces\. The project does not plan any subprojects that will involve large-scale permanent economic or physical displacement, however there may be some temporary displacement caused by works\. A Involuntary Resettlement OP/BP 4\.12 Yes Resettlement Policy Framework (RPF) developed for the parent project has been updated to include the new activities and provinces covered by the Additional Financing\. Safety of Dams OP/BP 4\.37 No Projects on International Waterways No OP/BP 7\.50 Projects in Disputed Areas OP/BP 7\.60 No KEY SAFEGUARD POLICY ISSUES AND THEIR MANAGEMENT OPS_SAFEGUARD_SUMMARY_TBL A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: Environmental and social risks and impacts of this AF, including COVID-19 specific risk considerations, are assessed and managed in accordance with OP/BP 4\.01 utilizing existing instruments for the original project\. The safeguard assessments related to activities that would be financed with the proposed AF have taken into account risks and approaches in place at the time of AF preparation, tailored to operating in the COVID-19 context, including risks and mitigation measures applicable to SEA/SH and GBV, OHS, labor, social inclusion and stakeholder engagement\. The proposed operation is a category B project as defined in OP 4\.01 (Environmental Assessment)\. The on-going project is categorized as B and the proposed AF does not trigger new safeguard policies\. In addition to OP/BP 4\.01, the following policies were triggered: (i) Physical Cultural Resources (OP/BP 4\.11); Indigenous Peoples (OP/BP 4\.10); and (iii) Involuntary Resettlement (OP/BP 4\.12)\. The potential environmental risks and impacts of the project will be limited, site-specific, and manageable to an acceptable degree, if the monitoring safeguards already in place are complied with and continue to be operational\. These risks were also assessed in detail during the preparation of the original project and subsequent additional financings and continue to be relevant for the proposed operation\. As such, the main social risks relate to: (i) exclusion and inclusion errors in beneficiary selection; (ii) risks pertaining to the protection of beneficiaries, including Sexual Exploitation and Abuse and Sexual Harassment (SEA/SH) and refugees; (iii) disturbance of social cohesion and livelihood of indigenous people; and (iv) temporary restriction of access during civil works\. In general, the project is expected to have a positive impact for the whole population in the targeted areas thanks to the inclusive impact of the May 25, 2021 Page 9 of 17  The World Bank STEP Third Additional Financing (P176360) activities\. The improvement of small-scale community infrastructure through appropriate construction, rehabilitation, and maintenance will have minimal impact on the environment\. None of activities financed by the proposed AF is expected to induce irreversible and significant adverse environmental and social impacts\. The latest version of the Environmental and Social Management Framework (ESMF) was disclosed in-country and on the WB’s external website on June 18, 2020, following the activation of the original Project’s Contingent Emergency Response Component (CERC) to support the Government’s social response to COVID-19 in Kinshasa\. The Indigenous Peoples Planning Framework (IPPF) and the Resettlement Policy Framework (RPF) were disclosed in-country and on the Bank’s external website on March 16, 2020 and March 17, 2020 respectively\. FSRDC has also adopted a SEA/SH Action Plan informed by a project-specific risk assessment and with reference to specialized structures in SEA/SH cases\. Simplified Environmental and Social Management Plans (ESMP) have been prepared and implemented in the field for each sub-project under the original project, both for the community infrastructure and public works\. These activities are small, costing less than $200,000\. Simple ESMPs are filed in the project office\. Any proposed sub-project that would require a Resettlement Action Plan (RAP) is rejected\. The existing instruments, namely the ESMF, IPPF, and RPF, documents and systems will be used to screen, assess, and manage risks and impacts related to the AF activities\. All the safeguards instruments, including the SEA/SH Action Plan, have been updated to reflect the inclusion of South Ubangui and will be redisclosed prior to negotiations\. These instruments are updated to take into account (i) the recommendations on the considerations of the specific risks related to COVID-19 using available guidance in implementation design and (ii) guide teams in implementation of the AF in new beneficiary communities during implementation once completed\. These guidance includes: - World Bank COVID-19 Stakeholder Engagement Plan; - COVID-19 relevant Consultation Guidelines; - World Bank COVID-19 procedures for protecting workers to improve labor conditions; - World Bank COVID-19 procedures for protecting workers (as relevant, refer to LMP Template for COVID-19 Response, and/or COVID-19 Considerations in Construction /Civil Works Project) - WHO and other appropriate COVID-19 related Guidelines that are already part of the national COVID-19 response guidelines; and - Good Practice Note on Addressing Sexual Exploitation and Abuse/Sexual Harassment (SEA/SH) in Social Protection and Jobs Investment Projects Financing\. A strong Grievances Redress Mechanism (GRM) is in place and effective\. Under the original project, the GRM has received a total of 362 cases: 249 general complaints (e\.g\. enquiry on targeting, delay in works, request for additional funding, etc\.), 107 sensitive complaints (e\.g\. collective grievances about delay in payments, local corruption, disturbances of neighbors because of works) and six highly sensitive complaints (e\.g\. GBV and SEA/SH, corruption on procurement, fatalities, threats to staff, etc\.)\. Environment and Social Incident Reports are filed on a timely basis whenever an incident occurs and reflect the challenging operating environment\. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: Negative environmental and social impacts are expected to be minimal to moderate\. No adverse, indirect or long term impacts due to anticipated future activities are expected in the project areas; on the contrary, project investments may foster sound environmental and social practices\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. Not relevant\. May 25, 2021 Page 10 of 17  The World Bank STEP Third Additional Financing (P176360) 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. The original project is in compliance with Safeguard requirements and the Safeguards rating has been rated Moderately Satisfactory for the past three years\. The WB team, including the Environmental and Social Specialists, carries out regular (remote and onsite) implementation support mission\. Environmental and Social Specialists in the team work closely with FSRDC helping the implementation agency to monitor, identify risks, impacts as well as providing inputs into mitigation measures and training activities\. STEP 3 will continue to be implemented by FSRDC\. FSRDC has gained capacity in working with Bank requirements regarding environmental and social safeguards policies through the implementation of the several WB projects, including the DRC - Gender Based Violence Prevention and Response Project (P166763)\. FSRDC has two safeguards specialists within the national coordination as well as a GBV specialist, who oversees the work of safeguards assistants in each provincial offices to ensure proper implementation, monitoring, documentation, and reporting on the mitigation measures identified in the ESMF\. The original project has a robust Grievance Redress Mechanism (GRM) for maintaining public accountability, responding to complaints and preventing conflicts; including specific procedures and a response protocol, to treat GBV complaints ethically, safely, and confidentially\. Each provincial office has a dedicated GRM assistant\. Local Development Committees, which are key partners with the project at the local level, also contribute to identifying, preventing, mitigating and responding to adverse social and environmental impacts\. Each community has the support of two environment focal points, one for infrastructure and the other for safety nets\. All project staff, contractors and beneficiaries have to sign an OHS Code of Conduct, including provisions against SEA/SH\. Furthermore, labor-related risks are covered by the OHS provisions in existing safeguard instruments\. The AF activities will follow the health safety protocols that are in place and that were updated during the 2018-2020 Ebola crisis, COVID-19 risk mitigation measures in line with good practice notes will also be followed\. Finally, the addition of (i) a social registry, (ii) a systematic remote monitoring system, and (iii) near real-time community perception surveys in the project design also contribute to measuring – and course-correcting as needed – potential social and environmental adverse risks\. The ongoing project is already implementing GBV mitigation activities and a SEA/SH Action Plan has been prepared for the expanded activities and provinces covered by the AF\. FSRDC has a safeguards specialist within the national coordination and a GBV specialist to oversee the GBV/SEA/H Action Plan and ensure that GBV/SEA/H risks in relation to planned project activities are being adequately addressed and mitigated\. FSRDC will also ensure that social safeguards staff have adequate experience in gender-sensitive programming and in GBV/SEA/H prevention and response\. Besides the GBV/SEA/H Action Plan, the RPF and IPPF will be the main instruments to address social safeguards risks\. To mitigate potential risks related to involuntary resettlement, the RPF will include steps that take into account the specific needs of displaced and returning populations, and integrate provisions for addressing possible land and other socioeconomic points of contention in an equitable, consultative and peaceful manner\. Meanwhile, the IPPF will include steps for the identification of indigenous populations in the targeted project communities as well as in the vicinity of sub-project sites, and detail procedures that ensure indigenous populations are properly consulted, while feedback mechanisms are established to allow for prompt action in case their rights are not respected or they are denied their fair share of project benefits\. FSRDC understands that both the RPF and IPF have the potential to play an important role in conflict prevention and management\. The parent project's Grievance Redress Mechanism (GRM) will May 25, 2021 Page 11 of 17  The World Bank STEP Third Additional Financing (P176360) be retained and expanded into the new province, subject to modifications as needed based on consultations with local stakeholders\. Local Development Committees are the key partners of the project in each benefiting communities\. As part of its targeting procedures, the project also implements outreach campaigns\. A GRM is in place that allows the public and beneficiaries to interact with the project easily\. GRM meetings are organized frequently and reports of cases sent to the FSRDC\. The Bank team is also regularly informed on the GRM management and project incidents\. These include mostly inquiries on frequency and date of payments for beneficiaries and contractors, which are handled by FSRDC provincial offices\. Last, and as a measure of strengthening robustness of social accountability measures at the local level, community perception surveys are carried out every month in all benefiting communities as a complement to the GRM\. The Project will strengthen its approach to ensure that the GRM is inclusive of and accessible to refugees No new environmental risks are expected to arise from works on community infrastructure (small scale), which will be maximizing the use of local materials and labor and have minimal effect on the environment\. FSRDC recruits environmental specialists in all its sub-offices, including the new sub-office in Sud Ubangui, to ensure proper implementation, monitoring, documentation, and reporting on the mitigation measures identified in the ESMF to be updated, which will include the province of Sud Ubangui\. At the national level, the Congolese Environment Agency (Agence Congolaise de l’Environnement, ACE) of the Ministry of Environment and Sustainable Development (MEDD) is responsible for the evaluation and approval of all environmental and social studies as well as monitoring their implementation, in compliance with national regulations\. ACE has knowledge and experience for projects under Bank’s safeguard policies\. However, it is limited by weak capacities in human, material and financial resources\. Hence the difficulty in monitoring the implementation of environmental and social studies of projects in the field\. Furthermore, both the MEDD and the ACE have no clear mandate regarding their roles in the management of social risks management within the ESA process, such as community risk management, gender-based violence, child abuse and exploitation issues\. Participation and citizen engagement are often found to be poor at both the national and local level, despite decentralization efforts\. The Bank has diligently implemented a participatory approach through its various investments, whereby civil society (vocal and active), as well as the local institutions and leaders, are invited to meetings during the design of projects\. The Bank further continues to provide, as needed, capacity building sessions for the projects’ coordination units and other stakeholders involved in the management of project-related environmental and social risks\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. Potentially affected people have been consulted to update the safeguards instruments\. Measures already in the operations manual reduce discrimination, promote participation of the most vulnerable and encourage refugee integration\. The project will continue to work with specialized local structures to target vulnerable groups\. The operations manual includes procedures to ensure that consultations with women and other vulnerable groups in targeted communities are conducted in safe and enabling environments, such as in sex-segregated groups and with female facilitators, in order to obtain their inputs on planned activities, potential risks and impacts in the context and in connection with project interventions, and understand their risks for sexual exploitation and abuse and sexual harassment (SEAH) in project intervention areas\. The project makes available support services, as well as safe and accessible channels for reporting SEAH incidents\. Where displaced population and host communities are concerned, appropriate sensitization and communication mechanisms will be implemented to involve them in May 25, 2021 Page 12 of 17  The World Bank STEP Third Additional Financing (P176360) decision-making\. UNHCR will support this effort given their mandate\. A social assessment on issues specific to forced displacement was completed by the Bank in January 2020 (Social Assessment of the Dynamics of Forced Displacement in North Kivu and Ituri And Responses by the Eastern Recovery Project (STEP)) and the findings have been incorporated into the project’s approach to working with displaced populations\. Local stakeholders (authorities, civil society organizations, beneficiaries and affected groups, etc\.) will participate in any consultation throughout the project’s life cycle\. Activities will be designed and implemented in close consultation with local and provincial authorities, communities, vulnerable groups (e\.g\. displaced populations, indigenous groups, etc\.), and other relevant stakeholders\. OPS_SAFEGUARD_DISCLOSURE_TBL B\. Disclosure Requirements (N\.B\. The sections below appear only if corresponding safeguard policy is triggered) OPS_EA_DISCLOSURE_TABLE Environmental Assessment/Audit/Management Plan/Other For category A projects, date of Date of receipt by the Bank Date of submission for disclosure distributing the Executive Summary of the EA to the Executive Directors 06-May-2021 06-May-2021 "In country" Disclosure Congo, Democratic Republic of 06-May-2020 Comments https://www\.mediacongo\.net/article-actualite- 86710_resume_du_cges_actualise_pour_le_financement_additionnel_du_projet_pour_la_stabil isation_de_l_est_de_la_rdc_pour_la_paix_capital_humain_step_hc\.html OPS_RA_D ISCLOSURE_T ABLE Resettlement Action Plan/Framework/Policy Process Date of receipt by the Bank Date of submission for disclosure 06-May-2021 06-May-2021 "In country" Disclosure Congo, Democratic Republic of 06-May-2021 Comments https://www\.mediacongo\.net/article-actualite- 86712_resume_du_cpr_actualise_pour_le_financement_additionnel_du_projet_pour_la_stabil isation_de_l_est_de_la_rdc_pour_la_paix_capital_humain_step_ch\.html May 25, 2021 Page 13 of 17  The World Bank STEP Third Additional Financing (P176360) OPS_I P_DIS CLOSURE_TAB LE Indigenous Peoples Development Plan/Framework Date of receipt by the Bank Date of submission for disclosure 06-May-2021 06-May-2021 "In country" Disclosure Congo, Democratic Republic of 06-May-2021 Comments https://www\.mediacongo\.net/article-actualite- 86711_resume_du_cppa_actualise_pour_le_financement_additionnel_du_projet_pour_la_stabi lisation_de_l_est_de_la_rdc_pour_la_paix_capital_humain_step_ch\.html OPS_PM_ PCR_TABLE If the project triggers the Pest Management and/or Physical Cultural Resources policies, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: OPS_COMPLIANCE_INDICATOR_TBL C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) (N\.B\. The sections below appear only if corresponding safeguard policy is triggered) OPS_EA_COMP_TABLE OP/BP/GP 4\.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Practice Manager (PM) review and approve the EA report? Yes Are the cost and the accountabilities for the EMP incorporated in the credit/loan? Yes OPS_ PCR_COM P_TABLE OP/BP 4\.11 - Physical Cultural Resources Does the EA include adequate measures related to cultural property? Yes Does the credit/loan incorporate mechanisms to mitigate the potential adverse impacts on cultural property? Yes OPS_I P_COM P_TABLE OP/BP 4\.10 - Indigenous Peoples May 25, 2021 Page 14 of 17  The World Bank STEP Third Additional Financing (P176360) Has a separate Indigenous Peoples Plan/Planning Framework (as appropriate) been prepared in consultation with affected Indigenous Peoples? Yes If yes, then did the Regional unit responsible for safeguards or Practice Manager review the plan? Yes If the whole project is designed to benefit IP, has the design been reviewed and approved by the Regional Social Development Unit or Practice Manager? NA OPS_IR_ COMP_TAB LE OP/BP 4\.12 - Involuntary Resettlement Has a resettlement plan/abbreviated plan/policy framework/process framework (as appropriate) been prepared? Yes If yes, then did the Regional unit responsible for safeguards or Practice Manager review the plan? Yes Is physical displacement/relocation expected? No Is economic displacement expected? (loss of assets or access to assets that leads to loss of income sources or other means of livelihoods) No OPS_ PDI_ COMP_TAB LE The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank for disclosure? Yes Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? Yes May 25, 2021 Page 15 of 17  The World Bank STEP Third Additional Financing (P176360) OPS_ALL_COMP_TABLE All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Yes Have costs related to safeguard policy measures been included in the project cost? Yes Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? Yes Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? Yes CONTACT POINT World Bank Paul G\. A\. Bance Senior Operations Officer John A\. Elder Operations Adviser Borrower/Client/Recipient Democratic Republic of Congo Honore Tshiyoyo Cellule de coordination des projets minfinrdc@micronet\.cd Implementing Agencies DRC Social Fund (FSRDC) Ruphin Bo-Elongo Coordinator ruphinboel@fondsocial\.cd May 25, 2021 Page 16 of 17  The World Bank STEP Third Additional Financing (P176360) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Paul G\. A\. Bance Task Team Leader(s): John A\. Elder Approved By Safeguards Advisor: Peter Leonard 25-May-2021 Practice Manager/Manager: Paolo Belli 25-May-2021 Country Director: Issa Diaw 27-May-2021 May 25, 2021 Page 17 of 17

APPROVAL

P144762

PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No\.: 83871 Project Name Emergency Post-Conflict Assistance Project– Additional Financing Project ID P144762 Original Project Emergency Post-Conflict Assistance Project (P082817) Region Africa Sector(s) Subnational Government and Administration (40%); Other Social Services (40%); Law and Justice (20%) Theme(s) Conflict Prevention and Post-Conflict Reconstruction (100%) Lending Instrument Emergency Recovery Loan Borrower Republic of Cote d’Ivoire Implementing Agency Office of the Prime Minister Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD Date PID Updated October 16, 2013 Estimated Date of November 6, 2013 Appraisal Completion Estimated Date of Board December 18, 2013 Approval I\. Project Context and Justification for an Additional Financing Cote d’Ivoire is now presented with a window of opportunity to achieve sustainable peace and development\. However, strong economic growth will not be enough to prevent the return of violence and instability\. Substantial social challenges remain thus the need to further support the Government in its efforts toward peace consolidation, fostering economic recovery, and strengthening social cohesion\. The Emergency Post-Conflict Assistance Project (PCAP) has demonstrated that it is an effective instrument for the Government to support efforts toward peace consolidation, foster economic recovery, and strengthen social cohesion\. The project has been able to implement activities effectively across the entire territory and shown its capacity to adapt quickly—and under difficult circumstances—to answer new and urgent needs of vulnerable populations and address emerging conflict situations\. It has acquired considerable knowledge and experience, as well as credibility and legitimacy with beneficiaries and partners\. The strong and unique development impact of this post-conflict project has been repeatedly acknowledged as it builds resilience and expedites Cote d’Ivoire’s recovery process\. II\. Project Development Objective The project seeks to improve conflict-affected communities’ and individuals’ opportunities for economic reintegration and access to social services, which will accelerate Cote d’Ivoire’s crisis recovery and strengthen the prospects for sustainable peace in its territory\. III\. Project Description Building on lessons learned during the five years of project implementation and a thorough evaluation of the project’s results, components have been revised as follows: 1 Component 1: Socio-Economic Reintegration (US$9\.2 million)\. The objective of this Component will be to ensure the socio-economic reintegration of 8,500 vulnerable young women and men through the following sub-components: (i) Labor-intensive public works will benefit 7,000 unskilled vulnerable youth; and (ii) Support to income-generating activities will benefit 1,500 skilled vulnerable youth whose employment opportunities and/or productive assets have been destroyed by the crisis\. Component 2: Identification (US$4\.1 million)\. The PAPC has already carried out all the activities it had committed to in the Government’s Program for the Modernization of the Civil Registry\. To go beyond infrastructure, the theme of identity and citizenship will be further addressed by the project with a focus on service delivery and accountability\. Activities will be organized around three subcomponents: (i) Rehabilitation/construction of 10 civil registry offices and equipment of 30 in the 10 targeted départements through on-the-job training (chantiers-écoles) for 500 vulnerable youth; (ii) Capacity- building of 60 officiers d’état civil and 260 agents d’état civil and community leaders to improve registration in targeted areas; and (iii) Support to operation of civil registration and regularization in the 200 targeted communities, with a particular focus on children\. Component 3: Community Rehabilitation (US$11\.9 million)\. The main objective is to foster social cohesion and peaceful conflict resolution in 200 communities and one selected district of Abidjan (which will benefit from one larger inter-community (inter-quartiers) social cohesion project), with particular focus on the return of displaced people and inclusion of vulnerable groups\. The successful CDD approach of the original project will be continued\. The following activities will be provided as a comprehensive package to all selected communities: (i) Rehabilitation/construction of 200 community infrastructures to improve access to social services; (ii) Design and implementation of 200 projects of social cohesion to promote reconciliation and conflict mitigation; and (iii) Support to 200 projects for economic recovery managed by local associations, e\.g\. women association\. Component 4: Project Management (US$4\.8 million)\. The project with additional financing will continue to be sponsored by the Office of the Prime Minister\. The institutional and implementing arrangements of the original project will be kept\. The original project already has the management, technical, fiduciary, and logistics teams and instruments in place, including Execution, Safeguard, Fiduciary and Procurement Manuals to allow for immediate implementation\. Technical operations will be reinforced by service providers through performance-based contracts, with mandatory transfer of skills and expertise to public institutions\. IV\. Financing SOURCE (US$ million) Borrower/Recipient 0 IDA Credit 30 TOTAL 30 V\. Implementation Overall management, oversight and administration are ensured by the Project Coordination Unit in Abidjan\. The same institutional and implementing arrangements of the original project will be used for the proposed additional financing\. Day-to-day operations will be carried out by three regional offices which report to the Coordination Unit\. The number of regional offices is being reduced from six to three 2 to adjust to the new geographic footprint of the project\. A Steering Committee (comité de pilotage) was set-up under the original project but will be discontinued since there has never been the need for this committee to convene; inter-ministerial coordination is directly managed by the Office of the Prime Minister\. VI\. Safeguard Policies (including public consultation) The project is rated as a Category B and only the Environmental Assessment policy will be triggered (Environmental Assessment, OP/BP 4\.01)\. No large scale or significant irreversible impacts are anticipated under this project\. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4\.01) [x] [] Natural Habitats (OP/BP 4\.04) [] [x] Pest Management (OP 4\.09) [] [x] Cultural Property (OPN 11\.03, being revised as OP 4\.11) [] [x] Involuntary Resettlement (OP/BP 4\.12) [] [x] Indigenous Peoples (OP/BP 4\.10) [] [x] Forests (OP/BP 4\.36) [] [x] Safety of Dams (OP/BP 4\.37) [] [x] Projects in Disputed Areas (OP/BP 7\.60) [] [x] Projects on International Waterways (OP/BP 7\.50) [] [x] VII\. Contact World Bank Contact: Paul Bance Title: Operations Officer Tel: (202) 473-3949 Email: pbance@worlbank\.org Location: Washington, DC - USA Client Recipient: Office of the Prime Minister Responsible Agency: Cabinet of the Prime Minister Contact: Philippe Koffi Title: Director Tel: (225) 22-404-352 Email: Philippe_Koffi@yahoo\.fr Location: Abidjan, Cote d’Ivoire For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop 3

APPROVAL

P164101

 The World Bank Development Response to Displacement Impacts Project (P164101) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) Appraisal Stage | Date Prepared/Updated: 03-Aug-2018 | Report No: PIDISDSA24990 Jul 10, 2018 Page 1 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Uganda P164101 Development Response to P152822 Displacement Impacts Project Parent Project Name Region Estimated Appraisal Date Estimated Board Date Development Response to AFRICA 23-Jul-2018 13-Sep-2018 Displacement Impacts Project in the HoA Practice Area (Lead) Financing Instrument Borrower(s) Implementing Agency Social, Urban, Rural and Investment Project Ministry of Finance and IGAD, Agence Resilience Global Practice Financing Economic Cooperation, Djiboutienne de Ministry of Finance, Développement Social, Planning and Economic Ministry of Agriculture Development and Natural Resources, Office of the Prime Minister Proposed Development Objective(s) Parent The Project Development Objective (PDO) is to improve access to basic social services, expand economic opportunities, and enhance environmental management for communities hosting refugees in the target areas of Djibouti, Ethiopia and Uganda\. The proposed regional project will embed the essential features of ensuring citizen participation and engagement in identifying and prioritizing developmental needs, including socio-economic infrastructure and livelihood opportunities to improve self-reliance of refugee hosting communities; improving social cohesion between refugees and refugee hosting communities; increasing citizen voice and role in development decision making; and eliciting greater demand for social accountability\. The operational approach will be Community Driven Development (CDD) and will involve: (i) building and capacitating grassroots institutions; (ii) ensuring the voice of all communities is heard in decision making; (iii) strengthening decentralized government administrative functions; and (iv) investing in public service delivery and social mobilization to enhance social cohesion among beneficiary communities\. Components Social and Economic Services and Infrastructure Sustainable Environmental Management Livelihoods Program Project Management, and Monitoring and Evaluation Regional Support for Coordination, Capacity and Knowledge Jul 10, 2018 Page 2 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 150\.00 Total Financing 150\.00 of which IBRD/IDA 150\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 150\.00 IDA Credit 87\.50 IDA Grant 62\.50 Environmental Assessment Category B-Partial Assessment Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B\. Introduction and Context 1\. The proposed Additional Financing (AF) is in the amount of US$ 150 million with US$ 125 million from the IDA (International Development Association) 18 sub-window for refugees and host communities\. Of this, US$ 62\.5 million is grant financing and US$ 62\.5 million is credit financing\. The remaining US$25 million is from national IDA allocation\. The original project, referred to as Uganda Development Response to Displacement Impacts Project (DRDIP) or ‘the parent project’ with an IDA Credit of US$ 50 million for Uganda was approved by the World Bank Board on May 31, 2016 and became effective on June 29, 2017\. The project’s original closing date is June 30, 2021\. Uganda DRDIP is being implemented by the Office of the Prime Minister (OPM), Government of Uganda (GOU) since July 1, 2017\. 2\. The Project Development Objective (PDO) of the parent project is “to improve access to social services, expand economic opportunities, and enhance environmental management for refugee hosting communities in the targeted areas of Ugandaâ€?\. The PDO refers to the refugee hosting communities – a reference to both refugees and host communities\. The parent project seeks to Jul 10, 2018 Page 3 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) address the social, economic, and environmental impacts of protracted refugee presence in the host communities through interlinked technical and investment components which remains relevant for the AF\. Given that both the parent project and AF have host communities and refugees as project beneficiaries – with refugees being direct rather than secondary beneficiaries under the AF, and that the interventions and investment responses to the protracted and new refugee presence remain consistent across the parent project and the AF; the PDO remains unchanged\. 3\. The proposed AF is required to ensure a comprehensive developmental response to the significant increase in refugee numbers being hosted in Uganda since the design of the parent project\. While the parent project was restructured in March 2018 to respond this increase and to expand the project to additional refugee hosting districts, there was no commensurate budgetary increase\. Given the immense needs in both number and geographic coverage of the refugee influx, the parent project is expected to disburse resources rapidly\. The project has already disbursed 30 percent of the Credit and will be completely disbursed by December 2019\. 4\. The parent project and AF have four major project components implemented in an integrated and sequential fashion, focusing on mobilization and capacity building for communities and local governments, and an implementation process that is responsive to community priorities\. The components are focused on: (i) Improving Social and Economic Services and Infrastructure; (ii) Ensuring Sustainable Environmental Management including promoting the use of alternative and efficient energy sources; (iii) Livelihoods support program, to increase the income earning opportunities for community members; and (iv) Project Management, policy support, and Monitoring and Evaluation, designed to ensure effective delivery of the project and the development of sustainable systems and structures for the operation\. 5\. The proposed AF would continue to support the parent project activities, but would deepen investments in the project areas with the additional funds, and support a more comprehensive implementation approach with support in three additional areas\. The AF will scale-up existing components and activities of the parent project to also include refugees as direct project beneficiaries, rather than secondary beneficiaries, along with the host communities\. 6\. This AF provides an opportunity to build on the gains made in the parent project to date, and further strengthen the design to adapt to the changing refugee and host community context in Uganda\. As noted above, key additional components include a rapid response financing facility, which would allow the Government to respond quickly to future influxes of refugees and the associated pressure on local service delivery\. A Strengthened Transparency, Accountability and Anti- Corruption (TAAC) component, managed by the Inspectorate of Government (IG) office, that will ensure that fraud, error, and corruption are routinely and independently prevented, identified or addressed\. The specific focus on Social Risk Management (SRM) considers the social risk inherent in responding to forcibly displaced populations, and will systematically embed prevention and redress mechanisms within each component of the project\. Country Context 7\. Uganda is the largest refugee hosting country in Africa, and the third largest, world-wide\. Because Jul 10, 2018 Page 4 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) of ongoing conflicts and instability in the Democratic Republic of Congo (DRC) and South Sudan, official statistics from OPM and United Nations High Commissioner for Refugees (UNHCR) estimate that Uganda is hosting over 1\.4 million refugees and asylum-seekers\. Since the design and approval of DRDIP in May 2016, significant changes have occurred in the context of refugees and their host communities in the country\. 8\. The ongoing violence in South Sudan and DRC has driven a fluid and fast-growing refugee crisis\. In December 2015, there were 477,187 refugees and 35,779 asylum-seekers in Uganda\. As of April 2018, this number has increased to an estimated 1,444,873 refugees and asylum seekers, of which South Sudanese and Congolese make up the majority\. While a refugee verification and re-enrollment exercise in Uganda is ongoing, South Sudanese refugees in Uganda are estimated at 1\.05 million out of the 2\.5 million1 throughout the region\. The influx from South Sudan has subsided\. Congolese refugees and asylum seekers currently make up 276,570\. The majority of Uganda’s refugee communities face protracted displacement and reside in settlements located predominantly in Uganda’s poorest northern districts (table 1) - Adjumani, Arua, Koboko, Moyo and Yumbe in the West Nile sub-region, Lamwo in the Acholi Region, Hoima and Kiryandongo in the Bunyoro sub-region and Isingiro, Kamwenge and Kyegegwa in the South West sub-region\. In addition, 98,317 refugees are also living in Kampala\. Table 1: Refugee settlements in 11 districts and Kampala Districts Settlements Refugee numbers Adjumani 21 settlements 241,084 Arua Rhino Camp 220,461 Imvepi Kampala Kampala 98,317 Kiryandongo Kiryandongo 56,583 Kyegegwa Kyaka II 44,988 Hoima Kyangwali 84,227 Isingiro Nakivale 98,523 Oruchinga 6979 Kamwenge Rwamwanja 75,852 Moyo Palorinya 163,721 Yumbe Bidibidi 287,801 Lamwo Palabek 35,487 Total 1,444,873 Source: Uganda Refugee Response Portal (OPM, UNHCR) 9\. The high proportion of women and girls within the refugee population is a key protection challenge\. According to UNHCR, children make up 54 per cent of all new arrivals, while women represent 23\.5 percent and men 22\.5 percent\. Some forms of Gender Based Violence (GBV) are known to escalate in situations of forced displacement, including sexual violence, intimate partner 1 http://www\.unhcr\.org/south-sudan-emergency\.html Jul 10, 2018 Page 5 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) violence, child and forced marriage, female genital cutting, female infanticide, and trafficking for sexual exploitation and/or domestic labor\. Host communities are at increased risk due to the presence of refugees\. Furthermore, both refugee and hosting communities are affected by limited services available for prevention of and response to GBV risks\. 10\. The World Bank Group (WBG), in consultation with the UNHCR, has confirmed that Uganda’s protection framework is adequate\.2 The UNHCR has provided the WBG with a positive assessment of Uganda’s protection framework\. Uganda is party to the 1951 Convention and the 1967 Protocol relating to the Status of Refugees\. It has however made several reservations to the 1951 Convention, notably Article 7 (exemption from reciprocity), Article 8 (exemption from exceptional measures), Article 9 (exemption on provisional measures), Article 13 (movable and immovable property), Article 15 (right of association), and Article 32 (expulsion) whilst expressly acknowledging the principle of non-refoulement\. Uganda had also made a reservation to the right to wage-earning employment (Article 17), but the right to work is still provided under the 2006 Refugee Act\. 11\. The GOU acceded to the 1954 Convention relating to the Status of Stateless Persons in April 1965 without reservations\. Nevertheless, it has not yet ratified the 1961 Convention on the Reduction of Statelessness\. The country also ratified the broader, regional, 1969 Organization of African Unity (OAU) Convention Governing the Specific Aspects of Refugee Problems in Africa in 1987\. In February 2010, Uganda ratified the 2009 African Union Convention for the Protection and Assistance of Internally Displaced Persons\. 12\. The country has one of the most progressive refugee policy frameworks in the world\. The 2006 Refugees Act and 2010 Refugees Regulations entitle refugees to the right to work, freedom of movement, and availability of Ugandan social services, including access to documents such as Refugee Identity Cards as well as birth, death, marriage, and education certificates\. As a matter of policy, all refugees in gazetted settlements are provided with a subsistence agriculture plot (albeit of diminishing size due to overcrowding), but only a few refugees who are in settlements on communally-owned land have no more than a small kitchen garden\. It should be noted that the land that is availed to refugees, especially in the West Nile sub-region, is donated by host communities in anticipation of better social services and economic opportunities\. Refugees in Uganda can also own property and enter into contracts including land leases\. Uganda’s enabling policy environment for refugees provides some of the best prospects for self-reliance in the world (World Bank, UNHCR, OPM, 2016)\. The Government’s commitment to these policies has been reiterated by the international community frequently\. 13\. In view of Uganda’s own development challenges, the need for medium and long term socio - economic support to refugees and local populations is central to ensuring social cohesion and refugee protection\. This is more important in view of the protracted stay of many of the refugees and the limited prospects for early resolution of the circumstances that generated each refugee population influx into Uganda\. The Uganda National Development Plan (NDP II 2015/16 -2019/20) foresees the inclusion of refugees into national development planning processes through a 2 IDA 18 refugee sub-window, Board consultation on Eligibility, AFR, MNA, SAR (September 19, 2017) Jul 10, 2018 Page 6 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) Government strategy, the Settlement Transformation Agenda (STA)\. In response to the STA, the United Nations Country Team and the World Bank have adopted a multi-year joint strategic framework for self-reliance and resilience programming for refugee and host communities, with a focus on sustainable livelihoods and integration of social services - “Refugee and Host Population Empowerment (ReHoPE)\.â€? Peaceful coexistence initiatives, both between refugee groups and between refugees and host communities, constitute a policy priority\. 14\. The Government of Uganda has been a strong advocate of complementing humanitarian aid with longer term development investments benefitting both refugees and local communities, as documented in the Development Policy Letter of August 30, 2017\. The success of this progressive multi-dimensional approach will depend on continued support for both the ongoing refugee emergency and longer-term development investments\. A key objective is to strengthen the resilience of both refugees and local communities, particularly in the poorest districts of the country\. This will require both institutional changes in implementation arrangements and investment in capacity development allowing line ministries and local authorities to play a more prominent role in the overall response\. 15\. Implementation of the Government’s prioritization and preservation of its pr ogressive protection framework will be challenging considering increasing pressure from continued refugee inflows\. The newly available resources under the IDA18 sub-window for refugees and host communities will support the Government’s strategy of a long-term vision to address the key challenges faced by refugees and host communities in Uganda\. The aim of resources is to help secure the sustainability of the Government’s progressive policies and practices in line with the Board Eligibility Note of September 2017\. WBG support focuses on (i) boosting resilience to refugee shocks, in part by supporting the integration of the refugee response in sectoral strategies and district development plans; (ii) enhancing self-reliance and long-term socio-economic development in areas that host refugees; and (iii) strengthening effective coordination of humanitarian aid and development assistance\. 16\. This AF therefore, contributes to the support envisaged as part of the Uganda Solidarity Summit of June 2017, wherein development partners including the WBG committed to providing funding to scale up priority programs aligned with STA and ReHoPE objectives and principles\. Implementing the Government’s agenda extends beyond the IDA18 implementation period and will require greate r synergy and strong coordination across government agencies as well as strong support from the international community for a more comprehensive humanitarian-development response\. C\. Proposed Development Objective(s) Original PDO 17\. The Project Development Objective (PDO) is to improve access to basic social services, expand economic opportunities, and enhance environmental management for communities hosting refugees in the target areas of Djibouti, Ethiopia and Uganda\. 18\. The proposed regional project will embed the essential features of ensuring citizen participation and engagement in identifying and prioritizing developmental needs, including socio-economic Jul 10, 2018 Page 7 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) infrastructure and livelihood opportunities to improve self-reliance of refugee hosting communities; improving social cohesion between refugees and refugee hosting communities; increasing citizen voice and role in development decision making; and eliciting greater demand for social accountability\. The operational approach will be Community Driven Development (CDD) and will involve: (i) building and capacitating grassroots institutions; (ii) ensuring the voice of all communities is heard in decision making; (iii) strengthening decentralized government administrative functions; and (iv) investing in public service delivery and social mobilization to enhance social cohesion among beneficiary communities\. Current PDO 19\. The PDO remains unchanged\. The original PDO refers to the refugee hosting communities – a reference to both refugees and host communities\. The parent project seeks to address the social, economic, and environmental impacts of protracted refugee presence in the host communities through interlinked technical and investment components which remains relevant for the AF\. Given that both the parent project and AF have host communities and refugees as project beneficiaries and that the interventions and investment responses to the protracted and new refugee presence remain consistent across the parent project and the AF, the PDO remains unchanged\. Key Results 20\. The key PDO level indicators are the following: • Direct Beneficiaries of the Project (number - disaggregated by refugees/host community and gender) • Beneficiaries who engaged in economic activities (number - disaggregated by refugees/ host community; employed/self-employed, and gender) • Households benefiting from displacement crisis response mechanism activities (number – disaggregated by refugees/host community) • Beneficiaries of economic development activities that report an increase in income (number and percentage females – disaggregated by refugee/host community) • Beneficiaries reporting increase in household assets (Percentage - disaggregated by refugee/host community) • Land where sustainable land management practices have been adopted as a result of the project (hectares) • Beneficiaries that feel project investment reflected their needs (Percentage - disaggregated by refugees/host community and gender) D\. Project Description 21\. Like the parent project and AF have four major project components implemented in an integrated and sequential fashion, focusing on mobilization and capacity building for communities and local governments, and through an implementation process that is responsive to community priorities\. The components are focused on: (i) Improving Social and Economic Services and Infrastructure; (ii) Ensuring Sustainable Environmental Management including through promoting use of alternative Jul 10, 2018 Page 8 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) and efficient energy sources; (iii) Livelihoods support program, to increase the income earning opportunities for community members; and (iv) Project Management, policy support, and Monitoring and Evaluation, designed to ensure effective delivery of the project and the development of sustainable systems and structures for the operation\. Component 1: Social and Economic Services and Infrastructure (approximately US $74\.5 million) 22\. The component will provide investment funds to expand and improve service delivery, and build infrastructure for local development\. It has three sub components: Subcomponent 1\.1: Community Investment Fund that will support the rehabilitation and/or expansion of infrastructure for basic service delivery for education, health, water supply and some economic infrastructure at community level, not exceeding US$ 250,000 for each subproject\. Medium and larger strategic investments will range between US$250,000-600,000\. Overall, strategic investments will not exceed 10 percent of the CIF financed projects\. Subcomponent 1\.2: Support for Local Planning and Decentralized Service Delivery will focus on building capacity of Local Government Units and Implementing Agency staff in participatory planning processes; and mobilizing communities and establishing community institutions for planning, implementation, monitoring and evaluation and oversight of subprojects; and subcomponent 1\.3 Displacement Crisis Response Mechanism (DCRM) that will support creating a mechanism to enable GOU to rapidly scale-up its assistance to poor and vulnerable communities in the refugee hosting settlements which experience a rapid refugee influx\. The mechanism would be allocating resources which, under pre-agreed conditions, will be rapidly mobilized to districts which experience an increase in refugee numbers, to expand education, health and water supply services\. Given the developmental objective of the scaled-up response, a list of eligible expenditures for which the DCRM resources may be used, will be defined\. The DCRM is a global innovation to finance rapid response to refugee influx, and is informed by a similar and highly successful mechanism in Northern Uganda Social Action Fund (NUSAF) 3\. Component 2: Sustainable Environmental Management (approximately US$30 million) 23\. The component supports a comprehensive package of the demand-driven soil and water conservation and management practices and interventions to rehabilitate degraded lands and support alternate energy sources\. The subcomponent 2\.1: Integrated Natural Resources Management, through a labor intensive public works mode, will support rehabilitation of degraded forests, using both natural and assisted regeneration\. increasing biomass production for fuelwood, building poles, fruits and fodder through woodlots, and agroforestry systems\. The sub-component 2\.2: Access to Energy will support the enhancement of energy efficiency through improved household cooking, improve efficiency of woodfire dependent livelihoods like charcoal and brick production techniques; and access to alternate energy sources for including potential public-private- community partnerships\. Component 3: Livelihoods Support Program (approximately US$30 million) 24\. The component supports the development and expansion of traditional and non-traditional Jul 10, 2018 Page 9 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) livelihoods of the beneficiary households to build productive assets and incomes\. There are 2 subcomponents, subcomponent 3\.1: Support to Traditional and Non-Traditional Livelihoods and subcomponent 3\.2: Capacity Building of Community Organizations for Livelihoods\. The component will support (i) identification of beneficiaries and the traditional and non-traditional livelihoods to support; (ii) form community livelihoods groups and support group management activities; and (iii) provide individuals and groups necessary technical, business, market and financial advisory services\. Component 4: Project Management, Policy Support, and Monitoring and Evaluation (approximately US$ 15\.5 million) 25\. This Component supports the three sub-components that include subcomponent 4\.1 strengthened transparency and accountability mechanism (TAAC) to be implemented by the IG\. The primary objective of the TAAC subcomponent is to contribute to the Government’s commitment to increasing transparency and accountability in public service delivery, and enhance the effectiveness of transparency, accountability, and anti-corruption processes in project areas; subcomponent 4\.2: project management and monitoring and evaluation that supports national and local level project coordination activities, including Monitoring and Evaluation (M&E) and Management Information System (MIS), fiduciary management, communication and citizen engagement, and environmental and social safeguards management and compliance; and subcomponent 4\.3: policy support for furthering an integrated approach to the medium-term socioeconomic aspects of forced displacement to bridge fragmentation across Government entities and enhance Government coordination with humanitarian and development actors; and enhance an integrated approach to sectoral investments in refugee hosting districts\. 26\. The entrenched norms and practices that perpetuate uneven power dynamics between men and women, further exacerbate the conditions of women and girls in the project areas, which are underdeveloped and have been facing the challenge of hosting large number of refugees, with sometimes very different cultures and social practices\. Such norms and practices get further accentuated by the limited access to basic social services, natural resources, and livelihoods in the target areas of the proposed project poses particular challenges for women and girls\. The long distances traversed by women in search of water and fuel wood and for accessing education and health services increase the risk and exposure of women and girls, as well as boys, to GBV\. The proposed interventions and subprojects under the three investment components related to basic social services and economic infrastructure, environmental and natural resources management, and traditional and non-traditional livelihoods, are gender-informed and contribute to GBV prevention and response among target beneficiaries of the project; and are supported by the SRM strategy of the project\. 27\. In addition, there will be a strong element of enhancing a systemic approach to the mitigation of social risks\. The proposed AF will mitigate social risks comprehensively, including mitigation and prevention of GBV, Violence Against Children (VAC) and communal violence\. The AF will intensify the efforts under DRDIP with respect to: 1) Mitigation of risks of conflict and violence through community-based activities that promote peace building and social cohesion among host and refugee communities; 2) Integration of activities aimed at reducing exposure to GBV and VAC as a Jul 10, 2018 Page 10 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) result of the project activities or within the community, including Sexual Exploitation and Abuse and sexual harassment in the workplace\. This includes strengthening local structures both formal and informal that prevent violence against women and girls, support conflict mediation, youth inclusion and women’s participation, promotion of norms that foster long-term social and cultural change toward gender equality (e\.g\. ensuring leadership and active engagement of women and girls, along with men and boys, in community-based groups related to the project area/sector); and facilitation of assistance for survivors through referrals to safe and ethical care by existing service providers based on the mapping of existing services; and 3) Enhancing prevention and response to VAC through capacity building of DRDIP staff and local stakeholders on identification of risks of VAC as a result of project activities or within the community and strengthening referral mechanisms for VAC in both host and refugee communities with emphasis on the provision of child friendly services and safe spaces for survivors of VAC\. E\. Implementation Institutional and Implementation Arrangements National level 28\. Given the focus on the refugee settlements and the host communities in target districts, the implementation of the project will require multi-stakeholder engagement at various levels\. These will include (i) OPM, sector Ministries, Departments and Agencies (MDAs), and Local Government functioning in the host communities; and (ii) development partners, UNHCR and its implementing partners delivering humanitarian assistance and programs in the refugee settlements\. This is in the context where the overall mandate for the coordination of the refugee response lies with OPM3\.The Refugee Act (2006) notes that the “Office of Refugees shall be responsible for all administrative matters concerning refugees in Uganda and shall, in that capacity, coordinate inter- ministerial and non-governmental activities and programs relating to refugees\.â€? The primary responsibility, therefore, for implementing the DRDIP and the proposed AF, lies with OPM, and specifically, the DRDIP Project Implementation Support Team (PIST)\. 29\. The PIST is led by an Executive Director, working with a Project Manager, and a team of technical staff\. Technical staff include Infrastructure specialist, Livelihoods specialist, Monitoring and Evaluation specialist, Procurement specialist, a qualified and experienced Accountant, Communications specialist, and a Safeguards specialist\. This team will continue to provide key technical support during implementation, monitoring and evaluation\. The Executive Director reports to the Permanent Secretary, OPM\. 30\. In implementing the project, OPM has convened other sectors through a National Technical Project Committee (at the national level) that serves as the forum for the technical coordination between OPM and sector Ministries\. Policy guidance and strategic oversight for the project is to be 3 CRRF Secretariat, “Strengthening District Coordinationâ€?, Issue Paper, 13 June 2018 Jul 10, 2018 Page 11 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) provided by the Comprehensive Refugee Response Framework (CRRF) Steering Committee4\. The Committee will dedicate a session to receiving updates from the DRDIP project once every six months\. Oversight from the Steering Committee will ensure consistency in the dialogue and priorities identified across both committees\. The CRRF Secretariat is leading a process of reviewing the most appropriate implementation arrangements at the district and sub-county levels for host-refugee activities\. The proposed implementation arrangements for the AF are consistent with the current agreements\. The review process and learnings will inform the implementation of DRDIP, and will be incorporated into project implementation processes on an ongoing basis\. 31\. The project implementation is aligned with Uganda’s decentralized service delivery model\. Since 1992, Uganda has been implementing a decentralization policy, with a view to improving the delivery of services at the district and sub county level\. The Local Government Act (Cap 243) indicates that planning and delivery of basic services are implemented at district level, under the responsibility of Local Governments\. To this end, The OPM is closely coordinating project implementation with Ministry of Local Government to ensure smooth implementation at the district and sub-county levels, using structures elaborated in the Project Implementation Manual (PIM), and based on experiences from NUSAF 3\. These structures are the District Implementation Support Teams (DIST) and Sub-County Implementation Support Teams (SIST), at District and Sub county levels, respectively\. The DIST and the SIST will ensure close coordination with other developmental and humanitarian agencies operating in and around refugee settlements in the target districts\. The NDP II notes that, “the OPM will be responsible for coordinating implementation of NDP II across all MDAsâ€?\. As such, the role of OPM in DRDIP is consistent with its overall coordinating mandate\. 32\. On areas beyond the coordinating or implementing mandate of the OPM, the PIST is working closely with relevant MDAs\. The PIST is also working with the Inspectorate of Government to support transparency, accountability and anti-corruption functions including: (i) strengthening the capacities of community groups for general oversight and monitoring of activities at the parish levels; (ii) supporting communities' engagement through utilization of social accountability tools such as community score cards, participatory planning and budgeting and tracking surveys; (iii) strengthening the grievance redress mechanism; and (iv) strengthening monitoring and impact evaluation mechanisms\. District Coordination Mechanism 33\. Refugee Management and protection is a centralized government function, with the Department of Refugees (DOR) and UNCHR coordinating activities and service provision to refugees\. At District level, DOR has a Refugee Desk Officer (RDO), in charge of oversight of refugee programs on behalf of central government\. RDOs coordinate with Settlement Commandants and Chief Administrative Officers (CAOs) on issues concerning host and refugee communities\. Given that the DRDIP covers both host and refugee communities, the District will second a DRDIP Development Officer to work closely with the Settlement Commandant’s Office\. One dedicated Officer per settlement will be assigned in 8 districts, with 2 officers in Arua and Isingiro; and for Adjumani district which is 4 The CRRF Steering Group is co-chaired by the Office of the Prime Minister and the Ministry of Local Government Jul 10, 2018 Page 12 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) characterized by numerous settlements, three officers will cover three clusters of settlements\. They will work closely with the Settlement Officers and other staff, and the Nongovernmental organizations (NGOs) in establishing and/or supporting project-specific community groups (Community Project Committees, Community Procurement Management Committees and Community Monitoring Groups) identify and prioritize areas of intervention\. 34\. In areas in which there is need to establish committees comprised of both members from refugee and host community groups, the Development Officer and the Settlement Officer will facilitate this process\. 35\. The establishment of community implementation committees will recognize the need to consider whether identified interventions are (i) host community (ii) refugee community (iii) a combination of host and refugee committees\. The specific process and guidelines for establishing and sustaining these communities will be elaborated further in the PIM\. Working within the refugee settlements will also require the DRDIP team to work more closely with UNCHR and Implementing Partners\. The engagement of these agencies in the DRDIP structures will also be defined comprehensively in the PIM\. 36\. The proposed AF seeks to better integrate the ongoing humanitarian response in refugee hosting settlements with the development approach under DRDIP\. This would be supported by a District Officer seconded to the Settlement Commandant’s office5, to lead on the development initiatives, and to provide a more direct link between the settlement structure and the district development structure in terms of planning and delivery of the project\. Within the settlements, Community Facilitators identified from the refugee population will be recruited from each settlement zone\. The profile, role, and qualifications of each of these personnel will included in the PIM\. \. F\. Project location and Salient physical characteristics relevant to the safeguard analysis (if known) For Uganda, the project will be implemented in 11 of districts of Arua, Adjumani, Yumbe, Koboko, Moyo, Lamwo, Hoima, Kamwenge, Isingiro, Kiryandongo and Kyegegwa\. These 11 refugee hosting districts are poorer and more vulnerable than other communities in Uganda; with settlement areas suffering from lower agricultural productivity and greater environmental degradation due to poor climatic and soil conditions and/or overuse\. In addition, the basic social services delivery system is weak, and economic opportunities are limited because of the remoteness of the settlements and the poor infrastructure\. The project will benefit refugee and host communities in these districts\. Specific project locations are not yet known\. 5One dedicated Officer per settlement in 8 districts, with 2 officers in Arua and Isingiro\. For Adjumani with numerous settlements, three officers will cover three clusters\. Jul 10, 2018 Page 13 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) G\. Environmental and Social Safeguards Specialists on the Team Christine Kasedde, Environmental Safeguards Specialist Constance Nekessa-Ouma, Social Safeguards Specialist SAFEGUARD POLICIES THAT MIGHT APPLY SAFEGUARD _TBL Safeguard Policies Triggered? Explanation (Optional) OP 4\.01 is triggered for the original project for Ethiopia, Djibouti and Uganda; and the restructured project in Uganda because of the following activities of the project: (i) expansion and improvement of service delivery which will include small infrastructure, (ii) construction or rehabilitation of physical structures for water catchment management such as check-dams, water harvesting structures, and (iii) land-based livelihood activities which may have limited adverse environmental and social impacts\. The specific sites for implementing these activities are not yet known, therefore ESMFs have been prepared in all the three project countries Environmental Assessment OP/BP 4\.01 Yes as the specific instrument for analyzing potential environmental and social risks\. The ESMF for Uganda has been updated and would be used to develop a site specific Environmental Management Plan (EMP) prior to the commencement of activities mainly under Component 1, 2 and 3\. The ESMF includes standard methods and procedures, along with appropriate institutional arrangements for screening and reviewing program activities and monitoring the implementation of mitigation measures to prevent adverse and cumulative impacts\. The effective use of the ESMF would be regularly reviewed and audited\. Performance Standards for Private Sector No Not Applicable Activities OP/BP 4\.03 Project activities in Ethiopia and Uganda are not likely to encompass natural habitats in the original Natural Habitats OP/BP 4\.04 No project and this remains unchanged for the restructured project and the proposed Additional Financing in Uganda\. Jul 10, 2018 Page 14 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) However in Djibouti, the Ali Sabieh Region is home to unique biodiversity, especially the “Aire naturelle terrestre protege d’Assamoâ€? which is natural habitat to the Beira antelope\. No project activities will be supported in this protected area\. The project will also not support any activities which are likely to indirectly affect the ecosystem critical for the survival of this species\. The ESMF will screen out any activities that could have indirect or cumulative impacts on this habitat\. Activities under Component 2 are likely to have a positive impact on forests with the implementation of physical and biological measures for soil and water conservation and afforestation\. The ESMF provides detailed procedures to screen program Forests OP/BP 4\.36 Yes activities/sub-projects for potential adverse environmental and social impacts, and to take measures to avoid, minimize and mitigate impacts on forests\. Project activities in Djibouti are not likely to take place in protected forest areas\. This is applicable to Additional Financing for Uganda\. The Project will support activities under Component 3 which are likely to be agriculture based and may increase the application of agrochemicals (insecticides, herbicides, fertilizers, etc\.)\. Therefore, Pest Management OP 4\.09 Yes the ESMF includes detailed guidelines for an Integrated Pest Management (IPM) to address related environmental and social impacts of the project\. This is applicable to the Additional Financing for Uganda\. The Project sites and their potential cultural and historical significance are not known\. The ESMF includes provisions and a set of procedures to screen Physical Cultural Resources OP/BP 4\.11 Yes project activities for such impacts and to deal with chance finds\. This is applicable to the Additional Financing for Uganda\. The policy was triggered for Ethiopia in the original project\. However for the Additional Financing for Indigenous Peoples OP/BP 4\.10 No Uganda, the policy is not trigerred since there are no IPs in the project areas\. The proposed project covering will not undertake any activities that will displace people\. However, it Involuntary Resettlement OP/BP 4\.12 Yes would support small-scale infrastructure that might affect land holdings of individual farmers\. While Jul 10, 2018 Page 15 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) these interventions are yet to be identified, as a precautionary measure, the project has prepared and consulted upon resettlement policy frameworks for all three countries and these will be disclosed prior to appraisal to address any issues which might arise from economic displacement and/or restriction of access to communal natural resources\. This is applicable for the Additional Financing for Uganda and an updated RPF has been prepared, consulted and disclosed\. Component 2 may support small dam construction (less than 4\.5 meters) as part of small and micro scale irrigation schemes\. The Project will use the Safety of Dams OP/BP 4\.37 Yes FAO ‘Manual on Small Earth Dams, A Guide to Siting, Design and Constructionâ€? or comparable text in French\. This is applicable to the Additional Financing for Uganda\. The project will finance small-scale irrigation investments but these are not likely to be located in international waterways basins in Djibouti\. In Ethiopia, the project is located in international water basins such as Baro-Akobo, Genale Dawa, Awash, Terkeze and Abhay rivers\. In Uganda, the project is located along rivers and streams that drain into Projects on International Waterways international water basin of River Nile, the White Yes OP/BP 7\.50 Nile and the Lake Victoria\. While the impact of small- scale irrigation on these rivers would be insignificant and the cumulative abstraction is expected to be minor, Riparian countries would be notified in accordance with the policy\. This is applicable to the Additional Financing for Uganda\. Projects in Disputed Areas OP/BP 7\.60 No Not Applicable KEY SAFEGUARD POLICY ISSUES AND THEIR MANAGEMENT OPS_SAFEGUARD_SUMMARY_TBL A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: The project is Category B for the IDA Credit supported activities\. The following safeguard polices have been triggered for the this Additional Financing (AF) operation: Environmental Assessment (OP/BP 4\.01), Forests (OP/BP 4\.36), Pest Management (OP/BP 4\.09), Physical Cultural Resources (OP/BP 4\.11), Involuntary Resettlement (OP/BP 4\.12), Safety Jul 10, 2018 Page 16 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) of Dams (OP/BP 4\.37) and International Waterways (OP/BP 7\.50)\. Overall, the project would have positive environmental impacts through its activities under Component 2 which includes, among others, integrated natural resources management\. Environment: Some of the local-level investment activities under Component 1 and 2 may have limited adverse environmental risks and impacts\. These activities could potentially include: (i) expansion and improvement of service delivery which will include construction of small infrastructure, (ii) construction or rehabilitation of physical structures for water catchment management such as check-dams, water harvesting structures, etc\., and (iii) land-based livelihood activities which could have limited adverse environmental and social impacts\. The infrastructure works under component 1 will pose civil works/ construction related impacts including health and safety considerations, vegetation clearance and soil erosion, impacts on PCRs, dust pollution, disposal of construction waste, etc\. Component 2 and 3 are expected to be positive through alleviating pressures on the poor that lead to unsustainable exploitation of natural resources and environmental degradation\. The ESMF for the AF was updated and disclosed were disclosed in-country July 25th 2018 and on the Bank's external website July 26th 2018, to avoid or mitigate environmental and social risks from these activities and an ESMP will be prepared for each subproject during implementation, guidance is provided in the ESMF\. The ESMF make reference to the WBG Environmental, Health and Safety guidelines for the management of community and occupational health and safety related risks\. additionally, an integrated Pest Management Plan has been prepared by the client and appended to ESMF\. Social: There are no anticipated changes in safeguard impacts\. Project screening showed no presence of recognized IPs (Ik in Kaabong and Batwas in Kanungu) in the 11 beneficiary Districts\. The project’s anticipated social impacts include the triggering OP 4\.12 - Involuntary Resettlement and other broad social risks such as Gender issues and those associated with the anticipated influx of labor into project areas; notably Gender Based Violence (GBV), and particularly Sexual Exploitation and Abuse of women and children (SEA)\. Therefore an RPF and ESMF (to take into consideration of broad social risks) were prepared in a consultative manner at appraisal, to guide mitigation of these impacts\. The instruments have been updated for AF to reflect the expanded beneficiary scope to include refugees in addition to the original host communities in 11 Districts\. The AF updated RPF was disclosed in-country July 25th 2018 and on the Bank's external website July 26th 2018\. \. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: It is anticipated that the project will improve access to social services, expand economic opportunities and enhance environmental management for host community in the targeted areas, with no indirect and/or long-term negative impact in these areas\. It is anticipated that the project will result in long-term positive safeguard impacts in the project area because of the project’s emphasis on ensuring sustainable environmental management of natural resources and reduction in the unsustainable exploitation of natural resources, including mitigation of risks and other challenges faced by affected households\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. The “no projectâ€? alternative would deprive the 11 districts which have host and refugee communities with adverse impacts regarding access to basic social services, social and environmental risks\. To ensure safeguards due diligence including effective management of risks during implementation, timely assessment of potential risks involving more E&S technical expertise will be deployed at all levels; planning of sub-projects will involve full participation of beneficiary communities (refugee and host communities); and beneficiary districts being highly involved in the implementation of the project\. Jul 10, 2018 Page 17 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. Safeguards activities implementation will follow the existing structures at national to lower local government levels such as safeguards unit at the National, District level with District Environment Officers, Community Development officers (Gender & Probation officers), District Health Officer, etc\. At sub county level, the Sub County Community Development Officers, Health Officers and Settlement Commandants will provide support\. At the subproject level, community management structures including CF, CPMCs and CPCs will play the critical role in implementing social safeguards\. The project shall also engage the Police and Judiciary departments for any upward reference of criminal cases and grievances that may go beyond the project\. The project plans to undertake a stakeholder analysis to develop an engagement plan involving key stakeholders from both refugees and host communities as well as other key stakeholders\. Prioritized engagement based on critical issues will be guided by appropriate approaches informed by lessons from other projects such as NUSAF 3\. In addition to the hiring of Social Development Staff to manage of social risks, the project is charged with responsibility to establish a close coordination and collaboration with various implementing agencies and partners including district to create strong and coordinated teams\. Specific attention will be given to bringing on board the District Gender, Community Development, Labor, Probation Officers and HIV/AIDS Focal Persons/Health Officers, in each of the 11 Districts and appropriately reaching out to Ministry of Gender, Labor and Social Development (MoGLSD) as may be necessary\. The client will initiate dialogue and communication with the Local Government on the support required from these teams and scope of work will be communicated to the Chief Administrative Officers (CAOs) of the respective 11 districts to support management of social risk\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. In Uganda, consultations were held with the Office of the Prime Minister – the implementing agency, UNHCR, Uganda Red Cross Society, Lutheran World Federation, Inter-Aid Uganda, Action Africa Help International, National Environment Management Authority, National Forestry Authority, Ministry of Gender Labour and Social Development; and the district and sub county administrative level as well as the communities\. All applicable safeguards instruments will be made available at accessible places in the appropriate form, manner and language in Uganda as well\. Like the earlier process, preparation of the updated ESMF and RPF for the AF has involved a wide consultative process both at the OPM, in 11 districts as well as with other stakeholders regarding the beneficiary refugee and host communities\. Likewise, all applicable safeguards instruments will be disclosed and made available at accessible places in the appropriate form, manner and language in Uganda as well\. OPS_SAFEGUARD_DISCLOSURE_TBL B\. Disclosure Requirements (N\.B\. The sections below appear only if corresponding safeguard policy is triggered) OPS_EA_DISCLOSURE_TABLE Environmental Assessment/Audit/Management Plan/Other For category A projects, date of Date of receipt by the Bank Date of submission for disclosure distributing the Executive Summary of the EA to the Executive Directors Jul 10, 2018 Page 18 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) 28-Jun-2018 26-Jul-2018 "In country" Disclosure Uganda 25-Jul-2018 Comments OPS_RA_D ISCLOSURE_T ABLE Resettlement Action Plan/Framework/Policy Process Date of receipt by the Bank Date of submission for disclosure 28-Jun-2018 26-Jul-2018 "In country" Disclosure Uganda 25-Jul-2018 Comments OPS_ PM_D ISCLOSURE_TA BLE Pest Management Plan Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of submission for disclosure NA "In country" Disclosure OPS_PM_ PCR_TABLE If the project triggers the Pest Management and/or Physical Cultural Resources policies, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: OPS_COMPLIANCE_INDICATOR_TBL C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) (N\.B\. The sections below appear only if corresponding safeguard policy is triggered) OPS_EA_COMP_TABLE Jul 10, 2018 Page 19 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) OP/BP/GP 4\.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Practice Manager (PM) review and approve the EA report? Yes Are the cost and the accountabilities for the EMP incorporated in the credit/loan? Yes OPS_ PM_COM P_TA BLE OP 4\.09 - Pest Management Does the EA adequately address the pest management issues? Yes Is a separate PMP required? No If yes, has the PMP been reviewed and approved by a safeguards specialist or PM? Are PMP requirements included in project design? If yes, does the project team include a Pest Management Specialist? Yes OPS_ PCR_COM P_TA BLE OP/BP 4\.11 - Physical Cultural Resources Does the EA include adequate measures related to cultural property? Yes Does the credit/loan incorporate mechanisms to mitigate the potential adverse impacts on cultural property? Yes OPS_IR_ COMP_TA BLE OP/BP 4\.12 - Involuntary Resettlement Has a resettlement plan/abbreviated plan/policy framework/process framework (as appropriate) been prepared? Yes If yes, then did the Regional unit responsible for safeguards or Practice Manager review the plan? Yes Is physical displacement/relocation expected? TBD Is economic displacement expected? (loss of assets or access to assets that leads to loss of income sources or other means of livelihoods) TBD OPS_F O_COM P_TA BLE OP/BP 4\.36 - Forests Has the sector-wide analysis of policy and institutional issues and constraints been carried out? NA Does the project design include satisfactory measures to overcome these constraints? Jul 10, 2018 Page 20 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) NA Does the project finance commercial harvesting, and if so, does it include provisions for certification system? NA OPS_SD _COMP_ TABLE OP/BP 4\.37 - Safety of Dams Have dam safety plans been prepared? NA Have the TORs as well as composition for the independent Panel of Experts (POE) been reviewed and approved by the Bank? NA Has an Emergency Preparedness Plan (EPP) been prepared and arrangements been made for public awareness and training? NA OPS_ PIW_COMP_ TABLE OP 7\.50 - Projects on International Waterways Have the other riparians been notified of the project? Yes If the project falls under one of the exceptions to the notification requirement, has this been cleared with the Legal Department, and the memo to the RVP prepared and sent? NA Has the RVP approved such an exception? NA OPS_ PDI_ COMP_TA BLE The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank for disclosure? Yes Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? Yes Jul 10, 2018 Page 21 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) OPS_ALL_COMP_TABLE All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Yes Have costs related to safeguard policy measures been included in the project cost? Yes Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? Yes Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? Yes CONTACT POINT World Bank Varalakshmi Vemuru Lead Social Development Specialist Margarita Puerto Gomez Senior Social Development Specialist Michael Mutemi Munavu Sr Social Protection Specialist Borrower/Client/Recipient Ministry of Finance and Economic Cooperation Fisseha Aberra Director faberrak@gmail\.com Ministry of Finance, Planning and Economic Development Implementing Agencies Jul 10, 2018 Page 22 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) IGAD Mahboub Mahboub Maalim Executive Secretary mahboub\.maalim@igad\.int Agence Djiboutienne de Développement Social Mahdi Mohamed Djama Director General Ministry of Agriculture and Natural Resources Nigatu Bogale Bogale Director, Emerging Regions Coordination Directorate nigatu_bogale@yahoo\.com Office of the Prime Minister Christine Guwatudde Kintu Permanent Secretary ps@opm\.go\.ug FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Varalakshmi Vemuru Task Team Leader(s): Margarita Puerto Gomez Michael Mutemi Munavu Approved By Safeguards Advisor: Nathalie S\. Munzberg 01-Aug-2018 Practice Manager/Manager: Robin Mearns 01-Aug-2018 Jul 10, 2018 Page 23 of 24  The World Bank Development Response to Displacement Impacts Project (P164101) Country Director: Antony Thompson 13-Aug-2018 Jul 10, 2018 Page 24 of 24

APPROVAL

P010506

Document of The World Bank FOR OFFICIAL USE ONLY Report No\.: 20648 IMPLEMENTATION COMPLETION REPORT (27000; P8620) ONA CREDIT IN THE AMOUNT OF SDR 39\.4 MILLION TO INDIA FOR MADHYA PRADESH FORESTRY PROJECT June 26, 2000 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Rupees (Rs\.) Rs\. 1 = US$ 0\.03 (1995) US$ 1\.00 = Rs\. 32\.4 (1995) US$ 1\.00 = Rs\. 35\.4 (1996) US$ 1\.00 = Rs\. 36\.3 (1997) US$ 1\.00 = Rs\. 41\.3 (1998) US$ 1\.00 =Rs\. 43\.1 (1999) FISCAL YEAR April 1 to March 31 ABBREVIATIONS AND ACRONYMS EDC Ecodevelopment Committee ERR Economic Rate of Return FMIS Forestry Management Information System FPC Forest Protection Committee GOI Government of India GOMP Government of Madhya Pradesh ICR Implementation Completion Report ICB International Competitive Bidding IDA International Development Association JFM Joint Forest Management MPFD Madhya Pradesh Forest Department MOEF Ministry of Environment and Forestry MTR Mid term Review NCB National Competitive Bidding NPV Net Present Value NTFP Non-timber Forest Product OED Operations Evaluation Department PA Protected Area SAR Staff Appraisal Report SFRI State Forestry Research Institute NGO Non-Governmental Organization VFC Village Forest Committee Vice President: Mieko Nishimizu Country Manager/Director: Edwin R\. Lim Sector Manager/Director: Ridwan Ali Task Team Leader/Task Manager: Jessica Mott  FOR OFFICIAL USE ONLY CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 1 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 9 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Leamed 12 9\. Partner Comments 15 10\. Additional Information 15 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 25 Annex 3\. Economic Costs and Benefits 27 Annex 4\. Bank Inputs 28 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 29 Annex 6\. Ratings of Bank and Borrower Performance 30 Annex 7\. List of Supporting Documents 31 Annex 8\. Beneficiary Survey Results 33 Annex 9\. Stakeholder Workshop Results 35 Annex 10\. Final Evaluation Report of the Govermnent 37 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: PO 10506 Project Name: MP FORESTRY Team ILeader: Irshad A\. Khan TL Unit: SASRD ICR Tyvpe: Intensive Learning Model flLM) of ICR Report Date: March 16, 2000 1\. Project Data hame: MP FORESTRY L/C/TF Number: 27000; P8620 CountryIDepartnent: INDIA Region: South Asia Regional Office Sector/subsector\. AP - Perennial Crops; AT - Forestry; VM - Natural Resources Management KEY DATES Original Revised/Actual PCD: 04/03/92 Effective: 09/29/95 Appraisal: 04/16/94 MTR: 03/16/98 Approval: 03/30/95 Closing: 12/31/99 Borrower/lImplementing Agency: GOI/FOREST DEPT GOMP Other Partners: Local People STAFF Current At Appraisal Vice President: Mieko Nishimizu Joseph Wood Country Manager: Edwin Lim Heinz Vergin Sector Manager: Ridwan Ali Shawki Barghouti Team Leader at ICR: Irshad A\. Khan Ian Hill ICR Primary Author: Jessica Mott 2\. Principal Performance Ratings (HS= Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: H Bank Perfornmance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The main objective of the project was to assist with the implementation of the state government strategy for reform of the forestry sector\. This involved substantial change in the management of the sector and the introduction of innovative programs for participatory management of forests\. The staff appraisal report (SAR) envisaged World Bank support to the sector for a period of about ten years\. The first stage was to have been a project of four years  duration to allow the Madhya Pradesh Forestry Department (MPFD) to develop the new processes, systems and skills required for the implementation of the National Forest Policy, and to modify these in the light of experience\. The second phase would then use this as the basis for larger-scale investments\. More specifically the objectives were to: (a) develop the necessary human resources for the planning, implementation and monitoring of the strategy; to ensure appropriate management procedures, structure and resources of MPFD; to improve planning at the macro scale; and to improve incentives for forest management and the cultivation of trees, (b) increase both forest cover and productivity through development of participatory processes for management and use of forest resources, taking special account of the interests of tribal peoples and other disadvantaged groups (c) adapt and improve existing technologies and to provide technical and management advice (d) promote the conservation of biodiversity The project objective was consistent with the Bank's Country Assistance Strategy (CAS) and government priorities\. The phasing of Bank support took into account lessons from prior forestry projects in India, which showed that the initial reforms take time\. In retrospect, the Implementation Completion Report (ICR) assessment of achievements would have been higher if the four-year objective had not been so comprehensive in scope\. However, the objective was realistic except for the expectation of continued Bank support (with no break in continuity) after the first project if Bank supervision found performance satisfactory, an expectation which was articulated in the minutes of negotiation\. 1/ The objective was basically clear, although the Bank decision to provide initial support for only four years instead of nine years was taken late in project appraisal, and some of the project documentation is framed in terms of the long-terrn program instead of the four-year project\.2/ Defining the objective in a well-articulated logframe for both the first phase project and long-term program would have also improved clarity\. 1/ Bank management has stated that in the future it would consider the Government's request for further Bank support, and the state government is now planning a comprehensive consultation process with various stakeholder representatives, including activist NGO critics\. 2/ This ICR uses the four-year objective of developing the new processes, systems, and skills as the basis of evaluation\. 3\.2 Revised Objective: Not revised\. 3\.3 Original Components: The project had four main components as follows: (a) Sector management\. To reform sector management changing the approach from a predominately regulatory role to one in which communities are treated as partners in management of forest resources through (i) policy analysis and reform; (ii) human resources development for the planning, implementation and monitoring of the strategy; (iii) management procedures and organization improvement; (iv) improved planning, monitoring and evaluation supported by an improved management information system; and (v) support for project coordination\. (b) Forest Development\. To increase forest cover and productivity, and to rehabilitate degraded forests as a source of products and income for local communities through (i) promotion of natural forest regeneration through enrichment planting, improved silvicultural practice, and forest floor management in dense forest areas (>40% forest crown cover density); and (ii) introduction of participatory processes in village forest committees (VFCs) with a focus on tribal peoples and other disadvantaged groups to plan, manage, and protect forest resources, integrated with activities to generate alternative incomes or resources to reduce pressure on - 2 -  the forests in degraded forest areas (<40% forest crown cover density)\. (c) Extension, technology and research\. To improve existing technologies and provide advice through the establishment of extension and research centers, provision of extension advice, creation of an industrial liaison unit, seed improvement, nursery demonstration, and research\. (d) Biodiversity conservation\. To conserve biodiversity through improved protected area management and the introduction of village-level ecodevelopment with ecodovelopment committees (EDCs)\. 3\.4 Revised Components: After the first year of implementation, the joint forest management (JFM) approach was expanded to cover dense forest areas\. The original design for these areas was based solely on working plans and it was modified to incorporate benefit sharing and participation of local people working in forest protection committees (FPCs)\. This ground-breaking innovation was the only change to the design of components during implementation\. 3\.5 Quality at Entry: Satisfactory\. The emphasis on institutional development, process-oriented design, and participatory processes was bold, innovative and ahead of its time\. The ownership by the borrower was remarkable from the outset\. The project design targeted poor tribal people and other forest fringe villagers who belonged to the poorest sections of society and gave special attention to social impact, participation, and equity\. These positive features of entry set the foundation for the highly satisfactory project achievements in institutional development\. However, several shortcomings at appraisal preclude a quality of entry rating of highly satisfactory, although they were not serious enough for the entry rating to be considered unsatisfactory\. While the project was aimed at supporting a forest policy which, inter alia, treated forests as a source of goods for poor local forest fringe dwellers and did result in significant poverty reduction (see Section 4 below), it did not directly frame the development objectives in terms of poverty alleviation and therefore did not establish a monitoring and evaluation system that rigorously measured incremental impact on poverty at regular intervals throughout implementation, as would be desired by today's standards\. The appraisal did not adequately review the borrower's capability for procurement of goods and consultants/NGO services under Bank guidelines, nor reach agreements on capacity building, streamlining of procedures, delegation of authority, and specific commitments to time-bound contracting\. The negative impact of this was limited due to the large and effective role of community procurement methods compared with items procured through the more problematic centralized International Competitive Bidding (ICB), National Competitive Bidding (NCB), and consultant contracting\. The project did not adequately specify the roles and arrangements for NGO partnerships nor elaborate communications strategy with civil society and other government agencies, but this was somewhat understandable since at that time no NGOs in the state had successfully demonstrated value added to joint forest management\. There were problems involving two relatively small subcomponents as well\. The approach to developing a Forest Management Information System (FMIS) was unrealistically ambitious for the four-year project period, with insufficient opportunities for experiential learning and mid-course corrections\. The expectation that within four years there would be both the development of new forest technologies and significant extension of these technologies to the private sector was also unrealistic\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Satisfactory\. The project has had significant institutional, economic, social, and environmental impacts, as documented by the key performance indicators in Annex 1\. Poverty Alleviation and Other Social Impacts\. Substantial achievement\. The project significantly improved the lives and livelihoods of people, and especially tribals, through a program of forest and village resource development, in spite of the fact that it was not designed with an explicit focus on poverty reduction\. - 3 -  * Scale\. The program has expanded far beyond the bounds of the Bank financed project (which financed activities in 2,500 communities with a population of over 1 million), with a total of more than 12,000 communities (6 million people) participating, compared with 350 communities in 1993\. Part way through the project JFM was expanded from its focus on restoration of degraded forests to include people in the protection of dense forests as well\. This is clear testament to the fundamental re-orientation of the MPFD and to the improved relationship with local forest users\. * Asset Transfer\. JFM constitutes a major asset transfer (usufruct of final timber harvest) from the state monopoly to joint management, with a total net present value of $19 billion, of which the community share is worth more than $2 billion\. This estimate does not even include the value of the intermediate products and non-timber forest product (NTFP) asset transfer (under JFM, local committee members now have a 100% benefit share of intermediate products and many NTFP, while prior to JFM, had rights only to subsistence requirements)\. The total value of the transfer of usufruct right is approximately $280 per household per year\. * Livelihood benefits\. The project introduced a number of processes, particularly participatory rural appraisal (PRA)-based microplanning, and community funds which have resulted in new livelihood opportunities benefitting the poor\. In many areas increases in NTFP production coupled with collective marketing efforts have resulted in improved income\. Production increases are linked primarily to less destructive methods of collection while new marketing arrangements ensure that a larger portion of profits remain with NTFP collectors\. In addition to the funds generated from forest protection and increased returns from the trade of NTFPs, local MPFD staff acting as nodal agents have successfully attracted an array of rural development investments, amounting to more than $30 million\. Community funds have been capitalized by payments for forest protection by community members and other development investments\. Investments of these funds are starting to show significant impacts on poverty\. Broadly, these have resulted in increases in agriculture productivity and have opened up new income earning opportunities\. This has resulted in a reduction in migration, which was the norm in many forest fringe tribal communities, which in turn led to better quality of life and improvements in children's education\. All of this is in remote areas where access to other government programs is severely restricted\. * Empowerment\. The project has created conditions for empowering communities of poor forest fringe dwellers\. The community protection funds have increased public choice, helped to reduce debt and reliance on money lenders, and have contributed to a sense of empowerment and social cohesion which has come from the collective decision making required in the committee account management, which in many cases operates as micro credit system\. Furthermore, the shift in power relationship from total dominance of MPFD staff to a more supportive role is a contribution to this empowerment\. * Benefits to Tribals and Landless\. At the macro-level, the project has targeted tribals and landless through its focus on forest fringe villagers\. Tribals represent a majority of the project participants and the project has benefited tribals, particularly in homogeneous communities, which predominate\. For this reason the achievement for tribals is rated "substantial"\. The landless\. are also disproportionately represented among participants and are the main beneficiaries of the wage employment in forestry operations (about 42 million person days over the project's duration)\. * Challenges\. Overall the social impacts of the program are commendable and should continue to grow from this nascent stage, particularly as the forest resource base under this management improves\. However, the process of JFM planning, and particularly the identification of forest users has experienced problems and has resulted in some places in conflicts between villages over forest access\. The participation in decision making of women in general is limited and gender achievement is therefore rated as "modest"\. The participation of tribals and scheduled castes in heterogeneous communities is also limited\. A more proactive approach to identifying and where appropriate applying indigenous knowledge and existing community management practices would also be desirable\. Thus while the gains are very positive it is clear that more training and support is required to build from the training programs initiated in the first phase, particularly in conflict resolution, financial management (especially in the transparency of decision making on investments), equity, - 4 -  gender, and cultural sensitization to sustain this joint management in the long-term\. Environmental Impact\. High achievement\. The overall environmental impact of the project has been very positive\. More than 5\.5 million ha of production, protection, and degraded forests are being protected from unsustainable grazing by livestock and uncontrolled use of forest products\. As a consequence, forest floor vegetation is returning, natural regeneration is taking place, and there is a significant and positive impact on the diversity and abundance of indigenous flora and fauna, including wild herbivores and the species that prey on them\. Severely degraded forest lands have been rehabilitated with indigenous forest vegetation and this, probably more than the specific erosion control and water conservation intervention that are also funded under the project, has halted soil erosion and is enhancing water retention\. In some areas villagers are already reporting an increase in the water table, wildlife populations, and biodiversity\. Specific Objectives The project has successfully achieved the project objectives by developing many of the new processes, systems and skills required for the implementation of the forestry reform program, and modifying them in the light of experience\. * Sector Management\. A well-structured program of workshops and interactions changed the attitudes and behavior, creating new styles of working at all levels\. Human resource development (HRD) at all levels developed the skills to support new systems of forest management\. New processes of monitoring and HRD transformed a hierarchical organization into a dynamic learning organization, as demonstrated in the de-concentration of decision-making, adaptation, and responsiveness to site specific and client-specific situations, and feedback of experience to policy change (e\.g\., changes in the Govemment Resolution on JFM)\. The policy framework supported changes in external relationships\. Much of the sector management efforts were focused on JFM and had significant impact\. The project included policy changes to promote an enabling environment for the private sector, including an easing of transit and felling restrictions to private land owners\. Overall the achievement in sector policies and public sector management were "substantial"\. There were shortcomings, but they were small relative to the importance of achievements described above\. To date the impact of the efforts on private sector investment and marketing is limited (and the achievement for private sector development is therefore rated "negligible"), Another shortcoming in sector management was the failure to deliver an improved macro-level planning process supported by a FMIS and associated capacity building\. * Forest and Village Resource Development\. The project developed a system of JFM which has improved forest condition demonstrably in both dense and degraded forest areas\. By project closing the total area brought under JFM in Madhya Pradesh had reached over 5\.3 million hectares representing 38% of the state's total production forest land\. Regeneration surveys show steady improvement in tree seedling recruitment on most sites and improved forage is linked to significant increases in faunal abundance\. The project has produced a responsive bottom-up management style which actively involve forest fringe villages\. Direct transfer of funds for protection to local accounts jointly managed by community members and forest guards, and the establishment of a policy to share forest revenues strongly reinforced community participation\. Effective reorientation of forest staff and training in participatory planning methods coupled with extensive training and exposure visits for VFC/FPC members have fostered the rapid expansion of the program well beyond the bounds of the design\. Adoption of a responsive management style within MPFD has led to modifications in silvicultural methods with increased emphasis on social fencing/rotational grazing, uneven-age stand management, more rational soil conservation investments, and managing a wide range of species (moving away from exclusive timber focus)\. The introduction of rotational grazing and "cut and cary" fodder for stall feeding livestock has been particularly successful\. Through the Village Resource Development Program, the MPFD has developed a leadership role in rural development in the forest fringe areas\. The creation of village assets under this program has developed strong links between forest development and village development, both in perceptions and operations\. The use of participatory rural appraisal methods in VFCs has raised awareness of the need to target investments to help the most forest-dependent members in committees to mitigate the adverse impact of stricter forest protection\. Overall, the achievement in community forestry management was 'substantial"\. However, further improvements in all - 5 -  forms of JFM are needed to address issues of social inclusion (especially of women), equity (poor and landless), and conflict resolution (particularly intervillage conflicts over forest area or forest products)\. * Extension, Technology, and Research\. Among MPFD staff, project support for new technology has led to widespread awareness and acceptance, as well as relatively extensive adoption of genetically improved seed and clonal planting stock, and has established a foundation for further expansion\. This improved planting material will significantly improve productivity of plantations and quality of forest produce\. MPFD has also initiated Lok Vaniki, a pilot program in seven districts to establish federations of private forest and plantation owners, and to improve scientific management and marketing\. There has not been widespread adoption of improved technology by farmers\. Increased extension efforts, successful demonstration plots, and further actions to create a supportive policy environment and adequate marketing are still needed\. Training programs have enhanced research and development capabilities, and client-oriented research prioritization (including an increased focus on non-timber forest products) has established a basis for planning future research\. The State Forestry Research Institute (SFRI) was established as an autonomous institution, but the system of demand-driven research is not yet functioning as intended\. Proper monitoring, evaluation, and staff recruitment procedures would enhance the cost-effectiveness and quality of the research program\. * Biodiversity Conservation\. The human impact on biodiversity in protected areas and their buffer zones is being reduced through initiation of ecodevelopment activities in buffer zone villages\. A recently initiated monitoring system has already indicated a measurable decrease in impacts on the biodiversity of buffer zone ecosystems\. 4\.2 Outputs by components: The project has also performed satisfactorily at the activity level, producing the expected outputs\. * Sector Management\. New relationships between staff, forest users, and government organizations have been developed within a facilitatory and supportive learning environment, leading to new partnerships for forest management\. The proposed changes in vision and structures laid out in a department-wide consultative study have not yet been fully implemented as they now form part of wider government discussion on overall public sector reform\. However, important elements of the study are now in place\. This was achieved through implementation of a HRD plan which set out a staffing policy linked to changes in the vision, structure, and functioning of the department\. A new HRD wing was established to support implementation of the plan\. Curricula for training of forest guards and foresters were revised and implemented together with improvement of infrastructure\. One hundred sixteen staff received overseas training and 140,000 villagers and staff have received local training\. The first generation of training has led to considerable readjustment of skills at all levels\. The project developed effective and innovative monitoring instruments (e\.g\., perfomance audits, regeneration surveys, process documentation, and computerized project accounts and other databases in the Project Unit)\. However the FMIS was not fully implemented due to contracting problems with both the consultancy and the equipment, and in any case its design did not provide links with the new community based planning systems\. Overall the experiential leaming approach fostered by the project has helped to widen and deepen understanding\. Essential policy reforms were made as a condition of project negotiations\. A Policy Analysis Unit conducted a series of studies and proposals leading to changes to the MP Land Revenue Code to encourage private tree planting\. Use of structured experience-sharing workshops at different staff levels provided feedback to field-level operations to policy dialogue and revision of the Govemment Resolution on JFM\. * Forest and Village Resource Development\. The project has financed 2,269 forest fringe villages (1 ,105 FPCs and 1,164 VFCs) and served as a catalyst for an additional 9,603 villages funded by other sources\. By project closing the project directly financed protection in some 221,000 ha of dense forests (compared with 161,000 ha anticipated at appraisal) and 419,300 ha of degraded forests (compared with 342,900 ha anticipated at appraisal), and provided the policy environment and model for initiating protection of an additional 2,906,541 ha of dense forests and 2,437,629 ha of degraded forests\. Under the Village Resources Development Program, a process of joint planning with VFCs has resulted in a wide array of village resource development - 6 -  investments including improvements to agricultural production, cottage industries, community infrastructure, and wage employment\. MPFD has leveraged additional funds well beyond those originally available through the project by tapping a number of other sources of domestic and international aid\. In total these funds have enabled extensive replication of project activities\. * Extension, Technology and Research\. The project has set up extension and research centres at 14 locations (strategically selected on the basis of agro-climatic zones), along with modern root trainer nurseries, gene banks and clonal mulitplication of eucalyptus\. The project fully achieved SAR targets for forest stock improvement, with 2,450 ha of seed production areas and 1,104 ha seedling/clonal seed orchards\. The project has also provided support for research laboratories and infrastructure facilities, and promoted the 1995 strengthening of SFRI to an autonomous body\. The industrial liaison unit is ineffective and virtually nonfunctional, due to consultant contracting problems, and more recently, harvesting restrictions imposed by the Supreme Court\. Staff in two districts, however, have taken significant initiatives to strengthen private sector investment and marketing\. In accordance with the project design, the MPFD terminated long-term contractual supplies to wood-based industries effective December 1998, but the anticipated increase in farrn forestry has not resulted from this policy change, and many of the wood-based industries have closed\. * Biodiversity Conservation\. The project has developed 18 outline and 6 draft protected area management plans, and has identified 18 and surveyed 9 areas requiring conservation management in order to maintain ecological linkages between the state's protected areas\. The project has developed guidelines and procedures for establishing, funding, and monitoring Ecodevelopment Committees (EDCs), has already formed 231 EDCs in buffer zone villages, and has financed ecodevelopment investments in 182 of these committees\. In addition, the project is developing the skills for expansion of the ecodevelopment program through training programs for participatory microplanning for ecodevelopment, and extension services provided through ecodevelopment centers\. Innovative adaptations have been made in microplanning methods to ensure better definition of roles and needs, and to increase the level of participation in planning\. MPFD has also developed an innovative approach to ecodevelopment, linking this program to JFM in buffer zones of protected areas\. In this way MPFD expects that the majority of EDCs will be able to use and manage some forests to meet their daily needs\. The project has established facilities, curricula and a vocational biodiversity conservation training program that is tailored to the needs of Territorial and Wildlife Wing Forest Department staff\. With regards to forests outside of the protected area network, MPFD staff have been trained to incorporate biodiversity concerns in the forest management planning system and new plans that include biodiversity prescriptions have been prepared for 2 million ha of forest\. * Physical and Financial Results\. Substantial achievement\. The project has resulted in near total achievement of phsical and financial targets in most key areas\. MPFD has met 101% of the phased expenditure in Rs\. value as estimated in the SAR\. This result demonstrates that the arrangement of distributing the responsibilities of implementing agencies to the concerned wings, rather than concentrating all the decision-making in the Project Unit, functioned well\. Financial management has been sound and effective with computerized project accounts at the Project Unit\. However, divisional accounts continue to be maintained manually involving considerable duplication and efforts to reconcile figures\. As of May, 2000, $53\.4 million (SDR 38\.9 million) had been disbursed\. A balance of about $0\.68 million (SDR 0\.5 million) has been cancelled\. There was considerable expenditure under Category 3 (Forest Protection), and the original reimbursement claims were wrongly made under Category 2 (Forest Operations), but this error has been corrected\. The annual audit reports were generally received after a delay of few weeks\. For FY 1997-98 the auditor had disallowed an amount of Rs\. 16\.709 million in his audit report\. The Bank had adjusted this amount from MPFD withdrawal application\. 4\.3 Net Present Value/Economic rate of return: The SAR estimated an economic rate of return (ERR) of 10% and an net present value (NPV) of Rs\. 293 million (in 1994 Rs\.), based on 75% of the costs\. The re-estimated ERR is 19% and the re-estimated NPV is Rs + 1,838 million (in 1994 Rs), based on 78% of the costs\. Re-estimated ERRs range from 15% for forest development in - 7 -  dense forests to 34% for forest development in degraded areas\. No ERR was re-estimated for extension and research, as virtually no extension work had taken place\. Major reasons behind the change in the ERR include (a) reduced unit costs per ha allowing wider coverage, and (b) community share in intermediate products resulting in reduced dependency on govemment funds and therefore earlier and more timely operation\. Furthermore, the SAR assumptions were extremely conservative about (a) the increase in NTFPs as a result of effective protection and (b) about the immediate benefits from decongestion of bamboo which results in both an immediate return as well as increased productivity within three years\. The assumptions used for the re-estimation remain conservative\. The new institutional arrangements provide a downward (i\.e\., community) incentive for timely operation within an enabling environment and the community accounts bypass the dependency on annual fund allocation\. Provided the ultimate stake created in forest conservation and management is sustained, in the gap between project closure and first final product flows, actual retums are likely to be extremely high\. The SAR identified the environmental importance of the MP forests, especially as a source for many important river systems and the economic analysis estimated a breakeven level of Rs 368 per ha for the additional environmental benefits required to achieve a 12% ERR\. If the same level of additional environmental benefits per ha is assumed, but now applied to 35% greater area, the ERR would rise from 19% to 21%\. The economic analysis ignores the expected retums to improved genetic material since the extension program has not resulted in widespread private sector uptake and, therefore, benefits have not been realized during the project period as planned\. However, there is evidence that other programs and pilot schemes of the MPFD and certain districts will result in new public-private sector developments with better marketing arrangements and where the investments in genetic improvement may ultimately prove to be very significant\. 4\.4 Financial rate of return: • Financial Analysis\. The focus of the financial analysis in the SAR was the forestry subcomponent for degraded forest areas\. The SAR estimated the financial return to a typical community, including the value of foregone access to degraded land due to effective protection, to be in excess of 60% and to involve negative cashflows for an initial period of six years\. With the provision of protection money from the project, a positive cashflow in all years was expected\. The ICR extends the SAR model to reflect the increased diversity of both funding sources and the fund utilization and confirms the positive cashflow in all years\. Further, the model suggests that in many cases, where the existing forest was sufficient to provide some product flow, cashflows are immediately positive, without the additional inflow from protection money\. This is the result of the JFM policy that provides for 100% of intermediate products to be assigned to the community\. The same result holds for areas where there was over-congested bamboo, which provided immediate net revenue to both community and MPFD\. The ten-year phasing cycle for the management program will eventually result in a smooth annual flow into the community fund from final products\. The SAR expressed concem about individual gainers and losers, and during the ICR it was clear that effective protection had resulted in some individuals facing short-term loses\. However, on average, the ICR model expects individual households to gain Rs 700 per year rising to Rs 2,500 per year after 4 years, and eventually to just less than Rs 4,000 per year (in 1994 prices)\. This excludes the benefit from any additional employment generated\. * Asset Transfer\. The govemment has replicated the same approach on a much wider scale but with much more limited financial support\. The overall effect has been to transfer about 30% (or $23 billion) of the estimated $80 billion value (2000 prices) of standing stock of forest assets out of the sole control of the state forest department into joint management with communities\. Under the present benefit-sharing arrangements, this creates a beneficial interest for the community of roughly $2\.3 billion\. This is equivalent to a net annual flow of about $225 million to the community (at 12%, into perpetuity)\. Taken together with the estimated annual flow of NTFPs of $125 million, the value of products to which the community has clear rights totals $350 million\. This is equivalent to about $280 (or Rs 6,500) per household per year\. (This higher figure, compared to the Rs 4,000 per household per year from the financial model, reflects the overall predominance of FPCs and nondegraded areas compared to VFCs and degraded areas in the project\.) Although not all of these flows represent incremental gains to the community, they do reflect new (as well as enhanced clarity over) rights and entitlements for about 1\.2 million households, most of whom live in or near forest areas and consequently are more likely to be poor, socially excluded, and generally less involved in other govermment programs\. - 8 -  * Fiscal Impact\. The SAR anticipated a nine-year project to ensure that the flow of benefits from the improved rights and effective management would result in a self-sustaining and self-financing system\. The committee accounts effectively establish trust funds for future maintenance and management\. Although the potential for substantial fiscal savings remains, these depend heavily on the maintenance of the new arrangements, during the period prior to realization of a share of final benefits\. Over the long-term, the incremental fiscal impact of project investments is likely to be quite positive\. The state government receives a substantial portion of the final harvest revenue\. The project also enables effective restoration and protection of forest assets which would otherwise be degraded, offering little or no return to the state\. Further analysis is required to (a) project the extent and timing of the positive long-term fiscal benefits of incremental investments in forestry, and (b) analyze the scope for increased efficiency of public investments by reducing the interim fiscal burden on the government, especially once there are increases in direct flows from the forests into the community accounts\. ICR Supporting Document 10, Financial and Economic Analysis, describes the basis of the above estimates and provicles further analysis\. 4\.5 Institutional development impact: High achievement\. The project supported significant change within the implementing organization (internal relationships) and in its external relationships with forest fringe villagers\. The project has also contributed to improved coordination between the MPFD and other government line departments at the field level\. While the project established good collaboration with community-based development nongovernmental organizations (NGOs) in some locations, and made efforts to strengthen linkages, these efforts did not result in a systematic and strong relaticinship with NGOs and other elements of civil society throughout the state\. There was a similar pattern with efforts to work with the private sector\. However, this shortcoming in external relationships is overshadowed by the magnitude and importance of the institutional transformation both intemally and in the external relationships with forest fringe villages\. As the text on sector management explains above, the MPFD has become a learning organization\. This in turn has allowed development and support to 2,500 new community based natural resource management institutions\. New financial mechanisms in the form of committee accounts served as channels for some 30% of the total project expenditures\. These institutional mechanisms enabled community organizations to protect forests and make choices about investment in both village and individually owned assets\. In addition, these committees have been able to access other government department funding sources with the help of MPFD staff\. 5\. Major Factors Affecting Implementation and Outcome 5\. 1 Factors outside the control of government or implementing agency: The influence of outside factors has been mixed\. Bank performance affected project achievement both positively and negatively (see section G below)\. Greater judicial scrutiny and involement is strengthening enforcement of the regulatory framework\. On the other hand, further regulatory reforms would help to foster sustainable incenetives for the private sector and JFM, and trust-building between local people and protected area managers\. Adverse publicity from activist NGOs (who are opposed to World Bank lending to India, to MPFD efforts in tribal areas, and to national government policy on encroached forest land) and local marketing agents (who now face competition from JFM committees) have tarnished the public perception of the project, especially of those not directly participating, and have demoralized participating villagers and local staff\. The provision of financial support from programs such as the World Food Program ($15 million) and the Tenth Finance Commission ($15 million) enabled MPFD to replicate practices beyond the scope envisaged in the World Bank-financed project\. 5\.2 Factors generally subject to government control: Clearance delays and lack of delegated authority to the implementing agency for approval of all consultancies delayed or prevented implementation of several planned consultancy contracts\. These problems resulted in the failure to comple three dated covenants\. Discontinuity of staffing in key positions curtailed achievements in forest technology and FMIS\. Delays in the issuance of government orders/resolutions adversely affected some of the -9-  policy reforms\. Broad administrative reforms beyond the scope of the project delayed the organizational proposals (and in one case the associated project covenant), but also created an atmosphere which facilitated the project's innovative decentralized initiatives including establishment of local village-level committee funds\. Timely provision of counterpart funds made the physical and financial achievements possible\. 5\.3 Factors generally subject to implementing agency control: Strong commitment and action within the implementing agency enabled the project to exceed SAR expectations in human resource development, performance monitoring, project coordination, and joint forest management\. Partnership with development NGOs was not fully institutionalized and the potential to contribute was therefore not fully realized\. In the context of adverse publicity from activist NGOs, there was inadequate communication with civil society (including the NGOs and press), state government officials, and the general public\. ICR Supporting Document 6, Issues Related to NGO Involvement provides further analysis\. 5\.4 Costs andfinancing: * Costs\. Overall costs approximate original estimates in rupee terms\. The training, forest operations, village resource development program, ecodevelopment, and civil works exceed or correspond to original projections in rupee terms\. Equipment, consultancy, technical assistance, and vehicles are under-spent, due to various problems including procurement and consultant contracting\. * Schedule Changes\. Apart from start-up dunng the first year, the project was implemented on schedule\. MPFD receives funds from the state government through the annual budget, approved in February or March of each year\. The department required no further sanction to release funds to circles or divisions, though large contracts for goods and works, and all contracts for consultants required the sanction of the Empowered Committee which often delayed purchase of equipment, vehicles, and the appointment of consultants\. Because the procurement was largely for small and scattered works, the overall impact of contracting difficulties was limited, with delays affecting mainly the technology/extension components\. Difficulties in consultant contracting curtailed achievements in policy and marketing analysis, and the provision of NGO services\. 6\. Sustainability 6\.1 Rationale for sustainabilitv rating\. Likely\. The extent of institutional transformation, with resulting changes in implementing agency attitude, behavior, and management capacity strengthens prospects of a continuation of the learning organization and the JFM approach\. Commitment and understanding at top political levels of the state govemment and within the implementing agency underpinned by the supportive policy environment providing effective incentives for community forestry also make continued support of the JFM approach likely\. A clearer understanding and accountability for the poverty alleviation impacts and the long-term fiscal impacts would further strengthen political support\. Sustainability of the project achievements overall will assure environmental sustainability\. Some of the improvements to NTFP processing will directly improve the environmental sustainability of the affected plants\. The benefit sharing arrangements and establishment and funding of VFC, FPC, and EDC accounts have created a mechanism for self-financing at the community level which will continue to function\. Local choice within a budget constraint increases the financial and technical viability of site specific investment decisions, and increases the likelihood of reliable maintenance\. However, issues related to fairness and social inclusion both within and among local communities, especially in the planning processes could threaten the sustainability of JFM efforts in some locations if they are not addressed\. The relatively newer and weaker VFCs and FPCs will require additional support to become sustainable institutions\. The sustainability of the incentive framework for ecodevelopment is still uncertain, and controversy over public policy for protected areas also increases risks for the biodiversity conservation component\. Another threat is the possibility that Supreme Court decisions on forest management and trade could curtail forest produce harvesting over the long-term and thus undermine the JFM incentive framework, but this situation is considered unlikely\. - 10 -  6\.2 Transition arrangement to regular operations: Most of the project activities were already integrated into the regular operation of the department, which has minimized the need for special transition arrangements\. However, the project was envisaged as the first phase of a longer-term investment program, and the relatively abrupt and unanticipated reduction in financing has affected momentum\. Additional financing would be required to realize the full potential of the processes, systems and skills which the project has created\. In the short-term even in the absence of a commitment of additional extemal financing, the project's achievements and sustainability will be strengthened when the MPFD now devotes additional action and attention on issues related to (a) aggregate monitoring and analytical work on program impacts, (b) further addressing issues related to conflict management, (c) increasing communication capacity and effectiveness, and (d) ensuring appropriate administrative and budget support to sustain the existing program\. ICR Supporting Document 1, the ICR Aide Memoire provides further details on these plans\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: * Bank Identification and Preparation\. Satisfactory\. The Bank responded to the government's request and facilitated arrangements for technical assistance\. In retrospect, the Bank should have strengthened the terms of reference for the preparation consultants to emphasize the need for close teamwork with and ownership of the Borrower task team\. The final preparation report of the consultants provided valuation background analysis, but even after extensive revision, it did not address the vision of the Borrower's preparation task force\. Bank staff responded by facilitating the formulation of a project concept that did address the Borrower's goals and had their full ownership and commitment\. The resulting design was ahead of its time with its emphasis on institutional and social development, and addressed all major relevant aspects with the exception of procurement\. Preparation work included the design of a Tribal Development Plan, but this report was never updated to reflect the subsequent decision to treat tribal development concerns in an integral fashion under the rubric of social impact, participation, and equity, nor distributed to the Borrower (in order to avoid confusion)\. * Bank AppraisaL Satisfactory\. The appraisal appropriately assessed commitment, capability, phasing, incentives, and complexity of all major relevant aspects of the project design with the exception of procurement (especially NCB/ICB, consultant contracting, and NGO services)\. The conditioning of project negotiations on policy and institutional reforms that were essential to project success built on lessons learned from past forestry projects in India and could be considered best practice\. 7\.2 Supervision: Satisfactory\. The Bank provided good quality advice with appropriate agreed actions which focussed on the development impact\. The Bank teams showed flexibility in approving the modifications that were inherent in the experiential leaming design\. The missions showed relatively good skill mix, staff continuity, and regularity (8 missions over the 4 years two months project implementation period)\. However, involvement of a procurement specialist prior to the midterm review would have been desirable\. The tripartite review mission involving activist NGOs, the MPFD, and Bank staff, which was arranged by the Bank, did not succeed in articulating project-specific concerns nor in facilitating constructive dialogue\. The Bank's failure to commit its support to continue with the reform process as planned at negotiations has sent a negative and demoralizing signal to those responsible for program implementation\. Compliance with Bank policies and procedures\. The appraisal included extensive consideration of whether to address tribal development concerns in a separate tribal development plan or whether to do this in a strategy which integrated tribal concerns under the rubric of social impact, participation and equity\. The decision was taken to adopt an integrated approach\. By both the standards prevailing at the time of loan approval (which focussed on the spirit of safeguard policies), and those at the time of the ICR (which takes a more literal interpretation), this - 11 -  integrated approach is consistent with OD 4\.20 on indigenous people, and is an appropriate strategy\. However, although a tribal development plan was prepared, it was never revised and finalized into a detailed Tribal Development Strategy to reflect this integrated approach and guide subsequent implementation\. (Such action would have been desirable although OD 4\.20 does not requrie a tribal development strategy in lieu of a tribal development plan if tribals are beneficiaries of the project\.) Furthermore, the project covenants did not specify the need to recognize customary rights of tribals\. Nevertheless, project implementation resulted in significant usufruct tenure and economic benefits to tribals, including a design change that expanded the application of JFM to dense forest areas\. There was compliance with all covenants related to other safeguard policies, including OD 4\.30 on involuntary resettlement\. No people have been resettled from any of the parks and sanctuaries financed under the project\. ICR Supporting Document 5, Issues Pertaining to Social Safeguards, provides more detailed analysis\. 7\.3 Overall Bank performance: Satisfactory, consistent with the ratings described above\. Borrower 7\.4 Preparation: Satisfactory\. The Borrower formed a task team who championed an innovative vision which provided the basis of the project design\. The project preparation consultants did not produce a project plan consistent with this development vision, but in spite of this failure, close collaboration between the Bank and the Borrower ensured a sound, client-driven final design\. The Borrower also demonstrated its commitment to the project by undertaking the required institutional and policy reforms prior to implementation\. 7\.5 Government implementation performance: Satisfactory\. The state govemment undertook the essential policy and institutional reforms prior to project start-up, appointed effective managers, provided adequate counterpart funds, and remained committed to the project objectives\. While there were shortcomings as described in paragraph 14, the overall performance was satisfactory\. 7\.6 Implementing Agency: Satisfactory\. The implementing agency demonstrated effective management, with particular strengths on human resource development, monitoring and evaluation (including progress reports), and beneficiary participation\. However communication and relationships with NGOs, the press, the private sector and general public have not developed fast enough in a context of wider public and stakeholder interest\. 7\.7 Overall Borrower performance: Satisfactory, consistent with the ratings described above\. 8\. Lessons Learned Reorientation of a government institution\. A focus on strategic and structured human resource development, backed with management commitment and budget, was central to success\. * Vertical and horizontal training, study tours, and leaming forum enabled a shift from a command and control structure to relationships based on support, leaming, and analysis\. * Experiential-leaming created the attitudes, competence and confidence needed for site and user specific adaptation, while deconcentration of decision-making to middle management and the front-line created opportunities to use these new capabilities\. - 12 -  * Joint training of iorest committees and front-line staff built better relationships and trust\. * Communication processes which allowed staff space to voice their concems about new processes and systems helped to develop broad-based acceptance of the new vision and role\. * The scale of JFM implementation fueled a momentum for change and created a critical mass of understanding and capacity within MPFD\. * To the extent operations such as research and wildlife were kept in separate wings rather than being integrated into the overall departmental transfonnation process, the change was less dramatic and there were also staffing problems associated with the lack of a critical mass\. Community accounts for forest protection and village resource development\. The creation of community accounts linked forest management with livelihood opportunities and most importantly, gave people choice about livelihood options\. * The accounts created the opportunity for people to exercise choice, which in tum led to efficient, locally appropriate and site-specific investments which would not have been possible through a top-down planning process\. * The joint processes established to run the accounts increased the transparency of public expenditure\. * The combination of "untied" community funds for forest protection services and increased retums from the forest through JFM benefit sharing arrangements, have strengthened the convergence between the protection of the forests and community welfare\. * The accounts also have served as an effective mechanism for accessing other rural development funds\. * The use of community accounts for a large portion of project expenditures contributed to the shift in power relations between MPFD and local communities\. Conflict management and fairness\. The sustainability of JFM depends upon the capabilities of local institutions to be fair and to manage conflict as it arises since a disenchanted minority can easily sabotage forest management efforts\. o Conflict management is a critical aspect of community based forest management and efforts to strengthen the skills of village leaders and local staff in coping with conflict and mediation should be planned from the outset\. Conflict can be anticipated within the group, between groups and between the MPFD and group\. * Conflict between groups can be reduced through careful identification and negotiation at the outset of users of particular areas of forest\. * Assessment of conflicts should form part of PRA-based planning and monitoring\. Within communities, inclusive planning processes linked to a greater understanding of forest-livelihood dependence would encourage communities to implement mitigation measures to compensate those who are immediately affected by tighter community control over access to forest resources\. Where present, a clear understanding of the objectives of social equity and good mediation skills of MPFD staff helped to ensure social inclusion in hierarchical and heterogeneous communities\. * Conflict resolution between communities sometimes needs extemal facilitation by MPFD staff or other arbitrators\. - 13-  Modifications to standard silvicultural practice\. The practice of subdividing the degraded forests of VFCs into multiage blocks proved to be an effective mechanism for meeting the multiple interests of the community by providing a diverse resource, a more continuous stream of benefits and a basis for rotational grazing\. * For JFM in dense forest areas, it still may be necessary to adjust from managing single age timber stands to a management system that produces a more regular flow of benefits and puts greater emphasis on NTFPs\. Such adjustments could help address the multiple objectives outlined in the National Forest Policy and the JFM Government Resolution by providing a more regular supply of products and income\. Forest restoration requires active participation\. People's participation has proved essential and effective in achieving forest restoration\. * Establishing the linkage between forest users' rights and responsibilities has been critical\. * Treated natural regeneration successfully restores degraded sites in the majority of cases, and is much more cost-effective than plantations\. Where areas cannot be be restored through natural regeneration, technology based plantations should be encouraged\. * Protection of a site prior to treatment has reduced the costs substantially due to the high regenerative capacity of most sites and the more judicious treatment of areas where natural regeneration is not adequate\. JFM benefit share and poverty alleviation\. The poverty alleviation impact of the project is considerable, forest benefit streams provide strong incentives to forest users, and benefit sharing policy provides an effective self-funding mechanism for regular forest maintenance\. - Bamboo thinning, NTFP collection and marketing, and cut and carry fodder have made an important contribution to incomes, and their significance is far greater than anticipated since the Appraisal highlighted returns from timber harvest\. * The significant financial and environmental returns appear to increase the prospects for mixed use forestry withstanding the pressure for land use conversion, particularly as this establishes a productive community asset which can benefit the poorest\. * Increasing forest productivity and value (through improved marketing and processing) are effective mechanisms to reach some of the poorest, but continued support and mediation by the MPFD (or other government agents) is required to ensure that benefits are shared fairly in the future\. Communications and Impact Analysis\. Communicating the aims and outcome of the forest sector reform program to a broader constituency could provide greater support for the program\. * The MPFD has gone through a tremendous transformation and has concentrated on improving its dialogue with people living at the forest fringe, but too few people outside this ambit know about it\. This has limited the capacity of the MPFD staff at the field level to gamer support from colleagues in other branches of government and in the NGO sector\. * Effective engagement with a broad range of stakeholders including development NGOs, activist NGOs, academics, private sector entities, politicians, and the press would increase awareness and understanding of the transformation, policy positions, development programs, and ensuing benefits\. * Better aggregation and state-wide analysis of locally available data on poverty alleviation, fiscal impacts, social factors, and environmental dynamics could strengthen the evolving policy framework, program and proposals for future support\. - 14 -  Commitment to a reform program\. Reform of a public forest institution and the establishment of collaborative forest management require long term commitment to become sustainable and institutionalized\. * The phased approach set forth in the SAR has proved essential as it provided opportunity to develop and implement critical policy up front and to modify these based on field experience and it provided the opportunity to reorient thinking and behavior as well as to develop new skills\. * However, commitment to the reform process should be sustained until the processes are well established at the field-level and locally based institutions are sustainable\. Withdmwal of financial support to community institutions should be planned and phased based on their institutional capacity and on the establishment of sufficient returns from forest and other assets to sustain the system\. 9\. Partner Comments (a) Borrower/implementing agency: Comments of Sudeep Banerjee, Principal Secretary, Forest Department, Madhya Pradesh "We have gone through the contents of the ICR report and fully concur with the conclusions drawn by the members of the review team\. We appreciate your kind comments regarding the institutional changes that have taken place within and around the forest department and the other achievements of the project, particularly those in the social sector\. I would like to assure you, once again, that the changes that have taken place in the departmental approach to its relationship with tribals are totally irreversible and are in line with the general approach of our government to empower the underprivileged\. We now look forward to your approval of the follow-up project to consolidate the gains of the first phase as well as to spread the programs to the rest of the state forests and tribal people\. As far as our follow-up plans are concerned, we have already initiated action on some of the items and are examining the scope of the studies for which financial support from the World Bank will be required\. These areas are: * Analysis of Poverty Alleviation Impacts * Analysis of long-term fiscal impacts and self-financing mechanisms * Development of a Communication Strategy, and * Development of Performance Indicators for Protected Areas\." (b) Cofinanciers: Not applicable (c) Otherpartners (NGOs/private sector): See Summaries of Beneficiary Assessment and Stakeholder Workshop\. 10\. Additional Information - 15 -   Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators Indicator Pre-project Projected in SAR Actual/Latest Estimate' Institutional impact Joint community funds providing livelihood No mechanisms in place 630 mln Rs (US$16\.9 mln) 826 min Rs (US$21 mln) from opportunities and increased choice for users project and 1470 mln Rs\. (US$37 min) from other sources New extemal linkages with other No mechanisms in place Coordination committees Diverse arrangements in place government organizations and NGOs with other govemment varying from division to division\. organisations Committees did not function after I st year\. Responsive-adaptive approach No innovation, Innovation in approaches, new Standard processes processes for fund management Support rather than command structure Top-down control DFO playing supportive role, place One-way relationship between coaching and conflict resolution DFO and field staff Two-way relationship between DFO and field staff Poverty Alleviation and Other Social Impact Value of timber and NTFP usufrunct asset 0 US $2\.3 billion from timber and transferred to community under JFM policy US$ 1\.0 billion from NTFP (based on 11872 JFM committees formed (US$280 per household per year) to date since usufruct transfer is not realized until committees are formed) Incremental increase in income flows from 2500 Rs\. /household/ year, 2269 project-financed JFM committees estimated to go to minimum 4000 Rs/ household in future Committees formed under project 212 1239 2451 (VFC/FPC/EDC) Total project beneficiaries of investments - Over I million No\. of committees formed beyond project _ 9657 Total committees (VFC/FPC/EDC) 352 Not specified 12103 VFC 136 6556 FPC 216 5316 EDC' 0 231 Total beneficiaries of policy and 6 million institutional reform Local expenditure on JFM, including local 57 crore Rs 141 crore Rs training, community protection, forest US$15 mln\. US$ 35 mln operations Funds to community accounts for 0 Anticipated for VFC & 69 crore Rs\. protection by VFCs, FPCs, and EDCs EDC, not FPC US $17 mln Funds channeled through community 0 Not anticipated About 5-7 crore Rs (US$1\.5 mln) accounts for forest operations - 17-  Catalyst effect: rural development MPFD not investing in rural Not anticipated 147 crore Rs investments accessed by committees - development US$37 mln beyond project No\. of women self help savings groups None Not planned Estimated 1000 formed Customary rights of tribals recognized in Non specific Rights & responsibilities for Exercise of rights & planning and implementation participating VFCs responsibilities for VFC & FPC; but rights remain non specific for those not yet included in JFM program Minority groups (Schedule Castes, women, Anticipated for VFCs Over 90% for VFCs, 79% overall Schedule tribes in non tribal villages) (based on Process Doc sample) targeted in microplarming Quantum of work in forest development in N/A 18\.3 million person days 42\.3 million person days FPCNFC* Landless given preference in forest wage Little local wage employment, Anticipated Opportunities for work generated; employment of VFC/FPC mainly reliant on NTFP gathering VFC/FPC committees do target and seasonal migration landless; Transparency in wage payments Migration of poorest for seasonal work Seasonal out-mnigration the norm Not anticipated Major reduction in migration due in many forest fringe communities to improved farming, forest employment, Revolving fund loan interest payments No borrowing facilities in many Interest rates set by committees agreed by VFC/FPC/EDC areas, or exorbitant rates through range from 1 0-240/o/yr - much (NTFP) traders below local money lending rates Beneficiaries of income generation 7674 (5175 men, 2178 women) investments in EDCs (Aggregated data not available for JFM) Environmental Impact Total area protected by local communities 5\.54 mln ha (project and non-project) and new policy VFCs 2\.91 mln ha FPCs 2\.44 mln ha EDCs 0\.19 mln ha Area of forest land with effective protection Soil erosion, poor moisture Improvement on 517,400 Pressure reduced on biodiversity in system in place, reducing social erosion, retention, and high pressure on ha 826,000 ha of forest lands and PAs improving moisture control and reducing biodiversity high pressure on biodiversity Area of degraded forest lands protected and Degraded forest lands Rehabilitation of 356,400 Rehabilitation of 419,000 ha treated ha degraded forest lands, 86% success in 1998 audit and success rate improving Area of forest lands treated to improve Poor regeneration in dense forest Improved regeneration in Improved regeneration in 221,000 regeneration 161,000 ha\. ha, 68% success in 1998 audit sample and success rate inproving Protected Areas assisted by project 0 Not specified 186,000 ha supported EDCs Area of Protected Areas improved through Not specified 1,300,000 ha planning and facilities support and habitat improvement - 18 -  Economic and Financial Impact Economic IRR 11% 19% Economic NPV -19\.5 crore Rs 169\.7 crore Rs Incremental household income 2500 Rs/yr after 4 years &\. 4000/yr after 10 years (1994 prices) Specific Project Objective: to develop the new processes, systems and skills required for the implementation of the National Forest Policy in: Sector Management To put in place enabling policy framework and legislation Impediments to community participation Significant impediments All impediments removed Impediments to community and private investment removed participation removed, private forestry still restricted Capacity created for policy and strategic Weak Capacity created Capacity developed in Project Unit thinking in the Department - not yet in Department To develop management systems, structures and resources appropriate to new role Downward accountability to clients and Weak Increased Client orientation evidenced users within a facilitatory, supportive leaming environment developed Integrated planning and monitoring systems Weak Established at micro and Integrated microplanning\. Linnited in place macro levels success on integration of planning and monitoring systems at macro level To dlevelop enhanced HRD capacity Increased and widespread Highly successful wide understanding of approach appreciation and understanding and concept down to forest guards Considerable readjustment of skills Second generation of competence areas to be addressed Increaseforest cover and productivity through development of participatory processesfor management and use of forest resources, taking special account of the interests of tribals and other disadvantaged groups Joint forest management approach Pilot Adopted on degraded Adopted also on denser forest areas established forests only only PRA based microplamnning methods Microplanning pilot Expected in VFCs All VFCs and EDCs; Use of PRA established in FPCs is limited\. Silvicultural practices adapted to multiple Pilot? Expected in degraded Excellent in mini-block treatment objectives of JFM forests system for degraded forests but not dense forests -19-  Restoration techniques for degraded areas Restoration through plantations Range of treatments Innovative site specific treatments based on natural regeneration tested only with positive results Measure tribal interests in planning Non specific Anticipated as integral part Integrated in VFC microplanning; of VFC micro-planning; but only sporadic in the expansion to not for FPC FPC program; Data not aggregated state-wide Measure interest of other disadvantaged Non specific Anticipated as integral part Concems of women and SCs groups, scheduled castes & women, of VRDP micro-planning; identified during initial PRA but landless but not for FPC often failed to translate into action; concerns of landless addressed through employment and small loans Adapt and improve technologies and provide technical advice MPFD staff acceptance of improved Minimal Not specified Widespread planting stock and nursery technologies No\. of improved seedlings to private 0 Not specified Nominal farmers Functioning of Industrial Liaison Unit Non-existent Effective Not effective but local initiatives in 2 districts Non-existent Not anticipated Piloting in 7 districts Federations of private forest plantation owners for management and marketing Demand driven research system Non-existent Fully operational Not yet fully operational Promote conservation of biodiversity Improved protected area management Threatened Biodiversity in PAs Improved management in Improved management planning 24 PAs developed for 18 PAs Policy framework for ecodevetopment No policy framework for Policy framework for eco-development eco-development in place 1/ Physical quantities, expenditures, and fund flow figures are based on aggregate monitoring data compiled by the Project Unit\. Estimates of asset transfer, incremental impact on household income, economic rate of return and net present value are based on Detailed Economic and Financial Analysis (ICR Supporting Document 10)\. Qualitative assessments are based on the judgements of the ICR task team, which visited a variety of field situations, held discussions with a variety of stakeholders, and reviewed case studies, performance audits, regeneration surveys, process documentation and other monitoring\. ICR Supporting Documents 2 (Poverty and Other Social Impacts), 3 (Institutional Impact) and 4 (Environmental Impact) provide further analysis\. Output Indicators Indicator Pre-project Projected in SAR Actual/Latest Estimate Improve Sector Management Policy Policies for revenue sharing established Policy in place only for degraded Policy in place only for Revised to include FPCs areas degraded areas - 20 -  Shift from a purely rights-based system Purely rights-based system Developed Implemented to a system of secured rights, responsibilities and incentives developed Transfer of usufiun Pricing of forest products Nistar subsidy for areas distant Nistar subsidy for areas Sustainability of reform likely\. from forests was disincentive to beyond 5 km from forests forest protection by local eliminated as pre-condition communities to negotiations Monopoly collection of some NTFP Monopoly in place Altemative mechanism No studies on alternative studied mechanism\. Transit restrictions on mahua seeds, flowers and charota seeds removed in 1998\. Felling and transit restrictions Posed major disincentive Gradual easing of Gradual easing of restrictions restrictions, beginning with implemented but political a pre-condition of consensus not yet in place negotiations Long-term industrial supply contracts Distorted market prices Will cease in 1997 Ceased in 1998 Regulations eased on land ceiling for Posed major disincentive Discussions on Indian State policy of leasing non-fbrest commercial tree growing Forest Act wasteland to private companies declared in 1997, but not implemented Legislation JFM Government Resolution and Revised JFM Government Exceeded expectations: revised Order but there were shortcomings Order issued as condition of GR incorporated learning and negotiations approved in 2000, corresponding Government Order expected soon\. Policy analysis capacity Policy studies conducted Difficulties with letting contracts; Strategic capacity created Policy revised using internal feedback mechanisms Tip ensure management systems, structures and resources appropriate to new role Increased accountability to clients/users All funds centrally allocated and 1239 VFCs and EDCs with Villages managing community held within MPFD signed MOUs funds\. 12,103 No MOUs MOUs signed Ernpowered staff Standard schemes Joint site-specific plans, Achieved but need for more Traditional assumptions showing variety\. variety in outcomes unchallenged by staff Under-standing of concepts and approach by Guards and Rangers External linkages MPFD self-sufficient and inward Create linkages New relationships between looking coordination government agencies Role for NGOs but limited New relationships with NGOs funds provided Learning environmenlt Not relevant, assumptions Promotion of leaming Space for leaming created unchallenged organization Transfer of principles between divisions New systems Top-down decision-making Decentralised decision-making - 21 -  Planning, monitonng and evaluation Traditional working plan systems Multiple-objective Site-specificjoint planning in based on single objective site-specific plans with VFCs\. management client involvement Consultation in FPCs\. Macro-level planning based Few private sector links\. on GIS and MIS FMIS uncompleted and unlinked Few specifics in SAR on to planning systems role of planning Traditional monitoring systems Downward accountability Effective & innovative instruments to clients -- perfommance audit and Upward systems allowing regeneration surveys in place\. flexibility Field level measurement some jointly with communities\. Baselines in microplans\. Traditional manual reporting Computerized databases systems maintained in Project Unit and field - high quality reports produced but locally available data on social factors often not aggregated state-wide\. Organizational vision and structure Consultant study and Vision set out implementation of findings Proposed structure but not implemented and now caught up in wider govemment changes Development of HRD capacity HRD plan prepared HRD plan and Plan prepared and implemented implementation HRD wing in PCCF's office Primary vehicle for change Staff re-orientated Increased awareness, Variety oftraining and learning understanding skills events using horizontal and vertical mixes of staff Field support provided Instructions rather than support Spear-head teams as main Spear-head teams provided initial vehicle for field support, impetus, limited by frequent staff training and leaming changes\. on-the-job Now provide dispersed resource back-stopping additional to DFO coaching Increase closed forest cover and productivity and rehabilitate degraded forests as a source of livilihood and income for local communities Assisted Natural Regeneration in Dense ForestAreas Area protected through ANR treatment Pilot 161,000 ha 221,000 ha Regeneration status Vulnerable to degradation Measurable improvement (86% performing well) No\. of FPCs 216 in 1993 Not specified 1105 Protection funds to FPC accounts 0 0 32\.4 crore Rs\. Village Resource Development Program in Degraded Forest Areas - 22 -  Area protected by VFCs Negligible 343,000 ha 419,000 ha Regeneration status Highly degraded Measurable improvement (89%/6 performing well) No\. VFCs 261 in 1993 1143 1164 Training for spear-head teams 0 51 divisions 81 divisions Eco centres established 0 51 51 Protection funds to VFC accounts 30\.7 crore Rs\. Improve existing technologies and provide advice No\. of research and extension centers 0 13 9 complete, and 5 almost complete No\. of private nurseries 510 220 Seed production areas 0 2400 ha 2450 ha Clonal seed orchards 0 560 ha 537 ha Modem nurseries 0 14 14 No\. of seedlings/year 0 1\.4 mln\. 0\.95 min No\. of clonal seedlings/year 0 0 0\.5 mln Technical assistance 6 months 0 No\. of persons trained in forest 10 1 1 technology Adaptive research trials 14 0 Conserve biodiversity Completion of protected area Lack of operational plans for PAs 24 PA management plans 18 outline and 6 draft management management plans plans prepared Habitat Improvement in protected areas Habitat improvement in Habitat improvement in 8,375 ha 2,100 ha in ornear PAs in ornearPAs Eco-development established in villages Villagers dependent on PA Eco-development in 96 231 EDCs formed and 182 resources villages financed by project Area covered by EDCs 0 Not specified 186,000 ha Protection finds to EDC accounts 0 Not specified 6\.3 crore Rs\. Conseration training for forestry and No facilities or program for Establishment of facilities Training facilities established, wildlife staff established biodiversity conservation training for conservation training cumcula developed and program being implemented\. 170 staff trained\. Identification of ecological linkages for No conservation plans for Strategy to be developed 18 key ecological corridor areas the protected area network ecological corridors between PAs identified and nine surveyed Incorporation of biodiversity Forest management plans do not No targets set in SAR Six forest working plans, covering conservation issues in forest address biodiversity conservation 20,000 square kilometers of forest, management plans prepared with the inclusion of biodiversity prescriptions - 23 -  1/ Physical quantities, expenditures, and fund flow figures are based on aggregate monitoring data compiled by the Projcct Unit\. Qualitative assessments are based on the judgements of the ICR task team, which visited a variety of field situations, held discussions with a variety of stakeholders, and reviewed case studies, performance audits, regeneration surveys, process documentation and other monitoring\. - 24 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Management Development 6\.00 4\.14 0\.65 Forest Development 39\.90 43\.20 1\.06 Extension, Technology, and Research 10\.30 8\.41 0\.79 Biodiversity Conservation 11\.10 8\.06 0\.71 Total Baseline Cost 67\.30 63\.81 Total Project Costs 67\.30 63\.81 Total Financing Required 67\.30 63\.81 Project Costs by Procurement Arrangements (A praisal Estimate) (US$ million equivalent) 1\. Works 0\.00 1\.60 28\.80 0\.00 30\.40 (0\.00) (1\.40) (25\.60) (0\.00) (27\.00) 2\. Goods 3\.50 0\.80 5\.10 0\.00 9\.40 (3\.30) 0\.70) (4\.50) (0\.00 (8\.50) 3\. Services 0\.00 0\.00 5\.70 0\.00 5\.70 (0\.00) (0\.00) (5\.70) (0\.00) (5\.70) 4\. Miscellaneous 0\.00 0\.00 21\.80 0\.00 21\.80 forest protection, (0\.00) (0\.00) (16\.80) (0\.00) (16\.80) ecodevelopment support, operating costs, PPF 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 3\.50 2\.40 61\.40 0\.00 67\.30 (3\.30) (2\.10) (52\.60) (0\.00) (58\.00) ICB = International Competitive Bidding NCB = National Competitive Bidding PoetCosts by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Ex\.s , i\. \. ate, \.ry 1\. Works 0\.00 1\.79 31\.62 0\.00 33\.41 (0\.00) (1\.41) (25\.88) (0\.00) (27\.29) 2\. Goods 0\.00 0\.57 7\.65 0\.00 8\.22 (0\.00) (0\.42) (5\.66) (000) (6\.08) -25 -  3\. Services 0\.00 0\.00 3\.77 0\.00 3\.77 (0\.00) f0\.00) (3\.48) (0\.00) (3\.48 4\. Miscellaneous 0\.00 0\.00 18\.41 0\.00 18\.41 forest protection, (0\.00) (0\.00) (16\.55) (0\.00) (16\.55) ecodevelopment support, operating costs, PPF 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 0\.00 2\.36 61\.45 0\.00 63\.81 (0\.00) (1\.83) (51\.57) (0\.00) (53\.40) " Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2 Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local govemment units\. Proect Financin by Cor onent (in US$ million e uivalent) Management Develop\. 2\.30 0\.20 2\.95 l1\.19 128\.3 595\.0 0\.0 Forest Development 34\.10 5\.70 37\.90 5\.30 111\. I 93\.0 0\.0 Extension, Technology & 9\.00 1\.30 6\.41 2\.00 71\.2 153\.8 0\.0 Research Biodiveristy Conservation 9\.40 1\.70 6\.14 1\.92 65\.3 112\.9 0\.0 Total 54\.80 8\.90 53\.40 10\.41 97\.4 117\.0 0\.0 - 26 -  Annex 3: Economic Costs and Benefits Constant 1994 values SAR SAR ICR SAR NPV ERR NPV ERR (12%, 45 yrs) (45 years) (12%, 45 yrs) (45 years) Rs million Rs million Project - 293 10% + 1,838 19% Project + environmental premium + 2,643 21% Livelihood in degraded forests + 312 + 1,321 - Forest operations in degraded -314 + 85 13 % forests Degraded Forests Total 2 11 % + 1,405 34 % Dense forests Total - 291 10% + 535 15 % Farm forestry and extension 0 12 % - 104 = Breakeven -27 -  Annex 4\. Bank Inputs (a) Missions: !Stage of Projec Cycle No\. of Persons and Specialty Performnance Rating 5 0 ¢ (e\.g\. 2 Economists, I FMS, etc4) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 03/92 2 11/23 9 A,F,EN,P&G,R,E,FN,I Appraisal/Negotiation 04/94 II A,F,AF,EN,R,I,E,P&G,P 11/94 2 A Supervision 06/95 12/95 3 A,EN,IN S S 06/96 5 A,EN,F S S 01/97 5 A,F,EN,S S S 06/97 3 A,S S S 04/98 9 A,F,SF,EN,E,P,IN,FN S S 07/98 1 A S S 03/99 9 A,F,EN,P,FN,IN S S 06/99 2 A,F S S 12/99 ICR 02/00 A - Agriculturist F - Forestry Specialist P - Procurement Specialist AF - Agroforestry Specialist FN - Financial Analyst P&G - Planning a& GIS Specialist E - Economist I - Institutional Specialist R - Rural Sociologist EN - Environmental Specialist IN - Information Specialist S - Social Science SF - Social Forester (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ (,000) Identification/Preparation 101\.6 252\.4 Appraisal/Negotiation 25\.1 73\.1 Supervision 87\.3 275\.0 ICR Total Also includes Bank-financed and trust fund consultants\. - 28 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (F-l=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies O H OSUOM O N * NA Sector Policies O H * SU O M O N O NA N1 Physical O H * SU O M O N O NA N1 Financial O H *SUOM O N O NA F Institutional Development 0 H O SU O M 0 N 0 NA IEnvironmental * H OSUOM O N O NA Social Z Poierty Reduction O H *SUOM O N O NA Z Gender O H O SU *M O N O NA Z Other (Please specify) O H *SUOM O N O NA Tribal 3 Private sector development 0 H O SU O M 0 N 0 NA 53 Public sector management 0 H 0 SU 0 M4 0 N 0 NA F Other (Please specify) 0 H 0 SU 0 M 0 N 0 NA Community Forestry - 29 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating 0 Lending OHS*S OU OHU FZ Supervision OHS OS OU OHU X Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating 2 Preparation OHS OS O u O HU I Government implementation performance O HS OS 0 U 0 HU I Implementation agency performance O HS O S 0 U 0 HU Z Overall OHS OS 0 U 0 HU - 30 -  Annex 7\. List of Supporting Documents 1\. Aide Memoire 2\. Poverty and Other Social Impacts :3\. Institutional Impact 4\. Environmental Impact 5\. Issues Pertaining to Social Safeguards 6\. Issues Related to NGO Involvement 7\. Sector Management Component Assessment 8\. Extension, Technology, and Research Component Assessment 9\. Bank Comments on Procurement Issues Outlined in the Borrower's Project Completion Report 10\. Detailed Economic and Financial Analysis 11\. Beneficiary Survey 12\. Stakeholder Workshop Proceedings 13\. Borrower's Project Completion Report (3 volumes) 14\. Process Documentation of Joint Forest management and Ecodevelopment (2 volumes) Note: ICR Supporting Documents 1-12 are compiled in a supplemental volume to the ICR - 31 -  - 32 -  Annex 8\. Beneficiary Survey Results SUMMARY OF THE BENEFICIARY ASSESSMENT STUDY Background The World Bank as part of an Intensive Leaming Implementation exercise commissioned a Beneficiary Assessment (BA) exercise in the Madhya Pradesh Integrated Forestry Project(MPFP), to assess the perceptions of the beneficiaries, on the impact that the project has had on them\. The BA exercise was conducted in a short period of time (4 weeks) and sought to gather the perceptions of different beneficiaries and stakeholders in the Madhya Pradesh Forestry Project\. Apart from discussions and data collection with the VFC members and other beneficiaries at the village level, NGOs(advocacy & field based), forest department field staff and elected officials were interviewed for their perceptions & views\. The methodology adopted was a qualitative, social assessment method of investigation using secondary and prirnary data collection techniques \. A multi stage stratified random sampling procedure was adopted to select 17 sample committees for the study, based on criteria such as geographical zones, committee formation based on different time periods, location & accessibility and NGO supported ones\. The assignment also included a Stakeholder Workshop in which a wider range of stakeholders participated (e\.g\., private sector, officials from other golvemment agencies), and which is summarized separately\. Perceptions of Committee Members from FPCs, VFCs & EDCs , regarding the impact of the project\. The members in the course of group discussions expressed that there had been positive and negative impacts of the project\. Strengths\. A very strong positive aspect that almost all villagers felt was that they had begun to realise the value of the forests\. Some of the villagers said, quote" We feel that the forests now are ours and have realised its value\. Earlier we thought it to be only something to exploif'\. The villagers felt that the as a result of restricted access there was an increase in availability of certain types of NTFPs\. Over the recent years and thanks to JFPM programme, the villagers felt that they had been able to build a good relationship with the grassroots level Forest Department staff' They felt interaction was easier and the staff were now approachable and helpful\. Some of the marginal farmers who had little land under cultivation before the project, said they had benefited as a result of the Forest Department staff helping them to set up lift irrigation facilities in the village\. As a direct outcome, they were able to grow crops on a rotational basis twice as a year as against the earlier practice of only once a year and hence did not have to migrate for employment\. Weaknesses\. In almost all the villages visited, a common concem expressed by the management committee members was that they were not fully aware of their roles & responsibilities \. Quote " Especially when it comes to keeping records and accounts, we have not been guided properly and hence we have difficulty in maintaining records and accounts\." Perceptions of Women\. The views of the women folk in the village was also elicited in separate group discussions\. All the women who were interviewed said that they felt close to the forests and wished to protect it\. However they also felt that decisions regarding the forests, which affected their livelihoods were taken in the committee meetings, and only during implementation did they learn the content of these decisions\. For example nobody had consulted them on the usage of the Unnat chullah and they felt that the Unnat chullabs supplied to them were not suited to their family size\. Perceptions of Activist NGOs\. The activist NGOs , expressed quite strongly their concems on the impact of the project\. Some of the major concerns are presented below\. Weaknesses\. The Activist NGOs felt that the Deputy Ranger as member secretary is a hurdle to The committees' self-sustainability because it led to a dependence of the committee on the Forest Department staff\. The NGOs felt that there was also a lack of transparency of funds received and spent by the management committee\. The activist - 33 -  NGOs also felt that they had been involved in project formulation & implementation\. They felft project did not help to build a better relationship between tribals and forests\. They felt the basic premise of the project was "to reduce dependence on forest", which they felt was inherently wrong\. Several NGOs expressed concem that the benefit distribution policy was not openly stated and known to all villagers\. Finally the NGOs said, quote "the Department has yet to digest the concept of JFM and working with NGOs\." Perceptions of Development NGOs\. The field based NGOs were also met and their opinions and views were elicited in the interviews, which is presented in the following points\. Strengths\. The Development NGOs felt that in most areas, the VFCs, FPCs and the EDCs, have been actively functioning, under the guidance of effective leaders\. They believe that the success in VFC formation by the Forest Department has been largely due to the presence of NGOs in the area\. One of the positive impacts of the concept of the the committee voluntarily contributing labour "Shramdan" , is that it has created a sense of unity in the community and ownership towards the project\. Weaknesses\. One the strongly concems expressed by the development NGOs was that the committees are too dependant on the funds flow from the department\. In some cases, it was stated, the committees though formed much earlier, became active only when there was an inflow of funds (earmarked for protection)\. Another concern was that only the more powerful people were part of the Management Committee, leaving little representation to the landless and other deprived sections of the village\. They felt that both the Committee members and the members of the SHGs need guidance and support in managing their activities\. Perceptions of Forest Department Staff\. A cross section of staff ranging from the Forester at the grassroots to the senior level staff were interviewed and their perceptions are presented below\. Strengths\. The staff at the grassroots felt that there was a positive attitudinal change of the villagers, towards them and that a healthy relationship based on trust was being built up\. The social standing of the staff, in society, had changed for the better, and the pressure from politicians has also reduced\. At all levels, the staff expressed that they were experiencing better cooperation from the Committees in joint patrolling\. An observation made by some of the staff was that since project implementation commenced, there was a marked change in their interactions with their senior officers\. They could now easily approach the senior officers for support \. Exposure & Training were listed as one of the contributing factors which had helped them become fully aware of JFM Weaknesses\. At all levels the staff felt that that the Committees were young and needed support and guidance\. Perceptions of Elected Representatives\. A cross section of elected representatives from the taluks, district and state level were interviewed \. Strengths\. A cross section of elected representatives from the taluks, district and state level were interviewed\. Almost all those met felt strongly about the positive impact of the project\. The general awareness among the villagers has increased and there is now a greater sense of involvement in the activities of protecting the forests, it was felt \. The information about encroachments and even the timber mafia, in many villages is being communicated to the locally elected representatives and this reflects a substantial positive change in the attitude of the villagers towards the forests it was felt\. - 34 -  Annex 9\. Stakeholder Workshop Results HELD ON 16TH FEBRUARY 2000 AT THE ACADEMY OF AMINISTRATION, BHOPAL (MADHYA PRADESH FORESTRY PROJECT) The one day workshop drew various stakeholders who were connected and impacted by the forestry project in Madhya Pradesh\. There were committee members (from VFCs, FPCs and EDCs), committee Leaders, Development NGOs, Elected Representatives, Representatives from other departments, from Industry & Trade and Field staff & Headquarters staff from the Forest Department (FD) \. The objective of the workshop was to provide an opportunity for the participants to draw lessons from the Madhya Pradesh Forestry Project, as part of an Intensive Learning Exercise, since the World Bank financed project had come to an end\. The key objective of the workshop was to gain insights into the experiences of the project, from the perspective of different stakeholders\. To start with there were presentations from the Forest Department senior officials on the achievements of the project\. It was stressed that the achievements were possible only because of the support of the local people who had shown the way with several success stories\. A brief presentation was given on the findings of the Beneficiary assessment Study followed by discussions in smaller groups\. The workshop had been structured to facilitate discussions in smaller groups, on the impact of the project and the key lessons to be drawn from the project\. Each stakeholder group was given space to discuss and express their perceptions \. The groups formed were, committee members group, Development NGOs group, Field staff of the Forest Department Elected Representatives group, Other Departments' group, Industry & Trade group, Headquarters staff of Forest Department\. The Activist NGO group, though invited to the workshop, declined the invitation\. The broad perceptions emerging from each of these groups is given below\. COMMITTEE MEMBERS GROUP The group unanimously felt that there was an increased belongingness towards the forests and that a cordial relationship had been built up with the forest department staff\. It was expressed that the committees felt empowered and the people had benefitted through Economic Development which had come about through Irrigation Facilities, NTFP sale, Saving and Income Generating Activities\. The main leamings from the project expressed were, that the committees should be strengthened in their managerial capacities through training and other support activities \. Another interesting point raised was that separate operating groups should be made for men and women\. DEVELOPMENT NGOs GROUP The group strongly emphasised that knowledge exists indigenously and that this should be utilised\. There is a need to have a change in the basic relationship between the FD, People and the NGOs, which is at present of an unequal nature\. One of key methods it was acknowledged was, information sharing at all all levels and with all stakeholders\. For sustainability it was felt that more focus needs to be given to capacity building of the communities and the front line forest officials\. FOREST DEPARTMENT STAFF (Field & Headquarters) GROUP The field staff who participated in the discussions, represented different levels, from the Forest Ranger to the Conservator\. One of the key learnings from the project , it was expressed was the need for transparency in operations\. A participatory process of evolving solutions to village problems is a must, it was said\. What was also essential was the participation of all levels of staff in decision making\. A good outcome of the project, it was felt, was the channels of communication opening up between the frontline staff and the decision makers and a definite attitudinal change amongst all levels of staff\. A suggestion that was made quite strongly was that there should be provision made for completion of activities already started, in the exit phase of the project \.It was also strongly stressed that flexibility was to be allowed in seeking the support and involvement of NGOs in project activities\. ELECTED REPRESENTATIVES GROUP There was a strong sense of participation & involvement from this group, in the workshop discussions\. The key leamings from the project were thoroughly debated and the group members strongly expressed that the project had - 35 -  indeed achieved a lot\. However they expressed that more focus should be given to NTFPs and its importance, value addition and marketing\. The progress on committee formation & support was commended\. But it was also felt that the committees need to be supported by financial institutions\. They also strongly expressed that the pace of good work done so far should be kept up\. OTHER DEPARTMENTS GROUP ( MP Urja Vikas Nigam, KVIC, Handicrafts, IIFM) It is interesting to note that the impact of committee formation was felt quite strongly by the other departments\. It was expressed that as a result of committee formation, there has been an improvement in the service levels\. The committees have helped in implementing the programmes of the department and they have also been concerned about the quality of inputs provided\. INDUSTRY AND TRADE GROUP This group expressed quite strongly the negative impact of the project as they felt that the Industry Liasoning Unit, which was supposed to actively promote the cause of industries, was inactive and hence no progress was achieved during the project\. It was however felt that there is scope for strengthening liason between industries and farmers\. CONCLUSION The workshop concluded with all the groups having expressed their views and having listened to each others' perceptions\. Key lessons were drawn attention to, by the Chairman of the plenary session\. It was strongly stressed that, as the project had achieved substantial progress, it was important to capitalise on the learnings and draw lessons from experiences\. Though the first phase had come to an end, the workshop provided an opportunity to crystalise plans for a new project which would be a "people's project"\. - 36 -  Annex 10\. Final Evaluation Report of the Government Madhya Pradesh Forestry Project: Final Evaluation Report Forest Department, Government of Madhya Pradesh Madhya Pradesh comprises only 13\.49% of the geographical area of the republic of India, yet it possesses nearly 21% of its total forest cover (Survey of India, 1997)\. The forests cover 29\.6% of the geographical area of the State, much higher than the national coverage of 19\.27% (Survey of India, 1997)\. Whereas this disproportionately high forest cover bestows the state with certain advantages, it also encumbers the government with the responsibility of preserving and developing this resource\. These forests, in addition to meeting the needs of the urban and industrial establishment, are the life and livelihood of a huge rural population of over 50 million people, over 25 million of which are tribals and scheduled castes\. The same forests also feed most of the over 45 million heads of livestock\. Conserving these resources in the face of the huge biotic pressures from these communities and their equally large I ivestock population, is an extremely difficult task\. Any attempt for the conservation of these resources has to take care of the needs of the people living in and around the forests, rather than investing in purely technical solutions cinly\. As the threats to the forests primarily come from the dependencies of the rural communities, these threats can be managed only with the participation of these communities in management of these forests\. The implementation of such a programme needs not only huge financial investments, but also a drastic change in the attitudes of the govemment machinery towards the forest dwelling people\. The Project The Madhya Pradesh Forestry Project was born to meet this felt need for investment in the forestry sector\. The current project, worth USD 67\.3 million, was conceived as a part of the 10-year strategic investment plan of the World Bank and Govemment of India, in the forestry sector in Madhya Pradesh\. The overall investment over the entire project proposed is estimated to be over USD 200 million\. The current 4-year phase (called Phase I) was launched on 29 September, 1995 and closed on 31 December, 1999\. The principal objective of the project was to help with the implementation of the Government of Madhya Pradesh's strategy for the development of the forestry sector, as directed by the National Forest Policy 1988, in Madhya Pradesh (MP)\. The project was designed to promote forest and biodiversity conservation through people's participation, village resource development, human resource development and technology upgradation and by catalysing policy and systemic changes in the forestry sector\. The project has made some remarkable achievements in its short span of four years\. Achievements The MP Forestry Project has turned out to be, not only, a path-breaking initiative but also far ahead of its time, in more senses than one\. It was the first project conceived as a two-stage strategic investment plan: the first shorter, pilot phase focusing on systemic and policy changes while the second phase is to be a larger and longer project to implement the real investment ideas\. The current thinking in the World Bank, on Adjustable Program Loans, conformns to the design of this project\. Similarly, the proposed Bank policy for future investments in forestry aims to focus on rural poverty alleviation, while this Project has already demonstrated the link between the socio-economic development of the tribals and forest conservation\. The salient achievements of the project are summarised below: * The project has catalysed new policy changes aimed at liberalisation of the felling and transport of forest products to encourage private interest in tree planting\. * The government has guaranteed usufruct sharing with communities in recognition of their participation in protection and management\. * The project has achieved or overshot physical targets in almost all fields while remaining within the given allocations, as shown below: - 37 -  Assisted Natural Target Achievements %age Regeneration Achieved Area Covered 161000 221000 137\.27 Forest Protection Comniittees\. 1100 Village Resource Target Achievements %age Development Pro2ramme ___ Achieved Area Under Protection 342900 419300 117\.65 Degraded Area Treated for 66150 65250 98\.60 Rehabilitation No\. of VFC involved 1143 1164 101\.84 Research & Extension Target Achievements %age ____________ _ Achieved Seed Production Area (SPA) 2400 2450 102\.08 Seedling Seed Orchard 480 615 128\.13 Clonal Seed Orchad 500 489 97\.80 DemoPlot 100 115 115\.00 Demo Nursery 13 14 107\.69 Biodiversity Conservation Target Achievements %age Achieved Habitat Improvement (Ha\.) 2100 8375 398\.81 Ecodevelopment in villages (No\.? 100 182 182\.00 Water Regime Development No specific 2000 ha\. area treated, 475 water targets holes, pond deepening 83, stop dams 70, 4 Causeways, 9 handpumps Civil Works Target Achievements %age Achieved FG Quarters/Patrol camp 628 715 113\.85 Forester Quarters 120 214 178\.33 RO Quarters 65 90 138\.46 ACF Ouarters 30 40 133\.33 DCF Quarters 13 28 215\.38 Computer Room 79 187 236\.71 Rehab\. of Schools 13 13 100\.00 Rehab\. HosteL SFRI 1 1 100\.00 E&R Centres 14 - 38 -  Year Overall Claims Sent to Amount Entitled Expenditure CAA, GOI for reimbursement 1994-95 31\.42 0\.00 0\.00 1995-96 1307\.28 1135\.76 986\.96 1996-97 3399\.10 2136\.03 1878\.08 1997-98* 4763\.91 4083\.28 3577\.68 1998-99 7645\.73 7527\.86 6526\.37 1999-2000 7731\.891 9317\.09 8238\.05 Total 24879\.33 24200\.02 21207\.14 %age 99\.38 87\.63 * More than 1,40,000 persons, including forest staff and members of village committees, put through over 40 different types of training programmes, such as, customised and general courses at training institutes, study tours and workshops\. Forester-community and intra-department communication and confidence vastly improved\. The modemisation of the curricula of the staff training schools, and improvements in training facilities in these schools shall ensure the supply of high quality staff in future\. * Financial resources to the extent of approximately Rs\. 600 million (approx\. US$ 15 million) have been placed at the disposal of nearly 2446 village level committees, with full freedom of choices regarding its use, to mobilise the communities for forest protection\. As a result of the provision sharing of usufructs from the forests protected by the communities, they are zealously protecting the forests as well as are undertaking entrepreneurial initiatives for their own economic upliftment\. As a result, the supply of fodder, fuelwood and numerous other forest products has gone up and the communities are already feeling free from the clutches of money-lenders\. * The tremendous attitudinal change witnessed across all tiers of the hierarchy, from the 'fences and fines' approach to the participatory approach is a unique achievement which will ensure more lasting forest conservation\. As on today there are over 12,000 committees (both VFCs & FPCs) as against approximately 350 in 1993\. Another interesting aspect of these committees is that only 2269 committees received project support while others were support out of other sources (Fig\. 1)\. This is by far a remarkable achievement specially when one considers that these committees are involved in protection of around 38% of the total forest area of Madhya Pradesh\. The effective participation of the communities in forest protection and village resource development has laid the foundations of a sustainable relationship between the forest department and the people\. Fig\. 1: Comparison of Formation of JFM Committees (Project Funded as well as Overall) - 39 -  U Overall * ProjectFunded 14000 12000 10000 8000 6000 4000 2000 0 a With a view to monitor and evaluate the work done both qualitatively and quantitatively and also to bring transparency in ANR and VRDP works, Performance Audit of these sites have been conducted by both intemnal as well extemnal evaluators and the results processed into a database\. The Performance Audit has been termed by the various World Bank missions an innovative and exemplary method of monitoring and evaluation\. Despite the highly satisfactory performnance of the project, there have been certain issues which need to be discussed and highlighted so as to improve the performance of future initiatives\. These are briefly discussed below: A\. Project Planning Phase Certain important features of the project planning stage, which were a cause for some worry at that stage, are briefly discussed below: * This phase lasted nearly 5 years (I1991-1995) and covered project identification and formulation activities\. Apart from the Bank staff and the staff of the GOMP, project identification and formulation consultants, namnely DHV Consultants from the Netherlands and Society For Promotion of Wasteland Development (SPWD) from India, were also involved\. While both these groups were competent in their right the Dutch staff was seriously handicapped by their English language limitations and also had some differences with their counterparts (SPWD)\. This delayed the project formulation to some extent and the project staff (GOMP) had to put in a lot of extra effort to make the inputs from the consultants worthwhile\. The GOI and GOMP had no role in the selection of the consultants or in deciding the TORs\. If the borrower had been consulted, while identifying the consultants or at least in finalising their TOR, we feel, the teething troubles of this nature could have been avoided\. However, the final output that is the Staff Appraisal Report (SAR) was fully in consonance with the departmnental vision and was fully owned by the department\. * Although the project unit was established, in the form of a task force, well in advance of the project launch, the task force was seriously handicapped for want of resources until the PPF was released\. The PPF came a bit too late\. The state government, because of its inherent constraints, was unable to equip the project formulation unit adequately\. It is felt that somne of the concepts, which became the core of the project later on, should have been tested to some extent during the project formulation phase itself, by releasing the PPF earlier\. This could have saved us some of the groping around which we had to do during initial stages of the project implementation\. B\. Project Objectives and Design The principal objective of the Project, was to assist with the implementation of the Government of Madhya Pradesh - 40 -  (GOMP) strategy f:)r the development of the forestry sector in the state, in accordance with the National Forest Policy of 1988\. The project design was emineritly suitable for the achievement of this broad objective\. The various project components, namely, Management Development, Forest Development, Extension & Research, and Biodiversity Conservation, together covered the entire forest management spectrum and there were no perceivable gaps in project design\. The physical and financial targets of the project have been more or less achieved (>95%/O) in most areas, although there may be scope for improvement in areas related to the establishment of systems and processes\. The area treated under the key activities, assisted natural regeneration (ANR) and village resource development programme (VRDP), is more than the targets, while the number of villages covered under the VRDP is also above the targeted number\. The department has made a clear shift from its traditional command and control style to a more democratic and people-friendly management style\. Thousands of staff members and villagers have been put through training courses to implement the new principles\. The main objective of the first phase was to provide tested technical and policy inputs into the design of the larger second phase and to prepare the department for the take-off\. The structure of the SAR, which embodies the final project details, was simple and lucid\. However, following design problems, which hampered progress in relevant areas, were detected during implementation: * No financial provision was made for preparing management plans of protected areas, while plan preparation was a prerequisite for undertaking any development in these areas\. * Similarly there was no financial provision for involving NGOs in project implementation while there was a strong emphasis on their involvement\. * All the funds available for publicity and extension were either for consultancies or for purchasing publicity materials\. There was not much scope for innovations to reach specific targets\. C\. Implementation The implementation of the project has been smooth, process-oriented and systematic\. The government showed a remarkable commitment to the projective objectives\. All the policy decisions, agreed as conditions of project effectiveness, were taken well in time\. The project distributed the responsibilities of implementing various corrmponents to the concerned wings, rather than concentrating all the decision-making in the hands of the PU\. This policy has been thoroughly vindicated and has resulted in near total achievement of physical and financial targets in most key areas\. The successive World Bank Supervision and Review Missions have commended the performance of the project\. The recent evaluation of all the forestry projects in India, by the OED of the Bank, has also given the highest ratings to the project (Annex C to the OED report)\. Our internal performance audit, and an extemal evaluation by PRIA, has also demonstrated the success and quality of the key activities of the project\. However, the project has faced problems in the following areas, mostly due to reasons beyond the control of the prolect authorities: 1\. Consultancies and Technical Assistance: The project could not utilise the financial support available under the project for studies and consultancies satisfactorily\. Whereas we found a general paucity of good consultants in the country, even the department has been found wanting in creating systems which can get maximum output from the consultants\. The most significant victim of our failure in this field has been the Policy Analysis Unit (PAU) which could not launch even one of the studies planned\. Same is true of the Industrial Liaison Unit (ILU)\. 2\. Procurement of Goods and Equipment: Although the physical targets as mentioned in the agreed procurement plan have been, more or less, achieved, the utilisation of the financial resources has not been commensurate\. There were significant savings as a result of the drop in prices of computer related goods but we were unable to utilise these savings properly\. The International Competitive Bidding (ICB) procedures were just not suitable for the small size of our procurement plan while most of the NCB bids had to be repeatedly rejected because of the failure of the bidders to provide satisfactory documents required by the bidding conditions\. 3\. VRDP Spearhead Teams\. Initially, the teams could not become effective, to our satisfaction, because of - 41 -  various reasons such as repeated transfers and workload of their normal functions\. The membership of the team was not a full time position\. Although coverage and the motivation levels in VRDP areas is high, it could have been much better if the concept of the spearhead team had worked as it was conceived\. However, the HRD inputs that have gone into the training of these teams has served the department well as the concerned personnel have used their knowledge and skills quite satisfactorily even after transfers\. As there are a large number of trained persons interchanging their positions, and they are taking their experiences and learnings with them, which has resulted in new initiatives\. Thus although the dispersal of the spearhead teams was initially seen as a constraint, we found it to be an advantage later on\. 4\. Biodiversity Conservation: The project could not operationalise any new management plans\. It was planned that the plans will be prepared before the utilisation of funds in protected areas starts\. However, due to the shortage of planning personnel, the park managers themselves were asked to prepare plans, with the help of some additional staff\. Even this strategy did not give satisfactory results\. As the traditional PA management plans are rather large documents, which are time consuming to prepare, we should have tried alternative and simpler plan formats\. It would, perhaps, have also been better had the plans been prepared in the pre-project stages\. The delay in sanctioning the PPF becomes relevant here\. However, the department went beyond the SAR stipulations by trying to mainstream biodiversity conservation in the territorial divisions through staff orientation programs as well as by issuing appropriate guidelines to the working plan officers\. 5\. Policy Analysis and Industrial Liaison Units (PAU and ILU): These two units which were created to provide critical inputs into policy planning at the headquarters level, could not provide the support expected from them because of the frequent changes in the personnel heading these units\. As per the project provision, the persons had to be sent for long training abroad which broke the continuity\. Had the training of the selected people been completed during the pre-project phase, the functioning of these units could have been more satisfactory\. 6\. Forest Management Information System (FMIS): The inordinate delay in operationalising FMIS is one of the few major underachievements of the project\. The reason for this delay is that the exercise turned out to be more complex than we, and the consultants, thought\. Although the consultancy was sanctioned in 1996, the consultants took longer than anticipated in completing it\. Although the consultants have provided the deliverables (system design documents and DSS software) but these are yet to be tested\. It now appears that the FMIS idea in its current form was rather too ambitious in view of the short duration of the project\. However, the work on the project will continue so that an enterprise-wide FMIS may be installed during the next phase of the project\. 7\. Non-Governmental Organisations (NGOs): Although the project SAR had envisaged extensive involvement of NGOs in project implementation, no funds were earmarked for this purpose\. Although the project authorities tried to hire NGOs as consultants, using the money available for consultancies, that also did not work due to the usual problems associated with the contracting procedures\. Due to this, and also due to the general paucity of development NGOs in the state, the project could not benefit from their support\. Certain organisations, who call themselves as 'mass tribal organisations (MTOs)' which are, somehow, opposed to the World Bank, tried to use the project to get at the bank\. As the issues raised by them were much wider than the project, and mainly related to the law and policy issues at the national level, the project authorities could not do anything to address them\. D\. Extension: For the last one-year or so, we had been informally encouraged by the Bank staff to seek a short extension to the project\. Accordingly, we had planned our last year of project with this extension in mind\. The sudden decision of the Bank to close the first phase as per schedule has resulted in a tremendous loss to the project, especially in respect of procurement of goods and consultancies, besides ignoring the biological needs of the forestry operations\. It has directly influenced our performance\. The loss in terms of uncompleted consultancies is even more difficult to handle as it may also result in the loss of the payments already made to the consultants\. Due to the current resource crunch, the state government may find it rather difficult to complete these ongoing but incomplete tasks\. It would have been better if the credit-closing procedures of the Bank could take care of such exigencies and left an agreed - 42 -  provision for the completion of incomplete projects\. This would have saved the expenditures already incurred and objectives of these activities would also have been achieved\. The extension would also have enabled us to dovetail the two phases of the project seamlessly\. E\. Uncertainty about Phase II: The SAR reflects the unequivocal commitment of the Bank for a long-term investment plan in MP Forestry Project, in two phases\. In fact, the decision to break the project into two phases was a tactical one to introduce flexibility into the project design\. The key components of the phase one (ANR, VRDP) were designed for 7-year and I 0-year inputs, with the continuity between the two phases in mind\. As these two components are the ones, which will have a bearing on the loan repayment capacity of the country, discontinuity of support to these programmes at this stage will directly influence the repayment of the loan\. The state government and the department have all along kept this in mind in planning the future programmes\. The proposal for the second phase has been pending with the Bank for over a year now\. The absence of a response from the ban so far indicates a weakening of the stated commitment on the part of the Bank\. Denial or dilution of phase II, and denial of extension meant to provide continuity between the two phases, despite the fact that the first phase has been an acclaimed success, will be seen as a major setback to the forestry sector\. We feel that there could not have been any criteria, for granting the second phase, other than the success of phase I\. Although the key components of the project are part of the larger agenda of the government and will continue to be part of the future programmes of the department within the limited resources of the govemment, we will be able to scale up the programmes significantly if World Bank support is available\. Whereas this will enhance the ability of the department to protect and develop larger areas of forests, it will have tremendous impact on the poverty alleviation in the state, as has been clearly demonstrated in the first phase\. -43 -  F\. Lessons Learnt The major lessons learnt from the various aspects of this project, that can be useful for future projects can be summarised as below: * The period involving PPF should be sufficient to enable more effective take off of the project\. * Continuity of Project Director absolutely critical for the success of the Project\. In addition officers posted in the Protect Unit should also not be replaced during the project tenure\. * HRD must be initiated a year ahead of launching the Project\. A separate HRD cell must be established before launching the Project and should be manned by people trained in HRD\. * Training plan for a project with participatory initiatives in the management of natural resources should focus on both, the frontline staff as well as the communities\. * The study tours are the most effective tools for preparing people for change\. * Change in organisation requires frequent and open communication among various layers\. Workshops were found to be very useful for this purpose\. * Adoption of new technology is slow and gradual\. Therefore, the projects should try not to be too ambitious in these areas\. * Progress in relation to consultancy and technical assistance has been slow due to the cumbersome procedures prescribed both by the Bank as well as the state government\. Unless contracting procedures are simplified and the project authorities are allowed more flexibility, it will always be difficult to hire consultants\. a Institutionalisation of forest protection at grass-roots level has thrown new challenges in the form of inter village, intra-village conflicts, enhanced expectations of the people and the department has to gear up to meet this dynamic situation through a pro-active approach\. i All large civil works should be taken up preferably in the first half of the project period to allow their timely completion by the time project comes to an end\. e In every project there will be incomplete activities at the time of project closure for various reasons\. The borrower may find it difficult to complete these incomplete tasks because of financial constraints\. Therefore, it is important to build a provision for completing various activities that could not be completed within the project period\. * A specific provision to meet expenses of a contingent nature should be made as it is impossible to classify all expenses into standard budget categories\. - 44 -

APPROVAL

P037386

E\.A\.-22a L' ~ ~ L u REST RICTEDr' rThic report is restricted to use within the Ban\.- INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT FIRST LOAN ADMINISTRATION REPORT ON THE LOANS TO THE REPUBLIC OF ICELAND Loan of June 20, 1951 - Sog and Laxa Projects LAa of Novembe v \. 191 lAgricultural Project Loan of August 26, 1952 - Fertilizer Project August 26\., 1953 Department of Operations Europe, Africa and Australasia Conver,ion Ratec feor Icelandir Currencv $i\.00 - 16\.286 I\. Kr\. 1 \.r \. K $6\.000 1million I\. Kr\. : $61,000 First Loan Administra-ion Repor-C on tne Loans to Iceland Table of Contents FaRe Scope of Report 1 Loans Granted 1 Loan for Electric Power Projects 1 Loan for Fertilizer Plant Project 2 Loan for Agricultural Project 3 Use of the Loans 4 Relations with Iceland 5 The Importance of Bank Loans 6 Anney A - Summrv of External Public Debt Anny B - RqAmAtA Finnin of Pour nd Fertilizer Projects Scooe of Rei3ort 1\. This report covers the period from July 1950, when the possibility of Bank lending to Iceland was first discussed, until July 1953\. It deals par- ticularly with the three loans made since June 1951- Recent economic develop- ments were described in the Economic Report distributed to the Executive Directors on July 30, 1953 (EA-17a)\. Loans Granntedr 2\. Th Bank has1f m±ade the4 JL~S follo'wing±E loA\.ans to~ the~ ReulcofIead Loan No\. nups Date- ofP Amon Dola 00Iters Tr Agreement Ecuivalent (includirE in commssonYer 46 Electric Power June 20, 1951 4875,000 $2,450 4-3/8% 22 Development 53 Agricultural Nov\. 1, 1951 b360,000 $1,008 4-1/2% 22 Development 69 Fertilizer Aug\. 26, 1952 $850,000 $850 4-3/4% 17 Plant equivalent - Total JL208 The attached Annex A gives details of Iceland's indebtedness to the Bank and other foreign holders\. Loan for Electric Power Projects 3\. The - 875,000 loan of June 20, 1951 was made to finance the European currency costs of hydroelectric plants on the Sog and Laxa rivers\. The Sog project involves increasing total capacity in the Reykjavik area from 25,000 kw to 56\.000 kw: it is estimated that this will meet the demands of the area until 1956/57\. The Laxa project involves increasing capacity in the area around Akureyri, the second largest town of Iceland, from 4\.700 kw to 12,700 kw; it is expected that this capacity will suffice until about 1960\. 4\. Engineering consultants have been retained for the design and surrvision of both projects\. Work on both prniects was started in the summer of 1950\. Progress was considerably retarded, however,due to delays in the placing of orders, delays in delivery because of the Korean war and difficulties in exca- vation work\. In the case of the laxa project, progress was also slow due to inexperience on the part of the local contractor and shortcomings in the -2- organization and supervision of the project\. These difficulties have now been overcome and it is expected that both projects will be completed by the end of 1953\. 5\. It is estimated that the total cost of the Sog project will be equivalent to $12,085,000, or about $2,000,000 more than was anticipated at the time the loan was made\. The total cost of the Laxa project is now estimated at $3,678,000 equivalent, or about $954,000 more than ariginally expected\. In both cases, the increases have been due almost entirely to increased wages and transportation costs and unanticipated difficulties in construction\. 'SA has agreed to the release of counterpart funds sufficient to cover the increased kronur costs and has also made an additional grant of $600,000 to meet addi- tional dollar costs\. European currency costs which are being financed by the Bank are substantially unchanged; $5,600 in European currencies over and above the amount of the loan will be provided by the National Bank\. Up-to-dato estimates of the financing of the projects are given in Annex B\. 6\. Appropriate arrangements have been made for following the progress of the projects and regular reports Pre being received about them giving details of physical progress and financial status\. Loan for Fertilizer Plant Project 7\. The loan of $850,000 equivalent in various European currencies was made to help finance the erection near Reykjavik of a synthetic nitrogen fertilizer plant with an annual capacity of 18,000 metric tons of ammonium nitrate equiva- lent to about 6,000 metric tons of pure nitrogen\. Nitrogen is the most essen- tial fertilizer for good grass production in Iceland and a continuous and ample supply is needed for the agricultural development program\. The fertilizer plant will mninlv it\.ili7e off-nPk ponwer from th Song hvdroel-etric npnt and will be able to produce fertilizer at a cost below the import price\. 8\. A firm of consulting engineers has been reteined for the design and engineering of the plant\._ which will h owned and orarted1 by the Fertilizer Plant Inc\. The construction of the building, started in December 1952, was almost comPleted by April 19, but t1e installation of equipment has been delayed, due to slow deliveries by suppliers\. It is expected that the plant will be ready to begin operations by the end of 1953\. \. The total cost of the project is nour eStimted t the equivaeinnt Of $7,240,000 or about $226,000 more than was originally anticipated\. This tially to the inclusion of some additional equipment; there has been no increased costs have been met from supplementary allocations of 1SA funds\. Up-to-date deitails Of the financing of the proect ar e given in the attache Annex B\. 10\. Arrangements for following the progress of the project are working satisfactorily; the Fertilizer Plant Inc\. and their consultants are submitting regular reports on the physical and financial status of the project\. -3- Lo\.n for AcrIiultu\.ira IProji ect 11\. The loan for L 360,000 in European currencies covered a large part of the foreign cost of the agricultural program in 1952\. The loan was partIcularly Identified with the improvement of grasslands end the con- struction and renovation of farm dwellings and buildings such as silos, hay barns &A Sheep shedS\. 12\. The program in 1952 was part of a ten-year plan which, as now revised, is aimed at increasing by 1960 the number of sheep from about 400,000 to 800,000 and the number of cattle from 44,000 to 51,000\. The plan calls for the extension of cultivated land by about 75,000 acres and the modernization or replacement of houses and other buildings on the farms\. The total cost of the plan was originally estimated by the Icelandic authorities at about Kr\. 1,220 million ($74\.8 million) but it is now expected thet it will be reduced to Kr\. 1,050 million ($64\.3 million); about 30% of the total cost is needed for foreign exchange expend"itures\. 13\. The loan was used largely to finance imported construction materials such as cement and timber, the precise use of which could not be controlLed\. The list of goods was therefore drawn up to include such materials only to the extent that they were required for agriculture\. In the course of dis- bursement, the Icelandic Government concluded bilateral trade agreements which enabled Iceland to obtain some of these materials in barter; as a result the Bank agreed to modify the list of goods so that the amounts originally set aside for materials subsequently obtained under the barter agreements could be reallocated to other items\. The changes in the list of goods are summarized in the following table: List of Goods (000 1 Sterlingl Original Revised Cement 45 79 Timber 100 28 Iron and steel 90 108 Builders hardware 70 51 Land reclamation material 50 71 1iscelleneous materials for agriculture 5 23 Total 360 360 1\. Most of the Poods financed are by their nature not such that they can be traced specifically to the agricultural program\. As far as information and estimates are available the quantities finenced would apnear to be well within those used in the agricultural program in 1952\. A possible exception is cement, the Import of which might have b n wahat above t\.he Amount\. -4- actually consumed in 1952\. It is- howver, a normal practice for cement imported during the winter months to be carried forward and used in the following buildinrr season- 15\. The local currency counterpart of the loan was put into a special fund established by the Agricultural Bank and was lent to farmers carrying - C - --sb~%~~* J in general carried out in full; in fact, as is shown in the following table, Ull UA\. Ar-L \. UQ V\.19 A 1,1llion Kr, Puselnne Investment Actua\. Investmient (Estimate of July 1953) Land reclamation and improvement 21\.4 22 Farm structures 18\.4 24\.5 Farm dwellings 28\.5 27\. Total 68\.3 73\.7 17\. After some initial delay the Icelandic authorities have provided the Bank regularly with statements showing monthly imports of relevant materials, data from which the progress of the program cE\.n be followed and information about the use of counterpart funds accumulated at the Agricultural Bank\. Use of the Loans 18\. The following table shows the stptus of the three loans as of July 31, 1953 and the sources of the funds from which disbursements have been made\. 6 000 Equivalent Disbursements by Loan No\. 46 Loan No\. 53 Loan No\. 69 Total Source of Funds Sterling Issue 858 428 224 1510 Release of 18% capital by: France 578 24 86 688 United Kingdom 291 239 114 644 Denmeark 300 207 - 507 Belgium 8 95 15 118 Norway 91 - 106 2126 1008 422 1573 Undisbursed Balance 415 922 Loan Total 11854 Q01-2 -5- 19\. The disbursement of the loan for agriculture was completed in March 1953 and it is expected that the power loans will be used in full in the near future\. 20\. All loans have been delayed because of fortuitous circumstances and it has been necessary in all cases to postpone the closing dates\. Relations with Iceland 21\. Relations between the Bank and the IcelEndic Government have been aood- The Icelandic Government has welcomed full and frank discussions with the Bank on all matters f onmmon interest- The following list of missions aivan com idea of the extent and scope of these discussions\. Date Aparox\. Purpose Composition nionn 190: - cTiANr ru+\. 0 waeesm Technica s y )nro- Pardk 0+0 saff electric projects 1951: Jan\. - arch 6 weeks General economic survey June - July 3 weeks Study of agriculture October 1 week To establish follow-up procedures Oct\. - Nov\. 2 weeks To advise Government on establishment of the Bank of Development 1952: June 2 weeks Technical advice on Bank staff and cement plant consultant July - Aug\. 2 weeks Operational mission for Bank staff fertilizer plant loan October 2 weeks Study of agriculture 1953: April - May 3 weeks Operational mission for prospective loans 22\. Three of these missions were not directly related to Bank operations\. The mission of January/% rch 1951 made an economic survey of Iceland and considered investment policies and priorities\. It resulted in the presentation to the Government of a report making specific recommendations about future, investment and the economic and institutional measures needed\. The mission of October/November 1951 made a report to the Government recommending the estab- lishment of a Bank of Development and setting out how it might be organized and operated\. In general, the recommendations of both reports have been acted upon -6- by the Icelandic Government\. The Iceland Bank of Development (Framkvaemdabanki Islands) was established by an act of the Althing on Februpry 2, 1953\. The mission of July 1952 was to give technical advice on the feasibility of a proposed cement plant\. It included a private engineering nnsiultnnt and was sent without reference to proposed Bank lending\. 23\. There has been a lack of published statistical and other information about Iceland in Washington; this deficiency is gradually hing overcome thanks to the efforts of the Icelandic Government\. The Importance of Bank Loans 24\. The power and fertilizer projects for which the Bank lent the equivalent of $3\.5 million will commence production at the end of 19 T\. \. is\.stimated that together they will add Kr\. 46\.6 million ($2\.9 million) equivalent or more \.tan 2 ally Go h - 4-nnuall -t + I "rodi TI, addion +\.hy mill erp\. in foreign exchange Kr\. 16\.9 million ($1 million) or about 15% of the 1952 balance paymrelnIts Ueficeit on current account\. Interest and amriai amounts to about $300,000 equivalent annually\. These projects also afford important ecnUdary benefits\. They will form the basis for further diversi- fication and rationalization of the economy\. The Sog and Laxa projects will provide power for industry, agriculture and fish processing\. The fertilizer project will lead to a significant reduction in the cost of fertilizer to farmers thereby stimulating further land improvement and reclamation\. 25\. The loan for agriculture provided a large part of the foreign exchange cost of agricultural investment in 1952 and the counterpart funds arising from the loan helped finance part of the local currency cost\. The loan made pos- sible the continuation of a program which by 1965 should increase agricultural output by about 50% or by about Kr\. 180 million ($11 million) annually\. The program will give rise to important foreign exchange benefits as about three- fourths of the increased production will save imports or increase exports\. The investment in agriculture brings social as well as economic benefits\. It should tend to slom up the movement of population to the cities, lessen depend- ence on fishing and go some way to restore agriculture to the position of importance it previously held\. ANNEX A ICELAND - SUMMARY OF EXTERNAL PUBLIC DEBT (Ammnf\.s ePressed in thousands of U\. S\. dollars) Debt Outstanding Amount % Total Debt All currencies 13,789 100\.00 Debt to IBRD All currenciesV 4,312 31\.27 Sterling2 2,891 20\.96 Danish kroner 507 3\.68 French francs 689 5\.00 Other currencies 225 1\.63 Debt to Others All currencies 9,477 68\.73 U\.S\. dollars (to U\.S\. Govt\.) 5,300 38\.h Sterling 3,722 26\.99 Danish kroner h08 2\.96 Other currencies 47 \.34 1/ Estimated to 7/31/53 2/ Including undisbursed balances of $738,526 or 5\.4% of the total\. AITNEX B Estimated Financing of Power and Fertilizer Projects (S Million) Sog Laxa Fertilizer Total European Currencies IBRD 2\.03 \.42 \.85 3\.30 IVSA - - \.40 \.40 Dollars MSA Loans 1\.67 \.33 1\.00 3\.00 iiSA Grants 2\.37 \.64 2\.32 5\.33 Local Cprrency JSA Counterpart 3\.86 \.68 1\.58 6\.12 Bond Issue 1\.43 1\.43 \.49 3\.35 Local Equity \.73 \.18 \.6o -1\.5-1 TOTAL 12\.09 3\.68 7\.24 23,01

APPROVAL

P078250

Report No\. PID11317 Project Name Poland-Stargard Geothermal Project (PCF) Region Europe and Central Asia Region Sector Other Power & Energy Conversion; Other Environment Project ID PLCN78250 Borrower(s) REPUBLIC OF POLAND Implementing Agency Address GEOTERMIA STARGARD, SP\. Z O\.O\. Geotermia Stargard Contact Person: Zdzislaw Malenta, Director Tel: 48/91/462 3402 Fax: 48/91/432 3528 Email: zm@eko-inwest\.com\.pl Eko-Inwest Consulting Address: ul\. Gerarda Merkatora 7 PL- 70-676 Szczecin Contact Person: Dr\. Jan Kozlowski Tel: 48/91/461 5532 Fax: 48/91/461 4270 Email: jk@eko-inwest\.com\.pl Environment Category B Date PID Prepared June 22, 2002 Auth Appr/Negs Date June 24, 2002 Bank Approval Date March 25, 2003 1\. Country and Sector Background District heating (DH) is common in Polish cities, dating back to centrally planned times\. In the early 1990ies, cities were made responsible for their DH systems\. These were then run as municipally owned enterprises (MZEC) or joint stock companies (MPEC)\. Most systems were in need of substantial modernization of heat sources and heat transmission and distribution networks\. Most cities do not have the resources to pay for major system modernization\. Thus, DH enterprises are called upon to seek local and foreign grant and loan financing, private partners' equity and other sources to modernize their systems\. In fortunate circumstances, the DH enterprise may draw its heat requirements from industrial sources which operate heat production facilities for their manufacturing purposes, or from the power sector which may operate combined heat and power plants (CHPs)\. Both CHP plants and industrial heat facilities have been, or are being modernized and upgraded\.Regulatory Framework and DH TariffsThe energy law of 1997 governs among others the district heating sub-sector\. It called for abolition of district heat pricing control by the Ministry of Finance and the Ministry of Economy (achieved in year 2000), and established an Energy Sector Regulatory Agency (URE) which provides operating licenses to DH enterprises and reviews and endorses (or rejects) applications for price increases of district heat\. Due to competition from  (still subsidized) gas, fuel oil, and from electricity, district heat enterprises have struggled to maintain customers in the light of rising operating costs, declining demand due to energy efficiency measures, and resulting rising district heat tariffs\. URE reviews district heat development plans agreed by the local municipality as well as the Wojewodship\. Typically, URE endorses applications for price increases to cover justified cost increases such as rising costs of fuels, other inputs and labor, higher depreciation costs due to justified investments\. The pressure of competition against other heat supply services is the most important motivator for DH enterprises not to raise tariffs too abruptly\. Between 1998 and 2002, average Polish DH tariffs have risen from about PLN28/GJ to PLN 34/GJ, i\.e\. by about 21- or 5t per year\. This is lower than inflation during the same period\. It should be understood that big cities with large CHP plants as heat sources are providing heat at significantly lower price levels, whereas small cities with old heat only boilers may have tariffs well above those values\. The town of Stargard compares favorably with average prices although it has been relying on small HOBs only\. Government StrategyRenewable Energy Resources (RERs): According to the energy law promulgated in late 1997, the Government of Poland encourages the use of RERs\. Thus, it has maintained a target of meeting at least 7\.5k of its primary energy needs from RERs by the year 2010, as opposed to less than 39 presently\. Based on studies of Government institutes as well as private consultants, there is good scope to develop geothermal energy in a broad band across Poland from the southern Podhale area, across the center, and to the northwest of the country\. Similarly, biomass utilization is possible across almost all parts of Poland\. Potential for making use of wind energy is more concentrated in Poland's north, along the Baltic coast\. Poland's resolve to increase the use of renewables is driven in part by environmental considerations, and in part by an interest in diversification of energy supply\. The power and district heating sub-sectors contribute about 70t of total carbon emissions in the energy sector, the largest source in Poland\. The country has a strong interest in climate change mitigation, which is also encouraged by the EU\. The power sector, and even more so the district heat sector in winter, play an important role in generating local air pollution which still is significant, even when compared with the increasingly polluting transport sector, and with the industrial sector\. The recognition of the need to develop diverse energy sources, and therefore RERs, remains, given the declining role of domestic coal and the increasing importance of mostly imported gas\. This is further encouraged and even increasingly postulated by the EU, which targets 22t of total primary energy use in the form of RERs by 2020\. It is recognized that the development and use of RERs is an important potential industry sector worthy of development, given large unemployment, particularly in smaller communities and rural areas\.Both the Second National Communication to UNFCCC and the Polish National Energy Program for 2000 to 2010 identify environmentally friendly energy production as priorities\. Specifically, use of geothermal resources, as well as biomass utilization, including the use of biomass from wood to be used for district heating, occupy a significant place in the Second National Communication\.The heat derived from geothermal resources has initially higher investment costs than conventional thermal heat sources such as coal, oil, or gas\. The advantage of the use of renewable energy sources such as geothermal energy comes in the form of much lower operating costs, as well as the significant reduction of local air pollution, reduction of greenhouse gas emissions (C02), and substantial -2 -  job creation\. The Government has recognized that the environmental benefits of the use of renewable energy resources can be monetized in the form of grants and low-cost funding, which are provided to selected projects by the National Fund for Environmental Protection and Water Management (NFOS) and similar regional funds, as well as by the Ekofundusz (EcoFund), which converts foreign debt into environmental investments\. 2\. Objectives The primary objective of the Project is to support the development of an international market for the new commodity known as "Emission Reduction" (ER)\. In this particular case, the Project will facilitate reduction of C02 emissions in Poland through substitution of clean geothermal energy for polluting coal-fired heat generation\.The PCF Stargard Geothermal Project is supported by the Prototype Carbon Fund (PCF)\. PCF supports projects that produce high-quality greenhouse gas ER\. "High Quality Emission Reductions" means Emission Reductions with a strong likelihood of satisfying the requirements of the UNFCCC/Kyoto Protocol, related international agreements, or applicable national legislation\. These could account against emission reduction targets under the Kyoto Protocol\. The objective of the PCF is to develop experience through a "learning-by-doing" approach, applying Clean Development Mechanism (CDM) and Joint Implementation (JI) processes of the Kyoto Protocol\. PCF buys ER and agrees to a payment schedule against the delivery of certified ER\. The global objective is to achieve GHG reductions through: (a) the introduction of cost-effective geothermal energy in the town of Stargard, thereby reducing the need for coal-fired heat generation; (b) an increased market penetration of geothermal heat generation in Poland, and consequent reduction in greenhouse gas emissions from heat generation\. The national objectives are diversification of energy supply, development of a sustainable geothermal industry, reduction of local and regional air pollution\. The local objectives of the Project are to provide clean heat to Stargard residents at a cost that is competitive with the existing, quite efficient coal-fired system\. The reduction of local air pollution is considered an important local objective\. 3\. Rationale for Bank's Involvement PCF is a new product of the World Bank that aims to (a) demonstrate how market-based emissions transactions can be used to mitigate global climate change, and (b) pioneer emission reduction purchase transactions\. The Bank's involvement was seen as critical in terms of ensuring quality of the first projects, as well as institutionalizing experiences and ensuring replicability of the projects, while providing necessary project due diligence and other fiduciary responsibilities\. The value-added of Bank support includes the availability of in-house environmental economics and natural resources management expertise, ability to mobilize global experts with long experience in the field, technical support for project preparation, supervision capacity, and development of linkages with other sources of expertise and funding\. Finally, the Bank brings to the proposed project the ability to serve as a catalyst for promoting environmental services throughout Central and Eastern Europe as well as knowledge of climate change mitigation programs both regionally and worldwide\.PCF support is warranted given that the Project promotes the marketing of ERs generated by the utilization of a renewable energy resource in accordance with UNFCCC guidelines and is likewise eligible under the framework of joint implementation (JI) as envisioned in the -3 -  Kyoto Protocol\. To increase the likelihood that the reductions will be recognized by the Parties to the UNFCCC, independent experts will provide project design, baseline validation as well as verification & certification procedures for ERs that respond to UNFCCC rules as they develop\. 4\. Description Stargard has a well-developed district heating system that supplies more than 60t of the heat demands of the town\. The total heat supply is from an efficient coal-fired heat-only-boiler plant with a total installed capacity of about 116 MWt\. The annual peak demand for the district heat system is 85 MWt and annual heat demands ex-plant are 850 TJ\. Heat demands have been reduced by nearly 20t in the last few years due primarily to efficiency improvements\. Heat distribution is through a 37 km network that includes about 250 heat-exchanger substations\. Both space heating and domestic hot water are supplied\. Heating of households and industrial consumers not connected to the district heating system is supplied by individual boilers and stoves fired primarily by coal\. Less than 3 percent of the total heat demand in Stargard is met by gas or oil-fired systems\.The proposed Stargard Geothermal District Heating Project will satisfy a substantial portion of the town's heat requirements with environmentally clean geothermal heat, substituting a large part of hard coal\. The Project will establish a geothermal base-load heating plant with an installed capacity of about 14 MWt\. The Project will consist of two components: (a) the "underground plant" consisting of a new geothermal doublet (production well and re-injection well, drilled to a depth of up to 2700 m) which will be located close to the existing coal-fired DH-plant; and (b) the "above-ground plant" and connections, comprising a plant building which will house heat exchangers, electrical equipment and installations, process equipment and controls, as well as internal piping; and the connection to the existing district heating (DH) network of Stargard\. A new administrative building is also included in the scope\.The production well was completed in January 2002 and has been tested for yield, mineralization and other important parameters\. The temperature at the well head is about 80-85 degrees Celsius\. The geothermal water contains dissolved gases as well as minerals, but the geothermal loop (production well, heat exchanger, re-injection well) will be a closed loop which will not release minerals or dissolved gases\. A second well, to re-inject the geothermal water after the passing through the heat exchangers, will be drilled shortly\. Private investors from Poland and Denmark have formed a limited liability company to exploit this deposit and to replace a substantial portion of coal-generated heat by clean geothermal energy\. The new company, Geotermia Stargard (GS) has much experience with a similar operation in Denmark which has been in operation for over 15 years\. The geothermal heat will displace more than 36t of the heat now provided from coal-fired heat-only boilers\. C02 emissions will be reduced accordingly\. The life of the geothermal heat recovery system is estimated to be at least 30 years, but the Project's analysis is based conservatively on only 25 years of economic life\. The Project cost estimates, amounting to PLN 32\.9 million (US$7\.8 million) equivalent, include physical contingencies of 20t on the geothermal wells, and 10 W on the surface plant and connections to the PEC grid\. The investments have been started and are scheduled to be completed in late 2002 or early 2003\. Price contingencies of 6 have been included in the total Project costs\. Miscellaneous expenses of PLN 1\.9 million for (a) monitoring air - 4 -  pollution reduction and calculating actual C02 reductions, (b) costs for an environmental assessment, (c) dissemination- and public relations (PR) expenses, and (d) special audits costs, have also been included\. Incremental working capital for this green-field Project, essentially to cover costs of receivables as well as spare parts & materials inventory are estimated to amount of PLN 0\.5 million, whereas a preliminary calculation of interest during construction yields PLN 0\.65 million\. Thus, total financing required amounts to PLN 34\.0 million (US$8\.1 million), excluding PLN 2\.6 million already spent in project preparation costs\. 5\. Financing Total ( US$m) BORROWER $0\.00 IBRD IDA PROTOTYPE CARBON FUND $1\.00 Total Project Cost $8\.00 6\. Implementation The Prototype Carbon FundPCF purchases high quality greenhouse gas ER which could be registered with the UNFCCC for the purposes of the Kyoto Protocol\. PCF enters into an irrevocable Emission Reduction Purchase Agreement (ERPA) and accompanying Monitoring and Verification Protocol (MVP) with Geotermia Stargard, defining the quantity, price and other delivery conditions of ER to be purchased by PCF, as well as accompanying institutional arrangements, including the monitoring and verification systems and methods\. Under this agreement, PCF purchases ERs generated by the Project\. To increase the likelihood that the ER will be recognized by the Parties to the UNFCCC, independent experts provide baseline validation and verification/certification procedures for emissions reductions that respond to UNFCCC rules as they develop\. The ER estimates are based on the findings of a baseline study for the Project, carried out and validated by independent experts\. The baseline study also certifies the Project's "environmental additionality", as the Kyoto Protocol requires that "reductions in emissions are additional to any that would occur in the absence of the certified project activity"\. In other words, the Project is additional if the scenario "with project" generates less greenhouse gas emissions than the "baseline scenario"\. Following each verification, the PCF will require the independent third party contracted to perform the verification to issue a Verification and Certification Report that includes inter alia: (a) a statement of the amount of verified and certified ERs the Project has generated in the relevant period, (b) such other matters as may be required by the UNFCCC or Kyoto Protocol; and, (c) verification of compliance with the World Bank's Safeguard Policies\. This approach ensures the creation of an environmental commodity that is recognized by existing Polish laws and will conform in due course with the relevant international agreements\. It is understood that these international guidelines may change, according to decisions of the Conference of the Parties to the UNFCCC and Kyoto Protocol\. The implementation and operation of the PCF Project will be supervised by PCF\. The PCF supervision of the Project will be achieved through bi-annual reviews during the construction phase of the Project, during which World Bank supervision missions would identify specific measures to: (a) address areas of implementation weaknesses, especially concerning the implementation of the Environmental Management Plans and social mitigation - 5 -  measures; (b) accommodate changes in priorities; and (c) ensure compliance with relevant policies and procedures\. The Project will be implemented over a ten-year period, encompassing 2003 - 2012\. The Project will be carried out by the private corporation Geotermia Stargard\. Apart from the PCF support, the Project does not include any World Bank or IFC financing\. However, the Stargard Geothermal Project might obtain a partial risk guarantee from a new Partial Risk Guarantee Fund for Geothermal Projects in Central and Eastern Europe, to be set up by bilateral agencies with the support of the Global Environmental Facility (GEF) \. This Fund would cover against the risk of drilling into a "dry spot" or into a geological formation which would make re-injection difficult\. Once the two wells (production and re-injection well) have been completed and tested successfully, the guarantee would expire\.Implementation period: PCF involvement would expire after the last delivery of ER would have taken place\. Kyoto Protocol defines December 31, 2012 as the ending date of the first commitment period\. Accordingly, the implementation period would be limited to a maximum of 10 years, ending on 31 December, 2012\.Ministry of Environment, Geotermia Stargard (GS)The principal Polish institutions involved in the Project include: (a) the Ministry of Environmental Protection and Forestry (MOE); and (b) the Project sponsor, GS, which would be eligible to sign the ERPA for the Stargard Geothermal Project\. Poland would negotiate, through MOE, and sign a Host Country Agreement (HCA) with the IBRD as the Trustee of the PCF regarding the obligations of the Host Country vis-a-vis the PCF\. The HCA would, inter alia, (a) include covenants on transfer of certified Emission Reductions (ERs) to the PCF; registration of certified ERs; compliance with the UNFCCC and Kyoto Protocol regulatory framework; access to the Project site; disclosure of information; (b) provisions for signing a Letter of Approval (LoA) for the Project which would be provided by the authorized Polish entity confirming that Poland approves the Project for the purpose of Article 6 (Joint Implementation) of the Kyoto Protocol to the UNFCCC, and that the Project entity GS is authorized to participate in Article 6 project activities; and (c) guarantee that Poland would fully cooperate with the PCF, PCF Participants, and any independent third party to ensure proper certification of Greenhouse Gas emission reductions in accordance with the UNFCCC and the Kyoto Protocol\. The PCF would ensure that: (a) PCF procedures for validation, monitoring, and periodic verification and certification, consistent with UNFCCC and Kyoto Protocol rules and criteria, are applied during Project implementation, (b) the agreed amount of any ERs achieved by the Project is transferred to the PCF; and (c) annual reports are provided to national institutions and agencies (e\.g\., MOE) and international agencies (e\.g\., UNFCCC Secretariat, World Bank), regarding the transfer of ERs to the PCF\. The PCF's total purchase of ERs from the PCF Stargard Geothermal Project will not exceed US$1\.3 million\. This total will include project preparation expenses, such as those related to baseline establishment, validation, monitoring, verification and certification\. At the time of signing of the ERPA, a schedule of annual estimated emission reductions (as per baseline study) will be prepared\. Thereafter, the PCF will only pay upon successful transfer of ERs\.The ERPA will cover, inter alia, institutional roles and responsibilities for Project implementation, as well as monitoring and verification obligations\. PCF only acquires ERs rights for C02 and methane\. The PCF will provide criteria for ascertaining the quality of the ERs, such criteria to be established in accordance with the guidelines and procedures adopted under the guidance of the UNFCCC and the Kyoto - 6 -  Protocol\. GS must, inter alia, as a minimum, demonstrate, that its Project meets the additionality criteria of the Kyoto Protocol, and that the ERs are measurable and verifiable in accordance with the Monitoring Plan and the rules of Article 6 of the Kyoto Protocol (Joint Implementation)\. 7\. Sustainability The PCF Stargard Geothermal Project is expected to be sustainable, as the remaining risks are limited and considered to be manageable\. 8\. Lessons learned from past operations in the country/sector The proposed PCF Stargard Geothermal DH Project is one of the first projects of the PCF portfolio that is implemented by the private sector in close cooperation with the public sector in the Europe and Central Asia (ECA) Region\. This public/private orientation is essential in the case of Poland where district heat sector activities are in the hands of both the private and the public sector\. Whereas the experience with a similar type of PCF project that could be reflected in the project design is therefore very limited, the project has benefited from the consultations with parallel PCF projects that are being developed in the Region (Czech PCF Umbrella Project), as well as Latin America (e\.g\. Cost Rica) \. With regard to the Project as a renewable energy resource user, there is, however, plenty of information concerning similar projects in Poland as well as elsewhere in the ECA Region\. For example, in Poland and neighboring countries (Lithuania, Slovak Republic) a number of geothermal projects have been operating, or are under preparation or implementation\. 9\. Program of Targeted Intervention (PTI) N 10\. Environment Aspects (including any public consultation) Issues Local environmental impacts are considered minimal\. There are some disruptions from well drilling and Project construction\. The first well (production well) already exists\. An impermeable reservoir has been constructed at the drilling site and is being used for gathering geothermal waters during testing of the well\. Drilling mud has been re-circulated after separation of drilling tailings, which have been disposed of according to Polish environmental standards and to the satisfaction of environmental authorities\. These facilities will also be used for drilling the re-injection well\. The local environment and local residents of Stargard will benefit from the reduction in the use of coal in the DH system's base load due to substitution of geothermal heat for the present coal firing\. Noise, generated largely by the DH circulating pumps, will not exceed 60 dB around the pumps, which will be situated in the middle of an existing industrial area\. Thus, geothermal heat will provide a clean and sufficiently quiet heat source\. 11\. Contact Point: Task Manager Helmut Schreiber The World Bank 1818 H Street, NW Washington D\.C\. 20433 Telephone: 202-473-6910 Fax: 202-614-0692 (attn\. of Victor Loksha) -7 -  12\. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www\.worldbank\.org/infoshop Note: This is information on an evolving project\. Certain components may not be necessarily included in the final project\. This PID was processed by the InfoShop during the week ending June 28, 2002\. -8-

APPROVAL

P000350

Docwment of The World Bank FOR OmCIL USE ONLY Report No\. 8420 PROJECT COMPLETION REPORT CAMEROON NORTHERN PROVINCE RURAL DEVELOPMENT PROJECT (CREDIT 1075-CM/LOAN 1919-CM) FEBRUARY 28, 1990 Agriculture Operations Division Occidental and Central Africa Department Africa Regional Office This doement has a resticted distribution and may be used by recipients only In the performance of ther oMcia duties\. Its contents may not otherwise be disclosed without Worid Bank authorization\.  CURRENCY DEFINITIONS Currency Unit: CFA Franc (CFAF) Fixed Parity: 50 CFAF - 1 French Franc WEIGHTS AND MEASURES Metric System FISCAL YEAR July 1 - June 30 GLOSSARY OF ACRONYMS CCCE Caisse Centrale de Cooperation Econoiique (France) CFDT Compagnie Fransaise pour le Ddveloppement des Fibres Textiles CNCE Centre National du Coanerce Ezt6rieur CRF Centre de Recherche Foresti&re CTFT Centre technique Forestier Tropical FNFP Ponds National Forestier et Piscicole FONADER Fonds National de Developpement Rural FSAR Fonds Special d*Actions Rurales IRA-Nord Institut de Recherches Agronomiques, Maroua IRZ Institut de Recherchps Zootechniques MESRES Ministere de l'Enseignement SupAricur, de l'Informatique et de la Recherche Scientifique MIDEVIV Mission de Ddveloppement des Semences et des Cultures Vivribres MINAGRI Ministire de l'Agriculture MINDIC Ministere du Developpement Industriel et Commercial MINEL Ministare de l'Elevage MINEQ Ministere de l'Equipement MINEP Ministere du Plan MINEPIA Ministere de l'Elevage, de la POche et des Industries Animales MINFIN Ministare des Finances NSMP National Seed Multiplication Project MINPAT Ministere du Plan et de l'Am6nagement du Territoire oC Office Cdrealier ONAREF Office National de Regeneration des Forets ONCPB Office National de Commercialisation des Produits de Base ONDAPB Office National de D6veloppment Agricole et du Petit Betail OPV Office Pharmaceutique Vetdrinaire PCC Project Coordinating Committee PMEU Project Monitoring and Evaluation Unit SEMRY Soci6td d'Expansion et de Modernisation de la Riziculture a Yagoua SODECOTON Societe de DAveloppement du Coton du Cameroun USAID United States Agency for International Development  FOR OMCUL usE ONLY rHE WORLD SANKt Washgton\. D\.C\. 20433 U\.S-A\. OU1\. al Ovt4r-G\.wMa Opmtatom Ivahiasa February 28, 1990 HEMORANDUM TO THE EXECVTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - Cameroon Northern Province Rural Development Proiect (Credit 1075-CM/Loan 1919-CM) Attached, for information, is a copy of a report entitled "Project Completion Report - Cameroon Northern Province Rural Development Project (Credit 1075-CM/Loan 1919-CM)", prepared by the Africa Regional Office\. No audit of this project has been made by the Operations Evaluation Department at this time\. Attachment This document has a restficted distribution and may be used by recipients only In the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authofization\.  FOR OMCIL USE ONLY PROJECT COMPLETION REPORT CAMEROON NORTHERN PROVINCE RURAL DEVELOPMENT PROJECT (CREDIT 1075-CM/LOAN 1919-CM TABLE OF CONTENTS Page PREFACE \. *#so \. \. \. \. i BASIC DATA SHEET \. \.i EVALUATION SUMMARY \. \.V I\. INTRODUCTION \. \. \. \. 1 II\. PROJECT IDENTIFICATION AND PREPARATION \. 2 III\. IMPLEMENTATION \. 6 IV\. OPERATIONAL PE\.FORMANCE AND PROJECT IPACT \. 11 V\. FINANCIAI\. AND ECONOMIC PERFORMANCE \. \. *\. 19 VI\. INSTITUTIONAL PERFORMANCE\. \. \. 22 VII\. BANK PERFORMANCE \. 23 VIII\. CONCLUSION \. \. \. 25 ANNEXES 1\. Disbursements by Project Component and Disbursement Category 2\. Cameroon Northern Province Rural Development Projects Selected Annual Production Indicators 3\. Seed Cotton Production, Acreage and Yields, Cameroon: 1970-1986 - Table 1 and Figure 1 4\. Cameroon Northern Rural Development Project - Economic Rate of Return Worksheet - Base Case Analysis and Sensitivity Analysis HAP: IBRD No 21508 Cameroon Regions and Main Crops I This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - i - PROJECT COMPLETION REPORT CAMEROON NORTHERN PROVINCE RURAL DEVELOPMENT PROJECT (CREDIT 1075-CM/LOAN 1919-CM) PREFACE This is the Project Completion Report (PCR) for the Northe n Province Rural Development Project in Cameroon, for which Credit 1075-CM in the amount of US$12\.5 million and Loan 1919-CM for US$25\.0 million were approved on November 18, 1980\. The credit and loan were closed on June 30, 1987, six months behind schedule\. The credit was fully disbursed, and the amount of Us$4\.72 million of the loan was cancelled\. The last disbursement was on February 24, 1988\. The PCR was prepared by the Agriculture Operations Division of the Occidental and Central Africa Department, Africa Regional Office, and is based, inter alia, on the Staff Appraisal Report; the Loan and Credit Agreements; supervision re'3orts; correspondence between the Bank and the Borrower; and internal Bank -\.zeinoranda\. The PCR was read by the Operations Evaluatic Department (OED)\. The draft report was sent to the Borrower on December 7, 1989 for comments, but none were received\.  - ii - CAEOON NOlTMEN RUIL DEVELORMENT SOJECT KEY PROJECT DATA -Appisgal A eual or AcWal as S of Esti"mt Estimatd Acual Aceraisal Esltmate Pro\.ect Costs (USm) 74\.7 n\.a\. Credit and Loan Amount (US$m) 87\.6 82\.6 67 Date %ord - N\.A\. 11/U Date efetivenes N\.A\. 66/61 Closing &ate \. 12/6S 06167 Economic Rate of R"urn (X) J2\.4 t1 Numbr of diect benetiiearlos 163, 11119\. 67 CWUILATIE DIh11MEN FY62 FP6 FVP64 FY6 FYN FY6T FP6 Appraisal Estimate (USImillten) 5\.0 18\.2 19\.8 26\.6 8\.6 87\.6 - Actual (UIStellIIOn) 2\.4 0\.4 16\.9 19\.2 24\.7 W\.0 32\.s AcUal as* Of Estimate 40 64 72 72 76 *2 67 DatO Ot final dlsUrsq\.pmt 21241S Principal repaid (USS$m) 4\.6 MISSLON DATA No\. Of Mandays Special liat in Per?\. Typ Of Mission Pat& ( P - In Field m reet I/ Retina V/ Leg e / ProblI es Identification / - - - - - - Prepration 11/77 - - - - - - Appraisal 12/79 7 SUP\.vieIO\. I 1U/01 1 1 f 1 2 b Supervision 2 12/62 1 9 * 2 2 T,P Supervision J 1/"8 2 1S 2 2 T Supervision 4 8/84 2 6 ,b 2 2 T Supervisio S 12/64 1 19 a 1 1 T SupervisionO 5 0/5 8 1S s*,e, 1 2 T Supervision 7 12/65 2 N\.A\. N\.A\. 2 2 F,P SupervioI1n 6 S/O6 2 N\.A\. N\.A\. 2 8 F,P Supervision 9 1/67 1 N\.A\. N\.A\. 8 * F,P OTHER PROJECT DATA Borro r ove rn nt of Cameroon Executing Agency Societe de 10el Oppsm s O doa Cn du Cameroun (SODECOTON Flil year Jkly 1 - June SO Nam of currecy (abbreviation) CFWA Currency Excange Rat: Appraisl Year Averag UWIM * 219 CfAf nte rv ning Yeare Averag U0S1\.11 a *75 CcAr Completion Year Avera US1\.6 * 26 CPA? Follow-up Project: Non )/aagricvlterist; bagriculteral economist; tlinaU ial analys; I gsonemlot; eururaI enginer; #agronomist\. /lmproblem-rze or omnor problems; 2mederat problems and Sneajor problems\. 3/lnimproving; 2luttionary; an udsterloratlia\. i/Winancalol Unesnagerial; Tutechnical; P1woliticl and Obotier\.  - lli - BASIC DATA SHEET (Cont' d) STAFF INPUT 11 n4 15 lb U nI n9 o t 02 I U os b 61 UWIh wm~ _ OEIII_IIE RIIIIiilt v \. \. \. \. 10\.0 9\.2 5s 1\.0 \. \. \. \. \. \. \. \. m\.? FM,l21\. \. \. \. \. \. \. \.2 9\.5 \.3 \. \. \. \. \. 9\.0 IIIUIIS \. \. \. \. \. \. \. \. It\.? \. \. \. \. \. \. \. 89\.1 O I, \. \. \. \. \. \. \. \. 5\.1 IS1 20\.7 It\.3 I\.2 \.L IL9 2\.9 I\. 1O1n \. \. \. \. \. \.2 \. \.2 \.1 \. \. \. \. \. \. \. \.5 '1TO NUMC XA 9 \.0 \.6 \.0 \.0 Q 99,4 5\.1 202\. U5\. 15\.1 0\.2 26\.6 l\.9 2\.9 332\.9  - iv - PROJECT COMPLETION REPORT CAMEROON 'iORTHERN PROVINCE RURAL DEVELOPMENT PROJECT (CREDIT 1075-CM/LOAN 1919-CM) EVALUATION SOMMARY Obiectives 1\. The project sought to provide the means for development of profitable cash crops other than cotton in areas of Northern Cameroon, notably groundnuts and maize, and to improve the productivity of staple food crops production (mainly sorghum), while maintaining the momentum on cotton intensification\. 2\. The specific objectives of the project were to (i) improve rural infrastructure, including roads, stores and marketing facilities; (ii) provide effective services, including input delivery, supervised credit, extension, marketing, adaptive research, and project monitoring and (iii) support forestry development in the North; (iv) provide financial and technical assistance to SODECOTON; and (vi) help existing administrative structures at the provincial level\. Implementation Experience 3\. The project was approved in Noveuber i8C and became effective in June 1981\. After a five-year implementation period, the project was extended for a six-month period and closed on June 30, 1987, about six and a half years after Board Approval\. 4\. Several events occurred during project implementation that had a bearing on project implementation and impact: - the dollar appreciated sharply relative to the CFA franc from 1981 to 1985 and depreciated just as sharply in 1986-1987, with substantial repercussions for project finances\. - the North Province was subdivided in 1984 into three provinces (Far North, North and Adamaoua)\. - the five growing seasons in project period were characterized by well below normal precipitation levels, - the cotton price peaked in 1980 at a little over two dollars a kilo and fell to just over a dollar in 1986\. After 1985, further decline in world cotton prices combined with a large decrease of the value of the dollar in 1986-1987 led to a major financial crisis for SODECOTON\. Results 5\. The project included over twenty separate activities and most were implemented satisfactorily and on schedule\. In particular, activities focusing on extension agent training, seasonal credit and internal SODECOTON management proceeded smoothly\. Despite this, not all of the project objectives were achieved, or are today sustainable\.  6\. What was designed to be a rural development project with cotton as the most important crop turned into a cotton project with few substantial non-cottcn activities\. The SAR overestimated the viability of expanding food crop production, as well as the incentives to farmers to do so\. Maize cultivation turned out not to be practical under prevailing precipitation levels, while sorghum and groundnuts production growth was constrained by limited marketing possibilities\. During implementation of the project little was done to promote agricultural extension in the non-cotton growing areas\. The poorest area in the region, the Mandara Mountains\. was excluded because cotton is not produced there\. 7\. The financial performance of SODECOTON, the main project implementing agency, was overshadowed by the fluctuations in the price of cotton\. Financial returns to farmers throughout the project period were satisfactory\. Economic performance of the project has been more favorable (10) than is suggested by the lack of financial profitability of SODECOTON\. Sustainability 8\. The Bank paid insufficient attention to the sustainability of project results\. By 1986, it was clear that many of the project activities would end with the end of Bank funding, as continued counterpart funding was increasingly unlikely, and would undermine project results with sizeable recurrent expenditure implications\. It was foreseeable that the project's end implied the slow decay of the feeder roads built or rehabilitated by the project for example\. Findings and Lessons Learned 9\. The success of this project was undermined by a series of exogenous events which could not have been predicted or controlled\. Drought, the wide swings in the value of cotton and of the CFAF, and the growing government financial crisis undermined project implementation and the sustainability of its achievements\. 10\. The project aesign followed Bank and government policy in Cameroon at that time of implementing the project through the existing relatively efficient and experienced SODECOTON, rather than using the project for the longer run objective of increasing implementation capacity in the central administration\. SODECOTON expanded into a number of non-cotton activities, such as extension, training, industrial training, village level infrastructure, food crop marketing and road maintenance, often at the behest of international donors like the Bank, because of the deficiencies of the central administration\. Unfortunately, it is unlikely that much of the experience gained by SODECOTON in rural development with cotton growing farmers can be readily utilized by the other Government implementing agencies to benefit the majority of non-cotton growing farmers of the North and Extreme-North Provinces\. Financial consider\. tions dictate that SODECOTON will have to concentrate its efforts or, cotton and cotton farmers for the foreseeable future, and separate plans will have to be made for MINAGRI and associated Government institutions to assist the other two- thirds of the region's farmers\.  I\. INTRODUCTION 1\.01 Despite the importance of oil in recent years, Cameroon's economy is still fundamentally based on agriculture\. Over the period 1971- 75 prior to the advent of oil in late 1970's, agriculture contributed about 302 to GDP and agricultural exports accounted for 821 of the total\. In 1984-85, agriculture only accounted for 202 of GDP while agricultural exports fell to 282 of total exports\. However, the sector still provides employment to about three-quarters of the population, and contributes about 15 to 202 of state revenues\. Agricultural exports have regained their importance in recent years however, and accounted for about half of total exports in 1987188\. More importantly, it produces almost all of Cameroon's food and serves as the main source of raw materials for the agro-industrial subsector, the potential of which has not yet been sufficiently developed\. 1\.02 Although the shares of various components of the agricultural sector have varied over time, the food crop subsector has continued to provide the main agricultural contribution to GDP, which accounted for about 542 df value added in agriculture over the last 18 years, export crops about 212, livestock and fisheries about 162, and forestry about 92\. 1\.03 The Northern Province Rural Development Project (NPRD) fell within Govarnment's overall rural development strategy in the North, which comprised four main types of actions (a) relieving pressure on land in the Center North by providing infrastructure and services for settlement in the Benoue Valley; (b) use of irrigation of the main water courses in the region; (c) raising the productivity of rain-fed agriculture in conjunction with efforts to improve rural infrastructure (particularly water supplies) in the most densely populated areas and (d) exploiting the unpopulated Guinea savannah grasslands of the Ademous Plateau for livestock production\. The NPRD was intended by Government to contribute an important part in both the implementation and the direction of the above development strategy\. 1\.04 The NPRD was the fourth Bank supported Rural Development Project in the country\. The other three projects, Rural Development Fund (FY77), Plaine des M'Bo (FY78), and Western Highland (FY79) were still being implemented at the time of appraisal\. To-date, the Bank has financed a total of 24 projects in agriculture amounting to USS 496\.06 million over the past 20 years (1967-1987)\.  - 2 - II\. PROJECT IDENTIFICATION AND PREPARATION A\. Identification\. Preiaration and Appraisal 2\.01 The NPRD originated from needs identified in the Bank's agricultural sector survey in 1974\. Following a formal Government request for assistance in November 1978, a Bank identification mission isited Cameroon in May-June 1977\. The project was then prepared by FAO/CP which visited Cameroon twice, in October/November 1977, and in March 1978, when consultants from Compagnie Francaise pour le Developpement des Fibres Textiles (CFDT), financed under Technical Assistance Credit 673-CM, assisted in preparation of the Project\. The Project was appraised by a seven-man mission in November-December 1979\. The Project was approved by the Board in November 18, 1980\. B\. Proiect Area 2\.02 The project area covered 19,700 square kilometers of the Center-North, a Sudano-Sahelian ecological zone of the then Northern Province, and comprised of the departments of Margui-Vandala, Diamare and Mayo-Danay (except the SEMRY area along the Logone River) 1/\. In addition, the project would include the arrondissement of Guider in the Benoue Department\. This area had an average population density of 61 persons per square kilometer, with a total population of 1\.34 million people estimated by the 1980 Census\. Excluded from the project were the mountainous areas of Mandara in Margui-Wandala department, in part because the USAID was then con:emplating a rural development project in that area and in part because SODECOTON was not active in the Mandara Hills where there is little or no cotton potential\. Since that area was the most densely populated in the project zone, the project area had an estimated population density of 58 persons per square km\. 2\.03 The Bank identification mission originally suggested the project cover the entire Northern Province, but the Appraisal mission agreed with the Government's view that the project should be limited to the Central North region, in the middle of the Province\. The focus on the Center-North was justified by the fact that it contained two thirds of the rural population of the then Northern Province, and that soil fertility was declining with farmers having a hard time maintaining yields\. Thus, the Appraisal mission recognized the limited long term potential of the project area and its environmental problems even if it did not address the issue of declining precipitation levels\. 1/ The Northern Province was subdivided into Far North, North and Adamaoua Provinces by presidential decree in 1984, in the middle of project execution\. At the same time, the old Department of Margui-Wandala was sub- divided into Mayo-Sanaga and Mayo-Louti Departments, and also the old Diamare Department was divided into Diamare and Kaele Departments\. Unless otherwise noted, this report will designate Northern Province as the new, smaller geographical area (see Map IBRD 21508)\.  3- C\. Proiect Approach and Justification 2\.04 The Appraisal saw the need for a twin approach to rural activities in the project area\. Cotton intensification under the direction of SODECOTON in Northern Province since 1975 had resulted in rapid increases in cotton production and yields\. Now the Government sought to diversify cautiously away from cotton\. As the SAR explained, "the next phase in this strategy is, while maintaining the momentum on cotton intensification, to (a) provide the means for developing other profitable cash crops in areas where cotton is not suited, notably groundnuts and maize; and (b) to improve the productivity of staple food crops productions (notably of sorghum), in line with expected increases in demand' (SAR, p\. 6)\. This strategy provided the justification for the rural development activities of the project\. The decision to situate these activities in SODECOTON, and not in MINAGRI, was based on the view that SODECOTON was the most efficient development institution in the project area, on the one hand, and the then prevalent view, on the other hand, that parastatals outside the ministerial structures were the proper vehicles for development efforts\. 2\.05 The SAR noted technical and institutional deficiencies in the administrative structures in charge of rural development in the north and the second set of activities was designed to address these shortcomings, with assistance to strengthen extension, credit and agricultural research, as well as regional planning and project monitoring and evaluation capacity\. As such, the project was strongly influenced by Bank integrated rural development projects being implemented elsewhere in Africa, including in Cameroon itself\. D\. Objectives and Description 2\.06 The specific objectives of the project were: (a; to provide: (i) an improved rural infrastructure, including roads, stores and marketing facilities; (ii) effective services, including input delivery, supervised credit, extension, marketing, adaptive research, and project monitoring and (iii) to support forestry development in the North; (b) to provide financial and technical assistance to SODECOTON required to discharge its broadened responsibilities, including management of the proposed project\. At the same time, assistance would be provided to facilitate a rationalization of agricultural extension in the project area by equipping the remaining HINAGRI  - 4 - structure with the means to perform its other tasks more effectively; and (c) to help existing administrative structure at the provincial level to participate more effectively in the planning, coordination and control of all development projects in the Northern Province, within the framework of national development policies; to extend the agricultural project monitoring and evaluation unit being formed by MINAGRI for the Northern Province; and to assist the Agricultural Research Institute for the North (IRA-North) enhance its research efforts on food crops\. 2\.07 The project was comprised of two sets of activities within what was then the Northern Provinces - rural development activities in the project area itself (Center- north), including infrastructural improvements, reforestation activities and food crop development\. - at the provincial levels (a) to establish competent institutions for planning and coordination of rural development in the Province and for project monitoring and evaluation; (b) to establish a sound research base for future agriculture and forestry development in the North, including adaptive research for food crops\. 2\.08 The SAR outlined the following project components in the Center northt (a) strengtheni\. g SODECOTON agricultural extension services in the project area by increasing the number of its extension sectors from 19 to 23, the number of its extension zones from 75 to 150 and of its monitors from 560 to 600; (b) establishing an animal husbandry extension unit within SODECOTON, employing two veterinarians and 20 livestock assistants, principally to look after the feeding and health care of draft animals; (c) systematic training and retraining programs for SODECOTON and MINAGRI staff of all levels; two training centers would be built and training specialists provided; (d) an agricultural experimentation unit within SODECOTON would be established to carry out field trials and demonstrations at two new field plotc in each of the 23 sectors in the area; (e) staff and operating costs required by SODECOTON for the provision of these project management services\. (f) construction of additional field storage facilities to handle farm inputs required for the project;  - 5 - (g) improvement of about 800 km of feeder roads in the area; (h) improvement of rural market place facilities to ease marketing of food crops within the area; Ci) financing of incremental costs of seasonal inputs used by farmers and prcvided by SODECOTON; (j) financir@ cf an agricultural credit program for participating farmers \.uquiring credit to buy draft oxen and equipment; (k) pilot tree plantations in forest reserves for fuelwoood and poles and plantings of windbreaks in densely farmed areas to reduce erosion and improve soil fertility\. 2\.09 The SAR described the following project components for the Northern Province as a wholes (a) strengthening the provincial planning unit at Garoua (NPED) to improve planning and coordination of development projects; (b) support for agricultural research at IRA-North, notably for adaptive research on food crops, and to strengthen the Savannah forest research unitt (c) purchasing additional seed handling equipment required by MIDEVIV (NSMP) to furnish improved groundnut seed required for development projects in the north; (d) providing new vehicles and improved office facilities for MINAGRI, as well as staff training; (e) establishing a monitoring unit under NINAGRI to monitor and evaluate results of this and later agricultural projects in the north; E\. Proiect Organization and Management 2\.10 The Project required the collaboration of eight agencies operating in the Center-North (SODECOTON, MINAGRI, FONADER, MINEL, MINEQ, local councils, FNFP and MIDEVIV), and two more (the Provincial Economic Division of MINEP and IRA-North) at the Provincial level\. 2\.11 SODECOTON would play the lead in assuming the execution and supervision of all components and would be responsible for the physical execution of the agricultural development program and construction of feeder roads in the project area\. (At the national level, responsibility for overseeing the implementation of project activities would rest with the corresponding responsible Ministries (MINEP, MINAGRI, MINFIN) and other technical Ministries concerned such as MINEQ for roads and DGRST for research coordination at provincial level between the various executing agencies and other institutions involved in the project would be assured by  - 6 - a Project Coordinating Committee (PCC) to be established under the authority of the Governor of the Northern Province\. F\. Prolect Costs and Financing 2\.12 Total project cost, including taxes, amounted to US$74\.7 million of which the Bank would finance a Bank loan of US$ 25 million and an IDA Credit of US$ 12\.5 million, making a total Bank group participation of US$ 37\.5 million or about 50Z of total project costs\. III\. IMPLEMENTATION A\. Effectiveness and Start-up 3\.01 The project was approved in November 1980 and became effective in June 1981\. After a five-year implementation period, the project was extended for a six-month period and closed on June 30, 1987, about six and a half years after Board Approval\. Estimated targets and actual accomplishments for key project components are given in Annex 1, Table 1\. 3\.02 Start-up was relatively uneventful and rapid, not least because of SODECOTON's experience and management capacities\. Several expatriates hired as experts by the project were already in Garoua working for SODECOTON, for example and were immediately operational\. Activities not directly under its control started more slowly and the SAR proved unduly optimistic regarding implementation schedules\. For example, livestock assistants to be provided to SODECOTON by MINEL were not recruited until mid 1983\. The Northern Seed Multiplication Project (NSNP) proved incapable of supplying the desired quantities improved quality groundnut seeds and alternative sources were not sought before the 1985/86 growing season\. Finally, FONADER did not meet the loan condition of submitting to the Bank a report on the results of loan recovery efforts in the north indicating a recovery rate of at least 75 percent\. These issues are discussed at greater length below\. 3\.03 The Project Coordinating Committee (PCC) convened for the first time in May 1981 and again in August and appeared to play a satisfactory role in the early phases of the project\. B\. Progress and Revisions 3\.04 Several events occurred during project implementation that could not have been predicted at Appraisal but that were to have a bearing on project implementation and impact: (1) the dollar appreciated sharply relative to the CFA franc from 1981 to 1985 and depreciated just as sharply in 1986-1987, with substantial repercussions for project finances\. Appraisal had assumed a stable exchange rate of 210 CFAF per dollar throughout the life of the project\.  In fact, exchange rates varied widely, climbing from a low of 206 CFAF per US dollar in the third quarter of 1980 to a high of 498 CPAF in the first quarter of 1985, and then back down to 260 CFAF in late 1987\. (2) the North Province was subdivided in 1984 into three provinces (Far north, North and Adamaoua)\. 80 percent of the surface of the project was in the new Far North Province, while the planning and evaluation and monitoring units of the project continued to be based in Garoua, in the regional delegations for MINAGRI and MINPAT of the new North province\. Further, technical assistance to MINAGRI extension was also based in the North Provincial Delegation at Garoua\. The Bank mission of July 1985 (over a year after the subdivision) proposed that these activities all be moved to the Provincial delegations of the Far North Province in Maroua, but this was never done\. (3) The five growing seasons under the life of the project were characterized by well below normal precipitation levels, perturbing the agricultural cycle and SODECOTON operations, and leading to production shortfalls, not only for cotton but also for food crops\. (4) The Appraisal had predicted modest real increases in the world cotton price over the life of the project, from the level of 181 US Cents a kilo in 1980 (Mexican strict middling 1 1/16 inch, CIF Northern Europe)\. In fact, the cotton price peaked in 1980 at a little over two dollars a kilo and fell to just over a dollar in 1986\. The sharp appreciation of the dollar vis a vis other major trading currencies between 1980 and early 1985 protected SODECOTON's cotton revenues, since cotton is traded in dollar terms\. After 1985, the further decline in world cotton prices combined with a large decrease of the value of the dollar in 1986-1987 led to a major financial crisis for SODECOTON, particularly since the Government's budgetary difficulties led it to decrease its level of support for SODECOTON activities\. C\. Costs and Financing 3\.05 Total project costs, including taxes, were estimated at appraisal at CFAF 15,690 million, or US$ 74\.7 million with a foreign exchange component of 52 percent or CFAF 8,190 million (US $39\.0 million), based on a exchange rate of 210 CFAF per US dollar\. Actual project costs are not available except for those components of the project which were partly financed from the Bank loan and IDA credit, which are discussed below\. The disbursements records show that almost all project exenditures were made in CFAF or in French Francs\. It is therefore interesting to reflect that the loan generated considerably in excess of the estimated needs of CFAF 8 billion, as a result of the appreciation of the US dollar, even though $4\.7 million was eventually cancelled\. 3\.06 The financing plan proposed in the SAR envisaged financial inputs from the Government, the Bank, SODECOTON, farmers and FONADER as follows:  -8 SAR ($0000) Government 27\.5 Bank 37\.5 Farmers 9\.3 FONADER 0\.4 SODECOTON 0\.0 Total 74\.7 3\.07 There are no figures for the actual amount that was made available by the Government to SODECOTON, NMINGRI and the other agencies implementing the project, but it is clear that from 1985 onwards the Government's contribution to SODECOTON was reduced, so that SODECOTON itself had to contribute towards incremental operating costs of extension from its own resources in order for implementation of the project to continue\. This lack of Government counterpart contribution was one of the most important factors affecting implementation of the project from 1985 onwards\. However, the reduction in Government budgetary allocation may have been exascerbated by the provisions of the loan agreement that required a rapidly increasing Government contribution to incremental operating costs in the latter years of implementation\. Thus, whereas initially the Government was only required to finance 10 percent of incremental staff salaries, the percentage increased to 30, 50 and 70 percent through the project period\. Even without the national financial crisis, it might have been difficult for SODECOTON to obtain such rapid increases in Government recurrent budget allocations\. 3\.08 Although actual costs are not available, the Bank's contribution to each of the categories is available from the disbursement records\. They are smaller than the total costs, since the Bank only financed a proportion of the costs of each component, but they can be used to estimate costs\. Moreover, since separate disbursement categories were included in the loan and credit agreements for the different institutions responsible for implementing the project - SODECOTON, IRA, FNFP, FONADER, MINAGRI, MINEP and MIDEVIV, it is possible also to obtain some indication of the performance of the different agencies\. 3\.09 Annex 1, Table 1 presents the disbursements for each category and for each of the parts of- the project\. The data, which is summarised in the table below, confirms that SODECOTON was able to implement the project more or less as envisaged in the SAR\. Incremental staff salaries and other operating costs, as well as specialists' services were within 10 percent of appraisal extimates\. There were some savings on vehicle costs\. Costs of civil works, mainly the roads construction program, exceeded SAR estimates by 60 percent\. IRA was also able to utilize the funds that were made available for research on food crop and trees\. However, costs of the FONADER implemented medium term credit program for draft animals and  -9- equipment were only 30 percent of appraisal estimates, and equipment purchased for the MIDEVIV executed seed production program was only 40 percent of the amount estimated\. Moreover, the costs of the MINAGRI and MINEQ programs were only 60 percent of appraisal estimates\. Proiect Costs Financed by Cr\.1075-CM and Loan 1919-CM Proiect Component SAR Actual Actual ($000) ($000) as 2 of SAR - Provision of extension services by SODECOTON - Operating Expenditures 9,552\.1 10,384\.7 109 - Civil works 4,486\.8 7,312\.2 163 - Specialist' services 6,056\.3 5,472\.0 90 - Vehicles and equipment 3,928\.9 3,239\.5 82 sub-total 24,024\.1 26,408\.4 110 - Strengthening of agricultural 2,707\.9 2,806\.6 104 and forestry research by IRA - Pilot tree plantings, and 1,386\.8 1,145\.6 83 windbreaks by FNFP\. - Medium term credit program for 3,182\.6 958\.5 30 animal traction - Strengthening of MINAGRI and 1,755\.3 1,036\.1 65 Project Monitoring and Evaluation\. - Development Planning 557\.4 360\.7 65 by MIMEP - Seed Production by MIDEVIV 195\.8 71\.2 36 Contingencies 3,690\.0 0\.0 - Total 37,500\.0 32,787\.2 87 D\. Procurement and Disbursement 3\.10 The project files indicate that there were no major procurement problems during implementation\. 3\.11 Disbursements of the Credit 1075-CM started towards the end of 1981 and were completed in early 1984, at which time disbursements from the Loan 1919-CM commenced\. Disbursements lagged somewhat behind the appraisal estimates, largely as a result of the appreciating US dollar exchange rate\. As early as June 1985, it was anticipated that appreciation of the dollar would result in underspending of project funds, perhaps by as much as US$ 17 million (Memo, June 5 1985, p\. 2)\. In early 1985 SODECOTON proposed that it prepare a work plan of activities to undertake for two  - 10 - additional years with these funds\. Horeover, the Government and SODECOTON proposed that these funds be used to finance a ginnery at Bibemi, and provided the Bank with detailed cost estimates for its construction\. However, due to lack of availability of Government counterpart funds, the revised work plan was never fully implemented\. Nevertheless, all but USS 4\.7 million of the loan was disbursed by project closing\. E\. Reporting 3\.12 According to the SAR, the project's three executing agencies, SODECOTON, MINAGRI and FONADER would each submit quarterly progress reports to the Government and to the Bank showing actual and budgeted expenditures, statements of progress achieved and objectives for the forthcoming quarter by each project component\. SODECOTON's quarterly reports were to contain summary financial information indicating the levels of its short-term borrowing and of any outstanding receivables from the Government or other bodies with respect to budgetary allocations for the project and subsidies on production inputs\. In addition, SODECOTON was to keep records for the project consistent with sound accounting practice to reflect not only its overall financial situation, but also the detailed costs of operations in the project components it was to execute\. SODECOTON's existing cost accounting system was to be revamped to allow it more accurate cost allocation in the context of its new role as a more comprehensive development agency\. MINAGRI's project accounts were to be kept by the Provincial Delegate in Garoua, in accordance with standard goverament audit procedures\. 3\.13 These procedures were followed satisfactorily\. SODECOTON's annual and quarterly reports were regularly submitted to the Bank, as were detailed reports of expenditures\. Similarly, after a slow start, MINAGRI's evaluation and monitoring unit provided regular reporting of its activities\. SODECOTON's accounting system was adequately modernized, and now clearly distinguishes commercial from non commercial activities\. The new approach has been quite useful to SODECOTON by providing precise cost estimates of SODECOTON's different activities, notably the rural development ones for which the agency receives no reimbursements from the Government\. These estimates have been used by the Government, CCCE and the Bank in the recent debates over SODECOTON's rehabilitation\. F\. Proiect closing 3\.14 Project activities were initially supposed to end June 1986 and the initial closing date for the project was December 31, 1986\. SODECOTON requested a two year extension to the project, made possible by large unspent funds\. The ostensible justification for prolongation was to continue and intensify project actions to alleviate the effects of drought\. In addition, the onset of SODECOTON's financial difficulties made any additional funding highly desirable\.  - 11 - 3\.15 Bank missions initially agreed informally to SODECOTON proposals to extend the project with a new and revised work plan for 1987 and 1988\. Such a work plan was designed by SODECOTON in early 1986\. But it was soon overtaken by the deteriorating financial situation\. With the Government's own financial situation worsening rapidly, counterpart funds for the project were increasingly being withheld\. By mid 1986, the Bank continued to accept the principle of extension but now made it contingent upon agreement with the Government on a plan of action for the rehabilitation of the cotton subsector and agreement on counterpart funding\. After some internal debate the Bank agreed to provide the project with a first six month extension of the closing date, to June 30 1987, to provide the Government enough time to complete an in depth study of SODECOTON's finances and rehabilitation\. 3\.16 In February 1987, the Bank sent the Government a telex urging the Government to alleviate SODECOTON's financial problems and disburse obligated funds to SODECOTON\. The telex warned that if adequate measures were not taken, disbursements would be stopped, no second extension would be granted and the balance of funds under the loan would be cancelled\. The Government responded shortly thereafter indicating that counterpart funding was now assured for SODECOTON and that a ministerial review of the parastatal was underway\. In July 1987, the Bank informed the Government that it had not received any information concerning the ministerial review, and that consequently the loan closing date would be maintained at June 30, 1987\. 3\.17 Undisbursed Bank project funds still totalled US$ 5\.6 million as of September 30, 1987\. A Bank mission to Cameroon in October 1987 was given a study, by Price Waterhouse, which included a number of recommendations based on a comprehensive diagnostic of SODECOTON's crisis\. The mission was informed that the Government accepted most of Price Waterhouse's recommendations and would begin implementing them\. In view of this new information the Bank mission indicated it would reconsider extending the closing date\. After some internal debate in the Bank, however, the closing date was maintained and no further extension granted\. The Bank now argued that additional finance to SODECOTON be linked to the major policy dialogue underway in the context of proposed sectoral and structural adjustment lending\. IV\. OPERATIONAL PERFORMANCE AND PROJECT IMPACT A\. Issues 4\.01 An evaluation of project operations and their impact should take into account the environment in which the project activities were carried out\. This is particularly true for the present project\. First, it should be noted the project covered only 4 growing seasons\. Though it was signed in January 1981, the project really only got started in June 1981,  - 12 - too late to have any effect on the 1981182 season\. The 1982/83 season was the first season to benefit from project inputs, and thus at the original project completion date (June 1986), only 4 growing seasons (not including the 1986/87 season) had been concludled under the life of the project, or 5 years with the additional year of cperations, which did not include all project components, and was conducted in the shadows of the Government's financial difficulties\. This is little time for technology diffusion in a rural environment, even when -- as in the case of cotton -- a tested technological package already existed at SODECOTON\. For most of the food crops the project included a research and field test component to finalize the development of such packages because none existed at project inception\. For these crops, it is therefore not surprising that project impact was limited in terms of production and productivity increases\. The SAR contained unrealistic expectations in this regard\. 4\.02 In addition, the project was perturbed by a series of negative exogenous events, whose effect must be properly taken account of\. First, precipitation levels were below average for 3 of the 5 growing seasons during the life of the project\. The Appraisal argued that 700 m over the course of the June-September growing season represents a minimal requirement for successful cotton cultivation\. From 1982 through 1984, the project zone averaged less than that, with such lows as 410 mm at Maroua in all of 1984 or 630 mm in Garoua in 1983\. The drought had an effect not only on the agricultural potential of the project area, but also on farmer incentives\. In particular, drought can be expected to lower the potential of all cultivations, albeit of some more than others\. The lower level of precipitation apparently made maize cultivation all but impossible, for example, but must have had a much lesser effect on millet\. More importantly, drought put a premium on food crops in farmer strategies, particularly when as is the case in northern Cameroon, food marketing networks are poorly developed\. The drought could thus be expected to have had a disproportionate effect on cotton\. The drought conditions prevailing during much of the project's existence undermined project results\. Since 1985, however, the rainfall levels have been satisfactory and production levels have increased appreciably\. Indeed, the 1988/89 season provided SODECOTON with its largest cotton crop ever, some 168,000 tons of seed cotton\. 4\.03 Secondly, in 1985, the world price of cotton underwent a dramatic and unexpected decrease\. This combined with the appreciation of the dollar to make SODECOTON's cotton activities highly unprofitable, not least because of the generous producer price increases the governement granted cotton farmers between 1980-1985\. SODECOTON's financial difficulties were compounded by the Government's own budgetary crisis which led it to reduce its support of SODECOTON, and other relevant institutions, notably of IRA\. Additional projects, such as the Bank's National Agricultural Research Project were delayed due to lack of counterpart funding, which undermined continuity and eroded progress made under the project\. 4\.04 A final factor which perturbed project operations was the Government's decision to subdivide the Northern Province in 1984\. This change was followed by indecision on the Government's part as to whether or not project activities taking place in the ministerial Provincial  - 13 - delegation in Garoua should be physically moved to Maroua or not\. This hesitation can be expected to have perturbed planning and perhaps morale in the Delegation at Garoua\. Once the decision was made to move most of these project activities to Maroua, more time and energy was lost moving equipment and personnel and starting new activities from scratch at Maroua\. The low degree of impact of the project activities conducted in MINAGRI and MINEP were at least in part a result of this move\. B\. Proiect Components 4\.05 The project included over twenty separate activities and most were implemented satisfactorily and on schedule\. In particular, activities focusing on extension agent training, seasonal credit and internal SODECOTON management proceeded smoothly\. Despite this, not all of the project objectives were achieved, or are today sustainable\. The following sections focus on some of the key issues that were raised by project operations, on activities which proved problematic and on the reasons why some of the targets were not met\. 4\.06 Cotton activities: The appraisal had set out an objective of an increase from 48,000 to 70,000 hectares of intensive cotton cultivation producing 82,300 tons of cotton seed by PY5\. Instead, approximately 60,000 tons of cotton were produced on 52\.500 Ha during the 198511986 season, implying a 27 percent production shortfall compared with appraisal\. Cotton production statistics are given in Table 1\. In addition, yields averaged 1140 kilos per Ha, instead of the 1200 foreseen in the SAR\. These totals suggest a fairly successful project\. Moreover, with the return of higher rainfall levels in 1986-1989, the project production targets have been met\. However, to put these totals in perspective, it should be remembered that the old CFDT had produced as much as 70,700 tons in more or less the project area as early as 196911970 and had extended its low intensity extension system over 70-80,000 hectares there through out the late 1960s and early 19708\. The SODECOTON was not so much introducing as reintroducing cotton to most farmers in the area, and its inability to promote intensification more successfully suggest the presence of fundamental agro-ec-logical problems in the project area as discussed below\. This is corroborated by SODECOTON's greater success in areas south of the project zone\. Though production increased some 8\.5 percent a year on average in the Far North Province between 1974 and 1986, it grew by 12\.4 percent in the North Province and by 10\.6 percent overall for SODECOTON\. Between 1980 and 1986, the life of the project, these production growth rates were -1\.22, 12\.62 and 5\.72 respectively (See Table 2) 2/\. 4\.07 Several factors explain this disparity between the North and Far North Provinces and seems to have been responsible for the project never reaching the production objectives laid out at appraisal\. First, 2/ Comparisons are complicated by the fact that the Center-North project area is roughly 80 percent in the Far North Province and 20 percent in the Benoue Department of North Province\. Data for the project area were nct available for the entire period\. The Benoue Department, with greater precipitation levels, regularly outperformed the rest of the project area\.  - 14 - drought hit the north of Cameroon in 1982-1984\. It was particularly severe in the Far North, including the project area, whereas SODECOTON areas further south in the Benoue valley were less affected\. With lower and more unpredictable precipitation levels, farmers have turned away from cotton and have focused on food crops, particularly in the Haroua region where food prices increased appreciably during the project period\. In addition, there has been some out migration of farmers to the cotton areas further south in the Benoue Valley\. Some observers were led by the drought years to argue that there is a secular decline in precipitation levels in the Far North that will continue to undermine the project area's production potential\. With the returns of three years of adequate rains, a slightly more sanguine view may be in order\. In any event, the sustainability of the cotton production increases achieved through the project will likely depend on the area's precipitation levels in the future\. 4\.08 Food croD activities; The food crop component of the pro4ect was no more successful at meeting project targets, albeit for different reasons\. SODECOTON was slow to undertake the full program of activities for food crops listed in the appraisal, in part because of its lack cf experience with food crop extension\. The early years of the project witnessed some groping\. For example, it first focused on wholesale intensification of food crops on small perimeters, instead of the program of semi-intensification on large areas outlined in the SAR\. Bank staff involved in supervision missions appear to have agreed with this departure from the SAR strategy though several Supervision missions did raise the issue with SODECOTON\. While difficult to quantify precisely since SODECOTON did not provide the Bank with complete statistics for food crops in the project area, pro,ect results were well below the objectives listed in the SAR\. Target shortfalls for output of groundnuts and sorghum, were well above 50 percent and the production objectives for maize were altogether scrapped when it became clear that maize was not a viable crop in the project area\. Project results were hampered by the drought conditions\. In general, it can be said that tested technological packages did not exist to promote intensification of production, at the project outset\. For most crops, the SAR foresaw the need to begin by recommending simple improvements to farmers in a first stage while field trials tested new varieties and more sophisticated input use\. SODECOTON's food crop intensification strategy was undermined by an initially poor understanding of farm level incentives and food crop/cash crop tradeoffs, as well as by the exiguity of food markets in the region, and the drought conditions preva\.ling during the prject\. Project results for food crops were thus slow to appear\. Recent results have been much more encouraging, however, suggesting cause for a more positive assessment of the progress made under the project\. The project experience with each crop is reviewed separately below\. 4\.09 Groundnuts: In the appraisal, it was widely felt groundnuts had the greatest pntential among food crops for the project area\. SEMNORD had spoisored the intensification of groundnuts in the seventies before its abolition, and it was thought that farmers would be quick to accept extension recommendations\. Local market prospects for groundnuts were better than for other food crops and simple technical innovations were thought to be sufficient to appreciably increase output\. The seed multiplication project was  - 15 - supposed to be able to provide the project area with improved seeds\. The appraisal promoted the twin approach of seeking wholesale intensification on only some 10,000 hectares by the end of project operations on the one hand and simple improvements on the another 29,500 hectares\. The latter consisted of semi- intensification and included on farm seed selection and rudimentary greater planting density, for example, but no fertilizer use\. The SAR estimated that these simple improvements could increase yields from 350 to 560-630 kilos of shelled nuts per ha\. In fact, SODECOTON efforts in the early phases of project implementation focused entirely on intensification, leading to criticism by several bank supervision missions\. By PY5, the project had promoted intensification on 1500 hectares, but had yet to begin the program of semi-intensification, despite Bank insistence\. In part, this slow progress can be explained by the poor weather conditions for groundnuts and the absence of well adapted varieties for the project area\. 4\.10 Sorghum: Sorghum (wet and dry season or Mouskwari) represents the most important subsistence crop in the region\. Under traditional systems of cultivation, mean yields were said to approximate 700- 750 kg of threshed grain per hectare for wet and dry season sorghum\. The project focused exclusively on wet season sorghum, though SODECOTON estimated at 75,000 Ha the acreage devoted to this crop in the 1985/86 season (45,000 ha in 1984185)\. Acreage devoted to improved sorghum cultivation was supposed to increase from 12,500 ha in PYO to 91\.850 ha by PY5; instead, SODECOTON reported increases to 25,000 ha\., a 73 percent shortfall\. By way of comparison, the 1984 Agricultural Census reports total sorghum and millets acreage at 292,000 ha in the Far North province\. In part, marketing problems undermined production efforts\. For example in 1986, the excellent sorghum harvest led to brutal fall in the market price paid to farmers, which went from 200 CFAF per kilo in August 1985 to 25-40 CFAF in December 1986\. The good rains in 1986 and then again in 1988 seem to have led to a quantitative jump in semi-intensive sorghum cultivation in those years, however, suggesting that the project's impact on production is tributary to adequate rainfall levels\. 4\.11 Maize: SODECOTON had high hopes for maize cultivation in the project area, though it is not a traditional crop in the area and was grown mainly as a garden vegetable (culture de case)\. The project appraisal foresaw the experimental introduction of high yielding short season varieties of maize among the area's more progressive farmers, essentially as a cash crop\. It noted that maize consumption in the area was practically nil and cautioned that current marketing outlets might be very thin\. It established a target of some 5,000 Ha under advanced technology on 0\.25 Ha plots\. In fact, SODECOTON abandoned this project component when it became clear that intensive maize cultivation was not viable in the project area under the drought conditions prevailing in the project area\. It should be noted that in the Benoue valley further south, SODECOTON's efforts to promote maize have been  - 16 - successful and production ihcreases have been rapid, often at the expense of sorghum cultivation\. 4\.12 Food marketing issues: The SAR had pointed to the low proportion of food production marketed as a key development constraint ir\. the project area\. As well as the feeder roads component, the project included a component to modernize seven rural markets as a way of improving marketing channels\. These were not built, as SODECOTON appears to Lkve determined they would have little impact on marketing in the area\. To justify this SODECOTON pointed to a number of farmer needs surveys that do not mention rural markets as a priority need\. In any event, the decision to include this component in the project can be questioned in light of the fact that the major urban centers in the north do not have permanent market structures\. Food marketing has been very active in certain parts of the project area, notably in the immediate radius of provincial towns like Maroua\. 4\.13 A consensus has now emerged among government agencies and donors that the biggest constraint to increasing food production in the project area is not the production possibility frontier under existing production technologies, but rather the exiguity of markets\. With less than 20 percent of food production actually marketed, most farmers in the area are more or less self reliant\. There is so little farming specialization that even SODECOTON's most progressive farmers continue to cultivate food crops for home consumption\. Food demand comes mainly from the urban populations, which are small in the North and increasingly consuming non traditional food stuffs like bread and rice\. SODECOTON efforts to promote food pro1action was not hampered by technological or ecological issues (though these were present, notably for maize in the Far North) so much as by the lack of market outlets for the resulting output\. Farmers would not expand their food crop acreage and'use modern inputs like fertilizer unless they were assured of being able to market the surplus output\. Until 1986 SODECOTON did guarantee a purchase price for some food stuffs, but supply soon out stripped demand and the operation became unprofitable\. It was discontinued because of SODECOTON's mounting financial difficulties\. 4\.14 The Appraisal mission was aware that marketing channels were poorly developed, but it overestimated the demand for the surplus foodstuffs the project aimed to produce\. In retrospect, greater attention should have been devoted to the immediate causes of food insecurity in the project area, the Osoudurew period every year and the failure of the rains that seems to occur one in three or four years\. In particular, project efforts to improve farm and village storage capacitv should have been expanded to address this type of insecurity\. On the research level, greater efforts should have been devoted to improving storage technology and increasing the shelf life of cereals\. 4\.15 Feeder roads: SAR cost estimates for feeder road construction proved overly optimistic and revised cost estimates in early 1982 indicated that the CFAF 3\.2 billion (USS 10\.7) earmarked this component in the SAR would cover only 80 percent of the original 800 kilometers, or some 650 km\. Eventually, some 600 km were built or rehabilitated over the course of four  - 17 - seasons\. SODECOTON focused on the eastern and southern regions of the project area, on the assumption that a later phase of the project could expand the road network north and west\. By late 1986, over half of these roads had been classified by the HINEQ and thus was included in their maintenance schedules\. The remaining roads were classified by 1988\. After this component had been completed, some of the road building equipment was transferred to MINEQ and ONAREF\. The lack of operating budgets at both of these institutions since 1987 has led to a near total absence of maintenance for the feeder roads\. Under these circumstances, by 1990 some of these roads will in worse conesition than at project inception\. 4\.16 Medium Term Credit: The project set aside US$ 4\.6 million (including 3\.2 million from the Bank) to allow FONADER to extend medium term loans to farmers to allow them to purchase oxen from SODECOTON\. Implementation of this component proved problematic\. The project Loan Agreement (Schedule 1, para 4 (c) and (d)) stated as a condition of disbursement that FONADER had to provide the Bank with a report on the results of agricultural credit recovery efforts in the Northern Province showing that arrears had been reduced to no more than 25 percent of the aggregate principal amount of such credits which were due and payable\. Such a report was provided to the Bank in April 1984, two and a half years after the beginning of operations, showing that arrears had been brought down close to 23 percent and the Bank auLhorized disbursements under this component\. In fact repayment rates at FONADER appear to have continued to be low\. 4\.17 FONADER was never able to disburse the loans at anything close to the levels predicated by the appraisal\. Of the US $ 3\.2 million budgeted by the Bank in the SAR for this activity, only $0\.95 million was spent by the end of operations\. The reasons for this are not clear\. There was some question as to the effective demand for such credit on the part of farmers\. After 1985, SODECOTON successfully began promoting the use of donkey traction, and the medium term credit component was used to provide farmers with credit for donkeys rather than oxen\. This appeared to fit farmer needs better, and the donkey's cheaper cost seems to have better adapted to farmers means\. Some 3,800 donkeys were eventually distributed to farmers and trained\. 4\.18 Forestrys The appraisal had argued that the forestry component was important to addressing the ecological problems of northern Cameroon\. Proposed targets in the SAR included 300 Ha of experimental tree plantations in IRA's forestry research station in Maroua, 700 Ha of pilot savannah plantations for fuel wood and 750 km of windbreak planting in selected parts of the project area\. In addition, forestry research would be actively promoted\. While good progress appears to have been made on the research front, the targets proved too ambitious\. For lack of determined management and strict adherence to the work program, the savannah forest plantation lagged over 50 percent below target, with a meager 330 hectares planted, instead of the 700 planned\. Technical problems led to a large attrition rate among young trees\. The SAR had argued that the windbreak or village plantations component of the project was a promising way of protecting fields from wind erosion and would lead to increased yields\. Eventually, it was entirely dropped from the project due to lack of village level interest\. In retroapect, there was inadequate  - 18 - knowledge of technical issues to embark on a planting scheduleof the size foreseen by the SAR\. 4\.19 Agricultural Research: The project was more successful at enhancing the adaptation and diffusion of existing technologies than at developing new technologies, given the short life of the project and the exceptional drought conditions\. The applied research program was executed at the Maroua research station and 9 substations located in the three northern provinces\. The experimentation program was properly executed and involved 183 trials, including 134 on food crops, on the substations and about 400 trials performed throughout the cotton area\. Food crops tested included sorghum, groundnuts, maize, paddy, cow pea, soybean and yams\. Due to drought many of the trials failed\. By 1984, the IRA had with the assistance of SODECOTON established 4,200 demonstration patches of a quarter hectare of Sorghum fertilized with urea to show its potential benefit to farmers\. The impact of these research results on farming systems seems to depend on the precipitation levels\. 4\.20 Several factors seriously hampered the sustainability of this component's impact, however\. The lack of counterpart funding for project activities was first compensated by SODECOTON's willingness to prefinance them, but it soon stopped doing this\. In addition, some of the activities were designed to be continued by the Bank's Agricultural Research Project, initially slated to begin operations in late 1984\. That project did not become effective in 1988\. As a consequence, much of the research begun under NPRD was in effect discontinued\. 4\.21 Northern Province Economic Division; the NPED, based in the MINPAT was designed by the SAR to fill a gap in regional planning by coordinating regional interministerial forecasting activities and by coordinating the numerous interventions of multi and bilateral donors\. It seems to have gotten off to a slow start but then to have played a useful role, in reporting regional trends and analyzing development constraints\. Unfortunately, the NPED seems to have ended its activities with the departure of the expatriate expert\. 4\.22 Project Monitoring and Evaluation Units the PMEU established in the HINAGRI's regional delegation was less successful\. It was meant by the SAR to monitor the project's impact at the farmer level and eventually monitor and evaluate all projects in the area using a consistent and rigorous set of techniques and criteria\. In fact, it was never able to carry out a meaningful baseline survey, as it used an excessively complex questionnaire which it waa not able to completely master, and there were complaints that the Regional Delegate used the unit as little more than a agricultural statistics collection unit\. After a laborious start, however, the unit did provide several useful reports on the project's impact on the farming population\. Since the end of the project and departure of the expatriate expert, the unit has been closed\. Its personr\.el was integrated into the statistics division, project cars were taken away and the computer equipment was transferred to the DEP in Yaounde\.  - 19 - V\. FINANCIAL AND ECONOMIC PERFORMANCE A\. Financial Performance 5\.01 The financial performance of SODECOTON, the rain project implementing agency, was overshadowed by the fluctations in the price of cotton\. During the early 1980s, while the price of cotton was strong, SODECOTON was able to show a modest profit, but increased revenues were largely passed on to producers in the form of increased prices for seed cotton, which increased from CFAF 80/kg in 1980-81 to CFAF 140/kg in 1985- 86\. This does not include the CFAF 15/kg post-harvest bonus paid by ONCPB\. Throughout this period, SODECOTON subsidized seeds and fertilisers and provided free insecticides\. 5\.02 In addition to the agricultural assistance to farmers for cotton, SODECOTON continued to expand its rural development activities during the 1980s\. It addition to the crop development programs for sorghum, maize, and groundnuts and the roads construction included in the Bank financed project, SODECOTON was involved in groundnut processing and storage and adult literacy programs through the Bank financed FSAR I and II projects, as well as implementing a number of other rural developemnt activities\. The total cost of rural development is estimated to have been CFAF 5\.8 billion in 1985-86\. 5\.03 The fall in the price of cotton in 1986, combined with the failure of the Government to provide the agreed counterpart funding for the project related and rural development work, resulted in the acute financial crises of 1985-86 and 1986-87 when financial deficits of CFAF 20\.3 billion and CFAF 12\.1 billion were recorded\. Furthermore a deficit of CFAF 11\.8 was estimated for 1987-88\. Financial audits prepared by Price-Waterhouse in 1986-87 and the CCCE in 1987-88, led to recommendations for restructuring SODECOTON, including reduction in the subsidies on cotton inputs from 56 percent in 1985-86 to 25 percent in 1986-87\. In addition, a third grade of seed cotton was introduced in 1988, which reduced the average cost of seed cotton to CFAF 126/kg in 1987-88\. Under the provisions of the Structural Adjustment Program, it is realistic to assume that the producer price could be reduced to about CFAF100/kg seed cotton, and other farmer input subsidies removed completely, which would permit SODECOTON to cover its variable costs\. However, without some improvement in world cotton prices it is unlikely that would be much of a positive return on the capital employed\. 5\.04 Financial returns to farmers throughout the project period were satisfactory, with a net return of CFAF 60,000-90,000/ha equivalent to CFAF 30-50,000 per farmer\. As noted above, even after the fall in world cotton prices, farmers were largely insulated from lower returns\. In addition the project also assisted them to increase food crop production, some of which was marketed\.  - 20 - B\. Economic Performance 5\.05 The economic performance of the project has been much more favorable than is suggested by the lack of financial profitability of SODECOTON\. Over the longer term, the economic viability of cotton production in Northern Cameroon should be satisfactory, and considerably better than the financial figures suggest, due in part to the fact that the price of seed-cotton paid to farmers was not reduced when world cotton prices fell, and in part to low controlled prices for the sale cf cotton lint on the domestic market (nearly 20 percent of the total volume of lint), and cotton seed oil, all of which is sold on the domestic market at regulated prices well below border prices\. Thus, the financial returns do not reflect the returns to the economy\. Moreover the medium and longer term price projections for cotton indicate some recovery, which combined with some recovery of the US dollar relative to the CFAF, would lead to increased revenues from exports of cotton lint\. 5\.06 Throughout the 1980s farmers in the project a-ea have received a considerable economic rent from cotton sales\. Even with a producer price below CFAF 100/kg seed cotton, farmers can still make a satisfactory net return to land and labor after deducting all input costs, particularly in the Northern Province, where conditions are more favorable and yields are higher\. In the Extreme North, where yields are lower, farmers have still been able to make satisfactory returns from cotton and food crops, whereas without the project yields and the level of farm income would probably have fallen\. 5\.07 The project's economic rate of return has been estimated again to compare it with the estimates made in 1980 at the time of project appraisal\. In the SAR some 55 percent of the benefits at full production in the 10th year, were projected to result from incremental seed-cotton produLtion of 37,400 tons, compared with the actual production of 51,000 tons in 1988-89, which was a good year\. Taking into consideration the pattern of poor rainfall once every three years, incremental production is estimated at 32,400 tons of seed cotton annually, some 85 percent of that estimated at appraisal\. The value of future cotton production for the remaining 12 years of the project is projected to be CFA 7\.0 billion annually, largely mitigating the effects of low cotton prices and unfavorable exchange rates in some of the early years of the project\. Cotton would account for 75 percent of the net value of project benefits, assuming a cotton fibre price of US$1\.55/kg f\.o\.b\. and a future exchange rate of CFA350s$1\.00\. 5\.08 Incremental food crop benefits were projected in the SAR to account for 35 percent of total project benefits at full production, with an estimated annual value of CFA 3\.6 billion\. Figures are not available of the actual increased area or production, since SODECOTON keeps complete statistics for intensive food crops only, rather than the much larger area of semi-intensive crops\. In the absence of detailed information concerning areas and yields of food crops, their incremental value at full production has been estimated at CFA 0\.9 billion annually, some 25 percent of the SAR  - 21 - projection (para 4\.08-4\.11)\. This reduced estimate is based on the facts that it was not possible to introduce maize as projected in the SAR, due to lower than anticipated rainfall, and that SODECOTON concentrated on a small area of intensive food crop production in rotation with cotton, rather than a much larger area of semi-intensive food crop production\. The actual area of cotton was smaller than estimated in the SAR (although yields increased as projected), therefore it is likely that the area of intensive food crop production was also smaller\. On the other hand, the SAR did not take into account the benefits from niebe (cowpeas) cultivation, a crop which SODECOTON has had some success intensifying in recent years\. Food crop benefits are assumed to account for 20 percent of total net benefits in the economic analysis in this report\. 5\.09 The remaining benefits assumed in the SAR were derived from roads and livestock benefits\. The benefits from roads construction have been assumed to be 75 percent of the 3AR estimate, since only 600 kms of the 800 kms planned were constructed\. No benefits were derived from the livestock activities to reflect the poor performance of the credit component\. 5\.10 On the costs side, the SAR did not include many of the long term fixed costs of SODECOTON\. As discussed in Paragraphs 5\.02-5\.03, these have proved to be higher than anticipated\. The Caisse Centrale estimates of actual and future SODECOTON fixed and variable costs have been used in the projected ERR\. 5\.11 Taking into account the actual performance from 1981-82 to 1988-89, assuming no further production increases would result from the project, and using current World Bank commodity forecasts, the revised ERR of the project would be about 10 percent over a 20 years project life\. The project life has been increased from 15 years in the SAR to 20 years to compensate for the effects of the unanticipated drought (1983-85) in the early years of project execution (Annex 4, Table 1)\. 5\.12 Another set of calculations has been made to determine how sensitive the ERR is to changes in production, in which the return of drought conditions over the project area has been assumed, such as late onset or partial failure of the rains, giving rise to higher food crop prices, and an increase in the area of food crops planted, to try to compensate for lower yields\. Under these conditions, the value of incremental food crop production has been assumed to remain at CFA 0\.9 billion/year, with incremental cotton production falling from 32,400 tons to 20,400 tons, resulting in an ERR over a twenty year period estimated at 7 percent (Annex 4, Table 2)\. If the value of food crop benefits was also to fall by 25 or 50 percent, the ERR would fall to 5 or 2 percent respectively, indicating that the project is rather sensitive to changes in the value of food crop benefits\. 5\.13 The implication of these calculations is that project performance was adequate, albeit not as strong as foreseen by the SAR, and that future economic performance of cotton will be highly dependent on weather patterns in the North\. Though project benefits were not weighted according to social criteria, it should be clear that project results would be even more valuable to the region, and to its social welfare, if drought  - 22 - conditions do prevail in the near future, since the project did make peasants less vulnerable to the effects of drought\. Had the project output been valuated taking this into account, its rate of return would have been higher\. Finally, it is important to note that the economic assessment of the project is not directly related to that of SODECOTON, whose large fixed overheads are by definition not considered in the incremental cost and benefit estimates used in the project economic calculations\. VI\. INSTITUTIONAL PERFORMANCE 6\.01 The institutional problems in northern Cameroon identified by the SAR do not appear to have been relieved by the project\. Though the physical goals for cotton production were largely met at high financial cost by SODECOTON, other institutions involved in project implementation were less satisfactory and the project's institutional development objectives were not achieved\. As a result, policy making and implementing structures in north Cameroon remain largely deficient\. The lack of progress during the project has now been compounded by the Government's inability to continue funding operating expenditures\. 6\.02 SODECOTON was and remains an effective cotton development agency\. During the course of the project it demonstrated this effectiveness by meeting many of the physical targets of the project with minimal delays\. The infrastructural components of the project (road building, rural markets etc) were all executed on time\. Training of extension agents was similarly satisfactory\. The shortfall in meeting cotton production outputs can be blamed on the drought rather than on SODECOTON\. 6\.03 On the other hand, the project helped SODECOTON improve the scope of its non cotton activities, notably in the area of food crops, even if they remain secondary to its cotton activities\. SODECOTON was not transformed into a rural development agency, but it did begin to integrate rural development activities in its promotion of cotton based farming system\. During the project implementation period, SODECOTON expanded its integrated rural development activities, and acquired new or enhanced experience in such areas as credit distribution, road building and food crops research and extension\. Much of this institutional growth has continued since the end of the project, though it is jeopardized by the cotton sector crisis as well as its and the Government's fiscal difficulties\. 6\.04 The performance of the rest of the institutional apparatus in the north does not appear to have undergone sustainable improvements during the life of the project\. The project decision to decrease duplication between HINAGRI and SODECOTON extension efforts by placing all extension activities under the competence of the latter did not improve MINAGRI efforts in other areas (moreover, MINAGRI extension staff levels for the project area were not decreased correspondingly as agreed to at negotiations)\. It may also have undermined MINAGRI's extension efforts in areas adjacent to, but not covered by the project area, notably the Mandara mountains\. Monitoring and evaluation capacity in the provincial delegation of MINAGRI was not noticeably improved beyond the life of the project, nor  - 23 - was provincial planning and coordination efforts by the MINEP's provincial offices, despite a promising start\. If anything, with the onset of budgetary cuts after 1986, the provincial ministerial structures at MINAGRI and MINPAT have suffered institutional decay\. 6\.05 Some progress in institutional development was made, notably in the area of agricultural research where the project trained local personnel, improved coordination efforts between projects and undertook useful and time consuming field trials for a number of crops\. Cooperation between IRA and SODECOTON was enhanced during the project and has been sustained\. Valuable experience was gained during the course of four growing seasons (1982/83 - 1985/1986)\. This progress was then greatly undermined by the termination of those activities, the endless delays in beginning implementation of the Agricultural Research Project and the major cuts in government funding for the IRA after 1986 as these have fallen disproportionately on its field offices\. VII\. BANK PERFORMANCE A\. Prolect Justification and Obiectives 7\.01 The Government's development priorities for the north were not clearly or precisely outlined at the time of appraisal and combined inconsistent social and commercial objectives\. The project was justified by the perceived need to enhance development efforts in the Par North province, by far the poorest region of the country, to reach the poorest farmers and to promote the country's third most important agricultural export, cotton\. In addition, the project area's ecological deterioration needed to be reversed\. The SAR properly identified these issues, but the resulting project design effectively focused more on the commercial and environmental issues than on the social ones\. The project for example excluded the poorest area in the region, the Mandara Mountains, because cotton is not produced there\. More generally, by focusing on the cotton growing areas, the project excluded the poorest farmers even in the cotton region, who typically do not cultivate cotton\. 7\.02 The criteria behind the delineation of the project area are not clear\. By Appraisal, it was clear that the Center-North was not a high potential area for cotton, and that SODECOTON's future growth lay in the higher potential Benoue Valley\. The Appraisal noted this point but argued that Bank assistance could reverse or at least slow down the region's decline, and that social welfare arguments justified intervention\. However, the project area included Guider, an arrondissement in the Benoue Department with higher precipitation and income levels which consistently outperformed the other project zones, and excluded the poorest areas of the Far North Province\. In retrospect the Bank seemed ambivalent about emphasizing commercial criteria, by focusing exclusively on cotton in the higher potential areas further south, or concentrating on social objectives by pursuing integrated rural development objectives all over the Far North\. SODECOTON's geographical area of activities seems to have influenced the  - 24 - choice of the project area; the Center-North was the only major sector of its activities where SODECOTON did not already have a foreign funded project\. 7 *'3 The choice of SODECOTON as the lead implementing agency was strongly supported by the Government throughout negotiations\. It did reflect the Bank's preference for short term advantages in project execution capability to longer term institution building\. At the same time, it was justified by the fact that SODECOTON was the most if not the only effective rural development institution in Northern Cameroon\. The SAR did nonetheless attempt to balance the short and long run considerations by entrusting the bulk of project implementation to SODECOTON, while also including several project components that would in the long run serve institution building objectives in the central administration\. In retrospect, the project design did not devote nearly enough resources to ensure the success of these non cotton objectives\. Moreover, these objectives were slowly forgotten during implementation and SODECOTON's components became the focal point of most supervision missions, particularly after the onset of the cotton crisis\. Indeed, successive supervisions progressively lost sight of the project's rural development objectives for the Center North area and concentrated on SODECOTON's cotton activities in both northern provinces\. The last two supervision mission reports confuse overall SODECOTON output goals with those of the project for example\. By the end of execution, it is fair to say that the Bank considered the project a cotton project based in SODECOTON\. 7\.04 The Bank actively sought the increase of cotton producer prices during appraisal and negotiations, in keeping with its view that swings in world commodity prices should be transmitted to farmers\. In Cameroon, this led to a rapid increase in the producer price, which went from 80 CFAP per kilo in 1980/81 to 140 in 1985186 (excluding the additional 15 CFAP provided by the ONCPB)\. The Government imposed these price 1-creases on a recalcitrant SODECOTON, while maintaining the subsidies on fertilizers and pesticides\. The Government refused to decrease the producer price after 1986, however, to reflect the decrease in world prices\. The high prices are a major reason for SODECOTON's financial difficulties since then\. The lesson for the Bank is that producer prices are likely to be 'sticky, downwards when the marketing parastatal does not have price setting authority\. Political pressure and the slow speed of government decision making can have as a consequence the rapid accumulation of deficits for the parastatal, which does not control the parameters of its own profitability\. B\. Bank Supervision 7\.05 There were nine Bank supervision missions\. The first supervisions focused on start up issues and were effective in prodding the different actors to implement agreed to measures\. The Bank was quick to remedy minor appraisal weaknesses and agree to revised targets when these seemed more reasonable\. This was notably the case with the feeder roads component, where the target was brought down from 800 to 600 km of roads, when it became clear the former was too ambitious\. After 1985, supervision missions were increasingly focused on SODECOTON's financial  - 25 - difficulties, the absence of counterpart fundinA and on the project's extension with undisbursed funds\. These missions were much more lax in monitoring project activities not controlled by SODECOTON and paid little or no attention to the output targets established in the SAR\. Thus, it is impossible to determine from supervision mission reports the number of loans made by FONADER, the quantity of groundnuts and sorghum produced in the project area in PY5 or the area and yield of cotton in the Center-North Project Area\. 7\.06 The Bank paid insufficient attention to the sustainability of project results\. By 1986, it was clear that many of the project activities would end with the end of Bank funding, as continued counterpart funding was increasingly unlikely, and would undermine project results with sizeable recurrent expenditure implications\. It was foreseable that the project's end implied the slow decay of the feeder roads built or rehabilitated by the project for example\. VIII\. CONCLUSION 8\.01 The success of this project was undermined by a series of exogenous events which could not have been predicted or controlled\. Drought, the wide swings in the value of cotton and of the CFAF, and the growing government financial crisis undermined project implementation and the sustainability of its achievements\. 8\.02 Project design was consistent with the Bank's policy for rural development projects at that time, though it did not pay enough attention to institution building and it overestimated the project area's long term cotton potential\. More successful institution building would have required greater attention to the long term needs of the central administration\. instead of emphasizing the strengthening of SODECOTON\. Project components of regional planning, project monitoring and evaluation based in MINAGRI and MINPAT were inadequate in this respect\. The meager results of these project components did not last beyond the end of project operations\. The project design followed Bank and government policy in Cameroon at that time of implementing the project through the existing relatively efficient and experienced SODECOTON, rather than using the project for the longer run objective of increasing implementation capacity in the central administration\. While it would have been counter productive not to use SODECOTON's existing capabilities for rural development in the region, in retrospect the project's emphasis was excessively tipped against the needs of the central administration, and institution building in North Cameroon was delayed\. This policy of relying on project authorities for rural development has since been reversed by the Government and the Bank, which has begun more substantial institution building efforts in the MINAGRI, notably through the National Agricultural Extension and Training project, and the earlier Technical Assistance project\. 8\.03 In addition, what was designed to be a rural development project with cotton as the most important crop turned into a cotton project with few substantial non cotton activities\. The SAR overestimated the  - 26 - viability of expanding food crop production, as well as the incentives to farmers to do so\. It overestimated SODECOTON's ability to diversify its activities away from a narrow concern with cotton to the other crops -- sorghum, groundnuts and cowpeas -- associated in the crop rotation\. Maize cultivation turned out not to be practical under prevailing precipitation levels while sorghum and groundnuts production growth was constrained by limited marketing possibilities\. SODECOTON needed to develop experience and technical expertise before it could support these new activities effectively\. During implementation of the project little was done to promote agricultural extension in the non-cotton growing areas\. Although personnel were not removed from MINAGRI's extension service as agreed to during negotiations, its agents never implemented any extension program in the regions left out of SODECOTON's program\. By 1986, the lack of a recurrent expenditure budget in MINAGRI excluded the possibility of any meaningful action on its part\. 8\.04 The financial calculations at appraisal proved to be excessively sanguine regarding the financial viability of SODECOTON\. It is unlikely that SODECOTON can become a profitable parastatal in strictly financial terms, in the near future\. 8\.05 The Appraisal was too optimistic about the likely evolution of the world cotton price\. More serious it did not predict the exchange rate volatility that has characterized the last decade\. The exchange rate used at appraisal of 210 CFAF per US dollar turned out to be just about the highest level for the CPA franc ever, and actually underestimated the SODECOTON's profitability once the dollar began to appreciate\. SODECOTON enjoyed its best years in 1983 and 1984 as a consequence, but its windfall profits were passed on to the farmers through generous producer price increases and the maintenance of input subsidies\. These were imposed by the Government despite SODECOTON's opposition\. SODECOTON also financed an increasingly expensive administrative structure and took on a series of unprofitable rural development activities\. When the dollar peaked and began to decline after 1985 and world cotton prices tumbled simultaneously, SODECOTON accumulated losses\. A recent Caisse Centrale report on SODECOTON suggests that the parastatal would continue to lose money even after major internal reforms and a decrease of the producer price granted farmers to around 100 CFA/kg\. 8\.06 SODECOTON is generally considered one of the most effective public institutions in Cameroon\. It expanded into a number of non cotton activities, often at the behest of international donors like the Bank, because of the deficiencies of the central administration\. Thus, it financed expensive activities such as extension, training, industrial training, village level infrastructure, food crop marketing and road maintenance\. No other public institution was providing these critical public goods for sustained rural development, that were in any event preconditions for SODECOTON's program of cotton intensification\. As a consequence, the major questions posed by this project for the cotton growing areas of the North and Extreme North Provinces are whether SODECOTON is the institution best suited to provide these public goods, and if so, does this justify subsidizing SODECOTON's rural development activities for the foreseable future?  - 27 - 8\.07 Tt is difficult to attach an economic value to SODECOTON's accumulated e\.perience in these areas, but one of basic indicators of the success of a project relates to its replicability to the other two-thirds of non-cotton producing farmers in the region\. Unfortunately, it is not likely that much of the experience gained by SODECOTON in rural development with cotton growing farmers can be readily utilized by the other Government implementing agencies to benefit the majority of non-cotton growing farmers of the North and Extreme-North Provinces\. Financial considerations dictate that SODECOTON will have to concentrate its efforts on cotton and cotton farmers for the forseeable future, and separate plans will have to be made for MINAGRI and associated Government institutions to assist the other two- thirds of the regicn's farmers\.  - 28 - Annex 1 Table 1 Page 1 of 3 Disbursements by Project ComDonenet and Disbursement Category Loan 1919-CM and Credit 1075-CM CateRorY Allocated Disbursed Proiect Conoonent ($000) ($000) Part A (ii) of the Proiect - Provision of extension services\. 3 Ln\. 6,460\.0 6,132\.2 Operating Expenditure of SODECOTON Cr\. 3,092\.1 4,252\.5 and of PCC for Project Tot\. 9,552\.1 10,384\.7 Administration under Parts A (ii) and B of the Project (including local staff salaries)\. 1 Ln\. 3,000\.0 5,349\.4 Civil Works under Part A (ii) of Cr\. 1,486\.8 1,962\.8 the Project Tot\. 4,486\.8 7,312\.2 15 La\. 4,030\.0 3,548\.1 Specialist's Services Cr\. 2,026\.3 1,923\.9 Tot\. 6,056\.3 5,472\.0 2 Ln\. 2,600\.0 955\.2 Vehicles and Equipment under Part Cr\. 1,328\.9 2,284\.3 A (ii) of the Project Tot\. 3,928\.9 3,239\.5 Sub-total Part A (ii) La\. 16,090\.0 15,984\.9 Cr\. 7,934\.1 10,423\.5 Tot\. 24,024\.1 26,408\.4 Part D of the Proiect - Strengthening and support of agricultural research by IlA, and Part E (i} - Strengthening of the Savannnah forest research unit of IRA, 8 La\. 1,200\.0 1,031\.0 Operating Expenditures including Cr\. 605\.3 337\.5 local salaries uncer Parts D and E Tot\. 1,805\.3 1,368\.5 (i) of the Project\. 7 Ln\. 600\.0 937\.5 Civil Works, vehicles and Cr\. 302\.6 500\.6 equipment for Parts D and E (i) of Tot\. 902\.6 1,438\.1 the Project\. Sub-total Parts D and E (i) Ln\. 1,800\.0 1,968\.5 Cr\. 907\.9 838\.1 Tot\. 2,707\.9 2,806\.6  - 29 - Annex 1 Table 1 Page 2 of 3 Parts E (ii) and E Uiii) of the Proiect - Pilot tree plantings and windbreaks to be implemented by FNFP\. 10 Ln\. 400\.0 403\.4 Operating expenditures including Cr\. 210\.5 266\.0 staff salaries under Part E (ii) Tot 610\.5 669\.4 9 Ln\. 500\.0 80\.9 Civil Works, vehicles and Cr\. 276\.3 395\.3 equipment for Parts E (ii) and Tot\. 776\.3 476\.2 (iii) Sub-total Parts D and E La\. 900\.0 484\.3 Cr\. 486\.8 661\.3 Tot\. 1,386\.8 1,145\.6 Part A (iii) of the Proiect - A medium term credit program to finance the provision of draft animals and agricultural equipment to farmers\. 5 Ln\. 930\.0 948\.7 Animals for Part A (iii) Cr\. 460\.5 0\.0 Tot\. 1,390\.5 948\.7 4 Lu\. 1,200\.0 9\.8 Agricultural equipment - Part A Cr\. 592\.1 0\.0 (iii) Tot\. 1,793\.1 9\.8 Sub-total Part A iii) Ln\. 2,130\.0 958\.5 Cr\. 1,052\.6 0\.0 Tot\. 3,182\.6 958\.5 Part F of the Proiect - Strengthening of MINAGRI and Project Monitoring and Evaluation\. 12 Ln\. 570\.0 460\.8 Operating E*penditures, including Cr\. 289\.5 249\.4 local staff salaries, under Part F Tot} *859\.5 710\.2 of the Project\. 11 Ln\. 580\.0 142\.2 Civil Works, vehicles and Cr\. 315\.8 183\.7 equipment under Part F Tot\. 895\.8 325\.9 Sub-total Part F Ln\. 1,150\.0 603\.0 Cr\. 605\.3 433\.1 Tot\. 1,755\.3 1,036\.1  - 30 - Annex 1 Table 1 Page 3 of 3 Part G of the Project \. Development Planning 14 Ln\. 160\.0 186\.4 Operating Expenditures, Cr\. 92\.1 52\.2 including salaries under Tot\. 252\.1 238\.6 Part G 13 Ln\. 200\.0 96\.0 Civil works, vehicles and Cr\. 105\.4 26\.1 equipment Tot\. 305\.4 122\.1 Sub-total Part G Ln\. 360\.0 282\.4 Cr\. 197\.4 78\.3 Tot\. 5S7\.4 360\.7 Part C of the Proiect _ Seed Production 6 Ln\. 130\.0 5\.5 Equipment for Part C Cr\. 65\.8 65\.7 Tot\. 195\.8 71\.2 Continaencies Ln\. 2,440\.0\. 0\.0 Cr\. 1,250\.0 0\.0 Tot\. 3,690\.0 0\.0 TOTAL DISBURSEMENTS Ln\. 25,000\.0 20,287\.2 Cr\. 12,500\.0 12,500\.0 Tot\. 37,500\.0 32,787\.2 - For Credit 1075-CM, the same rate of conversion of SDR 1\.00 - $1\.3158 has beei' uded for the purposes of comparing appraisal estimates with actual disbursements\. Due to strengthening of the US dollar against the SDR over the disbursement period, a US dollar equivalent of US$10\.1 million was disbursed, but since most expenditures were in CFAF or French Francs, the CFAF equivalent was similar to the CFAF 2\.6 billion estimated in the SAR\. 2/ - Annex 1, Table 1 presents the disbursement information for the Credit and the Loan separately, since the detailed data is not readily available elsewhere because the disbursements file for Credit 1075-CM has been misplaced\.  Camarsa Northern Proviso Rural ivel_pset Project: Selete Annual Prodution Indicators 61^/ 12/01 0/64 64/86 "5/ P11 P12 PS P14 PC App\. Lob\. App\. Acb\. App\. Ach\. Ap\. Lch\. App\. Ach\. I\. Pasr pased l\.t rjet ('lo) 1/ 16 181 148 arealdast 1i U 8 as Naom,\.uwthCott" so 77 n2 7 92 Oa-dras withCoett" 16 17\.5 19 2\.6 22 tot settee 95 94 114\.6 so U1 IIJ 142\.5 i6 16S 1i U1\. Area Unr Citivatleo ('M lb) a\. seteeo traditisal 21 8\.6 6\.1 2\.6 7\.1 2\.0 5\.6 2\.6 5\.6 2\.0 4\.7 Cott" to4al Iteasivo U6\.6 89\.6 66\.6 26\.6 09\.6 41\.1 64\.0 40\.1 66\.0 47\.6 Total Cetten 54\.2 45\.0 68\.6 85\.4 62\.6 46\.9 00\.6 46\.6 76\.O 62\.6 b\. ied orm (et iee\.) Ia Sote loe wIth Cetdt 22\.2 16\.4 * \.6 27\.5 86\.7 16\.9 46\.6 24\.6 U2\.7 In letetlee wlith Croeedmt 2\.2 5/ 7\.6 12\. 190\.3 2\.8 TOtal Sorgbh 24\.4 16\.4 57\.1 27\.5 11\.5 16\.9 66\.5 24\.6 79\.0 25\.0 c\. lbenro" eved Orawa e 2\.2 19\.6 27\.5 23\.6 29\.5 Isteaslfifed Groomig" 1, 6\.4 2 6\.6 8 6\.6 7\.4 1\.8 1i 1\.5 ToteS Or osw st 8\.2 0\.4 21\.1 6\.6 66\.6 6\.6 3 1\.5 59\.5 d\. Improwe 1Iba 0\.7 6\.4 1\.5 4/ 2\.6 8\.3 w III\. iProdiactios '6 Seed Cott"\. 65\.9 62\.6 65\.1 4J\.9 76\.8 66\.6 76\.6 54\.4 S2\.8 6\.6 ixe, 1\.8 0\.4 2\.6 0\.6 4\.2 4/ 0\.4 6\.6 IV\. Asime_ Trestle ('_ Tote 1xistIag 16 18\.9 17\.5 14\.4 10 18\.4 2U\.S 15\.5? 22 16 PaIrs Of trOe *xeA - - - 6\.05 - 6\.214 - 6\.488 - \.609 Pairs of traleed fow\. total 16 18\.9 17\.5 14\.4 10 18\.6 26\.6 15\.6 22 16\.69 total wO"Is deo"ps 1\.5 2\.6 1\.6 2\.? 1\.9 2\.06 2\.2 X\.7? 2\.5 3\.97 There are umepleiloe slight differemoes to totals betsweena SODECOTOanI reports cnd Supervision reports atotals lis* I Supvleol\. reports\. Rne used figures from latter, ecept for 1886/1 yer 1/\. Accordng to ses as crap\. 21\. Supsviis report\. ree to 'nprove tdi)tioal'\. 5/\. PIgmaros net reported by SCDECOTO PU ws supposed to report thm but nevr did\. 4/\. ProJect act deold x  See Cotton Prodwtise, Acreg and Yields, Caesroon: 107s-1m Tl 862C016N : Extreme North Pronce a Nort ProvIn am Cse\.r-Wlrt& year Sfla Prodctlo Yields: Surface Produ)om Yields: Surf* ProoducION Yields: Surtae Production Yields: ,(In lb\.) (tee) No/be :(t He\.) (tees) o/he s:(n lb\.) (toes) Kg/ha :(In sl\.) (ton) Kg/ae 1190/26 1581Sr64U 9188 4 *44f WM 7sm 27 a 27584 238 749 : 90441 625 In8 1076/171 16666 U8o*So4 70s t74544 s6m 8 * 27511 1101t 48U a *9142 sU8K2 87M 1071/1072 46sow 48197 48 6 71917 21918 891 s 27 @ 1ism4 Us : MOI5 87857 416 : U7108/11 P 9079 4523 51? 02t69 2854 458 a 26 107m6 SW9 t 7416 877 495 108/127t4 01S70 17687 466 a 8SO21 1168i1 S 2 n86s 15376 748 * 56327 70 84 : 1274/1273 04432 4002 022 a 42012 21156 472 no m 127 9QC 58191 2740 ' s64 107Lv10 mn78170 48461 070 : 2877 25074 464 t 2GM1 24146 1160 : 01044 8a96m 5o l 12o970077 _908s 477 727 : 42816 25916 612 t 17615 216s 1241 : 4915 82684 664 : 1277/3078 48486 4686 9867 a 88865 36i2 64 t 14J1 1776 1217 : 823 2721 096 108/1909 4718U 56427 1202 s 81789 8566 116 a 1u 28O44 18 : 85688 41156 1158 108/106 i@5694 mm8 1419 8 $6846 46789 1219: 19749 880m 17M1 : 42085 : 1966/191 6646U" 844o8 1298 s 42287 45467 175 a 2865 8*960 1092 : 1061/1162o 08848 70619 1168 a 89867 42466 170w 2970 7158 1C55 : 4636 520M 1146: 1961/1268 540 726 15 195 822 16 24764 4J111 16 864K 4891 1165: 1808/1984 73992 4566 1886 a7 9 8o5 41907 164 a SI6 SM 18 406 60 118: 16/1 7 073* 186 8M n4 1 1 876 0171 1640 48 6_ 1111 196soo966 66282 116544 16 42411 4179 114 s 401 67420 1441: 621 _9 1148 a 1@06/3187 4469 1 U_11011 18a 45110 4 J I76 I 4Y58 s 466U 6 10 s 65100 540 SW s sobEelm ~ ~ ~ ~ a * a $00root SOKC91011 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~o w  Cameoon Seed Cotton soz - 10 - uvwo 9 73474 ^ Se x o3 Totd+ Fw Nort Not  CAMERM #01FITHE-N RIPAL De NW WFRO eT - RR ECIIC RTE OF 1E83 W - OM6 CASE *4LYS\.S increemntol Production table aedecoton ttl ic r* nrpjt poet fixi pr ctopion soo sltareo * e tf *itm *rJ *ilmt pr withow1bf r; *Il rhoj sifA, project -ith projet project isar\. _as _" r"to conr-nrAb total orodi f;S cam :0 1*14 (tam g prod\.o (WMe ~naduct4t9 prod\. (twon CP4bi Iion ton twoCMbllo 1"\.0/01 wt " e&;))t tl-t < C ren 'i; ° OD A\. i\.04 7n619\.0 0 0\.00 0\.00 0 00n 19311 4~~44\.0 a ::: 00 00 0\.000\. 1001 44010\.00 1\.04 41041\.00 45900\.00 1\.U i 9601\.40 675\.40 0\.04 72851\.00 S\.O 0\.09 078 am 0M\.00 1\.01 8664\.80 85410\.00 1\.U1 4066\.00 69:9\.20 6\.04 946\.00 68\.S 0 0\.06 0\.48 i99 440000\.0 0\.97 416\.400 46900\.00 1\.18 892w7\.00 wa,\.00 8\.04 97600\.00 102\.00 0\.10 0\.04 1aid 4400\.00 0\.94 4111\.00 410100\.0, 1\.1 4996\.00 77\.00 0\.04 111544\.00 6767\.01 0\.06 0\.61 m 441-000\.00 0\.0 8O0\.00 _ 0\.00 1\.14 6 \.60 SOW\.8o 6\.12 1108-000 204o\.8o 0\.19 1\.60 SW uoo\.oo O\." 2"o\.oo 4211\.0 1\.15 606178\.00 SW 7\.00 7\.38 12110600000 90775\.00 0\.19 1\.85 137 44100\.00 0\._0 6 9600\.0 8519\.00 1\.15 656\.O 956\.00 6\.90 1106100-00 38\.c00 0\.2 1\.49 am0 46010\.00, 0\.90 8SO00\.0 604695\.00' 1\.40 90418\.00 8067500 6\.87 11000r \.00 JIM \.400 0\.46 8\.08 193 46010\.00 0\.00 6 0\.00 60000\.00 1\.0 790\.00 59600\.00 6\.97 110600\.00 524C0\.00 0\.20 1\.64 1lo0 4400\.00 0\."0 66190\.0 6000\.00 1\.90 79000\.040 8491010\.00 6\.27 110100\.0 59400\.00 0\.29 1\.54 $10M WO A IOcveMtel PeP0elk 0e I *t 52\.400 tone, 4o reflect on\. bad Fear ir four rdflct me bad yer in fou ECOSIONIC COST PiCt K0 OF PlEO PROJECT ECONOMIC COSTS (BILLION CFA) _adegeton dsoeo ferm laIor _ cme roductio \.odemton endecoto fate Iabor tota werible emet fied eme lpoe pe" kg fibre garble ael flid me lapte oi Afbre WaseOl billio nCPA bi IIont bA hill;onCF biI\. CfA birl ion CFA 1460/61 SIC900 178\.00 61\.0111 1\.00 661\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1461 91\.0O 178\.00 6\.00 111\.00 651\.00 701\.85 0\.65 0\.78 0\.10 0\.99 1\.77 Am m11o\.00, 178\.00 6\.00 10\.00 8l\.5100 9195\.66 0\.42 0\.4 0\.14 0\.28 1\.25 m 99\.00, 1178\.00 61\.00 101\.0eo 81\.00 409\.60 0\.8 0\.6u 0\.97 0\.44 2\.11 16" 9561\.00 178\.00 66\.00 101\.00 851\.00 850-\.1o 0\.n 0\.61 0\.92 0\.85 1\.98 am9 11111\.o1 176\.00 6\.00 11611\.00 651\.00 6165\.0 I\.651 1\.80 0\.54 0\.66 4\.87 t° W\.0 t \.0 1101\.0 5\.o an00 8810\.00 1\.5 1\.85 0\.44 0\.O 4\. 2 1sm 100\. 1\.613\.00 46\.0 140:\.00 445\.:00 9S518\.0 1\.11\.490 0\.:40 1\.06 4\.611 sm 11\.61 146B\.00 4\.00 106\.00 412\.00 20915\.00 2\.77 8\.06 u\.n 2\.20 6\.8 146 21185\.00 199\.0 45\.00 1016\.00 418\.00 199610\.00 1\.76 1\.164 0\.54 1\.40 58 am9 au\.o0 11811\.01 45\.00 11111\.00 40\.4\.0 199610\.00 1\.78 1\.84 0\.86 1\.40 5\.85 b4enf "O I 0t incrumntel _,enue per BbI of fibre CPA bill lop Cotm projec Investment production lcaeenntel em reenue incA, uec$ts t of n"/S cfeA net , meotrtonFw _ Inrt reree billion as -a wr he i~p1\. UIS C\. billim teO (CFA r kg) 1l63/61 185\.00 170\.95 t126\.00 SP -164 0\.00, 0\.C0 0\.00 0\.00 67\.49 0\.00 1461 186\.0O 14\.110 95 1\.0 a7 -154 4\.41 9\.40 0\.76 91\.85 8\.44 1\.07 am a11\.o0 170\.90 mO\. M 11 0\.02 7\.9o 9\.41 S6\." li 11\.4 1\.18 am m\.oo 168\.46 410 as M 0\.51 6\.70 1\.78 40911\.60 675\.19 2\.74 1464 S11\.01 211\.44 471\.00 M 21 0\.0r 6\.80 9\.9 8506\.0 571\.4 2\.01 am au1\.eO u\.S2 S\.PA W7 -174 -1\.42 6\.*0 2\.66 6160\.00 817\.40 0\.00 1466 164\.8 166\. \.481\.SH 4Ot -Ot 4\.009 7\.00 9\.C5 8\.01 0\.00 461\.81 4\.00 193 1410\.00 19\.3 912\.00 we -UT -1\.11 9\.70 0\.79 66\.15\.9 876\.10 8\.60 am us\.oi 18\.16 N\.00 do -a 4\.46 960=\.00 4019\.46 -\.1 LO 1009 163\.00 184\.66 86\.00 641 196 1\.68 190111\.06 84\.66 7\.01 100 1\.00 111110\.01 a" SW 1\.78 1966\.00 540\."6 7\.01 net \. et Ret IVe" P"Mject 500011 totel TOt\. Pood crnp Food cr\. Co4tt" rod few d EJp net Iaioemte PRead onete cmet Not benefit\. benefi to Va\. ~ boneelt\. e ben benFi\. enfit\. CPA bWllio CPA bilIlion CP ~blIIion benefit roedued reduced CPA io bi$a m aIIton P 6 I bilio CF billion CFAbi IISon byU bpSO 1960/61 1461 0:00 o0\.00 0\.00 0\.00 0\.00100 0\.00 0\.00 lift \.00 0\.00 ~~0\.06 0\.78 0\.78 1\.58 -1\.46 -1\.48 -1\.46 low 0\.319 0\.00 0\.8911 2\.41 0\.45 9\.85 -2\.47 -2\.47 -2\.47 am 1\.90 0\.24 O\.80 2\.8l 2\.78 0\.6 3\."5 -1\.2 -1\.45 -1\.67 seat o\. " 0\.24 0\.00 4\.411 2\.7 0\." 16\.51 -1\.75 -1\.97 -2\.91X am O\.a" e\. 0\.46 1\.18 9\.6 1\.11 4\.18 -2\.tO -8\.95 -8\.48 193 1\.10 0\.94 0\.46 9\.96 \.2\.9 1\.68 8\.69 -1\.38 -1\.00 -1\.88 SW 0\.44 0\.94 0\.03 1\.66 0\.79 1\.49 9\.95 40\.70 40\.98 -1\. is sm a\.4 0\.94 0\.00 5\.8 J1\.010 8\.06 0\.60 0\.36 0\.1is 1Ion S\.83 0\.94 0\.60 4\.45 1\.54 1\.64 9\.60 2\.85 9\.15 1110 S\.AO 0\.94 0\.40 4\.45 1\.96 1\.64 9\.00 2\.8511 2\.18 *1 4\.8D 0\.94 0\.00 4\.40 1\." 1\.14 2\.00 2\.J3 2\.15 1099 6\.60 0\.94 0\.90 4\.45 1\.64 1\.64 2\.60 9\.38 2\.1is 1901 8\.85 0\.94 0\.00 4\.45 1\.64 1\.64 2\.00 2\.35 2\.15 1le6 6\.10 0\.94 0\.90 4\.45 1\.54 1\.64 2\.60 2\.85 2\.15 lmw 8\.30 0\.9 0\.46 4\.45 1\.6 1\.64 2\.60 2\.38 2\.15 iom 811\.9101 0\.94 0\.00 4\.45 1\.64 1\.04 2\.0 2\.85 2\.28 107 81\.801 0\.94 0\.90 4\.45 1\."4 1\.64 2\.60 2\.85 2\.15 low S\.SO 0\.94 0\.00 4\.45 1\.64 1\.84 2\.60 2\.85 2\.15 1t" 6\.60 0\.94 0\.90 4\.45 11\.44 1\.68 2\.00 2\.16 2\.1is 17\.99 gene Ce\. Aeelple - With Project Amea * 0\.000 be\. end Incremental cotto productio a 59\.400 tone\. (pile 0919411\.ebl) NVev 606 -0\.276 -1\.00 -2\.916 M 0\.098 0\.076 0\.0642  CuM N- MUAL oevAouer ioi - II GSMC RAT9 OF 1ER5 Wm - MSITT AL751 eadecotom total itcc, \.rodn sner 9rjct proj*CV6~ locrementl P1rodoction Tablo fixed produclic\. seed cotton a,odn as U shoa\., of Withot C, ile wis rj Wib rl Wthpels Wilb projoe project nro J camt " ncot\. centr*o-a 'l trstan prnodn timsod cots , Joo , ~~~~~~~~V*odmJ6 or" -awe) yi ld { t6t\.s proda (tms pr o (o CFAbillii9 twome CIFA bAtio i 4418° °O 0 41gW OO 4UDDa 0 "l1?"\.9D 8\.04 79610\.00 0\.0D 8:o 00 0 1d440Co\. O\.4 46 \.00 50\.OD 1\.15 5201\.460 711?6D\.410 IIA 721\.O0 576\.40 0 09 a 75 1412 $40\.00 1\.01 a"6?\.00 81114010\.00 1\.14 40667\.00 281011\.2011 0\.06 94560\.0-00 2100 0\.4" Is" 44000\.00 0\.907 4 \.00 40o\.00 1\.18 61097\.00 l1m1\.s 3\.04 9750I\.00 30229\.00 O 190 14 1"6 440O10\.00 0\.O4 411\.001 46D00\.00 1\.11 409W5\.00 067\.OD 0\.06 115644\.00 71\.00 0 61 1 C 44000\.00 0\.40 C 0 0\.00 F60\.00 3\.14 60007\.50 2F01*0 0\.12 110600\.00 20407\.50 0 19 I so 11 44000\.00 0\.00 800\.00 62\.O00 1\.15 610\.00 20771\.00 7\.85 10 20775\.00 0 le 1 30 Iv 440400\. 100 0\."0 9\.600\.00 15120\.00 \.O 6 0\.00 2\.0 4\. o 110200\. M 022 4 4 If" X 00 \.00 0 \.40 NN\.S\.too40 * 047150\. 1005\.00 0\.57 110600\.00 675\.00 04" 303 0 40100 0\.00 8 I0 0\.00 100\.00 4\.0D 5D\.O 1\.10 *\.27 11000\.00 200\.00 0 IS I IS im 4100\.01, 09\. O\.0 SM\.011 OW01 sm0 0\.37 110600\.0 2040\.00 0\.1 I 115 NM;3 We aeam IrArmamtel leePob4lOm I sIs O% Wed40 tmom\. to rafSec% me0 ba yewr a four reflect one bed moor on too\. icosioewc COST a iG plan o*u a 0 PUo aEc sECOwowtC COSTS (BILL ION C FA ) oeodeot= godeo6m farm labor agat crodwlliom eadIactm Todecotm fare labor total earblOe oGM% flied mat lopote Bog6 fibre warble coat fiened MAt trotlscst 1ibr was 0 Im $&twCFA billionCA hillB CF billion CFA 6iCin a i CFA 1,6001 202\.s0 ITS500 0\.01 1\.00 601\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 ,1101, 1102:00 175\.00 99,00 10\.00 161\.00 270\.66 0\.6\.75 0\.16 0\.29 1\.17 sin SM\.0 150 66\.00 111\.00 551\.0 26\.6 0\.42 0\.45 0\.14 0\.21 1\.23 am0 26\.00 175\.00 66\.d0 10\.00 5611\.00 4001\.60 0\."6 0\.2\.7 0\.44 2\.30 1104 20\. 1\.0 0 99\.00 106\. 00 111\.00 6600\.60 0\.71 0: 0\.21 0\.10 1\.93 Sim6 02\.00 1751\.00 66\.60 110116:0 51:100 #13OOI04 \.0 0\.34 0\.66 4\.57, 1107 o\. " us\. \." \." l m\.m *s\.U 29-10- 1*0 SU* °f 111100 MAD8 20000 , \.u *\.0 u 2\.2t \.U1 WAS§" 31911\.011, a go gSS as 4U15\.00 " 001\.1 1\.1511 0\.64 0\.60 8\.40 1910 18\.00 110\.00 40\.00 11010\. 404\.00 6160\.0 1\.10 1\.14 O\." 85* 8\.41 REVENUES PEAI K I LO bemefits nrmna Rawemum wr ki lo of fibr CFA bUll\.m "NAT DWO1IiT wrodctios Incremental AO" eoIItO 411011 GIs^w - - "kg Cott" IPbilroaentn l*n, r beus "'DIAN ne"Al VWetF *a 9 D R\. ffllc i lA b Iiotome 000 (CPA pool 0o0) 115\.00 170\.20 210~~~\.00 -w -3 0\.00 0\.00 0\.00 0\.00i 857\.42 0\.00 sin0 110 10\.00 14\.=0 110\.011 86?-w 4\.41 1\.00 0\.76 2701\.36 897\.44 1\.07 Iam Iuse 170\.2 16\.03 s1 :\.00 7\.40 1\.43 200\.6 56\.6 1\.10 INS 179\.00 0\.00 00D 0So 14 0\.51 0\.70 21\.7 4051\.602 675\.11 2\.76 1164 10\.40 11\.4 411\.00 57 1 0\.07 6\.80 1\.97 6306\.00 571\.00 2\.01 INS 31001\.001 91a 15111\.00 W -174 \.1\.411 0\.00 2\.4111 01683\.00 877\.40 3\.00 1466 184\.00 1:\.0 8119\.0118 4n -\.19 7\.40 2\.21011 610\.00 401\.51 4\.00 \. 11117 140\.00 12\.6 20\.07 -117 -1\.1I 1\.70 0\.9O61\.M Va4\.10a 3 M0 som 140\.00 to\.1 800\.00 406 -141 64\.10 2060\.00 400\.40 0\.81I 1000 ' 16\.0 184\.6 86\.d0 5411 120 1\.00 0100\.00 5140\.961 4 41 1100 165\.00 63\.00 541 W8 1\.3It 0100\.00 540\.96 4 41 eat e ma" Beat\. eabtatel 6inrim total Total Food crow Food crop Seatson red tfaw aroeam Foe i rjc loed oat, not, bonfita beef ito VW0 Iea o be o 15s S esit ot bne t eue , reduced bog UAbIllIemUAbllBlom~~~AblBli\.5 CA bII Ion CGA IIBBi\. CGA biBI Io GFAOIbiio GFA belIIeon Sprerent SO percent CPA U II Io0\.00 VI 0\.0 0\.00 0 II\.0\.00 \.000\.0 000 0\.00 0 0s 141 \.0 0\.0 0 0\.00 0\.0'\.s 1\.60 -'1\.40 -1\.40 \.1 40 106 \.9 0\.00 0\.99 2\.4 04112\.6 -2\.47 -2\.47 -2\.47 am 1\.201 0\.16 0\.00 1\.SF 1\.75 0\.04 8\.00 -1\." -1\.45 \.1 67 1O4 \." 0\.14 0\.00 1\."0 1\.07 0\.01 8\.0-1\.75 -1\.07 \.2\.20 Gm \." 0\.214 0\.60 1\.18 1\.06 1\.60 41\.181 -2 90 -8\.20 \.3 43 1m to 0\.34 0\.00 1\.16 1\.23 1\.66 5\.62 -1\.39 -l 60 -1\.65 G17 \." 0\.34 0\.00 1\."001 1\.40 2\.6111 40\.70 4003 -1\.15 1100 1\.40 0\.16 0\.00 5\.60 81\.011 01\.08 0\.60 0\.50 0\.15 1at0 2\.00 0\.14 0\.00 8\.20 1\.10 1\.16 2305 1\.64 1\.31 1MG 2\.00 0\.24 0\.00 0\.20 1\.1s62 146 2\.011 1\.54 1\.61 11101 1\.00 0\.34 0\.00 8\.20 \. \.Is20I\.1-11 9111,2 2\.00 0\.34 0\.00 \.0u 1\.10 3\.10 2\.05 1\.04 1\.61 : 1le" 2\.00 0\.24 0\.00 01\.21 1\.10 1\.16s 2\.06 1\.04 1\.61 114 \.06 0\.24 0\.00 0\.40 1\.16 1\.16 2\.06 1\.04 1\.1I 115 \.00 0\.16 0\.0 11\.21 1\.164 11\.161 2\.06 1\.04 1\.61 ~ 106 2\.00 0\.16 0\.00 0\.20 1\.30 1\.1as 2\.00 3\.54 3\.5 III 110711 1\.00 0\.16 0\.00 8\.20 1\.16 1\.20s 2\.06 1\.64 1 SI 1100 2\.010 0\.16 0\.00 8\.20 1\.10s 1\.16 2\.06 1\.04 1 01 I4 0" to bfA sBA\.alasi - With\. Project Area e 60 000 Is med inreena celtom produallom a 20\.400 bose\. FiPle l&Ociea\.ebl) WV mg6 5 -1\.168 -3\.124 -4\.400 EU 0\.0102 0\.0411 0 0am  MALI 22~ \. -~ t I / ~~N I G E R /- ,d, c~ - 4 ;t 5ZJU rh t~Y~C~S SUDAN SLIRKA / usc H A D t\. FASOi\ , NIGERIA r '> _I gio~ />v, i CENTRAL AFRICAN 1 ~~"~' -' REPUBLIC ~ CAMEROON \ I r : G yf S @ \ N S j KILOMETERS 2, 40 K0 50 1e 0 120 140 160 eLOGONE- EOIa OA \. MILES 0 20 40 60 go 100 \.Of THE 1 ATANrAc oCEAN GABON t"cNO ZAIRE )I- ^jt ~~~~~~~~~~~~AMAn~ j g t; ,\. N I G E R A S A CAMEROON iM-AYO- DI roAwE REGIONS AND MAIN CROPS MAJOR EXPORT CROPS BY PROVINCE: ID* Arabicr Crafrt ee 'LOU i) -\.Arbi C \.ff _C\. R\.bust Coffe\. Cotton OTHER MAIN CROPS: PLANTAIN CASSAVA EANSC H A D MILLET TARO YAMS MAIZE RICE GROUNDNUIS * National Copital % N C; • Province Capitals O Division Capitals M I L Rivers , -Dwivisin Boundaries MV-E - Pravince Bounrjaies,E ,_ MILLET \ - - Intesnational Boundories FARO-E- DTEC/_ 0 N I G E R I A +tSV/ W-N MAt E r\DO @EEtNGA N R 8' \. 9NYU MOMO MEAM BEANS 0 t U~~~~~~~~~~O Au , YO MILLET~ Z N0j4 ( EME CASAAf sCv OMf-DEf CASSA 4_; , cP,'/t YAMi 9 S o;CBN RM Y AMSTRA ' EsQUATORIA \. LANTAFN SSAVA ,J, T iNULAR GU*RIN4 iti cA MC OO< ° \. i A TtC' , /GROUNDNUtS 5DA SAVA 0¢e v 7 5 5 ASVA SAVA SSA > mg Yr / (CONTIENTAL GUINAA]S N!R E 2 O F T H E CO N GO si oo~~ ~ ~ ~~~~ ~ ~ ~~~~~~~~~ I' §v GA-i I ! \. \.1 IS !E V{ h_ s l;r / / M * tMt E MA'''EtE

APPROVAL

P172031

 The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 07-May-2021 | Report No: PIDA29305 Mar 01, 2021 Page 1 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Somalia P172031 Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA EAST 22-Mar-2021 29-Jun-2021 Health, Nutrition & Population Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Federal Ministry of Finance Federal Ministry of Health Proposed Development Objective(s) The Project Development Objective (PDO) is to improve the coverage of essential health and nutrition services in project areas and strengthen stewardship capacity of Ministries of Health\. Components Component 1: Expanding the coverage of high-impact health and nutrition services in select geographic areas Component 2: Strengthening Government’s stewardship to enhance service delivery Component 3: Project Management and Knowledge Management and Learning Component 4: Contingency Emergency Response Component (CERC) Project Activities in Somaliland (Details TBD) PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 100\.00 Total Financing 100\.00 of which IBRD/IDA 75\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing Mar 01, 2021 Page 2 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) International Development Association (IDA) 75\.00 IDA Grant 75\.00 Non-World Bank Group Financing Trust Funds 25\.00 Global Financing Facility 25\.00 Environmental and Social Risk Classification Substantial Decision The review did authorize the team to appraise and negotiate B\. Introduction and Context Country Context 1\. Somalia has experienced prolonged conflict beginning with the ouster of the Siad Barre regime in 1991 and is among the poorest countries in the world, with a per capita Gross Domestic Product (GDP, nominal) of US$ $335 in 2020\.1 An estimated 69 percent of the Somali population live in poverty (below US$1\.90 per day, 2018 estimate)\.2 While there is no recent census data, Somalia’s total population is estimated to be 15\.4 million\.3 Substantial population growth, compounded by a high fertility rate of 6\.9 births per woman (2019)4 has resulted in a young population, with 66 percent of the population under 19 years of age\.5 Youth unemployment is high and educational attainment limited, with only 16 percent of the population completing primary school and 7 percent completing secondary school\.6 Gender disparities in Somalia are also among the worst in the world, characterized by limited access to formal education, high rates of gender-based violence (GBV), as well as a nearly universal prevalence of 99\.2 percent for female genital mutilation (FGM)\. The impacts on human capital, as well as health and well-being, are severe and present a significant barrier to development\. 2\. Somalia is transitioning towards increased stability through institutional and political reforms, which began with the adoption of a provisional constitution and a Federal Government in 2012\. The federal system established under the 2012 provisional constitution carved out four new Federal Member States (FMS), resulting in a total of six states under the Federal Government of Somalia (FGS)\.7 In the transition to greater political stability, the Government has improved financial transparency and institutional structures through the adoption of reforms and improved governance\. In March 2020, Somalia achieved the HIPC milestone, reopening access to regular concessional financing from the International Development Association (IDA) and other International 1 World Economic Outlook, 2020\. 2 Somalia Economic Update, 2020\. 3 United Nations, Department of Economic and Social Affairs, Population Division (2019)\. World Population Prospects 2019 4 SHDS, 2020 5 Somalia Health and Demographic Survey (SHDS), 2020 6 Somalia CPF, 2018 7 New FMS are: Galmudug, Hirshabelle, Jubbaland, and South-West State (SWS)\. Existing areas that became States include: Puntland and Somaliland (the latter considers itself independent from Somalia, but is not recognized as such)\. Mar 01, 2021 Page 3 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) Financing Institutions, along with investments in private capital, including those from the International Finance Corporation (IFC)\. However, an active armed insurgency, unresolved constitutional issues, weak service delivery capacity, fiscal capacity constraints, and continual humanitarian crises remain\. Somaliland, with a population of approximately 3\.5 million, declared independence from Somalia following the 1991 Somali Civil War\. Somaliland’s relationship with the FGS remains politically complex\. 3\. Somalia’s recurrent natural disasters, conflict, and associated disruptions of economic activity hamper development efforts\. The country faced the impact of crippling droughts from 2016 to 2017 and again in 2019, together with protracted and ongoing armed conflicts, resulting in the internal displacement of more than 2\.6 million people and widespread hunger\. Cyclical floods and droughts are increasingly common features and their co-existence poses a substantial hazard\. With most Somalis dependent on agriculture (primarily livestock) and forestry, continued climate and conflict challenges destabilize daily life\. The interlinkages between climate and environmental change, cyclical drought, poverty, fragility, severe food insecurity, and protracted conflict are arguably more pronounced in Somalia than in most countries\. In late 2019 and 2020, the country faced severe floods and a desert locust infestation\. Somalia’s annual economic growth rate was approximately 2\.8 percent between 2016 and 2020, but due to the COVID-19 pandemic and associated economic disruptions, the economy is estimated to have contracted by 1\.5 percent in 2020\. The economy is highly dependent on foreign remittances, which are estimated to make up 31\.2 percent of the country’s GDP (2020), with less access to remittances among rural and poor populations\. Fiscal capacity remains low, with a government expenditure to GDP ratio of 12\.4 percent (2020), underlined by nascent tax mobilization systems with a tax-to-GDP ratio of 2\.5 percent (2020), which further constrains service delivery\.8 Sectoral and Institutional Context 4\. Somalia’s lagging health outcomes reflect the country’s insecurity, vulnerability, and deep -rooted poverty, limiting access to basic social services, including education and health\. Somalia’s health indicators remain among the worst in the world, with an average life expectancy of 56 years\. Service delivery indicators are low nationwide and estimated at 0\.23 outpatient visits per person per year and 0\.81 hospital discharges per one hundred people per year (SARA, 2016)\. Due to a combination of health service supply and demand challenges, only 32 percent of births are attended by skilled personnel, 31 percent of women receive at least one antenatal care (ANC) visit nationwide, and only 11 percent of children are fully immunized nationally\.9 The 2009 Essential Package of Health Services (EPHS)10, which started implementation in 2013, does not reach the entire population\. According to 2017 WHO figures, approximately 47 out of 89 districts (5\.7 million people) were covered by part of the EPHS, representing 41 percent of the population\. However, following the closure of the JHNP after the end of UK Foreign, Commonwealth and Development Office’s (FCDO; previously DFID) financing, the previously coordinated EPHS implementation became fragmented, with partial geographic coverage and varying package components supported by different funding partners\. In additional, there are gaps in essential inputs including health workers, essential medicines, and medical equipment, particularly in public facilities\. The availability of 8 World Bank, (2020)\. Somalia Economic Update, June 2020: Impact of COVID-19-Policies to Manage the Crisis and Strengthen Economic Recovery 9 SHDS, 2020; Skilled personnel: nurse, midwife, auxiliary midwife, clinical officer, or doctor\. 10 The 2009 EPHS is comprised of core and additional programs\. The EPHS 2009 six core programs were: Maternal, reproductive and neonatal health; Child health; Communicable disease surveillance and control, including WASH promotion; First aid and care of critically ill and injured; Treatment of common illness; and HIV, STIs and TB\. The four additional programs are: Management of chronic disease and other diseases, care of the elderly and palliative care; Mental health and mental disability; Dental health; and Eye health\. Compared to the 2003 BPHS prepared in Afghanistan, the Somalia EPHS was much broader and subsequently required more resources to implement\. Mar 01, 2021 Page 4 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) qualified medical staff is predictably concentrated in urban areas, with rural areas facing more pronounced recruitment and retention challenges\. In addition, the spread of COVID-19 across Somalia has further constrained the already fragile health system, diverted limited available resources towards COVID-19\. 5\. The private sector is an important health service provider, with at least 60 percent of health services and 70 percent of the country’s medicines estimated to be delivered by the private sector\. However, it is also largely unregulated with many unqualified individuals believed to be providing health services, particularly in private facilities\. Supply chain management for health is challenged by the volatile security environment, poor infrastructure, human resource shortages and low capacity, limited access to supervision and monitoring, and a lack of functional, integrated sector-wide information management systems\. Additionally, socio-cultural factors, like clan structures and who has decision-making responsibility within the household, play a significant role in the health seeking behaviors and status of women in Somalia\. 6\. Service delivery challenges are also underpinned by very limited financing for health in Somalia\. Real per capita expenditure on health is approximately US$13 per person per year (2019), far below Sub-Saharan Africa’s average of US$204 (2019)\. Government expenditure on health as a percentage of per capita health expenditure is 15 percent (2019)\. Consequently, out-of-pocket payments (OOP) as a percentage of per capita health expenditure in Somalia are high at 46 percent\. Average annual household OOP on health is estimated at US$6 per capita out of a total of US$13 (2019) and varies substantially between the richest quintile and the poorest quintile, indicating that households are accessing healthcare services based on the ability to pay instead of their healthcare needs, resulting in health inequities\.11 Donor financing is an important source of health expenditure, comprising 38 percent of per capita expenditure (2019) and much of this is off-treasury\.12 The high proportion of off-treasury donor resources has limited the Government’s involvement in many aspects of health sector programming, constraining the ability to increase efficiency in spending and Government leadership in the sector\. 7\. Somalia’s FMoH is nascent and at the early stages of building capacity to manage health services, including contract management\. The Government‘s role in health service delivery is limited, with most services delivered by NGOs financed by partners\. Approximately 25 percent of the FMoH’s over 500 employees are civil servants; the remainder are donor financed and are primarily contracted on a short-term basis\. Weak financial control systems were highlighted by an Auditor General’s Office report, indicating governance challenges within the FMoH\. The four emerging Federal Member States (FMS) which make up Somalia’s former South Central Zone (Hirshabelle, Galmudug, South-West, and Jubbaland), have even more nascent ministerial structures and limited capacity, with few resources on-treasury, low budget execution rates, and few to no civil servants\. These states are also highly dependent on partners to provide stewardship for service delivery, with varying degrees of health policies and procedures in place and implementation capacity\. The current Government has demonstrated a commitment to anti-corruption, as evidenced by the passage of anti-corruption legislation in September 2019 and continues to work toward establishing transparent and credible government systems\. 8\. Somalia became a Global Financing Facility (GFF) country in 2019, an important step towards reducing health sector fragmentation, improving partner alignment, and strengthening the Government’s stewardship role, which will be further supported by the Project\. Somalia is currently developing an Investment Case (IC) to improve health outcomes by enhancing health service coverage and quality, developing Government stewardship 11Micah, A\. E\., Su, Y\., Bachmeier, S\. D\., Chapin, A\., Cogswell, I\. E\., Crosby, S\. W\., Moitra, M\. (2020)\. Health sector spending and spending on HIV/AIDS, tuberculosis, and malaria, and development assistance for health: progress towards Sustainable Development Goal 3\. The Lancet\. 12 Same as #11 Mar 01, 2021 Page 5 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) capacity, and mapping resources available in the health sector to improve partner alignment and reduce health sector fragmentation\. C\. Proposed Development Objective(s) Development Objective(s) (From PAD) 9\. The Project Development Objective (PDO) is to improve the coverage of essential health and nutrition services in project areas and strengthen stewardship capacity of Ministries of Health\. Key Results 10\. The progress towards the above PDO will be assessed by the following set of PDO-level indicators as well as intermediate results indicators (IRIs) in the Project’s Results Framework\. To monitor progress in areas with World Bank supported service delivery, individual progress for each target region and population-weighted averages for all target regions and will be used: • Percentage of births attended by skilled health personnel in a health facility (Component 1) • Percentage of children between 6-59 months old receiving Vitamin A supplementation (Component 1) • Percentage of children under one year of age receiving Pentavalent 3 (Component 1) • Percentage of women of childbearing age using modern contraceptives (Component 1) • Percentage of contracted service providers paid on time (within 45 days of receipt of reports and invoices) (Component 2) • Percentage of Government health facilities that submit timely and complete HMIS reports by the 15th of the following month (Component 2) D\. Project Description 11\. The total proposed financing envelope for the Project is US$100 million ( US$75 million - IDA; US$25 million – GFF Trust Fund)\. The Project has four components: (1) Expanding the coverage of high-impact health and nutrition services in selected areas; (2) Strengthening MOHs stewardship to enhance service delivery; (3) Project management; and (4) Contingent Emergency Response Component (CERC)\. The Project will focus on expanding an essential package of high-impact health and nutrition services across the population in project target regions within available resources and service delivery capacity, and also aims to develop the MoH’s capacity at the FGS and FMS levels to act as stewards of the health sector\. Component 2 of the project will have national coverage\. The Project will also contribute to supporting the Project’s development objectives in Somaliland\. 12\. Component 1 will finance delivery of select, high-impact health and nutrition services with a focus on: (i) child health services (routine immunization, micronutrient supplementation, promotion of infant and child feeding and nutrition referral); (ii) maternal and neonatal health services, including testing and interventions during ANC visits, basic and comprehensive emergency obstetric and newborn care (BEmONC and CEmONC), and family planning; (iii) gender-based violence (GBV) services (awareness raising, case identification, counselling, and management); and (iv) disease surveillance (strengthening and maintaining disease surveillance and response as well as preparedness and response to disease outbreaks)\. These health services will be accompanied by health education and behavior change communications, as well as referral mechanisms to the appropriate level of service delivery\. The select, high-impact health and nutrition services are anticipated to cover a total population of approximately 1\.62 million in four or five target regions by Year 4\. As part of Component 1, the Project will support third party monitoring (TPM) to assess project outcomes nationwide, regardless of program/ donor support\. 13\. Component 2 will support development of government’s stewardship capacities at both the Federal Mar 01, 2021 Page 6 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) and FMS levels in the following technical areas: (1) health management information systems, data use, (2) public financial management (PFM)/ contract management/ health financing, (3) private sector development and regulatory reforms, and (4) organizational development\. The HMIS and data use subcomponent aims to improve data timeliness, quality, and use of DHIS2 to contribute to the long-term goal of ensuring a high- functioning health information system producing regular, quality, reliable data that are used for routine decision making\. The PFM, contract management and health financing subcomponent will build Government contracting capacity and strengthen efficient resource use and accountability to mitigate fiduciary risks\. The private sector development and regulatory reform subcomponent will improve quality of health services delivered by the private sector through private sector networks, setting up basic regulatory and accreditation systems with a focus on the health workforce as well as health products and devices to improve quality of care\. The organizational development subcomponent will support development of systems and process for decision making, internal information sharing, internal communication, external communication, and information storage/record keeping; and enhancing capacity for planning, learning and review including development and implementation of systems and processes for regular review and learning 14\. Component 3 will support day-to-day project management including coordination, administration, communication, management, procurement, M&E, and dissemination of project activities at both FGS and FMS levels\. To this end, the component will finance the following activities: (i) supervising, coordinating, and providing oversight for project implementation facilitating, and (ii) learning and knowledge sharing across and within FGS, Somaliland and FMS\. 15\. Component 4, a zero cost component known as a Contingency Emergency Component (CERC), will provide immediate surge funding in the event of a public health emergency, such as a disease outbreak, is included if the need to reallocate funds arises\. This component will only be triggered in the case of a public health emergency and when certain actions, as agreed by the Government and Bank teams, are met\. \. \. Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Assessment of Environmental and Social Risks and Impacts \. 16\. The ESRS will be used iteratively as a design and appraisal tool from the initial stages of project preparation: however, a final completed screening will be included as part of final project documentation\. Pre- screening of the project documents will help ensure that social and environmental sustainability issues are considered and integrated into project design, enhancing the quality of the project\. Early screening will help to anticipate how the relevant World Bank’s environmental and social standards are best addressed in the project design\. 17\. Screening of project activities (or sub-projects funded and implemented under this project) will be a desk-based exercise in which the project team, including ES Safeguards specialists, will draw on their experience and professional judgment and, where warranted, on expert advice\. Screening project activities or sub-projects with potentially significant social and environmental risks and/or impacts requires more time and Mar 01, 2021 Page 7 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) may need to involve relevant experts\. While the screening process takes place during the project concept, design and preparation stages, implementation and monitoring of identified risk management and mitigation measures will be required of the PCIU throughout the life-cycle of the project\. 18\. The summary of environmental risks at concept stage is as follows: i\.Provision, storage, handling, and disposal of essential drugs, supplies and equipment will result in the generation of significant amount of medical and other hazardous waste (that is generally expected to be non-toxic and non-hazardous) on a daily basis as a result of delivery of preventive and curative health services; ii\.Possible exposure of health facility staff, waste handlers, patients and other facility users and the larger community to medical and other hazardous waste and associated ill health; iii\.Rehabilitation of health facilities may result in generation of debris and other solid waste; iv\.Inadequate incineration or the incineration of unsuitable materials may result in the release of pollutants into the air and in the generation of ash residue\. In addition, incineration of heavy metals or materials with high metal content (in particular lead, mercury and cadmium) can lead to the spread of toxic metals in the environment; and v\.Disposal of untreated health care wastes in landfills can lead to the contamination of drinking, surface, and ground waters if those landfills are not properly constructed, posing danger to human health and community wellbeing\. 19\. The summary of screening of social risks includes the provision that the project will not include acquisition of land/restriction of land use\. Rehabilitation of health facilities may result in potential risks related to labor and working conditions, such as work-related discrimination, GBV and OHS\. Considering the contextual risks of operating in a conflict zone where effective and inclusive community consultations, stakeholder engagement and community participation and safety of staff is challenging, and the risk of project benefits not reaching the underserved populations including, nomads, other vulnerable and marginalized groups, internally displaced populations and developing effective grievance redress mechanism due to difficulty in accessing rural Somalia, the social risk rating is substantial\. Ensuring health services are acceptable and accessible to women particularly when delivered by men and the potential risks of sexual exploitation and abuse or sexual harassment in delivery of uptake of health services is also a concern\. E\. Implementation Institutional and Implementation Arrangements 20\. Project Coordination and Implementation Unit (PCIU) at FGS-MoH\. Under the Project, a Project Coordination and Implementation Unit (PCIU) will be established as the responsible implementing entity in the FMoH\. To ensure sufficient support to the Government to implement the project, given the nascent state of FMoH structures, the establishment of the PCIU is a condition of project effectiveness\. In the long term, the PCIU aims to serve as a single coordination and management unit for development partner financing and activities in the FMoH, to support the Government’s objective of increasing on-treasury resources and coordination\. The PCIU will be responsible for overall project coordination, implementation, and day-to-day management and monitoring of the project\. This includes: (i) ensuring project activities are implemented as agreed and in compliance with the World Bank technical and fiduciary guidelines; (ii) leading technical, operational, and fiduciary functions, especially contracting and contract management; and (iii) coordinating and overseeing project implementation/ management in the respective FMS/ Somaliland, including monitoring and evaluation of project activities, capacity Mar 01, 2021 Page 8 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) building, and ensuring compliance to social and environmental safeguard requirements\. The PCIU will also prepare the annual work plan and budget for the Project, by no later than November 1st of each year, commencing on November 1, 2021\. 21\. Project Management Team at FMS-MoH\. Each FMS will enter into a subsidiary agreement with the FGS to ensure project implementation and monitoring at the designated FMS-MoH level and secure the FGS-FMS collaboration under the Project\. Each FMS will form a PMT at the FMS-MoH\. The PMT will be primarily responsible for project management at FMS-level, including managing and tracking implementation progress, identifying opportunities for implementation improvements and solving day-to-day issues that may delay implementation\. Key responsibilities of the PMT include reviewing project activity design, technically supporting implementation agencies, project M&E, and coordinating with the FMoH PCIU\. Overall, the Project Manager in each PMT will coordinate efforts within their respective governments, across other World Bank-financed projects in the health sector, as well as between the FGS and the FMS\. 22\. A Project Steering Committee will be formed and organized by the FMoH to review the project’s progress towards the PDO, discuss implementation challenges, and provide solutions/directions to move implementation forward on a quarterly basis, chaired by the Director General, FMoH\. A Project Leadership Committee will also be organized bi-annually between FGS and FMS, chaired by the Federal Minister of Health, with participation by the FMS Ministers of Health\. At the FMS level, a Project Monitoring Meeting shall be held quarterly, and chaired by the Project Manager of the PMT to be established at every FMS-MoH with technical staff, the Component 1 contractor representatives, and Regional Health Officials from Component 1 implementing regions\. 23\. Project implementation will be phased to ensure successful initiation of project activities within available capacity, while implementing capacity development activities\. To help navigate project implementation, the Project Operations Manual (POM) will be prepared by the PCIU for submission to the World Bank for No Objection within two months of project effectiveness\. The POM will describe the project components and activities; implementation modalities for each project component; fiduciary/disbursement and environmental and social safeguard responsibilities and arrangements; and coordination mechanisms at different levels\. The POM will also include the monitoring of the project progress according to the Project’s results framework\. Sequencing of key project activities will allow the Government to ensure steady project implementation progress, while identifying and addressing capacity gaps using a flexible approach\. \. CONTACT POINT World Bank Naoko Ohno Senior Operations Officer Bernard O\. Olayo Senior Health Specialist Borrower/Client/Recipient Mar 01, 2021 Page 9 of 10  The World Bank Improving Healthcare Services in Somalia Project (“Damal Caafimaadâ€?) (P172031) Federal Ministry of Finance Implementing Agencies Federal Ministry of Health Mohammed Abdulkadir Hersi Director General (acting) Finance@moh\.gov\.so FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Naoko Ohno Task Team Leader(s): Bernard O\. Olayo Approved By Practice Manager/Manager: Country Director: Kristina Svensson 08-May-2021 Mar 01, 2021 Page 10 of 10

APPROVAL

P050567

Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 37687-EG PROJECTAPPRAISALDOCUMENT ONA PROPOSEDGRANTFROMTHE GLOBALENVIRONMENTFACILITYTRUSTFUND INTHEAMOUNT OFUS$49\.8MILLION TO THE ARAB REPUBLICOF EGYPT FORA KUREIMAT INTEGRATEDSOLARCOMBINEDCYCLEPOWERPROJECT November 13,2007 SustainableDevelopmentDepartment MiddleEast andNorthAfricaRegion This document has a restricted distribution and may be used by recipients only in the performanceof their official duties\. Its contents may not otherwisebe disclosedwithout World Bankauthorization\.  CURRENCYEQUIVALENTS (ExchangeRateEffectiveNovember9,2007) CurrencyUnit = LE-EgyptianPound LE1 = US$O\.188 US$1 = LE5\.50 FISCALYEAR July 1 - June30 ABBREVIATIONSAND ACRONYMS BOO BuildOwn Operate ISCC IntegratedSolar CombinedCycle BOOT BuildOwn OperateandTransfer ISDS IntegratedSafeguardsDataSheet BOT BuildOwnTransfer JBIC JapanBankfor InternationalCooperation CAA CompetentAdministrativeAuthority kWh Kilowatthour CAO CentralAuditingOrganization LEC LevelizedElectricityCosts CAS CountryAssistanceStrategy m2 Squaremeter CCGT CombinedCycle Gas Turbine m3 Cubic meter CSP ConcentratingSolar Power MEE MinistryofElectricityandEnergy DSCR Debt-ServiceCoverageRatio MENA MiddleEast andNorthAfrica EEHC EgyptianElectricityHoldingCompany MW Megawatt EHS Environment,Healthand Safety NGO Non-governmentalOrganizations EIA EnvironmentalImpactAssessment NPV NetPresent Value EIB EuropeanInvestmentBank NREA NewandRenewableEnergyAgency EMP EnvironmentalMonitoringPlan O&M OperationandMaintenance ENP EuropeanNeighborhoodPolicy OP7 OperationalProgram7 EPC Engineer,Procureand Construct PIE ProjectImplementationEntity EU EuropeanUnion PPA Power PurchaseAgreement FM FinancialManagement PPP Public PrivatePartnership FMS FinancialManagement System Pt Piasters(LE 0\.01) FX ForeignExchange PV Present Value FY FiscalYear SBD StandardBiddingDocuments GDP GrossDomesticProduct SFR Self-FinancingRatio GEF GlobalEnvironmentalFacility STAP ScientificandTechnicalAdvisory Panel GOE Government ofEgypt Tcf Trillion cubic feet HTF HeatTransfer Fluid TOR Terms of Reference I&C Instrumentationand Control UAS UnifiedAccounting System IBRD InternationalBank for Reconstructionanid UNDP UnitedNationsDevelopmentProgram Development US# UScents IDA InternationalDevelopmentAssociation WA Withdrawal Application IPP IndependentPower Producer EEAA EgyptianEnvironmentalAffairs Agency IRR InternalRateofReturn ISA InternationalStandards on Auditing CountryDirector: EmmanuelMbi Sector Director: IngerAndersen Sector Manager: JonathanWalters  CONTENTS FOROFFICIAL USE ONLY Page A \. STRATEGIC CONTEXT AND RATIONALE \. 1 1\. Country and sector issues \. 1 2\. Rationale for Bank involvement\. 4 3\. Higher level objectives to whichthe project contributes \. 5 B\. PROJECT DESCRIPTION \. 8 1\. Lendinginstrument\. 8 2\. Project development objective and key indicators \. 8 3\. Global Development Objective \. 9 4\. Project components\. 10 5\. Lessons learned and reflected inthe project design\. 12 6\. Alternatives considered and reasons for rejection\. 13 C\. IMPLEMENTATION \. 14 1\. Partnership arrangements \. 14 2\. Institutional and implementationarrangements \. 14 3\. Monitoring and evaluationof outcomes/results \. 16 4\. Sustainability and Replicability\. 16 5\. Critical risks and possible controversial aspects \. 18 6\. Loadcredit conditions and covenants \. 18 D APPRAISAL SUMMARY \. \. 19 1\. Economic analysis \. 19 2\. Financial Analysis \. 20 3\. Technical \. 22 4\. Fiduciary\. 24 5\. Social \. 26 6\. Environment \. 26 7 \. Safeguard policies\. 27 \. \. 8\. Policy Exceptions and Readiness \. 27 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.  Annex 1:Country and Sector or ProgramBackground \. 28 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies \.32 Annex 3: ResultsFrameworkand Monitoring \. 33 Annex 4: DetailedProjectDescription \. 35 Annex 5: ProjectCosts\. 37 Annex 6: ImplementationArrangements \. 38 Annex 7: FinancialManagementand DisbursementArrangements \. 40 Annex 8: ProcurementArrangements \. 48 Annex 9: Economic and FinancialAnalysis \. 50 Annex 10: SafeguardPolicy Issues \. 58 Annex 11:ProjectPreparationand Supervision \. 83 Annex 12: Documents inthe ProjectFile \. 84 Annex 13: Statement of Loansand Credits \. 85 Annex 14: Country at a Glance \. 87 Annex 15: IncrementalCostAnalysis \. 89 Annex 16: STAP RosterReview \. 94 Annex 17: Map (IBRD 33400) \. 100  EGYPT, ARAB REPUBLIC OF KUREIMAT INTEGRATED SOLAR COMBINED CYCLE PROJECT PROJECT APPRAISAL DOCUMENT MIDDLEEASTAND NORTHAFRICA M N S S D Date: November 13,2007 Team Leader: Anna Bjerde Country Director: EmmanuelMbi Sectors: Renewable energy (100%) Sector Manager: JonathanD\.Walters Themes: Other environment and natural Project ID: PO50567 resourcesmanagement (P); Infrastructure Focal Area: Climate change services for private sector development (S) Environmental screening category: Partial Assessment ProjectFinancingData [ 3 Loan [ 3 Credit [XI Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m\.): 0\.00 GLOBAL ENVIRONMENT FACILITY 49\.80 49\.80 JAPAN: JAPAN BANK FOR 151\.29 151\.29 INTERNATIONAL COOPERATION (JBIC) Total: 126\.48 201\.09 327\.57 Recipient: Arab Republicof Egypt ResponsibleAgency: NewandRenewableEnergy Agency (NREA) Arab Republic of Egypt Estimateddisbursements(BankFY/US%m) 'Y (Jul 1-Jun 30) 07 08 09 10 lnnual 0\.00 10\.00 29\.80 10\.00 hmulative 0\.00 10\.00 39\.80 49\.80 Project implementation period: Start January 1,2008 End:June 30,201 1 Expectedeffectivenessdate: February 15,2008 Expectedclosing date: October, 31,201 1 1  Does the project depart from the CAS incontent or other significant respects? Re$ PADA\.3 [ ]Yes [XINO Does the project require any exceptions from Bankpolicies? Re$ PAD D\.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risksrated "substantial" or "high"? Re$ PAD C\.5 [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D\.7 [XIYes [ ] N o Project development objective Re$ PAD B\.2, Technical Annex 3 The objective o fthe project i s to increase the share o f solar-based electricity inthe Egyptian energy generation thereby contributing to the Government's objective o f diversifying electric power production\. Global Environment objective Re$ PAD B\.2, Technical Annex 3 The global development objective o fthe project is to reduce greenhouse gas emissions from anthropogenic sources by increasing the market share o f low greenhouse gas emitting technologies\. Project description[one-sentence summary of each component] Re$ PAD B\.3\.a, Technical Annex 4 The project has three components: 1\.The design, constructionand operation ofthe Integrated Solar Combined Cycle Plant; 2\. Capacity buildingto NREAthrough constructionmanagement services duringproject implementationto ensure the smooth integrationbetween the solar and the combined cycle portions o fthe plant; and 3\. The implementation o f the environmental monitoring plan\. Which safeguard policies are triggered, ifany? Re$ PAD D\.6, TechnicalAnnex 10 Environmental Assessment (OPiBP 4\.01) i s triggeredby this project\. A comprehensive Environmental Impact Assessment (EIA) has beencompleted and disclosed inInfoShop and in- country\. It includes an assessmento f air quality, aquatic environment, noise, flora and fauna, soils andhydrology, traffic andtransport, socio-economic, archeological, natural disasters, solid waste management andoccupational health and safety\. \. 11  Significant, non-standardconditions, ifany, for: Re$ PAD C\.7 Boardpresentation: Not applicable Grant effectiveness: 0 Subsidiarygrant agreement betweenthe RecipientandNREA\. Covenantsapplicableto project implementation: 0 Establish the Project Implementation Entity no later than three months after project effectiveness\. \. 111   A\. STRATEGIC CONTEXT AND RATIONALE 1\. Countryand sector issues CountryIssues 1\. A comprehensive economic reform program was adopted in Egypt in 2004, when significant change took place in the cabinet and several new officials were appointed to key ministerial positions\. This new government has made economic reform its key objective, notably in areas such as finance, investment, trade and industry\. It has also stated its keen interest to enhance the provision of public goods and services, including physical and social infrastructure\. The latter includes the power sector\. 2\. The investment needs in infrastructure remain substantial\. It is estimated that approximately 4-6% of Gross Domestic Product (GDP) needs to be invested annually in infrastructure sectors in the Middle East and North Africa (MENA) region to satisfy new investment requirements as well as maintenance and replacement spending\.' The decline in investment in the MENA region, including in Egypt, i s reported to have compromised the infrastructure base, which i s further challenged by the high growth in demand for modern infrastructure services\. To ensure adequate provision o f electricity, the Egyptian Electricity Holding Company (EEHC) - responsible for generation, transmission and distribution of electricity inEgypt - requires on average about 1,500 MW of new capacity each year\. Promotion of renewable energy projects plays a key part in Egypt's generation plan\. Indeed, to date 225 MW of wind-turbines have been installed and are operational, performing well at an average capacity factor of 42%\. 3\. While investment is required to ensure adequate infrastructure, the Government of Egypt (GOE) is increasingly concerned with the rising fiscal deficit and public debt, which rose from 3\.9% in FYOO to 9\.6% in FY05\. To counter this, the GOE has been implementing several measures to reduce the deficit over the medium term by restraining public expenditures and increasing public revenues\. A s a result, the deficit as a percentage of GDP for FY06 dropped to 8\.6% and the GOE plans to reduce it further by 1% per year for the next five years\. The key measures that the GOE has adopted include redesigning of subsidies, controlling growth in public sector employment and cutting unnecessary expenditures\. Some reforms already underway include: 0 Increasing retail utility prices, including increases inelectricity and gas prices\. 0 Reducingcustom tariffs\. 0 Reducing price controls and subsidies on basic products, including diesel-fuel\. Increasing interest inthe potential for public-private partnerships (PPPs)\. Strengthening and reorganizing the privatization program under the Ministry of Investment established inJune 2004\. 4\. Against these reforms, the GOE remains committed to providing a public safety net comprising of various subsidies, employment programs and cash transfers and agrees that there ICitedininternal Bankreport on"Arab RepublicofEgypt: A Short InfrastructureAssessment," December2004\. 1  i s much room for improving the cost-effectiveness of the safety net currently in place and its coverage of the poor\. Assistance to do this is included in the Country Assistance Strategy (CAS)\. Sector Issues and Government Strategy 5\. Access to electricity is high in Egypt (98%)\. However, the fast growing demand puts significant pressure on the sector's ability to provide reliable and reasonably priced electricity; challenging both its ability to contribute to higher growth and poverty alleviation\. To ensure sustainable service delivery, the GOE is implementing reforms in electricity pricing, diversification of supply and improved efficiency through the development of a market for electricity trade\. 6\. Electricitv pricing: InOctober 2004, the GOE approved anincrease inelectricity tariffs, the first increase in 12 years, and a subsequent tariff increase was approvedin2005 inwhich the average tariff changed to 14\.86 Pt/kWh (2\.5 US#ACW~)\.~ Further increases to industries were announced in August, 2007\. Still, Egyptian electricity prices are low by international standards and when compared to a number of other countries in the region, since prices have declined substantially inreal terms over the 12 year period of no price changes and, with the depreciation ofthe Egyptianpound, inforeign currency terms as well\. 7\. Inaddition to subsidized overall tariffs, there are also substantial cross-subsidies which are not very well targeted\. An inclining block tariff is used to subsidize residential customers who use the least electricity\. The GOE is fully aware of cross-subsidization in the sector and, although the overall electricity retail tariff has increased, subsidies continue to prevail for politically sensitive customer segments\. The GOE is keen to eventually reduce the level of cross-subsidization in the sector and the subsidies in general, but recognizes that this will take time\. Bank assistance is being provided under the El Tebbin Power Project (Loan No\. 7359- EGT) to design and implement time of use tariffs and load management schemes, which would assist in improving overall cost recovery, as well as sending signals for increased energy efficiency by reducing demand for electricity at peak periods\. 8\. Egypt's significant reserves of natural gas play a key role in electricity production\. Current proven reserves are estimated at 67\.2 trillion cubic feet (Tcf), with an additional 120 Tcf identified as probable and possible reserve^\.^ To meet projected domestic demand (industrial, commercial and residential) and export demand (via pipelines and liquefied natural gas terminals) over the next 20 years, about 15 T c f is estimated to be required\. This leaves Egypt with a proven Reserves/Production (RP) ratio of over 80 years\. Domestic gas consumption is dominated by the power sector at 65%, followed by the fertilizer industry, petrochemicals and other industrial sectors\. The price of natural gas to industries as well as the power sector has been set at 21 Pt/m3(US$l/mmbtu), but an increase over a 3 year period was recently announced for the industrial sector which will see the gas price increase to US$2,65/mmbtu by the third year\. ~~ The 2004 increase was o f 8% on average, in2005 a further 5% average increase was approved, and the government plans further annual increases o f 5% for the next 4 years\. Source: Ministry o f Petroleum, July 2005\. 2  9\. As naturalgas is becomingincreasinglyimportantto Egypt's economy, particularlywith the growing potential for exports, moving towards cost-based pricing of gas is becoming increasinglyimportant\. As a result, the GOEhas undertakena study to determinethe costof gas, whichthe Bank has assistedthroughESMAP(Energy SectorManagementAssistance Program)\. The study has been disseminatedamong key governmentalstakeholders and providedthe basis for the recent increase in gas price to industry and is informing the GOE's longer-termgas pricingpolicy andstrategy\. 10\. Diversification of supplv: As stated above, the fast growing demand for electricity requires significant investment in generation capacity each year (the increase in demand for electricityinEgyptaveragedabout 7% during 1997/98-2003/04 andis expectedto remaininthe 6%-7% range over the next 10 years)\. Installedcapacity of electric power was 20,452 MW in 2005/2006, of which 85% comprised thermal power (10% of which is providedby the private sector through 3 IndependentPowerProducers, IPPs)\. The remainingcapacitywas attributedto hydropower(14%) andwind (1%)\. Peak loadreached 17,300 MW in2005/2006, andabout 90% o f the thermal power production was based on natural gas\. Initiatives are underway to better understand customer consumption patterns and loads to ultimately implement demand-side management measures to reduce the overall consumption and the growth in demand\.4 World Bankassistanceis beingprovidedto this effort\. 11\. The GOE's strategy is to continueto implement gas firedpower plants, with a long-term view to increase the share of combinedcycle gas turbine technology inthe generation mix\. In addition, the GOE has a target of meeting 3% of its electricity needs from renewable energy sources by 2010; and 20% by 2020 (includinghydro which today comprises 13% of the 20% target)\. Bank technical assistance was recently requested to help in the development and achievement of this plan\. The New and Renewable Energy Authority (NREA) has the responsibilityto developrenewableresources inEgyptandimplementthe government's strategy on renewable energy\. Until 2001, most of NREA's activities have been in the research and development field, and since then its activities have increasingly turned to the production of renewable energy\. NI2EA has inrecent years successfullyaugmentedits revenues with income from the sale of carbon reduction credits under the clean development mechanism\. Indeed, agreements have already been signed with the Japanese, the Danish and the German governments\. 12\. NREA's strategy is to capitalizeon Egypt's abundant wind and solar natural resources to meet the renewable energy target set by the Government\. For this purpose it plansto installan additional 850 MW of wind by 2010 and considers the constructionof the proposedIntegrated Solar Combined Cycle Power Plant (150 MWe) a key development towards improving and diversifyingits institutionalandtechnicalcapacityinthe areaofrenewableenergy\. 13\. Finally, as an incentiveto the development ofrenewableenergy, the GOE has established a mechanism (the `Petroleum Fund'), where producers of non-fossil fuel electricity receive 2 4Energyintensity inEgypt in2004, defined as the energy consumptionper unit of GDP was equalto 0\.22 toe 1000' 95 US$,which is comparableto other oil producing countries in the region (Algeria: 0\.20) and lower than others (Iran: 0\.33), but higherthan WesternEuropeancountriessuchas Germany(0\.18) andFrance(0\.19)\. 3  PtikWh\. This mechanism is intendedto accelerate development o f renewable energy by sharing with developers the additional export revenue generated from fuel savings derived\. 14\. Electricitv MarketDevelopment: Following the 2001 unbundlingo f the electricity sector in Egypt, further reform of the sector includes market development, such as liberalization and greater regional integration\. The Ministry o f Electricity and Energy is in the process o f developing a plan for the introduction o f competition in the sector consistent with the implementation o f further tariff increases and on-going improvement in the efficiency o f the subsidiary companies\. This plan will see gradual opening of the sector, starting with the generation segment\. To facilitate reform, a regulatory agency has been established and an electricity law i s under formulation\. A Higher Energy Council was recently established under the chairmanship of the Prime Minister and with members represented by the ministers o f electricity, petroleum, finance, planning and economic development\. This council reviews energy alternatives, their economics as well as overall energypolicy andplanning\. 15\. Egypt's plans are consistent with and supported by - its participation in the European - Neighborhood Policy (ENP) partnership, which was developed in the context o f the European Unions' (EU) 2004 enlargement with the objective o f avoiding the emergence o f new dividing lines betweenthe enlarged EU and its neighbors\. A key feature o f the ENP i s the bilateral ENP Action Plans mutually agreed between the EU and each partner country\. These action plans set out an agenda o f political and economic reforms with short and medium-termpriorities\. Inthe case o f Egypt, the action plani s under discussion and includes market liberalization (inprinciple by 2010) and continued price reform inboththe electricity and gas sectors\. 16\. Meeting the reform targets in the action plan will require far-reaching reforms o f the Egyptian power sector\. Some assistance on how to achieve this is being provided through the EU\. The European Investment Bank also has significant grant funds available to Egypt for technical assistance\. Nevertheless, significant work remains on the detailed steps required to meet the liberalization objective, as well as Government policy on how to finance sector investments in the longer term, including the respective roles of the public and private sectors\. On the latter, the GOE remains open to private sector participation, although the pressure on the financial status o f the sector has led to the GOE opting for public sector financing for the time being\. Clearly, tariff/subsidy reform would need to accompany any large-scale re-engagement with private participation, as well as and as mentioned earlier; reform o f the social safety net, which i s a key priority o f the GOE\. The Bank i s providing the Government with assistance to formulate an energy pricing strategy including reforms to social safety nets and social protection inorder to support the implementationoftariff/subsidy reforms\. 2\. Rationale for Bankinvolvement 17\. The proposed project integrates conventional combined cycle gas turbines with solar thermal technology\. It will contribute to an important global test o f a new approach to renewable energy\. As noted in the Bank's report to the Development Committee on the Clean Energy Investment Framework, incentives are needed to induce technological change to a low carbon economy\. The proposed project would demonstrate how de-carbonizing o f the power sector could be facilitated by the large-scale development o fnew energy productiontechnologies\. 4  18\. The proposed project is strategic for the achievement o f the objectives o f GEF's Operational Program 7 (OP7), which aims to reduce, over the long-term, the costs o f energy technologies with low greenhouse gas emissions, and which are currently not cost-competitive (see below under "Higher level objectives and Rationale for GEF funding")\. The Bank fully supports that pioneering objective\. The proposed Egypt project i s one o f a series o f similar projects, which together will contribute to learning about such technologies, and dissemination o f that learning\. Inthis way, Egypt, GEF, and the Bank arejointly participating ina very promising global experiment\. 19\. The proposed project is also strategic for the Bank in Egypt, now that the Bank has regained a high-levelo f partnershipinthe country's energy sector after a gap o f some years\. The project will contribute to the goals, articulated in the CAS for Egypt, which include enhancing the provision o f public goods through, inter alia, modernized infrastructure services to achieve higher growth\. The GOE and the Bank are engaged in an intensivepolicy dialogue inthis key sector, and a comprehensive program o f financial and technical support has developed\. Reliability and long-term involvement are the foundation o fthis relationship\. 20\. The Bank's current direct involvement in investment and advisory services across the energy sector in Egypt provides a good basis for development o f sustainable energy solutions, including renewable energy\. It allows for substantial dialogue on the policy framework and implementation arrangements associated with and required for this project's implementation, as well as larger scale development and replication o f similar projects\. Finally, Bank involvement will also help attract strong bidders by ensuring the use of transparent and competitive procurement processes, as well as appropriate management o f environmental and social impacts\. 3\. Higher levelobjectives to which the project contributes 21\. In 1996, the GEF's Scientific and Technical Advisory Panel (STAP) recommended high temperature solar thermal power technologies as one o f the renewable energy technologies that had significant cost reduction potential\. The GEF support for solar thermal technology was identified as a means to increase market awareness through limitedscale demonstration projects insolpr resource richdevelopingcountries\. 22\. GEF Operational Program Number 7 ("Reducing the Long-term Costs of Low Greenhouse Gas-Emitting Technologies") emphasized certain limited technologies including parabolic trough based solar thermal electric technologies to be cost-effective\. "For cost- effectiveness, the scope o f the technologies covered by the operational program needs to be limitedto those whose costs will drop significantly with economies of scale inmanufacture and application\." 23\. The selection o f technologies for OP 7 was made based on certain criteria; extent to which basic research and development has already been done (for technologies where the marketsare both inrecipient and developed countries) or significant prior operational experience exists; size o f remaining technological barriers and risks; technology's current cost; prospects for reduction in costs o f the technologies in question (steep learning curves); contribution that GEF financing can make to cost reductions; and the primary market i s in the recipient countries 5  because o f resource endowment and potential for that technology, when commercial, to reduce greenhouse gas emissions\. 24\. Large-scale solar-based power plants are still a long way from being cost-competitive with fossil-fuel based plants\. However, within the range of solar thermal electric generation options, the integration o f solar and combined cycle (ISCC) technology i s the most promising in the long-term as a reliable and cost-effective source o f power supply\. For developing countries especially, where the primary need i s electricity (not necessarily green electricity), the combination o f solar energy with a large-scale fossil fuel power plant can, in the technology introduction stage, be more attractive than stand-alone solar plants\. For this reason, the technology i s consistent with the objectives o f GEF OP7, which justifies GEF grant support in pursuit of the global program objective o f increasing the market share of low greenhouse-gas emitting technologies that have not yet become widespread least-cost alternatives\. 25\. OP7 states that "the objective will be achieved by GEF's promotion o f such technologies so that, through learning and economies o f scale, the levelized energy costs will decline to commercially competitive levels\. A project leads to reduction in GHG emissions not only directly, but also indirectly by being one o f series o f projects that induce cost reductions in the technology\. The direct outputs o f the technology are the amount o f energy generated, the amount o f GHG emissions avoided, etc\. The indirect project output, o f greater programmatic interest, is the reduction in cost that it caused and the time horizon for the achievement o f program objectives will typically be on the order o f decades\. The technologies identifiedunder thisprogramwill require the security o ffundingand long-term commitment ofGEF support\." 26\. Consequently, GEF and the Bank agreed to pursue solar thermal projects in India, Mexico, Morocco and Egypt as part o f a strategy to facilitate the commercialization o f solar thermal technology\. The India project (later dropped) entered the work program in 1996, followed by the Mexico and Morocco projects in 1999 and finally the Egypt project in 2004\. The Mexico and Morocco projects have already been approved by the GEF and the Bank while the financing for the Egypt project has been negotiated, and the procurement process has been concluded\. After eight years o f preparation, construction i s ready to start - pendingapproval o f the GEF grant bythe GEFandthe World Bank's Board o fDirectors\. 27\. In essence, the GEF participation inthe project is intendedto support primarily global program objectives, and Egyptian national development objectives only ~econdarily\.~That i s the rationale for substantial grant financing from the international community through GEF\. However, about half o f the financing for the solar component o f the project will come from NREA's equity and borrowings which is a testimony to the fact that the global environmental objectives are closely linkedto the Egypts's national sustainable energy development strategy\. 28\. Inthe GEF-World Bankportfolio of solar thermal projects, the preferredconfiguration is the ISCC\. This configuration integrates the steam output fiom a solar field into the steam turbine o f a combined cycle gas turbine (CCGT)\. Giventhat there i s now significant experience relating to combined cycle operation, as well as adequate knowledge o f solar field operations, the ISCC The proposedprojectwill makean important contributionto the Government's renewableenergytarget of 3% by 2010\. The projectwill also strengthenNREA's capacity as an independentproducer ofrenewableenergy\. 6  configuration i s sound from a technical standpoint\. However, as projects utilizing this integrated configuration have not yet been implemented,the first few projects, including the Egypt project, may face teethingproblems\. However, any problems that arise are not likely to be fundamental in nature but rather related to optimizing energy flows, particularly under transient solar conditions\. 29\. By integrating the solar field with the combined cycle technology, the ISCC configuration offers several cost reduction and operational advantages over independent solar thermal plants that make them more suitable for introducing solar field based electricity generation in developing countries\. In the ISCC configuration, the need for an independent power block for the solar field i s offset by utilizing a larger steam turbine in the CCGT plant, thereby reducing the capital costs through economies o f scale\. Such a configuration also reduces the solar energy losses that occur in an independent solar plant due to daily start-up and shut- down\. In addition, the hybrid plant can remain in continuous operation irrespective o f solar availability providing much needed generation\. The solar field also offers a power boost when CCGTs suffer a reduction in plant output at times o f high outdoor temperatures, since that coincides withhigh solar radiation as well\. 30\. In 2005, the World Bank commissioned an independent assessment of the World Bank/GEF strategy for the market development o f concentrating solar thermal power\. The study'sconclusions can be summarized as follows: Over the last 2 years, the industry has been reinvigorated\. Several projects are presently under construction around the world\. Nonetheless, these projects have not reached the kind o f critical mass to suggest that the industryi s now self-sustaining\. Solar thermal electricity offers a number o f advantages when considered as part o f a country or region's energy generation options mix\. Solar thermal, based on a hot fluid, can integrate well withconventional thermodynamic cycles andpower generation equipment\. Inmost cases, the ISCC configuration showed lower Levelized Economic Cost (LEC) than the solar electricity generating systems in California\. The reason for this i s that the incremental cost o f a larger steam turbine i s much lower than building a stand-alone power block for solar electricity generating systems\. ISCC i s well-suited for market introduction because the additional marginal investment for the conventional plant components i s relatively low\. There are also areas o f overlap, and thuscost-reduction potential, withthe plant infrastructure andproject implementation costs\. The technology is not new, but stalled in its development path\. There is no fundamental reason why the technology could not follow a similar cost reduction curve to wind energy and eventually be cost-competitive\. Cost reductions would require a combination o f plant scale-up, increasedproduction volumes and technological innovation\. Against the thousands o f megawatts needed for CSP to reach full cost-effectiveness, the GEF portfolio alone will not lead to a significant reduction in the underlying cost o f the technology\. However, the plant capacity of projects inthe GEF portfolio i s not insignificant 7  compared to the present 300MW or so o f possible-to-firm CSP projects in OECD countries\. The GEF co-financed plants will help to maintain momentum in the CSP industry and to develop operational experience indeveloping countries\. By supporting implementationo fthe first solar thermal power demonstration plants,the GEF will helpcreate confidence inthe technology and institutional learning, thereby reducing the hurdlefor subsequentmarket entry o fCSP\. 31\. Several ISCC projects outside the GEFBank portfolio are also being developed in Algeria, Spain, etc\. Over the long run, it is expected that the cost o f the technology will come down due to technical progress and lessons learned from earlier deployment\. In the Northern Mediterranean "sunbelt," several solar-thermal power projects are already being planned in Greece, Spain, and Italy through national programs and the support o f the EU\. Bulk transmission o f electricity from solar-thermal power plants from highinsolation sites inSouthern Mediterranean countries, such as Algeria, Libya, Egypt, Morocco, and Tunisia, may also open wider opportunities for European utilities to finance solar plants in that region for electricity consumed in Europe, and hence for Southern Mediterranean countries to become a base for electricity exports\. Reform o f electricity sectors across Europe, the rising demand for "green power," and the possibility o f gaining carbon credits are increasing the viability o f such projects\. Finally, research and development work continues in Europe and the United States to further reduce costs by improving plant components\. B\. PROJECT DESCRIPTION 1\. Lendinginstrument 32\. A grant from the GEF inthe amount o f US$49\.8 million will contribute to the financing o f the solar portion o f the ISCC power plant\. The remainder o f the project cost will be covered by an already-approved loan from the JBIC (for the CCGT component) and by NREA's own resources, including loans from the National Investment Bank o f Egypt\. Since the incremental cost associated with the solar portion o f the ISCC i s US$97\.2 million, NREA's net contribution to finance incremental cost i s $47\.4 million6\. GEF support through the grant, as well as =A's funding ofthe project, will contribute to reducing the long-term costs of the technology andwill assist Egypt as well as other countries in adopting environmentally clean and cost effective technologies through the demonstration effects and lessons learned\. 2\. Project development objectiveand key indicators 33\. The objective o f the project is to increase the share o f solar-based electricity in the Egyptian energy generation thereby contributing to the Government's objective o f diversifying electric power production\. 34\. The keyperformance indicators for the development objectives ofthe project include: Byway ofcomparison,the GEF-fundedISCC Power ProjectinMoroccohas an incrementalcost of $63\.2 million, o f whichGEF i s funding $43\.2 million, andthe Moroccoutility, O\.N\.E\. is funding the remaining$20million\. 8  a\. Total electricity generated from solar sources (GWWyear)\. b\. Solar output as a percentage o ftotal energy producedbythe hybridplant (%)\. c\. Total electricity generated from the ISCC power plant (GWWyear)\. 3\. GlobalDevelopmentObjective 35\. The global development objective o f the project i s to reduce greenhouse gas emissions from anthropogenic sources by increasing the market share o f low greenhouse gas emitting technologies\. 36\. The project will demonstrate the operational viability o f hybrid solar thermal power generation technology and contribute to replication o f integrated solar combined cycle (ISCC) power generationtechnology inEgypt and elsewhere through the learning effect provided by its construction and operation, and through economies o f scale as use o f the technology spreads\. It i s one o f a number o f similar projects in the world supported by GEF, and by other financing sources, as part of a global programmatic effort to accelerate cost reduction and commercial adoption o f large-scale low greenhouse emitting generation technologies\. Secondarily, the project will make a modest direct contributionto the reduction o f greenhouse gas emissions\. 37\. To evaluate the performance o f the project in achieving this global objective, the following indicators have beenchosen: a\. Cost o f solar thermal (US$/kWh and US$/kW) b\. Emissions reducedfrom use o f solar fuel (tons of COz/year)\. c\. Number o f staff trained in NREA on the various aspects o f the solar thermal technology\. d\. Dissemination i\.Numberofvisitorstoandinformationrequestsabouttheplant\. ii\.Numberofworkshops andconferences inwhichtheexperience aboutthe construction and operation o fthe plant was presented\. iii\.InformationabouttheplantpostedonNREA's externalweb siteandinits publications\. Other qualitative indicators will includethe documentation o f lessons learned: a\. during the pre-construction phase (feasibility study and bidding process, environmental and social safeguards andfinancing); b\. duringthe construction o fthe plant; and c\. from the operation o f the plant and initial assessment o f the viability o f the technology after three years o f operation o fthe ISCC power plant\. 9  4\. Projectcomponents 38\. The project will finance the construction of an Integrated Solar Combined Cycle (ISCC) power plant, to be located in Kureimat, about 95 km south o f Cairo, on the eastern side o f the riverNile\. 39\. The plant will have a combined capacity o f about 150 MW, including 20 MW o f solar capacity\. When own consumption o f 6\.3 MW is deducted, the net overall plant capacity becomes 143\.4 MW\. The total net energy produced by the plant i s expected to be 852 GWhper year, which includes the solar contribution o f 33\.4 GWh per year\. This corresponds to a solar share o f 4 % of the total annual energy producedby the plant operating at a full load\. 40\. The project will be implementedthrough three components\. For Component 1 the costs are known since the procurement process for both the solar and the combined cycle portions have been completed\. These costs are inclusive of importtaxes on equipment and contingencies\. Having said that, NREA will apply for an import tax waiver for select equipment at the time o f actual import, which would result in potential savings of US$22\.4 million for the project\. For Component 2 and 3, estimated costs are presented\. Component 1: The design, construction and initial operation of the proposed Integrated Solar CombinedCycle Plant includetwo sub-components: (a) The solar portion o f the power plant ( U S $ l l l million; of which GEF will finance US49\.8 million and NREA US61\.2 million) includes one contract for engineering, procurement, construction, testing, commissioning and two years operation and maintenance (O&M)\. The solar island consists o f a parabolic trough solar field capable of generating about 73 MW (thermal) o f solar heat at a temperature o f 393"C, the related Instrumentation and Control (I&C) and control room andthe heat transfer fluid (HTF) system up to the HTF inlet and outlet flanges o f the Solar Heat Exchanger(s)\. (b) The capital cost ofthe combined cycle portionofthe plant (US$201 million; ofwhich JBIC will finance US$151\.3 million and NREA US$49\.7 million) includes one contract for the EPC aspect o f the power plant\. Inaddition, one 2 year O&M contract will be financed by NREA (US$8\.8 million)\. The combined cycle island will consist o f one gas turbine with I S 0 rating o f about 73\.3 MWe, one heat recovery steam generator (HRSG), one steam turbine o f about 76\.5 MWe, and solar heat exchanger(s) capable to absorb about 73 MW (thermal) solar heat plus all associated balance o fplant equipment\. Component 2: Comprises capacity building to NREA through consulting services for construction management during the construction, testing and operation o f the plant (US$6\.36 million, including price contingency financed by JBIC)\. The capacity buildingwill focus on: (a) detailed engineeringdesigns with special attention to the interface between the solar and CCGT parts; (b) supervising the construction and environmental aspects o f the power plant; (c) monitoring the commissioning and guarantee tests; (d) preparing the O&M contract for the CCGT part interms satisfactory to the Bank\. As such, NREA will seek the Bank's comments on 10  the draft contract before requesting proposals; (e) providing assistance during the 2 year guarantee period as well as assisting NREA inmonitoring and evaluation o f the performance of the whole plant at least during the two years o f the O&M period; and (f) providing training and transfer o f know-how in ISCC plant operation, with particular emphasis to dispatching and integration into the power system so that NREA staff can successfully take over the power plant after the respective O&M contracts expire\. Component 3: Comprises the Environmental and Social Impact management component to be financed by NREA (US$0\.45 million, including price contingency)\. This component will include the implementation o f the Environmental Management Plan (EMP) which mitigates the potential environmental and social impacts associated with the construction and operation o f the power plant\. The breakdowno f the project components i s provided inthe table below: Items Equipment/ Work 1 I cost Others' Taxes Lk Contingencies 2-year O&M Costs Total Component 1 a) Solar Island 98\.74 6\.10 6\.15 110\.99 b) CC Island 184\.69 16\.28 8\.80 209\.77 Comuonent2 CapacityBuilding 6\.00 0\.36 6\.36 Component 3 EMP 0\.425 0\.025 Not applicable 0\.45 Total 289\.86 22\.76 I 14\.95 I 327\.57 Note: Amounts are expressed in US$million 41\. The above costs reflect a reduction inthe size of the solar field from 30 MW to 20 MW\. The lowest bid for 30 MW was US$130 million\. Since the GOE is contributing a significant portion towards the cost o f the project, they requested the Bank's No Objection to negotiate a reduction inthe cost through a reduction inthe solar field size\. The Bank's Central Procurement Board (OPRC) granted this request\. The 33% reduction in the solar field size translates into a reduction inthe solar share o f electricity generated by the ISCC from 6% to 4% and the cost o f the 20 MW i s 20% lower than that of the original 30 MW\. At 20 MW, the solar islandremains a substantial project component and i s deemed to adequately serve the project's pioneering objective\. 42\. It is important to note that the EPC cost differs from the incremental cost, in that EPC cost i s the EPC cost o f the plant during project preparation and construction (for design, construction and hardware, etc) while the incremental cost i s the difference in cost between the ISCC and a reference plant comprising a combined cycle plant with the same output\. Annex 15 presents the detailed incremental cost analysis for the proposed project\. For Morocco, the EPC cost o f the solar component was $74\.6million while the incremental cost was $63\.16million (at a 10% discount rate)\. 11  43\. The Egypt project still is relatively expensivevis a vis Morocco where biddinghas also been completed, contracts signed and the prices are known (see summary table below)\. The Mexico bidding process i s being re-launched in light o f price increases and intandem with the Mexican Congress authorizing an increase in the budget approved for the thermal part o f the plant which has experienced substantial price increases\. The bidding process is expected to be completed by February, 2008\. For the solar component, bidders are requested to bid within the envelope o fthe GEF grant (US$49\.8 Million)\. I1Details of Solar Island I E W P t I Morocco EPC Cost without taxes andduties (US$ m) 98\.7 74\.6 II area m2 130y800 183y120 III EPC Cost per m2 (US$/m2) II 755\.3 III 407\.6 I Solar generation (GWhe/year) 33\.4 40 Cost per annual production (US$/kWh) 0\.648 0\.403 EPC Cost per kW (US$/kW) 4,937 3,732 ISCC Levelized electricity costs (gYkWh) 6\.77 5\.96 Cost per ton o f Co2 emissions avoided 190 104 44\. The main reasons for the cost differential between Egypt and Morocco has to do with significant price increases in the raw material, which continues to increase (for example the Index for Steel Prices (SBB World Index) is currently increasing at a monthly rate of 3\.7%; the index was 201 in January 2007 and it was 220 in September 2007)7\. This factor is affecting practically all power generation technologies, and i s not specific to solar technologies*\. The other main factor is that there i s only a limited number of active bidders in the market, and several newprojects to bid on\. With the Morocco biddingprocess being slightly ahead o f Egypt, the solar contractors were all heavily loaded with projects which ledto price increases inEgypt, as Contractors need to expand their manufacturing capabilities\.' Furthermore, the split package inEgyptmayhave increasedcost due to reducedscope for economies of scale\. 5\. Lessons learned and reflected inthe project design 7It shouldbenotedthat such increaseinraw materialand equipmentprices are affecting almostall technologiesin powergeneration,and is not confinedto ISCC inparticularor evenrenewableenergytechnologiesingeneral\. Forexample, the ElTebbinPowerProjectinEgyptfinancedbythe WorldBankhas experienceda 40% cost increase inthe bidpricescomparedto the appraisalcost estimates (fromUS$450 millionto US$630million)\. This mighthelpexplain, for example, why the lowestbidder inMorocco was the highestbidder inEgypt\. 12  Power Sector Development in Egypt 45\. NREA has gained significant experience in designing and implementing wind energy projects with international loan and grant financing\. Important lessons drawn fiom this experience include the importance o f transparent and well-managed competitive bidding processes, which have contributed to attracting the interest o f major international suppliers\. 46\. Furthermore, through the development o f these projects, NREA has operated under Power Purchase Agreements (PPAs) with EEHC and has gained significant experience in structuring and negotiating such agreements\. This experience will be very useful for the proposed project, in which a PPA will be put in place as well as a Gas Purchase Agreement (GPA)\. Solar Thermal Power Plant Development Worldwide 47\. N o large scale solar thermal power plants have beenbuilt indeveloping countries to date, however several small-scale projects are under construction around the world\. The most significant solar thermal installations are inCalifornia where 354 MW o f parabolic troughs, with back-up gas fired steam boilers have been generating electricity and selling it to the utility since the 1980s\. Spain has also beengaining valuable experience indesigningand constructing solar thermal power project, using the tower technology\. The plant comprises 11 MW and i s located inSeville\. It is beingconstructed on aturnkeybasis\. 48\. To meet the cost reduction objective o f this type o f project, it i s necessary to move beyond the troughhackup boiler designuponwhich the California plant i s based\. The purpose i s to permit higher thermal efficiencies, improve the dispatchability o f the plant and to encourage greater competition in the design and supply o f equipment\. Such a plant would be more attractive to utilities, thus increasing the market size\. 6\. Alternatives consideredand reasonsfor rejection 49\. Project Concept: The project was originally conceived to be carried out by the private sector under the arrangements o f an Independent Power Producer (IPP), with the solar portion financed fiom the GEF grant\. In mid-2002, the Ministry o f Electricity and Energy, through NREA, proposed a change to the project's concept mainly as a result of a general down turn in investor appetite for IPPs and a policy change within the GOE whereby foreign currency exposure related to private sector investment projects was to be borne by private investors\. This policy change was the result o f increased cost to the Government from the IPPs through the take or pay contracts mostly denominated inUS$inconjunction with the devaluation o f the Egyptian pound\. Inorder to confrm the lack o fprivate sector interest, independentconsultants carried out a survey o f investors who had previously expressed interest in developing the solar-thermal project as an IPP\. Inthis survey, 31 investors were contacted to registertheir interest to invest in an IPP-styleproject given the policy change on foreign currency exposure\. Only one company filled out the requested questionnaire; another 21 responded by stating that they were either not interested in general or not interested given the policy change\. Three firms contacted were no longer inexistence, and six responded that they would be interested inprinciple, but did not fill 13  out the questionnaire and thus were not considered serious\. The financing and implementation concept therefore changed and the project was presentedto the GEF for Work Program Inclusion inMay2004 underthe current public sector concept\. 50\. Project Configuration (ISCC): Early discussion on how to implement OP7 and the recent assessment o f the World Bank/GEF Strategy for the Market Development o f Concentrating Solar Thermal Power have raised the question o f whether solar electricity generating systems with little fossil co-firing would have been a better configuration for the project rather than the ISCC configuration\. The assessment recognizes that there may be an issue interms o f perception with an ISCC plant with a solar contribution o f only 4%\. However, the assessment also points out that a 20MW solar field ineither configuration will still generate approximately the same amount o f GWWyear o f solar electricit and provide the same level o f O&M experience, through having to maintain some 130,800 m o f solar array\. As such, given Y Egypt's interest in developing alternative energy solutions and recognizing that there i s a significant non-technical lead time associated with any new project (permits, authorities, contract administration, etc\.) regardlesso fproject capacity, the ISCC choice helpsto meet Egypt's energy goals, while deploying a solar field, a field that could have been deemed too hardfor the sake o f a 15-20 MW plant\. 51\. Technology Choice (Solar Trough): Although there are, broadly, three solar thermal technologies: the parabolic trough; the central receiver, and the parabolic dish stirling system, the parabolic trough i s the most technically and commercially proven option\. The GOE has stressed its preference for a commercially proven technology to the extent possible to minimize risk\. As such, it has beendecided that the project designbe based onthe parabolic trough technology\. 52\. Solar Storage: The storage option was not considered because the storage technology would add another innovative element (not yet commercially proven on a large scale) and would add extra cost\. Nevertheless, it would be possible at a later time to increase the solar field by adding a storage device to the plant\. C\. IMPLEMENTATION 1\. Partnershiparrangements 53\. The project will be financed by the following sources: GEF, NREA, JBIC and the National InvestmentBank o fEgypt (through NREA)\. The GEF grant will contribute towards the cost o f the solar portion o f the plant and inparallel JBIC will contribute to the cost of the CCGT portion, including the consulting services contract responsible for the supervision o f power plant design, construction and performance integration o f the two parts\. NREA will contribute to the costs o f both the solar and CCGT portions, as well as the O&M contracts and the cost o f mitigationo f environmental and social impacts\. 2\. Institutionaland implementationarrangements 54\. Given that the proposed design has yet to be proven commercially world-wide, the Engineer, Procure and Construct (EPC) arrangements will be followed by 2-year Operation and Maintenance (O&M) contracts to ensure proper operation and maintenance o f the ISCC plant 14  and achievement o f maximum output by the solar field\. There will be an O&M contract for each portion o f the plant, but the O&M contract for the CCGT will be responsible for efficient operation o fthe entire plant as well as maximizing the output from bothparts (see more below)\. 55\. The construction and operation o f the ISCC power plant will be implemented in four separate contracts: (i) the construction and O&M o f the solar island; (ii) construction o f the the combined cycle island; (iii) O&M o f the combined cycle portion; and (iv) a construction the management consulting contract for the supervision and integration o f the solar and combined cycle islands\. The arrangements are being secured using the international competitive bidding procurement method\. NREA, as the Executing Agency and as the mandated agency inEgypt to develop renewable resources, will be responsible for project management\. NREA will establish a Project Implementation Entity Unit (PIE) headed by an experienced Project Manager who will report to the Deputy Chairman for Projects and Operation\. The PIE will be responsible for the day to day management activities o f the proposed project and will be staffed by core specialists intechnical, financing/accounting, procurement andenvironmentalmatters\. 56\. The PIE will be based at the project site\. As required, the PIE will liaise closely with other departments at NREA headquarters for support in legal, financial, and planning matters\. Furthermore, EEHC has assured that it will support NREA, as needed, in any technical or managerial aspects, particularly related to the operation o f the CCGT as well as compliance with the Environmental Management Plan (EMP)\. The PIE will benefit from the assistance o f the construction management consultant during the implementation o f the overall project\. Its main tasks are described under section 4 (Project Components) above\. This contract will be for the duration o f construction plus the two year guarantee period, which will coincide with the two- year O&M contracts (Le\. a total o f about 5 years)\. 57\. During the construction and in particular during the O&M period, NREA will assign counterpart personnel to the construction management consultant to ensure close coordination and transfer o f knowledge with regardto the operation o f the plant so that NREA can take over its operation when the 2 year O&M and construction management contracts expire, as well as monitor and document the project's lessons learned\. It will be important that after the issuance o f the operational acceptance certificate (30 months from start o f construction), NREA revises and readjusts the PIE organizational structure to take into account the start-up o fthe 2 year O&M period, especially in terms o f personnel\. The organizational scheme for project implementation i s shown inAnnex 6\. The World Bank will monitor the implementation arrangements as part of its supervision o f the project\. 58\. Contractual clauses regarding heat output from the solar-based power plant component will be incorporated in the O&M contracts between NREA and the contractors in order to maximize the solar output\. The contracts for the O&M will be for 2 years\. Therefore, the power plantwill be operated by the contractors duringthe first 2 years from commissioning\. There will be penalties in case o f not meetingthe required generation output, the requiredheat production from the solar field, or exceeding the fuel consumption\. During these 2 years, NREA should gainthe necessary experience to take over the plant\. 59\. The project is expected to be implemented between 2008 and 2011, with operations commencing in2010\. 15  3\. Monitoring and evaluationof outcomes/results 60\. NREA will monitor the progress against the agreed performance indicators listed in Annex 3\. Data and statistics on actual project output and outcomes will be gathered, analyzed and includedinperiodic progress reports to be submittedto the Bank\. 61\. NREA will be assistedinthis by the constructionmanagement consultant\. For the EMP, NREA will be assisted by the construction management consultant, and as needed, EEHC's environment department to monitor and ensure compliance with the plan\. 62\. The Bank supervision effort will cover the estimated 3 years o f construction and some period o f the 2 year O&M inthe interest o f capturing lessons learned of the project in line with the project's development objectives and rationale o f GEF support\. Based on the review of the periodic reports and outcomes o f the supervision missions, measures will be taken to ensure that the project is completed without delay and achieves its plannedoutcomes\. 4\. Sustainability and Replicability 63\. The GOE's commitment to renewable energy resource development is strong as evidenced by its declared objective o f diversifying energy sources, including having 3% o f its electricity needs represented by renewable energy by 2010 and the establishment o f the "petroleum fund'' which provides economic incentive to renewable energy producers\. Furthermore, although it i s anticipated that part o f the higher capital cost o f the hybridplant will be offset by the proposed GEF incremental cost grant, NREA will finance incremental cost above US$49\.8 million, recognizing the cap on GEF grant support to the project\. Finally, the integration o f the solar field with a CCGT ensures that the hybrid will provide the required electricity contribution to the system regardless o f solar radiation conditions\. For these reasons, the hybrid power plant i s expected to operate sustainably as an integral part of the Egyptian power system\. The incentive structure for the solar and CCGT O&M operators will ensure efficient operation o f the plant and optimal design for integration o f the solar thermal with the gas-fired plant and maximize solar output from the plant when inoperation\. 64\. Dissemination o f information about this project will contribute to possible future replication inother countries and to refiningthe GEF strategy regardingthis technology\. Indeed, the general approach adopted by the project is highly replicable within Egypt, regionally and globally\. An early study carried out by the Energy Sector Management Assistance Program (ESMAP) suggested that sites with ready access to gas supply, electricity evacuation and water infrastructure would be capable of supporting 5-10GW of solar thermal plant in Egypt\. High insolation sites are available across much o f the region, though many lack the necessary infrastructure at this time\. Worldwide there are suitable sites and, unlike other renewable technologies, integrated solar combined cycle power plants are inherently at utility scale\. Having said that, the main barriers to further replication are costs and the associated learning needs, the overcoming o f which this project (and the ones in Mexico and Morocco) i s expected to contribute to by providing a benchmark for costs and operational information and disseminating it throughout the solar thermal community\. However, it i s unrealistic to expect 16  that this project alone (or even combined with the two being prepared) will bring costs down to levels that are competitive with conventional power plants\. Further development of this technology outside of the GEF's OP 7 i s needed as well as possibly additional international financing institutions support to additional projects\. 17  5\. Critical risks and possible controversial aspects Risk 1RiskRatingIRiskMitigationMeasure From Outputs to Objective [nsufficient implementationcapacity at M Buildcapacity during preparation and WEA to contribute to the demonstration and implementation and during O&M period; Have the lessons learned about the technology\. assistance o fthe construction management consultant\. Also, NREA has demonstrated strong implementation capacity through the development o f wind projects, with 225 M W o f installed capacity and much more planned for\. Back up support by EEHC as needed\. From Components to Outputs [ntegration and performance problems due to H Hiring o f construction management consultant separate contractors for construction and during construction and two years into operation )peration o fthe solar and the CCGT parts\. who will help with detailed engineering and design including interface aspects\. Having responsibility for the performance o fthe whole plant allocated to the CCGT O&M contractor with penalties due to NREA for not meeting required generation and possible solar output basedon verified data collection\. rechnological or design problems M Ensure only credible suppliers/contractors are allowed to bid\. Suppliers/Contractors not willing to bid for M Prequalification resulted in4 qualified bidders\. 3 yoject with solar element qualified bidders submitted bids for the contract\. No incentive to maximize solar contribution M Incentivesare included in contractual arrangements and are based on efficiency o f the plant as a whole\. Lack o f cost recovery byNREA and impact M PPA with EEHC will ensure coverage o f inplant maintenance reasonable cost, including maintenance\. Dverall RiskRating M sk), N(Negligible or Low Risk) 6\. Loadcredit conditions and covenants Effectiveness Conditions 0 Subsidiary grant agreement between the Recipient and NREA\. Other [classijj according to covenant types used in the Legal Agreements\.] Legal Covenants (likely to include): 0 Establish the Project Implementation Entity no later than three months after project effectiveness\. 18  D\. APPRAISAL SUMMARY 1\. Economic analysis 65\. The appraisal of the proposed project i s based on a feasibility study prepared by Lahmeyer Consultants and a conceptual design study prepared by Fichtner Solar Consultants\. These studies providedestimates o f the costs of hybrid solar thermal variants and their baseline equivalent CCGTs, including the economic least cost plant size, its dispatch into the power system, possible technology variants and cost estimates\. Since the bidding process has been completed, real market data on the cost of both the solar and combined cycle portions are available and are usedas the basis to appraise the project\. Cost-BenefitAnalysis 66\. The cost benefit analysis of the project shows that for a total capacity o f 150 MWe, and introducing a 4 % solar contribution, the installed cost of the plant will be about $290 million\. The installedcost includes the cost of equipment (based on bids awarded), andthe estimated cost for consulting during implementation which has yet to be bid for but represents a small cost component as well as the estimated cost for the EMP"\. The cost o f equipment excludes taxes andimport duties(an estimated US$22\.4 million)\. 67\. As for operating costs, the present value offuel, O&M and consumables amounts to $153 million over the 25-year lifetime and the constructionphase\. The O&M costs ineconomic terms assume an economic cost o f natural gas of US$2\.52/mmbtu as compared to the actual price charge to the power sector o f US$l/mmbtu\. The cost o f gas assumption i s based on results o f a study on the economic cost o f natural gas inthe domestic market which has been carried out by international consultants financed by ESMAP (Energy Sector ManagementAssistance Program) andmanagedby the World Bank\. 68\. Economic benefits are derived from the economic value o f electricity generated, where the average electricity tariff has been assumed to be US$0\.07/kWh -- the price for electricity exports to Jordan\. The GEF grant o f $49\.8 million has beenincluded as an economic benefit as it reflects global willingness to pay for this project\." 69\. Based on these costs and benefits, the project generates a net present value o f US$54 million and the EIRRo fthe project i s 13%\. Incremental CostAnalysis 70\. To determine the incremental cost o f the proposed project, the cost o f the proposed plant has beencompared to a reference plant usingconventional fossil fuel based technology\. loThe estimatedcosts for consultingduring implementationandfor the EMP are assumedto be incurredduring projectconstructionphase\. Inpracticepartof such costs may be incurredduringoperatingphase\. Inaccordance with OP10\.04-EconomicEvaluationo f InvestmentOperations,paragraph8\. 19  71\. The results show that a 150 MWe plant with a 4% solar contribution will increase the installed cost by about US$99 million (from US$191 million (US$158\.2 million inpresent value terms) for a reference CCGT plant to US$290 million (US$240 million in present value terms) for the ISCC plant)\. There will also be incremental O&M cost, the present value o fthese costs i s about US$19\.7 million over the construction and the 25-year project life\. The costs are partially offset by the reduced fuel consumption; the present value o fwhich i s US$4\.3 million\. Therefore, the estimated net incremental cost (both capital and operating costs) for 20 MWe o f solar capacity is US$97\.2 million at a 10% discount rate\. The proposed GEF financing i s capped at US$49\.8 million so the remaining incremental cost (US$47\.2 million) will be financed by NREA\. Annex 15 presents the results inmore detail\. 1Calculationof IncrementalCost US$ Million 1 Discount rate 10% Reference Baseline CCGT Capital costs 158\.2 Fuelcosts 113\.2 O&M costs 24\.1 Consumables 0\.7 Total 296\.2 PV GWh 5808\.6 Levelized electricity costs (centskwh) 5\.10 ISCC Capital costs 240\.0 Fuelcosts 108\.8 O&M costs 43\.8 Consumables 0\.8 Total 393\.4 PV GWh 5808\.6 Levelized electricity costs (cents/kWh) 6\.77 Increment: Capital costs 81\.7 Fuelcosts (4\.3) O&M costs 19\.7 I Consumables 0\.0 Total incrementalcost 97\.21 Incremental levelized costs (cents/kWh) 1\.67 2\. FinancialAnalysis FinancialAssessment of theNew and RenewableEnergy Authority (NREA) Past and CurrentPerformance of NREA 72\. NREA revenues stem from research and development activities and in recent years, mainly from the sale o f electricity it generates from renewable sources to EEHC\. Based on audited accounts for the past four years, the company incurred losses, as it transitioned from a 20  purely research and development entity to one whose major activity is the production o f green energy\. 73\. NREA has recently been able to negotiate an increase in the tariff per kWh it receives from EEHC for the electricity sold to the grid to 12 PtkWh with gradual annual increases planned for future years\. This has enabled NREA to fully service its debt obligations in the fiscal year 2005, something it was unable to do in earlier years\. As o f 2004/05, the authority's long-term debt reached LE 1\.28 billion (US$223 million), o f which the current portion is estimated to have reached LE 38\.4 million (US$6\.7 million)\. 74\. Inaddition, as of 2004/05 NREA has started benefitingfrom the PetroleumFund, under which it is eligible to receive 2 Pt per kWh o f energy produced from renewable energy sources\. In2004/05 this additionalrevenueamounted to LE5\.8 million(US$1 million), andit is expected to increase substantially as NREA's installed capacity i s augmented\. 75\. The authority has low levels of accounts payables; however, its receivables from EEHC amount to about LE 33\.25 million (US$5\.8 million, 287 days)\. In 2004/05 NREA was able to collect 80% o fthe revenues it was owed from EEHC\. 76\. The authority's main operating expense is with salaries and wages, which account for about 80% o f total operating expenses\. Expenditureson operations and maintenance (O&M) are low amounting to about 8% of operating expenses and only 0\.1% o f its gross fixed assets\. As NREA gears up to become Egypt's major producer of green energy, appropriate maintenance o f its facilities will be critical to maximize the electricity output and ensure future sustainability of NREA's assets\. Future Financial Performance of NREA 77\. Projections to assess NREA's future financial position and performance have been carried out for the period 200906 to 2019/20\. A summary o f the assumptions used in the forecast i s presentedi s Annex 9 and detailed assumptions are recorded inthe project files\. 78\. Projections for NREA's future performance are based onthe following key assumptions: 0 NREA expects to benefit from the sale o fcarbon emissionreduction credits (based onthe amount o f COz emissions saved from the electricity it produces from renewable sources) as an additional source of revenue\. To this end, it has already signed two bilateral agreements encompassing 140 MW o f wind turbines planned to be operational by 2008/09\. It i s assumed that NREA will be able to sell carbon emission reduction credits for all the renewable projects it plans to implement inthe future, excluding the ISCC\. 0 From 2006/07 onwards, the tariff NREA charges EEHC for the electricity sold increases at the same rate as domestic inflation\. 0 Gradual increase inthe revenuecollected from EEHC to 98% by 2009/2010\. Gradual increase in O&M expenditures to a level that is equivalent to 1% o f gross fixed assets by 2013/14, to be inline with additional installed capacity\. 21  79\. The analysis shows even though NREA's operating margin and cash flow position are positive, its overall financial performance (taking into account depreciation and finance charges) deteriorates further in the short-term, with net operating losses being incurred up until 2009/2010, mainly due to the need for significant increases in O&M expenditures, as these become a critical element in ensuring the maximization o f the electricity output o f current and future installed capacity, which are key inensuringthe future sustainability ofNREA\. 80\. It has been agreed with NREA's management to monitor two financial indicators (a) the debt service coverage ratio (DSCR) and (b) the self finance ratio (SFR) as proxies for financial soundness\. A minimum DSCR o f 1\.1 and a minimum SFR of 0\.1 are targeted to be achieved uponproject close\. 3\. Technical 81\. The plant comprises essentially two portions (a solar portion and a combined cycle portion)\. The figure below illustrates the designo fthe integrated plant\. 82\. The main technical challenge of the proposed scheme i s the integration and performance o f the two portions making up the power plant\. Further, due to the financing sources requirements, the Borrower had to separate the procurement of the two portions, resulting into two contracts (one for the solar and one for the CCGT)\. The technical integration risk i s mitigated through (i) inclusion inthe completed procurement process o f data exchange between the two bidderswho have won the contracts; (ii) o f a constructionmanagement consulting hiring firm for the supervision and integration o fthe solar and combined cycle islands, and (iii) hiring 22  an experienced operator for O&M o f the combined cycle islandwith responsibility to coordinate operation withthe O&M operator o fthe solar island\. 83\. Several clarification meetings (with both Solar Islandand CCGT IslandBidders present) have taken place to discuss the common section in the bid documents on the interface requirements, where each Solar Islandbidder will provide their inputs\. From the Solar Island Bidder's inputs, one interface document was established which had to be met by the CCGT Bidders\. 84\. The Solar Islandis designedto achieve the lowest cost o f generation o f solar heat based on the given data file o f 8,760 hourly reference values o f solar irradiation, solar position and ambient temperature\. The contract with the winning bidder includes a performance model for the calculation o f heat output as a function o f solar irradiation, solar position and ambient temperature\. 85\. The CCGT Island is designed having as reference the solar island design and cost\. In addition, the supplier of the CCGT received interface requirements from the Solar Island supplier\. 86\. The performance risk is being mitigated through the formulation o f incentives in the framework of the two O&M contracts for the solar and CCGT Islands- which will regulate the operation o fthe plant over its lifetime\. 87\. The verification o fthe performance ofthe solar O&M operation will be by measuring the ambient conditions o f solar irradiation and ambient temperature and calculating with the performance model the amount o f solar heat which should be generated\. This calculated amount will then be compared with the actual generated amount in order to determine if the guarantee has been achieved\. For the CCGT Island, a similar procedure can be adopted; in this case the actual solar heat produced by the Solar Island serves as an input in order to determine the requirementfor the CC Islandoperator\. 88\. The performance and efficient operation o f the ISCC will ultimately be assured through incentive mechanisms (penalties and bonuses) as follows: The Solar Islandis checked for heat production as a function o f irradiation\. Ifit is not met there will be corresponding penalties\. The CCGT Island is checked for electricity production as a function of Solar Heat supplied by the Solar Island\. It is the responsibility o fthe CC IslandOperator to use all the Solar Heat supplied\. Ifit is not metthere will be corresponding penalties\. 89\. Ifthe electricity productionis not achieved, the shortcomingcan clearly be allocated to one o fthe two operators\. 90\. Inparticular, integrationand control ofthe system shouldbe flexible enoughto allow the solar contribution to be consistently maximized, while under other circumstances allow power to be efficiently generated on natural gas only (e\.g\., during night time or if the solar field i s not 23  operational)\. The bid evaluation criteria and the determination o f the levelized electricity cost (LEC) were included inthe biddingdocuments\. 4\. Fiduciary Procurement issues: 91\. The supplier for the solar island was procured through an international competitive biddingprocess, inwhichbidderswere giventhe maximum freedom o f choice to meet the plant specifications from the technological and financial points o f view\. The solar field will be o f the provenparabolic trough type, where 2 types o f designare available (Euro-trough andLS-3)\. The combined cycle plant configuration was optimized during the bidding process and became definite when the winning bidder submitted his final design\. The bid documents used allowed flexibility for a range o f power output inorder to have sufficient competition\. The bidders were allowed to offer gas turbines o f their choice (different or not from the baseline design) which fit best the evaluation criteria\. This open approach aimed at ensuring that optimum technology at least cost be employed\. 92\. A procurement capacity assessment of NREA was carried out during project preparation and identifiedthat NREA has gained good project implementation and procurement experience as a result o f its work with several international donors financing some o f its projects\. The assessment also reviewed that NREA's organizational structure for implementing the project i s satisfactory\. 93\. The completed procurement for the solar island prior to final approvals has permitted project preparation to address several critical procurement issues that are essential to achieving the project objectives\. The bidding was carried out according to World Bank Procurement Guidelines to ensure the selection o f reputable contractors/suppliers on a competitive basis\. In particular: Pre-qualification was carried out to ensure that only appropriately qualified contractors/suppliers were invited to bid\. Prequalification criteria included: (i) experience and past performance on similar contracts; (ii)capabilities with respect to personnel, equipment design, construction, manufacturing and operation facilities; and (iii) financial position; The solar island EPC cum O&M contract was procured using the Bank Standard Bidding Document: for Supply and Installation of Plant and Equipment with two stage bidding procedures; Evaluation of the EPC cum O&M bid for the Solar Island and EPC CCGT Island bid was based on: (i) the investment costs (in US$equivalent); (ii) generation (kWh/a); (iii) solar generation (kWh/a); (iv) O&M costs (US$/a); (v) fuel consumption (Btu/a); and (vi) guaranteed availability and degradation o f the unit, and (vi) the final evaluation report was cleared by the World Bank's operations procurement review committee\. 94\. The CCGT Islandbiddingprocess is also completed\. The contract is on the basis ofEPC only\. The O&M contract for the CCGT will be a separately bid\. The O&M contractor for the 24  CCGT will have to guarantee that it meets the annual generation (number o f kWh) and fuel consumption (number o f million BTU o f gas) predicted from the performance matrix (this performance matrix i s similar to a performance model) for the actual amount o f solar heat deliveredto the CC islandand also the annual ambient temperature profile\. Financial management issues: 95\. The project financial management assessment was conducted to assess the financial management arrangements currently inplace at NREA and their adequacy to support the project implementation\. The purpose are to identifythe associated risks, buildup the relevant mitigating measures, and agree with the grant recipient on how to deploy or adjust the current arrangements to support the proposed project and on any special measures that needto be carried out\. 96\. By virtue of its articles o f incorporation, NREA adopts the Egyptian UnifiedAccounting System (UAS) in maintaining its accounts and for reporting on its financial position and its results of operations\. The UAS i s complimented by the accounting standards issued by the Central Auditing Organization (CAO) and applicable to public authorities o f economic nature like NREA\. For donors financed projects, NREA maintains separate parallel records (manual and excel spreadsheets) in order to record and report on these projects' financial position\. In order to provide a full picture on the proposed project, the entire project funds (GEF grant, JBIC loan, and NREA's local contribution) will be accounted for in one set o f records and financial statements\. 97\. A reporting risk arises from the nonconformity of NREA's accounting system with the Bank's reporting needs and the inability o f the current system inplace to report separately on the project funds and transactions\. To mitigate this risk, the foreign exchange (FX) department will maintain parallel records for the project transactions in coordination with the PIE at the project site and the cost accounting department, and will be responsible for preparing interim and final project financial statements requiredby the Bank\. 98\. NREA's current auditing arrangements are not adequateto report on the project accounts separately and inaccordance with Bank requirements\. The CAO audit does not report separately on a specific project's accounts\. Inaddition, the Bank requests reviews of the interim financial reports which are not typically provided by the CAO\. Therefore it has been agreed that an independentprivate auditor will be hiredto provide aproject audit and review reports as required by the Bank\. 99\. NREA did not manage a designated account under the Wind and Solar projects preparation grants which exclusively used direct payments\. GEF grant funds will be fully applicable to one large contract and therefore disbursementsunder the grant will also take place via direct payments\. 100\. The high share o f local contribution ($126 million out o f $327 million total project cost, including 2-year o f eligible cost o f O&M) can result in delayed h d s availability and delayed implementation\. NREA will reflect the project investment requirements in its five year budget 25  planfor FY 07/08 to FY 11/12 to mitigate against this\. Inaddition, NREA has already included part o fthe project costs inits FY 06/07 approvedbudget\. 101\. The above mitigating measures, NREA's previous experience with Bank procedures through the preparation grants (for Solar and Wind Projects), and the relatively simple project designwithlimitednumberof contracts result inan overall risk rating o fModest\. 5\. Social 102\. The project will be developed on a site belonging to NREA, close to the existing Kureimat gas-fired combined-cycle power plant owned and operated by EEHC\. All construction-related activities will take place on this land\. N o land acquisition i s likely to take place as a result o f the project\. The area covers desert land with no existing residents or any economic activity taking place\. The site i s several kilometers from the town o f Kureimat, and a separateresidential area set aside for the employees o fthe existing power plant i s located about 2 kilometers from the project site\. The existingresidential complex includes a kindergarten and a sports club\. In case any additional buildings will be required, these will be constructed on land belonging to NREA\. A labor camp will not be needed as the workers will be recruited locally and will commute by bus on a daily basis\. Moreover, the site is located ina relatively remote area a long distance from the nearest permanent settlements, and the construction o f the plant i s not likely to have negative impacts on local livelihoods\. Rather, the planned project has been reported to be received favorably by the local population for several reasons\. The most important impact will be local employment, particularly during construction which will brin income to the nearby communities\. Small farmers occupying a total o f about 1,180 feddans15 south of the planned power plant also expect to benefit, particularly during construction, as opportunities to sell their produce locally will improve\. 103\. Inview of the above, no resettlement, land acquisition or loss of livelihood is likely to take place as a result o fthe project and OP 4\.12 i s not expected to be triggered\. 6\. Environment 104\. An initial scoping study on environmental impacts was undertaken as part o f the feasibility study prepared by Lahmeyer\. It reported that the environmental impacts o fthe project were expected to be minimal as: (i) site is located in the desert without cultural or the environmental constraints; (ii) it is close to the existinglarger gas-fired power plant at Kureimat for which major infrastructure (gas supply and electricity evacuation) has already beenfurnished; and (iii) plant will utilize natural gas and solar heat\. the 105\. Subsequently,a comprehensive EIA following the EIA guidelines in OP 4\.01 and under terms o f reference cleared by the Bank has been carried out\. A draft EIA was disclosed in the InfoShop on July 10, 2006 and in-country disclosure has also taken place\. The final EIA was disclosed on December 28, 2006\. It includes an assessment o f air quality, aquatic environment, noise, flora and fauna, soils and hydrology, traffic andtransport, socio-economic, archeological, natural disasters, solid waste management and occupational health and safety\. The EIA also l21feddan =: 1acre 26  establishes a detailed environmental management and monitoring program to be followed by NREA andits contractors duringplant construction and operation\. Inaddition, the designofthe plant incorporates various measures to minimize environmental impacts\. These include use of natural gas as the main fuel, low NOx combustors inthe gas turbines, a stack height o f 35 meters to maximize dispersion of emissions, as well as oil interceptors fitted to the site drainage system and effluent treatment facilities to treat wastewater prior to discharge\. 106\. There i s no resettlement foreseen and no adverse social impacts are expected\. The GEF component will ensure that the poor are not adversely affected, as the project will not impact on the current tariff levels in place\. The Environmental Mitigation Plan i s provided in Annex 10\. The cost o fthe EMP has beenestimatedat close to US$0\.45 million\. 7\. Safeguardpolicies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4\.0 1) [XI [I Natural Habitats(OPBP 4\.04) [I [I Pest Management (OP 4\.09) 11 [I Physical Cultural resources(OPN 11\.03, beingrevisedas OP 4\.11) [I [I Involuntary Resettlement(OPBP 4\.12) 11 [I IndigenousPeoples(OPBP 4\.10) [I [I Forests (OPBP 4\.36) [I 11 Safetyof Dams (OPBP 4\.37) [I [I Projects inDisputedAreas (OPBP 7\.60)' [I [I Projectson InternationalWaterways (OPBP 7\.50) [I 8\. Policy Exceptionsand Readiness 107\. The project will fully comply with Bank policies, and meets the regional criteria for implementation\. 108\. Furthermore, given the advanced stages o f procurement (see below), the project i s deemedready for implementation\. Procurement package Status Estimated date for contract signing CCGT Biddingcomplete October 2007 (done) Solar plus2-yr O&M Biddingcomplete October 2007 (done) Project Manager RfPissued late September 2006 December 2007 CCGT O&M contract RfPwill be issuedinMarch2009 September 2009 * By supporting theproposedproject,the Bank does not intend toprejudice thejnal determination of theparties' claims on the disputed areas 27  Annex 1:Country and Sector or ProgramBackground CountryIssues A comprehensive economic reform program was adopted in Egypt in 2004, when significant change took place in the cabinet and several new officials were appointed to key ministerial positions\. This new government has made economic reform its key objective, notably in areas such as finance, investment, trade and industry\. It has also stated its keen interest to enhance the provision o f public goods and services, including physical and social infrastructure\. The latter includes the power sector\. The investment needs in infrastructure remain substantial\. It is estimated that approximately 4- 6% of Gross Domestic Product (GDP) needs to be invested annually in infrastructure sectors in the Middle East and North Africa (MENA) region to satisfy new investment requirements as well as maintenance and replacement pend ding\.'^ The decline in investment in the MENA region, including in Egypt, is reported to have compromised the infrastructure base, which is further challenged by the high growth in demand for modern infrastructure services\. To ensure responsible for generation, transmission and distribution of electricity in Egypt - requires on adequate provision o f electricity, the Egyptian Electricity Holding Company (EEHC) - average about 1,500 MW of new capacity each year\. Promotion of renewable energy projects plays a key part inEgypt's generation plan\. Indeed, to date 225 MW of wind-turbines have been installed andare operational, performing well at an average capacity factor of 42%\. While investment is required to ensure adequate infrastructure, the Government of Egypt (GOE) is increasingly concerned with the rising fiscal deficit and public debt, which rose from 3\.9% in FYOO to 9\.6% inFY05\. To counter this, the GOE has been implementing several measures to reduce the deficit over the medium term by restraining public expenditures and increasing public revenues\. A s a result, the deficit as a percentage of GDP for FY06 dropped to 8\.6% and the GOEplans to reduce it further by 1%per year for the next five years\. The key measures that the GOE has adopted include redesigning of subsidies, controlling growth in public sector employment and cutting unnecessary expenditures\. Some reforms already underway include: Increasing retail utility prices, including increases inelectricity and gas prices\. 0 Reducing custom tariffs\. Reducingprice controls and subsidies on basic products, including diesel-fuel\. 0 Increasing interest inthe potential for public-private partnerships (PPPs)\. Strengthening and reorganizing the privatization program under the Ministry of Investment established inJune 2004\. Against these reforms, the GOE remains committed to providing a public safety net comprising of various subsidies, employment programs and cash transfers and agrees that there is much room for improvingthe cost-effectiveness of the safety net currently inplace and its coverage of the poor\. Assistance to do this is included inthe Country Assistance Strategy (CAS)\. l3CitedininternalBankreporton "Arab Republico fEgypt: A Short InfrastructureAssessment," December2004\. 28  Sector Issues and GovernmentStrategy Access to electricity i s highinEgypt (98%)\. However, the fast growing demandputs significant pressure on the sector's ability to provide reliable and reasonably priced electricity; challenging both its ability to contribute to higher growth and poverty alleviation\. To ensure sustainable service delivery, the GOE i s implementing reforms in electricity pricing, diversification of supplyandimprovedefficiency through the development o fa marketfor electricity trade\. v: In October 2004, the GOE approved an increase in electricity tariffs, the first increase in 12 years, and a subsequent tariff increase was approved in 2005 in which the average tariff changed to 14\.86 Pt/kWh (2\.5 uS$/kWl~)\.'~Further increases to industries were announced inAugust, 2007\. Still, Egyptianelectricity prices are low by international standards and when compared to a number o f other countries in the region, since prices have declined substantially inreal terms over the 12 year period of no price changes and, with the depreciation o fthe Egyptianpound, inforeign currency terms as well\. Inaddition to subsidized overall tariffs, there are also substantial cross-subsidies which are not very well targeted\. An inclining block tariff is used to subsidize residential customers who use the least electricity\. The GOE i s fully aware o f cross-subsidization in the sector and, although the overall electricity retail tariff has increased, subsidies continue to prevail for politically sensitive customer segments\. The GOE i s keen to eventually reduce the level o f cross- subsidization in the sector and the subsidies in general, but recognizes that this will take time\. Bank assistance is being provided under the El Tebbin Power Project (Loan No\. 7359-EGT) to design and implementtime o f use tariffs and load management schemes, which would assist in improving overall cost recovery, as well as sending signals for increased energy efficiency by reducing demand for electricity at peak periods\. Egypt's significant reserves o f natural gas play a key role in electricity production\. Current proven reserves are estimated at 67\.2 trillion cubic feet (Tcf), with an additional 120 Tcf identified as probable and possible reserve^\.'^ To meet projected domestic demand (industrial, commercial and residential) and export demand (via pipelines and liquefied natural gas terminals) over the next 20 years, about 15 Tcf i s estimated to be required\. This leaves Egypt with a proven ReservesProduction (RP) ratio of over 80 years\. Domestic gas consumption is dominated by the power sector at 65%' followed by the fertilizer industry, petrochemicals and other industrial sectors\. The price o f natural gas to industries as well as the power sector has beenset at 21 Pt/m3 (US$l/mmbtu), but an increase over a 3 year periodwas recently announced for the industrial sector which will see the gas price increase to US$2\.65/mmbtu by the third year\. As natural gas is becoming increasingly important to Egypt's economy, particularly with the growing potential for exports, moving towards cost-based pricing o f gas is becoming increasingly important\. As a result, the GOE has undertaken a study to determine the cost of gas, whichthe Bank has assistedthrough ESMAP (Energy Sector Management Assistance Program)\. The study has been disseminated among key governmental stakeholders and provided the basis 14The 2004 increasewas o f 8% on average, in2005 a hrther 5% average increasewas approved, and the government plans hrther annual increases o f 5% for the next 4 years\. l5Source: Ministryo fPetroleum, July 2005\. 29  for the recent increase in gas price to industry and is informing the GOE's longer-term gas pricingpolicyandstrategy\. Diversification of supply: As stated above, the fast growing demand for electricity requires significantinvestmentingeneration capacity each year (the increase indemandfor electricity in Egypt averaged about 7% during 1997/98-2003/04 and is expected to remain in the 6%-7% range over the next 10 years)\. Installed capacity of electric power was 20,452 MW in 2005/2006, of which 85% comprised thermal power (10% of which is provided by the private sector through 3 IndependentPowerProducers,IPPs)\. The remainingcapacitywas attributedto hydropower(14%) andwind (1%)\. Peak loadreached17,300 MW in2005/2006, andabout 90% of the thermal power productionwas based on natural gas\. Initiatives are underway to better understand customer consumption patterns and loads to ultimately implement demand-side management measures to reduce the overall consumption and the growth in demand\.16 World Bank assistance is beingprovidedto this effort\. The GOE's strategyis to continue to implementgas firedpowerplants, with a long-termview to increase the share of combined cycle gas turbine technology in the generationmix\. Inaddition, the GOE has a target o f meeting 3% of its electricity needs from renewable energy sources by 2010; and 20% by 2020 (includinghydro whichtoday comprises 13%of the 20%target)\. Bank technical assistance was recently requestedto help in the development and achievement of this plan\. The New and Renewable Energy Authority (NREA) has the responsibility to develop renewable resources in Egypt and implement the government's strategy on renewable energy\. Until 2001, most of NREA's activities have been in the research and development field, and since then its activities have increasinglyturned to the productionof renewable energy\. NREA has in recent years successfully augmented its revenues with income from the sale of carbon reduction credits under the clean development mechanism\. Indeed, agreements have already beensignedwiththe Japanese, the Danishandthe Germangovernments\. NREA's strategy i s to capitalize on Egypt's abundant wind and solar natural resources to meet the renewable energy target set by the Government\. For this purpose it plans to install an additional 850 MW of wind by 2010 and considersthe construction of the proposed Integrated Solar Combined Cycle Power Plant (150 MWe) a key development towards improving and diversifyingits institutional andtechnical capacity inthe area ofrenewableenergy\. Finally, as an incentive to the development of renewable energy, the GOE has established a mechanism (the `Petroleum Fund'), where producers of non-fossil fuel electricity receive 2 PtkWh\. This mechanismis intendedto accelerate development of renewableenergy by sharing with developersthe additionalexportrevenuegeneratedfrom fuel savings derived\. Electricitv Market Development: Following the 2001 unbundling of the electricity sector in Egypt, further reform of the sector includes market development, such as liberalization and greater regional integration\. The Ministry of Electricity and Energy is in the process of developing a plan for the introduction of competition in the sector consistent with the 16Energy intensity in Egypt in 2004, defined as the energy consumptionper unit of GDP was equal to 0\.22 toe / 000' 95 US$,which is comparable to other oil producing countries in the region (Algeria: 0\.20) and lower than others (Iran: 0\.33), but higherthan WesternEuropeancountriessuchas Germany(0\.18) andFrance(0\.19)\. 30  implementation o f further tariff increases and on-going improvement in the efficiency o f the subsidiary companies\. This plan will see gradual opening o f the sector, starting with the generation segment\. To facilitate reform, a regulatory agency has been established and an electricity law i s under formulation\. A Higher Energy Council was recently established under the chairmanship of the Prime Minister and with members represented by the ministers o f electricity, petroleum, finance, planning and economic development\. This council reviews energy alternatives, their economics as well as overall energypolicy and planning\. Egypt's plans are consistent with - and supported by -its participation in the European Neighborhood Policy (ENP) partnership, which was developed in the context o f the European Unions' (EU) 2004 enlargement with the objective o f avoiding the emergence o f new dividing lines between the enlarged EU and its neighbors\. A key feature o f the ENP is the bilateral ENP Action Plans mutually agreed between the EU and each partner country\. These action plans set out an agenda o f political and economic reforms with short and medium-termpriorities\. Inthe case o f Egypt, the action plan i s under discussion and includes market liberalization (inprinciple by 2010) and continued price reform inboththe electricity andgas sectors\. Meeting the reform targets in the action plan will require far-reaching reforms o f the Egyptian power sector\. Some assistance on how to achieve this i s being provided through the EU\. The European Investment Bank also has significant grant funds available to Egypt for technical assistance\. Nevertheless, significant work remains on the detailed steps required to meet the liberalization objective, as well as Government policy on how to finance sector investments in the longer term, including the respective roles o f the public and private sectors\. On the latter, the GOE remains open to private sector participation, although the pressureon the financial status o f the sector has led to the GOE opting for public sector financing for the time being\. Clearly, tariffhubsidy reform would need to accompany any large-scale re-engagement with private participation, as well as and as mentioned earlier; reform o f the social safety net, which i s a key priority o f the GOE\. The Bank is providing the Government with assistance to formulate an energy pricing strategy including reforms to social safety nets and social protection in order to support the implementation o ftariff/subsidyreforms\. 31  Annex 2: Major RelatedProjects Financedby the Bank and/or other Agencies Sector Issues Project PDORating I Private Sector Power Port Said and Suez East (IFC) Power Generation El-TebbinPowerProject (World Bank 2006) KureimatPowerProject (World Bank 1992) I u ElKureimatPower Project(AfDB) S Power Development Walidia ThermalPower Station (JBIC) Abou-Zaabal Substation(JBIC) I Sidi Krir Transmissionand Substation Project (JBIC) CleanEnergyDevelopment KfW-sponsored Wind Farm S Danida-sponsoredWind Farm JBIC-sponsoredWind Farm S Spanish-sponsoredWind Farm Gas Sector Gas InvestmentProject (World Bank 1992) I Gas ConnectionsProject(World Bank) Under Preparation 32  Annex 3: ResultsFrameworkandMonitoring ResultsFramework 1\. Increasethe share of solar-based 1\.1 Total electricity generated Track solar-based generation and power inthe Egyptian energy from solar sources identify changes neededto maximize mix (GWWyear) solar output 1\.2 Solar output as a percentage o ftotal energy produced in the hybrid plant 1\.3 Total electricity generated from the ISCC plant 2\. Contribute to lower C02 2\.1 Emissions reduced from use Track C02emissions reduction and emissions inenergy generation o f solar fuel (tons o f make adjustments to meet objective C02/year) 3\. Support the development and 3\.1 Cost o f solar thermal power Record details o f development o f demonstration o fthe operational (#/kwhand $/kW) solar/ISCC plant to serve as lessons viability o fthe ISCC 3\.2 # o fNREA staff trained on learned for design o f future solar/ISCC configuration, and contribute to various aspects o f solar plants its replication\. technology 3\.3 Disseminationo f information Monitor cost o f solar generation and on the plant and o f lessons determine ifchange inoperation o f learned during pre- solar/ISCC plant is necessaryto construction, construction maximize output and operation o fthe plant Demonstrate the operational Solar plant completed and Illustrate that solar thermal plants can viability o f solar thermal power operational with a generation be constructed and operated efficiently generation inEgypt capacity o f about 20MW\. inthe context ofa developingcountry\. 33  d m  Annex 4: DetailedProjectDescription The project will be developed inKureimat, about 90 km south o f Cairo\. The site was selected due to: (i) comprises an uninhabited flat desert area; (ii) is high intensity direct solar it there radiationwhich reaches 2400 kWh/m2/year;(iii)i s close to the extendedunifiedpower grid as it well as natural gas pipelines; and (iv) it is near to water sources (e\.g\., the Nile River)\. The designofthe project is basedon a conceptual designreport preparedby Fichnter Consultants The plant will have a combined capacity o f about 150 MW, including 20 MW of solar capacity\. When own consumption of 6\.3 MW is deducted, the net overall plant capacity becomes 143\.4 MW\. The total net energy producedby the plant is expected to be 852 GWh per year, which includes the solar contribution o f 33\.4 GWh per year\. This corresponds to a solar share o f 4 YO o fthe total annual energy produced by the plant operating at a full load\. The project will be implemented through three components\. For Component 1 the costs are known since the procurement process for both the solar and the combined cycle portions have been completed\. These costs are inclusive of import taxes on equipment and contingencies\. Having said that, NREA will apply for an import tax waiver for select equipment at the time o f actual import which would result in a potential saving o f US$22\.4 million for the project\. For Component 2 and 3, estimated costs are presented\. Component 1\. The design, construction and operation of the proposed Integrated Solar CombinedCyclePlantincludetwo sub-components: The solar portion o f the power plant (US$111million; of which GEF willfinance US$49\.8 million and NREA US61\.2 million) includes one contract for engineering, procurement, construction, testing, commissioning and two years operation and maintenance (O&M)\. The solar island consists o f a parabolic trough solar field capable o f generating about 73 MW (thermal) o f solar heat at a temperature o f 393"C, the related Instrumentation and Control (I&C) and control room andthe heat transfer fluid (HTF) system up to the HTF inlet andoutlet flanges o fthe Solar Heat Exchanger(s)\. The capital cost ofthe combined cycle portion of the plant (US$201 million; of whichJBIC will finance US$151\.3million and NREA US$49\.7million) includes one contract for the EPC aspect of the power plant\. Inaddition, one 2 year O&M contract will be financed by NREA (US$8\.8 million)\. The combined cycle island will consist of one gas turbine with I S 0 rating o f about 73\.3 MWe, one heat recovery steam generator (HRSG), one steam turbine o f about 76\.5 MWe, and solar heat exchanger(s) capable to absorb about 73 MW (thermal) solar heat plus all associated balance ofplant equipment\. Component 2\. Comprises capacity building to NREA through consulting services for construction management during the construction, testing and operation o f the plant (US$6\.36 million, including price contingency)\. The capacity building will focus on: (a) detailed engineeringdesigns with special attention to the interface between the solar and CCGT parts; (b) supervising the construction and environmental aspects o f the power plant; (c) monitoring the commissioning and guarantee tests; (d) preparing the O&M contract for the CCGT part interms satisfactory to the Bank\. As such, NREA will seek the Bank's comments on the draft contract 35  before requestingproposals; (e) providing assistance during the 2 year guarantee period as well as assisting NREA in monitoring and evaluation o f the performance o f the whole plant at least duringthe two years o fthe O&M period; and (f)providing training and transfer o f know-how in ISCC plant operation, with particular emphasis to dispatching and integration into the power system so that NREA staff can successfully take over the power plant after the respective O&M contracts expire\. Component 3\. Comprises the Environmental and Social Impact management component to be financed by NREA (US$0\.45 million, including price contingency)\. This component will include the implementation o f the Environmental Management Plan (EMP) which mitigates the potential environmental and social impacts associated with the construction and operation o f the power plant\. The breakdown o fthe project components i s provided inthe table below: Items Equipment/ Work Others, Taxes & cost Contingencies 2-year O&M Costs Total Component 1 a) Solar Island 98\.74 6\.10 6\.15 110\.99 b) CC Island 184\.69 16\.28 8\.80 209\.77 Component2 CapacityBuilding 6\.00 0\.36 Not applicable 6\.36 Component3 EMP 0\.425 0\.025 Not applicable 0\.45 Total 289\.86 22\.76 14\.95 327\.57 Note: Amounts are expresst in US$million 36  Annex 5: Project Costs a- Solar Total Solar Equipment& Installation 30\.29 45\.08 75\.37 Contractor'sEngineering 1\.46 21\.91 23\.37 Taxes and dutieson imported equipment 6\.10 6\.10 Total Cost of Solar Island 37\.84 66\.99 104\.84 b- CC Total CC Equipment& Installation 28\.61 131\.88 160\.49 Contractor'sEngineering 4\.80 19\.41 24\.21 Taxes and duties on imported equipment I Total 16\.28 16\.28 Cost of CC Island 49\.68 151\.29 200\.97 2- Consulting Service during implementation 6\.06 0\.00 6\.00 3- Environmentst& Sociat Impact Maaagemenr 0\.425 0\.00 0\.425 Base Cost (1+2 +3) 93\.95 218\.28 312\.23 Contingencies(Physical) 0\.00 0\.00 0\.00 Contingencies(Price) (3% for Foreign& 6% for * ISCC and CC costs are based on bids awarded, including contingencies, taxes and duties on imported equipment and excluding the cost of O&M contracts\. Price contingencies are estimated for Component 2 and 3 only\. B O&M Contract (Million US$) 2 years Solar O&M Cost 6\.15 CC O&M Cost (excl\. &el) !? Ill) Total O&MCost (exrl\. fuel) 14\.85 A+B [Tentative]FinancingAllocation(Million US$) Total GEF JBIC Solar (EPC) 104\.84 49\.80 X 55\.04 Solar (O&M) 6\.15 X X CC(EPC) 200\.97 X 151\.29 49\.68 CC (O&M) 8\.80 X X Consulting Service during Implementation 6\.36 X X Environmental& Social ImpactManagement 0\.45 X X 0\.45 Total 7 327\.57 49\.80 151\.29 126\.48 I NREA portion includes $22\.38 oftaxes and import duties on import equipment\. 37  Annex 6: ImplementationArrangements The project will be implementedby NREA\. NREA was established in 1986 (Law No\. 102) to act as the focal point to introduce and promote renewable energy technologies, with a particular emphasis on commercial scale electricity generation from renewable sources\. NREA has been able to very successfully assume this role and i s increasingly focusing on electricity production fkom wind, and other renewable sources\. NREA receives full support from the Ministry o f Energy and Electricity to succeed in its role and also receives support from the Egyptian Electricity Holding Company (EEHC) in furthering its capacity to prepare and implement large projects\. NREA, as the Executing Agency and as the mandated agency in Egypt to develop renewable resources, will be responsible for the project management\. NREA will establish a Project Implementation Entity (PIE) headed by an experienced Project Manager who will report to the Deputy Chairman for Projects and Operation\. The PIE will be responsible for the day to day management activities o f the proposed project and will be staffed by a core specialists in technical, financing/accounting, and procurement matters, which will be based at the project site\. Ln addition, the PIE will liaise closely with other departments at headquarters for support in legal, financial, environment and planning matters\. NREA will be assisted in this project by a Consulting Engineering Consultant\. Its main mission will be to: (a) review o f the detailed engineeringdesigns with special attention to the interface between the solar and CCGT parts; (b) supervise the construction and environmental aspects o f the power plant; (c) monitor the commissioning and guarantee tests; (d) prepare the O&M contract for the CCGT portion; (e) provide assistance during the 2 year guarantee period as well as assisting NREA in monitoring/evaluation o f the performance o f the whole plant at least during the two years o f the O&M contractual period; (f) provide training andtransfer o f know-how inISCC plant operation, withparticular emphasis to dispatching and integration into the power system so that NREA can successfully take over the plant after the respective O&M contracts expire\. 38  OrganizationChartofthe ISCC ProjectImplementationEntity 39  Annex 7: FinancialManagementand DisbursementArrangements ExecutiveSummaryand Conclusions: The project financial management assessmentwas conducted to assess the financial management arrangements currently in place at NREA and their adequacy to support the project implementation\. The purpose i s to identify the associated risks, build up the relevant mitigating measures, and agree with the grant recipient on how to deploy or adjust the current arrangements to support the proposed project and any special measuresthat needto be carried out\. The proposed GEF grant will be made to the GOE and be on-granted to NREA\. NREA will also be responsible for financing part of the project cost and repaying the JBIC loan which will finance the foreign cost related to the conventional part o f the plant\. This loan has already been approved and i s guaranteed by the GOE\. Cost recovery o fthe power producedunder this project will beensuredthrough a power purchase agreement (PPA) betweenNREA andEEHC\. By virtue o f its articles o f incorporation, NREA adopts the Egyptian Unified Accounting System (UAS) in maintaining its accounts and for reporting on its financial position and its results of operations\. The UAS is complimented by the accounting standards issued by the Central Auditing Organization (CAO) and applicable to public authorities of economic nature like NREA\. For donor financed projects, NREA maintains separate parallel records (manual and excel spreadsheets) in order to record and report on the projects' financial position\. In order to provide a full picture on the proposed project, the entire project funds (GEF grant, JBIC loan, and NREA's local contribution) will be accounted for inone set ofrecords and financial statements\. A reporting risk arises from the nonconformity of NREA's accounting system with the Bank's reporting needs and the inability o f the current system inplace to report separately on the project funds and transactions\. To mitigate this risk, the FX departmentwill maintain parallel records for the project transactions in coordination with the PIE at the project site and the cost accounting department, and will be responsible for preparing interim and final project financial statements requiredby the Bank\. NREA's current auditing arrangements are not adequate to report on the project accounts separately and inaccordance with Bank requirements\. The CAO audit does not report separately on a specific project's accounts\. In addition, the Bank requests reviews o f the interim financial reports which are not typically provided by the CAO\. Therefore, it has been agreed that an independentprivate auditor will be hiredto provide project audit and review reports as required bythe Bank\. NREA didnot managea designated account underthe Wind and Solar projects preparationgrants which exclusively used direct payments\. The GEF grant funds will be fully applicable to one large contract andtherefore disbursementsunder the grantwill also take place via direct payment\. The high share of local contribution ($126 million out of $327 million total project cost, including 2-year o f eligible cost o f O&M) can result in delayed funds availability and delayed implementation\. To mitigate this risk, NREA will reflect the project investment requirementsin 40  its five year budget plan for FY 07/08 to FY 11/12\. In addition NREA has already includedpart ofthe project costs inits FY 06/07 approvedbudget\. The above mitigating measures, NREA's previous experience with Bank proceduresthrough the preparation grants (for Solar and Wind Projects), and the relatively simple project design with limitednumberof contracts collectively contribute to an overall FMrisk of Modest\. CountryFMIssues: The Report on Observance of Standards and Codes - Accounting & Auditing (ROSC-AA) (2002) and the draft Country Financial Accountability Assessment (CFAA) report (2003) identifiedsome weaknesses inthe reporting andauditing environment inEgypt\. The ROSC-AA includedan assessment as to the degree of compliance with International Standards on Auditing (ISA)\. Compliancewas found to vary among audit firms andwas not always ensured\. The 2003 CFAA assessed the fiduciary risk associated with the budgeting arrangements, internal control system, and accounting and financial reporting arrangements to be significant (this assessment covered state owned enterprises and Public Authorities)\. Such risks are applicable to NREA as a public Authority\. Thus, the condition of the country overall reporting and auditing environment affects the project assessed risks and, accordingly, special measures are being taken with regards to F Marrangementsas shown below (special reporting and separate audit arrangements)\. RiskAssessment and MitigationMeasures(MM): InherentRisks: Risk Risk Before MM Mitigating Measures(MM) -Countryfcompliance with IFRSand level: Lack o - Project financialstatements ISA when preparingandauditingthe will be auditedby a private financialstatements of public independent auditor acceptable -authorities(NREA)\. to the Bank\. Budgetingarrangements, internal S - Project funds will be ring M controlsystem, andaccountingand fenced with funds allocatedto financialreportingarrangements specific contracts andusinga assessedas significantrisk by CFAA\. separatereportingsystem\. Entity level: (NREA) - Itwas agreedwith NREA' The form andcontent o fNREA's audit that the project financial reportsdo not fully conform to S statements will be auditedby M International Standards onAuditing\. privateindependent auditor acceptable to the Bank\. 41  Risk Risk After MM Projectlevel - NREA's share inprojectcost inFY07was approvedinits FY06l07budget\. The highshare o flocal contribution - NREAwill ensurereflecting can result indelayedfunds availability H the projectinvestment S anddelayedimplementation\. requirementsinits fiveyear budget planfor FY 07/08to FY 11/12\. - Governmentcommitment to the project\. ControlRisks: Risk Risk Risk Before MM MitigatingMeasures(MM) After MM Budgeting - The FX department assigned Budgetsmay notbe timely with the projectFMfunction incorporatedandupdatedintothe S andthe budgetdepartmentwill M accountingsystem\. coordinatetogether especially that they bothreportto the same sector head\. Internal Control - The FX departmentwill Traceabilityof supporting documents maintaincompleteproject maybe inefficient usingNREA's S recordscross referencedto M current accountingsystem\. NREA's central filing\. - It will also keepcopiesof supportingdocuments\. Accountingand Reporting NREA's current accountingsystem The FX department will act as maynot supportcomprehensive the focal point,coordinatewith projectrecordsandreports for the H the Cost Accountingdepartment S entire project\. to track, account for andreport on the entireDroiectfunds\. 42  ImplementingEntity: NREA was established in 1986 as a public authority reporting to the Minister o f Electricity and Energy\. Its budget is preparedinaccordance with the provisions of the law o fthe State's Public Budget\. Its board of directors is entitled to ratify its organizational structure, to ratify its annual budget and final accounts, and to lay down the rules, regulations and internal statutes related to financial, accounting and administrative affairs\. NREA's staff at the FX department has acquired some experience with Bank procedures through the Solar Thermal and the Wind preparation grants\. In addition, possible synergies can be materialized from coordination between the FX department, the cost accounting department and the audit department\. This i s feasible especially as the cost accounting department already records financial information at the project level with classificationas to the type o f expenditures\. The cost accounting, general accounting, purchasing and auditing departments are headed by the Head o fthe financial sector\. The FX, finance and the budget departments are headedby the Head o f the economic and commercial sector\. Both o f the Head o f the financial sector and the Head o f the economic and commercial sector report to the Vice President for financial and administrative affairs\. The relationships are illustrated inthe following chart\. Vice Chairman Financeand AdministrativeAffairs HeadofEconomic Headof andCommercialSector FinancialSector FX andFinance Budget Department Department I I 1 I cost General Accounting Accounting Purchasing Auditing Department Department Department Department Budgeting: NREA prepares an annual budget consisting o f a current budgetthat is submittedto the Ministry o f Finance and an investment budgetthat i s submittedto the Ministry o f Economic Development 43  (formerly Ministry o f Planning)\. Inaddition, it preparesa five year investmentbudgetplan\. The new 5 year plan will be for the period from FY 07/08 to FY 11/12\. The budget submission usually takes place in February o f each year\. Since the budget i s subject to parliamentary approval, exceeding allocations cannot take place without parliamentary approval\. Changes among components however can take place with the approval o f the Ministry o f Economic Development\. Changes inallocations o f donors' financing requirethe approval o fthe donor and the Ministry o f International Cooperation\. The project budget i s currently being prepared in sufficient details to allow monitoring any deviations\. For the project purposes, payments from the local budget are subject to the review o f the budget department, the audit department and the Ministry o f Finance controller\. For payments from foreign loans and grants, the Economic and Commercial sector i s relatively more autonomous where budget approval and withdrawal applications are processed within the same sector\. However they are later subject to post reviewby the audit department\. Accounting: By virtue o f its articles o f incorporation, NREA adopts the Egyptian UnifiedAccounting System (UAS) inmaintaining its accounts\. Inthis context, it follows the standard chart of accounts per the UAS\. Yet it follows the accounting standards issued by the CAO as a complimentary framework for the UAS\. On the project level, the cost accounting department records transactions at the individual project level, classify them by type o f expenditures and allocate overheads to relevant projects\. Although the cost accounting department is not concerned with the project's sources of funding, its recording o f project expenditures, mainly direct costs, provides a good source for reconciling project records maintainedby the FX department with the cost accounting records\. For reporting on its financial position and its results o f operations, NREA applies the accounting standards issuedby the Central Auditing Organization in Egypt\. For donors financed projects, NREA maintains separate records (manual and excel spreadsheets) through its FX department inorder to monitor inflows andoutflows o f donors funds and to report on the projects' financial position\. Finally the limitednumber o f contracts underthe project components rendersthe management o f the project funds andthe related accounting and reportingfunctions less complicated\. InternalControl: The project payments will be processed through multiple layers o f control before payments are issued\. Throughout this process, segregation o f duties will be observed between those who prepare, review, authorize and reconcile payments\. Contractors' certificates o f payment will be reviewedand approved by the construction management consultant, NREA's site engineers, and finally the audit department\. Inaddition, bank reconciliations are conducted by a section that i s different from the section that processesthe payments\. Original documents will follow the typical filing system o fNREA\. Inparallel, filing o f copies o f project supporting documents will be kept at the FX department along with appropriate cross referencing to NREA's central filing system\. 44  The risk o fineligible expenditures arises withthe introduction o fthe use o f a designated account\. However this risk will be mitigated with the grant funds being fully applied to one contract that i s subject to Bank prior review\. Inaddition, direct payments will be made to the contractor from the GEF account\. N o special internal audit function exists\. The audit function i s limitedto a compliance check in the form o fanex-ante reviewfor eachpayment\. Flow of Funds: Banking Arrangements: The fact the GEF grant funds will be fully applicable to one large contract allows for the use o f direct payments as a preferred method o f disbursement, as such there i s no needfor a project designated account\. Availabilitv o f Counterpart Funds: With the large amount o f local contribution required (about US$126 million), there i s a risk in the timely availability o f the local contribution\. NREA will submit its 5 year budget plan inFebruary 2007 taking into consideration the project investment requirements\. Inaddition, NREA has already included part o f the project costs inits FY 06/07 approved budget\. Also, the Government has expressed strong commitment at the top to execute and support this project\. Allocation o f Grant Proceeds: The GEF grant will be fully applied to one contract which will include the engineering, procurement, construction, testing, commissioning and two years operations and maintenance o f the solar portion o f the plant up to the set ceiling o f US$49\.8 million\. As mentioned above, NREA i s already working on incorporating this project's investmentrequirements inits 5 year investmentplanfor the period from FY07/08 to FY 11/12\. DisbursementArrangements: The proceeds o fthe Grant will be disbursedto the contractor through the Bank's direct payment procedure and will be used to finance project activities under the contract\. Withdrawal Applications (WAS)for direct payment (and/or Special Commitments) will be accompanied by appropriate records (ie\., contract and invoices) in accordance with the procedures described in the DisbursementLetter and the Bank's `Disbursement Manual'\. NREA will be responsible for submitting WAS for direct payment to the Bank accompanied by the necessary supporting records\. As projected by Bank's standard disbursement profiles, disbursements will be completed by Project closure\. A four month grace period will be allowed for the payment o f invoices submittedby the closing date\. Reporting: Reporting on the earlier Recipient-executed preparation grants was relatively simple based upon the low size ofthe grants andthe simplenature o fthe very few consultancy contracts under these grants\. The previous grants were accounted for by the FX and finance department at NREA\. Since the construction management consultant will provide NREA with periodic progress reports covering the three contracts under the project, such input can be used as a basis for reconciling the financial reports generatedat the FX 45  The reports frequency and submission will be as follows: Report Frequency DueDate By Sent to: Language Financialreport Monthly 10 days from end FX dept\. Management ArabicEnglish of month\. Interimfinancial Quarterly 3 weeks from end NREA External English statements of quarter auditor Annual financial Annual 3 months from NREA External English statements end o f fiscal year auditor (i)Monthlyfinancialreport\. ThereportswillbepreparedbytheFXdepartmentonamonthly basis\. They will not be sent to the Bank, but used internally by the project managementWA\. They can be reviewed and reconciled with the monthly withdrawal applications and quarterly financial statements sent to the Bank\. The Bank will follow up during supervision missions\. The format o fthe reports should be quite simple (a trial balance listing all sources anduses o f funds and bank reconciliations)\. (ii) financial statements\. Thesewillbeproducedwithin 3 weeks from eachquarter Interim closing date\. Their format and content was shared with NREA in an annex to the appraisal missionaide memoire\. (iii)Annual financial statements\. The project financial statements should be ready 3 months from the end o f fiscal year to enable the submission o f the audit report within 6 months after the closing date o f the fiscal year\. The project financial statements will have to include: (i) a statement o f sources and uses of funds indicating funds received from various sources and project expenditures; and (ii) schedules classifying project expendituresby component, sub- component, and category\. To minimize the reporting requirements from NREA, template financial reports were shared with JBIC inorder to consider possible synergiesbetween the World Bank and JBIC progress reports\. As feasible, the Bankwill try to agree with JBIC on common financial reports format\. AttestationArrangements To meet the Bank audit requirements, NREA had contracted a private auditor acceptable to the Bank to report on the preparation grants financial statements\. Acceptable reports were received by the Bank and no overdue reports are outstanding as o f October 2006\. For the proposed project, a similar project audit assignment will be required for which the auditor's terms o f reference will needto be agreed betweenNREA and the Bank\. This i s inaddition to an audit o f NREA's financial statements as the revenue earningkontinuing entity\. Discussions with JBIC representative indicated that they do not have an audit requirement for these project financial statements\. The project will be subject to two types ofattestation engagementsas follows: 46  Annual Audits: Annual audits for the project will be conducted by an independent private auditor acceptable to the Bank who will be contractedand paid by NREA to audit all project componentsandprovideone reportfor the project as a whole\. The audit report, accompaniedby a management letter, will cover the project's financial statements and use of direct payments\. The report should be submitted by NREA to the Bank no later than six months following the closing of the fiscal year subject of the audit @seal year July I to June 30)\. The external audit report should be in accordance with the Bank auditing requirements/TOR and conducted accordingto InternationalStandards on Auditing (ISA)\. Inaddition, NREA shouldprovide the Bank with its annual financial statements and the CAO audit report on them no later than six monthsfollowingthe closingofNREA's fiscal year\. QuarterlyReviews: The same project auditor will also be requiredto conduct quarterlyreviews ofthe project'sinterimfinancial statementswithin 45 days from the endof each calendarquarter\. Withdrawals from the loan that are included in interim statements will be part of the scope of these quarterlyreviews\. SuDervision Plan After the approvalof the grant, the Bank FMS will participate inthe Bank supervisionmissions that follow upon implementationprogress\. At leasttwo supervisionmissionsfor the projectwill be carried out annually in addition to follow up visits as deemed necessary\. The review and audit reports of the interim and annual financial statements respectively will be checked on a regular basis by the Bank FMS and the results or any issues will be followed up during the supervision missions\. Audit reports and management letters will be checked and any issues identifiedwill be followed up by the Bank FMS\. Also, duringthe Bank's supervisionmissions, the Project'sfinancial managementand disbursement arrangementswill be reviewedto ensure compliancewith the Bank's requirementsandto developthe financial managementratingto the ImplementationStatusReport(ISR)\. 47  Annex 8: ProcurementArrangements A\. General Procurement for the proposed project was advanced during project preparation and has been carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and the provisions stipulated in the Legal Agreement\. The Grant will finance a single contract, for which the procurement process is now completed in accordance to World Bank Procurement Guidelines\. Procurement o f non-bank financed contracts for other components o f the power plant (the combined cycle component and consultant services) has been conducted using JBIC's procurement procedures and Standard BiddingDocuments(SBD), which are satisfactory to the Bank\. CountryBackground A legal framework anchored in the Public Tender Law No\. 89/1998 governs public sector procurement inEgypt; the system is described in the updated Country Procurement Assessment Report (CPAR) dated December 2005\. The New and Renewable Energy Authority (NREA) is a public entity governed by Law No\. 102/1986\. Thus, the national laws and regulations are applicable to NREA's procurement system\. Procurement of the Solar Island: The solar island of this project was procured under one contract for engineering, procurement, construction, testing and commissioning and a two-year operation and maintenance contract (O&M) for the Solar field\. Such contract consists of the supply and installation (single responsibility contract) of the solar island which is a part o f the ISCC Power Plant at Kureimat\. The procurement process was carried out during preparation with the help of an international consulting firm financed by a GEF grant to provide technical assistance to NREA to: (i)develop the feasibility study, (ii)develop the prequalification and biddingdocuments, and (iii) with launching the prequalification and bid documents\. The assist borrower carried out a prequalification process under Bank supervision and no objection\. Prequalified contractors/suppliers were invited to submit bids for this component\. Procurement was conducted using the Bank's SBD for International Competitive Bidding o f Supply and Install under two-stage procedures\. B\. Assessment of the agency's capacityto implementprocurement An assessmentofthe New andRenewable EnergyAuthority's procurement capacity was carried by Armando Ribeiro Araujo (Consultant) and Abdul Gabbar Al-Qattab (Procurement Specialist) in May/October 2006\. NREA has gained good project implementation and procurement experience as a result o f its work with several international donors financing some o f its projects\. NREAhasbeenresponsible for implementingthe project includingthe Solar Islandcontract\. The assessment also reviewed the organizational structure for implementing the project\. Procurement i s carried out by the Purchasing Department o f the NREA, which i s divided into two purchasing committees: one for smaller contract below one million Egyptian Pounds while 48  the other - high purchasing committee- supervises, monitors and approves the procurement decisions for all largercontracts\. The Solar Islandbidding as indicatedabove has been completed in accordanceto World Bank ProcurementGuidelines\. C\. ProcurementPlan This project involves the financing of only one contract under International Competitive Bidding\. Consequently,aprocurementplanwas not required\. D\. FrequencyofProcurementSupervision In addition to the prior review supervision carried out, the capacity assessment of the Implementing Agency has recommended supervision missions to visit the field to monitor implementationevery six months\. 49  Annex 9: Economic and FinancialAnalysis Economic Analysis The appraisal o f the proposed project is based on a feasibility study prepared by Lahmeyer Consultants and a conceptual design study prepared by Fichtner Solar Consultants\. These studies provided estimates o f the costs o f hybrid solar thermal variants and their baseline equivalent CCGTs, including the economic least cost plant size, its dispatch into the power system, possible technology variants and cost estimates\. Since the bidding process has been completed, real market data on the cost of both the solar and combined cycle portions are available and are usedas the basis to appraise the project\. Cost-BenejitAnalysis The cost benefit analysis o f the project shows that for a total capacity o f 150 MWe, and introducing a 4 % solar contribution, the installed cost of the plant will be about $290 million\. The installedcost includes the cost o f equipment(based on bids awarded) and the estimated cost for consulting during implementation which has yet to be bid for but represents a small cost component as well as the estimated cost for the EMP17\. The cost o f equipment excludes taxes and import duties (an estimated US$22\.4 million)\. As for operatingcosts, the present value o f fuel, O&M costs and consumables amounts to $153 million over the 25-year lifetime andthe constructionphase\. The O&M costs ineconomic terms assume an economic cost of natural gas o f US$2\.52/mmbtu as compared to the actual price charged to the power sector o f US$l/mmbtu\. The cost o f gas assumption i s basedon results o f a study on the economic cost o f natural gas inthe domestic market which has beencarried out by international consultants financed by ESMAP (Energy Sector Management Assistance Program) andmanagedbythe World Bank\. Economic benefits are derived from the economic value of electricity generated, where the average electricity tariff has beenassumedto be US$0\.07/kWh -- the price for electricity exports to Jordan\. The GEF grant o f $49\.8 million has been included as an economic benefit as it reflects global willingnessto pay for this project\.'* Based on these costs and benefits, the project generates a net present value of US$54 million and the EIRRofthe project is 13%\. 17 The estimatedcosts for consultingduring implementationand for the EMPare assumedto be incurredduring projectconstructionphase\.Inpracticeparto fsuch costs may be incurredduringoperatingphase\. I SInaccordancewith OP10\.04-EconomicEvaluationofInvestmentOperations,paragraph8\. 50  Table 1- Summary o f Pro-iectEconomic Costs and Benefits ICost-BenefitAnalysis Summary US$ Million I PV at Project Commencement Costs: Capital 240\.0 (nominal value $290 million) O&M 43\.8 Fuel 108\.8 Consumable 0\.8 Total 393\.4 Benefits: Electricity 406\.6 GEF grant 41\.2 (nominal value $49\.8 million) Total 447\.8 Net PresentValue @ 10% discount rate 54 EIRR 13% The following table contains detailed breakdown streams o f economic benefits, economic costs andthe net benefits\. DuringProject construction period, part o fthe US$290million installed cost incurred i s partially offset by the US$49\.8 million GEF grant\. The resulting13% economic rate o f return is estimated over the constructionand the operation periods\. Table 2 -DetailedProiect Economic Costs andBenefits EconomicBenefits EconomicCosts Net Benefits Year GEFGrant GWh Sales Total Capital Costs Fuel O&M Consumables Total co\. 1 9\.96 0 9\.96 58\.0 0 0 0 58\.0 -48\.0 2 29\.88 0 29\.88 173\.9 0 0 0 173\.9 -144\.0 3 9\.96 0 9\.96 58\.0 0 0 0 58\.0 -48\.0 op\. 1 852 59\.6 59\.6 14\.8 12\.0 0\.1 26\.9 32\.8 2 852 59\.6 59\.6 14\.9 12\.1 0\.1 27\.1 32\.5 3 852 59\.6 59\.6 15\.1 4\.7 0\.1 19\.9 39\.7 4 852 59\.6 59\.6 15\.2 4\.8 0\.1 20\.1 39\.5 5 852 59\.6 59\.6 15\.4 4\.8 0\.1 20\.3 39\.3 6 852 59\.6 59\.6 15\.5 4\.8 0\.1 20\.5 39\.1 7 852 59\.6 59\.6 15\.7 4\.9 0\.1 20\.7 38\.9 8 852 59\.6 59\.6 15\.9 4\.9 0\.1 20\.9 38\.7 9 852 59\.6 59\.6 16\.0 5\.0 0\.1 21\.1 38\.5 10 852 59\.6 59\.6 16\.2 5\.0 0\.1 21\.3 38\.3 11 852 59\.6 59\.6 16\.3 5\.1 0\.1 21\.5 38\.1 12 852 59\.6 59\.6 16\.5 5\.1 0\.1 21\.7 37\.9 13 852 59\.6 59\.6 16\.7 5\.2 0\.1 22\.0 37\.7 14 852 59\.6 59\.6 16\.8 5\.2 0\.1 22\.2 37\.4 15 852 59\.6 59\.6 17\.0 5\.3 0\.1 22\.4 37\.2 16 852 59\.6 59\.6 17\.2 5\.3 0\.1 22\.6 37\.0 17 852 59\.6 59\.6 17\.3 5\.4 0\.1 22\.9 36\.8 18 852 59\.6 59\.6 17\.5 5\.5 0\.1 23\.1 36\.5 19 852 59\.6 59\.6 17\.7 5\.5 0\.1 23\.3 36\.3 20 852 59\.6 59\.6 17\.9 5\.6 0\.1 23\.5 36\.1 21 852 59\.6 59\.6 18\.0 5\.6 0\.1 23\.8 35\.8 22 852 59\.6 59\.6 18\.2 5\.7 0\.1 24\.0 35\.6 23 852 59\.6 59\.6 18\.4 5\.7 0\.1 24\.3 35\.4 24 852 59\.6 59\.6 18\.6 5\.8 0\.1 24\.5 35\.1 25 852 59\.6 59\.6 18\.8 5\.8 0\.1 24\.7 34\.9 EIRR 13% 51  Financial Analysis FinancialAssessment of the New and RenewableEnergyAuthority (NREA) Past and Current Performance of NREA NREA revenues stem from researchand development activities and inrecent years, mainly from the sale o f electricity it generates from renewable sources to EEHC\. Based on audited accounts for the past four years, the company incurred losses, as it transitioned from a purely research and development entity to one whose major activity is the productionof green energy\. NREA has recently been able to negotiate an increase in the tariff per kWh it receives from EEHC for the electricity sold to the grid to 12 P t k W h with a 5% annual tariff escalation\. This has enable NREA to fully service its debt obligations inthe fiscal year 2005, something it was unable to do in earlier years\. As of 2004/05, the company's long-term debt reached LE 1\.28 billion (US$223 million), o f which the current portion i s estimated to have reached LE 38\.4 million (US$6\.7 million)\. Inaddition, as of2004/05 NREA has startedbenefitingfrom the PetroleumFund, under which it i s eligible to receive 2 Pt per kWh o f energy produced from renewable energy sources\. In 2004/05 this additional revenue amounted to LE 5\.8 million (US$l million), and it i s expectedto increase substantially as NREA's installed capacity i s augmented\. The company has low levels o f accounts payables; however, its receivables from EEHC amount to about LE 33\.25 million (US$5\.8 million, 287 days)\. In 2004/05 NREA was able to collect 80% o fthe revenues it was owed from EEHC The company's mainoperatingexpense is with salaries and wages, which account for about 80% o f total operating expenses\. Expenditures on operations and maintenance (O&M) are low amounting to about 8% o f operating expenses and only 0\.1% of its gross fixed assets\. As NREA gears up to become Egypt's major producer o f green energy, appropriate maintenance o f its facilities will be critical to maximize the electricity output and ensure NREA's future sustainability\. Future Financial Performance of NREA Projections to assess NREA's future financial position and performance have been carried out for the period 2005/06 to 2019/20\. A summary o f the assumptions used in the forecast i s presentedbelow and detailed assumptions are recorded inthe project files\. Projections for NREA's future performance are based on the following key assumptions: NREA expects to benefit from the sale o fcarbon emission reduction credits (basedonthe amount o f COz emissions saved from the electricity it produces from renewable sources) as an additional source o f revenue\. To this end, it has already signed two bilateral agreements encompassing 140 MW o f wind turbines planned to be operational by 52  2008/09\. It i s assumed that NREA will be able to sell carbon emission reduction credits for all the renewable projects it plans to implementinthe future, excluding the ISCC\. From 2006/07 onwards, the tariff NREA charges EEHC for the electricity sold will benefitfrom gradual increasesto off-set domestic inflation\. 0 Gradual increase inthe revenuecollected from EEHC to 98% by 2009/2010\. 0 Gradual increase inO&M expenditures to a level that is equivalent to 1%o f gross fixed assets by 2013/14, to be inline withthe additional installed capacity\. The analysis shows even thoughNREA's operating marginand cash flow position are positive, its overall financial performance (taking into account depreciation and finance charges) deteriorates further in the short-term, with net operating losses being incurred up until 2008/2009, mainly due to the need for significant increases in O&M expenditures, as these become a critical element in ensuring the maximization o f the electricity output o f current and future installedcapacity, which are keyinensuringthe future sustainability ofNREA\. Duringappraisal the team agreed withNREA's management to monitor two financial indicators (a) the debt service coverage ratio (DSCR) and (b) the self finance ratio (SFR) as proxies for financial soundness\. A minimum DSCR o f 1\.1 and a minimum SFR o f 0\.1 are targeted to be achieved by project close in2011\. Assumptionsfor projections offinancial performance of EEHC The analysis is based on actual audited results for the years 2001/02-2004/05 and company estimates for 2005/06\. The projections cover the years 2005/06-2019/20\. The project implementationperiod i s 2006/07-2013/14\. Key Assumptions for financialstatements Installedcapacity i s assumed to increase according to the investment plan received from NREA, with total installed capacity reaching 900 MW by 2009/2010 and remains constant at 1,000 MW from 2010/11 onwards\. Electricity production i s assumed to be a function o f installed capacity, with an average capacity factor o f 42% for the wind farms\. (Source: NREA) Electricity losses includes own consumption and is estimated to be 1% o f gross productionvolume\. (Source: NREA) Electricity prices is assumed to increase annually by the local inflation from 2006/07 onwards for electricity generated from all projects\. Production sold as carbon MWhNREA plans to sell according to the provisions o f the clean emission reductioncredits development mechanism as carbon emission reduction credits\. (Source: NREA) Amount o fCOz saved is assumed to be 0\.567 tons by MWhproduced\. (Source: Riso) Price o f carbon emission is based on the contractual prices per ton o f C02 saved, which is reductioncredits the price NREA has negotiated in its current agreements under the CDMframework\. 53  Petroleum Fund is a fund created by the GOE in which the Petroleum Ministryis to share with NREA the marginal income that is generated by exporting the fuel saved in generating electricity from renewable sources\. (Source: NREA)\. Inflation domestic inflation is assumed to be 5% per year as o f 2006/07, while the foreign inflation i s assumed to be 2\.5% per year as o f 2006/07\. IncomeStatement Revenues are mainly derived from electricity sales to EEHC, other significant source o f revenues comprise o f income from carbon emission reduction credit agreements, and the petroleum fund which are expected to increase substantially in the future\. Other sources o f revenues include research and development activities as well as small scale renewable projects\. Salaries are assumed to increase with at the rate o f 10% per year\. (Source: NREA) Operating & Maintenance Comprise O&M costs for ISCC and wind projects\. These are costs assumed to increase gradually towards 1% o f gross fixed assets by 2014/15 and 1\.5% by the end o f the projection (Source: NREA and industrypractice)\. ISCC Fuel Cost the cost for natural gas needed to supply the ISCC Plant is assumed to be the current domestic market price charged by EGAS o f 22 Piasters/m3, and increase by the local inflation from 2010/11 onwards\. Administrative and Other include rental o f buildings, utility services for administration, Operating Expenses vehicles, etc\., and are assumed to increase annually at the rate o f local inflation\. Depreciation the current charge is based on the straight line methodology and assumed to continue as such\. To this charge, the project assets are added which are assumed to depreciate over 33\.3 years on average, i\.e\., 3% per year\. Interest comprises interest payments on borrowings\. Profit tax NREAtax rate is 10% o fits profits\. Sourcesand Applicationsof Funds Internal sources comprise net operating income before financial charges with the depreciation charge added back\. External sources comprise of grants and borrowings\. Capital investments comprise the total o f capital investments undertaken by the company including the Project\. (Source: NREA) Debt service comprises interest charges and repayments on borrowings\. Working capital is the annual change in currents assets (less cash) and current liabilities\. 54  Balance Sheet Gross fixed assets represent the previous year's gross fixed assets plus the work in progress as it is completed\. Work inprogress represents the ongoing investments as they are implemented startingin2005/06\. Net Account receivables represents previous year's receivables and the portion o f current years billings not collected\. Inventory represents fuel and materials\. It is assumed that inventory will be kept at a level representing 3 months o f supply o f fuel and materials (Source: NREA) Account Payables represents previous years payables for suppliers (e\.g\., fuel and material) and other operating expenses\. Retained earnings/losses represent accumulated earningdlosses incurredby the company\. Long-term debt current long-term debt represents current and future loans taken by NREA to finance its capital investment program\. In the short- to medium-term NREA plans to borrow for 100% o f its foreign and local future capital needs\. (Source: NREA)\. 55  \. IC) 9 0 N \. 9 2 0 N \. m 2 0 N \. -2 N 0 N O N -\. - 41 N 0 2 5 N 0 m D 9 " 2 m m w o o N W m 0 0 N C I m w e 0 0 P- PI 0 CI e 8 N 0 e w IC) 0 0 N *1 8 3 (13 Ps I  tc ' ? L z \.- VI 5 W E 3 ei 0 N E \.m c ' 2 \. 3 C m W z? e N 0 E \. C \.C c 5 ' R m W 0 -c" N C ' z \. W -c" N C ' 3 $ $ ' S F z \. - (b2 w - w 5 C N \. c 0\. C C N E 0\. oc C C N - - F" 2 cc - 0 0 0 \. \. 6 - o l i m 4 r s N 5r C N C m - c, $ 9 9 0 o + v , \c m & o o W W pO' W F v\. N C C \.;E \.- - A e A iE  Annex 10: SafeguardPolicyIssues EnvironmentalImDactAssessment Introduction: The proposed project falls under the World Bank environmental category B classification due to the fact that the impacts are expected to be site-specific\. The site o f the proposed plant is a fenced area o f desert land - allocated to the Ministry o f Energy and Electricity by the GOE for the proposed project - about 95 km south o f Cairo\. O f the World Bank's ten safeguard policies, only Operation Policy 4\.01 on Environmental Assessment i s triggered\. As such, a full EnvironmentalImpact Assessment (EIA) o f the environmental, safety and health impacts was carried out\. The latest EIA was disclosed inthe Infoshop on December 28, 2006 and locally on June 20, 2006\. The EIA was approved by the EgyptianEnvironmental Affairs Agency (EEAA)\. The plant will consist o f an integrated solar combined cycle power plant comprising a solar field and a combined cycle power block\. With the solar field comprising parabolic trough collectors and heat transfer fluid (HTF) passing through heat exchangers to generate steam and the combined cycle comprising one gas turbines, a heat recovery steam generator and a steam turbine generator\. The plant will occupy an area o f approximately 2,772,000 m2 (of which 130,800 the solar portion)\. The overall generating capacity of the power plant will be 150 MWe\. The configuration of the power plant is based on a conceptual design feasibility report carried out by Fichtner Solar (consulting firm)\. Alternatives considered: (i) and (ii) site; cooling system\. (i)Foursiteswere considered(RedSeaCoast, SinaiPeninsula, WestDesert andKureimat)\. The Kureimat site has been selected based on the minimal additional infrastructurerequireddue to the nearby 750 MW combined-cycle power plant, realization of desirable benefits for the development o fthe site andthe availability o f a local workforce\. (ii)Two differentcoolingsystemshavebeenconsideredfor thisproject: "Once Through" cooling and "Circulating Cooling" (also referredto as "cooling tower"), with or without storage\. Inthe Once Throughcooling system, coldwater is taken from a source such as sea or river at one point, passedthrough the condenser to remove latent heat and discharged back to the source at a higher temperature\. Inthe Circulating Cooling system, the cold water is circulated through the condenser to remove latent heat\. The hot water from the condenser outlet i s further circulated in a cooling tower where the heat carried by the circulating water i s further dissipated to the atmosphere by evaporative cooling\. For the proposed project, water will be abstracted from the Nile River\. As such, the ISCC will share the water intake structure with the Combined Cycle (CC) plant which i s currently under bidding\. There are two water intakes for this CC plant, one is under construction and the other i s in the design and tenderingphase\. There will be an agreement between NREA and Upper Egypt Electricity Production Company, owner o f CC plant, that NREA will have its own feed water pipe from the second intake structure currently under design and tender\. NREA will finance the water pipe and the additional pumps required for transferring the water from the planned intake structure to the ISCC plant\. NREA's water 58  pipelinewill be passing via UpperEgyptElectricity Production Company land and there will be no needfor any land acquisitions\. The circulating cooling system, i\.e\. the cooling tower ,has been selected for the proposed project due to the following reasons: (i) it requires less water (11,335 m3per hour compared to 22,890 m3 per hour, including make-up water, mirror washing, etc) (ii)it increases power plant efficiency by 1% due to ambient temperatures; and (iii) it is less costly (about 40% less) The use o f cooling towers may result in the formation o f visible vapor plumes or ground fogging\. However, this has been assessed to be manageable given that the prevailing wind i s in the N S and NE directions and the plant i s about 1\.2 kilometers from the road\. The option without storage was also selected due to the higher cost associated with storage\. The EIA has beencarried out by Energy and Environment Consultants, and sub-contractors, and has been prepared using a combination o f quantitative and qualitative assessment techniques ranging from computer modeling for air, water, and noise and traffic impacts to ecological and aquatic surveys and visual evaluations\. The design o f the plant incorporates various measures to minimize environmental impacts\. These include use o f natural gas as the main fuel, low NO, combustors inthe gas turbines, a stack height o f 35 meters to maximize dispersion o f emissions, as well as oil interceptors fitted to the site drainage system and effluent treatment facilities to treat wastewater prior to discharge\. Table 10\.1below provides an overview o f anticipated impacts as they comply with Egyptian and World Bank guidelines while the section below summarizes the potential impacts o f the construction and operation o f the solar-thermal power plant as well as the proposed mitigation measures\. 59  Table10\.1: Summary Environmental Impacts and Guidelines (1) There are no Egyptianstandards for NO2 (2) The EgyptianStandardfor TSP (all sizes) refers to emissions far from inhabitedurbanareas\. (3) "Chlorine shocking" may be preferable in certain circumstances,which involves using highchlorine levels for a few seconds rather than a continuous low level release\. The maximum value is 2 mgr' for up to 2 hours, which must notbe morefrequent than once in24 hours(andthe 24 hour average shouldbe 0\.2mg/l)\. (4) There are no sensitive receptorsfor noise within 0\.5 km o fthe power plant\. The area has beencategorized as an "Industrial area" with respect to Egyptianambient noise standards and "Industrial commercial" with respectto WorldBankguidelines\. ImDactassessment and mitigationmeasuresduringconstruction Air quality due to dust emissions\. Construction activities will result in high levels of dust; however there are no significant residential receptors or sensitive environments inthe immediate boundaries of the power plant\. Nevertheless, there could be effects o n air quality, visibility and traffic safety\. To minimize impacts, mitigation measures related to good site practice will be employed, including: 60  Roads will be keptdamp through use o f water sprays; Stockpiles o f friable materials will be sited and maintained appropriately (including the use o f sheets) so as to minimize dust blow (e\.g\., balancing cut and fill operations); Drop heights for material transfer activities such as unloading o f friable materials will be minimized; The construction phase will beginwiththe constructiono faccess roads; Roads created duringconstructionwill be compacted and graveled ifnecessary; Roads used on site will be maintainedingood order; Access into the site will be regulated; Vehicle speedlimits o f less than 35 kmihr on non-metallic roads will be enforced on site; and Lorries and vehicles will be sheeted during transportation o f friable construction materials and spoil\. In addition, to ensure that pollutant levels resulting from transport operations are kept to a minimum during construction activities, all vehicles being used on site will meet pollutant emission standards\. Aquatic environment\. NREA will not conduct any construction activities on the Nile and the project site i s about 2\.5 km away from the Nile\. Therefore no impacts on the aquatic environment during construction are expected\. However the following measures will take place duringconstruction: No effluents will be discharged into the water body unless effluent quality has beenchecked and meets the Egyptianenvironmental Law 4 requirements, requirements o f Law 48/1982 as well as World Bank requirements\. A site drainage plan will be developed to ensure that if any erosion occurs during storm events, minimal amounts o f sediment will result by reducing the flow velocity and sediment loadbefore discharge; Temporary stockpiles o f soil should be protected from erosion by usinga reduced slope angle where practical [such as a slope o f 30" instead o f 45'1\. This can be addressed by the site drainage planas described above, and Good site management practices will be enforced to ensure that the construction site i s kept clean and tidy at all times\. Inaddition, to ensure that access to the Nile river bank is not restricted for public use (as decreed by EgyptianLaw) and navigation activities are not jeopardized, the following measures will be implemented: The bank across which the intake pipes are constructed will be returned to its original state following construction; and Warningsigns will markthe intake structures\. 61  All construction teams employed and contracts commissioned will incorporate these mitigation measuresas part o fthe operational procedures inEPC and O&M contracts to be entered\. Noise emissions\. There i s likely to be significant noise during construction\. The noise levels have beenmodeled and are presentedindetail inthe EIA report\. The noise level during the day time is expected to reach a maximum o f <60 dB(A) during the day at the fence of the power plant and <55 dB(A) at night, both within World Bank and Egyptian guidelines\. There will also be additional noise due to the construction related traffic, expected at 0\.3 dB(A) above ambient levels duringthe peak construction period, Le\., the first few years\. The specific noise mitigation measures listed below are based on standard good site management practices for construction o f power plants and include: 0 Enforcement o f vehicle speed limits, strict controls o f vehicle routing and prohibition o f heavy vehicle movements duringthe night; Diesel engine vehicles and compression equipmentwill be equippedwith effective silencers; Activities with highest noise emissions (e\.g\. piling) will be undertaken only during the day shift (7 am-6 pm)andbetweenSunday andThursday andnot duringofficial holidays; and 0 Personnel will use hearing protection when using and/or working in the vicinity o f noisy equipment\. Flora and Fauna\. Negative impacts on flora and fauna are not expected to be significant due to the characteristics ofthe site, which is desert land with poor vegetation\. Good site management practices and implementation o f the following mitigation measures will ensure that any disturbance i s reduced to a minimum: 0 Personnel andvehicles will be restricted to within the boundaries o f the construction site, lay down areas and access roads, and will not be permittedto enter surrounding land\. Soils and Hydrology\. The potential for direct impacts on soil and groundwater during construction i s largely dependent on the management o f the construction site and construction activities\. A range o f mitigation measures will be implemented to protect soils and, as a result, the groundwater resources, from the direct impacts o fthe construction\. These measuresinclude: Engineeredsite drainage systems will beprovidedto collect, balance, treat as requiredand control the discharge o fthe site run-off; 0 Vehicles and personnel will be restricted from accessing areas not designed for construction to prevent accidental or unnecessary disturbances or compaction o fthe soil; and 0 Spoil from construction activities will be monitored and controlled; waste materials which are unsuitable for reuse on-site, for example for landscaping, will be disposed o f at an appropriately licensed sanitary landfill site\. Inaddition, the potential for any transfer of existing contamination will be minimized through the following mitigationmeasures: Protection o f the soil from accidental pollution by bordering around proposed storage areas for fuel and chemicals withthe capability to store at least 110% o fthe expected volume; 62  Provision o f oil and interceptors, such as oil/water separators for the removal o f pollutants loading from the site drainage and for the retention and containment o f any accidental discharges during construction and operation; Removal o f waste materials unsuitable for re-use on site during construction to appropriate licensed landfill sites; Management of excavations during construction so as to avoid the generation o f drainage pathways to underlyingaquifers; and Provision o f impermeable bases in operational areas to prevent absorption o f any spillage o f process materials\. Traffic and Transport\. Construction activities during peak times will generate additional traffic on local roads and inparticular, significant volumes o f heavy plant traffic and occasional abnormal loads\. To minimize any inconvenience and delays, hazards and potential damage to other road users, local population and the local road network, the following mitigation measures will be implemented: Abnormal load movements will be confirmed with the General Authority for Roads, Bridges and LandTransport (GARBLT)which i s the Competent Administrative Authority (CAA) for highways and regional roads and Giza Governorate for internal local roads\. and will adhere to prescribed routes\. Their movement will be scheduled to avoid peak hours and notices will be published in advance to minimize disruption as required by GARBLT and Giza Governorate\. Consideration will be given to staggering construction shifts to split arrival and departure times; Scheduling of traffic will be undertaken to avoid the peak hours on the local road network wherever practicable; and Constructionworkers will be transported to the site by buses o f contractors\. Socio-economic effects\. The assessment of impacts suggests an overall positive impact on the local population given that the use o f local labor will be prioritized during construction\. No mitigation measuresare proposed\. Archaeology\. Careful examination o f existing literature and data did not reveal any sites o f archaeological or cultural heritage o f importance on or around the site\. Inthe unlikely event that remains being found, construction activities will be stopped and the Supreme Council o f Antiquities will be consulted on the most appropriate measures, which could include the following: Where possible, remains will be protected in-situfrom construction activities, by relocating non-essential activities; Where identified remains cannot be protected, an excavation o f the indicated area will be undertaken prior to the commencement o f construction activities to record and remove vulnerable remains andfeatures; 63  Any finds o f archeological, historic or cultural significance will be given to the appropriate CAA; and 0 Preparation o f a Chance Finds Procedure which lays out the steps to be taken if archeological, historical or cultural remains or finds are discovered during construction activities\. The procedures will clearly set out how the construction team will be briefed so that they are aware o f what to look out for and the actions which must be taken should a potentialfindbe uncovered\. Flooding\. Since the site lies on the western edge ofthe eastern desert, there is a potential for the power plant site to be affected by occasional flash flooding\. In order to reduce any potential impacts o f flooding during construction, the following mitigation measures will be implemented: During the early stages o f construction, a site drainage system will be built, equipped to protect the site against potential flooding; Site drainage will be constructed in such a way as to dissipate flood waters away from the main plant areas and to discharge clean waters to a natural drainage basin or a ground well and any potentially contaminated waters to the surrounding land and any potentially contaminated waters to the discharge facility via the oil interceptor; Desert lands to the east o f the site will be re-enforced to ensure that erosion does not take place; and Culverts will be constructed on the accessroadto allow adequate transit o f flood waters\. Solid Waste\. To ensure that impacts from the generation o f solid waste and its disposal are successfully avoided, the following mitigation measureswill be implemented: 0 All wastes taken off site will be carried out by a licensed waste contractor and NREA will audit the disposal procedure; 0 All solid wastes will be segregatedinto different waste types, collected and stored on site in designated storage facilities and areas prior to release to off-site disposal facilities; 0 All relevant consignments of waste for disposal, will be recorded, indicating their type, destination and other relevant information, prior to beingtaken off site; and 0 Standards for storage area, management systems and disposal facilities will be agreed with the relevant parties\. An engineer with responsibility for environmental aspects will be responsible for solid waste management at the site and will ensure that all wastes are managed to minimize any environmental risks\. OccupationalHealthand Safety\. NREA will ensure that constructionactivities are undertaken ina manner which does not present hazards to workers' health and safety\. Inparticular, NREA will establish and integrate policies and procedures on occupational health and safety into the construction and operationo fthe power plant\. Emergency andaccident response procedures will also be included in an EHS manual for the power plant which will be prepared during construction\. 64  The following measureswill be implementedduringthe construction and operational phases: Compliance with international standards for good practice; Adherence to local and international guidance and codes ofpractice on EHS management; Management, supervision, monitoring and record-keeping as set out inthe plant's operational manual; Implementation o f EHS procedures as a condition for all contracts; Clear definition o f the EHS roles and responsibilities o f the companies contracted to work on site and to all their individual staff (including the nomination o f EHS supervisors and coordinator); Pre-construction and operation assessment o f the EHS risks and hazards associated with construction and operation, including consideration o f local cultural attitudes, education level o fworkforce and local work practices; Provision o f appropriate training on EHS issues for all employees o f site, including initial induction and regular refresher training, taking into account local cultural issues; Provision ofhealthand safety information; Regular inspection, reviewand recording o f EHS performance; and Maintenance o f a highstandard o f housekeeping at all times\. Impact assessmentand mitipationmeasures durinpoDeration Mitigation measuresintroduced into the designand construction phase o f the power plant will be carried forward into the operational phase through the O&M contracts and by NFEA\. Several proposed mitigation measures are integrated into the design o f the power plant in order to minimize any impacts on the environment\. These include measures such as low N O x combustors, noise silencers and water discharge controls\. The following section identifies additional measuresto further mitigate impacts duringoperation o fthe plant\. Air Quality\. Emissions guidelines\. Several specific measures have beentaken to reduce stack emissions from the power plant and to comply with Egyptian and World Bank standards\. The power plant will fire natural gas as its main and only fuel which is the least polluting fuel available (with negligible sulfur dioxide emissions and low particulate matter emissions)\. In order to reduce NO, emissions when firing natural gas or light fuel oil, low NO, combustors are usedon the gas turbines (and water injection to fuel oil inemergency)\. Inaddition, a stack measuring 35 meters has been designedto minimize dispersion o f emissions into the surrounding atmosphere\. Stack 65  emissions to the air from the proposed plant are expected to be within the Egyptian, as well as the World Bank guidelines"\. Air quality guidelines\. Inorder to establish the potential atmospheric emissions from the power plant and its impact on ambient air quality, dispersion modeling has been undertaken and the results o f the modeling indicates that the predicted off-site maximum annual and 24 hour mean ground levels o f NO2 and PM concentrations do not exceed the Egyptian nor the World Bank ambient air quality guidelines when natural gas i s burned\. As described above, natural gas i s plannedto be usedat all times\. Aquatic Environment\. Cooling water and process water for the plant will be drawn from the N i l e River via an intake structure that i s shared with the Combined Cycle currently under tendering and bidding\. Potable water will be suppliedto the plant via the same source\. Cooling water will be recycled in the cooling tower, therefore no discharge o f cooling water to the Nile will take place\. The process water will be disposed o f after treatment via a pipelineback to the Nile\. The treated effluent will be continuously monitored to ensure that it meets the legal requirements for discharge on the Nile (Law 48/1982)\. Incase o f non-compliance, the effluent will berecycledfor further treatment prior to final disposal\. The following mitigationmeasureswill be implemented: An industrial treatment facility will receive wastewater from combustion turbine area floor drain, ST tube oil centrifuge, tank farm area, ST area floor washing and transformer area drain and process them into an oil/water separator where wastewaters are channeled to the common effluent tank for treatment before discharge to the Nile; GTG wash water will be collected in an individual sump and discharged with a portable pumpto a tanker for off-site disposal via a licensed contractor; Waters contaminated by chemical wastes will be channeled from neutralization pit and combustion turbine compressor wash effluent to the common effluent tank for treatment before off-site disposal; Sanitary wastes will be collected via plant sewage and sewerage lines in a local sanitary treatment plant where the untreated waters will be re-used in the plant plantation irrigation program while the dirt will be collected for off-site disposal by sanitary road tankers o f a licensed contractor; Solar field will be provided with an emergency strategy for immediate response to any accidental spillages, operational leakages or droplets o f thermal oil to allow collection and control as required; Bunds or sumps will be installed on-site to isolate areas of potential oil or other spillages, such as transformer bays, from the site drainage system; Oil and chemical storage tanks will have secondary containment structures that will hold 110%o fthe contents o fthe largest storage tank; WorldBankPollutionPreventionandAbatementHandbook-Part111:Thermal Power-Guidelinesfor New Plants,July 1998\. 66  Areas for unloading oil and hazardous chemical materials will be isolated by curbs and providedwith a sump; equipped with a manually operated valve; Transformers will be provided with pits to retain 110% o f the coolant capacity o f the transformers which will include fire fighting water\. Alternatively, each main oil-filled transformer foundation will drain through a corner sump directly to an underground oil collection chamber sized to retain 110% o f the coolant capacity o f the transformer plus deluge water (for the worst single catastrophic failure)\. Adjacent to this collection chamber will be constructed an oil separator which will normally function to separate any oil contaminated to the storm water collected from within the transformer foundations and the clean water drained to the discharge structure\. The transformers will not contain PCBs; and Storm water runoff from equipment slabs that may be subject to oil contamination exposure will be collected and channeledthrough an oil/water separator prior to discharge\. Inaddition, the following goodsite management practices will be adheredto: Wastewater will be collected and treated before being discharged\. The main water treatment steps include: - -- neutralizationo f any wastewater that has a pHoutside the range o f 6 to 9; oil separation o f any wastewater that may be contaminated with oil or grease; and filtration o f any wastewater that may contain highconcentrations o f suspendedsolids\. 0 N o solid wastes will be discharged into the Nile; 0 Drainage systems will be designed on site to prevent any contaminated surface runoff from being discharged into the Nile without prior oil separation and neutralization of any other contamination; and All effluent discharges will comply with local Egyptianand World Bank standards\. Noise Emissions\. A number o f noise mitigation measures have been built into the conceptual design o f the plant in order to ensure that noise levels are minimized and that all items o f the plant are operating to local and international standards\. Specific designmitigation measuresinclude: Gas and steam turbine generators, air compressors, pumps, andthe emergency diesel engines are enclosed insound enclosures; 0 Air compressors are equippedwithair silencers; and 0 Noisy outdoor equipmenthave beendesignedto a noise limit of 85 dB(A) at one meter\. Inaddition, allpersonnel working innoisy areas will berequiredto wear hearingprotection\. 0 Flora andFauna\. N o significant impacts are expected\. VisualImpact\. Landscaping will include tropical shrubs (trees, grass, andpalm groves) around the site\. All plantswill be indigenous species\. 67  Soils and Hydrology\. During plant operation, the main potential for impacts to occur to soils and hydrology (including run-off into the surrounding lands) will arise as a result o f spillages and storage o f chemicals and fuels on site\. Good site management practices will minimize potential impacts\. Solid Waste\. The mitigation and management measures during construction also apply to the operation phase\. Health and Safety\. In addition to the operational health and safety measures during construction described above, the following mitigation measures will be implemented during construction: Development and implementation o f an Operational Health and Safety Plan with appropriate training during construction; Provision o ftraining for use o fprotectionequipment and chemical handling; Clear marking o f work site hazards and training inrecognitiono fhazard symbols; Development o f site emergency response plans; All personnel working or standing close to noisy equipmentwill berequiredto wear noise protectors; and Drinkingwater will be suppliedto the plant via plant water supply systemwhich will be complying with drinkingwater standards publishedby the World Health Organization\. 68  \. \. \.  E WY 2\. s id   s w 2\. s *    U 2 - M zEoe\.e\.e 5% b   c z -aF *c I * s2 I 3   5) m ' M EEurn p \.5 \.E E  0  s'E E 5 'E E 3 eP \.-*0 'C M E - * 5 4 c  ; 0 \.-B 28 -I  Annex 11:ProjectPreparationand Supervision Planned Actual PCN review October 1, 1997 October 1, 1997 InitialPID to PIC September 27, 1999 September 27, 1999 Initial ISDS to PIC January 14,2004 January 14,2004 Appraisal October 30,2006 October 30,2006 Negotiations December 12,2006 December 13,2006 Board approval December 11,2007 Planned date o f effectiveness February 15,2008 Planned date of mid-termreview October 15,2009 Planned closing date October, 31,2011 Key institutions responsiblefor preparation o fthe project: NewandRenewable EnergyAuthority (NREA) Bankstaff and consultants who worked onthe project included: Name Title Unit Anna Bjerde TTL and LeadEnergySpecialist M N S S D Lizmara Kirchner FinancialAnalyst M N S S D Armando Ribeiro Araujo Procurement Adviser M N S S D Rene Mendonca Senior Power Engineer M N S S D Rome Chavapricha Infrastructure Specialist M N S S D FannyMissfelt-Ringius Senior EnvironmentalEconomist AFTEG Abdulgabbar Al-Qattab Procurement Specialist MNAPR Mohamed Yehia Abd ElKarim FinancialManagement Specialist MNAFM Ihab Shalan EnvironmentalSpecialist M N S S D KnutOpsal Senior Social Development Specialist M N S S D Hayat Al-Harazi Program Assistant M N S S D Bankfunds expendedto date onproject preparation: 1\. GEF Bankresources: US$379,641\.73 2\. Trust funds (PDF BandC): US$1,050,000\.00 3\. Total: US$1,429,641\.73 EstimatedApproval and Supervisioncosts: US$518,570 1\. Remaining coststo approval: US$25,000 2\. Estimatedannual supervision cost: US$85,000 83  Annex 12: Documents inthe Project File 1\. ConceptualDesign for the ISCC -January 2004 2\. Environmental Impact Assessment for 150M W Kureimat Integrated Solar Combined Cycle Power Plant Project, June 2006 3\. Theses for creating a common basis for the conclusions from the WB/GEF Workshop on Solar Thermal Technology, Washington (Working Paper) March2005 4\. ProcurementCapacity Assessment, May 2006 5\. Bidding documents for the Solar Thermal Island-March2006-May 2007\. 84  Annex 13: Statement of Loansand Credits Differencebetween expectedandactual Original Amount in US$Millions disbursements Project ID FY ProjectName IBRD IDA GRANT Cancel\. Undisb\. Orig\. Frm Rev'd PO40858 1999 EG - SOHAGRuralDev 0\.00 25\.00 0\.00 0\.00 5\.81 3\.95 3\.42 PO49166 1998 EGEastDeltaAg\. Serv\. 0\.00 15\.00 0\.00 0\.62 8\.03 7\.3 1 4\.46 PO05173 1995 EG IrrigationImprovement 26\.70 53\.30 0\.00 0\.00 2\.57 8\.80 -1\.05 PO41410 1999 EGPumpingStationRehab111 120\.00 0\.00 0\.00 20\.00 22\.76 42\.76 0\.00 EG SecondaryEducationEnhancement PO50484 1999 Proj 0\.00 50\.00 0\.00 0\.00 25\.47 22\.87 2\.22 EG- FINANCIAL SECTORREFORM PO88877 2006 DPL 500\.00 0\.00 0\.00 0\.00 500\.00 333\.33 0\.00 EG-AIRPORTSDEVELOPMENT PO82914 2004 PROJECT 335\.00 0\.00 0\.00 0\.00 235\.74 84\.54 0\.00 PO91945 2006 EG-EL TEBBIN POWER 259\.60 0\.00 0\.00 0\.00 259\.60 3\.33 0\.00 EG-EarlyChildhoodEducation PO82952 2005 Enhancement 20\.00 0\.00 0\.00 0\.00 19\.90 4\.38 0\.00 PO45175 1998 EG-HEALTHSECTOR 0\.00 90\.00 0\.00 0\.00 12\.82 4\.81 1\.58 EG-HIGHER EDUCATION PO56236 2002 ENHANCEMENTPROG 50\.00 0\.00 0\.00 0\.00 23\.59 22\.79 7\.28 PO93470 2007 EG-MORTGAGE FINANCE 37\.10 0\.00 0\.00 0\.00 37\.24 0\.00 0\.00 PO49702 2004 EG-SKILLSDEVELOPMENT 5\.50 0\.00 0\.00 0\.00 4\.56 3\.63 0\.00 PO45499 2000 EgyptNATIONAL DRAINAGE I1 50\.00 0\.00 0\.00 0\.00 11\.90 9\.56 0\.00 PO73977 2005 IntegratedIrrigImprov\. & Mgmt\. 120\.00 0\.00 0\.00 0\.00 119\.40 8\.57 0\.00 PO90073 2006 SecondPollution Abatement Project 20\.00 0\.00 0\.00 0\.00 20\.00 2\.67 0\.00 Total 1,543\.90 233\.30 0\.00 20\.62 1,309\.38 563\.32 17\.92 STATEMENTOF IFC's HeldandDisbursed Portfolio InMillionsofUSDollars Committed Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1996 ANSDK 1\.33 0 0 0 0\.56 0 0 0 2004 AlexandriaFiber 8 0 0 0 7 0 0 0 2001 Amreya 4\.69 0 0 0 4\.69 0 0 0 2006 CIB LLC 0 0\.72 0 0 0 0\.48 0 0 1999 CIL 0 0\.74 0 0 0 0\.74 0 0 2004 CIL 0 0\.15 0 0 0 0\.15 0 0 1992 CarbonBlack-EGT 0 1\.48 0 0 0 1\.48 0 0 1997 CarbonBlack-EGT 0 1\.48 0 0 0 1\.48 0 0 1998 CarbonBlack-EGT 4 0 0 0 4 0 0 0 2000 CarbonBlack-EGT 5 0 0 0 0 0 0 0 2002 CeramicaAI-Amir 3\.33 0 0 0 3\.33 0 0 0 2006 Cmrcl IntlBank 0 23\.28 0 0 0 23\.03 0 0 2006 EFGHermes 20 0 0 0 0 0 0 0 85  Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2004 EHF 0 1\.7 0 0 0 1\.7 0 0 2005 EgyptFactors 0 3 0 0 0 0 0 0 2006 Gippsland 0 4\.61 0 0 0 2\.03 0 0 2001 IT Worx 0 2 0 0 0 2 0 0 2004 Lecico Egypt 8\.94 0 0 0 8\.94 0 0 0 1986 MeleihaOil 0 8\.62 0 0 0 0 0 0 1988 MeleihaOil 0 9\.2 0 0 0 0 0 0 1992 MeleihaOil 0 13 0 0 0 0\.94 0 0 2005 MerlonEgypt 1 0 0 0 0 0 0 0 2002 Metro 10\.5 0 0 0 10\.5 0 0 0 1992 MisrCompressor 9\.7 0 0 0 9\.7 0 0 0 Orix LeasingEGT 4 0 0 0 0 0 0 0 1996 Orix LeasingEGT 0 0\.53 0 0 0 0\.53 0 0 2001 Orix LeasingEGT 1\.09 0 0 0 1\.09 0 0 0 2001 Port Said 41\.07 0 0 132\.53 41\.07 0 0 132\.53 2002 SEKEM 4\.18 0 0 0 4\.18 0 0 0 2006 SONUT 10 0 4 0 0 0 0 0 2004 SPDC 18\.4 0 0 0 18\.4 0 0 0 2001 SUEZ GULF 40\.4 0 0 129\.07 40\.4 0 0 129\.07 1997 UNI 2\.05 0 0 0 2\.05 0 0 0 2001 UNI 2\.06 0 0 0 2\.06 0 0 0 2005 Wadi Group 15 0 0 0 7\.5 0 0 0 Total Portfolio: 214\.74 70\.51 4 261\.6 165\.47 34\.56 0 261\.6 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2004 ACB Acrylic 0\.00 2\.40 0\.00 0\.00 2004 MerlonEgypt 0\.00 0\.00 0\.00 15\.00 2000 ACB ExpansnI11 4\.00 0\.00 0\.00 0\.00 2006 Rally Energy 10\.00 0\.00 0\.00 0\.00 TotalPendingCommitment: 14\.00 2\.40 0\.00 15\.00 86  -_- Annex 14:-Country at-a Glance B8\.Z R\.3 17\.2 70\.5 32\.0 3\.5 P x 6 - 9 5S1SLts 2\.7 3 3 4\.8 43 5\.0 5\.1 3\.4 4\.7 4\.4 4 4 -1\.0 28 4\.T 4\.1 BB 4\.2 3\.7 87  I 4985 is95 2OQ5 (5 4\.a 185 5\.4 c 22\.2 268 24\.f -13\.7 2\.8 -'i\.3 -214 -1\.1 4\.0 l\.0 3\.4 724 T , 1,834 PO 573 - 3 l J 1,178 bRB P (1 88  Annex 15: Incremental Cost Analysis Baseline An analysis of Egypt's system expansion plan, fuel supply and availability, and potential candidate plants suggests that the least-cost baseline course o f action will be the commissioning o f further gas-fired combined cycle capacity\. The baseline plant i s therefore assumed to be a combined cycle gas turbine (CCGT) fueled with natural gas capable o f producing the same net energy output o f 852 GWhper year as the proposed GEF alternative\. GEFAlternative The plant will be o f about 150 MWe capacity combining a conventional fossil fuel portion o f about 130 MWe and an input from solar sources o f about 20 MWe\. When own consumption o f 6\.3 MWe i s deducted, the net overall plant capacity becomes 143 MWe\. The total net energy produced by the plant is expected to be 852 GWhper year, which includes the solar contribution o f 33\.4 GWh per year\. This corresponds to a solar share of 4 percent o f the total annual energy produced by the plant operating at a full load\. The technology for the solar field i s parabolic trough\. Inthe Egyptiancontext, Kureimat is a least cost site with excellent levels of solar insolation of 2,431 kWh/m2/year at a latitude o f 30°, direct access to natural gas, water supplies and direct access to the national electricity grid\. The project i s basedon a feasibility study and a conceptual designreport financed by the GEF, which assess the technical and economic feasibility o f solar thermal technology inEgypt and specify the design o f the ISCC power plant at Kureimat\. The ISCC power station will have the characteristics shown inTable 1below\. Table 1: Characteristics of the Integrated Solar Combined CyclePowerPlant Parameter Value GrossPlant Capacity( m e ) 150 Ofwhich Solar Field ( m e ) 20 Net Electricity Output (GWh/yr) 852 Solar Share (proportionof net energy output) 4 % Total InstalledCost* (US$ million) $290 LevelizedElectricitycosts (cents/kWh) 6\.77 * Installed cost comprises the equipment cost ($283\.4 million) and consulting cost during implementation and EMP cost ($6\.4 million)\. Import taxes on equipment ($22\.4 million) are excluded\. The technical, economic and financial data are basedon bids awarded\. Powerplant capacity and the relative proportion of the fossil and solar components are indicative and basedon the results o f the feasibility and draft conceptual designreport study\. Plant configuration will be optimized during the bidding process and will only become definite when the winning bidder is selected 89  and the contractual framework (the security package) negotiated\. This open approach will help ensure that optimum technology at least cost i s employed\. Scope of the Analysis SystemBoundary The analysis is basedon the direct comparison o fthe proposed solar thermal plant with the least- cost conventional solution o f the same annual output\. It i s recognized that the introduction o f solar-thermal capacity to the national grid might require further adjustments in the system expansion plan, not least because the proposed plant i s relatively small compared to the conventional power stations that might be built in the baseline\. These system-wide effects are ignored in the current analysis\. While they could be captured in a broader study o f the entire system expansion plan, a simple plant-by-plant comparison was preferred, for the following reasons: \. The Egyptian power system i s growing relatively fast\. Relative to this expansion and the overall size of the system, the proposed addition i s relatively minor and can be absorbedwithout major repercussions; There is a trade off betweenspatial and temporal system boundary: A plant-by-plant comparison ignores systemic effects, but allows the analysis o f the entire plant lifetime\. A system expansion analysis, on the other hand, has a wide spatial system boundary, but usually covers no more than 10-15 years o f plant life\. In the current context - where systemic effects are assumed to be small, and the time horizon o f the expansion plan i s relatively short - covering the entire plant life was considered more important\. An earlier sensitivity runof the system expansion plan performedby EEHC with and without a solar thermal / fossil fuel hybrid plant resulted in incremental costs in the same range as calculated inthe plant-by-plant comparison\. Additional Domestic BeneJits The GEF alternative will result in some improvements in domestic air quality, but these additional domestic benefits are marginal\. Egypt has a separate program targeted at local air pollution, especially inthe urbanareas where it i s worst\. T h i s project will position Egypt as a world leader in the commercialization o f solar thermal technology and as a potential source o f goods and services for future solar thermal power projects both domestically and abroad, particularly inthe highinsolation region inwhich it finds itself\. Input Costs Capital Costs In aggregate, the 150 MW ISCC installed cost of US$290 million is approximately US$1,933/kW\. Looking separately, the solar thermal power generation without combined cycle costs about US$4,937/kW (US$98\.74 million for solar island divided by 20 MW (excluding import taxes), substantially higher than the baseline CCGT, which costs about US$1,469/kW 90  (excluding taxes)\. The size o f the solar field i s 130,800 m2and i s estimated to cost US$ 754/m2 ($98\.74 million dividedby 130,800 m2)\. In the GEF PDF Block C application, costs were estimated for the solar field of $1,897/kWY average plant costs for a hybridat $894/kW and a likely cost o f solar electricity o f 9\.5 US$/kWh\. For a volumetric central receiver, costs were estimated at $902/kW with the solar field at $2,137/kW and solar electricity at 10\.2 US$/kWh\. Recurrent Costs The main recurrent cost elements concern operations and maintenance (O&M) and fuel purchases\. Good O&M data for solar thermal power are available from the 354 MWe o f plant that has been operating in California since the 1980s\. Over the years, operators have succeeded in substantially reducing O&M costs by increasing the efficiency and lifetime of components, improving the effectiveness o f the solar field, power block interface and other measures\. As a result, the typical O&M costs for a solar field have come down to about 1\.3 US$/kWh,compared with about 0\.3 US$/kWh for a typical CCGT\. The higher O&M costs o f the solar field are partially offset by savings infuel costs\. The economic cost of natural gas inEgypt i s estimated to be US$ 2\.52 per million BTU, which translates into levelized electricity costs o f 6\.77 US$/kWhfor the integrated plant at a 10% discount rate\. Key Assumptions Key assumptions are summarized inTable 2 below: Table 2 -KeyAssumptions Parameter Value Technical: Plant lifetime 25 years Total Plant Capacity 150 MWe Fossil Capacity 130 MWe Solar Capacity 20 MWe ISCC GWh generated 852 / year Incrementalsolar efficiency 85% GT capacity factor 32\.65% GT efficiency 34\.92% ST efficiency 67\.57% Economic: ISCC capitalcost $290 million ($1,933/kW) Reference CCGT $191million ($1,469/kW) Economiccost ofgas $2\.52/MM Btu 91  IncrementalCosts Using the data presented above, the results indicate that for a total capacity o f 150 MWe, introducing a 4% solar contribution will increase the installed cost o f the plant from about US$191 million for a conventional CCGT to about US$290 million for the integrated solar combined cycle plant\. There will also be incremental O&M cost, the present value o fthese costs i s about US$19\.7 million over the construction and the 25-year project life\. The costs are partially offset by the reduced fuel consumption; the present value o f which i s US$4\.3 million\. Therefore, the estimated net incremental cost (both capital and operating costs) for 20 MWe o f solar capacity varies between US$SS\.3 million to US$108\.6 million, using discount rates between 6%-14%\. The GEF financing is capped at US$49\.8 million for the project and any remaining incremental cost will be financed by NREA\. US$97\.2 million incremental cost has been used in the cost estimates and financing plan o f this project\. Table 3 below presents the results inmore detail\. Table3 -IncrementalCost ICalculation ofIncrementa1 Cost US%Million I Discountrate 6% 10% 14% ~ ~ -\.____ Reference Baseline CCGT Capital costs 170\.2 158\.2 147\.6 Fuelcosts 181\.0 113\.2 76\.0 O&M costs 38\.5 24\.1 16\.2 Consumables 1\.2 0\.7 0\.5 Total 391\.0 296\.2 240\.2 PV GWh 9141\.8 5808\.6 3951\.2 Levelized electricity costs (centskWh) 4\.28 5\.10 6\.08 ISCC Capital costs 258\.1 240\.0 223\.8 Fuelcosts 174\.1 108\.8 73\.O O&M costs 66\.1 43\.8 31\.2 Consumables 1\.2 0\.8 0\.5 Total 499\.5 393\.4 328\.5 PV GWh 9141\.8 5808\.6 3951\.2 Levelized electricity costs (centskWh) 5\.46 6\.77 8\.3 1 * Increment: Capital costs 87\.9 81\.7 76\.2 Fuel costs (6\.9) (4\.3) (2\.9) O&M costs 27\.6 19\.7 15\.0 I Consumables 0\.0 0\.0 Total incremental cost 108\.6 97\.2 Incremental levelized costs (cent&%) 1\.19 1\.67 2\.24 92  Table 4: Incremental Cost Matrix Baseline Alternative Increment DomesticBenefits a) physical 852 GWh per year of 852GWh per year o f None electricity electricity ( 818 GWh are generatedthrough the combustion of gas, and 33\.4 GWh are produced through the solar field)\. b) programmatic LimitedNREAEEHC Demonstrated practical Reductiono f perceived institutional capacity to viability o f utility-based risks inrenewables- develop complex private solar thermal technology based power; gain in renewables-based operational experience generation projects Participation inplanning, preliminary design of Upto 20 NREAEEHC technical and financial Staff at various levels requirements, trained insolarhybrid preparation o f bidding technology documents for hybrid plant Limited regulatory Regulatory staff training Solar thermal regulatory capacity for renewables insolarthermal capacity Global Benefits a) environmental 16\.14 million tons o f C02 15\.78 tons of C02 emitted 0\.5 million tons o f C02 emitted over 25 years\. over 25 years\. abated over 25 years o f project\. b) programmatic No hybrid solar thermal 20 MWe solar thermal 20 MWe of solar thermal power plants in utility capacity\. capacity operation; high risk Demonstration More countries and perceived by investors effectkombining impact investors globally willing with similar plants in other to consider STP hybrid countries options Solar thermal industry Revived interedmarket Creation o fnew dormant with little future opportunities for solar opportunities for STP prospects; costs high thermal industry industry as aresult o fcost reductions IncrementalCosts (see table 3) US$97\.2 million 93  Annex 16: STAPRoster Review IndependentTechnicalReview Reviewer: Mr\.PascalDeLaquil President Clean EnergyCommercialization, L L C Annapolis, MD- USA 1\. Introduction This project will assist the GOE, through its relevant agencies the Egyptian Electricity Holding Company (EEHC) and New and Renewable Energy Authority (NREA), to procure and benefit from a hybrid solar thermal power plant through an Engineer Procure and Construct (EPC) contract with a 2-year operation and maintenance (O&M) contract\. A similar project was proposed in early 2002 using an independent power producer approach\. However, the GOE changed its policy on foreign currency exposure related to private sector investmentprojects, and this causedprivate interest ininfrastructure projects (ingeneral) to evaporate\. Therefore, based on a request from the Government, the project's concept was changed to a publicly financed approach\. Selection o f the EPC/O&M contractor will be through an international bidding process, and details o f the selected plant design are expected to vary slightly, but based on the conceptual design study by Fichtner Solar, the project i s expected to comprise an Integrated Solar Combined Cycle (ISCC) plant configuration with a total capacity o f about 150MW and a solar thermal component o f about 20MW\. On an annual basis, the solar field will contribute about 4% o f the total energy produced by the plant\. The EPC/O&M contractors will be able to optimize their design through choice o f proven solar trough technologies, turbine generator equipment, and degree o f local content, as long as the proposed design meets the performance specifications from the GOE\. 2\. GEFContext The proposed project addresses GEF Operational Program 7 (OP7): reducing the long-term cost o f low greenhouse gas-emitting technologies\. OP7 aims to accelerate market penetration o f several large-scale backstop technologies that are constrained by high capital costs and high commercial risks\. The strategy i s to identify projects that address national priorities and then finance the incremental costs o f investments, capacity building and other activities that reduce marketbarriersandperceived risks by investors\. Based on the technical success o f the 354 MW o f solar thermal power plants still operating in California after more than 15 years, this technology can be considered an important large-scale non-carbon emitting backstop technology\. Many o f these plants currently operate at solar outputs that exceed their initial design specifications\. However, current costs for this technology are high, and significant cost reductions for this technology can only begin to occur with the implementationo f newprojects\. The proposed project is one of four similar projects demonstration (the others being in India, Mexico and Morocco) which have been sponsored by GEF as part its program to accelerate cost reductionand commercialadoption of large-scale non- carbon emittinggeneration technologies\. 94  3\. Key Issues 3\.1 ProjectApproach The switch from a private sector to a public sector financing approach has specific advantages and disadvantages\. The key disadvantage i s that it may not be sustainability over the long-term because o f changing government policy and the public sector's limited access to capital\. However, inthe near-term,the proposed EPC/O&M contract approach for this project preserves manyo fthe important features o fthe private sector approach\. Namely, the choice o ftechnology and its associated risks will be borne by the contractor during construction and the initial five year operating period, and that entity will be inthe best positionto manage those risks\. Second, the contract will contain appropriate incentives for maximizing the utilization of the solar field over the long term\. Third, the contractor and key suppliers will be positioned to capture o f technology and organizational learning effects that are essential to achieving long-term cost reductions\. The fact that the main activities o f NREA are evolving from research and development to production and sales o f electricity from renewable sources i s a potentially powerful, but risky development\. It provides a strong governmental drive to realize the social and environmental benefits o f renewables (as long as the policy remains strong), but it also means that significantly more capacity buildingwill be requiredinsupport o fthis project\. Specifically, it i s stated that this project will benefit from a study that i s about to be commissioned under a GEF preparatory grant to review institutional options for NREA in support o f wind projects\. The aim i s for the study to identify an actionplanthat can be included inthe implementationofthe solar-thermal project\. What is the timingofthis studyinrelationto the project? Will the results be available intime to impact this project? Regarding consulting services for project management during the EPC/O&M contract period, the Project Brief reads as if the contractor will be responsible for project management rather than beingtasked to support the Project ImplementationEntity (PIE) withinNREA intheir role as the project manager and implementingagency\. For effective capacity building, the PIE should lead the project management team, and while the contractor may perform all the project management activities, PIE members will need to be involved both for training purposes and to be able to recommend documents for approval to NREA and EEHC management\. This would seem appropriate giventhat the Project Document states (on Page 10) that NREAhas gained significant experience in designing and implementing wind energy projects with international loan and grant financing\. However, ISCC plants are significantly more complex thanwind farms, andhavingthe project management and support contractor onboardbefore the start o f implementationi s critical\. Another important project feature i s the decision to include an incentive/penalty structure inthe O&M contract that will act to maximize the solar output, and to ensure the continuation o f the incentive structure in the PPA contract between NREA and EEHC\. This will help achieve the GEF program goal by promoting an effectively operated demonstration and ensuring sufficient learning experience within the solar thermal industry\. A single contract encompassing the ISCC plant is the proper basis for procurement\. Use o f the World Bank Procurement Guidelines and the Bank's standard two-stage bidding procedures should ensure that a reputable contractor is selected inan open and transparent manner\. 95  This reviewer agrees that a public financing o f the first solar thermal project can be done at lower cost and with a greater degree of certainty, since the private sector would demand a premium for assuming both the technical and financial risks of the project\. Inthe proposed public sector approach, the contractor continues to assume the technical risks, but NREA and the GOEare assuming the financial project risks\. The institutional and implementation arrangement for the project is clear from the level of the NREA and below\. However, above the NREA, it only states that the project will be overseen by MEE\. This reviewer believes that a Project Steering Committee (PSC) is needed to ensure that the broader project objectives are met, especially those dealing with capacity building, replication, information dissemination and public awareness\. The PSC should have members from other interested government ministries in addition to MEE, the GEF and the IFIs providing loans to the project\. Inaddition, an interested NGO shouldbe invited onto the PSC\. 3\.2 Scientific and Technical Soundness Solar thermal power plants that raise steam to generate power have been successfully operating for over 15 years\. The basic concept o f the ISCC (integrating a solar thermal steam generating field with a natural gas combined cycle power plant) i s sound and has been extensively studied\. While such a project has yet to be implemented, a project following this concept should be completely feasible, as the technical basis for such an integrated system is quite straightforward\. Details of the technical and economic effectiveness of the power plant will depend o n the design and equipment choices of the selected bidder\. Therefore, this review is based on the conceptual design identified inthe Project Brief, and it seeks to identify the most important technical issues that will to be addressed duringthe implementation of the project\. The size of the solar thermal field at about 20 MW is sufficiently large to provide relevant operating experience and contribute to the re-establishment o f manufacturing capacity for critical solar field components that will help lead to lower costs inthe future\. The project document states that "two types of solar parabolic trough designs are available: Euro-trough and LS-3\." Infact, other potential designs do exist\. Does the project intendto limit bidders to these two types o f trough designs because they are more technically proven? Some experts believe that the LS-2 collector is a more reliable design than the LS-3 collector\. Will that design be allowed? The project document correctly states the need for proven technology, and the intention to pre- qualify all bidders\. It is therefore recommended that a list o f acceptable solar trough designs be developed and reviewed with potential bidders during the pre-qualification process\. In the prequalification discussions, the project should be open to other solar trough designs, provided that the potential bidder is able to demonstrate an acceptable level o f development\. Page 9 states that "TOenable both existing types to compete for the project, the physical size of the solar field will be scaled to fit the requirements o f both designs corresponding to a size of 1,000 x 1,125 meters\." This i s unclear\. Ibelieve that what is meant is that the physical area for the solar field will be fixed at 1,000 x 1,125 meters, and the bidders will be allowed to optimize the output of their solar field within this space limitation\. Ifthis is the correct interpretation, then the text shouldbe clarified\. 96  This reviewer supports the decision to exclude thermal storage from the project design, as this technology has not been adequately developed for solar trough systems and because storage adds little value to a hybridplant\. The Project Brief states that NREA is working together with Fichtner Solar to develop the performance specifications o f the proposed plant\. Inaddition to minimum qualifications for the solar trough technology, these performance specifications must ensure effective integration o f the steam systems for the solar field and the gas-fired combined cycle plant\. The contractor selection process should also reviewplant designs to ensure that the plantwill operate effectively in all modes\. Inparticular, integration and control of the system should be flexible enough to allow the solar contribution to be consistently maximized, while under other circumstances allow power to be efficiently generated on natural gas only (e\.g\. during nighttime or ifthe solar field i s not operational)\. 3\.3 Adequacy of the FinancingMechanism Page 13 states that a preliminary analysis o f the impact o f the project on NREA's financial position has been conducted and will be finalized during appraisal\. What was the result o f this preliminary analysis? Given the cost and performance o f the conceptual design, and assuming the current financial prices for gas and electricity, does the project have a positive cash flow? The incremental costs analysis inthe Project Brief i s based on the economic prices for gas and electricity, and it does not provide any insight into whether this project approach i s at all sustainable\. A preliminary financial analysis would indicate whether and by how much the GOE may needto subsidize the NREA for operation o fthis plant\. Page 15 states: "Ensuring that the necessary controls are in place to monitor performance and ensuring prompt payment o f the grant to the operators will be important considerations for the project's implementation plan\." This implies that the GEF grant will be partitioned into an investment portion and an operating portion\. This project feature i s specified nowhere in the Project Briefthat this reviewercould find\. It should be properly introducedand clarified\. Ifaportionofthe GEF grant isusedto support the O&M contract duringthe first 5-year period, how will NREA be able to assume responsibilityfor O&M inthe second 5-year period? 3\.4 Identificationof GlobalEnvironmentalBenefits The project's principal global environment objective is to contribute to improving the economic attractiveness o f solar thermal technology globally\. The project will create global learning effects that will lead to a reduction in costs for the technology over the long term\. Globally, solar thermal power plants have the potential to provide a significant proportion of new electricity generating capacity inthe next century on a non-carbon emitting basis if this project, and the others within the program, are successful inreducing the technology's costs and risksto a competitive level\. Major markets exist for this technology inother highsunlight regions o fthe world\. 3\.5 Fitwith GEF Goals The project has a good fit with the GEF Operational Program #7\. The plant itself will have lower C02 emissions than a fossil-based plant o f the same annual output\. More importantly, it will help revitalize the solar thermal industry, and it will facilitate the technological and organizational learning that are critical to achieving long-term cost reductions\. 97  3\.6 RegionalContext The project is a good fit to Egypt's growing electricity demand, its growing commitment to renewable energy power project development, its excellent solar resource and its current availability o fnatural gas\. 3\.7 Replicability This project, and its companions in Mexico, India and Morocco, i s not likely to result in immediate cost-competitiveness for solar thermal power plants\. The study Cost Reduction Study for Solar Thermal Power Plants, Enermodal Engineering, May 1999 commissioned in collaboration with the GEF Secretariat to determine the viability o f long term cost reductions for solar thermal technology concluded that a phased approach should be adopted\. These four projects represent the first o f three phases, and they will provide an initial opportunity for cost reduction\. Inthe assessment o f this reviewer, the targets for cost reduction o f solar electricity in the range of 10-11 US$/kWhand a capital cost o f solar fields of about $2,0OO/kW by 2010 are quite achievable\. Meeting these targets would create very important opportunities for replication of this project, not only in Egypt, but also throughout the Mediterranean Region, South Asia, and other parts o f the world with similar climates\. The need for future GEF buydown will most strongly depend on the cost o f conventional power and the valuation (ifany) o f environmental externalities\. 3\.8 Sustainability The public sector financing approach being proposed for this project will establish the contractual arrangements necessary for the first 10 years o f plant operation\. Beyond that period, a new PPA will be required, but giventhat the investment costs will have beenwritten down, the marginal operating costs for the plant should be attractive\. For potential follow-on projects, the project i s not designed to address the government policies that distort the market prices for gas and electricity\. From the GEF perspective, the main sustainability issue will be to ensure that the plant i s operated ina manner that maximizes the output from its solar field throughout the lifetime o f the plantso as to maximize the technology learningand cost reductionbenefits\. 4\. SecondaryIssues 4\.1 Linkages to Other FocalAreas N o comment\. 4\.2 Linkages to Other Programs As already mentioned, this project has linkages to other similar projects in Mexico, India and Morocco, and it forms part o fthe GEF program on Greenhouse Gas Reduction\. 4\.3 Degree of Involvement of Stakeholders According to the Project Brief, there i s a high degree o f involvement o f the key government stakeholders, especially EEHC andNREA\. Early engagement with potential developers i s stated to be underway to ensure a willingness to submit bids\. Given that the new financing approach will remove significant financial risks from the bidders, it can be expected that interest among potential developers will be high\. 98  4\.4 CapacityBuildingAspects The proposedproject contains specific elements o f capacity buildingthat will involve EEHC and NREA staff\. These are necessary and appropriate\. In addition, successful implementation of the project will provide needed capacity building within the international solar thermal power plantmanufacturing sector\. 4\.5 Innovativeness No comment\. 5\. Conclusion This reviewer's overall assessmentis that the project is technically feasible, that the proposed approach to project development is sound, andthat the project has significant long-term potential to meet GEF goals\. 99   MAP SECTION   IBRD 33400 ARAB REPUBLIC OF EGYPT SELECTED CITIES AND TOWNS GOVERNORATE CAPITALS ARAB REPUBLIC NATIONAL CAPITAL GOVERNORATES IN NILE DELTA: OF EGYPT RIVERS 1 KAFR EL SHEIKH 7 DAGAHLIYA 2 DAMIETTA 8 MENOUFIYA MAIN ROADS 3 PORT SAID 9 SHARGIYAH 4 ALEXANDRIA 10 QALIUBIYA RAILROADS 5 BEHEIRA 11 ISMAILIA 6 GHARBIYA 12 CAIRO GOVERNORATE BOUNDARIES INTERNATIONAL BOUNDARIES 25°E 30°E 35°E WEST BANK To AND GAZA To Darnah M e d i t e r r a n e a n S e a Tel Aviv Salum Marsa Matruh 2 Damietta Damietta 1Sheikh Kafr el Kafr el Alexandria Sheikh Port Said El'Arish L i b y a n P l a t e a u 3 JORDAN Damanhur Damanhur El Mansura El Mansura ISRAEL 4 6 Tanta7 anta 9 Shibin el Kom Shibin el Kom Zagizig Zagizig 8 Ismailia Ismailia Benha Benha NORTHERN NORTHERN 5 1111 SINAI SINAI 30°N 1010 30°N QattaraQattara CAIROCAIRO GizaGiza Suez Suez DepressionDepression 1212 QaraQara Taba Ta El Fayoum El Fayoum SOUTHERN SOUTHERN SiwaSiwa SUEZ SUEZ MARSA MATRUH MARSA MATRUH EL FAYOUM EL YOUM SINAI SINAI Beni Suef Beni Suef Gulf BENI SUEF BENI SUEF Abu Zenima Abu Zenima of Aqaba G I Z A Suez SAUDI of Ras Gharib Ras Gharib AL MINY AL MINYA El T El ur Gulf Al Minya Al Minya E ARABIA a s LIBYA NileNile AL BAHRt AL BAHR e ASSIUTASSIUT Assiut Assiut r Al Ghurdaqah RiverRiver AL AHMAR AL AHMAR n W e s t e r n Bir Seiyala Sohag Sohag L SOHAGSOHAG D e Red i Qena Qena Quseir \. b D e s e r t s e Sea y QENA QENA LuxorLuxor a A L WA D I r t MutMut\. El-Kharga El-Kharga 25°N n A L J A D I D Marsa 'Alam 25°N D ASWANASWAN e Kom Ombo Kom Ombo s Aswan Dam Aswan Aswan e To Jalu r t LakeLake Nasser Nasser HalaibHalaib S U D A N 0 50 100 150 200 Kilometers To To To Dongola Berber Port Sudan This map was produced by the Map Design Unit of The World Bank\. 0 50 100 150 Miles 20°N The boundaries, colors, denominations and any other information 20°N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. 25°E 30°E 35°E NOVEMBER 2004

APPROVAL

P004490

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 8107 PROJECT COMPLETION REPORT PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127 - PH) OCTOBER 6, 1989 Industry and Energy Operations Division Country Department II Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS AND ACR3NYMS ATC - Advance Tax Credit BOI - Board of Investments CB - Central Bank of the Philippines DBP - Development Bank of the Philippines DTI - Department of Trade and Industry MT - Metric Tonne (1,000 kilograms) PCR - Project Completion Report TMP - Textile Modernization Program Government: Government of the Philippines South East Asia: Main competing Garment and Textile producing countries; Thailand, People's Republic of China, Taiwan, Korea, Hong Kong and Japan Consultants: Tootal Textiles International Operations Direct Exports: Direct Exports of Textiles Indirect Exports: Sales of textiles to export garment producers, export shoe producers, or other exported products containing textiles\. THE WORLDBANK Washtton, D\.C\. 20433 U\.S\.A\. 01ce af DkectarGenl OperA6oM Evalution October 6, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT* Project Completion Report on the Philippines Textile Sector Restructuring Project (Loan 2127-PH) Attached, for information, is a copy of a report entitled *Project Completion Report on the Philippines - Textile Sector Restructuring Project (Loan 2127-P8)' prepared by the Asia Regional Office with Part II of the report contributed by the Borrower\. No audit of this project has been made by the Operatione Evaluation Department at this time\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their ofic'i duties\. Its contents may not otherwise be disclosed without World Bank authodation\. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127-PH) Table of Contents Page No\. Preface \. \. \. Evaluation Summary \. iii PROJECT COMPLETION REPORT PART I: PROJECT DEVIEW FROM BANK'S PERSPECTIVE 1\. Project Identity \. 1 2\. Foreword \. 1 3\. Background \. 2 4\. Project Cbjectives and Description \. 2 5\. Project Design and organization \. 4 6\. Project Implementation \. 5 7\. Project Results \. \. 6 8\. Project Sustainability \. 7 9\. Bank Performance \. 7 10\. Borrower's Performance\. 8 11\. Project Relationship \. 8 12\. Consulting Services \.8 13\. Project Documentation \.8 14\. Conclusions and Lessons Learned \. 9 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Summary \.3 1\. Introduction \. 19 2\. Project Background \. 21 3\. Loan Objectives \. 23 4\. Utilization of the Bank Loan \. 25 5\. Operating Performance of the Industry \. 28 6\. Polyester Fiber Producer (Brief History) \. 39 7\. Polyester Fiber Producer (Present Position) \. 41 8\. Financial Performance of the Industry \. 42 9\. Industry Investment \. 40\. \. 43 10\. Conclusions and Lessons Learned \. 44 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. TABLE OF CONTENTS (Cont'd) Page No\. LIST OF ANNEXES 1\. Price Trends of Raw Materials & Products, 1983-1988 \. 50 2\. Demand & Supply, 1972-1988 \. \. 51 3\. Philippine Textile Exports, 1980-1988 \. 52 4\. Country Exchange Rates \. 53 PART IIIs STATISTICAL INFORMATION 1\. Related Bank Loans \. 55 2\. Project Timetable \. 56 3\. Loan Disbursements \. 56 4\. Project Implementation \. 56 5\. Project Cost and Financing \. 57 6\. Project Results \. 57 7\. Status of Covenants \. 58 8\. Use of Bank Resources \. 58 A\. Staff Inputs \. 58 Key Statistics for the Textile Industry, 1979-88 \. 59 B\. Mission Data \. 60 PROJECT COMPLETION REPORT PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127-PH) PREFACE This is the Project Completion Report (PCR) for the Textile Sector Restructuring Project in the Philippines, for which Loan 2127-PH in the amount of US$157\.4 million (including a front-end fee of US$2\.4 million) was approved on April 20, 1982\. The loan was closed on schedule on December 31, 1988, but due to a severely depressed economy and other adverse circumstances only a small portion of the loan was withdrawn and utilized\. In addition to the front-end fee, final disbursements were US$3\.05 million for technical assistance and training, US$9\.3 million for a Foreign Exchange Working Capital Fund of the Government during the country's economic crisis and US$0\.705 million for a special Board of Investment Account\. The remaining US$142 million were cancelled\.l/ The last disbursement from the loan was made on March 14, 1989\. The PCR was jointly prepared by the Industry and Energy Operations Division, Country Department II, Asia Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower (Part II)\. Preparation of this PCR was started during the Bank's final supervision mission of the project in November 1988, and is based, inter alia, on the Staff Appraisal Report; the Loan and Project Agreements, supervision reports, correspondence between the Bank and the Borrower and internal Bank memoranda\. 1/ US$100 million effective May 20, 1985; US$40\.7 million effective November 19, 1986; and US$1\.3 million on March 15, 1989\. - iii - PROJECT COMPLETION REPORT PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127-PH) EVALUATION SUMMARY Objectives 1\. The project comprised two components: the provision of credit to the textile sector for financing rehabilitation, modernization and expansion sub- projects (the credit line component) and provisions for related technical assistance (the TA and training component)\. The project was designed to assist the Government in the implementation of its Textile Sector Restructuring Program which, in broad terms, had the following objectives: (i) to produce a competitive and efficient textile industry by 1985; (ii) to have textile mills achieve a greater degree of specialization; and (iii) to obtain a greater share of the export market (Part I, paras\. 4\.1-4\.3)\. 2\. Sector investment requirements for the four-year 1982-85 period were estimated to amount to US$503 million in foreign exchange of which the Bank loan was to provide US$150 million (excluding the front end fee) and suppliers' credits the balance\. Local \.jsts, estimated to be equivalent to US$100 million were to be financed by the firms and mills taking part in the credit line component (Part III, paras\. 5\.1 and 5\.2)\. Implementation Experience 3\. Achievement of the project objectives was based on three key assump- tions: (i) domestic and international demand would continue to grow at a rapid rate; (ii) trade policy reforms and incentiv \. would be implemented in accordance with the Government's trade liberalization program supported by the Bank's Structural Adjustment Loan (1903-PH); and (iii) the business climate would remain favorable\. However, none of these assumptions proved to be valid; adverse economic and political developments subsequently caused the cancellation of the entire credit line component\. Excluding the front end fee, all of the US$150 million loan was cancelled except for US$15\.1 million\.l/ The project's only bright spot was the TA and training component which was successfully implemented with particularly useful results (Part I, paras\. 6\.1 and 6\.2)\. 1/ Disbursed as follows: US$3\.1 million for the TA and training component; US$9\.3 million transferred to the Foreign Exchange Working Capital Fund; and US$0\.7 million for a special Board of Investment Account\. - iv - Results 4\. The project failed to achieve the objectives expected from the credit line component over the 1982-85 project period\. However, the TA and training component made steady progress over this period in bringing about industry- wide mill efficiency and output quality improvements\. Moreover, the work of consultants assigned to this component was helpful in persuading the Government of the soundness of phasing out import restrictions, instituting lower tariffs and providing export incentives\. The results have produced an improved business and investment climate\. The present cautiously optimistic view is that the project objectives will be met but at a much slower pace than anticipated during project appraisal\. This optimism is supported by the fact that investment volumes which were US$230 million for 1987-80 (versus US$42 million for the entire 1982-85 period) are expected to total US$500 million over the next three to five years (Part I, paras\. 7\.1 to 7\.6)\. Sustainability 5\. Prospects appear reasonably good that the growing benefits derived from the improved textile sector performance will be sustained\. However, the Government must continue to have a sound t--4e policy and the restructuring steps and sector improvements initiated so far must be maintained (Part I, para\. 8\.1)\. Findinzs and Lessons 6\. The project could not succeed because of unanticipated economic and political adversities\. Lessons learned from this failure are that (Part I, paras\. 14\.1 and 14\.2): (a) prior detailed and vigorous analyses of market trends and volumes and their relationship to investment requirements are a must for this type of project; (b) industry investments cannot be expected to precede Government incen- tives and policy refGrms; (c) high inflation and interest rates are a strong deterrent to invest- ments, especially if the investors face substantial foreign exchange risks; and (d) restructuring projects are likely to benefit from a well prepared TA and training program\. PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (Loan 2127-PH PROJECT COMPLETION REPORT PART I 1\. Project Identity Project Name : Textile Sector Restructuri!\.g Project Loan No\. : 2127-PH RVP Unit : Asia Country : Philippines Sector : Industry Subsector : Textiles 2\. Foreword 2\.1 Loan 2127-PH (in the amount of US $157\.4 million including a front end fee of US$ 2\.4 Million) to the Republic of the Philippines was approved by the Executive Directors on April 20, 1982 in support of the Textile Sector Restructuring Project\.l/ Cofinancing was to be provided by Suppliers,/Buyer's credits (US$ 317 million) and a syndicated commercial loan of US$ 50 Million equivalent\. The project consisted of two parts: (i) US$ 5 million for studies, training and other technical assistance designed to improve sectoral performance and (ii) US$ 150 million to be onlent to the Development Bank of the Philippines for financing rehabilitation, modernization and expansion sub- projects in the textile sector\. 2\.2 Following approval of the Bank loan, economic conditions in the Philippines\. already in a poor state, deteriorated drastically with the onset of a global recession which exposed policy, institutional and structural weaknesses in the Philippine economy and caused a massive recession\. The textile industry was particulariy hard hit, and as a result demand for investment credit essentially disappeared\. The principal causes were the 1/ The textile industry is defined to include spinning, weaving, knitting and finishing on man-made and natural fibers\. Garment manufacture is not included in this category and has only an indirect connection to the Bank loan\. - 2 - rapidly declining demand for textiles and the resulting overcapacity and the high interest rates coupled with the increasing reluctance of investors to bear the foreign exchange risk in the face of a rapidly depreciating Peso\. As a consequence, no textile subproject was financed from the Bank loan, and only the technical assistance and training components of the project were imple- mented\. The credit component was formally cancelled on November 19, 1985, the effective date of the final cancellation of all funds allocated to this component\. 3\. Background 3\.1 The Philippine textile industry, which remains entirely in private hands, was among the first to be developed following independence\. It continues to be one of the most important in terms of manufac*uring output and employment\. From the early 1950s the industry evolved in an environment characterized by high tariffs and tight import controls\. Protected from foreign competition, the industry developed severe operating and structural problems due to lack of specialization, obsolete and aging equipment, poor technical performance and an inadequately trained work force\. Compared to its more efficient, export-iriented neighbors, the Philippine textile industry produced almost solely for its captive domestic market high priced goods of pcor quality\. 3\.2 By the 1970s the Government had become acutely aware of the problem created throughout the industrial sector by the distorting import substitution policy\. After a series of studies it promulgated the Industrial- ization and Policy Reform Program for the 1980s which the Bank supported with Structural Adjustment Loan 1903-PH\. Also in support of this program a Bank reconnaissance mission reviewed the textile industry in April 1980\. On the baris of the mission's findings and further discussions, the Government and the Bank agreed on a textile sector restructuring program which the Bank would support\. The program comprised a three-pronged strategy: (i) policy changes to encourage and improve efficiency, (ii) technical and structural improve- ments, and (iii) financing for rehabilitation, modernization and expansion, and improvement of technical operations\. 3\.3 The project was prepared by the Dep&\.ment of Trade and Industry (DTI) and the Board of Investments (B01) with the assistance of the Bank and consultants\. It was appraised in March/April 1981, and a post appraisal was undertaken in October 1981 to review cofinancing and technical assistance arrangements, procurement procedures and coordination mechanisms for the restructuring program\. 4\. Project Objectives and Description 4\.1 The main objective of the project was to assist the Government in implementing the textile sector restructuring program and accomplish the following: - 3 - a) transform, by 1985, the existing textile industry into a competi- tive and efficient industry able to produce, at prices and quality comparable to imported textile products, in an environ-ient of unrestricted entry and r_Asonable levels of tariff protection; b) achive a greater degree of speci:lization, by product and process, for the industry's mills; and c) increasingly meet some of the requirements of export markets, both directly and indirectly through the export of garments\. 4\.2 It is clear that these objectives were highly ambitious and relied on a number of key-assumptions: (i) domestic and international demand would continue to grow rapidly; (ii) trade pnlicy reform with regard to textilee would be implemented according to the announced program of trade liberaliza- tion, supported by the Bank's Structural Adjustment loan; and (iii) the business climate would remain favorable\. As it turned out, none of the three assumptions came true within the time frame envisaged (paras\. 5\.3, 6\.1 and 14\.1)\. 4\.3 The proje-t was divided into two main components: (a) the provision of credit through DBP to finance textile subprojects; and (b) technical assistance, provision of which would be coordinated by the BOI within DTI: Subproiect Component (a) funding of the phyrical rehabilitation, modernization and expan- sion of plants in spinning, weaving, knitting and finishing through provision of term financing including suppliers' credits to individual subprojects; (b) training of technol\.)gists, technicians, operators and managers, and technical assistance to individual firms within the context of subprojects; Technical Assistance Component (c) setting up of training facilities/programs for the entire textile industry; and (d) consulting services to assist the Government: - in the evaluation and supervision of the projects and firms which participate in the restructuring - in monitoring the impact of the sector program and in developing a textile technology information service; and - in carrying out studies for improving sector performance in the areas of energy conservation, effluent treatment, local manufacture of accessories, etc\. 5\. Project Design and Organization 5\.1 The project was well conceived: it was in accord with the Bank's lending objective of assieting industrial development in the Philippines; and the timing seemed right for restructuring the textile industry under the Government's industrial development and policy reform program\. In addition, the project opened the way for the Bank to assist in setting operational and institutional goals for the textile sector\. Also, Bank participation in the project was expected to draw the necessary cofinancing under favorable terms\. 5\.2 Project preparation was thoroagh and clearly defined the project's content and objectives\. Adequate safeguards were included in project design to ensure smooth implementation by setting forth unambiguous working arrange- ments and procedures for carrying out the project\. The two institutions jointly responsible for implementation, the Board of Investments (BOI) and Development Bank of the Philippines (DBP), were at the time considered experienced in their areas of responsibility: BOI, the Government agency within the Ministry of Trade and Industry in charge of the implementation of investments laws comprised textile experts recruited from the domestic industry\. DBP was established iu 1958 as an autonomous Government-owned development bank with financing operations (loans, equity and guarantees) covering practically all segments of the economy; it had previously received a number of credit lines from the Bank\. Guidelines to be followed by BOI and DBP in evaluating and financing textile subprojects were fully defined in the loan legal documents\. 5\.3 A major shortcoming of the project design wap its optimistic view of general economic performance and development of the Philippines and notably its generously optimistic forecast of domestic demand for textiles based on rather sketchy data and assuming for 1985 a level of consumption which actually has only materialized by about two thirds even in the boom year of 1988\. The otherwise careful project preparation and design normally would have produced a relatively trouble-free project barring some disbursement delays, a common minor shortcoming with Philippine projects\. It was not anticipated that none of the loan proceeds would be disbursed to fund textile subprojects\. The Bank had recognized that the prevailing economic situation and depressed state of the textile industry represented the risk that opposi- tion from influential pressure groups would be able to prevent the enactment of important policy reforms\. However, it was not foreseen that economic conditions would deteriorate to the extent that the textile industry would soon be fighting for its survival instead of planning new investments\. 5\.4 In retrospect, the choice of a government-owned development bank as the sole intermediary was not a wise solution\. Bank experience over the past several years has led the Bank to channel credit through multiple institutions, particularly commercial banks\. DBP went through very serious financial problems in the early 1980s which required a major rehabilitation - 5 - effort in the 1985-87 period\. In the event, however, the credit component did not move because of other more significant reasons (macroeconomic crisis)\. But had that not been the case, the decision to go with DBP could have proven very problematic\. 6\. Project Implementation 6\.1 Implementation of the principal project component comprising the evaluation and financing of textile subprojects got off to a good start with the appointment of consultants in March 1982 and the establishment of a subproject evaluation team, including BOI and DBP officials, in July 1982\. Because of the distressed state of the Philippine textile industry at the time, it was decided to proceed with modernization and rehabilitation sub- projects first and hold off on the expansion subprojects with their greater financing requirements until later when hopefully conditions would have improved\. A substantial number of subprojects were evaluated and approved for financing during 1982-83\. However, as already stated, conditions in the industry only worsened, and the implementation effort ultimately had to be stopped\. By the same token, the intended removal of quantitative restrictions had to be abandoned in the light of the serious economic crisis which the country faced in the early to mid- 1980s\. As a result of the economic crises, coupled with the political upheaval of the mid-1980s, the business climate deteriorated sharply across the Philippines, causing a massive drop of investments in manufacturing\. Thus in March 1984 the loan was amended to divert US$120 million (US$40 million in the first tranche) to the Foreign Exchange Working Capital Fund (FEWCF) to help the Government meet its foreign exchange needs\. Further deterioration of the political and economic situation resulted in two major loan cancellationst (i) US$100 million effective May 20, 1985 and (ii) US$40\.7 million effective November 19, 1985\. The textile industry was able to undertake only modest new investments 2/ which were financed mainly from owner's contribution and cash generation\. 6\.2 On the other hand, implementation of the technical assistance and training component of the project proceeded successfully from March 1982 onward\. The services provided by consultants engaged for this part of the project consisted of (i) analyses, studies and development of policy reforms in support of the Government's efforts to rationalize trade-and regulatory policies; (ii) the technical assistance needed by the industry; and (iii) training programs including in-company, counterpart and management training\. While the "hard ware" component of the project did not materialize for reasons outside the control of the textile industry, this "software" component helped to lay the foundation for improved industry organization and performance which would allow major investments after improvement in the business climate\. 2/ Between 1982 and 1985 only US$42 million were invested as compared to the forecast US$503 million equivalent\. In 1986 US$25 million were invested\. -6- 7\. Project Results 7\.1 Because of the economic difficulties during the 1982-85 project period and the collapse of the textile subproject financing program, the three main project objectives (para\.4\.1) could not be achieved within the envisaged time frame until 1985\. Developments since 1985 indicate that these objectives may be achieved, although with much delay and at a slower pace then had been anticipated\. Reasons for the optimistic assumption at this time are: (i) the political climate and the economic performance of the Philippines have much improved since 1986 and the domestic demand for consumer goods and notably textiles has recovered significantly with a trend for further growth; (ii) the policy environment, notably with respect to a more open trade policy (QR's on textiles were phased out in 1987) and stimulating policies regarding direct and indirect exports, has much improved; (iii) the effects of substantial efforts of training and technical assistance, provided under the project are being felt; and (iv) the improved business climate in the Philippines has led to renewed investors' confidence, so that investments in the textile industry have started to pick up significantly since 1988\. 7\.2 By 1985 the technical assistance and trai ing provided under the project began to show positive results as demonstrated b; the progress made by some of the better equipped and managed mills in improvin6 quality and efficiency\. The technical assistance component also helped to bring about badly needed Government policy changes through the consultant's participation in persuading the Government to phase out quantitative import restrictions, institute lower tariffs and provide incentives for indirect export of tex- tiles\. 7\.3 To encourage greater participation by the domestic textile industry in the indirect export business 3/, the Government introduced in 1985 the Advance Tax Credit System (ATCS) which allows textile producers to receive a predetermined tax credit covexing the amount of taxes and duties due on imports used in the manufacture of textiles and garments for export immediate- ly after such textiles or garments are exported or delivered to a Government bonded warehouse\. The sole polyester producer in the country (who was protected against imports by a complete ban on imports) cooperated by agreeing to sell polyester fibers and yarn subject to ATCS at tax and duty free international market prices\. The ATCS in combination with improved quality and cost competitiveness, is mainly responsible for indirect textile exports increasing from less than 10% of total textile imports for government exports prior to 1985 to close to 30Z by 1987\. 7\.4 The Philippine textile market recovered briskly during 1987-88 as a result of rapidly rising domestic demand from the previously depressed levels along with the measures discussed above and the improved export market\. 3/ The supply of yarn and fabric to Philippine export garment manufacturers to replace the equivalent textile inputs the manufacturers would otherwise have to import\. - 7 - Direct and indirect exports increased from 8\.000 tons in 1983 to 42,000 tons in 1987 and are expected to have posted further significant incree -s in 1988\. The indirect export portion comprised between 25-352 of total text\.le input, leaving ample room for the local mills to further expand their share of the input\. Domestic consumption increased by 142 in 1987, but consumption per person remained very low for the country's level of development\. Smuggling, which accounts for about 202 of the domestic market, continues to be a major problem for domestic producers\. 7\.5 Developments so far indicate that as a result of technical assistance and training and improved Government trade policies (such as removal of quantitative import restrictions, lower tariffs and adequate export incentives) Philippine textile mills can become uapable of producing export quality yarn and fabrics at competitive prices\. This presupposes also the physical restrictions of industry\. Investment volume in 1987 and particularly in 1988 already amounted to over US$230 million\. In view of its recent strong performance, the textile sector views its prospects with considerable optimism and plans to invest another US$500 million in capacity expansion and modernization over the next three to five years\. 7\.6 Overall, while this project, as originally conceived, clearly failed to achieve its objecti-es within the envisaged time frame (1981-85) for unanticipated reasons, it has clearly contributed to putting in place the policy and institution framework for the textile sector to allow for substan- tial industry restructuring which would put the industry on a sound footing\. These are very essential ingredients for the sustained development of the textile sector which started to recover in 1987 and is continuing to improve\. 8\. Proiect Sustainability 8\.1 As noted above, the past two years have seen a considerable improvement in the technical and market performance of the Philippine textile sector\. These improvements give rise to such benefits as greater foreign exchange earnings, Government revenues and energy savings which are real but not easily quantifiable\. The benefits will be sustained so long as the Government continues to have a sound trade policy and the sector improvement and restructuring steps initiated by the project are maintained\. 9\. Bank Performance 9\.1 Bank performance was satisfactory throughout the project cycle\. Project preparation and appraisal were detailed and thorough, and project objectives were appropriate and clearly defined\. Supervision of the project was adequate\. In retrospect, the Bank can be faulted for accepting the textile demand forecast for 1985, established at the time of appraisal\. The forecast, which'formed the basis for the sector investment requirement, overestimated actual demand in 1985 by over 250Z\. The economic difficulties could not have been foreb!aen, but to illustrate how unrealistic the forecast was, it can be noted that even the relatively buoyant 1988 demand is only expected to be about 64% of the 1985 projection\. The\.choice of DBP as the sole conduit for channeling credit was also not a sound decision although -8- admittedly it was consistent at the time with the normal Bank practice of lending through development finance intermediaries\. 10\. Borrower's Performance 10\.1 BOI, solely responsible for project execution after cancellation of the credit line, satisfactorily carried out what remained of the project after deletion of the subproject component\. None of the special covenants in the Loan and Project Agreements were relevant to the reduced project scope\. 11\. Project Relationship 11\.1 The Bank's previous lending operations in the Philippine industrial sector had established a good relationship with the various government agencies involved in the sector and helped to create an atmosphere of mutual understanding and confidence with BOI and DBP\. This made it possible to amicably resolve the issues normally arising in the course of project preparation and implementation\. The Bank also maintained good relationships with consultants as well as all project participants\. As far as could be observed, BOI remained on equally good terms with its consultants, industry representatives and others involved in the project\. 12\. Consulting Services 12\.1 Two British consulting firms each of which provided one of the two services listed below were working from within the premises of BOI with staff from DTI, DBP and industry representatives\. The services were: (a) sector training and technical assistance to help textile mills upgrade their technical operations and reduie costs; and (b) assistance in sector restructuring, sector studies and setting up sector-wide training facilities and programs\. The textile industry was highly appreciative of these services, and in fact the industry during the past two years (1987-88) has partly funded their contracts which had been extended to March 1989\. 13\. Project Documentation 13\.1 The project appraisal report was comprehensive and gave an excellent background account of the project and its relationship to the Philippine economy\. The report precisely stated the scope of the project, the objectives to be achieved and how the project was to be executed, all of which was accurately reflected in the Loan and Project Agreements\. 13\.2 The supervision reports contain ample description and expository details, but anyone not familiar with the project finds it difficult to form analyt!\.cal judgments concerning the project and its execution\. As a general observation, project supervision reports should be prepared with the view that - 9 - they will be an important part in the preparation of a future project comple- tion report\. 14\. Conclusions and Lessons Learned 14\.1 The projects technical assistance and training components can be credited for helping to bring about the turnaround in the textiles industry's fortunes beginning in 1986\. However, in retrospect it can be seen that the main project component of funding eligible sector subprojects could not succeed in the face of the obstacles which were encountered from 1982 onward, namely: (a) the global recession which caused a complete collapse of the domestic textile market already in a poor state because of adverse domestic political and economic conditions; (b) the delay in implementing Government trade policies, necessitated by the serious reces3ion and economic difficulties in the early to mid 1980s; and (c) the high interest rates and the foreign exchange burden vis-a-vis a depreciating Peso\. 14,2 Experiences gained in implementing the project suggest the following lessons: (a) a detailed and vigorous analysis of market trends and volumes and their relationships to industry investment requirements should precede project design; in view of the shortage of data at the time of appraisal and resulting uncertainties regarding future market developments, a more conservative market forecast, combined with a smaller oan amount, might prudently have been chosen; (b) firm Government commitment to, and credibility of policy reforms and incentives announced should precede industry investments; and these policy and incentives reforms should be designed to sti- mulate exports and foster domestic competition\. Appropriate studies and analyses will provide the necessary "vision" of potential subsector development to Government Banking Sector and the industry; (c) in a situation of rapidly rising inflation, interest rates and the likelihood of major devaluations it is unlikely that major intended investments will take place, particularly when the investor is faced with a substantial foreign exchange risk; and (d) restructuring projects tend to benefit much from well designed technical assistance and training components at the subsectoral and plant level\. These components should cover analyses and studies for the guidance of policy makers as well as sectorwide and plant to specific training and technical assistance\. - 11 - PROJECT COMPLETION REPORT PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127-PH) PART II (See Attached Borrower's PCR) - 13 - F REPUBLIC OF THE PHILIPPINES TEXTILE MODERNIZATION PLAN (TMP) (LOAN 2127 PH) PROJECT COMPLETION REPORT SUMMARY i\. this Projcnt Completion Report (PCR) presents a review of the loan made available to finance the modernization and rehabi\.litation of the Philippine Textile Industry\. A portion of the loan covered the front end fee, whilst UB $5\.1 million was allocated for Technical Assistance and Training under the control of the Board of Jnvestments (W01)\. toal project cust of US $600 million comprises US 1157\.4 million from IBRD Loan 2127 PH, US $300 million from the suppliers credit, with the remainder to be financed locally by the proponents\. r 2\. (he prc-gi am commenced in H\.trch 1982 and the loan was scheduled for completion in December 1988\. DuA' to a series of economic problems which commenced shortly after the project started, the majority of the loan was unused and US 1140 million was cancelled in two tranches\. 1he technical assistance and training portion of the loan was continued throughout the project period and resulted in: a)\. vastly improved training 0)\. improvement in tuchnicai performance -14- C)\. improved markuting and product dovelopment d%\. imp;rovud c\.murcial awar v"esE: 0)\. a develooment of the indirect and direct export 5\. the obiectiveS of the loan wEre to modvrnize and rehabi-- 1\.itahe the textile industry so as to improve its quality Ond cCUpEitiveness\. in addiion to the machinery re- quirements, technical assistance and training programs WUre undyrLaken ond a program e tablished for tariff od iustments and liheralization of imports\. 4\. 1 CA\.t domfle\.r$t Jc dce"ds were estimateu based upon the demand trends within the 1970 s\. It was estimated that a portion of khe output would be exported and a further portion sold co the indirect export market\. ,j\. Thi- loan failed in achieving its objective of providing funds to purchase machinery to modernize and rehabi- :litate the tentie industry and no funds were drawn down to cover this aspoct of the project\. Of the US $150 HiliKon madp availoble for such a purpose, US $140 illion "as cancelled and US $9\.7 Million was drawn down h thu Phi Ii ppi nee Centval \.Dank and uti Ii zed for the Foreign Exchange Wopkinq Capital Fund (FWECF)\. 6\. fextiAy Investment by the Industry in the period expected 1932 to 1995 was negligible and any investment made was carried out by utilizing private funds\. - 15- 7\. However , the TeChni cai Ansiutnnco Fund and I r ai i nig aSpect Of thW lAn haVP hCen hlUh!V ottemi1u\. introduction of Training Mfficery within the major textile companies, cOuP1e with Job instrucLtor course!s and the provision of systematic training techniques began to improve productivity and q"ality wathin the factories- The direct technical assistance given to spinning, weaving, printinq, dyeing and Vinishinq also greatly contributed to the improvement in qualitv\. In the field 0? energy conservation, considerable savings to the nation in foreign exchange have been achieved as a result oi technical assistance given in engineering\. Eleven new Philippine fabricated steam raising boilers which burn waste solid fuels in place of oil, have been installed in various Dyeing and Finishing plants\. Together with improved steam engineering and general maintenance, which have reduced steam 'trans- mission losses between boiler and macnine, many companies have been able to obtain significant reductions in fuel costs\. 3\. During the period 1912-1984, the consultants evaluated many projects put forward by the textile proponents for modernization and rehabilitatior\. Several projects were approved, but others were not accepted due too the very poor financial state cf the companies concerned\. It was apparent however to the consultants that all projects were based upon sales to a domestic market, which was - 16 - rapidly shrinkingl and that the propunents had no dcaire to borrow foreign unahange i" o highlv unstable economy which had seen the Peso drop from V8\.001+ to $20\.00/1\. None of the apprgEyed-Prgict were impAefeDlte\. 9\. During 1985, government, industry and the consultants considered methods by which the textile industry could become competitive in direct exports and more particularly in supplying tvxtiles to the flourishing export garment makers who were importing all of their textile requirements\. To achieve success in this market meant several chanyes in government restrictions regarding the refund of the high taxes and duties cha-ged on imported textile raw materials and consum- ables, improved product development, and a completely new marketing strategy for the textile manufacturing companies\. 10\. An Advance Tax Cr-dit System was proposed and accepted by the Government\. This system allows a refund of the taxes and duties paid by the textile mills when textiles were delivered to the Bonded Warehouse of export garment makers\. Included as part of the scheme was an undertaking by the local Polyester producer to reduce its prices substantially for polyester utilized for such textiles\. The result of these moves allowed the products to be sold at competitive world prices to the export garment makers\. - 17 - I I\. Continued emphasis by t\.he cunwitanLs on product deve-- lopment, mavketing skills w"d cluomer awar uss h"! enabled the indusLry to v"Aly improve its exports (direct and indirect)\. In W11, axputt amounted to 51% o+ the Philippine Tertile Production and preliminary estimates fur 1988 indicote a simal"r encouraging performance\. 12\. The result of the increased output and confidence of the market has resulted in an improved investment scenario with US $237 Million being invested over 1987/1988 compared with US $42 Hillion in 1932/85 and US $25 Million in 1986\. virtually, all of this investment is being funded through private means or through normal commercial banking channels\. 13\. During the latter parL of 1988, the Government requested the textile industry millers to put forward investmevt proposals for the three year period 1989-1991 under an Accelerated Investment Program\. The total value of proposals received is US $502 Million, of which it can be reasonably expected that some 70% or about US $350 Million will be implemented subject to funds being available\. - 18 - It should be emphasized, that because of the heavy losses due to adverse foreign currency exchange movements experienced in the past, many millers will be reluctant to take up loans that are rot protected against exchange risks\. This will have the effect of slowing down the proposed expansion and modernization program\. The original draft of this Project Completion Report was prepared by Tootal Textiles International (Consultants) who were retained by the Board of Investments (BDI), an agency of the Department of Trade and Industry (DTI), throughout the period of the loan\. - 19- PHILIPPINES - TEXTILE MODERNIZATION PLAN PROJECT COMPLETION REPORT 1\. INTRODUCTION 1\.1 In the late 1970's, the Minister of Trade and Industry identified several key industrial areas to promote the growth of wealth and employme)t within the Philippines\. The textile industry was the second of the industry groups to be considrred, and a series of studies were undertaken in the late 1970's arid early 1980's to establish the require- ments of the industry\. 1\.2 The textile industry commenced in the Philippines during the early 1950's- to meet the demands of the wholesalers who had previously imported all textile products\. Textile production commenced with many of the new companies being financed and managed by the original traders and wholesalers or their families, a wide range of product were produced to supply the wholesale market\. Because of the lack of manufacturing experience and expertise and the protected market, the products were generally of inadequate quality and expensive\. Factory effi- ciency was poor and productivity low\. 1\.3 The various studies recommended that a series of steps should be taken to improve thL textile industry and to further its growth and employment - 20- of labor\. Govulnma"t and Lth t\.e::Li le indlut\.:try adopted a Tuyile Modernization Plan to: a)\. provide -uuds to mudwrnize inid rulibilitate the textilm instry\. W)\. providr Wcic"l aS=S0tanceO and & training proqram for the industry\. c)\. improvo unHrUv conyorvoijon, eif1uent control and other deuirable oloments\. 1\.4 The Textile ModUrnization Plan envisaged expen- diture originally over the 1981/85 period of US $600 Mi lin n made up of: (US$ Million) ehab\. Ne Total Spi\.nning 37 99 136 Weaving 3,1 102 136 V:nitting - 17 17 Finishing 22 30 52 T1AL 93 248 341 Engineerinc 34 375 Contingencv, 20/\. 75 Total Foreign Investment 450 Local Investments (cival works, initial working capital, etc\.) 100 TOTAL C9ST 550 (Figures taken from Board of Investments leaflet L "The Philippine Textile Industry Modernization Program 1981-1985") - 21 - \. PROJECT BACKGROUND 2\.1 Fo:lowinq a requeEt from the Ministry of Trade and Industry and taking into account the various st"dirs, & paukage was agreed between the bank, zuppliers' the government and the textile industry tW finance the Textile Modernization Plan as followsg US$ Million Dank 150\.00 Suppliers Credit 300\.00 Proponents Input 150\.00 Total 600\.00 2\.2 The bank disbursements o+ US $150 Million were to be through the conduit of the Development Bank of the Philippines, whilst in addition to the front end feer a loan of US $5\.1 Million would be disbursed by the Board of Investments for Technical Assistancu and Training\. 2\.r he market growth trend for domestic consumption of textiles was expected to continue, and in addition, exports were planned for both direct exports and sales to the indirect export market\. -22- The supply and demand situation for the year 1985 was planned as being: Demand '000 MT _ Sugply_'000 MT Domestic 149 R\.P\. Supply 181 Direct Export 10 Imports nil Indirect Export 22 Smugg1ed nil Total 181 181 Compared with a situation in 1979 of: 6 Demand '000 MT _- Su2ply_'00 MT Domestic 140 R\.P\. Supply 115 Direct Export 3 Imports nil Indirect Export 7 Smuggled 35 Total 150 150 2\.4 Textile consultants were to be appointed to give Technical Assistance to the project and specialist training experts were to be engaged\. 2\.5 The loan, initially due to commence in 1981, finally commenced in March 1982, and Tootal Textile International Ltd\. were appointed as consultants to provide the technical assistance and Fielden House Productivity Centre were engaged to provide training expertise\. - 23- 3\. LOAN OBJECTIVES 3\.1 As inferred by its name, the objective of the loan was to modernize the Textile Industry of the Philippines which had grown since the 1950's to service a highly protected domestic market\. The majority of existing textile mills were vertical organizations producing products to service their associated wholesaling organizations\. These asso- ciated wholesalers helped*to finance the textile mills in difficult times and profitability between the textile mills and their wholesales was difficult to assess\. Generally speaking, mills produced poor quality mechandise at high prices due to inherent inefficiencies and the protection given by a ban on the importation of textiles and garments\. 3\.2 The objective was to be attained by: a)\. Making funds available as part of a package, including suppliers credit, to modernize the textile industry by installing modern machi- nery and rehabilitating existing machinery where this method was economic\. The projec- tions also saw a large expansion of the industry which required more machinery in addition to the added capacity gained by modernizing and rehabilitating existing machinery\. -24- b)\. Making available international technical assistance to improvu existing manufacturing techniques and to direct the training require- ments of the i ndust ry so as to i mprove technical knowhow, efficiencies and operating efficiency levels\. c)\. Phasing in the liberalization of textile and garment imports together with restructured tariff rates\. d)\. Iransfer of knowledge to the textile counter- parts at the 801\. 3\.3 At the end of 1985, the indusLry would be capable of meeting the following market demands: '000 HT Domestic 149 Direct Export 10 Indirect Export 22 181 -25- 4\. UIIAINO H AKLA 4\.1 Prior to the loan, a complete list of accredited suppliers were established by the BOI in accordance with the established requirements, and arrangements were made to provide the suppliers credit portion of the loan\. 4\.2 In the event, during the years when the program was due to operate (1982-1985), the Philippines underwent a severe economic crisis which had the following-results: a\. Major contraction of the domestic market for textiles and garments\. b\. A series of devaluations from P8\.00/*1 to P20\.00/$i\. 4 c\. A severe restriction of foreign exchange\. d\. A large increase in domestic Interest Rate to over 40/\. e\. Lack of foreign confidence\. f\. The collapse and withdrawal of lending facili- ties of the conduit bank - the Development Bank of the Philippines (DBP)\. 4\.3 As a result of these problems, the majority of textile companies made huge financial losses with those having foreign loans from investments made in 1979-1981 being amongst the hardest hit\. The industry lost confidence and -26- the prime objectives of the textile millers became survival by decreasing current assets, reducing costs, and financial restructuring of their companies\. 4\.4 Investment in new plant and machinery during the period 1982-1965 is calculated as being: US$ Million C & F Spinning 12 Weaving 15 Knitting 6 Dye/Finish 2 Others 2 37 Local Exchangg Duties, taxes, local works 5 and working capital 42 4\.5 The majority of this expenditure was incurred by multinational companies or by Philippine conglome- rates who could finance their investments through other channels\. A further portion\.was invested by down stream manufacturers, garment makers or shoe manufacturers, who could not get the fabric service which they required from the industry\. C\. - 27- The Bank Loan and suppliers credit were not utilized by the investors due initially to the high interest rate for the loan and their desire to avoid further foreign exchange exposure\. To a small extent, in the later part of the period, the absence of a conduit bank following the collapse of the DBP had some effect\. 4\.6 Accordingly, it was agreed that US $10 Million of the loan would be transferred to the Philippine Central Bank (CB) and US $9\.7 Million of that amount was eventually drawn down by the CB in\.1984/ 1985\. 4\.7 A further US $140 Million of the loan was cancelled\. 4\.8 The Technical Assistance and Training component of the loan has continued from March 1982 to March 1989, and has consisted of technical assistance, in-company training, management training, counter- part training within the DOI and other requirements of the textile and associated garment industry\. The funds have been generally adminis-tered by the textile consultants, in collaboration with the BOI and the Bank\. Expenditure on this portion of the loan has been US $3,062,794\.81*\. * The final figure will be dependent upon the exchange rate used by the W\.B\. -28 - 5\. OegB8IAN@_EgBEBL808NCEGE THE INDUSTRY 5\.1 When the project commenced in 1982, the industry was beginning to experience a rapid decline in its fortunes, with a declining domestic market, increasing, losses and a bleak future\. The tendency of many companies was to combat these losses by reducing the quality oT raw materials together with layoffs and short time working\. The result was generally poorer quality fabrics, lack of fabric developemnt, and poor operator performance\. The image of the industry, to both garment makers and the public, was one of poor quality, high prices and unreliable delivery\. 5\.2 As the market reduced and activity levels within the factories dropped, the textile mills and the polyester fiber supplier, FILSYN, increased prices to cover the shortfall in earnings\. This made the domestically produced textiles even more unattrac- tive and increased the profits to be made by smuggling better quality textiles at cheaper prices into the Philippines\. 5\.3 Little thought was given to investment by the textile millers who foresaw a long term lack of domestic demand and were unable to export fabrics due to: a\. Poor quality\. -29- b\. Lack of product development\. c\. Inability to meet prices through: 1\. Low plant utilization 2\. High polyester prices 3\. High power costs 4\. High taxes and duties on imports associated with red tape which effectively barred the polyester producers, the spinners, knitters and weavers from recovering the taxes and duties if the eventual end-product was exported\. 5\.4 During the period 1982 to 1985, the industry gradually declined in the period when other neighboring countries were expanding their textile base\. 5\.5 However, the extensive training programs which were carried out for the industry, by the consultants, in 1982, 1983 and 1984 were beginning to prove fruitful, in the manner in which, operatives and management in several of the better equipped mills were working to improve quality and efficiency\. This, together with the direct technical advice given by the consultants on spinning, weaving, knitting, dyeing & finishing, demonstrated that several mills could produce the fabric and yarn quality required for making export garments\. -30 - 5\.6 Detailed synthesized costings were carried out taking into accounL costs particular to the Philippines and it was demonstrated to the textile millers that certain textile products could be sold at competitive prices and textile mills could improve their profitability if: a\. A system could be found to refund taxes and duties paid on imported products used for producing the textiles\. b\. Poyester fibers and yarns were sold at competitive world prices\. c\. The mills continued to improve their effi- ciency, quality, marketing abilities and product development\. Several yarns and fabrics containing finer counts of yarn could not be considered as profit- able until such time as the Philippine government were able to reduce the cost of power which was 60/\.-70/\. higher than competing countries\. 5\.7 The government, industry and the consultants worked together to produce a scheme which would allow the textile producers to receive a predetermined tax credit covering the amount of taxes and duties paid on individual types of textile products\. This tax credit would be made available immediately after the textiles had been exported or had been -31- constructively exported (delivered to the Customs Bonded Warehouse of a registered exporter)\. This scheme became operative in mid 1985 and was called the "Advance Tax Credit System"\. by usitnig a complex data base, the Standard Rates for the whole range of textile products could be adjusted for changes in Exchai,ge rates, tariff and tax changes or raw material price changes within the period of 10 working days\. 5\.8 The introduction o- the scheme, coincided with a marked slump in the South East Asia textile industry which resulted in extremely low prices for textiles particularly from Taiwan and Hongkong\. Competitive prices even after taking the Advance Tax Credit Scheme and low polyester prices into account, resulted in net income being only slightly above total variable cost and many mills were reluctant to enter the export market on this basis\. 5\.9 However, several of the more aggressive textile producers used this period to establish marketing links with the export garment makers, is spite of the extremely low return, and these companies were the first to benefit when the upswing in demand, prices and profits occurred in mid 1966\. -32- 5\.10 The years of 1986, 1987 and 1988 have shown only a relatively small growth in domestic dem-\.nd, of\. which about 20% has been supplied by smuggled goods either by outrig't smuggling, technical smuggling or by excessive barter trading\. 5\.11 However, the exports, both indirect and direct, of textiles has continued to improve substantially through the period, and this has been associated with further improvement in quality and substan- tial investment in new plant and machinery\. 5\.12 1987 became a record output year for the textile millers in terms of output\. Comparative figures with 1986 were: '000 MT 1987 1986 Domestic Market Consumption 98 86 Kgs\./Capita 1\.7 1\.5 Supply to Domestic Market Philippine Production 82 72 Smuggled 16 14 Legal Imports - - 98 86 Textile Output of Philippines Domestic 82 72 Direct Exports - Filament Yarn 2 2 Other Textiles 8 3 Indirect Exports 27 12 119 89 -33- Notes: a\. Although 1987 domestic market demand was 14% higher than in 1986, it is still below the domesti c demand of 1975\. b\. Textiles produced by the Philippine industry were 34% higher in 1987 than in 1986\. c\. During 1987, the textile industry supplied about 21% of the requirements of the export garment industry\. 5\.13 The domest'\.c market figures reflect the lower priority given to textile purchases in the family budget, this is due to increasing demands of educational and other costs as the school popula- tion continues to increase rapidly, and also in some measure to the loss in purchasing power of the family net disposable incoffe\. '000 MT 1988 Domestic Market 98 Kgs\./Capita 1\.68 Supply to Domestic Market Philippine Production 73 Smuggled & Misdeclared Imports 20 Legal Imports 5 -34- TeItil tDut of Philippirses 1968 Domest ic 7 3 Direct Exports Filament Yarn 2 - Other Tfextiles 7 T(IdreC't Export 59\.6 141\.6 Note: Smuggling has increased in absolute and percentage terms during 198B\. 5\.14 The government have now liberalized the impor- tation of fibers, yarns and fabrics\. Tariff barriers are: 10% - Cotton, acrylic fibers and other fibers except for rayon polyester\. 20% - Polyester and rayon (A) 30% - Yarn 40% - Fabrics 50% - Garments It is considered that these tariffs should give adequate protection for the textile millers against legitimately priced imports\. Note (A) Rayon should be 10% until the proposed Rayon Fiber plant is in operation from which the rate should be 20% (Legis- lation delayed)\. -35- 5\. 15 In spite of liberal ization, it woUld appear thal: smutgIled goods still continue Lo take a siPni- ficant portion of the market and misdeclaration of- volumes and/or vaILue is resu-, ltinq in a l os I\. the texti\. Ie mi 1 lers of the domestic market in spite of the fact that their products are now competitive against legally imported textiles\. 5\.16 The Philippine government is considering legis-- lation to give specific values for duty purposes on imported textiles which will give added impetus to the domestic producers\. The Qovernment have also reduc-ed power costs by about 20% in 1988\. This welcome reduction still leaves power costs atout 25\. higher than competing countries but, nonetheless, it does give the textile millers a chance to widen the base of products which they could export\. 5\.17 There is a requirement to continue modernizing and rehabilitating the industry and it is considered that about US $350 Million will need to be spent in the next three years in order to continue to improve competitiveness and quality and to vastly improve the range of products which they can produce\. -36- 5\.18 There remains a good opporti\.nity for the textile indListry to continue expanding in the Philippines based on an increasi ng share of the textile products required for the export garment market\. Te tile _and Garmen r ports 1988 Quota Countries FOB Value (US$) USA 918,148,513\.91 EEC 313,916,313\.24 Canada 48,822,444\.22 Norway 3,743,977\.27 Sweden 5,755,143\.44 Austria 3,335,010\.09 1,293,721,402\.17 Non-Quota Countries Australia 10,893,795\.60 Japan 52,768,901\.11 Others 145,797,0/3\.60 209\.459,771\. 11 1T OTAL 1,503\.,81,173\.28 - 37- Exports to EEC Countries: FOB Value (MS4) Benelux 43,118,162\.07 Denmark 9,865,901\.47 France 61,509,138\.51 Greece 153,726\.85 Ireland 1,763,130\.88 Italy 10,615,608\.63 Great Britain 64,904,316\.73 West Germany 119,595,237\.48 Spain 2,283,724\.66 Portugal 107,365\.96 Exports to Leading Non-Quota Countries FOB Value (US$) Japan 52,768,901\.91 Hongkong 38,539,270\.16 Panama 35,407,742\.37 Kingdom of S\. Arabia 17,596,085\.85 United Arab Emirates 11,967,118\.71 AuLtralia 10,893,795\.60 Curacao, N\.A\. 4,678,184\.81 South Korea 4,378,024\.52 Switzerland 2,978,169\.94 Egypt 2,926,460\.80 -38 - 5\.20 The essential ingredients are: a)\. Greatly improved product development and variety of fabrics\. b)\. Increased investment in the industry particularly in the dyeing and finishing sect i on\. a)\. and b)\. will probably require the install- ation of a new independent commission dyeing printing and finishing mill\. c)\. A more sophisticated -nd professional approach to marketing and sales which will come with greater exposure to external marketing situations\. d)\. 'The continuation of the Advance Tax Credit Scheme\. e)\. Continued training of technical and management staff by expert consultants or more suitably and permanently by the establishment of a Technicai College for Textiles and Garments\. -39- 6\. POLYESTER FIBER PRODUCER (Brief Historyl 6\.1 Filipinas Synthetic Fiber Corp\. (FILSYN) was incorporated in 1969 and Lakeview Industrial Lorp\. in 1972\. These two companies produced polyester fiber as part of the import substitution policy of the government of the day\. 6\.2 The whole output of the two plants was directed towards the domestic market and the manufacturing size of the plants was determined on a measured capacity hasis\. 6\.3 Little or no account was taken of the need to achieve a basic economic production unit, the plants are therefore small when compared with those of local international competitors hence they are unable to achieve the economies of scale which are necessary in order to be competitive\. Further disadvantages such as high interest rates, power and energy costs compounded the si t uati on\. The two c-)mpanies were not commercially viable unless protected by very high tariff barriers\. 6\.4 Lakeview was a separate entity which failed financially and because of the large exposure of certain banks, it was virtually forced upon Filsyn and became part of that company in 1983\. -40- 6\.5 The Advance Tax Credit Scheme was introduced in late 1985, and as part of the scheme, Filsyn agreed to remove its objection to the import of polyester and to sell its own product for export at competitive world tax and duty free prices\. For this agrcement, an advance tax credit value was calculated of each polyester product type\. 6\.6 The local textile manufacturer pays to Filsyn the current domestic price for polyester and gets a rebate from Filsyn equal to the difference between the current domestic price and the current export price ruling at the time of the contract, plus interest on the differential amount for the following periods: a)\. 60 days max\. - Yarn supply b)\. 90 days max\. - Knitted Fabric supply c)\. 120 days max\. - Woven Fabric supply Values being updated periodically by BOI consultants\. -41- 7\. POLYESTgEFIBE8PRDUCER (Present-Positi on) 7\.1 The new policies of import liberalization were implemented during 1987 with a reduction in tariff on imported polyester and the removal of all restrictions on importing\. 7\.2 Unfortunately, the tariff reduction was not carried out in a balanced manner with regard for the overall competitive position of Filsyn, no reductions in duty were made on the raw materials required for polyester production\. Filsyn therefore moved into a high trading loss situation in 198\. The position is critical, financial restructuring is needed immediately\. It is worth noting that competitor countries such as Taiwan and Korea do not impose duties on polyester raw materials\. -42 - 4\. FINANCIAL rERFORMANCE OF THE INDUSTRY U\. 1 Yhe manner in which accounts are produced and filed \.n the PhLlippines, together with the general standards of aUditing and tax collection make it difficult to asse!s the real picture of profit- tbi\.ity in any one year for the industry as a whole\. Two of the larger textile companies operat- ina are trading arms of a much larger business not connected with textiles and it is not possible to distinguish the textile portion within that company's annual accounts\. 8\.2 The millers are reluctant to supply profitability figures arid mandatory returns should be regarded as unreliable\. 8\.3 However, from the accounts which can be judged to be fairly accurate and from a general appreciation by the consultants on the pulse of the industry, it can be judged that tnz industry as a whole achieved the following: 1982 Break-Even 1983 - Small Profit 1984 - Considerable Losses 1965 - Considerable Losses 1986 - Small Profit 1987 - Considerable Profit 1988 - Reasonable Profit -43- 9\. INDUSTRY INVESTMENT 9\.1 The investment in the indUAtry over the period 1932-1988\. US I MILLION Foreign Exchange Working Capital : C/F Value Other Peso Costs lotal 1982/1985 37 5 42 1986 22 3 25 1987/1988 189 45 234 Total 248 53 301 -44- CO\.NQLUSIONS-AND LESSONS_LEARUED 10\.1 This project was based upon an assumption that domestic sales which had occurred from 1971 to 1979 would continue to show a similar growth pattern through to 1985\. In addition to this growth, a quantity of goods were expected to be sold to both the direct and indirect export market and that no fabrics would be imported or smuggled for the domestic market\. 10\.2 It would appear that the marketing projections assumed that the modernization and rehabilitation of the machinery, along with a training\.program and the liberalization of imports with suitable tariff barriers, would allow the textiAe millers to produce all of the domestic demand and also expand into the export market\. 10\.3 The projected output was widely optimistic and made several important errors\. 1\. Whilst the economic collapse of the Philippine economy could not have been foreseen, tg_level of domestic_eapgag iture on clothing_Scould have been_epget@gd to fall as the Philippine popula- tion continued to grow at a fast rate with the average age of the population continuing to decline\. Expenditure could have been expected to increase on iood, education and transport all at the expense of textiles\. 45- 2\. One of the main items in the objectives was to liberalize imports with suitable tariff barriers\. have lloance aggars to have been made for imgotq teftiles when assessing tg_gUplyiemnd RQiitiDon\. 3\. Similarly nalowance was made for smu%ggl@gl goods although there had been along history of such activities\. The growing export garment making industry would also make technical smuggling much easier\. 4\. No-'detailed-oroduct-cost anal,ynis_was__carried out\. A detailed analysis of simulated costings for ranges of textile products would have shown that the industry had a little or no chance of achieving exports due to: a)\. Inherent high costs of the Philippine textile mills which were not associated with mill efficiency levels\. b)\. Government bureaucratic systems, making it virtually impossible for independent spinners, weavers and knitters to recover the high duties and costs paid on raw materials which were made up into export products\. Vertical companies having to wait up to two years for such ref tnds\. -46 - Even if the textile indu5try _ha_d _ornized and rehabilitated__its__Qlant_and -machinery,_there: COUld have been no significant entry__into the 2xpgort market as the mills could not be qometitive\. 10\. 4 As a result, 1he ma keting projections for demand made ror the project were vastly different than the ac-tual demand at the end oi the original project period\. 000 MT Hriected 1O8II Actual 1985 Domest i c Derarid 149 75\.4 Supplied by SuIlUC1ed/Irport -6\.0 Philippine Production 149 59\.4 Total Philippine Supply Domestic 149 59\.4 Direct Export 10 6\.1 Indirect Export 22 6\.0 181 71\.5 10\.5 As a result of the implementation of the TMP in 1982, based upon the projected volumes, the government, the bank and the consultants brought pressure on existing textile mills within the Philippines to put forward their detailed proposals for investment, -47- Many pr oJectLs wer iE e,:afii riEd -n r e t dLt--LEi 1 and evaluation reports produced by the jint i eam of DEP, BOI ard the CoOSUltantS\. It WE1s some t im \. before it became appArent that J\.t uVJOld not be possibl e to achieVL tLhL ues forecasted arnd that the proponents had no real intention of proceedinq with the prU iect until such time as the market conditions improved\. 10\.6 It was at this time that the work had to be started, through the markvting, commrcial and accountancy functions to establish: a\. Which product lines were suitable for export? b\. At which prices did the mills have to sell to be competitive? c\. What was the cost structure for prooucing such products? d\. What actions had to be taken to make the product commercially viable\. e\. What technical assistance did the mills re- quire to meet the export quality standards? 10\.7 It vizs on ly_!ater:_this anal\.yfsi had been_compl eted and action taken by introducing the ATCS and providing direct technical assistance that the textile mills found themselves in a commercial environment to market their products\. -48- 10\.8a It is recommended that much greater emphasis is given in future projects to the marketing and commercial aspects of the program, and that detailed product production cost analysis be used to establish relative values between locally produced fabrics and imported fabrics\. It is recommended that the realities of "red tape bureaucracies" causing excessive delays resulting in effective non-recovery are fully allowed for before any government incentives, credits or duty rebates etc\. are taken into account in any cost calculations\. The commercial infrastructure in the country should be fully understood and favourable conditions established before the project begins (perhaps this could be first portion of any actual project)\. The physical investment in plant and machinery should follow and not precede this exercise\. 10\.9 There was a very real need to modprnize the textile industry when the project started\. If the commercial infrastructure had been put into place in 1982, the proponents may have found it favourable to invest in 1994-1986 rather than in 1987-1989 to improve quality and supply the growing indirect export market\. -49- 10\.10 Overall, taking into account that the bulk of the loan was returned (riot wasted) and that only a relatively small amount was used for consultant services, the Bank has helped the Philippine lextile Inaustry through the provision of funds for the technical assistance and training which enabled many companies to take advantage of the upturn in trade during the last two years and transformed a sinking industry into one which the textile millers now have confidence in and are prepared to invest in for future development and expansion\. -50 - Annex 1 frices Trends of Textile Raw Materials and Finished Products Basd2B9812Atte influencing_grices in South East Asia MAY HAY MAY HAY AUG MAY AUS RAY 1JUL AUS 1983 1984 1985 1996 1986 1987 1987 1988 1988 US $11b Cotton Coarse Counts IA) 68\.15 64\.9 54\.65 37\.75 27\.75 75\.65 92\.75 59\.5 57\.2 132 Middling (A) 88\.1 88\.7 64\.65 44\.6 38\.9 88\.6 87\.7 65\.6 62\.6 PDIY!t![ Taiwan A) 52\.0 62\.9 51\.8 49\.8 47\.5 56\.5 56\.5 54\.8 69\.8 Taiwan (B) - - 52\.8 49\.8 47\.8 63\.8 64\.8 78\.8 81\.5 Yarn Prices for Knitting 65/35 TC 45's (A) 3\.28 3\.33 2\.53 3\.11 3\.39 4\.89 4\.22 4\.16 3\.91 (Taiwan) 32's Carded (A) 2\.73 3\.42 2\.51 2\.95 2\.75 3\.31 3\.31 3\.33 3\.28 Cotton (Tvn) Maven Fabrics US $/Yard 478 Loomstate 118x76 TC 65\.35 (A) 8\.52 8\.57 8\.48 8\.58 8\.55 8\.78 8\.79 8\.72 8\.66 45 x45 (Taiwan) 48 13\.78 oz\. (A) 1\.47 1\.62 1\.29 1\.38 1\.38 1\.64 1\.92 1\.73 1\.53 Denim (Hongkong) A) SOURCE - Average for month from weekly issue of Cotton Outlook\. 18) SOURCE - Average of quoted prices from major taiman suppliers during month\. -51- Annex 2 PHILIPPINE TEXTILE INDUSTRY DEMAND AND SUPPLY 1972-198e IN THOUSAND METRIC TONNES OF YARN DEMAND SUPPLY Year Domestic KGS/ (A) TOTAL LOCAL LEGITIMATE CONSUMPTION CAPITA EXPORTS DEMAND PRODUCTION SMUGGLED IMPORTS 1972 92 2\.4 2 94 71 23 0 1975 99 2\.4 5 104 88 16 0 1979 140 3\.0 10 150 115 35 0 1980 108 2\.3 15 123 96 27 0 1981 106 2\.1 16 122 96 26 0 1982 103 2\.0 11 114 81 33 0 1983 94 1\.8 8 102 68 14 0 1984 78 1\.5 10 88 76 12 0 1985 75 1\.4 12 87 71 16 0 1986 86 1\.5 17 103 89 14 0 1987 98 1\.7 37 135 119 16 0 1988(C) 98 1\.6 43 141 116 20(8) 5 Note: (A) - Includes sales of Filament Yarn produced in the Philippines but excludes exports of Ramie tups which is considered as a partially processed raw material\. (B) - Smuggling directly or via excessive barter trade or technical smuggling by garment makers\. The figure for 1988 includes an assessment for imported textiles which have been underdeclared in value or volume and which cannot be included in legitimate imports\. (C) - Figures for 1988 are provisional only\. -52- Annex 3 ANA~LYSIS OF PHILIPPINE TEXTILE EXPORTS Year Total Direct Exports Direct Exports Indirect Exports of Filament of Other Textile Export Yarns Products 1980 15 3 10 2 1981 16 3 10 3 1982 11 3 6 2 1983 8 3 3 2 1984 10 3 3 4 1985 12 4 2 6 1986 17 2 3 12 1987 37 2 8 27 1988 43 2 7 34 -53- Annex 4 PHILIEPINE CURRENCY FLUCTUATIONS Currency Unit - Peso (p) Fiscal Year Jan\. 1st to Dec\. 31st Exchange Rates: 1978 US $1 = F 7\.38 1979 F 7\.38 1980 F 7\.51 1981 F 7\.90 1982 F 8\.54 1983 F 11\.11 1984 F 18\.00 1985 ? 20\.00 1986 F 20\.50 1987 F 20\.50 1988 F 21\.50 -55- PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT (LOAN 2127-PH) PROJECT COMPLETION REPORT PART III 1\. Related Bank Loans The following loans were related to the project: Credit No\. 1903-PH 1984-PH Title; Structural Adjustment Industrial Finance Loan Project Purpose: To support the im- To finance plementation of a economically and comprehensive indus- financially viable trial development projects in the program designed to industrial sector and accelerate industrial support industrial growth, expand em- reforms\. ployment and maintain the growth of exports Year of Appraisals 1980 1980 Status: Loan Closed Loan Closed Comment: Loan was successfully US$105\.4 million of disbursed on the US$150 million schedul,e\. loar was cancelled, at various occasions between 1981 & 1988\. Disbursement targets could not be met because of require- ment that subborrow- ers assume foreign exchange risks and subsequent adverse political and econo- mic developments which severely sup- pressed demand for credit\. -56- 2\. Proiect Timetable Date Date Item Date Planned Actual First Presented to - March, 1980 the Bank Identification October, 1980 Appraisal March, 1981 March, 1981 Loan Negotiations March, 1982 March, 1982 Board Approval April, 1982 April 20, 1982 Loan Signature June, 1982 June 30, 1982 Loan Effectiveness July 30, 1982 December 23, 1982 Loan Closing December 31, 1988 December 31, 1988 Loan Completion December 31, 1988 March 14, 1989 Ia /a Last disbursement from the loan\. 3\. Loan Disbursements The disbursement schedule prepared during project appraisal showed the US$150 million loan amount (exclusive of the US$2\.4 million front end fee) disbursed over a six-year period (FY 1983-88) in accordance with the disbursement profile for the Philippines industrial sector\. In addition to the front end fee, actual total disbursements were US$3\.05 million for technical assistance and training, US$9\.3 million for the Foreign Exchange Working Capital Fund and US$0\.705 million for a special BOI account\. The US$1\.315 million amount not previously cancelled (US$100 million effective May 20, 1985 and US$40\.7 million effective November 19, 1986) and unutilized was cancelled on March 15, 1969\. 4\. Proiect Implementation The project implementation plan provided for monitoring various aspects of the textile sector's structure, development and performance, but there was no fixed schedule with indicators and milestones to measure implementation progress\. It was assumed that six years would be adequate to complete the planned technical assistance and training programs and to meet the financing requirements of the subprojects\. This was a reasonable approach because it was recognized that project progress would depend entirely on the textile industry's acceptance and response to the sectoral program\. Subsequent events demonstrated the irrelevance of a strict timetable approach\. -57 - 5\. Project Cost and Financing 5\.1 Investment requirements in the sector, as reflected in the Bank's SAR, were estimated to be US$503 million for imported equipment and expatriate consultant services, between 1982 and 1985\. The Bank loan was committed to supply US$150 million toward these costs, and available supplier's credits were to make up the difference\. Local costs equivalent to about US$100\.0 million were to be financed by the individual proponents of the subprojects\. 5\.2 Forecast and actual investments, in US$ million equivalent, in the textile industry were as follows: Forecast Investments Actual Investments Working Capital Foreign & Foreign Exchange and other Peso Local Costs (C&F Value) Costs Total 1982-85 503 37 5 42 1986 22 3 25 1987-88 189 45 234 Total 248 53 301 The big increase in investments during 1987-88 was the result of the increased demand and confidence in the market and has been financed from private resources and through traditional commercial banking channels\. Earlier, high interest rates, the experience of a rapidly depreciating Peso and the consequent high perceived foreign exchange risk had completely limited borrowing funded from the Bank loan\. The experience in the subsector as well as in other industries of having borrowed funds subject to foreign exchange risks has caused firms to be reluctant to take up loans that are not protected against this risk\. 6\. Project Results Despite the fact that the basic and major project component was never carried out, the project did produce some positive results\. The extensive training program began to show definite signs that mills were making progress in improving quality and efficiency through the efforts of management and operations personnel who had participated in the training program\. Also technical assistance in spinning, weaving, knitting, dyeing and finishing showed that some of the mills had acquired the capability to produce fabric and yarn quality acceptable for the manufacture of export garments\. These results of the technical assistance and training program enabled many of the mills to take advantage of the upturn in the domestic and export markets during the past two years (1987-88), especially as a result of changes in trade policies and incentives (see table on next page)\. 7\. Status of Covenants With deletion of the subproject component of the project, the pertinent covenants contained in the Loan and Project Agreements are no longer relevant\. The covenants pertaining to the technical assistance and training retained in the project were fully complied with\. 8\. Use of Bank Resources A\. Staff Inputs Staff inputs in carrying out the various tasks throughout the project cycle from preparation in 1980 to completion in 1989 were as follows: Task Input (Staff Weeks) Project Preparation 45\.0 Project Appraisal 70\.7 Negotiations 4\.7 Loan Processing /a 50\.6 Supervision 44\.9 Project Completion Report 3\.0 Project Administration 14\.2 Total 233\.1 /a Staff weeks spent by former Programs Division\. The high level of input reflects the complexity of the project\. - 59 - Key Statistics for the Textile Industry 1979-88 1979 1960 1981 1982 i13 1984 1985 1986 '987 '88 A\. PRODUCTIOm, TRADE & CONIaIPTIOIN 1\. Local Prodkction (000 NT) 115 96 96 81 88 76 71 89 119 '2! 2\. Imports (000 NT) 35 27 26 33 14 12 16 14 21 25 3\. Exports Direct Exports (000 NT) 10 13 13 9 6 6 6 0 5 5 Indirect Exports (000 NT) 1 2 3 2 2 4 6 17 37 43 Total Exports (000 MY) 11 15 16 11 8 10 12 17 42 48 4\. Consumption (000 NT) 139 108 106 103 94 78 75 86 98 98 5\. Per Capita Consumption Population (Million) 46\.0 48\.0 49\.5 50\.7 52\.0 53\.2 54\.4 55\.7 57\.0 58\.3 Per Capita Consumption (Kg) 3\.0 2\.3 2\.1 2\.0 1\.8 1\.5 1\.4 1\.5 1\.7 1\.7 6\. Imports/Consurption (%) 25\.2% 25\.0% 24\.5% 32\.0% 14\.9% 15\.4% 21\.3% 16\.3% 21\.4% 25\.5% 7\. Exports/Production (%) 7\.9% 13\.9% 15\.1% 10\.7% 8\.5% 12\.8% 16\.0% 19\.8% 42\.9% 49\.0% B\. EMPLOYMENT 1\. TextiLe Industry (000) N\.A\. 96 85 72 77 71 70 70 70 6 2\. Total Manufg\. Empl\. (000) N\.A\. 1,850 1,780 1,888 1,822 1,847 1,926 1,763 2,054 2,198 3\. Text\.Ind\./Tot\.Manufg\.(%) N\.A\. 5\.2 4\.8 3\.8 4\.2 3\.8 3\.6 4 3\.8 3\.9 C\. DATA FROM THE TOP THOUSAND COMPAkIES (Textile Industry) 1\. # of Companies Included 13 13 14 14 14 14 15 19 21 N\.A\. 2\. Sales (P Million) 1259\.1 1342\.6 2034\.2 1941\.4 2145\.0 2790\.1 3291\.8 3267\.8 4999\.2 N\.A\. 3\. Net Income (P Million) -1\.1 -59\.9 -41\.3 -63\.0 -12\.4 21\.3 *22\.4 40\.6 194\.6 N\.A\. 4\. Assets (P Million) 1948\.2 2385\.4 3251\.5 3275\.3 3250\.3 3371\.0 3815\.1 3439\.3 5578\.5 N\.A\. 5\. Paid-Up Capital (P Million) 349\.2 399\.7 599\.5 718\.3 709\.1 709\.8 784\.5 723\.8 1377\.0 N\.A\. 6\. Return on Sales (%) -0\.1% -4\.5% -2\.0% -3\.2% -0\.6% 0\.8% -0\.7% 1\.2% 3\.9% N\.A\. 7\. Return on Assets (%) -0\.1% -2\.5% -1\.3% -1\.9% *0\.4% 0\.6% -0\.6% 1\.2% 3\.5% '\.A\. 8\. Return on Pd\.-Up Cap\.(%) -0\.3% -15\.0% -6\.9% -8\.8% -1\.7% 3\.0% -2\.9% 5\.6% 14\.1% N\.A\. 9\. Pd\.-Up Capit/Assets () 17\.9% 16\.t% 18\.4% 21\.9% 21\.8% 21\.1% 20\.6% 21\.0% 24\.7% N\.A\. 10\.Total Manufacturing Output (P Billion) 52\.1 64\.6 75\.2 83\.1 95\.2 137\.3 150\.5 154\.7 173\.5 201\.8 11\.Sales/Total Manufg\.Outp\.(%) 2\.4% 2\.1% 2\.7% 2\.3% 2\.3% 2\.0% 2\.2% 2\.1% 2\.9% N\.A\. Sources: (1)"A Review of the Textile Sector with Proposed Plans and Strategies 1986-1995" t2)"A Review of the Textile Sector with Proposed Plans and Strategies 1989-1995" (3)"1000 Top Corporations in the Philippines" AS21E, 89/05/17 -60- B\. Missions Stage of project Month Number Days in Speciali- Performance Type of cycle Year Persons Field zation b Rating /c Problem d Through Appraisal I 4/80 1 7 FA - - II 10/80 4 7 E,FA,EC,C - - III 3/81 3 15 E,FA,C - - Supervision /e I 6/82 2 5 E, FA 1 - II 12/82 2 5 E, C 2 PR,D III 5/84 2 5 E, FA 3 D,COV IV 7/84 2 15 FA, E 3 D,COM V 6/85 1 5 E 3 D,COM VI 11/87 1 5 FA 3 D,COM VII 3/88 1 5 FA 3 D,COM VIII 11/88 1 10 FA 3 D,COM /b E = Engineering, FA = Financial Analyst, EC = Economist and C = Consultant\. /c 1 = No or minor problems\. 2 = Moderate problems and 3 = Major problems which are being adequately addressed\. /d PR = Procurement, D = Disbursement and COM = Anticipated Completion\. /e Some of the supervision mission were combined with other business in the country\. Three short follow-up visits were made to the Philippines during July 1987, November 1987 and March 1988, in the context of other business - reporting was in combined reports and in Form 590's\.

APPROVAL

P009379

CIRCULATING 'tOPY C- -1 FILE COMPY Document of TO BE RETURNED TO REPORTS DESK The World Bank FOR OFFICIAL USE ONLY Report No\. P-1768-BD REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERINATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A T'ECHNICAL ASSISTANCE PROJECT March 24, 1976 This document has a restricted distribution and may be used by recipients only In the performance of their official duties\. Its contints may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS 1/ Currency Unit: Taka (Tk) As of December 31, 1975 US$1\.00 = Tk 15 Tk 1 = US$0\.067 Tk 1 nillion = US$67,000 US$1 million = Tk 15,000,000 FISCAL YEAR July 1 - June 30 The Bangladesh Taka (Tk) is floating with the Pound Sterling at a rate of Tk 30 = E 1\.00\.  FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A TECHNICAL ASSISTANCE PROJECT 1\. I submit the following report and recommendation on a proposed development credit to the People's Republic of Bangladesh for the equiva- lent of US$7\.5 million on standard IDA terms to finance a Technical Assis- tance project\. PART I - THE ECONOMY 2\. A Basic Economic Report on Bangladesh, entitled "Bangladesh: Development in a Rural Economy" (Report No\. 455b-BD dated September 15, 1974) was distributed to the Executive Directors on October 1, 1974\. This was followed by an updating report entitled "Bangladesh: The Current Economic Situation and Short-Term Outlook" (Report No\. 710a-BD, dated May 2, 1975) distributed on May 5, 1975\. An economic mission was in the field during November and December 1975, to assess progress made since the updating report w;1s written\. The mission's report is expected to be avail- able for distribu,:ion shortly\. Annex I contains country data sheets\. Background 3\. The Basic Economic Report describes the obstacles to development in Bangladesh and outlines a course of action to maximize the country's limited development prospects\. The high ratio of population to natural resources, the slow development of the productive and infrastructural base and the weakness of the administrative and institutional framework led the Report to project a growth rate of GDP of between 2% and 3\.5% per year in real terms over the five years 1973-78, the variation within that range depending on the appropriateness of the policy framework and on levels of aid\. 4\. Encouraging progress was made in the period immediately following Bangladesh's independence as an enthusiastic Government, supported by mas- sive external assistance, strove to overcome the devastation of the cyclone of 1970 and the struggle for independence in 1971\. Large amounts of food aid were distribut:ed, refugees were resettled and vital port, road and rail facilities were brought back into operation\. A new constitution was adopted, and the i-irst national elections, held in March 1973, brought Sheik Mujibur Rahnian's Awami League party into power with an overwhelming parliamentary majority\. 5\. But economic progress since independence has been inadequate\. Agricultural outpuit remains insufficient for a population growing at 3% a year\. Industrial output, heavily dependent on imports, has been badly This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - 2 - affected by scarcity of foreign exchange\. State enterprises have been hampered by management deficiencies, excessive government controls, short- ages and price regulation\. Exports have been stagnant and barely finance a quarter of import needs\. Bangladesh has been severely affected by an adverse shift in its terms of trade since 1973\. It's trade problems are compounded by dependence on annual food imports of 1-2 million tons, even in years of favor- able weather, and by heavy reliance on imported industrial raw materials\. Government revenue has been insufficient to meet current and development expenditure needs\. Bangladesh has had to depend on large flows of external assistance to meet the wide gap between national output and expenditure\. 6\. On August 15, 1975 a military coup ousted the government of Mujibur Rahman replacing him as President with Khondaker Mushtuque Ahmed, formerly Minister of Commerce and Foreign Trade\. However, events beginning on November 3, 1975 culminated in further political changes\. President Ahmed resigned in favor of a former Chief Justice of Bangladesh, A\.S\.M\. Sayem\. Martial law is in effect countrywide, with the new President serving as Chief Martial Law Administrator\. The three chiefs of the defense services are serving as Deputy Chief Martial Law Administrators\. The three Deputy Martial Law Administrators and seven civilians have been appointed to form a President's Advisory Council and each of the members has a responsibility for one or more ministries\. The new government has confirmed that it intends to introduce economic reforms such as subsidy reduction, agricultural taxation and import liberalization\. Whatever its longer-term objectives and orientation might be, however, the fundamental problems of the country, namely over-population, weak adminis- tration, inadequate infrastructure and insufficient reserves continue to confront Bangladesh\. Current Economic Picture 7\. Given this background of fundamental weaknesses in economic struc- ture, inadequate economic progress since independence and political instabil- ity, Bangladesh's economic situation requires persistent efforts at efficient economic planning and implementation\. On July 1, 1975, Bangladesh initiated an economic stabilization program in conjunction with a standby arrangement with the IMF\. Its principal elements consisted of a credit restraint program and elimination of deficit financing combined with some import liberalization\. This was preceded by a devaluation of 58% in May 1975\. The record so far is that the credit restraint program has been a success: after an estimated rate Df inflation of about 80% in 1974, prices declined by 10% in 1975\. The Gov- ernment has not merely avoided deficit financing, it has retired some of its debts to the banking system\. The import-licensing program has been relaxed in the first half of 1975/76; besides increasing allocations to an average of 95% of entitlements, licenses have been renewed on expiry and there is greater fungibility in the use of exchange allocations for selected categories of im- ports\.  - 3 - 8\. The view has been expressed that at the beginning of 1975/76 the credit restrictions had been too pervasive and insufficiently selective; jute purchases by trading corporations had been hampered, productive credit had been scarce, and import allocations could not be utilized\. Mea-ures have been talken to rectify this situation\. Overall, however, the impact of tlhc credit restraint program on the reduction of the rate of inflationl has been salutary\. It has been reinforced by other factors: (a) FavorabLe rice lharvests\. The current Ainan rice harvest is expected to amount to 7-7\.5 milliLon tons and output for 1975/76 may be abouit 13 nilion Ltons, representing an increase of about 17X over 1974/73\. Rice harvests in West Bengal lhave also been exceptionally good and prices have been declining rapidly there\. (b) The border with India is being policed intensively and smuggling has virtually ceased\. (c) The supply position for raw materials has improved during 1975/76\. Larger import allocations have been boosted by substantial declines in the prices of key imports\. (d) Capacity utilization and output has increased in a number of industries and inventories of finished goods are higher\. 9\. The devaluation has enabled a reduction in the price of raw jute exports from the unrealistic level of E200 per ton (late 1974 and early 1975) to E150 per ton (from July 15, 1975), f\.o\.b\. Chittagong\. This has led to an increase in sales of raw jute\. Overall, however, export earnings from manu- factured jute goods are likely to fall in 1975/76 because the large decline in export prices has not been compensated by an increase in export volume\. The problem is especially acute for jute manufactures because of the inter- national economic recession, and because of increased competition from India which has reduced tariffs for some products and provided export subsidies for others\. Bangladesh's non-traditional exports have derived benefits from the devaluation and as a result total exports may be expected to pick up in the course of 1975/76\. The total value of merchandise exports is expected to be about $350 million in 1975/76 compared to about $400 million in 1974/75\. On the import side, improvements are noticeable in the licensing program, but import procedures continue to be complicated\. In spite of recent measures to reduce the role of the Trading Corporation of Bangladesh it continues to monopolize a substantial part of the import business\. It is estimated that about 1\.6 million tons of food valued at about $358 million (including ship- ping) will be imported in 1975/76\. Sizeable imports of edible oil, cement, cotton, yarn, fertilizers and raw materials are also indicated\. The total value of merchandise imports is expected to approximate $1,286 million in  - 4 - 1975/76, but import payments are likely to approach $1,420 million due to retirement of outstanding letters of credit from 1974/75\. 10\. For the first time since independence, the availability of external resources was not a binding constraint on the Bangladesh economy in 1975/76\. The year began with a relatively high level of foreign exchange reserves ($265 million)\. Aid, bolstered by the agreement with the International Monetary Fund, continued to be at a high level\. Excluding IMF assistance ($106 million), the commitment of foreign aid in 1975/76 was about $945 mil- lion, about two-thirds of which was in the form of food and commodities aid\. The level of aid disbursement in 1975/76 (including IMF assistance) is ex- pected to be about $1,011 million\. In 1976/77 it is estimated that approxi- mately $950 million of aid disbursements will be required\. 11\. The agricultural sector continues to be beset with problems\. The small-scale irrigation program (comprising low-lift pumps, shallow and deep tubewells) has fallen short of its target; procedures for the allocation of fertilizer continue to be unsatisfactory, and credit is insufficient and inadequately distributed\. Because of the steep fall in the free market price, Government procurement of rice has increased dramatically and over 270,000 tons were procured by early February\. Farmers are however still hampered by the low moisture content requirements and the unfamiliar payment procedures\. This has led to farmers selling their paddy at prices below the procurement price\. This helps alleviate the Government's budget and storage problems but undermines the basic purpose of the Government procure- ment program which is to provide a floor price for rice\. Storage facilities for foodgrain (800,000 tons) have been almost exhausted and problems arising from exposure of foodgrains to the elements are beginning to be of some significance\. The Government is considering phasing imports of foodg:ains, though its objective is to have a stock of one million tons; in the meantime, efforts are being made to rehabilitate approximately 200,000 tons of derelict storage capacity\. 12\. In the industrial sector capacity utilization has improved in a number of industries, especially fertilizer, and the supply of raw material and spares is more stable\. But stocks remain unsold in the case of a number of consumer products primarily due to inflexible pricing policies; production of the wrong assortment (e\.g\. in textiles); competition from imports under the Wage Earners' Scheme; and a reduction in consumer liquidity (partly as a result of dissaving that occurred during the pre- ceding three years of inflation)\. With a few exceptions, public enter- prises are still generally deficient in management and labor productivity, and lack autonomy in the matter of staffing and pricing policies\.  - 5 - PART II - BANK GROUP OPERATIONS IN BANGLADESH 13\. After Bangladesh became a member of the Bank and IDA in August, 1972, Bank group operations in Bangladesh concentrated initially on re- activation of IDA credits for uncompleted projects financed under credits to Pakistan before the independence of Bangladesh\. Eleven such credits in an aggregate amount of US$151\.35 million (including US$44\.1 million for the repayment of amnounts that had been disbursed under the corresponding previous credits to Pakistan) have been made to Bangladesh\. In addition, 13 new credits have been maae totalling US$424\.2 million\. Of these US$275\.0 million have been for program credits\. The project credits have emphasized agricultural development, but also included amounts for population, tele- communications and transport\. In October 1975 Bangladesh applied for membership in IFC\. The Board of Governors have since passed a resolution approving this appLication and Bangladesh is expected to become a member soon\. 14\. The debt service ratio in 1974/75 was 15\.9 percent\. For 1975/76, the ratio is estimated at nearly 20 percent\. Negotiations are underway between the Government of Bangladesh and the various bilateral and multila- teral donors concerning the assumption by Bangladesh of a portion of the debt contracted by Pakistan before Bangladesh became independent\. Bangladesh's debt service ratio is therefore expected to increase further in the coming years\. With respeci: to the Bank Group, Bangladesh has agreed to accept liabi- lity fi%r certain debt for projects visibly located in Bangladesh and comple- ted before independence\. Agreements for a consolidation loan of about US$54\.9 million and a consolidation credit of about $31\.0 million (based on January 1, 1960 exchange rate) were signed on February 14, 1975\. The Bank Group's share of Bangladesh's outstanding external debt is not expected to rise significantly over the next few years\. 15\. Bangladesh's severe balance of payments difficulties require that increac2d amounts cf aid be given in a flexible, fast disburzcalg fashion\. Program lending should therefore remain a feature of IDA assistance\. For the next several years the requirements of existing productive capacity wilL remain high for the types of goods - spares, components and raw materials - financEd by IDA program credits\. However, long-term improve- ment in the Bangladesh economy can be expected only if sound policies, programs, and development projects are pursued\. Thus, projects of the highest priority must also be supported\. Given its low per capita income, Bangladesh's investment requirements cannot be met entirely from local resources\. In view of Bangladesh's difficult foreign exchange position, IDA Credits should cover all foreign exchange costs\. Taking into account the level of financing expected to be available from other external lenders, and in order to direct IDA lending to those sectors (such as agricultural and rural development) where the percentage of foreign exchange costs is relatively low, the financing of local currency expenditures is also justified\.  - 6 - 16\. Annex II contains a summary statement of IDA credits and the Bank loan made to Bangladesh as of February 29, 1976 and notes on the status of execution of ongoing projects\. After an initial slow start, disbursement performance under the program credits has been good, keeping pace with the estimates made during appraisal\. In contrast, disbursements under project credits have lagged far behind expectations\. Reasons for this include prob- lems associated with release of local funds, clearance of contracts, employ- ment of consultants and appointment of needed staff\. The Government of Bangladesh is aware of what the bottlenecks are and has taken steps recently aimed at eliminating the most pressing of them and speeding up the imple- mentation of projects, especially foreign aided projects\. The release of local funds for projects to semi-autonomous government agencies now re- quires one application per year instead of the previous disruptive require- ment of quarterly applications\. The approval of the President is no longer required for contracts and the ceiling for contracts which can be approved directly by the project implementing agencies has been raised from Taka 700,000 to Taka 10 million\. The requirement that the President approve all consultant's contracts has been waived\. The responsibility now devolves upon the parent ministries of project agencies to approve the appointment of consulting firms for projects with National Economic Committee approval, or for project preparation activities\. Finally, in the area of appointment of staff recent changes require the Establishment Division and the Ministry of Finance to issue specific instructions making the authorization of the appointment of staff automatic in the case of approved projects\. 17\. Long-term improvement in the Bangladesh economy can be expected only if sound policies, programs and development projects are pursued\. The Association recognizes the prime importance of the agricultural sector and of efforts to close Bangladesh's food gap\. In this connection the Popu- lation, Ashuganj Fertilizer and Barisal Irrigation Projects as well as the Karnafuli Irrigation Project which was recently approved, all fit into the strategy of increasing food production and reducing the food gap in the future\. In other sectors, several studies supported by the Association--for example in industry and transportation (also assisted by the United Kingdom) --should help the Government and the Association to develop a suitable pipe- line of projects consonant with mutual assessment of economic priorities\. Further economic studies will be oriented to the same goal\. In the indus- trial field the Association and the Government of Bangladesh have been working together in connection with our program credits to develop and agree on action programs for strengthening the efficiency of the most important sub-sectors\. Finally, technical assistance will continue to be used as a tool to improve project preparation and implementation capabilities\. PART III - THE NEED FOR TECHNICAL ASSISTANCE 18\. In recognition of the need to strengthen its economic planning machinery, the Government of Bangladesh recently decided that planning cells be set up within all Development Ministries during the 1975/76 financial year\. This is intended to enable these ministries which are responsible  for the identification and preparation of projects within their respective sectors to make a more effectLve contribution to planning at the national level\. While this in itself is a welcome development which should improve project preparatlon, there is still a continuing need for external tech- nical assistance boLh in establishing these cells and in the identification and preparation of projects until these cells become fully effective\. 19\. In recognition of Bangladesh's need for support in its efforts at improving project planning and implementation, the Association provided a $4 million Technical Assistance Credit (Credit 409-BD) in fiscal year 1973\. These funds have been used primarily for the preparation of feasibJiity studies and design and engineering work required for the preparation of pro- jects for financing by IDA\. In addition, some furnds have also been used to assist in the strengthening of institutLons responsible for project planning and implementation (through management assistance or studies of bottlenecks impedLng project execution), for more general studies required prior to the preparation of specific projects and for preparation of projects which may be financed by other agencies\. Initially, utiLizatLon of the credit was slower than expected because the Government was reluctant to use consultants and this necessitated an extension of the closing date for two years\. The rate of utilization has improved over the last year and it is expected that as a result by the end of fiscal year 1976, this credit will have been fully committed; hence the need for funding a second technical assistance project which will permit a conLinuation of the types of activities carried out under the auspices of the first credLt\. The following table shows commitments to date against this credLt and subprojects being considered for approval\.  CREDIT NO\. 409-BD Sub-Project IDA Contribution Committed (US $ Equivalent) 1\. Inland Water Transport Study 180,000 2\. High Yield Variety Rice Survey 120,000 3\. Rural Development Engineering Survey 84,000 4\. Fertilizer Industry - Plant Operations Study 650,000 5\. Inland Fisheries - Project Preparation 70,000 6\. Karnafuli Paper Mill - Feasibility Study for Mill Improvement 71,000 7\. Import Control Study 150,000 8\. Muhuri Irrigation Project - Engineering Design 175,000 9\. Fertilizer Factory - Expert Advice on Maintenance of Flants 300,000 10\. Fertilizer Marketing Study 170,000 11\. Establishment of Project Preparation Cell Within Water Development Board 1,000,000 12\. Jute Mills Maintenance Study 300,000 13\. Grain Storage Management Study 400,000 Sub-total 3,670,000 Earmtrked 14\. Muhuri Irrigation I'roject - Additional Engineering 150,000 15\. Textile Industry Studies and Technical Assistance 180,000 Total Earmarked 330,000 Total Credit Amounl: 4,000,000 20\. The Ashuganj Fertilizer Project (Credit 527-BD) and several Proj- ects being considered for possible future financing by IDA have benefited from preparatory work carried out under the first Technical Assistance Credit\. For example the Rural Development Project scheduled for FY 76 and the Inland Water Transport and Muhuiri Irrigation Projects scheduled for FY 77 are all based in part on work performed or being performed by consultants financed under Credit 409-BD\. The average foreign exchange cost per man-month for salaries and overhead for foreign consultants employed under credit 409-BD has been about $5,400\. 21\. While bilatera:L agencies and the UNDP are expected to continue providing much of Bangladesh's requirements for technical assistance, the levels of need are beyond what can be expected from these agencies over the next two years\. It is therefore necessary for IDA to continue lending for technical assistance, especially since this has proved to be essential for the total lending program\. It improves the project pipeline not only  - 9 - for IDA financing but also for financing by other donors\. In addition to the credit, proposals are being discussed for provision of additional technical assistance funds through a UNDP "Umbrella Project", with IDA as the executing agency\. This project is unlikely to commence before 1977/78\. PART IV - THE PROJECT 22\. A Credit and Project Summary is attached as Annex III\. The funds from the proposed credit would be allocated to specific subprojects by mutual agreement between the Government and the Association\. The credit funds would be used primarily for feasibility studies and other investi- gations required for preparing projects for financing by the Association\. The proceeds would also be used for strengthening institutions responsible for project planning and implementation (through the provision of management assistance or staff training), for more general studies which may be required prior to the preparation of specific projects, and for the preparation of projects for financing by other agencies\. Special emphasis would be placed upon staff training programs designed to improve Bangladesh's project prep- aration capacity\. 23\. While the Specific uses of the funds have not been identified in detail, it is expecl:ed that as with the first credit the emphasis will be on sub-projects in che field of agriculture and water resources development, the two sectors which are considered so crucial to Bangladesh's overall development strategy\. As regards other sectors, technical assistance will be needed, for example: (a) for the establishment of effective planning cells within the development ministries; (b) for the improvement of Bangladesh's statistical service!s; and (c) for improving the managerial capacity in public corporations in the industrial sector\. Additional requirements for assistance are expected to emerge, either from the Government's own work or as the resuLt of sector surveys, such as the proposed Industrial Sector Mission in FY77\. 24\. The selection of consultants, their terms of reference and the final contract between the Government and the consultants would be subject to agreement between Government and the Association\. The Association would also provide assistance to the Government in supervising the work of the consultants\. ConsuLtants' terms of reference would emphasize the importance of training local sraff so as to reduce the need for foreign assistance as rapidly as possible\. The Ministry of Planning of the Government of Bangladesh would be responsible for ensuring effective coordination of the various Government ministries and agencies concerned in the implementation of the project\.  - 10 - 25\. It is expected that most of the technical assistance would be pro- vided by foreign consultants\. However, the Association supports the Govern- ment's desire to use qualified local consultants to the largest degree pos- sible, either independently or in collaboration with foreign firms\. In the first Technical Assistance Credit (409-BD) the Association agreed to pay 100 percent of the foreign exchange expenditure incurred by foreign consultants, and 70 percent of the total costs of services rendered by local consultants\. However, in order that the percentage used for foreign and local consultants would be the same, the proposed financing formula has been modified\. The proposed credit would finance 100 percent of the foreign exchange costs and 70 percent of local currency costs of consultants, whether foreign or local and whether hired directly or as subconsultants\. Credit funds would also be available by agreement between the Government and the Association, for financing the cost of trips by Government personnel to work with consultants at their home office, overseas training, and the foreign exchange cost of such material and equipment required for approved technical assistance subprojects as may be procured directly by the Government\. PART V - LEGAL INSTRUMENTS AND AUTHORITY 26\. The draft Development Credit Agreement between the People's Republic of Bangladesh and the Association, the recommendation of the committee refer- red to in Article V, Section 1 (d) of the Articles of Agreement of the Asso- ciation, and the text of a draft resolution approving the proposed credit are being distributed to the Executive Directors separately\. The draft Development Credit Agreement follows substantially the form of the first Technical Assist- ance Credit Agreement\. 27\. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association\. PART VI - RECOMMENDATION 28\. I recommend that the Executive Directors approve the proposed Development Credit\. Robert S\. McNamara President March 20, 1976  COUINTRY DATA - BANGlADESH Ise 1o pages SOCIAL 1NDICATOIrJ DATA SHEE LAND AREA (THOO 1Mbt \.- \. \. \. \. 8BANGLADESH REFERENCE COUNTRIES (19r3) TOT%L i42\.8 mosT RECENT ARABLE 67\.1 1960 1910 ESTIMATE tIHODNESIA INDIA NALAYSIA GSIP PER CAPITA CUSS) 0\.0 6\.000100 100 0\. PIPULATION AND VITAL STATISTICS POULATtON (RID-VA\. HIILLION) 53\.9 90\.8 74\.0 115\.6 536\.1 10\.9 POPULATIO4 DENSITY PER SDUARE (N\. 319\.0 496\.0 516\.0 61\.0 168\.0 33\.0 PE* SGUARE KM\. ARA8LE LAND \. 840\.0 850\.0 \. 350\.0 VITAL STATISTICS CRUDE BIRTN RATE PER TI40USA$DO 41\.0 44\.0 47\.0 42\.0 36\.0 34\.0 /a\. CRtUDE DEATH RATE PER TH4OUSAND 20\.0 21\.0 17\.0 21\.0 16\.0 a\. INFA4T MORTALITY RATE (fYNDI)) \. 40\.0 1 30\. 0 I 30\.:00 4\. ~ LIFE EXPECTANCY AT BIRTH YRIS) \. 480 46\.0 47\.0 50\.0 64\.0 a SROSi REPRODUCTION RAE 3\.5 3\.1 \. 3\.2 2\.9 2\.6 POPULATION GROWTH RATE tg) TOFAL \. 2\.7 2\.6 2\.0 2\.3 3\.1 URBAN \. \. \.6 4\.0 URBAN POPULATION (I OF TOTAL) \. \.0 17\.0 20\.0 29\.0 /a AGE STRUCrURE (PERCENT) "14\. 50~ 0 To 14 YEARS 4r\.0 5\.4\.9 53Ls\. 42\.0 452\.0 15 To 64 YEARS 49\.1 \. 5\. 3I5\.023 65 YEARS AND OVER 3\.9 \. 2\.9 Z\. 5 3\.0 3\.0 a AG- DEPENDENCY RAtIO 1\.0 \.0\.9 0\.9 0\.a 0\. EE)U3HIC DEPENDENCY RATIO 1 \.6/La, \. 1\.4/a\. 12 ~ 1\.6 L FAMILY PLANNING- ACCEPTORS (CURULATIVE, THOU) \. \.234i\.2 220\.0 Loa USERS (Z OF MARRIED WOMIEN) \. \. \. \.0 EN PLOYIfE Ir --TAL LA-_BOR fORCE (THOIUAMDI 17100\.0 22300\.0 2 62 00\. 0 \. 221000\.0/b 2900,\.0 a LABr FORC IN AGRICULTtURE El) 96\.0 71\.0 \. 1\.0 47\.0 ,5 UNEMPLOYED (SO AO OC)\. 1 5\.0/b 2\.0/a 3\.0/ 6\.0 aL INC E DISTRIBUTIO S )~ P~IV4TE INCOME R7C4J By- 5 d3, HIGH--ST St OF POPULAlI'ON 1B\.3/b lA?a 6\. 2\.:72\. HHEST 201 OF PaPULRlt0N 445 / ~ 42\. \. 31d 5\. LOWEST 201 OF P3PULRI'0" 6\. 79 \.4\. d 3\. 5 c L3WEST 401 OF P3PIiL%1ION 1\. 19\.6 \. \.9 13\.1I 1\.2 c DISTR IBUTIOI OF LAND OWVNEF SHIP I OWNED BY TO 0 F IES\. 34\. 0/b \. I OWNED 9T SMALLEST 101 OWNERS \. \.0/b HEALTH A4O IUTRITIOR POPJLATIDN PER PHYSICIAN 10000\.0/c 1600\.0/D\. 10000\.0c 27650\.0 4800\.0 3660\.0 ta_ PO~ULATI2N PER MLIRSIN3 FERSOM 10000O0/c76030\. Sj 7160\.0 61\. 100 16\. ~ POPULATION PER HOPIA BD l 0o0\.100a 69\.01200 60\. 0\.Zi PER CA'IT% SUPPLY OF AkLORIES (I OF REQUIOIAENTS) \. 80\.0 8 9\. 0 9 3\.0 9 4\. 0 PROTEIN (GR AMS PER DAli \. \. 4 0\.0 43S\.0 5 3\. 0 -(F W"I CH ANIMAL ANIP PULSE\. \. 14\. 0 1 6\. 0 20\. 0 f DEATH RATE (/THOU) AGES 1-4 \. \. \. 4\.0 EDUCATION ADUTDENRGLLHENr RATED PRIMARY SCHOOL\. 4 200~ 550\. 0/~ 56\.0 71070 a89\. SECONOARY SCHOOL S\.0/a I e0 \. 2\. 0 2\.030 YEARS OF SCHOOLING PR3VY3E3 (FIRST AND SECOND LEVE:L) 1 0\. 0 1 0\. 0 1 0\.0 12\.0 12\.0 1 3\. 0 VOCATIONAL ENROLLMENT CI IF SECONDARY) \.1\. 0 \.28\.0 6\.0 5\.0 ADUlLr LITERACY RIATE (1) \. 23\.0 r\. \. PE;RSONS PE-R ROOM (AVERAGE) \. \. \. 2\.3 OC2UPIEO DVELLtNGS WITHOJUT PtPED WATER (1) \. \. \. 50 ACCESS TO ELECTRICITY (1 OF ALL DWELLINGS) \. \. 4 3\. 0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (l) \. \. \. 30\.0 C3NSjMHTION RADORCEIVERS (PER THOU POP) \. 6\.0 IT11O 2\. 4\. PASSENGER CARS (PER TNDU POP) \. \. 2\.0 1\.0 25\.0 ELECTRICITY (INHIYR PER CAP) 3\.0 1'1\.0 12\.0 20\.0 L11\.0 6 NEWSPRINT CKGIYR PER CAP) \. 0\.2 0\.2 0\.3 4\.:00a SEE NOTES AN D EFINITIONS afN REVERSE  ANNEX I Page 2 of 4\. pages ~NDS Un\.less otherwise noted, dtat for 1960 refer to anY year bet-wee 1959 and 1961, for 1970 between 1968 and 1970, and for Moat Recent Estimate between 1971 & 1973\. -Selection of Malaysia as an objective country is based on Malayaia'o success in eaotinting- a high rate of eoonomic growth and an adeqpuate leve of welfare cnusetywith diversfing its econsic t-nus BAGAS IS /a Ratio of population under 15 sand 65 and movr to total labor fores; /b 1963-61\., households; /c Registered, not all practicing in the country; /d Governmsent hospital eatablishments only; /\. Appraxisete enrollant as percentage of population, in 6-10, and U-15 n agevps respectively, 1970 a 1966-67, households; Lb 1967-68 Z Registered, not all practicing In the country; /d Oovers\.saet hospital establish- seants only; a0 Appr6Beasts enrollment as prentage of population in 6-10, and U1-iS age groups respectively\. MOST MEODT ]ESTIMATE, ~a Ratio of population under 15 and 65 and over to total labor force; ab Mainly unemployed workers seeking their first job\. INDONESIA 197 /i 'Registered applicants far work\. INDIIA 1970 /a Ratio of population under 15 and 60 and over to labor force age 15-59 Ysas; ab AID estioate of labor farce in age group i5-59\. IBED report gives a figure of 180\.1\. -illion based on 1971 popuiation c"enu\. The difference\. is due to changes in tha definition of a worker, In the 1971 census, parsonts were classified only on the basis of their rain activities\. This lad to the exclusion of several categories such as housewives; /c Registered applictant for work; /d 1967-68 households; Li 1965\. MALAYSIA 1970 /a West Malaysia; ab Registered applicants for work; /, Households; /d Registered, not all precticing in the count ry; /e Goveramnent only; If 1961-66; ai 19671 /h Piped water inside\. R6, March iS, 1976 OEPDflTIONS OP SOCIAL\. INOCAIVRS LanjA~40b,\.='l2 _o4tion nornursing cas - Population divided by number of practicing TOaic area comprising land area end inland waters, tl\.n fe lae graduat nurses, "trained"' or "cartified" nurses, and Arable - Most recent estimate of land are used temporarily or permanently auxiliary personnel with training or experience\. for cultivation, pasture, market end kitchen gardens or to lie fallow\. "~ fp ofia e - Population divided by number of hospital beds availbe npublic and pr-ivate gen-ral and specialized hospital and OR?por ccpita US$) - GNP per capita estimates at market prices, celcu- rehabilitation cantors eaxcludes nursing hosms\. end establishmente for a saneconversion method as World Bank Atlas (1972-71\. basis)\. custodil and preventive care\. Per captasupl offcalorie (I of requiremwents) - Computed from enegy Popu:t\.: F _Istatistics eqialnt ofct foo suplies aviable In country per capita per day; P\. h::!miUion) -As of July first; if not available, avarage available supplies comprise domestic production, imp-trt less exports, \.twe ena-yea,s estiae\. and changes in stock; net suppliss seclude aniota feed, eseds, quanti- ties used in food processing and losses in distribution; requlrements PouaodnA sity e)rsq are ho- id-year population per square ki-lo- were estimated by PAO based on physiological needs for normaol activity P'not (0hectares (of eto oe rea and health considering environmental temperature, bod4 weights, age and Population density - per square kmt of am-ble laid - Computed as above for sex distributions of population, and allowing 10% for waste at household aable\. land only, level\. Per_capit supy tfpoti(arso rts ay) - Protein content of per Vtal statistics ai\. e upyo odprdy a supply of fond is defined ao Crude birth r-ate Per thousand - Annual live births per thousand of aid- above; requirements for all countries established tW USDA Economic year population; Uusualyfve-year averages ending in 1960, 1970 and Research Services provide for a minimum allowance of 60 grams of total 1975 fir developing countries\. protein per day, and 20 grams of animal end pulse protein, of which 10 Crude detih rate pe,r thousand - Annual deaths per thousand of mid-year grams should be animal protein; these standards are!-lower than those of poplto; sal five-year averages ending in 1960, 1970 and 1975 75 gram of total protein and 23 grams of animal protein as an average for developing countries, for the warld, proposed by FAO in the Third World Food Survey\. in fant mo-tali?y rate (/thou) - Annual deaths of infants under one year Pe aitpreisu lyfrost anital and pulsie - Protein supply of food TFi P\. fl"¶o' 'lVe" bis-the\. deIve fro aimals and pulses in grams per day\. t %tbirh ~jo)- Averoge number of years of life resain- Detrate 1thou a as 1 - Annual deaths per thousad in age group 1-1\. at r; oay va-year, averages ending in 1960, 1970 aid jihth1 iWlTl age group; suggested as an indinator of nal- 1975 fev developing countries, nutrition\. Grossrerergductionras- Average number of live daughtere a woma will ThiVl§Wdi6iirLprodutiive period if she experiences present age- Education specific fertility rates; usually five-year averages ending in 1960, Adj1usted euo#Lent,rti _-_ LErM school - Enrollment of all ages as 1970 and 1975 for developing countries, pecnaeo\.rmr sRcho-ag poplaion; includes children aged Population growth rate() -ttl- Compound annual growth rates of mid- 6-li y\.ear but adjusted for different lenth of primary education; year population for 1950-60, 196-70J, and 1960 in mast recent year\. for countries with universal education, enrollment may ~exed 100% Popu*latio qgrwth rate(9)f-urba - Cosputed like groweth rate of total since sorm pupils are below or above the official school age\. ppato;dfferent dfitons of urban areas may affect coopers- Adjusted enrollment rti-seodrscol-omudashv;scn- bility of data among countries, ary education requi're atlatfu years of approved primary instruc - Urbanp p ultioni(% of' total) - Ratio of urban to trtal population; dif- tion; proides general, vocational or teacher training instructions for ferent deiiins of urban areas nay affect copmprbility of data pupils of 12 to 17 years of age; correspondence courses are generally anong countries, exluded\. sx\.tructure erenent) - Children (0-1L years), working-age (15-64\. years), Years of schooling provided (fRstv ad secnd levels) - Total years of iniTr\.i,ed (65 jyer and ever) as percentages of mid-year population, schooling; at secondary lv,voainal Instruction may be partially AL ratio - Ratio of population under 15 and 65 and over to or completely excluded\. thos s gs1 through Si4\. Vocational euo lat (9 of secondary) - Vocationnal institutions include torontmi dependency ratio ai fpplto udr1 n 5adoe technical, i trilor other programs which operate independently or to the labor force in age group of 15-64 years\. as depas-tsnts of secondary institutions\. Fetily plnrning - acceoore (cumulative, thou) - Cuculative number nf Adult literacy rate (9) - Literate adults (able to read and write) as per- accwp,tors of birth-control devices under auspices of national family centage of total adult population gagd 15 years and over\. plmin-g program since inn-ption\. Funly lanin - ser ( of married wanen) - Percentgags of married tnnof chid-bern g (5h er) h ;"bit-oto de- 4 royom (average) - Averege number of Persons per resin in occupied ritcan to all married wome in samae age groan\. conventiorikldwellingsiin urban areas; dwellings exclude non-permanent structure and unoccopied porte\. '-riovetert ~~~~~~~~~~~Occupied dwel-lings withotpipedwtr()- cuidcnenicldel ctlalbor force (thousand) - Economically active persons, including ings in urban aid nrlaeswtottida or outside piped wtatr oarmed frces anc unsapleyed but exclding housewiVes, students, etc\.; facilities as percetage of all occupied dwellings\. defieit-non in various countries are not comparable\. Access to electrnity (Iofrall\.dwelling) - Conventioual dwel-lings with lacer force inagriculture(% - Agricultural labor force (in farming, electricityi lv qu rtr as percent of total dwellings in urban forestry unig ad fishing) as percentage of total labor force\. and rural areas\. smD ~b:\., f - -- Uepoe r sal eie spr Rura dwlig onnected to electricity (9) - Coqmpted as above for rural soswoare able ad willing to taka a job, out of a Job one\. given dwellings onlay\. Jay, retaned out of a job, and seeking work for a specified minimtus period not exceeding one week; say not be comparable between coun- N tres due to different definitions of unployed and source of data, %idi' vretvrsg or' thac ) - All types of receivers far radio broad- e\.g\., aeplaysent office statisftics, sampla surveys, ccompulsor-y une- coats to general U c per thousand of population; excludes unli\.cnsed pleyrtent insurance\. receivers in countries and in year when registration of radio sets was in effect; data for recent years may not be comparable aince mast onun- Incime distribution - Percentage of prlints Income (both in casah and tries abolished lianening\. kind) received by richest 5%, richest 20%, poorest 20%, and poorest P\.assenger cars orw thm ou - Passenger cars comprise motor cars seating 1\.0% of population\. less tha eighl perBsi6iexcludes ambulences, hearses and military vehicles\. Distribution of la:nddunrhp-Percentages of land owned by wealthiest E nulcosmto osnutia,cosr 10% and prerest 10% of land seaters\. ci67 iblian ii9iiWeletrlc ity in kilowatt hours per capita; gen- erally based on production data, without allowance for loasses in grids Health and Nutrition but allowing for imports and aspwcts of electricitw\. V ti ciaq_R\.jjn - Population divided by number of practicing Nmr mti r cap) - Par capita annual onmumption in kilograms qu fed frro a medical school at university level\. as eat m tl production plus net imports of newsprint\.  AIOIE I unt?Oomivxwnon:1puaq DATA Page 3 of 4 Pages NATIONAL ACCOUNTS Av\.1967-69 19 ssztual ~ ~ ~ ~~Projr-te 19 60\.1 19 65 - 19 73 - 19 75 - 196Av\. Av\. 1967-6F-1LL2/-73 1996j 190 1 19757947 96-6919 3/7419 75/76 In ConstaInt 1972/19173 Prices & flchoange Rates Averae Annual Growth Rates As Percent of GDY Gross Domestic Product 6,012 5,663 6,201 6,325 6,800 710O0' 4\. 3\.3 5\.7 5\.9 98\.5 101\.8 101\.6 Gains fram Terms of Trade () 89 _ - -109 -83 -106 -118 1\.5 -1\.5 -1\.6 Gross Domestic Income 6,101 sU39 rW26n I- C 97 6c98 5\.6 2\.5 5\.0 5\.8 rmrly -m-\.u rTur import (incl\. N's) 879 747 617 687 817 777 20\.6 6\.8 -4\.1 6\.3 14\.4 10\.1 12\.2 Exports "1 (import cabecity) 598 375 220 252 246 279 12\.3 -14\.6 -17\.8 5\.2 9\.8 3\.6 3\.7 Resource Gap 281 3574 3-97 _T3 7 _5 -ri7 -rs6 8\.5 Consumption 8zpensditures 5,668 5,800 6,226 6\.424 6,870 7,158 5\.7 3\.6 5\.2 5\.6 92\.9 102\.2 102\.6 Investment (mncl\. stocks) 714 237 263 253 395 326 13\.3 8\.8 3\.3 13\.5 12\.9 4\.3 5\.9 Domestic Savings 433 -137 -134 -182 -176 -172 4\.3 10\.0 --15\.3 2\.9 7\.1 -2\.2 -2\.6 lNational Savings 416 -113 \.99 -153 -148 -132 8\.7 20\.5 -16\.4 7 \.7 6\.8 -1\.6 -2\.2 MERCHANDISE TRADE Annual Data at Current Prices As Percent of Trotal Tmports \. 100 135 135 155 210 12\.9 23\.2 \. 16\.9 12\.1 Capital goads \. 176 237 379 388 411 46\.7 4\.1 \. 5\.8 30\.2 Tnt\.ermediate goods 6wl\.fu\.3sl) Fuiels and related materials of which: Petroleum \. 23 87 155 145 152 159\.6 6\.0 \. 9\.5 11\.3 Co tion gooda __Q_B _J31 __ZJ3 598 577 ~~~30\.9 -8\.8 \. 47\.8 46___5 Tota a rs-\.a AZ 3 jj 7 - S-9 - 1-7oo 460\.5 \.y%\. Mvrts(aif) 547 727 918 1,402 1,286 T3 89 -\. 0\. 0\. Exports Primary, yroducts ~xc1\. fuels) \. 146 153 113 130 166 -12\.0 21\.2 \. 41\.1 39\.2 F'uels end related materials of which: Petroleum Manfatuedgpda193 219 246 202 239 12\.9 2\.6 \. 58\.9 60\.8 Ttlerh7 Exorts (fob) 48l -7fl 7- m w9 332-- MY 2\. 8\.s - - Tourism and Border- Trade Merchandise Trade Indices 1972/73- 100 Export Price Index 61 100 108 130 114 122 14\.0 -3\.1 Import Price Intdex 52 100 156 191 172 189 38\.2 -0\.5 Terms of Trade Index 118 100 69 68 66 65 \. \. \. 17\.5 -2\.2 Exports Volume Index 148 100 102 - 84 91 103 -8\.3 10\.7 VALUE ADDED BY SIETOR AnnuaLl Date, at 19 7BY73 Prices and Exchange Rates Average Annual Grovth Rates As Percent af Total Agriculture 3,542 3,402 3,788 3\.713 4,100 4,200 \. \. 4\.5 6\.4 59 61 60 Idservice 4iin 2,M8 I,* a 472 467 495 530 6\.5 65 3 1 3 ndStryv and - 1- 941 2\.L145 -\.2\.2A\.5\.L2D37 7\.7 5:1 \. 3- Total 6,012 5,663 6,201 6,325 6,80\.0 7,100 53\.7 5\.9 100 100 100 RJEIC FINANCE As Percent of GOP (C-entral Government) CuLrrent Receipts 317 280 400 471 576 615 \. \. 29\.7 14\.3 5\.3 6\.5 8\.5 Current es ~~365 _364 450 420 534 555 \. \. 7\.4 15\.0 6\.1 7\.2 7\.8 Savings ~~-48 -84 --50 -51 42 60 -0\.0 -0\.7 0\.7 Other Public Sector - Public Sector Investment 421 213 237 220 280 2706 108 7\. US * miliion LA- CURRENT EXPENDITURE DETAILS Actual Est\. Proj\. DETAIL ONAted1 adE As % Total Current Expend\.) 1969/70 !92?LZ 19 7-3T74 j<9Th/75 1975/76 PUBLIC SIETOR Firt Plnd 9 of TotalR Education \. - 14-;7- 133 B IEVSTINT PROGRAM4 (19 73/74 -1\.977 478) Other Social Servicesa\. 4\.0 3\.8 4\.3 4\.7 Social Sectors 758 15\.3 Agriculture and Agriculture 1,302 26\.4 Other Economic Services \. 11\.2 8\.4 7\.2 7\.1 Industry and Mining 1,024 20\.7 Administration and Defense \. 67\.4 69\.0 68\.0 66\.7 Power 529 10\.7 Other \. 2\.7 4\.1 5\.0 6\.5 Transport and communications 802 16\.3 Total CuLrrent Expenditures 10-0\. 0 10-0\.0 100\.0 100\.0 Other 524 10\.6 ________________________________________________________________________ Total Expenditures 4,940 100\.0 'EL\.ECTED INDICATORS 190F95 90 93 INANCING (Calculated from 3-year averaged data) 1965 1970 1975 1978 Average IC0R T \. 7-4 \. 1\.88 Public Sec-tor Savings 784 15\.9 Import Elasticity 1\. \.29 \. Program aid counterpart 2,022 40\.9 ?rginal Domestic Savings Rate 0\. \.22 \. \. Foreign Project Aid 1\.10 20\.4 Marginal National Savings Rate 1\. \.3 \. , ToalFianin 4,940 100\.0 LA\.430 FORCE MID Total LaLbor Force Value Added Per Worker (197e2r/3 Prices & Excc\. Rates) OUTPUTr PER wonsa In Mlliona_ % of Total 1961 - 73 In U\.S\.DDflars Pecn fAeae 1970 -73 1960/61 ~2j72/73 1960/61 1972/73 Grovtb Rate 1969/70 1Li72/73 1969/70 1972/73 Growth Rate Agriculture 16\.1 2!0\.5 85 78 2\.0 1\. 66 \.76 Industry 1\.0 1\.8 5 7 5\.0 \. 229 \.105 Service 1\.8 3\.9 10 15 6\.7 \. 474 \.222 Total 18\.-9 -:\.2 15o 100 -Tii f5 T -4\.9 not applicable - 01l or negligible ~ not available --less than half the smal lest unit shaown Motes: Figures aer on fisace year basis (Ju[ly 1-june 30)\. Data prior to 1972/73 pertain to eartwhile East Pakisatn\. 1/ These are original Plan targets\.  M0X I flu\. 4 of 4 Pgew XUMi OF PMzTS, WN6L hSSMACE AIM SM (ante itn elIme oa 0\.a\. Soi at ca t pic_ 7F& 0 69/7C 3S2/73 1/74 3F 74/75 22U176 19 76/7 j-77/7 78179 aza/at t970l3980 S W2A EUAAC OF PA101WTS evOrt (tncl\. YPs) 515 380 384 440 401 450 -475 -305 550 6\.9 -639 \.747 -960 -1,236 1,471 1\.395 1\.495 1\.555 -1\.62\. 5\.2 ResoirCDoh\.Ance 1-8) \.124 -367 -t -796 r 545 1,020 -1,050 -1\.070 4\.2 Interast (nrt) Direct Inrv-eent Incose 1 Workers' Rsittec I\. 38 it -28 -20 -28 -20 -30 -40 12\.6 n onCurrertca (ut) \., - 32- -] 4 45 Private Direct Ivstment\. Official Capital rant \. 190 363 396 241 250 250 250 230 Public 9611 Loan Diaburmoents 95 277 327 664 703 Boo 875 875 7\.6 $Rjace - - -10 -4 -34- - 20 -60 -95 -65 9\.2 Other tT Loan 2\.b1ursoeot\. 71 36 62 -- \. \. \. \. -- -rsz" i icnt s 7 ; 62 1C6 \. \. \. - IGe Capital Transactions o\.e\.i\. _\. \.q -94 35 1 7 74 74/75 ml7 /76 Cba= in Net fleerra & - sicrase) _ _ -20 43 -152 98 j 7 1 3 73 15/7 roa \. Race9cca (end Period) - b07 64 236 8 \. Shd 36 185 497 1,145 1,625 Official Grants & Qenit-7lka 465 150 368 270 Diteret om Public Debt - - 7 10 I7 Re 7quente tn Public Debt - _ 10 54 52 Public YAW IDUU Total Pablic Debt Sertc 17 64 69 IE - D - - Other Debt Sat (t) IDA _ 68 74 150 180 Total Debt Service (Cnt) \. \. \. Other - - - - - Other Multilaterel 611 17 87 90 Thuidon n lport DerSap (5) Qovernnts -- 286 289 632 416 Sucepplir - 47 57 63 30 Public Debt Service \. \. 5\.1 14\.3 17\.2 Financial Institutions -- -- -- - - Total Debt SerYle\. Rnnds -- -- -- -- -- TDS2d0rect 7Jet\. inc\. Public Loans n\.e\. -- __ __ __ Total Pab1\.1 lc iLT lueaM -- 407 437 932 716 Averqe Tewa of PbLic Debt Actual Debt Octetatdng on June 30 1875 Oct\. S F Pror Teer D15\. \. 1\.4 0\.9 1\.0 EXTERN AL PDrce h\.rt\. as S Prior Ye rw 80 \. \. 2\.0 4\.7 3\.2 Wbrld gank 54\.8 4\.8 IlDA 255\.3 22\.3 131 hbot Oat\. & Dsbarned Other IJultilateral 8\.8 0\.8 0 S PUblic Dbt 06iD - - - 4\.8 3\.4 Oovonants 680\.1 59\.4 ' S Public Debt SBce - - - ScppliArs 119\.9 10\.5 Finecian l Institutiono 25\.5 2\.2 793A Debt Oat\. & ItMbau2ed Bonds A % POW'i Debt 011k 8\.8 21\.2 22\.3 21\.5 Public Dbbts n\.e\.i - - e PujlIc Debt Se\.'i,e - - 1\.4 1\.1 2\.5 Total Public HItiLT Debt -10\. Other lltLT Debts -- Short-tere Debt (disb\. only) 20\.7 cot applicable a staff eatirte cot o-vaiUble - ni7 or a7igi\.bla \. not aailable sparetedy -- lees tbe half tbe but included in total Ileet unit ebctn = 5otiactoi- are codes-ay beto the OCovnt of Ra-Sideh end varos bileratel ad aultilateral dasca Coaceraing the austic1of a p\.elti of the debt coctracctd by \.t- ore- anglade\.3h baecc idepeodsot\. anttl iuch Cagotietiona tc cVpletad it is aot pesabibla to estimate prcttoely Bn1ledeb ta\.l public debt or debt as\.vice\.  ANNEX II Page 1 BANGLADESH STATUS OF BANK GROUP OPERATIONS As of February 29, 1976 A\. IDA Credits to Bangladesh US$ Million Net Credit of Exchange Adjustment Number Year Purpose Amount Undisbursed 339 1972 Cyclone Area Reconstruction (re- places Credit No\. 228-PAK of 1971) 25\.0 13\.0 340 1972 Chandpur Irrigation II (replaces Credit No\. 184 of 1970) 13\.0 8\.8 341 1972 Tubewells (replaces Credit No\. 208-PAK of 1970) 14\.0 6\.1 343 1972 Telecommunications (replaces part of Credit No\. 145-PAK of 1969) 7\.3 1\.8 345 1972 Reconstruction Imports 50\.0 0 353 1973 Small-scale Industry (replaces Credit No\. 192-PAK of 1970) 3\.0 0\.4 367 1973 Chittagoag Water Supply (replaces Credit No\. 42-PAK of 1963) 7\.0 2\.1 368 1973 Dacca Water Supply and Sewage (replaces Credit No\. 41-PAK of 1963) 13\.2 1\.8 S-14 1973 Irrigation Engineering (replaces Credit Nos\. S-8-PAK and S-10-PAK of 1969 and 1970) 3\.15 0 381 1973 Foodgrain Storage (replaces Credit No\. 83-PAK of 1966) 19\.7 0\.8 407 1973 Education (replaces Credit Nos\. 49-PAK and 87-PAK of 1964 and 1966) 21\.0 9\.7 408 1973 Highways (replaces Credit No\. 53-PAK of 1964) 25\.0 17\.4 409 1973 Technical Assistance 4\.0 3\.0  ANNEX II Page 2 of ll US$ Million Net Credit of Exchange Adjustment Number Year Purpose Amount Undisbursed 410 1973 Cereal Seeds 7\.5 6\.6 424 1973 Inland Water Transport-Rehabilitation 8\.7 6\.8 458 1974 Imports Program 50\.0 1\.8 487 1974 Second Telecommunications 20\.0 19\.2 515 1974 Third Imports Program 75\.0 12\.4 527 1975 Ashunganj Fertilizer 33\.0 31\.0 529 1975 Consolidation Credit 31\.0 0 533 1975 Population 15\.0 14\.9 542 1975 Barisal Irrigation 27\.0 27\.0 591 1975 Fourth Imports Program 100\.0 85\.0 605 1976 Karnafuli Irrigation 22\.0 22\.0 /L 1976 Agricultural and Rural Training 12\.0 12\.0 606\.55 303\.60 Principal Repayment 0\.20 Credits held by Association 606\.35 B\. IBRD Loans to Bangladesh 1087 1975 Consolidation Loan 54\.9 0 TOTAL 661\.25 303\.60 /L Approved by Executive Directors March 18, 1976\.  ANNEX II Page 3 ot 11 C\. PROJECTS IN EXECUTION -/ Cr\. No\. 339 Cyclone Area Reconstruction Project; US$25\.0 Million Credit of October 18, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1976 Implementation of the original project, financed under Credit No\. 228-PAK of 1971, had not commenced prior to the suspension of disbursements\. The repair work on damaged port terminal buildings has been completed and re- pairs of landing facilities are expected to be completed in mid 1976\. Contracts have been signed for all equipment component of the telecommunications sys- tem\. Earthwork has 'been completed for about 50% of primary roads, and 70 cyclone shelters are under construction or complete\. Activation of the cyclone warning system is expected soon\. Progress was slow initially due in part to administrative delays and the severe shortages of construction materials in Bangladesh\. Construction materials are now available, progress has improved somewhat\. Project completion is expected to be about two years behind the schedule anticipated at appraisal\. In June 1974, the Government submitted to the Association a proposal for reducing the scope of the project in order to cope with the sharp increase in construction costs since the Project was appraised\. The proposal involved reductions in the feeder roads to be financed by the Credit (financing for these roads has been obtained from the World Food Program), reductions in the fisheries subproject, and minor reductions in other project items\. Given the very early stage of procurement under the project, it was decided not to formally amend the project at that stage, and it was agreed that the Government's proposals for reducing the project provided a reasonable basis for proceeding for the time being\. A revised proposal from the Government based upon revised cost estimates, concerning the amendments required in the project description and allocation of the amounts of the credit to each subproject has just been received and is under review\. Cr\. No\. 340 Chandpur Irrigation II Project: US$13\.0 Million Credit of October 18, 1972: Effective Date: JanuaryJ1 1973; Closing Date: December 31, 1977 The Project is far behind schedule and continues to be plagued with problems\. Major flooding, work stoppages caused by 100% increase in con- struction labor costs, shortages of cement, fuel, and operable construction equipment, ineffective management, inadequate provision of local funds and general inflation are factors which have delayed project construction\. There is some improvement in construction recently\. Outstanding contractor claims have recently been resolved\. Manufacture of the electrical and mechanical equipment for the regulators and pumping plant has been completed, and 1/ These notes are designed to inform the Executive Directors regarding the progress oE projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them\. They should be read in this sense, and with the under- standing that they not purport to present a balanced evaluation of strengths and weaknesses in project execution\.  ANNEX II Page 4 of 11 delivery is being made to the sites\. Delays in finalizing the low-lift pump specifications by WDB retarded procurement\. Tenders have now been issued\. Continuing inflation and other adverse factors are expected to increase the Project costs substantially over the appraisal estimate\. Cr\. No\. 341 Tubewells Project; US$14\.0 Million Credit of November 6, 1972; Effective Date: January 13, 1973; Closing Date: December 31, 1976 This project was originally financed by IDA Credit No\. 208-PAK of 1970 and credits from Sweden and Canada\. Although bids had been received in 1971, no contracts were awarded before Bangladesh independence\. The present Credit is again in conjunction with a Credit from Sweden and a grant from Canada\. Construction on this project began during January 1974\. In April 1974, IDA approved award of the contract for supply of the well pumps and engines\. Due to initial delays, present implementation is about 18 months behind schedule\. In January 1974, the Government and the engineering con- sultants signed a revised contract providing for the additional engineering and agriculture consulting services needed for the project\. In February 1974, the agricultural consultants (who were under sub-contract to the engineer- ing consultants) withdrew from the project, stating that the salary scales in the revised contract signed by the engineering consultants were inadequate to attract staff of the calibre required for the project\. Proposals to replace the agricultural consultants and expand their activities have been agreed in principle by the Government, and the financing of the additional agricultural consultant costs is currently under consideration by a bilateral aid agency\. Drilling of the tubewells has progressed satisfactorily in the past construc- tion\. Cr\. No\. 343 Telecommunications Project: US$7\.3 Million Credit of November 15, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1978 - The project was originally financed as part of Credit No\. 145-PAK of 1969, and goods and services valued at about US$2\.2 million were received in Dacca prior to suspension of disbursements\. Three out of the four micro- wave systems in the Project are under installation and are scheduled to be commissioned by March 1976, and about one year behind schedule\. The fourth system is a replacement of a coaxial cable system in the original project\. This change was agreed to by IDA and was caused by price increases demanded by the original contractor which made the choice of a microwave system more economical\. The bid invitation for this sytem has been included with the bids that have already been invited for other microwave systems under Credit 487-BD\. Even so, the system is scheduled to be commissioned in late 1977 or early 1978\. The Closing Date for this Credit has been extended from December 31, 1975 to June 30, 1978\.  ANNEX II Page 5 of 11 Cr\. No\. 353 Small-Scale Industry Project; US$3\.0 Million Credit of January 19, 1973; Effective Date: May 14, 1973; Closing Date: June 30, 1976 The Project was originally financed by IDA Credit No\. 192-PAK of 1970\. The Credit has financed notional repayment of amounts previously disbursed under Credit No\. 192-PAK (US$187,000) and payment of outstanding amounts for consulting services performed under Credit No\. 192-PAK (US$12,000)\. Disbursements for new activities up to January 31, 1976 amounted to approximately US$2\.4 million\. The balance amount available is expected to be disbursed during 1976\. A UND'/UNIDO technical assistance project has made some limited progress toward the reorganization of BSIC\. Cr\. No\. 367 Chittagong Water Supply Pro ect; US$7\.0 Million Credit of Aprl 9, 1973; Effective Date: June 7, 1973 Closing Date: June 30, 1976 The project was originally financed by IDA Credit No\. 42-PAK under which US$3\.3 million was disbursed\. The work has progressed at a slow rate, but will improve now that several civil works contracts are under way\. Phys- ical progress had been curtailed by lack of cement, slow delivery of pipe, and slow preparation of designs and contract documents\. While the immediate requirements for pipe and cement are on hand, several supply and construc- tion contracts are yet to be tendered\. WASA has been requested to hasten the preparation of contract documents and the tendering for this work\. Man- agement, labor and union problems are now being better addressed following the appointment of the new Chairman\. W4hile collection performance has im- proved, financial operations and financial management remain weak\. The Gov- ernment has increased the water rates by 50 percent effective July 1, 1975\. However, unless the performance in billing and collection improves and leak- age is reduced, further rate increases would be necessary to meet the finan- cial covenants of the Credit Agreement\. The Association has agreed to extend the Closing Date by one year to June 30, 1976\. At that time a decision will be made, based upon the progress over the year in meeting the financial cov- enants, as to whether or not to extend the Closing Date for the additional 1 to 1-1/2 years required to complete the project\. Cr\. No\. 368 Dacca Water and Sewerage Project; US$13\.2 Million Credit of April_91L973; Effective Date: June 7, 1973 Closing Date: June 30,_1976 The project was originally financed by IDA Credit No\. 41-PAK of 1963\. By December 1971, when disbursements were suspended, US$6\.0 million had been disbursed\. The work has progressed at a slow rate but will improve now that several civil works contracts are under way and tubewell materials and equipment have been delivered\. Right-of-way acquisition and contractor performance continue as major problems\. Management and labor problems con- tinue, and financial operations and the financial condition of the WASA remains weak\. The Covernment has increased the water rates by 50 percent, effective July 1, 19I75\. However, unless performance in billing and collec- tion improves and leakage is reduced, further increases would be necessary  ANNEX II Page 6 of 11 to meet the financial covenants of the Credit Agreement\. The Association has agreed to extend the Closing Date by one year to June 30, 1976\. At that time a decision will be made, based upon the progress over the year in meet- ing the financial covenants, as to whether or not to extend the Closing Date for the additional 1 to 1-1/2 years needed to complete the project\. Cr\. No\. 381 Foodgrain Storage Project; US$19\.7 Million Credit of May 18, 1973; Effective Date: July 17, 1973; Laosing Date: June 30, 1976 The project is also financed by a credit from the Kingdom of Sweden of 25\.0 million Kroner\. The project was originally financed by US$19\.2 million IDA Credit No\. 83 of 1966 and a 25 million Kroner credit from the Kingdom of Sweden\. The project was almost completed at the time of Bangladesh's independence and 95% of the present IDA and Swedish credits were used for repaying the previous credits\. The remaining funds (US$1\.25 million from IDA and about US$0\.25 million equivalent from Sweden) are being used to pay outstanding bills for work completed prior to the war, comple- tion of some supporting facilities for the grain storage silos, replacement of spares and equipment damaged during the war, and a feasibility study for a second grain storage project\. The designs for the jetty modifications have been approved and we are awaiting receipt of proposed arrangements for con- struction\. The feasibility study for a second grain storage project was completed in October 1975\. Supervision missions have reported serious deterio- ration in the silos mechanical equipment due to inadequate maintenance\. The management and staffing of the Directorate of the Silos is inadequate\. Delays in ordering spare parts (for which funds are available under the Credit) increase the risk of breakdown\. The Government has agreed interalia (i) to employ consultants to improve foodgrain storage management, (ii) tc release local funds required for ancillary civil works for the project, (iii) to fill all managerial, technical, and administrative vacancies by June 30, 1976 and (iv) to finalize the contract award for jetty construction by June 30, 1976\. Based upon these assurances the Association agreed that the Closing Date for this Credit which had originally been December 31, 1974 be extended for a second time from December 31, 1975 to June 30, 1976\. The Government was informed that any further extensions of the Closing Date required to complete the project would be considered only if the Government has met its commitments concerning steps to be taken to improve silo maintenance and operations\. Cr\. No\. 407 Education Project; US$21\.0 Million Credit of June 29, 1973; Effective Date: September 27, 1973; Closing Date: June 30, 1978 The project was originally financed by two IDA Credits 49-PAK and 98-PAK\. By December 1971, when disbursements were suspended, US$7\.7 million had been disbursed out of the US$17\.5 million aggregate total of the two former credits\. The Credit 407-BD added US$3\.5 million to the total of the orig-dal Ciedits, in order to help the Government meet part of the increases  ANNEX II Page 7 of 11 in total project cost\. Progress on the Agricultural University portion of the project was delayed initially due to difficulties in reaching agreement with the consultant architects on a revised contract\. Construction has also been delayed due to shortage of building material, delays in the preparation of equipment lists, and furniture designs\. The recent devaluation of the Taka has considerab]y reduced the cost overruns\. Without including price and physical contingencies, the cost of the project is now estimated at 58% over the appraisal estimates in Taka terms, but only 10% when expressed in US dollar equivalent\. The Government has submitted to IDA proposals for modification of the project to meet the cost overrun\. These proposals are currently under review\. Implementation is about 24 months behind the appraisal schedule\. Progress on the technical education portion of the project is about 12 months behind the appraisal schedule\. The graduates are facing severe problems of tnemployment, and the curriculum needs revision to make it more relevant to job requirements\. The Government will be making recom- mendations on the development plan of the Agricultural University shortly\. Cr\. No\. 408 Highways Project; US$25\.0 Million of June 29, 1973; Effective Date: September 27, 1973 Closi\.ng Date: December 31, 1977 The project was originally financed by IDA Credit No\. 53-PAK\. By December 1971, when disbursements were suspended, US$3\.62 million had been disbursed, out of the original credit of US$22\.5 million\. The new credit adds US$2\.5 million to the original credit amount, in order to help the Government meet part: of the increase in total project cost as a result of currency realignment:s\. Four construction contracts were signed in September 1973 for the Sitalakhya Bridge and the Feni Section of the Dacca/Chittagong road worth about US'$9\.2 million\. A fifth contract with consultants for construction superv lsion was signed in February 1974 but they were in the field earlier\. Shortage of spare parts, administrative delays and deficien- cies in some contractors performance have delayed certain elements of the project\. Construction of the 1300-foot bridge over the Sitalakhya River previously on schedule is now likely to be completed two years behind schedule, in mid-19;8 due to technical difficulties compounded by poor contractor performance\. However, the twenty-mile Feni bypass road construc- tion project is weli\. on the way to completion, and plans for paving the road are now under preparation\. The estimated cost of civil works has increased by about 60%, in line with worldwide trends\. However, the total overall project cost increase is considerably less, being about 25%\. Disbursements, which in the past have been slow, show signs of improvement\. Cr\. No\. 409 Techlical Assistance Project; US$4\.0 Million Credit of June 29, 1973; Effective Date: August 20, 1973; Closji\.ng Date: December 31j 1977 After a s:Low start, the Government has recently begun to take advantage of the funds available under this credit for preinvestment plan- ning, feasibility studies and technical assistance for agencies involved in  ANNEX II Page 8 of 11 project planning and implementation\. Contracts have been signed with con- sultants for seven projects with an allocation from this Credit of about $1\.3 million\. These studies have played a key role in the preparation of the Ashuganj Fertilizer Project and three other projects which are under con- sideration for FY76 and FY77\. Another six subprojects involving $2\.3 mil- lion of credit funds have been recently approved and arrangements for selec- tion of consultants are underway\. Credit funds are expected to be fully committed by June 30, 1976, but some of the studies financed will take up to two years to complete\. The Closing Date for this Credit has been extended from December 31, 1975 to December 31, 1977\. Cr\. No\. 410 Cereal Seeds Project; US$7\.5 Million Credit of June 29, 1973; Effective Date: January 30, 1974; Closing Date: December 31, 1977 The project is about 20 months behind appraisal schedule\. Follow- ing a year of virtual stagnation, the Seed Certification Agency has been established, seed legislation has been drafted and procurement of equipment and construction of buildings has started\. However, serious staffing, pro- curement and financial problems remain\. The Government has been trying to obtain additional bilateral financing to help meet the cost overrun\. However, the Government has now agreed to proceed with the full project, and to meet the full cost overrun if other financing does not become available\. Mean- while, recruitment of key personnel has been extremely slow due to the lengthy procedures required by the Government; appointments are required in particu- lar for the head of the Seed Certification Agency and for the general manager (field) of Bangladesh Agricultural Development Corporation (BADC)\. A full- time official in charge of coordination in the Ministry of Agriculture has just been designated\. Procurement of farm machinery has been held up because of the bidders' failure to comply with tender specifications and by the Government's unsuccessful efforts thereafter to arrange for bilateral finan- cing\. Cr\. No\. 424 Inland Water Transport Rehabilitation Project; US$8\.7 Million Credit of August 10, 1973; Effective Date: September 27, 1973; Closing Date: June 30, 1978 Detailed investigations have indicated that the damage to the Chittagong offshore oil terminal was more severe than previously believed\. Consultants were appointed late in 1973 to study several alternative tech- nical solutions\. An Amending Agreement modifying the project description, in line with the consultants' recommendations, and increasing the amount of the credit from US$4\.1 million to US$8\.7 million was approved by the Execu- tive Directors on September 16, 1975\. The Amending Agreement became effective on March 19, 1976\. The procurement of spare parts, tools and equipment for the Bangladesh Inland Water Transport Authority, Bangladesh Inland Water Trans- port Corporation, Chittagong Port Trust and Bangladesh Engineering and Ship- ping Corporation suffered from initial delays, reflecting in part the lack  ANNEX II Page q nf 1j of familiarity of the agencies with IDA procedures and slowness in reaching decisions as to which spare parts had highest priority\. Progress has now improved and it is expected that all orders will be placed by early 1976\. Disbursements for this portion of the project are expected to be completed by June 30, 1976, one year later than originally anticipated\. Cr\. No\. 458 Imports ProgTam; US$50 Million Credit of February 7, 1974; Effective Date: February 7, 1974; Closing Date: March 31, 1976 By June 1974, licenses for the full amount of the credit had been issued to the various eligible industries\. As of December 31, 1975, dis- bursements amounted to US$48\.0 million and, in addition letters of credit guaranteed by IDA had been opened for US$1\.0 million\. Import orders have been placed for the balance, and the credit is expected to be fully disbursed by the Closing Date\. Cr\. No\. 487 Secondl Telecommunications Project; USS20\.0 Million Credit of June 26, 1974; Effective Date: July 23, 1974; Closing Date: June 30, 1979 Credit became effective July 23, 1974\. Procurement work is well in hand with the major orders expected to be placed by March 1976\. Local telephone expansion lhas lagged about a year behind schedule due to slower than expected deliveries from the local factory (hampered by labor unrest)\. However, the factory production is now picking up and the shortfall in project targets is expected to be made up by 1977\. According to present cost estimates, fore:Lgn costs are likely to be within the original estimates\. The local costs will increase from Tk 470 million to Tk 680 million due to higher labor and construction costs and the imposition of a 20% tax on all imported goods\. Under the Credit Agreement, BTT is to establish a modern accounting system and is to be transformed into a Board with adequate auton- omy\. Accounting consultants have been appointed\. The Board was legally established before the June 30, 1975 deadline, but the ordinance was revoked almost immediately thereafter\. A new ordinance establishing a Telecommunica- tion Board was recently promulgated\. We are waiting further information on the regulations under which the new Board will operate\. Cr\. No\. 515 Third Imports Program; USS75 Million Credit of October 9, 1974; Effective Date: October 10,_1974; Closii Date: December 31, 1976 Provision was made to reimburse the Government for up to USS10 mil- lion for eligible imports paid for after JUlY 1, 1974, but prior to the date of the credit\. Disbursements amounted to USS59\.6 million as of December 31, 1975, and in addition letters of credit guaranteed by IDA amount to USS6\.9 million\. The Credit approved on October 9, 1974 was for US$50 million, but  ANNEX II Page 10 of 11 after the Fourth IDA Replenishment Agreement became effective, an amendment increasing the credit amount was approved on February 27, 1975\. The Amend- ing Agreement was signed on March 10, 1975 and became effective on April 7, 1975\. The Government has allocated the full amount of the Credit among the various eligible industries, and import orders are being processed\. It is expected that by March 1976 the bulk of disbursements would have taken place\. Cr\. No\. 527 Ashuganj Fertilizer Project; US$33 Million Credit of February 11, 1975; Effective Date: December 19, 1975; Closing Date: December 31, 1982 Project is being cofinanced by Asian Development Bank, KfW, and the Governments of Iran, Switzerland, UK and US, providing a total of $109 million equivalent in addition to the IDA credit\. Site preparation work is proceeding on schedule, but, overall, the project is about six months behind schedule due primarily to delays in awarding the General Engineering and Management Assistance Contracts\. These contracts were signed in late November/early December and the firms are expected to commence work in Bangladesh early in 1976\. Commencement of commercial production is now expected by February 1979\. Cr\. No\. 533 Population Project: US$15 Million Credit of February 11, 1975; Effective Date: September 25, 1975; Closing Date: December 31, 1982 Project is being confinanced by six co-lenders providing a total of about $25 million equivalent in addition to the IDA credit\. Notwithstanding the delay in declaring the Credit effective, the Government has made substan- tial progress in project implementation\. The organizational structure of the Population Control and Family Planning Division (body responsible for the population program) has been defined and its staff is being placed in position\. The Population Program Officers, who are responsible for the population programs of five non-health ministries, have been trained abroad and have initiated the schemes of their respective ministries\. A contract with architectural consultants for the Building, Planning and Design Unit of the Ministry of Health has been signed\. The Government is proceeding with the selection of required consultants and advisors for other parts of the project\. However, because of institutional problems, the implementation of a few project components is some months behind schedule\. In particular, the Government has still to formally appoint a number of key personnel\. Cr\. No\. 542 Barisal Irrigation Project; US$27 Million of April 29, 1975; Effective Date: September 30, 1975 Closing Date: December 31, 1980 Project consultants are mobilizing staff\. Procurement of local construction materials and construction of office and storage accommodation in Barisal is proceeding\.  ANNEX II Page 11 of 11 Cr\. No\. 591 Fourth Imports Program; US$100 million of November 25, 1975; Effective _Date: December -29,1975; Closing Date: September 30, 1977 Cr\. No\. 605 Karnafuli Irrigation Project; US$ 22 Million of January 28, 1976; Effective Date: February 24, 1976; Closing Date: December 31, 1980  ANNEX I,L BANCLADESH - TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrower: People's Republic of Bangladesh Amount: US$7\.5 million equivalent Terms: Standard Project Description: Technical assistance in pre-investment plan- ning, feasibilitv and engineering studies, consulting and advisorv services and train- ing for staff agencies responsible for proj- ect planning or implementation\. Fmphasis would be on agriculture and water develop- ment sectors\. Financing Plan: Credit would finance 100 percent of the for- eign exchange costs and 70 percent of local currency costs of consultants, whether fot- dign or local and whether hired directly or Is sub-consultants, and the foreign exchange :osts of ;i,aterial and equipment procured by :he Government in support of such consult- ants' services, training programs or over- seas travel to work with consultants\. Estimated US$ Million Disbursements FYC77 FY'78 FY'79 FY'80 Annual 2\.0 3\.5 1\.5 0\.5 Cumulative 2\.0 5\.5 7\.0 7\.5 Procitement Arrangements: All contracts for consultant services would be subject to prior approval of the Association\.

APPROVAL

P174461

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اﻹﻧ ﺎﺋﻲ اﻟ ﻘ ح‬ ‫ﻊ اﺳ ﺎر‬ ‫ات‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗ‬ ‫ع ﻓﻲ ﻣ ﺎﻋ Ø© اﻟ ﻣﺔ ﻋﻠﻰ ﺗﻬ ﺔ ﺑ ﺔ ﻣ اﺗ ﺔ ﻟﻠ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ ﺗ‬ ‫ﯾ ﻞ اﻟﻬ ف اﻹﻧ ﺎﺋﻲ ﻟﻬ ا اﻟ و‬ ‫ات واﻟ ﻣﺎت اﻟ ﻗ ﺔ وﺗﻌ ﻬﺎ‪\.‬‬ ‫اﻟﻘ ﺎع اﻟ ﺎص ﻓﻲ ﻫ ا اﻟ ﺎل‪ ،‬واﻟ ﺎﻋ Ø© ﻓﻲ اﻋ ﺎد اﻟ ﻬﺎر‬ ‫اﻟ ّ ﻧﺎت‬ ‫وﻧﻲ‬ ‫اﻹﻟ‬ ‫‪ \.1‬اﻟ ﺔ اﻟ ﻗ ﺔ واﻟ‬ ‫ل اﻟ ﻗ ﻲ وﺗ ﺔ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ‬ ‫‪ \.2‬اﻟ‬ ‫ع‬‫و‬ ‫‪ \.3‬إدار‬ ‫ة اﻟ‬ ‫ﻠﺔ‬ ‫‪ \.4‬ﻣ ِّ ن اﻻﺳ ﺎ ﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار اﻟ‬ ‫ع )ﻣﻠ ن دوﻻر(‬‫و‬ ‫ﻞ اﻟ‬ ‫ﺑ ﺎﻧﺎت ﺗ‬ ‫‪NewFin1-‬‬ ‫ﻣﻠ‬ ‫‪11\.00‬‬ ‫ع‬‫و‬ ‫إﺟ ﺎﻟﻲ ﺗ ﻠﻔﺔ اﻟ‬ ‫‪11\.00‬‬ ‫ﻞ‬ ‫ع اﻟ‬ ‫ﻣ‬ ‫‪10\.00‬‬ ‫ﺔ‬ ‫‪/‬اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ‬ ‫اﻟ وﻟﻲ ﻟﻺﻧ ﺎء واﻟ ﻌ‬ ‫ﻣ ﻬﺎ اﻟ‬ ‫‪0\.00‬‬ ‫ﻠﺔ‬ ‫اﻟﻔ Ø© اﻟ‬ ‫‪Page 2 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫اﻟ ﻔﺎﺻ ﻞ‬ ‫ون‪/‬ﻣ ﺎﻫ ن ﻣ اﻟﻘ ﺎع اﻟ ﺎص‬ ‫ﻣ‬ ‫اﻟ ﻠﻎ‬ ‫اﻟ ْﯾ‬ ‫اﻟ ﻠﻎ‬ ‫ﺎﻫ ﺔ‬ ‫اﻟ‬ ‫‪10\.00‬‬ ‫دﯾ ن ﻣ ﻣ ﺳ ﺎت دوﻟ ﺔ‬ ‫‪1\.00‬‬ ‫ﺣ ﻣﺔ‬ ‫ﻣ ﺎﻫ ﺎت ﻏ‬ ‫‪10\.00‬‬ ‫ﺔ )اﻋ ﺎد‪/‬ﻣ ﺔ(‬ ‫اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ‬ ‫‪1\.00‬‬ ‫ﻣ ﺎﻫ ﺎت ﻣ اﻟﻘ ﺎع اﻟ ﺎص‬ ‫‪10\.00‬‬ ‫‪1\.00‬‬ ‫اﻹﺟ ﺎﻟﻲ‬ ‫ﺿ ﺎن اﻟ ﻓﻊ‬ ‫اﻹﺟ ﺎﻟﻲ‬ ‫اﻟ ﺔ واﻻﺟ ﺎ ﺔ‬ ‫اﻟ ﺎ‬ ‫ﺗ‬ ‫ﻣ ﺳ ﺔ‬ ‫ﻟﻼﺳ‬ ‫اﻟﻘ ار‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫واﻟ ﻔﺎوض‬ ‫اﻟ‬ ‫اﻟﻌ ﻞ إﺟ اء اﻟ ﻘ‬ ‫أﺟﺎز اﻻﺳ ﻌ اض ﻟﻔ‬ ‫اﻟ ﺎﺟﺔ(‬ ‫)ﺣ‬ ‫ﻗ ار‬ ‫ات أﺧ‬ ‫ب‪ \.‬اﻟ ﻘ ﻣﺔ واﻟ ﺎق اﻟﻌﺎم‬ ‫ﺗﻲ‬ ‫اﻟ ﺎق اﻟﻌﺎم اﻟ ﺎص‬ ‫‪ \.‬وﺗ ﻠﻎ ﻣ ﺎﺣ ﻬﺎ ‪ 23200‬ﻠ ﻣ‬ ‫ﺳ ﺔ اﻟ ﺧﻞ و ﻐﻠ ﻋﻠ ﻬﺎ اﻟ ﺎ ﻊ اﻟ‬ ‫ﺔ اï»Ø¯ï»§ï»° ﻣ اﻟ ï»  ان اﻟ‬ ‫ﺟ ﺗﻲ ﺑﻠ ﺻﻐ ﻘﻊ ﻓﻲ اﻟ‬ ‫‪\.1‬‬ ‫ﻻر‪ ،‬ﻋﻠﻰ ﻣ ﻊ اﻟ ﺎء‬ ‫ﺎد ﺟ ﺗﻲ‪ ،‬وﻫ اﻗ ﺎد ﺻﻐ ï»» ﯾ ﺎوز ﺣ ﻪ ﻣﻠ ﺎر دو‬ ‫ﻣ ﻊ‪ ،‬و ﻠﻎ ﺗﻌ اد ﺳ ﺎﻧﻬﺎ ﻧ ﻣﻠ ن ﻧ ﺔ‪ \.‬ﻌ اﻗ‬ ‫ﺣ اﻗ ﺎد ﺟ ﺗﻲ ﻣ ﻗ رﺗﻬﺎ ﻋﻠﻰ ﺗ ﻊ أﻧ ﺔ اﻻﻗ ﺎد‪ ،‬و ﻣ اﻋ ﺎدﻫﺎ ﻋﻠﻰ‬ ‫ر ﻓﻲ اﻟﻌﺎﻟ ‪ \.‬و‬‫اﻟ ﯾ اﻟ ُﻌ أﺣ أﻛ اﻟ اﻧﺊ ﺗ ا‬ ‫اï»ïº³ اق‪ \.‬وﻓﻲ ﻣ اﺟﻬﺔ ﻣ ﺟﺎت اﻟ ﻔﺎف اﻟ ﺎﻟ ﺔ اﻟ ﻲ أدت إﻟﻰ ﺗﻔﺎﻗ اﻧﻌ ام اï»ï»£ اﻟﻐ اﺋﻲ‬ ‫اï»ïº³ اق اï»ïºŸ ﺔ‪ ،‬ﻣ ﺎ ﻌﻠﻬﺎ أﻛ ﻋ ﺿﺔ ﻟﻠ ﺄﺛ ﺑ ﻘﻠ ﺎت‬ ‫ﻧ ‪ %75‬ﻣ اﻟ ﺎن ﻓﻲ اﻟ ن‪ - 1‬ﻧ ‪ %58‬ﻓﻲ اﻟﻌﺎﺻ ﺔ ﺟ ﺗﻲ وﺣ ﻫﺎ‪\.‬‬ ‫ﺔ‪ ،‬و‬ ‫واﻟ ﺎﺋﻲ‪ ،‬اﺳ ﻘ اﻟ و اﻟ ﺣﻞ ﻓﻲ اﻟ ﺎ اﻟ‬ ‫ات اﻟ ﻣ ﺔ اﻟ Ø© ﻓﻲ ﻣ وﻋﺎت اﻟ ﺔ اﻟ ﺔ واï»ï»§ ﺔ‬ ‫ام ﻓﻲ اﻟ ات اï»ïº§ ة‪ ،‬ﻔ ﻞ اﻻﺳ ﺎر‬ ‫وز‬ ‫ادت وﺗ Ø© ﺳ ﻋﺔ اﻟ اﻻﻗ ﺎد واﻟ‬ ‫‪\.2‬‬ ‫ﻛ ﻔﺔ اﻻﺳ ام ﻟ أس اﻟ ﺎل ﻻﺳ ﻐﻼل اﻟ ﻗﻊ اﻟ ﻐ اﻓﻲ اﻹﺳ اﺗ ﻲ ﻟ ﺗﻲ‪ \.‬وﻋﻠﻰ ﻣ اﻟ ات اﻟﻘﻠ ﻠﺔ اﻟ ﺎﺿ ﺔ‪ ،‬ﺣﻘ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ اﻟ ﻘﻲ‬ ‫ﻻا‬ ‫ر‪ 3\.‬و ﺎن ﻫ ا‬ ‫اﻟﻔ د ﻣ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﻓﻲ ﻋﺎم ‪ 2019‬ﻋﻠﻰ ‪ 3667‬دو‬ ‫ادت ﻋﻠﻰ ‪ %7‬ﺳ ﺎ ﻓﻲ اﻟ ﺳ ‪ 2‬و ﺎﻟ ﺎﻟﻲ ز‬ ‫اد ﻣ ﺳ ﻧ‬ ‫ﻣﻌ ﻻت ﻧ ز‬ ‫اء‪\.‬‬ ‫ﺎ ﺟ ب اﻟ‬ ‫ﺔ ﻓﻲ ﻣ ﻘﺔ أﻓ‬ ‫اﻟ‬ ‫ن اﻟ ﺎ‬ ‫ﻣ اﻟ ﺎن ﻘ‬ ‫‪ 1‬ﺗﻌ ﺟ ﺗﻲ ﻣ اﻟ ï»  ان اﻟ ﻲ ﺑﻬﺎ أﻋﻠﻰ ﻧ‬ ‫‪ 2‬ﻣ ‪ 2014‬إﻟﻰ ‪2019‬‬ ‫ﻣﻌ ﻻت ﻧ‬ ‫ﺣﻘﻘ‬ ‫اﻟﻔ د ﻣ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ‪ ،‬ﺣ‬ ‫ﻧ‬ ‫ﺎ ﻣ ﻋﺎم ‪ 2000‬ﻣ ﺣ‬ ‫اï»Ùˆïº³ Ùˆïº ïºŽÙ„ أﻓ‬ ‫ق‬ ‫‪ 3‬ﻛﺎﻧ ﺟ ﺗﻲ واﺣ Ø© ﻣ أﺳ ع اﻟ ï»  ان ﻧ ا ﻓﻲ ﻣ ﻘﺔ اﻟ‬ ‫أﺳ ع ﻣ اﻟ ï»  ان اﻟ ﺳ ﺔ ذات ﻣﻌ ﻻت اﻟ ﺔ اﻟ ﺎﺛﻠﺔ‪\.‬‬ ‫‪Page 3 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ة ة‪ ،‬واﻟ ﻲ ﺗﻘ ر ﺑ ‪ %57‬ﻣ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﻓﻲ اﻟ ﺳ ﻓﻲ ﻓ Ø© اﻟ ات‬ ‫ر‬ ‫ات اﻟ ﻟﺔ ﻣ اﻟ ﯾ ن‬‫ﺎﻻﺳ ﺎر‬ ‫اﻟ ﻣ ﻓ ﻋً‬ ‫ﺎ إﻟﻰ ﺣ‬ ‫ات اï»ïºŸ ﺔ اﻟ ïºŽïº Ø© اﻟ ﻲ ﺑﻠﻐ ﻧ ‪ %9‬ﻣ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﺧﻼل اﻟﻔ Ø© ﻧﻔ ﻬﺎ‪ \.‬وﻋﻠﻰ اﻟ‬ ‫‪ ،2016-2015‬واﻟ ﻲ اﺳُ ï»  ﺑ ﻓﻘﺎت اﻻﺳ ﺎر‬ ‫اï»Ø¯Ø§Ø¡ اﻻﻗ ﺎد ﻓﻲ اﻻﺳ ﻘ ار‪ ،‬ﺣ ﯾ ﻗﻊ أن ﯾ ﺎوز ﻣ ﺳ اﻟ ‪ %8‬ﺳ ﺎ ﺧﻼل ﻓ Ø© اﻟ ات ‪2025-2019‬؛ وﻣ‬ ‫اﻟ ﺳ ‪ ،‬ﻣ اﻟ ﻗﻊ أن‬ ‫ﺟﺎﺋ ﺔ روﻧﺎ )ﻛ ﻓ ‪(19-‬‬ ‫‪4‬‬ ‫اﻟ ﻗﻊ أن ﯾ ﻔ ﻧ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ اﻟ ﻘﻲ‪ ،‬ﺄﺳﻌﺎر اﻟ ق اﻟ ﺎﺑ ﺔ‪ ،‬ﺑ ﺔ ‪ %1\.0‬ﻓﻲ ﻋﺎم ‪،2020‬‬ ‫ﻓﻌﺎﻻ ﻋﻠﻰ‬ ‫ïºïºŽï»£ï»¼ ﻟﻠ ﻊ‪ ،‬وﻟ‬ ‫وﻋﻠﻰ اﻟ ﻏ ﻣ أن ﺛ ﺎر اﻟ اﻻﻗ ﺎد اﻟ د ﺑ أت ﺗ ﻓ ﻋﻠﻰ ﻣ ا ﻲ ﺟ ﺗﻲ‪ ،‬ﻓﺈن اﻟ ﻟ‬ ‫‪\.3‬‬ ‫اﻟ أة‪ ،‬ﻣ ﺎ ﯾ أن ز ﺎدة ﻣﻌ ﻻت ﻋ م اﻟ ﺎواة ﻓﻲ اﻟ اﺗﺞ اﻻﺟ ﺎ ﺔ واﻟ ﻔﺎوﺗﺎت اﻟ Ø© ﺑ‬ ‫ﻓﻲ اﻟﻘ ﺎء ﻋﻠﻰ اﻟﻔﻘ واﻟ ﺎﻟﺔ وﺗ‬ ‫ﻧ‬ ‫واﺣ ﻣ ﺑ ﻞ ﺳ ﻌﺔ Ø£ïº ïºŽØµ )‪ ،%14\.5‬ﻓﻲ‬ ‫ﻻ ﯾ ال اﻟﻔﻘ ﻣ ا ﻋﻠﻰ ﻧ ﺎق واﺳﻊ‪ ،‬ﺣ‬ ‫ﺎﻧ ﻟﻬﺎ آﺛﺎر ﺳﻠ ﺔ ﻏ ﻣ ﻌﺔ‪ \.‬و‬ ‫اﻟ ﺎ‬ ‫ﻻر أﻣ ﻲ ﻓﻲ اﻟ م أو أﻗﻞ ) ﻌ ل ﺗﻌﺎدل اﻟﻘ Ø© اﻟ اﺋ ﺔ‬ ‫ﻋﺎم ‪ ،2019‬وﻣ اﻟ ﻗﻊ أن ﺗ ﻫ ﻩ اﻟ ﺔ إﻟﻰ ‪ %15\.3‬ﻓﻲ ﻋﺎم ‪ (2020‬ﻋﻠﻰ ‪ 1\.90‬دو‬ ‫ﻓﻲ ‪ 5(2011‬و ﻠﻎ ﻣﻌ ل اﻟ ﺎﻟﺔ ﻧ ‪%11\.6‬؛ وﻣﻊ ذﻟ ‪ ،‬ﻻ ﯾ ال ﻣﻌ ل اﻟ ﺎﻟﺔ اﻟ ﻘ ﻌﺔ ﻣ ﺗﻔﻌﺎ‪ ،‬ﺣ ﺑﻠﻎ ‪ %47‬ﻓﻲ ﻋﺎم ‪ ،2017‬ﻣﻘﺎرﻧﺔ ﺑ ﺔ‬ ‫ﻞ‬ ‫اﻟﻔﻘ اﻟ ﻗﻊ ﻓﻲ أﺣ ﺎء ﺎﻟ ﺎﻻ اﻟﻔﻘ Ø© اﻟ اﻗﻌﺔ ﻋﻠﻰ Ø£ اف ﻣ ﯾ ﺔ ﺟ ﺗﻲ اﻟﻌﺎﺻ ﺔ وﻓﻲ اﻟ ﺎ اﻟ ﺔ ﺣ‬ ‫‪ %39‬ﻓﻲ ﻋﺎم ‪ \.2015‬و‬ ‫ﺗﻓ‬ ‫ﻌ اﻟ ﺎﻓﺔ واﻧ ﻔﺎض اﻟ ﺎﻓﺔ اﻟ ﺎﻧ ﺔ ﻣﻌ ﻗﺎت رﺋ ﺔ‪ \.‬و ﻌ ض اﻟ ﺎب ﻟ ﺎ ﻓﻘ ان اﻟﻔ ص ﻓﻲ ﺳ ق اﻟﻌ ﻞ‪ \.‬وﻋﻠﻰ اﻟ ﻏ ﻣ ﺗ‬ ‫ة Ø© ﻋﻠﻰ ﻣ اﻟ ات اﻟﻌ اﻟ ﺎﺿ ﺔ‪ ،6‬ﻻ ﺗ ال ﻣﻌ ﻻت اﻟ ب ﻌ اﻟ رﺳﺔ اﻻﺑ اﺋ ﺔ ﻣ ﺗﻔﻌﺔ ﻣﻊ ﺗ ﻧﻲ‬ ‫ر‬ ‫ﺧ ﻣﺎت اﻟ ﻌﻠ اﻻﺑ اﺋﻲ واﻟ ﺎﻧ‬ ‫اﻟ ﺔ‪ \.‬وﻣﻌ اﻟ ﺎب ï»» ﺎر ن ﻓﻲ اﻻﻗ ﺎد اﻟ ﺳ ﻲ‪ ،‬وﺗﻘ ر ﻧ ﺔ اﻟ ﺎﻟﺔ ﺄﻛ‬ ‫ات اﻟﻘ اءة واﻟ ﺎ ﺔ‪ ،‬ﻻ ﺳ ﺎ ﻓﻲ اﻟ ﺎ‬‫ﻣﻌ ﻻت اﻹﻟ ﺎم ﻬﺎر‬ ‫ﻗ ﺎع اﻟ ر‬ ‫ﻻ ﺗﻠ ﻲ ﺑ اﻣﺞ اﻟ ر اﻟ ﻬ ﻲ اﻟ ﺎﺣﺔ اﻟ ï»  اﻟ اﯾ ‪ \.‬و ﺎﻹﺿﺎﻓﺔ إﻟﻰ ذﻟ ‪ ،‬ﯾ‬‫ﻫ ﻋ ‪30‬ﺳ ‪ 7‬و‬ ‫ﻣ ‪ %70‬ﺑ ﻣ ﺗﻘﻞ أﻋ ﺎر‬ ‫ة ﻟﻠ ﺧﻞ ï»» ﺗ ال ﻣ ودة‪،‬‬ ‫ﺔ‪ \.‬ﺎ أن ﻓ ص وﺻ ل اﻟ أة إﻟﻰ اï»ï»§ ﺔ اﻟ ر‬ ‫ة ﺗ ﻓ أﻣﺎﻛ ﻟﻼﻟ ﺎق ﻪ واﻟ ﺎ ﺎة اﻟ ﯾ Ø© ﻟﻠ ﺎ اﻟ‬ ‫ﻌﻒ اﻟﻘ ر‬ ‫ﻟﻼﺳ‬ ‫ﻻ ﺗ ﺎوز اﻟ ﺔ‬ ‫اﻧ ﻔﺎض ﻣﻌ ﻻت ﻣ اï»ï»£ ﺔ ﻟ اﻟ ﺎء‪ ،‬إذ ﺗ ﻠﻎ اﻟ ﺔ ﻟﻠ ﺎء ﻧ ‪) %39\.5‬ﻣﻘﺎرﻧﺔ ﺑ ﺔ ‪ %60\.1‬ﻟﻠ ﺟﺎل( و‬ ‫ﺎ ﻓﻲ ذﻟ‬ ‫ﻻ ﻌﻞ‬ ‫‪ %9‬ﻓﻲ اﻟ ﺎ اﻟ ﺔ‪ ،‬ﻓ ﻼ ﻋ اﻧ ﻔﺎض ﻣ ﺎت اﻟ ﺎق اﻟﻔ ﺎت ﺎﻟ ارس وارﺗﻔﺎع ﻣﻌ ﻻت ﻋ م اﻟ ﺎر ﺔ ﻓﻲ اï»ï»§ ﺔ اﻻﻗ ﺎد ﺔ‪ \.‬و‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﺳ ‪ %19‬ﻣ اﻟ ﺎء ﻣﻘﺎﺑﻞ ‪ %81‬ﻣ اﻟ ﺟﺎل‪ ،‬ﻣ ﺎ ﯾ ﻣ اﻧ ﺎر اﻟﻔﻘ ﺑ اﻟ ﺎء ﻓﻲ ﺟ ﺗﻲ‪\.8‬‬ ‫وﻻ ﺗ ال ﺟ ﺗﻲ ﺗﻌﺎﻧﻲ ﻣ أوﺿﺎع ﻫ ﺎïºïº” وﻣﻌ ﺿﺔ ï»ïº§ ﺎر اﻟ ﻣﺎت‪ ،‬ﺣ ï»° ﻟ ﺧ ﺟ ﻣ اﻟﻘﺎﺋ ﺔ اﻟ ﻘﺔ ï»Ùˆïº¿ïºŽØ¹ اﻟﻬ ﺎïºïº” واﻟ اع‬ ‫‪\.4‬‬ ‫وﺗ ﻔ ﺳ ﺎﺳﺎت ﻋﺎﻣﺔ ﻗ ﺔ ‪ ،‬واﻟ ﻣ‬ ‫‪10‬‬ ‫ة اﻟ ﻣﺔ ﻋﻠﻰ ﺗ‬ ‫ات اﻟ ﺳ ﺔ إﻟﻰ اﻟ ﻣ ﻗ ر‬ ‫واﻟﻌ ﻒ ﻓﻲ اﻟ ﺔ اﻟ ﺎﻟ ﺔ ‪ \.2021‬وﻗ أد ﺿﻌﻒ اﻟﻘ ر‬ ‫‪9‬‬ ‫ﺔ اﻟﻼزﻣﺔ ﻟ ﻌ ﺗ ﺔ اﻟﻘ ﺎع اﻟ ﺎص‪ \.‬وﺗ ﻞ ﺟ ﺗﻲ ﻣ ﺗ ﺔ أدﻧﻰ ﻣ اﻟ ﺳ ﻓﻲ ﻗﺎﺋ ﺔ اﻟ ï»  ان اﻟ ﻫﻠﺔ ﻟﻼﻗ اض ﻣ‬ ‫ﺎت ﻓﻲ ﺎﻛﻞ اﻟ‬ ‫أﻧ اع اﻟ‬ â€«ïº ïº— ر اﻟﻔ ﺎد ﻟﻌﺎم‬ ‫ة إﻟﻰ اﻟﻘ اﻋ ‪ ،‬وﺟ دة اﻹدار‬ ‫ة اﻟﻌﺎﻣﺔ‪ ،‬واﻟ ﻔﺎ ﺔ‪ ،‬واﻟ ﺎءﻟﺔ‪ \.‬و ﺎ ﯾ ﻌﻠ‬ ‫ﺔ اﻟ‬ ‫اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ ﺔ ﺎ ﯾ ﻌﻠ ﺎﻟ‬ ‫‪ 2015‬اﻟ وﺿﻌ ﻪ ﻣ ﺔ اﻟ ﻔﺎ ﺔ اﻟ وﻟ ﺔ‪ ،‬ﺗ ﻞ ﺟ ﺗﻲ اﻟ ﺗ ﺔ ‪ 99‬ﻣ أﺻﻞ ‪ 167‬ﺑﻠ ا‪ ،‬ﻓﻲ ﺣ ﺗ ﻞ اﻟ ﺗ ﺔ ‪ 112‬ﻣ أﺻﻞ ‪ 190‬ﺑﻠ ا ﻓﻲ‬ ‫اﺳ ﻘ ﺎء ﻣ ﻋﺔ اﻟ اﻟ وﻟﻲ ﻟﻌﺎم ‪ 2020‬ﺄن أﻧ ﺔ اï»ï»‹ ﺎل ﻌ أن ﺎﻧ ﻓﻲ اﻟ ﺗ ﺔ ‪ 90‬ﻓﻲ ﻋﺎم ‪ \.2019‬وﺗ ﻞ ﻧﻘﺎ اﻟ ﻌﻒ اﻟ دة ﻓﻲ ﺑ ﺔ‬ ‫ة ﻋ اﻟ ود وﺗﺄﺳ اﻟ ﺎت‪ ،‬ﺣ اﺣ ï»  اﻟ ﺗ ﺔ ‪ ،147‬واﻟ ﺗ ﺔ ‪ 123‬ﻋﻠﻰ اﻟ اﻟﻲ‪ \.‬وﻫ ان ﻣ ﺎﻻن‬ ‫اï»ï»‹ ﺎل اﻟ ﻲ ﺳﻠ ﻋﻠ ﻬﺎ اﻟ ﻘ اﻟ Ø¡ اﻟ ﺎر‬ ‫أن ﺗ ﺎﻋ ﻓ ﻬ ﺎ رﻗ ﺔ أﻧ ﺔ اï»ï»‹ ﺎل‪ \.‬وﺗ آﺛﺎر أوﺿﺎع اﻟﻬ ﺎïºïº” اﻟ ﻲ ﺗﻌﺎﻧﻲ ﻣ ﻬﺎ دول اﻟ ار إﻟﻰ ﺟ ﺗﻲ ﻧﻔ ﻬﺎ‪ ،‬وﻟ ﺟ ﺗﻲ ﺗﺎرﺦ ﻞ‬ ‫وﺣﺎﻓﻞ ﺄﻧ ﺔ اﺳ ﺎﻓﺔ اﻟﻼﺟ واﻟ ﻬﺎﺟ اﻟﻔﺎر ﻣ اï»Ø²ï»£ïºŽØª اﻟ ﺎﺳ ﺔ واﻟ ﺔ‪ ،‬وآﺧ ﻣﺎ ﺣ Ø« اﻟ اع اﻟ اﺋ ﻓﻲ إﺛ ﺎ ﻓﻲ إﻗﻠ ﺗ ا ﻓﻲ ﻧﻬﺎ ﺔ‬ ‫ﻣ اï»ïº£ ﺎن إﻟﻰ ﺗﻔﺎﻗ اﻟ ﻼت اﻟﻘﺎﺋ ﺔ ﻣ ﻗ ﻞ‪ \.‬و أﺛ‬ ‫‪ \.2020‬و ﻞ اﻟﻼﺟ ن إﻟﻰ اﻟ ﻊ ﻋﺎدة ﻓﻲ اﻟ ﺎ اﻟﻔﻘ ة‪ ،‬ﺣ ﯾ د وﺟ دﻫ ﻓﻲ‬ ‫ﺟﺎﺋ ﺔ روﻧﺎ وﺗﻐ اﻟ ﺎخ ﻣ ﺗﻔﺎﻗ ﻫ ﺎïºïº” ﺟ ﺗﻲ‪\.‬‬ ‫ﺎد اﻟ ﻠﻲ واﻟ ﺎر‬ ‫ة واﻻﺳ ﺎر‪\.‬‬ ‫ر‪ :‬اﻟ اﻟ وﻟﻲ‪ ،‬ﻗ ﺎع اﻟ ﺎرﺳﺎت اﻟﻌﺎﻟ ﺔ ﻟﻠﻔﻘ واﻹﻧ ﺎف‪ ،‬وﻗ ﺎع اﻟ ﺎرﺳﺎت اﻟﻌﺎﻟ ﺔ ﻟﻼﻗ‬ ‫‪ 4‬اﻟ‬ ‫ات اﻻﻗ ﺎد ﺔ ﺄن ﺟ ﺗﻲ ‪\.2019 ،‬‬ ‫‪ 5‬ﻣ ﻋﺔ اﻟ اﻟ وﻟﻲ‪ ،‬آﺧ اﻟ‬ ‫ﺗﻲ ﻟﻌﺎم ‪ 2018‬إﻟﻰ أن ﻣﻌ ﻻت اﻻﻟ ﺎق اﻹﺟ ﺎﻟ ﺔ ﺗ ﻠﻎ ‪ %89‬ﻓﻲ اﻟ ﺣﻠﺔ اﻻﺑ اﺋ ﺔ‪ ،‬و‪ %47\.1‬ﻓﻲ اﻟ ﺣﻠﺔ اﻟ ﺎﻧ ﺔ‪،‬‬ ‫ﺔ اﻟ ﻬ ﺔ اﻟ ﺎﺻﺔ‬ ‫اﻟ ر‬ ‫اﺳﺔ اﻟ‬ ‫‪6‬ﺗ‬ ‫و‪ %9\.2‬ﻓﻘ ﻓﻲ اﻟ ﻌﻠ اﻟﻌﺎﻟﻲ‪\.‬‬ ‫ع‪\.‬‬‫ﻟﻠ و‬ ‫ع ﻣ ﺎﻧ Ø© ر ﺎدة اï»ï»‹ ﺎل اﻟ ﺎﺋ ﺔ واﻟ ﺎﺑ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪ ،(P165558‬وﺛ ﻘﺔ اﻟ ﻘ اﻟ‬ ‫‪7‬ﻣ و‬ ‫اﻟ أة ﻓﻲ ﺟ ﺗﻲ‪ \.2020 ،‬وﺗ ﻪ اﻟ ﺎء اﻟ ïºŽïº ïºŽØª ﻓﻲ ﻣ ﺎل اﻻﻗ ﺎد إﻟﻰ اﻟ ﺎر ﺔ ﻓﻲ أﻧ ﺔ ﺗ ﺎرﺔ ﺻﻐ ة‬ ‫وﺗ‬ ‫‪ 8‬اﻟ ﺎﻟﺔ اï»ï»£ ﺔ ﻟﻠ ﺔ اﻟ وﻟ ﺔ‪ ،‬اﻟ ﺎواة ﺑ اﻟ‬ ‫ﻓﻲ اﻟﻘ ﺎع ﻏ اﻟ ﺳ ﻲ‪ ،‬و ﻞ ذﻟ إﻋ اد اï»ï» ﺔ واﻟ ف اﻟ و ﺔ و ﻌﻬﺎ‪\.‬‬ ‫‪https://www\.worldbank\.org/en/topic/fragilityconflictviolence/brief/harmonized-list-of-fragile-situations 9‬‬ ‫ات‪\.‬‬‫ﻗﻊ ﺟ ﺗﻲ اﻹﺳ اﺗ ﻲ وﻣﺎ ﺗ ﻊ ﻪ ﻣ إﻣ ﺎﻧﺎت وﻗ ر‬ ‫‪ 10‬ﻞ ذﻟ اﻟ ﻔﺎوض ﻋﻠﻰ ﻋﻘ د ﻣ ﺎﺳ ﺔ ﻣﻊ ﻣ ﺳ ﺎت أﺟ ﺔ ﻟﻬﺎ اﻫ ﺎم ﻗ‬ ‫‪Page 4 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺔ ﻏ اﻟ ﻘ Ø© أﺻﻼ‬ ‫وأﻣﺎ اï»ïº› اﻻﺟ ﺎﻋﻲ واﻻﻗ ﺎد ï»Ø²ï»£ïº” روﻧﺎ ﻓﻬ ﻣ ﻣ ﻟﻠﻐﺎ ﺔ‪ ،‬ﺣ ﺳﺎﻫ ﻫ ﻩ اﻟ ﺎﺋ ﺔ ﻓﻲ ﺗﻔﺎﻗ اﻟ وف اﻟ‬ ‫‪\.5‬‬ ‫‪،‬ﻓ ﻰ‬ ‫ﻋ ﻓﻘ ان ﻓ ص اﻟﻌ ﻞ‪ ،‬وﺻ ﻣﺎت اï»ïº³ï»ŒïºŽØ±â€ª ،‬وﻏ ذﻟ ﻣ اﻟﻌ اﻣﻞ اﻟ ï»  ﺔ‪ \.‬ووﻓﻘﺎ ﻟ ﺎﻣﻌﺔ ﺟ ﻧ ﻫ‬ ‫ﺔ اï»Ùˆï»Ÿï»° ﺎﻟ ﻋﺎ ﺔ‪ ،‬ﻧﺎ‬ ‫ﻟﻸﺳ اﻟ‬ ‫روﻧﺎ ﻓﻲ ﺟ ﺗﻲ ‪ \.‬وﻓﻲ ﻋﺎم ‪ ،2020‬ﻣ اﻟ ﻗﻊ اﻧ ﺎش ﻧ إﺟ ﺎﻟﻲ‬ ‫‪11‬‬ ‫‪ 9‬أﺑ ﻞ‪/‬ﻧ ﺎن ‪ 2021‬ﺗ ﺗ ﻞ ﻧ ‪ 9722‬ﺣﺎﻟﺔ و‪ 94‬ﺣﺎﻟﺔ وﻓﺎة‬ ‫اﻟ ﺎﺗﺞ اﻟ ﻠﻲ‪ ،‬وﻓﻲ اﻟ ﻗ ﻧﻔ ﻪ ﻣ اﻟ ﻗﻊ زﺎدة ﻣﻌ ﻻت اﻟﻔﻘ اﻟ ﻗﻊ‪ ،‬ï»ÙˆÙ„ ﻣ Ø© ﻣ ﻋﻘ ﯾ ﻣ اﻟ ﻣ ‪ ،‬ﻣ ﺎ ﻘ ض ﻣ ﺎﺳ اﻟ ﺔ اﻟ ﻲ ﺗ ﻘﻘ‬ ‫‪12‬‬ ‫ﺟﻬ د ﺿ أوﺿﺎع اﻟ ﺎﻟ ﺔ اﻟﻌﺎﻣﺔ اﻟ ﻲ ﺑ أت ﻓﻲ ﻋﺎم ‪ ،2015‬و ﺗ ﻋﻠ ﻬﺎ آﺛﺎر ﻏ ﻣ ïºŽïº Ø© ïº ï¯¾ Ø© ﻋﻠﻰ اﻟ ازﻧﺔ‬ ‫روﻧﺎ إﻟﻰ ﺗﻘ‬ ‫اï»ï»§ï»” ‪ \.‬ﺎ ﺗ د‬ ‫اﻟﻌﺎﻣﺔ ﻟﻠ وﻟﺔ ﻓﻲ ﺟ ﺗﻲ‪ \.‬وﻣ اﻟ ﻗﻊ أن ﯾ اﻟﻌ ﻓﻲ اﻟ ازﻧﺔ اﻟﻌﺎﻣﺔ ﻟﻠ وﻟﺔ إﻟﻰ ‪ %2\.3‬ﻣ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﻌ أن ﺎن ‪ %0\.5‬ﻣ إﺟ ﺎﻟﻲ‬ ‫ﻟ ﺎﺋ ﺔ روﻧﺎ‪ \.‬وﻓﻲ أﺑ ﻞ‪/‬ﻧ ﺎن ‪ ،2020‬ﺣ‬ ‫اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﻓﻲ ﻋﺎم ‪ 2019‬ﻧ ﺔ ﻟ اﺟﻊ إﺟ ﺎﻟﻲ اﻹﯾ ادات واﻟ ﻔﻘﺎت اﻟﻌﺎﻣﺔ ذات اﻟ ﻠﺔ ﺎﻟ‬ ‫ﺎر ﻻﺳ ﺎﺑ ﻬﺎ ﻟﻠ ﺎﺋ ﺔ ﻋﻠﻰ اﻟ ﻌ ﯾ اﻻﺟ ﺎﻋﻲ واﻻﻗ ﺎد ‪ \.‬و ز ﻫ ا‬ ‫ﻞ وﺛ ﻘﺔ ﻣ ﺟ ﺔ ﺗ ﻊ Ø¥ ًا‬ ‫اﻟ ﻣﺔ ﻣ ﺎق اﻟ ﺎﻣ اﻟ ﻲ‪ ،13‬اﻟ‬ ‫"اﻟ ﺎق" أﺛ ﺛﻼﺛﺔ ﻗ ﺎﻋﺎت ذات أوﻟ ﺔ واﺣ ﺎﺟﺎﺗﻬﺎ اﻟ ï»  ﺔ‪ ،‬وﻫﻲ‪ :‬ﻗ ﺎﻋﺎ اﻟ ﺔ واﻟ ون اﻻﺟ ﺎ ﺔ وﻗ ﺎع اﻟ ﺂت اﻟ ﻐ واﻟ ﻐ Ø© واﻟ ﺳ ﺔ‪\.‬‬ ‫د ﻓﻲ ﻣ اﺟﻬﺔ اï»Ø²ï»£ïºŽØªâ€¬ ‫ﻠ م ز ﺎدة ﻗ رﺗﻬﺎ ﻋﻠﻰ اﻟ‬ ‫ا ﻻﺳ ﻘ ار ﺟ ﺗﻲ وﺗ ﻬﺎ وﻧ ﻫﺎ‪ ،‬ﻣ ﺎ‬ ‫و ﻞ ﺗﻐ اﻟ ﺎخ Ø£ ﺎ ﺗﻬ ﯾ ا‬ ‫‪\.6‬‬ ‫ﺎخ ﺻ او ﻣﻊ ﻫ ل أﻣ ﺎر ﻣ ﻔ ﻗﺔ‪ ،‬و ﻌﺎﻧﻲ ﻣ اﻧﻌ ام اï»ï»£ اﻟ ﺎﺋﻲ اﻟ ﻣ ‪ ،‬واﻟ ﻣ اﻟ ﻗﻊ‬ ‫اﻟ ﺎﻟ ﺔ واﻟ ﻘ ï»  ﺔ‪ \.‬وﺟ ﺗﻲ ﺑﻠ ﺳﺎﺣﻠﻲ ﯾ‬ ‫ة اﻟ ﯾ Ø© واﻟ ﻔﺎف‪ \.‬ﻓﻌﻠﻰ ﺳ ﻞ‬ ‫أن ﯾ داد ﻓﻲ ‪ \.2050‬وﺗ ﻞ اﻟ ﺎ اﻟ ﺎﺧ ﺔ ﻓﻲ ﺟ ﺗﻲ اﻟ ﺎﻧﺎت اﻟ ﺎﺣﻠ ﺔ واﻟ ﺎﻧﺎت ﺑ ﺟﻪ ﻋﺎم وﻣ ﺟﺎت اﻟ ار‬ ‫ة ﻋﻔ ﺔ‬‫ر‬ ‫ﻓﻲ اﻟ ﻌﺎت اﻟ ﺔ اﻟﻌ اﺋ ﺔ اﻟ ﻲ ﺗ‬ ‫اﻟ ﺎﻧﻲ ‪ 2019‬ﻋﻠﻰ ‪ 250‬أﻟﻒ ïºâ€¬ ‫اﻟ ﺎل‪ ،‬أﺛ ت اﻟ ﺎﻧﺎت اï»ïº§ Ø© ﻓﻲ ﻧ ﻓ ‪/‬ﺗ‬ ‫ة‪ ،‬وﺗﻐ أﻧ ﺎ ﻫ ل اï»ï»£ ﺎر‪ ،‬وارﺗﻔﺎع ﻣ ﺎت ﺳ ﺢ‬ ‫ﺟﺎت اﻟ ار‬ ‫ﻓﻲ اﻟﻌﺎﺻ ﺔ‪ \.‬وﻣ اﻟ ﻗﻊ أن ﺗ داد اﻟ ﻬ ﯾ ات اﻟ ﺎﺧ ﺔ ﺗ اﺗ ا Ùˆïº Ø© ﻣﻊ ارﺗﻔﺎع در‬ ‫ﻟﻼﺳ‬ ‫ﻟﺔ واﻟ ﻘ ﻟﺔ ﺎﻟ ﺎﻩ‪ ،‬ﻻ ﺳ ﺎ وأن اﻟ ﺎر واﻟ ف اﻟ ﻲ Ùˆïº ïºŽïº—ï»ª ﻏ‬ ‫اﻟ ‪ \.‬وﻫ ﺎك ﻣ ﺎ أﺧ ﻓﻲ ازد ﺎد‪ ،‬ﻣ ﻞ ﺗﻠ اﻟ ﻌﻠﻘﺔ ﺎï»ï»£ اض اﻟ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ن ﻓﻲ ﻓﻘ ﻣ ﻗﻊ‬ ‫ﺔ‪ ،‬وﻣ ﺑ ﻫ ﻩ اﻟ اﺋﺢ اﻟ ﯾ‬ ‫ر ﻣ و ﺄة اﻟﻌ اﻗ اﻟ ﻣ Ø© ﻟﻠ ارث اﻟ‬ ‫ﻛﺎ ﺔ أو ﺑﻬﺎ أﻋ ﺎل‪ \.‬و ﻌ Ø£ïº Ø§ï»Ÿ اﺋﺢ ﺗ ًا‬ ‫ﻣﻊ اﻟ ﻣﺎت اﻟ ﺎﺧ ﺔ‪\.‬‬ ‫واﻟ ﻘﻠ ن )اﻟﻼﺟ ن واﻟ ﻬﺎﺟ ون واﻟ دون واﻟ ﺎزﺣ ن داﺧﻠ ﺎ(‪ ،‬ﻧ ا ï»ï»§ï»¬ ﻔ ﻘ ون إﻟﻰ اﻟﻘ ر‬ ‫ة ﻋﻠﻰ اﻟ‬ ‫وﺣ ï»° ﯾ ï»° ﺗﻔﻌ ﻞ رؤ ﻬﺎ اﻟ ﺎﻣﻠﺔ ﻠﺔ اï»ïºŸï»ž ﻟ ﺔ ﺟ ﺗﻲ )رؤ ﺔ ﺟ ﺗﻲ ‪(2035‬اﻟ ﻲ ﺗ اﻟ اﻓﻘﺔ ﻋﻠ ﻬﺎ ﻓﻲ ﻋﺎم ‪ ،2014‬وﺿﻌ‬ ‫‪\.7‬‬ ‫اﻟ ﻣﺔ ﺧ ﺔ ﻣ ﺗﻬﺎ ﻋ ﺳ ات ﻌ ان إﺳ اﺗ ﺔ اﻟ اﻟ ﻊ وﺗ ﻊ ﻓ ص اﻟﻌ ﻞ )‪ (SCAPE‬ﺳ ﺗ ﻔ ﻫﺎ ﻋﻠﻰ ﻣ ﺣﻠ ﻣ Ø© ﻞ ﻣ ﻬﺎ ﺧ‬ ‫ﺳ ات وﺗﻐ ﺎن اﻟﻔ ﺗ ‪ 2019-2015‬و‪ 14\.2024-2020‬وﺗﻬ ف اﻟ ﺣﻠﺔ اï»Ùˆï»Ÿï»° إﻟﻰ ﺗ ﯾ ﻗ ﺎﻋﻲ اﻟ ﺔ اﻟ ﺔ واﻹﺻﻼح ﻣ أﺟﻞ زﺎدة اﻟ ﻔﺎءة‬ ‫ﻋﻠﻰ ‪ 4‬ﻗ ﺎﻋﺎت رﺋ ﺔ ‪ -‬اﻟ ﻘﻞ واﻟﻠ ﺟ ﺎت‪ ،‬واﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‪ ،‬واﻟ ﺎﺣﺔ‪ ،‬وﺻ اï»ïº³ ﺎك‪ ،‬ﻓﻲ ﺣ‬ ‫واﻟﻔﻌﺎﻟ ﺔ‪ ،‬ﻣﻊ اﻟ‬ ‫ﺗﻬ ف اﻟ ﺣﻠﺔ اﻟ ﺎﻧ ﺔ إﻟﻰ ﺗ ﻘ اﻟ ل اﻻﺟ ﺎﻋﻲ‪ ،‬واﻟ اﻹﻟ وﻧﻲ‪ ،‬واﻟ ﺎﻣﻞ اﻹﻗﻠ ﻲ‪ ،‬وﻋ ﺎء دور ﻣﻌ ز ﻟﻠﻘ ﺎع اﻟ ﺎص‪ \.‬ووﻓﻘﺎ ﻟ ؤ ﺔ ﺟ ﺗﻲ ‪،2030‬‬ ‫ﻟﻔ ص ﺟ ﯾ Ø© ﻟﻠ ﺎب اﻟ ﻌﻠ ﻓﻲ اﻟ ﻘﺔ ﻣ ﺧﻼل‬ ‫ة‪ ،‬وأن ﺗﻌ ز اﻻﺑ ﺎر وﺗ ﻬ اﻟ‬‫ﻣ اﻟ ﻗﻊ أن ﺗ ر ﺣﻠ ل اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﻞ ﻣ ﺎﻓ ﺔ ﻣﻌ ز‬ ‫ر رﺋ ﺎ ﻓﻲ‬ ‫أداء ﺳ ق اﻟﻌ ﻞ اﻟ ï»  ﺔ‪ 15\.‬وﻋﻼوة ﻋﻠﻰ ذﻟ ‪ ،‬ﺗ د اﻟ ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ واﻟ ﺎﺳﺎت اﻟ ﻗ ﺔ ذات اﻟ ﻠﺔ دو ا‬ ‫ﺗﻌ اﻟ اﻻﻗ ﺎد وﺗ‬ ‫ﻟ ﺎﺋ ﺔ روﻧﺎ واﻟ ﻌﺎﻓﻲ ﻣ ﻬﺎ‪\.‬‬ ‫اﻟ اﻟ ﻗ ﻲ واﻟ ï»  ل اﻟ ﻗ ﺔ اï»ïº³ïºŽïº³ ﺔ ﻟ ﻌ وﺗ ﻊ وﺗ Ø© اﻟ‬ ‫‪https://www\.indexmundi\.com/coronavirus/country/dj 11‬‬ ‫ﻻر ﻟﻠﻔ د ﻓﻲ اﻟ م ﻣ ‪ %14\.5‬ﻓﻲ‬‫ﻗﻊ أن ﯾ ﺗﻔﻊ ﻣﻌ ل اﻟﻔﻘ اﻟ ﻗﻊ ﻋ ‪ 1\.90‬دو‬ ‫‪ 12‬ﻣ اﻟ ﻗﻊ ﺗ اﺟﻊ ﻣﻌ ل ﻧ إﺟ ﺎﻟﻲ اﻟ ﺎﺗﺞ اﻟ ﻠﻲ ﺑ ﺔ ‪ %1‬ﻓﻲ ﻋﺎم ‪ ،2020‬وﻣ اﻟ‬ ‫‪ 2019‬إﻟﻰ ‪ 15\.3‬ﻓﻲ اﻟ ﺎﺋﺔ ﻓﻲ ‪\.2020‬‬ ‫‪https://www\.dj\.undp\.org/content/djibouti/en/home/national-solidarity-pact\.html 13‬‬ ‫‪ 14‬دﻋ ﺣ ﻣﺔ ﺟ ﺗﻲ اﻟ اﻟ وﻟﻲ إﻟﻰ اﻟ ﺎﻋ Ø© ﻓﻲ إﺟ اء اﺳ ﻌ اض ﻣ ﻒ اﻟ Ø© ﻟﻠ ﺔ اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ ﺑ ﻞ ﺳ ﻲ ﻣﻘ م ﻣ ﺑ ﻧﺎﻣﺞ اﻟ ﻬ ﻼت اﻻﺳ ﺎرﺔ ﻟﻠ ﺔ‬ ‫ع رﻗ )‪ \.(P171784‬وﺗﻘ م اﻟ ﻣﺔ ﺣﺎﻟ ﺎ ﺎﺳ ﻌ اض ﻣ دة اﻟ ﻘ ‪\.‬‬ ‫اﻟ ﺔ ﺑ اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص ﻓﻲ Ø¥ ﺎر اﻟ و‬ ‫ﻋﻠﻰ اﺳ ام‬ ‫ﻩ ﻋ ‪ MNACE‬ـ )‪ ،(P168573‬ﻓﺈن اﻟ ل اﻟ ر ﻧ اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﺳ ﺢ ﻋﻘ ا اﺟ ﺎ ﺎ ﺟ ﯾ ا ﯾ‬ ‫‪ 15‬ﻛ ﺎ ﻫ ﻣ ﺿﺢ ﻓﻲ اﻟ ﻘ اﻟ ﺋ ﻲ اﻟ ﻣﻊ إﺻ ار‬ ‫اﻹﻧ ﺎﺟ ﺔ ﻔ ﻞ ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت‪ ،‬وزﺎدة‬ ‫أن ﺗﻌ ز "أﺟ Ø© اﻻﻗ ﺎد اﻟ ﯾ Ø©" ﺗ ﺔ اﻟﻘ ﺎع اﻟ ﺎص ﻣ ﺧﻼل ﺗ‬ ‫اﻟ ﺎب‪ \.‬وﻋﻼوة ﻋﻠﻰ ذﻟ ‪،‬‬ ‫اﻟ ﻟ ﺟ ﺎ ﻟ‬ ‫ﻣ ﺣ Ø© ﻣ ﻼت اﻟ ﻘﺔ ﺑ Ø§ï» Ø§Ù اﻟﻔﺎﻋﻠﺔ‬ ‫واﻻﺣ ﺎﻛﺎت ﻓﻲ أﺳ اق اﻟ ﺎت واﻟﻌ ﺎﻟﺔ ﻋﻠﻰ ﺣ ﺳ اء‪ ،‬واﻟ‬ ‫اﻟ ﺎﻓ ﺔ ﻓﻲ اﻟ ق ﻔ ﻞ اﻟ ﺎت اﻟ ﻗ ﺔ‪ ،‬واﻟ ﻣ اﻟ‬ ‫ﻓﻲ اﻟ ﺎل اﻻﻗ ﺎد ‪ ،‬ﻓ ﻼ ﻋ ﺣﻞ اﻟ ﻼت اﻟ ﻌﻠﻘﺔ ﺑ ﻓ رؤوس اï»ï»£ ال ﻟﻠ ﺎت‪\.‬‬ ‫‪Page 5 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫اﻟ ﺎق اﻟﻘ ﺎﻋﻲ واﻟ ﺳ ﻲ‬ ‫اﻟ ﻔﺎرﻗﺔ اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ‬ ‫اﻹﻟ وﻧﻲ واﻟ ﺎﻧﺎت‪ ،‬ﻓﺈن إﻣ ﺎﻧﺎت ﻗ ﺎع‬ ‫ا ﻓﻲ ﺗ ﺳ ﺦ وﺟ دﻫﺎ ﻓﻲ اï»ïº³ اق اﻹﻗﻠ ﺔ اﻟ ﻌ ﺔ ﺎﻟ‬ ‫ﻋﻠﻰ اﻟ ﻏ ﻣ أن ﺟ ﺗﻲ ﺣﻘﻘ ﺗﻘ ﻣﺎ‬ ‫‪\.8‬‬ ‫أﻫ اف ﺟ ﺗﻲ‬ ‫ﻋﻠﻰ اﻟ ﻌ اﻟ ﻠﻲ‪ ،‬ﻣ ﺎ ﯾ د إﻟﻰ ﻣﻔﺎرﻗﺔ رﻗ ﺔ‪ \.‬وﺣ ï»° ﯾ ï»° ﺗ ﻘ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ï»» ﺗ ال ﻏ ﻣ ﻐﻠﺔ إﻟﻰ ﺣ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت واﻋ ت‬ ‫ﺣﺔ ﻟ‬ ‫ﻣﺔ إﺳ اﺗ ﺔ و ﺔ‬ ‫اﻟ‬ ‫اﻟ ﺎﺳﺎت ﻓﻲ Ø¥ ﺎر رؤ ﺔ ﺟ ﺗﻲ ‪ ،2035‬وﺿﻌ‬ ‫ﻋﻠﻰ ﻣ‬ ‫ﺔ اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ ﻟﻔ Ø© اﻟ ات ‪ (2024-2014‬ﺗﻬ ف إﻟﻰ‬ ‫ﺳ ات ﻓﻲ ﻋﺎم ‪) 2014‬اﻟ‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻣ ﺗﻬﺎ ﻋ‬ ‫ﻟ‬ ‫ﺧﺎر ﺔ‬ ‫ﺟ ﺗﻲ اﻵن ﺣﻠﻘﺔ ر رﻗ ﻲ رﺋ ﺔ ﻟﻠ ﺎﻧﺎت ﻣﻊ‬ ‫ﺳ ﻞ اﻟ ﺻ ل إﻟ ﻬﺎ‪ \.‬وﻗ أﺻ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﻊ أﻧ ﺎء ﺟ ﺗﻲ وﺗﻌ‬ ‫ﺗ‬ ‫اﻟ ﺳ‬ ‫ﺎ واﻟ ق اï»Ùˆïº³ Ùˆïº Ù‚ اﻟ‬ ‫ﺄورو ﺎ Ùˆïº Ù‚ أﻓ‬ ‫ﺔ ﻟﻬﺎ روا‬ ‫ﻠﺔ ﺎ ﯾ ﻠﻎ ‪ 9‬ﺎﺑﻼت‬ ‫ﻲ إﻧ ال ﻣ‬ ‫‪16‬‬ ‫اﻵن ﻣ ﺧﻼل ﻣ‬ ‫ﺗﺗ‬ ‫ﺟ اﻧﻬﺎ‪ ،‬ﺣ‬ ‫ﺟ ﺗﻲ ﻟﻠ ﺎﻧﺎت‬ ‫اﻹﻟ وﻧﻲ اﻟ وﻟﻲ‪ \.‬وﻋﻼوة ﻋﻠﻰ ذﻟ ‪ ،‬ﻓﺈن إﻧ ﺎء ﻣ‬ ‫ﺎﻟ‬ ‫ﺎ ﯾ ﻌﻠ‬ ‫ﺎ‬ ‫ب أﻓ‬ ‫ﻣ ﺎﺛﻞ ﻟ‬ ‫ﻊ ﺟ ﺗﻲ ﻓﻲ ﻣ‬ ‫وﺟ ب آﺳ ﺎ‪ \.‬وﻫ ا‬ ‫ﻘﺔ‪ ،‬و ﻞ ﻧﻘﺎ ﺗ ﺎدل اﻹﻧ ﻧ‬ ‫ﺔ ﻓﻲ اﻟ‬ ‫ﻞ ﻧﻘ ﺔ اﻟ ﻘﺎء رﺋ ﺔ ï»ï»§ ﺔ اﻟ ﺎﺑﻼت اﻟ‬ ‫ﻣ اﻟﻔ ﺔ اﻟ ﺎﻟ ﺔ ﻓﻲ ﻣ ﯾ ﺔ ﺟ ﺗﻲ‪،‬‬ ‫‪17‬‬ ‫ﻓﻲ ﻋﺎم ‪ ،2013‬وﻫ ﻣ‬ ‫ﺗﻘ‬ ‫ﺔ اﻟ ﻲ ﺗ‬ ‫ﻋﻠﻰ اﻟ ﻌ اﻟ ﻠﻲ ﻋﻠﻰ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت اﻟ ï»  ﺔ ﻟﻠ وﻟﺔ وﻫﻲ اﻟ‬ ‫اﻟ ﻣﺎت ﻘ‬ ‫ﻓﻲ ﺟ ﺗﻲ‪ \.(DjIX) 18‬ﻏ أن ﺗﻘ‬ ‫ﺳ ﻞ اﻟ ﺻ ل إﻟﻰ ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﻊ أﻧ ﺎء ﺟ ﺗﻲ‪\.‬‬ ‫ﻔ ﻣ ﺗﻌ‬ ‫ﻓﻲ ﺟ ﺗﻲ ﻻ‬ ‫ﻻ ﯾ ال اﻟ ا‬‫ﻫ ﻩ اﻟ ﻣﺔ‪ ،‬و‬ ‫ﻟﻼﺳ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻗ ﺎع‬ ‫ﯾ‬ ‫اﻟ ﺎﻧﺎت اﻟﻘﺎﺋ ﻓﻲ ﺟ ﺗﻲ‪ ،‬ﺣ‬ ‫ﺔ وﻣ‬ ‫ﺔ اﻟﻘ ﺔ ﻟﻠ ﺎﺑﻼت اﻟ‬ ‫ﻓﻲ ﺟ ﺗﻲ اﺳ ﻔﺎدة ﺎﻣﻠﺔ ﻣ اﻟ ﺔ اﻟ‬ ‫ﻔ اﻟ ا‬ ‫وﻻ‬ ‫‪‬‬ ‫ﺎ‪ ،‬وﺿ ﻒ ﺟ دة اﻟ ﻣﺔ‪ \.‬و ﺎﻟ ﺎﻟﻲ‪ ،‬ﻻ ﯾ ال اﻟ ﺻ ل إﻟﻰ ﺧ ﻣﺎت‬ ‫ﻘﺔ‪ ،‬وأﺳﻌﺎر ﻣ ﺗﻔﻌﺔ ﻧ‬ ‫ﺎﻣﻠﺔ ﻟﻠ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﺑ ﻐ ﺔ ﻏ‬ ‫ام اﻹﻧ ﻧ ‪ \.‬وﻋ ﻣﺎ‬ ‫اﺳ‬ ‫اﻟ ï»  ان اﻟ ﺎور‬ ‫ة ﻟﻬﺎ واﻟ ï»  ان اﻟ ﺎﺛﻠﺔ ﻟﻬﺎ ﻣ ﺣ‬ ‫اﻻﺗ ﺎﻻت واﻹﻧ ﻧ ﻣ ودا ﻓﻲ ﺟ ﺗﻲ‪ \.‬وﺗ ﻠﻒ ﺟ ﺗﻲ ﻋ ﻣﻌ‬ ‫ﯾﻞ ﻟ ï»  ل اﻟﻬﺎﺗﻒ اﻟ ﺎﺑ‬ ‫م ﻋﻠﻰ ﻧ ﺎق واﺳﻊ ﻓﻲ اﻟ ï»  ان اﻟ ﺎﻣ ﺔ ﻓﻲ ﺟ ﻊ أﻧ ﺎء اﻟﻌﺎﻟ‬ ‫ل‪ ،‬اﻟ‬ ‫اﻟﻬﺎﺗﻒ اﻟ‬ ‫ﺎﻹﻧ ﻧ ﻋ‬ ‫ﯾ ﻌﻠ اï»ï»£â€¬ ‫وﻧ ا ï»Ù† ‪ %78‬ﻣ ﺳ ﺎن ﺟ ﺗﻲ‬ ‫‪19‬‬ ‫ﻣ ﻔ ﺎ ﻓﻲ ﻋﺎم ‪ 2020‬ﺑ ﺔ ‪\.%23‬‬ ‫( ﻣ‬ ‫ام )ﻟ ﻞ ‪ 100‬ïºâ€¬ ‫وﻣ ﻞ ﻟﻬﺎ‪ ،‬ﺑﻠﻎ ﻣﻌ ل اﻻﺳ‬ ‫ﺎ أن ﺟ ﺗﻲ ﻣ ﻠﻔﺔ ﻋ ر‬ ‫ﺔ ﻟﻠ ﺎن ﻓﻲ ﺟ ﺗﻲ أﻗﻞ ﺗ ﻠﻔﺔ‪\.‬‬ ‫ﺔ ﯾ ﻐﻲ أن ﺗ ن اﻟ ﻐ ﺔ اﻟ‬ ‫اﻟ ﺎﺣ ﺔ اﻟ‬ ‫ﺔ‪ ،‬ﻓ‬ ‫ﺣ‬ ‫ن ﻓﻲ ﻣ ﺎ‬ ‫ﻌ ﺗﻐ ﺔ إﺟ ﺎﻟ ﺔ ﻟ ﻣﺎت اﻟ ﻞ اﻟ ﺎﻟ‬ ‫ﺎﻟ ﺗ ﻘ‬ ‫ﺧ ﻣﺎت اﻹﻧ ﻧ ‪،‬‬ ‫ﺎ ﯾ ﻌﻠ ﺑ‬ ‫أﻛ‬ ‫ﺎت ﺟ ﺎﻣﺎ وﺗ ﺎﻟ‬ ‫اﻟ ﻲ ﺗ اﺟﻪ ﺗ‬ ‫اﻟ ï»  ان اï»ïº§â€¬ ‫ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت إﻟﻰ ﺧﻠ‬ ‫ﺗ‬ ‫ﻋ ﺧ ﻣﺎت اﻟ ﻞ اﻟ ا ﻊ‪ \.‬وﻗ أد ﺗ ﺎ‬ ‫ﺔ‪ ،‬ﻧﺎ‬ ‫اﻟ‬ ‫ﻊ ﺳ ﺎﻧﻬﺎ ﻓﻲ اﻟ ﺎ‬ ‫ﻟ‬ ‫ام‬ ‫ﺎﺳ‬ ‫ﺎ ﯾ ﻌﻠ‬ ‫ﺑ ﺔ ‪%8\.3‬‬ ‫)ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﻓ Ø© ﺑ اﻟ‬ ‫اﻟ‬ ‫اﻟ ﻐ ا ﺔ و‬ ‫اﻟ ﺧﻞ واﻟ ﺎ‬ ‫ة‪ ،‬ﻋﻠﻰ ﻣ‬ ‫ﺗ ﺎﯾ ﺎت رﻗ ﺔ‬ ‫اﺳﺔ اﺳ ﻘ ﺎﺋ ﺔ أﺟ ﺗﻬﺎ ﻣ ï»  ﺔ اﻹﺣ ﺎء واﻟ ر‬ ‫اﺳﺎت‬ ‫اﻟ ﺎء‪ ،‬در‬ ‫ﻟ‬ ‫ﺎت اﻟ ﻌﻠ‬ ‫وﻣ‬ ‫ﺎد‬ ‫ﺗ ﻧﻲ اﻟ ﺿﻊ اﻻﺟ ﺎﻋﻲ واﻻﻗ‬ ‫اﻹﻧ ﻧ‬ ‫ﺿﻌﻔﺎ واï»Ùˆï»Ÿï»°â€¬ ‫ﻧﻔ ﻪ ﺗ ﻌ اﻟﻔ ﺎت اï»ï»›â€¬ ‫ﻠ ﺔ ﻟﻠ ﻣﺎت اﻟ ﻗ ﺔ‪ ،‬وﻓﻲ اﻟ ﻗ‬ ‫ﺗ ﺔ‪ \.(2018 ،‬وﺗﻘ ض ﻫ ﻩ اﻟﻔ ات اﻹﻣ ﺎﻧﺎت اﻟ‬ ‫ﻏ ا ﺔ اﻟ‬ ‫اﻟ‬ ‫اﻟ ﺎﻓﻊ اﻟ ﺗ ﺔ ﺑﻬ ﻩ اﻟ ﻣﺎت‪\.‬‬ ‫ﺎﻟ ﻋﺎ ﺔ ﻣ‬ ‫و ﻠﻒ أداء ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ ﻋ اﻟ ï»  ان اﻟ ﺎﺛﻠﺔ ﻓﻲ ﻣ ﻘﺔ أﻓ ﺎ ﺟ ب اﻟ اء وﻣ ﻘﺔ‬ ‫‪‬‬ ‫اﻟ ق اï»Ùˆïº³ Ùˆïº ïºŽÙ„ أﻓ ﺎ‪ \.‬وﻓﻲ ﻋﺎم ‪ 20،2017‬اﺣ ï»  ﺟ ﺗﻲ اﻟ ﺗ ﺔ ‪ 158‬ﻣ أﺻﻞ ‪ 176‬ﺑﻠ ا ﻋﻠﻰ ﻣ ïº ïº— ﺔ ﺗ ﻟ ﺟ ﺎ‬ ‫‪ 16‬ﻗﺎﻣ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﺑ ﺎء ﻣ ﻲ )‪ (YAC A CLS‬و )‪ (Haramous CLS‬ﻟﻺﻧ ال‪\.‬‬ ‫ر‬ ‫ة ﻟ ﻣﺔ اﻟ ﺔ اﻟ ﺟﺔ‪\.‬‬ ‫ات ﺗ زﻊ ﻣ‬‫ة ﻌﺎﻣﻞ ﺗ ﺎﯾ أﺳﺎﺳﻲ‪ ،‬ﻣﻊ ﻣ ﺎر‬ ‫ﻧﺎت ﻣ ر‬ ‫ﺑ ﺎﻧﺎت ﻗﺎﺑﻞ ﻟﻠ ﺎﻧﺔ ﺗ اﻣ ﺎً‬ ‫اﻟ ﺎﻟ ﺄﻧﻪ ﻣ‬ ‫اﻟ ﺎﻧﺎت ﻣ اﻟ‬ ‫‪ 17‬ﻌ ف ﻣ‬ ‫اﻧ ‪https://uptimeinstitute\.com/tiers :‬‬ ‫‪http://www\.djiboutidatacenter\.com/en/page/djibouti-internet-exchange-djix 18‬‬ ‫ل )ﻓ Ø© ﻣ ﻧ ﻋﻬﺎ( ﻟ ﻞ ‪ 100‬ﻧ ﺔ‪ ،‬ﺟ ﺔ اﻟ ﺎم اﻟﻌﺎﻟ ﻲ ﻟﻼﺗ ﺎﻻت اﻟ ﻘﻠﺔ‪\.‬‬ ‫ﻟﻠﻬﺎﺗﻒ اﻟ‬ ‫‪ 19â€¬Ø§ïº Ø§ï»›ïºŽØª ﻓﻲ ﺧ ﻣﺎت اﻟ ﺎق اﻟﻌ‬ ‫ﻌﺔ ﻋﺎم ‪ 2019‬ﻣﻊ ﺗﻐ‬ ‫ﻔﺎت ﻓﻲ‬ ‫‪ 20‬ﺗ ﻧ ﺑ ﺎﻧﺎت ﻋﺎم ‪ 2017‬ﻓﻲ ﻌﺔ ﻋﺎم ‪ 2018‬ﻣ ﺗﻘ اﻻﺗ ﺎد اﻟ وﻟﻲ ﻟﻼﺗ ﺎﻻت ﺄن ﺎس ﻣ ﻊ اﻟ ﻌﻠ ﻣﺎت‪ \.‬وﻟ ﯾ ﻧ اﻟ‬ ‫‪Page 6 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺑ اﻟ ï»  ان ﻣ ﻔ ﺔ اﻟ ﺧﻞ أو اﻟ ﺳ ﺔ اﻟ ﺧﻞ‪ \.‬واï»ï»£â€¬ ‫اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت اﻟ وﺿﻌﻪ اﻻﺗ ﺎد اﻟ وﻟﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬وﻫ أدﻧﻰ ﻣ‬ ‫ﻓﻲ ﻋﺎم ‪) 2010‬اﻟ ﺗ ﺔ ‪ 130‬ﻣ أﺻﻞ ‪ 190‬ﺑﻠ ا ﻓﻲ ﻋﺎم ‪ ،(2010‬ﻣ ﺎ‬ ‫ة ﻟﻠﻘﻠ ﻫ أن ﺟ ﺗﻲ اﺣ ï»  ﻣ ﺗ ﺔ أﻋﻠﻰ‬ ‫اï»ï»› إﺛﺎر‬ ‫ة ﻣ ودة ﻋﻠﻰ‬ ‫ﻻ ﺗ ال اﻟﻘ ر‬‫ﻞ ﻣ اﯾ ﻣ اﻟ ل اﻟ ﻗ ﻲ‪ \.‬و‬ ‫إﻟﻰ ر د اﻟ ﺔ اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ‪ ،‬ﻣﻘﺎرﻧﺔ ﺎﻟ ï»  ان اﻟ ﺎﺛﻠﺔ ﻟﻬﺎ اﻟ ﻲ ﺗ ﻔ‬ ‫ة‬ ‫ل اﻟ‬ ‫ﺗ ﻞ ﺗ ﺎﻟ ﺧ ﻣﺎت ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ‪ ،‬وﻓﻘﺎ ﻟﻼﺗ ﺎد اﻟ وﻟﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬ﻧ ا ï»Ù† ﺧ ﻣﺎت اﻟﻬﺎﺗﻒ اﻟ‬ ‫‪21‬‬ ‫ﻊ ﺟ ﺗﻲ ﻓﻲ اﻟ ﺗ ﺔ ‪ 162‬ﻓﻲ اﻟﻌﺎﻟ‬ ‫اﻟﻔ د ﻣ إﺟ ﺎﻟﻲ اﻟ ﺧﻞ اﻟﻘ ﻣﻲ ﻓﻲ ﻋﺎم ‪ ،2019‬ﻣ ﺎ‬ ‫ﺑﻠﻐ أﻛ ﻣ ‪ %24‬ﻣ ﻧ‬ ‫اء وﻣ ﻘﺔ اﻟ ق اï»Ùˆïº³ Ùˆïº ïºŽÙ„ أﻓ ﺎ‬ ‫ﻣ ﻏ ﻫﺎ ﻣ ﺑﻠ ان ﻣ ﻘﺔ أﻓ ﺎ ﺟ ب اﻟ‬ ‫)ﻣ أﺻﻞ ‪ 182‬ﺑﻠ ا(‪ ،‬وﻫﻲ ﻓﻲ وﺿﻊ أﻗﻞ‬ ‫اﻟﻔ د ﻣ إﺟ ﺎﻟﻲ اﻟ ﺧﻞ اﻟﻘ ﻣﻲ ﻋﻠﻰ اﻟ اﻟﻲ(‪\.‬‬ ‫ﻣ ﻞ ت د ﻔ ار واﻟ ﻐ ب )‪ 7\.5‬و ‪ %2\.48‬ﻣ ﻧ‬ ‫ﺳ ق اﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻ ﺗ ﺎﻻت‪ ،‬ﺎ أن اﻧﻌ ام اﻟ ﺎﻓ ﺔ ﻫ أﺣ اï»ïº³ ﺎب‬ ‫وﻟ ﺗ Ø£ ﺟ ﺗﻲ إﻻ ﻣ ﺧ ا ﻓﻲ ﺗ‬ ‫‪\.9‬‬ ‫ج إﻟﻰ ﺗ ﺳ ﻊ ﻧ ﺎق اﻟ ﺻ ل إﻟﻰ اﻟ ﺎق‬ ‫اء ﻫ ﻩ اﻟ ﻔﺎرﻗﺔ اﻟ ﻗ ﺔ‪ \.‬وﻟ ﺗ د إﺳ اﺗ ﺔ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت اﻟ ﺟﻬﺔ ﻧ اﻟ ﺎر‬ ‫اﻟ ﺋ ﺔ ور‬ ‫ة ﺎﻣﻠﺔ‬ ‫ر‬ ‫واﺳ اﻣﻪ ﻓﻲ اﻟ ق اﻟ ï»  ﺔ‪ \.‬وُﻌ ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ واﺣ ا ﻣ آﺧ ﻗ ﺎﻋ اﺣ ﺎر‬ ‫اﻟﻌ‬ â€«ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬وﻫﻲ ïº ïº” ﻣ ï»  ﺔ ﻟﻠ وﻟﺔ‪ ،‬ﺧ ﻣﺔ اﻟ ﻣ اﻟ ﻞ اï»ÙˆÙ„ واﻟ ﺳ‬ ‫ﻟﻼﺗ ﺎﻻت ﻓﻲ اﻟﻌﺎﻟ ‪ ،‬إﻟﻰ ﺟﺎﻧ إر ﺎ‪ \.‬وﺗ‬ ‫‪22‬‬ ‫إﻟﻰ اﻟ ﻞ اï»ïº§ ‪ 23،‬ﺎ ﺗﻘ م ﺑ ﻘ ﺟ ﻊ ﺧ ﻣﺎت ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ ) ﺎ ﻓﻲ ذﻟ ﺧ ﻣﺎت اﻟﻬ اﺗﻒ اﻟ ﺎﺑ ﺔ وﺧ ﻣﺎت‬ ‫اﻟ ﻠﻲ‪ ،‬ﻣ ﺎ‬ ‫واﻟ ﺎت ﻋﻠﻰ اﻟ‬ ‫ر‬ ‫ة ﻣ ﺳﻌﺔ ﻟﻠ ﻬﻠ‬ ‫ﻻ ﺗﻘ م اﻟ ﺔ ﺧ ﻣﺎت اﻟ ﺎق اﻟﻌ‬ ‫(‪ \.24‬و‬ ‫ل واﻟ ﺎق اﻟﻌ‬ ‫اﻟﻬﺎﺗﻒ اﻟ‬ ‫اﺗﻬﺎ ﻓﻲ ïº Ø§Ø¡ اﻟ ﻣﺎت اﻟ وﻟ ïº”â€¬â€«ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﻣﻌ اﺳ ﺎر‬ ‫ﻫ ﻩ اﻟ ﻣﺔ ﻓﻲ اﻟ ق اﻟ ﻠﻲ‪ \.‬وﻟﻰ ﺟﺎﻧ ذﻟ ‪ ،‬ﺗ‬ ‫ﻌ ﻲ ﻧﻘ‬ ‫ﻟﻼﺳ‬ ‫ات اﻟ اﻣ ﺔ إﻟﻰ ﺗ ﺳ ﻊ ﻧ ﺎق اﻟ ﺎﺋ اﻟ ﺔ ﻟ ﺎﻋﺔ‬ ‫ﻣ اﻟ ﺎﺑﻼت اﻟ ﺔ(‪ ،‬وﻓﻲ اﻟ ﻗ ﻧﻔ ﻪ ï»  اﻻﺳ ﺎر‬ ‫ﻣﻊ ﻋ د‬ ‫)ﻋ أﺟﻬ Ø© اﻟ‬ ‫ق‬ ‫ﺎب اﻟ ﺎﻓ ﺔ‪ \.‬وأد اﻧﻌ ام اﻟ ﺎﻓ ﺔ إﻟﻰ إﻋﺎﻗﺔ ﻧ ﺳ اﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‬ ‫اﻻﺗ ﺎﻻت وﺗ ﯾ ﻬﺎ ﻣ ودة‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻋ م ﺗ ﻊ اﻻﺳ ﺎر ﻓﻲ اﻟ ق اﻟ ï»  ﺔ‪ ،‬ﺎ ﻓﻲ ذﻟ ﻣ ﺟﺎﻧ اﻟ ﻐﻠ‬ ‫اﻟ ï»  ﺔ‪ ،‬ﺳ اء ﻣ ﺣ اﻟ ﻐ ﺔ أو اﻟ ﻟ ﺟ ﺎ‪ ،‬وذﻟ‬ ‫)ﻣ ﻞ ﻣﻘ ﻣﻲ ﺧ ﻣﺎت اﻹﻧ ﻧ (‪ ،‬ﻓ ﻼ ﻋ ﻋ م ﺗ ﻊ ﺗﻘ اﻟ ﻣﺎت واﻻﺑ ﺎر‪\.‬‬ ‫اﻟ‬ ‫اﻗ ﺎدﻫﺎ اﻟ ﻗ ﻲ‬ ‫ﺣﺎﺟﺔ ﺟ ﺗﻲ اﻟ ï»  ﺔ ﻹرﺳﺎء أﺳ‬ ‫ل اﻟ ﻗ ﻲ‪ \.‬وﺗﻘ رؤ ﺔ‬ ‫ﻊ وآﻣ ‪ ،‬واﻻﺳ ﻔﺎدة ﻣ اﻟ‬ ‫وïºïºŽï»£ï»ž ﻟﻠ‬ ‫ﻣ اﻟ ﺎﺳ ﻣ ﺧﻼل ﺑ ﺎء اﻗ ﺎد رﻗ ﻲ ﻧ‬ ‫ﻊ ﺟ ﺗﻲ أن ﺗ ﻘ اﻟ‬ ‫‪ \.10‬ﺗ‬ ‫ﺎت اﻟ ﻓﺎ ﺔ"‪ \.‬واﻟ اﻗﻊ أن ﺗ ﺔ ﻗ ﺎع‬ ‫ﻣ‬ ‫ﺟ ﺗﻲ ‪ 2035‬ﺑ ور ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﺑ ﺻﻔﻬﺎ أداة ﻗ ﺔ ﻟ ﺎدة اﻹﻧ ﺎج واﻟﻘ ر‬ ‫ة اﻟ ﺎﻓ ﺔ وﺗ‬ ‫ﻟ ﻞ ﻣ ﻬ ﺎ‪ ،‬ﻣﻊ ﺗ ﻔ ﻧ اﻟﻘ ﺎﻋﺎت‬ ‫أن ﻬ ﺎ ﻓﻲ اﻟ اﻻﻗ ﺎد ﻣ ﺧﻼل اﻟ ﺔ اﻟ ﺎﻓﺔ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت واﻻﻗ ﺎد اﻟ ﻗ ﻲ‬ ‫ﻊ ﺧﻠ ﻓ ص اﻟﻌ ﻞ وﺗ ﻊ اﻟ ﺎ‬ ‫اï»ïº§ ﺎﻟ از ﻣﻊ ذﻟ ‪ ،‬ﻣ ﺧﻼل ﺗﻌ اﻹﻧ ﺎﺟ ﺔ واﻻﺑ ﺎر ﻓﻲ اﻟ ﺂت اﻟ ﻐ واﻟ ﻐ Ø© واﻟ ﺳ ﺔ ‪ ،‬و ﺎﻟ ﺎﻟﻲ ﺗ‬ ‫ﺎﻹﻧ ﻧ ﻣ أﻗ اﻧﻬ ‪ ،‬و ﻣ ﻬ ﻏ‬ ‫اﻻﻗ ﺎد ‪ \.‬وﺳ ن ﻫ ا اﻟ ﺎل ﻣ اﻵﻓﺎق اﻟ ا ﺔ ﻞ ﺧﺎص ﻟﻠ ﺎب ﻓﻲ ﺟ ﺗﻲ‪ 25،‬ﻻ ﺳ ﺎ ﻣ ﻫ أﻛ ﻣﻌ ﻓﺔ‬ ‫أ ﺎ ﺗﻌ‬ ‫ﻘ اﻟﻘﻔ Ø© اﻟ ﻗ ﺔ‪،‬‬ ‫ﻗﺎدر ﺣﺎﻟ ﺎ ﻋﻠﻰ Ø¥ ﺎد ﻓ ص ﻋ ﻞ أو ﻌ ï»  ن ﻓﻲ و ﺎﺋﻒ ﻣ ﻔ ﺔ اï»ïºŸ ‪ \.‬وﻣ ﺧﻼل ﺗ ﻊ اﻟ ل اﻟ ﻗ ﻲ وﺗ‬ ‫ﺑ ﺔ ﻣ اﻟ ﺎت اﻟ ﻗ ﺔ‬ ‫ﻔ ﺗ‬ ‫ﻟﻼﻗ ﺎد اﻟ ﻗ ﻲ أن‬ ‫ة أﺳﺎﺳﻲ ﻓﻲ اﻟ ﺎق اﻹﻗﻠ ﻲ ﺳ ﻊ اﻟ ر‪ \.‬ﻓﻌﻠﻰ ﺳ ﻞ اﻟ ﺎل‪،‬‬ ‫ﺗ ﺎر‬ ‫ﻣ ﺎﻧﺔ ﺟ ﺗﻲ‬ ‫ﻣﺔ‪\.‬‬ ‫اﻟ ﻬ ﺔ اﻟ‬ ‫‪https://www\.itu\.int/net4/itu-d/ipb/ 21‬‬ ‫ة اﻻﺗ ﺎﻻت‪ ،‬اﻟ ﻠﻔﺔ ون اﻟ واﻻﺗ ﺎﻻت ﻓﻲ ﯾ ﻟ ‪/‬ﺗ ز ‪ 2019‬ﺗ ﺧ ﺎ ﻟ ﺔ‬ ‫زر‬ ‫وا‬ ‫‪ 22‬ﺟﺎءت اﻟ ات اï»Ùˆï»Ÿï»° ﻧ ﻓ ﺢ اﻟ ق ﻓﻲ ﯾ ﻟ ‪/‬ﺗ ز ‪ 2019‬ﻋ ﻣﺎ ﻣ‬ ‫ﻣ ﺧﻼل إﺟ اءات ﺗ ﺎﻓ ﺔ‪ ،‬وﻟ ﻣ اﻟ اﺿﺢ إﻟﻰ Ø£ ﻣ‬ ‫ﻋﺔ )‪ (IIB Holdings‬اﻟﻘﺎ ﺔ ﻟ ﺎء ïº ïº” أﻟ ﺎف ﺿ ﺋ ﺔ ﻓﻲ ﺟ ﺗﻲ‪ \.‬وﻟ ﯾ ﻣ ﺢ اﻟ ﺧ‬ ‫أﻓ ﺎﺑ اﻟ ﺎ ﻌﺔ ﻟ‬ ‫ﻊ ïº ïº” أﻓ ﺎﺑ اﻟ ﺎﻓ ﺔ ﻣﻊ اﻟ ﻬﺔ اﻟﻘﺎﺋ ﺔ‪\.‬‬ ‫ﺗ‬ ‫‪ 23‬ﻻ ﯾ ﺟ ﻣﺎ ﯾ ر اﺣ ﺎر اﻟ وﻟﺔ‪ ،‬ﻻ ﺳ ﺎ‪ ،‬اﺳ ﺎدا إﻟﻰ ﺗ ﻘ أﻫ اف اﻟ ï»  ﺔ اﻟﻌﺎﻣﺔ ﻣ ﻞ ﺗﻌ إﻣ ﺎﻧ ﺔ ﺣ ل اﻟ ﻊ ﻋﻠﻰ اﻟ ﻣﺎت‪ ،‬ï»Ù† ﻌ أﺟ اء ﺟ ﺗﻲ‪ ،‬وﺧﺎﺻﺔ ﻓﻲ‬ ‫ﺎف‪\.‬‬ ‫اﻟ ر أﻋﻼﻩ‪ ،‬ﺎﻟ ﻣﺎت ﻋﻠﻰ ﻧ‬ ‫اﻟ ﻘﺔ اﻟ ﺎﻟ ﺔ‪ ،‬ﻻ ﺗ ﻰ‪ ،‬ﻋﻠﻰ اﻟ‬ ‫ل )‪ (GSM, W-CDMA, LTE‬واﻟ ﺻ ل إﻟﻰ‬ ‫ﻋ ï»  ﺎت ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﺣ ل ﺛﻼﺛﺔ ﻗ ﺎﻋﺎت ﻣ اï»ï»‹ ﺎل‪ :‬اﻟﻬ اﺗﻒ اﻟ ﺎﺑ ﺔ‪ ،‬واﻟﻬﺎﺗﻒ اﻟ‬ ‫‪ 24‬ﯾ ور ﻣ ر ﺗ‬ ‫اﻹﻧ ﻧ )‪ IP‬واﻟ ﺎﻧﺎت Ùˆïº ïºŽØª ‪\.(ADSL‬‬ ‫ﻫ ﻋ ‪ 14‬ﺳ ﺔ ‪ %29 ،‬ﻣ اﻟ ﺎن ﻓﻲ ﻋﺎم ‪ ،2019‬ﻋﻠﻰ اﻟ ﻏ ﻣ أن ﻫ ﻩ اﻟ ﺔ ﻗ ﺗ اﺟﻌ ﻋ ‪ %41‬ﻓﻲ ﻋﺎم ‪2000‬؛‬ ‫‪ 25‬ﺑﻠﻐ ﻧ ﺔ اﻟ ﺎب ﻓﻲ ﺟ ﺗﻲ‪ ،‬اﻟ ﯾ ﺗﻘﻞ أﻋ ﺎر‬ ‫اﻧ ‪\.https://www\.theglobaleconomy\.com/Djibouti/percent_children/ :‬‬ ‫‪Page 7 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﻟ ﺗﻲ أن ﺗ ﻔ ﻣ ﺑ ﻬﺎ اﻟ ﺔ اﻟ وﻟ ﺔ ﻟ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻟ ﻌ اï»ï»§ ﺔ اﻟ ﻲ‬ ‫ﻟﻠ ﻘﻞ واﻟﻠ ﺟ ﺎت واﻟ زﻊ‪ \.‬وﻋﻠﻰ ﻏ ار ذﻟ ‪،‬‬ ‫ﺟ ﺔ )أﻧ ﺔ اﻟ ﻌﻬ (‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﻣ اﻛ اﻻﺗ ﺎﻻت‪ ،‬واﺳ ﺎﻓﺔ اﻟ ﺎﻧﺎت واï»ï»‹ ﺎل اﻟ ï»  ï»  ﺔ‪ \.‬و ﺎﻹﺿﺎﻓﺔ إﻟﻰ ذﻟ ‪،‬‬‫ﺎدر ﺧﺎر‬ ‫اﻻﺳ ﻌﺎﻧﺔ ﻓﻲ ﺗ ﻔ ﻫﺎ‬ ‫ﻟ ﺔ اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ Ø£ ﺎ أن ﺗ ﻣ ﻗ رﺗﻬﺎ ﻋﻠﻰ ﻣ اﺟﻬﺔ اﻟ ﻣﺎت‪ ،‬ﺳ اء أﻛﺎﻧ اﻗ ﺎد ﺔ أو ذات ﺻﻠﺔ ﺑ ﻐ اﻟ ﺎخ‪ \.‬و ﺎﻟ ﺎﻟﻲ‪،‬‬ ‫أن ﺗ ن ﻣ ﺎﻓﻊ اﻻﻗ ﺎد اﻟ ﻗ ﻲ Ø° اï»Ø¯Ø§Ø¡ اﻟ ﺗﻔﻊ ﻓﻲ ﺟ ﺗﻲ‪ ،‬اﻟﻘﺎﺋ ﻋﻠﻰ ﻗ ﺎع ﻣ ر ﻟ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‪ ،‬ﻣ ﻌ دة وﻗﺎدر‬ ‫ة‬ ‫ﻣ اﻟ‬ ‫ﺗﻘ ﻓ ص ﺗ ﺔ ﻫ ا اﻟﻘ ﺎع ﻋﻠﻰ ﻧ وﺛ ﺎﻟ ﻌﺎون ﻣﻊ ﻣ ﺳ ﺔ اﻟ ﻞ اﻟ وﻟ ﺔ‪\.‬‬ ‫ﻋﻠﻰ إﺣ اث آﺛﺎر ﺗ ï»  ﺔ‪ \.‬و‬ ‫وïºïºŽï»£ï»ž وآﻣ ‪ ،‬ﻣ ﺎ ﻌ ﺿﻬﺎ‬ ‫ﻞ ﺳ ق اﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت اﻟ ﺎﻟﻲ ﻓﻲ ﺟ ﺗﻲ ﻬ ر اﻗ ﺎد رﻗ ﻲ ﻧ‬ ‫‪ \.11‬و ﻘ‬ ‫ﻻ ﺗ ال ﺗ ﺔ اﻟﻘ ﺎع اﻟ ﺎص ﻣﻘ Ø© ﺑ ﺎﻟ ﻣ ﺗﻔﻌﺔ ﻧ ﺎ ﺎﻟ ﺔ ﻟﻌ اﻣﻞ اﻹﻧ ﺎج اﻟ ﺋ ﺔ‪ ،‬ﺎ ﻓﻲ ذﻟ‬‫ﻓﻲ اﻟ ل اﻟ ﻗ ﻲ‪ \.‬و‬ ‫ﻟ ﺎ اﻟ ﻠﻒ ﻋ اﻟ‬ ‫أن ﺗﻌ ﻓ ﻬﺎ ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ ﻋ ﺔ‬ ‫ﺟﺔ‬‫ﻋﺎﻟﻲ اﻟ ﻋﺔ‪ ،‬إﻟﻰ در‬ ‫أﺳﻌﺎر اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ واﻟ ﺎق اﻟﻌ‬ ‫ﻧ ﺎم ﻣ ﻓ ﻋﺎت و ﻲ ﻧ ا ï»Ù† اï»ïº³ï»ŒïºŽØ±â€¬ ‫ﺗ‬ ‫ﻠ ﺔ ï»» ﻣ Ø© ﺗ ﺎﻓ ﺔ‪ \.‬ﺎ أدت اﻟ ﺎرﺳﺎت اﻻﺣ ﺎرﺔ ﻣ ﺟﺎﻧ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت إﻟﻰ ﺗﻘ‬ ‫ﻣ ﺗﻔﻌﺔ ﻟﻠﻐﺎ ﺔ‪ \.‬ﺎ أد اﺣ ﺎر اﻟ ﺔ إﻟﻰ ﺗ اﺟﻊ اﻻﺑ ﺎر‪ ،‬ﺣ ﻟ ﯾ ﺗﻘ ﺧ ﻣﺎت‬ ‫اﻟ ﻲ ﯾ ﻓ ﺿﻬﺎ ﻋﻠﻰ اﻟ ﻌﺎﻣﻼت ÙˆØ§ï»»ïº Ø§Ùƒ ﻓﻲ ïº ïº” اﻟ اﻟ‬ ‫ل إﻻ ﻓﻲ ﻣ ﻒ ﻋﺎم ‪ ،2020‬ﻌ أﻛ ﻣ ‪ 10‬ﺳ ات ﻣ اﻟ ï»  ان اï»ï»“ ﺔ اï»ïº§ ‪ ،‬ﻣ ﻞ ﺎ وﺗ اﻧ ﺎ‪ \.‬و ﺎﻟ ﺎﻟﻲ ﻓﺈن ﻫ ﻩ‬ ‫اï»ï»£ ال ﻋ اﻟﻬﺎﺗﻒ اﻟ‬ ‫ﻫ ا اﻟ ﺿﻊ‪\.‬‬ ‫اﻟ ﺔ اï»ïº³ïºŽïº³ ﺔ اﻟ ﺎﻟ ﺔ‪ ،‬وﻫﻲ ﺣ أﺳﺎس آﺧ ﻓﻲ ﺑ ﺎء اﻗ ﺎد رﻗ ﻲ ﻣ دﻫ ‪ ،‬ﻣﻘ ة‬ ‫ﻟﻼﺳ‬ ‫اﻻﻗ ﺎد ‪ ،‬إﻟﻰ ﺟﺎﻧ ﻣﻬﺎر‬ ‫ات اﻟﻘ اءة واﻟ ﺎ ﺔ‬ ‫اﻟ‬ ‫أﺳﺎﺳﻲ ﻟ ﻘ‬ ‫ﺟ ﺗﻲ أن اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ïºâ€¬ ‫‪ \.12‬ﻣ ود ﺔ ﺗ اﻓ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ‪ \.‬ﺗ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫اﻟ ر ﻓﻲ ﻣ ﺎﻻت ﻣ ﻞ اﻟ ﻣ واï»ï»£ اﻟ اﻧﻲ‬ ‫واﻟ ﺎب‪ \.‬وﺗ ï»  ïº ïºŽØª ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت أﻋ ادا Ø© ﻣ اﻟ ﻬ ﺳ واﻟﻔ اﻟ‬ ‫ات اﻟ ﻗ ﺔ اï»ïº³ïºŽïº³ ﺔ ﻋﻠﻰ ﻧ ﺎق واﺳﻊ ﻏ ﻣ ﻓ ﺣﺎﻟ ﺎ‪،‬‬ ‫ات اﻹدارﺔ ﻓﻲ اﻟﻌ اﻟ ﻗ ﻲ‪ \.‬ﻟ اﻟ ر ﻋﻠﻰ اﻟ ﻬﺎر‬ ‫)اï»ï»£ اﻹﻟ وﻧﻲ(‪ ،‬وﻣ اﻟ ﻬ ذو اﻟ ﻬﺎر‬ ‫ا ﻌ اﻟ ﻌﺎرف اï»ïº³ïºŽïº³ ﺔ اﻟﻼزﻣﺔ ﻻﺳ ام اﻟ ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ‪\.‬‬ ‫ﺎï»Ø¯ÙˆØ§Øª واﻟ ﺎت اﻟ ﻗ ﺔ‪ ،‬وﻟ‬ ‫ï»Ù† اﻟﻐﺎﻟ ﺔ اﻟﻌ ï»° ﻣ ﺳ ﺎن ﺟ ﺗﻲ ﻏ ﻣﻠ‬ ‫ات اﻟ ﺄﺳ ﺔ اï»ïº³ïºŽïº³ ﺔ‪ ،‬ﻣ ﻞ ﻣ اï»ï»£ ﺔ واﻟ ﺎب‪ ،‬وﻟ ﻧ أن ﻫ ﺎك ﺗ ﺎت ﻓﻲ ﺑ ا ﺔ ﺳ ات‬ ‫ات اﻟ ﻗ ﺔ ﻓﻲ اﻟ ﻬﺎر‬ ‫اﻟ ﻬﺎر‬ ‫وﺗ ﻞ اï»ïº³ اﻟ ﻲ ﻘ م ﻋﻠ ﻬﺎ ﺗ‬ ‫ات اﻟ ﻗ ﺔ اﻟ ﺳ ﺔ واﻟ ﻘ ﻣﺔ إﻟﻰ ﺗﻘ ﻧ‬‫ل ﻋﻠﻰ اﻟ ﻌﻠ وﺟ دﺗﻪ ﻼن ﻋ ﺎت رﺋ ﺔ‪ \.‬و د ﻧﻘ اﻟ ﻬﺎر‬ ‫اﺳﺔ‪ ،‬ﺣ ï»» ﯾ ال ﺿﻌﻒ ﻓ ص اﻟ‬ ‫ﺳ اﻟ ر‬ ‫ﻋ‬ ‫اﻟ ﯾ ﻗ ﯾ ﻬ ن إﻟﻰ اﻟ‬ ‫ة ﻋﻠﻰ اﻻﺣ ﻔﺎ ﺎï»ï»“ اد اﻟ ﻫ‬ ‫ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت واﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ؛ ﺎ ﯾ ﺛ ﻋﻠﻰ اﻟﻘ ر‬ ‫ﻓﻲ ﻣ ﺎت ﻣ اï»ï»£ ﺔ اﻟ ﻗ ﺔ‪ ،‬وﺗﻌ ﻣ ﺎر ﺔ اﻟ ﺎء ﻓﻲ ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت‬ ‫ج‪ \.‬وﻋﻼوة ﻋﻠﻰ ذﻟ ‪ ،‬ﻻ ﺗ ال ﻫ ﺎك ﻓ Ø© Ø© ﺑ اﻟ‬ ‫ﻋ ﻞ ﻓﻲ اﻟ ﺎر‬ ‫اﻧ ﻔﺎض ﻣﻌ ﻻت اﻟ ﺎﻗﻬ ﺑ اﻣﺞ اﻟﻌﻠ م واﻟ ﻟ ﺟ ﺎ واﻟﻬ ﺳﺔ واﻟ ﺎﺿ ﺎت‪ \.‬و ﻞ اﻟ ﺳﻊ ﻓﻲ اﺳ ام ﺗ ﻟ ﺟ ﺎ‬ ‫‪26‬‬ ‫واﻻﺗ ﺎﻻت ﻣ ودة‪ ،‬ﻻ ﺳ ﺎ‬ ‫اﻟ ﻬ ﻲ‪ ،‬واﻟ ﻲ ï»» ﺗ ال ﻓﻲ ﻣ ﺣﻠﺔ ﻣ ة‬ ‫زر‬ ‫ة اﻟ ﻌﻠ واﻟ‬ ‫ات ر ﺎﺋ أﺳﺎﺳ ﺔ ﻟ ﻬ د اﻹﺻﻼح اﻟ ﻲ ﺗ ﻟﻬﺎ و ا‬ ‫اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت واﻟ ﻌﻠ اﻟ ﻗ ﻲ وﺗ ﺔ اﻟ ﻬﺎر‬ ‫اﻟ ï»  ب واﻟ ﺻ ل إﻟﻰ أﻛ ﻣ ‪ 100‬ﻣ رﺳﺔ ﻓﻲ اﻟ ﺎ اﻟ ﺎﺋ ﺔ )اﻧ اﻟ ول ‪ :2‬ﺗ ﻓ ﺧ ﻣﺎت اﻟ اﻹﻟ وﻧﻲ‬ ‫ات إﺿﺎ ﺔ ﻟ ﻘ اﻟ‬ ‫وﺗ ï»  اﺳ ﺎر‬ ‫اﻟ ﻬ ﻲ(‪\.‬‬ ‫ة اﻟ ﻌﻠ واﻟ‬ ‫ﻟﻠ ﺳ ﺎت اﻟ ﻌﻠ ﺔ )اﻟ ر‪ :‬و ا‬ ‫زر‬ ‫ﺑ ﺔ‬ ‫ﺎت ﻣ ة‪ ،‬وﻟ ﺑ ﺔ ر ﺎدة اï»ï»‹ ﺎل اﻟ ﻗ ﺔ ï»» ﺗ ال ﻓﻲ ﻣ ﺣﻠﺔ ï»§ïºŽïº ïº”â€ª \.‬وﺗ‬ ‫ﺔ اï»ï»‹ ﺎل ﻓﻲ ﺟ ﺗﻲ ﺗ‬ ‫‪ \.13‬وﺗ ﻬ ﺑ ﺔ أﻧ‬ ‫ﺗ ﻞ اﻟ ﺎت‪ ،‬واﻋ ﺎد ﻗﺎﻧ ن‬ ‫إﻧ ﺎء ﻣ اﻛ ﺧ ﻣﺎت "اﻟ ﺎك اﻟ اﺣ " ﻟ‬ ‫ﺗﻲ ﺗ ﺎ ا ﻓﻲ اﻟ ات اï»ïº§ ة‪،‬‬ ‫أﻧ ﺔ اï»ï»‹ ﺎل ﻓﻲ ﺟ‬ ‫ﺗ ﻞ اﻟ ﺎت‪ ،‬ووﺿﻊ ﻗﺎﻧ ن ﻣ ﻧﻲ ﺟ ﯾ )ﻫ اï»ÙˆÙ„ ﻣ اﺳ ﻘﻼل ﺟ ﺗﻲ(‪ ،‬ودﺧﺎل ﺗﻌ ﯾﻼت ﻋﻠﻰ ﻗﺎﻧ ن اﻟ ﺎﻟ ﺔ اﻟﻌﺎﻣﺔ‬ ‫ﺗ ﻠﻔﺔ‬ ‫ﺗ ﺎر ‪ ،‬وﺗ‬ ‫ات‪ \.‬ﺎ أﻧ ﺄت اﻟ ﻣﺔ ﺻ وﻗﺎ ﻟ ﺎﻧﺎت اﻻﺋ ﺎن اﻟ ﺋ ﺔ‪ 27‬ﻟ ﻬ ﻞ‬ ‫اﻟ ﺎت وﺗ ﻞ اﻟ ï»  ﺎت واï»ïº» ل واﻟﻌﻘﺎر‬ ‫ﺗﺄﺳ‬ ‫ﺗ ﺎﻟ‬ ‫ﻟ ﻔ‬ ‫واﻟ ﻐ Ø© واﻟ ﺳ ﺔ ﻋﻠﻰ اﻟ ﻞ واﻟ ﻣﺎت اﻟ ﺎﻟ ﺔ‪ ،‬وأﻧ ﺄت ﻣ ا ﻟﻠ ﺎدة ورﺎدة اï»ï»‹ ﺎل ﻟ ن ﺎ ﺔ ﺳﺎﺣﺔ ﻟﻠﻌ ﻞ‬ ‫ﺣ ل اﻟ ﺂت اﻟ ﻐ‬ ‫ات ﺳ ن‬ ‫ﻪ أن آﺛﺎر ﻫ ﻩ اﻟ ﺎدر‬ ‫ﻊ اﻟ ﻗ ﻲ )ﻓﺎب ﻻب(‪ 28\.‬وﻣ ﺎ ï»» ïºâ€¬ ‫ﺗ ر ‪ ،‬وﻣ ا ﻟﻠ‬ ‫ﺔ اï»ï»‹ ﺎل‪ ،‬وﻣ‬ ‫اﻟ ك‪ ،‬وﺣﺎﺿ ﺔ ï»ï»§â€¬ ‫ة‪ \.‬وﺳ ﺟ ﻊ ﻧﻘﺎ اﻟ ﺎﻧﺎت ﻋ ﺧ اï»ïº³ïºŽØ³â€ª\.‬‬ ‫ﺑ ﺎء ﻋﻠﻰ ﻣﻘﺎﺑﻼت ﻧ ﺔ‪ ،‬ﻻ ﺳ ﺎ ﻣﻊ ﻏ ﻓﺔ اﻟ ﺎر‬ ‫‪26‬‬ ‫‪https://www\.presidence\.dj/conseilministresuite\.php?ID=7&ID2=2016-03-15‬‬ ‫‪27‬‬ ‫ﻊ اﻟ ﻗ ﻲ‪ ،‬ﻫ ﻣ ﺎن ﻹﺟ اء اﻟ ﺎرب‪ ،‬وﺗﻘ اﻟ ﺟ ﻪ‪ ،‬وﻋ ﻞ اﻻﺧ اﻋﺎت‪ ،‬وﻧ ﺎء اï»Ø¯ÙˆØ§Øªâ€ª :‬ﻣ ﺎن ﻟﻠ ﻌﻠ اﻟ ﻗ ﻲ واﻻﺑ ﺎر‪\.‬‬ ‫اﻟ‬ ‫ﻓﺎب ﻻب‪ ،‬أو ﻣ‬ ‫‪28‬‬ ‫‪Page 8 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ة‪ \.‬وﺗ ﻞ اﻟ اﺟ اﻟ ﺋ ﺔ اﻟ ﻲ ﺗ ل‬ ‫ر‬ ‫ة اﻟ‬ ‫ﻞ ﻟ ب اﻟ ﻞ وﺗ ﻔ إﻧ ﺎء اﻟ ﺎت اﻟ‬ ‫ﻻ ﯾ ال أﻣﺎم اﻟﻘ ﺎع اﻟ ﻗ ﻲ‬‫ﺣﺎﺿ ة‪ ،‬و‬ ‫ات اﻟﻔ ﺔ واﻹدارﺔ‪ ،‬وﻣ ود ﺔ اﻟ ﻞ‪ ،‬وﺿﻌﻒ أداء اﻟ ﺔ اﻟ ﺔ ﻟﻼﺗ ﺎﻻت‪ ،‬واﻧ ﻔﺎض اﻧ ﺎر اﻟ ﺎق‬ ‫دون رﺎدة اï»ï»‹ ﺎل اﻟ ﻗ ﺔ ﻧﻘ اﻟ ﻬﺎر‬ ‫ﺔ‪\.‬‬ ‫رﺎدة اï»ï»‹ ﺎل‪ ،‬واﻟﻌ ﺎت اﻟﻘﺎﻧ ﻧ ﺔ واﻟ‬ ‫ﻣ ﻓﻲ ﻫ ا اﻟ ﺎل و ﺎﻛﻞ ﺗ‬ ‫‪ ،‬واﻻﻓ ﻘﺎر إﻟﻰ اﻟ ïº ï¯¾ )اﻟ ُ ﻌﻠ ( اﻟ‬ ‫اﻟﻌ‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗﺎﺣﺔ ﺧ ﻣﺎت ﺗ‬ ‫ﻗ ﺎع اﻻﺗ ﺎﻻت‪/‬ﺗ‬ ‫ﻞ إﺻﻼﺣﺎت ﻟ ﻌ‬ ‫وﻗ‬ ‫ﻣ‬ ‫‪ \.14‬وﻟ ﺗ‬ ‫ﺧ ات ﻣﻠ ﺳﺔ ﻧ ﻣﻌﺎﻟ ﺔ اﻻﺧ ﺎﻗﺎت ﻓﻲ ﻫ ا اﻟﻘ ﺎع ﻓﻲ ﺑ ﺔ‬ ‫واﻻﺗ ﺎﻻت ﻋﺎﻟ ﺔ اﻟ دة ﺄﺳﻌﺎر ﻣﻌﻘ ﻟﺔ‪ \.‬و أت اﻟ ﻣﺔ ﻣ ﺧ ا ﻓﻲ اﺗ ﺎذ‬ ‫ﺎت اﻟ اﻣ ﺔ إﻟﻰ ﻓ ﺢ ﺳ ق اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ اﻟ ﺎر‬ ‫ﺔ ﻟﻬ ا اﻟﻘ ﺎع‪ \.‬وﻗ ﺗ ﻔ اﻟ‬ ‫إﻗﻠ ﺔ ﺳ ﻌﺔ اﻟ ر‪ ،‬ﻣﻊ إﻧ ﺎء ﻫ ﺔ ﺗ‬ ‫ﺳ ق اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ اﻟ ﺎﺻﺔ ﺑﻬﺎ‪ \.‬وﻓﻲ‬ ‫ﺗﻲ ﻟ‬ ‫اﻻﺿ ﻼع ﺑﻬﺎ ﺣﺎﻟ ﺎ ﻓﻲ إﺛ ﺎ ﻋﻠﻰ ﺑ ل ﺟﻬ د أﻛ ﻣ ﺟﺎﻧ ﺣ ﻣﺔ ﺟ‬ ‫‪ ،‬وﺗ ï»  ﺗ ﺻ ﺎﺗﻬﺎ اﻟ ﺋ ﺔ اﻟ ﻼث ﻓﻲ ‪ (1):‬ﻓ ﺢ اﻟ ق أﻣﺎم‬ ‫ة اﻹﻧ ﺎﺋﻲ ﺈﻋ اد ﺧﺎر ﺔ‬ ‫ﻋﺎم ‪ ،2019‬ﻠﻔ اﻟ ﻣﺔ ﺑ ﻧﺎﻣﺞ اï»ï»£ اﻟ‬ ‫‪29‬‬ ‫ﺔ ﻟﻬ ا اﻟﻘ ﺎع‪\.‬‬ ‫ﺔ اﻟ ﺋ ﺔ‪ ،‬و)‪ (3‬إﻧ ﺎء ﻫ ﺔ ﺗ‬ ‫اﻟ ﺎﻓ ﺔ‪ (2) ،‬زﺎدة اﺳ ﻌ اد ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﻟ اﺟﻬﺔ اﻟ ﺎﻓ ﺔ ﻣ ﺧﻼل اﻟ‬ ‫ﺎﻋ ة‬ ‫‪/‬ﻛﺎﻧ ن اï»ÙˆÙ„ ‪ ، 2019‬وﺳ ﺗﻔﻌ ﻞ دور ﻫ ﻩ اﻟﻬ ﺔ‬ ‫ﺔ ﻣ ﻌ دة اﻟﻘ ﺎﻋﺎت ﻓﻲ د‬ ‫ﺗ إﺻ ار ﻗﺎﻧ ن ﻹﻧ ﺎء ﻫ ﺔ ﺗ‬ ‫‪‬‬ ‫ﻓ ﺔ ﻣ ﻟﺔ ﻣ ﺑ ﻧﺎﻣﺞ اﻟ ﻬ ﻼت اﻻﺳ ﺎر ﺔ ﻟﻠ ﺔ اﻟ ﺔ ﺑ اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص‪ \.‬وﻟ ﯾ ﺗﻔﻌ ﻞ ﻫ ﻩ اﻟﻬ ﺔ ﺣ ï»° ﻣﺎﯾ ‪/‬أ ﺎر‬ ‫اﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ‪ 31\.‬و ﺎن ﻫ ﺎك اﻟ ام‬ ‫ﺔ‪-‬ﻫ ﺔﺗ‬ ‫‪ 30\.2021‬ﻓﻲ وﻗ ﻣ ﻣ ﻋﺎم ‪ ،2004‬ﺻ ر ﻗﺎﻧ ن ﻹﻧ ﺎء ﻫ ﺔ ﺗ‬ ‫ﻟﻼﺳ‬ ‫ﺔ ﻣ ﻌ دة‬ ‫ر ﻗﺎﻧ ن إﻧ ﺎء اﻟﻬ ﺔ اﻟ‬ ‫ﺔ ﻟﻬ ا اﻟﻘ ﺎع ﻓﻲ اﻟ ﺔ اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ ﻟﻌﺎم ‪ \.2014‬وﻟ ﻟ‬ ‫ﺈﻧ ﺎء ﻫ ﺔ ﺗ‬ ‫‪/‬ﻛﺎﻧ ن اï»ÙˆÙ„ ‪ \.2019‬وﺗ ﻟﻰ ﻫ ﻩ اﻟﻬ ﺔ ﻣ ﺣ اﻟ Ø£ ﻗ ﺎﻋﺎت اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ واﻟ‬ ‫اﻟﻘ ﺎﻋﺎت إﻻ ﻓﻲ د‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫‪32‬‬ ‫ة ﺗﺎﻣﺔ‪ ،‬ﺳ ن ﻫ ﺎك ïº Ø£ïº³ïºŽïº³ï»² ﻟﻔ ﺢ اﻟ ق اﻟ ï»  ﺔ أﻣﺎم اﻟ ﺎﻓ ﺔ‪\.‬‬ ‫ر‬ ‫واﻟ ﺎﻗﺔ‪ \.‬و د ﺗﻔﻌ ﻞ ﻫ ﻩ اﻟﻬ ﺔ‬ ‫وأﻗ ت إﺳ اﺗ ﺔ اﻟ اﻟ ﻊ وﺗ ﻊ ﻓ ص اﻟﻌ ﻞ ﺄن إﺣ وﺳﺎﺋﻞ ﺗﻌ اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ ﻫﻲ ﻓ ﺢ ﺳ ق اﻻﺗ ﺎﻻت‬ ‫‪‬‬ ‫أﻣﺎم اﻟ ﺎﻓ ﺔ‪ ،‬وﻟ ï»» ﯾ ال ﯾ ﻌ ﺗ ﻔ ذﻟ ‪ \.‬وﻣ ﻋﺎم ‪ ،2014‬ﺗ رس اﻟ ﻣﺔ إدﺧﺎل ﻣ ﻐﻞ ﺛﺎن ﻟﻼﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ‪ ،‬ﺎ‬ ‫ﺛﺎن ﻟﻼﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ ﻣ ﺧﻼل إﺟ اءات‬ ‫أﺟ ت ﻣ ﺎﻗ ﺎت ﻣ ﻟﺔ ﻣﻊ ﻣ ﻋﺔ اﻟ اﻟ وﻟﻲ ﺄن إﻣ ﺎﻧ ﺔ إﺻ ار ﺗ ﺧ‬ ‫ات‪ \.‬وﺣ ï»° اﻟ م ﻟ ﺗ ﻘ اﻟ ﻬ د اﻟ اﻣ ﺔ إﻟﻰ ﺗ‬ ‫‪33‬‬ ‫)ﻣ ﺎﻗ ﺔ( ﺗ ﺎﻓ ﺔ دوﻟ ﺔ‪ ،‬وﻗ ﻣ ﻣ ﻋﺔ اﻟ اﻟ وﻟﻲ ﻣ Ø© ﺳ ﺎﺳﺔ ﺗ د ﻋ Ø© ﺧ ﺎر‬ ‫)ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬اﻟ ﻐﻠ ن‬ ‫ﻫ ا اﻟﻘ ﺎع ﺗﻘ ﻣﺎ ا‪ ،‬ﻋﻠﻰ اﻟ ﻏ ﻣ اﻻﻫ ﺎم اﻟ اﯾ ﻣ اﻟﻘ ﺎع اﻟ ﺎص ﺑ ﺧ ل ﺳ ق اﻟ ﺎق اﻟﻌ‬ ‫واﻻﺗ ﺎﻻت ﻓﻲ ﯾ ﻟ ‪/‬ﺗ ز ‪2019‬‬ ‫ة اﻻﺗ ﺎﻻت‪ ،‬اﻟ ﻠﻔﺔ ون اﻟ‬ ‫وا‬ ‫زر‬ ‫ن‪ ،‬ﻻ ﺳ ﺎ‪ ،‬ﻣﻘ ﻣﻲ ﺧ ﻣﺎت اﻹﻧ ﻧ (‪ ،‬وﻣ‬ ‫اﻟ‬ ‫ﻋﺔ )‪ (IIB Holdings‬اﻟﻘﺎ ﺔ ﻟ ﺎء ïº ïº” أﻟ ﺎف ﺿ ﺋ ﺔ ﻓﻲ ﺟ ﺗﻲ‪ \.‬وﻗ واﻓﻘ اﻟ ﻣﺔ ﻣ ﺧ ا‬ ‫ﺗ ﺧ ﺎ ﻟ ﺔ أﻓ ﺎﺑ اﻟ ﺎ ﻌﺔ ﻟ‬ ‫ع‬‫ﺄن إﺻﻼح ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‪ ،‬ﺑ ﻞ ﻣ ﻣ و‬ ‫ﻋﻠﻰ ﻣ اﺟﻌﺔ اﻟﻘﺎﻧ ن اﻟﻘ رﻗ )‪(AN/04/5ème L/80‬‬ ‫ة اﻟﻌﺎﻣﺔ اﻟ ل ﻣ اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ ﺔ ) ‪\.(P162904‬‬ ‫ﺗ ﯾ اﻹدار‬ ‫ﺔ ﻣﻊ‬ ‫ﺔ دوﻟ ﺔ وﻗﻠ ﺔ وو‬ ‫ﺗ ﺄﻟﻒ ﻣ ﻋ Ø© ﻣ ﻧﺎت‪ :‬إﺳ اﺗ‬ ‫‪34‬‬ ‫ل‪،‬‬ ‫ﺔ ﺟ ﯾ Ø© ﻟﻠ‬ â€«ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﺧ ﺔ إﺳ اﺗ‬ ‫وﻗ وﺿﻌ‬ ‫‪‬‬ â€«ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﺣ ل‬ ‫ﻫ ﺎ‪ :‬ر ﺟ ﺗﻲ و ﺎﻣﻬﺎ ﺑ ﻘ ﺧ ﻣﺎت اﻟ ‪ ،‬وﺟ ﺗﻲ اﻟ ﻗ ﺔ ‪ \.‬و ور ﻣ ر ﺗ‬ ‫رﺋ‬ ‫ﺑ ﻧﺎﻣ‬ ‫ج ﻲ ﺗ ﺢ ﻣ ا رﻗ ﺎ إﻗﻠ ﺎ‪ \.‬وﻣ اﻟ ﻐ ات اﻟ ﻬ ﺔ اﻟ ﻲ ﺣ ﺛ ﻓﻲ أواﺧ ﻋﺎم ‪ 2020‬ﻧﻘﻞ أﺻ ل اﻟ ﺔ إﻟﻰ‬ ‫اﻟ ﺟﻪ إﻟﻰ اﻟ ﺎر‬ ‫ﺻ وق ﺛ وة ﺳ ﺎد ‪ ،‬ﯾ ﯾ اﻵن Ø£ ﺎ ﻣ ﻓ اﻟ ﻬ ﺎء واﻟ ﺎء‪\.‬‬ ‫ﻗ ﺎع اﻻﺗ ﺎﻻت‬ ‫ﻟ‬ ‫ة اﻹﻧ ﺎﺋﻲ‪ \.‬ﯾ ﺎﯾ ‪/‬ﻛﺎﻧ ن اﻟ ﺎﻧﻲ ‪ ،2020‬ﺧﺎر ﺔ‬ ‫‪ 29‬ﺑ ﻧﺎﻣﺞ اï»ï»£ اﻟ‬ ‫‪ 30‬ﺗ اﻟ ﻔ ﺑ ﻞ ﺑ ﻧﺎﻣﺞ اﻟ ﻬ ﻼت اﻻﺳ ﺎرﺔ ﻟﻠ ﺔ اﻟ ﺔ ﺑ اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص )‪\.(P171784‬‬ ‫‪ 31‬اﻟﻘﺎﻧ ن رﻗ )‪ (n°80/AN/04/5ème‬ﺄن إﺻﻼح ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت اﻻﺗ ﺎﻻت‬ ‫ﺔ ﻣ ﻌ دة اﻟﻘ ﺎﻋﺎت‪ ،‬و ﺎﻟ ﺎﻟﻲ ﻟ ﯾ ﺗﻔﻌ ﻞ دور ﻫ ﻩ اﻟﻬ ﺔ‪\.‬‬ ‫‪ 32‬ﺣ ï»° ﻣﺎﯾ ‪/‬أ ﺎر ‪ ،2021‬ﻟ ﯾ ﻌ ﺗﻌ اﻟ ﯾ اﻟﻌﺎم وأﻋ ﺎء ﻣ ï»  إدار‬ ‫ة اﻟﻬ ﺔ اﻟ‬ ‫ة ‪ - \.2018‬ﺗ ﻘ اﻹﻣ ﺎﻧﺎت اﻟ ﻗ ﺔ ﻟ ﻬ رﺔ ﺟ ﺗﻲ ‪ -‬ﻣ Ø© ﺳ ﺎﺳﺎت ﺄن إﻣ ﺎﻧ ﺔ إدﺧﺎل ﻣ ﻐﻞ ﺛﺎن ﻟﻼﺗ ﺎﻻت‪\.‬‬ ‫‪ 33‬ﻣ ﻋﺔ اﻟ اﻟ وﻟﻲ‪ \.‬ﻣ ﻋﺔ ﻏ ﻣ ر‬ ‫‪https://lanation\.dj/transformation-de-djibouti-telecom-le-numerique-au-coeur-dun-challenge-majeur-pour-les-metiers-doperateur-telecom/ 34‬‬ ‫‪Page 9 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺔ اﻟ ﻗ ﺔ‬ ‫ﻣﺔ واﻟﻘ ﺎع اﻟ ﺎص اﻟ ﺎïºïºŠ ﻟ Ø¡ ﺣﻠﻘﺔ Ø¥ ﺎﺑ ﺔ ﻻﺳ ﺎر‬ ‫ات اﻟﻘ ﺎع اﻟ ﺎص ﻓﻲ اﻟ ﺔ اﻟ‬ ‫وﻫ ﺎك ﻓ ﺻﺔ ﻣ ﺎدﻟﺔ ﻟ ﻞ ﻣ اﻟ‬ ‫‪‬‬ ‫ل ﻋﻠﻰ ﻣ ﺎﻗ ﺎت ﺣ ﻣ ﺔ ﺗ ﺎﻓ ﺔ ﻟ ﺧ ل اﻟ ق ﻓﻲ ﺟ ﺗﻲ‪ ،‬ﻋﻠﻰ‬ ‫ﺎت اﻟ ﻐ ﻞ اﻟ ﯾﻠﺔ اﻻﺳ ﻔﺎدة ﻣ إﻣ ﺎﻧ ﺔ اﻟ‬ ‫ﻟ‬ ‫ﺔ‪ \.‬و‬ ‫اﻟ‬ ‫ﻧﻔ ﻪ‪ ،‬ﻓﺈن دﺧ ل‬ ‫ﺧ ﻣﺎت اﻻﺗ ﺎﻻت إﻟﻰ ﻣ ﺎن ودار‬ ‫ات ﺣ ﻣ ﺔ ﻣ دة ﻣ ﺧﻼل اﻟ ﺎﻗ ﺎت اﻟ ﺎﻓ ﺔ‪ \.‬وﻓﻲ اﻟ ﻗ‬ ‫ﺳ ﻞ اﻟ ﺎل‪ ،‬ﺗﻘ‬ ‫ﻞ اﻟ ﻬ د اﻟ ﻲ ﺗ ﻟﻬﺎ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‬ â€«ïº ïºŽØª اﻟﻘ ﺎع اﻟ ﺎص إﻟﻰ اï»ïº³ اق‪ ،‬واﻻﺳ ﻔﺎدة ﻣ رؤوس أﻣ اﻟﻬﺎ‪ ،‬ﻣ ïºïº„ﻧﻪ أن‬ ‫ﺔ‪\.‬‬ ‫ﻣﻌ ﻻت ﺗﻐ ﺔ اﻟ ﻣﺎت وﺟ دﺗﻬﺎ ﻣ ﺧﻼل ﻫ ﻩ اﻟ ﺔ اﻟ‬ ‫ﺎت ﻓﻲ ﺟ ﻊ أﻧ ﺎء ﺟ ﺗﻲ‪ ،‬ﺑﻬ ف ﺗ‬ ‫ﺔ ﺣ ﯾ ﺔ ﻟﻠ‬ ‫ﺑ ﺔﺗ‬ ‫ﻟﻌ‬ ‫ﻞ ﻟﻬﺎ‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل ﻟ‬ ‫اﻟ‬ ‫ﻋﻠﻰ اﻟ ﺎﻻت اﻟ ﻲ ï»» ﺗ ﻘ اﻟ و اﻟ ﺎرﺔ وﺗ ﻓ‬ ‫ﻣﺔ ﺟ ﺗﻲ ﺎﻟ‬ ‫ﺎ ﻟ‬ ‫أ‬ ‫ﺢ ذﻟ‬ ‫و‬ ‫ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ اﻟ ﯾ ﺔ اﻟ ﺎﺳ ﺔ‪\.‬‬ ‫ﺔ أو ﻏ ﻫﺎ ﻣ اﻟ‬ ‫ﺔ اï»ï»Ÿ ﺎف اﻟ‬ ‫ﻌﺎت اﻟ ﺎﺋ ﺔ‬ ‫اﻟ‬ ‫ج‪ \.‬اﻟﻬ ف اﻹﻧ ﺎﺋﻲ اﻟ ﻘ ح‬ ‫ع(‬‫و‬ ‫ﻟﻠ‬ ‫اﻟ‬ ‫ع )ﻣ وﺛ ﻘﺔ اﻟ ﻘ‬‫و‬ ‫اﻟﻬ ف اﻹﻧ ﺎﺋﻲ ﻟﻠ‬ ‫ﻟﻼﺳ‬ ‫ﻊ اﺳ ﺎر‬ ‫ات‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗ‬ ‫ﻣﺔ ﻋﻠﻰ ﺗﻬ ﺔ ﺑ ﺔ ﻣ اﺗ ﺔ ﻟﻠ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ ﺗ‬ ‫ع ﻓﻲ ﻣ ﺎﻋ Ø© اﻟ‬‫و‬ ‫ﯾ ﻞ اﻟﻬ ف اﻹﻧ ﺎﺋﻲ ﻟﻬ ا اﻟ‬ ‫ﻬﺎ‪\.‬‬ ‫اﻟﻘ ﺎع اﻟ ﺎص ﻓﻲ ﻫ ا اﻟ ﺎل‪ ،‬واﻟ ﺎﻋ Ø© ﻓﻲ اﻋ ﺎد اﻟ ﻬﺎر‬ ‫ات واﻟ ﻣﺎت اﻟ ﻗ ﺔ وﺗﻌ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﺔ‬ ‫اﻟ ﺎﺋﺞ اﻟ ﺋ‬ ‫ع‬‫و‬ ‫اﻟﻬ ف اﻹﻧ ﺎﺋﻲ ﻟﻠ‬ ‫اﻟ ïº Ø§Øª ﻋﻠﻰ ﻣ‬ ‫ع‪:‬‬‫و‬ ‫اﻟﻬ ف اﻹ ﻧ ﺎﺋﻲ ﻟﻠ‬ ‫ﻣ ïº Ø§Øª اﻟ ﺎﺋﺞ اﻟ ﻘ ﺣﺔ ﻋﻠﻰ ﻣ‬ ‫‪\.15‬‬ ‫ﻊ اﺳ ﺎر‬ ‫ات اﻟﻘ ﺎع اﻟ ﺎص ﻓﻲ‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗ‬ ‫ﻣﺔ ﻋﻠﻰ ﺗﻬ ﺔ ﺑ ﺔ ﻣ اﺗ ﺔ ﻟﻠ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ ﺗ‬ ‫ﻣ ﺎﻋ Ø© اﻟ‬ ‫ﻫ ا اﻟ ﺎل‪:‬‬ ‫ﺔ اﻟ ﻌ ﺔ؛‬ ‫ﻣ اﻟﻬ ﺔ اﻟ‬ ‫ﺔ ﻟﻼﺗ ﺎﻻت واﻟ ﻣﺎت اï»ïº§â€¬ ‫ﺎت اﻟ ﺎدر‬ ‫ة‪ 35‬ﻟ ﻘ ﻣﻲ ﺧ ﻣﺎت اﻟ ﺔ اﻟ‬ ‫واﻟ‬ ‫ﻋ د اﻟ اﺧ‬ ‫أ(‬ ‫ﺔ ﻣ ﺔ ﻣ اﻟ ﺎن‪ ،‬وﻧ ﺔ اﻹﻧﺎث ﻣ ﻬ ؛‬ ‫ﻣﻲ اﻹﻧ ﻧ ‪ ،‬اﻟ ﯾ ﺗ ﻠﻎ أﻋ ﺎر‬ ‫ﻫ ‪ 15‬ﺳ ﺔ ﻓ ﺎ ﻓ ق‪،‬‬ ‫ﻋدﻣ‬ ‫ب(‬ ‫ﺎج ﻣﻘ ﻣ اﻟ ﻣﺎت‪ ،‬ﻣ ﻞ ﻣﻘ ﻣﻲ ﺧ ﻣﺎت‬ ‫‪ ،‬إﻟﻰ ﺗ ﺧ ‪ \.‬وﻗ‬ ‫ﻣ ن اﻟ‬ ‫‪ 35‬ﺑ ﺟﻪ ﻋﺎم‪ ،‬ﺳ ﺎج ﻣ ﻐﻠ اﻟ ﺎت اﻟ ﯾ ﻘ ﻣ ن ﺈﻧ ﺎء اﻟ ﺔ اﻟ ﺔ اﻟ ﺎﺻﺔ ﺑﻬ ‪ ،‬أو‬ ‫واﻟ ﺎرﺢ ﺑ ﺻﻔﻬﺎ ﻣﻌﺎﯾ ﻟ ﺎس‬ ‫ﺢ ﻓﻘ ‪ \.‬وﻣ اﻟ ﻔ ﺎس ﻞ ﻣ اﻟ اﺧ‬ ‫اﻹﻧ ﻧ أو اﻟ ﻬﺎت اﻟ ﻌ ﺔ ﺈﻋﺎدة ﺑ ﻊ اﻟ ﻣﺎت‪ ،‬ﻣ ﻞ ﻣﻘ ﻣﻲ ﺧ ﻣﺎت اﻟ ﺔ اﻟ ﺎﻓﺔ‪ ،‬إﻟﻰ ﺗ‬ ‫ﺗ ر اﻟ ﺔ اﻟ ﻗ ﺔ؟‬ ‫‪Page 10 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ام اﻟ ﻬﺎر‬ ‫ات واﻟ ﻣﺎت اﻟ ﻗ ﺔ‪:‬‬ ‫ﻊ اﺳ‬ ‫ﺗ‬ ‫ات اﻟ ﻣ ﺔ واﻟ ﺳ ﺎت اﻟﻌﺎﻣﺔ اï»ïº§ اﻟ ﻲ ﺗ ﻓ ﻟﻬﺎ إﻣ ﺎﻧ ﺔ اﻟ ﺻ ل اﻟ ﻌ ز إﻟﻰ اﻹﻧ ﻧ ‪ ،‬وﻋ دﻫﺎ ﻓﻲ اﻟ ﺎ‬‫ﻋ د اﻟ ارس واﻹدار‬ ‫ج(‬ ‫ع‪ ،‬وﻋ د اﻟﻔ ﺎت واﻟ ﺎ ﺎت ﺑ ﻬ ؛‬‫اﻟ ﺔ‪ ،‬وﻋ د اﻟ ﻼب اﻟ ﻔ ﯾ ‪ ،‬ﻓﻲ Ø¥ ﺎر ﻫ ا اﻟ و‬ ‫ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ‪ ،‬اﻟ ﻲ ﺗ ï»  ﻬﺎ ﻧ ﺎء واﻟﻐﺎﻟ ﺔ‬ ‫أو اﻟ‬ ‫م ﺧ ﻣﺎت اﻹﻧ ﻧ‬ ‫اﻟ ﺂت واﻟ ﺎت اﻟ ﻐ واﻟ ﻐ Ø© واﻟ ﺳ ﺔ اﻟ ﻲ ﺗ‬ ‫د(‬ ‫اﻟﻌ ï»° ﻣ ﻣ ﻔ ﻬﺎ ﻣ اﻹﻧﺎث‪\.‬‬ ‫ع‬‫و‬ ‫د‪ \.‬وﺻﻒ اﻟ‬ ‫ﻋﻠﻰ‬ ‫اﻟ ﻐ اﻟﻌ‬ ‫ع إرﺳﺎء اï»ïº³ اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ( ﻋﻠﻰ إﺣ اث آﺛﺎر ﺗ ï»  ﺔ ﻣ ﺧﻼل ﺗ‬ ‫ع اﻟ ﻘ Ø­ )ﻣ و‬‫‪ \.16‬ﺳ ﻌ ﻞ اﻟ و‬ ‫ﻣ ﻣﺔ ﻗ ﺎع اﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻣﻊ إﻣ ﺎﻧ ﺔ إﺣ اث أﺛ واﺳﻊ اﻟ ﺎق ﻋﻠﻰ ﻧ اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ‪\.‬‬ ‫ﻣ‬ ‫ات اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص‪،‬‬‫إﻣ ﺎﻧﺎﺗﻬﺎ اﻟ ﻗ ﺔ اﻟ ï»  ﺔ )" ر ﺟ ﺗﻲ "( ﻣ ﺧﻼل ﺣ ﻗ ر‬ ‫ع إﻟﻰ ﻣ ﺎﻋ Ø© ﺟ ﺗﻲ ﻋﻠﻰ ﺗ‬‫و ﻬ ف اﻟ و‬ ‫واﻟ ﺎت ﻋﻠﻰ ﺧ ﻣﺎت ر ﺟ Ø© ﺎﻹﻧ ﻧ ﺄﺳﻌﺎر ﻣﻌﻘ ﻟﺔ‪ ،‬ﻲ‬ ‫ﻣ اﻟ ا‬ ‫أس اﻟ ﺎل اﻟ ﺎص‪ ،‬وﺿ ﺎن ﺗ ﻬ ﻞ ﺣ ل اﻟ‬ ‫ﻻ ﺳ ﺎ ﺗﻌ ﺔ ر‬ ‫ﻟﻼﺳ‬ ‫ع ‪ 3‬ﻣ ﻧﺎت ﻣ ïºïº„ﻧﻬﺎ ﺗ ﻔ ﻞ ﻣ اﻟﻌ ض واﻟ ï»  ﻋﻠﻰ‬ ‫ﺢ اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻣ ﺎ ﻟﻠ واﻻﺑ ﺎر وﺧﻠ ﻓ ص اﻟﻌ ﻞ‪ \.‬و ﻞ ﻫ ا اﻟ و‬ ‫ﻠﺔ‪ ،‬وﺳ ﺗ ﺎول ﻫ ﻩ اﻟ ﻧﺎت ﺎﻟ ﻔ ﻞ أدﻧﺎﻩ‪ \.‬ﻣ اï»ï»« ﺔ‬ ‫ر ﻌﺎ ﻫ ﻣ ّ ن اﻻﺳ ﺎ ﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار اﻟ‬ ‫اﻟ ﻣﺎت اﻟ ﻗ ﺔ ‪ ،‬وﻣ ﻧﺎ ا‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ع‪\.‬‬‫ع ﻟ ﺎن ﺗ ﻘ اï»ïº› اï»ï»£ ﻞ ﻟ ﻧﺎت اﻟ و‬ ‫ﺎن ﺗ ï»  ﻞ أﻧ ﺔ اﻟ و‬ ‫أس ﻣﺎل ﺧﺎص(‬ ‫ﻻر ر‬‫ﺔ وﻣﻠ ن دو‬ ‫ﻻر ﻣ اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ‬‫دو‬ ‫ﻻر‪ ،‬ﻣ ﻬﺎ ‪ 7\.0‬ﻣﻼﯾ‬‫دو‬ ‫اﻹﻟ وﻧﻲ )‪ 8‬ﻣﻼﯾ‬ ‫اﻟ ِّ ن ‪ \.1‬اﻟ ﺔ اﻟ ﻗ ﺔ واﻟ‬ ‫اﻗ ﺎد رﻗ ﻲ ﻧ وïºïºŽï»£ï»ž وآﻣ ‪ ،‬وذﻟ ﺑ ﻬ ﺔ ﺑ ﺔ ﻗﺎﻧ ﻧ ﺔ‬ ‫‪ \.17‬و ﻬ ف ﻫ ا اﻟ ن إﻟﻰ ﻣ ﺎﻋ Ø© ﺟ ﺗﻲ ﻋﻠﻰ إرﺳﺎء اï»ïº³ïºŽØ³ ﻟﻠ ﻌ ﻞ ﺑ‬ ‫( اﻟ ﺎح‪ ،‬ﻻ ﺳ ﺎ ﻟﻠ ﻣﺔ واﻟ ارس‪ \.‬و ï»  م‬ ‫ﺧ ﻣﺎت اﻟ اﻟ ﻗ ﻲ )اﻟ ﺎق اﻟﻌ‬ ‫ﺔ ﻣ اﺗ ﺔ ﻟ ﺎدة اﻟ ﺎﻓ ﺔ ﺗ ر ﺎ‪ ،‬وﻣ ﺧﻼل ﺗﻌ ﻣ‬ ‫وﺗ‬ ‫أس اﻟ ﺎل ﻣ اﻟﻘ ﺎع اﻟ ﺎص‪ ،‬واﻟ ﻣ اﻟ اﺟ اﻟ ﻲ ﺗ ل دون‬ ‫اﺗ ﺎذ إﺟ اءات وﺻﻼﺣﺎت ﻣﻬ ﺔ ﻟﻔ ﺢ ﻫ ا اﻟﻘ ﺎع ﺗ ر ﺎ أﻣﺎم اﻟ ﺎﻓ ﺔ وﺗﻌ ﺔ ر‬ ‫ﻣﻞ‬ ‫اﻟ ﺧ ل ﻓﻲ ﻫ ا اﻟ ﺎل‪ ،‬وﺗ ﻊ اﻟ ﻣﺔ ﻋﻠﻰ اﻟ ﺎح ﺎﻻﺳ ﺎر اﻟ ﺎص اﻟﻔﻌﺎل ﻓﻲ ﻫ ا اﻟﻘ ﺎع‪ ،‬ﺎ ﻓﻲ ذﻟ ﻣ ﺧﻼل ﻣ ﻐﻠ ﻣ‬ ‫‪ ،‬ﻓﺈن‬ ‫ع ﺟﻬ د اﻟ ﻣﺔ اﻟ اﻣ ﺔ إﻟﻰ إدﺧﺎل اﻟ ﺎﻓ ﺔ ﻓﻲ ﺗﻘ ﺧ ﻣﺎت اﻹﻧ ﻧ ﺎﺳ ام اﻟ ﺎق اﻟﻌ‬ ‫ﻣﻘ ﻣﻲ ﺧ ﻣﺎت اﻹﻧ ﻧ ‪ \.‬وذا ﻟ ﯾ ﻋ ﻫ ا اﻟ و‬ ‫ﻓﻌﺎﻟﺔ ï»Ù† أﺳﻌﺎر ﺧ ﻣﺎت اﻹﻧ ﻧ ﻗ ﺗ ﻞ‬ ‫ن‬ ‫ﻟﻬﺎ‪ ،‬اﻟ ﻌﻠﻘﺔ ﺑ ﻓ ﺧ ﻣﺎت اﻟ اﻟ ﻗ ﻲ ï»ïºŸï»¬ Ø© اﻟ ﻣﺔ واﻟ ارس‪ ،‬ﻗ ï»» ﺗ‬ ‫اﻟ ﻧﺎت اï»ïº§ اﻟ‬ ‫ﻓﻲ اﻟ ا ﺔ ﻋﻠﻰ إﺻﻼح اﻟ ﺎﺳﺎت‪ ،‬ﺛ ﺗ‬ ‫ع ﻋﻠﻰ ﻣ اﺣﻞ‪ ،‬ﻣﻊ اﻟ‬‫ع ﻓﻲ ﺗ ﻔ ﻫ ا اﻟ و‬ ‫ﻣ ﺗﻔﻌﺔ ﻟﻠﻐﺎ ﺔ‪ \.‬وﻓﻲ ﻫ ا اﻟ ﺎق‪ ،‬ﻣ اﻟ ﻘ ر أن ﯾ اﻟ و‬ ‫ﻣ ﻐﻞ ﺑ ﯾﻞ واﺣ ﻋﻠﻰ اï»ï»—ﻞ ﻟ ﺔ ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ \.‬وﻋﻠﻰ اﻟ ﻏ ﻣ‬ ‫ﺗ ﻓ ﺧ ﻣﺎت اﻟ اﻹﻟ وﻧﻲ ﻟﻠ اﻗﻊ اﻟ ﻣ ﺔ ﺄﺳﻌﺎر ﺗ ﺎﻓ ﺔ ﻋ‬ ‫‪\.‬‬ ‫اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ‪ ،‬ﻓﺈن ذﻟ ﻟ ïº ïºŽ ﺎ ﺎ‪ ،‬وﺳ ﻌ ﺑ ل ﺟﻬ د ﺗ ï»  ﺔ ﻟ ب اﻟ‬ ‫اﻟ ق ﻟ‬ ‫ةﺗ‬ ‫ﺿ ور‬ ‫اﺳ ﻔﺎء ïº Ùˆ ﻣ ﻘﺔ ﻣ دة ﺗ ﺗ‬ ‫‪ \.18‬و ﺎﻟ ﺔ ﻟ ﺣﻠﺔ اﻟ ﻔ )اﻧ اﻟ ن اﻟﻔ ﻋﻲ ‪ 1\.2‬ب(‪ ُ ،‬ﻘ Ø­ ﻋ م ﺻ ف Ø£ ﻣ ﺎﻟﻎ ﺣ ï»° ﯾ‬ ‫ﺟﺎت اﻟ ï»  ﺳﺔ ﻟﻬ ا اﻟ ن اﻟﻔ ﻋﻲ‪\.‬‬ ‫أس اﻟ ﺎل اﻟ ﺎص ﻧ ا ﻟﻠ ﺎﺋﺞ اﻟ ﻗﻌﺔ ﻣ اﻟ‬ ‫ﺗﻌ ﺔ ر‬ ‫اﻟ ق ﺗ د إﻟﻰ ﺗ‬ ‫ﺑ ﺎت ﻧ ﺗ‬ ‫ﺔ ﻣ ﻌ د اﻟﻘ ﺎﻋﺎت‬ ‫إدار‬ ‫ة اﻟﻬ ﺔ اﻟ‬ ‫وﻟﻬ ا اﻟﻐ ض‪ ،‬ﯾ ﻌ ﻋﻠﻰ اﻟ ﻣﺔ اﺳ ﻔﺎء ïº Ùˆ اﻟ ف اﻟ ﺎﻟ ﺔ‪ () :‬ﺗﻌ اﻟ ﯾ اﻟﻌﺎم وأﻋ ﺎء ﻣ ﻠ‬ ‫ﺔ ﻟ ﻘ ﻣﻲ ﺧ ﻣﺎت اﻹﻧ ﻧ ﻟﻠ ﺎﻓ ﻓﻲ‬ ‫واﺣ ( ﻣ ﺟﺎﻧ اﻟﻬ‬ ‫)أﻛ ﻣ ﺗ ﺧ‬ ‫ﺑ ﺻﻒ ذﻟ ﺧ Ø© أﺳﺎﺳ ﺔ ﻟ ﻔﻌ ﻞ دور اﻟﻬ ﺔ؛ )‪ (2‬ﻣ ﺢ ﺗ اﺧ‬ ‫‪\.‬‬ ‫اﻟ ق ﺑﻬ ف ﺗ ﻓ ﺳﻌﺔ اﻹﻧ ﻧ اﻟ ï»  ﺔ؛ و)‪ (3‬إﻋ اد وﻧ Ø¥ ﺎر ﺳ ﺎﺳﺔ إﻋﺎدة اﻟ‬ ‫ﻻر(‬‫ﻟ ﺟ ﺎ اﻟ ﻗ ﺔ )ﻣﻠ ﻧﺎ دو‬ ‫اﻟ ِّ ن اﻟﻔ ﻋﻲ ‪ :1\.1‬اﻟ ﺔ اﻟ اﻋ ﺔ ﻟﻠ‬ ‫‪Page 11 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﻣ ﺎﻻت اﻹﺟ اءات اﻟ ﺧﻠ ﺔ اﻟ ﻼﺛﺔ اﻟ ﺎﻟ ﺔ‪:‬‬ ‫ن اﻟﻔ ﻋﻲ ﺿ‬ ‫ﺔ اﻟ ﻋ ﻣﺔ ﻓﻲ Ø¥ ﺎر ﻫ ا اﻟ‬ ‫ﺗ رج اï»ï»§â€¬ ‫‪\.19‬‬ ‫ﻗ ﺎع ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‪\.‬‬ ‫اﻟ ﺳ ﺎت اﻟﻌﺎﻣﺔ اﻟ ﺋ ﺔ ﻟ‬ ‫ﺗﻌ‬ ‫ﻠﺔ ﺳ ق اﻻﺗ ﺎﻻت‪/‬ﺗ ﻟ ﺟ ﺎ‬ ‫و وﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ‬ ‫ة اﻻﺗ ﺎﻻت واﻟ‬ ‫ات وز‬ ‫ار‬ ‫أ‪ \.‬اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻟ ﺎء ﻗ ر‬ ‫ﻲ‬ ‫ة ﻣﻊ اﻹ ﺎر اﻟﻘﺎﻧ ﻧﻲ واﻟ‬ ‫زر‬ ‫اﻟ ا‬ ‫ﻣ ﺧﻼل دﻋ ﺗ‬ ‫اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗ ﻊ‪/‬ﻣ ﺎ ﻌﺔ ﺗ ر اﻻﻗ ﺎد اﻟ ﻗ ﻲ اﻟ‬ ‫اﻟ ﺎﺳﺎت؛‬ ‫اﻟ ﻗﺎ ﺔ ÙˆØ§ï»¹ïº Ø§Ù ﻋﻠﻰ ﻣ‬ ‫اﻟ ﯾ ﻟ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﺗ‬ ‫ﺔ ﻟﻘ ﺎع‬ ‫ﺔ ﻣ ﻌ د اﻟﻘ ﺎﻋﺎت‪ ،‬وﻫ ﺟﻬﺎز ﻣ ﻘﻞ ﻋ اﻟ ﻣﺔ و ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬ﻠ ﺔ ﺗ‬ ‫ب‪ \.‬ﺗﻔﻌ ﻞ دور اﻟﻬ ﺔ اﻟ‬ ‫اﻟ ﻐ ﻞ اï»Ùˆï»Ÿ ﺔ ﻟﻬ ﻩ اﻟﻬ ﺔ‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪،‬‬ ‫‪36‬‬ ‫اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ‪ \.‬وﺳ ﻞ اﻟ ﺎﻧ Ø© اﻟ ﻘ ﻣﺔ اﻟ ﺎﻫ ﺔ ﻓﻲ ﺗﻐ ﺔ ﺗ ﺎﻟ‬ ‫ﻟﺔ‬ ‫ﺗ اﻟ‬ ‫ة‪ ،‬واﺟ ﺎﻋﺎت اﻟ ﺎور ﻣﻊ أﺻ ﺎب اﻟ ï»  ﺔ‪ ØŒâ€¬Ùˆïº Ø§Ø¡ اﻟ ﻌ ات )أﺟﻬ Ø© اﻟ‬ ‫اﻟ ﺎﻟ اﻟ ﻌﻠﻘﺔ ﺎﺳ ﺎﻓﺔ اﺟ ﺎﻋﺎت ﻣ ï»  اﻹدار‬ ‫ﻧ ﺎ اﻻﺗ ﺎﻻت‪\.‬‬ ‫واﻟ ﺎ ﻌﺎت وﻣﺎ إﻟﻰ ذﻟ (؛ و ﺑ اﻣﺞ اﻟ ر اﻟﻔ ﺔ اﻟ ﻬ ﻓﺔ ﻟﻠ ﻔ اﻟ ﯾ ﺗ ﺗﻌ ﻬ ﻣ ﺟﺎﻧ اﻟ ﻬﺎز ﻋﻠﻰ ﺗ‬ ‫اﻟ ﺎﻓ ﺔ اﻟ ر ﺔ واﺳ ﺎر‬ ‫ات اﻟﻘ ﺎع اﻟ ﺎص ﻓﻲ ﻣ ﺎل ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‬ ‫ﺗ‬ ‫ﻟﻼﺳ‬ ‫ﺑ ﺔ ﻣ اﺗ ﺔ ﻟﻠ ﺎﻓ ﺔ اﻟ ر ﺔ‪ \.‬و ﻞ ذﻟ اﺳ ﻌ اد ïº ïº” ﺟ ﺗﻲ‬ ‫ات اﻟ ﺔ ﻟ‬ ‫ات ﻹﺣﺎ ﺔ اﻟ ﻣﺔ ﺎﻟ ﺎر‬ ‫اﺳﺔ اﻟ ﺎر‬ ‫ج‪ \.‬در‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻟ ﺎت ﺟ ﯾ Ø© ﺗﻘ م ﺧ ﻣﺎت اﻹﻧ ﻧ ‪ ،‬وﻓ ﺢ اï»ïº³ اق‬ ‫إﺳ اﺗ ﻲ؛ وﺻ ار ﺗ ﺧ‬ ‫ﻟﻼﺗ ﺎﻻت ﻻﻧﻔ ﺎح اﻟ ق‪ ،‬واﺧ ﺎر ïºâ€¬ ‫ات اﻟ ﺎﺻﺔ؛‬ ‫اﻟ ﺎﻋ Ø© أﻣﺎم اﻻﺳ ﺎر‬ ‫ار‬ ‫ة‬ ‫ات ﻣﻊ أﺻ ﺎب اﻟ ï»  ﺔ ÙˆØ§ï» Ø§Ù اﻟ ﻌ ﺔ )ﻣ ﺧﻼل اﻹﻧ ﻧ و ر‬ ‫ة ﻣ ïºŽïº Ø©( ﻌ ﻓﺔ وز‬ ‫اﻟ ﺎور‬ ‫د‪ \.‬ﺗﻘ اﻟ ﺎﻧ Ø© ﻟ‬ ‫ات أﺻ ﺎب‬ ‫اﻟ ﺎور‬ ‫‪ \.‬وﺳ‬‫ق‬ ‫ﺔ ﻣ ﻌ دة اﻟﻘ ﺎﻋﺎت ﺄن ﻓ ﺢ ﺎب اﻟ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ اﻟ‬ ‫اﻻﺗ ﺎﻻت واﻟ ‪ ،‬واﻟﻬ ﺔ اﻟ‬ ‫وﻏ ﻫ ﻣ Ø§ï» Ø§Ù اﻟ ﻌ ﺔ‪ ،‬ﻟﻼﺳ ﺎع إﻟﻰ وﺟﻬﺎت‬ ‫‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬اﻟﻘ ﺎع اﻟ ﺎص وﻣ ﻠﻲ اﻟ ﻬﻠ‬ ‫اﻟ ï»  ﺔ اﻟ ﺋ‬ ‫اء ﺄن ﻓ ﺢ ﺎب اﻟ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ اﻟ ق‪\.‬‬ ‫ﺄن ﺑ ﺔ اﻟ ق ﻓﻲ اﻟ ﻘ ﻞ‪ ،‬واﻟ ﺻﻞ إﻟﻰ ﺗ اﻓ ﻓﻲ اﻵر‬ ‫اﻟ‬ ‫ﺄن ﻓ ﺢ ﺎب اﻟ ﺎﻓ ﺔ ﺗ ر ﺎ ﻓﻲ اﻟ ق‪،‬‬ ‫‪37‬‬ ‫ﺔ اﻟ ï»  ﺔ‬ ‫ه‪ \.‬ﺗﻘ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻟﻠ ﻣﺔ ﻹﻋ اد اﻟ ﺛﺎﺋ اﻟﻘﺎﻧ ﻧ ﺔ واﻟ‬ ‫ات؛‬‫ات واﻟ ﺎور‬‫اﺳﺔ اﻟ ﺎر‬ ‫اﺳ ﺎدا إﻟﻰ ﻧ اﺗﺞ در‬ ‫ع ﻟﻠ ﺎﻋ Ø© اﻟﻔ ﺔ ﺑ ﻞ ﻣ ﺑ ﻧﺎﻣﺞ اﻟ ﻬ ﻼت اﻻﺳ ﺎرﺔ ﻟﻠ ﺔ اﻟ ﺔ ﺑ اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص)‪، (P171784‬‬ ‫ﺗﻘ ﻌ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻓﻲ Ø¥ ﺎر ﻣ و‬ ‫‪36‬‬ ‫ﻋة‬ ‫ﺗﺄﻣ ﻣ ازﻧﺔ ﺗ ﻐ ï»  ﺔ ﻋﻠﻰ ﻣ‬ ‫ﻲ ﻟﻬ ﻩ اﻟ ﺳ ﺔ اﻟ ﯾ Ø© وﺗ و ﻫﺎ ﺎﻟ ﻔ وﻣ ازﻧ ﻬﺎ ) ﺎ ﻓﻲ ذﻟ ﻣﺎ ﯾ ﻋ‬ ‫ة ﺄن اﻟﻬ ﻞ اﻟ‬ ‫ع ﺗﻘ اﻟ ر‬ ‫و ﻞ ﻫ ا اﻟ و‬ ‫وﻣﺎ إﻟﻰ ذﻟ (‪ ،‬ﻓ ﻼ ﻋ اﻟ ﺿﻊ اﻟﻘﺎﻧ ﻧﻲ ﺑ ﺻﻔﻬﺎ ﺟﻬﺔ اﻋ ﺎرﺔ‪ ،‬ﺗ ﻟﻰ ïº ÙˆÙ† ﻗ ﺎع اﻻﺗ ﺎﻻت واﻟ ﺎﻗﺔ‪ \.‬و ﯾ اﻟ‬ ‫ورﺳ م اﻟ‬ ‫ﺳ ات ﻣﺎﻟ ﺔ ﻣ ﺧﻼل رﺳ م اﻟ اﺧ‬ ‫ﻘ ﻣﻪ ﻫ ا اﻟ وق ﻣ ود‪\.‬‬ ‫اﻟ ﻋ اﻟ‬ ‫اﻟ وﻟﻲ اﻟ وق اﻻﺳ ﺎﻧﻲ اﻟ ﺎ ﻊ ﻟ ﻧﺎﻣﺞ اﻟ ﻬ ﻼت اﻻﺳ ﺎرﺔ ﻟﻠ ﺔ اﻟ ﺔ ﺑ اﻟﻘ ﺎﻋ اﻟﻌﺎم واﻟ ﺎص‪ ،‬و ﺎﻟ ﺎﻟﻲ ﻓﺈن ﻣ‬ ‫وﺗ ﺎرﺢ ﻟ ﯾ اﻹ ﺎر اﻟﻘﺎﻧ ﻧﻲ ﻓﻲ ﺟ ﺗﻲ ﺄن اﻟ ﺎت واﻻﺳ اﻣﺎت واﻟ ﻣﺎت اﻟ ﻗ ﺔ‪\.‬‬ ‫‪ 37‬ﯾﻠ م وﺿﻊ ﻗﺎﻧ ن وﻣ اﺳ وﺻ ار ﺗ اﺧ‬ ‫‪Page 12 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺎد اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ‬ ‫ﺗ ر اﻻﻗ‬ ‫ﺗﻌ‬ ‫ﻣ ﺎﻧ Ø© إﻧ ﺎء ﻣ ﺻ ﻟ ق ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‪ ،‬ﻟﻠ ﺎح ﺑ ﻊ اﻟ ﻘ م اﻟ ز ﻣﻊ أﺛ اﻟ ﺎﺳﺎت اﻟ ﯾ Ø© و ﺎس‬ ‫و‪\.‬‬ ‫ﺎﺳ ام ïº ïºŽØªâ€¬ ‫ﺔ‪/‬اﻟ ﺔ‪ ،‬وﺧ ﻣﺎت اﻟ‬ ‫اﻟ‬ ‫‪ ،‬وﺗﻐ ﺔ اﻟ ﺎ‬ ‫اﻟﻔ ات اﻟ ﻗ ﺔ ﻋﻠﻰ ﻧ دﻗ )ﻣ ﻞ اﻟﻔ Ø© ﺑ اﻟ‬ ‫اﺳﺔ أﺳﺎﺳ ﺔ ﻻﺳ ام ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻓﻲ ﺟ ﺗﻲ‪ ،‬ﺎ ﻓﻲ ذﻟ ﺧ ﻣﺎت اï»ï»£ ال ﻋ‬ ‫ﺔ(‪ ،‬وﺗ ﻞ در‬ ‫اï»ï»Ÿ ﺎف اﻟ‬ ‫اﺳﺔ أﺳﺎﺳ ﺔ ﺄن ﺗ اﻓ اﻟ ﺔ اﻟ ﺔ اﻟ ﻗ ﺔ وﺟ دﺗﻬﺎ‪\.‬‬ ‫ل‪ ،‬ﻓ ﻼ ﻋ در‬ ‫‪38‬‬ ‫اﻟﻬﺎﺗﻒ اﻟ‬ ‫ﻹﺟ اء اﺳ ﻌ اض ﻧﻬﺎﺋﻲ ﻟﻠ ﺔ اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ اﻟ ﻘ ر اﺳ ﺎﻟﻬﺎ ﻓﻲ‬ ‫ة اﻻﺗ ﺎﻻت واﻟ‬ ‫ﺗﻘ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻟ ز‬ ‫ار‬ ‫ز‪\.‬‬ ‫ات واﻟ ﻘ م اﻟ ز ﻓﻲ ﺗ ﻘ أﻫ اف اﻟ ﺔ‬ ‫‪ ،2024‬وﻋ اد اﻟ ﺛ ﻘﺔ اﻹﺳ اﺗ ﺔ اﻟﻼﺣﻘﺔ‪ \.‬و ﻬ ف ﻫ ا اﻻﺳ ﻌ اض ﺗﻘ اﻹﻧ ﺎز‬ ‫‪39‬‬ ‫اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ ﻣ ﺑ Ø¡ ﺗ ﻔ ﻫﺎ ﻓﻲ ﻋﺎم ‪2014‬؛‬ ‫واﻟﻔ ارق ﺑ ﻬ ﺎ و اﻋﻲ‬ ‫ﺗﻘ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻟﻠ ﻣﺔ ﻹﻋ اد إﺳ اﺗ ﺔ ﻟﻼﻗ ﺎد اﻟ ﻗ ﻲ ﺑ ﻬﺞ ïºïºŽï»£ï»ž ﯾ اﻋﻲ اﻟ ﺎواة ﺑ اﻟ‬ ‫ح‪\.‬‬ ‫ﻊ‪ ،‬ﻣﻊ إﯾﻼء اﻻﻫ ﺎم اﻟ اﺟ ﻟﻘ ﺎ ﺎ اï»ï»£ اﻟ اﻧﻲ‬ ‫ﺗﻐ اﻟ ﺎخ‪ ،‬ﻓ ﻼ ﻋ اﻻﺳ اﻣﺎت اﻹﻧ ﺎﺟ ﺔ ﻟﻺﻧ ﻧ ﻓﻲ اﻻﻗ ﺎد واﻟ‬ ‫وﺣ ﺎ ﺔ اﻟ ﺎﻧﺎت؛‬ ‫ات ﻟ ﺎر اﻟ وﻟ اﻟ ﻣ ‪ ،‬وﻣ ﻬ اﻟ ﺎء‪ ،‬ﺣ ل اﻟ ل اﻟ ﻗ ﻲ ودور‬ ‫ﻩ ﻓﻲ اﻟ‬ ‫ات ﺗ ر ﺔ و اﻣﺞ ﻟ ﺎء اﻟﻘ ر‬ ‫ﺗﻘ دور‬ ‫‪\.‬‬ ‫ﻣ آﺛﺎر ﺗﻐ اﻟ ﺎخ‪\.‬‬ ‫ﻟﻼﺳ‬ ‫د ﻓﻲ‬ ‫اﻋﺔ( Ùˆïº Ø§ïº‹ïº¢ اﻟ ﺎن اï»Ùˆï»Ÿï»° ﺎﻟ ﻋﺎ ﺔ ﻋﻠﻰ اﻟ‬ ‫ة اﻟﻘ ﺎﻋﺎت اﻟ ﻔﺔ )ﻣ ﻞ اﻟ ر‬‫‪ \.20‬وﻣ ïºïº„Ù† ﺗﻬ ﺔ ﺑ ﺔ رﻗ ﺔ أﻛ ﺗ ﺎ ﺗﻌ ﻗ ر‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ات اﻟﻘ ﺎع اﻟﻌﺎم و اﻣﺞ اﻟ ﻣﺎت اﻟﻌﺎﻣﺔ اﻟ ﻲ ﺗ ﻔﻒ ﻣ اﻟ ﺎ أو اﻵﺛﺎر اﻟ ï»  ﺔ‬ ‫ﻗر‬ ‫ﻣ اﺟﻬﺔ اﻟ ﻣﺎت ï»° اﻟ ق‪ \.‬و ﻞ ذﻟ ‪ (1) :‬ﺗ‬ ‫ﺔ‪ ،‬وﺻﻼح اﻟ ﻌﻠ ‪،‬‬ ‫د‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل رﺻ ﻣ ﺎ اﻟ ارث ودارﺗﻬﺎ‪ (2) ،‬ﺗﻬ ﺔ ﺑ ﺔ داﻋ ﺔ ﻹدار‬ ‫ة اﻟ ارد اﻟ‬ ‫وﺗﻌ ز اﻟﻘ ر‬ ‫ة ﻋﻠﻰ اﻟ‬ ‫أﻧ ﺔ اﻟ ﻓﻊ اﻟ ﻗ ﺔ‪\.‬‬ ‫واﻟ اﻣﺞ اﻟ ﻗ ﺔ ﻟ ﻼت اï»ï»£ ال ﻣ اﻟﻘ ﺎع اﻟﻌﺎم‪ ،‬أو ﻣ اﺻﻠﺔ ﺗ‬ ‫أس ﻣﺎل ﺧﺎص(‬ ‫ﻻر ر‬‫ﻣﻠ ن دو‬ ‫ﺔ وﻧ‬ ‫ﻻر ﻣ اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ‬‫دو‬ ‫ﻻر ‪ ،‬ﻣ ﻬﺎ ‪ 5\.0‬ﻣﻼﯾ‬‫دو‬ ‫اﻟ ﻗ ﻲ )‪ 6\.0‬ﻣﻼﯾ‬ ‫اﻟ ِّ ن اﻟﻔ ﻋﻲ ‪ :1\.2‬اﻟ‬ ‫ﻟ ﺎﻟﺢ اﻟ ﻣﺎت‬ ‫ﺎﻟ ﺎق اﻟﻌ‬ ‫ﺧ ﻣﺎت اﻟ‬ ‫ة اﻟ ﻣﺔ ﻋﻠﻰ ﺗﻘ اﻟ ﻣﺎت إﻟﻰ اﻟﻘ ﺎع اﻟﻌﺎم وﺗ‬ ‫‪ \.21‬ﻌ ﻞ ﻫ ا اﻟ ن ﻋﻠﻰ ز ﺎدة ﻗ ر‬ ‫ﻟﻠ ارس اﻻﺑ اﺋ ﺔ‬ ‫ص‪ ،‬ﺳ إﯾﻼء أوﻟ ﺔ ﻋﻠ ﺎ ﻟ ﻓ ﺧ ﻣﺎت ر ﺎﺳ ام اﻟ ﺎق اﻟﻌ‬ ‫اﻟ ﻌﻠ ﺔ واﻟﻘ ﺎع اﻟ ﺎص‪ \.‬وﻋﻠﻰ وﺟﻪ اﻟ‬ ‫وﺻ ل اﻟ ﻼب واﻟ ﻌﻠ إﻟﻰ‬ ‫واﻟ ﺳ ﺎت اﻟ ﻌﻠ ﺔ اï»ïº§ إن أﻣ ذﻟ )اﻟ ï»  ﺎت واﻟ ارس اﻟ ﺎﻧ ﺔ واﻟ ارس اﻟﻔ ﺔ واﻟ ﻬ ﺔ وﻣﺎ إﻟﻰ ذﻟ ( ﻟ‬ ‫اﻹﻧ ﻧ ‪ \.‬وﻓﻲ اﻟ ﻗ اﻟ ﺎﻟﻲ‪ ،‬ﻓﺈن ﻧ ﺛﻠ ﻲ اﻟ ارس اﻻﺑ اﺋ ﺔ اﻟ ﺎﻟﻎ ﻋ دﻫﺎ ‪ 152‬ﻣ رﺳﺔ ﻓﻲ ﺟ ﺗﻲ ﻏ ﻣ ودة ﻋﻠﻰ اﻹ ﻼق ﻣﺎت اﻹﻧ ﻧ ‪\.‬‬ ‫ﺎﻟ ﺔ اﻟ ﺎﺑ ﺔ ﻟ ﻌ اﻟ ﺳ ﺎت اﻟ ﻣ ﺔ‪ ،‬ﺎ ﻓﻲ ذﻟ اﻟ ارس‪ ،‬ﺳ ﻌ ز ﻫ ا اﻟ ن اﻟﻔ ﻋﻲ ﻗ ر‬ ‫ة‬ ‫‪ \.22‬وﻣ ﺧﻼل ﺗ ﺳ ﻊ ﻧ ﺎق ﺧ ﻣﺎت اﻟ‬ ‫ﻟ ﺎﺋ ﺔ روﻧﺎ واﻟ ﻌﺎﻓﻲ ﻣ ﻬﺎ‪ ،‬و ﻟ اﻟ ﻣﺎت اﻟ ﻘ ï»  ﺔ‪ \.‬وازدادت أﻫ ﺔ اﻟ ﻬ د اﻟ ﺔ اﻟ وﻟﺔ ﻓﻲ ﻣ ﺎل اﺳ ام‬ ‫ﺟ ﺗﻲ ﻋﻠﻰ اﻟ‬ ‫د ﻓﻲ ﻣ اﺟﻬﺔ اﻟ ﻣﺎت‬ ‫اﻟ ﻟ ﺟ ﺎ ﻟ ﻋ اﻟ ﻌﻠ ﻋ ﻌ واﻟ ﻌﻠ ﻓﻲ أﺛ ﺎء ﺟﺎﺋ ﺔ روﻧﺎ‪ ،‬وﺗﻌ اﻟ ﻟ ﺟ ﺎ أداة رﺋ ﺔ ﻟ ﺎء ﻗ ر‬ ‫ة اﻟ ﺎم ﻋﻠﻰ اﻟ‬ ‫ﻣ اﻻﺿ ا ﺎت ﻓﻲ اﻟ ﻌﻠ ‪ \.‬ﺎ أن ﺗ ر اï»ïºŸ ﺎل‬ ‫اﻟ‬ ‫أن ﺗ‬ ‫ﺔ أو ﺻ ﻣﺎت ﻣ ﺎﺧ ﺔ‬ ‫وﺗﻌ اﺳ ارﺔ اﻟ ﻌﻠ ﻓﻲ ﺣﺎل وﻗ ع ارث‬ ‫اﻟ ﯾ Ø© ﻋﻠﻰ اﻟ ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ ورﺳﺎء اï»ïº³ اﻟ ï»  ﺔ ﻟﻼﻗ ﺎد اﻟ ﻗ ﻲ أﻣ ﺎﻟﻎ اï»ï»« ﺔ‪ \.‬وﻓﻲ ﻧﻬﺎ ﺔ اﻟ ﺎف‪ ،‬ﺳ ﺢ ﺗﻌ ﺧ ﻣﺎت اﻟ‬ ‫ﺔ ï»» ﺗ ﺎﺑ‬ ‫اﻟ ﺎن )‪ %55\.7‬ﻣ اﻟ ﺎن(‪ ،‬وﻫ ﻩ اﻟ‬ ‫ﺎت ﻣ ﺗﻔﻌﺔ ﺑ‬ ‫ﺑ ï»  ﻣ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﻓﻲ ﻋﺎم ‪ 2017‬إﻟﻰ اﻧ ﺎر اﻹﻧ ﻧ‬ ‫در‬ ‫اﺳﺔ أﺟ‬ ‫‪ 38‬ﺗ‬ ‫اﺳﺔ ﺟ ﯾ ة‪\.‬‬‫ﻣﺔ ﻣ ﻞ ïº Ø› وﻣ ﻫ ﺎ ﺟﺎءت اﻟ ﺎﺟﺔ إﻟﻰ در‬ ‫ﻣﻊ اﻟ ﻘ ﯾ ات اï»ïº§ ‪ ،‬و ﺎﻧ اﻟ ﻬ ﺔ اﻟ‬ ‫اﻟ اﻟ وﻟﻲ اﺳ ﻌ اض ﻣ ﻒ اﻟ Ø© ﻟﻠ ﺔ اﻹﺳ اﺗ ﺔ اﻟ ﺎﻣﻠﺔ ﻓﻲ Ø¥ ﺎر اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ اﻟ ﻘ ﻣﺔ ﻹﺻﻼح ﻗ ﺎع اﻻﺗ ﺎﻻت ﻓﻲ Ø¥ ﺎر ﺑ ﻧﺎﻣﺞ ﻣ اﻟ ﻣﺎت‬ ‫‪39‬‬ ‫اﻻﺳ ﺎرﺔ واï»ï»‹ ﺎل اﻟ ï»  ï»  ﺔ )‪\.(P171784‬‬ ‫‪Page 13 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﻓﻲ‬ ‫روﻧﺎ اï»ï»« ﺔ اﻟ ﺎﻟﻐﺔ ﻟ ﻣﺎت اﻟ‬ ‫ﺟﺎﺋ ﺔ‬ ‫ﻟﻬﺎ‪ \.‬وﻗ أﺛ‬ ‫ﻬﺎ رﺻ وﻣ ﺎ ﻌﺔ اï»ïº£ اث اﻟ ﺎﺧ ﺔ واﻟ ﯾ ﻣ ﻬﺎ واﻟ‬ ‫اﻹﻟ وﻧﻲ ﺈﻧ ﺎء ﻧ‬ ‫ﺗﻐ اﻟ ﺎخ‪\.‬‬ ‫ﻣ اﯾ‬ ‫ة ﻋﻠﻰ ﻧ‬‫رﺻ وﻣ ﺎ ﻌﺔ ﺗﻔ ﻲ اï»Ùˆ ﺔ واﻟ اﺋﺢ و دارﺗﻬﺎ و ﺢ ﺟ ﺎﺣﻬﺎ‪ ،‬وﻗ ﺗ ﺢ ﻫ ﻩ اﻟ اﺋﺢ ﻣ ر‬ ‫ﺧ ﻣﺎت اﻟ اﻻﺳ ﻔﺎدة ﻣ إﺳ اﺗ ﺔ اﻻﻧﻔ ﺎح اﻟ ر ﻲ ﻓﻲ ﺳ ق‬ ‫‪ \.23‬وﺗ ﻬ ف اﻟ ﻬ د اﻟ وﻟﺔ ﻓﻲ Ø¥ ﺎر اﻟ ن اﻟﻔ ﻋﻲ ‪ 1\.2‬ﻟ‬ ‫ﺗ ﯾ ا ﻋﻠﻰ اﻟ ﺳ ﺎت اﻟ ﻌﻠ ﺔ واﻟ ﺳ ﺎت اﻟﻌﺎﻣﺔ اï»ïº§ ‪\.‬‬ ‫)ﻓﻲ Ø¥ ﺎر اﻟ ﺎﻧ Ø© اﻟ ﻘ ﻣﺔ ﻣ اﻟ ن اﻟﻔ ﻋﻲ ‪ ،(1\.1‬وﺳ‬ ‫اﻟ ﺎق اﻟﻌ‬ ‫ﺄﺟ رﺋ ﻲ ﻟ ﻌ ﺔ‬ ‫ع ﻋﻠﻰ ﺗ ﻔ اﻻﺳ ﺎر اﻟ ﺎص ﻣ ﺧﻼل اﻻﺳ ﻔﺎدة ﻣ اﻟ ï»  ﻋﻠﻰ ﺧ ﻣﺎت اﻹﻧ ﻧ ﻣ ﺟﺎﻧ اﻟ ﻣﺔ‬ ‫وﺳ ﻌ ﻞ اﻟ و‬ ‫ﻻ ﺄول‬ ‫ﺔ ﻣ ﻌ دة اﻟﻘ ﺎﻋﺎت وﺗ ﺎدل اﻟ روس اﻟ ﻔﺎدة أو‬ ‫رؤوس اï»ï»£ ال ﻣ اﻟﻘ ﺎع اﻟ ﺎص‪ ،‬ﻣﻊ ﺗﻘ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ ﻟﻠ ﻣﺔ واﻟﻬ ﺔ اﻟ‬ ‫ع ﻣ ﺧﻼل ﻣ ïº Ùˆïº³ ‪ \.‬أﻣﺎ‬ ‫ات اﻟ ﺎﺻﺔ اﻟ ﻲ ﺗ ﻓﻲ Ø¥ ﺎر اﻟ و‬ ‫ل ﻋﻠﻰ ﺧ ﻣﺎت إﻧ ﻧ ﻣ ﻔ ﺔ اﻟ ﻠﻔﺔ‪ \.‬وﺳ ﺗ ﻊ ﺔ اﻻﺳ ﺎر‬ ‫ﻟﻠ‬ ‫ﻟ ﻌﺔ اﻹﻧ ﻧ ‪ ،‬ﻣﻊ ﺗ ﻊ اﻟ ï»  وﻓﻘﺎ ﻟ ﻬﺞ ﻣ ﻌ د اﻟ اﺣﻞ‪ ،‬ﯾ Ø£ ﺣﻠﺔ‬ ‫ن ﻣ ﺧﻼل اﻟ اء اﻟ‬ ‫مﻓ‬ ‫آﻟ ﺔ اﻟ ﻔ اﻟ ﻘ ﺣﺔ اﻟ ﻲ ﺳ‬ ‫اﻟ ﻬ ﻲ ﻋﻠﻰ ﻋ د ﻣ‬ ‫ة اﻟ ﻌﻠ واﻟ‬‫زر‬‫ﺔ اï»Ùˆï»Ÿï»° اﻟﻌ ﻞ ﻣﻊ و ا‬ ‫اﻟ ق‪ \.‬و ﺳ ﻞ اﻟ ﺣﻠﺔ اﻟ‬ ‫اﻟ ﺎﻟﻲ ﻟ‬ ‫ﺎﻟ‬ ‫ﺔ‪ ،‬ﺗ ﺗ‬ ‫ﺗ‬ ‫‪ ،‬ﻣ ﺧﻼل ﺑ اﻣﺞ اﻟ اء‬ ‫ﺔ ﻻﺧ ﺎر اﻟ ﺳﻊ ﻓﻲ ﺳﻌﺔ اﻟ ﺎق اﻟﻌ‬ ‫ﺔ ﺎï»ï»Ÿ ﺎف اﻟ‬ ‫ة اﻟ ﻲ ﺑﻬﺎ ﺎﻟﻔﻌﻞ ﺧ ﻣﺎت ر‬ ‫‪40‬‬ ‫اﻟ ارس اﻟ ﺎر‬ ‫اﻟ ﻐ ﻞ‬ ‫ﻫ ﻩ اﻟ ﺔ Ø£ ﺎ ﺗ ﺎﻟ‬ ‫ﻓﻲ اﻟ ارس‪ ،‬وﺳ‬ ‫‪ ،‬واﻟ ﻌﻠ ﻣ اﻟ ات واﻟ ﺎرب ﻟ ﺿﻊ ﺧ ﺔ أﻛ ïº ï»Ÿ ﺔ ﻟ ﻣﺎت اﻟ‬ ‫اﻟ‬ ‫اﻟ ﻬ ﻲ ﻟ ﻌ اﻟ ﻌﻠ واﻟ ﻌﻠ ﻓﻲ‬ ‫ة اﻟ ﻌﻠ واﻟ‬ ‫زر‬‫واﻟ ﺎﻧﺔ وﺗ ر اﻟ ﻌﻠ ‪ \.‬وﺳ ﻋ اﻟ ن اﻟﻔ ﻋﻲ ‪ 1\.2‬أ ﺎ اﻟ ﺔ اﻹﺳ اﺗ ﺔ ﻟ ا‬ ‫‪41‬‬ ‫ﻣ ﺎﻧ Ø© اï»ï»§ ﺔ اﻟ ﺎﻟ ﺔ ﻓﻲ Ø¥ ﺎر ﻫ ا اﻟ ن اﻟﻔ ﻋﻲ‪:‬‬ ‫ﻟﻼﺳ‬ ‫ﻣ ﺎل ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت ﻣﻊ اﻻﺳ ﻔﺎدة ﻣ ﻣ ﺎر ﺔ اﻟﻘ ﺎع اﻟ ﺎص‪ \.‬وﺳ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻻر(‬‫ﺔ )‪ 0\.5‬ﻣﻠ ن دو‬ ‫ن اﻟﻔ ﻋﻲ ‪) \.1\.2‬أ( اﻟ ﺣﻠﺔ اﻟ‬ ‫اﻟ‬ ‫اï»ïºŸï»ž )ﻣ ﺗﻪ ﺳ ﺎن‪ 3/‬ﺳ ات( ﻣﻊ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‬ ‫ﺔ ﺟ ﻋﻘ ﻗ‬ ‫ﻟ ﻌﺔ اﻹﻧ ﻧ ﻓﻲ اﻟ ﺣﻠﺔ اﻟ‬ ‫‪ \.24‬ﺳ اﻟ اء اﻟ‬ ‫ﺗ ﻐ ﻞ ﺣ ﯾ ﺔ‪ \.‬وﺳ ن اﻟ ﺣﻠﺔ‬ ‫ﻟ ﯾﻬ ﺎ ﺗ اﺧ‬ ‫ﺗ ﻐ ﻞ(‪ ،‬أو ïº ï»² ﺗ ﻐ ﻞ أﺧ‬ ‫أو ïº ïº” أﻓ ﻔﺎﯾ )وﻫ ﺎ ïº ïºŽ اﻟ ﻐ ﻞ اﻟﻠ ﺎن ﻟ ﯾﻬ ﺎ ﺗ اﺧ‬ ‫ﻟ ﻌﺔ اﻹﻧ ﻧ ﺎﻟ ﺎ ﺔ ﻋ‬ ‫ع‪ \.‬وﻣ ïºïº„Ù† اﻟ اء اﻟ‬‫ﺔ ﺑﻼ Ø£ ïº Ùˆ ﻟﻠ ف‪ ،‬ï»ï»§ï»¬ïºŽ ﻓﻲ اï»ïº³ïºŽØ³ دﻟ ﻞ ﻔ اﺳ ﻌﺎب اﻟ ر اﻟﻌﺎم ﻟﻠ و‬ ‫اﻟ‬ ‫ا‪ ،‬ﻟﻠ ﻧﺎﻣﺞ اﻟ ﻣﻲ اﻟﻘﺎﺋ ‪ ،‬اﻟ ﺗ ﻠﻊ ﻪ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬واﻟ ﯾﻬ ف إﻟﻰ ﺗ ﻓ ﺧ ﻣﺎت ر ﻓﻌﻠﻲ‬ ‫ﻣ ر‬ ‫ﻣ ﻼ‪ ،‬وﻟ ُ‬ ‫اﻟ ﻣﺔ أن ﺄﺗﻲ ُ‬ ‫ع ﺗ ﺎﻟ‬‫ﺔ ﻟﻠ ارس )Ø£ ﺗﻘ م ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت ﺑ ﻐ ﺔ ﺗ ﺎﻟ اﻻﺳ ﺎر اﻟ ﺎﺑ ﺔ‪ ،‬و ﻐ ﻲ اﻟ و‬ ‫ﺎﻹﻧ ﻧ ﺎﺳ ام ïº ïº” اï»ï»Ÿ ﺎف اﻟ‬ ‫اﻟ ﻬ ﻲ ﻣ اﻟ ات اﻟﻔ ﺔ وﺗ ﺎدل أﻓ ﻞ اﻟ ﺎرﺳﺎت ﺄن ﺗ ﺗ ﺎت ﺧ ﻣﺎت‬ ‫زر‬ ‫ة اﻟ ﻌﻠ واﻟ‬ ‫ﺔ‪ ،‬ﺳ ﻔ و ا‬ ‫اﻻﺳ ام(‪ \.‬وﻓﻲ Ø¥ ﺎر ﻫ ﻩ اﻟ ﺣﻠﺔ اﻟ‬ ‫ﻫﺎ ﺳ ﻌ ﻞ ﻋﻠﻰ إﺛ اء ﺧ ﺔ ﺧ ﻣﺎت اﻟ اï»ï»› ﻗ ة‬ ‫‪ ،‬واﻟ ﺎﻧﺔ وﻣﺎ إﻟﻰ ذﻟ (‪ ،‬واﻟ ﻲ ﺑ ور‬ ‫اﻟ اﻟ Ø© )ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﺗ ﺗ ﺎت اﻟ اء اﻟ‬ ‫اﻟ ﺎﺻﺔ ﺎﻟ ارس ﺎﻟ ﻌﻠ ﻣﺎت اﻟﻼزﻣﺔ واﻟ ﻔ ة‪ \.‬وﺳ ﺗ ﻊ ﻋ د اﻟﻔ ﺎت واﻟﻔ ﺎن اﻟ ﻔ ﯾ ﻣ ﺗﻌ ﺧ ﻣﺎت اﻟ ﻓﻲ ﻫ ﻩ اﻟ ارس ﻋﻠﻰ ﻧ ﻣ ﻔ ﻞ‪\.‬‬ ‫أس ﻣﺎل ﺧﺎص(‬ ‫ﻻر ر‬‫ﻣﻠ ن دو‬ ‫ﺔ وﻧ‬ ‫ﻻر ﻣ اﻟ ﺳ ﺔ اﻟ وﻟ ﺔ ﻟﻠ‬‫دو‬ ‫ن اﻟﻔ ﻋﻲ ‪) 1\.2‬ب( ﻣ ﺣﻠﺔ اﻟ ﻔ )‪ 4\.5‬ﻣﻼﯾ‬ ‫اﻟ‬ ‫‪ \.25‬ﺳ ﻌ ﻞ اﻟ ن اﻟﻔ ﻋﻲ ‪ 1\.2‬ﻋﻠﻰ ﺗﻌ اﻟ ﺔ اﻟ ﺔ اﻟ ﺔ ﻟ ﻣﺎت اﻟ اﻟ ﻗ ﻲ وﺳ ﻔ اﻻﺳ ﺎر‬ ‫ات اﻟ ﯾ Ø© اﻟ ﻲ ﻘ دﻫﺎ اﻟﻘ ﺎع‬ ‫اﻟ ﺎص‪ \.‬واﻟﻬ ف ﻣ ذﻟ ﻫ ﺗ ﻊ اﻟ ﺔ اﻟ ﺔ ﺑ ï»» ﻣ اﻻﻋ ﺎد ﻓﻘ ﻋﻠﻰ ïº ïº” ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬و ﺎﻟ ﺎﻟﻲ ﺗ ﺳ ﻊ ﻧ ﺎق ﺗﻐ ﺔ ﺧ ﻣﺎت‬ ‫ﺔ ﻓﻲ ﻣ ﺎن ﺣ ﻣ ﺔ ﻣ ﺎر‬ ‫ة‪ ،‬واﻟ ﺎح ﺑ ﯾ اﻟ ﻌ ﻔﺎت ﻋﻠﻰ أﺳﺎس ﺗ اﻓ‬ ‫اﻟ‬ ‫ﺧ ﻣﺎت اﻟ‬ ‫اﻻﺗ ﺎﻻت اﻟ ﺎﺑ ﺔ )اﻟﻬﺎﺗﻒ اﻟ ﻟﻲ‪/‬اﻟ ﺎﺑ (‪ ،‬وﺗ‬ ‫اﻟﻌ وض اﻟ ﺎﻓ ﺔ ﻓﻲ ﺳ ق اﻻﺗ ﺎﻻت اﻟ ﺎﻓ ﺔ اﻟ ïºŽïº ïº”â€ª \.‬وﺳ ﻔ ﺢ اﻟ ﺎﻗ ﺔ اﻟ ﺎﻓ ﺔ ﻟ ﻓ ﺧ ﻣﺎت اﻻﺗ ﺎﻻت اﻟ ï»  ﺔ واﻟﻼﺳﻠ ﺔ ﻟﻠ ﺎﻧﻲ اﻟ ﻣ ﺔ‬ ‫ﺗ ﻞ اﻟ ﺳ ﺎت اﻟ ﻌﻠ ﺔ ﻏ اﻟ ودة ﻣﺎت اﻟ اﻟ ﻗ ﻲ ‪ %67\.1‬ﻣ اﻟ ارس اﻻﺑ اﺋ ﺔ‪ ،‬و ‪ %23\.1‬ﻣ اﻟ ï»  ﺎت‪ ،‬و ‪ %19\.2‬ﻣ اﻟ ارس اﻟ ﺎﻧ ﺔ‪\.‬‬ ‫‪40‬‬ ‫ﺎﻧﺔ وﺗ ﻐ ﻞ ﺧ ﻣﺎت ﻧﻘﻞ ﺗ ﻟ ﺟ ﺎ اﻻﺗ ﺎﻻت إﻟﻰ اﻟ ارس‪\.‬‬ ‫اﻟ ﺎﻟ اﻟ ﻌﻠﻘﺔ‬ ‫‪41‬‬ ‫‪Page 14 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺔ‪ ،‬اﻟ ﺎب أﻣﺎم ﻣ ﻐﻞ واﺣ ﻋﻠﻰ اï»ï»—ﻞ‬ ‫د ﻓﻲ ﻣ اﺟﻬﺔ اﻟ ﻣﺎت ﺎﺳ ام ïº ïº” اï»ï»Ÿ ﺎف اﻟ‬ ‫ة ﻋﻠﻰ اﻟ‬ ‫اﻟ ﻬ ﻓﺔ‪ ،‬اﻟ ﻲ ﺳ ï»  ﺑ ﺔ ﺗ ﺔ ﻗﺎدر‬ ‫ﻣ اﻟﻘ ﺎع اﻟ ﺎص‪ ،‬ﺎﻹﺿﺎﻓﺔ إﻟﻰ ïº ïº” ﺟ ﺗﻲ ﻟﻼﺗ ﺎﻻت‪ ،‬ﻟﻠ ﺎح ﺎﺧ ﺎر اﻟ ﻣﺔ ﻋﻠﻰ أﺳﺎس ﺗ ﺎﻓ ﻲ‪ \.‬و ﻐﻲ ﻟﻠ ﻐﻞ اﻟ ﺎﺳ ﻣ اﻟﻘ ﺎع‬ ‫ﻞ ﺻﺎﺣ‬ ‫ﺔ‪ \.‬وﺳ‬ ‫أس اﻟ ﺎل اﻟ ﺎص ﻪ‪ ،‬أو أن ن ﻣ ﻌ ا ﻟﻠ ﺎم ﺑ ﻟ ‪ ،‬ﻟﻌ ﻞ ﺗﻐ ﺔ ﺎﻣﻠﺔ ﺎﺳ ام اï»ï»Ÿ ﺎف اﻟ‬ ‫اﻟ ﺎص أن ﻘ م ﺑ ﻓ ر‬ ‫ع ‪ ،‬وﻣﻘﺎﺑﻞ إﻧ ﺎز ﻣ اﺣﻞ‬‫اﻟﻌ ض اﻟﻔﺎﺋ ﺎﻟ ﺎﻗ ﺔ ﻋﻠﻰ دﻓﻌﺎت ﺟ ﻋﻘ ﺧ ﻣﺔ ﻣﻊ اﻟ ﻣﺔ‪ ،‬ﻟ Ø© ï»» ﺗﻘﻞ ﻋ ‪ 5‬ﺳ ات ‪ ،‬ﺎﺳ ام أﻣ ال اﻟ و‬ ‫ﻣ دة ﻣ اﻟﻌ ﻞ وﺗﻘ اﻟ ﻣﺎت ﻓﻲ Ø¥ ﺎر زﻣ ﻲ ﻣ ﻔ ﻋﻠ ﻪ‪ \.‬و ﻐﻲ ﺗ ﻗﻊ ﺗ ﺎﻟ اﻟ ﻐ ﻞ واﻟ ﺎﻧﺔ ﻓﻲ اﻟ ﻘ ﻞ وﺗﻐ ﻬﺎ ﻓﻲ ﻋ ï»  ﺔ ﺗﻘ‬ ‫ع‪ \.‬وﺳ ﺎﻗ اﻟﻘﺎﺋ ن‬ ‫اﻟﻌ ﺎءات وﺗ ﺳ ﺔ اﻟ ﺎﻗ ﺔ‪ ،‬إﻟﻰ أﻗ ï»° ﺣ ﻣ ‪ ،‬ون ﺎﻧ ﻣ Ø© ﻫ ﻩ اﻟ ﺎﻟ ﻗ ï»» ﺗ ﺎوز اﻟ ﺎرﺦ اﻟ ﻘ ر ﻹﻏﻼق اﻟ و‬ ‫ع‪\.‬‬‫ﺎت اﻟ ازﻧﺔ اﻟﻌﺎﻣﺔ ﻟﻠ وﻟﺔ اﻟ ورﺔ ﻟ ﻐ ﺔ أﻋ ﺎل اﻟ ﻐ ﻞ واﻟ ﺎﻧﺔ ﻌ إﻏﻼق اﻟ و‬ ‫ع ﻣﻊ اﻟ ﻣﺔ ﻣ‬‫ﻋﻠﻰ اﻟ و‬ ‫ات اﻟ ﻗ ﺔ )ﻣﻠ ﻧﺎ دوﻻر(‬ ‫ل اﻟ ﻗ ﻲ وﺗ ﺔ اﻟ ﻬﺎر‬ ‫اﻟ ّ ن ‪ :2‬اﻟ‬ ‫ل‬ ‫ﻬ ف ﻫ ا اﻟ ن اﻻﺳ ﻔﺎدة ﻣ ﻓ ﺢ ﺎب اﻟ ﺎﻓ ﺔ ﺗ ر ﺎ واﻟ اﻟ ﻗ ﻲ اﻹﺿﺎﻓﻲ اﻟ ﻋ م ﻓﻲ Ø¥ ﺎر اﻟ ن ‪ 1‬ﻟ ﻌ اﻟ‬ ‫‪\.26‬‬ ‫ات اﻟ ﻗ ﺔ‪ ،‬وﻫ ﺎ أﻣ ان ﺿ ور ﺎن ﻻﺳ ام ﺧ ﻣﺎت اﻹﻧ ﻧ ﻓﻲ اï»ï»§ ﺔ اﻹﻧ ﺎﺟ ﺔ‪ \.‬وﺳ ﻌ ﻞ ﻫ ا اﻟ ن ﻋﻠﻰ ﺗﻌ‬ ‫اﻟ ﻗ ﻲ وﺗ ﺔ اﻟ ﻬﺎر‬ ‫اﻟ ï»  ل اﻟ ﻗ ﺔ‬ ‫اï»ï»£ ﺔ اﻟ ﻗ ﺔ Ùˆïº ï»ž اﻟ ﻊ‪ ،‬وﻣ ﺎﻧ Ø© اﻻﻗ ﺎد اﻟ ﻗ ﻲ ﻣ ﺧﻼل ﺗ ﻔ ﺗ‬ ‫ات اﻟ ﻗ ﺔ ﻣ ﺧﻼل زﺎدة ﻣ‬‫اﻟ ﻬﺎر‬ ‫ﻟﻼﺳ‬ ‫ﻋﻠﻰ اﻟ ﺎء واﻟ ﺎب؛ )‪ (2‬ورواد اﻟ وﻋﺎت‬ ‫‪43‬‬ ‫ﻣ اﻟ ﻔ ﯾ ‪ (1) :‬ﻋﺎﻣﺔ اﻟ ﺎن‪ ،‬ﻣﻊ اﻟ‬ ‫واﺳ اﻣﻬﺎ‪ \.‬وﺳ اﺳ ﻬ اف ﻣ ﻋ‬ ‫‪42‬‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫واﻟ ﺂت اﻟ ﻐ واﻟ ﻐ Ø© واﻟ ﺳ ﺔ‪ \.‬وﺳ ﻣ ﺎﻧ Ø© اﻟ ِّ ﻧ اﻟﻔ ﻋ اﻟ ﺎﻟ ‪:‬‬ ‫ﻻر (‬ ‫ن اﻟﻔ ﻋﻲ ‪ \.2\.1‬اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﻟﻌﺎﻣﺔ اﻟ ﺎن )‪ 1\.0‬ﻣﻠ ن دو‬ ‫اﻟ‬ ‫ن اﻟﻔ ﻋﻲ ﺣ ل‬ ‫ﻫ ا اﻟ‬ ‫‪ \.27‬ﺳ ﻌ ﻞ ﻫ ا اﻟ ن اﻟﻔ ﻋﻲ ﻋﻠﻰ ﺑ ﺎء اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ اï»ïº³ïºŽïº³ ﺔ ﻟﻌﺎﻣﺔ اﻟ ﺎن‪ \.‬وﺗ ﻘﺎ ﻟﻬ ﻩ اﻟﻐﺎ ﺔ‪ ،‬ﺳ ور ﻣ ر ﺗ‬ ‫ﻟﻬﺎ‬ ‫ﺗ ﻓ ﺧ ﻣﺎت اﻟ‬ ‫ﺔ‪ ،‬اﻟ ﻲ‬ ‫ة‪ 44‬ﻓﻲ Ø¥ ﺎر اﻟ ن اﻟﻔ ﻋﻲ ‪ (1\.2‬واﻟ ﺎت اﻟ ﺔ اﻟﻘﺎﺋ ﺔ ﻣ ﻞ ﻣ اﻛ اﻟ ﺔ اﻟ‬ ‫ﺔ ر ﻣﻌ ز‬ ‫اﻟ ارس )اﻟ ودة‬ ‫إذا ﻟ م اï»ï»£ ‪ ،‬وﻣ اﻟ ﺎدة ورﺎدة اï»ï»‹ ﺎل‪ ،‬وﻣ اﻟ ﻟ ﺟ ﺎ واﻻﺑ ﺎر ﻣ أﺟﻞ اﻟ ﺔ‪ \.‬ﺳ ﺎﻧ اﻟ ن اﻟﻔ ﻋﻲ ‪ 2\.1‬أﻧ ﺔ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ اﻟ ﺎﻟ ﺔ‪:‬‬ ‫وﺿﻊ Ø¥ ﺎر ﻟ ﺎدة ﺗ اﻓ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ‬ ‫ﺎ ﯾ ﺎïºï»°â€¬ ‫ﺎت اﻟ ﻔﺎءة‪،‬‬ ‫ﯾ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ وﻣ‬ ‫وﺿﻊ Ø¥ ﺎر و ﻲ ﻟ‬ ‫ﺎت اﻟ ﻔﺎءة‪ \.‬ﺳ‬ ‫اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ وﻣ‬ ‫ﺗ ﯾ وﺗﻘ‬ ‫أ(‬ ‫ﻣﻊ اﻟ ﻌﺎﯾ اﻟ وﻟ ﺔ ﻣ ﻞ Ø¥ ﺎر اﻟ ﻔﺎءة اﻟ ﻗ ﺔ ﻟﻼﺗ ﺎد اï»ÙˆØ±Ùˆ ﻲ؛ و ﺎء ﻋﻠﻰ ﻫ ا اﻹ ﺎر‪ ،‬ﺳ إﺟ اء ﺗﻘ أﺳﺎﺳﻲ ﻟﻠ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ‪\.‬‬ ‫‪45‬‬ ‫ات اﻟ ﻗ ﺔ‪ ،‬ﻋﻠﻰ‬ ‫ﻫ ﻩ اﻟ ﻬﺎر‬ ‫ات‪ ،‬وﺗﻘ Ø§ï» ï»ŒïºŽØ¯ اﻟ ﻠﻔﺔ ﻟﻠﻔ Ø© ﻓﻲ اﻟ ﻬﺎر‬ ‫ع ﻓﻲ ﺗ‬‫م ﻫ ا اﻟ ï»  ﻞ ﻟ ﺎس ﻣ ﺎﻫ ﺔ اﻟ و‬ ‫وﺳ‬ ‫ﺔ واﻟ ﺔ؛‬ ‫اﻟ ﻌﻠ ‪ ،‬ﺑ اﻟ ﺎ اﻟ‬ ‫‪ ،‬وﻣ ﺣ اﻟ وﻣ‬ ‫ﺳ ﻞ اﻟ ﺎل اﻟﻔ Ø© ﺑ اﻟ‬ ‫‪\.‬‬ ‫ﺎﻋﺎت اﻟ ﻘﻠ ﺔ‪ ،‬ﻣ ﺎ ﺎﻋ ﻋﻠﻰ ﺣ ﺎ ﺔ ﺟ ﺗﻲ ﻣ اﻟ ﺎ اﻟ ﺎﺧ ﺔ اﻟ‬ ‫‪ 42‬ﺎﻋ ذﻟ ﻋﻠﻰ ﺗ ﻊ اﻟ ﺎ اﻻﻗ ﺎد ﻌ ا ﻋ اﻟﻘ ﺎﻋﺎت واﻟ‬ ‫اﻟ ﺎواة ﺑ‬ ‫ع ﻓﻲ ﻣﻌﺎﻟ ﺔ اﻟ ﻌ ﻗﺎت اﻟ دة اﻟ ﻲ ﺗ ل دون ﺗ ﻘ‬‫ﺳ ﻬ اﻟ و‬ ‫ﻣ اﻟ ﻔ ﻞ‬ ‫ع‬‫ﻟﻠ و‬ ‫‪ 43‬ﯾ ﺎﻗ اﻟﻘ ﺟ واﻟ ï»  ‪ 6‬ﻣ وﺛ ﻘﺔ اﻟ ﻘ اﻟ‬ ‫ﻓﻲ اﻟﻘ ﺎع اﻟ ﻗ ﻲ ﻓﻲ ﺟ ﺗﻲ‪\.‬‬ ‫اﻟ‬ ‫ع )ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬اﻟ ﻋﺎت اﻟﻌﺎﻟ ﺔ‪ ،‬واï»ïº³ï»ŒïºŽØ±â€¬â€«Ùˆâ€¬ ‫اﻹﺿﺎ ﺔ ﻓﻲ Ø¥ ﺎر اﻟ‬ ‫ع‪ ،‬ﻌ ﻲ ذﻟ اﻟ ارس واﻟ ﺳ ﺎت اï»ïº§ اﻟ ﻲ ﺗ ﻔ ﻣ ﺳﻌﺔ اﻹﻧ ﻧ‬ ‫‪ 44‬ﻓﻲ ﺳ ﺎق ﻫ ا اﻟ و‬ ‫اﻟ ﻋ ﻣﺔ‪ ،‬وﻣﺎ إﻟﻰ ذﻟ (‪\.‬‬ ‫‪https://ec\.europa\.eu/jrc/en/digcomp/digital-competence-framework45‬‬ ‫‪Page 15 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫اﻻﺳ ﻔﺎدة ﻣ اﻟ ﻣﺎت‬ ‫د‪،‬‬ ‫اﺳ ﺔ‪ \.‬وﻓﻲ ﻫ ﻩ اﻟ‬ ‫ات اﻟ ﻗ ﺔ اï»ïº³ïºŽïº³ ﺔ ﻓﻲ اﻟ ﺎﻫﺞ اﻟ ر‬ ‫ﻟ ﻣﺞ اﻟ ﻬﺎر‬ ‫ب( اﻟ ﻌﺎون ﻣﻊ ﻗ ﺎع اﻟ ﻌﻠ‬ ‫ﺔ‪\.(Code\.org’s Hour of Code Activities) 46‬‬ ‫ﺔﻣ‬ ‫اﻟ ﺎﻧ ﺔ‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل أﻧ‬ ‫ﺳ ﺎن ﺟ ﺗﻲ‬ ‫اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﺑ‬ ‫ﺗﻌ‬ ‫ﻋﻠﻰ اﻟ ﺎء واﻟ ﺎب‪ ،‬و ﺎﻟ اﻛﺔ ﻣﻊ اﻟﻘ ﺎع‬ ‫دور‬ ‫ات ﻣ ïºŽïº Ø©â€ª ،‬ﻣﻊ اﻟ‬ ‫ﺗ‬ ‫اï»ï»£ ﺔ اﻟ ﻗ ﺔ ﻟﻌﺎﻣﺔ اﻟ ﺎن‪ \.‬ﺳ‬ ‫دور‬ ‫ات ﻣ‬ ‫أ(‬ ‫ﻋﺔ‪،‬‬ ‫اﻹﻋﻼن ﻋ ﻫ ﻩ اﻟ ور‬ ‫ات ﻣ ﺧﻼل وﺳﺎﺋﻞ اﻹﻋﻼم اﻟ‬ ‫وﺳ‬ ‫‪48‬‬ ‫اï»ï»£ ﺔ اﻟ ﻗ ﺔ‪\.‬‬ ‫اﻟﻘ ر‬ ‫ات اï»ïº³ïºŽïº³ ﺔ ﻟ‬ ‫ﻟﻌ‬ ‫‪47‬‬ ‫اﻟ ﺎص‪،‬‬ ‫ﻋ وﺳﺎﺋﻞ اﻹﻋﻼم‬ ‫وﻟ‬ ‫ﺔ ﻟﻠ‬ ‫ووﺳﺎﺋﻞ اﻟ اﺻﻞ اﻻﺟ ﺎﻋﻲ‪ ،‬واﻟ اﻣﺞ اﻟ ﻠﻔ ﻧ ﺔ واﻹذا ﺔ‪ ،‬وﻣ ﺧﻼل ﻋﻘ ورش ﻋ ﻞ وﻧ وات ﺗ‬ ‫ﺔ‬ ‫ام ﻣ‬ ‫اﺳ‬ ‫اﻟ ïºŽïº â€ªØŒâ€¬â€¬ ‫ﺎﻻ ﻟﻠ ر‬ ‫واﺳ‬ ‫‪49‬‬ ‫ﻊ‪ ،‬وﻋﺎﻣﺔ اﻟ ﻬ ر‪\.‬‬ ‫اﻟ ارس‪ ،‬وﻗﺎدة اﻟ‬ ‫واﻟ اﺻﻞ ﻓﻲ اﻟ ارس‪ ،‬وﻣ ﯾ‬ ‫اﻟ ﺎﻋ اﻻﺟ ﺎﻋﻲ‬ ‫ﺗ اﺑ‬ ‫ﻣ‬ ‫)ﻣ ﻞ ‪ (Coursera, Udemy‬ﻟ اﺻﻠﺔ اﻟ ﻌﻠ واﻟ ﺎر ﺔ‪ ،‬واﻟ‬ ‫اﻹﻧ ﻧ‬ ‫ﺗﻌﻠ ﺔ ﻗﺎﺋ ﺔ ﻋ‬ ‫روﻧﺎ وﻏ ﻫﺎ ﻣ اï»Ø²ï»£ïºŽØªâ€ª ،‬ﺎ ﻓﻲ ذﻟ اï»Ø²ï»£ïºŽØª اﻟ ﺎﺟ ﺔ ﻋ اﻟ ﺎخ؛‬ ‫ﻠﺔ اﻟ ﺎﺟ ﺔ ﻋ‬ ‫اﻟ‬ ‫ﻊ‪\.‬‬ ‫اﻟ‬ ‫اﻧﻲ ﻋﻠﻰ ﻣ‬ ‫ﻬ ﻧﻘﻞ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ وزﺎدة اﻟ ﻋﻲ ﺎï»ï»£ اﻟ‬ ‫اﻟ ﯾ‬ ‫ﻠ‬ ‫" اﻟ‬ ‫"اﻟ واد اﻟ ﻗ‬ ‫ﺗر‬ ‫ب(‬ ‫ﻟﻼﺳ‬ ‫ﻻر(‬‫ﺳ ﺔ ) ﻣﻠ ن دو‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺂت اﻟ ﻐ‬ ‫وﻋﺎت واﻟ‬ ‫ن اﻟﻔ ﻋﻲ ‪ \.2\.2‬اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﻟ واد اﻟ‬ ‫اﻟ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﺳ ﺔ‪ \.‬وﺳ ﻬ ف ﻫ ا‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺎت اﻟ ﻐ‬ ‫ﺳ ﺔ واﻟ ﻘ ﻣﺔ ﻟ واد اï»ï»‹ ﺎل واﻟ‬ ‫ات اﻟ ﻗ ﺔ اﻟ‬ ‫ع ﺑ اﻣﺞ اﻟ ﻬﺎر‬‫و‬ ‫ﺳ ﻋ ﻫ ا اﻟ‬ ‫‪\.28‬‬ ‫اﻧﻲ‪ ،‬ﻓ ﻼ ﻋ زﺎدة اﻟ ﻋﻲ ﻓﻲ‬ ‫ﺳ ﺔ‪ ،‬ﺎ ﻓﻲ ذﻟ ﻣﻬﺎر‬ ‫ات اï»ï»£ اﻟ‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺎت اﻟ ﻐ‬ ‫اﻟ‬ ‫اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ ﻟ‬ ‫اﻟ ﺎ إﻟﻰ ﺗﻌ‬ ‫ﺑ ﺔ ﺗ ﺎﻋ‬ ‫اﻟ وﻟﻲ ودﻋ ﺗ‬ ‫ﻋﺔ اﻟ‬ ‫ﻓﻲ ﺣﺎﻓ ﺔ ﻣ وﻋﺎت ﻣ‬ ‫ﺔ ﺗ ﺔ اﻟ ﻬﺎر‬ ‫ات اﻟ ﺎرﺔ اï»ïº§â€¬ ‫ﺎل أﻧ‬ ‫ﻫ ا اﻟ ﺎل‪ \.‬وﺳ ﻌ ﻞ ﻋﻠﻰ اﺳ‬ ‫ﻟ ﺟ ﺎت اﻟ ﻗ ﺔ وﻧ ﺎذج اï»ï»‹ ﺎل اﻟﻘﺎﺋ ﺔ ﻋﻠﻰ‬ ‫ﻠﺔ ﺎﻹﻧ ﻧ "( ﻋﻠﻰ اﻋ ﺎد اﻟ‬ ‫اﻟ‬ ‫ﺳ ﺔ اﻟ ﻘﻠ ﺔ )أو "ﻏ‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺎت اﻟ ﻐ‬ ‫اﻟ‬ ‫ﺎد‬ ‫ل إﻟﻰ اﻻﻗ‬ ‫اﻟ‬ ‫ﺎﻫ ﻓﻲ ﺗ ﺳ ﻊ وﺗﻌ‬ ‫ﻣﺎ‬ ‫‪50‬‬ ‫ﺎت وﺧ ﻣﺎت ﺗ اﻋﻲ اﺣ ﺎﺟﺎت اﻟ ق‪،‬‬ ‫اﻟ ﻔﺎءة وﺧﻠ ﻣ‬ ‫ﻟ ﺟ ﺎ اﻟ ﻲ ﻣ ïºïº„ﻧﻬﺎ ﺗ‬ ‫اﻟ‬ ‫ﺎد وﻓ ص اﻟﻌ ﻞ‪ ،‬وﻓﻲ ﻧﻬﺎ ﺔ اﻟ ﺎف ﺗ ﻊ ﻣ ﺎدر اﻟ ﺧﻞ ﻓﻲ ﺟ ﺗﻲ‪،‬‬ ‫اﻻﻗ‬ ‫ﺔ اﻻﺑ ﺎر واﻟ‬ ‫ﻣ أﻧ‬ ‫ل أن ﯾ‬ ‫اﻟ ﻗ ﻲ‪ \.‬وﻣ ïºïº„Ù† ﻫ ا اﻟ‬ ‫ﺎ‬ ‫ل اﻟ ﻗ ﻲ أ‬ ‫اﻟ ﺎخ‪ \.‬وﺳ ﺎﻋ ﻫ ا اﻟ‬ ‫ﻣﺎت اﻟ ﺎﺟ ﺔ ﻋ ﺗﻐ‬ ‫ﻣﺎت اﻟ ﻌﺎﻛ ﺔ‪ ،‬ﺎ ﻓﻲ ذﻟ اﻟ‬ ‫د ﻓﻲ ﻣ اﺟﻬﺔ اﻟ‬ ‫و ﺎء اﻟﻘ ر‬ ‫ة ﻋﻠﻰ اﻟ‬ ‫ﺣﻠ ل‬ ‫ﺎد اﻹﻗﻠ ﻲ واﻟﻌﺎﻟ ﻲ‪ ،‬وﺗ‬ ‫ﺎﻻﻗ‬ ‫ج اﻟ ود واﻻرﺗ ﺎ‬‫ﺳ ﺔ ﻓﻲ ﺟ ﺗﻲ ﻋﻠﻰ ﺗ ﺳ ﻊ ﺧ ﻣﺎﺗﻬﺎ ﺧﺎر‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺂت اﻟ ﻐ‬ ‫اﻟ‬ ‫ﺔ اﻟ ﺎﻋ Ø© اﻟﻔ ﺔ اﻟ ﻋ ﻣﺔ‪:‬‬ ‫ﻣﺎت‪ \.‬وﺗ ﻞ أﻧ‬ ‫ﻓﻲ ﻣ اﺟﻬﺔ اﻟ‬ ‫ﺎد وزﺎدة ﻗ ر‬ ‫ة ﺟ ﺗﻲ ﻋﻠﻰ اﻟ‬ ‫اﻻﻗ‬ ‫ﻟ‬ ‫ﻲ‬ ‫ﺳ ﺔ اﺳ ﺎدا إﻟﻰ Ø¥ ﺎر اﻟ ﻔﺎءة اﻟ‬ ‫واﻟ ﻐ Ø© واﻟ‬ ‫ﺎت اﻟ ﻐ‬ ‫ﺳ ﺔ واﻟ ﻘ ﻣﺔ ﻓﻲ اﻟ‬ ‫ﺗﻘ ﺎ أﺳﺎﺳ ﺎ ﻟﻠ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ اﻟ‬ ‫أ(‬ ‫ﻠﻔﺔ‪،‬‬ â€«Ø§ï» ï»ŒïºŽØ¯ اﻟ‬ ‫ات‪ ،‬وﺗﻘ‬ ‫ﻫ ﻩ اﻟ ﻬﺎر‬ ‫ع ﻓﻲ ﺗ‬‫و‬ ‫ﻣ ﺎﻫ ﺔ اﻟ‬ ‫ﻫ ا اﻟ ﻘ‬ ‫ن اﻟﻔ ﻋﻲ ‪ \.(2\.1‬وﺳ‬ ‫)اﻟ ﻋ م ﻓﻲ Ø¥ ﺎر اﻟ‬ ‫ﺔ؛‬ ‫ﺔ واﻟ‬ ‫اﻟ‬ ‫اﻟ ﺎ‬ ‫اﻟ ﻌﻠ ‪ ،‬واﻟﻔ Ø© ﺑ‬ ‫وﻣ‬ ‫اﻟ‬ ‫‪ ،‬واﻟﻔ Ø© ﻣ ﺣ‬ ‫اﻟ‬ ‫ﺎﻋﺔ‪ ،‬واﻟﻔ Ø© ﺑ‬ ‫ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل ﻗ ﺎع اﻟ‬ ‫‪\.https://code\.org/learn 46‬‬ ‫ﻋﺎﻟﻲ اﻟ دة ﻻﺳ اﻣﻪ ﻓﻲ ﻫ ﻩ اﻟ ور‬ ‫ات اﻟ ر ﺔ‪\.‬‬ ‫ﻟﻠﻘ ﺎع اﻟ ﺎص‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﺗ ﻓ ﻣ‬ ‫‪47‬‬ ‫ر ﺔ ﺑ ﺳﺎﺋﻞ اﻟ اﺻﻞ اﻻﺟ ﺎﻋﻲ‪\.‬‬‫اﻹﻟ وﻧﻲ‪ ،‬واﻟ ا‬ ‫ﻋﻠﻰ اﻹﻧ ﻧ ‪ ،‬وﺗ ﻔﺢ اﻹﻧ ﻧ ‪ ،‬واﻟ‬ ‫‪ 48‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﻣﻌ ﻓﺔ اﺳ ام أﺟﻬ Ø© اﻟ ﺎﺳ ‪ ،‬واﻟ ﺧ ل ﻋﻠﻰ اﻹﻧ ﻧ ‪ ،‬واﻟ‬ ‫ﻣﻊ ﺗﻐ اﻟ ﺎخ‪\.‬‬ ‫اﻟ‬ ‫ة ﻋﻠﻰ‬ ‫‪ 49‬ﺳ ﺗﻌ ﺣ ﻼت اﻟ ﺔ ﻣ ﺧﻼل وﺿﻊ اﻟ ﻗ ﺔ ﻓﻲ ﺳ ﺎق ﺗﻐ اﻟ ﺎخ وﺗ ï»  اﻟ Ø¡ ﻋﻠﻰ دور‬ ‫ﻫﺎ ﻓﻲ زﺎدة اﻟﻘ ر‬ ‫أن ﯾ ﻠﻘﻰ اﻟ ﺎس رﺳﺎﺋﻞ ﺗ ﻬ ﺔ ﺄن‬ ‫؛و‬ ‫ﻗ‬ ‫ر اﻟ ﻓ ﻋﺎت اﻟ ﻗ ﺔ ﺑ اﻣﺞ اﻟ ﻼت اﻟ ﻣ ﺔ ﻟﻠ ﺎح ﺎﻟ زﻊ اﻟ ﻬ ف ﻟﻠ ﻌ ﻧﺎت ﻓﻲ وﻗ‬ ‫‪ 50‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪،‬‬ ‫ﺔ وأﺳﻌﺎر اﻟ ق‪ ،‬وﺳ ï»° اﻟ ﺎم ﺄﻋ ﺎل اﻟ ﺻ‬ ‫ﻋ ﻣ رﺻ وﻣ ﺎ ﻌﺔ أﺣ ال اﻟ ﻘ واﻟ ارد اﻟ‬ ‫ﺻﻐﺎر اﻟ ار‬ ‫اﻟ ﺔ اﻟﻌﺎﻣﺔ أو ﻏ ﻫﺎ ﻣ اﻟ ﯾ ات ﻣ اﻟ ارث؛ وﺳ‬ ‫ﻓﻲ أﺛ ﺎء ﺗﻔ ﻲ اﻟ اﺋﺢ ﻣ ﻞ روﻧﺎ‪\.‬‬ ‫ﺔ وﺗ ﻊ اﻟ ﺎﻟ‬ ‫واﻟ ﺎ ﻌﺔ اﻟ‬ ‫‪Page 16 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ل‬ ‫اﻟ‬ ‫ﻬ ﻣ ﺗ ﻘ‬ ‫واﻟ ﻐ Ø© واﻟ ﺳ ﺔ ورواد اï»ï»‹ ﺎل ﻟ‬ ‫ﺂت اﻟ ﻐ‬ ‫ﺎت واﻟ‬ ‫ﻟﻠ‬ ‫‪51‬‬ ‫ﺳ ﺔ واﻟ ﻘ ﻣﺔ‬ ‫اﻟ ور‬ ‫ات اﻟ ﻗ ﺔ اﻟ‬ ‫ب(‬ ‫واﻟ ﻐ Ø© واﻟ ﺳ ﺔ ﺑ ﺎء ﻋﻠﻰ‬ ‫ﺎت اﻟ ﻐ‬ ‫اﺳ ﻬ اف اﻟ‬ ‫ة ﺗ اﻋﻲ اﺣ ﺎﺟﺎت اﻟ ق‪ \.‬وﺳ‬ ‫ﺎت ﻣ‬ ‫اﻟ ﻗ ﻲ و ‪ /‬أو إﻧ ﺎء ﻣ‬ ‫واﻟ ﻐ ة‬ ‫ﺎت اﻟ ﻐ‬ ‫ات ﻣ ﺧﻼل ﺣﻠﻘﺎت ﻋ ﻞ وﻧ وات ﻟﻠ‬ ‫اﻹﻋﻼن ﻋ ﻫ ﻩ اﻟ ور‬ ‫ﻌﻬﺎ ﻏ ﻓﺔ اﻟ ﺎر‬ ‫ة‪ ،‬وﺳ‬ ‫ﺑ‬ ‫ﻗﺎﺋ ﺔ ﻗﺎﻣ‬ ‫اﻟﻌﺎم واﻟ ﺎص ﻣ أﺟﻞ‬ ‫اﻟﻘ ﺎﻋ‬ ‫اﻟ اﻛﺎت ﺑ‬ ‫ﺗﻌ‬ ‫واﻟ ﺳ ﺔ ووﺳﺎﺋﻞ اﻹﻋﻼم‪ \.‬وﺗ ïºŽïº ïºŽ ﻣﻊ ﻧﻬﺞ ﺗﻌ ﺔ أ‬ ‫رس اﻟ ﺎل اﻟ ﺎص‪ ،‬ﺳ‬ ‫ﻓﻲ‬ ‫ﻓﻌﺎﻟ ﺔ ﺎﻟ ﻠ‬ ‫ﻞ أﻛ‬ ‫اﻟ ﻌ وض ﻣ اﻟ ﻬﺎر‬ ‫ات اﻟ ﯾ ة‬ ‫‪ ،‬ور‬ ‫ﻞ ﺳ ﻊ وﻣ‬ ‫ﻋﻠﻰ اﻟ ﻬﺎر‬ ‫ات اﻟ ﻗ ﺔ‬ ‫اﻟ ر‬ ‫ﺗﻘ‬ ‫اﺋ ات اï»ï»‹ ﺎل؛‬ ‫واﻟ ﻐ Ø© واﻟ ﺳ ﺔ اﻟ ﻲ ﺗﻘ دﻫﺎ اﻟ ﺎء ور‬ ‫ﺎت اﻟ ﻐ‬ ‫ﺎ ﻟﻠ‬ ‫ات اﻟ ﻗ ﺔ ﺧ‬ ‫اﻟ ور‬ ‫اﻟ ق‪ 52\.‬و ﻐﻲ ﺗ‬ ‫ﺔ )اﻟ ﻬﺎر‬ ‫ات‬ ‫واﻟ ﻬﺎر‬ ‫ات اﻟ‬ ‫إﻗﻠ ﺔ ودوﻟ ﺔ‪ 53،‬وﺳ ﻌ ﻞ ﻫ ﻩ اï»ï»›ïºŽØ¯ ﺔ ﻋﻠﻰ ﺗﻌﻠ اﻟ ﻣ‬ ‫إﻧ ﺎء أﻛﺎد ﺔ اﻓ اﺿ ﺔ ﻟﻠ ﻣ ‪ ،‬ﻣﻊ روا‬ ‫ج(‬ ‫ﺎت اﻟ ï»  ﺔ واﻟﻌﺎﻟ ﺔ؛‬ ‫ﻘﻬﺎ ﻓﻲ اﻟ‬ ‫اﻟ ﺎﻋ ﺔ (اﻟ ﻲ ﺗ اﻋﻲ اﺣ ﺎﺟﺎت اﻟ ق ﻟﻠ ﺎء واﻟ ﺎب ورﺟﺎل اï»ï»‹ ﺎل‪ ،‬واﻟﻌ ﻞ ﻋﻠﻰ ﺗ‬ ‫واﻟ ﻐ ة‬ ‫ﺎت اﻟ ﻐ‬ ‫ﺳ ﺎﻋ ون رواد اï»ï»‹ ﺎل واﻟ‬ ‫اﻟ ﯾ‬ ‫ﺎر‬ ‫( واﻟ‬ ‫)اﻟ اء اﻟ ﻌﻠ‬ ‫اﻟ ïº ï¯¾â€¬ ‫ﻋﺔ ﻣ‬ ‫ﻞ ﻣ‬ ‫ﺗ‬ ‫د(‬ ‫ﺔ اï»ï»‹ ﺎل‪\.‬‬ ‫أﻧ‬ ‫ل اﻟ ﻗ ﻲ وﻧ‬ ‫اﻟ ﺎﺳ ﺔ‪ ،‬وﺗ ر ﻬ ﻋﻠﻰ أﻓ ﻞ اﻟ ﺎرﺳﺎت اﻟ ﺎﺻﺔ ﺎﻟ‬ ‫واﻟ ﺳ ﺔ ﻋﻠﻰ ﺗ ﯾ ﻓ ص اﻟ ر‬ ‫ﻋﻠﻰ اﻟ ﻘﺎﻟ اﻻﺟ ﺎ ﺔ واﻟ ﻌ ﻗﺎت‬ ‫ات ﻟ ﺎﻋ Ø© ر‬ ‫اﺋ ات اï»ï»‹ ﺎل ﻋﻠﻰ اﻟ ﻐﻠ‬ ‫ﺎر‬ ‫ﺔ ﻣﻊ اﻟ ïº Ø§Øª واﻟ‬ ‫ةﻧ‬ ‫ر‬ ‫ع‬‫و‬ ‫وﺳ ﻌ ﻞ اﻟ‬ ‫اﻟ ﻲ ﺗ ل دون ﻣ ﺎر ﺔ اﻟ ﺎء‪\.‬‬ ‫ﻟﻼﺳ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻻر(‬‫ع )‪ 1\.5‬ﻣﻠ ن دو‬‫و‬ ‫اﻟ ّ ن ‪ :3‬إدار‬ ‫ة اﻟ‬ ‫ﺔ‬ ‫واﻟ ﻐ ﻞ )ﻣ ﻞ اﻟﻠ ازم اﻟ‬ ‫ﻔ‬ ‫اﻟ‬ ‫ع و دارﺗﻪ‪ ،‬ﺎ ﻓﻲ ذﻟ ﺗ ﺎﻟ‬‫و‬ ‫ﻫﺎ اﻟ ﻘ ض ﻟ ﻔ اﻟ‬ ‫اﻟ ﻲ ﯾ‬ ‫ن اﻟ ﺎﻟ‬ ‫ﻐ ﻲ ﻫ ا اﻟ‬ ‫‪\.29‬‬ ‫ﺎت واﻟ ﻌﺎﻗ ات واﻟ ر ات‪ ،‬واﻹدار‬ ‫ة اﻟ ﺎﻟ ﺔ‪ ،‬واﻻﺗ ﺎﻻت واﻹﺟ اءات اﻟ ﻗﺎﺋ ﺔ‪ ،‬واﻟ ﺻ‬ ‫ﺗ واﻟ ﻣ ﺎت( اﻟ ﺗ ﺔ ﺄﻋ ﺎل اﻟ‬ ‫وأﺟﻬ Ø© اﻟ‬ ‫اï»ïº§ ‪\.‬‬ ‫ﺔ ﻟﻠ‬ ‫ﺎﻟ‬ ‫اﻟ ﻐ اﻓﻲ ﻟﻠ ﺻ واﻟ ﻘ‬ ‫ة اﻟ‬ ‫ام ﻣ ﺎدر‬ ‫‪ \.‬وُﻘ Ø­ اﺳ‬ ‫ع وﻣ ﺎر ﺔ اﻟ ا‬‫اﻟﻌﺎم ﻟﻠ و‬ ‫واﻟ ﺎ ﻌﺔ واﻟ ﻘ ‪ ،‬واﻟ‬ ‫‪\.‬‬ ‫ﻣ ﺎر ﺔ اﻟ ا‬ ‫م ﻣ ïº Ø§Øª اﻟ ﺎﺋﺞ اﻟ ﺎﺻﺔ ﺎﻟ ﺎور‬ ‫ات وﻣﻌﺎﻟ ﺔ اﻟ ï»  ﺎت ﻟ ﺎ ﻌﺔ ﻣ‬ ‫وﺳ‬ ‫ﻠﺔ )‪ 0‬دوﻻر(‬ ‫ئ اﻟ‬‫اﻟ ّ ن ‪ :4‬ﻣ ِّ ن اﻻﺳ ﺎ ﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار‬ ‫وﻋﺎت اﻹﻗ اض اﻟ ﺎ ﻌﺔ ﻟﻠ‬ ‫ﻊ ﻣ‬ ‫روﻧﺎ‪ ،‬أﺻ ﺢ ﻣ اﻟ ﺎرﺳﺎت اﻟ ﺎﺋﻌﺔ ﻟ‬ ‫ﻣﺔ اﻟﻌﺎﻟ ﺔ اﻟ ﺎﺟ ﺔ ﻋ ﺟﺎﺋ ﺔ‬ ‫ﻓﻲ أﻋﻘﺎب اﻟ‬ ‫‪\.30‬‬ ‫ﻠﻪ ﻓﻲ أﺛ ﺎء‬ ‫ﺗ‬ ‫ن ﻓﻲ اﻟ ا ﺔ ﻣ ﻠﻎ ﺻﻔ ‪ ،‬وﻟ‬ ‫ﻟﻬ ا اﻟ‬ ‫ﻠﺔ‪ \.‬وﺳ‬ ‫ئ اﻟ‬‫اﻟ وﻟﻲ دﻣﺞ ﻣ ن ﺧﺎص ﺎﻻﺳ ﺎ ﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار‬ ‫ﻞ‬ ‫ﺗ‬ ‫ن ﯾ ﺢ اﻟ وﻧﺔ ﻟﻼﺳ ﺎ ﺔ ﻟﻸزﻣﺎت )اﻟ ﻲ‬ ‫اﻟ ﻗﻌﺔ‪ \.‬وﻫ ا اﻟ‬ ‫ع ﻟﻠ ﺎح ﺎﺳ ﺎ ﺔ ﺳ ﻌﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار ﻏ‬‫و‬ ‫اﻟ‬ ‫ﺗﻔ‬ ‫ﺧ ﻣﺎت اﺗ ﺎﻻت ﻓﻲ ﺣﺎﻻت‬ ‫ﺗﻓ‬ ‫ﻞ ذﻟ ‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬اï»Ø²ï»£ïºŽØª اﻹﻧ ﺎﻧ ﺔ اﻟ ﻲ ﺗ ﻠ‬ ‫أن‬ ‫إﺟ اءات ﻣﻌﺎﻟ ﺔ آﺛﺎر‬ ‫ﻫﺎ( ﻋ وﻗﻌﻬﺎ‪ \.‬و‬ ‫اﻟ ﻣ ﺎت‪،‬‬ ‫اﻟ ﻗ ﻲ اﻟ ﻘ م‪ ،‬وﺗ‬ ‫ﺎﺑ ﺔ‪ ،‬واﻟ‬ ‫ﺎت اﻟ‬ ‫ﻟ ﺟ ﺎ اﻟ ﺎﻟ ﺔ‪ ،‬وﺗ ï»  ﻞ اﻟ ﺎﻧﺎت‪ ،‬واﻟ‬ ‫وﻧ ﺔ‪ ،‬واﻟ‬ ‫ﺎت اﻹﻟ‬ ‫ة اﻹﻟ‬ ‫‪ 51‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬اﻟ ﺎر‬ ‫وﻧ ﺔ‪ ،‬واﻟ‬ ‫واﻟ ﻟ ﺟ ﺎت اﻟ ﯾ ة‪\.‬‬ ‫ﻟﻠ ﺎدة ورﺎدة اï»ï»‹ ﺎل وﻣ‬ ‫اﻟ ﻬﺎﺗ ﺎ ﻏﺎﻧ‬ ‫رﺎدة اﻟ وﻋﺎت اﻟﻘﺎﺋ ﺔ ﻣ ﻞ ﻣ‬ ‫ات ﺎﻟ ﻌﺎون ﻣﻊ اﻟ ﺳ ﺎت اﻟﻘﺎﺋ ﺔ اﻟ ﻌ ﺔ ﺑ‬ ‫إﻋ اد دور‬ ‫‪ 52‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪،‬‬ ‫ﺔ‪\.‬‬ ‫أن ﺗ ﺢ ﻣ اردﻫﺎ وﺣ ﻫﺎ اﻟ ﺎد ﻟ ﻌﻠ ﻫ ﻩ اﻟ ﻬﺎر‬ ‫ات اﻟ‬ ‫اﻟ ﻟ ﺟ ﺎ واﻻﺑ ﺎر ﻣ أﺟﻞ اﻟ ﺔ‪ ،‬اﻟ ﻲ‬ ‫اﻹﻧ ﻧ ‪\.‬‬ ‫اﺳ ﺔ‪ ،‬و‪/‬أو ﻣ ﺔ اﻟ ﻌﻠ ﻋ‬ ‫ات اﻟ ر‬‫‪ ،‬وﺗﻘ اﻟ ور‬ ‫واﻟ وﻟ ﻣ اﻟﻘ ﺎع اﻟ ﺎص ﺗ ﻓ اﻟ‬ ‫ﻟﻠ ﺎء اﻹﻗﻠ‬ ‫‪53‬‬ ‫‪Page 17 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ل‪ \.‬وﺳ ﺿﻊ‬ ‫اﻟﻬﺎﺗﻒ اﻟ‬ ‫ام ﺧ ﻣﺎت اï»ï»£ ال ﻋ‬ ‫رت‪ ،‬أو ﻟ ﻬ ﻞ اﻟ ﻓ ﻋﺎت اﻹﻧ ﺎﻧ ﺔ اﻟ ﺎرﺋﺔ ﺎﺳ‬ ‫اﻟ ار ﻟ ﻞ ﻣ ﻞ اﻟ اﻓ اﻟ ﻲ ﺗ‬ ‫ﻠﺔ‪\.‬‬ ‫ام ﻣ ن اﻻﺳ ﺎ ﺔ ﻓﻲ ﺣﺎﻻت اﻟ ار اﻟ‬ ‫د ïº Ùˆ و اﺋ اﺳ‬ ‫ع‪،‬‬‫و‬ ‫ع ﻓﻲ ﺗﺎرﺦ ﺳ ﺎن اﻟ‬‫و‬ ‫ﻓﻲ دﻟ ﻞ ﺗ ﻔ اﻟ‬ ‫ﻗ‬ ‫‪\.‬‬ ‫اﻟ ﺎﺳﺎت اﻟﻘﺎﻧ ﻧ ﺔ اﻟ ﺎﺻﺔ ﺎﻟﻌ ï»  ﺎت‬ ‫ﻫﻞ ﺗ ﺗﻔﻌ ﻠﻬﺎ؟‬ ‫ر ﺳ ﺎﺳﺔ‬ ‫اﻟ وﻋﺎت اﻟ ﻘﺎﻣﺔ ﻋﻠﻰ ﻣ ﺎر اﻟ ﺎﻩ اﻟ وﻟ ﺔ ‪- -‬ﻣ‬ ‫ﻻ‬ ‫اﻟﻌ ï»  ﺎت‪/‬إﺟ اءات اﻟ )‪(OP/BP 7\.50‬‬ ‫وﻋﺎت اﻟ ﻘﺎﻣﺔ ﻓﻲ‬ ‫ﺄن اﻟ‬ ‫ﻣ ر ﺳ ﺎﺳﺔ اﻟﻌ ï»  ﺎت )‪(OP 7\.60‬‬ ‫ﻻ‬ ‫ع ﻋﻠ ﻬﺎ‬‫اﻟ ﺎ اﻟ ﺎز‬ ‫واﻵﺛﺎر اﻟ ﺔ واﻻﺟ ﺎ ﺔ‬ ‫اﻟ ﺎ‬ ‫ﺗﻘ‬ ‫ﻣﻠ‬ ‫‪\.‬‬ ‫ﺔ اﻟ ﺔ‪،‬‬ ‫اﻟ ﻔﺎ ﺎت اﻟ Ø© اﻹﻟ وﻧ ﺔ‪ ،‬وﻣ ﺎ‬ ‫ع‪ ،‬ﻓﺈن اﻟ ﺎ اﻟ ﺔ واﻻﺟ ﺎ ﺔ ﺗ ﻞ ﺗ ﻟ‬ â€«ï» Ø£ï»‹ ﺎل ﻣ ﻧ ﺔ ﻓﻲ Ø¥ ﺎر اﻟ و‬ ‫وﻋﻠﻰ اﻟ ﻏ ﻣ ﻋ م اﻟ‬ ‫اﻹﺻﺎ ﺔ ﻔ وس ﺳﺎرس ـ ﻓ ـ ‪SARS-) 2‬‬ ‫ع‪ ،‬وﻣ ﺎ اﻟ ﻌ ض ﻟ ﺎ‬‫ل ﻋﻠﻰ ﻣ ﺎﻓﻊ اﻟ و‬ ‫وﻣ ﺎﻧ ﺔ اﺳ ﻌﺎد اﻟﻔ ﺎت اﻟ ﻔﺔ واﻟ وﻣﺔ وﻏ ﻫ ﻣ اﻟ‬ ‫ﻟﻼﺳ‬ ‫وف اﻟﻌ ﻞ وﺣ ﺎ ﺔ اﻟﻌ ﺎﻟﺔ‪ \.‬وﻟ ﺎ ﺎﻧ اﻟ ﺎ‬ ‫ع‪ ،‬واﻟ ﺎ اﻟ ﺗ ﺔ‬ ‫‪ (Cov-2‬ﻓﻲ أﺛ ﺎء ﺗ ﻔ اï»ï»§ ﺔ‪ ،‬ﺳ اء ﺎﻟ ﺔ ﻟﻠ ﻊ اﻟ ﻠﻲ أو اﻟﻌﺎﻣﻠ ﻓﻲ اﻟ و‬ ‫ع ﺗ ﻒ ﻋﻠﻰ أﻧﻬﺎ ﻣ ﺳ ﺔ‪\.‬‬ ‫ﺔ ﻟﻠ و‬ ‫اﻟ ﺑﻬﺎ‪ ،‬ﻓﺈن اﻟ ﺎ اﻟ ﺔ واﻻﺟ ﺎ‬ ‫ﻘﺔ‬ ‫ﻣ ﻬﺎ‬ ‫ﺧﺎﺻﺔ ﺎﻟ ﻗﻊ‪ ،‬وﻣ ﻔ ﺔ اﻟ ‪ ،‬و ﻬﻞ اﻟ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﻫـ‪ \.‬اﻟ ﻔ‬ ‫اﻟ ﺗ ﺎت اﻟ ﺳ ﺔ وﺗ ﺗ ﺎت اﻟ ﻔ‬ ‫ع ﺑ ﺟﻪ ﻋﺎم‪ \.‬وﺳ إﻧ ﺎء وﺣ Ø© ﺟ ﯾ Ø© ﻟ ﻔ‬ ‫ر ﺎد ﺎ ﻓﻲ اﻟ ﺟ ﻪ ÙˆØ§ï»¹ïº Ø§Ù ﻋﻠﻰ اﻟ و‬ ‫ة اﻻﺗ ﺎﻻت واﻟ ( دو ا‬ ‫ﺔ )و ا‬ ‫زر‬ ‫زر‬ ‫ة اﻟ‬ ‫‪ \.31‬ﺳ د اﻟ ا‬ ‫ع ﺳ ﻌ ﻓﻲ اﻟ ا ﺔ ﻋﻠﻰ اﻟ ارد واﻟ ﻔ‬ ‫ة اﻟﻌ ï»  ﺎت اﻟ ﻟﺔ ﻣ اﻟ اﻟ وﻟﻲ‪ ،‬ﻓﺈن اﻟ و‬ ‫ة ﻟ ﻟ ﯾﻬﺎ ﺧ Ø© ﺳﺎ ﻘﺔ ﻓﻲ إدار‬ ‫ع‪ ،‬وﻟ ﻧ ا ï»Ù† اﻟ ا‬ ‫زر‬ ‫اﻟ و‬ ‫رﺋ اﻟ ﻬ رﺔ( ﻓﻲ‬ ‫ة اﻟﻌﺎﻣﺔ ﺑ ﻋﺎ ﺔ اﻟ ﺎﻟﺔ اﻟﻌﺎﻣﺔ ﻟ ﻣﻌﻠ ﻣﺎت اﻟ وﻟﺔ اﻟ ﺎ ﻌﺔ ﻟ‬ ‫ع ﺗ ﯾ اﻹدار‬ ‫ع ﻗﺎﺋ ﺎﻟﻔﻌﻞ )ﻣ و‬ ‫ات ﻣ ﺧﻼل ﻣ و‬ ‫ذو اﻟ ﻬﺎر‬ ‫ة اﻟ ﺎﻟ ﺔ‪ ،‬واﻹﺟ اءات اﻟ ﻗﺎﺋ ﺔ‪ ،‬واﻟ ﺻ‬‫ﺎت واﻟ ر ات‪ ،‬واﻹدار‬ ‫ة اﻟﻌﺎﻣﺔ ﺧ اء ﻓﻲ ﻣ ﺎﻻت اﻟ‬ ‫ع ﺗ ﯾ اﻹدار‬ ‫وﺣ Ø© ﺗ ﻔ ﻣ و‬ ‫ﻣ ﺣﻠﺔ اﻧ ﻘﺎﻟ ﺔ‪ \.‬وﺗ‬ ‫ة اﻻﺗ ﺎﻻت واﻟ اﺗﻔﺎ ﺔ ﻣﻊ اﻟ ﺎﻟﺔ‬ ‫زر‬‫واﻟ ﺎ ﻌﺔ واﻟ ﻘ ‪ ،‬ﻟﻬ ﺧ Ø© Ø© ﻓﻲ ﺗ ﻔ اﻟ وﻋﺎت اﻟ ﻟﺔ ﻣ اﻟ اﻟ وﻟﻲ‪ \.‬وﻓﻲ ﻣﺎﯾ ‪/‬أ ﺎر ‪ ،2021‬وﻗﻌ و ا‬ ‫ع‪ \.‬واﻟ ﺎﻟﺔ ïº ï»£ ﺛ ق ﻪ‬ ‫ﺎت واﻟ ﻌﺎﻗ ات ï»ÙˆÙ„ ﺳ ﻓﻲ اﻟ و‬ ‫ة أﺧ ﺎﺋ ﻓﻲ اﻟ ﺎﻻت اﻟ ﺎﻟ ﺔ واﻟ ر ات واﻟ‬ ‫اﻟﻌﺎﻣﺔ ﻟ ﻣﻌﻠ ﻣﺎت اﻟ وﻟﺔ ﻹﻋﺎر‬ ‫ﺣ إﻧﻬﺎ ﺗ ﻊ ﻌ ﻓﺔ ﺟ Ø© ﺎﻟ ﺎﺳﺎت واﻹﺟ اءات اﻟ اﺧﻠ ﺔ ﻟﻠ اﻟ وﻟﻲ‪ ،‬ﺎ ﻓﻲ ذﻟ اﺳ ام أداة اﻟ ﻊ اﻟ ﻬ ﻲ ﻟ ﺎدل اﻟ ﻌﻠ ﻣﺎت ﻓﻲ ﻣ ﺎل اﻟ ر ات‬ ‫ة اﻟﻌﺎﻣﺔ ﻣ ﺧﻼل اﺳ ام‬ ‫ﻞ ﻋﺎم ﻋ ﺗ ﻊ ﻋ ï»  ﺔ ﺗ ﯾ اﻹدار‬ ‫ﺎت‪/‬اﻟ ر ات ﻓﻲ اﻟ اﻟ وﻟﻲ‪ ،‬وﻫﻲ ﻣ وﻟﺔ‬ ‫)‪ ،(STEP‬وﻧ ﺎم ﺗ ﻊ اﻟ‬ ‫ﻣﻊ ﺟ ﻊ أﺻ ﺎب اﻟ ï»  ﺔ ÙˆØ§ï» Ø§Ù اﻟ ﻌ ﺔ ﻓﻲ اﻟ ﺔ‬ ‫ﻬﺎ ﻣ ﺗ ﺎدل اﻟ ﻌﻠ ﻣﺎت واﻟ‬ ‫ﺗ ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت وﻫﻲ ﻓﻲ وﺿﻊ ﺟ‬ ‫ع اﻟ ﻘ ح‪\.‬‬ ‫ﻣ اﻟ و‬ ‫ﺔ‪ \.‬وﻋﻼوة ﻋﻠﻰ ذﻟ ‪ ،‬ﺳ ن اﻟ ﺎﻟﺔ Ø£ ﺎ ﻣ اﻟ ﻔ ﯾ اﻟ ﺋ‬ ‫اﻟ‬ ‫واﻟ ﻔ‬ ‫ع آﻟ ﺔ ﻓﻌﺎﻟﺔ ﻟﻠ‬‫و‬ ‫ﺔ اﻟ ﻲ ﺳ ﻔ ‪ ،‬ﺳ ï»  اﻟ‬ ‫ر‬ ‫ة ﻣ ïºŽïº Ø© ﻓﻲ اï»ï»§â€¬â€«â€ª \.32‬وﻧ ا ï»Ù† ﻫ ﺎك اﻟﻌ ﯾ ﻣ اﻟ ﺳ ﺎت اﻟ ﻲ ﺳ ﺎرك‬ ‫ﺑ اﻟ ﺳ ﺎت‪\.‬‬ ‫ﻣ اﻟ ﻧ ‪ 1‬و ‪ \.2‬وﺳ أس ﻫ ﻩ اﻟﻠ ﺔ اﻟ ﺟ ﻬ ﺔ وز‬ ‫ن‬ ‫ع‪ ،‬ﺗ ﻋ ﻬﺎ ﻟ ﺎن ﻓ ﺎن‪ ،‬واﺣ Ø© ﻟ ﻞ ﻣ‬ ‫وﺳ إﻧ ﺎء ﻟ ﺔ ﺗ ﺟ ﻬ ﺔ ﻟﻠ و‬ ‫أ‪\.‬‬ ‫زر‬ ‫ة اﻻﻗ ﺎد واﻟ ﺎﻟ ﺔ‪ ،‬واﻟ ﺎﻟﺔ اﻟﻌﺎﻣﺔ ﻟ ﻣﻌﻠ ﻣﺎت اﻟ وﻟﺔ‪،‬‬ ‫ات اﻟ ﻔ ة‪ ،‬ﺎ ﻓﻲ ذﻟ و ا‬ ‫ﻣ ï»  ﻋ اﻟ ا‬ ‫زر‬ ‫اﻻﺗ ﺎﻻت واﻟ وﺳ‬ ‫ع؛‬‫ﺔ ﻣ ﻌ دة اﻟﻘ ﺎﻋﺎت‪ ،‬ﺑﻬ ف إﻋ ﺎء اﻟ ﺟ ﻪ اﻹﺳ اﺗ ﻲ ﻟﻠ و‬ ‫اﻟ ﻬ ﻲ‪ ،‬واﻟﻬ ﺔ اﻟ‬ ‫زر‬ ‫ة اﻟ ﻌﻠ واﻟ‬ ‫وو ا‬ ‫اﻟﻔ ( وز اﻻﺗ ﺎﻻت واﻟ ‪ ،‬وﺳ ‪ ،‬ﺎﻹﺿﺎﻓﺔ إﻟﻰ ذﻟ ‪ ،‬ﻣ ï»  ﻋ اﻟ ﻐﻞ اﻟ ﺎﻟﻲ ﻓ ﻼ ﻋ‬ ‫وﺳ أس اﻟﻠ ﺔ اﻟﻔ ﺔ )اﻟﻠ‬ ‫ب‪\.‬‬ ‫عأ ﺎ‬ ‫ة اﻟﻔ ﺔ‪ \.‬وﺳ ﺎﻗ ﻓ ﻋ ﻞ اﻟ و‬ ‫اﻟﻘ ﺎع اﻟ ﺎص واﻟ ﻊ اﻟ ﻧﻲ‪ ،‬وﺳ ﺢ ﺎﻟ ﺎور ﻣﻊ اﻟﻘ ﺎع اﻟ ﺎص ﺑﻬ ف ﺗﻘ اﻟ ر‬ ‫اء‬ ‫ﻟ ﺎدل اﻵر‬ ‫ﺎت ﻏ اﻟ ﻣ ﺔ‪/‬ﻣ ﺎت اﻟ ﻊ اﻟ ﻧﻲ ﺗ ن ﺎ ﺔ ﻣ‬ ‫ﺔ ﺎﻟ‬ ‫ﻣﻊ اﻟ ﻣﺔ ﻓ Ø© إﻧ ﺎء ﻣ ﻋﺔ ﻋ ﻞ ﻣ‬ ‫‪Page 18 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫اﻟ اﻟ وﻟﻲ‬ ‫اﻟ ﻗ ﺔ ﻓﻲ ﺟ ﺗﻲ )‪(P174461‬‬ ‫ع إرﺳﺎء اï»ïº³â€¬â€«ï»£ و‬ ‫ﺎﺔ‬ ‫ﻩ‪،‬‬ ‫ع‪ ،‬ﻋ إﻧ ﺎز‬‫و‬ ‫أن ن اﻟ‬ ‫ع واﻟ وﻋﺎت اï»ïº§ ﻓﻲ ﺣﺎﻓ ﺔ اﻟ اﻟ وﻟﻲ‪ \.‬وﻣ اﻟ ﺎﺣ ﺔ اﻟ ﺎﻟ ﺔ‪،‬‬‫ﺄن ﻫ ا اﻟ و‬ ‫‪ ،‬ﻋﻠﻰ ﺳ ﻞ اﻟ ﺎل‪ ،‬ﺄن اﻹﺳ اﺗ ﺔ اﻟ ﻗ ﺔ وﺧ ﺔ اﻟﻌ ﻞ ذات اﻟ ﻠﺔ؛‬ ‫واﺟﻬﺔ ﻟﻠ ﻔﺎﻋﻞ ﺑ اﻟ ﻣﺔ واﻟ ا‬ ‫ﺎت‪،‬‬ ‫ﻓﻲ اﻟ ون اﻟ ﺎﻟ ﺔ واﻟ‬ ‫ع‪ ،‬وأﺧ ﺎﺋ‬‫و‬ ‫‪ ،‬ﻣ ﻘﺎ ﻟﻠ‬ ‫ة اﻻﺗ ﺎﻻت واﻟ‬ ‫زر‬‫ع اﻟ ﺎ ﻌﺔ ﻟ ا‬‫و‬ ‫وﺣ Ø© إدار‬ ‫ة اﻟ‬ ‫وﺳ‬ ‫ج‪\.‬‬ ‫وﻣ ول اﺗ ﺎل ﻣﻌ ﺎ ﺎﻹﺟ اءات اﻟ ﻗﺎﺋ ﺔ ﺎﻟ ﺔ واﻻﺟ ﺎ ﺔ؛‬ ‫ﻫﺎ وﻣ وﻟ ﺎﺗﻬﺎ‪ ،‬وﻣ اﻋ اﻻﺟ ﺎﻋﺎت‪ ،‬واﻟ اﺗﺞ‬ ‫ﺗ ﺿﺢ أدوار‬ ‫اﻟﻔ‬ ‫ﺔ ﻟﻠ ﺔ اﻟ ﺟ ﻬ ﺔ واﻟﻠ‬ ‫ﺎﺻﺎت‬ ‫وﺳ ن ﻫ ﺎك اﺧ‬ ‫د‪\.‬‬ ‫ﺗﻘ‬ ‫ع‪ \.‬وﺳ‬‫و‬ ‫ﺳ ن ﺟﺎﻫ ا ﻓﻲ ﺗﺎرﺦ ﺳ ﺎن اﻟ‬ ‫ع‪ ،‬اﻟ‬‫و‬ ‫ﺎﺻﺎت ﺟ ءا ﻣ دﻟ ﻞ ﺗ ﻔ اﻟ‬ ‫اﻟ ﻗﻌﺔ‪ ،‬وﺳ ن ﻫ ﻩ اﻻﺧ‬ ‫ح اﻟ ﻌﻠ ﻣﺎت‪\.‬‬ ‫اﻟ وﻟﻲ ï»ï» اض‬ ‫ﻋ ﻞ اﻟ‬ ‫ﻣ ﺟ ﻟﻼﺟ ﺎﻋﺎت ﻟﻔ‬ ‫ﻣﻠ‬ ‫‪\.‬‬ ‫وﻻ اﻻ ﺗ ﺎل‬ ‫ﻣ‬ ‫اﻟ وﻟﻲ‬ ‫اﻟ‬ ‫ﻟﻼﺳ‬ ‫ﻠﻲ‬ ‫ﺛﻲ ﺟ ن ﺗ ﺎرﻟ‬ ‫ﺗ‬ ‫ام اﻟ ﺳ ﻲ ﻓﻘ‬ ‫ﺔ اﻟ ﻗ ﺔ‬ ‫أﺧ ﺎﺋ ﻲ اﻟ‬ ‫ﻛ‬ ‫دوﻧﺎﻧ‬ ‫إر ر‬ ‫اؤول ﻓ ﻠ‬ ‫أﺧ ﺎﺋﻲ أول ﺗ ﺔ رﻗ ﺔ‬ ‫ﺔ‬ ‫‪/‬اﻟ ﻬﺔ اﻟ ï»  ﺔ ﻟﻠ‬ ‫اﻟ ﻘ ض‪/‬اﻟ ï»  اﻟ ﻌﺎﻣﻞ ﻣﻊ اﻟ‬ ‫ﺟ ﻬ رﺔ ﺟ ﺗﻲ‬ ‫ﻣﻌﺎﻟﻲ اﻟ ز إﻟ ﺎس ﻣ ﺳﻰ دواﻟﻪ‬ ‫ﺎﻋﺔ‬ ‫ﺎد واﻟ ﺎﻟ ﺔ اﻟ ﻠﻒ ﺎﻟ‬ ‫وز اﻻﻗ‬ ‫‪cabinet@mefip\.gouv\.dj‬‬ ‫وﻟﺔ ﻋ اﻟ ﻔ‬ ‫اﻟﻬ ﺎت اﻟ‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‬ ‫وﺗ‬ ‫زر‬ ‫ة اﻻﺗ ﺎﻻت واﻟ‬ ‫وا‬ ‫رﺿ ان ﻋ ï² ïº‘ï»¬ ون‬ ‫ﻟ ﺟ ﺎ اﻟ ﻌﻠ ﻣﺎت واﻻﺗ ﺎﻻت‬ ‫وﺗ‬ ‫وز اﻻﺗ ﺎﻻت واﻟ‬ ‫‪contact@communication\.gouv\.dj‬‬ ‫‪Page 19 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬  ‫ﺍﻟﺑﻧﻙ ﺍﻟﺩﻭﻟﻲ‬ ‫ﻣïºïº­ï»­ï»‰ ﺇﺭﺳﺎء ﺍï»ïº³ïº± ﺍﻟﺭﻗﻣﻳﺔ ﻓﻲ ﺟﻳﺑﻭﺗﻲ ))‪P174461‬‬ ‫ﻣ اﻟ ﻌﻠ ﻣﺎت‪ُ ،‬‬ ‫ﯾ ﺟﻰ اﻻﺗ ﺎل ﺑـ‪:‬‬ ‫ﻟﻠ‬ ‫اﻟ اﻟ وﻟﻲ‬ ‫‪H Street, NW 1818‬‬ ‫‪Washington, D\.C\. 20433‬‬ ‫ﻫﺎﺗﻒ‪1000-473 (202) :‬‬ ‫‪Web: http://www\.worldbank\.org/projects‬‬ ‫ﻟﻼﺳﺗﺧﺩﺍﻡ ﺍﻟﺭﺳﻣﻲ ﻓﻘﻁ‬ ‫اﻟ اﻓﻘﺔ‬ ‫ﻠﻲ‬ ‫ﺗ ﺛﻲ ﺟ ن ﺗ ﺎرﻟ‬ ‫اﻟﻌ ﻞ‪:‬‬ ‫رﺋ ﺎ ﻓ‬ ‫اؤول ﻓ ï»  دوﻧﺎﻧ‬ ‫إر ر‬ ‫اﻟ اﻓﻘﺔ‬ ‫ﺗ‬ ‫ﻣ ﯾ ﻗ ﺎع اﻟ ﺎرﺳﺎت‪:‬‬ ‫وﻟﺔ ﻋ ﻣ‬ ‫اﻟ ﯾ Ø© اﻹﻗﻠ ﺔ ﻟﻠ اﻟ وﻟﻲ اﻟ‬ ‫واﻟ وﺟ ﺗﻲ‪:‬‬ ‫‪Page 20 of 20‬‬ ‫‪ 18‬ﻳﻧﺎﻳﺭ‪/‬ﻛﺎﻧﻭﻥ ﺍﻟﺛﺎﻧﻲ ‪2021‬‬

APPROVAL

P037350

RESTRICTED FILE COpy Report No\. P 86 This document was prepared for internal use in the Bank\. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A LOAN TO THE VORARLBERGER ILLWERKE AKTIENGESELLSCHAFT June 6, 1955 REPORT AND RECO!TENDATIONS O' THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A LOAN TO THE VORRLBERGER ILT\.RIT ATIESETLLSCHAFT 1\. I submit the following report and recommendations on the application of the Vorarlberger Illwerke A\.G\. for a loan of $10 million equivalent in various currencies\. PART I - HISTORICAL 2\. On September 9, 1954 the Austrian Government submitted an application to the Bank for a loan for the Lnersee hydro-electric power project in the Vorarlberg, a province of Western Austria\. A Bank mission visited Austria in October and November 1954 to study the position of the applicant company, the Vorarlberger Illwerke A\.G\. (the VIW) and the LUnersee project\. 3\. After consideration of this mission's report the Bank agreed to enter negotiations for a loan\. A delegation consisting of representa- tives of the borrower and of the Austrian Government arrived in Washing- ton on iarch 9, 1955 and agreement has been reached in the form in which I now present the draft Loan and Guarantee Agreements\. The Austrian Ambassador in ashington would sign both the Loan and the Guarantee Agreements\. P\.ART II - DESCRI?TIO OF THE LOAN The Borrower 4\. The borrower would be the Vorarlberger 111werke A\.G\., an Austrian power company\. The present status of this company is described in Part V\. The Guarantor 5\. The loan would be guaranteed by the Republic of Austria\. Purpose of the Loan 6\. The purpose of the loan would be to assist in the financing of the Lnersee hydro-electric power project\. Amount 7, The loan would be for the equivalent of $10 million in various currencies\. Approximately \.7,2 million would be used to pay for imported equipment while the remaining $2\.8 mi2lion would be used to purchase equipment produced in Austria\. The justification for this is given in Part IV, Terms 8\. The loan would be for 25 years and be amortized by semi-annual instalments beginning May 1, 1960, which are calculated to retire the - 2 - entire loan by maturity by May 1, 1980, as set out in Schedule 1 of the proposed Loan Agreement\. 9\. The loan would bear interest, including l commission, at the rate of h 3/4 % per annum\. The dates for the payment of interest and other charges would be May 1 and November 1 of each year\. 10\. There would be a commitment charge of 3/4% per annua\. Security 11\. The loan would be secured by a first mortgage on the Lunersee properties and by an assignment of part of the borrower's rights to and\. claims for payments under a contract (known as the Illwerke Agree- ment, 1952) for the export of power to two power companies in Germany\. Sufficient of these rights and claims would be assigned as would be required to meet the semi-annual payments of interest and principal on the loan\. The German power companies are the Rheinisch-estf9lisches Elektrizit*tswerk A\.G\. (RWE) and the Energie-Versorgung A\.G\. (EVS)\. PART III - DESCRIPTIUN OF TH1E PROJECT 12\. The project is located in Vorarlberg, which is the westernmost province of Austria (French zone)\. The present power installations of the VIW on the Ill river in Vorarlberg, which now total 356,000 kw, have as their principal function to provide peak power to Germany\. The Ll-nersee project will be particularly valuable for this purpose for, by means of pumped storage, it will be able to convert off-peak thermal power into peak winter power, 13\. The project, which will have an effective capacity of 190,000 kT when completed, will utilize an alpine lake, LU\.nersee, as a reservoir\. The storage capacity of the lake will be increased by the construction of a small dam across the lower end\. As the natural run off from the catchment area of the lake will not be sufficient to fill its increased capacity, run off from a glacier will be diverted to the lake and water will be pumped to the lake through the same tunnels, syphons and penstocks used to convey water to the new Lilnersee power plant to generate energy, The pumps will be driven by the generators in the LUnersee power plant acting as motors, Off-peak thermal power imported from Germany will be used to operate the pumps\. As the cost of off-peak energy is one-third of the price at which winter energy can be sold, the pumping operation is profitable\. 14\. The project includes the construction of a 220 kw double circuit transmission line 10\.2 km long from the Lhersee power house to a sub- station at Bilrs from which the energy produced by the VIW is distributed to its principal consumers, and a double circuit line 61\.6 km long from B'qrs to the German border\. The latter will be designed as a 380 kv line, but will be operated initially at 220 kv\. - 3- Justification of the Project 15\. The project will benefit both Austria and Gerrmiany\. The Austrian benefits will include additional power output with which to satisfy the demands in Vorarlberg and Tirol, and additional foreign exchange pay- ments from Germany equivalent to about $1,5 million annually on the average\. This will be about twice the annual service on the proposed 10 million Bank loan\. 16\. The benefits to the German power companies -:ill include: the availability of at least 127,000 kw of additional powr for use at periods of peak demand at a cost of about 017 per kilowatt-year (a very cheap cost) and the sale of some of their off peak energy to the project for pumping\. Since the alternative for the German comDanies would be a large capital investment in a thermal power plant plus annual costs con- siderably in excess of the cost for Lnersee power, the availability of the peak power from the LMnersee project is very advantageous, PART IV - APPRAISAL OF TI LOAN 17\. A technical report entitled "Appraisal of the Lnersee Project in Austria" (T\.0, 756) is attached (No\. 1)\. Austria's Political Situation 18\. Austria's situation in the international field has fundamentally changed since my last report to the Executive Directors of July 6, 1954 concerning the first loan to-Austria\. At that time the country was still without a State Treaty and thus still without its long-promised independence and full sovereignty\. This is no longer so, A State Treaty was signed between Austria and the occupation powers on May 15 last which still requires ratification\. Once ratified, the treaty will put an end to Austria's occupation and restore Austria's full political and economic freedom, although the Trear carries with it some very burdensome reparation payments by Austria to the Soviet Union over the next six years\. But the element of uncertainty which accompanied previous operations with Austria on account of the unpredictable attitude of the Soviet occupation forces is now brought to an end by a situation where Austria can firmly and finally speak in its own right\., 19\. This happy development in Austria's international relations will, of course, also entail certain internal political changes as normally happen in the wake of regained freedom\. With the abolition of Austria's foreign occupation, the main factor which so far prompted the political parties to form a coalition government is likely to be obscured and to make way for more pronounced party struggles\. Once the Soviet troops have left the country, the breaking up of the coalition is bound to lead to a resumption of a two-party (or more) system, which is, after all, the essence of a free system\. 20, The economic effects of the State Treaty are discussed in the attached memorandum "The Present Economic Position of Austria" (No\. 2)\. The Dorrower and the Illwerke Agreement of 1952 21\. The Vorarlberger Illwerke A\.G\. was first established in 1924 in order to develop the hydro-electric power resources of the Ill River and Linersee\. The ownership of the company has always been largely German and at the end of World War II 90% of the shares were in the hands of the German power consumers\. These shares thus became a "German asset" within the meaning of the Potsdam Agreement of 1945 and, as such, the right to dispose of them was vested in the Allied Powers\. The United Kingdom, the U\.S\.A\. and France made use of this right in Art\. 22 of the Austrian State Treaty -- and the Soviet Union followed the same course in a separate declaration, contained in Annex IIto the Treaty -- by relinquishing to Austria "all property, rights and interests held or claimed by or on behalf of any of them in Austria as former German assets or war booty"\. The ownership of the German-held shares in the VIW, which since 1945 had been operated under the supervision of the Austrian Ministry for Transport and Nationalized Industries, will therefore in the near future be transferred to the Austrian Government, which will most likely nationalize the company and make it part of the Austrian State power network\. The Government had in fact already earmarked the VIW for nationalization in the Nationalization Law of 1947; nationalization has now become even more likely owing to the provisions in para, 13 of Article 22 that "none of the properties, rights and interests transferred to it (Austria) as former German assets shall be returned to ownership of German juridical persons or, where the value of the property, rights and interests exceed 260,000 schillings, to the ownership of German natural persons"\. 22\. It was because of the uncertainty about the future status and the economic basis of the company prior to the State Treaty that a compre- hensive agreement was concluded between the company and its principal consumers in 1952\. The purpose of this agreement -- the Illwerke Agreement -- was to provide a firm basis for the operation and future expansion of the VIN\. It contains provisions governing the allocation of the company's output between its various consumers in Germany and in Austria; it covers the basis upon which the company's costs shall be reimbursed by its consumers and it provides that the two German power consumers RE and EVS and the province of Vorarlberg, shall make certain financial contri- butions (in the form of loans) to meet the cost of construction of certain agreed future projects, of which L Inersee is one\. The contract is to remain in force for a period of 80 years and is unaffected by the disposition of the former German shares of the VIW by the State Treaty\., 23\. The VIW raised a £2 million sterling loan in 1929\. This loan has been in default since February 1940, owing first to German restric- tions from 1940 to 1945, and from 1945 onwards to Austrian exchange regu- lations\. The default is unquestionably the result of circumstances beyond the VIWs control; the company's ability and its willingness to pay in local currency have never been in doubt The VIW now intends to refund the entire outstanding £-loan in the near future and it has already raised the necessary funds last March by a successful internal bond issue of 100 million schillings\. The Austrian Government has given its consent to a conversion of these funds into £-sterling\. 24\. In m opinion the VIW is an acceptable borrower\. It has taken steps to settle its defaulted obligations as soon, as it was possible to do so and it is provided, by the Illwerke Agreement, with a firm long-term basis for its operations\. Financing of the Liinersee Project 25\. The total cost of the Linersee project is estimated to be 1,003 million schillings ($38\.6 million)\. The company can provide 323 million schillings from its own resources and 223 million schillings will be available in the form of building contributions fro;i the German power consumers and from the Province of Vorarlberg\. It is proposed that the remaining requiremEats -- 457 million schillings -- be covered by a loan of up to 200 million schillings from the Austrian L4nderbank, and by a loan of $10 million equivalent (260 million schillings) from the Bank\. 26\. Of the total cost of the project, equivalent to $38\.6 million the equivalent of $7\.2 million will be required for imports\. After inter-\. national bidding orders have been placed in Germany and in Switzerland for the greater part of the imports; however, a number of smaller orders have yet to be placed\. The German Government has agreed to the use of up to DM 25 million ($5\.9 million) from Germany's 18% subscription in order to meet the cost of equipment to be purchased in Germany\. 27\. The remainder of the loan, about $2\.8 million, will be used to cover local expenditure\. To ensure that this portion of the loan is of maximnu benefit to Austria it will be disbursed in a currency or currencies which are in no way tied to goods or services from the countries whose currencies are offered\. 28\. In Austria, a country where manufacturing industry is comparatively highly developed, the need for external capital considerably exceeds the need for additional imported capital equipment\. In these circumstances, the Bank can meet the capital needs of its borrowers only by making part of its loans available to cover expenditures in local currency\. Thus, in this as in the earlier Bank loan to Austria some of the proceeds are required to meet expenditure within the country\. Prospects for Repayment of the Loan 29\. In view of the short time -- less than a year -- which has elapsed since the report on "The Econor of Austria" (E\.A\. 37a) was circulated, no complete economic report is being submitted at this time but the memorandum entitled "The Present Economic Position of Austria" (No\. 2) discusses the principal developments since the previous report\. -6- This memorandum concludes that, although the economic benefits to Austria of a State Treaty will be great in the long run, there will be a consider- able burden to be carried during the next six years\. There is no reason to believe, however, that it will prove unmanageable\. It may safely be assumed that Austria's ability to service its external debt, including the loan here proposed, will certainly not be impaired\. 30\. The only interruption of payments on Austria's external debt, apart from the war period, occurred in 1932 when the transfer of debt payments was suspended for a year\. This was brought about by the foreign exchange crisis which followed the failure of the Creditanstalt\. But considering the extreme difficulty of this period, Austria's prompt resumption of transfer and the successful negotiation of a debt agreement after World War II, the Austrian debt record can be regarded as satisfactory\. 31\. Austria's present external debt, including the Bank loan of $12 million equivalent for the Reisseek-Kreuzeck project, is unusually low at approximately $103 million equivalent, less than one-third of the pre-war debt\. Taking into account the fall in the value of money and the rise in Austria's national income, the reduction in the real burden of external debt has of course been much greater, Debt service payments amount to only 2% to 3% of annual foreign exchange earnings in the peak years, so that the external debt could be greatly increased before it became a significant factor in the total balance of payments\. 32\. The Ltnersee project will earn foreign exchange directly by the export of power to Germany and the Loan Agreement provides for an assignment of revenues received by the borrower from the German power consumers as security for the loan\. PART V - LEGAL INSTRUI-ENTS AND AUTHORITY 33\. A draft Loan Agreement is attached (No\. 3)\. A draft Guarantee Agree- ment is attached (No\. 4)\. 34\. The draft Loan Agreement is similar to the Loan Agreement for the previous Austrian loan (Reisseck-Kreuzeck Project, Loan No\. 102 AUA), but it differs both from that Loan Agreement and from the standard form in a number of respects\. The principal differences are to be found in the pro- visions dealing with the security for the loan and the bonds\. The follow- ing provisions deserve to be mentioned: (a) The Loan Agreement contemplates that in the event of partici- pations or sales out of the Bank's portfolio, bonds, as dis- tinguished from interim certificates, 1l be issued only after the appointment of a trustee who can represent all creditors under the Bank loan with respect to the security\. The relevant sections are Sections 4\.02, 5\.09s 5*10, 5\.11 and 5\.12\. (b) In Section 5\.03(a) the Borrower covenants to perform its ob- ligations under the Illwerke Agreement 1952 and not to agree to any modification or change of that agreement which would impair its ability to service the loan or to finance the project\. (c) Section 5\.03(b) provides for the assignment of such portion of the Borrower's rights to payment under the Illwerke Agreement of 1952 as are needed for the Borrower's half-yearly service payments under the Loan Agreement\. The Bank agreed to this form of assignment because it had been used in the previous public loans of the Borrower\. (d) Section 5\.04 provides for a mortgage on the LUnersee properties\. (e) Section 5\.06 (a) contains a negative pledge clause precluding the creation of liens on the LUnersee properties ranking in priority to or equality with the Bank's mortgage\. It is contemplated that the Bank will agree to the creation of a mortgage ranking equally with its own to secure the loan of up to 200 million schillings from the L9nderbank referred to in paragraph 25 above (No\. 5)\. (f) Default under the assignment or the mortgage is added to the events permitting the Bank to suspend withdrawals or to premature the loan\. (g) Section 7\.01 contains conditions as to the effectiveness of the Loan Agreement\. These include an assignment satisfactorily and validly made, the approval of the assignment by the two German electricity companies, RIE and EVS, and the execution of the mortgage\. (h) Paragraph (a) of Schedule 3 amends Section 3\.01 of the Loan Regulations so as to permit disbursements on account of local expenditures for the project\. 35\. The draft Guarantee Agreement is identical with the Guarantee Agree- ment for the Reisseck-Kreuzeck loan\. It is contemplated that, as in that loan, the Bank will agree under the negative pledge clause to except assets of those nationalized enterprises which are organized and managed along the lines of private corporations (No\. 6)\. PART VI - COMPLIANCE nITH ARTICLES OF AGEEMENT 36\. The report of the Committee rrovided for in Article III, Section h(iii) of the Articles of Agreement of the Bank is attached (No\. 7)\. 37\. I am satisfied that the proposed loan complies with the Articles of Agreement of the Bank\. PART VII - RECOMMENDATIONS 38\. I recommend that the Bank make a loan to the Vorarlberger Illwerke AG in the amount of $10 million, or the equivalent in other currencies, to be guaranteed by the Republic of Austria, for a total term of twenty-five years with interest (including commission) at 4 3/4% per annum, and on such other terms -8- as are specified in the form of the Loan and Guarantee Agreements attached hereto and that the Executive Directors adopt a resolution to that effect in the form attached (No\. 8)\. Eugene R\. Black Washington D\. C,

APPROVAL

P003781

Dacummt of The World Bank FOR OFFICIAL USE ONLY Reprt No\. 7847 PROJECT PERFORMANCE AUDIT REPORT INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT 869-IND) JUNE 26, 1989 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS AND ACRONYMS ADC - Accountancy Development Center DGHE - Directorate General of Higher Education MOEC - Ministry of Education and Culture PEDC - Polytechnic Education Development Center PIU - Project Implementation Unit STAN - Sekolah Tinggi Akuntansi Negara (Accountancy Training Center of the Ministry of Finance) STM - Secondary Technical School TEDC - Technical Education Development Center UMDP - Unit for Management of Diploma Programs Government of Indonesia Fiscal Yea\. January 1 - December 31 Academic Year April 1 - March 31 Currency Exchange Rates Name of Currency (abbreviation): Rupiah (Rp) Exchange Rates: US$1 = Rp Appraisal (December 1977) 415 04/81-03/82 625 04182-03/83 760 04/83-03184 830 04/84-03185 1,000 08185 1,120 Implementation Years Average (1978-85) 800 FOR OFCIAL UR ONLY THE WORLD BANK Washagon\. D\.C\. 20433 U\.S\.A\. o4ko M DMecm-COe&I Opertes Evauabu June 26, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Reports Indonesia - Seventh Education (Polytechnic) Prolect (Credit 869-IND) Attached, for information, is a copy of a report entitled "Project Performance Audit Reports Indonesia - Seventh Education (Polytechnic) Project (Credit 869-IND)" prepared by the Operations Evaluation Department\. Attachment This document has a restricted distribution and may be used by recipients only In the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. PROJECT PEROWM-E AUDIT REPORT INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT f69-IND) Tjble of Contents Pate No\. PREFACE \. \. i BASIC DATA SHEET \. ii EVALUATION SUMMARY \. \. \. v PROJECT PERFORMANCE AUDIT MNORANDM I\. Prolect Background \. 1 A\. Context \. 1 B\. Project Objectives and Content \. 1 II\. Implementation Experience \. 3 A\. Overview \.oo#o**\. 3 B\. PIU and Bank Performance \. \. \. \. 4 C\. Cost and Finance \. 4 III\. Operational Outcomes \. 5 A\. Enrollments \. \.0\. \.*\. 5 B\. Graduates 5\. 5 C\. Employment Outlook o\. \. o\.o\. 5 D\. Demand for Polytechnic Places \.e\. 6 E\. Enrollment, of Women o\.0\. \. 6 IV\. Findings and Issues \. \. \. \.o\.*\. \.o\. 7 A\. Lessons \. \. \. *\. \. \.o\. \. \. o\.o\. \. \. \. \. 7 B\. Open Questions and Potential Issues \. 7 Operating Budgets \.o\. 7 Links with Universities \. 7 Future Role of PEDC \. \. 8 Cooperation with Industry \. 8 Expansion of Polytechnic System \. 9 C\. Sustainability \. \. \. \. \. \. \. \. 9 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Table of Contents (Cont'd) PlAK ANMEMS Page No\. I\. Graduation/Entrance Ratios for Four Polytechnics, by Field of Study, 1988 \. 11 II\. Employment Status of 1985-87 Graduates about Six Months after Graduation \. 12 III\. Polytechnic Jakartat Employment Status and Monthly Salaries (in Rp\. 1,100) of 1985-87 Graduates \. 13 IV\. Application/Entrance Ratios for Three Polytechnics, by Field of Study, 1986-88 \. \. 14 V\. Percentages of Female Graduates 1985-88, by Polytechnic and Field of Study \.ooo\. 15 PROJECT CCHPLETION REPORT I\. Summary, Conclusion and Lessons Learned \. 19 II\. The Project and the Credit Agreement \. 20 III\. Project Implementation 23 IV\. Project Costs and Financing \. 25 V\. 'Project Operating Outcomes \. 27 VI\. Conclusions and Recommendations \. 31 LIST OF TABLES 1\. Estimates of Staff, Fellowships and Enrollments for Project Institutions (Appraisal) \. 22 2\. Comparison of Appraisal Estimates and Actual Costs by Category o \.ooo \.o\.o \. \. 25 3\. Comparison of Appraisal and Actual Costs by Component \. 26 4\. Estimated and Actual Credit Disbursements by Category \. 27 5\. Polytechnic Enrollments: Appraisal Estimates and Actual 1982-85 o\. \.*o*** *oo* 29 PCR ANNEEES 1\. Status of Fulfillment of Special Covenants \. 33 2\. Organization Structure of Project Implementation Unit \. 34 3\. Training Facilities and Instructor Housing \. 35 4\. Comparison of Specialist Service between Appraisal and Actual \. 36 5\. Comparison between Appraisal and Actual Schedule of Fellowships \.* 37 6\. The Total Cost of Project by the Project Item and Category (Local and Foreign Expenditure) \. 38 7\. Teacher Training at TEDC \. 39 8\. Polytechnic Staffing and Student:Staff Ratios 1985 \. 40 9\. Student Enrollments by Polytechnic and Field of Study, 1982-86 \. 41 10\. Polytechnic Stu-ent Pass Rate and Dropouts: 1982 and 1983 Intakes \. 43 11\. Output of Accountancy Development Centers \. 44 PROJECT PERFORMANCE AUDIT REPORT INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT 869-IND) PREFACE This is a Project Performance Audit Report (PPAR) on the Indonesia Polytechnic Project, for which a credit in the amount of US$49 million was approved in December 1978\. The credit was the seventh Bank Group operation in support of Indonesia's education system; it was fully disbursed and the Closing Date did not require an extension\. Total project cost, estimated at appraisal at US$104 million/Rp 43\.2 billion, came to US$84\.6/Rp 70\.8 billion, an underrunloverrun of -19%/+64%, respectively, explained by several Rupiah depreciations in the first case, and domestic inflation in the second\. The Project Performance Audit Report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation r-partment, and a Project Completion Report (PCR), dated November 17, 1987, and prepared by a UNESCO mission\. The PPAM is based on a review of the President's and Staff Appraisal Reports (SAR) for this project, the Credit Agreement, the SAR for the follow-up project (Polytechnic II Project, Ln\. 2290-IND of June 22, 1983), the project files and statistics and other information obtained during an audit mission in October/November 1988\. The OED staff undertaking the mission had an occasion to visit all seven institutions constituting the Polytechnic Project and to interview project and polytechnics staff as well as other Ministry of Education officials\. Discussion with present and former Bank staff involved in this project complemented the field work\. Following customary OED procedures, copies of the draft audit were sent to the Government for comment in March 1989\. No comments were received\. PROJECT PERPORMANCE AUDIT REPORT INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT 869-IND) BASIC DATA SHEET KEY PROJECT DATA Item Appraisal Estimate Actual Total Project Cost (USS aillon) 194 84\.0 Underrun (U) - 18\.7 Total Project Cost (Rp billion) 48\.2 70\.8 Overrun (X) - 8\.9 Credit Amount (USS aiIton) 49\.0 49\.9 Disbursed 49\.0 49\.9 Cancel led a 9 Date Physical Compoents Completed 12/82 44/"8 Months Since Credit Signing 88 49 Proportion Completed by Above Date (X) 18o 19 Time Overrun (S) 9 11 Institutional Performance n\.a\. Good CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENT (in USS milIton) FY 81 62 68 84 85 Appraisal Estimate 9\.8 1\.0 7\.5 25\.5 88\.9 49\.0 Actual 1\.4 4\.6 29\.1 28\.5 88\.4 49\.9 Actual as X of Estmate 487 486 271 112 96 19 STAFF INPUT (Staff weeks) FY 76-77 76 79 9 f1 62 8 4 65 86 87 Total Pre- appraisal 10\.0 57\.8 1\.2 - *- - - - - - 66\.5 Appraisal - 69\.9 12\.9 - - - * * * * - 72\.9 Negotition - - 11\.2 - - - - - - - - 11\.2 Supervision - - 8\.9 20\.2 5\.1 7\.9 8\.6 18\.9 6\.1 24\.1 1\.8 92\.8 Other - - - 1\.8 9\.8 0\.8 - - - - - 10\.8 Total 19\.9 116\.2 26\.8 21\.6 14\.4 8\.2 6\.8 18\.0 6\.1 24\.1 1\.8 256\.7 OTHER PitJECT DATA Original Actuel or Be_4 Est\. Actual First Meneties In Filee \.e AS-/77 Goverament's Applicetien a\.e\. 18-11/77 Negotiations "\.e\. 11/8-8(8 Board Approval a\.&\. 12/19/70 Credit Agreement Debe n\.* 12/29/78 Effectiven*** Date "\.e\. W8/11/79 Closing Date @4/0/805 $8/81/1 6 Borrower Government of Indonesie Executing Agency DoHE Follow-on Projecte: Name Second Polytechnic Project Loan Number 2296-IND Name Accountancy 9evelopment Project Loan Number 2940-IND ALLOCATION OF CREDIT PROCEEDS (In US Dollare) Original X of Expenditure Actual Catemory Allocation to be Financed Disbursement 1\. Civil Works and Professional Fees 9,0,000 85 18922, 2\. Furniture A Equipment 14, - 17,874,000 Directly Imported - 195- Locally Manufactured - 96- Imported goods procured locally - 40X 3\. Consultant's Services and Fel lowships 15,me,00 19 17,764,CM Unallocated 11,M, - 49,000,061 49,006,000 MISSION DATA Seat Menth/ No\. of Seff NO\. of Misls\.ssioer tebm Wee!ks eacef proeraftry Subester/PIM Beak ar/77 5 5 5 (P,E,TE,VT,AC) Preparation UNESCO 11/77 S 20\.4 4 (E,A,TE,AC) Appraisal Bank/UNESCO 82/78 21 16\.8 4 (EP,AsE,TE) Appraisal follow-up Bank 04/78 "\.a\. n\.s\. 1 (AC) Tota I 48\.2 Supervision Supervision 1 Bank 96/79 1 0\.4 2 (A,TE) Supervision 2 Bank 09/79 24 4\.8 1 (SO) Supervision 8 Bank 02/8W 1 0\.2 1 (A) Supervision 4 Bank 02/8 4 9\.8 1 (TE) Supervision 6 Bank 04/8I 2 9\.4 1 (TE) Supervision 6 Bank 67/9 2 1\.2 8 (2A,TE) Supervision 7 Bank 12/9 8 1\.2 2 (A) Supervision 8 Bank 84/1 8 1\.2 2 (GE,A) Supervision 9 Bank/UNESCO 11/81 2 1\.2 4 (A,2TE,VT) Supervision 10 Bank 04/82 2 9\.8 2 (GE,E) Supervision 11 Bank 11/82 8 1\.2 2 (TE) Supervision 12 Bank g8/83 1 0\.2 1 (TE) Supervision 18 Bank 8/84 12 4\.8 2 (TE) Supervision 14 Bank 98/84 12 9\.8 4 (A,E,TE,F) Supervision 15 Bank @8/85 9 1\.6 1 (TE) Supervision 16 Bank 07/85 4 1\.0 2 (EqTE) Completion UNESCO 3/86 21/16 7\.2 2 (EqTE) Total S\.X * Estimated number of staff-days attributble to this project (including travel time)\. A - Architect GE - General Educator E - Economist AE - Agricultural Educator TE - Technical Educator VT - Vocational Trng\. Specialist EP - Education Planner AC - Accountant F - Finance SO - Senior Operations Officer PROJacT MEroEAcE AUDIT RsoRT INDOMESIA SEVENT EDUCATION (POLITCHIC) PROJECT (CREDIT 169-IND) EVALUATION SUPSSRT Introduction 1\. The Indonesia Polytechnic Project was appraised in February 1978; a credit of US$49 million was approved in December 1978 and became effec- tive in May 1979\. The credit was fully disbursed and closed on the original Closing Date, June 30, 1985\. Total project cost, estimated at appraisal at US$104 million, amounted to US$84\.6 million, a 19% underrun resulting from various devaluations of the Rupiah\. By contrast, total cost in national currency was Rp 70\.8 billion, a 64% overrun on the appraisal estimate of Rp 43\.2 billion; this difference reflected mainly domestic inflation\. Proiect Objectives 2\. The objectives of the project were threefolds (i) to establish a new system of post-secondary technical education to help meet the country's needs of technicians for indvstr-; (ii) to improve accountancy training and practices; and (iii) to help strengthen education planning and management\. Project Content 3\. To achieve these objectives, the following investments were proposeds (i) construction and equipment of six new polytechnics (as part of existing universities) in four major cities in Java and two in Sumatra, with a total enrollment capacity of about 4,300 in four industrial fields, and of a Technical Education Development Center to serve as a resource and staff training institution for the new system; (ii) investments in accountancy education (mostly in the form of staff training) in four universities and one specialized institution under the Ministry of Finance; and (iii) related technical assistance and studies\. Imlementat ion Jxperience 4\. Overall implementation was good, although the accountancy training component could not be fully implemented as the same PIU had to oversee both the creation of the polytechnics system and the talementation of the accountancy component, two tasks of entirely different proportions and requirements\. 5\. Physical implementation of the polytechnics sub-project took only four months longer than the very tight sahedule set up at appraisal\. Facilities are generally of a suitable design, and the equipment is adequate as well as appropriate\. Implementation of the very large and complex staff training component was successful, combining overseas fellowships with pre- and in-service training at the Technical Education Development Center in Bandung (later renamed the Polytechnic Education Development Center) and, from 1985 onwards, direct recruitment of poly- technics graduates\. Outcomes 6\. The project is an undeniable success, and the six polytechnics are producing competent industrial technicians alose to the output levels anti- cipated at appraisal\. Internal efficiency, while not always as high as expected at appraisal, is higher than that observed in the universities (PCR\. para\. 5\.8 and PPAM, para\. 17)\. 7\. While a comprehensive tracer system is not yet in place, indi- vidual polytechnics have tried to monitor the movement of graduates\. It seems that within about a year after graduation most graduates have found jobs, although the available data seem to suggest a certain tightening of labor markets in recent years\. This holds particularly for civil engineer- ing technicians whose employment prospects have been diminished by the protracted slump of Indonesia's construction industry in the 1980s\. The graduates give proof of their high nobility, with inter-island movements being quite common\. The data also point to the prominence of the main Javanese labor markets (Jakarta, Surabaya, Bandung) for polytechnic graduates\. 8\. Demand for polytechnic places varies largely by city, field of studies and year of entrance\. Overall, there may be a slightly declining trend in the application/entrance ratios, but the pools of applicants are still large enough to permit a careful selection of polytechnic students\. 9\. Due to the nature of the study programs introduced under this project (civil engineering, mechanical engineering, electrical engineering and electronics engineering), women are under-represented both among applicants and entrants\. The addition of business administration programs under the follow-up project (Polytechnic II Project of 1983) has, however, led to a distinct shift towards an increased representation of women in the polytechnics\. - vii - Sustainability 10\. If adequate funding for the operation of the polytechnica, particularly for maintenance of facilities and equipment is assured, the sustainability of the project should not present major problems\. This question is related to that of the future position of the polytechnics within their host universities, which ought to be resolved in a way that gives the polytechnics the necessary extent of budgetary and educational autonomy\. Yiadinas and Issues 11\. There are two lespons to be learnt from this projects First, the project experience proves that a new and complex education sub-system can be created in a rather short time, provided that the project enjoys full government support and that a competent iroject implementation unit of adequate size is put in charge\. 12\. The obverse of the first lesson is that a project imlementation task of this size and complexity should not be made more fcrmidable by adding extraneous components of similar complexity to it, unless the imple- mentation structure has been modified accordingly\. 13\. The open questions ani potential issues are the following: first, the relationship of the polytechnics vis-Z-vis their host universities needs careful reexamination now that the Implementation period is over\. Any future arrangement ought to allow for a sufficient measure of budgetary and educational autonomy for the polytechnics\. 14\. Second, the role of the Polytechnic Education Development Center needs redefinition as the end of implementation of the Polytechnic II Project with its heavy demands on staff training is approaching\. It would seem desirable for the PEDC to assume a more outward-looking character and to become the advocate of the polytechnics vis-a-vis industry, apart from continuing its role as R & D Center for the system\. 15\. Third, and linked to the first question, is the issue of adequate operating funds for the polytechnic 4, particularly for the maintenance of facilities and equipment (which will assume even greater importance once the physical assets start deteriorating)\. 16\. Fourth is the concern about the implications of the recent, and still continuing, rapid growth of the polytechnics system, both in terms of educational quality and absorption of graduates in the labor market\. The follow-up project (Polytechnic II Project of 1983) is increasing the capacity of the polytechnic system more than threefold\. The location of some of the new schools in remote provinces and the introduction of new two-year courses in addition to the customary three-year programs have the inherent risks of creating a group of lower quality schools and of diluting the polytechnic concept in the eyes of the future employers\. In order to forestall this danger, future efforts ought to focus on consolidating the undeniable achievements of this project and on aiming at a uniform level of quality for the entire system, rather than on continued expansion\. PROJECT PERFORMANCE AUDIT MEMORANDUM INDONESIA SEVENTH EDUCATION (POLYTCHNIC) PROJECT (CREDIT 869-IND) I\. PROJECT BACKGROUND A\. Context 1\. Indonesia's rapid economic growth since the late 1960s had brought to light several imbalances in the country's manpower structure, the most serious of them being a shortage of middle-level technical workers\. Con- sequently, the Bank's early education projects made a concerted effort to address the most urgent of these needs through investments in centralized workshops for technical secondary schools (First and Fourth Education Projects, Cr\. 219-IND and Ln\. 1237-IND respectively), in secondary agricul- tural schools (Second Education Project, Cr\. 288-IND) and vocational train- ing centers (Fourth Education Project), as well as supporting investments in technical teacher training (Fourth Education Project)\. 2\. These interventions all focussed on the lower end of the middle- level manpower scale--skilled workers and junior technicians\. The initial omission of post-secondary technician education did not stem, however, from a perception that this level and type of education was in lesser need of improvement but rather from the lack of a proper vehicle for the formation of technicians\. While there was a large number of mostly private post- secondary academies, these institutions usually specialized in commercial and administrative training\. In addition, they were, with few exceptions, understaffed, poorly equipped and offered outdated programs\. Rather than trying to undertake a complete revamping of this unwieldy subsector, the Government thought it preferable 'and the Bank fully supported this view)I/ to create a network of modern post-secondary institutions for technician training, patterned on the polytechnics (or comparable schools) existing in industrialized countries\. B\. Prolect Obiectives and Content 3\. Following a joint UNESCO/World Bank study of training needs for engineering technicians and accountants,l/ the project under review was 11 World Bank: Indonesia Education Sector Survey Report (Report No\. 443a- IND), February 5, 1975, p\. 19\. 2/ The initial list of potential projects given in the Education Sector Survey Report contained a proposal for the establishment of an Institute of Accountancy Training, a more limited and specific undertaking\. - 2 - prepared by UNESCO in 1977, appraised in February 1978 and presented to the Board in December 1978\. Its aims were threefolds (i) to establish a new system for training engineering technicians in three-year post-secondary programs; (ii) to improve accountancy training and practices; and (iii) to help strengthen education planning and management (SAR, para\. 3\.01)\. 4\. The Project was to consist of: (i) construction and equipping of six new polytechnics as part of existing universities in Jakarta, Bandung, Semarang, Malang (all in Java), Medan and Palembang (in Sumatra), with a total enrollment capacity of about 4,300 (in civil engineering, mechanical engineering, electrical engineering and electronics engineering), and of a Technical Education Development Center 1 in Bandung for pre- and in-service training of instructors and as a support institution for the new system; (ii) investments in accountancy education (mostly in the form of staff training) in four universities and STAN,A/ a post-secondary training institution for accountants under the Ministry of Finance; and (iii) related technical assistance and studies\. 5\. Total project cost was estimated at US$104 million equivalent of which the proposed IDA credit was to finance US$49 million (47Z), and the Government the remainder\. Implementation of physical project components was expected to last three years, and disbursements, six\. A Project Imple- mentation Unit under the Director General of Higher Education5/ and located in Bandung was to be responsible for the implementation of the entire project\. 3/ Later renamed in Polytechnic Education Development Center (PEDC)\. 4/ Sekolah Tinggi Akuntansi Negara (National Higher School of Accountancy)\. }/ Originally, a Unit for Management of Diploma Programs in the Directorate General of Higher Education was to be in charge of implementing this project, besides having responsibility for all diploma-level programs in the country\. Eventually, however, a customary PIU with a more modest and better focussed mandate replaced the original concept--a change which probably benefitted project implementation\. - 3 - 6\. The most important covenant concerned the establishment of indus- trial advisory boards for each of the polytechnics, consisting of represen- tatives of the provincial Chambers of Commerce, the provincial Industrial Development Boards and industry\. These advisory boards were to give advice on program development, provide short-term on-the-job training, and make available part-time instructors\. II\. IMPLEMENTATION EXPERIENCE A\. Overview 7\. Project implementation was on the whole successful: physical implementation took only four months longer than foreseen under the rather tight appraisal schedule, and the credit was fully disbursed without the need for an extension of the Closing Date (PCR, Chapter V)\. 8\. Physical facilities are generally of suitable design, notwith- standing occasional problems with insufficient cross-ventilation in work- shops and lack of air-conditioning in rooms that house sensitive equipment, e\.g\., precision instruments or computers\. However, these are shortcominig that can be readily rectified\. 9\. Furniture is functional and adequate\. The audit mission was favorably impressed by the initiative of one polytechnic (Palembang), where the wood from equipment crates had been used to build sturdy yet good- looking furniture, thus combining economy of resource use with on-the-job training in its civil engineering section\. 10\. The equipment procured is generally both adequate and appropriate\. In some cases, however, the choice of production-size machinery has led to difficulties: in two polytechnics, for instance, very expensive electro- plating installations had to lie idle because the necessary funds for working materials (about $3,000 per year) were not available\. In this case, the use of small demonstration models would have been preferable\. 11\. The most difficult challenge for the project was the training, in a short time, of a large number of polytechnic teachers and PEDC trainers (until 1985, about 610 and 120,1/ respectively, vs\. 650/30 estimated at appraisal)\. The hoped-for recruitment of trainee-teachers with practical industrial experience did not materialize, and consqquently, it was neces- sary to design a sandwich training program in which training periods at the PEDC alternated with teaching practice in the polytechnics\. Once the first cohort of graduates left the polytechnics (in 1985), they proved to be a 6/ This figure not only includes teacher-trainers, but other technical staff as well\. -4- large and satisfactory source of recruitment of polytechnics teachers (PCR, paras\. 5\.5-5\.6)\. Consequently, PEDC could henceforth put more effort into in-service training and development work\. 12\. Implementation of the accountancy training component proved to be somewhat of a disappointment (PCR, pares\. 5\.12-5\.14)\. The component ran into delays, only part of the fellowships were used, and training for accountancy teachers fell far short of targets\. Two studies under this component, however, provided valuable inputs into a recent large-scale Accountancy Development Project (Loan 2940-IND over US$113 million, approved in FY88)\. As was correctly pointed out by the PCR (para\. 5\.14), the PIU was fully occupied with the formidable task of establishing an entirely new education sub-system, and could not be expected to devote an equal amount of attention to a component which was small by comparison (less than 10% of the estimated outlay for the polytechnics) and further- more in an area not directly related to the polytechnic\. programs\.71 To sum up, it is probably fair to say that, while not fully meeting appraisal expectations, this component was a useful "tooling-up" phase for the Accountancy Training Project\. B\. PIU and Bank Performance 13\. The PIU performed well, particularly in view of the novel char c- ter of the project\. Bank supervision missions, a total of sixteen over a period of about six years, were more frequent during the critical start-up stage\. The mission composition by specialty was appropriate, with archi- tects providing a somewhat heavier input during the early years of physical implementation, and technical educators during the later stages of initial operation\. The audit mission notes, however, the absence of accounting specialists from all the supervision missions--an omission which seems to confirm the peripheral position of this component\.81 C\. Cost and Finance 14\. Actual project cost in US dollar terms was 84\.6 million, about 19% below the appraisal estimate of 104 million; this is largely explained by several devaluations of the Rupiah\. By contrast, cost expressed in the national currency (Rp\. 71 billion) exceeded appraisal estimates by 64%, mainly because of domestic inflation\. As a result, the Bank Group's share in project financing increased from 47% (para\. 5 above) to 58%\. 7/ They comprised mechanical, civil and electrical/electronics engineering\. It was only in the follow-up project (Polytechnic II Project of 1983) that business administration, with accounting as one of the options, became part of the polytechnics programs\. 8! The participation of a finance specialist on one of the last missions was probably too late to affect general implementation of this component\. -5- III\. OPERATIONAL OUTCOMES 15\. The project established a new system of post-secondary technical education\. This is a substantial achievement, and all subsequent qualifi- cations should be seen in proper perspectives the project has been a successful undertaking\. A\. Enrollments 16\. The estimated 1985 enrollment of the six polytechnics was about 3,500 (PCR, para\. 5\.7)\. At the time of the audit mission (end of 1988), this figure had roughly doubled\. This was in part due to the expansion of facilities for the original fields of study and partly to the addition of new programs under the Polytechnic II Project which had already come into operation\. B\. Graduates 17\. During the years 1985-1988, the six polytechnics have produced approximately 3,600 graduates, with a 1988 output level of about 1,100\. This is 83% of the full output of 1,330 expected to be reached in 1986 (SAR, para\. 3\.18); observations from individual polytechnics suggest that graduation/entrance ratios vary considerably among individual schools, fields of study and years (see Appendix 1)\. The PCR gives an estimate of roughly 82Z for the first two cohorts, 1985 and 1986 (PCR, para\. 5\.8)\. This is slightly below the appraisal estimite of almost 86% (SAR, paras\. 3\.09 and 3\.18) which appears to have been overly optimistic in view both of the novel character of he polytechnics and the recognized shortcomings of secondary schools in the areas of mathematics and science\. C\. Employment Outlook 18\. The individual polytechnics have established basic tracer systems\. Given the enormous difficulties of setting up tracer studies in any coun- try, and the additional obstacles arising from Indonesia's sheer size, this is a commendable effort\. While the resulting data, which are summarized in Appendix 2, cannot provide exact information on the employment histories of successive cohorts of polytechnic graduates, they permit a number of general conclusions\. First, it seems that employment prospects are less favorable for the latter than they were for the initial cohorts; this may have to do with unrealistic job expectations of graduates which would take some time to adjust downward, and in part with labor market stringencies, particularly, due to the slump of the building industry in the 1980s, for civil engineering graduates\. The polytechnics have already responded to this situation by temporarily reducing the intake of first-year students in civil engineering\.2/ Second, many of the graduates are moving to other 9/ Supervision Report for Polytechnic II Project dated December 9, 1988, Aide-Memoire, Part C, para\. 1\.2\. -6- provinces and even other islands for a job\. While this attests to the high mobility of this well-trained manpower, it runs somewhat counter to the intentions behind the choice of locations for the six polytechnics and shows the great pull of the large Javanese labor markets, i\.e\., Jakarta, Surabays and Bandung\. Third, graduates are still concentrating on finding Government jobs or employment with the large parastatal and private companies but the 1987 data suggest that this tendency is diminishing\. It is to be hoped that with the continued output of graduates the benefit of this new type of manpower will also reach the medium-sized and small firms, thus having the broad impact hoped for at appraisal\. 19\. One polytechnic collected additional information on salaries (Appendix 3)\. One notes the difference in salary levels between the 1985 and 1987 cohorts, (the 1986 group does not contain enough observations to be included in the comparison), which seems to suggest that the initial pool of top-paying jobs was rather small and that graduates have been reducing their aspirations\.10/ However, it should be added that 10 of the 12 graduates in the 1985 civil engineering cohort who received salaries under Rp\. 200,000 were polytechnic instructors or PEDC staff who earned less than Rp\. 150,000\. Apart from the recruitment drive undertaken by the MOEC, this also reflects a rational choice on the part of the graduates, namely the job security of the civil service and the opportunity, particularly in Jakarta, to take up a secondary employment--a choice which a better-paying post in a private company may not offer\. D\. Demand for Polytechnic Places 20\. While the availability of post-secondary study places relative to the numbers of secondary school leavers in the catchment area of a poly- technic influences the total volume of applications, actual (or perceived) prospects in a specific job market and individual preferences are probably the key to the demand for entrance into the various sections of a poly- technic\. Th6 opening of a new section usually leads to high initial numbers of applications which after a few years tend to come down to the general average\. Only the various business administration options estab- lished under the Polytechnic II Project seem to resist this trend, attest- ing to the wide popularity of white-collar employment\. Despite recent decreases in the application/admission ratios, the pool of applicants is still sufficiently large to permit the enrollment of students with accept- able levels of secondary school achievement (see Appendix 4)\. E\. Enrollment of Women 21\. Most of the fields of study established under this project are leading to occupations that are traditionally not much sought after by women\. Consequently, in most cases female students are hardly represented, 10/ To put these remarks in the right perspective, it should be mentioned that the starting salary of a university lecturer is about Rp 160,000 per month, compared to a median salary of about Rp 175,000 for the graduates in this sample\. -7- some exceptions notwithstanding\. With the establishment of the business sections (accounting, banking and secretarial options) under the Polytechnic II Project, however, this situation is beginning to change, with some sections actually having a majority of female students\. Appendix 5 gives the percentages of female graduates in five polytechnics by field of study for the years 1985-88\. Some of the data, e\.g\., from the Polytechnics Palembang and Malang, suggest that there is still some scope for an expansion of female enrollments in the industrial fields\. IV\. FINDINGS AND ISSUES A\. Lessons 22\. As mtntioned in para\. 15 above, on balance this project is an undeniable success\. It demonstrates the feasibility of creating in a short span of time a new and technically complex education sub-system\. By con- trast, the experience of the accountancy training component provides a warning note against the addition of an extraneous element (in itself far from easy) to an implementation task of this magnitude\. 23\. The gathering, in the same location (Bandung), of the PIU, the PEDC and one polytechnic was probably a fortuitous choice which must have facilitated the necessary exchange of views between the project administra- tion, the resource center, and the recipient school, thus counteracting to some extent the difficulties inherent in a new venture and the effects of what was--with hindsight--a belated startll/ of teacher training activities\. The existence of such a "critical mass" in one place may prove a useful feature in similarly innovative projects\. B\. Open Questions and Potential Issues 24\. Operating Budgets\. Present allocations for operation and main- tenance of facilities and equipment are very austere\. Maintenance in par- ticular appears to be underfunded; during the period of initial operation when physical assets are still new, this may be feasible, but in the longer run an increased level of maintenance expenditure seems inevitable if rapid deterioration of buildings and equipment is to be avoided\. 25\. Links with Universities\. In this context the future relationship between the polytechnics and their host universities merits close atten- tion\. In principle the polytechnics are under the university adminis- tration, although in educational matters the PEDC was initially the super- visory body\. The position of a given polytechnic within its university varies considerably, from a rather loose connection as in the case of 11/ Not in terms of projections at appraisal but in the light of initial qualifications of polytechnics teacher trainees and the resulting need for additional training (see para\. 11)\. Bandung (brought about in part by the separation of the polytechnic from the main campus and the immediate neighborhood of PEDC and polytechnic) to the degree of integration achieved in Malang\. 26\. The development of the polytechnics within a university may have conferred some advantages on the former (such as the sharing of infra- structure), although there are also observers who point to the disadv*n- tages of combining two different education levels, each with its own objec- tives and approach, in one institution\. Regardless of the eventual outcome of this discussion, however, is the need for the polytechnica to attain a degree of budgetary autonomy once they leave the protective umbrella of the development budget and have to compete for financial resources\. The crea- tion, in the Directoratft General of Higher Education, of a directorate in charge of polytechnics education proposed in the Supervision Report of December 9, 1988 (para\. 6) would signal the importance of the polytechnics system and help safeguard its furthe independent development\. 27\. Future Role of PEDC\. During the early years of the polytechnics system, the PEDC has played a key role in forming the teaching force, deve- loping programs and materials and serving as a general educational support unit\. As the system is reaching its planned capacity, PEDC's pre-service training function is receding,jL/ and in-service training and R & D activi- ties would assume greater importance\. 28\. Some of the polytechnics visited expressed a desire for the PEDC to assume a more prominent role in program deve\.opment, to become a clear- ing house for new ideas in polytechnic education, and to provide more intensive links with industry\. 29\. Cooperation with Industry\. This last aspect has not quite de- veloped in line with appraisal expectations\. While the industrial advisory boards have been set up as specified in the Credit Agreement, they have yet to live up to their expectations of becoming a major instrument of guidance and continuous adaptation of programs to the needs of industry\. The reasons for this are not quite clear; part of the explanation may lie in the unfamiliarity of the enterprises with this counseling role, leave alone with this novel form of education\. It would seem that the PEDC could, both at national and regional levels, contribute to a better understanding and greater acceptance of the polytechnics, particularly by medium-sized and smaller firms\. In the longer run, however, a steady supply of graduates of uniformly high quality will constitute the I st advertisement for the poly- technics system\. 12/ As the Supervision Report of December 9, 1988 (para\. 6) is pointing out, however, the Iminent completion of the bonding period for large numbers of polytechnics teachers may introduce a new wave of staff movements and, hence, create a need for another round of pre-service training\. 30\. Expansion of Polytechnics System\. It is this very aspect, how- ever, which gives rise for concern\. The Bank*s original plan for its support of the polytechnics system was to conduct a review of the six poly- technics during 1984 to "determine how far the technician training com- ponent is achieving its objectives \. and identify its strengths and weak- nesses\. The results of the rfview would serve as a basis \. for possible second phase Bank Group assistance\." (SAR, para\. 3\.20)\. 31\. The actual course of events, however, was quite differents appraisal of the follow-up project was underl;aken in May/June 1982, several months before the first six polytechnics had even started operations\. The proposed project was intended not only to increase the enrollment capacity of the first six institutions and to add new courses to their program (by and large a non-controversial development), but to establish eleven new polytechnics, thus adding 14,960 places to the 4,320 created by the first project (SAR for Polytechnic II Project, para\. 2\.08)\. More important, some of these new schools were to be located in remote provinces with limited industrial bases, and several would offer only two-year courses (instead of the regular three-year program)\. 32\. This development involves two distinct risks: first, that the establishment of small polytechnics in remote provinces will duplicate the development in the university system proper, where a number of national universities, partly because of their geographic isolation, have been un- able to attract faculty of sufficient caliber and have been caught in a vicious circle of insufficient quality of teaching, low attractiveness for better students, and sub-average performance\. Second, the parallel exis- tence of two- and three-year polytechnic streams could be seen as a dilu- tion of the original polytechnic concept and may create a confusion with future employers as to the nature of polytechnic education\. Both risks could have damaging results for the reputation of the polytechnics in the eyes of the end users, a risk that should be avoided at all costs\. 33\. There exist plans to expand the present polytechnic system (which apart from the 12 Bank-assisted institutions, encompasses some 15 other schools patterned on the same or a similar concept) to a total of 34, or at least one in every province\. While there may be equity considerations that would suggest such a course in the longer run, for the immediate future the keyword for the polytechnics system ought to be consolidation, not expansion\. Not only would concerns with educational quality dictate such a course, but the present labor market situation points likewise in the direction of securing the undisputable achievements made so far\. C\. Sustainability 34\. If the recurrent funding question and the position of the poly- technics in their host universities will be resolved in a satisfactory manner, the sustainability of this project should be assured\. A more outward-oriented role of the PEDC could help enhance the appreciation of the institutions by the end user (industry) while assisting in safeguarding the relevance of their programs\. - 11 - enoacT PessnMCE MISIT REPT E~m IUCAIZ ^Y ~ic) Pm=aCT G~T=UATIGI/EfMiC RAT PM F~ POLYTC~ICS\. s FID OF TM\. I9,/ Civil Mechanlcal EI~rIcal Electronle Polytechnle Eiemr Eng Egineeri Eng Egeering Engneering Dveragls Bandung 7 nS 4 71 70 Malang 78 71 S1 81 m Semarang 8 32 n6 65 78 Palembng o9 98 - - 91 ja t The 1987 sverageo for Jakarta md Medn wore 4 and 06, rspctively\. Soure¿ Calculatod from dae provided by Individual poly~echnlco\. - 12 - AltXII PROJECT PERIFORMAICE LMIT REPOT IMBOESIA SEVENTH EDUCATIlom (POLYTECIIIC) PROJECT (CDIT 0S9-ND1 EMPU ENT STATUS OF 1006-7 ~RAWUATES/l AU7 $TX Mm AFTER WRA^UTIMN Per~emtjf Eployed in PorcentL2 Fleld of Yeer of Sam\. Sam\. Other Unemployed Slze of Polytechnlc Stmdy Oreduation City Islend Ielande er Unknown Cohort Jakarta CE 8 67 14 14 6 ad 86 49 6 17 29 as * 87 as 16 16 as 61 M ME 06 49 12 3u 9 43 87 21 21 4 64 67 a EE 85 36 65 0 W 20 e 80 41 0 $ 69 84 a E 86 60 59 6 0 14 86 70 se 0 0 i * 87 22 11 6 67 9 Malan CE 06 18 15 16 se z9 o 86 0 14 2 84 68 * ME 86 9 64 18 19 67 o 86 15 17 0 c8 6 e EE 06 6 67 1 29 21 $ 86 14 81 14 40 42 * EO 86 20 6 18 7 15 * 80 8 47 6 46 8 Meden CE 86 87 1 17 37 41 $ 86 0 8 94 88 e ME 85 25 81 19 26 82 e 86 7 62 2 39 46 e EE 05 26 30 16 85 26 86 9 38 12 46 88 * Eo 6 6 23 6 W8 22 Palambang CE 0 46 27 28 4 48 o 86 46 18 8 88 88 8 07 16 7 20 69 82 * ME es 26 6 68 0 84 86 15 6 28 63 40 O 87 2 2 24 72 89 Semarang CE 85 18 25 8 54 66 86 26 27 11 37 68 a ME 05 8 67 15 15 6 o86 0 46 6 49 69 Abbreviations: CE - CIvil Engineering ME - Mochanile Engineering EE - Electrical Engineering EO - Electronices Engineering LI - 85 cohorte from f ive polytechnlce (out of a total of 66 cohorta)\. L - Due to roundirng, cum* of percentages may differ from 1M Sourco: C*lculated from data provided by individual polytechnices end PEDC\. - 13 - ANNEX III PROJECT PERFORMANCE AUDIT REPORT INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (\.REDIT 669-IND) POIYTECHNIC JAKARTA: EMPLOYMENT STATUS AND MONTHLY SALARIES (IN RP\. 1,011) OF 1985-87 GRADUATES Number of Graduates In Salary Bracket 88 Empl oymant Total Field of Year of Under and Salary Status No\. of Study Graduation 200 200-299 Over Unknown Unknown Graduates Civil Engineering 1985 12 9 8 16 2 86 Civil Engineering 1986 5 2 - 18 16 85 Civil Engineering 1987 18 9 - 6 18 51 Mech\. Engineering 1987 12 18 1 - 81 57 Source: Calculated from data provided by Polytechnic Jakarta and PEDC\. avem TUCATI æo \. C P^Y ~CT FI*Id of Study Civil Mochacal Elcrical Elcroni Petytechad\. f\.e Enginffiring Englnring Engineering Engfnering gal19a 16\.6 12\.7 7\.9 14\.1 Moleng 1et? 6\.9 12\.8 4\.7 18\.6 Maleng ln 4\.? 78 4\.6 7\. edan 19" 8\.4 6\.1 9\.9 8\.1 Maden 1987 7\.4 14\.0 9\.4 19\.6 Searang 19W 4\.8 7\.4 4\.S 8\.2 Søurs* Cølculoted from data prov1død by Indlvidual polyecbnlce\. - 15-- PRoaC? mPUPUBWCE mAWI nEuT SEV~ UCATIMN (P^LYTEOIC) POJCT (CIT D-io) PWER7AS aP FEM\. UABAIEU 198m-Ux \. BY PMLYTE00IC å FIEL OF MIWY Polytechale Fleid of 5udy lgøa 196~ 1g87 1g~ Bandung CIvi l noginering 9\.5 6 2, 6 Machanlcal Engineering 9 I 6 6 * ElectrIc*l Engineering 4\.2 6 6\.8 6 Electronlc Engineering 7\.7 I 7\.7 8\.8 Jokarte CIVil Engineering 11\.1 2\.9 4\.9 2/ * Mochanlcal Engineering 6 0_ SEletrlcal EngInamring 4 3\.6 0 " Electronics Engineering 7\.1 I 11\.1 Malang CIvi l Egineering 16\.8 8\.4 16\.8 2\.7 Møchan;cal Engineering 1\.8 1\.5 6 I * EIectrical Engineering 6 2\.4 10\.9 I SElactronlca Engineering 18\.3 2\.6 16\.4 2\.1 Mdan Clii1 Engineering I 9 6 0 * Mechanical EngIneering 0 6 9 9 Electrcal Engineering 6 6 9 9 * Electronice EngineerIng 0 9 a 9 Pale bng Civil Engineering 12\.5 6\.1 12\.2 21\.8 9 Machanleal Engineering 2\.9 2\.6 8\.4 1\.8 Se~arang >J g/ Data for 1968 Incomplete No data avaliable Source: Calculatod from PEDC data -17 - INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT October 16, 1987 Country Department V Asia Regional Office -19- INDONESIA SEVENTH EDUCATION (POLYTECHNIC) PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT I\. SUMMARY, CONCLUSION AND LESSONS LEARNED Physical Implementation 1\.1 The project was completed with a delay six months (44 months as com- pared to the appraisal estimate of 38 months): it was not necessary to extend the closing date and the credit was closed with all funds disbursed\. The con- struction of the six polytechnics was completed within the planned time although the starts had been delayed due to late completion of designs\. The construction of the TEDC building was the first priority, and was finished in January 1981\. Equipment was delivered on time to all six polytechnics\. Adequacy and Utilization of Buildings and Equipment 1\.2 The construction of the six polytechnics and the TEDC is of good quality and the buildings are well suited to their pedagogical requirements\. The equipment was installed on time and is suitable for the training programs\. The equipment is utilized on average for 55% of time with about 80% capacity enrollment\. 1\.3 The utilization of the accommodation in the 6 polytechnics averages 70% for 80% of full capacity on the basis of a working period of 38 hours per week for 22 week per semester\. Cost and Financing of the Project 1\.4 The final cost of the project was US$84\.6 million or Rp 70\.8 bil- lion\. In terms of rupiah, the actual cost increased 30% over the appraisal estimate, but in US dollars the actual cost was 18% below appraisal esti- mates\. The differences were due to depreciation in the value of the Rupiah and to the underestimate of civil work costs during appraisal\. The credit financed 58% of the total project cost\. Project Management 1\.5 The Project Implementation Unit (PIU) was established as planned under the DGHE\. Towards the end of the project period, the DGHE decentralized university management by assigning to the universities the responsibilities and development budgets for civil works, equipment and operating expenses\. The PIU Director retained responsibility for coordinating the budgets and activities\. - 20 - Project Outcomes by Component 1\.6 The project resulted in the successful establishment of six poly- technics producing middle-level technicians of imediate employability for industry\. Because of that success, the polytechnic system is now being expanded as a high priority of the GOI\. 1\.7 The accountancy component was partially completed; in-country training of accounting instructors and accountants was developed but not on the scale planned\. The fellowship program was slightly below target\. The services of expatriate specialists for the Accountancy Development Centers were engaged, but only late in the project\. 1\.8 The studies financed under the credit were completed and the study of Government Accountancy Systems was particularly well done\. Lessons Learned %\.9 The project would have been more successful if: (a) adequate provision had been made for training staff for the new polytechnics by a large program of overseas fellowships completed in advance of the construction and equipping of the polytechnics; and (b) there had been a separate project management unit for the accountancy component with clearly identified responsibility and funds allocated to :t\. II\. THE PROJECT AND THE CREDIT AGREEMENT 2\.1 Origin of the Project\. The Seventh Education project resulted from the findings of a joint UKESCO-World Bank study conducted in 1975 which identified the need to strengthen and expand public diploma-level training for engineering technicians and to strengthen accountancy training at degree level\. The government request was prepared in 1977 with the assistance of UNESCO\. The Project was appraised by the Bank in 1978, the Credit Agreement was signed on December 29, 1978, and became effective in May 1979\. The estimated total cost of the project was US$104\.0 million, of which US$49\.0 was covered by the IDA credit\. 2\.2 Objective and Scope\. The project was designed to assist the Govern- ment to implement key elements of its educational development strategy by developing a new system for training engineering technicians by establishment of (i) a Unit for Management of Diploma Programs; (ii) a Technician Education Development Center (TEDC) to carry out curriculum, materials and staff deve- lopment for industrial technician training; and (iii) six polytechnics to provide new training places for about 4,320 engineering technicians\. 2\.3 The Unit for Management of Diploma Programs (UMDP) was to be responsible for: - 21 - (i) managing all diploma programs; (ii) formulating policy and setting standards and procedures for development of technician training; and (iii) conducting manpower analyses related to diploma level training and maintaining international and national liaison on technician training development\. 2\.4 The Technician Education Development Center 'TEDC), which subse- quently became the Polytechnic Education Development Center (PEDC), located in Bandung, was to be responsible for planning and supporting engineering technician training at the polytechnics by: (a) de\.;lopment of curricula and teaching materials; (b) provision of pre- and in-service training for polytechnic instructors; (c) monitoring polytechnic operations and carrying out employment and manpower research related to industrial technicians; and (d) informing the public and industry about the polytechnic programs\. 2\.5 Six polytechnics were to be established: four in provinces in Java and two in provinces in Sumatra, at the Universities of Indonesia (Jakarta), Brawijaya (Malang), Diponegoro (Semarang), North Sumatra (Medan), Sriwijaya (Palembang), and the Institute of Technology Bandung (Bandung)\. The polytechnics were to be new three-year postsecondary institutions responsible for: (a) providing industrial technician training leading to diplomas in civil, mechanical, and electrical engineering\. Their objectives were distinct from those of the university departments of engineering; (b) developing links with their parent universities for administrative matters, and with TEDC for educational support; and (c) liaising with industry\. 2\.6 A second project objective was to improve the quality of accountancy training and practice by (a) the upgrading of accountancy training, both at selected universities and within the Ministry of Finance; and (b) the establishment of three Accountancy Development Centers (ADC) within University Faculties of Economics in the Universities of North Sumatra (Medan), Indonesia (Jakarta) and Gajah Mada (Yogyakarta) and a fourth at the Ministry of Finance, Sekolah Tingii Akuntansi Negara (STAN)\. These centers were to be responsible for: (a) providing training to upgrade accountancy instructors and practicing accountants; - 22 - (b) developing improved courses and teaching materials relevant to Indonesia's public and private sector accounting and auditing needs; and (c) carrying out practically oriented research projects to improve Indonesia's accounting methods\. 2\.7 In addition, the following studies were proposed, with assistance of foreign and local consultants: (a) supply and demand of second and third level engineering manpower; (b) government accounting and auditing procedures; (c) business management education in Indonesia; (d) accountancy manpower and training; and (e) baseline study for educational planning\. 2\.8 The planned staffing, fellowship programs and enrollments for the main project institutions are shown in Table 1\. Table 1: ESTIMATES OF STAFF, FELLOWSHIPS AND ENROLLMENTS FOR PROJECT INSTITUTIONS (APPRAISAL) Total Projected No\. of Projected fellowship average insti- number of program annual Components tutions staff (staff- enrollment (1984) months) (1985) Technician Education Unit for Management of Diploma Program 1 6 18 Technical Education Development Center 1 30 504 225 Polytechnics 6 679 288 4,320 Accountancy Education Accountancy Dev\. Centers 3 27 324 515 /a STAN 1 36 432 1,665 7a la Staff months\. 2\.9 At appraisal it was planned to provide about 130 staff-years of expatriate specialist consultant services, of which about 75 staff-years were -23- to be utilized to assist TEDC and polytechnic development, 16 staff-years to assist the ADCs and 39 for planning and management including the studies\. The purpose of the technical assistance for the polytechnics and TEDC was to: (a) advise and assist with the overall management coordination and implementation of the project; (b) develop the TEDC and polytechnic curricula and teaching material, including course notes and laboratory and workshop programs; (c) prepare training regulations; (d) train polytechnic teachers including supervision in their teaching duties; (e) assist with classroom and laboratory teaching of polytechnic students; and (f) assist with the conduct of the national entrance tests\. In practice, about 168 staff-years of technical assistance were provided for TEDC and polytechnic development out of a total of 184 staff-years\. Foreign technical assistance was not utilized for planning, management and studies, but instead local consultants were employed\. Covenants of the Credit Agreements 2\.10 The Government fulfilled the covenants of the Credit Agreement (Annex 1)\. III\. PROJECT IMPLEMENTATION 3\.1 The project was administered by a PIU set up under the Director General of Higher Education of the MOEC\. The PIU was responsible for the total development budget for the establishment of the polytechnics, i\.e\., for contracting for architectural services, procurement of land, civil works, equipment, technical assistance and staff training programs (Annex 2)\. 3\.2 The centralized project management structure was very well suited to the needs of development of the polytechnics and TEDC, particularly for the central procurement of goods and services and for the initial design of the polytechnic system and the technician courses\. It was less satisfactory for the developments in accountancy, planned to take part in the three universities and STAN\. 3\.3 Sites\. The locations of the six Polytechnics were decided after considering factors such as the need for balanced regional development and the manpower requirements of actual and planned industrial development\. The four provinces in Java and one in North Sumatra were chosen as being the most densely industrialized, and one in South Sumatra because of its rapid growth of capital-intensive industries\. The sites, except for the Bandung - 24 - Polytechnic, are in their related university campuses and provide sufficient space for future expansion\. 3\.4 Design and Construction\. Land for all six project polytechnics and the TEDC was acquired by December 1978 as planned at appraisal\. Architectural designs and plans for the TEDC and six polytechnics were completed by November 1979\. Standard designs and structures were adopted for all six polytech- nics\. Polytechnic cl%ssroom buildings are two-storeyed, while administration buildings, laboratories and workshops are single-storeyed\. The laboratories and workshops are of factory-type steel-framed buildings\. The areas of the facilities are shown in Annex 3\. 3\.5 Furniture and Equipment\. Furniture designs, specifications and lists were prepared by the architects who were responsible for polytechnic designs\. Equipment specifications and bidding documents were prepared with the assistance of specialist consultants working with the TEDC and PIU\. Equipment and furniture was procured centrally through international competi- tive bidding\. 3\.6 Technical Assistance and Training\. The services of consultants were obtained following competitive bids in accordance with the Bank's Guide- lines\. The main contract for technical assistance and training for the poly- technic components of the project was awarded to Swiss contact, Switzerland\. The contract was extended to about 168 staff-years for technical services, compared with the estimated 75 staff-years at appraisal for the components\. The increased program of technical assistance was provided for the implemen- tation of the new polytechnic courses and preparation for the second poly- technic project (Annex 4)\. 3\.7 Fellowship training of some 1,380 staff-months was provided for TEDC and polytechnic staff, compared with planned training of about 810 staff- months\. The training covered skills upgrading, teaching methods, curriculum development and basic engineering training\. The plans for providing overseas training in management for polytechnic directors and heads of departments were not implemented, mainly because of a shortage of staff at critical times\. A contract was awarded for fellowship training for the Accountancy Development Centers but only about 70% of those estimated at appraisal were actually awarded\. A comparison between planned and actual schedules of fellowship training is included as Annex 5\. 3\.8 The Polytechnics PIU was established with four divisions for planning, programming and evaluation; budgets and accounts; recruitment; and personnel and liaison, responsible to DGHE as envisaged at appraisal\. Until 1984, the PIU was responsible for planning; procurement of civil works, equip- ment and technical assistance; polytechnic staff training; preparation of curricula, syllabuses and training materials; entrance tests and student selection and loan administration\. The centralization was enhanced through physical and administrative relationship with the TEDC, which was the location of the main program of technical assistance for curriculum development and polytechnic teacher training, and was also directly responsible to the PIU\. The project was well managed and implementation was efficient and on schedule\. -25 - 3\.9 From 1984-85 the responsibility and budgets for polytechnic develop- ment and operations were decentralized and allocated to each of the univer- sities housing a polytechnic\. Subsequently, each university development budget, or DIP, included allocations for civil works, equipment and opera- tional expenditures including honoraria and special payments\. The PIU's DIP covered only the allocations for technical assistance, project management and operation of the TEDC\. The PIU thus became a supervising and coordinating agency for project implementation, with direct responsibility for only limited certain functions and for loan administration\. These arrangements for project management have continued successfully through the implementation of the Second Polytechnic Project\. Bank Performance 3\.10 During the 6 years of project execution there were 15 supervision missions, i\.e\., at an average interval of 6 months; the average mission length was 4 days\. Seven of the missions included an architect, two a general educator, three an economist, and eleven a technical educator\. The Indonesian Government was satisfied with the advice and assistance provided by Bank missions\. IV\. PROJECT COSTS AND FINANCING Project Costs 4\.1 Project costs, including contingencies, were estimated at appraisal as Rp 43,170\.0 million (US$104\.0 million equivalent)\. Actual cost at com- pletion was Rp 70,785 million (US$84\.610 million equivalent)\. Annex 6 provides a detailed breakdown by component and category showing local and foreign expenditure\. Comparisons of appraisal estimates and actual costs are summarized in Table 2 by category and in Table 3 by component\. Table 2: COMPARISON OF APPRAISAL ESTIMATES AND ACTUAL COSTS BY CATEGORY Appraisal Estimates /a Actual Rp US$ Rp US$ billion million billion million Civil works 15\.23 36\.68 29\.38 33\.26 Furniture and equipment 9\.60 23\.10 14\.57 17\.54 Professional fee 1\.79 4\.34 1\.84 2\.12 Technical assistance 8\.23 19\.88 14\.16 17\.70 Project implementation Unit (Operational) 8\.31 20\.00 11\.19 13\.99 Total 43\.17 104\.0 70\.79 84\.61 /a Includes contingencies, and excludes taxes\. Exchange rate at appraisal: US$1 - Rp 415\. /b Rp/US$ conversion based on prevailing exchange rate at time of disbursement\. - 26- Table 3: COMPARISON OF APPRAISAL ESTIMATES AND ACTUAL COSTS BY COMPONENT Appraisal Estimates Actual Rp US$ Rp US$ billion million billion million Technician training (Six polytechnics and TEDC) 24\.56 59\.2 66\.82 79\.65 Accountancy training 2\.18 5\.2 2\.34 2\.92 Associated studies/planning and management 6\.47 15\.6 1\.63 2\.04 Contingencies 9\.96 24\.0 - - Total 43\.17 104\.0 70\.79 84\.61 4\.2 At completion, the actual cost of the project in rupiah terms had increased 64%, and in US dollar terms had decreased by 18%, in comparison with the appraisal estimates\. The main reasons for change in cost were the devaluation of the rupiah and, as a consequence increases in local prices\. The exchange rate between the rupiah and the US dollar actually fell from 415:1 at appraisal to 1,118:1 at completion\. 4\.3 The table of costs by component shows clearly that during imple- mentation the project budget was focussed on the technician training component which accounted for 94% of total expenditure, although at appraisal it was estimated as only 57% of total cost\. The main reasons were (a) the reduced cost of the accountancy development and studies components because of the decision not to employ foreign consultants to the extent planned at appraisal; (b) the funding of some Accountancy Development Center activities from the development budgets of their parent universities without claiming reimburse- ment from Credit funds; and (c) the use of Credit funds of approximately US$5\.1 million to cover the costs of design work for extensions to the polytechnics, initial civil works and an expanded technical assistant program to prepare additional polytechnic teachers to initiate major expansion of the polytechnic system under a Second Polytechnic Project (Loan 2290-IND)\. Project Financing and Disbursements 4\.4 Financing of the project, as estimated at appraisal, was to be 47\.3% by IDA and 52\.7% by the Government (net of taxes)\. Actually, the IDA Credit financed 58% and the Government 42% of the costs\. The estimated and actual credit disbursements are compared in Table 4\. The actual disbursements for civil works and professional services included about US$5\.1 million for - 27 - initial expenditure for polytechanic expansion under the Second Polytechnic project\. Credit disbursement exceeded appraisal estimates consistently through the first four years of the project\. There was a slowdown in disbursement in 1984, due in part to the effects of decentralization of budget allocation and in part to a change in project manager\. Both events caused delays in credit administration\. However, the Credit was closed on December 31, 1985, as planned, with the total Credit of US$49 million disbursed\. Table 4: ESTIMATED AND ACTUAL CREDIT DISBURSEMENTS BY CATEGORY (US$ min) Original Actual Z of Cost category allocation disbursement total Civil works 9\.0 11\.8 Furniture and equipment 14\.0 17\.4 Professional fees /a 2\.1 Technical assistance 15\.0 17\.7 Project Implementation Unit - - Unallocated 11\.0 - Total 49\.0 49\.0 /a Included in allocation for technical assistance\. V\. PROJECT OPERATING OUTCOMES 5\.1 The establishment of the six new polytechnics and the Technician Education Development Center (TEDC) was the first major step in middle-level technician training in Indonesia\. In 1982, coincident with the opening of the 6 polytechnics, the Government decided to expand the polytechnics, build 11 new polytechnics and expand the TEDC into a Polytechnic Education Development Center covering commercial as well as engineering courses, under a Second Polytechnic Project\. The Government continues to give a very high priority to the polytechnics and has adopted a target of expanding the system to a total of 34 polytechnics under Repelita IV\. Teacher Training and Curriculum Development 5\.2 TEDC Staffing and Staff Training\. The first 36 TEDC staff were recruited in 1979 as planned, and after 12 months in-service training were awarded three-months overseas fellowships in 1980 for training in teaching methods, planning, curriculum development and evaluation\. A second group of eight staff was recruited and received similar training in the following year\. The TEDC staff continued to receive in-service training while serving - 28 - as counterparts to the technical assistance consultants in preparing poly- technic curricula and training materials and training the polytechnic teachers\. 5\.3 At appraisal it was planned to provide only four 12-month overseas training fellowships in curriculum development and research, however, in the course of implementation it became clear that staffing would need to be increased to meet training needs of the expanding polytechnic system and the staff strengthened, particularly in engineering theory and practical skills\. The overseas fellowship program was therefore increased, as reported in para\. 3\.7, and in 1984, 44 staff received 12 months overseas training, and 10 started 24-month training including 4 on Master's-degree courses\. In 1985, in order further to strengthen staffing, 10 fellowships were awarded for 4-year overseas degree courses in engineering with integrated industrial experi- ence\. The completion of these fellowships is being funded under the Second Polytechnic project, Loan 2290-IND\. 5\.4 Curriculum and Materials Development\. The staff and consultants working within the TEDC designed and developed curricula, syllabi, teaching materials, laboratory and workshop exercises and test materials for courses in mechanical, electrical, electronics and civil engineering\. The material was reviewed in the field and revised as necessary\. 5\.5 Polytechnic Teacher Training\. The first main group of trainee polytechnic teachers was enrolled at TEDC in 1981, to follow a sandwich program which included in-service training and experience - as assistant teachers in the polytechnics\. At appraisal it had been expected that polytechnic teachers would be recruited with adequate technical skills and practical experience, and would need only 12 months preservice orientation training to upgrade skills and to prepare them to teach the new polytechnic courses\. In practice it was not possible to attract and recruit such experienced skilled staff\. Consequently it was decided to recruit trainee polytechnic instructors from secondary technical school (STM) graduates\. These STM graduates required technical and skills training up to polytechnic diploma level as well as teacher training\. The teacher-training program was redesigned as a sandwich course extending over four or five years, comprising training in the TEDC integrated with periods of service as polytechnic teachers\. The first group of trainee teachers, with only one year of addi- tional training beyond secondary technical education, were required in the polytechnics in 1982 to teach the first intake of students\. The polytechnic teachers have been certified by taking examinations at the polytechnic diploma level\. 5\.6 Over the period of the project about 730 new technical teachers were recruited and trained at TEDC, about 610 of these being appointed to the poly- technics and the remainder retained as staff of TEDC\. The majority of the trainee teachers were secondary technical school graduates (Annex 7)\. In 1985 there were about 600 polytechnic teachers, giving a student:staff ratio of 5\.4:1 (Annex 8)\. From 1985, the polytechnics' own graduates provided a better source of trained instructors\. In order to strengthen the teaching staff, overseas fellowships have been awarded from 1985, and continued under the Second Polytechnic project, to enable selected TEDC and Polytechnic graduates - 29 - to obtain degrees and industrial experience overseas\. The narrow base of recruitment of polytechnic teachers and their lack of technical and industrial experience was one of the weakest points in the development, nevertheless the establishment of the TEDC, the successful training from zero of a cadre of instructor trainers and a full complement of polytechnic teachers and prepara- tion of training courses and materials represents a very considerable achievement\. Polytechnic Enrollments 5\.7 The polytechnics opened as planned in 1982, although the initial enrollment was curtailed because of the unforeseen problem of recruiting an adequate number of polytechnic teachers\. However, over the years 1982-1985, the total number of polytechnic students increased from 890 to about 3,500, i\.e\. to about 81% of planned full capacity of 4,300\. The first year intake reached the target of about 1,550 by 1985 (Table 5 and Annex 9)\. Table 5: POLYTECHNIC ENROLLMENTS: APPRAISAL ESTIMATES AND ACTUAL 1982-85 Actual first-year Planned capacity enrollment First year Total 1982 1983 1984 1985 Civil engineer 550 1,530 339 344 457 514 Mechanical engineer 550 1,530 337 377 500 550 Electrical engineer 450 1,260 214 359 367 447 Total first year 1,550 4,320 890 1,080 1,324 1,511 5\.8 Polytechnic enrollments were broadly in line with plans for the three main branches of engineering\. The overall passing rate for the first two intakes, i\.e\. in 1982 and 1983, was about 82%, which is much higher than the equivalent figure for university degree courses in Indonesia (Annex 10)\. 5\.9 The student:staff ratio of about 5\.4:1 is relatively low, but this low figure is reasonable bearing in mind that many of the polytechnic staff are inexperienced and are still receiving in-service training from the technical-assistance staff\. 5\.10 There has not been a tracer study of the past polytechnic graduates, but the polytechnic directors report that the graduates have been successfully employed except for the civil engineering graduates seeking employment in large scale construction firms, where employment opportunities have been scarce because of the slow down in construction\. There is a need now for a study of employment outcomes after three years of polytechnic graduates\. -30- Operating Costs 5\.11 The operating costs of the polytechnics have been covered in part from the development budget of the PIU and in part from the development and routine budgets of the parent universities\. The development budget alloca- tions for the 6 polytechnics totaled about Rp 1\.4 billion in 1984/85, repre- senting a unit cost of about Rp 350,000 per student or US$320 per student\. Of this, about 8% was spent on materials\. There is a need for a more thorough analysis of polytechnic costs, taking into account all expenditures including the cost of the supplies which were provided with the initial equipment\. Accountancy Development 5\.12 Of the planned 13 fellowships for ADC staff for Master's and PhD degrees, 8 were awarded, and 17 of the 24 short-course training fellowships were completed\. The reported number of accountancy teachers trained under the project was only about 25% of the target at appraisal of 3,500 p\.a\. but the training by STAN of Government and State enterprise accountants exceeded the estimate of 2,200 p\.a\. However, the training by STAN was funded from the Treasury budget and not by the project (Annex 11)\. The planned number of accountancy specialists were appointed to assist the ADCs, but the appoint- ments were not made until the final year of the project\. 5\.13 The studies of the government accounting system and accounting manpower were successfully completed\. The former study, in particAlar, is a key input to the major program of reforms in Government accounting which is to be carried out under the proposed (FY88) Accountancy Development Project\. The study included detailed recommendations on a broad range of reforms in accountancy which the Government has decided to implement\. 5\.14 The accountancy development component was successfully implemented in spite of relatively low percentage of credit funds actually disbursed against the activities\. The Accountancy Development Centers also represented a successful model for the upgrading of accountancy teaching and will be expanded in the proposed Accountancy Development Project\. The low level of credit disbursement was a consequence of project management arrangements which focussed on the implementation of the polytechnic development component with- out adequate recognition of the needs for coordination of the accountancy activities\. Some of the training within the ADCs was financed under the university and STAN budgets and claims were not submitted for reimbursement from credit funds\. 5\.15 Studies\. The other studies were completed, but with the services of local consultants\. The findings of the planning and manpower studies have contributed to policies for high level manpower development but they have not resulted in the setting up of effective planning and labor market information system\. - 31- Management 5\.16 At appraisal it was planned that each polytechnic director would be responsible to the university sector for administrative matters and to the TEDC for pedagogic matters, the TEDC being directly responsible to the Project Manager\. For the first few years the distinction was valid: the TEDC was responsible for all curriculum and materials development and staff training, and TEDC staff worked closely with the PIU in preparing equipment specifica- tions\. However, the distinction ceased to be valid as the polytechnics became operational-clearly the university would be concerned about pedagogic mat- ters, indeed it is not possible fully to separate academic and administrative matters\. In line with the general policy to delegate responsibilities to the universities, the development budgets for civil works, equipment and opera- tional expenses were, from 1984 to 1985, allocated to each university\. The role of the Project Manager and the PIU has therefore become more of a coordinating nature than centralized control\. The TEDC--renamed Polytechnic Education Development Center (PEDC)--has remained the focus for the technical assistance and responsibility for curriculum development and staff training\. The management systems continue to evolve: an important emerging issue is the relationship between the polytechnics and other university nondegree program in the same campus\. VI\. CONCLUSIONS AND RECOMMENDATIONS 6\.1 Polytechnic Development\. The project was very successful in initiating the establishment of the polytechnic system which is becoming a major component in the higher education system of Indonesia\. The weakest aspect of the development was the supply and training of polytechnic staff\. Because of the lack of availability of experienced technician teachers, or technicians who could be recruited and trained as teachers, it was necessary to start with STM graduates and provide them with both technical training and teacher training\. Many polytechnic teachers are therefore relatively inexperienced as teachers and have little industrial experience\. In view of the absence of a firm source of trained and experienced polytechnic teachers, a provision should have been made for substantial ovarseas training of potential teachers from the beginning of the project\. 6\.2 In view of the importance of middle-level manpower in industrial development and the priority given to the polytechnics by the Government of Indonesia it has been agreed that the existing system be systematically evaluated\. The evaluation would cover both internal efficiency, e\.g\., teachers, facilities and their utilization and management, and external efficiency, e\.g\., employment of graduates, relevance of courses and costs\. The evaluation could be carried out in the first phase of the proposed higher education loan\. 6\.3 The project implementation arrangements illustrated clearly the advantage of centralized project management for the effective implementation of the polytechnic development project while at the same time showing the disadvantage of assigning responsibilities outside the direct scope of the PIU for accountancy development and for planning studies which were therefore not so effectively implemented\. The project also showed clearly the advantage of linking closely project management with development budget responsibilities\. - 32 - 6\.4 Recommendations\. The main recommendations are: (a) in planning for future polytechnic expansion, adequate provision must be made for the training of polytechnic staff, recognizing the difficulty of attracting experienced technicians from industry to become polytechnic teachers; (b) a staff development program should be prepared for the existing staff, both to ensure that they keep up to date with technological developments and to provide opportunities for further study for higher degrees or diplomas; (c) consideration should be given to the establishment of a program leading to a qualification beyond the Diploma 3 offered in the polytechnics, suitable for polytechnic teachers, e\.g\., a Diploma IV; (d) a comprehensive evaluation of polytechnic education should be undertaken as a priority study, possibly under in the proposed Higher Education Loan, covering internal and external efficiency, management aspects and costs; and (d) in all education and training projects, the arrangements for project management should be closely related to the normal arrangements for management of development and operations and allocation of budgets for the units and activities concerned\. ANNEX 1 - 33 - INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Status of Fulfillment of Special Covenants Credit Deadline Agreement Covenant requirement date 2\.4 The Closing Date shall be - The Closing Date June 30, 1985, or such later was not extended\. date as the Associaiton shall establish 3\.01 The Project should be car- Promptly as needed UMDP not set up: ried out through the Unit the Project was for the Management of carried out by DGHE Diploma Program of DGHE and PIU 3\.04(c) The project shall make a Not more than six Agreed to be ex- completion report promptly months after clos- tended for col- upon Closing Date ing lection of data\. 3\.09 Acquire land and land rights Not later than six Land was acquired as needed by the project prior to the sched- by February 1979\. uled start of con- struction 4\.02 Inventory control system Not later than The systems adopted shall be prepared and shall December 31, 1980 follow government be implemented regulation\. - 34 - ANNEX 2 ORGANIZATIONAL STRUCTURE OF PROJECT IMPLENENTATION ADTHORITY OG'It Project Director Asst\. to the Project Director Admini stration Chief Chief Chief Chief Chief Chief Chief Chief ACCountancy Associated Planning\. Sudgeting Recruitment Liaison Procurement Constructes\. & Evaluation Design Prora Saff Reerh&Public Develt o nt uti & ndustrial Administratio ANNEX 3 - 35 - INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Training Facilities and Instructor Housing Land Building No\. of Construction Polytechnics arla area houses duration /a (m ) (m2) (year/month) Training Facilities USU - Medan 58,000 13,114 81/12 - 83/10 UNSRI - Palembang 39,200 10,492 82/04 - 83/11 UI - Jakarta 60,000 13,147 81/09 - 82/09 ITB - Bandung 55,000 9,295 81/09 - 83/03 TEDC - Bandung 55,00 9,504 80/10 - 82/01 UNDIP - Semarang 50,000 13,033 81/09 - 83/12 UNIBRAW - Malang 55,000 13,119 81/09 - 83/06 Instructors Housing USU - Medan 30,033 3,740 52 85/01 - 85/07 UNSRI - Palembang 28,830 2,760 30 85/01 - 85/07 UI - Jakarta 30,080 3,740 52 85/01 - 85/07 ITB - Bandung 38,378 3,740 52 85/01 - 85/07 TEDC - Bandung { UNDIP - Semarang 109,793 3,740 52 85/01 - 85/07 UNIBRAW - Malang 30,480 3,740 52 85/01 - 85/07 TEDC - Bandung (dormitory) 2,700 - 3-units (240 beds) /a Including 6 months maintenance period except Jakarta\. - 36 - INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Coparison of Specialist Service Between Appraisal and Actual Appraisal Actual (staff-years) (staff-years) Technician Training TEDC and Polytechnics 74\.5 167\.5 Accountancy Development (ADCs) 16\.0 16\.0/a Planning and Management 38\.5 - Total 129\.0 183\.5 La Partly funded under Second Polytechnics Project, Loan 2290-IND\. ANN"C - 37 - INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Comparison between Appraisal and Actual Schedule of Fellowships Appraisal Actual No\. of Turat ion Total Wo\. of Duration Total staff (months) staff-months staff (months) staff-months UNDP/PI(j Director 1 6 6 - - - Teachers trainers 30 15 450/a 74 - 570 Curriculum development 4 12 4 - - - research Polytechnic Directors 6 6 36 6 1 6 Vice directors 6 6 36 - - - Department heads 17 12 216 - - - Subtotal 70 - 810 80 576 ADC Xccounting system 4 12 } Management accounting 3 9 } Management Auditing 2 6 1 Financial accounting and 3 9 } 11 3 3T auditing I Theory and research methodology 1 I } Macro accounting 2 6 1 Government accounting 3 9 PhD fellowship 3 1i6 2 42 84 Masters degree fellowship 6 144 6 24 144 Subtotal 27 - 324 19 - 261 STAN Center -anagement auditing 2 6 1 (government sector) I Management accounting 1 3 ) 6 3 18 Macro accounting 1 3 1 System (government & - 2 6 ) state erterprises) PhD fellowship 1 48 Masters degree fellowship 1 48 Subtotal 9 109 6 3 IR Total 106 -1,242 105 - R55 /a 350 mm of the total were to he in-country fellowships\. INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT The Total Cost of Project by the Project Item and Category (Locan & Foreign Expenditure) (Rp billion, US$ million) Civil work Furniture & equipment Technical assistance Site Construc- Prof\. Sub- Furni- Equip- Sub- Spe- Sub- Opera- Project item Dev\. tion serv\. total ture ment total Fellow ctalist total tional Total Technician Training Local 267 18,64B - 18,915 86 109 195 - - 10,310 29,420 (0\.200) (21\.181) - (21\.461) (0\.076) (0\.085) (0\.161) - - - (12\.889) (34\.511) Foreign 126 9\.987 1,R39 11,952 1,632 12,743/a 14,375 1,108 9,965 11,073 - 31,400 (0\.149) (11\.648) (2\.124)) (13\.921) (1\.573) (15\.8016 (17\.374) (1\.385) (12\.455) (13\.841) - (45\.136) Accountancy Training Lo- - - 686 686 (-) (-) (-) (0\.858) (0\.858) Foreign - - - - - - - 544 1,105 1,649 - 1,649 - - - - - - - (0\.680) (1\.382) (2\.062) - (2\.062) Associated Studies Local - - - - - - - - - - 193 193 - - - - - - - (-) (-) (0\.241) (0\.241) Foreign - - - - - - - - 1,395 1,395 - 1,395 r - - - - - - - - (1\.744) (1\.744) - (1\.744) Future Project Preparation Local Loal- - - - - - - - (-) ( - (-) Foreign - - - - - - - - 42 42 - 42 - - - - - - - - (0\.051) (0\.053) - (0\.053) Subtotals Local (Rp) 267 18,648 - 18,415 86 109 195 - - - 11,1R9 30,299 (US$) (0\.280) (21\.181) - (21\.461) (0\.076) (0\.085) (0\.161) - - - (13\.988) (35\.610) Foreign (Rp) 126 9,987 1,839 11,952 1,632 12,743 14\.376 1,652 12,507 14\.159 - 40,486 (US$) (0\.149) (11\.648) (2\.12) \.(13\.921) (1\.573) (15\.801) (17\.374) (2\.065) (15\.635) (17\.700) - (49\.000) Total Project Costs Local (Rp) 393 28,635 1,R39 32,867 1\.718 12,852 14,570 1,652 12,507 14,159 11,189 70,785 (USS) (0\.429) (32\.829) (2\.124) (35\.382) (1\.649) (15\.886) (17\.525) (2\.065) (15\.635) (16\.700) (13\.988) (84\.610) /a Average exchange rate: US$ - Rp 800\.00\. ANNEX 7 - 39 - INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Teacher Training at TEDC Year of No\. of candidates No\. of Months start of and educational candidates of Posted after training training origin recruited training TEDC Polytechnics 1980 STM 7 12 7 GEN 9 8 9 ENG 2 6 2 - Total 18 1981 STM 124 12 7 117 GEN 43 8 4 39 ENG 26 6 - 26 Total 193 1982 STM 163 12 1 162 GEN 41 8 4 37 ENG 29 6 7 22 Total 233 1983 STM 10 12 10 - GEN 1 8 1 ENG 8 6 8 Total 19 1983 STM 79 12 - 79 GEN 12 8 3 9 ENG 172 3,4,12 53 119 Total 263 1984 117/a 12/a - 117/a 1985 132/a 6,12/a - 132/a Overall Total 727 /a Retraining\. - 40 - ANE 8 INDONESIA SEVENTR EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Polytechnic Staffing and Student:Staff Ratios, 1985 Part- Total Approx\. Full-time time/a enroll- student: Lec- Lab Workshop lee- sent staff turers tech\. instr\. Total turers 1985 ratio UNSII Palembang Civil 23 5 9 37 5 212 5\.6 Mechanical 23 5 14 42 4 233 5\.4 Electrical - - - - - - - ITB Bandung Civil 18 3 11 32 10 144 4\.2 Mechanical 21 1 14 36 14 132 3\.4 Electrical 28 8 5 41 20 122 2\.7 General 10 - - 10 - - - UNDIP Semarang Civil 18 3 12 33 - 239 7\.2 Mechanical 15 4 20 39 - 254 6\.5 Electrical 19 4 21 44 - 246 i\.6 General 11 - - 11 21 - - UI Jakarta Civil 18 2 9 29 15 208 6\.3 Mechanical 19 - 15 34 11 217 6\.0 Electrical 28 3 9 40 13 910 4\.4 General - - - - - - - UNIBRAW Malang Civil 18 3 13 34 - 212 6\.2 Mechanical 18 7 19 44 - 258 5\.9 Electrical 19 17 16 52 - 280 5\.4 General 14 - - 14 6 - - USU Medan Civil N/A N/A N/A 16 - 168 10\.5 Mechanical N/A N/A N/A 24 - 202 8\.4 Electrical N/A N/A N/A 22 - 199 9\.0 General N/A N/A N/A N/A 15 - - Subtotal (5 Polys) Civil 95 16 54 165 (181)/b 30 1,183 6\.3 Mechanical 96 17 82 195 (219)7W 29 1,296 5\.7 Electrical 94 32 51 177 (199)7W 33 1,037 5\.0 General 35 - - 35 42 - - Total/Average 320 65 187 572 (634)/b 5\.4 /a Assume I part-time - 0\.25 full-time equivalent\. 7W For six polytechnics\. -41 - ANNEX 9 Page 1 INDONESIA SEVENT EDUki!ON PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Student Enrollments by Polytechnic and Field of Study, 1982-86 1982 1983 1984 1985 1986 UNSRI Palembang Civil engineering 1 58 42 89 96A 2 - 57 34 86A 3 - - 48 30A Mech\. engineering 1 47 51 103 104A 2 - 39 44 90A 3 - - 34 39A Subtotal 105 189 352 445A ITB Bandung Civil engineering 1 57 52 51 55A 2 - 54 47 41 3 - - 50 48 Mech\. engineering 1 46 52 48 50A 2 - 45 49 37 3 - - 40 45 Elect\. engineering 1 51 47 48 50A 2 - 50 45 33 3 - - 47 39 Subtotal 154 300 425 398 UNDIP Semarang Civil engineering 1 78 77 96 96A 2 - 70 67 79 3 - - 67 64 Mech\. engineering 1 65 77 96 96A 2 - 65 72 89 3 - - 63 69 Elect\. engineering 1 48 78 97 96A 2 - 46 67 85 3 - - 43 65 Subtotal 191 413 668 739 - 42 - ANNEX 9 Page 2 1982 1983 1984 1985 1986 UI Jakarta Civil engineering 1 46 50 71 104 2 - 43 45 63 3 - - 41 41 Mech\. engineering 1 65 69 76 104 2 - 56 57 58 3 - - 43 55 Elect\. engineering 1 47 68 50 101 2 - 43 56 38 3 - - 38 51 Subtotal 158 329 477 615 UNIBRAW Malang Civil engineering 1 53 72 78 85 2 - 46 61 69 3 - - 39 58 Mech\. engineering 1 67 78 104 96 2 - 63 75 95 3 - - 58 67 Elect\. engineering 1 44 100 104 104 2 - 39 90 95 3 - - 36 81 Subtotal 164 398 645 750 USU Medan Civil engineering 1 47 51 72 78 2 - 44 35 57 3 - - 41 33 Mech\. engineering 1 47 50 73 100 2 - 37 49 56 3 - - 32 46 Elect\. eagineering 1 24 66 68 96 2 - 21 62 48 3 - - 20 55 Subtotal 118 269 452 569 Summaries First-Year Intake Civil engineering 339 344 457 514A Mech\. engineering 337 377 500 550A Elect\. engineering 214 35 367 447A Total 890 1,080 1,324 1,511 Total Enrollment 8980 1,898 3,019 3,516A -43 - ANNEM 10 INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Polytechnic Student Pass Rate and Dropouts: 1982 and 1983 Intakes 1982 intake 1983 intake First- First- year Diplomas year Diplomas intake awarded Dropouts intake awarded Dropouts Civil engineering Number 339 286 53 344 274 70 (%) (100) (84) (16) (100) (80) (20) Mechanical engineering Number 337 270 67 377 321 56 (%) (100) (80) (20) (100) (85) (15) Electrical engineering Number 214 184 30 359 291 68 (2) (100) (86) (14) (100) (81) (19) Total 890 740 150 1,080 886 194 (%) (100) (83)- (1]7) (100) (82) (18)U INDONESIA SEVENTH EDUCATION PROJECT (CREDIT 869-IND) PROJECT COMPLETION REPORT Output of Accountancy Development Centers Implementing unit ADC ADC ADC Activities Target Actual USU UI UGl ADC-STAN Participants Mst-ers degree 8 6 3 3 PhD program 5 2 -1 1 - Short courses 24 17 4 3 4 6 Textbook translation 8 6 1 3 - 2 Lectures notes writing 15 7 1 - 5 1 a Case study writing 10 7 3 2 2 - Studies in accounting 4 7 1 3 3 - and auditing (research) Seminar/workshops 120 p\.a\. 22 p\.a\. 2 5 11 4 State accounting - 9 batches Examination (UNA) - 610 participants Accounting Training for: SMEA teachers t 22 groups /a 6 groups 7 groups 9 groups - SMA teachers t 3,500 p\.a\. 1 group - - I group - IKIP lecturers t 3 groups 1 group - 2 groups - STAN instructors 60 p\.a\. 126 - - 126/b Government accountants 1,800 p\.a\. 1,945 - - 1,9457b State-owned enterprise accountants 400 p\.a\. 2,457 - - 2,457/b /a Average group size approximately 40 trainees\. lb ADC-STAN's activities financed by budget from Ministry of Finance (source: STAN Progress Report)\.

APPROVAL

P086308

 ICRR 14173 Report Number : ICRR14173 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/28/2013 Country : Yemen Project ID : P086308 Appraisal Actual Project Name : Ry-second Vocational US$M ): Project Costs (US$M): 15\.00 0\.37 Training Project L/C Number : C4279 Loan /Credit (US$M): Loan/ US$M ): 15\.00 0\.37 Sector Board : Education US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 03/27/2007 Closing Date : 05/31/2013 08/03/2012 Sector (s): Vocational training (68%); Central government administration (32%) Theme (s): Education for the knowledge economy (50% - P); Improving labor markets (25% - S); Micro; Small and Medium Enterprise support (25% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Susan Ann Caceres Judyth L\. Twigg Ismail Arslan IEGPS2 2\. Project Objectives and Components: a\. Objectives: According to the Project Appraisal Document (pp\. v and 5), the objectives were to provide the public training system with improved mechanisms for responsiveness to employment needs, and to enhance the capacity and effectiveness of the Skills Development Fund in articulating and financing the training needs of enterprises \. The same objectives were noted in the Financing Agreement (p\. 5)\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: There were three components (actual costs are not provided below, since this operation was cancelled ): 1\. Monitoring and Evaluation, and Project Management (appraisal, US$ 3\.01 million) contained two subcomponents: Monitoring and Evaluation System was to help address two existing constraints to the viable expansion of vocational and technical services : (1) weakness of the information base for decision -making on the costs and outcomes of training and employment needs; and (2) lack of appropriate incentives to promote demand-responsiveness and cost effectiveness \. This was to be done by building relevant capacity of a team to carry out monitoring and evaluation in the Ministry of Technical Education and Vocational Training, as well as development of a management and information system, tracer studies, and employer surveys \. Project Managemen t was to ensure effective administration and coordination of project activities, including reporting requirements\. It was to establish a Project Management Unit staffed by national and international short-term consultants\. 2\. Design and Delivery of Training Programs (appraisal, US$ 6\.13 million) had three subcomponents:  Technician Level Programs were to pilot the development and delivery of new international -standard programs in four existing training institutes to meet identified needs in the sectors of construction and food processing\. It was to finance a twinning program to provide technical services for project management and program development, training, and fellowships for instructional staff \. It was to construct a workshop at the Hada Technical Institute, provide minor rehabilitation of other facilities, and purchase instructional equipment and supplies\. In-Service Training was to pilot approaches for improving the capacity of public sector training providers to respond more effectively to employer -defined in-service training needs in the target economic sectors of construction, food processing, fisheries, and seafood processing \. Skills and Employment Liaison Units were to be established in the four training institutes to undertake outreach activities with local enterprises to identify training needs and develop market services to meet these needs \. Instructor Development was to pilot approaches in four existing training institutes to strengthen the occupational skills and competencies of a cadre of 48 Master Instructors in the fields of civil works, commerce, accounting/business administration, electrical and electronic maintenance, and mechanical maintenance\. This was to fund training costs for work placement, a fellowship program, equipment, and employer participation in program design and delivery \. 3\. Reform of the Skills Development Fund (appraisal, US$ 1\.85 million) was to finance a long-term advisor, short-term technical assistance, workshops and training, and equipment to support restructuring the Skills Development Fund\. It was to build the capacity of the staff of the Skills Development Fund and establish a management information system\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs: Project costs were planned to be US$ 15 million, with an estimated US$ 9 million in foreign expenditures and US$ 6 million in local costs (NCO, p\. 11)\. Before cancellation, US$ 0\.37 million was disbursed\. Financing: The project was to be financed by an IDA credit of US$ 15 million\. Borrower Contribution: No contributions were planned or made \. Dates: The credit was approved on March 27, 2007, and the legal documents were signed on June 7, 2007\. However, the effectiveness conditions took time to satisfy (Subsidiary Agreement executed on behalf of the Recipient and Project Implementing Entity; Project Management Unit established by the Recipient with acceptable organization, staffing, and terms of reference; and passing of the Skills Development Fund law )\. As a result, the credit effectiveness date was extended three times from the initial date of October 5, 2007 to October 6, 2009\. The NCO does not provide reasons for this delay, which permitted only 3 years and 7 months to implement a project originally planned for six years \. Given the delay in effectiveness, the project was in jeopardy of not achieving its development objectives, since design was based on development and delivery of a new three-year technician-level program that would have required two years to develop (through technical assistance selection, contracting, mobilization, program development, equipment procurement, and staff training) before students could then enroll \. Two requests for proposals related to Component 2 were issued in 2010 but yielded no proposals, and all short-listed firms cited "factors external to the project " (declining security conditions in the country ) as the reasons for non-submission\. Consensus between the Bank and the Implementing Agencies was reached in 2010 to restructure the project to reduce its scale, simplify the components, and reduce the credit to US$ 9 million, but it was not until May 11, 2011 that the Government forwarded a request to the Bank to restructure the project\. There was a suspension of disbursements in July 2011 due to unrest in the country, as Bank staff had been relocated to Amman in March 2011\. The operation was cancelled on September 3, 2012, two years and 10 months after effectiveness \. Ultimately the project was cancelled because : (1) most project activities could not be completed and the objectives achieved before the planned closing date, (2) difficulties faced by the project were likely to continue due to capacity and security issues, (3) there was a lack of local expertise to undertake project consultancies, and (4) there were difficulties in hiring qualified firms or international consultants willing to travel to Yemen\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Objectives: Substantial  The project's objectives were substantially relevant to the Bank ’s current Country Assistance Strategy (2010-2013), which stresses access, quality, and efficient use of public resources across all levels of education, including vocational\. At the time of appraisal, the main issues in the vocational and technical education sub-sector were the need to: (1) diversify programming to respond to a wider range of social and sectoral partners; (2) develop linkages with the labor market at a number of levels to ensure that all activities of the system were driven by employer and employment demands; (3) review the governance management and organizational structure of the Ministry of Technical Education and Vocational Training to reflect the requirements of an employment-driven marketplace; (4) reorient and re-equip the network of Technical Education and Vocational Training institutions to meet a wider range of employer and community skill development needs; and (5) diversify the financing of Technical Education and Vocational Training in order to share costs more equitably among beneficiaries \. The project was also directly aligned with the Government's priorities as outlined in its Technical Education and Vocational Training Strategic Development Plan and Development Plan for Poverty, which focuses on strengthening the links between technical education and the private sector\. b\. Relevance of Design: Design: Modest Design included activities intended to build capacity, develop training programs, pilot mechanisms for employer participation in the design and delivery of new pre -service and in-service training, and revise the Skills Development Fund, all of which were logically related to the objectives \. The design was too complex for the capacity and conditions (NCO, p\. 15)\. The project underwent a Quality Enhancement Review, raising several other design weaknesses that were not addressed \. These issues included: relevance of the project to skill development needs, current labor market demand for graduates, incentives to ensure employer collaboration, capacity of the Skills Development Fund to undertake a reorientation of its service delivery model, and the need to improve the project outcome indicators \. Outcome indicators did not effectively demonstrate attainment of the objective (see Section 10a)\. 4\. Achievement of Objectives (Efficacy): N/A 5\. Efficiency: N/A ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: N/A a\. Outcome Rating : Not Applicable 7\. Rationale for Risk to Development Outcome Rating: N/A a\. Risk to Development Outcome Rating : Not Applicable 8\. Assessment of Bank Performance: a\. Quality at entry:  The Bank was familiar with the education sector through its previous projects and analytic work related to other sub-sectors within education\. Preparation was supported by a Japan Policy and Human Resources Development grant that provided resources for further analysis of institutional capacity and engagement of a wide range of stakeholders, including the employer community and representatives of the nationally identified economic sectors of fisheries, construction, and food processing \. Resources from the UK Department for International Development were used to develop operational procedures for the Skills Development Fund\. The Bank team worked closely with the Ministry of Technical Education and Vocational Training to formulate policy objectives to guide the project and facilitate a comprehensive analysis of the Skills Development Fund (legal, regulatory, institutional, management, administrative, and operational aspects ), as well as dialogue and cooperation between the Ministry and the Fund \. However, differing approaches resulted in a lack of understanding and commitment related to employer -community partnership (NCO, p\. 17)\. Risks and mitigation measures were appropriately identified; however, preparation over -estimated the readiness and capacity of the implementing entities \. When the credit effectiveness conditions were not satisfied, the Bank tried several interventions, including Bank management convening a high -level meeting\. During the delay of credit effectiveness, the Bank team, Ministry of Technical Education and Vocational Training, and the Skills Development Fund maintained close contact\. at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: The Bank team provided extensive support to the Ministry of Technical Education and Vocational Training and Project Management Unit during the period of supervision, but there was a high turnover of Bank TTLs, impacting supervision (NCO, p\. 15)\. The Bank team provided regular supervision missions (until the staff were relocated) and provided technical and administrative support to the Project Management Unit and the Ministry\. The Bank team provided guidance on preparation of Terms of Reference, identified potential consultants, and assisted with contracting procedures \. The Bank team expressed concerns when issues emerged, making adjustments to the implementation approach to the selection of the management information system under the first component \. The Bank also drew up action plans to address weaknesses in procurement capacity within the Project Management Unit \. The Project Management Unit Director was dismissed, which was a joint responsibility of both the Bank and the Ministry \. Given the lack of implementation progress, limited remaining time, and slow rate of disbursements, the Bank team reached consensus with the Ministry of Technical Education and Vocational Training and Skills Development Fund to restructure the project to reduce its scale and simplify design \. The Bank team prepared the restructuring package, but it was not processed for approval, since at the same time the country's security conditions had deteriorated and Bank staff were relocated to Amman \. The Bank team continued to provide regular support to the Ministry and Project Management Unit through email and audio conferences, but there was a slow-down in the Bank's support preceding the suspension (NCO, p\. 16)\. The Bank suspended disbursements for the project on July 28, 2011, since it could not fulfill its fiduciary responsibilities \. Agreement was reached in May 2012 to cancel the project\. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: During preparation, there was constructive dialogue with the Bank at the vice ministerial level, where there was a clear understanding of the sector and strong leadership and decision -making skills\. There was need for more intensive intervention during the period of delay in credit effectiveness by the executive management level of the Skills Development Fund, Ministry of Technical Education and Vocational Training, and Ministry of Planning and International Cooperation, since the lost time placed the whole project in  jeopardy\. While consensus was reached between the Bank and Ministry of Technical Education and Vocational Training and the Skills Development Fund to restructure the project in 2010, the Government did not submit the formal restructuring request until May 11, 2011\. Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance: Two parallel implementation arrangements were established : the Ministry of Technical Education and Vocational Training, with the support of a Project Management Unit, and the Board of Directors of the Skills Development Fund, as well as oversight by a national Steering Committee \. During the delay of credit effectiveness, a series of activities was undertaken to enhance implementation readiness, including staffing the offices of the Director, Technical Advisor, Procurement Officer, and Financial Officer of the Project Management Unit, review of physical facilities in pilot institutes, preparation of terms of reference, survey of pilot institutes, and dialogue with employers in target sectors \. The Skills Development Fund drafted bylaws and a transition plan\. There were several weaknesses in performance \. First, there were issues with staff within the implementing entities\. The Project Management Unit was never fully staffed with individuals containing the required knowledge, skills, and experience \. The initial appointment of the Director of the Unit was delayed for one year\. Staff in the Ministry changed, which impacted decision -making and resolution of issues, and momentum was lost as the incoming team took time to learn about the project \. There was only one employee who was charged with implementation of the revised Skills Development Fund law, which was contrary to the organization model in the operational manual \. The Skills Development Fund established a new executive Board and developed terms of reference for a short -term advisor, rather than a long -term advisor as planned\. No new staff were appointed to the Skills Development Fund, except for a finance officer \. The Project Management Unit Director was dismissed, which resulted in the loss of project history; the NCO does not provide reasons for this dismissal \. A temporary Acting Director was then installed, which was an inadequate arrangement and impacted project restructuring \. Second, there were numerous delays, including in the purchase of a financial management system \. There was slow implementation progress that related to the lack of firms submitting proposals to implement Component 2, as well as adjustments to the approach to implement Component 1, which were made by a short-term policy advisor in collaboration with the Ministry of Technical Education and Vocational Training \. Third, there were issues with engagement and capacity \. Procurement support remained weak, despite action plans drawn up by the Bank after each supervision mission \. The Board of Directors for the Skills Development Fund had limited involvement in project implementation \. Few members from the employer community attended Board meetings \. The operation manual was not endorsed and there was no initiative to promote its procedures\. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The Results Framework did not adequately measure either of the project's objectives \. Instead, the Results Framework contained measures of outputs of the components (e\.g\. new program established, diversity of in-service training, establishment of management information system, revised organizational structure ), rather than outcomes to demonstrate improvements in the training system and Skills Development Fund \. The Project Appraisal Document (pp\. 30-32) specified the data collection timeline and assigned responsibility for collecting the data\. Baseline and targets were provided, but the utility of this information was low, given how they were stated and the limited increase anticipated \. b\. M&E Implementation: c\. M&E Utilization: M&E Quality Rating : 11\. Other Issues a\. Safeguards: N/A b\. Fiduciary Compliance: N/A c\. Unintended Impacts (positive or negative): N/A d\. Other: 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Not Rated Not Applicable Risk to Development Non-evaluable Not Applicable Outcome : Bank Performance : Moderately Moderately The shortcomings presented in the Unsatisfactory Satisfactory NCO mainly related to design and its complexity (which is rated under Relevance of Design)\. As well, the shortcomings in performance during preparation and supervision were minor\. Given the delay in the Government's formal restructuring letter and the deteriorating country conditions, the timing of the actions of the Bank were reasonable\. Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The NCO (pp\. 17-21) contains several lessons, which IEG summarizes as follows :  Capacity in Yemeni institutions to implement change is low \. In low -capacity contexts, design should incorporate modest objectives and be simple in construct \. Component two was based on best international practices for technical education and vocational training with employer partnerships, identification of occupational competencies and standards, development of learning assessment tools, and provision of learning resources and equipment \. The delivery contained a twinning arrangement with an international consortium supporting both program development and implementation, and providing management support while counterpart institutional capacity would be built through working groups drawn from the respective directorates of the Ministry, chaired by the deputy Minister \. The partnership-based approach proved to be beyond the capacity and experience of the Ministry of Technical Education and Vocational Training \. Both country and sector context should be understood and factored in when developing project components, activities, and implementation arrangements \. Investment in leadership is critical \. Bank-funded development projects are inherently multi -dimensional in nature and call for mature leadership throughout their implementation \. The current pool of project management and leadership skills in Yemen, as reflected by advisements for the Project Management Unit staff, local technical assistance providers, and local consultants, is neither deep nor broad \. This suggests that the capacity of all appointees needs to be carefully assessed and supported by relevant professional development experiences that can serve as both an incentive and a pathway to professional growth, thereby enhancing project performance \. Local language skills are an essential requirement for project ownership and comprehension \. Many of the policy issues, design concepts, implementation details, and operational modalities for the project were discussed with the partners primarily in the English language \. The majority of documents designed to capture these discussions were similarly prepared in the English language \. This being the case, it was frequently evident that those responsible for implementing the project were not fully aware of the purpose and expected outcomes of the responsibilities to which they were assigned \. This problem was compounded by an internal culture in both the Ministry and the Skills Development Fund that discouraged open discussion and information sharing \. While this is a lesson that applies to all languages and cultures, it is of particular importance in Yemen \. Gaining access to employment opportunities in the Gulf region requires a business approach rather than an administrative, institutional, or bureaucratic approach \. Adoption of this principle suggests that the management of training and employment placement might be led by a private sector entity, while management of regulatory and work permit issues could be led by the relevant Government Ministry \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The Note on Cancelled Operation is thorough, candid, and well written \. It discusses the main events leading to cancellation and the steps taken to resolve the problem \. It analyzes the events and presents a rich discussion of the causes of the problem and the actions of the parties involved \. The Note is filled with insightful analyses and lessons, and its content could be very useful to promote learning for operational staff in Yemen, the MENA region, and beyond\. a\.Quality of ICR Rating : Satisfactory

APPROVAL

P057818

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 32646 IMPLEMENTATION COMPLETION REPORT (IDA-36690) ON A CREDIT IN THE AMOUNT OF SDR 12 MILLION (US$15 MILLION EQUIVALENT) TO ALBANIA FOR A FINANCIAL SECTOR ADJUSTMENT CREDIT (FSAC) June 20, 2005 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2005) Currency Unit = Lek Lek 1 = US$ 0\.010 US$ 1 = Lek 97\.40 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BoA - Bank of Albania BART - Bank Asset Resolution Trust (Loan Collection Agency - LCA) CAS - Country Assistance Strategy DIA - Deposit Insurance Agency EBRD - European Bank for Reconstruction and Development ECSPF - Europe and Central Asia, Private and Financial Sector Development Unit EU - European Union FSAC - Financial Sector Adjustment Credit FSIBTA - Financial Sector Institution Building Technical Assistance Project GDP - Gross Domestic Product IAS - International Accounting Standards IDA - International Development Association IDP - Institutional Development Plan for the Bankruptcy Framework IFC - International Finance Corporation IMF - International Monetary Fund INSIG - Insurance Institute of Albania ISA - Insurance Supervision Agency (formerly ISC - Insurance Supervision Commission) MoF - Ministry of Finance MoJ - Ministry of Justice NCB - National Commercial Bank NSSED - National Strategy for Social and Economic Development PHRD - Policy and Human Resources Development Fund PRGF - Poverty Reduction and Growth Facility PRSC - Poverty Reduction Support Credit PRSP - Poverty Reduction Strategy Paper RCB - Rural Commercial Bank RPTA - Recovery Program Technical Assistance Project RTGS - Real Time Gross Settlement SDP - Supervisory Development Plan for Banking Supervision SvB - Savings Bank TA - Technical Assistance USAID - United States Agency for International Development Vice President: Shigeo Katsu Country Director Orsalia Kalantzopoulos Sector Manager Fernando Montes-Negret Task Team Leader/Task Manager: Hormoz Aghdaey  ALBANIA Financial Sector Adjustment Credit (FSAC) CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 8 6\. Sustainability 9 7\. Bank and Borrower Performance 9 8\. Lessons Learned 11 9\. Partner Comments 12 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 19 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 21 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6\. Ratings of Bank and Borrower Performance 24 Annex 7\. List of Supporting Documents 25  Project ID: P057818 Project Name: Financial Sector Adjustment Credit (FSAC) Team Leader: Hormoz Aghdaey TL Unit: ECSPF ICR Type: Core ICR Report Date: June 20, 2005 1\. Project Data Name: Financial Sector Adjustment Credit (FSAC) L/C/TF Number: IDA-36690 Country/Department: ALBANIA Region: Europe and Central Asia Region Sector/subsector: Banking (54%); Non-compulsory pensions, insurance and contractual savings (31%); General industry and trade sector (15%) Theme: Regulation and competition policy (P); State enterprise/bank restructuring and privatization (S); Other financial and private sector development (S); International financial architecture (S) KEY DATES Original Revised/Actual PCD: 10/05/2001 Effective: 08/07/2002 Appraisal: 01/30/2002 MTR: Approval: 06/20/2002 Closing: 03/31/2004 12/31/2004 Borrower/Implementing Agency: Albania/Ministry of Finance Other Partners: Bank of Albania, Insurance Supervision Agency, Bank Asset Resolution Trust STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes Linn Country Director: Orsalia Kalantzopoulos Christiaan J\. Poortman Sector Manager: Fernando Montes-Negret Paul Siegelbaum Team Leader at ICR: Hormoz Aghdaey Hormoz Aghdaey ICR Primary Author: Hormoz Aghdaey; Rochelle Hilton 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: H Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The objective of this operation was to support the Government of Albania's program to consolidate and take reforms in the financial sector further to foster better engagement of the financial sector in the development of the Albanian economy\. The proposed program consisted of three broad components: (i) continued reform of the banking sector including the privatization of the Savings Bank (SvB) and further strengthening of the banking regulation and supervision, (ii) enhancement of the bankruptcy and debt resolution framework, and (iii) reform of the non-bank financial sector, including further development of the regulatory and supervisory framework for the insurance sector and the privatization of the Insurance Institute of Albania (INSIG)\. The project objective was clear and realistic\. It was fully consistent with the CAS and the 2002 National Strategy for Social and Economic Development (NSSED) (previously the Growth and Poverty Reduction Strategy)\. The current CAS (FY03-05) was built around three pillars: (i) Improve governance and strengthen institutions: build efficient and inclusive public institutions; increase transparency and accountability at all levels; strengthen monitoring and evaluation; and use community-based approaches that build institutions from the bottom up; (ii) Promote sustainable private sector growth: maintain macroeconomic stability in conjunction with the IMF Poverty Reduction and Growth Facility (PRGF); improve the environment for private investment; continue to reform the financial sector, and complete enterprise privatization; sustain agricultural growth and foster broad-based rural growth; improve infrastructure and create institutional environments conducive to infrastructure sustainability, especially through community or private sector participation; and promote environmental sustainability and sustainable use of natural resources; and (iii) Foster human development: improve access to and quality of education and healthcare in both urban and rural areas; strengthen the sustainability and equity of the social insurance system; and improve targeting and efficacy of social assistance and community social services\. The FSAC was fundamental to the goals of the CAS and related directly to the first two pillars\. The project built on ongoing efforts, had a clear focus, and enjoyed the full ownership of the Government and the central bank\. These factors enabled the program to cover complex and challenging reform areas\. 3\.2 Revised Objective: n/a 3\.3 Original Components: Background and context: Although the democratic and economic transformation in Albania began later than in other Central and Eastern European countries, the implementation of the initial phase of reforms in the early 1990s was rapid and impressive with high growth rates, low inflation, an improved current account balance and significantly improved fiscal deficit\. Reforms in the public administration and financial sectors, however, advanced at a much slower pace\. By early 1996, it was clear that many problems had not been resolved, and others were emerging\. Structural reforms had stalled, especially in the critical area of banking, evident in the lack of progress in resolution of the problems in the state-owned banks, and in further development and enforcement of banking regulation and supervision\. Despite some initial efforts at reforms, the institutional and financial infrastructure was unable to adequately support sound credit practices and the effective functioning of the market\. The legal system remained underdeveloped and could not effectively enforce contracts\. Comprehensive and well-defined accounting principles based on International Accounting Standards (IAS) were not introduced\. Hence, accurate and transparent information on the financial performance of banks and enterprises was not available and there was insufficient information on which to base credit and investment decisions\. Effective systems for internal risk management and control, with - 2 -  strict accountability to owners, directors and senior management, were not fully developed and enforced\. Financial institutions were not adequately supervised and even the most basic regulations such as those ensuring adequacy of risk capital were not enforced\. At the same time, the supervisory and regulatory authorities did not have adequate skills, resources and independence from political interference to perform their functions\. The inadequacy of the financial system, especially its regulatory and supervisory framework, led to the proliferation of informal financial arrangements including pyramid schemes, the collapse of which triggered the civil crisis of early 1997, and the subsequent fall of the government\. The economic fallout from the crisis was severe, with GDP contracting by 7 percent and inflation increasing to over 40 percent in 1997\. The Government, which took office after the elections of July 1997, quickly re-established macroeconomic control and started implementing a broad-based program of reforms in the public administration and financial sectors, including institution-building, civil service reform, and divestiture/privatization of state-owned banks\. In consultation with IDA and the IMF, it adopted an ambitious program to cease all lending activities by state-owned banks, and to divest itself from the banking sector\. In line with this program, it immediately liquidated the Rural Commercial Bank (RCB) in December 1997, undertook to offer the National Commercial Bank (NCB) for privatization within a one year time-frame and put SvB under a tight governance contract with a view to its privatization\. The authorities made substantial progress in implementing this element of their program, although the ambitious timetable established was not met\. Privatization of NCB was concluded in October 2000\. The governance contract with SvB prohibited it from lending and prescribed steps, including defensive restructuring measures, to be followed in preparing the bank for privatization\. Intensive dialogue with the Bank supported the implementation of this program, although specific preparation of the FSAC had not yet started\. As a result of this dialogue, the Government took many major policy decisions prior to Board presentation of the FSAC\. Successive governments have maintained this commitment to macroeconomic stability and structural reforms, with support from the international donor community led by IDA and the IMF\. The Government, which came to power in 2002, confirmed its intention to proceed with the implementation of the reform program agreed in 1997\. Building on past actions, the FSAC support the program going forward\. Although the credit was expected to fully disburse in a period of 1-2 years, no strict deadline was specified for meeting the conditions since the focus was on the implementation of capacity building programs which took into account the long-term nature of the reforms\. The capacity building plans were supported through the IDA-funded Financial Sector Institution Building Technical Assistance Project (FSIBTA) and other donors, especially the IMF and USAID\. Components: The FSAC supported the implementation of a comprehensive reform program in the following areas: l Continued Reform of the Banking Sector focusing on the privatization of SvB and improvement of the institutional, regulatory, and supervisory framework for banking; l Enhancement of the Bankruptcy and Debt Resolution Framework focusing on the adoption of the new insolvency legislation and capacity building for and implementation of the insolvency and secured financing framework, and debt workout activities of the Loan Collection Agency (BART); and l Reform of the Non-Bank Financial Sector focusing on further development of the regulatory and supervisory framework for the insurance sector and the privatization of INSIG\. The project achieved all of its major objectives and the design of the operation was well tailored to the Government's overall goals\. The focus on capacity building and results, rather than on passage of legislation proved to be effective, and the FSAC is highly likely to achieve substantial development results - 3 -  without any major shortcomings\. The program the FSAC supported is highly likely to be sustainable as the many of the actions taken are irreversible\. Taking into account lessons learned from implementation of other operations in the region, the FSAC was, by design, preceded by the related FSIBTA, which, in turn, has been instrumental in ensuring the proper implementation of the Government and BoA's policies and programs in the financial sector\. Given the capacity on the ground, the relatively narrow focus of the FSAC was justified in order to maintain momentum in implementing reforms which are so fundamental to the development of the financial sector\. Albania now has the platform and the confidence to launch the next phase of its financial sector reforms, giving more attention to the non-bank financial sector\. 3\.4 Revised Components: n/a 3\.5 Quality at Entry: A voluntary Quality Enhancement Review concluded that the project was well designed and focussed\. It assessed the quality of the operation to be satisfactory\. The design of the project benefited from this review, particularly in terms of streamlining the conditionality and increasing the focus on outcomes\. As mentioned above, the program was clearly linked to the CAS/NSSED priorities\. The risks were clearly identified and carefully evaluated\. The main risks related to political instability and lack of absorptive capacity\. To mitigate the political risk, the FSAC was designed to ensure that key (and irreversible) steps were taken prior to Board presentation\. The risk that the weak institutional capacity in the country would impact implementation of the FSAC was mitigated by a number of technical assistance (TA) initiatives that were already underway prior to approval of this operation, including the FSIBTA and Legal and Judicial Reform Project, as well as programs from other donors\. An additional risk related to internal and external macroeconomic imbalances, which were largely mitigated through the program agreed with the IMF\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The achievement of the objectives and outputs is considered satisfactory\. The FSAC has contributed to the strengthening and deepening of the financial sector\. The supervisory and legal framework for the banking system has been substantially strengthened, especially through the implementation and institutionalization of the Supervisory Development Plan for banking supervision (SDP)\. The privatization of the SvB, which marked the exit of the state from any major ownership role in the banking sector, has led to the entry of a reputable West European Bank into the market and is already showing results by improving competition in the banking sector\. The number and quality of banking products and services is gradually increasing (for instance, about 9 banks have installed ATMs and many can now be seen around Tirana)\. In regard to intermediation, according to the BoA, credit to the private sector grew by about 31% in 2003 and 38% in 2004\. Private sector deposits have also increased, with a growth of about 15% per year in 2003 and 2004\. As a percentage of GDP, credit to the private sector has increased from 4\.6% in 2001 to almost 8% in 2004\. The overall quality of the portfolio (as measured by the level of non-performing loans, reported by the BoA) remains good\. In regard to the bankruptcy and debt resolution framework, new legislation for the bankruptcy framework has been enacted, training of a pilot group of bankruptcy professionals has been completed, bankruptcy programs have been included in university and magistrates school curricula and BART has achieved positive results in its loan resolution activities\. Also noteworthy is the progress made in meeting other indicators that relate to the Government's own agenda, such as the successful operation of the RTGS and enactment of a satisfactory accounting law\. There were no major shortcomings in the achievement of the FSAC's objectives, although the full impact of all of the reforms will be realized only in the long-term\. For example, substantial improvements have been - 4 -  made in efforts to increase effectiveness of supervision of the insurance sector\. The legal framework has been strengthened with the approval of primary legislation broadly in line with EU requirements, but appropriate secondary legislation is not yet in place\. In addition, much remains to be done to further enhance the capacity of the regulator and to ensure that the sector can operate based on acceptable market principles\. The authorities are taking steps to improve enforcement and secondary legislation, particularly in relation to the application and oversight of compulsory TPL activities\. However, as identified in the risks in the FSAC President's Report, implementation of this component has been undermined by the limited absorptive capacity\. The original Closing Date was extended by 9 months to December 31, 2004, particularly to allow more time to implement changes to insurance legislation and for implementation of the Institution Development Plan for the bankruptcy framework (IDP)\. The latter was delayed because of the lack of timely provision of expected donor funding\. 4\.2 Outputs by components: Continued Reform of the Banking Sector: This component is rated as highly satisfactory and included several elements, with the following outputs as part of the core conditionality of the FSAC: Finalization of sale of at least 50% + 1 of SvB shares\. The initial attempt to sell the SvB was not successful, in large part due to an unfavorable environment in the international financial markets\. The Government took a strong stand to pursue an eventual privatization, including resisting pressures to break up the bank\. This led to the sale of 100% of the bank (completed in April 2004)\. This sale is recognized as the most successful privatization to date for Albania\. Establishment of the Deposit Insurance Agency (DIA) and satisfactory progress in implementing its financing plan\.The DIA was established in accordance with the provisions of the October 2002 Deposit Insurance Law\. The DIA has been capitalized to the agreed levels, is adequately staffed and funded; a 3-year financing plan is in place and is being implemented satisfactorily\. As provided for in the Deposit Insurance Law, following the initial capitalization from the State budget, all banks have been paying contributions to the Deposit Insurance Fund and its ratio to insured deposits has increased\. Investments are made through foreign-based banks acting as brokers and custodians\. Implementation of the BoA's SDP for Banking Supervision\. The SDP has yielded many positive outputs in the area of banking supervision\. The BoA is following a Supervisory Operating Policy, which outlines and discusses the method of bank supervision\. Supervision strategies are being followed for each bank in the system\. These strategies have become increasingly robust and more risk-based, with improvements in the quality and comprehensiveness of the risk analysis, management evaluations and supervisory plans\. Two-way communication with the banking industry has increased, as has BoA's dialogue with external auditors\. As a result of this comprehensive plan, the skills and quality of banking supervision personnel has improved\. The BoA recognizes that the SDP is a "living document", the benefits of which will continue\. The BoA intends to continue efforts to implement the SDP and further improve supervision as part of its long-term goals\. (In addition to IDA, support for banking supervision and the regulatory framework has been provided by the IMF and USAID, through its FSVC program\.) Additional outputs which were part of the Government's program and reflected in the FSAC as monitorable indicators, included: l Improving banking competition, through: (i) outsourcing of budgetary and fiscal functions through open auctions\. The responsibility for the management of pension services was transferred from SvB to Albapost\. Other budgetary services have been contracted out to commercial banks, through auctions in the larger towns where an adequate number of banks were present, and by negotiations elsewhere; (ii) - 5 -  increasing credits to the private sector as a percentage of GDP\. As mentioned above, this percentage has increased to almost 8% in 2004; (iii) reduction in interest rate spreads\. Interest rate spreads dropped significantly between 2000 and 2001 but, given the dynamics of the sector - a sharp increase in small retail loans, increased maturity of loans and the overall low level of intermediation - it is too soon to observe a sustained reduction in spreads\. It would be interesting to observe this in about 2 years from now when competition in the banking sector has matured; and (iv) increase in sales of Treasury bills to the public\. Since the opening of BoA's window for individuals to participate in the auction of Treasury Bills in 2000, sales to the public have increased from less than 1% of the total to about 6% in 2004\. At end-2004 the total value of Treasury Bills held by this group was over Lek 15 billion\. l Improving banking regulation, through: (i) adoption by parliament of amendments to the Banking Law and Law on the Bank of Albania\. Agreed and satisfactory legislation was adopted in mid 2002\. Nevertheless, as part of the process of harmonization with EU directives, the authorities have prepared a draft new Banking Law which is currently under review; and (ii) Adoption by BoA of satisfactory regulations\. BoA has revised and adopted a number of important regulations, including on issuing licenses; managing credit risk; capital adequacy; money laundering; and connected lending\. l Development of an efficient payments system, through: (i) establishment of the necessary legislative framework for the operation of a bulk clearing and settlement (retail payments) system\. The legislative framework is in place and the establishment of a fully automated bulk clearing system is nearing completion\. This system is expected to facilitate increasing payments through the banking system of civil servants/government employees' salaries; and (ii) initiation of operations of a real time gross settlement (RTGS) system and connection of not less than 5 banks to the system\. The RTGS system was launched at the beginning of 2004 and is functioning well\. All banks are connected to the system\. Together these two systems will ensure that the basic infrastructure is in place in the country to meet the payment system demands necessary for an efficient banking system\. Enhancement of the Bankruptcy and Debt Resolution Framework: This component is rated as satisfactory and included the following outputs as part of the core conditionality of the FSAC: l Satisfactory progress in implementation of the Institutional Development Plan for bankruptcy enforcement and secured financing (IDP)\. This framework incorporates provisions in the Law on Bankruptcy, specific articles of the Civil Code and the Law for Securing Charges, and provides the primary laws to deal effectively with the protection of creditors' rights\. To help oversee and manage the implementation of the agreed IDP, the authorities established a working group with representatives of the Ministry of Finance (MoF), Ministry of Justice and of the legal profession\. In line with the IDP, a comprehensive Manual on the Albanian Insolvency Law has been prepared, with the help of foreign experts and reputable local legal firms\. It is available as a tool to help courts and administrators in the implementation of the Insolvency Law\. The Manual also provides guidance to creditors and debtors on how to use the system\. The Tirana Magistrates School has provided training to judges on liquidation and reorganization, using the Manual as the basis for these sessions\. Furthermore, bankruptcy and property rights legislation is being included in the curriculum for future students of the Magistrates School and the curricula of two universities, including the Faculty of Law at Tirana University\. GtZ, in cooperation with the MoF, agreed to provide additional training for administrators and to organize public awareness campaigns by mid-2005\. l Completion of no less than 3 pilot cases to test the operation of the framework\. The courts have acted on at least three cases initiated by secured creditors against debtors who defaulted on the payments of their obligations\. These cases have provided a demonstration effect and have increased the willingness of credits to advance credits, as the courts have recognized the rights of secured creditors\. l Satisfactory implementation of BART's Strategic and Business Plan, including divestiture of 15% of its portfolio value\. The structure of BART has been strengthened, and a Global Scheme, which - 6 -  reflected its strategic and business plan, adopted\. This scheme introduced a step-by-step strategy to improve collections by dividing BART's portfolio into several different categories, grouped by size and methods of disposal of the assets\. By focusing on the groups which were assessed to be the less problematic, starting in 2003, BART posted impressive results in its collection and divestiture performance, with the total value of its portfolio declining by almost 38% by end 2004\. This included the write-off of a number of loans relating to state enterprises that either no longer existed or were dormant, as well as the sale to an Albanian commercial bank of one large loan for about US$2 million\. A large number of cases have been submitted to the courts and are either awaiting court decisions or disposal actions by the bailiffs\. There is a backlog in the actual sale of the assets, partly due to inefficiencies in the bailiffs' system and partly because of legal requirements relating to public auction procedures, which impose a floor on the value for which property can be sold\. Although these issues did not prevent BART meeting the target of the FSAC program, they could affect the final resolution and in the interest of creditors' rights, they will need to be addressed\. Discussions are underway between the Government and BART on appropriate steps to prepare for the orderly dissolution of BART by end-2005, as provided for in the existing BART law\. Additional outputs which were part of the Government's program and reflected in the FSAC as monitorable indicators, included: l Improving collateral enforcement, through the maintenance of at least 2 staff for the Secured Charges Registry\. The Registry of Secured Charges is adequately staffed with 3 persons and operates effectively\. It has been upgraded to an internet-based registry\. l Improving financial reporting, through: (i) the enactment of a satisfactory Accounting Law and of amendments to relevant legislation\. A satisfactory Accounting Law, substantially in line EU directives,has been enacted\. The legislation mandates full implementation of IAS (now IFRS) for banks, insurance companies, and entities with public trust obligations, mandatory implementation of IAS for corporations issuing securities to the public and their use of an appropriate chart of accounts\. Banks implemented IAS several years ago, based on BoA requirements\. A comprehensive effort is nearing completion, with external TA, to prepare national accounting standards, consistent with EU directives, to enable reporting by the corporate sector in 2006, as mandated by the Law\. Reform of the Non-Bank Financial Sector: This component is rated as marginally satisfactory and included the following outputs as part of the core conditionality of the FSAC: l Enactment of satisfactory insurance legislation\. New Laws on Insurance, Reinsurance and Brokers and on the Operation of the ISA, approved by Parliament in September 2004, and amended prior to release of second tranche of the FSAC, substantially comply with minimum requirements of modern good practice\. Improvement has been made in the development and use of basic financial and statistical reports, and the ISA has been using these for corrective action purposes\. However, there is a need to develop more comprehensive statistical reporting so that technical reserves and solvency can be monitored by ISA\. In regard to the compulsory motor insurance (the main activity of insurance companies), an actuarially based premium rating system establishing transparent guidelines for setting premiums and reserving for TPL insurance was introduced\. However, compliance with the regulations is weak\. To remedy this situation and further strengthen supervision, the Minister of Finance has issued orders (regulations) to enforce prudent reinsurance practices and a review the entire TPL system is underway, with a view to implementing long-term reforms and improving enforcement\. l Establishment of an insurance regulatory agency with budgetary and operational independence, acceptable to IDA\. The Law on the Operation of the ISA is in line with relevant requirements of the International Association of Insurance Supervisors in regard to budgetary and operational independence\. The ISA Supervisory Council, working with the State Audit Bureau, has signed off on a business plan for the next two years and the MoF has provided written confirmation that arrangements - 7 -  will be put in place to ensure adequate funding of the ISA, in compliance with the Law\. Additional outputs which were part of the Government's program and reflected in the FSAC as monitorable indicators, included: l The Privatization of INSIG, through: (i) the signing of a sales contract with a strategic investor and/or IFI; (ii) an independent board and commercial management structure for INSIG; and (iii) retention by MoF of professional advice to help with the privatization program\. In view of IFC's proposed investment in INSIG (which was approved at the same time as the FSAC), no conditionality for this privatization was incorporated in the FSAC, to avoid any conflict of interest\. The Bank supported the privatization but was concerned that changes in management at INSIG and weaknesses in the regulation of the compulsory TPL system could undermine the value of INSIG\. This concern proved to be valid as, over the period 2001-2004, INSIG's share of the non-life insurance market dropped from 60% to less than 30%\. Public offering of the balance on INSIG to private investors, delayed pending improvement in the health of the international financial markets, is planned for the coming year\. The indicators were robust and provided good benchmarks for measuring progress in meeting program objectives\. 4\.3 Net Present Value/Economic rate of return: n/a 4\.4 Financial rate of return: n/a 4\.5 Institutional development impact: The project's institutional development impact is assessed as high\. Participation of all project beneficiaries in preparation and implementation of the program assisted in capacity building\. Notably, the Banking Supervision Department of the BoA has been substantially strengthened as a result of both the development and implementation of the SDP; BART is a more structured organization, with functioning supervisory and investment boards which meet regularly, and operates as a much more effective loan collection agency\. Through its improved capacity, it has helped to instill a credit culture which was previously lacking in Albania\. A deposit insurance agency was established and has been operating effectively\. In the case of the ISA, the institutional development impact has been marginal\. Staff are now technically better equipped to fulfill their functions, but the ISA is not yet effectively carrying out its role as supervisor\. The authorities are aware of these shortcomings and strengthening the ISA is the focus of ongoing efforts\. The approval of the primary laws for this industry should set the basis for further improvements\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The unfavorable situation in international financial markets led to the initial failure to privatize the SvB\. After this failure, the decision to offer the bank as a whole was re-examined\. The approach was found to be sound and a decision was made to intensify marketing efforts and re-offer the bank once the environment improved\. Given the importance of this privatization to the Government, the delay in the privatization diverted the attention of the Government from other components of the program early on\. Lack of expected donor funding delayed implementation of the IDP\. The preliminary agreement that was in place for grant funding at the time the FSAC went to the Board did not materialize and alternative sources to support implementation of the bankruptcy reforms had to be identified\. In retrospect, it would have been - 8 -  beneficial to have incorporated support for the IDP in the FSIBTA\. This was, however, not done since a separate TA project for legal and judicial reform was being processed\. 5\.2 Factors generally subject to government control: The program supported by the FSAC enjoyed strong government commitment, at the highest levels\. This is noteworthy as several changes in government, for the most part, did not negatively impact implementation of the program\. The institutional weakness of ISA was exacerbated by frequent changes in key officials\. This reduced the effectiveness of some of the institutional development support provided to help strengthen the insurance supervisory framework\. 5\.3 Factors generally subject to implementing agency control: Working level counterpart arrangements were, for brief periods, not clear\. This led to a lack of proactivity in monitoring project progress (although a monitoring mechanism was in place) and in coordination with other agencies involved in the program\. The actions taken to address this issue during the last year of the FSAC improved the implementation, coordination and reporting and monitoring of the program\. 5\.4 Costs and financing: The FSAC was comprised two tranches of SDR 6 million each\. There was a one 9-month extension of the Closing Date\. However, during the preparation of the FSAC, it was recognized that completing the activities incorporated in the program would be challenging and should be flexible, without strict timetables and deadlines\. There were no changes in financing during project implementation and disbursements were handled as soon as the tranche release conditions were met\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Sustainability is rated as highly likely (HL)\. The reforms supported by the FSAC have been far-reaching and comprehensive\. The associated changes have had a significant impact on the overall health of the financial sector\. Concrete and noticeable improvements have been made in banking supervision as a result of the SDP; all banks are privately owned; and professionalism of the banking sector has improved\. Most importantly, the successful privatization of the Savings Bank has increased the confidence of the Government in adhering to well-defined strategies and courses of action\. This in turn is being evidenced by increased public confidence in the banking system\. Activities have been strongly supported by adequate legislative changes, such as in the areas of deposit insurance, insurance and accounting\. In addition, the bankruptcy and debt resolution framework has been institutionalized, as illustrated by introduction of materials and training programs developed under the auspices of the FSAC into curricula at the magistrates school and university\. Although more needs to be done to continue to deepen financial sector reforms, especially in regard to effective supervision of the insurance market, these achievements are considered to be irreversible and are expected to contribute to the growth of the private sector\. The Government and the BoA continue to be fully committed to the program articulated in the Letter of Development Policy\. 6\.2 Transition arrangement to regular operations: BoA has fully integrated the SDP into its commercial banking supervision plan\. The IDP has been institutionalized, and the TA program is continuing\. Support for insurance sector continues through the FSIBTA\. The Government has indicated that strengthening insurance supervision is high on its agenda and that it intends to continue to focus on addressing the shortcomings\. In regard to follow up activities, the need to focus on improving the business environment has been highlighted as a priority area in the NSSED\. Related policy actions are expected to be supported in the next generation of policy-based loans\. - 9 -  Continued attention also needs to be paid to strengthening the rule of law\. The FSAP, currently underway, is expected to identify specifically future assistance needs for financial sector development\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Satisfactory\. The program took into account the country's development priorities\. It was closely coordinated, and built strong partnerships, with the various Albanian stakeholders, IFC, IMF and other lead donors, such as EBRD and USAID\. As the executing agency for the Japanese PHRD Grant for project preparation, Bank staff were instrumental in identifying and selecting high quality consultants to help with preparatory activities, such as identifying a program to strengthen BART\. The team included an excellent mix of skills - insurance sector experts, banking sector and banking supervision specialists, debt workout and bankruptcy framework experts, operational staff, accounting and financial management experts, as well as a capital markets specialist\. Of particular note was the close collaboration with the BoA in the development of an SDP\. The FSAC was developed based on solid knowledge of the sector, backed by sector work that was incorporated in the December 1998 Country Economic Memorandum (Albania Beyond the Crisis - A Strategy for Recovery and Growth - Report No\. 18658-ALB)\. The design built heavily on achievements to date and lessons learned\. Given the importance of the sector, an early decision was made to go forward with the FSAC as a free-standing policy-based operation, rather than incorporating financial sector conditionality in a Poverty Reduction Support Credit (which was being prepared simultaneously), and risking dilution of the financial sector reform agenda\. 7\.2 Supervision: Satisfactory\. Formal supervision missions were supplemented by short technical visits (especially for insurance and banking supervision), as well as by video and audio conferences\. As most staff also worked on the related FSIBTA, synergies were realized, both in substance and cost\. Furthermore, a regular and open dialogue was maintained with the counterpart team throughout implementation of the program\. Field office staff played a critical and substantive role in the overall success of the operation\. The competency of FSAC team helped to reduce to a minimum the need for management inputs - which were available when necessary\. Project reporting has been timely and of a good quality\. 7\.3 Overall Bank performance: Satisfactory\. The continuity of staffing working on this program was a critical factor in the success of the operation\. The team maintained excellent working relationships with various counterparts and the quality of the documents show that the authorities developed a high level of trust in the team\. Borrower 7\.4 Preparation: Highly satisfactory\. The Borrower's performance throughout preparation was highly satisfactory\. The Government and the BoA exhibited strong commitment to the program\. The Minister of Finance and the Governor of the BoA were strong champions who actively participated in the design of the program and assigned a fully competent team to work on the details with the Bank\. This resulted in the Government taking full ownership of the activities\. It profited from expert assistance provided under PHRD grant, especially for development of the IDP and the elaboration of the program for strengthening BART\. The SDP was strongly and actively promoted by the BoA\. The Letter of Development Policy clearly articulated the steps that the authorities planned to take to continue and strengthen the implementation of their financial sector reform program\. - 10 -  7\.5 Government implementation performance: Satisfactory\. Initially, the authorities, given their limited capacity, clearly devoted most attention to issues relating to the privatization of the SvB, including participation in high-level strategy discussions, roundtables and marketing\. The involvement of highest level officials was maintained throughout the process to ensure that corrective actions (if needed) could be taken in a timely manner so that activities did not get off track and these officials were fully available for discussions and meetings with missions\. Effective use of TA helped the authorities in their management of the program\. 7\.6 Implementing Agency: Satisfactory\. Management effectiveness was satisfactory although changes in the working level counterpart weakened monitoring during the course of implementation\. This improved as soon as corrective actions were taken by the MoF\. Credit covenants were complied with and overall the program was effectively monitored\. 7\.7 Overall Borrower performance: Satisfactory\. The Borrower remained highly committed the financial sector reform program throughout the period, in spite of pressures to act differently, especially in regard to options for divestiture from government control of the SvB\. The Borrower actively sought, and was receptive to, the Bank's advice\. 8\. Lessons Learned Technical assistance greatly enhances the reform process, especially when it is in place prior to the policy-based operation\. The provision of timely and sufficient TA through the FSIBTA was part of the strategy for the financial sector reform program and was instrumental in supporting the preparation and implementation of the FSAC\. The early availability of these resources facilitated the design of an operation with strong up-front conditionality\. It also served to reinforce the Government's commitment to the program\. Clear project design and quality at entry are important\. The attention paid to project design led to development of a challenging program with realistic outcomes\. It helped establish that the focus of the program should be on capacity building and implementation, i\.e\. establishing a framework is not enough, if the implementation capacity does not exist\. This focus also proved helpful in keeping the reform program on track as it facilitated good measurement of achievements over time\. Furthermore, the sequencing of the reforms is important\. Given the limited capacity of the Government, it needed to concentrate on its banking privatization program before moving ahead at full speed with other areas of financial sector reform\. Commitment of the borrower and other beneficiaries is essential for the success of a reform program\. Obtaining and maintaining real commitment and ownership for the reforms are key to the success of the program, which is heavily dependent on effective champions\. A frank and open dialogue contributed to good understandings of the reform objectives and the specific requirements of each component\. The MoF (even though there were several changes in Ministers during the life of the operation), and the BoA consistently displayed strong ownership of the program\. Staffing continuity facilitates implementation of the reform program\. The fact that the same team supported the development, preparation and implementation of the program was an important factor in maintaining the focus of the operation and was key in the openness of the dialogue\. The quality of this dialogue helped establish an atmosphere of trust, as a result of which the authorities did not hesitate to approach the team for advice and guidance\. Coordination with other IFIs should be maintained to ensure the consistency of approach\. Throughout - 11 -  the preparation and implementation of the FSAC, close coordination was maintained with the IMF to ensure that the conditionality of the two institutions was complementary\. This also helped to reinforce the program, provide leverage for the Government in pursuing difficult or controversial agendas, particularly in regard to privatizing the SvB\. Joint meetings with IFC and EBRD in regard to the privatization strategy for the banks and insurance company were also key to the successful implementation of this agenda\. Although synergies can be realized by involving other members of the Bank Group, extra care needs to be taken in project design to avoid real and perceived conflicts of interest\. Although the privatization of INSIG was included in the FSAC program, it was dropped from the final conditionality because of IFC's expected pre-privatization agreement to invest in INSIG\. While retaining INSIG in the program was important for the overall development of the financial sector, the Bank's options in regard to pursuing conditionality relating to INSIG were limited as a potential conflict of interest could have resulted from IFC's eventual privatization investment\. 9\. Partner Comments (a) Borrower/implementing agency: Translation of joint letter dated June 10, 2005, from the Ministry of Finance and Bank of Albania, to Mr\. Hormoz Aghdaey, FSAC Team Leader, providing the Government of Albania Assessment on the Financial Sector Adjustment Credit Implementation Dear Mr\. Aghdaey, Kindly find below our assessment of the process of the formulation and development of the FSAC\. The main components of this agreement focused in the reform in the financial sector, which in itself included the key elements of this program such as: Continuation of the reform in the banking sector; Improving the legal framework regarding bankruptcy and dispute settlement; Reform in the financial non-banking system\. The biggest event in the banking system reform was the successful privatization of the Savings Bank from Raiffeisen Bank\. As you are informed, the process of restructuring and privatization of state-owned banks began in 1997, with the decision for winding down the Rural Commercial Bank (RCB) and the transfer of its assets and liabilities to the Savings Bank\. In order to ensure proper administration of non-performing assets of the second tier banks that would embark on the privatization process, the LCA (BART) was established via special legislation\. Approximately Lek 3\.6 billion non-performing assets (mainly small rural credits) were transferred from the balance sheet of RCB to the LCA\. This process was the first stage of this reform\. The second stage of the process was the restructuring and privatization of NCB\. This was achieved via important technical assistance for the rationalization and modernization of the NCB operations\. In 2000, approximately Lek 10\.4 billion non-performing assets were transferred to the LCA and the bank was recapitalized and sold to a consortium of private investors\. The third stage of the program aimed at the privatization of the Savings Bank\. This is considered as the most important event in the banking system reform, which is bringing important changes in the financial system of Albania with regard to the diversity of banking services, as well as with regard to technology, - 12 -  real competition, a re-dimensioning of the banks and a new mentality in their management\. The entry in the market of Raiffeisen Bank, together with the licensing of new banks has created very appropriate conditions for real growth of market competition and improving the quantity and quality of products delivered to the public at large\. There has been a considerable increase in the level of crediting of various sectors of economy, and a spread in the public use of modern payment instruments such as debt and credit cards\. The LCA was also part of the FSAC agreement with clear tasks and objectives, which led to the realization of their quantitative and qualitative indicators\. Also, as a result of the objectives established in the FSAC, for the first time the balance-sheet and financial statements of the LCA were audited, and the accounting was brought in line with the recommendations of KPMG and internationally accepted standards\. Regarding the satisfactory results in the recovery of non-performing assets in the LCA, we would like to point out the need for the further existence of this institution in this future and for your assistance due to the legal deadline for the exercise of its activity until the end of 2005\. To this end, keeping the LCA as an institution that will continue to take care of paying off the remaining portfolio or the establishment of another institution, which would include LCA in its composition, would be an alternative or another step forward in the context of the launched reform\. Also, the Bank of Albania was directly involved in the implementation of some pre-requisites related to FSAC\. Through that, BoA managed to: (i) strengthen the supervision function through implementation of the matrix of actions defined in the Supervisory Development Plan (SDP); (ii) introducing the RTGS and AECH systems; and (iii) enhancing competition in the banking market\. As a result of the FSAC, tangible progress has been made with regard to meeting the requirements of the SDP, which has consisted in parallel work with regard to improving the regulatory framework, and supervision practices\. In the context of improving the regulatory framework, several existing regulations have been reviewed, as well as some new ones have been approved\. We can mention here the regulations on "Prevention of money laundering," "External bank accountants," "Credit management," etc\. The goal behind these changes and additions was to bring the procedures and regulations closer to the best international practice\. The supervision practice has witnessed substantial improvements\. Work began with the definition of the role of supervision through the annual publication of the Supervision Mission (i\.e\. goal)\. Also, the internal procedures for decision-making have been introduced through the approval of the Decision-Making Matrix by the Supervisory Board of the Bank of Albania\. There is in place a Document of Supervision Operational Policies, which guides the supervisory process towards the identification and risk assessment in the banking activity\. This document also determines the supervisory actions for a bank with a given risk profile through the supervisory cycle\. Within the Supervision Department there are now clear internal procedures for the assessment of the necessary human resources, and for the quality of the supervisory practices\. In the context of supervisory practices, importance is attached also to the direct communication with the banking industry and the external audit firms of the banks\. Contacts have increased considerably with the banks, and there is in place an improved process of exchange of thoughts on various/different issues of concern for both parties\. External audit firms play a pivotal role in this relation\. There is strengthened - 13 -  cooperation with the supervisory authorities of other countries, as well as with other supervisory authorities of the country's financial institutions\. Thus, in line with the recommendations of the SDP cooperation agreements have been signed in the area of supervision with the National Bank of Macedonia, and Central Bank of Montenegro\. Also, recently such an agreement has been signed with the supervisory authorities of the financial market of the country, in concrete terms with the Supervisory Insurance Authority and the Vouchers Commission\. The work that has taken place in the context of the SDP with the World Bank experts has been very precious help in the context of the preparations and developments for FSAP carried out through February-March 2005 by the World Bank and IMF\. We have seen the draft report of this program, and observe that its evaluations and recommendations reflect realistically the situation of our financial system, presenting the progress and the main directions for developments\. Based on the progress in both fronts, we are convinced that today we closer to the international standards in this area, and we have a proactive supervisory function\. We have noticed a positive reaction regarding these developments by the banking industry and other important institutions in this direction\. We would like to reiterate that progress has been periodically monitored by the WB experts, whom we would like to thank for their professionalism and dedication\. Even though the progress of the plan can be considered successful, we are convinced that its requirements will stand the test of time, and require our maximal attention for the consolidation of achieved progress, and further improvements\. In this context, we are introducing a series of important changes to the law on the "Banks in the Republic of Albania"\. The implementation of the project for the development of the inter-banking payments system was successful\. Thanks to the assistance of the World Bank in January 2004 was introduced the RTGS, and within this year it is expected to be completed the AECH\. With the finalization of this latter, we can say that Albania has put in place a secure and efficient banking system\. Important developments have also taken place in the area of banking competition, and which are related to change in the mosaique of banking institutions, and to a more appropriate environment for interest rates\. Entry in the market of Raiffeisen Bank and the licensing of new banks has created better conditions for increasing real market competition and improving the quality and quantity of banking products offered to the broad public\. There is an increased level of crediting of different sectors of economy, extensive use of modern payment instruments, and debt and credit cards, more ATM stalls and opening of new branches and agencies (30 in only the course of 2004) in the entire country, and even in some areas where there was no banking presence in the past\. Increased competition might put bank capital under pressure\. To this end, the Supervisory Council of BoA decided to ask for an increase of mandatory minimal capital for opening a bank from Lek 700 million to Lek 1 billion\. This change applies to all the existing banks which should meet this requirement by end of 2007\. Despite the substantial increase in credit, the difference between credit interest rates and deposits interest rates is more or less at stable levels\. We believe that this fact should be interpreted taking into consideration the gradual change of the credit structure regarding the credit terms and types\. Increased number of medium to long term credits and quality of the consumer credits, which usually have higher interest rates, could be factors that result in a sustainable/stable difference of interest rates\. However, there is need to monitor the quality of the credits on a continuous basis, and that bank qualitative products be offered to the broad public even more than now, with real opportunities for cooperation with the banking system\. - 14 -  In addition to the above, as a result of meeting the FSAC objectives the Deposit Insurance Agency (DIA) was established and satisfactory progress has been made in the implementation of the financial plan\. Through the monitorable indicators was made possible: capitalization of the DIA according to the determined levels; development of staff at the determined levels; projecting an adequate budget and formulation of a 3 years financing plan for the DIA\. Furthermore, considerable program has been made with regard to the operational activity of DIA\. What remains to be done in the future is for the DIA to strengthen its mechanisms of internal control and clarify in every operational policy, the responsibilities and obligations of the departments and staff, including the Chief Executive Officer\. Furthermore, the existing Memorandum of Understanding with the Bank of Albania will be improved to make sure that DIA is in a position to meet the statutory objective according to the law\. Progress has also been made in the insurance sector\. In addition to the successful completion of the first stage of the privatization of INSIG, a new piece of legislation followed this reform, which is considered satisfactory and in line with the EU standards\. The duties left behind by the aide memoire of the FSAC mission by end of 2004 have been given full priority and consequently the entire TPL system is being reviewed\. To this end, two foreign advisors are working in parallel with the formulation of the methodology for the technical reserve and the new law on mandatory insurance\. Also, most of the regulations and Council of Ministers' decisions have been approved\. This reform has been extended also in a new scheme for mandatory insurance premia, and another one for the proper management and concentration of border police\. It goes without saying that the reform will also continue in the future, and for this we will be in need of more assistance\. Part of the FSAC components was also the bankruptcy framework\. The working group had to work intensively to meet this goal\. As a result, we have the manual on "Albanian bankruptcy legislation", which comprises a part on liquidation and one on re-organization\. The process was followed with the organization of trainings in the School for Magistrates, the workshop for the training of trainers, workshops for all levels of judges that will be involved in the bankruptcy procedures etc\., and will continue with higher levels of training up to the European Bankruptcy Courts\. The process of training of the judges is ongoing, and work is underway for the selection of administrators and their training\. The funds to this end are being negotiated with GtZ\. This process is going to be followed with priority by the Working Group also given that our representative Mr\. Cifligu is now the General Director of the Codification Department in the Ministry of Justice\. The implementation of a program for the formulation of the national accounting standards was yet another priority of FSAC, which is expected to be finalized by end of June\. The National Accounting Council is now in place, and there is a regulation for the functioning of it\. A draft for the legal framework for the accounting profession is also underway\. The first phase of training of 60 trainers has been finalized, and the process is due to complete by end of June\. The Ministry of Finance will also need further assistance for the explanation and translation of the International Accounting Standards, and for implementing a system in line with the required rules and standards\. By way of concluding, we would like to convey to you our highest considerations for the entire mission that has been closely working with the Ministry of Finance and the Bank of Albania in meeting the objectives defined in the FSAC Agreement\. Thank you for your cooperation, Sincerely Signed: Arben Malaj Ardian Fullani Minister Governor - 15 -  (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information Table 1-4 provide more detailed information on the banking system in Albania\. It is worth noting the increase in deposits and the increase in lending, to both the corporate and household sector, and the decline in interest rates since 2000\. These reflect the increasing confidence in the banking sector\. The interest rate margin has also declined significantly since 2000, although it has fluctuated in the last few years\. Part of the reason for the increase in the spread in 2004 reportedly is due to the growth of longer term loans and the more significant engagement of the banking sector in lending activities\. Table 1: Aggregate Balance Sheet of the Banking System (in millions of Lek) 2002 2003 2004 (Nov) Assets Treasury and interbank transactions 273,615\.69 285,982\.76 320,962\.53 Cash 6,843\.29 7,590\.42 8,549\.69 Transactions with central bank 29,665\.67 32,614\.14 37,160\.64 of which: required reserves 26,323\.64 31,375\.02 35,433\.21 Treasury Bills 174,978\.47 185,406\.98 196,043\.70 Transactions with banks of other FIs 62,128\.25 60,371\.23 79,208\.50 Operations with customers (gross) 38,707\.97 50,599\.27 65,530\.52 Loans to private sector and housholds 37,057\.15 47,900\.17 61,201\.06 of which: real estate loans 6,531\.45 7,877\.49 10,247\.83 Securities transactions 16,887\.60 20,280\.61 19,545\.57 Provisions -1,121\.80 -1,495\.09 -1,905\.37 Other Assets 11,215\.52 18,266\.98 18,991\.60 TOTAL ASSETS 339,304\.98 373,634\.54 423,124\.84 Liabilities Treasury and interbank transactions 17,857\.91 16,465\.25 16,177\.39 of which: Deposits from banks and other FIs 10,433\.72 11,720\.30 10,697\.47 Operations with customers 285,132\.57 326,830\.66 369,402\.63 Public administration 4,517\.64 3,456\.35 3,300\.20 Private Sector 280,614\.93 323,374\.31 366,102\.43 of which: current accounts 36,271\.57 37,824\.42 45,745\.19 demand deposits 9,642\.03 11,163\.35 18,074\.40 time deposits 227,543\.79 265,911\.23 293,234\.72 Other Liabilities 13,734\.00 7,316\.62 10,101\.51 Permanent resources 22,580\.49 23,022\.00 27,443\.32 of which: Shareholder equity 21,592\.21 21,984\.96 26,471\.69 TOTAL LIABILITIES 339,304\.98 373,634\.54 423,124\.84 Memorandum: Foreign currency assets 127,168\.55 135,597\.85 161,462\.69 Foreign currency liabailities 124,282\.49 134,008\.02 159,010\.29 source: Bank of Albania - 16 -  Table 2\. Data on the Albania banking system (in percent) 2000 2001 2002 2003 2004 Depth of the banking system Total banking assets/GDP 50 54 52 52 52 Lending/GDP 5 5 6 7 8 Deposits/GDP 43 46 43 45 45 Concentration Assets of the 3 largest banks/banking system 79\.6 74\.8 71\.6 70\.3 69\.2 Equity capital of the 3 largest banks/banking system 102\.1 42\.3 44\.3 44\.2 45\.5 Lending of the 3 largest banks/banking system 39\.5 67\.3 62\.3 53\.6 46\.5 Deposits in the 3 largest banks/banking system 83\.4 80\.3 76\.8 75\.2 73\.1 O wnership as a ratio of assets State-0wned banks 64\.8 59\.2 54\.1 51\.9 0\.0 Joint-venture banks 6\.2 5\.8 5\.6 5\.3 4\.7 Private capital banks 29\.0 35\.0 40\.3 42\.7 95\.3 Capital adequacy ratio 42\.0 35\.3 31\.6 28\.5 21\.6 Source: Bank of Albania data Table 3\. Interest rate margins, return on assets, return on equity (in percent, unless otherwise indicated) 2000 2001 2002 2003 2004 Interest rate margin 16\.47 6\.04 7\.87 5\.05 8\.70 Average w eighted nominal lending rate 23\.56 13\.19 16\.10 11\.34 13\.71 Average w eighted nominal deposit rate 7\.09 7\.16 8\.23 6\.29 5\.00 Return on assets (ROAA) 2\.1 1\.5 1\.2 1\.2 1\.3 Return on equity (ROEA) 20\.7 21\.6 19\.1 19\.5 21\.1 Total number of employees 2,676 2,608 n/a 2,236 2,816 Total net assets/total number of employees (in million Lek) 101\.2 122\.1 n/a 167\.1 151\.4 Source: Bank of Albania data Table 4\. Lending to households and corporate sector in million Lek Household Corporate Year Lending Lending 2000 9,540\.54 16,026\.07 2001 4,264\.43 23,461\.72 2002 7,197\.14 31,711\.54 2003 12,427\.35 38,242\.55 2004 21,753\.85 48,278\.74 Source: Bank of Albania data - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Objective: Support the Government 's program to Satisfactory\. Expected to be fully met\. Satisfactory\. Fully met\. consolidate and take reforms in the financial sector beyond achievements to date to foster better engagement of the financial sector in the development of the Albanian economy\. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Finalization of SvB sale through signature of Contract for sale of 100% of SvB concluded Completed and Raiffeisen actively developing contract for sale of not less than 50% + 1 of with Raiffeisen Austria in January 2004, bank banking products and services SvB's shares handover in April 2004\. Establishment of the DIA and satisfactory Condition met\. Implementation progressing Condition met\. Implementation progressing progress in implementing its financing plan well; 3-year financing plan approved and is well; 3-year financing plan approved and is being implemented satisfactorily\. being implemented satisfactorily\. Satisfactory implementation of the SDP Condition met\. Excellent progress by BoA in Condition met and exceeded\. implementing the SDP\. Satisfactory progress in implementation of Condition partially met\. Implementation of the Condition met\. Manual and initial training the IDP for bankruptcy enforcement and program has gained momentum\. completed in December 2004\. secured financing Satisfactory implementation of Strategic and Condition met\. Lek 7\.1 million - 35\.8 percent Condition met\. Lek 7\.5 million - 37\.9 percent Business plan for BART, including divestiture of the value of the portfolio was divested\. of the value of the portfolio was divested at of 15% of its portfolio value end 2004\. Enactment of satisfactory insurance Not fully met\. New Laws on Insurance and Condition met\. Law amended in December legislation Reinsurance, and on the Operation of the 2004\. Insurance Supervisory Agency were approved in September 2004\. Although they substantially comply with minimum requirements of modern good practice, some amendments to Law on Insurance and Reinsurance required for make this law satisfactory to IDA\. Establishment of an insurance regulatory Condition substantially met\. Condition met\. agency with budgetary and operational independence, satisfactory to IDA 1End of project - 18 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million First tranche (following Board Approval) 7\.50 7\.93 100 Second tranche 7\.50 9\.24 100 Total Baseline Cost 15\.00 17\.17 Total Project Costs 15\.00 17\.17 Total Financing Required 15\.00 17\.17 Note: the difference in costs between "appraisal" and "actual" results from exchange rate fluctuations between the US$ and the SDR\. - 19 -  Annex 3\. Economic Costs and Benefits not applicable - 20 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 01/28/2001 4 Mission Leader (1) ; banking sector (1) 07/09/2001 7 Mission leader (1), banking supervision (1) Banking Sector (1), Legal expert (1), Sr\. Operations Officer (2), Capital Markets (1) 10/25/2001 3 Sr\. Operations Officer (2), Banking Sector, Accounting 12/15/2001 5 Mission Leader (1), Sr\. Oper\. Officer (1), Banking Sector (2), Accounting Appraisal/Negotiation 02/02/2002 4 Mission Leader (1), Sr\.Oper\. Officer (2); Financial Management/Accounting (1) 3 Insurance (1), banking supervision (2) Supervision 10/03/2002 1 Insurance Sector (technical) 10/27/2002 5 Mission Leader (1); TTL S S FSIBTA(1); Sr\. Oper\. Officer (1); Banking Supervision (2) 02/14/2003 5 Mission Leader (1); Banking S S Reform (1); Sr\. Oper\. Officer (1); Deposit Insurance (1); Banking Supervision (1) 10/28/2003 5 Task Team Leader (1); Banking S S Reform (1); Sr\. Oper\. Officer (1); Deposit Insurance (1); Banking Supervision (1) 05/26/2004 1 Insurance (1) (technical) 06/18/2004 4 Task Team Leader (1); Banking S S Reform (1); Sr\. Oper\. Officer (1); Deposit Insurance (1); Banking Supervision (1) 09/14/2004 1 Insurance (technical) 10/15/2004 4 Task Team Leader (1); S S Operations - CU (1); Banking Supervision (1); Operations/Banking (1), - 21 -  Insurance (1) ICR 02/21/2005 2 Banking Sector (1), Sr\. Operations Officer (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 372\.2 Appraisal/Negotiation 200\.6 Supervision 261\.3 ICR Total - 22 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 23 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 24 -  Annex 7\. List of Supporting Documents Project Documents: President's Report, Development Credit Agreement, Tranche Release Documents Banking Supervision - Supervisory Development Plan Bankruptcy and Debt Resolution Framework - Institutional Development Plan OED Albania Country Assistance Evaluation (January 31, 2005) - 25 -  - 26 -

APPROVAL

P077257

Document of The World Bank FOR OFFICE USE ONLY Report No:NCO0000170 NOTE ON CANCELLED OPERATION (IBRD-72350) ON A LOAN IN THE AMOUNT OF US$ 34 MILLION TO THE REPUBLIC OF ECUADOR FOR A SECOND INDIGENOUS AND AFRO-ECUADORIAN PEOPLES DEVELOPMENT PROJECT December 6, 2006 Environmentally and Socially Sustainable Development Department Bolivia, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS ( Exchange Rate Effective ) Currency Unit = US$ US$ 1\.00 = US$ US$ 1\.00 = US$ Fiscal Year JANUARY 1 - DECEMBER 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CODAE Afro-Ecuadorian Development Corporation CODENPECouncil for the Development of Nationalities and Peoples of Ecuador CONAIE National Confederation of Indigenous Peoples of Ecuador GOE Government of Ecuador ICR Implementation Completion Report IFAD International Fund for Agricultural Development MEF Ministry of Economy and Finance NRM Natural resources management PAD Project Appraisal Document TA Technical assistance Vice President: Pamela Cox Country Director: Vicente Fretes-Cibils Sector Manager: McDonald P\. Benjamin Project Team Leader: David Tuchschneider  Ecuador SECOND INDIGENOUS AND AFROECUADORIAN PEOPLES DEVELOPMENT PROJECT CONTENTS 1\. Basic Information\. 1 2\. Key Dates\. 1 3\. Ratings Summary\. 1 4\. Sector and Theme Codes \. 2 5\. Bank Staff \. 2 6\. Context, Project Development Objectives, and Design\. 3 7\. Post-Approval Experience and Reasons for Cancellation \. 5 8\. Assessment of Bank Performance \. 6 9\. Assessment of Borrower Performance\. 8 10\. Lessons Learned\. 9 Annex 1\. Bank Lending and Implementation Assistance/Supervision Processes\. 11 Annex 2\. List of Supporting Documents \. 13  1\. Basic Information SECOND INDIGENOUS AND Country: Ecuador Project Name: AFROECUADORIAN PEOPLES DEVELOPMENT PROJECT Project ID: P077257 L/C/TF Number(s): IBRD-72350 NCO Date: 12/28/2006 Lending Instrument: SIL Borrower: REPUBLIC OF ECUADOR Original Total Commitment: USD 34\.0M Disbursed Amount: USD 0\.0M Environmental Category:B Implementing Agencies CODENPE-Consejo de Desarrollo de las Nacionalidades y Pueblos del Ecuador CODAE- Corporacion de Desarrollo Afroecuatoriano Cofinanciers and Other External Partners 2\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 05/08/2003 Effectiveness: Appraisal: 04/26/2004 Closing: 09/30/2009 10/03/2005 Approval: 06/17/2004 3\. Ratings Summary 3\.1 Performance Rating by NCO Outcomes: Not Applicable Risk to Development Outcome: Not Applicable Bank Performance: Satisfactory Borrower Performance: Unsatisfactory 1  4\. Sector and Theme Codes Original Sector Code (as % of total Bank financing) Irrigation and drainage 30 General agriculture, fishing and forestry sector 15 Primary education 15 Water supply 25 Agro-industry 15 Original Priority Theme Code (Primary/Secondary) Participation and civic engagement Primary Indigenous peoples Primary Rural markets Secondary Rural services and infrastructure Primary Land administration and management Secondary 5\. Bank Staff Positions AT NCO At Approval Vice President: Pamela Cox David de Ferranti Country Director: Vicente Fretes- Cibils Marcelo Giugale Sector Manager: McDonald P\. Benjamin Shelton H\. Davis Project Team Leader: David David Tuchschneider Tuchschneider NCO Team Leader: David Tuchschneider NCO Primary Author: Rocio Recalde 2  6\. Context, Project Development Objectives, and Design (drawing from PAD, briefly describe the country and sector background, rationale for Bank assistance, development objectives, components, costs and funding, implementation arrangements, risk analysis, and quality at entry) Country and sector background As a result of centuries of exclusionary practices and of on-going discrimination, Ecuador's indigenous and Afro-descendant populations suffer from poverty rates that greatly exceed national averages, and from inadequate access to assets, opportunities and services\. In order to tackle these deep-rooted challenges, the Government of Ecuador implemented the first Indigenous and Afro-Ecuadorian Peoples Development Project (PRODEPINE) during 1998-2004, with financing from the Bank, IFAD, rural communities and GOE, promoting participatory development with respect for community cultural values and development priorities\. Project rationale The success of PRODEPINE led GOE, indigenous and Afro-Ecuadorian organizations to request a follow-on operation to extend and deepen the first project's coverage\. PRODEPINE II was intended to deepen support in successful areas (e\.g\. community investments, land titling, training and institutional strengthening); expand into related areas (natural resources management); mainstream Indigenous and Afro-Ecuadorian concerns in selected sectors, and address key topics in ethno-development in new ways (community tourism, cultural assets, ethno-botanical and cultural knowledge)\. By virtue of its support to the first operation, the Bank was well-placed to continue its support and build on key relationships with social organizations and government institutions, so as to strengthen targeting and tailoring of resources to these communities\. Project description and costs The project development objective was defined in the PAD as follows: "To promote the empowerment and improved access to natural and financial resources for indigenous and Afro-Ecuadorian communities within the framework of their own development and interculturalism\." To this end, the project was to support the following components: A\. Strengthening Social Organizations (US$ 2\.2 million), to build the capacities of eligible social organizations in the areas of planning, management and gender equity\. B\. Knowledge and Culture for Development (US$ 2\.7 million), aimed at improving the human capital and apply the knowledge base of indigenous and Afro-Ecuadorian peoples by financing a scholarship program for higher studies and TA for culture-based productive initiatives (tourism, handicrafts, etc\.)\. 3  C\. Natural Resources (US$ 2\.6 million), directed at ensuring greater control and improved management of key natural resources, by financing land titling, mangrove management, and community resources management\. D\. Rural Investments (US$25\.9 million), to finance demand-driven, small-scale subprojects identified and implemented by indigenous and Afro-Ecuadorian communities in social, productive and environmental areas\. E\. Project Management and Strengthening of CODENPE and CODAE (US$9\.3 million), to increase GOE's capacity to manage the project and to formulate and implement intercultural policies that take into account the demands and visions of indigenous and Afro-Ecuadorian peoples\. Total project costs were projected at US$45 million, with US$34 million in financing by the Bank, US$6 million by GOE and US$5 million by project beneficiaries\. Implementation arrangements The project was to be implemented by Consejo de Desarrollo de las Nacionalidades y Pueblos del Ecuador (CODENPE) and Corporacion de Desarrollo Afroecuatoriana (CODAE), both government organizations representing the interests of indigenous and Afro-Ecuadorian peoples, respectively\. The main authorities of each institution were to conform a Steering Committee, with non-voting participation by the Project Coordinator\. The Committee was to ensure consensual decision-making on the part of the implementing agencies and adequate delegation to the PIU\. In addition, under the auspices of the project, GOE formed a Consultative Committee to provide strategic guidance and ensure impartiality, comprising representatives of key indigenous and Afro-Ecuadorian organizations (CONAIE, FEINE, FENOCIN, FEI, CAN, Consejo Regional de Palenques, Coordinadora Nacional de Mujeres Negras) plus representatives of CODENPE's and CODAE's Boards\. A Project Implementation Unit (PIU), reporting to the Junta Directiva, was to be tasked with day-to-day operations, with offices in Quito and in up to seven other regions\. Other government agencies that would have been involved in implementation were the Agrarian Development Institute (in charge of land titling) and the Ministry of Environment (forest areas and lands)\. Finally, second- and third-tier indigenous and Afro-Ecuadorian organizations were to implement or coordinate most project activities as Facilitating Entities for local communities\. Risk analysis Following the experience during implementation and given the highly conflictive institutional environment, as witnessed during the preparation process, the overall risk rating for the project was determined as high\. The PAD concluded that, "[t]he project requires intensive supervision, and continuous dialogue with GOE and indigenous and Afro-Ecuadorian organizations\." Key risks identified included: (i) that strengthened 4  organizations would not maintain trained personnel; (ii) that GOE would not provide adequate counterpart resources to operate the project; and (iii) that some social organizations may capture project resources\. Quality at entry A formal Quality Enhancement Review meeting was held on March 31, 2004, concluding that the project would comply with technical, fiduciary and safeguard standards\. A portfolio review carried out by the Natural Resources Management team (NRM TG) towards the end of 2004 featured PRODEPINE because: (i) it paid attention to building legal capacity of local institutions; (ii) promoted the active engagement of women; (iii) encouraged investments in NRM; and (iv) had a well built monitoring and evaluation system\. The assessment concluded that PRODEPINE II was "a good example of development initiated by indigenous groups with a well balanced focus on important outcomes such as poverty reduction, environmental conservation and economic development\." 7\. Post-Approval Experience and Reasons for Cancellation (main events leading to cancellation, steps taken to resolve problems, exogenous factors, identification of causes and responsibility if project failed, implications of failure): The Loan was approved by the Board on June 17, 2004, but the Government of Ecuador notified the Bank on August 31, 2005 that it had decided not to sign the Loan Agreement\. Consequently the Bank dropped the operation in October 2005\. The key factors leading to GOE's decision not to sign the loan were political instability and conflict and, in particular, conflicts between national indigenous organizations over the direction of CODENPE\. Afro-Ecuadorian organizations supported the project but were unable to influence the decisions in GOE that led to its cancellation\. The main events marking this process were: 1) the intervention of CODENPE by GOE shortly after Board approval, bypassing the established procedure to appoint a new Executive Secretary, and modifying institutional by-laws to alter the role of different indigenous organizations in CODENPE's decision-making structure; 2) the resulting struggles over the oversight and leadership of CODENPE between major indigenous organizations; 3) the removal of the President by Congress in April 2005 and the decision of the new government to restructure the Bank's portfolio; and 4) a decision by CONAIE, the largest indigenous organization, not to support the operation, following a change in leadership\. Political instability and conflicts surrounding CODENPE created repeated delays in fulfilling Ecuador's internal requirements for signing the loan\. Only the first of seven steps required to sign the loan, MEF's project validation, had been completed by GOE in January 2005\. By Feb 2005, MEF had decided that the original "declaration of priority" issued by the Planning Secretariat had expired and returned the project to the starting point of the internal approval process\. CODENPE and CODAE continued to make attempts to advance the process but these were unfruitful\. The Bank's Task Team, 5  together with both SMU and CMU management, remained engaged throughout the period, through missions and visits and via the permanent engagement of the Country Office, updating the agreed action plans and reminding authorities of the steps required, but the agreed activities were not completed\. The loan agreement stipulated two effectiveness conditions: (i) adoption of the Operational Manual and (ii) selection of project personnel in an open, merit-based process to be handled by an independent consulting firm\. Of the two, GOE only completed the first one\. Personnel selection was hampered initially by delays in contracting the firm\. These resulted from lack of knowledge of the project and Bank procedures on the part of new management and personnel changes in CODENPE\. The contract with the consulting firm was signed in November 2004 but, when the firm concluded its work, the Task Team's revision concluded that the resulting short-lists of project personnel could not be properly justified on documented, merit-based criteria and were therefore unacceptable\. The consulting firm was also found in breach of ethical rules, as a MEF staff member with a conflict of interest was involved in the short-listing process that led to the hiring of the consulting firm\. CODENPE and CODAE never managed to hire a new firm, even under the simplified procedures suggested by the team\. The change of government in April 2005 brought a new team to MEF which decided to restructure the Bank's portfolio, and, upon the recommendation of the newly elected leadership of CONAIE, which demanded direct financing of PRODEPINE with national budget resources in lieu of external debt financing for the project, the new government decided not to sign PRODEPINE\. 8\. Assessment of Bank Performance (lending process/ensuring Quality at Entry, supervision and implementation assistance role, compliance with Bank policies, justifica tion for rating): Rating: Satisfactory Ensuring Quality at Entry As a follow-on operation, the process of project identification and preparation relied on a thorough evaluation of PRODEPINE I (summed up in its Implementation Completion Report)\. The Identification Mission was carried early on, while the first operation was finalizing implementation, in October 2003\. PRODEPINE II had been requested formally by the President of Ecuador in person, and was later incorporated into the Bank's Country Assistance Strategy\. Another 6 missions were carried out in order to bring the project to the Board by June 2004, with an appropriate mix of technical, fiduciary, legal, social and environmental safeguards skills, most of whom had accompanied the implementation of the first operation and had full knowledge of project and country conditions\. Based on the success of PRODEPINE I, the task team took care to ensure the preservation of key PIU technical and fiduciary personnel throughout the preparation process and for the implementation phase\. The team incorporated lessons from PRODEPINE I in the design of the follow-on operation, as reflected in technical 6  studies and fiduciary action plans\. Throughout the transition to PRODEPINE II, the team also supervised IFAD's cofinancing for PRODEPINE I, which had been extended\. As authorities changed in the Ministry of Economy and Finance and in the implementing agencies, the team provided guidance to new officials on Bank procedures and project requirements\. Moreover, when PRODEPINE became the first Bank loan to be processed following the approval of a new Fiscal Responsibility Law, the Bank adjusted the design of the loan with the Borrower to ensure compliance with new legal provisions, especially the restriction on borrowing for operating costs\. This involved (i) reducing the size of the project to US$ 45 million and of the loan to US$34 million; agreeing with MEF and IFAD the allocation of a fiduciary fund that had been created in PRODEPINE I (from the recovery of on-lending activities) to finance counterpart requirements; a yearly allocation on the part of MEF of US$0\.75 million per year; and the financing by the Bank of 100 percent of investment costs\. This process led the task team to work on the new Ecuador Financial Parameters with the Country Management Unit, which were approved by the Board at the time of project negotiations, thereby ensuring readiness for implementation\. Supervision The Loan Agreement was not signed, in spite of the Task Team's active supervision, because the project fell victim to institutional instability and political conflict over CODENPE among indigenous groups and GOE\. Following Board approval, two local Task Team members followed up on a daily basis the process of compliance with Ecuador's internal requirements and maintained permanent contact with indigenous and Afro-Ecuadorian organizations while conflicts over the management of CODENPE broke out\. CMU and SMU managers raised the loan signing issues repeatedly with Ecuador's authorities\. Three missions were carried out, including high-level meetings with MEF, the Presidency and the leadership of indigenous and Afro-Ecuadorian organizations to discuss issues and update the plan of action leading to effectiveness\. The Bank's task team reviewed various version of the Operational Manual to ensure technical quality, adequate attention to safeguards, and proper fiduciary procedures\. The team also carried out a close supervision of the personnel selection process, ensuring adequate job profiles and publicity (leading to applications from 4,600 candidates)\. The task team also alerted GOE early on about the possible conflict of interest in the definition of the consulting firms short-listed for carrying out the process\. The team's reviews of the personnel selection process led to the decision not to recognize the results as valid because the firm could not provide a clear paper trail for its decisions\. The team maintained permanent contact with the implementing agencies and GOE, providing guidance and support to complete MEF's validation of the project; replying promptly to requests by MEF to modify the negotiated Loan Agreement; analyzing alternative project design and implementation scenarios with MEF; and providing legal analysis when issues about the legal agreement were raised by GOE's Attorney General's office\. In light of the task team's attention to technical and fiduciary quality and proactivity, as 7  well as Management's consistent support and follow up at every level, the assessment of Bank performance is rated as Satisfactory\. 9\. Assessment of Borrower Performance (government and implementing agency performance, compliance with covenants, justification for rating): Rating: Unsatisfactory Lending Following identification, concern with quality of preparation became secondary for CODENPE, as the institution's authorities repeatedly attempted to replace the technical team that had managed implementation of the first operation and preparation of the follow-on project with political appointees\. The withdrawal of CONAIE's political arm (Pachakutik) from the governing coalition in August 2003, and the shifting alliances between GOE and other national indigenous organizations had serious consequences for the implementing agencies (CODENPE and CODAE) and for the delicate balance of power among social organizations which was essential for the project's institutionality\. CODENPE became embroiled in an open power struggle among indigenous organizations and GOE over control of the institution\. Thus CODENPE repeatedly failed to comply with agreements reached in Aide-Memoires with the Bank during preparation missions on managing key personnel (evaluations, contracts, financing sources), causing delays in signing the PHRD agreement, in contracting the agreed studies and carrying out planned activities\. CODAE was also affected by political instability but, due to its relative weakness, it never managed to fully assume the co- managerial role intended for it in the project\. The preservation of a small technical team during this period permitted project preparation to be finalized in an acceptable manner\. The Ministry of Finance played an uneven role during the preparation process\. As both CODENPE and CODAE fell under the Office of the Presidency, MEF's capacity to intervene to help solve internal and external institutional issues was restricted\. MEF become more actively involved before the pre-appraisal mission, and partnered with the bank's Task Team in finding a solution for the counterpart issues that was viable and satisfactory for everyone\. Implementation While the Loan Agreement stipulated two effectiveness conditions (selection of key personnel and adoption of the Operational Manual), GOE's internal process for loan signing required the following: (i) confirmation of the project "validation" (appraisal) by MEF; (ii) a positive report by the Undersecretary for Public Credit; (iii) legal opinion issued by the Board of the Central Bank; (iv) legal opinion by the Procurador General; (v) resolution issued by MEF; (vi) an Executive Decree signed by the President of 8  Ecuador authorizing the signing of the loan; and (vii) public notification to Ecuador's Ambassador in Washington authorizing him to sign the loan\. In addition, during negotiations, GOE included wording in the Loan Agreement to the effect that the selection of personnel and the operational manual would need to be endorsed (avalado) by MEF, adding this internal requirement to the two effectiveness conditions\. Barely a month after Board approval, the Government changed the Secretary of CODENPE and its bylaws, starting a prolonged period of conflict which lasted until CODENPE's institutionality was restored after April 2005\. The combination of conflict and personnel changes produced delays in carrying out the activities required for signing the loan and complying with effectiveness conditions\. In the end, only the Operational Manual was completed\. Project staff were not selected because the firm contracted did not carry out its work as expected\. Neither CODENPE and CODAE, nor MEF managed to issue or obtain the necessary approvals for signing the loan\. On August 31, 2005, MEF informed the Bank that, following consultations with indigenous organizations, the Government of Ecuador had decided not to sign the loan agreement\. Based on the above assessment of counterpart agencies during preparation and implementation, Borrower performance is rated as Unsatisfactory\. 10\. Lessons Learned (both project-specific and of wide general application): 1\. Political instability complicates project implementation\. The risk of failure is high when the main actors are in conflict, in particular over the control of key institutions whose situation is expected to improve with project financing\. This risk is hard to mitigate when a visible source of funding is being extended to a largely neglected population with competing political leaderships\. 2\. The role of indigenous and Afro organizations is critical, and often conflicting\. Infighting by rival indigenous leaders and organizations over the project created major risks and delays and, in the end, led to its cancellation\. Thus it is important to secure and maintain support in writing from major organizations\. It is also important to bear in mind that empowerment of the communities can be threatening not only to Governments but also to indigenous leaderships\. 3\. The Government counterpart is critical\. In Ecuador, both CODENPE and CODAE had structurally weak mandates, with no clear line functions, inadequate resources, and unspecified relations with sector ministries\. This ambiguity, on the other part, makes it easier for them to be used in clientelist practices and to be captured by indigenous leaders\. In Ecuador, these problems were largely bypassed through a strong PIU in PRODEPINE I and greater Government support for its independence, but the risk became a reality during the preparation of PRODEPINE II, when the Executive sought to facilitate a greater role for particular indigenous organizations in determining the staffing of the project\. 9  4\. PRODEPINE provided important positive lessons on participatory and culturally sensitive development, and addressed some of the wide disparities in unmet basic needs between indigenous and Afro descendant populations versus the majority population\. However the failure of PRODEPINE II reopens wider policy issues, such as: What are the cultural bottlenecks to access to public services, and how should these be addressed? Should services be targeted at social groups (as in PRODEPINE), or should culturally- distinct groups be integrated under broader public programs, notably poverty-targeted programs? Can social organizations play a role in poverty-targeted programs by cultural "tailoring" of intervention activities? Social assessments of the broader programs supported by the Bank in Ecuador can help to address some of these questions\. 5\. An important lesson under PRODEPINE I was that resources were put to effective use when they reached local communities, even though national level political disputes could complicate the process of reaching these communities\. PRODEPINE II in the end succumbed to precisely this problem after CODENPE was intervened politically\. One alternative may be to explore modalities of reaching local communities through decentralized project interventions, i\.e\. projects that work through provincial or municipal authorities that are closer to the communities\. 6\. The inadequate consideration of the perspective of Afro-descendants in the decision- making process that led to GOE's suspension of PRODEPINE II points to the need for further institutional strengthening and support of Afro descendant institutions, as well as to increased awareness building on the socioeconomic conditions of Ecuador's Afro- descendant population\. 10  Annex 1\. Bank Lending and Implementation Assistance/Supervision Processes (a) Task Team members Names Title Unit Responsibility/Specialty Lending Keisgner De Jesus Senior Procurement Alfaro Spec\. LCSPT Procurement Mark A\. Austin Senior Operations Project Management Officer LCSER Spec Ana Lucia Jimenez Financial Management Nieto Analyst LCSFM FM Assistant Pilar Larreamendy Senior Social Development Spec\. LCSEO Social Development Patricia Mc Kenzie Senior Financial Management Spec\. LCSEO Financial Management Xiomara A\. Morel Senior Finance Officer LOAG1 Disbursements Josefina Stubbs Senior Social Development Spec\. LCSEO Afro-Ecuadorian Peoples David Tuchschneider Senior Rural Development Spec\. LCSER Task Team Leader Jorge E\. Uquillas Rodas Senior Sociologist LCSEO Indigenous Peoples Supervision/NCO Mark A\. Austin Senior Operations Officer LCSER Operations specialist Carla Avellan Consultant LCCEC Processing assistant Ana Lucia Jimenez Financial Management Nieto Analyst LCSFM FM consultant Pilar Larreamendy Senior Social Development Spec\. LCSEO Social specialist Patricia Mc Kenzie Senior Financial Management Spec\.i LCSEO Financial Management Marta Elena Molares- Halberg Lead Counsel LEGLA Project lawyer Marcelo Amador Osorio Consultant LCSPT Procurement Josefina Stubbs Senior Social Development Spec LCSEO Afro-Ecuadorean issues Maria Carmen Tene Sarango Consultant LCSFW Indigenous specialist David Tuchschneider Senior Rural Development Spec\. LCSER Task Team Leader Jorge E\. Uquillas Rodas Senior Sociologist LCSEO Social specialist 11  Morag N\. Van Praag Senior Finance Officer LOAG1 Financing and disbursement (b) Ratings of Project Performance in ISRs No\. Date ISR Archived IP DO Actual Disbursements (USD M) 1 12/03/2004 Satisfactory Satisfactory 0\.00 2 03/14/2005 Satisfactory Unsatisfactory 0\.00 3 06/29/2005 Unsatisfactory Unsatisfactory 0\.00 4 06/26/2006 Unsatisfactory Unsatisfactory 0\.00 (c) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No\. of staff weeks (including travel and consultant costs) Lending FY03 61\.74 FY04 167\.49 FY05 0\.00 FY06 0\.00 Total: 229\.23 Supervision/NCO FY03 0\.00 FY04 0\.00 FY05 75\.70 FY06 20\.67 Total: 96\.37 12  Annex 2\. List of Supporting Documents WORLD BANK, Mission Aide memoire\. October-November, 2002 WORLD BANK, Mission Aide memoire\. April, 2003 WORLD BANK, Mission Aide memoire\. August, 2003 WORLD BANK, Mission Aide memoire\. November, 2003 WORLD BANK, Mission Aide memoire\. February, 2004 WORLD BANK, Mission Aide memoire\. April, 2004 WORLD BANK, Mission Aide memoire\. February, 2005 WORLD BANK, Country Assistance Strategy\. Report # 25817-EC\. April 29, 2003 WORLD BANK, Project Appraisal Document\. Report # 28968-EC\. May 21, 2004 13

APPROVAL

P001130

Document de La Banque Mondiale FILE COpy A N'UTILISER QU'A DES FINS OFFICIELLES Rapport No\. 2792a-IVC ;\. COTE D'IVOlRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION 16 octobre 1980 Burea"Jr~gional Afrique de l' Ouest D~partement des projets Division des routes TRADUCTION NONOFFICIELLE A TITRE D'INFORMATION Le present document fait I'objet d'une diffusion restreinte\. et ne peut etre utilise par ses destinataires que dans l'exercice de leurs fonctions officielles\. Sa teneur ne peut etre autremenl divuiguee sans l'autorisation de la Banque Mondiale\.  rAUX DE CHANGE Unite monetaire = franc CFA (FCFA) 1 dollar EU = 210 francs CF\.A fvlESURES Systeme metrique ANNEE BUDGETAIRE ler janvier - 31 decembre  A N'UTILISER QU'A DES FINS OFFICIELLES COTE Q'IVOIPE PRET AU SECTEW~ ROUTrE? PAPPORT D'EVALUATION Table des matieres Pages I\. LE SECTEUR DES TRANSPORTS \. 1 A\. Facteurs gdographiques, dconomiques et sociaux \. 1 B\. Les transports \. \. 1 '\. Les routes \. 2 Les chern ins de fer \. 2 Ports \. \. 3 Aeroports \. 4 C\. Politique d'investissement, planification et coordination du secteur des transports \. 5 D\. L'aide du Groupe de la 8anque au secteur des transports \. 6 II\. LE SOUS-SECTEUR ROUTIER \. 8 A\. Les routes et le transport routier \. 8 le reseau \. 8 Les caractdristiques et la croissance du trafic \. 9 Securite routiere \. 10 L'industrie et la rdglementation des transports routiers \. 11 8\. Organisation du Minist~re des travaux publics \. 13 Personnel et formation \. 13 Conception et construction \. 14 Entretien routier \. 15 Depenses d'entretien \. 17 C\. Planification et organismes chargds de la planification \. 19 Le plan decennal (1978-87) de ddveloppement des rou tes \. 19 Or ganes de planification \. \. 20 D\. Les investissements routiers au cours des anndes 1976-80 \. \. \. \. \. 22 Le present rapport a ete etabli a la suite du seJour effectud en Cote d'Ivoire au mois de juillet 1979 par une mission composde de Mme I\. Sebastian (Economiste) et de M\. R\. Millard (Ingenieur), et mis a jour lors des negociations, en aoOt 1980\. Le present document fait I'objet d'une diffusion restreinte\. et ne peut etre utilise par ses destinaraires que dans I'exercice de leurs fonctions officielles\. Sa teneur ne peut etre autrement divulguee sans I'autorisation de 13 Banque :\londiale\. TABLE DES MATIERES (Suite) - ii Pages III\. LE PRET SECTORIEL \. 23 A\. Objectifs \. 23 B\. Criteres et procedures 24 Selection des travaux de genie civil\. 24 Plafonds des investissements routiers 25 C\. Programme d'investissements routiers 1980-82 26 D\. Assistance technique et formation \. 28 E\. Passation des marches et execution 29 F\. Estimations des couts \. 30 G\. De cai ssern ents 31 H\. Viabilite economique et risques 32 IV\. POINTS D'ACCORD ET RECOMMANDATIONS 35 ANNEXES 1\. Tableaux 2\. Services des donnees routieres a la Sous-direction des routes, Mandat 3\. Assistance technique pour la creation d'un service analytique a la Sous-direction des transports terrestres de la DCTT 4\. Etude sur un programme de formation de chauffeurs, Mandat 5\. Hateriel destine au Laboratoire des batiments et travaux publics 6\. Mandat relatif a l'assistance technique pour la formation de personnel d'entretien 7\. Projet de plan d'action pour l'utilisation du pr~t sectoriel 8\. Description des routes devant ~tre financees dans Ie cadre du pret sectoriel envisage DIAGRAMMES : 22764, BIRD 22765, BIRD CARTES : 14697R, BIRD 14698R, BIRD  - iii - SIGLES ET ABREVIATIONS AFT Association franqaise des transporteurs ARSO Autorite pour l'amenagement regional du Sud-Ouest ASECNA Agence pour la securite de la navigation aerienne BAD Banque africaine de developpement BCET Bureau central des etudes techniques BEl Banque europeenne d'investissement BSIE Budget special d'investissement de l'economie CM Caisse autonome d'amortissement CCCE Caisse centrale de cooperation economique CFP Centre de formation professionnelle CNFB Centre national des bureaux de fret CSSPPA Caisse de soutien et stabilisation des prix des produits agricoles DCCGT Direction centrale du contr81e des grands travaux DCFP Direction centrale de la formation professionnelle DCMTP Direction centrale du materiel des travaux publics DCTP \. Direction centrale des travaux publics Dcn Direction centrale des transports terrestres  - iv - SIGLES ET ABREVIATIONS (suite) DER Direction de l'entretien routier DTRP Direction des travaux routiers periodiques FED Fonds europeen de developpement ENSTP Ecole nationale superieure des travaux publics INSET Institut national superieur d'enseignement technique LBTP Laboratoire du batiment et des travaux publics LTP Lycees techniques professionnels METFP tHnistere de l' enseignement technique et de la formation professionnelle MFPE Ministere des finances, du Plan et de l'economie MTPTCU Ministere des Travaux publics, des transports, de la construction et de l'urbanisme ONFP Office national de la formation professionnelle OSER Office de securite routiere RAN Regie du chemin de fer Abidjan-Niger SNT Syndicat national des transporteurs SONAGECI Societe nationale de genie civil  COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION I\. LE SECTEUR DES TRANSPORTS A\. Facteurs geoqraphigues, economigues et sociaux 1\.01 Situee sur Ie Golfe de Guinee, la Cote d'Ivoire a une superficie de 332 000 km 2 Sa population, d'environ 8,1 millions d'habitants en 1979, augmente au rythme d'environ 4 % par an en partie sous l'effet de migrations depuis les pays voisins\. La densite de population varie de 29 habitants au km 2 dans Ie centre du pays a seulement 7 habitants au km 2 dans Ie sud-ouest\. La population urbaine, definie comme etant la population de tout peuplement de plus de 4 000 habitants, est passee de 13 % de la population totale en 1955 a 34 % en 1975; Abidjan, la capitale, compte a elle seule environ 1 million d'ha bitants\. La majeure partie de la population s'adonne a l'agriculture\. Les principaux produits d'exportation sont Ie cacao, Ie cafe et Ie bois, qui sont a la base de la croissance economique de la Cote d'Ivoire, exceptionnelle en Afrique, de plus de 7 % par an en valeur reelle depuis 1960\. Le PIB par habi tant a ete estime a 1 060 dollars en 1979, et il se repartit plus equitablement que dans la plupart des pays d'Afrique : les 40 % les plus pauvres de la popu lation se partagent 20 % du revenu et les 20 % les plus riches, 50 %; Ie salaire horaire de la main-d'oeuvre non qualifiee est de l'ordre de 1 dollar\. 1\.02 La demande de transport a suivi les m~mes tendances que l'activite economique : fortement concentree autour d'Abidjan et tres faible au nord a l'exception du couloir menant en Haute-Volta, utilise a la fois par la Haute Volta et Ie Mali comme acces a l'ocean\. La valeur ajoutee dans Ie secteur des transports a augmente de 9 % par an en valeur reelle au cours de la decennie ecoulee, alors qu'elle a absorbe environ 20 % chaque annee des depenses pu bliques d'equipement\. La poursuite du developpement des transports et des te lecommunications reste un important moyen pour Ie Gouvernement d'atteindre son objectif politique d'equilibrage du developpement economique des diverses re gions; toutefois, la Banque et Ie FMI ont recommande au Gouvernement de moderer Ie rythme de ses investissements au cours des prochaines annees afin de main tenir 18 dette exterieure a des niveaux acceptables, et des plafonds ont ete ainsi approuves pour les investissements et la dette exterieure publique pour les annees 1979-82\. A cet egard, Ie pret envisage au secteur routier aidera Ie Gouvernement a identifier et a financer dans des conditions economiques les projets prioritaires du secteur routier au cours des annees 1981-84\. B\. Les transports 1\.03 Le port maritime d'Abidjan, dans Ie sud-est du pays, est Ie point de convergence des reseaux de transport\. II est desservi par la seule liaison fer roviaire du pays, qui monte vers Ie nord jusqu'a Ouagadougou, en Haute-Volta, et par un reseau de routes principales partant dans toutes les directions\. Le reseau routier compte aujourd'hui un total de plus de 45 000 km; il est l'un des plus denses d'Afrique de l'Ouest (environ 135 m au km 2 ) sa densite et sa qualite diminuant toutefois vers Ie nord et Ie sud-ouest\. Le portde San Pedro,  - 2 au sud-ouest, a ete inaugure en 1971 et, apres une periode initiale peu active, est devenu Ie deuxieme point de convergence du reseau; les ameliorations ap portees a l'infrastructure dans l'arriere pays ont donne une impulsion au tra fic regional, mais d'autres ameliorations sont encore necessaires\. Le pays compte trois aeroports internationaux, a Abidjan, Yamoussoukro et Bouake; 25 terrains d'aviation plus modestes desservent les autres grandes villes\. II dispose de 400 km de lagunes navigables Ie long de la cote, utilisees pour Ie trafic interieur, mais ne posse de pas de fleuves navigables\. Les routes 1\.04 La COte d'Ivoire possede un vaste reseau routier de plus de 45 000 km, dont plus de 3 000 km seront goudronnes d'ici a 1981; environ 3 500 km de routes principales et secondaires non goudronnees sont en bon etat, et les autres routes sont en cours d'amelioration au rythme de 3 000 km par an\. Le parc de vehicules compte environ 131 000 unites, soit un vehicule pour 62 habi tants; Ie trafic routier augmente de plus de 10 % par an, et se concentre sur Ie reseau de routes goudronnees\. Les cam ions et autobus representent environ 20 % du parc et assurent environ 80 % du transport interieur de marchandises\. En raison de l'accroissement du trafic, il faut constamment renforcer les chaussees des routes principales et en ameliorer certains tron90ns\. Les routes gravillonnees et en terre ont egalement besoin d'ameliorations\. La Partie II contient d'autres renseignements sur Ie sous-secteur routier\. Les chemins de fer 1\.05 La Regie du chemin de fer Abidjan-Niger (RAN) exploite une ligne a une seule voie de 1 150 km reliant Abidjan a Ouagadougou; 630 km de cette ligne se trouvent en COte d'Ivoire\. La RAN est l'un des principaux elements du re seau de transports regionaux : elle achemine environ 75 % des exportations et des importations voltaiques et quelque 20 % des tonnes-kilometres de fret in terieur ivoirien\. Toutefois, ce pourcentage est en baisse en raison de la concurrence exercee par les routes pour les distances courtes et moyennes (jusqu'a 400 km)\. En 1979, la RAN a transporte 600 000 tonnes, soit environ 465 millions de tonnes-km de fret compose principalement de cinq produits coton, cereales, produits petroliers, ciment et engrais\. Si Ie transport de fret en tonnes-km a ete relativement stable de 1976 a 1979, Ie nombre de passagers-km a augmente considerablement, et Ie nombre actuel de 4 millions de passagers par an procure a la RAN plus de 50 % de ses recettes (Tableau 1)~1 1\.06 La RAN est une institution financierement auto nome controlee par les gouvernements de COte d'Ivoire et de Haute-Volta\. Jusqu'en 1978, ses resultats financiers etaient relativement satisfaisants lorsqu'elle beneficiait de subven tions de l'Etat pour Ie financement de ses couts d'entretien et de renouvelle ment de materiel\. En 1979, avec une baisse du trafic et une hausse des couts d'exploitation, des hausses de tarif ont ete instituees, mais elles sont venues trop tard et elles ont ete insuffisantes du fait de la forte inflation, de sorte 11 Tous les tableaux figurent a l'Annexe 1\.  - 3 que les tarifs pourraient avoir a etre revises une nouvelle fois\. La planifi cation de la RAN se limite au budget annuel et a un plan d'investissement a moyen terme, etabli en grande partie en fonction des besoins et sans recours a une base de donnees systematique; au cours de ces dernieres annees, ces fai blesses de planification ont entraine de graves difficultes d'exploitation, im putables en grande partie a une insuffisance de force motrice et de materiel roulant\. Toutefois, depuis la livraison, au milieu de 1979, de 19 nouvelles locomotives et de 210 wagons de marchandises supplementaires fournis dans le cadre du Premier projet ferroviaire regional (plus 216 wagons de marchandises finances par la CCCE), la qualite du service s'est amelioree et, en 1980, on prevoit que le trafic marchandises augmentera de 30 % par rapport a 1979\. 1\.07 En 1978, les investissements effectifs de la RAN se sont eleves a en viron 7 milliards de francs CFA; le budget de 1979 prevoyait 19,5 milliards de francs CfA pour les investissements, dont 3,7 milliards de francs CFA par auto financement\. Toutefois, les recettes nettes ont diminue au cours de cette an nee et le Gouvernement ivoirien a diminue sa provision budgetaire a la RAN pour la periode 1979-81 avant m~me l'adoption recente de sa politique d'austerite en matiere d'investissements et de dette exterieure\. Au cours des annees 1981-85, le montant annuel des investissements de la RAN devrait se situer entre 8 et 10 milliards de francs CFA, compte tenu des besoins techniques et operationnels identifies par la mission d'evaluation de la Banque pour le Deuxieme projet fer\.roviaire\. Ports 1\.08 La Cote d'lvoire dispose de deux ports en eau profonde : Abidjan et San Pedro\. Le port d'Abidjan est considere comme le plus efficace de l'Afrique de l'Ouest, et se place au deuxieme rang apres Lagos pour son volume de fret: plus de 7,5 millions de tonnes par an (Tableau 2)\. 11 assure la ma jeure partie du trafic international du pays, de m~me que la majeure partie de celui de la Haute-Volta et une part croissante de celui du Mali; a l'occa sion, il regoit meme des importations a destination du Niger occidental\. Le volume des exportations est legerement superieur a celui des importations, ce qui distingue Abidjan des autres ports de la region\. De 1970 jusqu'a ces der nieres annees, les exportations ont augmente chaque annee de 11 % et les impor tations, de 6 %\. Cette tendance reflete le developpement des cultures de rap port et de l'agriculture en general, qui a permis une baisse des importations de produits alimentaires et un accroissement des cultures d'exportation (cafe, cacao, fruits tropicaux), et de produits traites du coton, du sucre, du caout chouc et du bois\. En outre, le port d'Abidjan assure le plus gros volume de trafic de conteneurs de l'Afrique de l'Ouest, avec pres d'un million de tonnes par an; ce trafic a debute en 1971\. 1\.09 Le port est administre par l'Office du port d'Abidjan, organisme autonome assiste d'une equipe competente fournie par la CNUCED\. Les operations de manutention sont confiees a des societes privees bien equipees et bien ge reese Pour le service des navires, le port commercial offre : 22 postes pour les marchandises diverses et les conteneurs; 11 postes specialises; 15 postes  - 4 de mouillage pour Ie chargement des grumes et du bois d'oeuvre; et des instal lations portuaires au large pour les petroliers approvisionnant la raffinerie en petrole brut\. Grace a l'efficacite du port et a sa situation centrale sur Ie Golfe de Guinee, les compagnies maritimes l'utilisent de plus en plus pour Ie transbordement de conteneurs\. Toutefois, ce port presente certains defauts, notamment une insuffisance d'aires de stockage et Ie ralentissement des operations pendant la saison des pluies\. Comme on s'attend a ce que son activite se developpe, certaines ameliorations et un agrandissement de ses installations sont prevues : pour l'accroissement de sa capacite, priorite est donnee a la construction de quelque 1 000 m de quai, notamment de quatre postes conventionnels et de deux postes pour conteneurs, moyennant un coat estime a 26 milliards de francs CFA; la construction d'un deuxieme port de peche et Ie dragage d'un canal portuaire sont egalement envisages\. Le pro gramme de 1979-81 prevoit environ 20 milliards de francs CFA d'investissements portuaires\. 1\.10 San Pedro, Ie deuxieme port en eau profonde du pays, comprend six postes de mouillage pour Ie trafic des grumes et deux postes pour marchandises diverses\. Ce port, administre egalement par un organisme autonome, est entre en exploitation en 1971 avec pour objet de faciliter Ie developpement de la region du sud-ouest et, en 1978, il traitait environ 1,5 million de tonnes, composees a 86 % de grumes\. Au debut, Ie trafic a connu une lente croissance due a l'insuffisance de l'infrastructure dans l'arriere-pays, mais Ie rythme s'est accelere une fois que l'Office de developpement regional du sud-ouest a entrepris un programme d'investissements coordonnes, en 1973\. Le Fonds euro peen de developpement (FED) a aide Ie Gouvernement ivoirien s financer la cons truction d'une route goudronnee de San Pedro a Odienne, au nord\. Deux axes goudronnes est-ouest ont ete construits, reliant Ie port a la region d'Abidjan, et un reseau de routes secondaires et de routes de desserte est en construction ou en cours de refection dans la region, avec l'aide de la Banque\. Deux postes supplementaires pour marchandises diverses sont en construction et Ie Gouverne ment compte que Ie trafic atteindra 3,5 millions de tonnes au cours des annees 1980\. Aeroports 1\.11 Le pays compte trois aeroports de calibre international: Abidjan, Yamoussoukro et Bouake, et 25 aut res terrains d'aviation dont 12 peuvent rece voir des avions de type DC3\. L'aeroport d'Abidjan est Ie principal centre du trafic aerien, avec pres d'un million de passagers par an : environ 85 % sur des vols internationaux, principalement pour des voyages d'affaires dont les destinations se divisent presqu's egalite entre l'Europe et les autres pays d'Afrique\. Le fret aerien est limite\. L'aeroport d'Abidjan connait actuel lement une croissance annuelle d'environ 15 % de son trafic, et il est utilise a sa pleine capacite\. Yamoussoukro, qui n'est dote que depuis peu d'installa tions de niveau international, n'est emprunte que par 12 000 passagers par an; Bouake a enregistre environ 55 000 passagers en 1978\. A l'exception de San Pedro, qui dessert environ 45 000 passagers par an, Ie trafic des autres aeroports est negligeable, mais connait une croissance rapide, de l'ordre de 20 % par an (Tableau 3)\.  - 5 1\.12 Les principaux aeroports relevent de l'Agence pour la securite de la navigation aerienne en Afrique (ASECNA) et les autres, de l'Agence de l'avia tion civile\. Bien que de nombreuses compagnies aeriennes desservent Abidjan, Air Afrique assure environ 40 % du trafic international de passagers et UTA 20 %\. Trois compagnies se partagent Ie trafic aerien interieur, la plus importante etant Air Ivoire\. En raison de la politique de l'Etat qui cherche a promouvoir Ie trafic aerien interieur par l'application de tarifs peu eleves, ceux-ci n'ont subi aucune augmentation depuis 1974\. De ce fait, et face a l'accroisse ment des couts d'exploitation, les recettes ne couvrent plus les depenses d'ex ploitation des compagnies\. 1\.13 Le programme pour 1979-81 affecte environ 35,5 milliards de francs CFA aux investissements aeroportuaires\. Une provision de 24 milliards de francs CFA a ete envisagee pour la construction d'un nouvel aeroport a Abidjan, mais Ie cout de cet aeroport etant a present estime a 200 milliards de francs CFA, ce qui depasse largement les fonds disponibles, sa construction a ete r~ poussee\. Sur Ie reste des fonds affectes, 10 milliards de francs CrA sont con sacres a des travaux aux trois aeroports internationaux et 1,5 milliard de francs C~A seulement au prolongement de la piste de San Pedro et a des instal lations de controle de la navigation aerienne pour les aeroports regionaux\. De plus, quelque 3 milliards de francs CFA ont ete prevus pour l'achat de petits avions\. Ce programme d'investissements est en train d'etre revu\. C\. Politique d'investissement, planification et coordination du secteur des transports 1\.14 Jusqu'en 1978, face a un developpement rapide du pays, la politique des transports du Gouvernement s'est attachee plus particuli~rement a aligner les principaux elements de l'infrastructure du pays sur les normes interna tionales, sans toujours tenir compte de la justification economique et des ef fets a long terme des emprunts excessifs qu'il fallait faire a l'etranger pour apporter ces ameliorations\. En meme temps, Ie Gouvernement s'est efforce de developper Ie role de lieu de transit regional du pays, de construire des voies d'acces aux zones rurales et d'effectuer l'entretien approprie\. Depuis quelque temps, face a une baisse generale de la capacite d'investissement, les pouvoirs publics accordent une plus grande attention au choix de propositions hautement prioritaires et dument justifiees, conformement a la politique ge nerale de developpement regional equilibre et de diversification de l'economie\. 1\.15 La politique de l'Etat sert au Minist~re des finances, du Plan et de l'economie (MFPE) a etablir les objectifs d'un Plan quinquennal d'investisse ments publics pour chaque secteur, puis des programmes annuels et triennaux (Loi-programme des investissements publics)\. Les organismes techniques sou met tent chaque annee des propositions actualisees d'investissements au MFPE, qui peuvent ajouter ou repousser certains projets de la Loi-programme par suite de changement de situation ou de variation des fonds disponibles\. Ce syst~me de planification permet au MFPE de filtrer et de coordonner les propositions  - 6 d'investissement pr~sent~es par Ie Minist~re des travaux publics, des transports, de la construc tion et de l' urbanisme (tHPTCU) pour les routes, par la RAN pour les chemins de fer, par les administrations portuaires, sous l'autorite du Minist~re de la marine, pour les ports d'Abidjan et de San Pedro et par les di rections dlaeroport\. En grande partie a cause de llapparition de contraintes budgetaires et d'insuffisance de devises, Ie MFPE a vu son rOle renforce et a ete investi du pouvoir exclusif, sous l'autorite du President, d'approbation du financement et des passations de marche pour les projets proposes par les mi nist~res techniques\. De ce fait, Ie pouvoir, dont avaient abuse jusque 18 les minist~res techniques et les organes parapublics, de passer directement des contrats avec les fournisseurs qui offraient leur propre credit commercial 8 des couts eleves slest trouve limite (par\. 2\.36)\. Le syst~me actuel est satis faisant et des details complementaires sur la planification des investissements routiers sont presentes dans la Partie II\. Lors de l'application du pret pro pose par la Banque au secteur routier, Ie ~lFPE et Ie mPTCU examineront et re viseront periodiquement Ie programme relatif au secteur des transports, et ils analyseront tous les projets de transport en fonction des tendances generales de l'economie du pays (par\. 3\.06)\. D\. L'aide du Groupe de la Bangue au secteur des transports 1\.16 Au cours des dix annees ecoulees, Ie volume total des prets accordes directement par Ie Groupe de la Banque au secteur des transports a ete de 123,3 millions de dollars pour Ie sous-secteur des routes et de 29 millions de dollars aux chemins de fer (auxquels il convient d'ajouter un credit de l'IDA de 5,2 millions de dollars au Gouvernement de la Haute-Volta)\. Les prets et credits accordes 8 ce secteur representent environ 27 % de l'ensemble des prets de la Banque a la Cote d'Ivoire\. Grace aux prets consentis par la 8anque pour des projets routiers, quelque 600 km de routes ont ete goudronnes au ren forces; environ 1 600 km de routes principales et regionales ont ete gravillon nes; et 3 600 km de routes locales ant ete ameliores\. La construction, la re fection et l'entretien de quelque 6 000 km de routes non classees desservant les communautes rurales sont 8 mettre au compte de projets agricoles finances par la Banque\. Les projets routiers ant egalement aide Ie pays 8 se doter des moyens necessaires 8 l'entretien des routes et d'organismes de planification au sein du tHPTCU\. Le projet de chemin fer regional est en train de fournir les elements les plus urgents du programme 1978-80 d'investissements ferroviaires ainsi que la formation et l'assistance technique necessaire pendant son execu tion\. Un deuxi~me projet de chemin de fer regional est en preparation et son execution est prevue pour 1982-84\. Le coOt total de ce projet est estime a environ 97,5 millions de dollars, y compris les elements interessant la Haute-Volta\. 1\.17 Le Premier projet routier (Pret 542-IVC, 5,8 millions de dollars, 1968), Ie Deuxi~me (Pret 761-IVC, 20,5 millions de dollars, 1971), Ie Troisi~me (Pret 837-IVC, 17,5 millions de dollars, 1972) et Ie Quatrieme (Cr~dit 406-IVC, 7,5 millions de dollars, 1973) ont tous ete entierement executes de fagon satis faisante\. Les rapports d'achevement de ces quatre projets ont ete publies\. Un rapport d'evaluation retrospective a ete etabli pour Ie premier d'entre eux et les trois autres feront l'objet d'une evaluation retrospective au eours de l' exercice 1981\.  - 7 1\.18 Pendant l'execution du Premier projet routier, une importante mesure a ete prise en matiere de planification des investissements dans Ie domaine des transports avec l'etude du secteur des transports financee par Ie PNUD et executee par la societe fran9aise de consultants SETEC (1968-72), avec la Banque comme agent d'execution\. Cette etude, qui a ete actualisee en 1976 par la SETEC, grace a un financement accorde par la 8anque dans Ie cadre du Cin quieme projet routier, preconisait un vaste programme d'amelioration des routes principales et de renforcement de la capacite de planification et d'execution de l'entretien des routes\. Elle a servi de cadre aux projets routiers ulte rieurs de la Banque et a donne au Gouvernement l'occasion de developper sa propre capacite de planification des transports grace a son Bureau central d'etudes techniques (BCET) (par\. 2\.29 et 2\.30)\. Le cout du Premier projet rou tier etait proche de l'estimation de l'evaluation\. L'accroissement substantiel du trafic et l'augmentation de l'economie realisee sur les couts d'utilisa tion des vehicules ont permis de reI ever Ie taux de rentabilite de ce projet a 21 % lors de son achevement, alors qu'il avait ete estime entre 9,5 et 12 % lors de son evaluation\. 1\.19 Les rapports d'achevement des quatre premiers projets tendent a 08 montrer que l,experience acquise a ete bien utilisee et que la Banque et Ie Gouvernement ont des vues de plus en plus semblables sur les normes de concep tion et l'execution des projets\. La preparation et l'execution des Deuxieme et Quatrieme projets routiers ont donne lieu a de longues discussions sur les normes geometriques de conception\. Le Gouvernement a evolue de sa tendance inltiaie a vouloir utiliser des normes uniformement elevees pour toutes les routes principales du pays a sa politique actuelle qui autorise que les normes generales de conception soient modifiees selon les routes en fonction du trafic escompte et de la nature du terrain\. 1\.20 Les elements de construction du Cinquieme projet routier (Pr~t 1161-IVC, 43 millions de dollars, 1975) ont ete acheves\. Certains achats de materiel et etudes d'ingenierie prevus par ce projet doivent etre executes d'ici a decembre 1980\. Le Projet d'entretien de routes de desserte et de routes principales (Pret 1501-IVC, 29 millions de dollars, 1977), apres un lent demar rage cause par des retards dans les achats de materiel, progresse a present de fagon satisfaisante\. 1\.21 Le Projet de chemin de fer regional (Pr~t 1490-IVC, 29 millions de dollars; Credit 744-UPV, 5,2 millions de dollars, 1977) a permis l,acquisition des biens d'equipement de la tranche 1978-80 du programme d'investissements ferroviaires\. L'execution des travaux prevus par ce projet presente deja des resultats positifs (par\. 1\.06)\. A mesure que Ie projet approche de son acheve ment, des solutions sont apportees aux problemes qui se sont poses lors de l'execution du programme d'assistance technique\.  - 8 II\. LE SOUS-SECTEUR ROUTIER A\. Les routes et Ie transport routier Le reseau 2\.01 La C8te d'lvoire possede un vaste reseau de plus de 45 000 kilo- metres de routes; la classification de ces routes et les kilometrages sont indi ques au tableau ci-dessous : Classification des routes et kilometrage par type (1976 et 1980) Pourcentage Categorie de route T::c:pe de chaussee du total Bitumee Gravi110nnee Terre Total 1976 1980 1976 1980 1976 1980 1980 Routes pr inci pal es (A) 1 533 2 295 4 312 3 550 5 845 5 845 12,9 Routes regionales (B) 211 330 6 802 6 683 7013 7013 15,5 Routes locales (C) 93 93 20 956 20 956 21 049 21 049 46,4 Non classees 68 11 190 11 091 11 450 25,2 Total 1 905 3077 43 280 42 260 45 165 45 357 100,0 2\.02 La proportion de routes goudronnees est encore tres faible : infe rieure a 10 %, dont pres de 1 200 kilometres ont ete construits au cours des cinq dernieres annees\. Beaucoup des anciennes routes goudronnees ont besoin d'~tre renforcees pour que leur chaussee n'ait pas a subir des graves dommages et pour pouvoir faire face aux besoins du trafic\. Le Gouvernement a commence a renforcer ces anciennes routes avec l'aide de la Banque, et Ie pr~t sectoriel envisage permettra de poursuivre cette aide\. Les routes gravillonnees et les routes en terre posent un probleme plus grave\. Au cours des annees 1974-80, quelque 2 000 kilometres de routes gravillonnees auront ete ameliores et quelque 4 500 kilometres de routes de desserte auront ete remis en etat dans la region cotonniere avec l'aide de la Banque\. Autrement dit, Ie reseau non goudronne pouvant etre maintenu en bon etat avec un entretien normal sera passe de 20 a 35 % de l'ensemble du reseau au cours de cette periode\. Pour continuer ce programme d'amelioration, la Banque finance encore, dans Ie cadre du projet d'entretien de routes de desserte et de routes principales, les coOts en de vises de deux brigades supplementaires qui ont commence leurs travaux a la fin de 1979 et devraient ameliorer 3 600 kilometres de routes gravillonnees en trois ans et demi\.  - 9 - Les caracteristiques et la croissance du trafic 2\.03 En janvier 1980, Ie parc automobile ivoirien etait estime a environ 131 000 unites\. Le nombre de vehicules immatricules indique au Tableau 4 de passe Ie nombre effectif de vehicules en circulation car les vehicules mis au rebut ne sont pas systematiquement rayes des registres\. Le tableau ci-dessous indique les resultats de l'analyse du volume et de la composition actuels du parc entreprise par la Direction centrale des transports terrestres (DCTT) et la Direction du Plan sous la supervision du BCET\. Compares au resultat d'une etude sinilaire publies par les consultants SETEC en 1976, dans Ie cadre d'une etude du secteur des transports, les resultats de cette analyse revelent que Ie parc a subi une croissance de plus de 15 % en cinq ans\. Estimation du parc Type de vehicule en janvier 1980 Pourcentage Vehicules de tourisme et taxis 83,500 64 Camionnettes 19 200 15 Minibus et autobus 5 400 4 Cam ions 17 700 13 Tracteurs routiers 3 800 3 Remorques et semi-remorques 1 600 _1 Total 131 200 100 2\.04 Le trafic subit en moyenne un croissance annuelle de 11 %; les esti mations se fondent principalement sur les resultats de l' enque effectuee en 1976 par la SETEC sur Ie secteur routier, sur les renseignements originel destination des lettres de voiture fournis par Ie Centre national des bureaux de fret (CNBF), et sur I' accroissement escompte de la production reelle et des courants commerciaux de l'economie\. La Sous-direction des routes a effectue des campagnes annuelles de comptage de vehicules en 1976 et 1979\. Le BCET, avec la Direction du Plan, a analyse ces donnees qui confirment les taux de croissance elevee du trafic predits par l'etude sectorielle\. Ces donnees ont egalement revele des taux plus eleves sur les routes recemment goudronnees, fait qui sera etudie par Ie BCET afin de determiner l'importance du trafic in duit\. On estime qu'environ 70 % du trafic se concentrent sur 10 % du reseau, a savoir sur les route goudronnees; toutefois, depuis quelque temps, les routes regionales gravillonnees et en terre connaissent une croissance du trafic supe rieure a la moyenne\. On compte que d'ici a 1982, Ie trafic journalier moyen sur certains axes principaux et certaines routes regionales gravillonnees atteindra environ 190 vehicules, et qu'il faudra alors envisager de goudronner ces routes\. La DCTP manque encore de personnel pour pouvoir effectuer une collecte complete et une analyse systematique de donnees sur Ie trafic; Ie Cinquieme projet rou tier et Ie Pret sectoriel envisages contribueront a ameliorer la collecte et l'analyse de ces donnees (par\. 3\.12)\.  - 10 - Securite routiere 2\.05 Le tableau ci-dessous presente certaines donnees de base sur les ac cidents de la route : Donnees sur les accidents de la route ----------------Annee-------------- 1973 1974 1975 1976 1977 Accidents 1 113 1 514 2 382 2 582 3 894 A Abidjan 392 640 1 264 1 443 2 374 A l' exterieur d'Abidjan 721 874 1 118 1 139 1 520 lues 357 356 464 424 600 A Abidjan 92 123 226 168 245 A l'exterieur d'Abidjan 265 233 238 256 355 Blesses 2 521 3 780 4 849 4 950 6 266 A Abidjan 446 1 051 1 362 1 617 1 922 AI' exterieur d'Abidjan 2 075 2 729 3 487 3 333 4 344 2\.06 Ces chiffres semblent presenter des contradictions entre Ie nombre d'accidents signales et Ie nombre d'accidents qui se sont effectivement pro duits (on remarque en particulier la forte diminution du rapport tues/ accidents)\. II est probable que la qualite des rapports sur les accidents s'ameliore, et l'on peut en tirer quelques conclusions generales a) Par rapport a l'utilisation des routes, Ie taux d'accidents en Cote d'Ivoire est conforme a celui d'autres pays en developpement, mais il considerablement plus eleve que les taux enregistres en Europe et en Amerique du Nord\. Le nombre de tues par vehicule kilometre est plus de dix fois superieur a celui des Etats-Unis et les nombres de tues et de blesses pour l'ensemble de la population sont deja plus eleves qu'en France et en Grande Bretagne bien que la Cote d'Ivoire ait une proportion beaucoup plus faible de vehi cules par rapport a sa population\. b) Au cours des cinq dernieres annees, Ie nombre d'accidents a augmente sensiblement au meme rythme que l'utilisation des vehicules\. c) Les taux d'accroissement des nombres d'accidents ont ete plus eleves dans l'agglomeration d'Abidjan que dans Ie reste du pays\.  - 11 2\.07\. Le Gouvernement est soucieux de promouvoir la securite routiere et il prepare des programmes d'education des usagers de la route, la promulgation et la mise en application de lois sur la securite routiere et la promotion de dis positifs de securite sur les routes et sur les vehicules\. Un Bureau de la se curite routiere a ete cree au debut de 1979 pour etudier les accidents de la route et pour promouvoir et coordonner les activites de securite routiere\. Dans Ie cadre de cet effort, quinze equipes de contrale des vehicules sont actuellement a l'oeuvre\. Toutefois, dans l'ensemble, il est evident que les deux principaux instruments que sont l'application de la loi et l'education comme moyens d'influer sur Ie comportement des usagers de la route, n'ont jusqu'ici que des effets limites sur Ie probleme des accidents de la route en Cate d'Ivoire\. Dans Ie cadre du pret envisage au secteur routier, con formement aux recommandations des consultants sur Ie programme de formation de conducteurs de poids lourds, la Banque appuiera les efforts du Gouvernement ivolrlen pour ameliorer la securite routiere par la formation des conducteurs (par\. 2\.12 et 3\.12)\. L'industrie et la reglementation des transports routiers 2\.08 L'industrie peut se diviser en categories selon les types de proprie taire des vehicules : 55 % d'entre eux sont de petites entreprises qui pos sedent un ou deux vehicules; 22 %, de moyennes entreprises possedant trois ve hicules ou plus; et 23 %, des entreprises etrangeres de tailles diverses\. Les grandes entreprises etrangeres dominent les transports du petrole, des grumes, du cacao, du cafe et des denrees perissables, qui constituent Ie segment de l'industrie Ie mieux remunere, tandis que les firmes plus petites, non specia lisees, assurent generalement Ie transport de marchandises diverses et de pas sagers, notamment dans les zones rurales\. Les petites entreprises fonctionnent de fa90n precaire en raison de l'absence de formation commerciale et de compe tences en matiere de gestion, et de par la concurrence qu'elles se font sur les prix\. 2\.09 La reglementation des transports publics n'est pas assez stricte en ce qui concerne l'attribution des patentes, l'inspection des vehicules et les tarifs applicables aux charges de plus de trois tonnes, au parcours de plus de 100 kilometres et a tous les services passagers (seuls ces derniers font l'ob jet d'affectation d'itineraires)\. Les tarifs sont etablis par type de marchan dise, mais sont rarement appliques car une marge de 15 % est autorisee sur les contrats de transport, et la concurrence incite souvent les transporteurs a ap pliquer des tarifs plus faibles\. Le Centre national des bureaux de fret (CNBF) a ete cree pour faciliter les contacts entre expediteurs et transporteurs\. II possede des bureaux regionaux, mais sa principale activite est de recueillir des donnees statistiques limitees a partir des lettres de voiture qu'il delivre a un petit nombre de grandes compagnies\. De nombreux expediteurs de marchan dises diverses trouvent des tarifs inferieurs aux tarifs officiels hors des bu reaux de fret\. Dans certaines municipalites, Ie syndicat de l'industrie aide egalement ses membres a trouver des marchandises a transporter et il fournit des conseils sur l'entretien des vehicules et la comptabilite, mais Ie syndicat se soucie surtout des services de transport public de passagers pour lesquels il affecte les itineraires et exploite les gares routieres\.  - 12 2\.10 En 1976, la societe de consultants SETEC a effectue, a la demande du Gouvernement, une etude des taxes frappant les usagers de la route et elle a conclu que si Ie niveau general de ces taxes etait suffisant pour couvrir a la fois les depenses d'entretien et d'equipement, certaines taxes particulieres ont pour effet indirect de confier au trafic prive de voyageurs Ie soin de sub ventionner Ie trafic poids lourds\. Les resultats de cette etude ont ete exami nes avec la Banque, et Ie Gouvernement a reconnu que les taxes exigees des usa gel's de la route devaient etre relevees afin de rester au niveau des depenses du secteur, mais il a juge la question d'une redistribution de la charge fis cale entre les usagers de la route politiquement et economiquement peu souhai table\. En fait, les taxes ont ete augmentees de 25 % sur les elements fixes des coOts d'exploitation, et de 43 % sur l'essence et de 32 % sur Ie carburant diesel entre 1976 et 1978\. En juillet 1980, les taxes sur l'essence represen taient plus de 36 % du prix de l'essence ordinaire et 22 % du prix du carburant diesel a la consommation\. Le prix a la pompe etait de 198 francs CFA Ie litre de "super", 190 francs CFA Ie litre "d'ordinaire" et 135 francs CFA Ie litre de diesel\. Ces prix sont du meme ordre que ceux des pays voisins\. Grace a l'assistance technique financee dans Ie cadre du pret sectoriel envisage (par\. 3\.12), l'equipe chargee des analyses au sein de la DCTT procedera a une reevaluation minutieuse des effets de la taxe exigee des usagers de la route, et du rapport entre cette taxe et les depenses du secteur\. 2\.11 La charge limite par essieu est fixee officiellement a dix tonnes, et cette limite est appliquee sur les principales routes empruntees par les gru miers a destination d'Abidjan\. Le fait que Ie Mali et la Haute Volta, qui ont des charges limites par essieu plus elevees, fassent circuler des camions sur les routes principales ivoiriennes a destination du port d'Abidjan pose un de licat probleme d'application des reglements\. Cette question a ete soulevee par les G04vernements interesses lors de la derniere reunion du Conseil de l'ententel!et une resolution a ete adoptee aux termes de laquelle une etude regionale doit etre effectuee afin de determiner les consequences de modifi cations des charges limites par essieu sur Ie reseau actuel\. La Banque a parti cipe a l'etablissement du cadre de reference de cette etude, qui doit etre en treprise au debut de 1981\. 2\.12 La Direction centrale des transports terrestres (DCTT) est chargee de l'etablissement et de l'application des reglements concernant la circulation routiere ainsi que de la formulation de politiques en matiere de transports; toutefois, son personnel limite ne lui permet de s'acquitter que de quelques unes de ses fonctions\. Toutefois, la DCTT a l'intention de se doter de moyens r~nforces, notamment pour delivrer les patentes aux conducteurs de vehicules de transport de passagers et de vehicules commerciaux lourds; pour recueillir des donnees sur Ie parc automobile, son ampleur, sa capacite de transport et 1/ Le Conseil de l'entente est une organisation qui regroupe Ie Benin, la Cote d'Ivoire, Ie Niger, la Haute-Volta et Ie Togo et qui a pour ob jet de promouvoir et de coordonner les mesures politiques, sociales et economiques de ses pays membres\.  - 13 ses couts d'exploitation; pour s'assurer que Ie parc est suffisamment etoffe et que les tarifs appliques sont assez eleves; et pour formuler des politiques en matiere de transports sur la base des donnees plus concretes ainsi recueillies\. Avec l'aide de l'Association fran~aise des transporteurs, la DCTT travaille deja a l'etablissement d'un programme de formation des conducteurs sur Ie mo dele du programme etabli par Ie Conseil de l'entente a Niamey pour ses pays membres\. Ce programme met l'accent sur Ie bon comportement des conducteurs au volant et sur l'entretien preventif des vehicules\. Une fois que ces cours se ront dispenses, il ne sera pas delivre de permis de conduire professionnel aux personnes qui ne pourront justifier d'avoir suivi ce cours et d'y avoir obtenu un resultat satisfaisant\. Le pr~t sectoriel envisage aidera a l'execution de ce programme et fournira a la DCTT l'assistance technique necessaire pour les recherches, l'analyse et les recommandations (par\. 3\.12)\. B\. Organisation du Ministere des travaux publics 2\.13 Pour exercer ses responsabilites, Ie MTPTCU dispose de dix directions centrales, dont quatre s'occupent directement des routes et des transports rou tiers, et de sept directions regionales\. II est egalement epaule par deux or ganismes autonomes, Ie Bureau central des etudes techniques (BCET) et Ie Labo ratoire du batiment et des travaux publics (LBTP)\. La Direction centrale des travaux public (DCTP) met sur pied des programmes d'investissements et d' entre tien fondesprincipalement sur les donnees qu'elle re~oit des directions regio nales, etablit les budgets et la planificationet suit Ie deroulement des tra vaux de construction et d'entretien de routes\. La Direction centrale du contrble des grands travaux (DCCGT) est responsable des normes de conception, du choix des options les moins couteuses, de l'etablissement des projets d'execution, de la preparation des dossiers d'appel d'offres et de la supervi sion des travaux\. Les Directions regionales recueillent les donnees et as surent l'entretien des routes, avec du materiel achete et affecte par la Di rection centrale du materiel (DCM) et avec des fonds administres depuis Abidjan\. Le BCET est Ie centre charge des etudes economiques et techniques : il integre et coordonne les propositions des diverses directions et les exa mine avec Ie Ministere des finances, du Plan et de l'economie (MFPE)\. Cette organisation, qui donne plus de responsabilite aux regions, a ete adoptee en 1977 et, si elle est satisfaisante, elle n'est pas encore totalement operation nelle car certaines des directions manquent encore de personnel qualifie\. Les projets de la Banque en cours d'execution fournissent une assistance technique et du materiel pour Ie bon fonctionnement des diverses directions, et Ie pret sectoriel envisage permettra d'affecter certains experts supplementaires juges necessaires\. L'organisation du MTPCU est decrite sur l'organigramme 22764 ci joint et examine de fa~on plus detaillee dans les sections ci-apres\. Personnel et formation 2\.14 L'insuffisance de personnel qualifie dans les domaines techniques est Ie principal obstacle aux projets d'equipement et d'entretien de ce sec teur\. Les importants investissements publics consacres a l'education devraient  - 14 permettre au pays de faire face dans un avenir rapproche a ses besoins en inge nieurs et en techniciens superieurs, mais pas a ses besoins en formation spe cialisee de techniciens des routes, et plus particulierement de contremaltres, de mecaniciens et de conducteurs d'engins\. Le Centre d'application des travaux publics (CATP) et l'Ecole nationale superieure des travaux publics (ENSTP) pour voient aux besoins en personnel du MTPTCU\. En deux ans, on prevoit que l'ENSTP de Yamoussoukro formera tous les ingenieurs et techniciens superieurs dont Ie pays a besoin\. Par c~ntre, Ie CATP parvient a peine a faire face a la demande de mecaniciens et de chefs de brigade d'entretien\. 2\.15 La Banque a deja finance l'assistance technique qui devait permettre de recruter et de former Ie personnel necessaire a la constitution de brigades de refection et d'entretien de routes creees dans Ie cadre du Troisieme projet routier et du Projet d'entretien des routes de desserte et des routes princi pales\. En 1977, grace a cet effort, 203 personnes avaient ete formees a cer taines taches d'entretien de materiel et un millier d'autres avaient regu une formation sur Ie tas avant d'etre affectees aux regions\. Neanmoins, les besoins sont beaucoup plus grands a mesure que de nouvelles brigades d'entre tien sont creees et les qualifications du personnel doivent etre constamment developpees pour faire face aux exigences du materiel moderne\. Le personnel en place doit acquerir Ie niveau necessaire pour pouvoir prendre en mains Ie fonctionnement et la gestion des brigades a mesure que l'assistance technique est eliminee\. Le pret sectoriel envisage prevoit i) l'affectation d'assis tant technique a la Direction centrale de la formation professionnelle (DCFP) du MTPTCU pour la formation sur Ie tas de personnel d'entretien (par\. 3\.13), et ii) la prolongation d'environ neuf mois de l'assistance technique actuellement dispensee en matiere d' entretien lorsque Ie programme de formation propose a l'alinea(i) aura ete entrepris (par\. 3\.12)\. Conception et construction 2\.16\. L'execution des precedents projets de la Banque a souffert de l'ap plication excessive de normes geometriques (par\. 1\.19)\. Aujourd'hui, une at titude plus realiste a ete adoptee; les principales normes de conception du MTPTCU sont recapitulees aux Tableaux 7 et 8 de l'Annexe I\. Les normes de con ception geometriques sont fondees sur les pratiques fran9aises et ajustees en fonction des besoins : par exemple, les vitesses de circulation sont fixees selon Ie trafic et la nature du terrain, et un compromis est etabli entre les avantages que comporterait une conception permettant de plus grandes vitesses et les couts supplementaires de construction que eela exigerait\. La largeur et Ie traitement des aecotements varient, par exemple, selon l'usage qui en est fait par les pietons a l'approehe des villes et des villages\. La conception structurelle des chaussees est fondee sur une large connaissance des utilisa tions et des limites des materiaux disponibles sur place et de l'influence du terrain et du climat; Ie LBTP a publie une serie de manuels pour guider les ingenieurs et eonstructeurs\. Pour les routes asphaltees, la conception se fonde sur l'hypothese selon laquelle, compte tenu de l'estimation du trafic, la chaussee devra etre renforcee apres une duree de dix a quinze ans\.  - 15 2\.17 La conception et la supervlSlon des grands travaux routiers sont ge neralement confiees a des consultants etrangers\. A travers la DCCGT et Ie LBTP, il arrive de plus en plus souvent au MTPTCU de guider les consultants dans leurs travaux de conception ou dans la recherche de solutions aux pro blemes techniques qui apparaissent pendant la construction\. C'est Ie BCET qui se charge a present des etudes de faisabilite et d'ingenierie concernant les grands travaux, et il est fait appel a des firmes etrangeres pour les etudes pour lesQuelles Ie pays ne dispose pas sur place des competences necessaires\. Le LBTP collabore avec Ie BCET pour l'execution des etudes geotechniques et topographiques prevues dans Ie cadre des etudes techniques detail lees des pro jets confies a ce bureau par Ie MTPTCU\. 2\.18 Les travaux de construction, d'amelioration et de renforcement des routes principales sont executes par des entreprises\. La Direction centrale du contrale des grands travaux (DCCGT) etudie les documents de marche afin de s'assurer que les prix offerts sont competitifs\. Elle analyse les rensei gnements recueillis sur les couts de construction unitaires et sur les va riations des couts et elle est consciente de la necessite d'elaborer des solutions aussi peu couteuses que possible pour chaque projet\. Elle supervise Ie deroulement des travaux de genie civ il, tandis que les travaux de construc tion et d'amelioration des routes en terre et des routes gravillonnees sont effectues en regie\. 2\.19 Plusieurs grandes entreprises etrangeres exercent dans Ie pays, au cote de la SONAGECI, qui est une entreprise d'Etat\. 11 existe de petites entrepriHes dans l'industrie forestiere et dans les transports qui pourraient assurer la construction et l'entretien de routes en terre et de routes gravillormees, mais Ie MTPTCU a donne un coup de frein a leur developpement, estimant qulil fallait d'abord doter Ie pays des competences necessaires dans Ie domaine des services publics\. Le moment est venu d'elaborer avec les pou voirs publics un programme de promotion des entreprises locales; la Societe fran9aise de consultants BCEOM a realise recemment une etude financee par Ie MFPE sur les possibilites de developpement d'une industrie ivoirienne de la construction\. Pendant la periode de decaissement du pret sectoriel envi sage, la Banque et Ie Gouvernement elaboreront un sous-projet dlassistance technique pour la formation des chefs d'entreprise ivoiriens qui auront donne la preuve qu'ils pourraient eventuellement entreprendre des travaux routiers (par\. 3\.12)\. Ce sous-projet s'accompagnerait d'un apport d'assistance finan ciare a ces chefs d'entreprise dans Ie cadre du projet de developpement des petites entreprises financee par la Banque\. Entretien routier 2\.20 L'entretien des routes en Cote d'lvoire comprend des activites d'entretien regulier et d'entretien periodique; environ 35 % du reseau peuvent actuellement etre maintenus en bon etat par un entretien regulier, et il existe un programme de travaux d'amelioration pour les plus importantes des routes restantes, qui a pour objet de remettre ces routes en bon etat\. Les projets passes et presents de la Banque ont favorise Ie deve10ppement rapide de l'or ganisation de l'entretien des routes au cours de ces dernieres annees\. La  - 16 derniere grande reorganisation (1977) devrait encore couvrir les besoins du pays pendant un certain nombre d'annees\. Ses principaux elements ont ete la creation d'une Direction de l'entretien routier (DER) au sein de la Direction centrale des travaux publics (DCTP) et Ie transfert de la responsabilite de l'entretien regulier aux services regionaux et a leurs subdivisions, la pro grammation et l'execution des travaux d'amelioration etant partagees entre ces services et la Direction des travaux routiers periodiques (DTRP)\. 2\.21 L'entretien des routes ivoiriennes est mecanise, et les couts de la main-d'oeuvre sont eleves\. Toutefois, certains travaux d'entretien regulier sont effectues selon des methodes a forte utilisation de main-d'oeuvre par des equipes responsables d'environ 300 kilometres de route chacune\. Au niveau des subdivisions, 30 groupes d'entretien routier effectuent les travaux d'entretien regulier et periodique; Ie nombre de ces groupes sera porte a 39 d'ici a 1984\. Pour les travaux d'amelioration des routes, il existe actuellement cinq bri gades lourdes, creees et equipees dans Ie cadre du Troisieme projet et du pro jet d'entretien des routes de desserte et des routes principales\. Des equipes speciales sont chargees de l'entretien regulier des chaussees bitumees\. Lors que ces chaussees necessitent un entretien periodique tel qu'un traitement de surface ou un renforcement, Ie travail est execute sous contrat\. 2\.22 Les brigades chargees d'executer en regie les travaux de construction et d'entretien des routes gravillonnees fonctionnent actuellement avec un mate riel tres restreint\. Leur productivite, qLli s' est amelioree rapidement apres un lent demarrage, est a nouveau en baisse\. Pour rester en etat de fonctionne ment, les machines dont ces brigades sont dotees doivent etre entretenues par des specialistes; les pannes subies par de gros eng ins entra!nent de fortes baisses de productivite et il n'existe pas d'engins de secours en cas de panne ou pour permettre une formation sur Ie tas\. Quoi qu'il en soit, les travaux d'entretien des routes sont clairement dBfinis et les normes qui devront etre appliquees par les brigades d'entretien sont en cours d'etablissement\. Par exemple, une niveleuse est censee couvrir 6 kilometres de route en terre ou de route gravillonnee par jour et fonctionner selon les normes suivantes :  - 17 - Nombre d'heures de Niveau du trafic travail alloue a (Nombre de vehicules une niveleuse par par jour) kilometre et par an Routes locales et non classees 2\.25 Routes principales et regionales T / 50 6 50 / T / 100 9 100 / T / 150 12 150 / T / 200 15 200 / T / 300 18 Les aut res normes de productivite ont trait aux operations suivantes : 2 Nettoyage des cates 800 m /jour/homme Debroussaillage des fosses 15 m/jour/homme Reparation de la surface des routes en terre 2 25 m /jour/homme Pendant les negociations, le Gouvernement est convenu de poursuivre les efforts d'entretien du reseau de routes principales selon de saines pratiques d'inge nierie, et d'etablir des objectifs de productivite appropries pour l'entretien des routes (par\. 4\.02 a)\. Les mesures de la productivite seront utilisees pour l'etablissement des programmes d'entretien annuel et des allocations budge taires correspondantes\. 2\.23 L'organisation et l'execution des travaux d'entretien routiers manquent de personnel qualifie et experimente\. Le pays a besoin d'accroltre grandement Ie nombre de ses mecaniciens specialistes et de ses ateliers mobiles pour ameliorer l'entretien regulier du materiel\. Bien que la comptabilite ana lytique ait ete introduite dans chaque subdivision du pays dans le cadre du Troisieme projet routier (Tableau 9), le personnel de terrain a besoin d'un complement de formation et il faut que les administrateurs regionaux acquierent une certaine souplesse dans le traitement des informations et leur utilisation pour planifier les budgets d'entretien routier de leur region\. Le projet d'en tretien des routes de desserte et des routes principales fournit egalement une certaine assistance technique qui comprend un programme de recrutement et de formation de mecaniciens et aut res personnes qualifiees necessaires aux brigades\. Depenses d'entretien 2\.24 Le budget d'entretien est reparti entre l'administration centrale et les directions regionales des travaux publics chargees des operations d'entre tien\. Ce budget couvre les salaires, les materiaux et les couts d'utilisa tion du materiel\. Environ 70 % des depenses sont couverts par le fonds d'en tretien routier, reconstitue au moyen des recettes procurees par la taxe sur  - 18 l'essence, et Ie solde est fourni par Ie budget general\. Le renouvellement du materiel est finance au titre des depenses d'equipement sur Ie budget special d'investissements et d'equipement (BSIE)\. En moyenne, les depenses d'entre tien representent moins de 20 % des depenses annuelles consacrees aux routes, et environ 25 % des recettes procurees par les taxes per9ues aupres des usagers de la route\. Le total des credits budgetaires alloues a l'entretien est suffi sant; les depenses d'entretien au titre des annees 1976-78 sont presentees ci dessous : (Millions de francs eFA - valeurs courantes) De[;1enses d' entretien Origine du financement Travaux d' amelioration des routes en Fonds Budget Entretien terre et gra- d'entretien general Annee Administration regulier villonnees Total routier et BSIE 1976 442 4 836 1 404 6 682 5 197 1 485 1977 508 4 601 1 816 6 925 4 770 2 155 1978 554 4 182 2 742 7 478 5 488 1 990 La baisse des depenses d'entretien regulier a ete compensee en 1978 par une augmentation d'environ 35 % des travaux d'amelioration necessaires pour mettre les routes en etat de n'avoir plus besoin que d'operations d'entretien\. 2\.25 Le budget d'entretien etabli par la DER/DCTP pour la periode 1980-83 tient compte, en dehors de la poursuite des operations existantes, des elements suivants a) Ie programme d'amelioration et l'entretien des routes de desserte ac tuellement en construction, seront places sous la responsabilite fi nanciere de la DER/DCTP; b) renouvellement progressif du materiel d'entretien; c) les services d'entretien seront etendus a un plus long kilometrage de route en fonction des besoins du trafic; d) la reparation des ouvrages de drainage qui ont ete endommages sur un certain nombre de routes par des pluies particulierement abondantes; e) les programmes d'assistance technique et de formation sur Ie tas ac tuellement finances par la Banque arrivent a expiration en 1981; et f) un taux d'inflation estime a 12 % l'an\.  - 19 - Le budget d'entretien propose pour la periode 1980-83 est presente ci-dessous et semble suffisant\. (Millions de francs CFA - valeurs courantes) Element du budget Expansion des actue11ement Operations finance par d'entretien et Pour sui te des la Banque aut res fonctions operations (elements "a" connexes (elements Annee en cours ci-dessus) b(c(d(e ci-dessus) Total 1980 9 878 4 814 4 061 18 793 1981 11 063 4 862 6256 22 181 1982 12 390 5 503 7 027 24 920 1983 13 877 6 162 12 891 32 930 Pendant les negociations, Ie chiffre relatif au budget d'entretien pour 1980 a ete confirme\. Le Gouvernement a donne l'assurance qu'il examinerait avec la Banque les allocations budgetaires a venir conformement au plan d'action propose (Annexe 7) (par\. 4\.04)\. C\. Planification et organismes charges de la planification Le Plan decennal (1978-87) de developpement des routes 2\.26 La societe fran~aise de consultants SETEC a ete chargee, dans le cadre du Cinquieme projet routier, d'etablir un plan decennal de developpement des routes (par\. 1\.18)\. Soumis en 1977, ce plan a ete approuve par le Gouver nement et la Banque et il continue de servir de base aux propositions d'inves tissement routier\. Ce plan, qui se concentre sur les routes principales, re pose sur un inventaire detaille des routes et sur des etudes du trafic, et se limite, pour ce qui est des autres modes de transport, a leurs effets sur le reseau de routes principales\. Les previsions de trafic ont ete etablies sur la base d'hypotheses raisonnables concernant differents taux de croissance qui suivent le profil economique de la region et son plan de developpement\. Ce plan decennal comprend : a) un programme de base, compose de projets dont Ie taux de rentabilite est superieur a 10 %, et b) deux programmes facultatifs moins prioritaires comprenant des projets a faible taux de rentabilite mais dont la realisation permettrait d'equilibrer le developpement regional (Ta bleau 10)\. En prix de 1980, le programme de base pourrait couter plus d'\.un milliard de dollars\. 2\.27 Les routes enumerees ci-apres ont ete retenues par le plan comme hau tement prioritaires : a) dans la region d'Abidjan, investissements dont Ie taux de rentabilite economique se situe entre 19 et 39 % : t~afou-Akoupe, Agbovi11e-Akoupe, Abidjan-Bassam, Abidjan-Dabou et Abobo-Alepe;  - 20 b) dans la region de Bouake, investissements dont Ie taux de rentabi lite economique se situe entre 26 et 31 % : Bouake-Beoumi, Bouake Tieningboue et Bouake-Mbahiakro; c) dans la region de San Pedro, Pont Weygand-San Pedro (rentabilite 16 %) et San Pedro-Berebi (rentabilite : 25 %); et d) Ie reste des projets dans les autres regions ont des taux de renta bilite compris entre 15 et 25 %\. 2\.28 Ce plan constitue un important inventaire des besoins a long terme du secteur en matiere d'investissements\. Les services de planification du MTPTCU et du BCET ont pour mandat de tenir a jour la base de donnees de ce plan et de fixer chaque annee les priorites courantes en matiere d'investissement lors qu'ils presentent leur programme triennal au MFPE; Ie programme triennal actuel est examine aux paragraphes 3\.09 et 3\.10 par rapport au pret sectoriel envisage\. Organes de planification 2\.29 Les programmes d'investissement routier sont etablis chaque annee par Ie MTPTCU et presentes au MFPE pour approbation et inclusion dans la Loi pro gramme d'investissements routiers\. A la Direction centrale des travaux publics (DCTP), la sous-direction des routes est chargee de coordonner, de recueillir et d'analyser les donnees fournies par les regions sur l'inventaire des routes et les comptages de vehicules\. Sur la base de l'analyse des donnees fournies par ce service, la sous-direction de la programmation des investissements et la Direction de l'entretien routier (DER) etablissent une liste preliminaire de priorites pour l'amelioration des routes qui coutent plus cher a entretenir quia ameliorer\. 2\.30 Les propositions de la DCTP sont soumises au BCET aux fins d'evalua tion economique\. C'est au BCET que sont centralises les efforts de planifica tion et de coordination du secteur\. Ce bureau dispose depuis peu d'un budget autonome, qui lui permet de recruter des employes experimentes dont les trai tements peuvent @tre fixes de fa~on a etre competitifs avec ceux du sec teur prive\. Au sein du BCET a ete cree un service de planification et de coor dination des transports, qui beneficie de l'assistance technique de la SETEC, financee dans Ie cadre du Cinquieme projet routier\. Le role du BCET se defi nit comme suit: a) centre de coordination de la collecte des donnees et de l'analyse de la repartition intermodale du trafic; b) centre de liaison entre la recherche et l'analyse des couts effec tuees sur l'entretien et la construction des routes (LBTP et DCCGT) et la programmation des nouveaux investissements et de l'entretien routier (DCTP et DER); c) bureau charge de l'analyse economique des projets proposes, soit par son propre personnel, soit par des consultants supervises par son personnel\.  - 21 2\.31 Le service de planification et de coordination des transports du BCET tient a jour les renseignements sur les programmes d'investissement dans d'autres secteurs de l'economie et sur tous les autres modes de transport et, sur la base des renseignements fournis par la DCTP et la DCTT, etablit des previsions des courants de trafic origine/destination et des taux de croissance globale du trafic\. Les projets retenus comme prioritaires sont proposes au MfPE en vue d'etre inseres dans Ie projet de Loi programme; Ie MfPE coordonne egalement ces projets avec d'autres propositions sectorielles et etablit un programme d'investissements definitif dans les limites des ressources dispo nibles\. Pour les projets approuves, Ie BCET entreprend une etude de faisabi lite economique et un projet d'execution\. Le processus de planification est decrit brievement au graphique 22765 ci-joint\. 2\.32 Les decisions quant au moment aU les routes goudronnees doivent etre renforcees et quant au degre de renforcement dont elles ont besoin sont prises en fonction de considerations techniques fondees sur les besoins immediats et evidents; dans certains cas, les operations de renforcement sont trop poussees\. Avec l'encouragement direct du Ministre, Ie laboratoire du batiment et des travaux publics (LBTP), qui fixe les normes d'entretien et de renforcement des routes, a cree une equipe d'evaluation des chaussees chargee d'etablir une base de donnees sur laquelle Ie programme de renforcement des routes puisse etre planifie de la facon la pluseconomique\. Le LBTP a termine une etude de de flection de chaussees et des charges de traficsur l'ensemble du reseau gou dronne et: i l doit publier prochainement un manuel decrivant la methode quI i l emploie pour l'evaluation des chaussees\. 2\.33 Dans l'ensemble, la planification des routes souffre encore de l'ab sence d'une base de donnees coherente, a jour,et systematique sur l'utilisation des routes et sur l'etat actuel de l'ensemble du reseau des routes gravillon nees et des routes en terre\. En 1976 et 1979, des comptages manuels de vehi cules ont ete effectues a une centaine d'endroits, au cours de quatre recense ments ayant dure chacun trois jours\. Les donnees recueillies ont ete analysees de maniere a donner un tableau d'ensemble des tendances et de la composition du trafic qui a servi de base a l'etablissement du plan d'investissements pour les annees 1981-85\. Le MTPTCU a cree des brigades de comptage manuel de vehi cules dans les sept directions regionales et i l installe des appareils de comptage automatique de vehicules achetes grace a l,aide financiere apportee par la Banque dans Ie cadre de projets precedents\. Le MTPTCU reconnait egale ment la necessite de tenir constamment a jour l'inventaire des routes (par\. 3\.1\.2)\. 2\.34 Les institutions propres a assurer une planification nationale du de veloppement routier sont en place et Ie pret sectoriel envisage prevoit de leur apporter l'assistance necessaire pour les rendre pleinement efficaces (par\. 3\.12)\. Auparavant, les pouvoirs publics prenaient souvent les decisions relatives au developpement des routes sans pleinement se rendre compte des con sequences economiques probables de ces decisions\. Avec la creation de ces or ganes de planification, cet inconvenient est en train d'etre rapidement eli mine\. 11 est deja possible de disposer d'une base rationnelle pour les deci sions relatives a l'amelioration du reseau des routes principales\.  - 22 D\. Les investissements routiers au cours des annees 1976-80 2\.35 Depuis 1976, environ 1 500 kilometres de routes goudronnees ont ete construits ou renforces moyennant un cout d'environ 184 milliards de francs CFA en prix courants\. Les investissements routiers ont ete d'environ 36 mil liards de francs CFA en 1977, 41 milliards de francs CFA en 1978, 48 milliards de francs CFA en 1979 et sont estimes a 50 milliards de francs CFA pour 1980\. Le Tresor, la Caisse de soutien et de stabilisation des prix des produits agri coles (CSSPPA) et "Financement Etat" pourvoient aux besoins en financement lo cal; "Financement Etat" est une source extrabudgetaire qui peut etre utilisee pour financer les travaux non encore inscrits dans la Loi programme\. Les em prunts a l'etranger ont couvert environ 46 % des depenses; Ie groupe de la 8anque y a contribue pour environ 6 % et les credits fournisseurs ont ete la principale source de financement exterieur (Tableau 11)\. En plus de ces tra vaux, en 1974, Ie Gouvernement a entrepris de vastes programmes d'amelioration des routes en terre et des routes gravillonnees ainsi que des programmes de cons truction de routes de desserte dont la 8anque a finance l'element en devises des achats de materiel et des couts de fonctionnement\. 2\.36 Pres de 35 % du programme de goudronnage de routes ont ete finances au titre de contrats de credit fournisseur, car ces contrats pouvaient ~tre conclus en dehors du budget d'equipement, et 100 % des couts des travaux, taxes comprises, ont ete finances de cette maniere, cequi a meme permis de realiser certaines recettes a court terme\. On n'a pas tenu compte de l'effet moins favorable a plus long terme sur la balance des paiements et ce n'est qu'en 1979 que l'on s'est rendu compte du cout financier eleve des contrats portant sur l'execution materielle des travaux et sur leur financement\. En 1979, face a une hausse rapide des couts unitaires de construction, la DCCGT a commence a analyser les couts de construction des routes et s'est aper9ue que ces couts etaient jusqu'a 30 % plus eleves lorsqu'ils etaient finances au titre de contrats de credit fournisseur\. Depuis lars, Ie Gouvernement a limite Ie recours a cette forme de financement et i l negocie a present des contrats distincts pour l'execution des travaux et pour leur financement\. Le pret sec toriel envisage offrira une source de financement moins couteuse pour les couts en devises, mais Ie Gouvernement devra financer les couts en monnaie nationale, ainsi que les taxes, ce qui, avec un chiffre moyen de 29 % sur les travaux de genie civil, ne manquera pas de peser lourdement sur la demande de credits locaux\. 2\.37 Outre ce~tains cas d'exageration dans les travaux de conception, Ie niveau eleve des coOts de construction s'explique egalement par la conclusion de contrats d'une ampleur dBmesuree et par un certain nombre d'amendements, auxquels la formule de hausse des prix est appliquee automatiquement\. Le MTPTCU a deja adopte comme ligne de conduite de limiter l'ampleur des travaux a executer au titre d'un contrat quelconque a une periode d'execution d'environ trois ans (par\. 3\.16)\. En outre, pour eviter d'avoir a leur apporter des amen dements et de devoir appliquer a ceux-ci la formule de revision des coOts, Ie Gouvernement est convenu, lors des negociations, d'inclure dans les documents d'appel d'offres, dans la mesure du possible, de petits travaux complementaires essentiels (par\. 3\.06 d)\.  - 23 III\. LE PRET SECTORIEL 3\.01 Au cours des dernieres annees, Ie Gouvernement, qui savait l'econo mie florissante, comptait enormement sur les credits fournisseurs pour finan cer les investissements qu'il consacrait a son reseau de routes d'interet natio nal\. La croissance economique s'est maintenant ralentie et, suivant Ie con seil de la 8anque, il s'efforce actuellement de reduire ses futurs engagements financiers\. En meme temps, il a cree des organismes qui offrent la possibi lite de planifier les investissements routiers en fonction du developpement economique general et, de ce fait, chaque projet peut etre prepare et execute avec un maximum d'efficacite (Chapitre II)\. C'est dans ce contexte qu'il faut examiner Ie Pret sectoriel envisage, d'un montant de 100 millions de dollars, qui aiderait Ie Gouvernement a continuer a financer une partie du coOt en de vises du developpement du reseau routier pendant la periode 1981-83 et a rendre plus efficaces ses institutions\. A\. Ob,iectifs 3\.02 De fa90n plus precise, les principaux objectifs du Pret envisage sont a) d'aider Ie Gouvernement a poursuivre sa politi~ue de reduction des investissements, en evaluant sa capacite d'absorption, en fixant des plafonds aux investissements routiers et en veillant a ce que seuls des projets hautement prioritaires soient entrepris; b) de continuer a ameliorer la planification et la coordination des travaux, grace notamment a l'adoption de criteres techniques et economiques valables pour Ie choix des projets; c) de financer Ie coat en devises de travaux prioritaires prevus dans les lois-programmes et de remplacer des sources de financement plus onereuses; et d) de renforcer les operations d'entretien et d'accroftre la producti vite du materiel et des fonds budgetaires grace a la formation\. 3\.03 Pour atteindre ces objectifs, il est prevu de financer dans Ie cadre du pret envisage, pendant la periode 1981-84, les categories suivantes a) Genie civil : Des travaux de construction, de reconstruction et de renforcement de la chaussee sur Ie reseau de routes d'interet natio nal; pour Ie moment, il n'est pas prevu que Ie pret finance l'ame lioration de routes d'interet local ou de pistes agricoles si ce n'est la route Adzope-Betie (100 km environ) dans Ie cadre du projet de plantation d'heveas finance par la 8anque mais au besoin, il pour rait Ie faire; b) Assistance technique et formation pour les diverses directions du IvlTPTCU; et  - 24 \. c) Mat~riel d'entretien routier a l'intention des brigades d'apprentissage\. d) Materiel du laboratoire routier : pour poursuivre les travaux de recherche sur les normes de conception des chauss~es\. 3\.04 En outre, les representants de la Banque ont examine avec le Gouver nement les criteres et procedures a appliquer pour le choix de travaux rou tiers a entreprendre et pour leur financement par le Pr~t sectoriel, comme on le verra dans les sections suivantes\. Le plafond des investissements con sacres aux routes d'interet national a et~ fixe pour 1981 et la part du secteur routier dans le programme public d'investissement a ete determinee pour 1982 et 1983 (par\. 3\.08)\. Les besoins d'assistance technique ont ~te definis avec plus ou moins de precision (par\. 3\.12), et un montant equivalant a 6 millions de dollars sera pr~leve sur le Pr~t sectoriel pour financer son coat en devises\. Environ 200 000 dollars ont ete affectes a l'achat de materiel pour le laboratoire de recherche sur les routes d~crit a l'Annexe 5\. B\. Criteres et procedures 3\.05 La Banque et le Gouvernement (MTPTCU et MFPE) tiendront, pendant toute la dur~e du pr~t, des reunions semestrielles pour reexaminer le pro gramme d'investissements routiers envisage et le plafond de ces investisse ments, le choix des depenses a financer au moyen du pr~t et les resultats atteints\. Ces reunions permettront : a) d'etudier comment les projets ont ete executes pendant l'annee ~coulee; b) d'examiner les progres realises par le Gouvernement en matiere de planification intermodale des transports et le programme d'inves tissements routiers qu'il propose; c) de fixer un plafond aux investissements routiers; et d) de d~cider des depenses additionnelles a financer au moyen du pret\. 11 a ete convenu que chaque annee la premiere reunion aurait lieu en mars ou avril, c'est-a-dire au moment de la preparation de la Loi-Programme, et la deuxieme en septembre ou octobre\. Ces dispositions ont ete confirmees lors des negociations (par\. 4\.02 b)\. Selection des travaux de genie civil 3\.06 11 faudra veiller a ce que tous les travaux a entreprendre dans le secteur routier aient une priorite economique elevee, soient coordonnes avec les programmes concernant d'autres modes de transport, soient con9us selon des normes optimales et soient executes au moindre coat; a cette fin, il a ete indique, lors de l'evaluation, qu'il conviendrait d'appliquer les criteres suivants :  - 25 a) les projets routiers inscrits dans Ie programme triennal d'investis sements seront evalues conformement aux criteres economiques et techniques retenus et devront avoir un taux estime de rentabilite economique de 12 % au moins, compte tenu de la reduction prevue des coOts de fonctionnement des vehicules, des coats preliminaires calcules dans les avant-projets, des economies eventuellement realisables sur l'entretien et des effets possibles sur les autres modes de transport; b) Ie Gouvernement decidera quels sont les projets remplissant les criteres de rentabilite economique a inclure dans Ie programme triennal d'investissements routiers et discutera de son choix avec la Banque; c) chaque projet devra etre etabli selon des normes techniquement ra tionelles et economiquement justifiees; en particulier il faudra, lorsque cela sera possible, etudier differents traces et profils en travers possibles et conformes aux normes du MTPTCU, et les dossiers techniques detailles devront proposer la solution jugee la moins couteuse apras une evaluation soigneuse des differentes possibili tes\. Le taux de rentabilite economique, calcule a partir de l'esti mation detaillee des coOts figurant dans les dossiers techniques, devra ~tre d'au moins 12 % pour que les travaux soient entrepris; et d) lea dossiers d'appels d'offres devront prevoir, Ie cas echeant, des petits travaux complementaires indispensables, pour eviter les conse quences coOteuses des clauses de revision des prix et des modifica tions ulterieures des marches\. 3\.07 En fait, les nouveaux projets qu'il a ete propose jusqu'a present d'inclure dans Ie programme d'investissements routiers pour 1980-82 (par\. 3\.10 et :,\.11) suivent deja ces principes\. Au cours des negociations, Ie Gou vernement a donne 1 'assurance que tous les travaux routiers effectues dans Ie cadre du Pret sectoriel respecteront les criteres ci-dessus; les projets ne seront approuves que lorsque des dossiers techniques complets et des etudes economiques definitives detaillees auront ete presentes a la Banque et juges satisfaisants par celle-ci\. (par\. 4\.02 c)\. PIa fonds des investissements routiers 3\.08 A la suite des entretiens que la Banque et Ie Gouvernement ont eus au sujet du programme d'investissement global en Cote d'Ivoire et en vue notam ment de rendre Ie pays a meme d'absorber un nouvel accroissement de la dette etrangere, dont Ie service constitue une charge deja lourde et croissante, il a ete fixe un plafond aux investissements qui pourraient etre consacres a chaque secteur de l'economie au cours des prochaines annees\. Ces plafonds tiennent  - 26 compte des affectations sectorielles de fonds passees et des ressources locales dont on compte pouvoir disposer\. II a ete convenu que, pour Ie secteur routier, Ie plafond acceptable est actuellement de 56 milliards de francs eFA par an pour 1981, soit 12 % du programme global d'investissements publics, pour les travaux en cours ou a entreprendre, toutes sources de financement confondues\. II a ete decide qu'au cours des annees suivantes, les investissements relatifs au reseau de grandes routes resteraient limite a 12 % environ du programme global d'investissements publics\. Cette decision sera revisee, le cas echeant, en fonction de l'evolution de la conjoncture (par\. 4\.03 a et b)\. II a ete convenu en outre qu'aucun projet ne sera entrepris s'il n'a ete prealablement inscrit dans le programme triennal d'investissements et s'il n'a pas fait l'objet d'une consultation entre Ie Gouvernement et la Banque (par\. 4\.02 d)\. e\. Programme d'investissements routiers 1980-82 3\.09 Pour terminer les travaux et programmes en cours ainsi que les pro- jets prevus de revetement et de renforcement des routes, i l faudra 211 mil liards de francs CFA, sur cinq ans, aux prix de 1980, soit en moyenne 42 mil liards de francs CFA par an\. En 1981, les engagements reportes de l'annee precedente representeront, a eux seuls, 44 milliards de francs CFA, aux prix courants\. A cela s'ajouteront de nouveaux investissements, prevus par Ie pr@t sectoriel, pour un montant total de 56 milliards de francs eFA en 1981; ce financement est destine a remplacer les credits fournisseurs (par\. 2\.36)\. 3\.10 Les nouveaux elements qu'il est propose d'inclure dans Ie programme d'investissements routiers 1981-82 sont enumeres ci-apres; chacun d'eux res pecte les criteres economiques enonces au paragraphe 3\.06\. Etant donne Ie montant eleve des engagements pour 1980, la plupart des travaux ne pourront etre entrepris qu'a la fin de 1981 et certains devront ~tre poursuivis en 1984 et au-dele\. Selon l'etat d'avancement de la preparation des sous-projets, les retards dans la passation des marches et les periodes d'exe cution, ces elements seront finances par Ie Pret sectoriel a partir de 1981\.  - 27 ELEMENTS ET COUTS (en millions de dollars, et en prix de 1980) Pourcentage Monnaie du total nationale Devises Taxes Total en devises Genie civil a\. Renforcement de routes Akoupe-Abengourou 2,2 11,0 5,3 18,5 Akoupe-Bongouanou 0,9 0,9 2,3 7,6 Nan-Issia 2,5 12,4 6,0 20,9 b\. Construction de routes Mafou-Akoupe 4,3 21,6 10,6 36,5 Total 9,9 49,4 24,2 83,5 59 c\. Imprevus 15 % pour depassement des quantites 1,6 7,4 3,6 12,6 Ajustements des prix (12 % par an) Total des travaux de genie civil 14,6 69,0 33,9 117,6 3\.11 Pour les sous-projets supplementaires ci-dessous, Ie MTPTCU est en train de mettre au point des etudes ou des dossiers d'appel d'offres; au cours des negociations, il a ete decide de lea inclure dans le Pr~t sectoriel, en fonction de la disponibilite des fonds: renforcement de la route San Pedro-Issia (210 km); construction des routes Dimbokro-Bondouanou (70 km) et Issia Daloa (45 km); amelioration de la piste Adzope-Betie (100 km); construction d 'un pont sur la Camoe, a ~lossou achat de bacs pour la traversee du Bandama, a N'lida  - 28 D\. Assistance technique et formation 3\.12 Jusqu'a present, on a pu calculer avec precision qu'il faudrait 137 hommes-mois pour les diverses directions du MTPTCU, alors que Ie programme de formation de personnel intermediaire d'entretien des routes et, eventuelle ment, d'entrepreneurs locaux et de chauffeurs de poids lourds est encore au stade initial de la preparation\. Ce programme comprend : a) 72 hommes-mois pour prolonger l'assistance technique Louis Berger/ BCEOM fournie dans Ie cadre du Projet d'entretien de grandes routes et de routes de raccordement de mars a decembre 1980, afin d'eviter une interruption en attendant que Ie programme de formation prevu dans Ie cadre du Pr~t sectoriel envisage (voir (f) ci-apres) soit operationnel; b) 32 hommes-mois pour aider a organiser un service de donnees et a former des agents ivoiriens de la DCTP a etablir et a tenir a jour les inventaires routiers et les comptages de la circulation (Annexe 2); c) 32 hommes-mois pour aider a organiser la planification des trans ports routiers a la DCTT et a y former du personnel ivoirien spe cialise dans ce domaine (Annexe 3); \. d) un homme-mois pour aider ~ mettre au point un programme de forma tion de chauffeurs de poids lourds (Annexe 4), programme a executer eventuellement avec Ie concours d'une assistance technique supplementaire; e) des bourses et du materiel de recherche pour Ie LBTP, qui est Ie laboratoire national des sols (Annexe 5); f) un programme, comprenant une assistance technique, du materiel didactique et du materiel, pour la formation sur Ie tas de meca nlClens et de conducteurs d'engins a la DCM, a la DER, a la DTRP et dans les directions regionales (Annexe 6); et g) Ie cas echeant, la formation d'entrepreneurs locaux\. 3\.13 Le programme de formation de personnel d'entretien prevu dans Ie cadre du Pr~t sectoriel envisage constituera la suite du programme de for mation entrepris dans Ie cadre du Troisieme projet routier et s'adressera essentiellement : i) a des conducteurs d'engins et a des chauffeurs de poids lourds; Ii) a toutes sortes d'agents employes a l'entretien du materiel; iii) a du personnel d'encadrement, au niveau des chefs d'equipes et des chefs de secteurs\. II est envisage de former les chauffeurs principalement au Centre de formation poids lourds de Vridi et de leur faire suivre ensuite un stage pratique de courte duree sous Ie contrOle du personnel d'encadrement\. Les agents de l'entretien et Ie personnel d'encadrement recevront une forma tion theorique de base de courte duree et une formation sur Ie tas au sein d'equipes specialisees et dans\. des centres regionaux\. A titre provisoire, on a identifie les besoins suivants :  - 29 a) la creation de brigades de formation et de production dotees du ma teriel necessaire et la formation de specialistes de l'entretie n des routes charges de diriger les equipes, avec Ie concours de techniciens de l'entretien; b) un renforcement de certains des ateliers regionaux (peut-etre trois parmi les sept qui existent), qui seront dotes de materiel de for mation et, peut-etre, d'une salle de formation; c) environ 15 hommes-annees d'assistance technique\. 3\.14 Les services d'un consultant de la Banque ont ete retenus pour eva luer les besoins en formation de personnel d'entretien en C6te d'Ivoire et pour mettre au point Ie programme de formation et de perfectionnement sur Ie tas des agents de terrain\. Selon les estimations, il faudra engager et former au cours des quatre prochaines annees quelque 1\.900 agents dans differentes specialites et la plupart des 3\.200 agents actuels ont besoin d'une formation de base supplementaire, qu'ils recevront principalement sur Ie tas\. Bien qu'il ait defini et identifie convenablement l'ampleur des besoins, Ie con sultant a recommande un programme qui est trop ambitieux et qui ne tient pas assez compte des ressources disponibles (actuellement et dans un proche ave nir) en installations de formation professionnelle ni du programme de for mation en cours\. Les travaux preparatoires doivent se poursuivre; au cours des negociations, un accord a ete conclu sur la necessite de preparer Ie pro gramme deformation (par\. 4\.02 e) ainsi que sur Ie cadre de references envisage (Annexe 6)\. 3\.15 Le cadre de references envisage pour les alineas (a) a (d) ci-dessus a deja ete examine et au cours des negociations, Ie Gouvernement a accepte de creer lea services d'etudes analytiques au sein du HTPTCU avant Ie ler juillet 1981 (par 4\.02 e); Ie Gouvernement a deja pris contact avec des consultants pour qu'ils lui fassent des propositions de services d'assistance technique\. Au cours des negociations, Ie Gouvernement a donne l'assurance que Ie plan d'action, fixant les responsabilites et les calendriers pour l'assis tance technique et les programmes de formation conformement a ce qui est propose a l'Annexe 7, sera suivi pendant l'execution des projets (par 4\.04)\. E\. Passation des marches et execution 3\.16 Les travaux de genie civil et Ie materiel susceptibles d'etre fi nances dans Ie cadre du Pret sectoriel feront l'objet d'appels d'offres inter nationaux conformement aux directives de la Banque en matiere de passation des marches\. Les marches concernant du materiel, des materiaux de construction et des fournitures coQtant moins de 100 000 dollars, par exemple Ie materiel de recherche, Ie materiel didactique et Ie materiel d'entretien routier destine a la formation, pourront etre passes, jusqu'a concurrence de 600 000 dollars environ, a la suite d'appels d'offres locaux, a condition que les procedures suivies soient jugees acceptables par la Banque\. Au cours des negociations,  - 30 ~ Ie Gouvernement a accepte de limiter a 36 mois, ou trois saisons seches, la duree de tous les travaux, pendant la periode du pret t afin de stimuler la concurrence et d'eviter une hausse excessive des coats de construction (par 4\.02 f)\. 3\.17 L'assistance technique a la DCTP et a la DCTT demandera environ 137 hommes-mois de services de consultants pour un coat total estime a 1 600 000 dollars environ, y compris une provision pour hausse des prix\. Le coat des services d'assistance technique a ete calcule sur la base des prix unitaires par homme et par mois payes pour des services semblables en COte d'Ivoire\. Le coat moyen par consultant et par mois, qui comprend Ie traitement et les frais generaux (frais d'installation, frais de bureau, indemnites d'ex patriation, securite sociale, etablissement des propositions et autres coats indirects), devrait se situer aux alentours de 7 000 dollars\. Les depenses remboursables aux consultants sont estimees a 4 000 dollars par homme et par mois, y compris Ie logement, les deplacements a l'interieur du pays et a l'exterieur et les telecommunications\. Les mandats seront discutes lors de l'evaluation et les conditions d'emplois offertes aux experts devront etre jugees satisfantes par la Banque\. 3\.18 L'organe d'execution sera Ie MTPTCU\. La DCCGT sera responsable des rapports de supervision et d'achevement des travaux\. La DCTP et la DCTT devront rediger les rapports d'activites concernant \.1 'assistance technique fournie a leurs sous-directions respectives et la Direction centrale de la formation professionnelle (DCFP) et la DER publieront en commun des rapports d'activites semestriels sur Ie programme de formation a l'entretien\. Au cours des negociations, Ie Gouvernement a accepte de fournir a la Banque les rapports d'activites ainsi que Ie rapport d'achevement du projet dans les six mois suivant Ie dernier decaissement\. (par\. 4\.02 g)\. F\. Estimations des coats 3\.19 Le Pret sectoriel envisage, d'un montant de 100 millions de dollars, financera Ie coat en devises des investissements routiers, de l'assistance technique et des programmes de formation\. Le coat en devises etant estime en moyenne a 60 % des coats totaux, Ie pret permettrait des investissements d'un montant total de 166 millions de dollars, soit 35 milliards de francs CFAj les taxes representent 29 % des coats totaux\. L'equivalent de 6 millions de dollars sera reserve a l'assistance technique et aux programmes de formation et 94 millions de dollars aux travaux de genie civil\. Le Pret sectoriel envi sage permettrait donc de financer jusquta 15 % du programme d'investissements routiers pour 1981-83, Ie pourcentage variant en fonction du taux reel d'inves tissement pendant cette periode\. 3\.20 En ce qui concerne 1 'assistance technique, les estimations de coats sont fondees sur les derniers marches adjuges par Ie MTPTCU pour les services d'experts etrangers et correspondent aux honoraires verses aux specialistes etrangers en Afrique de l'Ouest (par\. 3\.17)\. On estime, a titre indicatif,  - 31 que le programme de formation couterait environ 5,8 millions de dollars, compte tenu des quelque 15 hommes-annees d'assistance technique et du materiel dont les equipes de formation pourront avoir besoin (par\. 3\.13)\. 3\.21 Au cours des negociations, le Gouvernement et la Banque sont convenus d'une serie de projets prioritaires qui seront inclus dans le Pret sectoriel (par\. 3\.10)\. Les etudes techniques detaillees de toutes les propositions iden tifiees (cf\. Tableau par\. 3\.10) seront achevees en decembre 1980 et les dos siers d'appel d'offres seront prets en janvier 1981\. Le coat total de ces travaux est estime a quelque 117 millions de dollars, sur 1a base des coats estimatifs d'ingenierie pre1iminaire, de depassements des quantites de 15 % et d'une hausse des prix de 12 % par an pendant la periode d'execution (1981-83)\. G\. Decaissements 3\.22 Les decaissements du pret couvriront le coat total en devises des travaux effectues chaque annee entre 1981 et 1983, dans Ie cadre des sous projets finances par 1a Banque, jusqu'a ce que les fonds soient epuises\. Le Gouvernement sait qu'il se peut que la derniere annee d'execution exige plus de devises que ce11es du Pret sectoriel qui n'auront pas encore ete engagees, et il est dispose a financer Ie solde\. Le Gouvernement a ega1ement accepte de financer tout depassement des couts afferents aux projets approuves et en cours qui ne pourraient pas etre couverts au moyen des fonds du Pret sectoriel\. (par\. 4\.02 h)\. 3\.23 Les fonds du Pret sectoriel envisage seront decaisses pour couvrir les coats en devises selon les modalites suivantes : 59 % du coat total des travaux, impots compris, des projets approuves; 100 % du coat c\.a\.f\. du materiel, des materiaux et des fournitures importes; et 68 % du coat de l'assistance technique et de la formation\. 3\.24 Au stade actue1, il n'est possible d'etablir qu'un calendrier pro visoire des decaissements, (voir ci-dessus) en se fondant sur les p1afonds 1imitant les nouveaux travaux entrepris dans le cadre de la Loi-Programme, sur la duree habituelle des travaux de genie civil et sur le fait que le finance ment au moyen du Pret sectoriel s'elevera en moyenne a 60 % du coat total\. Les decaissements devraient commencer pendant l'exercice 1981 et etre acheves au cours de l'exercice 1984; i1 est recommande de proceder a un financement retroactif de l'assistance technique pour poursuivre Ie programme d'entretien et commencer l'execution du projet, mais le montant a prevoir a ce titre ne devrait pas depasser 600 000 dollars avant la signature de l'accord de prete  - 32 - Calendrier estimatif des decaissements (en millions de dollars) Exercice de la Banque se terminant en Decaissements cumulatifs 1981 28,0 1982 58,0 1983 88,0 1984 100,0 H\. Viabilite economigue et risgues 3\.25 Etant donne que tous les travaux de genie civil a financer dans Ie cadre du Pr~t sectoriel devront avoir un taux de rentabilite estimatif minimum de 12 %, calcule sur la base d'estimations detaillees de coats d'ingenierie, et que les investissements seront consacres aux routes d'inter~t national sur lesquelles il est Ie plus urgent de proceder a des travaux, Ie projet ne presente pas de risques particuliers du point de vue de la viabilite economique\. 3\.26 L'evaluation preliminaire technique et economique des travaux devant ~tre entrepris en 1981 est terminee\. Les priorites ont ete choisies pour des raisons techniques, sur la base, dans Ie cas des travaux de renforcement, de mesures de leur resistance de Ie chaussee realisees in-situ\. L'eveluation economique a laquelle Ie BCET a procede ensuite a demontre que tous ces travaux respectaient les criteres economiques fixes comme conditions du Pr~t sectoriel\. Le resultat de ces calculs, qui semble exact, est resume ci-apres et des don nees sur les tron90ns de routes seront fournies a l'Annexe 8 :  - 33 TRI % I nv es tissement Y com taxes non Sans be- pris be- comprises nefices nefices Niveau Longueur VJ (millions das aux dus aux d' amelio- (km) en de gains de gains de \. Sections ration Existant Proposee 1982 dollars) temps temps Akoupe- Amelioration 71 66 700 13,2 12,6 14,0 Abengourou partielle et renforcement Akoupe- Renforcement 60 60 500 5,3 13,2 14,0 Bongouanou r~an-Issia Renforcement 188 188 500 14,9 14,6 16,2 rlafou-Akoupe Reconstruction 105 98 1\.400 25,9 17,2 18,9 3\.27 Dans son etude de faisabilite, Ie BCET est parti de Ithypoth~se q~e les routes seraient ouvertes au trafic en 1982 et que 15 ans pourraient s'ecouler avant qu'elles aient besoin d'un nouveau renforcement\. Les avan tages consideres ont ete : la reduction du coat de fonctionnement des vehi cules pour Ie trafic normal, induit et detourne si applicable, les economies de frais d'entretien et, dans Ie test de sensibilite, Ie gain de temps pour les voyageurs\. On a suppose les taux annuels d'accroissement de la circula tion suivants : sur les routes au nord d'Abidjan, environ 5 % pour les poids lourds et 4 I pour les autres vehicules; sur Ie tronQon Issia-Man au nord de San Pedro, 6 % pour les poids lourds et 7 % pour les autres vehicules\. On a estime que l'accroissement du trafic induit se situerait entre 8 % et 13 % pour les voitures particulieres et entre 6 et 10 % pour les transports publics de voyageurs\. 11 n'a pas ete prevu d'accroissement de trafic induit dans Ie cas des transports de marchandises\. Le cout hors taxes de fonctionnement des vehicules calcule par la SETEC en 1976 a ete mis a jour sur la base des prix de 1979 et l'on a calcule les economies permises par une amelioration de la chaussee en utilisant la me thodologie que Ie Laboratoire de recherches sur les transports et les routes a mis au point au Kenya (Annexe 1, Tableau 12)\. Les economies de frais d'entretien ont ete calculees en fonction de l'etat actuel et futur des routes, ainsi que des volumes de circulation prevus\.  - 34 3\.28 Pour l'analyse de sensibilite, Ie BCET a calcule la valeur monetaire des economies de temps qui seraient realisees grace a un accroissement des vitesses moyennes permis par l'amelioration des routes; pour chacune des trois categories de transport de voyageurs a envisager (voitures particulieres, petits autobus et grands autocars), Ie Bureau a accorde une certaine valeur a chaque heure de voyage gagnee (respectivement 3,60 dollars, 1,30 dollar et 3,20 dollars) en se fondant i) sur la moyenne des salaires du personnel expa trie, des techniciens et des travailleurs non qualifies et ii) sur l'hypothese qu'environ 15 % seulement des deplacements sont directement lies au travail et que la composition des usagers est differente, selon le mode de transport\. Toutefois, les gains de temps n'augmentent Ie taux de rentabilite que de moins de 2 %\. Les tests de sensibilite fondes sur l'hypothese d'un accroissement des coats de 10 % coIncidant avec une reduction des avantages, gains de temps non compris, de 10 % montrent que les taux de rentabilite pourraient tomber entre 10 et 11 % dans Ie cas des projets de renforcement\. Mais rien ne donne a penser que la circulation pourrait diminuer dans la region et les coats de construction utilises dans l'etude de faisabilite sont realistes\. Les taux de rentabilite seront recalcules lorsqu'on disposera d'estimations techniques definitives des coats\. 3\.29 Le Gouvernement s'est declare pr@t a planifier soigneusement les investissements dans Ie secteur routier de faQon a ce que le developpement de celui-ci aille de pair avec Ie progres economique et social general et que Ie reseau soit ameliore et entretenu avec un maximum d'efficacite dans les limites des ressources susceptibles d'etre consacrees aux investissements\. Cette attitude est due, au moins en partie, a un accroissement des contraintes finan cieres au cours des dernieres annees, mais une situation plus facile pourrait inciter Ie Gouvernement a slen tenir moins fermement a cet engagement\. Au surplus, les notions de planification sont relativement nouvelles et leur introduction risque de creer des tensions dans l'administration\. Toutefois, les limites imposees aux niveaux des investissements, les criteres de planifi cation, l'assistance technique, et une supervision intense du projet devraient faciliter la transition et permettre d'eviter les ecueils signales\.  - 3\.5 IV\. POINTS D'ACCORD ET RECOMMANDATIONS 4\.01 Lors des negociations, Ie Gouvernement a presente des estimations a jour des coats afferents aux travaux routiers en cours et la liste des projets qu'il se propose d'inscrire dans Ie projet de Loi-Programme 1981-83 et les sous-projets presentes pour @tre finances au moyen du Prat secto riel (par\. 3\.09 et 3\.10)\. En outre, Ie plan d'action (Annexe 7) a ete examine et retenu comme ligne directrice pour l'execution des projets (par\. 3\.15)\. 4\.02 Au cours des negociations, les points importants dont la liste suit ont ete examines et approuves et devront faire l'objet de clauses specifiques dans l'Accord de pr@t : a) Ie Gouvernement poursuivra ses efforts en vue d'entretenir ses reseaux routiers conformement a de saines pratiques techniques et fixera des objectifs de productivite appropries en matiere d'entretien (par\. 2\.22); b) la Banque, Ie MFPE et Ie MTPTCU tiendront des reunions semestrielles afin d'etudier les plans de transport dans leur ensemble, Ie pro gramme d'investissements routiers envisage et les progres realises dans Ie cadre du Prat sectoriel, et de convenir de plafonds des investissements routiers et, Ie cas echeant, du financemenf d'ele ments supplementaires a partir du Prat sectoriel (par\. 3\.05); c) seuls les travaux de genie civil respectant les criteres techniques et economiques enonces au paragraphe 3\.06 pourront atre finances au moyen du Prat sectoriel (par\. 3\.07); d) tous les travaux routiers a entreprendre, independamment de la source de leur financement, auront prealablement ete inscrits dans Ie programme d'investissements routiers (par\. 3\.08)\. e) des programmes de formation seront etablis et les services d'etudes analytiques seront crees au sein du MTPTC en juillet 1981 au plus tard (par\. 3\.14 et 3\.15); f) la duree de tous les marches de travaux de genie civil sera limitee a 36 mois; g) il sera etabli des rapports d'activites et un rapport d'achevement du projet (par\. 3\.18); et h) Ie Gouvernement financera, Ie cas echeant, Ie solde du coat en devises du dernier projet approuve dans Ie cadre du Prat sectoriel, ainsi que les depassements de coat enregistres pour d'autres pro jets approuves et en cours, si Ie reste des fonds du pret non enga ges n'est pas suffisant (par\. 3\.22);  - 36 ~ 4\.03 Au cours des negociations les points suivants ont ete egalement con venus et consignes dans Ie proces-verbal : a) en 1981, l'ensemble des investissements consacres au secteur routier ne depassera pas 56 milliards de francs CFA en prix courants, taxes comprises (par\. 3\.08), soit 12 % du programme d'ensemble des depenses publiques d'equipement; b) pour 1982 et 1983, la part qui convient des investissements a consa crer aux routes reliant les villes entre elles est d'environ 12 % du programme d'ensemble des depenses publiques d'equipement de cha cune de ces deux annees, et elle peut ~tre revisee en cas de chan gement de la situation economique (par\. 3\.08)\. 4\.04 Le Gouvernement a donne 1 'assurance qu'il examinerait avec la 8anque les normes de productivite fixees pour les brigades d'entretien et les allocations budgetaires a venir (par\. 2\.25)\. 4\.05 II est recommande de financer retroactivement, dans Ie cadre du Pr~t sectoriel, l'assistance technique necessaire a l'entretien des routes, pour la periode allant de mars 1980 a la date de la signature du pr~t, jusqu'a concur rence de 600 000 dollars (par\. 3\.24)\. 4~06 Le projet justifie l'octroi par la 8anque d'un pret rle 100 millio~s de dollars au Gouvernement de la Cote d'Ivoire pour une periode de 17 ans, y compris un differe d'amortissement de quatre ans\.  - 37 - ANNEXE 1 Tableau 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT DtEVALUATION Donnees concernant 1a Regie Abidjan-Niger, 1970-79 A\. Trafic marchandises et voyageurs Tonnes-ki1ometres nets Voyageurs-kilometres (millions) (millions) 1970 404 626 1971 443 700 1972 472 778 1973 548 883 1974 522 918 1975 432 946 1976 550 1040 1977 544 1173 1978 1/ 560 1254 1979 465 1277 B\. Transport de marchandises Annee Chargement moyen Chargement moyen Coefficient d'uti1isation des trains des wagons de 1a capacite (tonnes) (tonnes) 1970 521 16,1 1971 524 17,3 1972 533 18,0 0,48 1973 491 19,1 0,51 1974 472 18,5 0,49 1975 459 19,8 0,37 1976 470 20,9 0,57 1977 522 24,4 0,53 1978 1/ 694 22,9 0,57 1979 680 22,9 0,52 C\. Recettes Annee Recettes tota1es provenant Recettes tota1es provenant du trafic marchandises du trafic voyageurs (millions de FCFA) (millions de FCFA) 1970 2322 1601 1971 2602 1792 1972 2718 2115 1973 3332 2376 1974 3610 2829 1975 3395 3471 1976 4496 4490 1977 5097 n\.a\. 1978 1/ 5709 6930 1979 5534 8212 !/ Les donnees s'etendent sur 12 mois a partir d'octobre 1977\. Source: DeTP, juil1et 1979, mise a jour - aout 1980  - 38 ANNEXE 1 Tableau 2 COTE D' IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Tonnage manipu1e dans 1es ports d'Abidjan et de San Pedro (1968, 1971-78) (Importations et exportations) (mi11iers de tonnes) Abidjan San Pedro Marchandises Vrac Produits Marchandises Vrac Produits Annee diverses solide petro1iers TOTAL diverses solide petro1iers TOTAL 1968 1 820 1 919 1 006 4 745 1971 2 057 2 283 1 014 5 354 70 5 75 1972 2 247 2 320 1 358 5 925 21 829 10 860 1973 2 629 2 459 1472 6 560 36 971 11 1 018 1974 2 773 2 260 1 564 6 597 22 784 15 820 1975 2 742 1 779 1 516 6 039 37 882 16 934 1976 3 374 2 496 1 827 7 697 19 1 184 20 1 225 1977 1 784 7 864 72 1 264 23 1 359 1978 113 1 081 22 1 216 Vrac solide = ciment + clinker + gypse (importe) + bois Source: Port autonome, 1979  - 39 - ANNEXE 1 Tableau 3 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Statistiques du trafic aerien, 1974-77 PAS SAGERS (mUliers) FRET (mi11iers de tonnes) Relations internationales Liaisons Longue Inter- Trafic Trafic Annee interieures 1/ distance };\./ africaines ]\.) Total interieur international :!:\./ , 1/ \. 1974 50\.5 155 154 309 0,41 13,43 1975 56,7 164 181 345 0,47 14,35 \. 1976 75,2 193 203 396 0,42 16,46 1977 88,1 231 234 465 0,42 20,95 Accroissement moyen annuel 1974-77 (%) + 20,4 + 14,2 + 15,0 + 14,6 + 20,0 + 16,0 Relations a longue distance = Vols reliant Abidjan a l'Europe, au Moyen-Orient, aux Etats-Unis\. Relations interafricaines = Vols reliant Abidjan aux autres pays africains\. :!:\./ Les parts respectives du fret transporte sur les relations a longue distance et transafricaines ne sont connues que pour Air Afrique et l'UTA et se repartissent comme suit: Fret trans120rte sur Air Afrigue - UTA en mUliers de tonnes 1974 1975 1976 1977 Relations a longue distance 8,95 7,70 9,27 13,83 Relations transafricaines 2,87 4,01 4,46 Total 11,17 10,57 13,28 18,28 1/ Relations non assurees par l'aeroport d'Abidjan: 1974 1975 1976 1977 Trafic passagers interieur (milliers de passagers) 2,2 4,1 7,5 9,3 Trafic international de l'aeroport de Yamassoukro - Passagers (milliers de passagers) 1,1 1,1 Trafic de fret international (mil1iers de tonnes) 1,2 Source: DCTP, 1979; ASECNA, Air Ivoire, Air Afrique  COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT DiEVALUATION \. Immatricu1ation des vehicu1es en Cote d'Ivoire Categories de au: vehicu1es 31/12/70 31/12/71 31/12/72 31/12/73 31/12/74 31/12/75 31/12/76 31/12/77 31/12/78 Motocyc1ettes 1 940 2 530 3 035 3 455 3 760 4 106 4671 5 136 6 410 Voitures particu1ieres 31 465 41 048 50 300 59 579 67 542 75 868 89 460 98 208 109 715 Cars et autobus 1 530 1 980 2 280 2 726 3 300 3 948 4 705 5 306 ,6 006 Camionnettes 7 447 9 749 11 892 14 090 15 976 17 970 21 589 23 544 26 041 +: o Camions 5 700 7 441 9 099 10 780 12 222 13 742 16 252 20 536 22 358 Vehicu1es speciaux 186 250 285 361 441 536 616 693 765 Tracteurs (routiers et agrico1es) 2 154 2 842 3 455 4 093 4 640 5 210 5 999 6 065 6 568 Remorques (routieres et agrico1es) 153 160 173 180 197 211 224 243 286 Semi-remorques (routieres et agrico1es) 1 778 2 082 2 220 2 486 2 654 2 895 3 200 3 250 3 652 TOTAL: 52 353 68 082 82 739 97 750 110 732 124 486 146 716 162 981 181 801 ~ I-'l III Source: DCTT, 1979 c:r' \. ~ /I) III I:! +:- \.  - 41 - ANNEXE 1 Tableau 5 COTE D'IVOlRE PRET AU SECTEu~ ROUTIER RAPPORT D'EVALUATION Evolution de 1a structure des trafics Accroissement moyen \. Nature des trafics Unites Estimation des trafics 1975 1982 1987 annue1 % 1\. Trafic de vOl3seurs \. 1\.1 Nombre de voyageurs milliers 19 960 42 900 65 790 10,5 a bord de voitures particu1ieres milliers 3 150 9 760 17 120 15,2 par transport public milliers 16 810 33 140 48 670 9,3 1\.2 Nombre de\. voyageurs-km millions 2 922 6 315 9 755 10,6 a bord de voitures particulieres millions 462 1 395 2 455 14,6 par transport public millions 2 460 4 920 7 300 9,5 2\. Marchandises 2\.1 Tonnage transporte milliers de tonnes 6 252 9 452 12 256 5,8 - bois mi1liers de tonnes 2 194 1 588 1 344 - 4,0 - liquides en conteneur mi1liers de tonnes 563 1 095 1 412 8,0 \. - marchandises diverses milliers de tonnes 3 495 6 769 9 500 8,7 Source: SETEC, Etude des transports en Cote d'Ivoire, decembre 1976  - 42 - ANNEXE 1 Tableau 6 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Structure des tarifs routiers Tarifs 1976 Tarifs 1978 Nature des produits Unites Min\. Max\. Min\. Max\. Categorie A Ciment t-km 10 13 12,0 15,5 Categorie B Cafe-cacao t-km 17 17 20,3 20,3 Pondereux t-km 16 19 19,1 22,7 Marchandises en volume m3/km 7 12 8,4 14,3 Marchandises diverses t-km 19 22 22,7 26,3 Embal1ages vides t-km 12 15 14,5 17,9 Categorie C Produits chimiques et matieres dangereuses t-km 30 37 35,9 44,2 Categorie D Produits petro1iers - 300 premiers km hI x km 2,40 2,87 - au-de1a de 300 km hI x km 2,16 2,58 Livraison en ville hI 81 97 Categorie E Grumes pour l'exportation - - 200 premiers km t-km 19,20 23,0 - de 200 a 500 km t-km 16,00 1'l,1 - au-dela de 500 km t-km 14,50 17,3 Grumes pour 1es industries locales Tarif ci-dessus diminue de 10% Source: BCET, Evaluation des tarifs routiers, decembre 1978  ANNEXE 1 - 43 - Tableau 7 COTE n'IVOlRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Caracteristiques techniques des routes Desig;J\.ation Symbole du et Categorie geometrique de route parametre unite 30 20 1° Except \. Vitesse de base Vb (km/h) 60 80 100 120 \. Devers maximal o M(%) 7 7 7 7 r, =< \.J p\. Minimal absolu (devers oM RHm 120 240 425 665 , z Rayon ILl en Minimal normal (devers) RHm (0%) 240 <t25 66!:l l 000 ILl u Plan , (5%) (5%) (4%) (4%) ~ FJi (\.n) H Non deverse aR' 600 900 1 300 1 800 Declivite maximale <en rampe TIm (7\.) 7 6 5 4 c C'M ; l e I Minimal <lJ!1i::> absolu RVm 1 500 3 000 6 000 12 000 \. t:J "0-'1 0_ ;:\., tJ) C ('j c ro ~C'j- \.j\.J Hinimal normal RVN 3 000 6 000 12 000 12 000 0 \.J E z 1 Hinimal absolu RVm' - 1 500 2 200 3 000 4 200 c c ILl <lJ::> \.J I-<CI:< \. " \. '0 - 0 C <lJ 4\.J c Minimal normal RVN' 2 200 3 000 4 200 6 000 ~ >,OOa:l p\. ro C I-< CG <';I u Rayon as surant Ie depassement RVD(m) 6 SOD I 1 000 17 000 28 000 libre sur route a 2 ou 3 voies Source: SETEC, Etude des transports en Cote d'Ivoire, decembre 1976  - 44 - ANNEXE 1 Tableau 8 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Caracteristiques des pro fils en travers des routes Chaussee Accotements Plateforme Pente Pente Type de route largeur largeur transversale largeur transversale I Voie express 30 m 2 x 7 m 3 % droit: 2, 5 m 5 % gauche: 1, 5 m terre plein central: 3 a 8 m 15 % Route revetue a 2 voies 11m 7 m 3 % 2 m 3 a 5 % Routes A & B non revetues 9 m - - Routes C non revetues 6 m - - Source: SETEC, Etude des Transports en Cote d'Ivoire, decembre 1976\.  COTE DtIVOIRE PRET AU SECTEUR ROUTIER RAPPORT DtEVALUATION Resu1tats de 1a comptabi1ite ana1ytique - 1977 Couts de l'entretien courant pour 1 km de route (FCFA) T ACHE S A EN TERRE B EN TERRE C\.NC\. EN TERRE REVETUES Depers Deper\.sc Depense DepetD Designation Unite 7 U/Kl1l 7 U/Km 7 U/Km au Km 7 U/Km au Km au Km au Km \.po\. U1 Curage de fosses ml 8061 6,5 48 7606 9,4 45 798 2,7 4,7 12676 15,3 75,5 Entretien O\.A U 8560 6,9 0,47 6167 7,6 0,34 2318 7,9 0,13 8312 10, I 0,5 O\.A neufs U 5335 4,3 - 8292 10,2 - 4899 16,8 - 757B 9,2 - Debroussement m2 18080 14,6 4520 11707 i4,4 2926 J950 6,7 - 17204 20,8 4301 En plus partiel m3 5268 4,2 4,5 4168 5, I 3,6 1459 5,0 1,25 - - - Reprofilage passes 68389 55,1 12,2 39115 48,2 7,0 15843 54,3 2,8 - - - P\.A\.T\. m2 33977 41 , 1 28,0 Autres taches 10507 8,5 4045 5,0 1933 6J 6 2853 3,5 Total J24200 100 ~ ------ 81100 , 100 ~ 29200 100 82600 100 gi re f;j c Source: DER, Comptabi1ite ana1ytique de l'entretien routier, 1977 \O~  ANNEXE 1 - 46 - Tableau 10 Page 1 COTE D'IVOlRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Programme d'investissements routiers, 1978-87 \nnees Taux Ar,ncf! Montant interne j'inves ,"Oyennc ,1\.: 'l'oera_e (Hitl~ons tissement FCFA 75) C1l5e en de ren service tabilitt cov\. 1978 Fin des progr\.J:r\.'lIcs ilisc:rits olU projct de Plan 1976-1960 8 500 1979 Pro jc ts du groupe GI : P25 P27 - - Bou\.1k~-~:' S\.1hi\.J\.kro Di~bokro-8ongoudnou loutes revetue, 3 J 272 180 P43 - Aboisso-Ghdnol 1 2 voies S/Totd GI 7 13 104 556 I 980 15,0 % \. r TOTAL 22 000 1980 Proju! eu gr,,!\.:~e C2 : \. 1981 PI - Mer:t\.a\.iou-Akeupe Itenfol'cemcn t "t Uolrgissc:1ent l\. jill 3 072 P4 P9 - - Abidj\.1n-Dabou San Pcdl"o-:ereby P1atefo~Qe lou te revetue 2x2voies;revete~\.2voies a 2 voies 3 2 997 107 PIS PI7 - - Iss i a-Da lea Bouakc-5';ou:!li Itoute loute re\~ cue revetue \.i 2 ~ voies 2 4 1\., oic!s 2 2 011 OS6 PI8 - Bouake-rienin;boue loute rev~tuc 1 2 voies 3 253 P22 P23 - - Agnibile~rou-30noeu~ou BonGouko'J-Chand lou te loute re\'c tue \.i 2 re"etue \.i 2 "oies '/oies 6 180 457 P37 - Aboba-Ale\.,\.; louce revetue 1 2 voies 2 249 ! TOTAL 25 382 I Sa! 24,8 % 1982 Projets du ,rou;>e C) : 1983 P3\.2 - Abidj zr:- eol 5 Sol::l loute revetue l\. 2x2voies 3 235 P8\.2 PII - - San Pedro-?onC :':enand Oivo-<lU:!l~ 1Ollte'!revetue \.i 2 voies l\.cute rev';; Cue 1 2 voies 3 2 S82 231 \.12 PI3 - - OUQc-Coll;noa Cagno~-6,,"'\u\.l!le lou te revetue \.i 2 voies loute rev~tue 1 2 voies 2 3 126 "\.,c ~\.J PI' - Dato\.:-t\.:,;~!:::o Route revetuc, d 2 '/0 i es 2 764 P28\.1 - Dabeu-tolnau loute cevetue ~ 2 voias 5 991 P31\.4 - Souafle-!u~noula loute non rev\. -? 1\.1 :,e #9!,=e 11::1 I 416 I TOTAL 24 970 I 9Si\. 18,3 % 1984 ?~ojet' d:\.J ;~ou~e C:\. : 1985 P4 PI6 - - Abidi\.tn-Od~O)u Oaloa-S~;l\.:ela 'usage I 2x2voies loute revetue a 2 voies 2 5 907 421 P20 P24 - - rerke-O!\.:~~golocou~ou Agnibit~~rou-Ghol~a lloute cevecue a 2 voies lloute re,e Cue \.i 2 voies 2 I 200 243 P29 - Lanou-?ont ~eJgar\.d loute reV~tue a 2 voies 8 535 P36\.2 - Korho&o-~nol~olo loute rev~~ue 1 2 voies , TOTAL 2 S35 18,5 % 23 841 1 986 1986 Projets \.iu ~roupe C5 1987 P2 P7 - - Agboville-A~oup\.i L\.1kotol-?ont !,;c~;and llout\.e louta l'evetue a 2 voies revet!\.:e i 2 voi;ts 2 5 827 092 \. P21 P26 - - OUolngolod~u~ou-~li D\.toukro-Abe~~our~u loute Route revetue 1 2 voies reve tue a 2 voies 4 3 388 000 P38 - Koch060-S~!\.:ndiolli loute ~evetue a 2 voie~ 4 483 P40 Pftl\.2 - - Agbovi lie-!;' Do)uc:i Sou\.lk\.';-Sd[;)'I:I\.I Sokoro lloute Route reve:ue \.i ! voies -reVetLlC :i 2 voies 2 2 397 800 I TOTAL 2ft 987 I 958 13,0 % 1978 IEnsemble du programme de base 121 000 - 19,5 % a 1987 Source: SETEC, Etude des transports en Cote d'Ivoire, decembre 1976  - 47 ANNEXE 1 Tableau 10 Page 2 COTE D' IVa IRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Programme d'investissements routiers, 1978-87 Programmes optionne1s Programme 0Etionne~ A: Projcts attp\.ien~nt en fin de p~::iodc un t\.1UX interne de ren::;;\.bilite de 10 % \. Hontant en Taux Annee de mise interne Designation des projets ci 11ioo\.s de de FCFA 1975 en service rentabilite ~ \., P42\.2 Satama Sokoro-Tanda 8 086 1987 10,6 % Route rc/Stt:e a 2 voies PI9 Mankon::> TL=ningboue 2 086 198B 10,3 % Route revetue a 2 voies \. PIO Bercby- Tabou-Liberia 4 530 1987 12,0 % Route revi~ue a 2 voies \. TOTAl\. 14 702 -- Pro~ramme oEtionne1 B: Projets retenus sur 1a base de leur incidence sur l'amenagement du territoire\. Montant en Designation des projets millions de FCFA 1975 P39\.2 Boundiali-Odienne 6277 Route revetue a 2 VOles \. P32\.2 Seguela-Mankono Route non rev\.-platef\. I 1m t 460 1'34\.2 Han\.-S\.;\.guela Route non rev\.-platef\. 7c 3 809 TOTAL I t 5:'6 Source: SETEC, Etude des transports en Cote d'Ivoire, decembre 1976  - 48 - ANNEXE 1 Tableau 11 Page 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Investissements dans Ie seeteur routier, 1977-79 1/ (millions de FCFA) 1977 1978 1979 '1:\./ A\. Routes nationa1es Finaneement Fonds propres 9\.911 17\.349 6\.218 Emprunts exterieurs 17\.113 9\.331 23\.298 Total partie1 27\.024 26\.680 29\.516 B\. Routes d'interet regional Finaneement Fonds propres 130 840 461 Emprunts exterieurs 2\.567 6\.700 10\.132 Total partie1 2\.697 7\.540 10\.593 C\. Routes d'interet local Financement Fonds prop res 5\.622 6\.056 5\.247 Emprunts exterieurs 503 955 3\.192 Total par tiel 6\.125 7\.011 8\.439 Total - Fonds propres 15\.663 24\.245 11\.926 - Emprunts exterieurs 20\.183 16\.986 36\.622 TOTAL 35\.846 41\.231 48\.548 1/ Les travaux de revetement particu1iers finances sont inc1us sur 1a 1iste figurant a 1a page suivante\. Y Es tima tion Source: Programme des actions de l'Etat pour les annees 1979-81  COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D1EVALUATlON Travaux de revetements 1976-1980 !! (en millions de FCFA) Tron~on de route Cout Fonds propres Emprunts Travaux total Subventions t\.;re<11ts realises estimatif Tr!sor CSSPPA FED BIRD BAD fournlsseurs en decembre 1980 - Yabayo-Gagnoa 5\.655 4\.136 1\.519 acheves Renforcement deux voies express Nzi Singrobo 11\.096 6\.112 4\.984 acheves San Pedro-lssia 17 \.600 7\.480 1\.920 2\.200 6\.000 acheves Agnibi1ekrou-Bondoukou 11\.146 11\.146 acheves Abidjan-Agbovi11e et brete11e d'Adzope 10\.000 5\.900 4\.100 acheves """ \0 Voie express Nord Abidjan-N'douci 52\.521 12\.521 40\.000 en cours Man Touba Odienne 29\.028 5\.428 23\.600 acheves Toumodi-Oume 7\.357 1\.376 5\.981 acheves Katio1a-Ferke-Korhogo 20\.880 20\.880 acheves Mossou-Bonoua 2\.150 2\.150 en cours Samo-Assinie 1\.435 1\.435 en cours Aboisso-Noe 8\.125 4\.480 1\.395 2\.250 en cours Bouake-M'bahiakro 7\.255 7\.255 acheves ~ 'dt-3 TOTAL 184\.248 47\.433 55\.626 3\.315 62\.821 III III :1\.0\.603 2\.250 2\.200 OQr::1' ro I-' !I % 100 26 30 2 6 1 1 Certains travaux ont demarre avant 1a periode 1976-1980 et certains travaux seront acheves apres cette 34 ro ,,, III t:: 8 I-' meme periode\. I-' I-' Source: BCET, Preparation du Plan de deve10ppement 1981-1985, fevrier 1979; DCTP, aout 1980  - 50 - ANNEXE 1 Tableau 12 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Couts d'exp1oitation des vehicu1es FCFA/km (hors taxes) -----------------Categories de vehicu1es---------------- Etats de surface Voitures Transport Ensembles particulieres public Camionnettes Camions articu1es Route revetue en bon etat 47,3 84,5 48\.2 125,7 285,9 Route en terre moderne en bon etat 70,6 113,6 66\.6 146,5 341\.7 Route en terre en bon etat 70,6 114,2 66\.6 147,6 343,1 Route en terre, etat moyen 83,5 133,0 77 ,1 159,5 375\.8 Route en terre en mauvais etat 101,1 157,3 91,9 186,9 446,9 Source: BCET, Plan de deve10ppement du secteur routier, 1981-85, 1980 (en cours de preparation)  - 51- ANNEXE 2 Page 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Service des donnees routieres a la Sous-direction des routes Mandat A\. OBJECTIFS 1\. II est propose de creer un Service des donnees routieres au sein de la Sous-direction des routes de la Direction centrale des travaux publics\. Ce Service aura pour objectif de rassembler, traiter et organiser tous les ren seignements necessaires : a la programmation du developpement du reseau routier et aux etudes et travaux pertinents; a l'exploitation rationnelle du reseau\. Le Service travaillera en collaboration etroite avec les divers ser vices et directions qui detiennent et utilisent les renseignements et parmi lesquels il convient de mentionner particulierement : i) les directions et subdivisions regionales, qui fourniront la plu part des renseignements a compiler et qui les utiliseront pour adapter leur programme de travail afin d'accoltre leur efficacite; ii) les divers departements de la DCTP : Sous-direction des programmes et des investissements, Direction de l'entretien des routes, Direc tion des travaux routiers periodiques; iii) des organismes centraux ou autonomes tels la DCTT, Ie BCET, la DCCGT, Ie LBTP, etc\. B\. MISSION DU SERVICE DES DONNEES ROUTIERES 2\. Le Service, qui exercera des fonctions dans plusieurs domaines, de vra en particulier : i) etablir un inventaire des routes routes classees, voies urbaines, routes non classees et pistes;  - 52 ANNEXE 2 Page 2 ii) classer les routes du reseau et en etablir une carte (au 1:200 000 ou a toute autre echelle plus appropriee); iii) creer et tenir a jour un fichier des routes; iv) rassembler et centraliser les renseignements concernant les flux de circulation sur les routes et les pistes; v) enregistrer et traiter les renseignements sur les accidents de la route; vi) contrOler et enregistrer les travaux routiers (du point de vue de l'etat d'avancement et des couts) : construction de nouvelles routes, amelioration de routes de terre et de pistes, entretien regulier du reseau; vii) enregistrer tous les autres renseignements pouvant ~tre obtenus, no tamment par l'intermediaire des bacs et des ponts-bascules, et au pres d'autres organismes tels que Ie LBTP\. 3\. Lorsque d'autres organismes rassemblent systematiquement certaines donnees, Ie Service assurera la coordination necessaire de fa~on a faciliter Ie traitement des donnees et les echanges de renseignements\. 4\. Une grande partie du travail quotidien de rassemblement des donnees sera executee par les directions et subdivisions regionales\. Le Service des donnees routieres se specialisera dans les taches suivantes : la centralisation et la normalisation de 1 'information; l'entretien, la mise a jour, Ie traitement et la diffusion reguliere des renseignements; la formation des agents charges directement de la collecte des don nees sur Ie terrain (au niveau des directions regionales)\. 5\. Dans Ie cadre de ce mandat, Ie Service des donnees routieres i) determinera dans quelle mesure l'information devra ~tre detaillee, son mode de presentation et la frequence des operations de collecte, en tenant compte notamment : des facteurs limitants tels que les ressources des directions et subdivisions regionales; des moyens necessaires pour faire la synthese de ces donnees ou les traiter\.  - 53 - ANNEXE 2 Page 3 Cette tache sera executee en collaboration avec les divers services en amont et en aval\. ii) Determinera les moyens a prevoir pour un rassemblement continu des donnees et mettra au point des instructions indiquant les procedures a appliquer, en cooperation avec les directions et subdivisions re gionales en particulier\. Cette partie du mandat du Service des don nees routieres a trait aux caracteristiques materielles du reseau, au debit des voies de circulation et aux operations d'entretien\. iii) Centralisera les renseignements reunis sur les nouveaux travaux, les operations d'entretien dirigees par les autorites centrales, les statistiques sur les accidents, etc\. iv) Organisera et classera l'information en choisissant Ie mode de pre sentation qui permettra de l'utiliser Ie plus facilement par la suite; definira les methodes et des techniques pour Ie traitement et Ie classement des donnees\. v) Traitera et diffusera les renseignements regulierement ou selon les besoins\. 6\. Au debut, Ie Service devra surtout reunir des donnees sur Ie reseau et la densite de la circulation, qui sont les domaines oD les renseignements font defaut\. 7\. L'etablissement d'inventaires permettra de mieux connaltre Ie reseau (l'Annexe offre deux modeles possibles de description des routes, l'un utilise par la SETEC en 1968 pour l'etude sur les transports, et l'autre propose par la mission d'entretien des routes)\. Les services departementaux etabliront ces inventaires en se conformant au mode de presentation et a la methode in diquee par Ie Service des donnees routieres\. 8\. Les seules donnees actuellement disponibles sur la densite de la circulation sont tirees de comptages effectues par la Sous-direction des routes\. Ce systeme presente un certain nombre d'inconvenients, dus principa lement au fait que toutes les operations sont centralisees a la Sous-direction des routes, et que, de ce fait : i) Ie nombre de points de comptage, qui est actuellement d'une centaine, est insuffisant pour couvrir tout Ie reseau primaire et secondaire; ii) la methode utilisee est pratiquement la m~me a tous les points de comptage : comptage manuel 12 ou 16 jours par an, repartis en quatre periodes\. II en resulte que les renseignements sont, semble-t-il, trop nombreux pour certains troncons et pas assez pour d'autres\.  - 54 - ANNEXE 2 Page 4 Les objectifs a atteindre sont les suivants : decentralisation des operations de comptage a l'echelon de la re gion, sinon du departement; extension du systeme de comptage au debut, a toutes les routes primaires et secondaires; par la suite, au reseau tertiaire\. Les methodes employees devront ~tre modifiees selon Ie type de route, tant du point de vue de la duree des comptages que de leur frequence\. II serait egalement possible d'envisager l'installation d'un systeme de comptage auto matique a certains endroits strategiques, peut-~tre seulement a titre experi mental au debut\. 9\. Une autre source d'ou Ie Service des donnees routieres pourrait ti rer des renseignements utiles sont les pants-bascules qui doivent ~tre mis en place dans tout Ie pays\. Outre qu'il sera interessant de connaftre les charges supportees par Ie reseau routier, les stations de pesage pourront fournir des renseignements statistiques sur la circulation des poids lourds et sur l'ori gine et la destination des marchandises transportees par routes\. Sur tous ces points, Ie Service des donnees routieres devra slassurer Ie concours du BCET, du LBTP et de la DTT\. C\. PERSONNEL A PREVOIR 10\. II ne sera question dans les paragraphes suivants que des ressources en personnel de supervision\. Les autres moyens a prevoir (techniciens, agents d'administration, depenses de fournitures et d'exploitation) feront l'objet d'estimations ulterieures\. Nous evaluons ci-apres que Is seront les besoins en personnel lorsque Ie pr~et sera devenu operationnel ("Partie ivoirienne"), et egalement les moyens supplementaires a pr~oir pour l'execution ("Assistance technique")\. 11\. Personnel ivo~r~en\. Le siege devra employer a plein temps un mini mum de trois ingenieurs ou assistants techniques : un ingenieur des travaux publics, qui sera a la tete du Service des donnees routieres et qui dirigera et coordonnera toutes les taches eX8cutees par Ie Service; un ingenieur des routes ou adjoint technique ayant une formation dans Ie domaine des travaux publics, qui sera responsable de toutes les taches relatives au reseau, des travaux routiers, etc\.;  - 55 - ANNEXE 2 Page 5 un specialiste de la circulation ou adjoint technique, ayant peut @tre une formation dans Ie domaine des statistiques, qui sera charge de tous les aspects non techniques : circulation, statistiques sur les accidents, etc\. Au niveau regional, il faut prevoir l'emploi a plein temps d'un ingenieur ou d'un assistant technique charge de la collecte des donnees; il rendra compte a un ingenieur relevant du directeur regional, qui n'aura qu'un role de super vision et ne consacrera qu'une tres petite partie de son temps a cette tache\. 12\. Assistance technique\. La mission confiee aux consultants pourrait s'etendre sur quelque 32 hommes-mois, repartis sur deux ans environ, confor mement au calendrier provisoire ci-dessous : ---------------------------- MOIS ---------------------------- 1~7 8 9 10 11 12 13 14 15 16 17 18 19 Fonction Hommes- 20 21 22 23 24 mois A\. Directeur du 20,0 projet B\. Specialiste de 6,5 ~ ~ la circulation C\. Ingenieur des routes -- ~ ~~ 3,5 D\. Consultant 2,0 aupres des -~ -- regions Les experts de l'equipe de consultants auront les fonctions et la formation suivantes : Le Directeur du projet : veillera a la creation du Service des donnees routieres et a la formation des homologues ivoiriens; etablira un programme de travail et l'executera conformement au titre B du present mandat;  - 56 ANNEXE 2 Page 6 assurera Ie fonctionnement du Service jusqu'a ce que celui-ci soit completement pris en main par Ie personnel ivoirien\. Le Directeur du projet devra avoir des competences diverses\. Ce sera soit un ingenieur des ponts et chaussees ayant une experience approfondie de la sta tistique et de l'economie, soit un economiste ayant une connaissance appro fondie des techniques de genie civil\. II devra avoir une bonne experience de la creation ou de l'utilisation de sys temes d'information similaires et avoir en particulier l'habitude de manier les donnees sur Ie reseau routier en general, sur la circulation et les autres donnees statistiques mentionnees au titre 8, ainsi que l'experience de l'en tretien et des travaux routiers\. Le specialiste de la circulation aidera Ie Directeur du projet a mettre au point les programmes de comptage de la circulation et a rassembler les donnees sur la cir culation provenant d'autres sources (en particulier des stations de pesage); fera en sorte que Ie systeme de comptage devienne operationnel et veillera a la formation du personnel ivoirien necessaire\. II devra avoir une tras grande experience de la direction d'enquates sur la circulation et d'operations de comptage, en particulier dans des conditions comparables a celles regnant en Cote d'Ivoire\. L'ingenieur des routes aidera Ie Directeur du projet a etablir des inventaires routiers; a lancer des operations de collecte des donnees et a former Ie personnel ivoirien; a mettre au point Ie systeme global d'enregistrement des donnees\. II devra avoir un dip18me d'ingenieur des routes et une bonne experience de la mise sur pied ou de l'utilisation de systemes analogues\. Le consultant pour les systemes de donnees II aidera Ie Directeur du projet a arreter Ie mode de presentation des donnees, les methodes de rassemblement et les modalites selon lesquelles llinformation sera tenue a jour et traitee\. Le consultant devra etre un ingenieur diplOme extremement qualifie, ayant une grande experience de la gestion de systemes d'information semblables\.  - 57 - ANNEXE 3 Page 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Assistance technique pour la creation d'un service analytigue a la Sous-direction des transports terrestres de la DCTT Mandat A\. Obj ectifs 1\. La DCTT beneficiera d'une assistance technique sous forme de services de consultants qui aideront : a definir et a executer les travaux necessaires a la formulation de recommandations sur une politique des transports routiers; a analyser Ie marche des transports routiers; a etablir des etudes techniques et economiques sur les tarifs et les redevances payables par les usagers et sur la densite de la circula tion et la capacite de transport, et a organiser une formation a l'intention des chauffeurs et des proprietaires de poids lourds; et a former les ingenieurs et techniciens ivoiriens qui prendront pro gressivement en charge la Sous-direction de l'organisation des trans ports routiers\. B\. Fonctions de la Sous-direction 2\. La Sous-direction aura pour fonctions (voir Ie schema ci-apres) i) d'instituer un systeme de rassemblement des donnees sur: la demande de transport (origine et destination); l'offre de transports effectifs et composition du parc automobile, coefficient d'utilisation, repartition du parc par categorie de proprietaires; Ie mode d'exploitation des vehicules; les coats de fonctionnement des vehicules et tarifs appliques; les redevances payables par les usagers\.  ANNEXE 3 - 58 Page 2 SCHE~f\.t\\. DES TRAVAUX RELEVANT DE LA CONPETE~;CE DE LA SOUS-DIRECTION DE L'ORGANISATION DES TRANSPORTS ROUTIERS OBSERVATION DU K';'RcttE DES TR\.A-J\."iSPORTS }nalyse de Ia de~ande Analyse de I'offre - vol~es pour les differentes - Effectifs et composition du parc categories (marchandises et voyag~urs) - Caracteristiques eh~loitation - perspectives d'evol~tion structure profession \.activite des vehicules couts economiques tarifs pratiques STIiTHESES / ELEHENTS EXOGENES Equilibre offre/de~nde marchandises Evolution economiqu~ generale Plan transport voyageurs Infrastructures transport Adequation reglenentation/tarification Liens avec autres modes Redevance des usagers transport Evolution des revenus - Environnement international t?\.CHE DES TRANSPORTS PROPOSITIONS D' INTERVENTION DE L! ETAT SUR LE NA\. Actions sur l'offrc Actions sur la dem~nde REglecentation gEn~rale IDfot~~tion usagers ct conso~a VollW:e de ltoffre par categoric tiOD public/rrive Avis sur projets C01~SOt::lI[;atcurs de Iibnes/c~tcgories marchandiscs transports Tarific~tion/Fiscalit~ }~surcs d'incitation diverscs - FOIT\.3\.tion ----------------------------~---------------------------------------------------------\.---  - 59 ,- ANNEXE 3 Page 3 ii) D'analyser ces donnees et d'en faire la synthese sous une forme permettant d'evaluer periodiquement l'equilibre entre l'offre et la demande en ce qui concerne Ie transport des marchandises; de mettre au point et de tenir A jour des programmes de transport des voyageurs; d'evaluer dans quelle mesure la reglementation des transports, y compris les dispositions sur les tarifs et les redevances, est adap tee aux objectifs de la politique nationale\. iii) De formuler des recommandations au sujet des interventions du Gou vernement sur Ie marche des transports, en particulier en matiere de tarifs et de delivrance de patentes aux transporteurs\. 3\. II est possible de connattre Ie volume de l'offre en comparant des donnees emanant de la DCTT et celles provenant d'autres sources possibles telles que : les reI eves de vente de vehicules et les dossiers du fisc; les recettes provenant des patentes; les etats des visites techniques effectuees par la SICTA; et les renseignements fournis par les assureurs\. II faudra vraisemblablement fournir au debut un gros effort pour analyser les donnees provenant des diverses sources, afin de mettre ulterieurement au point une methode fiable de recoupement\. En ce qui concerne la productivite des vehicules, il serait possible d'obtenir les renseignements necessaires : en depouillant specifiquement les lettres de voiture du CNBF; en relevant systematiquement le kilometrage lors des visites techniques; en effectuant directement des enqu@tes aupres des compagnies de transport et des conducteurs; et en adressant des questionnaires types aux preposes aux ponts bascules\. Une etude de ces diverses possibilites permettra de choisir les methodes de vant vraisemblablement donner les resultats les plus exacts\.  - 60 - ANNEXE 3 Page 4 4\. En ce qui concerne Ie transport de marchandises, on evaluera Ie point d'equilibre de l'offre et de la demande en les comparant directement l'une a l'autre\. Toutefois, dans Ie cas du transport de voyageurs, la demande est loin d'etre independante de la quantite de l'offre (existence de liai sons, frequence) et de sa qualite (prix, rapidite, regularite et securite)\. Lorsque l'offre est insuffisante, quantitativement ou qualitativement, sur un itineraire particulier, la demande n'est satisfaite qu'en partie et il est difficile d'evaluer directement ce desequilibre\. Aussi faut-il, avant d'or ganiser les transports de voyageurs, proceder a une etude detaillee de l'offre existante, afin de decouvrir les desequilibres eventuels entre les liaisons ou l'offre paraft abondante et celles ou elle semble insuffisante\. Les recomman dations seront alors formulees en fonction de criteres normatifs concernant, par exemple : les liaisons entre sous-prefectures et prefectures et entre vil lages et sous-prefectures; la frequence des services, determinee en fonction de l'importance de la liaison et du nombre d'habitants concernes\. Les renseignements pourront etre ajustes progressivement a la lumiere des re suI tats obtenus\. 5\. Pendant la premiere annee, Ie programme de travail du service diana lyse consistera surtout : i) A etudier l'industrie des transports routiers : transports prives, transports publics de marchandises et services d'autocars; il fau dra notamment : etudier Ie nombre de compagnies, leur localisation, leur organisa tion interne et les gares routieres; etudier les types de vehicules utilises, l'utilisation moyenne du pare automobile et les facteurs institutionnels ayant des effets sur Ie secteur; etudier les services de transports publics de voyageurs en appli quant les methodes indiquees ci-dessus a propos des transports de marchandises\. Cette etude comport era une enquete aupres des plus gros clients et une evaluation du type et de la qualite des services de transport de voyageurs et de marchandises dans tout Ie pays, ainsi que des moyens dont Ie secteur dispose\.  - 61 - ANNEXE 3 Page 5 ii) A etudier la reglementation des transports routiers et ses repercus sions sur Ie secteur : il faudra evaluer comment la reglementation est appliquee actuellement et quels sont ses effets sur Ie secteur des transports, en decrivant notamment de facon detaillee la proce dure de delivrance des patentes\. iii) A etudier Ie regime fiscal applique aux usagers de la route: il fau dra indiquer de facon detaillee les effets de la fiscalite sur Ie secteur des transports, en accordant une attention particuliere a la politique de fixation des prix des carburants et a ses repercussions sur Ie secteur\. iv) A faire des recommandations detaillees sur un systeme efficace d'im matriculation des vehicules\. 6\. La Sous-direction ne sera pas elle-meme a l'origine de la plupart des renseignements, mais travaillera avec les departements et les directions qui les enregistrent ou les utilisent, par exemple les autres sous-directions de la DCTT, les sections regionales des transports routiers, Ie Departement des etudes economiques du BCET, Ie CNBF et Ie SICTA, les services du Ministere de l'economie, des finances et du Plan, en particulier ceux des impOts (pa tentes) et de l'enregistrement (vignettes) et les organisations profession nelles chargeurs et compagnies d'assurances\. 7\. En resume, la Sous-direction de l'organisation des transports routiers i) indiquera la teneur, la forme et la frequence des donnees a rassembler; ii) determiners les ressources necessaires au fonctionnement d'un sys teme permanent de collecte des donnees et a l'elaboration d'instruc tions indiquant les procedures a suivre; iii) centralisera et classera au mieux les renseignements, afin de les traiter et de les diffuser regulierement et selon les besoins et, en particulier, d'etablir toutes syntheses qui pourraient etre necessaires\. C\. Personnel a prevoir 8\. Seuls sont indiques les besoins en personnel d'encadrement\. Le per sonnel technique supplementaire, les fournitures et les depenses de fonction nement a prevoir seront evalues une fois l'assistance technique en place\.  - 62- ANNEXE 3 Page 6 Contribution de la Cote d'Ivoire 9\. La Sous-direction n'est pas directement chargee de la plupart des operations de collecte des donnees\. Sa structure devra avant tout lui per mettre de s'occuper des aspects methodologiques du rassemblement des donnees et de leur synthese\. Son personnel sera donc peu nombreux et comprendra : l'ingenieur des travaux publics, qui sera a la tete de la Sous direction dont il dirigera et coordonnera toutes les operations\. C'est egalement lui qui effectuera la plus grande partie du travail de synthese; 2 ingenieurs des techniques, ou adjoints techniques, specialises soit dans les travaux publics, soit dans la statistique economique, qui controlent directement Ie rassemblement et la presentation des donnees\. Dans ce dernier cas, les taches seront reparties comme suit : 1 ingenieur des techniques ou adjoint technique s'occupera en par ticulier des questions touchant a l'offre : effectifs et composition du parc, structure du secteur des transports routiers, relations avec les compagnies de transport et les chauffeurs; 1 economiste ou adjoint technique specialise dans les transports controlera les couts, la productivite des vehicules et les tarifs\. Assistance technique 10\. II est trop tot pour prevoir l'ampleur des taches a accomplir\. Au cours de la premiere annee, certains gros travaux se reveleront peut-etre ne cessaires, par exemple : la verification manuelle des fichiers aut res que ceux de la DCTT SICTA, vignettes; des enquetes qui permettront de mieux connaltre l'offre, en parti culier en matiere de transport de voyageurs, par exemple des enquetes aupres des transporteurs, qui seront entreprises dans les gares routieres; des enquetes aupres des usagers, eFFectuees sur la route ou dans les gares routieres\. De ce fait, il est prevu de diviser l'assistance technique en deux parties  - 63 \.- ANNEXE 3 Page 7 une partie "ferme l ' , qui ne n6cessiterait qu'un consultant chef de projet, employ6 pendant deux ans environ (24 hommes-mois), 6tant entendu qu'il faudrait que Ie personnel ivoirien soit deja en place des Ie debut; une partie "optionnelle", pour laquelle il serait fait appel ~ un specialiste des enqu@tes et des statistiques\. La mesure dans la quelle les services de ce specialiste seront effectivement neces saires (montant approximatif des depenses a pr6voir : 6 hommes-mois) et la duree exacte de son engagement pourront etre reexaminees lorsque Ie chef du projet et Ie personnel ivoirien auront arret6 leur programme de travail avec plus de precision\. 11\. Le chef du projet devra : faire demarrer Ie service et former Ie personnel homologue ivoirien; elaborer et faire appliquer un programme de travail conformement aux indications des Sections 5 et 7 du present cadre de reference; veiller au fonctionnement du service jusqu'a ce que celui-ci soit completement pris en charge par des Ivoiriens\. Le chef du projet devra @tre un economiste des transports\. II aura une expe rience considerable de l'organisation des transports routiers, de la regle mentation et des tarifs et des statistiques et de l'economie des transports\. II devra 6galement avoir deja particip6 aux travaux d'une administration et a la formation de personnel\. Le sp6cialiste des enquetes et des statistiques aura une experience conside rable des transports routiers (enquetes routieres, enquetes statistiques), acquise dans des conditions semblables a celles regnant en Cote d'Ivoire\.  - 64 ,- ANNEXE 4 Page 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Etude sur un programme de formation de chauffeurs Mandat A\. ProbH~me Le Gouvernement ivoirien est conscient qu'il est necessaire non seu lement de developper l'infrastructure du pays, mais aussi de rendre son utili sation plus efficace\. Des contracts ont ete pris avec Ie Conseil de l'Entente, qui, depuis 1976, s'interesse aux problemes de formation dans l'industrie des transports routiers de ses pays membres\. Le Conseil a fait parvenir au MTPTCU et a la Banque mondiale des copies du rapport de mission (avril-mai 1977) de M\. Callamand, directeur du CESTRAL a l'AfT, accompagne d'un resume des conclu sions de mission, prepare en octobre 1977 par M\. Mialet, adjoint au Directeur de l'AfT\. Les resultats d'un programme pilote finance par Ie fAC en 1977/78 devraient egalement ~tre connus\. Sur la base des informations disponibles, Ie Conseil a conclu que ses pays membres avaient besoin : i) d'une formation des proprietaires et chauffeurs de camions dans trois domaines : conduite des vehicules; entretien; et techniques de comptabilite et de gestion convenant aux petites entreprises de camionnage; ii) d'une evaluation de la taille des groupes-cibles a l'echelle regionale; iii) de methodes de formation de chauffeurs applicables a tous les pays membres\. B\. Les objectifs de l'etude seront les suivants : i) analyser Ie sous-secteur des petites entreprises de transports rou tiers en Cote d'Ivoire, et notamment, determiner Ie nombre d'entre prises classees par taille; ii) proposer un programme de formation destine a promouvoir - une conduite sQre; - des habitudes d'entretien convenables des vehicules; et - des techniques seines de comptabilite et de gestion\.  - 65 - ANNEXE 4 Page 2 C\. Mandat du consultant i) Le consultant mettra au point un programme detaille de formation destine aux chauffeurs et aux chefs des petites entreprises dans les domaines precises a la Section B\.2\. ii) A cette fin, il devra evaluer la taille et les besoins en formation des groupes-cibles en Cote d'Ivoire : il determinera le nombre de chauffeurs employes dans Ie secteur des transports publics par categories de vehicules et niveaux de competence, ces categories devant etre fonction du niveau de formation a donner; il determinera Ie nombre d'entreprises de transport par catego ries, celles-ci etant fonction de la tail Ie de l'entreprise et du niveau de formation des patrons et ouvriers (afin d'evaluer le nombre de personnes qui pourront etre touchees par Ie programme); en se fondant sur les renseignements ci-dessus, il mettra au point un programme detaille de formation a tous les niveaux, en indiquant notamment les besoins en personnel enseignant, en ma teriel didactique et en locaux, ainsi,que Ie coat du programme et un calendrier de realisation; et il envisagera la possibilite de creer, Ie cas echeant, des equipes mobiles de formation et etudiera que lIes seraient leurs relations avec Ie centre de formation et comment elles devraient etre utilisees\. Tout programme propose devra tenir compte des ressources en centres de formation adequate dont dispose la Cote d'Ivoire\. Dans la mesure ou les centres sont sous-utilises, il faudra presenter des propositions visant ales faire collaborer au projet\. Les consultants presenteront un calendrier de transfert des respon sabilites des experts a des Ivoiriens formes sur Ie tas, qui poursuivront Ie programme apres la fin du projet\. II faudra egalement discuter des modalites selon lesquelles Ie Gouvernement ivoirien prendra en charge Ie financement du programme lorsque la Banque cessera dry participer\. Les consultants devront etre en contact permanent avec les minis teres concernes et avec les institutions finan~ant Ie projet\. La mise au point du programme de formation demandera un homme-mois\. II faudra ensuite prevoir trois annees pour la realisation du programme, y compris Ie remplacement progressif des consultants par du personnel ivoirien competent\.  - 66 ANNEXE 5 Page 1 COTE D' IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Materiel destine au Laboratoire des batiments et travaux publics Coat estimatif (en milliers de dollars) (en prix de 1979) 1 "wheel bump integrator" 26,0 1 appareil de mesure de la resistance au derapage 5,0 2 pout res electriques de Benkelman 10,0 1 perforatrice creuse 6,0 1 appareil de mesure de l'etancheite du revetement 7,5 1 cisaille a air comprime et un compresseur 20,0 1 laboratoire mobile 92,0 2 analyseurs de trafic 28,5 1 dispositif de mesure de la temperature des chaussees 7,5 TOTAL 202,5  - 67 - ANNEXE 6 Page 1 COTE D'IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Mandat relatif a l'assistance technique pour la formation de personnel d'entretien I\. Objectifs 1\. Le Ministere des travaux publics, des transports, de la construc tion et de l'urbanisme (MTPTCU) se propose de realiser un programme de forma tion de personnel d'entretien des routes pendant la periode 1981-83 : il for mera en particulier des contremattres, des mecaniciens, des chefs mecaniciens et des conducteurs d'engins et des chauffeurs, ainsi que des instructeurs par ticipant a la mise en oeuvre du programme\. A cette fin, il desire s'assurer les services d'experts, d'abord pour etudier les besoins et proposer un pro gramme de formation precis, et, dans un deuxieme temps, pour mettre en oeuvre le programme qui aura ete convenu\. 2\. 11 est envisage d'utiliser, dans la mesure du possible, les instal lations de formation dont Ie MTPTCU dispose deja, c'est-a-dire la Direction centrale de la formation professionnel1e et le Centre d'application des tra vaux publics, en les renfor9ant ou en les agrandissant si besoin est\. Toute fois, la formation se fera principalement sur le tas, au sein d'equipes d'entretien\. II\. Premiere phase de l'assistance technique preparation A\. Objectifs 3\. Au cours de la premiere phase d'assistance technique, les objectifs seront a) de determiner la main-d'oeuvre a prevoir pour l'entretien des routes pendant la periode 1981-86, y compris les travaux d'entretien cou rant, d'entretien periodique et d'amelioration; b) d'evaluer les disponibilites en main-d'oeuvre actuelles et futures, compte tenu des programmes de formation en cours, des departs a la retraite et des deperditions d'effectif; c) de comparer (a) et (b), afin de determiner les besoins en formation par type de specialite, et, eventuellement, la main-d'oeuvre a recruter;  - 68 - ANNEXE 6 Page 2 d) de concevoir pour la periode 1981-84 un programme permettant de former sur Ie tas les divers specialistes les plus necessaires et des instructeurs\. En raison de diverses contraintes, il ne sera pas possible de former tout Ie personnel necessaire pendant la pe riode 1981-84 et, de ce fait, Ie coat du programme ne devrait pas depasser 5 millions de dollars environ\. II conviendra d'indiquer avec precision dans la proposition: i) l'assistance technique, Ie materiel destine aux equipes de formation, les ateliers et autres facteurs necessaires 8 la realisation du programme, ainsi que Ie montant estimatif du coat total, et du coOt en monnaie nationale et en devises; ii) Ie nombre de personnes 8 former dans chaque catego rie, Ie nombre de postes a pourvoir et Ie calendrier de realisation; et iii) les mesures d'application envisagees, les types d'equipes, qui seront centralisees ou regionales, Ie programme de travail, les horaires, Ie type d'enseignement, l'utilisation des installations et du materiel existants, la formation a l'etranger et to us autres ren seignements pertinents; e) de commencer a acquerir les fournitures a prevoir pour Ie programme et dont la DCTP ne dispose pas, et de proposer des candidats a des postes d'adjoints techniques determines, lorsque Ie programme aura fait l'objet d'un accord\. B\. Portee et services 4\. Au cours de la premiere phase, la Cote d'Ivoire disposera, au titre de l'assistance technique, d'un conseil1er/coordonnateur a la formation, qui devra avoir rejoint son poste avant l'arrivee de l'equipe d'assistance tech nique\. Le programme sera etabli de fa90n a pouvoir etre examine avec Ie Gou vernement et a commencer a etre execute Ie ler juillet 1981 au plus tard\. Le conseiller a la formation coordonnera etroitement ses activites avec la Direc tion centrale des travaux publics, la Direction centrale du materiel, la Di rection de l'entretien routier, la Direction des travaux routiers periodiques, les sept directions regionales et les organismes de formation existants, tels que Ie Centre d'application des travaux publics et les programmes de formation professionnelle relevant du Ministere de l'education\. II aura un homologue ivoirien et, pour ce qui est des activites courantes, rendra compte a (8 desi gner ulterieurement); sa proposition definitive de programme sera examinee avec Ie Ministre des travaux publics\. Dans sa proposition, il devra tenir compte, dans la mesure du possible, de la possibilite d'utiliser Ie materiel existant, de fa90n que les delais necessaires a la passation de marches ne retardent pas Ie debut de l'execution du programme de formation\. 5\. Le conseiller/coordonnateur a la formation devra a) etre specialise dans l'entretien des routes, et, de preference, etre un ingenieur ayant au moins cinq ans d'experience de la di rection d'activites de formation, en particulier de l'elaboration  - 69 - ANNEXE 6 Page 3 et de l'execution de programmes et de l'organisation d'installations\. II sera capable: i) d'organiser un programme de valorisation des ressources humaines gr§ce a la formation sur Ie tas; ii) de parti ciper a la formation active, de diriger des seminaires et des demons trations sur Ie terrain concernant des problemes specifiques d'en tretien des routes; et iii) d'evaluer l'administration du personnel et de faire des recommandations quant aux modifications a y apporter; b) avoir deja travaille dans des pays africains; et c) bien connattre Ie francais\. III\. Deuxieme phase de l'assistance technique; execution 6\. Le conseiller/coordonnateur a la formation employe pendant la pre miere phase demeurera en poste en qualite de chef lors de l'execution du pro gramme de formation precedemment arr~te\. La composition de l'equipe d'as sistance technique a prevoir sera definie au cours de la Phase I, mais, d'apres les renseignements existants, il est vraisemblable qu'elle comprendra environ trois mecaniciens qualifies et deux instructeurs principaux de conduc teurs d'engins et de chauffeurs, comme il est indique dans l'Appendice\. Le programme de formation demarrera Ie ler juillet 1981 au plus lard et sera ter mine aux environs de decembre 1983\. Chacun des experts formera un homologue ivoirien et des instructeurs\. 7\. L'equipe d'assistance technique mettra en oeuvre Ie programme de formation et aidera a choisir Ie personnel de contrepartie et les instructeurs a former; ceux-ci devront avoir recu leur affectation des juillet 1981\. Les instructeurs ivoiriens commenceront a prendre la releve en septembre 1982 au plus tard\. En cours d'execution, Ie coordonnateur du programme sloccupera egalement de questions de grande ampleur et devra notamment : a) etudier les methodes at les installations de formation existantes et faire des recommandations sur la politique de formation a long terme a suivre pour specialiser Ie personnel intermedi~ire d'entre tien dans Ie maniement du materiel du programme et pour l'habituer aux conditions de travail; b) definir en accord avec Ie Ministre des travaux publics, du transport, de la construction et de l'urbanisme et avec Ie Ministere de l'eco nomie, des finances et du Plan une politique de recrutement, de pla nification des carrieres et de remuneration du personnel d'entretien du MTPTCU, propre a stimuler une elevation des normes de competence et de productivite servant de criteres aux promotions d'une classe a la suivante\.  - 70- ANNEXE 6 Page 4 IV\. Calendrier des rapports 8\. L'equipe d'assistance technique devra etablir en fran9ais les rap ports suivants : a) en mars 1981 au plus tard, un rapport initial contenant des rensei gnements detailles sur les besoins en formation et recommandant un programme triennal propre a satisfaire ces besoins, qui indiquera notamment la politique a suivre et une estimation detaillee des coats, ventiles en coats en devises et en monnaie nationale, du ma teriel et des installations necessaires a l'execution du programme\. Le premier chapitre du rapport resumera l'ensemble du document et enoncera les recommandations de ses auteurs; b) trimestriellement, des rapports d'activite decrivant Ie travail ac compli pendant les trois mois precedents et Ie programme de travail pour les trois mois suivants, en indiquant les objectifs fixes dans celui-ci (nombre de stagiaires recrutes, nombre estimatif de sta giaires devant terminer chaque phase de formation et normes de pro ductivite escomptees); les rapports signaleront les difficultes pre vues et suggereront des moyens de les surmonter de fa90n que Ie programme puisse ~tre execute; c) un bref rapport concernant les recommandations sur l'administration du personnel en decembre 1981 au plus tard; d) trois mois avant la cessation de service du coordonnateur du pro gramme, un projet de rapport definitif resumant i) Ie travail ac compli; ii) les progres realises; iii) les avantages decoulant du programme de formation; iv) les domaines dans lesquels les progres n'auront pas ete satisfaisants; et v) des recommandations sur la suite a donner au programme; e) dans Ie mois suivant la reception des observations du Gouvernement sur Ie projet de rapport definitif, un rapport definitif; et f) tous autres rapports que Ie Gouvernement pourra raisonnablement demander\. Deux exemplaires de tous les rapports seront envoyes a la Banque pour infor mation des leur publication\.  - 71 ANNEXE 6 Page 5 V\. Contribution du Gouvernement 9\. Le MTPTCU devra : a) fournir au conseiller/coordonnateur les renseignements dont il dis pose sur Ie personnel, les besoins et les programmes de formation, et Ie programme d'entretien des routes; b) nommer un ingenieur des routes, des instructeurs en chef et des me caniciens qui travailleront en qualite de personnel de contrepartie avec les assistants techniques et qui prendront en charge les acti vites de formation au depart du personnel expatrie\. La nomination des experts expatries sera subordonnee a celIe d'instructeurs adjoints; c) nommer, sur recommandation du coordonnateur du programme, des agents du MTPTCU susceptibles d'~tre formes comme instructeurs; d) prendre les dispositions appropriees pour liberer Ie personnel en temps opportun, de fa~on qu'il puisse recevoir la formation convenue; e) fournir les fonds necessaires pour financer les coats locaux de l'adaptation des installations existantes, si elle est necessaire, et les depenses recurrentes du programme de formation\.  - 72 - ANNEXE 6 APPEND ICE Page 1 Ebauche de definition de l'emploi de chef d'equipe de formation 1\. Titre Chef d'equipe de formation 2\. Duree d'engagement 24 mois 3\. Lieu d'affectation Chantiers des equipes de formation en COte d'Ivoire 4\. Qualifications et experience a) bon niveau d'enseignement general et technique (diplOme universi taire ou equivalent); ingenieur des routes et superviseur principal de la construction et de l'entretien des routes; b) formation theorique et experience pratique approfondies en matiere de construction et d'entretien des routes; c) experience de la mise au point et de l'execution de programmes de formation sur Ie tas productifs en matiere de construction et d'en tretien des routes au niveau de 1a supervision; d) capacite de planifier, organiser et contrOler Ie travail et de main tenir un esprit d'equipe; \. e) experience pratique acquise dans des pays africains; et f) bonne connaissance du fran9ais\. 5\. Fonctions a) p1anifier, organiser et executer Ie programme de formation sur Ie tas de personnel de la DCTP, et les travaux de reconstruction et d'entretien a effectuer en cours de formation; pendant Ie dernier trimestre precedant sa cessation de service, Ie chef d'equipe de formation n'aura qu'un rOle consu1tatif aupres de l'agent ivoirien qui dirigera l'equipe de formation; b) former sur Ie tas des chefs de chantier, des contrema!tres, des conducteurs d'e~gins, des chauffeurs et, a certains niveaux, des mecaniciens et vei11er a ce qu'i1s re90ivent une instruction theo rique appropriee a leur tache; c) superviser 1es activites du conducteur d'engins en chef et du chef mecanicien affectes a l'equipe;  - 73- ANNEXE 6 APPEND ICE Page 2 d) veiller a ce qu'il existe un systeme d'approvisionnement adequat, permettant a la brigade de disposer des stocks de carburants, lu brifiants, pieces de rechange, etc\., necessaires; e) veiller a ce que tout Ie materiel et les autres ressources allouees a l'equipe soient utilises convenablement; et f) former un homologue ivoirien et superviser la formation d'homologues des chefs mecaniciens et des autres instructeurs affectes a l'equipe\. 6\. Dans l'exercice de ses fonctions, Ie chef d'equipe de formation rendra compte au directeur de la DCFP par l'intermediaire du coordonnateur du pro gramme de formation\. Ebauche de definition de l'emploi d'instructeur principal (mecanique) (3) L Titre Instructeur principal (mecanique) 2\. Duree d'engagement 36 mois 3\. Lieu d'affectation CA TP (Abidj an) et aut res ateliers reg ionaux\. lorsque de besoin 4\. Qualifications et experience a) bonne instruction generale et technique (dip15me de technicien ou equivalent) - contrdleur mecanicien ou contrema!tre principal d' atelier; b) bonne formation pratique et experience ulterieure approfondie de l'entretien et de la reparation du materiel lourd de construction et d'entretien des routes, des camions a benne et autres vehicules de travaux publics; experience des programmes officiels de formation necessaire; c) experience de la mise au point et de l'application de programmes de production sur Ie tas dans Ie domaine de l'entretien et de la repa ration du materiel routier; d) capacite de planifier, organiser et contrdler les activites d'autrui, tout en maintenant un esprit d'equipe; e) experience pratique acquise dans des pays africains; et f) bonne connaissance du fran9ais\.  - 74 - ANNEXE 6 APPEND ICE Page 3 5\. Fonctions a) planifier, organiser et appliquer un programme de formation de base et de perfectionnement des mecaniciens affectes aux equipes et aux ateliers regionaux; b) mettre au point, en collaboration avec Ie coordonnateur du programme de formation et Ie directeur de la DCFP, Ie materiel didactique de base a utiliser pour la formation theorique fondamentale; c) veiller a ce que les pieces detachees necessaires a la formation sur Ie tas et a la reparation du materiel en panne soient dispo nibles en quantites suffisantes et en temps voulu; d) veiller a ce que tout Ie materiel de formation et Ie materiel di dactique et aut res ressources alloues a la section de formation des ateliers soient utilises comme il convient; et e) former les homologues ivoiriens et autres instructeurs affectes a la section de formation des ateliers\. 6\. Dans l'exercice de ces fonctions, les instructeurs principaux (mecanique) rendront compte du directeur de la DCFP, par l'intermediaire du coordonnateur du programme de formation\.  - 75 ANNEXE 7 Page 1 COTE D' IVOIRE PRET AU SECTEUR ROUTIER RAPPORT D'EVALUATION Projet de plan d'action pour l'utilisation du pret sectoriel I\. Entretien des routes A\. Au cours des reunions semestrielles, la DCTP examinera Ie programme des travaux d'entretien et de reparation des routes et arretera les mesures a prendre pour que soient appliquees des normes de productivite adequates\. B\. Pendant toute la periode d'utilisation du pret sectoriel, la DCTP consultera la Banque au sujet du montant du budget d'entretien et de la repar tition des fonds entre les principaux postes de depenses\. Toute modification importante que la DCTP pourra proposer d'apporter aux budgets d'entretien ci apres pour la periode 1980-84 sera examinee avec la Banque au cours des reu nions semestrielles, conformement aux procedures d'utilisation du pr@t sectoriel : Millions de francs CFA - prix de 1980 1981 1982 1983 Credits budgetaires annuels pour l'entretierJI 19\.804 19,936 23,521 II\. Programme d'assistance technique et de formation A\. Creation d'un Service des donnees routieres a la Sous-direction des routes 1\. Action : Creer une equipe de comptage manuel de la circula tion dans chaque sous-direction regionale et mettre en place Ie materiel de comptage, Ie ler juillet 1981 au plus tarde Responsabilite DCTP 11 Y compris Ie financement du renouvellement du materiel d'entretien et la reconstruction des travaux de drainage sur les routes principales, ainsi que les depenses de formation et d'assistance technique pour la Sous direction de l'entretien routier a la DeTP\.  - 76 - ANNEXE 7 Page 2 2\. Action Acquisition et installation de ponts-bascules\. - Preparation des documents d'appel d'offres - Approbation de la Banque - Appel d'offres - Evaluation des offres et accord de la Banque - Livraison et installation Responsabilite DCTP/BCET/LBTP 3\. Action : Assistance technique a la Sous-direction des routes\. - Mise en place de l'assistance technique Ie ler juillet 1981 au plus tard - tHse en place du personnel de contrepartie - Examen avec la Banque du programme de travail concernant l'assistance technique sur la base du cadre de reference de l'Annexe 2, et accord de la Banque - Examen avec la Banque des donnees disponibles et des resultats preliminaires des comptages de la circulation et des inventaires des routes - Mise en place du systeme de mise a jour perma nente del'inventaire des routes et des donnees concernant la circulation sur les principales routes primaires et secondaires - La DCTP presente, en collaboration avec Ie BCET, l'etude detail lee de l'etat des routes primaires et secondaires, de la circulation sur lesdites routes et des depenses d'entretien y afferentes, et formule des recommandations quant aux inves tissements a consacrer a des liaisons specifiques du reseau - Le Gouvernement et la Banque conviennent d'un programme prioritaire d'amelioration des routes secondaires sur l'ensemble du reseau\. Responsabilite : DCTP/BCET\. B\. Creation d'un Service d'etude a la DCTT 1\. Action : Assistance technique a la DCTT\. - Mise en place de l'assistance technique Ie ler juillet 1981 au plus tard - Mise en place du personnel de contrepartie  - 77 ANNEXE 7 Page 3 - Examen avec la Banque d'un programme de travail concernant l'assistance technique fonde sur Ie cadre de reference de l'Annexe 3 et accord de la Banque - Examen avec la Banque des donnees disponibles et des resultats preliminaires de l'etude des flux de circulation, de la mise a jour des renseigne ments sur la dimension et la composition du parc et de l'etude des habitudes d'utilisation des vehicules - Preparation par la DCTT, en collaboration avec Ie BCET, d'un rapport preliminaire contenant les renseignements specifiques suivants : a) mise a jour des coats d'exploitation des vehicules b) etude des recettes fiscales provenant du sec teur des transports routiers c) etude de l'industrie des transports routiers et de l'adequation des tarifs pratiques dans Ie secteur, et recommandations concernant la capacite de transport, les itineraires des transports publics de voyageurs et la poli tique d'imposition des usagers de la route - Examen par Ie Gouvernement et la Banque du rap port et de ses recommandations et accord sur l'application des recommandations concernant la politique des transports Responsabilite : DCTT/BCET\. C\. Definition et examen avec la Bangue de la proposition detaillee sur un programme de formation de chauffeurs\. comme suite aux recommandations du consultant de l'AFT Responsabilite : DCTT\. D\. Definition et execution d'un programme de formation sur Ie tas de per sonnel d'entretien - Examen avec la Banque du cadre de reference pro pose a l'Annexe 6 pour les services consultatifs et accord de la Banque au cours des negociations - Consultants invites a presenter des propositions - Evaluation des propositions et accord de la Banque - Coordonnateur du programme entre en fonction - Assistance technique en place - Debut du programme de formation Ie ler juillet 1981 au plus tard Responsabilite DCTP/DCFP\.  - 78 - ANNEXE 8 Page 1 COTE D' IVOIRE PRET AU 5ECTEUR ROUTIER RAPPORT D'EVALUATION Description des routes devant ~tre financees dans Ie cadre du pr~t sectoriel envisage 1\. Mafou-Akoupe (environ 98 km)\. Cette route fait partie du reseau de routes principales reliant Abidjan au nord-est du pays\. Le trafic y est d'en viron 1 300 vehicules par jour, dont 40 % sont des vehicules commerciaux\. Elle suit un trace tortueux a faible visibilite, et porte toutes les marques de ses origines qui sont celles d'une piste\. Elle traverse 10 villages et la ville d'Adzope\. Sa chaussee est de 6 m de large et elle presente des fissures et des nids de poule\. Elle compte quelque deux douzaines de petits ponts, dont cer tains d'une largeur de 3,5 m\. II est propose de reconstruire entierement cette route en la dotant d'une chaussee de 7 m goudronnee, en suivant la plupart du temps un nouveau trace qui, dans la mesure du possible, contournera les villes et les villages auxquels elle sera reliee par des routes de desserte\. Aux en droits ou la nouvelle route traversera effectivement des villages, on veillera aux abords de ces villages a separer les pietons de la circulation\. 2\. Akoupe-Abengourou (66 km)\. Cette route principale goudronnee s'etire vers Ie nord-est depuis Akoupe, franchissant Ie fleuve Comoe et son champ d'inondation\. Actuellement, Ie trafic y est d'environ 700 vehicules par jour, d~nt 40 % sont des vehicules commerciaux\. Elle porte egalement les marques de ses origines de piste en ce sens que son trace epouse etroitement Ie terrain, formant des courbes serrees, notamment a chacune des extremites de la route\. Sa chaussee est de 6 m de large et elle porte de nombreuses fissures et, a l'occasion, elle est trouee de nids de poule\. Ses principaux defauts d'aligne ment seront redresses et sa chaussee sera reparee et renforcee et elargie a 7 m\. 3\. Akoupe-Bongouanou (60 km)\. Cette route principale goudronnee part vers Ie nord-ouest depuis Akoupe\. Le trafic y est actuellement d'environ 500 vehicules par jour\. Elle aussi etait a l'origine une piste, mais elle traversait des terrains moins accidentes que les deux precedentes, de sorte \. que son trace est moins tortueux\. Sa chaussee, large de 6 m, est fortement fissuree et ponctuee de nids de poule\. Les travaux se limiteront a la repara tion et au renforcement de la chaussee existante qui sera maintenue a sa lar geur actuelle\. 4\. Man-Issia (188 km)\. Cette route goudronnee, relativement nouvelle, a ete construite entre 1972 et 1975 dans Ie cadre du Deuxieme projet routier\. Le trafic y est actuellement de quelque 500 vehicules par jour, dont 55 %  - 79 - ANNEXE 8 Page 2 environ sont des vehicules commerciaux\. Le type de construction employe pour sa chaussee - une base de pierres concassees recouverte d'un revetement de sur face en bitume - est relativement leger, et a ete juge approprie, compte tenu du trafic qui etait alors projete\. Toutefois, la croissance du trafic, et notam ment du trafic commercial, a ete plus forte que prevu\. A certains endroits, la chaussee presente des irregularites dans sa surface et accuse des signes de fa tigue\. Un renforcement relativement leger de cette chaussee, de 7 m de large, est propose pour y ameliorer la qualite de la circulation et pour empecher une deterioration rapide que ne saurait manquer d'entrafner l'augmentation rapide du trafic\. 5\. Adzope-Betie (100 km) dessert Ie Troisieme projet d'heveaculture de la Cote d'Ivoire (Pret 1633-IVC)\. Actuellement, la zone de ce projet est desservie par une piste en terre et il a ete demande au MTPTCU d'ameliorer l'etat de cette piste\. Le niveau des ameliorations sera decide en fonction des conclusions des etudes de faisabilite preliminaires\.   COTE D'IVOIRE MINISTERE DES TRAVAUX PUBLICS DES TRANSPORTS DE LA CONSTRUCTION ET DE l'URBANISME 1M\.T\.P\. T\.C\.U\.} ORGANIGRAMME MINISTRE ET SON (;ABIN(, T INSPECTEUR CENTRE DES DIRECTIONS DE ET DES SERVICES DOCUMENTATlON I I I I I I I BUREAU DIRECTIONS REGIONALES DIRECTION I DIRECTION CENTRALE DIIH'C ION Ill: OIRECTION CENTflALE CENTRAL DES TRAVAUX PUBLICS CENTRALE I D' APPROVISIONNEMENT EN l'I\flMI NIS IflA DU CONTROLE DES I OES ETUDES CONSTRUCTION ET DES TRANSPORTS EAU ET DU SYSl EME TlON I IOU,i GHANDSTRAVAUX I TECHNIOUES (71 URBANISME TERRESTRES D'EGOUTS I-IN" NCE~ I '--\. - I I I CELLULE DE LA PLAN I LABOHATOIRE FICATION H COORDINAllON DIRECTION CENTRALE DIRECTION CENTRALE DU BATIMENT I DIRECTION CENTRALE \.J DE L'AVIATION OES TRANSPORTS DU MATERIEL OES TRAVAUX PUBLICS ET DES TRAVAUX CIVILE INrERURBAINS PUBLICS Infrastructure\. routes I DIRECTION CENrRALE t::1 &erOthOflles SOUS-DIRECTION DE DES AffAIHES LA PROGRAMMATlON DES DIRECTION DE URBAINES INVESTISSEMENTS l'EN1RETIEN ROUTIERS ROUTIER UthatltSme DIRECTION CENTRAL E DIRECliON DES DE PLANIFICATION SOllS DIRECTION URBAINE TRAVAUX ROUTIERS \. DES ROUTES PERIODIGUES DIRECTION CENTRALE - DES BATIMENTS Hydt ulo~)IC PUBLICS 1, Les Directions ttl h~' Bureau>t qu' ,n'~r6ssent d\.reclemenl I I Ie projet hg,urent daru les cadres en trail, g'I$\., 2\. Le [jureau cenHa' dei elUde~ techniques ~BCE net fe la boralollt: du ballmenl et des ttaViJ:u)( publiCi (t\.:\.8TP' sont DIRECTION ClcNrHAI E T opogt aph Ie des orgal'usmes parapuulfcs dOtH lei optlfacionr\. sonl h DE tA FORMA liON nancees seVclremcnt\. QUl entrepummml $our dCfflunde dus \.ra~ I'tlOf,I;SSIONEltl - vaux pour tc compte d'aotr8$o MUHslcres et of9dnisme~, St'PICtllhll;! lUl!J Uallll\W MOIldldh" 22164  \., COTE O'IVOIRE PRH AU SI'CTEUR ROUTIER Processus de Ptanilicatton des 'nwes,\.uemenls pout l'Applicalwn du Ptet Stictotiet li \.-- \. Jl A O~GAN'!lMl;snf""AN1"!(;AltON I MINIS1 ERE OtS IHAVAu)( ~ t:~\~!'~;:s~~~~~::l~ Mt'ft: _\.- \. \. _\._-J-- __ p\. I -' \.c\.'--r'\.--:\.c;\. I I t\.At'tAN'HLA~~t~tJ1 ---r L \. 111 t c\.t:uuu: Ul: E1 Of t:OtIHiltNAhON I HAU!>I'Ot1I!\. IN I t\.Ml>IIIIAIN:\. ~- \. -~ ~\.--- ou~ -----_\._ \. [ ~~=~,,:"~ \. (tdllt,,,,\.,,,,\.,lhr ""'~ijI'\.' ----,--- ~lij\.'\.~ton el~ \. I4I\. C<Ni\.u",del donnell' 1t8'''' utI!'Pl\.btlue -\.I'VHity" --\. fl);j "'fUUl\., P'UiI,,,,,,nnW'l Mtll\.npl\. Wt\. ,\.l1lItiJ'" \.-----0 \.t1llk> p'\.hfU\. \. \. \. ,\.t ~iI:\.u'-\.t kif 1"1,, u,d\. , \. hUll" le~ lihol"H h"~,h'I\.4_ I\. """~I \. lv~ dII tlio!"",IJVf\.IoI\.l \.1>1 It"'" I\.'\., l""'Uhdu \. I',n_fll\."\. l»I'IopI¥\.li1i1A! _lo~ \.II"\.J (OUUer, COlnt>' ,wl"VIIqU" it'"m,\.l UOU1uiH I\. ClH;ut~tOn ~t \. mptntllon I \.:hl \. "ftC I COOtO\.,\.hon r \.",\.tu_' m\.:\. I I I\. u:"t\.:,\. ;;hi \.'ettd\.I,of tMuanll'" _''''P$MJm""\.l I I c\.",\. c\.uuu,j ,\.",un'" "", I kIf\' d\. fen"""wn 1~t:rtJln \. ' \. " I du ,* \.I'L"I I I\. ""'11\\. I dWI I I "","'y~I \. I Pilip\. ,'"n"\.II\." - ,;oI \. f' emlllO'elt"'" dl E:laboI:\.,\. p'09I««onwt (I"\.JlVeOfll pau, I\.,\. lJ"'U;uflt"'J~'n p"'U~uh\.h ''''''te, PCO"d\. ' \. \. \. ' bfL"l \.uo\. P'O$lOOWI"'l'~lttiU\. lJ tOU'\.' iIl'hur\., toI' 400(;110001 dol\. 'ni~'\.l "'-" ,U4lIOi Utll lI\.f'QOoIt d" 0lMt1\h\. MIIf\.u~m lot OtllvHn",\. pour Pf\.,lid I----\.-~ \.",_, de f"n'OlUHIIHU dl\.uttjllUlllAi IKOI1I1:II\.r\.MltQM ,1\.1'" "ltJiUlI" \. ' d\.'\.dll_~ UOH (I'I\."nt lI" "4It~r\. a'Ml' au " \.iKOIIJ\.t \.l l \. ~I!U fHoI!cml~lwtI curn;\.m_,1ft; hU;oIc \.",h"U\.th ttul\.lI \. I \. ,\.,)wl tOo"',,", ptlm"':'\.1 l"IUultl\. I\. v_to: devfllit:;U" \. JeaU'Chl'f\.' \.,u\.,lV'IoJ\.1 if\lo!l\. Wf r \.stJfllllt\. dur\. \. Inul It"\. """pot"",,, -I d'''''~''H''IIIHldtol ~\.~ \.d'''''l tt,\. l\., loI:H'\.,If\. ' -_\. [--}J 1)\.>t\.llh\.l_ \. 1\. t,,1 "\.It lluUllo tn \. O\.Ulnvll!lll"ll/!\ "I' un loW_ de 1\.11-'"",\. _~ _ >\. <>ft:"\.I \. I \. 41~ [_\. ::',:::"' ] :::>::::~:~:"\. Ii (;"UlHt~ \.\I'm\. ~ i>l'OIr 1'" \. \.,\.u", d\.~ V' \. I~i\ d \." 1 ~\. '01 f'H\.!jI \.,\. w,:,,:\.uu\.nlqutt d \. ")01111 1}'I\, t'lev"''' \." t\.\"flIJliLol,,\ tl \. l\.O''':-,>'ioQ'' ad pro,\. ,""\.",a_1e p,I"cl,fII u\. \. ~, \. ho" (~liII (tonHI<>i:l\.n U\.s Ifl-l\., PI\." m()l\.od,\. (00' JltI_U\.,td '100«1 41\.he!o\.kft de '-\.tloIl Hel" I oll,utlln ,~'u \.'urrodu\. uel ddfH tt\.,ll\.{IU'U\ 1\.1\. l;l«lnt1\.'~\.bl"'" jtffl\.V"\.u~ --- ltl-ht" l -{ :::::',;"::,::,~::,~,~">" --~------ 1"11""",\."m, de "'ll~"l''''''''''U \. }! (~u d"\.1f' ""H"'" n\. ,\.,\. ""\.mt!: \."', \.t, \. ~~ \. n \."" , \. f,Io \., \. lm"I'~I< \.""" ,101, bm \. (hclfgi;\. rk 1\. ,II \.,Hlll\.uulI I" \.'<" ItrW \.1\. ~ I',\. ~ P\.,ll> "\.,"~" ~ - --~--- Il'''''l'''~ '-41>11\.1,;\.1" 11/l1J\.,   I ~-,\. M A (' 1" To BougOUJ!! - ~\. ' i\., I' " --" o ? \. IBRD 14 ---"FEBRUARY ('ingr~la , t'",, 'o~ ;\.-/ o,,/\.r \.I '~\._\. /-\. \. 3 \. '1\.1 J\. 5 \.J "'l\.-" J UPPER VOLTA IVORY COAST To Ovogodovgou lO" I' \.~ t\.-" r"'\./'\._\._' HIGHWAY SECTOR LOAN \.""'\'/10--(\., \. /,\.f' PRIMARY Af'~D SECONDARY GRAVEL ROADS BETTER E i ""'\.r',fL"\.r ( \\. ~7' iT RKESSEooumu \ \\.\"\.j\, '\. PROGRAM 1976-1983 GUlf'JEA \0 v~ \\.JI\. /~ S "be\. \. "'-"'>~ DTRP :9/L-1930 \.-~ ill } ~ct!errr\.en' worKS 1981-1983 \\."" ~ roads \. ("-'l\.f\\.l ') \ Earth and,Jrovel roods \ Rotiwoy ~ ~ \ @ ['Jationei Capitol '""",,, ):~ @ Prefectures 0 Other towns ( -+ Intel notlonoi 01 rports To N ~"e'ek"", ) \.ot Other airports --VI' '\.!~ Ports Rivers -_\.- International oS' '< yJJ<i' \.0 \.J / ( [GHANA ThIS map has been p!ep()old by the World Bank's stilff exc!u"O:;1'IIt~/¥ for the con'\.'enfence ~\. of the readers of the repolC to which It is attached The denornrniJtlons used and rhe boundanes shown on (hIS map do no! Imply\. on the {'Jft of [lie World Bank and its affiliates\. ar\.y judgment on the lega! status of any territory or any endorsement or \ acceptance 01 such baundanes \ ~\ 10" 0" 6' 6' MAURITANIA I ~) ~\.-\.r-' ' " ""\ I \. \\.~\. ',,-J \./"\.1-- __ ,_-'~ ~ LIBERIA ,\. i-\. \. (" MAL I 'Ayame I SEN EGA L _-,'__ I AElOISSO ) ~_~ , r \.,\.-'~\. (,A~BiA -"",\.,\.,'-_\.-\._,~\. T HE <! J ,"',\.J,\.J ;"'- L\. \ \\. GlJlNf A llISSA\.'d\.r \./\., ""r"\./~ r"' ~ U P PER vOL T A G U I N E A ' "1\. > 10 \.fV"'-" rJ"~ ~\. (~'-\.J'(( ~'ERRA '\ ~ '"Vi II i 0" '\. LEONE tr'\ ,\.J \ S ""'-/) ~J'/ -< I V 0 R Y ;GHANA(g LIBERIA) 'L\.-\. C 0 A S T i l\. 0 o \. ) Abel®, \ ':> \. 20 40 \. &080 100 120 \. I KILOMETE~S 1 8' 6' 4' 10" O -'  ~\\.rj!;') ') 8' ~0"0""\ I \. l M "\.0 (f0 I~"'} A I'l('/'~\. To Bovr;ov\.'" iT""\. "" '-\. "\. ;\. 5 6' I , ~ r- ?' I 4' l- IBRD 14698R OCTOBERI9BO UPPER VOLTA IVORY COAST V' "'\.-o\.,j\. c:\. 0Tlen;::-''1,,) '1\.Yr 1 HIGHWAY SECTOR LOAN 10" I \. ~ { \. '""\ \. "",,-\./"\.-\.- \. / \.r\. 1 I TEN YEAR HIGHWAY INVESTMEI"-lT PLAN Location of Proposed Investments ;0' ""-\."\.1") r \.v\ , \ \. PM ( fERKESSEOOUOOU 1\. / '-\. <\. PrOject roads and numbers Paved roads\. 1980 " /\ \\./\. \.t}o' Earth and gravel roads GUINEA <0 ~ , \ \.J\. /~ S ~6'% -+-+--4-- ~ Railway Noiil:n:\.ll Capital \.-~ ® Pre fectures t ~ o Other towns \\."" ~ ') \ -+ International aIrports Ot her airports 1' (''''-'\\.$'\] \ """;,,)1 p()(ts Rivers t ''''''') \ _ \. - - International boundaries \.f!' >:~ ( i \. ( v\.' \.j / (' (GHANA This map has been prepifJred by the World Bank's staf{ exclusively for the convenience of the readers of the report 10 which It IS attached\. The denominations us~d and the boundaries shown on thiS map do not Imply, on the part of the World Bank and Its affiliates, any /udgment on the legal stalUs of any temtorr or any endorsement or \ acceptance of such boundan"s ""'\.) \ \.~ 10" Cf' 6' 6' \.;-,'" MAURITANIA i ) -\.~ ,-\. \. ! 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APPROVAL

P000699

Document of The World Bank FOR OMCLCAL USE ONLY Report No\. 14065 PROJECT COMPLETION REPORT ETHIOPIA SECOND ROAD SECTOR PROJECT (CREDIT 1404-ET) MARCH 17, 1995 Infrastructure Operations Division Eastern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  Currency Exchange Rates Currency Unit = Birr (Br) = 100 cents 1983 to September 1992: US$ = Br\. 2\.072; Br\. 1\.00 = US$ 0\.483 October 1992 to March 1994: US$ = Br\. 5\.00; Br\. 1\.00 = US$ 0\.20 Weights and Measures Metric ETHIOPIAN CALENDAR The Ethiopian Calendar year runs from September 11 to September 10 and the fiscal year from July 8 to July 7\. Acronyms and Abbreviations AfDF = African Development Fund AIDB = Agricultural and Industrial Development Bank ATA = Air Transport Authority BNCE = Blue Nile Construction Enterprise CPSC = Central Planning Supreme Council EA = Ethiopian Airlines EACS = Ethiopian Audit Services Corporation ERA = Ethiopian Road Authority ETCA = Ethiopian Transport Construction Authority MOC = Ministry of Construction NATRACOR = National Road Transport Corporation PPD = Planning and Programming Division - ETCA RTA = Road Transport Authority TSM = Transport Sector Memorandum voc = vehicle operating costs vpd = vehicles per day  FOR OFFICLL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.S\.A\. Office of Director-General Operations Evaluation Harch 17, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Ethiopia Second Road Sector Project (Credit 1404-ET) Attached is the Project Completion Report on Ethiopia -- Second Road Sector Project (Credit 1404-ET) prepared by the Africa Regional Office, with Part II contributed by the Borrower\. The SDR64\.9 million Credit was approved on September 16, 1983 and closed on March 31, 1994, more than five years behind the original schedule\. SDR59\.6 million was disbursed and SDR5\.3 million was canceled\. When preparation started for this project in the early 1980s, most of Ethiopia's road network was some 20 years old, in poor condition, and in need of rehabilitation and upgrading\. At the time, many areas with good agricultural potential were only accessible by animal-drawn vehicles\. The objectives of the project were to improve and to expand the existing trunk road network, improve access to rural areas by constructing and maintaining feeder and rural roads, and to strengthen and improve effectiveness of government institutions in the sector\. The project was implemented during a period of civil war\. This diverted government resources, and deterred finance by other donors\. Government funds were further diverted to alleviate famine stemming from sustained drought conditions\. The project had to be scaled down soon after Board approval; a substantial part (about 80 percent in physical terms) of the revised project was actually implemented\. The PCR gives a good account of project results and implementation, and of the surrounding circumstances\. However, cost data is sketchy and the total final project cost is not available\. The major road works had satisfactory rates of return; the return for feeder and rural roads was not assessed, although an environmental study funded by Norway demonstrates considerable intensification of land use - as well as potential deforestation risks\. Practically all the studies envisaged were conducted but did not lead to noticeable institutional improvements partly related to the lack of a coherent approach to the sector by donors\. In particular, Blue Nile Construction Enterprise, a publicly owned construction company, did not succeed in becoming a competitive contractor\. On balance, the institutional development impact is rated as negligible\. Taking into account the difficult circumstances under which the project was implemented, the project outcome is rated as marginally satisfactory\. The sustainability of benefits is rated as uncertain due to constraints in maintenance funding\. The project will not be audited\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of| their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.|   FOR OFFICIAL USE ONLY ETHIOPIA SECOND ROAD SECTOR PROJECT (Credit 1404-ET) PROJECT COMPLETION REPORT Table of Contents Preface \. i Evaluation Summary \. ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1\. Project Identity\. 1 2\. Background\. 1 3\. Project Objectives and Description\. 2 4\. Project Design and Organization\. 4 5\. Project Implementation\. 5 6\. Project Results \.13 7\. Project Sustainability \.15 8\. Bank Performance \.16 9\. Borrower Performance \.16 10\. Consulting Services \.17 11\. Lessons Learnt \.18 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 19 PART III: STATISTICAL INFORMATION 23 Table 1: Related Bank Loans and/or Credits (Highway Projects) 24 Table 2: Project Timetable \.25 Table 3: Credit Disbursements \.26 A\. Actual Disbursements \.26 B\. Chart of Annual Credit Disbursements 27 Table 4: Project Implementation\. 28 A\. Civil Works, Equipment and Staff Training \. 2 B\. Training and Technical Assistance 29 Table 5: Project Costs and Financing \.30 A\. Project Costs \. 30 B\. Allocation of Credit Proceeds \.31 Table 6: Economic Analysis \.32 Table 7: Mission Data \.35 Table 8: Compliance with Credit Covenants \.36 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Banik authorization\.  I  ETHIOPIA SECOND ROAD SECTOR PROJECT (Credit 1404-ET) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Second Road Sector Project in Ethiopia, for which Credit 1404-ET in the amount of SDR 64\.9 million was approved on September 16, 1983\. The Credit was closed on March 31, 1994, more than five years behind the original schedule of December 31, 1988\. It was disbursed to the amount of SDR 59\.592 million and SDR 5\.308 million was canceled\. The last payment was made on February 9, 1994\. The PCR was jointly prepared by the Infrastructure Operations Division, Eastern Africa Department (Preface, Evaluation Summary, Parts I and III), and the Ethiopian Roads Authority (ERA) provided comments on behalf of the Borrower (Part II)\. Preparation of this PCR was started in June 1994, and was based inter alia on the Staff Appraisal Report; the Credit Agreement; Part II from the Borrower; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda\.   ii ETHIOPIA SECOND ROAD SECTOR PROJECT (Credit 1404-ET) PROJECT COMPLETION REPORT Evaluation Summary A\. Introduction 1\. The Second Road Sector Project was the Bank's eighth project in the road sub-sector in Ethiopia\. It built on the experience gained from the earlier projects, particularly the First Road Sector Project that was progressing satisfactorily and was coming to an end during appraisal, although the project was delayed by about two years at that time\. 2\. The road network of Ethiopia was relatively limited with about 13,300 km of all weather roads, of which about 4,000 km were paved\. The main roads were built before 1960 and in need of upgrading\. Many areas with agricultural potential were accessible only by donkeys and other pack animals\. B\. Objectives 3\. The Project was designed to support implementation of the Government's Sector Program (1984-1986)\. The objectives were to improve and expand the existing trunk road network, improve reliable accessibility to rural areas by constructing and maintaining feeder and rural roads; and to strengthen and improve effectiveness of Government institutions in the sector\. C\. Project Implementation and Results 4\. The sub-projects that received financing from the Credit were successfully completed, albeit several years late\. The Project as a whole, which was designed as a three year slice of the Government's second sector Program, did not fulfill all of its objectives\. The physical outputs of the Program and the rate of implementation fell much short of the targets\. Of the proceeds of the Credit, 434 km of main paved roads identified for rehabilitation, only 70 km were completed\. Of the 734 km of gravel feeder roads to be reconstructed, only 250 km (Nekempte-Bure road) were completed\. The ERR is estimated at 31 percent for the Mille- Logia (completed part of Mille-Assab) road compared to 26 percent at appraisal for the whole of Mille-Assab road; and 12 percent compared to 24 percent at appraisal for Nekempte-Bure road improvements\. The development of the domestic construction industry was also less successful than aimed for\. The Blue Nile Construction Enterprise (BNCE), the Government owned contractor that was the most direct beneficiary of the technical assistance  iii for management training, failed to prequalify for later Bank financed projects in Ethiopia because Government failed to provide it with the managerial and financial autonomy necessary to meet the Bank's criteria for prequalification of state-owned enterprises\. The equipment part of the Project was procured and deployed essentially as intended\. Despite five extensions, for a total of 5 1/4 years, the Credit was not disbursed in full, leaving an undisbursed balance of SDR 5,307,964, or 8\.2% of total (June 1994) which has been canceled\. D\. Conclusions 5\. The project was implemented during a period of civil war in the country, which hampered all operations and affected the functioning of the govermnent institutions involved\. Judged against this background, it was quite an achievement on part of these institutions to complete the project targets as redefined in 1985\. Another main problem of implementation stemmed from the lack of adequate local funding, that changed the scope and composition of the Government's sector Program\. In retrospect it could be argued that the Government's sector Program was too ambitious, and that the Government did not have the required financial resources to implement such a program\. In three years the Government was to provide US$186 million, with US$77\.5 million in foreign exchange, as a contribution to the project, and US$69\.3 million (US$33\.8 million foreign exchange) as recurrent cost\. However, since most of the country's resources (especially foreign exchange) were diverted from development investments to drought relief operations and to fight 'civil disturbances', the Government found it increasingly difficult to finance the Program\. Moreover, the expected donor financing did not materialize\. The issue of the Government's financial constraints was discussed on several occasions during project preparation and the Government agreed at the Bank's request to reduce the capital cost of the sector program by some 30% during negotiations\. 6\. The Nekempte-Bure road, including the new bridge across the Blue Nile (Abay), was officially opened to traffic in 1993, after almost nine years of struggle and setbacks\. Construction was hampered by a chronic shortage of operating funds and slow supply of essential materials, and the contract was temporarily suspended when the hostilities in the area threatened the safety of the workforce\. Transport to the area was difficult and the contractor lacked access to basic infrastructure and social services\. The new road fulfilled its objectives of opening up an area with rich agricultural potential that before was inaccessible by car or even by a cart, and provided a new and important interregional link\. 7\. A study carried out in parallel with the Project to measure the environmental impact over time of construction of the Nekempte-Bure road concluded that the population more than doubled in the study area during the period investigated, with resultant change towards more intensive land use and increases in cultivated and settled area\. Measures to prevent erosion, loss of soil fertility and a further reduction of the forest area are to be incorporated in future environmental protection programs\. The study confirmed that new roads providing vehicle access to previously inaccessible rural areas can have both positive developmental, and adverse environmental impacts\.  iv 8\. Development of the domestic construction industry was an important objective of the Project\. To this end technical and managerial assistance was provided to BNCE\. The experience of this support was mixed\. On the one hand, BNCE was successful in winning the award of the contract for the construction of Nekempte-Bure road, and in the end completed the works successfully even through the war\. On the other hand, BNCE did not succeed in becoming a competitive contractor, organized and equipped to compete for work internationally\. This situation resulted from Government's lack of commitment to develop a financially and managerially autonomous domestic construction industry that could eventually become private\. 9\. The Project was prepared and designed with the concept of sector lending in mind, as this had proved in the first sector project to be useful, primarily in increasing the Bank's participation in shaping the size and composition of the Government's sector program\. A sector project would need a coordinated effort of Government and participating donors in order to implement all major elements of the program, and to attain the full impact as a sector program\. However, collaboration with other donors diminished as the Program progressed, and a number of sub-projects were either abandoned or much delayed\. The Bank's supervision gradually focused attention on sub-projects that included Bank financing, and less effort was extended in monitoring the Program as a whole\. However, a continuous dialogue with Government to address key issues in the transport sector was maintained by Bank staff throughout the implementation period\. E\. Lessons Learned 10\. The following lessons were learned from the experience under the Second Roads Sector Project: (a) The Government's sector program was probably too ambitious, and they did not have the required financial resources to implement such a programn\. It is important to take a careful and realistic view of the financial capacity of the Borrower, especially when the availability of cofinancing of a sector program is not confirmed\. (b) The construction of new roads providing vehicle access to previously inaccessible rural areas can have an adverse environmental as well as positive agricultural development impact as more area is cultivated\. It is important, however, to provide for environmental protection and enhancements during road planning, design and construction\. The overall effects should also be closely monitored and addressed thereafter\. (c) The lesson from the modest success of technical assistance provided to develop BNCE is that major policy changes need full commitment by Government to ensure success\. The success of any effort to establish a parastatal as a construction enterprise depends on Government's willingness to grant it financial and managerial autonomy, and that in the absence of such commitment, assistance to strengthen such parastatals is likely to accomplish little\.  v (d) Although it was appropriate, when it became apparent that the Borrower did not have the financial resources to implement the sector program as planned, to reduce the scale of the project, to shift attention of supervision to civil works components, and follow up key issues in the context of other Bank projects, the lesson is that perhaps better monitoring mechanisms could have been built into the project design by defining performance indicators for the major sub-projects, and by carrying out joint annual reviews of the program with the Borrower and other donors\.  ETHIOPIA SECOND ROAD SECTOR PROJECT (Credit 1404-ET) Project Completion Report Part I: Project Review from Bank's Perspective 1\. Project Identity Name : Second Road Sector Project Credit No\. : 1404 - ET RVP Unit : Africa Region Country Ethiopia Sector : Transport Sub-sector : Roads 2\. Background 2\.01 The Second Road Sector Project was the Bank's eighth project in the road sub-sector in Ethiopia\. It built on the experience gained from earlier projects, particularly the First Road Sector Project that was progressing satisfactorily, although delayed by about two years, and was coming to an end during appraisal\. 2\.02 The transport system consisted in 1983 of some 43,000 km of roads: the ports of Assab and Massawa; one railway line (780 km) connecting Addis Ababa with Djibouti; maritime and coastal shipping; river and lake transport of relatively little significance; two international airports, at Addis Ababa and Asmera, and 27 local airfields and rudimentary airstrips\. Roads and ports were the country's dominant transport facilities\. About 95 percent of interurban passenger traffic and 90 percent of interurban freight were carried by road\. Away from the major roads, transport was generally by mule or donkey in the highlands and by camels in the lowlands\. About three quarters of Ethiopia's farms were more than a half day's walk from an all weather road in 1977\. 2\.03 The classified road network was relatively limited with about 13,300 km of all weather roads of which about 4,000 km were paved; in addition there were some 30,000 km of unclassified, low standard earth trails and tracks\. The road network was one of the least developed in East Africa, with a density of only 10 km per 1,000 km2 and 0\.4 km per 1,000 population\.  2 2\.04 In preparation for the Project, the need for a resumption of past efforts to strengthen the road administration was identified\. Previous Bank financed projects, as well as donors, had supported the successful development of ERA to become an efficient organization with capacity to discharge its responsibilities for planning, construction and maintenance of the country's classified road network\. However, following the unrest of 1977-78, foreign contractors withdrew from the country\. The Government was faced with an urgent need to build up force account construction capacity to expand the road network to support the defense of Ogaden\. The priority given to force account construction was at the expense of other activities, particularly maintenance\. The efficiency of ERA as an organization was eroded, as experienced staff were transferred to manage new construction brigades\. 2\.05 Sector Development Objectives: Nearly one third of the network of main roads was built before 1960 and some of the major roads as early as 1930\. These roads needed extensive rehabilitation and upgrading\. Further, despite past efforts, there were still many areas under cultivation or with large agricultural potential, accessible only by pack animals\. 2\.06 The Government's development strategy for the transport sector was aimed at (a) improving the main road network to ensure safe, cheap and efficient communications between population centers and export outlets; (b) improving accessibility to agriculturally productive areas, as well as to drought prone areas by building feeder rural roads; (c) continuing maintenance and rehabilitation of the road network, and increasing the capacity of Ethiopian Transport Construction Authority (ETCA)I' to maintain the roads; and (d) rehabilitating and improving the trucking industry, as well as the ports and airports, to ensure an efficient production and distribution system and to facilitate international trade\. This strategy was regarded as constituting a sound basis for the sector and was fully endorsed by the Bank\. 2\.07 Policy Contx There was a clear link between the Project and the sector and macro- economic policy objectives\. The transport system was considered inadequate and insufficient to support an efficient production, exchange and distribution system in the country\. Virtually all transport infrastructure was old and deteriorated and most transport services were inefficient\. Besides, the system left many areas, particularly in the agriculturally rich west, south and south- west, without access\. The Country Economic Memorandum of December 15, 1981 concluded, with relevance to the transport sector, that agriculture would continue to be the backbone of the country's economy and that poor transport facilities constituted a major bottleneck for development, especially of agriculture\. 3\. Project Objectives and Description 3\.01 Project Objectives: The objectives of the Second Road Sector Project were to (i) improve the road transport infrastructure, and (ii) enhance the effectiveness of the Government's I/In 1980 the Ethiopian Roads Authority (ERA) was transformed into ETCA, which was the implementing agency until mid 1990, when the Ethiopian Road Authority (ERA) was re-established with the same responsibilities, apart from construction of new road\.  3 management of the road sector\. More specifically, these broad objectives were translated into the following project objectives: (i) (a) improving, expanding and maintaining the country's trunk highway network; (b) increasing the reach of all- weather communication by improving, constructing and maintaining feeder and rural roads; (c) procurement of modem laboratory and design equipment; and (d) purchase of road maintenance equipment and the construction of maintenance depots\. (ii) (a) further strengthening of ETCA and improving its effectiveness; (b) streamlining and rationalizing RTA and its agency, NATRACOR, thereby increasing efficiency in the road transport industry; (c) increasing the mobilization and efficient allocation of resources through the adoption and periodic updating of appropriate pricing policies; (d) strengthening the local construction industry, including assisting ETCA in transforming most of its force account capacity for main and secondary roads into autonomous commercially based construction enterprises; (e) improving road traffic safety; and (f) improving transport sector organization, planning and administration\. 3\.02 Project Description: The Second Road Sector Project was part of the Government's Road Sector Program for the fiscal years 1984-1986 \. The Project, estimated at US$ 318\.4 million, covered basically the capital investment portion and technical assistance under the Program which was to assist, inter alia, in continuing the introduction of maintenance management systems countrywide\. The total Program cost was estimated at US$ 387\.7 million including Government's recurrent expenditure on maintenance\. Of this the Government intended to cover US$ 255\.4 million, 66%; IDA would cover US$ 70\.0 million, 18%; and external sources were expected to contribute the rest of the financing\. ( The Program was adjusted in May 1985\. The physical targets were considerably reduced\. However, the total cost of the Program remained about the same, as the original estimates were revised to reflect actual costs\. In addition to IDA, the financing plan now included contributions from EEC, US$ 11\.1 million; AfDF, US$ 19\.3 million and Japan US$ 2\.0 million)\. The Project consisted, at appraisal, of the following parts: Part A: Improvement, rehabilitation and construction of roads: (1) rehabilitation and upgrading of about 430 km of paved roads and about 360 km of gravel roads; and (2) construction of about 730 km of gravel surfaced feeder roads and about 2,940 km of rural roads\. Part B: Construction\. improvement and equipping of: (1) maintenance depots; (2) training facilities; and (3) road safety related facilities, including, inter alia, vehicle diagnostic centers, vehicle rest and service areas\.  4 Part Co Acquisition and utilization of: (1) highway maintenance and construction equipment, vehicles and spare parts; (2) workshop equipment and tools; (3) soils laboratory equipment including equipment for field testing of soils and construction materials; (4) equipment required for highway design, including photogrammetric equipment (stereo plotter); (5) training equipment and materials; and (6) traffic signs and guardrail\. Part D: Training- of-, (1) MTC's personnel to strengthen and improve the quality of its planning and programming functions; (2) ETCA's personnel to improve its technical and managerial skills; (3) RTA's and NATRACOR's personnel with priority to traffic safety and road transport operations; and (4) managers and employees of the domestic construction industry to improve their skills\. PartE Technical Assistance: (1) preparation and implementation of an expanded program for the construction and maintenance of rural roads by labor-intensive methods; (2) strengthening and expansion of ETCA's Monitoring and Evaluation Unit; (3) improving the supervision of road construction; (4) setting up and operation of management systems for: pre-construction, construction and maintenance of roads, equipment maintenance and operation, and parts and supplies management; (5) strengthening of the management of domestic construction industry, including public construction enterprises; (6) strengthening ETCA's training programs and centers; (7) carrying out the recommendations of the Road Transport Study; (8) carrying out a national transport plan study; (9) setting up a program and organizational system to improve the administration of road transport; and (10) carrying out studies and assessment of technical assistance needs in the transport sector that may be required during the implementation of the Project\. 4\. Project Design and Organization, 4\.01 Project preparation: Much effort by the Bank and the Borrower's staff went into the preparation of the Sector Program, and this extended project preparation time by about four months\. The appraisal report was very thorough and gives a broad background, project objectives of and detailed information on project components\. Negotiations were held in Washington in April 1983\. The main issue discussed was the size of the Project and the possible financial constraints of the Government\.  5 4\.02 Pljrect Design: The Second Road Sector Project continued efforts initiated in the First Road Sector Project from 1976 to 1982\. It was designed to cover the capital investment portion of the Government's proposed highway Program, i\.e\., the entire operations of ETCA during the three year period 1984-1986 with technical assistance to continue introduction of maintenance management systems countrywide, as well as to the Ministry of Transport and Communication (MTC), the Road Transport Authority (RTA) and the National Road Transport Corporation (NATRACOR)\. 4\.03 Given the generally satisfactory results of the First Road Sector Project, the planning and implementation capabilities of the institutions responsible for the transport sector, the Second Road Sector Project was seen as a natural follow up in the Bank's assistance to the road sub- sector\. The flexibility inherent in sector lending was found to be important in attaining the satisfactory results of the First Road Sector Project, Credit 708-ET, allowing the composition of the program to be varied to reflect changing needs and circumstances\. This project design was therefore based on the concept of sector lending\. 4\.04 Project Organization: The Borrower was Ethiopia\. ETCA was the implementing agency on behalf of the Government and responsible for liaison with and reporting to the Bank\. RTA was responsible for Part D:(3); training of RTA's and NATRACOR's personnel with priority to traffic safety and road transport operations; Part E: (7)/(9)/(10); carrying out the recommendations of the Road Transport Study, setting up a program and organizational system to improve the administration of road transport, and carrying out studies and assessment of training needs in the transport sector\. MTC was responsible for Part D:(l); training of its own staff, and Part E:(8); the National Transport Plan Study\. 5\. Project Implementation\. 5\.01 Loan Effectiveness and Implementation: The Credit became effective on February 14, 1984\. The original Credit closing date was December 31, 1988\. The first 12 months extension was approved by the Bank in 1988, followed by a second 12 months in December 1989\. A third extension of 24 months was approved to enable the Government to finalize all outstanding components in an orderly fashion\. During negotiations for the ERRP in Washington D\.C in August 1992, the Government submitted a fourth request for an extension of the closing date for an additional 6 months due to unforeseen delays experienced on the Mille - Logia road construction project\. A fourth extension was subsequently granted by the Bank in November 1992, establishing September 30, 1993, as the Credit closing date\. The Project finally closed on March 31, 1994\. 5\.02 By August 1985 the delays occasioned by the implementation problems and the persistent financing constraints of the Government, showed that the Project could not be completed as planned\. The Government experienced a severe reduction of financial resources due to the war efforts in Ogaden and the drought relief efforts that diverted scarce funds from the Project\. By this time, only about 7 percent of the Credit had been disbursed\. Therefore, the Bank proposed and the Government in September 1985 agreed to adjust the project to match the stringent budgetary constraints\. The revised plan covered a period of five years from FY83/84 to FY87/88  6 in contrast to the original three years, ending in FY85/86\. The physical outputs were reduced considerably compared to the appraisal targets, as shown in Table 4A\. However, the total cost of the Project was reduced by only about 7 percent; from US$318\.4 million to US$297\.1 million\. It was also decided to amend the Credit Agreement by increasing the disbursement percentage for civil works from 40 to 80\. 5\.03 The main areas of risk were correctly identified to be the shortage of local and foreign resources to finance the entire Program as defined by the Government\. The Bank addressed the issue when the physical targets were reduced and the capital costs of the Program was reduced by some 30 percent\. In anticipation of a possible future need to reduce the scope of the Project, Schedule 4 of the Credit Agreement included criteria for selection of sub-projects, setting out the Borrower's requirements for furnishing documentation for sub-projects presented for financing\. The minimum economic rate of return of any civil works sub-project was set at 12 percent\. 5\.04 The two external factors that had most impact on Project implementation were: (i) the general situation of civil war and the hostilities experienced in the Project area, and (ii); the generally worsening economic and financial situation of the country brought about by war and drought\. These adverse developments were not possible to foresee at the time of the Project preparation\. The appropriate action taken by the Bank was to scale down the physical targets of the Project, and to increase the disbursement percentage for the civil works component\. 5\.05 ProcurementL Of the civil works component, the construction of the Nekempte - Bure road was procured through ICB\. Construction of the Mille - Logia road was carried out by a force account unit from ETCA, with approval from the Bank\. Cost of construction was based on measured quantities and agreed unit prices for each construction item\. Equipment and spare parts for rural road construction and for road maintenance was procured on the basis of ICB\. 5\.06 project Cost\. At appraisal the estimated total Project cost was Birr 659\.3 million (US$ 318\.4 million equivalent) with a foreign component of Birr 434\.4 million (US$ 209\.9 million)\. The total costs of the Project as completed is not available as no detailed information exist in the files about the Government's financial contribution\. Costs of sub-projects financed by the Bank are given in Tables 5A and 4B\. The total cost of the Nekempte - Bure road contract was Birr 101\.36 million (US$ 48\.92 million) as compared to the tendered price of Birr 83\.5 million (US$ 40\.30 million)\. The Mille - Logia road was completed at a total cost of Birr 38\.55 million\. The original estimate approved by the Bank was Birr 12 million, revised and adjusted for inflation and design changes in 1991 to Birr 16\.6 million\. 5\.07 Disbursement: The estimated and actual disbursements of Credit 1404-ET are given in Tables 3A and 3B\. The disbursements were delayed due to the delay in Project implementation\. The final payment was made on February 9, 1994, when the undisbursed balance of SDR 5,307,964\.18 was canceled\. A grant from the Norwegian Consultancy Trust Fund was disbursed to the sum of US$175,000 ( NOK 1\.191 million), but was not part of the Project\. 5\.08 Physical Results: Performance and results of the individual parts and sub-projects are described in the following sections\.  7 (A) Category (1), Civil Works The civil works accounted for 57% of the budgeted project costs and 62\.8% of the Credit\. (i) Part A: 1 (i!: Rehabilitation of paved roads 5\.09 Part A: (1); proposed at appraisal, rehabilitation and upgrading of about 430 km of paved roads and about 360 km of gravel roads\. Two paved road sections were included as sub-project; i\.e\., the asphalt overlay on the Addis Ababa - Awash road, and rehabilitation of the Mille -Logia section on the Addis Ababa - Assab road\. 5\.10 Addis - Awash road: The Addis Ababa-Mille-Assab road (860 km) was built in the 1930s with a road base of stones and gravel rolled smooth (Telford) and a surface course of bituminous macadam\. The Awash-Mille section (504 km) was rehabilitated under the Credit 708-ET\. The sub-project comprising a section of 44 km was completed by end of December 1984\. 5\.11 Mille - Logia road: The asphalt overlay on the Mille - Assab (290 km) was at appraisal intended to be included as a sub-project to be partly financed from the proceeds of the Project, but had to be deleted due to shortage of counterpart funds\. In early 1989, IDA approved a subproject employing a force account unit for the rehabilitation of about 26 km of the section from Mille to Logia which has been completed\. Mobilization for this sub-project was delayed for 12 months due to civil unrest in the area\. Work started in May, 1990, and good progress was made until the fuel shortage brought the work to a standstill towards the end of 1990\. The war situation made it impossible to resume work until mid 1991\. In the meantime, ERA had revised the design to conform to the consultant's recommendations for design of the sections of the Mille-Assab road to be financed under Credit 2438-ET\. Apart from the war situation, the force account unit suffered from inadequate head office support, and shortage of essential materials and equipment, and progress was disappointing from the start\. The ERA management took appropriate note from the IDA supervision mission of September 1992, and initiated a number of expediting actions after having visited the project in November 1992\. More plant was brought on site and attention was given to supply of essential materials, and progress improved\. The project was successfully completed in September 1993, and the Bank's supervision mission commended the force account unit and the excellent work done\. (ii) Part A: 1 (ii): Upgrading and paving of gravel roads 5\.12 Road Upgrading and Paving: Double Bituminous Surface Treatment; The total length included in this part had by April 1984 been reduced from 360 km, at appraisal, to 166 km in the Scaled Down Project\. Three projects amounting to a total length of 130 km, some 78 percent of the scaled down project targets were completed by force account\.  8 (iii) Part A:2 (i): Reconstruction of gravel feeder roads 5\.13 Part A: (2)(i); covered at appraisal, the construction of about 730 km of gravel surfaced feeder roads including the Nekempte-Bure feeder road (250 km) to engineered gravel standard, with a 150 m bridge across the Blue Nile (Bay) river\. Detailed engineering and bidding documents for the road were prepared by ETCA and reviewed by the supervising consultant\. Roadway width was designed as 6\.6 m, design speed varying from 30 km/h in hilly terrain to 80 km/h in open terrain, maximum gradient up to 12\.5% and minimum horizontal radius of 25 m\. The bridge for the Blue Nile crossing was designed by a firm of French consultants\. Of the two alternative designs proposed; a single arch span and a pre-stressed box girder design, ETCA decided in favor of the pre-stressed box girder design\. The specialized work on the Bay bridge, including supervision of the prestressing operations of the superstructure construction, was carried out by a French firm under contract to the management consultant\. 5\.14 According to the Credit Agreement, the contract for construction was to be procured on the basis of ICB\. A stated objective of the Project was to support development of the domestic road construction industry and reduce the reliance on force account\. To this end the Government, in 1983, set up two public construction enterprises, Blue Nile Construction Enterprise (BNCE) and Batu Construction Enterprise (BCE)\. The BNCE was set up from the remains of an insolvent private contractor, with the objective of developing it to become an autonomous commercially viable and competitive enterprise, capable of tendering and completing large scale contracts in Ethiopia and abroad\. 5\.15 BNCE was prequalified to tender for the Nekempte - Bure road and on August 15, 1984 was invited along with 14 other contractors to submit bids for the construction of the road\. One bid was disregarded as the bid price was disclosed before bid submission time\. The contract was awarded to BNCE, the lowest bidder, in February 1985 for a sum of Birr 83\.5 million, as compared to Birr 72\.4 million estimated at appraisal\. Following ETCA's notice to proceed, the mobilization was delayed by the Government's delay in transferring of assets\. The progress was poor from the start of construction, and during the Bank's mission in April 1986, three major issues were highlighted; (i) the lack of proper supervision on site; (ii) the contractor's failure to prepare and present its updated work program; and (iii) the deterioration of the relationship between the contractor BNCE and the management consultants\. Progress continued to be slow and by September 1986, only 13 percent of work was completed with 37\.5 percent of construction time elapsed\. The bulk of the earthmoving equipment had been mobilized but availability was low due to difficulties in obtaining spare parts\. Following a discussion with the Bank's supervision staff, the site management was changed which resulted in much better working relations, and progress improved\. After a period of relatively good progress, the contract was again troubled by the chronic shortage of fuel and operating funds as the contractor was not paid for work done\. The civil war also later disrupted works, and the contractor was unable to continue the contract which was considered suspended as of February 26, 1991\. Re-mobilization of the contractor started in mid 1991, but the resources needed were not mobilized as planned and the progress was slow\. The whole project (250 km) was considered substantially completed in April 1993\. The original contractual completion date was November 5, 1988\. Formal  9 extension of time was given several times, (145, 42 and 365 days respectively), giving a revised completion date of May 11, 1990\. However, liquidated damages were waived completely\. 5\.16 On October 12, 1990, a construction failure occurred that temporarily jeopardized the safety of the north cantilever of the Abay bridge\. The incidence took place while the contractor was transferring loads from the temporary bearings on which the bridge had been constructed to the permanent bearing\. The north cantilevered concrete deck of the main span then moved 0\.445 meter longitudinally towards the center of the river, and a slight transverse rotation of the deck occurred\. Steps were immediately taken by the contractor to secure the structure\. The contractor took full responsibility for repairing the damage\. The displaced superstructure was moved to its appropriate position and the minor damage to the bridge was subsequently repaired\. Except for a four months delay caused by the incident, no permanent damage to the bridge was recorded\. The Bank was informed about the incident on October 18, and assisted by helping to mobilize experts to the site from both the supervising consultant and the French company in charge of erection engineering that had also supplied prestressing equipment, bearings and superstructure formwork; and by authorizing an additional expenditure of $ 150,000 to cover this technical assistance\. The Bank later suggested that ETCA should consider an independent investigation to verify the probable causes of the incident and the Bank's supervision mission in September 1992 requested that this issue should be addressed in the PCR from the Borrower\. Reports on the incident were prepared both by the supervising consultant and the contractor, and these were finally, in 1992, accepted by ETCA as sufficient explanation for the incident\. It was generally agreed by the involved parties that the incident was caused by a combination of several factors; including the method used for transferring loads to permanent bearings, the type of equipment used, the operational procedures, and the quality of cast concrete in the soffit above the permanent bearing at the north pier\. 5\.17 GravelRoa: The target of 734 km was reduced to 689 km in the Scaled Down Project\. The subproject for new construction of gravel feeder roads was carried out partly through contracts and partly through force account\. An estimated total of 577 km were improved comprising 268 km of road by force account and 369 km by contract\. Various donors were involved in the improvements; China, EEC, AfDF and IDA\. (iv) Part A:2 (ii); Construction of low class rural access roads 5\.18 Part A: (2); included, at appraisal, the construction of about 2,940 km of rural access roads, designed to low all-weather earth/gravel standard, depending on type of terrain and estimated volume of traffic\. Roadway width was 4\.0 m and gravel surfacing was to be applied only when expected traffic was over 50 vpd as required\. Rural roads were constructed to RR30 or RR50 standard, designed to permit year-round traffic at 30 & 50 vpd respectively\. Out of the total, 2, 205 km were identified as sections to be improved or constructed on existing roads; and 735 km referred to roads constructed on a self help basis, with ETCA providing the necessary machinery, designs and technical assistance, and the farmers providing labor, materials and certain cash costs such as fuel, food and per diem for machinery operators\. Roads to be constructed under the program were evaluated in terms of economic benefits and costs and needs of agricultural projects and to serve relief and rehabilitation areas\. In the scaled down project,  10 2415 km of roads were proposed\. The borrower has reported that an estimated 2,032 km were improved under this program\. 5\.19 Of Part A:(2), the Credit financed only procurement of equipment approved by the Bank, from a detailed list of equipment\. The Rural Roads Department of the ETCA carried out construction and maintenance by "construction units" located in the regions, operating out of 8 rural roads maintenance camps\. Machinery for completing and establishing these brigades was financed by AfDF for the Gondar, Shoa, Bale and Sidamo regions, and also other donors were involved in financing\. The shortfall in annual production was mainly due to shifting of some brigades to drought-stricken areas\. In 1983/84 and 1984/85 about 860 km of rural roads were actually constructed compared to the target at appraisal of 1,790 km\. It was estimated that a total of about 1650 km of rural access roads had been completed by end of 1987\. No further information is available in the files about total construction up to the end of the project\. 5\.20 Labor - intensive rural roads construction and maintenance: From September 1981 to July 1983, under a UNDP project, the ILO helped ETCA to carry out a training program, aimed at preparing Ethiopian staff for an efficient application of labor-based techniques\. The training was given primarily to managerial and supervisory staff from ETCA ' Rural Road Division, as well as staff from the Ministry of Agriculture and the Relief and Rehabilitation Commission\. During this period, ILO trained more than 150 Ethiopians, 27 of whom attended 2-month courses abroad (11 to India and 16 to Malawi)\. Also three counterparts were trained to ensure continuation of the training program\. In March 1983, under the First Road Sector Project, Cr\. 708-ET, ETCA signed a one-year agreement with ILO to execute a pilot project of labor-based construction and maintenance\. The project actually started at the beginning of March 1984 on the Guder-Shennen Road in Hewa region\. Good progress was achieved in the beginning, and as of end June 1984, about 10 km of the projected 40 km had been constructed\. In November 1984 the Bank approved a proposal for the expansion of the labor-intensive road construction and maintenance program, and ETCA and ILO entered a new agreement providing for the establishment of 13 labor - intensive construction units and the construction of 320 km of rural roads in three years\. 5\.21 The Project provided technical assistance under Part E: (1); to prepare and implement an expanded program for the construction and maintenance of rural roads by labor-intensive methods\. In the five months until March 1985, 19 km of roads were constructed and 4 km were surfaced with gravel\. Average construction cost ranged from Birr 3,800 for flat terrain (2,500 m3/km of earth works) to Birr 23,000 for mountainous terrain (7,500 m3/km of earth works)\. 5\.22 This subproject demonstrated that normal routine construction and maintenance activities could confidently be handled by labor-based methods, such as clearing and grubbing; cut/fill to formation level; digging of major and secondary drainage ditches; shaping of camber formation and construction of all drainage structures\. However, a number of technical problems were encountered, because of difficulties in compacting certain types of soil, scarcity of gravel in the area and incompatible hauling equipment\. 5\.23 The progress of this component was unsatisfactory throughout the Project\. Despite the Bank's efforts, the sub-project was reduced to only one pilot project at Akai, and the Ginchi  11 training center was closed down\. In 1986 a consultant prepared a second and comprehensive 5 - year plan for the labor based program, but unfortunately, ETCA's management failed to follow up the sound proposal, and with a very low level of activity and interest by the government, the Bank found no longer any justification for having a full time consultant on the job\. Consequently, the ILO expert left upon completion of his contract in February 1989\. Overall, the performance of the labor based construction units was not satisfactory, reportedly due mainly to lack of competent staff in managerial positions\. ETCA management did not demonstrate the commitment to labor-intensive road construction and maintenance that was hoped for, and failed to take advantage of the support provided through technical assistance\. (B) Category (2); Equipment 5\.24 Category (2), Equipment, accounted for 27% of the amount disbursed from the Credit (up to June 1994)\. The major portion was equipment for road maintenance (Table 5B ), for a total expenditure of about SDR 13\.3 million\. Other equipment procured included equipment for road design, road safety, weighbridges for enforcement of legal vehicle axle loads, and main computers for ETCA\. (i) Road maintenance equipment 5\.25 Under the First Road Sector Project technical assistance was provided to ETCA to improve maintenance management and road design\. A Maintenance Performance Budgeting System (MPBS) and an Equipment Management System (EMS) were introduced but only partly implemented\. The project provided for (i) the continuation of technical assistance services to "tune up" the two management systems, (ii) replacement of equipment and (iii) expansion of maintenance depots\. 5\.26 In August 1984, the Bank approved the procurement of about 250 units of maintenance equipment, for an estimated cost of Birr 25 million (US$ 12 million)\. ETCA sent the bidding document for review in May 1985, but the quality of the documents was so poor that the Bank advised ETCA to do them all over again, and new documents were received in November and subsequently approved\. By September 1986 the Bank had approved the contract award for the majority of the maintenance equipment\. Only two items had to be retendered on the basis of the revised specifications\. 5\.27 In accordance with the Credit Agreement, Section 4\.09, the Borrower undertook to allocate (in 1982 prices), not less than Birr 35 million in fiscal year 1984, Birr 40 million in fiscal year 1985 and Birr 45 million in fiscal year 1986 and annually thereafter to road maintenance\. Because of the financial constraints, the Government was not able to reach these financial targets\. Maintenance expenditures dropped from about 83 percent of the target in FY84 to about 67 percent in FY86\. By 1990, ETCA estimated that only about half of the required funds were spent on maintenance\. In addition to inadequate funding, the efficiency of maintenance operations was low due to inadequate management capacity, overstaffing and low equipment availability and utilization, caused again by inadequate preventive maintenance of equipment and  12 lack of foreign exchange for purchase of spare parts\. Towards the end of the Project it was evident that the condition of the road network had deteriorated due to lack of maintenance\. (C) Category (3); Training and Technical Assistance 5\.28 Category (3); Training and Technical Assistance accounted for 12 percent of the Credit\. US$ 2\.68 million was later reallocated to this category to cover cost of construction management services to BNCE\. (i) Training, 5\.29 The Project's training component continued activities that had been started under previous highway projects\. ETCA's training program aimed at training and retraining approximately 2,500 employees; 50 professional, 800 technical, supervisory and clerical staff and 1,700 operators and mechanics\. (Purchase of equipment to support the training was included under Category (2))\. Training consultants were selected in accordance with Bank guidelines and approved by the Bank\. 5\.30 Training of ETCA personnel: On January 29, 1985, the Bank approved a subproject for university training of ETCA's 17 staff members abroad over four years, from 1985 to 1988, at an estimated cost of US$ 300, 000\. The program provided for 17 trainees to attend university courses for 6 -12 months in groups of 3-5 trainees per year starting in the fall of 1985 through 1988, and arrangements would be made with the IRF to assist ETCA\. ETCA submitted list of candidates too late to be registered at the universities\. Eventually, the Bank in 1985 approved the training of the Head of ETCA's Planning and Programming Division, for nine months in Canada\. 5\.31 Training of domestic construction industry: Training of the domestic construction industry was included as phase (iii); enterprise management services, provided under the contract between the BNCE and the construction management consultant selected for the job\. The training was only moderately successful, and the client expressed dissatisfaction with the consultant's services in this phase\. The training manuals were not completed and the management information systems prepared were thought to be too detailed and not tailored to the capacity of the BNCE management\. 5\.32 Problems were experienced with payment to the management consultant for phase (ii), construction management, that added to the strained relations with the client for some time\. Costs for phases (i) and (iii) were financed from Category (3) of the Credit, Consulting Services, and the consultant was paid regularly\. Phase (ii) was however included in BNCE's contract price for the road construction, and the consultants could only be paid through the work done\. When no work was generated, BNCE failed to pay the consultants due to lack of funds\. Instead payments were certified by ERA and paid directly to the consultant without making deductions in the payment to the contractor\. This resulted in an over expenditure on the Nekempte - Bure contract, which was offset against claims for disruption of works\. The Credit was reallocated to account for the extra disbursement made from Category (3)\.  13 (ii) Technical Assistance\. 5\.33 An overview of the implementation of technical assistance agreements is provided in Table 4B, showing costs of services and rated performance of consultants\. The specific effects of the technical assistance provided by the Project are not easy to trace\. Performance of the Government institutions that benefited, was influenced during this time by a number of outside factors that affected the whole public service, such as high turnover of staff and generally deteriorating conditions\. Also the Banks supervision did not monitor the technical assistance component closely\. Moreover, the objectives were not specific and performance indicators to trace degree of achievement were not identified\. Perhaps what affected the result of technical assistance most was the Government's reluctance to take required actions to improve the regulatory framework of the sector\. Much the same problems of the transport sector were noted towards the end of the Project as at appraisal, such as inadequate tariffs that did not permit recovery of investment, tight government regulation of road transport and a general decrease in efficiency in operation of the transport fleet\. 6\. Project Results 6\.01 Project Objectives: Construction of the Nekempte -Bure road had a marked impact on the accessibility of the area across the Blue Nile and provided an important interregional transport link\. The rehabilitation of the Mille - Logia section improved conditions on a crucial road link to the Assab harbor, a transport life line for the country\. Also the agricultural frontier was expanded in areas that before the road construction had only weather-dependent connections\. However, the Project as a whole, which was designed as a three year slice of the Government's second sector Program, cannot be considered as successful in terms of fulfilling all its objectives\. 6\.02 Physical Results: The physical targets of the Project were not fully achieved\. The sub- projects that received financing from the Credit were successfully completed, albeit several years late\. The physical targets of the Program and the rate of implementation fell much short of the targets\. Of the 434 km of main paved roads identified for rehabilitation, only 70 km were completed\. Of the 734 km of gravel feeder roads to be reconstructed, only 250 km (Nekempte- Bure road) were completed\. The development of the domestic constructing industry was less successful than hoped for\. The Blue Nile Construction Enterprise (BNCE), the Government owned contractor that was the most direct beneficiary of the technical assistance for management training, failed to prequalify for later Bank financed projects in Ethiopia\. The equipment part of the Project was procured and deployed essentially as intended\. Despite five extensions, for a total of 5 1/4 years, the Credit was not disbursed in full, leaving an undisbursed balance of SDR 5,307,964, or 8\.2% of total (June 1994)\. 6\.03 PrQect Benefits: An economic evaluation was carried out at appraisal for all the major physical components of the Program, except for rural roads and technical assistance, to assess their benefits\. Economic costs were based on detailed engineering for the construction of Nekempte - Bure road and on preliminary engineering for other sub-projects to be started in FY84, and average per kilometer cost estimates for the remainder, based on actual expenditures under the First Road Sector Project adjusted to reflect renewal cost of equipment\. The minimum  14 economic return for sub-projects to be included in the Program was established at 12 percent the estimated opportunity cost of capital in Ethiopia at appraisal\. For the Nekempte - Bure road, the ERR was estimated at 24 percent at appraisal, on account of value added in agriculture\. Savings in vehicle operating costs were not included\. Results of the environmental impact study indicate that the road has had the intended impact on agricultural production\. Based on similar assumptions as at appraisal and 1994 traffic counts, ERR was estimated at 12 percent, and a first year rate of return of 15 percent\. On the Mille - Logia road, traffic counts in 1994 showed a total of 549 vehicles per day, with a heavy component (312) trucks/trailers\. Using the same assumptions as at appraisal about vehicle operating costs, traffic over the next ten years after rehabilitation was assumed to grow at 2\.7 percent annually\. The ERR for the rehabilitation is estimated at 31 percent with a first year rate of return of 15 percent\. The detailed calculations and assumptions are shown in Table 6\. 6\.04 An environmental impact study, financed by the Norwegian Government, and carried out by a firm of Norwegian consultants in close cooperation with local counterpart staff from ERA was implemented in parallel with the Project\. (The Norwegian Government agreed vide telex of August 28, 1990 to finance the environment impact study, estimated to cost US$150,000)\. The objective of the study was to measure the environmental impact over time of the Nekempte - Bure road\. The study recorded land use/ land cover patterns from 1980 to 1993\. It monitored changes that took place during the 1980s, up to 1993 when the road was substantially completed\. The study data was obtained from remote sensing from SPOT XS and Landsat TM satellite data, and used to prepare a series of thematic maps based on digital image processing verified by field studies\. The methodology used for the environmental impact study was unproven at the time\. However, the study confirmed that remote sensing, using satellite images and digital image processing, was well suited for monitoring land use changes linked to road developments\. The initial findings of the study were that the main population centers in the area close to the road expanded considerably\. Estimates indicate that the population has more than doubled in the study area during the period investigated\. There has been a considerable change towards more intensive land use and increases in cultivated and settled area\. A large bamboo forest in the Angar valley was however cleared between 1980 and 1986 and the remaining high forests in the valley are now threatened by encroachment\. Except for the Bure plateau, the study area has a higher agricultural carrying capacity than is being utilized today, but measures are required to prevent erosion, loss of soil fertility and a further reduction of the forest area\. Although too early to draw firm conclusions, it is believed that a very large proportion of the measured changes in the study area were induced and/or accelerated by the road construction\. The study results would be of value for the Government's future development planning\. The adopted methodology was innovative and could be considered for use in other Bank financed development projects where environment is at stake\. 6\.05 Development of the domestic construction industry was an important objective of the Project\. To this end technical and managerial assistance was provided to BNCE\. The experience of this support was mixed\. On the one hand, BNCE was successful in winning the award of the contract for the construction of Nekempte-Bure road, and in the end completed the works successfully even through the war, including the relatively advanced bridge construction over the Blue Nile\. On the other hand, BNCE did not succeed in becoming a competitive contractor,  15 organized and equipped to compete for work internationally\. In main the failure resulted from Government's lack of commitment to develop a financially and managerially autonomous domestic construction industry that could eventually become private\. Numerous obstacles were faced by BNCE during the course of this project because of its status as a parastatal rather than a private firm\. It had no easy access to foreign exchange, unable to open a foreign account to purchase spare parts on a timely basis, and could not easily hire and fire\. BNCE as a company lacked the financial and managerial autonomy to succeed and survive over the long term\. Some of its implementation problems could possibly have been avoided by an international contractor with more leverage on the Government in attending to contract obligations\. 6\.06 The Project was prepared and designed with the concept of sector lending in mind, as this had proved in the first sector project to be useful, primarily in increasing the Bank's participation in shaping the size and composition of the Government's sector program\. It was realized that preparation of a sector program would entail more work for the Bank staff at appraisal and would need more supervision to monitor the whole Program\. A sector project would need a coordinated effort of Government and participating donors in order to implement all major element of the program, and to attain the full impact as a sector program\. The collaboration with other donors diminished as the Program progressed, and a number of sub-projects were either abandoned or much delayed\. The Bank's supervision gradually focused attention on sub-projects that included Bank financing\. Less effort was extended in monitoring the Program as a whole\. However, a continuous dialogue with Government to address key issues in the transport sector was maintained by Bank staff throughout the implementation period\. Some of these issues were related to credit covenants, such as reorganization of the road transport industry, vehicle weight legislation and enforcement, maintenance funding, review of road classification system and reorganization of ETCA\. For example the proposed investment in the Awash - Assab railway line was abandoned when careful economic and financial analysis, initiated as a result of the National Transport Study, demonstrated that the project would not be viable\. Other transport sector objectives were addressed directly through technical assistance, such as strengthening of institutions and the local construction industry\. It was realized that these and other issues needed to be pursued more vigorously than allowed for under the Project, and hence were reviewed in the context of two later Bank financed projects in the sector, the Transport Project (Credit 2002- ET) and the Road Rehabilitation Project (Credit 2438-ET)\. 7\. Project Sustainability 7\.01 Benefits of the Nekempte - Bure road, which became the major sub-project financed by the Bank, is likely to be sustained in the future\. The new bridge across the Blue Nile provides a missing link in the north-south interregional road transport corridor\. At the time of the last supervision mission in April 1993, maintenance had been organized in the field for the Nekempte - Bure road\. As for the Addis -Awash and Mille - Logia road rehabilitation, full benefits of the road investment would only be sustained if the Government is committed to provide adequate resources for road maintenance\. Improved road maintenance, and associated institutional capacity building for supervision and contracts management, are key components of ongoing Bank financed Emergency Road Rehabilitation Project (Credit 2351-ET) and the Road  16 Rehabilitation Project (Credit 2438-ET) which is also establishing a pavement management system\. 8\. Bank Performance 8\.01 The main strength of the Bank's performance was the demonstrated perseverance to complete the financed sub-projects despite the severe constraints caused by war, drought and the Government's chronic financial problems that developed during implementation\. The Bank acted in sympathy with the Borrower's persistent problems and took decisive actions to scale down the project and change the disbursement percentage of the civil works component\. These changes made it possible both to complete the construction of the Nekempte - Bure road, and to disburse 92 percent of the Credit (June 1994), albeit for much less output than originally planned\. The environmental impact study in the area of the Nekempte - Bure road, which was initiated by the Bank during implementation, was an innovative approach to monitoring the impact on land use from a development investment project in a previously inaccessible area\. It also provides the basis for setting up follow up protection programs for this and future roads projects\. The Bank's supervision staff established a positive dialogue with the Borrower's institutions and initiated appropriate actions to improve relations between the site staff of the contractor and the management consultant on the road contract, which was impeding progress\. 8\.02 The Bank fielded 19 supervision missions over a ten year period, with a total of about 30 staff weeks spent in the field, for an average of about 1\.6 staff week per mission\. The frequency of missions was adequate and provided good staff continuity for the last six project years\. However, taking into account that Bank staff on supervision also deal with other ongoing projects and appraisal of proposed projects, the time would seem limited for a close monitoring of all sector components\. The Bank's supervision focused on sub-projects that were partly financed by the Credit, and was less detailed on other project components\. Monitoring of the whole Project was not fully in accordance with the objectives of the concept of sector lending\. 8\.03 The Appraisal Report was detailed and could have provided a useful framework for monitoring during project implementation\. However, as the Program was delayed and scaled down, the Bank's supervision became focused on the sub-projects that involved Bank financing\. Also, a closer follow up of individual sub-projects could perh ips have been facilitated by a clearer definition of objectives and performance indicators, and by considering a more formalized annual review of the whole Program with the Borrower\. 9\. Borrower Performance\. 9\.01 The Borrower experienced severe balance of payments problems during the implementation and was unable to provide the required funds for the Project as intended\. The Borrower maintained good working relations throughout the project and responded to the Bank's request for additional information when needed\. The Borrower's performance was given ratings indicating "problem free" (1) during the two first years of implementation, but then deteriorated and was later not as good as expected\. Preparation of sub-projects and bidding documents, hiring of consultants, approval of payments were slow, and decisions, even on minor matters were  17 delayed without any valid justification\. Procurement of equipment was delayed as ETCA had to do the bidding documents all over again to attain the standard required by the Bank Guidelines (1984)\. A retender had to be called for the bulk of the shop tools and equipment since the evaluation revealed that tenderers had difficulties in responding to the invitation\. Long delays occurred which eventually adversely affected the success of the training component\. 9\.02 The Borrower did not give high priority to the labor based rural roads construction and maintenance, and failed to take advantage of the technical assistance support given to this part\. The ETCA's management was not committed to the concept of labor based construction and maintenance and failed in following up proposals for a five year labor based program\. 9\.03 The extremely difficult working conditions, brought about by hostilities, war, drought and famine relief efforts, had an effect also on project management and the results of the institution building efforts\. It was a remarkable achievement in itself to complete the Bank financed sub-projects successfully under such circumstances, for which the Borrower's institutions, as well as the contractor, should be commended\. 10\. Consulting Services 10\.01 The total cost of Consulting Services was SDR 9\.620 million, accounting for about 15 percent of the total Credit\. In addition, about $175,000 was provided for the environmental impact study from the Norwegian Consultant Trust Fund\. Altogether, ten consulting firms and institutions were involved from six different countries\. Bank procedures were used, as required by the Credit Agreement, for appointing consultants\. Procurement of consultant services was carried out satisfactorily by the Borrower\. An overview of implementation of training and technical assistance is included in Table 4 in Part III\. Although consulting services were satisfactory overall, some shortcomings were noted: 10\.02 The National Transport Plan Study, which was intended to be an important input in the Bank's dialogue with the Government on transport sector issues, was much delayed and eventually failed to provide the input and recommendations hoped for\. The construction management services extended to BNCE were essential to win the contract and to complete the works\. It was less successful in developing the BNCE as a company\. The first team of site management staff could not develop good working relation with the client that hampered progress until replaced with a more successful team\. A construction failure occurred at the Abay bridge that temporarily jeopardized the safety of part of the bridge superstructure\. Fortunately, both the supervising consultant and the construction management firm took decisive and required action to prevent the bridge from any permanent damage, but the misjudgments that led to the failure could have had much more serious consequences\.  18 11\. Lessons Learned 11\.01 The following lessons were learned from the experience under the Second Roads Sector Project: (a) The Government's sector program was probably too ambitious, and it did not have the required financial resources to implement such a program\. It is important to take a careful and realistic view of the financial capacity of the Borrower, especially when the availability of cofinancing of a sector program is not confirmed\. (b) The provision of new roads providing vehicle access to previously inaccessible rural areas can have an adverse environmental impact as well as positive agricultural development impact as more area is cultivated\. It is important, however, to provide for environmental protection and enhancements during road planning, design and construction\. The overall effects of the specific road should also be closely monitored and addressed thereafter\. (c) The lesson from the modest success of technical assistance provided to develop BNCE is that major policy changes need full commitment by Government to ensure success\. The success of any effort to establish a parastatal as a construction enterprise depends on Government's willingness to grant it financial and managerial autonomy, and that in the absence of such a commitment, assistance to strengthen such parastatals is likely to accomplish little\. (d) Although it was appropriate, when it became apparent that the Borrower did not have the financial resources to implement the sector program as planned, to reduce the scale of the project, to shift attention of supervision to civil works components, and follow up key issues in the context of other Bank projects, the lesson is that perhaps better monitoring mechanisms could have been built into the project design by defining performance indicators for the major sub- projects, and by carrying out joint annual reviews of the program with the Borrower and other donors\.  19 ETHIOPIA Second Road Sector Project Credit 1404-ET Project Completion Report Part II: Project Review from Borrowers Perspective A\. Comments on the Evaluation Summary 2 1\. The statement on para 1, line 2, of the evaluation summary does not describe the origin of the first Road Sector project as it is briefly explained on SAR of para 4\.02\. 2\. The statement, on para 1, line 4, "although the project was delayed by about two years at that time", does not reflect the actual situation of the first road sector credit\. There were causes for an extension of the first Road Sector Credit by about two and half years\. These points are clearly stated on SAR para 3\.02 and confirmation telex of Bank dated December 23, 1981 which incorporated an extension of the closing date of the First Road Sector Credit agreement by two and half years, to June 30, 1984\. 3\. Para 2: does not include the necessary points to be considered in the description of the road network of the country at different level and standard\. Additional information of the road sub-sector are indicated in the SAR para 2\.01 and para 2\.03, which can make the paragraph complete\. 4\. Para 3, line 2: did not sum up and explain the main objectives of the sector program as stipulated on SAR para 4\.03; that clearly split the physical targets of the sector program from the software institutional and policy objectives\. 5\. The two sentences on para 4, line 1-3 contradict to each other: with the concept of sector lending, sub-projects are components of the project as a whole\. It did not take into account the amended Credit Agreement in respect of the disbursement percentages; as well as increased duration of the project to cover the period 1984-88 instead of 1984-86 (refer Aide Memoire of March 25/86 to April 18, 1986)\. 6\. Even though the physical outputs of the program and the rate of implementation comparison on para 4\. line 3 to 6 is in line with the largest set forth on the scaled down project; the Bank letter dated August 20, 1985 and telex of October 25, 1985 and the letter from the Borrower dated September 23, 1985 can more profoundly explain the ground where the likely comparison rest\. 2/ Borrower's comments were made on the final draft report and have been considered as appropriate in the relevant sections of the PCR\.  20 7\. It is hard to conclude that on para 4\. line 7 to 12 BNCE for later Bank financed projects in Ethiopia failed to meet the Bank's Criteria for prequalification of state-owned enterprises\. During the project period in Ethiopia, not only for BNCE which gained extensive experience from the sector project, the general environment for the competitive activities was in jeopardy due to the weakening of the private sector by the command economic policy under Socialism\. Therefore, the lesson from BNCE could rather indicate the future trend of Bank Credits, i\.e\. to provide financial assistance to the development of domestic construction industry in Ethiopia to ensure that competitive construction enterprises are available in the country\. B\. Comments on Part I 1\. For Para 2\.01 line 2: please refer the comment given above under evaluation summary of para 1, line 2\. 2\. For para 2,03: except the last sentence it is better to take SAR para 2\.01, as it clearly elaborates the standard of the roads in the country\. The first two sentences of SAR 2\.02 can also be added\. 3\. Para 2\.04: does not express the issues raised during the time of project preparation\. The issues during the preparation of the project are clearly stated under the sub-title "Transport Sector Issues and Policy" ofthe SAR, para 1\.13 through 1\.16, as well as para 2\.12\. 4\. Para 2\.05: it could be better to base the paragraph on SAR 2\.03\. 5\. Para 2\.07: the Borrower view towards the policy context of the project has been stated on SAR 1\.13 and 5\.03\. And also, the draft PCR stated under 2\.07 is supposed to describe the linkage between project sector and macro policy objectives as per the reference of SAR para 1\.06 and 1\.03\. 6\. Para 3\.01:* please refer SAR 4\.03; to split the physicl targe of the sector program from the software, institutional and policy objectives\. 7\. Para 3\.02: please refer SAR 4\.04 and 4\.24 for elaborated description of the project\. The paragraph describes the project only in terms of financial plan\. Please refer SAR, para 4\.06 to 4\.19\. 8\. Para 4\.0l1 The detailed issues from inception to preparation of the project are not described as per the sub headings "Transport Sector Issues and Policy" and "Transport Secto Management": SAR 1\.13 through 1\.26 and 4\.01\. 9\. Para 4\.02: it describes the situation before the project was further scaled down, please refer the Aide Memoire of August 20, 1985\. 10\. Para4\.03a the credit number of the first road sector project needs correction\.  21 D\. The Adequacy and Accuracy of the Factual Information Contained in Part III Table 1: The columns are not in order of sequence of the guideline (July 1, 1989) - the purpose of each highway projects are not fully described as that of SAR Annex 1\. 1\. - for each highway and sector program the necessary comment given on SAR Annex 1\.1 should be included\. Table 2: There are many issues raised at each stage of the project cycle which should have been included with reference from Aide Memoire, correspondence between the Bank and the Borrower and other pertinent documents (i\.e\. as per the guidelines Annex A, page 7)\. As for Table A\. Direct Benefits including the indicators; number of beneficiaries, number of jobs created; number of school process created; revenue effects; poverty impact; etc\. considered during the appraisal estimate (estimated at closing date and estimated at full development with relevant comments) should have to be included as per the guideline\. Likewise, under table B: Economic Impact of the project in terms of economic rate of return based on underlying assumptions at appraisal estimate and actual (at final development) should be included with relevant comments\. C\. With the necessary reference of further scaling down of the project, impact of the project on local/central government finances should have to be included during "without project" cases and future "with project" cases or actual, with relevant comments\. D\. Studies with their purpose as defined at the Appraisal, their status and Impact of Study with relevant comments should have to be included\. The country data, defining the project completion profile as presented in Part III, was confirmed by one of the participating institution, ERA, on behalf of the Borrower, it was collected from the Staff Appraisal Report, Supervision reports and the Correspondences between the Bank and the Borrower\. E\. Evaluation of Bank's Performance and Lessons Learned: Despite delays in implementation, Bank assistance to the project had been effective, and facilitated up to the last investment programs during serious economic condition of the country\. Since the credit was negotiated, Ethiopia had suffered from the disastrous drought situation which had reduced Government budgetary allocation as well as foreign exchange resources\. It was thus evident that the financing plan of the highway sector program needs to be re-examined in order to reduce its burden on the Government\. One way of achieving this objective was to scale down the program, as envisaged in section 4\.27 of the staff appraisal report (cutting out - equipment intensive rural road construction) and delay repairing of all or part of Mille Assab road and orient the program towards the highest priority areas and the efforts already started\. The other option that made Bank's contribution paramount was to amend Credit Agreement so that IDA's finance has  22 increased to 100% of the foreign exchange costs of the civil works and even some a percentage of local costs, given government's severe budgetary shortages\. Accordingly, without the extended cooperation of the Bank, the project work could have been suspended due to the various problems stated\. Therefore, the lesson learned is the fact that the continuous cooperation and assistance of the Bank is very important for a successful completion of projects\. F\. Evaluation of Borrower's own Performance and Lessons Learned: The performance of the participating institutions in the overall planning and implementation process was quite good\. Taking in to account the serious adverse economic condition and prolonged civil war in the country, the borrower experienced severe balance of payments problems during the implementation of the project, and was unable to provide the required funds as intended\. In view of the efforts being undertaken in relation to the drought situation and unforeseen circumstances, which had adversely affected the government's budgetary and foreign exchange resources, the Government had fully accepted the proposal of the Bank, dated August 20, 1985 for the revision of the financing plan of the sector project\. The Government had also agreed to scale down the program and further endorsed the suggestion to amend the Credit Agreement\. In line with this arrangement the Government proposed that IDA finances 80 percent of the total cost of the Civil Works including 100 percent of all the foreign exchange portion\. Subsequently, on October 25, 1985 the Bank agreed and requested the increase of the disbursement percentage for Civil Works of the Sector Project with relevant reference of the Development Credit Agreement, dated September 16, 1983, between the Government and IDA\. The Bank proposed to amend the percentage of expenditures to be financed under category (1) of schedule I of the Development Credit Agreement to read as 80 percent\. Finally, the Bank and Government agreed to make a change in the Credit Agreement whereby disbursement percentage in category one changed from 40 to 80 percent\. The Bank has agreed to the request of the Government that IDA disburse 100 percent of the mobilization advance (20% of the total)\. Accordingly, the Borrower's performance in facilitating the works of the Contractor, the management consultant to the contractor, and the Consultants (of Bridge design & work Supervision) had been very good\. Due to this follow-ups and coordination, along with the continuous support and cooperation of the Bank, the Civil Work of the Nekempte-Bure feeder road (248 km) construction project was completed successfully\. Therefore, the lesson learned, particularly during the civil war, is of particular experience that the Borrower faced\. With a strong dedication, the project work had been completed, and the total disbursement the credit is about 92 percent\.  23 ETHIOPIA SECOND ROAD SECTOR PROJECT (Credit 1404-ET) Project Completion Report Part III: Statistical Information December 28, 1994  24 Table 1\. Related Bank Loans and/or Credits (Highway Projects) Year of Credit/ Amount Name/Purpose Status Approval Loan USS million 1950 Loan 31-ET 5\.0 First Highway Project\. This loan financed urgently needed equipment for the reconstruction, repair and maintenance of the most important portions of the network, which had been built largely by the Italians Completed in 1936 to 1941 and had fallen into disrepair after World War 11\. 3/01/54 1957 Loan 166-ET 15\.0 Second Highway Project\. The loan assisted in financing a project consisting of major construction, about 1,050 kin, and about 580 km of road improvement, including demonstration works used for training, and Completed engineering by consultants of future road construction\. 6/30/64 1963 Credit 35-ET 13\.5 Third Highway Project The Credit financed the foreign cost of completing road construction started under the Second Highway Project, and construction of about 210 km of new roads, bituminous surfacing of about 800 km of roads and consulting services to replace staff of the United States Bureau of Public Roads in IRA management, and for economic and Completed engineering studies of a road through the Awash Valley\. 12/31/73 1968 Loan 523-ET 13\.5 Fourth Highway Project\. Credit III -ET 7\.7 Financing, with cofinancing from the Swedish Govenument, of the foreign cost of construction of 420 km of main roads, paving with asphalt concrete of 170 km of existing main roads, and consulting services for feasibility studies, advice to EHA, technical assistance Completed and training\. 6/30/75 1972 Credit 332-ET 17\.0 Fifth Highway Project\. The emphasis shifted to lower class roads, serving agricultural development, and provided assistance for construction to gravel standard of 258 km of feeder roads and supervision thereof, strengthening of ERA, and developing the domestic contracting Completed industry\. 12/31/80 1975 Credit 552-ET 32\.0 Sixth Highway Project\. The project followed up previous assistance to the sector by providing financing for construction of about 400 km of feeder Completed roads, and assistance for ETCA and training of domestic 12131/81 contractors\. 1977 Credit 708-ET 32\.0 1977 First Road Sector Project\. The project supported the first three years of the country's five year road sector program, which included strengthening of existing paved roads, upgrading of gravel roads to bituminous paved standards, construction of gravel feeder roads and construction of rural roads\. The project also included further strengthening of the domestic Completed construction industry through loan for purchase of equipment, 12/31/84 training of the road authority's staff, as well as study of the road transport industry\.  25 Table 2\. Project Timetable Date Date Date Item Planned Revised Actual Identification 03/81 Preappraisal 10/81 Preparation 12/81 Appraisal Mission 04/82 04/82 Credit Negotiations 12/82 04/83 - Board Approval 03/83 07/83 Credit Signature 09/83 Credit Effectiveness 02/84 Credit Closing 12/88 12/89 12/90 12/92 09/93 03/94  26 Table 3\. Credit Disbursements A\. Actual Disbursements (US$ Millions) Actual Amt\. Onginal Amt\. Actual % of FP7cal veer Cumulative Cumulative Estimated 1984 Sep, 1983 Dec, 1983 1\.80 Mar, 1984 3\.60 Jun, 1984 6\.60 1985 Sep, 1984 0\.10 9\.20 1 Dec, 1984 1\.37 17\.00 8 Mar, 1985 2\.97 24\.20 12 Jun, 1985 3\.40 28\.80 12 1986 Sep, 1985 7\.01 34\.70 20 Dec, 1985 12\.52 38\.50 33 Mar, 1986 13\.21 43\.80 30 Jun, 1986 15\.53 47\.70 33 1987 Sep, 1986 16\.68 51\.20 33 Dec, 1986 18\.55 54\.70 34 Mar, 1987 29\.75 57\.80 51 Jun, 1987 39\.47 60\.80 65 1988 Sep, 1987 41\.67 62\.90 66 Dec, 1987 42\.79 64\.90 66 Mar, 1988 44\.64 67\.00 67 Jun, 1988 46\.72 69\.00 68 1989 Sep, 1988 49\.11 69\.00 71 Dec, 1988 52\.64 69\.00 76 Mar, 1989 53\.62 69\.00 78 Jun, 1989 54\.56 69\.00 79 1990 Sep, 1989 55\.75 81 Dec, 1989 56\.26 82 Mar, 1990 57\.07 83 Jun, 1990 58\.98 85 1991 Sep, 1990 60\.05 87 Dec, 1990 63\.90 93 Mar, 1991 66\.10 96 Jun, 1991 66\.59 97 1992 Sep, 1991 66\.59 \. 97 Dec, 1991 67\.55 98 Mar, 1992 68\.19 99 Jun, 1992 68\.39 99 1993 Sep, 1992 69\.48 101 Dec, 1992 69\.91 101 Mar, 1993 70\.20 102 Jun, 1993 71\.11 103 1994 Sep\. 1993 73\.50 107 Dec, 1993 74\.51 108 Mar, 1994 74\.67 108  27 Table 3\. Credit Disbursements B\. Chart of Annual Credit Disbursements Credit 1404 - ET Disbursement Schedule Us$ ---------- ~ ~ ~ - -- ao I ,\.-S 50- __ -~__________ 40 - ______i - Original __ 30 --/--,-, - * | { } Revised O~~~~~~~~ - 1983 _ __4 _ _es 1986 1937 _ _ee _ _as Isso IS91 1993 1994ctual 1903 1984 1985 1986 1987 1988 1989 1990 1991 1991, 1993 1994  28 Table 4\. Project Implementation A\. Civil Works, Equipment and Staff Training Part Appraisal Estimate Approved Scaling Actual Down Rehabilitation of existing paved roads 434 km 279 km 70 Upgrading and paving of gravel roads 360 km 166 km Data not available Reconstruction of gravel feeder roads 734 km 689 km Total 577 km (Force Account: 268 km Contracts 309 km) Construction of low class rural access roads 2,940 km 2,415 km 2,032 km Provision of vehicles and equipment for SDR 15,850,00 worth of equipment SDR 15,430,000 SDR 13,302,520 maintenance depots, road safety, worth of equipment workshops, road maintenance and construction, spare parts, soils laboratories, highway design and training Training 50 professionals A total of 29 (1) MTC, ETCA (ERA), RTA and professionals from NATRACOR, and all the agencies (2) Managers and employees of domestic received overseas contractors training 800 Technical, supervisors, clerical staff 2,500 operators, mechanics from on the rest  29 Table 4\. Project Implementation B\. Training and Technical Assistance (Costs in US$ million) Date of Nationality Estimated Actual Consultant's Performance Agreements Contract of Costs Costs Cons\.llnst\. USS mill USS mill (i) Training - Training of ETCA and MTC 12/10/85 American 0\.93 0\.90 Satisfactory - Training of RTA and NATRACOR Satisfactory - Training of BNCE; (Phase iii) 01/20/84 American 0\.58 0\.60 Satisfactory /5 (ii) Technical Assistance - Program for labor-intensive methods in road N/A Swiss 1\.01 Satisfactory construction and maintenance\. - Strengthening of ETCA 12/20/83 American /1 Satisfactory - Supervision of construction on Nekempte - 01/24/84 British 1\.63 1\.84 Satisfactory Bure road - Supervision of prestressing operations French /3 - Strengthening of Domestic Construction 01/20/84 American Industry; BNCE; Phase (i) 0\.09 0\.10 Satisfactory Phase (ii) 2\.70 3\.29 Satisfactory - Implement recommendations from Road 09/10/84 American 0\.75 Satisfactory Transport Study\. - National Transport Plan Study 04/87 American 1\.33 Satisfactory /4 - Improvement of road transport administration\. British 0\.65 Satisfactory - Review of Mille-Assab design Canadian 0\.35 Satisfactory - Others ( Includes training assistance from 1\.47 intemational organizations) TOTAL (Project) 12\.29 - Environmental Impact Study Norwegian 0\.15 /2 0\.15 Satisfactory Note: /1 = Costs included in t\.a\. for Road Transport Study implementation\. /2 = Financed from Norwegian Consultancy Trust Fund /3 = Financed from supervision contract /4 = Initially, the consultants did not follow the TOR and the study was delayed /5 = Phase (iii), 'Enterprise management services': training manuals were not completed\. Phase (i), tendering services, and phase (ii), construction management, were satisfactory\.  30 Table 5\. Project Costs and Financing A\. Project Costs Category/Part Appraisal Program Revised Program Actual IDA Share (1984-1986) (May 1985)(1984-1988) Million US$ Million US$ Million US$ (a) A\. PROJECT COSTS Capital Costs I \. Civil Works (i) Main Roads - Asphalt Overlay 35\.2 46\.0 10\.28 - Asphalt Surfacing 22\.6 12\.5 - Gravel Roads 89\.7 109\.5 35\.43 Sub-Total 147\.5 168\.0 45\.71 (ii) Rural Roads 30\.9 46\.0 (iii) Bridge Construction 4\.4 5\.5 2\. Equipment and Maintenance Facilities - Civil Works Construction Equipment 42\.7 21\.5 0\.8 - Road Maintenance Equipment 25\.1 18\.8 19\.9 - Bridge Construction Equipment 1\.2 0\.5 - Transport and Shop\. Equipment 5\.1 0\.7 - Maintenance Camp Equipment (b) 1\.3 3\.5 - Road Design Equipment 0\.9 1\.15 - Safety Equipment (c) 1\.5 2\.40 - Computer Equipment 0\.6 0\.55 Sub-Total 75\.4 48\.0 16\.67 3\. Technical Assistance and Training 10\.9 16\.8 12\.29 Sub-Total 1-3 269\.1 284\.3 74\.67 4\. Price Contingencies 49\.3 12\.8 TOTAL PROJECT COSTS 318\.4 297\.1 74\.67 B\. OTHER PROGRAM COSTS Recurrent Cost 1\. Road Maintenance 58\.0 118\.2 2\. Price Contingencies 11\.3 5\.3 Sub-Total 69\.3 123\.5 0\.0 TOTAL PROGRAM COST 387\.7 420\.6 74\.67 Notes: (a) Assuming I US$ = 0\.1\.253 SDR for average disbursement (b) Included as Roads Maintenance Equipment (c) Includes Weighbridge Equipment  31 Table 5\. Project Cost and Financing B\. Allocation of Credit Proceeds (SDR) CATE DESCRIPTION Amount Planned in Amount in Amount disbursed GORY Credit reallocated Credit from Credit SDR (10/92) SDR SDR (1) Civil works under Parts A and B of 40,790,000 39,000,000 36,483,254 the Project (40 % of ( 80 % of expenditures) expenditures) (2) Vehicles, equipment, tools and spare 15,850,000 15,430,000 13,302,520 parts under Parts A (2) and C of the (100% of foreign, (100% of foreign, Project 80% of local) 80% of local) (3) Consulting services, training and 7,790,000 10,470,000 9,806,262 studies under Parts D and E of the (100% of foreign, (100% of foreign, Project 80% of loan) 80% of local) (4) Refunding of Project Preparation 470,000 NIL NIL Advance TOTAL 64,900,00 64,900,00 59,592,036  32 Table 6\. Economic Analysis 1\. A re-evaluation of the economic rate of return was considered relevant only for the rehabilitation of the Mille-Logia road and the construction of the Nekempte-Bure road\. The calculations for both roads are presented in Table 6\. Annex 1\. 2\. Mille-Logia Road\. In the SAR, Table 5\.1, the ERR for the whole section from Mille to Assab was calculated at 25\.5 percent\. Total traffic (AADT in 1982) was 387 vehicles and economic investment cost was estimated at about US$50,000 per km for an asphalt overlay (i\.e\. about US$1\.3 million for the 26 km from Mille to Logia)\. The actual traffic in 1994 had been counted by ERA to be 549 vehicles per day, and the final cost was Birr 38\.55 million, or US$6\.86 million at exchange rate of 5\.62 over a period of 3 years\. 3\. Since the road section was not only overlaid with an asphaltic concrete, but was fully rehabilitated due to deterioration, calculation of rate of return was based on the more recent assumptions in SAR, 11249-ET, Annex 12, the Road Rehabilitation Project (Cr\. 2438-ET)\. The following figures for ADT and Vehicle operating cost are used for Mille-Logia Road: Traffic Counts\. 1994 1\. Light Vehicles 27 2\. Buses 18 3-\. Trucks 192 4\. Trucks/Trailers 312 VOC\. US$/km\. Rolling Terrain Without Project (R=8000) With Project (R=2000 1\. Light Vehicles 0\.108 0\.186 2\. Buses 0\.168 0\.434 3\. Trucks 0\.33 0\.440 4\. Truck/Trailer 0\.924 1\.178 4\. Economic Rate of Return (ERR)\. The economic rate of return is estimated at 31 percent, and a first year rate of return at 35 percent\. The high traffic volumes on this section of road clearly justifies the investment made and would be further enhanced when the complete road from Mille to Assab is rehabilitated\. 5 Nekempte - Bure Road\. The economic analysis in the SAR was based on benefits from value added in agriculture calculated as a direct function of production increases\. Agricultural benefits was derived from the introduction of new crops and the cultivation of new land\. For the Nekempte-Bure road, the ERR was estimated at 24\.0 percent (ref\. Table 5\.1, SAR)\. Savings in VOC were not originally included in the calculations\.  33 6\. Value Added from Net Agricultural production\. The environmental impact study showed a marked impact on land use attributable to the new road\. The changes recorded on area of cultivated land from 1985 to 1993 is shown below: Area 1985 Area 1993 Change km2 km2 km2 Subsistence Farming 733 920 +187 State Farm 173 147 -26 Moderately cultivated woodland/grassland 643 765 +122 Scarcely cultivated woodland/bushland 730 666 -64 No firm figures on production was available, however, the positive increases shown above demonstrate that the road achieved to some extent the intended agricultural development impact\. For further economic analysis, the figures estimated in the SAR for 'value added', i\.e\., 6\.35 Br\. million per year (US$ 3\.06 million) in the SAR were considered conservative enough for use in the calculations\. Agriculture production was also assumed to increase at 2\.7% per annum, similar to the estimated growth in traffic\. 7\. Irafic\. The traffic count figures (August 1994) provided by ERA gave an estimated average daily traffic of 76 (i\.e\., Light vehicles, 21; and heavy vehicles, 55)\. 8\. Savings in Transport Cost\. Savings in VOC were assumed to represent 50% of the total vehicle operating costs on a gravel road\. The vehicle operating cost on the completed road were assumed as stated in the SAR as US$0\.57 per km for light vehicles and US$1\.43 per km for heavy vehicle\. 9\. Investment Co\. The economic investment cost for Nekempte - Bure road was about Br\. 115 million (US$55\.55 million), using the same ratio between financial and economic cost as at appraisal\. 10\. Economic Rate of Return (ERR)\. This was calculated at about 12 percent and a first year rate of return of 15 percent\. This is considered robust since the induced traffic on the new road was high and is expected to increase over time with an increase in agricultural production\.  34 A\. Economic Analysis of Nekempte-Burie Road Project Table 6\. Annex 1 Annual Traffic Growth Rates Light Tnffic % 2\.7 Heavy Traffic % 2\.7 ADT VOC Savings Total Agric Total Net Year Citruction km Light Heavy Light Heavy VOC Benefits Bcenfits Benefits SaviDgs 1989 8300 -8300 1990 10000 -10000 1991 11000 -11000 1992 13450 -13450 1993 12800 -12800 1994 250 21 55 1092\.26 7176\.81 8269\.08 3060\.00 11329\.08 11329\.08 1995 22 56 1121\.75 7370\.59 8492\.34 3151\.80 11644\.14 11644\.14 1996 22 58 1152\.04 7569\.59 8721\.63 3246\.35 11967\.99 11967\.99 1997 23 60 1183\.15 7773\.97 8957\.12 3343\.74 12300\.86 12300\.86 1998 23 61 1215\.09 7983\.87 9198\.96 3444\.06 12643\.02 12643\.02 1999 24 63 1247\.90 8199\.43 9447\.33 3547\.38 12994\.71 12994\.71 2000 25 65 1281\.59 8420\.82 9702\.41 3653\.80 13356\.21 13356\.21 2001 25 66 1316\.19 8648\.18 9964\.37 3763\.41 13727\.79 13727\.79 2002 26 68 1351\.73 8881\.68 10233\.41 3876\.32 14109\.73 14109\.73 2003 27 70 1388\.23 9121\.49 10509\.71 3992\.61 14502\.32 14502\.32 SAX PCR NPV (12%) 1170\.64 ERR 0\.24 0\.12 Firt Year Rate of Return 0\.15 B\. Economic Analysis of Mille-Logia Road Project Annual Traffic Growth Rates Light Vehicles % 2\.7 Buses % 2\.7 Trucks % 2\.7 Trucks/Trailers 1 2\.7 ADT VOC Savings TotWl Mait\. Total Net Year Construction km Light Buses Taucks Tru-Trl Light Buses Tauck Tru-Td VOC Benefits Benefits Benefits (USD1,000) Savings 1990 1991 768 ' 0 -768\.00 1992 1696 * 0 -1696\.00 1993 1926\.4 ' 0 -1926\.40 1994 26 27 18 192 312 27\.67 28\.70 601\.29 2735\.85 3393\.51 52\.00 1722\.76 1722\.76 1995 28 18 197 320 28\.42 29\.47 617\.52 2809\.72 3435\.13 52\.00 1768\.57 1768\.57 1996 28 19 203 329 29\.19 30\.27 634\.19 2885\.58 3579\.23 52\.00 1815\.62 1815\.62 1997 29 19 208 338 29\.98 31\.09 651\.32 2963\.49 3675\.87 52\.00 1863\.94 1863\.94 1998 30 20 214 347 30\.78 31\.92 668\.90 3043\.51 3775\.12 52\.00 1913\.56 1913\.56 1999 31 21 219 356 31\.62 32\.79 686\.96 3125\.68 3877\.05 52\.00 1964\.52 196*\.52 2000 32 21 225 366 32\.47 33\.67 705\.51 3210\.08 3981\.73 52\.00 2016\.87 2016\.87 2001 33 22 231 376 33\.35 34\.58 724\.56 3296\.75 4089\.24 52\.00 2070\.62 2070\.62 2002 33 22 238 386 34\.25 35\.51 744\.12 3385\.76 4199\.65 52\.00 2125\.82 2125\.82 2003 34 23 244 397 35\.17 36\.47 764\.21 3477\.18 4313\.04 52\.00 2182\.52 2182\.52 SAR PCR M'le-Assb MIe-Logia NPV (12%) 4224\.18 IRR 0\.26 0\.31 NOTE: Net of Taxes (36% of Total) Sensitivity Analysis IRR (75% of Benefits) 0\.24 First Year Rate of Return 0\.32  35 Table 7\. Mission Data Stage of Project Cycle Month/Year Number of Days in Field Specializations Performance Types of Persons a/ b/ Rating c/ Problem d/ Identification 03/81 3 10 2 Ec, En Preappraisal 10/81 3 14 Ec, En Appraisal 04/82 4 21/10 3 En, Ec Supervision 06/83 2 10 En, Ec I Supervision 03/83 1 10 En I Supervision 03/84 1 10 En Supervision 08/84 2 10 En, Ec I Supervision 01/85 2 15 En, Div\. Chief I Supervision 04/85 1 12 En 2 F Supervision 09/85 1 10 En 3 F/O/M Supervision 04/86 1 13 En 2/3 O/M Supervision 09/86 2 10 En, Fi 2/2 O/M Supervision 03/87 2 11(5) En, Fi 2/2 O/M Supervision 10/87 2 11(5) En, Fi 2/2 O/M Supervision 03/88 2 16 En, Fi 2/2 O/M Supervision 01/89 1 8 En 2/2 O/M Supervision 02/90 1 14 En 2/2 O/M Supervision 10/90 1 23 En 2/2 O/M Supervision 02/91 1 5 En 2/2 O/M Supervision 09/91 1 7 En 2/2 O/M Supervision 09/92 1 10 En 2/2 O/M Supervision 04/93 1 16 En 2/2 OJM /a Time spent in field also included supervision and project appraisal for other Bank projects during the same period\. /b Ec = Economist, En = Engineer, Fi = Financial Analyst\. /c 1 = Problem Free/Minor Problems, 2 = Moderate Problems, 3 = Major Problems /d 0 = Overall Status; M = Managerial F = Financial /e Types of Problem: F = Financial; M = Managerial; 0 = Overall Status  36 Table 8\. Compliance with Credit Covenants Covenant Comment 3\.02: The Borrower shall employ engineering, Complied with\. management, financial and traffic safety and other consultants whose qualifications, etc\. shall be satisfactory to the Association\. 3\.06 The Borrower shall complete the national transport Complied with, although late\. Last report submitted in December study not later than June 30, 1985 and furnish a copy of the study 1989\. 4\.01 The Borrower shall (a) maintain or cause to be The project became effective in February 1984\. Separate maintained separate accounts in respect of the project; (b) accounts for the project were maintained\. maintain or cause to be maintained separate accounts reflecting all expenditures on account of which withdrawal are requested on the basis S\.O\.E\.; and (C) have the accounts at (a) for each fiscal year audited by independent auditors and furnish to IDA not later than six months after the end of each year a certified copy of the report of such audit, etc\. 4\.02 The Borrower shall, prior to making any investment in Complied with\. A feasibility study for the railway was completed the Awash-Assab railway line carry out technical, economic and in December 1985\. The draft report reviewed by IDA in March financial feasibility studies, exchange views with IDA on the 1986, and the final report was submitted in September 1986\. findings of said studies and undertake that any proposed Detailed engineering has started\. investment in the aforesaid railway is economically and financially justified\. 4\.03 The Borrower shall revise its classification system of Not complied with\. Consultants prepared proposals for a revised the existing road network by March 31, 1984\. classification of the network in February 1984\. MOTAC submitted a legal notice in 1987\. (The covenant has been carried over to the RRP)\. 4\.04 The Borrower shall take all necessary steps to permit Complied with\. a general increase in the axle load limit to 10 tons, except in selected roads so designed where such loads shall not exceed 12 tons, and shall commence the actual enforcement of new standards not later than June 30, 1984\. 4\.05 The Borrower shall not later than December 31, 1985 Complied with for ERA Organization\. prepare a proposal for the decentralization of the planning, design and/or maintenance activities related to roads\. 4\.06 The Borrower shall (a) not later than June 30, 1985 (a) Complied with, although late\. (b) ETCA prepared a report on review the role and organization structure of ETCA; (b) not later the subject for the Minister of Construction; later transfer of than June 30, 1985 prepare a tentative program for the transfer of force account brigades started gradually in 1985 to the parastatal ETCA's force account brigades to construction enterprises; and companies BNCE and BATU\. This process is substantially (c) upon completion of 30 months of construction operations by completed\. c) Complied with\. BNCE set out specific deadlines for completion of all phases of said program\. 4\.07 The Borrower shall not later than December 31, 1983 ETCA submitted a list of equipment needed for road furnish to IDA for its review a list of equipment needs for maintenance, and the equipment was procured\. construction of its rural roads and for maintenance of its road network\. 4\.08 The Borrower shall (a) not later than June 1, 1984 Complied with\. The study was completed in March 1984 and the exchange views with IDA on the recommendation of the Road Borrower and IDA exchanged views on the study; the Transport Study; and (b) not later than June 1, 1985 commence implementation of part of the study's recommendation started in implementation of the recommendations of the study\. August 1984, assisted by consultants\.  37 4\.09 The Borrower shall cause its primary, secondary and By 1990, ETCA estimated that only half of the required funds feeder road network to be maintained in accordance with sound were spent on road maintenance\. Efficiency of maintenance engineering and financial practices\. and shall allocate in 1982 operations were low due to inadequate management capacity, prices, not less than Birr 35 million in FY84, Biff 40 million in overstaffmg and low equipment utilization\. Towards the end of FY85, Birr 45 million annually thereafter, until the project is the Project it was evident that road maintenance was not completed satisfactory despite the new equipment received under the Credit\.

APPROVAL

P004019

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22443-ID IMPLEMENTATION COMPLETION REPORT (CPL-38010; SCL-3801A; SCPD-3801S) ONA LOAN IN THE AMOUNT OF US$25\.0 MILLION TO INDONESIA FOR ACCOUNTANCY DEVELOPMENT II June 27, 2001 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective May 31, 2001) Currency Unit = Indonesia Rupiah (Rp) Rp 1 million = US$ 89\.29 US$ 1\.00 = Rp 11,200 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS BAKUN State Financial Accounting Agency BAPEPAM Capital Markets Supervisory Agency CAS Country Assistance Strategy DJLK Directorate of Supervisory for Accountant and Appraisal IAI Indonesia Accountancy Institate ICR Implementation Completion Report GAS Government Accounting System GFS Government Financial Statistics KARs Regional offices of BAKUN KPKN Treasury Office KTUA Budget Administration Office MOF Ministry of Finance PAN Budget Realization Report PSSU Project Management Office ROSCs Report on the Observations of Standards and Codes SGV A consulting firm based in the Phillippines Vice President: Jemal-ud-din Kassum Country Director: Mark Baird Sector Director: Honil Kharas Task Manager: Nancy Chen  FOR OFFICIAL USE ONLY INDONESIA ACCOUNTANCY DEV H CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 8 6\. Sustainability 9 7\. Bank and Borrower Performance 12 8\. Lessons Learned 15 9\. Partner Comments 16 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 20 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 7b\. Comments By Bakun on the Government Accounting System 27 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Evaluation Summary The Second Accountancy Development Project was a follow-on project to a number of projects initiated since 1979\. The Project negotiations started in late 1993 and culminated in Board approval in September 1994\. The Project became effective in December 1994\. At project closure, the total cost was $19\.63 million compared to an estimate of $25 million at Project appraisal\. Overall Ratings The Project had two components: the modemization of the Government accounting system (GAS II) and the enhancement of accounting and auditing standard-setting and enforcement\. The first component is rated unsatisfactory, while the second component is rated satisfactory despite some weaknesses in enforcement\. The overall rating for the Project is unsatisfactory because performance indicators relating to factors such as (i) outcome, (ii) sustainability, and (iii) institutional development impact are either unsatisfactory, unlikely, or modest, while the Bank's overall performance is unsatisfactory\. The Borrower's performance is the only factor that is rated satisfactory; however, it is a borderline rating as there are some reservations about the leadership quality of the implementing agency and the commitment by the Government of the resources necessary for a full rollout of the first component\. In addition, approximately three fourth of the project funds were spent on the first component-the modemization of Government accounting system\. For these reasons, the Evaluation Summary focuses mainly on issues raised and lessons leamed from the first component, although some of the lessons are equally applicable to the second component\. Project Objectives The objectives of the Project were (i) to support the Govemment's strategy to modemize govemment accounting systems, and (ii), to enhance the credibility and usefulness of financial information for private and public sector enterprises through the implementation of rigorous qualifying examinations for public accountants, a comprehensive set of accounting and auditing standards, and the enforcement of these standards\. The Project's overall objectives were consistent with the Bank's Country Assistance Strategy (CAS) for Indonesia\. The Project supports the thrust of the CAS with its emphasis on modemizing government accounting information systems, and enhancing the credibility and usefulness of financial information for both the public and private sector enterprises\. The modernization of the Government accounting system component aimed to improve the timeliness, accuracy and completeness of accounting reports available to agencies' management, the Government, and Parliament to strengthen their decision-making capacity and accountability\. Although this component has been consistently rated as satisfactory in the Project Status Reports (PSRs) until the December 2000 PSR, it did not and still has not achieved its original objective of improved timeliness, accuracy and completeness of financial reports to the primary users, namely, the Govemment and the Parliament\. This is due to the fact that the design was flawed from its inception, when the concepts and scope of the new government accounting system were proposed by SGV, the consultants who prepared a report as part of the First Polytechnic Project (1979-1984)\. The ambitious and impractical nature of the proposal went unnoticed in subsequent years through the Second Polytechnic and First Accountancy Development Projects\. This deficiency was not recognized because of a number of factors: I\. Inappropriate skill mix of the team during the design and supervision stages of the First and Second Accountancy Development Projects\. The team did not include staff with experience in public sector accounting who would have realized that while the proposed concepts of double entry bookkeeping and balance sheet accounting are appropriate for private sector organizations, their application in a public sector environment, especially in a large and geographically diverse country like Indonesia, was a very high risk proposition\. This was particularly true given the scarcity of human resources who have the skills to undertake such a task in Indonesia\.  2\. The Second Accountancy Development Project was treated as a pure Information Technology (IT) project, namely, the conversion of programs and hardware onto a more modem, flexible, and nonproprietary platform and application software\. 3\. Even if it could be argued that the design was initially appropriate because the system was a 100 percent manual system, the potential for significant problems to develop began as far back as 1989, when the decision was made to convert this manual design to a computerized system without a thorough review of its scope and structure, and of the risks involved in such a large computer development project\. 4\. The lack of such a review may have reflected the general belief at the time that information technology was the solution for improved efficiency through the development of systems that can handle large volumes of similar transactions\. While this may be correct as a generalization, the importance of controls over input processing, such as account coding in a centralized computer system, was overlooked, and an understanding of basic accounting controls was lacking by operators of the proposed system\. The second component achieved its stated objectives satisfactorily despite some reservations regarding the enforcement of standards, particularly relating to nonlisted private sector enterprises\. However, it should be noted that enforcement of standards is a common problem everywhere\. The design should have allowed time to "socialize" the new standards before enforcement\. Summary of Findings, Future Operations and Key Lessons Learned As the objective of the first Accountancy Development Project component was shifted from one of accounting modernization to a pure IT focus in the Second Accountancy Development Project, the performance indicators used for monitoring purposes became input and process oriented such as deadlines for specifying users' requirements, number of consultants' days and delivery of system/users training\. No mention was made in the performance indicators of the original objective of timely, accurate and complete accounting reports to meet users' needs\. T'he modernization of the Government accounting system has not been realized after since 1988, 12 years of implementation\. The old pre-GAS I manual system is still in use by BAKUN to produce the PAN (State Budget Realization) reports to the Government and the Parliament\. The plan is to have GAS II ready to produce the PAN reports for the year ending 31 December 2002\. This is a long implementation period for an accounting system that is intended to be simple in its functionalities\. There is, however, no guarantee that this plan will be achieved, given the current uncertainties arising from the potential impact on systems of a number of recent decisions made by the Government regarding decentralization, the adoption of full Government Financial Satistics (GFS) classification framework, and the recent reorganization of the Ministry of Finance (MOF) with its planned changes to IT systems for the MOF\. It is therefore important that the focus be shifted back to meeting the needs of GAS II's main users, namely, the Government and the Parliament\. Timeliness, accuracy and completeness of PAN reports should become the focus of activities, to make the system operational as soon as is practicable\. It was recommended that BAKUJN be asked to produce the PAN reports for the period from April to December 2000 by both the GAS II and the pre-GAS I manual systems\. Only bugs relating to PAN reports should be fixed\. Once this is done, another interim performance indicator will be the production of the half-year PAN reports from 1 January to 30 June 2001 using GAS II\. This will be a very useful indicator because it will facilitate the preparation of the actual and forecast receipts and payments for the year 2001 as the basis for Parliamentary consideration of the 2002 State Budget\. Lessons Learned Lessons learned arise from a combination of factors that existed at point of entry and during the implementation: 1\. There should be an appropriate mix of skills in the design and implementation monitoring teams, to ensure that project design is appropriate to the needs of users and the country environment and that it remains relevant throughout the project cycle\. It appears that none of the team members at the various stages of the project had the requisite public sector experience and understanding that would have been helpful in realizing the ambitious design scope and the risks of implementation of such a project in a public sector environment\.  2\. Supervision of all projects, especially those involving multi-year systems development, should be frequent and rigorous\. Objective assessments of project status and potential problems should be developed and reported in aide memoires in a timely manner within the Bank and to the Borrower\. 3\. Large, complex IT projects should be avoided\. For accounting systems, off-the-shelf accounting packages are a preferable alternative\. Modifications to the software and related business processes may be needed to meet user requirements\. For significant changes to the off-the-shelf packages, pilot testing should be required as a risk mitigation strategy when implementation capacity is limited\. 4\. Comprehensive risk identification and mitigation strategies should be in place and effectively monitored in any large and complex information systems project\. 5\. The definition of "system implementation" for an IT project should specify that software consulting services must cover, at a minimum, one full production cycle of not less than three months of "live" production, and that system acceptance should not be signed off until the system has been implemented in a production environment\. 6\. The key objective of a project should be reflected in its performance indicators\. The performance indicators used for monitoring purposes should focus on output and outcome rather than input and processes\. 7\. It is important to acknowledge that there are no explicit Bank procedures which require that follow-on projects with complex functionalities should be approved only after successful completion of an ICR\. This lack of Bank procedures may have resulted in perpetuating an unsatisfactory project design for an unacceptably long time\. 8\. High-level government commitment is crucial for success in any major reform program\. This commitment is needed not only from ministries but also from senior Government officials, who can make or break any reform efforts simply through their participation,or lack of participation\. 9\. Human resource capacity of the country should be carefully evaluated prior to the provision of Bank advice on modernization and reforms\. In summary, managing risks associated with complex financial management projects, particularly those in the public sector, calls for: - stronger commitment at the top; ? better initial project planning as well as ongoing effective supervision; * strong public sector experience in disciplines relevant to the project; and v more rigorous risk mitigation strategies\.  Project ID: P004019 Project Name: ACCOUNTANCY DEV II Team Leader: Nancy Chen TL Unit: EASFS ICR Type: Core ICR Report Date: September 18, 2001 1\. Project Data Name: ACCOUNTANCY DEV II L/C/TFNumber: CPL-38010; SCL-3801A; SCPD-3801 S Country/Department: INDONESIA Region: East Asia and Pacific Region Sector/subsector: FK - Capital Markets Development; FS - Financial Sector Development KEY DATES Original Revised/Actual PCD: 09/08/1993 Effective: 12/20/1994 Appraisal: 01/04/1994 MTR: 11/15/1997 Approval: 09/22/1994 Closing: 12/30/2000 Borrower/Implementing Agency: GOI Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Guatam S\. Kaji Country Manager: Mark Baird Marianne Haug Sector Manager: Jacques Loubert Peter R\. Scherer Team Leader at ICR: Nancy Chen Albert Kennefick, SITA Ramaswani ICR Primary Author: Nancy Chen; Thuy Mellor 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: S QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Context\. The Govemment of Indonesia (GOI) had recognized the importance of setting and enforcing standards, and of generally enhancing the quality and reputation of the accounting profession\. The GOI had also recognized the need for comparable and reliable financial information\. Although the Indonesian Accountancy Institute (IAI) had been active over the past few years in drafting accounting and auditing standards, and in strengthening the accounting profession, its effectiveness had been limited\. The underlying reasons for the ineffectiveness are complex and include such factors as a lack of strength in its professional membership and a lack of well-established processes for drafting, reviewing, and approving standards to be issued\. The First Accountancy Development Project (Loan 2940-IND) was designed to (i) modernize the Government's accounting system; (ii) improve accounting education and training; and (iii) initiate actions for meeting the financial information requirements of capital markets\. Near the end of the implementation phase of the first project, it was determined that the computerized Govemment Accounting System (GAS), though suitable at the time, should be enhanced to take advantage of new technology\. Specifically, the hardware and application software should be transferred onto an open system platform and relational database management system using fourth generation language to ensure its future operational and maintenance viability\. Original Objectives\. The objectives of the Second Accountancy Development II project were to support the Government's strategy to modernize government accounting information systems, and to enhance the credibility and usefulness of financial information for private and public sector enterprises through the implementation of rigorous qualifying examinations for public accountants and a comprehensive set of accounting and auditing standards, and through the enforcement of these standards\. Assessment of Objectives\. The project's overall objectives were appropriate and consistent with the Bank's Country Assistance Strategy (CAS) for Indonesia, presented to the Executive Directors on 12 April 1994\. The project supported the thrust of the CAS with its emphasis on modernizing govemment accounting information systems, and enhancing the credibility and usefulness of financial information for both public and private sector enterprises\. 3\.2 Revised Objective: Not applicable\. 3\.3 Original Components: Assessment of design/components\. The project comprised two components: (i) the modernization of the Govemment Accounting System and (ii) enhancement of private and public sector accounting and auditing standard-setting and enforcement\. Primary activities in the first component included the enhancement and continued implementation of the Govemment Accounting System, which was originally designed under the First Accountancy Development Project\. The second component addressed the Government's need to ensure that internationally accepted accounting and auditing standards are issued and enforced for private and listed companies\. This component was also intended to further develop the quality and credibility of Indonesia's professional accountants through more rigorous testing, licensing and continuing professional education programs\. Component 1: Modernization of Government Accounting System The objective of this component was to be achieved through the enhancement and continued implementation of a new accounting system that was originally designed in 1985/1986 and implemented under the First Accountancy Development Project and through addressing the Ministry of Finance's (MOF) need to better plan and manage its data communications capabilities\. As the project was a follow-on to the First Accountancy Development Project, the assumption was that the delivery of new software based on then current Information Technology (IT) tools - 2 -  would achieve the (by this time, unstated) objective of improving timeliness, accuracy, consistency, and completeness of accounting reports that was first envisaged in 1984 in the proposals prepared by SGV, a consulting firm based in the Philippines\. (Section 11 contains additional background information\.) As the project became effective in December 1994 prior to the closure of the First Accountancy Development Project (30 June 1995), the project accepted as a given the functional arrangement, accounting framework and complex accounting and reporting requirements that were developed in 1985-1987\. The fact that it took five years to develop and test the first version of the computerized system with very limited implementation and no observable improvements apparently did not trigger any question about the system's design or the complexity of its business requirements\. A number of design and implementation weaknesses in the design of Government Accounting System I (GAS I) under the First Accountancy Development Project were carried over in a detrimental manner to the design of the Second Accountancy Development Project\. The unresolved GAS I problems can be summarized as follows: * Complex functionalities-GAS I was designed as a system with complex functionalities to handle large volumes of transactions\. As such, tight controls should have been developed, but were not, over such activities as account coding, timely transmission of data from thousands of local agencies to the Central Accounting System and reconciliation of detailed accounting records with cash balances per bank records\. Moreover, GAS I requires the establishment of a Central State Treasury Accounting System in parallel with the Central Accounting System\. As these two systems maintain records relating to cash balances of the central Government, it is a fundamental control weakness to place them under the control of two different agencies without a clear requirement for reconciliation\. Consequently, cash balances as shown in the Central Accounting System may be out of balance with those recorded by the Central State Treasurey Accounting System\. * Accounting basis-GAS I required the use of double entry bookkeeping and balance sheet accounting\. The Parliament and Government use the single-entry/cash basis of accounting for budgets and appropriations\. Since the primary purpose of GAS I was to facilitate the preparation of timely, accurate, consistent and complete reports to the Parliament and Government on actual revenues and expenditures for comparison with the budgeting and appropriation, and since the Parliament and Government expressed no intention of changing their single-entry/cash basis of accounting, GAS I should have utilized the same basis\. Therefore, the design of GAS I did not reflect a fundamental management principle-namely, that accounting and reporting systems are tools for control and accountability by management\. Accordingly, they should follow the same accounting basis as that adopted by Parliament and the Government in its planning and control of operations\. It is not sensible to account and report on a different basis since the recipients of the reports do not have comparable information to judge performance or accountability\. * Level of information-GAS I required that expenditures be distinguished between capital and current items at the program/project level, whereas the budget appropriations to agencies do not require that detailed distinction be made\. * Delay in implementation-GAS I was to have been implemented by 30 June 1994\. However, the implementation was delayed\. The design and preparation of GAS II took place before GAS I had been fully implemented and, as a result, the Second Accountancy Development Project became effective in December 1994 prior to the closure of the First Accountancy Development Project in June 1995\. None of the above problems with GAS I were highlighted in the Implementation Completion Report (ICR) of the First Accountancy Development Project\. It appears that the above inadequacies in the design and implementation of GAS I were not taken into consideration in the design of GAS 11, and thus the inadequacies were carried over to GAS II\. During the design and preparation of GAS II, no one questioned: - 3 -  * The appropriateness of the functionalities, accounting basis, or level of detail in GAS l; or * The reasons for or implications of the delay in implementation of GAS 1\. Rather than reviewing the adequacy of the underlying framework of GAS 1, it was accepted as the starting point for GAS II, even though it had not yet been implemented\. Given the lack of public sector accounting and IT expertise in Indonesia at the time GAS II was designed, the Bank should have recognized the problems inherent in GAS I and should have advised the Government appropriately during the design of GAS II\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement The objective appropriately responded to Indonesia's political and economic environment with an increasing demand for transparency and accountability\. Issuance and enforcement of accounting and auditing standards are one of the most cost-effective means of promoting transparency and good governance\. One noticeable design weakness was the requirement that the development of each set of standards could begin only after satisfactory issuance of the previous set\. Given the heavy reliance on volunteers in the review and public hearing process, delays in the approval of new standards had eventually led to the cancellation of phase 4 of the consultant's contract\. 3\.4 Revised Cormponents: Not applicable\. 3\.5 Quality at Entry: Not applicable\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Component 1: Modernization of Government Accounting System The stated objective of this component was the enhancement of GAS I for asset, liability, and investment accounting, and the continued nation wide implementation of the new GAS II\. The operational objective was the delivery of hardware, software, communications capabilities and the nation-wide implementation of GAS II, user training, and specialized training for MOF technical staff\. Within these limited terms of reference, it can be said that the project achieved its objective\. The consultant delivered GAS II software, installed the software in 17 BAKUN offices, and delivered user and technical training as specified in the contract by the due dates\. Hardware has been delivered to BAKUJN regional offices and some agencies (hardware was available in only about 20 percent of agency offices due to budget cutbacks)\. However, the facts that the system has not worked as planned 18 months after the consultants formally completed the contract, the reports are incomplete, some reports are still awaiting agency confirmation and/or clarification and, more importantly, the old manual system (that is; the system before GAS I ) is still in use 12 years after the initiation of the First Accountancy Development Project indicate serious deficiencies in the planning and execution of the First and Second Accountancy Projects\. The reasons for this state of affairs appear to be many: -4-  * The system requires data from the lowest levels of govemment (namely, program/project) to flow upward several levels to the central govemrnent accounts\. Without stringent control of coding and clear assignment of responsibility for this control, data becomes unreliable when there are changes to program/project codes either because of changes in the govemment structure (such as merging or splitting of departments or provinces) or changes in the uniform chart of accounts structure to comply with Govemment Financial Statistics (GFS) requirements\. * The changes in the govemment structure since 1998 and the effects of these changes on the workability of the system were not recognized or taken into account during the relevant development phase\. The current decentralization moves and the implementation of the full GFS classification framework will ensure an unstable environment in which the system is likely to be unreliable or perhaps even unworkable for the next three to five years\. * Data is currently received by BAKUN's regional offices (KARs) from the relevant regional offices of budget administration (KTUAs) about one and a half months after payments are made by the regional offices of the Central State Treasury (KPKNs)\. An additional minimum of one month is required for processing by the KARs if there are no major errors or unusual transactions\. Thus, timely reporting is almost impossible right from the start of the process\. * The design of the system requires the timely cooperation of all units of all agencies to verify data and to provide prompt feedback to KARs for data correction purposes\. Unless this cooperation is forthcoming, the outputs of the system are unreliable or incomplete; in some cases the whole reporting process may not be completed if data from the lowest level is wrongly coded\. This cooperation has been patchy, resulting in incomplete and untimely reporting\. It is understood that BAKUN has been working on improving this cooperation and that some improvement has been achieved\. * The consultants did not deliver standard operating procedures or reconciliation programs for the reporting unit in the BAKUN head office because of a difference of opinion as to whether this was part of the contract\. Thus, the reconciliation and verification of PAN reports (PAN report is a budget realization report to Parliament, an ex post account of the result of funds for govemment operations) with other independently prepared reports, such as those produced by the Directorate General, Budget, or by agencies, have been manually undertaken by BAKUN head office staff\. This is time consuming and has generated a lack of confidence in the accuracy of GAS II reports\. * To date there are still program errors that need fixing\. This may be a bigger challenge when the system is rolled out to all agencies\. At present, only about 20 percent of the agencies have computers to enable usage of the system at the lower levels\. * The Terms of Reference allowed the consultants to formally conclude their deliverables under the contract at the end of March 1999\. This was well before the start of live implementation in August 1999\. The procedures for the acceptance testing were inadequate in detecting any programming/systems errors\. Scarce IT skills and resources in BAKUN have made implementation progress and correction of bugs identified during live production very slow\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement As stated in the Staff Appraisal Report (SAR), the objective of this component was to address the Govemment's need to ensure that intemationally accepted accounting and auditing standards are issued and enforced for private and public sector enterprises\. The principal means of enforcing accounting and auditing standards are applied through the Capital Markets Supervisory Agency (BAPEPAM)\. It can be said that while the objective of issuing accounting and auditing standards has been largely achieved, the objective of - 5 -  enforcing the standards has not been met\. Key performance indicators with respect to enforcement were not built into the project design, and consequently there appears to be a disconnect between the actual output and project objectives with respect to enforcement of standards\. The performance indicators (Annex 1) clearly indicate that the goals of this subcomponent are to assist BAPEPAM in the production of capital markets rules and in the training of its staff with respect to their supporting role in self-regulation of the capital markets through overseas short-term courses and a masters degree program\. In other words, the focus was on development of regulations and the technical competency of BAPEPAM staff\. It could be interpreted that an assumption was made that the existence of rules and standards and better skill sets by staff would automatically lead to enforcement\. In reality, existence of standards and regulations does not by itself ensure enforcement\. A recent study (funded by the Asian Development Bank, ADB) was carried out by a reputable international consulting firm that examined the extent of compliance by listed companies with the Indonesia accounting standards and BAPEPAM rules on accounting\. The study found evidence to suggest that noncompliance with a number of disclosure items has the potential of distorting the financial statements of most of Indonesia's listed companies and misleading the users of financial information\. A process is yet to be established to ensure that all necessary steps are taken so that listed companies fully comply with the current accounting standards and BAPEPAM rules\. Furthermore, since the objective is to enhance the credibility and usefulness of financial information of private and public enterprises and the enforcement of the standards, it could be assumed that the enforcement should cover both the private and public listed enterprises\. The design of this component assumed that the principal means of enforcement is applied through BAPEPAM only, which automatically excludes the private enterprises\. Consequently, there are no performance indicators addressing the enforcement of accounting and auditing standards for the private enterprises\. On balance, however, this project component appears to have achieved its major objectives despite the weaknesses in enforcement\. 4\.2 Outputs by components: Component 1: Modernization of Government Accounting System Specific outputs include: * Hardware, software, and communications capabilities; * Nation wide implementation of Government Accounting System II (GAS II); * User training; and * Specialized training for MOF technical staff\. On the basis of the project design and the related contractual terms to carry out the implementation, the above mentioned outputs were satisfactorily delivered\. However, as the emphasis was placed on IT elements, the performance indicators and contract agreement with the consultants focused on the process and inputs, such as how many consulting days were needed for software development, how many computers were to be purchased, and deliverables such as the work plan, a system requirements specifications document or system documentation (technical manual) and source programs\. The delivery - 6 -  of a working production system seems to have been lost in the process\. Therefore, the project's outcome is considered unsatisfactory, as it failed to achieve the development objective of modemizing the Government Accounting System\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement Specific outputs include assisting IAI to: * Issue 10 accounting standards and 4 auditing standards per year; * Design and deliver a Professional Accountant's Examination (USAP); * Design and deliver continuing professional education; and * Prepare and publish an accountancy magazine\. The above activities covered a period of four years, after which IAI must be able to continue as the standard-setting and the accounting professional development body within its own resources\. The component was also intended to support the enhancement of a regulatory fi-amework, investment fund regulations, and the capacity of BAPEPAM to carry out its role by improving the technical qualifications of staff through training\. A number of specific quantitative and qualitative outputs have been delivered: (i) Accounting and auditing standards A total of 25 accounting standards and 17 auditing standards have been approved and issued, compared to 40 accounting standards and 16 auditing standards required under the project implementation plan\. The variance in accounting standards was due to the cancellation of phase 4 of the consultant's contract and the reduction of phase 3 to deliver 5 rather than 10 accounting standards\. The cancellation is due to the lack of sufficient time to complete the contract requirement by project closure\. Though a single contract was awarded with four phases, the development of each set of 10 accounting standards and 4 auditing standards was to begin only after satisfactory issuance of the previous set\. Since most of the members of the IAI Standards Committee are volunteers, the review, public hearing, and approval process took longer than expected\. It was generally agreed among DJLK, IAI, and the consultants that the original objective of completing 40 accounting standards was too ambitious\. A listing of accounting and auditing standards issued is attached in Appendix 2 (to be prepared)\. (ii) Professional Accountant's Examination Since the design of the Professional Accountant's Examination in 1997 under the project, USAP has been delivered twice a year, in Jakarta and Surabaya, respectively\. It is mandatory for accountants in public practice to sit for the examination\. IAI has taken ownership of this activity and independently delivered a USAP in November 2000, with a total of 225 participants, 17 of whom successfully passed the examination\. A total of 184 candidates have - 7 -  been accredited by the IAI as Certified Public Accountants\. A listing of the number of participants by year and by location is attached in Appendix 3 (to be prepared)\. (iii) Continuing Professional Education This activity entails the design of continuing professional education (CPE) courses and delivery of a CPE program to public accountants\. Since the completion of the CPE design in March 1998, CPE programs have been offered in Jakarta and 19 other cities\. IAI became involved in the CPE activity at an early stage of project implementation\. CPE programs conducted outside Jakarta have been facilitated by IAI branches\. The total number of CPE programs offered in 1998, 1999 and 2000 were 35, 75, and 14, respectively\. Though the program is intended for public accountants and IAI members, the CPE program attracted many non members and even non accountants in 1999, as evidenced by a total of 3,277 participants attending the CPE programs in 1999, out of a total of CPE participants of 5,622 between 1998 and 2000\. CPE has become a mandatory requirement for the maintenance of a license to practice public accounting\. As a result of this project sub component, members of IAI in public practice are expected to complete 120 hours of continuing professional education within a period of three years\. Compliance with this requirement is closely monitored by IAI\. (iv) Accountancy Magazine The project has supported the publishing of 24 issues of an accounting magazine titled Media Accountancy, which is intended to be the main reference for the accounting profession in Indonesia\. At project closure, 49 issues had been published, with approximately 6,000 copies of each edition distributed\. The November 1999 edition was the last edition financed by the project\. To ensure sustainability, IAI established a business unit in April 2000 to publish Media Accountancy on a monthly basis\. (v) Technical Consultancy and Technical Training Program for the Capital Markets Supervisory Agency (BAPEPAM) This project sub component has supported BAPEPAM in: * Preparing rules on operational procedures and business practices with respect to securities exchanges, broker dealers, investment funds, investment managers, underwriters, custodians, central depositories, clearing and settlement institutions, transfer agent services, and investment advisory services\. * Preparing rules on enforcement and regulatory matters and on the transfer of related technology, focusing on rules and procedures on criminal investigations of securities fraud, market manipulation, insider trading, and other violations of securities laws and investigations leading to administrative sanctions\. The consultancy also dealt with rules and policy recommendations regarding licensing, appeals, compliance monitoring, and handling complaints from investors\. * Providing long-term and short-tern educational program materials relating to the securities industry, market surveillance, and securities regulators; conducting in-house training for BAPEPAM officials and staff by inviting capital markets experts and resource persons, and coordinating with training institutions, foreign regulators, and securities exchanges in arranging for specialized training programs to suit the specific requirements of BAPEPAM\. Of the 225 rules drafted, 191 have been issued\. The number of rules drafted is - 8 -  slightly higher than the target under the project implementation plan\. BAPEPAM has benefited from a total of 371 staff-months of technical consultancy, having developed specialized in-country training for capital markets professionals\. The number of BAPEPAM staff who participated in the overseas short-course training is 76, more than the targeted 60\. Of the 32 BAPEPAM staff who attended the masters degree program, 31 graduated\. The outcome of this sub component has increased public awareness and support for the capital markets regulations and their related implementation, strengthened the concept of transparency and disclosure for capital markets players, such as issuers, securities companies, investment managers, and broker-dealers, and improved the rule-making function of BAPEPAM\. 4\.3 Net Present Value/Economic rate of return: Not applicable\. 4\.4 Financial rate of return: Not applicable\. 4\.5 Institutional development impact: The institutional development impact has been substantial in strengthening the Indonesian accountancy profession, namely in standard-setting, issuing professional accountancy magazines, conducting professional accountancy examinations and providing continuing professional education\. BAPEPAM, the Capital Markets Agency, has also benefited from the project in terms of establishing a capital markets framework and enhancing the technical competency of its staff\. The institutional impact was limited, however, for BAKUN because the project failed to achieve the development objective of modemizing the Govemment Accounting System\. Overall, the institutional development impact is considered to be moderate\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Because the design of the First Accountancy Development project was conceived in 1987-1988, when the Government was stable and the economy was going well, it seemed reasonable to assume that the future shape of the Govemment and its requirements would be similar to the immediate past\. Events such as the 1997 Asian economic crisis and its subsequent impact on the political environment in Indonesia culminating in the 1998 change of Govemment made the original assumption of organizational stability unrealistic\. 5\.2 Factors generally subject to government control: Component 1: Modernization of Government Accounting System There seemed to be no leadership at the highest bureaucratic level to consider the likely impact of environmental or political changes and of consequential government decisions on day-to-day business operations\. It appears that one of the key lessons leamed from the First Accountancy Development Project had not been applied in this project\. This was the need for high-level intervention -9-  and leadership "in performing a major task such as implementation of a government accounting system that encompasses all independent cabinet level government agencies" [Implementation Completion Report, dated 4 January 1996, of the Accountancy Development Project (LOAN 2940-IND)]\. It is understood that the creation of BAKUN as a high-level office followed the recommendation of the SGV 1984 report\. It was intended that BAKUN would have the responsibility for introducing and maintaining accounting standards throughout the Government\. It is reasonable, therefore, to assume that BAKUN would be the source of instruction, advice and guidance on all accounting matters, and a key player in influencing other offices within MOF and other agencies to adopt measures that were necessary to ensure the operational capability of its system\. The reality was otherwise, because BAKUN appears to have reacted to events rather than attempting to influence them; BAKUN seems to have been a marginal participant in the decision-making process\. 5\.3 Factors generally subject to implementing agency control: Component 1: Modernization of Government Accounting System Management effectiveness by BAKUN was also lacking in that the contract allowed the consultants to claim full performance and disappear from the project six months before "live production" of the system\. It is generally accepted that live production of a system almost always produces "bugs" despite intensive testing during development\. To have a contract that enables the consultants to finish before "live" implementation indicates insufficient attention given to contractual negotiation and inadequate subsequent contract management\. The ICR of the First Accountancy Development project suggested that a pilot implementation by all units and agencies in one province should be undertaken to ensure that the reports emerging from the new system could be used as the basis for comprehensive evaluation prior to a full-scale implementation\. It is not apparent that this suggestion was adopted in the implementation plan prepared by BAKUN\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement The start-up phase of the project suffered from implementation delays in finalizing the major consultancy contracts\. The component experienced delays in the review, public hearing, and approval of the standards because of the heavy reliance on volunteers, who had other commitments\. 5\.4 Costs andfinancing: Discrepancies between the appraisal estimates and actual project costs are mainly attributable to the cancellation of the loan proceeds (US$ 2\.3 million or 9\.2%) by the Ministry of Finance, in an effort to reduce the amount of overall borrowing by the country\. Total amount withdrawn from loan account is $19\.63 million leaving unutilized balance of $1,957,577\.24 to be cancelled\. Loan cancellation is - 10 -  delayed owing to an amount of $7,591\.32 remaining in the Special Account which is yet to be recovered\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Government commitment Component 1: Modernization of Government Accounting System It is unlikely that the Govemment Accounting System 11 (GAS 11) will be sustainable in the future, given the current uncertainty regarding the structure of the Government following decentralization, the lack of control over coding of accounts to ensure compliance, and the apparent lack of commitment or appreciation by the Government and high-level bureaucrats to the importance of this task\. Although decentralization has been announced as Govemment policy since mid-1999, to date no plan has been provided to enable implementation to be undertaken at a working level\. This is very important for the operational capability of GAS II because the merging or splitting of programs/projects and the control relationship between different levels of Government at the program/project level will have a significant impact on how and what data is collected\. Additionally, as GAS II was created to account and report for all central Government revenues and expenditures from the lowest level, the establishment of districts and provinces with their own parliament, budget, and reporting mechanisms will curtail the scope of the system compared with its current design\. Policy Environment Component 1: Modernization of Government Accounting System The latest reorganization of MOF adds more uncertainty to the future of the Government accounting system\. It is understood that BAPEKSTA has become the Office of Information Technology and Financial Systems (Badan Informasi dan Teknologi Keuangan)\. It is further understood that this office will have the responsibility for developing a number of financial systems including a "general financial information system\." Some discussions have taken place in recent months on the concept of "data warehousing" as the depository of all data on revenues and expenditures of the central Government and its agencies\. According to current planning, this proposal is expected to be realized within 3 years; thereafter, rationalization of all current financial systems will be undertaken to ensure that data will be collected and stored in one place and that this will be the only source of data for all applications within MOF\. It has been said that GAS 11 is expected to be part of this proposed system\. If this plan eventuates, impact on GAS II will be very significant because it may not be an appropriate mechanism for data collection purposes\. In addition, work will be needed to turn GAS II into an application software only that will result in changes to the system's data structure and operational rules\. Technical Viability -11-  Component 1: Modernization of Government Accounting System The adoption of the full GFS classification framework will necessitate changes to the system's coding and reporting formats\. Despite the commitment given by the Government in its Letter of Intent to the IMF, there has been no significant development work to implement the decision to adopt GFS with respect to the budgeting and accounting systems\. A ministerial decree was issued in June 2000 to establish a team to prepare guidelines for conversion of the State Budget format; the report of this team is not due until April 2001 (or later)\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement Though IAI has taken the ownership in (i) standard-setting; (ii) the Professional Accountant's Examination; (iii) continuing professional education; and (iv) publishing Media Accountancy Magazine, the sustainability of its activities depends largely on successfully recruiting a sufficient number of permanent technical staff who can work on the above mentioned activities on a full-time basis\. It is difficult to attract qualified personnel due to the low remuneration offered by IAI\. Standard-setting requires the commitment of time and resources of technically competent staff\. At present, there are only three full time staff working on standard-setting\. Given the fact that the staff who are involved in the review, public hearing, and approval process are mostly volunteers, there is no compelling evidence that the standard-setting subcomponent will be sustainable\. With regard to the other subcomponents, it is likely that the CPE and Professional Accountant's Examination subcomponents will be sustainable because of a designated full time training manager, who became involved in the activities at the early stage of project implementation and who continues to be involved\. It is also likely that Media Accountancy Magazine will be sustainable, owing to the establishment by the IAI of a business unit in April 2000, to publish Media Accountancy on a monthly basis\. 6\.2 Transition arrangement to regular operations: Component I\. Modernization of the Government Accounting System Given the current lack of confidence in the reports generated by GAS II, the fact that only 20 percent of agencies have computers on site, and the lack of a concrete funding plan to overcome this shortage, the old pre-GAS I manual system is still in use to produce PAN reports\. The last reports submitted to Parliament were for the financial year I April 1998 to 31 March 1999; the reports for the financial year from I April 1999 to 31March 2000 have been completed and submitted for audit\. There is no plan to check the manual reports with GAS II outputs, as the new system did not go "live" until August 1999\. Thus, the first opportunity to verify the accuracy of GAS II PAN reports is for the period April to December 2000\. It is understood that a decision was made by BAKUN to continue with the old pre-GAS I manual system for the period April to December 2000 and for the year 2001\. PAN reports for the year 2002 are to be produced by GAS II\. This plan was confirmed in the State Budget Law 2001\. This results in a very long implementation period\. Some measure may need to be considered to shorten this timeframe to obtain some -12-  benefits from the considerable investment in GAS 11 as soon as possible\. Additionally, given the current uncertainty regarding the implementation of full GFS and of decentralization decisions, and given that the majority of agencies and units do not have access to suitable computers, a decision may need to be made to focus on the timely reporting objective to Parliament in the current year, namely PAN reports for the period April to December 2000\. Unless priority is given to this objective, it is likely that day-to-day fixing of system and data errors may take precedence over reporting to the primary client of BAKUN, namely, the Government and the Parliament\. It is understood that this reprioritization does not mean that no reports will be available to agencies or that work on assets/ liabilities will stop\. It means that accuracy of data at the program/project level will be less important as a determinant of system operations\. Timeliness, accuracy and completeness of PAN reports will become more important than other elements of the system, such as asset/liability information and information for program/project managers\. It is also understood that BAKUN has undertaken a brief feasibility review to determine if such reprioritization is workable\. Preliminary indications are positive and there should not be any major impact on the operations of the system\. This reprioritization is a reasonable interim step to obtain some benefits from the investment in GAS II to date\. It is also a reasonable decision given the current uncertainty about decentralization and about linkages (if any) between reporting by different levels of Government and the impact of the recent reorganization of MOF, especially in view of the plan to implement a "general financial information system\." Regarding the interim performance indicators, BAKUN should be asked to produce a PAN report using GAS II for the six months to 30 June 2001\. Then they should compare the June report with the current manual report to identify any discrepancies\. The reconciliation between the computerized report and the manual report is necessary to test the interim work\. A public sector financial management reform mission took place from 12 to 15 February 2001\. It was recommended by the Bank to the Government that a diagnostic review be conducted prior to undertaking any future work on the Government Accounting System\. Component 11: Enhancing the Accounting and Auditing Standard-Setting and Enforcement Indonesia could be a good candidate for the Report on the Observations of Standards and Codes (ROSCs) review which is currently being undertaken by the Bank\. ROSCs review focuses on corporate governance, accounting, and auditing standards\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Component 1: Modernization of Government Accounting System - 13-  As this was a follow-on project, it became effective in July 1994 before the closure of the First Accountancy Development Project on 30 June 1995\. Thus, the objective and scope of the project were unchanged-namely, the enhancement and continued implementation of a new Govemment accounting system, which was originally designed under the First Accountancy Development Project\. There is no evidence to suggest that any attempt was made to determine whether the basic requirements determined back in 1985-86 were still appropriate, namely a centralized accounting system to collect and account for receipts and payments incurred at the lowest level\. The fact that it had taken nearly ten years to develop a modern Government accounting system without any tangible benefit appears to have been lost in the effort to get the loan and the project off the ground\. Another possible explanation for the lack of critical analysis was the focus on the power of IT as a solution\. Bank staff appeared to assume that given that the implementation of the system under the First Accountancy Development Project was slow because of the use of old technology, the conversion to newer, more flexible technology would solve the problem\. This may reflect the inadequate skill mix of the project team at the time; the team did not appear to include accounting expertise, especially public sector accounting knowledge, even though this was essentially an accounting project\. This IT focus also manifested itself in the fact that no review was thought necessary in either 1989 or 1994, even though the system was originally designed for manual operations\. The scope and functionalities designed for manual operations may have been suitable in the original 1985-1986 design because the control over data collection and classification was undertaken by supervisory staff at successive reporting levels\. It might not have been necessary to have tight control over coding of each transaction in a manual system, whereas stringent control over account coding for each transaction is critical in a centralized computer system\. This bias was also reflected in the contractual and monitoring arrangements adopted for the project\. Both the contract with the consultants and the milestones and key performance indicators focused on the delivery of hardware and software, user and technical manuals, inputs, and processes (that is; staff-months, number of software licences purchased, and number of training sessions delivered)\. The initial objective of improving accounting practices through the timely, accurate, consistent, and complete reporting to the Parliament, Government, agency heads, and program/project managers (that is; the desired outcome) was not reflected in any performance indicator for monitoring purposes\. This may also be a factor in the inadequate assessment of the implementation risk\. The description of services included in the contract with the consultants emphasized various deliverables and their timing, while implementation was defined as "a phased GAS II installation and production start-up in all regional sites to be covered during a given implementation period\." Given the delay in finalizing the contract, the focus was therefore on the deliverables, with software installation being carried out in the last few months of the contract\. Thus, there was no testing of the software in a live production environment prior to the conclusion of the contract\. A pilot implementation of the new accounting system covering all agencies (using live data) in a selected province was recommended in the ICR of the - 14 -  First Accountancy Development Project\. However, this does not seem to have been taken into account in the initial planning or subsequent mid-term review or supervision missions\. Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement The project design substantially reflected the Government's accountancy development strategy recognizing the importance of setting and enforcing standards and enhancing the credibility and usefulness of financial information for private and public sector enterprises\. However, it appears that the design assumed that the principal means of enforcing the standards is applied through BAPEPAM, while BAPEPAM, as the capital markets supervisory agency, is responsible only for the enforcement of standards for public listed companies, not private enterprises\. Thus, the design did not include the enforcement of standards for private enterprises\. Another design weakness that was not detected at the preparation stage is the lack of performance indicators regarding the enforcement of standards by BAPEPAM\. Section 4\.1 contains a more detailed discussion of this matter\. 7\.2 Supervision: Component 1: Modernization of Government Accounting System In terms of the stated objectives and agreed monitoring arrangements, supervision by Bank staff is rated as satisfactory\. However, the decisions made in the earlier project regarding the scope and functionalities of the system and the faith in IT seemed to color judgments, even when there was evidence that a successful conclusion of the project might be in jeopardy; that is, the implementation of the system in a live production environment was passed to the implementing agency's staff without help from the specialist consultants\. There should have been concems about the risk of such a plan in early 1999\. The supervision team should have worked more closely with BAKUN to address the issues that surfaced during the live implementation in 1999, rather than rating project implementation as satisfactory in the Project Status Report\. The fact that the "new" Government Accounting System has not produced reliable, timely, and complete reports almost 15 years after its initial development supports the contention that it is an accounting and management issue and not just an IT issue\. Annex 7 indicates that there seems to be no mission aide memoire prepared between October 1995 and February 1999\. The project would have benefited from more regular supervision missions and frequent reporting for both the Government and Bank management, and from a candid assessment of project performance\. Component 2: Enhancing Accounting and Auditing Standard-Setting and Enforcement Prior to mid-1998, the Bank had engaged an expert in accounting to supervise the standard-setting and enforcement component\. Both the 1997 supervision report and mid-term review report rightfully pointed out the key issues such as - 15 -  delay in standard-setting due to heavy reliance on volunteers and sustainability of IAI, owing to difficulties in attracting qualified personnel\. However, from the period of mid-1998 to the end of 1999, the Bank supervision team did not include any staff with relevant experience in accounting and auditing\. As a result, the accounting and auditing standards drafted were not reviewed by the Bank on a timely basis, to ensure that the standards drafted were in harmony with intemational standards\. The supervision team had not conducted any impact evaluation of the new accounting/auditing standards, Professional Accountancy Examinations, CPE, Media Accountancy Magazine, and capital markets rules\. 7\.3 Overall Bank performance: The Bank's performance is judged to be unsatisfactory during the preparation and supervision of the Modemization of Govemment Accounting system component because of its failure to address a series of design weaknesses in the prior project\. The performance rating given in PSR was not realistic\. The Bank's performance is judged satisfactory for the Enhancing Accounting and Auditing Standard-Setting and Enforcement component\. Overall, the Bank's performance is judged to have been unsatisfactory on the basis of issues discussed above in paragraphs 7\.1 and 7\.2, especially those relating to the Modemization of Govemment Accounting System component\. Borrower 7\.4 Preparation: Within the scope of the terms of reference agreed with the Bank in the 1994 SAR, the performance of the Borrower is rated as satisfactory\. Like the Bank staff, the Govemment agreed too readily to the conceptual proposals made by the SGV consultants in 1984 on the modemization of Government accounting practices and systems\. A study of public sector accounting practices of countries in the region and around the world might have provided a reality check on the feasibility and hidden complexity of what was proposed at the time\. When the decision was made to computerize a system designed for manual operations, a further opportunity existed to raise questions about the appropriateness of the system's original scope and structure\. None of this was done by the Govemment\. However, it is considered reasonable for the Govemment to have relied on advice of Bank staff on technical matters, given that it was acknowledged by both the Bank and the Government that there was inadequate accounting and IT expertise and experience within the Indonesian public sector\. 7\.5 Government implementation performance\. There is evidence that the Govemment's commitment to modernize its accounting practices existed initially\. However, political and economic uncertainty and confusion arising from events in 1998 and 1999 diverted attention away from "non-core" reforms such as those of this project\. Thus, funding for the acquisition of computers to enable a full rollout of the system has not been forthcoming in the current year's budget\. It is not known when this funding will be made available, even though by the closure of the project the Government had already cancelled $2\.3 million of the loan balance, with - 16 -  another $1\.45 million (unutilized balance) to be cancelled\. The decision to cancel the loan proceeds, as stated in paragraph 5\.4, was to reduce the amount of borrowing\. This decision was not based on the status of the project implementation\. Similarly, decisions on decentralization and GFS presentation of the State Budget need to be implemented through changes in the budgeting and accounting systems\. It is not evident, however, that any implementation planning has been undertaken or that additional resources will be made available for this purpose\. The political uncertainty at the time of this ICR preparation could once again divert attention from this reform effort\. 7\.6 Implementing Agency: BAKUN devoted the resources necessary to ensure that the project was carried out as planned\. However, given that this project encompasses all Government agencies, high-level management and leadership were needed for successful implementation\. It is difficult to say whether any other agency could have been more effective, given the economic and political environment of the past few years\. Except for initial delays in finalizing the consultants' contracts (which were not exclusively the responsibility of the implementing agencies), BAKUN, DJLK, and BAPEPAM were effective in project management, including compliance with audit requirements, procurement, and progress reports\. 7\.7 Overall Borrower performance: Based on the above analysis, the Borrower's performance was satisfactory for the Enhancing Accounting and Auditing Standard-Setting and Enforcement component, but it was unsatisfactory for the Modemization of Government Accounting System component\. Overall, the Borrower's performance is judged to have been satisfactory, although the ICR team has reservations about the Govemment's commitment to implementation\. 8\. Lessons Learned Lessons learned arise from a combination of factors that existed at point of entry and during the implementation: 1\. Given that the objective of the project was to improve public sector accounting, there is a lesson to be learned in terms of the Bank's allocation of human resources to design, implement, supervise and evaluate such a macro financial management-oriented project\. There should be an appropriate mix of public sector accounting and IT skills at various stages of the project cycle, to ensure that project design is appropriate to the needs of users and the country environment and that it remains relevant throughout the project cycle\. It appears that none of the team members at the various stages of the project had the requisite public sector experience and understanding that would have been helpful in realizing the ambitious design scope and the risks of - 17-  implementation of such a project in a public sector environment\. 2\. Supervision of all projects, especially those involving multi-year systems development, should be frequent and rigorous\. Objective assessments of project status and potential problems should be developed and reported in aide memoires in a timely manner within the Bank and to the Borrower\. It appears that no aide memoires were prepared for this project between October 1995 and February 1999\. 3\. Large complex IT projects should be avoided\. Experience elsewhere would suggest that the likelihood of large multi-year systems development initiatives being completed on time, within budget, and with desired functionality is low\. For accounting systems, off-the-shelf accounting packages are a preferable alternative\. Modifications to the software and related business processes may be needed to meet user requirements\. For significant changes to the off-the-shelf packages, pilot testing should be required as a risk mitigation strategy where implementation capacity is limited\. 4\. Comprehensive risk identification and mitigation strategies should be in place and effectively monitored in any large and complex information systems project\. 5\. The definition of "system implementation" for an IT project should specify that software consulting services must cover, at a minimum, one full production cycle of not less than three months of live production, and that system acceptance should not be signed off until the system has been implemented in a production environment\. 6\. The key objective of a project should be reflected in its performance indicators\. The performance indicators used for monitoring purposes should focus on output and outcome rather than input and processes\. 7\. It is important to acknowledge that there are no explicit Bank procedures which require that follow-on projects with complex functionalities should be approved only after successful completion of an ICR\. This lack of Bank procedures may have resulted in perpetuating an unsatisfactory project design for an unacceptably long time\. If there had been such explicit Bank procedures and if they had been followed for the Second Polytechnic and the First and Second Accountancy Development Projects, the flaws and hidden complexity of the original design might have been revealed sooner\. 8\. High level government commitment is crucial for success in any major reform program\. This commitment is needed not only from ministries but also from senior Govemment officials, who can make or break any reform efforts simply through their participation or lack of participation\. In the Government of Indonesia, the Director General of Budget (DG Budget), who controls receipts, payments, cash management, and budget reporting, was not involved in the project\. As a result, a key player did not have ownership and accountability of the project\. 9\. Human resource capacity of the country should be carefully evaluated prior to the provision of Bank advice on modemization and reforms\. The project objective was far beyond the technical and human resource capacity of the Government\. High-tech solutions will not work without the capacity to operate these systems\. It is important to note that some of the lessons learned (that is, Government commitment and risk mitigation strategy) were also mentioned in the ICR of the First Accountancy Development Project in 1995\. However, there is no evidence that these lessons had been considered either in the design phase or in the mid-term review of GAS 11 in 1998\. It is to be hoped that these and other lessons learned arising from this project will have more impact on future similar projects\. 9\. Partner Comments (a) Borrower/implementing agency: Please refer to Annex 7b for comments by BAKUN, the implementing agency for Government Accounting System component\. (b) Cofinanciers: - 18 -  Not applicable\. (c) Other partners (NGOs/private sector): Not applicable\. 10\. Additional Information An understanding of how the GAS II component was developed and evolved is necessary to understand the current state of its progress\. The idea of modernizing government accounting practices was first mooted in 1979 when the First Polytechnic Project (Cr 869-IND 1979) to improve accounting education and training was under discussion between the Bank and the Government\. A component of this project called for an extensive study of the need to modernize Government accounting practices\. A report was prepared by the consultants, the SGV Group, in October 1984 titled "Study on Government Accounting and Auditing Modernization in Indonesia: Major Findings on the Existing Budgeting, Accounting and Reporting System\." This study developed a detailed program of proposed measures to modernize Government accounting\. The most important changes called for in the report were: * Double entry accounting in order to improve accuracy and completeness of Government accounts; * Consolidation of central accounting to improve timeliness, accuracy, consistency, and completeness of reports on overall Government revenues and expenditures\. The responsibility to maintain a Government wide accounting and reporting system was to be given to a State Financial Accounting Center of the Ministry of Finance; * Improved agency accounting to provide better support to agency programs and project managers\. This meant that the responsibility for maintaining basic agency accounts was to be decentralized to the lowest level, namely, programs via spending units and projects\. Expenditures were to be classified in agency accounts by program/project and category of expenditure; * Introduction of balance sheet accounting to support enhanced accountability for State investments through the notion of Government equity by distinguishing capital items from Government revenues and expenditures and by reporting them as assets and liabilities; and * Introduction of a Uniform Chart of Accounts to ensure consistency of recording and reporting\. This project was followed up in the Second Polytechnic Project (Loan 2290-IND), in which the proposals were further developed and tested in 1987-1988 in three provinces and covered expenditures and revenues effected through the relevant Central State Treasury offices and selected spending units of three agencies and the Special Fund (Bagian Anggaran 16)\. The program that was developed and tested was on a fully manual basis\. The First Accountancy Development Project (Loan 2940-IND) was proposed in April 1988 and included a component to fully implement the measures developed and partially tested under the Second Polytechnic Project\. This component involved four main accounting subsystems: - 19 -  * The Central Accounting System (CAS) to enable the preparation of reports of budget realization and statements of assets, liabilities, and government equity in an accurate and timely manner and without dependence on the prior completion of reports by the agencies\. * The Central State Treasury Accounting System to provide MOF with centralized accounting for all of the Govemment's cash resources\. * The Agency Accounting System (AAS) to provide agency management with better information to monitor and control budget implementation at the program and project level\. * The Special Fund System (Bagian Anggaran 16) to provide accounting for the special fund managed by the Minister of Finance through the Directorate of Budget Administration\. This fund includes budget allocations for pension payments, subsidies to local governments, investments in State enterprises, and receipts and payments of foreign loans\. This project was designed to result in a new Government accounting framework and systems with 100 percent manual operations, although the feasibility and desirability of computerization was to have been evaluated during the life of the project\. The project was amended in 1989 when it was realized that computerization was necessary because of the need for extensive reconciliation of data from different sources, the volume and complexity of transactions, and the duplication of processing activities between CAS and AAS\. The computerization was undertaken in stages commencing in financial year 1990-1991 and was due to be completed in June 1994\. In late 1993, it was realized that the technology used in the development of the Govermnent Accounting System would restrict its long-term viability and future procurement activities\. GAS I was developed and implemented using DEC-VAX computers that used proprietary platform and operating systems\. The Second Accountancy Development Project was proposed and negotiated in late 1993 and early 1994, culminating in a loan agreement in October 1994\. The project had a narrow focus on the GAS component\. Its aim was to provide funding to transfer the hardware and application software onto an open system platform and relational database management system using fourth-generation language to ensure its future operational and maintenance viability\. The basic accounting arrangements and business processes, for example, the roles, functions, and relationships of various parties within the recording, processing, and reporting processes were accepted as given\. Thus, project management and Bank supervision activities under GAS II focused on meeting the deadlines of various subcomponents culminating in the delivery of the software and software installation in BAKUN's regional offices\. Consideration of the original objective, namely, the improvement of timeliness, accuracy, consistency, and completeness of reports to Parliament, Government, and agencies, is not in evidence\. The possible or potential impact of changes in the political environment and Government structure was not discussed in either the staff appraisal report or the midterm review in November 1997\. - 20 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Annex la\. Outcome/lmpact Indicators A\. Major Technical Assistance Contracts Al\. GAS R\.2\.0 Development and 549 staff months 524 staff months Implementation and Acctg\. System Information Management A2\. GAS R\. 1\.0 Management and 89 staff months 112 staff months Maintenance A3\. Capital Markets Regulation and 387 staff months 371 staff months Development A4\. Accounting/Auditing Standards 797 man months 598 man months Development and Accounting Profession Development B\. Overseas Degree Program B1\.Computer/information Sciences -BAKUN 4 Students 2 Students -BAPEPAM 1 Student 0 B2\.Business Administration -BAKUN 0 1 Student -BAPEPAM 7 Students 17 Students B3\.Accounting -BAKUN 0 1 Student -BAPEPAM 12 Students 2 Students B4\. Law -BAKUN 0 0 -BAPEPAM 4 Students 13 Students B5\. Statistics -BAKUN 0 0 -BAPEPAM 1 Student 0 Annex lb\. Output Indicators Detailed approach and work plan for Adopted in January 1997 and the first professional accountant qualifying examination took place in October 1997 examinations adopted by 30 June 1996 GAS R\.2\.0 requirements documents Completed on 30 June 1997 -21-  completed by 31 July 1996 At least 15 accounting and 15 auditing 4 standards adopted on 6 October 1997 standards officially adopted by 31 May 1997 At least 18 (18-29)overseas degree program 8 candidates enrolled in September 1996 candidates enrolled by 30 September 1997 9 candidates enrolled in September 1997 At least 30 new rules and 10 disclosure Completed on 31 October 1997 guidelines for regulation of capital markets adopted by 31 October 1997 Pilot data communication system Completed on 30 September 1998 implemented by 30 November 1997 Acceptance test of GAS R\.2\.0 successfully Completed on 31 August 1998 completed by 30 November 1997 40 accounting and 15 auditing standards A total of 25 accounting and 17 auditing officially adopted by 31 July 1999 standards were adopted by project closure -22 -  Annex 2\. Project Costs and Financing Annex 2a Pro-ect Cost by Component (in US$ million eouivalent) Appraisal Actual/Latest Percentage of Proect costs by Component Estimte0 Estimate ApDpraisal (UiSS mitlion) (S Minlion BAKUJN 15\.30 13\.50 88\.28 BAPEKSTA 0\.73 0\.19 26\.49 DJLK 5\.31 1\.37 25\.79 BAPEPAM 10\.62 4\.70 44\.30 EKKU 0\.24 0\.01 0\.00 PSSU 1\.75 3\.64 207\.47 OTHERS 0\.00 0\.58 0\.00 Total Baseline Costs 33\.95 23\.99 70\.66 Total Project Costs 33\.95 23\.99 70\.66 Total Financing Required 33\.95 23\.99 70\.66 Annex 2b\. Pro iect Costs by Procurement Arran2ements (in US$ million equivalent) /a Expenditure Procurem0ent method Procurement Method actual/latest estimate Oategories Ap raisal Estimate________ ICB Other NCB NBF Total ICB OtherLb NCB NBF Total Equipment: 4\.1 4\.1 1\.72 0\.15 0\.61 0\.21 2\.48 Data (4\.1) (4\.1) (1\.72) (0\.15) (0\.61) (2\.48) Processing Equipment Data 1\.2 1\.2 1\.35 0\.52 0\.14 2\.01 Processing (1\.2) (1\.2) (1\.35) (0\.52) (0\.14) (2\.01) Software Technical Assistance: Foreign 16\.2 16\.2 10\.18 0\.11 0\.02 10\.31 &Local (12\.8) (12\.8) (10\.18) (0\.11) (10\.31) Specialists Provided by Firms Foreign 0\.4 0\.4 0\.91 0\.91 Individuals (0\.3) (0\.3) (0\.91) (0\.91) Local 0\.7 0\.7 0\.01 0\.01 Individuals (0\.6) (0\.6) (0\.01) (0\.01) Overseas 6\.0 6\.0 3\.94 3\.94 Training (6\.0) (6\.0) (3\.94) (3\.94) In-Country 1\.6 1\.6 0\.27 0\.27 Training Miscellaneou 3\.7 3\.7 3\.85 3\.85 s I Total 5\.3 23\.3 5\.3 33\.9 3\.07 15\.71 0\.86 4\.35 23\.99 _ (5\.3) (19\.7) (25\.0) (3\.07) (15\.71) (0\.86) (19\.64 /a Figures in parentheses are the respective amounts financed by the Bank loan\. /b Consists of direct contracting of firns/individuals\. - 23 -  Annex 2c\. Pro-ect Financing by Component (in US$ million equivalent) Component AP ralsal Estimate Actual/Latest Estimate Percentage of Appraisal Bank Govern- Co- Bank Govern- Co- Bank Govem- Co- ment financier ment financier ment financier BAKUN 10\.9 4\.40 N/A 10\.68 2\.81 N/A 97\.98 87\.81 N/A BAPEKSTA 0\.4 0\.33 N/A 0\.14 0\.05 N/A 35\.00 - N/A DJLK 4\.9 0\.41 N/A 1\.24 0\.13 N/A 25\.31 130\.00 N/A BAPEPAM 8\.6 2\.02 N/A 4\.50 0\.20 N/A 52\.33 11\.76 N/A EKKU - 0\.24 N/A - 0\.01 N/A - 10\.00 N/A PSSU 0\.2 1\.55 N/A 3\.07 0\.56 N/A 1,535 - N/A MISC\. - 0\.00 N/A - 0\.59 N/A - 15\.95 N/A TOTAL 25\.0 8\.95 19\.63 4\.35 - 24 -  Annex 3\. Economic Costs and Benefits Not applicable\. - 25 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performarnce Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation January 1994 2 1 Financial Sec\. Specialist 1 Auditing/Accting Advisor Appraisal/Negotiation April 1994 2 1 Financial Sec\. Specialist I Auditing/Accting Advisor Supervision November 2000 1 Financial Mgmt Officer S S February 2000 4 1 Princ\. Fin\. Economist S S 1 Financial Mgmt\. Specialist I Systems Advisor I Inst\. Dev\. Spec\. August 1999 1 1 Systems Advisor S S May 1999 2 1 Princ\. Economist S S I Systems Advisor April 1998 4 1 Sr\. Financial Specialist S S 1 Database Coordinator 2 Consultants November 1996 4 1 Technology Specialist S S 2 Financial Specialists I Auditing/Accounting Advisor October 1995 4 1 Financial/Accouting Advisor S S 1 Information Tech\. Specialist 1 Operations Officer I Financial Sector Specialist ICR January 2001 2 Financial Mgmt\.Specialist Consultant Notes: 1\. Performance Ratings for "Identification" and "Appraisal" stages are not available\. 2\. November 2000 mission, Implementation Progress was rated "U" for the GAS II Component\. (b) Staff' Stage of Project Cycle ! Actual/Latest Estimate |___ __ _ No\. Staff weeks US$ ('000) Identification/Preparation 17\.1 77\.9 Appraisal/Negotiation 22\.6 122\.4 Supervision 77\.6 375\.7 ICR 14\.0 (est) 45\.7 Total 131\.3 621\.7 - 26 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating E Macro policies O H OSUOM O N * NA O Sector Policies OH OSU*M O N O NA E Physical O H OSUOM O N *NA O Financial O H OSUOM O N * NA O Institutional Development O H O SUO M O N 0 NA O Environmental O H OSUOM O N * NA Social LI Poverty Reduction O H OSUOM O N * NA El Gender OH OSUOM ON *NA 0 Other (Please specify) O H OSUOM O N * NA O Private sector development 0 H O SU O M 0 N 0 NA , Public sector management 0 H O SU 0 M 0 N 0 NA a Other (Please specify) O H OSUOM O N * NA - 27 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating F Lending OHS OS *U OHU E Supervision OHS OS * u O HU Z Overall OHS OS * U O HU 6\.2 Borrowerperformance Rating ? Preparation OHS OS O U O HU F Government implementation performance O HS O S 0 U 0 HU F Implementation agency performance OHS OS O U O HU N Overall OHS OS O u O HU Note: Bank overall performance is rated satisfactory for Component 2: Enhancing the Accounting and Auditing Standard-Setting and Enforcement\. - 28 -  Annex 7\. List of Supporting Documents Annex 7a 1\. Implementation Completion Report: Indonesia Accountancy Development Project (LOAN 2940-IND) 4 January 1996 2\. Minutes of FEPS Review Meeting 23 December 1993 3\. Minutes of the Yellow Cover Review Meeting 25 April 1994 4\. Pre-Negotiation Package 5 July 1994 5\. Aide Memoires: * 16-19 October 1995 * 21-29 February 1999 * 30 April- 4 May 1999 * 1-16 February 2000 * 30 October-2 November 2000 * 22 January-l February 2001 6\. Mid-term Review Report 23-28 March 1998 7\. Draft Strategic Plan for the Technical Development of Ministry of Finance (MOF) 8\. Draft Government Regulation on Financial Information -29 -  Annex 7b GOVERNMENT ACCOUNTING SYSTEM COMMENTS ON THE DRAFT ICR No\. ISSUES IN ICR COMMENTS FROM BAKUN COMPONENT 1\. 1\. Proiect Data No comment\. 2\. 2\. Principal Performance Ratiny s Please refer to the comments in items 4\.7 and 6 of this Comments on the Draft ICR\. Outcome: Unsatisfactory Sustainabi]ity: Unlikely 3 3\. Assessment of Development Firstly, we do not agree with some of the weaknesses identified with GAS I for reasons Obiective and Desien\. and of explained in the following paragraphs\. Secondly, on the problems that did exist (lack of Oualite at Entry (P\.3) control over account coding and transmittal of data) , we do not agree that these problems A number of design and were weaknesses in GAS I design, and subsequently in GAS 11\. Instead they should be implementation weaknesses in the viewed as organizational constraints which impact on the design of GAS I and GAS II\. design of Government theountmg However, we agree that this is a matter which has to be addressed and resolved by the System I (GAS I) under the First goenntithim daefur\. Accountancy Development Project goverment in the immediate future\. were carried on in a detrimental manner to the design of the Second System Complexity: 3\.1 Accountancy Development Project\. * Because of the way the Ministry of Finance is organized and the manner in which The unresolved GAS I problems can functions are delegated, BAKUN (I) has very little influence over account coding, (2) has be summarized as follows: no control over the accuracy of the actual coding of accounts in the accounting source * System complexity-GAS I was documents, and (3) has no control over the bank account statements/records\. designed as a large complex system\. , As such, tight controls should have \. timely transmission of datafrom thousands of local agencies to the Central Accountin been developed, but were not over Svstem"\. This statement is not accurate because the basic data being processed by BAKUN such activities as account coding, comes from the Budget Administration Offices(KTUA) in the regions and the Directorate timely transmission of data from General of the Budget Head Office\. Data from the agency accounting units (less than 1000 thousands of local agencies to the present because only 4 departments require regional accounting units in provinces outside Central Accounting System, and Jakarta, compared with about 23 departments before the reorganization - other departments reconciliation of detailed accounting have offices only in Jakarta) are needed only (1) if there are corrections to be made in data records with cash balances per bank generated by BAKUN at the KARs, and (2) to post the fixed asset data from the agencies to records\. the Central Accounting System\. The delay in transmission of data from the Budget Treasury Administration Offices (KTUA) to the Regional Accounting Offices (KARs) is due to existing organizational arrangements where transactions of the State Treasury Offices must be verified by the KTUA before documents are forwarded to the agencies and BAKUN\. Thi set-up cannot be changed now because the procedures performed by KTUA still support th existing single entry system in the agencies\. Changes in this arrangement can be made only after the single entry system is replaced by GAS II\. * GAS I did not address the cash reconciliation aspect because at the time it (GAS I) was being implemented, not all agencies and provinces were covered\. Since many cash transactions were not yet being processed, cash reconciliation was not possible and would have been a futile exercise\. 3\.2 * Accounting basis - GAS I required \. The budget of the Central Government is formulated based on the cash principle\. Both the use of double entry bookkeeping GAS I and GAS II accounts for budgetary transactions based on the cash principle\. Thus the and balance sheet accounting\. The budget realization reports give a comparison between the budget and actual results using Parliament and Goveoment use tnihe cash basis\. The capture of actual fixed asset data in GAS II (this feature was not yet presen single entry/cash basis of accounting in GAS I) aims to supply the system with fixed asset data needed for the balance sheet\.(Th for budgets and appropriations\. decision to include fixed assets in the balance sheet was a govemment decision\.) This adde \.The design of GAS I did not reflect feature does not in any way impact on the budget accountability reports\. a fundamental management principle-namely that accounting and * The decision to develop an accounting system using double entry bookkeeping was made reporting systems are tools for by the government at the urging of the World Bank\. This was a requirement in the Terms ol control and accountability by Reference for the initial study\. During the early stages of GAS development, the management (i\.e\., Parliament and the government was half-hearted in supporting this effort, but through the years the Governme: - 30 -  Government in this instance) in its had come to accept it as the better alternative to single entry\. The decision to adopt double planning and control operations\. It is entry is more urgent now with pressure from the IMF and the WB for the government to not sensible to account on a different adopt the new GFS (which calls for the use of double entry) \. We believe questioning the basis since the recipients of the use of the double entry system for GAS I and GAS II is not appropriate at this time because reports do not have comparable it will only generate confusion and doubt in the minds of people about what really is the information to judge performance or best practice\. Moreover, it will simply throw back the criticism on the WB, since it was the accountability\. original sponsor of this move\. "It is not sensible to account on a different basis since the recipients of the reports do not have comparable information to judge performance or accountability\. " This argument is ni accurate because, if a government is using single entry at a given time, it does not follow that it cannot decide to shift to double entry in the future\. At any given time, the govemmer or any institution for that matter, can only have one official accounting system\. Today it is the single entry system\. Hopefully, in year 2002 it will be the double entry system\. We therefore suggest that this item be deleted from the draft ICR\. 3\.3 * Level of detailed information- GAS When GAS I was developed, the budget system did not yet have a standard chart of accoun I required that expenditures be for revenue and expenditure\. The accounts and codes used in accounting documents ar distinguished between capital and reports generated by the state treasury in the head office were different from those used b current items at the program/project treasury offices in the regions and from codes used in budget documents\. But, without level whereas the budget standard chart of accounts there can be no accounting system\. GAS I proposed a chart appropriations to agencies did not accounts which distinguished between capital outlay and current operating expenditures\. Tt require that detailed distinctions be proposed chart of account was adopted to a large extent and has and standard accounts hax made\. been used for budget, treasury, and accounting purposes since 1994\. Before that, GAS I ha to convert the budget codes into the proposed accounting codes\. Since this problem wE corrected before GAS II development started,we suggest that this item be deleted from th ICR\. 3\.4 * Delay in implementation of GAS I - The delay in the implementation of the 2nd and 3rd Priority Accounting Modules of GAS GAS I was to have been implemented was brought about by the modifications in the documentation of budget and treasui by 30 June 1994\. However, the transactions as a result of the decision to adopt the new chart of accounts (item 3\.3)\. Th implementation was delayed\. move necessitated changes in many programs which had already been completed\. The design and preparation of GAS II However, apart from delays caused by the late start-up, it should be recalled that, from th took place before GAS I had been very start, the implementation of GAS I was planned to be a phased implementation (fi Implemented and, as a result , the reasons that are too many to explain in this paper), where each year 5 to 6 new Departmen Second Accountancy Development and 4 to 5 new provinces were to be added to area covered by the implementation\. (Trainin Project became effective in of agency accounting and computer operations personnel in each province is necessary befoi December 1994, prior to the closure implementation could start\.) As of FY 1994/1995 only 12 of 27 provinces and 18 of 3 of the First Accountancy agencies have been covered by the implementation\. Development Project in 1995\. None of the above problems with GAS I The phased implementation plan for GAS I was approved by the WB and was adhered X were highlighted in the from the time GAS I was implemented as a partially computerized\. Before the decision t Implementation Completion Report\. develop GAS II, it was planned that by year 1997/98 all agencies and provinces would hax (ICR) or the First Accountancy been fully covered by GAS I implementation\. When GAS II development started, the W Development Project Supervision Mission urged BAKUN to not to expand the implementation of GAS I in tt remaining agencies and provinces, but continue GAS I implementation in the agencies an regions already been covered as of FY1995-96\. However, by FY 1997-98, the govermne resumed training and implementation in the remaining agencies and provinces (usir govemment Rupiah funds) to hasten the leaming process, particularly on basic accountinl and so that the momentum and enthusiasm of agencies will not be lost\. GAS I was routinely producing the monthly, quarterly and annual financial reports for tl agencies (for all levels), the central government and the Central State Treasury when i implementation was discontinued in 1998 and GAS II was phased in\. We wish to emphasi, that during the time GAS I was being implemented (after it was completed and debugged i 1994-1995 and 1995/96), with the exception of intermittent problems brought about by tlb two issues on account coding and data transmission, there were no significai implementation problems that should have been considered serious concemns during tf development of GAS II\. - 31 -  3\.5 It appears that the above Out of the many issues raised in this section 3 of the Draft ICR, the only ones that trul inadequacies in the design and had a continuing impact on GAS II are: (1) BAKUN has very little control over the accoui implementation of GAS I were not coding, (2) BAKUN has no control over the quality of data in the accounting sour( taken into consideration in the design documents, and (2) delay in the transmission of data from KTUA to the KARs\. of GAS II, and thus inadequacies were carried over to GAS II\. During In view of these observations, we feel there is a need to revise this section of the report so the design and preparation of GAS II, that it will reflect the real situation\. no one questioned: * The appropriateness of the system complexities, accounting basis or level of detail in GAS I; or * The reasons for or implications of the delay in implementation of GAS I Rather than reviewing the adequacy of the underlying framework of GAS I, it was accepted as the starting point for GAS II, even though it had nor yet been implemented\. Given the lack of public sector accounting and IT expertise in Indonesia at the time GAS II was designed\. The Bank should have recognized the problems inherent in GAS I and should have advised the Government appropriately during the design of GAS 11\. 4 4\. Achievement of Obiective and outputs (P\.4) The system has not worked as planned 18 months after the consultants formally completed the contract for the following reasons: 4\.1 Para\. 2 : The fact that the system 1 Modifications had to be made in the programs because: has not worked as planned 18 months lBudget formulation and approval was decentralized, and budget data had to be obtained after the consultants formally from and processed in the provinces\. Before, these activities were centralize, and budget are incomplete, some reports are still data was obtained by BAKUN from only one source, the DGB Head Office\. awaiting agency confirmation and/or * The budget format was changed from the balanced budget to the deficit budget format\. clarification and, more importantly, This affected the chart of accounts, posting rules, reports and validation rules\. the old manual system (i\.e\., the * Interface programs to transfer data from the DGB (KTUA) to BAKUN had to be modified system before GAS I) is still in use because there was no consistency in the format/data structure of data coming from the more 12 years after the initiation of the than 30 KTUJA\. First Accountancy Development 2\. The regional and fiscal autonomy laws came into effect with the following impact: Project indicate serious deficiencies * There was a series of reorganization resulting in the dissolution of many departments\. in the planning and execution of the Master data as well as data processing problems resulted because there was confusion as to First and Second Accountancy which remaining/new agencies are responsible and should be charged for expenditures of Projects\. The reasons for this state of projects / offices which previously belonged to the dissolved agencies\. affairs appear to be many: * Budget allocation documents oftentimes did not contain all the relevant codes (particularl, for offices/projects which used to be under the dissolved agencies)\. Thus, both the budget and cash disbursement data received by GAS 11 either did not contain all the necessary code or were assigned the wrong codes\. * It was not clear which new agencies/departments should be credited for revenue which used to be credited to dissolved agencies\. * Account codes which have already been removed from the chart of accounts were still being used\. * Since GAS II validates the data received from the DGB against the master data, erroneously coded transaction received from the DGB were automatically rejected by the system\. 3\. There were bugs in the system which had to be corrected\. (This is a contributing factor n\. the only cause of the delay\.) - 32 -  With regard to the use of the old system, it has already been explained earlier that from the start of GAS I implementation, the plan had been to undertake a phased implementation\. The original target of FY 1997/1998 was set back when the decision to develop GAS II was made\. GAS II development used up another 3 years\. We should therefore not gauge the performance of GAS II against the 12 years which has transpired but in terms of the revised implementation plan, which is 1997/1998 plus 3 years\. 4\.1 * The system requires data from the If the statement (in Italic) means that data is received from the lowest level agency spendinl lowest levels of government (i\.e\. units for processing and posting to the central government accounts , this is not accurate as program/project) to flow upward mentioned in section 3\.3\. However, if it means that data is captured by the system to provid several levels to the central details for reporting to the lowest level agency spending units, and aggregated upwards foi government accounts\. Without higher level reporting, then your statement is correct\. stringent control of coding and clear assignment of responsibility for this Why was the system designed to capture data from the lowest level agency spending unit? control, data becomes unreliable The manually designed GAS called for the maintenance of agency general ledgers by the when there are changes to agencies themselves, while BAKUJN will maintain the general ledger for the central program/project codes either because government accounts\. BAKUN was to provide both systems List of Transactions and the of changes in the government journal voucher to minimize discrepancies in the posted data\. structure (i\.e\. merging or splitting of departments, provinces) or changes When the decision to computerize the system was made, a Senior Adviser recommended, in the uniform chart of accounts and BAKUN, the World Bank and SGV Consultants agreed that accounting data processing structure to comply with GFS from data entry to the maintenance of the general ledger be centralized in BAKUN (KAR)\. requirements\. BAKUN shall provide the agencies with the GL details needed for verifying posted data an( for preparing their financial reports\. In view of this, it was necessary for the system capture all details needed for reporting on the budget realization of the lowest level spending units of agencies, namely offices and projects\. This decision was made for the following reasons: 1\. Centralization of the GL maintenance activities at BAKUN will reduce the cost of systems development maintenance and implementation because only one system had to be developed\. This would not have been the case if the agencies had to have their own accounting system separate from the central accounting system that would be run by BAKUN\. Furthermore, control over the maintenance of the agency accounting system wouli have been difficult if not impossible because each agency can make changes in its own accounting system\. 2\. The primary source documents for the accounting system came from the DGB\. By centralizing the data processing in BAKUN the government will save a lot by performing only one data entry operation instead of two, which would have been the case if the agencie maintained and implemented a separate agency accounting system\. 3\. Agencies did not have the capability to develop, implement and maintain a full scale computerized and decentralized agency accounting system\. Very few agencies had accountants in the agency Head Offices and definitely there were none in the regions\. The government did not have the capability and resources to simultaneously develop and implement two separate systems\. 4\. Separate data processing for the agencies and the central government (Ministry of Finance) would result in serious reconciliation difficulties\. In fact it would be almost impossible to trace the cause of any differences between data reported by agencies and data reported BAKUN because each one can make errors in any stage in the accounting cycle\. It is worthwhile to note that contrary to the custom in other countries where discrepancies between reports generated two separate systems are tolerated, auditors, government report users, and decision makers in the country make a case against unreconciled figures in reports\. This explains the emphasis placed on the need to produce reconcilable accounting reports\. 4\.2 The changes in the government When the changes in the government and budget structure took place, 2 and 1/2 years structure since 1998 and the effects I structure hanges 199and the workaity design, programming and testing work had been completed\. At the time the specificatiox of these changes on the workability and designs were developed no one could have known that changes were going to take plac of the system were not recognized or much more anticipate where it was going\. It would have been too much for anyone to expe taken into account during the the Consultant to make changes at that time, especially since in 1998 no one knew tI relevant developmentiphase\. The direction the government was going \. Most of the changes only occurred when fie] the implementation of the fill GFS implementation was already taking place\. - 33 -  classification framework will ensure an unstable environment in which the system is likely to be unreliable or perhaps even unworkable for the next 3 to 5 years\. 4\.3 * Data is currently received by Please refer to the comments on item 3\.1 on timely transmission of data (page 3)\. BAKUN's regional offices (KARs) from the relevant regional offices of budget administration (KTUAs) about one and a half months after payments are made by the regional offices of the Central State Treasury (KPKNs)\. An additional minimum of one month is required for processing by the KARs if there are no major errors or unusual transactions\. Thus timely reporting is almost impossible right from the start of the process\. 4\.4 * The design of the system requires The system can produce the central accounting reports for reporting to Parliament on the the timely cooperation of all units of budget realization even if no feedback is received from the agencies\. While it is true that all agencies to verify data and to inaccuracies can occur because the KARs may can make errors in data entry or in editing provide prompt feedback to KARs for transactions data, it would be no different if the system were developed and implemented a! data correction purposes\. Unless this two separate systems, with the central accounting system (CAS) working independently of cooperatson ts forthcomiag, the the agency accounting system (AAS)\. In the latter case, no one will be verifying the output outputs of the system are unrehable of either the CAS or the AAS\. Under GAS I and GAS II, at least there is still a chance that or wcomplete; mn some cases the the agency will discover and correct the mistakes made by the KARs\. whole system may not work if data from the lowest level is wrongly On the question of wrong coding, since it is the State Treasury Offices that code the coded\. This cooperation has been documents used by BAKUN and by the agency, the agency accounting units (if they are to patchy resulting in incomplete and operate independently) will have the same problems that the KARs have in the processing c untimely reporting\. It is understood these transactions\. that BAKUN has been working on The cooperation of all agency accounting to verify data and to provide feedback to KARs u improving this cooperation and some \. d improvement has been achieved\. now supported by the Minister of Finance Decree number 295/KMK012/2001\. * The consultants did not deliver Age standard operating procedures or reconciliation programs for the reporting unit in BAKUN head office because of a difference of opinion as to whether this was part of the contract, Thus the reconciliation and verification of PAN reports (PAN report is a budget realization report to Parliament, an exposure account of the result of funds for government operations) with other independently prepared reports, such as those produced by the Directorate General, Budget or by agencies, have been manually undertaken by BAKUN head office staff\. This is time consuming and has generated a lack of confidence in the accuracy of GAS II reports\. 4\.6 * To date there are still program The Head of BAKUN has already written a letter to the Head of DG Budget to allocate fun( errors which need fixing\. This may for agencies for computer hardware procurements\. However, the financial difficulties face be a bigger challenge when the system is rolled out to all agencies\. by the government at present should always be considered\. At present, only about 20% of the - 34 -  agencies have computers to enable usage of the system at the lower levels\. 4\.7 * The Terms of Reference allowed As mentioned earlier, the delay in the start-up of GAS II live implementation for FY the consultants to formally conclude (1999-2000) are caused primarily by factors beyond the control of BAKUN and the the end of March 1999\. This was Consultant\. The terms of the contract cannot justify keeping the Consultant beyond March well before the start of live 1 implementation in August 1999\. The Please refer to comments in item 5\.2 page 9 of this paper\. procedures for the acceptance testing were inadequate in detecting any programming/ systems errors\. Scarce IT skills and resources in BAKUN have made implementation progress and correction of bugs identified during live production very slow\. 4\.8 Outputs by Component -Comnonent (P\.6\. item 4\.2) Before you rate the project as unsatisfactory, we would like you to take these things ini \. The delivery of a working consideration: production system seems to have When the GAS study started in the 1980s, been lost in the process\. Therefore, * There was no accounting system at the central accounting office (Directorate for State the projects outcome is considered Financial Accounting or DSFA, now BAKUN)\. Annual budget realization reports to unsatisfactory as it failed to achieve Parliament were prepared by the DSFA by compiling data from the annual budget the development objective of realization reports submitted by the agencies and the Directorate General of the Budget modernizing the Government (DGB Accounting System\. * Agency accounting (single entry) was centralized at the department/agency head office\. Agency accounting records were maintained by agencies following reporting guidelines issued from year to year by the DSFA\. The agencies only produced annual budget realizato reports for the Ministry of Finance\. Since no accounting activities were done in the regions, no budget realization reports were generated for the spending units ( offices and projects) aswell as for regional and echelon I level units\. * There was no formal state treasury accounting although treasury offices maintained daily cash transaction records and prepared daily cash reports\. * No clear accounting policies and standards governed the record keeping activities performed by the agencies and DGB\. * Very few government agencies had personnel with accounting training/education\. * There was no standard chart of accounts for revenue and expenditure\. At the present time: * A formal, double entry accounting system encompassing central accounting, agency accounting, and treasury accounting has been developed, computerized and implemented in all central government agencies in all provinces\. The Government has targeted Year 2002 for converting from the old single entry system to GAS II\. * The agency accounting system is decentralized and is now being implemented in the regions (by the agency regional offices,not spending units) \. GAS I and subsequently GAS I are capable of generating financial reports for the lowest level spending units upwards to the department level\. * Thousands of government personnel all over the country have been trained both on the theory and on the implementation of the govemment accounting system\. * The government has adopted a standard chart of accounts for budgeting, treasury and accounting\. * Improvements have been made in the budget and treasury procedures to facilitate better accountability\. * The govemment has developed the exposure draft of the government accounting standard! Public discussions on the draft are on-going\. In any system that is tailor-made, bugs can be expected to occur even after a thorough - 35 -  systems test and trial implementation has been done, because it is not always possible to replicate field conditions for a complete accounting cycle - particularly those involving reports comparing data for two years or more\. This is especially the case in complex systems like GAS I & 11\. Aside from bugs, implementation problems also arise because govemment staff implementing the system still have to learn and adjust to the new system\. Unlike developed countries which have an abundant supply of well trained and skilled accountants and computer personnel, govenmnent staff in this country, especially in the regions are not as skilled\. GAS 11 implementation started at a time when fundamental changes were taking place in the country and in the govermnent\. The government revised the budget format by adopting deficit budget framework (vs\. balanced budget)\. The regional and fiscal autonomy laws came into effect resulting in a series of reorganization, and changes in budget structure and financial operations\. These developments have created a lot of confusion in the budget preparation process and in budget execution, causing many documentation problems (particularly coding of accounts), all of which impact on the timeliness of implementation and the quality of the output of GAS 11\. The task which BAKUN had to accomplish to date was enormous\. It was not just a case of developing, and implementing a govemment accounting system\. It involved institution anc capability building in an environment which for a long time was "unsympathetic" towards the idea of modemizing the accounting system\. The development and implementation of the GAS was a pioneer undertaking which, as I\. as we know has never been done before in other countries on a similar scale\. Thus there were no experiences to draw from\. It is true that there are other countries with government accounting systems which could serve as models for developing new systems\. In fact a number of Senior Advisors to this project had extensive govemment accounting experiences from developed and developing countries\. But which country has similar budgeting and treasury systems, and organizational arrangements as Indonesia? Which ones developed and implemented tlle accounting systems from scratch, trained all accounting staff on the basics of accounting\. an trained computer staff with minimal experience on how to maintain computerized accounting systems? In the final analysis, a country has to develop a system which would satisfy its requirements under existing environmental constraints\. We believe that the two projects (First and Second Accountancy Development Projects) should not be evaluated in terms of one absolute criteria, which is that GAS 11 should be running smoothly, and complete and accurate reports are generated as of a specific target date\. Instead, the accomplishment of these two projects should be evaluated in its totality\. We believe the aforementioned accomplishments of the two projects should be considered when making an overall assessment of the project\. In view of this, we disagree to the "Unsatisfactory" rating given for "Outcome"\. A unsatisfactory outcome can be interpreted as the failure of GAS 11, and this can be used 1 other sectors with ulterior motives as a basis for forcing the govemment to completely stc implementing the system\. 5 Maior Factors Affectine Imulementation and Outcome The primary cause of delays in the implementation of GAS 1I were developments outside tl 5\.1 P\.9\. Item 5\.2 :It is reasonable, control, not only of BAKUN, but of the Ministry of Finance (MOF) as well\. The adoption therefore, to assume that BAKUN the GFS framework in budget preparation was required by the IMF, the adoption of tl would be the source of instruction regional and fiscal autonomy laws was passed by Parliament in 1998, and the series i advice/guidance on all accounting reorganizations was by Presidential Decree\. These events occurred after GAS 11 had be( matters, and a key player in developed, tested, and trial implemented\. Neither BAKUN nor the MOF could hai influencing other offices within MOF influenced these decisions or anticipated the impact of these events on GAS 11\. and other agencies to adopt measures that were necessary to ensure the It is true that, as the agency responsible for the accounting function, BAKUN should be ab operational capability of its system\. to lay down the rules and guidelines to be followed/observed by government agencies (DG The reality was otherwise in that included) to insure that the accounting function is properly carried out\. But it should t BAKUTN appears to have reacted to noted that, unlike in other countries where this role has already been recognized an events rather attempting to influence - 36 -  accepted, in this country this is a very new development\. Acceptance takes time\. And sinc them; BAKUN seems to have been a BAKUN does not have jurisdiction over budget and treasury operations, it does not have tF marginal participant in the decision authority to compel DGB to take stringent measures to ensure that data flowing from DG making process\. to BAKUN satisfy GAS II requirements, both in terms of quality and accuracy\. There a] organizational constraints which limit BAKUNs actual authority\. 5\.2 P\.9, Item 5\.3: Management It is not true that the Consultant just claimed full performance and disappeared 6 montl effectiveness by BAKUN was also before live production\. They were involved in live production, although we referred to th lacking in that the contract was such as trial implementation because it only covered 3 months live transactions covering tl that the consultants were able to period April to June 1998 (for Fiscal Year 1998-1999), not one year's transactions\. The claim full performance and disappear monitored the implementation for 6 months from the start of GAS II trial implementatioi from the project 6 months before During this period they debugged the system and made modifications as required t "live production" of the system\. To BAKUN\. In addition, there was a further warranty of 6 months were the Consultai have a contract that enables the continued debugging the system\. It was the live production for the following fiscal year consultants to finish before "live" FY1999-2000) that suffered a delay in the start up because of the problems/developmen implementation indicates insufficient mentioned in the preceding sections\. attention givento contractual Note: The contract with PT Ernst & Young was signed on December 15, 1995\. Tri\. negoqeaton and tmadequate implementation in all KARs using live data for April to June 1998 started G subsequent contract managementc October-November 1998\. PTE&Ywas releasedfrom the contract in November 1999\. The ICR of the First Accountancy Development Project suggested that a pilot implementation by all units and agencies in one province should be undertaken to ensure that the reports emerging from the new system could be used as the basis for comprehensive evaluation prior to a full scale implementation\. 6\. Sustainability '\.apparent lack of commitment/appreciation by the Government and high level 6\. Sustainability bureaucrats to the importance of this task\.' The situation has changed significantly under It is unlikely the govenmment the leadership of Dr\.Mulia Nasution\. On April 19, 2001, the Minister of Finance issued a Accounting System II (GAS II) will Decree No\. 196/KMK\.01/2001 creating the Committee for the Modemization of Financial be sustainable in the future given the Management (Komite Penyempurnaan Manajemen Keuangan)\. This Committee is headed b current uncertainty regarding the the Secretary General and the Head of BAKUN was appointed Vice Chairman\. The tasks oi structure of Govemment following this committee include: decentralization, the lack of control a\. Formulate the strategy for the improvement/modernization of financial management, over coding of accounts to ensure b\. Formulate the policies for drafting the Govemment Regulations on the implementation o1 compliance, and the apparent lack of State Finance laws, commitment/appreciation by the c\. Formulate the policies for the improvement/modernization of the govemment budgeting Govemment and high level system leading towards a unified budget, bureaucrats to the importance of this d\. Formulate the policies for the improvement/modernization of the state treasury system, task\. e\. Formulate the policies for the improvement/modemization of the govemment accounting standards and system, f\. Formulate the policies for the standardization of annual agency reports, g\. Formulate the policies for improving/modernizing auditing within the government agencies, h\. Formulate the policies for restructuring the (MOF) organization in line with the modemization of financial management\. i\. Consult with the Minister of Finance on the outcome of the tasks mentioned in items a to h\. The main factors that can cause uncertainty in the sustainability of GAS II are the plans to adopt the unified budget structure (together with the implementation of the GFS), and any major reorganization in the MOF which may come about as a result of the recommendation! of the aforementioned Committee\. We expect that this Committee will, among others, address the problems of coding and dat transmission which were raised repeatedly in this draft ICR\. *oIt is understood that BAPEKSTA The real role to be played by BINTEK (BAPEKSTA) v^s-a-vis the accounting system is not has become the Office of Infoms yet clear at this point\. It is premature to judge the extent that this development will impact Technology and Financial Systems - 37 -  (Badan Informasi dan Teknologi on GAS 11\. Keuangan)\. It is further understood that this office will have the responsibility for developing a number of financial systems including a "General Financial Information System\." If this eventuates, the impact on GAS II will be very significant, as it may not be an appropriate mechanism for collecting data from lower level program/projects with consequential changes to the system's data structure and operational rules\. 7 7\. Bank and Borrower We assume that "conceptual proposal" refers to the items enumerated in "Section 10\. Performance (Page 13, item 7\.4) Additional Information" page 15 of the Draft ICR\. All the first four proposals quoted from \. Like the Bank staff, the the SGV report were all requirements in the Terms of Reference and the main deliverables government agreed too readily to the of the Contract\. The TOR required the consultant on develop a central accounting system at conceptual proposals made by the the Central Accounting Office (now BAKUN) and an agency accounting system using the SGV consultants in 1984 on the double entry system for manual implementation\. The TOR also required that the system modernization of Govemment should also produce the state balance sheet\. The last item, a uniform chart of accounts is of accounting practices and systems\. course basic to any accounting system\. The system delivered by SGV complied with the terms of the first contract\. At that time, there was no basis for proposing a different concel - which would have meant justifying a change in the TOR and the contract\. All the arguments against the conceptual design which are being used in this Draft ICR are based o hindsizht\. We object to the tenor of this statement which implies that the government, not to mention the Bank, accepted blindly the Consultant's recommendation\. We wish to emphasize that during the development stages, in addition to Government official, there were Senior Advisors and WB experts reviewing the Consultant's output\. While we do not agree with the conclusions of the Draft ICR that the fault lies in the origin: conceptual framework, we want to stress that if there were weaknesses in the system, this ii the joint responsibility of all parties involved in the development, supervision and review ol the system that was designed\. We therefore recommend that this statement be deleted from this section of the Draft ICR\. \. When the decision was made to The variables that influenced the decisions and actions taken by the government, the Bank computerize a system designed for and the Consultant at the time the computerization was started were many\. manual operations, a further Although the manual government accounting system had not yet been implemented, the opportunity existed to raise questions system was simulated in 3 regions and in 4 agencies\. The simulation showed that the systen about the appropriateness of the was able to produce the expected output\. At the same time, the simulation also revealed systems original scope and structure\. problem in connection with the lack of standardized inputs to the system\. None of this was done by the government\. Years of hard work had been put in developing and simulating the accounting and financial reporting system designed for manual operation\. The cost and further delay that will result from revising the conceptual design and detailed design of the system at that point would have been difficult to justify\. Furthermore, revising the design of the new manual accountin system prior to the development of a fully computerized system would have been highly risky because the resulting system would have been one that was not simulated\. At the time GAS I was being developed, the Project was under pressure, both from the Government and the Bank to produce results, notwithstanding the fact that the simulation showed that there were problems in budget and treasury operations which impact on the system\. The phased computerization of the system was deemed the best approach at that time to move forward while at the same time finding solutions to existing problems\. It was decided that systems development would be done in 3 stages\. - 38 -  * The 1st priority module (FPAM) covered the computerization activities up to joumal voucher generation at the KARs for cash transactions in the regions (through the KPKNs), and for budget allocation transactions from the DGB Head Office\. The reason for the focus on the regional transactions was the fact that treasury operations in the regions were relatively more stable and standardized\. * The 2nd priority module (SPAM) covered activities from the maintenance of the general ledger to financial report generation\. Data to be posted in the accounts would cover only the transactions already processed by the FPAM\. When SPAM is implemented, BAKUN will centrally maintain the general ledger for both the agencies and BAKUN\. Posting and reporting activities done manually will be stopped\. Agency financial reports will be generated from the general ledger received from BAKUN, while central accounting reports will be generated by BAKUN from the same GL details maintained at BAKUN\. * The 3rd priority module (TPAM) covered activities up to joumal voucher preparation for cash transactions through the DGB Head Office, and posting thereof to the GL\. The reason for giving these transactions 3rd priority was because it was expected that while the lst and 2nd priority modules are being developed, the budget and treasury issues which were raisec during the simulation could be resolved\. What happened was, due to pressure to finish computerization and accomplish full computerization as soon as possible 2nd and 3rd priority modules were developed simultaneously (at the recommendation of Senior Advisers)\. Some of the budget and treasur issues were resolved only during the development of the 2nd and 3rd priority modulesAgreement on the chart of accounts was achieved only when systems development was almost finished\. And as we all know the issue on control over account coding is still an on-going issue\. In view of the fact that GAS I was developed from a system designed for manual implementation and as such would have serious shortcomings for a fully computerized system, we agree that perhaps a complete reengineering/restructuring of GAS I may have been necessary before GAS II was developed\. 8 8\. Lessons Learned (Page 14) Does unsatisfactory project design refer to the accounting system design or the design of the It is important to acknowledge that First and Second Accountancy Development Projects? If this refers to GAS I, we reject the non-compliance with the Bank procedures resulted in perpetuating statement that from the start the design was flawed from the beginning, as explained in the an unsatisfactory project design for previous sections\. an unacceptably long period of time\. The generally accepted alternative is We wish to inform you, that the Consultant for GAS II (P\.T\. Emst & Young) did not blindly to use off-the- shelf accounting adopt the GAS I framework\. After reviewing GAS I, and before actual GAS II system desigi packages and make appropriate and development, they considered changing the system framework and using an accounting modifications to suit unique user package\. They have tried modifying an accounting package which the believed could be requirements\. modified to suit the user requirements\. However that package assumed certain business processes and relationships which differed significantly from the actual situation\. To be abl, to use it, many changes in the budgeting and treasury procedures were needed\. But, considering that this project did not directly involve DGB, it was impossible to make material changes outside the jurisdiction of BAKUN, within the limited time that was available for systems development\. Furthermore, instead of simplifying the system it woule have created more complications\. In the end, they dropped the idea of using the accounting package\. Other Points to consider / Lessons Learned: 1\. Before undertaking any large-scale government accounting modernization effort, there should be a prior, or simultaneous activity to modernize the budget and treasury functions\. Much of the delay in the accounting system development and implementation activities (both GAS I and GAS II) can be traced to either deficiencies in policies, organizational arrangements, or budget and treasury operations\. 2\. If a project would require streamlining/reengineering the systems and operations of more than one agency, all agencies whose operations need to be streamlined/reengineered should be provided with an expenditure budget, and the activities of each agency should - 39 -  be treated as a separate project component or sub component\. For instance, for the accounting system development effort to succeed, many changes should have been made in the budget and treasury procedures\. During GAS I and GAS II systems development, BAKUN proposed many recommendations covering DGB operations but only a few of these proposals were implemented\. It would have been different if the budget and treasury system improvement activity was a sub-component of the project\. 3\. Governments and the Bank should recognize that in introducing massive changes in government systems and /or operations, the extent of the change and the speed of implementation will be affected by the availability or lack of trained and skilled personnel, the existing organizational arrangements, and availability or lack of government funds to finance the undertaking\. - 40 -  - 41 -

APPROVAL

P064614

Document of The World Bank Report No: 21010 PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$56\.990 TO THE PROVINCE OF BUENOS AIRES WITH THE GUARANTEE OF THE ARGENTINE REPUBLIC FOR A BUENOS AIRES SECOND SECONDARY EDUCATION PROJECT November 7, 2000 Human and Social Development Group Argentina, Chile, Paraguay and Uruguay CMU Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = Peso 1\.00 PESO = US$1\.00 US$1\.00 = 1\.00 PESO FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AIJE Student Projects for Youth at School (Proyectos Escolares Innovativos y Programas para Jovenes) BASSEP Buenos aires Segundo Proyecto de Educacion Secundary (Buenos Aires Second Secondary Education Project) EGB3 Educacion General Basica (Grados 7-9) (Basic Education) DGCyE Direcci6n General de Cultura y Educaci6n GDP Gross Domestic Product (Producto Interno) IDB Inter-American Development Bank (Banco Inter-Americano de Desarrollo) OP Bank Operational Policy (Poliza Operacional del Banco) PBA Provincia de Buenos Aires (province of Buenos Aires) PEI Plan Educativo Institucional (School Development Plan) ProFEI Proyecto de Fortalecimiento Eduativo Institucional SIS Sistema de Informacion Socio-Educativa (Socio-Educative Information System) TTI Teacher Training Institute (Institutos de Formaci6n de Profesores) UEP Unidad Ejecutora de Proyecto (Project Coordinating Unit) PISA Program for International Student Assessment TIMSS Third International Mathematics and Science Study OECD Organization for Economic Cooperation Study and Development Vice President: David De Ferranti Country Manager/Director: Myrna Alexander Sector Manager/Director: Jamil Salni Task Tean Leader/Task Manager: Jacob Bregman  ARGENTINA BUENOS AIRES SECOND SECONDARY EDUCATION PROJECT CONTENTS A\. Project Development Objective Page 1\. Project development objective 2 2\. Key performance indicators 3 B\. Strategic Context 1\. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2\. Main sector issues and Government strategy 4 3\. Sector issues to be addressed by the project and strategic choices 10 C\. Project Description Summary 1\. Project components 12 2\. Key policy and institutional reforms supported by the project 12 3\. Benefits and target population 13 4\. Institutional and implementation arrangements 17 D\. Project Rationale 1\. Project alternatives considered and reasons for rejection 18 2\. Major related projects financed by the Bank and other development agencies 20 3\. Lessons learned and reflected in proposed project design 20 4\. Indications of borrower commitment and ownership 23 5\. Value added of Bank support in this project 24 E\. Summary Project Analysis I\. Economic 25 2\. Financial 25 3\. Technical 25 4\. Institutional 26 5\. Environmental 27 6\. Social 28 7\. Safeguard Policies 30 F\. Sustainability and Risks 1\. Sustainability 30 2\. Critical risks 31 3\. Possible controversial aspects 32  G\. Main Conditions 1\. Effectiveness Condition 33 2\. Other 33 H\. Readiness for Implementation 35 I\. Compliance with Bank Policies 36 Annexes Annex 1: Project Design Summary 37 Annex 2: Detailed Project Description 46 Annex 3: Estimated Project Costs 51 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 54 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Suumary 59 Annex 6: Procurement and Disbursement Arrangements 66 Annex 7: Project Processing Schedule 75 Annex 8: Documents in the Project File 76 Annex 9: Statement of Loans and Credits 77 Annex 10: Country at a Glance 80 Annex 11: Social Assessment 82 MAP(S)  ARGENTINA Buenos Aires Second Secondary Education Project Project Appraisal Document Latin America and Caribbean Region LCSHE Date: November 7, 2000 Team Leader: Jacob H\. Bregman Country Manager/Director: Myma L\. Alexander Sector Manager/Director: Jamil Salrni Project ID: P064614 Sector(s): ES - Secondary Education Lending Instrument: Specific Investment Loan (SIL) Theme(s): Education Poverty Targeted Intervention: Y Project Financing Data Z Loan FI Credit E Grant El Guarantee C: Other (Specify) For Loans/CreditslOthers: Amount (US$m): 56\.99 Proposed Terms: Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: Commitment fee: 0\.75% Front end fee on Bank loan: 1\.00% !Financing Plan: Source Local Foreign Total GOVERNMENT 114\.70 2\.10 116\.80 IBRD 48\.69 8\.30 56\.99 Total: 163\.39 10\.40 173\.79 Borrower: PROVINCE OF BUENOS AIRES, ARGENTINA Responsible agency: DIRECCION GENERAL DE CULTURA Y EDUCACION (DGCYE) Directorate General of Culture and Education - DGCyE Address: Avda\. 13 entre 56 y 57, La Plata, Buenos Aires Contact Person: Dr\. Mario Oporto, Subsecretario Educaci6n Basica, DGCyE, Province of Buenos Aires Tel: (54-221) 421-4535 Fax: (54-221) 427-3007 Email: secsedu@ed\.gba\.gov\.ar Other Agency(ies): Project Implementation Unit (Unidad de Ejecicion de Proyecto --UEP) Address: Avda\. 13 entre 56 y 57, La Plata, Buenos Aires Contact Person: Dr\. Ricardo Casal (Coordinator) and Dardo Becerra (Implementation Director) Tel: 54-(0)221-424-0335 Fax: 54-(0)221-424-0863 Email: rcasal@netverk\.com\.ar Estimated disbursements ( Bank FYIUS$M): FY 2001 2002 2003 2004 2005 Annual 9\.0 17\.3 18\.6 10\.0 2\.0 Cumulative 9\.0 26\.3 44\.9 54\.9 56\.9 Project implementation period: 4 years Expected effectiveness date: 02/05/2001 Expected closing date: 01/31/2005 OCS PAD I\.n Rev M\.-A, 200  A\. Project Development Objective 1\. Project development objective: (see Ainex 1) This project is a continuation of Bank support for the secondary education reform process in the Province of Buenos Aires (PBA), and therefore follows in the footsteps of the ongoing PBA Secondary Education Sector Reform Project (also known as Prodymes III)\. The proposed Buenos Aires Second Secondary Education Project (BASSEP) is a small project, focused on improving equity, quality and access of secondary education services\. The PBA government's strategy for its education sector aims to improve quality, equity and effectiveness at secondary school level\. To support these objectives the Provincial Ministry of Education ("Direccion General de Cultura y de Educacion -- DGCyE") proposes to introduce a new pedagogic program and a "Full Day Schedule" (extending school hours from an annual average of about 750 hours to up to 1,200 hours) in its lower secondary schools (grades 7 through 9 -- or EGB3 -- of the mandatory education cycle of grades 1 through 9 or "Educacion General Basica")\. This is known as the "Jomada Completa" Program or "Full Day Schedule"\. The DGCyE would implement the "Jomada Completa" Program initially as a program for about 200 EGB3 priority schools through the proposed "Buenos Aires Second Secondary Education Project (BASSEP)"\. The agreed school selection criteria (see section C3) will target those urban EGB3 schools where most student enrolment comes from households which are considered socially and economically disadvantaged and among the poorest\. The BASSEP will be implemented in four years and on the basis of its results the DGCyE intends to gradually extend the "Jomada Completa" at EGB3 level to all those secondary schools where students face problems of inequity due to poverty and socio-economic disadvantages\. The proposed BASSEP has the following development objectives: 1\. Increase access to quality education and improve equity by supporting the implementation of a Full Day Schedule (known as the "Jornada Completa") in selected EGB3 schools serving students from the poorest households; 2\. Improve school management as a necessary complement to the introduction of a "Full Day Schedule" in the selected EGB3 schools\. The new pedagogic model targets "at-risk" students in the age group of 12-16 years old who currently attend EGB3 schools with two or three daily shifts\. Improved access and equity, combined with better teaching and learning conditions would: (i) reduce overcrowding in existing EGB 1+2+3 school buildings where the need is greatest and improve the school environment; (ii) increase students' time in school (and time-on-task in the classroom) from the current four hours to seven or eight hours per day in a 5-day schoolweek; (iii) allow teachers as much as possible to be reassigned to teach in the same school to create better continuity in learning and more communication with parents; (iv) allow more focus on and attention to at-risk students and their learning problems, and promote better retention rates for the 12-15 year age group; and (v) enable the school to offer better support services for students and teachers, and improve school management\. The new extended teaching hours in the selected EGB3 schools will allow the DGCyE in some cases to reduce the number of "taxi-profesores" (teachers who teach at more than 3-4 different schools with work weeks of up to 60 teaching contact hours)\. - 2 -  The BASSEP would target about 60,000 students (11% of the total EGB3 student PBA enrollment), about 3,200 teachers and about 400 school administrators in about 200 EGB3 schools (8% of the total number of EGB3 schools in the PBA)\. 2\. Key performance indicators: (see Annex 1) Progress made toward the objectives of the proposed Buenos Aires Second Secondary Education Project (BASSEP) development objectives will be measured using the following main performance indicators with agreed baseline values and targets: Project Development Objectives Outcome/Impact Indicators I\. Increase access to quality a\. EGB3 level student completion rates (grade 9) in the selected education and improve equity by EGB3 schools are equal or exceed the provincial average EGB3 supporting the implementation of a Full completion rate specified separately for girls and boys\. Day Schedule (known as the "Jornada Completa") in selected EGB3 schools b\. Student transition rates from EGB3 to the first year of Polimodal serving students from the poorest level in the selected EGB3 schools will be equal or exceed the households provincial average for EGB3 transfer to "Polimodal" level (grade 10) as specified per gender)\. c\. Decrease in repetition rate for the EGB3 level in the selected EGB3 schools to at least equal or better than the average repetition rate at provincial EGB 3 level (average provincial repetition rate for EGB3 in 1999 was 15% per grade) d\. Pupil learning performance results in the selected EGB3 schools are equal to or exceed the learning performance of provincial averages in the same subjects as in the the national achievements test ("Operativo Nacional")\. Pupil learning performance will be tested by specially designed sample-based pupil tests in each grade of the EGB 3 level for the selected schools and an equal representative sample of EGB3 pupils in schools without the "Jornada Completa" model\. The assessment test will be designed and applied with technical assistance from international consultants (PISA and TIMSS)\. - 3 -  2\. Improve school management as e\. All school directors in the selected EGB3 schools have been trained a necessary complement to the and the majority is satisfied with the quality, relevance and introduction of a "Full Day Schedule" effectiveness of the training (based on annual random sample in the selected EGB3 schools surveys and personal interviews)\. f\. All school directors in the selected EGB3 schools have been trained and the majority is satisfied with the quality, relevance and effectiveness of the training (based on annual random sample surveys and personal interviews) g\. Student, parents and community attitudes toward secondary schooling in districts of selected EGB3 schools have improved (based on representative annual surveys and a number of follow up interviews with parents, students and community leaders)\. h\. Secondary school and classroom management criteria and best practices have been evaluated and the results have been produced in a coherent booklet and disseminated to all EGB schools in the PBA, based on the best practices learned from this project and from similar international best practices (notably with examples from Chile and at least two other OECD countries) i\. All EGB3 school have improved management autonomy regarding financial, administrative and pedagogic matters (schools have a budget for learning materials and small maintenance, maintain an adequate administration, and can define and implement innovative school projects); this will be measured by representative sample-based surveys and audits of schools, and personal interviews with school directors, teachers and parents from the selected EGB3 schools and from an equal sample of EGB schools not included in the project\. B\. Strategic Context 1\. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 20354 Date of latest CAS discussion: 27/06/2000 2\. Main sector issues and Government strategy: Socio-economic performance\. While many social indicators have improved in the past ten years, povertv levels have stubbornly stayed high despite rapid economic growth: The Bank's latest estimates put poverty at about 30-35 percent in the "Conurbano", an urbanized ring around the "City of Buenos Aires"\. The City of Buenos Aires has an independent education system, while the "Conurbano" is administered by the Province of Buenos Aires\. See the Bank's most recent Poverty Assessment for Argentina, entitled Poor People in a Rich Country, report number 19992-AR, dated March 23, 2000\. This situation is compounded by rising income inequality and high unemployment, especially for the unskilled, indicating that the benefits - 4 -  of growth have not been widely shared\. Argentina's education system has been one of the most advanced in the region and can still boast of a literacy rate of 97 percent for the adult population, universal primary enrollment, and about 20 percent of the population between the ages of 20 to 25 enrolled in higher education\. For a country of its wealth, Argentina under-performs in certain key education indicators\. The secondary graduation rate in Argentina is only 52 percent, compared to an average rate for the OECD countries of 80 percent\. Of 100 students entering primary school, only 84 will enter the seventh grade, 76 will enter the ninth grade, 40 will enter the last year of secondary school, 35 will enroll in university and only 7 will graduate\. Changing labor market demand and returns to education\. With reduced protection and lower cost of capital in the early 1990's, the historic comparative advantage of labor over capital shifted in capital's favor\. This led to demand for more highly skilled workers and increased the wages of those with secondary and university level education: As a result, 40 percent of the recent change in the Argentine Gini coefficient is due to differences in returns to education\. The incomes of professionals has grown on average by about 5\.6 percent per year over the 1990-98 period, while skilled wages have risen at a rate of only 3\.6 percent, and wages for unskilled workers have stayed flat or decreased\. Federal Government Education Strategy\. With World Bank support, for the last seven years, Argentina has undertaken an ambitious prograrn to transform the education system: new system structure and more relevant curricula, increased access at preschool and secondary levels, improved quality and equity, more autonomy to the provinces who implement education policies, more investments to improve infrastructure and pedagogic materials, especially targeting the poorest populations\. The provinces of Buenos Aires and Cordoba are the most advanced with implementing their secondary education reform\. In the PBA, with about 40 percent of the total Argentine enrollment, this consists of a restructuring of the old five year secondary education cycle into two three year cycles: educacion general basica 3 (EGB3) and upper secondary ("Polimodal")\. The EGB3 level reinforces core knowledge and prepares the children for further secondary education or labor market entry\. In this context, in support of the ongoing reform in the PBA, the BASSEP addresses the CAS objectives by promoting improvement in quality and equity of lower secondary education (EGB3)\. The project's focus on the socially and economically disadvantaged population, with children in the 12-16 year age group aims, to remedy inequalities in the type of education to which the poor have access, and consequently in labor market entry and working life\. The project's support for the "Jomada Completa" will in the longer term boost demand for Polimodal level, reduce drop out and repetition rates for the EGB3 level and improve the relevance of what is taught\. These benefits will enable students to successfully complete lower secondary education, improving their chances of entering the labor market and leading productive lives out of poverty\. Province of Buenos Aires sector issues and strategy With an estimated population of 15 million (about 38% of the country's total), the Province of Buenos Aires (PBA) is the largest province in Argentina\. It contains 134 municipalities, 29 of which are located in the area surrounding the Capital Federal, known as the "Conurbano" which contains 70% of the provincial population\. In total almost 95% of the provincial population lives in urban areas\. The PBA contributes about 35% to Argentina's GDP, with an income per capita of about US$8,200\. The growth of the province's economy is closely linked the national economy\. Provincial GDP declined by close to 3% in 1999 due to Brazil's devaluation of its currency\. The PBA has the largest provincial education system in Argentina\. -5-  Table I Public Schools Private Schools Education Level Number of Enrollment Teachers Number Enrollment Teachers schools 1999 of 1999 schools Initial 2,439 331,000 19,000 2,057 206,000 12,700 EGB 4,456 1,755,000 85,000 1,632 684,000 41,600 Polimodal 1,076 170,000 50,000 1,156 174,000 24,900 Secondary 187,600 School I_I Teacher Training 185 54,200 8,100 280 49,800 5,500 Institutes Total 8,156 2,497,800 162,100 5,125 1,113,800 84,700 Source DGCyE (March 2000) Table 2 Total Number Enrollment Education Level of 1999 Teachers schools Initial 4,496 537,000 31,700 EGB 6,088 2,439,000 126,600 Polimodal 2,232 531,600 74,900 Secondary School Teacher Training 465 104,000 13,600 Institutes I Total 13,281 3,611,600 246,800 Source DGCyE (March 2000) Provincial Education Expenditure and Financing (see also annex 4)\. The province of Buenos Aires (PBA) was the first province to widely implement the education reform and allocated a significant amount of additional resources to its education sector, The PBA's public spending in education increased significantly since the Decentralization Law was put into effect in 1993, indicating the Provincial Government's commitment to the reform and a break in the pattem of low spending that predominated during the 1980's\. Total PBA education expenditure increased from US$1,860 million in 1993 to US$3,345 million in 1998 (based on 1998 pesos): an increase of 81\.5% in real terms and an annual average growth rate of 13% (see table)\. These increases were especially high in 1997, when the EGB3 reform was started, mainly due to: (i) increased student enrollment (>17% over 1994-98), creating a need for more teachers (more teacher work units -- cargos/horas catedras); (ii) application of a 15% average salary increase in February 1998; and (iii) a significant increase in investment in infrastructure (from UJS$69 million in 1995 to US$623 million in 1997 and US$280 million in 1998)\. Table 3: Evolution expenditures in education by Jurisdiction (Source) (millions of 1998 pesos) 1,993 1994 1995 1996 1997 increase 1993-1997 Prov\. of Buenos Aires 1,868 2,099 2,265 2,464 3,192 71% Provinces (excl\. PBA) 5,933 6,409 6,100 5,972 6,140 3\.5% All Provinces 7,801 8,508 8,365 8,436 9,332 19\.6% PBA / Total Prov's 24% 24\.7% 27\.1% 29\.2% 34\.2% Nat\. Educ\. Ministry 1,835 1,835 1,835 1,835 1,835 0\.0% Municipalities 206 206 206 206 206 0\.0% Total Nat\. Educ\. 9,842 10,549 10,406 10,477 11,373 15\.6% PBA / Total Educ\. 19% 20% 21\.8% 23\.5% 28\.1% -6 -  Source: Province of Buenos Aires; Provincial Ministry of Economy and DGCyE From the total PBA education budget almost 93% is recurrent spending (almost entirely salaries), distributed as follows: 76% for salaries of public teachers and administrative staff (non-teaching staff represents about 15% of the total), and about 15% subsidizes a proportion of private school teacher salaries\. Only 3% finance non-salary recurrent costs\. Infrastructure and equipment investment has increased from about 6% in 1993 to 8% in 1998\. For the whole 1993-1998 period more than US$1 billion was spent on building new schools and classrooms to accommodate the increasing students numbers\. Tranfers to private schools make up almost 14% of the recurrent budget in 1998\. Over 1993-98 total teaching staff expenditures increased by 73\.2% ($915 million)\. Expenditures in substitute staff, despite scarce available data, show a decreasing trend: a 14\.7% ratio in 1993 (expenditures on substitutes compared to regular and provisional staff) and 13\.7% in 1998\. In terms of total education expenditures, 36% went to public primary level (EGB1+2) in 1998, 22% to public secondary level, 7% to pre-school level, 3\.5% to public tertiary level (Teacher Training Institutes) and 15% to transfers to private schools (at all levels)\. The remaining was spent on physical education, artistic education, special education, psychology and social assistance and administration\. It is important to mention that even though EGB3 is included in primary level budgetary's classification, its structure of cost corresponds to secondary level (lower secondary level)\. The distribution of spending across levels of education corresponds more or less to OECD means, taking into account that the university level is financed entirely by the federal government\. Table 4: PBA composition of spending per education level (1998; percentages) Category 1994 1995 196 1997 1998 * Psychology 5\.4 4\.7 4\.3 4\.1 3\.8 ! Special Education (handicapped) 5\.1 4\.3 4\.2 4\.0 3\.8 * Pre-School 7\.8 7\.1 6\.9 7\.1 6\.8 * Primary (EGBI+2+3) 29\.5 28\.7 32\.3 30\.9 36\.4 * Secondary (composed of old 5-year phasing out and new 26\.0 24\.5 23\.4 25\.8 22\.3 Polimodal) _ Sub-Total Public Primary + Secondary 55\.5 53\.2 55\.7 56\.7 58\.7 * Adults Education 2\.5 2\.0 1\.9 1\.8 2\.8 * Physical Education 3\.0 2\.6 2\.5 2\.6 2\.1 * Teacher Training 3\.4 4\.0 3\.6 3\.4 3\.2 * Arts Education 3\.2 3\.0 2\.6 2\.4 2\.2 * Private Schools Subsidies 14\.1 19\.1 18\.2 17\.9 16\.5 To schools a % of Total Education 87\.5 84\.8 85\.3 72\.8 81\.5 Education sector management\. The PBA's management of its education sector is still inefficient, which is illustrated by the high number of central level adminisrative staff in the DGCyE and, in spite of this, the lack of specialist skills in areas such as financial management, pedagogy and curriculum, and monitoring of performance\. Compared to similar systems in industrial OECD countries, there appears also to be a lack of structural and institutional capacity in the form of more autonomous institutions for learning assessment, inspection, and teacher training\. However, the new DGCyE Administration, which came in December 1999, started immediately to plan for significant and system-wide changes in the aforementioned areas\. The diagnosis of the system's performance is well underway, and the re-organization of the central Ministry has begun\. This is a sensitive, difficult and complex program of system-change, which can only be gradually phased in, since it would otherwise risk the disruption of schooling\. The design and introduction of improved performance and efficiency monitoring through the "legajo unico electronico" and the "Sistema de Informacion Socio-Educativa", which the DGCyE is currently undertaking, are important milestones on the way to improved management and performance\. The current PBA education system suffers from (i) lack of a coherent and accessible information system in order to better plan, monitor, and -7 -  supervise the sector; (ii) slow staff paying system; (iii) inefficient assignment and management of human resources; and (iv) inefficient management of financial resources and high administrative cost\. The new teacher and staff monitoring system ("'Iegajo unico electronico '9 will allow the DGCyE to: (i) eliminate the ghost teachers in the system and have better control over teacher work-loads ("cargos" allocated and actually worked per teacher linked to salary pay out) at school level; and (ii) get a better control system in place for teacher and staff absentism and the use of teacher substitutes\. At the end of 2001 this monitoring system will have been fully implemented, and will lead to significant recurrent salary savings\. The "Sistema de Informacion Socijo-Educativa" will allow the DGCyE to introduce District and School-based monitoring of student performnance, linked to socio-economic status of the students\. this will assist the DGCyE to better focus its Polimodal scholarship program ("Programa de Becas"), and target the delivery of additional support services\. The ongoing Bank-fuianced secondary education projects also finance an administrative reform, which support better and more effective management practices and promotes decentralization of services\. Progress of the secondary education reform\. The PBA's strategy is to keep students in school after completing the EGB3 level\. The introduction of the EGB3 level was completed by 1998, and the second year of the "Polimodal" level started in school year 2000 (school years run from March to December)\. The first "Polimodal" graduates will come out of the system by December 2001\. "Polimodal" is a mixture of specialized vocational and general academic courses, with specific timetables, and as much as possible interaction with the local labor market and enterprises\. The "Polimodal" curricula in the PBA are composed of five "specialized learning tracks', with links to the world of work and the local labor market\. Each Polimodal school in the PBA can select two "specialization tracks", for which teacher training and new pedagogic materials will be provided by the DGCyE\. The DGCyE uses the national learning assessment system ("Operativo nacional"), which annually test pupils of grades 6, 9 and 12 in two or three subject matters, and the DGCyE is also developing its own targeted learning evaluation system\. Both EGB3 and Polimodal curricula also include an emphasis on social and cultural community values in order to help poorer children to better succeed and combat youth crimne and violence\. Secondary school coverage\. In the PBA coverage at the old five-year secondary level (1998) was close to 65 percent and the graduation rate was about 25 percent, while in OECD countries, secondary completion rates average 78-80 percent\. In Korea, this rate reaches 92 percent\. Net enrollment at EGB3 level jumped by more than 17 percent over 1996-98, compared to enrollment of the age group in the old secondary system\. Net enrollment at the new upper secondary structure ("Polimodal") jumped by more than 40 percent in 1999, and this trend appears to continue in the current school year (2000)\. Quality of education\. Despite progress as a result of federal and provincial efforts, the quality of education in the Province of Buenos Aires needs to be improved, especially for the students from the poorer households\. The new EGB3 and Polimodal curricula are being implemented, but teachers need more in-service training and better learning materials to teach their courses\. The PBA results in the national assessment tests are reasonable, compared to the results of other provinces (the PBA ranks on average in the top-five)\. To make the reform effective and respond to its qualitative goals, the PBA needs to reinforce the training and support of its teachers and school directors\. It will also need to strengthen the support mechanisms for pupils, especially at the EGB3 level for the 12-16 year old age group\. These children, as demonstrated also in other OECD countries, need school-based support mechanisms in "learning how to leamn" and "information about social and cultural values and behavior"\. One of the important objectives of EGB33 level education is to deliver pupils who can be effective citizens and productive workers\. In mnost countries in the world, reform of this level of education is ongoing and the problems faced in teaching this age group are the more difficult ones\. There is general consensus among PBA educators that, compared to OECD countries, the quality and relevance of secondary education must be improved, and that school - 8-  should be given the means to that\. However, the PBA government wants to do more and increase the learning and teaching time for "at risk" pupils in the poorer schools\. Through the proposed BASSEP the "Jomada Completa" will offer a full school day to "youth-at-risk" in the 200 EGB3 schools\. This will not only improve learning outcomes, but also strengthen the school- and classroom environment (lower incidences of violence, better information, more contact with the parents and communities, less street crime by "out-of-school" youth)\. This will also attract more students to stay in school and increase enrollment and graduation results significantly, thereby improving equity\. Additionally, programs and inputs for student communities in the schools will be offered to prevent and reduce youth violence and criminality\. These Youth programs (Student Projects at School for Youth -- "AIJE") will be similar to those financed under the First Buenos Aires Secondary Education Project (also known as Prodymes III)\. Equity in Secondary Education Performance indicators, such as average annual dropout and repetition rates, are sharply differentiated by income groups; dropout rates increase significantly for the poor after seven years of education\. Only 24 percent of students in the lowest quintile complete secondary school compared to 76 percent for the upper quintile (measured on the basis of data for the old five-year secondary structure; since then Polimodal has increased enrollment in upper-secondary)\. However, significant inequities continue to exist\. About 35 percent of youth aged between 14 to 18 years were out of school in 1998, and these are mostly pupils coming from poorer households\. In addition, children from low-income families are more likely to be older than other primary school children due to late entrance and relatively higher repetition among poorer children\. About 32 percent of children from the poorest income quintile are delayed in primary level compared to 9 percent for the richest quintile\. Repetition and drop-out rates for socially disadvantaged students at the EGB3 level are significantly higher than those for students from the upper quintile (annual averages of about 20-25% and 10-12% percent respectively)\. The DGCyE strategy aims to offer better in-school student support services, and to create an improved school- and classroom environment by (i) reducing overcrowded school facilities; (ii) provide more and better learning materials; and (iii) make what is being taught more relevant for the community and the job market\. National standardized tests results (1999) for the students in the last year of EGB3 point to a continuous significant gap in student performance of low-income "socially at risk" students compared to students from households with higher incomes\. This situation has several negative consequences, such as: more children and youth on the street; early entrance into the informal labor market; violence; drug consumption, and increasing teenage pregnancies\. The Gran Buenos Aires area concentrates some 40% of the unemployed in Argentina, many of whom are young workers with incomplete secondary education\. Gender\. In the area of education, there are little differences between the genders, with female students outperforming male students in tenns of lower repetition, but losing ground at secondary school in terms of educational outcomes\. However, in the poorest areas there are severely restricting school environments for adolescent youth, notably girls or young women, due to violence, criminality and lack of learning materials and equipment\. This causes increased repetition and drop out for the lower income quintiles\. The Jornada Completa program\. One of the PBA government strategies for education is to introduce a new program of Jomada Completa at EGB3 level, aimed at addressing quality and equity issues\. Initially the DGCyE will implement the "Jomada Completa" in 200 EGB3 schools and then gradually expand the program to all EGB3 schools in the poorest districts of the province where it would be feasible and cost-effective to implement\. Education authorities hope that the schools will develop an innovative institutional pedagogical model which can represent an incentive for other communities and institutions\. The Jomada Completa program has two main objectives: -9-  a\. Improve the quality and relevance of learning and teaching in EGB3 schools and b\. Improve equity by targeting students from socio-economically disadvantaged areas To achieve these objectives Jomada Completa will: (i) increase the number of hours of instruction per year that students receive from about 750 to up to 1,200 hours; (ii) promote leaming of the mother tongue, a foreign language and improve skills in Information and Communication Technology (ICT); (iii) diversify the supply of educational services through variety in quantity and quality of instruction; (iv) teach skills relevant to multiple labor market demands; (v) support values and principles that promote collective well-being; (vi) strengthen new forms of institutional organizational and management that encourage collective action; and (vii) support ongoing teacher training to improve teaching performance and teachers' role in the classroom\. In addition, implementation of a better and more focused school environment will help the decentralization of school services in favor of more autonomous administration and a more participatory approach that involves school administrators, teachers, supervisors and other members of the education community, empowered to become the implementers of the very same changes they are supporting\. 3\. Sector issues to be addressed by the project and strategic choices: The proposed BASSEP supports the new DGCyE Administration's actions to target secondary schools serving students from poorer households with innovative and qualitative inputs embodied in the program for the "Jornada Completa"\. In order to create the conditions to confront broader sector issues of inequality, low quality and school management, the BASSEP project will address, in the selected (about 200) EGB3 schools (with about 60,000 students) the following issues: a\. Providing more equitable access in education: by improving retention rates at EGB3 level in selected schools and increasing the transition rate between EGB3 (grade 9) and the new Polimodal, and increasing retention rates at the Polimodal level, providing new infrastructure for about 35 additional secondary schools, and rehabilitation of about 400 classrooms in up to about 165 existing secondary schools in the poorest areas; the targeted secondary schools will be selected on the basis of poverty criteria and implement a program of "Jomada Completa"\. b\. Improved quality and relevance of learning\. by supporting the implementation of increased leaming and teaching hours from annually about 750 up to about 1,200 hours in the selected EGB3 schools; providing support for the continued implementation of the Polimodal reforn (up-to-date equipment, laboratories, school libraries and technical assistance from local experts and institutions); providing teacher training and support services, including competitive scholarships for the best performing teachers; and providing support for improving the PBA assessment and examination system\. c\. Making school management more effective and more autonomous: by improving training and providing additional resources for secondary school management and teaching, supporting ongoing administrative reform activities at central and district provincial levels, which will lead to cost-efficient and effective monitoring and reporting; providing support for decentralization of decision-making and better accountability in the secondary schools and their districts, and providing incentives for evaluation of school performance, based on school development plans\. Strategic choices\. Reinforcing the Bank's assistance for secondary education in the Province of Buenos Aires is considered critical for the following reasons: - 1 0 -  a\. The Province of Buenos Aires is more advanced than almost all other provinces of Argentina in the implementation of the secondary education reform\. The increase in public spending on education over the last nine years, and the current drive of the PBA government to make the education system more equitable and cost-efficient, justify the Bank's support\. b\. Progress made by the reform is fragile and the PBA needs to keep the reform in its education sector on track\. The PBA has the single largest educational system in the country and is leading other provinces in implementing education reforms\. The outcome of these efforts are crucial in determining the willingness of other provinces to make changes and this potential multiplier effect would benefit the country as a whole\. c\. The proposed "Jornada Completa" Program for selected EGB3 schools, is part of the wider provincial strategy to give more resources and responsibility to the schools, and to improve the teaching and learning for the students in households from the lowest income quintiles\. The BASSEP will be used to select best practices and to gain more experience in implementing the upper-secondary reform across the PBA and possibly other provinces\. In order to accelerate implementation of the secondary education reform Argentina, BASSEP has been designed to complement and reinforce the activities financed under the following ongoing projects: a\. The Federal Secondary Education I project (Prodymes I) (to be completed by December 2000): in the PBA this project finances: (i) education sector administration and management; (ii) education quality; and (iii) school access\. b\. The Federal Secondary Education II project (Prodymes II) (to be completed by December 2001) : in the PBA this project finances: (i) essential educational resources (e\.g\., library, computer and science laboratories); and (ii) school-based improvement projects in targeted secondary schools serving low achieving students in disadvantaged areas\. c The PBA Secondary Education III project (Prodymes III) (to be completed by December 2001) : this is the first secondary education project loan directly to the Province of Buenos Aires and finances: (i) expanding school access in EGB and Polimodal levels due to the extension of mandatory secondary education; (ii) assisting priority schools with the transition to the Polimodal cycle (including pedagogic support for school development plans and youth projects -- ProFEI and AIJE), (iii) improving school management, providing educational materials, and training for 42 technical secondary schools\. - 11 -  C\. Project Description Summary 1\. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Indicative Bank- % of Component Sector Costs % of financing Bank- \._______\.___\._ (US$M} Total (US$M) financing 1\. Creation of additional EGB3 Secondary 59\.69 34\.3 36\.69 64\.4 school spaces in the poorest urban Education districts and rehabilitation of classrooms in about 165 existing EGB 3 schools to develop and apply a new pedagogical model of the "Jomada Completa" 2\. Provide pedagogic equipment Secondary 102\.50 59\.0 14\.80 26\.0 (school libraries, science and language Education laboratories, and learning materials) and other pedagogical services and innovations for implementation of the" Jomada Completa" in the selected (about 200) EGB3 schools 3\. Provide support for more 9\.00 5\.2 3\.50 6\.1 autonomous school management and innovative school projects in the selected (about 200) EGB3 schools and their districts; 4\. Provide support for project 2\.00 1\.2 1\.40 2\.5 administration and management Total Project Costs 173\.19 99\.7 56\.39 98\.9 Front-end fee 0\.60 0\.3 0\.60 1\.1 Total Financing Required 173\.79 100\.0 56\.99 100\.0 2\. Key policy and institutional reforms supported by the project: The project supports the implementation in the Province of the Federal Education Law (Ley Federal de Educaci6n) passed in 1993\. This Law established (i) the change in education structure and curriculum; (ii) the extension of mandatory education from 7 to 10 years; (iii) the responsibilities of the administrative bodies of the sector as well as of the school community; (iv) the increase of total public education financing 20% annually\. - 12 -  The project will provide direct support for implementation of the PBA secondary education reform, which aims to: (i) construct and rehabilitate school infrastructure necessary for the extension of mandatory secondary education; (ii) provide teacher training for the implementation of the education transformation; (iii) expand access to education at all levels, especially for the students from the poorest households; (iv) improve education quality, equity, and efficiency; and (v) provide computer, library and other pedagogic resources to the schools\. The Province of Buenos Aires has already made progress in all these accounts\. The project directly supports the provincial program to apply a new pedagogical program of the Full Day Schedule ("Jornada Completa") in selected (about 200) EGB3 schools, where the majority of the school population comes from the most socio-economically disadvantaged households (see school selection criteria below)\. 3\. Benefits and target population: Quality, equity and efficiency a\. Try out the Full day Schedule ("Jomada Completa"), with an increase in hours of instruction, and in the near future, utilize the lessons from this experience to implement the Full day Schedule in all provincial EGB3 schools in poorer districts; b\. Increase equity, since the selected (about 200) EGB3 schools targeted are selected among the schools with highest NBIs levels and at-risk students\. c\. Work in schools where the existence of liasic educational resources will help to increase the motivation of school actors and facilitate the successful implementation of the Polimodal transformation\. d\. Support school Directors, teachers and administrative staff at provincial, district and school levels to innovative and international school/learning experiences, and provide them with better access to information, and improve the school and classroom management regarding pedagogic practices e\. Decrease repetition and dropout rates in the selected (about 200) EGB3 schools and increase the transition rate to the Polymodal level\. School Management a\. Link to the improvement in education administration, partially financed by the BA Secondary Education Project\. School directors and administrative staff will receive technical assistance and training to improve the schools' leaming environment and its management\. b\. Provide the basis for a decentralization reform of administrative school procedures that will transfer responsibility from the central level to districts and school levels\. Target Population\. The BASSEP will be implemented in selected (about 200) EGB3 schools providing education services to socio-economically-disadvantaged youth in urban areas\. The project will target about 60,000 students (11% of the total EGB3 student PBA enrollment), about 3,200 teachers and about 400 school administrators in the selected schools (about 8% of the total number of EGB3 schools in the PBA)\. Poverty and equity considerations: a\. Socio-economically disadvantaged youth\. The Gran Buenos Aires urbanized area concentrates some 40% of the unemployed in Argentina, a segment of the population vulnerable to be afflicted by other social ills\. In the province unemployment is high among young people (about 450,000) and young workers with incomplete secondary education, especially for those looking for their first job\. - 13 -  Recent studies, show that workers with completed high school earned 30% more than those with incomplete high school\. b\. EGB3 level schools that precede Polimodal level\. Concurrent with the PBA's efforts to implement education reform from the Federal level and it's own obligatory Polimodal, the PBA has at stake a high investment in education reform\. Therefore, it must ensure an effective transition from EGB to Polimodal level\. c\. Urban areas\. The PBA has 134 municipalities, 29 of which are located in the area surrounding the Capital Federal known as Conurbano, which concentrates most of the urban population in the PBA and close to 95% of the population in the province lives in urban areas\. In addition, about 1,800 schools --predominantly in rural areas-- of a total 4,425 public EGB schools in the province have less than 20 students rendering the implementation of Jomada Completa not cost-effective and difficult to implement\. d Public and Private schools\. Private schools in the PBA already enjoy on a general level some of the pedagogical benefits of "Jornada Completa" such as the large number of hours of instruction and relative school autonomy\. Unlike students in public schools, students in private institutions have the socio-economic means to complement school services with extracurricular activities such as sports, classes, travel and tutors\. e\. School institutionalfactors\. These include repetition and drop-out rates, transfer rates from EGB3 (grade 9) to Polimodal (grade 10), total pupil enrolment (per gender and per section), degree of overcrowding, school population age distribution, extent of support services, complexity of articulation (linkage) in schools between EGB 1-2 and 3, if a school facility is shared with Polimodal and the average distance between an EGB3 school facility and its corresponding Polimodal school facility, composition of the school teacher force, and the average hours taught per individual teacher per school in the selected (about 200) EGB3 schools, and factors related to teacher and school director qualifications and inservice training\. f Innovative School Education Projects (PE] or ProFEI)\. This project will be closely linked with the ongoing School projects and Youth programs in the ongoing Prodymes III project\. The selected (about 200) EGB3 schools will receive technical assistance and staff training to develop innovative school projects and to agree on an Institutional Education Project (PEI) for each school (similar to those defined under Prodymes III)\. The selected (about 200) EGB3 schools can also use funds for Youth programs (similar to the AIJE programs as defined under the Prodymes III project) and apply the best practices from these experiences\. Success will depend on the involvement of all members of the education community (students, parents, local enterprises, and community leaders)\. The definition and quality of the Schools' PETs or ProFEIs will be used as one of the selection criteria for the application of the "Jomada Completa"\. This larger margin of institutional autonomy means that proposals presented will go through a process of permanent review that will contribute to the creation of a school model with improved quality and equity\. In order to target more effectively the varied circumstances surrounding the schools and the most disadvantaged population, different "Jomada Completa" models that are flexible enough to allow the schools to define their own institutional options will be proposed during the implementation of the in the selected EGB3 schools\. - 14 -  COMPONENT INPUTS and INSTITUTIONS BENEFICIARIES Infrastructure for the 35 new schools 26,000 students (new schools) implementation of "Jomada 400 classroom expansions 35,000 students (expansion) Completa" in selected EGB3 Rehabilitate existing school facilities About 60,000 total students schools in the urban poorest about 200 EGB3 schools 400 School Directors and Deputies districts in the PBA About 3,200 school teachers Related non-teaching staff and parents Equipment and Learning Equiping about 200 priority EGB3 schools About 60,000 students Materials with labs, furniture, PCs, learning About 400 School Directors and materials and libraries Deputies About 3,200 school teachers Related non-teaching staff and parents School Development Plans Institutional and pedagogical and About 3,200 teachers will have ("Programa Educativo improvement plans for the selected (about received relevant training Institucional -- PEI)"or 200) EGB3 schools (School Development About 400 School Directors and "Programa de Plans and performance monitoring Deputies will have received relevant Fortalicimiento Educativo indicators developed by school clusters) training Institucional --ProFEI") Parents and Local Communities will have improved communication and coordination with the schools of their children Innovative School projects Innovation school-based projects developed About 60,000 students and 3,200 and training for teachers, and proposed by the selected (about 200) teachers will have formulated a school directors and EGB3 schools and application of Youth school project and improved their administrative staff; programs by students in the schools (AIJE) school environment application of school-based About 400 School Directors and Youth programs (AIJE) Deputies will have improved their school-based management and improved communications with their local communities (related non-teaching staff and parents) Selection criteria for the (about) 200 EGB3 schools financed by the project Criteria for selection of the (about 200) EGB3 schools in the Prodymes IILA project are as follows: 1\. The selection will be based on the socio-economic profile of the school population, measured by various characteristics prepared by schools directors in cooperation with teachers and the school community (see below); 2\. All the education Regions (16) should be included in the sample of the selected EGB3 schools; 3\. Land availability for access expansion should be legally ensured for all the schools; 4\. Ownership of the Jornada Completa" program and its implementation should be shown through a "Programa Educativo Institucional (PEI)" or "Programa de Fortalicimiento Educativo Institucional (ProFEI)" in each of the selected (about 200) EGB3 schools; this is - 15-  equivalent to a School Development Plan (complying with DGCyE guidelines) and the selected schools (through their Directors and Teacher-Parent Association) must agree to establish such a School Development Plan, with the related school performance indicators, during the first year of project implementation\. Socio-economic profile of the school population\. Selection criteria under item 1\. have been determined on the basis of the schools' student population living in socio-economic disadvantaged conditions\. These conditions are measured against various characteristics of the household and / or the student\. The family information data are determined by the school director in cooperation with teachers, and the parents or children's supervisors (community)\. The data are available per school and are comparable with district averages\. Methodology\. The DGCyE will compile the basic statistical database for at least 400 poor EGB schools, in order to select about 200 EGB schools which will not implement the Full School Day as a control group, and the selected (about 200) EGB3 schools which will implement the "Jornada Completa"\. This tentative list of EGB3 schools must show their location, and comparative "socio-economic" school population data at district and regional level\. The data will be supplied as outputs from the SIS and legajo unico information systems; if necessary it will be complemented by data resulting from specific baseline surveys and studies\. The results from the database for the 400+ EGB3 schools will be presented in an organized way and will be analyzed according to the project objectives and components\. The schools in the PBA include normally three cycles (EGBI+2+3) in one building\. In the poorer urban areas the schools are for the most part over-populated, and there is a severe shortage of space to (i) accommodate the transfer enrollment into the EGB3 level (grades 7-9) in agreement with the new curricular requirements and (ii) respond to the increased demand for further education from the communities, which often live in poor conditions (housing, sanitation and other public services)\. The project will finance 3 extensions to existing buildings (construction of additional classrooms for EGB3 students (including laboratories and libraries) for implementation of the "Jomada Completa" (about 165 schools); and 3 in some areas the construction of new buildings to respond to the increasing demand for EGB3 school places in Jornada Completa\.(around 35) A school can be selected into the project if the percentage of its student population at EGB level "living in disadvantaged socio-economic conditions" is higher than District's average for its student population\. This "poverty-composite" indicator is based on the following socio-economic data from student and their households\. For a student to be categorized as "living in disadvantaged sociao-economic conditions", he/she needs to fall into one of the following categories ("matricula en dificultad"): 1\. Pupils from "villas de emergencia" (recognized slums) or pupils with similar problems 2\. Pupils from families who occupy land illegally 3\. Orphans or pupils who have been abandoned by their parents 4\. Pupils who go to a neighborhood "care center" during the day ("Centros Complementarios") 5\. Pupils from families with at least 4 of the following characteristics: 5\.1\. Families with more than 4 children below 18 years old; 5\.2\. Single-parent households with the head of the household unemployed; 5\.3\. Children from households in extremely poor conditions; - 16 -  5\.4\. Children with one parent who is illiterate; 5\.5\. One or more of the siblings have dropped out of school prematurely; 5\.6\. Students from households which receive social assistance\. 4\. Institutional and implementation arrangements: Implementation period: 4 years a\. Project coordination\. All education projects co-funded through external means in the PBA, are managed by the project Coordination Unit (UEP), which is part of the management and administrative structure of the PBA's DGCyE (provincial Ministry of Education)\. The BASSEP project will also be managed by the UEP, but it will be supervised by the "Project Supervisory Council", which will ensure coordinate and integration with ongoing projects, and with the DGCyE's reform sector strategy\. The UEP also coordinates the IDB-funded PRISE project for Basic Education\. UEP operations are managed by a General Coordinator, who is a member of the Director General's Cabinet\. The UEP's project coordinator reports to and works under supervision of the General Coordinator\. The project coordinator is responsible for (i) superving all adrninistrative staff in both the central and local offices, (ii) selecting and contracting of goods and services, (iii) implementing all project activities, (iv) managing project performance monitoring and auditing, and (v) producing regular project reports and the agreed studies' reports\. The UEP has a team of about 40 professionals providing services for: (a) procurement and contracting, (b) accounting administration, (c) auditing and legal activities, (d) monitoring of project activities at district level and in the schools, and (e) keeping the education and pedagogical administration\. The proposed project will finance about 50 percent of all UEP staff involved in the management of the BASSEP\. b\. Financial Management\. The Province of Buenos Aires would maintain adequate financial management systems --including accounting, financial reporting, and auditing systems-- to ensure that they can provide the Bank accurate and timely information regarding project resources and expenditures, in accordance with: (i) the Financial Accounting, Reporting, and Auditing Handbook (Washington, D\.C\.;World Bank, 1995), and (ii) the Bank's Operational Policy (OP) and Best Practice (BP) 10\.02, dated July 1996\. Efforts are being made on a country basis to discuss with the Government the revised Bank financial management standards to comply with OP and BP 10\.02, dated August 1997\. With respect to auditing the Bank confirmed that the audit firm "Estudio Llanos y Asociados" (presently residing at in LaPlata, Province of Buenos Aires) is eligible to provide audit preparation services as long as it meets criteria of independence, quality, capacity and timeliness in the opinion of the Bank\. This auditing firmn has already audited the ongoing Prodymes III project (L43 13-AR), and up to now the financial management of Education Sector projects has been satisfactory\. The Bank's Resident Mission financial management specialist reviewed the procedures and found that they are consistent with Bank procedures and regulations\. During project implementation, the Bank will provide assistance to improve and update a financial management practices and reporting\. c\. Executing agencies\. The provincial DGCyE will be the responsible party and the main executing agency of the project\. Managed by the DGCyE's Sub-Secretariat for Administration, several depending local executing agencies and main stakeholders (Cooperadoras and school communities) will be responsible for various aspects of project implementation\. The UEP will be responsible for daily coordination and management of the implementation of the project, and the UEP's General Coordinator will report to the DGCyE Sub-Secretariat of Education and the - 17 -  Sub-Secretariat for Administration\. The Secretariat for Education will be responsible for the implementation of the "Jornada Completa", the school-based pedagogic and innovative programs, and the supply of related equipment and learning materials\. The infrastructure Coordinator of the UEP, under supervision of the UEP General Coordinator, will manage all contracting and supervision of civil works and rehabilitation of classrooms for the "Jomada Completa" in the selected EGB3 schools\. The DGCyE's Public Works Office will oversee planning, budgeting, management and quality ensurance of the proposed civil works and classroom rehabilitation\. d\. Education Stakeholders\. There will be an active involvement of school communities composed mainly of teachers, students, parents and school administrators who are beneficiaries and participants of this project\. These stakeholders will: (i) administer and monitor the public works and supply of learning materials and equipment in their school through their "Cooperadoras"; (ii) benefit from technical assistance and training; (iii) develop school development plans and provide regular feedback to the UEP and DGCyE Secretariats about the quality and effectiveness of the goods and services supplied, and (iv) run extracurricular programs such as the Youth program (AIJE) at the school level\. D\. Project Rationale 1\. Project alternatives considered and reasons for rejection: a\. Quality and equity intervention in all secondary schools\. It was decided to target the quality interventions to the 200 EGB3 schools in order to: (i) test the "Jomada Completa" and its corresponding pedagogical models with the accompanying increase in instructional hours (increased "time-on-task") on a basis\. This will allow the "Jornada Completa" to be tested, before it will be applied on a wider scale in the PBA system\. This will allow the DGCyE to improve the model, and prevent costly mistakes\. The complexity of the "Jornada Completa" in terms of teacher and staff management and its additional costs at the school level also need to be analyzed, before it can be applied on a wider scale\. In the near future, the lessons from this experience will be used to implement the best practices and principles of the "Jornada Completa" in the other secondary schools of the PBA in the poorest districts\. The implementation of the "Jornada Completa" in the selected EGB3 schools will (i) increase equity, since the schools are selected with highest NBIs levels and serving at-risk student populations; (ii) help to increase the motivation of school actors and facilitate successful implementation of the EGB3 curriculum by providing additional educational resources; and (iii) provide access to national and international school/learning experiences for school principals and teachers\. b\. An innovative School Fund to finance school environment improvements\. The original idea of a special fund for teacher training institutes was rejected because: (i) the current TTI structure is not well-prepared for implementing this bottom-up approach; and (ii) TTIs' quality-of-output and cost-efficiency need to be assessed, and they need to have clear guidelines and criteria for accreditation in order to quality for public financing before targeted interventions in TTIs can be adequately determined\. Instead, this project provides incentives for improved learning and management at the school-level for a selected number of EGB3 schools in the poorest districts based on agreed and transparent eligibility criteria This can provide valuable insight in the mechanics of the necessary pedagogic change and the cost-impact of the "Jornada Completa"\. Selected TTIs will be involved in assisting and guiding the 200 EGB3 school in planning and implementing the "Jomada Completa" and the necessary staff and teacher training\. This can have a two-way positive effect on - 18 -  the quality of learning and teaching\. c\. Institutional strengthening\. It was decided not to include a specific component on institutional strengthening, because extensive technical assistance for this purpose is already being provided under the Prodymes I, II, and III\. Instead, by targeting EGB3 school in the urban poorest districts with transparent, management-related criteria and setting performance indicators for the main project interventions, the effort will have an impact on the selected EGB3 schools and their communities\. Lessons from this will then be applied on a wider scale\. d\. Funding TTIs to offer in-service training: The BASSEP will not directly fund TTIs and universities to provide pre-packaged teacher in-service and upgrading training\. Instead, the project will support the preparation of comprehensive plans at the school level to contract training services from qualified suppliers of teacher training such as universities and accredited TTIs, according to the management and pedagogical needs of the schools\. In addition, school teachers can apply for distance learning programs\. - 19 -  2\. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned)\. Latest Supervision Sector Issue Project (PSR) Ratings _________________________ _ |__ (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Need to strengthen the institutional Federal Secondary Education I S S capacity of the provincial ministries of (P005992-Ln\. 3794-AR) education and to increase the coverage and quality of secondary education\. Need to improve the quality of Federal Secondary Education II S S secondary education\. (P006057-Ln\. 3971-AR) Need to improve coverage, efficiency, Buenos Aires Secondary S S quality, relevance and equity Education (P050714-Ln\. 4313-AR) Need to promote greater equity, quality El Salvador Education Reform S and efficiency in the provision of Project (P050612-Ln 43200) education services\. Need to improve the internal and Chile Secondary Education S S external efficiency, quality, and equity Project (P06673 - Ln3883) of all the municipal and government-subsidized private secondary schools (about 1,600), and to strengthen sectoral managerial capacity\. Other development agencies Need to improve quality and coverage PRISE - Programa de of primary education in targeted areas\. Reformas e Inversiones en Educaci6n, IDB (AR-0122) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3\. Lessons learned and reflected in the project design: Chile education reform lessons\. The Chilean experience of education reform during the 1990 teaches several policy making and implementation lessons\. The proposed BASSEP is a small poverty-focused secondary education investment project, executed by the PBA government in the context of a larger national secondary education reform\. Therefore the following lessons from the Chilean experience - 20 -  are applicable\. A comprehensive reform effort to transform and upgrade the education opportunities offered by a national schooling system can be best undertaken when four conditions, existing in Chile in the 1990s, are present: * Social consensus about the need for changes * Political support at the highest level within the government * Sufficient financial resources to fund the changes in the system * A time horizon that is longer than the term of the government Chile initiated the frill school-day concept (or "Jomada Completa" --JC) in 1996 in primary and secondary education as a modality to be applied progressively system-wide\. To date (October 2000) the JC involves about 5,000 schools representing 50% of the total system and 22% of total enrollment in primary and secondary education\. Primary school teaching increased from 30 pedagogical hours (45 minutes) to 38 pedagogical hour weekly and secondary school teaching increased from 36 pedagogical hours to 42 pedagogical hours weekly\. The reasons for establishing the Jornada Completa in Chile were: (i) the need for more students' learning time devoted to basic skills (languages, information and communication technologies (ICT), mathematics, sciences, and teamwork) in the framework of the new curriculum; (ii) to allow teachers to spend more time in getting information for preparation of their classes as well as participate actively in the development of pedagogical projects in line with the objectives of the Education Reform; and (iii) to provide additional time especially "at-risk-students" attending schools located in poor rural and urban areas to improve their learning achievements\. The Jomada Completa was financed by increasing about 30% the subsidy paid by the government to public (municipalities) and private providers\. An additional fund was created to finance the infrastructure (new schools and remodeling) and equipment required for implementation of the Jomada Completa\. Since the inception of the Jornada Completa the Chile Ministry of Education (MINEDUC) carried out three studies: two internal and one external developed by the Center of Research and Educational Development (CIDE) dated April 2000\. The main conclusions are as follows: ? 80 % of the teachers indicate that the Jomada Completa has allowed them to improve significantly their pedagogical practices\. O 90 % of the teachers are convinced that their working relationship with students is much better now as a result of more and regular interaction and problem solving discussions\. * 67 % of the teachers consider that the Jornada Completa is helping them to improve the quality of education\. * Over 55% of the students indicate a positive attitude toward the Jornada Completa as a good way to improve their performance * 78% of the parents say they are fully in favor of the Jomada Completa because their children are learning more and different things, are more motivated and it is better to have them in the school rather than in the street\. * 62% of the School Principals indicate that teachers have more time for class preparation and that this is also expressed in less conflicts and a better school and classroom environment\. * the general perception of school Principals and teachers is that students under the Jomada Unica are improving significantly their learning and that at the end of the school cycles they will have better results (which is indicated in the 1998 and 1999 National Assessment Tests where schools under the Jornada Completa shown a clear tendency of improvement in comparison with schools that are still in the "Jornada Simple")\. * 60% of the teachers indicate that the Jornada Completa has positive effects on: (i) the reorganization of the school management; (ii) the effectiveness of the team work approach among teachers and pupils; and (iii) the commitment of the school to education reform\. - 21 -  Lessons learned from the Chile experience that were taken into consideration in the design of BASSEP are: * The Jornada Completa is a modality with an high social and equity content; therefore the implementation should target with priority schools where a majority of the students population are socially and economically vulnerable\. * The Jornada Completa is most successful when it is linked to a School Improvement Project (PEI) where the schools' main actors (directors, teachers, parents and students) have the opportunity to rethink the school environment and design their own proposals for improvements within transparent and flexible criteria\. * The Jomada Completa will bring more benefits when it is related to pedagogic and administrative decentralization processes, because these facilitate the decision making process at school level\. * The Jornada Completa must include special provisions and regulations concerning time limits spent by teachers in class preparation and in extra-curricular activities\. * An increase of the number of school hours is not a solution by itself to improve quality and equity in education; to have a real impact the Jornada Completa concept should apply at the same time to a new pedagogic and curricular model as well as to concurrent training for teachers and Principals and to timely provision of education inputs (libraries, laboratories for sciences, languages, and additional teaching and learning materials)\. * To avoid frustration, parents, students and communities must be informed timely about objectives, expected outcomes, new procedures, and additional pedagogic modalities which are to be applied in the schools and class rooms, especially concerning home work (amount, organization, support for pupils), recreation possibilities within the school, and procedures for work shops and group work\. 3 Given the intrinsic complexity of the application of Jornada Completa, close monitoring of the implementation, monitoring of additional costs, periodic assessment of learning improvement, evaluation of the schools' Development Plans (PEI), and the overall pedagogic concept of the Jornada Completa must be carried out; therefore the project design and the impact indicators reflect special provisions for: (i) student performance evaluation and motivation; (ii) the opinion of the teachers, school director, parents and pupils regarding the improvement of the school environment and implementation of the "Jornada Completa"; (iii) the use of time during the longer school day; (iv) changes in pedagogical practices; and (iv) effectiveness of the school PEI in managing the schools and making the school more autonomous\. The PBA has a large consensus in the education community regarding the need for change\. It has also demonstrated strong ownership for its secondary education reform process and corresponding projects co-financed by international agencies\. The political will to support and move forward is strong and extends to the highest levels\. The financial resources to fund the change are made available, but this happens in a time of considerable budget constraints\. This hampers the reform process to a certain extent\. So far, the support and a scaled-down budget continue to support the transformation process, but additional resources at the school level remain scarce\. The time horizon of this reform is longer (a decade) than the term of government, and this PBA government, which took over in December 1999, has endorsed the reform agenda completely\. Simple project design\. Simplicity in the design of a project helps assure successful implementation\. This lesson stems from the difficulties faced during the first stages of the implementation of Secondary Education I due to its complexity\. Simple projects are less vulnerable to changes stemming from budgetary constrains because they are flexible enough to adjust their implementation\. The proposed project has few components and simple implementation mechanisms\. Synchronization with government policies\. Experience in Argentina Secondary Education Projects I, II - 22 -  and III shows that synchronizing the implementation of the project with government policy andlor different stages of the reform is crucial to avoid administrative and implementation delays or obstacles\. Projects linked to long-term reform policies maintain their viability despite political and management changes\. The implementation activities of this project are designed to coincide with the timetable of the implementation of the Polimodal transformation in the PBA\. Articulation with ongoing secondary education projects\. Bank operational experience indicates that, especially in countries as large as Argentina, not one single project can work on all sector issues (e\.g\., sector management, education quality) at all levels (e\.g\., federal, provincial, school levels)\. In some cases, the most effective alternative is to articulate the components of several projects working at different levels\. This is the approach that we have adopted for the Secondary Education I, II and III\. The proposed BASSEP is a small project, but it will deliver important data and lessons on: (i) pedagogic improvements and bottlenecks for reform at school level; (ii) the costs of the introduction of the Jomada Completa; and the changes that need to be made in the schools and classrooms to get a better link with the local communities\. These results and information are complementary to the ongoing projects, and together they will support the comprehensive and complex secondary education reformn in the Province of Buenos Aires\. School community participation\. Experience in other Latin American countries such as Brazil, Chile and El Salvador, demonstrates that strong school community participation in the education process has advantages such as increased accountability, greater communication, and improved school management\. In the proposed BASSEP the Jomada Completa concept encourages and promotes more participation by and better information to parents and local communities\. These elements are also expressed in the project impact indicators\. Institutional strengthening\. Experience shows that an adequate institutional capacity at the central level is crucial to the success of the project\. Projects that support reform do not produce immediate outputs; therefore, they require participation at several levels, an implementation strategy, well-defined goals, and clear procedures and responsibilities\. Since the project is linked to the Secondary Education I project, which focuses on administrative reform, the proposed project does not necessary to include an ample institutional strengthening component at the provincial level\. 4\. Indications of borrower commitment and ownership: The legal framework and provincial commitment are conducive to the implementation of the reform\. The PBA passed the Provincial Education Law in 1995, which endorsed the transformation launched by the Decentralization Law (1992) and Federal Education law (1993)\. Additionally, the PBA and the Federal Government signed the Federal Education Pact in which, among other things, the Province agrees on the phasing of the reform between 1994 and 1999\. Currently, a provincial draft law to extend mandatory education to the Polimodal has been submitted to the provincial legislation\. In addition, the PBA is more advanced, in comparison to most other provinces, in the implementation of the reform\. It has shown commitment to the reform by completing the EGB transformation one year in advance (1997), and by continuing to provide substantial support and resources to the ongoing Polimodal transformation\. The proposed BASSEP will be financed for over 67% by the DGCyE, and preparatory actions have already begun\. Some important actions that demonstrate provincial commitment are: a\. Secondary education reform\. The DGCyE's Administration Secretariat and Basic Education - 23 -  Secretariat have taken the lead in the Polimodal transformnation by preparing extensive quantitative and qualitative diagnostic studies of the secondary education transformation\. Based on the findings of these studies, the DGCyE will implement the proposed project\. b\. Decentralization\. The DGCyE team, in charge of the Administrative Reform in the education sector, has confirmed the current and near-future implementation of five institutional reforms necessary for the feasibility and sustainability of the quality improvements financed under the proposed project\. These reforms are: (i) decentralized school budgets for learning materials and small maintenance, particularly in technical schools; (ii) incentives for concentration of teaching hours in the same school (keeping teachers together as much as possible in one school; currently most teachers in urban areas have a timetable in 3-5 different schools: "taxi-profesores") ; (iii) incentives for teachers tied to training and career development; (iv) availability of paid staff hours and school facilities for the development of extracurricular activities; and (v) decentralized decision-making to the districts and an effective MIS\. In addition, the PBA is implementing an effective staff- and teacher MIS (legajo unico informatizado) which will deliver significant savings in the medium term\. c\. Quality\. The PBA is implementing a structure to measure quality in education while supporting annual assessments carried out nationally by the Federal Ministry of Education\. d Teacher training\. The PBA is carrying out: (i) a reorganization of the supply of teacher training careers according to curricular reform requirements; (ii) an assessment of teacher training in the public and private sectors in the framework of PRISE; and (iii) in-service training for school directors (principals) and inspectors\. e\. Private Sector\. The PBA has institutionalized policies geared to: (i) strengthen the private institutions' supervision and (reconocirniento) tools and mechanisms; (ii) improving targeting criteria to define and quantify subsidies to the private schools and institutions; and (iii) defining internal efficiency variables in subsidized private schools, non-subsidized private schools and public schools\. 5\. Value added of Bank support in this project: The Bank's financial and technical assistance will provide valuable contribution to the project's design and implementation, particularly because the Bank has substantial experience with Argentina's education system\. In the ongoing Federal Secondary Education I project, the Bank is working with seven provinces, the Federal Secondary Education II project is financing secondary schools in all provinces and the PBA Secondary Education (III) project is finalizing the expansion and rehabilitation of EGB3 and Polimodal schools and supporting the transition from the traditional secoindary structure to Polimodal\. Furthermore, Provincial Reform Loans (PRLs) are also working directly or in preparation with other provincial governments (Catamarca, Tucuman, Cordoba, Salta, Santa Fe)\. In addition, the Bank provides a balanced expert opinion in project design and implementation\. Particular to this project, the Bank's team offers expertise and familiarity with the latest international developments on secondary education and implementation of the Jornada Completa and pedagogical decentralization programs (school-based programs for youth) particularly in Chile and El Salvador\. - 24 -  E\. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1\. Economic (see Annex 4): * Cost benefit NPV=US$195 million; ERR = N/A % (see Annex 4) o Cost effectiveness O Other (specify) 1\. Economic Analysis (see Annex -4): Cost-Benefit Analysis: NPV=US$195 million The Economic Analysis indicates that the project is justifiable on economic grounds\. The analysis considers both the direct project costs as well as the future recurrent costs\. It also takes into account the combined effect of the reduction of repetition and drop-out rates on enrollment and incremental costs\. The main benefit of the project derives from the increase in students' expected income due to an increase in the EGB3 completion rate (grade 9 completion) that can be expected from the reduction in drop-out rates produced by the implementation of the "Jomada Completa" in the selected (about 200) EGB3 schools\. Various simulations were done to assess the sensitivity of the calculations to different assumptions concerning the impact of the project on drop-out and repetition rates (50%, 33%, or 25% decrease in both rates)\. The NPV reaches a maximum of US$195 million under the most favorable assumption and a minimum of US$23\.6 million under the least favorable one\. 2\. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) 2\. Financial Analysis (see Annex 4): The Financial Analysis indicates that the project has a slightly positive NPV which derives, basically, from two counteracting effects on personnel costs: an increase produced by the implementation of the "Jomada Completa" and a decrease associated with a reduction in pupil repetition rates, an improvement in the efficiency of teacher deployment and a reduction in the number of substitute teachers\. Fiscal Impact: Additionally, a financial analysis was performed to evaluate the recent fiscal performance of the Province of Buenos Aires and the fiscal impact of the proposed BASSEP\. The project would have a relatively minor fiscal impact, with a total cost of US$173 million over four years\. It would represent only approximately 0\.5 percent of projected provincial revenues over that period\. However, it should be pointed out that the Province of Buenos Aires faces a serious fiscal imbalance (representing around 20 percent of its current revenues) and an increasing debt to revenue ratio (projected to reach 65-70 percent at the end of this fiscal year)\. This will require a future fiscal adjustment which might make it difficult for the Province to expand, or continue the implementation of the "Jomada Completa" on a larger scale\. 3\. Technical: The project is technically justified on the basis of the public nature of the education problem it addresses: improving quality and equity of education service delivery and learning for socially and economically disadvantaged students from the poorest urban areas in selected (about 200) EGB3 schools, which are part of the PBA effort to transfonn its secondary education sector\. The BASSEP will respond to this problem - 25 -  in a cost effective and appropriate manner by: a\. Supporting the reform process in the PBA education for the mandatory Basic Education cycle (EGB3); the PBA has taken the lead in implementing the national education reform; the PBA serves almost half of all pupils in basic education in Argentina; b\. Addressing the problems related to the lack of motivation for schooling among youth by providing more attractive educational services, involving students in extracurricular activities and raising chances of successful graduation\. c\. Introducing the Full Day Schedule and innovative pedagogic programs for EGB3 schools in the poorer districts\. d\. Promoting a better exchange of education performance and experiences between PBA schools and districts\. e\. promoting more decentralized education management in Districts and EGB3 schools, with increased school autonomy in using financial resources\. f\. Improving the efficiency of learning and the management within the EGB3 schools\. 4\. Institutional: Executing agencies\. The Provincial government is committed and institutionally ready to implement the project\. The PBA's Directorate General of Culture and Education (DGCyE) will be the responsible party and the main executing agency of the project\. The project will be implemented by the Administration and Basic Education Secretariats, several executing agencies and main stakeholders (Cooperadoras and school communities)\. There will be an active involvement of school communities, composed of teachers, students, parents and school administrators, who will all be beneficiaries of the project implementation\. They will: (i) supervise and administrate public works in their school; (ii) be provided with technical assistance and training for the implementation of the "Jomada Completa; and (iii) run the extracurricular programs for students (innovative school projects, and Youth programs -- AIJE) at the school level\. 4\.1 Executing agencies: The Provincial government is committed and institutionally ready to implement the project (see Indications of Client commitment and ownership, above)\. The PBA's Directorate General of Culture and Education (DGCyE) will be the responsible party and the main executing agency of the project\. Within the DGCyE: the Subsecretariat for Education, the Subsecretariat for Administration, and the Project Implementation Unit (Unidad Ejecutora de Proyecto -- UEP) will be the main implementing and managing units\. Education Stakeholders (school administrations, teachers, and local school communities) will be also be involved in planning and implementation at the local level\. 4\.2 Project management: For the technical pedagogic aspects of the "Jornada Completa", their related teacher and school director training and consultant services, and the innovative school and youth projects the project will be supervised by a "Project Supervisory Council", which will be appointed by the Director General of the DGCyE\. The "Project Supervisory Council" means the council referred to in Section 3\.06 (e) of the Loan Agreement, composed by: (i) the administrative sub-secretary; (ii) the sub-secretary of education, assisted by: (A) the provincial director for planning; (B) the provincial director of higher education and teacher training; and (C) pedagogic specialists; and (iii) the Project Coordinator of the UEP\. The "Project Supervisory Council" will meet at least twice per year, and will be responsible for: (i) monitoring and evaluation of the implementation of the "Jomada Completa"; (ii) designing and monitoring the required specific studies and surveys related to the project impact and project implementation indicators; (iii) -26 -  delivery of the bi-annual project progress reports to the World Bank in accordance with a pre-agreed format\. The UEP is satisfactorily coordinating three Bank education projects and one IDB project at the provincial level\. In order to manage the BASSEP as well, the UEP was appropriately reorganized and provided with additional staff\. The UEP's dynamic working relations and open communication with the EGB3 schools and other primary executing agencies established during project preparation will facilitate project management\. The UEP will be responsible for: (i) daily project management; (ii) all administrative project requirements under supervision of the "Project Supervisory Council"; (iii) preparation and production of the bi-annual project progress reports in close coordination with the relevant pedagogic departments in the DGCyE; and (iv) implementing and monitoring all civil works and procurement of goods and services\. 4\.3 Procurement issues: An assessment of the agency in charge of implementing procurement actions for the project has been carried out identifying the organizational structure of the proposed PCU, the capacity and experience to implement procurement and interaction between the project's unit and the Ministry of Education and other provincial authorities (Tribunal de Cuentas de la Provincia de Buenos Aires, Auditoria Interna de la Direcci6n General de Cultura y Educaci6n -DGCyE-, etc\.)\. The Bank's task team and the Borrower's representatives agreed on a specific action plan to address the weaknesses and potential risks identified in the Agency Capacity Assessment, defining a time table for implementing the corresponding activities\. A satisfactory action plan and the implementation of the early activities is a condition of loan effectiveness\. The project's risk factor has been determined as "AVERAGE"\. 4\.4 Financial management issues: The project satisfies the Bank's minimnum financial management requirements\. However, the project does not yet have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project (PMR) as required by the Bank/IDA for PMR-Based Disbursements\. It has been established that the PCU/UEP maintains: (i) adequately trained and qualified staff; and (ii) separation of functions and responsibilities, which ensure adequate intemal management control and which prevents conflicts of interest\. It was agreed that there will be SOE-based disbursement for transition period of six-month (6) from the effectiveness\. An action plan by the borrower to remedy the situation has been agreed (see Annex 6)\. 5\. Environmental: Environmental Category: C (Not Required) 5\.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis\. The proposed project has been rated category "C" based on information provided at the appraisal stage\. Currently the Bank has three secondary education projects and one higher education project under supervision with similar construction and rehabilitation components\. The Bank has ample experience in supervising these projects, and all have followed the normal provincial and federal practices for school construction and rehabilitation, which require: (i) adequate student and staff sanitation facilities; (ii) use of approved building materials for school environments; and (iii) adequate facilities for waste disposal from science laboratories\. School sites for new construction are located in areas where there is no risk of flooding, or archeological and cultural importance\. All these ongoing projects were categorized as environmental category "C"\. All Bank supervision reports have rated project performance as satisfactory or above\. All new school buildings have been approved by the local authorities and are currently in use without any complaints or defects\. -27 -  In the past 3-4 years of education project supervision the Bank and the project authorities have not received any complaints from the local population (parents, students, communities), nor from other representatives (local, provincial or federal authorities) about any environmental aspects of the education projects\. This is a small scale project, with the major objective being a new pedagogic model in 200 secondary schools\. There are no indigenous people involved, nor will any population or group be displaced\. The Bank's supervision task teams ensure careful selection of new school sites in order to avoid issues related to resettlement and to negative impacts on natural habitats and on cultural property\. a\. Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis: N/A b\. What are the main features of the EMIP and are they adequate? N/A c\. For Category A and B projects, timeline and status of EA and date of receipt of final draft: N/A How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environmental management plan? Describe mechanisms of consultation that were used, and which groups were 5\.2 What are the main features of the EMP and are they adequate? N/A 5\.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: N/A N/A 5\.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? N/A 5\.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? N/A 6\. Social: 6\.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes\. Background To date, considerable information about the social sectors in Argentina has been gathered: (i) in 1998 and 1999 the Bank carried out a poverty study in Argentina that focused on poverty data by province and the link between this variable and the educational level achievement and labor market participation in the provinces; (ii) in 1999 the Bank carried out a study on the management of social risk that focuses on social risks by age group and the type of coverage available through social programs, including educational services; and (iii) a study on institutions which provide services to the socially-excluded, focusing on the city of Buenos Aires\. As part of the preparation of BASAL project ( Buenos Aires Social Adjustment Loan) the PBA, with the support of the Bank, carried out a survey on the social sectors\. A Social Assessment (SA) was carried out to determine the impact of education reform in areas of high incidence of - 28 -  poverty and to identify obstacles to be considered in its implementation\. The SA has two phases; Phase I was completed during project preparation, and Phase II will be completed during the first year of project implementation\. Methodology Phase I Focus groups of parents, youth from the community (including those who attend and those who do not attend school), teachers, and school administrators in the five pre-selected priority schools in socio-economic disadvantaged communities were organized to act as control group to the schools selected for the implementation of Jomada Completa\. The focus groups were interviewed on a range of issues pertaining to (i) the concept of Jomada Completa and its usefulness; (ii) perception of the quality of education provided in public schools; (iii) perception of the relationship between secondary education and access to the labor market; (iv) factors that will improve the quality of education; (v) perception of the scholarship program and its relation to Jomada Completa; and (vi) opinion on the implementation of education reform in the PBA\. Phase II\. A review of the interviews carried out for the AIJE study and the selection of beneficiary groups under first BA Secondary Education Project (Prodymes III) will be used to determine the impact of the proposed project\. Other outputs include (i) a summary report on the poverty situation in the PBA; (ii) the impact of the scholarship program among the poorest and in academic performnance; and (iii) control groups in schools for future comparison\. Conclusions\. The assessment concluded that the proposed project will adequately respond to the social issues raised by the stakeholders by including the following: * Increased psychological and pedagogic assistance to youth in schools at risk * Determine the impact of the scholarship program on youth attending Jomada Completa schools * Increased communication campaign to encourage parents to send their children to school * Determine if consensus (through school development programs, PEIs) to transform education in Jomada Completa schools is the most efficient/effective agent of school reform 6\.2 Participatory Approach: How are key stakeholders participating in the project? The focus groups included teachers, supervisors, students, parents , and community based organizations (basically Cooperatives or "Cooperadoras") \. 6\.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The project design received inputs of "Conciencia" one of the biggest NGO's in the education area and, especially the consultations with "Cooperadoras Escolares" (parents organization at each school) and students centers in the Social Assessment\. OIM (International Migration Organization) carried out the Social Assessment\. CEB (Centro de Estudios Bonaerenses) carried out the BASAL Survey\. 6\.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The eligibility criteria of the selected (about 200) EGB3 schools, are based on social assessment conclusions and will be monitored before and during project implementation\. During supervision the World Bank will supervise the following agreements to respond to the social issues raised by the stakeholders: - 29 -  * Increased and improved psychological and pedagogic assistance to Youth in schools at risk (Youth Programs in schools or AIJE) * Determine the impact of the scholarship program on Youth attending "Jomada Completa" selected EGB3 schools (also using a control group) * Increased communication campaign to encourage parents to sent their children to school * Specially designed training program for teachers in the selected "Jomada Completa" schools, including training in dealing with social problems such as teenage pregnancy, adolescent sexuality; and problems related to how to deal with Youth from socio-economically disadvantaged backgrounds, their legal guardians and their parents\. 6\.5 How will the project monitor performance in terms of social development outcomes? At least 200 EGB3 schools selected on the same eligibility criteria (in the poorer urban areas and with a majority of pupils enrollment categorized as "matricula en dificultad") will act as control group to check if the "Jomada Completa" will accomplish its objectives of improving quality and attendance among the poorer Youth\. 7\. Safeguard Policies: 7\.1 Do anv of the following safeguard policies apply to the project? Policy Applicability Environmental Assessment (OP 4\.01, BP 4\.01, GP 4\.01) 0 Yes * No Natural habitats (OP 4\.04, BP 4\.04, GP 4\.04) 0 Yes 0 No Forestry (OP 4\.36, GP 4\.36) 0 Yes * No Pest Management (OP 4\.09) 0 Yes * No Cultural Property (OPN 11\.03) 0 Yes * No Indigenous Peoples (OD 4\.20) 0 Yes * No Involuntary Resettlement (OD 4\.30) 0 Yes * No Safety of Dams (OP 4\.37, BP 4\.37) 0 Yes 0 No Projects in International Waters (OP 7\.50, BP 7\.50, GP 7\.50) 0 Yes * No Projects in Disputed Areas (OP 7\.60, BP 7\.60, GP 7\.60) 0 Yes 0 No 7\.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies\. N/A F\. Sustainability and Risks 1\. Sustainability: Given its size, the project would have relatively minor fiscal impact, and will be sustainable because the additional cost of: (i) extending the school day in the 200 schools targeted by the project; and (ii) maintaining the pedagogical equipment and the pedagogical services will be offset by a reduction of current expenditures in the following two main areas: (1) raising of the pupil teacher ratio together with a reduction in the repetition rate; and (2) cutting the number of substitute teachers (see financial summary in annex 5)\. The project will carefully monitor during its implementation the cost effectiveness of the "Jornada - 30 -  Completa"in the 200 targeted schools before applying it on the wider scale in the PBA Education System\. Because of the difficult fiscal situation of the province, a decision will have to be made whether or not this extension would be financially sustainable\. Part of the answer lies in the capacity of the provincial governnent to carry out the envisioned improvement of the management of teaching staff, as well as its effective redeployment among the school system\. 2\. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Continuity of the Federal policy for N The project is part of an overall reform, which is education; and Stability in the Provincial almost completed (EGB and Polimodal)\. This Administration and in higher level staff in project will support 200 selected EGB3 schools charge of the education policy\. during a three year implementation period and includes a participatory approach to involve all key stakeholders\. The new PBA government has declared that ongoing education reform is one of its main priorities\. Weak commitment by the PBA to take M The Province of Buenos Aires is installing the actions regarding teacher and staff "legajo unico" staff monitoring system in all absentisms, staff reductions resulting schools, and it will be operative before the new from the application of the "legajo unico" 2001 school- year starts\. It will be applied with and implement the Administrative Reform priority for the selected (about 200) EGB3 agenda agreed with the Federal schools\. Government\. Cooperation from teachers and school M The training and consultant services, combined directors to implement the "Jomada with close cooperation with the parents, and Completa" is important for success\. This with annual surveys of these groups in the will involve changing the working selected (about 200) EGB3 schools and in an conditions of school teachers and staff\. equivalent "control group of schools, will ensure that the Jomada Completa will be implemented and at the same time remain flexible enough to address upcoming problems and issues Fiscal constraints in the PBA public H The overall estimated additional costs for the budget may limit the available resources "Jomada Completa" in the selected (about 200) for education EGB3 schools represent less than I percent of the DGCyE's annual budget\. In addition, the PBA has reached a formal agreement with the Federal Government to eliminate the provincial budget shortfalls by the year 2003 From Components to Outputs - 31 -  Resistance from private secondary M The selected (about 200) EGB3 schools will be schools to participate and apply the selected according to agreed criteria related to lessons and standardized norms for poverty, school director and teachers' interest in performance in their schools participation, and interest from the community, students and parents Reluctance from the staff and teachers in S The selected (about 200) EGB3 schools have the schools and at district level to been selected in a process of full participation participate and apply the new pedagogical from the schools, and teachers and staff in the model\. selected schools will need to express their interest\. Training programs have also been set up to explain the benefits and motivate the teachers and school directors\. Inefficient administration, monitoring and M Progress in implementing the ongoing Buenos performance evaluation could affect the Aires Secondary Education project (Prodymes timely and synchronized school level III) has laid the foundations for sound implementation of the various educational administration and effective monitoring and inputs necessary to improve quality and performance evaluation\. In addition, the equity\. DGCyE cabinet is involved in bi-annual project evaluation meetings, which will allow timely corrective action\. In most of the selected EGB3 schools H Two components will make the school more considered for participation in the project, attractive to teenagers: (i) participatory the teenagers feel alienated from their extra-curricular activities; (ii) laboratories, ICT school and have dropped out\. The student equipment and the multi-media libraries, motivation for the new "Jomada financed under the project\. In addition, the Completa" may not be sufficient to get student programs, focused on extra student-led them back in school and get successful activities, have been successful in the Polimodal graduation and EGB3 schools financed under the ongoing Prodymes III project\. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3\. Possible Controversial Aspects: The selection of the limited number of EGB3 schools (about 200) in the poorest urban districts may lead to problems in the relationship of DGCyE with other schools in the same districts, which will also want to benefit from the project\. However, the DGCyE has started an intensive campaign of public awareness and has developed criteria to allow more EGB3 and Polimodal schools to apply the "Jomada Completa" in the coming years\. - 32 -  G\. Main Loan Conditions 1\. Effectiveness Condition Project Operational Manual (Section 3\.03 of the Loan Agreement)\. A project operational manual, satisfactory to the Bank, will be submitted before the Loan effectiveness, including, inter alia: (a) scheduled local workshops and training sessions at Selected EGB3 Schools; (b) the terms of reference, functions and responsibilities for PCU staff; (c) the administrative rules and procedures for planning, preparing, proposing, financing, supervising, and carrying out the Innovative School Subprojects; (d) the standard outline terns of reference for consultants' services to be procured under the Project; (e) the criteria and procedures for the review and approval of loan withdrawal applications to the Bank, in conformity with the instructions that the Bank may give to the Borrower in this respect; (f) the environmental criteria for selection of the sites for construction of new schools, as well as mandatory safeguards for any action which could possibly have a negative impact on natural habitats and cultural property; and (g) the schedule for construction, rehabilitation and equipment of the Selected EGB3 Schools, including the external evaluation report for equipment bid specifications through (an) independent consultant(s) satisfactory to the Bank\. Financial Procedures Manual\. Within the meaning of Section 12\.01 (c) of the General Conditions the following was agreed as a condition of Loan effectiveness: the Financial Procedures Manual has been adopted by the PCU\. The School and Parents Project Information Guide (Section 3\.07 of the Loan Agreement) will be submitted to the Bank before Loan effectiveness\. The Borrower, through DGCyE, shall prepare a pedagogical and technical information guide on the Full Day Schedule (the School and Parents Guide) for the selected EGB3 Schools, satisfactory to the Bank, said guide to include, inter alia: (a) objectives of the Full Day Schedule; (b) action plans for the implementation of the Full Day Schedule; (c) methodology of teachers and school directors' training and evaluation of the results of such schedule in teaching and management; (d) guidelines for curricular changes; (e) school level monitoring indicators; and (f) available resources and schedule of approximate delivery to Selected EGB3 Schools\. Student and School Performance database (Section 3\.08 of the Loan Agreement)\. The Borrower, through DGCyE, shall prepare and submit to the Bank before Loan effectiveness, within SIS, the baseline data for school and student performance\. The baseline data, satisfactory to the Bank, shall include evaluative comparisons of student and school performance for (i) the selected (about 200) EGB3 schools; and (ii) a "control" group of at least 200 EGB3 schools (with a socially comparable student population) which do NOT apply the "Jomada Completa"\. The "SIS" means Sistema de Informaci6n Socio-Educativa, the Borrower's social and educative information database, created pursuant Provincial Resolution No\. 13252, dated December 7, 1999\. 2\. Other [classify according to covenant types used in the Legal Agreements\.] Project Management and Project Supervisory Council\. Section 3\.06 of the Loan Agreement: The Borrower, through DGCyE shall: (a) maintain within the DGCyE, during the execution of the Project, a unit (the PCU) for the overall management, coordination and monitoring and evaluation of the Project with functions and responsibilities acceptable to the Bank; - 33 -  (b) ensure that the PCU is headed, at all times during the execution of the Project, by a project coordinator (the Project Coordinator) with qualifications and experience acceptable to the Bank; (c) cause the PCU to have key staff with functions, experience, responsibilities, and qualifications acceptable to the Bank, in adequate numbers; (d) ensure that the PCU prepare, under terms of reference acceptable to the Bank, adopt, and update on a regular basis a manual for the implementation of financial procedures; and (e) appoint and maintain during the execution of the Project a "Project Supervisory Council", with membership satisfactory to the Bank, to be responsible for: (i) the monitoring and evaluation of the implementation of the Full Day Schedule; and (ii) the delivery of the semi-annual progress reports referred to in Section 3\.05 of the Loan Agreement\. The "Project Supervisory Council" means the Council referred to in Section 3\.06 (e) of the Loan Agreement, composed by: (i) the Administrative Sub-secretary; (ii) the Sub-secretary of Education, assisted by: (A) the Provincial Director for Planning; (B) the Provincial Director of Higher Education and Teacher Training; and (C) pedagogic specialists; and (iii) the Project Coordinator of the UEP\. Performance Monitoring Indicators and Midterm Review\. Section 3\.05 of the Loan Agreement: The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the Monitoring Indicators, the carrying out of the Project, and the achievement of the objectives thereof, and shall by February 28 and August 31 of each year of Project execution, provide the Bank with semi-annual progress reports on the execution of the Project, in a format acceptable to the Bank, and including the Monitoring Indicators referred to above; and (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank by not later than February 28, 2003, a mid-term implementation review report, on the progress achieved in the carrying out of the Project, during the period preceding the date of said report, and setting out the measures recommended to ensure the efficient carrying out of the Project, and the achievement of the objectives thereof during the period following such date\. Project Closure Report\. Section 3\.04 of the Loan Agreement\. The Borrower shall (a) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, a plan designed to ensure the continued achievement of the Project's objectives; and (b) afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan\. Project Completion and Closure dates\. The Project is expected to be completed by July 31, 2004, and the closure date is established as January 31, 2005\. The following items will be agreed in a Supplementary Letter to the Loan Agreement: Student and School Performance database\. Section 3\.08 of the Loan Agreement: The Borrower, through DGCyE, shall prepare and maintain, within SIS, a database, satisfactory to the Bank, in order to provide statistical, management and pedagogic information on improvement of school performance of Selected EGB3 Schools located in poor areas of the Borrower's territory\. The "SIS" means Sistema de Informaci6n Socio-Educativa, the Borrower's social and educative information database, created pursuant Provincial Resolution No\. 13252, dated December 7, 1999\. The data submitted to the World Bank will be: * analyzed regarding comparable student and school performance; - 34 -  * effectiveness of "Jomada Completa" program in the selected (about 200) EGB3 schools, * analytically compared with a "control" group of at least 200 EGB3 schools which do NOT apply the "Jornada Completa" but also have a majority of their student population coming from poorer households\. The analytical reports will be submitted once per year as part of the semi-annual progress report before February 28\. Learning Achievement Assessment\. DGCyE will design and implement annual learning achievement tests for the last two years of the EGB3 cycle (grades 8 and 9) in at least three academic subjects which are covered by the "Jomada Completa" curricula for (i) the total pupil enrollment of grades 8 and 9 in the selected (about 200) EGB3 schools; (ii) total pupil enrollment of grades 8 and 9 in a "control group" of at least 200 EGB3 schools with comparable student enrollment from poorer households; and (iii) a representative sample of grades 8 and 9 pupils in EGB3 in the Province of Buenos Aires\. The leaming achievement test results will be analyzed (a) per district, per school, per subject and per gender; and (b) compared with the leaming results for the Province of Buenos Aires from the annual national achievement tests ("Operativo Nacional") for the two most recent years for which these results are available\. The first achievement tests will be executed at the end of the school-year 2001 and each year thereafter\. Staff and Teacher Monitoring System ("Legajo Unico Electronico")\. The staff and teacher monitoring system ("Legajo Unico Electronico") will be fully operational in the 200 selected EGB3 schools before the end of school-year 2001\. The DGCyE will submit a comprehensive monitoring report to the Bank before February 28, 2002, based on the "Legajo Unico" monitoring results and include strategic staff and teacher deployment recommendations\. Project Social Assessment\. The second part of the project "social assessment", according to the agreed termns of reference, will be executed in a timely manner in the first year of project implementation by an organization independent from the DGCyE, under a contract issued by the project implementation unit (UEP)\. H\. Readiness for Implementation 1 1\. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation\. El 1\. b) Not applicable\. C 2\. The procurement documents for the first year's activities are complete and ready for the start of project implementation\. 1 3\. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality\. 1 4\. The following items are lacking and are discussed under loan conditions (Section G): The Financial Procedures Manual (within the meaning of Section 12\.01 (c) of the General Conditions) needs to be adopted by the PCU\. The Project Operational Manual (Section 3\.03 of the Loan Agreement) Student and School Performance database (Section 3\.08 of the Loan Agreement)\. The School and Parents Project Information Guide (Section 3\.07 of the Loan Agreement) Baseline data for project performance impact indicators (see Annex 1) will be established during the first school year of project implementation\. - 35 -  1\. Compliance with Bank Policies Z 1\. This project complies with all applicable Bank policies\. C 2\. The following exceptions to Bank policies are recommended for approval\. The project complies with all other applicable Bank policies\. N (y Jacob H-I\. B an Jamil Sakmi Myrna L\. Alexander Team Leader Sector Manager Country Manager - 36 -  Annex 1: Project Design Summary ARGENTINA: Buenos Aires Second Secondary Education Project Key Performance Hierachy of Oblecives Indicators Monitoring & Evaiuation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sectorl country reports: (from Goal to Bank Mission) Improve the quality and equity elncrease in Province of *Project Monitoring Reports *Continuity of the Federal of secondary education Buenos Aires test scores of *Household and poverty education policy the "Operativo Nacional' (the surveys *Argentina's and the PBA's national assessment tests) for *Specific surveys and sample economies improve grade 9 (EGB3 level) testing *The PBA recovers from its *Increase in Transition and *DGCyE's Social and budget deficit Retention rates at EGB and Educative Information *Stable Provincial Polimodal levels System ("Sistema de government relations with *Increase in access to Informacion Socio-Educativa education stakeholders schooling for students from -- SIS") (teachers and Unions) socio-economically disadvantaged households Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: 1\. Increase access to quality *EGB3 level student *Project bi-annual *Education stakeholders education and improve completion rates (grade 9) in Implementation Monitoring participate and support the equity by supporting the the selected EGB3 schools Reports (PIMR) EGB3 schools and the implementation of a Full are equal or exceed the *Midterm Project Review "Jornada Completa" program Day Schedule (known as the provincial average EGB3 (MPR) *Budget allocation for the "Jornada Completa") in completion rate specified *Specific consultancy reports implementation of "Jornada selected EGB3 schools separately for girls and boys\. *Individual School statistics Completa" is provided serving students from the and monitoring reports * EGB3 schools' have the poorest households *Student transition rate from *DGCyE's Social and capacity to manage and EGB3 to the first year of Educative Information monitor the schools' Polimodal level in the System ("Sistema de pedagogic improvement selected EGB3 schools will Informacion Socio-Educativa programs (PEIs) be equal or exceed the -- SIS") and other DGCyE eContinued demand for EGB3 provincial average for EGB3 reports and statistics and Polimodal education transfer to "Polimodal" level *Operativo Nacional de (grade 10) as specified per Educaci6n results gender) *Household and poverty *Decrease in repetition rate surveys for the EGB3 level in the selected EGB3 schools to at least equal or better than the average repetition rate at provincial EGB 3 level (average provincial repetition rate for EGB3 in _1999 was 15% per grade) I - 37 -  *Pupil learning performance *Accurate targeting of EGB3 results in the selected EGB3 schools' beneficiaries based schools are equal to or on verifiable and realistic exceed the learning social assessment criteria performance of provincial averages in the same subjects as in the t national achievements test ("Operativo Nacional")\. Pupil learning performance will be tested by specially designed sample-based pupil tests in each grade of the EGB 3 level for the selected schools and an equal representative sample of EGB3 pupils in schools without the "Jornada Completa" model\. The assessment test will be designed and applied with technical assistance from international consultants (PISA and TIMSS) Improve school *EGB3 level student *PIMR * schools' capacity is management as a completion rates (grade 9) adequate to manage the necessary complement to in the selected EGB3 *MPR increased administrative and the introduction of a "Full schools are equal or financial resources Day Schedule" in the exceed the provincial eSpecific school performance DaylSctedule in schools exceraged the prom tio reports (PEI and AIJE) *School Directors, teachers selected EGB3 schools average EGB3 completion results and community leaders rate specified separately accept and support the for girls and boys\. *School and community "jomada completa" model *Student transition rate surveys and interviews with from EGB3 to the first parents, students and year of Polimodal level in community leaders the selected EGB3 schools will be equal or exceed *Ministry of Economics the provincial average for financial reports and DGCyE EG133 transfer to annual statistics and the EPoimoal trnsere to ad "Legajo Unico" system "Polirnodal" level (grade *DGCyE's Social and 10) as specified per Educative Information gender) System ("Sistema de Informacion Socio-Educativa -- SIS") - 38 -  *Decrease in repetition rate for the EGB3 level in the selected EGB3 schools to at least equal or better than the average repetition rate at provincial EGB 3 level (average provincial repetition rate for EGB3 in 1999 was 15% per grade) *Pupil learning performance results in the selected EGB3 schools are equal to or exceed the learning performance of provincial averages in the same subjects as in the the national achievements test ("Operativo Nacional")\. Pupil learning performance will be tested by specially designed sample-based pupil tests in each grade of the EGB 3 level for the selected schools and an equal representative sample of EGB3 pupils in schools without the "Jomada Completa" model\. The assessment test will be designed and applied with technical assistance from international consultants (PISA and TIMSS) *All school directors in the selected EGB3 schools have been trained and the majority is satisfied with the quality, relevance and effectiveness of the training (based on annual random sample surveys and personal interviews) - 39 -  *AII school directors in the selected EGB3 schools have been trained and the majority is satisfied with the quality, relevance and effectiveness of the training (based on annual random sample surveys and personal interviews) *Student, parents and community attitude toward secondary schooling in districts of targeted selected EGB3 schools has improved (based on representative annual surveys and a number of follow up interviews with parents, students and community leaders) eSecondary school and classroom management criteria and best practices have been evaluated and the results have been produced in a coherent booklet and disseminated to all EGB schools in the PBA, based on the best practices learned from this project and from similar international best practices (notably with examples from Chile) _ -40 -  *All EGB3 school have improved management autonomy regarding financial, administrative and pedagogic matters (schools have a budget for leaming materials and small maintenance, maintain an adequate administration, and can define and implement innovative school projects); this will be measured by representative sample-based surveys and audits of schools, and personal interviews with school directors, teachers and parents from the selected EGB3 schools and from an equal sample of EGB schools not included in the project\. - 41 -  Key Perforance Hiearchy of Obives : lnkators Monitoring & Evaluation Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1\. ACCESS AND EQUITY *60,000 youth enrolled in PIMR *Accurate targeting of 200+ EGB3 schools of DGCyE annual reports and schools' beneficiaries based EGB3 youth from the most Jomada Completa statistics; and DGCyE's Social on poverty and social socio-economically and Educative Information assessment disadvantaged households in *200+ EGB3 schools with System ("Sistema de *PBA is able to construct, the urban areas enrolled in adequate spaces (classrooms, Inforrnacion Socio-Educativa expand and rehabilitate Jomada Completa schools dining rooms, labs and -- SIS') infrastructure as scheduled library) for the implementation of Jomada Completa *Construction of 30+ EGB3 schools, 400 classrooms and 20 dining rooms 2\. QUALITY, RELEVANCE *All teachers and school PIMR *Efficient administration for AND SCHOOL administrators in the Specific consultant reports timely school level MANAGEMENT schools are adequately Specific surveys and implementation of various trained, provided with interviews with parents, educational inputs to All School Development Plans guidance, and adequately teachers, community leaders improve education (Programa Educativo supervised on their outputs and students; and DGCyE's Institucional) in the schools linked to the Schools' PEIs Social and Educative *The PBA economy grows contain clear school during the development and Information System ("Sistema sufficiently to allow an objectives, have formulated a implementation of the PEI de Informacion adequate budget allocation to strategy how to achieve them, *Teaching loads (cargos) of Socio-Educativa -- SIS") the education sector and have been provided with all teachers in the selected the adequate resources\. EGB3 schools are *Availability of resources to concentrated in one or two allocate to schools and Innovative and relevant schools to optimize the districts and the political curricula taught at Jomada school community culture approval to decentralize Completa schools *Schools have established fund management institutional links with local All teachers in Jornada enterprise networks and are *Adequate management Completa schools are qualified informed about local labor capacity and financial and teach only at a single market demands controls will be established school *AIl teachers and school and approved to allow more administrators in the selected school autonomy School decentralization EGB3 schools adequately *Teachers, Parents and (autonomy) trained in school Community leaders will management and cooperate with and support administration, pedagogical the proposed reform supervision and performance measures in the selected monitoring linked to EGB3 schools as well as on a increased school autonomy I_wider scale -42 -  *Adequate financial resources are transferred each year from DGCyE to the selected EGB3 schools and the selected EGB3 schools are autonomous in managing their allocated recurrent non-salary budget -43 -  00: 0 X Key Perforance f 0 0 ' Hierarchy of Obectives i ndlcators Monitoring& Evaluation Critical Assumptions Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1\. Creation of additional 59\.6 Bi-annual Project DGCyE institutional capacity EGB3 school spaces in the Implementation Monitoring and the UEP (Project poorest urban districts and Reports (PIMR) Management Unit) capacity rehabilitation of Consultant and Architect are sufficient to prepare, classrooms in about 165 Survey Reports complete and deliver the new existing EGB3 schools to Specific Studies construction, rehabilitation and learning materials and develop and apply a new equipment on time (within pedagogical model of the the first implementation "Jornada Completa" year) There is adequate coordination within the DGCyE and between its various departments and the UEP 1\. I Construction of new 47\.4 All selected EGB3 schools school facilities will have an approved School development Plan within the first project implementation year, and the technical assistance and training activities have been designed and scheduled 1\.2 Expansion of existing 11\.9 school facilities and rehabilitation 1\.3 Consultants (design, \.3 supervision and evaluation 2\. Provide pedagogic 102\.5 Studies and specific pedagogic DGCyE institutional capacity equipment (school surveys; and the UEP (Project libraries, science and DGCyE's Social and Management Unit) capacity language laboratories, and Educative Information System are sufficient to prepare, learning materials) and ("Sistema de Informacion complete and deliver the new Socio-Educativa -- SIS') and construction, rehabilitation other pedagogical services other DGCyE Monitoring and learning materials and and innovations for Information Systems (MIS) equipment on time (within implementation of the" Project Midterm the first implementation Jornada Completa" in the Implementation review (PMR) year); selected (about 200) EGB3 schools There is adequate coordination within the DGCyE and between its various departments and the UEP -44 -  2\.1 Human Resources 81\.4 PIMR and PMR All selected EGB3 schools Required for Jornada Provincial Ministries of will have an approved School Completa Economy and Education development Plan within the statistics first project implementation Education District and EGB3 year, and the technical School statistics assistance and training activities have been designed and scheduled 2\.2 Rehabilitation of labs, 7\.0 School Directors, teachers and libraries & facilities in EGB3 parents in the selected EGB3 schools schools have been adequate;ly informed about the project and suppport the proposed reform 2\.3 Equipment and teaching 11\.4 aids 2\.4 Technical assistance 1\.3 2\.5 Training and internships 1\.4 3\. Provide support for 9\.0 DGCyE's Social and DGCyE institutional capacity more autonomous school Educative Information System and the UEP (Project management and ("Sistema de Informacion Management Unit) capacity innovative school projects Socio-Educativa -- SIS"); are sufficient to prepare, in the selected (about 200) Surveys among School complete and deliver the new inthe sehoolec d (bth2) Directors, Teachers and construction, rehabilitation EGB3 schools and their Parents; and learning materials and districts; equipment on time (within the first implementation year) 3\.1 Seminars and workshops 0\.5 PIMR and PMR for school principals and administrators 3\.2 Computer equipment 2\.0 3\.3 School operating 4\.8 expenses 3\.4\. Incentives for school 0\.7 performance 3\.5 Innovative projects fund 1\.0 4\. Provide support for 2\.0 PIMR and PMR DGCyE institutional capacity project administration and and the UEP (Project management Management Unit) capacity is adequately strengthened and capable of completing and monitoring all project acitivities in a timely manner -45 -  Annex 2: Detailed Project Description ARGENTINA: Buenos Aires Second Secondary Education Project The Buenos Aires Second Secondary Education Project has the following Development Objectives: a\. Increase access to quality education and improve equity by supporting the implementation of a "Full Day Schedule" (known as the "jomada Completa") in the selected EGB3 schools serving students from the poorest households\. b\. Improve school management as a necessary complement to the introduction of a full school-day in the selected EGB3 schools\. In order to accomplish these objectives the project has four components: 1\. Creation of additional EGB3 school spaces in the poorest urban districts and rehabilitation of classrooms in about 165 existing EGB 3 schools to develop and apply a new pedagogical model of the "Jomada Completa" 2\. Provide pedagogic equipment (school libraries, science and language laboratories, and learning materials) and other pedagogical services and innovations for implementation of the "Jornada Completa" in the selected EGB3 schools 3\. Provide support for more autonomous school management and innovative school projects in the selected EGB3 schools and their districts; 4\. Provide support for project administration and management By Component: Project Component 1 - US$59\.69 million Creation of additional EGB3 school spaces in the poorest urban districts and rehabilitation of classrooms in about 165 existing EGB 3 schools to develop and apply a new pedagogical model of the "Jornada Completa Jomada Completa's new curriculum and pedagogical inputs require adequate and innovative school facilities to develop the new methodologies and reap their benefits by reducing a persistent overcrowding in many urban school facilities\. The Project of Jornada Completa (PPJC) will provide facilities to expand the number of hours spent by EGB3 students\. Where feasible -- given school demand for EGB3 and space to build -- new especially designed school facilities would be built\. Where constrains make it impossible to build new facilities, school spaces in existing facilities will be especially adapted to the needs of Jornada Completa\. About 35 new EGB3 schools and about 400 new classrooms in existing 165 EGB3 schools would be built\. These schools will be selected following social, poverty and educational criteria as described in section E and Annex 11 of this document\. Civil work will be carried out according to a master plan designed by UEP following DGCyE standards and regulations\. Each of the new schools will have a single civil work project which include all the facilities to develop the new pedagogic model and curricular for Jomada Completa\. School rehabilitation will be done according to specific school's needs in the framework of Jomada Completa which should include facilities, such as libraries, labs, dining rooms, classrooms, etc\. In both cases, the School "Cooperadoras" will select companies to take on the construction and rehabilitation works\. However, the final selection, award, contracting, and supervision will be made by UEP\. - 46 -  Project Component 2 - US$102\.50 million Provide pedagogic equipment (school libraries, science and language laboratories, and learning materials) and other pedagogical services and innovations for implementation of the "Jornada Completa" in the selected (about 200) EGB3 schools This component will include (i) incremental human resources and operating costs of schools to be financed by the DGCyE annual budget\. This will allow to concentrate in one place teachers working today in several schools, provide new teachers, principals and support staff for "Jornada Completa' s" new schools; (ii) rehabilitation of labs, supply of labs, libraries, and technical facilities in the 200 EGB3 schools such as about 200 ICT and technology labs, 200 Language labs, 110 School libraries; (iii) Learning materials and teaching aids, laboratory equipment for the sciences and Information and Communication Technology (ICT) for the implementation of the new "Jornada Completa" curricula including audiovisual materials, libraries with at least 300 volumes, and specific hardware and educational software; (iv) technical assistance to schools for laboratory equipment installation and use in the form of in-service teacher training and tutorial support to link this instruccional resource with the curricula to ensure the disemination and application of best practices; (v) training for teachers linked to the development and management of innovative school projects for quality improvement as part of the "Jomada Completa" implementation\. Project Component 3 - US$ 9\.00 million Provide support for more autonomous school management and innovative school projects in the selected (about 200) EGB3 schools and their districts; This component will include (i) local and international seminars and workshops for school directors and administrators which should include school management, crossfertilization activities and study tours in other provinces and nearby countries; (ii) supply of Information and Communication teaching and learning equipment to the 200 EGB3 schools composed by computers, infornation network, and distance learning websites; (iii) increased School operating expenses made by the provision of petit cash for incidental expenses, such as payment of school repairing and small services; (iv) funding competitive and innovative EGB3 school project proposals, which will include the financing of small project identified and prepared by the school community based on their diagnosis of the school situation and aiming to solve learning and teaching problems; (v) providing annual incentives to about 50% of the selected EGB3 schools, based on improvements of school performance indicators\. Project Component 4 - US$2\.00 million Provide support for project administration and management This component will complement the financing of the current UEP which is already implementing Secondary Education I, II and III and PRICE (BID)\. For the purpose the project will finance: 8 higher and lower level staff for civil work, accounting, procurement, supervision and monitoring; technical assistance and training in administration, mangement and information technology; utilitary vehicles; and office material and operating expenses\. -47 -  Definition and Description of Jornada Completa The "Jornada Completa" aims to develop a new culture of learning in the classroom by applying a new pedagogical model in the third cycle of General Basic Education (EGB3) which will allow increase quality, retention and graduation as well as facilitate the access and success of the studentes to Polimodal by augmenting the real time of the students in front of the teachers from about 750 hours to up to 1200 hour per year to: The implemention of improved school facilities for the "Jornada Completa" students will * Allow more focus on and attention to at-risk students and their learning problems, and promote better retention rates for the 12-15 age group in the selected (about 200) EGB schools * Facilitate the application of better support services for students and teachers, and improve the school management * Allow the use of different teaching and leaming strategies, by using the new spaces and facilities in different ways (laboratories, seminars, student projects and workshops, teacher projects) * Reduce overcrowding in EGB1+2+3 schools, in the school catchment areas of the districts where the new and rehabilitated EGB3 schools will be situated v Allow the teachers to concentrate more teaching hours in one EGB3 school, and so improve their performnance and working conditions, and reduce their stress; this will allow the DGCyE in some cases to an reduce the number of "taxi-profesores"(teachers who teach at more than 3-4 different schools with working weeks of up to 70 teaching contact hours * Strengthen the management and knowledge base of the school director and allow school directors to promote teamwork in their schools (equipos de conduccion and school administration teams)\. * Allow the selected EGB3 schools to develop school plans The curricular changes by subject and time on task increase to be implemented are shown in the following table: Modulo / Discipline Current New Model Time Increase Model Additional (%) Languae 4 3 75 Mathematic 4 3 75 Social Science 4 1 25 Natural Science 4 1 25 Sport and Recreation 2 1 50 Artistic Education 2 1 50 Foreign Language 2 1 50 Informatics 2 2 100 Total 22 13 59 - 48 -  Teachers and school directors professional training\. The objectives of the teachers training are as follows: * Reinforce the pedagogic skills of the teachers * Promote more teamwork amnong teachers within the school and among pupils * Promote the use of modem leatrming and taching materials conform the needs of the new curricula The training will take place using prepared courses by pedagogic experts, trainers from teacher training institutes near the selected schools and classroom work with tutors\. Each teacher in the selected (about 200) EGB3 schools will receive about 150 hours of training, divided over five modules: * Pedagogical organization of the " Jomada Completa" * Problems in teaching at EGB3 level * Working in teams to prepare action plans * Evaluation and assessment in the classroom * Innovative school project and pedagogical and technical suppor The total number of teachers benefitting from the training in the 200 EGB3 schools is about 2,000\. Thre modules will be offered during the school vacation (February), and two modules during the school year\. About 250 trainers will be contrcted from the teacher training instituts\. These trainers will be trained by specialists of the DGCyE\. The project will finance (i) the hiring of trainers, (ii) the transport and subsistance costs for teachers; and (iii) course and training materials and equipment\. The outcomes of the training will be measured by evaluating (i) the irnproved learning of pupils in the classroom in specific subjects (an annual sample-based assessment test will be prepared by the Evaluation and Monitoring Department of the DGCyE); (ii) the reduction the repetition and drop-out rates in the selected (about 200) EGB schools; and (iii) the annual surveys among teachers , school directors and parents (communities) regarding the school and classroom environment\. School Directors: The objective of the school directors' training are as follows: * Change the role of the schoool director from an administrator to a better pedagogical advisor and school manager The training will take place using prepared courses by experienced school directors and pedagogic school experts, trainers from teacher training institutes and the national university located in the province\. Training for the trainers will take place before March 2001, the start of the new schoolyear\. The training will consist of four modules: * Pedagogical organization of the " Jomada Completa" * Supervision of pedagogical practices and interventions in the classroom * Evaluation and assessment at school level * Innovative school projects and pedagogical and technical support Each school director will receive about 100 hours of training\. About 60 trainers will implement the training\. The project will finance (i) the training contracts with the teacher training institruts and the university, and (ii) subsistence and transport costs for the school directors\. - 49 -  PROVINCE of BUENOS AIRES, ARGENTINA Second Secondary Education Project Project Articulation Graph Secondary Education I Administrative reforn US$8\.2 Improving Rehabilitation of classrooms US$7\.6 management of the 2nd Phase of Polimodal US$1\.7 education sector transformation Loan Total US$17\.5 Secondary Education II andingaccess Basic Education\. resources mandatory Basic School-based improvement Education (EGB) projects (PEI) Loan Total US$47\.C Secondary Education III Build 9th grade classrooms US$94\.0 Improvmg qua n and rehabilitation of sec\. Schools 200 Polimodal Improve quality and relevance US$23\.7o Project implementation US$1\.3 Loan Total US$119\.C 2nd Secondary Education (BASSEP) Jornada Completa Infrastructure US$35\. I Improving quality an Quality and relevance of learning Ieqpo in selected (aout 200) in EGB3 ussO\.'/ equity ho in slce(aoth200 Support Decentralizacion US$10\.5 G s i t Project implementation US$0\.4 poorest urban district Loan Total LIS$56\.99 Notes: Secondary Education I and II loan totals correspond to the portion of the loan directed to the Province of Buenos Aires; all dollar figures are in millionsof US$\. - 50 -  Annex 3: Estimated Project Costs ARGENTINA: Buenos Aires Second Secondary Education Project Local Foreign Total Project Cost By Component US $ million 1\. Creation of additional EGB3 school spaces in the poorest 53\.6 1\.7 55\.4 urban districts and rehabilitation of classrooms in about 165 existing EGB 3 schools to develop and apply a new pedagogical model of the "Jomada Completa" 2\. Provide pedagogic equipment (school libraries, science and 96\.3 5\.5 101\.8 language laboratories, and learning materials) and other pedagogical services and innovations for implementation of the "Jomada Completa" in the 200 EGB3 schools 3\. Provide support for more autonomous school management 6\.9 2\.1 9\.0 and innovative school projects in the 200 EGB3 schools and their districts; 4\. Provide support for project administration and management 1\.6 0\.4 2\.0 Total Baseline Cost 158\.5 9\.6 168\.1 Physical Contingencies 4\.5 0\.1 4\.7 Price Contingencies 0\.4 0\.1 0\.5 Total Project Costs 163\.4 9\.8 173\.2 N/A N/A N/A Front-end fee 0\.0 0\.6 0\.6 Total Financing Required 163\.4 10\.4 173\.8 -51 -  Estimated Project Costs Total Cost % of Total Bank % of w/Conting\. Project Financing Bank Project Component (US$ millior Cost (US$M) Financing 1\. New Schools and Remodeling for Application of 59\.74 34 36\.69 64 Classroom Based Pedagogical Model 1\.1\. EGB3 schools (35) 47\.48 27 29\.06 51 1\.2\. Remodeling & Expansion for EGB3 "Jomada Completa" (165) 11\.92 7 7\.29 13 1\.3\. Consultants (design,supervision,evaluation) 0\.34 0 0\.34 1 2\. Pedagogical Improvement & Innovation 102\.51 59 14\.84 26 in EGB3 Schools 2\.1\. Human Resources Required for "Jomada Completa" 81\.37 47 0\.00 0 2\.2\. Rehabilitation of Labs\.,Librares & Facilities in EGB3 schools 7\.02 4 4\.29 8 2\.3\. Equipment and Teaching Aids 11\.38 7 7\.96 14 2\.4\. Technical Assistance 1\.31 1 1\.31 2 2\.5\. Training and lntemships 1\.44 1 1\.27 2 3\. Decentralization of School Management 8\.97 5 3\.52 6 3\.1\. Seminars and Workshops for Principals & Administrators 0\.47 0 0\.42 1 3\.2\. Informatics Equipment 2\.00 1 1\.40 2 3\.3\. School Operating Expenses 4\.80 3 0\.00 0 3\.4\. Incentives for Schools Performance 0\.70 0 0\.70 1 3\.5\. Innovative Projects Fund 1\.00 1 1\.00 2 4\. ProjectAdministration and Management 2\.02 1 1\.38 2 4\.1\. Personnel 0\.94 1 0\.94 2 4\.2\. Technical Assistance 0\.29 0 0\.29 1 4\.3\. Office Equipment and Vehicles 0\.21 0 0\.15 0 4\.4\. Operating Expenses 0\.57 0 0\.00 0 TOTAL PROJECT 173\.24 100 56\.44 99 Front-end fee 0\.56 0\.56 1 Grand Total 173\.79 56\.99 100 - 52 -  PROPSED RNAMNG LOCAL FOREIGN TOTAL TOTAL DGCYE DGCyE DGCyE DGCYE DGCyE PRGIECT PFETCOST MGET PROECT B4WK PROECT BRNK PRESUP\. PFIET BA4W CATEGCRYlf LOCL FOC TOTAL % % % % % EJ 1Uj CK VAR 64,423\.9 1,9B25 66,416\.4 0\.4 0\.6 0 1 25,769\.6 40,646\.9 66,416\.4 TRANING 1,357\.6 334\.6 1,692\.2 1 0 1 0 1,6922 1,692\.2 CONSULTANT SER?ACES (CM Vuts eiab 2B9\.7 67\.4 337\.1 1 0 1 0 337\.1 337\.1 C0NSULTANT SRVICES (t SdW eLe0) 930\.3 66&7 1,599\.0 1 0 1 0 1,599\.0 1,599\.0 NCREMENTALHLN RESOURCES 86,170\.0 - 86,170\.0 1 0 0 1 86170 0 0 86170 AND CENTRALDSCFOOLS OPERATION EUIPMENTANDWHICLES 6,911\.9 6,6821 13,594\.0 0\.3 0\.7 0\.3 0\.7 4,078\.2 9,515\.8 13,594\.0 INIWATE PRIJBETS RND & INCENTNES 1,700\.0 - 1,700\.0 1 0 1 - 1,700\.0 1,700\.0 TEAS4HGMATERI,SAANDS\.UPRES 121\.9 54\.6 176\.5 1 0 1 0 176\.5 - 176\.5 UEPCCONSULTANTS FOR A AT IN 944\.6 - 944\.6 1 0 1 - 944\.6 944\.6 PFCIECT CERATNGD7:ENSES 614\.8 - 614\.8 1 0 1 0 614\.8 - 614\.8 FRONTENDFEE - 564\.3 564\.3 1 0 1 0 - 564\.3 564\.3 TOTAL 163,444\.7 10,354\.2 173\.799 86170 30,639\.0 56,990\.0 173,799\.0 Total Projed id\. Reajrrent i 0\.4957742 0\.2 0\.3 1\.0 Toda Prcped e,d\. Reamert ats 0\.3 0\.7 1\.0 - 53 -  Annex 4: Cost Benefit Analysis Summary ARGENTINA: Buenos Aires Second Secondary Education Project Economic Analysis: Summary of Benefits and Costs: On the benefit side, the main benefits of the project will consist in (a) an increase in future earnings related to the decrease in drop-out rates and (b) cost savings related to the decrease in the repetition rate\. A decrease in drop-out rates will lead to higher completion rates and, thus, to higher productivity and future labour earnings\. Repetition increases the average number of years a student takes to complete a certain school level, which in this particular case corresponds to the three EGB levels\. Consequently, it increases both the cost per graduated student and the total cost of the corresponding school level\. A decrease in the repetition rate will bring to a decrease in both the unit and total costs\. On the cost side, two main categories of costs can be detected: (a) the direct costs of the project and (b) the future recurrent costs\. The implementation of the jornada completa, the central aspect of the project, is necessarily associated with a significant increase in recurrent incremental costs, that is, those project-related expenses which will be maintained even after the project implementation process, or, even, permanently\. Future recurrent costs were precisely estimated differentiating the ones generated by the building of new schools from those related to the expansion of existing facilities\. Calculation of Benefits: Benefits associated with lower drop-out rates The economic value of labor market insertion after completion of the EGB has been evaluated in terms of the income differential between the groups with 6 schooling years and 9 schooling years over the whole working life of the individuals\. The opportunity cost of staying longer in school has been supposed null considering the young age of the children attending the third cycle of EGB (from 12 to 14 years)\. The calculation of the income differential was carried out on the basis of the Informe sobre la pobreza en la Argentina\. As can be seen in Table 1, the difference in the average monthly wage associated with 6 and 9 schooling years is US$ 123,70, representing US$ 1,484 annually\. Considering income streams over a working life of 48 years, from EGB completion to retirement, the present value of the annual wage difference reaches US$ 11,034 at a 10% discount rate (see Table 2)\. In a second stage, this value was multiplied by the number of children who would complete EGB under three different assumptions in the decrease of the drop-out rate: decrease of 50%, 33% and 25%, leading respectively to approximately 30,000, 20,000 and 15,000 new students completing EGB (see Table 2)\. - 54 -  Benefits associated with the lower repetition rate The combined effect of the decrease in drop-out rates and repetition rate leads to a slight decrease in the number of students enrolled in EGB in the 200 schools with jornada completa producing some cost saving expressed as the product between the unit cost of EGB in the 200 schools and the reduced enrollment in these same schools (see Table 3)\. Three different alternatives were considered in calculating this cost saving: an immediate and constant 50% decrease in both the drop-out and repetition rates, a decrease of 33% and one of 25% (this last one is the one assumed in Table 3)\. Main Assumptions: \.It is assumed that the pupil/teacher ratio remains constant leading to an unmodified cost per student in the "without project" scenario\. \.The incremental unit costs in the 200 schools with jornada completa were calculated on the basis of a precise estimation in the increase of personnel expenses in 165 existing schools and 35 new ones\. It is assumed that in all case the schools are second category ones with 12 third level sections of EGB distributed as following: 4 sections for each of the grades of the third cycle (7, 8 and 9th), and an average number of 30 students per section\. In the case of the implementation of the jornada completa in existing schools, one third of the costs is imputed to directors, librarians and counselors, the cost for 4 instructors is added and the number of modules is increased by 50%\. For new schools, only the variation strictly related to the implementation of the jornada conipletaa was considered\. This variation consisted in the allocation of a director of 3ra, 4 instructors and 50% new modules\. \.Between 1996 and 1999 total EGB enrollment expanded at an annual rate of 10\.3% from 1,306,717 total students to a total of 1,782,188 students\. This evolution does not offer an adequate basis for projections since it expresses the progressive incorporation of new cohorts\. The projections were elaborated on the basis of a cohort analysis, which, on average, shows a growth of 2% annually\. \.The initial number of students in the 200 schools was extrapolated from the enrollment of 147 schools with characteristics similar to the ones in the project\. It was then assumed that this initial value increases at the same rate that total enrollment (2% annually)\. \.Finally, it should be pointed out that the lack of reliable data on drop-outs has made it necessary to base the estimations on the proportion of "difficult cases" enrolled out of a total sample of 147 schools with characteristics similar to the schools included in the project, even if these data tend to overestimate drop-out rates\. Cost-Benefit Analysis: As shown in Table 3, the total fiscal benefits of the project were worked out as the difference between cost - 55 -  savings and the incremental costs associated with the implementation of the jornada completa\. To these benefits, estimated in present values terms through the application of a 10% discount rate, was then rested the present value of the investment costs (assuming that investment costs are executed in 4 years) producing an NPV initially negative\. However, the NPV turns positive when we add the present value of the income differential associated with the completion of the EGB\. Sensitivity analysis / Switching values of critical items: Tlhree different assumptions were made concerning the impact of the project on drop-out and repetition rates\. A first alternative assumed a decrease of 50% in both rates, a second one a decrease of 33% and a third one a decrease of 25%\. The NPV remains positive under the three different assumptions\. It is found to reach a maximum of US$195 million under the most favourable assumption and a minimum of US$23\.6 million under the least favourable one (shown in the table)\. According to these results, the project appears to be justifiable on economic grounds\. TABLE 1 Monthly income expected with 6 vears of schooling 455\.40 Monthly income expected with 9 years of schooling 579\.10 Monthly difference 123\.70 Annual difference 1,484\.40 - 56 -  TABLE 2 Projections of expected annual incomes Year Base value Discount rate Expected income 1 1\.48 1\.1 2 1\.484 1\.21 3 1\.484 1\.331 4 1\.484 1\.4641 1\.013\.59 5 1\.484 1\.61051 921\.45 6 1\.484 1\.771561 837\.68 7 1\.484 1\.9487171 761\. 53 8 1\.484 2\.14358881 692\.30 9 1\.484 2\.357947691 629\.36 1 0 1\.484 2\.59374246 572\.15 11 1\.484 2\.853116706 520\.13 12 1 484 3\.1 38428377 472\.85 13 1\.484 3452271214 429\.86 14 1A484 3,797498336 39078 15 1\.484 4,177248169 35526 16 1\.484 4\.594972986 322\.96 17 1\.484 5054470285 293\.60 18 1\.484 5\.559917313 61 19 1\.484 6\.115909045 24265 20 1\.484 6\.727499949 220,59 21 1\.484 7\.400249944 20053 22 1\.484 88140274939 182\.30 23 1\.484 8\.954302433 165\.73 24 1\.484 9\.849732676 150\.66 25 1\.484 10\.83470594 136\.97 26 1\.484 11\.91817654 124\.52 27 1\.484 1310999419 113\.20 28 1\.484 14\.42099361 102\.91 29 , 1484 15\.86309297 9355 30 1\.484 17,44940227 85\.05 31 1\.484 19\.1943425 77\.31 32 1\.484 21\.11377675 70\.29 33 1\.484 23\.22515442 63,90 34 1\.484 25\.54766986 58\.09 35 1\.484 28\.10243685 52\.81 36 1,484 48\.01 t = 37 [ J1,484 34 00394859 43\.64 38 A\.484 37\.40434344 39\.67 39 1 1,484 41\.14477779 36\.07 40 \. 1\.484 45\.25925557 32\.79 41 1\.484 49,78518112 29\.81 42 1,484 54\.76369924 27\.10 43 1\.484 60\.24006916 24\.63 44 1,484 66\.26407608 22\.40 45 1\.484 72\.89048369 20\.36 46 1\.484 80\.17953205 18\.51 47 1\.484 88\.19748526 16\.83 48 I484 97\.01723378 15\.30 49 1\.484 106\.7189572 13\.91 50 1,484 117\.3908529 12\.64 51 1\.484 129\.1299382 11\.49 PV difference In Individual income 11\.034\.59 Decrease In drop-out rate by 50% 31\.058 PV difference in total income 50 % 342712\.254 12 Decrease In dropnout by 33%0/ 20\.705 PV difference in total Income 33 _L 228\.471 15788 Decrease In drol-out rate b 25by 15\.529 PV difference in total Income 25% ° 171 356\.127\.06 - 57 -  TABLE 3 EXPECTED COSTS AND BENEFITS (with decreas of 25% in repetition and drop-out rates) Enrollment of Cost per pupil Cot Pupils of EGB Cost per pupil Pupils of EGB200 Year Total Cost of EGB EGB without the wthout the r 200 with no of the 200 adjusted by lower Tola svings ol iscal Toal projed P-isd Eadjuswithtprojects repetition and drop- benefits investment 1999 $ 1,085,000,000 1754900 $ 618 S 212456 S 618 212456 S - S, 2000 $ 1,108,700,000 1789992 S 618 S 218705 S 618 216705 $ S 2001 S 1,128\.834,000 1825486 S 618 $ 32,547,973 221039 S 766 209987 S 8,461,650 $ (24,086,323) $ 20,000,000 2002 $ 1,151\.410,680 1891956 S 818 $ 33\.1988932 225480 S 766 214187 S 8,630,883 S (24\.568\.049) S 20\.000,000 2003 S 1,174,438\.894 1899235 S 618 S 33,862,911 229969 S 789 218471 S 8,803,501 $ (25,059,410) $ 23,106,516 2004 $ 1,197,927,671 1937220 S 618 S 34,540,188 234589 S 766 222840 $ 8\.979,571 $ (25,560,598) $ 23,106,516 2005 S 1,221,886,225 1875965 S 618 S 35,230,973 239280 S 766 227297 $ 9,159,162 $ (26,071,810) $ , 58 -  Annex 5: Financial Summary ARGENTINA: Buenos Aires Second Secondary Education Project Financial assessment of the proiect Summary Financial assessment of PRODYMES III A gives net present value at five years as slightly above zero\. The project will be financially viable to the extent it fulfills either of the following conditions: (a) some significant savings are generated within the education system as a whole, through reduction of personnel costs; (b) the education sector receives additional resources (fundamentally, in the form of a higher budget appropriation)\. Method of calculation underlying the financial appraisal For purposes of the financial appraisal, use was made of the method generally recommended by the Argentine Provinces Financial Rationalization and Economic Development Program, known as the Provinces Program\. Table 1 shows a five-year period of financial flows, grouped to reflect major budget categories\. Only incremental financial flows produced by the project are recorded\. The following sources and/or assumptions were used in estimating values: 1\. Total revenue The project will not produce any change in total revenue\. 2\. Increase in current expenditure Current expenditure will increase in two areas: 2\.1 Higher payroll costs This increase reflects the cost of extending the school day in the 200 schools targeted by the project\. The figures have been estimated in conjunction with the Ministry of Economy, on the basis of the increase in staffing in the 165 existing schools and the need to staff the 35 new schools\. 2\.2 Higher interest costs Annual interest expenditure has been assumed equivalent to 10% of World Bank financing\. - 59 -  3\. Reduction in current expenditure Current expenditure will be reduced in two areas: (a) raising of the pupil/teacher ratio, together with a reduction in the repetition rate, the two together resulting in elimination of over 16,000 regular teaching posts accumulated over five years; and (b) cuts in the number of substitute teachers equivalent to roughly 4,000 regular teaching posts in year 2, and to 5,000 such posts in year 3\. (The lists used as the basis for these calculations are attached\.) The reduction in expenditure on substitute teachers could be greater if these cuts were extended to years 4 and 5 also\. However, the assumptions used by BASAL have been retained\. Appraisal of financial feasibility Table 2, "Appraisal of Financial Feasibility," shows the present value of revenue, expenditure, and investment, calculated on the basis of the figures given in Table 1 and on a 10% annual discount rate\. Estimate net present value is slightly above zero (0\.42)\. Provincial education and fiscal situation and impact of the vRoiect Note: The Fiscal Analysis was prepared in parallel with a possible adjustment loan (BASAL)\. Project Files contain the reports with more details on the fiscal analysis\. Provincial education expenditure and financing\. The province of Buenos Aires (PBA) was the first province to widely implement the education refonn and allocated a significant amount of additional resources to its education sector\. The PBA's public spending in education increased significantly since the Decentralization Law was put into effect in 1993, indicating the Provincial Government's commitment to the reform and a break in the pattern of low spending that predominated during the 1980's\. Total PBA education expenditure increased from US$1,860 million in 1993 to US$3,345 million in 1998 (based on 1998 pesos): an increase of 81\.5% in real terms and an annual average growth rate of 13%\. Education expenditure represented approximately one third of the total Provincial Budget in 1997-98 (see Table 3)\. The increases were especially high in 1997, when the EGB3 reform was started, mainly due to: (i) increased student enrolment (>17% over 1994-98); creating a need for more teachers (more teacher work units -- cargos/horas catedras); (ii) application of a 15% average salary increase in February 1998; and (iii) a significant increase in investment in infrastructure (from US$69 million in 1995 to US$623 million in 1997 and US$280 million in 1998)\. From the total PBA education budget almost 93% is recurrent spending (almost entirely salaries), distributed as follows: 76% for salaries of public teachers and administrative staff (non-teaching staff represents about 15% of the total), and about 15% subsidies a proportion of private school teacher salaries\. Only 3% finance non-salary recurrent costs\. Infrastructure and equipment investment has increased from about 6% in 1993 to 8% in 1998\. For the whole 1993-1998 period more than US$1 billion was spent on building new schools and classrooms to accommodate the increasing students numbers\. Transfers to private schools make up almost 14% of the recurrent budget in 1998\. Over 1993-98 total teaching staff expenditures increased by 73\.2% ($915 million)\. Expenditures in substitute staff, despite scarce available data, show a decreasing trend: a 14\.7% ratio -60 -  in 1993 (expenditures on substitutes compared to regular and provisional staff) and 13\.7% in 1998\. In terms of total education expenditures, 36% went to public primary level (EGBI+2) in 1998, 22% to public secondary level, 7% to pre-school level, 3\.5% to public tertiary level (Teacher Training Institutes) and 15% to transfers to private schools (at all levels) (see Table 4)\. The remaining was spent on physical education, artistic education, special education, psychology and social assistance and administration\. It is important to mention that even though EGB3 is included in primary level budgetary's classification, its structure of cost corresponds to secondary level (lower secondary level)\. The distribution of spending across levels of education corresponds more or less to OECD means, taking into account that the university level is financed entirely by the federal government\. Provincial fiscal situation and impact of the project\. Overview\. With an annual budget of $10 billion, the Province of Buenos Aires represents nearly one-third of the aggregate provincial public sector in Argentina\. During the mid 1990s, the Province was known for fiscal stability, generating positive balances on current account to finance investments, and thus maintaining low levels of indebtedness\. During the late 1990s, the Province launched a successful privatization program that resulted in the sale of its electricity and water utilities\. These sales provided the province with a windfall of approximately $1\.7 billion, all of which had been spent by end-1999\. These proceeds were used both to finance an ambitious expansion in investment, plus a current account deficit that had opened -- the latter largely due to payroll expenditures that had ballooned from $3\.6 billion in 1996 to $5\.2 billion in 1999\. During the second half of 1999, with its privatization proceeds spent, the province began to incur additional debt at a rapid pace -- both through bond issues and short-term loans from the provincial government-owned bank (BAPRO)\. Credit Ratings: In recent years, the province has received the same credit rating as the federal government for long-term foreign debt issues\. However, Standard and Poor's lowered its outlook from "stable" to "negative" earlier this year, while the federal government received a "stable" outlook\. Prospects: The province's fiscal deficit in 1999 was approximately $2\.1 billion, or 25 percent of annual current revenues\. For the year 2000, cuts in capital expenditures will lead to an expected reduction in the deficit to $1\.8 billion, or 21 percent of current revenues\. Revenues have displayed negative growth so far this year\. The province has made a commitment to the federal government to reduce its deficit to zero by 2003; however, they have not yet devised a fiscal plan for reaching that target\. The overall indebtedness of the province is not high in relative terms and represented about 50 percent of current revenues at end- 1999\. As mentioned above, the province now faces a rising debt to revenue ratio in the upcoming years--projected to already reach 70 percent of current revenues at the end of this year\. The province has issued nearly $1\.2 billion on international markets this year\. The government plans to restructure its short-term debt with BAPRO, and they hope to secure loans guaranteed by a fiduciary fund set up to manage provincial assets (mostly back-taxes owed to the province)\. The latter plan is pending legislative approval\. On the expenditure side, the province plans to exert administrative controls to assure cuts in non-personnel expenditures\. In addition, the investment program has been cut to a minimum (approximately $600 million per year over the 2001-2003 period)\. There are plans, pending legislative approval, to re-capitalize BAPRO, costing $500 million over the next 8 years\. Table 5, below, reports summary indicators from fiscal projections, based on the assumption that administrative expenditure controls are enacted for minor reductions in primary current expenditures, and the levels of investment described above\. Three cases for revenue growth were simulated to show the degree of sensitivity of fiscal outcomes to the revenue - 61 -  assumptions\. The proposed Prodymes project -- with a total cost of $173 million over five years -- would represent approximately 0\.5 percent of cumulative projected provincial revenues over that period\. Despite this relatively small scale, it is possible that the province's required fiscal adjustment in future years will make it very difficult for the province to expand the implementation of the jornada completa\. The Bank loan of $57 million would represent less than 0\.6 percent of projected annual revenues in the year 2005\. -62 -  TABLE I INCOME AND EXPENDITURES I\. Date of valuation at September 2000 prices II\. Exchange rate (U$S) used: U$S 1= $ 1 III\. Financial flows (in thousands of U$S) Year 1 Year 2 Year 3 Year 4 Year 5 1\. TOTAL INCOME $ \. $ $ \. S \. $ 1\.1 CURRENT $ $ \. $ \. $ \. $ a\. Tax revenue S \. $ S S \. $ \. $ b\. Non tax revenue $ \. $ \. $ \. $ \. $ 1\.2 CAPITAL s $ \. $ \. $ l 2\. TOTAL EXPENDITURES $ 5\.745\.00 $ (41\.872\.71) $ (55\.280\.82) $ (12,971\.07) $ 23\.198\.11 2\.1 INCREASE IN CURRENT EXPENDITURES $ 5\.745\.00 $ 38\.292\.97 $ 38\.292\.97 S 38\.292\.97 $ 38\.292\.97 a\. Personnel S $ 32\.547\.97 $ 32\.547\.97 $ 32\.547\.97 $ 32\.547\.97 b\. Goods and services $ $ $ - $ - $ c\. Transfers $ $ $ \. $ \. $ d\. Interests $ 5\.745\.00 $ 5\.745\.00 $ 5,745\.00 $ 5\.745\.00 $ 5,745\.00 2\.2 DECREASE IN CURRENT EXPENDITURES $ - $ 80,165\.68 $ 93\.573\.79 $ 51\.264\.04 $ 15\.094\.86 a\. Personnel $ \. $ 80,165\.68 $ 93\.573\.79 $ 51,264\.04 $ 15,094\.86 b\. Goods and services $ \. $ \. $ - $ \. $ c\. Transfers $ \. $ \. $ \.5 $ d\. Interests $ \. $ \. $ \. $ $ 3\.NETCURRENTBENEFIT $ (5,745\.00) $ 41,872\.71 $ 55\.280\.82 $ 12,971\.07 $ (23,198\.11 4\. CAPITAL EXPENDITURES $ 23\.229\.51 $ 23,194\.51 $ 20,194\.51 $ 20,194\.51 $ 4\.1 Amortization $ $ \. $ \. $ $ 4\.2 Physical investments $ 20\.194\.51 $ 20\.194\.51 $ 20\.194\.51 $ 20\.194,51 $ 4\.3 Investments in institutional building $ 3,035\.00 $ 3,000\.00 $ - $ | $ 4\.4 Investments in maintenance $ \. $ $ \. $ $ 5\. NET TOTAL BENEFIT $ (28\.974\.51' $ 18\.678\.20 $ 35,086\.31 $ (7\.223\.44) $ (23\.198\.11 6\. REQUIRED FINANCING $ 15,888\.75 $ 15\.853\.75 $ 12\.853\.75 $ 12\.853\.75 $ 7\. PROMVNCIAL COUNTERPART $ 7\.340\.76 $ 7\.340\.76 $ 7\.340\.76 $ 7\.340\.76 $ 7\.1 NONBANKABLE CAPITAL $ \. $ \. $ \. $ l $ EXPENDITURES 7\.2 PRO\VNCIAL COUNTERPART $ 7,340\.76 $ 7,340\.76 $ 7\.340\.76 $ 7\.340\.761 $ BALANCE  TABLE 2 APPRAISAL OF FINANCIAL VIABILITY Item Nominal amount Present values Factor(1+0\.10) B (p) Year1 S $ 1\.1000000 Year 2 $ \. $ | 1\.2100000 Year 3 $ \. $ 1\.3310000 Year 4 $ $ 1\.4641000 Year 15 $ $ 1\.6105100 S - $- 0 (p) Year 1 $ 5\.745\.00 $ 5\.222\.73 1\.1000000 Year2 $ (41\.872\.71) $ (34\.605\.55) 1\.2100000 Year 3 $ (55\.280\.82) $ (41\.533\.30) 1\.3310000 Year 4 $ (12\.971\.07) S (8\.859\.421 1\.4641000 Year 5 $ 23\.198,11 S 14\.404\.20 1\.6105100 $ (81,181\.49) S (65,371\.331 NET INCOME S 81\.181\.49 $ 65\.371\.33 Year 1 $ 15\.888575 $ 14\.44432 1\.100 Year2 $ 15\.853\.75 $ 13,102\.27 1\.2100000 Year 3 $ 12\.853\.75 $ 9\.657\.21 1\.331000 Year4 $ 12\.853,75 $ 8\.779\.28 1\.464100 PVof I (t) $ 57\.450\.00 $ 45\.983\.09 NPV $ 0\.42 Table 3 Provincia de Buenos Aires - Evolution of the Educational Expenditures 1993-1998; (in Mlns of 1998 pesos) 1993 1994 1995 1996 1997 1998 Total Expenditures DGCyE 1737 2,013 2,192 2,365 2,770 3,286 RecurrentExpenditures 1,732 1,997 2,187 2,319 2,554 3,065 Staff 1,453 1,643 1,759 1,861 2,053 2,496 Goods and services 44 43 66 78 95 114 Rec\. transf\. (pnv\. Schools) 234 311 361 380 406 455 Other 1 0 0 0 0 0 Capital expenditunes 4 15 4 45 214 220 Other expenditures 0 0 1 1 2 1 'Fondo Reparaci6n Conurbano' 105 68 53 30 112 28 Recurrent costs 12 2 4 3 36 6 Capital costs 93 66 49 27 76 22 Ministry of Public VV\rks 19 10 11 59 297 32 Total PBA education sector a 1,860 2,091 2,256 2,454 3,179 3,345 Provincial Public Expenditures b 6,888 7,770 7,521 8,363 9,714 10,588 alb (1) 27 27 30 29 33 31\.5 -64 -  Source: Province of Buenos Aires; Provincal Ministry of Economy Table 4: PBA composition of spending per educaton level (percenta es \. Category 1994 1995 196 1997 1998 Psychology 5\.4 4\.7 4\.3 4\.1 3\.8 Special Educaton (handicapped) 5\.1 4\.3 4\.2 4\.0 3\.8 Pre-School 7\.8 7\.1 8\.9 7\.1 6\.8 Primary (EGB 1, 11 and 1I1) 29\.5 28\.7 32\.3 30\.9 38\.4 Secondary () 26\.0 24\.5 23\.4 25\.8 22\.3 Sub-Total Public Primary + Secondary 55\.5 53\.2 55\.7 56\.7 58\.7 Adults Education 2\.5 2\.0 1\.9 1\.8 2\.8 Physical Education 3\.0 2\.6 25 2\.6 2\.1 Teacher Training 3\.4 4\.0 3\.6 3\.4 3\.2 Artistic Educaton 3\.2 3\.0 2\.6 2\.4 2\.2 Private Schools Subsidies 141 19\.1 18\.2 17\.9 16\.5 Total to Schools 100 100 100 100 100 Schools a % of Total Education 87\.5 K8 85\.3 72\.8 81\.6 Table 5: Table 1: Current Balance as % of Current Revenues (in %) 1998 1999 2000 2001 2002 2003 Revenue Scenarios: High Case -4% -16% -16% -7% -1% 2% Middle Case -4% -16% -16% -12% -7% -3% Low Case -4% -16% -16% -13% -12% -10% Table 2: Overall Balance as % of Current Revenues (in %) 1998 1999 2000 2001 2002 2003 Revenue Scenarios: High Case -14% -25% -21% -10% -4% 0% Middle Case -14% -25% -21% -15% -10% -5% Low Case -14% -25% -21% -17% -15% -13% Table 3: Debt Stock as % of Annual Current Revenues (in %) 1998 1999 2000 2001 2002 2003 Revenue Scenarios: High Case 32% 50% 70% 75% 75% 72% Middle Case 32% 50% 70% 83% 89% 90% Low Case 32% 50% 70% 86% 98% 108% - 65 -  Annex 6: Procurement and Disbursement Arrangements ARGENTINA: Buenos Aires Second Secondary Education Project Procurement Procurement for the proposed project would be carried out in accordance with World Bank guidelines on procurement of goods, works and services, and using standard contract documents acceptable to the World Bank guidelines, "Procurement Under IBRD Loans and IDA Credits", January 1995 (revised January/August 1996, September 1997 and January 1999); and guidelines on "Selection and Employment of Consultants by World Bank Borrowers, January 1997 (revised in September 1999 and January 1999), and the provisions stipulated in the Loan Agreement\. Procurement arrangements are summarized in Table A\. Procurement activities will be carried out by a project unit in the Ministry of Education of the Province of Buenos Aires, currently managing the PRODYMES III project\. The Operations Manual will include, in addition to the procurement procedures, the Standard Bidding Documents to be used in each case, as well as contracts to be awarded on the basis of quotations\. Where no relevant standard contract exists, other standard forms acceptable to the Bank will be used Procurement of Civil works The project will finance civil works for the total amount of US$66\.4 million equivalent, out of which US$40\.65 million will be financed under the loan\. These civil works comprise building about 35 new schools for secondary education and the refurbishment and upgrading of classrooms, laboratories, libraries and other facilities in about 165 existing schools in the Province of Buenos Aires\. (a) National Competitive Bidding (NCB)\. Civil works, including building of new schools and upgrading of infrastructure of other schools and existing laboratories and libraries estimated to cost more than US$350,000 per contract shall be procured following NCB procedures, using model bidding documents acceptable to the Bank\. It is expected that contracts for the total amount of approximately US$51\.1 million equivalent will be placed following this methodology; (b) Price Comparison (PC)\. Civil works, including upgrading and refurbishment of infrastructure of existing schools, laboratories, libraries and other facilities expected to cost less than US$350,000 equivalent may be procured through comparison of at least three quotations from qualified contractors under lump-sum, fixed-price contracts, up to an aggregate amount of US$15\.3 million equivalent\. The school Cooperadoras will preselect local companies to take on the construction and rehabilitation works, with the fnal selection and hiring done by the UEP\. Each Cooperadora will follow a predetermined evaluation criteria provided by the PIU in order to assess the capacity and experience of each of the construction companies invited to submit quotations\. The PIU will keep records at central level of the capacity assessments for each company carried out by the Cooperadoras, as well as keep performance records for those companies awarded contracts under the proposed project\. A team of inspectors financed by the project will assist the Cooperadoras and provide technical assistance during the rehabilitation and construction works\. No individual civil works contracts are expected to cost more than US$1\.45 million for building new schools and US$0\.2 million for upgrading and refurbishment of existing infrastructure\. - 66 -  Procurement of Goods Goods including computer hardware and software, office equipment, vehicles, teaching material and supplies, for the total amount of US$13\.6 million, out of which the Bank will finance US$9\.5 million equivalent shall be procured\. (a) International Competitive Bidding (ICB)\. Contracts for teaching materials and supplies and computer hardware and software estimated to cost more than US$350,000 shall be procured following ICB procedures, using Bank's standard bidding documents\. (b) National Competitive Bidding (NCB)\. Contracts for other equipment and vehicles estimated to cost less than US$350,000 shall be procured following NCB procedures using model bidding documents acceptable to the Bank up to an aggregate amount not to exceed US$4\.0 million equivalent\. (c) Price Comparison (National /International shopping)\. Goods such as office and computer hardware and software, and vehicles procured separately, among others, estimated to cost less than US$100,000 equivalent per contract up to an aggregate amount of US$0\.8 million equivalent would be procured through price comparison\. Teaching and training materials shall also be procured for the estimated amount of US$180,000 and will be financed entirely under national proceeds\. Consultants' Services Consulting services including, among others, technical assistance, scholarships, teacher intemships and other training activities, for the total amount of US$0\.8 million equivalent, financed 100% by the loan shall be contracted in accordance with the Bank's Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised on September 1997 and January 1999)\. Consulting firms for technical assistance and architcctural design of new schools construction will be hired through Quality-and-Cost-Based Selection (QCBS) for contracts estimated to cost US$200,000 equivalent or more, totaling about US$0\.3 million equivalent\. It is expected that about US$0\.5 million equivalent of the total amount assigned to this category will finance individual consultants as follows: (a) an estimated 0\.3m would be allocated to the financing of contracts with individual engineers and architects who will be responsible for the supervision of small civil works construction (refurbishment of 165 schools with a cost not to exceed US$0\.2m equivalent per contract), managed by the central PIU and working in coordination with inspectors and staff of the provincial infrastructure directorate (Direcci6n Provincial de Infraestructura); (b) about US$0\.2m will be allocated to the financing of contracts with individual staff charged with the responsibility of providing technical assistance to eligible schools for the formulation of the Innovative Projects, to be carried out at school level\. Scholarships, teacher internshins and trainin! About US$2\.8m equivalent would be allocated for the financing of the contracts for technical staff and trainer for pedagogical institutional strengthening activities under the Quality and Equity component, implemented at school level\. This category shall be financed 100% under the loan funds\. -67 -  Individual consultants, trainers and visiting professors would be hired on the basis of their qualifications, in accordance with the procedures described in Section 5 of the Consultant Guidelines\. Whenever possible, the Project may publish requests for notes of interest in individual assignments in national and international media\. Innovative Proiect's Fund The project will also finance the total amount of US$1\.7 million for innovative projects presented by eligible schools throughout the Province of Buenos Aires under Component II\. Grant recipients will be selected based on the criteria outlined in the Operational Manual and financed 100% (excluding taxes) under the loan account\. The total cost of each individual project shall not exceed the amount of US$5,000 equivalent\. Project Coordinating Unit (PCLT) The loan will finance about US$950,000 at 100% from the loan account for the fees of consultants hired in the Project Coordinating unit (PCU)\. It is expected that the same PCU that is currently managing the Secondary Education III project (PRODYMES III) will take over the responsibility of implementing the proposed project\. The PCU shall be adequately staffed at all times with qualified personnel headed by a Project Coordinator and assisted by technical specialists and support staff\. Key managerial positions in the PCU, irrespective of contract amounts, shall be approved ex-ante by the Bank\. As much as possible, PCU positions should be filled following competitive open procedures with vacancies advertised in local media\. Recurrent PIU costs for the estimated amount of US$600,000 shall be financed entirely by national counterparts\. Prior review thresholds (Table B) The Bank's prior review would be required for: (a) Civil works: (i) all NCB contracts estimated to cost more than US$750,000 equivalent; (ii) the first NCB contract each year regardless of the amount; (b) Goods: (i) all contracts to be awarded under ICB; (c) Consultants' services: (i) for consulting firms, all contracts estimated to cost US$100,000 equivalent or more; (ii) for individual consultants, all contracts estimated to cost US$50,000/year or more: (iii) contracts of a critical nature, and managerial positions in the PCU, regardless of the estimated cost, as may be reasonably determined by the Bank; (iv) extensions of contracts with consulting firms raising the total contract value at US$ 100,000 or above; (v) extensions of contracts with individual consultants raising the total contract value at US$50,000/year equivalent or more; -68 -  (vi) fitms selected on single source; and (vii) key staff positions at the Project Coordinating Unit\. (d) the first 5 subprojects to be financed under the Innovative Project's Fund\. Under current prior review arrangements it is expected that 32% of the contracts for goods, 45% of the contracts for civil works and 12% of consulting services contracts would be subject to prior review, representing 80%, 65% and 25%, respectively of funds allocated to each category\. Procurement Plan At pre-appraisal, the Borrower developed a procurement plan for project implementation which provides the basis for the aggregate amounts for the procurement methods\. At the beginning of each calendar year, the Borrower shall update the Procurement Plan with a detailed procurement schedule for the coming year which shall include ICB and NCB procedures, smaller procurement and consulting services and training as well as the number and estimated costs for the subprojects to be financed under the proposed loan in accordance with the original Procurement Plan\. Procurement Audits The project will carry out procurement audits carried out by an independent external firm under terms of reference previously agreed with the Bank, in order to determine compliance with Bank's guidelines in project procurement\. These procurement audits may be combined with the annual financial audits or carried out independently, as the Bank may reasonably determine\. Assessment of the aLency's caDacitv to imDlement Drocurement An assessment of the agency in charge of implementing procurement actions for the project has been carried out identifying the organizational structure of the proposed PCU, the capacity and experience to implement procurement and interaction between the project's unit and the Ministry of Education and other provincial authorities (Tribunal de Cuentas de la Provincia de Buenos Aires, Auditoria Intema de la Direcci6n General de Cultura y Educaci6n -DGCyE-, etc\.)\. During loan negotiations, the Bank's task team and the Borrower's representatives will agree on a specific action plan to address the weaknesses and potential risks identified in the Agency Capacity Assessment, defining a time table for implementing the corresponding activities\. It is expected that a satisfactory action plan and the implementation of the early activities will be a condition of loan effectiveness\. The project's risk factor has been determined as AVERAGE"\. Disbursement The proposed loan will disburse over a period of 4 years\. The expected closing date is December 31, 2004\. Disbursements will be made for (i) Civil works: 65% of eligible expenditures, totaling US$40\.65 million; (ii) Goods: 100 % of foreign expenditures and 65% of local, for the total amount of US$9\.5 million; (iii) Consulting services and Training: 100 % (excluding taxes) of the total US$3\.6 million, among which 0\.3 million will be used for (a) activities implemented at central level and US$3\.0 for (b) activities at school level; (iv) Subprojects under Innovative Project Fund: 100% (excluding taxes) of the total of US$1\.7 million; and (v) Project Administration (PCU) 100% of consultants' fees - excluding taxes and operational costs up to the amount of US$0\.95 million\. - 69 -  Allocation of loan proceeds (Table C) The project is expected to be completed over a 4-year period\. Funds will be disbursed according to the categories and percentages shown in Table C of this annex\. The Government's counterpart funds needed for each fiscal year to cover the share of total project expenses not financed by the Bank will be allocated in each year's budget made available for the Project\. Use of statements of expenses (SOEs): Disbursements of the loan proceeds for contracts valued at less than US$350,000 for goods, US$750,000 for civil works and US$100,000 for consulting firms and US$50,000 with individual consultants will be made against Statements of Expenditures (SOEs)\. The documentation supporting claims under SOEs will be retained by the PCU and made available for review and examination by auditors and Bank supervision members\. Financial Manaeement The objective of the review was to determine whether the project has in place an adequate financial management system as required by the Bank/IDA under OP/BP 10\.02\. The review, which included visits to PCUILJEP, was based on the Bank's guidelines for "Review of Financial Management System"\. It was also focused on assessment of the project's accounting system, staffing, internal control, planning, budgeting and financial reporting system, selection of an auditor as well as the format and contents of the Project Management Report (PMR) to be submitted by the borrower in support of Withdrawal Applications\. The project satisfies the Bank's minimum financial management requirements\. However, the project does not yet have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project (PMR) as required by the Bank/IDA for PMR-Based Disbursements\. It has been established that the PCU/JEP maintains: (i) adequately trained and qualified staff; and (ii) separation of functions and responsabilities, which ensure adequate internal management control and whcih prevents conflicts of interest\. It was agreed that there will be SOE-based disbursement for transition period of six-month (6) from the effectiveness\. Below is the agreed action plan by the borrower to remedy the situation\. ACTION PLAN The following actions will be taken by PCU: 1\. Development of the Financial Procedures Manual, and updated by PCU on a regular basis\. 2\. Selection of performance indicators to measure the project implementation, deviation analysis to apply an action and to monitor the efficiency of sources\. 3\. Definition of a chart of accounts after the appraisal period to submit quarterly Project Management Reports (PMRs) and annual Financial Statements for stakeholders and Auditing\. 4\. Submisssion of PMRs within a period of six months from the date of effectiveness\. 5\. Selection of disbursement method to be used at the time of PMRs submission\. - 70 -  Procurement methods (Table A) ToitI Cm ot Epeu~ r Caote - - P!0rueiit _~Q (muling 1\. Civil works 0\.0 51\.1 15\.3 66\.4 (0\.0) (29\.4) (11\.15) (40\.64) 2\. Goods 8\.8 4\.0 0\.8 13\.6 (6\.0) (3\.0) (0\.5) (9\.5) 3\. Consulting Services and Training (a) at central level 0\.3 0\.3 (0\.3) (0\.3) (b) at school level 3\.3 3\.3 (3\.3) (3\.3) 4\. Grants for subprojects 1\.7 1\.7 (1\.7) (1\.7) 5\. Project Administration* (a) Consultants 0\.95 0\.95 (0\.95) (0\.95) (b) Operating costs 0\.65 0\.65 (0\.0) (0\.0) 6\. Teaching and training 0\.2 0\.2 material (0\.0) (0\.0) 7\. Recurrent costs 86\.2 86\.2 (0\.0) (0\.0) 8\. Front-end fee 0\.6 0\.6 (0\.6) (0\.6) Total 8\.8 55\.1 22\.95 87\.05 173\.90 (6\.0) (32\.4) (18\.5) (0\.0) (56\.99) - 71 -  Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) consultant Selection Method Servies ExPenditure QCBS QaS SF13 LCS CQ Other N\.BSFX Total Cost' Category \. \. A\. Firms 0\.30 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.30 (0\.30) (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) (0\.30) B\. Individuals 0\.00 0\.00 0\.00 0\.00 0\.00 3\.30 0\.00 3\.30 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) (3\.30) (0\.00) (3\.30) Total 0\.30 0\.00 0\.00 0\.00 0\.00 3\.30 0\.00 3\.60 _ (0\.30) (0\.00) (0\.00) (0\.00) (0\.00) (3\.30) (0\.00) (3\.60) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc\. N\.B\.F\. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Loan\. Prior review thresholds (Table B) Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review US $ thousands US S millions 1\. Civil Works Refurbishment and >350 NCB All >750 upgrading <350 Three quotations None 2\. Goods Hardware & soft\., office >350 ICB All eq, teaching and Training material, vehicles 100-350 NCB <100 National/Intl' Shopping None 3\. Consulting Services and Training - Firms Technical Assistance >200 QCBS All - 72 -  Technical Assistance <200 QCBS/LCS All T/A, Training <100 LCS ToRs only Training <50 SCQ ToRs only - Individuals >50 Individuals All <50 Individuals ToRs only 4\. Administration Costs Staff (Consultants) >50 Individuals All <50 Individuals ToRs only - 73 -  Disbursement Allocation of loan proceeds (Table C) 1\. Civil works 37\.000 65% of expenditures 2\. Goods 9\.000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost), and 65% for other items procured locally 3\. Consulting Services & Training 100% of expenditures before taxes and Audits (a) at central level 0\.300 (b) at school level 3\.000 4\. Grants for Innovative School 1\.200 100% of amounts disbursed Subprojects 5\. Project Administration 0\.950 100% 6\. Front-end Fee 0\.569 Unallocated 4\.970 Total 56\.990 - 74 -  Annex 7: Project Processing Schedule ARGENTINA: Buenos Aires Second Secondary Education Project Project Schedule Planned Actual Time taken to prepare the project (months) 16 11 First Bank mission (identification) 12/01/99 12/01/99 Appraisal mission departure 10/16/2000 09/18/2000 Negotiations 10/30/2000 10/11/2000 Planned Date of Effectiveness Prepared by: Direccion General de Cultura y Administraci6n Preparation assistance: UEP (DGCyE) Bank staff who worked on the project included: Name Speciality Jacob Bregman Senior Education Specialist and Task Team Leader Sandra Cesilini Social Sector Specialist Luis Pisani Education Specialist, Consultant Marcelo Becerra Economist, Consultant Mariana Montiel Lawyer, LEGLA Anita Artaza COSTAB specialist, Consultant Alejandro Yepes Operations Assistant Jose Moscoso Procurement specialist Susana Cirigliano Financial Management specialist Ruth Izquierdo Administrative Assistant - 75 -  Annex 8: Documents in the Project File* ARGENTINA: Buenos Aires Second Secondary Education Project A\. Project Implementation Plan A\. Project Implementation Documents: 1\. Project Implementation Plan for the Expansion of Access Component 2\. Implementation time table and budget for Improvements in Quality and Relevance of Education Component B\. Bank Staff Assessments: 1\. Economic Analysis: Cost-Benefit and Cost-Effectiveness 2\. Financial Analysis 3\. Social Assessment C\. Project history documents: 1\. Aide Memoires for Identification, Preparation and Pre-Appraisal missions 2\. Back-to-Office Reports for Identification, Preparation and Pre-Appraisal missions 3\. Project Concept Document 4\. Comments on Project Concept Document 5\. Minutes of the PCD review meeting 6\. Detailed Cost Tables D\. Project background documents presented by the DGCyE: 1\. Project Preparation Documents in each sub-component 2\. "El Polimodal: Programa de Transformaci6n" (The Polimodal transfornation program) 3\. "Informaci6n Basica Preliminar" (Basic education and socio-economic infornation for the Province of Buenos Aires) 4\. Situation of Secondary Schools Report 5\. Provincial Education Sector Administrative Reforrn program 6\. Document on Buenos Aires School Infrastructure E\. Relevant Legal Documents: 1\. Federal Education Law 2\. Provincial Education Law 3\. Federal Education Pact 4\. Law for the creation of the COPRET F\. Other projects' documents relevant to the proposed project: B\. Bank Staff Assessments C\. Other *Including electronic files -76 -  Annex 9: Statement of Loans and Credits ARGENTINA: Buenos Aires Second Secondary Education Project Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel\. Undisb\. Orig Frm RevJd P044447 2001 Argentina AR Catamarca Provincial Reform 70\.70 0\.00 0 00 70\.70 0\.00 0\.00 P057449 1999 Argentina AR State Modemization 30\.30 0\.00 0\.00 26\.61 21 61 0\.00 P043418 1997 Argentina AR-AIDS AND STD CONTROL 1500 0\.00 0\.00 3,50 2\.77 0\.00 P058526 1999 Argentina AR-DRUG PREVENTION (LIL) 4\.75 0\.00 0\.00 4\.70 2\.21 0\.00 P063388 2000 Argentina AR-HEALTH INSURANCE FOR THE UNINSURED 4\.90 0\.00 0\.00 4\.90 1\.40 0\.00 P045687 1996 Argentina AR-HEALTH INSURANCE TA 2500 0\.00 0\.00 0\.85 0\.85 0\.00 P034091 1996 Argentina AR-HIGHER ED\. REFORM 165\.00 0\.00 0\.00 76\.54 76\.54 2\.20 P006059 1997 Argentina AR-MATERNAL & CHILD HLTH & NUTRITION 2 100\.00 0\.00 0\.00 59\.08 0\.08 0\.00 P006030 1996 Argentina AR-PROV\. HEALTH SECTOR DEVELOPMENT 101\.40 0\.00 0\.0 47\.98 45\.68 0\.00 P055482 2000 Argentina AR-PUB\. HLTH\. SURV\. & DISEASE CONTROL 52\.50 0\.00 0\.00 52\.50 6\.83 0\.00 P005992 1995 Argentina AR-SECONDARY ED 1 190\.00 0\.00 2131 31\.02 52\.32 32 32 P006057 1996 Argentina AR-SECONDARY ED\. 2 115\.50 0\.00 0\.00 68\.17 60\.11 0\.00 P050714 1998 Argentina AR-SECONDARY EDUCATION 3 119\.00 0\.00 0\.00 31\.08 29\.42 0\.00 P049269 1998 Argentina AR-SOCIAL PROTECTION 3 284\.00 0\.00 0\.00 72\.28 72\.28 000 P006058 1999 Argentina AR-SOCIAL PROTECTION 4 90\.75 0\.00 0\.00 75\.51 10\.54 0\.00 P039584 1997 Argentina B\.A\.URB\.TSP 200\.00 0\.00 0\.00 141\.49 69\.83 0\.00 P055935 1998 Argentina EL NINO EMERGENCY 42\.00 0\.00 0\.00 32\.88 32\.88 15\.55 P006052 1997 Argentina FLOOD PROTECTION 200\.00 0\.00 0\.00 165\.33 98\.67 35 00 P006040 1996 Argentina FORESTRY/DV 16\.00 0\.00 0\.00 8\.57 381 0\.00 P006055 1996 Argentina MINING SCTR DEVT 30\.00 0\.00 0\.00 1\.82 0\.52 0\.00 P055477 1998 Argentina MININGTA 39\.50 0\.00 0\.00 13\.84 13\.84 0\.00 P050713 1998 Argentina MODEL COURT DEV\. 500 0\.00 0\.00 4\.15 3\.45 0\.00 P006060 1995 Argentina MUNICDEVTII 210\.00 0\.00 0\.00 69\.92 -51\.40 0\.00 P040808 1997 Argentina N\.FOREST/PROTC 19\.50 0\.00 0\.00 13\.46 -1\.20 0\.00 P052590 1998 Argentina NAT H,WY REHAB&MAINT 450\.00 0\.00 0\.00 271\.66 165\.92 0\.00 P046821 1997 Argentina PENSIONTA 20\.00 0\.00 0\.00 8\.81 7\.97 0\.00 P006050 1998 Argentina POLLUTION MGT\. 18\.00 0\.00 0\.00 17\.58 10\.05 0\.98 P006010 1997 Argentina PROVAG DEVT I 125\.00 0\.00 0\.00 116\.21 30\.89 6\.27 P006018 1995 Argentina PROV DEVT II 225\.00 0\.00 0\.00 85\.22 -1\.12 0\.00 P005980 1997 Argentina PROV ROADS 300\.00 0\.00 0\.00 265\.05 166\.39 0\.00 P037049 1996 Argentina PUB\.INV\.STRENGTHG 16\.00 0\.00 5\.50 7\.25 12\.75 0\.00 P006043 1999 Argentina RENEWENERGYR\.MKTS 30\.00 0\.00 0\.00 29\.10 3\.30 0\.00 P005968 1987 Argentina SEGBAV 276\.00 0\.W 0\.00 32\.24 32\.24 0\.00 P006041 1998 Argentina SMALL FARMER DV\. 75\.00 0\.00 0\.00 42\.21 22\.19 17\.88 P055461 1999 Argentina SOC&FISC NTL ID SYS 1000 0\.00 0\.00 7\.25 4\.25 0\.00 P062992 1999 Argentina SPEC REPURCHASE 505\.05 0\.00 0\.00 500\.00 0\.00 0\.00 P062991 1999 Argentina SPECIAL SAL (SSAL) 2525\.25 0\.00 250\.00 500\.00 750\.00 500\.00 P006046 1999 Argentina WATER SCTR RFRM 30\.00 0\.00 0\.00 30\.00 8\.34 0\.00 Total: 6736\.10 0\.00 276\.81 2989\.46 1766\.21 610\.20 - 77 -  ARGENTINA STATEMENT OF IFC's Held and Disbursed Portfolio 20-Sep-2000 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 AUTCL 5\.63 0\.00 0\.00 0\.00 5\.63 0\.00 0\.00 0\.00 1994 AceiteraChabas 0\.00 0\.00 3\.10 0\.00 0\.00 0\.00 3\.10 0\.00 1994 Aceitera General 7\.50 0\.00 6\.90 0\.00 7\.50 0\.00 6\.90 0\.00 1960/95/97/99 Acindar 50\.00 0\.00 0\.00 0\.00 50\.00 0\.00 0\.00 0\.00 1994/95/96 Aguas 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1977/84/86/88/94/96 Alpargatas 10\.00 0\.00 0\.00 40\.50 10\.00 0\.00 0\.00 40\.50 1999 American Plast 10\.00 0\.00 0\.00 0\.00 10\.00 0\.00 0\.00 0\.00 1993 Arg Equity Inv\. 0\.00 2\.84 0\.00 0\.00 0\.00 2\.84 0\.00 0\.00 2000 Argentina SMMC 0\.00 12\.50 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1994/99 BGN 0\.00 0\.00 33\.00 0\.00 0\.00 0\.00 33\.00 0\.00 1989/91/96 Banco Frances 4\.10 0\.00 0\.00 0\.00 4\.10 0\.00 0\.00 0\.00 1996/99 Banco Galicia 50\.00 0\.00 0\.00 245\.00 50\.00 0\.00 0\.00 245\.00 1995/97 Banco Roberts 30\.00 0\.00 0\.00 0\.00 30\.00 0\.00 0\.00 0\.00 1996 Bansud 3\.39 0\.00 0\.00 0\.00 3\.39 0\.00 0\.00 0\.00 2000 Bco Hipotecario 25\.00 0\.00 0\.00 102\.50 25\.00 0\.00 0\.00 102\.50 1996 Brahma - ARG 14\.93 0\.00 0\.00 16\.50 14\.93 0\.00 0\.00 16\.50 1988/93 Bunge y Born 0\.53 0\.00 0\.00 4\.01 0\.53 0\.00 0\.00 4\.01 1996 CAPSA 9\.82 0\.00 5\.00 27\.00 9\.82 0\.00 5\.00 27\.00 1999 CCI 0\.00 20\.00 20\.00 0\.00 0\.00 20\.00 6\.00 0\.00 1995 CEPA 6\.67 0\.00 3\.00 1\.20 6\.67 0\.00 3\.00 1\.20 2000 Cefas 10\.00 0\.00 5\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1999 Correo Argentino 63\.00 6\.82 5\.18 0\.00 63\.00 6\.82 5\.18 0\.00 1994/95 EDENOR 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1998 F\.V\. S\.A\. 11\.25 0\.00 4\.00 0\.00 11\.25 0\.00 4\.00 0\.00 1998 FAID 0\.00 2\.75 0\.00 0\.00 0\.00 2\.75 0\.00 0\.00 2000 FAPLAC 10\.00 0\.00 5\.00 0\.00 10\.00 0\.00 5\.00 0\.00 1992 FEPSA 2\.75 0\.00 2\.00 0\.00 2\.75 0\.00 2\.00 0\.00 1997 FRIAR 10\.00 0\.00 2\.50 7\.00 10\.00 0\.00 2\.50 7\.00 1996 Grunbaum 6\.00 0\.00 2\.00 3\.33 6\.00 0\.00 2\.00 3\.33 1997 Guipeba 13\.93 0\.00 5\.00 0\.00 13\.93 0\.00 5\.00 0\.00 1998 Hospital Privado 9\.60 0\.00 0\.00 0\.00 6\.50 0\.00 0\.00 0\.00 Huantraico 0\.00 17\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1992 Kleppe/Caldero 6\.00 0\.00 0\.00 0\.00 6\.00 0\.00 0\.00 0\.00 1995/97 MBA 0\.00 0\.16 0\.00 0\.00 0\.00 0\.16 0\.00 0\.00 1996 Malteria Pampa 3\.50 0\.00 1\.00 0\.00 3\.50 0\.00 1\.00 0\.00 1992/93/96 Mastellone 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1995 Milkaut 7\.50 0\.00 10\.00 3\.00 7\.50 0\.00 10\.00 3\.00 0/97 Minetti 30\.00 0\.00 14\.00 100\.00 30\.00 0\.00 14\.00 100\.00 1978/81/86/87/91/93/9 Molinos 0\.00 1\.24 0\.00 0\.00 0\.00 1\.24 0\.00 0\.00 6/99 Nahuelsat 17\.50 5\.00 0\.00 0\.00 17\.50 5\.00 0\.00 0\.00 1993/94 Neuquen Basin 0\.00 5\.00 0\.00 0\.00 0\.00 3\.81 0\.00 0\.00 1995 Nuevo Central 3\.13 3\.00 0\.00 3\.75 3\.13 3\.00 0\.00 3\.75 1996/99 Oleaginosa Oeste 1\.53 0\.00 2\.50 0\.62 1\.53 0\.00 2\.50 0\.62 1993 PAE-Argentine 9\.09 0\.00 0\.00 18\.18 9\.09 0\.00 0\.00 18\.18 1992 1992/95 Total Portfolio: 646\.13 127\.46 180\.96 882\.97 626\.03 76\.35 161\.96 882\.97 - 78 -  Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2000 ALEF 25000\.00 0\.00 0\.00 150000\.00 2000 APSF 20000\.00 0\.00 5000\.00 30000\.00 1999 American Plast 0\.00 0\.00 350\.00 0\.00 2000 Argentina SMMC 100000\.00 0\.00 0\.00 450000\.00 1999 Biopork 5200\.00 2000\.00 0\.00 5000\.00 2000 CAG Fund 0\.00 0\.00 10000\.00 0\.00 1999 DI TELLA 9000\.00 0\.00 0\.00 0\.00 1999 Galicia BLINC 0\.00 0\.00 0\.00 75000\.00 1998 U\.Belgrano 15000\.00 0\.00 0\.00 0\.00 2001 USAL 10000\.00 0\.00 0\.00 0\.00 1999 Unisoy 5000\.00 2000\.00 0\.00 4000\.00 Total Pending Commitment: 189200\.00 4000\.00 15350\.00 714000\.00 - 79 -  Annex 10: Country at a Glance ARGENTINA: Buenos Aires Second Secondary Education Project Latin Upper- POVERTY and SOCIAL Amerka middle\. - ----- Argentins & Carit\. income Development diamond' Population mid-year (miions) 366 SC9 573 Life expectancy GNP per caPita (Atlas method, USS) 7\.600 3,840 4,900 GNP (Alts mthood\. US$ billions) 277\.9 1\.955 2,811 Averag annual growth 1993-9S Population (6) 1\.3 16 1,4 Labor force (#) 21 2\.5 21 GNP A Gross per pn mary Most recent eatinate (tateet year available, 190341f1 capita enrollment Poverty ( of populaton below noanel poiwety line) 18 Urban populabon (t of Ml populatIon) 90 75 76 Life expectancy at birth (years; 73 7(1 70 Infant mortality (per 1,OM Ihe births) 19 31 27 Child malnutrition (% of children under 5) 2 8 7 Access to safe water Access to improved water source (X Of populbon) 65 75 78 IliteracV (% of popubion age 15-) 3 12 IC Gross pDmaery enroltment (3 ofschool-ego populdation) 111 113 109 Argentina Male 1t1 - - \. --Upper-middle-income group Female 111 KEY ECONOMIC RATIOS end LONG-TERM TRENOS 1979 1989 1998 1 9S9t9 ' Economic ratios' GDP (USS billions) 69\.3 76,6 298\.1 282\.8 Gross domestc investmentlGOF 25\.9 155 199 19\.1 Exprts of oods and servwcesIGOP 685 13\.1 10\.4 9\.8 Trade Gross domestic savings/GOP 26\.0 22\.0 174 17\.4 Gross national savings/GOP 25\.2 13\.6 151 14\.8 Current account balance/GDP -0\.e - 17 -4\.68 4\.3 D Interest pavments/GDP 1\.4 2\.0 24 2\.8 Domesicg Investment Total debtfGW 350\.2 85\.6 47\.1 S1\.2 Sawngs Total debt service/exports 22\.7 36\.4 52\.8 69,6 Present value of debtGODF 50\.5 Present value of debtlevorts 410\.1 Indebtedness 1S7949 1989-99 1996 1999 199943 (4verage -nnulo/rowfvl GOP -0\.4 5\.0 39 6 3\.1 3\.8 -A rgen tina GNP per capita -2A4 4\.1 24 -4\.1 2\.9 Upper-middle-income group a ExportS of goods and seNices Z\. 6\.9 10\.1 -1\.1 4,1 STRUCTURE of the ECONOMY (979 1989 1998 1999 Growth of Investment and GDP (%) Anriculture 7\.8 9\.6 5\.7 4\.6 20 IndustrV 44\.0 42\.3 28\.7 2683 1D Manufacturinn 32\.7 30\.9 19\.1 18\.2 o Services 48\.2 48\.0 65\.6 67\.1 910 97 9 Private consumption 63\.0 73\.5 70\.7 69\.7 -20 General government consumption 11\.0 4\.5 11\.9 12\.9 -GDI - 0-GDP Imports of goods and services 6\.3 6\.6 12\.9 11\.5 1979-89 1989-99 1998 1999 Growth of exports and Imports (%) (avera\.ge annual growth) Agrculture 0\.5 4\.0 10\.3 -0\.5 30 Industrb -1\.2 4\.6 3\.2 -5\.1 20 Manufacturing -0\.9 3\.6 1\.6 -6\.9 Services 0\.5 5\.0 4\.7 -1\.4 / Private consumption 3\.8 12\.1 4\.2 0 General govemment consumption 1\.3 -1\.1 1\.2 94 9 s6s 7w1\s5 Gross domestic investmenl -4\.6 9\.3 6\.6 -7\.6 I( I Imports of poods and services -5A4 19\.6 8\.4 -11\.2 | Exports ---Imports Gross national producl -1\.0 5\.4 3\.5 -3\.3 Note: 1999 data are preliminary estimates\. The diamonds show four key indicators in the countrY (in bold) compared with its income-group average, If data are missing, the diamond will be incomplete\. - 80 -  Argentina PRICES and GOVERNMENT FINANCE Domestic prices 1979 1989 1998 1999 Inflation I%) (% change) 1- Consumer prces 159\.5 3,066\.3 0\.9 -2\.2 1 |s Implicit GOP deflator 147\.4 3,057\.6 -2\.0 -2\.2 Government finance (% of GDP, indudes current grants) 9 94 95 9 97 Current revenue 8\.0 15\.5 18\.8 19,3 -5 Current budget balance 3\.7 -3\.5 -0\.3 -1\.5 -GDP deflator -C-CPl Overall surplusideficd -1\.4 -6\.3 -1\.4 -1\.7 TRADE (US$ millions) 11979 1989 199S 1999 Export and import levels (US$ mill\.) Total exports (fob) \. 9,656 26,441 23,315 35o000 Food \. 1,016 3,056 2,428 Meal \. 716 836 653 28,000- Manufactures \. 3,186 17,387 15,082 21,000 lMII11III1 Total imports (cifl \. 4,230 31,404 25,538 d5 Food \. \. \. 466 Fuel and energy \. 389 852 674 7,000 Capital goods \. 1,450 15,649 11,909 0 Export price index (1995=100J \. \. 92 80 Import prioce index (1995=100) \. \. 92 85 aExports *Imports Terms of trade (1995=100) \. \. 101 94 BALANCE of PAYMENTS 1979 1989 1998 1999 Current account balance to GDP 1%) (US$ millions) Exports of goods and services 9,176 11,759 31,123 27,758 0 Imports of goods and services 8,773 6,254 38,568 32,557 Resource balance 403 5,505 -7,445 -4\.799 Net income -973 -6,818 -7,335 -7,847 :1111111 Net current transfers 26 8 388 394 Current account balance -544 -1,305 -14,392 -12,252 A Financing items (net) 107 10,954 11,051 Changes in net reserves \. 1,198 3,438 1,201 -s Meno: Reserves including gold (US$ mirlions) \. 10,814 24,906 26,407 Conversion rate (DEC, locaWlLS$) 2\.79E-8 4\.23E-2 1\.0 1\.0 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 (US$ millions) Composition of 1998 debt (US$ mill\.) Total debt outstanding and disbursed 20,942 65\.618 140,489 144,657 IBRD 367 2,281 7,417 8,591 A: 7,417 IDA 0 0 0 0 C: 5,442 G\. 30,956 D: 1,705 Total debt service 2,251 4\.385 19,690 23,571 |:7,400 IBRO 59 417 725 998 IDA 0 0 0 0 Composition of net resource flows Official grants -2 54 31 6 Official creditors 233 660 2,072 1,538 Private creditors 4,334 -732 9,527 2,882 Foreign direct investment 206 1,028 6,150 11,120 Portfolio equity 0 8 50 -2,093 F 87,569 World Bank program Commitments 96 35 3,815 132 A -IBRD E-Bilateral Disbursements 39 316 2,029 1\.573 B - IDA D - Othler mutilateral F - Private Principal repayments 24 221 350 445 C - IMF G - Short-term Netflows 15 96 1,678 1,128 Interest payments 36 196 375 553 Net transfers -21 -101 1,304 575 Development Economics 9112100 -81 -  Additional Annex No\.: 11 PROVINCE of BUENOS AIRES, ARGENTINA Second Secondary Education Project Social Assessment Note: The complete Social Assessment Document is available upon request Background To date, considerable infornation about the social sectors in Argentina has been gathered: (i) 1998 and 1999 the Bank carried out a poverty study in argentina that focused on poverty data by province and the link between this variable and the educational level achievement and labor market participation in the provinces; (ii) in 1999 the Bank carried out a study on the management of social risk that focuses on social risks by age group and the type of coverage available through social programs, including educational services; and (iii) a study on institutions that provide services to the socially-excluded, focussing on the city of Buenos Aires\. Based on the information from the previously-mentioned studies and in light of the new challenges under the auspices of the proposed project, a Social Assessment (SA) was carried out to determine the impact of education reform in areas of high incidence of poverty and to identify obstacles to be considered in its implementation\. The points of view of the various stakeholders potentially affected by the project were considered including students, youth out of school, parents, school directors, teachers and participating community organizations\. Emphasis was made on the potential impact of the project's extra-curricular activities for youth, on the improvement of youth's skills to enter the labor market and on improving the leaming process\. Social Assessment Methodology In order to gather more information, are also taken into account the results based on the enquiry of the Province of Buenos Aires on the BASAL\. Focus groups of parents, youth from the community who attend and do not attend school, teachers, and school administrators of two groups of five schools in similar social-economic level of disadvantages were selected\. The first group of five schools would be part of the Jornada Completa program (following poverty criteria), whereas the second group is meant to act as a control group\. The focus groups were interviewed on a range of issues pertaining to (i) the concept of Jomada Completa and its usefulness; (ii) perception of the quality of education provided in public schools; (iii) perception of the relationship between secondary education and access to the labor market; (iv) factors that will improve the quality of education; (v) perception of the scholarship program and its relation to Jomada Completa; and (vi) opinion on the implementation of education reform in the PBA\. The methodology used was qualitative and semi-structured, and consists in knowing the opinions of the group as a whole and the positions taken by the representatives of the selected educational community, with respect to expectations, demands, degree of satisfaction and level of information with reference to the contents evaluated\. The work in groups is used as a strategy through which the interaction of the individuals allows each participant to produce and reproduce categories; particular emotions, beliefs, values and attitudes are rebuilt in a way that it is possible to identify contextually and reproduce the global society functioning\. Investigation was done in the schools of the Province of Buenos Aires, in the localities of Aimirante Brown, - 82 -  Marcos Paz, Jose C\. Paz, Pehuajo and San Fernando, corresponding to different social-demographic characteristics\. One of the characteristics taken into account was the one related to poverty indicators\. Another important indicator relates to those students categorized as living in disadvantaged social - economic conditions ("matricula en dificultad")\. In the selection of the schools, as mentioned before, were included five that will be selected as full-time turn and five with part-time turn, to be used as a control group\. Almirante Brown - 8 groups - 70 participants Marcos Paz - 8 groups - 65 participants Jose C\. Paz - 8 groups - 78 participants Pehuajo - 10 groups - 80 participants San Fernando - 8 groups - 78 participants Directors - 10 groups - 24 participants Teachers - 10 groups - 89 participants Students - 10 groups - 120 participants Parents - 10 groups - 127 participants Supervisors - 1 group - 2 participants (Pehuajo) Social Service Volunteers - 1 group - 9 participants (Pehuajo) Total: 42 groups - 371 participants After one year of implementation, a comparison between the first group and the control group will assist in spelling out the benefits of the reform and to monitor progress\. EGB3 Schools in Jornada Partido Enrolment EGB3 Schools in Control Enrolment Completa Group School No\. 39, Maestro Almirante 260 School No\. 47, Prof\. Eduardo 630 Ignacio F\. Rodriguez Brown Toffes School No\. 12, Tte\. Gral\. Marcos Paz 183 School No\. 9, Hip6lito 600 Pedro E\. Aramburu Irigoyen School No\. 18, Blas Parera Jose C\. Paz 300 School No\. 11, Fragata 512 Sarmiento School No\. 48, Francisco Pehuaj6 School No\. 13, Gral\. Jose de 382 Gortari San Martin School No\. 23 San Fernando 303 School No\. 37, Malvinas 600 Argentinas Total Students About 1000 Total Students About 2500 Source: Social Assessment, 2000 Main findings of Social Assesment On the expansion of the school day to Jornada Completa, the SA found a wide acceptance for the implementation among the poorest part of the population, due to the fact that a full school day would be considered as a benefit for the student in relation of the learning and in order to take the scholar off of the street\. But, it was not agreement on the targeting of Jomada Completa, around 50 % of the population thought that JC should be universal (based on the BASAL survey)\. It is essential to focus on the benefit of the Jornada Completa in social disadvantaged areas , reflected by the fact that it would lead to a reduction in repetition rates ( i\.e in the Report N 18122-UR, Document of the World Bank, the estimation of the - 83 -  reduction is 0\.35) which is one of the main problems for the schools in the poor areas\. The following are the main problems and solutions coming out from the qualitative study: Problem Proposed Solution Alcoholism, drug use, violence, teen-age pregnancy, Social Emergency Teams which can deal with these sexual abuse\. issues\. Active participation of Direction of Psychology and other professionals in preventing these situations\. School drop-out and absenteeism due to the need of Scholarships which may grant class attendance\. Massive students to cooperate with their parents in family implementation of Full Day Schools\. economy\._ Students who baby-sit their younger siblings while New Day Care Centers and Kindergartens for younger parents are at work\. siblings of students who attend Full Day Schools\. Large number of parents with low level of formal Semi-presential courses to allow parents of students education\. enrolled in Full Day programs to finish primary school and EGB3; this should help parents in assisting their children to improve performance at school\. Rigid and structured schools with no possibility for Workshops for teachers and school directors to re-think innovation in the learning process\. the school as a supportive environment opened to the community\. Decreasing institutional cohesion; no links within and Work with the educational community in order to among schools\. encourage better communication among its members\. Hegemonic communication with disqualification of Workshops aimed to generate sinergy among components others\. of the educational system\. Implementation of Full Day Schools projects not yet Monitoring and follow-up of implementation of Full Day developed\. Schools project which may grant success and replication\. Physical exhaustion of teachers as a result of by an 8 Classroom based project planning which may facilitate hour teaching period in the same room with the same work and make it more dynamic throughout the day\. group of students\. Lack of work/labor oriented workshops and activities\. Promotion of workshops and training activities (i\.e\. computer skills) with community organizations\. Lack of student driven workshops and leisure time Workshops: theater, fine arts, music, farming\. activities\. - 84 -  High teacher turnover, substitute teachers, and Guarantee of no teacher vacancies in Full Day Schools vacancies\. Lack of adequate buildings\. Some schools hold EGB Building of classrooms for grades sections in Full Day III and Polimodal together because of lack of room to School buildings, in order to avoid commuting of have separate sections\. teachers and students\. Lack of use of school dining-hall for social activities\. Use of school dining-halls as social activity centers\. 25% salary reduction produced by the loss of one Complementary lump sum for those teachers who go into regular appointment, as teachers go into the Full Day Full Day School regime\. School regime\. Poor school management, extremely centralized, with Continuous socio-pedagogic support with province own neither pedagogic support, nor training to face risky and resources, intemships, and community support (i\.e\. violent situations\. church groups, NGOs) Autonomy to partially define the curricula according to the needs and the institutional educational project\. Pilot project status with new teachers' regulation which should include: - salary - recruitmnent - autonomy in school resources management Administrative overload New administrative tasks for school employees whose previous main tasks were related students discipline, in order to free teachers from performing those administrative tasks; gradual incorporation of self discipline system in the Polimodal cycle\. Quality of Education at each school depends directly on Competitive selection of schools which will enter into the teachers/management teams Full Day School program\. Training and advisory services in project design for management teams, teachers and the whole educational community, in order to get every school to have equal ______ opportunities in the selection process\. Agreement on proposed solutions obtained from the Social assessment - 85 -  The PBA agree with the following actions and solutions: Active participation of Direction of Psychology and other professionals integrating social Emergency Teams for Jomada Completa schools in order to deal with alcoholism, drug use, violence, teen-age pregnancy, sexual abuse\. Work with the educational community in order to encourage better communication among parents, students, teachers, and school principals\. Teachers who go into the Jomada Completa regime will have a 100 % salary increase to avoid lack of motivation\. Complementary lump sum for those teachers who go into Full Day School regime\. Poor school management, extremely centralized, with neither pedagogic support, nor training to face risky and violent situations, assisted with special training programs\. Continuous social-pedagogic support with province own resources, intemships, and community support (i\.e\. church groups, NGOs)\. Autonomy to partially define the curricula according to the needs and the School Development Plans\. Project status with new teacher's regulation which should include concourse selection for vice-directors in EGB III\. Quality of Education at each school depends directly on teachers/management teams\. Competitive selection of schools which will enter into the Full Day School program\. The PBA will include "ownership" as eligibility criteria for the JC schools selected in the project\. Training and advisory services in project designed for management teams, teachers and the whole educational community, in order to get every school to have equal opportunities in the selection process\. Eligibility criteria Based on the Social Assessment results, the WB and the PBA agreed on the eligibility criteria for the 200 schools\. This criteria are taken into account on social-economic and poverty issues, educational risk, regional representativeness, ownership by the educational community and land legal possession\. 1\. The selection will be based on the social-economic profile of the school population, measured by various characteristics prepared by schools directors in cooperation with teachers and the school community (see below); 2\. All the education Regions (16) should be included in the sample of the selected (about200) EGB3 schools; 3\. Land availability for access expansion should be legally ensured for all the schools; 4\. Ownership of the "Jormana Completa" model and its implementation should be shown through a PEI ("Proyecto Educativo Institucional)" in each of the selected (about 200) EGb3 schools, which is equivalent to a school development plan\. Socio-economic urofile of the school Population\. Selection criteria under item 1\. have been determined on the basis of the student population living in social-economic disadvantaged conditions\. These conditions are measured against various characteristics of the household and / or the student\. The family - 86 -  information data are determined by the school director in cooperation with teachers, and the parents or children's supervisors (community)\. The data are available per school and are comparable with district averages\. Methodolo2\. The DGCyE will compile the basic statistical database for at least 400 poor EGB schools, in order to select at least 200 EGB schools as control group, and at least 200 EGB3 schools which will implement the "Jornada Completa" (full-time)\. This tentative list of EGB3 schools should show their location, and comparative "social-economic" school population data at district and regional level\. The schools in the PBA include normally three cycles (EGB 1+2+3) in one building\. In the poorer urban areas the schools are for the most part over-populated, and there is a severe shortage of space to (i) accommodate the transfer enrolment into the EGB3 level (grades 7-9) in agreement with the new curricular requirements and (ii) respond to the increased demand for further education from the communities, which often live in poor conditions (housing, sanitation and other public services)\. A school can be selected into the project if the percentage of its student population at EGB level "living in disadvantaged social-economic conditions" is higher than district's average of the student population\. This "poverty-composite" indicator is based on the following social-economic data from student and their households\. For a student to be categorized as "living in disadvantaged social-economic conditions", he/she needs to fail into one of the following categories ("matricula en dificultad"): 1\. Pupils from "villas de emergencia" (recognized slums) 2\. Pupils from families who occupy land illegally 3\. Orphans or pupils who have been abandoned by their parents 4\. Pupils who go to a neighborhood "care center" during the day ("Centros Complementarios") 5\. Pupils from families with at least 4 of the following characteristics: 5\.1\. Families with more than 4 children below 18 years old; 5\.2\. Single-parent households with the head of the household unemployed; 5\.3\. Children from households in extremely poor conditions; 5\.4\. Children with one parent who is illiterate; 5\.5\. One or more of the siblings have dropped out of school prematurely; 5\.6\. Students from households which receive social assistance\. - 87 -  Additional Annex No\.: 12 Education System*a6nd Rrm iin the Provinodf Buenos Aires Previousystern ______ __________ i __0 Basic General Education TTP :~ ~ ~ ~ ~~opIoy 10 \.er -_ : New ~system *f\.dem &A*KmmIn Low ApI1- *Prvb~bI AacUaeI Lw- ecebe1994 6 HDW 2UK - W0% 1ank Table A: Enrolment per level of education in Argentina (Public and Private combined) Province Primary MedioToaShr Cordoba 390,436 193,325 583,761 8% Santa Fe 429,235 181,497 610,732 9% City of Buenos Aires 384,006 206,680 590,686 8% Other Provinces 2,004,400 774,384 2,778,784 3 90/o Total 4,979,190 2,144,372 7,123,562 100% Fuente Direcci5n General Red Federal de Informaci6n Educativa Secretaria de Programaci6n y Evaluaci6n Educativa Mmnisterio de Cultura y Educaci6n de la Naci6n (*):- Docentes en actividad de educaci6n comz4n del sector privado (*):A lumnos en educaci6n comt~n del sect or orivado - 88 -  Table B: Pupils and Teachers by Province for Public and Private Sectors Primary Medio _______________________ PuDijs Teachers PuDiIs T ers Prov Buenos Aims 07\.100 272 , : 11,2 Cordoba 85,147 4,713 82,982 10,291 Santa Fe 101,797 5,903 58,624 7,466 City of Buenos Aires 123,622 10,655 105,240 13,807 Other Provinces 233,776 15,068 157,649 20,900 Private Sector subtotal 1\.0&Q~71\. 63091 67\.6 9\.6 Prov\. Buenos Aires 1,240g4 6ta6% '51717 52,110 C6rdoba 305,289 17,960 110,343 13,369 Santa Fe 327,438 18,577 122,873 13,587 City of Buenos Aires 160,384 12,868 101,440 12,200 Other Provinces 1,870,624 110,033 616,735 69,478 Public Sector subtotal 3\.927\.819 221,137 1\.468,408 160,814 TOTAL 4,979,190 284,228 2,144,372 244,680 Fuente Direcci6n General Red Federal de Informaci6n Educativa Secretaria de Programaci6n y Evaluacion Educativa Ministerio de Cultura y Educaci6n de la Nacion (*): Docentes en actividad de educaci6n comun del sector privado (**):Alumnos en educacion comun del sector orivado - 89 -  Table C: Total Provincial Public Expenditures, Social, and Education & Culture expenditures compgrison, 1995 & 1 98 lillions) P S t: A C6rdoba Santa Fe Mendoza PROVINCE * 1+J;! 1998 1998 1998 a\. In millions of dollars _\. $ $ TOTAL EXPENDITURE l46$ 0 3,071 3,125 1,336 PUBLIC SOCIAL EXPENDITURE t52 7\.920 2,030 1,848 775 Education & Culture g9214 $ 678 769 381 Basic Education ~Z2 623 666 325 Higher Education & University 1 641 46 19 Culture 1 $710 6 9 Education & Culture non-defined S 4$ 4 50 28 b\. As %of Public Exp\. %% TOTAL EXPENDITURE I i 100 100 100 PUBLIC SOCIAL EXPENDITURE 66 59 58 Education & Culture 2 922 25 29 Basic Education 2220 21 24 Higher Education & University 1 1 14 Education & Culture non-defined 0 2 2 c\. As % of Public Social Exp\. % % % PUBLIC SOCIAL EXPENDITURE I100 100 0oo Education & Culture nton-defined P' 0,,g> 3; 4 Education & Culture 10 1200 100 Basic Education 92 87 85 Higher Education & University 2O3 6 6 2 Education & Culture non-defined 0 3 4 e\. In pesos/dollars per Capita E % \. TOTAL EXPENDITURE \. t 1,015 1,037 860 PUBLIC SOCIAL EXPENDITURE 671t22 613 4985 Education & Culture 224 255 245 Basic Education 9 13 206 221 20 Higher Education & University 6~11 15 12 CultureI 2 Education & Culture non-defined 261 17 18 Source: Elaboracion en base a datos de DNPGS, Presupuesto y Cuenta de Inversion de la Provincia de Cordoba e IIVDEC -90-  Table E: Primary Le el Expenditure per Stud nt, 1998 Province Expenditure/Student Expenditure/Student In Primary level In Media level Prov\. BuenosAimrs $1,287 $1\.557 C6rdoba $1,207 $1,878 Santa Fe $1,418 $1,894 City of BA $2,138 $2,261 National Average $1,258 $1,697 Fuente: Educaci6n para Todos, Llach et al\. Table F: Education Efficiency I dicators (la est provinces in Primary and Media Primary Coverage Retention Repetition Student/Teacher Over aged ____ ____ ____ ____ ____ __ _ ____ ____ ___R atio _ _ _ _ _ _ _ _ _ \. Benos AireS 965% 7\.8% 30Yo 19 9\.3 CUrdoba 96\.5% 72\.8% 5\.2% 18 8\.6 Santa Fe 96\.2% 71\.2% 5\.8% 17 9\.6 City of BA 96\.9% 84\.0% 2\.4% 12 7\.3 National Average 96\.1% 76% 4\.5% 17 9\.6% Media Prov\. Buenos Aires 54\.1% 38\.2% 10\.6% 9 11\.0% C6rdoba 57\.4% 52\.7% 9\.3% 8 10\.9% Santa Fe 55\.1% 47\.0% 8\.1% 8 9\.5% C\. B\. A\. 71\.8% 51\.2% 8\.7% 8 11\.9% National Average 54\.7% 41\.5% 9\.9% 8 11\.7% Fuente: Educacionpara Todos, Liach et\. al\. Table G: Ranking By Language And Math Scores For Different Grade Levels\. 1997 & 1998 (Ranking From 1 - 25: 24 Provinces + City Of Buenos Aires) 3er ailo EGB 6to afio EGB 9no aflo EGB 5to/ 6to afio sec\. Grade Level EGB 1 EGB 2 EGB 3 Polimodal Subject Language Math Language Math Language Math Lang\. Math Year 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998 1998 1998 P8A \. I 6 3 8 3 6 8 8 6 2 5 2 2 2 C6rdoba 10 9 12 11 8 5 6 5 10 9 11 8 5 4 Santa Fe 6 2 2 2 6 4 3 7 3 5 3 3 6 7 City of Buenos 3 1 4 1 1 1 1 1 1 1 1 1 1 1 Aires Gran Buenos Aires 2 5 1 4 2 2 2 2 2 15 2 9 3 3 Source: Elaboraci6n propia en base al Operarivo Nacional de Evaluaci6n de Finalizacion del Nivel Educativo Ministerio de Cultura v Educaci6n de La Naci6n -91 -  Prov\. Buenos Aires: Education Sector Expenditures and Percentage Share of Provincial Budget, 1994-2000 4,000 35% ~~~ 3,000 27%~~~~~~3% 3 0c 30% 29%_% 2,000 27099 0 ~ Ci) 4U) w 1,000 0 0 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Table H: PBA Population by Age Group Age 1990 1995 2000 % share of 2005 2010 total DOP\. 0-4 1\.211\.652 1\.240\.216 1\.264\.116 8\.9% 1,285,896 1,287,417 5-9 1\.193\.227 1,214,491 1,245\.872 8\.8% 1\.270\.392 1,292,039 10-14 1\.240\.639 1\.201\.380 1\.225\.520 8\.6% 1\.257\.569 1\.281\.649 15-19 1\.069\.287 1\.261\.906 1\.225\.699 8\.6% 1\.251,964 1\.283\.193 Rest of the PBA 7,856\.909 8\.461,408 9,253,494 65\.1 9\.979,744 10,691,619 Total 12,571,714 13,379,401 14,214,701 100% 15,045,565 15,835,917 Source: Proyecciones de poblacion por sexo y grupos de edady por Provincia (Versi6n revisada - Febrero de 1996), Serie Andlisis Demozr6fico, INDEC Table I: PBA Enrolment\. number of teach ers\. and ratios Der level\. 1999 Level Students Teachers Ratio Inicial 537,000 31,700 16\.9 EGB 2,439,000 126,600 19\.3 Polimodal/secondary 531,600 74,900 7\.1 Teacher Training Inst\. 104,000 13,600 7\.6 Total 3,611,600 246,800 14\.6 Source: Lic\. Bordon\. March 2000 at HD - 92 -  Table J: PBA Enrolment, number of teachers, Public and Private, 1999 Nivel Public Students Private Students Public Teachers Private Teachers Inicial 331,000 206,000 19,000 12,700 EGB 1,755,000 684,000 85,000 (20\.6 ratio) 41,600 (16\.4 ratio) Polimodal 170,000 174,000 50,000 24,900 Secondary 187,600 Teacher Training Inst\. 54,200 49,800 8,100 5,500 Total 2,497,800 1,113,800 162,100 84,700 Source: Lic\. Bordon, March 2000 at HD Table K: PBA School establishments by level, 1999 Nivel Public Private Total l Establishments Establishments Inicial 2,439 2\.057 4,496 EGB 4,456 1,632 6,088 Polimodal & Secondary 1,076 1,156 2,232 Teacher Training Inst\. 185 280 465 Total 135 T 25 3281 Source: Lic\. Bordon, March 2000 at HD Week Table L: Socio-economically disadvantaged Target Population in 66 schools selected for Jornada Completa School Enrolment Distribution % % % who are disadvantaged Of Schools Schools Students Students 100% _ 15 _ 23% 2,677 33% 90-99% 8 12% 525 6% 70-89% 13 20% 1,893 23% 50-69% 8 12% 1,176 14% Less than 50% 22 33% 1,944 24% Total 66 100% 8,215 100% From PBA documents on Jornada Comvleta, send June and Julv, 2000\. - 93 -   IBRD 29347 '70 610 51O' -20\. 8 r) BOLIVIA 20' \.~~~' jy , '- Y~---~-~\. ~PARAGUAY N '-San aIvador ~~B A I i z ^~ ~~ad _3$Jaujvuyv° R B R A Z I L S A LTA * e _ SA L TA; z \>\.,Formosac '1 Tulum6n jCHACO j "- TUrCUMv~N Yeiteca Posadas, ) 5 % t @ SANTIAGO ResistenciaGs\.,\. s ,\.o -% J aSantiao del stero _ orrientes DEL f * -,\., 1@Cajamarca x/ L Q |- ' ' ESTERO 1\. I~ \ -RIOJA\ SANTA -301 SAN\ f E r;30 JUAN * 6rdoba!Sna,\. ( r ®i>San Ju'n | I Fe (Parann 2 z \.~~~~~\C,ORDOBAI\ Mendoza\ juis , S URUGUAY( \ SAN~~~~ /~~7 Zorate,%,_ 4 / JI \ USA Compana- s Aires I MENDOZA: l / -Santoa@ R BUENOS A T L A N T; LAsa AIRES PAM PA _NEUQUENX U I ) \Neuqueo -O C E A N A ) ,! 2 RIO IX -X4 | z / ~~~N E G R O A013 NEGR rJ -----,\.ARGENTINA JT / 0 CFPuerto Madryn 0 SELECTED CITIES CHUBUT c> PROVINCE CAPITALS ® 9 NATIONAL CAPITAL - -_ - - PROVINCE BOUNDARIES - - --- INTERNATIONAL BOUNDARIES SANTA aa (r < CRUZ FALKLAND ISLANDS (MALVINAS) sGoIItge >100 200 04o \.500 600KI\.OMETERS t~~~~~~~ ~~~A %'WfCONa-N6 50vFA9C4 IVfk I I I M55DS 5tSrF S&hVEVE5N AGNtNA Wt5C1s CLAIMS THISMECWS4MAN THKWCNt*LAVM5TE5k 0 100 200 300 A00 Miles Ushun, This mop wee produced by the Mop Design Unit of The World 6ank\. The boundaries, colors, denomiwntions and anyother inl6rmation shown ,~tRRA an this mop do not imply, on the port of The World Bank (3roup, on), n tos DE1 fIJEGO -gmet theole istatus f oany territory, or any endorsement or PEL FUEGO c~~~~~~accptance of suds boundaries\. 701~~~~~~~~~~~~~~~0 JANUARY 1998

APPROVAL

P004723

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 3784-TH STAFF APPRAISAL REPORT THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) FOURTH TELECOMMUNICATIONS PROJECT April 19, 1982 Transportation, Water and Telecommunications Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS Currency Unit: Baht (B) US$1 = B 23\.00 B 1 = US$0\.0435 B 1,000,000 = US$43,478\.26 WEIGHTS AND MEASURES Metric System FISCAL YEAR (FY) October 1 to September 30 LIST OF ABBREVIATIONS AND ACRONYMS CAT : Communications Authority of Thailand CIF : Cost, Insurance and Freight FPU : Fundamental Planning Unit ITU : International Telecommunication Union NAC : National Audit Council NEC : Nippon Electric Company NESDB: National\. Economic and Social Development Board OES : Office of Economic Study PCM : Pulse Code Modulation PTD : Posts and Telegraphs Department SPC : Stored Program Control STD : Subscriber Trunk Dialling TOT Telephone Organization of Thailand TTC : Telecommunications Training Center UHF : Ultra High Frequency UNDP : United Nations Development Programme VHF : Very High Frequency  FOR OFFICIAL USE ONLY THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) FOURTH TELECOMMUNICATIONS PROJECT STAFF APPRAISAL REPORT Table of Contents Page No\. I\. THE TELECOMMUNICATIONS SECTOR 1 Background and Organization \. 1 Access to Service \. 2 Usage of Service \. 2 Quality of Service \. 3 Demand for Service \. 4 Sector Goals \. \. 5 Sector Constraints \. 6 Bank's Role \. \. 7 II\. THE PROGRAM AND THE PROJECT 9 The Program \. \. 9 Works Other than the Proposed Project \. 9 The Project \. \. 10 Project Costs \. \. 11 Contingencies \. \. 12 Project Financing \. 13 Items for Bank Financing \. 13 Project Implementation \. 14 Procurement \. \. 14 Disbursements \. \. 15 Performance Indicators \. 16 III\. ECONOMIC ANALYSIS 16 Telecommunications and Economic Development \. 16 Program Size and Compositton \. 17 Least Cost Solution \. 18 Distribution of Benefits \. 18 Tariffs \. \. \. 19 Return on Investment \. 20 Risks \. \. 21 This report is based on information supplied by the Telephone Organization of Thailand (TOT) and on the findings of a Bank Appraisal Mission comprising Messrs\. D\.F\.D\. Joshi - Engineer, D\. Lomax - Financial Analyst and B\. Wellenius - Economist which visited Thailand in October 1981\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  Table of Contents (Continued) Page No\. IV\. THE IMPLEMENTING AGENCY 21 Organization and Management \. 21 Long Term Planning \. \. 22 Staff \. \. 23 Training \. \. 23 Consultants \. \. 24 Accounting and Budgeting \. 25 Billing and Collection \. 25 Audit \. \. 26 Insurance \. \. 26 V\. FINANCIAL ANALYSIS 26 Past Financial Performance \. 26 Present Financial Position \. 27 Valuation of Assets \. 27 Financing Plan \. 28 Future Financial Performance \. 29 VI\. RECOMMENDATIONS AND AGREEMENTS REACHED \. 30 List of Annexes Annex 1: International Telephone Statistics 32 Annex 2: Distribution of Telephones in Urban and Rural Areas 33 Annex 3: Access to Telephone Service 34 Annex 4: Distribution of Telephone Subscribers by Type of Activity 35 Annex 5: Existing Telephone Facilities 36 Annex 6: Growth of Local TeLephone Network 37 Annex 7: Investment Program and Sources of Financing 40 Annex 8: Annual Investment Program 41 Annex 9: Equipment Installations under the Fourth Project 42 Annex 10: Local Exchange Installations 43 Annex 11: Microwave Systems on Main Routes 48 Annex 12: Radio and Cable Systems for Rural PCOs 49 Annex 13: Project Implementation Schedule 53 Annex 14: Schedule of Disbursements 54 Annex 15: Performance Indicators 55 Annex 16: Summary of Basic Telephone Tariffs 56 Annex 17: Analysis of Current Telephone Tariffs 57 Annex 18: Return on Investment 60 Annex 19: Organization Chart 61 Annex 20: Staff in Different Categories 62 Annex 21: Historical Income Statements: FY77-81 63 Annex 22: Historical Balance Sheets: FY77-81 64 Annex 23: Projected Income Statements: FY82-86 65 Annex 24: Projected Balance Sheets: FY82-86 66 Annex 25: Sources and Uses Statement 67 Annex 26: Notes and Assumptions with Respect to Projected Financial Statements 68 Annex 27: Related Documents in Project File 70 MAP 16149 Long Distance Network and Telephone Service Coverage - 1985  THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) FOURTH TELECOMMUNICATIONS PROJECT I\. THE TELECOMMUNICATIONS SECTOR Background and Organization 1\.01 Three entities under the Ministry of Communications, namely the Telephone Organization of Thailand (TOT), the Communications Authority of Thailand (CAT), and the Posts and Telegraphs Department (PTD), are responsible for Thailand's public telecommunications and postal services\. TOT and CAT are wholly state-owned autonomous corporations, each managed by a Board of Directors appointed by Government, the Chairmen being answerable to the Minister of Communications\. PTD is a government department under the Under Secretary, Communications\. 1\.02 TOT operates (a) the domestic local and long distance public telephone service, which accounts for the bulk of the sector's current assets and planned investment; (b) international telephone service to several neighboring countries (mainly Malaysia and Laos); and (c) leased circuits for domestic point to point transmission of voice, telegraph, radio and television, and will, in future, develop other domestic services essentialLy based on the use of the telephone network (low speed data, facsimile and telephoto)\. CAT operates (a) postal service, (b) the public international telephone service interconnected with TOT (except to neighboring countries), (c) domestic and international public telegraph and telex services; (d) interinational leased circuits, (e) domestic radiotelephone links to some isolated places, and (f) telephoto and facsimile services, and will, in future, develop new services which require a network distinct from the telephone system-- main]y high speed and message switched data transmission\. 1\.03 A committee in the Ministry of Communications, where TOT and CAT are represented, coordinates investment and services between these entities\. Although CAT's and TOT's services and plants overlap marginalLy, efficiency loss from plant duplications in FY82-85 is likely to be small-- CAT's telecommunications investment program for the period is less than 1% of TOT's-- and may well be more than offset by advantages in sector dynamics arising from the presence of more than one operating entity, and by security considerations\. Numerous government agencies and some large private industrial and commercial entities operate their own radio telephone networks, but earlier proliferation of these (leading to inefficient investment and congestion of the radio frequencies spectrum) has now been checked\.  - 2 - 1\.04 PTD regulates, manages and monitors radio frequencies, and licenses public and private radio cornmunication stations; it also represents the Government on all international telecommunications matters\. Various other government bodies have regulatory powers over TOT and CAT\. The National Economic and Social Development Bureau (NESDB) and cabinet approve TOT's budget and investment program\. The Ministry of Finance sanctions all TOT's borrowings\. The Ministries of Communications and Finance, NESDB and the Budget Bureau have roles in the process of revising telecommunications tariffs, which are established by Cabinet decree\. Access to Service 1\.05 As of January 1980, Thailand had an average density of 1\.0 telephones per 100 inhabitants\. Whereas this is somewhat above the average of 0\.7 for other developing countries in the East Asia region, it is less than in the better-off developing nations in that region, e\.g\., Malaysia 3\.3, Republic of Korea 7\.8, Taiwan 14\.6, and Singapore 26\.5 (Annex 1)\. Likewise, Bangkok, the capital city, which has by far the most developed telephone service in the country, has only 5\.4 telephones per 100 population as compared with other capital cities in the region, e\.g\., Manila 7\.9, Seoul 15\.1, Taipei 27\.7, and Kuala Lumpur 32\.1\. 1\.06 As of June 30, 1981, of the 6,033 tambons1 in Thailand, only 666 tambons (11% of the total with 25% of the country's population) had access to telephone service (Annexes 2 and 3)\. Under the current investment program, about 286 additional tambons will be provided with access to service, 48 through telephone exchanges and 238 through long distance call offices, leaving 5,081 tambons (84% of total with 70% of the country's population) still without service\. There are currently about 5,800 local and long distance pay (coin box) telephones in Bangkok and 750 in provincial towns\. About 4,500 more pay telephones are to be added in Bangkok and 1,500 in provincial towns under the delayed FY78-84 program, which will further improve access to urban population--in Bangkok from 0\.9 pay telephones per 1,000 population to 1\.6, and in provincial towns from 0\.2 to 0\.6 pay telephones per 1,000 population\. Usage of Service 1\.07 In 1980, about 62% of the country's telephone lines were connected to business and government subscribers and the balance 38% to residential subscribers\. About 90% of the non-residential subscribers were engaged in communications-intensive tertiary sectors of the economy, mainly wholesale and retail trade, finance, transport, communication, utilities and other services, and government administration (Annex 4)\. 1/ Thailand is divided into 660 administrative divisions called amphoes; these are further subdivided into 6,033 subdivisions called tambons\. Number of tambons per amphoe ranges between 7 and 11\. For area and population details of tambons, refer Annex 3\.  - 3 - 1\.08 In 1980, the averdge number of calls per subscriber line per annum was about 2,500 local calls and 50 long distance calls\. The average annual reveriue per line was about US$350 equivalent\. Business lines accounted for about 83% of telephone calls and revenues\. Some types of businesses were exceptiorially intensive users, particularly those in the finance sector (banking, insurance arid real estate) which averaged 4,500 local calls, 200 long distance calls and US$960 equivalent bill\. per line per year\. Other intensive users inc\.luded subscribers mainly in transport dnd communications, other services (including personal services), commerce and government, all averaging more than 3,500 calls per year\. 1\.09 Even these figures, however, understate the extent to which telephones are used in Thailand for calls related to directly productive activities; in 1980, a sampl\.e survey of 168 subscribers in Banigkok and the Provinces showed that over 50% of residential telephones were used most frequently to communicate with retailers in connection with obtaining goods and services for the household, and to call one's workplace, customers and government agencies\. Overall, it is estimated that about 90% of all telephone calls and revenues in Thailand relate mainly to productive and distribution activities of the economy\. Quality of Service 1\.10 The telephone facilities as of September 30, 1981 dre indiCdted in Annex 5\. As a result of installations aimed at relieving the traffic congestion in the local te\.lephone networks and systems expansions undertaken under Bank projects since 1972, and better supervision over initial installation and jointirig of cables and wires, there has been an appreciable improvement in the quality of service through reduction in call failures due to technical faults and system congestion\. The total number of faults reported and cleared per month per subscriber has decreased by about 40% in the last three years\. The proportion of faults in telephone cables and wires, stil\.l dominant, has been reduced from about 72% of total faults in 1978 to 62% in 1981\. However, because of the shortage of telephones vis-a-vis the demand (paragraph 1\.13), the usage of available telephone lines is very high; consequently, telephone lines are kept busy for relatively long periods and unavailable for incoming calls\. This leads to repeat call attempts which, in turn, worsen congestion\. Overall, a very low average of only 62% of daily local calL attempts are completed; during peak business hours the proportion is probably considerably lower\. 1\.11 Fully automatic national subscriber trunk dialling (STD) service was achieved by the end of 1980\. Statistical analysis of the quality of SID service is not available but from public reaction dnd sharp increases in the long distance traffic aiid revenues, the service appears to be functioning satisfactorily\. Sample observations during August 1980 in the northwest region showed that, in a period of two months after STD was introduced, the number of l\.ong distance calls from that region to Bangkok and revenue therefrom increased by about 155%; in the other direction, calLs from Bdngkok  - 4 - to the northwest region and revenues therefrom increased by about 65%\. These increases are likely to be representative of most routes\. Demand for Service 1\.12 Historically, TOT's forecasts of service demand have been very conservative\. For example, TOT's forecast in 1977 for growth in the demand of telephone connections over the period 1977-80 was 8\.1% per annum, well below the actual 15\.5% subsequently observed for the same period\. One of the reasons was that, until 1977, TOT did not maintain waiting lists of applicants for new telephones and thus had no data on registered demand\. After the recording of waiting lists in existing service areas was introduced in 1977 as covenanted under the second Bank loan, TOT started to build up a better data base for assessing demand\. However, even today, the registered demand is likely to be far below the real demand as there are many potential suscribers who have been discouraged from registering with TOT by heavy delays in getting new connections\. Also, applications are not received in dreas where service is not currently available\. While TOT makes a substantial effort towards assessment of demand, its methodology in demand forecasting needs improvement\. Also, different sections of TOT (e\.g\., exchange planning and cable planning) prepare and maintain separate forecasts of demand which are not always reconciled, resulting in some imbalance in planning and provision of facilities and consequently in some idle assets\. 1\.13 The table below summarizes the actual growth in the telephone network between 1977 and 1981 and TOT's forecast for demand and network growth up to 1986\. Annex 6 gives year by year details of network and demand growth from 1971 to 1990 separately for the Bangkok Metropolitan Area and the Proviinces\. September 30 ACTUALS FORECASTS of year 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 Demand (million tines) 0\.30 0\.38 0\.53 0\.62 0\.72 0\.84 0\.97 1\.13 1\.32 1\.54 Connections (million lines) 0\.26 0\.30 0\.33 0\.37 0\.39 0\.43 0\.50 0\.62 0\.86 1\.09 As % of demand 87 78 63 59 54 51 52 55 65 71 Unmet demand (milliori lines) 0\.04 0\.08 0\.19 0\.26 0\.33 0\.41 0\.47 0\.52 0\.46 0\.45 As of September 30, 1981, the unmet demand in Bangkok was 226,600 (44% of total demand) and in the Provinces 99,600 (49% of total demand)\. The forecast annual growth rates in total demand between now and 1990 of 15% for Bangkok and 20% for the Provincial areas are considered reasonable, although subject to considerable uncertainty\.  -5- Sector Goals 1\.14 A ten-year Master Plan for the Transportation and Communicatior sector has been un-der development since 1979 dnd subjected to successive rounds of review by the Ministry of Communications, NESDB and the participating sector entities including TOT\. The current draft of the Master Plan covers the years FY82-91 which corresponds to the periods under the Fifth and Sixth National Economic and Social Development Plans (FY82-86 and FY87-91 respectively)\. The main overalL service development targets for FY86 set for TOT in the present form of the draft Mdster Plan and the targets as per TOT's development program (paragraph 1\.16) are as summarized below: Draft Master TOT Program Plan (2/81) (10/81) FY81 ZFY86 FY87 FY86 Telephones Per 100 lnhabitants Metropolitan Area 6\.40 15\.30 6\.12 12\.81 Provinces 0\.32 0\.93 0\.31 1\.09 Total 1\.15 2\.95 1\.11 2\.74 Telephone Lines in Service 'million) Metropolitan Area 0\.35 NA 0\.29 0\.69 Provinces 0\.13 NA 0\.10 0\.40 Total 0\.48 1\.36 0\.39 1\.09 Waiting Time to get New Connections (months)3 Metropolitan Area 32 12 44 20 Provinces 48 12 38 12 Maximum distance from community to nearest telephone (approximate km) 250 50 NA NA 1/ Forecasts for year ended September 30, 1981\. 2/ Actuals for year ended September 30, 1981\. 3/ Period during which the number of lines added into service equals the number of outstanding applicants at the beginning of the year\. 1\.15 In a broad sense, the targets set by the Master Plan are consistent with the outline for the Fifth Plan--mainly in that they emphasize telecommunications investment in the provinces, extension of service to most dmphoes, and more expeditious provision of services in main centers\. In particular, by end of FY86, about 67% of projected demand in Bangkok and 79% in the Provinces would have been met; also, all amphoes with 10,000  - 6 - inhabitants or more will have been provided with telephone facilities through long distance public call offices, which can subsequently be upgraded to exchange connections as traffic develops\. 1\.16 Attaining the Master Plan targets for FY86 requires increasing TOT's growth rate in lines connected from about 11% per annum achieved over the period FY78-81 to a very high 23% in FY82-86\. Such an implementation rate is difficult, but possible if TOT's management procedures, organization, and training are improved\. At the Bank's suggestion, planned expansion during the period was reduced from 0\.88 million lines proposed in the Master Plan to 0\.70 million lines, in the light of the high goals and of the implementation constraints (paragraph 1\.17)\. Given this, and the fact that by September 1981 the number of lines in service was significantly less than forecast in the Master Plan (especially in Bangkok), the FY86 density target in the Bangkok area has been cut back by about 16% while that for the Provinces was increased by about 10%\. Still the current targets imply a high 23% yearly increase in connections and 42% yearly increase in assets (paragraph 5\.05) during the project period\. The table below shows the overall growth planned for FY82-86 vis-a-vis the much lower achievements during FY78-81\. FY78-81 FY82-86 Actual Planned Average annual investment 1,934 8,241 (Baht million) Average annual growth in connected lines (%) Bangkok 10\.1 19\.3 Provinces 11\.7 31\.3 Total 10\.5 22\.9 Average lines connected per year Bangkok 23,000 81,000 Provinces 9,000 59,000 Total 32,000 140,000 Sector Constraints 1\.17 The main constraint on the rate at which telephone services can be expanded to meet demand lies in TOT's capacity to undertake the large investment program and to efficiently operate and maintain the facilities installed\. To some extent, TOT's implementation capacity is being augmented by resorting increasingly to private suppliers and contractors for equipment installation (paragraph 2\.10) in addition to the more usual use of private contractors for buildings and other civil works\. However, TOT has not developed commensurately its capacity to carry out the commercial,  - 7 - administrative and technical tasks involved in connecting new subscribers and properly operating and maintaining the new facilities\. Over the period FY72-81 TOT was able to improve maintenance and operations (paragraph 1\.10) while expanding connections at a rate of about 10% per annum\. In the period FY77-82, it is likely that TOT cou]d have sustained growth at the planned 17% per annum, had it not incurred major delays in procurement\. Provided appropriate steps are taken to strengthen commercial, operation and maintenance functions (paragraphs 4\.04 and 4\.05), it is considered that, during FY82-86, TOI has a reasonable chance to achieve the high growth in telephone connections and in asset value as proposed in TOT's approved investment program\. Bank's Role 1\.18 During the last ten years, the Bank has played a significant role in the development of the telephone services in Thailand through three projects\. Before the Bank's first participation in the sector in 1972, the telephone services in Thailand were deteriorating with increasing traffic congestion and faults\. Hence, the first project (Loan 864-TH of December 1972 for US$37 million) was basically a holding operation designed to provide facilities needed to prevent further deterioration in the quality of telephone service in areas where service was available\. Based on recommendations of consultants financed by the Bank, TOT was reorganized in the early 1970s to improve its capabilities in management, operation and development of the domestic telephone services\. Under the second project (Loan 1253-TH of June 1976 for US$26 million), the Bank supported TOT in expansion of the local telephone facilities in Bankgok and other urban areas in the Provinces to partly meet the anticipated demand, and towards provision of stable, high capacity, long distance radio telephone systems and trunk automatic exchanges with automatic message accounting facility to provide fully automatic STD service\. The First Project was completed and the loan closed on December 31, 1980, four years behind schedule\. The Second Project was completed and the loan closed on December 31, 1981, two years behind schedule\. In both projects, the delays were primarily at start-up and procurement stages; otherwise, TOT's performance on both projects was reasonably adequate, all physical targets were achieved and the loan covenants met\. The internal rate of return on the investments over the combined two project periods is estimated at about 17% which is satisfactory\. Because of close proximity of the closing dates of the first and second projects and the fact that many works under the two projects were executed concurrently, a combined Project Completion Report for the two projects will be completed in early 1982\. 1\.19 Under the third project (Loan 1620-TH of October 1978 for US$90 million), the Bank indicated to TOT management the need for (a) more rapid pace of telephone expansion than proposed by them under their FY81-84 development program, and (b) establishment of rural long distance public calL offices to provide access to service in rural areas for the first time in the country\. The Bank also played a role in guiding TOT away from undertaking  - 8 - major expansions with older electromechaniical equipment designs and instead adopting the latest stored program controlled (SPC) electronic digital technology in telecommunications with considerable long-term costs savings arid other benefits\. Institutional\. measures covenanted under the loan such as establishmenit within TOT of a Management Information System and a Fundamental Planning Unit, and execution of an economic study of telecommunications in Thdiland should also lead to more efficient development and management of the telephone services when fully implemented\. The Third Project is currently about two years behind schedul\.e\. WhiLe there was perhaps a justifiable delay initially in TOT's decision, at Bank's persuasion, to adopt digital technology for future telephone development in Thailand, there were unnecessary delays in evaluation of bids received for all items and taking decisions on contract awards\. As of end of 1981, TOT had committed US$42\.8 million\. The balance US$47\.2 million of the loan is expected to be committed by mid 1982\. The project is now expected to be completed by December 1984, two years behind schedule\. 1\.20 Since 1972, to a large extent through experience gained in carrying out the expansions under the Bank projects, TOT has developed adequate i\.nternal expertise in technical planning, design and implementation of domestic telephone development progrdms\. It has established a network of facilities covering the main cities, based on which further improvement and expansion of services as well as extension into new rurdl areas can be undertaken\. TOT's financial situation and outlook are overall adequate to support rapid growth whil\.e also contributing considerable amounts to government through taxes and import duties (paragraph 3\.08)\. These developments by themselves, however, do not ensure a better running of TOT, whose organization and management after being revised in the early 1970s have not kept pace with the large growth in services achieved and planned (paragraph 4\.02-4\.05)\. With the major additional expansions envisaged during FY82-85 and thereafter, the Bank has an important role to play over the next few years, focused on helping TOT consolidate and improve its institutional development\. 1\.21 Specifically, the Bank's continued participation in the sector through the proposed fourth loani to TOT focuses on: (a) consol idating the institutional improvements in TOT undertakern under the previous projects; (b) helping design dnd i\.mplement a comprehensive packdge of organization and management improvements which would enable TOT to undertake a sustained anid more rapid service development, arnd operate and manage the services provided in ani effective and efficient mannrrer, with little or no further recourse to external guidance;  - - (c) promoting within TOT a more dyndmic attitude towards adoption of new technologies when technicalLy dnd economicalLy justified and accelerating the transition to the new technologies chosen; (d) assisting TOT in developing guidelines for future investment which are responsive to priorities set forth by the Government in its National Plans, particularly those pertaining to accelerated extension of service to different categories of provincial cities and rural areas; and (e) helping TOT meet partially its long term foreign exchange financing needs, and providing a frdmework of technical and financial overview within which TOT may continue to mobilize the balance of its requirements through bilateral and commercial sources\. II\. THE PROGRAM AND THE PROJECT The Program 2\.01 TOT's FY82-85 investment program comprises the following: (a) ongoirig works; (b) proposed fourth telecommunications project; (c) preinvestment for program after FY85; and (d) other annual investments\. The total investments under this program are estimated at B 30,247\.8 million (US$1,351\.1 million) with a foreign component of B 15,390\.8 million (US$669\.2 million)\. The investments under the different components of the program and their sources of financing are given in Annex 7\. Annual investments in each of the yedrs FY82 to FY85 dre shown in Annex 8\. The financing plan for the program is discussed in paragraph 5\.05\. Works Other than the Proposed Fourth Project 2\.02 Ongoing works comprise primarily the Bank's delayed third project (paragraph 1\.19) and "Other Works" which comprise 15 mobile exchanges (totalLing 13,000 lines) which TOT has ordered under its own funding to meet some urgent demands in Bangkok\. The provisions under "Preinvestment for Program After FY85" are preparatory investments for works to be undertaken after FY85; these are tentative as TOT is still to formulate plans for these works\. "Other Annual Investments" include miscellaneous capital investments which do not directly relate to expansion of TOT's services and facilities  - 10 - but are essential for TOT to maintain, operate and manage the existing assets and assets to be installed under the program, and for a TOT headquarters building\. The Project 2\.03 The proposed FY82-85 fourth telecommunicatiorns project is a balanced integrated package of high priority works needed for: (a) expansion of local telephone facilities in Bangkok and the Provinces; (b) providing access to service for the first time to about 330 out of about 5,080 rural settlements which will be still without service at the end of the third project; and (c) expansion of long distance facilities to cater for the additional traffic generated by the above expansions\. In addition to physical expansion of telephone facilities, a major thrust of the project will be on institution building (paragraphs 4\.09 to 4\.12)\. 2\.04 The main components of the project are as follows: (a) provision of management consultants, technical assistance and training fellowships for improving TOT's institutional capabilities; (b) installation of about 373,000 lines of local switching equipment (344,000 lines through new procurement and about 29,000 lines by recovery and relocation of existing equipment) with associated cable networks and subscriber plant to connect about 278,000 new subscriber lines including about 1,100 public call offices; (c) installation of (i) about 13,400 additional circuit terminations in four existing tandem exchanges, and (ii) one new tandem exchange with about 6,000 circuit terminations in Bangkok; (d) installation of about 16,000 additional circuit terminations in long distance trunk automatic exchanges; (e) installation of about 42 microwave radio telephone systems, about 18 PCM cable systems and about 22,000 channel ends on main transmission routes; (f) installation of about 285 radio, PCM and cable systems to connect about 1,200 rural public call offices in about 300 locations; (g) procurement of about 300 vehicles of different types for project implementation; and (h) civil works for the project including cable ducts\.  - 11 - Details of equipment installations under the project are given in Annex 9\. Lists of local telephone exchanges and microwave and other radio and cable systems to be installed or augmented under the project are given in Annexes 10 to 12\. The implementation schedule for the project is shown in Annex 13\. The map (IBRD 16149) shows the long distance network and the extent of telephone service coverage of the country on completion of the project in September 1985\. Project Costs 2\.05 The total cost of the project is estimated at B 11,320\.5 million (US$492\.2 million) including a foreign cost component of B 6,369\.7 million (US$276\.9 million)\. The distribution of project costs between local (urban), long-distance and rural components is approximately as follows: local service (Bangkok): 42\.4%; local service (Provincial towns): 27\.0%; long distance service between provincial towns and to Bangkok: 12\.9%; rural long distance public call offices in areas now without service: 17\.7%\. Local cost includes about B 977\.7 million in duties and taxes averaging about 17% of the project's foreign cost\. The cost estimates, based on TOT's experience with contracts for ongoing works with adjustments to March 1982 levels, are reasonable\. Cost of financing a firm of management consultants (paragraphs 4\.09 and 4\.10) has been assessed at $15,000 per manmonth, and training and other experts at $5,700 per manmonth\. The costs of individual components of the project are set out below\.  - 12 - Baht Millions US$ Millions IBRD Item L F T L F T Financing Local switching 577\.3 2,541\.9 3,119\.2 25\.1 110\.4 135\.5 55\.0 equipment Cables and outside 959\.1 1,392\.1 2,351\.2 41\.7 60\.5 102\.2 - plant Subscriber plant 545\.1 - 545\.1 23\.7 - 23\.7 - Trunk switching 57\.5 206\.3 263\.8 2\.5 9\.0 11\.5 5\.0 equipment Transmission 179\.4 647\.9 827\.3 7\.8 28\.2 36\.0 27\.0 equipment Rural public call 280\.6 845\.5 1,126\.1 12\.2 36\.8 49\.0 36\.0 offices Land and 1,060\.3 - 1,060\.3 46\.1 - 46\.1 - buildings Vehicles 98\.9 - 98\.9 4\.3 - 4\.3 - Consultancy and 13\.8 69\.3 83\.1 0\.6 3\.0 3\.6 3\.0 training Miscellaneous works 200\.0 - 200\.0 8\.7 - 8\.7 - and project implementation Total Base Costs 3,972\.0 5,703\.0 9,675\.0 172\.7 247\.9 420\.6 126\.0 Physical 79\.4 114\.1 193\.5 3\.5 5\.0 8\.5 2\.5 contingencies Price 899\.4 552\.6 1,452\.0 39\.1 24\.0 63\.1 11\.5 contingencies Total 978\.8 666\.7 1,645\.5 42\.6 29\.0 71\.6 14\.0 Contingencies __ __5__ __ _ _6_9 ___ __210 TOTAL PROJECT 4,950\.8 6,369\.7 11,320\.5 215\.3 276\.9 492\.2 140\.0 COSTS Front-end fee on Bank loan - 48\.3 48\.3 - 2\.1 2\.1 2\.1 Total Financing Required 4,950\.8 6,418\.0 11,368\.8 215\.3 279\.0 494\.3 142\.1 Contingencies 2\.06 The provisions for equipment and civil works under the project are based for the most part on detailed designs and engineering\. Hence, the proposed quantities are not expected to change significantly in the project period\. Also, the continuous and dispersed nature of telecommunications development allows adequate flexibility for adjustments and experience has shown that increases at some points are compensated by decreases at others\. However, to cover unforeseen requirements over the four-year project period, a physical contingency provision of 2% of annual base local and foreign costs has been included and is considered adequate\. Local price contingencies are based on annual increases of 12% in 1982 and 1983, 10% in 1984 and 9% in 1985\. Foreign price contingencies are based on annual increases of 8\.0% for  - 13 - 1982 and 1983, 7\.5% for 1984 and 7\.0% for 1985\. Since telecommunications contracts are normally fixed price contracts, the foreign cost increases are applied up to the anticipated contract dates\. Based on these assumptions, the local and foreign price contingencies amount to 22\.2% and 9\.5% respectively of base costs plus physical contingencies\. Project Financing 2\.07 The local cost of the project amounting to B 4,950\.8 million (US$215\.3) million will be financed from TOT's internal cash generation, and from subscriber bonds and customer deposits which are pooled with earnings and applied to operational and developmental expenses without separate allocations (paragraph 5\.05)\. A Bank loan of US$142\.1 million to TOT is proposed of which US$2\.1 million is the front-end fee; the balance US$140\.0 million will finance about 50% of the foreign cost of the project\. Financing of the balance foreign cost of US$136\.9 million was discussed during negotiations\. TOT indicated that (a) it was negotiating a supplier's credit of about US$50 million equivaLent (at 7\.75% annual interest for a term of 10 years) with Nippon Electric Company of Japan which will supply switching equipment for Bangkok Metropolitan Area, and (b) in inviting bids for equipment items other than those financed by the proposed Bank loan, TOT has required bidders to propose terms for supplier's credit; TOT will decide on the financing of these items after bids are opened\. The contracts not financed by suppliers' credits will be covered by bilateral credits or commercial bank loans\. TOT does not anticipate undue difficulty in arranging these as needed\. Items for Bank-financing 2\.08 The allocation of the proposed Bank loan of US$142\.1 million is as follows: US$ Million Local and trunk switching equipment 60\.0 with associated power equipment and services Transmission equipment for main routes 63\.0 and rural public call offices, with associated towers, power equipment and services Consultant's services and training 3\.0 Front-end fee 2\.1 Unallocated 14\.0 Total 142\.1  - 14 - Procurement of equipment is discussed in paragraphs 2\.11-2\.13, and appointment of consultants and training experts in paragraphs 4\.09-4\.12\. Project Implementation 2\.09 TOT engineers will prepare all engineering designs, technical specifications and bid invitation documents, evaluate bids and prepare contracts\. While TOT engineers have acquired adequate capabilities to undertake these tasks, TOT's cumbersome administrative rules and procedures have led to delays on previous projects, particularly on the third Bank project, in issue of bid invitations and in finalizing evaluations and decisions on contract awards\. While steps to amend the present rules and procedures are proposed under the institutional part of this proposed project, to avoid recurrence of delays, the award of contracts for major equipment items and to the selected firm of management consultants (paragraph 4\.10) shall be a condition of loan effectiveness, except that in case TOT is unable to award contract for any item because of circumstances beyond its control, TOT will write to the Bank giving detailed reasons for such delay and the Bank will consider waiving the condition of effectiveness for such item\. 2\.10 For administrative reasons, and particularly as many installations under this project are likely to overlap with those under the delayed third project, (paragraph 1\.19) TOT proposes to have major switching and transmission equipment and cable installations carried out by suppliers\. Acceptance and commissioning tests on all equipment, including those installed by contractors, will be carried out by TOT\. While the major equipment installations can be farmed out to suppliers, this is not possible with the operation and maintenance of facilities or with the administrative, commercial and other functions associated with connection of new lines to subscribers\. Together with delayed works under the third project, TOT will have to connect about 358,000 lines in two years FY84 and FY85 against about 20,000 lines connected per year at present, and augment its operation and maintenance capabilities currently geared to about 389,000 working lines to about 858,000 lines by end of FY85\. TOT, therefore, needs to take special measures to build up the necessary organization and staff to meet its responsibilties\. Bank-financed assistance to TOT in this regard is, therefore, included in the project (paragraph 4\.10)\. With this assistance, it is anticipated that TOT should be able to maintain the implementation schedule at Annex 13 and complete the project by September 30, 1985\. Procurement 2\.11 Advance Commitment: Of the 344,000 lines of local switching equipment to be procured for the project, TOT had included 40,200 lines--which comprises extension of digital exchanges under the third project--in a Bank-financed international competitive tender announced in February 1980\. The Bank had concurred to this inclusion because of the considerable technical and price advantages of procuring and installing the  - 15 - extension equipment simultaneously with the main equipment\. The cost of this extension equipment (which now forms part of the Bank-approved contract TOT W/4B signed by TOT with NEC of Japan on September 29, 1981) is US$11\.9 million equivalent\. Following TOT's request, approval of this advance commitment of US$11\.9 million equivalent of the loan is recommended\. 2\.12 Goods: By March 1, 1982, TOT had announced bids for all major equipment items to be financed under the proposed loan totalling about US$123 million which would be awarded on the basis of international competitive bidding in accordance with the Bank's Procurement Guidelines\. Qualifying domestic manufacturers would receive a preference in bid evaluation of 15% or the import duty, whichever is lower\. Remaining items that cannot be grouped to form packages of more than US$100,000 equivalent would be awarded on the basis of local competitive bidding in accordance with TOT's current procurement procedures which are acceptable to the Bank\. 2\.13 Contract Review: About ten bidding packages/contracts are expected to make up the estimated US$123 million in the equipment category under the proposed project\. With a threshold of US$250,000 for prior Bank review of procurement documentation, about 90% of the total number of packages would cover 95% of the value contracted\. On that basis about nine contracts worth about US$117 million would be subject to prior review over the two year procurement period which represents a reasonable workload for Bank staff\. Random checks on other contracts would be carried out in the field\. 2\.14 Retroactive financing: In addition to 40,200 lines of switching equipment for which contract has already beer awarded (paragraph 2\.11), TOT expects to sign contracts with suppliers for all other major Bank-financed items and with the management consultants between June and November 1982\. As requested by TOT during negotiations, it is recommended that the Bank agree to retroactive financing of up to US$14 million representing about 10% down payments likely to be made by TOT for these contracts after June 1, 1982\. Disbursements 2\.15 Disbursements under the loan against full documentation would cover: (a) 100% of foreign (CIF) expenditure for imported goods; (b) 100% of foreign expenditure on installation and/or supervision services by suppliers, (c) 100% of ex-factory costs of localLy manufactured items; (d) 65% of costs of items procured locally off-the-shelf; and (e) 100% of the costs of consultants and staff training abroad\. Based on past Bank experience in the telecommunications sector, but keeping in view the facts that (a) TOT had announced bids for all Bank-financed items by end February 1982, and (b) the award of contracts for all major equipment items is prescribed as a  - 16 - condition of effectiveness (paragraph 2\.09), the proposed loan is expected to be fully disbursed by June 30, 1987\. The estimated schedule of disbursements is at Annex 14\. Performance Indicators 2\.16 A set of performance indicators which will help TOT's management and the Bank monitor the project entity's project implementation, operational and financial performance is given in Annex 15\. TOT will be required to include these indicators in its half-yearly progress reports on the project except for financial indicators which will be included in the annual financial report\. Ill\. ECONOMIC ANALYSIS 3\.01 The following analysis refers to TOT's FY82-85 investment program, of which the delayed works under the third project and the proposed fourth project constitute the major part\. Wherever appropriate, distinction is made between investments under the proposed fourth project and concurrent ongoing works\. Telecommunications and Economic Development 3\.02 Telecommunications services benefit all sectors of a country's economy\. Compared with alternative means of communication, telecommunications are often more efficient in terms of capital, energy consumption and user time\. With telecommunications, the level and variety of productive communication can be increased considerably, and activities which wou]d otherwise not be feasible can be realized\. In terms of the specific constraints on Thailand's economic and social development, telecommunications can be expected to play a significant role especially in connection with: (a) reducing the costs of locating production outside Bangkok, thereby helping decentralize the economy; (b) facilitating the operation of small enterprises, trade associations (e\.g\., cooperatives) and support facilities (e\.g\., banks, technical assistance) as required to deconcentrate ownership of production and distribution; (c) improving the working of the market mechanism by expediting and extending access to information as needed to foster competition and develop domestic and international trade; (d) increasing the efficiency of transportation through coordination of vehicle use and some substitution of travel, resulting in energy savings and/or greater efficiency of productive interactions for a given level of energy consumption; (e) facilitating the extension of health, education, government administration and other services to low income rural areas, including extension of the reach of scarce expertise for advice, support and supervision; and (f) mobilizing domestic savings in the form of surpluses from telecommunications operations transferred to government as taxes and duties (paragraph 3\.08)\.  Program Size and Composition 3\.03 TOT's FY82-85 investment progrdm is very large given what TOT has been able to achieve in the past (paragraph 1\.16)\. However, it falls short of what is needed to meet outstanding applications for telephone lines, satisfy new demand forecast to arise in the period, and initiate investment for the following period\. Despite TOT's plans for expansion at record high rates, the unsatisfied demand of about 0\.46 million lines at the end of the project will be actually larger than at its start\. Nonetheless, during the project, a turning point would have been passed (in FY84) after which unmet demand is expected to decline, and by the end of the project about 65% of total demand will be met as against 54% at its start (paragraph 1\.13)\. 3\.04 In general, the FY82-85 program comprises a reasonable mix on investment addressed to improve and expand service across the country in response to forecast demand, broad regional priorities expressed by national policy, and sound system engineering practice\. However, investment planning shouLd be based in the future on better economic inputs, especially in three partly inter-related areas\. First, there is considerable uncertainty associated with the demand forecasts (paragraphs 1\.12 and 1\.13)\. Although the risk of overinvestment under the fourth project is negligible,2 as TOT tends to catch up with demand in the late 1980s, more reliable forecasting will be needed\. Under the third project, TOT agreed to carry out a review and consolidation of its forecasting practices, as one of the initial efforts in developing in-house expertise in economic analysis and long range planning\. While usage information has been collected, it has not yet been incorporated in a demand forecasting methodology, partly due to lack of technical expertise\. Second, the main tool for resource allocation within the sector--pricing--needs to be improved\. Action in this direction initiated under the third project will be supported and followed through in the fourth project (paragraph 3\.10)\. Finally, although TOT's FY82-85 investment program is reasonably in line with national policies (paragraphs 1\.15 and 1\.16), it would be useful and possible to draw up guidelines for subsequent investment which reflect more closely the spatial arnd sectoral priorities as expressed in the Fifth Plan outline\. The outcome would include a detailed 10-year strategy for the development of rural telephone service, more explicit criteria for the allocation of priority among rural places, and specific criteria for the provision of urban public telephones in low income areas\. A provision has been included in this project to finance experts and trainirig to help TOT in carrying out these three tasks under terms of reference satisfactory to the Bank (paragraphs 4\.09, 4\.11 and 4\.12)\. 2/ Demand forecasts, although not very reliable, are overall plausible and in line with Thai experience in recent past yedrs\. Also, since the projected gap between supply and demand at project end is large, there is overall tolerance for forecasting inaccuracies at present\.  - 18 - Least Cost Solution 3\.05 The technical means to achieve the FY82-85 service development objectives are to a large extent determined by the characteristics of the existing systems and decisions taken in connection with the third project\. Within these limits, the solutions chosen are likely to result i\.n the lowest costs regarding both initial investment and total cost over the life of the new facilities\. In particular, the adoption of modern technology (electronic digital) for telephone switching and associated remote subscriber units, PCM on existing cables to increase their capacity, and digital\. microwave and UHF transmission systems for both the third and fourth projects resulted from sound engineering economic analyses of alternatives and are l\.ikelv to result in considerable reduction of space requirements and installation and maintenance costs\. Distribution of Benefits 3\.06 On the basis of current usage patterns (paragraphs 1\.07-1\.09) and the composition of a sample of outstanding applications, it is expected that about 40% of lines added under the program will be connected to businesses, which will account for about 66% of new calls generated\. Including business use of residential telephones, almost 80% of aL] calls by new lines will be directly related to the economic production and distribution activities of the economy\. The proportion is likely to be even higher in the provinces\.3 3\.07 Under the fourth project, there will be faster service development in the provinces than in the Bangkok metropolis in relative terms (paragraph 1\.16)\. In particular, by the end of FY85, 80% or more of forecast telephone connections demand could be met in Chiang Mai, Nakhon Ratchasima, Khon Kaen, Songhla/Hat Yai and Chonburi, the five main provincial urban centers on which is based the Government's strategy to decentralize economic activity, against 76% in the Provinces overall and 61% in Bangkok\. Public telephones to be installed in rural tambons will extend service to about 3 million rural inhabitants, with which the proportion of the country's population living in places with telephone service will rise from 30% including facilities being built under the third project to 35% at the end of the fourth project\. On the basis of a preliminary TOT analysis of expected costs and revenues, the provision of these rural facilities will involve some subsidy from the financially more lucrative urban and interurban services\. 3/ About 50% of new provincial lines are expected to be connected to businesses, as against 40% in Bangkok\. Averaae use of long distance service is likely to be much higher in the provinces, especially in services, manufacturing and construction sectors which at present average about three times as many long distance calls per line as similar Bangkok subscribers\. About 60% of provincial residential lines are used most frequently for calls relating to the economy, as against about 50% in Bangkok\.  - 19 - 3\.08 No funds will be required from Government\. Rather, despite the high cash generation requirements of TOT's large expansion program, over the period FY82-85 TOT will make a very large total financial contribution to Government of about B 8799 million (US$382\.6 million) as shown in the table below\. B Million US$ Million Custom duties 2663 115\.8 Tax on TOT profits 6136 266\.8 Total Contribution from TOT 8799 382\.6 to Government In FY86, the first year after completion of the fourth project, TOT will pay about B 3,458 million (US$150 million) in tax on profits, which is about B 2,850 million (US$124 million) more than would be the case without the fourth project investments (or about US$47 million if also the effect of the 1982 tariff increase is exc]\.uded)\. The annual fiscal contribution associated with the fourth project will be higher in subsequent years as new subscribers are connected\. Tariffs 3\.09 TOT's present telephone tariffs mainly comprise a B 1,500-B 2,500 (US$65-109) non-reimbursable one-time connection charge, a monthly rental of B 50-B 100 (US$22-44) and a B 2\.00 (US$0\.09) unit call charge (untimed local calls or timed distance-dependent part of long distance calls)\. Subscribers are also required to purchase one of several interest-bearing TOT bonds intended to serve the purpose of rationing excess connections demand in addition to providing TOT with low cost investment funds\. Annex 16 summarizes TOT's tariffs and Annex 17 discusses several problems associated with the bond system and tariffs\. 3\.10 There is a need to revise the structure of TOT's tariffs, particularly regarding the sale of bonds and related allocation of new connections, the charges for long distance calls and stimulation of system use outside business hours\. These are discussed in detail in Annex 17\. As one of its assignments, the Office of Economic Study (OES) established in TOT under the third project agreed to carry out a review of TOT's tariffs, focusing on cost of service and the characteristics of demand, while also taking into account equity, regional development and other objectives of  - 20 - government policy\.4 OES has colLected background information on usage of current subscribers and on outstanding applications; however, it has lacked the in-house economic expertise to undertake the main tariff study\. Hence, provision has been made in this fourth project, to finance technical assistance to help carry out a tariff study under terms of reference acceptable to the Bank (paragraph 4\.12)\. However, in advance of the comprehensive tariff study, TOT will examine improvements in the application of the present bond system, mainly to ensure that, in Bangkok where two-level bond system operates, high-bond applicants receive effective priority (Annex 17, paragraph 2), and to simplify administration of the bond sales to reduce TOT cost and public inconvenience, and introduce changes acceptable to the Bank by March 31, 1983\. 3\.11 TOT's tariffs were last increased in late 1979 and TOT has obtained a reasonabLe rate of return on average assets in operation (paragraph 5\.01)\. Recently, TOT requested Government authorization to increase tariffs in order to ensure increased internal generation of funds as needed to carry out the very large expansion under the FY82-85 program (paragraphs 1\.16 and 5\.05)\. It was agreed during negotiations that, as a condition of effectiveness of the proposed loan, TOT shall have increased its fees and charges, and the Government shall have approved appropriate measures, for TOT to meet its obligations under paragraph 5\.08\. Given that the demand for both connections and traffic exceeds the system's capabilities (paragraph 1\.13 and Annex 17), the increase in tariffs is unlikely to have any adverse effects on overall resource allocation at this time\. Return on Investment 3\.12 The internal financial rate of return on the program, defined as the discount rate which equalizes the present value of cost and revenue streams (at 1981 constant prices) attributable to the program is 26% (Annex 18)\. This rate of return understates the real benefits to be derived from the investment program, partly because the benefits stream used in the calculation does not take fully into consideration the indirect and external benefits which are received by nonusers of the service\. It also does not include the consumer surplus which telephone users receive\. To illustrate 4/ Although the study will be limited to TOT's tariffs, the knowledge gained from it on TOT's cost structure will shed some light on the issue of division of international telephone service revenues between CAT and TOT\. At present, TOT retains only B 4 per minute of outgoing calls, which averages less than 10% of the total paid by the user\. TOT also receives B 4 per minute of each incoming call\. Very high international tariffs, set by bilateral agreement, thus result in only minor revenue to TOT but a large surplus to CAT which it uses to meet the losses of the postal service\.  - 21 - the significance of this, a portion of the consumer surplus has been estimated by (a) tabulating over the program period the prices in 1981 real terms which the existing subscribers and registered applicants have demonstrated a williingness to pay; and (b) assuming that the future applicants will also be willing to pay the same real amount as existing subscribers and currently registered waiting applicants have demonstrated a willngness to pay\. Given these reasonable assumptions, the quantifiable estimate of the economic rate of return on the program would be 43%\. Risks 3\.13 The project offers acceptable risk\. The principal risk is the possibility of delayed physical implementation associated with the large investment program\. Such delay would be due to unforeseen circumstances and could result in a consequent delay in benefits\. In telecommunications projects, however, which involve a relatively large number of independent activities, delay in the completion of a few works does not generally prevent the use of other newly created assets\. Furthermore, costs and benefits are often delayed in roughly the same degree, so the impact on the rate of return may not be significant\. A sensitivity analysis on the internal financial rate of return (Annex 18) shows that a combination of 10 percent higher capital costs and 10 percent lower revenues would result in a return of 18 percent\. IV\. THE IMPLEMENTING AGENCY Organization and Management 4\.01 TOT, an autonomous state enterprise, is administered by an eight-member Board of Directors\. The Bodrd comprises the Chairman, the Managing Director of TOT, the President of CAT, the Director General of PTD and four other external directors appointed by the Government\. TOT's organization structure is shown at Annex 19, and is generally along the lines of similar autonomous telecommunications entities in other developing countries\. 4\.02 White the organization is overall adequate for current needs and TOT's senior and middle management staff are individually experienced, competent and qualified, some deficiencies have developed since TOT's organization and management were last subjected to comprehensive revisions in the early 1970s\. These need to be corrected, considering especially the very large increase in the volume of operations expected in the next few years\. The primary problem seems to be that there is inadequate delegation of authority throughout TOT\. Although, in principle, the Board is required to lay down broad policies with the Managing Director being fulLy responsible for day-to-day management, in practice past Managing Directors have not exhibited adequate administrative and financial authority\. Consequently, the Board has tended to become involved in technical, administrative and financial details to the detriment of management's effectiveness and the Board's policy functions\. Likewise, the department directors and division  - 22 - chiefs exercise inadequate decision making power which results in too many references to the Managing Director\. 4\.03 Related to the delegation of authority problem is the fact that TOT's management has tended to be overly timid and rigid, and averse to taking bold decisions\. This, combined with inadequate delegation, results in top management and even the Board getting involved excessively in detailed investment planning, and in frequent references to the management or the Board for any subsequent adjustments, however minor\. This problem also exists in the relationship between TOT and NESDB which is involved in decisions on TOT's investment programs\. Because TOT initially submits, unnecessarily in the Bank's view, very detailed plans of its development programs to NESDB, adjustments over the program period in response to changing demand patterns, as is usual for all telecommunications entities worldwide, need to be further referred to and approved by NESDB\. This is time consuming and limits TOT's flexibility\. 4\.04 Within TOT, the functional responsibilities of and interrelations among the various departments are also neither fulLy satisfactory nor well-defined; in particular, poor coordination in the execution of project components results, in some cases, in idle assets and loss of revenue\. Finally, commercial and related functions have not been strengthened as needed to effectively handle the rapidly increasing numbers of subscribers, and operation and maintenance do not appear to have been adequately built up commensurate with the large system expansion currently being undertaken\. 4\.05 These deficiencies were exacerbated in the last two years by several changes of top staff and low staff morale\. The current Acting Managing Director, however, who assumed office in July 1981 has acted firmly, speeded up the decision-making process, and brought back into TOT management some experienced senior personnel\. However, the basic organizational deficiencies remain\. To overcome these, it is proposed to finance under the project a firm of management consultants to review, under terms of reference satisfactory to the Bank, TOT's management and organization, identify weaknesses, suggest changes and assist in their implementation (paragraph 4\.10)\. Long-term Planning 4\.06 Under the third project, to improve TOT's long-range planning, the Bank had required establishment of a Fundamental Planning Unit (FPU) within TOT\. While the FPU has been recently estabLished, it is currently not in a position to effectively present options for policy decisions, it is not sufficiently separated from routine operations, and it suffers from inadequate staffing\. The economic study of telecommunications in Thailand which TOT was required to undertake under the third project as a first stage of developing in-house economic expertise has been entrusted to another TOT unit, the Office of Economic Study (OES)\. Due to inadequate staffing and lack of economic expertise among the TOT personnel, OES also has not been  - 23 - able to carry out its current assignments adequately\. Measures to provide the necessary expertise in, and the close coordination between or integration of, FPU and OES are proposed under the project (paragraphs 4\.09, 4\.11 and 4\.12)\. Staff 4\.07 Annex 20 gives the distribution of TOT staff between different categories\. In 1981, TOT had a staff of about 11,180, equivalent to about 21 employees per 1,000 telephones; this suggests a good labor productivity higher than in most other developing countries, although amenable to further improvement\. TOT has little difficulty in recruiting staff of requisite caliber and staff turnover is negligible\. The pay scales are reasonable, and staff also receive welfare benefits averaging about 15% of total remuneration and a yearly bonus equivalent to about 1\.2 times the average monthly pay\. 4\.08 TOT's assessment of future staff requirements as given in Annex 20 are based on current methods of operation, and the employee/telephone ratio has been forecast to improve from current 21 to about 16 per 1,000 telephones by 1985 through increased productivity resulting from improved organization of construction, operations, commercial work and administrative functions\. However, TOT has not made a detailed manpower study of its future staff requirements, taking into account new technologies and services being introduced or likely to be introduced in the network in the near future, changes in the pattern of services (especially deeper penetration into rural areas with wider dispersal of facilities), likely reorganization of its administration, introduction of more modern management techniques like the management information system currently being implemented as part of the Third Bank project, and wider use of computers particularly for commercial work\. It is proposed that the management consultants to be financed under the proposed loan (paragraph 4\.10) should carry out a manpower study and prepare a manpower plan for TOT until year 1990, prescribing the types and number of staff of different categories, their job descriptions, recruitment programs and training needs, the latter for both new and in-service staff\. Training 4\.09 The Telecommunications Training Center (TTC) on the outskirts of Bangkok was established in 1969 with the assistance of the lnternational Telecommunication Union (ITU) and UNDP financing\. TTC is well equipped and has a training capacity of about 20,000 student-weeks\. However, TTC programmed only 6,000 student-weeks of training in 1981\. The training program for 1982 is set at only 6,800 student weeks, and does not cover adequately, or not at all, training in new technologies being introduced in TOT management, administration, and finance and accounts, or in-service training\. No training is scheduled in the use of the new management tools such as the management information system currently under implementation\. To remedy the situation, the management consultants to be financed by the loan (paragraph 4\.10) wiLl also review the training requirements of TOT and, based  - 24 - on the findings of the manpower study (paragraph 4\.08), propose suitable training programs in different disciplines--technical, administration and mdnagemernt, finance and accounts--as also a program of regular in-service training of TOT staff at all levels\. A provision of US$0\.75 million has been included under the loan to finance about 48 manmonths of training instructors for the TTC and 150 manmonths of training abroad of TTC instructors, as well as about 48 manmonths of foreign training of FPU and OES personnel to provide future in-house expertise within TOT on long-range planning and economic work (paragraph 4\.06)\. Consultants 4\.10 As indicated in paragraph 4\.05, it is proposed to finance under the loan a firm of management consultants, under terms of reference satisfactory to the Bank, to review TOT's current organization and management, and suggest and assist in implementation of measures to correct weaknesses\. The consultants will also be required to prepare a manpower plan for TOT (paragraph 4\.09)\. Further, since a major inadequacy in TOT in the past has been the slow utilization of assets installed and delays in connecting new lines to waiting applicants, the consultants will be required, as a priority task, to review the organization and working of the commercial, operations and maintenance branches and suggest changes, propose suitable manpower plans and recruitment and training programs for these branches, and help implement these urgently so that, by end of FY83, TOT is adequately equipped and organized to absorb and exploit immediately the large local network capacity that would become available from FY84\. Consultanit's services are estimated at about 135 manmoniths at unit cost of about US$15,000 equivalent per manmonth\.5 A provision of US$2 million has accordingly been made under the loan to finance consultants who wil\.I be selected and appointed in accordance with Bank guideLines\. The award of contract to the selected management consulting firm under terms of reference acceptable to the Bank shall be a condition of loan effectiveness\. 4\.11 It is also proposed to finance individual experts to assist TOT in the field of planning\. One expert would assist the FPU and the OES for about 24 months in setting up and implementing a comprehensive work program to take over some of the long-term planning activities currently located elsewhere in TOT, and gradually establishing all other functions prescribed for these units\. In particular, the expert would help in drawing up job descriptions and qualification requirements for all FPU and OES staff, reviewing the present staffing situation, selecting the permanent cadre of professionals, and specifying a program for their initial training on the job and abroad\. He would provide overalL guidance in the development of long term planning in TOT, and contribute substantively in the design and implementation of specific practices\. 5/ Based on fees paid by TOT to two foreign consulting firms in 1980\.  4\.12 The project would also provide (a) one telecommunications economics expert for about six months to help carry out a study of telephone tariffs (paragraph 3\.10) and assist in discussing with TOT managers the implications of the study's findings on TOT's pricing and investment policy, (b) one demand forecasting expert for about six months to help upgrade TOT's current practices in this field (paragraph 1\.12) and (c) one telecommunications economics/regional planning expert for about eight months to help develop guidelines for future TOT investments (paragraph 3\.04)\. All these experts are estimated to cost on an average about US$5,700 per manmonth\. A provision of US$0\.25 million has been made under the loan to finance them\. Accounting and Budgeting 4\.13 TOT's accounting and budgeting system is satisfactory\. The accounting system is computerized and commercial accounts are prepared\. Annual budgets are prepared on a monthly basis and each department or office is responsible for controlling its own budget, and reports to the budget division every month\. Each quarter, the division submits to the Managing Director a quarterly variance analysis\. TOT is currently in process of implementing a comprehensive management information system which, among other things, covers the finance and accounts aspects of its operations\. Full implementation of this system is expected by about June 1982\. Billing and Collection 4\.14 TOT's billing system is computerized and is satisfactory\. However, historically, the bill collection system employing bill collectors for house-to-house collection of dues has been weak\. With the expansion of TOT's business operations, this system was beginning to break down\. As required under the third Bank project, a new bill collection system is now being implemented which involves invoices being sent by mail and payments being remitted by subscribers through post, commercial banks and/or at TOT collection offices\. This system is expected to be fully operational by end-1982\. Payment control procedures are also being tightened up\. Accounts receivables have, as a percentage of revenues, risen from a low of 11 percent in 1977 to about 32 percent in 1981\. However, over the FY82-85 program period, with increased attention being paid to bill collection and arrears monitoring, receivables are expected to be reduced to about 24 percent in 1982 and about 18 percent in 1985, which is acceptable\. Government receivables in arrears for over 12 months in 1981 were about 7 percent of total receivables\. Twelve percent of receivables represented old long distance calls which are in dispute\. The impact of overdue Government receivables upon the financial viability of TOT is minimal\. Under a covenant in the third loan, the Government is required to settle all outstanding receivables by end of FY83\.  - 26 - Audit 4\.15 TOT has an internal audit division employing about 50 mostly qualified people\. This internal audit division operates with an audit program and issues regular audit reports which cover procedures as well as financial results\. The internal audit division of TOT operates in a satisfactory manner\. The external audit of TOT's accounts is carried out by the Office of the Auditor General of Thailand\. The audited statements which the Bank has received on time have been audited in a satisfactory manner\. During negotiations, assurances were obtained that TOT will continue to employ independent auditors, acceptable to the Bank, and that audited accounts will be submitted to the Bank within six months of the end of each financial year\. Insurance 4\.16 TOT does not insure its fixed assets; cost of such insurdnce is high and TOT considers that the wide geographical spread of its assets provides good dispersion of risk\. This is reasonable and in line with the approach adopted by other similar telecommunications entities\. V\. FINANCIAL ANALYSIS Past Financial Performance 5\.01 The past financial performance of TOT has been reasonable\. A summary for the years FY77 to FY81 is given below\. -Baht millions------------- FY77 FY78 FY79 FY80 FY81 Operating revenues 1,022 1,247 1,675 2,306 3,053 Operating costs 675 828 1,083 1,330 1,625 Operating surplus 347 419 592 976 1,428 Interest 104 153 237 255 306 Tax - - 31 400 491 Net operating surplus 243 266 324 321 631 Operating ratio (%) 66 66 65 58 53 Rate of return on revalued assets (%) 9 10 11 7 11 Self-generated contribution (%) 44 39 43 39 55  - 27 - Details of TOT's historical income statements and balance sheets for FY77-81 are given in Annexes 21 and 22\. During the period FY77-81, gross assets of TOT doubled and self-generated funds were sufficient to finance about 44% of the funds required for this large expansion\. Present Financial Position 5\.02 A summary of TOT's balance sheet as at September 30, 1981, is shown below: Baht Millions Assets (Book Value) Gross fixed assets 8,503 Less accumulated depreciation 2,379 Net fixed assets 6,124 Plant under construction 1,446 Current assets 3,363 Total Assets 10,933 Liabilities Equity capital 4,001 Long-term debt 4,769 Customer deposits 785 Current liabilities 1,378 Total Liabilities 10,933 Long-term debt is made up of subscriber bonds (B 1,115 million), and loans from IBRD (B 1,085 million), Ex-Im Bank of Japan (B 1,220 million), OECF (B 1,065 million), AB Svensk Exportkredit (B 224 million) and domestic loans (B 60 million)\. The current asset ratio at 2\.4 is satisfactory\. Valuation of Assets 5\.03 In 1980, TOT revalued its fixed assets using an acceptable method of revaluation\. This revaluation concluded that, as of September 30, 1980, the book value of assets needed to be increased by about 30% to reflect current value\. To reduce possible distortion in asset values by price inflation on the one hand and declining unit costs of telecommunications assets from improved technologies on the other, it was concluded from the asset revaluation exercise that, in future, assets would be adjusted on a memorandum basis to reflect the current value of the assets, by being revalued from the 1980 revised base by 6% per annum which reflects the annual  - 28 - increase in assets value over the past three years\. This assumption, which is acceptable, has been used in this report and will be monitored annually (paragraph 5\.04)\. 5\.04 During negotiations, assurances were obtained that TOT will, by June 30, 1983, review and establish the value of its fixed assets according to methods agreed on with the Bank and that TOT will review the value of its fixed assets annually thereafter\. Financing Plan 5\.05 The following is a summary of the forecast sources and applications of funds for the period FY82-85, based upon TOT's capital expenditure program (excluding capital and expense items written off)\. Baht Millions USS Millions Requirements Proposed project 11,320 492 Other program works 8,986 391 Future works - preinvestments 9,200 400 Total program cost 29,506 1,283 Changes in working capital (1,130) (49) Total Requirements 28,376 1,234 Sources Internal cash generation 7,433 323 Customer deposits 955 42 Long-term financing 19,988 869 Total Sources 28,376 1,234 Given the tariff increases proposed by TOT, TOT's net internal cash generation would finance the equivalent of 25% of program costs during the project period, which is satisfactory given the 300% increase in fixed assets and work in progress over the project period\. The change in working capital is negative due to a large increase in current liabilities as a result of the expansion program\.  - 29 - 5\.06 The long-term financing indicated above is made up as follows: Source Baht Millions US$ Millions IBRD 5,290 230 OECF 1,382 60 Subscriber bonds 2,919 127 Commercial loans 566 25 Swedish Export Credit 21 1 Foreign - unidentified 3,150 137 Unidentified financing for 6,660 290 future projects 19,988 870 Of the above financing, and including the proposed IBRD loan, about 50% is confirmed\. Of the remaining unconfirmed financing, nearly 70% relates to future works for which it is too early to have confirmed financing\. The balance of 30% is likely to be financed either through suppliers' credits or commercial bank financing\. Arrangements being made by TOT to cover the balance foreign funds requirements were discussed during negotiations (paragraph 2\.07)\. No major problems are foreseen relating to the financing of the program\. Future Financial Performance 5\.07 Financial statements for FY82-85 are given in Annexes 23 to 25\. A summary of TOT's expected future financial performance, assuming cumulative inflation on operating costs of about 11% per annum is given below (Baht millions): FY82 FY83 FY84 FY85 Operating revenues 3,809 5,673 8,148 11,706 Operating costs 2,048 2,618 3,280 4,247 Operating surplus 1,761 3,055 4,868 7,459 Interest 368 450 721 1,345 Tax 608 1,141 1,789 2,598 Net operating surplus 785 1,464 2,358 3,516 Operating ratio (%) 54 46 40 36 Rate of return on revalued assets (%) 10 15 19 20 Self-generated contribution (%) 32 21 22 29  - 30 - TOT's projected financial performance over the project period is good\. The operating ratio, due to increased revenues as a result of the proposed tariff increase and maintenance of operating cost efficiency, over the period falls to a level of 36% which is very good\. 5\.08 From FY81 to FY85, TOT's investment in gross fixed assets and work in progress increases more than four-fold\. During this period of rapid expansion the provision of funds to sustain this expansion and maintain financial viability is of the utmost importance\. Over the period FY82-85, TOT's internally self-generated funds amount to about 25% of capital investment requirements\. This performance is reasonable given the very large investment program (paragraph 1\.16)\. During negotiations, assurances were obtained that TOT would take or cause to be taken all such measures as shall be required to produce funds from internal sources equivalent to at least 20% of the capital expenditures incurred during any one year of the FY82-85 period, at least 25% for the whole period and at least 35% for FY86\. 5\.09 In respect of tariffs, it has been assumed for the financial projections that there will be no increases during the project period other than those currently proposed (paragraph 3\.10)\. TOT's future rate of return on revalued assets is good, despite inflation\. This is due to an almost doubling of telephone lines in service during the program period and to an increased utilization of the services\. VI\. RECOMMENDATIONS AND AGREEMENTS REACHED 6\.01 The folLowing shall be the conditions of loan effectiveness: (a) TOT shall have signed contracts for major project items and with a selected firm of management consultants (paragraphs 2\.09 and 4\.10); and (b) TOT shall have increased its fees and charges and the Government shall have approved appropriate measures so that TOT can meet its initial obligations under paragraph 5\.08 (paragraph 3\.11)\. 6\.02 The Bank agrees to: (a) advance contracting of 40,200 lines of switching equipment costing about US$11\.9 million (paragraph 2\.11); and (b) retroactive financing of up to US$14 million in respect of payments made by TOT on Bank-financed contracts after June 1, 1982 (paragraph 2\.14)\. 6\.03 During negotiations, assurances were obtained from TOT on the following:  - 31 - (a) TOT shall introduce, by March 31, 1983, new procedures, satisfactory to the Bank, for allocating telephones on the basis of differential subscriber bonds (paragraph 3\.10); (b) TOT shall continue to employ independent auditors acceptabLe to the Bank and will submit audited accounts to the Bank within six months of the end of each financial year (paragraph 4\.15); (c) TOT shall, by June 30, 1983, review and establish the value of its fixed assets according to methods agreed on with the Bank and that TOT will review the value of its fixed assets annually thereafter (paragraph 5\.04); and (d) TOT shall take or shall cause to be taken all such measures as shall be required to produce funds from internal sources equivalent to at least 20% of capital expenditures incurred during any one year of the FY82-85 period, at least 25% for the whole period and at least 35% for FY86 (paragraph 5\.08)\. 6\.04 Subject to the above conditions and assurances, the proposed project constitutes a suitable basis for a Bank loan to TOT of US$142\.1 million equivalent (including a front-end fee of US$2\.1 milLion) for a term of 20 years including a three-year grace period at the current rate of interest\.  \. \. a2;~\. \. \. - 0 \. \. \. \. \. \. \. \. 0\.a\.2\.2\. 00\. \. \.0 * a a-a-COO\. *\.~ a-2\.002\.2 a 2\.0\. \. \.0 \. \. aoo\.oa\. \.- 00 \. \. \.2-00-2 a-00 \. -0\. -\.02 - - 2\.7 4 2\.4 0 4\.0 0
4O O \.400 2 2a \. 0 2 - - 2 a 2~ ~~\. 2 \.2 2\. \. \. \.2 \. \. \.2 \. \.t \.2 \. \.~2 2 '2 ' 2 ~ 2a022\. \. 40002 C\.2~ \.- 2 \.2a\.a a\. \. \. \. \. \. \. \. \. \. \. \.'- \. \.2\.20 0 02\. -f\. 4 0 0 0 a\.aa o\. 0 22 - 2aOaO2\.0022\.000000040~ ~~\.-aa\. \. o a - a a 0a aco\. '0\.a2a \.- 02\.'\.o 2 \.2\.22\.2'\. 20 0z22'Z\.c\.a\. \. c 0\. 22-- 0-o ZO\.O 5 a\.2a\. c2O\.- Z 20 0kaO\. 2 \.a\.-\.0\.-\.a\.a\. \. \. a\.ac \. 00 a O a a O 0 \. \.40\. 2\.0\. a Oa a02 2\. '20\.0 a a aa 2\.' -2 2\.000aOO\.-\.-a2\.aaa\. \. 0\.0\.0 \. \. \.00 04\. \. a 2\. \.2 \.0\.- a\. o210 22 2\.-02\.2\.402\.2\.-a2\. a \. \. \. \.4\.2\.0\. \. \. \. \. \. \. \. \.0\.2\. \. \. \.2\.2\.a\.2\. \. \. \. - ~~~~2 S~~~~~~~~ 02\. 0' a2\. 2 4 2' a 2\.a2 2\.0 0 4 2\.0 44 aa a 2 '2' 002\.42'000a0002222\.2\.02\.2\.42\.0420000042\.00a2\.0a0\.002'00\. 2\.2\.0002\.02\. 2\.002\.0002\.02\. 002\.2\.~t 222\.00\. 202\.0 022\.2002 42\.22\.420 2\.02\.0\. 2\. 00\.000\.20-c 422\.2\. a \.2\.22\.00\. 00 0 -I 0 222 2 aa 0 2\.0 2\.4 04 oaoac200 a 2022\.2\.2\.002\.002\.2 0 00000244002\.42\.0 jIV  THAI I\.AN1) TELEPHONE ORGANIZATION OF 1PHAILAND (TOT) Distribution of Telephones ia Urban and Rural Areas (As on June 30, 1981) URBAN AREAS- RURAL AREAS- Areas with Telpon aility Areas with Telephone Facility Dispersion of Percentage Working Working Population and ot Population Dines Lines Working Lines (X) Without Popula- Popula- Total per 100 Popula- Popula- Total per 100 _Urban Areas __ Rucal Areas Access to Number tion Number tion Working Popula- Number tion Number tion Working Popula- Popula- Working Popula- Workinig Telephone ILem of Areas (000s) of Areas (000s) Lines nion of Areas (000s) of Areas ()00s) Lines tion tion Liaes tion Lines Service Bangkok Metropolitani Telephonie Area 232 6,133 160 5,581 281\.989 5\.05 70 248 6 23 512 2\.23 96\.12 99\.82 3\.88 0\.18 12\.45 Provincial Telephone Area 1\. 220 2,104 46 636 13,892 2\.18 226 780 13 3/ 398 1\.08 72\.95 97\.21 27\.05 2\.79 76\.66 2\. 758 7,377 47 695 11,773 1\.69 175 667 3 9 54 0\.60 91\.71 99\.54 8\.29 0\.46 91\.25 3\. 782 7,308 56 921 12,106 1\.31 202 /36 3 6 88 1\.47 90\.85 99\.28 9\.15 0\.72 88\.48 4\. 378 5,522 81 1,117 16,644 1\.49 371 1,203 20 74 640 0\.86 82\.11 96\.30 17\.89 3\.70 82\.29 5\. 402 3,780 54 782 8\.727 1\.12 211 742 5 19 329 1\.73 83\.59 96\.37 16\.41 3\.63 82\.29 6\. 353 2,863 72 761 14,149 1\.86 500 1,656 11 40 1,011 2\.53 63\.35 93\.33 36\.65 6\.67 82\.27 7\. 275 2,339 40 433 9,699 2\.24 255 884 10 30 185 0\.62 72\.57 98\.13 27\.43 1\.87 85\.63 8\. 202 1\.890 38 583 9,737 1\.67 221 7710 1 4 93 2\.33 72\.68 99\.05 27\.32 0\.95 77\.42 Total 3\.570 33,183 434 _5,928 96,727 1\.63 2,161 7,378 66 219 2,798 1\.28 81\.81 97\.19 18\.19 2\.81 84\.85 | Provinicial Total Country 3,802 39,336 594 11,509 378,716 3\.29 2,231 7, 626 72 242 3,310 1\.37 83\.76 99\.13 16\.24 0\.87 74\.98 1/ Urban areas are tambons having a population of 5,000 or more\. 2/ Rural areas are tambons having a population less than 5,000\.  THAILAND TELEPHONE ORGANIZATION OF ThAILAND (TOT_ Access Lo Telephone_Service (As on June 30, -1981-) 1mm ~~~~~~~~~~~~~~Bangkok Provincial Areas Metropolitan _ _ _ - - - - - - - - _ _ _ _ _ -- - - ~ - oa Area 1 2 3 4 5 6 7 8 Provincial Thailand' 1Area (square kin) 4,610 36,294 81,304 86,845 98,586 89,887 49\.651 42,908 24,831 510,306 514,916 I opu4aLion (thousands) 1/ 6,401 2,884 8,044 8,044 6,725 4,522 4,519 3,223 2,600 40,561 1 46,962 Population density 2/ 1,389 79 99 93 68 50 91 75 105 79 91 Number of households (thousands) 1,033 450 1,162 1,206 1,160 921 720 483 412 6,514 2 ,547 Number of tambons 3/ I Catgoy A143 61 2 35 211 16 7 130 74 63 42 98 1,12 Category B 89 159 5 23 571, 411 2 72 2 79 21 2 160 2, 58 7 2:676 Category C 62 160 165 176 2 71 173 3 21 18 7 181 1,634 I 1,696 Category D ___ 8 66 10 ___ 26 100 38 179 68 40 5 27 I535 Total r302 446 9 33 984 949 613 853 530 4 423 5, 73lf 6,033 Tamb\.ns with telephone facilities 4/ ___ --- Category A 135+0=135 26+0=26 29+0=29 36+0=36 38+0=38 30+1=31 29+0=29 22+0=22 20±0~20 230+1-231 365+1=366 Category B 25+0= 25 19+1=20 18+0=18 20+0~20 43+0=43 23+0=23 43+-0=43 18+0=18 18+0=~18 202+1=203 I227+1"228 Category C 5-40= 5 9+0= 9 3+0= 3 2+0" 2 19+0=19 5+0= 5 11+0=11 8+0= 8 1+0= 1 58+0'= 58I 63+0= '63 Category D0 1+0= 1 4+0= 4 ___ +0= 1 1+0= 1 _ __ 2+0= 2 8+0= 8 89+0" 9 Total~ 166+0=166 58+1=59 50+0=5 59+0=5 101+0=101 58+1 59 8303 50=0 39=9 48+50 64266 Tamsbons without telephone faci lit i-esI Category A 8 35 206 175 129 99 45 41 22 75 6 Category 8 64 139 505 551 368 249 236 194 142 2,38 2,448 Category C 5 151 162 174 252 161 310 12i9 1180 1,576 1,63 Total 136 387 883 925 ~ 848 - M4~ 770 ~ 480 384 5,231 5367 Tambons to be provided with telephone I fai\.lty nde Thrd Proj_ect 4/ Category A 0+1=1 I 3+ 5 8 4+25=29 1+23=24 1+11=12 4+18=22 7+ 7=14 0+ 6- 6 1+ 3= 4 21+ 98=119 21+ 99= 120 Category B 0+2=2 S +12=17 0+ 9= 9 2+20=22 3+11=14 4+12=16 5+14=19 2+15=17 0+11=11 21+104=125 21+106=127 Category C O + 1= 1 0+ 4= 4 0+ 8= 8 1+ 3= 4 3+ 7=10 1+ 2= 3 0+ 4= 4 5+ 29= 34 5+ 29= 34 Categoryl1) - - - - 0+1=1I 1+1= 2 0+ 2=2 - 1+ 4\.-5 11+ 4=5 Total 0+3=3 8+18= 26 4+34=38 3+47=50 4+30=34 9+34=43 1+95 +2=8 +8194+235=28M48+238~786 Tambons to be provided with telephone facilitL Unde-r Fourth Pro-j ect 4/ Csiegory A 0+1=1 0+ 4= 4 4+28=32 4+25~29 3+17=20 4+13=17 3+ 4= 7 3-r 4= 7 0+ 4~ 4 21+ 99=120 I 2l1+100-121 Category B 0+3-3 0+11=11 1+)O=~2; 0+29=29 2+22-24 2±15=17 10+ 8=18 3+14=17 0ti0=LO 18+129-147 181 132=150 Category C 0+1=1 0+ 2= 2 0+ 3= 3 0+ 4~ 4 1+ 5= 6 0+ 5=' 5 4+ 8=12 0+ 5= 5 0+ 7= 7 5+ 39~ 44 5+ 40= 45 I 0+1i=1I0+ 1=1I 0+2=2 0+ 4= 4 - 0+ 4='4 1+ 1=2 1+ 13= 14 1+ = Category D Total I-8~85+2-74- ~4 6+48=54 6+33=39 172=1 7+24=31 0+21=21 45+280=325 415253=31 Note: 1/ Population statistics derived froms population record of Interior Ministry of Thailand as on December 31\. 1980\. 2/Population Density = Number of persona per square kilometer\. 3/Category distribution of tambons based on population: A; Over 10,000 B: 5,000- 10,010 c: 2,500 - 5,000 D: below 2,500 4/ 2+25=27 indicates that out of a total of 27 tambons, 2 are provided with telephone service through telephone esehauges and 25 throogh long distance rural Public call offices\.  - 35 - ANNEX 4 THAILAND TELEPHONE ORGANIZATION OF THAILAND FOURTH TELECOMMUNICATIONS PROJECT Distribution of Telephone Subscribers by Type of Activity Bangkok Metropolitan Area Provinces Thailand Category Percent Percent Percent Residences 39\.1 35\.8 38\.0 Government (including defense but excluding state enterprises) 5\.2 5\.1 5\.2 Commerce (wholesale and retail trade) 24\.5 34\.2 26\.9 Services: Finance (banking, insurance and real estate) 3\.8 2\.7 3\.5 Transportation and communications 2\.4 1\.4 2\.2 Electricity and water 0\.2 0\.5 0\.3 Other services 18\.1 14\.6 17\.1 Total Services 24\.5 19\.2 23\.1 Manufacturing 5\.4 4\.2 5\.5 Construction 1\.1 0\.6 1\.0 Agriculture, fishery, forestry, mining, quarrying and others 0\.2 0\.9 0\.3 TOTAL 100\.0 100\.0 100\.0 Source: TOT Economic Studies Group, October 1980\. Based on a stratified random sample of 1,993 lines in 9 Bangkok exchanges and 4,669 lines in 24 provincial exchanges; classifications made using information available at the local exchanges supplemented by telephone and personal interviews\.  -36- ANNEX 5 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Existing Telephone Facilities (As on September 30, 1981) Item Bangkok Provinces Total 1\. Local Telephone Exchanges Exchanges 42 154 196 Equipped capacity 317,028 119,000 436,028 2\. Tandem Exchanges Exchanges 7 - 7 Equipped capacity 15,030 - 15,030 3\. Trunk Automatic Exchanges Exchanges (locations) 2 20 22 4-wire terminations 2,210 4,790 7,000 2-wire terminations 2,962 9,664 12,626 4\. Main Telephone Stations 287,090 102,148 389,238 (working lines) 5\. Telephones 389,852 139,254 529,106 6\. Local Public Call Offices 5,950 913 6,863 Systems Route Distance (km) 7\. Transmission Systems 120-channel microwave 2 134 240-channel microwave 3 250 300-channel microwave 58 4,146 600-channel\.microwave 3 794 960-channel microwave 12 2,681 300-channel coaxial cable 3 15 960-channel coaxial cable 8 30 2,700-channel coaxial cable 1 6 Other systems (UHF, VHF, etc) 58 767 Total 148 8,823 Number 8\. Channel Ends Equipped 68,376 Working 12,145 9\. PCM Systems Systems 235 Channels 11,172 10\. Rural Long Distance Public Call Offices 2  THAILAND TELEPHONE ORGAEOHIATIORNP THAILAND (TOT) GROWTH OF LOCAL TELEPIIONTi NETWORK Taile A: TOTAL\. THAILAND I-em 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Population (opproi\.a\.i-) in Totol Thailand End of year 36,820 38,359 39,950 41,334 42,391 43,213 44,272 45,221 46,113 46,961 48,267 49,383 50,477 51\.589 52\.721 53,92 54,951 56\.094 57\.255 58,440 Increase over previous year 1%) - 4\.2 4\.2 3\.5 2\.6 2\.0 2\.5 2\.2 2\.0 1\.8 2\.8 2\.3 22\.2 2 2\.1 2\. 21 2\.0 2\.0 Local E-hebnge Encipped Capacity End yf year 195,454 205,050 215,050 247,274 263,346 302,120 307H650 409,156 421,944 422,494 436\.H28 496\.234 577,634 796,650 1,081,400 1\.346,00 1,667,000 2,089,000 2,635,000 1,1i21,000 lirroso over previous year 2IT) 44\.9 4\.9 15\.0 6\.5 14\.8 1\.9 33\.0 3\.1 9\.2 3\.2 13\.8 16\.3 37\.9 35\.7 24\.5 23\.8 25:3 26\.1 26\.7 Etohon6v f181 (X) 70\.1 78\.9 81\.4 75\.8 83\.1 19\.4 84\.8 72\.9 78\.6 86\.6 89\.3 86\.9 86\.5 77\.8 79\.3 81\.9 93\.2 84\.6 85\.5 86\.0 Working Lines End of ye\.r 136,935 161,704 175,109 185,531 218,885 236,818 260\.806 295,634 331,584 365,894 389,238 431\.000 500,000 620,000 857,700 1,091,400 1,386,600 1,766,700 2,247,800 2\.852\.00 Illcreas over previous Tone (Z)7 - 18\.1 9\.3 6\.0 18\.0 8\.2 IO\.2 10\.4 12\.2 10\.4 6\.4 10\.7 16\.11 24\.0 38\.3 21\.3 7\.2 27\.2 27\.2 27\.1 Per-te- of registered demand net (Y) - - - - - 86\.9 78\.1 63\.1 58\.9 54\.4 51\.3 oI\.6 54\.7 64\.9 70\.9 72\.3 84\.3 91\.9 100\.0 ROHHRisteed Woicern E yd of rest 1/ 1/ 1I 1/ 1/ I/ 39,337 82,954 194,234 255,299 726,dbd 489,00O 470,008 514,800 463,300 448,608 407,400 928,308 198,208 Ineo--- (deoe-ose0) 000 p-e--vi - - 110\.9 1 34\.1 31\.1 20\.8 25\.2 14\.9 9\.4 79\.9) (J\.2) 19\.27 719\.4) (39\.6) (100\.0) yea:r 7X) End of year 1/ I/ 1/ i/ I/ 1/ 300,143 378,593 525,818 627,193 II5,SEO 840,008 970,080 1,134,000 1,321,000 1,540,000 1,79s,H00 2,095,000 2,446,000 2,857,000 lorreaue over preolon yeae 7X5 -\. - - - - - 26\.1 38\.9 18\.1 15\.2 17\.4 15\.5 16\.9 16\.5 16\.6 16\.6 Tolephone lostrusootLs Ed oP year 202,023 235,193 254,896 270,840 312,312 333,677 366\.875 409,471 451,409 496,558 529,106 590,000 685,000 858,000 1,169,000 1,476,000 1,893,000 2,409,000 3,065,000 3,895,000 Increa\.e yoRe provious yeir IT) 16\.5 8\.4 6\.3 15\.4 6\.9 17\.8 I1\.7 10\.3 10\.0 6\.6 11\.5 76\.1 74\.1 37\.5 26\.2 28\.3 21\.3 27\.2 27\.1 RatIo Tolephnnle/Wnrilng 1iInes 1\.48 1\.46 1\.46 \.46 1\.49 1\.41 1\.41 1\.39 1\.07 1\.36 13\.6 1\.37 1\.37 1\.37 1\.36 1\.15 1\.37 1\.36 1\.56 1\.36 12sor6100\.ines peP 100 Populotion Etd of ye-r 2\.38 0\.43 0\.44 0\.45 0\.52 0\.55 0\.59 0\.66 0\.72 0\.78 0\.81 0\.87 0\.99 1\.20 1\.63 2\.03 2\.53 3\.15 3\.93 4\.89 relnepone- pot 100 Population End of ye-r 0\.55 0\.62 0\.64 0\.66 0\.74 0\.78 0\.83 0\.91 0\.98 1,06 1\.10 1\.19 1\.33 1\.65 2\.22 2\.74 3\.44 4\.29 5\.35 6\.66 Year to Satesfy Demnod I/ _ _ _ - 2\.38 5\.40 7\.44 13\.97 9\.69 6\.81 4\.28 1\.95 1\.92 1\.33 0\.87 0\.41 - I/ N\.vec-d\. 2/ Registered s\.alers dvlided by number of 1-- -cnnected durioW che preeious year\. Figures fop 1971 1\. 1981 ae a-u-ls-I, rest see - nreesse  THAILAND TELEPHONE OHCANIZATI[O OP THAILAND (TOT GROWTH OF LOCAL TELEPHONE NETWORK Table B: METROPOLITAN [trn 1971 1972 1973 1974 '1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 P\.P\. -\. _ \._ _ _ L\. _e \. _t PoPulapJaprov1eati lnRrscepe1lEan End of year 4,015 4,181 4,383 4,853 ,417 5,637 5\.866 6\.030 6,201 6,401 6,580 6\.179 6,978 7\.177 7,376 7,575 7,774 7,973 8\.172 8\.376 Increase over previous year (X) - 4\.2 4\.9 10\.8 11\.7 4\.1 4\.1 2\.8 3\.2 3\.2 2\.8 3\.0 2\.9 2\.9 2\.8 2\.7 2\.6 2,6 2\.5 2\.5 LocalHncNape jped Capacity End of Yprc 156,944 162,700 162,700 188,484 197,668 217,718 219,818 308,684 314,684 314\.684 317,028 368,034 415,234 599,850 734,000 898,000 1,084,000 1,328,000 1,630,000 2,010,000 I__crease over pre_is year (X) - 3\.7 0\.0 15\.9 4\.9 10\.8 1\.0 40\.5 2\.0 o\.0 0\.7 16\.1 12\.8 44\.4 22\.4 22\.8 22\.5 22\.5 22\.7 2353 Etchange fill (7) 67\.3 78\.2 82\.0 74\.9 86\.2 82\.6 88\.8 70\.9 71\.4 85\.7 90\.6 86\.1 86\.0 74\.0 75\.6 77\.2 81\.3 84\.3 87\.4 90\.0 Wo-king Lines End of year 105,550 127,291 133,440 141,115 110,302 179,830 185,223 218,823 243\.607 269,534 267,090 317,000 357,000 443,000 545,000 693,0 88 112,000 11,424,000 1,808\.000 Inctease ever prnl\. pear (Z) - 20\.5 4\.9 5\.8 28\.7 5\.6 8\.6 12\.1 11\.0 10\.7 6\.5 I0\.5 [2\.6 20\.1 23\.0 27 2 27 1 2711 I71 2 7\.0 Percent o f registered demand ens 6Y) - - -0-0 9 9\.9 62\.5 58\.9 55\.9 53\.2 51\.9 56\.0 6 67\.8 70\.1 81 9 906 [000 RegsLtered Walters Ed eer 1/ 1 1/ 1/ I/ 1/ 21,691 55,000 146,498 185,073 276,610 279,000 331,000 378\.000 354\.000 341,000 308,000 247,000 148\.000 Increase (deccee) ever prenviee _ 1-[53\.6 [66\.4 26\.3 22\.4 23\.0 18\.6 5\.1 1\.7 (3\.7) (9\.7) (19\.8) (40\.0) (l00\.H) year (2) TeiaL De-and End ef yrer 1/ I/ l I/ I/ I/ 216,914 203,823 390,105 454,607 513,7H0 591,000 680\.000 782,000 899,000 1,034,000 1,189,O00 1,367,000 1,572,000 1,808,00O Inerease ever previeus prar (X) - - - - \. 26\.2 42\.5 16\.5 [3\.0 16\.0 15\.5 15\.0 15\.0 15\.0 15\.0 15\.0 15\.0 15\.0 Teleehene lHsitruser,ss End at pear 161,192 190,136 201,731 213\.380 249,127 260,394 279,907 306,405 334,660 368,128 389\.852 444,000 500,000 620,000 763 000 970 000 1,233\.000 1,568,000 1\.994,000 2,531,00 Incrnose over previous pear 1X1 - 18\.0 6\.1 5\.8 16\.8 4\.6 7\.5 9\.5 9\.3 10\.0 5\.9 13\.9 12\.6 24\.8 23\.1 27\.0 27\.1 27 1 27\.1 27\.0 Earle Telepbene/serkintg L\.iLAes 1\.53 I\.0 1\.52 1\.52 [\.47 1\.45 1\.40 1\.40 1\.38 1\.37 1\.36 1\.40 1\.40 1\.00 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 Wrkeing Lines per 108 Peju,arion Er,d ef pear 2\.63 3\.05 3\.05 2\.91 3\.15 3\.19 3\.33 3\.62 3\.93 4\.21 4\.36 4\.68 5\.12 6\.17 7\.39 9\.15 11\.33 14\.05 17\.43 21\.59 s Telephene pnr @oHPopolaetsn Etd ,f ypar 4\.02 4\.55 4\.61 4\.40 4\.60 4\.62 4\.78 5\.09 5\.40 5\.76 5\.92 6\.55 7\.17 8\.64 10\.37 12\.81 15\.86 19\.89 24\.40 30\.22 Year eoaStijfe D-d 2/ -1\.1 2\.33 5\.91 7\.14 12\.90 9\.24 8\.28 4\.05 3\.54 2\.24 1\.64 1\.03 0\.49 - 2/ ReBiRtered -aiters divided by nv=b-r ef 1inns connected d-rink rhe pccvieos yr-\. Figores fec 1971 te 1981 ore acsalsi; rear are fere\.ants\.  rHA I LAND TELEPHONE ORGANIZATION OF THAILAND (TOT) GROWTH OF LOCAL TELEPIONE NETWORK Table C Provincial lee\. 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 R98i 19R2 1983 1906 1985 1986 1987 19HO 1989 1990 Population (approximatee) in ProcinoialI End of year 32,805 34,178 35,507 36,481 39,974 37,576 38,406 39,191 39,912 40,560 41,687 42,604 43,499 44,412 45,345 46,252 47,177 48,121 49,083 50,064 Increase over pre-ouso year (%) - 4\.2 4\.1 2\.6 1\.4 1\.7 2\.2 2\.1 1\.9 1\.7 2\.R 2\.2 2\.1 2\.1 2\.1 LW 2\.0 \.'\.0 2\.0 2\.0 Local Exchange Equipped Capacity End of yar 38,510 42,350 52,350 58,790 65,678 84,402 87,832 100,472 107,160 107,800 119,000 128,200 162,400 196,800 347,400 448,000 583\.000 761,000 1,005,Q00 1,311,000 Incre- ae over previons year (4) - 10\.0 23\.7 12\.3 11\.8 28\.5 4\.1 14\.4 6\.7 0\.6 10\.4 7\.7 26\.1 20\.7 76\.5 29\.0 30\.1 30\.5 31\.4 30\.5 Exchaege fill (%) 81\.5 81\.3 79\.6 75\.6 74\.0 67\.5 74\.7 76\.5 82\.1 89\.4 85\.0 88\.9 88\.0 89\.9 90\.0 88\.9 87\.1 85\.0 82\.0 80\.0 working Lioes End of year 31,385 34,413 41,669 44,416 48,583 56,988 65,583 76,811 87,977 96,360 i02,148 114,000 143,000 177,000 312,700 398,400 507,600 646,700 823,800 1,049,000 I--creau over previos year () - 9\.7 21\.1 6\.6 9\.4 17\.3 15\.1 17\.2 14\.6 9\.6 6\.0 11\.8 75\.4 23\.8 76\.7 27\.4 27\.4 27\.4 27\.4 27\.4 Perce-t of registered demaad net (Z) - - - - - - 20\.0 73\.3 64\.0 573\. 50\.6 46\.7 49\.3 50\.3 74\.1 78\.7 83\.6 88\.8 94\.3 100\.0 Regislteed Waiters End of year 1/ 1/ Il 1/ 1 / 1 7 1,646 27\.954 47,736 70,226 99,652 130,000 147,000 175,000 109,300 107,600 99,400 81,300 50,200 - Increase (decrease) over prev-ous - - - - - - - 58\.4 70\.8 47\.1 41\.9 30\.3 13\.t 19\.0 (37\.5) (1\.5) (7\.6) (18\.2) (38\.3) (100\.0) year (%) Total Desand End of year 1/ J/ 1/ 1/ 1/ 1/ 83,299 104,770 135,713 166,586 201,800 244,000 290,000 352,000 422,000 506,000 607,000 728,0O0 874,000 1,049,000 -crea-e o-ver previous year (7) - - - - - - 25\.9 29\.5 22\.7 21\.1 20\.0 21\.4 20\.0 20\.0 20\.0 20\.0 20\.0 20\.0 20\.0 Telephone InsE rusents End of year 40,831 45,057 53,165 57,460 63,185 73,283 86,968 103,066 116,749 128,430 139,254 146,000 185,000 230,000 406,000 518,000 660,000 841,000 1,071,000 1,364,000 l-cre\.-e over previo,,s year (Z) - 10\.4 18\.0 8\.1 10\.0 16\.0 18\.7 18\.6 13\.3 10\.0 0\.4 4\.0 26\.7 24\.3 76\.5 27\.6 77\.4 27\.4 27\.4 27\.4 Ratio Telepi-ne/horking lions 1\.30 1\.31 1\.28 1\.30 1\.30 1\.29 1\.33 1\.35 1\.33 1\.34 1\.36 1\.28 1\.29 1\.30 1\.30 1\.30 1\.30 1\.30 1\.30 1\.30 Working Li es per 100 Popolation End of year 0\.10 0\.10 0\.12 0\.13 0\.14 0\.16 0\.17 0\.20 0\.22 0\.24 0,25 0\.27 0\.33 0\.40 0\.69 0\.84 1\.00 1\.34 1\.68 2\.10 Teleph--n per100 Populatio\. 1x End of yeac 0\.15 0\.14 0\.15 0\.16 0\.17 0\.20 0\.23 0\.27 0\.30 0\.32 0\.33 0\.34 0\.43 0\.52 0\.90 1\.09 1\.40 1\.75 2\.18 2\.72 Year L Satisfy Deand /- - - - - - 2\.05 2\.49 4\.28 8\.38 17\.22 10\.97 5\.07 5\.15 0\.81 1\.26 0\.91 0\.58 0\.28 - I/ No record\. 2/ Registered waiters divided hy enuber of lies conne\.ced during the prev-o-- year\. Ftute- f(r 1971 to 1981 -eeactuaiu; test ate efoecasts\.  - 40- ANNEX 7 TTIAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Investment rogram and Sources of Financing Sources of Financing (US$ Millions) Costs Swedish Baht US$ OECF Export Commcercial Millions Millions TOT IBRD Japan Credit Bank Undecided A\. ONGOING WORKS First project Local 3\.9 0\.2 0\.2 - - (864-TH) Foreign 39\.6 1\.7 0\.1 _ 1\.6 - - - Total 43\.5 1\.9 0\.3 - 1\.6 - - - Second project Local 18\.5 0\.8 0\.6 - 0\.2 -- - - (1253-TH) Foreign 52\.2 2\.3 -1\.5 3\.1 0\.7 - - - Total 70\.7 3\.1 -0\.9 3\.1 0\.9 - - -- Third project Local 3,187\.9 138\.6 132\.5 - 6\.1 - - - (1620-TH) Foreign 3,773\.6 164\.0 - 87\.1 51\.5 0\.8 24\.6 Total 6,961\.5 302\.6 132\.5 87\.1 57\.6 0\.8 24\.6 - Other works Local 145\.9 6\.3 6\.3 - - - Foreign 95\.7 4\.3 4\.3 - - - - - Total 241\.6 10\.6 10\.6 - - - - - TOTAL ONGOING Local 3,356\.2 145\.9 139\.6 - 6\.3 - - - Foreign 3,961\.1 172\.3 2\.9 90\.2 53\.8 0\.8 24\.6 - Total 7,317\.3 318\.2 142\.5 90\.2 60\.1 0\.8 24\.6 B\. Fourth Projact Local 4,950\.8 215\.3 215\.3 - - - - Foreign 6,369\.7 276\.9 - 140\.0 - 0\.1 - 136\.8 Total 11,320\.5 492\.2 215\.3 140\.0 - 0\.1 - 136\.8 C\. Preinvestment for Local 4,140\.0 180\.0 110\.0 - - -- - 70\.0 Program after FY85 Foreign 5,060\.0 220\.0 - - - -- - 220\.0 Total 9,200\.0 400\.0 110\.0 - - - - 290\.0 D\. Total Construction Local 12,447\.0 541\.2 464\.9 - 6\.3 - - 70\.0 Program Foreign 15,390\.8 669\.2 2\.9 230\.2 53\.8 0\.9 24\.6 356\.9 Total 27,837\.8 1,210\.4 467\.8 230\.2 60\.1 0\.9 24\.6 426\.9 E\. Other Annual Local 2,410\.0 104\.7 104\.7 - -- - -- - Investments Foreigr\. - - - - - - - - Total 2,410\.0 104\.7 104\.7 F\. Total Investment Local 14,857\.0 645\.9 569\.6 - 6\.3 - - 70\.0 Program Foreign 15,390\.8 669\.2 2\.9 230\.2 53\.8 0\.9 24\.6 356\.8 Total 30,247\.8 1,315\.1 572\.5 230\.2 60\.1 0\.9 _4\.6 426\.8 C\. Front Fnd Pee ° n 48\.0 2\.1 2\.1 Roteqbauicid\. Total 30,295\.8 1,317\.2 232\.3 Re_quired\.  THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Annual Investment Program (US$ Millions) TOTAL FY82 FY83 FY84 FY85 1\. F T L F T L F T L F T L F T A\. ONGOING WORKS 1\. First project (864-TH) 0\.2 1\.7 1\.9 0\.2 1\.7 1\.9 - - - - - - - - _ 2\. Second project (1253-TH) 0\.8 2\.3 3\.1 0\.8 2\.3 3\.1 - - - - - - - - _ 3\. Third project (1620-TH) 138\.6 164\.0 302\.6 43\.2 39\.4 82\.6 75\.1 99\.5 174\.6 20\.3 25\.1 45\.4 - - _ 4\. Othier works 6\.3 4\.3 10\.6 4\.9 0\.4 5\.3 1\.4 3\.9 5\.3 - - - - - - 5\. Total Ongoing Works 145\.9 172\.3 318\.2 49\.1 43\.8 92\.9 76\.5 103\.4 179\.9 20\.3 25\.1 45\.4 - - B\. FOURTH PROJECT 1\. Local switching equipment 25\.1 110\.4 135\.5 - 9\.9 9\.9 -\.4 12\.0 14\.4 12\.5 56\.4 68\.9 10\.2 32\.1 42\.3 2\. Cables and outside plant 41\.7 60\.5 102\.2 3\.4 - 3\.4 16\.5 27\.5 44\.0 20\.1 30\.7 50\.8 1\.7 2\.3 4\.0 3\. Subscriber plant 23\.7 - 23\.7 - - - 4\.1 - 4\.1 3\.7 - 3\.7 15\.9 - 15\.9 4\. Trunk switching equipment 2\.5 9\.0 11\.5 - 0\.9 0\.9 0\.4 2\.2 2\.6 1\.1 4\.0 5\.1 1\.0 1\.9 2\.9 5\. Transmission equipment 7\.8 28\.2 36\.0 0\.1 - 0\.1 0\.6 2\.8 3\.4 3\.6 14\.3 17\.9 3\.5 11\.1 14\.6 6\. Rural public call offices 12\.2 36\.8 49\.0 0\.1 - 0\.1 2\.2 12\.8 15\.0 7\.1 18\.6 25\.7 2\.8 5\.4 8\.2 7\. Land and buildings 46\.1 - 46\.1 8\.4 - 8\.4 23\.3 - 23\.3 14\.4 - 14\.4 _ - - 8\. Vehicles 4\.3 - 4\.3 - - - 1\.8 - 1\.8 2\.5 - 2\.5 - - - 9\. Consultancy and training 0\.6 3\.0 3\.6 - - - 0\.2 1\.0 1\.2 0\.1 1\.0 1\.1 0\.3 1\.0 1\.3 10\. Miscellaneous works and 8\.7 - 8\.7 2\.1 - 2\.1 2\.7 - 2\.7 3\.0 - 3\.0 0\.9 - 0\.9 project implementation 11\. Total Base Costs 172\.7 247\.9 420\.6 14\.1 10\.8 24\.9 S4\.2 58\.3 112\.5 68\.1 125\.0 193\.1 36\.3 53\.8 90\.1 12\. Physical contingencies 3\.5 5\.0 8\.5 0\.3 0\.2 0\.5 1\.0 1\.2 2\.2 1\.4 2\.5 3\.9 0\.8 1\.1 1\.9 13\. Price contingencies 39\.1 24\.0 63\.1 1\.7 0\.3 2\.0 10\.2 4\.3 14\.5 15\.5 12\.5 28\.0 11\.7 6\.9 18\.6 14\. Total contingencies 42\.6 29\.0 71\.6 2\.0 0\.5 2\.5 11\.2 5\.5 16\.7 16\.9 15\.0 31\.9 12\.5 8\.0 20\.5 15\. Total Project Costs 215\.3 276\.9 492\.2 16\.1 11\.3 27\.4 65\.4 63\.8 129\.2 85\.0 140\.0 225\.0 48\.8 61\.8 110\.6 C\. PREINVESTMENT ON WORKS TO BE EXECUTED AFTER FY85 180\.0 220\.0 400\.0 - - - - - - 45\.0 55\.0 100\.0 135\.0 165\.0 300\.0 D\. TOTAL CONSTRUCTION PROGRAM 541\.2 669\.2 1,210\.4 65\.2 55\.1 120\.3 141\.9 167\.2 309\.1 150\.3 220\.1 370\.4 183\.8 226\.8 410\.6 (A + B + C) E\. OTHER ANNUAL INVESTMENTS 104\.7 - 104\.7 17\.4 - 17\.4 21\.7 - 21\.7 27\.8 - 27\.8 37\.8 - 37\.8 F\. TOTAL INVESTMENT PROGRAM (D + E) 645\.9 669\.2 1,315\.1 82\.6 55\.1 137\.7 163\.6 167\.2 330\.8 178\.1 220\.1 398\.2 221\.6 226\.8 448\.4  - 42 - ANNEX 9 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Equipment Installations under the Fourth Project Item Unit Bangkok Provinces Total Local Switching Equipment Extensions - crossbarl Exchange - 52 52 Lines - 26,800 26,800 - crossbar Exchange - 1 1 Lines - 200 200 - digital 2 Exchange 9 9 18 Lines 27,000 13,200 40,200 _ digital Exchange 10 8 18 Lines 25,000 10,800 35,800 - mobile digital Exchange 1 - I Lines 2,000 - 2,000 New Additions digital Exchange 30 81 111 Lines 139,000 116,600 255,600 - mobile digital2 Exchange - I I Lines - 600 600 - mobile digital3 Exchange - 15 15 Liries - 11,800 11,800 Total Installations Lines 174,000 173,200 347,200 Local Cable Network Local cables Pairs 509,500 151,100 660,600 Pair-kms 764,500 303,500 1,068,000 Junction cables Pairs 12,000 - 12,000 Pair-kms 52,000 - 52,000 Juniction PCM systems Systems 1,728 3 1,731 Circuits 51,840 90 51,930 Cable ducts kms 100 30 130 New Lines to be Connected Numaber 158,000 120,000 278,000 Telephone Instruments Number 187,000 180,900 367,900 Tandem Switching Equipment =xtensions - digital2 Exchange 1 - 1 Lines 5,928 - 5,928 - digital Exchange 4 - 4 Lines 7,478 - 7,478 New Additions Exchange 1 - 1 Lines 6,149 - 6,149 Trunk Switching Equipment Extensions - crossbarl Exchange - 31 31 Circuits - 2,090 2,090 - crossbar Exchange - 6 6 Circuits - 288 288 - digital2 Exchange 1 4 5 Circuits 2,372 1,135 3,507 - digital Exchange 2 8 10 Circuits 2,902 2,612 5,514 New digital Exchange - 16 16 Circuits - 5,150 5,150 Transmission Equipment Radio systems - 6 GHz, 3 x 34 Mbits Route - 5 5 -6 GHz, 2 x 34 Mbits Route - 1 1 - 7 GHz, 2 x 34 Mbits Route - 5 5 - 7 GHz, 1 x 34 Mbits Route - 29 29 - 2 GHz Route 5 250 255 - 7 GHz/FDM Route - 20 20 PCM systems - coaxial cable carrier Route - 13 13 - cable carrier Route - 8 8 - VF cable Route - 14 14 Multiplex equipment - FDM Ch-ends - 547 547 - PCM Ch-ends 2,520 25,640 28,160 - Digital/analog converter Ch-ends 200 2,675 2,875 - Transmultiplexer Ch-ends 1,740 2,520 4,260 Station Equipment for Sets 70 1,123 1,193 Rural Call Offices 1/ To be installed by recovery and relocation\. 2/ Equipment already procured through contract TOT W4 under Third Project (Loan 1620-TH)\. 3/ One mobile excharnge is to be kept on reserve\.  _ 43 - ANNEX 10 Page I of 5 THAILAND TELEPHONE ORGANlZATION OF THAILAND (TOT) Local Exchanges to be Installed Under the Third and Fourth Projects Capacity at Instal lation Under Instal lation UOder the End of Third Pro3ect Fourth Project Lines to be Capacity Second C _pacity to be Added Capdcity to be dded Recovered at the End of Project Cornpletion Completion During 1980-84 Fourth Project Name of Exchan\.ge Type Lires Type Lio,es Quarter Year Type Liees Quarter Year MX SR XX XB SPC M Total BANGKOK METROPOLITAN AREA 1\. Thanoetok XB 3,250 XB 2,000 IV 1981 SPC 1,000 11 1984 - - 250 5,000 1,000 - 6,000 2\. Samran rat XB 30,000 SPC 10,000 1 1984 - - - - - - - 30,000 10,000 - 40,000 3\. Surdaong XB 30,000 - _ SPC 10,000 IV 1984 - - - 30,000 10,000 - 40,000 4\. Samseo XB 5,000 - - - - SPC 5,000 III 1984 - - - 5,000 5,000 - 10,000 5\. Phloenchit X8 20,000 SPC 6,000 111 1983 SPC 4,000 III 1983 - - - 22,0001 10,000 - 32,000 6\. Thonbur' XB 20,000 - - - - - - 20,000 - 20,000 7\. Phahonyothi, XB 15,800 - - - - SPC 5,000 II 1984 - - 800 17,0002 5,000 - 22,000 8\. Krung Kasem X8 20,000 - - - - SPC 4,000 11 1984 - - - 20,000 4,000 - 24,000 9\. Chaiyaphruk XB 20,000 - - - - SPC 2,000 11 1984 - - - 23,0003 2,000 _ 25,000 10\. Thu,,gmahahek XB 10,000 - - - - SPC 2,000 11 1984 - - - 10,000 2,000 - 12,000 11\. Sathupradit XB 3,250 - - - - SPC 7,000 IV 1984 - - 250 3,000 7,000 - 10,000 12\. Nga\.wong\.an XB 5,300 SPC 10,000 IV 1983 - - - - - - 300 5,000 10,000 - 15,000 13\. Phraprddaeeg XB 3,000 SPC 5,000 111 1983 SPC 3,000 IV 1983 - - - 3,000 8,000 - 11,000 14\. Don Muaeig XB 3,100 - - - - SPC 6,000 Ill 1984 - - 100 3,000 6,000 - 9,000 15\. Bang Na XB 10,000 SPC 5,000 IV 1984 - - 12,0004 5,000 - 17,000 16\. BRang Khe,, XB 5,400 XB 5,000 11 1981 SPC 1,000 11 1984 - - 400 10,000 1,000 - 11,000 17\. Bang Khae XB 6,000 - - - - SPC 4,000 IV 1984 - - 6,000 4,000 - 10,000 18\. Daokhanong XB 8,000 XB 2,000 1 1981 SPC 1,000 Il 1984 - - - 12,0005 1,000 - 13,000 19\. Bang Su XB 10,000 - - - - SPC 5,000 IV 1984 - - - 10,000 5,000 - 15,000 20\. Bdng Phlad XB 8,000 XB 3,000 Ill 1981 SPC 7\.000 Ill 1984 - - - 11,000 7,000 - 18,000 21\. Khlo,rg Chan XB 8,000 X0 2,000 OIl 1981 SPC 11,000 Ill 1984 - - - 13,0006 11,000 - 24,000 22\. In,thamara XB 6,000 XB 4,000 III 1981 SPC 1,000 11 1984 - - - 10,000 1,000 - 11,000 23\. Poo Chao Saming Phrai XB 5,000 XB 2,000 11 1981 SPC 3,000 111 1984 - - - 7,000 3,000 - 10,000 24\. Nong Khaem M 1,184 SPC 2,000 1II 1983 SPC 4,000 IV 1984 1,184 - - - 6,000 - 6,000 25\. Samut Prakan XB 5,000 - - - - SPC 3,000 III 1984 - - - 5,000 3,000 - 8,000 26\. Rang sit M 800 - - - - SPC 2,000 IV 1984 800 - - - 2,000 - 2,000 27\. Prathum Thani M 800 - - - - SPC 2,000 OII 1984 800 - - - 2,000 - 2,000 28\. Hua Mak X0 8,000 - - - - SPC 4,000 Ill 1984 - - - 8,000 4,000 - 12,000 29\. Lat Phrao I XB 5,000 - - - - SPC 6,000 III 1984 - - - 5,000 6,000 - 11,000 30\. Phra Khanong XB 5,000 XB 3,000 III 1981 SPC 6,000 11 1984 _ _ 8\.000 6,000 - 14,000 31\. Bairg Char, M 800 SPC 3,000 I11 1983 SPC 2,000 II 1983 800 - - - 5,000 - 5,000 32\. Charunsanitwong XB 5,000 - - - - SPC 7,000 111 1984 - - - 5,000 7,000 - 12,000 33\. Laksi XB 2,000 XB 4,000 111 1981 SPC 1,000 I1 1984 - - - 6,000 1,000 - 7,000 34\. Pathum\.adr XB 5,000 SPC 10,000 IV 1983 - - - - - - - 5\.000 10\.000 - 15,000 35\. Phasicharoe,n X0 2,000 XB 3,000 11 1981 SPC 3,000 111 1984 - - - 5,000 3,000 - 8,000 36\. Ram I,,dra M 1,000 SPC 8\.000 III 1983 - - - - 1,000 - - - 8,000 - 8,000 37\. Lat Phrao II XB 3,000 - - - - SPC 12,000 I1l 1984 - - - 3,000 12,000 - 15,000 38\. Asok-Din Daeng XB 5,000 XB 5,000 IV 1981 SPC 8,000 IV 1984 - - - 10,000 8,000 - 18\.000 39\. Noethaburi XB 3,000 - - - - SPC 2,000 IV 1984 - - - 3,000 2,000 - 5,000 40\. Trok Cha,, XB 5,000 XB 5\.000 III 1981 SPC 5,000 Ill 1983 - - - 10,000 5,000 - 15,000 41\. Prawet - - SPC 1,000 Il1 1983 - - - - - - - - 1,000 - 1,000 42\. On not M 1,000 SPC 5,000 II 1984 SPC 2,000 11 1984 1,000 - - - 7,000 - 7,000 43\. Pakkret - - SPC 1,000 III 1983 SPC 2,000 III 1984 - - - - 3,000 - 3,000 44\. Sukhumvit _ SPC 8,000 IV 1983 SPC 3,000 IV 1983 - - - - 11,000 - 11,000 45\. Mubansethakit - - SPC 2,000 IT 1983 - - - - - - - - 2,000 - 2,000 46\. Chaerrg Watana - - SPC 5,000 1 1984 SPC 3\.000 1 1984 - - - - 8,000 - 8,000 47\. Bang Baa Thong - - SPC 1,000 Ill 1983 - - - - - - - - 1\.000 - 1,000 48\. Bang Phli - - SPC 1,000 ill 1983 SPC 4,000 l1l 1984 - 1,000 - - 4,000 - 4,000 49\. Lat Krabarrg - - SPC 1,000 III 1983 SPC 4,000 III 1984 - 1,000 - - 4,000 - 4,000 50\. Pom Phra Chun - - SPC 1,000 II 1984 - - - - - - - - 1,000 - 1,000 51\. Ratburana M 1,000 SPC 4,000 I 1984 SPC 4,000 1 1984 1,000 - - 8,000 - 8,000 52\. Ekkachai - - SPC 4,000 IV 1983 - - - - - - - - 4,000 - 4,000 53\. Khlong Toei - - SPC 10,000 II 1984 - - - - - - - - 10,000 - 10,000 54\. Thanyaburi - - SPC 1,000 111 1983 SPC 2,000 IV 1984 - - - - 3,000 - 3,000 55\. Nawra Nakho,, - - SPC 2,000 III 1983 SPC 3,000 111 1983 - - - - 5,000 - 5,000 56\. No,,g Chok - - SPC 1,000 III 1983 - - - - - - - - 1,000 - 1,000 57\. Barng Pu - - SPC 1,000 III 1983 - - - - - - - - 1,000 - 1,000 58\. Lat Ya - - - - - - SPC 10,000 III 1984 - - - - 10,000 - 10,000 59\. Phruksachat - - - - - - SPC 2,000 111 1984 - - - - 2,000 _ 2,000 Total XB 308,100 54,0007 2,100 360,0007 360,000 SPC 103,000 193,000 2,000 294,000 294,000 M 6,584 6_6,584 _ Total 314,684 157,000 193,000 6,584 2,000 2,100 360,000 294,000 _ 654,000 1/ 2,000 lines of meterirng equipment added under third project to crossbar exchda,ge to In,crease its capacity to 22,000 lines\. 2/ 2,000 lines of meterin,g equipment added under third project to crossbar exchange to increase its capacity to 17,000 1 ines\. 7/ 3,000 lines of metering equipment added under third project to crossbar exchange to increase its capacity to 23,000 lines\. 4/ 2,000 li,,es of metering equipment added under third project to crossbar exchange to increase its capacity to 12,000 lines\. S/ 2,000 lines of metering equipment added under third project to crossbar exchange to irncrease its capacity to 12,000 linues\. 6/ 3,000 lines of metering equipment added under third project to crossbar eecharrge to ilcrease its capacity to 13,000 lirres\. I7 nicludes 14,000 lines of metering equipment added to 6 crossbar exchanges as indicdted above\.  - 44 - ANNEX 10 Page 2 of S Capacity at Installation Under Installation Under the En,d of Third Po ne Fourth Pro ec Lines to be Capacity Second o C ito t e Added Capacity to De Aded Recovered at the End of ProJect Cnmpletion Sornpetiore Ourlngj298-84 Fourth Project Name of Exchange Iype Lines Type Lines Quarter Year Type- Lines QuartertYear MX spc XXHB SC Total PROVINCIAL TELEPHONE AREA I 1\. Chon Buri XB 4,000 X8 1,600 IV 1981 SPC 1,400 IV 1984 - _ 5,600 1,400 - 7,000 2\. Ban~ Bung iB 400 XB - i 200 III 1985 - - 600 - - 600 3\. Si Racha is 1,400 - - - - SPC 1,536 IV 1984 - - 1,400 1,536 - 2,936 4\. Phdtthaya XB 1,400 XB 600 IT 1981 SXC 2,200 IV 1984 - - - 2,000 2,200 4,200 5\. Sattahip XB 600 - - - - SPC 1,024 IV 1984 - 600 - - 1,024 - 1,024 6\. Ban Chang XB 200 - - - - XB 400 Il 1985 _ - - 600 - _ 600 7\. Phanat Nikhoem XB 400 - - - - XB 1,000 III 1985 - - - 1,400 - - 1,400 8\. ChachoengSad Xs 1,000 - - - - SPC 1,536 IV 1984 - 1,000 - - 1,536 - 1,536 9\. Bang Khla XB 200 - - - - XB 400 IV 1984 - - - 600 - - 600 10\. Bang Pakong - - M 1,000 IV 1982 - - - - - - _ - _ 1,000 1,000 11\. PhanomnSarakham - 600 IV 1982 600 600 12\. Rayong k XB 1,000 - 6 SPC 3,000 IV 1984 - 1,000 - - 3,000 - 3,000 13\. Klaerg XB 200 - - - - XB 600 ll 1985 - - - 800 - - 800 14\. Bang Saen XB 400 Xi 1,000 III 1981 - 1 18 - - - 1,400 - 1,400 15\. Chanthaburi iB 1,600 iB 1,000 III 1981 H 1,000 II 1985 - ,600 -1,000 3,600 16\. Tha Mal - - M 1,000 IV 1982 - - - - - - - - - 1,000 1,000 17\. Khlung - - M 1,000 IV 1982 X 1 0 I - - - - - 1,000 1,000 18\. Trat iB 600 - B- i 1,000 III 1985 - - - 1,600 - - 1,600 19\. Prachin Buri XB 600 - - - - SPC 1,400 III 1984 - 500 100 - 1,400 - 1,400 20\. Kabin Buri Xi 200 - - - - SPC 1,024 III 1984 - 200 - - 1,024 - 1,024 21\. Aranyaprathet Xi 400 - - - - SPC 1,024 III 1984 - 400 - - 1,024 - 1,024 22\. Nakhon Nayok Xi 800 - - - - SPC 1,536 III 1984 - 700 100 - 1,536 - 1,536 23\. Phan Thong XB 60 - - - - - - - - - - - 60 - - 60 24\. Si Kaeo - - - - - - M 600 I 1984 - - - - - 600 600 Total XB 15,460 4,200 3,600 4,400 200 18,660 18,660 ArC 15,680 15,680 15,680 M 3,600 1,600 5,200 5,200 Total 15,460 7,800 20,880 4,400 200 18,660 15,680 5,200 39,540 PROVINCIAL TELEPHONE AREA 2 1\. Nakhonratchasima XB 4,000 XS 2,000 II 1981 - - _ - _ _ 6,000 3,600 - 9,600 SPC 3,600 1I 1983 2\. Pak chong XB 1,600 - 3 I 1 XB 600 II 1985 - - - 2,200 - - 2,200 3\. ua yai XB 400 - - - - XB 200 I 1985 - - - 600 - - 600 4\. Sikhiu XB 400 - - - - SPC 1,000 1 1984 - 400 - - 1,000 - 1,000 5\. Pak Thong Chai Xi 200 - - - - SPC 600 I 1984 200 - - 600 0 600 6\. PhiMal - - SPC 600 II 1983 - - - - - - - - 600 - 600 7\. Chok CVal - - M 600 I 1983 - - - - - - - - - 600 600 8\. Chaiya Phum XB 1,200 - - - - XB 200 I 1985 - - - 1,400 - - 1,400 9\. Phu Khieo - - M 600 1 1983 - - - - - - - - - 600 600 10\. Buri Ram XB o00 - - - - SPC 2,000 IV 1984 - 800 - - 2,000 - 2,000 11\. Hang Rong - - - - - - SPC 1,024 IV 1984 - - - - 1,024 - 1,024 12\. Lam Plai Mat - - - _ _ SPC 512 IV 1984 - - - - 512 - 512 13\. Ubon Ratchathani XB 2,000 - - - - SPC 1,400 IV 1984 - - - 2,000 1,400 - 3,400 14\. Det Udom - - - - - - SPC 512 IV 1984 - - - - 512 - 512 15\. Amnat Charoen XB 400 - - - - Xi 200 II 1985 - - - 600 - - 600 16\. Yasothon XB 400 - - - - SPC 1,536 IV 1984 - 400 - - 1,536 - 1,536 17\. Phibun Mangsahan XB 200 -i 200 I 1985 - - - 400 - - 400 18\. Khong Chiam XB 100 100 - 100 19\. Surin XB 1,200 - - - - SPC 2,400 IV 1984 - 1,200 - - 2,400 - 2,400 20\. Si sa ket XB 600 - - - - SPC 1,536 IV 1984 - 600 - - 1,536 - 1,536 21\. Warin Chamrap - - - - - - SPC 1,024 IV 1984 - - _ - 1,024 - 1,024 Total Xs 13,500 2,000 1,400 3,600 13,300 13,300 SPC 4,200 13,544 17,744 17,744 M 1,200 ___ _ _ 1,200 1,200 Total 13,500 7,400 14,944 - 3,600 - 13,300 17,744 1,200 32,244  - 45 - ANNEX 10 Page 3 of S Capacity at l1stal latio- Uoder Instal adtio\. U,Elder the Ehod of Third Project Fourth Project Lloes to be Capacity Secor-d Capacity to be ded Capacity to be Added Recovered at the EL,d of Project Comrletio'l _ Completioo Durlng 1980-84 Fourth Project Name of Eochae,ge Type L,oes Type Lioies 0uarter Year Type Lices Quarter Ye\.r MX XB SPC Totl PROVINCIAL TELEPHONE AREA 3 I\. Khon,kaenl 1 - - - - - - SPC 4,000 1 1985 - - - - 4,000 - 4,000 2\. Kho,kae- 7 XB 2,000 XB 1,800 III 1981 - - - - - - 3,800 - - 3,800 3\. Ban Phai XB 1,000 - - - - - - - - - 1,000 - - 1,000 4\. Phoo, XB 400 - - - - XB 400 11 1985 - - - 800 9 - 800 5\. Chomphae XB 400 - - - - SPC 1,536 IV 1984 - 400 - - 1,536 - 1,536 6\. Nam Pho,ng - - M 600 1 1983 - - - - - - - - 600 600 7\. Maha Sarakhba XB 600 - - - - SPC 1,024 11 1984 - 600 - - 1,024 - 1,024 8\. Roi Et XB 800 - - - - SPC 2,048 1 1985 - 800 - - 2,048 - 2,048 9\. Kdlasir, X8 600 - - - - SPC 1,536 1V 1984 - 400 200 - 1,536 - 1,536 10\. Udon Tharri XB 3,000 SPC 2,400 1 1983 - - - - - - - 3,000 2,400 - 5,400 11\. Kumpha\.api XB 400 - - - - - - - - - - - 400 - - 400 12\. Noog B\.a Lamphu X8 700 - - - - - - - - - - 200 - - 200 13\. Loel XB 600 - - - - X8 200 IV 1982 - 800 - 1,600 - 1,600 SPC 1,600 1 1984 14\. Chia,,g Khao XB 200 _ - - _ - - - - - - 200 - - 200 15\. Wdang Saphwoq - - M 600 1 1983 - - - - - - - - 600 600 16\. Noog Khai X8 600 - - - - XB 400 11 1985 - - 1,000 - - 1,000 17\. Si Chiaog Mai XB 200 - - - - X8 200 11 1985 - - - 400 - - 400 18\. Tha Bo XB 200 - - - - XB 200 111 1985 - - - 400 - - 400 19\. Nakhoo, Phdow XB 600 - - - - SPC 1,536 1 1985 - 600 - - 1,536 - 1,536 20\. That Phan\.om _ _ _ _ _ SPC 512 1 1985 - - - - 512 - 512 21\. Mok Dd ha,\. XB 400 - - - - X8 400 11 1985 - - - 800 - - 800 22\. Sukhr,, Ndkhooz XB 800 - - - - SPC 2,000 1 1985 _ 800 - - 2,000 - 2,000 23\. Phdarg Kho,,e - - M 600 1 1983 - _ _ _ _ _ 600 600 24\. Swaeig Dae,, Di, XB 200 - - - - XB 200 III 1985 - - _ 400 - - 400 Total XB 13,200 1,800 2,000 3,600 1,000 12,400 12,400 SPC 2,400 15,792 18,192 18,192 M 1,800 _ _ 1,800 1,800 Total 13,200 6,000 17,792 3,600 1,000 12,400 18,192 1,800 32,392 PROVINCIAL TELEPHONE AREA 4 1\. Phitsa,wlok XB 1,600 XB 1,600 IV 1981 SPC 1,000 1 1985 - - - 3,200 1,000 - 4,200 2\. Wdg Thoog XB 400 - - - - - - - - - - 400 - - 400 3\. Ban,g Rakam - - M 1,000 1 1983 - - - - _ - - - - 1,000 1,000 4\. Phetchdbuo, XB 600 - - - - M 1,000 1 1985 - - - 600 - 1,000 1,600 5\. Lom Sak XB 200 - - - - XB 1,000 111 1985 - - - 1,200 - - 1,200 6\. Sap Sa\.o Thot - - - - M 600 11 1983 - - - - - 600 600 7\. Tak XB 1,000 - - - - SPC 1,600 1 1985 - 1,000 - - 1,600 - 1,600 8\. Mae Sot XB 400 - _ _ _ SPC 2,048 II 1984 300 100 - 2,048 - 2,048 9\. Sukhothai XB 800 - - - - SPC 2,048 II 1984 - 700 100 - 2,048 - 2,048 10\. Sawarokhalok XB 600 - - - - SPC 1,536 11 1984 - - 600 - 1,536 _ 1,536 11\. Kamphaeug Phet XB 400 - - - - SPC 2,600 1I 1984 - 400 - - 2,600 - 2,600 12\. Bang Mu,j Nak XB 400 - _ _ _ SPC 1,024 1 1984 - 400 - _ 1,024 - 1,024 13\. Phi Chit X8 400 - _ _ _ SPC 1,536 11 1984 - 300 100 - 1,536 _ 1,536 14\. Taphar Hi,, X4 400 - - - - SPC 1,536 1I 1984 - 400 - - 1,536 - 1,536 15\. Nakho- Sada,, XB 3,000 - - - - SPC 1,000 IV 1983 - - - 3,000 1,000 - 4,000 16\. Lamuarai XB 600 - - - - XB 400 III 1984 - - - 1,000 - - 1,000 17\. Takhli XB 600 - - - - SPC 1,024 IV 1983 _ 200 400 - 1,024 - 1,024 18\. Phayuha Khiri - - - - - - SPC 512 I 1984 - - 512 - 512 19\. Uthai Tha,,j XB 600 - - - - SPC 1,536 IV 1983 - 600 - _ 1\.536 _ 1,536 20\. Noe,g Chdng - - _ - - - SPC 512 1 1984 - - - - 512 - 512 21\. Chdindt XB 600 - - - - SPC 1,536 IV 1984 _ 600 _ - 1,536 - 1,536 22\. Ch\. Saeng XB 400 - - - - XB 400 I 1985 - - _ 800 - 800 23\. HdaoIha - - _ _ _ _ SPC 512 IV 1984 _ _ _ - 512 - 512 24\. Sdra Buri XB 1,200 - - - - SPC 1,000 II 1983 - - - 1,200 1,000 - 2,200 25\. Kae\.gq Khoi XB 400 - _ _ _ XB 200 I 1985 _ _ _ 600 - - 600 26\. Phrd Photthdbat XB 600 - - - - XB 600 11 1985 - - - 1,200 - - 1,200 27\. Bae Mo XB 200 - - - - XB 200 It 1985 - - - 400 - - 400 28\. Hi,, Ko,,g - - SPC 600 41 1983 - _ _ _ _ _ _ - 600 - 600 29\. Lop Buri XB 1,000 XB 1,600 I 1981 - - - - - - - 2,600 - - 2,600 30\. Khok Sa\.roog XB 400 - - - - XB 600 11 1985 - - - 1,000 - - 1,000 31\. Ban Mi XB 400 - - - - XB 400 III 1985 - - - 800 - - 800 32\. Sin,g Buri XB 600 - - - - X8 1,000 Ill 1985 - - 1,600 - - 1,600 33\. Laplde XB 100 - - - - XB 300 II 1985 - - - 400 - - 400 34\. Uttaradit XB 1,000 - - - - SPC 2,600 I 1985 - 1,000 - - 2,600 - 2,600 35\. Phi Chai - - M 600 1 1983 - - - - 600 600 Total XB 18,900 3,200 5,100 5,900 1,300 20,000 20,000 SPC 600 25,160 25,760 25,760 M 1,600 1,600 _ __ ___ 3, 200 3,200 Total 18,900 5,400 31,860 - 5,900 1,300 20,000 25,760 3,200 48,960  - 46 - ANNEX 10 -'age 4 of S Capacity at Instal lationl Under instal lat ior Urnder the End of Third Project Fourth Project Lines to be Capacity Secornd to e dded Capac ty to be Added Recovered dt the End of Project Completlon Complettonl Durlig 1980-84 Fourth Project Name of Exchange Type Lines Type Lines Quarter Year Type Linies Quarter Year MX SR XX XB SPC M Total PROVINClAL TELEPHONE AREA 5 1\. Chiang Mal IXRi 3,000 XB 2,000 1 1981 SPC 2,000 II 1984 - - - 5,000 2,000 - 7,000 2\. Chiang Mai 2 XB 1,000 XB 1,000 1 1981 SPC 4,000 11 1984 _ 2,000 4,000 - 6,000 3\. Chiang Mai 3 - - - - - SPC 5,000 III 1984 - - _ _ s,OOO - 5,000 4\. Sanikdm Phdeng - - SPC 1,000 11 1984 - _ 1,000 - 1,000 5\. Sanpa Tong - - SPC 600 II 1984 - - - - - - - 600 - sOO 6\. Chom Thong - - SPC 1,000 II 1984 - - - - _ - 1,000 - 1,000 7\. Lamphun XB 200 - - - - M/XB 1,400 11 1985 - - - 1,000 - 600 1,000 8\. Pasaig XB 100 - - - - XB 500 11 1985 - - - 600 - - 600 9\. Mae Hong Son XB 400 - - - - XB 200 IV 1984 - _ _ 600 - - 600 10\. Saraphi X8 200 - - - - SPC 600 1 1984 - 200 - - 600 - 600 11\. Lam pang XB 2,000 - - - - SPC 2,000 IV 1984 - - - 2,000 2,000 - 4,000 12\. Phar - - - - - - SPC 1,024 1 1985 - - - - 1,024 - 1,024 13\. Phrae Xs 800 - - - - SPC 2,048 IV 1985 - - 800 2,048 - 2,800 14\. Sung Men - - - - - - SPC 512 IV 1984 - - - - 512 0 600 15\. Den Chai XB 400 - - - - - - - - - - 400 - - 400 16\. Chiang Rdi XB 800 - - - - SPC 3,000 1 1985 - 900 - - 3,000 - 3,000 17\. Mde sai - - M 1,000 X 1983 - - - - - - - - - 1,000 1,000 18\. Phayao XB 400 - - - - M/XB 1,400 III 1985 - - - 1,200 - 600 1,200 19\. Nan XB 400 _ - _ M/XB 1,400 IlI 1985 _- 1,200 - 600 1,200 Total XB 9,700 3,000 3,100 1,000 14,600 14,800 SPC 2,600 20,184 22,784 22,784 H __ 1,000 1,800 _ _ 2,800 2,800 Total 9,700 6,600 25,084 - 1,000 - 14,800 22,784 2,800 40,384 PROVINCIAL TELEPHONE AREA 6 1\. Phetcha Buri XB 1,200 - - - - SPC 2,200 Ill 1983 - 400 800 - 2,200 - 2,200 2\. Tha Yang - - SPC 600 11 1983 - _ _ _ 600 - 600 3\. Ch Amn M 640 - - - - - - - - - - - - - 640 640 4\. Ratchaburi XB 1,600 XB 400 11 1981 - - - - - - - 2,000 - 1,000 3,000 M 1,000 IV 1982 5\. Banpong XB 1,000 - - - - M 1,600 Ill 1983 - - - 1,000 - 1,600 2,600 6\. Damnoensaduak XB 400 - - - - M 1,600 III 1983 - - 400 - 1,600 2,000 7\. Paktho - - M 600 IV 1982 - - - - _ - 600 600 8\. Chombung - - M 600 IV 1982 - - - - - - - - - 600 600 9\. Prachuap kirikharn XB 400 - - - - M 600 111 1985 - - - 400 - 600 1,000 10\. Hud Hin XB 1,000 - - - - SPC 1,600 II 1984 - 1,000 - 1,600 - 1,600 11\. Pranibur i XB 200 - - - XB 800 1 1985 - - - 1,000 _ - 1,000 12\. Thapsakae XB 200 - - - - XB 400 IV 1985 - - - 600 - - 600 13\. Photharam XB 400 - _ _ XB 1,400 IlI 1985 - - - 1,800 - - 1,800 14\. Nakhon Prathlem XB 2,400 SPC 2,400 11 1983 SPC 400 11 1983 - - - 2,400 2,800 - 5,200 15\. Sam Phran XB 400 - - - - M 1,000 IlI 1983 - - - 400 - 1,000 1,400 16\. Na khon, chai si - - SPC 1,000 1 1984 - - - - - - - - 1,000 - 1,000 17\. Kam Phdeng Saen - - SPC 600 1 1984 - - - - - - - - 600 - 600 18\. Samut Sakhorn XB 1,000 XB 1,000 1 1981 SPC 2,000 1 1985 _ _ 2,000 2,000 - 4,000 19\. Krathum Baen - - M 1,000 IV 1982 - - - - - - - - - 1,000 1,000 20\. Ban Phaeo - - M 600 IV 1982 - - - - - - - - - 600 600 21\. Samut Song Khram XB 600 - - - - SPC 3,000 1 1985 - 500 100 - 3,000 - 3,00D 22\. Am Phawa - - - - - - SPC 512 1 1985 - - - - 512 - 512 23\. Kanchanaburi XB 600 - - - - SPC 2,600 IlI 1984 - 200 400 - 2,600 - 2,600 24\. Tha Muang XB 200 - - - - SPC 1,536 IlI 1984 _ 200 - - 1,536 - 1,536 2S\. Tha Maka XB 200 - - - - SPC 2,048 111 1984 - 200 - - 2,048 - 2,048 26\. Sang Chu To - - - - - - SPC 1,024 Ill 1984 - - - - 1,024 - 1,024 27\. Ayutthaya XB 1,400 - _ SPC 1,000 IV 1985 - - - 1,400 1,000 - 2,400 28\. Barig Pail XB 100 - - - - XB 700 Ill 198S - - - 800 - - 800 29\. Wang Noi XB 100 - - - XB 500 II 1985 - - - 600 - - 600 30\. Phachi XB 200 - - - - XB 400 11 1985 - - - 600 - - 600 31\. Tha Rua XB 200 - - - - XB 600 111 i l l - 800 So8 32\. Sena - - - - - - SPC 1,024 IV 1984 - - - - 1,024 - 1,024 33\. Angthong XB 600 - - - - SPC 1,024 IV 1984 _ 200 400 - 1,024 - 1,024 34\. Wiset Chai Cha\. - - - - - SPC 512 IV 1984 - - - - 512 - 512 35\. Pa Mok _ _ SPC 512 IV 1984 - - - - 512 512 36\. Suphan buri XB 800 - - - - SPC 1,536 IV 1984 - - - 800 1,536 - 2,336 37\. Song Pi nong XB 100 - - - - XB 700 11 1985 - - - 800 - - 800 38\. Sam Chuk - - - - - - SPC 512 Ill 1984 - - - - 512 - 512 39\. Si Prachan - - - - - - SPC 512 II 1984 - - - - 512 - 512 40\. U-Thona - - - - - - SPC 1,024 Ill 1984 - - - - 1,024 - 1,024 41\. Phrain Racha - - - _ - - SPC 1,024 111 1984 - _ _ 1,024 - 1,024 Totdl XB 15,300 1,400 S,SOO 2,700 1,700 17,800 17,800 SPC 4,600 25,600 30,200 30,200 M 640 3,800 4,800 _ _ _ _ 9,240 9,240 Totdl 15,940 9,800 3S,900 - 2,700 1,700 17,800 30,200 9,240 57,240  - 00 \.0 0 0 4 0 0 0 0 R \.0 R C O 0 C O\. NO I 0 0 0 0 0 0 0 0 0 \. 40 0 0 0 00 - N 4 00\.nO 0I 44N4 \.0 0) Sos 0~~~~~~~~ Oo 0 0O O 0 o 0 44 44 400 \.o-00 ON 4< ~~~~~~~~~~~~~~~~~~~~~~~~O O 0\. 4 4~~~~~~~~~~~~~~\. I 4-00 N N 0 -\.00 -- -N - - ---- - 0N - --- -4 000000,0,0 00 O O000 0 1 0 0 0 000> 0 I00 0 \.0 0 0 O 0j 40 N 0 a K 4~~~ ~~ ~~~ ~~~ O4 4 CN 10 OO4 0) 4 141 4~~~~~~~~~~~~~~~~~~~~~~~~~ OI O 00-4 ooOoOo 00 0 0 , 00 0 0I 00 0 0 0 , 0 0 0 10 00 0 00 0 I 010 0101 414~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E 0\. 4 I 414 ~~~~~ \. \.'0\.I\. \.I 0' 4444444 -- -- -- --4--4--4 -- --4  100 F' CF H F- F- 00 0 Ft H It I I - F- H V I aHFFIH F--OOFHFHHaHFOF-aOOFHHHFFH ZZZHHflF-FFHHHHZHtH0000F-HHOtZ H HOOF- 0000 HF   oaaa FFaaF-HHF-aFttOaHtFFFHa F-at cc o It F- F- H0OFHHHOFFHHOFHOF-HHH-F 01000F OF HF F- HH - F- 0  IF 4HFFF-HOF H FH F OFHHHHFHHa I FtHaaHFHaHOFOFH Hat tt HF 000000 HOOHO 00tH FF000 0000FF-HO HF F F- - ttoa F- o IF- aaa K a-to OFHHOFFHH-OHOFHHF---F--- t OFHH FF70 F FF0 OFFO H LO FtC\. F- H F-H H H000FF OFFOHOF DOFF) H F H 0FF 0 F- H F Ft H H H HHH H Ft HHOF--FHHF 0000HZ FF000001 F-H Ia HOt Ft HOt H H III Ic OF--F- HHOF-HHHFOFFHFtFHHHH FF--tttt H \.0' 02 H HOOF P H F-HOC H I H at I tat OOFO02 I FF-iataFFHa a OFF- II H K HF-it t F' a a FF0-H a FF0 FHHHF-HHFHF-OFFaFFF-FF'F FOttHt01 OH at' HZ H FF000-HOOF -F H a HHO H tFHFFF-ttH t ttFFHHHOFF-att t 000 OH I HO F Ft Hon H F F0OFF-HFF0-- H-a 0OHHFFOFa Ft F a F ta a IF I -F F H \.a otH a a FDHO-----O OH Ha FIFHOF aaHI 0 Ha-H H K -F-00F- 2 00 HOt F 00 FFOOFH HOFHHHF- 0--F- HHOH OFHH HF o 6 HF-HOt HHH HOFF F-HO to F-HO 0 HHF 0 HOd HHF- HaF-F a-HOOF F-F-HF F-F-H Ft H a- a - I- 0000 00FF 00-at at HFFHHHOF IF - H tF- OH I F OF 0 H F F H H act HFaa tHaF- FHFFFFOH OtFt -HH t HO F -- IF a -aaaH H HOOF H HOFOOFH OF ac -F tH F aa H OF H OF HHH a-a-HFF-FF i a ta OF OH a H F OH F OHHOFHHOFa F F aH F 'HO Ia F0'4 H Ft 00 H H HH HOFOFFOF H F HO' H OF 4 OF H aa IF-F- FF-H F 7F00FFH OF Ft F OH F- H a F HF FFF-HHOF t H 00tH HF OF H OH F F OF HH HFFH H H HH F HO F H H 0 ta-at-a a t HF F-H OFF- H OF H H H H H OFH HF) H H 00 F OF F HF H OH OH OF- F F F- OFF- H H HF OH a HFFFH F HF a HF a HOFF-HF H F- HF OFF- H a OHOF a OH OF ta OF oF F- F- F H t F-F F- F H-tOt HF H HOFF- H 0tH HF 0 a F a Fa F-Faa H - 00 OF Ha F F H HO F- H H F-F F - F- F- a 0 2FH t-FFF HF-F-FFFFFFF 00 HOF -FF-F-FFHFFHFOFFFHHF- HHFJFF-F- F-F F-F H a'o 00 aa a HIFF 00 OFF) HFFFFFFF-F- F- F-FO F-HO OF-aF'HOFFFOF- 00-HF-HOFF-aFH HF- (F H FFO F- F-FF H flaF HHHHOOHHHHHHF-HHHHOFHCF Ha H H HH H 00FF 00 F-F-H a F-F-H a H F-F- F H HFFFH-FHHHHHHHHFHHFFF HF H H HH 0 tt 00F-\.F-\.F\.ZHHHHHHHHHF-HHF-F-F- OF- H H 0000 F F-a aoata-OH-FH--F-FF-FH-OaO--HF-HHF-F- H a F- F- a H F- F- a0FF FF00 F 00FF F H HF HF H OF CFOH0000F)OOOHF HOFF F HF H H HH F 0000 H HHHHHHHHOHH OH H H H HO H H H OFF-F-F-F HOOHOFFFFHOFOFHOFOFHHH NH 00 OF 0000 H HH HHH 00 00000 0 H HZ HOH H OHH H 0 000 OF H 0 0000 t tao 00 H 00 F-F- aaaaaa a -F-F- F-aF-F-F-F-F-aF-F-aaaaaaa a- a a a a F- I00 F-F- F- F F ++F- + +44 -4-+±+++++±44±±+±+±+++++ ++++ + 4± ± r F F- H F- F H H H  HI F- F F F OFF F' F F OFF F-OOCHF-F-F-OF-F-OOOH0000FH F-H 00 00 00 H HO FJ 00000000000000000F-F-OHF-F- OF- F- F- F-H F- 000 F H -a F 00 H H HOFFH H H OFt H - - t'HH F- -F- t- HF-H 'F F-H-H HF-HF-HF-F-F- HHFHFF-FF-H F-F- HF- OF -F F-Ft OF FF- H H F-F- 00000000 H HHH HHHHHHHHHHHF)F)HHHOOOHH HF) H H Ha H H H 0 H H F-H HF-HF-OF- 0 0000 0000000000HHHHHF-F-OF-F-F- F-F- F- 0 00 00 HF- F- t o F- 0- HF- F-F-F-00H0 H- HF-H HF-F0HHOF-HHF-F-HHHFF-HOH HO H F- H'- F- F-H H 0 00 OFFOHO F FF0 FFFOFFFHFFF0000OFOFF0OFHFFHH 00 H CF OFF F OFF 0 F- FF OF OF F- F- 0tH OF H H FHHH ROOF FF F O HF FFH-OHO 01 tOt HFFOOHOFH00F-FHH01HHOHH HH H H aH F OH FF OFF OF- H OFF tFFFFHH OFF OFHFFOOOHFFFFFF01 OF F- F H 00 0001 a F-OFt at 01 H OF Ha OF Ha 4 OF H HHFF to OF oOF H 0000 0 H H 01 FF0 0 OFF OF 01 H FF001 01 01 HO H H 0 H 010 H 0001 01 H 00100 H H H HOFF OH F- a a a F-F-F-F-F-F- - a a F- HF-F-F-F-F-F-F-F-F-F-F-F-F-F-F-F-F-F-F- F-F- F- F- a F- a -F - a a -F 0FF OF-OFF-OFF- 0 00-F OFFFFHF-00000000F-F-00000 OFF- OF 0 0FF F- 00 0 0 HF) 000000 F) 000 F)0000000000000000000 000 0 H HF) 00 F-H 00 H HH HHHF-HH F- OFF-H HF-HF-HF-F-HF- F-HF-F- HHOFf-F-OFHHH H H F-H H F-H H  - 49 _ ANNEX _\. Page I of 4 THAILAND TELEPHONE ORGANIZATION OF ThAILAND (TOT) Radio and Cable Systems for Rural Long Distance Public Call Offices Tabl_ A\. U\.iF Radio 53sJtems No\. of Station Forecast Number of Radio Channel Capacity Equipment Date of Name of Stations Primary Center Bearer Channels per Bearer (set) Commissioning Provincial Area 1 Nadi Prachin Buri 1 60 3 'May 1984 Ban Sang Prachin Buri 1 60 3 May 1984 Si Maha Pho Prachin Buri 1 60 3 May 1984 Khok Pip Prachin Buri 1 60 3 May 1984 Wang Nan Yen Prachin Buri 1 60 3 May 1984 Pak Phli Nakhon Nayok 1 60 3 May 1984 Bang Nam Prieo Chachoengsao 1 120 5 May 1984 Ban Pho Chachoengsao 1 120 5 May 1984 Sanam Chai Chachoengsao 1 60 3 May 'aS4 Plaeng Yao Chachoengsao 1 60 2 May 19S4 Ratchasan Chachoengsao l 60 2 May 1984 Ko Sichang Chon Buri 1 300* 5 June 1984 Phan Thong Chon Buri 1 60 4 June 1984 Nong Yai Chon Buri 1 60 2 June 1984 Bo Thong Chon Buri 1 60 2 June 1984 'luak Daeng Rayong 1 60 3 May 1984 Wang Chan Rayong 1 60 2 May 1984 17 37 Provincial Area 2 Non Thai Nakhon Ratchasima 1 120 2 November 1984 Prathai Nakhon Ratchasima 1 60 2 November 1984 Khong Nakhon Ratchasima 1 60 6 November 1984 Chum Phuang Nakhon Ratchasima 1 60 6 November 1984 Dan Khun Thot Nakhon Ratchasima 1 60 3 November 1984 Kham Thale So Nakhon Ratchasima 1 60 2 November 1984 Kham Sakae Saeng Nakhon Ratchasima 1 60 4 November 1984 Huai Thalaeng Nakhon Ratchasima 1 60 3 November 1984 Soeng Sang Nakhon Ratchasima 1 60 2 November 1984 Ban Luam Nakhon Ratchasima 1 60 2 November 1984 Kaset Sombun Chiayaphum 1 60 3 October 1984 Nons Bua Daeng Chiavaphum I 60 3 October 1984 Bamnet Narong Chaivaphum 1 60 3 October 1984 Khon Sawan Chaiyaphum 1 60 4 October 1984 Ban Khwao Chaiyaphum 1 60 4 October 1984 Ban Thaen Chaiyaphum 1 60 4 October 1984 Nong Bna Raheil Chaiyaphum 1 60 2 October 1984 Thep Sathit Chaiyaphum 1 60 2 October 1984 Krasang Burirum 1 120 5 September 1984 Khu Muang Burirum 1 120 4 September 1984 Satuk Burirum 1 60 3 September 1984 Phutthai Song Burirum 1 60 4 September 1984 Pra Kham Burirum 1 60 2 September 1984 Kut Chum Yasothon 1 60 4 September 1984 Kham Khuan Kaeo Yasothon 1 60 3 September 1984 Maha Chana Chai Yasothon 1 60 3 September 1984 Pa Tin Yasothon 1 60 2 September 1984 Sai Mun Yasothon 1 60 2 September 1984 Kho Wang Yasothon 1 60 2 September 1984 Trakan Phutphon Ubon Ratchathani 1 60 3 November 1984 Kutkaopuni Ubon Ratchathani 1 60 3 November 1984 Senang Nikhom Ubon Ratchathani 1 60 2 November 1984 Hua Taphan Ubon Ratchathani 1 60 3 November 1984 Tan Sum Ubon Ratchathani 1 300* 2 November 1984 Phana Ubon Ratchathani 1 240 5 November 1984 Muang Sam Sib tUbon Ratchathani 1 240 2 November 1984 Rasi Salai Si Sa Ket 1 120 5 October 1984 Yang Chum Noi Si Sa Ket 1 60 * 3 October 1984 Phai Bung Si Sa Ket 1 120 2 October 1984 Non Khun Si Sa Ket 1 60 2 October 1984 Huai Thap Than Si Sa Ket 1 60 October 1984 Bung Bun Si Sa Ket 1 60 October 1984 FIIM systems  > OoO __ __~ ___-_- ___ ___ ---- nno------ --o - Xon---- -- --~ -- 000 E0 n E E E E E E E E E F44 F E E E E0 E E n n E , \.0oo 4o4\. 00000440 0\.404\. \. --\. \.n\. \. \.4\.4\. \.4\.0\. \. \. C v\.0 O vO 0\.0,0,0o 00 _0-0000°0°00 00G °00°0?O,°4A0°00000000 u - 00000A0A000000000'00° o04o o0o000(0000 o\. o\. o0e0'0^ 14 ffi ,-\., I - \. -O N C < n (o K rl N e N 4 n co o oN 14 n e7 m cs s vo 0 :\.1 0 0 0 \.: \. \. \. 00000000000 0000000000000000000000 000000000000\.0\.0\.00\.0000000000000000000 \.'\.0\.00\.0\.0\.00\.0 0 0 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 \. 0 0 0 \. 0 0 0 \. 0 \. 0 \. 0 \. \. \.0 0 \.0 \. 0 \. 0 \. 0 \. 0 , 0 \. 0 \.0\. \.30\.0\.0\. 00 0:0 000\. \. \. \.0\.0 0z0 ,001, > s - 00 \.o o 0 - 0,~~~~~~~~zm 1 Z 00- ' - 000\. Z\. Z-  - 51 - Page 3 of 4 No\. of Station Foreoast NTober of Radio Channel Capacity Equipment Date of Name of Stations Primary Center Bearer Channels per Bearer (set) Commnssiontig Provincial Area 4 (Continued) Thong Salian Sukho Thai 1 60 5 Noveuber 1984 Khiri Mat Sakho Thai 1 60 3 Nov-ber 1934 Tron Uttaradit 1 120 5 September 1984 Ban Khok Uttaradit 1 60 ' September 1984 Wang Sai Pun Phichit i 60 2 November 1984 Pho Prathep Chang Phichit 1 120 3 November 1984 Sam Ngam Phichit - 60 4 November 1984 Pho Tha Le Phichit 1 60 5 November 1984 Ban Tak Tak 1 240 4 November 1984 Phop Phra Tak 1 300* November 1984 Sai Ngam Kamphaeng Phet 1 60 3 November 1984 Khan\.ooradakabori Kamphaeng Phet 1 60 3 November 1984 Khlong KhlEng Kamphaeng Phet 1 120 5 November 1984 Khlong La- Kanphaeng Phet 1 60 3 November 1984 Lan Krabue Kamphaeng Phet 1 60 2 November 1984 Phram Kratai Kamphaeng Phet 1 60 6 November 1984 Bamphot Phisai Nakhon Sawan 1 120 4 October 1984 Kao Lien Nakhon Sawan 1 60 4 October 1984 Nong Boa Nakhon Sawan 1 60 4 October 1984 Tak Fa Nakhon Sawan 1 60 4 October 1984 Krok Phra Nakhon Sawan 1 480 5 October 1984 Lat Yao Nakhon Sawan 1 60 5 October 1984 Tha Tabk Nakhon Sawan 1 240 6 October 1984 Phai Sali Nakhon Sawan 1 120 6 october 1984 Tha long Lop Buri 1 60 4 November 1984 Tha Lbang Lop BNri 1 300* 2 November 1984 Phatthana Nikhom Lop Bori 1 300* 4 November 1984 Toen Meprang Phitsan-lok 1 60 2 47 7 Provincial Area 0 Wiang Chai Chiang Rai 1 60 3 August 1984 Wiang Papan Chiang Rai 1 60 4 August 1984 Mai Chai Pha Yen 1 60 4 August 1984 Dok Khamtai Pha Yao 1 60 4 August 1984 B\.an Lang Nan 1 60 2 l'ovember 1984 Na Moan Tan 1 60 2 Fovember 1984 Ban Hong Lam Phom 1 60 5 October 1984 Li Lam Phom 1 60 4 October 1984 Mae The Lam Phum 1 60 3 October 1984 Thong Hoa Chang Lam Ph\.m 1 60 2 October 1984 Doi Tao Chiang Mai 1 60 3 November 1984 San Sai Chiang Mai 1 240 4 November 1984 Doi Saket Chiang Mai 1 120 5 November 1984 Phrao Chiang Mai 1 60 5 November 1984 Mae Taeng Chiang Mai 1 60 4 November 1984 Sa Mo-ng Chiang Mai 1 60 4 November 1984 Mae Rim Chiang Mai 1 60 4 November 1984 Hod Chiang Mai 1 120 4 November 1984 Hang Dong Chiang Mai 60 4 November 1984 Sop Prep Lam Pang 1 60 6 November 1984 Ngao Lae Pang 1 3000 6 November 1984 Hang Chat Lae Pang 1 60 6 November 1984 Thoen Lam Pang 1 60 5 November 1984 Mae Mo Lam Pang 1 60 2 November 1984 Mae Ta Lam Pang 1 60 4 November 1984 Mae Phrik Lam Pang 1 60 4 November 1984 Chae Hom Lam Pang 1 120 4 November 1984 Wang NHa Lam Pang 1 60 4 November 1984 Soem Tgam Lam Pang 1 60 3 November 1984 Long Phrae 1 120 4 November 1984 Song Phrae 1 120 6 November 1984 Wang Chin Phrae 1 120 4 November 1984 Rong Kwang Phrae 1 60 5 Fovember 1984 33 13-3 Provincial Area 6 Lao Kwan Kanchara Buri 1 60 3 October 1984 Bo Phloi Kanchara Buri 1 60 5 October 1984 Phanom Thuan Kanrhara Buri 1 120 6 October 1984 Soan Phung Ratcha Buri 1 60 3 August 1984 Wat Phleng Ratcha Buri 1 60 3 Autost 1984 Bang Phae Ratcha Buri 1 60 6 August 1984 Bang Konti Samut Songkhram 1 120 4 July 1984 Chai Yo Ang Thong 1 120 5 November 1984 Sawaeng Ha Ang Thong 1 120 6 November 1984 Bang Saphan Prachnap Kirikhan 1 3000 5 November 1984 Bang Saphan Noi Prachnap Kirikhan 1 300o 3 November 1984 Dan Chang Suphan Buri 1 60 3 November 1984 Bang Pla Ma Suphan Buri 1 120 7 November 1984 Bang Ban Ayntthaya 1 240 4 B3tober 1964 Let Baa Luang Ayntthaya 1 60 4 October 1984 Maharat Ayntthaya 1 60 4 October 1984 Nakhon Luang Ayptthaya 1 240 6 October 1984 Ban Phraek Ayptthaya 1 120 6 October 1984 Bang Pahan Ayntthaya 1 240 6 Occober 1984 Bang Syi Ayntthaya 1 60 5 October 1984 Uthai Ayntthaya 1 60 5 October 1984 Bang Len Nakhon Pathom 1 60 6 J\.ly 1984 Don Tom Nakhon Pathom 1 60 7 July 1984 2 3 If _ _ * FDM systeos  - 52 - ANNEX1\. Page 4 of 4 No\. of Station Forecast Number of Radio Channel Capacity Equipment Date of Name of Stations Primary Center Bearer Channels per Bearer (set) Commissioning Provincial Area 7 Pha Nom Surat Thani 1 60 2 October 1984 Tha Chang Surat Thani 1 120 7 October 1984 Tha Chana Sorat Thani 1 60 6 October 1984 Don Sak Surat Thaui 1 240 5 October 1984 Khirirat Nikhom Surat Thani 1 120 4 October 1984 Ba, Na Doem Surat Thani 1 300 2 October 1984 Ban Ta Khun Surat Than! 1 60 3 October 1984 si Chon Nakhun Si Thanmarat 1 120 6 November 1984 Ha- Sai Nakhon Si Thammarat 1 60 7 November 1984 Chian Yai Nakhon Si Thammarat 1 120 4 November 1984 Khano= Nakhon Si Themmarat 1 60 4 November 1984 Phrom Khiri Nakhon Si Thammarat 1 60 3 November 1984 Thap Put Phangnga 1 300* 3 October 1984 Ko Yao Phangoga 1 300* 2 October 1984 Ka Pong Phangnga 1 60 3 October 1984 tuna BEri Phanguga 1 60 2 October 1984 Khlong Thom Krabi 1 60 2 Nevember 1984 Ku Lan To Krabi 1 300* 2 November 1984 Ka Poe Ranong 1 60 2 Augost 1984 Pathin Chum Phon 1 60 5 November 1984 Tha Sue Chom Phon 1 120 4 November 1984 Pha To Chom Phun 1 300* 4 November 1984 La Mae Chum Phun 1 300* 3 November 1984 Thong To Ko Chum Phun 1 60 3 November 1984 24 8 Provincial Area 8 Si Sakhou Narathiwat 1 300* 2 November 1984 Yi Ngo Narathiwat 1 60 3 November 1984 Thal To Yula 1 60 2 September 1984 Thong Wa Satun 60 2 November 1984 La Ngn Saton 1 60 2 November 1984 Tha Phae Satun 1 60 2 November 1984 Mai Kaen Pattani 1 300* 3 November 1984 Nong Chik Pattani 1 60 2 November 1984 Thong Yang Daeng Pattani 1 300* 2 November 1984 Yaring Pattani 1 60 2 November 1984 Khong Ru Phattalung 1 60 2 November 1984 Pak Phayun Phattalung 1 60 3 November 1984 Tra Mot Phattalung 1 60 2 November 1984 Si Ban Pot Phattalong 1 60 2 November 1984 Ra Nod Song Khla 1 120 5 November 1984 Sating Phra Song thla 1 120 2 November 1984 Krasaesin Song thla 1 60 2 November 1984 Chana Song Khla 1 120 5 November 1984 19 4 Bangkok Jbtropolit" Area Sai Noi Nonths hlar (Lak Si) 1 120 12 April 1984 Bang Sn Samot Prakan (Phra Kaneng) 1 120 12 April 1984 Nong Sua Pathom Thani (Lak Si) 1 120 12 April 1984 Lad Ltm Khan Pathum Thani (Lak Si) 1 120 12 April 1984 Lo Lok Ka Pathom Thani (Lak Si) 1 240 12 April 1984 5 60 0 FDM systemo Table B: PCM/VF Cable Systems Forecast Namc of itatiens Pelnaurn footer No of Pairs No\.f Statin Date of IT\.- of St\.tion\. C-t- ~~~~~~~~No\. uf Pairs tquipm-nt Commisuioning PCM Coble Carrier Systemn Takua Pa (R) - (T) Narathiwat 25 - May 1985 Pherchaburi (T) - Ban Lat Phechaburi 25 6 May 1985 Sarabuir-Moak Lek Sarahbri 51 5 Septe-ber 1984 VF Cublc Systems Mae T-eng-Ban Pak Thang Chiang Mai 26 - Septehber 1984 Senec\.g-Ban Hoa Dung Chiang Meai 26 - September 1984 Bang Lamung-Phatthaya Chen BSri 26 2 September 1984 Pathiu-Khao Th-ek Krot Chum Phon 26 - June 1985 Phe Te-Khao Pha To Chum Phe 26 - june 1985 Phanem Thoan-Phanom Thuan (R) Ka-chana Buri 26 - Jaonary 1985 Khao Suan K-ang-Ban Heai Yang Khou Kaon 26 - Septembe 1984 Mac Thu-Kheo Ban Huai Kaeo La\. Phu- 26 - May 1985 Sukhirii-Waeng Narathiwat 26 2 May 1985 Ku Peog-Khau Phangnga 26 - May 1985 Khong Ra-BanNaBon Phattaleng 26 - aeye 1985 Khuan uDn-Khuan ka long Satun 26 2 May 1985 I\. Phang-Dm Phang (R) Tak 26 - Je'ary 1985 Than Te-Khha SanSi Pacn Yale 26 Jauary 1985  THAI LAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Implementation Schedule Year 1981 1982 1983 1984 1985 ITEM TOT Fiscal FY82 FY83 FY84 FY85 Year __ __ Quarter I II IV I III IV I 11 III IV I _ i II IV LAND P BUI LDINGS C SWITCHING EQUIPMENT Bangkok - Extensions to Existing Exchanges P - New Exchanges P Provinces - Extensions to Existing Exchanges P - New Exchanges P CABLE N ETWOR K LA Bangkok - Cable Ducts C -Cables P I__ - Cables P Provinces - Cable Ducts C - Cables P TELEPHONE INSTRUMENTS P _ _ TRANSMISSION EQUIPMENT P _ (Microwave, UHF and PCM Systems and Channel Ends) I - - - RURAL PUBLIC CALL OFFICES P _ I (Transmission Equipment and Station Equipment for PCOs) I - - - V Indicates Contract Award Date C Construction Stage P Procrement Stage I Installation Stage World Bank - 23483  - 54 - ANNEX 14 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Schedule of Disbursements1 Disbursements Cumulative Disbursements IBRD Fiscal Year in Quarter at End of Quarter and Quarter Ending (US$ Millions) (US$ Millions) FY83 March 31, 1983 8\.1 8\.1 June 30, 1983 8\.0 16\.1 FY84 September 30, 1983 3\.0 19\.1 December 31, 1983 3\.0 22\.1 March 31, 1984 7\.0 29\.1 June 30, 1984 7\.0 36\.1 FY85 September 30, 1984 10\.0 46\.1 December 31, 1984 10\.0 56\.1 March 31, 1985 7\.0 63\.1 June 30, 1985 7\.0 70\.1 FY86 September 30, 1985 7\.0 77\.1 December 31, 1985 8\.0 85\.1 March 31, 1986 12\.0 97\.1 June 30, 1986 13\.0 110\.1 FY87 September 30, 1986 7\.0 117\.1 December 31, 1986 8\.0 125\.1 March 31, 1987 10\.0 135\.1 June 30, 1987 7\.0 142\.1 1/ Based on loan being effective by November 1982\.  - 55 - ANNEX 15 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Performance Indicators Fiscal Year Ending September 30 1982 1983 1984 1985 Exchange capacity 496,200 577,600 796,600 1,081,400 Working lines 431,000 500,000 620,000 857,700 Number of tambons with service 5,367 5,400 5,650 5,980 Number of employees per 1,000 telephones 22 22 20 16 Gross operating revenue (B million) 3,800 5,700 8,100 11,700 Operating cost per working line (B) 5,000 5,600 5,800 6,100 Rate of return (%) 10 15 19 20 Self-generated funds as percent of capital expenditure (%) 32 21 22 29 Operating ratio (%) 54 46 40 36 Current ratio 2\.0 1\.1 1\.1 1\.0  - 56 - ANNEX 16 THAILAND TELEPHONE ORGANIZATION OF THAILAND FOURTH TELECOMMUNICATIONS PROJECT Summary of Basic Telephone Tariffs as of September 1981 Installation Charges Baht Main telephone: Rotary dial 1,500\.00 Push button 2,500\.00 Extension telephone: Manual or rotary dial 800\.00 Push button 2,000\.00 Rental (per month) Line and main telephone: Rotary dial 50\.00 Push button 100\.00 Extension telephone: Manual or,rotary dial 50\.00 Push button 100\.00 Call Charges Local calls: From subscriber telephones, untimed 2\.00 From public telephones, 3 minutes 1\.00 Long distance calls: Subscriber dialed, per minutel 0-100 km 4\.00 100-200 km 6\.00 200-350 km 8\.00 350-500 km 10\.00 500-800 km 12\.00 over 800 km 15\.00 Surcharge for operator assistance2 7 PM to 6 AM 20\.00 6 AM to 7 PM 10\.00 Operator assisted1,3 0-25 km 1\.00 over 25-50 2\.50 over 50-75 3\.00 over 75-125 4\.00 over 125-200 5\.00 over 200-350 6\.00 over 350-600 8\.00 over 600-900 10\.00 over 900 12\.00 1/ 50% reduction between 7 PM and 6 AM\. 2/ Where subscriber dialing is available\. 3/ Where subscriber dialing is not available\. Three minute minimum charge\. "Urgent" calls charged double\. Fixed appointment calls charged four times\.  - 57 - ANNEX 17 Page 1 of 3 THAILAND TELEPHONE ORGANIZATION OF THAILAND FOURTH TELECOMMUNICATIONS PROJECT Analysis of Current Telephone Tariffs 1\. TOT's present telephone tariff is summarized in Annex 16\. one-time non reimbursable installation charge of B 1,500-B 2,500 is levi'9 for the connection of a new line to a subscriber, who is also required to buy a TOT interest bearing bond\. A monthly rental of B 50-B 100 is charged for remaining connected to the system, with no allowance for calls\. And B 2\.00 is charged for each local call (untimed) and for a distance-related duration of long distance call\. Long distance calls are charged at half rate during night hours, and operator assisted calls are priced higher than subscriber dialed calls when this facility is available\. 2\. An uncommon feature of TOT tariffs is a bond system used both to price-ration connections and as a source of low cost funds for investment\. New telephone lines are connected in the order of receipt of application, except for certain users (mainly government and national security subscribers when requested with the signature of a minister, industries, banks, hospitals, schools and doctors) which are granted overriding priority\. A few weeks before new capacity becomes available in a given exchange area, applicants previously registered with TOT are asked (by letter) to pay the connection fee and purchase a telephone bond issued by TOT\. In Bangkok, the bonds are available at two prices: B 30,000 and B 10,000\.1 High-bond (B 30,000) applicants are given priority over low-bond (B 10,000) applicants within an exchange area\. High-bond priority, however, is exercised only among applications received in a given calendar month\. For applications filed in different months, the month of application takes precedence over the bond level; that is, all high-bond applicants of the earliest outstanding month are first asked to pay, then all low-bond applicants of the same month, then all high-bond applicants of the next month, and so on until all available lines have been allocated\. Thus, an applicant's chance of obtaining a line in Bangkok in a given expansion batch is only marginally increased by opting for the higher-priced bond\. This seems to be known by 1/ TOT bonds currently issued earn an annual interest of 9%, which is less than the 13% interest offered to the government savings bank depositors\. The bonds are purchased back by TOT at the end of contract and cannot be resold in the capital markets now, although this was permitted at the onset of the bond program in 1977\. However, since there is an acute shortage of telephone lines, these are being traded privately\.  - 58 - ANNEX 17 Page 2 of 3 the public, and a number of Bangkok applicants register under both hish-bond and low-bond waiting lists; hence, multiple entries are not uncommon, adding to uncertainty about the quantity and location of unmet demand\. In the Provinces, the value of the bond is fixed according to the size of exchange--B 3,000 for exchanges of 1,000 lines and above and B 1,000 for exchanges below 1,000 lines--and new connections are allocated in each exchange generally in chronological order\. 3\. TOT's tariffs are the outcome of developments along time in which financial requirements, judgement and public relations considerations were the main driving forces, and are likely to need revision in terms of economic efficiency and equity\. Initial charges (connection fee and bond subscription) are high, purposefully serving the function of directing TOT's limited expansion capability towards users likely to realize the greatest benefits from obtaining service\. Although inital charges should gradually decrease to levels related to marginal fixed costs as sustained growth allows TOT to meet demand more promptly, no such reduction need be pursued at present since even with these high charges at the end of the fourth project there will be a large unmet demand\. Nonetheless, the rationing scheme can be improved considerably during the fourth project, leading to increased allocative efficiency\. In particular, the two-level bond system in Bangkok, the low bond level in major provincial cities, the use of rationing in smaller places and the low rentals, are all questionable; a clear pricing strategy including a role for rationing should be developed in terms of TOT's demand forecasts and expectations for expansion, and made known to the public (among other reasons, in order that prospective subscribers can weigh the tradeoff between price and time to get a connection); the bond system should be applied in a way that allows the market's responses to be taken into account in the planning of TOT expansion; and its administration could be simplified to the advantage of both TOT and the public\. 4\. There is clearly a need to also review TOT's call charges, although these are roughly in line with practice in other countries\. Long distance calls are likely to be overpriced, which runs counter to government regional development policy\. In particular, rural telephone service is all long distance, and there is some contradiction between subsidizing the provision of such telephones, and then charging the public excessively for using them\. On the other hand, since telephone service is overall congested, call charges 2/ Another important factor of multiple entries in waiting lists is TOT's inadequate customer relations effort\. Whereas change of address in an existing application is accepted by TOT without loss of time precedence, this is seldom pursued by the client--a new application is filed instead\. About 25% of the July 1976-September 1978 applicants called until mid-1980 failed to materialized payments\. The record of applications is not kept on computer, and checks and updating are not carried out\. Calls are not publicly advertised, and TOT does not verify address or otherwise follow up on called applicants that fail to respond\.  - 59 - ANNEX 17 Page 3 of 3 Could be increased considerably at peak business hours without reducing effective system use; rather, a reduction in peak traffic offered would result in less congestion and fewer repeat call attempts, thereby permitting the existing equipment to carry a somewhat higher number of effective calls\. A considerably lower off-peak charge for local calls could be established (at present there is no time differentiation of local call charges) to promote use of facilities when they are underutilized; this should result in greater use of residential connections, which at about 100 calls/month is low and is likely to be price elastic\.  - 60 - ANNEX 18 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) FOURTH TELECOMMUNICATIONS PROJECT Return on Investment 1\. The benefit period of the program extends from 1981-2001, when on average the equipment provided under the program is expected to have substantially completed its useful life\. 2\. Capital expenditures are based on the estimated requirements during the program period, excluding preinvestments for future programs, deflated to bring them to 1981 price levels\. 3\. Incremental revenues assigned to the program are primarily based on the expected additional telephone and telex subscribers and the traffic increase brought about by the program\. Incremental costs excluding depreciation and interest are based on the additional assets, traffic and staff requirements expected from the program\. All revenues and costs have been deflated to bring them to the comparable 1981 price levels\. 4\. A summary of the program's incremental cost and benefits stream at 1981 price levels is as follows (in Baht millions): Year Capital Costs Operating Costs Revenues 1981 2,718 - - 1982 2,746 242 674 1983 6,134 909 1,669 1984 5,031 1,504 3,174 1985 1,566 2,168 5,201 1986 - 2,802 7,424 1987-2001 3,663 9,934 5\. The internal rate of return for the above benefit stream is 26 percent\. 6\. Estimating the future consumer surplus by tabulating over the program period the prices in real terms (1981 level) which existing subscribers and applicants are demonstrating a willingness to pay, and assuming that new subscribers are prepared to pay the same real amount, the economic rate of return is 43%\. Labor has not been shadow priced as TOT mostly employs skilled staff of which there is no surplus in Thailand\. Certain duties and taxes have been deducted from costs\. 7\. A sensitivity analysis on the financial rate of return shows that, with 10% higher costs and 10% lower revenues, the rate of return will be 18%\.  THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) ORGANIZATION CHART MINISTRY OF NATIONAL ECONOMIC AND FINANCE SOCIALEI\.IPETMNSR FRSE OFFICE\. OFTO ROARS COMMUNICATIONS RARET AUOITOR GENERAL | COMMUNICATIONS AUTHORITY | TELEPHONE ORGANIZATION OF POST ANS TELEGRAPH OF TRAILANDS l l TAAILAND ROARS OF DIRECTORS DEPARTMENT MANAGING -IRECTOR SEPARTMENT OF OPERATIONS SEPARTMENT OF LANT SEPARTMENTOF ECONOMICS DEPARTMENT,O FIOF F TRE OFNIC IOFJELANING l l l~~~~~~~~~~~~N I F!CI' I1 o"I \. ,Tr ENARNEERINT AND FINANCE AIOMINISTRA TION MANAGSNG DRECTOR AND PROJECT 2 MAINTENANCE ANO l 2 TEERNICAL COOROINATION l j ECONOMIES AND STATISTICS l 2 MANASEM N DIVISIDN 1 2 SECRETARIAL SION l PLANNING AND PROJECT | CONSTRUCTION METROS CENTER A DIVISION DIVISIONl ENT ITISRlN DITISN A DIVISION METROPOLITAN ASN~~ITCRING ENGINEERING NPCINADSTTSTIEPATPANN CENTER DITROPOL OVISION RSUDGET DIVISION RERSONNEL OIVISION 4 TELECOMMUNICATIONS l j ENGINEERINA PIVLSION REVENUE DIVISION IWELFARE DIVISION TOTAL PLANNING DIVISIONTIN IPROVNCIAL RUILDING ENGINEERING ACCOUNTING DIVISION TELECOMMUNICATIONS PANNTALLAPRON SWITIN | 4 ELECOMMAINCAIONS TEST AND DEVELOPMENT TREASURY DIVISION 4 TRAINING OIVISION COMPUTER DIVISION LONG DISTANCE PLANT AREAS Il-RI SIVISION INSTALLATION DIVISION~~~~~~~~~~~~GDIVSIO CONSTRUCTION CENTER WORKSNOP DIVISION RILLING DIVISION q COMMERCIAL CENTER l d STORE CENTER LONG DISTANCE PLANT PROCUREMENT DIVISION OPRICE OE THE ECONUMIC STIDY STORE RIAISION OF~~~1 TELECOMMUNICATIONS IN THAI LAND \.,Id B\.k- 23484  - 62 - ANNEX 20 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Staff in Different Categories Number of Staff as of September 30 Category 1981 1982 1983 1984 1985 Actual -----------------Forecast-------------- Administration 751 880 1,010 1,140 1,270 Finance and accounts 223 260 300 340 380 Engineers 1,534 1,800 2,070 2,330 2,600 Craftsmen 2,897 3,400 3,910 4,410 4,920 Clerical 2,699 3,170 3,640 4,110 4,580 Workers 3,077 3,620 4,150 4,700 5,230 Total 11,181 13,130 15,080 17,030 18,980 Employees per 1,000 telephones 20\.9 22\.3 22\.0 20\.0 16\.2  - 63 - ANNEX 21 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Historical Income Statements: FY77-81 (Baht Millions) Year Ending September 30 1977 1978 1979 1980 1981 Operating Revenues Local service 621 773 1,103 1,570 1,730 Trunk service 230 268 318 428 950 Other 171 206 254 308 373 Total Revenues 1,022 1,247 1,675 2,306 3,053 Operating Expenses Staff and bonus 350 445 565 690 837 Maintenance 58 69 87 106 140 Operating and administration 97 112 150 207 238 Depreciation 170 202 281 327 410 Total Operating Expenses 675 828 1,083 1,330 1,625 Income before interest and tax 347 419 592 976 1,428 Tax - - 31 400 491 Interest 104 153 237 255 306 Net income 243 266 324 321 631 Operating ratio (%) 66 66 65 58 53 Rate of return average net revalued assets (%) 9 10 11 7 11 Operating expenses/DEL 2,713 2,976 3,453 3,813 4,300 Self-generated contribution (%) 44 39 43 39 55  - 64 - ANNEX 22 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Historical Balance Sheets: FY77-81 (Baht Millions) Year Ending September 30 1977 1978 1979 1980 1981 ASSETS Fixed Assets Gross plant in service 3,963 4,639 6,053 7,997 8,503 Less accumulated depreciation 1,212 1,413 1,653 1,969 2,379 Net plant in service 2,751 3,226 4,400 6,028 6,124 Plant under construction 1,581 2,097 2,036 1,076 1,446 Current Assets Cash 480 594 593 1,058 1,640 Accounts receivable 113 241 374 570 960 Inventories 136 162 168 215 220 Other 188 267 251 670 543 Total current assets 917 1,264 1,386 2,513 3,363 Total Assets 5,249 6,587 7,822 9,617 10,933 LIABILITIES Equity 2,442 2,710 3,036 3,369 4,001 Long-term debt 2,090 2,893 3,610 4,042 4,769 4,532 5,603 6,646 7,411 8,770 Customer deposits 390 482 589 698 785 Current liabilities 327 502 587 1,508 1,378 Total Liabilities 5,249 6,587 7,822 9,617 10,933 Debt capitalization (M) 46 52 54 55 54 Current ratio 2\.8 2\.5 2\.4 1\.7 2\.4 Receivables/revenues (%) 11 19 22 25 31 Liquidity ratio 1\.8 1\.7 1\.6 1\.1 1\.9 Net income before interest/ average capitalization customer deposits (%) 7\.7 7\.6 8\.4 7\.5 10\.6 Net income after interest/ average capitalization customer deposits (%) 5\.4 4\.8 4\.9 4\.2 7\.1  - 65 - ANNEX 23 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Projected Income Statements: FY82-86 (Baht Millions) Year Ending September 30 1982 1983 1984 1985 1986 Operating Revenues Local service 2,054 2,396 2,972 3,806 4,868 Trunk service 1,271 1,768 2,594 3,877 5,840 Other 484 609 782 1,023 1,324 Tariff increases - 900 1,800 3,000 4,000 Total Revenues 3,809 5,673 8,148 11,706 16,032 Operating Expenses Staff and bonus 1,015 1,287 1,547 1,807 2,118 Maintenance 168 198 263 361 497 Operating and administration 371 559 693 916 1,217 Depreciation 494 574 777 1,163 1,689 Total Operating Expenses 2,048 2,618 3,280 4,247 5,521 Income before interest and tax 1,761 3,055 4,868 7,459 10,511 Tax 608 1,141 1,789 2,598 3,458 Interest 368 450 _ 721 1,345 2,312 Net income 785 1,464 2,358 3,516 4,741 Operating ratio (%) 54 46 40 36 34 Rate of return on net average revalued assets (%) 10 15 19 20 21 Operating expenses/DEL 4,995 5,624 5,857 6,110 6,383  - 66 - ANNEX 24 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Projected Balance Sheets: FY82-86 (Baht MlTlions) Year Ending September 30 1982 1983 1984 1985 1986 ASSETS Fixed Assets Gross plant in service 9,450 11,434 16,806 25,487 35,925 Less accumulated depreciation 2,873 3,447 4,224 5,387 7,076 Net plant in service 6,577 7,987 12,582 20,100 28,849 Plant under construction 3,592 9,259 13,597 16,082 18,760 Current Assets Cash 1,762 1,299 2,123 3,059 5,334 Accounts receivable 928 1,226 1,614 2,081 2,529 Inventories 238 298 399 519 678 Other 658 745 743 725 727 Total current assets 3,586 3,568 4,879 6,384 9,268 Total Assets 13,755 20,814 31,058 42,566 56,877 LIABILITIES Equity 4,786 6,251 8,609 12,125 16,865 Long-term debt 6,258 10,232 16,600 22,482 29,113 11,044 16,483 25,209 34,607 45,978 Customer deposits 892 1,067 1,367 1,741 2,212 Current liabilities 1,819 3,264 4,482 6,218 8,687 Total Liabilities 13,755 20,814 31,058 42,566 56,877 Debt capitalization (%) 57 62 66 65 63 Current ratio 2\.0 1\.1 1\.1 1\.0 1\.1 Receivables/revenues (%) 24 22 20 18 16 Liquidity ratio 1\.5 0\.8 0\.8 0\.8 0\.9 Net income before interest/ average capitalization customer deposits (%) 10\.7 13\.0 14\.0 15\.5 16\.7 Net income after interest/ average capitalization customer deposits (%) 7\.3 9\.9 10\.7 11\.2 11\.2  - 67 - ANNEX 25 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Sources and Uses Statement (Baht millions) 1982-85 Year Ending September 30 1982 1983 1984 1985 Total 1986 SOURCES Net Surplus before interest 1,153 1,914 3,079 4,861 11,007 7,053 Add depreciation 494 574 777 1163 3008 1689 1,647 2,488 3,856 6,024 14,015 8,742 Less Interest and Amortization 673 952 1,885 3,072 6,582 4,594 Net self-generated funds 974 1,536 1,971 2,952 7,433 4,148 Borrowing 1,762 4,434 6,986 6,806 19,988 8,409 Customer Deposits 107 175 300 373 955 472 TOTAL SOURCES 2,843 6,145 9,257 10,131 28,376 13,029 USES Construction Program 3,021 7,421 9,007 10,057 29,506 11,759 Changes in Working Capital (178) (1,276) 250 74 (1,130) 1,270 TOTAL USES 2,843 6,145 9,257 10,131 28,376 13,029 Net self-generated/ Construction program (%) 32 21 22 29 25 36 Debt service cover 2\.4 2\.6 2\.0 2\.0 - 1\.9  - 68 - ANNEX 26 Page 1 of 2 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Notes and Assumptions with Respect to Projected Financial Statements 1\. Average connected telephone lines for each year are projected to be as follows: 1982-410,000; 1983--465,500; 1984--560,000; 1985--695,000; and 1986--865,000\. 2\. Average calls per line for local calls is projected to increase at 2% per annum for metropolitan calls, and 3% per annum for provincial calls\. Trunk traffic is projected to increase at 20% per annum\. These increases reflect both historical performance and improved and expanded services\. 3\. Average staff/1,000 lines is projected to decrease from about 21 in 1982 to 16 by 1985\. 4\. Maintenance expenses are projected to hold at B 385 in constant terms per average line connected\. 5\. Operating and administrative expenses are expected to hold at B 640 in constant terms per average line connected\. 6\. Depreciation is calculated at about 5\.5% of average gross assets in operation\. 7\. Interest charges are based upon actual commitments with proposed IBRD at an effective rate of 13\.5% and future other loans at an effective 9% for Bonds and others at about 18%\. 8\. Taxation is projected at 44% of net surplus after interest payments\. 9\. Inflation has been incorporated into the projections at about 11% per annum cumulatively\. 10\. Construction program's annual investment is as per implementation schedule\. Transfers from construction program to operating assets is as follows: 50% in year following expenditure, and 50% in the subsequent year\. 11\. Accounts receivable are projected at the following percent of revenues: 1982--24%; 1983--22%; 1984--20%; and 1985--18%\.  - 69 - ANNEX 26 Page 2 of 2 12\. Inventories, in constant terms, are projected to fall from B 515/average line connected in 1982 to about B 455 in 1985\. 13\. Fixed assets have been revalued using the September 1980 revalued base and revaluing subsequently at 6% per annum, cumulative\. An adjustment was also made to reflect the recent Baht devaluation\.  - 70 - ANNEX 27 THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) Related Documents in Project File A\. Selected Reports and Studies on the Sector A\.1 "Outline of the Fifth National and Social Development Plan (1982-86)" published by NESDB, January 1981\. A\.2 "Master Telecommunications Plan (1982-1991) on the Telephone Organization of Thailand" issued by TOT, February 1981\. A\.3 "Development of Telephone Services in Thailand (1983-90)\." Published by ITT\. B\. Selected Reports and Studies Relating to the Project B\.1 Telephone Organization of Thailand Act (1976)\. B\.2 Communications Authority of Thailand Law (1976)\. B\.3 Economic Development Project of TOT: 1977-84\. B\.4 Economic Development Project of TOT (1977-84) Supplement\. B\.5 Accelerated Telephone Development Project (1979-84)\. B\.6 Telephone Statistical Report - 1980\. B\.7 Forecast Telephone Demand: 1980-2000\. B\.8 Usage Pattern of Residential Telephones Based on Customer Interviews\. ,B\.9 Classification of Telephone Subscribers in Bangkok with Average Call Rates and Revenues\. B\.10 Summary of Classification of Outstanding Telephone Applications\. C\. Selected Working Papers, Tables, Drawings, Etc\. C\.1 Project Costs\. C\.2 Allocation of Funds\. C\.3 Forecast Disbursement of IBRD Loan\. C\.4 Annual Project Investments\. C\.5 Breakdown of Costs of Individual Project Components\. C\.6 Financial Statements: FY74-80\. C\.7 Actual and Forecast Financial Statements: FY8O-87\. C\.8 Long-term Debt\. C\.9 Accounts Receivable\. C\.10 Waiting List\. C\.11 Telephone Revenues Before and After STD\. C\.12 Long-distance Telephone Development (Maps)\. D\. Other Information Used in Project D\.1 "Problems of TOT for the Coming Rapid Expansion Period" - JICA Study October 1981\.  <2< <22<~~~~~00 19 04A -<- T -R C<ARA / ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~BRA 1 <~~~ - (LAO PEOPLES DEM\.RER $ 7/~~~~~~~~~~~~~DMOC\.1C' A~~~~ LAOLPEOPLERS DEM\. RE/ LAMPA ""N- ( I '-' <0½ S <R~~~~~~~~~~~~NAPORE j BURMA < ATTA0AITo o"& L/ 40-B'2I IN,AA<~<AA'<< SUK-OICI-N / N AKON QPF'IJSAL L'CE £ P/ETHA/AR N~ A K\.~~~~~~~~~~~~~~CAYPU K 9 ) TItANI AC / <Al R~~~~~~AT B-' 'T '1 I LO B42""I <N N > *, ORGUPHI Th, ORAU IA ~~~~~~~~~~T' AJ A' I TV BARSPTh15A'N~~~~~~I IA'R IRA YOK :ZgFFAHABUR , , EA A K H \. IN' cv <"' - $ CHUMPHOR 'T A Al I' / THAILAND~~~~~~HATH '7ZAfA<B ~~~~~ TELEPHONE ORGANIZATION OF THAILAND (TOT) vi ~~~~~~LONG DISTANCE TELEPHONE NETWORK ION COMPLETION 'lI POURTH EEOMNCTO \.MC Nl 5 MARIO SYSTEMS - 210 TAL AMA< M~~~~~~~~~~~~~ADIO SYSTEMS- ALA' 0 ~~~~~~~~"' \ ~~~~~~~~~~CARLE SYSTCRS - DIAITAL «'4K ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~----CABLE SYSTEMIS - ANIADA PHAF¶GNG/~ " RACHON SI T~AMIMAMAT C, PRIART BANBARS \.<A',A\ 0 «PL~~~~~~~~~~B"ATER IWITH OR WITHOUOT AEID OPRICEF, ROAR! ~~~~~~~~~~ <NO~~~- OFFICE IEXCIANRG OR PURLIC CALL OPEICEI INTERNATIONAL MOANDARICS BA 6__ ANG <H NGLIR 4 A IRGKALA Rd '4RARATH~~~~~~~~IRSAT KIOMETERS '0 SoI 0 if' *-'v' ~~~~MILES Nv ~~~~~ ~~~~0 20 40 C0 MC <ACA 0 SR< <~~~ ~ ~~~00< MALAYSA 0< 04 MA B

APPROVAL

P173749

 The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) Project Information Document (PID) Concept Stage | Date Prepared/Updated: 23-Sep-2020 | Report No: PIDC29220 September 2020 Page 1 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) BASIC INFORMATION A\. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Benin P173749 Benin Electricity Access Scale-up (BEAS) Project (P173749) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA WEST May 17, 2021 Jul 29, 2021 Energy & Extractives Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Benin SBEE, ABERME Proposed Development Objective(s) The PDO is to increase access to electricity services for households, enterprises, and selected public facilities in Benin\. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 200\.00 Total Financing 200\.00 of which IBRD/IDA 200\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 200\.00 IDA Credit 200\.00 Environmental and Social Risk Classification Concept Review Decision Moderate Track II-The review did authorize the preparation to continue September 2020 Page 2 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) B\. Introduction and Context Country Context 1\. Bordered by Togo, Nigeria, Burkina Faso, and Niger, Benin has a 121-kilometer-long coastline on the Gulf of Guinea and a population of close to 11\.5 million (2018) spread over 114,760 km2 of land\. Despite being the 4th fastest growing economy in Sub-Saharan Africa (SSA) with growth averaging 6\.7% in 2017-2019, poverty remains high at 46% in 2018\. A high population growth rate (3\.5% per year over the previous decade) is an added challenge in increasing GDP and reducing the poverty rate, but in 2020 Benin reached low middle-income status in the first time in its history\.1 However, the economic shock of the COVID-19 pandemic is likely to result in a regression to low income status\. 2\. The Government of Benin (GoB) has oriented its development strategy toward the acceleration of structural transformation for sustained and inclusive high growth\. Benin’s structural transformation process is constrained by an unproductive agriculture sector, a small manufacturing sector and an informal services sector\. Aiming to reverse these trends and achieve the Sustainable Development Goals (SDGs) by 2030, government policies have put renewed emphasis on enabling private sector investment\. Initial reforms focused on improving the business climate, strengthening governance and fiscal management, and enhancing social service delivery\. More recently, GoB has turned its attention to supporting investments in the development of productivity-enhancing infrastructure\. 3\. Prior to the COVID-19 outbreak, economic growth in Benin was buoyant\. In 2019, real GDP growth reached 6\.4% despite Nigeria’s unilateral border closure that weighed down on growth\. This acceleration was mainly driven by a booming cotton production, and strong construction and port activity following a series of reforms that improved port management and facilitated trade\. As the two economies are closely linked, Nigeria’s decision to unilaterally close the shared border in August 20192 reduced the annual real GDP growth by 0\.3% in Benin, but this was cushioned by the better- than-expected performance in the first half of the year\. In 2019, the fiscal deficit declined due to continued effort on domestic revenue mobilization and debt-to-GDP stabilized for the first time in five years\. 4\. Despite steady, robust economic growth over the past two decades, poverty in Benin remains widespread owing to limited growth in per capita terms (only 1\.6% on average during 2006 –16)\. While the poverty levels remain high, the overall level is declining\. World Bank estimates suggest that US$1\.9 a day (2011 PPP) poverty declined from 50% in 2015 to 46% in 2018\. Non-monetary poverty indicators have improved over this period as well\. Inequality is estimated to be moderate based on consumption aggregates, with a Gini index of 48% in 2015\. Female-headed households experience lower levels of poverty (28% compared to 38% for male-headed ones) but comprise only 23% of all households and generally women suffer from a lack of economic opportunity and are under-represented in high-level decision-making positions\. The education and health sectors account for a significant share of public expenditure (23% and 7%, respectively, on average)\. Greater public spending efficiency and a more equitable geographical distribution of resources would pave the way for lower poverty rates and more inclusive growth\. 1 World Bank Data, 2020, https://datahelpdesk\.worldbank\.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups 2 Nigeria, one of Benin’s main economic partners (40 percent of total exports in 2018), closed its land border in August 2019 s everely impacting informal trade (including re-export) and tax revenue collection\. September 2020 Page 3 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) 5\. Since early 2020, the COVID-19 pandemic has significantly changed Benin’s economic outlook\. The pandemic is creating unprecedented threats to the social and economic progress recently achieved in SSA\. The region is expected to face its deepest recession on record\.3 Financial markets have been extremely volatile, reflecting exceptionally high uncertainty and the worsening outlook\. Flight-to-safety led to a sharp tightening of global and Emerging Markets and Developing Economies (EMDEs) financial conditions\. External economic effects have already started to transmit to West Africa and Benin\. Growth is slowing while fiscal and external deficits are increasing\. Further, the global pandemic is threatening to overwhelm weak healthcare systems\. The first COVID-19 case was discovered in Benin on March 16, 2020\. The number of cases has been growing rapidly in June after a slow take up, reaching 1,199 as of July 5th, 2020\. Close to 300,000 cases have been confirmed across 48 countries in SSA\. Countries in the region have responded with strict confinement and mitigation measures to protect lives, despite important risks to livelihoods\. Benin’s capacity to respond is restricted due to limited fiscal buffers and underdeveloped social safety nets and health care capacity\. The large informal sector employing almost 90% of workers and traditional porous borders create a great challenge for the policy response\. 6\. As the COVID-19 crisis unfolds, recent economic and social gains are at risk\. Although Benin’s growth potential remains high,4 economic activity is projected to decelerate strongly as a result of the COVID-19 pandemic and the border closure with Nigeria\. Real GDP growth will more than halve from pre-COVID-19 projections to 2\.2% in 2020 as the country is hit by lower external demand and commodity prices as well as tighter financing conditions\. Containment and mitigation measures are impacting commerce, transport, and hospitality-related activities, adding to the external pressure and reducing domestic demand\. Poverty reduction is expected to stall as real GDP per capita shrinks (-0\.5%)\. The crisis exposes and aggravates some vulnerabilities of Benin’s growth model\. Despite the recent progress, structural transformation remains limited\. The economic plans to diversify are hampered by the economic reliance on Nigeria and the concentration of exports in traditional products like cotton and cashew nuts\. Ninety percent of the labor force is estimated to work in the informal economy with limited social safety nets, exposed to the whims of economic fluctuations\. 7\. Benin is vulnerable to additional exogenous shocks that present development challenges \. Adverse weather conditions and the decline in international commodity prices could negatively affect exports and adversely affect the income of the poor\. Rising socio-political uncertainty across the region could also threaten market confidence and tighten regional financing conditions\. 8\. The Government Acton Plan (GAP), 'Revealing Benin', for 2016-2021 establishes GoB priorities for economic and social development\. The GAP guides government action and is used to define ministries’ activities and allocate the national budget through its three pillars, which are themselves split into seven key priorities\. The second pillar, structural economic change, has a key priority of improving economic growth\. The energy sector is considered a strategy sector for achieving this priority\. Accordingly, the GAP establishes an objective of developing a largely independent and competitive energy system and providing reliable and high-quality electricity to homes, small and medium enterprises and agricultural across Benin\. The electricity sector action plan is based around four flagship projects that have been estimated to require approximately US$1\.3bn in financing with an estimated benefit of creating 9,100 new jobs\. 9\. As the COVID-19 global and domestic crisis dissipate, growth is currently projected to rebound over the medium term, averaging 6\.5 percent\. A pickup of the investment program of the GAP should further support the rebound and expanding energy access will be a critical component of this\. Electrification is a key driver of long-term economic transformation and human development\. Short-run impacts include social benefits, such as lighting for reading and 3 Economic activity in the region is on course to contract by 2\.8 percent in 2020, the deepest on record\. The economy of Nigeria is expected to shrink by 3\.2 percent in 2020, given the collapse in pr ices for oil\. South Africa’s output is forecast to contract 7\.1 percent in 2020, the deepest contraction in a century, as stringent but necessary containment measures curtail economic activity\. Global Economic Prospects, June 2020\. 4 Potential growth rate is estimated at 6\.7 percent (IMF 2019 Article IV Report)\. September 2020 Page 4 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) enhanced security\. With electrification business opportunities become available for micro, small, and medium-sized enterprises\. Impacts rise in the medium term as complementary factors are introduced and households and businesses adjust to electricity’s potential\. Education and health outcomes may improve through the electrification of schools and clinics\. Economic impacts grow as electricity becomes increasingly available as a strategic input for industries and services\. Delaying electrification has a high opportunity cost because the lack of electricity impedes modern technology adoption and lowers the quality of delivery of services such as health care, education, and other public services\. Electrification is central to ensuring Benin’s economic recovery is inclusive and supports the objective of economic structural transformation\. 10\. The relationship between the electricity sector and the country’s economic competitiveness can be seen in two key World Bank indexes\. The Regulatory Indicators for Sustainable Energy (RISE) report measures countries’ policy and regulatory framework for reaching SDG 7 of universal access to affordable and clean energy\. On the RISE access to electricity pillar Benin scores 63%, placing it in the moderate range for access-deficit countries\. The energy access sub- indicators that Benin scores low on include the scope of the officially approved electrification plan, framework for grid electrification, consumer affordability of electricity, and utility transparency and monitoring\. The high cost of getting electricity in Benin is further reflected in the Doing Business report (2019), which identifies the cost of getting electricity as one of the main barriers to an efficient investment climate in Benin\. Benin ranked very low (178 out of 190) with respect to the cost of getting electricity, significantly hindering the competitiveness of the private sector\. The cost of getting electricity in Benin is high compared to its regional peers\.5 Currently, households are required to make an upfront payment of CFAF 85,0006 (US$ 142 equivalent) to get connected to the grid\. The proposed Benin Electricity Access Scale-up Project (BEAS, P173749) project will allow the GoB to subsidize partly or entirely the connection fees (for rural households and urban and peri-urban poor households) or to pre-finance them (for urban households) and ask newly connected consumers to pay in installments, all based on the households’ willingness to pay\.7 In addition, electricity retail tariffs in Benin are above global averages, even though they are set below cost-recovery levels, mainly due to high technical and commercial losses\. Sectoral and Institutional Context 11\. Access to electricity is critical to achieving the GAP’s objectives\. One of the four flagship projects for the electricity sector under the GAP is restructuring and modernizing the national operator (Société Béninoise d’Energie Electrique, SBEE) and its grid, with an objective of providing all Benin citizens with permanent access to quality electricity\. In 2018, 42% of Benin’s population has access to electricity,8 which is a lower rate than the SSA average of 47% (Figure 1)\. The national electrification rate masks a stark disparity between urban and rural areas\. Seventy-three percent of the urban population has access to electricity, with the highest access rate in the coastal cities, such as Cotonou, and lower rates in medium urban centers where considerable proportions remain unconnected\. Less than 17% of the rural population has access to electricity (Figure 2)\. Figure 1: Benin's national access rate was Figure 2: Benin’s rural access rate was only 42% in 2018, below the average for SSA 17% in 2018 5 Cost of getting electricity is 5, 4 and 3 times lower in Cote d’Ivoire, Ghana, and Togo respectively\. Source: DB Index\. SBEE reduced by about 30% the connections fees in June 2020\. 6 CFAF 85,000 is the cost for single phase connection (1-6 kVA; 5-30 Amp) as stated in the Note de service 228-20/SBEE/DG/SG/DCC 7Studies funded by MCC in 2015 include willingness to pay 8 All electrification data is from SE4all SDG7 tracker, 2018, https://trackingsdg7\.esmap\.org/country/benin September 2020 Page 5 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) Source: SE4all SDG7 tracker, 2018, https://trackingsdg7\.esmap\.org/country/benin 12\. Efforts to expand electricity access in Benin have struggled to match population growth due to underinvestment in the sector\. Benin has expanded electricity access by 1\.7m people between 2010 and 2018, increasing the electrified population from 3\.1m to 4\.8m Beninoise\. However, in the same time period the total unelectrified population has also risen; in 2010 6\.1m Beninoise lacked access to electricity, but in 2018 this figure had grown to 6\.7m due to population growth\. SBEE has been unable to provide electricity connection to a long list of potential customers who have been waiting for an electricity connection due to a lack of an operating budget\. At the same time, demand for electricity continues to increase due to increasing household consumption and population growth\. Illegal and unsafe electricity connections are common but decreasing in high-density peri-urban areas of major urban centers—such as Cotonou, Porto-Novo, Abomey- Calavi, Parakou, and Natitingou\. The ongoing Bank-funded ESIP is addressing part of the illegal connections and the BEAS will build on this work\. Benin’s electricity access deficit is especially acute in the northern region, which has the country’s high levels of poverty\. Poverty incidence in Benin tends to increase from south to north, and the three northern departments all have a poverty incidence of over 60%\. This tracks with the provision of basic services, such as electricity\.9 Supporting grid connections is the most efficient way to contribute to achieving the forthcoming National Electrification Strategy (NES); previous GIS work suggests that the upper range for grid electrification is approximately 80% of the population\.10 13\. 14\. In order to better support the GAP’s objective of electrification, the GoB has prepared the Benin-PROSPERE report (Programme SpeÌ?cial d’Extension et de Renforcement des ReÌ?seaux Electriques du BeÌ?nin)\. Benin-PROSPERE notes that with the key institutions in the energy sector facing budget deficits, the required investments for maintenance and growth of the distribution network have not materialized\. The GoB therefore considers concessional finance to be necessary to reach their GAP objectives and the Benin-PROSPERE report provides an overview of current energy access 9 More accurate data on this will be available following the GIS least-cost electrification expansion plan that is underway and funded through the ESMAP-funded Geospatial Electrification Planning in the Africa Region project 10 Based on a previous GIS-least-cost study (KTH, Electrification Pathways for Benin, 2018)\. This figure will be updated with a more accurate figure when the NES is completed (October 2020) based on a more granular model but is expected to be in a similar range\. This considers populations less than 7km from the existing grid as receiving grid connections September 2020 Page 6 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) activities among DPs and provides planning for future investments\. Benin-PROSPERE does not include an in-depth GIS- based study for planning investments and is not a comprehensive NES\. 15\. Benin is facing rapidly increasing demand for electricity\. The baseline projection for annual demand growth is 6\.3%\. All segments of the Benin electricity sector are projected have increasing demand up to 2035, but household and commercial consumption comprise the largest and fastest growing segments (Figure 3)\. The baseline growth scenario projects peak demand increasing from 256 MW in 2018 to 429 MW in 2025 and to 773 MW in 2035\.11 16\. 17\. Figure 3: base case demand projection by segment Demande Totale (MWh) par Segment (MWh) - S1 - Référence 4500 000 Ménages BT Professionnels, administrations et autres BT 4000 000 Agriculture Industrie manufacturi ère 3500 000 Autres industries Hotels restaurants Administration, éducation et santé 3000 000 Autres services Energie non-distribuée 2500 000 Grands Projets 2000 000 1500 000 1000 000 500 000 - 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 18\. 19\. Source: RECASEB 20\. 21\. 22\. Benin has been developing its generation supply capacity to meet the growing demand and reduce its dependence on electricity imports\. The GAP action plan for the electricity sector has so far been primarily supported through increasing domestic generation capacity and improving the performance of the power distribution sub-sector\. The Benin power sector has added about 450MW of domestic generation, which has included (i) the commissioning in July 2019 of a 120MW public plant financed by the Islamic Development Bank initially to operate on HFO until gas becomes available; (ii) a 146MW IPP with private investment and smaller plants of 50MW, located at Maria Gléta 2 to operate on gas; and (iii) solar generation through independent power producers (IPPs)\. Support for solar generation is materializing with MCC and Agence française de développement (AFD) committing to invest in 85 MW of solar PV with public finance\. SBEE has also contracted 100MW with an IPP based in Nigeria and carried over a transmission line with a capacity constraint of 600MW\. Capacity additions at this site could be made if required\. The remaining gap in demand will be 11 Benin demand study, Assistance Technique dans le cadre de l’appui institutionnel et du renforcement des capacités des acteurs du secteur de l’énergie au Bénin (RECASEB), October 2019 September 2020 Page 7 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) supplied through imports from Nigeria and Ghana (via the Togo-Beninese energy importing and transporting company Communauté Electrique du Bénin, CEB)\. Overall, there will be sufficient capacity to cover the rising demand for electricity\. 23\. 24\. Since the beginning of the GAP in 2016, a comprehensive and integrated energy strategy emerged with the support of development partners (DPs)\. In 2015 the GoB signed a US$375 million Compact in the form of a grant for the power sector with the Millennium Challenge Corporation (MCC)\. The majority of MCC funds are committed to modernizing the electricity distribution network by increasing reliability and lowering losses\. MCC is also involved in developing the off- grid regulatory framework and financing program\. The MCA aims to strengthen SBEE, attract private sector investment, and fund infrastructure investments in electricity distribution as well as off-grid electrification for poor and unserved households\. MCA currently has four projects under implementation: i) a policy reform and institutional strengthening project; ii) an electricity distribution project, which is financing an electricity dispatch and control center, as well as 50 miles of new underground cabling and the rehabilitation of over 530 miles of overhead power lines; iii) an electricity generation project, which is financing the 50MW solar IPP in Benin’s north and has released solicitations to pre -qualified bidders in December 2019; iv) the off-grid electricity access project, which is supporting policy reforms and infrastructure financing for off-grid solutions (for more details in MCC’s off grid activities see Section D, Rationate for World Bank Engagement)\. 25\. 26\. The AFD recently completed (on December 31, 2019) a five-year EUR 20 million project to reinforce and modernize the SBEE distribution network in Benin with the objective of increasing urban and rural electrification and improving SBEE’s finances\. The project focused its activities in the Atlantic region, with electricity grid densification activities in the city of Abomey-Calavi and off-grid activities in the rural parts of the region\. The AFD is also supporting the expansion of Benin’s generation supply through the DEFISSOL project, a EUR 60\.5 million project (including co-financing from the EU of EUR 10 million) that includes a financing of a 25MW solar PV power plant in Onigbolo\. 27\. 28\. The African Development Bank has been supporting the Benin’s energy sector through multiple projects\. The SBEE sub-Transmission and Distribution System Restructuring and Extensions Project (PRESREDI) entered implementation in April 2018\. PRESREDI is supporting the consolidation and expansion of SBEE’s medium- and low- voltage distribution networks in the cities of Cotonou, Porto-Novo, Abomey, Bohicon and Lokossa, with an objective of electrifying 40,000 new households\. The project is financed by the AfDB (EUR 15\.2 million) as well as the AFD (EUR 15\.2 million)\. The World Bank team will continue to coordinate closely with AfDB and AFD to ensure BEAS is building on their work and to discuss collaboration on BEAS financing\. 29\. The Energizing Development (EnDev) partnership is actively supporting local markets in Benin with the objective of increasing the use of solar systems from micro to medium-sized PV systems and solar thermal energy, connection to the national grid, small hydropower plant, biogas and energy-efficient cooking stoves\. EnDev is led by the German Corporation for International Cooperation (GiZ), but it is a partnership that includes the Directorate-General for International Cooperation of the Ministry of Foreign Affairs of the Netherlands (DGIS), the Norwegian Agency for Development Cooperation (NORAD), the UK Department for International Development (DFID), the Swiss Agency for Development and Cooperation (DEZA) and the Swedish International Development Cooperation Agency (SIDA)\. 30\. Within the World Bank Group (WBG), IDA and IFC teams are collaborating to support sector development with an emphasis on increasing private participation\. Preliminary discussions on solar project in Benin have been held with IFC\. The World Bank team is conducting due diligence to determine the utility’s financial viability whether the criteria for a partial risk guarantee can be met\. September 2020 Page 8 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) 31\. Past unreliability of electricity supply in Benin which was due to the financial stress and poor performance of its utility distribution company and that of CEB12 is being resolved\. Several actions have been taken to address the issues, namely: the implementation of a Revenue Protection Program for large consumers pursuant to the World Banks’s ESIP project (P161015), the signing of a management performance contract13 for SBEE in November 2019 (with MCC financing), and sector reforms on the financial viability of the sector pursuant to the Benin First Fiscal Management and Structural Transformation WB Development Project Finance (P168668)\. In addition, based on analytical work by the Bank, reforms were introduced to CEB in January 2019 to transform it into a transmission systems operator, thus enabling the two national distribution utilities, SBEE and CEET (La Compagnie d’Energie Electrique du Togo), to be responsible for the power importation for their respective countries\. Other reforms included the payment of arrears by SBEE to CEB and the introduction of a wheeling charges of CFAF 10 per kWh that CEB collects on the amount of energy transmitted to the distribution networks of Benin and Togo to finance its operational and maintenance costs\. 32\. Reducing energy poverty and inequality in the provision of energy services will reduce vulnerability to natural disasters and climate change and has important links to the climate change actions and policies in Benin’s Nationally Determined Commitment (NDC)\. Benin is highly vulnerable to the effects of climate change and ranks 156 out of 181 countries on measures of vulnerability and readiness (making it the 17th most vulnerable country and the 42nd least ready country)\.14 Energy poverty and inequality in access make it more difficult for countries to achieve socio-economic targets in health and education, and to realize the full potential of human capital, and it increases their vulnerability to climate change15, natural disasters and pandemics, as energy is an important input for water, sanitation, broadband, as well as economic activity\. In addition, women and girls, especially in rural areas, bear a significant burden as a result of the lack of energy access\. Time spent on household chores, such as collecting firewood and water for drinking and burning high- polluting charcoal and kerosene for cooking and lighting, prevents their full and active participation in educational and economic activities\. In addition, Benin’s NDC recognizes the role of increasing energy access, as part of specific measures to reduce emissions by 21\.4 % by 2030\. This includes energy sub-sector targets on: i) developing electric power generation using renewable energy, including adding 95MWc of solar PV; and ii) increasing household’s access to elec tric lighting in place of kerosene lighting, including electrification of an additional 300 localities by 2030 and procurement of 212,000 electrical connection kits for households\. This activity will help advance the latter activity through technical support for the expansion of grid electricity connections\. Relationship to CPF 33\. The proposed Program directly contributes to the Objective 2 of the World Bank Group (WBG) Country Partnership Framework for Benin (CPF) for the period FY19-2316\. This Objective aims to “improve the quality of infrastructureâ€? by addressing the many challenges identified as barriers to rapid economic growth faced by Benin, including electricity infrastructure and access\. About 42% of Benin’s households have access to electricity\. This low rate, which is below Sub-Saharan Africa’s average electrification rate of 47%, is compounded by deficiencies in quality of service\. The proposed operation will support the Government’s aspirations to scale-up electricity access by 2030\. By meeting energy needs for agriculture and household user purposes, this project could improve socio-economic outcomes of rural areas in a profound manner\. 12 The CEB is the regional (Togo-Beninese) company that has been in charge of importing energy and distributing it to Benin and Togo utility companies from neighboring countries\. 13 With Manitoba Hydro International 14 Notre Dame Global Adaptation Initiative Country Index, https://gain\.nd\.edu/our-work/country-index/ 15 World Bank, 2018\. Lifelines, the Resilient Infrastructure Opportunity, Global Facility for Disaster Reduction and Recovery (GFDRR) 16 Report Number 123031-BJ; July 5, 2018\. September 2020 Page 9 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) 34\. The project would support the WBG COVID-19 policy response\. Increased access to electricity service would facilitate the delivering of digital/online education, and the mainstreaming of digital technologies during the recovery phase\. It would also facilitate effective response to COVID-19 pandemic and future shocks\. In addition, the project would help the Government to increase public expenditures toward electricity service\. 35\. This program will also help meet the WBG twin goals of poverty reduction and shared prosperity, and it is aligned with the proposed LEAP program, which proposes that the Bank lead a global effort to ensure that Sub-Saharan African countries are on track to meet SDG7 and Sustainable Energy for All (SE4ALL) objective of universal access to reliable affordable and modern energy services\. Providing electricity connections will increase access to energy services for poor households in rural and urban areas enabling opportunities to study and work, contributing to raising the quality of life and improving agricultural activity and economic interaction\. Increased access to reliable electricity supply will not only lower costs and improve the profitability of business enterprises but is also key to enabling the set-up of new private sector-led enterprises, which stimulates GDP growth\. C\. Proposed Development Objective(s) The PDO is to increase access to electricity services for households, enterprises, and selected public facilities in Benin\. Key Results (From PCN) 36\. The following indicators have been selected to measure progress toward the PDO: ï‚ PDO Indicator 1: people provided with access to electricity under the Program by household connections (number); ï‚ PDO Indicator 2: small and medium enterprises provided with new or improved electricity services (number) implemented under the Program (number); ï‚ PDO Indicator 3: public institutions (clinics, and/or schools, and/or administrative centers) provided with new or improved electricity service (Number)\. D\. Concept Description 37\. The Benin PROSPERE study is currently the most elaborate GoB plan for grid extension and reinforcement\. It has been developed based on existing data of Benin’s population and SBEE’s network, but it is not a GIS least -cost electrification plan or NES, which will replace it as the flagship document for electrification upon completion\. The PROSPERE report nevertheless provides some insights on electrificaiton priorities, which are likely to be reflected in the NES\. Benin PROSPERE finds that there are 1,846 localities, 73 city districts, and 1,376 hamlets (areas with more than 200 households) that are still unelectrified, while accounting for projects currently under implementation\. The PROSPERE plan has prioritized localities for electrification based on the following criteria: i) the distance of the locality to the existing SBEE grid (for those within 2km of the MV network); and ii) for the localities between 2km and 7km radius from the network, it has applied a formula that assesses the localities socio-economic potential based on a human development index (HDI)\. The HDI takes into account the health, education, and economic potential (the village’s population and access to major September 2020 Page 10 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) roads)\. Based on this criteria, it has identified 753 rural localities to prioritizes for connection (547 villages and 206 hamlets of more than 200 people)\. In total, the program aims to electrify 1,122 localities, 753 rural and 369 localities urban and peri-urban\. This will electrify around 142,000 households and 20,500 SMEs\. 38\. Geospatial least-cost planning tools have become best practice in electrification planning following their successful implementation in Kenya, Nigeria, and Rwanda\. GIS least-cost plans provide a powerful tool to policy makers to balance efficiency in the use of limited public resources with the objective of providing equal opportunities to those living in areas far away from the existing grid\. At the same time, geospatial plans allow for identifying communities that may require pre-electrification solutions in the short- to mid-term while waiting for higher service standard connections\. The NES will provide a least-cost electrification model that includes: spatial characterization of population settlement concentrations, nucleation patterns, and indicative capex per new connections; least-cost options for grid-based densification and extension; least-cost options for isolated networks (mini-grids) and standalone systems; and a sensitivity analysis to demonstrate the robustness of these options\. Based on these outputs, the Project will prioritize the areas based on the lowest cost per connection, taking into account other possible government priorities identified in PROSPERE such as electrifying specific health clinics\. 39\. The Project will support three components that aims at electrifying households, micro, small and medium enterprises, and selected public facilities located within 7km radius from the existing networks based on a sustainable electrification schemes that incorporates best practices, technical assistance and capacity reinforcement\. Component 1: On-grid electrification (US$ 180 million IDA) 40\. This component will finance the design, procurement of materials and construction works required to electrify all participating households and businesses in the project target areas with high population density, located close to existing electricity networks (in urban, peri-urban and rural areas)\. The northern regions of Benin, which face the highest energy access deficit in the country, will be one of the targeted areas for electrification\. The northern regions are a strong candidate for electrification not only due to their clear needs, but also because recent and planned investments serve as a foundation for expanding the regions’ distribution network\. The final selection of the sites will be confirmed by the geospatial electrification tool (currently under development) based on a least cost approach\. Between 175,000 and 200,000 households and businesses are estimated to be connected to be confirmed during project preparation phase\. Two (2) approaches will be used: i\. Grid densification investments: these are connections to households, enterprises, or public institutions that are near the existing network infrastructure of the SBEE\. These connections mostly require short low voltage (LV) expansion, service drops, and meters and/or ready boards for households\. The densification of the existing grid under this component will contribute to the monetization of the existing capital assets of SBEE\. ii\. Grid extension investments: connections for new customers who are located within 717km radius from the existing grids\. These connections will require both medium voltage (MV) and LV extensions\. Detailed network design for grid expansion will be informed by completion of the comprehensive geospatial least-cost rollout plan (under development)\. Least-cost technologies allowing to reach applicable levels on quality of service and safety in each type of area (urban, peri-urban, medium and low density rural) will be adopted to the largest possible extent to minimize life cycle cost of electrification projects\. 17 This number is to be confirmed by the ongoing GIS/NES September 2020 Page 11 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) 41\. The component will emphasize procurement of main equipment (transformers, cables and conductors, poles, meters and accessories, etc\.) in bulk and independent contracts for project design and for construction and installation works following WB IPF procurement procedures to optimize effectiveness in the allocation of resources available by minimizing investment costs and, thus, maximizing the number of connections per dollar invested\. The average total investment cost per connection would be less than US$1200 based on the experience from similar World Bank-funded projects in the region\. Component 2: Policy, regulatory and operational strengthening actions to implement the national electrification strategy and related investment programs (US$ 10 million IDA) 42\. This component will support the implementation of key reforms necessary for the sustainability of electrification strategy and related investment programs\. In addition, it will facilitate the development of the gender aspect in the energy sector\. 43\. On the policy area, support will be provided by Government to: (i) strengthening sector Ministry to define and lead implementation of electrification programs and plans defined by Government within the framework of the national electrification strategy; (ii) adopting a clear definition of “obligation to serveâ€? areas where SBEE must attend requests for service connection and recover investment costs through tariff revenues; (iii) defining sources of funds for financing investments in new distribution networks and service connections which should be included in any electrification investment project and covering gaps between costs of efficient service delivery and ability to pay of connected users (increasingly important as electrification moves to areas where most of the population face significant affordability constraints); and (iv) establishing a policy for “connection charges or feesâ€? to be paid by new users to ensure that those charges do not become barriers to electrification programs (households should be connected first and start paying affordable charges) and that amounts collected are (transferred to electrification fund or equivalent to be used to accelerate electrification\. 44\. On the regulatory area, the component would support the update of the electricity distribution code to: (i) set quality of service levels (acceptable values of SAIDI, SAIFI, etc\.) in urban, peri-urban and rural areas, both for grid connected and off-grid supply; (ii) regulatory procedures for systematic measurement, monitoring and enforcement of quality of service levels to ensure sustainability of service delivery (extremely important in all cases but crucial to ensure sustainability of supply in rural areas with off-grid options); (iii) define optimum technical standards for electricity distribution networks in urban, peri-urban and rural areas (low cost technologies) to meet quality of service levels; (iv) metering arrangements for different categories of consumers; etc\. 45\. On the operational capacity area, the component will support the strengthening of the organizational structure of SBEE and ABERME to carry out investments in electrification programs\. A strong Electrification Department within SBEE directly reporting to Managing Director, fully separate from units in charge of day to day operations to serve existing customers, should be created\. Definition and implementation by Commercial Department of efficient processes to massively register connected households and businesses as customers has also paramount importance\. 46\. The Bank will discuss with the Government and other stakeholders during project preparation to determine appropriate Disbursement linked Indicators (DLIs) that will be used to incentivize the implementation of policy, regulatory and operational actions in the scope of this component\. September 2020 Page 12 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) Component 3: Technical Assistance and Implementation Support (US$10 million IDA) 47\. This component will finance technical assistance (TA) and capacity building activities and implementation support to ME, SBEE, ABERME, and ARE to ensure project sustainability and to facilitate the monitoring of the achievement of targeted results\. The Bank will coordinate with other DPs to ensure complementarity on the activities to be supported under this component\. Preliminary areas of support, to be confirmed during project preparation, include: a\. Support for an effective implementation of the Geospatial planning tool with capacity building\. In line with the ongoing geospatial electrification planning tool, organizational arrangements and capacity strengthening needs will be identified and addressed to maintain a comprehensive and updated national GIS database for a geospatial electrification planning in the future; b\. Consumer awareness campaign and customer satisfactory survey: this subcomponent will finance the design and implementation of consumer education campaign and satisfactory survey for the provision of on-grid electricity services, safety measures and the efficient use of electricity\. c\. Support to project implementation through the hiring of specialized consultants to support implementing agencies in main procurement processes and supervision of construction works, undertake project external audit, to prepare environmental and safeguards instruments for the investments and supervise their implementation, including health and safety measures during construction\. In addition, this support will include the hiring of technical experts to support the project management\. d\. Acquisition of vehicles necessary for the supervision of works and of implementation of the project safeguard measures and purchase of office equipment\. Financing incremental operating costs for the PIU\. 48\. Gender\. Energy is known to improve quality of life, promote gender equality, create employment and business opportunities for women\. During preparation, a gender analysis will be carried out and drawn from various existing data sources\. This analysis will form the basis of designing actions (e\.g\. soft financing for connection fees) and indicators to track gender equality and ensuring that poor households obtain access to energy services under the Program\. In addition, the Program will build on the gender actions outlined under the existing Bank-financed projects related to strengthening the institutional capacity, enhanced access to finance for female beneficiaries to purchase energy technologies, gender- aware consumer education and awareness and the collection of sex-disaggregated information as part of the results tracking and monitoring system\. Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Screening of Environmental and Social Risks and Impacts \. September 2020 Page 13 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) \. CONTACT POINT World Bank Miarintsoa Vonjy Rakotondramanana, Lucine Flor Lominy Senior Energy Specialist Borrower/Client/Recipient Republic of Benin Jean Claude Dona HOUSSOU Minister of Energy dehous@yahoo\.fr Todeman Flinso ASSAN Director General me\.dgre@gouv\.bj Implementing Agencies SBEE Jacques PARADIS Director General jparadis@mhi\.ca ABERME Francis TCHEKPO Director General francistchekpo@yahoo\.fr FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects September 2020 Page 14 of 15  The World Bank Benin Electricity Access Scale-up (BEAS) Project (P173749) APPROVAL Task Team Leader(s): Miarintsoa Vonjy Rakotondramanana, Lucine Flor Lominy Approved By APPROVALTBL Practice Manager/Manager: Country Director: Coralie Gevers 23-Sep-2020 September 2020 Page 15 of 15

APPROVAL

P083023

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No\.: AB189 Project Name Justice and Integrity Project Region AFRICA Sector Law and justice (100%) Project ID P083023 Borrower(s) Implementing Agency Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [x ] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared August 1, 2003 Estimated Date of Appraisal Authorization September 12, 2003 Estimated Date of Board Approval July 1, 2004 1\. Key development issues and rationale for Bank involvement The Government of President Mwai Kibaki, elected into office in January 2003, has pledged to reintroduce ethics and integrity into public life and is addressing problems of governance and corruption as a key prerequisite to its economic growth and wealth creation strategy\. If has determined that integrity must start with the Judiciary as a corrupt judiciary hinders the Government’s efforts to address corruption elsewhere, and impressive reforms are already underway\. Additionally, a Commission of Inquiry has been established to probe into economic scandals that occurred during the previous regime, the anti corruption commission has been revitalized, and a task force set up to explore the need for other mechanisms to deal with economic crimes and human rights abuses\. The Interim Poverty Reduction Strategy Paper (IPRSP), prepared under the previous (Moi) regime recognized the importance of the rule of law to a sustainable job and wealth creation strategy 1 and declared that promoting the administration of justice and the rule of law, was a key priority\. However, during the Moi regime, the public’s confidence in the Judiciary and other key actors in the legal and judicial sector fell to an all time low, as, all too often, judges and lawyers were perceived to be corrupt or incompetent\. The Kibaki Government has undertaken to correct this situation\. The existing CAS identifies corruption and the absence of effective rule of law as major constraints to development in Kenya\. A new CAS is under preparation and is expected to endorse the underlying principles of the draft IPRSP and to maintain the conclusions of the last CAS\. Indeed, a major factor in the resumption of aid to Kenya by the World Bank was the Kibaki Government measures to address problems of governance and corruption\. The proposed Justice and Integrity Project would support these measures by building capacity in the reformed Judiciary, the newly created Ministry of Justice and Constitutional Affairs (MOJCA) and the Bar\. This Project was identified after six months of intense work with the Government and other stakeholders including International Development Partners (IDPs) during which a sector strategy, based on an assessment of the legal and judicial sector, was prepared\. This is based on 1 1 1 1 See Paragraphs 13\.1 See Paragraphs 13\.1 See Paragraphs 13\.1 See Paragraphs 13\.1 to 13\.10\. to 13\.10\. to 13\.10\. to 13\.10\. Page 2 a key lesson from the experience of the Bank’s Legal Vice Presidency (LEGLR) 2 in this area which is that the approach most likely to lead to a successful project entails a comprehensive assessment of the sector, followed by detailed discussions with public and private sector stakeholders leading to a comprehensive and long term strategy for reform\. The Public Sector Management Technical Assistance Project (PSM-TA- Board approval January 2002) includes legal sector reform activities, which stalled due to a lack of capacity in the Secretariat set up to implement them and unfamiliarity with Bank procedures\. Additionally, there was a lack of political will to implement activities that would increase transparency and accountability in the Judiciary\. It is hoped that the new government’s strong will to undertake reform in this area will present a window of opportunity during which these activities can be carried out\. In addition to the World Bank, the IDPs supporting law, justice and integrity activities are CIDA, Denmark, DFID, the European Commission, Finland, Netherlands, Norway Embassy, SIDA, UNDP, and USAID\. These IDPs have set up a group (the Donor Group) to coordinate activities, and agree on a comprehensive and mutually reinforcing sector support strategy\. The Minister of Justice and Constitutional Affairs (the Minister), the Chief Justice and their senior staff have welcomed this arrangement, as it reduces the time that they need to spend on donor coordination\. The activities proposed under this Project are those that the Minister and the Chief Justice have requested the World Bank to support and that the Donor Group agrees are best handled by the Bank\. 2\. Proposed objective(s) The development objective of the proposed project is to improve the administration of justice; and enhance the accessibility, accountability, transparency, predictability, integrity and fairness of the Judiciary and other institutions of the legal and judicial sector and to improve the quality and accessibility of legal services provided by public and private sector providers, and to support the anti corruption campaign to be undertaken by the Ministry of Justice and Constitutional Affairs\. The primary target group for the proposed project is the Kenyan consumer at every socio economic level of legal and judicial services\. The secondary target groups are staff of the Judiciary and MOJCA, and lawyers and paralegals in the private and public sector\. 3\. Preliminary description The proposed Project will be financed through an investment loan to support the MOJCA’s five year strategic plan and the Judiciary’s reform program\. The Judiciary’s reform program consists of making the judiciary faster, more accessible, fairer and less corrupt\. Key elements include removal of corrupt or incompetent judicial officers, the introduction of simplified procedures and clear ethical and performance standards\. The process is well underway and it is expected that legal education will sustain the demand of the population for integrity in the judiciary\. An IDF grant for developing and monitoring judicial performance indicators is being prepared\. MOJCA’s five year strategy includes (a) improving legal education, (b) increasing access to justice through support to legal aid, (c) the creation of community justice mechanisms; and (d) developing and implementing a five year anti-corruption campaign\. MOJCA will also spearhead an ambitious program of law reform to take into account the Constitution that is expected to be adopted in the near future\. 2 2 2 2 See Legal Vice See Legal Vice See Legal Vice See Legal Vice- - - -Presidency, World Bank, Legal and Judicial Reform: Strategic Directions, World Bank\. January 2003\. Presidency, World Bank, Legal and Judicial Reform: Strategic Directions, World Bank\. January 2003\. Presidency, World Bank, Legal and Judicial Reform: Strategic Directions, World Bank\. January 2003\. Presidency, World Bank, Legal and Judicial Reform: Strategic Directions, World Bank\. January 2003\. Page 3 The following Project components are being considered: A\. A comprehensive and integrated program to make the judiciary speedier, more transparent, more accountable, more predictable and fairer, through introduction or strengthening of (i) simplified proceedings and ADR, (ii) performance and service standards for judicial staff, (iii) automated recording of court proceedings, (iv) computerized court and case management, (v) computerization of document management in registries; (vi) rehabilitation of courts; and (vii) acquisition of essential furniture and equipment\. [$10,000,000] B\. A comprehensive Judicial training program to support the above [$2,000,000] C\. Building capacity of MOJCA, through provision of technical advisory services, equipment and training to enable it to carry out its five year strategic plan, including the anti-corruption campaign [$2,000,000] D\. Comprehensive legal training program for lawyers and paralegals, including the establishment of a College of Law, introduction of requirements for continuing legal education for advocates, and standardization of curriculum and standards for paralegals [$7,000,000] E\. Support for the Office of the Public Defender and provision of legal aid to assist targeted populations to access justice, including development and implementation of a system to measure and analyze the impact of legal services on poor people\. [$5,000,000] F\. Development and Implementation of a program of law reform to support the Government’s strategic plan and the new Constitution\. [$7,000,000] Development and Implementation of a five year campaign aimed at reducing corruption in Kenya [$2,000,000] 4\. Safeguard policies that might apply It is anticipated that there will be no adverse impacts due to the rehabilitation of the courts and College of Law, and possible new construction of additional space for the latter\. There will be no land acquisition for the construction of additional space for the College of law\. If, due to these rehabilitation and new construction, any safeguard policies will be triggered, the Bank’s policy on environmental safeguards will be followed\. All national environmental regulations, building codes, demolition and solid waste standards in Kenya will be strictly complied with\. 5\. Tentative financing Source: ($m\.) BORROWER/RECEPIENT 1\.5 INTERNATIONAL DEVELOPMENT ASSOCIATION 35\.0 Total 36\.5 6\. Contact point Contact: Minneh M\. Kane Title: Lead Counsel and Task Team Leader Tel: (202) 458-1759 Fax: (202) 614-0532 Email: Mkane@worldbank\.org 7\. For information on other project related documents, contact: Page 4 The InfoShop The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop Note: This is information on an evolving project\. Certain components may not be necessarily included in the final project\.

APPROVAL

P144522

PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No\.: PIDA2903 Public Disclosure Copy Project Name Maternal and Newborn Voucher Project (P144522) Region MIDDLE EAST AND NORTH AFRICA Country Yemen, Republic of Sector(s) Health (100%) Theme(s) Population and reproductive health (70%), Child health (15%), Health system performance (15%) Lending Instrument Investment Project Financing Project ID P144522 Borrower(s) Ministry of Planning and Development Cooperation Implementing Agency The Social Fund for Development Environmental Category C-Not Required Date PID Prepared/Updated 17-Jan-2014 Date PID Approved/Disclosed 19-Feb-2014 Estimated Date of Appraisal 31-Jan-2014 Completion Estimated Date of Board 31-Mar-2014 Approval Decision Public Disclosure Copy I\. Project Context Country Context Yemen is the one of the poorest countries in the Middle East and North Africa (MENA) region, with nearly half of its estimated population of 25\.5 million living on less than US$2 per day\. Yemen ranks 160th out of 186 countries on the 2012 Human Development Index\. The Country has one of the highest population growth rates in the world, placing pressure on educational and health services, drinking water, and employment opportunities\. The mass protests, violent clashes and armed conflict in 2011 have negatively affected the economic condition of Yemen\. Poverty, which was already increasing prior to the crisis, is estimated to have risen further from 42 percent of the population in 2009 to 54\.5 percent in 2012\. Poverty is particularly high in rural areas, which are home to about 73 percent of the population and 84 percent of the poor\. Women, who are already severely disadvantaged in Yemen, have suffered disproportionately as a result of the crisis\. Preliminary figures from 2011 indicate decreased access to basic and social services and economic opportunities, as well as high levels of gender-based violence as a result of the unrest\. These effects have compounded the severe gender imbalances that already existed\. The past several decades, however, have witnessed significant improvements in key development indicators, including average life expectancy, which increased from 42 years in 1970 to 65 years in Page 1 of 5  2011, with the life expectancy of women mirroring the overall trends, and a significant increase in the enrollment rates in basic education, reaching 54 percent for both boys and girls\. Despite these achievements, there remain many areas of concern, among which are the very high maternal and Public Disclosure Copy child mortality rates and the rapid population growth rate\. There are limited available financial resources (both public and private), limited infrastructure (less than half the population has access to basic health services), and few systems in place to support service delivery (e\.g\., for medical supplies and drugs)\. In addition, most of the population lives in isolated rural communities, making both the delivery of, and access to, services at the community level a complex challenge\. Health services, although improving, do not cover more than 30 percent of the rural population or more than 45 percent of the total population\. Given these challenges, it is unlikely that Yemen will achieve health-related Millennium Development Goals (MDG) 4 (child health) or 5 (maternal health) by 2015\. Sectoral and institutional Context Maternal, Newborn and Child Health, and Sexual and Reproductive Health\. Although Yemen has made great strides in reducing the maternal mortality ratio, it remains high at 210 deaths per 100,000 live births , which translates to some 40 women dying every week due to pregnancy and birth-related complications\. While some progress has been made in the last four years to provide women with antenatal healthcare services, most mothers still deliver at home with little or no support\. Across the region, Yemen continues to have the lowest level of antenatal care coverage, although according to a recent report from the Ministry of Public Health and Population (MOPHP), the proportion of women benefiting from antenatal healthcare services increased from 40 percent to 55 percent during 2006–2010\. Although Yemen’s maternal health policy refers to skilled attendants as doctors, nurses and midwives, nearly 21 percent of births are attended by traditional birth attendants and only 36 percent of births are attended by skilled health staff\. As a result, many women suffer from hemorrhage, anemia, infections, and/or obstetric fistula, and in many cases, Public Disclosure Copy these conditions result in death\. Given the young age at which many girls marry, particularly in rural areas, the adolescent fertility rate is high at 80 births per 1,000 girls aged 15–19 years\. Contraceptive prevalence is low at 28 percent with 21 percent in rural and 42 percent in urban areas for any contraceptive method; and 13 percent in rural and 34 percent in urban areas for modern contraceptives\. Almost a quarter of married women (24 percent) have an unmet need for family planning\. Yemen has very high rates of malnutrition with 43 percent of children under the age of 5 years being moderately to severely underweight and 58 percent suffering from moderate to severe stunting\. Yemen has one of the highest population growth rates (3\.02 percent per year) in the world, which is due to double in the next 23 years \. The high population growth rate is aggravating the effects of natural phenomenon, such as sandstorms and dust storms, which result in soil erosion and crop damage\. Desertification (land degradation caused by aridity) and overgrazing are also problems \. Yemen is facing a human resource crisis in public healthcare\. A recent report commissioned by the MOPHP exposed serious shortages in staff skilled in MNCH\. Nationwide, only 60 percent of the 261 obstetricians and only 5 percent of the 794 neonatal nurses needed to staff government health Page 2 of 5  facilities are working\. However, this does not reflect the reality of skilled medical personnel in the country\. It has been argued that there is a surplus of trained clinicians in urban areas (particularly in Aden and Sana’a), most of whom operate in the private sector and, although efforts have been made Public Disclosure Copy by development partners such as United Nations Population Fund (UNFPA) to train additional personnel, many midwives are under-employed or unemployed\. In rural areas, it is common for midwives, as well as other health staff, to work in public health facilities in the morning and then to work in their own private practice in the afternoon and evening\. Thus, “free” healthcare is only available for a limited time every day and even then, informal fees often apply\. National Health Policy\. The reduction of the number of maternal and neonatal deaths as well as the number of deaths of children under five is one of the main expected results listed in the 2010-2025 National Health Policy\. The health and population sector’s objectives, according to the third five- year development plan, are as follows: (i) strengthening the national health system; (ii) combating epidemics, endemic infectious diseases and reducing morbidity and mortality rates; (iii) improving the health care delivery system\. The policy defines areas or priority that address maternal and newborn mortality including improving the quality and utilization of health services, and access to emergency obstetric care\. A national Reproductive Health Policy was developed that states “In an effort to accelerate maternal and newborn survival toward the achievement of MDGs 4 and 5, the Reproductive Health (RH) department at Population Sector (PS) has focused on two main areas of RH: maternal and newborn health and family planning\.” Both areas are addressed through the proposed voucher project\. Maternal and Child Health Acceleration Plan (2013-2015)\. Yemen has developed a plan that aims to accelerate the reduction of maternal and under-five mortality to progress towards MDG 4 and 5\. Its main objectives are: (i) to reduce maternal mortality by 24% from 200 to 153 per 100,000 live births; (ii) to reduce under-five mortality by 14% from 72 to 62 per 1000 live births; and (iii) to Public Disclosure Copy reduce neonatal mortality by 15\.6% from 32 to 27 per 1000 live births\. These are complemented by specific operational targets to be achieved by 2015\. This project will contribute to the implantation of this plan\. II\. Proposed Development Objectives The Project Development Objective is to increase the utilization of maternal and newborn health services in the project target areas\. The MNVP will contribute to the reduction of maternal and child mortality\. It will contribute to meeting the unmet need for family planning, allowing families to plan and space births\. This will also contribute to a reduction in population growth and alleviate pressure on Yemen's scarce natural resources\. III\. Project Description Component Name Component 1: Improving Access to Maternal and Newborn Health Services Comments (optional) Component Name Page 3 of 5  Component 2: Results-Based Monitoring, Voucher Management, Quality Assessment, Technical Audit, and Project Management Comments (optional) Public Disclosure Copy IV\. Financing (in USD Million) Total Project Cost: 20\.00 Total Bank Financing: 10\.00 Financing Gap: 0\.00 For Loans/Credits/Others Amount BORROWER/RECIPIENT 0\.00 International Development Association (IDA) 10\.00 Health Results-based Financing 10\.00 Total 20\.00 V\. Implementation Role of SFD in implementing the voucher scheme Implementing Agency\. The SFD will be the implementing agency for the project and will establish and staff a special unit (the Voucher Management Unit - VMU) which is the proposed payer for the voucher scheme\. This is consistent with the natural development of the SFD which is shifting its focus from one of investing in inputs to support building and rehabilitation of health facilities and training of health workers, to focus on output-based disbursements, thereby stimulating demand for and utilization of health services\. Fiduciary management, including procurement and financial management, as well as monitoring and evaluation, will be carried out by the respective departments within the SFD\. Public Disclosure Copy Role and Key Tasks for SFD: The key role for SFD through the VMU will be the operational responsibility for the day-to-day implementation of the voucher scheme in Yemen\. Key tasks will be to: (i) map and identify voucher service provider clusters; (ii) contract voucher service providers based on assessment of quality standards; (iii) develop and manage all sub-contracts (consultant services, NGOs, etc\.); (iv) coordinate production and distribution of vouchers (including data collection on beneficiaries); (v) paying health facilities for services provided; (vi) monitoring and evaluation; and (vii) verification and fraud control\. The SFD, through a recipient executed trust fund from HRITF, is receiving technical assistance focusing on building its capacity to meet the requirements of a VMA, including: (a) identification of roles and responsibilities; (b) hiring staff and identification of consultants; (c) development of MIS and utilization management approach; (d) development of templates and registers for operationalizing the scheme (distributor registers, provider registers, contract templates and so on); (e) developing detailed work plans and timelines and preparation of guidelines for program implementation; and (f) design and printing of the vouchers\. VI\. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Page 4 of 5  Environmental Assessment OP/BP 4\.01 ✖ Natural Habitats OP/BP 4\.04 ✖ Public Disclosure Copy Forests OP/BP 4\.36 ✖ Pest Management OP 4\.09 ✖ Physical Cultural Resources OP/BP 4\.11 ✖ Indigenous Peoples OP/BP 4\.10 ✖ Involuntary Resettlement OP/BP 4\.12 ✖ Safety of Dams OP/BP 4\.37 ✖ Projects on International Waterways OP/BP 7\.50 ✖ Projects in Disputed Areas OP/BP 7\.60 ✖ Comments (optional) VII\. Contact point World Bank Contact: Alaa Mahmoud Hamed Abdel- Title: Senior Health Specialist Tel: 5772+702 / 2 Email: alaahamed@worldbank\.org Borrower/Client/Recipient Name: Ministry of Planning and Development Cooperation Contact: H\.E\. Dr\. Mohammed Saeed Al-Sa’adi Title: Minister of Planning and International Cooperation Tel: 967-1-250665 Email: Public Disclosure Copy Implementing Agencies Name: The Social Fund for Development Contact: Title: Tel: (967-1) 449-671 Email: aaldilami@sfd-yemen\.org VIII\. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop Page 5 of 5

APPROVAL

P007399

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 24048 IMPLEMENTATION COMPLETION REPORT (IDA-26940) ONA CREDIT IN THE AMOUNT OF SDR 20\.4 MILLION US$ 30\.0 MILLION EQUIVALENT TO THE REPUBLIC OF HONDURAS FOR A BASIC EDUCATION April 14, 2002 Human Development Sector Management Unit Central America Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 14, 2002) Currency Unit = Lempira (L) 16 21 Lempiras = USS 1\.00 USS 1\.00 = XDR 1\.25 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ADEPRIR Rural Primary Education Management Project (Proyecto Administraci6n De L\.a Educacidn Primaria Rural) AMHON Honduran Association of Municipalities (Asociact6n de Municipios de Honduras) BIE Bilingual and Intercultural Education (Educaci6n Bilinguey Intercultural) CADs Teacher Training Centers (Centros de Aprendizaje Docente) CAS Country Assistance Strategy CBH Central Bank of Honduras (Banco Central de Honduras) CEPENF Centers for Non-Formal Preschool Education (Centros de Educacidn Pre-escolar No Formal) CCIE Community Centers for Initial Education (Centros Comunitarios para la Iniciacion Escolar) DIGECE Of fice for Evaluation of Academic Quality (Direcci6n General de Evaluacion de la Calidad Academica) FHIS Honduran Social Investment Fund (Fondo Hondureiio de Inversion Sociaol) FHIS-I Social Investment Fund Project FHIS-11 Second Social Investment Fund Project GDP Gross Domestic Product GOH Govenmment of Honduras GTZ German Agency for Technical Cooperation (Deutsche Gesellschafffur Technische Zusammenarbeit) iCB International Competitive Bidding INFOP Professional Training Institute (Instituto Nacional de Formaci6n Profesional) NICE National Institute for Education Research and Training (Instituto Nacional de Investigacid n y Capacitacion Educativa) IDA International Development Association KfW German Credit Institute for Reconstruction (Kreditanstaltfur Wiederaufbau) MIS Management Information System MOE Ministry of Education (Secretaria de Educacion Ptiblica) MOF Ministry of Finance (Secretaria de Hacienda y Credito Publico) MOH Ministry of Health (Secretaria de Salud Publica) NGO Non-Govemmental Organization PCU Project Coordination Unit PRAF Family Assistance Program (Programa de Asignacidn Familiar) PRONEEAAH National Program of Education for Indigenous and Afro-Honduran Ethnic Groups (Programa Nacional de Educaci6n para las Etnias Autdctonas y Afro-Antillanas de Honduras) RUTA SOCIAL Regional Unit for Technical Assistance in the Social Sectors SECPLAN State Secretariat of Planning, Coordination and Budget (Secretaria de Planificaci6n, Coordinacidn y Presupuesto) SOE Statement of Expenditure UNDP United Nations Development Program (Programa de las Naciones Unidaa para el Desarrollo) UNESCO United Nations Education, Science and Culture Organization UNHA Honduran National Autonomous University (Universidad Nacional Aut6noma de Honduras) UNICEF United Nations International Children's Emergency Fund (Fondo de las Naciones Unidas para la Infancia) UPNFM National Pedagogic University (Universidad Pedagdgica Nacional Francisco Morazfin) UMCE Unit for Measurement of Education Quality (Unidad para la Medicidn de la Calidad Educativa) USAID United States Agency for Intemational Development WBI World Bank Institute Vice President: David de Ferranti Country Manager/Director\. Donna Dowsett-Coirolo Sector Manager/Director: Ana Maria Arriagada Task Tearn Leader/Task Manager: Joel Reyes  HONDURAS HN- BASIC EDUCATION CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 14 6\. Sustainability 16 7\. Bank and Borrower Performance 17 8\. Lessons Learned 19 9\. Partner Comments 20 10\. Additional Information 28 Annex 1\. Key Perfornance Indicators/Log Frame Matrix 29 Annex 2\. Project Costs and Financing 33 Annex 3\. Economic Costs and Benefits 36 Annex 4\. Bank Inputs 39 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 41 Annex 6\. Ratings of Bank and Borrower Performance 42 Annex 7\. List of Supporting Documents 43   Project ID: P007399 Project Name: HN- BASIC EDUCATION Team Leader: Joel E\. Reyes TL Unit: LCSHE ICR Type: Core ICR Report Date: June 21, 2002 1\. Project Data Name: HN- BASIC EDUCATION L/C/TFNumber: IDA-26940 Country/Department: HONDURAS Region: Latin America and Caribbean Region Sector/subsector: EP - Primary Education KEY DATES Original Revised/Actual PCD: 10/15/1993 Effective: 09/19/1995 12/27/1995 Appraisal: 08/08/1994 MTR: 02/25/2000 07/01/1997 Approval: 03/28/1995 Closing: 12/31/2000 12/31/2001 Borrower/lImplementing Agency: GOVERNMENT OF HONDURAS/MINISTRY OF EDUCATION Other Partners: GERMAN CREDIT INSTITUTE FOR RECONSTRUCTION (KREDITANSTALT FUR WIEDERAUFBAU- KFW) AND GERMAN AGENCY FOR TECHNICAL COOPERATION (DEUTSCHE GESELLSCHAFT FUR TECHNISCHE ZUSAMMENARBEIT - GTZ) STAFF Current At Appraisal Vice President: David de Ferranti Shahid Javed Burki Country Manager: D-M Dowsett-Coirolo Edilberto L\. Segura Sector Manager: Ana Maria Arriagada Kye Woo Lee Team Leader at ICR: Joel Reyes Anna Sant'Anna ICR Primary Author: Joel E\. Reyes; Anna Maria Sant'Anna; Jill Larnnert 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The project's objectives were: * To improve the quality of learning and student performance, inspire better teaching, increase school attendance, and create more effective learning conditions, thereby reducing student dropout and repetition rates and raising students' academic achievements\. * To strengthen the institutional capacity of the Ministry of Education (Secretaria de Educaci6n Publica - MOE) to deliver basic education services at higher levels of efficiency and fiscal accountability, leading to a reduction in administration costs\. 3\.2 Revised Objective: No revisions were made to the project objectives\. 3\.3 Original Components: Component A - Improving the Quality of Basic Education through five subcomponents: 1\. Training of Teachers, Principals and Supervisors at preschool and primary education levels (IDA financed); 2\. Textbooks and Didactic Materials, including classroom libraries and improved distribution facilities (co-financed by IDA and KfW); 3\. Bilingual Education for the Miskito and Garifuna communities (IDA financed); 4\. National System of Extemal Evaluation of student academic achievement (IDA financed); 5\. Infrastructure Improvements, including additional teachers, at preschool and primary education levels (co-financed by IDA and KfW)\. Component B - Institutional Strengthening through three subcomponents: 1\. Technical Assistance for the Reorganization and Decentralization of the MOE (IDA financed); 2\. Teacher's Performance Incentives Pilot Program (IDA financed); 3\. Project Administration, monitoring and evaluation (IDA financed)\. 3\.4 Revised Components: Several changes were made to the original project design due to (a) new national and sector priorities and policies, and (b) the emergency created by Hurricane Mitch in November 1998\. The specific changes are described below\. Component A\. Modifications were made to three subcomponents, as follows: (a) the teacher training subcomponent was modified in 1998 to replace the locally-based Teacher Training Centers (Centros de Actualizaci6n Docente - CADs) by a university-based teacher development program called Programa de Formacion Continua, PFC (Continuous In-Service Education Program) designed and implemented by the National Pedagogic University (Universidad Pedag6gica Nacional Francisco Morazan - UPNFM); (b) the bilingual education subcomponent was expanded from 2 to 8 ethnic groups; and (c) the infrastructure improvement subcomponent was modified to included construction of new primary schools instead of the expansion of existing schools\. Component B\. The most important change made to this component was to the pilot program of teacher performance incentives that was replaced by a community-based integrated approach to attract, retain and - 2-  improve the attendance of teachers in isolated rural communities\. This new program, Honduran Community Education Program (Proyecto Hondurefio de Educaci6n Comunitaria - PROHECO) was created in 1999\. Component C\. This third Component was added to the Project, through a Credit Agreement amendment, in response to the emergency created by the Hurricane Mitch in November 1998\. It financed emergency subprojects (prepared at the departmental, district and community levels) consisting of: (a) the acquisition and distribution of teaching materials, textbooks and other educational materials, acquisition of school furniture, provision of psychological assistance to the teachers, students and their families and/or other investment for productive purposes that met the criteria set forth in the Project Operational Manual; and (b) the provision of food supplements to students enrolled in those public preschools and primary schools selected by the MOE in accordance with the criteria established in the Project Operational Manual, through the Healthy Schools Program (Programa de Escuelas Saludables)\. An amendment to the legal documents signed in April 12, 1999, formalized the inclusion of this new component\. 3\.5 Quality at Entry: The overall quality at entry was satisfactory, based on: (a) the clarity of the project objectives and key performance indicators; (b) the economic analysis of project costs and benefits; (c) the analysis of the fiscal impact of the project and the required financing of recurrent costs with and without the project; (d) extensive stakeholders consultations including with Indigenous ethnic groups; and (e) the definition of specific strategies to minimize risks associated with the timely provision of counterpart funds\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The achievement of the Project objectives is rated satisfactory, based on the aggregated evidence of project outcomes with respect to: (a) positive trends on students' academic achievement (although % change is much lower in Spanish than in Math, and for 6th graders in comparison to 3rd graders); (b) improved growth enrollment rates for preschool and improved net enrollment rates for primary education (net enrollment rates evidence improved school efficiency through early access to school, appropriate age-to-grade enrollment, and reduced repetition rates); and (c) increased institutional efficiency shown in better delivery of educational services through decentralization and rural community-led models (which in turn improved access and educational indicators in rural areas) and in reduced administrative costs (nonetheless, in areas such as on-time delivery of textbooks and library books to schools and the management of intercultural and bilingual education, the MOE still needs to increase its capacity and efficiency)\. These results are described in more detail below\. * Raise Students' Academic Achievement\. Table 1 shows the series of test scores in standardized exams, carried out by the Project's supported External Education Quality Evaluation Unit (UMCE), between 1997-2000\. Higher test scores were attained in mathematics for both 3rd (19% positive change) and 6th graders (11% positive change)\. In Spanish, test scores remained the same (for 6th graders) or increased slightly (for 3rd graders)\. Although, Honduras still has broad margins for improvement (national scores are below the 50% mark), positive trends can already be inferred\. -3 -  Table 1\. National Standardized Test Scores in Math and Spanish for 3rd and 6th Graders: 1997-2000\. % of Change Between 1997-2000 in Standardized Test Scores in Spanish and Math for 3rd and 6'h Graders % change 1997 1998 1999 2000 1997-2000 National Spanish - 3rd grade 40 41 42 41 2 Spanish - 6th grade 46 47 n\.d\. 46 0 Math - 3rd grade 36 43 43 43 19 Math - 6th grade 35 40 n\.d\. 39 11 Source: UMCE * Improved Access and School Efficiency\. Table 2 documents the expansion in enrollment rates for preschool and primary education during the life of the project\. Preschool coverage of 4 to 6 year-old children, increased by approximately 9\.2 percentage points, from 29\.7% in 1995 to 38\.9% in 1999, largely as a result of the creation of the Community Centers for Initial Education (Centros Comunitarios para la Iniciacion Escolar - CCIE) financed by the Project\. Similarly, the net primary education enrollment among children, 7 to 13 years of age, increased by 3\.4% percentage points during the life of the project, from 86\.4% in 1995 to 89\.8% in 2001\. Improved net enrollment rates evidence not only increased access but also efficiency indicators such as early and appropriate age-to-grade enrollment, and lower repetition rates (see table 3 below)\. As a result, the average number of primary school years completed in Honduras is showing positive trends for all income quintiles (see table 4, below)\. Table 2\. National Student Enrollment Rates in Preschool and Primary School, 1990-1999 Preschool Primary Year Gross Enrollment Rate Gross Enrollment Rate Net Enrollment Rate (%) (%) (%) 1995 29\.7 97\.4 86\.4 1996 32\.6 98\.3 88\.0 1997 34\.2 98\.8 89\.1 1998 35\.4 98\.0 89\.0 19991/ 38\.9 97\.2 89\.8 Reference Population: 4-6 years 7-13 years 7-13 years 1/ Preliminary ennrlment figures\. Source: ESA Consultores\. "Ex-post Economic Evaluation of PROMEB\." Honduras, March 2002\. - 4 -  Table 3\. Impact of Increased Internal School Efficiency on Primary Education Student Flows Impact - Percentage Indicators Baselirte 1996 1997 1998 1999 2000 Dropout Rate NA 8\.95 9\.53 NA NA 3\.0 Repetition Rate 28\.0 9\.8 9\.4 9\.6 9\.2 8\.0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (1 9 8 8 ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Source: For net enrollment, completion rate and repetition rate, see Darlyn Meza\. Informe ICR-Honduras\. February 2002\. For dropout rate see PKF Worldwide\. Evaluaci6n del Impacto del Proyecto de Mejoramiento de la Educaci6n Basica\. January 2002\. Table 4\. Trends in Primary Education Attainment Cohort aged Average Primary years completed by Percent with primary years completed by 15 in year: income quintile income quintile 2 31 4 5; Avera 1 2 3 4 5 Avera _ J J~~~~~~~~~ j ~~~~~~ge ge 1994 4\.4 4\.5 48 5\.3 5\.7 5\.0 49 65 66 83 88 71 1999 4\.6 4\.8 5_2 5 5\.6 5\.1 52 63 71 81 87 70 Source: World Bank\. 'Project Appraisal Document: Honduras Community-Based Education Project\." Apnl 10, 2001\. * Improved Institutional Efficiency\. (a) Improved Education Services in Targeted Rural Communities\. Institutional efficiency was achieved through decentralization and community involvement in the provision of education services, especially in isolated rural schools\. In extremely isolated and hard-to-reach rural schools (representing about 11% of all primary schools), the impact of the decentralization and community participation program (called PROHECO) resulted in (i) an expansion of 1,020 primary schools in hard-to-reach rural areas; (ii) 7,100 parents, organized in 1,284 community education associations (called AECO), with direct school management functions; (iii) efficient allocation of more than 1,300 teaching staff; (iv) primary education access for over 40,000 children; and (v) reduction of 50% in repetition rates (Table 5)\. Studies evaluating the program show that the management of teaching staff, decentralized to the community level, has increased teacher attendance at PROHECO schools and is significantly higher than at traditional primary schools\. In particular, the UNDP/CEPAL study (Durston, September 1999) shows that PROHECO had an important impact in (i) ensuring the availability of teachers and educational materials in isolated rural schools; (ii) better attendance of both students and teachers; (iii) generating parental support to school activities; and (iv) creating a more efficient and participatory system of school management that ensures accountability to civil society in the application of public and community resources\. - 5-  Table 5\. Performance of PROHECO Prima Education Program Indicator 1999 2000 2001 Number of Schools 506 820 1,020 Net Student Enrollment (grades 1-6) 22,361 39,540 42,842 Average Repetition Rate (%) 18\.4 10\.8 9\.2 Number of Teachers 648 1,109 1338 Organized Parental Committees 645 1,179 1284 Parents Directly Involved in School 3,858 6,528 7,100 Management I Source: Secretaria de Educaci6n; Pryecto Hondureno de Educaci6n Communitaria: PROHECO (Tegucigalpa)\. January 2002\. (b) Improved Institutional efficiency is also apparent in the administration of the MOE as a result of its decentralization policies and community involvement, including lower transaction and transportation costs (since, for example, education materials are purchased by the school and community rather than centrally by the MOE) and school management support by communities\. In general, during the life of the project, MOE administrative costs were reduced by about 47%, from US$3\.96 million in 1996 to US$2\.12 million in 2001, as shown in Table 6\. Table 6\. Indicators of Increased Administrative Efficiency in the MOE (US$ millions) Indicator 1996 1997 1998 1999 2000 2001 MOE Administrative 3\.96 3\.48 3\.96 2\.10 2\.75 2\.12 Costs Source: Govemment of Honduras\. MOE Planning Department\. 2002\. 4\.2 Outputs by components: Component A: Improve the Quality of Basic Education ICR Rating: Satisfactory Subcomponent A\.1 Teacher Training\. This subcomponent successfully provided technical and financial assistance for pre-service and in-service training of teachers and administrators, initially through the teacher training centers (Centros de Aprendizaje Docente - CAD) in 1996 and 1997, and subsequently through the continuous in-service education program (Programa de Formacion Continua - PFC) of the National Pedagogic University (UJPNFM)\. A total of 1,449 CADs were established and supplied with appropriate teacher training materials, serving primary teachers nationwide\. In parallel, national and regional training seminar benefitted 2,800 preschool and 27,000 primary school teachers, 1,168 school principals, 1,756 supervisors, and 120 professors of Escuelas Normales (high-school level teacher training schools)\. Starting in 1998, the teacher training strategy was modified to focus on the Programa de Formaci6n Continua (PFC) to be implemented by the National Pedagogical University\. Although the CADs were not officially closed, subsequent teacher training investments concentrated on a university-level accredited Teacher Development program\. The PFC was especially designed for rural teachers, and included modules for content areas, multigrade pedagogy, and community involvement\. Changes in sector policy priorities regarding teacher training also affected the planned reform of Escuelas Normales (teacher training schools at the secondary education level), which aimed at reducing the number of schools from 12 to 4\. Rather than closing these secondary school (at a high political cost), the Pedagogical University is defining strategies to incorporate Escuelas Normales into a broader in-service teacher training system, which will - 6 -  require further university-level training for these students\. The PFC is also incorporating the CADs into its training delivery system, as local satellites where teachers can exchange classroom experiences and support each other with the application of the new content and methodologies learned in training programs\. Stakeholders perceived as positive the changes in teacher training policy\. Among the important achievement of the PFC teacher training program, is the development of curriculum, educational materials, and standardized tests for an accredited Associate Degree in Basic Education at the National Pedagogic University\. The revised curriculum includes multigrade and participatory teaching methodologies which are essential for improving teaching quality in rural areas\. Also, the financial sustainability of this program is being achieved\. The costs of university level training beyond two years (BAs or Master Degrees) will be financed by teachers themselves\. Already, 65% of the 2,000 plus teachers, benefited from the Project's PFC investments, have self-financed their continued university level training and education\. Subcomponent A\.2 Textbooks and Didactic Materials\. This subcomponent was successfully carried out through (a) the provision of technical assistance for the revision of existing primary school textbooks, student and teacher guides, field tests of new educational materials, and selection of library books; (b) the procurement of books for small classroom libraries; and (c) the financing of office equipment and operating costs for the MOE unit responsible for teaching and learning educational materials, and the improvement of distribution systems\. Given the decentralization and rural community participation policies, enacted during the life of the project, the provision of nondurable educational materials and complementary classroom supplies, for hard-to-reach rural schools, was managed by community education associations\. In terms of physical progress, targets were exceeded for the supply of textbooks, student supplies and classroom libraries (see Table 7)\. These increases in physical output included the replacement of textbooks and library materials destroyed or lost during Hurricane Mitch\. The large increase in the physical targets for this component required increased institutional capacity to design, produce and distribute education materials\. To this effect, KFW, a co-financier for this subcomponent, provided continuous technical assistance in the field\. The subcomponent provided educational materials (to complement training provided under component Al) for the Community Centers for Initial Education (Centros de Educaci6n Pre-escolar No Formal - CCIE)\. A total of 2,508 CCIEs were supported in rural communities, more than doubling the original target of 1,200\. The CCIEs successfully provided preschool education during the Summer for children entering the first grade of primary school in the Fall\. The teachers of CCIE were 15,700 community volunteers trained under the Project\. No civil works were involved in the establishment of the CCIE, as they operated in existing schools during vacations\. Evaluations of the CCIE program have shown that it provides preschool children with a minimum of school-readiness skills that help them improve their first grade performance\. - 7 -  Table 7\. Textbooks and Educational Materials Educational Materials Units Produced and Distributed Actual vs\. Original Target (%) Primary education textbooks for 11,740,698 273 grades 1 through 6 Student supplies for preschool and 48,160 1,447 primary school (including CCIE toys) Preschool and primary classroom 4,270 21\.3 libraries/ I_I 1/ The original design of classroom libraries was changed to school libraries, which explains the large differential between planned and actual achievements\. In terms of financial progress, the subcomponent utilized less than 50% of the original amounts budgeted for its implementation (see Annex 2)\. There are two reasons for this\. One, given that the physical targets in terms of textbooks, library books and didactic materials were exceeded, the expected costs and budgets allocated at time of project design were overestimated, even when the efficiencies and savings achieved during project implementation are factored in\. Second, the new decentralization and community participation policies included the transferring of funds to hard-to-reach rural communities to purchase nondurable education materials and other complementary classroom supplies\. The funds for these resources, thus, were transferred from the Textbook and Didactic Materials (subcomponent Al) to the Teaching Performance Improvement Program (subcomponent B2), from where the community-based education management strategy was financed\. In general, a particularly innovative feature of this subcomponent was the field testing of new education materials, which ensured the adequacy of the content and the presentation of the materials for the students and the teachers to whom they were intended\. One aspect of the implementation of this component was less than satisfactory, namely the original centralized and long distribution systems\. As a result, there were delays in the arrival of textbooks and materials to the schools in the beginning of each school year\. This problem was corrected by the MOE through intensive involvement of Departmental and District Offices as well as parents' organizations\. Subcomponent A\.3 Bilingual Education\. This component was partially successful in achieving its original expected outputs\. It intended to make broad reforms-from the macro level to the classroom-in Bilingual and Intercultural Education (BIE) in Honduras\. However, the benefits achieved focused only at the macro-level, and included (i) the normalization of the Miskito and Garifuna languages, (ii) the development of dictionaries and grammar reference materials, and (iii) the development of a number of textbooks and teaching materials\. The Project did not reach the classroom level, as originally intended\. This subcomponent was to focus on the two larger ethnic and bilingual communities in Honduras: Garifuna and Miskito (representing 61% of the Indigenous population in the country)\. However, during project implementation, the MOE decided to support the development of BIE education materials for two other languages, the Tawahka and Pech (see table 8 below), and initiate BEI assessments for four other groups: Chorti, Islefio-Criollo, Lenca, and Tolupan\. As part of the macro BIE reforms, the subcomponent supported the delivery of national training seminars on bilingual and inter-cultural education, improving awareness and understanding of new teaching methodologies\. Subsequently, the MOE and the National Pedagogic University (UNPFM) signed an agreement to set up an accredited Bilingual and Inter-cultural Education program to train specialized teachers\. Finally, within the development of the National Basic - 8-  Curriculum, the MOE is addressing the needs of BIE\. The trade-off of focusing on a large number of ethnic groups and on macro reforms was to postpone direct classroom support to Garifuna and Miskito school, as intended by the original subcomponent design\. The Govemment, however, continues to be committed to intercultural and bilingual education and has earnarked 10% of a new IDA education credit to support directly indigenous communities and BEI schools\. Table 8\. Didactic Materials Developed through the Bilingual Education Subcomponent Didactic Materials Grade Language Number Distributed Reading and writing primers 1 Miskito 1,000 Reading and writing primers 2 Miskito 1,000 Student guide package 1 Tawahka Not reproduced or distributed Student guide package 1 I Pech Not reproduced or distributed Source: ICR Mission Subcomponent A\.4 External Evaluation of Student Academic Achievements\. This subcomponent was very successful in meeting its objectives\. A Unit for the Evaluation of Education Quality (Unidad de Medici6n de la Calidad de la Educaci6n - UTMCE) was established at the National Pedagogic University\. The dMCE started applying standardized achievement tests in 1996 after its staff had been trained, the necessary equipment and physical resources were in place, and the prepaftory work of developing testing instruments had been completed\. The tests developed and applied covered Mathematics and Spanish for grades 2 through 6 and oral and written language for grades 2 through 5 (see Table 9)\. In addition, the UaMCE carried out several surveys to determine the main factors affecting the results of the student achievement tests, analyzed test results, and disseminated these results within the MOE, Departmental Offices and at the school level\. In 1999, due to hurricane Mitch, test application was interrupted, but was promptly reinstated in 2000\. As a result of the project, Honduras has now one of the most advanced standardized student achievement test systems in Central America\. Nevertheless, the Government is strongly committed to continue improving its education quality evaluation system, particularly in the following areas: (a) gradual increase of the test sample from 10% to 20% of the student population in each grade, in order to strengthen the reliability of results; (b) improved coordination between student achievement tests, curriculum development, didactic materials\. production, and teacher training; (c) expanded dissemination of test results at the school level; and (d) increased application of test results in education sector policy making\. Table 9\. Standardized Student Achievement Test Applied Test Year Grades Spanish and Mathematics 1996 3 and 6 Spanish and Mathematics 1997 2, 3, 4 and 6 Spanish and Mathematics 1998 2, 3, 4 and 5 Spanish and Mathematics 1999 3 and 6 Spanish and Mathematics 2000 2 and 3 at PROHECO schools Oral and Written Language 2001 2, 3, 4 and 5 Oral and Written Language 2001 2 and 4 Source: ICR missiom Subcomponent A\.5 Improvement of Physical Infrastructure in Rural Areas\. The performance of this subcomponent is rated satisfactory, although the original design was modified to address the demand for new schools rather than the need to expand existing schools\. The FHIS successfully carried out - 9-  construction design, implementation and supervision, building and furnishing for a total of 107 classrooms in 71 new schools; rehabilitated 39 existing classrooms; and furnished an additional 144 classrooms in schools built with GOH funds\. The subcomponent was co-financed by the GOH (14\.4%), KfW (84\.1%) and IDA (1\.5%)\. Standard designs were used in the construction of the new primary schools, consisting of 1-2 classrooms, kitchen, storeroom, lavatories, and water supply connection\. The MOE selected the school location, based on the school census; established the technical standards to be used by FHIS, including furniture specifications; and appointed a teacher for each of the new classrooms once construction was finished\. This subcomponent also financed construction and equipment for 13 new Departmental offices, rehabilitation and equipment for 5 existing Departmental offices, and construction and equipment of 120 District Offices\. When hurricane Mitch devastated Honduras in November, 1998, the physical infrastructure program was adjusted to respond to the needs of damaged schools, departmental offices and of the MOE building, which was virtually destroyed, resulting in considerable loss of physical assets and information, including many vehicles, office equipment, educational materials and other goods provided by the Project\. Part of the emergency resources were transferred to decentralized Departmental and District Offices of the MOE, enabling them to effectively address the emergency needs under their jurisdiction (see Component C)\. To ensure the sustainability of the school buildings, maintenance contracts were entered into between the MOE and the municipalities were the new schools were located\. A maintenance committee was formed for each school, consisting of five community members who were trained in basic preventive maintenance\. Finally, during 2001, the MOE initiated a pilot to promote and support community participation in education infrastructure and maintenance called "Ayuda Mutua" (Mutual Help), and so far 74 additional schools have been built and maintained directly by the community\. Component B: Institutional Strengthening ICR Rating: Satisfactory Subcomponent B\.1\. Reorganization, Decentralization, and Development of Management Capacity and Information System of the MOE\. The implementation of this subcomponent was successful in meeting its original development objectives, including the reorganization of the MOE and the decentralization to 18 departmental education offices\. Nonetheless, central MOE offices still need support to increase their management capacity and to integrate and consolidate their information systems\. Key achievements are highlighted below: * The reorganization of the MOE, carried out in 1996-1997 after extensive discussions with staff, resulted in a reduction from 80 to 20 administrative divisions at headquarters\. * Important procedural reformns were introduced in the MOE, notably through increased delegation of authority from the office of the Minister to Division heads at the central office\. * 18 Departmental Offices were created and assumed the following functions, originally handled by the central MOE: (a) processing of student graduation requests; (b) assessment and award of equivalencies for student transfers; (c) personnel management, including leave requests, permits, and benefits; (d) legal processing associated with school creation and classification; and (e) the handling of most administrative complaints\. The transfer of these functions to Departmental Offices resulted in significant process time savings for the public sector as well as for parents and students\. * The administrative reform of the MOE included a national strategy for parental and communal participation in the delivery of education services, through the PROHECO program\. * The new decentralized structure of the MOE and its Departmental Offices proved a key element in the success and speed of response to the emergency created by hurricane Mitch\. - 10-  * The proposed reformnof employment and salary regimes observed progress in the following areas: (a) in 1997 a new Teacher Statute (Estatuto Docente) was published; (b) during the 1998-1999 period, several instruments to operationalize the teacher statute were completed, such as detailed regulations and a manual of functions; and (c) a draft manual of positions and compensation has been extensively discussed with the teacher's union, and is currently being revised on the basis of in-depth analysis of the performance of teachers\. In 2002, a fiscal impact analysis carried out by the new Government showed the need to control radical increments in the education wage bill and, thus, salary regimes negotiations between the Government and Teacher Unions continue to-date\. * The current administration is committed to pursuing further administrative reforms in the sector and strengthening management capacity\. Subcomponent B\.2 Teachers' Performance Improvement Program\. This subcomponent was redesigned during project implementation in line with the new policies of decentralization, school-based management and community participation in the education sector\. The subcomponent's objective was to improve teaching performance in rural schools, especially those in isolated and hard-to-reach communities\. This objective did not change, but the specific intervention did\. The original (SAR) design focused on paying yearly bonuses to rural teachers to attract, retain and improve their attendance\. However, the new community participation policies provided the opportunity to involve rural parents and communities in the management of their schools, including the contracting and monitoring of teachers\. This new strategy, launched within the subcomponent, was called PROHECO (Programa Hondureno de Participaci6n Comunitaria)\. After only one year of implementation (in 1999), PROHECO was highly successful in attracting 650 teachers to hard-to-reach rural areas and, thus, providing school services to approximately 22,500 students, without previous education opportunities\. By the year 2001, over 1,000 new rural schools were functioning, 42,000 children were attending these schools, and more than 1,300 teachers had been attracted to rural communities traditionally not served by the centralized education provision system\. More than 5,000 rural parents are directly involved in school management through their participation in Community Education Associations (Asociaciones de Educaci6n Comunitaria, AECO)\. PROHECO was patterned after successful programs in El Salvador and Guatemala, and consisted of forming parental associations in rural areas to manage schools with financial resources directly transferred from the MOE\. This parental committees became formal and legal units within the education system; allowed to open schools; hire, pay and monitor teacher attendance; and, in general, manage public funds for school improvements\. The community-based strategy successfully accomplished the original goal of improving teachers' performance in rural areas, but also strengthened the process of decentralization through the active participation of community and parents' organizations\. An economic analysis of PROHECO costs and benefits indicates that the program has an internal rate of return of 11% (see Annex 3)\. As a newly emerging education strategy in Honduras, PROHECO is still in the process of learning, adjusting and improving\. Major changes were required especially in the area of school administration and financing\. Decentralizing public resources to more than 1,000 hard-to-reach and isolated rural communities has not been easy\. Traditional institutions such as the Ministry of Finance, the Auditors General, the Ministry of Education's administrative units, and even commercial banks have had to learn to work with rural parents and with simpler but effective management tools\. At times, financial transfers to the communities were delayed and rules and regulations had to be re-negotiated to guarantee both administrative efficiency and community involvement\. Nonetheless, all stakeholders are fully committed to continue to reform the education system in line with the positive evidence of school based management and community support\.  PROHECO evidenced the important role that parents and communities can play in the education sector, as well as the benefit of decentralization strategies focusing at the school level\. This impact has been perceived across the education system and the Government will strengthen school based management and community participation not only in rural areas but nationwide\. The new IDA Credit for the education sector (the Community Based Education Project) will not only expand PROHECO, but will support the formation of school governments in traditional schools with the participation of parents, principals, teachers and students\. In conclusion, this restructured subcomponent absorbed 20% of the project budget; however, it became the most innovative and far reaching education reform intervention in the last decade in Honduras\. Subcomponent B\.3 Project Administration, Monitoring and Evaluation\. The administration of the Project evolved through three quite different phases\. The initial start-up phase (1995-1997) was characterized by rapid turnover of Project coordinators and staff and a relative isolation of the Project Coordination Unit (PCU) from the MOE\. The second phase (1998-1999) is dramatically marked by the emergency created by hurricane Mitch\. The crises served as a catalyst to use project resources more effectively in support of the national educational system, providing for the rapid replacement of equipment, vehicles, didactic materials and information\. During this phase, the PCU began working with Departmental and District offices, which vastly increased its efficiency\. The third phase (2000-2001) is characterized by the good use of lessons leamed from previous years, improved efficiency, and consolidation of the administrative capacity\. A major output of this subcomponent was the design and consolidation of an automated financial management system for the Project\. Initially, financial accounting was done manually (with support of spreadsheets), but by 1999 a fully automated system was implemented\. Also, the new administrative and financial management system was adapted to the needs of the community-led components (mainly PROHECO) and contributed an important set of administrative manuals for community-based procurement and financial management\. Finally, in terms of the monitoring and evaluation outputs, the MOE and the PCU fully documented and systematized the implementation experience and lessons leamed from the key subcomponents of the projects, which have been published and disseminated, as well as contributed to the preparation of this ICR\. Component C\. ICR Rating: Satisfactory - Emergency Subprojects\. This subcomponent, introduced in early 1999, was very successful in enabling the MOE to participate in the National Emergency Plan in response to the destruction in the education sector caused by Hurricane Mitch\. The component was implemented largely through the Departmental offices with the objective to match well emergency investments with actual local needs\. To create this new component, an amendment was made to the project legal documents in April 1999\. This new component (absorbing US$ 1\.1 million or 2\.4% of total Project costs) financed direct transfers for education emergency subprojects at the departmental and community levels, including psychological assistance to teachers, students and their families, and for emergency education food supplements to students enrolled in schools severely affected by the hurricane\. However, the project also contributed to the education sector emergency through its regular components (educational materials and infrastructure), which did not require restructuring but did benefit from expedited procurement strategies to guarantee timely replacement of teaching materials, textbooks and other educational materials and acquisition of school furniture\. 4\.3 Net Present Value/Economic rate of return: The project can be expected to meet its projected goal of contributing to the economic development of Honduras through a higher rate of human capital accumulation achieved by increased years of schooling and positive trends in student cognitive achievement\. It is still too early to assess the full economic impact - 12 -  projected at appraisal, due to the difficulty of measuring, at this time, the quality improvements in educational services achieved by the project\. Nevertheless, for the ICR an update of the expected rates of return for the community education model, mainly PROHECO, was done\. The economic analysis update utilized a simpler measure of human capital accumulation, which keeps constant education quality and measures the impact of increased years of schooling of students\. It estimated the benefit stream based on the analysis of the household survey data for March 1999, as reported in Annex 3\. The estimation of the internal rate of return of the PROHECO model was based on the projected increase in earnings of the students, the real efficiency factors reported in PROHECO schools, and the real costs of the program\. The resulting internal rate of return is 11%\. This rate is still considered a lower-bound estimate, since community involvement in school management will probably result in additional improvements in efficiency and education quality, reducing the costs and increasing the specific value of the additional years of education for the students over their work lives\. Also, the original project fiscal impact expected cost savings generated by more efficient student flows in primary education\. Indeed, the analysis in Annex 3 shows that repetition rates were reduced during the life of the project, but less so than projected\. However, if one attributes to the project all the savings associated with the national repetition rates reductions, occurring between 1995 and 2000 (which may be overestimating the impact of the project), the cumulative value of the savings is $13\.1 million, or 17\.4% of the amount estimated at appraisal\. 4\.4 Financial rate of return: NA 4\.5 Institutional development impact: The project had a substantial institutional development impact, reflected in increased management capacity at the MOE, in the decentralization of MOE operations to departmental and district levels, and in the effective involvement of local communities in the provision of educational services\. These reform are exemplified by the following key improvements: * The community involvement in education services delivery, introduced by PROHECO (within the Teaching Performance Improvement Program), resulted in important savings from traditional centralized administration and opened up immense possibilities for improving the delivery of rural education services countrywide; * The reorganization and decentralization of the MOE strengthen its administrative capacity and increased the accountability at all levels of the system (departments, school districts, school and communities); * The newly created Departmental Offices of the MOE have the capacity to address most of the administrative needs of their constituencies, generating public and private savings in time and money accrued from their decentralized operation; * The Honduras education system now has the capacity to conduct standardized academic achievement tests of primary school students, throughout the country, on an yearly basis, and has the technical expertise to analyze test results and disseminate the information in ways that are meaningful for sector policy making; and * The Honduras education system has significantly improved its capacity to provide pre-service and in-service training for preschool and primary teachers, through the operation of the PFC by the - 13 -  National Pedagogic University\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The most substantial impact on Project implementation was caused by hurricane Mitch in November 1998\. This natural catastrophe caused great damage throughout the country and resulted in extensive loss of infrastructure, materials, and information in the education sector\. To respond to the crisis, an amendment was made to the project legal documents in April 1999, thereby integrating the project in the national Emergency Plan through a new emergency subprojects component\. This new component, although absorbing only US$ 1\.1 million of project funds (approximately 2\.4% of total actual project costs), was instrumental in providing resources at the departmental and community level\. Within the other original project components (mainly the educational materials and infrastructure subcomponents), expedited procurement strategies guaranteed timely replacement of teaching materials, textbooks and other educational materials and acquisition of school furniture\. Finally, the new added component provided for psychological assistance to teachers, students and their families, and for emergency education food supplements to students enrolled in schools severely affected by the hurricane\. 5\.2 Factors generally subject to government control: The provision of counterpart funds by the Government was below expected levels during the first two years of project implementation, although such deficiency was effectively redressed as of 1998\. Project administration suffered from high personnel turnover during its start-up period, but beginning with the new administration in 1998, governmental support for the Project was clearly strengthened and project implementation benefitted accordingly\. 5\.3 Factors generally subject to implementing agency control: * Frequent changes in Project Coordinator\. During the six years of project implementation, the UCP Coordinator changed four times\. Changes in key personnel resulted in implementation delays, loss of institutional memory, and renewed need to train new staff to carryout basic project execution functions and familiarize new people in IDA normns and procedures\. * Relative isolation of the PCU from the MOE\. Although several attempts were made to fully integrate project management into the regular administration of the MOE, the PCU in fact worked independently, stating that this relative autonomy improved efficiency\. However, seeking to improve the level of project ownership by its permanent staff, the MOE has created a new organizational strategy to manage projects financed by multilateral Banks: only an Administrative and Financial Unit will be created to handle credit and loan specific procedures, but all technical management and decision making will be the responsibility of the line units of the MOE\. Technical consultants will be hired within the technical units of the MOE, and not independently by a PCU\. * Delayed operation of the Financial Management System\. During 1996-1998, financial accounting was done manually with support of spreadsheets, generating problems in systematic and on-time reporting and internal control\. An automated financial management system was formally adopted in 1999\. This automated system also facilitates integration with other financial management systems, especially with those designed by the Ministry of Finance\. 5\.4 Costs andfinancing: Total project costs are estimated at US$50\.52 million (US$53\.1 total budget minus US$2\.58 undisbursed at project end) or 95% of the appraisal estimate (see Annex 2)\. Allocated IDA credit funds utilized by the Project were US$28\.9 (above 96% of the US$30 million equivalent credit)\. The non-utilized funds of - 14 -  US$1\.1 million undisbursed funds will be canceled from Credit 2694-HO\. Project financing by source is estimated in Table 10 below\. Table 10\. Latest Estimate of Total Project Costs Source of Financing (US$ million) Total sComponent 5 IDA GOH KfWV (US$ million) A\. Improving the Quality of Basic 10\.32 1\.2 13\.3 24\.82 Education B\. Institutional 17\.48 7\.12 0\.0 24\.6 Strengthening C\. Emergency 1\.1 0\.0 0\.0 1\.1 Subprograms Undisburse 1\.1 1\.48 2\.58 Total 30\.0 7\.8 13\.3 53\.1 The pattem of IDA Credit disbursements given in Table 11 below, shows that in 1997-1998 (FY98) disbursements were markedly slow, reflecting project management difficulties\. However, these disbursement delays were fully compensated in 1998-1999 (FY99) reaching an annual peak of US$9\.8 million\. Table 11\. Actual Disbursement of IDA Credit 2694-HO (US$ million) FY96 FY97 - FY98 \. FY99 FY01 FY02 Per year 2\.62 4\.31 1\.08 9\.78 4\.68 3\.89 2\.54 Cumula 6\.93 8\.01 17\.79 22\.47 26\.36 28\.90 Note: The total disbursed IDA funds of US$28\.9 million equivalent reflects an amount of US$1\.1 million equivalent undisbursed from a total approved IDA credit of US$30 million equivalent\. 6\. Sustainability 6\.1 Rationale for sustainability rating: It is likely that the Project will maintain, over its economic and impact life, the achievements generated during its implementation\. Project impact sustainability is based on the following considerations: 1\. Strong government commitment to continue to improve the delivery of basic education services\. 2\. The mobilization of the active participation of community members and parents in the management of preschool programs and primary schools\. 3\. The preparation and approval of a follow-on education project -- Community-Based Education Project, financed by IDA Credit 3497-HO which will continue, expand and enhance the most successful activities initiated by the Project\. Specifically, the new project will: * complement textbooks with additional educational materials to guide pedagogic adaptations required for multigrade and inter-cultural education; * continue to support standardized national student achievement tests in Mathematics and Spanish, as well as surveys on factors affecting test results, to provide effective feedback to teachers and parents; * continue the teacher training program (PFC) and introduce a BIE training program for teachers and - 15-  community volunteers; * expand the PROHECO program at preschool and basic education levels, including in indigenous comrnmunities; * strengthen the operation of Departmental and District offices; * focus on school and community level education investment for ethnic communities of Honduras by the development of a bilingual and inter-cultural teacher training program (already set up within the National Pedagogical University) and by earmarking at least 20% of new PROHECO schools in indigenous communities; and * continue to support the process of MOE decentralization, by channelling financial resources directly to schools for the implementation of their own school-improvement subprojects, giving priority to the schools located in the poorest rural areas\. 6\.2 Transition arrangement to regular operations: Many project activities have already been mainstreamed into the regular sector operations\. Of particular importance is the institutionalization of the programs managed by the National Pedagogic University, including teacher training and external evaluation of student academic achievements, and the involvement of local community and parents in the management of schools\. To maximize the benefits of the Project, the MOE and IDA agreed on the following transition plan: * Continue support for the education decentralization policies; * Strengthen school-based management not only in rural areas but system-wide; * Consolidate the National Standardized Testing System, improving its articulation with on-going curriculum reforms, production of didactic materials, and teacher training; * Strengthen the university-based teacher training system by articulating it with the local teacher leaming circles (CADs) in an integrated National Teacher Training System; * Absorption of operation costs of at least 800 PROHECO schools, which already has been incorporated in the MOE's recurrent budget; * Support the planned expansion of at least an additional 800 PROHECO schools in hard-to-reach rural areas (of which 200 in ethnic communities); * Strengthen the integration of education policies throughout projects financed by different donors and with community participation; * Continue to strengthen the institutional capacity of the MOE to administrate, monitor, and evaluate the delivery of educational services, taking into account the lessons learned through this Project; and * Continue utilization in future operations of automated financial management systems developed in this project\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: IDA performance in the identification, preparation and appraisal of the Project is rated satisfactory, based on the following reasons: * The objectives of the project were consistent with GOH priorities and were clearly and concisely stated; * During project preparation, a multidisciplinary IDA team supported the GOH in the design of the project, through needs assessments, feasibility studies, stakeholders consultations, and preparation - 16-  of action plans\. * Project risks were identified during preparation and mitigated through strategies incorporated into the project design\. * Project design was innovative in the preparation of the economic, fiscal, and risk management analyses, and, consisted with country assistance objectives, providing for the articulation between the project and other institutional reforms being carried out at the time by the Ministry of Finance and the Ministry of the Presidency\. * Project design was successful in attracting co-financing\. 7\.2 Supervision: IDA performance in supervising the Project is rated satisfactory, based on the following considerations: * Careful project supervision gave the project the necessary flexibility to respond well to changing needs of the country and the sector; * IDA was responsive to positive policy changes regarding teacher training, school-based management and community participation, and particularly in enabling an efficient response to the emergency created by hurricane Mitch; * The restructuring of the Teaching Performance Improvement Program by relying on high parental and community involvement in their schools (the PROHECO program), led the way for further decentralization, school-based management, and community participation reforms in the sector; * Team work among Task Managers in the Central American region and cross-fertilization of best practices, which was best exemplified by technical assistance and lessons learned provided to PROHECO from the successful EDUCO program in El Salvador; * Upon less than satisfactory implementation of the project during its first two year of life and Government request for additional IDA team support, technical assistance, policy dialogue, and continued monitoring and supervision of the Project was increased\. IDA's intensive follow-up during the last three years of project implementation contributed to the Project achieving satisfactorily its development objectives and component outputs and disbursing almost fully (94%) credit proceedings; * Continued IDA focus and technical assistance on fiduciary aspect of project implementation contributed to greater accountability and the financial institutionalization of key programs, such as PROHECO, with the regular administrative and financial systems of the MOE; * Sector dialogue was maintained throughout the project supervision period, facilitating timely adjustments and the introduction of innovative programs, as well as an agreed plan for transition of project component to the regular operations of the MOE; and * During supervision, IDA supported external evaluations of key project components, which led to an improved design of the follow-on education project\. * Notwithstanding the positive aspects of IDA supervision mentioned above, more intensive supervision during the start-up phase of project implementation (1996-97) might have precluded the low implementation and disbursement rates and earlier deficiencies in the automated financial system\. 7\.3 Overall Bank performance: Overall IDA performance is rated satisfactory as a result of the factors mentioned in sections 7\.1 and 7\.2, above, and summarized below: * Flexible response according to client and sector needs and expectations; * Intensive supervision and technical assistance after 1998 and especially during and after the Hurricane Mitch catastrophe; - 17 -  * A successful support for community-led policies and incorporation into project components; and * Field visits and direct dialogue with project beneficiaries at the school and community levels\. Borrower 7\.4 Preparation: The Government performance during preparation was satisfactory\. The MOE led the process of project preparation and worked directly with IDA teams supporting the process\. Project design was directly linked to the sector priorities of the time and the recommendations of the various feasibility studies were also incorporated\. 7\.5 Government implementation performance: The Borrower's performance during project implementation is rated satisfactory\. The GOH embraced a complex and ambitious project with full commitment to its objectives and invested the best of its ability in making the Project a success\. At mid-term, recognizing key project execution weaknesses, GOH re-committed to project goals and guaranteed the achievement of the implementation and development objectives by project end\. Most importantly, the GOH demonstrated extraordinary capacity to utilize the lessons leamed during the initial phase of project implementation and introduce timely changes in project design and management that greatly enhanced the overall quality of the project and ensured the sustainability of its benefits\. 7\.6 Implementing Agency: The performance of the MOE is rated satisfactory\. In spite of the project management weaknesses during 1996-98 (very slow project start up, continued turnover of PCU staff, and weak financial management systems), the MOE tumed around very successfully and, during the last three years of implementation of the project, increased execution, met and surpassed physical targets, guaranteed the development objectives, and ensured the transition and ownership of project activities after credit closing\. Of particular interest is the fact that the MOE was able to successfully complement its installed capacity by mobilizing the participation of other institutions such as the National Pedagogic University, as well as local communities and parents in the effort to improve the delivery of basic educational services\. 7\.7 Overall Borrower performance: In general, the GOH performance is rated satisfactorv\. The GOH is praiseworthy in supporting the MOE in carrying out bold reforms in its structure and decentralizing important functions to departmental and district levels, even though institutional reforms in the education sector are particularly difficult given the size and the political ramifications of the sector\. The GOH also ensured the necessary inter-ministerial coordination to keep the implementation of the project consistent with national priorities, especially in line with the decentralization and community participation policies of the MOE\. Lessons were leamed regarding the first two years of less-than-satisfactory project implementation, and the project was successfully revamped and its objectives achieved\. 8\. Lessons Learned The main lessons learned through the implementation of the Project are: * A community based strategy can lead to rapid improvements in the delivery of education services in rural areas\. The evaluation of PROHECO confirms the success of similar models previously applied in El Salvador and Guatemala\. Benefits from direct community involvement in the management of rural schools include access to education in very isolated rural communities which never had a school, attracting and retaining teachers in those schools, and increasing attendance of both teachers and students\. - 18-  * The achievement of project development objectives is best guaranteed by appropriate adjustments to the changing needs of the country and the sector\. Project implementation demonstrated that the changes made to project design, particularly in so far as teacher training and performance improvements and community-led development, were key elements to the success of the project\. The innovative restructuring of the teacher incentives components into the PROHECO program proved particularly felicitous\. * The development impact of external evaluation of student learning achievements is greatly enhanced when results are broadly disseminated and utilized in sector policy decision-making\. The establishment of a national system of external evaluation of student learning achievements is a necessary first step; nevertheless, practical measures to improve education quality, and consequently student learning achievements, depend to a great extent in translating test results to specific classroom-based teaching and learning strategies, in involving parents and community members in monitoring the quality of the educational services delivered, and in incorporating lessons learned from the evaluations in the training of teachers and in the development of educational materials\. These tasks are still the focus of the Honduras education system and being addressed by a follow-up project\. * Maintenance Agreements for the sustanability of education infrastructure must be supported by adequate financing\. Although the MOE was able to sign maintenance agreements with most municipalities where school infrastructure improvements were made, and maintenance committees were trained to operate in these schools, the impact of these agreements were dependent upon the establishment of appropriate funding mechanism to support maintenance activities\. Such funding does not need to be solely provided by the MOE, and cost-sharing arrangements with other stakeholders, including municipalities, are being explored\. * The production of textbooks and other education materials must be supported by an efficient distribution system\. Delays occurred, during the beginning of the school year, in the delivery of education materials to the schools\. The MOE is exploring different alternatives to minimize this problem in the future, such as more active involvement of decentralized offices, parent's organizations, and the private sector\. While this problem is common in many other countries besides Honduras, solutions are needed to fully harvest the benefits of improved didactic materials and the on-time availability and utilization in the classroom\. * New textbooks should be consistent with changes in curriculum\. The problem of consistency between textbooks and curriculum reform is not easily resolved, given the preparation time involved in both activities\. Nevertheless, efforts must continue to make new textbooks reflect important modifications in the curriculum\. * The production of new education materials is significantly enhanced by the systematic field test of such materials\. It is important to carry out field test of all the elements of new educational materials: their contents, language, illustrations, and overall presentation\. Field tests will help ensure the pertinence of the didactic materials and the development of precise specifications for production\. It is especially important to verify what is the language level accessible to most teachers while preparing teaching guides\. - 19-  9\. Partner Comments (a) Borrower/implementing agency: I\. Consideraciones Generales El Banco Mundial present6 un informe de evaluaci6n inicial basado en los resultados de la misi6n que visit6 Honduras en Agosto de 1994\. Dicho informe (Informe de Evaluaci6n Inicial, Honduras, Proyecto Escuela Morazanica\. Reporte No\. 13791-HO, Banco Mundial 8 de marzo de 1995) reflej6 problemas claves, tratados bajo tres enunciados: calidad, eficiencia y equidad\. Para responder a las necesidades del sector educativo, el Proyecto Mejoramiento de la Calidad de la Educaci6n Basica (PROMEB) naci6 a traves del Convenio de Credito NO\. 2694 - HO de fecha 21 de junio de 1995, firmado entre el Gobiemo de Honduras y la Asociaci6n Intemacional de Fomento (ATF)\. El financiamiento total del Proyecto fue de US$53\.1 millones de d6lares donde la AIF aporta US$30\.0 millones, el Gobiemo de Alemania a traves de la KfW aporta US$13\.3 millones de dMlares y el Gobiemo de Honduras aporta US$9\.8 millones\. Los principales objetivos del Proyecto fueron: * Mejorar los niveles de rendimiento academico y reducir la tasa de repetici6n de los estudiantes matriculados en las escuelas primarias puiblicas\. * Incrementar la asistencia escolar y crear condiciones de aprendizaje mas efectivas\. * Proveer educaci6n bilingiue en las escuelas primarias publicas que sirven a los grupos etnicos Miskitos y Garifunas\. * Mejorar la eficiencia administrativa de la SEP\. Se crearon convenios de asistencia tecnica relacionados con la ejecuci6n del convenio de credito, tales como: Convenio FHIS, Convenio UPNFM, Convenio Programa Formaci6n Continua (IJPNFM), Convenio KfW/GTZ, y Convenio con el PNUD\. Los componentes del PROMEB fueron: Meioramiento de la Calidad de la Educaci6n Basica (US $38\.2 millones, 6 72% del costo total del Proyecto, incluyendo contingencias)\. El componente fue orientado a proporcionar: a) capacitaci6n y asistencia para mejorar las habilidades de los maestros, directores y supervisores de pre-primaria y primaria, y para lograr mejoras en la formaci6n de maestros previa al servicio y la certificaci6n de maestros; b) materiales didActicos, incluyendo libros de texto, materiales complementarios, bibliotecas de aula y mejores sistemas de distribuci6n; c) educaci6n bilingiie en areas indigenas para las comunidades, Garifana y Miskito; d) evaluaci6n extema del logro academico estudiantil; y e) mejoras en infraestructura para escuelas rurales sobrepobladas, incluyendo maestros adicionales y acceso a la educaci6n pre-escolar manejada por la comunidad en Areas rurales pobres\. Fortalecimiento Institucional (US$14\.0 millones 6 28% del costo total del Provecto\. incluyendo contingencias)\. Este componente tuvo los subcomponentes siguientes: a) asistencia tecnica para la reestructuraci6n y la descentralizaci6n de la SEP y una mejor supervisi6n; b) un programa piloto de incentivos al desempefio de maestros; y c) administraci6n, monitoreo y evaluaci6n del Proyecto\. - 20 -  Enmiendas del Convenio de Credito\. Con fecha 12 de abril de 1999 se efectu6 la primera enmienda del credito AIF 2694-HO\. Incorporindose el financiamiento con fondos del cr6dito: Los subproyectos formulados en el Plan de Emergencia y la reorientaci6n del sub-componente Programa de Incentivos a Maestros por el Programa Hondurefio de Educaci6n Comunitaria (PROHECO)\. II\. Impacto Un factor externo importante en la evaluaci6n del Proyecto es el Huracan Mitch, que tambien afecto a la SEP en si, destruyendo o daniando parte de la infraestructura de oficinas, equipo y archivos\. Dentro de lo administrativo las consecuencias fueron un retroceso institucional debido al gran dafio en las oficinas centrales, una disminuida capacidad de acci6n del nivel central y la perdida de expedientes\. Respecto al Proyecto PROMEB la consecuencia principal del Mitch fue que la administraci6n gubemamental introdujo el concepto de emergencia, lo que a su vez modific6 la asignaci6n de recursos y obviamente los objetivos del Proyecto se vieron afectados\. En el proceso de descentralizaci6n el PROMEB jug6 un papel importante, ya sea como financiador de infraestructura y de costos de funcionamiento o como impulsor activo\. En un balance entre estos dos factores podemos decir que mas peso tuvo el factor financiamiento que el factor tecnico en si, a tal punto que se podria decir que si el PROMEB no hubiera financiado varios componentes claves, la descentralizaci6n hubiera sido hoy inexistente o del todo formal\. Si consideramos las experiencias de otros paises, se puede decir que se avanzo bastante rapido durante los afios 1999 - 2001\. Se avanzo con exito en aspectos como descentralizar las siguientes funciones: la apertura de nuevos centros educativos, los tramites de titulos de bachiller, las adecuaciones del calendario escolar a cada regi6n, y en lograr la participaci6n de la comunidad en diferentes areas y la programaci6n, formulaci6n y ejecuci6n presupuestaria en cada Direcci6n Departamental\. Ademas existen ciertos avances en la implementaci6n de un sistema administrativo financiero integrado\. En conclusi6n, el PROMEB tuvo un impacto relativo en la educaci6n basica de Honduras\. El impacto fue focalizado, y se evidencia sobre todo en el apoyo a la descentralizaci6n de la SEP, a traves de infraestructura, insumos y salarios, la distribuci6n de textos y el mejoramiento de la infraestructura educativa\. III\. Principales Logros A\. En los subcomponentes con el financiamiento con el prestamo HN-26940 Banco Mundial se identificaron los siguientes logros: a\. El subcomponente de Capacitaci6n\. - 21 -  Este subcomponente se disefio con el prop6sito de promover una ensefianza mas efectiva al mejorar las habilidades especificas de ensenanza a traves de programas de formaci6n de maestros y capacitaci6n, y de la introducci6n de criterios objetivos y tecnicos para la contrataci6n de nuevos maestros\. Se destacan los siguientes logros: * A trav6s del programa de capacitaci6n de INICE se formaron en forma de cascada 27,000 docentes de primaria, 2,800 docentes de pre-primaria, 1,756 supervisores de primaria, y 120 profesores de escuelas normales\. * Se desarroll6 e institucionaliz6 el Programa de Formaci6n Continua (PFC) por la Universidad Pedag6gica Nacional Francisco Morazan (UPNFM) y se formaron 2,253 docentes\. * Se dio capacitaci6n a 23,200 voluntarios de los CCIE\. * Se desarroll6 m6dulos para la capacitaci6n de maestros, incluyendo: El Gobiemo Escolar, La Escuela Comunitaria, Trabajo Productivo, Aprendamos Juntos, y El Repaso Escolar Clave\. * Se editaron y se distribuyeron titulos relacionados con la capacitaci6n de docentes\. * Se formaron 1,449 proyectos de capacitaci6n CADs\. Como se puede observar, los indicadores definidos para la capacitaci6n de profesores de escuelas normales, voluntarios del CCIEs y proyectos de capacitaci6n CAD fueron alcanzados y superados\. Las otras metas fueron atendidas pero sin un avance significativo\. b\. El subcomponente de Educaci6n Bilingiie Entre los logros de este subcomponente se cuenta: i) estandarizaci6n, gramatica y diccionario de las lenguas Miskita y Garifuna; ii) desarrollo de seminarios y talleres sobre fundamentos curriculares de la Educaci6n Intercultural Bilingiie (EIB) el las comunidades de los ocho pueblos indigenas y negros de Honduras; iii) realizaci6n con exito y desarrollo de un programa continuo de capacitaci6n en antropologia, lingiiistica, y pedagogia para los miembros del PRONEEAAH\. Otros logros incluyen: * Se realiz6 la propuesta para el desarrollo del diccionario y gramatica Pech y Tol\. * Se distribuyeron 1000 ejemplares de cada una de las cartilla de lecto escritura para ler y 2do grado en misquito\. * Se edit6 el libro para colorear 1, Lilka nanira Katataka Yabala Wanhkataya\. * Se desarroll6 un estudio de etnohistoria Garifuna\. * Se formaron 24 miembros de las diferentes etnias del pais mediante el diplomado de World Bank Institute (WBI), como parte de un grupo semilla\. * Se equip6 a las 14 unidades de Educaci6n Intercultural Bilingiie que existen en las direcciones departamentales c\. El subcomponente de Evaluaci6n Externa En este subcomponente se desarroll6 e implement6 la Unidad de Medici6n de la Calidad Educativa (UMCE) al interior de la UPNFM y la Direcci6n General de Evaluaci6n de la Calidad Educativa (DIGECE) al interior de la SEP para generar la capacidad tecnica e institucional para brindar informaci6n valida y confiable sobre los logros academicos en Espafiol y Matematicas de los educandos que cursan el nivel primario del pais\. El Sistema de Evaluaci6n Extema evalu6 cada afio, sistematicamente a una - 22 -  muestra nacional representativa de estudiantes de primaria, en las materias de espafiol y matemitica\. Para el proceso de evaluaci6n, se cre6 la red desconcentrada de evaluaci6n que funciona en 16 Direcciones Departamentales de educaci6n, 29 representantes de 29 sedes distritales para facilitar el proceso de evaluaci6n en todo el pais\. El personal involucrado en las evaluaciones fue capacitado en tecnicas de aplicaci6n de pruebas estandarizadas\. Las evaluaciones que se realizaron por afio son las siguientes: 1997 - Evaluaci6n de Tercer y Sexto grados, 1998-Evaluaci6n de Segundo, Tercero, Cuarto y Sexto grados, 1999-Evaluaci6n de Segundo, Tercero, Cuarto y Quinto Grados, 2000-Evaluaci6n de Tercero y Sexto grados, y evaluaci6n del nivel academico de los estudiantes de segundo y tercer grados del Proyecto Hondurefio de Educaci6n Comunitaria, PROH-ECO\. Ademas, * Se revisaron los indicadores de logro acad&mico y se desarrollaron tablas de alcance de logro acad6mico para cada grado evaluado, en donde se establecen los estandares minimos en t6rminos de areas de dominio y competencias especificas que los estudiantes deben lograr en Espanol y Matematicas * Se publicaron los resultados de las evaluaciones, ademas de los resultados de los estudios de factores asociados al rendimiento academico de los estudiantes\. * Se disefiaron planes de capacitaci6n en Evaluaci6n Pedag6gica, los cuales beneficiaron mas de 2,350 maestros, directores y tecnicos distritales\. * Se formaron aproximadamente 600 docentes en la ensenanza de matematicas y espafiol, utilizando las publicaciones de la UMCE que a manera de retroalimentaci6n ha disefiado para reforzar el trabajo del docente en el aula\. d\. El subcomponente de Reorganizaci6n y Descentralizaci6n del MOE A partir de 1996 se inici6 el proceso de reorganizaci6n de la estructura funcional de la SEP, procurando con ello una mejor utilizaci6n de los recursos humanos, tecnicos y financieros\. En el nivel central se logr6 una mayor eficiencia a traves de la simplificaci6n y reducci6n de la estructura organizacional de la SEP, la eliminaci6n o consolidaci6n de unidades, traslado de competencias al nivel desconcentrado, la capacitaci6n tecnica y administrativa, y la reforma de los regimenes de empleos y salarios\. Como parte de la desconcentraci6n administrativo, con el decreto legislativo No\. 0034-96, se crearon las direcciones Departamentales de Educaci6n\. La desconcentraci6n permiti6 que el nivel central transfiriera funciones y competencias a la Direcciones Departamentales; al final del afno 1999 ya se habian transferido mas de doce funciones\. La Gerencia Administrativa desconcentr6 el manejo del presupuesto a traves del traslado de transferencias a las Direcciones Departamentales\. Se implement6 el Sistema Integrado de Administraci6n Financiera (SIAFI), lo cual permiti6 mejorar la gesti6n administrativa y habilit6 a los directores y gerentes de negocios departamentales para el manejo de la administraci6n presupuestaria\. Se construyeron 13 edificios para las Direcciones Departamentales y se repararon y adecuaron otros 5 edificios\. Todas las Direcciones Departamentales fueron equipadas con equipos de c6mputo y se las entregaron 18 vehiculos\. Adicionalmente se entregaron 44 vehiculos y 194 motocicletas para el trabajo de campo, incluyendo a los promotores de PROHECO\. - 23-  e\. El subcomponente de Incentivos para Maestros A finales de 1998, en parte debido a los dafios que ocasion6 el Huracan Mitch y la iniciativa presidencial de contar con un programa de participaci6n comunitaria en la gesti6n escolar, se hizo una addenda al Proyecto para crear el Programa Hondurefio de Educaci6n Comunitaria dentro del componente Fortalecimiento Institucional\. PROHECO tenia el prop6sito de proveer servicios educativos a las comunidades rurales mas distantes del pais, donde no existia servicio educativo\. Dentro de los logros del programa son los siguientes: * Se cre6 una Coordinaci6n General del programa, que tiene como funciones principales coordinar la promoci6n, organizaci6n, y capacitaci6n de las AECOS y coordinar las actividades administrativas y financieras, de transferencias y liquidaciones de las mismas\. * Se di6 asistencia tecnica a las AECOs, especificamente en el proceso de liquidaci6n de transferencias de fondos y revisi6n de la documentaci6n legal y contable de la AECO\. * Se habilitaron aulas para que funcionen como escuelas, movilizando para ello a la comunidad de las areas rurales mas desprovistas, mejorando el acceso de los nifios mas pobres a la educacion pre-escolar y primaria\. * Se crearon, en 13 departamentos del pais, 800 escuelas comunitarias, donde se atendieron cerca de 40,000 alumnos del area rural\. Se organizaron 1,284 AECOs con personalidades juridicas\. Se capacitaron aproximadamente 5,700 padres y madres de familia en el nuevo modelo de gesti6n administrativa en educaci6n comunitaria, quienes deberian contratar directamente a los maestros, administrar los recursos necesarios para el pago de salarios y la adquisici6n de materiales educativos menores\. Se entregaron paquetes con materiales didActicos a las 800 escuelas y se entregaron becas de excelencia academica a 4,000 alumnos\. f\. El subcomponente del Plan de Emergencia En noviembre de 1998, la AIF autoriz6 a la secretaria de educaci6n para utilizar fondos del proyecto, de hasta 15 millones de d6lares para apoyar la reconstrucci6n del sistema en el periodo de emergencia, bajo el contexto del plan de los cien dias y asi reactivar el sistema educativo nacional\. Con estos fondos se financiaron las actividades de apoyo a las Direcciones Departamentales y Direcciones Distritales para la rehabilitaci6n de centros de albergue, la rehabilitaci6n o adecuaci6n de centros educativos, apoyo a los docentes y alumnos extremadamente damnificados, apoyo a pequefios proyectos educativos con participaci6n de la comunidad, la compra de bienes y servicios con caracter de emergencia en apoyo a actividades de reconstrucci6n y transformaci6n, y acondicionamiento y reparaci6n de la oficina central de la SEP y de las oficinas distritales y departamentales mas afectadas por el Mitch\. Otros logros del subcomponente son: * Se adquirieron y distribuyeron materiales que se habian perdido en el huracan a escuelas de pre-primaria y primaria\. * Se di6 asistencia al subcomponente Educaci6n Bilingiie para realizar actividades de capacitaci6n relacionado con el diagn6stico de las condiciones prevalecientes en las comunidades garifunas y misquitas, el tratamiento del amarillamiento letal del cocotero, la adquisici6n y distribuci6n de materiales a 37 escuelas misquitas y garifunas en los departamentos de Atlantida, Col6n y Gracias a Dios\. * Se repusieron un total de 44 vehiculos para las oficinas centrales, se suministraron 199 motocicletas - 24 -  para los Directores Distritales\. g\. El subcomponente de Administraci6n, Monitoreo y Evaluaci6n La administraci6n del proyecto fue coordinada por la Unidad Coordinadora de Proyecto UCP\. Esta unidad fue responsable de monitorear los proyectos por la SEP, FHIS, PFC y UMCE\. A cada Componente del Proyecto fue asignado un coordinador y un responsable por subcomponente\. La UCP tuvo la responsabilidad de: la preparaci6n de planes de ejecuci6n, la preparaci6n de los informes de ejecuci6n, el procesamiento de la documentaci6n para el desembolso del Credito de y otros fondos del Proyecto, asi como la adquisici6n de bienes y servicios, la ejecuci6n de las tareas de adquisici6n, el mantenimiento de registros y cuentas separadas, el manejo de los fondos del Proyecto y el monitoreo de la ejecuci6n y la evaluaci6n de impacto del Proyecto\. Despues de la evaluaci6n de medio termino, en lo que corresponde al anio 2000, las actividades de seguimiento y monitoreo y la aplicaci6n de las recomendaciones de la evaluaci6n se mejoraron en aspectos de la generaci6n de informaci6n para la toma de decisiones\. Los logros del subcomponente son los siguientes: * Se desarrollo e implement6 un sistema de contabilidad completo que pernite la definici6n de las cuentas contables, asi como las categorias de gasto, para completar la nomenclatura contable, asociadas a los componentes del proyecto\. Con este sistema se puede tener el control de la informaci6n financiera, por ano y subcomponente\. * Se realiz6 la evaluaci6n de impacto del PROMEB\. B\. En los componentes con el financiamiento de KfW se identificaron los siguientes logros: a\. El subcomponente de Textos y Materiales Didicticos * Se revisaron los libros de la serie "Mi Honduras", del proyecto Mejoramiento de la Eficiencia de la Educaci6n Primaria financiado con prestamo de USAID para hacer cambios sustanciales en los contenidos y publicar los textos revisados\. * Se actualizaron los libros de "Escuela MorazAnica", que luego fueron puestos en cuadernillos de impresi6n separada (fasciculos), para facilitar su utilizaci6n\. Se trabajaron los libros de 3ro, 4to, 5to y 6to grados de primaria y se produjeron los fasciculos correspondientes, alcanzando la cantidad de 7,270,000 para los 6 grados de educaci6n primaria y en el afio 2001 se distribuyeron 6,300,000 fasciculos\. * Se hizo una reproducci6n y distribuci6n de 126,000 libros (de 38 titulos distintos) para un total de 1,410 bibliotecas integradas de aula en escuelas unidocentes y bidocentes para 16 Departamentos\. * Se hizo una reproducci6n y distribuci6n de 21,119 libros para un total de 500 bibliotecas integradas de aula para el nivel parvulario, para 16 Departamentos\. * Se distribuyeron 27,880 paquetes de materiales para estudiantes de los CCIEs\. b\. El subcomponente de Infraestructura El FHIS fue el responsable del cumplimiento de las metas de este subcomponente\. Los logros son los siguientes: - 25 -  * Se disefio, ejecut6 y public6 un censo nacional de maestros, personal administrativo, materiales, matricula e infraestructura para los niveles de educaci6n preescolar, primaria y media\. Este censo escolar tuvo como referencia el censo escolar de 1995, el cual posibilita una comparaci6n de resultados, especialmente el crecimiento tenido por el sistema educativo\. * Se construyeron 146 aulas conforme a normas tecnicas y de localizaci6n establecidas por la secretaria de Educaci6n con fmanciamiento de KfW, con la participaci6n de miembros de la comunidad\. * Se equiparon 290 escuelas unidocentes con mobiliario escolar, y se entreg6 a escuelas de PROHECO, 15,756 pupitres, 10,083 catedras y sillas para las escuelas de primaria y 2,526 catedras, sillas y pupitres para el nivel parvulario\. * Se firmaron los convenios con la Asociaci6n de Municipios de Honduras para el mantenimiento de las aulas\. * Se asignaron maestros de primaria a las escuelas nuevas, por parte de la SE\. * Se crearon 4,500 nuevos CCIEs, donde se entregaron 14,127 paquetes de materiales didActicos y juguetes didActicos para la atenci6n de 1,923 jardines\. IV\. Desempeino de las Entidades Prestatarias Banco Mundial - Tal como lo manifiesta la Firma PKF Worldwide que efectu6 la Evaluaci6n de Impacto, El Banco Mundial si acompano tecnicamente el Proyecto y fue muy critico en varios momentos\." lo cual se reconoce por parte del PROMEB, por cuanto existe la evidencia en las recomendaciones plasmadas en las Ayudas Memorias de las diferentes misiones de evaluaci6n realizadas\. No obstante, en la fase final de ejecuci6n se ha mejorado la comunicaci6n e implementaci6n de medidas recomendadas, especialmente en lo referente a justificaci6n de fondos y no objeciones a los procesos de adquisici6n y contrataciones, lo cual podria dar elementos para inferir que anteriormente el planteamiento de solicitudes de desembolsos y no objeciones no haya sido efectuado adecuadamente, posiblemente por falta de una capacitaci6n adecuada y continua por parte del Banco\. KfW - Como es del conocimiento, la mayoria de la ejecuci6n financiera de KfW se canaliz6 a traves del FHIS, responsable de la contrataci6n y supervisi6n de la construcci6n de aulas y edificios para las Direcciones Departamentales\. Hay que decir que estas operaciones no fueron canalizadas a traves de la UCP del PROMEB, posiblemente porque al inicio de las actividades no hubo participaci6n efectiva para el seguimiento, dotaci6n de recursos y localizaciones de las construcciones papel que fue asumido por GTZ en cumplimiento a un convenio suscrito con KfW con autorizaci6n de la SEP\. GTZ asumi6 un papel paralelo a la UCP, de tal forma que desembolsos y contrataciones se canalizaban sin tomar en cuenta a la UCP\. V\. Perspectivas de Sostenibilidad Con respecto a la sostenibilidad tecnica, los procesos de caracter tecnico iniciados y/o fortalecidos en el marco del PROMEB continuan vigentes en el desarrollo de las actividades cotidianas de la SEP, tales como: espacios de analisis para el estudio y mejoramiento de la calidad de la educaci6n, y socializaci6n de la evaluaci6n de pruebas aplicadas al rendimiento academico de los educandos en los niveles de preescolar y primaria\. Con respecto a la sostenibilidad financiera, en el marco del PROMEB se identificaron programas educativos y proyectos que contribuyeron a la obtenci6n de financiamientos no oficiales para llevar beneficios a poblaciones no atendidas u otras que mejoraron el nivel de calidad de la atenci6n\. AdemAs, con la aprobaci6n de un nuevo credito fmanciado por la AIF, se garantiza la continuidad de acciones importantes iniciadas con financiamiento del PROMEB\. Finalmente, la desconcentraci6n en el manejo del - 26 -  presupuesto asignado a las diferentes Direcciones Departamentales ha permitido una mejor gesti6n administrativa, que se evidencia en aspectos de reducir tiempos en los procesos de adquisici6n y contrataci6n y consecuentemente ejecutar oportunamente las acciones de apoyo logistico de la educaci6n\. Con respecto a la sostenibilidad social, los programas de incentivos iniciados basicamente a traves de Programas Educativos de Gesti6n Comunitaria han demostrado su efectividad en la ampliaci6n de cobertura, asistencia efectiva de los maestros y a la vez tiene a incrementar el compromiso de los padres de familia en otros aspectos de la vida escolar\. Las actividades desarrolladas en el marco de la EIB han contribuido a mejorar la atenci6n en los aspectos educativos y culturales de las etnias mayoritarias del pais\. AdemAs, el incremento de la infraestructura fisica de los centros educativos, asi como el incremento de las plazas de docentes, ha significado el mejoramiento de los indices de cobertura y calidad de la educaci6n\. Con respecto a la sostenibilidad institucional, desde el logro de la institucionalizaci6n del PROMEB, se podria decir que los componentes del mismo estuvieron ligados a la estrategia de mejoramiento del sistema educativo\. El proceso de descentralizaci6n de las atribuciones y recursos de la SEP iniciado y financiado por el PROMEB han alcanzado aceptables niveles de consolidaci6n a nivel tecnico, administrativo y financiero\. AdemAs, se generaron espacios de consulta con la sociedad civil de la Repuiblica para la concertaci6n en el Foro Nacional de Convergencia, de la Estrategia Nacional de Educaci6n\. Finalmente, con la modernizaci6n de las unidades de administraci6n de los recursos humanos docentes y no docentes, la SEP ha mejorado la administraci6n del personal\. VI\. Lecciones Aprendidas 1\. Considerando las modificaciones que se tuvieron en la vida del proyecto, la evaluaci6n de los indicadores de desempeno muestran que se cumplieron la mayoria de actividades de los componentes, cuantitativamente hablando\. 2\. Los principales obstAculos encontrados en el logro de los objetivos de los componentes fueron: la ausencia de liderazgo en la direcci6n de PROMIEB y en la misma SEP, la falta de seguimiento a las observaciones y recomendaciones hechas por misiones del Banco Mundial, el continuo cambio de autoridades en los niveles del PROMEB, entre otros\. 3\. El Programa de Formaci6n Continua de la UPN ha sido muy exitoso, sobre todo por haber desarrollado un curriculum que procur6 la formaci6n de las competencias profesionales que los docentes requieren para realizar una prActica pedag6gica de calidad\. Un beneficio importante para los docentes fue que despues de cursar y aprobar el plan de estudios del PFC, los docentes participantes obtuvieron el titulo de la carrera tecnico universitario de Educaci6n basica (primero y segundo ciclo) en el grado asociado\. 4\. La creaci6n y funcionamiento de la UMCE ha generado una valiosa capacidad tecnica en la construcci6n, administraci6n y procesamiento de pruebas estandarizadas a nivel nacional, lo que ha permitido, en forma cientifica, obtener informaci6n acerca de los resultados del proceso educativo y los factores externos e intemos que afectan al mismo\. 5\. La construcci6n de aulas en las escuelas rurales sobre pobladas, el convenio con las comunidades locales para su mantenimiento y la posterior contrataci6n de maestros capacitados para esas escuelas primarias es un logro para el acceso con equidad de los ninos en las areas rurales mas pobres de Honduras\. 6\. El desarrollo de un sistema de control contable estandarizado completo permite la definici6n de las cuentas contables, asi como las categorias de gasto, para completar la nomenclatura contable, asociadas a los componentes y subcomponentes de cualquier proyecto\. 7\. Las escuelas de PROHECO son parte de un proyecto exitoso que sigue funcionando y se vislumbra que este proyecto seguirA creciendo porque satisface las necesidades educativas bAsicas de las - 27 -  comunidades rurales mas pobres debido en parte a una mayor participaci6n comunitaria tanto en la administraci6n de sus recursos y la contrataci6n de los maestros, por otra parte porque los ninos tienen una escuela mas cerca\. (b) Cofinanciers: A draft of the ICR was circulated to KfW, the Project's co-financing agency\. ICR authors met and discuss with KFW representatives the preparation of the document\. No further comments from KFW have been received by the time of ICR publication\. (c) Other partners (NGOs/private sector): National Pedagogical University (UPNFM) and Parental Organization Rural Parent-School Organizations\. Positive comments received on the final outcomes of project implementation\. 10\. Additional Information N/A -28 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/lmpact Indicators: (a) Education Quality: Standardized Student Achievement Tests Results in Primary Schools (% of correct answers) Test 1997 2000 Spanish - Grade 3 40 41 Mathematics - Grade 3 36 43 Spanish - Grade 6 46 46 Mathematics - Grade 6 35 39 (b) School Efficiency: Increased (net) Enrollments and Completion and Reduced Dropout and Repetition Rates\. Impact Primary Education (Grades 1-6) Indicators\. Percentage Baseline 1995 1997 1998 1999 2000 Net Enrollment Rates 80 86\.4 89\.1 89\.0 89\.8 na (1992) Completion Rate 33\.5 na na 43\.0 na 67\.0 (1992) Dropout Rate NA n\.a 9\.53 na na 3\.0 Repetition Rate 28\.0 n\.a 9\.4 9\.6 9\.2 8\.0 (1988) Source: Ministry of Education of Honduras, Tegucigalpa: January 2002\. 2000 completion percentage data from World Education For All Study: April, 2002\. - 29 -  (c) Institutional Efficiency: Improved delivery of Education Services (to Rural Areas) and Reduced Central Administrative Costs\. Indicator 1999 2000 2001 Number of New Rural Schools 506 820 1,020 (hard-to-reach communities) Net Student Enrollment (grades 1-6) 22,361 39,540 42,842 Average Repetition Rate (%) 18\.4 10\.8 9\.2 Number of Rural Teachers 648 1,109 1338 (hard-to-reach communities) Organized Parental Committees 645 1,179 1284 Parents Directly Involved in School 3,858 6,528 7,100 Management Source Secretana de Educaci6n; Pryecto Hondureno de Educaci6n Communitana: PROHECO (Tegucigalpa)\. January 2002\. | Impact Indicator 1996 1997 1998 1999 2000 2001 Reduced MOE 3\.96 3\.48 3\.96 2\.10 2\.75 2\.12 Administrative Costs Source: Govemment of Honduras\. MOE Planning Department\. 2002\. - 30 -  Output Indicators: Indicator Target Actual/Latest Estimate A\.1 Teacher Training Program Training for trainers 2,644 2,644 Multigrade Primary teachers 53,500 44,608 Other primary teachers 44,000 27,000 Preschool teachers 5,600 2,800 School principals 12,500 1,168 School supervisors 2,498 1,765 Normal School professors 120 120 CCLE volunteers 15,700 15,700 CAD training projects 250 0 A\.2 Textbooks and Didactic Materials Textbooks Grade 1 1\.2 M 1\.1 M Textbooks Grade 2 1\.1 M 1\.0 M Textbooks Grade 3 0\.9 M 1\.6 M Textbooks Grade 4 0\.8 M 1\.7 M Textbooks Grade 5 0\.2 M 3\.2 M Textbooks Grade 6 0\.1 M 3\.1 M Primary classroom libraries 19,300 3,770 Preschool libraries 750 500 Packages of student's materials 16,800 18,357 CCIE materials 15,700 27,880 Packages of Preschool toys 790 1,923 A\.3 Bilingual and Intercultural Education Normalization of Miskito and Garifuna Languages Study completed Miskito and Garifuna curriculum Curriculum completed Linguistic, anthropological, historical Aspects of 4 Study 8 languages languages completed Miskito and Garifuna teacher training curriculum Curriculum Completed Didactic Materials Grades 1 and 2 for Miskito and Distribution Miskito only Garifuna Training bilingual teacher & supervisors 12 12 Training Normal school professors I I Design academic achievement tests 1 0 Apply academic achievement tests 4 0 A\.4 External Evaluation Application of achievement tests Grades 2-6 5 8 A\.5 Infrastructure Improvements New classrooms build 290 146 Furniture for classrooms 290 290 School maintenance agreements signed 290 290 Teachers appointed 290 0 CCIE new progrms 1,200 2,508 B\. Institutional Strengthening B\.1 MOE Reorganization & Decentralization Reorganization action plan Plan Completed - 31 -  Implementation of reorganization 3 stage process Completed Reorganization evaluation Study Completed Reform of employment and salary regime Progress Incomplete Administrative functional decentralization Progress Completed Construction of new Departmental Offices 13 12 1/ Rehabilitation of Departmental Offices 5 5 Equipment for Departmental Offices 18 18 Supervisors appointed 225 138 Staff trained 13 13 Design of MIS system Design Completed MIS annual reports and bulletin 10 5 B\.2 Teacher Improvement Program Teacher performance assessment criteria Criteria Completed Distribution of school calendars (years) 5 5 Payment of teacher incentives (cumulative) 3,000 1,737 Students enrolled in PROHECO schools 15,000 42,842 PROHECO schools 500 1,020 PROHECO teachers trained 500 1,070 PROHECO parents trained 3,000 5,700 PROHECO parents organizations 500 1,020 B\.3 Project Administration, Monitoring & Evaluation Use of textbooks Study Completed Curriculum reform Study Incomplete School performance Study Incomplete 2/ Community participation Study Incomplete 2/ Teacher performance improvement program Study Completed Impact of the CADs Study Completed Impact of the CCIEs Study Completed Impact of bilingual education Study Completed C\. Emergency Subprojects _ School rehabilitation 18 18 1/ One departmental office is still being built\. 2/ An in-depth analysis ofthe PROHECO schools is being carried out by Columbia University and can be consulted separately\. - 32 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Apprais'al ActualULatest - Percentage of Estimate Estimate, Appraisal Project CostoBy omponent US$ milon -US million', A\. Improving the Quality of Basic Education A\. 1 Training of Teachers, Principals and Supervisors 2\.30 1\.41 61\.2 A\.2 Textbooks and Didactic Materials 23\.20 14\.30 61\.6 A\.3 Bilingual Education 1\.60 0\.22 13\.8 A\.4 External Evaluation 1\.30 1\.53 115\.1 A\.5 Infrastructure Improvements 6\.90 7\.36 106\.7 B\. Institutional Strengthening B\.1 Reorganization and Decentralization of the MOE 10\.30 6\.30 50\.8 B\.2 Teachers' Performnance Improvement Program 1\.50 11\.32 690 B\.3 Project Administration, Monitoring and Evaluation 2\.10 6\.98 424 C\. Emergency Subprojects 0\.00 1\.10 Government Undisbursed 1\.48 IDA Undisbursed 1\.10 Total Baseline Cost 49\.20 53\.10 Physical Contingencies 1\.20 Price Contingencies 2\.70 Total Project Costs 53\.10 53\.10 Total Financing Required 53\.10 53\.10 The major changes in original and project-end financial allocations were perceived in three key areas: First, the Bilingual Education program only utilized he resources allocated to the macro reforns in the sector (15% of the subcomponent budget), including support for the normalization of indigenous languages and the design of dictionaries and grammars\. Resources for school level inputs (85% of the subcomponent budget) were not utilized (as explained in section 4\.2)\. Second, additional funds were required for the restructured Subcomponent B\.2, The Teachers Performance Improvement Program, which financed the implementation of the School-Based Management and Community Participation program (PROHECO)\. Within the restructured program, communities identified, plan, procured and managed directly school resources, including nondurable educational materials and other classroom complementary inputs\. Thus, resources from Subcomponent A\.2 (Textbooks and Didactic Materials) were reallocated to Subcomponent B\.2\. Third, increased financial resources were required for Project Administration (Subcomponent B\.3) after Hurricane Mitch, both to support the emergency and reconstruction plan of the education sector (to which this project contributed through a credit amendment) and also to guarantee that the project recovered its rate of execution and achieved its implementation and development objectives, including a complete monitoring and evaluation strategy\. Also, in retrospect, the project design budget only allocated 4% of total project costs for administration, monitoring and evaluation; which may have been grossly under-estimated\. - 33 -  Project Costs by Procurem nt Arrangements (Appraisal Estimate) (US$ million equivalent) \. Procurement Method Expenditure Category ICB 2 N\.B\.F\. Total Cost NCB thr2 1\. Works 0\.00 0\.00 0\.00 5\.77 5\.77 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 18\.38 1\.38 0\.90 7\.53 28\.19 (13\.93) (0\.91) (0\.71) (0\.00) (15\.55) 3\. Services 0\.00 0\.00 7\.49 0\.00 7\.49 (0\.00) (0\.00) (7\.49) (0\.00) (7\.49) 4\. Operating Costs 0\.00 0\.00 11\.65 0\.00 11\.65 (0\.00) (0\.00) (6\.96) (0\.00) (6\.96) Total 18\.38 1\.38 20\.04 13\.30 53\.10 (13\.93) (0\.91) (15\.16) (0\.00) (30\.00) Project Costs by Procurement Arrangements (ActuallLatest Estimate) (US$ million equivalent) Procurement Method" \.Expenditure Category \. ICB\. NCB \.''Other2 Totil Cost 1\. Works 0\.00 0\.00 0\.00 7\.36 7\.36 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 6\.30 2\.56 1\.38 6\.20 16\.44 (6\.30) (2\.56) (1\.05) (0\.00) (9\.91) 3\. Services 0\.00 0\.00 7\.14 0\.23 7\.37 (0\.00) (0\.00) (6\.69) (0\.00) (6\.69) 4\. Operating Costs 0\.00 0\.00 19\.35 0\.00 19\.35 (0\.00) (0\.00) (12\.30) (0\.00) (12\.30) Total 6\.30 2\.56 27\.87 13\.79 50\.52 (6\.30) (2\.56) (20\.04) (0\.00) (28\.90) Note: The actual total project cost of US$50\.52 million, is based on calculations of US$2\.58 million undisbursed funds from the total cost of US$53\.1 million estimated at appraisal\. Total IDA credit cost of US$28\.9 million equivalent is based on calculations of US$1\.1 million undisbursed at the credit closing date\. Note: Operating Costs Include Financing of Subcomponent B\.2, (Teachers' Performance Improvement Program, PROHECO)\. To guarantee transition to regular MOE operations, PROHECO's financial resources from the IDA credit were considered "operating costs" and financed on a declining basis and, thus, be incorporated fully by project-end into the regular Goverment budget\. "Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. D Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. - 34 -  Project Financing by Component (in US$ million equivalent) -;n srL L ; 'S ''' ' z ; ss ,, ' 9 s S\.; U;s 1 ; a ,, _ Percentage of Appraisal TxtCos7nimponent :- : Appraisal Est ate ActuallLatest Estimate- ________ _ IA Govt\. , oF! -DA Govt F\. i\. DA Govt CoF\. A\. Improving the Quality 16\.10 5\.90 13\.30 10\.32 1\.20 13\.30 64\.1 20\.3 100\.0 of Basic Education B\. Institutional 10\.00 3\.90 0\.00 17\.48 7\.12 0\.00 174\.8 182\.6 0\.0 Strengthening C\. Emergency Subprojects 0\.00 0\.00 0\.00 1\.10 0\.00 0\.00 0\.0 0\.0 0\.0 Contingencies 3\.90 0\.00 0\.00 0\.0 0\.0 0\.0 Total 1/ 30\.00 9\.80 13\.30 28\.90 8\.32 13\.30 96\.3 84\.9 100\.0 Undisbursed Funds (at 1\.10 1\.48 Credit Closing) 1/ Appraisal Estimates have been reconstmrted, since the SAR specified financing by disbursement accounts, not by component\. See SAR, Annex 13, Table 7, page 96\. 2/Some KFW funds have not been disbursed; however their financing line for this Project is still opened and its expected I 00/o of funds will be used\. - 35 -  Annex 3\. Economic Costs and Benefits 1\. Economic Analysis The original economic analysis (SAR, Annex 17) estimated the benefits of the Project as including (a) an increase in the future earning power of students who received a basic education of higher quality; (b) a reduction in the fiscal cost of delivering public education as the rate of repetition and dropout are reduced; and (c) a reduction in the fiscal cost of delivering public education resulting from the decentralization of education services and the reorganization of the MOE\. The original analysis also indicated that the project would generate distributional gains as a result of its focus on improving the education of low income and rural students\. The benefits of increased earning power of students exposed to the project was estimated at Appraisal based on 6,902 individual earners observations from the Honduras national household survey for the year 1992\. Based on these data, "mincerian" earning functions were estimated for three socioeconomic groups: workers within the lowest three declines (62%), workers within the intermediate four deciles (32%), and workers in the three top deciles of the income distribution (6%)\. These functions were used to estimate the future flow of income of a student from the low-income group and for the middle-income group\. Assuming only project benefits pertaining to students from the low-income group, two academic achievement scenarios were adopted: (i) the project would enable students to increase their future earning power by 10 percent of the existing earning differential between low and middle-income groups; and (ii) the project would only enable students to increase their future earning power by only 5 percent of the existing differential\. With regard to project costs, two scenarios were considered\. The first scenario considered only the costs of the component A, Improving the Quality of Basic Education net of bilingual education, while the second scenario considered total project costs\. Based on these assumptions, the estimated internal rate of return of the Project at Appraisal is shown in Table 1 below\. Table 1\. Estimated Internal Rate of Return at Appraisal Improvement of Income Earning Considering Costs of: Power -Quality of Education Component Total Project Costs With 10% of income differential 20\.78% 18\.13% With 5% of income differential 16\.18% 13\.82% Although trends in primary education attainment observed during the 1995-200 period, especially lower repetition rates and higher primary education completion rates are widely believed to be closely associated with improvements in education quality, the appraisal economic analysis could not be replicated because the assumed improvements in the quality of education could not be directly measured\. Instead, an economic analysis of the PROHECO program was carried out, and benefits were estimated based on the additional years of education attained by PROHECO students, compared with data from the Honduras household survey for the year 1999\. Results are presented in Table 2\. - 36 -  Table 2\. Average Yearly Income of Employed and Self-Employed Individuals by Age group and Level of Education Yearly Income by Years fP'riinary Education Completed 'Difference 6 v\.0 A- " ge -, c t S (Lempira of-1999) - \.-¢ \.-h -- \.0, ,^M l,-2 x < 3-5- <\. \. 6 -_ __\. :\. \._- \._ 10-14 5,315 4,915 6,209 7,744 46 15-19 8,992 10,142 9,446 11,615 29 20-24 9,456 12,744 13,976 16,960 79 25-29 12,421 15,936 13,073 17,972 45 30-34 11,615 18,055 16,442 21,052 81 35-39 11,047 15,136 18,401 23,438 112 40-44 12,078 19,244 19,949 25,211 109 45-49 11,635 16,879 24,322 26,317 126 50-54 12,539 19,739 21,158 31,250 149 55-59 10,050 18,763 24,420 28,244 181 60-64 8,330 12,443 14,918 19,684 136 Total 10,948 15,827 16,536 19,062 74 The internal rate of return of the PROHECO program (Table 3) is estimated based on the projected increase in earnings of the students, the real efficiency factors reported in PROHECO schools, and the real costs of the program\. Table 3\. Internal Rate of Return of the PROHECO program (Lempiras 2001) ,aniingss wit hout , Earning with Age Cohort PROHECO :Cost of PROHECO, PROHECO -Net Benefits \.___\.'__ *~,,-,,, , ''(A\.),- -: \., , ;':':'@)' ' | < | t (C)\., (C-A-'B) 7 0 315,872 0 -315,872 8 13,184 40,406 1,281 -52,309 9 17,195 37,302 2,816 -51,682 10 159,444 35,756 27,536 -167,664 11 159,444 34,998 35,105 -159,337 12 159,444 33,043 42,101 -150,386 13 159,444 -205,761 47,878 94,194 55-59 '301,500 0 758,533 457,033 60-65 301,500 0 758,533 457,033 IRR Discount Rate: NPV 11\.0% 12% (1\.96,678\.53) 10% 117,475 5% 1,812,964 4% 2,650,118 As suggested in the original econonic analysis, the project appears to have generated significant distributional gains as a result of its focus on improving the education of low income and rural students\. - 37 -  Table 4 shows that the average number of years of schooling for children in the bottom quintile of the income distribution rose from 3\.7 in 1989 to 4\.6 in 1999; and the proportion of the poor who graduated from primary school increased from 40% in 1989 to 52% in 1999\. Table 4\. Trends in Primary Education Attainment 1989-1999 Average primary education years completed by Percent 'ith primary education completed Cohort quintile :yquinti]e 1 2- 3 |5 Total 2 3 4 5 Total 1989 3\.7 4\.2 4\.6 5\.3 5\.5 4\.7 50 63 77 86 62 1994 4\.4 4\.5 4\.8 5\.3 5\.7 5\.0 65 66 83 88 71 1999 4\.6 4\.8 5\.2 5\.5 5\.6 5\.1 63 71 81 87 70 Source: EPHPM, March 1999\. 2\. Fiscal Analysis The SAR estimated the fiscal savings to the Honduran education system as a result of the Project based on the estimated reduction in dropout and repetition rates\. Table 5 summarizes the Appraisal analysis compared with the actual primary education repetition rates for the period 1990-2000, indicating the number of repeaters and the estimated cost of this inefficiency\. Table 5\. Savings due to reduced primary education repetition rates Repetition Rate (%) No\. Repeaters Estimated Savings\.per \. ~ ~ \.- \. \. --_____ jyer:(US$)-1, Year SAR Estimates SAR Estimates Without With Actual Without With -Actual SAR Actual project project project project \. _\._\._\. 1990 13\.4 118,934 1991 11\.9 107\.651 1992 11\.3 108,495 1993 11\.9 117,843 1994 12\.4 125,066 1995 20\.5 14\.5 12\.4 246,028 154,121 124,924 10,953,506 0 1996 20\.0 13\.5 10\.9 247,750 145,295 112,099 12,210,659 1,890,411 1997 19\.2 12\.5 10\.3 243,166 136,239 \.108,496 12,743,553 2,644,522 1998 18\.4 11\.7 10\.5 236,419 127,223 112,590 13,013,898 2,348,641 1999 17\.7 10\.9 10\.1 228,757 109,526 109,526 13,142,497 2,909,983 2000 17\.0 10\.2 10\.0 220,815 110,362 111,984 13,163,807 3,268,791 Total 75,227,92013,062,348 1/ Estimated at USSI 19\.18 per student per year\. Source: Educacion en Cifras 1990-1999 for actual figures Enrollment and repetition rates are extrapolated for the year 2000 based on the 1990-99 senes The re-estimation of repetition rates uses 6 year cohort to be consisted with the SAR estimates As Table 5 shows, the SAR fiscal analysis was overly optimistic, basically for two reasons\. First, enrollment rates did not increase as expected, reaching only 55% of the projected SAR figures\. Second, although actual repetition rates are even lower than expected, the corresponding cost savings were significantly lower\. Nevertheless, if one attributes to the project all of the savings associated with the reduction in repetition rates during the 1995-2000 period -- which may be overestimating the impact of the project --, the aggregate value of the savings totals US$13\.1 million, equivalent to 17% of the SAR estimate\. - 38 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Perforrnance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 08/01/1995 Education Education Specialist, Consultants Specialist, Consultants Supervision 09/01/1995 1 Task Manager S S 03/23/1996 4 Task Manager, Economist, HS S Educator, Financial Analyst 09/30/1996 1 Education Specialist S S 12/05/1996 3 Sr\. Operations Officer, Education S U Specialist, Procurement Specialist 07/10/1997 1 Sr\. Education Officer S S 11/28/1997 5 Team Leader, Procurement S S Specialist, Financial Specialist, Social Scientist, Bidding Analyst 03/19/1998 5 Team Leader, Procurement S S Specialist, Financial Specialist, Accounting Specialist, Social Scientist 06/03/1998 1 Team Leader S S 08/10/1998 3 Task Manager, Operations Specialist, Team Leader 10/09/1998 4 Team Leader, Procurement S U Analyst, Financial Analyst, Monitor/Evaluation Consultant 04/27/1999 7 Team Leader, Consultant, S U General Educator, Procurement Specialist 06/13/1999 4 Team Leader, Social Scientists, S S Education Sector Management 09/22/2000 2 Institutional Development S S Specialist 09/22/2000 3 Task Manager, Consultant, S S Education Specialist ICR January 2002 13 Sr\. Institutional Development Specialist, Consultants February 2002 4 Sr\. Institutional Development S S Specialist, Consultants (b) Staff: Stage of Project Cycle Actual/Latest Estimate - 39 -  No\. Staff weeks US$ ('000) Identification/Preparation na 162\.73 Supervision na 475\.74 ICR na 54\.24 Total na 692\.71 1/ The number of staff weeks is not recorded in the historical budget system\. ICR figures are estimated, as the historical budget system does not distinguish between supervision and ICR expenditures\. - 40 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies O H OSUOM O N * NA D Sector Policies O H *SUOM O N O NA I Physical O H *SUOM O N O NA O Financial O H OSUOM O N O NA O Institutional Development 0 H 0 SU O M 0 N 0 NA O Environmental O H OSUOM O N * NA Social 5 Poverty Reduction O H * SU O M O N O NA O Gender OH OSUOM ON *NA L Other (Please specify) O H OSUOM O N * NA LI Private sector development 0 H O SU O M 0 N 0 NA OI Public sector management 0 H 0 SU O M 0 N 0 NA OI Other (Please specify) O H OSUOM O N * NA - 41 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating OI Lending OHS OS OU OHU OI Supervision OHS OS OU OHU El Overall OHS OS OU O HU 6\.2 Borrower performance Rating L Preparation OHS OS O U O HU O Government implementation performance O HS OS O U 0 HU LI Implementation agency performance OHS OS OU O HU O Overall OHS OS 0 U O HU - 42 -  Annex 7\. List of Supporting Documents Preparation and Appraisal Documents World Bank, Staff Appraisal Report, Honduras: Basic Education Project, March 8, 1995\. World Bank, Project Appraisal Document, Honduras: Basic Education Project, November 1999\. World Bank, Informe de Evaluaci6n Inicial, Honduras: Proyecto Escuela Morazanica, March 1995\. Mid-Term Evaluation Documents Reyes, Joel and Darlyn Meza\. Informe de Resultados: Evaluaci6n de Medio Termino (November 7-13, 1999)\. World Bank, Washington, DC, December 1999\. Project Closing and Evaluation of Impact Documents Carvajal, Mireya, Informe inicial de los Centros Comunitarios CCIE 199X-2000, February 2002\. ESA Consultores, Ex-post economic evaluation\. Honduras Basic Education Project, Tegucigalpa, Honduras, March 2002\. Grasser, Klaus\. Reporte de actualizacion de los dos componentes constructivos al final del aiio 2001: Construcci6n de aulas y construcci6n de Direcciones Departamentales de Educaci6n\. January 2002\. IN[CE, Lineamientos para producci6n de materiales de capacitaci6n\. Tegucigalpa, Honduras, 1996\. INICE, INICE: diseiio de seguimiento y monitoreo al proceso de formaci6n de docentes en educacion Basica en servicio, a nivel nacional, 1999\. Landivar, Wilma, Informe de Consultaria: Propuesta de una estrategia para capacitar docentes en la utilizaci6n de textos\. September 1999\. Mimbrefio, Juan Sim6n, INFORME Final del Componente Mejoramiento de la calidad de la Educaci6n\. December 7, 2000\. PKF Worldwide, Evaluacion de Impacto del Proyecto de Mejoramiento de la Educaci6n Basica, Fairfax, VA, January 2002\. PROMEB\. Plan de Acci6n Octubre de 1999 a Diciembre 2000, Secretaria de Educaci6n Publica de la Repliblica de Honduras, Tegucigalpa, Honduras, November 1999\. PROMEB\. Informe Final de Actividades a Diciembre 2000, Secretaria de Educaci6n Publica de la Repuiblica de Honduras, Tegucigalpa, Honduras, October 2001\. PROMEB, Lista final de titulos para bibliotecas de Aula Financiadas por la Cooperaci6n Alemana, - 43 -  KfW/GTZ\. Secretaria de Educaci6n Puiblica de la Rep6blica de Honduras, Tegucigalpa, Honduras, November 2000\. PROMEB, Informe Final de Ejecuci6n Fisica y Financiera al 31 de diciembre del 2001\. Ministry of Education, Tegucigalpa, Honduras, February 2002\. PROMEB, Informe Final 1996-2000 Componente Mejoramiento de la Calidad de la Educacion Reputblica de Honduras, Secretaria de Educaci6n Publica de la Repuiblica de Honduras Tegucigalpa, Honduras, December 2000\. PROMEB, Informe PROMEB evaluacion de Medio Termino, Secretaria de Educaci6n Publica de la Rep6blica de Honduras Tegucigalpa, Honduras, November 1999\. PROMEB, Informe de ejecuci6n del Plan Operativo Tercer Trimestre de 1997, Secretaria de Educaci6n Publica de la Republica de Honduras Tegucigalpa, Honduras, Noviembre 1997\. PROMEB, Informe de Revisi6n Anual 1996\. Secretaria de Educaci6n P[iblica de la Repuiblica de Honduras Tegucigalpa, Honduras, April 1997\. Secretaria de Educaci6n Publica de la Republica de Honduras, Plan de los cien dias, Tegucigalpa, Honduras, November 1998\. Secretaria de Educaci6n Publica de la Republica de Honduras, Directrices para Reorganizaci6n de la Secretaria de Educacion Publicay Mordenizacion de su gerencia, Tegucigalpa, Honduras, June 1996\. Secretaria de Educaci6n Piblica de la Repuiblica de Honduras, La UMCE y sus comienzos; Tegucigalpa, Honduras, September 2001\. Secretaria de Educaci6n Publica de la Republica de Honduras, El Programa deformaci6n continua\. Una experiencia alentadora\. Tegucigalpa, Honduras, September 2001\. UPNFM\. Informe del PFC\. December 1998\. Documents prepared by UMCE-UPNFM\. Subcomponent A4\. External Evaluation of Student Academic Achievement UMCE, Rendimiento Global de Tercero y Sexto Grado en las asignaturas de Espaniol y Matemdticas, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 2000\. UMCE, Rendimiento Academico de 2o, 3o, 4o y 5o Grado en las asignaturas de Espaiiol y Matematicas, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1999\. UMCE, Rendimiento en Espanol y matamaticas en los grados de: 2O, 3O, 4o y 6O Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 2000\. UMCE, Informe de Resultados del Rendimiento Acad6mico en Espaniol y Matemdticas de Tercero y Sexto Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. - 44 -  UMCE, Rendimiento en Matemdticas de: 2o, 3o, 4o, y 6o Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. UMCE, Rendimiento en Espanol degb 2o, 3o, 4o, y 6o Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1999\. UMCE, Rendimiento en Matemrticas de: 2o, 3o, 4o, y So Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1999\. UMCE, Rendimiento en Espanol de: 2o, 3o, 4o, y 5o Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 2000\. UMCE, Rendimiento en Matematica de Tercero y Sexto Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 2000\. UMCE, Rendimiento en Espanol de Tercero y Sexto Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1999\. UMCE, El Lenguaje Oral y Escrito en 2o, 3o, 4o, y 5o Grado de las escuelas primarias de Honduras, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. UMCE, El Lenguaje Oral y Escrito en 2o y 4o Grado de la escuela primaria de Honduras, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. UMCE, Factores Asociados al Rendimiento Academico en las asignaturas de Espanol y Matemdticas de Tercero y Sexto Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. UMCE, Informe de Patrones de Error en Matemdticas de Tercero y Sexto Grado, Universidad Pedag6gical Nacional Francisco MorazAn, Tegucigalpa, Honduras, 1998\. UMCE, Analisis Multivariado, Universidad Pedag6gical Nacional Francisco MorazAn, Tegucigalpa, Honduras, 1998\. UMCE, Resolucion de Problemas Matemdticos en Sexto Grado, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 1998\. UMCE, Informe Global del Rendimiento Academico 2o y 3o Grados\. Proyecto Hondureno de Educaci6n Comunitaria (PROHECO)\. Primera Evaluaci6n, 2000, Universidad Pedag6gical Nacional Francisco Morazan, Tegucigalpa, Honduras, 2000\. UMCE, Estrategias Metodol6gicas para el Aprendizaje de Espanol y Matematica en la Escuela Primraria Universidad Pedag6gical Nacional Francisco MorazAn, Tegucigalpa, Honduras, 1997\. - 45 -  - 46 -   IMAGING Report No\.: 24048 Type: lCR

APPROVAL

P003848

Docuament of The World Bank FOR OmCaAL USE ONLY Rqart No\. 12818 PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (LOAN 2560-IND) MHARCH 9, 1994 Agriculture Operations Division Country Department III East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties\. Its contents may not otberwise be disclosed witbout World Bank authorization\.  PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (Loan 2560-IND) CURRENCY EQUIVALENTS At appraisal (April 1985) US$1 = Rupiah (Rp) 1,100 For exchange rates during implementation, see Annex 1, Table 1 FISCAL YEAR OF BORROWER April 1 to March 31 ABBREVIATIONS DGWRD Directorate-General of Water Resources Development DPP Directorate of Planning and Programming in DGWRD ERR Economic Rate of Return FAO/CP FAO/World Bank Cooperative Programme GOI Government of Indonesia IPEDA Land Tax (now replaced by PBB) ISSP Irrigation Subsector Projects (Loans 2880 and 3392-IND) O&M Operation and Maintenance PAM Jakarata Drinking Water Supply Utility (Perusahaan Air Minum) PBB Land and Building Tax (Pajak Bumi dan Bangunan) PCR Project Completion Report POJ Jatiluhur Authority (Perusahaan Umum Otorita Jatiluhur) PRIS Provincial Water Resources Service SAR Staff Appraisal Report TJC Tarum Jaya Canal WTC West Tarum Canal  FOR OFICIAL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.S\.A\. Office of Director-General March 9, 1994 Operations Evaluation MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Indonesia West Tarum Canal ImDrovement Project (Loan 2560-IND) Attached is the Project Completion Report on Indonesia - West Tarum Canal Improvement Project (Loan 2560-IND)\. Parts I and Ill were prepared by FAO/CP for the East Asia and Pacific Regional Office and Part 11 by the Borrower\. Water from Jatiluhur Dam feeds West Tarum Canal, which irrigates 67,000 ha\. outside Jakarta and provides water to the city\. That the canal could not carry its design discharge became critical as demand grew\. The project was to enlarge and improve the canal, and to add a pipeline to the principal water treatment plant\. Aerial mapping was to improve land titling and tax collections\. These and direct water charges to urban water users were to increase cost sharing\. Safety of the dam was to be monitored\. Future improvements to the urban water system were to be planned\. The project realized its major objectives after some delays due to problems with agency coordination and contractors, and extensions to permit dam safety work\. Despite apparently good preparation, substantial redesign occurred\. Borrower commitment and supervision were strong; the latter had complete continuity\. Consultants' performance was generally good\. Borrower and Bank differ on agricultural results and the economic value of urban water, but the project shows good returns by either estimate\. The Borrower did not comply with cost recovery covenants, which are said to have been superseded by arrangements under subsequent projects\. Institutional development may be considered partial\. The dam safety study revealed earthquake vulnerability; the loan was amended and closing extended to permit additional studies and dam-safety works\. Even without this benefit, the project has been satisfactory\. Benefits are likely to be sustained\. The otherwise excellent PCR leaves unresolved differences between the Borrower's and the Bankfs assertions about agricultural results\. No audit is planned\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   FOR OFCIAL USE ONLY PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (LOAN 2560-IND) TABLE OF CONTENTS PREFACE \. i EVALUATION SUMMARY \. PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1\. Project Identity \. 1 2\. Background \. 1 3\. Project Objectives and Description \. 2 4\. Project Design and Organization \. 2 5\. Project Implementation \. 3 6\. Project Results \. 4 7\. Project Sustainability \. 5 8\. Bank Performance \. 5 9\. Borrower Performance \. 5 10\. Project Relationships \. \. \. 6 11\. Consulting Services \. 6 12\. Project Documentation and Data \. \. 6 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A\. Comnnents on Part I \. 7 B\. Comments on Part III \. 9 C\. Bank Performance \. 10 D\. GOI Performance \. 10 E\. Bank and Borrower Relationship \. 10 PART III: STASTICAL INFORMATION 1\. Related Bank Loans \.11 2\. Project Timetable \.12 3\. Loan Disbursements \.12 4\. Project Implementation \.13 5\. Project Costs and Financing A\. Project Costs \.13 B\. Project Financing \.14 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  6\. Project Results A\. Direct Benefits \. 14 B\. Economic Impact \. 15 C\. Financial Impact \. 15 D\. Studies \. 15 7\. Status of Covenants \. \. \. 16 8\. Use of Bank Resources A\. Staff Inputs \. 17 B\. Missions \. 18 C\. Costs \. 18 ANNEX 1 - Economic Analysis Tables 1\. Exchange Rates and Price Index 2\. Project Expenditure 3\. Economic Costs 4\. Conversion Factors 5\. Crop Budgets 6\. Economic Price Projections (Rice) 7\. Economic Price of Maize 8\. Economic Price for Soyabean 9\. Economic Price Projections for Fertilizers 10\. Economic Price Projections for Other Inputs 11\. Economic Benefits from Irrigation 12\. Benefits to Raw Water Supply 13\. Savings in Chemicals at Pulogadung Treatment Works 14\. Cost and Benefit Streams PROJECT DATA SHEET  PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (Loan 2560-IND) PREFACE This is the Project Completion Report (PCR) for the West Tarum Canal Improvement Project, for which a World Bank Loan of US$43\.4 million to the Government of the Republic of Indonesia (GOI) was approved in May 1985\. US$2 million of the loan amount was cancelled in March 1992 at the request of GOI\. The original Loan Closing Date of December 31, 1991 was extended until April 30, 1993\. Approximately 100% of the loan has been disbursed\. The Preface, Evaluation Summary, Part I and Part III of this PCR were prepared by a mission" from the FAO/World Bank Cooperative Programme in accordance with the guidelines for preparing PCRs, issued in June 1989\. The report is based on data provided by the GOI, a review of World Bank records and the mission's visit to Indonesia in November and December 1992\. Messrs\. R\.G\. Paterson (Irrigation Engineer, Mission Leader) and D\.S\. Shields (Economist, Consultant)\.   - iii - PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (Loan 2560-IND) EVALUATION SUMMARY Objectives The main objectives of the Project were to increase rural incomes and food production through larger irrigation supplies, and to improve Jakarta's urban living conditions through increased and improved raw-water supply\. To achieve these objectives, the Project included: (a) civil works to enlarge and improve the West Tarum Canal (WTC), to restore its capacity to convey up to about 80 rn3/s of water from Jatiluhur reservoir to Jakarta and to an irrigated area of about 67,000 ha; (b) construction of a pipeline of 2 m diameter and about 7\.5 km long to convey raw water from WTC to an existing water treatment plant at Pulogadung; (c) equipment for improved operation and maintenance (O&M) of the WTC and Jatiluhur dam (including safety monitoring equipment) and for the land-tax inspection offices; (d) aerial photography and mapping of 300,000 ha for land reclassification for taxation; and (e) studies and designs\. At appraisal, the estimated project cost was US$72\.8 million to be financed by a World Bank Loan of US$43\.4 million (all the foreign exchange cost) and a contribution equivalent to US$29\.4 million by Government of Indonesia (GOI) from its development budget\. Implementation Experience The Loan became effective some two months later than planned, in November 1985\. The Project was successfully implemented, generally in accordance with the proposals outlined in the SAR\. There was a delays of about two years in completion of most of the main works due to delay in award of contracts, additional work and changes in design\. However, important improvements to the reach of the WTC from Bekasi to Jakarta, which enabled increased quantities of raw water to be supplied to treatment plants, were completed about six months earlier than the SAR program, despite the late start\. Inspection of the Jatiluhur dam, which was required by a loan covenant, raised concern about the dam's stability\. The Loan was amended to finance further investigations and reviews by a dam- safety panel\. The Loan Closing Date was postponed first by four months to complete additional safety- related work at Jatiluhur dam, and then by a further year to April 30, 1993 to enable a review of critical dam-safety issues and design of remedial works\. About 95% of the Loan was disbursed\. The project completion cost was Rp 113,800 million (42% more than SAR estimate), but only US$66\.5 million in dollar terms or about 90% of SAR estimate mainly due to devaluation of Indonesian Rupiah against the US Dollar since the appraisal\. The aerial photography and mapping for purposes of land tax and also the designs and studies were completed satisfactorily but slightly later than planned\. Results As a result of the Project, an estimated additional 460 million m3 of raw water will be available for Jakarta each year and there will be appreciable savings in the amounts of chemicals used for water treatment\. The incremental annual agricultural production due to the Project is estimated to be about 80,000 tons of paddy, 12,000 tons of maize and 17,000 tons of soybeans\. The Jatiluhur dam  - iv - has been inspected and found to need remedial works, which were designed under the Project\. The Directorate of Land and Building Tax (PBB) estimates that there has been about 25% increase in PBB collected due to remapping, as well as further increases due to new methods of assessment and collection\. The economic rate of return of the Project is now estimated to be 33%\. This is higher than the 26% estimated in the SAR due to slightly higher incremental agricultural production and a higher value given to raw water for Jakarta\. The Project has contributed to improving the availability of clean drinking water to Jakarta and has improved incomes of poor farmers in the area irrigated from WTC\. The Project has so far had little other environmental impact\. However, if the remedial works, recommended by the project- supported investigations, are carried out to ensure safety of the Jatiluhur Dam, then the environmental benefit would be enormous\. Sustainability Sustaining the project benefits will depend on implementation of remedial works at Jatiluhur dam, the replacement of the pumping station which supplies WTC at Curug and the sustained O&M of the system\. GOI has included in its development plans the construction cf Jatiluhur Dam's remedial works and replacement of the Curug pump station equipment at appropriate time\. It has requested the Bank to finance the former as part of a proposed Dam Safety Project (FY94L)\. With the assumption that the need-based annual budgets for efficient O&M will continue to be provided, as under Irrigation Subsector I and II (Loans 2880 and 3392-IND) Projects, there is a basis of optimism that the West Tarum Canal would continue to operate at the same level of efficiency as designed\. It is reasonable to assume that the project benefits would be sustained\. Findings and Lessons This has been a successful project due in part to the design and supervision of construction by consultants, closely supervised by Bank, FAO/CP and DOI" staff\. By employing the same consultants for design and construction supervision, a responsible attitude was taken to improvements in design needed to suit actual conditions during constructions\. The Project has drawn attention to the need for insisting on regular dam- safety inspections and a national dam-safety project has now been proposed\. " Directorate of Irrigation-I in the Directorate-General of Water Resources Development\.  PROJECT COMPLETION REPORT INDONESIA WEST TARUM CANAL IMPROVEMENT PROJECT (Loan 2560-IND) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1\. Project Identity Project Name West Tarum Canal Improvement Project Loan No\. Loan 2560-IND RVP Unit East Asia and Pacific Country : Indonesia Sectors Agriculture and Urban Development Subsectors : Irrigation and Water Supply 2\. Background 2\.1 The main water source for West Java and Jakarta is the Citarum River\. At the Jatiluhur dam, the Citarum drains a catchment area of 4,550 km2 with an average annual runoff of about 6,000 million nl\. In addition to a 2,000 million m3 (active storage) reservoir at the Jatiluhur dam, at the time of appraisal two additional dams (Cirata and Saguling) were under construction upstream\. Saguling, with a reservoir of about 610 million m3 (active storage), was completed in 1985 and Cirata, with a reservoir of about 800 million m3, in 1989\. The Jatiluhur reservoir is operated as a multi-purpose reservoir, providing irrigation, water supply and power\. Saguling and Cirata are operated primarily for hydropower generation, but contribute to increasing Citarum's water supply potential\. In addition, smaller flows are contributed to the West Tarum area and to Jakarta by the Cibeet, Cikarang and Bekasi Rivers, and exclusively to Jakarta by the Ciliwung River and a number of smaller rivers including the Sunter and Cipinang\. 2\.2 The West Tarum Canal (WTC) is about 70 km long and is one of Jatiluhur's main conveyance canals\. It was built in the 1960s to convey irrigation supplies to the West Tarum area of West Java and to augment Jakarta's raw-water supply\. As demands for its water were only gradually built up, it did not carry the full discharge for which it was designed\. By 1985, water demands were nearly fully developed, the full discharge was needed and structural and maintenance improvements were required to enable the WTC to convey it\. Improvements, to be implemented under the Project, were to facilitate meeting peak irrigation requirements of the entire service area and Jakarta's raw-water demands until the late 1990s, when additional conveyance facilities would be needed\. 2\.3 About 90% of the treated water used in Jakarta was supplied from two plants: Pulogadung, in the eastern part of the city, received water, often of very poor quality, from the Cipinang and Sunter, which was augmented at times of low river flow by water from WTC; Pejompongan, in the heart of the city, received water, also often of very poor quality, diverted from the Ciliwung which traversed the city and which could be augmented by water from WTC\.  -2 - 3\. Project Objectives and Description 3\.1 The main objectives of the Project were to increase rural incomes and food production through larger irrigation supplies, and to improve Jakarta's urban living conditions through increased and improved raw-water supply\. To achieve these objectives, the Project included: (a) civil works to enlarge and improve the WTC and its major structures, and to construct a pipeline of 2 m diameter and about 7\.5 km long between the canal and the Pulogadung water treatment plant; (b) equipment for improved operation and maintenance (O&M) of the WTC and Jatiluhur dam (including safety-monitoring equipment) and for the land-tax inspection offices; (c) aerial photography and mapping of Jatiluhur's irrigated area (300,000 ha) for land reclassification for taxation; (d) technical assistance for: construction management and supervision; O&M; studies a n d detailed designs for a future pipeline from WTC to Pejompongan and for a new canal from Curug to Jakarta to augment WTC - the proposed Tarum Jaya Canal (TJC); land-tax data management; water-quality protection; training; and (e) a covenant in the Loan Agreement requiring the Jatiluhur Authority (POJ) to regularly inspect Jatiluhur dam (but no finance for this was provided under the Project)\. 3\.2 Agricultural beneficiaries were to include mostly smallholders, with incomes below poverty level, in about 67,000 ha in the West Tarum area, while urban beneficiaries were to be Jakarta's residents whose highly-inadequate water supply would benefit from more and better raw water\. To improve traditionally inadequate O&M funding, the Project was to provide, on a pilot basis and for the first time in Indonesia, for increased cost sharing by beneficiaries in both sectors\. Urban beneficiaries through direct water charges were to pay the entire cost of supplying raw water while irrigation beneficiaries were to pay part of the recurrent costs through properly-channelled, appropriate land taxes\. 3\.3 At appraisal, the estimated project cost was US$72\.8 million including an estimated US$43\.4 million in foreign exchange, to be financed by a World Bank (Bank) Loan of US$43\.4 million\. The Government of Indonesia (GOI) was to finance all local costs equivalent to US$29\.4 million from its development budget\. 4\. Project Design and Organization 4\.1 The Project was identified by Bank and FAO/CP missions in 1980, prepared by the Directorate- General of Water Resources Development (DGWRD), POJ and their consultants between 1981 and 1984 under Irrigation Project XV (Cr\. 995-IND) with assistance from FAO/CP and the Agriculture and Infrastructure Divisions of the Bank and appraised by the Bank in September 1984\. 4\.2 The concept of the main component of the Project was straightforward construction work, which was well prepared and appropriate in the light of its objectives\. The roles and responsibilities of the agencies responsible for the Project were clearly defined and understood\. DGWRD was responsible for  - 3 - civil construction and design, the Directorate of IPEDA (later PBB)" for mapping, reclassification and improvement of data collection and processing and POJ for training of their staff\. 5\. Project Implementation 5\.1 The Loan became effective in November 1985, some two months later than planned due to a delay in awarding the contract for the Bekasi to Jakarta reach of the canal, which award was a condition of effectiveness\. The Project was successfully implemented, generally in accordance with the proposals outlined in the staff appraisal report (SAR) but with some changes\. There was a delay of about two years in completion of most of the main works due to delays in contract award, additional work and design changes\. However, the important improvements to the reach of the WTC from Bekasi to Jakarta, which enabled increased quantities of raw water to be supplied to treatment plants, were completed about six months earlier than the SAR program, despite the late start\. Loan Closing was postponed first by four months to complete additional safety-related work at Jatiluhur dam and then by a further year to April 30, 1993 to enable a review of critical dam safety issues and design of remedial works\. About 95% of the Loan was disbursed\. The project cost was Rp 115,000 million (42% more than the SAR estimate), but only US$66\.5 million or about 90% of SAR estimate due to alterations in the rate of exchange between the rupiah and US dollar\. 5\.2 There was a substantial increase in the quantity of work, particularly earthworks, required to improve the canal, due to underestimation in the original design and due to the unforeseen presence, due to seepage, of very soft, wet clays at the base of the existing canal embankments\. Additional internal drainage systems were provided for high canal embankments and additional cross-drainage structures were built\. Measurements of canal flows made in 1991 indicated that in all but one short reach the SAR design capacity has been achieved\. However, in order to reliably achieve the design flow in the upstream reach, the capacity of the Curug pumping station will need to be augmented\. 5\.3 During implementation it was realized that: (a) the inlet bay for WTC at the Curug headworks would need redesign to accommodate the headworks for the proposed TJC; and (b) the old hydraulic pumping station had developed major weaknesses and would eventually have to be replaced\. It was therefore proposed that a new intake be constructed on the left bank of WTC where the canal crosses the old course of the Citarum River, approximately 500 m downstream (along the canal) of the existing intake and hydraulic pumping station\. This intake, to be constructed under a future project, would accommodate an electric pumping station for WTC and the TJC intake, which would pass under WTC at this point\. Under the Project, a gravity inlet to WTC was built just upstream of the proposed future intake\. This gravity intake can supply only about 30 to 40 m3/s to the canal for essential irrigation and supply to Jakarta while the pumps and forebay were being repaired\. The hydraulic pumps were overhauled and spare parts provided under the Project\. Additional remedial works were also carried out to the weir wing-wall and on the right bank of the river, downstream of Curug weir\. 5\.4 Substantial equipment was provided under the Project, particularly the dredges to remove the silt accumulating in the newly constructed desilting basins and the canal\. Training was provided to POJ staff (both operational and maintenance staff) so that O&M activities are improved\. "Land and Building Tax\.  - 4 - 5\.5 The design of the inlet from WTC to the Pulogadung pipeline was revised to allow inlet gates for upstream control of the water flow and for chlorination\. Pipe length was reduced from 5 m to 2\.5 m thereby reducing the weight of each pipe from 22 tons to 11 tons, which greatly facilitated transport and construction\. Thrust blocks were added at bends in the pipeline\. 5\.6 GOI was required by a loan covenant to have Jatiluhur dam periodically inspected\. Following the dam's safety inspection under the Loan, the Loan Agreement was amended to finance additional studies for its stability and safety-related works\. Because of the dam's importance (being the largest reservoir in Indonesia), a panel of two dam experts was also financed by the Loan to review these additional studies\. The dam panel concluded that in the event of a large earthquake, the upstream embankment of the dam could be severely damaged and damage could also occur to the downstream embankment; further investigation of the structural integrity of the intake structure was also needed\. Following more work by the inspecting engineers and a further review by the dam panel in January 1993, rehabilitation work was recommended, the design of which has been completed under the Project\. Construction is proposed to be done under a possible future dam-safety project\. 5\.7 The aerial photography and mapping for purposes of land tax were completed satisfactorily but about three months later than planned\. Designs of Pejompongan pipeline and TJC were successfully completed as were studies for O&M and for water quality protection and the assistance for land-tax data management\. 6\. Project Results 6\.1 As a result of the Project, an additional quantity of about 460 million m3 of raw water will be available for Jakarta each year and there will be appreciable savings in the amounts of chemicals used for water treatment due to improved raw water quality\. Additional water supplied in the dry season has enabled the cropping intensity to increase from 182% to 234%, resulting in incremental annual agricultural production estimated to be about 80,000 tons of paddy, 12,000 tons of maize and 17,000 tons of soybeans\. Jatiluhur dam has been inspected and found to need remedial works, which are being designed under the Project\. PBB estimates that there has been about 25% increase in PBB collected due to remapping, as well as further increases resulting from new methods of assessment and collection\. 6\.2 The economic rate of return (ERR) of the Project is now estimated to be 33%\. Despite lower prices for agricultural commodities, the ERR now estimated is higher than the 26% estimated in the SAR due to slightly higher incremental agricultural production and a higher value given to raw water for Jakarta\. 6\.3 The Project has contributed to improving the availability of clean drinking water in Jakarta and has improved incomes of poor farmers in the area irrigated from WTC\. The Project has so far had little other environmental impact but if, due to investigations and designs carried out under the Project, a disastrous failure of Jatiluhur dam has been avoided, the environmental benefit would be enormous\. 6\.4 As a result of the designs carried out under the Project, a contract has been awarded for the construction of the 11 km long, twin 1\.6 m diameter Pejompongan pipeline, which started in 1992, financed by Jabotabek Urban Development II Project (Loan 3219-IND)\. The designs for TJC have not yet been used for construction\. The management consultancy for POJ resulted in a computerized operating model (JISMOD) for operation of the system\. However, although working, the model is not being used; data are required to be updated daily which has been difficult to do, and the model needs to be located in one central unit with operational authority\.  -5 - 7\. Project Sustainability 7\.1 The sustainment of project benefits would depend on maintaining a reliable water supply\. This requires implementation of remedial works at Jatiluhur dam and the replacement of the pumping station at Curug with the proposed new electric pumping station\. Both these operations will require GOI finance\. 7\.2 Maintaining a reliable water supply depends also on the O&M of the system\. The responsibility for this is shared between POJ (dam and headworks and one third share of Curug to Bekasi and all Bekasi-Jakarta) and West Java Provincial Water Resources Service (PRIS) (2/3 of Curug to Bekasi, secondary canals)\. The rate POJ receives from the Jakarta Drinking Water Supply Utility (PAM) for sale of raw water is fixed from time-to-time by DGWRD\. This rate has been Rp 22/m3 since 1991 even though POJ calculated in 1989 that they would require Rp 38/m3 when the Pulogadung pipeline was commissioned (1991) rising to Rp 42/i3 in 1994\. POJ is able to augment any shortfall in its income from sales of water by income from sales of hydroelectric power, although this requires annual ministerial approval\. 7\.3 Although there was a covenant in the Loan requiring GOI to allocate a portion of land tax collected to the O&M of main and secondary canals, this was not enforced because it was considered to be superseded by irrigation service fees and PBB implemented under the Irrigation Subsector I and H Projects (ISSP I and II, Loans 2880 and 3392-IND respectively)\. Part of the revenues derived from PBB are made available to West Java PRIS\. If the improved O&M and budget allocations achieved under ISSP in other areas are applied to WTC, are sustained and adequate O&M are provided, it would be reasonable to assume that project benefits would be sustained\. However, there is a risk that this will not happen\. 8\. Bank Performance 8\.1 The Bank performed well at all stages of the Project\. FAO/CP was used by the Bank to guide GOI and their consultants with the feasibility study (financed under Credit 995-IND) and, when it became apparent that the Project would have both agricultural and urban water supply components, encouraged collaboration between Agriculture and Infrastructure Divisions in the Bank\. The Bank thus ensured that the urgendy needed work on the downstream reaches of WTC was quickly achieved\. By insisting on dam-safety inspections, the dangerous state of Jatiluhur dam was identified and remedial works put in hand\. 8\.2 Continuity in the supervision of civil works was ensured as the same engineer led all ten Bank missions which supervised the works\. Clear and concise supervision reports were prepared\. The Bank adopted a flexible attitude to reallocating the Loan, introducing a special account and extending the closing date of the Loan to permit urgent safety investigations and designs to be undertaken at Jatiluhur dam\. Bank staff provided constructive ideas on the redesign of the pumping station at WTC headworks at Curug\. The Project drew attention to the need for safety inspections for dams\. 9\. Borrower Performance 9\.1 The Borrower generally performed well\. By employing experienced consultants who had designed the main works, to supervise construction, good continuity was achieved enabling designs to be improved to suit actual conditions during construction\. There were delays in awarding contracts, partly  caused by shortage of funds in 1986 and 1987 and for the Pulogadung pipeline, by the difficulty of obtaining the approval of Jakarta City Government to the alignment of the pipeline\. 10\. Project Relationships 10\.1 Good relations were maintained between the Borrower and the Bank with excellent continuity of Bank staff involved with project supervision\. There were no appreciable problems in coordination between Government agencies because very little coordination was needed\. There are regular discussions between POJ and PAM concerning the rate to be charged for raw water\. 11\. Consulting Services 11\.1 Consultants were used for supervision of construction, design for future projects, review of dam safety, mapping, training and studies\. The performance of foreign consultants was reported to range from acceptable to excellent\. For local consultants, collaborating with foreign consultants or working independently, performance was reported to vary from less than acceptable to acceptable\. The role of consultants for construction supervision was to assist project staff (assistance concept) and not to be responsible for an output (task concept), whereas for designs and studies the consultants worked under the task concept and were responsible for the output\. The quality of output for consultancies under assistance concept was reported to be diluted by the part played by project staff, whereas under the task concept it was reported as being generally higher\. 11\.2 The recruitment of consultants was delayed initially, but consultants generally delivered their tasks on schedule\. There were increases in consultants inputs due to additional work\. The major increase occurred for the Dam Safety-related assignments, as a result of unusually dangerous conditions revealed after initial inspections\. Staff of foreign consultants remained nearly the same as in the consultants offer, but some changes were made in the staff of local consultants\. Relationships between the foreign and local firms were reported to be always excellent\. 11\.3 Consultancies generally achieved the intended effects and met objectives\. When objectives were not met fully, it was reported to be due to inappropriateness of the local consultant staff, who in spite of the training afforded by the foreign consultants did not reach the proficiency level expected of them\. This sometimes resulted in the extension to the terms of some foreign experts and consequent additional cost\. The supervision consultancy was reported to have resulted in better quality construction and more accurate construction quantities and hence payments to the contractor, than would have been expected without such a consultancy\. 12\. Project Documentation and Data 12\.1 The Loan Agreement was unusual in that it included a detailed implementation schedule (see Schedule 5, Part III, Section 7A)\. The SAR provided a useful framework for use during project implementation but was not always easy to understand and contained minor inconsistencies\. 12\.2 Good records of construction were maintained but monitoring of agricultural benefits was insufficient to make a,precise reestimate of agricultural benefits from the Project\.  - 7 - PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A\. Comments on Part I 1\. Preparation 1\.1 The improvement of West Tarum Canal (Canal) which started in 1985 was originally focussed in the right direction to meet the shortage of irrigation and raw water for industry and municipal water supplies in Jakarta\. Since Indonesia's achievement in 1984 of self-sufficiency in rice production emphasis was redirected towards Operation & Maintenance of irrigation schemes\. 1\.2 The Canal was originally designed to convey discharge of 85 cu m/sec in Curug and 11 cu m/sec at its end in Jakarta\. Due to the capacity of the canal being considerably less that this, as a result of sedimentation and sliding of the inner side slope, it was necessary to enlarge and improve the canal\. 1\.3 To obtain better quality of raw water, a pipeline would be constructed which would connect the canal at Buaran and Pulogadung water treatment plant\. The preparation of the West Tarum Canal Project was done satisfactorily between 1981-1984 under the Irrigation Project XV (Cr\. 990-IND) and with assistance from the FAO, and the Indonesia Agriculture and Infrastructure Divisions of the Bank\. The demand for 60,797 ha of irrigation water, particularly during the dry season, has been met and eventually increased crop intensity from 182% to 200%\. However, the demand for raw water for drinking by the peoples of Jakarta usage by it's industry has not been met\. Sixty percent of Jakarta's people and some industries are still consuming ground water (with a varied and non-standard quality)\. The raw water resources from Jakarta and its surrounding area is sufficient\. The problem is a lack of funds for the water treatment plant as well as its distribution system\. Ideally, water supply for Jakarta would also include city flushing or at least and ability to keep a minimum flow during the dry season\. The dense population of Jakarta from time to time would produce polluted waste water from households and industries\. 2\. Implementation 2\.1 It is clearly stated in Part I that the Project was implemented successfully, but with some change in works and a two-year delay in completion of most works\. The success of project implementation was mainly due to the supervision role both by Bank staff as well as by Project staff with emphasis on quality control, quantity survey, construction inspection and technical administration\. 2\.2 Some works were delayed for the following reasons: (a) During the construction activities, the canal flow for irrigation as well as raw water supply to Jakarta could not be interrupted, therefore the widening of the canal and the removal of sediment had to be carried out partly by dredging or other suitable means; (b) Delays in awarding of contracts and construction works\. The overall completion of works was scheduled for April 1989 but due to the rescheduling of Project activities, the awarding of contract and construction works were delayed\. To assist the contractor in carrying out the works  - 8 - according to the contract, particularly with respect to the quality, quantity and proper execution of these works, the Project established a Project Supervision Organization; (c) Including additional works in the Project, consisting of earthworks, drainage and additional syphoning; (d) Unforseen circumstances; e\.g\. seepage and very soft clay at the base of the existing canal embankment; (e) Rescheduling of project implementation as a result of the country's national economic situation; (f) The redesign of some works; and (g) Delays in completion of aerial photo maps due to the difficulty in collecting data from many of the land-owners who were away from the irrigated areas at the time\. 3\. Project Results 3\.1 Physical\. The Canal at Curug has a capacity of 82 cu m/sec, while at the Curug Hydraulic Pumping Station, its capacity has been improved from 56 cu m/sec to 78\.2 cu m/sec\. The syphon capacity at Cibeet has been increased from 64 cu m/sec to 78 cu m/ec\. The Canal at Bekasi could supply raw water to Jakarta with a discharge of 21 cu m/sec\. The Pulogadung pipeline is supplying raw water (of a better quality) with a discharge of - cu rn/sec and the Canal at its end in Jakarta has a capacity of 11 cu m/sec\. 3\.2 Following is the agriculture production during the wet and dry seasons from 1989 to 1992: a\. Wet Season 1991/1992 - irrigated area 60,797 ha - production 5\.88 tons/ha - benefits 53\.9% of gross income 46\.1% for seed, land prep\. etc\. b\. Dry season 1992 - irrigated area 60,797 ha - production 5\.26 tons/ha - benefits 53\.9% of gross income 46\.1 % for seed, land prep\. etc\. - no palawija of maize and soyabeans 3\.3 The Project could contribute irrigation water for about 60,797 ha paddy field during the dry and wet seasons, and an additional quantity of about 460 million cu m of raw water with better quality to Jakarta\. The income of poor farmers in the area irrigated by the Canal has increased\. It seems, however, that the increase of farmer's income could not be enjoyed by them because rice prices decreased while the price of fertilizer, for example increased\. A farmer with 0\.3 ha paddy field has an income somewhere between Rp 30,000 and 50,000/month, or less than US$1\.00/day\. According to the Bank, -------  - 9 - this would put these farmers in poverty levels; therefore the success of an irrigation project with an ERR of 59% can't improve the farmer's welfare\. 3\.4 The Economic Rate of Return (ERR) of water supply which is based on the price of raw water at Rp 22/cu m is 17%\. It is considered that the price of raw water of Rp 22/cu m is a financial price\. If the economic price of raw water of Rp 29/cu m is used, the ERR of water supply would be higher than 17%\. The ERR of irrigation should be recalculated\. 3\.5 Due to the land reclassification and new methods of assessment and collection, the PBB has increased by 25%\. The land tax is 1% of the price of land while the building tax is 1% of the building price less Rp 2 million\. B\. Comments on Part III The Adequacy and Accuracy of Factual Information in Part III 4\.1 After going through Part III, GOI has the impression that the data contained in Part m adequately reflects the implementation of the Project\. Table 6 - Project Results - (A) Direct Benefits\. Please recalculate the estimated incremental crop' production for paddy\. Please omit data on maize and soya beans; (B) Economic Impact\. The incremental yield of maize and soya beans should be omitted\. Incremental cropping intensity: 44% (SAR) and 18% (PCR)\. The Adequacy and Accuracy of Factual Information in Annex 1 4\.2 A few questions arise: Para\. 4 - Cropped Area\. The total land area of the Project is 68,460 ha, but decreases as a result of rats, pigs, etc\., broken canal, change in function etc\., the harvested areas is only 60,797 ha\. Cropping intensity has increased from 182% at SAR estimates, to 200% for the PCR\. The table for cropped area should be revised\. Para\. 5 - Yields\. Table of yields (kg/ha) should be revised\. Para\. 18 - Economic Rate of Return\. The ERR should be recalculated\. Table 7 - Economic Price of Maize - the economic price of maize would normally be the Bank's commodity price\. The data and information used in Part III were obtained from the Jatiluhur Authority (POJ)\. Changing assumptions will not materially alter the PCR's findings\. (Comment by EA3AG)\.  - 10 - C\. Bank Performance 5\.1 From the viewpoint of Bank missions from project preparation stage, construction implementation through the completion of all project works, all project objectives have achieved their targets and operated well\. The Bank performance was satisfactory\. 5\.2 The completion of works, however, was delayed for two years as a result of additional works being included in the project, rescheduling of project activities, and unforeseen circumstances\. While some delays in the completion of works were acceptable, the SAR targets might have been too optimistic\. 5\.3 The integrated development among the agencies concerned had the purpose of enhancing the acceleration of regional development\. The PBB component is one component of this Project, belonging to the DG tax\. As a result of land reclassification from the aerial photography, the PBB has increased by 25%\. 5\.4 Because of weak coordination among agencies concerned, the O&M cost-recovery for irrigation schemes is still unclear\. D\. GOI Performance 6\.1 The Government of Indonesia has the great responsibility of completing all project works\. During construction implementation, problems were revealed and steps were undertaken to get accurate and regular measurements of the works in progress\. Even so, completion of project works were delayed for two years; however the quality and the function of the canal are satisfactory\. 6\.2 The performance of local consultants reportedly varied from less than acceptable to acceptable\. For this reason, the selection of consultants should be more closely monitored\. 6\.3 The transferring of knowledge is an important responsibility\. The transferring of this knowledge from expatriates to project staff and contractor's staff is considered satisfactory\. Close cooperation among Engineering contractors and consultants in the field and in the office was a direct way of transferring knowledge\. A training seminar was conducted in 1987 and the expatriate specialists provided lectures and organized discussions on their specific fields of experiences\. 6\.4 According to the law no\. 11/1974 on water use priorities, the first priority for water use is drinking water, household, flushing etc\.; second is agriculture, irrigation etc\. In fact, these priorities got reversed\. Jakarta is in dire need of drinking and flushing water and the exploration of ground water by its population affected the intrusion of sea water up to Monas\. As a lesson, the Canal should considered a source of additional raw water for Jakarta\. E\. Bank and Borrower Relationship 7\.1 Coordination between the Bank and the Borrower during the preparation and implementation of this Project was satisfactory\. All the problems which were revealed during project implementation have been overcome by both the Bank and the Borrower by their exchanging of views\.  - 11 - PART III: STATISTICAL INFORMATION 1\. Related Bank Loans Loan/Credit Title Purpose Year of Status Comments Approval 1/ Irrig\. Rehab\. II Rehabilitation of Jatiluhur irrigation system and 1970 Completed PPAR, 12/80 (Cr\.195-IND) drainage flood protection and technical assistance\. Irrig\. Rehab\. m (Cr\.220-IND) Rehabilitation and reintroduction of L&M; 1971 Completed PPAR, 12/80 supply of maintenance equipment and technical assistance\. Jatiluhur Irrigation Extension Expansion of irrigation and drainage facilities, 1974 Completed PPAR, 06/87 (Cr\.514-IND) flood control, canal and drainage rehabilitation, technical assistance and training\. Irrig\. VII (Ln\. 1268-IND) Tertiary development, construction of irrigation 1976 Completed PPAR, 10/85 systems previously rehabilitated, technical assistance, training and mapping\. Irrig\. X (Ln\. 1578-IND) Studies, designs for dams, surveys and technical 1978 Completed PPAR, 06/89 assistance, studies to optimize operation of Citarum reservoirs\. lrrig\. Xll (Ln\. 1645-IND) Tertiary development of Jatiluhur irrigation 1981 Completed PPAR, 06/87 system, flood control, studies\. Irrig\. XV (Cr\.995-IND) Institutional strengthening for DGWRD 1980 Completed PPAR, 06/89 (Directorate-General Water Resources Development)\. Irrig\. XVI (Ln\. 21 18-IND) TA for institutional strengthening of DGWRD 1982 Completed PCR, 11/89 and improvement of management information systems for irrigation sector\. Jakarta Sewerage and Sanitation Project Preparation of project strengthening, 1983 Completed PCR, 5/92 (Ln\. 2236-IND) PAM water demand study\. Central & West Java Provincial Irrigation Increase food crop production\. Enhance 1986 Ongoing Project closed (Ln\. 2649-IND) employment and incomes\. Strengthening 12/92\. irrigation services\. Irrigation Subsector I Operation and maintenance\. Irrigation service 1987 Closed 7/91\. PCR 5/92 (Ln\. 2880-IND) fees\. Second Jabotabek Urban Construction of Pejompongan pipeline\. 1987 Ongoing Pipeline Development Project (Ln\. 3219) construction has begun\. Irrig\. Subsector II Operation and maintenance\. Irrigation service 1991 Ongoing Project closea (Ln\. 3392-IND) fees\. 1995\. 1/ World Bank fiscal year\.  - 12 - 2\. Project Timetable Date Planned Date Revised Date Actual Identification 1980 Preparation 1981 to March 1984 Appraisal Misaion December 1983 September 6-27, 1984 Loan Negotiation April 1985 April 1985 Board Approval May 1985 May 28, 1985 Loan Signature June 1985 June 18, 1985 Loan Effectiveness September 16, 1985 November 20, 1985 Loan Closing December 31, 1991 April 30, 1992 April 30, 1993 Comments: Key issues prior to appraisal were cost sharing between POJ and PAM and cost recovery\. A condition of negotiating the loan was that GOI should submit a schedule for implementing reassessment of IPEDA in POJ area\. Loan effectiveness was delayed until the condition that the contract for improvement of WTC between Bekasi and Jakarta had been awarded was met\. The loan closing date was extended first by four months in 1991 to complete the additional safety-related work at Jatiluhur Dam and then, in 1992, by a further year to enable a review of the critical dam safety issues and the design of remedial work\. 3\. Loan Disbursements Cumulative Estimated and Actual Disbursements in US$ million Financial 1986 1987 1988 1989 1990 1991 1992 1993 Year Appraisal estimate 0\.4 4\.3 11\.3 19\.0 24\.7 32\.6 43\.4 43\.4 Actual 0\.2 2\.3 10\.5 15\.6 23\.1 34\.0 40\.8 40\.6 1/ Actual as % of 50 53 93 82 94 104 94 94 estimate N\.B\. US$2\.0 nillion was canceled from the Loan at GOI's request on February 3, 1992\. 1/ Up to February 26, 1993\. Disbursement decreased because of a refund of US$650,000 from unused special account\.  - 13 - 4\. Project Implementation Indicators Appraisal Actual or PCR Actual as % of Estimate Estimate SAR Canal Works Earthworks ('000 n3) 3,000 5,600 187 Concrete ('000 mn') 13 49 377 Metal work (tons) 166 840 506 Manufacture and lay 2-m diameter pipeline to Pulogadung (km) 7\.5 8\.4 112 Provide Equipment Dredgers 3 4 133 Excavators 6 4 67 Tractors 3 2 67 Dump trucks 6 6 100 Ditch cleaner 0 4 Mobile crane 0 1 Vibrating roller 0 2 Grader 0 2 Microcomputers 6 2 33 Pumps for Curug 2 0 0 Air photography (1:10,000 scale) (ha) 300,000 300,000 100 Comments: Canal works quantities were underestimated during project preparation\. 5\. Project Costs and Financing A\. Project Costs (US$ million) Appraisal Revised Estimate Estimate Jan\. 1990 Nov\. 1991 Actual Civil Works West Tarum Canal 33\.88 28\.16 26\.46 26\.58 Pulogadung pipeline 13\.21 11\.50 12\.58 14\.94 Jatiluhur dam drilling 0 0\.55 0\.55 0\.44 Equipment Operation and maintenance 7\.09 4\.58 4\.58 4\.61 Dam safety 2\.46 0\.40 0\.40 0\.29 IPEDA/PBB 0\.03 0\.02 0\.02 0\.02 Mapping 2\.25 2\.00 1\.90 1\.76 Consultants Construction supervision 3\.20 2\.78 3\.63 3\.15 Pejompongan pipeline design 1\.12 0\.82 1\.00 1\.06 Tarum Jaya Canal design 1\.08 1\.28 1\.35 1\.42 Water quality 0\.50 0\.25 0\.31 Dam safety 0\.30 0\.62 1\.36 1\.57 O&M training 1\.77 2\.00 2\.06 1\.98 PBB 0\.22 0\.28 0\.28 0\.23 Cisedane study 0 0\.21 0\.21 0\.21 Training DGWRD staff 0 0\.25 0\.25 0 Engineering and Administration 5\.71 4\.07 4\.07 3\.26 Land acquisition 0 0 0 4\.97 Contingencies - 11\.03 2\.10 0 Total 72\.81 72\.80 62\.56 66\.48 Comments: Cost of water quality consultants included in construction supervision WTC construction cost in US$ less than SAR due to alteration in Rp/US$ exchange rate\. Scope of dam-safety consultancy increased\. Actual costs of IPEDA/PBB equipment and consultants are taken from disbursement records\. Other costs are from Annex 1, Table 2, using exchange rates in Annex 1, Table 1\.  - 14 - B\. Project Fmancing (US$'000) LoIA Revised FInal 1/ Comments Agreement IBRD LOAN (January 90) (June 92) Civil Works A\. WlC 16,340 16,896 15,637 15,666 B\. Pipeline 6,150 6,900 7,769 7,543 C\. Jatiluhur dam drilling 0 501 470 445 Equipment and Materials 1\. O&M 6,950 4,500 4,300 4,334 2\. POJ computers, gauges, etc\. 80 80 55 54 3\. Dam safety inumments 2,150 400 250 194 4\. IPEDAtPBB 20 20 20 20 5\. Civil works (pump station) 0 2,000 0 Mapping 2,120 2,000 1,800 1,757 Consultants - Civil works 5,030 5,130 6,016 5,620 - Dam afety 300 620 2,519 2,127 - OhM 1,600 2,000 2,085 1,982 - EPEDA 160 280 272 227 - Completion of Cisedane Study 0 207 207 206 Unallocated 2,500 1,866 0 (1,225)2 Total Loan 43,400 43,400 41,400 41,400 US$2 million canceled, March 1992 GOI 29,408 29,400 19,165 25,077 Total Project Cost 72,808 72,800 62,S65 66,477 1/ Disbursement data up to June 20, 1993, except for *unallocated\. 2/ Amount in Special Account not yet recovered\. Disbursemnents for eligible payments will continue up to August 31, 1993, and final disbursement is expected to be very close to the revised (June 1992) figures\. 6\. Project Results A\. Direct Benefits Edimate at Esimate at Full Appraial Closing Date Developmnt Estimate Estimated Incranental Crop Productio (tons/year) Paddy 81,600 79,700 79,700 Maize 11,400 11,800 11,800 Soybeans 11,000 17,200 17,200 Increase Watr Supply to Jakarta (million m'/year) 463 362 457 Savings in Chemical Dosage at Pulogadung Water Treatmentt Plant (tons/year) Alum 3,200 2,388 2,388 Line 890 252 252 Chlorine 1,181 780 780 Comments: Chemical saving based on actual use of 4,287 tons/year of alum, 1,826 tons/year of lime and 480 tons/year of chlorine\.  - 15 - B\. Economic Impact Economic Rate of Return Appraisal PCR Estimate Estimate (%) (%) Whole project 26 33 Irrigation only 38 59 Pipeline (water quality) 19 4 Canal (water gupply) 13 26 Total water supply 15 17 Underlying Assumptions Ratio of shadow wage rate: unskilled constitution labor wage 50 50 Incremental cropping intensity 44 47 Incremental yields of: - rice 0 0 - maize and soya (kg/ha) 200 200 Forecast economic price (Rp/kg) for 1995: - paddy 227/379 1/ 276 2/ maize 148/247 1/ 217 2/ soybean 307/512 I/ 617 2/ Assumed price of raw water Rp/n? 11/18 1/ 22 2/ 1/ Constant 1985 values / constant 1992 values\. 2/ Constunt 1992 values\. C\. Financial Impact Comments: Insufficient data are available to the PCR mission to review and, if necessary, alter the assumptions made in the SAR concerning farm incomes\. D\. Studies Title Purpose as Defined at Apprais-a Status Impact of Study 1\. Improvement of Operation and To optimize use of water from Complete Staff trained\. Staff Training Jatiluhur reservoir\. 2\. Protection of Jatiluhur Dam Review safety equipment, specify Scope extended in Identified need for remedies, train staff\. conjunction with further safety checks\. 6 below\. 3\. Design of Pejompongan Pipeline Detailed design of pipeline from Complete Pipeline under WTC to Pejompongan Treatment construction\. Works\. 4\. Design of Tarum Jaya Canal Detailed design assistance to POJ Complete Canal not yet for 40 rm/sec\. canal from Curug to constructed\. near Bekasi\. 5\. Water Quality Protection Establish plan to protect quality of Complete Water quality protection water in WTC\. plan available\. 6\. Jatiluhur Dam Panel Not in SAR\. To review work Two experts have Further investigations under 2 above, made three missions, and safety precautions recommended\. 7\. Cisedane Study Not in SAR\. Originally financed Complete under Loan 1578 but transferred to Loan 2560 when Loan 1578 closed\.  - 16 - 7\. Status of Covenants Covenant Subject Deadline for Status Compliance Loan Agreement 3\.01 (a) Carry out project with due diligence and In compliance\. efficiency in conformity with appropriate practices\. 3\.01 (b) Carry out project in accordance with Program revised - see below\. program of Schedule 5\. 3\.02 Procure goods and services in accordance Complied\. with Schedule 4\. 3\.03 Furnish plan for allocation of IPEDA 31 Dec\. 1988 Not complied\. Covenant superseded by implementation of irrigation service fee and PBB implemented under ISSP\. 3\.04 Furnish proposals to amend POJIPAM In compliance\. agreement 4\.01 (a) Maintain records and accounts in In compliance\. accordance with sound accounting practices\. 4\.01 (b) Have accounts audited and submit report 31 Dec\. each year\. Complied, but sometimes late\. to Bank within 9 months\. 4\.01 (c) Maintain records\. In compliance\. 5\.01 Cause Jatiluhur Dam to be periodically 31 Dec\. 1985 Complied but late\. inspected\. Propose arrangements for this before\. 5\.02 (a) Complete expansion of Pulogadung 30 Sept\. 1988 In compliance\. treatment plant\. 5\.02 (b) Complete expansion of distribution 30 Sept\. 1989 In compliance\. system from Pulogadung\. 6\.01 Enter into contract for Bekasi-Jakarta 16 Sept\. 1985 Complied but with some delay\. reach\. Schedule 5 Implementation Program Civil Works Bekasi-Jakarta: - Commence 10 Oct\. 1985 Jan\. 1986 - Complete 15 Oct\. 1988 31 March 1988\. Early Curug-Bekasi: - Commence 15 June 1986 Oct\. 1987 - Complete 31 Dec\. 1989 19 Nov\. 1991\. Late Pulogadung pipeline: - Commence 10 Oct\. 1986 March 1988 - Complete 31 Dec\. 1988 Nov\. 1990\. Late Equipment Operation equipment: - Commence I Sept\. 1986 April 1987 - Complete I Feb\. 1987 Maintenance equipment: - Commence 1 Oct\. 1987 1990 - Complete 31 March 1990 1991 Dam safety equipment: - Commence I Dec\. 1986 Sept\. 1988 - Complete I June 1987  - 17 - Covenant Subject Deadline for Status Compliance Technical Implementation Assistance management: - Commence 15 Sept\. 1983 July 1886 - Complete 31 Dec\. 1985 March 1992 Dam safety: - Commence I June 1986 Oct\. 1986 - Complete 31 Dec\. 1988 June 1993\. Scope extended\. Design: - Commence I April 1988 Jan\. 1988 - Complete 31 Dec\. 1989 1990 Operation and maintenance: - Commence I April 1987 Feb\. 1986 - Complete 31 Dec\. 1989 Mid-1990 Water quality protection: - Commence I Dec\. 1983 March 1986 - Complete 31 Dec\. 1987 1990 IPEDA Mapping: - Commence I May 1986 1986 - Complete 31 Dec\. 1988 March 1989 Reclassification and reassessment - Commence I May 1987 Complete 31 March 1990 Completed Assistance to inspection offices: - Commence I May 1986 August 1986 - Complete 31 Dec\. 1988 Completed 2 (a) Furnish M&E scheme for West Tarum 31 July 1986 Action plan produced Dec\. 1987\. Area 2 (b) Start M&E 31 July 1987 1988\. Analyzed data for one season only, due to lack of funds\. 8\. Use of Bank Resources A\. Staff Inputs (staff weeks) Stage of Project Cycle Planned Revised Fmal Comments n\.a\. - 257\.9 Through Appraisal Appraisal through Board n\.a\. - 5\.3 Approval Board Approval through n\.a\. - n\.a\. Effectiveness Supervision n\. - 71\.1 PCR 10\.0 Total Note: n\.a\. = not available\.  - 18 - B\. Missions Stage of Project Cyde Month/ Number of Days in Field Specialization Performance Types of Year Persons 1/ Represented Rating Status Problems 2/ 3/ 41 Through Apprmisl Sept\./Oct\. 81 3 25 SI E,C,A Dec\. 81 3 165/ E,C,A Jan\./Feb\.82 3 35 S/ E,C,A June 82 1 24 S/ E Sept\. 82 2 25 5/ E Feb\./Mar\. 83 3 25 S/ E,C Mar\. 84 3 E,C Sept\. 84 4 22 E,C,F,A Appraisal through Board Mar\. 85 1 10 E Approval Board Approval through May-June S5 I E Effectiveness Supervision June 86 1 5 E 2 F,M Nov\.IDec\. 86 1 3 E 2 F,M May-June 87 1 3 E 2 M Jan\. 88 I M Feb\./Mar\. 88 1 4 E I M April 89 2 6 E I M Dec\. 89/Jan\.90 2 6 E,C I M Nov\./Dec\. 90 1 5 E I F,M May 91 I E April/May 92 2 E I M PCR Dec\. 92 2 E,C Note: Details of identification mission in 1980 not available\. 1/ PCR estimate, based on Bank's projecl files, including meetings with DGWRD in Jakarta\. 2/ E = Engineer; C = Economist; F = Financial Analyst; A = Agriculturalist; M = Mapping Specialist \. 3/ Performance rating: I = problem free or minor problems; 2 = moderate problems\. 4/ Types of problem: F - Financial; M - managerial\. SI Includes work or other projects\. C\. Costs Comments: Data are not available on cost of staffing inputs, broken down by each stage of project\.  - 19 - ANNEX 1 Page 1 ECONOMIC ANALYSIS A\. Introduction 1\. The mission re-estimated the ERR closely following the assumptions of the SAR, but using actual data where possible\. B\. Project Costs Economic Costs 2\. Using price deflators for domestic inflation (Table 1), actual project expenditure in current terms (Table 2) was adjusted to obtain an estimate of expenditure in 1992/93 values and then converted to economic costs (Table 3) in the same way as in the SAR: costs of studies relating to future projects which have no direct impact on project benefits were excluded; taxes and subsidies were excluded; a shadow wage rate of 50% of the wage for unskilled construction labor was used (see para 8)\. Conversion factors are shown in Table 4\. C\. Project Benefits Irrigation Water 3\. The Project area was already highly developed and relatively well irrigated and therefore the project objective was only to increase dry season irrigation, thus permitting an irrigated second crop (rice) and enabling a third crop in some areas\. The distribution system was already in place and farmers were well aware of high yielding technologies; it was therefore assumed that the main benefit was from an increase in cropping intensity and from a switch from lower value to higher value crops\. These increases were assumed to take place as soon as water was made available\. 4\. Cropped area\. The total land area of the Project is 68,460 ha with 67,000 ha being cultivated with rice in both the wet and dry seasons (as expected in the SAR)\. Based on data provided by Jatiluhur Authority (POJ), the area under maize increased from 2,000 ha to 7,200 ha (compared to SAR estimate of 7,000 ha) and the area under legumes (represented by soya) is 16,000 ha (compared to SAR estimate of 11,000 ha)\. This has had the effect of increasing cropping intensity from 182% before the Project to 234% at completion and full development\.  ANNEX I Page 2 Cropped areas SAR PCR (ha) W/O With Inc W/O With Inc WS rice 67,000 67,000 0 67,000 67,000 0 DS rice 50,000 67,000 17,000 50,000 66,600 16,600 Maize 2,000 7,000 5,000 2,000 7,200 5,200 Soya 3,000 11,000 8,000 3,000 15,800 12,800 Total 122,000 152,000 122,000 156,600 Total area 67,000 67,000 67,000 67,000 CI(%) 182% 227 % 182% 234% 5\. Yields are relatively high in the project area and, although expected to rise, the SAR did not envisage any increase in rice yields due to the Project\. Both maize and soya yields were expected to increase by about 10% due to better irrigation\. Yields (kg/ha) _ _ SAR PCR W/O With Inc W/O With Inc WS rice 5,000 5,000 0 5,000 5,000 0 DS rice 4,800 4,800 0 4,800 4,800 0 Maize 2,000 2,200 200 2,000 2,200 200 Soya 1,100 1,300 200 1,100 1,300 200 No data were available for actual yields, except one monitoring and evaluation report for 1990/91 which gave a weighted average rice yield for the area of 4,820 kg/ha in the wet season and 4,340 kg/ha in the dry season\. Data collected for other seasons were not analyzed due to lack of funds\. As these are well within a range centered on the SAR estimates, the mission has accepted the SAR estimates\. 6\. Crop budgets\. Since the benefits in the SAR were based largely on area increases and shifts in crop mix, the mission has used the same crop budgets (Table 5) to estimate total production and input requirements\. Incremental production is estimated to be 79,680 tons of paddy, 11,840 tons of maize and 17,240 tons of soybeans\.  -21 - ANNEX 1 Page 3 7\. Economic price projections\. The mission re-estimated parity prices for the main economic crops and inputs, using the latest World Bank Commodity price projections (November 1992) (Tables 6 to 10)\. 8\. Economic wage rates\. The current wage rate for unskilled labor is about Rp 2,000 per day plus meals estimated at Rp 500 per day, giving a total daily wage of Rp 2,500\. The shadow wage rate, used for the SAR and commonly used for projects in Indonesia, is 50% of the financial rate and this conversion factor was used to estimate the economic cost of unskilled farm labor\. 9\. Economic benefits from irrigation water were estimated as shown in Table 11\. 10\. Benericiaries\. The mission had insufficient information to update the SAR analysis of beneficiaries in terms of land ownership and farm size class\. Raw Water Supply for Domestic and Industrial Use 11\. Increased quantity of water available is shown below\. The SAR valued the increased quantity of water supplied at the fee paid by the Jakarta Drinking Water Supply Utility (PAM) for raw water, which was considered to be a minimum estimate of economic value\. Incremental water supply Pnce Paid by PAM to POJ SAR PCR Rplm3 (MCM) (MCM) 1988 63 10 1989 78 10 1990 148 258 16 1991 186 282 22 1992 211 318 22 1993 350 352 22 1994 391 457 22 1995 433 457 22 1996-2015 463 457 22 12\. Water fee\. The water fee agreed between PAM and POJ is currently (1992/93) Rp 22 per m3 of raw water\. It is projected to increase to Rp 27/m3 in 1994, but Rp 22 has been used for analysis\. The retail price for treated water varies for different users and quantities, but is on average about Rp 250 per m3\. Undoubtedly, Rp 22 per m3 represents a lower bound on the economic value of raw water and can therefore be assumed to be a conservative estimate\.  - 22 - ANNEX I Page 4 13\. Improved quality of water\. The SAR valued the improvement in water quality as a result of the construction of the pipeline on the basis of chemicals saved in the treatment process and by the improved productivity of the Pulogadung treatment plant, due to the decrease in water used for washing filters and bleeding settling tanks\. 14\. The SAR estimated that, as a result of better quality water, the annual productivity of the Pulogadung treatment plant would increase by 18%\. This assumption has been retained by the PCR mission\. The estimated savings in chemicals used are shown in Tables 12 and 13\. 15\. Total benefits from water supply\. There are also indirect health benefits, resulting from both the increased supply and better quality of water supplied, which have not been quantified\. D\. Economic Analysis 16\. The overall rates of return to the Project, and to the individual components, were re-estimated using the assumptions described above\. The cost and benefit streams are shown in Table 14\. Project costs were lower than expected due to a devaluation of the rupiah in 1986, followed by a more gradual depreciation in its value against the US dollar\. 17\. The rate of return to raw water supply has increased slightly from that at appraisal due to the increased economic value given to raw water\. Moreover, it should be remembered that, as in the SAR, the economic price of water is a lower bound on its real value\. However, the increased cost of the pipeline and the lower chemical savings than assumed in the SAR result in lower ERR, based on water quality\. 18\. The projected economic prices of agricultural commodities and inputs are generally lower than estimated in 1984, but lower construction costs have resulted in an increased economic return to irrigation\. ERR (%) SAR PCR Irrigation 38% 59 Water supply (total) 15% 17 - Pipeline 19% 4 - Canal 13 % 26 WTC (excluding pipeline) 28% 43 Project 26% 33  - 23 - ANNEX 1 Page 5 E\. Financial Aspects 19\. A major issue during project design was the allocation and recovery of project costs, both of irrigation water and domestic drinking water\. Cost Allocation 20\. The SAR estimated the breakdown of costs between irrigation and water supply as follows: Irrigation Raw water supply Investment costs - Curug to Bekasi 70% 30% - Bekasi to JKT 100% - O&M equipment 30% 70% - Pulogadung pipeline 100% Total 42% 58% Recurrent costs - WTC O&M (yr 1) 54% 46% - Rep of equip 30% 70% - Pipeline O&M 100% Total 34% 66% The PCR has used the same assumptions\. Cost Recovery 21\. Raw water supply\. Considerable progress has been achieved in determining the fee rate paid by PAM to POJ for raw water, in that there is now a mechanism in place for annual review\. Disagreement remains about the formula for establishing the rate, although the debate is fairly transparent with the different approaches representing the negotiating positions of the two agencies involved in the supply and purchase of raw water\. 22\. The debate between PAM and POJ focusses on 2 aspects: (a) whether PAM should pay for water which is not treated but used for flushing rivers (this arises because of the metering arrangements); and (b) whether full capital recovery should be included in the fee\. Allowing for depreciation and O&M costs, POJ estimates the fee rate should be Rp 22 per m3 and this is the rate currently paid by PAM\. However, POJ argues that this does not allow for a return on capital which would increase the fee rate to Rp 29/r3\.  - 24 - ANNEX 1 Page 6 23\. Irrigation water\. The link between ultimate beneficiaries and those responsible for the supply of water is less clear and less direct\. Farmers do not pay directly for O&M of the main and secondary system, but contribute towards the cost through Land and Building Tax\. The allocation for irrigation passes through several levels of Government and final allocation should be made by the West Java Government to the PRIS and POJ\. This and the recovery of O&M costs through Irrigation Service Fees are a major component of ISSPs and have not been dealt with in detail here\.  - 25 - INDONESIA: West Tarum Canal Improvement Project Project Completion Report Annex 1: Economic Analysis Table 1\. Exchange Rates and Price Index Financial Year Exchange Rate Price Index (GOI) (Rp/US$) (100 = Base '92) Appraisal (1985) 1,100 1985/86 1,153 166\.83 1986/87 1,373 156\.59 1987/88 1,655 135\.94 1988/89 1,707 128\.42 1989/90 1,788 117\.88 1990/91 1,870 108\.38 1991/92 1,975 103\.37 1992/93 2,075 100\.00 Source: International Financial Statistics (December 1992)\.  TabLe 2\. Project Expenditure (Current Rp'000) 1985/86 1986/87 1987/88 1988/89 1989/90 1 1990/91 1 1991/92 19M9/93 1993/94 Total Civil Works C\.1 Bekasi-Jakarta 559,958 1,507,933 1,821,034 547,658 0 0 0 4,436,583 C\.11\.1 Curug-Cibeet 1,083,278 1,857,394 1,138,338 4,376,456 4,753,201 13,208,667 C\.11\.2 Cibeet-Bekasi 1,059,523 1,797,783 1,472,365 3,783,671 4,924,447 13,037,789 C\.11\.3 Curug 1,416,305 2,169,344 3,081,276 4,276,128 6,470,417 17,413,470 Headworks C\.l11 Pulogadung 3,159,321 3,895,584 9,418,388 10,258,409 26,731,702 Pipeline C\.IV Jatiluhur Dam 422,366 387,088 809,454 Dritling Sub-total 559,958 1,507,933 8,539,461 10,267,763 15,532,733 23,081,752 16,148,065 0 0 75,637,665 Equipment Operational 13,567 165,661 179,228 Maintenance 309,201 5,916,017 993,783 1,382,094 8,601,095 Dam Safety 443,064 80,689 523,753 Sub-totat 0 0 0 309,201 456,631 5,916,017 1,240,133 1,382,094 0 9,304,076 Mapping 690,767 323,613 245,000 1,259,380 Consuttants Supervision 1,023,994 698,277 908,862 805,025 84,504 1,420,491 85,000 5,026,153 I DD Pejompongan 819,413 184,678 272,879 1,276,970 c Pipeline DD Tarum Jaya Canal 1,219,014 810,579 316,488 2,346,081 I Dam Safety 90,947 92,598 211,908 1,330,127 577,288 156,000 2,458,868 Instrument O&M Training 1,219,014 818,919 408,063 194,950 2,640,946 Sub-totat 0 1,023,994 698,277 4,257,250 2,711,799 1,293,842 2,945,568 577,288 241,000 13,749,018 Right of Way 1,622,920 259,248 6,658,870 8,541,038 Engineering and Admin\. 905,101 534,474 691,030 474,419 532,425 696,793 750,669 718,456 5,303,367 Totat (Rp'000) 3,087,979 3,325,649 10,619,535 15,632,246 19,478,588 30,988,404 27,743,305 1,959,382 959,456 113,794,544 Total (USS'OOO) 2,678 2,422 6,419 9,158 10,893 16,574 14,047 944 462 63,596 1/ 1/ Excludes IPEDA equipment (US$20,000) and consuttants (US$227,000)\. Cisedane river study (USS206,000), for which details are not available\.  Table 3\. Econosic Costs (Const\.'92 Rp'000) 1985/86 | 1986/87 1987/88 1988/89 | 1989/90 | 1990/91 1991/92 | 1992/93 | 1993/94 Total Civil Uorks WTC Civil Works 794,063 2,007,117 6,216,699 6,955,736 5,703,479 11,456,983 14,188,952 0 0 47,323,029 Pipeline 0 0 3,650,565 4,252,337 9,437,417 9,450,628 0 0 0 26,790,947 O&S Equipment 0 0 0 357,371 14,394 5,770,768 1,078,706 1,243,885 0 8,465,125 TA and Studies 0 1,603,501 949,238 2,732,641 1,914,382 533,860 1,669,944 0 85,000 9,488,566 Egineering and 1,283,502 711,405 798,478 517,866 533,501 641,925 659,596 0 610,688 5,756,961 Admin\. Total 2,077,564 4,322,023 11,614,981 14,815,952 17,603,173 27,854,164 17,597,199 1,243,885 695,688 97,824,627 Table 4\. Conversion Factors I Civil Works 0\.85 Equipment 0\.90 Consultants 1\.00 GeneraL 0\.85 Unskilled Labour 0\.50 Source: World Bank Office (Jakarta)\.  INDONESIA: West Tarun Canal Improvement Project Project Completion Report Annex 1: Economic AnaLysis Table 5\. Crop Budgets Cropiseason Units WS paddy DS paddy Soyabeans Maize Status P W/O W P W/O W P W/O W P W/O W Yield kg 3900 5000 5000 3700 4800 4800 800 1100 1300 1200 2000 2200 Inputs Seed kg 25 25 25 25 25 25 40 40 40 40 40 40 1 Urea kg 125 200 200 150 275 275 0 0 25 50 50 80 co TSP kg 50 100 100 75 125 125 25 25 30 25 30 50 Pest L 1\.5 2\.0 2\.0 2\.0 3\.0 3\.0 1\.0 2\.0 3\.0 0\.5 1\.0 1\.0 Rodent kg 1 1 1 2 2 2 Animals days 12 12 12 8 12 12 2 2 2 Misc unit 1\.5 3\.0 3\.0 3\.0 4\.0 4\.0 2\.0 2\.0 3\.0 2\.0 3\.0 4\.0 Labour days 191 198 198 188 196 196 95 98 103 93 100 103 Note: P - present (1983) 'INO - future vwithout project W - fAure vith project  INDONESIA: West Tarun Canal Inprovement Project Project Conpletion Report Annex 1: Economic Analysis Table 6\. Ecornoic Price Projections (Rice) knrpoitpartyprxce Unt Opeiauon 1995 19gS 1997 198s 1988 190 199) 1992 1993 1994 1995 200tl 20U6 WVMP(EXportprxe)cons9itA = 315 ll5 3)6 316 338 287 308 272 261 258 260 245 237 PAN (adrusl to 92 values) 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 VlAP(Expoulprce)consl'92\.tA = 336 336 337 337 360 306 329 290 278 175 377 261 352 OualRiy adustment (90%) % 1 302 302 303 303 324 275 295 261 250 247 249 235 227 Fre,ght & Ins tA 37 37 37 37 37 37 37 37 37 37 37 37 37 37 CO Jakarta tA x 339 339 340 340 361 312 332 298 297 284 208 272 264 Exchange rate 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 Cd Jakarta Rphg = 703 703 705 705 749 649 90 618 596 590 594 564 548 Por hanrng (8%) 0 08 56 56 56 56 60 52 55 49 48 47 48 45 44 Transter toe holesalers Rphlg 30 -30 -30 \.30 -3U -30 -30 -30 -30 -30 -30 -30 -30 -30 Transfer to mdl Rphg 30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 Ex-mill pnce Rphg = 70 700 702 702 749 640 615 607 584 577 582 549 532 ND Conversion lo paddty % 065 455 455 456 458 487 418 445 395 379 375 378 357 348 Mli\.ng and clearing Rphkig 20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 Transport lamm to mr Rphg 20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 Econorn\.farngatepnce Rphg = 415 415 416 416 447 376 405 355 339 335 339 317 306 Export parny once Unkt Operation 1985 1986 1987 193 1989 1990 1991 1992 1993 1894 1995 2000 2005 vMP (Exportpnce)const9174A 315 315 316 316 338 287 308 272 2S1 258 260 245 23i M&N 106 53 106 53 106 53 106 53 106 53 0S 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 WMP (Export pnre) cons) 92\. 7t 336 336 337 337 360 308 328 290 278 275 277 261 252 OuaI\.y adjustment (90%) % 0 85 285 285 286 286 306 260 279 246 236 234 235 223 215 Freight & Ins Vt 0 0 0 0 0 0 0 0 0 a 0 0 0 0 CO Jakana tA4 285 285 286 286 306 260 279 246 236 234 235 223 215 Exchange rate 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 7075 2075 2075 Cd Jakarta Rpol9g 592 592 594 594 635 539 579 5S1 490 485 489 460 445 Port hanrlng (8%) -00-3 -47 -47 47 -47 -5l 43 -4e 41 -39 -39 -39 -37 -36 Transler o wholesalers Rph9 30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 30 -30 Transfer to r41 RpAg 30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 Ex-minlpnce Rphkg 485 495 488 4S5 524 436 472 410 391 338 3S9 364 350 Con-vrsontopaddy % 0 65 315 315 318 316 341 283 307 2S7 254 251 253 236 227 Wuingandcleaning Rph9g 20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 20 Transport larml to mr1 Rphlg 20 -20 -20 -20 -20 -20 -30 -20 \.20 -20 -20 -20 -20 -20 Econoric larmgate prie Rpflg 275 275 270 278 301 243 287 227 214 211 213 196 187 Average mportlexport party ofc 345 345 346 346 374 310 336 291 277 273 276 257 24i Panty prce (acusIed for FY) 345 345 346 353 358 318 325 287 276 274 276 257 241  INDONESIA: West Tarun Canal Improvemnent Project Project Completion Report Annex 1: Economic Analysis Table 7\. Econouic Price of Maize Finn rcial Party p\.ce Lind pnce t985 1986 1987 1968 1989 1990 1991 1992 1993 1994 1995 2000 2005 (1992/31 Market poce (cost I92) Rp&g 275 275 275 275 275 275 275 275 275 275 275 275 275 275 Corversian racto, (Rice) 350 0 99 0 99 0 99 101 102 0 90 0 93 0 82 0 79 0 78 0 79 0 73 0 70 Fcormomlarrgalepnice Rp&kg 271 271 272 277 291 246 755 226 217 215 217 202 194 (adrusted lor FY) Table B\. Ecorwuic Price for Soyabean LtO Operaton 1985 1986 1987 19g 1969 1990 1991 1992 1993 194 1995 2700 2005 WMP (bporlprice)consl'90! SA 327 324 321 319 291 247 235 221 224 234 234 219 233 MLV 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 106 53 VVP (E)port pnCe) cons[ 92' )/ 346 345 342 339 310 203 250 235 239 249 249 233 246 Fre,ghl & Ins 54 30 30 30 30 30 30 30 30 30 30 30 30 30 30 Cd Jakarta $4 376 375 372 369 340 293 280 265 269 279 279 263 276 Exchange rale 2075 7075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 2075 Cd Jakarta RPpkg 785 776 772 765 706 608 582 551 557 560 560 546 571 Po,1 handling (9%) 0 09 63 62 62 61 56 49 47 44 45 46 46 44 46 Transler to wholesalers Rppg 30 30 30 30 30 30 30 30 30 30 30 30 30 30 Transport fan,, n lwhoiesaler RpArg 30 -30 -30 -30 -30 -30 -30 -30 -30 -30 *30 -30 -30 -30 Econoruc arngate pnce Rpdkg 948 641 634 826 762 657 626 595 602 626 626 590 623 Panty pnce (adIusled or FY) 646 639 832 610 736 650 620 597 608 626 617 599 469  INDONESIA: Uest Tarum Canal Improvement Project Project Completion Report Annex 1: Economic Analysis Table 9\. Ecornmic Price Projections for Fertilizers Pary prices Uint Oprmon 1985 1996 l97 999 1999 1990 1991 1992 1993 1W94 199 2AM 2wJU Urea Worldmkrelpnce SMT 199 187 175 163 140 157 169 134 141 148 153 169 159 IWV to0 53 '06 53 106 53 106 53 106 53 100 53 106 53 106 53 106 53 106 53 106 53 106 53 Ir 53 '00 53 Worldexponrprce SAMT 212 199 196 174 149 167 179 143 150 ISO 163 196 16' Freshttaid nstwanee SMT 15 15 15 15 IS 15 15 15 15 15 15 15 15 15 ExfactorypricePalefb7wg SAlT 22? 214 201 189 164 192 194 158 185 173 179 193 114 Exchage rate Rp* 2075 Ex1actorypcePPlembang Pphg 471 444 416 391 341 379 402 327 343 35S 369 405 383 Hafvlg andd dsV,hon RpAg 40 40 40 40 40 4f3 40 40 40 40 40 40 40 40 Storae nd form t,ras Rpphg 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Economclfarmgate Pphg 531 504 478 451 401 439 462 307 403 419 429 465 443 Paltvorlce1afaldstedtoFY) Rpak 524 498 471 439 410 444 444 391 407 421 429 465 443 TSP World market ple SAlT 177 173 170 166 152 132 130 114 Ila 115 121] 125 123 MLAV 10653 10653 10653 10653 10653 10653 10653 10653 10653 10653 10653 10653 10653 10653 Worldexportprxe SAlT 189 184 181 177 162 141 138 121 117 123 129 133 131 Freg§at3 srarswnce SIT 45 45 45 45 45 45 45 45 45 45 45 45 45 45 CiJakarta S/MT 234 229 226 222 207 186 183 166 162 168 173 178 178 Forex RplS 2075 CiJaka7ra Rpph9 485 478 469 480 429 385 381 345 337 348 359 370 385 Porn hanrg RpAg 30 30 30 30 30 30 30 30 30 30 30 30 30 30 Transpon tobolesaer Rp&g 10 10 I0 10 t0 10 10 10 10 10 10 10 10 10 Traospontoreta4er Rphkg 30 30 30 30 30 30 30 30 30 30 30 30 30 30 Transferlolarni Rplofr 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Econornc fwngate pnce Rpfg 575 566 559 550 519 475 471 435 427 438 449 4C0 455 Parityprce(adjustedtoFY) 572 564 557 543 500 474 462 433 429 440 449 460 455 Table 10\. Economic Price Projections for Other Irputs Financial Un F Prce 1995 1986 1987 1908 199 1990 1991 1992 1993 1994 1995 2000 2005 Pesbrwdes Liquid Rphlg 6000 6000 6000 6000 6000 6000 6000 600 60 600 6000 60W 0 Granlar Rphg 2000 2000 2000 2000 20 2000 2W 2000 2000 2000 2000 2000 2001 Tools Rp 5000 5000 so5o 5000 5000 5000 5000 5000 5000 5000 500 5000 500 Aiwnals Rpfday 6000 6000 6W00 6000 6000 6000 6000 600 60 8000 6000 6000 6100 Labow Financial Rpfday 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 7500 2500 Economc RpIdA 05 1250 1250 1250 1250 1250 1250 1250 1250 1350 1250 1250 t250 2s50  - 32 - INDONESIA: West Tarum Canal Improvement Projcct Project Completion Report Annex 1: Economic Analysis Table 11\. Economic Benefits from Irrigation Units 98889 89190 90191 91192 92193 93194 94/95 95196 000 Incrementl bnefits Rice Rp'000 0 9587 15178 26497 23438 22512 22332 22487 20944 Soya Rp'000 1783 8093 10526 10042 9665 9849 10139 9994 9694 Maize Rp'000 915 928 820 842 745 715 710 715 666 Totl Rp'000 2698 17607 26524 37381 33848 33077 33181 33195 31304 Incremontal costs Seed-Rice Rp'000 0 49 87 152 134 129 128 129 120 Seed-Soay Rp'000 71 259 343 327 315 321 330 326 316 Seed-Maire Rp'000 12 25 33 34 30 29 28 29 27 Ursa Rp'000 116 767 1522 2374 2093 2176 2253 2297 2486 TSP Rp'000 90 519 860 1243 1165 1155 1185 1207 1237 Post Rp'000 60 264 432 558 558 558 558 558 559 Rodent Rp '000 0 20 40 68 69 68 68 68 68 Animals Rp'000 24 456 864 1368 1368 1368 1368 1368 1368 Misc Rp '000 75 285 465 605 605 605 605 605 605 Labour Rp'000 413 2539 4409 6123 6123 6123 6123 6123 6123 Totl Rp'000 789 4874 8623 12371 12009 12081 12187 12254 12471 Not incremental beneflt RpO00 1 909 12734 17901 25010 21938 20996 20994 209-41 10833  Table 12\. Benefits to Rau Water Suppty UTC Enlargeent Pipeline Construction Year Incremental water Supply BTnefit Quantity Value 1/ Savings in Chmicals 2 | Savings in Treated Water 3/ Total (million *S) \.(Rp million) \. 1988 32 704 0 0 0 704 1989 39 858 0 0 0 858 1990 258 5,676 0 0 0 5,676 1991 282 6,204 1,970 475 2,445 8,649 1992 318 6,996 1,970 475 2,445 9,441 1993 352 7,744 1,970 475 2,445 10,189 1994 to 2005 457 10,054 1,970 475 2,445 12,U9 1/ VaLue of raw water Rp22/m3\. 2/ Refer Table 13\. 3/ Assumed efficiency gain of 18% due to throughput of cleaner water\.  INDONESIA: West Tarum Canal Inprovement Project Project Conpletion Report Annex 1: Economic Analysis Table 13\. Savings in Cheicals at Pulagadung Treatent Works SAR PCR Price Incremental Quantity of Saving Price Incremental Quantity of Water Saving Dose Water Dose Rp/kg Parts/million willion m3lyear Rp million RIkg Parts/milLion million me/year Rp million Alum 165 23 139 528 430 19\.9 120 1\.027 Lime 55 6\.4 139 49 110 2\.1 120 28 Chlorine 1,000 8\.5 139 1,182 1,175 6\.5 120 915 Total 1985 Prices 1,750 Total 1992/93 Prices 2,056 1 970  Table 14 Cost and Benefit Streas (Rp million) Year 1985/86 | 1886/87 | 1987/88 | 1988/89 | 1989/90 | 1990/91 1991/ 9 1992/93 | 1993/94 1994/95 1995/96 2000/01 | ERR X I I ~~~~~~~~~~~~~~to I to 1999/2000 2014/15 Costs Irrigation 898 1,620 4,102 6,833 5,710 10,574 11,887 373 487 0 592 592 Water Quantity 1,179 2,702 3,862 3,731 2,455 7,829 5,711 871 209 0 0 0 Water Quality 0 0 3,651 4,252 9,437 9,451 536 536 536 536 536 536 Total Water Supply 1,179 2,702 7,513 7,983 11,893 17,280 6,247 1,407 745 536 536 536 Total Project 2,078 4,322 11,615 14,816 17,603 27,854 18,133 1,780 1,232 536 1,382 1,382 Benefits Irrigation 1,909 12,734 17,901 25,010 21,838 20,996 20,994 20,941 18,833 Water Quantity 704 858 5,676 6,204 6,996 7,744 10,054 10,054 10,054 Water Quality 0 0 0 2,445 2,445 2,445 2,445 2,445 2,445 Total Uater Supply 0 0 0 704 858 5,676 8,649 9,441 10,189 12,499 12,499 12,499 Total Project 0 0 0 2,613 13,592 23,577 33,659 31,279 31,185 33,493 33,440 31,332 Met Benefit Strem Irrigation -898 -1,620 -4,102 -4,924 7,024 7,327 13,123 21,465 20,509 20,994 20,349 18,241 59 Water Quantity -1,179 -2,702 -3,862 -3,027 -1,597 -2,153 493 6,125 7,535 10,054 10,054 10,054 26 Water Quality 0 0 -3,651 -4,252 -9,437 -9,451 1,909 1,909 1,909 1,909 1,909 1,909 4 Total Water SuppLy -1,179 -2,702 -7,513 -7,279 -11,035 -11,604 2,402 8,034 9,444 11,963 11,963 11,963 17 WTC (excl\. pipeline) -2,078 -4,322 -7,964 -7,951 *5,426 5,173 13,617 27,590 28,044 31,048 30,149 28,041 43 Total Project -2,078 -4,322 -11,615 -12,203 -4,011 -4,277 15,526 29,499 29,953 32,957 32,058 29,950 33   IBRD 18504 Tr b, A' b, i6 w -k 5\. M a\.V \.f cz m\. aDtlr l*ouoq r 0\.1 b\.rvO 5\.* _ s_ d ~~~~Jvea Sav k4& r,\. hl ,\. ,wT\. d-, 0\.ww0 -5 -i0A o, ~ ~ ~ ~ ~ ~ > \.1e,x , \. f 10 tl° Cpngbungin olr- Sungsibuntu JAKARTA Tanjungprio | - zL[,,=d n V/~~EST TARlUM SYSTEM i~Tangerangt ;\.A\. \ \ , JATILUHUR |) rh h TnumSyr\. , Pejompongan JATLHJ ]~~~~~~~~~~~SDN WEI J RVICEffS;)-~D_ lfff AwfA? BOGOR gt> \ <t ffi tBe sit ~~~~~~ fl\./,CAA IMREMN PROEC Sumed rang PRJC AREA l- - - - - anal Enargmnt W ExiST n TAReaMen Plantsmda PROJECT AREA i \.,, \. C- ,\. ,\.,, 1nT Cik_impek ____-Seodr Canal Elreets t _7oof~~~~Dpo WE' WArpse LAHA ,,f,>\.f, ~ D WTC Service Area F A Other Jatlluhur Service Area Existing Dam and Reservoir 107030\. a Dam and Re ervoir Under Construction Swamps SUJMA TERA ( WeirS , ~~~~~~~~~~~~~~~~~~~~JAVA SEA 039 WEIR eir Roads '7'-8> lAvi ' ' ' Railways r GBoeojA \ , R ivers \. \. o~°:S,b - -- Provincial Boundaries JAViA P oIOITR 10 20 30 40 MILES 0 0 1 20 25INAOCN l07 0V FEBRUARY 1985   IBRD 1 8505 106'oO 10e'"5\. KALIMANTAN INDONESIA hULflUM - WEST TARUM CANAL IMPROVEMENT PROJECT SUMATERA Raw Water and Flushing Supply from the W\.T\.C\. P-lOCTION Ja va Sea Jskartb° FXISTING PROPOSED FATURE WATER TREATMENT PLANTS J ALI \. 4\.*--- 5 \. - -SUPPLY OF FLUSHING WATER (cms) Indan Ocean CANALS **g -' ' PIPEUNES i CANALS TO BE ENLARGED UNDER THE PROJECT ( WEtRS ~W ROADS RAILWAYS RIVERS Java Sea < PROVINCIAL BOUNDARIES Q = DISCHARGE 7 cmS = CUBIC METERS/SECOND 6c10 \. t:o e0-io1 _}Tanju~~~n ng Priok \. 2~ t I a\ / "8 +S~~~~~~ - \ I V\UKI JAKARTA --_ hasben rear\ / JA W BA RA _ _ \ \i | \ / s ~~~~PULOGADUNG Wot Bans sa eOutput Rqui Input/ tar the COnree f the \.* * 1(1982/ reaer an ,secjrey o h and15 the tnt ernat,nal ncekasi used -andeg CQanes /hoeh PEJOM n \. on the TREATMEN PAT ; ,^i p Output Reduankfd Input any ~ ~ 1ugn on th lega statu 0, 2 4 61 !f an tertI or an I 1sr IL\. ; 1 ME)T\. \.tl ,SC enosmn or acetac o\ :/ ,1,'\.l s1it/b1 065\.0 to ogo (1970 175 &6 62 (1985) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ FBRAR 18 6 20 / \ 6'20 - rhJs mop has been p;sparod by The Wvorld l3anxs staff exclusw* |- JA W BARAT for the con"men ne of fhe \. | readers and is excktswvely for Ihe | \ | tnlternal use of The W/o Br*dttx t and the /nternatbon" lFinance || Corporalhon The denrwnwetsons t\._* :I used\.and he boundarwesshown on th,s map do not Nmply on the {\. part of The World Bar* end the t tnternabons/ Fmrnce Corporaton \. any iLdgment on ff egbal status /|I KILOMETERS i RL 10 otay ter 4cro n endorsement or acceptance °of| such bmoundsrnes 10r6 50 to Bogor to Bogor \ 0°j107\.00 FEBRUARY 1985

APPROVAL

P176114

 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 23-Apr-2021 | Report No: PIDA31496 Mar 25, 2021 Page 1 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) BASIC INFORMATION OPS_TABLE_BASIC_DATA A\. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Ukraine P176114 Improving Power System Resilience for European Power Grid Integration Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) EUROPE AND CENTRAL ASIA 15-Apr-2021 28-Jun-2021 Energy & Extractives Financing Instrument Borrower(s) Implementing Agency Investment Project Financing PJSC “Ukrhydroenergo" PJSC “Ukrhydroenergo" Proposed Development Objective(s) To enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector\. Components Installation of Battery Energy Storage System (BESS) with solar Photovoltaic (PV) plants, establishment of an Energy Management System (EMS), and Supervision Consultancy Technical Assistance for UHE PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 250\.00 Total Financing 250\.00 of which IBRD/IDA 177\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 177\.00 Non-World Bank Group Financing Mar 25, 2021 Page 2 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Counterpart Funding 38\.00 Borrower/Recipient 38\.00 Trust Funds 35\.00 Clean Technology Fund 35\.00 Environmental and Social Risk Classification Substantial Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) The Project title is Improving Power System Resilience for European Power Grid Integration Project (Installation of Hybrid Systems for Electricity Production in Ukrhydroenergo) B\. Introduction and Context Country Context 1\. Since 2014, Ukraine has undertaken wide-ranging institutional, political, economic, and social reforms aimed at increasing the role of market forces in the economy and to shift its economic orientation towards Europe\. Responding to the economic recession of 2014-2015, fiscal adjustments were made through: (i) energy tariff reforms aimed at closing the quasi-fiscal deficit; and (ii) a nominal freeze on wages, pensions, and social assistance despite high inflation\. Consequently, the overall fiscal deficit was reduced from 10 percent of GDP in 2014 to 2\.3 percent in 2016 1\. From 2016 onwards, significant further reforms were implemented in the social sectors to promote fiscal sustainability\. As a result, spending on social benefits declined from 16\.3 percent of GDP in 2016 to 14\.8 percent in 2019\. Public and publicly guaranteed debt declined from 81 percent of GDP in 2016 to an estimated 51 percent in 2019\. These reforms—difficult in the best of times—have been implemented against a backdrop of continued tensions and human, material and territorial losses on the Eastern border\. Gradually, the economy has begun to grow again, following the deep contraction in 2014-15, and poverty and economic vulnerability have begun falling back towards pre-crisis levels\. 2 1 Reform of energy pricing, primarily for natural gas, being the most important contributor to the reduction of public expenditures between 2014 and 2016\. 2Tax revenues increased from 33 percent of GDP in 2016 to 34\.4 percent in 2019\. Fiscal deficit has been maintained at about 2 percent of GDP for the last three years\. Mar 25, 2021 Page 3 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) 2\. Although the economic impact from the COVID-19 outbreak appears to be less severe than initially anticipated – GDP declined by 4\.4 percent in 2020 (vs 6\.5 percent decline in first half of 2020) – the pandemic has exacted a heavy toll in terms of health and mortality impacts; and undermined the government’s commitment to undertake critical reforms\. Ukraine’s economic recovery in 2021 is expected to be moderate – annual gross domestic product (GDP) growth at just 3\.8 percent – given high uncertainty associated with the rollout of the vaccine and the direction of economic policies to address bottlenecks to investment and safeguard macroeconomic sustainability\. Strong economic recovery remains constrained by low levels of fixed investment, exacerbated by the COVID-19 crisis\. Stronger growth in fixed investment depends on progress with reforms that address structural weaknesses in the financial sector, market distortions from the lack of an agricultural land market, an anticompetitive environment, large numbers of state-owned enterprises (SOEs), and macroeconomic vulnerabilities\. 3\. While poverty declined significantly in recent years, this trend is likely to be reversed as a result of the economic contraction resulting from the COVID-19 pandemic\. The share of the population below the actual Subsistence Minimum (the national poverty line) amounted to 23\.3 percent in 2019, down from 34\.8 percent in the wake of the crisis in 2017, though it remains higher than in the pre-crisis period (8\.4 percent in 2013)\. While unemployment increased markedly in 2020 due to the COVID-19 pandemic, household incomes remained stable on the back of rising real wages and pensions (data until Q3 of 2020)\. Overall, the poverty rate increased by 1\.1 percentage points in the first three quarters of 2020\. Poverty remains higher in rural areas (29\.1 percent versus 20\.6 percent in urban areas in 2019), where local communities face challenges such as poor living conditions, outdated infrastructure, and limited public services provision\. The socioeconomic impact of the COVID-19 pandemic will also vary across the country and will require public health interventions and social assistance for vulnerable households\. Decreasing poverty rates and promoting broad-based job creation remain significant development challenges that require Ukraine to capitalize on the drivers of growth through structural, policy, and investment reforms and the development of human capital\. 4\. Despite notable progress in structural reforms undertaken in recent years, Ukraine’s economic transformation to a full-fledged market economy still remains incomplete -- progress in increasing the role of market forces in key factor markets, such as energy and land markets has been particularly slow\. Distorted price signals in energy sector provided short-term economic benefits to select industries, but this delayed much needed industrial restructuring\. Over-reliance on commodity-based and energy intensive exports has delayed much needed industrial restructuring toward developing high valued-added export-oriented industries\. In addition, distorted price signals in input markets have facilitated rent- seeking opportunities to special vested interest groups and to undermine the effectiveness of Ukraine’s economic institutions\. 5\. Distortions in key factor markets can undermine a transition to post-COVID Green, Resilient and Inclusive Development trajectory by undermining incentives to accumulate capital, to attract foreign investment, and to reorient exports away from commodities\. 6\. Today Ukraine’s export structure continues to have a high share of energy intensive exports (see Figure 1 below)\. Hence, energy sector reforms to create competitive and transparent energy markets are very important for achieving sustained growth\. Financing and technical support from the World Bank, as envisioned by the FY17-21 Country Partnership Framework (CPF), in close coordination with the International Monetary Fund, the European Union (EU), the United States, and other bilateral partners, has been central to progressing key reforms in the energy sector\. The unbundling of Naftogaz (the national oil and gas company) and liberalization of the gas and electricity markets went a long way towards Mar 25, 2021 Page 4 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) implementation of the EU Third Energy Package in Ukraine\. In the power sector, generous Feed-in-Tariffs (FiTs) for renewables have resulted in 8 GW of privately-owned renewable energy assets being added to the generation mix\. However, the rapid increase in renewables capacity has created financial and operational challenges for Ukrenergo (UE) - the Transmission System Operator (TSO), which has accumulated large debts (about $1\.2 billion by end-2020)\. More details on the financial situation of the energy sector are provided below\. Figure 1\. Ukraine’s export structure Sectoral and Institutional Context 7\. Ukraine’s economy is energy-intensive but per capita emissions are at the global average\. Ukraine makes up 0\.5% of global annual carbon emissions, (185 million tCO2), and accounted for 1\.8% (29 billion tCO2) of cumulative CO2 emissions since the industrial revolution\. Ukraine’s per capita emissions are roughly equivalent to the global average at 4\.5 metric tCO2, and lower than the 6\.5 mtCO2 for the European Union and 12 mtCO2 for Russia\. Despite nuclear power constituting 55% of electricity generation, the carbon intensity of Ukraine’s economy is nearly three times that of the European Union\. Ukraine’s energy intensity per unit GDP is twice the world average at 0\.25 toe/$1000 (2015 US$ PPP)\. 8\. Traditionally, the energy mix in the power sector in Ukraine consisted of coal, nuclear, and hydropower, but a rapid increase in the share of renewable energy has taken place in recent years\. Of the total installed power generation capacity3, estimated at 54\.3 GW, about half (27\.9 GW) consists of thermal power plants (TPPs), with coal-fired power plants accounting for 90 percent of the TPPs\. Nuclear power plants (NPPs) accounts for 26\.7 percent (13\.8 GW) of the installed capacity, while hydro power plants (HPPs), including pumped storage HPPs, represent 12 percent (6\.3 GW) of the total installed capacity\. Overall electricity production in 2019 was 154\.0 TWh, out of which 150\.2 TWh was consumed domestically while electricity exports and imports were 6\.5 TWh and 2\.7 TWh, respectively\. Four nuclear 3 Excluding generating facilities of the Crimean Electric Power System and the Uncontrolled Territory of the Donbas Electricity System\. Mar 25, 2021 Page 5 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) power stations comprising of 15 reactors supply more than half of Ukraine’s total electricity\.4 The remaining electricity comes from coal fired TPPs (30 percent), natural gas fired combined heat and power (CHP) plants (8 percent), and HPPs (7 percent)\. 9\. The power system is inflexible, with fast growing RE compounding the problem\. In 2021, emissions from the power sector were estimated at nearly 43 MtCO2-eq with overall electricity production in 2019 of 154\.0 TWh\. Ukraine’s operating electricity generation capacity is 54\.3 GW, with little growth in the past decade and a system peak less than half the installed base (23\.5 GW)\. In 2010 there was twice as much coal power installed (27\.3 GW) as nuclear, but coal retirements have reduced capacity to 21\.8 GW\. Solar power has grown from 458 MW in 2016 to 5\.0 GW in 2020, and wind has tripled since 2016 (300 MW) to 1\.1 GW in 2020\. Both collectively account for less than 2% of generation\. Hydropower (4\.8 GW) and pumped storage hydropower (PSH, 1\.5 GW) provide balancing and flexibility but are insufficient for the full system need, particularly during periods of water stress\. Despite over- capacity, there are severe reserve constraints given that Ukraine’s thermal generators tend to be old, with slow ramping rates and accelerated deterioration owing to frequent start-ups and shutdowns\. Ukraine’s thermal (mostly coal) generators operate at low capacity factors (21%)\. Even nuclear generators operate at 65% load, significantly below industry standards\. 10\. The recent rapid increase in renewable energy sources (RES) within the generation mix is driven by the Government’s commitment to decarbonization and pollution reduction,5 through incentivizing private sector investments\. As shown in Figure 2, until 2018 RES accounted for a very small portion of electricity generated\. However, the generous FiTs for RES with no capacity caps have resulted in the rapid installation of over 8 GW of RES capacity at the end 2020, with the bulk of these additions occurring in 2019\. According to the UE’s Generation Adequacy Plan6, an additional 2–3 GW, would be secured through FiT-based power purchase agreements by the time FiT expires in 2029\. Per these government projections, RES would account for 9 percent of the generated electricity in 2021 and 14 percent by 2029\. Despite this rapid increase in capacity installed, the results in carbon emission reductions has not been as expected\. Due to the lack of flexibility to balance this renewable energy generation, wind and solar generation is often curtailed ( while compensated by the take or pay PPAs), and part-loaded thermal power plants to provide the required reserves, which is leading to increased GHG emissions\. Figure 2\. Installed capacity at the end of 2020 and its historical trend 4 Development of several nuclear units was put on hold or stopped after the 1986 Chernobyl nuclear accident\. 5In 2016, Ukraine had the highest mortality rates from air pollution per capita worldwide, according to the WHO data\. Annually up to 66,000 people die because of air pollution in Ukraine\. It is estimated that the health and mortality costs stemming from air pollution constitute a multi-billion-dollar burden for the national economy\. 6 GenerationAdequacy Plan presents Ukrenergo’s view on the long-term generation capacity need for the country\. UE updates the Adequacy Plan regularly\. Mar 25, 2021 Page 6 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) 11\. Ukraine’s current NDC mitigation target lacks ambition but has supported RE growth\. Ukraine’s emissions have fallen by more than 60% since 1990 to 340 MtCO2-eq following a significant economic contraction with the dissolution of the USSR in 1991 and subsequent changes in economic structure\. Under the Kyoto Protocol, Ukraine would keep its 2008–2012 emissions below 1990 levels, but this was achievable without specific measures\. To promote RE capacity addition, legislation in September 2008 established a “green tariffâ€? for renewable generation\. Ukraine also imposed a carbon tax that applies to CO2 emissions from stationary sources (covering 71% of total emissions) in 2011, which has been raised over time, though it remains among the lowest in the world and is too small to have any effect\. Ukraine’s first NDC (2016) indicated that emissions would remain below the 525 MtCO2-eq, though this would allow substantial growth from the current level\. International observers criticized this target as “critically insufficientâ€? in relation to a “fair shareâ€? range for alignment with the Paris Agreement\. The GoU in 2017 established the Energy Strategy of Ukraine to 2035 which sought to halve the energy intensity of GDP by 2030 and to increase RE to 25 percent of primary energy supply\. However, coal and gas power largely maintain their share in the generation mix, with only a modest decline in emissions\. The 2035 Energy Strategy was divided in three phases: 2017–20 (EU integration, coal restructuring, promoting RE expansion), 2021–25 (upgrading energy infrastructure and integration into the EU sphere), and 2026–35 (holistic reforms focused on promoting sustainable development)\. On December 2020 Ukraine announced its intention to update its Nationally Determined Contribution (NDC) target to between 58 to 64 percent reduction below 1990 levels by 2030\. This target while a significant improvement from its previous target, still falls short of the ambition level needed to achieve a 1\.5°C-compatible goal\. The 2030 target will be achieved through aligning climate policy and legislation with the European Green Deal, particularly in the areas of renewables, hydrogen, and the transformation of the coal sector\. The Government aims to phase out coal-fired power generation and increase the share of renewables in the energy mix\. 12\. A new EU-aligned net-zero emission policy and emissions trading scheme is expected\. Since 2014, The GoU has sought to progressively align with the European Union’s climate objectives and is preparing to align with the European Green Deal, including through cooperation on efficiency improvement, renewables, and hydrogen\. In December 2020, the Ukrainian President previewed that the forthcoming NDC revision would achieve a more substantial 58–64% reduction below the 1990 level by 2030, essentially holding emissions at their current level\. But the EU plan is much more ambitious, seeking Mar 25, 2021 Page 7 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) to achieve net-zero emissions of GHGs by 2050, and Ukraine has endorsed this as a “long-term goalâ€? achievable by 2060\. The Ministry of Energy and Environmental Protection of Ukraine (MOEEP) has recently disclosed for public consultation the concept for “Green Energy Transition by 2050â€? that establishes a blueprint for full decarbonization of the energy sector by 2050\. The EU plan calls for phasing out coal and decarbonizing gas, and although Ukraine has not committed to the same goal it plans to transition the coal sector and roll out a national emission trading scheme by 2025, with linking to the EU ETS by 2040\. 13\. Ukraine’s power sector has gone through several stages of reform starting with unbundling and partial privatizations in the 1990s\. Power generation, transmission, and Wholesale Electricity Market (WEM) operations are now conducted under separate entities, while the sector is regulated by the National Energy and Utilities Regulatory Commission (NEURC)\. Electricity distribution and retail were combined in several regional power companies (OblEnergos), most of these are now privatized and unbundled, albeit controlled by a handful of individuals\. The State owns and manages all NPPs, which are operated by the state-owned entity, EnergoAtom\. Similarly, all major HPPs belong to Private Joint Stock Company (PJSC), Ukrhydroenergo (UHE)\. The national transmission network is owned and operated by UE – the state-owned TSO\. TPPs in Ukraine are grouped into five regional companies (Donbassenergo, Dniproenergo, Centrenergo, Zakhidenergo, Skhidenergo)\. Only Centrenergo is still under state ownership while a majority of the shares of the others are now owned by DTEK, a private sector company with interests in power generation, distribution, and coal mining\. DTEK controls about 80 percent of the coal production in Ukraine\. 14\. Functioning of the nascent WEM has been hampered by concentration of market power and an incomplete transition to market-based ratemaking\. On July 1, 2019, Ukraine transitioned out of the single-buyer wholesale electricity market model and launched the new WEM, in accordance with the 2017 Electricity Market Law\. This made the power market in Ukraine compliant with the legal requirements under the EU’s Third Energy Package\. The WEM now competitively trades bulk electricity in integral market segments of the day-ahead market (DAM) and intraday market (IDM), which are supplemented by the bilateral contract market\.7 This is further supported by the balancing market (BM) and the ancillary services market (ASM)\. The World Bank has supported the transition process through the First Power Transmission Project (2007-2016) and the ongoing Second Power Transmission Project (PTP2)\. The WEM started its operations in a phased manner to enable a smoother transition to the new structure by imposing various restrictions, including constrained bidding in the DAM and bidding caps in the BM and ASM\. Additionally, two Public Service Obligation (PSO) mechanisms were introduced: (i) Household (HH) PSO to protect household consumers by keeping electricity tariffs below full cost recovery; and (ii) RES PSO to cover RES obligations under the FiT mechanism, since FiTs are significantly above WEM prices\. Under the HH PSO, nuclear and hydro producers are obliged to sell a bulk of their production at low regulated rates to meet residential consumption needs\. On the other hand, RES PSO is being funded through UE’s transmission tariff\. Since end-consumer tariffs – both for households and for industrials (that include TSO Tariff) are regulated by NEURC, there is a disconnect between the legislated HH and RES PSO requirements, and the approved end-user tariffs, leaving a large and growing unfunded gap that is at the heart of the sector’s financial stress\. 7 DAM and IDM transactions account for up to 30 percent of the total power consumed7, while the remaining is supplied through long-term bilateral contracts that lack the same level of transparency\. Mar 25, 2021 Page 8 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) 15\. Ukraine’s power sector continues to suffer from lack of transparent pricing mechanisms, and an environment where legislation rather than an independent regulation is used to set market rules\. The large SOEs that supply 60 percent of electricity are not allowed to participate in the WEM and are obliged to provide power at low prices, that increases their financial stress, particularly as higher priced RES power puts a squeeze on their volumes\. These practices could result in market distortions and price manipulations in the bulk power prices\. In this context, the promotion of institutional reforms, transparency, and expanded competition in the power sector, which has a large footprint of SOEs, can help promote new investments and efficiency in this important area of the economy\. 16\. The systematic development of Ukraine’s ASM is already underway in line with EU market practices\. Ukraine’s ASM’s first auction took place in Spring 2020\. The market design is in line with other European Network of Transmission System Operator for Electricity (ENTSO-E) markets (see Box 1), including provision of several frequency control services89\. The ASM conducts short-term auctions for these services in several future timeframes\. Frequency control reserve needs are bid, and capacity awarded is remunerated on an hourly basis\. The accepted price from these auctions is included in dispatch tariff that is then covered by all users as part of TSO tariff\. UE has evaluated each generating unit in the system from the perspective of providing ancillary services, and processed certifications for participating in the ASM\. While UkrES currently has thirteen certified units participating in the ASM, only five units have been certified for providing FCR as of February 2021, with a cumulative certified FCR amount of 177 MW\.10 All four of these units use coal (TPPs/CHPs), and must retire as the green agenda picks up strength\. Work is ongoing on certifying more units for FCR, including nuclear plants, but at the moment the FCR market Box 1\. Various Services in Ancillary Service Markets A power system must possess certain amount and type of reserves to manage instantaneous fluctuations to ensure balance between demand and supply\. Under ENTSO-E rules, power system reserves are classified in the following three categories: (a) Frequency Containment Reserve - FCR – Active and spinning power (primary) reserves engage automatically (with special equipment) within 30 seconds to contain frequency after occurrence of an imbalance in the system\. (b) Frequency Restoration Reserve - FRR (a-FRR and m-FRR) - (30 seconds -15 minutes) automatically (a- FRR) or manually (m-FRR) engaged spinning power (secondary) reserves to restore system frequency to the set point frequency value\. For a synchronous area consisting of more than one load-frequency control area (LFC area), this includes restoring power balance to the scheduled value\. (c) Replacement Reserve - RR - Active (standby, tertiary) power reserves available within 30 minutes to restore or support the required level of FRR preparing for possible additional system imbalances, including generation reserves\. 8 ENTSO-E represents 42 electricity transmission system operators from 35 countries across Europe\. ENTSO-E was established and given legal mandates by the EU’s Third Legislative Package for the Internal Energy Market in 2009, which aims at further liberalizing the gas and electricity markets in the EU\. 9 Such as Frequency Containment Reserve (FCR) (the fastest response), automatic Frequency Restoration Reserve (a-FRR), manual Frequency Restoration Reserve (m-FRR) and others 10 (i) TPP Kurakhivska (±88MW); (ii) CHP5 Kharkivska (±27MW); (iii) TPP Zaporizka (±32MW); (iv) TPP Luhanksa (±20MW); and TPP Burshtinska (±10MW)\. Mar 25, 2021 Page 9 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) is entirely subscribed by existing TPPs\. While rules for improving ASM operations are progressing, it must be noted that fast response reserves (FCR and a-FRR) continue to be provided as a default option through the IPS/UPS (and specifically by the Russian power system)\. In fact, Ukraine routinely fails to meet its FCR requirements and prevailing rules allow for instantaneous cross-border power exchanges and a-FRR provision to fill this gap without any significant financial consequence for UkrES\. This reliance in the IPS system has allowed the Government of Ukraine to keep very low pricing caps within ASM, which could not lead to sufficient participation of incumbents or new investments\. 17\. The recent rapid increase of RES capacity due to generous FiTs has created financial and operational challenges for UE and for the power sector, including fast accumulation of arrears\. The FiT scheme, introduced in 2009,11 provided tariffs in the range of 15 to 20 US cents/kWh for utility-scale solar and 10 to 11\.4 US cents/kWh for wind, much higher than the average recent tariffs awarded in other countries\. The FITs are regulated through a mandatory RES offtake by a Guaranteed Buyer (GB)\.12 This resulted in the introduction of the previously mentioned RES PSO scheme, that has led to financial deficits incurred by the GB due to insufficient funding from the transmission tariff to cover the FiT prices\. Under the additional new responsibilities assigned to UE in 2019, the TSO is obligated to compensate the deficits through the revenues from its transmission tariff, which must be approved by NEURC\. NEURC does not consider the RES PSO to be part of UE’s mandate, and therefore, this PSO is not fully funded in the transmission tariff calculation\. This leads to a large and growing unfunded mandate of UE towards RES and SOE power providers\. As of December 2020, the accumulated arrears of UE to GB and SOE power suppliers exceeded UAH 34 billion ($1\.2 billion)\. Per UE’s estimate, nearly UAH 50 billion ($1\.75 billion) will be necessary for RES purchases under FiT in 2021\. This is expected to grow to about UAH 104 billion (US$ 3\.6 billion) in 2029\. The current financial stress at UE has made it difficult for the TSO to perform its core functions, including attracting investments in modern grid resilience capabilities, such as rapid response frequency regulation needed for timely UkrES grid synchronization with the EU, and integration of variable renewable energy (VRE) into the grid\. The World Bank is supporting UE and the Ministry of Energy (MoE) with preparation and implementation of the Financial Recovery Action Plan (FRAP)\. 18\. The COVID-19 crisis has further eroded the financial health of the sector\. Power utilities and the TSO, already burdened by the issues mentioned above, are facing significant revenue shortfall due to retracted demand, exacerbated in some periods by reduced collections from residential and commercial users\. This also limits available options for refinancing the debt of the utilities on favorable terms\. Electricity consumption in UkrES decreased by 4\.9 percent compared to the same period in 2019\. As a result, several power sector companies face financial stress and are at risk of breaching debt service covenants (particularly those denominated in hard currency)\. On March 28, 2020, Ukraine’s largest private power producer, DTEK, suspended interest payments on Eurobonds and bank loans, and requested creditors to restructure part of its debt, which resulted in a downgrade of the company’s credit rating\. 11The 2009 Renewable Energy Law enshrined the FiT based on the prevailing RE costs and practices\. For solar generation, this has significantly changed in the last five years, rendering the FiT highly above the current RE prices\. 12 TheGuaranteed Buyer was also created around the opening of the WEM and is tasked with fulfilling both HH and RES PSOs\. Thus, the GB purchases electricity from the nuclear utility, Energoatom, and the hydropower utility, Ukrhydroenergo - both SOEs - at regulated tariffs and sells it to household customers at low tariffs\. GB is also obliged to purchase electricity from RES producers under the FiT scheme and sell this in the WEM to recover prices that the market will bear\. Mar 25, 2021 Page 10 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) 19\. As, against this backdrop, Ukraine is pursuing integration of its power system with the EU through Synchronization13 with the ENTSO-E\. Ukraine already has electricity interconnectors with EU countries, namely Poland, Slovakia, Hungary and Romania\. However, only Burshtyn TPP, in the Ivano- Frankivsk region, is synchronized with the European grid and it is capable of exporting up to 650 MW of electricity to Europe from the so called “Burstyn (electric) islandâ€? which is disconnected from the rest of Ukraine power grid, while the rest of the Ukrainian power grid is synchronized with Russia, Belarus, Moldova and other CIS countries (the IPS/UPS system)\. This significantly limits Ukraine’s electricity trade capacity with its western neighbors\. In June 2017, Ukraine and Moldova signed an agreement with the ENTSO-E on conditions for future synchronization, including a catalogue of technological and regulatory measures\. These measures include reinforcements of the transmission network, realization of frequency regulation reserves, establishment of a telecommunication network, and studies on future grid stability\.14 Once these are completed, UE would switch from the IPS/UPS system into isolated island mode operations in early 2022 followed by trial operation before the synchronization with ENTSO-E, planned by end 2023\. When UkrES disconnects from IPS/UPS, the system must be prepared to demonstrate stable and resilient operations without the free cross-border frequency support from the IPS/UPS system\. 20\. Synchronization of the Ukrainian Electricity System (UkrES) with EU’s power grid is an important strategic objective for the power sector and a key milestone on the journey to economic recovery and decarbonization as it is expected to lead to very significant benefits for the country\. Timely synchronization in 2023 is deemed the most important transformational objective for the power sector by the Government\. It is a key strategic plank for building power sector competitiveness and economic resilience that has become even more important for Ukraine in the wake of the global economic crisis resulting from the pandemic\. Synchronization with the European power grid is an important commitment mechanism to get the price signals right and reduce the influence of vested interests\. Moreover, synchronization implies adherence to the objectives of the European Green Deal that seeks to make Europe the first carbon-neutral continent through employment of new technologies and deep cuts in the use of coal in the energy and industrial sectors\. ENTSO-E synchronization comes with very tangible benefits for Ukraine, including: (i) enhanced reliability and security of electricity supply through diversification of energy sources and access to the EU markets under a regional cooperation framework;15 (ii) creation of competitive and transparent electricity markets aligned with EU market practices; and (iii) decarbonization and renewable energy integration through enhanced system flexibility\. UE estimates that the monetizable economic benefits from ENTSO-E synchronization are more than US$1\.2 billion annually, while the cost of synchronization is estimated at around $400 million\.16 According to the Bank estimate, ENTSO-E synchronization cuts GHG emission by 3 million tons per year\. 21\. Grid-scale battery storage could play a key role in the development of Ukraine’s ASM and BM, supporting the transition towards decarbonization\. Storage has been widely adopted in a number of 13 In 2018, the Cabinet of Ministers of Ukraine approved an action plan for synchronizing the United Energy System of Ukraine with the ENTSO-E\. On March 19, 2019, the European Commission adopted Annex 27 to the Ukraine-EU Association Agreement, allowing for synchronization of the energy markets\. 14The World Bank and other development partners have supported the implementation of several of these measures, including telecommunication network upgrades and grid studies\. 15This is expected to increase exports of Ukrainian electricity to European countries\. According to Ukrenergo’s expectations annual exports could range from 5 bln kWh to 18-20 bln kWh\. 16 Source: Ukrenergo 2017 presentation\. UE estimates are not including the proposed Project investment cost\. Mar 25, 2021 Page 11 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) countries over the last decade to provide a broad range of grid services\. With rapid technological advances and improving battery products, applications of battery storage in the grid have been expanding (see Annex 4 for more information)\. Thus, while hydropower pumped storage still provides the bulk of the existing storage capacity for electric grids globally, battery storage has experienced rapid growth over the last decade, both in terms of installed capacity and the number of applications, especially as costs have continued to decline\. Batteries are modular and allow for fast deployment\. In addition, batteries can provide very fast response, enabling optimized frequency regulation, transmission and distribution investment deferral, and support for renewable energy integration by providing balancing services\. This could be done through a standalone battery facility or through electric storage embedded in renewable energy facilities, that limit variability in plant outputs and allow the batteries to be used for other applications such as provision of ancillary services or participation in the BM\.17 22\. Battery capacities starting at 400MW in 2023 and increasing to 2,000MW in 2030 are identified as part of the least cost option for Ukrainian power system\. Both the Ukrenergo Adequacy Plan and the Least Cost Plan (LCP) show that batteries are already economically feasible and within the required range of lower cost infrastructure needed to provide several services\. Figure 3 below shows a comparison of the battery capacity needs according to UE and the Bank’s studies, under several scenarios\. Starting with 400 MW in 2022, the needed battery storage capacity increases to 1,000 MW by 2025 and reaches 1,500- 2,000 MW by 2030, driven by the need to provide fast response reserves traded in ASM and balancing services in BM for the growing VRE generation in the system\. These studies confirmed that battery storage is the least cost option for the power system to provide reserves and manage variable renewable energy, compared with existing generation units and potential other new investments such as flexible gas-fired power plants\. This phased and strategic expansion in battery storage capacity over the next decade assumes anticipated technological advances and conservative cost reductions\. The WB LCP base case considers the target of 25 percent of renewable energy including hydroelectric generation by 2035, while the LCP decarbonization scenario aims to cut the CO2 emission by 80 percent by 2040 compared with 2022\. Figure 3\. Battery storage capacity needs towards 2030 17This is highly relevant for Ukraine where rapid deployment of renewables into the grid is causing grid stability issues and renewable curtailment, and even more, once coal-fired generation is retired, in-keeping with post-synchronization European Green Deal mandates\. Mar 25, 2021 Page 12 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Installed capacity (MW) 2500 2000 1500 1000 500 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 UE AP LCP Basecase LCP Decarbonization 23\. Moreover, storage will play an important role to meet critical requirements for ENTSO-E synchronization in the short term\. UE is planning to conduct islanding mode test starting in early 2022, where UKrES will be disconnected from IPS/UPS18 and operated in isolated mode\. During these isolated operation period, pre-defined generation unit and load will be disconnected, and behaviors of other generation units will be measured to assess those units indeed provided FCR and a-FRR as expected\. It should be noted that an ongoing dynamic stability study conducted by ENTSO Consortium and expected to be completed in later 2021 could identify potential measures for the islanding test and for synchronization\. After successful completion of the islanding test, UE will proceed to trial operations, where UkrES is synchronized with ENTSO-E and various power system regimes will be assessed\. The trial operation could last from a few months to several years19\. During these trial period for synchronization, UkrES must demonstrate the adequate response, and must maintain adequate and reliable levels of reserves\.20 This is challenging for Ukraine, given that: (i) UkrES is currently heavily dependent on the Russian power system for provision of FCR and other reserves; and (ii) The certified amount for FCR provision is merely 177 MW, as of today, and of that amount, only a small part is bid in the ASM\. To complete the preparation stage for synchronization successfully, battery storage will play a critical role to provide FCR and a-FRR to stabilize the power system and avoid a potential black-outs and minimize disturbances in the synchronized area during the aforementioned test operation period\. During trials, various unusual system conditions will be tested and assessed, and lack of reserves could lead increase significantly the risk of delays or trial suspension\. 24\. The significant amount of battery storage needs calls for a joint public and private approach to develop green battery storage in Ukraine, as an alternative to other flexibility sources\. Battery storage projects are well suited for private investments, given their modularity and relatively fast deployment, and can be installed as stand-alone projects or as a part of hybrid projects in combination with RE projects\. 18 During islanding operation, Burshtyn island power system will be disconnected from ENTSO-E and connected to UkrES\. 19 It took three years for Turkey to complete trial operation\. 20In addition, an increase in the needs of fast aFRR is foreseen to minimize risks during this trial period, as has been the case in other countries\. Mar 25, 2021 Page 13 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Hybrid projects are seen as more competitive, and a recent Decree No\. 3521 requires installation of battery storage in all new renewable energy projects\. While Decree No\. 35 is applicable only to new RE assets, Ukraine currently has 8 GW of renewable energy projects that could also provide added energy storage if proper incentives are put in place, which would help increase competition in the market\. Over the medium term, there will be a need to retire the coal-fired plants under EU’s Green Deal and the decarbonization agenda\. Similarly, there will be a focus on the charging of the batteries that are newly installed to provide various services, with an emphasis on zero-carbon (“greenâ€?) sources for charging\. All these developments provide opportunities for the private sector, provided that the appropriate enabling environment is put in place to spur expanded participation of the private sector and competitive business models that align with the European best practices\. An emerging global trend is to have multiple revenue streams contributing towards monetizing new investments in utility-scale batteries\.22 Alongside technology improvements, the optimal deployment of storage technologies requires institution of appropriate business models and an evolving enabling environment that allows for transparent and non- discriminatory market rules and practices\. New procurement approaches and business models are emerging globally\.23 As Ukraine looks to integrating with Europe’s energy markets, it is important to focus on instituting best practices for the synchronous operation with ENTSO-E\. 25\. Improvements in the governing ASM rules and in the current legal and regulatory environment are required to help attract larger private investments in battery storage for various services\. The concept of storage does not exist in current regulation, and therefore storage systems are considered as generators by default, which implies certain disadvantages to compete in the market\. Current legal and regulatory environment does not facilitate competitiveness of battery participation in the balancing and ancillary services markets\. For example, unlike other generators, batteries need time to re-charge after being discharged\.24 In ASM, while certification for different services is provided at plant level, the legal requirements to monitor availability and delivery at plant level does not exist\. Another gap is the flexibility currently available to substitute a-FRR in place of unmet FCR volume that will not be available once ENTSO-E rules apply, leading to the need to incentivize FCR over a-FRR in the market\. Thus, key required changes include: (a) Firstly, since battery storage has clear economic and environmental advantages to provide fast response reserves, an amendment to the Electricity Market Law (to make it inclusive of “storageâ€?) is needed to define the role of energy storage in the power system and to clarify the procedures for grid connection and rules of participation in different power markets\. Additionally, changes allowing for revenue stacking (i\.e\. simultaneous participation of the same assets in several markets will allow for adding revenue streams, and thus, making 21 On January 29, 2021, the National Security and Defense Council of Ukraine under Decree No 35 mandated all future utility- scale solar and wind power plants to implement at each such generation facility, energy storage systems\. 22 Longer duration battery storage is becoming cost competitive in a growing number of applications such as price arbitrage, load shifting, and peak power supply\. 23 The Regelleistung platform in Germany, where 1\.5GW of FCR are jointly procured on a technology-neutral basis by six participating countries (Germany, France, the Netherlands, Switzerland, Austria, and Belgium) is an example of current European trend for the provision of Frequency regulation services\. Denmark, Poland and other European countries are expected to join the platform in coming years – indicating a widening acceptance of this approach and its governing rules\. 24 Duringthe charging periods, batteries are not available\. Therefore, there are some limitations in availability that need to be considered when defining performance requirements in the market\. Mar 25, 2021 Page 14 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) investments in battery storage more attractive while reducing the cost of auxiliary services for the TSO\. Linked to this, amendments are needed to the Grid Code to define connection and performance requirements, recognizing the specific technical features that battery storage can provide so that it can compete with flexible thermal power plants\. (b) Secondly, the current ASM short-term market could benefit from design improvements to become more attractive to new players\. The trading of the different products in the ASM is restricted by price caps that are similar for all products\. This does not appropriately incentivize the limited number of market participants to get certified for FCR or aFRR since the cost of providing these services is higher than others\. Therefore, carefully planned modifications are needed in the current price caps to properly differentiate between ancillary service categories based on the cost of providing the service and the value of individual service categories to the grid\.25 New products, hourly blocks, and new contracting modalities are also being proposed as options to attract new participants\. In order to define adequate incentives to guide private investments, the detailed reserves adequacy analysis must be completed\. Once defined, the ASM rules will need to be amended to reflect the changes in the procurement processes and the regulatory changes to ensure that the market rules remain clear and consistent\. (c) Thirdly, the current methodology for measurement and monitoring of the provision of services needs to be modified\. Monitoring at the busbar level does not give proper remuneration to the services and disincentivizes participation in the ASM\. A more granular measurement would give providers proper remuneration for their services\. Clear directives on this aspect will make it possible for providers and off-takers of these services to operate transparently and on a level playing field\. (d) Finally, it is apparent that an analysis of business models with private sector participation is necessary to scale-up battery storage beyond the UHE project\. Ukraine’s specific needs for ancillary services, proper risk allocation, and considerations linked to market creditworthiness of the off takers should be considered\. 26\. The proposed public approach is needed to meet the most urgent battery needs, while the Project demonstrational effect will increase the understanding of the technology, and create the enabling environment to facilitate private investments in battery storage to meet the much larger battery needs\. The proposed public sector investment is needed to meet the urgent battery storage needs for synchronization\. The very first large-scale battery storage investment will demonstrate technical and operational feasibility of a large battery storage and establish track-record of battery storage transactions in the ASM\. Hence, it will pave the way for private investments to meet the large battery storage needs\. In addition, the proposed Project will also support improve the ASM and create enabling environments for private sector battery storage\. Through disbursement conditions, the Project will facilitate to develop legal, regulatory, and operational conditions for battery storage and improve the ASM\. Finally, the Project 25 Thisissue has been partially addressed in the recent approval by the Anti-Monopoly Committee of Ukraine of the proposal submitted by NEURC to increase price caps for FCR and a-FRR around 35 percent, while reducing the caps for other reserves, but further work is needed to differentiate between FCR and a-FRR and to evaluate if the current market levels provide enough incentive to attract new investments\. Mar 25, 2021 Page 15 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) will support the introduction of energy storage as the enabler of e-mobility by providing UHE the experience and head-start in learning about and working with long-duration batteries that in the future could also have applications in load shifting and reduction of VRE curtailment\. This component will be supported by appropriate technical assistance and capacity building, including collaboration with the World Bank’s transport team on business models for e-Mobility\. C\. Proposed Development Objective(s) Development Objective(s) (From PAD) The PDO is to enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector\. Key Results 27\. PDO Level Result Indicators are as follows: (a) Newly installed capacity of battery storage (MW) (b) Available Frequency Containment Reserve (FCR) amount (MW) (c) Reduced variable renewable energy curtailment (GWh) (d) Number of privately owned units (power plants/storage units) certified for trading in Ancillary Services Market (number) (e) Reduced GHG emissions (tCO2) D\. Project Description 28\. Component 1: Installation of Battery Energy Storage System (BESS) with solar PV plants, establishment of an Energy Management System (EMS), and Supervision Consultancy (estimated cost: US$ 249 million, of which IBRD is US$ 177 million, CTF is US$34 million and UHE own fund is US$38 million)\. 29\. Subcomponent 1\.1: BESS with PV plants and EMS for provision of ancillary services: This subcomponent will support installation of BESS and solar PV plants, and an energy management system\. In total, 197 MW of BESS will be installed at four hydro power plant sites (Kyiv, Kaniv, Kremenchuk, and Seredniodniprovska)\. Additionally, 35\.9 MWp of solar PV plants will be installed\. All facilities including connection power lines will be installed within the precincts of UHE’s HPP territories\. These sites are identified based on land availability and transmission capacities\. The BESS will provide ancillary services to the grid, particularly FCR and a-FRR\. Those BESSs will be under coordinated operation with HPPs and solar PVs through a newly installed EMS so that a wide range of grid services is provided seamlessly, and charging/discharging operation is optimized\. The total size of the BESS is determined to meet the FCR requirement for ENTSO-E synchronization and then allocated to each site taking into consideration the connected HPP unit sizes as well as land availability\. The proposed BESS will provide the necessary ancillary services to the grid, which will improve flexibility of UkrES\. Therefore, the proposed investment will enable synchronization with the ENTSO-E, improve integration of VRE sources, and increase power system reliability through creating the most reliable source of system flexibility that is not contingent on the availability of resources (water, coal, gas) and the working status (in/out of operation) of the provider\. PV plants will be used mainly to supply electricity to the battery storage facilities and also cater to auxiliary Mar 25, 2021 Page 16 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) consumption within the HPP facility\. The PV plants will be developed and operated by UHE and not subject to the FiT scheme\. To meet the timeline for synchronization, the subcomponent will be developed in a short period of time, starting procurement in late 2021 and reaching to contract signature in early 2022, expected to be commissioned by end of 2022\. 30\. Subcomponent 1\.2: E-mobility BESS: This subcomponent will support installation of 15 MW of long-duration BESS suitable for EV charging at Dniester HPP\. The system will be used for charging of electric public transport vehicles (buses or trams) for the local community\. This sub-component is an important tool for testing and progressing e-Mobility options for public transport in Ukraine\. It will help prepare UHE and Ukraine’s power grid for the upcoming convergence of power and transport sectors through increased use of electric vehicles\. This sub-component will increase the knowledge and experience of UHE in long-duration batteries that shall have longer than 4-hour charge-discharge cycle, which can be also used for energy balancing and arbitrage\. The proposed investment will be supplemented by the ongoing complementary work implemented by the Bank transport team to facilitate wider penetration of e-mobility in the country\. Throughout operation of the proposed battery storage, UHE will progress charging rates and practices towards the commercial range, once sufficient experience has been built\. 31\. Subcomponent 1\.3: PV Plant for E-mobility: This subcomponent will support installation of 28 MWp PV plant at Dniester HPP\. PV plant will be used mainly to supply electricity to the battery storage facility and also cater to auxiliary consumption within the HPP facility\. The PV plant will be developed and operated by UHE and not subject to the FiT scheme\. 32\. Subcomponent 1\.4: Supervision Consultancy: This subcomponent will support project supervision, management, coordination, and knowledge sharing activities that will build UHE’s capacity and experience in advanced energy management, through hiring a reputable international consultant as an Owner’s Engineer\. As UHE has no prior experience with BESS, the support will be critical as the technology is new to UHE and evolving quickly\. 33\. Component 2: Technical Assistance for UHE (estimated cost: US$ 1\.0 million, to be funded by CTF grant)\. This Component will provide technical assistance to UHE on the following aspects: (i) Development of battery storage decommissioning/recycling procedures for UHE; (ii) Gender assessment of HR policies and practices at UHE, aimed at providing baseline understanding of factors influencing gender diversity and inclusion at UHE, and proposing specific recommendations for the company; (iii) Supervision, monitoring and implementation of the Environmental and Social (ES) Management tasks, including establishing and maintaining a Grievance Redress Mechanism (GRM); and (iv) capacity building for UHE such as training workshops and study trips to learn O&M best practices, safety measures, battery recycling, and other key technical areas\. 34\. Disbursement Conditions: (DCs): The Project is designed to use Investment Project Financing (IPF) structure\. In addition, some disbursement conditions would be included in the legal agreement with the Borrower (UHE)\. The disbursement conditions will require the completion of some regulatory milestones as shown in the Table 1 below\. Some disbursement categories will be linked to the disbursement conditions\. Once each disbursement condition is achieved, the Bank will authorize the disbursement associated to the disbursement category\. Several regulatory milestones have been discussed with the relevant counterparts, including MoF, MoE, and the regulator (NEURC)\. The regulatory milestones associated to the disbursement conditions will enable access of storage to the grid, its participation in the ASM and improvements in the ASM rules to promote new private investments\. Completion of the studies Mar 25, 2021 Page 17 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) linked to the definition of reserve adequacy using the European methodology could also be considered in order to inform market incentives\. 35\. These disbursement conditions are considered necessary to achieve the development objective of the proposed project\. On one side, the legal and regulatory changes, once adopted, will enable the participation of the UHE project in the ancillary service market in a level playfield with other flexibility options\. On the other side, the reforms will also enable private investments on storage by eliminating regulatory barriers and providing the key inputs to define future needs for flexibility and incentives for the markets to provide the required price-signals\. The relevance of each of the disbursement conditions is summarized below: A\. The inclusion in the Electricity law which enables to install and operate energy storage systems\. Currently energy storage is not defined in the law, which leads to uncertainty in treatment of such facility and its services in the legal framework\. The uncertainty in the legal framework hinders private investments in battery storage\. B\. “Market Ruleâ€? published in MoE after consultations\. At the moment, a stand-alone storage facility is not contemplated in the regal and regulatory framework, and therefore, it could not be pre-qualified to participate in the ancillary service market\. Adding pre-qualification criteria for participation of storage systems in ASM and allowing revenue stacking (i\.e\. simultaneous participation of the same asset in several segments of the ASM), which is critical for private battery storage\. C\. Draft “Grid codeâ€? published in MoE after consultations: It is critical that unique technical characteristics of battery storage are recognized, and some exemptions shall be applied to battery storage for technical requirements that do not fit to the technology\. It is also important to clearly define procedure for battery storage to connection to grid at transmission and distribution level and adapting performance requirements to accommodate batteries\. D\. Study on resource adequacy completed and validated by UE and published in UE website: The study will identify future resource needs to meet demands analyzing various options including new generation plants, energy storage, and demand response\. This is a critical condition as the study will particularly identify future ancillary services market size and battery storage needs, which will mitigate some of market risks for private investors in entering the market\. E\. Methodology for monitoring ancillary services adopted: According to the current market rule, FCR is evaluated at unit level, whereas other ancillary services are monitored at plant level\. The difference in evaluation levels for different services introduces a challenge as multiple units in a plant may be providing multiple services simultaneously\. A more granular measurement would give providers proper remuneration for their services\. Clear directives on this aspect will make it possible for providers and off-takers of these services to operate transparently and on a level playing field\. Table 1\. Categories of Disbursement and Disbursement Conditions Linkage to Disbursement Disbursement Disbursement Conditions Categories Conditions Mar 25, 2021 Page 18 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Category of No Disbursement N/A Disbursement 1: conditions Works and services under Subcomponent 1\.1 Category of DC1 • Submission to Parliament of the draft amendment of the Electricity law which Disbursement 2: enables to install and operate energy storage systems\. Works and services • Draft “Market Ruleâ€? published in MoE website after consultations\. under • Draft “Grid codeâ€? published in MoE website26 after consultations\. Subcomponent 1\.2 Category of DC2 • Study on resource adequacy completed and validated by UE and published in disbursement 2: UE website\. Works and services • Methodology for monitoring ancillary services adopted\. under Subcomponent 1\.3\. 42\. Project Financing\. The proposed Project’s Component 1 will be funded by (i) an IBRD loan, (ii) Clean Technology Fund (CTF); and (iii) UHE’s own funding\. Additionally, CTF Grant will fund Component 2, technical assistance for UHE\. A summary of project cost estimates is provided in Table 2\. Please note that the Table does not include the Bank executed trust fund (BETF) TA, which is expected to be in the $1-2 million range\. Table 2\. Summary of Preliminary Project Costs (US$ million) Financing Estimated Project World CTF Loan CTF Grant UHE Cost Bank Subcomponent 1\.1: BESS with PV plants and EMS for 210\.0 150\.6 28\.3 0\.0 31\.0 Component 1: provision of ancillary services Installation of BESS and Solar PV Subcomponent 1\.2: E- plants, 11\.0 7\.0 2\.0 0\.0 2\.0 mobility BESS Establishment of EMS, and Subcomponent 1\.3: PV plant 23\.0 16\.0 3\.0 0\.0 4\.0 Supervision for E-mobility BESS Consultancy Subcomponent 1\.4: 5\.0 3\.4 0\.7 0\.0 0\.9 Supervision Consultancy Component 2: Technical assistance for UHE 1\.0 0\.0 0\.0 1\.0 0\.0 Total 250 177 34 1 38 \. \. 26 Any other dissemination way could be considered\. Mar 25, 2021 Page 19 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Assessment of Environmental and Social Risks and Impacts \. The Project will install battery storages and PV generators arrays within current footprint of the UHE facilities (hydro- power plants)\. The project environmental and social risks are both rated as 'Moderate'\. Although the implementing entity has some experience with working with IFI supported projects, they have no or limited capacity in applying the Environmental and Social Standards\. As this is one of the first projects in the energy sector prepared under the Bank’s new Environmental and Social Framework (ESF), the Borrower's capacity to deliver an ESF based project is limited; therefore, capacity building training for the client including engaged agencies and contractors will be conducted by the Bank’s Environment and Social team during project preparation and implementation\. E\. Implementation Institutional and Implementation Arrangements 43\. The Project is structured as an Investment Project Financing (IPF) with disbursement conditions\. A loan agreement between UHE and the Bank will be signed for the IBRD portion of the loan\. A separate legal agreement will be signed for the CTF loan (and up to USD 1 million grant to be used for Component 2 (TBC))\. Disbursement Conditions will be included in the Loan Agreement with the Borrower and the Disbursement and Financial Information Letter\. All the relevant stakeholders involved in the regulatory milestones linked to the disbursement conditions should participate in project negotiations\. 44\. The Project will be implemented by Ukrhydroenergo\. UHE has experience in working with the World Bank and other IFIs, such as EBRD, including on the World Bank’s Hydro Power Rehabilitation Project (2005-2016)\. It has a qualified project manager, procurement specialist, financial manager, environmental and social specialists, project accountants and an OHS specialist\. A dedicated Project Management Unit (PMU) will be created with UHE Staff and external consultants to execute the tasks under the proposed Project\. UHE will also implement Component 2 with funding support of CTF grant\. 45\. Project Operational Manual (POM)\. To ensure a smooth implementation process, UHE will prepare and adopt a POM\. The completion and adoption of the POM will be a condition of effectiveness for the Project\. The POM will describe detailed arrangements and procedures for: (a) institutional coordination and day-today execution of the Project; (b) project budgeting, disbursement, and financial management (FM); (c) procurement; (d) monitoring and evaluation (M&E), reporting, and communication; and (e) any other administrative, financial, technical, and organizational arrangements and procedures that will be relevant for project implementation\. 46\. The Bank is proposing to define several regulatory milestones as disbursement conditions \. Once each of the milestones is achieved, the project can authorize disbursements against the associated category of disbursement\. Mar 25, 2021 Page 20 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) 47\. Responsibility of Disbursement conditions lies with MoE, which can be bound by a collaboration agreement between MoF and MoE to ensure implementation of the measures\. \. CONTACT POINT World Bank Silvia Martinez Romero Senior Energy Specialist Koji Nishida Senior Energy Specialist Sandeep Kohli Senior Energy Specialist Borrower/Client/Recipient PJSC “Ukrhydroenergo" Ivan Zhdanov Director of the II stage of Rehabilitation Project i\.zhdanov@uhe\.gov\.ua Implementing Agencies PJSC “Ukrhydroenergo" Zhanna Gutina Deputy Director of “Reconstruction Stage IIâ€? Project Impleme zh\.gutina@uhe\.gov\.ua FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects Mar 25, 2021 Page 21 of 22  The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) APPROVAL Silvia Martinez Romero Task Team Leader(s): Koji Nishida Sandeep Kohli Approved By Practice Manager/Manager: Country Director: Anthony A\. Gaeta 26-Apr-2021 Mar 25, 2021 Page 22 of 22

APPROVAL

P040208

Document of The World Bank Report No: 29328 IMPLEMENTATION COMPLETION REPORT (SCL-40370) ON A LOAN IN THE AMOUNT OF US$ 38\.7 MILLION EQUIVALENT TO THE REPUBLIC OF TUNISIA FOR AN INDUSTRY SUPPORT INSTITUTIONS UPGRADING PROJECT June 29, 2004 Finance, Private Sector and Infrastructure Department Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 31, 2004) Currency Unit = Tunisian Dinar 1 Tunisian Dinar = US$ 0\.78 US$ 1 = 1\.27 Tunisian Dinars FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS API Agence de Promotion Industrielle CETIBA Centre Technique du Bois et de l'Ameublement CETIME Centre Technique des Industries Mécanique et Electrique CNCC Centre National du Cuir et de la Chaussure CTAA Centre Technique de l'Agroalimentaire CTC Centre Technique de la Chimie CTE Centre Technique pour l'Emballage CTMCCV Centre Technique des Materiaux de Construction de la Céramique et du Verre CETTEX Centre Technique du Textile DGSI Direction Générale des Stratégies Industrielles EC European Commission EU European Union GoT Government of Tunisia ISO International Standards Organization MoI Ministry of Industry and Energy NMS National Metrology System PACKTEC Centre Technique pour l'emballage PAISI Projet d'Appui aux Institutions de Soutien à l'Industrie PMU Project Management Unit PMN Programme de Mise à Niveau SME Small and Medium Enterprise STC Sectoral Technical Center TD Technology Development UTICA Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat Vice President: Christiaan Poortman Country Director: Theodore Ahlers Sector Director: Emmanuel Forestier Sector Manager: Zoubida Allaoua Task Manager: Giulio de Tommaso  TUNISIA TN-INDUSTRY SUPPORT INSTITUTION CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 5 5\. Major Factors Affecting Implementation and Outcome 8 6\. Sustainability 9 7\. Bank and Borrower Performance 9 8\. Lessons Learned 11 9\. Partner Comments 11 10\. Additional Information 12 Annex 1\. Key Performance Indicators/Log Frame Matrix 13 Annex 2\. Project Costs and Financing 14 Annex 3\. Economic Costs and Benefits 16 Annex 4\. Bank Inputs 17 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 19 Annex 6\. Ratings of Bank and Borrower Performance 20 Annex 7\. List of Supporting Documents 21  Project ID: P040208 Project Name: TN-INDUSTRY SUPPORT INSTITUTION Team Leader: Giulio De Tommaso TL Unit: MNSED ICR Type: Core ICR Report Date: June 29, 2004 1\. Project Data Name: TN-INDUSTRY SUPPORT INSTITUTION L/C/TF Number: SCL-40370 Country/Department: TUNISIA Region: Middle East and North Africa Region Sector/subsector: General industry and trade sector (82%); Central government administration (18%) Theme: Small and medium enterprise support (P); Technology diffusion (P); Export development and competitiveness (P) KEY DATES Original Revised/Actual PCD: 02/25/1995 Effective: 12/24/1996 12/24/1996 Appraisal: 03/31/1996 MTR: 06/30/1999 01/24/2000 Approval: 06/13/1996 Closing: 12/31/2002 12/21/2003 Borrower/Implementing Agency: GOT/Ministere de l'Industrie (Direction Generale de l'Industrie) Other Partners: STAFF Current At Appraisal Vice President: Christiaan J\. Poortman Caio Koch Weser Country Director: Theodore O\. Ahlers Daniel Ritchie Sector Manager: Zoubida Allaoua A\. Amir Al Khafaji Team Leader at ICR: Giulio De Tommaso Judith Press ICR Primary Author: Giulio De Tommaso 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: L Institutional Development Impact: SU Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: S U Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The objective of the Industrial Support Institutions Upgrading Project (the Project) was to put in place an efficient and market-responsive system of agencies providing support to individual firms in various industrial sectors, in particular, to those firms seeking to become more internationally competitive\. In particular, the project intended to improve the quality of services offered by existing sectoral technical centers (STCs), to refocus STC activities toward assistance to private sector firms, to establish new STCs for sectors not covered by existing STCs, and to establish a national metrology system to promote improved quality of Tunisian exports and to reduce the costs to exporters of meeting European Union standards\. The target beneficiaries of the project were small- and medium-sized manufacturers that, while forming a large percentage of Tunisian manufacturers, did not have the financial or managerial capacity to make necessary technological improvements\. In the context of the re-orientation of the Tunisian economy toward the private sector and the opening of the economy to global competition, the Government of Tunisia (GoT) sought to upgrade the competitiveness of Tunisian industry through the Programme de Mise à Niveau (PMN), or the Industrial Upgrading Program\. This ongoing program consists of a series of measures aimed at upgrading the productive and competitive efficiency of individual enterprises that request assistance, as well as at reducing negative environmental impacts from industry through improvements in basic infrastructure and technology\. Tunisian STCs prior to the Project did not play a facilitating role in manufacturing and industry\. They had a reputation as inefficient agencies, a burden to the industrialists they were supposed to serve, and an instrument of government control on the activity of the firms in any given sector\. Most enterprises reported virtually no interaction with the majority of the STCs, and diagnostic studies demonstrated vast room for improvement\. In addition, virtually no metrology system existed in Tunisia; enterprises exporting goods would perform metrology measurements abroad, at almost ten times the costs by which these services could have been rendered locally\. The Project, therefore, aimed to promote the objectives of the PMN by (i) restructuring, upgrading, and strengthening existing STCs; (ii) establishing new STCs for sectors not yet served; and (iii) establishing the basis for a National Metrology System\. In addition, as part of the strengthening and establishment of STCs, the project would strengthen capacity for technical assistance to reduce industrial and manufacturing impacts on the environment\. 3\.2 Revised Objective: Not applicable\. 3\.3 Original Components: The Project as designed had two main components: assistance to the institutional development and technical upgrading of sectoral technical centers, and establishment of a national metrology system\. Under the component to assist the institutional development and technical upgrading of STCs, the Project planned to fund civil works, goods (equipment and vehicles), and technical assistance and training to (i) upgrade four existing STCs; (ii) establish new STCs; and (iii) strengthen or develop STC advisory services - 2 -  with respect to "clean" technologies and other changes that would reduce environmental impacts of manufacturing and industry\. Assistance to existing STCs: Existing STCs that would receive assistance (in the form of on-lent funds from the GoT that would be used to purchase equipment and consulting services) were the Centre National du Cuir et de la Chaussure (CNCC), the Centre Technique des Matériaux de Construction de la Céramique et du Verre (CTMCCV), the Centre Technique des Industries Mécanique et Electrique (CETIME), and the Centre Technique du Textile (CETTEX)\. Equipment and consulting services were to complement changes to the management structures of the STCs and their operational mandates in the provision of technical assistance to manufacturers\. The objective of such investments were to create structure to support the marketing of STC activities, ensure technical upgrading and skills strengthening for existing staff, introduce new management procedures, and set sales objectives for the services of the centers\. Total project funds allocated to this sub-component were FF 119\.3 million (US$ 23\.1 million equivalent at that time), of which 82\.6 million (US$ 16 million equivalent) was to be provided by the Loan\. Approximately half of this amount was for identified investments and activities; the remainder would be available for activities that required additional funds or for new activities\. Establishment of new STCs: Funding for the establishment of new STCs was allocated through the Project\. The new STCs would be created with the same managerial and operational structures as the restructured existing STCs, directed toward sectors that did not have existing STCs\. Four centers were to be created: the Centre Technique de la Chimie (CTC), for chemical industries, the Centre Technique du Bois et de l'Ameublement (CETIBA) for wood and furniture, the Centre Technique de l'Agroalimentaire (CTAA), for agroindustry, and the Centre Technique pour l'Emballage (PACKTEC), for packaging\. Total project funds allocated to the sub-component were FF 131\.6 million (US$ 25\.5 million equivalent), of which FF 74\.2 million (US$ 14\.4 million) would be provided by the Loan\. Funds were provided on a grant basis to the new STCs\. Development of environmental advisory services\. Finally, the STC component included funding for the development of a new line of STC environmental advisory services, including in the area of information and research on clean technologies, upstream waste minimization and reduction, economies in the use of raw materials, energy, water, and chemical products and other substances in the production process, waste recovery and recycling, training in environmental best practices, and environmental audits\. Such services would aim to improve compliance with national and international environmental and quality standards\. Project funds of FF 16\.2 million (US$ 3\.1 million equivalent) were allocated to the sub-component, FF 4\.7 million (US$ 910,000 equivalent) from the Loan\. Establishment of a National Metrology System: The second Project component was the establishment of a National Metrology System, whose objective was to upgrade national testing and measurement facilities to international standards, thereby reducing testing costs of exporting firms\. A total of FF 53\.9 million (US$ 10\.4 million equivalent) was allocated to development of metrology, of which FF 38\.5 million (US$ 7\.5 million equivalent) would be provided by the Loan\. Financing would be provided for civil works and equipment for laboratories\. 3\.4 Revised Components: The project was restructured three times during its life\. In May 1999, a component focusing on institutional reform and strengthening of the Agence de Promotion Industrielle (API) was added\. This component was appraised at approximately US$6 million equivalent\. - 3 -  Following the Mid-Term Review of the Project, it was agreed to reduce the allocation to the strengthening of the existing STCs sub-component by half\. This was a result of the relatively slow disbursement under the identified activities under the sub-component, and the unlikelihood of additional activities or participants requesting funds\. In addition, the sub-component to develop environmental advisory services, which had been non-performing, was dropped from the Project\. Finally, Project funds which had been set aside for potential emergency training needs resulting from delays in the provision of assistance from other donors was also cancelled, due to lack of interest on the part of the Government of Tunisia to borrow from IBRD for technical assistance\. In total, FF 48 Million (US$6\.3 million equivalent) was canceled at that time (late 2000)\. In April, 2003, an additional Euro 3\.47 million (US$3\.7 million equivalent) was cancelled\. Note that the closing date of the Project was extended from December 31, 2002 to December 31, 2003\. This extension was to accommodate the procurement of equipment to the STCs that would complete material needs for STC strengthening\. The Bank and the GoT agreed that institutional measures ­ completion of surveys to monitor STC progress, continued actions to establish a National Metrology System, and institutional development of the STCs ­ would continue\. 3\.5 Quality at Entry: This ICR rates the Quality at Entry of the Project as unsatisfactory\. An earlier review by QAG rated Quality at Entry as satisfactory\. This ICR notes several key flaws in the design of the Project which made implementation difficult and achievement of objectives unlikely\. These design flaws were in part due to the Project's being rushed to the Board without adequate preparation and finalization of prerequisites\. In addition, the Project conflicted with the objectives of other Bank projects\. Flaws in original design: The Project had originally included objectives and components related to the fundamental restructuring of the industrial support framework of Tunisia, including support to the Direction Générale de l'Industrie (DGI), which was responsible for the STCs and which was to manage the project, and to the Union Tunisienne de\. \. (UTICA), or the Tunisian confederation of employers, which was the main private-sector counterpart for the Project\. These two agencies were key to the reorientation of industrial support in Tunisia; their exclusion from support in the final project design weakened championship of the reform and strengthening of the STCs and the development of a metrology system\. In addition, activities related to the strengthening of these bodies had been relatively more advanced than those that remained in the project; it had been intended that initial activities would take place concurrent to final preparation of STC and metrology activities\. The removal of initial activities caused a drop in momentum toward the project, and slowed implementation of the remaining components\. Inadequate preparation: Project preparation relied on a series of assumptions related to the private sector's (i) ability to manage the restructured and new STCs and (ii) demand for advisory services\. The Project had envisaged that the professional federations would take over management of the STCs, however, their capacity was overestimated\. They were generally no more than a one-man operation, without the authority within the respective industry to facilitate needs assessments, much less develop and promote advisory services\. Not having strengthened the professional federations weakened the chances for success of re-orienting the STCs toward private sector services\. In addition, demand for services was far lower than expected ­ only recently, as the opening of borders to EU partners, has demand for services picked up\. Project preparation had not finalized key aspects of the new STCs, including their design, management, and - 4 -  location\. This resulted in significant delays in the establishment of the new STCs\. In addition, STC Program and Performance Contracts ­ contracts between the Ministry of Industry and the STCs that set out the STCs' objectives and intended outputs ­ had not been finalized prior to Board presentation\. The end result was that investments in the STCs were delayed several years\. Similarly, the design and implementation responsibility for the metrology component was not specified before Board presentation\. Without the identification of the lead agency for the component (and for the overall effort), decisions on investments were delayed during a long period of political discussions\. These design and preparation problems created the need for serious adjustments to be made during Project implementation and had a serious impact on the ability of the project to achieve its objectives\. Finally, outcome indicators agreed on did not adequately reflect the impact of the Project\. The Project established four output quality indicators, evaluating value added, productivity, increased exports, and capital investment of firms using the STCs relative to the sector as a whole\. Bi-annual firm-level surveys of STC clients and other enterprises were undertaken to assess the impact of the STCs on those indicators, and of the general assessment of the private sector of STC services\. The surveys, however, could not assess whether changes were the result of interactions of firms with the STCs\. This was exacerbated by the sporadic interaction of firms with the STCs\. Conflict of objectives with other World Bank-supported projects: Simultaneous with the Project, the World Bank supported the expansion of vocational training services through a Second Training and Employment Project\. As part of the preparation of the vocational training project, diagnostic studies were undertaken at each of the existing STCs, and in fact contributed to a heavy overestimation of demand for potential technical assistance provided by the STCs\. Over the course of the vocational training project, STCs then used vocational training grants provided by the GoT to provide technical assistance to enterprises\. This undermined incentives for the STCs to become operationally self-sufficient and private-sector-focused, put strain on the Program and Performance Contracts of the STCs, and affected the credibility of the program\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The ICR rates the achievement of Project objectives as Unsatisfactory\. This rating is based on the relatively poor performance of the STCs and lack of progress in establishing a metrology system\. In particular, most of the older technical centers do not cover their expenses, and new STCs are only just becoming operational\. With regard to the metrology system, there has still not been agreement on an institutional body that would set out its framework, much less the establishment of a network of laboratories to meet measurement and testing needs of industry\. The project has achieved some significant impacts in terms of institutional development of the centers, creating a new environment which is focused on performance and delivery of public services to the private sector\. The bi-annual survey and the subsequent indicators seem to affirm that the STCs, particularly the older ones, have become a part of the industrial fabric of Tunisia\. It has further laid the basis in terms of acquisition of equipment and the creation of an adequate metrology laboratory with respect to some of the measurements that are important to Tunisian exporters\. It appears that the authorities are on track to eventually deliver what they have promised within the context of this operation, as they are demonstrating leadership in continuing - 5 -  positive steps\. 4\.2 Outputs by components: The STC sub-component related to the strengthening of existing STCs is rated as satisfactory\. This component has seen the most dramatic improvements in terms of institutional development, and results of the last bi-annual survey painted an encouraging picture for these centers\. (See Annex 1 for estimates of key performance indicators\.) It shows that, on the whole, technical centers have made progress in terms of market penetration, and that customer satisfaction in terms of their services has dramatically increased, even when comparing the results with those of the biannual survey of just two years ago\. Equally important, however, has been the improvements in private-sector management of the STCs, the strengthening of the STC boards, and the use of management performance contracts as a basis for contracting and evaluation\. Although the performance of the STCs was uneven over the life of the project, as of the end of the Project, all centers have improved their turnover about fivefold or more over the course of the project\. Two of the centers are fully self sufficient and cover their expenditures, with at least 50 percent of revenue generated from services provided to client enterprises\. The two other STCs ­ CTMCCV and CNCC ­ have not performed as well, but are going through reorganizations that have already had positive impacts on their performance\. Even in those centers that have underperformed, the mentality has changed\. The sub-component for the establishment of new technical centers is rated unsatisfactory\. Significant delays were incurred; originally expected to be put in place in two years, the centers are barely functional after seven years\. The delays were a reflection of design problems discussed earlier, but also reflect a lack of understanding of what it takes to have a performing center\. There were problems in staffing (in particular, hiring of staff on a permanent basis, rather than hiring experienced consultants on a contractual basis to address specific demands), and procurement of the necessary equipment was lengthy and required the full attention of the existing staff, diverting attention away from providing services to industrial firms in the sector\. In addition, staff hired were often inexperienced, requiring the provision of additional training and resulting in further delays\. That said, the Project did succeed in establishing new STCS ­ institutions were created, buildings were built or rented, staff were hired, and the centers were equipped\. The four new centers are capable of developing business and adequately performing client services\. This is a major success for the project\. However, the centers have had mixed results, generally well below what had been anticipated and expected\. In some cases, such as in the agro-industry center, the direction of the center's activities was misguided, focusing on research and development and neglecting services to the industry\. Only one of the centers has truly begun providing services to the industry (PACKTEC); obviously, none of the centers has reached the goal of having client services reach 50 percent of its activities\. The component to establish a National Metrology System is rated unsatisfactory\. This assessment is made on the basis of the objective of establishing an overarching organization for metrology\. This objective was not achieved over the life of the project\. That said, the Project funded state-of-the-art equipment for several STCs and laboratories, enabling testing of several primary measures\. Equipment requirements were prioritized, with the initial deployment to the following STCs and laboratories: CETIME (dimensional metrology), CTMCCV (force and pressure), CNCC (temperature), Metrology Légale (volume, pressure and mass for commercial transactions), Central Laboratory (mass and pressure), CETEC (force), and National Defense Laboratory (electricity)\. These testing dimensions were considered the minimum necessary to provide adequate metrological support to the industrial sector\. - 6 -  An overall plan for a metrology system was prepared under the Project, based upon diagnostic work financed by the Coopération Française\. The plan provided for the initial infrastructure of a metrology system to be placed within the STCs, complemented by other national laboratories\. The equipment of the above STCs and laboratories is a base on which to construct a national metrology system\. This is a major accomplishment of the project, as these laboratories started from very low levels and are now competitive in their respective areas of expertise\. The laboratories now equipped are going through the process of accreditation (ISO 17025) in terms of testing and metrology\. This process is ongoing and proceeding for almost all laboratories\. The Project, however, had intended that the laboratories be organized and administered by an overall authority\. While some progress has been made of late, there have been significant delays in this area and the project has closed without having achieved any major breakthrough\. To date, there is no national metrology system, and no functional working group of experts\. Without an authority to coordinate, prioritize and focus the work of this loose network of laboratories, the national metrology system is simply a few laboratories conducting selected measurements, which falls short of what was envisaged to occur under the project\. There are still prospects for future development of a national system ­ terms of reference for a metrology authority have been prepared that take into account the work under the Project, and members of the authority have been nominated\. The component to reform and strengthen the Agence de Promotion Industrielle is rated satisfactory\. As a result of the restructuring, API is providing services through a single entry point to potential exporters\. Additionally, through a partnership with the STCs, the agency ­ which has a vast network of local offices across Tunisia ­ was able to increase the volume of services provided within the context of the PMN at least ten fold\. This provided a net benefit to the centers as well as to API\. 4\.3 Net Present Value/Economic rate of return: The Project required demonstration of an economic or financial rate of return equal to or greater than 12 percent, and a-priori feasibility studies were undertaken for all investments funded by the Project\. However, ex-post investment evaluations have not been carried out, and it is not possible to judge the rate of return generated by the project\. 4\.4 Financial rate of return: See 4\.3 above\. 4\.5 Institutional development impact: The institutional development impact is rated as substantial in terms of the impact on the STCs\. In particular with respect to the existing STCs, the performance contracts have had a significant impact on the way that the STCs are managed, with a focus on services to the private sector, on the needs of industry, and on cost recovery\. While not all the centers have achieved the same level of success, the example of the better performing centers is a positive one\. It is expected that as the new centers increase their activities, and as demand for services increases, the pattern of operational and managerial improvements will continue\. - 7 -  5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Factors outside the control of the GoT and the PMU that affected the Project included delays in the execution of technical assistance activities financed by the EU\. This had a negative impact on the STCs, hampering their ability to effectively utilize the equipment procured through the Project\. Furthermore, it delayed institutional development and retarded the growth of technical centers\. In addition, weaknesses in professional associations impeded the functioning of the Administrative Boards of the STCs, which reduced the STCs' managements' effectiveness\. 5\.2 Factors generally subject to government control: Several factors contributed to weak implementation and poor outcomes\. In particular, the agencies responsible for the follow up of the Project did not approach project implementation ­ in particular, the role of the STCs ­ in a consistent manner\. This resulted in significant disputes that required close attention by Project management and that resulted in serious delays in implementation and procurement\. In addition, lack of a common vision reduced the credibility of the stated reforms and the commitment of STC management in some cases\. For example, promises undertaken by one ministry were subsequently invalidated by another\. This greatly reduced the credibility of Performance Contracts, which, for example, included the possibility of performance bonuses, but which were not subsequently given even if stated achievements were met\. In addition, the nomination of the Director Generals of the STCs were independent of STC boards, calling into question the managerial independence of the STCs\. 5\.3 Factors generally subject to implementing agency control: The placement of PMU staff as GoT representatives on the boards of the STCs facilitated monitoring of Project progress and collaboration between the PMU and the STCs\. The PMU's role was in effect strengthened from a monitoring role to a managerial role\. In addition, PMU reporting directly to the MVTE/ME gave the PMU the necessary authority to fulfill its role\. 5\.4 Costs and financing: The loan was originally for an amount of 200 million French Francs, which was equivalent to US$ 38\.70 million at the time of approval\. Project costs were affected by a mid-term project restructuring and cancellations in an amount of FF 48 Million (US$6\.32 million equivalent)\. The reduced loan amount was subsequently converted to 30\.47 million Euro when the Euro replaced the franc\. In addition, Euro 3\.47 million (US$3\.7 million equivalent) was cancelled in April 2003\. The majority of Project funds were disbursed to the STC component\. A total of Euro 15 million went to strengthening of existing STCs and the establishment of new STCs, including Euro 2\.2 million for civil works, Euro 11\.8 million for equipment, Euro 0\.45 million for consultant services and training, and Euro 0\.67 million for vehicles\. A total of Euro 1\.2 million was used for the purchase of equipment related to the establishment of a national metrology system\. The total Loan amount disbursed at closing was Euro 16\.6 Million (US$ 17\.8 million equivalent)\. The - 8 -  undisbursed balance at closing ­ Euro 3\.34 million (US$ 4\.08 million) was cancelled as of June 7, 2004\. 6\. Sustainability 6\.1 Rationale for sustainability rating: This ICR rates the sustainability of project achievements as likely\. The ICR team was able to note that the GoT appeared committed to the objectives of the project\. In particular, the government has clear ideas regarding the future of the STCs and the development of the metrology system, including development and implementation of new performance programs/contracts for the STCs before the end of the calendar year\. The new contracts will be for a period of three years, and will have nine evaluation criteria, and are an indication of the GoT's commitment to the use of performance contracts for the management of the STCs\. New contracts will be implemented for all eight STCs, although performance indicators may vary\. The metrology system is being followed up in the context of work undertaken under a new framework agreement with the EU\. Under this agreement, a technical expert in charge of metrology will be placed within the responsible unit\. In addition, terms of reference have been developed for an assessment of the existing system and the development of a plan to further the implementation of the metrology system, building on what has been put in place under this project\. These measures lead the ICR to rate the sustainability of reforms likely\. 6\.2 Transition arrangement to regular operations: The Centers have functional Boards as well as management teams, and new performance contract should go into effect before the end of 2004\. Evaluation of the performance of the centers will be undertaken in that context by the Direction Générale des Stratégies Industrielles (DGSI) and the Ministry of Finance (MOF)\. In addition, the daily work of the implementing agency is being undertaken by DGSI, which has overseen the project from the outset\. For these reasons, there is no necessary transition to regular operations\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Bank performance during Project preparation is rated unsatisfactory\. The project was not adequately prepared at the time of Board presentation\. The Bank failed to satisfactorily assess the difficulties associated with the scope of reform it was assisting, once critical components of the original design were removed from the Project\. The project was presented to the Board to appear responsive to client demands, but in so doing presented a project that could not adequately deliver its expected outcome\. 7\.2 Supervision: Bank performance during Project implementation is rated satisfactory\. However, Bank efforts were largely directed toward trying to resolve problems in implementation, rather than on continuing dialogue on the overarching objectives of the Project\. The central failing of the - 9 -  supervision work was not to be more insistent in the beginning in demanding that the appointment and the management of technical centers be left to the boards of the centers and that Government oversight be undertaken under those auspices\. 7\.3 Overall Bank performance: Overall Bank performance is rated as unsatisfactory\. Borrower 7\.4 Preparation: Borrower performance with respect to Project preparation is rated unsatisfactory\. At the outset of project preparation, the Government sought to undertake a very impressive and daring program of reform of the support framework for Tunisian industry\. In the end, it agreed to pursue a more limited agenda, dealing exclusively with the STCs, without however addressing the problems of important actors, such as UTICA\. While it did delegate unprecedented management freedom to the STCs, it failed to accept the principle of total management freedom and accountability, which was at the base of the project\. Furthermore, it chose to leave many aspects of the program undefined, leading to protracted disputes during implementation and equally long disbursement delays\. 7\.5 Government implementation performance: Borrower performance with respect to Project implementation is rated unsatisfactory\. This rating is based on the problems suffered by the Project during the majority of the period of implementation, even though recent Borrower actions have rectified many of the problems\. Over the course of the project, disagreements between the implementing agency, the Ministry of Industry, and the MOF prevented the establishment of budgets for the STCs, which were in turn unable to undertake long-term planning and to manage resources in the interest of their consistency\. In addition, Borrower interference in the appointment of the general directors of the STCs undermined the objective of independent boards, management and decision-making\. Finally, inconsistency with respect to evaluation of the performance contracts undermined credibility of the contracts\. 7\.6 Implementing Agency: The performance of the implementing agency is rated satisfactory\. Despite limited financial means, and under very adverse conditions, the implementing agency admirably managed the project\. It kept excellent project files, became expert in World Bank procedures, and provided technical assistance on procurement issues to STC staff\. 7\.7 Overall Borrower performance: Overall borrower performance is rated unsatisfactory\. Overall, the Borrower did not act in a consistent manner vis-à-vis this operation, often pushing in different directions to the detriment of both the technical centers and to the intended beneficiaries ­ Tunisian enterprises\. - 10 -  8\. Lessons Learned Ex-ante investment in consensus building and outreach to the private sector is necessary as part of project preparation of institutional development projects\. Without significant private sector participation and buy-in (as well as high-level public sector support for reform), the reform process is likely to suffer delays and inefficiencies\. A well developed overall strategic framework incorporating the theoretical underpinnings of the project, but also defining in detail necessary institutional arrangements, is an important precondition for project implementation\. This type of framework, in the context of institutional development operations, becomes a blueprint for wide-ranging change\. In institutional development projects, technical assistance and training is sometimes more important than material investments\. If the allocation of tasks must be divided across donors, it is very important that these activities are synchronized\. The ultimate success of the operation depends on it\. In the development of a demand-driven system, it is necessary to pay equal attention to the development of capacity on the demand side, as the success of the reform depends in large part on the demand side being properly organized and having the ability to express its needs and the capacity to contribute its share\. For example, in the case of this project, developing the capacity of industrialists would have helped tremendously in project implementation\. For projects necessitating organizational and cultural transformation, it is important to allow flexibility during the study and roll-out phases\. During these phases, mistakes and innovations must be permitted\. Nonetheless, flexibility on the implementation of the reform must also be accompanied by adherence to the fundamental precepts of reform\. Government commitment is essential, in particular for reforms of the same scope as those of the project\. This must be accompanied by an ability to cooperate systematically and coherently across ministries and institutions, as well as by the participation and proactive involvement of a local champion at the highest levels who is empowered to resolve contentious issues when they arise\. If this is present, it leads to other positive aspects, such as the allocation of well-qualified personnel for project execution and effective decision-making during difficult moments and the minimization of delays\. The development of easily understandable performance indicators that match the anticipated results is an important part of being able to promote and measure success\. The indicators are a management tool for both the client, for its internal discussions, and for the Bank, and should be used to evaluate the progress of the project throughout implementation\. They eventually could be revised according to needs\. In certain cases, it is helpful to specify the calculation method of the indicators in order to facilitate their reliability\. 9\. Partner Comments (a) Borrower/implementing agency: The Borrower has not provided comments and has not provided its own implementation completion report\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): - 11 -  10\. Additional Information - 12 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate (1) Evolution of value added by enterprises pending the results of the latest biannual + 18% - average for all existing technical using the services of technical centers, in survey, no projections were made on these centers\. relation to the evolution of sectoral value items\. added (2) Evolution of productivity by the +10% - average for all existing technical enterprises using the services of technical centers\. centers, in relation to the evolution of sectoral productivity (3) Evolution of exports by the enterprises +21% - average for all existing centers using the services of technical centers, in relation to the evolution of technical exports (4) Evolution of Investment by the enterprises +28% - average for all existing centers using the services of technical centers, in relation to the evolution of sectoral investment Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate 1End of project - 13 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Existing centers 16\.00 4\.84 30 New Centers 14\.40 7\.78 54 Environment 0\.90 0\.00 0 Metrology 7\.40 5\.12 69 API 1\.78 Total Baseline Cost 38\.70 19\.52 Total Project Costs 38\.70 19\.52 Total Financing Required 38\.70 19\.52 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 10\.60 0\.00 0\.00 10\.60 (0\.00) (7\.40) (0\.00) (0\.00) (7\.40) 2\. Goods 21\.30 10\.40 3\.90 0\.00 35\.60 (18\.50) (8\.90) (3\.40) (0\.00) (30\.80) 3\. Services 0\.00 0\.00 0\.50 15\.40 15\.90 (0\.00) (0\.00) (0\.50) (0\.00) (0\.50) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 21\.30 21\.00 4\.40 15\.40 62\.10 (18\.50) (16\.30) (3\.90) (0\.00) (38\.70) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 1\.79 1\.00 0\.00 2\.79 (0\.00) (1\.79) (1\.00) (0\.00) (2\.79) 2\. Goods 2\.86 1\.02 12\.76 0\.00 16\.64 (2\.86) (1\.02) (12\.76) (0\.00) (16\.64) 3\. Services 0\.00 0\.12 0\.00 0\.00 0\.12 (0\.00) (0\.12) (0\.00) (0\.00) (0\.12) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 - 14 -  (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 2\.86 2\.93 13\.76 0\.00 19\.55 (2\.86) (2\.93) (13\.76) (0\.00) (19\.55) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. - 15 -  Annex 3\. Economic Costs and Benefits - 16 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 6/23/1994 1 PRINCIPAL ECONOMIST S S 9/7/1994 1 PRINCIPAL ECONOMIST S S 12/7/1994 3 S S 3/6/1995 6 SR PSD SPECIALIST (2) S S Appraisal/Negotiation 5/15/1995 6 S S 9/25/1995 1 S S 10/26/1995 2 S S 4/1/1996 2 SR PSD SPECIALIST (2) S S Supervision 11/30/1996 1 SR PSD SPECIALIST(1) S S 07/03/1997 5 SR PSD SPECIALIST (2); ENV\. S S SPECIALIST (1); PUBLIC ADMIN\. SPEC\. (1); PUB\. ADMIN SPEC\. (1) 12/17/1997 5 PSD SPECIALIST (1); ENV\. S S SPECIALIST (1); SR\. PUBLIC ADMIN\. SPEC (1); PUB\. ADMIN SPECIALIST (1); METROLOGY EXPERT (1) 06/16/1998 5 SR\. PSD SPECIALIST (2); S S ENV\. SPECIALIST (1); METROLOGY/CONSULTANT (1); PUB ADMINISTRATION (1) 12/04/1998 5 PSD SPECIALIST (1); S S ENVIRONMENT (1); METROLOGY (C) (1); INSTITUTIONS DEV (1); CORPORATE GOVERNANCE (1) 06/10/1999 3 PSD SPECIALIST (1); S S METROLOGY (C) (1); CORPORATE GOVERNANCE (1) 06/23/2000 4 PSD SPECIALIST(1); S S TECHNICAL CENTERS (1); METROLOGY (1); INSTITUTIONAL DEVELOPM (1) 11/03/2000 4 PUBLIC SECTOR SPECIALIST S S (1) INSTITUTIONAL - 17 -  DEVELOPM (1); METROLOGY(1); SR ENVIRONMENT SPECIALIST(1) 04/20/2001 3 PUBLIC SECTOR MGMT (2); U U METROLOGY (1); 01/18/2002 2 PUBLIC SECTOR MGT/TTL U U (1); METROLOGY (1) 09/16/2002 4 PUBLIC SECTOR MGT/TTL S U (1); METROLOGY (1); PROCUREMENT (1); TECHNICAL CENTERS (1) 09/25/2003 2 PUBLIC SECTOR MGT/TTL U U (1); METROLOGY (1) ICR 04/17/2004 2 PUBLIC SECTOR/TTL (1), U U PROCUREMENT (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation Appraisal/Negotiation - 532,000 a/ Supervision - 607,000 ICR - 20,000 Total 1,159,000 a/ US$ 532,000 represents expenses from identification to Board Approval\. - 18 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 19 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 20 -  Annex 7\. List of Supporting Documents 1\. Staff appraisal report, World Bank report no\. 15579 May 23, 1996 2\. Country assistance strategy report, June 25, 1996 3\. Mission aide-memoires and supervision reports 4\. Employment Strategy Study, World Bank report no\. 25456-TUN, June 28, 2003 5\. Borrower progress reports 6\. Impact evaluation reports - 21 -  - 22 -

APPROVAL

P009427

Douet of The World Bank FOR OFFICIAL USiE ONL Y Report Nb\. 11851 PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (CREDIT 1384-BD) MAY 14, 1993 Agriculture Operations Division Country Department I South Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EOUIVALENTS At Appraisal (FY83) US$1 - Tk 23\.00 FY84 US$1 - Tk 24\.08 FY85 US$1 - Tk 25\.09 FY86 US$1 - Tk 27\.08 FY87 US$1 - Tk 30\.85 FY88 US$1 - Tk 31\.21 FY89 US$1 - Tk 32\.18 FY90 US$1 - Tk 32\.94 FY91 US$1 - Tk 35\.63 At Completion (FY92) US$1 - Tk 38\.14 WEIGHTS AND MEASURES 1 kilometer (km) - 0\.62 mile (mi) 1 hectare (ha) - 2\.47 acre (ac) 1 metric ton (mton) - 2\.205 pounds (lbs) ABBREVIATIONS BADC Bangladesh Agricultural Development Corporation BB Bangladesh Bank (Central Bank of Bangladesh) BRDB Bangladesh Rural Development Board BSS Bittyaheen Samabaya Samity (Assetless Cooperative Society) DG Director General DTW Deep Tubewell GOB Government of Bangladesh HYV High Yield Variety IMP Irrigation Management Program KSS Krishi Samabaya Samity (Farmers' Cooperative Society) LGEB Local Government Engineering Bureau LLP Low Lift Pump MIS Management Information System p/m person/month p/d person/day PP Project Proforma RCS Registrar of Cooperative Societies RMB World Bank Resident Mission in Bangladesh RPP Rural Poor Program SB Sonali Bank (Government-Owned Commercial Bank) STW Shallow Tubewell UCCA Upazila Central Cooperative Association URDO Upazila Rural Development Officer UTDC Upazila Training and Development Center FISCAL YER July 1 to June 30  FOR,OFFICIAL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.S\.A\. Office of Director-Genoral Operations Evaluation May 14, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Bangladesh Rural Development II Project (Credit 1384-BD) Attached is a copy of the report entitled 'Project Completion Report on Bangladesh - Rural Development II Project (Credit 1384-BD)" prepared by the South Asia Regional Office\. Only a third of the ambitious minor irrigation and crop production credit targets were achieved due to continued subsidized public programs and weak credit delivery systems\. On the other hand, irrigation management support services were improved and a skill training and loan program targeted to the rural poor yielded encouraging results\. The project was restructured and the closing date extended four times to allow full use of the credit but this did not yield decisive measures to improve project management\. A variety of institutional development actions achieved partial results but failed to tackle the fundamental weaknesses of the Bangladesh Rural Development Board and of the rural cooperative system\. Loan recoveries remained very low and cooperative autonomy did not materialize\. Although the project did not achieve its objectives, it had a substantial effect on production and incomes, and is likely to yield significant economic benefits\. In contrast, institutional development goals were not achieved, and most project-related initiatives are not sustainable\. Project shortcomings include complex design; optimistic targets; a top-down approach to project preparation and implementation, and weak eligibility criteria\. Bank appraisal was not rigorous and failed to identify the lack of borrower commitment to project objectives\. Borrower performance was weak\. The PCR is complete and informative\. No audit is planned\. Attachment This document has a restricted distrlbution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Credit No\. 1384-BD) TABLE OF CONTENTS Paze No, PREFACE \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \.i EVALUATION SUMMARY \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. iii PART I - PROJECT REVIEW FROM IDA'S PERSPECTIVE Project Identity \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 Background \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 Project Objectives and Description \. \. \. \. \. \. \. \. \. \. \. \. \. \. 2 Co-financing \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 2 Project Design and Organization \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 2 Project Implementation - General \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 4 Project Implementation - Individual Elements \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 5 Project Results \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 10 Project Sustainability \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 12 IDA Performance \. \. \. \. \. \. \. \. \. \. \. \. \. 12 Borrower Performance \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 Project Relationships \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 Consulting Services \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 Project Documentation and Data \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE \. \. \. \. \. \. \. \. \. \. \. 15 PART III - STATISTICAL INFORMATION Related IDA Credits \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 17 Project Timetable \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 18 Credit Disbursements \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 18 Project Implementation \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 19 Incremental Credit \. \. 19 Minor Irrigation \. \. 19 Rural Poor Program (RPP) \. \. 19 Thana (Upazila) Civil Works \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 20 Cooperative/Institutional Training \. \. \. \. \. \. \. \. \. \. \. \. 20 Private Mechanics Program \. \. \. \. \. \. \. \. \. 20 Strengthening of BRDB \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 21 Expansion of Irrigation Management Program (IMP) \. \. \. \. \. \. \. \. \. \. 21 Technical Assistance (Consultancies) \. \. \. 21 Marketing Program \. \. 22 Strengthening of Audit \. \. \. \. \. \. \. \. 22 Promotion of Cooperatives \. \. 23 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  Project Costs and Financing \. \.24 Project Costs \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 24 Project Financing \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 24 Project Results \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 25 Direct Benefits \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 25 Economic Impact\. \. 26 Financial Impact\. \. 26 Studies \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 27 Status of Covenants \. \. \. 28 Use of IDA Resources \. \. \. \. 30 World Bank Staff Inputs \. \. \. \. \. \. \. 30 ANNEX 1 Table 1: Financial and Economic Prices (mid-1991) \. \. \. \. \. \. \. \. \. \. \. \. \. 31 Table 2: Crop Parameters (per ha) and Cropping Pattern\. \. \. \. \. \. \. \. \. \. \. 32 Table 3: Farm Model A: New Shallow Tubewell (6 ha)\. \. \. \. \. \. \. \. \. \. \. \. \. 33 Table 4: Farm Model B: New Deep Tubewell (19\.5 ha)\. \. \. \. \. \. \. \. \. \. \. \. \. 33 Table 5: Farm Model C: Application of IMP to Deep Tubewell\. \. \. \. \. \. \. \. \. 34 Table 6: Farm Model D: Application of IMP to Low Lift Pump\. \. \. \. \. \. \. \. \. 34 Table 7: Farm Model E: Application of IMP to Shallow Tubewell \. \. \. \. \. \. \. 35 Table 8: Farm Build up\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 36 Table 9: Re-calculation of Economic Benefits of RPP \. \. \. \. \. \. \. \. \. \. \. \. 36 Table 10: Incremental Economic Costs and Benefits and Re-calculation of the ERR\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \.37  i PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Credit No\. 1384-BD) PREFACE This is the Project Completion Report (PCR) for the Second Rural Development Project (RD-II) in Bangladesh, for which Credit 1384-BD in the amount of SDR 92\.8 million (US$100 million) was approved on June 14, 1983\. CIDA, ODA and UNDP provided grants of US$17\.6 million, US$10\.5 million, and US$1\.6 million, respectively\. The project was restructured in July 1989 and was closed on June 30, 1991, three years behind schedule\. The final disbursement was made on November 14, 1991\. There were four Credit cancellations: one of SDR 20 million (US$26\.1 million) in April 1987, another of SDR 4 million (US$5\.1 million) in July 1989, and a third one of SDR 8 million (US$10\.6 million) in June 1990\. The undisbursed balance of SDR 3\.18 million (US$4\.4 million) was finally cancelled in November 1991\. The Preface, Evaluation Summary, and Parts I and III of the PCR were prepared by an FAO/CP mission!/ (which visited Bangladesh in March 1992) and were revised by staff of the World Bank Resident Mission in Bangladesh\. They are based on the Staff Appraisal Report (SAR: Report No\. 4348-BD), the President's Report, the Project Agreement, the Development Credit Agreement, supervision reports, progress reports, mid-term evaluation report, project files, working papers of consultants, discussions with officials and farmers, and field visits carried out by the mission\. On July 3, 1991, IDA requested the Borrower to prepare Part II by October 3, 1991\. No response was received\. 1/ J\.M\. Caballero (Team Leader), R\. Zheng (FAO Trainee), M\. Hossain (Institutions and Cooperatives Specialist, National Consultant), and B\.A\. Khan (Credit Specialist, Part-time National Consultant)\.   iii PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Credit No\. 1384-BD) EVALUATION SUMMARY Objectives i\. The primary objective of the project was to strengthen and expand Bangladesh's rural cooperative system (consisting of the first-tier village farmers' cooperatives (KSS) and rural poor cooperatives (BSS for men/MBSS for women) and their second-tier federations - the Upazilagl Central Cooperatives Associations (UCCA)) and to improve the capability and performance of its promotional agency, the Bangladesh Rural Development Board (BRDB)\. Additional objectives were to: streamline procedures for UCCA purchase of irrigation equipment and credit distribution by Sonali Bank; diversify the activities of a few selected UCCAs into crop and input marketing; and to expand BRDB's Rural Poor Program\. Implementation Experience ii\. The project was implemented between March 1984 and June 1991\. BRDB was the main Government of Bangladesh implementing agency\. Implementation was slow compared to the excessively optimistic targets in the SAR\. Additionally, project implementation was hampered by inadequate implementation of minor irrigation policy, and by poor agricultural credit policies\. The project's institutional goals were affected by lack of strong support from the executing Ministry\. Overall, the project had to be extended three times for a total of three years, and US$46\.2 million of IDA credit had to be cancelled\. Although the project did not achieve its major objectives, it did improve the well-being of the cooperators\. iii\. Implementation of the following components was successfully completed within the extended period: civil works, Irrigation Management Program (IMP), Rural Poor Program (RPP), training of private mechanics, strengthening of RCS' audit capabilities, and technical assistance\. With some delays the cooperative/institutional training component was implemented according to the SAR, but attendance at training sessions and training quality were low\. Achievements in the two larger components - the use of medium-term (MT) credit for the purchase of minor irrigation equipment and the use of incremental short- term (ST) crop credit - were limited; only 37% of the shallow tubewells and none of the low lift pumps targeted in the SAR were sold, and annual average ST credit disbursements were only 33% of the target\. 2/ Upazila - lowest tier in the government's administrative unit\.  iv iv\. Based on a mid-term review carried out in October 1987, which found that it was worth extending the closing date despite delay and unsatisfactory implementation of some components, the project was reformulated in early 1988 by an IDA supervision mission\. The reformulation was approved by IDA in June 1988\. It greatly reduced the MT and ST credit components, used some of the savings for the purchase of deep tubewells, and expanded the RPP\. Proiect Results v\. While the project achieved the revised quantitative targets it was not successful in strengthening the cooperative system\. However, it succeeded in increasing output and incomes through expanded and improved irrigation and off- farm activities (para 7\.3), with a good overall economic return\. vi\. Formation of new cooperatives under the two-tier system of primary societies and UCCAs was fast but at the expense of quality, for many new societies could not maintain the quality of operation necessary to qualify for project inputs and few of the existing societies were upgraded\. The autonomy of UCCAs was not achieved\. vii\. Crop output increased due to: (a) expanded cultivation of high yield variety (HYV) rice and wheat using the new irrigation facilities provided by the project; (b) an increase of the command area and yields in the irrigation schemes where IMP was applied; and (c) higher yields due to more use of inputs allowed by the incremental ST credit\. The impact was less than expected in the SAR because of the shortfall in achieving the targets for purchase of irrigation equipment, ST credit and increase in the command area under IMP\. Mainly because of this the re-estimated economic rate of return (ERR) for the overall project is 47%,2/ compared with an SAR estimate of 79%\. viii\. It is estimated that the annual farm income of the farmers benefiting from STW has increased by Tk 6,100 (US$160) per ha, which is 22% more than anticipated in the SAR on account of an improvement in the input-output price ratio\. The off-farm income of the rural poor who received RPP loans is estimated to increase by Tk 1,500 (about US$40), or only 45% of the SAR estimate, but the number of loans given was more than double the SAR target\. Sustainability ix\. The UCCAs are not financially viable institutions\. Without further support, the great majority of UCCAs cannot absorb the personnel formerly paid by the project, or continue the training and other services, and maintain and eventually replace project buildings and equipment\. Additionally, the two-tier cooperative credit system supported by the project, which is crippled by extremely poor repayments, is not sustainable\. Most KSSs are heavily indebted to the UCCAs, which in turn are heavily indebted to the Sonali Bank, and there is little hope that the debts will eventually be repaid to any significant extent\. i\./ The re-estimation used 1990 price projections which gave higher economic prices for paddy (11%) and wheat (23%) than those projected in the SAR\.  v x\. On the other hand and more positively, the achievements in the sale of minor irrigation equipment are sustainable since the KSSs can generally self- manage the equipment supplied by RD-II\. The achievements of the RPP component are being continued and expanded with the benefit of further assistance from the Canadian International Development Agency (CIDA), which is facilitated by the comparatively high repayment rates of RPP credit\. Findings and Lessons Learned xi\. RD-II was thwarted by problems of design which can be identified with the benefit of hindsight: the project was too complex and had ambitious targets\. The project's approach was top-down, using cooperatives - without consulting them - as a channel to push through agricultural equipment and credit to farmers\. The loan eligibility criteria, aimed at installing credit discipline through peer pressure, were inappropriate when applied at the UCCA level\. Many eligible KSSs and individual farmers found their access to credit cut off because their UCCA was ineligible\. This de-motivated those affected from repaying their earlier loans\. xii\. There were, nonetheless, some strong points in project design\. The technical package chosen - minor irrigation plus HYV for paddy and wheat - proved to be profitable, and RPP has been a good vehicle to help the rural poor\. xiii\. The main lessons to be learned from this project are that: (a) implementing large, complex rural development projects involving many components and agencies is a very difficult process; (b) collective loan responsibility, which rests on group pressure to ensure repayment, is unlikely to work outside a face-to-face society context, and can backfire, discouraging timely repayments of loans by those individuals or primary societies who are denied fresh loans and thus penalized because of failure of others to meet their loan repayment obligations; (c) in undertaking certain elements of rural development strategy, imposition of government programs or expanding the cooperative network for the purpose of channelling production inputs and services are inconsistent with the spirit of cooperative autonomy; and (d) strengthening participatory management is a requisite for managerial autonomy of the cooperatives\.   PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Credit No\. 1384-BD) PART I - PROJECT REVIEW FROM THE BANIKS PERSPECTIVE 1\. Project Identity Project Name : Rural Development II Project (RD-II) Credit No\. 1384-BD RVP Unit South Asia Country : Bangladesh Sector : Agriculture Sub-sector Rural Development 2\. Background 2\.1 RD-II was conceived during the implementation of the Government of Bangladesh's (GOB) Second Five-Year Plan (1985-90) as a more comprehensive follow-up to Cr\. 631-BD, which was a US$24\.7 million project covering seven upazilas in two districts\. The Development Plan aimed at grain self-sufficiency by 1985, irrigation expansion, and the introduction of a High Yield Variety (HYV) input package\. Rural development policy to support the Plan was laid down in joint IDA/GOB reviews of cooperative development, minor irrigation and agricultural credit4/, which contained the policy framework agreed in the early 1980s between GOB and IDA for RD-II and other IDA-assisted irrigation and agricultural projects\. 2\.2 Within the framework of the rural development policy, irrigation expansion would be based on minor equipment, which would be sold by the private sector, to exploit both surface and the very rich underground water resources, and would be supported with training, medium-term (MT) and short-term (ST) credit to buy the equipment, and an HYV input package\. The joint review of the cooperative system concluded that the two-tier cooperative model based on the i\./ Bangladesh Integrated Rural Development: A Joint Review by the Government and the World Bank, October 1981; Bangladesh Minor Irrigation Sector: Joint Review by the Government and the World Bank, December 1982; Bangladesh Agricultural Credit Review, A Joint Review by the Government and the World Bank, August 1983\.  2 Comilla experiment of the 1960s, which was also adopted by the RD-I project, had demonstrated its potential role in increasing agricultural production and incomes\. In pursuance of the recommendation of the review, and in order to provide an institutional base for a national system of two-tier cooperatives, Bangladesh Rural Development Board (BRDB) was established in 1982 as an autonomous agency to implement the Government's Integrated Rural Development Program\. 3\. Proiect Obiectives and Description 3\.1 The primary objective of the project was to strengthen and expand Bangladesh's rural cooperative system, consisting of the first-tier village farmers' cooperatives (KSS) and rural poor cooperatives (BSS for men/MBSS for women) and their second-tier federations - the Upazila Central Cooperatives Association (UCCA) and to improve the capability and performance of its promotional agency, BRDB\. The project also aimed to: streamline procedures for UCCA purchase of irrigation equipment and credit distribution by Sonali Bank; diversify the activities of a few selected UCCAs into crop and input marketing; and to expand BRDB's Rural Poor Program (RPP)\. Components were: (a) provision of medium-term credit to UCCA/KSS members for the purchase of irrigation and related equipment; (b) expansion of an on-going Irrigation Management Program (IMP); (c) provision of medium-term credit to UCCA/BSS/MBSS members for various income-generating activities; (d) provision of short-term credit to UCCA/KSS members for crop production; (e) implementation of a UCCA-based crop and input marketing program; (f) construction of upazila and UCCA facilities; (g) strengthening BRDB and the audit capacity of the Registrar of Cooperative Societies (RCS) through improved staffing and provision of vehicles and office equipment; (h) training of BRDB and RCS staff, of staff and members of cooperatives, and of upazila irrigation teams, and construction of training facilities; and (i) technical assistance (TA)\. 4\. Co-financing 4\.1 The project was to be financed by an IDA Credit of SDR 92\.8 million, a UNDP Grant of US$1\.6 million equivalent, a Canadian CIDA Grant of US$17\.6 million equivalent, a United Kingdom ODA Grant of US$10\.5 million equivalent, and GOB, Sonali Bank, and beneficiary contributions of US$30 million, $12 million, and $6 million, respectively\. 5\. Proiect Desien and Organization 5\.1 With some assistance from FAO/CP, GOB prepared the initial project concept\. However, further preparation was required and this was merged with appraisal of the project, which was carried out in September-October 1982 by staff of the World Bank's Resident Mission in Bangladesh (RMB)\.  3 5\.2 The basic project concept was sound, but, with hindsight,the design suffered from four shortcomings: (a) Complex Design\. RD-II was a large and complex project\. The project budget was US$177 million, to be spent in four years to finance the implementation of many diverse components involving several foreign development partners and numerous implementing agencies\. The development partners were noted above (para 4\.1); the implementing agencies were: BRDB (the lead agency); the Local Government Engineering Bureau (LGEB); RCS; and the Bangladesh Agricultural Development Corporation (BADC)\. (b) Optimistic Targets\. RD-II was national in scope, covering 13 of the 20 greater districts, which was appropriate given the institution-building objective\. However, the project had excessively optimistic targets, particularly for the credit components\. About 37% (approximately US$66 million) and 35% (US$62 million), respectively, of the total project cost was allocated for short and medium-term credit\. This was an impossible target to achieve in four years\. (c) ToR-down Approach\. The project design viewed the cooperatives simply as a channel to push through agricultural equipment and credit to farmers\. They were never consulted on whether they wished to participate\. This top-down approach was inconsistent with the spirit of cooperative society autonomy\. The cooperatives were widely perceived, even at the UCCA level, as mere extensions of the machinery of the Government\. UCCAs were encumbered with project staff appointed by BRDB\. Selection of Sonali Bank (SB) as the banker for the project, as well as for the UCCAs, was not a satisfactory arrangement, but UCCAs did not have the freedom to take their business elsewhere\. (d) Loan Elizibilitv Criteria\. Loan recovery performance at the individual, KSS and UCCA levels was used to determine borrowing eligibility\. This was part of an attempt to instill credit discipline through peer pressure\. However, in practice this turned out to have been a major mistake\. Many eligible KSS and individual farmers found their access to credit cut off because their UCCA was ineligible\. This destroyed the motivation of those affected to repay previous loans (para 7\.9)\. 5\.3 On the positive side, the right choice was made in putting irrigation at the center of KSS development since irrigation is quite profitable in Bangladesh\. This permitted a substantial economic return on the project in spite of implementation shortcomings\. The expansion of the Rural Poor Program (RPP) proved also to be a good choice, which has contributed to rural poverty alleviation\. Finally, the classification of UCCA/KSS in A,B,C and D performance categories was an interesting way of monitoring quality in the cooperative system\.  4 6\. Proiect Implementation - General 6\.1 Credit effectiveness was delayed for 3 months because of difficulties in meeting the conditions\. Project implementation was hampered due to inadequate Government support in terms of implementation of the privatization and agricultural credit policies\. The project's institutional goals were affected by lack of strong support from the executing Ministry\. 6\.2 Since the early 1980s, the Government's policy was that minor irrigation equipment, other than deep tubewells (DTW), would be supplied through the private sector\. Subsidized sales and rentals through government agencies, which would undermine the policy, would cease\. Unfortunately, the latter did not happen until the late 1980s and private sector involvement in equipment distribution and servicing developed less well than anticipated\. The Government also intervened in the market, compelling the private dealers participating in the project to sell at Government-administered prices\. As a consequence, the farmer suffered, since neither public nor private supply functioned adequately\. During the life of the project the Government also imposed a ban on imports of irrigation equipment and on fielding in many upazilas; this, too, impeded the project\. 6\.3 Periodically, the Government instructed nationalized commercial banks to launch credit recovery drives\. This had an adverse consequence in that banks, including the Sonali Bank, restricted credit disbursements, which starved good cooperatives of loan funds to buy irrigation equipment and to finance other farming expenses\. The Government's declaration to waive interest adversely affected credit discipline, as farmers refrained from repaying in the expectation of further credit relief measures\. Interest was waived from short-term loans in October 1986 and 1988, and in April 1991, 90% of the interest due on medium-term loans and 100% of the principal and interest due on short-term loans of less than Tk 5,000 were also waived\. 6\.4 Frequent transfers of Director Generals (DG) of BRDB, and the Government's lack of interest in taking actions to make the UCCA autonomous, resulted in the failure of the project to meet the institutional objectives\. During the original project period of four years, the DG was replaced more that eight times\. In one instance, the DG was changed three times in one year\. In addition, frequent changes in other top positions of BRDB made it impossible to carry through policy reforms with regard to improvement in BRDB management, credit discipline, and building an autonomous cooperative system\. 6\.5 Prolect Reformulation\. A mid-term review was carried out under the UNDP funded TA component of the project in October 1987\. This was late but otherwise as programmed\. The overall finding of this review was that while the project had fallen well short of achieving its major objectives it had, nevertheless, improved the well-being of cooperators\. Furthermore, it found the basic project design sound and worth pursuing for an extended period; the main quantitative shortcoming, in the credit components, was attributed, at least in part, to excessively optimistic targets\. Based on the recommendation of this review, the Government requested IDA to reformulate the project and to extend the Credit closing date\. Detailed reformulation proposals were developed by an IDA supervision mission in February 1988\. In the reformulation the credit component was reduced and the unutilized funds were reallocated to the purchase of DTW  5 equipment; a pilot program to intensify homestead production by rural poor women was introduced; the RPP under RD-II was extended to three new districts, while CIDA continued the support to the original areas under a bilateral agreement with GOB; and the TA component was extended\. As part of the reformulation, GOB agreed to take specific action to increase cooperative society autonomy and improve credit recovery\. The Government's Project Proforma (PP) was revised accordingly\. 7\. Project Implementation - Individual Elements 7\.1 Medium-Term Credit for Minor Irrigation (35% of project cost)\. Only 11,021 STW and no LLP were sold of the original SAR targets of 30,000 STW and 3,000 LLP\. The poor STW sales performance was the result of: (a) over- optimistic targets referred to above; (b) sharp reductions in new credit disbursements, also referred to above; (c) the saturation of the STW potential in the more easily accessible areas; (d) difficulties with on-lending credit procedures (para 7\.9); and (e) Government-imposed restrictions on the operations of the private sector (para 6\.2)\. The private sector found it impossible to sell at full cost any LLP because of continued subsidized rental and sales programs by BADC\. The Government, on the other hand, could not develop procedures to compensate the private sector to enable them to sell LLP at subsidized prices\. 7\.2 Originally, this project did not provide for DTW development because of the existence of the parallel Second Deep Tubewells II Project, which was itself geared solely to supplying cooperatives\. However, as a result of accelerated groundwater development during 1987 and 1988, a shortage of DTW equipment developed as the IDA-assisted DTW-II project was coming to a close\. The Government, therefore, requested IDA to include the provision of DTW in RD- II\. This was agreed and US$33\.1 million was allocated for the procurement of about 2,400 DTW\. By June 1992 most of these had been sold\. (Comments on credit recovery and the operation of the Banking Plan are at paragraphs 7\.8 and 7\.9)\. 7\.3 Irrigation Management Program (1% of project cost)\. RD-II expanded the successful elements of IMP in RD-I in a more routine manner by focussing on training in irrigation management, funds for topographic surveys and loans for physical works such as canal lining\. It was oriented to KSS which already had DTW or LLP, with the purpose of expanding the irrigation command area and increasing yields through better water use\. The program succeeded in meeting the quantitative targets with regard to the coverage of tubewells\. After a slow beginning an upazila irrigation manual was prepared, officers from the participa- ting institutions and the UCCA were trained at Bogra Rural Development Academy in the numbers targeted by the SAR, and the program was applied to 4,199 DTW and 2,886 LLP against an SAR target of 4,400 DTW and 1,100 LLP\. 7\.4 The allocation for credit for canal improvement and for topographic surveys was not disbursed\. The major reasons for lack of demand for credit were inadequate financial returns for individuals (as against economic returns to society) and the availability of grant funds provided by the Government to the upazilas for this purpose\. Topographic surveys were not carried out due to the lack of coordination between BRDB, in charge of the organizational side of IMP,and BADC, in charge of the engineering aspects\. The program also did not receive very strong support from BRDB headquarters and the Ministry\.  6 7\.5 Medium-Term Credit for Income Generating Activities (9% of project cost)\. Generally known as the Rural Poor Program (RPP), this was an innovative and successful component aimed at providing off-farm income earning opportunities to the landless by means of skills training and loans in 6 of the 13 greater districts covered by the project\. Poor men and women were organized in village- level primary cooperative societies - BSS for men and MBSS for women\. The number of loans under RPP reached 113,000 against a SAR target of 54,500\. Loan recoveries of 71% were much better than under irrigation and crop loans, but still insufficient for a sustainable credit scheme\. The training of private mechanics, originally conceived as a separate RD-II component, was in fact operated as part of the RPP\. This effective program trained 915 mechanics (against a target of 1,1005/) enabling them to make a good living while providing a much required service\. 7\.6 At the time of reformulation GOB requested CIDA, the cofinancier of the RPP, to continue to finance RPP in the six greater districts on a bilateral basis after June 1988, the original Credit closing date\. CIDA agreed to assist RPP for a further period of five years starting July 1988\. In addition, the reformulation exercise programmed the organization of RPP activities in three additional districts\. It also introduced a pilot homestead production program for rural women in three upazilas for the extended project period\. With the exception of some training of cooperators the RPP activities under the extended RD-II did not progress much because of lack of managerial support from BRDB headquarters\. Under the homestead production program 150 rural women were trained in intensive vegetable cultivation and poultry raising\. Many of them eventually received loans\. 7\.7 Short-Term Credit for Crop Production (37% of project cost)\. On average the annual disbursements of ST credit were only 33% of the SAR target\. Causal factors were low irrigation equipment sales, ineligibility to borrow because of poor repayments, and the impact of the recovery drives referred to above (para 6\.3)\. 7\.8 Credit Recovery\. Credit recovery performance was very bad\. At project closing recovery of short-term loans was only 20% compared to 29% in FY90 and 55% in FY89\. The recovery performance of medium-term loans was worse\. In FY91 it was 14% compared to 18% in FY90 and 37% in FY89\. Major reasons were a general indiscipline in the financial sector, the perverse impact of the eligibility criteria (para 7\.9), expectations of payment waivers by Government (para 6\.3), and failure to act against defaulters on managing committees as required by cooperative rules\. 7\.9 Operation of the Banking Plan\. To improve credit operation procedures for the cooperatives, two Banking Plans were prepared by BRDB, Sonali Bank and Bangladesh Bank; one for medium-term and short-term credit for UCCA/KSS, the other for the RPP\. The Plans specified borrowing eligibility criteria at three levels: individual, KSS and UCCA\. These were intended to safeguard financial viability of the system\. The criteria at the KSS and the UCCA level were 2/ The original SAR target was 2,300 in the 13 greater districts covered by RD-II\. When the program was confined to the 6 greater districts covered by RPP, the target was revised downwards to 1,100\.  7 intended to create credit discipline through peer pressure\. However, during implementation it was observed that the peer pressure did not materialize at the UCCA level, where the membership is widely dispersed and heterogeneous, unlike at the KSS level, where the group typically is small\. In effect, the eligibility criterion at the UCCA level did more harm than good, since many eligible KSS and individual borrowers were refused credit when their UCCA was defaulting\. There were instances when such individuals and KSS ceased to repay dues in frustration because they were cut off from new credit\. The Banking Plan was amended during the later part of the project period to allow eligible KSS under ineligible UCCA to receive loans\. 7\.10 Marketing (1% of project cost)\. This component consisted of loan facilities for UCCA to build fertilizer and produce godowns and technical assistance for crop and input marketing activities\. The loan facilities were not used because the cooperatives were not able to generate enough business to need construction of godowns\. Technical assistance from FAO/UNDP and availability of ST marketing credit from SB resulted in some UCCAs undertaking crop marketing in some years with reasonable financial success and good credit repayment rates\. Participation was limited, but this has served to show that UCCAs can profitably undertake crop marketing, although they face so many financial and managerial problems that few are likely to venture into it without external support\. Input marketing declined substantially during the project because the UCCAs were not trained by the BRDB to compete with the private sector sale of fertilizer\. 7\.11 Construction of Facilities (7% of project cost)\. The physical targets were substantially achieved within the allocated budget, although with delays which led to difficulties as the buildings were needed for the project\. BRDB had problems claiming reimbursements because the Local Government Engineering Bureau (LGEB), which implemented this component, was not prompt in getting expense statements from the upazilas\. There was also a problem in that some buildings were allocated to non-project officials\. 7\.12 Stren2theninx BRDB and the Audit Capacity of the RCS (4% of project cost)\. The project proposed to strengthen BRDB by providing incremental staff, vehicles and equipment, and technical assistance to improve its organization and management\. Incremental staff were recruited and vehicles and equipment were procured, albeit with some delay\. A number of studies were undertaken under the TA to improve the organizational structure and management systems of BRDB, but there was no effort, on the part of senior management of BRDB or the Ministry, to act upon any of the recommendations\. Major recommendations included: changing BRDB's organizational culture from a bureaucratic to a performance- oriented one; clarifying BRDB's objectives and priorities; and delegating decision-making to field officers\. The Management Information System (MIS), established after a long delay, failed to produce satisfactory indicators of performance of BRDB\. This was mainly because of the lack of vision of BRDB management about the role of the organization; hence, ineffective guidance was provided to the TA team to design the MIS around management needs\.  8 7\.13 Project implementation suffered from low staff commitment and weak morale because of the lack of career development opportunities and job instability\. Uncertain of eventually being included in the revenue budgetW, many project officials devoted a good part of their effort, particularly in the last years of implementation, to searching for fresh employment\. 7\.14 The component to strengthen RCS' audit capacity consisted of incremental personnel, vehicles, equipment, training and technical assistance for the audit wing of the RCS\. The aims were to get rid of the backlog of KSS and UCCA audits, to keep up with the increased audit needs following the planned expansion in the number of societies, and to improve the quality of audit\. Implementation by RCS was successful; the incremental staff were appointed, the vehicles and equipment were procured, and a new audit manual was prepared\. Training, however, lagged behind, partly because the final version of the new audit manual, on which it was to be based, was delayed\. The main aims -- to clear the audit backlog and to devised new auditing methods -- were achieved\. Indeed, it is remarkable that RCS managed to keep up with the UCCA/KSS/BSS audit needs in spite of the big increase in the number of societies\. On the other hand, little progress was made in the quality of audit\. ODA, which financed this component, has continued its support to RCS\. The additional personnel recruited under the project have been absorbed into RCS' revenue budget\. 7\.15 Autonomy of the UCCA\. The primary objective of the project was to strengthen and expand the two-tier cooperative system (SAR para 3\.01)\. The cooperatives were meant to be autonomous, self-managed and financially viable\. Little progress was made toward improving society autonomy and viability in the project's early years\. Therefore, during the extended project period BRDB agreed to take the following actions to increase autonomy of the UCCAs: (a) rescind official circulars that contradicted autonomy of the UCCAs; (b) survey of 14 UCCAs to determine their financial viability; (c) training in business management to selected UCCAs; and (d) withdraw BRDB staff posted in the UCCAS in phases\. These actions were taken, but it is too soon to gauge their long-term effect\. 7\.16 Training (5% of project cost)\. This component, for the training of BRDB and UCCA staff and KSS leaders, included the construction of training facilities and provision of equipment, salaries of training staff, training materials and other operating costs\. The civil works and the provision of equipment were successfully implemented with some delay\. However, on the whole, the impact of the training effort on the functioning of the cooperatives seems to have been minimal\. The quality of weekly courses programmed for KSS leaders (chairman, manager and "model farmer") was bad, and, as a result, attendance was low and the training messages not passed on to members\. Quite often, the quality of upazila-level training was also disappointing\. Training materials were not adequate; cooperation from other government agencies was weak; there was not enough curriculum guidance; and trainers were not always properly prepared\. The weakness of BRDB's Training Directorate and the lack of a clear allocation of training responsibility at the district and upazila levels are largely i/ Bangladesh has two budgets\. Development activity is funded under the development budget; the revenue budget funds the regular, recurrent activities of government\. If, at the end of a development activity, staff are needed to continue routine operations, they must be absorbed into the revenue budget\.  9 responsible for this, in spite of the merit of the technical assistance financed by ODA\. During the last 18 months of the project, the TA team prepared a training manual to equip BRDB's field staff to carry out participatory, needs- based, cooperative training, and to manage the training inputs provided by other agencies, but it is too soon to say what impact this will have\. 7\.17 Technical Assistance (1% of project cost)\. TA was envisaged for marketing (UNDP/FAO), training (ODA), RPP (CIDA), monitoring and evaluation (UNDP/FAO), and audit (ODA)\. The consultancies programmed in these fields were carried out and the quality was satisfactory\. The studies programmed in the SAR, and some more, were competently produced and many recommendations were given\. 7\.18 Procurement\. Except for some initial delays in the procurement of vehicles and equipment, there was no major problem\. 7\.19 Proiect Costs\. The estimated cost of the project at appraisal was US$ 176\.98 million\. The actual cost was US$ 93\.81 million\. (Part III, Section 5A)\. The decrease in cost is mainly due to depreciation of the Taka value against dollar (US$1 is now equivalent to Tk 38\.14 compared to Tk 23\.0 at appraisal)\. Project cost is also less because the disbursement of incremental short-term credit was far lower than estimated at appraisal (para 7\.20)\. 7\.20 Disbursements\. IDA: After allowing an additional four months for disbursement after Credit closing date to enable submission of disbursement claims against eligible expenditures incurred before the Credit closing date, the Credit finally closed on November 14, 1991 with an undisbursed balance of SDR 3\.18 million\. The total amount canceled from the original Credit was SDR 35\.18 million\. ODA disbursed GBP equivalent 3\.24 million at the time of Credit closing out of the total allocation of GBP equivalent 6\.66 million\. CIDA disbursed CAD equivalent 11\.88 million as of March 31, 1990 out of the total allocation of CAD equivalent 20\.08 million\. 7\.21 Co-financine\. Relationship with the cofinanciers has been generally cordial, except CIDA\. Soon after Credit negotiations, CIDA raised concerns about the design of the Rural Poor Program\. IDA revised the design as much as was possible within the project scope negotiated with the government\. During implementation, CIDA expressed concern about the limited role of the cofinancier in discussing project implementation issues with the government\. In 1986, a mid- term operational review, conducted by independent consultants, appointed by CIDA, found serious difficulties in the co-financing relationships with respect to policy, strategy, operations and communications\. Ultimately, CIDA decided not to extend the cofinancing arrangement after June 30, 1988 and signed a bilateral agreement with the government to finance a five year project\. 7\.22 Prolect Risks\. The appraisal correctly predicted that the project faced no major, overall economic risk because of the high returns to investment in irrigation\. The risk of delay to the irrigation program was foreseen but the causes were not\. The delays were due to Government's failure to aggressively pursue liberalization in equipment supply, not from slow response from the private dealers, and from failure to establish a sound, sustainable credit delivery system\. However, the risk of politics interfering with credit activities, as happened, was correctly foreseen\. The appraisal correctly indicated that the institution building objective of the project would depend on  10 the performance of BRDB\. Government's failure to use the available means, including the contributions from the project, to strengthen BRDB and the two-tier system, was not anticipated\. 8\. Proiect Results 8\.1 The project, while it fell well short of achieving its major objectives, nevertheless improved the well-being of the cooperators in the two- tier cooperative system\. The main quantitative shortfall in the MT credit component for minor irrigation stemmed, at least in part, from the excessively optimistic targets\. While the project achieved the revised quantitative targets, it was not able to strengthen and develop a self-reliant two-tier cooperative system which could serve as a vehicle for rural development\. However, it succeeded in increasing output and incomes through expanded and improved irrigation and off-farm activities, and has thus contributed to improving the economic life of beneficiary families\. 8\.2 Strengthening of the Cooperative System\. Many new UCCA/KSS/BSS were created, but the number of them in categories "A" and "B", i\.e\. with "acceptable" functioning standards and hence eligible for project inputs, was much smaller than targeted and declined over time\. Quantity was achieved at the expense of quality\. UCCAs are heavily indebted to SB and are not financially viable\. KSS were in turn heavily indebted to UCCA and on the whole unable to repay their debts even if they wished to do so\. The only noticeable strong point is the accumulation of KSS savings and shares which have become the main source of income of the UCCA\. But, on the one hand, accumulated savings and shares are far from enough to cover the debts, and, on the other, they are not a reflection of the cooperative commitment of KSS members\. In fact, members must save and pay shares in order to obtain loans, and they see this building up of assets more as a tax than as part of their wealth\. This is understandable since they find it difficult to access their savings and rarely collect any interest or dividend income\. 8\.3 Irritation Expansion\. It is estimated that, at full development, the irrigated area will increase by some 106,300 ha: 67,000 ha on account of the new STW; 14,700 ha from the 750 DTW sunk in the last year of the project, and 24,600 ha from the application of IMP\. This expansion of the irrigated area is only 35% of the 305,600 ha targeted at appraisal, but is nonetheless a rather impressive figure; in retrospect, it is quite obvious that the SAR estimates were far too optimistic\. IMP had a significant positive impact at a moderate cost; it increased command areas by an estimated five acres per cusec (against an SAR target of eleven) in DTW schemes and three acres per cusec (against an SAR target of seven) in LLP schemes, and increased HYV paddy yields between 10% and 20%\. 8\.4 ImRact on Farm Production and Employment\. Crop output increased in three ways as a result of the project: (a) from the production of HYV paddy or wheat during the dry season using the new STW and DTW; (b) from the increase in the command area and yields of DTW and LLP where IMP was applied; and (c) from higher yields due to the purchase of inputs with the incremental ST credit\. The annual incremental production of paddy at full development is estimated by the mission at some 393,700 tons and that of wheat at some 73,300 tons\. Because of the change in the cropping pattern with irrigation, the production of oilseeds  11 and pulses is estimated to fall by a total of 11,700 tons each\. The incremental impact on farm employment is estimated at 23 M p/d (against an SAR estimate of 45 M p/d)\. Altogether, the incremental value of crop output at full development is estimated at Tk 2\.7 billion (some US$59\.0 million at the 1991 exchange rate), which is close to 50% of the SAR target7/\. The impact of RD-II on agricultural production is therefore important, though much less than expected in the SAR\. 8\.5 Economic Return\. The economic rate of return (ERR) for directly production-oriented activities has been re-estimated to be 47%, compared with an SAR estimate of 79%\. The revised ERR remains impressive, especially for a project with flaws in its design and considerable implementation difficulties\. The reason is that the technological package promoted by the project, consisting of small irrigation plus HYV for paddy and wheat, is highly profitable\. IMP is also extremely profitable since, with a modest expense on organization and training, the command area is expanded and yields are increased\. Also, the shortfalls on the targets for irrigation and ST crop credit were accompanied by a parallel reduction of project cost\. An improvement of 11% and 23% in the economic prices of paddy and wheat also contributes to this acceptable re- estimated ERR\. The RPP, though a successful component, contributes little to the ERR because its aggregate impact on output and income is small compared to that of irrigation\. 8\.6 Impact on Incomes\. The new STW are estimated to increase net annual farm income of beneficiary groups by Tk 36,700 i\.e\. Tk 6,100 per ha\. This is 22% more than anticipated in the SAR, the reason being the improvement in prices\. The increase of farm incomes in irrigation schemes due to IMP has been estimated at Tk 84,000 for DTW and Tk 57,000 for LLP\. These figures are, respectively, 62% and 72% of the corresponding SAR estimates8/, the shortfall being due to a smaller increase in command area than expected; yields increased more or less as expected\. 8\.7 It has been estimated that the annual off-farm income of the rural poor benefiting from RPP increased by 15%, or around Tk 1,500, only 45% of the SAR projection\. However, the number of beneficiaries was more than double the SAR estimate\. 8\.8 No analysis has been done of the impact of RD-II on income distribution\. RPP must have had a positive impact, but there are doubts concerning irrigation in view of the evidence that the better-off farmers are more involved in the purchase and management of irrigation equipment\. Since these farmers are also more involved in the management of the KSS, they got most of the benefit of training\. Project implementation paid little attention to the income distribution aspects of irrigation\. 7/ The estimate of the value of output is in 1990 prices\. For the comparison with the SAR estimate, the latter was recalculated in 1990 prices\. §J All comparisons have been made in 1990 prices\.  12 9\. Project Sustainability 9\.1 With few exceptions, the UCCA/KSSs of the two-tier cooperative system, which RD-II aimed to strengthen, are not self-sustainable, and the very poor loan repayment rates have rendered the project's credit system unsustainable\. The majority of the UCCAs cannot absorb into their own budgets the BRDB personnel financed by the project and seconded as Upazila Rural Development Officers (URDO), Assistant Rural Development Officers (ARDO), or accountants, or to maintain and replace project vehicles, equipment and facilities supplied to them by BRDB\. Nor can they continue on their own the training and other activities (such as IMP) financed by RD-II and carried out with BRDB support\. Finally, they are very heavily indebted to Sonali Bank and are not likely to be able to repay\. UCCAs survive today mostly on the spread between the interest rate they collect from SB (currently 13%) and the rate they pay to KSSs (currently 6%) for the shares and saving deposits that the latter have to make to receive loans (5% and 20% of the value of the loan for MT and ST credit, respectively)\. 9\.2 More positively, most of the KSSs benefitting from new irrigation equipment under the project are able to maintain and manage it without outside support\. On the other hand, in view of evidence that the command area in IMP irrigation schemes tends to decrease after the expansion in the initial years, the presumption is that IMP benefits are not fully sustainable\. 10\. IDA Performance 10\.1 With 13 supervision missions, including a mid-term review mission, and active involvement of the RMB, the project received sufficient attention from IDA\. Several evaluation studies of particular aspects were also carried out, which resulted in many recommendations\. 10\.2 Most of the problems faced during implementation were identified by the supervision missions and solutions were proposed, but not always carried out, or not with the required timeliness\. This was due to: (a) the managerial weakness of BRDB; (b) the absence of a separate RD-II management cell to implement or monitor the implementation of the recommendations; and (c) GOB reluctance to implement the recommendations, even if agreed with the supervision missions, particularly if these had political consequences, as in the case of the eviction from office of defaulting co-op leaders and the initiation of legal action against willful defaulters\. 10\.3 Various positive changes were made, however, at the insistence of the supervision missions, such as: the sharing of civil works responsibility between the LGEB and BRDB; the de-linking of the eligibility criteria for KSS from that for UCCA; and the surveying of 14 UCCAs to establish their financial viability, which led to some concrete action in three of them\. 10\.4 The main lessons to be learned from this project, which are equally relevant to IDA and GOB, are that: (a) implementing large, complex rural development projects involving many components and agencies is a very difficult process;  13 (b) collective loan responsibility, which rests on group pressure to ensure repayment, is unlikely to work outside a face-to-face society context, and can backfire, discouraging timely repayments of loans by those individuals or primary societies who are denied fresh loans and thus penalized because of failure of others to meet their loan repayment obligations; (c) in undertaking certain elements of rural development strategy, imposition of Government programs or expanding the cooperation network for the purpose of channelling production inputs and services is inconsistent with the spirit of cooperative autonomy; (d) strengthening of participatory management is a prerequisite for managerial autonomy of the cooperatives\. 11\. Borrower Performance 11\.1 On the whole, project management by GOB was weak\. BRDB lacked the strength and managerial capacity necessary to administer such a large and complex project, and other projects were coming up from other agencies which further taxed this capacity\. The cooperation of BADC and the Directorate of Agricultural Extension in the implementation of IMP and some UCCA-level training activities was not always adequate\. GOB showed little evidence of commitment towards the autonomy of UCCAs, and its late and lukewarm attempts to evict credit defaulters from cooperative office, in accordance with cooperative regulations, and to take legal action against willful defaulters, weakened the two-tier credit system supported by RD-II\. The political decisions to waive some of the dues on agricultural loans was also a big blow to the credibility and sustainability of the cooperative credit system\. All this, together with project reformulation (para 6\.5), led to the closing date being extended four times\. 11\.2 On the positive side, LGEB carried out its civil works assignment satisfactorily, and the management of the audit component by RCS was successful\. 12\. Proiect Relationships 12\.1 Notwithstanding pressure by IDA to improve project implementation, IDA's relationship with GOB and the implementing agencies was satisfactory throughout the project, with continuous dialogue between the implementing agencies, particularly BRDB and IDA\. The presence of the RMB in Dhaka was helpful in this respect\. 13\. Consulting Services 13\.1 Under the project's co-financing arrangements (see para 4\.1), technical assistance was provided in the fields of training (ODA), audit (ODA), RPP (CIDA), marketing (FAO/UNDP) and monitoring and evaluation (FAO/UNDP)\. Some of the specific studies carried out were: a bench-mark survey of the RD-II project area, three studies of the IMP experience, an evaluation of the ST credit component, three studies of the financial viability and performance of UCCA, an  14 evaluation of the impact of RPP, a review of the ODA component, and a mid-term evaluation review\. 13\.2 There was delay in recruiting the consultants but, once recruited, they performed competently and played an important role in organizing training, setting up the MIS, preparing new auditing procedures and organizing crop marketing\. The evaluation studies were useful to quantify and assess implementation weaknesses or impact deficiencies and propose solutions, more than to identify shortcomings\. They also served to bring to the attention of COB in a documented and well argued manner some of the issues arising during implementation such as, for instance, lack of UCCA autonomy and low credit recovery\. 14\. Proiect Documentation and Data 14\.1 The SAR and legal agreements provided a satisfactory framework for the implementation of the project by GOB\. The covenants in the Development Credit Agreement (DCA) and Project Agreement (PA) were generally observed, although with some delays\. Main exceptions were the commitment to carry out an analysis of all UCCAs in operation for more than six years, and the obligation to cause UCCAs with a volume of credit of more than Tk 2 million to bear a proportion of the cost of BRDB seconded staff\. 14\.2 In spite of the fact that project implementation records were maintained by BRDB, not all data relevant to the preparation of the Project Completion Report were readily available\. This was partly because of the lack of a separate RD-II monitoring and evaluation cell, which prevented the keeping of detailed records, and partly because the mission visited the country nine months after project completion\. There was some discrepancy among different sources of data, particularly between the credit records of BRDB and SB\.  - 15 - PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Cr\. 1384-BD) PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE (Borrower did not submit Part II\.)   - 17 - PROJECT COMPLETION REPORT BANGLADESH RURAL DEVELOPMENT II PROJECT (Credit 1384-BD) PART III - STATISTICAL INFORMATION 1\. Related IDA Credits Title and Credit Number Purpose Approval Status 1\. N\.W\. Tubewells Irrigation 1972 completed Cr\. 341-BD 2\. Agricultural & Rural Training Training 1976 completed Cr\. 621-BD 3\. Rural Development I Rural Development 1976 completed Cr\. 631-BD 4\. Shallow Tubewell Irrigation 1977 completed Cr\. 724-BD 5\. Agricultural Research Research 1978 completed Cr\. 828-BD 6\. Low-lift Pumps Irrigation 1980 completed Cr\. 990-BD 7\. 2nd Deep Tubewell Irrigation 1982 completed Cr\. 1287-BD 8\. Agricultural Credit No\.1 Agricultural Credit 1981 completed Cr\. 1147-BD 9\. National Minor Irrigation Irrigation 1991 on-going Cr\. 2246-BD 10\. Shallow Tubewell & Low Lift Pump Irrigation 1991 on-going Irrigation Project Cr\. 2253-BD  - 18 - 2\. Project Timetable Item Planned Date Revised Date Actual Date Identification - - - Preparation - - 04/81 Appraisal - - 10/82 Negotiation - - 05/82 Board Approval - - 06/14/83 Signature - 09/16/83 Effectiveness 12/15/83 03/16/84 03/16/84 Closing 06/30/88 12/30/88 06/30/89 06/30/90 06/30/91 06/30/91 Completion 12/31/87 06/30/88 12/30/89 12/30/90 10/31/91 3\. Credit Disbursements (US$ Million) FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 Appraisal Estimate 9\.0 45\.0 68\.0 88\.0 100\.0 Actual 3\.59 11\.09 17\.20 20\.05 25\.02 31\.0 41\.02 65\.04 69\.15 Actual as % of Estimate 39\.9 24\.6 25\.3 22\.8 25\.0 31\.0 41\.0 65\.0 69\.0 Date of Final Disbursement November 14, 1991  - 19 - 4\. Project Implementation A\. Incremental Credit (Tk M) \. Short-Term Credit \. \. Medium-Term Cedit \. ALocation \. Disbursement / Recove \. \. Allocatin \. \. \. Disbursement 1/ Rec Rate SAR Rate 27 M(*) Amount (%) SAR Revised Amount (%) rp 1984/85 160 499 312 64 137 38 28 1985/86 426 416 98 46 137 80 58 65 1986/87 882 350 40 66 137 30 22 8 1987/88 1,526 464 30 63 137 33 24 2 1988/89 1,526 326 21 79 100 13 13 28 1989/90 1,526 261 17 13 94 1 1 8 1990/91 1,526 193 13 10 54 10 18 4 Todal/Average 7,572 2,509 33 37 548 248 205 26 10 t Source: Sonali Bank 2/ Percentage of recovery against demand\. Source: Sonali Bank\. B\. Minor Irrigation Saes of Equipment Unit SAR Target Revised (PP) Target S6 Actual V\. SIW No\. 30,000 13,782 46 11,021 80 LLP No\. 3,000 0 - 0 - DTW No\. 2,900 - - 2,400 75 1/ Source: BRDB/BADC C\. Rural Poor Program (RPP) Unit SAR Target Actual 1/% Society Formation 2/ - BSS formed No\. 2,500 3,028 121 - MBSS formed No\. 400 1,703 426 RPP Credit 2/ - No\. of Loans No\. 54,500 113,000 207 - Disbursement Tk million 177 187\.6 106 - Repayment Rate % 71 l/ Up to July 1988 when RPP became a separate project\. 2/ SoUrce: CIDA's Canadian Resource Team\.  - 20 - D\. Thana (Upazila) Civil Works \. \. Unit Cost (II000) Type of Building Unit SAR Target Rcvised (PP) Targ- % Actual1l % 2/ Act1al l/ UCCA Offices No\. 100 120 120 120 100 789 NA Twin Quarters No\. 200 200 100 200 100 973 890 UTDC Extension No\. 20 23 115 22 96 1,719 1,670 UTDCs New No\. - 27 - 27 100 - 3,534 1/ Source: Local Government Engineering Bureau\. 2/ Includes physical and price contingencies\. E\. Cooperative/lnstitutional Training Type of Trainee \. Number of People Trained \. SAR Revised (PP) % Actual V, % Target Target Ofilcers - DD/PD/DPD 156 156 100 72 46 - URDO 89 89 100 89 100 - ARDO 389 389 100 294 76 - Accountant 189 189 100 127 67 - UCCA Dir\. 1,200 1,200 100 500 42 KSS Leadership - Manager 68,050 48,860 72 48,773 100 - "Model Farmer" 93,165 48,860 52 48,649 100 - Chairman 93,165 48,860 52 48,062 98 / Source: BRDB\. F\. Private Mechanics Program SAR Target Revised (PP) Target 1/ % Actual 2/ % No\. of Mechanics Trained 2,300 1,100 48 915 83 1/ Revised target reflects a reduction from 13 to 6 districts\. 2/ Source: CIDA's Canadian Resource Team\.  - 21 - G\. Strengthening of BRDB Recruitment of Officials SAR Target Revised (PP) Target % Actual V % DPO 11 13 118 13 100 ARDO (RPP) 89 89 100 89 100 ARDO (IMP) 301 301 100 301 100 URDO 89 89 100 89 100 Accountants 89 89 100 89 100 / Source: BRDB\. H\. Expansion of Irrigation Management Program (IMP) Type of Scheme Unit SAR Target Revised (PP) % Actual % Targ\. Application of IMP 1/ - DTW Schemes No\. 4,400 4,636 105 4,199 90 - LLP Schemes No\. 1,100 2,336 212 2,886 123 - STW Schemes No\. - - - 621 - Increase in Command Area 2/ - DTW Schemes Acres 20 (40%) NA\. 10 (21%) 50 - LLP Schemes Acres 10 (25%) NA\. 6 (17%) 60 1/ Source: BRDB\. 2/ Source: Final Evaluation Report of IMP (September 1988); 1 acre = 0\.405 ha\. I\. Technical Assistance (Consultancies) Revised Technical Unit Donor SAR Target (PP) Target % Actual 1/ % Assistance Fields Marketing p/m FAO/UNDP 36 24 67 24 100 Training p/m ODA 48 572 1,192 514 90 RPP p/m CIDA 60 60 100 60 100 Accounts & Audit p/m ODA 24 56 233 50 89 M & E p/m FAO/UNDP 72 190 264 182 96 1/ Source: RCS for Accounts and Audit and BRDB for the rest\.  - 22 - J\. Marketing Program Unit SAR Target Revised % Actual % (PP) Target Construction of Infrastructure Produce Godowns No\. 10 NA\. 0 Fertilizer Godowns No\. 15 NA\. 0 Marketing Credit 1/ Tk M 0 NA\. 17 Training of Officials 2/ Crop Marketing Persons NA\. 700 648 93 Fertilizer Marketing Persons NA\. 438 338 77 Training of KSS Leaders 2/ Crop Marketing Persons NA\. 64,700 60,741 94 Fertilizer Marketing Persons NA\. 1,057 920 87 1/ Source: Sonali Bank\. 2/ Source: BRDB\. K\. Strengthening of Audit Unit SAR Target Actual % Staff Appointment Registrar Officers Persons 59 59 100 Inspectors Persons 362 362 100 Support Staff Persons 90 105 117 Audit Reports UCCAs No\. NA\. 1,224 KSSs No\. NA\. 107,200 / Source: Registrar of Cooperative Societies\.  - 23 - L\. Promotion of Cooperatives Type of Society 1984 1985 1986 1987 1988 1989 1990 1991 Number of Eligible UCCAs 1/ SAR Target 301 301 301 301 301 301 301 301 Actual 196 193 203 208 239 230 271 268 % 65 64 67 69 79 76 90 89 Number of Eligible KSSs 1/ SAR Target 18,465 21,680 24,900 28,120 28,120 28,120 28,120 28,120 Actual 3,394 2,748 1,571 701 920 1,388 933 391 % 18 13 6 2 3 5 3 1 Number of Eligible BSSs 1/ SAR Target 300 400 1,025 1,830 2,500 2,500 2,500 2,500 Actual 2,781 2,098 785 316 313 287 658 788 % 927 524 76 17 13 11 26 32 / Source: BRDB\. Eligible societies are those in categories A and B according to a composite performance index which takes into account loan repayment, financial standing, accounting, statutory meetings, training activities and member coverage\. Only eligible societies qualify for project inputs\.  - 24 - 5\. Proiect Costs and Financing A\. Project Costs (US$ Million) SAR Estimate Actual Minor Irrigation Program 23220 38468 61688 15745 24627 40372 Rural Poor Program 13900 2300 16200 8935 1370 10305 Incremental ST Credit 35826 30512 66338 7988 3742 11730 Marketing 391 87 478 221 49 270 Civil Works 9130 4251 13381 9199 4531 13730 Strengthening BRDB and Audit Capabilities 6043 1512 7555 11711 2746 14457 Training 8043 826 8869 1116 13 1129 TA 87 2348 2435 55 1765 1820 TA 9640 8030 176994 54970 38 9381 B\. Project Financing Planned Final Source US$ Million Percent US$ Milo Percent IDA 100\.00 56 69\.15 74 CIDA 17\.19 10 10\.27 11 ODA 10\.48 6 5\.14 5 UNDP 1\.61 1 1\.26 1 GOB 29\.60 17 5\.68 6 Sonali Bank 12\.06 7 131 2 Beneficiary 5\.99 3 1\.00 1 TOTAL 1-76 931110  - 25 - 6\. Project Results A\. Direct Benefits Unit SAR Estimate PCR Estimate % 1\. Expansion of Irrigated Area at Full Development - From New STWs ha 206,550 66,980 1 32 - From Application of IMP ha 99,000 24,617 2/ 25 - from New DTWs 4/ ha - 14,684 2\. Expansion of Crop Output at Full Development - Paddy ton 788,648 393,717 3/ 50 - Wheat ton 169,844 73,333 3/ 43 - Oilseeds ton -27,076 -11,691 3/ 43 - Pulses ton -27,076 -11,691 3/ 43 3\. Incremental Value of Output at Full Development in 1990 Prices Tk M 4,574 2,260 49 4\. Generation of Additional On-Farm Employment p/d M 45 23 51 1/ Command area per STW of 12 acres rather than 15 acres estimated at SAR, and 13,782 STWs sold rather than 30,000 estimated at SAR\. 2/ Increase in command area of 10 acres per DTW rather than 20 acres estimated at SAR and 6 acres per LLP rather than 10 acres estimated at SAR; increase of 3 acres per STW (not considered in SAR)\. 3/ Assuming the same crop pattern, yields and cropping intensity as in SAR models\. 4/ Originally not considered in the project\.  - 26 - B\. Economic Impact SAR Estimate PCR Estimate ERR 79% 47 1/ Assumptions: 1\. Evaluation in 1990 constant prices\. 2\. Project life = 21 years\. 3\. SCF = 0\.8 4\. Economic value of hired unskilled labor = Tk 20/day\. 5\. Economic value of family labor = Tk 15/day\. 6\. Economic price of paddy = Tk 6\.04/kg\. 7\. Economic price of wheat = Tk 7\.94/kg\. 8\. Crop parameters and cropping pattern as in the SAR of RD-II\. 9\. 1990 prices of inputs and outputs as in the SAR of the "STW and LLP Irrigation Project"\. 10\. Annual costs adjusted to 1990 prices using the MUV Index for FE costs and the Dhaka Cost of Living Index for domestic costs\. 11\. Expansion of irrigation command area and increase in yields in schemes where IMP was applied obtained from IMP impact evaluation studies\. 12\. Income increase of the rural poor from the application of RPP obtained from the socioeconomic evaluation of RPP impact\. It was assumed that: (1) 70% of the loanees have started successful off-farm activities which will last for the whole project's life; (2) 20% of these received credit twice; and (3) the imputed value of self-employed labor is 50% of income\. l/ See supporting Tables 1 to 10 in Annex 1\. C\. Financial Impact (Tk) SAR Estimate PCR Estimate % 1\. Increase of Net Farm 30,082 1/ 36,700 122 Income per Irrigation Scheme in STW Schemes at Full Development in 1990 Prices after Financing 2\. Increase of Net Farm 137,400 84,000 62 Income per Scheme due to IMP in DTW Schemes in 1990 Prices after Financing 3\. Increase of Net Farm 78,800 57,000 72 Income per Scheme due to IMP in LLP Schemes in 1990 Prices after Financing 4\. Average Income Increase 3,310 V, 1,500 45 of RPP Beneficiaries in 1987 Prices 2/ 1/ Price actualization to stated date using the rural consumer price index\. 2/ Weighted average of the various activities\. PCR estimate based on 1987 evaluation study of socio- economic impact of RPP\.  - 27 - D\. Studies Study Status Comment Expansion and Impact of IMP Completed Two interim and one final evaluation studies completed in 1987 and 1988\. Impact of RPP Completed A study of socio-economic impact completed in 1987\. Evaluation of Credit Program Completed Evaluation study of ST credit conducted in 1988\. No study of MT credit\. Fmancial viability and Completed Evaluation study of UCCAs performance of done in 1987\. UCCAs/KSSs/BSSs No study of KSS\. Study done in 1988 on the accounting practices of UCCAs and primary societies\. Study done in 1988 to derive recommendations for assisting selected UCCAs to achieve autonomy\.  - 28 - 7\. Status of Covenants Description of Covenant Sector Applicable Status Remarks Open a special account in BB to DA 2\.02 (b) Complied deposit credit fund and make payment as per provisions of Schedule 5 of the agreement\. GOB to enter into Subsidiary Loan DCA 3\.03 (a) Complied Agreement with BB\. BB to enter into Participation DCA 3\.03 (c) Complied Agreement with SB for on-lending to TCCA/KSS/BSS/MSS\. Borrower will make available DCA 3\.04 (a) Complied foreign exchange to private dealers for importation of engines for minor irrigation equipment\. Establish & Maintain a District DCA 3\.05 Complied But delayed\. Coordination Committee in each Project District by September 30, 1983\. Make adequate provision for the DCA 3\.06 (a) Complied insurance of the imported goods to be financed out of the Credit\. Goods and Service financed out of DCA 3\.06 (b) Complied Sane prtbns wth the Credit to be used exclusively Upazila residential for the Project\. quarters\. Land of TTDC to be made available DCA 3\.08 Complied to BRDB to carry out Part C of the Project\. Review and if necessary adjust the DCA 3\.09 Complied interest rate level to make it consistent with Joint Agricultural Credit Review and meanwhile positive in real terms to ultimate borrowers\. Prepare and furnish a Banking Plan DCA 3\.10 Complied to implement Part A of the Project\. Maintain and operate the Project DCA 3\.11 Complied Changed in revised Engineering and Construction Unit DCA\. LGEB within Borrower's PWD created under responsible for Cr\. 787-BD\. Upazila facilities and BRDB for the TIU, U)CA dlis and RDTI\.  - 29 - 7\. Status of Covenants (cont\.) Description of Covenant Sector Applicable Status Remarks Issue promptly import licenses to DCA 3\.12 Complied the suppliers of minor irrigation equipment to be financed under the Credit\. Open separate accounts reflecting DCA 4\.01 (b) Complied all expenditures on account of which withdrawals can be requested from credit a/c on the basis of statement of expenditures\. Provide annual audit reports not DCA 4\.01 (c) Complied later than nine months after the end of each financial year\. Ensure that as from Dec\. 31, 1983 DCA 4\.02 Complied With old auditing system audit of all UCCA/KSS/BSS/MSS are carried out in accordance with revised manual\. Furnish quarterly progress reports of audit of UCCA/KSS/BSS/MSS\. Ensure that only those PA 2\.07 Complied UCCA/KSS/BSS/MSS meeting eligibility criteria participate in the Project\. Prepare and furnish by 9\.30\.83 PA 2\.08 (a) Complied Project implementation guidelines\. Prepare and furnish by 6\.30\.84 and PA 2\.09 (a) Not A survey was annually thereafter an analysis of Complied carried out of the financial performance of those 14 UCCAs after the UCCAs in project area operating for extension of the at least 6 years\. Project\. Cause UCCA with volume of Credit PA 2\.09 (b) Not Measures started to more than Tk 2 M to bear a proportion Complied be taken in 3 UCCAs of cost of BRDB seconded staff\. before the closing of the Project\.  30 - 8\. Use of IDA Resources A\. World Bank Staff InRuts Stagc of the Poject Month/Year Duat Numbero Speeiaatiom Perfommane 1pes of Pemoa Rpreted 1/ Ratin Statu prklmsV Appraisal and 10/1982 30? 9 E,F,CrAMt Supervision Missions 10/1983 31 2 PA/I (1) 03/1984 11 6 M,E,Cr (2) d,p,r 09/1984 20 7 FA,IrMtT,P,Cr (2) f,d,p,r,mt 03/1985 20? 7 " (2) H 09/1985 20 6 " (2) d,f,mt 04/1986 67? 6 (3) mtst 11/1986 20 8 T,M,Cr,lr,R (3) f,mt,im 06/1987 45? 7 " (2) f,p,mt 04/1988 20? 4 Mt,Cr,D,A (3) mt,im 11/1988 15 4 Mt,Cr,D,P (3) 09/1989 25 4 " (3) 07/1990 21 1 Mt (2) p,mt,t 02/1991 35 1 Mt (2) au,t,p,f,mt 1/ A-agronomy; Au-auditing; Cr\.-credit; D-disbursement; E-economist; F-financing; I-industry; Im-impact; Ir-irrigation; M-monitoring; Mt-management; P-procurement; R-reporting; St-staffing; T-training; 2/ au-auditing; d-disbursemcnt; f-financing; mt-management; p-procurement; r-reporting; st-staffing; t-training;  ANNEX 1 - 31 - Page 1 of 7 Table 1 Financial and Economic Prices (mid-1991) (Taka) Unit Financial Economic Outputs Tradditional Aman (paddy) Kg 5\.36 6\.04 HYV Aman (paddy) Kg 5\.36 6\.04 HYV Boro (paddy) Kg 5\.36 6\.04 HYV Wheat Kg 4\.82 7\.94 Oilseeds (mustard) Kg 12\.06 13\.08 Pulses Kg 5\.36 4\.45 Inputs Seed Traditional Aman Kg 7\.04 7\.55 Seed HYV Aman Kg 7\.04 7\.55 Seed HYV Boro Kg 7\.04 7\.55 Seed HYV Wheat Kg 6\.7 9\.93 Seed Oilseeds Kg 15\.08 16\.35 Seed Pulses Kg 6\.7 5\.36 Ferilizer Urea Kg 5 5\.25 Fertilizer TSP Kg 4\.75 10\.47 Fertilizer MP Kg 4 7\.6 Pesticides Kg/It 300 390 Draught Power pair/day 45 45 Hired Labour person/day 25 20 Family Labour person/day 15 Irrigation Costs Investment in STW Unit 35000 43750 Investment in DTW Unit 61000 76250 Irrigation 0 & M - STW l\.s\./year 16000 16000 Irrigation 0 & M - DTW l\.s\./year 13500 13500  Table 2 Crop Parameters (per ha) and Cropping Pattern Without Project With Project Unit Trad\. Aman Oilseeds Pulses HYV Aman HYV Boro HYV Wheat Yields New Irrigation Kg 1850 550 550 3200 3000 2300 IMP Application Kg 1850 550 550 3500 3600 2300 Input Use Seed Kg 50 20 20 40 40 100 Pesticides Kg/it 0\.6 0 0 4 4 2 Fertilizer- Urea Kg 80 0 0 180 180 90 Fertilizer - TSP Kg 15 0 0 62 62 50 Fertilizer - MP Kg 0 0 0 25 25 25 Draught Power pair/day 40 40 30 50 50 50 Family Labour person/da 100 62 74 160 160 74 Hired Labour person/da 50 25 0 85 75 50 Unirrigated Irrigated Cropping Pattern \. Cropping Intensity (%) \. Trad\. Aman 100 0 HYV Aman 0 100 HYV Boro 0 50 HYV Wheat 0 30 Oilseeds 20 0 Pulses 20 0  - 33 ANNNEX 1 Page 3 of 7 Table 3 Farm Model A: New Shallow Tubewell (6 ha) Project Year - Future With Project Without ---------------------- ------------- Area/investments Project 1 2 3 4 - 10 11 12 - 21 Crop Area (in ha) Traditional Aman 6\.0 6\.0 3\.0 1\.5 0\.0 0\.0 0\.0 HYV Aman 0\.0 0\.0 3\.0 4\.5 6\.0 6\.0 6\.0 HYV Boro 0\.0 0\.0 1\.5 2\.2 3\.0 3\.0 3\.0 HYV Wheat 0\.0 0\.0 0\.9 1\.4 1\.8 1\.8 1\.8 Oilseeds 1\.2 1\.2 0\.6 0\.3 0\.0 0\.0 0\.0 Pulses 1\.2 1\.2 0\.6 0\.3 0\.0 0\.0 0\.0 Total 8\.4 8\.4 9\.6 10\.2 10\.8 10\.8 10\.8 Cropping Intensity (5) 140\.0 140\.0 160\.0 170\.0 180\.0 180\.0 180\.0 Farm Investments (in TK) STW Investment Cost 0\.0 43750\.0 0\.0 0\.0 0\.0 43750\.0 0\.0 STW 0 & M 0\.0 0\.0 16000\.0 16000\.0 16000\.0 16000\.0 16000\.0 Table 4 Farm Model B: New Deep Tubewell (19\.5 ha) Project Year - Future With Project Without …----------- Area/Investments Project 1 2 3 4 - 10 11 12 - 21 Crop Area (in ha) Traditional Aman 19\.5 19\.5 9\.8 4\.9 0\.0 0\.0 0\.0 HYV Aman 0\.0 0\.0 9\.8 14\.6 19\.5 19\.5 19\.5 HYV Boro 0\.0 0\.0 4\.9 7\.3 9\.8 9\.8 9\.8 HYV Wheat 0\.0 0\.0 2\.9 4\.4 5\.9 5\.9 5\.9 Oilseeds 3\.9 3\.9 2\.0 1\.0 0\.0 0\.0 0\.0 Pulses 3\.9 3\.9 2\.0 2\.0 1\.0 0\.0 0\.0 Total 27\.3 27\.3 31\.2 33\.2 35\.1 35\.1 35\.1 Cropping Intensity (5) 140\.0 140\.0 160\.0 170\.0 180\.0 180\.0 180\.0 Farm Investments (in TK) STW Investment Cost 0\.0 76250\.0 0\.0 0\.0 0\.0 28750\.0 0\.0 STW 0 & M 0\.0 0\.0 13500\.0 13500\.0 13500\.0 13500\.0 13500\.0  ANNEX 1 - 34 - Page 4 of 7 Table 5 Farm Model C: Application of IMP to Deep Tubewell 1/ Project Year - With Project Without ------------------------- Area Project 1 2 - 21 Crop Area (in ha) Traditional Aman 4\.0 2\.0 0\.0 HYV Aman 19\.5 21\.5 23\.5 HYV Boro 9\.8 10\.8 11\.8 HYV Wheat 5\.8 6\.4 7\.0 Oilseeds 0\.8 0\.4 0\.0 Pulses 0\.8 0\.4 0\.0 Total 40\.7 41\.5 42\.3 Cropping Intensity (%) 173\.0 177\.0 180\.0 1/ Irrigation expands from 19\.5 to 23\.5 ha in two years without further farm investments\. Table 6 Farm Model D: Application of IMP to Low Lift Pump 1/ Project Year - With Project Without ------------------------- Area Project 1 2-21 Crop Area (in ha) Traditional Aman 2\.5 1\.2 0\.0 HYV Aman 14\.5 15\.8 17\.0 HYV Boro 7\.2 7\.8 8\.5 HYV Wheat 4\.4 4\.8 5\.1 Oilseeds 0\.5 0\.3 0\.0 Pulses 0\.5 0\.3 0\.0 Total 29\.6 30\.1 30\.6 Cropping Intensity (%) 174\.0 177\.0 180\.0 1/ Irrigation expands from 14\.5 to 17\.0 ha in two years without further farm investments\.  ANNEX 1 - 35 - Page 5 of 7 Table 7 Farm Model E: Application of IMP to Shallow Tubewell 1/ Project Year - With Project Without ------------------------- Project 1 2 - 21 Crop Area (in Ha) Traditional Aman 1\.0 0\.5 0\.0 HYV Aman 5\.0 5\.5 6\.0 HYV Boro 2\.5 2\.8 3\.0 HYV Wheat 1\.5 1\.7 1\.8 Oilseeds 0\.2 0\.1 0\.0 Pulses 0\.2 0\.1 0\.0 Total 10\.4 10\.6 10\.8 Cropping Intensity (%) 173\.0 177\.0 180\.0 1/ Irrigation expands from 5\.0 to 6\.0 ha in two years without further farm investments\.  ANNEX 1 - 36- Page 6 of 7 Table 8 Farm Build up Type of Farm PY 1 PY2 PY3 PY4 PY5 PY6 PY7 TOTAL Model A 3837 3399 767 1425 1096 269 228 11021 Model B 753 753 Model C 433 737 808 595 513 920 193 4199 Model D 341 419 696 485 391 327 221 2880 Model E 32 132 84 48 325 621 Table 9 Re-calculation of Economic Benefits of RPP Item PY 1 PY2 PY3 PY4+ Number of Loans (in 1000) 41\.0 63\.0 95\.0 118\.0 Number of Loanees (in 000) 1/ 32\.8 50\.4 76\.0 94\.4 No\. of Successful Enter- 24\.6 37\.8 57\.0 70\.8 prises (in 000) 21 Gross Income (in Tk M) 3/ 36\.9 56\.7 85\.5 106\.2 Gross Income Adjusted to 1990 Prices (in Tk M) 4/ 30\.7 49\.3 85\.5 114\.2 Net Income (in Tk M) 5/ 15\.4 24\.7 42\.8 57\.1 Economic Benefit (in Tk M) 6/ 12\.3 19\.7 34\.2 45\.7 1/ 80% of the number of loans; the other 20% are assumed to have received credit more than once\. 2/ 70% of the loanees\. 3/ Average annual income of Tk 1,500 (1987 prices) according to impact study\. 4/ Using the rural consumer price index\. 5/ 50% of the income is assumed as imputed cost of self-employed labour\. 6/ Net income e SCF of 0\.8\.  - 37 - ANNEX 1 Page 7 of 7 Table 1 0 Incremental Economic Costs and Benefits and Recalculation of the ERR (Taka million) Total Net Incremental Incremental Incremental Incremental Economic Farm Economic RPP Economic Economic Year Cost Benefits Benefits Benefits 1 482\.0 -231\.0 12\.2 -700\.8 2 236\.0 -67\.0 19\.7 -283\.3 3 268\.0 336\.0 34\.2 102\.2 4 167\.0 577\.0 45\.7 455\.7 5 133\.0 796\.0 45\.7 708\.7 6 79\.0 1006\.0 45\.7 972\.7 7 66\.0 1132\.0 45\.7 1111\.7 8 40\.0 1330\.0 45\.7 1335\.7 9 40\.0 1376\.0 45\.7 1381\.7 10 40\.0 1418\.0 45\.7 1423\.7 11 40\.0 1250\.0 45\.7 1255\.7 12 40\.0 1270\.0 45\.7 1275\.7 13 40\.0 1385\.0 45\.7 1390\.7 14 40\.0 1356\.0 45\.7 1361\.7 15 40\.0 1370\.0 45\.7 1375\.7 16 40\.0 1406\.0 45\.7 1411\.7 17 40\.0 1391\.0 45\.7 1396\.7 18 40\.0 1418\.0 45\.7 1423\.7 19 40\.0 1418\.0 45\.7 1423\.7 20 40\.0 1418\.0 45\.7 1423\.7 21 40\.0 1418\.0 45\.7 1423\.7 ERR 46\.6%   IBRD 17Q4 _ ~ \. J0 BANGLADH9- 92 MARCH 1983 , \. ~~~~~~~BANGLADESH lr \. t\. RURAL DEVELOPMENT 1I PROJECT PROJECT AREAS AND TRAINING FACILITIES ( r Gouhow, J RURAL DEVELOPMENT I AREAS TRAINING FACILITIES: ROADS 26\. ) hku goo FLOOOGRAIN U MARKETING AREAS ( B\.A R\.D - RAILWAYS 26- FAO FERTILIZER MARKETING AREAS R\.D\.A\. RIVERS ActRos,h-, I\. aL ?\t } ~ 1 \ \n ; \. \. 4 CHTP * T\.T\.U\. DISTRICT BOUNDARIES NWRP AREA IADB) R\.D\.T\.I\. INTERNATIONAL NAROF AREA II ~~~~~~~~~~BOUNDARIES \. @\ 0 / ffi ~~~~~~~~~SWRDP AREA DIFADI > t-\ t- E ~~~~~~~~~~NIRDP AREA IDANIDAI -254 C h ' R\. i 25'- S o S,1khor 3~ ~~~~~~~~~~~~~~~~~~~~~~~CE\.nV I 232 I BARISAL i J 24's puL ha24 tHae t \ \*\. )orene aneewenleorere} PAT UAKHALI z ) CHITTAGON N D I 23' he Ot,f1Var* 2- _-, CJ'pyao,a f h efnffl Dart U w*&p w O dP , ,dhe \. j SL~ ~ ~ ~ ~ ~ ~~~~~~~~~~U Nt KHALIses DI,k CA\. I N D I A > BANGLADESH\ o 25 50 75 MILES MA o 50 100 KILOMETERS SRI LANKA 9 90- 9 92-

APPROVAL

P081161

 ICRR 14110 Report Number : ICRR14110 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/03/2013 Country : China Project ID : P081161 Appraisal Actual Project Name : Chongqing Small US$M ): Project Costs (US$M): 264\.5 352\.06 Cities Infrastructure Improvement Project L/C Number : L4794 Loan/ US$M): Loan /Credit (US$M): 180 175\.09 Sector Board : Urban Development Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 06/21/2005 Closing Date : 06/30/2012 06/30/2012 Sector (s): Water supply (35%); Roads and highways (33%); Flood protection (21%); Sanitation (8%); Sub-national government administration (3%) Theme (s): Other urban development (29% - P); Urban services and housing for the poor (29% - P); Pollution management and environmental health (14% - S); Other human development (14% - S); Natural disaster management (14% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Fang Xu Roy Gilbert Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: Objectives as in the Project Appraisal Document (PAD, p\.2) were “to support emerging small cities to improve the efficiency and effectiveness of infrastructure service delivery, to accommodate the rapid urban growth " Objectives as in the Loan Agreement (Loan Number 4794-CHA, Schedule 2) were "to assist Chongqing in supporting sustainable growth in small cities by improving the efficiency and effectiveness of infrastructure service delivery in the citiesâ€? This review assesses the objectives formulated in the Loan Agreement \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: 1\. Water Supply (estimated cost US$98\.2 million, actual cost US$115\.54 million)\. Activities under this component were: i) Enhancement of water treatment and network expansion in three areas of Dianjiang; ii ) Songji regional water supply of raw water to Yongchuan city; iii ) Tongguanyi regional water supply scheme supplying 16 towns in water scarce areas in the planned western expansion areas; iv ) Enhancement of water treatment and network expansion in two areas of Tongnan; and v ) enhancement of water treatment and network expansion in three small towns located close to Yongchuan city\. 2\. Flood Protection (estimated cost US$57\.6 million, actual cost US$82\.29 million), Activities under this component included flood protection embankments to mitigate against serious flood damage in Nanchuan and Rongchang \. Extension of existing flood protection embankment on the south side of the river in Shizhu \. 3\. Road Improvement and Construction (estimated cost US$93\.2 million, actual cost US$133\.41 million), Activities under this component included i ) construction of a spine road in new development area in Qianjiang; ii ) construction of a 4\.6km long Shizhu expressway link road; iii ) construction of an 11 km long link road from Chongqing-Chendu expressway to the key secondary city of Tongba; and (iv) construction of a 14\.4km access road to tourist site in Yubei\. 4\. Environmental Sanitation (estimated cost US$11\.1 million, actual cost US$\.5 64 million)\. This component was to finance public toilet upgrading and reconstruction in Chongqing city \. 5\. Institutional Strengthening and Training (estimated cost US$ 4\.4 million, actual cost US$15\.18 million)\. This component was to fund technical assistance in six areas : (i) strengthening finances, management and operations of utility companies; improving management capacity of parent units of local governments managing these companies, and development of a policy and pricing mechanism for the two regional water supply schemes; (ii) Carry out an update of all available water resources, and formulate appropriate policies for water resources management, including investigations to establish the availability of ground water in the western areas of Chongqing; (iii) Support initiatives in private sector participation in urban in urban infrastructure services; (iv) Carry out a study on the policy for provision of public toilets in Chongqing city; (v) Carry out independent monitoring of safeguards implementation; and, (vi) Carry out training and study tours \. As reported by the ICR (p18), the project was restructured twice, on February 25, 2009 and June 07, 2010\. The first restructuring was to reallocate loan proceeds of US$ 1\.2 million from the unallocated category to finance the preparation of Chongqing Urban Rural Integration Project (CURIP, approved in FY10)\. The second restructuring was to relocate funds among various components due to the changing of the original project components during project implementation\. The major changes are listed below : 1\. Under component 1: • The Yongchuan Town Water Supply subcomponent was dropped for lack of counterpart funding; • Songji Regional Water Supply subcomponent was expanded to include a new distribution pipeline to meet the new and expanded demand; • Tongguanyi Regional Water Supply subcomponent used alternative route to accommodate the geological condition; and • Tongnan Water Supply added a new water treatment plant \. 2\. Under component 2: Detailed geological surveys and soil testing identified some serious engineering problems with foundation designs, though the scope and scale of the road component did not change, the investment cost increased by about US$23 million for the required additional engineering \. 3\. Under component 4: The number of public toilets to be financed was reduced from 235 to 153 because of objections raised to the locations of the toilets by local residents and associated persistent land acquisition and resettlement issues\. 4\. Under component 5: Two planned studies were dropped \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project cost : There was inconsistent information in the ICR on project cost \. The Project Appraisal Document Data Sheet estimated total project cost as US$ 280\.7 million, however, the Annex 4 and 5 of the same document estimated total project cost of US$264\.5 million\. Clarification was sought from the project team and the team confirmed that US$264\.5 million was correct\. The information on the actual cost at project completion was also inconsistent; Table (a) in the Annex 1 in ICR indicated a total actual cost of US$ 263\.28 million\. However, Table (b) in the Annex 1 indicated a total project financing of US$ 351\.16 million\. The updated actual project cost information provided by the TTL on April 15, 2013 indicated that actual project cost was US$ 352\.06 million\. The increase of project cost was mainly due to : i) Devaluation of the U\.S dollar over the implementation period \. The USD/RMB exchange rate was 8\.28 at project appraisal and fell to 6\.3 at project completion\. ii) Sharp cost increases in labor and raw construction material during project implementation\. iii) Substantial cost overruns as a result of various contract variations \. i\.e\., the actual costs for roads construction in Tongnan County and Yubei District increased by 89\.1 percent and 109\.1 percent, respectively\. Financing : At project completion, 97\.3% of the original Bank loan was disbursed and US$ 4\.92 million was cancelled\. Borrower Contribution : The Data Sheet in the PAD recorded the borrower's contribution as US$ 100\.7 million (out of total financing of US$280\.7 million)\. The updated project cost and financing data provided by the TTL indicated, however, a commitment of US$84\.5 million as the borrower contribution to total planned financing of US$ 264\.5 million\. According to the ICR, the actual borrower contribution by completion was US$ 176\.07 million, close to the ‘updated’ figure of US$176\.97 provided to IEG by the TTL\. These actual figures show that the borrower financed all of the increased costs of the project reported above \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Rated: Substantial \. The project objectives were relevant both at project preparation and project completion \. The project supported two themes under the Bank's Country Assistance Strategy (2003-2005) which were: i) facilitating an environmentally sustainable development process; and ii ) addressing the needs of the poorer and disadvantaged people and regions of the country\. The project was also in line with China's 10th Five-Year Plan (2001-2005) which called for improved infrastructure, balanced development of regions and increased sustainability (Chapter Three)\. At project completion, the project objectives remain relevant with Bank's Country Partnership Strategy (FY2013-16) and China's 12th Five Year Plan (2011-2015), which call for focusing on improving the quality of life and enhancing urban environmental services rather than just the pace of growth, and paying attention to balanced growth \. b\. Relevance of Design: Rated: Substantial \. As reported by the PAD (p1), the infrastructure deficiency issues in small cities in Chongqing were : (i) poor quality and intermittent supplies of drinking water; (ii) inadequate transportation networks; (iii) low resistance to flooding and other natural disasters; and (iv) unsatisfactory sanitation conditions \. These challenges had to be addressed in order to achieve the project development objectives of supporting emerging small cities to improve the efficiency and effectiveness of infrastructure service delivery \. The project activities and components were designed to do this across the above mentioned four infrastructure service areas as well as institutional strengthening and training activities to increase the management capacity and financial viability of the infrastructure service providers (companies and local governments )\. The results chain from project inputs, then to outputs and finally to intermediate outcomes and outcomes is clear and logical for this project \. Understanding how the project activities fit into this results chain is straightforward \. With the designed project activities, it was expected, for instance, that water treatment would be enhanced and water supply would be expanded, and consequently more people would have access to better quality of water \. With road network expansion and improvement, it was expected that travel time would be reduced; with flood protection embankments construction or expansion, for example, it was expected that the level of flood protection would be increased; with public toilets upgrading and reconstruction, it was expected that the sanitation conditions Chongqing city area would be improved \. Consequently, infrastructure service delivery would be more efficient and effective \. 4\. Achievement of Objectives (Efficacy): Outputs : At project completion, most project activities under the five components were completed as planned or exceeded the targets, except for three activities that were slightly short of target : i) 8\.2km of river embankment completed in Rongchang country under the Flood Protection Component compared with a target of 10\.2km; ii) 4\.57km of link road completed in Shizhu County under the Roads component compared with a target of 4\.6km; iii) 10\.4km of link road completed in Tongnan County under the Roads component compared with a target of 11km\. For the purpose of this review the project development objectives were disaggregated into four parts as listed below \. The rating of each part will be considered in turn as elements of an overall efficacy rating for the project development objectives\. 1\. Improving the efficiency and effectiveness of infrastructure service delivery (for water supply): The supply of raw and treated water to participating country towns has been improved at project completion, as evidenced by more people having access to more reliable water supply with better quality of water \. The ICR and the TTL reported that : i) The construction of a new Water Treatment Plant in Tongnan Country and a new Water Treatment Plant in Dianjiang County, together with another water supply program financed by the Government (confirmed by the TTL), are providing a safe and reliable 24/7 water supply service that meets all required national standards for an additional 100,000 people\. ii) Unaccountable water loss was reduced by 20% for Tongnan Water Supply at project completion, evidence of increased efficiency of water supply delivery \. iii) The Songji Regional Water Supply System with revised design and capacity provided raw water to Yongchuan Town for around 390,000 people and to the new Ganqiao Industrial park; The Tongguanyi Regional Water Supply System provided raw water in bulk to 14 new towns, benefiting an estimated 380,000 people (ICR p28)\. iv) The service satisfaction ratio of water supply users for Yongchuan Town under Songji Water Supply system increased from 75% at appraisal to 98% at project completion\. The achievement of this sub -objective is rated as Substantial \. 2\. Improving the efficiency and effectiveness of infrastructure service delivery (for flood protection): The flood protection work under the project contributed to a significant increase in the standard of flood protection of three urban areas: Nanchuan, Rongchang and Shizhu, from a level of about 1:5 years (probability of flooding occurrence 20%) at appraisal to 1:20 years (probability of flooding occurrence 5%) at completion\. Thanks to the project, about 220,000 people in flood prone areas are now protected from flooding and about 260 ha of additional developable land have been made available \. The achievement of this sub -objective is rated as Substantial \. 3\. Improving the efficiency and effectiveness of infrastructure service delivery (for transportation):The expansion of urban roads network and construction of three expressway linkages improved road conditions in the project area and laid a foundation for socio-economic development, as evidenced by the information in the ICR ( p29): i) The construction of 12\.8km of a new urban road linking two towns, Zhengyang and Zhangjiaba, has resulted in a decreasing of travel time between Zhengyang and the 319 expressway (a distance of 1\.3 km) from one hour (no direct road prior to the project walking over hilly area ) to 3-5 minutes; The traveling time on the Qianxian class 2 road (11\.5 km) improved by the project was shortened from 20 minutes to seven minutes\. ii) The construction of a 4\.6km link road between Nanbin Town and the Dianjiang -Lichuan Expressway at Sandian resulted in just a 10-minute drive, as compared to the one hour journey over a rough 15 km track before the project\. iii) The construction of a 10\.4 km link road to connect Tangba with the Chongqing -Suining-Chengdu Expressway provides vehicular access with a journey time of just 3-5 minutes, replacing a two hour walk\. iv)The project constructed a 10\.14 km access road to Tongjian from the Chongqing -Linshui Expressway at Caoping has resulted in a reduced travelling time from Caoping to Tonjing (10\.14 km) from 40 before the project to 10 minutes afterwards\. The achievement of this sub -objective is rated as Substantial \. 4\. Improving the efficiency and effectiveness of infrastructure service delivery (for public sanitation): ICR reported that 153 toilets were installed under the project which provided urban residents with easy access to toilets and improved sanitation environment in the city \. However, there is no detailed information about a more efficient or effective public sanitation service as a result of the project intervention \. The achievement of this objective is rated as Modest \. The overall achievement of the project development objectives is rated as Substantial \. 5\. Efficiency: At project appraisal, economic analysis was carried out for three components : water supply, roads, and flood protection and reported the following results : i) For the water supply component, the estimated economic internal rates of return for the four subcomponents were in the range of 12\.6%-19\.6%; ii) For the roads component, the estimated economic internal rates of return for the four subcomponents were in the range of 11\.9%-17\.7%\. iii) For the flood protection component, the estimated economic internal rates of return for the three subcomponents were ranged 11\.1%-12\.4%\. At project completion, the same methodology was applied for the three components, due to the higher actual costs and delays of two to three years in generating revenues (for water supply activities), four activities had economic internal rates of return below 10%\. The result of economic analysis at project completion for each component is as the follows: i) For the water supply component, the actual economic internal rates of return ranged 8\.1%-17\.7%; ii) For the roads component, the actual economic internal rates of return ranged 7\.1%-17\.9%; iii For the flood protection component, the actual economic internal rates of return ranged 7\.1%-22\.5%\. With the wider range of results reported at completion, several below the 10% benchmark that point to inefficiency, the overall efficiency of the project is rated as Modest \. Neither the PAD nor the ICR provided single figures for the overall ERRs that could be reported below \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % 89% ICR estimate % 94% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of the project development objectives is substantial and the relevance of design is substantial \. The project development objective was substantially achieved in three sub -sectors but only modestly achieved in the fourth\. The project efficiency is rated as modest \. Overall, the project outcome is Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The development outcome of the project is at risk from the following : i) The water supply companies are still relying on Government subsidies to cover the full costs of operations \. There is risk that the Government may not always provide the necessary operation and maintenance funds in a timely manner, which will in turn put the sustainability of water supply service at risk \. ii) Climate change poses another risk to the project development outcome, especially the flood protection standards applied in China and in this specific project are low (1:20 (probability of flooding occurrence 5%)) as compared to the standards in the developed countries (1:100 (probability of flooding occurrence 1%)\. The increased frequency and intensity of extreme weather will put urban areas at significant risk due to inadequate flood protection \. Climate change will also put roads infrastructure at risk and reduce development outcomes \. iii) The rapid urbanization and rising population and car ownership will result in rapid increase of traffic volume which will exceed the designed road capacity and cause faster deterioration of the infrastructure \. Given the above listed factors, the risk to development outcome is rated as significant \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: The project had identified issues with Chongqing urban infrastructure service and had designed activities to address those issues so as to improve the efficiency and effectiveness of infrastructure services delivery \. The activities were selected after careful analysis of alternative technical options and covered both physical investment and institutional improvement, the institutional improvement design was rated as highly satisfactory by the Quality Assessment Group of the Bank \. However, the following shortcomings were noted with the project preparation: i) International independent consultant support to local institutions for project design work was not always timely \. As a result, the detailed design for road works under the project lacked sufficiently detailed geological studies, leading to cost overruns of about US$ 23 million (26%) (ICR p19); ii) The risk that counterpart funding may not be provided by local governments was not identified and mitigation measures were not prepared, leading to the cancellation of Yongchuan Town Water Supply subcomponent because of lack of counterpart funding \. iii) Applying the National (Chinese) urban flood protection standards (1:20) to the project activities appeared to be the norm at project preparation stage, as confirmed by the TTL \. However, the project design could have been more forward looking by factoring in higher standards to anticipate the possible effects of climate change \. iv) The M&E framework, though with many indicators to measure and evaluate the project implementation status, lacked quantitative Key Project Indicators to monitor progress toward achieving the project objectives \. (For the detailed assessment of the M&E framework, please refer to Section 10\.) at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: As reported by the ICR (p35), the Bank supervision team was based in Beijing, China \. This allowed them to interact regularly with project executing agencies and to respond in a timely manner to the implementation issues\. However, at project completion in June 2012, some implementation issues which had been noted and raised during the project Mid-Term Review in early 2010 had still not been fully addressed, including : i) Compliance with covenants: At project completion, three covenants were rated as partially complied and one as non-complied, all relating to the financial viability of water supply companies \. The water tariff was not increased to cover management, operation and maintenance costs, as required by the legal covenants \. ii) The need to improve Key project indicators : The Quality Assessment of Lending Portfolio carried out by the Quality Assurance Group in late 2008 pointed out that KPIs were too vague and recommended refinement during implementation\. Following that, at Mid-Term Review, KPIs were revised, however, the project was still using "evidence of" indicators without clearly measurable quantitative targets, making it difficult to monitor the project progress and measure the achievement of the project development objectives \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance:  The Government in this case refers to the Chongqing Municipal Government \. The Government's commitment and support to the project were strong as evidenced by the following : i) Participating actively in project design \. The finalized project activities were the result of active interaction between the Bank's team and Chongqing Municipality (PAD p4)\. ii) Putting into place a strong project management framework to support project implementation \. The Government established a Project Leading Group to provide guidance and coordination of project implementation to the Chongqing Project Management Office and Project Implementation Units \. iii) Earmarking contingent counterpart funding to cover any shortfalls in initially committed counterpart funds, debt services repayments and operation and maintenance \. It was reported by the ICR (p37) that the Government provided additional counterpart funding to cover the significant 30% foreign exchange rate losses over the life of the project and cost overrun of project activities, and to subsidize the water companies for operation and maintenance because the revenue generated from increased water tariff is not sufficient \. Government Performance Rating Satisfactory b\. Implementing Agency Performance: The implementing agencies for this project were the Chongqing Project Management Office at the municipal level, and 12 Project Implementation Units at the county level \. The Chongqing Project Management Office was experienced with World Bank procedures as it has managed five previous Bank funded projects \. The Project Implementation Units lacked this experience with the Bank and needed time to build up their own capacity in this area, which in turn contributed to the following issues during the project implementation : i) Large variation of orders to some civil works contracts some of which were disallowed by the Bank due to PIU's unfamiliarity with Bank's procurement rules and the rules and regulations of the International Federation of Consulting Engineers\. ii) Delays in large contract execution because of lack of coordination between the resettlement action plan and civil works management\. iii) At project closing, there was an unfinished resettlement action in Qianjiang County (ICR p38)\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The M&E framework for this project included indicators for project outputs, intermediate outcomes and outcomes \. However, some of the indicators were not defined precisely and lacked quantified targets \. In addition, the outcome and intermediate outcome indicators did not sufficiently cover all aspects of the stated project development objectives of achieving efficiency and effectiveness of infrastructure service delivery, making it difficult to use the M&E framework to fully monitor and measure the achievement of the project development objectives \. b\. M&E Implementation: As reported by the ICR (p23), a computerized M&E system was established early during project implementation to provide timely monitoring of the project status \. Additional indicators were added during Mid -Term Review to provide more comprehensive and quantitative information on project implementation progress \. Throughout project implementation process, the M&E data were collected and reported in a timely manner \. c\. M&E Utilization: Monthly and annual reports and plans were prepared using the information generated by the M&E framework \. Those reports and plans helped improve the project implementation and addressed implementation issues in a timely manner\. As recorded in the ICR, the Quality Assurance Lending Portfolio Review commented that implementation issues were successfully addressed when they arose \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: Environmental : This being a Category A project, the safeguard policy triggered was OP /BP4\.01 and OP/BP4\.37(Safety of Dams)\. At the project preparation stage, Environmental Impacts Assessments were prepared for each individual subcomponent and approved by the Chongqing Environmental Protection Bureau \. An Environmental Management Plan was also developed (PAD p13)\. The Dam safety policy was triggered because there were five dams (funded from other sources) related to the project investments \. As reported by the ICR (pp23 and 25), at project completion, the management of the environmental safeguard issues was satisfactory and fully compliant with the Bank's safeguards policy \. The external monitoring results showed that the Environmental Management Plan was well implemented at most construction sites and that construction activities had no significant negative impacts upon the environment \. For dam safety issues, the Chongqing Project Management Office recruited an independent Dam Safety Expert and provided Dam Safety Reports for the related dams\. The implementation of the dam safety policy was fully in line with Bank requirements as set out in OP 4\.37\. In 2008, following the devastating earthquake in neighboring Sichuan Province, a special assessment of these dams was carried out to identify possible problems, but none were found and no compliance issues were reported \. Social : As the project involved land acquisition and demolition of structures, the Bank's policy on Involuntary Resettlement was triggered (OP/BP4\.12)\. Resettlement action plans (RAPs) were prepared and it was estimated that about 13,700 people would be affected by the land acquisition and house demolition and 270 ha lands would be acquired for project purposes \. During project implementation, the Chongqing Technology and Business University (CTBU) was appointed as external independent monitoring agent for social safeguards implementation \. As reported by the ICR (p24), issues noted by the monitoring agent included : i) inadequate internal monitoring mechanisms of the resettlement activities of Project Implementation Units; ii ) delayed land compensation and lower housing compensation rates relative to those agreed in the RAP, particularly for the Tongnan road construction activities \. The compensation issues in Tongnan were later corrected \. ICR (Annex 7) reported that 11,663 of people were actually affected, 275\.78 ha lands were permanently acquired and 108,770\.36 m2 of houses were demolished\. ICR (p24) also reported that at project closing a resettlement action involving 48 households (roughly 200 people) in Qianjiang County remained unfinished \. As confirmed by the TTL, this resettlement activity as of today is still not resolved\. b\. Fiduciary Compliance: Financial Management : Project financial management was in accordance with the Bank ’s financial management (FM) policies (OP 10\.02) and disbursement policies (OP 12\.00)\. All FMRs and audit reports were reviewed and minor discrepancies were corrected \. The ICR (p25) reported that the project was subject to two formal FM assessments during the implementation, one as part of the MTR in March 2010 and the other in April 2011\. Both assessments rated project FM as satisfactory, but both also noted that the timeliness of the provision of counterpart funding was only moderately satisfactory \. With respect to the disbursement, records and accounts were well maintained and no ineligible expenditures were reported \. Procurement Management : All procurement related arrangements were in place by project appraisal, Possible risks were identified and appropriate mitigation mechanisms were put in place to prevent possible problems during the implementation\. However, due to the implementation agencies' unfamiliarity with Bank's procurement rules and the rules of the International Federation of Consulting Engineers, a number of civil works contracts encountered large variation of orders and some of claims were disallowed by the Bank \. c\. Unintended Impacts (positive or negative): The unintended positive impact reported by the ICR (p33) was that the flood protection system built under the project also provided high quality of public open space for the local people and promoted real estate development in the city \. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately The economic rates of return of some Satisfactory project activities were lower at project completion, some of project activities ’  economic rates of return were below the threshold\. Risk to Development Moderate Significant The project is faced with financial risk Outcome : (insufficient funds for maintenance ), and climate change risk due to the standards of flood protection applied in this project\. Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately There were still some pending issues to Satisfactory be addressed at project completion,e\.g\., resettlement activity in Qianjiang county\. At project implementation, the management of project procurement activities was not fully satisfactory\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR generated five lessons from the project, as follows : i) Involvement of existing agencies in project implementation will promote project ownership and sustainability \. This project utilized existing agencies within the government bureaucracies to implement the project \. Some implementation agencies also had the ultimate responsibility for the management, operation and maintenance of the project-financed facilities\. ii) For mature clients like China, one of the Bank ’s comparative advantages is delivery of international best practice thorough well designed and executed international consultant services \. The high quality and timely training and capacity building supported by both the World Bank and the international consultant team was important for successful project implementation \. The other three lessons generated by ICR were for management's attention and action : iii) Following up the compliance of dated covenants is part of Bank supervision responsibilities and needs management attention\. This was also identified by the Quality Assurance Lending Portfolio Review as an important systemic lesson\. iv) Lacking funding for good-quality project preparation is a prevailing problem in China \. The ICR suggested that Bank senior management have a discussion with China National Development and Reform Committee to find a solution to the problem\. v) Chinese national flood protection standards are inadequate when compared to international standards and these low standards present a real risk to development \. The Bank should begin a dialogue with Government of China and review the national standards through analytical and economic work \. 14\. Assessment Recommended? Yes No Why? i) unfinished resettlement activity in Qianjiang County; ii ) the sustainability of flood protection activity given the low flood protection standards applied (1:20 as compared to 1:100 international standard)\. iii) to provide information for incoming IEG evaluation of Urban Poverty \. 15\. Comments on Quality of ICR: This ICR provided evidence on the achievement of the project development objectives \. It was open and candid about what was achieved and what had not worked well, as well as raising some more general issues \. Unusually for an ICR, this ICR comments on and criticizes the inconsistencies of the PDO formulations for this project in different project documents (ICR p\. 20)\. However, there are also some shortcomings with the report \. It is unnecessarily lengthy and presents some information inconsistently \. For example, the ICR data sheet reported that the project was restructured twice, while the main text (p21) informs that it was restructured three times; the information provided on project costs in Tables (a) and (b) in Annex 1 is not the same\. These issues were raised during IEG ’s meeting with the TTL, and were followed up by with updated project cost and financing information provided by the TTL \. a\.Quality of ICR Rating : Satisfactory

APPROVAL

P170478

 The World Bank Supporting investments in education for human capital development in Peru (P170478) Project Information Document (PID) Concept Stage | Date Prepared/Updated: 05-May-2021 | Report No: PIDISDSC32037 May 5, 2021 Page 1 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) BASIC INFORMATION A\. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Peru P170478 Supporting investments in education for human capital development in Peru (P170478) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND Jan 11, 2022 Mar 31, 2022 Education CARIBBEAN Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Ministerio de Economía y Ministerio de Educación del Finanzas del Perú Perú Proposed Development Objective(s) The Project Development Objective (PDO) is to improve the use of technology as part of the learning process of students from vulnerable contexts PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 100\.00 Total Financing 100\.00 of which IBRD/IDA 100\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 100\.00 Environmental and Social Risk Classification Concept Review Decision Moderate Track II-The review did authorize the preparation to continue May 5, 2021 Page 2 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) Other Decision (as needed) B\. Introduction and Context Country Context 1\. Despite its economic growth in the last decade, Peru is experiencing important inequality gaps throughout its territory that hinders its human capital development\. Peru has been one of the highest-performing economies in Latin America and the Caribbean (LAC), mostly due to its prudent macroeconomic policies and a favorable external environment\. Peru’s rapid economic growth, coupled with well-targeted social policies, boosted income growth among the bottom 40 percent of the population at rates much higher than average growth\. As a result, poverty rates halved from 42\.4 to 20\.2 percent from 2007 to 2019, with rural areas experimenting more poverty gains between 2017 and 2018 compared to urban areas\. Yet progress in poverty reduction has been uneven\. In 2019 poverty was around 30 percentage points higher in rural areas than in urban ones, and inequalities in the provision of public services, including spatial inequalities and those across genders and ethnic groups add to this structural challenge\. 2\. The economic and health crisis caused by COVID-19 pandemic has increased poverty and inequality rates to pre-2012 levels,1 and threatens to further exacerbate existing disparities\. On the economic side, a strict generalized quarantine led to a GDP decline of 17\.4 percent in the first half of 2020, while unemployment and informality increased significantly, and wages and working conditions deteriorated; Peruvian households experienced one of the largest employment and income losses in LAC\.2 The massive school closure related to the COVID-19 pandemic, that affected around 10 million students in all education sub-sectors, from basic to tertiary education -which together represent almost a third of the country's population, could have dramatic negative effects for the current generation, with a potential loss of 67 billion dollars in lost revenue for the Peruvian economy\.3 Sectoral and Institutional Context 3\. In alignment with national strategic objectives, the Ministry of Education (MINEDU) has rolled out substantial efforts in the past decade on different fronts: (i) learning, (ii) teaching and school management and (iii) system monitoring and innovation\. (i) In 2007, MINEDU launched a national census-based assessment (ECE) for second graders, and subsequently scaled up to cover other key grades and subject areas\. (ii) With the Teacher Reform Law (LRM), MINEDU introduced a meritocratic system for teachers and school managers that include standard and merit-based selection processes, training programs, performance evaluations and salary increments based on the teacher progression\. (iii) In 2014 MINEDU implemented an innovation laboratory to support cost-effective education policies, MineduLAB, that promotes the generation of timely and rigorous evidence to guide policy decisions; the first public institution in LAC to institutionalize the use of evidence for the development of its sector\. Finally, in 2015 MINEDU rolled out a national monitoring system (Semaforo Escuela) that collects monthly in-situ data on student and school staff attendance and other relevant school operation indicators and informs decentralized education instances at the province and regional levels\. 1 UNICEF (2020)\. COVID-19: Impacto en la pobreza y desigualdad en niñas, niños y adolescentes en el Peru\. Estimaciones 2021\. Policy brief\. https://uni\.cf/3t4pNJv 2 According with the COVID-19 High Frequency Monitoring Dashboard, 81\.4% of the respondents in Peru experienced a decrease in the total income and 59\.3% stopped working after the COVID-19 outbreak, the highest rates among the LAC region\. Data available at: https://bit\.ly/3v1gpbb 3 Present value of lifetime earnings for all students\. Own calculations on simulation of COVID-19 impacts on learning and schooling outcomes\. May 5, 2021 Page 3 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) These reforms led to improvements in enrollment and learning outcomes, but there are still large differences associated to socioeconomic status and location, that will likely be exacerbated by the COVID-19 crisis\. 4\. Recognizing the importance of managing school continuity, MINEDU quickly designed and started implementing strategies to mitigate the consequences of school closure on attendance and learning\.4 One month after the school closure announcement, MINEDU deployed a multi-channel learning strategy, Aprendo en Casa (AeC) that makes content available through television, radio, web, and printed material\. According with the remote Semaforo Escuela (November 2020), most households access to AeC content through television broadcast, followed by the web, and finally the radio, but the access varies across households: 72 percent of the households in urban areas accessed to AeC content through web compared to 48 percent in rural areas\. To overcome this digital divide, the GoP determined the procurement of almost 1\.4 million tablets and 707,000 connectivity plans for students and teachers in rural areas and in the first and second poverty quintiles of urban areas through their Cierre de Brecha Digital strategy\. These recent efforts to deploy distance learning have been constrained by a few challenges, particularly affecting the most vulnerable students\. Qualitative and quantitative evidence collected during the implementation of AeC highlights that many factors have hindered the digital learning process\. There is an important connectivity gap between urban and rural schools (64% vs 8%),5 but even within urban areas students from low socioeconomic status have more limited access\. 5\. This proposed project will build upon lessons learned from previous investments in education technology, the first phase of delivery of tablets by MINEDU and the multi-canal strategy AeC to improve distance education\. Increased access to technology per se cannot improve learning\. Peru’s experience with One Laptop Per Child (OLPC)6 suggests that investing in hardware does not lead to improved learning outcomes\.7 Moreover, recent investments in improved internet connectivity also had no impact on learning\.8 In order to contribute to improve learning outcomes, education technology (EdTech) investments need to foster 1) technological readiness, 2) human readiness and 3) institutional readiness\. Relationship to CPF 6\. The proposed Project is fully consistent with the World Bank Group’s Country Partnership Framework (CPF) for Peru and the recently approved Performance and Learning Review (PLR) of the CPF, both covering the period FY17- FY21\. This operation is also fully consistent with the Bank’s strategy to eradicate extreme poverty and promote shared prosperity\. 4 Chauvin & Faiola (2020)\. Remote learning is deepening the divide between rich and poor\. The Washington Post\. https://wapo\.st/3rwp6YM 5 Information collected in primary schools by the World Bank’s Global Education Policy Dashboard in 2019\. 6 OLPC is a program that involved the procurement of nearly 1 million laptops for children in rural areas\. With issues in the distribution, maintenance and scarce training to teachers, families and students, an impact evaluation found no evidence that the program increased learning in Math or Language, while suggesting only some benefits on cognitive skills\. IDB (2020)\. Technology and Child Development: Evidence from the One Laptop per Child Program\. https://bit\.ly/2OwxQ2z 7 Diether W\. Beuermann & Julian Cristia & Santiago Cueto & Ofer Malamud & Yyannu Cruz-Aguayo, 2015\. "One Laptop per Child at Home: Short-Term Impacts from a Randomized Experiment in Peru," American Economic Journal: Applied Economics, American Economic Association, vol\. 7(2), pages 53-80, April\. 8 Malamud, Ofer & Cueto, Santiago & Cristia, Julian & Beuermann, Diether W\., 2019\. "Do children benefit from internet access? Experimental evidence from Peru," Journal of Development Economics, Elsevier, vol\. 138(C), pages 41-56\. May 5, 2021 Page 4 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) C\. Proposed Development Objective(s) 9\. The Project Development Objective (PDO) is to improve the use of technology as part of the learning process of students from vulnerable contexts\.9 Key Results (From PCN) 10\. The project is expected to measure achievement of the PDO through the following tentative indicators\. All indicators will be disaggregated by gender and vulnerability when possible: i\. Percentage of vulnerable students with regular access to relevant digital contents\.10 ii\. Percentage of eligible vulnerable students who use an adaptive learning platform or other educational applications\. iii\. Percentage of teachers with an adequate level of digital skills\.11 D\. Concept Description Project Beneficiaries 11\. Direct Project beneficiaries will include students in targeted schools, teachers, parents, school directors and local education authorities\. Beneficiary schools –and thus their local authorities and personnel– will be consistent with MINEDU’s targeting mechanism for tablet delivery, which includes a focus on rural areas and the first and second poverty quintiles of urban areas\. 12 The targeting criteria is supported by the Investing in Human Capital Development Policy Financing – DPF II (P176387)\. Additional beneficiaries include MINEDU’s staff and indirect beneficiaries include actors of the school community to which MINEDU intends to scale up lessons learned from this project (e\.g\. teachers and school principals for a nationwide digital skills program)\. Furthermore, a necessary condition for hardware to improve learning is the presence of minimal conditions, which differ in urban and rural schools\. In terms of hardware provided by this operation, students, and teachers from remote rural areas with electricity will benefit from tablets and improved connectivity, while students and teachers in urban areas will only receive tablets\. All students will have access to context- relevant contents\. Teachers, directors, parents, and local authorities from urban and rural areas will receive training and will be evaluated on digital skills\. MINEDU´s staff will benefit from studies on digital skills and from quantitative and qualitative evaluations\. 9 Vulnerable context is defined by the targeted students, teachers, and schools through Supreme Decree 006-2020-MINEDU and updated by Supreme Decree 016- 2020-MINEDU\. This includes students through grades 4 to 11 in rural areas and in the first and second poverty quintiles of urban areas\. 10 The periodicity in which the content will be updated will be determined through project preparation\. Furthermore, content update will consider the access of internet connectivity for the targeted schools for this IPF\. 11 MINEDU is currently working on the implementation of an instrument to monitor teacher digital skills\. This baseline measure will serve as a reference to revise the indicator for this operation and define skill levels\. 12 Targeting criteria is determined by Supreme Decree 006-2020-MINEDU and updated by Supreme Decree 016-2020-MINEDU\. This covers a total of 32,297 schools, 1,246,005 students and 129,917 teachers\. Student targeting criteria includes: (i) at the school level: primary and secondary public educational services from rural areas; in districts of quintiles 1 and 2 of poverty in urban areas; and rural educational services; and (ii) at the individual level: enrolled in 4th, 5th and 6th grade of primary or in any grade of secondary in the 2020 school year; that do not having siblings or relatives living in the same household who study at the same educational level and receive a tablet; in an educational service located in a populated center with 3G internet coverage or higher; be a member of a household that does not have any type of electrical energy source\. Teachers targeting criteria includes: (i) at the school level: primary and secondary public educational services from rural areas; in districts of quintiles 1 and 2 of poverty in urban areas; and rural educational services; and (ii) at the individual level: teach in the targeted grades for students; have a designated or contracted post in an educational service located in a populated center with 3G internet coverage or higher; be a member of a household that does not have any type of electric power source\. May 5, 2021 Page 5 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) Project Components 12\. This Project would support activities aimed at improving learning conditions for the most disadvantaged through EdTech investments in three areas: (i) equipment; (ii) content and training; and (iii) innovation and evaluation\. These activities will be implemented through four components, namely: 1) Improving access to digital equipment; 2) Strengthening Digital Content and Skills; 3) Promoting innovation in the usage of educational technology and 4) Project Management, Monitoring and Evaluation\. 13\. Component 1 aims to improve the technological readiness of students and teachers at home and in schools through the distribution of hardware to students and teachers, and internet connectivity to rural schools\. Specifically, the component will focus on (i) replenishing digital devices provided by MINEDU in 2020 and 2021 for students and teachers in a subset of schools in rural and urban areas, and (ii) enhancing connectivity within the school through wireless content servers in a subset of schools in rural districts that have access to electricity\. 14\. Component 2 aims to improve digital content and the digital skills (human readiness) of teachers, school directors, parents, and local education leaders\. The component will support the development of a comprehensive digital education strategy to improve content and skills\. Evidence shows that investments in hardware do not improve learning unless they are supported by a solid pedagogical model that clearly lays out learning objectives and strategies to achieve them, as well as by relevant content delivered by trained teachers\. This component will specifically support (i) the development of a strategy for improving digital content and skills and its implementation, (ii) the design and implementation of a training program to strengthen teachers’ digital skills (iii) training for other actors of the school community, which includes school principals, local education authorities and students’ families, and (iv) evaluation of digital competencies of school community members, including students, teachers and school principals\. 15\. Component 3 aims to improve some aspects of human readiness and institutional readiness through the design, implementation, and evaluation of replicable innovative initiatives in education technology\. The component will support the design and implementation of a grant program to pilot and evaluate innovative interventions that aim to spur the effective adoption of technological devices in the learning process, with the ultimate objective of improving learning outcomes\. The grant will be managed by MineduLAB, an innovation lab that pilots and evaluates the effectiveness of low- cost education innovations with the goal of equipping the MINEDU with evidence to improve education outcomes throughout the country\. Since its creation, MineduLAB has evaluated and found positive impact in several strategies that use behavioral principles such as the use of text messages, non-monetary incentives (recognition and diplomas) and videos\. 16\. Component 4 will support Project management, monitoring and evaluation costs\. Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Screening of Environmental and Social Risks and Impacts \. May 5, 2021 Page 6 of 7  The World Bank Supporting investments in education for human capital development in Peru (P170478) \. CONTACT POINT World Bank Ciro Avitabile Senior Economist Borrower/Client/Recipient Ministerio de Economía y Finanzas del Perú Implementing Agencies Ministerio de Educación del Perú Milagritos Esthel Vera Zuniga Directora de Innovación Tecnológica en Educación mvera@minedu\.gob\.pe FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Task Team Leader(s): Ciro Avitabile Approved By APPROVALTBL Country Director: Marianne Fay 24-May-2021 May 5, 2021 Page 7 of 7

APPROVAL

P087970

Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No\.: AB3051 Project Name West Delta Water Conservation and Irrigation Rehabilitation Project Region MIDDLE EAST AND NORTH AFRICA Sector Irrigation and drainage (90%);Water supply (10%) Project ID P087970 Borrower(s) ARAB REPUBLIC OF EGYPT Implementing Agency Ministry of Water Resources and Irrigation (MWRI) Government of Egypt Egypt, Arab Republic of Ministry of Water Resources and Irrigation (MWRI) Corniche El Nil, Giza 12666 Giza Egypt, Arab Republic of Tel: 20 2 544-9747 abuzeid@mwri\.gov\.eg Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared May 7, 2007 Date of Appraisal Authorization May 1, 2007 Date of Board Approval June 21, 2007 Country and Sector Background To compensate for the loss of agricultural land in the Delta, and to provide opportunities to generate new jobs, increase production and widen the development base, the Government of Egypt (GOE) has supported commercial farmers in reclaiming desert lands since the late 1960s\. In this context, the GOE has identified an area of about 255,000 feddans (equivalent to 107,000 ha), located approximately 60 kilometers north of Cairo to the West of the Nile Delta, which has experienced noticeable agricultural growth through exploitation of groundwater resources\. Today, this area is a flourishing agricultural economy estimated between $300 million to half billion dollars annually, serving both domestic and export markets in the European Union and elsewhere\. Moreover, the area is now home to 500,000 people and provides about 250,000 jobs in the agriculture sector alone\. However, with the rapid development over the past few years, there has been an excessive depletion of the groundwater reserves\. With about 47% of the total 255,000 feddans under cultivation, water extraction by the year 2000 reached 870 million m 3 annually, or an increase of 36\.2% in just over a decade\. Groundwater is quickly depleting with a commensurate effect on overall water quality\. To resolve this problem, the Government has been reviewing options to replace groundwater with surface water irrigation\. The goal is to minimize if not totally halt the Page 2 2 depletion of the groundwater resource\. To achieve this goal, the GOE wishes to implement a surface water conveyance system and to introduce important reforms in the sector, particularly full cost recovery tariffs and volumetric pricing\. Such reforms are part of the Government’s own Integrated Water Resources Management (IWRM) Action Plan developed in 2005 to ensure correct incentives to conserve and utilize water more efficiently 1 \. Project Objectives The objectives of the Project are to improve the livelihood and increase the income of people in the Project Area through: (i) mitigating further environmental degradation caused by excessive drawdown of the groundwater resources; and (ii) establishing a framework for financial sustainability of irrigation infrastructure in the use of water resources\. The Project consists of the following parts: Part 1 : Design, Construction and Operation of Surface Water System and Connection Program Design, construction and operation of a surface water irrigation system and connection program within the Project Area, taking into consideration the specific environment and social requirements as stated in the ESMP and the RPF\. Part 2 : Market-driven Technical Support to Small and Medium Scale Farmers Providing market-driven technical support to small and medium scale farmers in the Project Area to increase their market share, at the national and international level\. Part 3 : Institutional Development and Capacity Building (a) Institutional development and capacity building of the Regulatory Office to ensure effective economic regulatory oversight and equitable treatment of interests between farmers and the Private Operator\. (b) Supporting the operational capacity of the PMU to assist it in the implementation of the Project, the carrying out of the ESMP and the RFP and the monitoring and evaluation of the Project\. (c) Capacity building of Project Area’s the water user council to enhance its capacity to oversee the relationship between farmers regarding usage of surface and ground water resources \. Rationale for Bank Involvement The World Bank’s policy approach to GOE’s IWRM Action Plan includes the need to reduce subsidies in the irrigation sector and for making the sector financially sustainable\. The Bank Strategy for Egypt places emphasis in areas where the Bank can provide critical expertise in order to implement the GOE strategies (i\.e\., the PPP for the West Delta Water Conservation and Irrigation Rehabilitation Project)\. 1 The Government is implementing cost recovery of O&M in old lands and full cost recovery in new lands\. The project area is considered new lands; therefore full cost recovery policy will apply\. Page 3 3 Involving the private sector in infrastructure in general, poses challenges to GOE that the Bank can address through its extensive experience in this area worldwide, especially in water supply infrastructure, energy, and telecommunications\. In irrigation, private participation adds additional dimensions to this challenge, given: (i) the relative void of successful transaction experience in this sector; and (ii) the added risks perceived in running a private irrigation system on a commercial/full cost recovery basis\. To-date there are few examples of irrigation projects of the magnitude being considered in the West Delta where the private sector has taken up a substantial share of the related risks\. Description The proposed project will finance the design and construction of a surface water conveyance and distribution system to the West Delta area, based on irrigation services beneficiaries want and are willing to pay for\. The investment will be implemented through a Design-Build-Operate PPP where the actual design and configuration of the system will be finalized through a subscription of participating farmers in the area\. The Project will be implemented on the principle of full cost recovery based on volumetric tariffs\. Responsibility for operations, maintenance and loan amortization will be assigned to private operator, who will be selected through a competitive bidding process\. The transaction design has been finalized with the support of various donor organizations, most notably PPIAF, the Dutch Government and AFD\. The chosen transaction design represents a unique, and relatively unexplored opportunity for the MNA Region to introduce reforms in the irrigation sector and to involve the participation of a private operator in taking up a good portion of the risk associated with construction, financing and operation of an irrigation infrastructure operated on the a :”utility” model\. The Project will finance the design and construction of a surface water conveyance and distribution system to the West Delta area so that these commercial farmers can purchase surface water to compensate for the fast dwindling groundwater resources\. Payments will be based on volumetric pricing, so that there is an incentive to conserve water and maximize returns per cubic meter of water purchased\. In the chosen Design-Build-Operate (DBO) option, the responsibility for operations, maintenance and loan amortization will be assigned to private operator\. The cost of the investment component is estimated at $205 million, of which about $145 million will be financed by IBRD\. Collaboration arrangements with ADD and the Dutch government have been arranged to participate both in the financing of the investment component as well as to fund two other technical assistance components\. The Project will consist of three components in total for an estimated cost of US$213 million: Component No\. 1 : Will involve an investment loan to finance works for the final design and construction of a surface water conveyance and distribution system to the West Delta area and to connect between 25,200 ha and 37,800 ha of participating farms\. Initial design work was carried out during the technical preparation studies which were based on a “demand-driven approach to planning” where the growers’ willingness to connect and pay guided the technical design options with commensurate tariffs\. In addition, a piped system was chosen as the preferred option given it several advantages if offers over open channel systems, particularly with regard to efficient water resource use and lower Page 4 4 environmental and social safeguards risks\. The final design will be completed by the private operator that will be contracted to construct and operate the system on a long term basis\. (US$205 million, estimate based on technical studies carried out during project preparation)\. Component No\. 2 : Agricultural Marketing/Logistics Technical Assistance to small and medium scale farmers use surface water (US$2 million)\. This component will be initially funded through donor grants by AFD and will provide technical assistance (TA) to small and medium growers, traders, food processors, to increase West Delta products (fresh or processed) market share on national and international markets\. Following a successful evaluation of the first donor phase activity which is funded by grants above, loan facilitation could be provided directly to participating farmers, if need be\. Component No\. 3 : Support for Institutional Development and Capacity Building of Project Management Unit, Regulatory Office and Water User Organization (US$6 million) \. This component will be funded through donor grants by the Government of the Netherlands and will support capacity building activities to include: (i) strengthening the PMU and the contract management activities that will oversee contractual matter between the Government and the private operators on all aspects of the implementation phases, including environmental and social safeguard compliance during the implementation of the project inclusive of groundwater monitoring; (ii) capacity building of economic regulatory office to ensure effective regulatory oversight and equitable treatment of interests between the farmers and the private operator; and (iii) capacity building of the water user association that will be formed to oversee the relationship between farmers vis- à-vis entitlements and usage of the surface and ground water resources\. Given the unique nature of the PPP transaction arrangement the TA will also provide for oversight supervisory engineers and technical audits of technical milestones achieved\. Financing Source: ($m\.) Private Operator/Participating Farmers 30 International Bank for Reconstruction and Development 145 FOREIGN SOURCES 38 Total 213 Implementation Overall responsibility for implementation of the Project will be provided by the Minister of MWRI and managed on a day-to-day basis by a Project Management Unit (PMU) which has already been established\. Since the project will be implemented using a DBO contract with the private sector, the establishment of a Regulatory Office will also be necessary\. In addition, an Independent Panel of Experts will be set up as needed to serve as an intermediate mechanism for handling disputes and conflict resolution\. Page 5 5 Both the PMU and the Regulatory Office will be under the jurisdiction of MWRI\. The PMU will include the financial management and disbursement functions and will supervise the contractual arrangements for the initial construction and expansion of the irrigation system\. In addition, it will oversee the implementation of the technical assistance components of the Project\. Representatives of the PMU have already been designated by MWRI and have been involved throughout the preparation discussions\. A Water User Council has also been established as an independent farmers’ organization to take active part in the project preparation and ultimately during implementation, to monitor the relationships and potential conflicts between farmers on such matters as water entitlements, usage, alternating hours of irrigation, etc\. The Council will also monitor groundwater pumping in the area along with the more formal program that will be implemented by PMU within MWRI\. The Regulatory Office will provide traditional economic regulatory functions for rate adjustments, tariff rebasing and will oversee the contractual commitments of the operator with regard to the prescribed service standards\. As indicated, specialists would be recruited when warranted to serve in the Independent Panel of Experts to resolve specific disputed prior to formal arbitration in case conflicts arise between the private operator and farmers\. Sustainability The West Delta Water Conservation and Irrigation Rehabilitation Project will directly address two important issues related to sustainability: (i) cost recovery; and (ii) continued groundwater degradation and greater efficiency in irrigation\. Both will be mainstreamed in the project using a PPP with clear contractual responsibilities between the MWRI and the private operator, and between the private operator and the farmer community\. In this context, MWRI will make financing to the project through the proposed loan from the World Bank\. The private operator will pay a concession fee to the MWRI equal or in excess to the government’s debt service commitment to the Bank\. The farmers in turn, will pay an irrigation service fee to the private operator in order to operate and maintain the surface irrigation system and to repay the capital investments made by it and the Government\. The farmer community is expected to participate during operation and maintenance through the Water User Council\. Individual farms and water user associations will be represented on this Council\. Lessons Learned from Past Operations in the Country/Sector The proposed project design has benefited from some broad lessons learned from: (i) successful experience in the water supply and sanitation (WSS) sector, (ii) a “participatory approach” to system planning and design, and (iii) the involvement of private sector and users in all stages of the project preparation\. In addition, lessons gained from the design of comparable Bank financed projects are also being used, including the Provincial and Peri-Urban Water and Sanitation Project that features DBO/DBL contracts to construct and operate and maintain provincial water town systems in Cambodia; and the LGU Urban Water and Sanitation Project APL2 that features DBL contract in provincial towns in Philippines\. Page 6 6 Lessons in transaction design are also taken from the Guardane Private Irrigation Project in Morocco\. Relevant lessons include: (i) various project related risks should be allocated to the party (i\.e\., public or private) that is more able to handle them; (ii) contract management capacity at the public sector usually needs strengthening for negotiating, overseeing and monitoring contracts with the private sector\. Safeguard Policies (including public consultation) The West Delta project is rated a Category A project in accordance with the Environmental Assessment Policy (OP 4\.01) of the World Bank because of the potential scale of impacts in terms of water quantity, water quality, and water access issues; and the potential corporate risk posed to the Bank by the diversion of water from the Nile\. The main issues raised and discussed in the ESIA/ESMP included: (i) the withdrawal of water from the Nile system at the expense of uses outside the project area; (ii) the continuing groundwater use in conjunction with surface water; and (iii) induced regional development as a result of the intensification of agriculture\. The impacts resulting from these issues have been assessed and mitigation measures posed which should ensure that the negative impacts are mitigated effectively\. In effect, the project should generate positive environmental benefits in terms of groundwater recharge, and more effective water management through the realization of effective cost savings in water use\. The following policies will be triggered: Environmental Assessment (4\.01), Involuntary Resettlement (OP 4\.12), Physical Cultural Resources (OP 4\.11), International Waterways (OP7\.50) and Pest Management (OP 4\.09)\. The safeguard issues and impacts, and the mitigation measures proposed for each policy through the proposed project are summarized below: Yes No Environmental Assessment (OP /BP /GP 4\.01) [X] [ ] Natural Habitats (OP /BP 4\.04) [ ] [X] Pest Management (OP 4\.09) [X] [ ] Physical Cultural Resources (OP/BP 4\.11) [X] [ ] Involuntary Resettlement (OP /BP 4\.12) [X] [ ] Indigenous Peoples (OD 4\.20 ) [ ] [X] Forests (OP /BP 4\.36) [ ] [X] Safety of Dams (OP /BP 4\.37) [ ] [X] Projects in Disputed Areas (OP /BP /GP 7\.60)** By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas [ ] [X] Projects on International Waterways (OP /BP /GP 7\.50) [X] [ ] List of Factual Technical Documents A\. Project Implementation Plan B\. Bank Staff Assessments - Project Identification documents Page 7 7 - ISDS and PID - July 2004 - Draft PAD - June 2005 - DBO Prequalification Documents – January 2007 - Integrated Safeguards Data Sheet - Appraisal Stage – InfoShop Disclosure- - Project Concept Note presented to Review Meeting – June 26 2004 - West Delta Water Conservation and Irrigation Project DRAINFRAME I final report, June 2005 - PPIAF Report: Conceptual Framework and Transaction Model for a Public-Private Partnership in Irrigation in the West Delta, Egypt\. March 2005\. - Environmental and Social Management Framework - Executive Summary – February 21, 2007 - Integrated Safeguards Data Sheet – Appraisal Stage – Final –May 7, 2007 - Disclosure o f Environmental Assessment – Exec Summary Feb 21, 2007 - Environmental and Social Management Framework - Environmental and Social Management Framework - Clearance from MNSSD-QAT – Mission Reports: - Appraisal and Negotiation Mission SMO - Pre-Appraisal Mission Back-to-Office Report - - Environmental Mission Back-to-Office Report, - Phase II Mission Back-to-Office Report, May 2005 C\. Other - Final Design prepared by the Private Operator after wining the DBO contract - Phase II West Delta Feasibility Studies - June 30, 2005 - Letter of H\.E\. Dr\. Mahmood Abu Zeid, Minister of MWRI Supporting the Request for PPIAF Assessment – May 2004\. - Consultations and Survey Report, Background Paper for PPIAF Report – November 2004\. - Ground Water Survey Report, Background Paper for PPIAF Report – November 2004\. - Technical Options Report, Background Paper for PPIAF Report – November 2004\. - Financial Analysis and Financial Projections, Background Paper for PPIAF Report November 2004\. - Institutional Options and Transaction Model for the Public-Private Partnership, Background Paper for PPIAF Report – November 2004\. - Draft Willingness to Connect Agreement, Background Paper for PPIAF Report – November 2004\. - Pre-Feasibility Study, Demand and technical studies to assess options for Public Private Partnerships for project implementation Draft Summary version February 26, 2004 - West Delta Water Conservation and Irrigation Project Pre-Feasibility, prepared by Eng\. Farouk Shaheen (Technical Studies) and Magdi Khalifa , PhD (Preliminary Demand Assessment), December 2003\. Page 8 8 Contact point Contact: Aldo Baietti Title: Sr Financial Spec\. Tel: (202) 473-2750 Email: Abaietti@worldbank\.org For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank\.org Web: http://www\.worldbank\.org/infoshop

APPROVAL

P120417

PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Public Disclosure Copy Report No\.: PIDC2500 Project Name Mexico FCPF Readiness Preparation Grant (P120417) Region LATIN AMERICA AND CARIBBEAN Country Mexico Sector(s) Forestry (100%) Theme(s) Climate change (100%) Project ID P120417 Borrower(s) Secretaria de Hacienda y Credito Publico Implementing Agency CONAFOR Environmental Category Date PID Prepared/ 13-Mar-2014 Updated Date PID Approved/ 23-Mar-2014 Disclosed Estimated Date of 11-Jun-2015 Board Approval I\. Introduction and Context Country Context Public Disclosure Copy Mexico has achieved remarkable economic and social progress over the past several decades\. With a population of 120\.8 million, Mexico is the second most populated country in Latin America\. It has the 14th largest GDP worldwide, and is the second largest economy in Latin America\. Key economic sectors and sources of income include manufacturing, industry, oil, tourism and remittances\. Its sound policy frameworks and prudent macro-economic management have resulted in favorable financial conditions that helped the country remain resilient during the US slowdown and the financial turmoil in Europe\. The country has maintained a strong growth of 3\.9% during 2012\. This has been supported by both external and internal demand, with a firmer expansion in services\. Gross Domestic Product (GDP) is expected to grow 3\.5% during 2013 with a recovery in 2014\. However, Mexico still faces challenges in its quest for inclusive growth\. Although Mexico’s overall economic and human indicators have improved steadily over the past decade, poverty is still widespread especially in rural areas\. Mexico still faces strong inequalities, i\.e\. rich and poor states, dynamic urban centers and isolated rural areas, small informal enterprises serving the domestic market and large companies competing abroad\. Sectoral and Institutional Context While forests contribute a modest 1 percent of GDP, they represent an essential source of Page 1 of 6  employment, income and livelihood for some 12 million people\. In 2008, 57 percent of the poorest quintile of rural households obtained almost one-quarter of their income from natural resource extraction, most of which was forest-related\. Over the last century, Mexico has transformed its land Public Disclosure Copy tenure regime and community-based tenure has now become the dominant form of land tenure\. It is estimated that between 65-80 percent of the 64 million hectares of forests in the country belong to approximately nine thousand agrarian communities, including indigenous peoples and ejidos, under this legally recognized collective land ownership system; a situation that is unique in the world and only behind Papua New Guinea in terms of total area\. Other forest lands belong to individual owners and the State\. Mexico is recognized as a global leader in forest management\. In the nineties, the Government started helping communities to manage their forest resources through a series of incentives and advisory programs, especially the Programa de Conservación y Manejo Forestal (PROCYMAF) and Payments for Environmental Services (PES)\. Budget allocation for sustainable forest management increased from US$27 million in 2001 to US$396 million in 2010\. The PROCYMAF and PES programs have strengthened institutions and social capital, and are delivering promising results on the ground\. To date, as many as four thousand communities have participated in the demand-driven programs operated by the National Forestry Commission (CONAFOR) since they were launched in 2001\. An estimated 2,380 communities manage their forests according to an approved forest management plan, and about 50 forests are independently certified\. Although much remains to be done and improvements may be necessary, Mexico’s approach, which combines a strong history of community forestry and enhancement of environmental services such as water and biodiversity, is increasingly being recognized as a worldwide reference for its innovation, scale, and results\. Climate change and REDD+ Mexico has become a global leader in climate change issues\. It has developed an active agenda that includes adaptation and mitigation activities\. The Programa Especial de Cambio Climático (PECC) Public Disclosure Copy was created in 2008 by the Comisión Intersecretarial de Cambio Climático (CICC), setting an aspirational target of 50 percent reduction in greenhouse emissions by 2050, compared with 2000, for which the REDD+ strategy has become central due to the mitigation potential of forests in the country \. The National Law of Climate Change was issued in 2012 and in June 2013, a new National Climate Change Strategy was released, confirming Mexico´s commitment in addressing climate change issues, and the essential role of forests in mitigation actions\. Official rates of national deforestation in Mexico are moderate (around 0\.25% annually )\.The major direct drivers of deforestation are variable by region, but primarily include forest conversion to pasture and to a lesser extent agriculture\. Forest degradation is relatively high: estimated at 0\.45% annually\. Causes of degradation include unsustainable logging, forest grazing, fuel wood collection, fires, and pests and diseases\. Often, deforestation occurs by a gradual process of continual degradation over time\. Over the last decade, public investment in forestry and conservation, low profitability of agriculture, rural out-migration, and poor suitability for agriculture of remaining forestland have contributed to a decline in forest loss–although one cannot assume those trends will continue\. In Cancun in 2010, the “Mexico’s Vision for REDD+: Towards a National Strategy” was unveiled\. Mitigation targets projected for “agriculture, forestry and other land use" sector represents 30% of the total committed and is equivalent to 15\.3 MtCO2e\. According to “Mexico’s Vision for REDD Page 2 of 6  +”, the best way to develop REDD+ in Mexico is through Sustainable Rural Development (SRD) which promotes a territorial and multi-sectorial approach, in order to reduce the pressures that lead to deforestation and forest degradation\. The “Mexico’s Vision for REDD” sets the lines which will Public Disclosure Copy serve as a basis for the National REDD+ Strategy : it emphasizes forests’ contribution to adaptation by reducing local communities’ vulnerability to natural disasters and economic downturns\. Forestry and land-use change are Mexico’s third highest source of greenhouse gas emissions : By the end of 2011, Mexico presented a document entitled “Elementos para el diseño de la estrategia nacional REDD”, which was developed jointly with civil society\. During 2012 and 2013, the Mexican government improved this document by incorporating comments and feedback received from the various participatory platforms (incl\. the Comité Técnico Consultivo or CTC- REDD+ and the Comité Técnico Asesor del Grupo de Trabajo REDD+under the Comisión Intersecretarial de Cambio Climáticoor CTA del GT-REDD+ ) and the ENAREDD working group of the Consejo Nacional Forestal (CONAF))\. Since most forests in Mexico are owned by communities, REDD+ actions in Mexico would most likely be implemented at the community level on a voluntary basis: the ongoing PROCYMAF and PES programs are expected to serve as a cornerstone of the REDD+ strategy, with necessary improvements to be defined through studies and public consultations during the REDD+ readiness phase\. As part of the REDD+ preparation phase, Mexico is developing REDD+ Early Actions (ATREDD) which are a set of articulated institutionally efforts at the subnational level, including local governments, to address the root causes of forest carbon and forest loss in a particular territory, through policy instruments and specific actions of different actors that create opportunities for economic and social development of communities\. Some of these actions are currently being piloted under the Forests and Climate Change project also financed by the World Bank\. In 2010, Mexico submitted a Readiness Preparation Proposal (R-PP) to the FCPF Participant Committee\. It contains a detailed assessment of the drivers of deforestation and forest degradation, a Public Disclosure Copy preliminary methodology to define its emissions reference level based on past emission rates and future emissions estimates, a monitoring, reporting and verification system for REDD+, and actions for integrating environmental and social considerations into the REDD+ Readiness process, including the national REDD+ strategy\. The R-PP was approved by the FCPF Participant Committee on March 2010\. The below table summarizes some of the progress of the Mexican preparation process for REDD+ considering the activities agreed under the UNFCCC as requisites for participation in REDD+: National REDD+ Strategy • ENAREDD: Reviewed draft that incorporates inputs and feedback from civil society • Institutional Arrangements • Implementation model with a landscape approach and intergovernmental cooperation mechanisms through territorial development public Agents\. • Strengthening of the national CTC and state CTCs • Regional participation processes (foros de silvicultura comunitaria) • Alignment with other participation processes (FIP) MRV and Reference Level • Mobilization of significant resources on MRV, including from the Mexico-Norway Project, USAID’s M-REDD project, CIGA-UNAM Page 3 of 6  • Historical analysis (1990-2010) to estimate net deforestation (LANDSAT 1:100,000) • Identification of hot-spots, analysis of drivers of deforestation\. • Emission factors - National Forest and Soils Inventory Data (INFyS) Public Disclosure Copy • Activity Data: annual monitoring 2011-2013 (Rapideye: 1:20,000) Safeguards Information System (SIS) • Social and Environmental Standards in Early Action Areas (Jalisco and Yucatan Peninsula) • Analysis of the legal framework and identification of gaps • Analysis of possible components for the SIS Over the past few years, Mexico has made considerable progress in the construction of its National REDD Strategy (ENAREDD+) through a participatory process\. The ENAREDD+ is established under the framework of the Sustainable Rural Development (SRD) that requires coordination of forest and non-forest policies, the strengthening of governance mechanisms and participative processes at the local level, institutional arrangements, and appropriate funding mechanisms\. As of September 2013 the third version of the draft ENAREDD+ was prepared incorporating the comments and feedback received from various platforms of civil organizations\. Legal and institutional framework for REDD+ Mexico has a solid legal framework, which includes the Climate Change General Law and the General Law for Sustainable Forest Development, which provide new tools and structures to meet the challenges of climate change and that are also relevant for REDD+\. In addition, the National Climate Change Strategy was released in June, 2013\. The National REDD+ Strategy (ENAREDD+) will be aligned with the targets, objectives and strategic actions for mitigation in the forest sector included in the Climate Change Strategy\. The leading institution for REDD+ in Mexico is the Comisión Nacional Forestal (CONAFOR) a Public Disclosure Copy decentralized agency under the Ministry of Environment and Natural Resources (SEMARNAT)\. CONAFOR oversees a wide range of programs, including forest management, community forestry, payments for environmental services, inventories, pest management and others\. Other key federal agencies involved in REDD+ include: the Environmental Prosecuting Agency (PROFEPA) the Ministry of Agriculture, Livestock and Rural Development (SAGARPA), the Ministry of Urban and Territorial Development (SEDATU), the Comisión Nacional para el Desarrollo de los Pueblos Indígenas (CDI), the Comisión Nacional de Áreas Naturales Protegidas (CONANP), and the Comisión Nacional para el Conocimiento y Uso de la Biodiversidad (CONABIO)\. Relationship to CAS The proposed FCPF engagement is consistent with the Mexico CPS for FY 2014-2019\. The objectives of the project are aligned with Mexico’s Country Partnership Strategy (CPS), which covers fiscal years 2014-2019\. The CPS outlines four strategic themes, notably promoting green and inclusive growth, including by reducing the footprint of growth and using natural resources in an optimal way\. The CPS acknowledges not only the costs of land and forest degradation, but the importance of forests as an essential source of employment, income, and livelihood for about 12 million people, and its important role in mitigating and adapting to climate change\. Additionally, the proposed activities have important linkages with the thematic area on “increasing social prosperity”, as the proposed activities will (indirectly) support forest management activities for communities and ejidos, as well as directly support inclusion through consultancy processes and dissemination\. Page 4 of 6  II\. Proposed Development Objective(s) Proposed Development Objective(s) Public Disclosure Copy The Project Development Objective is to support a participatory and inclusive process for the finalization of Mexico’s National REDD+ strategy (ENAREDD+)\. Key Results � A final version of ENAREDD+ that reflects the comments and feedback from the various sectors and stakeholders � A technically strong ESMF that has been finalized and validated by a broad range of stakeholders\. � A state level comprehensive feedback and grievance mechanism for REDD+ is piloted in one Early Action Area\. III\. Preliminary Description Concept Description The overall financial envelope needed for achieving REDD+ Readiness in the Mexico has been estimated to USD 23 million (as per the final version of the R-PP)\. The proposed FCPF grant would focus on a subset of components as per the R-PP (under Components 1 and 2 of the R-PP)\. Activities to be financed by the FCPF would not include any physical investment or the implementation of any REDD+ program on the ground\. COMPONENT 1: Organization and Consultation (FCPF amount: $2,558,000)\. The FCPF grant would support the dialogue and participative process with stakeholder groups, within and outside government as part of the preparation of the National Strategy for REDD+ in Mexico (ENAREDD+)\. COMPONENT 2: Development of the REDD Strategy\. (FCPF amount: $1,242,000) Public Disclosure Copy The FCPF grant would help to further analyze and design policies and programs to tackle the drivers of deforestation by analyzing barriers to inter-sectorial coordination, conduct dialogues on the critical aspects identified related to REDD+, extensive consultation and participation of all stakeholders and the preparation of an ESMF that will provide guidance for the management of social and environmental risks during the implementation of the ENAREDD+ in Mexico, while putting in place the necessary institutional and legal framework, and the institutional arrangements to make them effective\. IV\. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4\.01 ✖ Natural Habitats OP/BP 4\.04 ✖ Forests OP/BP 4\.36 ✖ Pest Management OP 4\.09 ✖ Physical Cultural Resources OP/BP 4\.11 ✖ Indigenous Peoples OP/BP 4\.10 ✖ Involuntary Resettlement OP/BP 4\.12 ✖ Page 5 of 6  Safety of Dams OP/BP 4\.37 ✖ Projects on International Waterways OP/BP 7\.50 ✖ Public Disclosure Copy Projects in Disputed Areas OP/BP 7\.60 ✖ V\. Financing (in USD Million) Total Project Cost: 3\.80 Total Bank Financing: 0\.00 Financing Gap: 0\.00 Financing Source Amount Borrower 0\.00 Readiness Fund of the Forest Carbon Partnership Facility 3\.80 Total 3\.80 VI\. Contact point World Bank Contact: Carole Megevand Title: Sr Natural Resources Mgmt\. Spec\. Tel: 458-1937 Email: cmegevand@worldbank\.org Borrower/Client/Recipient Name: Secretaria de Hacienda y Credito Publico Contact: Juan Bosco Marti Ascencio Title: Titular Unidad de Asuntos Internacionales de Hacienda Public Disclosure Copy Tel: 525536881228 Email: bosco_marti@hacienda\.gob\.mx Implementing Agencies Name: CONAFOR Contact: Miguel Angel Abaid Sanabria Title: Jefe de la Unidad de Asuntos Internacionales Fomento Financ\. Tel: 523337777000 Email: miguel\.abaid@conafor\.gob\.mx VII\. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop Page 6 of 6

APPROVAL

P006605

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No\. 10546 Report No\. 10546-CH Type: (PCR) DE WIELLE,/ X31708 / 31708/ OEDD3 PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-CH) APRIL 17, 1992 Industry and Energy Operations Division Country Department IV Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. CURRENCY EQUIVALENTS Name of Currency (Abbreviation): Peso (P) Year Exchange Rate Appraisal Year 1982 US$1 - P 73\.43 1983 87\.53 1984 128\.24 1985 183\.86 1986 204\.73 1987 238\.14 1988 247\.20 1989 293\.37 Completion Year 1990 337\.09 GLOSSARY OF ABBREVIATIONS Contraloria The Borrower's Central Administrative Control Office ECLAC United Nations Economic Commission for Latin America and the Caribbean EFE State Railroad Company EMPORCHI Chilean Ports Company ERR Economic Rate of Return HDM Model Highway Design and Maintenance Standards Model IBRD International Bank for Reconstruction and Development IDB Inter American Development Bank MOP Ministry of Public Works MTT Miniatry of Transport and Telecommunications PCR Project Completion Report VIALIDAD Road Directorate of the Ministry of Public Works GOVERNMENT OF CHILE FISCAL YER January 1 - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.S\.A\. Office of Directot-General Operations Evaluation April 17, 1992 MEMORANDUM TO THE EXETIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Chile Second Highway Reconstruction Project (Loan 2297-CH) Attached, for information, is a copy of a report entitled "Project Completion Report on Chile Second Highway Reconstruction Project (Loan 2297-CH)" prepared by the Latin America and the Caribbean Regional Office with Part II of the report contributed by the Borrower\. No audit of this project has been made by the Operations Evaluation Department at this time\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-9H) TABLE OF CONTENTS Page No\. PREFACE \. \. \. \. \. \. \. \. \. \. EVALUATION SUMMARY\. \. \. \. \. \. \. \. \. ii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE\. \. \. \. \. \. 1 Project Identity\. \. \. \. \. \. \. \. 1 Background \. \. \. 1 Project objectives and Description\. \. \. \. \. \. 2 Project Design and Organization \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 2 Project Implementation\. \. \. \. \. \. 3 Project Results \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 4 Project Sustainability \. \. \. 6 Bank Performance\. \. \. \. \. \. \. \. \. 6 Borrower Performance \. \. \. \. \. \. \. \. \. \. \. \. 7 Project Relationship \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 7 Consulting Services/Procurement of Goods and Works \. \. \. \. \. \. \. \. \. 8 Project Documentation and Data\. \. \. \. \. \. \. \. \. 9 PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE\. \. \. \. \. \. 10 Part III STATISTICAL INFORMATION \. \. \. \. \. \. \. \. \. \. 12 Related Bank Loans \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 12 Project Timetable \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 Loan Disbursements \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 Pnoject Implementation \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 Project Cost and Financing \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 15 Project Results \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 Status of Loan Covenants \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 19 Use of Bank Resources \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 20 MAP IBRD 17011 - Chile - Second Highway Reconstruction Project This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-CH) PREFACE This is the P;roject Completior Report (PCR) for the Second Highway Reconstruction Project in Chile, for which Loan 2297-CH in the amount of US$128 million was approved on May 31, 1983\. The loan was closed and fully disbursed on June 30, 1990, which is two yearo later than originally expected\. This was mainly due to expansion of the project scope to meet flood and earthquake-related emergencies in roads and other transport subsectors\. The PCR was prepared by the Infrastructure and Energy Operations Division of the Latin American and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III)\. Part II of the PCR is the translation of the comments sent by the Borrower with letter dated April 12, 1991\. Preparation of this PCR was based on the Staff Appraisal Report, the Loan Agreement, supervision reports, correspondence between the Bank and the Borrower, internal memoranda, and experience of the authors gained during project supervision\. PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PRCJECT (LOAN 2297-CH) ObJectives 1\. The Second Highway Reconstruction Project shared with the preceding First Highway Reconstruction Project (Loan 1927-CH) the same sector development objectives of assisting in the profound reorganiation of the transport sub- sector that the Government had initiated in 1975, and of strengthening the physical and institutional capacity in the road transport sector within a broad plan of fostering economic growth (para\. 2\.01)\. In particular, the project objectives were to: (a) arrest serious deterioration of some sections of the Basic Network; (b) impLement a planning and management system for road and bridge rehabilitation and maintenance; (c) assist in the preparation of a multiyear road program, including satisfactory maintenance programs; and (d) assist in the analysis of transport sector issues (para\. 3\.01)\. ImDlallentation Experience 2\. Project implementation started in a timely and efficient manner\. Devaluation of the Chilean peso with respect to the US dollar, efficient procurement and keen competition in the construction industry resulted in lower costs than those estimated at appraisal\. This allowed expansion of the project scope to include: (a) a slight expansion of the road reconstruction program and financing of emergency repair of damages produced by heavy floods (1984); (b) financing of emergency repair of damages to roads, ports and railways caused by an earthquake (1985); and (c) an increase in the overall disbursement r4te for civil works from 45% to 50% and in disbursements for ports and railroads emergency works to 60%\. Despite efficient exeeution of the civil works for roads, the expansion of the project scope and the slow execution of the port emergency works required extension of the closing date from June 30, 1988 to June 30, 1990 (paras\. 5\.01 through 5\.05)\. Results 3\. The project met fully its original objectives as well as the additional objectives for repair of flood and earthquake damage\. The general condition of the Basic Road Network was improved to a high standard and at a lower cost than estimated at appraisal\. Under the project,the Borrower's Road Directorate (Vialidad) strengthened considerably its road maintenance capacity, started implementation of a road maintenance management system, and established a more balanced, rolling four-year road program which increased maintenance expenditures from 26% of total road expenditures for the period 1982-85 to 55% for the period 1986-89\. Through the implementation of three transport studies the project assisted in: (a) analysis of intermodal transport between Santiago and the ports of San Antonio and Valparaiso; (b) analysis of the efficiency of Chile's Transport System; and (c) feasibility and preliminary engineering studies for reconstruction of the two above mentioned ports\. Ymplementation of the recommendations of the first two studies was postponed as a result of earthquake damage to the ports and need for further clarification of government policies\. All works for emergency repair of flood and earthquake damages to the road, railroad, and port systems were carried out efficiently and at low cost (para\. 6\.01)\. 4\. The economic rates of return of a sample of 14 rehabilitated road F\. tionL (totalling 578 Km) were ex-post estimated to vary between 15% and 57%, with a mean value of 34%, which was the same as estimated at appraisal\. The economic rates of return of seven road sections including major bridges varied from 35% to above 100%, with a mean value of 71% compared to 32% estimated at appraisal (para\. 6\.02)\. The project had a positive impact on strengthening the capacity of the Borrower's Ministry of Public Works (MOP) to program and carry out a well- balanced multiyear road program, and to upgrade the national road system and improve its maintenance (para\. 6\.03)\. 5\. The sustainability of the results achieved under the project is ensured by: (a) the excellent quality of works execution; (b) the substantial strengthening of MOP's capacity in all aspects of road management; (c) the continued dialogue between MOP and the Bank for the preparation and execution of the two succeeding Road Sector Loans; and (0) the strengthening of other transport subsectors through subsequent Bank loans (paras\. 7\.01 and 7\.02)\. Findings and Lessons Learned 6\. Detailed preparation of the project and careful assessment of the Borrower's needs ensured satisfactory design and execution of the project (para\. 8\.01)\. The noteworthy continuity of Government and Bank staff involved in project preparation through to its conclusion elicited constructive dialogue and facilitated timely and high-quality decision-making (para\. 8\.02)\. 7\. MOP's remarkable capability in road management was further enhanced through its interaction with Bank staff, as well as through: continuity, competence and high motivation of its own staff at all levels, extensive staff training, establishment of long-term planning, strengthening of road maintenance, streamlining of administrative procidures, responsible fiscal management, and effective supervision of works (paras\. 9\.01 athrough 9\.05)\. The lesson learned from this project is that the above achievements, coupled with satisfactory interministerial project relationships and responsive behavior of consultants and contractors, are the key elements to ensure successful implementation of any infrastructure project\. PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-CH) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1\. Project Identity Project Name: 'Pcond Highway Reconstruction Project Loan Number: 2217-CH RVP Unit: i\.ir America and the Caribbean Region Country Department IV Country: Chile Sector: Transport Subsector: Roads (and marginally Ports and Railways) Loan Amount: US$128 million 2\. Background 2\. 01 The Second Highway Reconstruction Project shared with the preceding First Highway Reconstruction Project (Loan 1927-CH) the same sector development otUjvtives to assist in the profound reorganization of the transport subsector that the Government initiated in 1975, and to strengthen the physical and institutional capacity in the road transport sector within a broad plan of fostering economic growth and development\. 2\.02 The policy context of this project was to strengthen the capacity of the Ministry of Public Works (MOP), to upgrade the national road system and improve its maintenance, and to assist the Ministry of Transport and Telecommunications (MTT) in tackling overall sector and intermodal transport issues\. This was in line with the macro-policy objectives of fostering economic development and the export capacity of the country\. 3\. Project Objectives and Description 3\.01 Proiect Objectives\. The objectives of the project were to: (a) assist in financing high priority works to arrest serious deterioration of some sections of the Basic Network; (b) implement a planning and management system for road and bridge rehabilitation and maintenance; (c) assist in the formulation of design and selection criteria for road strengthening and reconstruction; (d) establish a multiyear roads program with proper balance between various categories of expenditures; (e) assist in the definition of a satisfactory program for the -2- maintenance of local roads; and (f) assist in the analysis of transport sector policies and issues\. In the wake of*flood and earthquake damage, the project objectives were expanded to assist in repairing the roads, ports, and rail systems\. 3\.02 Project Description\. The project originally consisted of: (a) reconstruction and widening of about 580 km of main roads; (b) periodic maintenance of about 1,400 km of main roads; (c) construction of 35 bridges and rehabilitation of some 50 bridges and 60 km of access roads (d) procurement of road maintenance, pavement evaluation, and laboratory equipment, and spare parts; (e) consulting services for project coordination and supervision, preinvestment, pavement evaluation and transport sector studies; and (f) training through trips and scholarships abroad\. The following components were added later: (g) emergency reconstruction of flood-and earthquake damaged roads; (h) civil works and studies for repair and reconstruction of earthquake-damaged ports; and (i) emergency repair of diesel locomotives in private workshops after earthquake damage to a public railroad workshop\. 4\. Project Design and Organization 4\.01 Conceptual Foundation\. The project was designed as an infrastructure and institutional strengthening project to be cacried out by MOP from mid-1983 to December 31, 1987\. It was to continue arresting serious deterioration of the Borrower's Basic Network because of increased and heavier traffic and deficient maintenance, particularly in the 1976-30 period when MOP concentrated its financial resources on the construction of the Santiago Subway (Metro)\. The project was specifically designed to strengthenMOP's road maintenance capability and MTT's capacity to analyze transport sector issues\. This conceptual foundation was developed jointly by MOP, MTT, the Ministry of Finance, and the Bank and was clearly understood by all relevant parties\. 4\.02 Innovative Aspects\. This project prepared a trend to move away from lending for tight and clearly defined projects to a sectoral approach tackling sectoral and institutional issues\. An innovative aspect of this project was the Bank's decision to front-end load disbursements\. The Bank agreed to disburse 601 of expenditures on civil works incurred before December 31, 1985 and 30% thereafter\. The foreign exchange component of the project had been estimated at 47Z of project cost\. 4\.03 During preparation of the project, the Bank agreed to the use in International and Local Competitive Bidding of an experimental bidding procedure for civil works that MOP had introduced in 1900\. The revised procedure provided that: (a) the contractor should prepare the final engineering and work quantity estimates and bid in terms of final cost for completed stages of the works; (b) the final cost should include physical contingencies but could be adjusted for inflation; and (c) the selected contractor would be paid after completion of specific stages of works (para\. 9\.03)\. 4\.04 Preparation of the Project\. Preparation of the project took place during implementation of the MOP program to reconstruct 1,200 km of the Longitudinal Highway (410 km under own financing, 540 km under financing of the Inter American Deve'\. ment Bank (IDB) and 250 km financed under Loan 1927-CH)\. During execution -3- of that program, othLr road sections deteriorated to conditions not compatible with traffic demand\. The Borrower realized the need for adequate analysis of road transport sector issues and for preparation and execution of satisfactory road maintenance programs\. Dialogue with the Bank on these issues led to timely and appropriate preparation of the project, including adequate dimensioning of scope and ucale of wcrks, careful preparation of studies, bidding procedures and implementation programs, and satisfactory provision of financial resources on an incremental basis to reduce the shortfall of maintenance\. 4\.05 On the other hand, the fixed rate of the Chilean peso against the US dollar during project preparation and evaluation, and later devaluation during project imolementation resulted in high project cost estimates, and produced a surplus in the financing capacity of the loan\. 4\.06 Role and Responsibilities\. The fundamental role of MOP and the complementary roles of MTT and the Ministry of Finance in project implementation, as well as the responsibilities of each department within MOP's Roads Directorate (Vialidad) were well defined and clearly understood\. 4\.07 Contribution to Success\. The clear understanding by all relevant parties of the conceptual foundation of the project and their respective roles and responsibilities in its implementation, the careful preparation of a well balanced program, and the disciplined execution by Vialidad contributed substantially to the success of the project\. 5\. Proiect Implementation 5\.01 Variances in Imolementation\. Project implementation started in a timely and efficient manner\. Project costs in US dollars declined significantly when the Chilean peso was devalued with respect to the US dollar, and efficient procurement and keen competition in the construction industry further resulted in lower project costs than those estimated at appraisal\. However, the foreign exchange costs as a percentage of the total cost increased from 47% at appraisal to 53\.3% by the end of 1984\. (Average 51\.4% over the life of the project, Part III, Section 5\.) The resulting surplus financial capacity of the loan allowed the Bank to assist Chile in two successive emergencies: heavy floods that affected northern and central Chile in July 1984 and an earthquake that struck the central part of the country on March 5, 1985\. The first two amendments to the loan agreems-nt (dated February 15 and April 5, 1985) provided for: (a) increasing the -uthorized allocation in the Special Account from US$5 million to US$9 million; lb) increasing the length of transversal roads to be reconstructed from 140 to 400 km; (c) increasing the number of bridges to be reconstructed or rehabilitated fKom 35 to 40 ai\. from 50 to 60, respectively; (d) repairing storm damage to about 800 !m of roads, including their river training structures and a 300 m tunnel; (e) 60% financing during 1985 of the cost of repairs to earthquake damaged roads, estimated at US$13 million; and (f) easing of contracting procedures for emergency works to cost less than US$500,000, for a total not to exceed US$8\.0 million\. 5\.02 On November 13, 1985, the Bank informed the Borrower that its Board had approved a third amendment to the loan agreement providing about US$9\.0 million of loan funds for financing of: (a) studies and civil works for repair and -4- reconstruction of the earthquake- damaged ports of San Antonio and Valparaiso; (b) \.epair of selected port equipmer'; (c) emergency repair of 10 diesel locomotives in private worksh2ps aft : earthquake damage to public railroad workshops; (d) 60% disbursement for ports and railroads emergency works throughout project implementation; and (n) widening of t'le amount of eased emergency procurement procedure total (from US$8 million to US$12 million)\. 5\.03 In view of further increases of the foreign exchange costs as a percentage of total project cost, on February 18, 1986, the Bank authorized an increase in the overall disbursement rate for civil works from 45% to 50% and the maintenance of the 60% rate of disbursement until December 31, 1986\. By this date 69* of the loan funds had been disbursed and the Bank agreed to sit the dinbursement rate for civil works, excluding emergency %\. '-, - 40% in order not to exceed the ovezall 50% financing for civil works\. \.m Jauary 1, 1988 on, this rate of disbursement was further reduced to 37%\. The w- 4ening of the project scope and the slow execution of the port emergency worku required two extensions of the closing date\. (June 30, 1988 to June 30, 1989, and June 30, 1989 to June 30, 1990)\. 5\.04 Possible Avoidance of Variances and Risks\. At the time of appraisal and negotiation of the loan, it could not be foreseen that later economic policies would allow severe devaluation of the Chilean peso, which would result in lower project costs in dollar terms and in a higher foreign exchange component\. However, in the long run, this variance provided additional funding capacity, which allowed the Bank to assist Chile promptly and efficiently in overcoming the disastrous consequences of abnormal floods and a devastating earthquake\. 5\.05 Actions Affecting Implementation\. The continuous and fruitful dialogue between MOP and the Bank and the timeliness of actions taken to correct and improve project execution had a positive effect on project implementation\. 6\. Proiect Results 6\.01 Proiect Oblectives\. The project fully met its original objectives, as well as the additional objectives for repair of flood and earthquake damages: (a) The general condition of the Basic Road Network was improved beyond targets set at appraisal, the road reconstruction and widening program targeted at 586 km achieved 840 km, at a total cost 43% lower than originally estimated (US$80 million instead of US$140 million)\. This effort contributed to a substantial strengthening of MOP's capacity to contract and execute this type of civil works\. (b) Under the project, Vialidad strengthened considerably the capacity of its maintenance department and started implementation of a maintenance management system by: (i) participation of 70 maintenance engineers in the First Lati American Road Mrintenance Seminar organized jointly in August 1983 by MOP, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and the Bank; (ii) participation of Vialidad's top management and maintenance planning staff at several international conferences on road maintenance and pavement management combined with visits to -5- road maintanance orcanisations of the host countries; (iii) organization of biannual mee\.ings of all rood maintenance engineers to share the international and local experiences and discuss requirements for strengthening the road maintenan-e system; (iv) strengthening the structure of its maintenance department; (v) application of Bank's Highway Lesign and M&intenance Standards Model (HDM) in the planning of road maintenance; (vi) modernization and atreamlining of its maintenance equipment fleet; (v\.1i) acquisition of pavement research and laboratory equipment and launching of a comprehensive, long term resaarch program on the behavior of flexible an* rigid pavements, and (viii) familiarization of its staff with the use of the third generation of the HDM Model and preparation of a comprehensive, four-year 1986-89 Road Maintenance Program - be financed under the subsequent Road Sector Project, Loan 2589-CH\. (c) The familiarization with the use of the HDM model provided Vialidad with an effective system to program road maintenance and reconstruction works\. The pavement research program was geared to improve design of these works\. (d) During project preparation Vialidad established a rolling four-year road program, which is updated every year, and succeeded in incrcasing maintenance expenditures from 26% of total road expenditures for the period 1982-85 to 55% for the period 1986-89\. (e) Early during project implementation, Vialidad carried out a detailed inventory of the National Road Network dividing it into the Basic Network and Local Network with clear definition of surface types and condition of roads\. The Basic Network included national, principal regional and secondary regional roads (23,000 km) and the Local Network, principal and secondary local roads (56,000 \. km)\. Subsequently, it prepared a program to expand gradually road maintenance from the Basic Network to the Local Network, the maintenance of which had been entrusted in 1976 to the municipalities\. Implementation of this project was started under the follow-up Road Sector Project, Loan 2589-CH\. (g) The Study of Intermodal Needs in the Santiago-Fifth Region Corridor was approved by the Government and the Bank; however, implementation of its recommendations had to be postponed because of tha earthquake of March 1985 that resulted in the need to reconstruct the ports themselves\. This study will be used for further action after definitive reconstruction of ports is underway\. The Efficiency Study was also pushed to the background and later completed by MTT and ECLAC\. It is being reevaluated by the new Government\. The Ports of the Fifth Region Study, following the rejection of conclusions of the Japanese port study, became the basis for port investments under the proposed First Infrastructure Sector Project\. -6- (h) The project also fulfilled completely the additional objectives oft (i) repair or reconstruction of all roads damaged by the July 1984 flood; (ii) repair of all roads and bridges damaged by the March 1985 earthquake; (iii) execution of emergency repair works of the San Antonio and Valparaiso ports and studies for reconstruction of both ports, and (iv) repair of diesel locomotives for the State Railway and for the San Antonio port\. 6\.02 Ec(,nomic Results\. As explained in Section 6 B of Part III of this report, the econ>mic analysis to confirm economic rate of return (ERR) results of the appraisal team was carried out on a representative sample of 10 longitudinal and 4 traversal rehabilitated road sections, totalling 578 km, and 7 road sections, totalling 320 km, in which major bridges were reconstructed or rehabilitated\. The ERR of the 14 road sections varies between 15% and 57%, with a mean value of 34%, w\.ich is the same as forecasted for the same group of sections at appraisal\. The ERR of the seven roau sections including major bridge works varies from 35Z to above 100%, with a mean value of 71% compared to 32% estimated at appraisal\. Because of the high economic benefits produced by periodic maintenance works, no particular effort was made at appraisal to establish for this component a specific aconomic rate of return\. It was estimated at above 50%, in line with Bank experience in similar projects\. Given the increased priority attached by MOP during project implementation to road maintenance activities in general, and the reduced costs of all periodic maintenance works carried out under the project, it can be safely assumed that the actual ERR of the maintenance component was higher than the one estimated at appraisal\. No economic analysis was carried out for emergency road and port works, since they were designed only to reestablish previously existing facilities with high rates of return\. 6\.03 Project Impact\. This project had a positive impact on strengthening MOP's capacity to program and carry out well-balanced multi)ear road programs, and to upgrade the national road system and improve its maintenance\. The project also assisted MTT in improving road transportation and in tackling intermodal transport issues\. Both impacts have been further consolidated under the two succeeding Road Sector Projects (Loans 2589-CH and 3120-CH)\. Through the improvement of the basic network and the repair of the two earthquake-damaged ports, the project fostered economic development of the country and the growth of its export capacity\. These achievements also had beneficial effect on the physical, technological and social environment\. 7\. Project Sustainability 7\.01 The excellent quality of the road widening, rehabilitation, and maintenance works executed under the project, coupled with the substantial strengthening of Vialidad's capacity for planning, managing, executing, and maintaining annual road programs and individual road works, strengthen the sustainability of the positive results achieved under the project\. This sustainability is further enhanced by the continued dialogue between MOP and the Bank in the preparation and execution of the two -iucceeding Road Sector Loans, which further strengthened Vialidad's managerial capability\. - 7 - 7\.02 Sustainability of the advances achieved in transport sector policies is being strengthened by actions taken under the two Road Sector Project and the ongoing Urban Streets and Transport Project (Loan 3028-CH) and will continue to be fully addressed under a proposed Infrastructure Project\. 8\. Bank Performance 8\.01 Preparation and Apraisal\. During project identification, preparation and appraisal, the Bank carefully assessed the Borrower's need to strengthen MOP administration and some aspects of its sectoral policies, and successfully recommended and monitored all actions needed to put together a promising project\. The overvaluation of project cost at appraisal could only have been avoided by a different forecast at the country economic team level of the sustainability of the fixed exchange rate\. However, the resulting cost underruns allowed the Bank later to enact timely and effective measures to assist Chile in two successive emergencies\. 8\.02 Supervision\. The remarkable continuity of Bank staff involved in project preparation, appraisal, and supervision elicited constructive dialogue and support between Bank and MOP staff\. Project implementation was monitored closely by the Bank, drawing attention to potential difficulties in a timely fashion and replying promptly to emergency assistance requests from the Borrower\. It should be noted that, given the size of the loan (US$128 million), total staff input from identification to completion (140 staff-weeks) was very low, particularly considering that about 20% of that input was devoted to preparing and supervising the relatively minor ports and railroad emergency components\. 9\. Borrower Performance 9\.01 Strenath and Weaknesses\. As expected at appraisal, the performance of Vialidad in project execution was of a high standard, mainly due to the stability, continuity and competence of high, medium, and lower-level staff\. Overall, Vialidad's capability was further improved through close interaction with Bank staff during project implementation, as well as through: (a) well planned and broad participation of selected Vialidad staff in international and local technical meetings; (b) establishment of long-term financial and operational planning; (c) strengthening of its road maintenance department; (d) use of the HDM model for maintenance planning, and (e) fine-tuning of its bidding procedures\. 9\.02 Payment to consultants and contractors were done promptly (on average five days after presentation of bills)\. Disbursement applications to the Bank were well prepared and forwarded promptly\. Favorable audit reports by the State Central Administrative Control Office (Contraloria) were submitted in due time to the Bank\. MOP complied satisfactorily with all loan covenants (Parts III, Table 7)\. 9\.03 MTT's performance in the implementation of the studies and works components under its responsibility was also satisfactory, although it did not have the same budgetary and staffing possibilities as MOP\. The Railroad Company's (EFE) performance in contracting the repair of locomotives was satisfactory, but suffered from limited participation, resulting in relatively high costs\. - 8 - 9\.04 Lessons and Ex2eriences\. The experimental bidding procedures for civil works introduced by MOP in 1980 and accepted bw the Bank for use under the project (para\. 4\.01) were later modified to permit: (a) two or more contractors to prepare a joint engineering study as long as each one presented separate bid\. for execution of works; and (b) greater flexibility in monthly advances on the payments scheduled after completion of specific stages of work\. The system essentially eliminated claims, and, together with NOP's swift payment procedures, resulted in timely and cost-effective execution of works\. However, the system was strongly criticized by the contractor's association\. Towards the end of the project implementation period, MOP reverted to separate prior contracting of the engineering, with civil works bidding done on the basis of unit prices for specific work quantities\. It maintained the procedure of paying against completion of specific stages of works with partial monthly advances\. This new system has proven more effective and has been used successfully under subsequent Bank-assisted road projects\. 9\.05 The extraordinary success of this project proves that stability and competence of staff, careful preparation and planning, sound engineering, streamlining of administrative procedures, responsible fiscal management, and effective supervision of works are key elements to warrant project success\. 10\. Prolect Relationshi2 10\.01 Bank-Borrower Relations\. The Bank's relationship with MOP, MTT aJ the Ministry of Finance was extremely close and flexible, and facilitated fruitful interaction and timely decision-making\. 10\.02 Internal Relations of the Borrower\. The executing ministries, MOP and MTT, had fluid and flexible relations with the Ministry of Finance, ensuring timely availability of funding despite general budgetary constraints\. The close working relationship with the Government's Central Control Office (Contraloria), which has permanent offices in MOP, allowed the timely preparation of satisfactory annual auditing reports\. The working relation between MOP and MTT, which initially was somehow strained, improved satisfactorily during pZoject implementation, except for minor discrepancies on application of training funds\. Further strengthening of the interaction between both ministries will be necessary to increase effectiveness of transport sector policies\. 10\.03 Internal relations within MOP, between the minister and the director of roads, between the director of roads and the chiefs of Vialidad's departments and regions, as well as among Vialidad's departments and regions were very close and effective all of which contributed substantially to the project's success\. 10\.04 Internal relations between NTT and its executing agencies (EMPORCHI for ports and BF for railroads) were also quite satisfactory, however, long-term institutional issues remain to be addressed under the proposed port (Infrastructure I) and possible railway projects\. 11\. Consultina Services/Procurement of Goods and Works 11\.01 The transport sector study of intermodal transport between Santiago and its main ports and the feasibility and preliminary engineering study of the ports - 9 - of San Antonio and VL garaiso were carried out by a joint venture of foreign and local consultants\. The study of the efficiency of the Chile Transport System was carried out by local consultants under the transport unit of the Economic Commission for Latin America and the Caribbean (ECLAC) as executing agency\. The former studies were completed satisfactorily; however, the intermodal study was then pushed to the background by the need for reconstruction of the ports themselves due to an earthquake and by of the Government's disinteres in pursuing intermodal investments\. The study of efficiency of the Chilean Transport System was only partially completed by the consultant and later completed by MTT and ECLAC\. 11\.02 A great number of local consulting firms performed cost effectively and efficiently in: (a) project coordination (six contracts to two local firms, one of them formed by an American consultant who has participated continuously and effectively in Bank-financed projects since 1970); (b) engineering studies (20 contracts to 8 firms) and (c) supervision of works (53 contracts to 14 firms)\. The only firm that did not perform satisfactorily was the Chilean branch of a foreign firm, which was subsequently denied further participation\. 11\.03 The research programs on rigid (cement concrete) and flexible (asphalt) pavements were successfully carried out by the Chilean State University and the Catholic University respectively, under the coordination of an expatriate Chilean consultant, and continued under subsequent loans\. 11\.04 Procurement of goods was carried out expditiously and cost effectively\. Vialidad was able to procure 250 equipment units for road maintenance, 4 major equipment units for road surface condition measurements and for materials testing, and a great number of smaller laboratory equipment at a cost 10% less than forecast at appriasal\. 11\.05 Although international competitive bidding procedures were used to bid for all civil works costing US$2 million or more, and about 10 foreign firms expressed interest in participating, none of them were able to bid successfully against local competition\. Eighty-two contracts for road rehabilit"tion and major maintenance works (costing on average US$2\.4 million equivalent) were awarded to 32 firms and 88 contracts for emergency road works (costing on average US$150,000), were awarded to 37 firms\. Of the total 170 contracts, only 4 were not completed by the original contractor and had to be recontracted\. All works were successfully completed\. 12\. Prolect Documentation and Data 12\.01 The Staff Appraisal Report and the legal agreements were well prepared and provided a useful framework for project implementation\. During project execution every three months MOP provided comprehensive and clear progress reports on project status\. Data needed for the preparation of the PCR were readily available in Bank files\. The supervision reports and the Aide Memoire agreed after each mission were particularly helpful in the preparation of this report\. - 10 - PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-CH) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1\. Confirmation of factual information in P'rt III of the PCR 1\.01 Specialized MOP and MTT staff have reviewed and approved the statistical information and the results presented in Part III of the report\. 2\. Comment on analysis contained in Part I of the PCR I/ 2\.01 The following comments are made with reference to the analysis contained in Part I of the report\. (a) In the second paragraph of the Evaluation Summary and in paragraphs 5\.01 and 5\.02 of the report it should be stated that the 60% disbursement rate on the cost of emergency repairs applied only for ports and railroads, and not to roads, for which the normal disbursement rate was used\. (b) In paragraphs 6g and 11\.01 of the report is should be stated that the efficiency study in the transport sector that was not completed by the consultants, was later completed by MTT and ECLAC\. (c) With regard to paragraph 10\.02 of the report it should be stated that relations between MOP and MTT were satisfactory, except for minor discrepancies on application of training funds\. 3\. Evaluation of Bank's Performance 3\.01 The great flexibility, good criteria, and excellent predisposition showed by the Bank during project preparation and implementation, allowed MOP to achieve expeditiously the agreed targets, confront successfully critical emergency situations, and obtain unsurpassable outputs from the human and financial resources available\. Special mention should be made of the Bank's willingness to introduce in October 1984 the use of Statements of Expenditures in the preparation of disbursement applications, which eased substantially administrative procedures and preparation of disbursements\. It should also be indicated that in eight cases of civil works bids (out of a total of 170), in which the lowest evaluated bid exceeded the cost estimates by a substantial amount, the Bank allowed negotiations with the lowest evaluated bidder\. These negotiations were carried out successfully in all cases, permitting substantial cost and time savings and satisfactory completion of the works\. 3\.02 On the other side, it should be stated that the Bank did not send detailed comments on the audit reports, which could have been conducive to improving information, accounting, and auditing procedures\. Relations with the Bank's I/ These comments have been taken into account introducing minor changes in the wording of the corresponding paragraphs of Part I of the report\. - 11 - Disbursement department were always harmonious, despite substantial delays in the remittance of disbursement confirmation notices by this Department at the beginning of the project implementation period\. The situation improved somehow with the remittance of monthly statements, but these continued to be received with some delays\. Both above mentioned aspects should be reviewed, considering that, although they do not cause major disruptions in the implementation of the project, they cause uncertainties and hamper satisfactory control\. 4\. Evaluation of the Borrower's Performance 4\.01 The project had a substantial impact on MOP's institutional strengthening, mainly through: (a) introduction of the HDM model in the preparation and evaluation of projects and in economic planning; (b) the strengthening of the Maintenance Department and of the technical information system; (c) program of technical visits abroad; and (d) the pavement research program\. 4\.02 Through the project, MTT was able tot (a) improve its knowledge about the different means of transport; (b) define existing problems and deficiencies; (c) perceive the need to develop information systems; and (d) carry out the swift reconstruction of the San Antonio and Valparaiso ports after the earthquake\. 5\. Assessment of Relations between the Borrower and the Bank 5\.01 Relations between the Bank and the MOP and MTT were close and fluent\. Special mention should be made of the technical support received from Bank missions for the successful implementation and conclusion of the project\. - 12 - PROJECT COMPLETION REPORT CHILE SECOND HIGHWAY RECONSTRUCTION PROJECT (LOAN 2297-CH) PART III: STATISTICAL INFORMATION 1\. Related Bank Loans Year of Loan/Credit Purpose Approval Status Comments 1927-CH Reconstruction 12/09/80 Completed US$42\.0 million\. Pro- Highway of 250 km of ject fully disbursed Reconstruction main roads, on time\. Project\. procurement of equipment and execution of transport pre- investment studies\. 2589-CH Financing of 06/20/85 Completed US$140\.0 million\. Road Sector MOP's 1986-89 Project fully Project\. Roads Invest- disbursed on ment and Main- time\. tenance Program\. 3028-CH Urban roads 03/21/89 ongoing US$75\.0 million\. Urban Roads maintenance and Implementation and Transport rehabilitation is slightly behind Project\. program and schedule\. implementation of traffic management measures\. 3120-CH Financing of 09/14/89 ongoing US$224\.0 million, Second Road MOP's 1990-93 US$150\.0 million Sector Project\. Roads Invest- Jeximbank, and ment and Us$220\.0 million maintenance IDB cofinancing\. Program\. Implementation is ahead of schedule\. - 13 - 2\. Proiect Timetable Date items Planned Revised Actual Identification - - 03/31/82 Preparation Mission - - 05/23/82 Appraisal Mission - - 09/15/82 Post-Appraisal Mission - - 12/04/82 Loan Negotiation 04/11/83 - 04/18/83 Board Approval 05/31/83 - 05/31/83 Loan Signature - - 08/01/83 Loan Effectiveness 09/30/83 - 10/25/83 Project Completion 12/31/87 12/31/88 04/30/90 Loan Closing 06/30/88 06/30/89 06/30/90 3\. Loan Disbursements Cumulative Estimated and Actual Disbursements (US$ million) EX8 FY85 FY86 FY87 E88 FY89 FY90 Appraisal Estimate 31\.6 68\.6 99\.2 125\.5 128\.0 128\.0 128\.0 Actual 14\.3 42\.5 76\.1 102\.3 115\.0 124\.6 128\.0 Actual as % of 45\.3 62\.0 76\.7 81\.5 89\.8 97\.3 100\.0 Estimates Date of Final Disbursement: June 30, 1990\. -14 - 4\. Project Implementation Estimate Indicators Original Revised Actual Comments CIVIL WORKS Reconstruction and 588 846 840 W -iding of Roads Longitudinal Highway km\. 436 486 479 Transfer from tranversal to Transversal Roads km 140 400 850 longitudinal roads\. Doubled Roadways km 11 11 11 Periodic Maintenance Surface dressing and overlays km 1400 1400 1480 Bridge Construction and Rehabilitation Construction Units 86 40 40 m 906 1200 1860 Rehabilitation Units 50 60 60 Changes In priority and needs m 8200 4000 2980 reduced total length\. Accesses km so 60 59 Storm Damage Repair Roads km -- 800\.0 800\.0 Tunnel m -- 800\.0 800\.0 Earthquake Damae Repair Roads Civil Works USS M -- 15\.0 12\.2 All repairs needed were completed at lower cost (59 contracts)\. Ports Civil Works USS M -- 4\.8 9\.5 Increased funding for ports Locomotive Repair US$ M -- 5\.0 5\.9 works and locomotives and Ports Studies USS M -- 4\.0 2\.2 reduced funding for studies Number of Locomotive to be repaired Units -- 10\.0 14\.0 PROCUREMENT OF GOODS Road Maint\. Equip\. USS M 11\.4 11\.4 10\.9 Procurement was completed at Research A Lab\. Equip\. US$ M 2\.7 2\.7 1\.9 lower cost\. STUDIES Transport Studies USS M 0\.6 0\.5 0\.9 -15 - 5\. Project Costs and Financing Cost of Components Financed by the Project (in current US$ million) Appraisal Estimate Actual Foreign z of Financing X of Local Exchange Total Total Costs Cost Total Costs Local IBRD Total Costs A\. CIVIL WORKS 133\.6 109\.6 243\.2 88\.9 106\.4 107\.6 214\.0 85\.9 (i) Road Reconstruction 77\.0 63\.2 140\.2 51\.3 41\.1 39\.9 81\.0 32\.5 and Widening (ii) Periodic Road Maintenance 44\.5 36\.5 81\.0 29\.6 48\.8 45\.6 94\.4 37\.9 \.(iii) Bridge Construction and Rehabilitation 12\.1 9\.9 22\.0 8\.0 6\.4 8\.8 15\.2 6\.1 (iv) Road Emergency Works - - - - 5\.9 8\.0 13\.9 5\.6 (v) Ports Emergency Works - - - - 4\.2 5\.3 9\.5 3\.8 B\. PROCUREMENT/GOODS 3\.4 10\.7 14\.1 5\.2 6\.3 12\.4 18\.7 7\.5 (i) Roads Equipment 3\.4 ' 14\.1 5\.2 -4\.2 8\.6 12\.8 5\.1 (ii) Rehabilitation of Ports and Railway Equipment - - - - 2\.1 3\.8 5\.9 2\.4 C\. CONSULTING SERVICES AND TRAINING 8\.6 7\.4 16\.0 5\.8 8\.4 7\.7 16\.1 6\.5 (i) Project Coordination and Supervision of Works 5\.6 4\.1 9\.7 3\.5 4\.9 3\.9 8\.8 3\.5 (ii) Studies of Bridges and Roads 1\.2 1\.1 2\.3 0\.8 0\.9 0\.7 1\.6 0\.6 (iii) Pavement and Main- tenance Management (including training) 1\.1 1\.0 2\.1 0\.8 0\.8 0\.7 1\.5 0\.6 (iv) Transport Sector Studies 0\.7 0\.7 1\.4 0\.5 0\.9 0\.9 1\.8 0\.7 (v) Training and Scholar- ships Abroad - 0\.5 0\.5 0\.2 ' - 0\.2 0\.2 0\.1 (vi) Transport Consulting Services - - - - 0\.9 1\.3 2\.2 0\.1 D\. FRONT END FEE - 0\.3 0\.3 0\.1 - 0\.3 0\.3 0\.1 TOTAL 145\.6 128\.0 273\.6 100\.0 121\.1 128\.0 249\.1 100\.0 Percentage 53\.2 46\.8 100\.0 48\.6 51\.4 100\.0 -16 - 6\. Project Results A\. Direct Benefits No direct benefits indicators were established at appraisal B\. Economic Impact 1\. At appraisal the Economic Rate of Return (ERR) for the three main components of the project was calculated : (a) road reconstruclion and widening (51Z of total project cost); (b) periodic road maintenance (30%); and (c) bridge construction and rehabilitation (8Z)\. Discrete sections of roads and clusters of bridges or individual bridges were subject to an independent analysis\. 2\. The road sections to'be rehabilitated were analyzed using the Bank's Highway Design and Maintenance Standards Model, Version II (HDM II) computing vehicle operating costs and time savings as well as road maintenance savings\. Fourteen sections of roads and seven clusters of bridges were subject to economic reanalysis using the improved HDM III version of the model\. (Three volumes containing the reanalysis appear in the Project File\.) The comparative results of both analyses are presented in the table on the next page\. The substantial decrease in cost of the works (43?) was offset by the considerable decrease of traffic flow in 1982 and 1983, by changes in the forecast traffic composition and rate of traffic increases, and by the more conservative parameters of the HDM III model\. As shown in part A of the table, the ERR established at confirmation varied from 15? to 57% with a mean value of 34?, the same as the rates obtained at appraisal\. 3\. The road sections including major bridge works were analyzed comparing each one of them with the best alternative road\. As shown in part B of the Table, the EPR established at confirmation varied from 35? to above 100%, with a mean value of some 71?, which compares favorably with the mean value of 32? forecast at appraisal\. 4\. Because of the high economic benefits rendered by periodic maintenance works, no particular effort was made at appraisal to establish a specific economic rate of return for this component\. It was estimated at above 50?, in line with Bank experience in similar projects\. Given the increased priority attached by MOP during project implementation to road maintenance activities in general, and the reduced costs of all periodic maintenance works carried out under the project, it can be safely assumed that the actual ERR of the maintenance component was higher than 50?\. C\. Financial Impact 1\. Since the project did not involve a revenue producing agency, no financial evaluation was carried out\. Comparison of Economic Studies at Appraisal and at Project Completion Economic Cost (US$ million) Average Daily Traffic Economic Rate of Return Length Subproject Km Appraisal Actual Appraisal Actual Appraisal Actual A\. Road Reconstruction 578/ 88\.93' 47\.29a/ 66b/ 53b/ 34bc/ 34 Longitudinal Road P\. de Valdivia-Carmen Alto 44 5\.65 2\.83 359 293 23 15 Carmen Alto-Mantos Blancos 53 7\.60 4\.02 832 793 44 39 Mantos Blancos-Uribe 29 4\.56 2\.13 1121 981 48 42 Uribe-La Negra 22 3\.82 1\.42 247 218 38 39 Rosario-Los Vientos 68 8\.82 5\.59 432 220 20 16 Los Vientos-Of\. Alemania 47 7\.38 3\.32 432 197 21 17 Of\. Alemania-Agua Verde 37 5\.82 3\.60 432 382 20 21 Altamira-Las Bombas 11 1\.32 1\.46 581 653 40 20 Travesia-Q\. Algarroal 65 10\.56 5\.34 971 712 28 57 / Tongoy-Penablanca 72 11\.35 6\.38 998 1063 36 29 Transversal Roads Carmen Alto-Calama 110 17\.16 7\.24 548 879 36 42 Uribe-Planta de Filtros 5 0\.68 0\.58 992 861 48 26 Colcura-Laraquete 11 3\.46 2\.48 1466 1627 31 30 Corampagne-Ramadillos 4 0\.75 0\.90 1310 1474 59 35 B\. Bridges and Accesses 320/ 4\.67' 5\.08a/ 305/ 453b' 32b/d/ > b__ Santa Cruz-Lolol 35 0\.75 0\.76 362 626 29 >100 Ranco-HualaH6 63 0\.31 0\.26 225 266 38 44 Cauquenes-Constituci6n 108 0\.51 1\.19 527 397 26 50 Constituci6n-Empedrado 44 0\.71 0\.81 318 832 21 >100 Chillin-Pemuco 44 1\.65 0\.66 417 473 35 35 Tucapel-Canteras 15 0\.49 0\.41 97 196 33 >100 Quill6n-Nueva Aldea 11 0\.25 0\.99 186 382 39 91 a/ Total values\. b/ Mean values\. c/ Overall traffic increase rates estimated at 5%\. d/ Overall traffic increase rates estimated at 4T\. e/ Individual traffic rate increases estimated for each road, averaging 5% for ligft vehicles 0% for two axle trucks; 7\.5% for heavy tFucks and 3\.5% for buses\. f/ As in "e" averaging 4% for light vehicles, 04 for two axle trucks; 8% for heavy trucks and 7% for buses\. (g) Length of rehabilitited road section 97 km instead of 65 km\. - 18 - D\. Studies (1) Intermodal Transport Study of Corridor Santiago-Ports of the Fifth Region (a) Purpose as defined at appraisals Study of expected future roles of the ports of San Antonio and Valparaiso for container traffic to Santiago, and subsequently of ways to adapt facilities, including improvement of road and rail access to ports and possible intermodal container\.terminal in Santiago\. (b) Status: Completed in June 1986\. (c) Impact of Study: The study was approved by Government and the Bank; however, its implementation had to be postponed because of need to reconstruct ports themselves after earthquake of March 1985 and reluctance of Government to invest in intermodal facilities\. Will be used as basis for further action after reconstruction of ports is underway\. (2) Economic and Institutional Efficiency of Chilean Transport System (a) Purpose as defined at Appraisal: This study was rAquested by the Government at negotiations and its scope and content were to be defined later\. (b) Status: Terminated by the end of 1985 at request of Government\. (c) Impact of Study: As study was interrupted before full completion, impact was less than expected, although not entirely negligible\. Land transport disequilibrium was explained and concerns about prolonged oversupply of trucks resided\. Expected production of data was not realized\. Identified needs for institutional arrangements still require further studies, which are being implemented by new Government\. (3) Port Development Plan for the Fifth Region and Feasibility of First Phase (a) Purpose as defined at Apraisal: This study only became necessary and was defined after the conclusions of a Japanese study, executed after the earthquake of March 1985, were found unacceptable as basis for reconstructicn\. (b) Status: Completed June 1988\. (c) Impact of Study: Study is basis for port investments under proposed First Infrastructure Sector Project\. - 19 - 7\. Status of Loan Covenants Section Covenant Status of Compliance 2\.03 (a) Opening and maintenance Account was opened on time of special account in dollars and functioned satisfacto- in Banco Central on satisfactory rily\. terms and conditions\. 3\.04 Supply of information and Complied with\. maintenance of records\. 3\.07 ppropriate administration of Complied with\. the Basic Highway Network\. 4\.02 (a) and tb) Accounting practices and record Complied with\. The audits\. 1989 audit report was received in May 1990\. 4\.03 (a) Preparation by June 20, 1984 of Plan was submitted on sche- Maintenance Plan for roads not dule and was used as basis included in Basic Network\. for preparation of a new project (Loan 2589-CH)\. 4\.03 (b) Adequate day-to-day maintenance Maintenance of Basic of national and regional road and Primary Local network\. Networks and spot maintenance of Secondary Local Networks were carried out satis- factorily and continued under Loan 2589-CH\. Schedule 1, Submission of detailed studies Complied with\. Section 4 (b) on the technical and economic justification for doubled roadways\. Schedule 4 Award of contracts on basis of Complied with\. Guidelines, within thresholds and according to procedures established in Loan Agreement\. Schedule 6, Assignment of responsibilities Complied with\. Section 3\.01 between MOP and MTT for (as amended) execution of earthquake emergency works\. - 20 - 8\. Use of Bank Resources A\. Staff Inputs Stage of Pro lect Cycle FY82 FY83 OY84 FY85 FY8 87 FY88 FY89 FY90 FY91 TotaL Through Appraisat 20\.1 10\.1 30\.2 Appraisal through Board ApprovaL 32\.6 32\.6 Board Approval through Effectiveness 4\.9 4\.9 Supervision 4\.0 15\.1 15\.5 14\.1 8\.1 3\.7 6\.7 5\.0 72\.2 Totat 20\.1 47\.6 4\.0 15\.1 15\.5 14\.1 8\.1 3\.7 6\.7 5\.0 19\.9 P, Missions Special- Stage of Month No\. of Days in izations Performance Type of Prolect Cycle Year Persons Field!/ Reoresentedl/ Rating/Statust/ Problems a/ Through Appraisal 03/82 6 2 Ec, En 06/82 5 22 Ec, 2En 09/82 4 14 2c, En, TrS, Lw Appraisal thru Board Approval 12/82 3 20 Zc, En Supervision 08/83 4 6 Ec, 2En, FA 1 12/83 2 6 Ec, En 1 08/84 2 6 Ec, En 1 03/85 2 10 Ec, En -4/ 06/85 3 12 Ec, En, FA -4/ 10/85 2 6 Ec, En -4( 02/86 2 15 2En 1 04/86 1 2 EC 1 03/87 2 12 En, FA 1 10/87 2 6 Ec, En 1 04/88 2 2 Ec, En 1 08/88 2 3 Ec, En 1 12/88 2 2 Ec, En 1 10/89 2 2 Ec, En 1 05/90 2 2 EC, En 1 08/90 2 3 Ec, En 1 fMost missions were combined with suoervision of Loan 1927-CH\. and with Preoaration and suoervision or Loan 28Y-Lt\. /Ec-Economist, En-Enafneer, TrS-Trainng Soecialist, Lw-Lawyer, FA-Financial Analyst I1 1-Minor Problems: 2-Moderate Problems: 3- Major Problems [j\.Missions for evaluation of earthquake damage to port and railway subsectors\. ．써

APPROVAL

P175343

 The World Bank Africa Facility for Resilience and MSME Growth (P175343) Project Information Document (PID) Concept Stage | Date Prepared/Updated: 06-May-2021 | Report No: PIDC30713 May 04, 2021 Page 1 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) BASIC INFORMATION A\. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Eastern Africa P175343 Africa Facility for Resilience and MSME Growth (P175343) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA EAST Dec 15, 2021 Feb 24, 2022 Finance, Competitiveness and Innovation Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Africa Export-Import Bank African Export-Import Bank Proposed Development Objective(s) To enhance provision of financing including through private capital mobilization to early stage innovative firms and small and medium enterprises promoting trade in Africa\. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 415\.00 Total Financing 415\.00 of which IBRD/IDA 415\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 415\.00 IDA Credit 415\.00 Environmental and Social Risk Classification Concept Review Decision May 04, 2021 Page 2 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) Substantial Track II-The review did authorize the preparation to continue Other Decision (as needed) B\. Introduction and Context 1\. The Coronavirus Disease (COVID-19) pandemic has taken a large toll on economic activity in Sub-Saharan Africa (SSA), jeopardizing a decade of hard-earned economic and social progress\. The pandemic is pushing the region into its first recession in the past quarter century\. Real gross domestic product (GDP) is expected to have contracted by 2 percent or nearly five percent in per capita terms in 2020\. Global trade, which was forecast to expand by 2\.7 percent in 2020, contracted by 9\.2 percent\. Between January and August 2020, Africa’s merchandise trade contracted by 12 percent compared with the same period the previous year\. The downturn in economic activity will cost the region US$115 billion in terms of output losses (relative to a no-COVID-19 scenario)\. In Africa, COVID-19 could push close to 40 million people into extreme poverty, erasing at least five years of progress in fighting poverty\. In addition to large capital outflows, banks’ heightened risk aversion, deteriorating assets, and redirection of their portfolios to ‘safe’ havens induced by COVID-19, further exacerbated banks’ existing liquidity constraints and undermined their capacity to finance the growth of African trade with important implications on enhancing productivity and fostering inclusive growth, including increased economic participation of women\. Sectoral and Institutional Context 2\. Small and Medium Sized Enterprises (SMEs) are the backbone of the African economy and are bearing the brunt of the economic impact of the global pandemic with reduced sales and financial distress\. African SMEs represent over 90 percent of firms, contribute at least 70 percent of jobs, and they play a key role in intra-regional trade\. In addition to conducting significant small-scale cross-border trade in which most women owned enterprises engage, SMEs dominate the food chains in Africa (80 percent of the traders, truckers and processors which connect farmers to retailers are SMEs)\. However, despite their importance, the total share of trade finance in Africa dedicated to SMEs was only 34 percent in 2019\. Promising young African entrepreneurs with innovative ideas and solutions are extremely challenged in accessing longer-term financing limiting their potential for innovation, high growth, and job creation\. 3\. Financial instruments for SMEs that promote trade are nascent in Africa despite their relatively low level of risk\. Few country-level banks have adequate experience and understanding of trade finance tools\. Even prior to the onset of the COVID-19, SMEs have been experiencing a rising trend in rejections of their trade finance applications due to banks’ perceived high risk of SMEs even though trade financing is typically backed by assets/receivables and is less risky than traditional credit\. Since managing risk is a key prerogative especially in a post COVID-19 era, trade finance with its lower risk characteristics combined with capacity support, offers a route to provide liquidity stimulus that can help support SMEs, generate growth and sustain employment, without posing undue risks for financial institutions\. Furthermore, as global trade takes time to recover, developing trade financing to firms is warranted to play a counter-cyclical role in the post-COVID economic recovery period supporting development and recovery of SMEs\. 4\. With banks’ increased risk aversion and low capacity in trade finance tools, selective engagements with creditworthy Regional Development Banks (RDBs) can play an important role in building market capacity and mobilizing private finance for SMEs leveraging regional banks, specialization, and economies of scale\. The World Bank COVID-19 response approach paper suggests that partnership schemes to pool and leverage resources and share and mutualize May 04, 2021 Page 3 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) risks, can play a key role in addressing the challenges highlighted given the severity of the situation and the present constraints in the response by developing countries and development finance institutions (DFIs)\. 5\. The African Export-Import Bank (Afreximbank), as the continent’s leading bank for trade and regional integration, is uniquely positioned to bring synergies between country programs, regional players, and markets, and to mobilize private capital\. financial intermediation projects providing liquidity to local/regional banks to on-lend to firms, typically go through a wholesale entity which, at the country level would be either a national development bank, or the central bank\. At the regional level this role is played by regional development banks (RDBs)\. Afreximbank recently launched a specific program to support SMEs engaged in trade and developed public goods that aim to close the trade information gap for SMEs\. As part of its strategic plan to expand its coverage of SMEs and strengthen its development impact, Afreximbank has reached out to the World Bank seeking partnership to support its efforts\. In the context of the debilitating and wide-ranging impact of COVID-19 on firms, economies, and financial intermediation across Africa, this comes at a particularly opportune time when the imperative and client demand to proactively respond is higher than ever\. Relationship to other WBG development programs 6\. The project is strongly aligned with the African Regional Integration Strategy which was updated to reflect a greater focus on trade facilitation\. The Regional integration strategy (FY18-23) highlighted the importance of leveraging the private sector for investing in regional value chains along key economic corridors and underscored development of functioning regional markets as part of the strategic priorities\. Following COVID-19 and developments over FY18-FY20, the strategy was updated to include a pillar on Promoting Trade and Market Integration, under which the regional program will support trade facilitation and implementation of the AfCFTA, strengthening of regional value chains, and financial market integration\. The project’s activities are anchored within the WBG COVID-19 response approach; the support for export-oriented SMEs and value chain financing is well aligned with the economic response pillar for saving livelihoods, preserving jobs and ensuring more sustainable business growth and job creation, helping firms and financial institutions survive, restructure and recapitalize to build a resilient recovery\. The regional implementation through a capable financial institution supports the ‘strengthening policies, institutions and investment for rebuilding better’ pillar of the WBG COVID- 19 response approach\. Through extension of both short-term COVID-19 relief support, as well as longer-term financing to support firms during the recovery period and beyond, the proposed project aims to facilitate development of sustainable, inclusive, and green projects aligned with the WBG’s Approach paper: Saving Lives and Livelihoods while Supporting Green, Resilient and Inclusive Development (GRID)\. 7\. The project complements the IFC’s Global Trade Finance Program and provides an opportunity to leverage and scale their support in Sub-Saharan Africa\. Project implementation will be aligned with the cascade approach, prioritizing private sector solutions across geographies\. The IFC through its various global commodity and trade finance programs, brings extensive technical assistance and capacity building to financial institutions in addition to financing\. In Africa, they have leveraged the Private Sector Window (PSW) for de-risking interventions in some markets including in Nigeria, Rwanda, and Kenya\. The operation will coordinate closely with IFC to seek additionality of the intervention and complementarity with market solutions\. This includes focusing on more challenging markets such as Burundi, Burkina Faso, Mali, Sudan, and South Sudan, and on Financial Intermediaries (FIs) that could benefit from additional leverage\. It is also expected that through ‘upstream’ financing support, some Tier 2 and Tier 3 banks (which currently do not meet IFC criteria) that have exhibited good performance, could become a pipeline for future IFC investments/lending\. The project’s joint WB-IFC team will work together to identify appropriate targets and financing needs\. May 04, 2021 Page 4 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) Proposed Development Objective(s) 8\. To enhance provision of financing including through private capital mobilization to early stage innovative firms and small and medium enterprises promoting trade in Africa\. Key Results The key results will be measured by: - Number of SMEs benefitting from the project (percent of which are women-owned) - Amount of African trade promoted by the project - Amount of private capital mobilized by the project (to the beneficiaries, through equity mobilization, co- investments, funds from financial intermediaries matching IDA contribution)\. Summary of Proposed WB Intervention – Theory of Change D\. Concept Description 9\. The proposed activities aim to scale up Afreximbank’s SME development program to further develop trade finance tools in the region, leveraging other capital, to support business continuity and recovery for SMEs, and create a demonstration effect\. Using a regional approach will help catalyze financing at scale by regional entities to a broader group of SMEs, including those operating in smaller markets, and provide a demonstration effect especially to local financial institutions\. Trade finance instruments will be coupled with technical assistance and support to regional and local banks to provide an integrated package of services, that aims to correct information asymmetries on trade finance and risk perception of SMEs\. Afreximbank has a substantive existing pipeline of firms from across the region requesting trade financing, underscoring the high level of demand emanating from its member countries\. The definition of SMEs will be aligned with that Afreximbank’s definition for SMEs which is also similar to the IFC definition\. Component 1: Value chain and trade finance for SMEs (US$350 million) a) Factoring and reverse factoring May 04, 2021 Page 5 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) 10\. Afreximbank is scaling up its factoring and supply chains financing program to catalyze African trade for which funds under this project will support\. Factoring is a form of receivables financing where a seller of goods and/ or services assigns its receivables to a financial institution that provides discounted prepayment\. Similarly, Afreximbank is launching a reverse factoring program to provide cheaper financing to SME that supply larger firms\. Reverse factoring is especially useful for SMEs as it entails a large buyer requesting a financial institution (where they typically have an established relationship) to provide financing to its SME suppliers based on the buyer’s relationship and credit rating\. The large buyer would then submit approved invoices through a digital platform for immediate payment by the bank to the SMEs\. b) Credit lines to financial intermediaries for SMEs that promote African trade 11\. Funding under this activity will support Afreximbank’s SME Finance Facility offering credit lines through eligible financial intermediaries (banks, finance and leasing companies, microfinance institutions) to SMEs that promote African trade\. A key feature will be the longer tenor of between 4-7 years compared to the market offering of 18-24 months, allowing financial intermediaries (FIs) to extend longer-term loans to SMEs for capital investment\. All beneficiary institutions will be required to undertake a training program to ensure they can perform SME risk assessment, screen, and mitigate social and environmental risks, and provide detailed information on their SME sub-borrowers\. c) Horn of Africa SME trade finance 12\. This potential sub-component would expand SME trade finance in the Horn of Africa (HoA) in line with the Horn of Africa Initiative\.1 The Bank team is discussing with the IFC the opportunity of collaborating on a joint approach on this initiative among others, given the business environment in the Horn and Afreximbank’s risk appetite (it currently operates in Djibouti, Eritrea and Sudan)\. Component 2: Early Stage SME finance (US$50 million) 13\. Afreximbank has set up a Venture Fund to support investment in high growth SMEs with export potential\. The target capital for this fund is US$100 million for which funds under this project will contribute half (US$50 million)\. The remainder will be leveraged from other investors\. This fund will operate as a profitable social enterprise to attract private impact investors, with any surpluses gained by Afreximbank reinvested for additional impact\. The underlying objective is to provide patient expansion capital to high growth enterprises operating across intra-Africa trade and export development value chains in Africa\. The creation of this Venture Fund is driven by a dearth of market options\. Private Equity firms have traditionally focused on sectors considered high growth with limited risks such as financial services, Telecommunications, Media & Technology, and energy, leaving other key sectors that drive trade with limited financing options\. Component 3: Technical Assistance and project administration (US$15 million) 14\. IDA will support Afreximbank to build capacity and understanding of SMEs and financial intermediaries on trade instruments, fiduciary, environmental and social (E&S), data collection/recording, and connectivity to markets\. Funds will also provide, assistance for Afreximbank to develop its sustainable finance strategy of which climate finance is an 1The new Horn of Africa Initiative was launched in 2019 by Djibouti, Eritrea, Ethiopia, Kenya, and Somalia to deepen their cooperation and deliver development results for their populations, and is supported by the African Development Bank, European Union and World Bank Group\. May 04, 2021 Page 6 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) important element\. In addition, given the high transaction cost of building viable SMEs, technical assistance will be needed for creating a pipeline\. Component 4: Contingent Emergency Response Component (CERC - US$0 allocation) 15\. Afreximbank has expressed a strong interest in a stand-by liquidity facility to cushion unexpected shocks\. The 2008 global financial crisis, the end of the commodity super-cycle in 2016 and the COVID-19 pandemic resulted in shortages of liquidity to African financial institutions, as international banks withdrew from the continent, and put strong pressure on Afreximbank to fill in gaps\. Uses of proceeds 16\. The uses of proceeds will be working capital, capital (equity/quasi equity) investments, and consultancy services which present limited environmental and social risks\. For activities in components 1, eligible expenditures include loans, trade finance transactions, equity, and quasi equity (including subordinate debt and mezzanine finance), and other trade finance transactions\. The lines of credit extended to SMEs could also be used to either reduce their exposure to climate change related risks or recover from damages incurred by impacts of climate change\. As the SMEs supported by the project are expected to be in various sectors (agribusiness, manufacturing, transport & logistics, healthcare, education and technology), an exclusion list will be elaborated to prohibit the financing of activities that could pose substantial or high environmental and social risks\. Component 3 will finance consultancies and digital equipment\. Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Screening of Environmental and Social Risks and Impacts \. 17\. The project will finance working capital for SMEs and financing for early-stage firms\. Working capital will go into financing, everything that would be needed to run a business as an SME, for instance, a service business would include the cost of staff and inputs; an import-export SME would include the cost of goods purchased; a food SME it would include the raw material, the labor to transform the food, the packaging, and the logistic services to send your product to an outlet to sell it\. Financing for early-stage firms will include staff time\. This is equity for start-up or nascent firms\. Usually, these firms would have one founder and a great idea but no capital to develop their idea and make it marketable\. So this is equity to help them develop their idea/product and commercialize it, as opposed to debt for more established businesses\. The environmental risks associated with this project would be related to labour and working conditions, including occupation safety and health\. 21\. The social risks are expected to be moderate\. The social impacts are expected under Components 1, 2, 3 include inadequate stakeholder engagement to inform SMEs of the project and selection criteria for them to benefit from the credit facilities available, and inaccessible grievance redress mechanisms where these entities could report (i) perceived lack of fairness or transparency of in the process, (ii) exclusion factors based on gender, disability, ethnicity, sexual orientation/gender identity or any other particularity, or (iii) any additional charges FI might subject them to to benefit from these interventions\. Medium and long-term interventions under component 1 and 2 involving enterprises and May 04, 2021 Page 7 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) projects benefiting from factor and reverse factoring, liquidity enhancement facilities to finance working capital which might include activities such as Component 3, which are meant to generate jobs and venture funds to support investment in high growth SMEs with export potential, are also likely to carry E&S impacts that are unknown at this stage\. These risks will be addressed by the implementation of Afreximbank ESMS and the establishment of Environmental and Social Procedures for implementing FIs\. \. CONTACT POINT World Bank Randa Akeel, Caroline Marie Cecile Cerruti Hailey Senior Financial Sector Specialist Borrower/Client/Recipient Africa Export-Import Bank Kofi Asumadu Senior Manager, Guarantee & Specialised Finance kasumadu@afreximbank\.com Implementing Agencies African Export-Import Bank Kofi Asumadu Senior Manager, guarantee and specialized finance kasumadu@afreximbank\.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Task Team Leader(s): Randa Akeel, Caroline Marie Cecile Cerruti Hailey May 04, 2021 Page 8 of 9  The World Bank Africa Facility for Resilience and MSME Growth (P175343) Approved By APPROVALTBL Practice Manager/Manager: Country Director: Claire Kfouri 01-Jun-2021 May 04, 2021 Page 9 of 9

APPROVAL

P007739

RETURN TO R E S T R I C T E D REEPOR1TS DE- K Report No\.T\.O\. 91-a ONE WEEK FiLE IPY This document was prepared for internal use in the Bank\. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE CAPITAL GOODS IMPORT PROGRAM OF THE INSTITUTO DE FOMENTO NACIONAL MANAGUA, NICARAGUA July 15, 1955 Department of Technical Operations  TABLE OF EQUIVALENTS US$1\.00 * C\. 7\.00 C\. 1\.00 - US$0\. 142857 C\. 1,000,000\.00 US$142,857\.00  TABLE OF CONTENTS page I\. Background 1 II\. The Project 2 III\. Justification of the Project 3 IV\. The Borrower 9 V\. Conclusions 13 Appendix I - Importation of Capital Goods for Agricultural Development (as amended) II - Credit Applications from January 1 to December 31, 1954 " III - Financing Program including Medium and Long-term Loans and Direct Investments IV - Position of Credit Applications in Relation to the Budget Funds (at June 10, 1955)  NICARAGUA APPRAISAL OF THE CAPITAL GOODS IMPORT PROGRAhM OF THE INSTITUTO DE FOMENTO NACIONAL I\. BACKGROUND 1\. The rapid expansion of cotton production dominates the present phase of agricultural development in Nicaragua\. This expansion has brought its own problems, among which are: land clearing, soil erosion, cotton seed storage, by-products, disposal and port and shipping facili- ties\. It is also having far-reaching repercussions on other agricultural pursuits\. Such vital industries as corn cultivation, dairying and beef raising are tending to be replaced on the Western Plains by cotton, owing to the quick and large net returns promised by this commodity\. 2\. In 1953, the Government charged the newly founded Instituto de Fomento Nacional with the task of planning and financing of agricultural and industrial development specifically to\.- a) "--serve as an active instrument of the Government in the execu- tion of programs directed to the development of the national production; b) lend in all fields of production the necessary technical assist- ance directly or in collaboration with other official or private institutions; c) develop the agricultural and cattle industries and stimulate their diversification in order to fill the needs of the domestic and export markets\. Develop tne establishment, growth and expansion of those industrial activities, which permit a better use of the country's natural resources; d) stimulate the formation of capital through the channeling of private savings towards productive ends; e) back private initiative in those activities that contribute directly or indirectly to make more jobs for Nicaraguans and to strengthen economic relations with foreign countries; f) assist in the formation of enterprises necessary for the economic development of the Nation\."  3\. In October 1954 the Instituto submitted a request for an IBRD loan to finance a part of its program\. After discussions with a Bank mission, which visited Nicaragua in February 1955, the Instituto sub- mitted a slightly revised proposal\. 4\. The following report contains an analysis of this proposal and examines the following three basic questions: (a) the nature of the project; (b) the justification of the project; (c) the suitability of the Instituto as a borrower\. II\. THE PROJECT 5\. The proposal is for a loan of the equivalent of US$1\.6 million for a term of ten years, including a grace period for disbursement of two years\. The borrower would be the Instituto de Fomento Nacional de Nicaragua and the loan would be guaranteed by the Government of Nicara- gua\. 6\. The purpose of the loan is to provide the foreign exchange neces- sary for the import of machinery and equipment for the following purposes: Appendix I (US$ 'ooo) a) Land clearing and erosion control machinery 260 b) Milk processing plants 540 c) Breeding stock (cattle) 400 d) Pasture improvement equipment 400 1,600 7\. The proposed method of operating the project is as follows:- a) The tractors and graders required for land clearance and erosion control would be purchased by the Instituto through local deal- ers\. The machines would be rented to private companies or persons on 5-year hire-purchase agreements\. Half of the machines have already been ordered under manufacturerst credits which call for 25, down-payment and 25% each at the end of the 1st, 2nd and 3rd year\. The Instituto is requesting that these tractors be included in the goods to be financed out of the proceeds of the proposed IBRD-loan in order to free its own resources which are urgently needed to grant credits to farmers for land reclamation wArork to be performed by this machinery\. b) The Instituto proposes to lend to milk producing companies the foreign exchange necessary to import milk processing plant and equipment on a 10-year term\. These companies are either already in existence or are being formed\.  - 3 - c) The cattle would be selected and purchased by a technician from the Instituto on behalf of farmer clients to whom the Instituto would extend 5-year credit up to 80% of the cost to the farmer\. A small number of cattle (approx\. 10O) would be purchased by the Instituto to stock its own stud farm\. d) Local distributors would order abroad the pasture improvement equip- ment, including fencing wire, overhead irrigation plants, diesel engines for the plants, windmills and haymaking machinery\. The Instituto would pay for this equipment and would retain ownership of the goods for one year after receipt, unless sold before, at which time the distributor must purchase them on his own account\. The Instituto would extend 5 years credit to farmers for up to 100% to buy the equipment from the distributors\. 8\. On the basis of these proposals the Instituto would have available counterpart funds which would accrue because the term granted by the Instituto to some of its borrowers or hire-purchase clients would be shorter than the term of the proposed IBRD loan\. The Instituto proposes to use the counterpart funds to finance operations under its general agricultural lending program\. III\. JUSTIFICATION OF THE PROJECT A\. Importation of Mlachinery for Land Reclamation i) Land Clearing 9\. Climate and soils of the west coast of Nicaragua are very suitable for cotton cultivation\. The sharply defined wet and dry seasons provide almost perfect growing and harvesting conditions, while the fe-rtile volcanic soils are easily- workld and capable of producing yields comparable to irrigated cot- ton in the United States\. It is, therefore, not surprising that favorable cotton prices, together with introduction of mechanized cultivation and modern disease control methods have caused a rapid increase in the cotton acreage - fron 35,oco acres in 1949 to approximately 190,000 acres in 1954\. It is esti- mated that the cotton acreage will reach 300,000 acres in 1955\. 10\. The basic quality of the Nicaraguan cotton is good, as standardized U\.S\. seed is used for all plantings\. All gin cotton is graded by official classifiers\. Almost the whole crop falls wi-thin the grades Midling and Strict Lcw Midling\. 11\. The cotton crop of Nicaragua represents less than l1,S of the total world export\. The present economic position of cotton cultivation in Nicaragua depends primarily on the US price support policy\. By slightly underselling the U\.S\. on the world market Nicaragua does not have any difficulties in dis- posing of its crop at present\. In the long run Nicaragua can remain competi- tive through cutting the cost of production by more efficient methods of spraying, use of fertilizers and employment of machinery\. In the case of sig- nificantly lcwer prices than at present the marginal cotton land could revert to other crops or to cattle vithout excessive capital loss\. 12\. Heavy machinery is needed for the timber clearing and land levelling in order to reclaim new land\. Previous importations of suitable machines have been small (only three tractors of Type D-6 or heavier have been imported by private enterprises in the last two years), due to a relatively weak demand up to a year ago for land reclamation services, and to the difficulty in providing medium-term credits\.  - 4 - 13\. Purchasing of heavy tractors for land clearance by individual farmers is uneconomic because full use of the machinery during its economic life is not possible by the farmers and consequently cost of production would be high\. There are at present in Nicaragua several private companies engaged in custom soil clearing and conservation work, which are keen to enlarge the scope of their operations, but cannot do so due to lack of adequate financing\. The Instituto's decision to import 12 crawler tractors (80 - 90HP) and rent them to private companies on a five-year hire-purchase system appears to be sound\. 14\. As there was a great immediate need for these machines, the Instituto has already ordered six of the tractors on a 3-year suppliers' credit and has requested the Bank to refinance this transaction\. We feel that although this 3-year contract is not the most advisable, not enough of a case can be made for the inclusion of the cost of these tractors in the proposed loan; the expenditure by the Instituto on this machinery utilizes a negligible part of its local currency resources which are ample for its lending program\. 1\. -Maintenance and servicing facilities to take care of the new tractors are adequate\. Distributors of this type of machinery have improved their facilities during the past few years as a result of the increased imports under Loan 44-NI\. \.16\. The Instituto proposes to extend five years' credit to farmers cover- ing up to 50% of the cost of land clearing services\. ii) Soil Erosion Control 17\. Part of the land used for cotton is sloping and is, therefore, liable to gully and sheet erosion under the open soil conditions of cotton cultiva- tion\. Farmers have not been soil erosion conscious up to recently\. However, very heavy rains last year caused widespread damage nith the consequence that soil conservation services now are in great demand\. The soil conservation law, nav in draft stage, together with thp work of more than a dozen teams of trained extension workers from STAN*\.I are likely to make the cotton growers aware of the soil erosion menace and thus further increase the demand for such services\. 18\. Cotton cultivation is so profitable that farmers cannot be expected to undertake methods of conservation involving alternative crops or animal hus- bandry which would be ideal from the point of view of full protection of soil and fertility\. However, experience indicates that contour terracing properly constructed is efi'ective in preventing most of the damage\. 19\. It has been found that the most suitable machine to do this job in Nicaragua conditions is a type of roadgrader which combines easy transport- ability with good manoeuvring ability\. Terraces made with this type of machine have proved to stand up even under the heavy rains of last year, while others constructed alongside with inadequate equipment resulted in heavy soil and crop losses\. As machines of this type are used by the Public Works Department in all their road maintenance work, trained operators and reasonable servicing facilities should be available\. *) Servicios Tecnicos America Nicaragua\.  -5- 20\. The Instituto proposes to import one such grader*) and rent it to a private company on a five-yearts hire-purchase agreement\. The cost of terracing to the farmer is approximately C\. 50 per acre, or less than 8% of the net income from one yearts crop\. The terraces need to be re- novated after three years\. As one grader can average 7000 acres per season and can in addition be used in roadwork during the wet season, the gross return from one year's operations is 2 - 3 times the capital outlay\. Precise data are not available on operating costs, but the opera- tions should be quite profitable\. The Instituto proposes to extend three years credit covering 50% of the cost to farmers for custom terracing\. B\. Dairy Industries 21\. Technicians of the Instituto have made a thorough study of the dairy industry of Nicaragua and their findings have been corroborated by an independent investigator, Dr\. van Dam of UINICEF**)\. The latter also left plans and specifications for the dairy manufacturing plants neces- sary for a rational development of the dairy industry\. The following appraisal is based on the data provided by the above studies\. 22\. Underpopulated Nicaragua has an annual population growth of 2\.5 - 3%\. Infant mortality, however, is high due to lack of protective foods, especially milk and milk products\. It has been calculated that the average consumption of milk is only 0\.1 liter a day per person, -while minimum nutritional standards require at least three times this quantity\. 23\. The Government of Nicaragua is aware of this deficiency in nutritional standards\. In 1952 it agreed to provide 65,000 school- children daily with a glass of reconstituted skim milk provided that UNICEF erect a milk drying plant in MIanagua\. This plant, which began operations in the end of 1953 has an average hourly capacity of 500 gal- lons and is now owned and operated by the Cia\. Nac\. Productora de Leche (a producer-owned milk company)\. Apart from providing an outlet for in- creased milk production, this plant serves as an equalizer of the sharply fluctuating seasonal supply of milk\. Prior to the creation of the plant farmers suffered material losses due to their inability to dispose of all milk during the wet season when supply reaches a peak while demand tends to be low\. Wifith the plant operating the Mianagua milk company is able to pay the producers a more even price all year round (averaging C\. 0\.8 per liter which has proved highly satisfactory to the farmers)\. _24 However, due to a sharp increase in the overall demand for fluid milk (see below) the milk drying plant does not receive sufficient supplies to provide the milk powder required under the Government program\. Nicaragua is, therefore, importing milk powder at the rate of about 400,000 lbs\. a year\. It is a net importer of dairy products to the ex- tent of about $^100,000 a year\. X -2 graders have already been imported which are not included in the loan request\. s8*) United Nations International Childrens Emergency Fund\.  - 6 - 25\. In areas where the cotton boom is felt, a certain number of farmers have gone out of milk production\. These, however, have been mainly beef raisers who milked a limited number of cows in order to ob- tain some steady cash income\. There seems relatively little risk that any important number of specialized dairy farmers will turn into cotton production as such factors as invested capital, land configuration and moisture conditions and soil type make it impossible for them to change, horever profitable cotton otherwise could be\. In fact, the present milk prices and marketing conditions in Managua are such that newlr dairy enter- prises are being established, whenever the necessary capital is available\. To sustain and accelerate this trend, further encouragement in the form of capital and advice is needed\. 26\. There are at present about half a million cows in Nicaragua\. Only one-half of these are in production at any one time, and their yield is extremely low\. There are marked seasonal fluctuations in supply due to lack of provisions for hay and silage to level out feed supplies\. Management and feeding are in general primitive and the stock is of poor inherited producing capacity\. *27\. Except in Managua, the handling of consumer milk is very un- hygienic; raw, uncooled bulk milk is sold from door to door directly by producers or by intermediate vendors\. Such milk, produced as it is under sub-standard conditions of hygiene in a tropical climate and often mixed with water is not fit for human consumption\. Thus, outside of IJiianagua, the poor quality of milk is an effective deterrent to an increased con- sumption\. 28\. The following steps should be taken to improve the present situa- tion:- 1) Establishment of a chair± of milk processing plants; 2) Improvement of the inherited merit of existing stock (this applies to beef as well as to dairy cattle) through importations; 3) A program for encouraging farmers through financial and technical aid to improve feeding and management practices\. These steps must be taken more or less simultaneously, as any one or two taken separately would be probably ineffective\. 29\. The Instituto has mapped a well-rounded program for the year 1955 and 1956 to implement the above policy and has asked IBPRD to lend the foreign currency needed to import the necessary plant, stock and equipment\. Uilk Processing Plants 30\. The effect of improved quality is clearly demonstrated by the experience in M,anagua\. After the installation there of an up-to-date pasteurization plant, milk consumption rose by 60/ in two years, and has reached a level of 1/3 liter per head a day, which, although still lor,  - 7 - is at least approaching minimum standards\. The successful operation of a milk processing plant in iMIanagua (Cia\. Nac\. Productora de Leche), which began operating in 1952, gives a clear indication that conditions in the country are sufficiently advanced to warrant a rapid enlargement of milk treatment capacity\. 31\. The successful operation of this plant is largely due to a Government regulation which requires that as soon as the majority of producers in an area have established a company and built a plant with a capacity sufficient to treat all the milk in the area, all milk sold in the city or town in the area must be pasteurized\. To safeguard the interest of producers who did not join initially, the regulation requires that these must be allowed to join the company at any time\. Furthermore, the company must pay to the producers the full price ob- tained for the milk sold less costs of operation and adequate provision for plant replacement, etc\. 32\. Plans have been prepared for seven milk plants for steriliza- tion, pasteurization, collection, transport and manufacture of icecream and cheese\. 33\. This chain of milk processing plants would effectively cover the milk producing areas of Nicaragua\. Their combined daily capacity with a 6-hour run would be about 90,000 quarts, wvhich comprises about half of the present production in Nicaragua\. Sufficient milk is available within easy transport distance of each center to guarantee an economic run\. The plants are to be operated by producer-owned companies to which the Instituto proposes to lend the foreign exchange cost of the necessary installations for ten years\. Producers in some centers have already formed companies and collected sufficient capital (through a levy on milk supplied to a central distribution station) to defray the local currency requirements of necessary plants\. 35\. The technical personnel required for the plants will be trained at the Managua factory, which is in charge of Ing\. R\. Lacayo, UNICEF's dairy consultant for Central America who received his technical training in the U\.S\. 36\. The foreign exchange cost of the seven projects is estimated at -785,000\. The Instituto has requested that $5h0,000 of the proposed IBRD loan be applied towards financing these projects\. It is suggested that the plans for these plants as soon as they have beenl prepared in sufficient detail be submitted to the IBRD for selection and approval\. C\. Importation of Breeding Cattle 37\. The great majority of cattle in Nicaragua is of "criollal type, i\.e\. descendants of originally imported Spanish cattle mixed indis- criminately but not extensively with various British and Dutch breeds\. As they are used both for milk and beef, they appear to be "dual purpose" cattle but are poor yielders in either capacity\. There is litte doubt  - 8 - that they could be improved through a selective breeding program, but it would take half a century of methodical and exacting work along these lines before any real effect was felt\. 38\. The fastest and most economical way of improving the stock is to "grade up" by the introduction of an already improved cattle of suit- able breeds from other countries\. The establishment of the milk treat- ment plant in Managua has encouraged surrounding farmers to import such cattle from the U\.S\.A\. and experience has shown that Jersey, Guernsey and Brown Swiss purebred cattle are capable of yielding very satisfac- torily in the Nicaraguan climate when given adequate feeding and care\. Better returns through improved milk marketing facilities would provide the incentive\. For beef production the Brahma breed has proven most suitable\. 39\. Farmers are showing great interest in breed improvement work and there is a sustained demand for imported breeding cattle\. 40\. The present system of importing mainly young cattle is advan- tageous as it is cheaper and allows the animals longer time for acclima- tization than if fullgrown animals are brought in\. 41\. The Instituto is establishing a breeding farm near Mlanagua and intends to stock it with imported cattle of the above breeds\. After a few years of importation this source will make Nicaragua self-sufficient for breeding stock, apart from the necessity to obtain from time to time a small number of high-class bulls\. 42\. The Instituto already has considerable experience in the selec- tion and importation of cattle on farmers' behalf and proposes to speed up this operation by importing 800 breeding cattle (dairy and beef) in 1955/56 at a total cost of equivalent to h480,000\. The foreign exchange cost is $4003000\. The small local cost involved is to be borne by the participating farmers\. The Instituto proposes to extend 5 years' credit with adequate security to selected farmers to cover the foreign exchange cost of the cattle to the farmers\. This would amount to about 80% of the total cost\. About 10% of the imported cattle will be retained by the Instituto to stock its own studfarm\. h3\. The cattle are to be selected abroad on personal inspection by a technician of the Instituto and flown to Managua\. The Instituto has built an up-to-date quarantine station (to be taken over by the Depart- ment of Agriculture) adjacent to the airport, where the cattle are to be kept 14 days, vaccinated and subsequently dispersed to farms\. They are to be covered by accident and disease insurance over the first year\. D\. Plan for Improvement of Eeeding and Management\. 44\. The general conditions of feeding and management of dairy cattle are primitive\. The greatest single factor causing under-nutrition is the fact that pasture growth, luxuriant during the rainy season, comes to a 4-5 months' standstill during the dry season\. Very little effort is made  - 9 - to preserve fodder in the form of hay and silage to level out the natural pasture supply\. In addition, lack of subdivision fences and shortage of wJater for stock and irrigation precludes rational pasture utilizat,ion\. However, where improved mflc marketing and superior stock have been intro- duced, farmers have shown themselves keen to put into practice new im- proved methods\. 145\. Only insignificant amounts of equipment of the type needed for this project are imported into Nicaragua at present\. The Instituto's proposal to finance this equipment on consignment to selected dealers for up to one year under contract is sound\. It will provide local dealers with the incentive to stock this type of equipment and to provide spare parts and servicing facilities\. Total foreign currency for the imports of this equipment amount to USJ400,000\. 46\. The Instituto's program for 1955 and 1956 provides for credits to dairy farmers on a 5-year term for up to lOQ, for the purchase of the pasture improvement equipment against adequate security\. IV\. THE BORROWER 47\. The Instituto was established by Decree no\. 11 published in the Official Gazette on March 13, 1953 as an autonomous agency of the Govern- ment\. The Instituto has all the rights of a legal entity including that of contracting domestic and foreign debts\. 48\. The Instituto has an authorized capital of C\. 50 million to be subscribed by the Government from budgetary appropriations according to the following schedule:- Fiscal year 1952/53 C\. 6 million Fiscal years 1953/54 to 1960/61 (8 years) C\. 5 million each year Fiscal year 1961/62 C\. 4 million The first three instaliments, amounting to C\. 16 million, had been paid by June 30, 1955 and that for the fiscal year 1955/56 is expected to be received during 1955\. 49\. The Instituto is empowered to contract domestic and foreign debts and no ceiling is set as to the amount that can be borrowsed\. Since the Instituito is a new organization, it should pursue a cautious policy with regard to incurring long-term debts which could later prove unduly burden- some\. 50\. The policies of the Instituto are decided by a Superior Council of eight members which include four Rinisters of State, the General MJIanager of the National Bank of Nicaragua, and one representative each of the agri- cultural, industrial and cattle raising federations\. All members are  - 10 - appointed by the President of the Republic, the Minister and the Manager of the National Bank for their term of office, the three representatives for a period of two years, -with the possibility of re-appointment\. The General Mianager of the Instituto participates in the meetings of the Council but without right to vote\. 51\. The management of the Instituto is in the hands of cpetent men\. It is vested in a Board of Directors, consisting of: 1\. A representative of the National Economic Council 2\. The General Manager of the Instituto (appointed for an indefinite term) 3\. An agricultural expert 4\. An economist 5\. A representative of the private federations (appointed for one year, with the possibility of re-appointment)\. 1 and 5 are appointed by the President of the Republic; 2, 3 and 4 by the Superior Council\. 52\. To carry out its program, the Instituto is divided into three departments: - 1) Technical 2) Credit and Investments 3) Commercial There are no branches or agencies\. Because of the location of MVianagua in the center of Nicaragua's agricultural region, the one office suffices to meet present needs\. 53\. All applications for credit and consideration of direct invest- ment possibilities by the Instituto in various enterprises are handled by the Credit & Investment Department which is also responsible for disburse- ments\. The supervision of credits and investments is the responsibility of the Technical Department\. The Commercial Department has charge of all purchasing, sale, import and export of commodities related to the Institu- to's program; it is responsible for the operation of the Grain Storage Plant\. 54\. The activities of the Instituto are not limited to banking, but include many non-banking, non-revenue producing aspects, such as develop- ment planning, technical assistance to coffee growers and veterinary services to cattle raisers\. The costs of these activities, in as much as they are not directly related to credit operations, should be paid for by special appropriations from the Government budget or by the apportionment of a part of the yearly Government fiscal contribution\. The Instituto should make a clear distinction in its books between banking and non- banking activities\.  - 1l - 55\. The Instituto, even though it did not open its doors to the public until January 1954, extended in 1953 C\. 200,000 of short-term credits to the Granero at the request of the Government for working cap- ital purposes\. Further, short-term credits amounting to C\. 2,871,000 have since been extended to the Granero\. During 1954 loans were made to others for C\. 2,930,000 (mostly medium-term)\. It appears from Appendix II that the Instituto followed a conservative course of lending\. Up to the end of April 1955 one loan for C\. 5,000 had been declared in default and two other borrowers had asked for a revision of their interest and pay- ment schedule\. 56\. The financial position of the Instituto as of December 31,1954 at the close of its first year of operations can be summarized as follows:- (in C\. '000) Assets Liabilities Cash and banks 4,764 Savings and other deposits 783 Loans and discounts 1,833 Accounts payable 38 Interest receivable 99 Subscribed capital 50,000 Investments 926 Less: not paid in 39,000 11,000 Fixed assets 221 Other liabilities 86 Operations on behalf of Government*) 2,956 Other assets 144 Losses to Dec\.31,1954 964 Total 11,907 Total 11,907 *) The operations on behalf of the Government included C\. 2,871,000 rcpresenting short-term credits to the Grain Storage Plant to be used as working capital and to cover losses to August 31, 1954 which are guaranteed by the Government and should be repaid to the Instituto during 1955\. 57\. The profit and loss statement for the year 1954 is as follows:- (in C\.bOoo) Expenditures Receipts Cost of administration 984 Interests received 133 Technical assistance 95 Other receipts 6 Interest paid on savings deposits 13 139 Other expenditures 11 Losses for 1954 964 Total 1,103 Total 1,103 58\. The relationship between administrative costs and earnings is out of proportion at present because the Instituto is already almost completely organized with all the necessary personnel to handle its future program, while on the other hand it has not yet had the time to make enough loans to earn its keep\. The Instituto, with the separation of banking and non-banking expenditures, should be able to balance bank- ing earnings and costs within about five years\. The management of the Instituto hopes to attain this status earlier\.  - 12 - 59\. The Instituto's proposed medium- and long-term credit and finan- cing program for 1955 and 1956 (see Appendix III) envisages the investment of C\. 41\.2 million, of ehich C\. 11\.9 million (US$ 1\.7 million) would be obtained from Bank loans\. This includes disbursements during that period of part of the proposed power loan\. 60\. Progress so far on the program can be considered satisfactory as far as use of the Instituto's own funds is concerned (Appendix IV)\. How- ever, fulfillment of the complete program depends on the availability of foreign credits\. 61\. The resources of the Instituto are adequate to meet the local currency costs of the program\. The Instituto is also explcring the possi- bility of discounting some of its portfolio with the Banco NacionalJ in order to obtain a second line of resources\. 62\. The Instituto is a new organization, and its competence cannot be fully judged on past performance\. However, the senior staff appears capable, the program is sound, and the future prospects appear reasonably good, so that it can be considered a suitable borrower\.  - 13 - V\. CONCLUSIOiNS 63\. The program the Instituto has asked the IBRD to finance is sound\. It is a realistic attempt to channel capital into those agri- cultural industries which show greatest expansion possibilities\. 64\. The prospective borrower has the financial, managerial and technical resources to carry out successfully the loan program\. 65\. The project with the exception of six tractors already ordered, is suitable for IBRD financing for the amount of US\.pl\.5 mil- lion\. It is suggested that the Bank agree to the Instituto's request that a loan be made for a 10-year period, including 2 years of grace\. Since, however, two-thirds of the loan will have been repaid to the Instituto in about five years, the amortization schedule should take account of this to avoid any disproportionate accumulation of counter- part funds\. 66\. No specific conditions have to be fulfilled before loan nego- tiations\. However, during negotiations the IBRD should seek the fol- lowing assurances:- a) The Government of Nicaragua will pay to the Instituto in the calendar year 1955 the third and fourth capital installments of C\. 5 million each\. b) The Instituto will obtain the consent of the IBRD before incur- ring debts of over one year\. As to short-term debts maturing vithin one year, agreement on a limit should be reached\. c) The Instituto will keep separate accounting of the banking and non-banking activities and will earmark for its banking acti- vities enough funds to carry out the program\. Non-banking activities should be covered by separate budgetary appropria- tions\. 67\. Arrangements should be made for the submission to IBRD for approval of projects for milk processing plants before the Instituto grants loans for this purpose\. 68\. The Instituto should submit to IBRD for approval:- a) Contracts between the Instituto and the distributors of pasture improvement equipment\. b) The hire-purchase contracts between the Instituto and the users of land-clearing machinery\. July 15, 1955  APPENDIX I PROGRAM OF THE INSTITUTO DE FOMENTO FOR THE IMPORTATION OF CAPITAL GOODS FOR AGRICULTURAL DEVELOPMENT (as amended) Purpose Cost USS1000 b4sis Foreign Local Total c\.i\.f\. A\. Land Reclamation i\. Land clearing 6 crawler tractors (approx\. 80-90-HP) 140 180 320 ii\. Soil erosion control 1 Motor Grader 20 7 27 B\. Milk Treatment Plants*) i\. Leon ii\. Rivas ( iii\. Managua ( iv\. Granada ( 540 200 740 v\. Federacion de Lecheros ( vi\. Chinandega vii\. Boaco ( C\. Cattle Imovenent 800 head of breeding cattle 400 80 480 D\. Pasture Develoiment i 600 tons barbed wire 9l10 Ii\. 10 irrigation plants 100 iii\. 100 diesel engines for pumping 140 iv\. 40 Qindmills 20 v\. Mowers, etc\. 40 $ 40-0 -400 280 680 1,500 747 2,247 *) The total estimated foreign exchange cost for all seven plants is US$ 785,000 and total local cost US\.$ 300,000 equivalent\.  APPENDIX II INSTITUTO DE FOMENTO NACIONAL CREDIT APPLICATIONS FROM JANUARY 1 TO DECEMBER 31, 1954 (in C\. tOGO) A p P l _i c a t i o n s Under Uncommitted Amount With Consider- Balance of Programs Budgeted Received Approved drawn Refused ation Budget Coffee a) Commercial nurseries 150 541 138 282 121 - 12 b) Private nurseries 250 628 195 127 302 5 55 c) Replantings 400 1,548 273 404 785 86 127 Cattle Improvement a) Cattle imports 1,000 899 374 88 233 203 626 b) Land improvement 1,300 2,191 851 206 682 452 449 Processing Plants 500 1,442 463 75 863 40 37 Industries 1,500 1,638 636 33 700 270 864 Total 5,100 8,887 2,930 1,215 3,686 1,056 2,170 % 100 33 14 41 12  APEEIDIX III INSTITUTO DE FOIvENTO NACIONAL FINANCING PROGRAM IN\CLUDING TIvEDItJ\.1 AND LONG-TERM LOANS AND DIRECT INVESTMENTS (in C\. '000) 1955 1956 T o t a 1 IBRD Instituto IBRD Instituto IBRD Instituto Loan Resources Loan Resources Loan Resources 1\. Coffee - 3,100 - 3,000 - 6,100 2\. Cattle improvement a) Cattle imports 1,400 34 1,40O 35 2,800 70 b) Land improvement 1,400 2,300 1,h00 1,630 2,800 3,930 3\. Land clearing and soil conservation 490 2,100 630 1,850 1,120 3,950 h\. Diversification of agriculture - 1,000 - 1,000 - 2,000 5\. Small supervised loans to farmers - 500 - 500 - 1,000 6\. Milk industry 2,450 - 1,330 - 3,780 _ 7\. Vegetable oil and soap plants - 1,000 - - - 1,000 8\. Other industry - 1,000 - 1,000 - 2,000 9\. Slaughterhouse - 1,500 - 350 - 1,850 10\. Electric power@') 210 700 1,190 700 1,400 4,200 11\. Short-term credits to Granero - 3,000 - (3,000) - 3,000 Total ) 5,950 16,235 5,950 9,065 11,900 26,300 *) This part of the program is considered in another TOD report\. *\-) Direct investments of the Instituto are expected to amount to C\. 280,000 of the proposed loan and C\. 2,920,000 of their own resources (vegetable oil plants, slaughterhouse and imported cattle)\.  APPENDIX IV INSITIUTO DE FOMENrI NACIONAL POSITION OF CREDIT APPLICATIONS IN RELATION TO THE BUTGET FUNDS (AT JUNE 10, 1955) ( C\. t000) Proposed Uncommitted Budget in Applications Balance of anticipation Proposed Program of IBRD-Loan Approved Pending Budget 1\. Coffee 3,100 1,120 899 1,980 2\. Cattle improvement 5,135 1,582 254 3,553 3\. Land clearing and soil conservation 2,590 116 5 2,l47 4\. Diversification of agriculture 1,000 - 350 1,000 5\. Small supervised loans to farmers 500 - - 500 6\. Milk industry 2,45o - - 2,lb5O 7\. Vegetable oil and soap plants 1,000 - - 1,000 8\. Others,-) 1,000 255 _ 72 7b5 Total 16,775 3,063 2,129 13,702 *) Excluding slaughterhouse, electric power and short-term credits to Granero appearing in the program for 1955 and 1956 which were included later\.

APPROVAL

P161368

 The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Project Information Document/ Integrated Safeguards Data Sheet (PID/ISDS) Concept Stage | Date Prepared/Updated: 12-Sep-2017 | Report No: PIDISDSC20394 Jul 13, 2017 Page 1 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) BASIC INFORMATION A\. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Central Africa P161368 Strengthening Financial Regional Institutions and Intermediation in the CEMAC Region (P161368) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA Oct 23, 2017 Dec 08, 2017 Finance & Markets Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Banque des Etats d' Africque Banking Sector Commission Centrale (BEAC) of the Central African States - COBAC,Groupe d' Action contre le Blanchiment d' Argent en Afrique Centrale (GABAC) Proposed Development Objective(s) The Development Objective of this Project (PDO) is to strengthen the capacity of the Central African regional institutions through the provision of financial sector technical assistance and infrastructure\. Financing (in USD Million) Finance OLD Financing Source Amount International Development Association (IDA) 35\.00 IDA Grant 0\.00 Total Project Cost 35\.00 Environmental Assessment Category Concept Review Decision C-Not Required Track II-The review did authorize the preparation to continue Jul 13, 2017 Page 2 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Other Decision (as needed) B\. Introduction and Context Regional Context The Central African Economic and Monetary Union (Communauté Economique et Monétaire des Etats de l'Afrique Centrale, CEMAC) has the objective of promoting the sustainable development of its member countries in the context of establishing a common market\. The CEMAC is one of the oldest unions existing in the world and is composed of six member states including Cameroon, Central African Republic (CAR), Chad, Republic of Congo, Equatorial Guinea and Gabon\. The CEMAC has a population of approximately 50 million people and a GDP of 70 billion USD (2016 IMF forecast)\. The CEMAC region has a common currency, the Franc CFA (FCFA), which is pegged to the Euro and guaranteed by the French Treasury\.1 The region is very diverse in terms of income per capita (e\.g\. GNI per capita ranges from 330 USD in CAR to 12\.820 USD in Equatorial Guinea in 2015)\. The member countries perform poorly in global indicators including MDG, WEF, ease of Doing Business and Transparency International\. The CEMAC is composed of multiple regional institutions including a central bank, the Central Bank of Central African States (BEAC), a banking sector regulator (Commission Bancaire de l'Afrique Centrale (COBAC), a securities regulator (Commission de Surveillance du Marché Financier de l’Afrique Centrale (COSUMAF), a Task Force Against Money Laundering in Central Africa (Groupe d’Action Contre le Blanchiment d’Argent en Afrique Centrale (GABAC); and a development bank (Banque de Développement des Etats de l'Afrique Centrale (BDEAC)\. The economic environment of the region has suffered a severe contraction due to the fall of oil prices since 2014\. Economic growth which exceeded 4 percent every year on average over 2010-2014, declined to 2 percent in 2015 and is only expected to have reached 1 percent in 2016 (with substantial risks of downward revisions as final figures become available)\. All the CEMAC member countries except for CAR are oil exporters and therefore government revenue is highly exposed to oil prices\. Oil is the main source of foreign exchange and it represents 71 percent of exports, 39 percent of government revenue and 20 percent of the GDP of the region\. As for the majority of oil rich countries, the economies of the region benefited from the oil boom of the 2009-2014 period\. Economic growth over the same period was mostly state driven and private sector development was highly exposed to the state’s development agenda (i\.e\. public procurement)\. The economy of the region is now contracted and IMF reports indicate that, because of the collapse in oil prices, the current account deficit grew from 1\.8 percent of GDP in 2013 to 9\.4 percent in 2015 and 9\.3 percent in 2016\. Sectoral and Institutional Context According to the 2016 CEMAC Financial Sector Assessment Program (FSAP), the financial sector remains shallow and mostly bank based\. The contribution of the banking sector to the financing of the economy is limited representing only 10 percent of the domestic credit provided to the private sector\. Financial inclusion remains a key challenge for the region with less than 15 percent of the adult population that has access to a bank account\. Financial intermediation and access to credit are weak due to the lack of collateral and credit information systems and a predictable and reliable judicial system\. Capital markets are almost inexistent due to the coexistence of two competing markets (one domestic in 1 As a result, 50% of the foreign exchange reserves of the CEMAC member countries are deposited in an account at the French Treasury\. Jul 13, 2017 Page 3 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Douala and regional in Libreville)\. The regional institutions also lack adequate infrastructure to fulfill their financial sector mandates (i\.e\. reliable statistics, databases, payment infrastructures and IT systems)\. Although the FSAP acknowledged some progress compared to the 2005 FSAP, it also highlighted the need for the CEMAC to implement reforms more aggressively to improve the effectiveness of the regional institutions\. The current economic environment is gradually affecting the liquidity of the banking sector and poses financial stability risks\. Non-performing loans have increased by approximately 50 percent in the last two years (10 percent of the credit portfolio in 2014 to 15 percent in 2016)\. However, the increase is uneven, with, for example, a smaller increase in Cameroon, which has a more diversified economy, than in oil dependent economies such as Chad, Congo and Equatorial Guinea\. This increase is mainly due to the preponderant role of the state in financing the economy in the region\. States are struggling to pay their debts to the banking sector as well as to the private sector in the context of public procurement\. The liquidity of banks has been gradually tightening since 2015-16\. The banks' liquidity level at the end of December 2016 averaged 110 percent compared to 138 percent in 2014\. Deposits fell by 8 percent over two years, with an acceleration of this decline since mid-2016\. The reduction of liquidity coupled with credit growth in the absence of an interbank market forced some banks to have increased recourse to the refinancing facility of the BEAC\. In December 2016, BEAC refinancing accounted for about 6 percent of the balance sheet of CEMAC banks, whereas it was only 0\.07 percent two years earlier\. This situation requires fast action by the BEAC and COBAC to ensure that the relevant legal frameework and instruments are place to preserve financial stability and address any potential issue on a timely manner\. The microfinance sector is also under pressure\. The financial situation of microfinance institutions remains concerning\. The microfinance sector is composed of 825 microfinance institutions operating across the six member countries of the CEMAC region serving almost 1\.8 million members/clients (equivalent to about 7 percent of the adult population)\. A significant part of the sector does not comply with prudential norms and is currently facing liquidity problems\. As of March 2014, 14 MFIs representing 32 billion of FCFA were in the process of being resolved and additional four were under special administration regime\. The COBAC, which oversees the supervision of MFIs, is understaffed and currently has 14 staff dedicated to the supervision of the 825 MFIs\. As for the banking sector, the COBAC must ensure that the rights instruments and laws are in place in order to ensure the stability of the sector and protect the deposits of the poor which are the main users of MFIs\. The financial sector is also exposed to security risks\. The security conditions are degrading rapidly in the region particularly in the northern territories\. The security concerns are also contributing to the economic slowdown which could ultimately impact the financial sector\. Illicit financial flows and exposure to money laundering and terrorism financing are another important concern in the region\. The financial sector (banks, money transfer providers, exchange bureaus, microfinance institutions) is particularly exposed to ML/FT risks due to lack of capacity and weak supervision at/by the relevant regional institutions (BEAC, COBAC and domestic authorities)\. As highlighted in the 2016 CEMAC FSAP AML/CFT Technical Note, strengthening AML/CFT frameworks remains a high priority for the region as important financial flows are generated from corruption, the embezzlement of public funds, the trafficking of arms and natural resources (diamonds, oil, other mining, fishing, wildlife), illegal logging, and piracy in the Gulf of Guinea\. A coordinated action by the regional CEMAC institutions is required to address this important risk\. The current environment requires effective policy actions by the CEMAC regional institutions, particularly the BEAC, COBAC and GABAC, to mitigate the impact of the crisis and develop a more resilient and inclusive financial sector\. Jul 13, 2017 Page 4 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) The recently appointed BEAC governor has started the development of a new Strategic Plan for the period 2017-2021\. Furthermore, the COBAC is actively working on multiple fronts to address key banking sector shortcomings including connected lending, risk concentration, increasing credit in arrears, corporate governance and AML/CFT\. The COBAC is also working to strengthen its prudential supervision framework for banks and MFIs\. Risk based and consolidated supervision regulations are in the process of being developed\. The GABAC has also developed a Strategic Action Plan in 2016 to achieve full membership of the FATF and help member states in implementing sound and efficient AML/CFT regimes\. The international donor community has been intensifying its interventions since 2016 to provide support to the regional institutions during this difficult period\. Following the extraordinary CEMAC Heads of State summit on December 23, 2016, the IMF has been intensifying policy discussions with the regional institutions, particularly the Commission, BEAC and COBAC\. An agreement was reached on the implementation of several measures, including the progressive elimination of statutory advances to the States\. IMF programs under the Extended Fund Facility (EFF) were approved by the Board with Gabon on June 19, 2017 and with Cameroon on June 26, 2017\. Discussions are progressing with Equatorial Guinea, and with the Republic of Congo\. The World Bank Group is now preparing a series of DPOs for Gabon and Cameroon, with a view to submitting for a Board approval in October-November 2017\. In addition to these programs, the donor community is actively providing technical assistance to build capacity at the regional institutions level (see Annex 4)\. The CEMAC regional institutions require financial support to finance technical assistance and to upgrade key financial sector infrastructure\. The newly appointed governor of the BEAC has officially requested technical assistance for the World Bank Group to work jointly with the BEAC, COBAC and GABAC on the implementation of their strategic action plans\. The key areas of support identified by the governor in response to the key regional risks are the following: strengthening of the statistical capabilities of the BEAC to inform monetary policy decisions, strengthening banking and microfinance supervision, modernization of payment system infrastructures, financial inclusion and AML/CFT frameworks\. Relationship to CPF The project is aligned with the objectives of the CPF and CPS frameworks of the CEMAC member countries\. Private sector development is at the center of the CPFs and CPSs in the CEMAC region\. For the private sector to grow it requires a stable and inclusive financial sector to effectively finance the economy\. One of the three pillars of the Cameroon CPF is to foster infrastructure and private sector development\. One of the key constrains of the Cameroonian private sector is access to effective financial services (para 48)\. The CPF also mentions the risks for Cameroon due to weak regional institutions\. For Chad, one of the main objectives of the CPF is to improve the environment for private sector development (para 87)\. For the Republic of Congo, the Pillar 1 of the FY13-FY16 CPS (competitiveness and employment) had the objective to support private sector led growth with an efficient financial sector to finance the economy and also promote regional integration (para 57 and 58)\. The Gabon CPS of 2012 states that regional integration remains a key priority that supports economic growth\. The financial sector agenda including money laundering remained a key priority for the World Bank Group in Gabon\. Regional integration through the financial sector has remained an important priority for the World Bank Group over the last 15 years\. The 2003 Central Africa RIAS of 2003 (Report No\. 25328) identified regional financial integration as Jul 13, 2017 Page 5 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) one of the key priorities for CEMAC\. Furthermore, the second pillar of the Sub-Saharan RIAS of 20082 identified regional financial sector integration as a key area for assistance\. The RIAS also highlighted the high dependence on oil of the region and the importance of managing these resources effectively to generate economic growth (paragraph 28)\. Furthermore, the 2011 progress report3 of the 2008 RIAS confirmed that regional business and financial sector reforms can facilitate the development of competitive value chains to reach optimal economic scale and spatial distribution across borders (paragraph 58)\.4 C\. Proposed Development Objective(s) The Development Objective of this Project (PDO) is to strengthen the capacity of the Central African regional institutions through the provision of financial sector technical assistance and infrastructure\. Key Results (From PCN) The key preliminary outcome indicators will reflect these expected results: - On financial stability: increased compliance by banks, MFIs and other licensed financial institutions operating in the CEMAC region with new and existing prudential regulations; - On financial Inclusion: Increase in the number of accounts with banks and MFIs; - On financial Integrity: development of new money-laundering and terrorism financial risk assessment frameworks by the GABAC\. The preliminary Intermediate indicators could include: - On financial stability: (i) the Economic, Financial and Monetary Database (EFMD) of the BEAC is fed and updated on a monthly basis by the end of the project; (ii) new prudential regulations are adopted or amended to comply with specific Basel Core principles; (iii) supervision on a consolidated basis is introduced\. - On financial inclusion: (iv) compliance by a number of mobile money operators representing a significant part of the sector with regulatory and supervisory norms; (v) number of mobile payment and MFI accounts is increased, and (vi) number of providers, access points and points of service is increased\. - On financial integrity: (vii) number of mutual evaluations carried out by the GABAC in compliance with the FATF methodology\. D\. Concept Description 2 http://siteresources\.worldbank\.org/INTAFRREGINICOO/Resources/1587517-1271810608103/RIAS-Paper-Final-Approved- Oct2010\.pdf\. 3 http://www- wds\.worldbank\.org/external/default/WDSContentServer/WDSP/IB/2011/03/24/000333037_20110324060711/Rendered/PDF/603870CA SP0P101OFFICIAL0USE0ONLY191\.pdf\. 4 A new RIAS is in the process of being drafted\. Subsequent reports (PAD, etc) will be updated to reflect the new strategy\. Jul 13, 2017 Page 6 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) 1\. Description Due to the regional nature of the project, the operation will focus on delivering technical assistance to three regional institutions including the BEAC, COBAC and GABAC across key thematic areas\. Building on the lessons learned of the previous CEMAC operation (P099833), the number of beneficiary institutions will be reduced from six to three and the activities will be more focused\. Furthermore, rather than working at the institution level on silos, the project has identified key financial sector themes, including stability, integrity and inclusion, to deliver technical assistance horizontally across the beneficiary institutions\. This approach should encourage better regional cooperation across institutions and more effective implementation of the relevant reforms\. The project will support technical assistance activities to enhance the capacity of the BEAC, COBAC and GABAC to fulfill their financial stability, integrity and inclusion mandates\. The preliminary cost structure is the following: Components Amount C1: Financial Stability mandate of BEAC and COBAC 21 C2: Financial Inclusion Mandate of BEAC and COBAC 7 C3: Financial Integrity (GABAC) 3 C4: Project implementation and Impact Evaluation 4 Total 35 Component 1: Strengthening the Financial Stability and Integrity Mandate of the BEAC and COBAC (US$ 21 million) Sub-Component 1\.1\. Strengthening the statistical capacity of the BEAC The project will strengthen the statistical capabilities of the BEAC to improve the institution’s monetary policy decision making process\. Despite a prosperous period of high level of liquidity, external shocks and high levels of dependency to oil prices have showed the weaknesses of the monetary policy conducted by the BEAC\. Growth in the CEMAC region contracted to 1\.8 percent in 2016, down from 4\.9 percent in 2014\. Beyond the political implications of conducting monetary policy, the BEAC faces significant challenges in terms of access to reliable statistical data\. This situation undermines the BEAC's ability to make informed monetary policy decisions\. The previous CEMAC operation successfully funded the purchase and initial development of an Economic, Financial and Monetary Database (EFMD)\. This database will be very soon operational; however, it lacks a significant amount of historical data series to provide reliable statistical information and trends\. To fulfill this objective, the BEAC will work jointly with National Statistical Institutes (NSI), who are the main data providers for the EFMD across the CEMAC region\. This activity will require a significant commitment from the BEAC to build capacity among the different NSIs to ensure that normalized data is produced across countries according to specific methodologies and standards to feed effectively the EFMD\. In addition to normalized data to be included in the EFMD, the BEAC will help INS and other concerned national administration produce short term indicators that will be used to calculate an Economic Activity Composite Indicator (EACI)\. The EACI is a key component of the evaluation of the business climate, in a context where basic indicators often provide mixed messages\. As explained by the Working Group set up by the BEAC to study the implementation of the EACI to support better monetary policy decision, this composite indicator is “indispensable for the reconciliation of the Jul 13, 2017 Page 7 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) real sector and the monetary sectorâ€? and will “provide a clear picture of the business climate within the CEMAC region, by kind of economic activity\.â€? The Working Group has designed the methodology to be used for the calculation of the EACI but resources in member countries are lacking for the production of the basic data to be used for this calculation\. The project will thus support the following activities: i) development of methodologies and procedures for statistical production, including basic indicators to be used for the calculation of the EACI, and data collection; ii) financing the purchase and renewal of certain IT licenses required for the normal operation of the EFMD; iii) financing the purchase of software and IT tools for processing and expanding the coverage of the EFMD; iv) development of methodology and tools to conduct macroeconomic stress tests; and v) capacity building for the EFMD team\. Sub-Component 1\.2\. Strengthening banking and microfinance regulation and supervision The project will support the COBAC with the implementation of key banking sector regulations to enhance its supervisory capabilities and full regulatory compliance by banks\. The Basel Core Principles Assessment (BCP) conducted in the context of the FSAP in 2014 have shown that the regulatory framework issued by the COBAC had still room for improvement to comply with global good practices\.5 Loans to related parties, exposure diversification, compliance with minimum capital requirements, transparency, risk management, AML/CFT and cross boarder supervision remain problematic in the region\. To address these shortcomings, the COBAC is in the process of reviewing or has already adopted new prudential regulations (own funds, loan classification and provisioning, internal controls)\. The COBAC intends to review its on-site and off-site supervisory policies and manuals to migrate from traditional supervisory approach to a risk based one\. The COBAC is also working on the implementation of financial holdings and cross-border supervision\. To complete and effectively implement these new measures, the COBAC requires technical assistance to develop operational tools and capacity building support for its staff\. The project will support the following activities: i) technical assistance for drafting procedures and operational manuals for risk-based supervision, esp\. supervision on a consolidated basis, financial holding supervision, and internal controls; ii) development of risk management methodologies with specific focus on non-performing credit portfolios (iii) operationalization of the regional Deposit Guarantee Fund (FOGADAC); and iv) capacity building for the staff of the Banking Supervision Department (BSD)\. Although the recent BCP assessment does not identify migration to Basel 2 and 3 as a priority for the COBAC, the project could potentially finance preparatory studies to facilitate the complex migration to the news standards\. The project will support the COBAC with the implementation of key MFI supervision activities\. The MFI sector plays a significant role in the economy of many CEMAC member countries in particular Cameroon, Gabon and Congo\. Through the adoption of new regulation, the regulator is aiming at consolidating the sector by mandating the small MFIs either to affiliate to a network or to exit the market and by pushing for mergers between the medium and largest ones\. This has allowed a reduction in the number of MFIs\. In practice, the COBAC lacks the HR means and the IT tools to effectively supervise the MFI sector\. With only 14 staff that are based in Libreville to cover the supervision of more than 800 MFIs, innovative, risk-based methods must be developed to allow the COBAC to effectively supervise the sector including relaying on local authorities for the day-to-day aspects of the supervision\. The regulator has also concerns that, due to poor supervision, the MFI sector could be used to finance illicit activities taking into consideration the increase of terrorist movements in the region\. This component will finance the following activities: i) technical assistance for the review and dissemination of new MFI-related risk-based regulations ; ii) capacity building for the COBAC staff on on-site and off-site supervision including AML/CFT, and resolution of MFIs; iii) implementation of early warning systems for MFIs; iv) implementation support of a new IT solution (SPECTRA) recently procured by the COBAC for the supervision of 5 BCP Assessment summary: (https://www\.imf\.org/external/pubs/ft/scr/2016/cr16106\.pdf Jul 13, 2017 Page 8 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) MFIs; v) feasibility study for a joint supervisory approach of MFIs between local and regional authorities and technical assistance to regional and local authorities for the implementation of any joint measures to be agreed upon\. The activities under i) and ii) above will build on the results of an ongoing small technical assistance project (about USD 132K) that has been recently granted by FIRST to help COBAC review and disseminate the draft MFI regulations that are in currently in process of being approved and to provide some initial training on MFI supervision to its staff\. In addition to the abovementioned activities, since the MFI sector in the CEMAC region does not have a deposit guarantee scheme, this component will finance a feasibility study for such an instrument\. The study will cover the following topics: diagnostic of the sector, legal requirements and key potential parameters of the scheme (coverage, cost and procedures)\. The project will support the strengthening of the capacities of local MFIs to build trust in the system and attract more users\. The MFIs operating in the region do not have the resources to produce reliable financial data on their performance\. This poses serious problems for the COBAC, as financial data filed by the MFIs are in many instances inaccurate and therefore do not provide a clear picture of their financial health\. To complement the previous MFI supervisory component (paragraph 19), the project will provide MFIs with instruments and capacity building opportunities\. A private sector association or firm operating across the region will have to be identified to deliver this program\. The project will finance i) the development of accounting software for MFIs including implementation support; ii) management training to improve MFI performance and ii) capacity building on key issues including loan administration, internal controls and risk management\. Component 2: Strengthening the Financial Inclusion Mandate of BEAC and COBAC (US$ 7 million) Sub-Component 2\.1\. Payment systems infrastructure and oversight The current infrastructure of payment systems in CEMAC is obsolete and outdated which poses several risks\. BEAC’s central depository (CRCT) needs to be upgraded, as it is entirely manually operated being exposed to a high operating risk\. Its procedures do not provide for delivery versus payment, whereas monetary policy operations backed by securities are developing\. The absence of automation in the CRCT also represents a risk for the RTGS system for the provision of intraday liquidity\. For what concerns the oversight function of the Central Bank, approach is not in line with best practices and resources are limited\. Oversight by the Central Bank is based on an institutional approach determined by the nature of the regulated entity (systems operated by the BEAC or issuer of electronic money), and not on a functional approach that would cover relevant aspects of the regional payments system such as financial market infrastructures and the payment instruments and services\. BEAC’s oversight function lacks adequate equipment (e\.g\., statistical database) and human resources, and is not supported by a framework for cooperation with other pertinent authorities (telecommunications regulatory authorities) and with payments market participants\. In line with the recommendations of the 2015 FSAP, the project will support the following activities: i) improvement of the legal and regulatory framework relating to payment services (to ensure that conditions are in place for free competition, and encourage innovation by adopting flexible regulations proportionate to the risks incurred and protective of consumers); (ii) development of a retail payments strategy, with a focus on both access to a transaction account and usage of electronic transactions (large volume recurrent payment streams will be a key component); (iii) activities to increase acceptance of electronic payments (incentives to merchants to accept electronic payments in cooperation with the trade & fiscal administrations; development of the acceptance infrastructure (ATM & POS), with a focus on Jul 13, 2017 Page 9 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) interoperability); (iv): strengthening BEAC’s oversight function making oversight based on a functional approach covering all aspects of the regional payments system, the financial market infrastructures, and the payment instruments and services including the monitoring and handling of fraud and customers’ complaints related to electronic payments\. Within the context of updating the legal and regulatory framework, the project will also support the update of the licensing and supervisory framework for mobile payments operators, to create a safer, clearer and more stable framework to build confidence in the system and attract more users\. During the last three years, the BEAC has granted 19 licenses to mobile payment operators\. Nevertheless, the BEAC and COBAC do not have the means to effectively supervise these new operators nor an appropriate framework exists\. Many frauds related to mobile payment systems have taken place over the last couple of years, the most recent in February 2017 which amounted to close to 1\.5 billion FCFA in losses for the users\.[1] Both the BEAC and COBAC have not been able to react effectively to address these problems due to the lack of adequate legal framework and technical capacity of the supervisory staff\. Further, there is no formal complaints mechanisms for consumers to seek redress\. The regulator has also concerns that, due to poor supervision, the mobile payment sector could be exposed to ML/FT risks\. A better supervised payment sector will generate an environment of confidence for the users\. This could increase the number of users and ultimately contribute to increased, sustainable and stable financial inclusion\. The project will support the following activities: i) development and modernization of the regulatory framework applicable to mobile payment operators, including measures to protect consumers’ funds and AML/CFT measures; ii) development of specific supervision methodologies for mobile payment operators in coordination with the COBAC including AML/CFT; iii) capacity building of COBAC and BEAC staff on best practices in mobile payments supervision\. Sub-Component 2\.2\. Promotion of stable and sustainable financial inclusion At present the regional regulator/supervisor does not possess adequate means to properly collect data from financial institutions, monitor progress in terms of financial access and financial inclusion\. As reflected in the FSAP, the COBAC and BEAC lack the technological means and resources to adequately monitor key performance indicators of financial institutions; further they lack data to monitor the number of access points, points of services, agents\. This makes it difficult to properly supervise financial institutions, develop a risk-based approach for both prudential and market supervision as well as to develop early warning systems\. Additionally, the lack of supply-side data on access points, agents, number of accounts, products, and services, does not allow to monitor progress in terms of financial inclusion nor to identify key gaps/needs\. The project will support the development and financing of the relevant software and databases to inform policy development and sequencing that enables and promotes stable and sustainable financial inclusion\. This will also complement Sub-Component 1\.2, as well as additional technical assistance to reform the microfinance sector already being provided with the World Bank support, by providing a means by which to measure and monitor market reaction in response to banking and microfinance sector regulatory and supervisory changes\. Further, the tools to monitor application of the forthcoming market conduct requirement, including monitor data on complaints, will ensure the application of such requirements which will assist in creating trust in the formal financial sector\. With improved financial inclusion data, including data on complaints, subsequently policy measures can be undertaken, tailored to the specific needs/gaps identified and underpinned by concrete, measurable, and verifiable targets\. [1] Jeune Afrique : http://www\.jeuneafrique\.com/404469/economie/gabon-bgfi-bank-secouee-fraude-massive-aux-cartes-visa-prepayees/ Jul 13, 2017 Page 10 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Similarly, the region lacks data on the demand side to identity consumers’ financial needs\. This situation not only prevents to adequately measure financial inclusion but it also does not permit the development and promotion of customer-centric innovative products\. The project will support the roll out of selected demand-side survey to identify consumers’ financial needs, habits and barriers preventing them from accessing financial services (lack of ID, distance, religion, lack of financial literacy or capability)\. Based on the findings of these survey, an innovation lab will be supported by the project to pilot selected innovative products responding to the identified consumers’ financial needs\. The development of products tailored to consumers’ financial needs will enable further shift towards formal financial services\. Finally, while countries in the region have adopted national strategies and policies on financial inclusion, there is no such instrument at the regional level\. The project will support the development of an overarching regional financial inclusion strategy to develop targets and objectives and a corresponding prioritized and detailed action plan to be implemented by the regional authorities to catalyze an increase in financial access and inclusion in the region\. The strategy will be informed by the data collected with the above-mentioned tools and be formulated on a consultative basis\. This will help in increasing financial inclusion by helping to ensure that actions are implemented in a sequenced and prioritized manner with adequate resources allocated, appropriate leadership and buy-in across the public and private sectors\. Component 3: Strengthening financial integrity in the CEMAC region by supporting the GABAC to carry out its mandate (US$ 3 million)\. Sub-component 3\.1\. Launch the 2nd round of mutual evaluations of member states’ AML/CFT regimes Having the capacity to follow the efforts carried out by member states to comply with international standards through the mutual evaluation and follow up process is a core function of the GABAC\. The FATF Recommendations and its assessment methodology have been revised respectively in 2012 and 2013\. Therefore, the GABAC needs to launch a new round of mutual evaluations to support states in implementing the revised standards\. The project will help the GABAC in assessing level of compliance of member states’ AML/CFT regimes against the revised international standards by supporting i) the development of a pool of GABAC assessors under the revised methodology; ii) the implementation of the GABAC’s mutual evaluation calendar; and iii) the implementation of the GABAC follow up process as part of meetings of the GABAC Technical Commission meetings (twice a year)\. Sub-component 3\.2: Implementation of technical assistance activities for member states The revised international standards (i\.e\. FTAF Rec\. 1) place an emphasis on ensuring that domestic AML/CFT regimes are effective at helping countries reduce their risks of ML/FT, through the implementation of an AML/CFT risk-based approach\. The project will help member states i) carry out national assessment of their ML/FT risks and develop risk- based AML/CFT action plans to mitigate the risks identified; ii) organize training sessions to disseminate the revised CEMAC AML/CFT Regulation and enhancing levels of compliance with AML/CFT requirements in sectors that are identified by domestic risk assessments as most vulnerable to ML/FT; iii) strengthen capacity of domestic national intelligence units (FIU), law enforcement agencies and the judiciary to detect, investigate, prosecute and judge ML/FT cases related to important proceed generating crimes in the region; and iv) improve AML/CFT policy and operational coordination and cooperation at the regional level among domestic AML/CFT other stakeholders in the CEMAC, as well as between domestic AML/CFT stakeholders and regional bodies (BEAC, COBAC, etc\.)\. Jul 13, 2017 Page 11 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Sub-component 3\.3: Preparation of typology exercises of ML/FT trends and methods in the CEMAC region The FATF and its associated members carry out research and studies on the technics, trends, and modus operandi of ML/FT in a region to inform and guide policy makers and operational AML/CFT agencies in the implementation of AML/CFT regimes and needed reforms\. The GABAC has in the past carried several ML/FT typologies that have contributed to enhancing knowledge in the region and worldwide on these phenomena\. The project will support the GABAC, with the contribution of national financial intelligence units and other relevant AML/CFT stakeholders, in continuing to prepare typology exercises and to disseminate results to AML/CFT actors in the public and private sectors\. Component 4: Project implementation and Impact Evaluation (US$ 4 million) The project will support the project implementation’s cost\. This component will finance the operational costs of the regional Project Implementation Unit (PIU) including: technical assistance, coordination, procurement, financial management, communications and M&E supervision\. SAFEGUARDS A\. Project location and salient physical characteristics relevant to the safeguard analysis (if known) The project will only provide technical assistance to CEMAC regional and does not intend to finance any infrastructure works\. It does not foresee any negative impact on populations or environment\. B\. Borrower’s Institutional Capacity for Safeguard Policies NA C\. Environmental and Social Safeguards Specialists on the Team Kristyna Bishop, Environmental Safeguards Specialist FNU Owono Owono, Social Safeguards Specialist Cyrille Valence Ngouana Kengne, Environmental Safeguards Specialist D\. Policies that might apply Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/BP 4\.01 No Natural Habitats OP/BP 4\.04 No Forests OP/BP 4\.36 No Pest Management OP 4\.09 No Physical Cultural Resources OP/BP 4\.11 No Indigenous Peoples OP/BP 4\.10 No Jul 13, 2017 Page 12 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) Involuntary Resettlement OP/BP 4\.12 No Safety of Dams OP/BP 4\.37 No Projects on International Waterways No OP/BP 7\.50 Projects in Disputed Areas OP/BP 7\.60 No E\. Safeguard Preparation Plan Tentative target date for preparing the Appraisal Stage PID/ISDS Oct 02, 2017 Time frame for launching and completing the safeguard-related studies that may be needed\. The specific studies and their timing should be specified in the Appraisal Stage PID/ISDS NA CONTACT POINT World Bank Philippe Marie Aguera, Jean Michel Lobet Senior Financial Sector Specialist Borrower/Client/Recipient Banque des Etats d' Africque Centrale (BEAC) Sarwal ADOUM MAHAMAT Deputy Director Internal Relations adoum@beac\.int Implementing Agencies Banking Sector Commission of the Central African States - COBAC Halilou Yerima Boubakary Secretary General halilou@beac\.int Groupe d' Action contre le Blanchiment d' Argent en Afrique Centrale (GABAC) Geoffroy MBOCK Permanent Secretary geoffroy\.mbock@spgabac\.org Jul 13, 2017 Page 13 of 14  The World Bank Strengthening Regional Institutions and Financial Intermediation in the CEMAC Region (P161368) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Task Team Leader(s): Philippe Marie Aguera, Jean Michel Lobet Approved By APPROVALTBL Safeguards Advisor: Maman-Sani Issa 12-Sep-2017 Practice Manager/Manager: Alejandro S Alvarez de la Campa 13-Sep-2017 Country Director: Elisabeth Huybens 19-Sep-2017 Jul 13, 2017 Page 14 of 14

APPROVAL

P106232

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No\.: AB3418 Project Name Southern Okrup Local Initiatives Support Project Region EUROPE AND CENTRAL ASIA Sector Other social services (100%) Project ID P106232 Borrower(s) RUSSIAN FEDERATION Implementing Agency Ministry of Finance of the Russian Federation 9, Ilyinka street Russian Federation 103097 Tel: +7-(095)-913-4406 Fax: +7-(095)-913-4315/4308 apavlov@dmfo\.ru Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared October 29, 2007 Estimated Date of Appraisal Authorization April 2008 Estimated Date of Board Approval October 2, 2008 1\. Key development issues and rationale for Bank involvement In recent years the Russian Federation (RF) has shown high levels (7% of GDP) of economic growth (due in part to high commodity prices) and strong improvement of most economic and social indicators\. However, distribution of the growth (and benefits) among RF regions has been highly unequal and development of the most disadvantaged regions remains a key priority in the Government’s agenda\. Southern Okrug Povert y and Unemployment : The SO Gross Regional Product (GRP) per capita is half of that of the RF average and in some of the national republics (NR) is a quarter of the RF average\. The SO regions are among the poorest in RF, with high poverty and unemployment rates\. Up to 24% of the SO population (28% in the NR) lives below official minimum subsistence level 1 \. Unemployment levels in NR are high and exceed 20 % (compared to RF average of 7%)\. The share of long term unemployed is about 61% (39% RF average)\. Recent Bank SO Labor Market diagnostics provided recommendations on labor market activation policies, FIAS administrative barriers reduction project and WBI investment promotion program are addressing this constraint\. Access and quality of social services : The SO regions are falling behind the RF average on the access and quality of basic social services\. Main reasons for this are poor local fiscal base, high 1 This 2003 data does not reflect recent poverty levels reduction\. Most recent estimates will be available early in 2008\. Page 2 population growth, weak public administration and other issues faced by most of the SO regions\. Rural areas with inadequate access to quality education, healthcare, and other basic services are in particularly disadvantaged position\. Some of the NR are also facing recovery and post conflict reconstruction challenges\. Weak capacity of local authorities and service delivery institutions, and governance problems exacerbate the problems\. The federal Government is supporting development of regional level infrastructure through various investment programs, but this is largely concentrating at large size projects, while local needs are underserved\. This calls for introduction of a program that would improve access to services and the local level and improve settlement level governance through broader participation of the population\. 2\. Proposed objective(s) The proposed program development objective is to improve quality of local social services and efficiency of public resources utilization through improved capacity of local authorities, citizen and community participation in targeted municipalities of the Southern Okrug\. 3\. Preliminary description The proposed Program includes the following components: Component 1: Community Development Grants to targeted settlement level municipalities for improvement of basic service delivery at the community level that address priority needs of population\. The mechanism for provision of such competitive grants is being tested in Stavropol Krai in 2007-2008 and can be replicated in other regions\. Component 2: Institutional Development of participating municipalities, local communities, and other stakeholders to improve their capacity to deliver basic services and efficiently manage municipal assets and budget with community and citizen participation\. It will also support policy and capacity building efforts for participating federal and regional authorities\. Component 3: Monitoring and Evaluation of the program results and outcomes at federal, regional and community level (including participatory monitoring and evaluation), impact evaluation of the Program as a whole, as well as activities aimed at dissemination of information and program replication\. Component 4: Program Management for supporting program implementation and other operational needs\. The program will include federal, regional and municipal co-financing\. Regional level Municipal Development Funds will be used for disbursement of funds\. The program will initially include two national republics and expand existing pilot in the Stavropol krai\. Further program expansion will include its roll-out to all national republics and selective regions of the Southern okrug\. 4\. Safeguard policies that might apply N/A Page 3 5\. Tentative financing The total cost of the program is tentative and its more precise budget will be defined at the pre- appraisal stage\. Source: ($m\.) Borrower 30 International Bank for Reconstruction and Development 30 Total 60 6\. Contact point Contact: Anush Bezhanyan Title: Sr Operations Off\. Tel: (202) 473-7171 Fax: Email: Abezhanyan@worldbank\.org

APPROVAL

P005627

F LE COPY 1Document of The World Bank FOR OFFICIAL USE ONLY Report No\. P-2180-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON AN INDUSTRIAL FINANCE PROJECT CONSISTING OF A PROPOSED SEVENTH LOAN TO BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA AND A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA December 6, 1977 This document has a restrited distributton and way be wed by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorizaton\.  Currency Unit Tunisian Dinar (D) The exchange rate of the Tunisian Dinar is floating\. The rate used in\. the appraisal report, which approximates the current rate is: US$ 1 = D 0\.43 D 1 $ 2\.32 D 1,000 = $ 2,320 D 1,000,000 = $ 2,320,000 Fiscal Year January 1 to December 31 Abbreviations API Agence de Promotion des Investissements BDET Banque de Developpement Economique de Tunisie FOPRODI Fonds de Promotion et de Dcentralisation Industrielle  FOR OFFRCIAL USE ONLY TUNISIA Loan and Project Summary A\. Loan to BDET Borrower: Banque de Developpement Economique de Tunisie (BDET)o Guarantor: Republic of Tunisia Amount: US$30 million, in various currencies, including $2 million for expansion of small-scale enterprises\. Terms: The Loan would be repayable in 13 years, including a 4-year grace period, on a level principal payments basis; interest at 7\.9 percent per year; commitment charge of 3/4 of one percent \.on the principal amount of the loan not withdrawn\. Relending Terms a) Interest rate of 9\.0 percent per annum on sub- of loans to loans to medium and large scale industrial borrowers; BDET borrowers: amortization depends on individual sub-projects, and may extend for industrial projects over a period of up to fifteen years if justified in the individual case by the forecast financial position of the borrower and the expected lifetime of the assets\. Foreign exchange risk would be borne by Government\. b) Interest rate of 8\.0-8\.25 percent per annum on sub-loans to small-scale industrial borrowers\. Amortization depends on individual sub-projects and may vary between 7 and 11 years, with grace periods between 2 and 3 years\. FQreign exchange risk would be borne by Government\. Project To meet part of BDET's requirements for the financing Description: of import components of specific industrial enterprises (US28 million), and to finance expansion of existing small-scale enterprises through BDET (US$2 million)0 Final date for subproject December 31, 1979 submission: Free limit: About $705,000 equivalent for individual sub-loans\. (DFC Component) This documnt hs a rutricted distribution and nmy be wd by rciplanta only in tho perfornince of their official duties\. Its contents may not othenrie be disclosed withut Word Bank autbonXazon\.  Bank loan disbursements: Fiscal year: 1978 1979 1980 1981 1982 Annual US$ million: 1\.0 6\.0 8\.4 9\.8 4\.8 Cumulative: 1\.0 7\.0 15\.4 25\.2 30\.0 B\. Loan to the Republic of Tunisia Borrower: Republic of Tunisia Amount: US$5 million in various currencies Terms: Repayable in 13 years, including 4 years of grace, on a level principal payment basis; interest at 7\.9 percent per year; commitment charge of 3/4 of one percent on the principal amount of the loan not withdrawn\. Relending Terms Interest rate of 8\.0-8\.25 percent per annum; amortization of loans to depends on individual subprojects, and may vary between SSE borrowers: 7 and 11 years, with grace periods between 2 and 3 years\. Project To provide financial and technical assistance to 50 to 60 description: newly created small scale enterprises (SSE) in Tunisia\. Final date for sub-project December 31, 1979 submission: Bank loan disbursements: Fiscal year: 1978 1979 1980 1981 1982 Annual US$ million: 0\.1 1\.1 1\.55 1\.6 0\.65 Cumulative: 0\.1 1\.2 2\.75 4\.35 5\.0 Appraisal Report: Report No\. 1734a-TUN dated November 29, 1977\. EMENA CPII-B December 6, 1977  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON AN INDUSTRIAL FINANCE PROJECT CONSISTING OF A PROPOSED SEVENTH LOAN TO THE BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA AND A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA 1o I submit the following report and recommendation on an industrial Finance Project in Tunisia consisting of: (i) a proposed seventh loan to Banque de Developpement Economique de Tunisie (BDET) to be guaranteed by the Republic of Tunisia, for the equivalent of US$30\.0 million co he^p finance lending for industry, including US$2\.0 million to finance the expansion of small scale enterprises (SSEs); and (ii) a proposed loan to the Republic of Tunisia for the equivalent of US$5\.0 million to finance the development of new small scale enterprises in industry\. The interest rate for both loans wfould be 7\.9 percent per annum\. The proposed seventh BDET loan and the proposed loan to the Government would be repaid over a period of 13 years\. including four years of grace, on a level principal payments basis\. PART I - THE ECONOMY 2\. A special economic mission visited Tunisia in December 1976 to review the draft Tunisian Fifth Plan, 1977-1981\. A special economic report entitled "Economic Position and Prospects of Tunisia, Review of the Fifth Development Plan, 1977-81" (No\. 1539-TUN) was issued on May 2, 1977\. Country data sheets are attached in Annex 1\. 3\. Tunisia is rather poorly endowed with natural resources, but it is close to European markets and has large untapped labor reserves and tourism potential\. Much of the country is arid or semi-arid and there is an acute shortage of surface water\. Most of the agricultural activity is concentrated along the coast and in a few oases\. The main crop is wheat, which is subject to sharp year-to-year fluctuations because of irregular rainfall\. The main export crop is olives, but good olive harvests are also subject to a natural output cycle\. Tunisia's most important raw materials are phosphates, petro- leum and natural gas\. However, except for phosphates, proven deposits are relatively small\. Tunisian phosphate rock is of low quality and e;:ploitation costs are comparatively high\. The production and export of petzoleum have become increasingly important\. Recently, deposits of natura' gas were dis- covered off-shore in the Gulf of Gabes, which might become important for the -future development of the country\. Industrial development, albeit auite impressive, has been hampered by a shortage of industrial entrepreneurs and skilled labor\. The service sector, a quarter of which consists of government administration, remains the most important one, generating about half of GDP in 1976\. Tourism has developed rapidly and workers' remittances have become a significant item in the balance of payments\. Tunisia has enjoyed a l,\.arge  amount of external aid and used it to expand economic and social infrastruc- ture, broaden the industrial base, make available a wide range of social and welfare services to a large part of the population, and increase the rate of growth\. 4\. Tunisia's overall economic performance during 1970-76 has been excel- lent0 Real GDP grew at an average annual rate of 9 percent, about twice as fast as during the 1960's\. GNP per capita reached $840 in 1976, which in real terms is 60 percent above its level in 1969\. The shift in policy orientation from the centrally controlled inward-looking investment strategy of the 1960's to a freer export-oriented economy and the drive towards industrial develop- ment proved highly beneficial for the country\. Two other factors also contri- buted to this performance: favorable weather conditions resulted in good agricultural crops and the change in world commodity prices during 1973/74 brought oizable windfalls\. National savings during 1970-76 were high and on average amounted to about 22 percent of GNP\. Savings, however, originated mainly in the private sector and Government, and they were temporarily boosted by favorable changes in petroleum and phosphate prices since 1973\. Public enterprises, as a group, did not make a contribution to national savings that was commensurate with their importance in the economy, primarily because their sale prices were not raised sufficiently to reflect cost increases, and also because some enterprises were inefficiently managed\. National savings financed about 85 percent of investment during the period\. Tunisia's dependence on external £inancing declined sharply from about 32 percent of investment in 1969 to 21 percent in 1976\. The balance of payments had been in continuous overall surplus since 1967, but in 1975 and 1976 this was no longer the case as the terms of trade deteriorated while imports continued to increase\. 5e Tunisia has made impressive social gains\. By 1976, primary school enrollment had reached 90 percents, and secondary enrollment 20 percent of the relevant age-groups\. Public health services have been expanded with many pro- vided free\. A family planning program has been introduced and has met with considerable success\. Attempts have been made to tackle regional imbalances and to improve income distribution\. Total social expenditures during 1970-76 increased by about 10 percent per annum and on average accounted for 9 percent of GDP and for 30 percent of total public expenditures\. Nonetheless, major social issues remain\. 6\. The most important problem facing the Tunisian economy is widespread open and hidden unemployment\. Employment creation was one of the main objec- tives of the Fourth Plan\. Chiefly because of the Government's generous incen- tives to - and the consequent growth in - labor intensive private investment, the planned creation of new jobs was exceeded by 37 percent0 However, some form of unemployment still affects close to one third of the labor force (about 22 percent of the non-agricultural labor force was unemployed in 1976 and about 40 percent of the agricultural labor force was under-employed)\. In 1976 there were some 265,000 people unemployed, 54 percent of whom were seek- ing employment for the first time\. An increasing number of young people born during the high birth rate years are reaching working age\. This is of major concern to the authorities, especially since the European outlets for Tunisian  - 3 - surplus labor have been all but closed, and an increasing number of women is joining the labor force\. Concurrently there is a shortage of skilled labor, which has proven to be a major constraint to more rapid growth in the past\. 7\. Income distribution seems to have improved since 1966 in the wake of increased employment creation, minimum wage legislation, tax exemptions and family allowances for low income earners\. The real impact of these measures was safeguarded as domestic price inflation during 1966-76 was kept to an aver- age of 4\.0 percent, mainly because of strict credit and price controls and government subsidies for basic consumer goods, housing and services\. The increased standard of living during the period is reflected in the reduced share of food expenditure in the average household budget and in the increased share of housing expenditure\. The share of the population living in absolute poverty declined from 30 percent in 1966 to 18 percent in 1975\. Because of great internal migration, the majority (55 percent) of the population below the absolute poverty line now lives in urban areas\. Important disparities continue to exist between the income levels along the coast and in the interior\. Per capita income in the poorest region amounts to about one third that of the richest region and that of-the rural population to about half that of the urban\. Existing efforts to distribute the fruits of development more evenly among regions are still embryonic and insufficient to overcome the attraction of the capital and the coast\. During 1970-76, agriculture provided about half of total employ- \.zent, 27 percent of merchandise exports and 21 percent of GDP\. Food process- ing accounted for another 3 percent of GDP and over a third of value added in manufacturing\. During this period agricultural production rose substantially, largely as a result of favorable weather\. Large infrastructure investments were made during the last decade\. Current policy emphasizes projects that make a rapid and direct contribution to production and recognizes various constraints on agricultural development: absentee ownership, insecurity of tenure, inadequate access to agricultural credit, inadequate extension ser- vices, insufficient agricultural education, and underutilization of irrigation investments\. Under the Fourth Plan, about $140 million has been allocated to a rural development fund which has been executed by the provincial adminis- trations\. During the 1960's, manufacturing production in Tunisia increased by 8 percent annually\. There has been a remarkable acceleration of growth in the 1970's due in part to record years for the olive oil processing industry and to favorable developments in the textile and chemical industries\. The early thrust of industrialization was supplied by large import substitution projects in the social sector\. These suffered, however, from the limited domestic market and shortages of experienced staff and management\. More emphasis has been put on export-oriented private industries since 1970\. Under the Fourth Plan, private manufacturing investment, particularly in food processing, tex- tiles, fertilizers and metals transformation, was expected to average D 25 million per year, compared with D 12 million in 1972, and to account for two- thirds of total investment in manufacturing; these targets have been exceeded\. Foreign and domestic private investment is now stimulated by a comprehensive incentive framework, and facilitated by the streamlined approval procedures of  - 4 - the investment promotion agency\. Foreign investors are expected to contribute know-how and overseas marketing\. A new agreement between Tunisia and the European Community was signed in April 1976\. Although it provided for duty free entry into the countries of the Community of nearly all Tunisian indus- trial products, new restrictions have recently been imposed\. The Government has established a special fund to encourage growth of small industries and industrial decentralization, and has started a program to establish industrial estates\. 10\. The development of tourism in Tunisia is relatively recent\. Foreign- visitor arrivals reached 1 million in 19769 with an average annual rate of growth during 1970-1976 of 15 percent, -- sharply higher than that of the Mediterranean tourism market as a whole\. Since 1970, earnings from tourism have been a major source of foreign exchange, having reached $338 million in 1976D more than twice the earnings from all manufacturing exports and slightly more than petroleum exports\. The rapid development of tourism in Tunisia has unfortunately not been accompanied by adequate development of infrastructure (particularly recreational facilities), trained manpower and services\. The Government is endeavoring to alleviate these constraints through a variety of measures, including revised investment incentives, increased marketing and training efforts, codes to enforce quality standards and more stringent zoning laws\. 11\. The main objectives of the current Fifth Development Plan (1977-81) are (i) full employment of the additicnal labor force, (ii) self-sufficiency in major foodstuffs, defined as a balanced trade account for agricultural goods, (iii) increases in the standard of living, and (iv) social stability through incomes policies and wage and price harmonization\. To reach these objectives, the Plan foresees an average annual rate of real GDP growth of 7\.6 percent, the same as the one achieved during the Fourth Plan\. This growth is to be generated by investments projected at D 4\.2 billion ($9\.8 billion) in current prices during the Plan\. In real terms average annual investment would be 54 percent greater during 1977-81 than during the preceding Plan, but owing to the high investment level reached in 1976, its annual growth would be 3 percent only in real terms\. The Fifth Plan's strategy emphasizes in particular export-oriented industrial development and agricultural growth\. Special atten- tion will be given to employment creation and to balance of payments considera- tions\. Substantial investments are to be made in hydrocarbons, manufacturing, water development, transport and housirig\. The Plan prescribes increased domestic production and processing of Tunisia's mineral resources (phosphates, petroleum) to export as much as possible\. Extraction and distribution of the newly discovered offshore gas deposits in the Gulf of Gabes rank prominently among the list of major projects\. This gas is to be used to substitute for petroleum based fuels that would be freed for export\. Eventually gas would also be used as an input for the chemical industry\. Private sector initiative is expected to dominate investment in textiles, mechanical and electrical industries and tourism\. In these activities the authorities primarily expect employment creation to take place\. Education and training programs are to be expanded sharply to meet more adequately the economy's skilled manpower needs  - 5 - and worke-rs' expectations for upgraded jobs\. The strategy proposed for the Fifth Plan does not represent any major departure from the strategy pursued successfully during the preceding Plan\. 12\. Tunisia's existing resource base, its institutional and infrastruc- tural framework, its excellent performance in the earlier part of this decade, and the desire of the authorities to promote further development and to sup- port it with appropriate policy measures and institutions, are fundamental ingredients pointing towards continued rapid economic growth during the Fifth Plan\. The 7\.6 percent target set for the average annual real growth of GDP i\.n the Plan is in line with the possibilities of the Tunisian economy\. The investment priorities formulated in the Plan are considered necessary to sup- port the sectoral strategies\. There are some less favorable signs, however\. Tunisia's development recently benefited from the structural changes in world market prices and excellent weather conditions\. It would be unreasonable to expect that these fortuitous factors will continue to work in Tunisia's favor to the same extent as in the past\. Substantial efforts in domestic and ex- ternal resource mobilization will therefore be of crucial importance to finance the planned level of investment\. On the domestic side, there is a great need for increased savings and improved financial intermediation\. The Government sector, in particular, will again be called upon to contribute substantially to the savings effort\. The Plan suggests that this should be done by prudent expenditure policies and increased revenue collections (selective tax increases and better tax collection)\. In addition, the public enterprise sector will have to increase substantially its contribution to public savings through management improvements, and especially through cost-related increases in the sale prices of selected enterprises\. Externally, Tunisia would have total financing requirements (disbursement basis) of some $3\.5 billion during 1977-81\. Given the country's creditworthiness, it seems reasonable to assume that Tunisia should be able to mobilize such an amount without putting undue strain on the country's debt servicing capacity (para\. 14)\. 13\. Since the early 1960's, Tunisia has obtained relatively large amounts of official aid\. A Consultative Group chaired by the Bank has provided a forum for aid-coordination among major donors (see para\. 22)\. During 1970-76, annual loan commitments from public sources averaged $1\.77 million, or about $33 per capita\. About 72 percent of these commitments came from bilateral public sources, chiefly from France, Canada, and the Federal Republic of Germany\. About 20 percent came from oil-producing countries, whose share rapidly increased from 8 percent in 1970 to 21 percent in 1976\. Commitments from the Bank Group during 1970-76 accounted for 24 percent of total public commitments\. Most aid has been obtained on concessionary terms; during 1970-76, the average terms of borrowing from bilateral sources were 3\.5 percent interest and 23 years to maturity, including 6 years of grace; from multilateral sources, they were 6\.0 percent interest and 26 years to maturity, including 5 years of grace\. During the same period, Tunisia also received annually some $43 million in grants\. Loan commitments from private sources averaged $35 million a year\. Direct foreign private investment has been com- paratively small, but recently it has picked up momentum following increased activity in the petroleum sector and new incentives offered to foreign in- vestors in manufacturing\. Thus, net direct foreign investment increased from $19 million in 1970 to $63 million in 1976\.  - 6 - 14\. At the end of 1976, total foreign debt disbursed and outstanding was estimated at about $1\.3 billion or 27 percent of GDP, compared with some 40 percent in 1970\. The debt service ratio in 1976 was 8\.3 percent, compared with 20 percent in 1970\. This significant decline in the debt ser- vice ratio was mainly due to the sharp increase in export earnings following the changes in world market prices in 1973/74\. In the future, the external borrowing requirements of the 1977-81 Plan (para\. 12) will again increase debt service obligations in relation to exports, to around 13\.3 percent by 1981 and 16\.9 percent by 1986 according to current Bank projections\. While these are relatively high levels, debt service would be a manageable burden on the eco- nomy and balance of payments, particularly when considering Tunisia's long record of prudent and skillful external debt management\. Tunisia is considered creditworthy for further Bank lending\. PART II - BANK GROUP OPERATIONS IN TUNISIA 15\. Since 1962, Tunisia has received a total of twenty-nine loans and eleven credits amounting respectively to $404\.4 million and $70\.1 million, net of cancellations and refundings\. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1977, and notes on the execution of ongoing projects\. While disbursements of some loans and credits have been slower than foreseen at appraisal, on the whole, project execution has been satisfactory\. In a number of sectors, important institu- tional improvements have been achieved and independent agencies have been created or strengthened\. 16\. The Bank's lending strategy ia Tunisia aims at supporting Government efforts to (a) increase employment, (b) encourage more balanced growth and distribution of income among regions and income groups, (c) promote export- oriented policies and investments, and (d) provide selective support for the development of infrastructure and for institution building in key public serv- ices\. The main supporting feature of this lending strategy is to encourage the Tunisian authorities in timely and well-coordinated preparation of proj- ects, with emphasis on technical assistance\. The Bank is also cooperating with the Government in its efforts to increase the mobilization of domestic and foreign resources, in part through encouraging project cofinancing; the latter is particularly important in view of the extent of Tunisia's external resource needs, the large size of many priority projects, and the limited availability of Bank resources relative to the country's needs\. 17\. Within this broad framework, past Bank Group lending has emphasized support for long-term investments in infrastructure and social development\. Lending for urban and social development, including water supply, education, family planning and the Tunis urban planning and public transport project has accounted for 30 percent of Bank/IDA commitments in Tunisia\. Lending for transport, power and tourism infrastructure has accounted for 32 percent\. Agriculture and fisheries have receivnd 21 percent of total commitments\.  Industrial and hotel financing through the Banque de Developpement Econo- mique de Tunisie (BDET) has accounted for 13 percent, and the Gafsa phos- phate development project received 4 percent of total commitments\. 18\. Lending for industry has so far been largely through the main Tunisian Development Finance Company, BDET, and has mostly benefited medium- size companies\. The Bank has encouraged BDET to diversify its sources of funds and BDET has made significant progress in this respect\. Such lending is expected to continue, but at a declining rate as BDET diversifies its sources of funds\. The Bank has also lent directly for the Gafsa phosphate mining project\. Further direct Bank loans for priority industrial subsectors in which Tunisia has a comparative advantage would depend on the progress achieved in the formulation of sound projects\. Emphasis is now placed on development of small-scale enterprises (SSE)\. The SSE component described below would be experimental and would serve as a vehicle to prepare further Bank assistance for SSE development in Tunisia\. 19\. Lending in the current fiscal year and in the period ahead emphasizes projects promoting agricultural and industrial production, such as the Mishkar Gas Development Project for the development and transmission of Tunisia's off-shore gas resources, and a rural roads project with complementary agri- cultural investments; both projects are expected to be presented to the Executive Directors later this fiscal year\. Complementary to this primary focus, the program would also finance selected priority urban and social development and infrastructure projects\. Projects under discussion with the authorities include a second fisheries project, a second population project, a second sewerage project, and an urban development project\. 20\. The Bank Group accounted for about 24 percent of total public com- mitments to Tunisia during 1970-76\. The Bank Group's shares in total debt outstanding and disbursed at the end of 1976 (including loans from private sources) and in debt service during 1976 were 15 percent and 14 percent respectively\. The Bank Group's share in Tunisia's disbursed external debt by 1981 is expected to remain unchanged from about 15 percent in 1976, and its share in debt service would amount to about 10 percent\. 21\. IFC has invested in NPK Engrais (a fertilizer plant), in BDET, in Compagnie Financiere et Touristique (COFIT, a company to promote and invest in tourism projects), in Societe Touristique et Hoteliere RYM (a large hotel development) and in Industries Chimiques du Fluor, which will produce alumin- ium fluoride from local fluorspar for export\. IFC's most recent investment, in May 1975, was in the Sousse-Nord integrated tourism development project\. IFC's net commitments in Tunisia total $15\.8 million\. IFC's Board has ap- proved the sale of IFC shares in NPK Engrais to the Tunisian Government\. 22\. Since 1962 the Bank has chaired a Consultative Group for Tunisia bringing together the principal donor countries and institutions concerned with the country's development\. The most recent meeting of the Group, held in Paris in June 1975, welcomed new participants which included Saudi Arabia, Japan, the Arab Fund for Economic and Social Development and the Commission  - 8 - of the European Communities\. This year, a development conference was organized by the Government in Tunis in early July, in lieu of a meeting of the Consulta- tive Group\. PART III - THE INDUSTRIAL SECTOR IN TUNISIA Background 23\. Given Tunisia's relatively small endowment with natural resources, development of manufacturing industries is a major vehicle for economic growth and employment creation\. During the 1960's, the stress was on import substitu- tion\. Since the early 1970's, the stress has increasingly shifted towards export oriented manufacturing industries to prevent the expansion of import- substitution activities beyond the limits of efficiency set by the small domestic market\. Simultaneously, the public sector's role as entrepreneur was de-emphasized and its share in manufacturing investment declined from 86 percent in the late 1960's to less than half during the Fourth Plan (1973- 1976)\. Domestic and foreign private investment in manufacturing were stimu- lated by generous incentives, such as the Export Promotion Law of 1972 and the revised Investment Code of 1974, and by the establishment of new insti- tutions to assist industry, such as API (Agence de Promotion des Investis- sements), which is responsible for the administration of the investment laws, and AFI (Agence Fonciere Industrielle), which is responsible for acquiring and developing industrial land\. 24\. Overall, manufacturing industry performed well during the Fourth Plan\. Value added increased at an average annual rate of 6\.5 percent\. The total investment target of the Plan was exceeded by 20 percent in real terms, mainly because of greater than expected private investment\. Employment crea- tion also exceeded the target by creating 61,000 new jobs, or 50 percent more than expected\. By 1976, the manufacturing sector accounted for 11\.2 percent of GDP compared with 8 percent in 1960\. A breakdown by sub-sectors shows a predominance of food processing (33 percent), textiles and leather (25 per- cent) and, mechanical and electrical industries (13\.6 percent)\. Industrial Objectives 25\. The Fifth Plan (1977-1981) objectives for the manufacturing sector are essentially the same as those of the Fourth Plan\. Value added is expected to grow in real terms at 11\.7 percent per year, with non-agricultural indus- tries growing at 15\.9 percent per year\. Investment in manufacturing is ex- pected to reach D 950 million, or 23 percent of total planned investment\. Manufacturing exports are to increase from D 151 million in 1976 to D 327 mil- lion in 1981\. About 90,000 new industrial jobs are to be created, or 43 per- cent of all non-agricultural employment during the Plan period\. The public sector will continue to play a leading role in implementing strategic projects of a capital-intensive and high-technology nature,  - 9 - 26\. The Fifth Plan's targets can be achieved, provided that project identification, preparation and execution capabilities are further strengthened\. At present, only about 70 percent of the expected manufacturing investment for 1977-81 is properly identified\. Most of such investment is relatively capital- intensive\. Furthermore, despite the existing incentives, Tunisian private entrepreneurs have shown so far limited interest in export-oriented activities\. The government is aware of this problem\. It intends to stimulate and support the initiatives of Tunisian enterprises in foreign markets\. It is also encouraging the location of new manufacturing industries in the interior by offering fiscal and financial incentives and assuming certain expenses for infrastructure\. The AFI has begun working towards this end through its program for the establishment of industrial estates\. Industrial Finance 27\. The large industrial development projects in Tunisia are gener- ally sponsored by public sector enterprises, and financed by the government or through direct foreign borrowings\. The authorities rely on the banking system to finance medium and small scale industrial projects\. BDET, which held at the end of 1976 about 30 percent of total term credit extended to the indus- trial and tourism sectors, plays a central role in this respect\. Commercial banks are also encouraged to participate in the development financing effort by the requirement that 18 percent of their deposits be placed in medium-term (up to seven years) private loans, and by rediscounting facilities for refi- nancing further commercial bank lending to the private sector\. 28\. Inflation in Tunisia has been moderate in recent years (4\.1 percent in 1974, 9\.6 percent in 1975 and 5\.4 percent in 1976) and the overall level of interest rates has been kept low\. Medium term lending rates for the indus- trial and tourism sectors have been in the range of 6\.25 percent to 8 percent\. BDET's rate for long term- loans (over seven years) was set at 9 percent in 1976 (including a 1 percent Government interest rebate on loans to resident industrial borrowers)\. The rather low interest rate structure has discouraged savings in the form of long term financial instruments and led, on the demand side, to some credit rationing and a possible sub-optimal allocation of medium- and long-term credit\. Partly as a result of discussions with the Bank, IFC nd the IMF, the government has prepared a study on the interest rate levels and structure in Tunisia\. This study led the Central Bank to increase as of September 1, 1977 both borrowing and lending rates by up to 1-3/8 percentage po::rnts\. Medium-term lending rates for rediscountable loans to the industrial and tourism-sectors have been increased from a range of 6\.25-8 percent to f^-8025 percent\. The medium-term rate applicable to loans for resident export- oriented enterprises and enterprises located in the least developed regions was kept, however, within a range of 6\.75 percent to 7 percent to encourage industrial decentralization\. As of January 1, 1978, the Government's rebate on BDET loans to -resident industrial borrowers will be abolished, These are steps in the right direction\. The declared aim of the authorities is gradually to harmonize domestic interest rates with those prevailing in the international capital markets\.  - 10 - 29\. The Ministry of Finance has also prepared a study on the domestic capital market; the study recommends legislative measures to foster the devel- opment of the market\. The implementation of these measures has not yet been decided\. The conclusions of both studies as well as the rigid Central Bank control over credit and interest rates and the tightness of trade and exchange controls are the object of discussions between the Bank and the Tunisian authorities\. Small Scale Enterprises 30\. Tunisians have a long tradition of craftsmanship and commerce and the number of small non-agricultural enterprises, defined as those employing less than 50 workers, is estimated to be close to 80,000, including 18,000 in the manufacturing sector\. Yet Tunisia's past administrative, fiscal and financial policies have not favored the development of such enterprises\. Indeed, the industrial development strategy in the last two decades has given priority to large scale public enterprises and, more recently, to modern medium-sized privately owned enterprises\. As a result of limited access to industrial credit and inadequate technical assistance, the entrepreneurial dynamism and investment potential of a large number of small scale Tunisian entrepreneurs has gone unrealized\. 31\. A change in the government's previous attitude was marked by the creation in 1974 of the FOPRODI (Fonds de Promotion et de Decentralisation Industrielle), a budget-financed fund intended to provide financial assistance for small industrial projects (especially those outside the Tunis metropolitan area) sponsored by Tunisian investors with adequate technical qualifications but limited means\. Under the FOPRODI scheme, eligible entrepreneurs obtain from FOPRODI subsidized personal loans to help them acquire majority owner- ship in the capital of the new enterprises\. Wnen the ceiling on total in- vestment cost was raised in October 1977 from D 200,000 to D 500,000, these personal loans were set at 70 percent of equity for projects not costing more than D 250,000, including working capital; sponsors are expected to provide 10 percent of equity\. For projects costing between D 250,000 and D 500,000 (including working capital), personal loans represent up to 45 percent of equity and the sponsor's contribution represents at least 20 percent of equity\. The equity base under this FOPRODI credit facility amounts to up to 30 percent of total project costs\. These personal loans have terms of 12 years including 5 years of grace and bear interest at 3 percent\. Medium- and long-term loans are also extended to SSEs under FOPRODI for new projects costing up to D 75,000 (including working capital) or expansion projects costing up to D 45,000 (excluding working capital)\. The term loans cannot exceed 70 percent of total project costs\. These loans have terms of 10 years including 3 years of grace for new projects, and seven years with no grace period for expansion projects; they bear interest at 4 percent\. Eligibility for FOPRODI assistance is determined by API\. From December 1975, when it became operational, until May 1977, FOPRODI financed 81 projects, with total investments of about D 7 million and creation of 2,553 new jobs\. An SSE policy unit is being established in the Ministry of the National Economy, and API has decided to set up a countrywide system of technical assistance to SSEs (see para\. 52)  - 11 - PART IV - THE PROJECT 32\. The proposed project consists of two components: (i) a DFC-type loan of $30 million to BDET, including $2 million to be earmarked for finan- cing the expansion of existing small scale enterprises; and (ii) a line of credit of $5 million to the Government to provide financial and technical assistance to newly created SSEs in Tunisia\. Negotiations were held in Washington in November 1977\. Mr\. Fakhfakh, BDET's Director-General, led the Tunisian negotiating team\. An appraisal report on BDET (No\. 1734-TUN), dated November 29, is being distributed separately\. 33\. Objectives of the Proposed Project\. Under the proposed project, and in line with the Government's Fifth Plan strategy, the Tunisian authori- ties and BDET plan to give priority to the following categories of industrial projects: (i) projects creating at least one job for every D 4600 at 1976 prices ($10,670 equivalent) of investment; (ii) export oriented projects promoted by Tunisian sponsors, (iii) projects sponsored by new entrepreneurs with adequate technical qualifications; (iv) projects outside the Tunis Metropolitan area; and (v) small scale industrial projects\. BDET's intention to give priority to these categories of projects is reflected in a Strategy Statement which was approved by BDET's Board in October 1977\. During nego- tiations, an understanding was reached with BDET that at least 75 percent of the proceeds of the proposed loan would be earmarked for such projects\. The objectives of the Bank's involvement would be firstly to assist in the financ- ing and development of these priority categories of industrial projects; secondly, to continue supporting the development of BDET and, particularly, helping it to establish itself as a viable borrower in the international financial markets; thirdly, to pursue the ongoing dialogue with Tunisia on financial policies, especially regarding interest rates\. The institution- building objectives of the SSE component are described in para\. 47; they represent the most innovative feature of the proposed project\. 34\. BDET Establishment and Resources\. BDET was established in 1959 and reorganized in 1965 with Bank Group assistance\. Since then, the Bank has made six loans to BDET totalling $69 million\. IFC holds 10 percent of BDET's share capital\. The last of the Bank loans, amounting to $20 million, was made in early 1976 and is now fully committed\. Over the past few years, BDET has been successful in borrowing new domestic and foreign long-term resources, permit- ting a decline of the share of Bank funds from 37\.4 percent of its long term resources at the end of 1974 to 24\.9 percent at the end of 1976\. In 1976, BDET placed a bond issue on the international capital market, which was under- written by the Kuwait Investment Company (KIC) and guaranteed by the Tunisian government\. This operation is the first of its kind undertaken by a Tunisian financial institution and illustrates BDET's determination to gain access to the international capital market (see para\. 44)\. 35\. BDET doubled its share capital to D 3 million in 1971, and again to D 6 million in 1974\. A further share capital increase from D 6 million to D 10 million was authorized by BDET shareholders in June 1976, and is expected to take place over the 1978-80 period\. As of end 1976, the Tunisian  - 12 - government held 12\.1 percent of BDET's share capital, other Tunisian public sector institutions 17\.4 percent, the Tunisian private sector 28\.2 percent, IFC 10 percent, and other foreign shareholders 32\.3 percent\. For the purpose of BDET's new capital increase, the government agreed in 1976 to act as a sub- scriber of last resort by converting into shares, to the extent necessary, a D 4 million subordinated loan made to BDET in 1975 to make up for that portion of the capital increase that would not be subscribed by other shareholders or by other new private sector subscribers\. Most foreign and domestic private shareholders are expected to exercise their preemptive rights\. 36\. Management, Organization and Procedures\. The composition of BDET's Board of Directors reflects BDET's ownership structure\. As agreed during negotiations for the sixth Bank loan, BDET has taken measures to improve man- agement effectiveness\. BDET's organization was restructured in 1976, in an effort to decentralize decision-making at the middle management level\. There are now six departments (instead of three), four of which are headed by young Tunisian professionals promoted from the ranks\. Experience with the new orga- nization over the last fifteen months has been positive\. BDET's appraisal work has further improved over the past two years and overall, BDET's appraisal reports are generally comprehensive and sound\. Further improvement can be achieved in BDET's market studies, in assessing the project's employment crea- tion capacity, and in evaluating physical and financial contingencies\. During negotiations on the proposed loan, an understanding was reached with BDET on ways to improve on these weaknesses\. 37\. Project supervision remains the weak link in BDET's organization\. To improve its project supervision, BDET has agreed to strengthen the staffing of its supervision division, to implement procedures and information flows which would improve this division's integration within BDET, and to prepare a comprehensive and detailed work program for the supervision division (Draft BDET Loan Agreement, Section 3\.08)\. An understanding was reached during negotiations on the work program of BDET's supervision division for 1978\. 38\. Operations\. BDET's policies, established at the time of its 1965 reorganization provide that BDET is to stimulate industrialization and tourism development in Tunisia through the financing of sound and productive projects, and to help develop the capital market\. In the manufacturing sector, BDET's disbursements accounted for about 15 percent of total investment both in 1975 and 1976\. BDET's involvement in tourism, which represented 41 percent of its portfolio at end 1974 and about 25 percent at end 1976, is expected further to decline as industrial sector financing has become the primary objective of BDET\. The proportion of BDET's new approvals in the public sector has remained well below the ceiling of 30 percent of total BDET financing which is reflected in BDET's policy statement\. The distribution of BDET's opera- tions by industrial subsectors is fairly evenly spread\. Almost half of BDET's operations are concentrated in the Tunis area\. Much remains to be done in promoting projects in the less developed areas of the interior\. During nego- tiations on the proposed loan, an understanding was reached that at least 60 percent of the proceeds of the proposed Bank loan would finance projects located outside Tunis\.  - 13 - 39\. Financial Situation\. BDET's auditors, the Tunisian firm Cabinet Finor and Peat, Marwick, Mitchell and Company (PMM) issued an unqualified opinion on the 1975 and 1976 accounts, with only two minor reservations\. The first reservation concerned the inadequate reporting on 50 of BDET's clients, accounting for 3\.2 percent of portfolio at end-1976; the second reservation concerned a loan (D 877,500) to a hotel which has been in deficit since 1975\. The work program of BDET's supervision division (see para\. 37) includes mea- sures to improve information collection on BDET-financed sub-projects or investments\. An understanding was reached with BDET on measures to fully recover BDET's loan to hotel El-Kebir as well as to validate the mortgage on this loan by June 1978\. 40\. BDET's portfolio at the end of 1976 amounted to D 61\.4 million, including D 6\.6 million in the form of equity investments\. The arrears situa- tion, particularly in the tourism sector, has improved since 1974, following a strong resurgence of tourism in 1975 and 1976, assertive action on the part of BDET in collecting loans in arrears and the rescheduling of loans in arrears representing 17\.8 percent of total loan portfolio at end-1976\. Loan reschedulings were largely due to delays in the implementation of projects approved in the 1974 industrial investment boom, for many of which BDET had granted inadequate grace periods\. An understanding was reached that BDET's supervision division would follow up closely the performance of clients having obtained reschedulings; in case reschedulings should affect in any given fiscal year more than 15 percent of BDET's loan portfolio, agreement was reached to the effect that a special report would be submitted to BDET's Board (draft BDET Loan Agreement, Section 4\.12)\. 41\. BDET's loans to industrial customers are backed by chattel mortgages which are generally valid and sufficient to cover risks\. Substantial progress has been made since 1975 in validating mortgages of hotel borrowers, in line with the timetable agreed with the Bank for the sixth Bank loan\. During negotiations it was agreed that, in future, BDET's hotel sub-loans would be secured by a valid mortgage, failing which the contracts for such sub-loans would include a timetable, to be approved by BDET's Board, for the mortgage validation process (Draft BDET Loan Agreement, Section 3\.07)\. 42\. BDET's total assets grew from D 43\.1 million in 1974 to D 73\.4 mil- lion in 1976\. The maximum debt/equity ratio agreed between BDET and the Bank was raised from 5:1 in 1975 to 7:1 in 1976 following a change in the defini- tion of equity, which now excludes the government subordinated loan of D 4 million\. The ratio is expected to exceed 7:1 in 1977 and to stabilize there- after slightly below 8:1 as BDET's capital increase takes place in the 1978-80 period\. Given BDET's improved financial situation, an agreement was reached during negotiations that BDET would maintain at all times its debt/equity ratio within the limit, of 8:1 (Draft BDET Loan Agreement, Section 4\.06)\. 43\. Projected Operations and Resource Requirements\. BDET's business prospects for the medium term are good\. Yearly approvals are expected to increase progressively from D 30\.7 million in 1977 to D 39\.5 million in 1981\. Emphasis in BDET's financing will, however, be affected by the new priorities outlined in the Plan for the manufacturing sector (see para\. 26)\. This is  - 14 - reflected in the Strategy Statement referred to in para\. 33 above\. It is expected that in the period 1978-79, 50 percent of BDET's new approvals would be for projects located outside Tunis, 35 percent for labor-intensive proj- ects, and 15 percent for projects of new entrepreneurs and for SSE projects\. BDET would make all efforts to promote export-oriented projects, but the uncer- tainty of the international situation (European Community tariff policies) makes it difficult for BDET to set a specific target for the expected results\. In any case, an understanding was reached that BDET would give priority to sub-projects belonging to these categories and submit yearly progress reports to its Board of Directors and to the Bank\. 44\. To finance its operations during the Fifth Plan (1977-81), BDET will have to mobilize about D 143 million of new financial resources (on a commit- ment basis)\. About 40 percent of the resource requirements for the 1978-79 period, estimated at D 56\.2 million have been identified (excluding the pro- posed Bank loan to BDET)\. These include besides cash generation, and the partial payment of the capital increase, two new French lines of credit (partly at concessionary conditions), one new loan from Qatar, one new loan from the Arab fund for Social and Economic Development, and a local bond issue\. The proposed Bank loan of $30 million to BDET would represent about 21 percent of total resources to be raised for the 1978-79 period\. This would leave a financing gap of up to D 22\.1 million which BDET plans to fill through borrowings in the foreign open markets\. Preliminary contacts between BDET and lenders in the Euro-currency market and in the Gulf States indicate that this objective can be achieved\. Initially, at least, the guarantee of the government will be necessary to contain the cost of such borrowings\. BDET has prepared, in cooperation with the government, a program and timetable for resource mobilization for the period 1977-79\. An understanding was reached that the Government and BDET would mobilize the required resources for 1977-79 in accordance with the program and timetable which were reviewed during negotiations\. 45\. Projected Profitability\. Under current circumstances, net profits in percentage of average net worth would decline from a range of 8\.3 percent to 9\.7 percent in 1973-76 to 8 percent in 1977 and 1978\. This is largely due to government regulations having imposed on BDET low lending rates of 8 percent in 1974 and 1975, and 9 percent (including a 1 percent Government interest rebate on loans to resident industrial borrowers) in 1976 and 1977, despite steadily increasing costs of BDET's borrowed resources\. An agreement was reached during negotiations that the nominal rate of interest on BDET's long-term loans to industrial borrowers would be raised as of January 1, 1978 by at least one percentage point above the rate applicable to medium-term rediscountable commercial bank loans (Draft BDET Loan Agreement, Section 4\.13)\. The Government would no longer provide as of January 1, 1978, the one percent rebate it provided on the rate payable by resident industrial borrowers on BDET's long-term loans\. An understanding was also reached that the nominal rate of interest on BDET long-term loans for tourism would be increased from 9 percent to 9\.5 percent\. Taking into account interest prepayment, commissions and fees (other than commitment fees), the effective cost of BDET's long-term resources to industrial borrowers would be about 9\.65 percent, and that of tourism loans would be about 10\.15 percent\. Although a step in the right  - 15 - direction, the proposed increases in BDET's term-lending rates will not be sufficient to guarantee BDET an adequate profitability\. Further increases in the rates of BDET's long-term industrial loans are not desirable, however, as long as medium-term lending rates on commercial bank loans remain in the pre- sent range, because such increases would jeopardize BDET's competitive posi- tion\. *To further strengthen BDET's-profitability while encouraging BDET to maximize its spreads an understanding was reached during negotiations that the Government would subsidize ex-ante the cost of selective BDET non-concessionary foreign borrowings so as to ensure an adequate margin of profit for BDET\. 46\. Terms of the Development Finance Company Component\. The proceeds of the proposed $30 million BDET loan (excluding the $2 million to be earmarked for expansion of SSE projects) would be used for financing: (a) the full cost of directly imported equipment or services for eligible subprojects, and (b) 70 percent of the cost of previously imported equipment\. The free limit for subloans not subject to prior Bank approval would be D 300,000 ($705,000 equivalent)\. Exposure to a single customer would not exceed 25 percent of BDET's equity\. The foreign exchange risk on the Bank funds and BDET's other foreign borrowings would be assumed by the Government (Draft Guarantee Agree- ment, Section 3\.04)\. Taking into account that the loan will be committed over a 2-year period, and that the average term of BDET's loans is about 12 years, with a 2-year grace period, the loan should be repaid in a period of 13 years, including a 4-year grace period, on a level principal payments basis\. The Small-Scale Enterprises Component 47\. Assistance for small-scale enterprises ($7 million) would aim, on an experimental basis, to coordinate and strengthen ongoing initiatives in the field of financial and technical assistance to SSEs\. It is expected that this assistance would lead to the identification of the most suitable institutional arrangements for a possible future Bank-financed SSE project\. Of the amount earmarked for SSE development, $5 million would be lent to the Government for the financing of newly-created SSEs through FOPRODI (see para\. 31) and $2 million would be lent-to BDET to finance expansion of existing SSE projects\. Both SSE sub-components would benefit from a country-wide decentralized, technical assistance scheme for SSEs to be set up by API\. 48\. The $5 million loan would be channelled through an account with the Central Bank, which would be separate from the existing FOPRODI credit facili- ties (Draft Government Loan Agreement, Section 3\.01(b)(iii))\. Establishment of this account would be a condition of loan effectiveness (Draft Government Loan Agreement, Section 6\.01(c))\. Agreement was reached during negotiations on the following financing scheme for new SSE projects (Draft Government Loan Agreement, Schedule 2, para\. 5): the four commercial banks currently partici- pating in the FOPRODI scheme, as well as BDET would draw from this account an amount not exceeding 50 percent of total project costs to provide term loans to newly created SSEs which qualify for concessionary FOPRODI assistance for the constitution of their equity capital\. The participating bank would pro- vide out of its own resources a term loan to newly created SSEs in an amount of about 20 percent of total project costs\. Individual promoters are expected to provide the remaining 30 percent of total project costs, which can be  - 16 - partly financed through the existing FOPRODI concessionary loan facility\. Agreement was also reached on eligibility criteria of SSE sub-projects to the proceeds of the proposed Bank loan (Draft Government Loan Agreement, Schedule 2, para\. 3): (i) total project costs of the newly-created SSE (including working capital) would not exceed D 200,000 in 1976 prices; (ii) the cost of job created or maintained would be about D 4,600 in 1976 prices, which is in line with the accepted criteria of Bank's Urban Poverty Program and (iii) the entrepreneur would be willing to use, if needed, available technical assis- tance\. These eligibility criteria would be more restrictive than eligibility criteria currently established for FOPRODI\. As a condition of loan effective- ness, the Government would amend its existing agreements with commercial banks participating in the FOPRODI scheme to reflect the agreed criteria and opera- tional arrangements (see para\. 49), and conclude a similar agreement with BDET (Draft Government Loan Agreement, Section 3\.01 b(i), (ii))\. API would provide technical assistance to promoters (Draft Government Loan Agreement, Schedule 2, para\. 13)\. 49\. Promotion, identification, iritia' screening and appraisal of eli- gible SSE irojects wiould be the responsiMility of the banks administering the FOPRODI scr\.eme assisted, as needec, by API\. Once the SSE project and its financing plan have been approved by the supporting bank and API, BDET would ver4ry that the project complies with the Bank"s eligibility criteria, submit approval and disbursement applications to the Bank, and maintain the necessary documentation (particularly as regards disbursement) available for inspection by Bank supervision missions\. The repayment obligation for the Bank-financed SSE sub-lo:-is wo-_:;c\.e \._\.wre the government but the responsibility for loan collection wou\.-: :emn'4n with ,h2 bank sponsoring the project, which will share equally with the gcvernment the risk of loss on both term loans financed out of the Bank funds ar\. tern loans made out of the bank's own resources for SSE sub-projects\. This arraz\.gement, which is an improvement over the existing FOPRODI systems is eesigned zo 4nduce greater participating bank involvement in financing new SSE projects\. Tha participating banks will be compensated for their services by Government commissions as currently provided under the existing FOPRODI credit facilities, i\.e\. a flat commission on disbursements and a commission based on the amount of principal and interest recovered on behalf of FOPRODI\. 50\. The second SSE sub-component, amounting to $2 million, would be part of the BDET loan but would be earmarked to finance the expansion of existing SSEs with production facilities valued (before expansion and excluding land) at less than D 100,000 in 1976 prices ($232,000 equivalent)\. The terms and conditions of subloans for such expansion projects are expected to be similar to those applying on subloans for the new SSE sub-component, but the borrowing SSE's obligations would be toward BDET with BDET fully covering the risk\. In order to ensure that SSE expansion projects will receive appropriate attention, BDET agreed to set up a special unit staffed by two SSE specialists (Draft BDET Loan Agreement, Section 3\.09(c)); establishment of this unit is a condition of loan effectiveness (Draft BDET Loan Agreement, Section 6\.01a)\. The unit would be responsible for the processing of expansion SSE projects as well as for administering Bank funds to be channelled through the FOPRODI scheme\.  - 17 - 51\. Terms of the Sub-loans for SSEs\. The term of Bank-financed FOPRODI or BDET sub-loans for SSEs is expected to be between 7 and 11 years, with grace periods between 2 and 3 years\. Correspondingly, loans for the new and expan- sion SSE projects would be repayable to the Bank, by the Government and BDET respectively, over a period of 13 years, including 4 years of grace, on a level principal payments basis\. The cost of funds to SSE borrowers would be equal to the average interest rate charged by commercial banks on medium-term industrial loans at the time of sub-loan signinLg (Draft Government Loan Agree- ment, Schedule 2, para\. 8 and Draft BDET Loan Agreement, Section 4\.13(b)); currently, this rate is 8 to 8\.25 percent except for loans financing invest- ments in less developed regions of Tunisia (6\.75 to 7 percent)\. The foreign exchange risk on the Bank funds would be assumed by the Government (Draft Guarantee Agreement, Section 3\.04)\. Although Bank funds would be used to finance up to one-half of the full investment cost of SSE projects, without distinguishing between foreign and local currency expenditures, it is expected that on average this will imply little, if any, local currency financing with Bank funds, as the foreign exchange costs of SSE investments in Tunisia are estimated to vary between one-third and two-thirds of total costs, averaging about 40 percent of total\. 52\. Technical Assistance to SSEs\. Technical assistance to support SSEs is a key element to ensure the success of the SSE component of the proposed 1oan\. API would be responsible for establishment and implementation of the technical assistance program, both for SSE projects financed by the Bank loans, and other SSE projects in Tunisia\. Initially, API's technical assistance staff would concentrate on identifying SSE projects and assisting sponsors in preparing their projects, obtaining the financing and properly implementing the projects\. Later, the API-centered extension service would provide follow- up assistance, especially in the areas of production and financial management, marketing and improvement of productivity\. During negotiations on the proposed Bank loan, the Government agreed to prepare a plan of action and a timetable for providing technical assistance services to SSEs (Draft Government Loan Agreement, Schedule 2, para\. 13); an understanding was reached during negotia- tions on this plan of action and the timetable for its implementation\. The Government also agreed to implement this plan of action and to periodically --eview its content and implementation with the Bank (draft Government Loan Agreement, Section 3\.06(b))\. An understanding was also reached that API would strengthen by July 1, 1978 its existing central unit and its four regional offi-\.2s through recruitment of at least eight qualified Tunisian specialists\. About 69 man-months in specialized expertise wbuld be required initially to assist API in establishing the central core of SSE experts and to train experts for API's regional offices\. The Government has agreed to complete by July 1, 1978, financing arrangements for the foreign exchange costs of expatriate spe- cialists (about $300,000), failing which these costs would be financed under the proposed $5 million loan to the Government (Draft Government Loan Agree- ment, Section 3\.06(a))\. 53\. Benefits and Risks\. Through the proposed project, the Bank would continue helping BDET to improve its financial management and portfolio, and the Government to further liberalize credit and develop domestic capital mar- kets\. Sub-projects financed by the proceeds of the Loan would contribute  - 18 - to employment creation, export promotion, development of entrepreneurship and decentralization of industrial activities (para\. 33)\. The SSE component of the proposed project is expected to finance between 50 and 60 new, and 20 and 30 expansion, sub-projects and to create about 2,300 new jobs at an average cost per job created of about $7,000\. This component would, in addition, contribute to laying appropriate grounds for Government financial and tech- nical assistance for SSE development throughout Tunisia\. The relative lack of experience, in the Bank and in Tunisia, in assisting SSEs entails a moderate risk that the SSE institution-building targets may not be fully achieved\. The risk is worth taking, however, since adequate mechanisms would be set up under the project to ensure that only worthwhile projects are financed by the pro- posed loan\. PART V - LEGAL INSTRUMENTS AND AUTHORITY 54\. The draft Loan Agreement between the Republic of Tunisia and the Bank, the draft Loan Agreement between the Bank and Banque de Developpement Economique de Tunisie, the draft Guarantee Agreement between the Republic of Tunisia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a resolu- tion approving the proposed loans are being distributed to the Executive Directors separately\. Features of the loans of particular interest are men- tioned in paragraphs 47 through 53 of this report\. Special conditions of effectiveness are: (i) amendment of the FOPRODI Agreement between the Govern- ment and Participating Banks to reflect the negotiated operational arrange- ments for SSEs, and conclusion of a similar agreement between the Government and BDET (para\. 48); (ii) establishment within BDET of a unit to administer SSE expansion sub-projects (para\. 50); and (iii) establishment in the Central Bank of a Project Account for the Bank-financed new SSE operations (para\. 48)\. The draft agreements conform to the normal pattern for loans for development finance companies\. 55\. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank\. PART VI - RECOMMENDATION 56\. I recommend that the Executive Directors approve the proposed loan\. Robert S\. McNamara President Attachments December 6, 1977 Washington, D\.C\.  Annex I Page 1 of 4 pages TUNISIA - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------------------------------------------------- --------------- TUNISIA REFERENCE COUNTRIES (1970) TOTAL 164\.2 MOST RECENT AGRIC\. 76\.1 1960 1970 ESTIMATE UORDAN IRAQ GREECE*** GNP PER CAPITA (USs) 230\.0* 370\.0* 840\.0* /a 350\.0* 640\.0* 1360\.0* POPULATION AND VITAL STATISTICS _______________________________ POPULATION (MID-YR, MILLION) 4\.1 5\.0 5\.7 /a 2\.3 9\.4 8\.8 POPULATION DENSITY PER SQUARE KM\. 25\.0 30\.0 35\.0 /a 24\.0 22\.0 67\.0 PER sQ\. KM\. AGRICULTURAL LAND 54\.0 67\.0 75-0 -a 165\.0 92\.0 96\.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 46\.6 44\.7 40\.0 47\.5 49\.1 18\.1 CRUDE DEATH RATE (/THOU,AV) 21\.5 16\.9 13\.8 17\.8 17\.9 8\.0 INFANT MORTALITY RATE (/THOU) \. 125\.0 62\.6 b 36\.3 /abc 104\.0 29\.6 LIFE EXPECTANCY AT BlRTH (YRS) 46\.1 51\.6 54\.1 50\.7 50\.2 70\.9 GROSS REPRODUCTION RATE 3\.1 3\.4 3\.4 3\.5 3\.5 1\.0 POPULATION GROWTH RATE (%) TOTAL 1\.8** 2\.3** 2\.3** 3\.1 3\.2 0\. URBAN *- 3\.0/a 4\.7/C \.6\. \.0 1\.5 URBAN POPULATION (% OF TOTAL) 35\.6 /a 40\.1/b 47\.0 \. 58\.0 62\.6 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 42\.4 46\.3 42\.1 47\.0 /a 48\.0 24\.9 15 TO 64 YEARS 52\.6 50\.2 53\.8 49\.5 a 48\.0 64\.0 65 YEARS ANO OVER 5\.0 3\.5 4\.1 3\.5 ^ 4\.0 11\.1 AGE DEPENDENCY RATIO 0\.9 1\.0 0\.9 1\.o /a 1\.1 0\.6 ECONOMIC DEPENDENCY RATIO 1\.3/a\.b 1\.8/b\.c 1\.4 2\.4 7\.d 1\.8 /a FAMILY PLANNING ACCEPTORS (CUMULATIVE\. THOU) \. 112\.2 281\.5 USERS (% OF MARRIED WOMEN) \. 12\.0 \. \. \. EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 1400\.0/a 1300\.o/b 188o\.0 350\.0 /a 2700\.0 LABOR FORCE IN AGRICULTURE (%) 69\.07 5 7\.07S' 37\.4 33\.0 7a 52\.0 UNEMPLOYED (% OF LABOR FORCE) 1i \.07 12\.07 14\.0 14\.0 r 6\.0 INCOME DISTRIBUTION % OF PRIVATE INCOME REC'D BY- HIGHEST 5% OF HOUSEHOLDS \. \. \. HIGHEST 20% OF HOUSEHOLDS \. \. \. LOwEST 20% OF HOUSEHOLDS \. \. \. \. \. LOWEST 40% OF HOUSEHOLDS \. \. \. DISTRIBUTION OF LAND OWNERSHIP ______________________________ % OWNED BY TOP 10% OF OWNERS \. 53\.0 /d \. % OWNED BY SMALLEST 10% OWNERS \. o\.s \. \. \. \. HEALTH AND NUTRITION POPULATION PER PHYSICIAN 10000\.0 /c s9so\.o 5560\. 0 /e f 2680\.0 3270\.0 620\.0 POPULATION PER NURSING PERSON \. 730\.0 /e 670\.0 7tR1 1050\.0 5490\.0 1140\.0 POPULATION PER HOSPITAL BED 360\.0 /d 410\.07T 410-0 960\.0 520\.0 160\.0 PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 86\.0 94\.0/8 94\.0 /i 94\.0 93\.0 116\.0 PROTEIN (GRAMS PER DAY) 54\.0 63\.0 67\.0 71 60\.0 62\.0 99\.0 -OF WHICH ANIMAL AND PULSE 13\.0 14 \.0 I \. 18\.0/e 17\. 0 b 52\.0/a DEATH RATE (/THDU) AGES 1-4 \. \.5 /b,i s\.o/b EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 67\.0 100\.0 95\.0 73\.0/a 67\.0 106\.0 SECONDARY SCHOOL 13\.0 23\.0 18\.0 33\.07 24\.0 66\.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 13\.0 13\.0 13\.0 12\.0 12\.0 12\.0 VOCATIONAL ENROLLMENT (% OF SECONDARY) 24\.0 12\.0/h 28\.0 3\.0/ 3\.0 20\.0 ADULT LITERACY RATE (%) \. \. 55\.0 \. 26\.0 82\.0 HOUSING PERSONS PER ROOM (URBAN) \. 2\.7/b \. OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) 60\.0/b * \. \. \. ACCESS TO ELECTRICITY (% OF ALL DWELLINGS) \. 24\.0/b \. \. \. \. RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) \. \. \. \. \. , CONSUMPT ION RADIO RECEIVERS (PER THOU POP) 41\.0 77\.0 74\.0 160\.0 180\.0 111\.0 PASSENGER CARS (PER THOU POP) 11\.0 13\.0 18\.0 7\.0 7\.0 26\.0 ELECTRICITY (KWH/YR PER CAP) 84\.0 155\.0 233\.0 72\.0 291\.0 1072\.0 NEWSPRINT (KG/YR PER CAP) 0\.3 0\.1 0\.1 0\.3 0\.3 1\.6 SEE NOTES AND DEFINITIONS ON REVERSE  Aniex I Fage 2 Qf 4 pages U\.loe\. othe-is\. acoted, doto far 1960 refer to aoy Fear bet-C\.e 1959 aod 1MI, for 1970 between 1968 cod 1970, and for M-ost Rmeent Estimate betweeno 19 73 and 1975\. A GNP9 per c\.Pit\. dote ore booed on the World Rock Atlaa mthodology (1974-76 basis)\. 0* \.u to oigr-tion popul\.tion growth rate is liter thon the rote of naturalinrse *0G-eece he\. been selected as \.n objective coontry, on the basis of the ite of It\. population, nediterre\.e\. geographical eltuotion and it\. -cn-y, which tr \.ne\.t\. 050 similarity with oT-ili's, with respect to n,tione1 rescortes, narket ese\., agricu1toe end cerices activities\. TUNISIA1 1960 I 1956; /b Rotio of populotton under 15 aod 69 and over to total labor force; /\. 1963; /d 1962, i\.ludiog -rura honpit\.1\.7 1970 0 1956-66; /b 1966; /c Ratio of population -nder 15 end h5 aod wver to toto1 labor force-; /d Co-eing 4\.5 nillion hectoros of privete 1aed, eccluding 0\.8 million hectares is public ownership, and 2\.1 million hectare of collective land; /ePersonnelt to govenmet services only; If Governensst hospital \.tehli\.faantot only; /& 1964-66; /h ft\.l\.ding tehio coonmy nod technical indutry\. Li- Registered only\. K-ISl lECIIT ET iINHATE; Ia 1976; /b 1966-75; Ic Registered only; /d Ratio of population under 15 and 65 cod over to total laber force\.; /o lo-1Jdig dentista; /f 1972; /& Psrsonnel tn government services only; /b Govonolnt boopit\.1 sstablictmients only; /t 1969-71 average\. JORDORJ 1970 I fEe\.t lank only;\. /b 1966; /\. Registered only; /d Ratio of Popolatton under 5 cod 65 and over to total labor force; /\. 1964-66; /f Including ti9fRA schools\. IRAQ 1970 /c tiol of popu1ction undsr 15 and 65 cod over to total labor force; /b 19646-6\. CRtici 1970 1967\. g13, September 23, 1977 OEf33=TOMn OPF SOCIAL IDICATMR Lantd Ares (then k\. I PoonlatIon ocr nursse carson - P\.Puletion divided by n,fhr If practlclof Total Tool nurf\.oe orca cuyrlinig loand or endtland atere\. sale and fcsale gr\.duste \.oues, "trained" or 'certified" 51\.,and Asric\. m ost re\.c osti-ct\. of sgricultsr1 area used tmoaiyor patin- s-itliary proronmel with training or speriesoe\. meetly for crps, pautures, sorkt & kitches gardens or to ILe fallow\. Poewi\.ttee par hmoeIno bed - Pepalation divided by s,ab\.r of boepica1 teds available is publilnand priest\. general sod epeci\.lised hospit\.l and GNP par -uit\. (17S1) - GN? per capltc soI\.ctiet at correct -kcht prices, rehabilitation centoer; omldsa oursing hoess and aatablishlnents fcr \.c\.lcu -to by sme onvr, o mthdi ae World Book Atlce (1973-75 hosts); custedil end preventive sees\. 1960; 1970 cod 1975 datc\. Par \.pita \.omPly of calorie\. ft afrcuemnb- CaMuted fre, energy equi-alent of set faod supplIes aeil\.bls is cotno ps capita per dwy, P\.pul\.tion 4nd vitul -ttitctlc evileble euppli\.s caspria\. dboatic prduction, Ispot lese \. epoot, and Popnlation (id-yeart! milo) A\. of July firnt: if net aroiloble\. over\.ge ohe\.Se in stack; met \.pplieo eccinde aelc\.l food, seeds, quontities usad of two end-year e tloaee 1-60, 1970 and 1975 dot\. In fend processeing and looses to distribution; requirnre\.t woos \.tisatod by FAO baeed on physlologi-Il seeds for som1 activity end health conid- Populotiem dbbsiro per sour\. lee - Mid-year pepoletiosi per squcr killnter ering -mironamtal temperature, body \.sights, age end sea distributiono, of (100 hactrt) of total ero\., pepuliati, cod allowing 105 for wstsate hIcs- hoohld leve\. 'Poocltiotn 'Caiy Pars seme he of coric- land - Ceepucd as shov for 9cr capitt sopply of"ot I er ocrdcv - Protei\. contest of Per copisa agricoltural loand only\. net soply of food po day; net eapy ffodi defined ce shove; require- semis for all co,natroes eetablLshd by USDA ERooneme Receore Serei\.ee Vital stottatice Provid\. for a minimis allowance of 60 Sr,was of total Pretein per day, cod C-odo birth rats per thouosed\. swerase - Amnoal lies birthe per thousand of 20 grosa of asime cod pales Prortei, of which 10 grean hbsu1d b\. enlmoI sid-yeer popolotion; ten-ye\.r -rithostic overages ending in 1960 and 1970, protein; thece etondrda ere loser than those of 71 gr,aa of tate1 protsin cod five-yea evaroge endIng in 1975 for meet recet satimat-\. sod 23 gre\. of anImal protein as en averag for the werld\. Proposed by PA0 Crude det rot ncr tbo,cand\. average - Asmuol denthe Per thoowend of mid-year in the Third World Peed Survey\. populotion; ten-yeor arit testic overeges ending in 1960 and 1970 and flee- Per CoPit' oro':in onol,free amilso p'lse - Protein supply of fond yoar co ssding in 1975 for meat retest eatimets\. derivd fre siml sod pcs\. in gre\. pe day\. ttturoity rare /thou) A--IAna dZatba of infeste undr one year of ego Death rate f/thou) aese 1-4 - Ammual deethe per thousand is age group 1-4 Per thouas\.di!ve birth'\. y-sr\. to childans in this age grsup; suggested s as \. indicator of Life \.poct\.cy as bIrth fees) A-tAerge -abcr of yeers of life renaming at neltrition\. birth; ususlly five-year averagea ending in 196, 1970 sod 1971 for develop- Cros rsorTod-ction rot - uverags nmber of Iive dauhtere \. oann will beer Adjused erollment ratio erimere school - Esrellashat of all ag\. as par- 1s her -ooc _rerductivepriod If she perinoos Pree\.t ge-ope-ific cantos of potnery aseles populaIon\. inclod\. children agod 6-11 years feri i ly rates; -sus1y five-yccr evesge ending in 1960, 1970 and 1971 bat adjusted for diffsreot length\. of primary edustion\. for cousriac with for dwvclpn c, -trla\. univrersal dcetin, enrollment e\.y emceed 1007\. since eons pupils are blow 1opulotionurputh rots Cl 6 -totol\.- Conpoosd sensI grvth rtes, of mid-year or ab=v the officiml scoo agt population for1950-60, 96-7 and 1970O-75\. Adiusted wor,s1lmoot retto aeondre school- Conput\.d as above\. setondary Poouiet on Arowth rots t - uban - Coaputed like groth rate of totn1 education requirec at leaset four ye\.ar of spprovsd primary isatrution; populetion; dfeetdfotocfuraarecsay afetaparabtllty of provide general, vocatieal or teacher training ietructions for pupils datc aIn oetfcf 12 ta 17 y\.r\. of age; crepdccours\. f e \.genrally \.ciuded Ura opltion ft of t-tal) - Ratio of urban to total populstion; different Ysorso cholis provided (first anscod lvels) - Total Is\.,\. of definitione of urb\.n r-s say effect \.omparbility of data 4-4 cbont-otr \. schooin; at G\.,condar le,vetIe instruction say be partially or conplensly xcld\. ,aced sircot-ro (oprcet) - Childreo\. (0-14cy\.rc) , -kring-age (15-64 years), vonstionol =oolms fl of enodo m fctiona l\.cjtiouinn inclod\. an rtired (65 yeors codonr) es per ctages of mid-year pspulati-n te-heice-Hindustrial or other pr-gran, which oper\.s\.toidapande-ly or A00 dependec ratio - atio of popoistion usder 15 and 65 sod over to these d\.partoat of secondary inatituti-no of ages 15 thrOugh 64\. Adult it-sroc rete M5 - Lit\.r\.t\. adults (able to rocd and write) as per- ico cdenpodence ratio - Ratio of population under 15 end 65 and ovr to ceotage of tetal edu1t population aged 15 y\.ers end ovr\. the labor force I ago group of 1-h4 years\. Fanil elentcoactstors(ctsuleive\. thou) C-1Cuulti- \.metr of \.teptore lionoin of birth-actrol devices undr eup oof nainlfenily pl\.aning progre\. Psrs naocr roe\. furb-ol - Average oeber of person per roe In oc-pied amily p \.annlno users CZ of sar-iod aoe)-Pecnec of ried -we of structure\. end unoncpiad parts\. obi1d-bearing age (15-44 yeas-) whosebtb-on ldero n lsrie cuied dell wtou spte atr l) -Occupied convenia dwelling Inme inan age group\. inuba o rurl ee without meildsor outeida Piped ester f-cillitie as psruetege of \.11 oc-pied dwellings\. noeloymeot Access is electritito ft~~~~~~~~(' of all den1ltg C- ConetIoa dwelings with Tote1 labor force (thounend) - ftcononcally active Paras, inuloding rawnd lcff tricity i lIvin qusrer asPsret of total dwellings to urbao eed forces end uoeployed hot encluding housewives, students, etc\.; dinfton\.as mruralreas\. to vrious coutries ar- oot cemprable\. Rural delioga connected te electricity ft) - Ceeptned as above for rural Labor force narcltr 1 grlcutura1 lobar force (Is fseno\., forsstry, dwlig ony bunting sod fichIng) es percentage of total labor forc\. U\._mPloved It of labor force) U- ne\.pl 4s sre usually d\.fised aP--prsn hbe Consoni aeable end willing to teke eJob, out of a job on a given day, remand out Rdorctce(ocr thou All -1 type\. of rec-ivsrs for radis b-nd-te of a Job, end \.eking wn-k for a specifisd ninina period not seceding ft\. to general publi petouad of populsttn; \.olodes oniceoed receiver week, say not he ompeabl7 between\. outriee due to different deftoitiona is countries sod in yss\.rs when registration of r\.di\. sets was La effect; of unemPloyed end sourceofdet, ,s;\.g - emplymnt office statistics, \.-nPI\. date for recent years say sact he nnParable since nest ourisabolished \._\.eye, cnpolso\.y unempleynstoI inusc\.Pcetg c "I c~~~~~~~~~~~~Paes orre (ocr thou p-e) - Passenge\.r cars conpries sate \.roar seating In\.- diotributio - Per ctage of private incons (both In each end kind) less then eight Pn peesa emludee anbulance heerses wsd ilItury received by riohsst it\. richest S0t, poorest 201, and pooret 4Ot of hos-\.-bcia holds\. Pacrit (o/ror --P) - AnnuI alnconeption of industrial, - -riaj, pulc adprlvets electrIcIty in kilowatt hour Per cepita, go\.r-11y Distribation of lasd ownrsip - Percestages of land ow-d by wealthiest lOt base\.d an prod\.tion dais, without allwanc far loases In grIds bar allo-\. ssd poorestlO of lend wners tog for tmPerta mod Wrt\. of electricity\. R srit kheyr ocr cop) - Per espit\. c\.n\.I -xptlapio is kilogerm Heeith and Nutrition e\.timatsd gr- disasati prodactiop p1ue net imports of newsprint\. Popu1:t on or physician - Populstion divIded by amb,er of prutcticig physician q qulified fran s cdical school at univ-reity level\.  TUNISIJA -ECONOMIC DEVEI\.PMENT! DATA SHEET Autual R~~~ ~~at\. Pr eRd /1965- I90 1976- 1965 1970 1975 1976 1977 1978 1981 ~~~~~~1970 1975 1981 1976 Dloars Milllios tCotn 92Plr Awear6e Aon\.l Growth Rate Share of GDP A\. RATIONAL ACCOUNTS Gr\.o D-owti Prodont 656 824 1,286 1,444 1,527 1,655 2\.084 4\.7 9\.3 7\.6 100\.0 Grains fron T-ro of Tr\.de -6 -2 53 39 36 36 60 \.2\.9 Gross Do,oetlc Intone 650 822 1,339 1,483 1,563 1,691 2,144 4\.8 10\.3 7\.6 102\.9 Iapoc- (C and NI'S) 179 221 364 409 433 467 573 4\.3 11\.7 7\.0 27\.5 E\.p\.rtn (C and NGS) (laport capacity) 105 183 333 339 369 361 468 11\.7 12\.7 9\.3 22 Resource Gap 74 38 51 70 \.64 70 75 \. 3\.6 toUn-ptlon 549 696 1,061 1,191 1,280 1,395 1,759 4\.9 8\.6 8\.1 84\.4 lo-natnat 162 164 330 362 346 366 430 0\.2 13\.0 3\.5 20\.6 3n,%eotlc SavlnRa 88 126 278 292 283 296 385 7\.4 17\.1 5\.7 18\.5 Notional Savings 67 104 274 280 268 276 347 9\.2 21\.4 4\.4 16\.7 GOP at c\.rr\.nt pric\.a (US$ sillinsa) 1,004 1,444 4,324 4\.782 S,456 6,359 9,899 7,S 25\.0 15\.7 B\. SECTOR OUTPUT lIar\. in GDP at Constant 1972 Prices in Percent Aver\.ae An-ul Growth Rate Agflcclt\.re 22\.1 20\.4 21\.0 21\.5 19\.4 19\.2 17\.7 - 10\.3 3\.5 Industry 22\.8 24\.9 25\.4 25\.2 26\.6 27\.4 30\.3 6\.3 10\.1 11\.6 Services 55\.1 54\.7 53\.6 53\.3 54\.0 53\.4 52\.1 5\.8 12\.3 7\.1 C\. MERCHANDISE ~TRADE Millions of US Do11ars Avor\.an Annual Growth Rata OlIve Oil 26 17 78 82 58 60 70 -9,0 36\.0 -3\.2 Crude P\.troleun 45 359 296 361 435 294 \. 52\.0 - Refined PetroLeun - 5 15 16 16 19 266 \. 25\.0 75 0 Ph-oph-c Rock 22 24 113 75 56 64 101 1\.7 37\.0 6\.1 Phoaphate Derivat\.a 18 17 80 92 139 159 437 -1\.2 36\.0 36\.5 Agric\.lt\.ra1 Prod\.cts 32 40 92 95 95 111 180 4 6 18\.1 16\.2 Te?ttiles 2 2 53 90 105 141 354 - 93\.0 32\.0 Gther MacuD\.ctore d Goods 21L 38 67 70 96 118 184 12\.6 12\.0 21\.0 Total Goods ~~~~ ~~~~ ~~~~121 188 859 806 928 1,107 1,886 9\.2 35\.5 18\.5 Non, Factor S-riccs 68 67 4~97 519 638 747 1\.129 -0\. 49\.0- 16 8 Total Enports 169 255 1,356 1,325 1,566 1\.849 3,015 4\.2 40 0 17\.9 Inoo-t\. (\.if) Foodstuffs 34 50 225 185 225 307 503 18\.7 23 0 22\.0 Other Coosne Coodo 42 41 218 217 262 309 481 -0\.5 40\.0 17\.3 EOOrgy 11 13 140 139 155 167 118 3\.4 60\.0 -3\.3 Inteenediote Good\. 85 113 411 410 489 585 961 5 1 29\.5 19\.0 Ca pital Goods 77 7\.3 430 489 -515 586 847 -l 1 43\.3 11\.0 Total Condo 252 320 1,424 1,443 1,646 1\.954 2,930 4\.9 35\.0 15\.2 Other NSF 68 61i 141 15U8 190 222 345 -2\.2 10\.2 16\.9 Total Goods and NI'S - ~~~~ ~~320 381 1,565 1,601 1,836 2,176 3,275 3\.b 32 5 15\.14 D\. PRICES 1972 -100 A-etage Annual Gr-\.th Rare Enp\.rt price indec 75\.5 89\.7 194\.9 189\.6 201\.8 219\.6 276\.-6 3\.5 16\.8 1\.9 Inport price loden 85\.8 90\.7 144\.1 167\.9 182\.0 200\.0 245\.2 1\.1 12\.6 7\.9 Teoma of trade indao 88\.0 96\.9 118\.8 112\.9 110\.9 109\.9 112\.8 2\.4 3\.7 - GDP deflator 70\.7 92\.0 135\.2 142\.0 153\.4 164\.3 203\.9 5\.4 8\.0 7\.5 Average ench\.uge rate (TO per S) 0\.525 0\.525 0\.402 0\.429 0\.429 0\.429 0,429 - 5\.5 - E\. PUB3LIC FINANCE In parn\.tof GDP' at Current Prices F\. DEITAIL ON GOV'T In-Percen of -TOtal 1965 1970 1975 1976 SECTOR U-NVESTMENT 1968-71 1972-75 Current R-venue 19\.6 21\.8 24\.4 22\.7 Current Enpenditorn 15\.0 17\.9 18\.0 18\.0 Social Sectors 18\.6 15\.0 Current Surplus (Central Gout) 4\.6 3\.9 6\.4 4\.8 Agriculture 23\.8 13\.0 Other Govt Sector SavioRs 0\.9 -0\.5 0\.6 0\.3 Transport and Co,ci\.atlon 12\.2 15\.5 Central Govt I-nvesment 7\.5 3\.9 4\.0 4\.6 In fr\.tructur\. 70\.0 16 4 Total Govt Inv-CtaNIn 11\.7 8\.1 8\.2 8\.7 Other 3/ 29\.4 39\.5 G\. DETAIL ON cuRRENTr ExpENiTuRE In Percent of TotalTt1 oC 1~-RALmGOlT 1965 1970 1975 1976 / Pinu-cin Education 25\.7 32\.1 22\.3 26\.3 Publi\. Sector S-vina 29\.9 59 \.1 other Socia S-rinna 15\.5 16\.7 11\.1 13\.1 Other Finu\. IS 1 5 20\.8 Agriculture 5\.0 3\.4 5\.4 7\.2 DomNstic Dotroujog (net) 1\.6 -2 1 Other E-onoil Services 17\.7 17\.7 16\.2 14\.5 Foreign RorrouleR (net) 52\.6 22\.1 Adoiniotrotion ondOefence 36\.1 30\.1 45\.0 38\.9 Total Financing 100\.0 100\.0 100\.0 150\.0 100\.0 100\.0 0\. LABOR\.FORCE (thousa nds) 1972 1976 Agriculturn j 760 764 Industry 300 440 ServIces 345 413 Une\.pl\.yed '9q 264 1\.n84 1,681 1/ Projentod by World Dank Staff ENMA CP II 2/ Budg\.tNvmbr17 3/\. Includes trans\.fers to pbl1ic onterprises o e be \.1/ Residual  ANNEX I Page 4 of 4 pages TUNISIA - BAIANCE OF PAYMENTS AND EXTERNAL ASSISTANCE (Amounts in millions of US dollars) 1/ Actual Eat\. Proiected 2/ 1970 1971 1972 1973 1974 1975 T\.976 1977 1978 1979 1980 1981 SUMMARY BALANCE OF PAYMENTS Exports (inc\. NFS) 316 408 567 714 1,254 1,356 1,325 1,566 1,849 2,138 2\.546 3,015 Imports (inc\. NFS) 381 442 593 782 1\.242 1\.565 1\.601 1\.836 2\.176 2\.526 2\.882 3,7 Resource Balance -65 -34 -26 -68 12 -209 -276 -270 -327 -388 -336 -259 Net Interest Payments -50 -18 -18 -13 2 -5 -42 -50 -65 -86 -114 -140 of which: Interest on Public Loana (-17) (-20) (-22) (-27) (-31) (-37) (-40) (-48) (-69) (-94) (-126) (-157) Direct Investment Income -9 -10 -25 -35 -36 -37 -35 -47 -58 -70 -81 -93 Workers' Reinittances 29 44 62 98 119 146 135 142 149 156 164 172 Other Net Factor Services -8 -39 -41 -82 -103 -116 -107 -118 -130 -143 -157 -173 Current Transfers (net) 10 16 6 4 1 -3 2 7 7 7 7 7 Balance on Current Account -93 -41 -42 -96 -5 -224 -323 -336 -424 -524 -517 -4866 Private Direct Investment 19 24 31 57 49 48 63 75 86 110 121 133 Official Capital Grants 43 35 37 45 43 50 42 45 40 40 40 38 Public M + LT Loans: Disbursements 82 107 140 153 174 211 285 407 470 590 622 661 - Amortization -45 -49 -70 -59 -59 -66 -70 -73 -87 -128 -177 - 248 Net Disbursements 37 58 70 94 1715 1475 21 34 38 6 4 13 Capital Transactions n\.e\.i\. 31 13 24 -19 -8 -99 -62 3 -3 ---- Change in Net Reserves (increase - ) -19 -100 -77 -92 -103 43 - -115 -85 -88 -89 -98 Net Foreign Reserves 15 115 192 284 387 344 344 459 544 632 721 819 (months of imports equivalent) 0\.5 3\.1 3\.9 4\.4 3\.7 2\.6 2\.6 3\.0 3\.0 3\.0 3\.0 3\.0 B\. PUBLIC LOAN COMMITMENTS Actual Dabt Outstanding on Dec\. 31\. 1975 IBRD - 37 36 25 64 37 65 Disb\. Only in Percent of Total IDA 10 10 10 7 - - - C\. EXTERNAL\. DEBT Other Multilateral - - 1 - 12 11 24 - World Bank 109\.8 10\.2 Governments 100 84 106 138 68 130 104 IDA 55\.3 5\.2 Suppliers 8 5 7 12 2 27 49 Other Al~jtilateral 8\.6 0\.8 Financial Institutions 21 28 28 17 12 20 7 Cvovrrmnta 691\.8 64\.6 Total Public M + LT Loans 1739 1674 188 1799 15 2 49 Supir 6\.8 8\.1 Financial Institutions 99\.3 9\.3 Bonds 1\.1 0\.1 Public Debt n\.e\.i\. 18\.6 1\.7 Total Public N H LT Debt 1,071\.3 100\.0 D\. DEBT AND DEBT SERVICE Public Debt Outat\. + Disbursed 524 604 680 807 954 1,071 1,280 Interest on Public Debt 17 20 22 27 31 37 40 Amortization 45 48 70 59 59 66 70 Total-Public Debt Service 62 68 92 86 90 103 110 Burden on Export Earnings 4/ (7\.) Public Debt Service 19\.6 16\.7 16\.2 12\.0 7\.2 7\.6 8\.3 TDS + Direct invest\. Inc\. 22\.5 19\.1 20\.6 16\.9 10\.0 10\.3 10\.9 Average Terms of Public Debt Int\. as 7\. of Prior Year DO + D 3\.3 3\.8 3\.6 4\.0 3\.8 3\.9 3\.7 Amort\. as 7\. Prior Year DO + D 9\.5 9\.1 11\.6 8\.7 7\.3 6\.9 6\.5 IBRD Debt Out\. + Disbursed 26 39 52 70 89 110 128 IBRD as 7\. of Public Debt 5\.0 6\.5 7\.6 8\.7 9\.3 10\.3 10\.0 IBRD as 7\. of Public Debt Service 4\.2 5\.3 6\.5 9\.4 12\.0 13\.3 12\.9 IDA Debt Out, and Disbursed 16 21 28 57 43 55 64 IDA as 7\. of Public Debt 3\.1 3\.5 4\.1 4\.6 4\.5 5\.1 5\.0 IDA as 7\. of Public Debt Service 0\.1 0\.2 0\.3 0\.4 0\.4 0\.4 0\.5 I/ Exchange rates used for the varions stocks and flows correspond to those published in IFS\. 2/ Projected by World Bank Staff\. E!MA CP II 3/ Including erros and omissions\. November 1977 4/ Including non-factor services\.  ANNEX II Page 1 of 6 pawes A\. STATEMENT OF BANK LOANS AND IDA CREDITS (ag of September 30, 1977) Loan or Credit Number Year Borrower Purpose Amount (less cancellation) Bank IDA Undis\. Twenty loans and credits fully disbursed 116\.9 58\.5 238 1971 Republic of Tunisia Population 4\.8 1\.9 270 1971 Republic of Tunisia Fisheries 2\.0 0\.5 798 1972 Soci6te Nationale d'Investissement Development Finance Co\. 10\.0 0\.9 858 1972 Republic of Tunisia Tourism Infrastructure 14\.0 14\.0 881 1973 Societe Nationale d'Investissement Development Finance Co\. 14\.0 0\.6 937 1973 Republic of Tunisia Urban Planning 6 Public Transportation 11\.0 440 989 1974 SONEDE Water Supply 23\.0 6\.4 1029 1974 Republic of Tunisia Hotel Training 5\.6 5\.6 1042 1974 Compagnie des Phosphates et Chemin de Fer de GAFSA Phosphate Development 23\.3 16\.5 1068 1974 Republic of Tunisia Irrigation Rehabilit- ation 12\.2 9\.8 1088 1975 Republic of Tunisia Urban Sewerage 28\.0 26\.8 1155 1975 Republic of Tunisia Education 8\.9 8\.9 1188 1976 Republic of Tunisia Highways 28\.0 28\.0 1189 1976 Banque de Developpement Economique de Tunisie Development Finance Co\. 20\.0 11\.1 238-1 1976 Republic of Tunisia Population 4\.8 2\.9 1340 1976 Banque Nationale de Tunisie Agricultural Credit 12\.0 12\.0 1355 1976 Societe Tunisienne de 1'Electricit6 et du Gaz Power 14\.5 5\.8 1431 1977 Republic of Tunisia b/ Irrigation Development 42\.0 42\.0 1445 1977 SONEDE b/ Water Supply 21\.0 21\.0 TOTAL: 04\.4 70\.1 218\.7 of which has been repaid 32\.2 3\.1 Total now outstanding 372\.2 67\.0 Amount Sold 13\.1 of which has been repaid 3\.0 10\.1 362\.1 Total now held by Bank and IDA a/ 301\.4 72,2 Totai undisbursed 213\.4 5\.3 218\.7 a/ Prior to exchange adjustment\. b/ Not yet effective B\. STATEMENT OF IFC INVESTMENTS IN TUNISIA (as of September 30, 1977) Year Obligor Type of business Amount in US $ Million Loan Equity Total 1962 NPK Engrais Fertilizers 2\.0 1\.5 3\.5 1966 Societe Nationale d'Investissement Development Finance Co\. 0\.6 0\.6 (SNI) now (BDET) 1969 COFITOUR (Tourism) Development Finance Co\. 8\.0 2\.2 10\.2 1970 SociEtE Nationale d'Investissement (SNI) now (BDET) Development Finance Co\. 0\.6 0\.6 1973 Societe Touristique & Hoteliare RYM SA\. Tourism 1\.6 0\.3 1\.9 1973 SociEtE d'Etudes & de Developpement de Sousse-Nord Tourism * * 1975 Societ6 d'Etude & de Developpement de Sousse-Nord Tourism 2\.5 0\.6 3\.1 1974 Industries Chiviiques du Fluor Chemicals 0\.7 0\.7 Total gross commitments 14\.1 6\.5 20\.6 Lesscancellations, terminations, repayments and sales 3\.5 1\.5 5\.0 Total commitments now held by IFC 10\.6 5\.0 15\.6 Total undisbursed 2\.7 - 2\.7  ANNEX II Page 2 of 6 C\. PROJECTS IN EXECUTION I/ Cr\. 238: Population Project; US$4\.8 million credit of April 5, 1971; Date of Effectiveness: December 29, 1971; Closing Date: (Original) June 30, 1976; (Current) June 30, 1978\. Cr\. 238-1: Population Project: US$4\.8 million Supplemental Credit of October 13, 1976; Date of Effectiveness: March 31, 1977; Closing Date: June 30, 1978\. Through capable management the National Office of Family Planning and Population is developing the national program steadily\. The number of new acceptors continues to increase, and the Office forecasts that in 1981 there will be 87,000 births averted instead of 55,000 as planned\. Under the project thirteen MCH clinics have been completed, and the remaining sixteen will be finished by December 1977\. Construction of the three maternities at Sfax, Sousse and Tunis will also be completed by the end of 1977, but late delivery and installation of medical equipment could delay full operations until September 1978\. The problems of the foundations for Bizerte maternity hospital are being studied anew, and Government is expected to make major implementation decisions soon\. The Avicenne mid-wifery school is in full operation and, in 1976, gave diplomas to 35 mid-wives and 62 nurses\. Dis- bursements on the original IDA credit and the supplementary credit provided by NORAD are now satisfactory\. Cr\. 270: Fisheries Project; US$2 million credit of September 24, 1971; Date of Effectiveness: May 24, 1972; Closing Date: (Original) December 31, 1976; (Current) July 31, 1978\. 183 out of 190 project vessels have been financed under the credit\. Progress of implementation was hampered by slower than expected demand for project vessels attributable to construction and after-sales service problems\. The latter have in turn contributed to an unsatisfactory rate of sub-loan re- covery by BNT\. To overcome the technical problems, the Government has recently agreed to set up a mobile service team, has undertaken to provide better train- ing to new boat owners, and has been encouraged to shift the orders for the remaining boats to the best of the three boatyards\. BNT is introducing mea- sures to improve loan recovery\. The project is now expected to be completed by September 1978\. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them\. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution\.  ANNEX II Page 3 of 6 Ln\. 989: Third Water Supply Project; US$23 million loan of May 29, 1974; Date of Effectiveness: September 24, 1974; Closing Date: June 30, 1979\. Ln\. 1445: Fourth Water Supply Project; US$21 million loan of July 5, 1977; Date of Effectiveness: December 31, 1977; Closing Date: December 31, 1982\. Bidding has been completed for all major components of the Third Water Supply project\. All pipe supply contracts have been awarded; contracts for civil works and pipe installation are being evaluated\. Construction is on schedule and disbursements are higher than anticipated\. The loan for the Fourth Water Suply project is expected to become effective by December 31, 1977\. The contract for final design has been signed and work is being carried out\. Signature of the Kuwait Fund loan, a condition of effective- ness of the Bank loan, is expected shortly\. Ln\. 1188: Second Highways Project; US$28 million loan of January 26, 1976; Date of Effectiveness: June 16, 1976; Closing Date: December 31, 1979\. Some delays in the execution of improvement works have occurred\. Consultants have nearly completed the preparation of a pilot rural roads project\. The updating of the 1968 transport survey has not yet started\. Ln 1340: Second Agricultural Credit Project; US$12 million loan of November 23, 1976; Date of Effectiveness: July 19, 1977; Closing Date: December 31, 1980\. Under this project, credit is being extended to small, medium and large scale farmers and to agro-industrial borrowers\. Field appraisal proce- dures and eligibility criteria for the small farmer component are being worked out by BNT and will be agreed with the Ministry of Agriculture, whose extension services are to undertake sub-project appraisal\. Ln\. 1355: Second Power Project; US$14\.5 million loan of December 27, 1976; Date of Effectiveness: May 4, 1977; Closing Date: June 30, 1980\. The Project comprises 150 MW of gas turbine capacity in seven units of equal size to be installed at different locations and is estimated to cost US$28\.7 million equivalent, including a foreign exchange component of US$24\.8 million equivalent\. In view of the proposed development of offshore natural gas resources, the substitution of gas for oil for power generation in future and STEG's likely responsibility for distribution of offshore gas throughout the country, STEG would undertake a study to establish its organization struc- ture, its training needs and investments for the gas program\. Government would also undertake a study with a view to determining an appropriate pricing policy for oil, gas and electricity and submit the recommendations to the Bank by September 1978\. Regarding financial performance, STEG has undertaken to earn an 8 percent rate of return beginning with 1977\. Tariffs were raised effective June 2, 1977, by 20 percent\. Due to delay in increasing tariffs,  ANNEX II Page 4 of 6 it is unlikely that a 8 percent return will be achieved in 1977, but it should be achieved in 1978 without further tariff action, provided there is no mate- rial increase in the cost of salaries and fuel\. Contracts have been awarded and progress is satisfactory\. Ln\. 858: Tourism Infrastructure Project; US$14 million loan and US$10 million Cr\. 329: credit, both of September 28, 1972; Date of Effectiveness: June 26, 1973; Closing Date: December 31, 1978\. After considerable delays in 1975 caused by the redefinition of the project, the project is now moving ahead expeditiously\. Ninety percent of infrastructure works are under construction and 25 percent has been completed\. ONTT will complete procurement of construction material and equipment, and award the last construction contracts by December 31, 1977\. Project comple- tion is expected by the end of June 1979\. According to the most recent esti- mates (August 1977), project costs, including allowance for price escalation, would amount to 20 percent more than the appraisal estimates, but the Loan and Credit along with the KfW co-financing, are expected to cover all foreign expenditures\. Disbursement percentages have been reduced to allow the Bank to disburse until the completion of all project expenditures\. Ln\. 798: Fourth Development Finance Company Project; US$10 million loan of February 9, 1972; Date of Effectiveness: April 13, 1972; Closing Date: (Original) March 31, 1976; (Current) December 31, 1977\. Ln\. 881: Fifth Development Finance Company Project; US$14 million loan of February 20, 1973; Date of Effectiveness: May 24, 1973; Closing Date: March 31, 1978\. Ln\. 1189: Sixth Development Finance Company Project; US$20 million loan of January 26, 1976; Date of Effectiveness: June 7, 1976; Closing Date: June 30, 1980\. Of Loan 798, $0\.3 million remain unallocated and $0\.9 million un- disbursed due to cancellations which occurred after the final date for sub- project submission\. Loan 881 is fully committed and $0\.6 million remain to be disbursed: the utilization of the loan has been generally in line with the appraisal report's projection, which foresaw the loan to be fully dis- bursed by March, 1977\. Disbursements on Loan 1189 had reached $8\.9 million as of September, 1977, about 2 months ahead of the schedule projected in the appraisal report\. BDET has shown considerable improvement since early 1976 in the key areas of management effectiveness, arrears recovery, financial practices and resource mobilization\. The institution plays an increasingly important role in financing industrial development, extending about one- third of all term credit available to the industrial sector in Tunisia\. Ln\. 937: Tunis District Urban Planning and Public Transport Project; US$11 Cr\. 432: million loan and US$7 million credit, both of October 5, 1973; Date of Effectiveness: September 24, 1974; Closing Date: (Original) December 31, 1976; (Current) December 31, 1977\. Execution of the project is proceeding satisfactorily\. The Tunis District has been well established and operates with only residual technical assistance\. The District has finished its work on the Tunis strategic regional  ANNEX II Page 5 of 6 development plan and is now regularly associated with or consulted on all major public investment decisions in the Greater Tunis area\. The Societe Nationale des Transports (SNT) has renewed its bus fleet, as well as its maintenance services\. SNT's clientele has increased in an unprecedented manner; combined with improvements in routes and tariff structures and with regular payment by the Government\. of compensation for social tariffs, this has resulted in increased revenues sufficient to offset the effect of a substantial salary raise\. Complementary financing has been found to finance the construction of the third bus depot and the cost overruns on the railway rolling stock\. The rolling stock to modernize its suburban railway line was delivered last June\. The civil works for the traffic improvement program of the Municipality of Tunis are now in execution; new traffic and parking regulations have been established, and special bus lanes and pedestrian areas have been opened\. Ln\. 1029: Hotel Training Project; US$5\.6 million loan of July 17, 1974; Date of Effectiveness: November 4, 1975; Closing Date: October 31, 1978\. Project execution was long delayed by difficulties in the acquisi- tion\.of sites for project hotel training centers and by consideration of the need to change project composition as a result of Government reorientation of tourism sector development priorities\. These difficulties have now been resolved and the project is progressing well despite delays in Bank loan disbursements\. The courses prepared by the ILO team have been tested in the Nabeul school and are being introduced into other training schools during the 1977-78 school year\. Contracts for construction of the first two centers have been awarded and construction has begun\. The Government is going ahead with the third center and architectural plans are presently being prepared\. Ln\. 1042: Gafsa Phosphate Project, US$23\.3 million loan of October 1, 1974; Date of Effectiveness: March 14, 1975; Closing Date: June 30, 1979\. After many difficulties with the trial of the longwall method in the Sehib mine, with as a consequence over one year of delay in project implementa- tion, some positive results have now been obtained\. The Company is planning soon to install further modifications to the longwall equipment and will carry out new tests which, if successful, would permit Gafsa to proceed with the purchase and installation of additional longwall equipment\. To obtain optimum results from the longwall trial face, the Bank is urging Gafsa to reinforce its technical staff with the assistance of a firm having long experience in longwall mining\. GAFSA has embarked on a vast expansion program with the SehiJj project, the modernization program and a new open pit project\. As a result of the severe drop in phosphate prices, most of these investments are planned to be financed by debt\. The Government has been made aware that some additional equity would be needed\. Ln\. 1068: Irrigation Rehabilitation Project: US$12\.2 million loan of December 31, 1974; Date of Effectiveness: September 18, 1975; Closing Date: June 30, 1982\. Progress in the Medjerda subproject area has been satisfactory, with the exception of enforcement of certain provisions of the land reform legisla- tion\. Intensification of cropping has been started\. In Nebhana, land reform  ANNEX II Page 6 of 6 implementation continues and work is now underway to intensify agricultural production\. Consultants have been recruited and are preparing various studies necessary for project implementation and for expansion into a second stage project\. Rehabilitation and construction works are progressing satisfactorily\. Ln\. 1088: First Urban Sewerage Project; US$28 million loan of February 18, 1975; Date of Effectiveness: August 15, 1975; Closing Date: June 15, 1979\. A delay of about six months was experienced at the beginning of project execution as a result of the legislative measures required formally to establish the new national sewerage authority (Office National de l'Assainissement - ONAS), followed by the numerous minor administrative problems involved in the physical transfer to ONAS of systems and employees from the centers taken over\. In spite of these delays it is still expected that the works will be completed within six months of the date foreseen at the time of appraisal\. However, disbursements are expected to reach forecast levels only about the end of 1978\. Revised cost estimates indicate that total project cost may increase by 33 percent over appraisal estimates, most of the increase being in the local cost components\. Ln\. 1155: Third Education Project; US$8\.9 million loan of August 13, 1975; Date of Effectiveness: March 1, 1976; Closing Date: June 30, 1980\. Since the July 1976 mission which reviewed project implementation, there has been no progress\. The Government has indicated that owing to a change in its education priorities, it no longer wishes to proceed with the project items as they were conceived during appraisal, and to use the loan proceeds to extend post-primary education\. The rationale for the change in educational priorities and suggested steps for the future of the loan have just been conveyed to the Bank by the government\. The government has been informed that the Bank cannot agree to the current proposals because they would not meet the priority needs of the education sector in Tunisia as outlined in the objectives of the original project, and that the Bank would be pleased to receive a revised proposal based more closely on the objectives for which the Bank's funds have been committed\. The situation is currently being further discussed with the Government\. Ln\. 1431: Sidi Salem Multi-purpose Project; US$42 million loan of July 5, 1977; Date of Effectiveness: December 31, 1977; Closing Date June 30, 1984\. The loan is expected to become effective by December 31, 1977\. A project Manager has been appointed by SNCFT\. Measures yet to be taken before loan effectiveness include: (i) the appointment of a Coordinating Committee responsible for coordinating the work of agencies involved in the project, (ii) submission to the Bank of the technical data on the Medjerda-Cap Bon Canal, and (iii) effectiveness of the KfW loan\. Construction of the site camp facilities and the dam has been started\. The contractor is now setting out the alignment of the railroad infrastructure\. Tunisian agencies are now preparing the tender documents and terms of reference for consultant selection\.  ANNEX III Page 1 of 3 TUNISIA INDUSTRIAL FINANCE PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare Project: About 8 months (from November 1976 to June 1977) (b) Agencies which prepared Project: BDET and Government of Tunisia (c) Project first presented to Bank: August, 1976 (d) First Bank mission to review Project: November 15, 1976 (e) Departure of Appraisal Mission: May 27, 1977 (f) Completion of Negotiations: November 11, 1977 (g) Planned Date of Effectiveness: March 31, 1978 Section II: Special Bank Implementation Action (a) The Bank will review during negotiations, and follow-up closely, BDET's program and timetable for resource mobilization for the period 1978-79 (para\. 44)\. (b) The Bank will continue its discussions with the Tunisian authorities on the harmonization of domestic interest rates with those prevailing in the international capital markets (para\. 28) and on measures to foster the development of the domestic capital market (para\. 29)\. Section III: Special Conditions (a) For effectiveness- (i) Amendment of the FOPRODI Agreement between the Government and Participating Banks to reflect the negotiated operational arrangements for SSE, and conclusion of a similar agreement between the Government and BDET (para\. 48); (ii) Agreement by all parties concerned on the design of the technical assistance program and conclusion of financing arrangements for the program (para\. 52); (iii) Establishment with BDET of a unit for SSE expansion sub-project administration (para\. 50); and (iv) Establishment in the Central Bank of a Project Account for the Bank financed new SSE operations (para\. 48)\. (b) BDET to take appropriate measures to further improve its appraisal work (para\. 36)\.  ANNEX III Page 2 of 3 (c) BDET to prepare and submit to the Bank a plan of action for strengthening its supervision activities (para\. 37)\. (d) BDET to take appropriate measures to solve the problems giving rise to the reservations of its auditors on its 1975 and 1976 accounts (para\. 39)\. (e) BDET to follow-up closely the performance of clients having obtained reschedulings, and to submit a special report to its Board and to the Bank in case reschedulings affect in any fiscal year more than 15 percent of its loan portfolio (para\. 40)\. (f) BDET to ensure that its future hotel sub-loans are secured by a valid mortgage (para\. 41)\. (g) BDET to maintain at all times its debt/equity ratio within the limit of 8:1 (para\. 42)\. (h) The proceeds of the Bank loan to BDET to be substantially reserved for the financing of projects belonging to agreed priority categories, and in accordance with target percentages established for each category (para\. 43)\. (i) BDET to set its effective long-term lending rate at about the percentage point above that applied by the commercial banks on medium-term loans (para\. 45)\. (j) API to prepare and submit to the Bank a plan and timetable for the strengthening of its staff and extension of its services (para\. 52)\.  ANNEX III Page 3 of 3 Section IV: BDET's Sources and Application of Funds 1977 1978 1979 1980 1981 (Dinar thousands) Sources Internal Cash Generation 1,455 1,798 2,325 3,047 3,163 Share capital increase and subscription premium - 1,800 1,000 2,000 - Term borrowings 20,200 22,200 23,800 22,500 26,400 Loan collection 7,345 8,462 11,151 12,491 16,407 Sales from equity portfolio 200 400 600 650 900 Total 29,200 34,660 38,876 40,688 46,870 Applications Loan disbursements 22,078 26,506 28,475 29,776 28,067 Purchase of equity 1,800 1,705 2,045 2,155 2,305 Repayment of borrowings 4,917 5,318 7,151 7,004 14,771 Other applications 505 1,131 1,205 1,753 1,727 Total 29,200 34,660 38,876 40,688 46,870 Projected Balance Sheet: 1977 1978 1979 1980 1981 Assets Current assets 12,808 12,848 12,960 12,990 13,038 Loans 69,536 87,580 104,904 122,189 133,849 Other assets 5,790 6,946 7,961 9,012 9,906 Liabilities and Equity: Current liaibilities 9,000 9,000 9,000 9,000 9,000 Borrowings 69,831 86,713 103,362 118,858 130,489 Equity 9,062 11,320 13,062 15,852 16,725 Debt/Equity ratio as -defined in the Loan Agreement: 7\.7 7\.7 7\.9 7\.5 7\.8 ProJected Earnings: Total earnings 5,966 7,577 9,479 11,390 13,056 Total expenses 4,588 5,854 7,229 8,418 9,968 Net profit 821 998 1,362 1,770 1,973

APPROVAL

P009692

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 3984 PROJECT PERFORMANCE AUDIT REPORT INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) June 16, 1982 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS AI - Artificial Insemination AICRPDA - All-India Coordinated Research Project for Dryland Agriculture AMUL - Anand Milk Union Ltd\. AR - Appraisal Report ARDC - Agricultural Refinance and Development Corporation CAD - Command Area Development DCA - Development Credit Agreement DDA - District Development Authority DEA - Department of Economic Affairs DPAP - Drought Prone Areas Program GOI - Government of India HYV - High-yielding Varieties IAS - India Administrative Service IBRD - International Bank for Reconstruction and Development ICAR - Indian Council of Agricultural Research ICRISAT - International Crops Research Institute for the Semi-arid Tropics IDA - International Development Association IIM - Indian Institute of Management LDB - Land Development Bank M&E - Monitoring and Evaluation MFAL - Marginal Farmers and Agricultural Laborers NDDB - National Dairy Development Board OED - Operations Evaluation Department PCR - Project Completion Report ROR - Rate of Return SFDA - Small Farmers Development Agency SRI - Systems Research Institute T&V - Training and Visit System of Agricultural Extension FISCAL YEAR April 1 - March 31 LOCAL TERMS Bajra - Pearl Millet (Pennisetum typhirdes) Jowar - Sorghum (Sorghum vulgare) Kharif - Monsoon (June - October) (rainy season) Rabi - Low rainfall (October - March) (cool season) Nalla - Small water course Panchayat - A locally-elected legislative body FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) TABLE OF CONTENTS Page No\. Preface \. i Basic Data Sheet \. ii Highlights \. iii PROJECT PERFORMANCE AUDIT MEMORANDUM\. I\. SUMMARY \.1\. II\. ISSUES \. \. \. \. 7 A\. Project Benefits and Monitoring and Evaluation \. 7 B\. DPAP As A Pilot Project \. \. 10 C\. Other Issues \.11 III\. CONCLUSIONS \. 12 ATTACHMENT I - Borrower's Comments \. 14 ATTACHMENT II - Borrower's Comments \. 18 PROJECT COMPLETION REPORT I\. Background \. \. \. \. 21 Introduction \. \. 21 Agriculture in India \. 21 Bank Group Operations in India \. 22 Drought Prone Areas \. \.22 II\. Project Formulation \. \. \. \. 25 Identification and Preparation \. 25 Appraisal, Negotiation and Approval \. 26 Project Description \. 27 General \. 27 Location \. 28 Project Components \. 28 Organization and Management \. \.30 III\. Implementation \. \.31 Start-up \. 31 Revision \. 31 Physical Implementation \. 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. TABLE OF CONTENTS (Continued) Page No\. IV\. Technical Performance \. 32 General \. 32 Project Components \. 32 V\. Financial Performance \. \. \. 37 Project Costs and Financing \. 37 Disbursement and Expenditures \. 38 Internal and Budgetary Control \. 39 Accounts, Audit and Disbursement \. \. 39 Covenants \. \.0\.40 VI\. Project Impact \. \.40 Introduction \. \. \.40 Direct Benefits \. 41 Indirect Benefits \. 44 Rates of Return \. \. 44 Financial \. \. 46 Economic \. \. \. 47 VII\. Institutional Performance \. \.48 General \. \. 48 The DPAP Central Unit in GOI \. \. \. 48 State Level DPAP Authorities \. 49 District Development Authorities \. 49 Technical Assistance \. \. \. 50 Monitoring and Evaluation \. \. 51 VIII\. Bank Performance \. \.52 Appraisal \. \. \. 52 Supervision \. 52 IX\. Conclusions \. 53 Tables 1 - Summary of Project Financing \. 56 2 - GOI/State Expenditures by District and Component \. 57 3 - Project Organization and Objectives \. 58 4 - Summary of Key Indicators \. 59 Map - 1 - PROJECT PERFORMANCE AUDIT REPORT INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) PREFACE This is a performance audit of the Drought Prone Areas Project in India, for which Credit 526-IN in the amount of US$35 million was approved in December 1974\. The credit assisted in financing a project with an expected total cost of US$102\.7 million\. The credit was closed on June 30, 1981 after a delay of one year\. The final disbursement was made on May 6, 1981\. The audit consists of a memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated January 18, 1981\. The PCR was prepared by the South Asia Regional Office and based, inter alia, on a visit to the country in September-October 1981 and on PCRs prepared by the Borrower\. The audit is based on a review of the PCR, the Appraisal Report (No\. 533a-IN) dated November 14, 1974, the President's Report (P-1522-IN) of November 15, 1974, the Credit and Project Agreements of January 24, 1975\. The audit is also based on a review of correspondence with the Borrower and memoranda on project issues as contained in relevant Bank files and on interviews with Bank staff who have been associated with the project\. On the basis of this abbreviated procedure, the audit finds that the PCR presents a comprehensive account of the project's achievements and shortcomings\. The memorandum elaborates on the issues of project monitoring and evaluation, the design of pilot or experimental projects and problems of accounting, auditing and procurement, which are important for future IBRD/IDA lending\. A copy of the draft report was sent to the Borrower on March 31, 1982 for comments\. Borrower's comments which were received have been taken into account in the PPAR and are reproduced as Attachments I and II\.  PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) KEY PROJECT DATA Actual Actual As % of Appraisal or Estimated Appraisal Item Estimate Actual Estimate Total Project Cost (US$ million) 102\.7 84\.3 82 Credit Amount (US$ million) 35\.0 35\.0 100 Date Board Approval - 12/05/74 - Date Effectiveness 03/31/75 06/09/75 - Date Physical Components to be Completed 03/31/80 06/30/81 123 Proportion Then Completed (%) 82 95 La- Closing Date 06/30/80 06/30/81 Economic Rate of Return (%) 12-37 neg\. - 30 - Incremental Crop Production (tons) 58,400 60,370 103 /b No\. of Direct Beneficiaries (number) 262,000 281,000 107 /b Employment Created (Million Man-days) 28\.4 35\.8 126 71 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS FY75 FY76 FY77 FY78 FY79 FY80 FY81 Appraisal Estimate (US$ million) 2\.35 7\.70 17\.75 24\.50 33\.25 35\.00 - Actual (US$ million) - 1\.49 7\.40 13\.20 19\.90 30\.00 35\.00 Actual as Z of estimate (US$ million) 0 19 47 54 60 86 100 Date of Final Disbursement: 05/06/81 MISSION DATA Month/ No\. of Man-days Specializations Performance Types of Item Year Persons\. in Field Represented/c Rating/d Trend/A Problems& Reconnaisance 02/73 6 132 a,b,d - - - Pre-apapraisal 05/73 5 10 a,b - - - Appraisal I 10-11/73 175 a,b,c,d - - - Appraisal II 15/74 4 76 a,b,d - - - Sub-total 393 Supervision I 05/75-L 1 20 d - - - Supervision II 06-07/75 2 38 a,b,d 1 2 - Supervision III 11-12/75 3 54 a,d 1 2 - Supervision IV 05-16/76 1 13 a,d 1 2 - Supervision V 10/76 2 26 b,d 1 2 - Supervision VI 04-05/77 3 57 a,b,d 2 2 T Supervision VII 08-09/77 3 54 a,b,d 2 3 M,T Supervision VIII 10-11/78 3 60 a,d 2 2 0,M,T Supervision IX 08-09/79 3 66 a,b,d 2 2 M,F,T Supervision X 10-11/80 2 44 a,d 1 2 M,T Supervision XI 05/81 1 1 a 1 2 M Sub-total 433 Completion 09-10/81 25 a,b 1 2 M TOTAL 851 OTHER PROJECT DATA Borrower Government of India Executing Agency Ministry of Agriculture/K Fiscal Year of Borrower April 1 to March 31 Name of Currency (Abbreviation) Rupees (Rs\.) Currency Exchange Rate: Appraisal Year Average US$1\.00 = 8\.00 Intervening Years Average US$1\.00 = 8\.39 Completion Year Average US$1\.00 = 8\.50 Follow-on Project None /a Some command area development not complete - GOI/States will do with own resources\. /b See PCR, para\. 6\.03\. /c a = Agriculturist; b - Agricultural Economist; c = Financial Analyst; d = Livestock Specialist\. /d 1 = Problem free or minor problems; 2 = Moderate problems; 3 = Major problems\. /e 1 = Improving; 2 = Stationary; 3 = Deteriorating\. /f F = Financial; M = Managerial; T = Technical; 0 = Other\. / Renamed Ministry of Rural Reconstruction\.  - iii - PROJECT PERFORMANCE AUDIT REPORT INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) HIGHLIGHTS The overall objective of the project was to stabilize and increase the production from agriculture and related activities in six drought prone districts of Western and Central India\. The project, which was approved in December 1974, was a five-year time slice of an ongoing Drought Prone Areas Program (DPAP) in India, which was initiated as the Rural Works Program in 1970/71 and which covered, at that time, 72 districts in 13 states\. It was considered as a pilot project through which project components could be tested and successful ones identified for introduction in a much larger area at a later date\. The project was expected to be completed in just over five years at a total cost of US$102\.7 million of which IDA would finance US$35\.0 million\. The investment program was complex and wide-ranging, including water re- sources, dry land farming, livestock, forage processing, forestry, fisheries, sericulture, horticulture and technical assistance\. The credit became fully disbursed in May 1981, about one year later than envisaged\. The reported total project cost at that time was 18% less than estimated at appraisal, but some command area developments had not been completed\. These were expected to be completed with GOI/State funds\. The main reason for the underrun was lower disbursement for institutional credit than planned\. There is some doubt, however, about the actual level of dis- bursement for institutional credit, and thus, about the true amount of the cost underrun\. The impact of the project and its success as a pilot project is uncertain\. The reason is that a monitoring and evaluation program (M & E) which was to identify especially productive components for replication and to measure the effectiveness of the project to increase production, raise employ- ment, and to reach poor farmers and improve their incomes was not implemented as planned\. The failure of the M & E program likely stems from the fact that M & E concepts were evolving in the Bank Group at the time of appraisal which resulted in no specific program being drawn up and all funding being left to the Borrower\. Of the 16 major project components only three have been fully successful, eight partly successful and five unsuccessful or were eliminated (PPAM, para\. 19)\. Some estimates based on incomplete data indicate that the project may have reached about 280,000 farm families or about 8 percent more than estimated at appraisal\. Similar estimates indicate that the amount of  - iv - employment created exceeded the target by about one-fourth, and that annual food crop production increases resulting from the project were about on target while milk production exceeded the appraisal target by about one-sixth (PCR, paras\. 6\.04-6\.06)\. The overall rate of return was not estimated at appraisal or at completion\. At appraisal, rates of return were estimated for nine of the major components and ranged from 12 to 37%\. Due to the lack of definitive data, re-estimated rates of return could be made only for six of these nine components which range from negative (sheep development) to 30% dry farming\. Some lessons learned from the project are: (i) complex on-going programs likely are not suitable to serve as pilot projects, (ii) pilot projects should include a program for mid-term review which would use lessons learned up to that point to redirect funds to the most productive uses, (iii) plans should be made at appraisal for pilot projects which would ensure that both Bank/IDA and the Borrower would focus on the learning process and carry appropriate lessons learned on to other projects, and (iv) for pilot projects it is especially vital that monitoring and evaluation programs be fully designed at preparation/appraisal\. Other points of special interest are: - compliance with accounting and auditing covenants was not satisfactory (PPAM, para\. 31 and PCR, para\. 5\.12); - Borrower did not request IDA's further participation in the DPAP program because of differences in opinion on rural develop- ment policy (PPAM, para\. 30); - technical assistance generally achieved its objectives (PCR, paras\. 4\.16 and 7\.11); and - a large training program was successfully carried out (PCR, para\. 4\.18)\.  - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA - DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) I\. SUMMARY-' 1\. The project was the first Bank Group operation in India with the purpose of specifically addressing the difficult problems of rural development in the country's arid and semi-arid regions\. The main objective of the project was to increase and stabilize production from agriculture and related activities in six drought prone districts2/ of Western and Central India\. A corollary objective was to test the usefulness of a complex, multi-component, rural development project for improving the productivity of the drought prone areas and, thus, its usefulness to serve as a model for future projects in other drought prone areas\. 2\. The project represented a five year "time slice" of an ongoing Drought Prone Areas Program (DPAP) in India, which was initiated as the Rural Works Program in 1970/71 and which covered, at that time, 72 districts in 13 states\. Districts selected for inclusion in the program were chosen on the basis of low average annual rainfall, the frequency and severity of droughts, and the relatively low proportions of irrigated land to total cultivated area\. The project (Credit 526-IN) was expected to be completed in just over five years at a total cost of US$102\.7 million\. Of this total, Credit 526-IN would finance US$35\.0 million; central and state governments, US$37\.1 million; and established credit institutions, US$30\.6 million\. 3\. Activities and investments planned under the Drought Prone Areas Project were ambitious and diverse, reflecting particular district resources and needs of the population\. They consisted of both public and on-farm development works and programs covering: minor irrigation; command area devel- opment; watershed management; dry land farming; and dairy, sheep, forestry, and range development\. In addition, the project included applied research and training programs to strengthen the technical support provided to farmers and programs to improve the flow of agricultural credit to farmers\. The project also included investments through cooperatives in calf raising, conversion of sugar cane residues to fodder, processing and storage of cattle fodder for emergencies, and diversification schemes which included fisheries, sericulture 1/ Based on the PCR and other project documents\. 2/ Jodhpur and Naguar districts in the state of Rajasthan, Ahmednagar and Solapur districts in Maharasthra, Bijapur district in Karnataka and Anantapur district in Andhra Pradesh\. - 2 - and horticulture\. Finally, the project included small development schemes which were unidentified at the time of appraisal, but which were within the objectives and standards of DPAP; and funds for surveys, research, and train- ing (the latter outside of IDA financing)\. 4\. Through the above outlined investments and programs, food production (grains, milk, meat and fish) was expected to be increased by about 150,000 tons per year; this increase in food production would be partially supported by a 70,000 ton increase in fodder production\. Through the project, too, it was envisaged that the incomes of 225,000 rural families would be improved by increases in production and employment\. During implementation, an additional 85,000 man-years of labor was expected to be required and, following full development, permanent employment would be increased by around 20,000 man- years per annum\. 5\. The DPAP Central Unit within the Department of Cooperatives and Community Development was charged with overall management of the project\. However, an interdepartmental coordination committee would be established under the chairmanship of the Secretary of Cooperative and Community Develop- ment to review performance of the various sub-sectors of the program, to ensure consistency of technical norms with those of other programs, especially irrigation, and to advise DPAP officials of development in respective depart- ments which would have a bearing on project implementation\. Because this was considered to be a pilot project and a number of components were experimental, a detailed system of monitoring and evaluation was to be set up under the direction of the DPAP Central Unit to assess the impact of the project\. 6\. The achievements of the project's objectives appear to have been mixed\. Due to a lack of adequate monitoring and evaluation, the magnitude of the project's programs and the impacts of these programs are partially impressionistic or conjectural\. The Central DPAP unit worked out detailed guidelines for impact evaluation during the early years of the project\. It commissioned 32 studies to be done by its own personnel or by state authori- ties\. However, little comprehensive information on the ultimate mpact of the project has been obtained (see PCR, paras\. 6\.01, 6\.03 and 9\.01)\.1, 7\. According to available information, the planning and development of watersheds have, in general, been piecemeal and cover a wider geographic dispersion of activities than planned\. These developments have led to dif- ficulties in assessing the overall benefits, particularly those related to area ecology and to farm production and income\. The traditional approach to soil conservation has not been changed as expected, consisting of large bunds which follow field boundaries rather than contours and, thus, are usually ineffective as soil conservation measures\.2/ 1/ See Borrower's comments; Attachment I, para\. 1\. 2/ Additional views on this component are provided by the Borrower in Attachment I, paras\. 8 and 9\. - 3 - 8\. While the total forestation package met the target, progress on reforestation of badly eroded sites of upper catchment areas has been below plans due to unexpected difficulties and costs\. These developments have resulted in the selection of re-afforestation sites in areas with less diffi- cult soil conditions\.!! Plans to develop village wood lots have not yet been worked out or implemented\. New techniques to establish rangelands have been successful but the resulting increases in fodder production to date have been too small to cope with the traditional over-stocking\. Thus, other means such as herd and grazing controls are needed in addition to greater fodder produc- tion to restore the ecological balance in rangeland areas\. A major accom- plishment in rangeland development has been the testing and introduction on the Deccan Plateau of two new drought-resistant forage legumes that were imported from Australia, which now appear to be capable of greatly increasing feed production on the Deccan Plateau\. 9\. The dryland farming component has been confined to farmer demonstra- tions combined with farmer extension services based on the new Training and Visit system\. Unfortunately, because the technical package to be recommended was not available for the first three years, the overall impact of this component on agricultural production has to date been small\. The emphasis has now turned to low cost dryland farming practices that involve small risk for farmers\.2! 10\. Dairy development has turned out to be the most successful of all components envisaged for the project\. Essential milk collection routes and chilling centers have been established and milk produce cooperative societies have been formed in all project districts\. However, some technical problems still exist which prevent full attainment of the potential production of the dairy schemes\. Among these are low production and low fertility levels, and unreliable artificial insemination services, which have resulted in low and irregular milk production\. The proposed calf raising centers were dropped because organizational and technical problems\. Sheep growers' societies have been established in all districts, but number about 60 percent of the 270 expected to be established at appraisal\. In general, the sheep component has not been successful\. Fodder production has remained below expected levels\. The 100 ha pasture blocks that were expected to provide the fodder base for the societies could not be developed under the grass establishment technique that was envisaged at appraisal\. 11\. The minor irrigation development program has met with mixed success\. Twenty-three of the planned 29 tanks have been constructed and work on other tanks is at various stages of completion\. Investigations have shown, however, that unit costs of tanks are higher than estimated at appraisal, the number of 1/ See Borrower's comments; Attachment I, para\. 10\. 2/ Additional observations on this component are provided by Borrower in Attachment I, para\. 3\. beneficiaries per tank has been less than expected, command area development has been slow, water distribution to farmers is uneven, and training of farmers in appropriate irrigation has been disappointing\. Even so, IDA agreed to finance additional minor irrigation development costs\.-V The number of deep wells drilled in Rajasthan and shallow wells dug in the Deccan plateau were on target\. Some problems with the program were encountered, however\. On the Deccan plateau wells were dug too close to existing wells\. There also was a lack of electricity for pumps, but this has been partially corrected by including an electrification program in the project in Rajasthan\. Finally, farmers often lack knowledge of good irrigation management practices which reduce the benefits of the component\. 12\. The diversification program which included sericulture, inland fisheries, and horticulture achieved some of its goals\. Mulberry gardens have been established, but only on irrigated lands\. Capacity for the production of fingerlings has been expanded and 41 fishermen societies have been formed\. Fruit trees have been distributed to dryland farms\. These last two activi- ties, though proceeding well, have benefitted only a limited number of farmers\. 13\. The research support program envisaged at appraisal has been only partially implemented\. Recommendations of the agro-meteorologist to support dryland farming developments have not been implemented by GOI\. The work of the pasture research consultant led to the identification and establishment of new drought-resistant forage legumes on the Deccan plateau, which was noted above\. The senior agricultural economist in the All India Coordinated Research Project for Dryland Agriculture (AICRPDA) who was hired under the project initiated a number of surveys and studies but a majority of them had not been completed by 19811/\. 14\. Plans to improve agricultural credit were completed for all dis- tricts, but resulting linkages between district officials and credit institu- tions were much less than envisaged because of established credit institu- tions' skepticism of the financial profitability of farmers who received well development loans, but these institutions did lend for other project activi- ties\. The training program envisaged under the project was largely achieved; 118 training courses were designed and conducted for project managers, eco- nomists, foresters animal husbandry and agricultural officers\. These courses were attended by over 3,000 persons\. 15\. At completion, project costs totaled US$84\.3 million compared with the US$102\.7 million estimated at appraisal\. There is, however, some doubt about the actual magnitude of this 18% underrun because it is likely that some 1/ See Borrower's comments, Attachment I, para\. 3\. 2/ The project economist in the DPAP Central Unit assisted with other studies commission by that Central Unit\. - 5 - of the institutional credit that has been provided to project beneficiaries has not been identified and counted in total project cost\. The proportion of investments supplied by the Government was on target but institutional credit has been much less than planned at appraisal\. In the case of credit institu- tions, the percentage supplied was much less, at just 42% of the level expected (subject, of course, to the comment above)\. The actual, as a per- centage of the expected, level of lending by the Central and State Governments was about 99%\. The large unallocated portion (41%) of the credit, which was to provide for price increases and to finance viable sub-projects not yet identified at appraisal, was used for rural electrification in Rajasthan (see para\. 11) and a larger number of irrigation works than planned\. The amount of the credit allocated to such works at completion was double the amount planned at appraisal\. 16\. The total number of families benefitting from the project has been estimated at about 281,000 compared to 262,000 expected at appraisal-/\. The amount of short-term employment generated is now estimated to be higher at nearly 36 million man-days compared with about 28 million man-days estimated at appraisal\. Information is not available as to the improvements in family incomes that have resulted from the project\. Incremental food production is now estimated at about 56,000 tons per annum or just 4 percent short of the appraisal estimate\. On the other hand, milk production is estimated to be about 4,000 tons per annum, 5 percent higher than envisaged at appraisal\. Finally, incremental annual feed production from pasture development has turned out to be 55 percent of the envisaged level and incremental fish production has fallen far short of appraisal expectations\. No overall rate of return to the project was estimated at appraisal or at completion due to the variety of investments and the complexity of measuring their benefits\. The estimated rate of return for certain components of the project at appraisal and at completion are as follows: Appraisal Completion_! Sheep Development 17 negative Livestock 37 10 Pasture 12 10 Sericulture 16 ) (not calculated) Horticulture 14 ) (minor component) Tubewell Irrigation 17 20 Tank Irrigation 26 10 Soil Conservation 22 not available Dryland Farming 14 30 1/ This and following estimates are subject to the qualification of para\. 6\. 2/ Due to the lack of specific data, it was not possible to document the economic rates of return for each project activity\. The ones presented are very rough estimates based on the available information\. 17\. Some of the underachievements of the project might have been\. due to deficiencies in project management\. There were frequent changes in the administrative staff of DPAP\. Some of the administrative staff were not sufficiently instructed about the project procedures and objectives to ensure continuity in the DPAP approach\. The DPAP Central Unit in GOI lacked an administrative routine to follow-up on work that was executed with its finan- cial assistance\. The Unit also, at times, lacked adequate technical expertise because positions were vacant for long periods\. The cooperation of the DPAP Central Unit with the Minister of Agriculture did not develop to the degree that was envisaged\. As a result, the major responsibility of developing a technical package fell to the senior technical specialists in the DPAP Central Unit who lacked experience to deal with that task\. The performance of the specialists in DPAP Central Unit was further hampered by their low profes- sional grades, which prevented an equal standing in contacts with state directors in line departments\. District development personnel lacked experi- ence in managing a multi-disciplinary development task\. Because the activi- ties planned under the project often were different from those usually sup- ported by state line departments, line department officers who were seconded to DPAP had a difficult task\. The situation was compounded by the fact that the technical staff of the DPAP Central Unit did not have the power to change the approach of state line departments (PCR, para\. 7\.07)\. On the other hand, because of its control of GOI's share of development funds, the DPAP Central Unit showed a strong capacity in administering and executing national develop- ment programs\. It, however, still lacks an audit procedure for following up on work executed with its financial assistance, apparently due to Indian regulations\. In all cases, special DPAP units were established at the state level and they performed their tasks well\. Forestry departments performed satisfactorily in all districts due to their strong organization and willing- ness to accept the specialized approach of DPAP activities\.l/ 18\. For the most part, technical assistance provided by the project achieved its envisaged objectives\. Expatriates provided valuable advice on the rangeland improvement, forage seed multiplication, cross-bred calf raising, bagasse treatment, and agrometerology\. The monitoring and evaluation program was not designed or implemented as envisaged, (see preceding para\. 6)\. Detailed plans and methodologies for collecting and analyzing project data were not designed or implemented by project authorities\. This lack of perfor- mance has resulted in lack of definitive data on the impact of the project, which has been noted in several of the above paragraphs\. The absence of definite guidelines and objectives of the monitoring and evaluation component at appraisal is one of the major reason for this deficiency\. Its worth noting that no funds for monitoring and evaluation were allocated under the project\. 1/ See Borrower's additional observation on project management and staffing; Attachment I, paras\. 4 and 5\. - 7 - 19\. In summary, given the information available, it appears that only a few of the project's many components were successfully implemented, a majority reached part of their implementation goals and others fell short of their targets\. The fully successful components are: dairy development, range and pasture development, and technical assistance and training programs\. The partially successful set consists of: watershed development, dryland farming, reafforestation, sheep grower societies, minor irrigation (wells), diversifi- cation, agricultural credit, and research\. In the unsuccessful or dropped categories are: monitoring and evaluation, calf raising, fodder conservation, agro-meteorology, and command area development\. For the estimated quantative levels achieved for these components see PCR table 4 and for their estimated impacts in terms of beneficiaries, employment and production see PCR paras\. 6\.04 through 6\.06\. II\. ISSUES A\. Project Benefits and Monitoring and Evaluation 20\. As has been noted in the preceding section, there is a lack of definitive information on project benefits - especially the amounts of in- creased production, income, and employment and this deficiency is due to the fact that the monitoring and evaluation component of the project was not implemented as envisaged (PCR, para\. 6\.01)\. The Appraisal Report (AR) states (para\. 5\.07)"\. a detailed system of monitoring and evaluation must be undertaken to assess the impact of the project on the needs of each district as a whole\. Furthermore, innovations in the project management must be evaluated to determine the merit of extending the concept to other districts as proposed by GOI\." Further, it is stated in the AR (para\. 5\.10), "An important function of the Central DPAP Unit would be the evaluation of project activities to determine if stated objectives were being realized; for example, whether unemployment was being reduced, if agricultural production was in- creasing and being stabilized, and the numbers and types of farmers benefit- ting under the program\. Operating responsbility for this task would be assigned to the project economist of the Unit\." While recognizing this need for monitoring and evaluation (M&E), the AR did not present any specifica- tions, terms of reference, or timetable for carrying out this activity\. 21\. Apparently, little or no attention was paid by IDA to monitoring and evaluation activities until the fifth supervision mission of October 1976 when it was noted that DPAP had engaged the Systems Research Institute (SRI) to design a M&E system for the project\. The following supervision mission of April-May 1977 reported that the proposal for M&E which had been submitted by SRI dealt only with monitoring of the project and that the scheme would be meaningless without an adequate evaluation component\. This concern was discussed with the borrower and with project officials, but it was not men- tioned in the follow-up letters to the Government\. The following mission of August-September 1977 reported that GOI had accepted SRI's proposal for - 8 - project monitoring and that the mission pointed out to GOI the need to measure project impact, and, further, that this work should start immediately\. While the supervision report noted that this issue would be raised in a follow-up letter to the Government, it was not\. The following mission, over a year later in October-November 1978, noted that progress was being made on monitoring of the physical and financial progress of the project on the basis of the system recommended by SRI, but that there had been little progress on establishing a system for evaluation\. This time, however, follow-up letters to the Government stressed that there was virtually no data on project bene- fits\. This point was raised mainly in the context of evaluation of innovative project components for continued and future financing rather than project benefit evaluation\. The letter went on to suggest that organizations such as the Indian Institute of Management (IIM) might be engaged to assist in this task\. 22\. About one year later, the next supervision mission of August- September 1979 reported again that the project was still lacking an evaluation system and suggested that responsibility for that system be given to an outside agency such as IIM\. The mission follow-up letters also stressed the need for an evaluation system\. The next supervision mission over a year later of October-November 1980 reported that it had again stressed to project officials that the experimental value of the project called for a comprehen- sive and reliable evaluation of individual components in order to determine which ones could be suitable for replication\. This report went on to outline a detailed program that had been agreed to by project authorities and the mission\. The program was designed to provide information needed for evaluat- ing the projects impact\. In the mission follow-up letter to high authorities, this problem again was brought to their attention as well as providing them with the agreed program outline\. 23\. The operational lack of proper evaluation of the project's impact rests with deficiencies in the DPAP Central Unit\. This Unit, as noted above, was expected to carry out M&E for the project\. But, as noted in PCR, para\. 7\.05, the DPAP Central Unit lacked technical expertise\. A project economist in this unit was to be responsible for project evaluation\. It is not clear why he never carried out that task\.!l 24\. The more fundamental reason for absence of proper project evaluation was the lack of a program being drawn up to carry out this activity at the time of appraisal (see PCR, para\. 7\.12)\. At the time this project was approved, the IBRD/IDA program for M&E was still in the development stage and there were no clear views or guidelines on how such activities should be carried out\. It was not until March 1977 that guidelines were provided in the Operational Manual, section 3\.55\. 1/ See Borrower's comments; Attachment I, para\. 6\. - 9 - 25\. The Operations Evaluation Department has undertaken three reviews of "Built-in Project Monitoring and Evaluation"1/\. The first report, which was undertaken before OMS 3\.55 was issued, notes alternative views regarding the nature of M&E\. In the preface of this report, it is stated, "In its Second Annual Review of PPAR Results, OED reported that the performance of several projects had suffered from inadequate attention to project output (as compared with input) by project management, the borrowers and the Bank\. This deficiency has been felt to be largely the result of inadequate data on out- put\." OED then recommended in the report that the Bank pay special attention to the capacity of the borrowers information gathering and retrieval systems, particularly on project benefits\. The OED report goes on to say that the study had difficulties in relating the definition of M&E provided in Bank reports to M&E activities in the six projects reviewed\. It further noted that the distinction between monitoring and evaluation is defined in several different ways in Bank reports, i\.e\., "monitoring and evaluation is variously described in terms of (i) input vs\. output measurement, (ii) regular analysis of key criteria vs\. occasional in-depth studies, (iii) data collection vs\. data analysis, or (iv) assisting project management in its day-to-day opera- tions vs\. helping Government with improvements of its long-term development programs\." 26\. Operations Manual Section 3\.55 attempts to clear up this termi- nology and conceptual confusion\. It defines monitoring as "\.a process consisting of a number of selected summary indicators which, when taken together, provide an adequate index of the project's evolution through execu- tion ("costs") and operation ("benefits") phases\." Evaluation, however, is broken down into two components, on-going and ex-post evaluation: "On-going evaluation is a normal part of project management and is primarily designed to analyze and propose solutions to problems of implementation and operations, some of which may have been identified as a result of the monitoring system\. the main purpose of ex-post evaluation is to review the experience of a project as a basis for future policy formulation and design\." 27\. The Second and Third Reviews of M&E by OED, which were completed after OMS 3\.55 was issued, recount these definitions, apparently accepting their general usefulness\. The Third Review, however, which covered eight irrigation projects, concludes that more clarity of terminology is necessary, particularly in light of different requirements of internal and external M&E and that Bank operations could benefit from better understanding of M&E 1/ OED reports: No\. 1758, October 17, 1977; No\. 2724, November 5, 1979; and No\. 3320, February 1981\. A fourth review of monitoring and evalua- tion is in process\. The following discussion is meant to relate the M&E problems of this project to the general problem of M&E observed in other Bank/IDA projects\. - 10 - concepts by the staff\. The audit concurs with this conclusion but believes that perhaps something more is neededl/\. 28\. What may be needed to ensure that M&E fulfills its objectives with respect to projects is a general terms of reference; one that makes it reason- ably clear (or reasonably so) what is involved and what is required for monitoring and evaluation systems, including examples of working systems\. Such general terms of refernce could be augmented by certain details which would meet the needs of each project such as the organization to be responsi- ble, lists of information, and data to be collected and a methodology for its analysis\. Any M&E system to be used needs to be in final form (detailed) at the time of negotiations, not let to development after the project is appraised\. (See also PCR, para\. 7\.12)\. 29\. Given the complexity of the DPAP, it was essential that the project have a strong M&E component to manage its progress and measure its benefits; a point that was made in the appraisal report\. It is doubtful that without a detailed M&E program, drawn up at appraisal, IDA supervision could have done more than it did to get sound evaluation carried out; other than bringing this deficiency to the attention of the Borrower at an earlier time\. Apparently, some kind of a monitoring program was implemented, but information on how it was used in project management is lacking\. B\. DPAP As A Pilot Project 30\. The DPAP Project was presented as a pioneer effort to effect and monitor an investment pattern which contributed to more effective public sec- tor participation in rural economies of backward regions\. It was viewed as a pilot project through which successful project components could be identified and then introduced in a much larger area at a later date\.2/ 31\. As a widely dispersed, multi-faceted project, it seems, at least with hindsight, that DPAP was much too large and complex to usefully serve as a pilot project\. The Project, it should be remembered, was a time - and area - slice of an on-going Borrower program augmented with some special 1/ More recently, "A Handbook on Monitoring and Evaluation of Agriculture and Rural Development Projects" was issued by the Bank in November 1981\. While this report contains much valuable definitional and procedural information, it is wide-ranging and complex and its guidelines will be difficult to apply\. Only time and use will determine how well it meets the present need\. OPS wishes to record that the main theme of the Handbook has been to recommend simple pragmatic approaches to monitoring and evaluation, rather than complex surveys of large size; and initial reaction from users in the field has been most supportive\. 2/ Presentation to the Board, December 5, 1974\. - 11 - technical assistance\. As a pilot project, it may have been more practical from IDA's point of view to have supported a smaller project in just one or, at most, two of the six districts where activities and achievements could have been more easily monitored and evaluated\. Although supervision missions usually consisted of two to three people, they were only able to visit several of the six districts during each mission\. It was a difficult project to supervis2 and the supervision input was high\.-' 32\. Toward the end of the project, it became evident that the Borrower did not desire, because of a difference of opinion on rural development policy, the continuing involvement of IDA in the Drought Prone Areas Program\. Perhaps as a result, IDA came to believe that many of the sub-projects of DPAP could be handled through other projects which focused exclusively on specific components like dairying, extension, soil conservation, etc\. IDA did subse- quently help finance such narrowly focused projects (see PCR, para\. 9\.03)\. The Drought Prone Areas Project did not provide, however, any useful lessons that guided the design of those projects\. With hindsight, it appears that there were no essential linkages or interrelations among the project compo- nents of DPAP which required simultaneous implementation\. In other words, the components did not represent a synergistic package, at least from a technical or constraint point of view\. Thus, it did not serve as a pilot project to be replicated at a later date as a package\. It served mainly to provide funds for an 2-going program that was modified somewhat during the implementation period C\. Other Issues (a) Accounting and Auditing 33\. According to the Project Agreements (Sec\. 3\.03) the four states involved in the project were to have their accounts and financial statements for the project (balance sheets, statements of income and expenses, and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by the accountant general of the states\. The states were to furnish to IDA as soon as available, but in any case not later than six months after the end of each fiscal year such certi- fied copies of its financial statements for such year as so audited and the report of such audit by said auditors\. This covenant was scarcely complied with by the states involved\. The audits that were sent to IDA usually were incomplete and appeared to present the financial statements of the District Development Authorities (DDA) as a whole, not for the transactions related to the project only as was required\. The few complete audits that were received (toward the end of the project period) noted a number of irregularities in the 1/ See Borrower's comments on this issue; Attachment I, para\. 7\. 2/ The Borrower does not fully agree with this view; see Attachment II, para\. 2\. - 12 - accounting procedures used by the DDA units\. Further, these audits were not within the six month grace period allowed for audits, as noted in PCR, para\. 5\.10\. As also noted in PCR, para\. 5\.16, delays for submitting audits is typical in India\.!/ Because of the inadequacy of the formal audits of the district DPAPs, there was no way for IDA to be assured that the credit was being used for designated purposes\. Because Credit 526-IN was a complex project, inter alia, IDA should have taken more affirmative action other than reminding the borrower that the auditing covenants were not being complied with\. (b) Procurement 34\. Contracts to be let or works to be carried under the Credit were to be on the basis of local competitive bidding or force account, except for procurement of well-drilling equipment, DCA schedule 3\. However, the audit has not been able to acertain whether well-drilling equipment was contracted for under ICB\. Disbursement documents are not useful for making such a determination because only aggregate disbursement requests are received at headquarters\. Detailed procurement information is kept by the Borrower and available at any time for IDA staff review\. However, IDA staff do not recall the procedures used to obtain well drilling equipment and project files do not mention this item2/\. III\. CONCLUSIONS AND LESSONS LEARNED 35\. The Drought Prone Areas Project represented a time- and area-slice of a huge, on-going Borrower program with supplemented technical assistance Because of its scope and complexity it was not well suited to serve as a pilot project to test the suitability of comprehensive programs to stabilize and increase agricultural production in the drought prone areas of India\. 36\. The multifaceted program which included some 16 separate, and at most, loosely related components achieved a limited degree of success, according to partial information available\. The most successful components were dairy development, range and pasture development, and technical training in management, economics, forestry, and rangeland improvement\. These programs 1/ Recently, the Bank has been reviewing this problem and recent appraisal reports have included more specific guidelines and requirements which should significantly reduce such problems in the future\. See for example, SA Report 3615, Andra Pradesh Agricultural Extension Project, March 9, 1982\. 2/ See also OED Report No\. 3557, "An Interim Report on Procurement Issues in Bank-Financed Projects," dated July 15, 1981\. - 13 - accounted for about one-fifth of total project cost (PCR table 1)\. Two other components soil conservation - watershed development, and minor irrigation utilized about forty percent of project funds but made only a limited con- tribution to the project's goals\. Minor irrigation received a large share of the unallocated funds, but the soil conservation component also benefitted\. Given the lack of success of these two components, the efficiency of these transfers is to be questioned\. Alternatively, use of these funds to promote dairying, and range and pasture improvement would have been more productive\. Some lessons emerging from the project are: (i) multifaceted, complex on-going programs are not suitable vehicles for pilot projects; (ii) it is vital to design evaluation goals, methodology and organization (monitoring and evaluation) at the preparation/ appraisal stage of projects, but especially vital for pilot projects; (iii) pilot projects should include a program for mid-term review to take advantage of lessons learned up to that point in time in order to cut off unproductive components and redirect available funds; and (iv) special arrangements should be made for pilot projects at appraisal to ensure that IDA and the Borrower focus on the learning experience and carry any lessons learned on to other related projects\.  ATTACHMENT I -14 WT: Grams: DRYLAND Borrower's Comments Off\.'Phone : 4 9177 Res\.Phone:59177 ALL INDIA CO-ORDINATED RESEARCH PROJECT ICA R FOR DRYLAND AGRICULTURE DR\. R\.P\. SINGH PROJECT DIRECTOR Saidabad P\.O\. =adMPx*miraR HYDERABAD3i@1Wi INDIA* 500659 DO\.F\.No\.IV-3/82\.PD May 31, 1982 Dear Shri Kapur, This is in continuation of my letter of even number dated May 6, 1982V/ As desired, I send herewith my comments on "Project Performance Audit Report on India Drought Prone Areas Project (Credit 526-IN)"\. Kindly acknowledge receipt\. With kind regards, Yours sincerely, R\.P\. Singh) Shri Shiv S\. Kapur Director Operations Evaluation Department The World Bank 1818 H Street N\.W\., Washington, D\.C\. 20433, U\.S\.A\. Enc: a/a 1/ Refers to letter announcing that comments will be sent\. - 15 - qQiENTS ON THE PROJECT PERFORM1,ANCE AUDIT MEMORANDUM, INDIA-DROUGHT PRONE AREAS PROJECT (CREDIT 526-IN) I have gone through the Memorandum (pages 1-39) under reference very carefully\. I had a close association with this programme as a member of one of the DDA's, since its very inception\. Iy comments are subjoined: 1\. On page 3, para 6, it is mentioned that 'the overall objectives of the project appear to have been achieved'\. I underline the word appear and leave the rest to the readers to judge for themselves the confidence with which the statement has been made\. Lack of adequate monitoring and evaluation of the project has been the main drawback and it is very correct to state that the impacts of these programmes are impressionistic and conjectural\. 2\. The dryland farming component was not given the importance that it deserved\. Whereas the technology was available, the World Bank did not want to take the risk which was involved in the programme\. The risk was worth taking, a fact which is substantiated by the data on 'incremental production' set out on page 22\. As against the appraisal estimate of 30,000 tons of food crops production, the achievement was 37,000 tons, under dryland programme, proving beyond doubt that there was merit in low cost dryland farming practices that involve small risk for farmers\. The soil conservation programmes were over- played at the cost of dryland farming, although both are inseparable\. It was just a question of laying emphasis\. With traditional approach to soil conservation, consisting of large bunds that follow field boundaries rather than contours, much could have been achieved on la cost dryland farming practices on individual farmers holdings\. Timeli- ness and precision (T and P system) are the cardinal principles in dryland farming which promise rich dividends\. - 16 - 3\. Programmes relating to tank irrigation were not well con7eived and implemented\. This is another important programme, where the World Bank has missed the bus\. 4\. There were too many and frequent changes of Project Officers, which dislocated the programme\. Some of the Project Officers were not quite dedicated and they came to make a career and went away\. No programme can succeed unless there is a commit- ment and accountability on the part of Project Officers, who are responsible for the implementation of the PrOgrammes\. 5\. The expertise at the Central DPAP Cell was weak\. The cell was not able to give proper guidelines and in time\. 6\. As rightly mentioned in para 21 on page 13, a 1roject Economist was appointed in each project for project evaluation and it is not clear as to why he never carried out the job assigned to him\. The fact remains that the Project Economist had done every thing else except evaluating the benefits of each component of the programme\. The Central DPAP Cell should have seen to it that the work assigned to the Project Economists was carried out as per schedule\. 7\. I agree with the statement made in para 29 on page 16 that DPAP was too large and complex a project to usefully serve as pilot project\. The activities were widely dispersed and multifaceted\. It would have been appropriate if the IDA would have restricted its support to one or two districts and few activities, so that supervision and monitoring would have been easier and more effective\. 8\. In the Watershed Development programme, the planning was done all right, but the implementation was faulty, in as much as it was in piecemeal and highly diffused\. It is doubtful, therefore, that the benefits, if any, that may have accrued in terms of improvement of ecology, agricultural production and farmers' incomes were properly evaluated\. - 17 - 9\. It ias been experienced in the past that soil conserva- tion ,rogrammes in this country did not succeed because of poor or no maintenance of soil conservation structures\. ,e have, therefore, to rely more on in-field practices such as cross-slope cultivation, sowing on grade with ridging later on or broad beds and furrows, etc\. 10\. The Forestry programme, by and large, has been quite successful\. 11\. Range land piogramme, as envisaged in the project apprai- sal, did not deliver the goods because controlled grazing was not ensured\. 12\. On the Deccan Plateau, Stylosanthes hamata, S\. 1cabra have established their creditability on degraded, marginal and sub-marginal lands\. 13\. I am in agreement with the observations made in para 4\.08 on page 14\. 14\. The observations made in para 4\.16 on page 16 regarding the research support are correct\. I am in agreement with the same\. 15\. A mention has been made with regard to training in para 4\.18 on page 17\. There is need for more training courses on dryland farming, pasture development, agro-forestry etc\. I hope my comments will be taken in the right spirit in which they have been made\. - 18 - ATTACHMENT II Borrower's Conments No\.DPA\.1082/322/50/D-41\. - GVER1NMET OF MAHARASHrRA, Planning Department, Mantralaya, Bombay-400032\. Dated the 449th May,1982\. To, Shri Shiv S\.Kapur, Director, Operations Evaluation Department, World Bank, 1818 H\.Street, N\.W\., Washington,-D\.;C\.20433, U\.S\.A\. Subject: Project Performance Audit Report on India Drought Prone Areas Project iCr44it 52-IN)\., Dear Sir, Thank you for your letter No\.Nil dated the 31st March,1982 enclosing a copy of the draft Project Performance Audit Report, received here in Bombay on 15th April,1982\. We have gone through the draft of the Report\. Since the,DPA Project covered Six Districts in four States of India and since the draft has been based on an overall review of the Drought Prone Areas Programme in various States our comnents are related to Ahmednagar and Solapur only\. These comments are: On page 17, para 30, it has been mentioned that the Project served mainly to provide funds for on-going programme\. We feel that this is not entirely true in as much as the prJect was responsible for introducing4new approach to the on-going developmental programmes with their integration on a watershed basis; introduction of dryland technology in the Project areas\. New drought-resistant grasses, hamata and scalra imported from Australia, have done a lot to the area and it would have taken many more years for these legumes to reach the drought prone areas perhaps in the absence of Drought Prone Areas Programme assisted b7 I\.D\.A\. This is not a small achievement\. Like-wise, there may not be the desired level of integration of all the schemes on a watershed basis, but a beginning has been made through the D\.P\.A\.P\. It is seen that the P\.C\.Report has been finalised at the Bank's level\. We do not know for sure whether comments on the P\.C\.R\. are also sought\. We however furnish the following comments, which may be considered if the PRC has not yet been finalised\. i) Para 4\.16: It is not fair to say that the State authorities (Maharashtra) did not go ahead with the bagasse treatment plant because they had little interest in the establi- shment of such a plant\. The correct position is that the sugar factories were unable to assure zupply of adequate begasse for treatment plant as it is the cheapest fuel available with them\. The Scheme had therefore to be dropped\. ii) Para 5\.08 : As regards formulation of annual DPAP work programmes, the annual programmes were also examined at the  - 19 - State level keeping in view the 6PA Project\. At the District level, the project authorities formulated these programmes and submitted them to the State Government for sanction\. (D\.T\.Jose h ) Copy forwarded to:- 1) Shri D\.S\.Mehra, Assistant Commissioneid, Drought Prone Areas Programme, Ministry of Rural Development, New Delhi\. 2) The Chief Executive Officer, Zilla Parishad, Ahmednagar/Solapur\.  - 20 - INDIA DROUGHT PRONE AREA PROJECT (Cr\. 526-IN) PROJECT COMPLETION REPORT January 18, 1982 South Asia Project Department Education and Agricultural Institutions Division  - 21 - DROUGHT PRONE AREAS PROJECT (Credit 526-IN) PROJECT COMPLETION REPORT I\. BACKGROUND Introduction 1\.01 Traditional rainfed agriculture in India is greatly affected by the erratic nature of the monsoons\. In some regions, rain failure is frequent and necessitates Government-approved ad-hoc relief operations\. The Drought Prone Area Program (DPAP) attempts to mitigate the effects of drought through integrated rural development activities which include: improved crop, land and livestock management, minor irrigation works, additional research and extension activities, and agricultural diver- sification programs\. 1\.02 The Drought Prone Areas Project, Credit 526-IN, of US$35M, represented the first Bank Group operation in India specifically designed to tackle the difficult problems affecting rural development in drought prone situations\. Effective on June 9, 1975, it was administered as part of Government of India's (GOI) own national program\. Project implementa- tion was completed on June 30, 1981\. 1\.03 This report on the Drought Prone Areas Project is based on the findings of Bank supervision missions and discussions held with GOI during a project completion mission consisting of Messrs\. J\. H\. Lindt, H\.H\. Groenewold (FAO/CP) and 0\. Espadas (EDI)\. Agriculture in India 1\.04 India is a large and diverse country with a population of 688M (in mid-1981) and an annual per capita income of US$190\. Agriculture continues to dominate India's economy, employing over two-thirds of the labor force\. The share of agriculture in GDP at factor cost (1970/71 prices) has declined from 60% to about 40%\. The share of industry has increased over the same period from 15% to 24%, but the government and private sector efforts at industrialization have not been able to absorb the growing labor force, nor to bring about the economic transformation needed for higher productivity and to cope with the demands posed by rapid urbanization\. 1\.05 Economic growth has averaged about 3\.5% per annum over the past 30 years\. Slow growth of value added in agriculture-- 2\.1% per annum-- - 22 - over the last 3 decades has constrained overall growth during this period, not only because of the high share of agriculture in GDP, but also because scarce foreign exchange has been often required to import food\. 1\.06 In agriculture, the positive results of large investments and appropriate policies in the past years are starting to bear fruit\. Investments have been made to increase the rate of expansion in irrigation from 1\.3 M ha per year in the early 1970s to about 2\.3 m ha in 1978/79\. Fertilizer use reached 5\.6 14 tons of nutrients in 1980/81\. Foodgrain production grew at about 2\.75% per annum-- sufficient to meet consumer demand-- to eliminate imports (which had averaged nearly five million tons per year for the 15 years preceeding 1976), and to lower real foodgrain prices for consumers\. At the same time, India was able to build up sub- stantial foodgrain buffer stocks which made it possible to weather the effects of the 1979/80 drought with comparative ease, and to export about half-a-million tons of grain in 1980\. While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized that India needs to pay continued attention to dryland agriculture\. Bank Group Operations in India 1\.07 Since 1949, the Bank Group has made 61 loans and 141 development credits to India totaling US$2,833M and US$9,323M (both net of cancella- tion), respectively\. In recent years, Bank Group lending has emphasized agriculture\. A significant part of the Bank Group support has gone to major and medium irrigation development, and during recent years, increas- ing attention has been given to crop husbandry as a means of improving the efficiency of the use of irrigation water\. The Bank Group has also been active in supporting minor irrigation and other on-farm investments through agricultural credit operations\. Marketing, seed development, agricultural extension, and dairying are other activities that have been supported by the Bank Group which have been additionally active in financ- ing the expansion of the fertilizer sector\. In terms of overall food production, the new technology of fostering the widespread use of high yielding varieties (HYV), more irrigation and increased availability and use of improved inputs has been successful, but shortcomings remain in respect of the equitable and appropriate distribution of the benefits of this technology\. Agricultural development and progress in dryland farm- ing, particularly in drought prone areas, has lagged\. The DPAP helped to address these shortcomings\. Drought Prone Areas 1\.08 In 1970, GOI identified fifty-four (later expanded to 74) dis- tricts as being, in whole or in part, drought prone, i\.e\., areas of highly uncertain rainfall\. In 1970-71, GOI introduced the Rural Works Program, later called Drought Prone Areas Program for these districts with the - 23 - objective of creating rural employment through government-executed con- struction of productive assets such as irrigation tanks, conservation works and roads\. The urgent need for relief employment during the first three years of the program, especially in the wake of the 1972 monsoon failure, led state governments to place emphasis on employment generation in the design of program components and to play down productive objec- tives\. 1\.09 India's drought prone areas program has evolved from an employment-oriented program to one which is now intended to reduce the impact of drought on farmer production\. To mitigate the effects of future drought on agricultural production and employment, investments are made in all sectors of the rural economies of program districts\. However, the program places emphasis on investments to benefit the poorer sections of rural populations and to assist in this, GOI included a range of subsidy schemes\. 1\.10 Locatign and Population\. The drought prone areas of India cover about 600,000 km (IBRD Map 11077PCR) and a population of about 66 mil- lion\. The bulk of the population is engaged in a perennial struggle to meet subsistence needs in a harsh environment\. 1\.11 The 74 districts selected by GOT for DPAP assistance are located throughout the country\. Their greatest concentration is in the western and central zones\. The total area of drought prone districts represents 19% of the Indian land mass, and their population, about 12% o India's total, resulting in a population density of 112 persons per km compared with an all-India average of 178\. The population of a typical drought prone district ranges from 1\.2M to 2\.OM\. Nomadism adds further to the instability of the agricultural economy, and the introduction of measures such as controlled grazing to improve rangeland productivity is exceed- ingly difficult under these circumstances\. 1\.12 Rainfall and Soils\. Most drought prone areas are located in regions with less than 750 mm rainfall, although a few districts are in the hot sub-humid regions with 750-1,125 mm of rain per year\. Rainfall is extremely variable and so-called normal rainfall seldom occurs\. There is a 50% probability that less than 20 mm rainfall per week will occur (less than the potential evapotranspiration), and only a 20% probability that there will be more than 50 mm of rain per week during the monsoon\. Precipitation often occurs at high rates of intensity with little impact on soil moisture availability and with hazards of soil erosion\. 1\.13 Three major soil types are present in DPAP districts: the sandy soils of northwest India, the red alfisols and the black cotton vertisols\. The sandy soils are poor in plant nutrients and have little moisture st--ge ranacitv: on the other hand, Soil erosion is not a major problem as most areas of th soil type are alluv*al and r\.-'atively flat\. The red - 24 - alfisols are also deficient in soil nutrients and moisture retention is often limited due to their shallowness\. During recent decades, more and more alfisols, which are at best only marginally suitable for crop farm- ing, have been brought under cultivation and this has resulted in serious soil erosion\. Large tracts of such lands on slopes have now been aban- doned, leaving barren outcrops which provide very limited grazing for village livestock\. This forms the typical picture today of many DPAP districts on the Deccan plateau, where about 40% of the surface area is such outcrops with sparse grass and shrub vegetation\. The black vertisols of DPAP districts are typically in the lower catchment areas\. They are potentially fertile and have a high moisture storage capacity, but are easily erodible\. In all areas, traditional cultivation practices prevail\. The natural vegetation of non-arable lands has been denuded due to over- grazing and fuelwood cutting, and much of the rainfall that does occur is lost as runoff\. The end result is erosion and a continuous degradation of physical resources, resulting in poor groundwater recharge and reduced production potential\. 1\.14 Agriculture and Livestock\. The agricultural systems of drought prone areas are characteristically subsistence-oriented, producing essen- tial food and fodder for local consumption\. However, there are some notable exceptions where cash crops such as groundnut and cotton are important to the local economy\. Average holding sizes are about 10 ha on the sandy soils of the northwest and about 4 ha on the Deccan plateau\. In an attempt to offset low yields, farmers have expanded cultivation into land of poor potential\. This has aggravated wind and water erosion problems, with the result that the overall ability of the land to sustain human and animal populations is declining\. Pearl millet (bajra) is the staple food in drier areas, while sorghum (jowar) and millets (other than bajra) are grown in areas with more assured rainfall\. All soils with low water retention capacity, i\.e\., the sandy soils and the shallow alfisols can be used only for monsoon (kharif) season crops\. Black vertisols are used in many areas for rabi crops planted in residual moisture, i\.e\., planting starts only when farmers decide that the moisture stored in the soil is sufficient to meet the needs of the crops selected\. Cattle is the main source of farm power\. They are also a major source of cash income required to the bridge gap when crop production does not meet subsistence needs\. To own considerable numbers of livestock is, in fact, an important strategy for survival\. To meet stock feed requirements, farmers grow crops with high fodder yields\. In spite of this, a large proportion of the feed requirements must come from the non-arable lands\. Due to the extremely low levels of income and its uncertainty, an attitude of exploitation of resources prevails and in the absence of effective controls, serious overgrazing and degradation is common\. 1\.15 Institutional Support to Agriculture\. All line departments operate routine field programs in DPAP districts\. However, as the produc- tion potential of these districts is limited, departmental presence is - 25 - sometimes less than in areas with higher agricultural productivity\. The soil conservation and forestry departments maintain extensive bunding and reafforestation programs in conjunction with drought relief operations\. Credit institutions are only weakly represented and the role of private moneylenders is still important\. 1\.16 The DPAP districts include two types of district administration\. The states of Rajasthan and Andhra Pradesh depend traditionally on administration through strong offices of Collectors\. Whereas in Maharashtra and Karnataka, administrative and development responsibilities have been increasingly delegated to locally-elected bodies known as Dis- trict Panchayats\. 1\.17 Research support for dryland farming started some 50 years ago and led to the development of technical packages for dryland farming\. However, the estimated benefits of these packages, i\.e\., 15% to 20% yield increases on a low base of 200 to 400 kg of grain per hectare, have been insufficient to capture farmer interest\. Research in dry farming has been intensified since 1970 and the All-India Coordinated Research Project for Dryland Agriculture (AICRPDA) plays a major role in this\. Liaison with ICRISAT (International Crops Research Institute for the Semi-Arid Tropics) is close and research programs now give particular attention to crop and land management methods for moisture and soil conservation, and which can be handled by farmers\. II\. PROJECT FORMULATION Identification and Preparation 2\.01 During the visit of a high level World Bank delegation to India in 1972, G01 elicited the Bank's interest in its Drought Prone Areas Program\. It was agreed that the Government employment schemes for drought relief, which were often designed on an ad-hoc basis, would be replaced by a package of activities aimed at: (i) reducing the impact of drought on agriculture, or "drought- proofing"; and (ii) improving the agricultural resource base and productivity in the areas concerned\. 2\.02 Accordingly, a World Bank reconnaissance mission visited India in February 1973\. It had at its disposal, the DPAP proposals made by various states for the Fifth Development Plan, and it traveled widely in drought prone areas to delineate the concepts of potential IDA assistance\. Fol- low-up discussions with OI took place in May, and a Back-to-Office and Full Report was issued on June 11, 1973\. It was agreed that IDA assist- - 26 - ance should be directed to districts representative of the hot arid and semi-arid zones, and would concentrate on economically viable activities for improving the physical resources in a watershed\. This included atten- tion to water conservation and development, to dryland farming and the rehabilitation of non-arable lands\. It was agreed that details of the extension, dairy and sheep development components would be formulated in liaison with other appraisal teams finalizing projects for World Bank financing at that time\. It was also agreed that activities for the development of general infrastructure, i\.e\., rural electrification, con- struction of roads or village water supplies would not be part of the proposed project, but continue to be carried out under separate programs available for that purpose\. 2\.03 Further preparatory work was then carried out by GO and four state authorities, with some assistance provided by the Bank's resident mission\. This material was made available to IDA in the fall of 1973\. Appraisal, Negotiations and Approval 2\.04 A pre-appraisal mission was fielded in October 1973\. Agreement was reached that the project would be implemented in six districts repre- sentative of the semi-arid and arid zones\. The mission established a package of activities to be implemented in catchment areas\. The main points of discussion concerned: the approach to soil and water conserva- tion works; the formulation of dryland farming practices and site selec- tion and implementation of minor irrigation works\. The mission endeavored to simplify the project by eliminating a number of activities such as assistance to rural artisans\. However, even after this, the agreed project components concerned with production support and resource develop- ment still remained wide-ranging\. In the absence of reliable data con- cerning improved dryland farming techniques, and considering the acute fertilizer shortage following the 1973/74 oil crisis, the pre-appraisal mission did not propose a dryland farming component\. 2\.05 A final appraisal mission was fielded in May 1974\. On the techni- cal side, discussions centered around such points as design criteria for minor irrigation works, methods of rangeland improvement, possibilities of introducing controlled grazing on improved rangeland, and the role of crossbred cattle for milk production in drought prone areas\. GOI exerted considerable pressure for the continuation of traditional approaches to soil conservation and animal husbandry previously adopted by GOI or state governments\. These approaches were accepted by the mission, although as discussed in para\. 4\.04 and 4\.12, this proved to be a mistake\. Also, on the strong urging of GOI, a pilot program of dryland farming was included and this subsequently proved to be successful\. The mission also worked out details concerning project administration and financing, and agreed with GOI on technical assistance\. - 27 - 2\.06 The Credit was negotiated in October 1974, approved in December 1974 and became effective June 9, 1975\. Reconnaissance through Board presentation took 23 months\. Project Description General 2\.07 The Drought Prone Areas Project was designed as a multi-component pilot project to test and implement technical, economic and organizational means to improve the productivity of drought prone areas in India\. Each component, in support of agricultural development, was to be financially and economically viable, but the need of the weaker sections of rural populations for government-supported subsidy schemes was recognized\. The project was to provide a "shelf of works" in order to use drought relief operations for the creation of productive assets\. 2\.08 The project's major thrust was to be on stabilizing and increasing the income of families who were dependent on dryland agriculture and livestock keeping\. 2\.09 The watershed was taken as the basis for planning land-use systems under rainfed conditions\. Soil and water conservation works, together with reforestation and rangeland improvement were to be carried out on public lands in catchment areas unsuitable for farming\. These actions were designed to reduce soil erosion, recharge groundwater, increase feed for livestock and fuelwood supply for villagers\. Soil and water conserva- tion works were also to be carried out on privately-owned arable lands of the same catchment areas, the expenditure for which was to be recovered from landowners\. Rangeland improvement and reforestation works were to be started in ecologically better locations in order to increase the chances of success, leaving the more difficult sites to subsequent years, when experience and skills had been generated by the project\. 2\.10 The precarious financial position of typical smallholders in drought prone areas, their general inability to make on-farm investments and accept an increased burden of risks were all significant considera- tions in the design of a package to improve dryland farming practices\. A Training and Visit (T & V) extension system with demonstrations on farmers' fields was to introduce new methods of land management and crop husbandry\. Only low-cost proven technology was to be applied, and research in dryland farming was to be strengthened in order to develop new packages for specific areas\. 2\.11 Dry farming development was conceived as a pilot scale operation for the reasons that: (i) results from previous research were not economically attractive to farmers; (ii) the extension services needed restructuring and testing; (iii) limited supplies of fertilizer seemed to - 28 - be used to best advantage in irrigated or assured rainfall areas; (iv) credit institutions appeared wary of investing in high-risk dry farming; and (v) institutional credit for farm inputs was not sufficiently avail- able\. 2\.12 Recognizing the importance of income from farm animals, a number of livestock activities were considered essential\. These included a dairy component to improve income through increased sale of milk and the estab- lishment of sheepgrowers' societies to bring about the voluntary par- ticipation of stock owners in the regeneration and controlled use of public rangelands\. 2\.13 Some agricultural diversification schemes were proposed in order to develop the skills and opportunities of communities in particular areas\. These included sericulture and horticulture under dryland condi- tions, and fisheries development to create income opportunities from perennial water impoundments\. 2\.14 All project works were designed to be executed through existing line departments\. Coordination of project activities was to be guaranteed through the strengthening of district level authorities\. Project organization and objectives are summarized in Table 3\. Location 2\.15 Jodhpur and Nagaur Districts of Rajasthan were selected to repre- sent the sandy soils of northwestern India, while Ahmednagar and Solapur Districts in Maharashtra, Bijapur District in Karnataka, and Anantapur District in Andhra Pradesh were chosen to represent the alfisols and vertisols in drought prone areas of the Deccan plateau (Map IBRD 11077 PCR)\. Project Components 2\.16 Watershed Development - Soil Conservation and Forestry The project provided funds for initial land-use capability surveys to deter- mine the conservation measures and land-use practices most suitable to particular watersheds\. The appraisal report called for about 15 water- sheds to be surveyed, and subsequently treated\. Afforestation was foreseen to be required on about 16,000 ha of public land in the four Deccan Plateau districts\. It was further assumed that a total of about 2,000 ha of village woodlots would be planted on public lands and about 1,200 km of windbreaks developed along roadsides and canals\. Rangeland improvement was to be carried out on a total of about 80,000 ha of public land, and on 10,000 ha of severely eroded, privately-owned land, unsuitable or marginal for arable farming\. Rangeland improvement was based - 29 - on the planting of suitable perennial grass species, closure and sub- sequent controlled grazing\. One pasture seed production farm was to be developed in each of the four participating states\. 2\.17 In conjunction with the above re-vegetation programs, soil and moisture conservation works were to be carried out on all watersheds treated\. On arable lands, a system of contour or graded bunds, grassed waterways and farm ponds would be constructed on about 230,000 ha, and bunds already constructed over a further 135,000 ha of already cultivated lands would be repaired\. 2\.18 Dryland Farming\. For the pilot-scale dry farming development, two or three watersheds, embracing about 22,000 smallholdings, would be selected in five project districtsl/ to promote improved dryland farming practices\. Extension agents, trained in the T&V System, were to establish demonstration plots on farmers' fields and persuade farmers to use improved practices such as high-yielding varieties of selected crops, application of fertilizers and more care in timing of cultural operations\. 2\.19 Livestock Development - Sheep\. To make a start with the control- led use of rangelands after their improvement, about 270 sheepgrowers' societies would be established, each operating a minimum of 100 ha of improved rangelands and which would be provided by the government\. Par- ticipation in societies would be voluntary, with smallholder involvement through provision of shares, generally paid for in kind\. Preference was to be given to the poorest segment of village society\. The implementation of this component was to be through district task forces, working through sheep service centers\. One ram multiplication center would be developed in each state\. 2\.20 Dairy development under the project was considered as part of the dryland farming program and based on milk production from indigenous animals\. District spearhead teams were to establish a total of 480 milk producers' societies in villages with at least 300 mature female cattle or buffaloes\. Additional lactating animals would be purchased in line with increased fodder availability expected from progress in the dryland farm- ing component\. The project provided finance for milk-cooling facilities and assistance for the transport of milk to existing pasteurization plants\. The project provided finance for import of some dairy bulls, for artificial insemination and for construction of raising centers for crossbred calves\. Improved veterinary assistance was included in all district proposals, whereas assistance in building up fodder reserves for drought years was foreseen in Rajasthan only, and applied research to 1/ Jodhpur District was not included in the dryland farming program\. - 30 - improve the feeding value of sugarcane bagasse through heat treatment, was limited to Maharashtra\. 2\.21 Water development\. The project provided finance for 29 minor irrigation schemes with an expected total command area of about 8,900 ha\. Another 7,900 ha was to be brought under irrigation through the estab- lishment of approximately 2,000 wells\. Rajasthan, where groundwater is deep, was provided with finance for two air hammer drills for more effi- cient drilling in sandstone\. Funds were to be provided for the simul- taneous development of the command areas\. 2\.22 Diversification Schemes\. These were to be implemented in Kar- nataka, and consisted of inland fisheries development through coopera- tives, seasonal silkworm-raising from dryland mulberry gardens, and plant- ing of fruit trees on smallholdings\. 2\.23 Research, Technical Assistance and Training\. The project provided funds for research in the economics of dryland agriculture, pasture development and agro-meteorology\. A team of Indian economists, within the All-India Coordinated Research Project for Dryland Agriculture, was to evaluate research results, and on the basis of this, develop packages of dryland farming technology for use by farmers\. One expatriate consultant was to assist the same institution with its research into rangeland improvement\. A consultant in agro-meteorology was to work on the impact of soil moisture probabilities on cropping patterns\. Technical assistance was also provided for teaching district field staff rangeland improvement techniques, and for development of calf-rearing schemes and bagasse treat- ment\. 2\.24 Various training programs were to be organized by the Central DPAP Unit, and training for dairy development was provided through the National Dairy Development Board\. 2\.25 Other Activities\. A few other catalyctic activities were financed by the project\. These included credit surveys and district banking plans, updating of land records, and the establishment of Farmers' Service Societies\. Organization and Management\. 2\.26 The DPAP Central Unit within the Department of Cooperatives and Community Development, Ministry of Rural Reconstruction, New Delhi, was strengthened to provide direction to the project\. The important tasks were: (i) ensuring adherence to technical, financial and economic norms; (ii) monitoring of project performance; (iii) execution of training; and (iv) liaison with financial institutions\. The Central Unit was strengthened by addition of senior Indian specialists in dry farming and - 31 - soil conservation, minor irrigation, livestock and economics, and an expatriate advisor on rangeland improvement\. 2\.27 At the state level, small units with responsibility for planning, budgeting and supervision were established\. Interdepartmental coordinat- ing committees were also established in order to ensure the participation of line departments\. 2\.28 District Development Authorities (DDA) were established in each project district to coordinate and supervise development activities\. Each Authority consisted of a Managing Board, chaired by a senior government official - in most cases the Collector or Deputy Commissioner\. Respons- ibility for planning, organizing, supervising and administering project activities was vested in Project Directors who reported to the Managing Board and who were each assisted by a project economist and an administra- tive staff\. All public sector works were to be executed by existing government line departments\. Only the drilling of irrigation wells was expected to be undertaken by private contractors\. The right of inspection was vested in the Project Director\. III\. IMPLEMENTATION Start-Up 3\.01 Considering its complexity, the project got off to a reasonable start\. An intensive dialogue between GOI and state DPAP authorities developed during appraisal and subsequent negotiation of the project, and all states quickly appointed Project Directors for the six IDA-assisted districts\. Staff from line departments was promptly seconded to DDA\. Revision 3\.02 The project did not require major revisions\. The only significant change was IDA's agreement to reimburse against expenditures for rural electrification in Jodhpur and Nagaur districts to energize pumps installed for minor irrigation\. Physical Implementation 3\.03 Since activities foreseen in the Appraisal Report were not location-specific, the translation of models into district development plans and close cooperation with concerned line departments was needed\. This took more time than originally expected, thus causing delays in the commencement of work\. - 32 - 3\.04 Due to the initial lack of technical expertise and understanding of project concepts, project staff tended to adhere rigidly to physical targets as listed in the Appraisal Report and in annual work plans, whereas in practice, these targets were intended to be illustrative\. This attitude prevailed at all levels and throughout the project organization, and became generally accepted as an indication of project achievements\. 3\.05 Furthermore, the need to create employment for rural people, which had always been an important objective of DPAP, led to a strong emphasis on civil works and offered the added advantage of being relatively easily planned and supervised\. As a consequence, expenditures for civil works in minor irrigation, soil conservation, reforestation and pasture development tended to exceed target figures\. 3\.06 The major project targets were achieved or exceeded\. Key indicators are tabulated in Table 4\. IV\. TECHNICAL PERFORMANCE General 4\.01 The six IDA-assisted districts were well chosen\. They were representative of two main ecological zones of drought prone districts and the development techniques applied were relevant to other districts in the northwestern area, as well as on the Deccan plateau\. 4\.02 In addition, major project activities for resource and agricul- tural development were well conceived\. They embraced all types of work which could reduce the impact of drought, and the project succeeded in testing these under field conditions and at a scale sufficiently large to establish decisions concerning future DPAP policies\. Overall, it is considered that the IDA-assisted project in the six districts was success- ful\. However, the inclusion of some minor components caused some confu- sion, and sometimes, diffusion of the project's major objectives\. Project Components 4\.03 Watershed Development\. The project envisaged that agricultural and resource development was to be planned and implemented on the basis of watersheds\. The planning and development of watersheds was, on the whole, somewhat piecemeal, with a wider than desirable geographic dispersion of activities, and with the result that all components were rarely imple- mented within the same catchment area\. This led to difficulties in assessing the level of overall benefits, particularly on the ecology, agricultural production and farmers' incomes\. Careful studies over a number of years will be required to assess the full benefit of these investments in 52 watersheds\. - 33 - 4\.04 Soil Conservation\. Practices such as bunding and improvement of waterways were applied to about 335,000 ha in the watersheds above and to other lands\. In addition, about 140 farm ponds were constructed\. The total investment in soil conservation and soil surveys was US$16\.3M\. The traditional approach to soil conservation has not changed; it consists of large "contour bunds" which are normally on field boundaries, and not laid out on contours\. Farmers have to accept, and pay for these structures of doubtful economic and conservation value\. In many instances, farmers have neglected the maintenance of bunds or the repayment of construction costs\. It is now much clearer that more effective soil and moisture management is dependent upon in-field practices such as cross-slope cultivation and establishment of broadbeds and furrows supplemented by permanent drainage ways\. 4\.05 Forestry\. State forestry departments were responsible for reforestation and rangeland improvement\. Reforestation on badly eroded sites of upper catchment areas has been difficult and costly, and resulted in selection of sites with better soil conditions for reafforestation, whereas rangeland improvement activities were relegated to the most dif- ficult sites which were generally poorly-suited to any form of improve- ment\. Forestry Departments have placed increasing emphasis on developing social forestry\. However, cooperation with local organizations for the protection and management of such plantations has still to be worked out\. About 20,700 ha were planted as against a target of 20,200 ha\. 4\.06 Rangeland\. Initial emphasis was on the establishment of perennial grasses\. Establishment techniques promoted by the project were success- ful, but the increase in fodder production was too small to cope with the grave problems created by general overstocking\. It is clear, therefore, that establishment of improved grasses alone cannot bring about the chan- ges in the traditional patterns of rangeland exploitation and livestock husbandry\. Reductions in livestock numbers are prerequisites for restor- ing the ecological balance of these areas\. Reduction in livestock numbers would present a problem in a society which forbids their slaughter\. 4\.07 On the Deccan Plateau, a major project accomplishment was the introduction and testing of drought-resistant forage legumes\. Stylosanthes hamata and S\. scabra were introduced from Australia and after an initial period of seed multiplication, the two have been widely planted under a variety of soil, rainfall and land preparation conditions\. With an average monsoon, Stylosanthes can be established on better wastelands by broadcasting on unprepared land, and only simple furrows are required for its establishment on badly eroded sites\. The immediate impact of Stylosanthes on fodder productivity, its capability to set seed quickly under low rainfall conditions and its relative unpalatability during early growth have created keen interest among farmers as a means of rapid and low-cost rangeland improvement\. - 34 - 4\.08 In the Rajasthan districts, project activities demonstrated that the reestablishment of perennial grasses alone cannot solve the supply problem created by overstocking\. It is now apparent that more emphasis should be placed on the re-introduction of traditional fodder trees and bushes\. Techniques for establishing and utilizing "kejari trees" (Prosopis cineraria) and "ber" bushes (Zizyphus spp) are known to farmers, and both grow well in the central and eastern regions of the state\. Fod- der production from these plants, additional to that from grasses, is more constant over the years and allows considerably higher stocking rates\. In the last two years, extensive efforts were made to introduce Leucaena in all six districts\. 4\.09 Under the project, state forestry departments developed nurseries for the multiplication of tree material, seed gardens for the propagation of grasses, and legumes for rangeland improvement\. During the final project years, much emphasis was put on the multiplication of Stylosanthes seed and a start has been made in Anantapur district to multiply seed on privately-owned marginal lands with a guarantee to buy back seed at fixed prices\. About US$4\.1M was spent to improve about 47M ha of rangeland\. 4\.10 Dryland Farming\. Overall progress of the dryland farming com- ponent has been satisfactory despite a number of poor monsoons and which has been confined to farmer demonstrations, combined with an extension effort based on the T&V system of extension\. Overall impact on agricul- tural production has been moderate, but emphasis is now on simple, low-cost practices which are of little risk to farmers\. About 73,000 farmers, for the most part in watershed development areas, were persuaded to apply improved practices such as the selection of better crops and seed, application of fertilizers and improved weed control to about 250,000 ha\. The government investment amounted to about US$1\.5M\. 4\.11 Livestock Development\. About 160 sheep grower societies were established in all districts and have provided some useful information on the voluntary participation of livestock owners in the controlled grazing of improved rangelands\. However, on the whole, this component has not been successful and attracted about one fourth the expected membership\. Pasture blocks of 100 ha, which were to become the production base of societies could not be developed using the grass planting technique envisaged as feasible at appraisal; thus, fodder production remained much below expected levels\. As a result, the sheep growers' societies had to function below proposed stocking rates and forced the perpetuation of traditional forms of transhumant sheep husbandry\. There was also con- siderable resistance to controlled grazing from owners of livestock who were not participants in the project, and thus, not entitled to use lands allocated to societies\. Maharashtra, as a result, terminated its support to sheep growers' societies early in 1981, although other states continued to support this component\. The continuation of this work appears viable only in combination with rangeland improvement through planting of - 35 - Stylosanthes; this should improve overall forage production on wastelands to the extent that all village livestock could participate\. 4\.12 Dairy was the most successful project component\. About 750 producers cooperative societies were formed in all districts and essential infrastructure in terms of milk collection routes, chilling centers and final product outlets were established\. A number of technical problems are still to be solved-- of greatest importance is the need to increase the regularity of milk production at the farm and primary society levels\. Better feeding and fertility levels of adult female stock are critical and require the combined attention of agricultural extension staff (to increase availability of fodder as a by-product from dryland farming), and dairy spearhead teams (for advice on management), as well as the provision of quality indigenous dairy bulls\. The services of animal husbandry departments also need improvement, as artificial insemination remains unreliable and expensive, requiring improved handling and transport of semen, and better-qualified inseminators\. The inclusion under the project of cattle crossbreeding with exotic breeds created considerable problems\. First, it allowed the diversion of attention from the wider use of care- fully selected indigenous breeds, and second, it called for the inclusion of AI and calf-raising centers, which attracted too much attention from animal husbandry staff, and were insignificant as far as the overall success of the project was concerned\. The concept of calf-raising centers was dropped after discussions with supervision missions\. About US$10\.7M was invested by Government in dairy development\. 4\.13 Water Development\. The construction of 23 irrigation tanks out of 29 originally planned has been completed and work on others is in various stages of completion\. GOI proposed that the number of tanks constructed be increased to 57\. Investigations by various supervision missions indicated, however, that: (a) costs of minor tanks were much greater than anticipated; (b) numbers of beneficiaries per tank remained below expectation; (c) command area development (CAD) was slow and efforts to train farmers in irrigation skills limited in their effective- ness; (d) problems of equitable distribution of water to all farmers in the command area persist; and (e) sometimes, political considerations appeared to interfere with technical/economic reasoning in site selection\. Repeated requests by GOI for an expansion of the minor irrigation develop- ment program were not accepted by IDA, and supervision missions recom- mended that more emphasis be given to CAD, and to improved water utiliza- tion on the schemes already constructed\. 4\.14 The target for deep well development in Rajasthan and for dug wells in the Deccan plateau districts was achieved\. The problems encountered early in project implementation were the definition of "small farmer" for loan qualification, and lack of electrification; the former being resolved in 1977 and the latter reduced by including a limited electrification program in the project\. The major problems that remain - 36 - after electrification are CAD, water management and intensification of extension services\. On the Deccan plateau, new wells are often clustered in the vicinity of existing successful wells, and exploitation then exceeds recharge rates\. As noted during appraisal, legislation, with suitable enforcement is required to control well placement\. While the well program is essential to fully exploit existing groundwater resources, more advice to farmers is required on how to bring about command area development, improved water management, and crop husbandry practices\. This requires more training and improved supervision of agricultural extension staff\. On many farms, over-irrigation and selection of high water use crops (i\.e\. paddy, sugarcane) continues, thus reducing the potential command area\. Government expenditures of US$16\.5M or 23% of of the project investments were made in irrigation which directly benefit an estimated 7,832 farmers\. 4\.15 Diversification Components\. The sericulture program (included in Karnataka and added in Andhra Pradesh) has made good progress\. Thus far, mulberry gardens have been established only on irrigated lands, hence, this component has had no impact on dryland farmers other than through employment generation\. The fisheries component (added in Andhra Pradesh and Maharashtra) has enlarged the capacity for production of fingerlings for stocking irrigation reservoirs\. The horticulture com- ponent in Karnataka continues with the distribution of fruit trees to dryland farmers\. These last two components are proceeding well, but are of benefit to about 15,000 families\. 4\.16 Research Support\. The work of the Senior Pasture Research Agronomist has led to the identification of Stylosanthes spp for the Deccan plateau\. The DPAP Pasture Advisor completed his assignment and was successful in training foresters and others in pasture development techniques\. GOI has not yet developed an agro-meteorological service to support dryland farming development as was recommended in the report of the agro-meteorologist\. A final agreement between the Indian Council of Agricultural Research (ICAR), the Indian Meteorological Department and DPAP is still under discussion\. The recommendations of the consultant on bagasse treatment were followed by a series of feeding trials\. The results have been positive\. The authorities in Maharashtra, however, did not go ahead with the installation of a heat-treatment plant at a coopera- tive sugar mill as (i) hard board factories have been established since the inception of the project, tripling the value of untreated bagasse, and (ii) state authorities have little interest in the establishment of fodder banks for years of drought, for which treated bagasse was originally intended\.I'The Senior Agriculturist Economist stationed with AICRPDA initiated a number of surveys and studies, the majority of which were completed in 1981\. 4\.17 Agricultural Credit\. Banking plans were completed for all dis- tricts and linkages between district officials and credit institutions 1/ See Borrower's views on why bagasse treatment plant was not installed; Attachment II to PPAM, para\. 4\. - 37 - improved\. On a number of occasions, lending agencies were slow to par- ticipate because of their skepticism regarding the financial viability of wells and farmer ability in water management\. Farmer Service Societies were formed in each district and land records were updated in Anantapur, Jodhpur and Nagaur Districts\.!/ 4\.18 Training\. At the initiative of the Central DPAP Unit, 118 train- ing courses designed for various groups such as project managers, economists, foresters and agricultural officers were attended by 3,072 persons\. The more successful training courses included pasture develop- ment, project administration and dryland farming\. V\. FINANCIAL PERFORMANCE Project Costs and Financing 5\.01 The allocation of total project costs (US$102\.7 million) to dis- tricts and the GOI DPAP Central Unit, and to individual project components is shown in Table 1\. Table 2 summarizes the District and GOI Central Unit expenditures\. The IDA credit provided US$35 million\. 5\.02 When appraised, 41% of all funds were left unallocated to cover cost and physical contingencies, as well as to facilitate reallocation of funds during project implementation to successful or additional com- ponents\. Schedule A of the Development Credit Agreement (DCA) was sub- sequently amended on February 28, 1980 and funds reallocated within the concept of the original project design (except for US$1\.4M which was allocated to rural electrification in Rajasthan to optimize project benefits from minor irrigation investments)\. 5\.03 Total project expenditures are now estimated at US$84\.3M, or 82% of appraisal estimate of US$102\.7M\. Government expenditures were US$71\.5M (Table 1), representing 99% of the appraisal estimate, and 85% of actual project costs\. Institutional credit, which was expected to account for 34% of total project costs, or US$30\.6M amounted to US$12\.7M, according to available records\. The less than anticipated use of institutional credit was due mainly to the failure to identify funds obtained by individuals as part of DPAP activities\. Difficulty was also encountered over the defini- tion of "small farmer" for loan qualification (para\. 4\.14), which, per- haps, prevented some farmers of this group from participation\. 1/ See Borrower's comments, Attachment I to PPAM, para\. 15\. - 38 - Project Financing US$M GOI/States IDA Credit Inst\. Total Appraisal 37\.1 35\.0 30\.6 102\.7 Achieved 36\.6 35\.0 12\.7 1/ 84\.3 Percent of Appraisal 98\.6 100\.0 41\.5 82\.1 1/ Incomplete data\. Disbursement and Expenditures 5\.04 The rate of disbursement was initially slow (due, for the most part, to laxity in preparing requests at the district level and processing at the GOT level), but picked up during the second year\. However, totals remained considerably behind appraisal estimates and the final disburse- ment payment was made on May 9, 1981 about one year after the original project closing date of June 30, 1980\. At appraisal, it was estimated that the Credit (US$35M) would finance about 50% of all public sector investments, of which US$9\.7M was to be for civil works\. GOT, in 1979, proposed disbursement expenditures of US$23\.7M in the civil works category, of which US$8\.6M were for irrigation and US$5\.9M for soil con- servation\. 5\.05 Eventually the 1979 supervision mission proposed the following disbursement program which was accepted by GOT in February 1980\. Disbursement Schedule 1 As per GOT Amendment Actual Category as per DCA Proposal to DCA Disbursement (Sept\. 79) (Feb\. 25/80) (May 6/81) ------------------- (US$ million)--------------------- 1\. Civil Works 9\.70 23\.75 16\.60 18\.28 2\. Equipment and Vehicles 2\.60 6\.69 6\.25 4\.90 3\. Operating Expenses 6\.90 9\.03 9\.05 9\.54 4\. Technical Assistance and Research 1\.30 1\.70 1\.70 0\.67 5\. Unallocated 14\.50 0 0 0 6\. Rural Electri- fication 0 1\.40 1\.40 1\.61 Total 35\.00 42\.57 35\.00 35\.00 5\.06 The aim of the modified schedule was to keep IDA disbursement to about 50% of total project costs and, at the same time, reduce over-emphasis on construction of civil works\. Increased spending for civil works resulted from: (a) unit cost increases in minor irrigation - 39 - works; (b) provision of additional facilities for dairy development; and (c) requests for inclusion of soil conservation works on private lands\. Internal and Budgetary Control 5\.07 The DPAP budgetary procedure gives GOI a controlling position\. Participating states submit annual district development plans to the Central DPAP Unit in New Delhi, where the programs proposed by DDA are examined for their eligibility in terms of overall DPAP objectives and conformity with technical norms\. The states are then informed by GOI which parts of district proposals will be eligible for GOI's 50% contribu- tion\. GOI makes its contribution to the states in quarterly installments upon receipt of the proof of payment made during the preceding three-month period\. 5\.08 State level authorities played only a minor role in the formula- tion of annual DPAP work programs\. The major planning exercise was under- taken at the district level\. DDA was informed of the total budget alloca- tion for the year and it was the task of line department officers to prepare detailed annual work plans within the ceilings allocated to their departments by the DPAP Project Director\.l/ Accounts, Audit and Disbursements 5\.09 The accounting and audit procedures for the project followed regular GOT procedures\. DDA maintained records of transactions and trans- fers\. The locally responsible officer for each line department maintained accounts and receipts for the schemes or works implemented by his depart- ment and recorded these on forms prescribed by the government\. 5\.10 The accounts of DDA, as well as those of executing unit officers were audited by a chartered accountant and auditors from the office of the Accountant General of the state concerned\. The chartered accountant forwarded the audit reports to GOI and the appropriate state government\. As is typical in India, these audits consistently lagged despite repeated requests from supervision missions\. At various times, DDA accounts were inspected by missions, and problems of eligibility for disbursements, brought to the attention of GOI's Department of Economic Affairs (DEA), who organized the needed corrective actions\. After preparation of IDA reimbursement claims by the project director or line department officer, DDA forwarded IDA reimbursement claims, through the State government, to DEA\. DEA further examined claims prior to forwarding to IDA\. Respon- sibility for determining the eligibility of items claimed was left to DDA, who acted on guidelines prepared by the DPAP Central Unit and based on the staff Appraisal Report (also see para\. 7\.04)\. 1/ See Borrower's views on role played by state authorities in annual DPAP work program development; Attachment I to PPAM, para\. 5\. - 40 - 5\.11 Actual final disbursement (para\. 5\.05) differed somewhat from the amended DCA because of the lack of financial control of disbursement requests by the DPAP Central Unit\. IDA, in turn, exerted little control over the final disbursement in particular categories\. Covenants 5\.12 Conformity with legal covenants was satisfactory, with the excep- tion of the timely submission of audit reports\. Supervision missions repeatedly called attention to this, and all reports and certificates indicating project expenditures were eventually supplied\. VI\. PROJECT IMPACT Introduction 6\.01 The appraisal report and all subsequent supervision reports have stressed that, in addition to the monitoring of physical and financial progress, the experimental nature of the project required a comprehensive evaluation of individual components to determine which of these were sound and suitable for further replication\. The DPAP Central Unit worked out detailed guidelines for impact evaluation during the initial project years and at least 32 studies were commissioned either under direct respon- sibility of the DPAP Central Unit or through state authorities\. However, little comprehensive impact evaluation data was obtained from these efforts; possibly, more useful information would have resulted had more IDA guidance in evaluation been provided\. 6\.02 Aware of the problems arising from the lack of effective evalua- tion data, a 1980 supervision mission assisted GO in drafting a set of questionnaires to be used by DDA in order to obtain a rough, but accept- able assessment of project impact\. The questionnaires were sent to project districts in May 1981, and the results were made available to the project completion mission\. In addition, all districts prepared project completion reports following a standard outline provided by GO\. 6\.03 These project completion reports prepared by the districts con- centrated on progress towards attaining financial and physical targets\. Little useful information was provided on the impact of project activities on agricultural, environmental and social objectives\. Data was provided by line departments\. Some of the figures did not tally with those provided by DDA for the district as a whole, and some of the impact indicators appear to be expectations rather than field measurements\. The project completion mission, therefore, found it difficult to make a com- prehensive assessment of the project's impact\. - 41 - Direct Benefits 6\.04 Number of Beneficiaries\. The total number of families benefiting from the project is estimated at 281,000 (appraisal target was 260,000)\. The majority of the participants were members of the target group consist- ing of small and marginal farmers, and members of the scheduled castes and tribes\. Appraisal Achievement Component Total Target Group 1/ Total Target Group Soil Conservation 84,000 42,000 79,082 54,000 Dryland Farming 37,000 18,500 73,054 37,000 Sheep Raising 30,000 23,000 7,710 6,170 Dairy Improvement 84,000 52,000 74,585 52,200 Minor Irrigation 9,500 7,300 7,832 3,880 Sericulture 400 200 23,335 18,500 Fisheries 1,000 1,000 4,015 3,800 Horticulture 16,000 8,000 11,474 6,000 261,900 152,000 281,087 181,550 As percentage of appraisal 107 119 6\.05 Employment Generation\. The project provided approximately 35\.8M mandays of employment, the main portion of which was for unskilled labor used for the construction of soil conservation works, minor irrigation tanks, and for forestry and pasture improvement\. The majority of workers engaged in these activities are from the landless groups or are very small farmers\. Additional employment, needed in future years will be required for maintenance of civil works, and for incremental crop and livestock production\. Million Mandays of Labor Component Appraisal Estimate Achievement Soil Conservation 15\.0 18\.8 Irrigation 6\.0 6\.9 Pasture (Forestry) 2\.0 9\.3 Other 5\.4 \.8 Total 28\.4 35\.8 1/ The target group were small and marginal farmers and members of the scheduled castes and tribes\. - 42 - As percentage of appraisal 126 6\.06 Incremental Production\. The project increased the production of foodgrains, cash crops, milk, fodder, wool, fruit, and fish\. Apart from increased output, the project has probably lessened crop yield depression in years of drought\. Farmers are beginning to apply improved soil and moisture management practices, as well as crop selection and management practices to reduce the effects of drought\. The lack of proper evaluation data and highly disbursed activities made accurate estimates difficult\. Incremental Agricultural Production and Income Appraisal Estimate Achievement tons value tons value (RsM) (RsM) Food Crops Soil Conservation 6,400 5\.7 3,370 3\.4 Dryland 30,000 30\.0 37,000 37\.0 Irrigation 22,000 20\.0 20,000 30\.0 58,400 55\.7 60,370 70\.4 Milk 80,000 97\.0 92,400 131\.1 Sheep Wool 457 4\.2 NA NA Mutton 2,400 6\.0 NA NA Fish - - 283 NA Silk (cocoons) - - 74\.6 2\.3 Pasture 67,500 5\.0 37,730 NA 6\.07 Watershed Development and Soil Conservation\. Because of the time required for surveys, planning and implementation, no watersheds were sufficiently fully developed to permit the evaluation of the benefit of the soil conservation works\. Contour and boundary bunding was the prin- cipal soil conservation practice applied to crop lands\. This practice, when combined with land shaping and controlled drainage, provides the farmer with increased capability for crop selection, and permits the application of improved cultural practices leading to increase yields\. 3 6\.08 Forestry\. Forest departments estimate that 10-12 m annually of wood are produced on one heStare, but on difficult sites, annual produc- tion is probably only 5-8 m per year\. Survival rate to one year after planting has varied between 50% and 80% in below average and normal rain- fall years, respectively\. Surviving trees are guarded intensively by forest department staff, but the danger of unauthorized felling increases - 43 - steadily with the growth of trees and is probably a reflection of the huge demands for fuelwood\. 6\.09 Rangeland\. The planting of grasses in contour furrows, as recom- mended during the first few years of rangeland improvement, has had little impact on overall fodder productiion\. Furrow plantings occupied only about 20% of the total area and the introduced grasses did not spread into the inter-furrow spaces\. Dry matter yields of fodder, therefore, were not significantly different from unimproved areas, i\.e\., about 200 kg/ha in years of drought, about 500 kg/ha in normal years, and about 1,000 kg/ha in good rainfall years\. With the advent of Stylosanthes, in the Deccan Plateau, the situation has changed radically\. In the second year after broadcasting, about 800 kg/ha are produced in dry years\. With normal rainfall, production ranges between 1,500-2,000 kg/ha and in years of good rainfall, fodder production exceeds 3,000 kg of dry matter per ha\. 6\.10 Dryland Farming\. Demonstrations in farmer fields provide an indication of potential yield increases resulting from low cost activities such as HYV and fertilizer use\. For many crops, yields on demonstration plots were 2 to 3 times those obtained from control plots\. For the pur- pose of estimating incremental production, crop yields, based upon data from crop demonstrations, were assumed to have increased on average by 150 kg/ha, mostly as a result of planting of HYV, establishment of better stands, application of fertilizer and better weed control\. 6\.11 Livestock Development - Sheep\. The impact of project activities on wool and mutton production has been minimal due to the fact that productive pasture blocks did not develop as was foreseen at appraisal\. This was the result of the original technically non-viable approach to rangeland improvement\. The small increment of wool and meat production that actually occured was not as a result of increased availability of fodder, but resulted from improvements in management of flocks and veteri- nary services\. 6\.12 As a consequence of the above, members of sheep producers' societies derived little additional income from their participation\. This was due to the fact that they were able only to contribute one or two sheep to the society and this left their remaining flock to exist under traditional husbandry conditions\. 6\.13 Dairy\. Total milk production from producers participating in the project is estimated at 92M liters\. No surveys have been made to assess the influence of a regular monetary outlet for fresh liquid milk (milk collection centers) on home consumption\. Deliveries of fresh milk to collection centers have built up rapidly and they stood at about 25M liters in 1980/81\. Milk production from drought prone areas remain highly seasonal\. In Rajasthan, especially, milk deliveries are strongly affected - 44 - by rainfall\. In 1980/81 milk deliveries were only about 40% of deliveries two years earlier, when good rains occured\. 6\.14 The members of milk producers' societies derived an average of Rs760 from the sale of milk during 1980/81\. Feeding was based almost exclusively on farm-produced fodder and concentrate feeding remained negligible\. Average income per member from milk sales in 1980/81 was lowest in Bijapur District (Rs210) and highest in Ahmednagar District (Rs2,630)\. 6\.15 Water Development\. Increased cropping intensity and greater yields, with timely irrigation, account for most of the incremental production to date\. As farmers become more skilled in water management and command areas developed, so will production continue to increase\. Incremental yields are presently estimated at 500 kg/ha\. 6\.16 Impact on Environment\. Soil conservation, pasture and forest development on 402,000 ha has reduced environmental degradation due to wind and water erosion\. The use of better farming practices by par- ticipating dryland farmers has also assisted in reducing erosion losses on productive land, and higher yields lessened the pressure to utilize mar- ginal land for crop production\. The success of Stylosanthes plantings in the Deccan plateau for pasture and seed production has interested some farmers in the diversion of marginal crop lands to the growing of this legume\. Indirect Benefits 6\.17 The package of activities agreed upon for the six IDA-assisted districts has since become the model for GOI-approved DPAP activities in all drought prone districts\. Also, the administrative system adopted in project districts has been used in all other DPAP areas\. 6\.18 The involvement of IDA in DPAP has created an awareness among GOI and state level policy-makers that the technical and economic viability of individual program components must be kept under constant review\. A reliable impact evaluation system has still to be established, but govern- ment officials are aware of this need\. In this way, IDA assistance to DPAP has prepared the way for a number of policy decisions which will have a bearing on future DPAP approaches\. Rates of Return 6\.19 Thirteen models were prepared at appraisal to estimate the finan- cial viability of investments for on-farm and public land development\. At appraisal, ROR were estimated for the models and ranged from 11 to more than 100 percent\. To duplicate the farm models prepared at appraisal, reliable technical and financial information on the impact of project - 45 - investments at the farmer level is essential\. Unfortunately, this is not available\. Nevertheless, several important project components were selected for examination during the PCR mission visits to project dis- tricts\. Thus, it was possible to develop some estimates of the financial impact of the project components at the farmer level\. A major difficulty in developing estimates of the future is that crop yields are subject to extreme weather variability in project areas\. The range in yields of millet for example, extend from less than 50 kg/ha in an extreme drought year to 1,000 kg/ha in a very good rain year\. For sorghum, yields range from 50 to 900 kg/ha\. 6\.20 The yield estimates used for the farm models were based on an estimation of the expected yield values-- that is, weighting the estimated yields corresponding to specific weather conditions, on the probability that those weather conditions would occur\. For example: Pearl Millet (Bijapur-Shallow Soils) Yields Value Weighted Value Performance (kg) Probability (Value times probability) Without Project Very good 400 \.20 80 Good 280 \.20 56 Not very good 200 \.40 80 Poor 50 \.20 10 Expected Value: 226* With Project (at full development) Very good 900 \.20 180 Good 600 \.20 120 Not very good 450 \.40 180 Poor 200 \.20 40 Expected Value: 520* * The expected values were the figures used in the farm models\. The number of years necessary to achieve full development for each techni- cal package, as well as intermediate values, were derived in consult- ation with local project staff\. Financial Rates of Return - 46 The financial rates of return for some of the most important project components were: Financial Rates of Return % Net Benefit Increase 1/ (Discounted at 10%) 1\. Well (1\.5 ha) 39 5052 -- 428% 1181 2\. Dry Farming (4-6 ha) 100 603 Red Alfisols --- - 16% 3656 3\. Dry Farming (4-6 ha) Black Vertisols 100 895 -- = 173% 517 4\. Sheep Societies (100 ha) a\. Partioipating Rarmers 1\. Assuming Society is liquidated after 5 years (mosly likely)\. Negative Negative 2\. Assuming Society pays dividends of Rs 100, in real terms, for years 5 to 9 (not very likely)\. 15 Nil b\. Society as a whole Negative 2/ 5\. Dal~ A landless laborer with 1 cow 100 1109 --- 50% 2250 6\. Tank irrigated farms a\. Mukarthal Tank 1\. 2 ha farm 100 15789 ---- =71% 22255 2\. 4 ha farm 17 3318 ----= 5% 62305 b\. Jigjivani Tank 1\. 2 ha farm 32 4153 ----- = 27% 15602 2\. 4 ha farm 56 16302 ---- -= 49% 33517 1/ Net Benefit Increase (NBI) is the ratio, measured in percent of: Ave\. Annual Incremental Net Benefit (after financing) ---------------------------------------------------- = NBI Ave\. Annual Net Benefit (without project) 2/ The FRR to participating farmers was 15% (in the most optimistic case) and negative (-5%) (in the most likely case)\. Additional costs of establishing and running the society, not included in the FRR to participating farmers, included rams, fencing and sheds, pasture development, official to supervise (1/3 man year per society) and 2 shepherds\. - 47 - 6\.21 The NBI ratio represents one measure of the attractiveness of the project to farmers\. The FRR tends to be very high (indicating that this type of investment can be attractive to small farmers making little addi- tional investment), but this can be a misleading indicator of the attrac- tiveness of the project\. The NBI complements the FRR by measuring the percentage increase in benefits with project, compared to the benefits without project\. In other words, NBI indicates how much additional annual income the farmers will have by participating in the project\. 6\.22 Most selected components show a rather high financial rate of return before financing\. Due to subsidized credit, the FRR after financ- ing, would be greater\. This indicates that the project was especially beneficial to those who participated and were financed\. However, a ques- tion for the future is: by how much can subsidies be reduced in order to spread the benefits among a larger proportion of the target population while at the same time, keeping project activities financially attractive? A serious study of the extent of subsidies-- who gets them and to what extent-- would probably suggest changes in the amount and activities being subsidized, and in the target groups\. Economic Rate of Return 6\.23 An overall economic rate of return for the project was not calcu- lated at appraisal due to the variety of components and the complexity of measuring some of their benefits\. Instead, approximations of economic rates of return were calculated for several project components\. The mission had access to only one study on the economic impact of two tank irrigation sub-projects\. After making several adjustments to the data and methodology, the estimated economic rates of return were: 1\. Mukarthal Tank - 14% 2\. Jigjvani Tank - 9% These rates of return are less than the 26 percent EER estimated at appraisal for a 4 ha farm\. The mission's impressions, after visits to several tanks, is that the return on this type of investment is marginal on the best assumptions, and perhaps close to zero or even negative, in most cases, as CAD development and water management are often neglected\. 6\.24 On the positive side, the dryland farming components show extremely high financial, and most likely economic, rates of return\. Dairying appears to be financially attractive, but the ERR is much lower due to associated costs of collection, chilling and society management\. On the basis of the data collected by the mission and models developed, if the project were to be reformulated now, the dryland farming component, particularly in the black soils areas, would be the central focus of the - 48 - project, and minor irrigation works and sheep societies would not be included\. VII\. INSTITUTIONAL PERFORMANCE General 7\.01 DPAP had good institutional support\. There was a genuine interest by Government at all levels to make the complex program work, and a rela- tively intensive dialogue was established between authorities at all levels\. This situation did not change during the project implementation period, although the attention given to DPAP at GOI and state levels became less pronounced in later project years\. 7\.02 The frequent changes of administrative staff were a problem\. Only the first Director of the Central DPAP Unit stayed long enough to ensure that comprehensive guidelines were issued in respect of project direction and administration\. Administrative staff at the state and district levels were changed frequently and replacements were not fully briefed to ensure continuity in approach\. In contrast, there was much greater continuity of professional line department staff seconded to the project\. Administra- tive staff, therefore, had difficulty in integrating the work programs of line departments and this explains why: (a) the technical approach of line departments was difficult to change, and (b) physical targets and techniques specified in the appraisal report were given more importance than was envisaged at the time of appraisal\. The DPAP Central Unit in GOI 7\.03 The strength of the Central Unit was its capacity to execute national development programs\. In this, it was obviously aided by its administration of GOI development finance for drought prone areas\. This provided it with a strong position vis-a-vis the states in the design of programs eligible for GOI reimbursement\. While this role was exercised well in the case of approval of annual district work programs, the Unit was less well able to follow up on the work executed\. 7\.04 Indian financial regulations, which govern procedures for public sector expenditures produced minor problems in reimbursement procedures\. In the case of IDA reimbursement, GOI specified in circulars which com- ponents were eligible\. However, claims for IDA reimbursement are sub- mitted directly from the state authority to DEA\. The DPAP Central Unit received only a copy of the claims and no action was taken to ascertain the eligibility of individual claims submitted for reimbursement\. Such control did not take place at DEA either\. The need to improve financial control was brought to the attention of project authorities by supervision missions, and corrective action was taken\. - 49 - 7\.05 A weakness of the DPAP Central Unit was its lack of technical expertise\. Professional expertise in drought prone areas is almost entirely centered in the Ministry of Agriculture\. At the beginning of the project, it was planned that essential technical support would be provided in two ways: (a) by appointing a number of senior specialists to the DPAP Central Unit; and (b) by relying on the development of technical packages in close cooperation with the different units of the Ministry of Agriculture\. 7\.06 Cooperation with the Ministry of Agriculture did not materialize to the extent desirable\. However, the DPAP Central Unit was able to obtain the support of ICAR, which with financial support from DPAP, strengthened its activities to identify dryland farming packages and techniques for improving fodder production on non-arable lands\. However, the DPAP Central Unit could not rely on routine and timely support from other technical units in the Ministry of Agriculture\. 7\.07 The major responsibility for the development of technical pack- ages, therefore, remained with the senior technical specialists appointed to the Central DPAP Unit\. They had a difficult task\. This ranged from the establishment and evolution of technical norms, scrutiny of develop- ment proposals and training, to field advice and inspection\. The impact of these professionals would have been more significant had they been appointed at civil service grades which permitted meaningful dialogue in their discussions with state directors of line departments\. State Level DPAP Authorities 7\.08 The state level DPAP authorities were attached to different departments depending on the State\. These ranged from the Department of Planning in Maharashtra to the Special Schemes Organization in Rajasthan\. In all cases, special state DPAP units were established and the tasks of program planning, financial administration, staff appointment and coor- dination with line departments were conducted well\. District Development Authorities (DDA) 7\.09 With the exception of Nagaur District and for a period of about two years in Bijapur District, young Indian Administrative Service (IAS) officers headed DDA\. Some lacked experience in managing a multi-disciplinary development task force and the majority were not given special training prior to assignment\. However, in general, the posting of these IAS officers proved successful\. They made strong efforts to inform themselves of DPAP objectives and procedures, and developed considerable skill in coordinating the work of the state line departments\. Their close associa- tion with Collectors' (Deputy Commissioners') offices was of considerable help\. - 50 - 7\.10 Line department officers who were seconded to district DPAP, had a difficult task\. Activities foreseen under the project were quite often different from those supported currently by their departments\. Par- ticularly strong divergencies existed in respect of soil and water conser- vation techniques, the approach to minor irrigation, the importance of tree planting for wasteland improvement and the role of crossbred cattle in drought prone area milk production\. The situation was aggravated by the fact that the technical staff of the DPAP Central Unit were unable to influence the official approach of state line departments except through persuasion\. While forestry departments in all districts agreed to include fodder development as part of their activities for wasteland improvement - and actually performed well due to the strong organizational pattern in all forestry departments - the other departments did not really accept the specialized approach needed for DPAP\. As a result, line department activities in the project districts often were a mixture of traditional approaches and special DPAP activities\. IAS project directors were not in a position to recognize technical shortcomings, or the lukewarm support for DPAP activities shown by some line departments throughout the project implementation period\. Technical Assistance 7\.11 The impact of technical assistance was positive\. Forest depart- ment and animal husbandry staff received detailed and very practical guidance in rangeland improvement and forage seed multiplication, and the introduction of forage legumes under the project has been an event of major significance for rangeland improvement work on the Deccan plateau\. Expatriate specialists prepared the groundwork for the implementation of an agro-meteorological service and bagasse treatment\. Overall achieve- ments are smmarized below\. Speciality Major Accomplishment Sr\. Pasture Advisor Pasture establishment and manage- ment techniques and training of district staff\. Sr\. Pasture Research Agronomist Introduction, testing and develop- ing cultural practices for Stylosanthes (a major accomplish- ment of DPAP)\. Agro-meteorologist Prepared recommendations for agro-meteorology program which GOI is beginning to implement\. - 51 - Calf-rearing Specialist Advised government that large-scale calf-rearing projects were not feasible\. Component dropped\. Bagasse Consultant Prepared plans for producing bagasse, which government com- pleted\. Sr\. Agriculture Economist Coordinated five major studies\. Monitoring and Evaluation 7\.12 At appraisal, it was emphasized that due to the innovative and experimental nature of the project, a special effort would be required to closely monitor project implementation and the impact of investments made under the project\. Operating responsibility for this task was assigned to the project economist located at the DPAP Central Unit, but the detailed plans and methodologies for collecting and analyzing data, as well as reporting the findings, were not finalized during appraisal\. The Appraisal report (para\. 5\.10), indicates that "Details of the project evaluation process, including the role of independent institutions, would be finalized in consultation with IDA"\. This was reflected in the legal documents only in the "boiler plate" clause as "furnish to the Association all such information as the Association shall reasonably request regarding the Project\."(DCA, Section 3\.07)\. Given the everyday pressures of starting up and implementing a very complex project, it is not difficult to understand that the designing of the monitoring system was not given the priority expected at appraisal\. A significant lesson from this experience, which reinforces present Bank policy, is that project monitor- ing procedures should be discussed and agreed on at appraisal and just as carefully as the technical, managerial, financial, and economic aspects of the project\. 7\.13 Another area where project economists in the districts and Central Unit could have made a greater contribution to more efficient utilization of project funds was in the evaluation of specific investment activities\. There was no uniform methodology for analyzing or evaluating the financial and economic impact of specific investments\. This could have been sig- nificantly improved by a few short training courses for project economists in analyzing investment proposals\. IDA could have pushed more in this area by including such expertise in its supervision missions\. - 52 - VIII\. BANK PERFORMANCE At Appraisal 8\.01 The stated objective of the project - to increase and stabilize production from agriculture and related activities in six drought prone districts - was sound\. However, at appraisal, how this objective could be achieved was not established with certainty and the appraisal mission was faced with a large number of unrelated development proposals made by Indian authorities\. The concept of integrated watershed development was new to India and doubts existed about both the soundness of traditional soil and moisture conservation techniques, and the technical suitability of proposed rangeland improvement measures\. There were also different views concerning the possibility of improving dryland farming and develop- ing milk production in drought prone areas\. 8\.02 Under these circumstances, a major contribution of the project was the use of a time slice of an ongoing national development scheme for testing a number of development concepts under field conditions\. 8\.03 The appraisal team tried to be realistic in estimating the impact of specific programs on agricultural productivity and farmers' incomes\. Reliable baseline data were not available and was from evidence of the likely result of project actions\. Furthermore, as all proposed activities were to be explained in terms of location-unspecific models, a con- siderable degree of technical speculation had to be applied\. The major mistake was to attempt to apply an approach to rangeland improvement proven in Australia\. The re-establishment of grasses did not take place with sufficient speed to meet the social and agricultural demands of highly-populated areas in India\. The rangeland improvement technique was successfully changed during the project and led to one of the project's major achievements\. However, misjudgment at appraisal not only led to an unsuccessful fodder development program but also caused difficulties with the sheep grower societies\. 8\.04 Aware of the technical problems inherent in the project, IDA financed a number of expatriate specialists to work on specific problems\. It also required appropriate monitoring and evaluation systems, but these were not effectively established\. IDA, in retrospect, was probably optimistic in assessing the capacity of Indian authorities to implement such a multi-faceted project\. Supervision 8\.05 It was intended that this project should be closely supervised so that changes needed in activities could be identified early, and needed technical and policy guidance provided promptly\. Eleven supervision missions were fielded, representing 433 mandays\. Continuity was provided - 53 - by one man who participated in the reconnaisance, appraisal, five supervi- sions and the PCR mission, another staff member in six supervisions and the PCR, and three others who made two to four visits to the project\. IX\. CONCLUSIONS 9\.01 The project was largely successful in identifying, testing and implementing technical, economic and organizational means to improve the productivity of drought prone areas and at a scale large enough upon which to base future policy decisions\. Overall, the project achieved the objec- tive of refocusing attention on "drought-proofing" through economically productive programs rather by labor-intensive construction of public works\. In spite of deficient impact evaluation, the project has indicated a number of areas in which the experience gained be used in the design of a future DPAP\. The major ones are: (a) Watershed Development\. Application of an integrated approach to soil, moisture, crop and livestock management has been one of the major accomplishments of DPAP\. Soil surveys have been initiated and taken as a first step towards the planning of proper land use and management coupled with watershed works required to protect crop lands and provide for and alternative uses, i\.e\., pasture, forage seed production or forestry development on marginal lands\. The project estab- lished the need for a central body (DDA) at the district level to coordinate the activities of various line depart- ments and to gain the commitment of policy-makers and farmers\. (b) Soil Conservation\. Land management, especially changes in soil conservation practices, are dependent upon the greater involvement of farmers\. The old concepts of soil conserva- tion, relying for the most part, on contour bunding have been difficult to change\. However, ICAR and ICRISAT have demon- strated the value of the graded broadbed-and-furrow system for deep vertisols and which is now becoming more widely considered\. (c) Rangeland Improvement\. Stylosanthes spp have a definite role in the improvement of wastelands on the Deccan plateau\. (d) Dryland Farming\. There is now confidence in practices, especially for the medium and deep vertisols, and to some extent, for the shallow soils\. Yields have improved as a result of low-cost practices such as selection of crop and variety of greater field potential, establishment of better plant stands, application of small amounts of fertilizers and - 54 - weed control\. The states and 001 are ready to proceed with more dryland crop research and extension\. (e) Livestock Development\. Indian authorities now realize that dairy development in drought prone areas is part of dryland farming and that it requires the keeping of improved indigenous animals rather than exotic half-breeds\. (f) Water Development\. The development of surface and groundwater potential for irrigation is necessary, but about 23% of project costs were spent to the benefit of only a few farmers\. Among the factors to be recognized in future projects are: farmer involvement in planning and operations, development of command area, water management training and provision of extension staff, levying of water charges and on-going and maintenance, and for wells, ground water legis- lation to prevent overexploitation\. (g) Diversification\. Among diversification schemes, sericulture and fisheries were the most successful\. Since mulberries grown for sericulture were an irrigated crop, it appears to have little place in DPAP programs\. Fisheries required a large investment for the production of stock fish\. Future DPAP activities could include the organization of fishermen societies and marketing cooperatives, but leave the the infrastructure required for the production of stock fish to other resources\. Horticulture had a limited benefit to a relatively small number of families\. (h) Administration\. To assure compliance with technical norms, a routine check indicating compliance should be sent to the DPAP cell by DDA before reimbursement of expenses\. The responsibility for providing technical supervision either from the Ministry of Rural Reconstruction, other GOT minis- tries, or from state line departments, is not yet clear\. 9\.02 The experience gained with IDA Credit 526-IN leads to a number of other major conclusions\. (a) DPAP cannot be implemented by individual government agencies alone\. It needs the broad participation of the people living in drought prone areas\. Too little attention has been given to the formulation of programs which were fully acceptable to and supported by potential beneficiaries; and (c) There has been a tendency to confuse subsidies paid to weaker sections of the community with development justifiable on economic grounds alone\. Subsidy support to socially weaker - 55 - sections will, obviously, continue but there is opportunity to use these funds as seed money for the introduction of sound income-generating activities\. Some subsidy schemes DPAP are actually counter-productive\. This is the case with subsidies given for the purchase of sheep flocks or milking animals to landless laborers\. Overstocking is one of the main constraints to in rangeland improvement and the addition of animals to village communities further aggravates the situation\. 9\.03 GOI has decided to continue implementation of DPAP by allocating Rs\. 1750M (US$218M) in the next Five-Year Development Plan\. Other Bank group projects which address or continue activities initiated in the six DPAP districts include: Rajasthan Agricultural Extension and Research Project (Cr\. 737-IN) Maharashtra Agricultural Extension Project (Cr\. 1135-IN) Composite Agricultural Extension Project (Cr\. 862-IN) National Agricultural Research Project (Cr\. 855-IN) National Dairying Project (Cr\. 824-IN) Agricultural Refinance and Development Corporation III (Cr\. 947-IN), and IV, negotiated in November 1981 Inland Fisheries (Cr\. 963-IN) Karnataka Sericulture (Cr\. 1034-IN) National Cooperative Development Corp Project (Cr\. 871-IN) improvement of cooperative societies Irrigation (various projects) Upcoming projects include: Rainfed Agriculture Erosion and Flood Control Thus, while IDA is not participating in the continuation of DPAP, many related projects are supportive of GOI activites in these areas\. - 56 - Table 1 INDIA DROUGHT PRONE AREA PROJECT Project Completion Report Summary of Project Financing (Rs M) Component Appraisal Actual % of % of Government and IDA Appraisal Total Project Costs -------Rs M------- District Funds Soil Conservation 99\.2 134\.3 135 19\.9 Forestry 18\.3 37\.0 202 5\.5 Pasture Development 37\.3 33\.1 89 4\.9 Dryland Farming 11\.4 11\.4 100 1\.7 Sheep Development 13\.1 23\.9 183 3\.5 Dairy Development 63\.6 85\.8 135 12\.7 Minor Irrigation 47\.1 131\.9 280 19\.6 Diversification 12\.7 36\.7 289 5\.4 Electrification 0 22\.1 0 3\.3 Updating Land Records 6\.2 1\.2 18 0\.2 Project Management 2\.9 12\.7 438 1\.9 Sub-total - 311\.8 530\.1 170 78\.6 District Core Funds 30\.0 40\.5 135 6\.0 Sub-total - 341\.8 570\.6 167 84\.6 Central Funds 12\.8 2\.0 16 0\.3 Price Contingency 222\.4 - - - TOTAL GOV'T/IDA 577\.0 572\.6 99 84\.9 Institutional Credit 244\.4 101\.6 1/ 42 15\.1 TOTAL PROJECT COST 821\.4 674\.2 82 100\.0 US$M 102\.7 84\.3 - 1/ Incomplete data\. INDIA DROUGHT PRONE AREA PROJECT PROJECT COMPLETION REPORT GOL/State Expenditures by District and Component (R9\. '000) Districts Anantapur Bijapur Ahmednagar Sholapur Jodhpur Nagaur Project Total Cost Activities A\. Distriot Funds Sotl Conservation 27482 23436 31106 34409 9097 8747 134277 Forestry 10707 9075 8805 7592 433 383 36995 Pasture Development 6041 6914 9083 1974 - 9112 33124 Dry Farming 2081 1459 4080 3443 - 293 11356 Sheep Development 5069 2868 758 1183 8378 5638 23894 Dairy Development 25029 6165 21406 14048 10538 8593 85779 (including Cattle Dev\.) ui Minor Irrigation 32678 22616 24709 34847 11691 5407 131948 Diversification Schemes 22794 12170 878 892 - - 36734 Electrification - - - 16100 6000 22100 Updating Land Records 575 - - - 368 272 1215 Project Management 2693 1504 1437 1628 2911\. 2520 12693 Sub-total 135149 86207 102262 100016 59516 46965 530115 District Core Funds 674 626 1524 587 15641 21419 40471 135823 86833 103786 100603 75157 68384 570586 Total B\. Central Funds Research 633 Training 132 Consultants 227 Project Evaluation 259 Central Core Funds 711 Total 1962 TOTAL (Gov't Funds) 572548 C\. Institutional Credit 23612 6013 7530 14079 30659 19700 101593 D\. GRAND TOTAL (All Funds) 674141 - 58 - Table 3 INDIA DROUGHT PRONE AREAS PROJECT Project Completion Report Project Organization and Objectives Appraisal Actual Project Objectives or Focus: Increase acreage or herd Increased cropping intensity Increased productivity - yield or livestock offtake x x Shift to higher value crops Reduced production cost x x Technological innovation x x Estate/Large scale farming Integrated rural development x x Other - pilot project to test and implement new approaches in drought prone areas x x Project Organization New/Existing Performance District Development Authority new excellent State DPAP Cell new fair to good GOI Central DPAP Cell increased staff good District Coordinating Committee existing under good Collector State Coordinating Committee new fair to good District Banking Plans supplemental satisfactory Annual Plans DPAP supplemented good Annual Reports DPAP new good Monitoring and Evaluation various poor Institution Building and Sector Development The focus was on activities of line departments designed to assist people in rural areas, improve their economic status and reduce the effects of drought\. DPAP developed institutional capability and was an overall success\. The government will continue DPAP activities without further direct Bank financial assistance\. Consultants Use and Performance Five expatriate consultants participated in the project implement- ation and all were technically competent\. - 59 - Table 4 INDIA DROUGHT PRONE AREA PROJECT PROJECT COMPLETION REPORT Summary of Key Indicators Appraisal Revised Achieved I of A % of Revisea Soil Conservation Soil Survey Th-Ha 8,983 8,983 9,G39 100 100 Soil Cons\. Ha 365,000 280,000 335, 10 92 120 Watershed Dev\. 15 NR 52 346 346 Ponds 1,050 180 142 13 78 Forestry Afforestation 16,000 10,500 16,945 106 161 Village Wood 2,000 2,400 2,608 130 109 Wind Breaks - Km 1,200 1,200 1,108 92 92 Stab\. Sand Ds-Ha 1,000 0 0 0 NA Pasture Development Past\. Improv\. - Ha 90,000 42,000 46,803 52 111 Seed Production 0 0 97,732 NA NA Dryland Farming Demonstration - No\. 835 NR 13,810 1,653 1,653 Improv\. Cu\. Th-Ha 200 200 246\.3 123 123 Sheep Development Societies - No\. 270 270 160 59 59 Dairy Development Societies - No\. 480 480 753 157 157 Total Milk Mil\. L 0 0 92\.4 NA NA Minor Irrigation Wells No\. 2,110 2,620 4,384 208 167 Tanks No\. 29 29 23 80 80 Land Irrigation - Ha 0 0 16,004 NA NA CAD Ha 12,000 9,000 1,477 12 16 Divers Schemes Sericulture Mulberry Ha 1,000 1,000 15,139 1,514 1,514 Fisheries Societies - No\. 0 0 41 NA NA Electrification Wells Conn\. - No\. 0 0 520 NA NA NA - Not applicable\. NR - Not revised\.  IBDi77(R E OME M E* U a Ž/*z*--O ---c i i ?i- 5 Js\. -l \. c\. - cx( - - R O -c--\.-c¢ t, } o ¾1

APPROVAL

P001118

fJ\.Lfe COpy La Banque Mondiale A N'UTILISER QU'A DES FINS OFFICIELLES Rapport No\.17 35-IVC EVALUATION DU DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY COTE D'IVOIRE 28 avril 1978 \. Departement des projets regionaux Bureau regional Afrique de l'Ouest TRADUCTION NONOFFICIELLE A TITRE D'INFORMATION Le present document flit I'objet d'une diffusion restreinte\. et ne peut eire utilise plr ses destinltlires que dins I'exereice de leurs fonelions offltielles\. SI teneur ne peut etre lutrement dhulluee sins l'lutorisltion de II Blnque Mondille\.  TAUX DE CHANGE Unite monetaire - franc CFA (FCFA) 1 $EU = 245 francs CFA 1\.000 francs CFA = 4,08 $EU POIDS ET MESURES (Systeme metrique) r ABREVIATIONS ET SIGLES ARSO Autorite pour l'amenagement de la region du Sud-Ouest BEl Banque europeenne d'investissements BNDA Banque nationale de developpement agricole CCCE Caisse centrale de cooperation economique CFAF Communaute financiere africaine franc CSSPPA Caisse de stabilisation et de soutien des prix des productions agricoles DPBCG Direction de la planification, de la budgetisation et du contr61e de gestion FED Fonds europeen de developpement IRCA Institut de recherches sur Ie caoutchouc SAPH Societe africaine de plantations d'heveas SATAC Societe d'applications techniques agricoles et caoutchoutieres SOCATCI Societe des caoutchoucs de la C6t~ d'Ivoire EXERCICE FINANCIER ler janvier - 31 decembre  COTE D'IVDIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY TABLE DES MATIERES RESUME ET CONCLUSIONS \. i-viii I\. INTRODUCT ION \. \. 1 II\. GENERAL I TES \. \. 3 A\. Aper~u g~ographique\. 3 B\. Le secteur agricole\. 3 C\. Institutions\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 4 D\. Strat~gie du d~veloppement\. 6 E\. Le sous-secteur de I! hevea\. \. \. \. 6 F\. Resultats obtenus dans le cadre du Premier projet d'hev~aculture de Grand-Bereby\. 8 III\. LE PROJET\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 11 A\. La zone du projet\. 11 B\. Description sommaire du projet\. 12 C\. Description d~taill~e\. 13 D\. Programme de plantations villageoises\. 17 IV\. ORGANISATION ET GESTION \. 19 V\. ESTIMATIONS DES COUTS ET FINANCEMENT\. 24 A\. Estimations des coOts\. 24 B\. Financement propose\. 24 C\. Passation des marches\. 27 D\. Decaissements\. \. \. \. \. 28 E\. Comptabilite, r~vision comptable et presentation de rapports\. 29 Le pr~sent rapport est fonde sur les conclusions d'une mission d'~valuation, composee de MM\. R\. Simsolo, A\. Green et S\. Weed (Banque) et R\. Chambe (con sultant), qui a effectue un sejour en COte d'Ivoire en avril/mai 1977\. Le present document fait l'objet d'une diffusion restreinte, et ne peut ~tre utilis~ par ses destinataires que dans l'exercice de leurs fonctions offi cielles\. Sa teneur ne peut ~tre autrement divulguee sans l'autorisation de la Banque Mondiale\.  - 2 Pages VI\. PRODUCTION, COMMERCIALISATION ET RENTABILITE FINANCIERE \. 30 A\. Rendements et production \. 30 B\. Commercialisation et prix \. 30 C\. Resultats financiers \. 31 D\. Avantages pour les petits exploitants \. 31 AVANTAGES ECONOMIQUES ET JUSTIFICATION 32 VII\. VIII\. POINTS D' ACCORD ET RECDMMANDAnON 36 " ANNEXES 1\. Etat d'avancement des projets agricoles finances par la Banque 2\. Resultats obtenus Tableau 1 - Comparaison entre l'evaluation et les resultats obtenus dans Ie cadre du premier projet Tableau 2 Couts d'investissement et de mise en valeur au 30 septembre 1976 3\. Techniques de mise en valeur et d' exploitation A\. Techniques de developpement et d'exploitation Tableau 1 - Calendrier des operations B\. Selection du materiel vegetal C\. Donnees meteorologiques Tableau 2 - Donnees pluviometriques 4\. Cadre de reference du rapport de justification relatif au programme de plantations villageoises Tableau 1 - MBA pour 1 ha d'heveas Tableau 2 Credit en nature et en especes - couts de mise en valeur et d' exploitation Tableau 3 - Aspects financiers 5\. Couts d'etablissement de la plantation Tableau 1 - Defrichement et preparation des terrains A\. Abattage B\. Defrichement des terrains C\. Preparation pour plantage Tableau 2 - Pistes de desserte A\. Construction B\. Entretien Tableau 3 - Materiel vegetal A\. Germoirs B\. Entretien des jardins a bois Tableau 4 - Pepinieres sacs A\. Annee N-l B\. Annee N 0  - 3 TABLE DES MATIERES (suite) ANNEXES 5\. Tableau 5 - Plantage et entretien A\. Plantage et entretien (NO) B\. Entretien (N~l) C\. Entretien (N~2) Tableau 6 - Entretien et preparation pour la saignee A\. Entretien (N"3) B\. Entretien (N~4) C\. Entretien (N\.5) D\. Preparation pour la saignee (N+6) et 1f\.Tt7) 6\. Autres couts detailles \. Tableau 1 - Personnel Cadre Tableau 2 - Autre personnel et main d'oeuvre non agricole Tableau 3 - Autres frais de fonctionnement 7\. Couts du projet Tableau 1 - Recapitulation des couts du projet Tableau 2 Entretien de la premiere tranche de 7\.000 ha et mise en saignee Tableau 3 Couts de developpement des 6\.500 ha Tableau 4 Vehicules et materiel Tableau 5 - Infrastructure villageoise Annexe supplementaire : Detail des couts unitaires Tableau 6 - Programme de formation Tableau 7 - Administration generale Tableau 8 - Couts du programme de plantations villageoises 8\. Systemes et investissements Schema 1 Schema 2 Tableau 1 - Recapitulation des couts Tableau 2 - Couts d'investissement du centre de traitement Supplement A - Logements Supplement B - Vehicules Tableau 3 - Programme d'investissement annuel Tableau 4 - Couts de traitement - Couts unitaires Tableau 5 - Couts de traitement - Couts annuels 9\. Note sur l'autofinancement du projet Tableau 1 - MBA du projet Tableau 2 - Calendrier estimatif des engagements annuels pour les copreteurs Tableau 3 - Estimation du service de la dette pours les prets dans Ie cadre du premier et second projet Tableau 4 - Service de la dette : Pret BIRD Tableau 5 - Calendrier estimatif des decaissements 10\. Le marche du caoutchouc Tableau 1 - Production mondiale: Consommation et commerce du caoutchouc naturel Tableau 2 - Consommation mondiale : Caoutchoucs naturels et synthetiques Tableau 3 - Valeur du caoutchouc Tableau 4 - Rendements et production estimatifs en tonnes Tableau 5 - Valeur venale de la production envisagee  - 4 TABLE DES MATIERES (suite) 11\. Analyse economique T~l_u 1 - Recapitulation des calculs du taux de rentabilite economique Tableau 2 Couts et avantages economiques - 7\.000 ha initiaux Tableau 3 - Couts et avant ages economiques - 6\.500 ha supplement aires Tableau 4 - Recapitulation des calculs sur les valeurs nettes actuelles 12\. Cadre de reference de la revision des comptes 13\. Modalites relatives a la tenue des comptes et releves Tableau 1 - Jardins a bois Tableau 2 - Germoirs et approvisionnement en semences Tableau 3 - Pepinieres sacs Tableau 4 - Pepinieres sacs - Detail des operations Tableau 5 - Preparation des terrains Tableau 6 - Programme de plantage Tableau 7 - Plantage - detail des operations Tableau 8 - Entretien (NO) Tableau 9 - Entretien (N+l) Cartes 13092 - Population et emplacement du projet 13093 - Plantation du projet, programme de plantation par annee et emplacement des villages  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY RESUME ET CONCLUSIONS Generalites i\. Le Gouvernement de la COte d'Ivoire a sollicite l'aide financiere du Groupe de la Banque afin de poursuivre l'amenagement de la plantation d'heveas de Grand-Bereby, dans Ie sud-ouest du pays\. Ce projet a ete prepare par Ie gouvernement, avec l'aide de la Mission regionale de la Banque en Afrique de l'Ouest\. Le present rapport est fonde sur les conclusions d'une mission de la Banque qui a sejourne en Cote d'Ivoire en avril/mai 1977\. 11\. Le Premier projet (Pr@t 938-IVC), lance en 1973, avait pour objectif l'amenagement de 13\.500 ha de plantation sur une periode allant jusqu'en 1979\. II s'est heurte a des difficultes techniques, a des problemes de gestion, a une penurie de main-d'oeuvre et a l'inflation\. L'objectif a du ~tre ramene a 7\.000 ha dont l'amenagement doit @tre termine en 1978\. Le present projet vise a etendre la superficie de la plantation aux 13\.500 ha prevus a l'origine sur une periode de cinq ans\. Au cours de cette periode, les arbres de certaines etendues amenagees dans Ie cadre du premier projet arriveront a l'~ge adulte et les premieres installations de traitement devront @tre creees\. Zones et description sommaire du pro jet iii\. La zone du projet, situee a quelque 75 km a l'ouest de San Pedro, couvre une superficie de l'ordre de 50\.000 ha, dont environ un tiers est pro pice a la culture de l'hevea\. A l'interieur de cette zone, un premier accord de concession prevoyait de reserver une etendue suffisante pour l'amenagement d'une plantation de 13\.500 ha\. Toutefois, quelque 2\.300 ha des terres com prises dans cette concession initiale en ont ete retirees par la suite pour ~tre reaffectees a l'etablissement de villages, ce qui a ramene a 13\.000 ha l'etendue consacree a la culture de l'hevea\. De nouveaux travaux de prospec tion ont ete entrepris afin de selectionner des terrains d'une etendue suffi sante pour permettre l'amenagement de la superficie initialement prevue, et l'on n'envisage pas de problemes particuliers\. iv\. Le projet, dont l'execution s'etendra sur une periode de sept ans, comprendra : a) l'entretien des jeunes arbres plantes au titre du premier projet et des voies d'acces correspondantes;  - ii b) des travaux de defrichement, d'ouverture de voies d'acces et d'ame nagement de plantations sur une superficie supplementaire de 6\.S00 ha et l'entretien de ces plantations et de ces voies d'acces pendant la periode d'execution du projetj c) la construction de logements pour la main-d'oeuvre les cadres de la plantation, et la construction et l'equipement d'ecoles, de dispen saires et d'autres elements d'infrastructure sociale necessaires; d) la fourniture de prats et de services de vulgarisation aux petits planteurs dans Ie cadre d'un projet pilote de plantations villa geoises d'heveas couvrant environ SOD ha sur des terres qu'ils auront defrichees; e) la fourniture de gros materiel de genie civil, de vehicules et d'au tres types de materiel necessaires a I'execution du projet; f) la fourniture de services de gestion et de services techniques, y compris Ie financement des coats de fonctionnement y afferents; et g) la premiere tranche des travaux de construction et de I'equipement d'une usine de traitement, ainsi que la construction de logements pour Ie personnel de cette usine et la fourniture des vehicules necessaires a la collecte de la recolte et a la livraison des pro duits finis a San Pedro\. Le programme d'amenagement de la plantation sera etale sur une periode de cinq ans : une etendue de 3S0 ha sera plantee au cours de la premiere annee, trois autres etendues de 1\.7S0 ha chacune, au cours des deuxieme, troisieme et qua trieme annees, et une derniere de 900 ha, au cours de la cinquieme annee\. L'usine devra atre mise en service au cours de la troisieme annee du projet; sa capacite journaliere, qui a l'origine sera de 11 tonnes de caoutchouc en balles, atteindra 66 tonnes par jour au cours de la septieme annee du pro- jet et, par la suite, sera portee a lS4 tonnes par jour, pour permettre Ie traitement de la production des 13\.S00 ha de plantation, en regime de croisiere\. Execution du projet v\. La Societe des caoutchoucs de COte d'Ivoire (SOCATCI), qui etait l'Emprunteur pour Ie premier projet, etait une societe d'Etat creee en 1973 pour exploiter Ie secteur de l'hevea\. Pour executer Ie Premier projet de plantation d'heveas de Grand-Bereby, la SOCATCI avait conclu un contrat d'as sistance technique et de gestion avec la SATAC, filiale a 100 % de Michelin\. La SOCATCI avait delegue a la SATAC tous ses pouvoirs relatifs a l'execution du premier projet\. En septembre 1977, Ie gouvernement a annonce un certain  - iii nombre de mesures de politique genera Ie interessant Ie secteur agricole, qui visaient a accentuer encore Ie developpement des petites exploitations, et qui prevoyaient de remplacer les entreprises d'Etat specialisees dans une culture par des organismes regionaux ayant l'entiere responsabilite d'un developpement rural integre\. La majeure partie des modalites de detail de cette transforma tion reste encore a definir, mais ces nouvelles mesures ont eu pour consequence immediate d'entralner la dissolution de la SOCATCI\. L'ex8cution du pro jet a ete placee sous la responsabilite directe du Ministere de l'agriculture, qui a entrepris des demarches en vue de prendre a sa charge Ie contrat de gestion qui avait ete signe entre la SOCATCI aujourd'hui dissoute et la SATAC\. Dans l'intervalle, Ie gouvernement a fait en sorte que Ie financement du projet soit assure par l'intermediaire de la Caisse autonome d'amortissement (CAA - Organe du Ministere des finances charge du service de la dette exterieure), qui devait egalement servir d'intermediaire pour les decaissements effectues au titre du Pr@t de la Banque (938-IVC) ainsi que pour les fonds des autres copr@teurs de ce projet\. La contribution de l'Etat aux coats de ce projet, qui est inscrite chaque annee au budget de developpement, doit egalement pas ser par la CAA\. Ces dispositions ont ete jugees satisfaisantes et Ie gouver nement est devenu l'Emprunteur du Pr@t 938-IVC, aux termes d'un Accord de pr@t de remplacement approuve par Ie Conseil en mars 1978\. vi\. La supervision technique et financiere est a present assuree par l'une des six nouvelles Directions du Ministere de l'agriculture, la Direction de la planification, de la budgetisation et du contrOle de gestion (DPBCG)\. Parmi Ie personnel de la DPBCG figurent plusieurs comptables et verificateurs des comptes\. La DPBCG suit les resultats financiers et verifie les comptes de toutes les societes d'Etat travaillant dans Ie secteur agricole et elle est directement responsable de la supervision financiere de Grand-Bereby\. En ou tre, elle s'est dotee d'un service special, la Cellule hevea, chargee de la supervision technique de ce projet et de tous les autres projets d'heveacul ture\. Ces dispositions sont jugees satisfaisantes pour l'execution des ame nagements agricoles que comprend Ie deuxieme projet\. Toutefois, les responsa bilites de l'entreprise commerciale que deviendra la plantation, lorsque com menceront les activites de traitement et de commercialisation, debordent quel que peu les attributions normales du Ministere de l'agriculture\. Par conse quent, un nouvel organisme responsable des operations financieres et commer ciales des plantations parvenues au stade de la production devra @tre cree et mis en place au moment OU commenceront les travaux de construction des instal lations de traitement; Ie gouvernement doit fixer son choix sur la forme a donner a cet organisme d'ici a la fin de 1978\. Vll\. La SATAC reste responsable de l'execution du projet\. Le Directeur du projet, designe par Michelin avec l'approbation du gouvernement, de la Banque et des copr@teurs, continuera de jouir de l'autonomie necessaire en ce qui concerne la gestion journaliere du projet et la nomination du personnel, sauf en ce qui concerne les chefs des services d'exploitation; il sera charge  - iv egalement de tenir l'organisation responsable informee de l'evolution du pro jet\. Le Ministere de l'agriculture continuera d'exercer son contrale sur l'ensemble du projet et sera charge de l'approbation des budgets annuels, des programmes d'amenagement et du recrutement du Directeur du projet et des chefs des services d'exploitation\. Les aptitudes financieres et administratives de la Direction de la SATAC ont ete recemment renforcees et de meilleures proce dures comptables ont ete mises en oeuvre pour mettre un terme aux insuffisan ces qui entravaient l'execution du premier projet\. La SATAC est desormais ju gee pleinement competente pour executer Ie deuxieme projet\. CoOts et financement du projet viii\. Les coOts du projet sont estimes a 60,4 millions de dollars, dont un element en devises de 28,3 millions de dollars, ou 47 %\. Le service de la dette pendant la periode d'execution du projet, abstraction faite de l'exce dent qui sera engendre par la vente de la production, represente un supplement de 12,1 millions de dollars\. Les estimations de cout, fondees sur les prix en vigueur au milieu de 1977, s'entendent nettes de droits sur les marchandises importees specialement pour Ie projet, mais comprennent d'autres impots di rects et indirects d'un montant de 6,8 millions de dollars, c'est-a-dire 11 % du coOt total du projet\. Les provisions pour depassement de quantites et pour hausse des prix correspondent a 27 % du coat total\. ix\. En plus du service de la dette, l'Etat financera sur ses propres ressources une partie des couts du projet correspondant a la contre-valeur de 22,1 millions de dollars\. Le solde sera finance par la Banque, a concurrence de 20 millions de dollars, par Ie Fonds europeen de developpement (FED), a concurrence de 5,5 millions de dollars, par la Banque europeenne d'investisse ment (BEl), a concurrence de 4,5 millions de dollars et par la Caisse centrale de cooperation economique (CCCE), institution fran~aise, a concurrence de 8,3 millions de dollars\. La CCCE financera conjointement avec la Banque tous les elements du projet, a l'exception des investissements consacres au traite ment du caoutchouc qui seront finances exclusivement par la BEl; Ie FED, pour sa part, ne financera pas l'entretien des 7\.000 ha plantes dans Ie cadre du premier projet , \. x\. Le pret de la Banque sera consenti a l'Etat pour une duree de 17 ans, dont un differe d'amortissement de quatre ans, au taux d'interet actuel de 7,5 %\. Les prets consentis par les autres copreteurs devraient ~tre assortis de differes d'amortissements, de durees et de taux d'inter~t differents de ceux de la Banque : Ie pret du FED porterait interet a 1 %, il beneficierait d'un differe d'amortissement de 10 ans et serait remboursable en 40 ans; Ie pret de la BEl serait assorti d'un taux d'interet de 5-1/2 %, il benefic ie rait d'un differe d'amortissement de 4 ans et demi et serait remboursable en 10 ans; quant au pret de la CCCE, son taux serait de 5-1/2 %, il serait rem boursable en 8 ans et beneficierait d'un differe d'amortissement de 6 ans\. Le  - v pr@t de la Banque permettra de financer 37 % des coOts du projet hors taxes, au 33 % du coOt total (autrement dit, il ne couvrira pas totalement l'~l~ment en devises), au encore, 28 % des coOts majores du service de la dette\. Les pourcentages couverts par Ie montant total du financement exterieur (38,3 mil lions de dollars) seront respectivement de 70 %, 63 % et 53 %\. Taus les pr@ts seront d~caisses au cours d'une p~riode de cinq ans, au terme de laquelle l'Etat devra fournir des fonds supplementaires estimes a '3\.738 millions de francs CFA (15,2 millions de dollars) pour couvrir les d~penses necessaires a la plantation jusqu'a ce qu'elle parvienne a l'~ge adulte, pour permettre d'amenager les installations n~cessaires au traitement de la production assu r~e dans Ie cadre du projet et pour couvrir Ie service de la dette\. Dispositions concernant les plantations villageoises xi\. L'execution du projet pilote de plantations villageoises sera subor donnee aux resultats d'une ~tude de factibilit~ execut~e par la SATAC avec l'aide de la Cellule h~vea du Minist~re de l'agriculture\. Pour participer a ce programme, les planteurs devront s'engager a suivre, pendant toute la periode d'amenagement, les conseils techniques qui leur seront dispenses par l'agence d'execution\. On pr~voit que les colons etablis au sud-ouest de la zone du projet s'associeront en un programme pilote, Ces petits planteurs recevront de l'agence d'ex~cution des credits en esp~ces et en nature qui porteront int~r@t au taux de 8,5 %," Les prix a la production seront fixes a un niveau (estime actuellement a 130 francs CFA/kg) permettant de couvrir Ie coOt d'investissement de l'Etat dans ce programme et de fournir une incita tion suffisante aux planteurs\. Passation des marches et decaissements xii\. Passation des marches\. Au cours des cinq ann~es de la periode de decaissement, les dispositions ci-apr~s seront appliquees a la passation des marches\. Pour les marches dont Ie coOt sera egal au superieur a la contre valeur de 100\.000 dollars il sera fait appel a la concurrence internationale conformement aux directives de la Banque\. Les march~s qui seront pass~s selon ces procedures representeront un montant estime a 6 millions de dollars et porteront principalement sur l'acquisition de vehicules et de materiel (3,2 mil lions de dollars) et l'achat d'engrais (2,8 millions de dollars)\. Les marches dont Ie coat ne depassera pas 100\.000 dollars seront passes par appel a la concurrence locale, selon une procedure jugee acceptable par la Banque (Ie coat total de ces marches est estime a 0,5 million de dollars)\. La plupart des travaux de construction de logements et aut res (4 millions de dollars), de defrichement, et d'amenagement de voies d'acces (3,1 millions de dollars, sans compter Ie coOt du materiel dont l'achat se fera par appel a la concurrence internationale) seront executes en regie\. Les marches pour la construction de l'usine de traitement du caoutchouc (travaux de genie civil et materiel) et pour l'achat de materiels divers, dont Ie coOt total est estime a 4,5 millions  - vi de dollars et sera finance par la 8anque europeenne d'investissement, seront passes conformement aux directives de cette institution\. Les autres coOts du projet, qui representent un total de 26,8 millions de dollars, correspondent principalement aux traitements (personnel expatrie et direction, 5,3 millions de dollars, personnel local, 3,8 millions de dollars et main-d'oeuvre, 9,3 mil lions de dollars), a des travaux agricoles et a d'autres coats de fonctionne ment (vehicules, tracteurs agricoles et groupes electroge~es, 6,3 millions de dollars; entretien des batiments, 0,8 million de dollars et divers, 1,3 mil lion de dollars)\. xiii\. Decaissements\. Le pr~t de la 8anque servira a couvrir 49,5 % des coOts suivants : a) coOts agricoles directs, afferents a l'entretien des 7\.000 ha de plantation existant et a l'amenagement des 6\.500 ha supplementai res, y compris les travaux de defrichement et de construction des voies d'ac ces : i) achat des facteurs de production agricole (y compris les pulverisa teurs), d'engrais et de produits chimiques (1,5 million de dollars); et ii) main-d'oeuvre agricole et autres coOts de fonctionnement (4,9 millions de dollars); b) coats de construction de logements, de villages et d'elements d'infrastructure sociale (1,5 million de dollars); c) achats de vehicules et de materiel (1,3 million de dollars); d) services de vulgarisation pour Ie programme de plantations villageoises et pr~ts en nature et en especes aux exploitants qui participeront a ce programme (0,2 million de dollars); et e) traitements du personnel, y compris les traitements du personnel expatrie, et autres depenses de fonctionnement (6,1 millions de dollars)\. Un mont ant de 4,5 millions de dollars ne sera pas affecte\. Les decaissements relatifs aux depenses mentionnees aux alineas (a) (i) et (c) devront se faire sur presenta tion de toutes les pieces justificatives\. Les decaissements afferents aux autres categories seront effectues sur presentation de certificats de bonne fin et d'attestations de depenses, et les pieces justificatives correspondantes ne seront pas soumises a examen, mais seront conservees sur place pour ~tre examinees par les missions de supervision\. Marches xiv\. On prevoit que la production de la plantation du projet sera expor tee sous la forme de balles de caoutchouc, offrant l'avantage de pouvoir en indiquer avec precision les qualites techniques, c'est pourquoi elle est tres en demande chez les fabricants\. Le caoutchouc pourra egalement ~tre produit sous d'autres formes, mais une decision devra etre prise a cet egard a un stad~ ulterieur du deroulement du projet, une fois que la demande de types speciaux de caoutchouc pourra etre mieux evaluee\. Cette decision n'aura pas a etre prise de fa~on definitive avant 1982\. Etant donne la croissance prevue de la demande mondiale de caoutchouc naturel, on ne prevoit pas de difficultes dans l'ecoulement de la production de la plantation du projet\. Pendant les negociations, Ie gouvernement a fait savoir qu'il avait l'intention de charger la CSSPPA de la vente de caoutchouc produit sur la plantation; l'assurance a ete donnee que la 8anque pourrait presenter ses observations sur tout accord de commercialisation, avant la conclusion d'un tel accord\.  - vii - Avantages financiers et economigues et justification xv\. Les principaux avantages seront un accroissement de la production et des exportations de caoutchouc qui, lorsque la plantation atteindra son plein regime de production, s'eleveront a environ 31\.000 tonnes (33 % du volume prevu de la production ivoirienne a cette date), et procureront des gains annuels nets en devises de 24 millions de dollars\. Le projet fournira de l'emploi 8 quelque 4\.500 ouvriers et fera vivre une population tot ale de 15\.000 habitants qui seront les principaux beneficiaires de la creation de services de soutien et des autres activites economiques interessant la zone du projet\. Le succes des plantations villageoises pourrait egalement contribuer a stabiliser la po pulation de la region et a ameliorer les possibilites offertes par Ie milieu rural\. xvi\. Le premier excedent d'exploitation annuel (apres deduction de l'inte r~t a payer sur Ie pr@t et des coats de remboursement, mais avant Ie paiement de taxes au de dividendes) apparaltra en 1985, et sera de 2,1 millions de dol lars\. En 1987, l'excedent atteindra environ 6 millions de dollars, apres de duction du service de la dette\. xvii\. L'analyse economique se fonde sur les prix reels en valeur constante de 1977, les coats et avantages en devises etant pris a leur pleine valeur au taux de change officiel de 1 dollar pour 245 francs CfA, et les coOts en monnaie nationale, nets d'impOts, etant ajustes selon Ie coefficient de conversion standard (0,83)\. Le taux de rentabilite de l'ensemble des 13\.500 ha est estime a 19 %\. Le taux de rentabilite estimatif de la mise en production de la premiere tranche de 7\.000 ha est de 21 %, tandis que celui de la mise en production des 6\.500 ha supplementaires devrait ~tre de 17 %\. Comme dans la plupart des projets de ce type, Ie taux de rentabilite est relativement peu sensible aux variations de coats au d'avantages, et ne perd qu'environ 3 % pour une augmentation des coOts de 15 % ou une baisse des avantages de 15 %\. Le programme de petites plantations represente un element mineur du coOt total du projet et, comme il s'agit essentiellement d'un projet pilote, il n'en a pas ete tenu compte dans Ie calcul du taux de rentabilite global\. Toutefois, 8 titre d'indication, son taux de rentabilite a ete calcule separement et eva lue a environ 18 %\. Risgues xviii\. Compte tenu de l'experience du premier projet, l'eventualite de de passements de devis dans Ie cadre de ce deuxieme projet ne peut @tre totale ment ecartee, du fait que l'on ne saurait ~tre sOr d'echapper a un retour de 1a spirale inflationniste mondiale des annees 1973-74\. Neanmoins, etant donne que les projections de coats actuelles (8 l'exception des projections relati ves 8 l'usine) sont fondees sur l'experience du Premier projet de Grand-Bereby, la marge de 15 % utilisee pour l'etude de sensibilite devrait @tre suffisante pour parer a une telle eventualite\. Le recrutement de la main-d'oeuvre neces saire dans cette region a population eparse sera plus aleatoire\. Les progres  - viii realises recemment dans les efforts de recrutement, une plus grande diligence dans la construction de logements et d'elements d'infrastructure sociale ainsi qu'une augmentation du salaire minimal des ouvriers des plantations ont permis d'ameliorer sensiblement la situation, mais rien ne garantit que les penuries de main-d'oeuvre de 1975 ne se reproduiront pas\. On prevo it que Ie developpe ment de l'activite economique (grAce a des realisations telles que Ie Projet SODEPALM) et que Ie developpement du phenomene de recrutement spontane sur la plantation de Grand-Bereby, contribueront a alleger Ie probleme du recrutement de la main-d'oeuvre dans la region du Sud-Ouest\. D'ailleurs, l'objectif fixe pour la superficie a planter chaque annee n'est que de 1\.750 ha, ce qui est a la portee de la main-d'oeuvre actuelle et prevue, alors que, lors de l'evalua tion du premier projet, on avait prevu de planter 3\.000 ha en 1979\. Le resul tat du programme de plantations villageoises est egalement incertain, car on manque de renseignements sur Ie nombre de participants eventuels et sur l'in ter0t qu'ils pourraient porter a un tel programme\. Neanmoins, ce programme est necessaire si l'on veut determiner Ie rOle que peut jouer la culture du caoutchouc dans l'amelioration des revenus de la population\. Recommandation xix\. Compte tenu des assurances et de la condition enoncees au Chapi tre VIII, Ie present projet justifie l'octroi, par la Banque, d'un pr0t de 20 millions de dollars\.  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY I\. INTRODUCTION 1\.01 Le Gouvernement de la COte d'Ivoire a sollicite l'aide financiere du Groupe de la Banque afin de poursuivre l'amenagement de la plantation d'heveas de Grand-Bereby, dans Ie sud-ouest du pays\. Le premier projet (Pr~t 938-IVC), entrepris en 1973, avait pour objectif l'amenagement de 13\.500 ha de plantations au cours d'une periode qui devait aller jusqu'en 1979\. II s'est heurte a des difficultes techniques aggravees par une mauvaise gestion\. Lorsque ces deux obstacles furent leves, les depassements de devis et la penurie de main-d'oeuvre avaient entraine un ralentissement du rythme de plantage, et les objectifs du projet ont dO ~tre ramenes a des proportions plus modestes, a la mesure des fonds disponibles\. On prevoit actuellement que ce premier projet se limitera a 7\.000 ha de plantation, dont l'amenagement devrait ~tre acheve en 1978\. 1\.02 Un deuxieme projet d'une duree de sept ans permettra de planter 6\.500 ha supplementaires, ce qui etendra la superficie de la plantation aux 13\.500 ha prevus a l'origine, et d'assurer l'entretien des jeunes arbres\. Au cours de la periode d'execution du projet envisage, certains arbres plantes dans Ie cadre du premier projet parviendront a l'~ge adulte, ce qui rendra necessaire l'amenagement d'installations de traitement\. La Caisse centrale de cooperation economique (CCCE), Ie Fonds europeen de developpement (FED) et la Banque europeenne d'investissement (BEl) participeront au financement de ce projet\. 1\.03 Ce deuxieme projet a ete prepare par Ie gouvernement, avec l'aide de la Mission regionale de la Banque en Afrique de l'Ouest (MRAO)\. Le present rapport est fonde sur les conclusions d'une mission composee de MM\. R\. Simsolo, A\. Green et S\. Weed (Banque) et de M\. R\. Chambe (consultant), qui a sejourne en COte d'Ivoire en avril/mai 1977\. 1\.04 La Banque a consacre onze prats au developpement agricole de la COte d'Ivoire : trois prats representant un total de 17,1 millions de dol lars en 1969 pour l'amenagement des plantations de palmiers a huile et de co cotiers (Pr~ts 611, 612 et 6l3-IVC); un prat de 7,5 millions de dollars en 1970 pour le developpement de la production de cacao des petites exploitations (Pr~t 686-IVC); deux prets representant un total de 7 millions de dollars en 1971 pour Ie developpement de la production d'huile de palme et de noix de coco (Pr~ts 759 et 760-IVC); un pr~t de 8,4 millions de dollars en 1973 pour Ie premier projet d'heveaculture (Pret 938-IVC); et un pret de 2,6 millions de dollars en 1974 pour l'amenagement de plantations villageoises et de planta tions industrielles de palmiers a huile (Pr~t 1036-IVC)\. Des prets ont ete  - 2 respectivement en 1974 et 1975 pour un deuxieme projet de developpement de la production des petites exploitations de cacao (Pr~t 1069-IVC, de 20 millions de dollars), et pour un projet de developpement rural de zones cotonnieres (Pr~t l077-IVC, de 31 millions de dollars)\. Un pr~t a ete accorde en 1977 pour un quatrieme projet de developpement des plantations de palmiers a huile et de cocotier (1382-IVC)\. Malgre des debuts difficiles, notamment en ce qui concerne Ie premier projet d'heveaculture (par\. 2\.16-2\.22), tous ces projets ont ete menes a terme ou se deroulent actuellement dans des conditions satisfaisantes\.  - 3 II\. GENERALITES A\. AperQu geographique 2\.01 La COte d'Ivoire couvre une superficie d'environ 324\.000 km 2 \. Une ceinture de for~t tropicale humide borde la moitie sud du pays et s'etend jusqu'a environ 200 km a l'interieur des terres\. Plus au nord, la for~t cede progressivement la place a la savane, qui couvre l'autre moitie du pays\. 2\.02 La population, estimee a 7 millions d'habitants (milieu de 1975), augmente d'environ 4,3 % par an, en partie (1,3 %) du fait de l'immigration\. Au cours des dix dernieres annees, Ie PIB a enregistre un taux de croissance eleve, de l'ordre de 7 % en moyenne en valeur reelle\. L'economie du pays, et sa progression rapide, reposent sur la production de cafe et de cacao, d'huile de palme, de bananes et d'ananas, sur l'exploitation des ressources forestieres et sur un secteur industriel en expansion (qui assure a present 12 % du PIB)\. Ces activites sont concentrees dans Ie sud du pays, ou se trouve Abidjan, capitale et centre industriel\. La savane du nord, qui represente la moitie de la superficie du pays et au vivent 35 % de la population, est mains bien pourvue en richesses naturelles et vit essentiellement de la production de caton, de cultures vivrieres et d'elevage\. 2\.03 Dans l'ensemble, Ie revenu par habitant est actuellement de 610 dol lars\. Le revenu moyen par habitant dans les zones rurales est d'environ 235 dollars, mais il existe de grandes disparites entre les regions\. Dans la zone des savanes, Ie revenu moyen est de l'ordre de 150 dollars\. Dans la zone forestiere, gr~ce aux cultures de rapport telles que Ie cacao, Ie cafe et l'huile de palme, Ie revenu moyen depasse 290 dollars\. Toutefois, dans la region peu peuplee du sud-ouest, au la production de cultures de rapport est beaucoup plus modeste, Ie revenu moyen est voisin de celui de la savane\. Ces disparites regionales expliquent en partie l'exode des zones rurales vers les villes et les migrations entre les regions; au cours de la prochaine decennie, on prevoit que la population augmentera d'environ 10 % par an dans les villes et d'environ 4 % par an dans la zone forestiere et diminuera d'environ 0,5 % par an dans la savane\. B\. Le secteur agricole 2\.04 L'agriculture et la sylviculture representent environ 75 % de la pro duction du pays, et cette situation persistera encore de nombreuses annees\. L'abondance des terres, une offre de main-d'oeuvre suffisante et l'existence de marches mondiaux generalement favor abIes pour l'ecoulement de ses produits ant assure a la COte d'Ivoire une croissance rap ide de son agriculture\. Environ 70 % de la population vivent de l'agriculture et de la sylviculture  - 4 En 1976, la valeur de la production agricole a ~t~ estim~e ~ 2,1 milliards de dollars, dont 1,5 milliard de dollars pour les cultures industriel1es, 400 millions de dollars pour les cultures vivrieres et 150 millions de dollars pour l'~levage\. Au cours des ann~es 1974-76, les exportations annuelles ont atteint en moyenne 1\.400 millions de dollars, dont environ 74 % provenaient des trois principaux produits - Ie caf~ (29 %), Ie bois (20 %) et Ie cacao (25 %)\. 2\.05 Jusqu'~ ces dernieres ann~es, Ie gouvernement a fait porter ses ef forts sur l'accroissement de la superficie consacr~e aux cultures destin~es ~ l'exportation\. Toutefois, Ie d~veloppement de l'urbanisation et l'accrois r sement de la demande de produits alimentaires l'ont amen~ ~ accorder une plus grande attention au d~veloppement r~gional int~gre\. De nouveaux programmes ont ~te con~us en vue d'introduire certaines cultures vivrieres dans les re gions consacrees aux cultures destinees a l'exportation\. C'est ainsi qu'un programme de d~veloppement de cultures vivrieres et du coton a ete lance dans la region des savanes en 1974 avec l'aide de la 8anque (Pr~t l077-IVC)\. Au cours de ces dernieres annees, l'importation de produits vivriers par habi tant des zones rurales est tombee de 200 a 160 kg, ce qui montre l'efficacite de ces mesures\. Cette orientation devrait ameliorer Ie sort des populations pauvres des zones rurales et reduire les disparites de revenu entre les regions et, par l~ m@me, ralentir l'exode rural\. C\. Institutions 2\.06 La planification gen~rale du developpement releve du Ministere du Plan tandis que Ie Ministere de l'agriculture et de l'~levage est responsable de l'~laboration detaillee des programmes de developpement agricole\. Aupara vant, l'ex~cution de ces programmes etait confiee a des institutions autono mes de developpement 1/ creees par l'Etat pour promouvoir une ou plusieurs cultures particulieres\. Toutefois, dans Ie cadre d'une redistribution gen~ rale des responsabilites du secteur agricole, Ie gouvernement a decide de con fier l'execution de projets agricoles a trois institutions regionales\. C'est ainsi que la ClOT (chargee du developpement du coton) est responsable de la partie nord du pays, la SATMACI (cacao et cafe), du centre et la SOOEPALM (palmier a huile et cocotier), du sud\. Cette nouvelle organisation est saine dans sa conception et devrait faciliter la realisation de projets de plantations villageoises destines ~ ameliorer la repartition regionale des revenus (par\. 2\.12)\. Certaines institutions, telles que la SOOERIZ (pour Ie riz) et la SOCATCI (pour l'h~v~a), dont l'activite etait limitee a une seule 1/ Soci~tes de d~veloppement (SOOE)\.  - 5 culture, ont ete dissoutes et Ie sort de certaines autres de ces institutions n'a pas encore ete regIe\. La culture du riz sera probablement placee sous la responsabilite des institutions regionales, tandis que l'execution des projets gouvernementaux de developpement de l'hevea releve a present directement du Ministere de l'agriculture\. Pour un examen plus detaille des dispositions interessant Ie present projet d'heveaculture, voir Section IV\. 2\.07 La Caisse de stabilisation et de soutien des prix des productions agricoles (CSSPPA) est chargee de l'application des mesures gouvernementales de soutien des prix agricoles\. Elle soutient les prix a la production du co ton, du cacao, du cafe, de l'huile de palme et du copra selon un procede clas sique, en payant un prix minimal garanti fixe annuellement, en contrOlant la vente de ces produits de base sur Ie marche mondial et en absorbant les pro fits ou pertes realises sur ses operations\. Les excedents de la CSSPPA ont ete utilises en partie pour de nouveaux investissements, principalement dans Ie secteur agricole\. 2\.08 Les travaux de recherche agricole sont executes par plusieurs orga nismes fran~ais au titre d'un accord bilateral\. Les programmes et budgets sont examines et approuves par Ie Ministere de la recherche scientifique, et les coOts sont partages a egalite par les deux pays\. Les travaux de recher che sur Ie caoutchouc sont executes par l'Institut de recherches sur Ie caout chouc (IRCA) qui fait egalement fonction de conseiller technique aupres du Ministere de l'agriculture pour l'execution du programme de developpement de l'heveaculture\. 2\.09 La Banque nationale pour Ie developpement agricole (BNDA), princi pale source de credit agricole, a jusqu'a present fait porter ses efforts sur Ie credit a court terme en utilisant une ligne de reescompte aupres de la Banque centrale des Etats de l'Afrique de l'Ouest (BCEAO)\. Elle exerce ses autres activites agricoles a travers les SODE qui administrent Ie credit ac corde a leurs sous-secteurs respectifs\. La BNDA utilise ses fonds propres et, dans certains cas, des fonds provenant d'institutions internationales, telles que la CCCE pour Ie premier pro jet d'heveaculture et la BIRD pour Ie projet cacao\. Elle a ouvert des succursales dans les regions rurales pour pouvoir traiter directement avec les exploitants et les groupes d'exploitants\. 2\.10 L'Autorite pour l'amenagement du Sud-Ouest (ARSO) a ete creee en 1967 en tant qu'organisme charge du developpement du Sud-Ouest; l'une de ses toutes premieres t~ches a ete la reinstallation des villageois deplaces par la construction du barrage de Kossou\. Recemment, elle a fait porter ses ef forts sur l'amenagement du port de San Pedro et sur la transformation de cette ville en capitale regionale, et a laisse les autres activites de developpement aux societes d'Etat specialisees\.  - 6 D\. strategie du developpement 2\.11 Jusqu'a ces dernieres annees, l'Etat s'etait fixe pour principal objectif de promouvoir une croissance rapide\. II faisait porter principale ment ses efforts sur les cultures destinees a l'exportation et sur la sylvi culture, tout en favorisant la croissance industrielle par des mesures d'inci tation fiscale destinees a promouvoir les investissements prives\. Bien qu'il ait poursuivi opini~trement cet objectif, trois facteurs ont freine la crois sance\. Tout d'abord, il a fallu diversifier les activites afin d'accroltre la stabilite des recettes d'exportation et de l'economie\. C'est ainsi que, outre Ie cafe et Ie cacao, les efforts de promotion ont porte sur de nouvelles cul tures destinees a l'exportation, telles que Ie palmier a huile et l'hevea\. Ensuite, il a ete reconnu que la croissance s'etait faite de fa~on irregu liere et que les disparites de revenu entre les regions (par\. 2\.03), qui nui saient a l'unite nationale, etaient reelles et devaient ~tre reduites\. Enfin, a long terme, il faudrait reduire la dependance a l'egard des facteurs de pro duction etrangers et ivoiriser progressivement la main-d'oeuvre et Ie capital\. 2\.12 La croissance generalement rap ide de l'economie (par\. 2\.02) et l'aug mentation des revenus (Ie PIB par habitant a ete de 610 dollars en 1976) ont fourni une base favorable a l'epargne, a l'investissement et a la croissance future, et ont incite Ie gouvernement a se montrer plus soucieux d'ameliorer la repartition des revenus\. La reorganisation du Ministere de l'agriculture (par\. 2\.06), qui accordait une importance particuliere au developpement re gional, temoigne de ce souci\. Pour reduire les disparites de revenu, la poli tique du gouvernement tend aujourd'hui plus particulierement a accroltre la productivite agricole des regions moins developpees par des projets visant a etendre les prestations de services de fa~on a toucher les petits exploitants specialises dans les cultures comportant une recolte annuelle et par la reali sation de projets de petites exploitations dont l'activite est axee sur des cultures perennes plus traditionnelles\. Le Projet de developpement rural dans les zones cotonnieres (Pr@t 1077-IVC) est un exemple de la premiere catego rie, tandis que l'element plantations villageoises du Quatrieme projet de plan tations de palmiers a huile et de cocotiers (Pr~t 1382-IVC), un projet d'ame nagement de plantations villageoises d'heveas dans Ie Sud-Est dont l'evaluation a eu lieu recemment et Ie programme pilote de petites plantations du Deuxieme projet d'heveaculture de Grand-Bereby entrent dans la seconde categorie\. E\. Le sous-secteur de l'hevea 2\.13 La production commerciale du caoutchouc a debute en 1962, avec la mise en saignee des arbres plantes en 1955\. La superficie totale des plan tations a augmente a un rythme modeste, atteignant environ 23\.350 ha a la fin  - 7 de 1977\. Sur ce total, environ 14\.300 ha etaient en production, mais la moi tie seulement des heveas avaient atteint leur rendement maximal\. Les petites plantations couvrent environ 200 ha, Ie reste etant occupe par des plantations industrielles exploitees par trois societes differentes\. Une societe fran~aise (la Compagnie de caoutchouc et de pneumatiques - CCP) possede et exploite 2\.600 ha; la Societe africaine de plantations d'heveas (SAPH), dont l'Etat est actionnaire majoritaire (avec 60 % des actions), possede 13\.000 ha et l'Etat lui-m@me est proprietaire de 7\.000 ha tandis qu'une superficie de 600 ha est exploitee par 1'IRCA\. En 1977, la production tot ale s'est elevee 8 18\.000 tonnes - soit moins de 0,5 % de la production mondiale de caoutchouc naturel - dont 90 % ont ete exportes\. L'industrie ivoirienne du caoutchouc utilise des techniques modernes, car elle a su tirer profit de l'experience acquise par les autres pays producteurs et elle beneficie d'une recherche efficace\. 2\.14 L'IRCA (par\. 2\.08) a joue un rOle dans la selection de materiel vegetal a haut rendement, dans l'execution d'etudes concernant la nutrition des arbres, dans l'elaboration de nouveaux systemes de saignee et d'autres techniques de production, et dans la fourniture de conseils au gouvernement sur Ie developpement de la production de caoutchouc\. L'IRCA exerce egalement ses activites au Cameroun et fournit des services de consultants a plusieurs autres pays africains\. 2\.15 Les plans de l'Etat concernant Ie developpement de l'heveaculture comprennent : a) l'amenagement integral de quelque 700 ha de plantations villageoises diheveas en association avec l'IRCA et la plantation industrielle d'Anguededou; b) la creation de 2\.000 ha de plantations industrielles et de 3\.500 ha de plantations villageoises dans la region du Sud-Est pour lesquelles un eventuel projet de la Banque (Projet d'heveaculture SAPH) a ete evalue; et c) dans Ie Sud-Ouest, achevement i) du projet Rapides-Grah (de 4\.500 ha); et ii) du projet de Grand-Bereby (13\.500 ha) qui fait l'objet du present rapport\. Parmi d'autres realisations envisagees dans Ie Sud-Ouest figure l'amenagement de quelque 15\.000 ha de plantations dans la region du Cavally inferieur (8 Grabo), dont une partie pourrait ~tre exploitee SQUS forme de plantations villageoises\. Si Ie programme de developpement deja prevu est realise dans sa totalite, il portera la superficie des plantations d'heveas du pays a environ 60\.000 ha d'ici 8 1985\. Cette superficie aura une capacite de produc tion annuelle de pres de 108\.000 tonnes d'ici 8 la fin du siecle, mais, en 1985, la capacite de production ne sera que de l'ordre de 30\.000 tonnes, dont la majeure partie sera exportee\. Ce tonnage represent era moins de 1 % des exportations mondiales de caoutchouc naturel prevues pour 1985\.  - 8 F\. Resultats obtenus dans Ie cadre du Premier projet d'heveaculture de Grand-Bereby 2\.16 Les resultats obtenus dans Ie cadre du premier projet, finance au titre du Pret 938-IVC, qui prevoyait a l'origine la creation de 13\.500 ha de plantations d'heveas entre 1972 et 1979, sont resumes ci-apres 1972 1973 1974 1975 1976 1977 1978 1979 Total -===-===--==--==--:::-n8 -==---===----===----===== ( Programme de planta tions prevu 500 750 1\.250 2\.000 3\.000 3\.000 3\.000 13\.500 Superficie cumulee - 1\.250 2\.500 4\.500 7\.500 10\.500 13\.500 13\.500 Programme realise 20 258 784 1\.311 1\.102 2\.100 1\.425* 7\.000 Superficie cumulee - 278 1\.062 2\.373 3\.475 5\.575 7\.000* 7\.000 Deficit 222 188 127 1\.025 1\.925 3\.500 6\.500 6\.500 * Ces estimations sont fondees sur les resultats recueillis a la fin de 1977\. 2\.17 Le demarrage tardif et Ie fait que Ie rythme d'amenagement prevu a l'origine n'a pas ete atteint sont dus en grande partie a des difficultes d'application des techniques de plantage et a des problemes de gestion\. En outre, la situation a ete encore aggravee par l'inflation des annees 1972-75 qui a atteint un taux imprevisible lors de l'evaluation\. En 1976, compte tenu de ces difficultes, Ie programme a ete ramene a 7\.000 ha qui doivent etre plan tes d'ici a la fin de 1978 (Memorandum R-76-240 du 29 septembre 1976, adresse aux Administrateurs)\. Cet object if devrait etre atteint avec les fonds four nis dans Ie cadre du premier projet\. 2\.18 Sur Ie plan agricole, des changements ont dO @tre apportes aux techniques de plantage par suite de difficultes materielles\. Les plus graves de ces difficultes sont les dommages causes par les rongeurs aux terrains en semences et les pertes subies lors de la transplantation des stumps greffes\. Neanmoins, la croissance des jeunes arbres est excellente et il ne devrait pas y avoir de difficultes ales mettre en saignee Ie moment venu ou a obtenir Ie rendement prevu de 2,3 tonnes a l'hectare lorsque les arbres auront atteint l'age adulte\.  - 9 2\.19 Le pro jet a souffert de forts depassements de devis qui, dans une certaine mesure, sont imputables au ralentissement du rythme de plantage et a la mauvaise gestion qui a caracterise la periode de demarrage au cours de laquelle l'agence d'execution, par manque d'experience, a mis sur place trop de cadr~et porte les coats administratifs a un niveau excessif\. Toutefois, ces depassements de devis sont en grande partie imputables a une provision pour hausse des prix insuffisante dans les estimations d~ coats etablies lors de l'evaluation\. Le taux d'inflation utilise lors de l'evaluation (en 1972) etait de 5 % par an, ce qui representait un taux cumule de 34 % pour la periode 1972-1977\. Or, au cours de cette periode, l'inflation reelle s'est traduite par un taux cumule de 94 %\. 2\.20 Si l'on applique Ie taux d'inflation reel aux estimations de coOts etablies lors de l'eva1uation, l'on arrive a un coat cumule d'amenagement de un hectare de plantation en 1976 de 1,1 million de francs CFA (4\.500 dollars) contre un coat estimatif de 0,8 million de francs CFA (3\.265 dollars) lors de l'evaluation\. A la fin de 1976, Ie coat reel d'amenagement d'un hectare de plantation etait de 1,3 million de francs CFA (5\.147 dollars) Annee - - 1972 1973 1974 1975 1976 1977 ==-------Millions-de francs CFA-------== Estimations cumulatives des coats etablies lors de I' evaluat ion 466,4 940,4 1\. 566,7 2\.449,1 3\.541,1 4\.628,9 Estimation du coOt par hectare prevu 1,881 1,253 0,980 0,787 0,617 Estimations cumulatives (majorees en fonction de l'inf1ation reelle) 482,8 1\.036,6 1\.890,4 3\.184,4 4\.733,2 6\.840,3 Cout estimatif par hec tare prevu (apres inflation ) 2,073 1,512 1,274 1,052 0,912 coats reels cumules du projet 152,3 541,8 1\.640,6 2\.960,9 4\.383,5 6\.165,5 CoOt reel par hectare plante 1,949 1,545 1,248 1,261 1,106 2\.21 Si l'on suppose que les 7\.000 ha prevus seront entierement plantes en 1978, Ie coat total par hectare sera en moyenne de 970\.000 francs CFA (3\.959 dollars) alors qu'il aurait ete de 821\.000 francs CFA (3\.350 dollars) si 1es estimations de coOts etablies lors de l'eva1uation avaient ete majorees du taux reel de l'inflation; autrement dit, Ie depassement des coats est en realite de 18 %\.  - 10 2\.22 Pour calculer Ie taux de rentabilite economique du premier projet, Ie rapport d'evaluation utilisait un prix de reference de 0,19 dollar par livre de caoutchouc\. En 1977, Ie prix du caoutchouc a ete de 0,435 dollar la livre, ce qui, diminue du taux d'inflation utilise dans la comparaison ci-dessus, correspond a 0,225 dollar la livre aux prix de 1972, soit a un prix de 18 % superieur au prix de reference utilise\. Ppr consequent, si Ie taux de rentabilite economique prevu a present pour les 7\.000 ha qui seront effectivement plantes dans Ie cadre du premier projet est inferieur a celui de l'evaluation, cleat en grande partie parce qu'il s'etablit en fonction des coats d'une infrastructure con~ue pour 13\.500 ha de planta tions\. L'achevement de ces 13\.500 ha ameliorera considerablement Ie taux de r rentabilite prevu, qui restera neanrnoins legerement inferieur au taux prevu lors de l'evaluation initiale en raison du retard pris par Ie programme de plantage (par\. 7\.03)\.  - 11 III\. LE PROJET A\. La zone du projet Caracteristiques physiques et climat 3\.01 La zone du projet est situee a 75 km a l'ouest de San Pedro, entre les deux villes cdtieres de Grand-Bereby et de Tabou (voir carte); elle couvre une superficie de quelque 50\.000 ha, dont les deux tiers environ sont trop humides ou peu propices, du fait de leurs caracteristiques topographi ques, pour la culture de l'hevea\. La vegetation se caracterise par une for@t tropicale humide dense en sous-bois, la majeure partie des grands arbres exploit abIes ayant deja ete abattus\. Les sols des terrains favorables au plantage, qui sont essentiellement des sables argileux,\.sont bien draines, fortement acides et pauvres en elements nutritifs\. L'altitude moyenne de ces terrains est de l'ordre de 50 m au-des sus du niveau de la mer\. 3\.02 Les precipitations annuelles sont en moyenne d'environ 2\.000 mm, mais elles varient sensiblement d'une annee a l'autre\. La grande saison seche couvre les mois de janvier et fevrier, et la petite saison ssche, juillet et aoOt\. La temperature moyenne est de l'ordre de 26 0 C et les variations diurnes sont faibles\. La vitesse des vents, qui soufflent du sud ouest, si elle n'est pas suffisante pour rendre impossible la culture de l'hevea, justifie neanmoins la selection de clones resistant aux vents\. Bien qu'on ne dispose pas de statistiques d'ensoleillement, les renseignements recueillis dans Ie cadre du premier pro jet ont permis d'etablir de facon suf fisamment probante que la region de Grand-Bereby se pr~te particulierement bien a la culture de l'hevea\. 3\.03 Regime foncier\. Dans la region etudiee (par\. 3\.01), une concession avait ete accordee a la SOCATCI au titre d'un accord initial qui prevoyait une etendue suffisante pour l'amenagement d'une superficie minimale de 13\.500 ha de plantations\. Toutefois, quelque 2\.300 ha ont ete soustraits a la conces sion initiale et affectes a des colonies villageoises, ramenant la superficie a utiliser pour l'hevea a environ 13\.000 ha\. De ce fait, de nouveaux travaux de prospection ont ete entrepris hors de la concession pour permettre de dega ger la superficie necessaire a l'execution de la totalite du programme de plantations\. Au cours des negociations, Ie gouvernement a donne l'assurance que les limites de la concession seraient elargies d'ici au 31 decembre 1978 de manisre a inclure les terrains ainsi degages\. 3\.04 Communications et services publics\. La zone du projet est reliee par la route a la petite ville de Grand-Bereby ainsi qu'au port de San Pedro, a partir duquel sera eventuellement expediee la production de la plantation\. La route qui relie San Pedro a la zone du projet est en mauvais etat et Ie gouvernement fera Ie necessaire en vue de l'ameliorer d'ici au  - 12 31 decembre 1978\. Des assurances ont ete donnees a cet egard au cours des negociations\. Le projet prevoit l'alimentation de la plantation en electri cite et en eau, car elle n'est pas encore assuree par les reseaux de services publics\. 3\.05 Main-d'oeuvre et services sociaux\. La lenteur des travaux executes dans Ie cadre du premier projet est imputable en partie k des penuries de main-d'oeuvre (par\. 2\.16)\. En raison de la faible densite de population de la zone du projet, il a fallu faire venir d'ailleurs presque tous les ouvriers (plus de la moitie de la main-d'oeuvre utilisee actuellement est composee d'immigrants, originaires principalement de la Haute-Volta)\. Comme la SOCATCI n'a pas reussi, au cours des premieres annees d'execution du projet, a fournir I les logements et l'infrastructure sociale necessaires pour attirer les tra vailleurs vers une region aussi isolee, il lui a ete difficile de recruter et de retenir la main-d'oeuvre\. Neanmoins, la plantation de Grand-Bereby est aujourd'hui a placer sur un pied d'egalite avec les autres plantations de la COte d'Ivoire en ce qui concerne les logements, les ecoles, les magasins et les installations medicales\. En outre, les diverses organisations qui exploi tent des plantations dans la region du Sud-Ouest sont convenues a la fin de 1976, de verser une prime (de l'ordre de 60 francs CFA) en plus du salaire journalier officiel de 390 francs CFA pour pallier les inconvenients que com porte Ie fait de travailler dans cette region\. La hausse des salaires et l'amelioration des conditions de vie ont permis d'ameliorer de fa~on sensible la situation de la main-d'oeuvre en 1977\. Un moins grand nombre de travail leurs ont quitte la plantation, Ie recrutement spontane a augmente et, a la fin de l'annee, Ie taux d'absenteisme avait fortement baisse\. Par consequent, bien que l'on ne puisse conclure a une ten dance sur les resultats d'une seule annee, il semble que la situation de la main-d'oeuvre doive ~tre plus favo rable pour Ie second projet qu'elle ne l'a ete pour Ie premier\. De plus, Ie programme de plantation propose a ete fonde sur une evaluation realiste de la main-d'oeuvre dont Ie projet pourra disposer a l'avenir\. B\. Description sommaire du projet 3\.06 Le projet sera execute en sept ans et comprendra les elements suivants a) l'entretien des jeunes arbres plantes et des voies d'acces construites dans Ie cadre du premier projet; b) des travaux de defrichement, d'ouverture de voies d'acces et d'amenagement de plantations sur une superficie supplementaire de 6\.500 ha et des travaux d'entretien de ces plantations et de ces voies d'acces pendant la periode d'execution du projet; c) la construction de logements pour les travailleurs et les cadres de la plantation et la construction et l'equipement d'ecoles, de dispensaires et d'autres elements d'infrastructure sociale necessaires;  - 13 d) la fourniture de pr~ts et de services de vulgarisation aux plan teurs qui b~n~ficieront d'un projet pilote de plantations villa geoises d'heveas couvrant environ 500 ha, realisees sur des terres qu'ils auront defrichees; e) la fourniture de gros materiel de genie civil, de v~hicules et d'autres types de materiel necessaires a l'execution du projet; f) la fourniture de services de gestion et de services techniques, y compris Ie financement des coOts de fonctionnement y afferents; et , g) la premiere tranche des travaux de construction et de l'equipement d'une usine de traitement, ainsi que la construction de logements pour Ie personnel de cette usine et la fourniture des vehicules necessaires a la collecte de la recolte et a la livraison des produits finis a San Pedro\. Le programme d'amenagement de la plantation sera etale sur une periode de cinq ans: une etendue de 350 ha sera plantee au cours de la premiere annee, trois autres, de 1\.750 ha chacune, au cours des deuxieme, troisieme et qua trieme annees, et une derniere de 900 ha, au cours de la cinquieme annee\. L'usine devra ~tre mise en service au cours de la troisieme ann~e du projet; sa capacite journaliere devra Atre a l'origine de 11 tonnes de caoutchouc en balles, puis atteindre 66 tonnes par jour au cours de la derniere annee du projet et, par la suite, ~tre portee a 154 tonnes par jour, pour permettre Ie traitement de la production des 13\.500 ha de plantation, lorsque tous les arbres seront parvenus a l'~ge adulte\. C\. Description detaillee Preparation du terrain, plantBge et entretien des jeunes plantations 3\.07\. Le defrichement est l'une des principales activites a pouvoir s'accommoder d'insuffisances de main-d'oeuvre\. Clest pourquoi les coats du projet sont fondes sur l'hypothese selon laquelle, comme pour Ie premier projet, les operations d'abattage et de nettoyage du terrain seraient meca nisees, c'est-a-dire qulelles se feraient au moyen des gros tracteurs exis tants et de tracteurs supplementaires qui seront fournis dans Ie cadre du projet, de scies mecaniques et de tarieres montees sur tracteur (voir details a llAnnexe 3)\. Toutefois, en realite, la methode qui sera utilis~e pour l'execution des travaux sera celIe qui permettra l'utilisation la plus ef ficace des ressources disponibles\. 3\.08 Les principaux clones seront les mAmes que ceux qui ont ~te choisis pour le premier projet\. Toutefois, pour eviter une trop grande dependance a l'egard du clone GT 1 (Annexe 3), il faudra regreffer rapidement quelques uns  - 14 des jardins a bois existants\. Les graines sont fournies par l'IRCA et des assurances ont ete donnees que ces graines seraient fournies en quantite suffisante et temps opportun\. Quoi qu'il en soit, la plantation devrait ~tre rapidement en mesure de pourvoir a ses besoins en semences gr~ces aux arbres plantes en 1972/73\. 3\.09 Trois methodes de plantage ont ete utilisees dans Ie cadre du premier projet (par\. 2\.17) - Ie semis de graines, methode selon laquelle les plants sont greffes sur Ie terrain l'annee suivante; les stumps greffes, et les plants cultives en sacs de plastique et greffes en pepiniere avant Ie plantage\. Le plantage de stumps greffes n'a pas donne de bons resultats et sera abandonne pour Ie second projet\. D'autre part les rongeurs ont inflige de lourdes pertes sur les terrains ou avaient ete effectues des semis de graines\. Toutefois, les zones infestees de rongeurs sont bien delimitees et certaines operations de semis de graines pourront ~tre eventuellement acceptees dans Ie cadre du second projet, pour permettre la realisation du programme de plantage prevu\. Neanmoins, des pepinieres suffisamment vastes seront prevues pour permettre la creation chaque annee de 1\.750 ha de plantations au moyen de materiel ve getal en sacs de plastique\. La densite de plantage sera ramenee de 600 a 550 plants par ha, a raison de un plant en sac de plastique par emplacement\. Cette economie de materiel vegetal para1t totalement justifiee du fait de l'uniformite du materiel deja plante\. 3\.10 L'eclaircissage sera effectue en deux temps, au cours des deuxieme et quatrieme annees apres Ie plantage, afin de ramener la densite a l'hectare de 550 a 500, puis a 450 arbres; la mise en saignee aura lieu au cours de la sixieme annee, mais elle pourra eventuellement avoir lieu plus tOt la ou les arbres seront particulierement vigoureux\. Exploitation 3\.11 Lors de l'estimation des coOts du projet, il a ete suppose que tous les arbres seraient saignes deux fois par semaine, 45 semaines par an, selon Ie systeme de saignee en demi-spirale combine a l'emploi de stimulants\. Comme d'importants travaux de recherche sont menes actuellement en vue d'ameliorer les techniques de saignee, notamment par l'emploi de la micro-saignee, et de mettre au point de meilleurs stimulants, les methodes d'exploitation continue ront d'evoluer pendant l'execution du projet\. L'incidence de ces ameliora tions sur Ie coOt d'exploitation sera vraisemblablement favorable\. 3\.12 Les estimations etablies lors de l'evaluation ont ete fondees sur l'hypothese selon laquelle Ie latex serait recueilli a l'etat liquide et transporte jusqu'a une usine centrale\. Toutefois, au cours de ces dernieres annees, la hausse des coOts de la main-d'oeuvre a abouti a la mise au point de nouvelles methodes, notamment a la methode de collecte periodique du latex coagule dans des sacs de plastique\. Bien que cette methode comporte certains inconvenients, tels que Ie manque d'homogeneite du latex et les odeurs desa greables qu'il degage, il semble probable qu'elle finira par s'imposer et qu'elle sera adoptee par la plantation\.  - 15 3\.13 Une seule usine de traitement, implantee en un lieu central et d'une capacite d'environ 150 tonnes par jour, sera l'installation la plus economique pour Ie traitement du latex de la plantation de Grand-Bereby lorsque celle-ci aura atteint son plein regime de production\. Lorsque la plantation atteindra son rendement maximal, les quantites a transporter chaque jour seront de l'ordre de 375 tonnes de latex liquide et de 75 tonnes de caoutchouc coagule\. Le latex liquide sera recueilli dans des citernes transportees par camion ou, eventuellement, par des remorques tirees par des tracteurs\. La substitution du tracteur au camion sur de courtes distances (depuis des points situes a moins de 5 km de l'usine) entralnera unecertaine economie dans les invest i sements consacres a l'achat de vehicules, mais sera fonction du reseau routier dont sera do tee la plantation\. 3\.14 La plantation produira des caoutchoucs en balles de differentes qua lites\. La qualite dependra des systemes de saignee, de l'emploi de stimulants, de l'influence des niveaux de prix sur la collecte de caoutchouc de qualite inferieure et d'autres facteurs qui ne peuvent ~tre definis a l'avance de fa90n precise\. On estime que 75 % du latex sera recueilli a l'etat liquide et donnera une qualite au mains equivalente au SMR 5, 20 % seront recueillis sous forme de fond de tasse et de sernamby (SMR 10), et 5 % sous forme de caoutchouc de qualite inferieure (SMR 20 - SMR 50)\. 3\.15 Le caoutchouc granule sera produit a partir des caoutchoucs de toutes qualites et Ie sechage se fera dans des installations chauffees a la vapeur plutOt que dans des sechoirs alimentes individuellement au mazout\. L'investissement initial est plus coQteux, mais les sechoirs a vapeur peuvent etre alimentes a l'aide de bois de feu, ressource naturelle bon marche et abondante, ce qui permettra de realiser une economie sur les achats de petrole importe pendant toute la duree de vie de la plantation\. 3\.16 Lars de la conception de l'usine, un soin particulier a ete apporte a la protection des ressources hydrauliques contre la pollution\. L'effluent de l'usine sera recueilli dans un bassin et purifie par application d'un trai tement approprie; Ie coat du materiel necessaire a cette operation a ete in clus dans Ie coOt des installations de traitement\. Cultures vivrieres 3\.17 Pour permettre a la main-d'oeuvre de la plantation de disposer d'une plus grande quantite d'aliments et de jouir, en m@me temps, d'une certaine autonomie, des terrains supplementaires seront defriches au voisinage immediat de chacun des villages de la plantation pour la culture de produits vivriers\. La plantation fournira egalement les semences et autre materiel vegetal neces saires\. Les planteurs villageois de la region pourront egalement etre en courages a developper leur production vivriere pour en vendre une partie aux ouvriers de la plantation\. Les 2\.300 ha soustraits recemment a la concession pour la reinstallation de villageois pourraient etre utilises a cette fin\.  - 16 Formation 3\.18 Le present pro jet poursuivra Ie programme de formation entrepris avec succes dans Ie cadre du projet precedent\. Les ouvriers agricoles, jusqu'au niveau de contremattre, recevront une formation sur Ie tas completee par une instruction plus theorique dispensee par Ie personnel technique de la SATAC pour certaines categories de travailleurs qualifies tels que les greffeurs (et, par la suite, les saigneurs et certains ouvriers qualifies qui travail leront a l'usine de traitement)\. Les membres du personnel de gestion sur Ie terrain effectueront un stage de formation theorique d'une duree pouvant aller jusqu'a un an dans une division speciale supervisee par Ie responsable de la formation avant d'~tre affectes aux differentes divisions (les personnes qui travailleront au niveau des cantons seront choisies parmi les cadres des divisions)\. Le premier projet a permis de former quatre cadres de divisions et Ie second projet prevoit d'en former six de plus et deux cadres cantonaux\. L' ecole d 'agriculture de Bingerville constitue la principale source de recrute ment au niveau des divisions, mais les pastes de direction sont generalement attribues par Ie Ministere de l'agriculture a des dipldmes de l'Institut agricole de Bouake\. Des fonds sont prevus par Ie projet pour la poursuite du programme d'octroi de bourses d'etudes a des etudiants de ces deux etablisse ments et pour permettre aux titulaires d'autres pastes d'encadrement de rece voir eventuellement une formation complementaire (par\. 4\.12)\. Essais sur Ie terrain 3\.19 L'industrie du caoutchouc continuera de beneficier des travaux de recherche fondamentale effectues par l'IRCA\. Le centre de recherche de cet institut dispose des specialistes, des moyens techniques et des laboratoires necessaires a 1 'execution de ces travaux\. Toutefois, sur une plantation de la taille de celIe de Grand Bereby, il se pose toujours des problemes parti culiers qui ne peuvent etre resolus que par des exper ience:3 sur Ie terrain\. Ces travaux de recherche appliquee releveront du directeur charge des ques tions d'agronomie (par\. 4\.12) et les estimations de coat seront incorporees dans les budgets annuels prepares par la SATAC\. Taus les essais devront etre soigneusement con'¥us et donner lieu aI' etablissement de r:apports inter imaires reguliers et d'exposes detailles de leurs resultats definitifs et des conclu sions qui en decoulent\. Conformement aux modalites fixees, l'IRCA fournira conseils et assistance en cas de besoin\. Logements et infrastructure sociale 3\.20 Deux types de logements sont prevus pour les ouvr iers de la planta tion\. Pendant la periode de preparation et de plantage, la main-d'oeuvre sera logee dans des constructions provisoires en bois qui pourront etre demontees et remontees a mesure que Ie programme de plantage s'etendra a de nouvelles divisions\. Pendant la periode comprise entre Ie plantage et la mise en pro duction, les effectifs reduits necessaires a l'entretien de la plantation seront loges dans des cases en parpaings groupees en villages dans les diffe rents cantons\. Pendant la periode d'exploitation, qui necessitera a nouveau  - 17 une main-d'oeuvre abondante, les villages construits au niveau des divisions seront reconstruits en duro Chaque village de division comprendra environ 130 logements de deux pieces (abritant chacune une famille ou quatre celiba taires) et 12 maisons de standing legerement plus eleve pour les contremal tres, les commis, les chauffeurs, les magasiniers et les infirmiers des dispensaires\. Chaque maison sera completee par une cuisine, une douche et des installations sanitaires\. Chaque village comprendra egalement un marche couvert et des lieux de reunion, ainsi qu'un logement et un bureau pour Ie chef de division, des boutiques et un dispensaire de deux pieces qui servira de complement a l'hOpital de la plantation\. Les villages en dur seront egale ment alimentes en electricite et en eau par une pompeo Les villages de canton seront semblables a ceux des divisions, mais comprendront, en plus, un bureau cantonal, un hangar de stockage et une ecole de trois pieces, ainsi qu'un logement pour l'instructeur (envoye et remunere par Ie Ministere de l'educa tion)\. Le projet envisage prevoit la construction de deux villages de canton et de trois villages de division en dur; quant aux quatre villages provisoires existant actuellement, ils seront deplaces cinq fois\. Les logements et autres installations destines aux ouvriers de l'usine seront construits dans Ie village qui sera situe au centre de la plantation (pour plus de details, voir Annexe8)\. -~"\. D\. Programme de plantations villageoises 3\.21 Attachant une plus grande importance que par Ie passe a l'ameliora tion de la repartition des revenus (par\. 2\.12), et desireux de realiser un developpement regional equilibre, Ie gouvernement a decide de promouvoir dans la region du Sud-Ouest Ie developpement de petites plantations, en m~me temps que celui de plantations industrielles\. Toutefois, en raison de la faible densite de population de cette region, Ie programme de plantations villageoises d'heveas devra se contenter de debuts modestes\. Recemment, Ie gouvernement a reinstalle la majeure partie de la population qui vivait dans la zone du pro jet dans la partie sud-ouest de la concession, sur une etendue de 2\.300 ha dont la moitie semble propice a l'heveaculture\. Les personnes ainsi reinstal lees, des Kroumen pour la plupart, vivent principalement de la chasse et de la p~che ainsi que de la culture de produits de sUbsistance sur de petites par celles\. Avant la mise en oeuvre d'un programme de plantations villageoises, il faudra determiner dans quelle mesure ces colons seront desireux et capables de participer a un tel programme, fixer les modalites en matiere de regime foncier et definir les besoins en matiere d'organisation, de credit et autres services de soutien\. Une etude de factibilite, qui debouchera sur un petit projet pilote, sera executee par la Direction agronomique de la plantation, avec l'appui de la Cellule hevea du Ministere de l'agriculture (par\. 4\.08)\. Le gouvernement a donne l'assurance que les modalites de cette etude (voir projet de cadre de reference a l'Annexe 4) seraient arr~tees Ie 31 decembre 1978 au plus tard\.  - 18 3\.22 Il faudra environ deux ans pour executer cette etude et pour les au tres preparatifs concernant Ie projet pilote, notamment pour Ie recrutement et la formation d'un personnel de vulgarisation approprie\. Par consequent, les operations de plantage pilote ne pour rant commencer avant la troisieme annee du projet\. Pour estimer Ie coat de ce programme pilote, on a suppose que les operations de plantage se derouleraient comme suit : 3eme annee 4eme annee 5eme annee du pro jet du pro jet du projet Total 5uperficie plantee 50 ha 150 ha 300 ha 500 ha 5i l'on suppose qu'il sera plante a l'origine de 0,5 a 2 ha par famille (etant entendu que ces superficies pour rant @tre agrandies par la suite, si Ie pro gramme est poursuivi), ce programme de trois ans interessEira environ de 400 a 500 familIes\. 3\.23 Pour pouvoir participer a ce programme, les planteurs devront s'en gager a se conformer, pendant toute sa duree, aux conseils techniques qui leur seront dispenses par l'agence d'execution\. Les habitants des villages exis tants seront encourages a planter des heveas, et l'on prevoit que les paysans reinstalles dans la partie sud-ouest de la zone du projet participeront a un programme experimental\. Les participants seront choisis par l'agent de vulga risation, apras consultation du chef du village\. Leur participation ne les emp@chera pas de s'adonner a d'autres activites economiques telles que la cul ture de produits vivriers pour leur subsistance et pour la vente aux ouvriers des plantations, la fourniture de main-d'oeuvre a ces plantations, etc\. Les details des modalites de selection et la taille maximale des exploitations in dividuelles seront fonction de certaines conditions telles que la nature de la participation du village\. 3\.24 L'agence d'execution fournira du credit en especes et en nature aux petits planteurs; ceux-ci ne recevront de fonds que dans la mesure au ils se seront conformes, au cours de la periode precedente, aux recommandations tech niques qui leur auront ete donnees\. Les montants et les nDdalites de ce cre dit, de m@me que Ie prix a payer pour Ie caoutchouc brut, seront determines sur la base des resultats de l'etude de factibilite (par\. 3\.21)\. Le principe directeur sera Ie recouvrement total du montant de ces credits (en valeur reelle) et un prix au producteur qui couvre Ie coat de l'investissement de l'Etat dans Ie programme tout en offrant une incitation sllffisante aux petits planteurs\. Des calculs provisoires relatifs au financement du programme de plantations villageoises sont presentes a l'Annexe 4 et prevoient l'octroi d'un credit de 137\.250 francs CFA aux planteurs, sur la base de la valeur es timative des facteurs de production a fournir (semences, engrais et materiel de saignee, representant un total de 88\.050 francs CFA), clu coat en espaces de la main-d'oeuvre pendant les annees de croissance des arbres evalue a 300 francs CFA par homme et par jour (representant un total de 49\.200 francs CFA), d'un taux d'inter@t de 8,5 ~6 et d'un prix a la production de 130 francs CFA Ie kg de caoutchouc brut livre a l'usine\.  - 19 IV\. ORGANISATION ET GESTION 4\.01 La SOCATCI, creee en 1973, qui etait l'Emprunteur dans Ie cadre du premier projet, a ete dissoute en octobre 1977\. Cette societe d'Etat avait pour fonctions d'assurer la creation et 1 'exploitation de plantations indus trielles d'heveas, ainsi que la conduite de toutes operations commerciales, industrielles et financieres connexes\. Son conseil d'administration, compose de dix administrateurs, avait a sa t@te un directeur general ivoirien; Ie poste de sous-directeur charge des questions techniques avait ete confie des l'origine a un conseiller technique expatrie fourni par Ie FED et a la charge de cet organisme\. 4\.02 Comme la Cote d'Ivoire, qui ne s'est lancee que recemment dans l'heveaculture, ne disposait pas d'un personnel suffisamment experimente pour assurer la gestion du projet et l'encadrement de son personnel d'execution, la SOCATCI avait conclu un contrat d'assistance technique et de gestion avec la SATAC, filiale a 100 % de Michelin, pour l'execution du premier projet\. La SOCATCI avait limite ses fonctions au decaissement et a la distribution des fonds fournis a la SATAC par l'Etat et par les copr@teurs\. 4\.03 Les premieres annees du projet ont ete marquees par des problemes de personnel et de gestion qui ont occasionne des retards d'execution et, avec la flambee inflationniste des annees 1973-75, des depassements de devis conside rabIes (par\. 2\.16 a 2\.21)\. 4\.04 Les problemes financiers ont ete causes par des faiblesses d'organi sation et de gestion\. Les methodes comptables utilisees etaient inadequates, ce qui a rendu Ie contrOle financier du projet difficile\. Le choix de ces methodes s'explique par l'absence de personnel comptable competent, probleme que l'agence d'execution a resolu recemment\. Le contrOle des decaissements effectues au titre du projet a ete confie au FED, qui agissait pour Ie compte des copr@teurs\. Les decaissements ont ete effectues sur la base de forfaits estimatifs\. Du fait de cette methode et des faiblesses de 1a comptabi1ite, i1 a ete difficile de determiner avec\. exactitude la maniere dont les fonds ont ete utilises\. Comme les depenses de la SATAC ont regulierement depasse les sommes calculees selon la formule des forfaits, les remboursements qu'elle a re~us des copr@teurs et de l'Etat au cours de chacune des quatre dernieres an nees ont ete inferieurs au mont ant des depenses reelles\. On prevoyait que, au 31 decembre 1977, la SATAC aurait depense 6\.750 millions de francs CFA (27,6 millions de dollars) au titre du projet alors que les decaissements cor respondants n'auraient ete que de 6\.118 millions de francs CFA (25 millions de dollars)\. L'ecart d'environ 630 millions de francs CFA (2,6 millions de dol lars) correspond aux stocks accumules par l'agence d'execution et a des diffe rences entre les coOts reels de certains travaux agricoles et les forfaits estimatifs qui avaient ete etablis a leur sujet\. L'Etat, conscient de cette situation, a pris des mesures pour financer la difference sur ses propres de niers, accroissant par la-m~me sa contribution aux coOts du projet\.  - 20 4\.05 D'une fa~on generale, la qualite des services de la SATAC s'est amelioree, notamment en ce qui concerne les aspects techniques de l'execution du projet, et elle est a present satisfaisante\. Les travaux agricoles sont d'excellente qualite et les methodes administratives sont plus efficaces\. En octobre 1977, la SATAC a presente des comptes detailles arr@tes au 30 septembre 1976, qui comprenaient un etat indiquant l'~tilisation des fonds affectes au projet (Annexe 2, Tableau 1)\. Le solde des fonds affectes au premier projet, estime a 750 millions de francs CFA (3,1 millions de dollars) au ler janvier 1978, devrait suffire pour terminer les operations de plantage sur les 7\.000 ha auxquels a ete finalement limite ce projet et pour couvrir les frais administratifs et autres qui auront ete encourus sur la plantation jusqu'au 30 juin 1978\. 4\.06 En septembre 1977, Ie gouvernement a pris un certain nombre de me sures interessant Ie secteur agricole et destinees a favoriser Ie developpe ment des petites exploitations et a remplacer les traditionnelles entreprises d'Etat specialisees dans une culture par des organismes regionaux ayant l'en tiere responsabilite de la mise en oeuvre d'une politique de developpement ru ral integre (par\. 2\.06)\. Bien que les modalites de ce changement restent en core a definir, ces nouvelles mesures ont eu pour consequence immediate d'en trainer la dissolution de la SOCATCI\. L'execution du projet a ete placee sous l'autorite directe du Ministere de l'agriculture, qui a entrepris les demar ches necessaires en vue de reprendre a son compte Ie contrat de gestion qui avait ete signe entre la SOCATCI aujourd'hui dissoute et la SATAC (par\. 4\.02)\. Dans l'intervalle, Ie projet sera finance par l'intermediaire de la Caisse au tonome d'amortissement (CAA - institution relevant du Ministere des finances et chargee du service de la dette exterieure), qui servira egalement de fi liere pour les decaissements effectues au titre du pr@t de la Banque (938-IVC), ainsi que pour les fonds provenant des autres copr@teurs de ce projet\. La contribution de l'Etat au financement de ce projet, qui fait partie des cre dits alloues au titre du budget annuel de developpement, passera egalement de sormais par la CAA\. Ces modalites ont ete jugees satisfaisantes et l'Etat est devenu l'Emprunteur du Pr@t 938-IVC en vertu d'un Accord de pr@t de remplace ment approuve par Ie Conseil en mars 1978\. L'entree en vigueur du pr@t pro pose est subordonnee a celIe de l'Accord de pret de remplacement\. 4\.07 La supervision technique et financiere est assur~e par l'une des six directions du Ministere de l'agriculture, la Direction de la planification, de la budgetisation et du contrOle de gestion (DPBCG) qui obeit a des instruc tions et exerce ses fonctions sous l'autorite directe du ministre\. La DPBCG, dont Ie personnel comprend un certain nombre de comptables et de reviseurs comptables, est chargee du contrOle des resultats financiers et de la verifi cation des comptes de toutes les societes d'Etat engagees dans des activites agricoles et, notamment, de la supervision financiere du projet de Grand Bereby\. En outre, elle a constitue un service special appele "Cellule Hevea" (dont Ie personnel comprend l'ancien conseiller technique de la SOCATCI - par\. 4\.01) pour suivre Ie deroulement de ce projet et de tous les autres projets de developpement de l'heveaculture, sur Ie plan technique\.  - 21 4\.08 Ces arrangements sont juges satisfaisants pour la duree d'execution des travaux de developpement agricole du second projet\. Toutefois, la respon sabilite de l'entreprise commerciale que deviendra la plantation, une fois qu'auront demarre les operations de traitement et de commercialisation, de borde quelque peu Ie cadre des attributions normales du Ministere de l'agri culture\. C'est pourquoi une nouvelle structure responsable de la gestion fi nanciere et commerciale de la plantation devrait @tre cre'ee et mise en place avant que ne commencent les travaux de construction des installations de trai tement; Ie gouvernement devrait se prononcer sur la forme a donner a cette nouvelle structure d'ici a la fin de 1978\. II a donne 1 'assurance , au cours \. des negociations, que, d'ici a la fin de 1978, il presenterait ses proposi tions a la Banque sur les dispositions d'ordre institutionnel qu'il envisage de prendre pour que Ie projet puisse atteindre les objectifs qui lui auront ete assignes\. Un accord sur ces dispositions devra @tre conclu et mis en oeuvre au plus tard Ie 31 decembre 1979\. 4\.09 La Banque a evalue recememnt un troisieme projet d'heveaculture en cate d'Ivoire, le projet d'heveaculture SAPH (par\. 2\.15)\. Avec l'achevement des 13\.500 ha de plantation de Grand-Bereby, ce projet portera la superficie totale des plantations d'heveas de la Cate d'Ivoire a environ 45\.000 ha\. L'industrie ivoirienne du caoutchouc aura alors atteint une telle expansion qu'el1e necessitera l'introduction d'un nouveau programme general de planifi cation et de coordination\. 4\.10 II faudra notamment veiller a assurer un niveau constant de produc tion de caoutchouc dans l'avenir\. Cette production sera concentree dans deux regions distinctes : a) Ie Sud-Ouest, avec les plantations de Grand-Bereby (13\.500 ha) et de Rapides-Grah (5\.000 ha) qui auront ete creees a peu pres en m@me temps; et b) Ie Sud-Est avec les plantations actuelles et Ie nouveau projet SAPH qui representeront une superficie totale d'environ 25\.000 ha plan tes a differentes periodes\. Comme chaque plantation disposera d'installations de traitement concues pour faire face a la production des periodes de pointe, certaines de ces usines seront utilisees sensiblement au-dessous de leur capa cite si les operations de renouvellement des arbres ne sont pas convenablement coordonnees\. Par consequent, Ie calendrier de ces operations dans les planta tions du Sud-Est devra ~tre prepare suffisamment a l'avance; et il conviendra d'assurer en m@me temps l'approvisionnement regulier et suffisant des usines du Sud-Ouest en matieres premieres, en prospect ant et en plantant des superfi cies supp1ementaires sans attendre d'avoir a remplacer les arbres vieillis\. Au cours des negociations, 1'Etat a donne l'assurance qu'i1 presenterait a la Banque, d'ici au 31 decembre 1978, un document de politique genera1e sur Ie developpement du sous-secteur de l'heveaculture\. Gestion de la plantation 4\.11 La SATAC conserve la responsabilite de l'execution du projet\. Le directeur du projet, designe par Michelin avec 1'accord de l'Etat, de la Banque et des copr~teurs, conservera l'autonomie necessaire dans la gestion des ope rations journalieres du projet et dans la nomination du personnel, sauf en ce  - 22 qui concerne les chefs des services operationnels (par\. 4\.12) et devra tenir l'administration de tutelle au courant des faits interessant Ie projet en lui soumettant chaque mois un rapport d'activite et un etat financier\. Le projet continuera de relever du Ministere de l'agriculture qui conservera la respon sabilite de l'approbation des budgets annuels et des programmes de developpe ment et de la nomination du directeur de projet et des chefs des services ope rationnels (par\. 4\.12)\. 4\.12 Les chefs des quatre services operationnels, designes egalement par Michelin, mais avec l'approbation du gouvernement et de la Banque, releveront en ligne droite du directeur du pro jet : Ie chef du departement administratif charge des questions financieres, comptables et administrat:ives; Ie chef du Departement des techniques industrielles, responsable des machines et du mate riel et du programme de construction, notamment de la construction et de la mise en service de l'usine; Ie chef du Departement operations/exploitation, responsable de to utes les activites agricoles liees a l'amenagement et a l'ex ploitation de la plantation; et Ie chef du Departement des techniques agrico les, responsable de l'etude des sols, des leves topographiques, de la recher che agronomique, de l'element relatif a la culture de produits vivriers et, par la suite, du programme de plantations villageoises d'heveas\. 4\.13 Sous l'autorite du directeur des operations, les operations agrico les seront dirigees par six chefs de canton, dont chacun sera responsable de 2\.000 a 2\.500 ha de plantation et sera aide dans ses fonctions par deux ou trois chefs de division\. En outre, il sera prevu un contrOleur des operations de saignee - avec rang de chef de canton - qui assumera la responsabilite de l'ensemble des operations d'exploitation, et un responsable de la formation (par\. 3\.18)\. Recrutement des cadres et de la main-d'oeuvre 4\.14 On prevo it que les meilleurs elements parmi les cadres mayens acce deront par la suite a des pastes plus eleves au sein de l'organisation\. Ac tuellement, la formation sur Ie tas et la promotion interne sont les meilleurs moyens de constituer l'equipe competente et devouee necessa:ire a l'execution du projet\. 4\.15 On ne prevoit pas l'ivoirisation des cinq pastes eles mentionnes precedemment (par\. 4\.11, 4\.12) pendant la duree d'execution du projet, mais on a suppose, lors de l'etablissement des previsions a plus long terme, que tous ces postes seraient occupes par des Ivoiriens d'ici a la fin de la prochaine decennie\. Dans une economie en pleine croissance telle que celIe de la COte d'Ivoire, il s'agit plutOt d'un probleme de recrutement que de formation, car il s'agit d'attirer un personnel de haut niveau acceptant de travailler dans des regions reculees\. Avec Ie developpement rap ide du sous-secteur des plan tations, Ie probleme de la formation d'un personnel d'encadrement competent devrait ~tre traite au niveau national, et il faudrait prevoir les besoins fu turs du pays en personnel qualifie pour les plantations de palmiers a huile,  - 23 de cocotiers et d'heveas\. On procede actuellement a une revision des program mes de cours des universites et instituts techniques existants afin de les adapter a l'evolution des besoins du secteur agricole\. Le probleme general de la formation d'un nombre suffisant de personnes qualifiees pour taus les ni veaux d'encadrement des grandes entreprises agro-industrielles et autres sera traite par Ie Comite national des ressources humaines, dont l'organisation est examinee actuellement avec les pouvoirs publics en vue de la preparation d'un eventuel troisieme projet d'education\. 4\.16 Comme il n'existe pas de main-d'oeuvre qualifiee pour les plantations d'heveas en COte d'Ivoire, la majeure partie des ouvriers doivent @tre recrutes en tant qu'ouvriers non specialises et recevoir la formation necessaire sur la plantation (par\. 3\.18)\. II faudra donc s'efforcer de fixer la main-d'oeuvre et de former des saigneurs et d'autres specialistes en nombre suffisant sans avoir a encourir de coats de formation demesurement eleves\. Bien que les ser vices sociaux et Ie logement soient de plus en plus chers, il faudra attirer vers la plantation une proportion suffisante d'ouvriers maries avec leurs fa milIes pour creer un environnement social acceptable\. La plantation conti nuera d'employer un medecin qualifie et Ie personnel paramedical necessaire afin d'assurer la protection de la sante des ouvriers de la plantation et de leurs familIes\. Des ecoles seront prevues dans les villages de canton; les b~timents seront fournis par la plantation et Ie personnel enseignant par Ie Ministere de l'education\. Condition des femmes 4\.17 La fourniture des services sociaux et l'aide pour la production de cultures vivrieres par les familIes des ouvriers contribueront a ameliorer la condition des femmes et de l'ensemble de la population de la plantation\. Tou tefois, les mesures destinees a ameliorer directement la condition des femmes par Ie biais d'un emploi remunere se sont heurtees a la tradition fortement ancree d'une separation clairement definie des taches suivant Ie sexe\. Nean mains, dans un effort en vue d'accroltre la main-d'oeuvre disponible, la di rection de la plantation a reussi a mobiliser une main-d'oeuvre feminine en lui confiant de nouvelles t~ches (telles que la taille a la main des plantes de couverture a la base des heveas) qui n'avaient jamais ete accomplies par les hommes auparavant\. On espere que la stabilisation de la main-d'oeuvre de la plantation et 1 'augmentation de la population feminine qui en decoulera, en m8me temps que la disparition progressive des barrieres tradltionnelles, faciliteront l'acces d'un plus grand nombre de femmes a l'emploi\.  - 24 V\. ESTIMATIONS DES COUTS ET FINANCEMENT A\. Estimations des coOts 5\.01 Les coOts auxquels Ie projet donnera lieu au coUrs des sept anndes de la pdriode d'investissement sont estim~s ~ 14,8 milliards de francs CFA (60,4 millions de dollars) dont un ~l~ment en devises de 47 %, soit 6,9 mil liards de francs CFA (28,4 millions de dollars)\. Le servicl3 de la dette au cours de la p~riode d'exdcution du projet, abstraction fait13 de l'exc~dent que procurera la vente de la production, repr~sentera un montant suppl~mentaire de 2\.964 millions de francs CFA (12,1 millions de dollars)\. 5\.02 Comme pour les pr~c~dents projets agricoles, Ie gouvernement exon~- rera de droits de douane toutes les marchandises import~es i3xpress~ment pour Ie projet, pendant son ex~cution\. Les estimations de coOts, fond~es sur les prix du milieu de 1977, comprennent les impr~vus, qui reprdsentent un montant de 1\.662 millions de francs CFA (6,8 millions de dollars) soit 11 % du coOt total du projet, et se d~composent comme suit : a) d~passement des quantit~s : 10 % pour les coats des travaux de g~nie civil et de construction et 5 % pour tous les autres coats, ~ l'ex ception des salairesj b) hausse des prix, ~valu~e comme suit : pour les travaux de gdnie civil et de construction, 9 % respectivement en 1978 et 1979 et 8 % pour les ann~es suivantes; pour les facteurs de production agricole, Ie mat~riel et les vdhicules, 7 1/2 % respectivement pour 1978 et 1979, et 7 % pour les anndes suivantes; et pour tous les autres coats, y compris les pr~ts aux petits exploitants, 7 % chaque annde; la hausse des prix a dtd calcul~e sur les estimations des coOts initiaux majo rdes de celles des d~passements de quantitd\. 5\.03 Le montant total des impr~vus calcule de la maniere indiqude prece demment repr~sente 27 % du coat total du projet ou 38 % de l'estimation de son coOt initial\. Les estimations de coOts sont pr~sentees de fa~on detail lee ~ l'Annexe 7, et sont rdsumees dans Ie tableau ci-apres\. B\. Financement propose 5\.04 Le projet sera financd par quatre bailleurs de fonds dtrangers et par l'Etat\. Un pr~t de la Banque, d'un montant egal a la contre-valeur de 20 millions de dollars est envisage\. En outre, Ie Fonds europeen de developpe ment (FED), la Banque europeenne d'investissements (BEl) et la Caisse centrale  -25 Recanitu1ation des Couts du Projet % Millions de francs CFA M\. de francs CFA des Couts llonnaie Mon~ie Fina\.u:ali Nat'ie Devises ~ Nat le Devises Total en Devises I\. Entretien de 1a 1ere tranche de 7 1000 ha l\. CoUts agrico1es directs 729 378 1,107 3\.0 1\.6 4\.6 35 2\. Vehicules et materiel 79 225 304 0\.3 0\.9 1\.2 75 3\. Infrastructure 397 254 651 1\.7 1\.0 2\.7 37 Total I 1,205 857 2;062 5\.0 3\.5 8\.5 41 II\. Amenagement de 6 1 500 ha sUEElementaires 1 Coats agrico1es directs 1,526 1,082 2,608 6\.2 4\.4 10\.6 42 2\. Vehicules et materiel 73 445 518 0\.3 1\.8 2\.1 86 3\. Infrastructure 264 164 428 1\.0 0\.7 1\.7 41 Total II 1,863 r,691\. ~,554 7\.5 6\.9 14\.4 48 III\. Gestion de la 2lantation et services administratifs l\. Traitements du personnel 1,377 626 2,003 5\.7 2\.5 8\.2 30 2\. Depenses de fonctionnement 808 569 1,377 3\.3 2\.3 5\.6 41 3\. Honoraires pour services de gestion 57 278 335 0\.2 1\.2 1\.4 85 Total III ~p\.2 ~_,\.~71 ~\.?l5 9\.-2 6\.0 15\.2 39 IV\. Programme de E1antations v1l1ageoises \. 1\. Services de vulgarisation 53 13 66 0\.2 0\.1 0\.3 33 2\. Credit en especes et en nature Total IV 53 106 IT 4 57 123 0\.2 0\.4 0\.1 0\.2 0\.5 20 \. V\. Installation de traitement 1 Installation principale 258 816 1,074 1\.1 3\.3 4\.4 75 2\. Investissement auxi1iaire 55 44 99 0\.2 0\.2 0\.4 50 3\. Vehicu1es 12 113 125 0\.5 0\.5 100 Total V 325 973 1;"298 1\.3 4\.0 5\.3 -75 -,- TOur mr'XIAL TOTAL 5,741 5,011 10,752 23\.4 20\.5 43\.9 47 Depassement des Quantites ~I 259 259 518 1\.0 1\.1 2\.1 50 Hausse des Prix 11 !\.873 !\.~~1 \.3\.534 7\.6 6\.8 14\.4 47 cour TOTAL DU PROJET 7,873 6,93~ 14,80Lt 32\.0 28\.4 60\.4 47---- Service de 1a dette ~I 1~6~ -1\., 964 12\.1 12\.1 100 TOTAL\. Y compris le service de 1a dette 7,873 ~f!91 F!\.768 32\.0 40\.5 7_~ 56 11 Voir par\. 5\.02\. 11 Service de 1a dette sur 1es prets decaisses au titre du premier projet et 1es prets qui seront consentis dans 1e cadre de ce second projet, abstraction faite de l'exedent qui resu1tera de 1a vente de 1a production\.  - 26 de cooperation economique (CCCE, institution fran~aise) participeront au finan cement de ce projet a concurrence des mont ants ci-apres : FED, 5,5 millions de dollars; BEl, 4,5 millions de dollars et CCCE, 8,3 millions de dollars\. Alors que la CCCE financera conjointem~nt avec la Banque tous les elements du pro jet a l'exception des investissements relatifs aux installations de traitement qui seront cofinances exc1usivement par 1a BEl, Ie FED ne participera pas au finan cement de l'entretien des 7\.000 ha p1antes dans Ie cadre du premier projet\. L'entree en vigueur du pr@t de 1a Banque sera subordonnee a celIe des pr~ts du FED et de 1a CCCE et a 1 'assurance que Ie pr@t de 1a BEl sera consenti Ie ler janvier 1979 au plus tard\. 5\.05 Le projet sera finance comme suit: Banque CCCE FED BEl Etat Total ----------(mi11ions de do11ars)--------- A\. Entretien de 1a premiere tranche de 7\.000 ha 3,3 1,4 3,7 8,4 B\. Amenagement de 6\.500 ha supp1ementaires 5,9 2,5 3,6 2,4 14,4 C\. Administration de 1a plan tation 6,1 2,5 0,6 6,0 15,2 D\. Programmes de plantations villageoises 0,2 0,1 0,2 0,5 E\. Installations de traitement hl -\.b\.Q\. 2\.zl 3,3 14,3 43,8 Mont ant non affects lz1\. 2\.& 16,6 COUT TOTAL DU PROJET Service de 1a detteL1 TOTAL, y compris Ie service de la dette Pourcentage, y compris Ie ser vice de 1a dette 28 11 8 6 47 100 Pourc~ntq~e des coats du proJetL 33 14 9 7 37 100 Pourcentage net de taxesL2 37 15 10 8 30 100 {I Le service de 1a dette sur 1es pr@ts decaisses au titre du premier projet et sur 1es prets qui seront consent is dans Ie cadre de ce second projet, abstraction faite de l'excsdent qui result era de 1a vente de 1a production\. {2 Abstraction faite du service de 1a dette\.  - Z7 5\.06 Le pr~t de ZO millions ae Lollars sera consenti par la Banque a l'Etat pour une periode de 17 ans, dont un differe d'amortissement de quatre ans, au taux actuel de 7,5 %\. Les pr~ts des autres copr~teurs devraient ~tre assortis de differes d'amortissement, d'echeances et de taux d'interet differents de ceux du pr~t de la 8anque : FED, 1 % (differe d'amortissement 10 ans et remboursement en 40 ans); BEI~ 5 liz % (differe d'amortissement 4 liz ans et remboursement en 10 ans); et CCCE, 5 liz % (dif fere d'amortissement 6 ans et remboursement en 8 ans)\. Le pr~t de la 8anque servira a financer 37 % des coOts du projet, taxes non comprises, 33 % du coat total du projet ou Z8 % des coats, y compris Ie service de la dette\. Les pourcentages couverts par l'ensemble du financement exterieur, qui est de 38,3 millions de dollars, seront respectivement de 70 %, 63 % et 53 %\. 5\.07 On estime que les pr~ts seront decaisses au cours des cinq pre mieres annees du projet, c'est-a-dire pendant la periode OU les nouveaux ar bres seront plantes\. Les coOts afferents a cette periode de decaissement sont presentes a l'Annexe 7, Tableau 1, et les fractions de ces coOts qui seront financees au moyen des pr~ts des copr~teurs sont indiquees a l'An nexe 9, Tableau Z\. Pendant cette periode, Ie solde des coats du projet et les montants necessaires au service de la dette, d~nt Ie total est estime a 4\.416 millions de francs CFA (18 millions de dollars) seront finances par l'Etat par tranches annuelles\. A l'issue des cinq premieres annees, l'Etat devra fournir des fonds supplementaires, estimes a 3\.738 millions de francs CFA (15,Z millions de dollars), pour financer les soins a apporter a la plantation jusqu'a ce que les arbres atteignent l'~ge adulte et les instal lations supplementaires necessaires a la production du projet et pour assurer Ie service de la dette relatif aux prets utilises pour Ie financement du pre mier pro jet et de ce second pro jet (Annexe 9, Tableau 1)\. Des assurances ont ete obtenues au cours des negociations en ce qui concerne ces modalites de financement\. C\. Passation des marches 5\.08 La passation des marches se fera selon les modalites indiquees ci-apres au cours des cinq annees de la periode de decaissement\. Les marches d'un montant egal ou superieur a la contre-valeur de 100\.000 dollars seront passes par appel a la concurrence internationale selon les directives de la Banque\. Le coat des fournitures qui feront l'objet de ces marches est estime a 6 millions de dollars, dont environ 3,Z millions de dollars pour les achats de vehicules et de materiel et Z,8 millions de dollars pour les achats d'en grais et de produits chimiques\. Les marches d'un montant ne depassant pas 100\.000 dollars seront passes par appel d'offres faisant l'objet d'une publi cite locale, selon des procedures jugees acceptables par la 8anque (Ie montant total des marches qui seront ainsi passes est estime a 500\.000 dollars)\. Les travaux de genie civil indiques ci-apres seront executes en regie : la plupart des travaux de construction de logements et autres (4 millions de dollars) qui  - 28 seront dissemines sur une vaste etendue distante des centres importants et dont Ie calendrier d'execution s'etirera sur une longue periode (par Ie passe, ce genre de travaux n'a guere beneficie d'une participation active d'entrepreneurs etrangers); les travaux de defrichement et de construction de voies d'acces (3,1 millions de dollars, abstraction faite du coat du materiel dont l'acquisi tion se fera par appel a la concurrence internationale) : ces travaux peuvent difficilement etre confies a des entrepreneurs exterieurs en raison du rythme de plantage et des specifications particulieres auxquelles ils doivent repondre\. La passation des marches afferents a la construction de l'usine de traitement du caoutchouc (travaux de genie civil et materiel) et pour certains autres achats auxiliaires, qui representent un total de 4,5 millions de dollars dont Ie financement doit ~tre assure par la BEl, s'effectueront selon les directives de cette institution\. Les autres coats du projet, d'un montant de 26,8 mil lions de dollars, porteront principalement sur les traitements (personnel expa trie et services de gestion, 5,3 millions de dollars; personnel local, 3,8 mil lions de dollars; main-d'oeuvre, 9,3 millions de dollars), sur des travaux agricoles et sur d'autres coOts de fonctionnement (vehicules, tracteurs agri coles et groupes electrogenes, 6,3 millions de dollars; entretien des b~timents, 0,8 million de dollars; divers, 1,3 million de dollars)\. D\. Decaissements 5\.09 Le pret de la Banque sera decaisse au cours des cinq premieres annees du projet et couvrira 49,5 % des elements suivants : a) Coats agricoles directs d'entretien des 7\.000 ha existants et d'ame nagement de la superficie supplementaire de 6\.500 ha, y compris les travaux de defrichement et de construction de voies d'acces; i) facteurs de production agricoles, y compris les pulverisateurs, les engrais et les produits chimiques (1,5 million de dollars); ii) main-d'oeuvre agricole et autres coats de fonctionnement 4,9 millions de dollars); b) coats de construction de logements, mise en place- de l'infrastruc ture des villages et de l'infrastructure sociale (1,5 million de dollars); c) vehicules et materiel (1,3 million de dollars); d) services de vulgarisation pour Ie programme de plantations villageoi ses et prets en especes et en nature aux planteurs participant au projet (0,2 million de dollars); et  - 29 e) traitements du personnel, y compris les traitements du personnel expatrie, et autres depenses de fonctionnement (6,1 millions de dollars)\. Un montant de 4,5 millions de dollars ne sera pas affecte\. Un calendrier esti matif des decaissements est presente a l'Annexe 9\. Les decaissements relatifs aux depenses mentionnees aux alineas a)i) et c) se feront sur presentation de toutes les pieces justificatives\. Les decaissements relatifs aux autres cate gories se feront sur presentation de certificats d'achevement de travaux et de factures, qui seront conserves sur place pour ~tre examines par les missions de supervision\. E\. Comptabilite, revision comptable et presentation de rapports 5\.10 La SATAC mettra a jour les comptes de la plantation et tiendra ses ecritures selon les principes de comptabilite generalement admis et de maniere a presenter une image fidele des operations et de la situation financiere de la plantation\. Ces livres de compte indiqueront separement les chiffres affe rents aux differents elements du projet et une recapitulation des pr~ts aux petits planteurs et de leur remboursement\. Le gouvernement chargera la SATAC de designer des reviseurs-comptables independants qui devront presenter des rapports dont la portee et les details auront ete raisonnablement fixes par la Banque; Ie mandat des reviseurs-comptables est presente a l'Annexe 12\. Ces rapports seront communiques a la Banque six mois au plus tard apres la clOture de l'exercice auquel ils se rapporteront\. Pour que Ie pr~t puisse entrer en vigueur, il faudra que la SATAC s'engage a remplir ces obligations\. 5\.11 En outre, des rapports d'activite mensuels (par\. 4\.08) seront neces saires pour tenir Ie gouvernement et les copr~teurs informes du deroulement du projet\. L'Annexe 13 indique les types de renseignements que devront fournir ces rapports, dont la forme exacte sera arretee lors de la premiere mission de supervision\.  - 30 VI\. PRODUCTION, COMMERCIALISATION ET RENTABILITE FINANCIERE A\. Rendements et production 6\.01 Les estimations de rendement du projet sont fohd~es sur des r~sul tats obtenus en COte d'Ivoire et dans d'autres pays avec des clones du r~els m~me type que ceux qui sont utilises a Grand-Bereby\. Des previsions relati ves aux rendements et a la production de ce second pro jet sont pr~sentees a l'Annexe 10, Tableau 4\. Lorsque les rendements auront atteint leur niveau maximal, au cours des ann~es 1990, la production annuelle devrait ~tre de l'ordre de 31\.000 tonnes\. 6\.02 On estime que les rendements augmenteront progressivement pour passer de 600 kg a l'hectare lors de la premi~re ann~e de saign~e (septi!me annee du projet) a 2\.300 kg a l'hectare apr~s 15 ans, qu'ils se maintiendront encore neuf ans a ce niveau et qu'ils redescendront ensuite progressivement jusqu'a 1\.400 kg a l'hectare vers la fin de la periode de saignee (41!me annee)\. Ces rendements estimatifs sont superieurs a la moyenne obtenue actuellement, mais ils devraient pouvoir @tre atteints, compte tenu des techniques qui seront employees\. B\. Commercialisation et prix 6\.03 On prevoit que la production du projet sera exportee sous forme de balles de caoutchouc; cette presentation offre l'avantage de permettre la spe cification precise des qua lites du produit et les industries de transformation lui accordent la preference\. D'autres types de caoutchouc pourront egalement ~tre produits, rnais cela devra faire l'objet d'une d~cision a un stade ulte rieur, lorsque la demande de types particuliers de caoutchouc pourra ~tre determinee de fa~on plus precise\. Aucune decision definitlve a cet egard ne sera necessaire avant 1982\. Compte tenu de la croissance prevue de la demande mondiale de caoutchouc naturel, on ne prevoit pas de difficulte d'ecoulement de la production du projet\. Au cours des negociations, Ie gouvernement a fait savoir qu'il avait l'intention de confier la vente du caoutchouc de la planta tion a la CSSPPA; la Banque a re~u l'assurance que l'occasion lui serait donnee, d'ici au 31 decembre 1979 au plus tard, de pr~senter ses observations sur tout accord ~ventuel de commercialisation avant la conclusion d'un tel accord\. 6\.04 L'Annexe 10, fond~e sur un rapport ~tabli en mai 1977 par la Divi sion de la Banque chargee des projections sur les produits de base et les ex portations, analyse l'offre et la demande mondiales concernant Ie caoutchouc\. La production de caoutchouc naturel, qui a diminue sensiblement en 1975 par suite d'une baisse des prix du marche et des restrictions a la production d~ci dees par les gouvernements de certains des principaux pays producteurs, a ete  - 31 lente a s'adapter a cette evolution du marche\. La relance de la demande glo bale a ete stimulee en 1975 par Ie brusque regain de l'activite industrielle des pays developpes qui represente environ 70 % de la consommation mondiale; l'accroissement de la demande, qui a ete de 7,5 %, a entralne une hausse des prix du caoutchouc naturel de plus de 30 % en 1976\. Actuellement, Ie prix du caoutchouc est de 0,44 dollar la livre et les previsions indiquent qu'il devrait Atre de 0,436 dollar la livre en 1980, en prix constanti de 1977\. En outre, d'apres les previsions des tendances de la production et de la consommation, au milieu de la prochaine decennie ce prix devrait Atre sensiblement au mArne ni veau qu'en 1980 (en prix constants de 1977)\. Pour l'analyse economique du pro jet, on a utilise respectivement les prix de 0,432 dollar la livre en 1980-84 et de 0,426 dollar la livre a partir de 1985\. Les prix utilises pour cette analyse sont presentes de fa~on detaillee a l'Annexe 10, Tableau 3\. Ces pre visions de prix de la 8anque correspondent au RSS 1\. Toutefois, Ie SMR 5 se vend actuellement a un prix legerement superieur, et les SMR 10 et 50 a des prix legerement inferieurs, de telle sorte que, etant donne la composition pre vue de la production (par\. 3\.14), Ie prix moyen devrait Atre egal a celui du RSS 1\. C\. Resultats financiers 6\.05 L'autofinancement occasionne par Ie projet et dont beneficierait Ie gouvernement est presente a l'Annexe 9, Tableau 1\. Les coOts indiques jusqu'en 1982 comprennent les imprevus pour depassements de quantite et pour hausse des prix utilises dans les previsions de coOts du projet\. Au-dela de 1982, ces coots sont exprimes en prix de 1982, majores de 7 % par an\. Le revenu proven ant des ventes a ete calcule sur la base des previsions de la 8anque concernant les prix du caoutchouc en prix courants jusqu'en 1985 puis majores dans la mAme proportion pour les annees suivantes\. Cet autofi nancement indique qu'un excedent annuel d'exploitation (avant deduction du service de la dette) apparaltra pour la premiere fois en 1985, et sera de 505 millions de francs CFA (2,1 millions de dollars), et qu'il atteindra 1\.441 millions de francs CFA (5,9 millions de dollars) en 1986 et 2\.993 mil lions de francs CFA (12,2 millions de dollars) en 1987\. Apres deduction du service de la dette, Ie premier excedent apparaltra en 1987 et sera de 1\.459 millions de francs CFA (6 millions de dollars)\. D\. Avantages pour les petits exploitants 6\.06 Les avantages que Ie projet devrait procurer aux petits exploitants ont ete estimes sur la base d'une plantation modele d'un hectare et sont pre sentes de fa~on detaillee au Tableau 1 de l'Annexe 4\.  - 32 6\.07 La valeur estimative moyenne du caoutchouc au depart de l'usine est de 200 francs CFA Ie kg (en prix de 1977), dont il faut deduire 25 francs CFA pour les coats de traitement et de transport, ce qui porte la valeur du caout chouc brut a 175 francs CFA Ie kg\. II faut encore deduire 45 francs CFA par kg pour les services de vulgarisation fournis aux exploitants, ce qui laisse a ces derniers 130 francs CFA pour chaque kg de caoutchouc, brut recolte sur leur exploitation\. Les plantations villageoises entreront en production a la sixieme annee, et necessiteront 34 journees de travail par hectare pour l'en tretien et la saignee; Ie revenu par journee de travail, apres remboursement de la dette, sera de 1\.066 francs CFA (4,35 dollars)\. Ce revenu augmentera progressivement pour atteindre 2\.354 francs CFA (9,60 dollars) par journee de travail pour un total de 70 journees de travail apres 10 ans, et atteindra un maximum de 2\.622 francs CFA (10,70 dollars) par journee de travail, egalement pour un total de 70 journees de travail, apres disparition du service de la dette, c'est-a-dire 13 ans apres que les arbres auront atteint l'Age adulte\. Cette remuneration de la main-d'oeuvre est satisfaisante par rapport au salaire agricole minimal officiel de 350 francs CFA par jour, (1,43 dollar) et il est comparable au revenu procure par d'autres cultures, telles que Ie palmier a huile et Ie cacao, qui pourraient ~tre cultivees dans la region\. De nombreux petits exploitants combineront certainement la culture de l'hevea a celIe de produits vivriers\. En moyenne, une plantation villageoise d'heveas, d'une superficie de 2 ha, procurera, lorsqu'elle aura atteint son plein niveau de production, un revenu annuel total apres service de la dette d'environ 338\.000 francs CFA (1\.380 dollars), aux prix de 1977, a c1Jmpter de la douzieme annee; ce revenu atteindra 367\.000 francs CFA (1\.498 dollars) apres rembourse ment total de la dette, c' est-a-dire a compter de la vingtieme annee\. Pendant les six premieres annees - la production ne procurant aucun revenu - l'element en especes du credit assurera au petit exploitant un revenu de 300 francs CFA (1,22 dollar) par journee de travail - qui viendra s'ajouter au revenu qu'il tirera de la culture de produits vivriers\. VII\. AVANTAGES ECONOMIQUES ET JUSTIFICATION 7\.01 Le present projet appuiera Ie programme de diversification agricole et de developpement regional du Sud-Ouest lance par Ie gouvernement\. II aura pour principaux avantages d'accro!tre la production et les exportations de caoutchouc qui, en 1993, lorsque la plantation aura atteint son plein regime de production, s'eleveront a environ 30\.000 tonnes (soit 33 % de ce que sera alors, d'apres les previsions, la production ivoirienne) et procureront des recettes annuelles nettes en devises de 6 milliards de francs CFA (24 millions de dollars)\. 11 fournira egalement du travail a quelque 4,\.500 ouvriers qui, avec leur famille, representeront une population totale de 15\.000 personnes qui seront les premieres visees par la creation de services de soutien et Ie developpement de l'activite economique dans la zone du projet\. L'element du projet relatif aux plantations villageoises pourrait contribuer egalement a stabiliser la population de la region et a amEHiorer les possibilites offertes en milieu rural\.  - 33 7\.02 L'analyse economique (Annexe 11) est fondee sur les prix reels en valeur constante de 1977, et les coats et avantages en devises sont consi de res a leur valeur integrale au taux de change officiel de 1 dollar pour 245 francs CFA, tandis que les coats en monnaie nationale, nets d'impOts, sont ajustes en fonction du coefficient de conversion standard de 0,83\. Le taux de rentabilite de l'investissement supplementaire propose a present pour la mise en production de l'ensemble de 13\.500 hectares de' plantation d'heveas, compte tenu de 7\.000 hectares deja plantes, est estime a 19 %\. La solution qui consisterait a n'effectuer que les investissements necessaires pour mettre les 7\.000 premiers hectares en production aurait un taux de rentabilite de 21 %, tandis que Ie taux de rentabilite calcule seulement pour la superficie supplementaire de 6\.500 hectares serait de l'ordre de 17 %\. Ces estimations seraient reduites d'environ 3 % pour une hausse des coOts ou une baisse des avantages de l'ordre de 15 %\. Pour verifier la justification de l'amenagement des 6\.500 ha supplementaires, on a egalement calcule les valeurs nettes actua lisees (pour un taux d'actualisation de 10 %)\. La valeur nette actualisee obtenue pour la production de 7\.000 ha est de 6,8 milliards de francs CFA (27,9 millions de dollars), tandis que l'amenagement du reste de la superfi cie totale de 13\.500 ha porte cette valeur a 11,7 milliards de francs CFA (47,9 millions de dollars)\. Les calculs de la valeur nette actualisee indi quent que l'agrandissement de la plantation pour la porter a 13\.500 ha serait avantageux quel que soit Ie taux d'actualisation, jusqu'a concurrence de 17 %, ce qui demontre que cette expansion se justifie\. 7\.03 Pour permettre d'etablir une comparaison entre les resultats escomp tes a present et ceux qui avaient ete indiques pour Ie premier projet, a) lors de son evaluation (13\.500 ha) et b), lorsque la superficie a ete ramenee a 7\.000 ha (Resolution R76-240 du Conseil), les taux de rentabilite du premier projet ont ete recalcules a compter de 1972, ce qui a donne les resultats suivants : 7\.000 ha 13\.500 ha w Prix reels 10 ~ ~ 12 ~ Prix du marche (nets d'impOts) 9 ~ ~ 11 ~ ~ Prix de referenceLl 10 w ~ 12 ~ ~ Premier rapport d'evaluation 13 ~ ~ Memorandum au Conseil (septembre 1976) 9-10 % /1 Utilises dans Ie Rapport d'evaluation du premier projet : Taux de change = 125 % du taux officiel, salaire virtuel = 50 % du salaire reel, prix du caoutchouc inferieur de 15 % aux projections actuelles\.  - 34 - Le fait que les taux de rentabilite pour la totalite des 13\.500 ha soient lege rement inferieurs aux estimations de la premiere evaluation est dO a un rythme de plantage plus lent que prevu a l'origine\. 7\.04 Le programme de plantations villageoises represente un element mineur du coOt total du projet et, comme il s'agit essentiellem~nt d'un projet pi lote, il n'en a pas ete tenu compte dans les calculs du taux de rentabilite global\. Toutefois, a titre d'indication, son taux de rentabilite a ete cal cule separement et evalue a environ 18 %\. Ce projet n'a pas donne lieu a une analyse sociale distincte\. Neanmoins, des travaux effectues precedemment dans Ie secteur ivoirien des plantations!! indiquent que Ie taux de rentabilite social serait sensiblement superieur au prix d'efficacite calcule\. Risques 7\.04 Compte tenu de l'experience du premier projet, l'eventualite de de passements de devis dans Ie cadre de ce second projet ne peut ~tre totalement ecartee, ne serait-ce que parce que lion ne peut predire que lion n'assistera pas a une reapparition de la spirale inflationniste des annees 1973/74\. Nean moins, etant donne que les projections de coat utilisees (8 l'exception de celles qui portent sur l'usine) sont fondees sur l'experience recente de Grand Bereby, la marge de 15 % utili see dans l'analyse de sensibilite devrait suffire a couvrir un tel risque\. 7\.05 Une plus grande incertitude pese sur la disponibilite de main- d'oeuvre dans une region a population eparse\. Les efforts entrepris recem ment en ce qui concerne les conditions de recrutement de la main-d'oeuvre pour la plantation, la construction de logements et d'elements d'infrastructure so ciale et l'augmentation du salaire minimal des ouvriers de la plantation ont ameliore sensiblement la Situation, mais rien ne garantit que les penuries de main-d'oeuvre de 1975 ne se reproduiront pas\. On s'attend a ce que Ie develop pement de l'activite economique (notamment grace au projet SoDEPALM) favorise l'afflux de main-d'oeuvre dans la region du Sud-Ouest; d'ailleurs, on a pu cons tater un accroissement des recrutements spontanes sur la plantation de Grand Bereby\. De plus, l'objectif annuel ne sera que de 1\.750 ha de plantation par an, ce qui est a la mesure des effectifs actuels et des previsions en matiere de main-d'oeuvre, alors que, selon les estimations donnees lors de l'evaluation du premier projet, on prevoyait de planter 3\.000 ha en 1979\. 11 Economic and Social Analysis of Projects - A Case Study of Ivory Coast\. Etude No 253, de mai 1977 de la Banque Mondiale\.  - 35 7\.06 Les resultats du projet pilote de plantations villageoises sont ega lement aleatoires, d'autant plus que l'on ignore Ie nombre de petits planteurs qui pourraient eventuellement participer a ce programme et l'interet que celui-ci pourrait susciter parmi eux\. Neanmoins, cet element se justifie en tant que moyen de determiner Ie rOle que peut jouer l'heveaculture dans l'accroissement des revenus de la population locale\.  - 36 VIII\. POINTS D'ACCORD ET RECOMMANDATION 8\.01 Au cours des negociations, des assurances ont ete donnees sur les points suivants : a) Ie trace de la route reliant la zone du pro jet au port de San Pedro sera ameliore avant Ie 31 decembre 1978 (par\. 3\.04); b) Ie gouvernement veillera a ce que l'IRCA fournisse des semences a la plantation en quantite suffisante et en temps utile (par\. 3\.08); c) une etude de factibilite relative a un projet pilote de plantations villageoises sera executee selon des modalites qui seront fixees au plus tard Ie 31 decembre 1978 (par\. 3\.21); d) Ie gouvernement examinera avec la Banque, au plus tard Ie 31 decembre 1978, ses plans relatifs aux dispositions d'ordre ins titutionnel a mettre en oeuvre pour permettre au projet d'atteindre les objectifs fixes; un accord sur les mesures a prendre sera conclu et mis a execution au plus tard Ie 31 decembre 1979 (par\. 4\.08); e) un document de politique generale sur la position du gouvernement a l'egard du developpement du sous-secteur du caoutchouc sera examine avec la Banque d'ici au 31 decembre 1978 (par\. 4\.10); f) l'Etat fournira des fonds supplementaires, apres les cinq annees de la periode d'investissement, pour financer les so ins a apporter au 13\.500 ha de plantations jusqu'a ce que les arbres atteignent l'~ge adulte, pour agrandir les installations de traitement afin de leur permettre de traiter la totalite de la production du projet et pour assurer Ie service de la dette afferent aux pr~ts obtenus dans Ie cadre du premier projet et de ce second projet (par\. 5\.07); et g) l'occasion sera donnee a la Banque, au plus tard Ie 31 decembre 1979, de presenter ses observations sur tout accord de commercialisation de la production de la plantation avant la conclusion d'un tel accord (par\. 6\.03)\. 8\.02 L'entree en vigueur du prat propose sera subordonnee aux conditions suivantes a) l'entree en vigueur de l'Accord de pret de remplacement 938-IVC (par\. 4\.06); b) l'entree en vigueur des prats FED et de la CCCE qui serviront a cofinancer ce projet (par\. 5\.04);  - 37 c) des assurances donnees par Ie gouvernement et jugees satisfaisantes par la Banque que Ie pr@t de la BE! sera consenti au plus tard Ie ler janvier 1979 (par\. 5\.04); et d) confirmation donnee par l'agence d'execution qu'elle prendra tou tes les mesures necessaires afin de tenir comme il convient les comp tes de la plantation et de les faire verifier 'par des reviseurs comptables independants juges acceptables par la 8anque et de four nir copie des comptes verifies et du rapport des reviseurs-comptables six mois au plus tard apres la clOture de l'exercice auquel ils se rapporteront (par\. 5\.10)\. 8\.03 Sous reserve de ces assurances et conditions, Ie present projet jus tifie l'octroi par la Banque d'un pr~t de 20 millions de dollars assorti d'une periode de remboursement de 17 ans, dont 4 ans de differe d'amortissement\.  ANNEXE 1 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND-BEREBY Etat d'avancement des projets agricoles financds p~r la Banque A\. PrAt 611-IVC - Palmivoire, 3,3 millions de dollars (13 juin 1969) 1\. Le projet portait sur Ie plantage et la mise en production de 4\.000 ha de palmiers a huile dans la plantation d'Ehania dont la palme raie s'etendrait alors a 10\.000 ha\. Le prAt est entrd en vigueur Ie 30 decembre 1969\. Le plantage a ete termine en 1972 et la plantation a dte bien entretenue\. Les coOts de plantage se sont reveles legerement inferieurs aux estimations faites lars de l'evaluation et Ie projet est maintenant acheve\. B\. PrAt 612-IVC - Palmindustrie, 4,8 millions de dollars (13 juin 1969) 2\. Le projet a finance la construction d'une huilerie pour desservir la plantation industrielle d'Ehania couvrant 10\.000 ha et quelque plantations villageoises\. Le pr~t est entre en vigueur Ie 30 decembre 1969\. L'huilerie a dte dotee de deux chaines de traitement d'une capacite initiale de 40 ton nes/heure de regimes frais, qui fonctionnent a plein rdgime de maniere satis faisante\. Les coOts n'ont pas depasse les estimations faites lars de l'eva luation\. Le projet prevoyait d'ajouter une chaine de traitement d'une capa cite de 20 tonnes/heure mais Palmindustrie a demande a la Banque d'approuver une modification de ce plan visant a remplacer la chaine suppldmentaire par deux huileries satellites d'une capacitd de 20 tonnes/heure chacune et pre voyant l'expansion des services de l'huilerie centrale\. Cette modification a dte approuvee mais comme dans l'intervalle les revenus de Palmivoire avaient augmente, la Banque a limite sa participation a l'octroi du solde a financer (700\.000 dollars)\. Le pro jet est maintenant termine\. C\. Pr@t 612-IVC - Sodepalm, 9 millions de dollars (13 juin 1969) 3\. Le projet portait sur Ie plantage et la mise en production de 12\.000 ha de palmiers a huile dans des plantations villageoises, Ie plantage et l'entretien, jusqu'en 1974, de 3\.500 ha de cocoteraies industrielles et 3\.000 ha de cocoteraies villageoises, la fourniture de services de credit et de supervision pour les palmeraies et cocoteraies villageoises ainsi que l'in frastructure necessaire aux 3\.500 ha de cocoteraies industrielles\. Le pr~t est entre en vigueur Ie 30 decembre 1969\. Les operations de plantage requises pour les cocoteraies industrielles devaient s'achever en 1971\. La Banque a accepte de les prolonger jusqu'en 1972 en raison d'une penurie de materiel de plantation (due a une maladie)\. Les plantages sont maintenant taus acheves et Ie projet est termine\.  ANNEXE 1 Page 2 4\. Les trois prets susmentionnes representaient les premieres interven tions de la 8anque en faveur du secteur des palmiers a huill~ de COte d'Ivoire\. Apres un demarrage relativement lent, les decaissements effectues au titre des pr~ts de la 8anque se sont acceleres et sont maintenant tous acheves\. D'au tre part, la realisation materielle du projet a progresse de fa90n tres satis faisante\. La production des palmiers a huile, qui augmente maintenant regu lierement, a atteint quelque 70 % de son potentiel et les rendements des plan tations industrielles comme des plantations villageoises correspondent bien aux previsions faites lors de l'evaluation\. D\. Pr~t 686-IVC roduction de cacao, 7,5 millions de dollars 5 juin 1970 5\. Le projet avait pour objectif, au depart, l'amenagement de 18\.800 ha de cacaoyers et la remise en valeur de 38\.000 ha environ de plantations exis tantes\. II est entre en vigueur au mois de novembre 1970\. A la suite des mo difications apportees au projet en juillet 1973, la remise en valeur ne por tait plus que sur 15\.500 ha; ce programme revise a maintenant ete acheve\. En viron 10\.000 ha avaient ete amenages dans Ie cadre du nouveau programme de plantation a la fin de 1973 et quelque 6\.000 ha en 1974\. Le projet s'est de roule de fa90n satisfaisante, mis a part certains problemes administratifs qui ont retarde la presentation des demandes de remboursement\. Toutefois, l'admi nistration de ce premier pr~t a ete rattachee a celIe du dellxieme (Pr~t 1069 IVC), au titre duquel quelque 3\.200 ha de cocoteraies ont ete mis en culture\. Une economie de 2,2 millions de dollars resultant de la modification mention nee et de la fusion des deux projets a ete annulee a la date de la signature du deuxieme projet\. Les decaissements effectues au titre du programme reduit sont maintenant acheves et un solde supplementaire de 500\.000 dollars reste non decaisse\. II se peut qu'il soit annule a la suite des echanges de vues qui se paursuivent actuellement avec les autorites ivoiriennes\. E\. Pr~ts 759-IVC et 760-IVC - Sodepalm et Palmindustrie, 7 millions de dollars (22 juin 1971) 6\. Le projet comporte a) Ie pIant age de 4\.500 ha de palmiers a huile dans des plantations villageoises, b) Ie plantage de 4\.500 ha de cocotiers dans les plantations villageoises, c) Ie plantage de 8\.000 ha de cocotiers dans des plantations industrielles d'Etat et d) la construction d'une huilerie\. Ces deux pr~ts sont entres en vigueur Ie 15 novembre 1972\. L'huilerie a ete mise en service en decembre 1972 et fonctionne de fa90n satisfaisante\. Les programmes de plantation ont ete realises dans les delais prescrits et Ie pro jet est maintenant acheve\.  ANNEXE 1 Page 3 F\. Pr~t 938-IVC - Plantation industrielle d'heveas de SOCATCI, 8,4 millions de dollars (23 octobre 1973) 7\. L'objet du pr~t etait de financer conjointement avec la CCCE et 1e FED l'amenagement de plantations industrielles modernes d'heveas couvrant 13\.500 ha ainsi que la creation de services auxiliaires sous la direction de l'etablissement Michelin, fabricant de pneus fran~ais\. Le projet s'est heurte des 1e debut a des problemes d'infrastructure et son execution s'est trouvee egalement ralentie par une gestion inefficace\. Apres l'elimination de ces deux contraintes, la penurie de travailleurs agricoles a freine Ie rythme des operations de plantage et les objectifs du projet ont dC ~tre reduits, pour que son coOt ne depasse pas Ie montant du deviSe L'amenagement des planta tions dont la superficie totale a ete main tenant ramenee a 7\.000 ha environ, devrait ~tre acheve en 1978\. G\. Pr~t1036-IVC - Sode aIm et Palmivoire, 2 6 millions de dollars 31 juillet 1974 8\. Ce pr~t, entre en vigueur en aoOt 1975, represente la continuation de pr~ts anterieurs accordes par la 8anque en faveur de palmeraies a huile\. Le projet prevoyait la plantation de 5\.000 ha de palmiers a huile par les pe tits planteurs et de 5\.500 ha dans les plantations industrielles de la SODEPALM\. L'execution du projet, main tenant terminee, s'est deroulee de fa ~on satisfaisante\. H\. Pr~t 1069-IVC - Deuxieme roduction de cacao 20 millions de dollars 10 janvler 1975 9\. Ce pr~t, qui est entre en vigueur en septembre 1975, fait suite au premier projet de production de cacao (Pr~t 686-IVC)\. Son execution se de roule de fa~on satisfaisante et selon Ie calendrier prevu, bien que les de caissements continuent a accuser un retard pour des raisons administratives; la rationalisation des procedures de la CAA devrait permettre d'accelerer Ie rythme des decaissements\. I\. Pr~t 1077-IVC - Projet de developpement rural des zones cotonnieres, 31 millions de dollars (17 janvier 1975) 10\. Ce pr~t est entre en vigueur en juin 1975\. Son objet principal est de porter les zones plantees en coton de 57\.000 ha a 80\.000 ha et celles des cultures vivrieres exploitees en alternance avec Ie coton d'environ 9\.000 ha a 71\.000 ha\. Dans l'ensemble, la realisation materielle du projet est satisfai sante mais la lenteur des procedures administratives de la CAA a freine Ie rythme des decaissements (voir la remarque faite au sujet du Pr@t 1069-IVC precite)\.  A~NEXE 1 Page 4 J\. Pret 1382-IVC - Quatrieme projet de culture des palmiers a huile et des cocotiers, 20 millions de dollars (30 mars 1977) 11\. L'objet de ce pret etait de financer avec l'aide de l'Etat ivoirien la mise en valeur des plantations industrielles du sud-ouest du pays entre prise par la SODEPALM\. Un element important d'amenagement de plantations vil lageoises vient completer Ie projet\. L'execution de ce ~rojet se deroule de fa~on satisfaisante et les plantations ont ete effectuees dans les delais prescrits\. Toutefois, Ie pret n'est pas encore entre en vigueur, en raison de la reorganisation en cours du secteur agricole et cette entree en vigueur ris que d'etre encore retardee jusqu'a ce que les questions institutionnelles in teressant l'organisme d'execution aient ete eclaircies avec les representants ivoiriens\.  COTE D'IVOlRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Comparaison entre l'Evaluation et lee Reeultats Obtenus dans Ie Cadre du 1er Projet 1978 1979 Couts 1972 1973 1974 1975 1976 1977 sQI\.lIJ'l' 0 tal Envilia~ Envisage Mise en Valeur de 1a Plantation: Evaluation }\./ 54\.5 109\.6 189\.6 300\.3 473\.8 591\.6 1,989\.4 634\.7 392\.5 Depenses actuelles 33\.6 112\.1 331\.9 459\.8 572\.5 698\.0 2,208\.5 Eguipement: Evaluation 154\.4 65\.9 92\.3 166\.6 155\.6 36\.3 671\.1 40\.0 8\.1 Depenses actuelles 53\.6 52\.0 223\.2 198\.0 129\.4 131\.0 787\.2 Infrastructure: Evaluation 162\.0 92\.3 17\.5 108\.4 105\.2 36\.2 581\.6 75\.8 22\.0 Depenses actuelles 2\.1 62\.8 336\.2 275\.2 194\.4 375\.0 1,245\.7 Frais Generaux: Evaluation 81\.7 186\.5 2110\.5 273\.5 313\.2 364\.7 1,460\.1 382\.5 427\.6 Depenses actuelles 41\.6 139\.8 178\.8 344\.0 487\.2 538\.0 1,729\.4 Commission Michelin: Evaluation 13\.8 19\.1 26\.4 33\.6 44\.2 59\.0 196\.7 62\.0 70\.6 Depenses actuelles 21\.4 22\.2 28\.6 43\.3 ~ 40\.0 194\.6 Total Evaluation 466\.4 474\.0 626\.3 882\.4 1,092\.0 1,087\.8 4,628\.9 1,195\.0 921\.4 6,745\.3 Total Depenses Actuelles 152\.3 389\.5 1,098\.7 1,320\.3 1,422\.6 1,782\.0 6,165\.4 Economies (nepassement de devis) 314\.1 84\.5 (472\.4) (437\.9) (330\.6) (694\.2) Cumulatif 398\.6 (73\.8) (511\. 7) (842\.3)(1,536\.5) Programme de plantage 500 750 1250 2000 3000 3000 Cumulatif 1250 2500 4500 7500 10500 Estimation cumulative de l'evaluation 466\.4 940\.4 1\.566\.7 2\.449\.1 3,541\.1 4\.628\.9 5,823\.9 Estimation moyenne cout/ha 1\.881 1\.253 0\.980 0\.787 0\.617 0\.555 Programme de plantage acheve 20 258 784 1311 1102 2100 1425 Cumulatif 278 1062 2373 3475 5575 7000 I-i Couts actuels cumulatifs Cout moyen/ha plante 152\.3 7\.615 541\.8 1\.949 1\.640\.6 2\.960\.9 4\.383\.5 1545 1\.248 1\.261 6\.165\.5 1\.106 6,792\.5 0\.970 ~ l;'~ i III 1\1 Couts au moment de l'evaluation avec inflation 482\.8 553\.8 853\.8 1,294 1\.548\.8 2,107\.1 1,775\.9 c N I-' Cumulat if 1,036\.6 1\.890\.4 3,184\.4 4\.733\.2 6,840\.3 8,616\.2 Estimation moyenne du cout/ha 2\.073 1\.512 1\.274 1\.052 0\.912 0\.821 11 Tous les chiffres de l'evaluation comprennent les imprevus ainsi que calcule dans Ie rapport d'evaluation\.  Annexe 2 Tableau 2 COTE D' IVOlRE Page 1 DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Cout d'Investissement et de Mise en Valeur au 30 Septembre 1976 (dans Ie cadre du ler projet) I\. Couts Agricoles '000 FCFA \. Couts comprenant Ie developpement, Ie materiel vegetal et l'entretien ulterieur pour les superficies plantees en: 1972 43,481 1973 409,251 1974 693,261 1975 837,879 1976 (1) 238,051 Couts non encore affectes: Pepinteres 1974 165,870 " 1975 84,764 " 1976 29,029 Jardins a bois 1975 11,368 Etude topographique 174,926 Couts de mise en valeur pour les plantages ulterieurs 329,764 Soustotal 3,017,644 II\. Infrastructure FCFA '000 Ateliers 15,609 Batiments administratifs 66,355 Batiments de recreation 46,450 Stations de pompage 19,851 Logements des cadres 93,011 Logements des travailleurs 344,850 Amenagement des terrains pour les batiments 84,048 Hangars en bois )a construire I 35,200 Investissements en cours 89,123 794\.497 III\. Vehicules\. materiel\. mobilier et divers Centrale electrique et station de pompage 117,091 Materiel pour l'atelier 33,396 Vehicules 31,335 Camions et voitures commerciales 109,519 Equipement travaux genie civil 269,393 Tracteur et materiel agricole 57,530 Mobilier de bureau et materiel 23,340 Mobi1ier de logement et materiel 43,377 Materiel lutte incendie et divers 6,737 691,718 Total 4,503,859 ======-==== ~I Pas encore finalise, en attendant la repartition des depenses non affectees\.  Annexe 2 Tableau 2 Page 2 COTE D'IVOlRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Cout d'Investissement et de Mise en Valeur au 30 Septembre 1976 (dans Ie cadre du ler projet) '000 FCFA \. Total des couts d'investissement et de mise en valeur au 30 Septembre 1976 4,504 (1) =---==--= Ce montant a ete finance par: a) Prets decaisses BIRO 943 Fonds Europeen de developpement 962 Caisse Centrale de Cooperation Economique (CCCE) 943 2,848 ======== b) Contribution du Gouvernement 1,021 c) Decouvert BNDA 635 4,504 ========= (1) Ce montant est superieur au total a la fin de l'Annee Civile 1976, ainsi qu'indique au Tableau 1, etant donne qu'il comprend des depenses non encore reconnues par les co-preteurs comme couts du projet legitimes\. En plus de ce montant, La SATAC a investi environ 300 millions FCFA en inventaire et pieces detachees\. Cet investissement est couvert par Ie credit des fournisseurs\.  ANNEXE 3 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND-BEREBY ACTIVITES AGRICOLES A\. Technique de mise en valeur et d'exploitation Identification et delimitation des zones pouvant @tre plantees 1\. La SATAC, faisant pleinement usage des connaissances specialisees que possedait sa societe mere Michelin, a effectue un leve topographique de taille de la zone de concession qui s'est termine au cours de l'annee 1977\. Les coOts (8\.500 francs CFA (35 dollars) par ha susceptible d'@tre plante) ant legerement depasse Ie devis de 5\.770 francs CFA (24 dollars) inclus dans Ie premier rapport d'evaluation (PA-129a du 6-3-1973) et sont entierement finan ces au titre du premier projet\. Abattage et defrichage 2\. Comme dans Ie cas du premier projet, la mecanisation du defrichage, chaque fois que cela serait possible, a ete proposee en raison de la penurie de main-d'oeuvre dont souffre la region\. Le terrain est accidente et les zones a defricher sont d'abord divisees en petites parcelles de terres (pan neaux) ayant dans la mesure du possible un aspect et une pente uniformes\. Ce procede facilite les activites ulterieures et reduit Ie risque d'erosion des sols gr~ce a l'orientation transversale des rangees d'heveas sur la pente prin cipale de chaque parcelle\. Des tracteurs specialement equipes sont utilises pour achever l'ouverture des lignes et Ie sous-solage en une seule operation\. Piguetage et trouaison 3\. La densite de plantation de 550 arbres l'hectare est obtenue en dis posant les lignes a 8 m de distance les unes des aut res et en menageant un es pace de 2,27 m entre les plants d'une m@me rangee\. Dans la plupart des re gions, les trous de plantation peuvent @tre creuses par des may ens mecaniques, c'est-a-dire a l'aide d'une tariere mantee sur tracteur, et Ie calcul des coOts se fonde sur l'utilisation de cette methode\. Plante de couverture 4\. Le pueraria pousse avec une vigueur exceptionnelle au Grand-Bereby et peut ~tre plante a des coOts bien inferieurs aux coats habituels\. La me thode d'ensemencement actuelle, egalement utilisee dans Ie cadre du deuxieme projet, consiste a semer a la volee 5 kg de semences a l'ha\. La semence n'a a @tre traitee ni par application de chaleur ni par inoculation et cette plante ne necessite aucun engrais specifique\.  ANNEXE 3 Page 2 Technique de plantation 5\. Trois methodes de plantation ont ete employees dans Ie cadre du pre mier projet : semis de graines, stumps greffes et plants en sacs de polyethy lene\. On dispose de peu de renseignements sur l'efficacite relative de ces trois techniques\. Certains chiffres fournis par l'IRCA a p'3rtir de mensura tions effectuees en janvier 1977 sur Ie materiel de la plantation industrielle (qui n'etaient pas destinees a la collecte de statistiques) montrent qu'a l'age de deux ans et demi les arbres issus des stumps greffes et des semis en graine croissaient mieux en circonference que ceux qui provenaient de plants eleves et greffes dans des sacs de polyethylene\. Circonference a Surf ace de la un metre du sol section en couee T~ee de materiel vegetal cm ~o \ c} cm Z % (c) a) stumps greffes 22,2 121 39,2 147 b) Plants greffes sur champ 22,2 121 39,2 147 c) Plants en sacs de polyethylene 18,4 100 26,9 100 Toutefois ces donnees s'appliquent a des plantations remontant a 1974\. Depuis, la technique d'elevage en sac de polyethlyene en pepinieres s'est amelioree alors que l'application des autres methodes se heurtait a de graves difficul tes provenant des conditions exist antes au Grand-Bereby - lourdes pertes impu tables au choc de la transplantation dans Ie cas de l'utilisation des stumps greffes, et aux dommages causes par les rongeurs dans Ie cas du semis de graine\. Ces problemes d'ordre pratique ont amene les specialistes a recom mander l'utilisation exclusive du systeme d'elevage et greffage en sacs de polyethylene dans Ie cadre du deuxieme projet\. Entretien desjeunes plantations 6\. L'execution du premier projet avait ete genee par la penurie de main- d'oeuvre, aussi a-t-on choisi des methodes d'entretien des jeunes plantations permettant de reduire au minimum Ie nombre de travail leurs manuels necessaires\. La mecanisation est possible a une echelle limitee, par exemple l'utilisation de gyrobroyeurs montes sur tracteur pour l'entretien des lisieres des parcelles, mais dans l'ensemble on a surtout recours aux desherbants chimiques\. Le diuron, Ie 2,4-D et Ie MSMA sont utilises pour lutter contre l'enherbement des lignes d'heveas avant la plantation\. Un melange de D-2,4 et de T-2,4,5 est utilise pour desherber les interlignes avant de semer la couverture - et Ie MSMA sert a emp~cher l'envahissement des jeunes heveas par Ie pueraria\. Le nombre de pulverisations qui se sont generalement revelees efficaces ont servi de base aux calculs des coOts mais Ie programme doit rester souple pour tenir compte de l'envahissement de certaines herbes localisees telles que l'Eupatorium odo ratum (Siam weed) ou d'especes d'herbes concurrentes, en particulier Ie Setaria\. II semble donc que les coOts comme les choix des desherbants varie ront d'une zone a l'autre\.  ANNEXE 3 Page 3 Lutte contre les maladies 7\. La seule maladie importante des racines qui pourrait poser un pro bleme notable est Ie Fomes et des tournees d'inspection regulieres sont pre vues ~ cet effet de la 3e ~ la 15e annee\. Les arbres infestes doivent ~tre elimines, les traitements prophylactiques ou curatifs n'etant pas consideres comme rentables dans l'etat actuel des choses\. Toutefois, cette situation pourrait evoluer ~ mesure que de nouvelles techniques de lutte sont mises au point\. Systeme de saignee 8\. Le choix du systeme de saignee doit encore ~tre fixe de fagon defi nitive\. La methode recommandee en 1972 dans Ie cadre du premier pro jet dif fere de celIe qui est prop OSee maintenant dans Ie cadre du deuxieme projet\. La recherche en cours sur l'utilisation des stimulants et la reaction des clones individuels a des techniques particulieres exigera peut-~tre de nou velles modifications des techniques avant que les arbres des zones devant ~tre plantees dans Ie cadre du deuxieme projet ne soient pr~ts a ~tre saignes\. 11 s'agit en principe d'atteindre les rendements prevus sans compromettre la croissance actuelle et la future productivite des arbres et ce de la fagon la plus rentable du point de vue de l'utilisation de la main-d'oeuvre et de la consommation d'ecorce\. 9\. Le calcul des coats est fonde sur l'hypothese que les arbres seront saignes selon Ie systeme de demi-spirale deux fois par semaine pendant 45 se maines l'an, c'est-a-dire la formule S2 j3!j4, soit 90 saignees par an\. L'Ins titut de recherche sur Ie caoutchouc (IRCA) a pu demontrer que ce systeme donne de tres bons resultats avec Ie clone GTI au moins pendant les six premieres annees d'exploitation\. L'ouverture se fera a 1,20 m de hauteur lorsque les arbres auront atteint une circonference de 50 cm a une hauteur de 1 m au-des sus du point de soudure\. Si l'on combine la saignee inversee avec la saignee nor male on assure ~ des conditions rentables une duree d'exploitation d'au mains 36 annees sans avoir a proceder a la saignee de la deuxieme scorce de renouvel lement\. L'intensite de saignee equivaut a 50 % seulement de celIe qu'on obtient par Ie systeme standard S2\.j2 et pour atteindre les rendements voulus a ce niveau inferieur d'intensite il faudra recourir a la stimulation au moyen de l'Ethrel ou peut-~tre de l'Ethad trois ou quatre fois par an\. Les mala dies des panneaux de saignee, dont la plus grave est la raie noire, doivent ~tre combattues par l'application de fongicides appropries pendant la periode la plus humide de l'annee\. Le coat de l'utilisation de cette methode depen dra du moment choisi pour l'arr~t de saignee\. Pour proceder a l'analyse des prix de revient, on est parti de l'hypothese de 20 applications par an de Difolatan a 1 %\.  ANNEXE 3 Page 4 T~ches de saignee 10\. Les surfaces attribuees a chaque saigneur varieront en pratique d'une annee a l'autre d'apres Ie nombre d'arbres saignables\. Pour calculer les coOts on est parti des valeurs moyennes suivantes Arbres mis en T~che de saignee Surface par saigneur Annee saignee a l'ha nombre d'arbres ha 6 300 520 5,2 7-14 400 520 3,9 15 et au-dela 350 450 3,9 6 (6 mois seulement) 52 saignees 30 jours de travail a l'ha 7-14 90 saignees 73* jours de travail a l'ha 15 et au-dela 90 saignees 75* jours de travail a 1 'ha * y compris Ie temps necessaire a l'entretien des panneaux de saignee\. Soins a apporter aux panneaux de saignee Lutte contre les raies Difolatan a 1 % a 2\.000 francs CFA Ie litre noires 1,3 litre par serie; 20 applications par an 520 francs CFA/ha l'an Enduit sur les blessures Petrolatum au prix de 150 francs CFA/kg 1,7 kg l'ha 255 francs CFA/ha par an Stimulation des rendements Ethrel Formule d'ethrel a 2,5 % au prix de 600 francs CFA/kg 0,8 kg par ha par application 7e a 14e annee 3 applications 1\.440 francs CFA/ha par an 15e annee et au-dela 4 applications 1\.920 francs CFA/ha par an Ramassage et traitement du caoutchouc 11\. Dans Ie cadre du premier projet il avait ete recommande d'adopter Ie systeme de ramassage en sacs de polyethylene\. Toutefois, un certain nombre de problemes techniques restent encore a resoudre et la qualitl§ du caoutchouc ayant fait l'objet des ramassages periodiques en sacs de polyethylene laisse  ANNEXE 3 Page 5 encore a desirer\. Sans exclure un retour eventuel a cette methode, nettement moins coQteuse, les plans actuels se fondent sur la recolte et Ie traitement du latex liquide\. C'est pourquoi Ie moyen de transport de la plantation a l'usine et Ie materiel d'usine ont ete choisis en partant de l'hypothese que Ie latex liquide sera transforme en balles de caoutchouc brut\. Ce sujet est developpe plus avant a l'Annexe 8\. Nutrition 12\. Les resultats des essais effectues sur la plantation industriel1e par l'IRCA depuis 1972 ont entra1ne une reduction inhabituelle des fonds con sacres a la fertilisation et les calendriers d'application des engrais se fon dent sur ces recommandations\. Un programme permanent d'experience est en cours qui, s'ajoutant aux analyses foliaires periodiques, devrait permettre de satisfaire les besoins nutritionnels des differentes plantations\. Tableau des engrais - kg par hectare et par an Phosphate narutel Chlore Uree moulu de potasse Jardins a bois de greffes plantes 340 900 250 Pepinieres utilisant des sacs de polyethylene N-l 1\.200 340 N-O 470 Jeunes plantations N-O 40 N+l 40 83 N+2 40 83 N+3 N+4 N+5 36 1/ Hevea en saignee N+6 et au-dela 1/ Ce chiffre represente une moyenne generale car la plupart des zones n'au raient pas besoin d'un apport supplementaire de potasse\. La fumure regu liere des arbres stimules a l'Ethrel n'a pas ete prevue et cela risque de donner lieu a des critiques\. Toutefois, l'analyse des sols a indique que la teneur en potassium echangeable atteint 40 a 50 kg environ par ha aux queIs il faut ajouter un apport annuel de 15 a 20 kg l'ha provenant de la decomposition du sous-sol et du processus de liberation a retardement\. Comme Ie prelavement annuel de potassium pour une recolte de 2,3 tonnes provenant d'arbres stimules ne represente que 20 kg par ha environ, les besoins en potassium supplementaire sous forme d'engrais semblent tras limites\. II conviendrait d'entreprendre des essais sur Ie terrain visant a determiner la rentabilite d'un programme de fumure des la mise en sai gnee des premieres zones plantees\.  ANNEXE 3 Page 6 B\. Choix du materiel vegetal 13\. Lorsque Ie premier projet du Grand-Bereby a ete lance il a ete de cide d'accorder la priorite a la plantation du clone GT 1\. Bien que l'on ne sache rien de son potentiel a long terme dans les conditions locales, ce mate riel avait donne de bans resultats en Extr~me-Orient, en raison notamment de sa precocite et de sa vigueur, et il s'etait bien comporte pendant les trois a quatre premieres annees de saignee dans les plantations du sud-est du pays\. On avait aussi envisage d'utiliser d'autres clones tels que les PR 107, PB 86 et 5/51, Avros 2037 et RRIM 600\. A la fin de 1976, 85 % de la surface totale (3\.500 ha environ) etaient plantes en GT 1, 10 % en PR 107 et 5 % en PB 86\. 14\. Pour Ie deuxieme projet, on proposa apres consultation de l'IRCA, d'introduire certains clones plus recents qui n'avaient pas encore ete utili ses et d'abandonner certaines des selections initiales; ainsi Ie RRIM 600 est maintenant considere trop sensible au vent dans les conditions locales\. La repartition proviso ire des clones sur les 13\.500 ha qui doivent ~tre exploites se presente de la fa90n suivante Pourcentage Clone Pourcentage GT 1 25 PB 5/51 5 PR 261 18 PR 255 5 PR 107 10 HARBEL 10,29,60 3 AVROS 2037 10 PB 28/59 2 PB 217 10 RRIM 600 2 PB 235 10 15\. Dans Ie cadre du programme de 1977, la surface totale plantee en GT 1 representera legerement plus de 25 % de la surface totale de 13\.500 ha si bien qu'une plus grande diversification du materiel va bientOt s'imposer\. En depit de ses nombreuses qualites, Ie GT 1 presente certaines faiblesses\. Ainsi en Malaisie on a constate que sa reaction a la stimulation et l'augmentation de sa circonference au cours de la saignee n'etaient que moyennes\. Le renouvel lement de son ecorce est inferieur a la moyenne, et il est plus sensible que la moyenne des clones au Phytophthora\. Le PR 261 (Tj 1 x PR 107) devrait avoir un rendement aussi eleve et peut-~tre m~me meilleur\. Son ecorce se re nouvelle mieux mais il se defend mal lui aussi contre Ie Phytophthora et l'Oidium\. Le PR 107 reste l'un des meilleurs clones de reserve malgre une croissance lente au debut, il a un bon rendement a maturite, se developpe bien en circonference, possede une bonne capacite de renouvellement de l'ecorce et de recuperation apres blessure\. L'Avros 2037, bien qu'il ne soit pas encore recommande pour les plantations a tres grande echelle, possede quelques quali tes precieuses d~nt une croissance precoce vigoureuse, une bonne ecorce vierge,  ANNEXE 3 Page 7 un bon renouvellement d'ecorce et une excellente reaction a la stimulation\. Les PB 217 et 235 sont tous deux recommandes pour les plantations a echelle moyenne\. Le PB 235 a un tres bon rendement precoce et la circonference du PB 217 augmente remarquablement bien au cours de la saignee\. Bien qu'il n'ait pas fait ses preuves en Afrique et qu'il ne represente donc que 5 ro des zones plantees du Grand-Bereby, Ie PR 255 est recommande pour les plantations a grande echelle de Malaisie\. II appartient a la m~me famille que Ie PR 261 (Tj 1 x PR 107); il se caracterise par un rendement precoce remarquable et reagit a la stimulation aussi bien que l'Avros 2037 et Ie RRIM 600\. Le PB 5/51 se pr~te mal au systeme de plantation adopte au Grand-Bereby\. Etant donne sa croissance du type symetrique, il ne reagit pas bien a un espacement reduit entre les arb res d'une m~me rangee\. II y a peu a dire sur les aut res clones moins importants inclus au programme: Ie PB 28/59, bien qu'il permette d'ob tenir des rendements precoces exceptionnels et qu'il se revele plus resistant au Phytophthora que d'autres clones selectionnes, crolt mediocrement en cir conference apres la mise en saignee et a tendance a se dessecher\. 16\. Comme Ie programme de plantation qui sera finalement adopte s'ecarte assez peu de celui qui est indique sur la liste precedente, on a toute raison d'escompter que Ie rendement prevu de 2,3 tonnes a l'ha a maturite puisse ~tre atteint\. C\. Donnees mete orologiques afferentes a la zone du Grand-Bereby 17\. Lors de la preparation du premier projet en 1972, des previsions relatives a la repartition des precipitations avaient ete etablies a titre in dicatif a partir des donnees enregistrees dans quatre stations entourant l'em placement du Grand-Bereby pendant 30 annees\. Ces chiffres sont donnes au Tableau 1 et compares avec les releves reels effectues sur la plantation au cours des annees 1975-76\. Ceux-ci concordent en general avec les previsions rnais on constate cependant une grande variabilite d'une annee a l'autre, tant en ce qui concerne la pluviometrie totale que l'ordre de grandeur des maxima et des minima saisonniers\. On ne dispose d'aucune don nee sur l'evapotranspi ration ni sur la capacite de retention des sols du Grand-Bereby mais selon des hypotheses raisonnables (voir Tableau 2) il semble qu'au cours de chacune des annees 1975 et 1976 cette zone ait souffert d'un deficit pluviometrique impor tant et ce en depit de precipitations totales depassant la moyenne en 1976\. Ces resultats nous font douter du bien-fonde d'un plantage tardif dans l'annee, mArne en sac de polyethylene, et justifient la decision de limiter les programmes annuels de plantations a 1\.750 ha par an\. 18\. II avait ete precedemment recommande (1972) de completer les donnees pluviometriques par des renseignements concernant l'ensoleillement, les tempe ratures, l'humidite relative et les vitesses du vent\. Bien que normalement prescrits ces releves n'ont pas enbore ete tous effectues et devraient Atre entrepris des que possible\. Le releve d'ensoleillement Campbell-Stokes devrait Atre accompagne de donnees relatives au rayonnement solaire\.  COTE D'lVOlRE DEUXlEME PROJET D' HEVEACULTURE DU GRAND BEREBY Calendrier des Operations lors de la Periode d'Immaturite (en ha) Tableaux\. Detailles des Couts (Anne:x\.e 5) API AP2 AP3 AP4 AP5 I\. Entretien des 7,000 ha Existants 1\. Entretien agrico1e 11 (y compris les pistes de desserte)N1 Tableau 5B 1,864 1,930 N2 II 5C 1,452 1,864 1,930 II N3 6A 982 1\.452 1,864 1,930 If N4 6B 589 982 1,452 1,864 1,930 If N5 6C 163 589 982 1 1 452 1 1 864 Sous-tota1 5 2050 6\.817 6 1228 5\.246 3\.794 II 2\. Preparation pour 1a saignee N6 6D 20 163 589 982 1,452 N7 II 6D 20 163 589 982 Sous-total 20 183 752 1,571 ~434 II\. Mise en valeur de 6,500 ha II 1\. Abattage 1A 2,250 1,750 1\.750 750 II 2\. Pistes de desserte 2A 2,250 1,750 1,750 750 II 3\. Degagement et sous-so1age 1B 350 1,750 1\.750 1,750 900 4\. Preparation du sol pour p1antage 21 II 1C 350 1,750 1,750 900 5\. Pepin iere sacs N-1 J/ - \. 4A 20 20 1\.750 20 12 6\. Pepiniere sacs N-O 11 II 4B 20 20 20 12 7\. Jardins ii\. bois \. 3B 25\.7 25\.7 25\.7 25\.7 8\. 9\. II \. Entretien agrico1e Nl N2 II II 5B 5C 350 1,750 350 1,750 1,750 1,750 1,750 II 10\. " N3 II 6A 350 1,750 II 11\. II N4 II 6B 350 Sous-tota1 350 2~ 3,850 5,600 ~ >-i ~ :;'~ 11 Couts d'entretien de 2\.075 FCFA/ha/an\. Section B du Tableau 2\. 111 I'D t: 21 L'annee de p1antage est NO et comprend les couts d'entretien pour l'annee\. w Jj Comprend 1es germoirs 262,946 FCFA/ha, Section A du Tableau 3\. I-'  COTE DfIVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Donnees Pluviometrigues (Precipitations en mm) Jan\. Feh\. Mar\. ~ May June July Aug\. Sept\. ~\. Nov\. Dec, TOTAL A\. PREVISIONS A LONG TERME Teneur en humidite des sols 170 85 9 0 29 200 200 "_164 121 200 200 200 Precipitat ions 55 50 115 164 312 297 104 97 246 214 160 110 1924 Evapotranspiration 140 126 140 135 124 120 140 140 135 140 135 140 1615 En reserve 85 9 0 29 200 200 164 121 200 200 200 170 Surplus 17 177 32 74 25 325 (Deficit) (16) '(16) B\. 1975 ZIR '£1 Teneur en humidite des sol) 130 0 0 0 0 42 200 108 0 43 0 0 Precipitations 0 76 ;71 80 166 382 48 16 178 93 112 99 1321 Evapotranspiration 140 126 140 135 124 120 140 140 135 140 135 140 1615 En reserve 0 0 0 0 42 200 108 0 43 0 0 0 Surplus 104 104 (Deficit) (10) (50) (69) (55) (16) (4) (23) (41) (268) C\. 1976 ZIR Teneur en humidite des so13 0 0 0 9 41 200 200 129 101 0 0 0 Precipitations 22 83 149 167 612 797 69 112 18 44 129 40 2242 Evapotranspiration 140 126 140 135 124 120 140 140 135 140 135 140 1615 En reserve 0 0 9 41 200 200 129 101 0 0 0 0 Surplus 329 677 1006 (neficit) (118) (43) (16) (96) (6) (100) (379: " 11 Derive de I' annexe technique du rapport dfevaluation de la BIRD sur Projet d 'HI!vl!acu1ture du Grand Bt!reby 1972\. II Centre Heteorologique\. ~i Sup~osit ion~: - Evapotranspiration potentielle 4mm/jour en mai et JUDI 4\.5 mm/jour tous aut res mois\. lii'= III 111 Capacite de retention 20mm maximum\. C IV "-'  ANNEXE 4 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND-BEREBY PROGRAMME DE PLANTATIONS VILLAGEOISES Cadre de reference du rapport de justification relatif au programme de plantations villageoises 1\. En evaluant la possibilite d'inclure un element de plantations vil lageoises dans Ie Deuxieme projet du Grand-Bereby la SATAC devrait accorder une attention particuliere aux points suivants : a) l'existence d'une superficie de terrain suffisamment etendue, pro pice a l'hevea et situee a une distance de l'usine de traitement qui soit compatible avec un transport rentable; b) la mesure dans laquelle les agriculteurs locaux s'interessent a cette entreprise; c) l'influence des pratiques culturales traditionnelles sur l'intro duct ion de la nouvelle culture; et d) les delais requis pour la plantation, l'entretien et l'eventuelle exploitation des heveas par rapport au temps dont dispose la cel lule familiale\. 2\. Dans l'hypothese au ces enqu~tes preliminaires auraient une issue favorable, la SATAC devrait ensuite identifier les agriculteurs pouvant ~tre admis a participer a ce programme\. Elle devrait a cette fin verifier la re putation du demandeur dans la collectivite locale et proceder a une evaluation des aptitudes de l'agriculteur et de la mesure dans laquelle sa terre serait propice a cette culture\. La SATAC devrait egalement s'assurer que les agri culteurs interesses ont pleinement compris les t~ches qui leur incombent dans Ie cadre du programme de m~me que les avantages qulils en retireront\. 3\. Lorsqu'elle aura acquis la conviction que Ie programme de planta tions villageoises a des chances de succes, la SATAC etablira un calendrier detaille d'activites qui devrait recevoir l'approbation de la Banque avant m~me que les decaissements ne puissent commencer a ~tre effectues au titre de cette partie du projet\.  ANNEXE 4 Page 2 coOts de mise en valeur et d'exploitation II est tres difficile, dans une region ou l'agriculture est actuel lement presque inexistante, de prevoir la fa~on dont peut evoluer Ie programme de petites plantations\. Le tableau joint a la presente Annexe a ete elabore d'apres les hypotheses suivantes : Mise en valeur 1\. La plantation d'heveas s'integrerait au systeme de culture tradi tionnel : au cours de l'annee de plantation et pendant les deux an nees suivantes, l'agriculteur pratiquerait les cultures vivrieres en association avec les jeunes plantations d'heveas\. Ces cultures vivrieres occuperaient 75 % des superficies au cours de la premiere et de la deuxieme annee et 50 % au cours de la troisieme annee\. L'agriculteur n'aurait droit a une indemnisation que pour Ie travail directement lie a la plantation et a l'entretien des heveas et exe cute de maniere satisfaisante\. Celle-ci prendrait la forme d'avan ces en especes versees tous les six mois\. 2\. Au-dele de la troisieme annee, les cultures intercalaires ne seraient plus permises\. Au cours de la quatrieme annee la culture de couver ture serait plantee et de la quatrieme a la sixieme annee comprise, l'agriculteur serait cense se consacrer uniquement a l'heveaculture\. 3\. Le materiel de plantation en sacs de plastique serait plante a rai son d'une densite de 550 arbres l'ha, avec une reserve de 30 arbres de remplacement a l'ha\. 4\. Les principes de fumure seraient les memes que ceux qui sont SUIVlS dans Ie cas de la plantation industrielle, mais l'application d'en grais durerait une annee de plus pour compenser les effets des cul tures intercalaires\. 5\. L'equipement des arb res ne comporterait que la g()uttiere et les sup ports puisque la recolte se ferait dans des sacs en plastique\. 6\. On fournirait a l'agriculteur les outils de saignee\. Exploitation 1\. La saignee se ferait en demi-spirales deux fois par semaine (52 j3! j4), pendant 45 semaines par an (90 saignees)\. Comme il seraft pro cede au ramassage en sac de plastique, on peut prevoir, pendant toute la duree du programme, une t~che de saignee de 750 arbres par jour\.  ANNEXE 4 Page 3 2\. Le ramassage se ferait toutes les quatre semaines\. 3\. Aucune stimulation ne seraH autoriseeau cours des trois premieres annees de saignee\. A partir de la quatrieme annee on suppose que l'Ethrel serait applique trois fois par an\. Aspects financiers 1\. L'agriculteur recevrait, pendant la periode de mise en valeur, des avances en especes et des materiaux; ces prets seraient assortis d'un interet de 8,5 % capitalise au cours des six premieres annees et seraient remboursables a partir de la septieme annee\.  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND HEREBY PROGRAMME DE PLANTATIONS VILLAGEOISES MBA par/ha en FCFA (en Termes Constants) Estimation Credit Moins: Couts Annee de 1a Pro- Recette~ Attribue de Mise en Recettes Service de Recettes Homme Recettes duction Envisagee~ Nature ~~ en Valeur et 1/ Brut~s 1a Dette Annue11~s Jours Par llOlll1lle t/ha 130 ~/kg Espece~1 q~Exp1oitati~ 2/ Nettes Jour NO 79,200 61,200 18,000 18,000 60 300 N1 17,550 8,550 9,000 9,000 30 300 N2 11,250 5,850 5,400 5,400 18 300 N3 14,150 6,950 7,200 7,200 24 300 N4 4,800 4,800 4,800 16 300 N5 4,800 4,800 4,800 16 300 N6 0\.4 52,000 5,500 9,680 3/ 47,820 12,480 35,340 34 1,039 N7 0\.7 91,000 11,165 - 79,835 11,666 68,169 53 1,286 N8 0\.9 117,000 10,820 106,180 13,471 92,709 70 1,324 N9 1\.1 143,000 12,460 130,540 ,781 115,759 1,653 N10 1\.3 169,000 12,430 156,570 14,551 142,019 2,029 NIl 1\.4 182,000 169,570 14,203 155,367 2,220 N12 1\.5 195,000 182,570 13,751 168,819 2,412 N13 1\.5 195,000 13,221 169,349 2,419 N14 1\.5 12,632 169,938 2,428 N15 1\.5 11,993 170,577 2,437 N16 1\.5 11, 183,530 11,319 17 2 ,2;11 2,460 N17 1\.5 10,625 172,905 2,470 N18 1\.5 9,915 173,615 2,480 N19 1\.5 8,594 ,936 2,499 N20 1\.5 183,530 2,622 1/ Voir details au Tableau 2\. Pi~ 2/ Voir details au Tableau 3\. O"::l i-'CD 1/ Seu1e annee ayant des couts de mise en valeur et d'exp1oitation\. CD X III CD C \.t: i-'  COTE D' IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY PROGRAMME DE PLANTATIONS VILLAGEOISES Credits en Nature et en Especes\. Coats de Mise en Valeur et d'Exploitation (en FCFA) CoOt CoOt Unitaire Total NO H! H2 N3 94 H5 96 Couts de Mise en Valeur Plants (Uvres a 1a plantation) 580 90 52\.200 49\.500 2\.700 Engrals kg moyen (Livres a la plantation) 650 45 29,250 11,700 5,850 5\.850 5,850 Semences pour plants de couverture (kg) 5 220 1,100 1,100 Equipement des arb res 300 15 4,500 4,500 Equipement du saigneur 1\.000 1a OOO 1,000 Sous Total du credit en nature 88,050 61,200 8,550 5,850 6,950 5\.500 Avances en especes 49 2 200 18 2 000 21 000 5 2 400 7 1 200 4\.800 4\.800 Total 137\.250 79\.200 17\.550 11\.250 14,150 4,800 4,800 5\.500 ======= ====== ====== ====== ====== ===== ====== ===== Coats d'Exploitation H6 n H8 !2\. N10 to N15 N16 on Fongicide 400 800 800 800 8eo 800 Stimulant 1,500 1,500 1,500 Remplacement de l'equipement des arbres 540 720 810 780 700 Remplacement de l'equipement saigneur 750 750 750 750 750 Sacs de plastique (Polybags) 3\.780 7\.200 8\.550 8\.600 8,600 7,720 Equipement des arb res 1,875 Total 4,180 11,165 10\.820 12,460 12,430 11,470 ===== ====== ==:==: ====== ====== ====== ~ I-'J ~ 1-'111 111 >< II> fl) ~ \.f> N  COTE D' IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY PROGRAMME DE PLANTATION VILLAGEOISES Aseects Financiers (FCFA/ha) NO N1 N2 N3 N4 N5 N6 TOTAL Total du Credit en terrnes constants 79,200 17,550 11,250 14,150 4,800 4,800 5,500 137,250 Total du credit en terrnes conrtmts 84,744 20,093 13,781 18,548 6,732 7,204 8,832 159,934 Valeur commen~ant l'annee N6 a 8\.5% d'interet 138,217 30,220 19,100 23,686 7,924 7,816 8,832 ,795 CALENDRIER D'AMORTISSEMENT (en FCFA) Proportion a Repaiement sur Balance Interet Total des Deflation Total des Repayer le Principal au Debut 8\.5% Repaiements (7% Evalue) Repaiements en de l'Annee Termes Constants N6 0 0 235,795 20,043 20,043 1\.606 12,480 N7 235,795 20,043 20,043 1\. 718 11 ,666 N8 N9 ° 2 4 ° 4,716 9,432 235,795 231,079 20,043 19,642 24,759 1\.838 13\.471 14,781 29,074 1\.967 NI0 5 11,790 221,647 18,840 30,630 2\.105 14,551 NIl 6 14,148 209,857 17,838 31,986 2\.252 14,203 N12 7 16,506 195,709 16,635 33,141 2\.410 13,751 Nl3 8 18,864 179,203 15,232 34,096 2\.579 13,221 N14 9 21,222 160,339 13,629 34,851 2\.759 12,632 N15 10 23,579 139,117 11,825 35,404 2\.952 11,993 N16 11 25,937 115,538 9,821 35,758 3\.159 11 ,319 N17 12 28,295 89,601 7,616 35,911 3\.380 10,625 N18 13 30,653 61,306 5,211 35,864 3\.617 9,915 N19 13 30,653 30,653 2,606 33,259 3\.870 8,594 H :r> ~ I-' S ftl ~ III ftl t:: J: W  CQT!l 0 'IVOIRE DEUX nue PRQJt:T pt ImytACtJLTUU py ewp ,,,,,y CO!!l1! P'l'fAllLJSSEltEtrf nl! LA PLAl!TATl!'li ~flrleh!!ent I t Pr'paratlon d" Terrain\. (FCFA/h\.) A\. 6UWIa travIUK effee\. INnAIITS Hlln d'oeuvre Sd8\tr\. tul_ J If sd\. Enltne TOTAL Hcanlq\., lourd\. COIlTII IIIlTAiMES Joure FeFA Jour\. FaA Jour\. rCPA Reure\. rCrA rCFA or_nOlls 975 \200 2574 9J88 liDo tton d\. ,\.0\. hrt_trau\. (0\.5) 488 488 Ah\.u:a\. \. \. \. \.tque (l) 3600 (1\.5) 1861 (l\.81) J5956 4J411 Def~tc"'a\. 11atar (l) 3600 (1\.5) 3861 7461 'fotal/h, Mut (0\.5) 488 (6) 7200 (3\.0) 7127 (J\.8)) 35956 51366 11 Tot\.l/'h\. net (0\.6) 514 (7\.1) 8471 (1\.5) 9065 (4\.51) 42101 604Jl \.B\. Dltrlch\.-\.t d tern I" TravauK \.ft\.c lJITIIAIITS H\.in d'oeuvra Seleur tue\. i 1a eel\. In\.tn\. IouI'd\. Jran\.port C81aion TOTAL "'<""1~ OPDATIOIlll COUTS UlIiTAIRIS J,!ura FerA 975 Jour\. FCFA 1200 JOlIn FeFA 2574 Neura\. ref A 9388 \. FeFA 70 FeFA :~:t:~:tlon pour brul\.,\. (5' (I) 4875 975 4815 975 'front;oftaa\. UiI;llea \.t d5lf\.lltUt Ion\. (I\. 25) 1219 (9) 6JO 1849 Prl,\.r\.cloa pour ou"ertun 1 tane\. (2\.5) 3000 (1\.2'1 3217 6217 Ou"uture Han-\. et \.00\. 0 \. \. \. \. (1) 1200 (0\.5) \281 (1\.28) \2016 14503 flolUoo \. (6) 5850 (2) 2400 (1\.0) 2574 10824 TOt\.1 pel' h\. brut (U\.25) \2919 (5\.5) 6600 (2\.75) 7078 (I\. 28) n016 (9) 6)0 J9243 T,ata I JNlI' h\. ut (15\.6) 15199 (6\.5) 7765 n\.24) 8327 (\\.51) 14136 (10\.6) 741 46168 c\. !frlp\.rat: 10ft POUI" pl\.'a,e Tuct\.UT Inlutl Kaln d'oeuvre 1Y\.Upot" rouU\.r A\."t~ola Pho\.phate In\."ala KC' Sf!ftIencea PuI!Tlrh Kerbidde, TOTAL 11OI'I\.AIIT8 OI'IIIATIOIIS coun; IIIITAI_ J~\. raA 975 r\. ,erA 70 lleur\. 'CPA 1431 \. FerA u ~\. perA 55 KM Fen 200 Kilange rerA FCFA Prr,a-ratloa d ,I"ue,\. (I) 915 975 \.Iqute (2\.5) 2UI (1) 10 2508 CoooiPu\.o (I) 975 975 T1'ov\.hn (0\.5) 411 (J) 429) 4180 1\.11 d\. fondo (2) 1950 (]) 210 (\66\.8) 1840 (45\.5) 2503 1250J bouche (2\.5) 24,\. 2438 PIlote d\. eouvertur\. (0\.5) 487 (5) 1000 1467 trdu"nt tt\.,bida (intarUln\. ) 11 (I\.l) 84 (0\.15) 215 A 1799 2098 T\.1cement herbldde (UI"'\. Hlv') (0\.5) 538 (2) 140 8 412J 4901 TOTAt nO\.5) 10218 (1\.2) 504 (U5) 4508 (166\.8) 1840 (45,5) 250J lOon 6022 32665 eo; berbtel""\. - IiSItA 605 ,c,A/Utre Dtu<Oft 1)\.14 PCFA"', 2,4-D 465 rerA/lit\. 11 I h\. brut 0,85 he \.t 2,4,5-T 1250 FcrA/ln\. 11 c_\. pr"'\., 50r "'h"I herbicide\. A (0\.6 lltrea 2\.4\. 0 \. 1\.2 lItrelJ 2,4\.5-T +- 0\.06 Ittt'f'S d'3dhestfl plU It\. ~Ii \.'" \.11 (2'\.5 IIi Dlurott *' 1\.0 lltTe HSHA + 0\.5 HtTP 2,4-0) raT lut + 50r\. :\.  COTE D' IVOIII! DBUXIEHE PIIOJET D'III!:V!ACULTUIIfj PD GIWID BEl!ElIY coiit\. ,,'etabU\.oement de la elantaUon Construction e~ entrelten de\. it\.tel Tt'av8ux it 1\. acle Transport Tranaporteur !Ii~ln,gye ~l Q2 1a Hater1aux Total IHrRANTS J!:~ df 0i~;Ie Jour~Yll»~A n\.S;;:rld le~ !tha,s\.eyu Hlures FCFA grld!u,\. Reur FCFA Helll\.*\.a Fen Raf S!!)l2" K\. FCFA KIll FCFA FelA ~FA eOUTs UIUTAIRES II') \.1\.200 ,9388 t737 51]1 lJ14 7C 14Q A\. CCIIS'1'!lIlCIlQ! \. Con\.tr"\.Uon de plate\./kIII (4) 3900 (20) 187760 (1) 11211 208871 11 Fo\.uae de thai"\." (95) 92625 (36) 43200 (121) 1154724 (43) 246691 (18) 463)2 U6 19040 1455200 3057812 Pre\.a1er btertto\.e/km (1) 975 (10) 57170 (10) 57370 (800) 56000 171715 Couto de eonatru\.U""l!!o e1antll'\. eon\.tru\.Unn de plete\. 55 (0\.2) 195 (1\.1) 10321 (0\.17) 915 11491 P\._ do tholwea 5\. (0\.52) 507 (0\.18) 216 (0\.6) 5633 (0\.22) 1262 (0\.1) 257 (0\.68) 95 7276 15246 Loto!rlta\.e 10 11 (0\.1) 574 (0\.1) 574 (8) 560 1719 Total/ha plantll\. (0\.12) 713 (0\.18) 216 (1\.7) 15960 (0\.32) 1836 (0\.27) 1S49 (0\.1) 257 (8) 560 (0\.68) 95 7276 28462 1\. Pour ponte et IIqueduca llieu lament B ENT!!!!TlIII! par k\. de plote IIlvell\.nt (l) 975 (3) 11211 18166 L\.terLtaae (1) (800) 56000 975 (10) 51310 (10) 57370 171715 Par ha p Iontf"\. Niv\.lle_nt (S5m/ha) (0\.1) 98 (0\.17) 975 10n I\.at'!r ltage (1M) 6 (0\.06) (4\.4) l08 344 (0\.06) 344 1002 Totallh\. plantfs (0\.1) 104 (0\.06) 344 (0\.2) 1319 (4\.4) 308 2075 t~ ~ '"  COTE D'IVO!RE Annexe 5 DEIlXIEME Pl!\.OJET D'HEVEACULTURE DU GRAND BEREBY Tableau 3 CREATION iT ENTRETIEN DES PLANTATIONS Materiel Veletal A\. Germoirs: Superficie de chaque lit 50m2 , capacite 100,000 graines\. (Germination 1 60%)\. Main Transport lompe Graine\. d'Oeuvre Camion Irrigation Heveas TOTAL Facteurs de Production COUTS UNITAIRES Jours FCFA Km FCFA Heures\. FCFA 1000 ,erA FCFA OPERATIONS 975 70 846 480 Preparation et plantation du lit ~/ (18) 27300 (28) 1960 (100) 48000 71260 Arosage (20) 19500 (3) 2538 22038 Piquage (33) 32175 32175 TOTAL (81) 78975 (28) 1960 (3) 2538 (100) 48000 131473 --------- Total/he de pepiniere 1/ (162) 157950 (56) 3920 (6) 5076 (200) 96000 262946 1/ Co=prent la preparation de sciure\. decoupage et erection de bambous et palmes\. 11 Sur la base de 2 1its de germination pour chaque ha de pepiniere sacs\. 3\. Entretien desJ4Tdtna ~ ~~~ ~\.r9F~\.~~f ~=!~ - \.,-_"~\. ",\. \I "'-:;;'" \. ' ~ " Ma1:l1 transport Engrais Engraia Engraia iierbic;i\.de Facteurs de Product1on d'Oeune ClI\."lion Urle Phosphate Itel MSKA TOTAL ----- COUTS UNITAIRES Jours FCFA Km FCFA Kg FCFA Kg FCFA Kg FCFA Litre FCFA FCFA OPIRATIONS 975, 10 57 47 55 605 Desherbage Ch1mique (8~ 7800 (14\.4) 9512 17312 Manuel (52) 50700 50700 Applications d' Ensraia (20) 19500 (10) 700 (340) 19386 (900) 42300 (250) 13750 95630 Ebourgeonnase et s01:l1s de\. (50) 48750 48750 plants Entretien Coupe-Feu (4\.5) 4388 4388 tOTADX (134,5) -131138 (10) 700 (340) 19380 (900) 42300 (250) 13750 (14\.4) 9512 216780 11 4 ApplicatiOns a 3\.6 litres MSHA f 100F/hOlllllle jour pour 1e coiit de fonctionnement des pu1veriaateurs\.  COTI! 0' IVOI!!!! OEUXIJ!HE l'IIOJET O'IIEVl!:ACULTURE W CRAND BEREBY COUTS O'ETABLISSJ!IIENT !!II LA lLANTATlll1I p-;pinlerea Sacs (FC,A/ha) A\. Ann;;""e (II - 1) He in d' oeuy\.a T\.anapo\. t c \.lon Tcac:teur Engrala :~,rala Herbicide Fonlllcide Saes INTIWn'S Agdcole ''''"t' I"\. gatlon PI\.o\.phat, Dluron Hancozan Ilat'rl'l Irrlgat Ion T01'AL COUTS UNITAIRI!S Joun 'eFA KIll rCPA Reure\. FeFA Heu\. FcrA Kg FcrA KI! FeFA kg FeFA Kg FCFA 1000 FCFA lIa FCFA reFA OPERATIONS 975 70 1431 846 47 55 1334 570 4600 - 50,000 Cu 1ture& mfcanlquea Labour (6) 8586 8586 Rotavator (I,) 5724 5724 811100nalle (4) 5124 5724 21 Plquetage (19) '18525 (15) 1050 26625 - RempUssage aaca (555) 54H25 (120) 552000 1093125 Ensrals (35) 34125 (5) 350 (1200) 56400 (340) unoo 109575 Desherba8e (Hanuel + Clttmique) (75) 71125 (6) 8004 81129 Cont-role Gloeo\.parium (16 appltcationl) (12) 17172 (32) 18\.73611 35908 Pl1"tage et didoublage (lllt) 111150 111150 t;<lut\. d' Irrigat lon, inltallation (21) 20475 20475 COGtl de fonctionnement (36) ,noo (100) 84600 (1) 50,000 169700 TOTAL (855) 833625 (20) 1400 (26) 37206 (100) 84600 (1200) 56400 (340) 18700 (6) 8004 (32) 18\.136 (120) 552000 (I) 50,000 1667121 11 120,000 aacl donne\. t 52,000 phnte sreffl\. ; tran\.""\. au ch\.p 262946 1/ C","prand 7050F pour 15 Itll de ftcelie ; 470r/1ta "J\.I C""'I'rend 496F pour 1\.6 kS d'\.dh;\.lf \. 310F/lts ~ B\. Anne\. eN 0) Main d' oeuvre Tran\.port Trecteur P\.-p\. Engrai, Herbicide Fonslclde Bande Coutl lire Im'RANTS Haln d'oeuvre BpeclaUlte C8lalon Allricole Irrigation Ur"l\. Diuron Hancozan Plait ique PIIC !f TOTAL COUTS UN lTAlRES Jou\. FeFA JOUl"e FeFA KIll FeFA Heur FeFA aaur 'eFA KS FeFA KS FCFA Kg FeFA «8 FeFA 30 CID FeFA FeFA OPERATIONS 975 975 70 14]1 846 57 1334 570 310 257 Sc leet ton et dedoub tale (25) 24375 24375 (l herbase \.anuel et chlOlique (60) 58500 (2\.5) JJ3S 61835 CootrSl \. Cloeo\.porl\. (66 appltcatloos) (50) 71550 (132) 772;5 \.' 148805 Applications d'eoll\.ah (39) 38025 (7) 490 (470) 26790 ' 65305 I rrlgat Ion (36) 35100 (100) 84600 119100 Pr;!paration bande graffage (15) 14625 (240)74400 89025 l'r6parat ion et tranlport de bo 1\. de greffa (43) 41925 (40) 2800 44725 Greffage (650) 63'1750 633750 Dcbandage *',\. (100) 97500 97500 Primes 4uX traval11eurs spectaltlel 160400 160400 '''ransport de sac\. (450) 438750 - (780) 200460 639210 Transpurt au champ (300) 292500 (3000) 210000 502500 Net toyage filial (6) 8586 8586 TOTAL (968) 943800 (750) 891650 (3047) 213290 (56) BOll6 (100) 84600 (470) 26790 (2,5) 3135 (132) 77255 (240)74400(780) 200l\.60 2595716 ~I~ 11 La t"Y4'BUter1e l"IC eat utUtaee pou \. fabrlquer de\. Bouutataa protectrice\. de 30 CID de l\.oS afln de aupporter leI \. \.ee 10\. du tranl1t\. 1560 BoutHe ,ha d\. p;;pinieh ay\.c una vi\. d\. 2 ana ! M 1/ COIOPrend 2015, pour 6\.5 Itll d'\.dbadf a no ,/ka \.,\. '"  COT! D' IVOIRE DEUXIE!1! PROJET O'HEYEAarLTURE DU GRAND BERE8Y (])L~S D'E'IA8LISSEHE:NT DE LA PLANTATION PlantaS! et Entretien (FCFA/ha) \.-\\. ?lantase et Entretien (NO) Vo"TRANTS tracteur Pulveriaateur\. Herbicide M\.dir1el :ia in d' OauvT1l Transport ciD10n Agricoh J: doa Oivera TOT,''- COlITS iJNI!AIR\.;:S Joura FCFA Km Fen iI\.urea FCFA 'S FCFA :-telanS FCFA Applic\. FCFA FCFA FCF'A \." 70 1431 57 50 Coupe-ieu (4) 3900 Con~rO'la ronseurs (a\. s) 487 :JO Plant\.:lga et regat'Oi\.ssage (9\.5) 9263 '1251 Dasherbage manue L (7\.5) 7]12 ;'112 S\.J\.rclagc (manuei) Uitdrlignes (4) ]900 1",)0 Herbicides rz applications) (I) 1075 (4) 280 1090 (2) lOa 2j4'} Fauchage (mi:c\.niqu\.l (2) 2862 2862 Ebuur~eonnage (6 p\. uges) (2) 19'0 lQSO Applicat ions d' engrais et bin\.g\. (2\.5) 2438 (1) 70 (38) 216\. 4674 TOTAL nl) 3032' (5) 350 (2) 2862 (38) 2166 1090 (2) lOa lOa 369"3 P1u\. eatratlea pbt 207'5 TOTAL 3<106\. !!!ZIn\.: A 2xO\.9 litr ~MA Tr\.ct\.r !D\.p'a1\. Pul\.,\.r1\. \.teur\. !1atlr1d IIIfIlANIS l1a1D\.d'~\. TraDllport ~D Acrico 1\. Eap'\.l\. uri\. Pho\.ph\.u Herbicid ida\. Dlv\.r\. TOTAL opiratioM OlOTS UNtTAIRES J",,"" FCIA 70 Beare\. FeFA 1431 \. \. FCFA 47 Kiwle FeFA A"p11c\. FeFA 50 FeFA FeFA kntreHea cCNpfII-leu (0\.5) 487 1203 Contrala ronl\. r\. (0\.5) 487 100 587 CoatrOla plct\. cCIUV\.rtu\.re(6awl1c\.@1\.Sal')(9\.0) 8775 8775 D\. \.h\.rb dliaique (9 appl1cat1oc\.) J\.I (4\.5) 4838 (18) 1260 (A) 4900 (9) 11"8 Suclag\. micat&1qu\.a: 1u1i'r (1\.0) 1431 1431 Sarc1\. \. \. \. \.&Qu\.d iaurlipl" (6\.0) 5150 '5850 A\.ppl1UtiGM d"-cr\.U \.t b1up (3\.0) 292, (3) 210 (41) 2337 (90) 4230 9702 Ebourleoanag\. (3\.0) 2925 292, TIlTAL (21) 1470 2147 (41\ 2337 (90) 4230 (A) 4900 (9) 450 100 41921 \.lu eatretlea ptat\. 2075 toTAL 4)996 A MSHA\. 9 \.U,c\.Uoaa i' 0\.9 1 p:u awl1cU1aa\. PUlvlE'uac\. i doa \. Pnz \.'Khac 1O,OOO\.CI'A; coUt d'eat\.retia 10,000 FerA; vie IItU\. 200 JOU'e \.,\.,\. 400 be cIe ceccla\. at eDUIItia \. \. \. \.atien c\. Igt!'t iF CJ+2l !lab dlo\.lfttl \.uu\. Pu1m1- TOfAL r~ tract_r \. \.teur\. a c&o\. \. &cr1co!\. \. tIIrUIIrS OPDAlIOlB caun 1JlRU\.lDI J \. PCPA 975 PCPA 70 \. raA lUI \. \., raA 1Iiioa\. paA »pUC\.PCPA 50 FaA ~-r:o~p~r\. (0\.5) le- couv\.rcure (4 \.lk) (0\.5) (6\.0) 487 ,850 716 1203 5830 'aober!Iqe dllIa1_ (9 \. \.'11\. \.01\.) !I (4\.5) 48sa (18) 1260 (A) 0_ (9) 450 11448 Sue lap \.ec\.mique (1\.0) 1431 lUI Sud\. UlllMl 1ACerl\.i\.pu (6\.0) ,no ,\.50 ~~ :\. AppUcad\.au d'-\.n,iA \.t biDq\. (3\.0) 2925 (3) 210 (41) 2337 (90) 02lO 9702 COQtrO'l\. _lactiM (\.~) (2\.5) 243' 24sa !lla1\.Da101l (,\.50 i 5OO/ba) (2\.0) 1950 1950 !~ (21) 1470 2147 (41) 2337 (90) 0230 (A) 0_ (9) 450 39872 A \. im\. + 1 n\. _tnti,,, piAt 2075 TOTAL 41967  COTf: D' JVOlRE DEUXIEME PROJET D'IIEVEACUI\.TURE DU GRAND BEREBY Conts d'~tabllssernent de la plantation A\. EntreUen (N+3) INTRANTS Main Transport Tracteur lIerbicfde PlIlvertaateurs d'oeuvre par carnlon Agricole il dos Total Couta Unitaires J"Ut"8 FCFA l<m FCFA lIeures FCFA ME'lange FCFA AppUc\. FCFA FCFA OPERA1'lONS 975 70 1431 50 Entretlen coupe-feu (0\.5) 487 (0\.5) 716 1203 Controle plante couverture (4 applications) (6\.0) 5850 5850 Desberbage Chimioue (9 al>lllicationa) !J (4\.5) 4838 (18) 1260 (A) 4900 (9) 450 11448 S "re I age mecani que (1\.0) 1431 1431 \. ( \. \. ) lnterUglles (6\.0) 5850 5850 Controle maladies (Fomes) (5\.0) 4875 4B75 To\'AL (22\.0) 21900 (18) 1260 (1\.5) 2147 (A) 4900 (9) 450 30657 Plus entretien pistes 2075 A: simllaire au)!: annees N+l et N+2 Total 32732 n\. "NTRETtEN (IH4) Main Transport Trscteur Pulyerlsateurs TOTAL Jntrsnts Uerbiclde d'oeuvre par cam10n Agricole ii doa COUTS UNITAIRES Jours FCFA Km PCFA lIeures FCFA Melange FCFA Appl1ca FCFA FCFA OPERATIONS 975 70 1431 50 Kntretlen coupe-feu (0\.5) 487 (0\.5) 716 -' 1203 Controle plante de couverture (6\.0) 5850 5850 Oenherbage cJlilllique (6 application\. cercles !lculement) (3\.0) 3225 (8) 560 (A) 2178 6 300 6263 Sarclage rnecsnlque (1,0) 1431 1431 (\. ) lnter Ugnes (3\.0) 2925 2925 Controle maladies (fome5) (5\.0) 4875 4875 E I Jrninat lon (500-450/ha) (4\.0) 3900 3900 TOTAL (21\.5) 21262 (8) 560 (1\.5) 2147 (A) 2178 (6) 300 26447 -------------------------------------------------------------------------------------------------------------------------- A~3\.6 Iltres MSMA cercles seu1ement ~ 2/3 de l'entretlen plua entretlen plates 2075 Total 28522 \., HI> IJQ (I) \. '" \. ~ m1;1 '" -'" '"  con: o' rvoIRF\. IJELJK mtm FROJET IJ'IIEVEACULTIJRE DU GRAND IIEREHY Co'tits d1etablissement de 1\.1 plantation C\. E!ltretien (N+5) l'rocteur Put ver isateurs IN,'RA!ITS Main d'oeuvre Transport camion agrico1e Herbicide\. lI" do\. TOTAL Engtals Me Appl1 coon: UNITAIIlES FCFA ICm FCFA FCFA lanp;e FCt'A catton FCFA Kg\. FCFA FCt'A \.lours l1e\t1"89 OPERATIONS 915 70 1431 50 F\.ntretien coupe-f~u (0\.5) 487 (0\.5) 716 1203 ContTole plante de couvertuTfl (3\.0) 292\.5 2925 De\.herbage chtulque (4 applicstlon\. c\.~"c1e\. seulement)l1 (2\.0) 2150 (5) 350 (A) 1452 (4) 200 4152 Sarclage mecaniqlle (1\.0) 1431 1431 U (manuel) fnterltgnes (3\.0) 2925 2925 f!ontrole maladies (5\.0) 4875 4875 AI1vtications ellgraia (0\.5) 488 (1) 70 (B) 1980 2538 TOTAr\. (14\.0) 13850 (6) 420 (1\.5) 2147 (A) 1452 (4) 200 (B) 1980 20049 1/ Prt,me de 100 FCFAl,tour payee pour Ie desherbage chlmtque A = 2\.4 litre\. HSMA B 36 kg KCI " S5 FCFA/1<g (estimation \.eu1ement - devt'8 l\.tre determinee psr une analys\. follalre) PIU8 e!ltretien des pine\. ~ Total 22124 D, PrepnatLoo pour Is saignee nlHi) et (11+7) Main dtoeuvre Hate'rie1 Equipement Transport INTRANTS pour la saign'ie pour la saignee pour lea arb res Materiel dive,s camion T(ITAI\. Jours FcrA Ho,""", FCI!'A Al"':-re FCFA II\. FCFA ICm FCFA FCFA coon: IlNITAIRES 920 7000 :n 130 70 OPEKATIONS II-Hi (300 orbres) COD'ptage: ( I) 920 920 Tra~age (3) 2160 2160 Ouverture (0\.8) 100 (2\.5) 2300 2400 EqHtpement des saigneura 13)0 1330 (0\.19) P\.quipement des arbres (1\.5) 1380 (300) 9300 (6) 420 11100 SOIlS-TIITAL ( 8) 7360 (0\.19) 1330 (300) 9300 (0\.8) 100 (6) 420 18510 NI7 (100 arhros) Comptage ( 1) <)20 920 Tnu;age (1) 920 920 Ouverture (1) 920 (0\.2) 30 950 Eqllfpernent des saignellTs (0\.07) 490 490 E'lluipetnent des ArbTes (I) 920 (100) )litO (2) 140 4160 (4) 3680 (0\.01) 490 ( 100) 3100 (0\.2) )0 (2) 140 7440 snUS-TOTAl\. TOTAl\. ( 12) 11040 (0\.26) 1820 (400) 12400 (1\.0) 130 (8) 560 25950 Nutes: L'''qHipement des sftlgneurs compTend gotlgs\. lime, grattoir, 2 seaux de 35 1, 1 seau de 15 1 + 18 proportion du materiel du contre-Ulsitre "'" FCFA 7\.000 Allllee 6 100 arbres/ha, 3 tll'che\. de 520 arbres/saigoeurj Coilt/ha - 0\.19 x 7,000 = FCFA I, no Eoulp""",,,t "rbr~8 \.compr~ \." I tao"" en plaBtique de 800 m1 11 FCFA 21 \. versolr Ii FCPA 4 + support ;- FCFA 4 = FCFA 31 \. \. \. 0' ~ \. 1'" ~ "\. N"'"" In '"  COT&~J>:\.t'L~!~ !!?J~Xt£t-t: ~O\.JtT O'UEVEACm,TURE J!l! GitA!lU 8£RF\.B'( "ut\.-eD Couts DetatlicllI - Personnel Cadre 11 ('000 fefA) P!,r\.onneJ_5\.!!!__ !\.~L!:!:\.!!"~ ~OUf !PJ\.h ~\.!!! ~ ~ ~ !t\.? ~ ~ rotal 1\.000 Ita LnJtlau)( Dtrecteur d('s ()p r all"111'1 17\.000* 8\.~OO 17\.000 17,000 l ' s ooo 17 ,000 16\.500 17,000 11\.000 110\.500 bO 66\. JOO 20 L'h£'f de ('ltotnn to\.8oo* (l) 16,200 (ll \.12\.400 (3) 12\.400 (2) 21,600 (2) 21,600 124,200 (I) 10,800 (I) 10\.800 145,800 '0 81,480 20 Che f de coImt\.t1l 5,250 (I) 5,Ut) (1) 5,250 (2) 10,500 (2) 10,500 ']1,500 (l) t5~150 (3) 15,150 63\._ IS Chef d~> dlvlel('n 3,750 (4) 7\.500 (4) 1\.5\.000 15\.0(Hl \.1!~ (S)!!\.1~ (6) 22\.500 (4) (4) 15\.000 (5) 18\.1SU !!L192 !L S(lollll 1o,"\.~1 32,20U 62\.300 6ft,GiO 431,800 b9,650 69,650 64,100 61 ,850 303,450 36 1\3\.180 18 77, Sf'S 10,800* (I) 5\.400 (1) 10,800 (1) 10\.800 (2) 21\.600 (2) 21\.600 10,200 (2) 21\.600 (2) 21,600 113,400 60 68\.040 20 72\.680 Chef tit' division 3,7SO (I) 1,875 (2) 7,500 (l) 11\.2'0 (4) 15,000 (5) 18,710 54\.375 (5) 18\.750 (5) 18\.750 91,815 15 11\.781 UTA 11,000* (I) 8,500 (I) 17,OOO (1) 17,_ (1) 17\.000 (1) 11 ,000 16,500 (1) 17,000 (I) 11,000 110\.500 60 66\.300 2\. 22\.100 1':J1A11 10\.800* n) 5,400 (1) 10\.000 (I) 10\.800 (I) 10\.800 10\.800 48\.600 48\.600 !!2 _~I\.l~ 2!! \.!t,\.7JQ SOll8 TntAI 21,175 46\.100 49\.850 64,400 51,350 $7,350 364,375 II, 68\.1'10 249,615 "' 163\.500 M,lSI 10t(l1 "u IH'rlfonnl'l fUJI Ii' ferruln 53,175 115,150 119,500 128,500 136,000 553~ 12i IIQ\.650 121,400 196,115 1,0 111,280 11 111 'L 86(, ~on\.~~)nn ,,:hC'f \.It' 18 r"rmutlon 10,800* \.5,400 10,800 10 1 800 10\.800 10,800 48\.600 48\.600 60 29\. I£<) 20 "\.120 $t;lp,lahefO ~ ~~t'tt!~~ 7,4100 ha 2,160 (2) L\.!\.l'!! (I) 2,160 (2) 4,320 (4) 8\.640 n\.280 (4) ~~640 25\.920 !~ '-'l"e SOIl'" Total 7,560 lO,800 12\.960 15\.120 19\.440 65,880 8\.'40 11 \.,520 39 : 160 18 1:],(\.08 fit ,1giaiH'fI pllllT htt 6\. 'iUO hR Itlli'plf\.nll'nt"ln!l 2,16(1 (I) L!!!! (2) 4\.3>0 (2) 4,l2!l (2) 4,320 (I) 2,160 16\.200 (2) 4\.320 (I) L!M! !~~ l\.> _3\.~\.2 fatui dt> 1tl flll"1'I1Htinu 8,MO 15,120 11,200 19\._ 21,600 82\.080 4,320 10,800 91\.200 )0 29\.160 18 11,010 fif'UrR{'!'i 1,150 3,500 3,500 3,500 3,500 15,750 >,500 3,500 22\.150 Aili£J'Ci'BOIUl£'l /lirt'ctt'ur d\. prltlt't * \.1\.000* 8\.500 17\.000 17,_ 11\.000 17 ,600 76,500 17,000 11,_ 17 , _ 110,500 60 66,300 20 22\.100 IJl:rl:':(f'Uf du ll(>p8rt\. T,\. hulqlH' 17\.000* 8,500 11,000 11,000 17\.000 17 ,000 16,500 17,000 110\.500 60 66\. )00 2\. 22\.100 (;1,«( dt' {III cnnlltr\wtJm\ 10,800* 5\.400 )0,800 10,800 10,800 10,800 48\.600 10,800 10,800 70,200 60 42,120 20 14\.04\. (:II('( (fir t:aragf" 10,800#1" S11;00 10,800 10\.800 10,800 10,800 48\.600 10,800 10,800 10,200 60 42\.120 20 t4,040 Mfinmichm t>qull't'lIIt'nt Inunl to\. 600* 5\.400 10\.800 10\.800 10\.800 J~ \.~~ -\.!~ ~~ ~!,"~ 2-!! ~_!t\.!~Q SHlitt ,,,tal l)ejlltrt~Mf'llt l'cdmlqllt> 13,200 \.6,400 66\.41M) 6(1\.,\.400 66,400 298,800 55\.600 55,600 410,000 6\. 246\.000 20 82,000 17 ,000* 10,800* 4\.')00 (2) '\. 10,800 (I) t1,OOO 10\._ 4,500 17 t OOO 10\.80() q~;OO 17\.000 10 , 800 17 ,000 10\.800 1',SOO 54,000 17\.000 4\.500 11,000 4:')00 IIO~500 63,_ 27,_ 60 ~" 66,)00 32:\.400 20 n 22\.100 iz\. i'}O 4\.500 4,500 IB,OOO 4\.500 4,500 4\.050 s,no 2\.625 5,250 5,250 5\.250 5\.2S0 23\.625 5,250 ',250 34\.125 IS 5 II\. lO,800* 5,400 10\.800 10,800 10,800 10\.800 48,600 5,25\. 5~250 59,100 60 29\.160 20 II,nS 3\. 750 1,815 3,150 3,1SO ),750 13,125 3,150 3,750 20,625 15 3,094 As~lqt:mt A\.hHtuifltnHlf 5,2,}!) 2\.625 5\.2~0 5\.250 5\.250 5\.250 23,625 5\.250 5\.250 34,125 ~ _~\.d!9 ~ous rHt~1 UPI',,'"lf!""-'Pt 'l'I,m, t Adm\.u" 31,825 51\.350 57\.'10 57,350 53,600 251,475 45,500 45,500 348\.475 37 127,860 I\. fi2,927 Tn\. "\.1 Al1trf' l'('rsoIHlt>1 bS,tl2S 123,750 12:1,150 123\.750 120,000 556,275 101\.100 101\.100 158,475 4, 31l\.flfiO 19 141\. \.~21 TID:A~' !ill\. !'t;!t~a:{Mf\.~ (;AIHU~_ f\.Xt)lItrit"4 107\.100 203,&00 2!l3,800 203,800 203'~800 922~5oo 139,000 lJ9,OOO 1,200,500 60 120\.300 20 240,100 [Vtl{rlt'll" 2l\.~90 54\.)2~ 60\.230 \. 71\.390 71\.300 284\.130 89\. 510 99\.800 474 10\.Q t 14 _6L\.~ TO'JJl\.L 128\.190 258,120 264,030 275,190 281,100 ',207,230 228\. t;i10 2:)8 t 800 1\.674,600 4) 720,300 ,\. ]07\.803 !I HI,\. e,)fUllrf'ml fHi~ It\.' pt\.'fs"unf'l "uIII\.,« 1/ l,'A111 ,,'I!lc!1I pa,* 'eN <!fx IHf"lt1h'rs moh "inA' quc dnnA 1(- fre-rn1er prn)nt\. ~I~ f':i'\P41 r I (\. -a ~~  COTE D'tVOHl! O!UXl~'" I'llOJET D'HEVEACIILTIIIlE IlII GRAND BqEBY t~tan d*\.utres c,;:Jts: Autre ursonJlel et _aiR-d'oeuvre non-agl'icole ('000 fCFA) it!\.Ll ~ APl AP4 AP5 AP6 AP7 !2!!\.! %: At!tre penonnel 16,600 16,600 ]07,900 8 $\.612 Kutployea dill buuau (26) 8,300 16,600 16,600 16,600 16,600 74,700 H 4\. {1I11 Gardlen\.) \.oellvrt:\. 7,720 7,720 50,180 (11) S,860 7,720 7,720 7,720 7,720 34,740 201,500 8 16 l20 llure\.u d'AbldJim (27) 15,500 31,000 31,000 31,000 139,500 31,000 31,500 31,000 29,000 18~, 500 l! l'l,OSt) Hatn d'oeuvre ,8111"1'a18 (2~) 14,500 29\.000 29,000 22,000 29,000 130\.500 29\.000 84,320 548,080 43\.846 Sl,)u\.totul 42,100 84,320 84,320 84,320 84,320 379,440 84,320 18,000 80,100 H b,I\.06 V11Iayo:\.: pu\.anellU (2\) 2,700 (28) 7\.200 (35) 9,000 (49) 12,600 (56) 14,400 45,900 16,200 _ 7H4 ~ ptovteolrea ( 12) 1,400 (12) 2,800 (12) 2,800 (9) 2,100 U)\.--1l!!! 9\.800 - 9\.800 89,900 1,192 Soua-loul 4,100 10\.000 11,800 14,100 15,100 55,700 lb,200 18,000 Totdl autre peraunCiel 102,320 631,~80 11,036 46,260 94,320 96,120 99,020 99,420 435,140 100,520 ~r ~! Po"\"; L L'Apt n8 c'*prl:nd pas hi,\. pre\. ' \. ra el\. sola COIlll'M'! luclu 80U\. Ie Premler PtoJet :~ C ,r,  COTE D'IVOlAK IlEUXlEHE tROJl(T I)'HI!VEACULTIIRE I!!l GllM!!! 'ERE~X Autres Couts Detainee ~ Autrell Frals de 'onctlonneUIC:nt ('000 FCPA) f)~vltlt\.!a API l! ill £! ill AP5 '~oi=l APb - AP7 Total :; HOluun"i 1\. t!edev!uces de leat lOR ~\.1 ltedevlIIDcea HJcbellll 2,450 4,900 3,900 9,800 9\.800 30,850 9,800 9,800 50,450 33 41,874 17 8,577 ',,"\.e \. plantation \. de IUIJgpie 15,373 30,747 30,147 30,747 15,813 123,427 21,827 26,699 123,427 85,951 83 83 L02,444 71,339 11 17 20,98'1 117 1,909 6,897 11,499 17,003 37,425 14,612 Aedevance SA'UC 19\.205 19\.205 124,833 !1 103,611 9,603 19\.205 19\.205 19\.205 19\.205 86,423 IT 21,222 Sou\.~totsl 27,543 56,761 60,749 71,251 61,821 278,125 50,8l2 55,704 384,b61 U3 319,268 17 b~,3~4 11 oeeense\. liIIur le tenaln Fra 1& de fonc:tlonnelftcnt dea vehlc:ulea 9,024 18,048 18,048 18,048 18,048 81,216 18,048 18,048 117,312 50 58,656 15 17! 5:97 Autre\. traosport'!J\. n,S50 18,700 18,700 13,700 13,700 76,650 8,700 8,700 94\.050 50 47\.025 15 14\.108 eau\. electrlclt&: 52,865 58,255 311,002 l!\.l!Z lL12!! 44\.720 !tLill\. 50\.150 199,882 l!! 155,501 11 ~~ SOllo-total 76,038 79,18l 81,898 357,748 79,613 85,003 522,364 50 261,182 15 39\.161 81 \.468 7",35S ltl\. hab de fOl\ctlonuement Frata de fnncUoRncmcnt\. dea vlldcule& m !\.!ll\. 1,656 1,656 1\.~56 l\.ill !\.!ll\. 1,656 10,764 ~ 5,362 11 \.L!ll Sotuil-total 828 I,U6 1,656 1,656 1,656 7,452 1,656 1,656 10,764 50 5,362 15 1,61; tv \. "nr,! depe1'l1!\.!1 \.1« ~onct1onnelQent ,rab d~ fOQ\.CtionmuMnt de\. ",'bie" Ie\. 11,340 ~2\.680 22,680 22,680 22,680 102,060 22,680 22,680 147,420 50 73,710 15 22,i13 Autre t~an$port i\.I 6,270 13,200 13,860 14,520 1S,180 63,030 15,180 15,840 94,050 5U 47,025 15 14,108 £ntretJen dea b'ltlmeBta 13,105 27,056 29,657 12,036 34,665 136,521 38,793 40,782 U6,096 30 64,829 15 32,414 [!au\. electrlclti 18,288 39,290 44,720 47,435 50,150 199,883 52,865 58,255 311,003 50 155,502 15 46,650 Lt)yer (Bureau d'AbldJan) 5,400 10,800 10,800 10,800 10,800 48,600 10,800 10,800 70,200 15 10,530 Services sochuJl\. 1,200 2,400 2,400 2,400 2,400 10,800 2,400 2,400 15,600 15 2,340 Frah dtsdl\.anhtratlon 4,750 9,500 9,500 9,500 9,500 42,750 9,500 9,500 61,750 50 ]O,Un 15 9,263 KMtel Ie) de bltrGau 5,000 10,000 10,000 10,000 10,000 45,000 10,000 10,000 65,000 50 32,500 15 9\.750 Taxes j enreshtrcment 100 200 200 200 200 900 200 200 1,300 15 195 AlIlIUUIIUlCtl 950 1,900 1,900 1,900 1,900 8,550 1,900 1,900 12,350 15 1,853 Chargea pour ver I ficllltion 2,000 4,000 4,000 4,000 4,000 18,000 4,000 4,000 26,000 15 3)900 Payement r IleA pour rechercbe\. 1,900 1 \. 300 3,800 3,Il00 3,800 17 ,100 3,800 ),,800 24,700 15 3,705 Frah de receptl~n 8,95~ 5,900 5,900 5,900 5,900 5,900 5,900 ~ 44,350 -= --\.~ 11 ~ SOuj~tutal 79,253 150,128 159,417 165,171 171,175 725,744 17S,OI8 166,051 1,089,819 37 404,441 15 163,474 'tutAL Autrea fnh de fonctlonne\.ent 146,785 285,183 303\.290 311,261 316,550 1\.369,069 lIO,Il9 328,420 2\.001\.608 49 990,273 15 308,838 II Pour ItAP} les 7~OOO ha inltlsu\. ne cOtliprennent p\.8 lell pre~lera alx mola de I-\.nnea a1nel que couvert dane Ie cadre du Pre\.ler Projet~ ~/ Me comprend pM\. 11 valeur hors_qslne du caoutchouc, h redevance SA'fAC eat fondle aUT 25't de 5 employea cle~ 'J/Comprend Ie coat de recruteUillent de r;ccptlons dlversee\. de vo,_see; d'\.ffalreM pour ]a per\.nnnd et h lIStn d'oeuvre\. !~  can: 0' IVOlRE DEUXIEIIE PROJET D' IIEVEACUI\.TURE DU GRAND BEREBY R~capttulation des CO~lt8 do Pro let ('000 de FerAl API AP2 ill AM AP5 Il!!!! AP6 ill TOfAL lJevises 'mpats t Montant t Hontftnt r\. Entret ten de 14 premLere tranche de 7000 ha 1\. Conts agr 1coles directs 195,83~ 25~ ,83~ 211,225 111 ,021 130,~69 969,363 88,005 49,5!13 1,106,981 34 377 ,901 9 99\.155 2\. v/!hlculcs\.t matlirlel 3~,350 ~1\.090 48,6]5 ~~,615 35,565 210,235 46,015 48,065 304,315 74 225,193 6 18,2S9 108,444 108\.44~ 650,664 39 253,587 14 91,093 3\. Infrastructure 108 ~~~ ~ ---"30=1""C,9=2r~ lOf~4~ lOf,~~4 ~444 lliJl6\. 242,464 206,10 2,061,960 42 856,681 10' 209,107 TOTAL 31 ,28 32 ,080 274,1i78 1,j)jj;39b It\. t\menage~ent des 6500 hi! 8upplementalrea 1\. CoOts 4I\.£leola\. directs 290,869 ~13,386 5~9\.661 515,505 360,~9~ 2,169,935 227,942 190,143 2,608,020 41 1,082,252 10 2 6 1, 62 7 2\. Vl!hlcule\. e, materiel 219,600 ~8,510 66,985 29,135 29,335 ~55,565 27,485 34,885 517,935 86 445,42 4 2 10,359 108\.444 4~8,07~ 38 163,565 14 59,930 3\. InfnuJtructure TOTAl\. 28,291 598,180 ~~,85f \.15 !~3\.91~ ~ - 544,61'0 6,50~ 396,33 319\.626 2,965;126 ~ 333,472 3,554,02 48 l,6!1l\.241 9' 331,916 ITI\. "B8tion de 14 plantation et services administratif\. L Trattements du personnel (0 Personnel aur Ie terrain 53,315 115\.150 119,500 128,500 136\.000 553,125 74,715 56,216 684,056 40 273,622, 17 116,290 (tI) Formation 10, )90 16,620 20,180 22,91t0 25\.100 91,630 4,883 6,515 109,228 24 26,215 18 19,661 (itO Autre peraonnel de gestion 1~j:2gg m,6;~ lll,285 2~9,670 22f,11 0 2~9,~20 991,415 12' 900 1,209\.984 27 14 169'i~ du pro Jet Sous \. total 115,050 218'n° 352\., 0 3 0,150 31 ,210 3 0\.520 1\.6112 ,~70 ~ 2,003,265 :n ,S 15 302, 49 2\. ~penBe8 de tonet lonnement (I) DepEl!naea aur Ie terrain 39\.161 16,038 81\.~68 19,16] 61\.896 351\.1 48 49,714 38,724 446,186 so 223,093 15 66,928 is 1,386 pt,lr2 ( Il) Format Ion 628 1,656 1\.656 1,656 1,656 1,~52 1,034 754 9,240 SO 4,620 114759 921 665 31 15 138250 (Iii ) Autrea depeoaea 12\.lli 15N28 152,41] \.!M\.lli Ut,l I 5 ---\.E2\.tJ~ ~ ':1,016 SOHlI-totaJ 1l9,"2li2 22 22 2li2,'5lii 2li6,oio 25 ,129 1\.090,91ili' 6 ,90 124:237 1,371:091 U 5 ,729 IS 206 :564 1\. 21\.5~3 56\.161 60\.1 1 \.9 11\.251 61,621 276,125 31,742 25,376 335,243 83 278,252 17 56,991 lIonoratres pour services de gestion TarAL 321,635 637\.623 663 \.It~o 691,~1l 697,070 3,Oll,~39 399,150 305,013 3,71\.5,602 40 1,473,514 15 565,904 IV\. f!\.2grnOJDe de plantations vi 1188e018e8 1\. Services de vulgart8otion 600 13\.655 6,055 1\.655 28,165 19,765 18,365 66,295 19 12,S96 5 3,31S 2\. Credit en eapec£!e et en nature 3 960 12\.156 26\.~66 ~3,68~ 7\.661 5,738 57,083 7 3,996 10 5,708 TOTAL 600 11:615 18\.813 34\. 21 11;8119 27\.426 24,103 123,378 13 16,592 "1 9,023 V\. Installation de trattemcnt 1\. Illsta lInt ion pr Incipa Ie 36~ ,514 336,3~0 102 \.914 235,700 134,800 1,073\.414 76 815,795 8 85,873 2\. Invest isscment aux 11 iaire 20,161 ~,815 11,012 16,161 60,661 17,352 20,2911 98,511 45 44,330 15 14,117 20,360 10,000 15,000 ~5,380 36\.6110 43,400 125 460 90 112,914 3\. Ventcules TO'l'AI\. 385,361 25,255 365\.352 33,161 809,155 289,732 198,498 1;297:385 n 973,039 8' 100,650 COOT INITIAl\. TOTAL 1,259,21t3 1,988,262 1,6~3,212 l,9h~,356 1,~35,690 6,470\.963 1,214\.199 1,067,188 10,752,350 47 5,Oll,067 11 1,216,600 11 65\.436 6t,809 518,015 50 259,008 11 56,982 OepSSBfMttent ()es qu,nt ilea - 60,1 1 '3 98,733 85,160 66,529 51\.205 369,710 4~6,221 2\.133\.6J~ 668,295 732,487 3,534,396 47 1,661,166 II 388,784 IIllusse d08 pr Ix ! 91,014 320,391 655\.311 612\.611 1,~16,~00 2,~07 \.392 2,316,593 2,666,256 2,105\.706 10\.994\.3~1 1,947,930 1,~62,484 14,804,761 47 6,931,241 11 1,662,366 GOUT TOTAT\. 011 P~OJET U 280,434 383,519 417,498 413,330 457,740 642,381 368,705 2,963,667 100 2,963,61;7 Serytce de la dette 1,952,581 TOTAl\. Y C{l!<IPI< I S I\.E SERV ICE HE l\.A DETTE 1,696,834 -\. \. \.-_\. 2,790,971 2,794,091 ,\., 3,101,586 2,563,446 12,946,928 2,590,311 2,231,189 17,768,428 56 9,894\.908 1,662\.366 1\. \loir pAra 5\.02 du rapport princIpaL ~I~ 2\. Servh'e de 18 dlHte (Annext' 9\. TahleBu 1) abstraction faite de l'excedent qui rl!aultera de Is vente de Is production\.  COTE D'IVOIRE DEUXIEME PROJET D'UEVEACULTURE DU GRAND BEREBY Co\J:ts du Protet: Entretien de Is Ilremiere tranche de 7000 ha (en '000 FerA) AP2 ill AN ill Total AP6 AP7 Total Devises ImllSts ill ~ \.z Montent % Montont 7000 ha existants 1\. Entret ien (5 a050ha) (6,811ha) (6,228ha) (5,246h8) (3\.794h8) (1,93Oba) 3\. main d'oeuvre 120,625 156,936 132,267 102\.010 66,852 578,690 26,731 605,421 12 72,651 8 48,434 b\. Intraflts 47,OlO 57\.746 40\.137 20,218 11,552 176,663 7,010 190,003 80 152,002 5 9,500 c\. autre\. depenses de fOllct I onnemen t 27,829 36\.286 321706 26,234 17,882 141,631 8,960 144,267 60 86,560 15 21,640 195\.464 251,668 205,110 148,462 96\.286 896,990 42,701 939,691 33 311,213 8 79,514 ==:::===:;; ======== ======== ======== ======== 2\. Mise en saignee (20h8) (J 83h,,) (752h8) (1,511ha) (2,'134h8) (3,316 hal (3,794"a) Ii\. main d' oeuvre 147 1,274 4,935 9,395 14\.302 30,053 19,062 21,065 70,180 12 8,422 8 5,614 b\. \."tree derenses de fonctionnement 223 7,180 13,164 19\.881 42,3 40 26\.242 28\.528 97,110 60 58,266 15 14,567 370 3\.166 12,115 22\.559 31 1,18, 72,393 45,304 49,593 167,290 40 66,688 12 20,181 ======== ======== tIIt\._ -=:;==::; \.;;:;;\.-;;;;:;:;;;:=== ::====:=:::::::: ::::::::::::;::=::== ======== TOTAL oe" 7000 hs existents 195,831 1 ====:;\.=== 25 1 1,834 ======:::= 217,225 ===:==:;:= 171,021 ====:==:=:= 130,469 ::::::::::==:::=== 969\.383 ======::c \.--\. 88,005 -~ 49,593 1,106,981 -=--=-=== 34 377,901 9 99,755 ~I~ ::f;i c: '" '"  COTE D'lVOJRE DEIIXIEHE PRO\.IET D' IIEVl!ACULTURE DU GRAIID HEREBY cpruM \'roU~t~il~\. do ll~velol!l!e~nt - 6~00 h\. COOO de FCFAl ill ill\. A'Pl lli\. ill !2!J!l APb ill ~ lmpats 5 ana 7\. NOlltant \. A\. Couts 8STiGol4E!8 directs Dlfrichement des terralns et glates d'ac(!es (2250£0\.) (n/Oha) (l'l50ha) (150ha) 1\. 1II8tn d'oeuvre 22,~ 3 l1,~53 17,~53 7 ,~80 6~ ,829 b\. intrsnta 16\.311 12,133 12\.133 5\.~51 ~1,29~ ~A6,~60 ~ gi\.lI\.§\. ~ c\. sutres depeoses de fonctlonnement 112,196 2ll,OlO 1 55\.5 2 155\.562 \.6 9 5 6\. 03 2\. \. Production des inatrants pOUl' elantage tltsin d oeuvre b\. tntTsnt& 16,612 1~ ,218 ~2 ,126 20,037 ~2 ,126 20,037 35 ,~56 1~ ,350 30,6~5 16,621 ~ ,36~ 15,115 H3,OO) 11,006 122,113 ~ ~ c\. autres depenst!s de fonct lonnement 33\.935 3 , 13 9 ,09 96,098 60,653 36\.120 3~8,162 3\. \. Plantage b\. matn doeuvre totTants (350ba) 22\.252 1\.288 (1750h"l 1~ 36\.~17 (1150hu) 111\.260 36,,31 (1750h,,) 111,260 36 ,~37 (900ha) 51,220 16,136 ~13,252 135\.331 c\. Butres dipensee de fonctlonnement ~ 1,2 ~ 20 ,327 M,630 2 \.321 ~ 2 0 \.321 ~ 10 \.llO 2gl,166 7 ,351 Entretten ~ (2tOOh\.tl (3~50h") (5600ha) 4\. a\. matn d'oeuvre 9,200 5 \.520 9 ,259 ~ 29~,3 1 ,0 146,632 121,676 562,648 12 67,518 8 45,012 ~\.206 25,201 ~3\.151 52,115 125\.219 46,641 30,781 202,701 80 162\.161 5 10,135 b\. tntraots c\. autrea depenBes de foncttonne1Dent ~ 15\.,99 ~ 91\. 1 ~1\.~~~ 1 1\. 5 31'~~f 211\. ~ ,593 34,669 227,942 g 3l\. 07 183, 64 132\.850 898,199 60 34 \.2!\.l!Q 309,389 15 II !2\.'lli 75\.075 TOTAL !!~~!!~!! 183,664 41 10 260\.836 !~~J\.!~! ~!~!~!!! 549,661 515,505 360,494 2,109,935 _=\.;\. u_\. :::'liI:::=aa 227,942 ""lIu=oa:;:== 5 Hlee en salgnee 2,576 2,576 12 309 II 206 a\. matn d'oeuvre 3,903 3,903 60 2,342 15 585 b\. autree depensea de foncttonnement :::!~ ~,:~:!2 41 !~~~! 12 791 TOTAL 227,942 190,143 2,608,020 41 1,082\.252 10 261\.627 :o:a"",;g=:;=;::::<o; :;;;""==-\.==== lIit~1!l\.tl!JJ!tlon de\. calh\. sar[col"\. directs, s\. main d I oeuvre 61,367 180,039 225\.359 250,~51 208\.202 925 ,~2~ 146,632 124,252 1,196,308 12 143,556 8 95\.704 13,~13 ~[ 37,B17 9~,1t08 100,001 380,916 46,641 30,781 458,338 80 366,671 5 22,917 15\.211 '" '" 0-;; b\. c\. tntrants autree d0penses de foncttonnetnent 191,;~5 290\. 9 f73\.38g 19\.93 2f9\.~~~ 5 9, 1 ~ 515\.505 ~ 863\.595 360\.19 2\.189\.935 34,669 221,942 35,110 190,143 953,374 2,608,020 60 41 572,025 1,082,252 15 10 ill\.~ 261,627 _r\.! i: [;j ====::;:::::: :=;:=\.::;=:==-::::;,;; ==='*""'== \.==\. "'=== =""\.=,;::;;=<1:== C , w  em D' IVOUE DEIlX IEMIl paOJlfT D' HEVI\ACULTlIRE DtI GHAND BEREBY CoGte du Protei; lnfraatructure \l11l!!8eol~e (en '000 <I\. FeFAl Cui'lt ~ API ill ill lli\. AI'S Tptal 5 "\.ans AP6 m Total Ikvises %--~~~\.1"nu"t t\. £ntretten de 1\. lere trancbe de 7000 hg (0) Conall"ltcUun Villa de dtvhton (Tappera) 103,384 103\.384 103,384 103,384 103\.384 413,536 103,384 103,384 620,304 40 248,122 (b) KoMlter 5,060 5\.060 5,060 5,060 5,060 20,240 5,060 5,060 30\.360 18 5,465 'rotal I 108,444 108,444 108,444 108,444 433,176 108,444 108\.444 650\.664 39 253,587 14 91,093 II\. Sur 111 6S00 h! aUl!l!le\.etulrea (0) C\Jnstruct tun YUhaea de canton 107,206 107,206 107,206 214,412 tranefert vUhae en boil lA~:IU 28,291 28\.292 18\.861 75\.444 Vt1I de dlvlSiun (TaI'P"ra) -- 101,384 lli\.1!!\.i SUba- total <a) 28,291 135\.498 126,067 289,856 103,384 393,240 40 1')7,296 (b) !!!!l!\.!lli!:\. 5,360 17,905 34,830 18 6,269 6,505 29,170 5,060 Totd II 28,291 140,858 143,972 6,505 319\.626 108,444 428,070 38 163,565 14 59,930 TOTAL 136,735 140,858 252\.416 108\.444 114,949 753\.402 108,444 216,888 1\.078,734 39 417,152 14 151,023 Note\. ~~ 'T Pour Ie dlltall d4ll1 caGte tmlt\.ir voir \."Ma\. eu:pplillentall'e \.\:1 to! : "I  ANNEXE 7 COTE DI !VOIRE Tableau 5 SUr;l~e\.lt DEUXIEME PROJET D f HEVEACULTURE DU GFAl,,{D BEREBY Coats du Pro,jet: Infrastructure Villageoise Details des Coats Unitaires Supplement pour Village de Division Quantite Coat unitaire Total Village de Canton Logement pour Chef de Divisio:l 3,692,000 3,692,000 " "effectif adminHtratif (1 bloc) 2 471,000 942,000 WC/cuisine/douche 2 102,500 205,000 Logement pour surveillants 12 438,000 5,256,000 Bloc cuisine/douche 12 55,000 660,000 WC 12 13,000 156,000 Logement pour ouvriers (65 blJcs) 130 364,000 47,320,000 Cuisine/douche (65 blocs) 130 55,000 i,150,000 Ecole comprenant 3 salles de classe 130 13,000 1,690,000 Bloc sanitaire pour ecole 1 2,221,000 2,221,000 Dispensaire 1 284,000 284,000 Grand magasin 1 756,000 756,000 Boutiques 1 765,000 765,000 Marche couvert 6 364,000 2,184,00Cl Bureau de canton 1 364,000 364,000 Bureau de division 1 552,000 552,000 Hangar pour assemblage 1 927,000 927,000 Adduction d I eau 1 364,000 364,000 Points d'eau 13,660,000 Electrisation 15 187,000 2,805,00Cl Defrichement et nivellement 11 7,220,000 Drainage 6,720,000 1,313,000 TOTAL 103,384,000 107,206,000 =========== :::s========= 1\. Comprend les terrains detrich~s pour lea cultures vivrieres\.  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Couts du Pro jet: Programme de rormation ell '000 de FCFA API - A1>2 m AP4 AP5 TOTAl\. sans ~ AP7 I2!\.!!l 1\. Entretien de Is lere tranche de 7000 ha (a) Vehicules 5,400 10,800 10,800 10,800 10,800 48,600 48,600 (b) Salaires: Expatries 8,640 25\.920 Stagiaires 2\.1~0 2 1 160 4 1 320 8 1 640 17,280 7\.5 0 10,800 12\.960 15\.120 19\.440 65,880 8,640 14,520 Sous-total ===== ===-=== ==:\.=== ====== ====== ::====:: =::;===::; 1,500 3,000 2,000 2,000 2,000 10,500 2,000 2,000 14,500 (c) " \. Bourses pour formation Bingervi11e - 1,500 3,000 2,000 500 2\.500 2\.500 ~OO 1 1 000 11,500 500 2,500 500 2,500 2\.000 16,500 Sous-total ===== ======== ====:= -====;= =::==== =;:::::::::: -=:;::;== ==;::;=::::;: (d) Autres depenses de 414 828 828 828 828 3,726 828 828 5,382 fonctionnement ===\.;;= ====== ====== ====== ====== ====== ==:;;; 9,474 14,628 15,788 18\.448 22\.768 81,106 3,328 11,968 96,402 Total I ===== ====== ====== =::::::::== ===;;:== ====== =;;==\.::: =====;:;:;: =:;::::;:;;== II\. 6\.~oo ha sUEElementaires (a) Vehicules 1\.080 4,320 !~ \.320 4\.320 2\.160 16\.200 4,320 2,160 22,680 (b) Salaires, stagiaires =,;;:;-=== ==:;;:;:== =:;::::==== =:;\.-== ====== ====== :::::::== =::::::::;:: ====== 1,000 1\.000 1,000 3,000 1,000 1,000 5,000 (~) Bourses pour formation 1,250 1,250 " " Bingerville ~ 200 500 1,000 6,250 250 500 1,500 1,000 1\.000 11,250 l,~O ===== ====== =====;: ====== ====== ==\.;;=::::::= =--== (d) Autres depenses de 414 828 828 828 828 3,726 828 828 5,382 fonctlonnement === ===== ====== ====== ====== ====== ::;;:;:=;:::::: 1,744 5\.648 6\.648 6,148 3,988 24,176 6,148 3,988 34,312 Total II =:::;==== ;::===== ===== ===== ====== ===== ======= =;::===;:: ======= ll,218 20,276 22,436 24,596 26,756 105,282 9,416 15\.956 130\.714 TOTAl\. POUR l\.A FORMATION ;==:== ====== ===;::== =====;:: ====== :;:======= ===-== ====== ===;;;;;=== \.,:r\. ~ III cr \. (II III ~ -> 0\  COTlI D' !VOIR! DEUX!EME PROJn D'lIEVEACULTURE DU GRAlID BER1!BY V(h1culea et UUlt'lrie\.l (en '000 d\. FCPA) AP6 API Total AP4 APS ~ '000 (j((i Unitaire API Quanti::i ed~t AP2 Quantitf coot AI'3 Quan ti tl co~- Quantit"feo'ift qu-antit'-co'(h: Total Quant1tl' co~t Quantitl -co'\lt Un!\. 1\. Intretien de 1& lere\. tranche de 7000 hI Materiel ~ 17,000 (1) 17,000 17,000 Niveleule\. }, 15,000 (1) 15,000 15,000 15,000 CtnIlion entretien terrains 6,500 (1) 6,300 6,SOO 6,500 'Ir Be teure agr leo les\. 2,300 (2) 4,600 (1) 2,300 (1) 2,300 (1) 2,300 n,500 (1) 2,300 (1) 2,300 16,100 Gyrobroyeut' 425 (1) 425 (1) 42S (1) 425 1,275 (1) 425 (1) 425 2,125 Remorque 500 (1)~ (2)~ --Li!!\.!L (1) 500 2,000 Sous-total ~ \.a\.:w\. 10,225 17,725 35,n5 l;::~ !2,!~ ~!~m ~ Veb1cule pour t'ecrute1llfi!nt 2,800 (2) 5,600 (2) 5,600 (1) 2,800 (1) 2,600 (1) 2,800 19,600 (1) 2,800 (1) ;,800 25,200 II 4 roues motr ices 2,600 (1) 2,600 (1) 2,600 (1) 2,600 (1) 2,600 10,600 10,400 Camionnette I1vraison 1,200 (3) 3,600 (2) 2,600 (2) 2,600 (2) %,400 (1) 1,200 12,000 (1) 1,200 (1) 1,200 14,600 II bache 3,900 (3) 11,700 (4) 15,600 (2) 7,800 (2) 7,800 (1) 3,900 46,600 (1) 3,900 (1) 3,900 54,600 Camion benne 4,600 (1) 4,600 4,600 (1) 4,600 9,200 6,000 (1) 6,000 (1) 6,000 (1) 6,000 18,000 (1) 6,000 (1) 6,000 30,000 Ber line 4-5 CV 750 (4) 3,000 (4) 3,000 (6) 12,000 (6) 4,500 (3) 2,250 24,750 (20) 15,000 (9) 6,750 46,500 II 11 CV 1,800 (1) 1,800 (1) 1,800 3,600 (1) 1,800 5,400 Pick up 1,800 (1) 1,800 (1) 1,800 3,600 (1) 1,800 5,600 Ambulance\. 2,000 (1) 2,000 (1) 2,000 (1) 2,000 6,000 (1) 2,000 8,000 Mobylette\. _80 (10) ~ (8)~ (8)~ (8) ~ (8)~ 3\.360 (8) ~ (8) ~ 4\.640 Saus-total 29,300 39,440 40,840 30,340 12,790 152,710 37,740 23\.290 213,740 lUt'r1el diver\. llJImper 1,000 (1) 1,000 (1) 1,000 2,000 2,000 BetonniErt'e 1,000 (1) 1,000 (1) 1,000 (1) 1,000 2,000 3,000 Generateur 20 nr " 1''''''1'''\. 7 K\.W OUUie: d I atelier 1,300 700 500 (1) (1) (1) 1,300 700 500 1,000 1,000 (1) (1) (1) 1,300 700 SOO 1,000 (1) (1) (1) 1,300 700 500 1,000 m ,;gg (1) 1,300 1,000 5,200 2,800 2,000 5,000 (1) (1) (1) 1,300 700 500 1,000 (2) (2) (1) 2,600 1,000 SOO 9,100 4,900 3,000 6,000 :~~~!:l :d~::!au 250 300 250 300 250 300 2SO 300 250 300 1,250 1,500 250 300 250 300 1,750 2,100 Materiel pour recreation Sous-total 5,050 2,550 5,050 4,050 5,050 21,750 :~ 5,050 31,850 TOTAL pour 1& lire tranche de 7000 he 34,350 47,090 48,615 44,615 35,565 210,235 ~ 48,065 304\.n5 11\. 650? ha ,uppl'-ntaires ~ MatHiel pour irrigation 1,000 1,000 800 2,800 2,800 Chen! llard ddfrlcMur 45,000 (4) 180,000 180,000 180,000 Chargeu'li 17,000 (1) 17,000 (1) 17,000 34,000 34,000 Niveleuse 15,000 (1) 15,000 15~OOO (1) 15,000 30,000 Camion entretien 6,500 (1) 6,500 6,500 6,500 Chenillsrd dtfrlcheur 70 CV 11,600 (1) 11,600 11,600 11,600 Tracteurs agricolea 2,300 (1) 2,300 (1) 2,300 (1) 2,300 6,900 (1) 2,300 (1) 2,300 11,500 Gyrobroyeut' (aebrouIsal11eur gyroscop1que) 425 (2) 850 (1) 425 (1) 425 (1) 425 2,125 (1) 425 (1) 425 2,975 Citeroe 650 (1) 650 (1) 6SO (1) 6SO 1,950 1,950 ~~\~!e 8gr1c01e 500 (1) 500 (1) 500 1,000 (1) 500 1,500 450 (2) 900 (2) 900 1,800 1,800 ~canlque 170 (30)~ (30) 5,100 10,200 10\.200 Sous-total 229,350 15,500 22,275 4,025 2,725 273,875 3,225 17,725 294,825 Vihicule pour recrutement 2,800 (1) 2,800 (1) 2,800 (1) 2,800 (1) 2,800 11,200 (1) 2,800 (1) 2,800 16,800 " 4 roues matrices 2,600 (3) 7,800 (2) 5,200 (2) 5,200 (1) 2,600 (2) 5,200 26,000 26,000 Camiannette llvr aison 1,200 (2) 2,600 (1) 1,200 (2) 2,400 (2) 2,600 8,600 (2) 2,600 (2) 2,000 13,200 Camion bache 8 tonnes 3,900 (2) 7,800 (2) 7,800 (2) 7,800 (1) 3,900 27,300 (1) 3,900 (1) 3,900 35,100 benne 4,600 (1) 4,600 (1) 4,600 (1) 4,600 13,800 (1) 4,600 18,600 bascule 6,000 (3) 18,000 (1) 6,000 (1) 6,000 (1) 6,000 (1) 0,000 42,000 42,000 Berl1ne 4 SCV 750 (2) 1,500 (2) 1,500 (8) 6,000 (2) 1,500 (2) 1,500 12,000 (7) 5,250 (3) 2,250 19,500 llSCV 1,800 (1) 1,800 (1) 1,800 3,600 (1) 1,800 5,600 Mobylette 80 (10) -1QQ\. (7)~ (7)~ (7) ~ (7) ---W\. 3,040 (7) ~ (7)~ ~ Soua \. total 35,500 28,060 35,960 23,660 24,160 147,340 19,510 13,710 180,560 DwII'p<!T 1,000 (1) 1,000 (1) 1,000 2,000 (1) 1,000 3,000 'B!t~nn1ere 1,000 (1) 1,000 (1) 1,000 2,000 2,000 Generateur 20 KW 1\.300 (1) 1,300 (1) 1,300 2,600 (1) 1,300 3,900 II 7 lGl 700 (1) 700 (1) 700 1,600 (1) 700 2,100 Pomp_ 500 (1) SOO (1) 500 1,000 (1) 500 (2) 1,000 2,500 Ouells d I atel1er 8,000 1,000 5,000 1,000 1,000 16,000 1,000 17,000 M$t~rUtl d:dicsl M$t~r 1el de bureau Matth'iel pour r'neation Saua \. totsl 4,750 1,000 14,750 250 200 4,950 250 200 1,800 10,7SO 250 200 1,450 230 200 2,450 ~ 5,750 1,800 34,350 ~ 250 200 4,"0 250 200 3,4SO 6,250 2,200 3,600 42,550 f e II \. TOTAL pour le& 6500 hs suppl"en»tntslres 279,600 48,510 68,985 29,135 _\. \. 29,335 455,565 27,485 (28) 34,865 (35) 517,935  COTII O'i:\IO!RB O!!Ul(!!M2 PROJEI 0' ugy:I!:ACULI!!!!1! DU GRANO IlIRI!!BY CoOt\. du Pra19t: Administration 8''''~r!!1e <'000 d~ !'CfA} ill AP1 !U ill ill\. I2W\. AP6 lIP1 Total Sana 1\. Sal\.trea 1\. Per\.on~\.t\.14 \.ncad\.mt S3,315 115,150 119,500 128,500 136,000 553,115 119,650 123,400 196,115 40 317,260 17 145,866 10,390 18,610 20,180 12,940 15,100 91,830 7,810 14,500 119,950 24 19,160 18 17,010 at 6S,O%5 123\.750 123,750 123,750 110,000 556,275 101,100 101,100 758,415 \.4! 313,860 !! 144,921 128,790 258,120 164,030 115,2'10 281,100 1,107,130 228,570 238,800 1,614,600 43 120,300 18 307,803 2\. Al!trll Urlllll!!!!l 46,260 94,320 96,120 101,320 637,980 51,038 99\.020 99,420 435,140 100,510 \.J!\. Total d 8\.tatral 175,050 352,440 360,150 314,210 380,520 1,642,370 329,090 341,120 2,312,580 31 720,300 16 358,841 11\. lIonor_lres de sa!tion 21,543 56\.761 60,749 71,251 61,821 278,125 50,1132 55,704 384,661 83 319,268 17 65,3~4 Ill\. pepen\.eM lUI Ie tlolltatn 39,161 76,038 81,468 79,183 81,898 357,748 79,613 85,003 522,364 50 261,182 15 78,355 IV\. ~1!ea!e\. :eour I! tOT!!!!t aQ£! 828 1,656 1,656 1,656 1,656 7,452 1,656 1,656 10,764 50 5,362 15 1,615 V\. Autre\. di"eel'Ule8 d! tenet &o!ll!e!B!D' 19,253 150,728 163,414 159,417 165,111 171,175 125,744 118,018 166,057 1,089,819 II 404\.441 -11 Total 321,815 637,623 663,440 691,411 697,070 3,011,439 639,209 669,540 4,320,188 40 l,710,57l 15 661,679 1\. A partir du ler Jut11et 1978 aeulelMnt \. 1\. ftnanee_nt del pr_lera atx IIk\.lta eat d'8Ja , \.vu dana Ie cadre du Premier Pro Jet\.  c'")~ D'FOlP;; J:rux:EHE PROJZT D' EE"lEACULTURE DU GRAND EEREBY Couts du Prog!"e\.mme de Plantations Villageoises en !lIi1lionsie FCFA Salaire AP AP ~ AP T01:al AI' AP Total Annuel 2 3 " 5 5 ans 6 7 '000 CFAF Pro5racme de vulsarisation Programme de plantage (ha) 2Q\. 15\.Q\. \.3\.QQ\. Programme cumulatif (ha) 2Q\. E\.QQ 1QQ i'o\. ci\.'il<1\. supervis,"s par les Encadreurs 2Q\. 100 1QQ\. Personnel necessaire W Collt W ~ ~ ~ NO \.c:\.c\.a:t Encadreurs 600 1 600 T 600 2" 1,200 "5 3,000 5,400 Chefs de Secteur 3,750 1 3,750 1 3,750 1 3,750 11,250 Chauffeurs 305 1 -1Q2 1 -1Q2 -2\.ll ~ 1 Total des coQts de la vulp;arisation ~ ~ ~ ~ 17z565 17 ,565 ~ 52,695 lnvestisseIl!ents (a) Logement: chef de secteur(l) (C3) 4,000 4,000 encadreurs 2,500 2,500 chaUI'teurs tIl Total f~£) ~ ,800 -1QQ\. 6,800 6\.800 I " \ Vebicules: 1 IU2 \ w, 1,000 1,000 1,000 2,000 5 Mobylettes -2QQ 400 400 ~ 1,400 1,400\. 1\. 400 2,800 ~eDenses de~ctjonne~ent Vehicules, etc, ~ ~ ~ 2,400 ~ ~ 4,000 '!OTAL 600 = ~ ~ ~ 2~\.L1£2 19,765 18,365 66,295 Credit en na\.tur1!( en FCFA) AI' 3 :; 50 ha a 61,200 3,060 8,550 428 5,850 293 348 AP 4 = 150 ha Ii 61,200 9,180 8,550 1,283 878 l,043 AI' 5 = 300 ha ~ 6l,200 18,3f6 ~ h1i\.2\. Sous-total 3,060 9,608 ~ 32,6l4 l:\.lli\. g\.12\.§\. 39,203 Cx:id:f;t e:c es'Oeces AI' 3 = 50 na~ 18,000 900 9,000 4::0 5,400 270 360 240 \.AI' 4 = 150 ha a 13,000 2,7::'0 9,000 1,350 810 1,080 AP 5 \. 300 ha\. ?: 18,000 5,400 2,1°0 1,6fo Sous -total 900 - 3\.150 7,020 11,070 3,olQ ~ 17,810 CoQts des services de vulgarisation 3,960 12,758 26,966 43,684 7\.661 5\.738 57\.013 \. \.,~ ~ r::1'!:l\. I-'t' (voir ci- iessus) <11 )\. 600 13,655 6,055 \.1\.&2\.2\. 28,165 19\.765 ~ 66,295 \.: '" i:' 0> 10tal des con:ts du programme 600 17,615 15,313 34,521 7:,949 27 ,426 24 ,103 123,308 de ~lantation vil1ageoise  ANNEXE 8 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY TRAITEMENT 5ystemes et investissements Le systeme de traitement 1\. Le systeme de traitement propose a pour but de produire du caout chouc en petites balles con formes con formes aux normes qualitatives initiale ment precisees dans Ie cadre du projet malaisien "5MR", et qui sont maintenant generalement acceptees partout ou est produit ce type de caoutchouc\. Les phases intermediaires du traitement varient selon que Ie latex est recueilli et transporte liquide a l'usine, OU a lieu la coagulation, ou qu'il est recueilli dans des sacs en polyethylene (polybags) auquel cas la coagulation se fait sur Ie terrain\. A l'epoque de l'evaluation du premier projet, on a suppose que Ie systeme de recolte en "polybag" serait adoptee Malheureusement, certains problemes techniques sont apparus, qui n'ont pas ete resolus, notam ment un manque d'homogeneite et l'apparition d'odeurs deplaisantes dans Ie produit final\. Les chaines initiales de traitement seront donc con9ues pour traiter Ie latex liquide et ses sous-produits : fonds de tasses, sernamby, caoutchouc d'ecorce et de terre\. 5i l'on trouve une solution aux problemes susmentionnes, cela n'eliminera du reste pas la possibilite d'opter ulterieure ment pour Ie traitement du caoutchouc en "polybag"\. De toute fa90n, une seule usine, situee au centre, represent era Ie moyen Ie plus economique de traitement\. Les objectifs qualitatifs pour les diverses fractions de la reeolte dans le systeme de transport du latex liquide seront les suivants Latex - 75 % - Classe 5L ou 5 (peut-etre 5CV) Fonds de tasses - 20 % - Classe 10 Caoutchouc de basse qualite (scraps) - 5 % - Classes 20 et 50 Au stade actuel de developpement, Ie systeme de la saignee cumulative en "polybag" devrait avoir un rendement de 90-95 % pour la Classe 10 et de 5-10 % pour les Classes 20 et 50\. 2\. Le latex centrifuge pourrait a l'avenir offrir une solution de re- change interessante pour la production de balles de caoutchouc brut mais il ne s'agit pas d'une possibilite immediate car il est necessaire de produire chaque annee quelque 4\.000-5\.000 tonnes de caoutchouc pour repondre aux be soins de ce marche specialise\.  ANNEXE 8 Page 2 3\. Hormis les defauts de qualite du caoutchouc en "polybag", i l existe certains inconvenients pratiques qu'il faudra eliminer avant que la recolte du caoutchouc en "polybag ll puisse remplacer la recoIte du latex liquide\. Dans les essais industriels, l'economie reelle de main-d'oeuvre s'est revelee moins spectaculaire que prevu, etant d'environ 30 %, contre des previsions de 50 %\. Les rendements ont diminue, en partie par suite d'une augmentation des pertes due aux pluies, en partie par suite des difficultes de supervision et de con trOle; les economies de coOt de la main-d'oeuvre ont ete partiellement absor bees par la forte hausse du prix des sacs de polyethylene et du coOt des ope rations de traitement et la baisse des prix re~us pour Ie produit final\. Implantation de l'usine 4\. Quoique 35 % seulement de la concession se soient reveles prop ices a la culture de l'hevea, la plantation reste relativement compacte, et il n'existe pas de zones suffisamment eloignees du centre pour justifier l'exis tence de plus d'une usine pour traiter la totalite de la recolte obtenue sur les 13\.500 ha\. La distance la plus longue a franchir sera au maximum de 20 km, la distance moyenne etant de quelque 13 km\. Dans ces conditions, il ne serait pas rentable d'etablir des stations sur Ie terrain pour la coagula tion du latex avant sa livraison a l'usine\. Choix de l'implantation 5\. L'usine devrait @tre construite dans Ie centre industriel et admi nistratif actuel, qui est assez proche du centre geographique de la plantation\. Son site offre des avantages sur Ie plan topographique; avec la proximite du Dodo, qui fournit une eau suffisante toute l'annee, et un acces rap ide aux services existants - garage, ateliers, scierie et groupe electrogene\. Materiel de traitement 6\. Lignes tatex\. Des qu'il est re~u a l'usine, Ie latex est filtre, homogeneise dans des bacs, acidifie et coagule\. Les plaques de coagulat sont roulees, puis passees a la cr@peuse et au broyeur a marteaux qui les redui sent en granules pour qU'elles sechent rapidement\. Les granules seches sont pesees et pressees en balles de 33 kg qui sont enveloppees dans du polyethylene\. On trouvera au Graphique 1 Ie diagramme de procede\. 7\. Lignes coagulums\. Les fonds de tasses sont granules par passage dans un granulateur, puis homogeneises dans un bac d'eau circulaire\. Les scraps sont laves mais non granules\. Le caoutchouc des deux categories passe ensuite a travers une batterie de quatre cr@peuses et un broyeur a marteaux, apres quoi, Ie sechage et l'emballage ont lieu comme pour les lignes latex (voir Graphique 2)\.  ANNEXE 8 Page 3 8\. Traitement du caoutchouc en "polybag " Si l'on ddcide par la suite d'adopter Ie syst~me du caoutchouc en "polybag", ce dernier sera trait~ par une ligne standard coagulums a laquelle il suffira d'ajouter un cylindre lamineur pour arracher les sacs du latex coaguld\. 9\. Autre mat~riel\. Bien que les proc~d~s d~crits dans les paragraphes pr~c~dents se soient r~v~l~s satisfaisants sur Ie plan commercial en Malaisie, il serait bon d'dtudier d'autres solutions avant de mettre d~finitivement au point les plans de l'usine\. a) Granulation avant cr&page : il est possible de produire des granules plus uniformes en rempla~ant les broyeurs a marteaux par des ddchi "shredders" queteurs ou des granulateurs\. b) Nettoyage du caoutchouc de basse qualit~ (scraps) : les broyeurs a marteaux seraient peut-&tre plus efficaces et plus ~conomiques que les laveuses m~caniques envisag~es; c) S~chage: les s~choirs mobiles a ~tag~res du type Singapour pour raient &tre pr~f~rables aux boites-s~choirs provisoirement choisies\. En effet, ils s~chent rapidement et leur capacit~ peut &tre ajust~e - de 2 a 6 cycles - ce qui offre une flexibilit~ suppl~mentaire\. 10\. Combustibles pour les s~choirs\. Le coOt du projet se fonde sur l'hypothese que les s~choirs seraient chauff~s a la vapeur\. L'achat des chau dieres n~cessaires a cette m~thode augmente l'investissement initial, mais en revanche leur coOt d'exploitation est inf~rieur a celui de brOleurs a chauf fage direct aliment~s au diesel oil\. Les chaudi~res peuvent &tre chauff~es au bois, qui est une ressource locale abondante (initialement Ie bois de for&t, et par la suite, Ie bois de caoutchouc), reduisant ainsi la dependance de 1a COte d'Ivoire a 1'~gard des produits p~troliers import~s\. Construction de l'usine 11\. Echelonnement des activit~s\. Le programme de construction peut va rier quelque peu selon Ie choix final du mat~riel\. Le calendrier qui suit suppose que les chaInes de traitement du latex et du coagulat auraient une capacit~ de production de 22 tonnes de caoutchouc sec par jour et pourraient &tre install~es comme des demi-unites de traitement\.  ANNEXE 8 Page 4 Construction et Unites de installation construction Lignes latex Lignes coagulum Z AP 1 Uz 3 4 1 Uz l/Z 5 6 1 Uz 7 1 Uz Uz 8 Uz 9 1 1 10 1 Uz Uz 11 1 l/Z lZ 13 l/Z 14 15 Uz Premier pro jet 4 3 1 Deuxieme projet 3 Z 1 Total 7 5 Z Les lignes d'usinage seront instal lees l'annee precedant la mise en service; ainsi l'usine commencera a produire la troisieme annee du projet et atteindra son plein rendement de 154 tonnes par jour au cours de la 16e annee du projet\. Approvisionnement en eau et traitement des effluents 12\. 3 Les besoins en eau passeront de Z,5 m /h au cours de la premiere an nee d'exploitation a 200 m /h dans les annees 1990, ou a 350 m /h si l'on pas 3 3 sait du latex au caoutchouc en "polybag"\. Les puits existants et prevus suf firont a alimenter en eau les installations durant la troisieme et la qua trieme annees du projet seulement; par la suite, il faudra absolument cons truire une station de pompage et une usine d'epuration de l'eau permettant d'utiliser l'eau du Dodo\. II est prevu d'equiper initialement la station de 3 pompage de deux pompes (dont une de reserve), d'une capacite de 60 m /h cha cune et de doter l'usine d'epuration de l'eau d'une capacite initiale de 3 100 m /h\. 13\. Les effluents de l'usine devront ~tre epures avant d'@tre decharges dans les voies d'eau naturelles\. La demande biochimique d'oxygene qui, au de part, etait de 1\.000-1\.500 ppm, sera ramenee a 100-150 ppm par une decantation preliminaire suivie d'une formation d'etang\. Le coat du pro jet comprend une  ANNEXE 8 Page 5 provision pour la construction d'un barrage, visant a creer cette zone de re tenue d'environ un hectare, ainsi que pour la construction d'un canal qui acheminera les effluents epures dans Ie liepe\. Electricite 14\. Pour commencer l'exploitation, les deux groupes generateurs de 250 kW deja en service fourniront une electricite suffisante; toutefois, il faudra installer un materiel supplementaire au cours de la quatrieme annee du projet\. Durant la periode du projet, un seul groupe generateur de 500 kW sera neces saire\. On a prevu d'y ajouter un deuxieme la neuvieme annee du projet, et un troisieme la 12e annee du projet\. Cependant, si l'extension prevue du reseau national a lieu, ces groupes generateurs ne seront peut-~tre pas necessaires\. Une ligne elect rique partant du barrage de Buya en cours de construction sur Ie fleuve Sassandra, approvisionnera en electricite la region de San Pedro Grand-Bereby au debut des annees 80\. Organisation et gestion du programme de construction de l'usine 15\. II est prevu que la societe Michelin assumerait la responsabilite de la planification et de la supervision du projet de construction de l'usine\. L'acquisition des materiaux et de l'equipement, la realisation des divers tra vaux de construction et 1 'installation des lignes electriques et des canalisa tions d'eau se feraient selon les procedures normales d'appel a la concurrence, jugees acceptables par la BEl\. II reste a negocier les conditions auxquelles la societe Michelin entreprendrait les travaux, sa remuneration et ses respon sabilites; cependant, l'estimation du coot comporte une provision adequate pour couvrir les honoraires de l'architecte et les diverses commissions\.  t<~"I111"'''''\n i~, t1\. ~ !:, U !! ~t J\.'~ ~l \.\Iil- 'U '1'11_ bll~- stocka\.,:,~ I III __ I " de , I I i, ac~a,> l:> c\.iJ 1\e \._ i;,,:uis s~atiqu{! II 1\.1 I por::i"~ ----f9'->J iUi\.l{,:cur pOUT -nechoi:o c\. pn\.nicX'S -;ci":", i'iHrf! \. , , , I ", ~''" Pw,po \., I ,\. HO -~c;x bac de r(cc:J~iOli de3 bClC3 c:e ill balllnce : "_Ie ; <Fir ,:c;~~;- \ BLe p"':\;;c (r~~::"'~~Qa llr:"!",lr h l,ttt;!\.~ (' n te'J\.!" ~1oc,:r:o r\.;\.r~\.:\.! 1\.::\.:i\.X avec :lei 1~ l:J\.:cY\. C ~\. \ ~ ~"r:'~; ::;e en b~t\.o 'fi1 'il~tl\.lu\. nru, U" \.'i lJJ \\ \. \.: "ll p;- rr 1 ,\\r I ~ i1 TIDU n ~,'01"" ~,' lJ!l };:\. J\.l \.,\:\. :\.l SCHEMA DE PRiNCIPE  ~Q~fiun~~'L'\}\. !In ~ \. [j \.tru:lis statique r-\.-\.-~ I j--- I 1 Cr,umlntc'Jr 80 ;\.tlf\.nUy\. [l rnt\.-ltif::; r I Jt i 1"'(: de " 'o('k- -'e r~~1! ~~\.1 '" \.k, I ILI , <~~<::: I ~, I \, ~b:1 des l'ho;:;~~6neisc- i j de!) cor,;;-uhul!J lUI '\.;\.;\. I, ! 7 (101 1,/" --y- b\.?c fQur £r"~'1't,(,5 I , >,1 '1-, I \ b;-,c _t!c tp:::-r\. p ,;- -- cechoir a r:OJ'1\.iers \, /: i ;' ,;a Lies C')'l';",llL'm\."! \ ~'? I I ~J_J___________/n, ,__ I ~ D ' t; '"ten t l,;e 11 t!:,,:(~n t " '<';\ --'1 omno " V("-t \.-\.-{ v\./\. <~\. -pO:\.i:pc U vortex r~ur l'~~l ~~~tiOIl dO::l " S"~~!l r\.c~ polj'oClf:3 / Joe, ~ h vor~,c:: lB\.---'~83~ r- -- ---, I L_I____1 t ,s7f0Si li),:J ,",0 ""',,,,:':'\.-" \ , 0;,',:\.nde tr;:tt:\.e,-- F:)rt0u~-,;O CC!~ \. do rHcvclaf-e [1-- d~tecteur I:,\.: L\.) :" i:t":':l;~-;V-' lqu-a 't' I -',,::1 \. \.,:\. \.:\.: L': ~r\. ~ \.,-\. 11 /', \. - ;t, \.~ s::r',;' (~::- rO~lr \tn\.:_~i$ zt~:tique 11) t r: t (~(;~:; ~cr(\.' C't c::::\.outChO~C3 (~~ !::c; rre rn' llLllE rrn~:>ITll~~ril' \. llDn§ If'i!l\ (\ \l\.~ (;'1 ITrn if7'\\IT q ~,f U\.Y\.A1\ ,tll \1\.",', \.J ;\.1 i-yll, 5C HE~t1A 'DE PRINCIPE <',!  COTE O'IVOIRE OEUXIEME PROJET O'HEVEACULTURE 011 GRAND HEREBY Couts d'lnvestissement du traitement Racsl!1tulation (tous priX aux conditions de 1977) AP2 APl AP4 AP5 Total AP6 AP7 ill!\.~l (1980) (1981) (1982) 5 ails (1983) (1984) Total 1\. Uiline _______--___________________________en '000 FCPA -----p------------------------- ~ravaux de 8~nie civll 209,000 111,480 326,~80 71,395 60,500 458,375 B\. Materiel ~ 220,860 316,434 164,305_ 74,300 6]5,039 Sous-total 364,514 338,340 702,914 235,700 134,800 1,073 ,41 1 , Provision pour depsssement des quantit~s Ll 28,619 22,191 51,470 15,355 9,165 16,590 " \. bausse des prix Ll 68\.662 ~ 193,433 136,04~ \.22\.ill ~392 461,915 485,902 9~7,817 387,099 ,:,40,480 1,575,396 TOTAL POUR L'USINE ===:;:::::::;:::::::;:: n\. l\.ogement A\. B'timents 11,812 4,590 14,832 16,522 53,756 16,312 19,088 89,156 B\. Mobilier ~ ~ 2,180 1,665 J\.!\.Q2\. ~ 1,210 _9\.355 Sous-totsl 20,787 4,875 11,012 18,181 60,861 17,352 20,298 98,511 Provision pour d~psssement des qusntitea Ll 1\.930 413 1,592 1,735 5\.730 1,683 1,970 9,383 " bsusse des prix Ll 4,320 hill\. L\.Qll ~ 22,619 11,353 15,769 49\.141 TOTAL POUR LES LOGEMENTS 27,031 6,862 25,637 29,67~ 89\.210 30\.386 38,037 ]57,635 ===:\.== Ill\. Vebicules 20,360 10,000 15,000 45\.380 36,660 43,400 125,1,60 Provision pour depsssement des quantites 1,019 500 750 2,269 1\.834 2,170 6,273 " bausse des prix ~ ~ ~ 15,001 !2\.,827 63,118 TOTAL POUR LES VEHICUl\.ES 26,460 13,893 22,297 62,650 58,341 73\.860 194,851 ===:a:== TOTAL DU COIIT INITIAL DES INVESTISSEMENTS 385,361 25,255 365,352 33,187 809\.155 289,132 198\.49'1l 1,297,385 Provision pour d~passement des quantites 30,609 1,492 24,883 2,485 59,',69 101, ,288 \. bausse des prlx ~ ~ !lhl\.2l !\.§\.m 231,O~3 27,139 185,231 17,680 \.J\.~_ 565,303 ESTIMATION DES COIITS TOTAIIX 488,952 33,322 525,432 51,971 1,099,677 502,102 ';165,197 1,966,976 ;:::==== ====== ========= =:=:===::;;:;;::;== 1\. Depsssement des quanttt s : 10% sur lea travaUK de s'nie civil et 5% sur Ie mobilier et Ie materiel \. , I" :} \. '" " ~ tTl X t'l 2\. Hsusse des prix: 1977/79 9% Bur les travaux de g6nie civll et 7\.5% sur le mobtlier et le materiel; enauite 8% sur les travaux '" \. 00 de GGnie CtvU et 7% sur Ie IOObllier et le materiel calculI!! allnuellement sur les cOUI'S initlaux + les depassements de quantites  COTE D'IVOIRb! DEU(IIMl; PROJE'l' D'tlt'VEACULTURE DU GRAND DEREBY CoOts d' invt~S~~ semenl diJ Centre de 'I'rat tcment en '000 de FCFA AP2 AP3 AP4 AP5 'fota1 AP6 AP'( (1979) (1980) (1981) (1982) ~ (1983) (1 Qfll, ) "'otal I\. Usine ~ravaux de Genie Civil Etudes, contrSle et honoraires 11,800 34,100 11\.000 45\.100 6,050 62,950 d'architecte Preparation du cllantier et amenagement I 83,600 21\.230 104,830 4\.595 109,425 ! 80\.300 53,350 133,650 55,000 54,450 243,100 ultiments de l'usine Puits, epuration des eaux \. 11,000 25\.300 36,300 36\.300 Batiment pour groupe generateur 6,600 6,600 6 1 600 Sous-total ,209,000 111,480 326,1180 11\.395 60,500 1'58,3'{5 :;;;:;;:;,:;;==== ===;;:;:::;;== :=;;;::::=;:;::: ======= :;:;-==== ;;====;= D\. Materiel Mat~riel d'usine 133,974 139,212 273,186 161\.555 74\.300 509\.041 pour l'epuration des eaux 21,600 38,3110 59,940 2,750 62,690 " pour groupe generateur 43\.308 43\.308 113\.308 " Sous-total 155,574 220,860 376,431 1 164\.305 74,300 615,039 :======= ======== =======-= =====;= ====== ;;;;:;== TOTAL POUR L'USINE ;3611,51 1 , 338,31 10 702,914 235,700 134,800 1\.073,414 t======= ========: ======== =====:\.= =:::'0===== ===;::::;==-= 11,812 1',950 14,832 16,522 53,756 16,312 ]9,088 89,156 II\. l\.ogC!l!f\.l~ts ll\. Batiments 2\.915 _2~i 2\.180 1\.66; 1\.040 1\.~UQ 9,3~5 Mobilier -L!Qi (;0\. 181 4,875 17,012 18,181 60,861 17\.352 20,298 98,511 'rOTAL POUR LEa LOOI!J\.IEHTS ;;:::::;===;:; ::;;:;:: ======= =====;;;= =:;====;:: =;:;;:=- =;;:;:;;;;;;:;:: ==;==== III\. Vehicules fl\. 1\.980 3\.960 Vellicules pour 1e personnel 1,980 1,980 \. pour 1e r&massage 5,000 13\.400 10,000 15,000 30,000 13\. 1 100 25,000 30,000 lJ\.1100 85,000 36,500 CWIlions de trllnsllort -2\.J00 TOTAL POUR LES VElfICULES 20\.380 10,000 15,000 45,380 36,680 1 3,1,00 1 125,h60 ;======= ====:::;=;:;; =:;;==== ======= ::::======= ;::==;;==::; =====:: ===;==== 1- Voir supplement A \.-:1 i": Voir supplement U ~~ 2\. i-' III ~ Co f\)  COTE D' IVOIRE DEUXIEME PROJET D'REVEACULTURE DU GRAND BEREBY Couts d'investissement du traitement (en '000 de FCFA) II\. Logement Crolt uni Annee 2 Annee 3 Annee 4 Annee 5 Annee 6 Anrtee 7 ~ ~ Mo\. \. CoGI; No\. Cout No\. Coiit No\. cpGt No\. CoGt No\. Co'lit Batiments On1t~ dans village central T1 364 15 5,460 10 3,640 20 7,280 30 10,920 40 14,560 40 ,560 Il, T2 438 4 1\.752 4 1,752 4 1\.752 4 1,752 6 2,628 C1 950 2 1,900 1 950 1 950 2 1,900 C2 2\.900 \.l 8\.700 2 5\.800 1 2\.900 TOTAL 24 17,812 11 4,590 26 14,832 36 16\.522 44 16,312 48 19,088 == ::::::==::::: == ===== == ==:=== == ==:::;:== == ====== :::::= 2\. Mobilier T1 23 15 345 10 230 20 460 30 690 40 920 40 920 T2 30 4 120 4 120 4 120 4 120 6 180 C1 55 2 110 1 55 1 55 2 110 C2 800 \.l 2,400 -\.£ 1,600 -1:\. 800 TOTAL 24 2,975 11 285 26 2,180 36 1\.665 44 1,040 48 1,210 ===== == === == =:=:::: ;:;:= ====== ===== == ====:; Note Tl \. unite pour employ' non specialise T2 \. II It " specialise if~~ :t ::2 II If \.If contremattre surveillant 'U 0' Z 'U I-' I-'Ill ro\. III 8 a c III GO \. ::I N ;t>  CO'l'e Kl\.IJO ~~g DE~IEI1E\.~ItQ-tE\.'t: \.q'\.H\.E~AC\.q~'lJl\.li~ \.~ \.G\.RA~D\.B\.El\EH'{ Couts d'investissement du traitement {en '000 de FCFA) III\. Vehicules Annee 3 Annee 4 Annee 5 Annee 6 Annee 7 Cout unltalre No\. CoGt No\. Cout No\. Coat No\. Coat fuk\. Cout V~hic¥les \.du 2ersonnel Camionnette 1\.200 1 1\.200 1 1,200 Berl1ne 4-5 CV 780 \.L -1B\.tl 1\. \.-:@ Sous Total 2 1\.980 2 1,980 === ====== '" ==:== 2\. V6hlcules de ramassage 11\. Camions de 8 tonnes 3\.900 1 3,900 2 1,800 'I 11,100 5 19,500 6 23,400 Petit1ilS citernes 150 I\. 600 8 1\.200 12 1,800 20 3,000 211 3,600 Remorques 500 1 2 2,500 6 _3,000 500 -L 1\.000 _3_ 1,500 Bous Total 6 5\.000 12 10,000 16 15,000 30 25,000 36 30,000 c:== ===;::;== ==== =====;;;::: =:== ==::;=:::::== ====== +IanS~oIt vers Sao Pedro \. racteur routler 9\.100 1 9\.100 1 9\.100 ] 9,700 Remorques 3\.100 _1_ 3\.1 00 ] 3,700 2 13\.400 1 9,100 2 13,400 Sous Total ===== :::;;::::: ===-=::;== '" 1\. Lors de 1a saignee le latex sera vers~ dans de petites citernes montees sur des camions\. \.§ {fl ~ >3 ~ 'til-' I-'Ill f~\ PI a (D ~ en P I\l c+ tIl  COTE D'lVOlRE DE!JUENE PROJE! D'UEVEACUI\.TlIIIE au GRAND BEIIEBY Uslne programme d'investl8semenla annuels <en millions de FCFA) Article !212\. 1981 1983 19(': ~ 19A6 lyB', 19118 122!! l~~ '['uL"1 H2\.:!\. 1 PreRaration du Rrolel ± "onoralres POlll' lIupervlalon ltO 120 Mlchelln Inapectlon technique 23\.5 6 5 ~ '3\. 3 2 2 3 2 I\. 2 ] 1\.5 ] "5 30 130 Permla de conatl'uire 1\.5 1 1 1 1 1 7\.5 2 A\.enasement du ,Ite 45 210 P~4paratlo~ du atte '-5 7\.6 221 A\. re container 7\.6 10 10 222 Pont bascule 20 no Canallsationa + \.,outa 7 13 ~ 6\.3 q ~40 Lialaona 4lectrlquea exterteurea 6\." 6\.3 ~ 6\.] 35 1 65 ~8\.5 "9\.5 ~9\.5 "9\.5 q6\.5 1\.9\.5 360 311 312 8 ~ "\.5 \. 8 ~ I\. 8 "\.5 ~ 8 29 59\.6 311 9\.9 8 9\.9 321 Baca coagulatton 18 11\.1 18 9 18 27 17\.J 18 y 151\.2 322 Hatiriel de Iranulatlon ~\.5 9\.8 "\.5 "\.5 "\.5 9\.6 "\.5 1,2\.] 121 Material de crepa,e + I "acrap-vashera" 18\.1 1"\.9 6\.3 19\.8 6\.3 6\.3 2'\. 6 8\.3 19\.8 130\. t> 124 aecholn 12\.2 2\. 12\.2 2\. 12\.2 21,\." 2"\.~ 12\.2 12\.2 12\.2 17 325 Prease 3\.2 3\.2 3\.2 3\.2 i\.2 3\.2 3\.2 22,1, 326 Il";cantaura 2\.5 2\.5 321 Raccordements ;lectrlques 8 12\.5 8 8 8 12\.5 8 65 328 Divers et imprevua 7\.5 9\.6 7\.5 7\.5 7\.5 9\.7 7\.5 56\.0 331 Lahoratoire bati_nta 8 8 332 \. IUtertel 15 15 340 Mas\.sln produlta f'oia 33\.5 -n\.!> It Installation de production !5 treltemant des fluldes ~t de 1'\.lectl'lctte 410 Forase \.' 10 10 421 Station de pompage - batiments 15 15 422 fI \. \. _ matertel 5\.5 2\.5 2\.5 10\.) 431 \., traitelOOnt aau brute- betlJunt - 8 5 13 432 \. " fI\. _ Mltlllrl\.1 - 30 22\." >2\.4 440 Ch~teaux d'eall 15 15 450 Trelte_llt des eaux r~alduelres 5 5 460 Haterlel de protection incendie ~ 'i ') 5 20 6 (j 411 Centrale electrique - b~tl_nt 412 \. \. - uteI' ie I "0\.1 25 25 90\.1 5 Hatertel (oulent 500 Charlota 6levateura 3 3 q5 51 319 296\.3 216\.2 108\.7 111\.6 185\.q 176\.7 157\.1 23\.2 ]1,\.0 J63 1 \.8 , TOTAl\. _-=-= :;I:;J::':;:*oa " , Cout addltionnel pour a\.chage II 111 vapeur -li D \. --lL a===a _~IL_ ~'!\.- --"' ~I~ '1'OTAI\. 33q 311\. J 216\.2 12]\.7 117\.6 200\.q 191\. '( 157\.7 23\.2 no~,t\ -=\. :r_ _=r\.=:::;r; \.11 0 Note: Tous lea prix aux condltlona de 1916 c '" * Ce\. numeroa correspondent ;\. l'~tud\. de factlbtllt~ effectu':e par HicheUn  COTE DI IVOlRE MrnEXE P, Tableau'! DEUXIEME PROJET DI HEVEACULTURE DU G:RA\.ND BERBEY \. Co'llts de traitement - Co'llts unitaires Coru/tgnne Co1it Collt unitaire Quantite LatexY Couula\.t 1/ moyen I\. ~ A\. Coat de la main-d'oeuvre 641 y 1\.27 Jours \. 814 Main-d'oeuvre non specialisee 832 y 2\.0 1674 y " " " specialisee \. non specialisee 641 837 2/ 2\.27 3\.0 " \. 1455 £21! Sous-total 2488 3966 2857 B\. Produits Amoniac 660 1\.5 kg 990 Acide formique 145 7\.0 kg 1015 Sodium metasulfide 150 2\.5 kg \.ill\. 2380 1785 C\. Autres :2roduits :2S!ur f'onctionnement Com\.bustibles 700 2 st 1400 1400 Electricite 19 100k'W'h 2090 Eau 19 225 ~h 4275 Eau 30 15 m 450 30 50 m 3 !2\.QQ\. Sous-total 3940 7175 4749 D\. Ensachase Sacs en matiere plastique 14 30 420 420 Caisses 3000 1 3000 Doublure en matiere p1astique 420 1\.6 kg \.-ill Sous-total 420 4092 1338 E\. ~atiQ~s elevateurs 1000 0\.25 heures 250 250 250 TOTAL POUR L'USINE 9478 15483 10979 II\. RAMASSAGE 1846 III\. TRANSPORT A DESTIa~TION DE 1371 SAN PEDRO TOTAL POUR LE TRAITEMENT 14196 1\. 75~ de latex en vrac, 25% de coagulat en caisse ~\. Comprend 1a part des couts des contrema!tres\.  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRANIl BEREBT Coftts de Traitement - Coftts Annue1s (en '000 FCFA) Cotlts 1988 1989 Unitaires 1980 1981 1962 1983 198i1 1985 1966 1987 I\. COlJ'l'6 FIXES A\. Balairea !I Btreoteur t;ysfnt 10800/6500 10600 10800 10800 10800 10800 10800 10800 8500 8500 8500 reo eur 0 n 5250 5250 5250 5250 5250 5250 Chef surveillant 3150 3750 3150 (2 )1500 1500 1500 1500 1500 1500 1500 1500 Chef de l'emba11age 3150 3150 3150 3150 3150 3150 3150 3150 3150 Chef de l'entretien 3150 3150 3150 3150 3150 3150 3150 3150 3150 3150 3150 Chef du laboratoire 3150 3150 3150 3150 3150 3150 3150 3150 3150 3150 3150 Comptable 600 600 600 600 600 600 600 600 600 600 600 Secr~taire + dactylo 215 (2) 550 550 550 550 550 (iI)llOO 1100 1100 1100 1100 Magasinier 260 260 260 260 260 260 260 260 260 260 260 Assistant 1aborantin 230 230(2)460 460 (3)690 690 (4) 920 920 (5)1150 1150 1150 Aide laborantin 160 160 160 160 (2)320 320 320 (3) 460 480 460 460 Chauffeur 320 320 320 320 320 320 320 320 320 320 320 Surveillants 335 --\.:ill\. --\.:ill\. (2)610 ~ (3)1005 \.l\.QQ2\. (4lU!iQ\. (6)2010 2QlQ\. (1)\.L!!!i Bous total (1000 ha initiaux) 24505 24735 32510 32960 33295 33295 33295 31330 31330 31330 Sous total (6500 he\. suppliiim\. L - __ 6030 --lli2 \.J\.Q2Q\. 1090 \.I!!& Total pour les salaires 24505 24735 32510 32960 33295 39325 39820 36420 361120 38155 \.a;;=:: z=-\.=:z :;:= ===:;: B\. Autres conts de fonctionnement V~hicu1e8 pour Ie personnel 2126 2126 2126 2126 2126 2166 2186 2786 2786 2186 Entretlen des bAt1Jnents 1826 1626 3521 3521 5357 6446 6446 7645 8712 9801 Materiel 12446 12446 30115 30115 40401 46509 53304 67536 18648 86523 Assurance Jl\.QJ\. \.Il\.Ql 6281 8281 ill21 \.!l222\. 14829 \.!!ml 21261 23574 Saus total (1000 ha initiaux) 20101 20101 44049 44049 59471 68636 66636 16192 16192 16192 Bous total (6500 ha suppHim\.) _ _ _ _ ~ 6129 20114 35235 464 22 Total e\.utres conts fonction\. 20101 20101 44049 44049 59411 69296 11365 96366 111421 122684 :;;:==;::= ===;:: ==-== TOTAL COUTS FIXES II\. COUTS VARIABLES 44606 44836 16619 11009 a;;=_= ===== ===_a; =:c;:=== - 92112 106621 ==101:2;;= 117185 134186 =====- ==;::::\.;;:;\. 149841 =\.=&;;;:;;: 161439 ==~\.- A\. 1\.000 ha initiaux (611i~ (1444) (3028) (5432) l6465) (10 03) (~290~) (1430G) (1481i5) Production CoOt 14\.196 956 20499 429tl5 11113 120453 154 19 1 325 t 20301 210412 (15284 ) 216696 B\. 6\.~00 ha sU221~mentaires Production (210) (1400) (3290 ) (5915 ) (8165) (10910) Cont 14\.196 -- --- ~~ 1i6105 83269 1211428 154818 TOTAl, COUTS VARIABLES 9568 20499 42985 11113 123434 114653 229961 281043 334900 31151i1 _::z== ====:: -=-=:\.;:: ==:;::== ====== =-===== III\. TOTAL DES COUTS AmfUELS 54111i 65335 119604 154122 216206 283214 3~1l~6 i!21829 4811741 533013 ===~= =====c =~=;= ====== =:::::::=;;::= t3~ g\. I-' '" ~CP 11 Poste remp1i par un expatrie Jusqu'en 1961\. moment ou un ivoirien occupera ce poete '0  ANNEXE 9 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY NOTE SUR L'AUTOFINANCEMENT DU PROJET A\. Origine des fonds 1\. Revenu provenant des ventes Les rendements ont ete estimes sur la base du prix prevu1/ de 0,432 dollar/livre (aux prix de 1977) pour 1980-1984, pour Ie RSS No 1, en balles, a New York\. Ce prix de reference tombe a 0,426 dollar/livre a partir de 1985\. Le revenu s'en trouve indOment majore d'un taux compose uniforme de 7 % par an\. 2\. Revenu provenant des pr~ts Les recettes provenant des pr~ts sont fondees sur Ie montant du fi nancement, qui est indique au Tableau 2 pour chaque bailleur de fonds\. B\. Emploi des fonds 1\. CoOts du projet Tous les coOts ont ete majores des provisions pour imprevus indi quees au Tableau 1 de l'Annexe 7\. Apres la periode d'investissement de cinq ans, Ie coOt a ete gonfle d'un taux compose uniforme de 7 % par an\. Le coOt des operations de traitement, qui ne fait pas partie des coats du projet, ap paralt en 1980, la premiere annee de production\. 2\. Service de la dette II comprend Ie service integral de la dette pour les pr~ts accordes au titre du premier projet et les pr~ts qui seront decaisses dans Ie cadre du projet relais\. On en trouvera Ie calcul detaille au Tableau 3\. Le service de la dette relatif aux pr~ts accordes au titre du deuxieme projet augmente sen siblement a partir de 1982, lorsque les remboursements deviennent exigibles; Ie pr~t de la BIRD est rembourse en 17 versements annuels egaux, l'inter~t etant calcule separement\. Le service de la dette diminue legerement apres 1985, lorsque les frais de l'inter~t sur Ie montant non rembourse du pr~t de la BIRD diminuent\. On trouvera au Tableau 4 les details du service de la dette relatif au pr~t de la BIRD\. 1/ IBRD Price Prospects for Major Primary Commodities, EPDCE, juin 1977\.  ANNEXE 9 Page 2 c\. Traitement des impOts Cet autofinancement represente 1a position du projet, qui est exonere des taxes a l'exportation du caoutchouc jusqu'en 1987, mais doit payer les im pOts directs et indirects sur Ie coOt du projet (a l'exception des droits de douane sur les fournitures importees specialement aux fins du projet), les quels sont en moyenne de 11 %\. La conversion a un autofinancement pour Ie gou vernement exigera que l'on ajoute ces recettes fiscales aux autres revenus et les deficits annuels representeront la contribution nette estimative de l'Etat\.  GOO'[ D'IVOIRE llEUXIEHE PROJ£T D'HEV£AGIJLTUR£ IlU GRAND BERUY HarHe brlJt"e d' auto"'Pfnmt'C:ement du Pro Jet (en mOllona de FerA\. termea couranta) !\.'ill\. !\.lli ill! !\.2!l !ill\. !ill\. !lli !lli \.!J!!I\.§\. l2!!! A\. Origtne das fDnda I\. llevelllJ proven\.or dee ventea SOlls \. total -- 172 In: 401 t;Qf 901 9liT 1729 ffi9 llil 2961 4414 Wi; 83~9 Holna les couts de product ion 8349 Couta de product 'on I (I) CoUts \.sTteolo\. 49 lU 299 537 863 1233 1604 2019 (Il) " de traltelDent 67 86 16? JD 351 491 644 839 (1U) Part des coots admtn1atrat ttl --- -- _-- --- S6neraux ----11! -\.ill ~ -\.-!ill -\.!ill Total dEle couts de product Ion "eyelID net provenant dee ventea 9 (9) 116 56 \. 227 174 468 433 \.!l~ '119 -\.- ---- ---- -\.-- 1812 1149 2529 188S 3300 2928 4049 4300 II\. Ilevenu provenant dee pr\.t8 It BUll CCCE 350 825 1055 1115 1046 509 FED 146 342 436 461 432 211 EIB 111 250 311 306 249 113 SOlla-total !t!!2\. -l! 525 ~ 601 1906 1836 2407 1717 ill TOTAL DES REVENUS 601 1897 1892 2581 2210 1422 1149 1885 2928 4300 \. \. \. \. iii B\. I!!!I!lol de\. fonds I\. CoOts d" p<o let 11\. 1\. I!!tretlen de 11 lere tranche de 1000 b8 (I) CoOta alrtcolea directa (11) V\.fulcul0\./_ter lei 220 306 279 235 192 139 84 26 (111) Infrastructure 39 51 63 62 53 62 81 19 65 69 SOll8 \. total JJQ \.ill\. \.JM \.Jl2\. \.ill --W\. 389 l6J 495 463 424 392 315 To5 65 6"9 2\. 6500 ha aupplementatrea (I) CO~t8 \.grteol direct\. (II) Vehleule\./";torlel 321 569 701 110 531 359 321 276 212 lJ5 (HI) Infr tructure 316 59 90 40 44 45 59 53 55 51 Soua-tot81 34 185 203 10 204 219 240 250 61'i 8i3 1;000 150 T85 4ii4 5s4 54ii To1 ill 3\. Administration fi'neraJe (I) Salaires + coanilalun de ge\.tion 217 466 514 584 619 362 295 223 146 88 (II) Couta divera et fixes 241 204 166 III 16 Sous \. tote t 134 275 312 2i!1\. -\.ill -m 7i\.T 826 924 995 609 499 ill ill 164 4\. Prosramme de elantstion!! v11Jas,eoi8ea 23 26 51 41 H\. 43 38 43 5\. servIce! de trsJ telJtent t 6\. II " \. It 489 34 526 50 502 337 83 225 41 28 -- JU7 212 395 62ii -m 548 Sou\. total i'OTAL DES COUTS DU PROJ£T im 4ii9 2m 34 2378 -:ill' 2689 --- 50 2105 1948 ~ 1862 29s ileo i487 ijiii Surplul D~ratlonl\el (810) (510) ( 486) (108) 105 (526) (713) 505 1441 2993 cu\. lltU (BIO) (1320) (IB06) (191~ ) (1809) (2335) (3048) ( 2543) (1102) 1891 II\. SerVice de 18 dette I (voir tableau 8epare) J\.l 245 245 212 245 245 245 346 441 441 441 Service de le dette It 48 130 \.ll! 343 645 \.2Jll 1172 ~ ~ 1081 TOTAL DU SERVICE DE LA DETrE 280 -m 414 Ta8 890 1232 T5ii 1591 1563 i5J4 TOTAL DES DEPENSES 1691 2182 2852 3277 2995 3180 3380 2911 3050 28\.41 SURPIJIS /DEFICIT (122) 1459 (1090) (885) (960) (696) (185) (1758) (2231) (108b) ~I~ SUII"LUS ClJItUlATIF (DEFICIT) (6174) (8405) (9491) (9613) (8154) (1090) (1915) (3631 ) (2935 ) (4416 ) :[;1 " '"  COTE D'IVotaE DEUXIEHE PSOJET I)' HEVEACULTURE DO GRAND 8EREBY Calendrier eathaatif dea engaReNnts ennuel\. pour les co-preteurs (en millions de FCYA) lill lill\. ll!!!!\. !\.2!ll !\.2ll !ill Kontant total 'art de\. coOts Eatl\.-tion P\.-rt dea cottts l\.tllUtlon Part des couts Ellt iAlat ton tart-ae\.couts Est 1mati-on Part dtls COlttEI Est1wat Ion 2sttmat\.lon \. du pret totau\. d'9,haetaent SotauX' decaiaaement totaux decais\.ement totau\. decs1saement tot\.aux di!cit ls\.'::Oement ~c_a~ BlaD I\.l\. 4,900 700 350 950 825 1,159 1,055 1,072 1,115 1,019 I,ot\.b )O~ eCCE l\.i 2,028 291 146 392 342 480 436 443 461 422 4J2 211 fED 1,340 221 111 280 250 341 311 272 306 226 24~ 111 BIB !\.!!\.2!\. ill --li \.ill --2\.!! Total provenant de 80urced 9,366 1,212 2,111 2,014 2,312 1,117 B\.lance etre paye\. par Ie COUVerRelll4mt L634 \.l!!! 296 \.2ll -ill -\.ill TOTAL 11,000 1,417 2,407 2,376 2,691 2,109 1\. Banque et eCCE conJotnt<:=Mnt (49\.5 et 201 reapect1vee:ent) aUT toua lea elements du proJet 8~Ut lea lnvestisBeaents relattfa ~I~ au\. installattona de traiteaent qui aerant co\. finance\. e\.c\.luaiveraent psr la BEf\. aur lea couta du proJet pour Is pltrtode qUlnquennale de d'catsseMnt (ponr les Ct:rutl voir Tableau I de ItAnnexe 7) :s \., o '"  COTE D'IVOlRE DEUXIEME PROJET D'UEVEACUtTURE DIl GRAND BEREBY Estimation du service de 1a dette pour 1es prets dans Ie cadre des Premier et DelJ~ieme ProJem (en '000 de FCFA) \. 1978 n'ce,iaaemente 1978 \.!ill\. \.!!!!!! \.!ill 1982 1983 1984 1985 \.!:2!!\.! \.llil I\. Prets obtenus dan~ Ie cadre du Premier 'Pro jet Estimstion des D~cais8ementeau 12/31/77 BIRD \. 7\.4 m$EU l\.Om eccE 7\.4 m $EU 1\.0 m FED 7\.4 m $EU 1\.0 m ==-==-=\.__aaa==a==== Commission d'engsgement BIRD 0\.751\.3 mots 469 CCCE 0\.501\. 3 moia 313 FED 0\.25% 3 mois 156 intiret et remboursement de 1& aette BIRD 140\.815 149\.205 149\.205 149\.205 149,205 i49,205 173,628 198,050 198\.050 198,050 COOE 81,248 86,400 86,400 86,400 86,400 86,400 117,001 147,602 147,602 147,602 FED 9\.065 9\.065 9\.065 9\.065 9\.065 9\.065 55\.093 101\.119 101\.119 lin I 119 TOTAL I 232,066 244,670 244,670 =a;:=___ _~K\.aA _\._\.:::m 244,670 \.a:lli::\.c=;a 244,670 =_:1_=== 244,670 345,722 446\.771 -==_\. ==a:::\.a:::::\.,;;;c 446,771 446\.771 ======= =====;;;;;-= ===-=:::::::= II\. Nouveaux 2rets BIRD 20 m $ commission d'engage~nt 0\.75% 23,630 31,271 24,178 15,757 7,685 954 (4900 m de FCFA) interet 7\.45% 17,443 56,918 126,985 207,855 288,352 344,078 315,918 287,756 259\.596 231\.434 remboursement de 18 dette 188\.538 377\.076 377\.076 377\.076 377\.076 377\.076 TOTAL BIRD 41,063 88,189 223,612 151,163 ,;:a _ _ _ _ =-=:" 484,575 722,108 692,994 664,832 636\.672 608,510 \.:ri=_= -==;:::cca_ _ \.a~== =;a;C _ _ _ \.&=-==- ====m:== ==:a=;a;:;= ==,0;:::=0:1;:= =--=-=; eCCE $ 8\.3 m (2028m de FCFA) interet 5\.5% 4,015 17,435 38,830 63,498 88,055 105,793 remboursement de la dette 320\.179 320\.179 320\.179 320\.179 FED $ 5\.5 m TOTAL CCCE 4,015 _=-==rZ::I;; 17,435 a:::'IIIIl:;;l -_\. 38,830 63,498 a::::==~_ 88,055 105,793 320,179 320,179 320,179 320\.179 a;;===JII:ii:=_ ==,:;;;:;::;;a;;=_ ===JI:IiDQ\.:;: ======;;;:= :\.a:=_\.=_ =-=;:;:;;:::::= (1340 m de FCFA) interet 1\.01\. 555 2\.365 5\.170 8\.250 12\.270 13\.400 13\.400 13\.400 13\.400 13 1 400 TOTAL FED 555 2,365 5,170 8,250 12,270 _ _ _ _ :::Ii 13,400 13,400 13,400 13,400 13\.400 -==--\. ===-= =-==!==r== \.=-==-=;;::= ==-=--== =====n:\. c=:=:::==:== ===;:;;;::= ==:;r:;::=:;;; EIB $ 4\.5 m de FCFA) commission d'engagement 2,735 8,500 5\.890 2,860 inter6t 31\. + seTvice de 1a dette 13\.420 27\.775 44\.440 60\.170 1!t5\.410 145\.4l0 145\.410 145\.410 145\.410 TOTAL EIB 2\.735 21,920 33,665 47,300 60,170 145\.4l0 145\.410 145\.410 145\.410 145\.410 ==\.c:=::=a _==-==\.;z -=---== ==~== :==111:'====- -===:;:= --=:a:::\.==* _=_:za:::= =~==~ :::;;;---- ~:» TOTAL II 48\.368 ==--==- 129,909 228,828 342\.660 645,070 986,711 __:a=_=_ --==::11;1\.- =a:n:-=c;;;:;;: *===-=_cc;c; ~_=-:a_= ~71,983 ~43\.821 ~15\.661 ~87\.499 ===:a:::___ _======= =::11;1==;=== ==~=~~;= ~~ &: -D w TOTAL I and II 280\.434 374\.579 473,498 587\.330 889,740 l231,381 ~17,705 \590,592 \562\.432 ~34\.270 -==_\.g:l:l I0Il5=_\.__ \._-==a=:a =*===-=- ===;:;*= =~~===== ==_=-_=_ \.;;::::=z=== ;;:==;~=== ~=======  COTE Dt IVOIRE DEUXIEME PROJET D' HEVEACULTURE DU GRAND BEREBY Service de la Dette: p~et BIRD 4,900 m de FCFA Conunission Total CoGts a Balance non d'engagement decaisse financer Montant decaissee calculee sur pour Rembourse pendant Ie estimatif 8' la fin de la moitie ch,'t~ue ment sur Ie semestre a d c aisser chague semestre de B+C annee Intihet principal Balance FCFA m FCFA m FCFA m FCFA '000 FCFA m 'CFA '000 FCFA m FCFA m 1978 700 350 4,550 23,630 350 17 ,433 I 79 475 350 4\.200 16,410 II 79 475 475 3,725 14,861 1,175 56,918 I 80 580 475 3,250 13,078 II 80 580 580 2,670 11,100 2,23 0 126,985 I 81 535 580 2,090 8,925 II 81 536 535 1,555 6,832 3,345 207,855 I 82 510 536 1,019 4,822 II 82 509 510 509 2,863 4,391 288\.352 189 4,713 I 83 509 954 4,900 175,559 189 4~524 II 83 168,519 189 4\.335 I 84 161,479 189 4,146 II 84 154,439 189 3\.957 I 85 147,398 189 3,768 II 85 140,358 189 3\.579 I 86 133\.318 189 3,390 II 86 126,278 189 3\.201 I 87 119,237 189 3,012 II 87 112,197 189 2,823 I-i III > 0" l-' 2 t>1 fl) III 1:;] ~ \.po '"  ANNEXE 2 Tableau 5 COTE D' IVOlRE DEUXIEME PROJET D'HEVEACUL'l'URE DU GRAND BEREBY Ca1endrier estimatif des decaissements (en '000 de $EU) Decaissements Pendant 1e Montant non-decaisse Exercice Semestre semestre Cumulatifs a 1a fin du semestre 1979 premier 1,400 1,400 18,600 second 1,900 3,300 16,700 1980 premier 2,000 5,300 14,700 second 2,000 7,300 12,700 1981 premier 2,150 9,450 10,550 second 2,150 11,600 8,400 1982 premier 2,100 13,700 6,300 second 2,100 15,800 4,200 1983 premier 2,200 18,000 2,000 second 2,000 20,000  ANNEXE 10 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY LE MARCHE DU CAOUTCHOUC Demande 1\. La consommation mondiale de caoutchouc synthetique et naturel aug mente actuellement d'environ 4,7 % par an, c'est-a-dire plus lentement que dans les annees 60 et Ie debut des annees 70 (en moyenne de 6,8 % par an), par suite surtout du ralentissement de la croissance du revenu reel dans les pays developpes, d'ou proviennent environ 70 % de la demande\. On s'attend a une amelioration de cette situation de 1980 a 1985, Ie taux annuel remontant a 5,9 %\. 2\. Dans les pays developpes, la part du caoutchouc naturel dans Ie marche augmente, du fait qu'il est particulierement propre a la fabrication des pneus a grande performance pour Ie materiel industriel et agricole, et de pneus a carcasse radiale pour les automobiles\. II est prevu actuellement que d'ici a 1980, Ie caoutchouc naturel aura accapare environ 35,5 % du marche non compris les pays a economie planifiee - soit une augmentation de 1,2 % de puis 1975\. Sur Ie plan mondial, on s'attend qu'il maintienne sa position, avec quelque 31,8 % du marche\. Offre 3\. En 1976, la capacite de production de caoutchouc synthetique a ete estimee a quelque 7,4 millions de tonnes dans les pays developpes, 2 millions de tonnes dans les pays a economie planifiee et 0,45 million de tonnes dans les pays en developpement\. Si lIon exclut les pays a economie planifiee, la capacite du reste du monde devrait atteindre 8,5 millions de tonnes a la fin de la decennie\. Pour repondre a la demande prevue, les usines devraient fonc tionner a 85 % de leur capacite, contre une moyenne de 75 % dans Ie passe\. De toute evidence, l'offre de caoutchouc synthetique sera donc plus resserree qu'elle n'a ete durant les 15 dernieres annees, ce qui influera favorablement sur la demande de caoutchouc naturel\. 4\. L'offre de caoutchouc naturel devrait augmenter de 7 % durant Ie reste des annees 70 et atteindre environ 4,75 millions de tonnes d'ici a 1980\. On peut attribuer cette progression a l'augmentation des rendements a l'hec tare plutOt qu'aux agrandissements recents de la superficie totale plantee; on peut donc s'attendre a une baisse du taux de croissance qui tomberait a  ANNEXE 10 Page 2 3,9 % seulement en moyenne de 1980 a 1985, ce qui sera insuffisant pour repon dre a la demande prevue, et entra!nera une nouvelle reduction de la part du caoutchouc naturel sur Ie marche mondial, qui pourrait tomber a 29 % en 1985\. Des programmes importants de replantage et la poursuite de l'expansion des su perficies plantees au cours des annees qui viennent sont donc tres justifies\. Prix 5\. En 1975, la chute des prix du caoutchouc naturel a entratne des me sures de restriction dans certains des grands pays producteurs, et l'industrie a ete lente a reagir lorsque la demande s'est amelioree au debut de 1976\. Les prix du RSS 1, c\.a\.f\. New York, ont augmente de plus de 30 % durant l'annee et ils se sont maintenus malgre la remontee de l'offre durant Ie second semestre\. 6\. Les perspectives a court terme du caoutchouc naturel semblent assez bonnes, l'industrie beneficiant a la fois d'une activite accrue et du besoin de reconstituer les stocks qui ont diminue en 1976, dans un certain nombre de pays importants\. Si l'on suppose un accroissement de 6 % de la production de caoutchouc naturel et une hausse de 5 % du prix du SBR, Ie prix du caoutchouc naturel devrait rester entre 0,41 dollar et 0,45 dollar la livre durant l'an nee courante\. 7\. A plus long terme, Ie caoutchouc synthetique accaparant les deux tiers du marche, les prix du caoutchouc naturel devront @tre competitifs par rapport a ceux des produits de remplacement disponibles\. Les previsions de vront donc se fonder sur les tendances attendues du prix du SBR\. En 1980, si l'on suppose que Ie prix du petrole brut sera de 11,5 dollar/baril (en dollars de 1975) Ie prix du SBR devrait @tre d'environ 0,33 a 0,38 dollar/livre et Ie prix du RSS 1 a New York devrait atre de 0,37 a 0,42 dollar/livre\. En dollars de 1980, Ie prix de caoutchouc nature1 serait donc de 0,50 a 0,57 dollar/livre\. 8\. Durant la prochaine decennie, ce prix ne pourra @tre maintenu que si Ie prix du petrole brut reste lui aussi relativement constant\. Toute expan sion importante de la capacite de production des produits petrochimiques de base dans les pays producteurs de petrole ou toute baisse du prix du petrole aurait un effet nefaste sur Ie prix du caoutchouc naturel\. Toutefois, les renseignements les plus recents sur la situation des projets petrochimiques dans les pays producteurs de petrole indiquent qu'il est peu probable que la production de ce secteur enregistre, avant la fin des annees 80, des accrois sements assez import ants pour affecter les cours mondiaux des monomeres de caoutchouc\. II est donc prevu que les prix du caoutchouc naturel resteront environ aux niveaux de 1980 en dollars constants, au moins jusqu'a la fin de 1985\.  COTE D'IVOIRE DEUXIEHE PROJET D'HEVEACULTURE DU GRAND BEREBY PRODUCTION MONDIALE: CONSOMMATION ET COMMERCE DU CAOUTCHOUC NATUREL ('000 mt) AGJ:1IE1\. ENVISAGEE T~ DE E!QI§~~C~ 1976 1 t\.o 1'*>',2 191i\.Oh 1'160 t\. 19S5 1960 1961-6, 1m 1911 1912 197) 197~ Ins ( \.1l-17) 1980 1965 1912-11\. to to 1960 198$ 191?-lb Production Pays en voie de developpement Mondiale i:~g 2\.olS r;zm' ~:nt \. a \. a Nt': a a ~!lg§ Ng~ N~~ \. a \.Nl~ \. i'~ \. ~ Nsga NI5 \. \.a )\.0 )\.1 3\.9 h\.o 5\.0 5\.1 )\.9 3\.9 Consommation Pays industrialises 1\.S91 1\.~JS 1\.11\.2 1,881 1\.,)6 2,019 2,121 2,16S 2,OLl 2,110 3,000 J\.SSO 1\.6 3\.J )\.1 S\.O )\.1\. Pays 1 economie planifiee ISO ~7 6)7 675 687 700 707 720 670 135 800 9S0 9\.0 1\.9 J\.S Pays en voie de developpement Mondiale 186 r\.m r\.m ~ & hn ~ S16 r\.m 582 J;TiIl! 6)0 r\.m r\.m 612 119 r\.m ~ 850 , a~ 6\.S )\.2 7\.7 )\.9 5\.7 "\.6 S\.l )\.8 Ex~ortations 2\., ays en vole de developpement l'L62 1\. 2 ~ I, 2,;2 2\. ~ ¥\.m ~:m NI0 , 10 ~'lag \.1 ),In ),1 ~,91i ,91 i:m N°O ,00 ~'~O 0 2\.9 )\.6 )\.6 \. "\.1\. ~ )\.8 )\.8 Mondiale Im~ortations 1,)16 1,69S l,91\.h 2,I!» 2,096 1,971 2,09S ),000 ),S5O 1\.3 3\.7 S6 1\.1\. 1\.617 1,899 1\.lI78 aye industrialises 11\.2 1\.)0 680 701\. 609 617 7\. 738 6112 700 150 8)0 9\.) 2\.6 0\.9 2\.5 Pays a economie slanifiee Pays en voie de eveloppement Mandiale III r;m ~ ~ 18S 212 f;1I'i! 2"1 2"7 rna rna r\.m r\.m 20b 319 ~ 299 r\.m bSO II\.'M ~ 650 S\.) 2\.7 S\.8 3\.6 6\.9 "\.7 7\.6 )\.8 Proportion du caoutchouc naturel dans la consomwation mondiale de tous les caoutch\. Total Mondial ~S\.9 62\.) 1\.7 11M )6\.) )5\.) lL\.1 n\.' »\.11 ))\.0 32\.S 32\.S )1\.2 )1\.6 )2\.2 ))\.6 )I\.' lL\.6 ft \. Il\. )1\.8 35\.& 28\.8 ))\.1 Monde abstraction faite PEP 1/ Comprend la production estimee de caoutchouc naturel de la Republique Populaire de Chine\. Source: International Rubber Study Group (informations actuelles); et Departement de l'Analyse et des Projections Economiques (projections)\. ~EI tT'~ ~~ EPDCE ~ III 4/4/77 I-' 1-'0  COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DU GRAND BEREBY Tableau: Consommation Mondiale des Caoutchoucs Naturels et Synthetiques ACTUEL ENVISAGE TAUX DE CROISSANCE 1955-51 1966-=66 1912-14 1980 1985 19\.>5-51 1966=68 1972~74 1980 to 1972-74 (Moyenne) (Moyenne) (Moyenne) I I I 1985 i 1966-68 1972-74 1980 1985 0 ('000 tonnes) \. \.(% par annee)\. Pays industrialises 2,640 4,895 1,095 9,000 11,500 5\.8 6\.4 3\.5 5\.0 4\.1 Pays en voie de developpement 201 599 1,112 1,150 2,550 10\.1 10\.9 6~1 7\.8 7\.2 Pays I economie planifiee --211\. 1,511 2,)80 3,850 5,350 7\.7 -,\. \.2\.& 7\.1 6\.8 7\.0 Total Mondial 3,520 1,011 10,587 14,600 19,400 6\.5 7\.1 4\.7 5~8 5\.2 Source: International Rubber Study Group (informations actuelles); and IBRD, et Departement de l'Analyse et des Projections Economiques (projections)\. H> EPDCE ~ g 4/4/77 ~~ III (D C b" NO  Annexe 10 Tableau 3 COTE D'IVOlRE DEUXIEME PROJET D'HEVACULTURE DU GRAND BEREBY Valeur du Caoutchouc 1980-84 1985 1980 Prix du Prix Prix du Prix Prix Marche Reels 1/ Marche Reels 1/ Fictifs '3\./ 1\. Reference de Prix CAF 3/ 0\.432 0\.426 0\.369 RSS I qua1ite, $EU/1b aux conditions de 1977 2\. Prix CAF en FCFA/tonne i/ 233,335 230,094 248,930 ======== ====-=== ======= Fret 15,000 15,000 18,750 Assurance (0\. 33% de caf) 770 759 821 15,770 15,759 19,571 3\. Prix FOB San Pedro 217,565 214,335 \.229,359 \.---== ======- ==-==-= \. Frais portuaires (0\.564% de 1a valeur fob) 1,227 1,018 1,209 1,003 1,035 Couts de transit 2,100 1,886 2,100 1,886 2,310 Couts de Commercialisation (1% de 1a valeur fob) 2 2 176 2 2176 2 z143 2 2 143 21294 5,503 5,080 5,452 5,032 5,639 4\. Valeur Economigue San Pedro 212,062 212,485 208,883 209\.303 223\.720 \._\._\._: =-=_:::= _==a=== =-====== ========= Imp6ts a l'exportation (1,88% de fob) 2\./ 8,059 5\. Valeur Financiere San Pedro 212,062 200,824 \._=-=_\. _\.=-== 1/ tes couts locaux (frais portuaires, 60% des couts de transit) ajustes par SCF = 0\.83\. !/ Taux de change fictif = 125% taux officie1 (applique a 40% des couts de transit; 1es frais portuaires qui sont des couts locaux mais exprimes en % du fob, sont divises par ce montant)\. te prix du caoutchouc de 0\.19 $EU a ete extrait du 1er rapport d'eva1uation et ajuste aux conditions de 1977\. 1/ asSI, marche du disponib1e, New York, Origine: BIRD, Price Prospects for Major Primary Commodities (EPDCE, Juin 1977), pour 1es prix du marche et reels (Moyenne 1980-84)\. 4/ Taux de change officiel (1 $EU = 245 FCFA)\. 5/ Le projet est franc d'imp6ts jusquten 1987\.  OOTB U'lVOIRE IlEUXIEII£ 1'IlOJET 11' HEVl!ACULTIJRB 00 ORA!!!) BEREllY Rendtneht\. et P,roolJc:tlon Eat tmat if\. en "onne\. hantor Deux I eme lremler ~ let ll«tntliuut Prolet Projet Pro let Total Annie ~ illl lYIJ 1914 1975 1976 1977 H7\. 1978 1979 1980 1981 1982 1912-1978 1918 -1982 1972-1982 Annee flh'" 20 na lh'i-ne i';9ha 9ii'2h\. 1\.452 h\. IT64 1,930 1:75011\. 1:750 D'io 9oirh\. 1:tiOOha -6;soo-i;; he ha 3'5Oha h\. h\. 1f;~OOh' 1918 0\.6 12 12 12 1918 1919 1\.0 20 98 118 IIA 1919 111~j'~ 14 28 163 353 544 544 1960 1981 1\.9 18 226 589 589 1,444 1,444 1981 1~82 2\.0 40 110 825 982 871 3,028 1,028 1982 1983 2\.1 42 326 1,119 I,]H 1,452 1\.118 5,432 5,432 -8] 1984 2\.2 44 342 1,118 1,866 2,03] 1,864 1,158 210 8,485 210 8,695 JM 1985 2\.2 44 359 1,237 1,964 2,759 2,6\) 1,930 150 1,050 10,901 1,400 12,101 ,985 1986 2\.2 44 359 1,296 2,062 2,904 3,542 2,702 ~9Q 1,750 1,050 12,909 3,290 16\.199 1986 1987 2\.1 46 359 1,296 2,160 1,049 3,728 3,667 665 2,450 1,150 1,050 14,305 5,915 20,220 198' 1989 1\.3 4~ 175 1,296 2,160 3,194 3,914 3,860 700 3,325 2,450 1,750 540 14,845 8,765 21,610 1988 1989 2\.3 46 375 1,355 2,160 3,194 4,101 4,053 7)5 3,5!lO 3,325 2,450 900 n,284 10,910 26,194 1989 1990 2\. ] 46 375 1,355 2,259 ] ,194 4,101 4,246 110 3,675 3,500 3,325 1,260 15,516 12,BO 28,106 1990 1991 2 3 46 175 1,]55 2,259 ],340 4,101 4,246 710 3,850 3,675 3,500 1,710 15,122 13,5U; n\.227 1991 1992 2\. J 46 315 l,lS5 2,259 3,340 4,281 4,246 770 ],850 ],850 3,675 1,800 1S\.90' 13,945 2l\.8S3 1992 1993 2 l 46 315 1,]55 2,259 3,340 4,287 4,439 A05 3,850 3,850 3,850 1,890 16,101 14,245 30,346 19'1 199/t 2\.3 46 375 1,]55 2,259 ],340 4,237 4,439 805 4,025 J,850 3,850 1,980 16,101 14,510 30,611 1994 1995 2\.3 46 375 1,355 2,259 3,140 4,287 4,439 KOl 4,025 4\.025 3,850 1\.980 16,101 14,685 10,786 1995 1996 2\. ] 46 ]75 I,H5 2,259 ],340 4,287 4,439 H05 4,025 4,025 4,025 1,980 16,101 14,860 30,961 1996 1997 2\.2 44 375 1,)55 2,259 ),340 4,281 4,439 805 4,025 4,025 4,025 2,070 16,M9 14,950 31,049 \997 In8 2\.2 44 359 I,J55 2,259 3,340 4,287 4,439 805 4,025 4,025 4,025 2,070 16\.093 14,950 lI,033 199B 1999 2\.2 44 ];9 1,296 2,n9 3,J40 4,287 4,4J9 805 4,025 4,025 4,025 2,070 16,024 14,950 3~, 974 1"99 2000 2 t 42 li9 1,296 2,160 3,340 4,287 4,439 805 4,025 4,025 4,025 2,070 15,923 14,950 3O,~71 2000 2001 2\.1 ~2 342 1,296 2\.160 3,194 4,287 4,4]9 805 4,025 4,025 4,025 2,070 15,760 14,950 30,711 2\.)1)1 2002 2\.1 42 342 1,237 2,160 3,194 4,101 4,439 805 4,025 4,025 4,02'i 2,07~ 15\.515 14\.950 30,465 2002 2003 2\.0 40 342 1,237 2,062 ],194 4,101 4,246 710 4,025 4,025 4,tl2; 2,010 B,ll2 14,915 10,137 200] 2004 1\.9 38 326 1,237 2,062 3,049 4,101 4,246 770 3,850 4,On 4\.025 2,010 15,059 14,740 29,799 2004 2005 1\.8 36 310 1,178 2,062 3,049 J,914 4,246 770 J,850 3,850 4,025 2,070 14,795 14,565 29,360 2005 2006 1\.8 36 293 1,119 1,964 3,01\.9 3,914 4,0)) 7n 3\.850 3,850 3\.850 2,070 14,428 14\.]55 28,783 2006 2007 1\.7 34 291 1,060 1,866 2,904 3,914 4,OB 735 3,615 J,850 3,850 1,980 14\.124 14,090 28,214 2007 2008 1\.7 34 277 1,060 1,1i18 2,759 3,728 4,031 735 3,615 ],675 3,850 1,980 13,679 13\.915 27,594 2008 2009 1\.6 1! 271 I ,Dill 1,168 2,614 ),5/12 ],860 700 3,615 3,675 3,615 1,980 13,094 13,105 26,799 200l 2010 1\.6 J2 2,,1 l,nOI 1,1\69 2,614 3,355 3,661 665 ],500 3,675 ],675 1,890 12\.599 1l\.40j 26,o\.)~ 21110 2011 1\.5 JO 2\.1 942 1,669 2,468 3,355 ],474 630 ],325 3,500 3,67S 1,890 12,199 13,020 2),219 21111 2012 1\.5 ]0 2,\.1\. 942 1,511 2,468 ],169 3,474 6JO ],150 3,325 ',500 1,890 11,898 12,495 24,393 l'}l2 lOI1 1\.4 2a 24/t 804 1,571 2,12] ],169 3,261 595 3,150 3,150 3,3lS 1,800 1t,500 \2 ,020 2J,52<) 2an lOH 22a 88/\. 1,473 2,323 2,982 3,281 595 2,975 3\.150 3,150 1,710 11,171 11,580 22,1S1 2314 20n 825 1,413 2\.118 2,982 ],086 560 2,975 2,975 3,150 1,620 10,546 11,280 21,826 20lS 2016 1,375 2,178 2,196 3,088 560 2,800 2,915 2,915 1,620 9,437 10,930 20,161 2016 2017 2,Oll 2,196 2,895 525 2,600 2,800 2,915 1,530 7,724 10,630 18,314 2017 1018 2,610 2,~95 'l2, 2,625 2,800 2,800 1,510 5,505 10,280 15,185 2018 2019 2\.102 490 2,625 2,625 2,800 1,440 2,702 9,980 1l,662 2019 2010 2,450 2\.625 2,625 1,440 9,140 9\.140 2020 2021 2,450 2,625 1,]50 6,42; 6,(2) 202' 2022 2,450 I, no 3\.800 3,800 2022 2023 1,260 1,260 1,260 2023 ~r !T' i!S \.  Annexa 10 COTE D' IVO IRE Tableau 5 DEUXIEME PROJE'r D'HEVEACULTURE DU GRAND BEREBY Valeur venale de 1& Production Envisagee (en FCFA Million) Production Totale Valeur Venale (&ux: Conditions de 1977) 11 7000 ha 6500 na ~ 7vOO ha 6500 ha ~ tcnnes HUlions F C F A - 1978 1979 118 118\.) 1980 544 544) 140 140 1981 1,444 1,444 306 306 1982 3,028 3\.U28 642 642 1983 5,432 5\. 432 1\.152 1,152 1984 8,485 210 8,695 1,799 45 1,844 1985 10,903 1,400 12\.303 2\.277 292 2,569 1986 12,909 3\.290 16\.199 2,696 687 3,383 1987 14,305 5,915 20,220 2\.988 1,236 4,224 1988 14,845 8,765 23,610 3\.101 1,831 4,932 1989 15;,284 10\.910 26,194 3\.193 2,279 5,472 1990 15,576 12,530 28\.106 3,254 2,617 5,871 1991 15,722 13,505 29,227 3,284 2,821 6,105 1992 15,908 13,945 29\.853 3,323 2,913 6\.236 1993 16,101 14\.245 30,346 3\.363 2,976 6,339 1994 16,101 14,510 30,6u 3,363 3\.031 6,39 4 1995 16,101 14,685 30,786 3,363 3\.067 \.6,430 1996 16,101 14\.860 30,961 3,363 3,104 6\.467 1997 16,099 14\.950 31,049 3,363 3,123 6\.486 1998 16,083 14,950 31\.0'33 3\.359 3,123 6,482 1999 16,024 14,950 30\.974 3\.347 3\.123 6,470 2000 15\.923 14\.950 30,873 3,326 3,123 6,449 2001 15,760 14\.950 '30,710 3,292 3,12'3 6,415 2002 15,515 14,950 30,465 3,241 3\.123 6\.364 2003 15,222 14,915 30,137 3,180 3\.u6 6,296 2004 15,059 14\.740 29,799 3,146 3\.079 6,225 2005 14,795 14\.565 29\.360 3,090 3,042 6,132 2006 14,428 14\.355 28,783 3\.014 2,999 6\.0:'3 2007 14,124 14,090 28\.214 2,950 2,943 5,893 2008 13,679 13\.915 27 ,594 2\.857 2,907 5\.764 2009 13,094 13\.705 26,799 2,735 2,863 5,598 2010 12\.599 13\.405 26,004 2,632 2,800 5,432 20U 12,199 l3,020 25,2l9 2,5 48 2\.720 5,268 2012 u,898 12,495 24,393 2,485 2,610 5,095 2013 U\.500 12\.020 23\.520 2,402 2,5U 4,913 2014 11,171 11\.580 22\.751 2,333 2,419 4,752 2015 10,546 11,280 21\.826 2,203 2,356 4,559 2016 9\.437 10,930 20,367 1\.971 2,283 4,254 2017 7,724 10\.630 18,354 1\.613 2,220 3,833 2018 5\.505 10,280 15,785 1,150 2,147 3,297 2019 2\.702 9,980 12\.682 564 2,085 2,6 49 2020 9\.140 9\.140 1,909 1,909 2021 6\.425 6,~25 1,342 1,342 2022 3,800 3,800 794 794 2023 1,260 1,260 263 263 102,408 95,016 1/ Estimation de la production ccatormimeat au Tableau 3, calculie sur la valeu\.r venale fondamentale\. San Pedro de 212 ,062 rc:rAltonne pour 1980-84 et 208\.883 FelA/toan\. pour les anniea 1985 et \.uiv~tes\. Las :!lItp~es a1 f exportation, Baront pert;us par 1 'Itat, at 11e sont pas eompris\. (Voir Tableau 2)\.  ANNEXE 11 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY ANALYSE ECONOMIQUE 1\. Le calcul du taux de rentabilite economique se fonde sur les prix reels, a prix constants de 1977\. Le coat comprend les provisions pour depas sement des quantites, et il est net d'impOt, Ie coat local etant ajuste du taux de conversion standard de 0,83\. Les avantages sont fondes sur les projections des prix et de la production, qui sont indiquees a l'Annexe la, Tableaux 3 et 4\. La periode de saignee effective des arbres dure 36 ans et commence six annees apres Ie plantage, ce qui donne au pro jet une duree totale de vie de 45 ans\. 2\. On a effectue des tests de sensibilite des taux de rentabilite aux diverses modifications des coats et avantages\. Pour les rendements on a ap plique une fourchette allant de -15 % +5 %, Ie chiffre inferieur traduisant l'incidence eventuelle d'une main-d'oeuvre relativement peu qualifiee pour la saignee, et Ie chiffre superieur etant limite par Ie potentiel genetique at tendu des arb res de Grand-Bereby\. Pour les prix, on a applique une fourchette de +15 %, traduisant l'indice de fluctuation des prix du caoutchouc sur une moyenne mobile de cinq ans\. En ce qui concerne les coats la fourchette a ete de +15 % et un test final a ete realise, avec une majoration des coats de 15 % et une reduction des avantages (prix) de 15 %\. 3\. Les taux de rentabilite des premier et deuxieme projets combines ont ete recalcules aux prix reels, aux prix du marche et aux prix utilises dans Ie rapport d'evaluation du premier projet\. Le rapport a suppose pour les devises un prix virtue1 superieur de 25 % au taux de change officiel, et un taux de salaire de 50 % inferieur aux salaires pratiques sur Ie marche de la main d'oeuvre, se fondant surtout sur une forte dependance a l'egard de la main d'oeuvre voltaique, avec un coat d'opportunite inferieur a celui qui est actuellement en vigueur en COte d'Ivoire\. Les projections des prix du caoutchouc, en valeur reelle, ont ete inferieures de quelque 18 % en 1972 aux estimations actuelles, et les taux estimatifs de rentabilite utilisant les prix virtuels ont ete ajustes en consequence\. Deux autres differences dans les hypotheses utilisees pour l'evaluation du premier et du deuxieme projets n'ont pas donne lieu a un ajustement\. Toutefois, l'effet d'une periode de mise en saignee plus courte (28 ans dans la premiere evaluation) et des amortissements des depenses d'infrastructure (l'evaluation du premier pro jet n'a tenu compte que de la moitie du coat des habitations des ouvriers et n'a tenu aucun compte du coat de l'hOpital et des etablissements scolaires) sont supposes ~tre negligeables et tendent a se compenser\. On trouvera au Tableau 1 Ie resume des taux de rentabilite, aux Tableaux 2 et 3 la liste des coats et avantages economiques aux prix du marche\.  ANNEXE 11 Page 2 4\. Pour verifier la justification de l'agrandissement de la superficie a 13\.500 ha, les valeurs actuelles nettes ont ete calculees a des taux d'ac tualisation allant de 10 % a 21 %\. On trouvera au Tableau 4 Ie resultat de ce calcul\.  Annexe 11 Tableau 1 COTE D'IVOlRE DEUXIEME PROJET D'HEVACULTURE DU GRAND BEREBY Recapitulation des Ca1cu1s du Taux de Rentabi1ite Economigue !I 1er et Second Second Proj et Projets Combines (1978 - 2023) (1972 - 2021) 7,000 ha 6,500 ha 13~500 ha 7,000 ha 13,500 ha Initiaux Supp1em\. Totaux Initiaux Totaux Prix Reels '!:\.! 20 17 19 10 12 Avantages: Rendement I- 5% 21 18 20 Rendement - 15% 17 15 16 Prix I- 15% 24 19 21 Prix - 15% 17 15 16 Couts: I 15% 17 15 16 - 15% 24 19 22 Avantages - 15%, Couts I15% 13 13 13 Prix du Marche l! 18 16 17 9 11 Prix Fictifs if 10 12 Evaluation Premier Projet 13\.2 Memoire au Consei1 d 'Administrat ion (Sept\. 1976) 9-10 11 l'ana1yse de sensibi1ite a ete effectuee pour 1es annees 1978-2033\. Les couts anterieurs a 1972 restent inchanges\. Les resu1tats pour 1a periode tota1e seront simi1aires mais avec de petites variations\. II Prix, y compris 1es provisions pour depassement des quantites, francs d'impots, avec 1es couts nationaux ajustes par SCF de 0\.83\. 11 Prix, y compris 1es provisions pour depassement des quantitiis, francs d'impots\. if Les prix fictifs utilises dans 1e 1er rapport d'evaluation (devises = 125% du taux officiel; remuneration fictive\. 50% des salaires du marche) plus les previsions sur le caoutchouc qui sont 15% plus basses que les previsions actuelles\.  OOTE D' IVOIRE DEUXIEHE PROJ'ET D'IIIWEAC\fL1'URE DU GRAND BEREBY Couts at Ava~ta8es Economiques 7,000 be Initiaux (en Killions de FCFA) Hll1n d'Oeuvre Autres CoUts Agricoles at Couts d'Investissement Couts Fixes Variables , A dcal@ Administratifs Generaux pour Usina de Fonctionnement i l'lls1ne Avanl\.ges !2!!! (12'5% deyises) Devis@s Nstional Total Devises National Total Devises National Total (45% Devises) 1972 27 192 39 231 1973 75 310 86 396 1974 180 739 251 990 1975 221 764 232 996 1976 211 586 210 796 1977 199 986 350 1,336 1978 195 472 351 823 1919 113 343 301 644 306 67 373 1980 121 392 325 727 21 2 23 15 23 38 8 140 1981 152 374 356 730 306 55 361 15 24 39 18 306 1982 206 374 362 736 18 2 20 25 42 67 38 642 1983 284 352 347 699 232 44 276 25 42 67 68 1,152 1984 384 345 350 695 147 27 174 31 50 81 106 1,799 1985 437 313 340 653 37 4 41 35 54 89 136 2,277 1986 432 323 338 661 101 12 113 35 54 89 161 2,696 1987 432 272 333 605 19 2 21 32 63 95 179 2,988 1988 432 281 344 625 14 2 16 185 3,101 1989 433 252 361 613 19 2 21 191 3,193 1990 434 267 362 629 17 2 19 195 3,254 1991 436 247 361 608 18 2 20 196 3,284 1992 438 255 362 617 24 3 21 199 3,323 1993 440 246 363 609 30 3 33 63 95 201 3,363 1994 216 374 590 20 2 22 32 1995 1996 1997 I 3,363 1998 201 3,359 1999 200 3,347 2000 199 3,326 2001 197 3,292 2002 194 3,241 2003 1"90 3,180 2004 188 3,146 2005 185 3,090 2006 180 3,014 2001 176 2,950 2008 171 2\.857 2009 164 2,735 2010 157 2,632 2011 152 2,548 2012 149 2,485 20}3 440 216 374 590 20 2 22 32 63 95 144 2,402 2014 439 202 388 590 13 1 14 27 58 85 140 2,333 2015 429 129 322 451 22 2 24 23 53 76 132 2,203 2016 392 115 294 409 6 1 7 19 47 66 118 1,971 2017 330 94 247 341 9 1 11 14 42 56 96 1,613 2018 239 75 188 263 1 o 1 10 37 47 69 1,150 liS r;rp 2019 121 36 109 145 o o o 5 31 36 34 564 :;= It \. \.,: \., \. \.  COTE !D' IVOIllE DElJXIEME PIIOJET D'HEVEACULTURE DU GRAND BEREBY Couts et Avantases Economigues 6\.500 ha SU~ll~entaire\. (en Hi11~ons de FCFA) Main d'Oeuvre Autres Couts Agrico1es et CoUta d'Investissemsnt CoUts Fusa Vadab1e i l'Ue1ne Avantegea -- Annlie Aadeole Administratifs Generaux (1~\.5% devises) Devises National Total ~our Ue1ne Devises National Total de lonctionnemsnt Deviaes National Total (45% Devises) 1978 46 506 131 637 1979 149 392 176 568 1980 179 425 210 635 1981 195 309 l27 436 1982 155 220 105 325 1983 99 131 79 210 1984 94 160 128 288 4 0 4 3 45 1985 137 176 166 342 100 12 112 1 5 6 17 292 1986 224 200 163 363 160 29 189 4 10 14 41 687 1987 311 161 128 289 216 35 251 9 15 24 74 1,236 1988 381 158 l25 283 171 31 208 15 23 38 109 1,~31 1989 404 147 131 278 32 3 35 19 28 47 136 2,279 1990 401 154 131 285 50 5 55 19 28 47 157 2,617 1991 401 132 130 262 24 3 27 20 29 49 169 2,821 1992 401 131 130 261 48 5 53 20 29 49 114 2,913 1993 401 127 131 258 11 1 12 22 31 53 178 2,976 1994 403 95 168 263 15 2 17 31 53 181 3,031 1995 405 131 135 266 18 2 20 31 53 183 3,067 1996 408 140 135 275 25 3 28 31 53 186 3,104 1997 408 128 138 265 34 4 38 31 53 187 3,123 1998 129 136 16 2 18 1999 2000 2001 J 2002 187 3\.123 2003 186 3,116 2004 184 3,079 2005 182 3,042 2006 179 2,999 2001 176 2,943 2008 174 2,907 2009 171 2,863 2010 167 2\.800 2011 163 2,720 2012 156 2,610 2013 150 2,511 2014 145 2,419 2015 141 2,356 2016 137 2,283 2017 133 2,220 2018 128 2,147\. 2019 408 129 136 265 16 2 18 22 31 53 125 2,085 2020 387 179 205 384 2 0 2 22 51 73 114 1,909 2021 277 153 191 344 9 1 10 17 45 62 80 1,342 2022 165 114 152 266 11 1 12 11 39 50 4"' 794 2023 57 65 8S ISO 0 0 0 5 31 36 16 263 j;lE; erg lii'll ! 1\1 \. \. t-'  Annexe 11 Tableau 4 COTE D'IVOlRE DEUXIEME PROJET D'HEVACULTURE DU GRAND BEREBY Recapitulation des Ca1cu1s sur les Va1eurs Nettes Actuelles (Millions FCFA) 'raux d'Esc\.ompte 7,000 ha 6,500 ha 13,500 ha 10 6,826 4,901 11,727 12 4,477 2,761 9,378 14 2,820 1,336 4,156 16 1,625 370 1,995 17 1,154 7 1,161 18 749 - 295 454 19 399 - 147 20 97 21 - 166  ANNEXE 12 Page 1 TOGO PROJET DE DEVELOPPEMENT RURAL DANS LES REGIONS COTDNNIERES Cadre de reference de la revision des comptes Raisons pour lesguelles Ie Groupe de la Bangue Mondiale demande une revision des comptes Dans toute affaire au entreprise, l'etablissement rapide et regulier d'une comptabilite exacte est un moyen important de s'assurer que l'entreprise execute avec competence les taches qui lui ant ete confiees\. La comptabilite n'est pas seulement utile a la societe proprement dite, elle est egalement ne cessaire pour presenter des renseignements exacts sur la situation financiere de Ifentreprise a ses creanciers\. En tant que bailleur de fonds, Ie Groupe de la Banque Mondiale doit etre certain, lorsqu'il evalue un prcijet que les donnees financieres presentees sont exactes et completes et que durant l'execu tion du projet, l'Emprunteur exercera un contrOle financier adequat et obser vera des methodes comptables appropriees\. Telles sont les raisons pour les quelles la Banque et l'IDA demandent que les ~ervices de reviseurs-comptables soient retenus pour leurs projets\. Definition de la revision des comptes La revision des comptes est un examen autorise des comptes et du systeme comptable d'un organisme par des reviseurs-comptables, de fa~on qu'ils puissent verifier l'exactitude des etats financiers dudit organisme et juger si les comptes de l'organisme ne presentent ni inexactitudes ni contra dictions et s'ils ont ete etablis conformement aux methodes comptables genera lement acceptees\. Une revision des comptes consiste principalement a: a) faire une etude critique du systeme de comptabilite et du contrOle des comptes et de la gestion; b) faire les verifications et les enqu~tes que les reviseurs comptables considerent necessaires pour se former une op~n1on sur la veracite des ecritures qui ont servi de base a la prepa ration des comptes; c) comparer les etats financiers avec les documents de base pour verifier s'ils concordent;  ANNEXE 12 Page 2 d) faire une etude critique des etats financiers et declarer si de l'avis des reviseurs-compables, les comptes et les postes sont presentes de maniere non seulement exacte mais encore ob jective et fournissent les renseignements requis par la loi conformement aux principes etablis\. Choix et designation des reviseurs-comptables Clest a l'emprunteur qulil incombe de choisir et de nommer des reviseurs-comptables\. La Banque demande cependant que la personne ou Ie cabi net retenu ait des qualifications et une experience acceptables pour le Groupe de la Banque Mondiale et pour l'emprunteur\. \. Olapres les criteres employes par le Groupe de la Banque, les reviseurs-comptables doivent atre qualifies sur Ie plan prof~ssionnel et en paticulier : a) @tre impartiaux et independants de l'organisme soumis a la revi sion et de la personne qui les a engages; en particulier, pendant la periode de la revision, les reviseurs-comptables ne doivent pas etre employes par l'organisme ni sieger au Conseil d'adminis tration, ni avoir avec lui des liens financiers ou des rapports d'affaires, si ce n'est en tant que conseillers independants; b) etre etablis et avoir bonne reputation; utiliser des methodes conformes aux principes de revision comptable generalement acceptes et reconnus sur le plan international et empioyer un personnel suf fisant, professionnellement qualifie et experimente par rapport aux normes internationalesj et c) avoir l'experience de la revision des comptes d'organisations compa rabIes par leur nature, leur taille et leur complexite a l'organisa tion dont la revision comptable est envisagee\. Avant que les reviseurs-comptables du projet ne soient nommas, l'emprunteur fait parvenir au Groupe de la Banque des renseignements suffisants pour qu'il puisse s'assurer que les reviseurs-comptables satisfont aux conditions sus mentionnees\. Ces renseignements comprennent : Ie nom du cabinet (au du ser vice ou de l'organisme officiel), les noms et qualifications des chefs, le nombre approximatif des cadres et une indication des principales revisions des comptes' effectuees\. \.,  ANNEXE 12 Page 3 Reviseurs-comptables prives et reviseurs comptables publics Le choix entre des reviseurs comptables prives et des reviseurs comptables publics depend en principe de la nature du prpjet et de l'agent d'execution\. Un projet a but non lucratif, execute par 'un service public sui vant les procedures budgetaires et comptables du gouvernement est contrOle par un reviseur-comptable public\. D'un autre cOte, un projet cense atre rentable, execute par une societe (nationale au non) selon des procedures budgetaires et comptables commerciales, est contrOle par un cabinet prive de reviseurs-comptables\. Dans certains cas, Ie caractere du projet veut que la verification des comptes soit effectuee conjointement par un reviseur-comptable public et un cabinet prive\. Pour encourager Ie developpement de cabinets de reviseurs-comptables locaux, la Banque Mondiale accepte partout au cela est possible Ie choix dlun cabinet local, qui travaille soit seul, soit en collaboration avec un cabinet international\. Les methodes de revision des comptes Les methodes de revision appliquees par Ie reviseur-comptable doivent !tre de nature a lui permettre de se former une opinion sur l'exactitude des etats financiers faisant l'objet de son rapport: Le caractere des verifications appliquees aux ecritures comptables par Ie reviseur-c~mptable depend du systeme de comptabilite, de contrOle et de verification internes utilise par la societe\. A cette fin, 1e verificateur examine: a) la procedure selon laquelle les decisions financieres sont prises et les depenses autorisees; b) la structure, la gestion et Ie fonctionnement du systeme de comptabilite; c) l'efficacite de la verification et du contrOle de gestion internesj d) les effectifs et la competence du personnel des services comptablesj e) l'efficacite des systemes et procedures connexes, par exemple, Ie contrOle des stocks ou Ie traitement des donnees\.  ANNEXE 12 Page 4\. Sur la base de cet examen, Ie reviseur comptable verifie toutes les transactions financieres de la societe au moyen des pieces justificatives, ecrites ou autres, necessaires pour lui permettre d'etablir l'authenticite et l'exactitude des transactions, leur inscription complete et exacte dans les ecritures et sur les resultats financiers\. Les pieces justificatives susmen tionnees comprennent : des documents ecrits tels que des cheques, des factures, des contrats, des minutes de reunions; des reI eves bancaires et la confirma tion par les tiers des montants a payer ou a recevoir; et des renseignements obtenus par Ie reviseur-comptable par enqu~te, observation et inspection des faits\. Au moyen de verifications du m~me type, Ie reviseur-comptable s'assure lui-m~me de l'existence et de la base d'evaluation de l'actif et du passif a savoir : a) les terrains, les b4timents, les machines et Ie materiel, y com pris la dotation aux amortissements; b) les stocks, y compris les provisions pour depreciation (obsolescence, deterioration, pertes); c) les effets a recevoir, y compris des provisions pour depreciation (creances douteuses); d) la caisse et la banque; e) les montants dus a des tiers (pr~ts a long et court terme et comptes dus aux fournisseurs)\. De surcr01t, l'examen des reviseurs-comptables, porte sur des postes tels que les depenses engagees mais non encore reglees, les dettes futures non encore comptabilisees, et les evenements sa produisant apres la date de cl~ture du bilan (par exemple, des modifications importantes de la valeur des stocks de produits de base)\. Les rapeorts de revision comptable Les reviseurs-comptales presentent des rapports succincts et des rapports exnaustifs\. Ces rapports sont adresses au President du Conseil d'administration (ou l'equivalent) et non a un membre quelconque de la direction\. Exemple de rapport succinct "Nous avons etudie Ie bilan de en date du __~~____________ 19 ,Ie compte de pertes et profits et les etats annexes pour I'exercice qui s'est acheve a la date ci-dessus\.  ANNEXE 12 Page 5 Notre etude a ete faite conformement a des principes de verifi cation comptable generalement admis et a comporte par consequent des verifications des ecritures comptables, une verification de l'actif et du passif, et toute autre procedure'de verification comptable que nous avons jugee necessaire en l'occurrence\. II nous apparatt que les annexes et les releves financiers ci-joints presentent objectivement la situation financiere de ---\.,\.----'!~\.,\.-~_ _ _ _\."\.~_, au 19 ,et les resultats de son exploitation pour l'exercice quY-s'est acheve a la date ci-dessus conformement a des principes comptables generalement admis, appliques de fa~on compatible pour tous points importants avec les principes utilises pour ~'exercice precedent\." Si les reviseurs-comptales desirent exprimer des reserves sur cer tains points ou desavouer une opinion, Ie paragraphe du rapport succinct com prenant cette opinion est modifie de fa~on a preciser la nature de ces reser ves ou de desaveu\. II indique en particulier l'objet des reserves et des repercussions sur la situation financiere et Ie resultat des operations si celles-ci peuvent @tre determinees\. Le rapport comprend, Ie cas echeant, les observations jugees utiles sur tout grave defaut ou insuffisance des comptes ou d~ systeme comptable de l'organisme, ainsi que des recommandations visant a ameliorer les methodes comptables\. Le rapport exhaustif complete Ie rapport succinct et donne tous les details voulus (analyses, resumes, explications et observations sur les pos tes des differents etats financiers verifies)\. Les etats financiers verifies comprennent en principe : a) Ie bilan; b) Ie compte de pertes et profits; c) Ie compte d'exploitation et de pertes et profits fusionnes de cha que grand service representant une part importante, par exemple, plus de 20 ~, des recette~ ou des depenses ou choisi selon tout critere determine par Ie teviseur-comptable; d) un etat de l'origine et de l'utilisation des fonds\. Tous les etats presentent, quand cela est possible, les chiffres comparables pour l'exercice precedent\.  ANNEXE 12 Page 6 Les observations et recommandations figurant dans Ie rapport exhaust if portent notamment sur : a) l'application des recommandations faites les annees precedentes; b) l'organisatio~ de la gestion; c) Ie contrOle budgetaire; d) les contrOles financiers et les verifications sur Ie terrain; e) les procedures de reglement des salaires, de passat~on des marches et des ventes; f) Ie contrOle et Ie niveau des stocks; g) l'observation des normes de comptabilite publique; h) ~'efficacite des procedures de contrOle de la gestion; et ~ i) les evenements intervenant apres la date de clOture du bilan qui affectent de maniere significative la situation financiere \. L'Emprunteur s'assure que les copies des rapports succincts et exhaustifs sont transmises au Groupe de la 8anque Mondiale en m~me temps que les comptes verifies\.  ANNEXE 13 Page 1 COTE D'IVOIRE DEUXIEME PROJET D'HEVEACULTURE DE GRAND-BEREBY MODALITES RELATIVES A LA TENUE DES COMPTES ET RELEVES 1\. II importe que les renseignements consignes mensuellement dans les livres de comptes tenus par la plantation se rapportent aux estimations eta blies par la Banque a l'epoque de l'evaluation, de fa~on a permettre une su pervision effective du projet durant son execution\. 2\. On trouvera ci-apres les projets de formulaires, qui indiquent Ie type de renseignement necessaire sur certaines activites agricoles clefs\. lIs sont simplement donnes a titre d'exemple; il sera convenu du format exact au cours de la premiere mission de supervision\. 3\. II conviendra d'etablir des releves similaires, indiquant Ie coat reel - compare aux estimations budgetaires - de la preparation des terrains a la saignee, de l'entretien des superficies en production, et de la saignee des arbres productifs\. La caracteristique essentielle de tous ces releves sera qu'ils permettront une evaluation valable des resultats, par rapport aux esti mations initiales etablies a l'epoque de l'evaluation et au budget de fonc tionnement\.  BUD-WOOD GARDENS 1972 1975 1976 1977 TOTAL Hectares 9\.65 6\.12 8\.16 1\.77 25\.7 BUD-WOOD SUPPLIES - Meters I Number of Increase Consumption Annual Es tim a t e Latest Estimate ! ~LONE Stumps (Decrease) this month year-to-date Production Consumption Production Consumption Surp1us7Deficit i -------J GT 1 PR 107 etc TOTAL - L _ \._ \. __\._ _ _\. \. ___ - -_\. I\.- -- - - - - - - --\. \. \. ~ BUD-WOOD GARDEN MAINTENANCE Man Davs Total Ex~enditure FCFA Annual Estimate Details rthis month To date %A\.E This month To date XA\.E Man Days FCFA \. Iweeding Fertilizer applicatiol Pest & Disease contro Census Other operations Supervision Total hi" >4 r- \. w  , , GERMINATION BEDS This month Yesr to date %A\.E Annual Estimate NUMBER PREPARED DETAILS Man Davs Total Exnenditure FCFA Annual Estimate This month To date %A\.E This month To-date %A\.E Man Days FCFA Preparation & planting !watering Sorting & distribution pther operations ~upervision - - - - \. -\.- - - - \. -\. ~ SEED SUPPLIES Details August September October November TOTAL Requirements No\. received No\. germinated this month II No\. to date Final germination % \.,~ ~z 1-'1:<:1 (II>: NI-' w POLY8AG NURSERIES This month Year to date %A\.E Annual Estimate Hectares planted Details Previously This month To date To date as % of A \. A\. Number of bags planted B\. Losses due to pests & disaases C\. Rejected seedlings D\. Seedlings bud-grafted E\. Successful buddings - Sel'!\.IHnlls Budilt'8 'ted Successful Buddings % Success Clones Previously This month To date Previously This month To date To date GT 1 PRlO7 etc\. TOTAL ~ ~~ 1ii'&:J wt; POLYBAG NURSERIES (N-I) Man Davs Total Ex~~pditure FCFA Annual Estimate Details This month To date % A\.E This month To date %A\.E Man days FCFA ~echanical cultivation Preparation & filling of bags Fertilizer application Planting lMaintenance Pest & disease control Irrigation Other operations Supervision ~\.- \. - POLYBAG NURSERIES (N 0) Man Days Total Expenditure FCFA Annual Estimate Ioetails This month To date % A\.E This month To date %A\.E Man days FCFA Selection & thinning Fertilizer Application Preparation of budwood IGrafting Maintenance Pest and disease control Irrigation Lifting & transport to field ~echanical cultivation Other operations Supervision ~~\. ~ w  ANNEX lJ Table 5 iFELLING This IIIOnth Year to date :tA\.E Annual iHECTARES COMPLETED , l I !DE'!'AILS Man Davs Total Expenditure FCFA -- Annual Estimate I Mechanical Felling I This month I ! To date % A\.E This month To date i :tA\.E Man Days- r I FCFA Other Operations Supervision I I i , I Total I l I\.UI:D CT\.b:\.Ul\.ING This IIIOnth Year to date % A\.E Annual Estimate HECTARES COMPLETED Man nays Total Expend\.!ture FCFA Annual Estimate DETAILS This IIIODth To date ~ A\.E I This month jTo date :I A\.E\. Man Days FCFA ~eparation tor burning ! Burning Marking ot rOlla and boundaries Preparation tor openine; lines , Opening linea and aub soiling Completion other Operations ~upervilSion Total i  ANNEX 13 Table 6 fI!LD PUU~TING PROGRAMME HECTARES A\. Po1ybag Material ! Clone This month Year to date % A\.E Annual Estimate I GT 1 PR 107 etc\. ! !Total I I i B\. Stumps , i Clone This month Year to date % A\.E Annual Estimate I I rT 1 I etc\. Total I I i 1 Cl Seed at Stake (planted) , ! I ~ype of Seed This month Year to date % A\.I Annual !st1llla\.te I I C2 Seed at Stake (budded) (:lones This month Year to date % A\.X Annual Estimate GTl etc\. i , l PLANTING This month Year to date %A\. E Annual Estimate Hectares completed Man Days Total Expenditure FCFA -- Annual Estimate ----~ Details This To date % A\.E This month To date %A\.E Man Days FCFA month ---- Preparation of stakes Lining Census Holing Planting hole fertilizers Re-filling holes Planting cover crop Pre-planting weeding Planting Cost of plants Other operstions Supervision rrotal _ \. _\. ~~ ~r:J \. \. \. \. r w MAINTENANCE OF IMMATURE AREAS (N 0) HECTARES Man Davs Emploved Total Expenditure FCFA DETAILS This month Year to date Annual Estimate This month Year to date Annual Estimate Total /ha Total /ha Total /ha Total /ha Total Iha Total Iha Firebreaks \. r Rodent control Re-supplying \. \. Weeding manual chemical mechanical Fertilizers Disbudding Disease control Other operations Supervision I ~~ ~~ oot; MAINTENANCE OF IMMATURE AREAS (N+l) 1/ \. HECTARES - ~'~"""-"""-'-'~ ~ -- ~\.-\.,~ Han Days Employed Total Expenditure FCFA I DETAILS This month Year to date Annual Estimate This month Year to date Annual Estimate I'di I~ Total /ha Total /ha Total /ha Total /ha Total' Total « Firebreaks Rodent control Re-supplying Weeding manual chemical mechanical Cover crop control Fertilizers Disbudding Disease control Selective thinning Other operations Supervision '----- 1/ Similar records to be kept for N+2 to N+5 \. g~ m ~ \De; Gulf of 020\.0 au 10 100 ! I j J ! I 1,0'» INHAGlTANTS _1£15  I B R 0 13093 S£PrEMBEA 1911 IVORY COAST GRAND BEREBY RUBBER ESTATE PLANTING PROGRAMS: FIRST PROJECT 19721918 SECONO PROJECT 1979-1982 8,0 A K 0 OKa, / / / / 1980 ! ( / / / K 0 T 0 - \.- YEAR OF PLANTING lIn '913 HECTARES 20 ,\. ,\. - '973 [2'::;'::0:] ;;;;";;1 1&15 un 1\.102 '''''' \.- Ion tTl\. ~ 1978 1\.1\. \.""'" ' ' ' ' ,_ 'I;IllIO ""' ,\."" -- 1\.11iO - ',11iO '081 1,"" 1982 1\.210 6\.500 Y!!!!!I!! \. \. \.,\., cantom: c\.,,, DiwillkM1: 0\., \. """ 0, \. \. \., \. -\., '" DOL E D, o - "' "oto s _ _ _ CANTON BOUNDARIES ---ROAD 0 P, VilLAGES \. _0, AREA AVAILABLE FOR SMAll HOLOER'S PROJECT Ko;::KGl s 0-----0 PERIMET£R _ NURSER,ES 1$>'~;8i}:"?{~\.J lIfOUSTRIAL AREA 1982 \. FACTORY OD, ~ - -,- ,-' OWopau

APPROVAL

P010550

Report No\. PIC889 Project Name Nepal-National Urban Water Supply & Sanitation Project Region South Asia Sector Water Suupply Project ID NPPA10550 Implementing Agency To be determined: Autonomous utility entities (NWSC, Municipalities, local water boards) and some Central Government entities\. Date Prepared December 29, 1993 Projected Board Date December 1996 Objectives 1\. The proposed project would have, at the request of His Majesty's Government of Nepal, two main objectives: (a) to improve the capabilities of water supply and sanitation sector institutions (both governmental and non-governmental) through refining and implementing HMG's decentralization strategy and redefining the role of the Central Government within the sector\. This involves, most notably, Central Government entities focussing exclusively on those activities which HMG must carry out (i\.e\., policy formulation, monitoring & evaluation, etc\.), and devolving all direct service provision (including physical implementation and operation and maintenance of water and sanitation schemes) to autonomous non Central Government entities; and (b) to improve public health and welfare through specific water investments (to improve quality and increase quantities) and sanitation investments to rehabilitate and extend existing facilities for a selected number of municipalities throughout Nepal\. Description 2\. The project scope would be refined during preparation to ensure that the main objectives are achieved but with sufficient simplicity in design to facilitate project implementation\. The project would include the following components: (a) Institutional Strengthening (through technical assistance, training and equipment) to Central Government and autonomous non-Central Government bodies\. The Central Government bodies would include HMG central policy formulation and sectorwide planning institutions and regulatory bodies, central agencies (governmental or private) concerned with executing central functions in monitoring and evaluation, research and development, Human Resource Development\. The autonomous non- Central Government bodies would be service delivery entities\. (b) Investments in specific water supply and sanitation works, for municipalities, including expansion of Kathmandu water supplies\. (c) Technical Assistance for preparation of possible follow up investment operations\.  Implementation 3\. The project implementation period will be refined as project preparation progresses\. The project will be implemented by newly created autonomous entities which could include public boards, corporations, municipal entities, regional entities with greater private sector involvement\. The main focus of this project will be institutional as it will assist the Central Government redefine its role in the urban water supply and sanitation sector with a view to transferring all service delivery responsibilities to autonomous non- Central Government entities\. Cost and Financing 4\. Project cost is presently estimated at about US$60\.0 million and will be refined during project preparation\. Co-financing arrangements will be worked out during project preparation\. Environmental aspects 5\. Potential issues concerned with the allocation of water rights and resettlement at the eventual reservoir site of the proposed Kathmandu valley component as well as eventual resettlement related to distribution network extension/rehabilitation would be addressed during project preparation\. In compliance with the Bank's Environmental Assessment Operation Directives, an environmental overview sheet has been prepared, and it is proposed that the project be rated "A"\. It should be noted that project preparation will review the need for an eventual within-the-valley reservoir for the Kathmandu/Lalitpur municipality component\. Should further project preparation establish that this reservoir is not needed and that this project does not include any resettlement, the project rating may be changed to "B"\. Contact Point Public Information Centre The World Bank 1818 H Street N\.W\. Washington D\.C\. 20433 Telephone No\.: (202)458-5454 Fax No\.: (202)522-1500 Note: This is information on an evolving project\. Certain components may not necessarily be included in the final project\. - 2 -

APPROVAL

P154998

\. PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No\.: PIDA106518 \. Project Name Mexico City Water Supply Service Improvement Project (P154998) Region LATIN AMERICA AND CARIBBEAN Country Mexico Lending Instrument Investment Project Financing Project ID P154998 Borrower(s) National Bank of Public Works and Services (BANOBRAS) Implementing Agency SACMEX Environmental Category B-Partial Assessment Date PID Prepared/Updated 28-Mar-2017 Date PID Approved/Disclosed 05-Apr-2017 Estimated Date of Board 06-Jul-2017 Approval Appraisal Review Decision (from Decision Note) Other Decision \. I\. Project Context Country Context 1\. Mexico’s macroeconomic and financial stability amidst adverse external shocks coupled with initial results from structural reforms and enhanced external competitiveness should improve economic growth prospects in the medium term\. The Mexican economy continues to face a complex external environment in which persistently low oil prices, a normalization of U\.S\. monetary policy, a slowdown in global trade and economic growth, and a diversity of geopolitical events challenge country’s economic and financial stability and growth outlook\. Economic growth weakened in 2016 following softness in private investment and external demand\. Nevertheless, Mexico has managed to preserve macroeconomic stability through prudent monetary, financial, and fiscal policies that also create the conditions for stronger growth in the medium term\. Regarding economic and financial stability, further progress in the implementation of an ambitious structural reform agenda, as well as the increase in external competitiveness following the depreciation of the currency should lift private investment and exports, and secure economic growth of about 2\.5 percent in 2017 and 2\.8 percent by 2018\. 2\. Mexico City is the country’s economic center but 30 percent of its population lives below the poverty line\. Mexico City is the country’s largest city with a population of 8\.9 million inhabitants and a floating population of 4\.2 million inhabitants\. It delivers 17 percent of the country’s Gross Domestic Product (GDP) \. However nearly 30 percent of Mexico City’s population lives below the poverty line \. Five of its 16 administrative delegations (Delegaciones) have poverty rates ranging from 30 to 50 percent\. Mexico City together with 60 municipalities from the riparian states of Mexico and Hidalgo Page 1 of 6 create the Mexico Valley Metropolitan Area (Zona Metropolitana del Valle de Mexico) that represents less than 1 percent of the country’s territory but close to 20 percent of the country’s total population\. With its over 21\.5 million inhabitants, it is one of the largest urban agglomerations in the world\. Sectoral and Institutional Context 3\. The National Water Program 2014-2018 (Programa Nacional Hídrico) sets out the Objectives, Strategies and Actions for the development of the water sector\. One of its strategies supporting the objective of strengthening access to Water Supply and Sanitation (WSS) services is the improvement of the efficiency of the municipal water supply systems\. 4\. WSS Services in Mexico City are provided by the City’s water utility (Sistema de Agua de la Ciudad de Mexico - SACMEX)\. SACMEX is a Department of the Government of Mexico City (GoCDMX) under its Secretariat of Environment\. It provides water supply, sewerage and stormwater drainage services to around 13 million people (including the floating population)\. As a City Department SACMEX lacks many of the features of well-run public companies\. It does not have ring- fenced accounts, and generally lacks financial and managerial autonomy, internal and external accountability, and efficiency incentives\. Whilst many of these issues are deeply political in nature and take time to address, SACMEX can, and will through this Project, begin to tackle service quality and efficiency issues and thus contribute to build a world-class utility that the City deserves and that can meet the major challenges outlined below\. 5\. SACMEX has one of the world’s largest and more complex water system and, in addition to the challenges of service quality and financial sustainability it also faces growing pressures on its water security\. Mexico City increasingly faces severe water stress due to a rising demand as a result of urban population growth, as well as the inefficient provision of water supply service\. The latter translates into high levels of commercial and physical losses representing 42 percent of the water volume entering the distribution system \. Urbanization and inefficient water management practices have caused an acute overexploitation of the Mexico Valley’s aquifer, which provides 50 percent of the City’s water supply\. Other sources include the Cutzamala System, which requires a transmission network of more than 320 kilometers (km) of canals and tunnels complemented by six pumping stations that elevate water more than 1,100 meters (mt)\. Projections for 2030 show that if current water management practices in the Valley remain and no relevant measures are adopted, available water sources will only meet 50 percent of the total future demand and will continue to come from overexploited aquifers at an increasing economic and environmental cost\. Predicted impacts of the Climate Change in Mexico City indicate that an overall decrease in precipitation and an increase in temperature will exacerbate the pressure on its already limited water resources and increase the vulnerability in the availability of water to supply Mexico City\. 6\. Water coverage in Mexico City is high, however service quality remains a challenge\. While drinking water coverage in Mexico City is 98 percent, 25 percent of SACMEX’s customers receive an intermittent service ranging from a few hours of supply a day to once every week ; the City faces this situation despite the fact that the currently available production capacity is sufficient to deliver a continuous supply if managed efficiently\. Coping costs incurred by the population to address poor quality of service is estimated to correspond to 57 percent of the total economic cost of providing the service in the Mexico Valley Metropolitan Area, disproportionally affecting the poorest living in the area \. 7\. SACMEX is highly dependent on financial transfers from the GoCDMX and Federal Government\. Revenues from services currently only covers approximately 76 percent of its operation and maintenance costs, while all investments are subsidized\. This is due to a number of reasons including Page 2 of 6  low commercial efficiency (low collection rates), and low technical efficiency (high leakage levels)\. SACMEX tariffs are set by the GoCDMX every year\. The financial analysis indicates that the tariffs are lower than the costs of providing the service, which adds to the financial challenges facing the utility\. A typical household water bill amounts to 1\.8 percent of households’ income in the bottom 20 percent, and is thus very affordable\. 8\. The Program for Water Supply Services of Mexico City\. In order to respond to the above challenges, the GoCDMX adopted in 2014 the Program of Sustainability and Management of Water Services (Programa de Sustentabilidad y Gestión de los Servicios Hídricos), with the overall objective to sustainably meet the needs for drinking water of the City while allowing for the conservation of the water resources and the environment\. The Program sets the goals, strategies, and actions for an integrated management in the provision of water services in Mexico City\. The first phase of the Program of Sustainability and Management of Water Services is embedded into the Program for Water Supply Services of Mexico City (Programa Hídrico de la Ciudad de México), whose objectives are to: (i) improve the efficiency and quality of the water services; and (ii) increase the production capacity in targeted areas\. 9\. The World Bank’s financial and technical assistance has been requested to support the achievement of the first objective of the Program for Water Supply Services of Mexico City\. The strategy of the GoCDMX and SACMEX to achieve this objective consists of designing and implementing contracts linking payments to delivery of results, hereafter referred to as Performance-Based Contracts (PBCs), to primarily: (i) reduce leakage and (ii) provide a continuous water supply\. Those PBCs will be implemented by Contractors selected through a transparent and competitive process\. The PBCs are also expected to improve the financial performance of SACMEX over the long run\. 10\. The Project will support the implementation of the first PBC within selected areas as an initial step towards city-wide roll out\. SACMEX has defined 5 mega-sectors encompassing the 16 administrative Delegations of Mexico City and has adopted a phased approach to progressively bid and award the PBCs in those 5 mega-sectors of the City\. As a first phase, SACMEX will start implementing the first PBC in selected areas located in the “Mega-sector 3”\. The areas of the “Mega-sector 3” where the Project will be implemented will be selected by SACMEX based on the hydraulic, leakage and service conditions required to achieve the objectives of the PBC\. While the Project supports the implementation of the PBC in these selected areas, SACMEX and Mexico City plan to implement the PBCs in the rest of “Mega-sector 3” and in the remaining 4 mega-sectors as part of a subsequent phase\. 11\. SACMEX has some experience in working with contractors to improve the efficiency of water services\. In 1993, the GoCDMX awarded 10-year PBC to four Concessionaires covering the entire service area of SACMEX for the commercial management of its water supply system, including billing, collection and customer services\. These contracts, which have already been extended and modified several times, were renewed in July 2016 for an additional five years\. They will therefore be executed in parallel with the PBCs to be supported by the Project\. \. II\. Proposed Development Objective(s) The Project Development Objective (PDO) is to improve the quality and efficiency of the water supply service in selected areas of Mexico City\. \. III\. Project Description PHCOMP Component Name Page 3 of 6  Investments to improve water supply service Comments (optional) 17\. The World Bank loan will finance investments in each DMA\. All DMAs are expected to be progressively established within the 4\.5 years of the Contract\. These investments include: design, installation or rehabilitation of water mains, valves, pressure and flow measurement devices and other distribution network accessories; design, installation or rehabilitation of customer water connections including installation of micro-meters; and leakage repair on water mains and customer connections\. This Component will also finance the supervision of the execution of the above activities\. IV\. Financing (in USD Million) Total Project Cost: 50\.00 Total Bank Financing: 40\.00 Financing Gap: 0\.00 Financing Source Amount International Bank for Reconstruction and Development 40\.00 Local Govts\. (Prov\., District, City) of Borrowing Country 10\.00 Total 50\.00 \. V\. Implementation 18\. The World Bank will lend to BANOBRAS that will on-lend to Mexico City\. As any subnational lending operation in Mexico, proceeds of the World Bank loan to the GoCDMX will be channeled through BANOBRAS\. BANOBRAS will be the Borrower, which in turn will on-lend to GoCDMX\. The World Bank has prior experience working with BANOBRAS at subnational level\. The most recent operation, approved in June 2014, was a US$55 million loan to the State of Oaxaca for the Water and Sanitation Sector Modernization Operation\. 19\. SACMEX will be the contracting and supervising authority of the PBC\. SACMEX will create a dedicated Project Execution Unit (Unidad de Ejecucion del Proyecto), which will be in charge of overseeing the Contractor during the implementation of the PBC\. The supervision of the investments executed by the Contractor will be made by a consulting firm financed by the Project\. This consulting firm will also be responsible for the verification of the achievement of the performance targets reported by the Contractor throughout the Contract’s duration\. 20\. The investments financed by the World Bank loan will be executed by the Contractor\. The Contractor will be responsible for planning and executing the investments financed by the World Bank loan through BANOBRAS\. These investments will be carried out in accordance with the Environmental, Social, Safety and Hygiene Management Framework prepared for the Project and in line with requirements of the Government of Mexico\. 21\. Legal structure of the Project\. In addition to the Loan Agreement between the World Bank and BANOBRAS and the Guarantee Agreement between the World Bank and the Government of Mexico, a Subsidiary Agreement between BANOBRAS and the GoCDMX will be signed given the subnational nature of the Project\. 22\. The PBC supported by the Project and SACMEX’s accounting systems will provide the mechanisms and instruments for the Project’s Monitoring & Evaluation (M&E)\. Project’s indicators Page 4 of 6  are either embedded into the performance-based payment of the compensation scheme of the PBCs or can be retrieved from SACMEX’s accounting system\. 23\. Sustainability of the water supply service in Mexico\. The implementation of the PBC will also allow new practices and levels of service to become institutionalized and thus can be expected to be maintained after the PBC is finished\. A comprehensive approach to hand back leakage management to SACMEX at the end of the Contract is included in the Contract design\. 24\. In addition, by reducing leakages and elements of commercial losses, the Project will directly contribute to enhanced water security, climate change mitigation and financial performance of SACMEX that all together underpin the sustainability of the water supply service of the Mexico City\. 25\. Finally, by providing continuous water supply throughout the selected areas, the Project will significantly improve the quality of water service in Mexico City\. Once users have become used to improved water service delivering 24/7, Mexico City and SACMEX will face enhanced pressure from users and other social groups that are less likely to accept any slipping back or a decline in service quality\. VI\. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4\.01 X Natural Habitats OP/BP 4\.04 X Forests OP/BP 4\.36 X Pest Management OP 4\.09 X Physical Cultural Resources OP/BP 4\.11 X Indigenous Peoples OP/BP 4\.10 X Involuntary Resettlement OP/BP 4\.12 X Safety of Dams OP/BP 4\.37 X Projects on International Waterways OP/BP 7\.50 X Projects in Disputed Areas OP/BP 7\.60 X \. VII\. Contact point \. World Bank PHWB Contact: Charles Delfieux Title: Senior Water Supply and Sanita Tel: 473-5210 Email: cdelfieux@worldbank\.org \. \. Borrower/Client/Recipient PHBORROWERSECTION Name: National Bank of Public Works and Services (BANOBRAS) Contact: Adriana Rojas Jimenez Page 5 of 6  Title: Director for Technical Assistance BANOBRAS Tel: 5252701200 Email: adriana\.rojas@banobras\.gob\.mx \. \. \. Implementing Agencies \. PHIMPLEAGENCYSECTION Name: SACMEX Contact: Ramon Aguirre Diaz Title: Director General SACMEX Tel: 5257280000 \. Email: raguirre@sacmex\.cdmx\.gob\.mx \. \. VIII\. For more information contact: \. The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects Page 6 of 6

APPROVAL

P126274

 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No\.: AB7463 Operation Name Programmatic Development Policy Operation 2 Region EUROPE AND CENTRAL ASIA Country Kyrgyz Republic Sector General industry and trade sector (20%);General energy sector (20%);General finance sector (20%);Other social services (20%);Public administration- Financial Sector (20%) Operation ID P126274 Lending Instrument Development Policy Lending Borrower(s) KYRGYZ REPUBLIC Implementing Agency Ministry of Finance Date PID Prepared December 23, 2013 Estimated Date of Appraisal February 25, 2014 Estimated Date of Board April 24, 2014 Approval Key development issues and rationale for Bank involvement World Bank development policy lending aims to help the borrower achieve sustainable growth and poverty reduction, through a program of policy and institutional actions\. Development Policy Operations (DPOs), are provided in the form of non-earmarked loans, credits, or grants that support the country’s economic and sectoral policies and institutions\. Development policy lending complements the Bank’s other financing instruments: investment lending, which provides project financing; program-for-results financing, which finances a borrower’s program of expenditures and disburses against results; and guarantees, which help mobilize private financing for critical projects and programs\. This Development operation to the Kyrgyz Republic is a second in a series of two operations and supports\. The DPO series is an integral element in the Bank’s strategy for the Kyrgyz Republic\. It was a central pillar of the FY12-13 Interim Strategy Note (ISN) and its focus on governance and private sector growth addresses some of the key challenges in the country\. It is also aligned with the FY14-17 Country Partnership Strategy (CPS) and its objective of improving governance along three broad areas: i) public administration and service delivery; ii) business environment and iii) management of natural resources and infrastructure\. Under the proposed operation, IDA will transfer funds to the Government’s budget following the completion of specific reform actions by the Government as agreed in the DPO program\.  Proposed Objective(s) The main Program Development Objective is to lay the foundations for faster and more sustainable, as well as more equitable future growth\. The program aims to achieve this objective through more transparent and accountable use of public resources, and an improved environment for doing business\. The program is consistent with policy priorities highlighted in the National Sustainable Development Strategy\. Preliminary Description The proposed DPO2 intends to support government efforts in the following two areas: i) improving public sector governance and ii) enhancing the business environment\. The first pillar supports increased accountability and transparency in the use of public resources through improved public sector governance structures\. More efficient use of public resources, both in the public administration and in the energy sectors, is expected to generate savings that will strengthen the sustainability of the fiscal accounts and allow re- allocation of spending to priority areas and improve quality of public services, which will help reduce poverty and promote shared prosperity\. The program under the second pillar supports actions to address the constraints to a more vibrant development of the private sector\. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The overall framework proposed by this project is aligned with the World Bank’s goals of reducing poverty and boosting shared prosperity\. Achievement of these goals rests on the three pillars of growth, equity, and sustainability\. These in turn require appropriate fiscal policies, functioning public institutions and private markets, and effective risk management\. Thus, a focus on governance and lowering barriers to economic activity is critical in promoting greater equity and inclusiveness of the country’s economic progress, through improving the institutional basis for economic growth\. The areas of policy reforms supported under the DPO2 are well aligned with the areas of concern for the Kyrgyz population\. The consultations with the civil society undertaken as part of the preparation of the FY14-17 CPS identified that public sector governance and reform is a top development priority, as are business climate issues, such as inefficient financial sector, corrupt business registrations and inspections\. Environment Aspects The specific policies supported by the DPO program will not have adverse effects on the environment and natural resources\.  Tentative financing Source: ($m\.) BORROWER/RECIPIENT 0 International Development Association (IDA) 25 Borrower/Recipient IBRD Others (specify) Total 25 Contact points World Bank Contact: Kamer Karakurum-Ozdemir Title: Senior Economist Tel: 5242+8356 Email: kozdemir@worldbank\.org Location: Ankara, Turkey (IBRD) Contact: Evgenij Najdov Title: Senior Economist Tel: 5775+237 Email: enajdov@worldbank\.org Location: Almaty, Kazakhstan (IBRD) Borrower Contact: Mirlan Baigonchokov Title: Deputy Minister, Ministry of Finance Tel: (312) 664036 and (312) 625926 Email: m\.baigonchokov@minfin\.kg For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop

APPROVAL

P009657

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 3006 PROJECT PERFORMANCE AUDIT REPORT INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) June 3, 1980 FILE CoilD Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  PROJECT PERFORMANCE AUDIT REPORT INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) Table of Contents Page No\. Preface (i) Project Performance Audit Basic Data Sheet (ii) Highlights (iii) Project Performance Audit Memorandum I\. Project Summary 1 II\. Main Issues 4 Forecast vs\. Actual Growth of Electricity Generation 4 Project Justification 5 Institutional Objectives and Lending Strategy 6 III\. Conclusions 9 Appendix: Comments from Government 10 Attachment- Project Completion Report 1\. Introduction 11 2\. Project Preparation and Appraisal 12 3\. Project Implementation and Costs 13 4\. Operating and Financial Performance of 16 Beneficiary SEBs 5\. Project Justification 17 6\. Bank Performance 17 7\. Conclusions and Lessons to be learned 18 Annexes: 1\. Schedule of Disbursements 19 2\. Forecast Income Statement and Capital Base of 20 Beneficiary SEBs for FY1978 Maps  PROJECT PERFORMANCE AUDIT REPORT INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) PREFACE This report presents a performance audit of the Second Power Trans- mission Project in India, for which a credit of US$75 million was signed on May 3, 1971\. The credit became effective on July 29, 1971, and was closed on March 3, 1977, when the undisbursed balance of about US$2 million was cancelled\. The Project Performance Audit Report consists of a Project Perfor- mance Audit Memorandum (PPAM) prepared by the Operations Evaluation Depart- ment (OED) and a Project Completion Report (PCR) prepared by the South Asia Regional Office\. A project completion mission visited India briefly in January, 1978, and information gathered during that visit has been taken into account in writing the PCR\. OED has reviewed the Appraisal Report and other documents in IDA files and discussed the project with IDA staff\. The audit finds that the PCR covers adequately the project's salient features, with the exception of the demand forecast and the project justification, and the PPAM generally agrees with the conclusions\. In addition to summarising the objectives and results of the project, therefore, the PPAM expands upon the discussion of these two features; it also takes up the issue of the project's limited institutional objectives, it makes some observations on the degree of success encountered in reaching these objectives and it examines the type of lending strategy adopted, namely a sector-type credit in support of a program\. Following normal OED procedures, a draft copy of this report was sent to the Government for comment\. Those comments which were received have been taken into account in finalizing the report and are reproduced as an Appendix to the PPAM\.  (it) PROJECT PERFORMANCE AUDIT BASIC DATA SHEET IrDIAt SECOND PONER TRANSHISSION PROJECT (CREDI 242-TN) 9IT PROJECT DATA Its Appraisal Actual or Expectation Current Estimate Total Project Cost (US$ million) 126 126 /1 Overrun (Underrun) (M) 0 Credit Amount (US$ million) 75\.0 75\.0 Disbursed ) 72\.9 Cancelled )Sept\. 30, 1979 2\.1 11paidto ) Outatanding to ) 72\.9 Date for Completion of Physical Components 3/75 3/77 (est\.) Proportion Completed by Appraisal Target Date (Z) n\.a\. Proportion of Tiae Overrun (Z) 51 Incrmental Financial Rate of Return (2) n\.a\. n\.a\. L Financial Performance unsatisfactory Institutional Performance unsatisfactory CalAetive Estiated and Actual Disbursements (US$ million) FT 1973 1974 1975 1976 1977 1978 (1) Appraisal Estimaste 5\.0 20\.0 53\.0 75\.0 75\.0 75\.0 (ii) Actual - 6\.1 23\.7 46\.3 72\.8 72\.9 (ii) as of (i) - 31 45 62 97 97 OTHER PROJECT DATA Itsm Origin\.l Actual or Plan Revisions Current Estimate First Meation in Files or Timetable 1/69 Government's-Application 10/69 Negotiations 3/71 Board Approval 4/27/71 Credit Agreement Date 5/03/71 ffectiveness Date 8/02/71 7/29/71 Closing Date 9/30/75 3/31/77 5/04/77 Borrower Goverrment of India Executing Agency Nine State Else\. Boards and a Genera- tion Board Fiscal Tear of Borrower Apr\. 1 - March 31 Follow-on Project Name Third Power Transmission Project Credit Number Cr\. 377-IN Amount (US$ million) 85\.0 Credit Agreement Date 5/09/73 MISSION DATA Month/Tear Duration of No\. of Date of ission Persons Report Appraisal 12/70 3 2 4/12/71 Supervision 1 12/72 3 2 - Supervision 2 12/73 3 2 - Supervision 3 4/74 3 2 8/01/74 Supervision 4 6/75 2 1 8/12/75 Supervision 5 8/76 3 2 9/10/76 Supervision 6 4/77 3 3 4/22/77 Completion 1/78 3 2 Currency Exchange Rate Name of Currency (Abbreviation) Indian Rupes (R) Year: Appraisal Tear Average Exchange Rate US$1 - R 7\.5 Intervening Tears Average US$1 - R 8\.8 Completion YeTar Average US$1 - R 8\.8 / Project scope increased for same cost\. The analysis of project costs in the the PCR (para\. 3\.11) is for equipment and materials only\. in line with the Appraisal Report\. L Since the project was a minor part of the national network program no return could be calculated at appraisal or on completion\.  (iii) PROJECT PERFORMANCE AUDIT REPORT INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) HIGHLIGHTS Credit 242-IN was the second in a series of four lending operations to help finance the purchase of equipment for India's large program of exten- sions to the high-voltage power transmission network\. By reason mainly of competitive bid prices and rupee devaluation, equipment costs were less than anticipated and it was possible to undertake additional works under the program and still leave a small undisbursed balance\. Partly for this reason, the project had a time overrun of 18 months\. The project was successful in assisting the nine beneficiary State Electricity Boards (SEBs) to extend their transmission systems and in con- sequence, although demand grew more slowly than expected at appraisal, to meet their growing power requirements over the extended project period\. The degree of utilization of generating capacity in the nine SEBs has exceeded the appraisal forecast (PPAM paras\. 8-12)\. The institutional objectives of the credit, principally the rehabil- itation of the finances of the SEBs which actually executed the project, were modestly pitched, in the belief that any possible solution to these problems would be long-term in nature, and the results actually achieved by the time of project completion were small\. In retrospect, the approach in this and subsequent projects may have been too cautious and it was certainly hampered by the lack of any direct contractual or working relationships between IDA and the SEBs (PPAM paras\. 13-19)\. Some points of special interest are: - the use of cut-off dates for placing procurement orders, to speed up disbursements (PPAM para\. 3 and PCR paras\. 3\.01, 7\.03); - IDA's supervision was mainly effective in procurement matters (PPAM para\. 5 and PCR paras\. 6\.01, 7\.01); - IDA's limited influence on the State Electricity Boards (PPAM paras\. 2,7 and PCR para\. 7\.02); - problems of the State Electricity Boards' finances (PPAM para\. 6 and PCR paras\. 4\.02, 6\.02); - the project's modest institutional objectives and the success encountered in meeting those objectives (PPAM paras\. 13-17); and - the lending strategy (a sector-type credit in support of a program) (PPAM paras\. 2, 12, 18-19)\.  PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) I\. PROJECT SUMMARY 1\. Credit 242-IN, for US$75 million, was signed on May 3, 1971, became effective on July 29, 1971 and was closed on March 31, 1977\. The credit was made to the Government of India (GOI) to help finance extensions of the high voltage transmission network, as part of a program aiming at eventual inter- connection of all the local systems into a national grid\. Interconnection was expected to permit a more efficient use of generating capacity at the national level and thus hold the rate of installation of new generating plant below the rate of increase in demand\. IDA funds were to be disbursed only against the purchase of equipment, whether imported or produced locally\. No final design, construction, construction supervision, or training was to be financed\. 2\. As in the case of an earlier loan and two subsequent creditsl, Credit 242-IN differed from the usual run of public utility lending in some significant respects\. It was, in effect, a sector-type credit in support of a program, nationwide in scope, but carried out by a number of individual State Electricity Boards (SEBs), with whom IDA had no direct contractual relation- ship\. The credit was not on-lent to the SEBs\. Instead, it formed part of the overall financing available for GOI's budget, which included GOI loans to the various State governments, and the States in turn made loans to their SEBs; thus, IDA funds were not identifiable in the SEBs' finances nor did they perceptibly increase the level of SEB resourcesa2/\. The principal advantage to SEBs of Bank/IDA assistance was the likelihood of lower bid-prices through international competition and certain fiscal concessions to Indian suppliers who won contracts under international bidding\. 1/ First Transmission Project (Loan 416-IN), 1965; Third Transmission Project (Credit 377-IN), 1973; Fourth Transmission Project (Credit 604-IN), 1975\. 2/ The "arm's length" relationship betwen IDA and the SEBs under the pro- ject was explicitly recognized in the Appraisal Report for Credit 242-IN, which stated: "IDA's influence on the sector is limited because it can be exerted only through the GO1\. Borrowings such as the proposed Credit form part of the overall finance available to the COI for its annual budget, which includes loans to the State Governments\. The budgets of the State Governments include loans to the respective SEBs for their development schemes\. This pattern of lending is a substitute for the relending of the credit by GOI to the State Governments and to the SEBs\. Thus the role of an IDA credit is marginal at the level of the SEBs\." - 2 - 3\. The main problem arising from physical execution of the project was the slow draw-down of the Credit\. Applying lessons from the earlier Loan 416-IN, it was agreed at the outset that all equipment financed under the project was to be subject to international bidding and there was to be a cut-off date for placing contracts if they were to qualify for IDA disburse- ments\. These requirements probably had some effect in speeding up procure- ment, compared with Loan 416-IN (where there had been a time overrun of 2-1/2 years, but an under-disbursement of US$20 million); nevertheless, there were still some delays (PCR para\. 3\.05)\. Because of the rupee devaluation and keen competition in bidding, savings arose which were used to finance more of the transmission program\. Sub-projects were also amended, as SEBs modified their work programs\. For these reasons, the cut-off date and the closing date were extended from time to time, in all by 18 months; even so, there remained an undisbursed balance of some US$ 2 million, which was cancelled\. The final costs of equipment and materials for the project, as shown in the PCR (para\. 3\.11), were within the appraisal forecasts\. 4\. No economic or incremental financial rate of return was calculated at appraisal and indeed the economic benefits of the different components of the project are not separately quantifiable\. However, although demand grew more slowly than projected at appraisal, the project's physical justification was eventually confirmed by the actual rate of growth of power demand, coupled with shortfalls in expanding generating capacity, and the degree of capacity utilization experienced in the beneficiary SEBs (PPAM paras\. 8-12 and PCR paras\. 5\.01-5\.02)\. 5\. IDA's supervision effort was almost entirely limited to procurement matters and to monitoring SEB accounts\. Procurement for a US$75 million project spread over nine SEBs, with whom IDA dealt only indirectly through the Central Water and Power Commission (CWPC), inevitably generated a considerable volume of paperwork; the prompt and meticulous attention devoted to this certainly enabled procurement to proceed without major problems\. IDA's super- vision teams (often combining supervision with appraisal of fresh projects) basically dealt with the CWPC office and not with the SEBs\. Supervision reports were scanty and it must be concluded that project staff acquired little first-hand knowledge of, for example, the quality of equipment or construction\. The intensity of supervision was in fact considerably less than average for a public utility project, and IDA apparently accepted from the outset that staff constraints would not permit otherwise\. Full field super- vision for a project so dispersed would no doubt have required many more than the two or three projects staff available for the whole Indian power sector and, with the very limited influence which IDA had at SEB level (para\. 7), a greater input might well have had diminishing returns at some point\. Never- theless, some increase in staff available would have been worthwhile\. 1/ The Appraisal Report concentrated on equipment and materials costs rather than total costs (i\.e\. including the cost of local civil and engineering works and engineering design)\. A rough estimate of final total costs is given in the Basic Data Sheet\. -3 - 6\. Apart from the slow draw-down of the Credit, it was not the physical execution of the project which attracted IDA's concern so much as an important secondary objective addressed by the whole series of transmission projects -- namely, to improve the financial performance of the SEBs\. These institutions presented a picture of low rates of return (even on unrevalued fixed assets), inadequate tariffs, excessive debt and large accumulations of unpaid interest owed to the parent State governments\. Improved performance was hampered by two constraints\. First, the Electricity (Supply) Act, which regulated accounts and finances, incorporated concepts which are inconsistent with generally accepted principles of public utility finance\. For example, surplus revenues were to be appropriated in the first place to depreciation, then to interest to the State Government and thirdly, if available, to debt repayment, but all these appropriations were optional\. There was no clear obligation of the SEBs to cover such costs or financial obligations through their tariffs\. Secondly, tariffs were de facto controlled by State governments, so that their level and structure tended to be influenced by wider concerns than those of the SEB as a utility -- for example, competition with other States to attract industry, the development of agriculture (with a rural electrification policy imposed on SEBs, including concessionary rates to farmers), and a desire to minimize any outflow of the States' resources by way of federal income tax on the profits of SEBsl/\. To make a start on some of these problems, the Credit agreement called for collection by GOI of data on the effect of rural electrification on each SEB's finances, consultation between GOI and the States about disposal of the unpaid interest balances owed to the parent State governments, and continuation of the rate of return undertakings in force under Loan 416-IN, namely that each SEB would earn, by agreed target years, 9-1/2% on historically valued net fixed assets (PCR para\. 4\.01)\.!\. 7\. It is clear, however, from IDA's lack of a contractual relationship with the SEBs, the lack of any perceptible impact of IDA disbursements on SEB resources (para\. 2), and the fact that the Credit represented only 3% of the total planned investment of the nine SEBs during the project construction period, that IDA's influence at SEB level was minimal or non-existent\. Even GOI agencies in the sector appear to have little authority and must work through attempted persuasion and exhortation\. Amendment of the Electric- ity (Supply) Act would have greatly facilitated reform but this would have 1/ Most States have chosen to increase effective tariffs by having excise taxes or duties on electricity billed, thereby increasing State revenues from electricity without subjecting associated income to potential income taxes\. 2/ The 9-1/2% rate of return applied in these projects derived from the report of a GOI Committee, published in 1964; it represented: 6% for interest, 3% towards capital construction and 1/2% for reserves\. The Appraisal Report refers to a rate of return of 11% but this inincluded a 1-1/2% duty on electricity sales; since this did not benefit the SEBs, the effective rate of return aimed at was 9-1/2%\. required considerable study followed by consultation with all the States and was rejected by GOI as counterproductive at the time\. The project's institutional objectives were correspondingly modest and the results unremark- able; none of the nine SEBs was able to achieve its rate of return target on time (PCR para\. 4\.01) and subsequent Credits have had to modify those targets!\. II\. MAIN ISSUES Forecast vs\. Actual Growth of Electricity Generation 8\. A very brief discussion of the actual growth of all-India electri- city generation is in para\. 5\.01 of the PCR\. While the general conclusion of the PCR is correct, namely that actual growth was below the appraisal forecast but ultimately did reach the forecast level, no supporting statistics are shown and there is no mention of the particular experience of the nine SEBs covered by the project\. The relevant data were, therefore, collected during the audit and are shown in the following table: Actual Electricity Generation and Growth Rates FY1970 and FYs 1974-1979 FY1970 FY1974 FY1975 FY1976 FY1977 FY1978 FY1979 Generation (GWH) All India 57,988 66,689 70,191 79,231 88,333 91,206 97,376 Nine SEBs 21,783 30,832 31,627 35,493 42,741 n\.a n\.a\. Growth Rate (%) All India - 3\.6 5\.3 12\.9 11\.5 3\.3 6\.8 Nine SEBs - 9\.1 2\.6 12\.2 20\.4 n\.a\. n\.a Sources: Staff appraisal Report for the Second Singrauli Thermal Power Project and "Public Electricity Supply All India Statistics" (Government of India)\. 9\. At the time of appraisal, all-India electricity generation was forecast to grow at about 13% p\.a\. over the four-year period FY1970-FY1974\. Of course, the growth rates of individual SEBs were expected to vary from the all-India average and were projected individually for the nine SEBs covered by the project, but the resulting forecast of the average growth rate for the nine SEBs together, at 14% p\.a\., was in line with the all-India average\. Actual all-India electricity generation increased at a little less than 1/ Six SEBs have met the target later than scheduled (with delays of one to five years) though one subsequently fell below it again; the other three have not yet complied\. (See PCR paras\. 4\.01-4\.02)\. - 5 - 4% p\.a\. over the period and although the growth rate increased after FY1974, the appraisal forecast of generation for FY1974 was only reached in about FY1978 or FY1979\. The actual increase in electricity generation for the nine SEBs was also below the appraisal forecast but much faster than the all-India average, i\.e\. about 9% p\.a\. for the period to FY1974, so that the FY1974 appraisal forecast of generation for the nine SEBs together was attained sooner, in FY1976\. The principal reasons for the lower growth of generation than forecast, according to the PCR, were the failure to meet targets for the commissioning of new plant, the failure of two monsoons, leading to lower output from the hydroelectric stations, and the general impact on the economy of the oil crisis\. Project Justification 10\. It is not possible to justify a transmission project of the type associated with Credit 242-IN in isolation from other investments in the power sector\. The project represented only part of the investment in transmission and distribution by each of the nine SEBs during the course of the Fourth Five-Year Plan (FY1970-FY1974); this investment, in turn, was only part of the longer-term development of the nine SEBs and an even smaller part of the nationwide development of transmission and distribution which was being undertaken by fifteen SEBs\. As a further complication, the facilities constructed in the project would be used, inter alia, to transmit and dis- tribute energy generated by new generating plant also outside the scope of the project\. 11\. For these reasons, the benefits of the components of the project were not separately quantifiable and therefore no economic or incremental financial rate of return was calculated at appraisal\. Instead, the Appraisal Report pointed out that, while demand and generation in all-India was expected to grow at 13% p\.a\., planned installed capacity would increase at only about 9% p\.a\., due in large measure to the growth of individual SEB transmission systems and interconnection between these systems\. In consequence, a more effective utilization of generating capacity would be achieved and the project was regarded as a necessary part of this overall development\. In the words of the Appraisal Report, "the Project would make a significant contribution to the growth of the networks of state and national transmission, and would assist, therefore, in holding the rate of installation of new plant down to the 9% quoted above\. The Project is thus an essential element in the growth of a complex national power system\." However, while the Appraisal Report clearly anticipated an increase in generating plant utilization at the all- India level, the individual forecasts of installed generating capacity and electricity generation for the nine SEBs covered by the project imply a decline!/\. 1/ The Appraisal Report data show an increase in installed generating capacity for the nine SEBs together of 19% p\.a\. to FY1974 compared with a growth in electricity generation of about 14% p\.a\. - 6 - 12\. In retrospect, although conclusive quantification is not possible, the project's physical achievements appear to have been well justified\. Generation grew less rapidly than expected but did reach the forecast level before the end of the extended project period (para\. 9)\. Utilization of installed generating capacity fell slightly in the period FY1974-1977 compared with FY1970 at both the all-India level and in the nine SEBs but in the latter case it was significantly higher than the appraisal forecast for FY1974 and would certainly have been lower without the projectI/\. Finally, transmission investment is still regarded as a constraint in power sector development in India and further investment in transmission, ultimately to enable full integration of the regional systems, is judged to be necessary2\. Institutional Objectives and Lending Strategy 13\. In reviewing the preparation and appraisal of Credit 242-IN, the question arises as to why IDA embarked on a fairly substantial investment of funds with such modest institutional objectives and with virtually no influence over the SEBs\. The objectives essentially did no more than repeat the rate covenants already in force under the prior loan; indeed, they may be regarded as even more modest in the sense that Loan 416-IN anticipated that each SEB would reach the rate of return target in the period FY1969-FY1976 whereas Credit 242-IN extended the time allowed for achieving the target to the period FY1973-FY1977\. At the same time, the Appraisal Report acknowledged that "the role of an IDA credit is marginal at the level of the SEBs"\. Finally, IDA's management had expressed serious concern about the finances of the SEBs prior to making the credit\. A project had been appraised more than a year earlier - in late 1969 - but had been deferred while IDA was reviewing policy on domestic preference and while GOI was considering international bidding philosophy (PCR para\. 2\.02)\. During this time, a continuous but not wholly conclusive dialogue had taken place between 001 and IDA concerning the institutional improvements which were needed and practicable\. 14\. By the time the project to be supported by Credit 242-IN was pre- sented to the Board, it appears that IDA had come to accept that institutional improvements could only come about over the longer term\. According to the Appraisal Report: "The credit now proposed is visualized as the first of a series of similar credits which seek to obtain institutional improvements gradually\. Its purpose is to induce the first steps along this path"\. It was 1/ Actual growth in installed capacity for the nine SEBs together was of the order of 9% to 10% p\.a\. in the period FY1970-FY1977\. It is emphasized that statistics on generating plant utilisation must be interpreted with care and may sometimes be misleading since they are influenced signifi- cantly by many factors apart from development of the transmission system\. The technical qualifications are not discussed here as the results are intended only to be suggestive\. 2/ Appraisal Report for the Second Singrauli Thermal Power Project and India: Economic Issues in the Power Sector (World Bank Report No\. 2335-IN, April 26, 1979)\. - 7 - believed that the credit would strengthen the hand of CWPC in pressing for reforms and that there were already encouraging signs of growing awareness by the SEBs of the importance of modern financial management of the sector\. 15\. Tz reach a judgment on the degree of success of IDA's "gradualist" approach, it would be necessary to look carefully at the experience under the projects subsequent to Credit 242-IN as well as the experience under Credit 242-IN itselfl/\. Such a task is clearly well beyond the scope of this audit so that only certain preliminary observations can be made here\. 16\. On the positive side, it appears that a measure of institutional progress has occurred\. The Indian authorities, recognizing that all aspects of the sector must be reviewed both at the State and Central levels, have established a high-level Committee, known as the Rajadhyaksha Committee, to examine and make recommendations on power planning, project formulation and implementation, operation and maintenance, finance, financial management and tariffs, rural electrification, and research and developmentZl\. State govern- ments have begun to subsidize SEBs for losses imposed by State rural elec- trification policy\. Tariff studies based on marginal cost pricing have been undertaken in most States, although the implementation of the studies is entirely at the discretion of the States concerned\. The Electricity (Supply) Act has been amended, with IDA's advice, and now is in a more satisfactory form, although implementation is still lagging and there is as yet no require- ment to revalue fixed assets3/\. Some States have written off, albeit pro- visionally, the overdue interest owed by their SEBs\. The Central Electricity Authority (which absorbed CWPC) has been strengthened-/\. GOI now does make additional resources available to beneficiaries in the amount of 70% of Bank- group financing provided for their projects\. Finally, the rates of return achieved by most SEBs, while not entirely satisfactory, have shown a gradual improvement up to FY1977 (PCR para\. 4\.01)\. 17\. On the other hand, there are signs of deterioration in the financial position of the SEBs since FY1977\. While the financial results in the PCR suggest that the number of SEBs achieving their targets increased from three 1/ See para\. 2\. Since India Power Transmission IV (Credit 604-IN) is a continuation of India Power Transmission III (Credit 377-IN) and cost overruns under Credit 377-IN are being financed under Credit 604-IN, the Region will write a joint PCR on the two projects\. The PCR is not expected before the end of 1981\. 2/ The Committee is due to complete its deliberations in 2-3 months (see Appendix)\. 3/ Implementation will be based upon the findings of the Rajadhyaksha Committee\. 4/ GOI has commented that "the Central Government, through its Department of Power and the Central Electricity Authority have been monitoring the implementation of the schemes taken up under the transmission project closely by establishing periodical dialogues and review meetings with the State electricity boards" (see Appendix)\. -8- in FY1977 to four and five in FYs 1978 and 1979 respectively (para\. 4\.02), the rate of return performance of five of the nine SEBs deteriorated compared with FY1977\.1/\. The deterioration stems from a number of causes, the principal one being that tariffs have not kept pace with increases in operating costs\. In addition, the availability of plant was unsatisfactory, due to its poor physical condition, which in turn was partly due to poor maintenance; there was a loss of cheaper hydro-power, because of low rainfall; and there were major accretions of new plant, which inflated the rate base\. Some SEBs are still not able to cover interest and depreciation from revenues\. This tariff inadequacy suggests that a rate of return target decided as long ago as 19642/ and calculated on historic costs is no longer meaningful under present infla- tionary conditions\. Indeed, one must ask whether a uniform rate of return target was ever appropriate for all SEBs, given their widely differing circum- stances\. Last, but not least, financial management in many SEBs is believed to be still poorl/\. 18\. In the light of these preliminary observations, it is certainly not obvious that the institutional achievements so far have been commensurate with the amount of lending by the Bank group in the four transmission projects (US$380 million), although it must be recognized that Bank group financing represents a very small percentage of the capital expenditures of the SEBs\. As a related question, it is proper to ask whether a different lending strategy might have been more successful\. Rather than adopting the sector- type credit in support of a program, a more traditional approach would have been to divide the transmission program into a series of individual projects, one for each beneficiary, which would have offered more scope for direct institutional impact\. 19\. A difficulty with the traditional approach is that it would have meant a piecemeal and fragmented involvement in a sector undergoing very rapid expansion\. It would also have required greatly increased staff input for the same volume of simultaneous lending\. Furthermore, it would possibly have lost the centralized procurement expertise and coordination of CWPC and it might have been inappropriate for a program aimed at building up a national power grid\. The transmission program had high priority for IDA at that time, because it seemed to be the sub-sector where investment was urgently needed, and also because the local manufacture of transmission equipment had advanced to the stage where international competitive bidding could be fully intro- duced\. Accordingly, the sector-type approach must have appeared to be the most 1/ According to data prepared in connection with the Second Singrauli Thermal Power Project, most SEBs are implementing programs to restore their rates of return to the 9-1/2% level\. 2/ See para\. 6\. 3/ In viewing the rate of return performance of SEBs, it is important to bear in mind that the excise taxes or duties which are levied on electricity sales in eight of the nine States cause the total return on assets to be substantially higher in some cases than the return to the SEBs themselves\. For example, the return including State duties in the case of Gujarat and Haryana is 4%-5% higher than the return after taxes\. - 9 - expedient way for IDA to make a timely and meaningful investment in the sector, to help implant sound procurement policies, and at least to make a start on institutional improvements, even though the way ahead would not be easy in view of the problem of GOI/State relationships\. the absence of real autonomy of SEBs, inadequate legislation and insufficient data, and the differing views of the States, GOI and IDA as to solutions\. The decision to make the sector type credit was, therefore, probably justified at the time\. III\. CONCLUSIONS 20\. The project was technically well conceived and prepared and executed without serious problems (except for slow disbursements and a time overrun)\. It also proved possible to finance more works from the Credit than originally estimated\. IDA's input was appropriate and helpful as regards procurement, but slow in achieving institutional improvements\. The hoped-for rehabilitation of SEB finances has proved elusive, in part due to the lack of any direct contractual or working relationship between IDA and the SEBs, the small percentage of the total program financed by IDA, staff constraints and some reluctance on the part of GOI agencies to change too quickly\. These agencies may understandably have been unwilling to risk too rapid or too ambitious a program of change in a complex and politically sensitive area\. Whatever the reasons, the gradual step-by-step approach may have been too halting and too cautious\. Even the Appraisal Report doubted whether the rate covenants were very meaningfull/ and they have become even less so over time (apart from the question of non-compliance)\. 21\. The problems of the Indian power sector are complex and even tenta- tive conclusions are difficult to reach in one project audit\. Moreover, as the sector develops, national generation authorities and Regional Boards, with better prospects of institutional efficiency, will play an increasingly important role\. Nevertheless, the SEBs are still the "grass roots" institu- tions in the sector and their proper development will continue to call for greater autonomy from State government, better asset utilization, better planning and better management\. For the future, if the Bank group is to play an effective part in the rehabilitation of the SEBs, a more direct relation- ship with them will be essential, e\.g\., by direct lending, separate project agreements, specific on-lending arrangements and/or linking relevant disburse- ments to SEBs performance2/\. 1/ Appraisal Report, para\. 1\.04\. 2/ The Government does not "consider it necessary that there should inevi- tably be any further direct relationship between the Bank and the State electricity boards" in these terms\. Furthermore, according to Govern- ment, "in pursuance of the dialogue with the Bank, series of steps have been taken to monitor the progress of works as also to improve the managerial, financial and economic viability of the electricity boards in the country\. The Rajadhyaksha Committee on Power has been given comprehensive terms of reference and is due to complete its deliberations in another 2-3 months\. We do not therefore believe that any lack of direct relationship between the Bank and the State electricity boards has affected adversely the power sector in any way" (see Appendix)\.  - 10 - WORLD BANK / INTERNATIONAL FINANCE CORPORATION Appendix OFFICE MEMORANDUM TO: Mr\. iv S\. p r, D DATE: April 15, 1980 FROM: Y\.V\.ddy S SUBJECT: OED Report on Second Power Transmission Project We have received the following comments from GOI on OED report on Second Power Transmission Project\. While Bank's involvement in the power sector as a whole has been increasing rapidly, the involvement under the transmission sector is somewhat limited\. As compared to the Plan allocations for transmission and distribution since 1971 of Rs\.3,000 crores, the IDA assistance to the transmission sector has been of only about a tenth of this\. In pursuance of the dialogue with the Bank, series of steps have been taken to monitor the progress of works as also to improve the managerial, financial and economic viability of the electricity boards in the country\. The Rajadhyaksha Committee on Power has been given comprehensive terms of reference and is due to complete its deliberations in another 2-3 months\. We do not therefore believe that any lack of direct relationship between the Bank and the State electricity boards has affected adversely the power sector in any way\. All major sectoral issues have come up for discussion from time to time during the course of appraisal and negotiations for various generation, transmission and rural electrification projects\. We do not, therefore, consider it necessary that there should inevitably be any further direct relationship between the Bank and the State electricity boards in terms of direct lending, separate project agreements, specific on-lending arrangements, etc\. Also any such direct on-lending will not be in keeping with the structure for devolution of funds to State governments which is periodically agreed upon in terms of the recommenda- tions of the Finance Commission and the further deliberations of the National Development Council\. The Central Government, through its Department of Power and the Central Electricity Authority have been monitoring the implementation of the schemes taken up under the transmission project closely by establishing periodical dialogues and review meetings with the State electricity boards\. We would certainly welcome any further supervision input by the Bank in this behalf but this would perhaps inevitably require augmentation of staff strength on the Bank side\.  ATTACHMENT INDIA: SECOND POWER TRANSMISSION PROJECT (CREDIT 242-IN) PROJECT COMPLETION REPORT 1\. INTRODUCTION 1\.01 The project was the second of a series of lending operations for power transmission projects, the objectives of which are (i) to finance high voltage transmission facilities which would complete the interconnection of networks within the States and permit transfers of power between the State systems and (ii) to improve the earnings of the State Electricity Board (SEBs), bring about uniformity of accounting and introduce commercial soundness\. The Government of India (GOI) was the borrower\. Transmission lines, substations and associated equipment within the transmission development program of specified States were agreed with GOI and the Central Water and Power Commission (CWPC) and appraised as the project\. 1\.02 The first transmission project (Loan 416-IN) which was made in 1965 involved all the SEBe at that time (15); the second which is the subject of this report involved nine SEBes - Andhra Pradesh, Bihar, Gujarat, Baryana, Mharashtra, Punjab, Rajasthan, Uttar Pradesh and West Bengal\. It also included the equipment costs associated with the 220 kV transmission lines to convey power from the Beas hydroelectric project to three of these States - Haryana, Punjab and Rajasthan\. 1\.03 The work covered by the second transmission power project was inco- plate at the Closing Date of March 31, 1977, and US$72\.935 million was disbursed leaving US$2\.065 million to be cancelled\. Previous Bank Involvement in the Power Sector 1\.04 At the time of the second power transmission project the Bank had made eight Loans to India for power projects amounting to US$155 million net of cancellation, and IDA had made four Credits totalling US$77 million net 6f cancellation\. Only one of these (Loan 416-IN) was for transmission and distribution, the others were all for generation projects\. The Power Sector 1\.05 The Indian power sector is complex because electricity supply is within the concurrent jurisdiction of the Central Government and the State Government\. At the time the project was appraised the principal agencies in the industry, apart from the State Electricity Boards (SEBa) which are res- ponsible for generation, transmission and distribution of electricity within each State and for the control of private sector licensed electricity supply undertakings, were the Central Electricity Authority (CEA) and the power wing of the Central Water and Power Commission (CWPC)\. Additionally, the Atomic Energy Commission has been responsible for nuclear power generation\. It comes under the Department of Atomic Energy which is answerable directly to the Prime Minister\. - 12 - 1\.06 The CEA which was created in 1950 was, in theory, responsible for developing a national policy for power development and for coordinating the activities of the various planning agencies in electricity supply\. govever, with no staff and no clear and accepted function it was largely Inoperative until, in connection with the Third Power Transmission Project (Credit 377-IN of May 1973), GOI agreed to its reactivation\. In October 1974 the functions of the CWPC were split and the power function was trans- ferred to the CEA reporting to the newly established Ministry of Energy\. 1\.07 In addition to its general responsibilities for national power policies, CIA was, thenceforth, responsible for the formulation of plans for power development, training of personnel, interconnected systems operation, research and development\. It was also responsible for coordination of power planning country-wide to ensure that all projects carried out by the two Central Power Corporations (the National Thermal Power Corporaton and the National Rydro Power Corporation), which were established in 1975, and the SEBs fit into the overall national program and the investments are made so as to be put to optimum use\. 1\.08 Although CEA was ultimately the coordinating authority for the project, this function came under the power wing of CWPC during most of the project implementation period and references throughout this report are to CWPC\. 2\. PROJECT PREPARATION AND APPRAISAL Origin 2\.01 The power sector of the Indian economy was, in 1970, large and growing fast and it was considered sound and necessary to t9prove the trans- mission and distribution system to enable optimum use of the existing and planed generating facilities\. After a long period of involvement in financing the expansion of generating facilities, the Bank decided to move into the field of financing the expansion of transmission and distribution facilities and, as mentioned in paragraph 1\.01, the project under review is the second of this type\. Preparation\. Appraisal, Neotiations and Approval 2\.02 An earlier project which was to be designated the second power trans- mission project had been appraised late in 1969 but the processing of the Credit was deferred while the Association was reviewing policy on domestic preference and its concern about the more effective management of the SEs, and while GOI was considering International bidding philosophy\. The project as defined in the Appraisal Report, was agreed in consultation with CWPC and the beneficiary SEE during the appraisal, which was carried out in Deceber 1970, and was determined after a detailed examination of the SEBs construction programs and commissioning dates\. - 13 - Project Description 2\.03 The project, as appraised, comprised about 4,500 circuit km of trans- mission lines operating at voltages between 66 kV and 220 kV and about 110 substations with an aggregate capacity of some 3,500 MVA\. Covenants 2\.04 The principal issue during negotiations was the need for improving the financial position of the beneficiary SEBs\. It was agreed that the finan- cial improvements introduced by the conditions of Loan 416-IN should be continued\. These improvements comprised, principally, rate of return targets which had to be achieved in specified years for each SEB between 1969 and 1976\. It was subsequently agreed (in Loan 416-IN before the new Credit was made) that the targets were unrealistic and the Bank agreed to modifications\. The revised rate of return targets, which were continued under Credit 242-IN, and the rate actually achieved are set out in paragraph 4\.01\. 3\. PROJECT IMPLEMENTATION AND COSTS Loan Effectiveness 3\.01 Apart from the standard conditions of effectiveness it was agreed that the Borrower (GOI) would obtain from each of the beneficiary SEls and, the Beas Construction Board, in a manner acceptable to the Association, an agreement to fulfil all the functions specified in Section 3\.03 of the Credit Agreement\. Also, because of the problems (see para\. 3\.05) associated with procurement in the case of Loan 416-IN a covenant was introduced stipulating that no withdrawal from the Credit would be made with respect to contracts for the purchase of goods and services awarded more than eighteen months after the signing of the Agreement\. The Credit was declared effective on July 29, 1971 just over two months after the Agreement was signed\. Revision to Scope of Project 3\.02 The scope of the Project as described in paragraph 2\.03 was based on the appraisal carried out by the Association in December 1970\. The Credit Agreement, which was signed on the 3rd May 1971 carried a similar description\. 3\.03 In November 1972, IDA was asked by CWPC to include in the project an additional program of works estimated at about US$8\.85 million\. This proSram was described as a "buffer" program which was to be financed by savings in the Credit resulting partly from competitive prices obtained and partly due to an adjustment in the Rupee/Dollar exchange rate\. The "buffer" program was approved by IDA in February 1973, following detailed discussions during negotiations for Power Transmission Project III (Credit 377-IN)\. - 14 - 3\.04 The project as finally implemented consisted of about 3,725 circuit km of transmission lines operating at voltages between 66 kV and 220 kV and more than 220 sub-stations with an aggregate capacity of about 6,760 MVA besides additional facilities for establishment of communication systems, etc\. Imleasa\.tation 3\.05 The project had a very slow start, the major problem being slow procurement, principally because of the time taken by GOIin the settlement of requests from local contractors for renegotiation of firm price contracts for towers and conductors and because of the effects of the international economic situation, at that time, on raw materials and labor\. To add to the problem, the low standard of bid documentation and the degree of refinement needed before these could be cleared by the Association caused further delays\. There were also delays in CWPC's evaluation of bids after receipt\. As a consequence of all this, and the additional works included in the Project (see para\. 3\.09), the covenant stipulating no withdrawal from the credit in respect of contracts for goods and services awarded more than eighteen months after signing of the Credit Agreement had to be amended with an 18-month extension of the cut-off date - from November 3, 1972 to April 30, 1974\. This in turn necessitated successive postponements of the Closing Date from September 30, 1975 to a final date of March 31, 1977\. 3\.06 Another problem was the consistent failure of all the beneficiary SEBe to meet their targets of financial performance\. Ravised targets have since been set which they are now meeting\. This problem is dealt with in greater detail in chapter 4 of this report\. 3\.07 The project, as subsequently smended, was not fully completed, and by the Cleding Date of March 31, 1977, disbursements amounted to US$72\.935 million and US$2\.065 million of the Credit was cancelled\. Actual and estimated disbursements are shown in Annex 1\. Procurement 3\.08 Credit Agreement 242-IN was signed on May 3, 1971\. In May 1971, IDA provided CWPC with guidelines on the preparation of bidding documents to ensure that foreign and local bidders compete on a common basis\. During a mission about this time discussions were held on the draft "General Conditions of Contract" and "Instructions to Bidders"\. It was agreed at this time that CWPC should formulate model technical specifications for a number of items common to the different beneficiaries\. These were subsequently discussed with CWPC and approved in September 1971\. Bidding documents were made available to the participating SEe by CWPC in October 1971\. 3\.09 By March 31, 1972, the SEBa had issued bid notices for equipment valued at approximately US$52 million, and in May 1972 CWPC furnished copies of the bidding documents to IDA for clearance\. It was noted at this time that some of the participating SEBes had altered their programmes, and a mission - 15 - which visited India during June - July 1972 discussed these chau,es and modi- fied programs\. CWPC formally provided details of the modified programs and their justification on July 5, 1972 and IDA\. notified acceptance of the modified programs on July 24, 1972\. Because of these events and the additional works included in the Project (see para\. 3\.03), the cut-off date for award of con- tracts was postponed to April 30, 1974\. 3\.10 As many as 268 contracts were placed by April 24, 1974\. The alloca- tion of these between the beneficiaries is shown below: - Beneficiary No\. of Contracts Beneficiary No\. of Contracts Andhra Pradesh SEB 32 Punjab SEB 30 Bihar SEB 24 Rajasthan SEB 22 Gujarat SEB 7 Uttar Pradesh SEB 56 Bariyana SEB 30 West Bengal SEB 28 Maharashtra SEB 26 Bess Construction Board 13 Project Costs 3\.11 The estimated costs of equipment and materials for the project are shown briefly in the following table\. The table shows a comparison of costs based on the project as appraised and costs actually incurred\. The same exchange rate as was applicable at the time of appraisal is used for com- parison purposes when converting actual expenditureA to US dollars, Original Actual Rs US$ Ra US$ Millions Millions Million Millions 1\. Conductors and Groundwire 159\.72 21\.30 108\.54 14\.47 2\. Towers 90\.47 12\.06 65\.05 8\.67 3\. Insulators 18\.81 2\.51 20\.08 2\.67 4\. Transformers 82\.40 10\.99 105\.38 14\.05 5\. Switchgear 61\.40 8\.19 101\.61 13\.54 6\. Capacitors 13\.10 1\.75 10\.00 1\.33 7\. Load Despatch Equipment 107\.70 14\.36 67\.39 8\.98 8\. Controls and Relay Panels 18\.50 2\.46 42\.04 5\.60 9\. Power Cables 4\.00 0\.53 3\.74 0\.49 10\. Misc\. Equipment 6\.40 0\.85 16\.68 2\.22 Total 562\.50 75\.00 540\.51 72\.02 - 16 - 4\. OPERATING AND FINANCIAL PERFORMANCE OF BENEFICIARY SEB& 4\.01 The obligations given by SEBs and their respective State Governments in connection with the first power transmission project (Loan 416-IN), that each SE would achieve rate of return performance targets of 9h5 on historic costs (excluding 1h% for duty on energy sales payable to the State Government) by specified times, were continued\. The following table shows the year in which each of beneficiary SEBe of Credit 242-IN was expected to achieve their targets together with their actual achievements\. Rate of Rate of Return Return Target 9\.5% Achievement (%) FY70 to be achieved FY76 FY77 FY78 FY79 by: Andhra Pradesh SEB 7\.4 1973 7\.7 9\.0 9\.5 9\.5 1/ Biar SEB 2\.0 1975 7\.0 8\.1 7\.5 (0\.7)f/ Gujarat SEB 7\.0 1974 7\.9 9\.7 9\.5 9\.5 T/ Baraysna SEB 8\.0 1974 7\.2 6\.4 7\.2 10\.0 Ahaashtra SEB 8\.7 1974 10\.0 13\.0 15\.3 14\.2 Puijab SEB 7\.7 1974 7\.4 8\.2 9\.5 9\.5 Rajasthan SEB 4\.9 1977 8\.7 9\.2 7\.9 6\.6 1/ Uttar Pradesh SEB 5\.1 1975 4\.6 5\.8 3\.0 1/ 3\.1 1/ Vest Bengal SEB 8\.5 1975 6\.0 9\.5 7\.2 1/ 7\.7 1/ 1/ Estimates\. 4\.02 The table shows that three of the nine SEB's had achieved their targets by 1977, four were expected to do so in 1978 and five in 1979\. Although SEBs have all increased their earnings since 1970, the progress which each has made has been unsatisfactory\. This is attributable to: (a) the failure to make timely increases in tariffs to cover inflationary increases in costs, to cover the servicing of its debts and to provide internally generated funds to help to finance future construction; (b) the implementation by SESs of Federal and State poli- cies for rural electrification which could be econo- mically justified, but are not financially viable in the short and medium terms, and are involving SEBes in heavy losses from massive low yielding investments; - 17 - (c) a-liocre financial management, inadequate planning of financial operations, and the unsuitability of the accounting as a basis for conducting a sound and efficient public utility operation; and (d) excessive staffing which is represented by a low consumer/ employee ratio of about 8 to 1\. 4\.03 Income statements for the beneficiary SEB for 711978, excluding Gujarat where relevant information is not available, are shown in Annex 2\. 1/ 5\. PROJECT JUSTIFICATION 5\.01 A number of factors, principally the failure (through poor planning) to meet targets for commissioning new plant, failure of two monsoons during this period and the general effects on the economy of the oil crisis of the early 1970s, led to a lower growth rate of power generation than forecast during the early 1970's; target growth rates averaging 13% per annum, which were forecast at the time of appraisal, were much higher than 5% actually achieved during the period 1969/70 - 1973/74\. However, the growth rate resumed its usual trend of around 13% per annum after 1974/75 and the Project, as amended, was ultimately justified by the growth in demand\. 5\.02 It is difficult to allocate the benefits of India's power sector development program among its various components, indeed it is Impossible to do so on a reasonable basis\. There is therefore no acceptable basis for estimsting the return on the sub projects in the program covered by the Project\. The Project was necessary to meet India's growing power requirements during the construction period\. 6\. BANK PERFORMANCE 6\.01 The Bank Group, through the first power transmission proj$ct (Loan 416-IN) and this project established a very good supervision relation- ship with the procurement section of CWPC and assisted CWPC in the formulation of standardized procedures for precurement for this and succeeding power transmission projects\. 6\.02 An important area in which the Bank hoped to have some influence through this Credit was in the financial operations of the SEBs, and in this area the objectives were only partially realized\. The SEBs were to be respon- sible for running their own operations subject only to broad instructions and guidance in policy matters from State Government\. In practice, the SEBs have been very much under the control of the State Governments, rather along the 1/ The rate of return achievements for FY1978 shown in the table in para, 4,01 are based upon more recent information than that contained in Annex 2 and this accounts for the differences\. - 18 - Ines of the Public Works Departments in which most of them have their origins\. One symptom of this dependence and at the same time a factor which helps main- tain it, is the chronic financial weakness of most of the SEBs\. A continuation in the Credit Agreement of the rate of return covenants in Loan 416-IN was intended to help in improving the financial operations of the recipient SIBs\. Covensats 6\.03 The principal covenant was the rate of return covenant which required that each SE would achieve a rate of return of 9hZ by specified times\. The table setting out the targets and actual achievements is shown in paragraph 4\.01 of this report\. 7\. CONCWSIOKS AND LESSONS TO BE LEARNED 7\.01 The Project is, in affect, part of India's ongoing transmission development program and the only real lesson to be learned is the Imposeib- lity of adequately supervising the work, which consists of sub-projects scattered all over India, with a small staff based in Washington, other than the procurement aspects\. A better arrangement for more effective supervision of this type of project and a closer working relationship with the SEe should be developed\. 7\.02 The Credit was made to 001 with the SEBs as beneficiaries\. The absence of a close working relationship with the SEe has deaied the opportu- nties for affecting institutional improvements\. The importance of more direct iavolvement of the SEBes in projects of this nature, through adequate project agreements is clearly indicated\. 7\.03 Another lesson is the limited effectlyaness of a covenant establishing a cut-off date for placement of contracts as a device for keeping the project on schedule\. For a number of reasons (see para\. 3\.05) the cut-off date had to be extended by 18 months which in turn resulted in a postponement of the Claolng Date by a similar period\. South Asia Regional Office August 14, 1978 -19- ANNEX 1 INDIA SECOND POWER TRANSMISSION PROJECT Credit 242-IN Schedule of Disbursements Accumulated Disbursements Actual IDA US1,00,s Disbursements as Fiscal Year Actual Appraisal percentage of and Quarter Disbursements Estimate Appraisal Estimate 1972/73 March 31, 1973 34 2,000 1\.7 June 30, 1973 34 5,000 0\.7 1973/74 September 30, 1973 230 8,000 2\.9 December 31, 1973 487 11,000 4\.4 March 31, 1974 1,498 15,000 10\.0 June 30, 1974 6,076 20,000 30\.0 1974/75 September 30, 1974 7,435 27,000 27\.5 December 31, 1974 10,400 35s000 29\.7 March 31, 1975 16,154 45,000 35\.9 June 30, 1975 23,717 53,000 44\.7 1975/76 September 30, 1975 27,652 58,000 47\.7 December 31, 1975 29,353 63,000 46\.6 March 31, 1976 40,500 67,000 60\.4 June 30, 1976 46,300 75,000 61\.7 1976/77 September 30, 1976 49,900 75,000 66\.5 December 31, 1976 55,600 75,000 74\.1 March 31, 1977 67,000 75,000 89\.3 June 30, 1977 72,790 75,000 97\.0 June 1978 sacD\. nUafhs182 Mm PnoUe * aart 242-rp forecat m= Statfemnt at cantal ast of 9~t0etary SE for k T 197 (h aSmlliSas of Sup\.es) Snara * Uttar sc 15ggSgk IIgg, Ra a itarstahhtra I 1 2a29tbM ra-a emo Reye~u satta of Eletrletty 1,276 906 460 1,992 520 678 1\.941 741 Other Operatin lev*u 106 40 60 84) 65 3 106 17 covernmeat aE substdy 1/ 140 ) 172 106 - 50 total Incoe 1,382 1,086 320 2,076 757 817 2,047 n08 ExKendtture Fuel 303 182 110 411 102 35 *700 170 rower Purchased 42 367 29 270 14 239 25 152 Depreciation 216 116 68 217 97 97 280 68 Other Operatig and maintenauce 442 a1 192 674 250 241 782 259 Total Eeänditure 1,003 878 399 1,572 463 612 1,787 649 OPCrAtIMLu Income 379 20a 121 504 294 205 260 159 Capital Das 0 (average of beginntag and end of year) Fixed -Asets ta service 5,543 4,392 2,801 7,212 4,132 3,776 11,249 2,237 (l6ss consumers contribution) Intangible A9sets 5 8 5 44 15 2 54 13 vorking Capital 131 1z7 35 226 61 86 251 97 Total 5,699 4,527 2,861 7\.482 4,208 3,864 11,554 2,347 Accoumlated Deprociation 1,359 888 506 1,358 646 664 1,648 461 Chnsumere Security Depocita 253 80 90 290 100 71 200 46 Toal -,612 968 596 1,648 746 735 1,848 507 CaPita Sast 4,087 3,559 2,265 5,834 3,462 3,129 9,706 \. 1\.840 Averaea tanital lama 3,691 3,100 1,941 5,197 3,092 2,650 8,658 1,665 lage of tecurn 2/ 10\.32 6\.7n 6\.21 9\.7% 9\.5% 7\.7Z 3\.0 9\.5% (Operating itm to Average C&påtal Sas*) 1\. Ixeludes ME Sub9idy froM Anhra tradesh Coverames: dag i reopect of 1977/78\. A~ount has not yet been detemied\. 2\. The rate of returni achievements for FY1978 shown in the table in para\. 4\.01 differ from those in this Annex and are based upon nore recent information\. June, 1978 -:]5dhpOr NJoda o_\. INDIA Bhuj V Mehmedabad POWER TRANSMISSION 3[ PROJECT SCHEMATIC DIAGRAM OF GUJARAT Nadiad kAND MAHARASHTRA POWER SYSTEMS LGRFOR GEOGAPHLCAL LOCAT1N 0F MAJOR SUBSTATIONS SEE MAP JamnagarO LI ES EXIRmd PAnanO p0 _GondaDhuvar G-,r r--------J - Paad-Dhandhuka B \.ach _Dhas ---Bhamag\.rU'a Ward Gh\.lwad NU re CLUAR) IgatpunYwa mrvt VaiarnaNa\.ik - Bhusawa BarvaAmher-ah Chahýgan puch\.,\. Khaverkheda Chola r_ Pa SaaeteKaya0 vurD-ragaa pta[urn - ~ ~ ~ ~ ~ ý DhrviKla -nrmu P-ll p\. 1 LEGEND: Cana =Kandagadmh A issiNLIE EXI[ST ING POOE chm,,hwad Phrm122D KV - em m n 132 KV -- -- Batgarh UNDCR \. CN TT UC C Kard B atraRod Lonad LINES &SUBSTATIONS iN RED ARE INCLUDED IN PROPOSED PROJECTO MRH1 970 BD23  INDIA POWER TRANSMISSION U PROJECT SCHEMATIC 2IAGRAM OF BIHAR & WEST BENGAL Malda Gandak (Balrfknajar) POWER SYSTEMS a FOR GEOGRAPH1CAL LOCAT10N OF MAJOR SUSTAT ON SEE MAP ToO K-- Farakk, Ch-- - - - -apr- G\.kan G a Bhar i Ba m (M a h) Sultwnganj T\. D\.VC - B e -ldag -T teha T\. D\.V\.C\. IDTo V CKrisnaga To D\. VC e-m ToTUoP4- Sanaldi • Ranaghat ENERGIZED AT 132 KV To DNV\.C\. To D\.V\.C\. , oD , -Chandål A d-sptagra- - Band -aapur 'l o nssa+ ---Purha -- RrshraAsokenaga Adityapur_,B,u RajkharswanDabugr Kendpos-a- Lilonah T\.RX 0, - -lkerab -w ToOnsa wlooma i i i --- ---,| |LEGEND: (DVC) TRANSMIS-I-NLNES EXLTNG PRPOE UNE -CNTR\., DVC - DAMODAR VALLE CORPORATION 132 KV - - INCLUDED \.N PROPOSED PROJECT 66 KV z IBRD-2836 MARCH 1970  INDIA POWER TRANSMISSION [ PROJECT SCHEMATIC DIAGRAM OF ANDHRA PRADESH POWER SYSTEM a11hkund - L~~~~~ -- rml a agnam/ 4-'- 0-4 M- 1aav I - IhL L r g s J rANMIdEE\.hammDamSLoRwer ESOleru KotagdeN---S DO ST n h\. a aae e sw e es aaes eees esso s we132s XV SIaSGunada DREE [mmr I E R TandSO IhDSEEAdSESIm aguruna0 MARCH 197Tadepalh3

APPROVAL

P110731

Page 1 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I\. Basic Information Date prepared/updated: 05/01/2008 Report No\.: AC3559 1\. Basic Project Data Country: Nepal Project ID: P110731 Project Name: Nepal - Health Sector Program Project Additional Financing Task Team Leader: Jagmohan S\. Kang Estimated Appraisal Date: March 25, 2008 Estimated Board Date: May 6, 2008 Managing Unit: SASHD Lending Instrument: Sector Investment and Maintenance Loan Sector: Health (86%);Central government administration (12%);Compulsory health finance (1%);Sub-national government administration (1%) Theme: Health system performance (P);Population and reproductive health (S);Other communicable diseases (S);Child health (S);Administrative and civil service reform (S) IBRD Amount (US$m\.): 0\.00 IDA Amount (US$m\.): 50\.00 GEF Amount (US$m\.): 0\.00 PCF Amount (US$m\.): 0\.00 Other financing amounts by source: BORROWER/RECIPIENT 0\.00 0\.00 Environmental Category: B - Partial Assessment Simplified Processing Simple [] Repeater [] Is this project processed under OP 8\.50 (Emergency Recovery) or OP 8\.00 (Rapid Response to Crises and Emergencies) Yes [ ] No [ ] 2\. Project Objectives The project development objective remains to expand access to, and use of, essential health care services, especially by underserved populations\. Higher targets have been set for the extended and expanded health sector program\. Contraceptive Prevalence Rare and immunization coverage will increase beyond the initially planned levels\. Further, to reflect the renewed focus on the inclusion agenda, specific targets are set for the poor which aim at bringing their health status closer to that of the population average\. 3\. Project Description The additional financing will support further investment in the health sector along the eight areas of work initially planned\. These outputs remain consolidated under two components: (a) Strengthened Service Delivery, including the expansion of essential services (output 1), increased involvement of local authorities in service delivery (output 2), public private partnerships (output 3) and (b) Institutional capacity and management development through improved sector management in the context of the SWAp (output 4) increased funding for the sector (output 5), improved availability of drugs, supplies and equipment (output 6), human resources development (output 7), and monitoring and Page 2 evaluation (output 8)\. More specifically, the program will be expanded in two key directions: first, enhanced availability of and access to essential health care services, and second, accelerated progress on key stewardship functions such as monitoring and evaluation, accountability and transparency\. In essential health care services (output 1), MOHP will scale up interventions presently implemented in selected districts, e\.g\., community-based integrated management of childhood illnesses, obstetric care, and the prevention and treatment of uterine prolapse (prevalent among the poorest women)\. A neo-natal health plan will be introduced initially in 10 districts, 7 of which with low human development index\. To address malnutrition among children under 2 years of age, MOHP will carry out pilot interventions in three districts and evaluate these for scaling up under NHSP-II\. In communicable disease control, the control of Japanese Encephalitis and Leishmaniasis will be expanded and the health system’s response to HIV/AIDS strengthened\. To improve the use of essential services by the disadvantaged, two recent initiatives are expected to benefit the poor: the removal of some user fees and the introduction of the Safe Delivery Incentive Program, a conditional cash incentive to increase institutional deliveries and health professional attendance\. MOHP will strengthen the implementation and monitoring of these policies and ensure that (i) conditions are in place for the system to be able to meet increased demand and (ii) these policies translate into increased access for and service use by the poor and socially-excluded groups\. For example, human resources for maternal health will be deployed as a priority to increase skilled birth attendance (output 7), and the availability of essential drugs in public health facilities will be ensured through adequate procurement and effective logistics management (output 6)\. Public Private Partnerships (output 3) contribute substantially to improving the availability, quality and access to health services in Nepal, but a systematic PPP strategy is needed and the dialogue with the private sector needs to be better institutionalized\. A Private Health Sector Assessment is currently under way and will be used to engage the private sector to achieve the essential services delivery targets, with a focus on underserved areas\. Monitoring and evaluation will be improved through the use of additional surveys (output 8), as well as governance and accountability at the sector level\. Lastly, building on the agenda described above, and other elements of the sector program, MOHP will elaborate the NHSP-II strategy in consultation with all stakeholders (output 4)\. 4\. Project Location and salient physical characteristics relevant to the safeguard analysis The project would cover the entire country (75 districts)\. The geographical context ranges from mountainous areas to the foothills and plains of Nepal\. 5\. Environmental and Social Safeguards Specialists Ms Samjhana Thapa (ARD) Mr Drona Raj Ghimire (SASDN) Page 3 6\. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4\.01) X Natural Habitats (OP/BP 4\.04) X Forests (OP/BP 4\.36) X Pest Management (OP 4\.09) X Physical Cultural Resources (OP/BP 4\.11) X Indigenous Peoples (OP/BP 4\.10) X Involuntary Resettlement (OP/BP 4\.12) X Safety of Dams (OP/BP 4\.37) X Projects on International Waterways (OP/BP 7\.50) X Projects in Disputed Areas (OP/BP 7\.60) X II\. Key Safeguard Policy Issues and Their Management A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: Indigenous People: The social assessment prepared under OD 4\.20 for the original project found that there would be no adverse impact on indigenous people (Janajatis and Dalits)\. Environmental Assessment: The program supported by the Bank does not envisage any significant construction activities\. The Environmental Impact Assessment of the initial project completed in June 2004 identified Health Care Waste Management (HCWM) as the most significant environmental challenge of the health sector and suggested that appropriate regulation on HCW management and systems should be put in place\. 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: Indigenous People: No adverse impact expected on Indigenous people\. Environmental Assessment: In the long term, and if widespread, the lack of health care waste management can have adverse environmental as well as health consequences as it exposes healthcare workers, waste handlers and the communities to infections, toxic effects and injuries\. 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. Not relevant in the context of a sector-wide program\. 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. Indigenous People: Although it was not required, a specific Vulnerable Community Development Plan (VCDP) was developed by the government to ensure a more inclusive implementation\. Much of the progress registered so far under the health sector program Page 4 relates to health conditions which predominantly affect the poor, and additional inclusive policies are being implemented, such as the removal of user fees\. Yet specific progress on the VCDP has been slow and needs to be accelerated\. An MOHP staff has been assigned as a focal point for the implementation of VCDP and progress is now being monitored every two months\. A pro-poor policies monitoring system under development as well as an expansion of the health management information system currently pilot-tested will allow for a better monitoring of data disaggregated along socio-economic dimensions including ethnicity and caste\. Environmental Assessment:A HCWM Action Plan was prepared for implementation during 2005-2009: actions identified by this plan included development of institutional framework for HCWM; preparation of National HCWM Guidelines, its dissemination and orientation/ training on its use; conducting feasibility study on appropriate technical options for HCWM in different types of HCFs and in different environmental settings of Nepal (e\.g\. hills, plains); training on appropriate HCWM practices; preparation and introduction of HCWM Regulation; and gradually bring HCFs under proper HCWM\. in the first 3 years of NHSP, MOHP has taken steps to improve HCWM\. The Management Division has been identified as focal division and an officer has been assigned to work full time on waste management issues\. A HCWM orientation book has been developed and piloted; HCWM Guidelines for public and private facilities are under preparation\. Despite these efforts, at mid-term, implementation of the HCWM Action plan remains partial and actual impact on the ground limited\. Implementation will be pursued in the next phase\. Progress on safeguards during the first three year should be seen against the country context of continuing political instability\. 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. At the onset of the project, the government disclosed the Environmental Assessment, the VCDP and other supporting documents on their website, as well as in public places for wider dissemination\. Community and other stakeholder are an integral part of the overall program\. Many local communities are involved in the management of health facilities, and efforts are continuously made to encourage a more bottom-up planning approach, adapted to communities needs\. Civil society is also involved in the annual reviews of the program\. In the coming phase of the project, in the context of the governance and accountability action plan, new tools will be put in place to increase accountability towards communities\. For instance, the MOHP will introduce annual social audits with a focus on underserved areas and socially excluded population, and Health facilities will post prominently on their premises the services available, prices, staff accountable and budgets received and used\. These mechanisms should also help ensure that any concerns of safeguards issues can be brought to the attention of MOHP and dealt with\. B\. Disclosure Requirements Date Environmental Assessment/Audit/Management Plan/Other: Page 5 Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 03/22/2004 Date of "in-country" disclosure 03/22/2004 Date of submission to InfoShop 03/22/2004 For category A projects, date of distributing the Executive Summary of the EA to the Executive Directors Resettlement Action Plan/Framework/Policy Process: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Indigenous Peoples Plan/Planning Framework: Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 05/18/2004 Date of "in-country" disclosure 06/10/2004 Date of submission to InfoShop 06/10/2004 Pest Management Plan: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop * If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: The initial Environmental Assessment and VCDP were disclosed and submitted to Infoshop in 2004, at the dates given above, and no new ones were required for this additional financing\. C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OP/BP/GP 4\.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Sector Manager (SM) review and approve the EA report? Yes Are the cost and the accountabilities for the EMP incorporated in the credit/loan? Yes OP/BP 4\.10 - Indigenous Peoples Has a separate Indigenous Peoples Plan/Planning Framework (as appropriate) been prepared in consultation with affected Indigenous Peoples? Yes If yes, then did the Regional unit responsible for safeguards or Sector Manager review the plan? Yes If the whole project is designed to benefit IP, has the design been reviewed Yes Page 6 and approved by the Regional Social Development Unit or Sector Manager? The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank's Infoshop? Yes Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? Yes All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Yes Have costs related to safeguard policy measures been included in the project cost? Yes Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? Yes Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? Yes D\. Approvals Signed and submitted by: Name Date Task Team Leader: Mr Jagmohan S\. Kang 04/29/2008 Environmental Specialist: Mr Drona Raj Ghimire 04/29/2008 Social Development Specialist Ms Samjhana Thapa 04/29/2008 Additional Environmental and/or Social Development Specialist(s): Approved by: Sector Manager: Mr Cornelis P\. Kostermans 04/29/2008 Comments: This ISDS is approved by SASHD-HNP\.

APPROVAL

P100531

Document of The World Bank Report No: 43378-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$180 MILLION AND A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$45\.4 MILLION TO THE REPUBLIC OF INDIA FOR A COAL FIRED GENERATION REHABILITATION PROJECT May 22, 2009 Sustainable Development Department India Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2008) Currency Unit = Indian Rupee Rs\. 44 = US$1 US$ 0\.02273 = Rs\. 1 FISCAL YEAR April 1 ­ March 31 ABBREVIATIONS AND ACRONYMS ABT Availability Based Tariff GoM Government of Maharashtra BTPS Bandel Thermal Power Station GoWB Government of West Bengal C&AG Comptroller and Auditor General HERC Haryana Electricity Regulatory Commission CAGR Compounded Annual Growth Rate Hg Mercury CAS Country Assistance Strategy HPGCL Haryana Power Generation Company Limited CDM Clean Development Mechanism HSPCB Haryana State Pollution Control Board CEA Central Electricity Authority IBRD International Bank for Reconstruction and Development CERC Central Electricity Regulatory IUFR Interim Unaudited Financial Report Commission CHP Coal Handling Plant KfW Kreditanstalt fur Wiederaufbau CPCB Central Pollution Control Board Km Kilometers CSR Corporate Social Responsibility KTPS Koradi Thermal Power Station EADD Environmental Audit Due Diligence M&E Monitoring and Evaluation Report EE R&M Energy Efficient Renovation and MERC Maharashtra Electricity Regulatory Modernization Commission EHS Environment, Health and Safety Mg/Nm3 Milligram per Newton cubic meter EIRR Economic Internal Rate of Return MOP Ministry of Power EMAP Environmental Management Action MPCB Maharashtra Pollution Control Board Plan ERP Enterprise Resource Planning MSPGCL Maharashtra State Power Generation Co Ltd ESP Electro-Static Precipitator MU Million Units = million kilowatt hours ESMAP Energy Sector Management Assistance MW Mega watts Program ETP Effluent Treatment Plant MYT Multi Year Tariff FIRR Financial Internal Rate of Return NAAQS National Ambient Air Quality Standards FM Financial Management NEP National Electricity Policy FOR Forum of Regulators NTPC National Thermal Power Corporation GEF Global Environment Facility NOx Nitrogen Oxides GoH Government of Haryana O&M Operations and Maintenance GOI Government of India PFC Power Finance Corporation  FOR OFFICIAL USE ONLY PLF Plant Load Factor SEB State Electricity Board PM Particulate Matter Sox Sulfur Oxides PPAH Pollution Abatement and Treatment STP Sewage Treatment Plant Handbook PTPS Panipat Thermal Power Station TA Technical Assistance R&D Research and Development TPS Thermal Power Station R&M Renovation and Modernization WBERC West Bengal Electricity Regulatory Commission RLA Residual Life Assessment WBPCB West Bengal Pollution Control Board RSA Rapid Social Assessment WBPDCL West Bengal Power Development Corporation Limited Vice President: Isabel M\. Guerrero Country Director: N\. Roberto Zagha Sector Director: John Henry Stein Sector Manager: Salman Zaheer Task Team Leader: Mikul Bhatia This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   INDIA COAL FIRED GENERATION REHABILITATION PROJECT CONTENTS Page A\. STRATEGIC CONTEXT AND RATIONALE \. 1 1\. Country and sector issues\. 1 2\. Rationale for Bank involvement\. 5 3\. Higher level objectives to which the project contributes\. 6 B\. PROJECT DESCRIPTION\. 7 1\. Lending instrument\. 7 2\. Project development objective and key indicators\. 7 3\. Project global environment objective and key indicators\. 7 4\. Project components\. 8 5\. Lessons learned and reflected in the project design\. 10 6\. Alternatives considered and reasons for rejection \. 11 C\. IMPLEMENTATION \. 12 1\. Partnership arrangements\. 12 2\. Institutional and implementation arrangements\. 13 3\. Monitoring and evaluation of outcomes/results\. 14 4\. Sustainability\. 15 5\. Critical risks and possible controversial aspects\. 16 6\. Loan/grant conditions and covenants\. 19 D\. APPRAISAL SUMMARY \. 21 1\. Economic and Financial Analysis\. 21 2\. Technical\. 22 3\. Fiduciary \. 23 4\. Social\. 25 5\. Environment\. 26 6\. Safeguard policies\. 27 7\. Policy Exceptions and Readiness\. 28  Annex 1: Country and Sector Background \. 29 Annex 2: Major Related Projects Financed by the Bank and Other Agencies\. 37 Annex 3: Results Framework and Monitoring \. 39 Annex 4: Detailed Project Description\. 42 Annex 5: Project Costs \. 51 Annex 6: Implementation Arrangements\. 53 Annex 7: Financial Management and Disbursement Arrangements\. 55 Annex 8: Procurement Arrangements\. 77 Annex 9: Economic and Financial Analysis \. 87 Annex 10: Safeguard Policy Issues\. 110 Annex 11: Project Preparation and Supervision \. 121 Annex 12: Documents in the Project File \. 123 Annex 13: Statement of Loans and Credits\. 124 Annex 14: Country at a Glance \. 128 Annex 15: Governance and Accountability Action Plan\. 130 Annex 16: Incremental Cost Analysis\. 143 Annex 17: STAP Review and Responses \. 156 Annex 18: Map\. 161  INDIA COAL FIRED GENERATION REHABILITATION PROJECT PROJECT APPRAISAL DOCUMENT SOUTH ASIA SASDE Date: May 22, 2009 Team Leader: Mikul Bhatia Country Director: N\. Roberto Zagha Sectors: Power (100%) Sector Manager/Director: Salman Zaheer Themes: Infrastructure services for private Project ID: P100101 sector development (P);Regulation and Environmental Assessment: Partial competition policy (S) Assessment Lending Instrument: Specific Investment Loan Global Supplemental ID: P100531 Team Leader: Mikul Bhatia Lending Instrument: Specific Investment Loan Sectors: Power (100%) Focal Area: C-Climate change Themes: Infrastructure services for private Environmental Assessment: Partial sector development (P);Regulation and Assessment competition policy (S) Supplement Fully Blended?: Yes Project Financing Data [X] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m\.): 180\.00 Proposed terms: IBRD Loan with variable spread, 30 year maturity, including a 5 year grace period, and level repayments\. Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 78\.0 0\.0 78\.0 International Bank for Reconstruction and Development 0\.0 180\.0 180\.0 Global Environment Facility (GEF) 0\.0 45\.4 45\.4 Total: 78\.0 225\.4 303\.4 Borrower: India Responsible Agencies: West Bengal Power Development Corporation Ltd Vidyut Unanyan Bhawan 3/C LA Block, Sector -3 Vidhan Nagar, Salt Lake Kolkata, West Bengal India 700 098 Tel: 0091-33-2339 3100; 2335 0571 Fax: 0091-33-2339 3186; 2335 0516 s\.mahapatra@wbpdcl\.co\.in www\.wbpdcl\.co\.in  Haryana Power Generation Company Limited Shakti Bhawan Sector - 6 Panchkula Haryana India 134109 Tel: 0091-172-256 0673Fax: 0091-172-256 0805 jckinra@yahoo\.co\.in www\.hpgcl\.org Maharashtra State Power Generation Co Ltd Prakashgad, Plot No\. G-9 Bandra (E) Mumbai Maharashtra India 400 051 Tel: 0091-22-2647 6231Fax: 0091-22-2647 1060 md@mahagenco\.in www\.mahagenco\.in Central Electricity Authority Ministry of Power, Government of India Sewa Bhawan, R\.K\.Puram New Delhi Delhi India 110066 Tel: 0091-11-26102583 Fax: 0091-11-26109212 chair@nic\.in www\.cea\.nic\.in Estimated disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 2014 2015 Annual 18\.00 30\.00 50\.00 39\.00 34\.00 9\.00 Cumulative 18\.00 48\.00 98\.00 137\.00 171\.00 180\.00 GEF Estimated disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 2014 2015 Annual 5\.90 8\.80 12\.60 8\.70 7\.30 2\.10 Cumulative 5\.90 14\.70 27\.30 36\.00 43\.30 45\.40 Project implementation period: Start: July 1, 2009 End: June 30, 2014 Expected effectiveness date: December 15, 2009 Expected closing date: June 30, 2014 Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Ref\. PAD I\.C\. Does the project require any exceptions from Bank policies? [ ]Yes [X] No Ref\. PAD IV\.G\. Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No  Does the project include any critical risks rated "substantial" or "high"? [X]Yes [ ] No Ref\. PAD III\.E\. Does the project meet the Regional criteria for readiness for implementation? [X]Yes [ ] No Ref\. PAD IV\.G\. Project development objective Ref\. PAD II\.C\., Technical Annex 3 Improve energy efficiency of selected coal-fired power generation units through renovation and modernization (R&M) and improved operations and maintenance (O&M)\. Global Environment objective Ref\. PAD II\.C\., Technical Annex 3 A significant co-benefit of improving energy efficiency of the selected coal-fired power generation units is the reduction of greenhouse gas emissions per kilowatt hour of electricity generated\. Project description [one-sentence summary of each component] Ref\. PAD II\.D\., Technical Annex 4 Component 1: Energy Efficient Renovation and Modernization (EE R&M) Pilots\. This component would renovate and modernize 640 MW of old coal-fired power generation capacity to demonstrate energy efficient rehabilitation approaches\. Component 2: Technical Assistance\. The technical assistance component of the project is aimed at providing support in implementation of EE R&M pilots, developing a pipeline of EE R&M interventions, addressing barriers to EE R&M projects and strengthening institutional capacities of implementing agencies\. Which safeguard policies are triggered, if any? Ref\. PAD IV\.F\., Technical Annex 10 The following safeguard policies are triggered: Environmental Assessment (OP 4\.01) Projects on International Waterways (OP 7\.50) Significant, non-standard conditions, if any, for: Ref\. PAD III\.F\. Board presentation: None\. Loan/credit effectiveness: None\. Covenants applicable to project implementation: In addition to the standard Bank covenants on project and financial management, audit and reporting requirements, and procurement, the following are the key covenants under the project: 1\. Eligibility criteria and Terms & Conditions required for Bank funding of sub- components under component-1 of the project: a) Submission of a Detailed Project Report (DPR) satisfactory to the Bank, by the participating utility, for Energy Efficiency Renovation and Modernization (EE R&M), which should be based on energy audit by qualified consultants\.  b) Endorsement and disclosure by the participating utility of Environmental Audit and Due Diligence (EADD) and Rapid Social Assessment (RSA), satisfactory to the Bank, for the power plant where EE R&M generation unit is located and the adoption of a Corporate Social Responsibility (CSR) policy by the participating utility\. c) Implementation by the participating utility of satisfactory financial management arrangements, submission of an action plan to improve corporate governance and financial accountability (CGFA) satisfactory to the Bank and initiation of steps for implementation of the CGFA Action Plan satisfactory to the Bank\. d) Submission by the participating utility of a report satisfactory to the Bank on detailed review of operations and maintenance (O&M) practices including a proposed O&M improvement action plan prepared by independent consultants in consultation with the participating utility\. e) Submission by the participating utility of a Project Implementation Plan (PIP), satisfactory to the Bank, incorporating inter-alia: (a) Governance and Accountability Action Plan (GAAP); (b) Strategy to Handle Surprises; (c) Corporate Governance and Financial Accountability Action Plan; (d) Environment Mitigation Action Plan for the plant; (e) Corporate Social Responsibility (CSR) Policy; (f) O&M Action Plan proposed by consultants, and (g) Funding Plan for the EE R&M investments\. f) Submission by the participating utility of a Procurement Plan satisfactory to the Bank for the EE R&M investments\. g) Signing of a sub-project agreement (or an equivalent document) satisfactory to the Bank, by the participating utility and the relevant state government, defining on-lending and repayment terms for the loan and terms for the grants, and the contractual obligations of each party under the EE R&M project\. 2\. Adherence to Project Implementation Plan: Each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will take all necessary measures to adhere to the respective Project Implementation Plans (PIPs), including in particular, the following plans/documents: (a) Governance and Accountability Action Plan (GAAP); (b) Strategy to Handle Surprises; (c) Corporate Governance and Financial Accountability Action Plan; (d) Environment Mitigation Action Plan for the plant; and (e) Corporate Social Responsibility (CSR) Policy\. 3\. Prioritized O&M Improvement Action Plan: Within one year of loan effectiveness, each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will adopt through board approval a Prioritized O&M Improvement Action Plan (including institutional capacity strengthening), and will subsequently take all necessary measures to adhere to the plan\. 4\. Air Pollution: Each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will take all necessary measures to maintain post rehabilitation particulate emissions at a level not exceeding 150 mg/Nm3 for the unit which is being renovated, while striving to achieve less than 100 mg/Nm3\.  5\. Liquidity/Financial Sustainability of Generation Utilities: WBPDCL and MSPGCL will maintain a minimum debt service coverage ratio of 1\.1\.HPGCL will maintain a minimum debt service coverage ratio of 1 for the financial years 2009-10 and 2010- 11 and a minimum debt coverage ratio of 1\.1 thereafter\. 6\. Sub-project agreement for CEA: Within one month of loan effectiveness, Ministry of Power Government of India and the CEA would sign a Grant Implementation Agreement satisfactory to the Bank, defining terms for the grants and the contractual obligations of each party under the EE R&M project\.   A\. STRATEGIC CONTEXT AND RATIONALE 1\. Country and sector issues 1\. Power shortages in a rapidly growing economy\. India recorded a 9 percent GDP growth rate for the fiscal year 2007/08, which made it one of the fastest growing emerging economies in the world that year\. Following the global financial meltdown and demand recession in the advanced countries, GDP growth in India is expected to slowdown to around 7 percent in 2008/09\. GDP growth may retard further in 2009/10 once the impact of the global crisis fully unfolds\. The economy is expected to recover thereafter in the medium term\. Government of India is seriously considering a fiscal stimulus to counteract the negative impact of global demand, so as to sustain high rates of growth\. This involves stepped up investments in infrastructure, including power and transport\. Power supply infrastructure and service quality have been identified as among the most binding constraints to economic growth\. In 2007/08, the country faced a peak power shortage of 16\.6 percent and an energy deficit of 9\.9 percent1\. 2\. Challenges in Electricity Sector\. The challenges in the electricity sector include: (i) low levels of connectivity, particularly in rural areas (only 44 percent of rural households have access to electricity)2; (ii) high coping costs of industry, with 60 percent of Indian firms relying on captive or back-up generation; (iii) limited grid supply infrastructure; limited capacity for inter- regional trade; and under-maintained state distribution systems that cannot meet demand; (iv) power shortages likely to continue with slower than needed additions of new capacity and about 25 percent of existing generation capacity in need of rehabilitation; (v) weak utility governance in most states resulting in high Aggregate Technical and Commercial (ATC) losses3; (vi) unpredictable fuel supply and costs, particularly for gas; and (vii) contribution to 50 percent of India's carbon emissions, with reliance on indigenous coal based generation continuing and supply shortages leading to use of small inefficient and polluting back-up generators\. In addition, growing concerns about energy security and high costs of energy imports have caused authorities to evaluate measures aimed at reducing non-essential or inefficient energy consumption as laid out in the 2006 Integrated Energy Policy\. 3\. Government strategy to address power sector challenges\. Government of India (GOI) has already put in place the necessary legal and policy framework for the power sector in the form of the Electricity Act 2003, National Electricity Policy 2005 (NEP), National Tariff Policy (NTP), the setting-up of independent regulatory commissions at central and state levels, and the Integrated Energy Policy (IEP)\. The NEP sets ambitious targets for providing universal access to reliable and good quality power by 2012, while also highlighting the need to mitigate power shortages as well as achieving financial viability of the electricity sector\. It is noteworthy that India's policy reforms in the power sector are beginning to show results\. For example, the sector's financial performance is improving with virtually all payments to central public sector units in the power sector being made on time by state-level entities\. Availability-based tariffs and tighter performance norms have helped raise plant load factors\. System losses in some states have been brought down below 20 percent, and the national transmission company (POWERGRID) is successfully implementing a large-scale investment program to increase 1Source: ­Central Electricity Authority, Executive Summary April, 2008\. 2Source: Website of the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) program (www\.rggvy\.gov\.in) 3Ministry of Power Annual Report 2007-08 mentioned ATC losses of 29\.89% for 2006 - 2007\. 1  power exchanges between regions and states of India\. Nonetheless, much remains to be done to meet the power needs of India's growing economy\. GOI is trying to address power shortage through a multipronged strategy which includes a major generation capacity addition program (around 80, 000 MW of capacity augmentation targeted by 2012), renovation and modernization (R&M) of existing coal-fired plants (about 27,000 MW of old generation capacity identified), increasing efficiency of the transmission and distribution sectors and promoting demand side measures, like use of energy efficient gadgets at consumer level\. 4\. Predominance of coal fired generation in India's power mix\. India currently has an installed generation capacity of 145,600 MW, of which 77,200 MW (53 percent) is coal-fired and contributes to about 80 percent of the total generation\. Planned capacity addition of around 80,000 MW over the XI Plan (2007-12) is likely to be dominated by coal-fired generation plants, although other generation sources such as renewables (especially wind), large hydropower and nuclear power would also contribute notably\. Table-1: Source-wise Power Generation Capacity in India (as of July 31, 2008) Central State Private Total Thermal 35759 47334 10022 93115 Coal 29120 42838 5241 77200 Gas 6639 3894 4183 14716 Diesel 0 602 598 1200 Nuclear 4120 0 0 4120 Large Hydro 8592 26337 1230 36159 Other Renewable Power 0 2200 9995 12195 TOTAL 48471 75871 21246 145588 All figures in MW; Source: Ministry of Power Website 5\. The report on Integrated Energy Policy (IEP) (prepared by Planning Commission) examines energy demand and supply scenarios over the next 25 years to bring out the role of various energy sources and strategies for achieving greater energy access, energy availability, energy security and minimizing environmental impact4\. The report suggests that coal would remain India's primary energy source, accounting for nearly 42 percent of total energy consumption in case of a low carbon growth trajectory, going up to 65 percent in case of mostly coal based electricity generation\. 6\. Significant proportion of coal-fired power plants does not operate efficiently\. More than half of the installed coal-fired generation capacity in India is owned by state-level utilities, while the remaining is with the central sector NTPC Ltd (formerly National Thermal Power Corporation), Damodar Valley Corporation (DVC) and private sector generation companies\. Much of the state level generation capacity is relatively under-performing with average plant 4The strategy for meeting India's growing energy needs, as suggested by the IEP, encompasses development of nuclear, hydropower and natural gas resources, adoption of clean coal technologies (such as supercritical power plants), demand side management (reduction of transmission and distribution losses and energy efficiency measures), greater emphasis on railways for freight, improved vehicular efficiency, and development of renewable energy resources\. 2  load factor (PLF) of about 70 percent (some plants have PLFs lower than 55 percent) and heat rate of about 3,000 kcal/kWh and above5\. Table-2: Distribution of Coal-Fired Generation Unit Sizes in Public Utilities in India Up to 100 100-200 200-210 250 500 MW MW MW MW MW Prior to 1980s Period of Original Commissioning 1970s 1970s-80s 1980s-90s 1970s onwards Number of Units about 100 83 164 26 38 Total Installed Capacity (MW) about 5000 9555 34210 6500 19000 Source: Central Electricity Authority 7\. While much of the 1970s (and older) vintage units have been or need to be retired, many of the coal-fired power plants (NTPC as well as state utility owned plants) that were commissioned in and before early1980s are now due for rehabilitation and life extension\. Well- designed renovation and modernization (R&M) of these plants could potentially improve their operational efficiency and provide reliable and competitively priced electricity to the grid in a shorter span of time than needed to build new capacity6\. In addition to lowering generation costs and having positive local and global environmental effects, R&M has the added advantage of: (i) not involving land acquisition and resettlement of people; (ii) being able to avail of existing coal, water supply, power transmission and other facilities and linkages; and (iii) enhancing the effective utilization of scarce fuel resources\. 8\. The Central Electricity Authority (CEA), the nodal technical and planning agency under the Government of India's Ministry of Power, estimates that up to 27,000 MW of the coal-fired capacity base is in urgent need of rehabilitation now, or will be in the near future\. Successful EE R&M of this capacity could potentially improve the heat rate of these plants by about 10~15 percent (from 2500~2900 kcal/kWh to about 2250~2450 kcal/kWh) thereby saving more than 10 million tons of coal per year (for the same amount of generation from these plants as now) and corresponding reduction in CO2 emissions7\. 9\. Significant shortfall in meeting R&M targets\. Although India planned and implemented a large renovation and modernization (R&M) investment program through the late 1980s and 1990s, the program mostly covered essential repairs for plants, many of which were otherwise poorly maintained\. GOI also launched the Partnership in Excellence (PiE) program during late 1990s, under which coal-fired power plants with poor availability (less than 60 percent, mainly 5 In comparison, the NTPC owned plants are more efficient and better maintained\. These plants had an average PLF of about 92 percent in 2007-08 and have an average heat rate of about 2500 kcal/kWh\. 6 Building a new coal based thermal plant takes about 36-42 months after the contract award, while well planned Renovation & Modernization could be completed in stages over 24-30 months, with around six months plant down time\. Also, R&M of an old power plant typically costs less than 50% of an equivalent green-field coal-fired power project\. 7 R&M would also result in some additional CO2 emissions through improved plant availability and increased capacity (which would lead to greater generation)\. This additional generation would replace the carbon emissions from marginal sources of generation from the grid\. Annex-16 provides detailed calculations of emission reduction benefits from the project using GEF methodology\. The direct emission reduction from rehabilitation of 640 MW of capacity under the project is estimated at 3\.69 million TCO2, where as indirect impact is conservatively estimated at 11\.06 million TCO2\. 3  due to weak operations and maintenance (O&M) practices) partnered with stronger utilities such as NTPC and Tata Power to improve performance through adoption of better management systems and O&M practices\. The program experienced mixed success with some utilities such as DVC benefitting significantly, but others showing little sustained improvement\. One of the objectives of the PiE program was to assist the weak utilities in preparation and implementation of R&M activities\. However, due to absence of adequate performance incentives, utility financial constraints and inter-institutional issues, the program did not achieve much success in promoting R&M of old units\. 10\. Since then, however, R&M requirements have increased rapidly even as the implementation of R&M schemes has slowed down\. Due to a shortfall in meeting 10th plan (2002-07) R&M targets, nearly 16,000 MW of R&M schemes (across NTPC and state utility owned plants) have spilled over into the 11th plan (2007-12), which now requires R&M of nearly 27,000 MW capacity\. 11\. GOI response to the rehabilitation challenge\. Several barriers have been identified (see Annex 1) which have hitherto deterred utilities from carrying out R&M schemes, especially with focus on energy efficiency\. GOI is now trying to address some of these barriers with respect to rehabilitation of coal-fired generation\. GOI's National Electricity Policy states that renovation and modernization for achieving higher efficiency levels needs to be pursued vigorously and all existing generation capacity should be brought to acceptable performance standards (of efficiency, reliability and environmental performance)\. The policy also suggests closure of plants which can not be rehabilitated economically\. In case of persistent poor operations and maintenance performance of plants, the policy suggests that alternate strategies including change of management may be considered\. Similarly, the National Tariff Policy also encourages development of R&M projects and states that a multi-year tariff (MYT) framework may be prescribed which includes capital investments and an incentive framework to share the benefits of efficiency improvements between the generation utilities and beneficiaries (distribution companies and eventually the consumers of electricity)\. 12\. Pilots to demonstrate energy efficient R&M approaches\. In light of the large and growing pool of plants requiring R&M, the GOI has decided to revive its R&M efforts and has sought World Bank/GEF as well as KfW assistance to identify and address barriers to energy efficient renovation and modernization (EE R&M) of India's old coal-fired power plants, including through the implementation of selected pilot investments (see Annex 4 for details)\. These pilots would demonstrate EE R&M approaches for eligible coal-fired generation capacity across select states, incorporating lessons from past R&M projects and international experiences\. The pilots would also bring out approaches for successful implementation of R&M projects through suitable risk mitigation strategies and prudent project design and implementation\. GOI has designated these pilots as Phase-I of the National R&M Program\. 13\. The selection of states for pilot interventions has been done in discussion with the Ministry of Power, based on the scale of R&M requirement in the state as identified by CEA and the scope for achieving better energy efficiency and environmental performance by the utility going forward\. Most importantly, each participating state utility has demonstrated its willingness to participate in this pilot program and carry out independent energy audits, detailed technical design; and prepare risk mitigation strategies, monitoring and evaluation frameworks, and 4  fiduciary and safeguard requirements\. The states selected for participation in the Bank project are West Bengal, Maharashtra and Haryana8\. 14\. In particular, the project will pilot R&M approaches, which focus not only on life extension and increased plant availability (the typical goal of R&M schemes in the past) but also on getting the highest fuel efficiency that is cost-effectively achievable\. Project preparation by the candidate utilities and state authorities (including regulatory agencies) ­ supported by the Bank - has identified key barriers to EE R&M and put in place a framework for implementation, risk mitigation, and post-rehabilitation operations and maintenance (O&M)\. The proposed project would test this framework and make course corrections (as needed) to enhance the prospects for a successful scale-up\. 15\. Scaling Up energy efficient R&M approaches\. As this pilot program (Phase-I of the National R&M Program) gets rolling, the GOI will analyze the lessons from project preparation and implementation to develop the subsequent phases of the wider National R&M Program, targeting the entire 27,000 MW of eligible plants\. The pipeline of energy efficient R&M pilots supported by the Bank would allow challenges faced by each pilot to be addressed in the next one\. Even if all pilots fail to demonstrate adequate barrier mitigation approaches (and the energy efficient R&M approaches are seen as unsuccessful), the project would demonstrate that the rehabilitation route for energy efficiency needs to be abandoned in favor of replacement of such units\. 2\. Rationale for Bank involvement 16\. The proposed project is consistent with the Bank's country strategy for India (see below) and the Bank is well-placed to help the GOI to design and implement an appropriately sequenced program to scale-up the R&M of its old, inefficient and polluting coal-fired power generation capacity\. This would help put the sector on a lower carbon path than continuing to operate these plants at their present efficiency levels while also bridging the power demand-supply gap\. The Bank has secured a commitment from GEF to provide a US$45\.4 million grant for the project (subject to GEF's appraisal) and secured grant funds to carry out comprehensive diagnostics of the barriers to effective energy efficient R&M of candidate plants\. By facilitating high quality project preparation and attractive financing terms, the Bank project can mitigate the barriers which have stymied previous attempts at rehabilitating and modernizing old coal plants\. While this pilot project is targeting 640 MW for EE R&M, it is expected that its success could potentially result in the GOI and states rehabilitating a significant portion of the 27,000 MW capacity already identified for rehabilitation\. Some of the key areas, where the IBRD-GEF involvement is expected to make significant impact are: 8 When the Bank team started engaging with the Government of India (GOI) in 2006 on R&M of old coal fired generation units, there was little appetite from state generation utilities to take up such projects\. This lack of appetite was due to limited success in the past, inherent risks/challenges in R&M projects and several barriers to R&M projects, which have been discussed in Annex-1\. West Bengal was the first state to indicate interest and commitment in the project, and is now the most advanced in terms of R&M preparation for the 210 MW Unit-5 of Bandel Thermal Power Plant\. Maharashtra has the largest pool of generation units which require R&M (3090 MW) as identified by the CEA\. The state generation utility has planned R&M preparation activities in six units of 210MW each\. Of these, R&M of one unit each is being supported by the Bank (Koradi Unit-6) and kfw (Nasik, Unit- 3)\. Design studies for another four units are being supported through technical assistance grants under the Bank/GEF project\. In the third state - Haryana - R&M is planned for Units 3&4 of the Panipat which are of 110 MW capacities\. The state was selected after discussions with some other candidate states with 110 MW units (Jharkhand and Uttar Pradesh) did not materialize\. 5  Barrier Reduction Strategy for Wider Replication of Rehabilitation Projects\. The IBRD- GEF intervention would inform and attempt to address barriers to rehabilitation in the selected pilot states through studies backed with international experiences, policy/regulatory dialogue and strengthening of institutional capacity\. In addition, the project would help mobilize qualified contractors to bid on India's EE R&M opportunities and demonstrate effective R&M approaches which can be replicated across the country (and possibly elsewhere)\. Quick and Low Cost Option for Augmentation of Power Supply\. Given the significant gap between demand and supply of power in India, these pilots would demonstrate whether and how the rehabilitation of old coal-fired power plants can augment availability of power on competitive terms\. Strengthening Institutional Capacity of Utilities\. Bank engagement with the selected state utilities would also help build institutional capacity, especially in the areas of design and execution of R&M projects, and efficient operation and management (O&M) of plants\. The selection of beneficiary entities is also consistent with the Bank's strategy of programmatic engagements with a few select states and entities, seen as an important element of successful institutional transformation\. Improving Environmental Performance of the Plants\. In addition to reduction in carbon emissions from power plants, the project would also support improving the overall environmental performance of these plants, including particulates emission, water treatment, ash disposal and overall safeguards practices and policies in the plant ­ areas which sometimes do not attract adequate attention of the utility\. Consistency with Climate Change Mitigation Objectives\. The project is consistent with climate change mitigation objectives and supports an energy efficient, low carbon growth strategy for India by demonstrating cost-effective, efficiency-enhancing approaches to reduce carbon emissions from coal-fired generation\. 17\. The World Bank engagement in power sector in India is consistent with the GOI strategy of augmenting availability, improving efficiencies, expanding access and encouraging competitive markets\. Apart from the coal fired generation rehabilitation, the Bank engagement encompasses policy discussions and projects (ongoing and under preparation) in the areas of: (i) development of renewable large hydropower projects; (ii) strengthening of transmission network for transfer of energy from surplus to deficit regions and reduce losses; (iii) improving efficiency and quality of service in state electricity transmission and distribution; and (iv) promoting the development of renewable energy for rural areas\. The Bank's main value addition will be in advancing good implementation models, and helping to create an enabling policy and institutional environment for sector development\. 3\. Higher level objectives to which the project contributes 18\. The proposed project is consistent with India's priorities identified for the Country Assistance Strategy (CAS) of November 14, 2009 (FY2009-2012)\. It supports the new CAS pillar of sustainable development through lowering the carbon foot print of energy generation in 6  the country9\. Besides, the project will help remove some of the constraints on the power generation side (by alleviating power shortages), thus contributing to the GOI's objectives of maintaining a high and sustainable growth over the medium to long term\. This is consistent with the pillars of inclusive growth and sustainable development of the new CAS\. 19\. The proposed projects is consistent with the previous CAS suggesting that the Bank seek ways to further expand its partnership with India on national and global issues through programs financed by the GEF, Montreal Protocol and Carbon Finance\. The proposed project would utilize IBRD loans in conjunction with GEF grants and Indian counterpart financing, to make a systemic impact on R&M in India ­ by introducing EE R&M approaches, enhancing O&M practices and strengthening energy audit practices ­ and hence make long-term and sustained emission reductions\. B\. PROJECT DESCRIPTION 1\. Lending instrument 20\. IBRD Loan (US$180 million) and GEF Grant (US$45\.4 million)\. The project is designed as a Specific Investment Loan (SIL), which would be borrowed by Government of India and passed on to the three select state power generation utilities (HPGCL, MSPGCL, and WBPDCL), through the respective state governments on back-to-back lending terms \. The IBRD loan of US$180 million will have a variable spread with a final maturity of 30 years including a grace period of five years, and level repayments\. The project will be co-financed with a GEF grant of US$45\.4 million\. 2\. Project development objective and key indicators 21\. The objective of the project is to improve energy efficiency of selected coal-fired power generation units through renovation and modernization (R&M) and improved operations and maintenance (O&M)\. The key indicators to measure the achievement of development objectives of the project will be reduction in fuel (coal and oil) consumption per unit of power generation after completion of R&M\. (See Annex 3\.) 3\. Project global environment objective and key indicators 22\. A significant co-benefit of improving energy efficiency of the selected coal-fired power generation units is the reduction of greenhouse gas emissions per kilowatt hour of electricity generated\. 23\. The key indicator for measuring this will be: (i) Percentage reduction in carbon dioxide emissions per kilowatt hour as a result of energy efficiency R&M in selected coal-fired power generating units; (ii) Reduction in carbon dioxide emissions as a result of energy efficiency R&M in selected coal-fired power generating units\. 9While India has a low per capita emission compared to several large countries, because of its large population base, the absolute emissions levels are second highest among the developing countries\. 7  4\. Project components 24\. The project will have the following components: Component 1: Energy Efficiency R&M Pilots (US$295\.9 million) Component 2: Technical Assistance (US$7\.5 million) 25\. The project will be financed by a combination of IBRD loans, GEF grants and generation company internal (equity) funds\. The financing plan is provided in the table below\. Table 2: Financing Plan (in US$ million) Component Indicative Financing Plan Costs GEF IBRD Equity Total Energy Efficiency R&M Pilots 295\.9 37\.9 180\.0 78\.0 295\.9 Technical Assistance 7\.5 7\.5 - - 7\.5 Total 303\.4 45\.4 180\.0 78\.0 303\.4 A detailed description of the project components is as follows: Component 1: Energy Efficiency R&M Pilots (US$295\.9 million) 26\. This component would renovate and modernize 640 MW (four generation units of 210/110 MW) of old coal-fired generation capacity to test and demonstrate energy efficient rehabilitation approaches\. Energy efficient R&M of generation units would go beyond the typical Indian practice - of restoring original generation capacity, life-extension, and improving availability - by also modifying (or replacing) some equipment and systems to enable the unit to operate with higher fuel efficiency\. This component would also explore and demonstrate approaches for successful implementation of R&M projects (with a focus on energy efficiency) by addressing barriers - including through early identification and mitigation of risks\. 27\. The Bank and GOI have agreed to focus on 110 MW and 210 MW units which are in urgent need for R&M in India and constitute about 68 percent of the 27,000 MW identified for R&M\. The following generation units have been selected for participation in the pilot project, and would constitute the three sub-components under component-1: Sub-component-1: Unit-5, Bandel Thermal Power Plant, West Bengal (210 MW) Sub-component-2: Unit-6, Koradi Thermal Power Plant, Maharashtra (210 MW) Sub-component-3: Units-3 & 4, Panipat Thermal Power Plant, Haryana (110 MW each) 28\. The project would involve phased implementation of EE R&M activities in these three states, starting with Bandel Unit-5, followed closely by Koradi Unit-6 and finally Panipat Units 3&4\. Accordingly, the project preparation activities in the three states would also be phased, as indicated in Figure 1\. While the preparation activities are in an advanced state in West Bengal and Maharashtra, it is expected that status of project preparation in Haryana would be measured against eligibility criteria defined in loan agreement prior to any disbursement for the state\. 8  Figure 1: R&M Preparation and Implementation Timelines Calender Year 2007 2008 2009 2010 2011 2012 2013 2014 Quarter 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Unit-5, Bandel, West Bengal Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M Unit-6, Koradi, Maharashtra Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M Units 3&4, Panipat, Haryana Consultant Procurement Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M Note: Shutdown for R&M of Units 3 &4 Panipat would be taken up sequentially in the period indicated above\. Component 2: Technical Assistance (US$7\.5 million) 29\. The technical assistance component of the project is aimed at providing support in implementation of EE R&M pilots, developing a pipeline of EE R&M interventions, addressing barriers to EE R&M projects and strengthening institutional capacities of implementing agencies for improved operation and maintenance practices\. This component would support preparation of EE R&M for an additional five or six old 110 MW / 210 MW units (not including Unit-5 Bandel and Unit-6 Koradi which have been already funded from PHRD grants)\. 30\. The sub-components for the technical assistance program would cover: Sub-component-1: Support for Design of Energy Efficiency R&M Sub-component-2: Support for Implementation of Pilot EE R&M Investments Sub-component-3: Support for Addressing Barriers to EE R&M Projects10 Sub-component-4: Support for Strengthening Institutional Capacities of Utilities For detailed description of these sub-components, please refer to Annex 4\. 31\. The technical assistance component of the project would be coordinated closely with similar efforts by other agencies including USAID (Eco-Asia), aimed at strengthening institutional capacities for improved O&M practices and disseminating EE R&M approaches and experiences; and the Indo-German Energy Forum (KfW and GTZ), supporting preparation of 10This is in addition to barrier reduction activities being undertaken using other sources of funding, such as Study of Options for Regulatory Treatment of R&M projects (ESMAP funded) and Study of O&M practices in Bandel and Koradi Thermal Power Plants (ESMAP funded)\. 9  baseline measurements for nearly 80 generation units in India with the CEA\. For further details, please refer Section C1\. 5\. Lessons learned and reflected in the project design 32\. An important lesson has been drawn from the experience of an Asian Development Bank (ADB) project that created a financing window (US$150 million at ADB's LIBOR based lending facility), implemented through the Power Finance Corporation, which also made funds available for R&M investments with the state power sector in addition to other sector interventions\. The response for financing of R&M was quite low and approximately US$100 million had to be returned\. The main causes for this low response included: lack of adequate support for improvement of environmental performance of the plants, absence of financial incentives for state generators to commit to higher energy efficiency norms and practices and the prevailing power shortage situation\. 33\. Analysis of past GOI efforts to jumpstart R&M investments, experiences of generation utilities in India11 as well as recent experiences from similar Bank projects (such as in Turkey) led directly to the design of the current project\. In fact, it was recognized upfront that this project will have to face several risks based on the past rehabilitation experience in India and abroad\. Therefore, the process of risk identification and initiation of steps towards mitigation of risks started early in the project design cycle\. The approach to project design and preparation is therefore reflective of the focus on risk identification and mitigation efforts\. Some of the key aspects are : Preparation of technical design of the project by reputable consultancy firms in close collaboration with the power generation companies\. The consultants were responsible for review of Residual Life Assessment reports, conducting Energy Audit studies, development and evaluation of design options to select the preferred option, preparation of detailed technical specifications and support on commercial and contractual design of the bidding process\. Detailed review of all technical aspects of project design by a panel of technical experts with extensive experience in design and implementation of R&M projects in India and abroad (including the recent projects in Turkey and China)\. Structuring of procurement for R&M of Unit-5 of Bandel into four packages ­ (a) Boiler, Turbine and Generator (BTG) package, (b) Coal Handling Plant, (c) Ash Handling Plant, and (d) Electrical System Package\. The decision to keep the most critical BTG elements as a single package (as against allowing two or three separate packages for these elements) was based on past R&M experience in India and abroad which assists in correct risk allocation between the client and contractors\. This would allow supplier's accountability for unit performance as a whole, while also ensuring that the designs of various sub-systems are mutually compatible\. 11Past R&M experiences of several generation utilities in India have been reviewed, including Kothagudem (Andhra Pradesh), Bhatinda (Punjab), Ahmedabad (Gujarat), Panipat (Haryana), Koradi (Maharashtra) and several NTPC interventions\. 10  Two-stage bidding for the main BTG package would allow further refinements in technical design and performance requirements based on concerns highlighted by bidders\. It would also allow the client to gauge the market response to R&M projects and accommodate any concerns in contractual design which may discourage wider participation in the bid process\. Independent implementation support and quality assurance consultants, working in collaboration with the concerned power generation utility, would be appointed for monitoring implementation progress as well as quality\. These consultants would act as owner's engineers for the power generation utility and validate all design details, material supplies and works executions\. The consultants would also support decision making process to handle surprises during the course of R&M implementation\. In the past, R&M projects in India have faced environmental concerns which were not fully addressed because of which some of the non-Bank funded projects did not find enough interest from generation utilities\. For this project, detailed Environmental Audit Due Diligence (EADD) and Rapid Social Assessment (RSA) studies have been completed for R&M of units/plants in West Bengal and Maharashtra\. The recommendations from the EADD studies have been included in the technical design prepared by design consultants\. An action plan for implementation of recommendations from the RSA study as well as steps for mitigating additional plant level environmental concerns has been agreed with these utilities\. Assessment of environmental and social aspects of Panipat power plant in Haryana is being carried out\. Upfront preparation of a detailed strategy for handling surprises on opening the machines for R&M implementation\. The strategy includes a list of possible surprises, ensuring availability of parts to minimize delays, addressing upfront the likely contractual aspects of additional supplies and works, and establishing a clear decision making framework\. In terms of initiating steps to address some of the sector level barriers to R&M in India, ESMAP funds have been used for pursuing a "Study of Options for Regulatory Treatment of Rehabilitation Projects in India"\. The first part of the study has been completed and is being disseminated to stakeholders\. Another key sustainability risk from the past projects has been the lack of adequate capacity and incentives for proper operations and maintenance (O&M) of the rehabilitated units\. ESMAP funds have been used for undertaking a "Study of O&M practices at Koradi and Bandel"\. The study which is now in the final stages of completion also brings out a plan for strengthening O&M practices at these power plants\. Phasing of implementation of pilot projects to allow transfer of learning from one pilot to the next\. 6\. Alternatives considered and reasons for rejection 34\. Selection of pilot states and plants / units: The pilot states and plants/units were selected based on a review of all the plants/units identified by the Central Electricity Authority for R&M\. The selection was made in discussions with Ministry of Power, Government of India, and was 11  based on the willingness of concerned utilities to comply with the criteria specified in GEF Project Brief, i\.e\. (a) carry out energy audits to prepare a baseline performance for the unit; (b) install the required measurement systems and submitting information on a timely basis to the Bank; (c) develop and implement, to the satisfaction of the Bank, EE R&M scheme design; (d) follow all fiduciary and safeguard requirements of the Bank; (e) demonstrate that O&M practices would be (made) adequate; (f) demonstrate financial and economic viability of the scheme\. 35\. Financial Intermediation Option: In preparing this project, the team explored the option of channeling IBRD/GEF funds through an intermediary such as Power Finance Corporation (PFC)\. However, GOI rejected this option as a result of an unsatisfactory response from state generation utilities to a similarly structured ADB project\. Therefore, it was decided to shift to the standard mechanism of on-lending to state generators through the government system, so as to lower transactions costs and be more hands-on with regard to issues such as project and technical design, incorporation of energy efficiency approaches, procurement strategy, implementation support, and transferring lessons learned for a wider national program\. 36\. Use of a Central Agency as Project Implementation Unit: Another alternative was to consider using a central agency, such as the Central Electricity Authority (CEA), to act as the project implementation unit (PIU) which could potentially streamline the implementation arrangements and reduce the risk facing state utilities\. However, the CEA is neither designated nor structured to implement projects although it will act as the nodal agency at the national level for planning and monitoring rehabilitation of power plants in India as well as for dissemination purposes\. 37\. Repeater Projects Option: The use of repeater projects at the state level was also considered but was rejected by GOI who wants to use this as a national demonstration project and was concerned about the transaction costs of doing multiple repeater projects within a short time period\. In addition, the project includes a technical assistance component to be implemented at the national level to address barriers to EE R&M and disseminate lessons learned which could not easily fit into a state-level project\. 38\. Use of GEF grant for Technical Assistance only: The team also explored possibilities for GEF to be used purely for TA and barrier-reduction activities that would not involve direct financing of investment\. It was found that there was no appetite in India for operational involvement that would not include investment support\. There was also a consideration of not using GEF at all, but instead using other sources of technical assistance and possibly carbon finance to complement the IBRD financing\. However, GEF was assessed to be a much better fit for working on front-end barrier reduction and for supporting pilots to demonstrate energy efficiency renovation techniques and technologies\. Once risks are thus brought down, output- based approaches such as clean development mechanism (CDM) could be a more suitable financing instrument\. C\. IMPLEMENTATION 1\. Partnership arrangements 39\. GEF Grants: GEF will provide US$ 45\.4 million to the project to finance (i) additional cost of energy efficiency approaches in demonstration projects for EE R&M of 640 MW of 12  capacity, and (ii) technical assistance to support additional EE R&M design studies and capacity building at the generation utilities\. 40\. Partnership with KfW: The Bank team is coordinating closely with KfW which is preparing a similar project aimed at rehabilitation of coal-fired generation units across three utilities ­ WBPDCL, MSPGCL and DVC (Damodar Valley Corporation)\. Similar to the Bank project, in addition to demonstrating EE R&M approaches in three generation units, KfW project would also provide technical assistance support for design studies of additional units\. Together, KfW and Bank would be assisting design studies for more than 10 generation units, thus creating a pipeline of R&M projects and ensuring sustained replication\. Since both the agencies would be working with WBPDCL and MSPGCL, coordination of institutional capacity building efforts is envisaged\. The Bank and KfW teams are also coordinating efforts at creating increased awareness on regulatory issues and addressing other barriers, by organizing symposia and workshops on these issues\. 41\. Collaboration with ECO-Asia (USAID) Clean Development and Climate Program (ECO- Asia CDCP): ECO-Asia is partnering with the Bank team in pursuing issues related to removal of policy and regulatory barriers to large scale rehabilitation of power plants\. It is also providing the services of its regional coal advisor to work closely with the Bank team, local consultants, and State Power Generation Utilities (e\.g\. personnel at the Bandel / Koradi / Panipat plants) in design of R&M projects\. Eco-Asia also organized a workshop in September 2008 on scaling-up R&M in India, in partnership with NTPC, CEA and the World Bank, where all the key stakeholders participated\. 42\. PHRD Grants: During project preparation, the Japanese Government provided a PHRD grant of US$1 million which was used for (i) initial project design consultancies (residual life assessment, energy audit, technical design and support during bidding process and bid evaluation) and (ii) environmental and social assessment studies, for Bandel and Koradi power plants\. 43\. ESMAP Funding: ESMAP Grant funds of US$880,000 have been used for: (i) a study of Regulatory Aspects of EE R&M projects, and (ii) a study of Operations and Maintenance practices in the states of West Bengal and Maharashtra\. 44\. The GEF, PHRD and ESMAP grant facilities are being managed by the Bank team working on the project\. 2\. Institutional and implementation arrangements 45\. Role of Ministry of Power (MOP), Government of India: MOP is the key counterpart in formulation of this project as well as the formulation of the overall R&M program and policy for the country as a whole\. It has been closely involved in the selection of EE R&M demonstration units and is also the key counterpart for discussions aimed at identifying measures to address barriers to R&M in India and rolling out a national program if the pilot proves successful\. 46\. Role of Central Electricity Authority (CEA): The Central Electricity Authority (CEA) is the technical advisory, program planning and implementation / performance monitoring agency under MOP\. The CEA would be directly involved in developing the barrier reduction strategy for the roll-out of larger R&M program\. It is planned that a significant part of the technical assistance funding aimed at barrier reduction and institutional capacity building would be 13  utilized in close coordination with the CEA\. In addition, the CEA is responsible for sector level monitoring of power plant performance and overseeing the progress in implementation of broader R&M program in the country\. The Bank team will interact closely with CEA for dissemination of the experience from demonstration projects and promotion of EE R&M approaches throughout the country\. 47\. Arrangements for Implementation of Project Investments: The investment component of the project will be implemented through the selected generation utilities ­ WBPDCL (West Bengal), MSPGCL (Maharashtra) and HPGCL (Haryana)\. Reputed consultants under the R&M Design assignment shall be responsible for energy audit, residual life assessment, identification of various design options, support in selection of optimal R&M design option based on a detailed cost-benefit analysis, and support in preparation of bid documents and selection of contractors\. A team of staff from corporate and plant offices of the utility would be responsible for managing these activities\. To supplement existing project monitoring capacity, project implementation consultants would be appointed by each utility during the implementation phase\. In addition, independent third-party quality assurance consultants would be appointed to confirm achievement of project milestones and adherence to quality plan\. Details of the implementation arrangements are discussed in Annexes 6, 7, and 8 (Implementation Arrangements; Financial Management and Disbursement; and Procurement, respectively)\. 48\. Implementation Arrangements for Technical Assistance: The vast majority of technical assistance will be implemented by the state generation utilities\. This includes (i) design and safeguard studies for Bank funded EE R&M pilots and for additional pipeline of R&M projects, (ii) project implementation consultancy support, (iii) support for addressing barriers to EE R&M, and (iv) capacity building aspects in the areas of O&M, corporate governance, financial management and others for enhanced sustainability and replication of EE R&M initiatives\. Technical assistance for which the impact is broader than a single state utility, such as policy studies and information dissemination, and support for formulation of a wider R&M program, will be implemented by the Central Electricity Authority, Ministry of Power, Government of India\. Annex 6 provides additional details\. 49\. Funds-Flow Arrangements: The Bank will provide the funds (IBRD loan and GEF grant) to the Government of India which will pass them to the state generating utilities /implementing agencies through the state governments, except for the relatively small part for technical assistance implemented by the Central Electricity Authority, Ministry of Power\. The GOI has agreed to pass-on the loan terms for the IBRD amount and grant terms for the GEF amount to the concerned states on a back-to-back basis\. The Bank would enter into a loan agreement and a grant agreement with GOI\. The Bank will also enter into three project agreements, one for each implementing utility and the corresponding state government, where applicable\. In addition to these agreements, the state governments will sign with the state generation utility, a sub-project agreement (or an equivalent document) acceptable to the Bank which would define the on-lending and repayment terms for the loan and terms for the grants, and the contractual obligations of each party under the EE R&M Project\. 3\. Monitoring and evaluation of outcomes/results 50\. The outcomes / results of the project would be monitored through information gathered by the participating generation utilities, CEA and the relevant consultants as well as by regular 14  implementation progress review missions by the Bank\. Information to be provided will include quarterly progress and financial management reports, annual audits of project accounts, external monitoring reports from consultants, and other such information as the Bank may reasonable require\. Progress in implementation of the EE R&M demonstration pilots would be monitored based on information from the participating utilities\. The post R&M energy efficiency performance of generation units would be measured through utility data as well as information provided by energy audit consultants\. Reduction of barriers to EE R&M would be measured through the number of units where procurement process is initiated for R&M implementation\. 51\. The key project development objective (PDO) indicators are (i) Reduction in Specific Coal Consumption (adjusted to normalize calorific value of coal to 4200 kcal/kg) and (ii) Reduction in Specific Oil Consumption\. The Global Environment Objective (GEO) indicator is Annual Reduction in CO2 emissions as a result of energy efficiency R&M (million TCO2) in plants financed under this project\. Additional unit performance indicators such as (i) Unit Heat Rate, (ii) Unit Availability, (iii) Auxiliary Consumption, and (iv) Unit Load factor would also be monitored and shared with the Bank as a part of the regular supervision\. The baseline data Unit-5 Bandel and Unit-6 Koradi is based on the detailed project reports prepared by qualified consultants\. For Haryana, the baseline is indicative (based on data reported by utility in their annual report to CEA) which be updated based on the energy audit to be completed by September 2009\. 52\. The monitoring and evaluation results will provide critical inputs to GOI for decisions on adjustments of national policies and regulations and set up benchmarks and good practices for replication in the rest of the country\. The evaluation of results and impacts of various pilot programs will be managed by CEA, MOP to ensure ownership and replication\. GEF grants will be used to support the evaluation and replication under the project\. 4\. Sustainability 53\. Sustainability of the project interventions needs to be assessed at three levels: (i) R&M Unit and Plan level, (ii) Utility level, and (iii) Program level\. 54\. Sustainability at Plant Level: The Project will ensure sustainability at the plant level by requiring that generation utilities demonstrate: (i) appropriate O&M capacity to sustain efficiency investments, and (ii) financial viability of investments\. 55\. Sustainability at Utility Level: The technical assistance component of the project would also support strengthening of institutional capacities at the participating state utilities for improved corporate management practices for wider replication of R&M projects12 and better plant management practices\. 56\. Sustainability at Program Level: The lessons learnt from the policy studies and demonstration projects financed under the Project will be made available widely through the outreach and information dissemination activities implemented as part of the TA component of 12Institutional capacity strengthening would be important in Maharashtra which has the largest fleet of power plants requiring R&M among Indian states (four such units are included in the pipeline supported by the TA component)\. Similarly, in West Bengal, it is likely that several old units (at least 8 units of 100MW and less have been identified by the utility) would be replaced by new more efficient units\. In Haryana, strengthening capacities would be critical for better O&M of plants\. 15  the project\. Government officials, technical consultants, plant managers (from the successful projects) will participate in workshops targeting sector stakeholders including managers of plants in other states where efficiency R&M have not yet been conducted\. 57\. In addition to the above, a study on options for regulatory treatment of R&M projects is being carried out, which is now in an advanced stage\. The study is expected to sensitize the regulators to the various barriers (and risks) constraining R&M in India, thus enabling the regulators to allow appropriate sharing of R&M benefits between generation and distribution companies to ensure mitigation of regulatory barriers\. 58\. GOI plans to replicate the experience of these pilots and energy efficiency approaches for barrier reduction through the entire R&M program backlog\. The focus on 110/210 MW units which are in large number in the country (about 18,500 MW already identified as requiring R&M), would help in easier replication\. 5\. Critical risks and possible controversial aspects 59\. The overall risk rating (including reputational risk) for the project is substantial\. 60\. The key governance and accountability (GAC) issues are three-fold\. One arises from the technical aspects of the project ­ i\.e\. the difficulty in assessing a priori the exact scope of what physical activities need to be carried out, since this cannot be fully determined until after the contractor opens up the machine, and the consequent difficulty of accurately defining technical specifications in the bid documents and assessing project costs\. A second issue pertains to the level of participation in the bidding process and the risk in terms of higher than anticipated price discovery\. The third revolves around weak client capacity and the inadequate decision-making framework during implementation, especially in view of possible `surprises' upon opening the machines which may require contract modifications and price increases\. The details on project level risks are provided in the GAAP (Annex-15) and a summary is presented below: Ratinga of Risk factors Description of risk Ratinga of Mitigation measures residual risk risk Technical/design Inadequate assessment of High Participatory and thorough assessment Substantial R&M requirements\. Since of R&M requirements carried out by design of R&M is based on external consultants, utility personnel, energy audits and residual life and sector experts to ensure good assessment studies conducted technical design of R&M\. several months ahead of plant Contracts will be designed to build shut down, a need for flexibility to cover additional additional repairs may be components / works that may be discovered when the unit is required for handling surprises after the opened during shutdown\. opening of the plant\. Energy efficiency gains are not Substantial Same as the para above\. Moderate fully realized after R&M work is conducted\. Deterioration in coal quality Substantial R&M design would be based on inferior Moderate (calorific value as well as ash quality of coal than what is being content) may affect supplied to the plant at present\. environmental performance, power output and life of the 16  Ratinga of Risk factors Description of risk Ratinga of Mitigation measures residual risk risk rehabilitated unit\. Project Cost Project costs may significantly Substantial Adequate provision for price and Moderate Escalation increase due to the following: physical contingencies has been made in (i) higher market prices due the cost estimates\. to supply constraints; In addition, scenario analysis shows (ii) impact of commodity price great resilience of decision to undertake variation on supplies at the R&M even with 20% higher project time of manufacture compared costs\. (See Annex 9)\. GEF grant to contract prices; and component will help mitigate the (iii) "Surprises" discovered Borrower's financial risk resulting from once the unit is opened that cost escalation\. increases the scope of work\. Regulation If actual costs are above the Substantial Since the implementation for each state Moderate estimates approved by the state is staggered, it is anticipated that the regulator, this will require new overall project implementation period approvals by the regulator will be sufficient to accommodate which may delay contract several month delay for the first two award\. states\. Cost estimates for the third state could be revised to reflect the latest market prices in the original regulatory filing\. Regulator may not approve Substantial The cost benefit analysis to examine Moderate increase in costs and therefore viability of R&M even with increased the state utility will not award cost will be shared with the Regulator\. the contract Substitute with another unit, if required (Maharashtra has a ready pipeline of an additional four units)\. Implementation R&M implementation period High The design consultants have prepared a Moderate duration, capacity may be longer due to non- detailed implementation plan, which and sustainability availability of key components, would be suitably modified/ endorsed surprises on opening the by the selected supplier\. Supplies of all machines and longer time to key components would be ensured prior undertake the works\. to commencement of works to reduce unit shut down periods\. Key additional components to handle surprises would also be arranged based on past experiences\. Liquidity Damages shall be introduced for contractor delays\. Limited implementation High Appropriately experienced Moderate monitoring capacity of the implementation consultants shall be utility may delay project appointed to support the Utilities on implementation, or it may technical and commercial issues through affect the quality of the implementation process\. The implementation\. The decision decision making process at the making process for course implementing utility would be defined correction after the machines upfront before the start of procurement are opened may be slow process\. Also, various scenarios of because of limited capacity of possible surprises would be examined the utility staff\. upfront to lay down the likely course of action in each case\. Weak O&M practices may High An experienced consultant has been Substantial 17  Ratinga of Risk factors Description of risk Ratinga of Mitigation measures residual risk risk adversely affect the appointed (funded by ESMAP) for sustainability of efficiency evaluation of O&M practices and gains achieved as a result of capacities at Koradi and Bandel\. An R&M\. Inadequate O&M may O&M capacity strengthening plan is also result from insufficient being prepared in consultation with each funds\. of these utilities (Maharashtra and West Bengal)\. The O&M action plan would be implemented through technical assistance funding provided by GEF\. Similar approach would be adopted for Panipat (Haryana) also\. Financial Inadequate financial Substantial An action plan is being prepared for Moderate management management systems may improving existing FM systems in all affect the ability of the utilities three generation utilities to ensure to provide proper accounting greater transparency\. The Bank team and reporting of project would continue to monitor the resources and expenditures\. implementation of the FM action plan\. Procurement Limited supplier interest in Substantial Pre-bid information sessions were Substantial R&M projects due to the large organized, where various aspects of demand for green-field power R&M contract structuring, functional plant units across the world, guarantees and delivery timeframe were which are more standardized discussed with the twelve supplier and entail lower companies that participated\. implementation risk than R&M Enhanced participation would be sought projects through wider dissemination and International Competitive Bidding\. The bidding documents would consider measures to adequately balance the risks between supplier and owner\. Risk of rebid and ensuing delay High Bidders for the main BTG package to be Moderate due to incorrect specifications brought on par on technical basis or improper qualification through two-stage bidding process\. requirements (QR)\. Examine QR carefully\. Requirement of performance High The two-stage bidding would help Substantial guarantees may pose a risk to assess the bidders' feedback on the the project as suppliers may not required guarantees and the opportunity be willing to provide them\. would be there to adjust these to the market conditions\. Contractual disputes due to High Strategy for handling surprises prepared Substantial changes in scope of work, in advance\. Prevention of disputes delays on part of supplier (in through early resolution of potential supplies or works) or the client issues\. Definition of a clear decision (providing shutdown, making framework during regulatory concurrence, implementation, including system to get decision making in event of an early attention from Utility senior surprises) and performance management on potentially difficult demonstration etc\. issues\. Dispute Resolution Mechanism would be specified in bid documents\. Bid documents to provide clear segregation of responsibility between 18  Ratinga of Risk factors Description of risk Ratinga of Mitigation measures residual risk risk supplier and client for shouldering residual risks\. Risk of possible disagreement Moderate Dialogue has been initiated with the Moderate between Bank Guidelines and Forum of Regulators under the regulations / orders of the Regulatory Study to bring out the Independent State Regulators\. barriers to EE R&M emanating from For example, West Bengal regulatory treatment of such projects\. Regulations require at least two Specific issues would need to be active bidders to establish addressed in course of implementation adequacy of competition\. of EE R&M projects\. However in Bank funded procurement Bank's guidelines will be applicable\. Social and Failure of plants as a whole (as Substantial Social and environmental safeguards Moderate environmental against specific units policies are being examined in the three safeguards undergoing R&M) to achieve power plants selected\. The Bank would emission standards in terms of continue to monitor the implementation particulates and other of these policies\. Adopt progressive parameters, even though emission reductions over the project efficiency gains are made\. implementation period for each of the power plants to ensure compliance with the National Ambient Air Quality Standards (NAAQS)\. Although this project is a rehabilitation project and Substantial In addition to monitoring Moderate improvements will be made to implementation of social and the plants, the Panipat plant environmental safeguards, the Bank has received negative media team has put together an environmental attention in the past for its and social due diligence report for the environmental and social Panipat plant, and will continue to impact on nearby villages\. closely monitor these aspects with help from the Bank's External Affairs team II\. Overall Risk (including Reputational Risks) Substantial aRating of risks on a four-point scale ­ High, Substantial, Moderate, Low - according to the likelihood of occurrence and magnitude of potential adverse impact\. 6\. Loan/grant conditions and covenants 61\. In addition to the standard Bank covenants on project and financial management, audit and reporting requirements, and procurement, the following are the key covenants under the project: 1\. Eligibility criteria and Terms & Conditions required for Bank funding of sub- components under component-1 of the project: a) Submission of a Detailed Project Report (DPR) satisfactory to the Bank, by the participating utility, for Energy Efficiency Renovation and Modernization (EE R&M), which should be based on energy audit by qualified consultants\. 19  b) Endorsement and disclosure by the participating utility of Environmental Audit and Due Diligence (EADD) and Rapid Social Assessment (RSA), satisfactory to the Bank, for the power plant where EE R&M generation unit is located and the adoption of a Corporate Social Responsibility (CSR) policy by the participating utility\. c) Implementation by the participating utility of satisfactory financial management arrangements, submission of an action plan to improve corporate governance and financial accountability (CGFA) satisfactory to the Bank and initiation of steps for implementation of the CGFA Action Plan satisfactory to the Bank\. d) Submission by the participating utility of a report satisfactory to the Bank on detailed review of operations and maintenance (O&M) practices including a proposed O&M improvement action plan prepared by independent consultants in consultation with the participating utility\. e) Submission by the participating utility of a Project Implementation Plan (PIP), satisfactory to the Bank, incorporating inter-alia: (a) Governance and Accountability Action Plan (GAAP); (b) Strategy to Handle Surprises; (c) Corporate Governance and Financial Accountability Action Plan; (d) Environment Mitigation Action Plan for the plant; (e) Corporate Social Responsibility (CSR) Policy; (f) O&M Action Plan proposed by consultants, and (g) Funding Plan for the EE R&M investments\. f) Submission by the participating utility of a Procurement Plan satisfactory to the Bank for the EE R&M investments\. g) Signing of a sub-project agreement (or an equivalent document) satisfactory to the Bank, by the participating utility and the relevant state government, defining on-lending and repayment terms for the loan and terms for the grants, and the contractual obligations of each party under the EE R&M project\. 2\. Adherence to Project Implementation Plan: Each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will take all necessary measures to adhere to the respective Project Implementation Plans (PIPs), including in particular, the following plans/documents: (a) Governance and Accountability Action Plan (GAAP); (b) Strategy to Handle Surprises; (c) Corporate Governance and Financial Accountability Action Plan; (d) Environment Mitigation Action Plan for the plant; and (e) Corporate Social Responsibility (CSR) Policy\. 3\. Prioritized O&M Improvement Action Plan: Within one year of loan effectiveness, each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will adopt through board approval a Prioritized O&M Improvement Action Plan (including institutional capacity strengthening), and will subsequently take all necessary measures to adhere to the plan\. 4\. Air Pollution: Each of the three state generation utilities (WBPDCL, MSPGCL and HPGCL) will take all necessary measures to maintain post rehabilitation particulate emissions at a level not exceeding 150 mg/Nm3 for the unit which is being renovated, while striving to achieve less than 100 mg/Nm3\. 5\. Liquidity/Financial Sustainability of Generation Utilities: WBPDCL and MSPGCL will maintain a minimum debt service coverage ratio of 1\.1\.HPGCL will maintain a minimum 20  debt service coverage ratio of 1 for the financial years 2009-10 and 2010-11 and a minimum debt coverage ratio of 1\.1 thereafter\. 6\. Sub-project agreement for CEA: Within one month of loan effectiveness, Ministry of Power Government of India and the CEA would sign a Grant Implementation Agreement satisfactory to the Bank, defining terms for the grants and the contractual obligations of each party under the EE R&M project\. D\. APPRAISAL SUMMARY 1\. Economic and Financial Analysis 62\. The economic and financial analysis has been carried out for Unit-5 of Bandel Thermal Power Plant (BTPS) based on energy audit data and detailed project design options provided by the independent R&M design consultants\. For Unit-6 of Koradi Thermal Power plant (KTPS), the energy audit studies and preparation of detailed project report (DPR) is currently underway\. It is expected that the DPR would provide the detailed financial and economic analysis for various R&M options (including comparison with replacement option)\. Analysis for Units 3 & 4 of Panipat Thermal Power Plant (PTPS) or any other plant to be considered for the pilot program would be carried out subsequently, when inputs from design consultants are available\. Rehabilitation of these units is phased out by more than one year from the Bandel and Koradi rehabilitation\. Unit-5, Bandel Thermal Power Plant 63\. Economic and Financial Analysis of Project Options The analysis compares the incremental costs and benefits for the `R&M', `New BTG (Boiler, Turbine, Generator) at Adjacent Site' and `Replacement' options with the `No Project' case (continue to operate the plant as such for the remaining plant life)\. Technical studies carried out by WBPDCL with the assistance of technical design consultants have concluded that, the option of `New BTG at Adjacent Site' is not possible for technical reasons, including space constraints at the plant\. The key parameters and economic and financial rates of return for each case are provided in the table below\. Table-4: Economic and Financial Comparison of Design Options for Unit-5, BTPS No Project R&M New BTG at Complete Adjacent Site Replacement Plant Life 7 years 15 years 25 years 25 years (plus 2 years (plus 3 years (after prior to R&M) prior to project) commissioning) Shutdown Duration 0 months 6 months 3 months 36 months Cost per MW Nil Rs\.22 million Rs\.30 million Rs\.45 million Capacity 210 MW 215 MW 250 MW 250 MW Unit Heat rate 2872 2456 2400 2400 kcal/kWh kcal/kWh kcal/kWh kcal/kWh EIRR* - 29% Not an option 15% FIRR (Existing Tariff ) - 16\.6% Not an option 13\.6% * Economic benefit from increased availability of power is valued at long term marginal cost of generation from gas fired power plants\. 21  64\. Optimization of R&M Design\. The design consultants have examined various R&M design options ­ including minimum essential scope, retrofit of turbine stages for improved energy efficiency and additional modifications for further enhanced energy efficiency\. A detailed financial analysis has been undertaken to arrive at the most optimal technical solution for R&M\. 65\. Scenario Analysis\. Viability of R&M project has been examined under various scenarios which include adverse implementation performance (cost escalation and time overrun) as well as adverse outcome performance (non-achievement of targeted plant performance in respect of heat rate, capacity, availability and plant life)\. Scenarios where adverse implementation performance and adverse outcome performance are coincident have also been examined\. It is seen that with the existing tariffs, the financial rate of return varies between 8\.8 percent and 16\.6 percent and remains higher than the cost of capital of 8\.5 percent even in the case where all adverse parameters are coincident\. The economic rate of return under the same scenarios varies between 23 percent and 29 percent, and remains higher than the hurdle rate of 12 percent even in the worst scenario where all adverse parameters are coincident\. 66\. Regulatory scenarios\. Given the uncertainty in regulatory treatment of rehabilitation projects (refer to Annex-1 for discussion on regulatory aspects), several tariff scenarios have been examined as a part of the financial analysis\. The project is found to be viable under all tariff scenarios except in the cases of cost-plus tariff based on R&M design parameters (as against actual plant performance), where either the designed implementation parameters (project cost and time) or outcome performance parameters (plant life, availability, heat rate and auxiliary consumption) are not achieved\. However, in the past regulators have usually considered revision of tariffs to accommodate justifiable deviations from design parameters\. Therefore, this is an unlikely scenario\. 67\. Entity Level Financial Appraisal\. The team has also carried out entity financial appraisal for the three generation utilities ­ WBPDCL, MSPGCL and HPGCL\. Financial projections for the next 15 years have been reviewed, which indicate that the debt service coverage ratio for each of the three generation utilities is greater than 1\.1 for the projection period\. Details are available in Annex 9\. 2\. Technical 68\. The project envisages using best practice designs for EE R&M schemes with energy efficiency, PLF improvement and life extension as primary criteria\. Given the difficulty in designing technical specifications for EE R&M schemes, in part due to the risk of surprises upon opening the unit, significant upfront studies are being carried out to feed into the technical specifications for each plant\. These include: residual life assessments, energy audits, detailed project reports (which also include the economic and financial analysis justifying the recommended design), and environmental audits (to ensure environmental compliance is included in the design)\. 69\. The EE R&M scheme for the first pilot (Unit-5 in BTPS - West Bengal) has been developed by consultants well versed with international and national best practices and in consultation with the client Utility\. The detailed project report prepared on this basis, have been 22  reviewed by the Bank team\. All underlying studies have also been completed and technical specifications are being finalized by the client\. For the second unit (Unit-6 in KTPS - Maharashtra), the environmental audit and energy audit have been completed and the final report accepted\. The draft detailed project report (DPR) has been submitted by the consultants and is currently under review\. In line with the staggered implementation approach, the studies for other pilots will be completed during the first year of project implementation\. 3\. Fiduciary 70\. Financial Management WBPDCL and MSPGCL have financial management systems which are considered adequate, to account for and report on the project resources and expenditures accurately\. However, these systems need to be further strengthened for meeting the needs of the entities as detailed later\. Action plans for enhancing corporate governance and financial accountability (CGFA) arrangements for the two companies have been prepared and agreed as a part of the preparation of this project (refer Table-6 in Annex-7)\. Actions have been initiated on some of the critical issues and the balance will be implemented during the implementation of the project\. HPGCL's financial management systems, corporate governance and financial accountability arrangements are in the process of being assessed and a detailed time-bound action plan will be mutually agreed thereafter, for strengthening and enhancing these arrangements\. Agreement on action plan and initiation of steps for implementation of the action plan will be an eligibility condition for the component implemented by HPGCL\. 71\. All R&M related project costs and expenditures will be paid for and recorded in the books of the respective state utilities (MSPGCL, WBPDCL and HPGCL) in accordance with their accounting policies and procedures\. The technical assistance, in form of consultancies (about six in number) will be paid by CEA, in line with the accounting policies and procedures detailed in their operations manual\. 72\. Under this project, the Bank will finance four large Renovation & Modernization (R&M) contracts for each of the three coal fired generation plants\.13 The number of transactions under the project is expected to be few, but large and bulky\. All contractual payments will be made after due verification of the bills in accordance with the procedures laid down by the companies in the project implementation plans and their delegation of powers\. There would be an independent implementation support consultant and a quality assurance consultant - both to be employed by each of the three companies\. The implementation support consultant would strengthen the contract management and project monitoring capabilities of the utilities\. The quality assurance consultants would verify the achievement of contractual milestones to enable and certify payment to suppliers\. Under the project the companies will prepare separate project financial statements, which will help in distinguishing costs financed by the proposed loans\. 73\. The project funds (IBRD and GEF grant) will flow from World Bank to GOI\. In line with normal practices, an appropriate budgetary line item will be established by DEA (CAAA) for external funds, and similarly appropriate arrangements will be made on the expenditure side for 13HPGCL has expressed a preference to go for a single large package instead of four, though this would be finalized after the Detailed Project Report (DPR) is finalized and the final packing decision would also reflect the experience from WBPDCL and MSPGCL where four packages would be procured\. 23  transfer of these proceeds to the states (by way of regular channel of `Additional Central Assistance')\. GOI will pass on these funds to the respective states (West Bengal, Maharashtra and Haryana) on terms and conditions (interest rates, repayment terms, foreign currency exchange rate risk) which mirror the IBRD and GEF terms (i\.e\. on a back-to-back basis) within two weeks of receipt of funds\. The states will also transfer, within two weeks of receipt, these proceeds to the respective utilities (WBPDCL, MSPGCL, HPGCL) on terms which mirror the IBRD/GEF terms, including the interest rates, repayment terms and the foreign currency exchange rate risk\. The respective state governments will also need to make suitable budgetary provisions on receipt / expenditure side to receive/ make transfer of these moneys\. WBPDCL and MSPGCL have expressed preference for direct payments by the Bank for R&M contracts\. The remaining entities ­ CEA and HPGCL have preference for forecast based advance and replenishments, although direct payment options will be available to them\. 74\. Disbursements would be made by the Bank on the basis of quarterly Interim Unaudited Financial Reports (IUFRs), which would forecast the expenditures for two quarters and report the actual for past quarter and cumulative till date\. IBRD/GEF funds for R&M contracts will be disbursed on a pro-rata basis, and the equity component will also be brought in by the company on a pro-rata basis\. The report would also provide contract-wise details of the financial progress and the physical progress under the project\. 75\. Designated Account: An account (denominated in USD) will be established in RBI by Government of India (GOI) to receive the Bank funds\. The generating companies shall established separate bank accounts for these rehabilitation projects\. The project's financial arrangements would be largely handled by finance staff at corporate headquarters with assistance from the relevant units\. The IBRD/GEF financed project will be subject to internal audit (under agreed terms of reference) and its reports will be available to the IBRD, on request\. The three utities will submit (i) audited entity accounts and audit reports and (ii) audited project financial statements and audit report to the Bank which will be audited by an independent firm of chartered accountants, acceptable to the Bank, under agreed terms of reference\. CEA will submit audited project accounts in respect of component 2(d)\. The audited project financial statements would separately identify each component under the project, its progress and the funding sources for each of the contracts\. 76\. Procurement\. The Project will support rehabilitation and modernization of selected coal- fired power generating stations in the States of West Bengal, Maharashtra and Haryana\. In addition, technical assistance support would also be provided to Central Electricity Authority (CEA) for addressing barriers to R&M in India and capacity building at CEA\. The procurement will be for goods, equipments and services related to R&M of power stations\. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised October 2006, and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised October 2006, and the provisions stipulated in the Legal Agreement\. 77\. The procurement of goods and equipment for power stations in Unit-5 Bandel (West Bengal) and Unit-6 Koradi (Maharashtra) is envisaged to be covered in four separate contracts covering the entire power station, i\.e\. one for main plant area (boiler, turbine and generator (including auxiliaries) ­ BTG package), and one each for coal handling area, ash handling area 24  and electrical system\. For Units 3 & 4 Panipat (Haryana) the utility has expressed a preference for a single contract encompassing of these, though the final packaging would be decided after the detailed project report (DPR) is prepared by the design consultants\. All these contracts for procurement of goods and equipment for power stations will be on "plant design, supply and install" basis\. The value of contract packages for goods to be procured on "supply and install" contract basis will range from USD 5 million to USD 82 million (USD 98 million in case Units 3 & 4 Panipat are taken up under a single contract)\. Procurement will be done following international competitive bidding (ICB) procedures of the Bank and using the Bank's Standard Bidding Documents (SBD) for procurement of Plant Design, Supply and Installation (April 2008 and as agreed with the Bank)\. 78\. Each of the participating states may procure services for design consultant for R&M contracts, consultants to provide services for environmental / social audits, implementation support and quality assurance consultants and those for institutional capacity building etc\. In addition, CEA would be procuring consultants for implementation of R&M barrier reduction, evaluation of pilots and capacity building activities\. Short lists of consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2\.7 of the Consultant Guidelines\. The Bank's Standard Request for Proposal Document (December 2008 and as agreed with the Bank) will be used as a base for all procurement of Consultancy services to be procured under the Project\. 79\. The three participating states and CEA have developed detailed procurement plans for the complete project giving estimated value, method of procurement and the year of procurement, which provides the basis for the procurement methods\. 80\. Procurement activities will be carried out by each of the three state generation utilities and the CEA\. An assessment of the capacity of WBPDCL, MSPGCL and HPGCL to implement procurement actions for the project has been carried out by the procurement specialist of the Bank during preparation and appraisal of the project and is captured in Annex 8\. The overall project risk for procurement is substantial\. 4\. Social 81\. The Project does not have any loss of immovable assets and is anticipated to have very limited adverse social impacts\. The renovations will be carried out at the existing power plant locations and therefore there will be no land acquisition and displacement\. However, Rapid Social Assessment (RSA) was carried out at both Koradi (Maharashtra) and Bandel (West Bengal) thermal power stations which helped in documenting the adverse health impacts on the community and crop losses due to the power station's operations\. The findings also showed that there is no existing formal communication channel between the power stations and the community\. The RSA identified various needs of the community and documented the facilities that are presently being extended by the power stations such as accessibility to schools, hospitals, cooperatives, banks, post office and for drinking water\. Both the power stations have generated direct and indirect employment and engage contract laborers in operation and maintenance of the power station\. Based on the results of social assessment and in-depth discussion with the power station officials, Corporate Social Responsibility (CSR) policy has also been prepared which will help the power stations to communicate with the communities in a structured manner\. The CSR 25  will also bring in more resources for local area development which will enhance the reputation and image of the entities and help in smooth execution of the project and later operations\. 82\. The terms of reference for RSA, communication strategy and CSR for Panipat Thermal Power station has been shared with the client\. As part of the phased implementation strategy for the project, the EE R&M investment for Units-3&4 at PTPS will be prepared during the 12-18 months of project implementation, including the RSA\. As such, the disclosure of an acceptable RSA will be a loan covenant under the project\. 5\. Environment 83\. Environmental Issues: The project has been assigned "Category B" reflecting limited environmental impacts\. Environmental Audit Due Diligence Reports (EADDs), acceptable to the World Bank, were prepared for Bandel and Koradi thermal power stations, covered under Component 1\. The EADDs include Environmental Management Action Plans (EMAPs) for implementation\. Relevant public consultations were carried out to address environmental issues associated with the current operation of these plants and the in-country disclosure of EADD reports and disclosure at Bank's Infoshop is completed\. The EADD/EMAP for Panipat thermal power station will be completed during project implementation and will be a disbursement condition under the project\. 84\. During rehabilitation, the major issues would be dust, noise and disposal of waste from new equipment containers, and scrap materials from the removal of equipment that is to be replaced\. During operation, the rehabilitated units with proposed investments would improve energy efficiency and environmental performance, both locally (reduction in dust emissions, wastewater discharges, and increases in ash utilization at the unit level) and globally (reductions in emission intensity of the plant ­ carbon dioxide emissions per kWh of power generation)\. BTPS and KTPS have agreed to address the plant and unit level environmental issues through agreed EMAPs recommended in EADDs for respective plants\. The key issues agreed to be addressed include: (i) non-compliance with NAAQS and PPAH guidelines on particulate emissions, although the air pollution control mechanisms are in place; (ii) lack of adequate systems for monitoring of mass water balances reducing the opportunities for efficiency improvements; (iii) inadequate importance for Environment, Health, and Safety (EHS) systems; and (iv) further scope to minimize the wastes through recycling and reuse\. In case of PTPS, as concluded in World Bank's initial environmental due diligence, there are perceived community impacts including health impacts due to air emissions, and impacts on agricultural productivity due to water emissions and water logging due to seepage from ash pond\. HPGCL/PTPS has agreed to conduct EADD in order to assess the unit level, plant level and community impacts, and to implement necessary mitigation measures\. The procurement process for conduct of EADD is currently ongoing\. Annex 10 provides summary of environmental issues as well as environmental management measures that are agreed with BTPS and KTPS\. Annex 10 also summarizes the issues to be addressed as part of EADD for PTPS\. 85\. Environmental Management: Based on the outcome of the EADDs, environmental management measures are integrated in EMAPs under three categories: (i) unit level improvement of environmental regulatory compliance with improved boiler particulate emission control systems; (ii) plant level environmental performances improvement including common facilities such as cooling water discharges, and wastewater effluent management, control of 26  fugitive dust emissions from Coal Handling Plant (CHP), and improvement to increased utilization of fly ash and possible recycling of ash slurry water; and (iii) overall improvements to EHS including institutional set up for sustained environmental performance\. Annex 10 provides the details on proposed interventions for Bandel and Koradi Plants\. Points (i) and (ii) referred above are being integrated as part of the technical specifications of the proposed rehabilitation contract packages\. Point (iii) will be included as part of the institutional strengthening component of the project\. 86\. Monitoring: The EADD outcomes have suggested monitoring parameters and indicators for monitoring the environmental performance of the rehabilitated units as well as plant level monitoring\. The monitoring has been integrated with the ongoing environmental compliance monitoring\. The necessary institutional arrangements for monitoring have been included as part of overall institutional strengthening component\. The current budgets for regulatory compliance monitoring would be sufficient to provide effective monitoring\. 6\. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4\.01) [X] [ ] Natural Habitats (OP/BP 4\.04) [ ] [X] Pest Management (OP 4\.09) [ ] [X] Physical Cultural Resources (OP/BP 4\.11) [ ] [X] Involuntary Resettlement (OP/BP 4\.12) [ ] [X] Indigenous Peoples (OD 4\.20, being revised as OP 4\.10) [ ] [X] Forests (OP/BP 4\.36) [ ] [X] Safety of Dams (OP/BP 4\.37) [ ] [X] Projects in Disputed Areas (OP/BP/GP 7\.60) [ ] [X] Projects on International Waterways (OP/BP/GP 7\.50) [X] [ ] Environmental Assessment OP 4\.01: No significant adverse environmental impacts are expected under the Project\. Indeed, the Project will result in major positive environmental benefits, in terms of improved energy efficiency, reduced local and global air pollutants, which will be measured and quantified during the project\. Hence the environmental safeguard category of the project is B\. The EADDs recommend detailed measures for addressing the priority environmental issues\. Projects on International Waterways (OP/BP 7\.50): BTPS draws water from river Hooghly for cooling water requirements\. The Hooghly River is part of Ganga basin which extends to Bangladesh\. The river branches out to Bangladesh at the Farakka Barrage and BTPS is located about 80 km downstream of Farakka\. Because the plant is located on a river which is part of an international water basin, OP/BP 7\.50 is triggered\. It is noted, however, that paragraph 7 of OP 7\.50 provides for an exception to external notification to other riparians "For any ongoing schemes, projects involving additions or alterations that require rehabilitation, construction, or other changes that in the judgment of the Bank (i) will not adversely 27  change the quality or quantity of water flows to the other riparians; and (ii) will not be adversely affected by the other riparians' possible water use\." Bank management has approved the applicability of the exception to external notification to other riparians for this project for the following reasons: (a) The project would not adversely affect the quality or quantity of the water flows to other riparians, because: (i) The quantity of water required by the project after rehabilitation is estimated to remain below the originally sanctioned quantity of 1\.7 Mil m3/day for BTPS\. (ii) Most of the above water (>99%) is discharged back into the river after using for "once through" cooling purposes\. The same pattern would be maintained after rehabilitation\. Thus, from the above points (i) and (ii), the water flows to other riparians will not be affected (iii) The temperature difference between inlet and discharge water (the key water quality parameter relevant here) would continue to be maintained below 3 degrees Celsius, complying with World Bank Guideline as well as West Bengal Pollution Control Board Guidelines, both before and after rehabilitation of Unit-5\. (b) The proposed rehabilitation works are mainly aimed at improving the energy efficiency (coal consumption per kilo-watt-hour of power generation) of the selected unit, and restoring the performance of the plant (capacity, availability etc) to close to original design parameters through renovation and modernization efforts\. There are no major alternations or change in the nature or scope of the plant envisaged\. 7\. Policy Exceptions and Readiness 87\. No exceptions to Bank policies are required by this project\. 28  Annex 1: Country and Sector Background INDIA: COAL FIRED GENERATION REHABILITATION PROJECT 1\. The Government of India (GOI) has identified the power sector as key to achieving its goals of high and sustainable economic growth and accelerated poverty alleviation\. However, the sector is currently poorly positioned to support these goals\. It is characterized by power shortages (peak deficit of 15\.2 percent and energy deficit of 9\.0 percent14), low level of electricity access (According to 2001 census, 44\.2 percent of households lacks access), high level of transmission and distribution losses15, and poor collection efficiency\. 2\. Under the Constitution, electricity is a "concurrent" subject with Central and state governments being responsible for key aspects of its supply\. The Central government, having laid the legal and policy foundation to further strengthen existing organizations and to expand private participation, is better positioned to respond to new demands on the sector than it was five years ago\. At the state level, several states have used national laws and policy to advance the restructuring of their power sectors towards making them more efficient, accountable and demand-responsive\. 3\. National Energy Policy\. India's National Electricity Policy (NEP), notified on February 12, 2005, has the following objectives, to be met by the year 2012: (i) providing electricity access to all households; (ii) fully meeting the power demand; (iii) supplying reliable and good quality power efficiently and at reasonable rates; (iv) doubling per capita electricity consumption to 1000 kWh per annum; and (v) achieving financial turnaround and commercial viability of the electricity sector\. This policy aims to fully meet existing energy and peaking shortages while also aiming to achieve financial viability of the electricity sector\. Meeting the "power for all" target requires an estimated 80,000 MW of new capacity to be added during the 11th plan (2007 ­ 2012), through new generation capacity but also other measures, including renovation and modernization of power plants, energy conservation and efficiency, efficient energy technology R&D\. The policy provides for closing down plants that are too old, decrepit, and dirty to be turned around by renovation\. 4\. Challenges in Electricity Sector\. In August 2006, the NEP was supplemented by the Integrated Energy Policy, which is intended to address the question of how India can meet the rapidly rising demand for energy and sustain a high economic growth rate\. Concerns about energy security and high costs of energy imports drive the proposed measures aimed at reducing non-essential or inefficient energy consumption\. However, the remaining challenges in the electricity sector are daunting, given the following issues: (i) low levels of connectivity, particularly in rural areas; (ii) high coping costs of industry, with 60 percent of Indian firms relying on captive or back-up generation; (iii) limited grid supply infrastructure, with about 25 percent of capacity in need of rehabilitation; limited capacity for inter-regional trade; and under- maintained state distribution systems that cannot meet demand; (iv) weak utility governance in most states resulting in high system losses; (v) unpredictable fuel supply and costs, particularly for gas; and (vi) contribution to 50 percent of India's carbon emissions, with coal based generation continuing to play a major role in emissions\. 14Source: Ministry of Power Annual Report 2007 - 2008\. 15The previous cited Annual Report mentioned Transmission and Distribution losses (T&D Losses) of 29\.89% for 2006 - 2007\. 29  Challenges in Coal-Fired Generation Sub-Sector\. India depends on 76,000 MW of coal-fired, base-load power plants representing 53 percent of total installed capacity (143,000 MW), but much of this does not perform well\. The central sector National Thermal Power Corporation (NTPC) owns a third of this capacity which are generally efficient with station heat rates (SHR) of about 2,500 kcal/kWh (i\.e\. close to design value)\. NTPC plants also have good plant availability with average plant load factors (PLF) of about 92 percent\. The remaining coal-fired plants are owned largely by state government utilities\. Most of these generation plants that are owned by state government utilities (except some states such as Rajasthan, Karnataka, Punjab, Maharashtra, Tamilnadu and Andhra Pradesh) are in a relatively poor shape ­ with an average PLF of about 70 percent, with some plants having PLFs lower than 55 percent and SHR of about 3,000 kcal/kWh and above, (sometimes up to 4,000 kcal/kWh in many cases)\. 5\. India was able to keep pace with needed rehabilitation or Renovation and Modernization (R&M) investments through the better part of the 7th, 8th and 9th Five-Year Plans, covering the fifteen years until 2002\. Since then R&M requirements have increased rapidly and implementation of R&M schemes has slowed down\. The 10th Plan (2002-2007) R&M target was not fully met ­ especially by the state generation utilities and nearly 8000 MW spilled over into the 11th Plan, which now has an R&M requirement of nearly 27,000 MW (about a third of the total installed coal-fired generation capacity in the country)\. Also, in the case of past R&M investments, plant availability has tended to decline back to the pre-R&M levels within a few years due to poor O&M practices at many state government utilities\. More importantly, for the past and planned R&M, the primary criteria is often PLF enhancement and life extension, and any energy efficiency improvements (SHR and other parameters) achieved is usually incidental and not a primary criteria for R&M project design\. Table-1\.1: Need for Rehabilitation of Old Coal Fired Units during XI Plan Period (2007-12) Size of unit <100 100~200 200~210 500 Total MW MW MW MW MW Spillover from X Plan Period NTPC (including DVC) 0 0 3880 4000 7880 State Generation Utilities 194 1480 5400 1000 8074 TOTAL 194 1480 9280 5000 15954 Additional Rehabilitation for XI Plan Period NTPC 0 800 2910 3000 6710 State Generation Utilities 193 760 3320 0 4273 TOTAL 193 1560 6230 3000 10983 Total Rehabilitation Requirement for XI Plan Period NTPC 0 800 6790 7000 14590 State Generation Utilities 387 2240 8720 1000 12347 GRAND TOTAL 387 3040 15510 8000 26937 Source: Data collected from Central Electricity Authority Note: (i) Spill-over includes works that were initiated but could not be completed within the X Plan\. (ii) NTPC follows a rolling plan for R&M and although a large spillover is indicated here, significant works have been completed within the X Plan period\. 6\. Large fleet of coal-fired plants is due for rehabilitation\. As shown in the table above, many of the old coal-fired power plants (NTPC as well as state utility owned plants) are now due for rehabilitation and life extension\. These plants offer opportunity to add low cost power to the 30  starving grid and improve their operational efficiencies in a shorter time span16 through a well designed renovation and modernization (R&M) program\. In addition to lower costs and positive environmental impacts, the R&M presents fewer challenges since (i) land is already in possession; (2) transmission facilities already exist; and (iii) coal, water and other linkages are available\. 7\. Barriers to Implementation of Renovation and Modernization Program\. The key unanswered question is why R&M investments are not materializing despite prevailing power shortages and potential for low cost capacity augmentation\. Based on extensive stakeholders consultations17, the following barriers to R&M in India have been identified: a\. Difficulty in securing long plant shutdown needed for R&M\. Many of the best candidates for R&M are owned by states which are facing severe power shortages and are therefore reluctant to have them out of service for the length of time required for R&M\. The additional cost of arranging energy during shut down periods, for these fully depreciated plants is a significant burden on the utilities as well as the States\. b\. Regulatory issues\. There is significant uncertainty about whether the full R&M capital expenditure will be passed through to the rate base of the generation companies and on the sharing of benefits of R&M between generators and consumers\. c\. Limited institutional capacity at the utility to take up R&M projects\. Most generation utilities in India have plans for large green-field capacity addition over the eleventh five year plan period (2007-12)\. Utilities tend to accord a higher priority to green-field capacity addition over R&M projects, since the latter are perceived to be more risky, require much greater preparatory effort and the utility's institutional capacity to implement projects is limited\. d\. Lack of energy efficiency orientation\. In the past, Indian power generation utilities and planning agencies have been primarily concerned with capacity enhancement and life extension of coal-fired generation and not the efficient operation of these facilities\. e\. Time and cost overruns and contract management difficulties in the past\. Utilities are discouraged from taking up R&M schemes by the implementation delays, cost escalations (due to surprises when machines are opened up) and contractual difficulties during implementation\. f\. Poor O&M practices and internal management capacity have resulted in the long-term benefits from past R&M being unsustainable\. Most state government generators, with a few exceptions, have very poor capacity in terms of skills for operating and maintaining plants\. g\. General financial distress of state power utilities\. The poor financial situation in the state power sector results in limited debt servicing ability\. Available financing usually gets used to firefighting, ad-hoc investment or politically motivated schemes instead of 16A new coal based thermal plant takes about 36-42 months after the contract award, while well planned Renovation & Modernization work could be completed in 24-30 months with around six months plant down time\. 17A two day workshop was conducted in September 2005 involving key stakeholders including state generators, NTPC, PFC, CEA, external donors, the GOI and state governments\. In addition, detailed discussions were carried out with various stakeholders separately\. Stakeholder consultations on barriers to R&M were held again in a workshop organized in May 2008 to discuss options for regulatory treatment of R&M\. 31  schemes with long payback and short-term costs, i\.e\., R&M\. Even when R&M is financed, usually the lowest capital expenditure option is considered first\. 8\. GOI Initiatives for Improved Performance of Generation Plants at the State Level\. With regard specifically to rehabilitation of coal-fired generation, the National Electricity Policy states that "Renovation and modernization for achieving higher efficiency levels needs to be pursued vigorously and all existing generation capacity should be brought to minimum acceptable standards\." The National Tariff Policy also encourages the development of R&M projects and states that a multi-year tariff (MYT) framework may be prescribed which includes capital investments and an incentive framework to share the benefits of efficiency improvements between the utilities and beneficiaries\. 9\. In addition, GOI launched a program called "Partnership In Excellence (PIE)" in August 2005 with the objective of enhancing the performance of under-performing power stations (with less than 60 percent Plant Load Factor) in the country\. Under the PIE program, some of the well- performing generation utilities (such as NTPC Ltd and Tata Power)18 partnered with 16 under- performing power stations, while another four power plants implemented O&M improvement steps on their own\. The PIE program was focused on improvement of power plant availability ­ the primary objective being to improve plant load factor in PIE stations which were originally operating between 40- 60 percent to more than 60 percent\. The program was broadly successful in achieving this objective, though significant scope for further improvements remains\. State Context: West Bengal 10\. West Bengal is a state in eastern India, with the third largest state economy in India\. An agriculture-dependent state, West Bengal occupies only 2\.7 percent of India's land area, though it supports over 7\.8 percent of India's population and is one of the most densely populated states in India\. Although agriculture is the leading occupation, the service sector is the largest contributor to the gross domestic product of the state, contributing 51 percent of the state domestic product compared to 27 percent from agriculture and 22 percent from industry\. 11\. West Bengal is a relatively better performing state in terms of availability of power\. It faces an energy shortage of 2 percent and peak shortage of 3 percent\. It currently earns around Rs\.10, 000 million annually by trading power\. The per capita consumption of power is 266 kWh which is lower than the all India average of around 704 kWh\. It is estimated that peak demand in West Bengal by the end of the eleventh plan will be 6,472 MW against an availability of 7,190 MW (including the state's share of central sector generation), with a peaking surplus of 11\.1 percent and an energy surplus of 42\.2 percent\. 12\. West Bengal Power Development Corporation Limited (WBPDCL) has a total generation capacity of 2820 MW across six thermal power plants located at Bandel (4x80+1x 210 MW), Bakreshwar (5x210MW), Kolaghat (6x210 MW), and Santhaldih (4x120 MW)\. WBPDCL plans to add 2230 MW over the eleventh plan period\. In addition, three plants of 1270 MW which were scheduled to be commissioned in the tenth plan are delayed and now scheduled for 18The program was shouldered primarily by NTPC who partnered 15 of the 20 power stations\. 32  commissioning in the eleventh plan\. \. During 2007-08, WBPDCL generated 16,805 MUs of energy and achieved an aggregate PLF of about 68 percent\. State Context: Maharashtra 13\. Maharashtra, located in western India, is the country's third largest state in area, second largest in population, second most urbanized (42 percent) and has one of the highest per capita incomes among large states\. It is a heavily industrialized state and contributed nearly 15 percent of the country's industrial output and 13\.2 percent of its GDP in year 2005-06\. 14\. Maharashtra state has been facing severe power shortages\. The peak deficit of around 13,575 MW in 2007-08 has resulted in severe load shedding in almost all parts of the state\. It faces an energy shortage of around 18 percent and a peak shortage of around 23 percent\. The per capita consumption of power is 609 kWh which is close to the all India average of around 704 kWh\. The state generation utility has estimated that peak demand in Maharashtra by end of Eleventh Plan will be 21,954 MW against an availability of 18,400 MW (including the State's share of central sector generation), with a peaking shortage of 16\.2 percent and a marginal energy surplus of 0\.9 percent\. 15\. Maharashtra State Power Generation Company Limited (Mahagenco) is the second largest power generation utility in India after NTPC, and has a total installed capacity of 9,972 MW, of which coal-fired generation is 6830 MW\. The thermal plants are located at Bhusawal (475 MW) Chandrapur (2290 MW), Khaparkheda (840 MW), Koradi (1,080 MW), Nasik (910 MW), Paras (305 MW), Parli (930 MW)\. By 2013 Mahagenco plans to add 7000 MW of additional capacity\. States Context: Haryana 16\. Haryana is a state in northern India and surrounds Delhi on three sides\. The state of Haryana is one of the richest, leading in agriculture and most industrialized states in the country\. Haryana has seen its power shortages grow in recent years, with peak-time deficits about 1200- 1500 MW and off-peak deficits about 400-600 MW, which translates to 10 percent to 30 percent of installed capacity of 4680 MW\. The per capita consumption of power is 715 kWh which is higher than the all India average of around 704 kWh\. 17\. At present, the existing generation capacity within Haryana takes care of only about 40 percent of the total power requirement of the state, while the remaining is secured from central sector generation utilities and surplus neighboring states such as Himachal Pradesh\. Since Haryana relies heavily on power purchase from external generators and is also faced with significant power shortages, it has planned capacity additions and power procurement from Independent Power Producers (IPPs) of 7,182 MW during the XI plan to meet the demand­ supply gap\. The state utility has projected peak demand by end of XI Plan to be 6,839MW against peaking capacity of 5,409MW with a peaking shortage of about 21 percent\. However, the state is expected to have an energy surplus of about 1\.7 percent with an availability of 39,054 MU against a requirement of 38,417 MU\. 33  18\. Haryana Power Generation Company Limited (HPGCL) has a total thermal generation capacity of 2,195 MW, comprising of Faridabad Thermal Power Station (3x55MW), Panipat Thermal Power Station (4x110MW, 2x210MW, 2x250MW) and Deenbandhu Chottu Ram Thermal Power Plant (2x300MW)\. In addition, the company also has 64 MW of hydropower capacity at Yamunanagar\. During the XI five year plan HPGCL plans to add another 1800 MW of thermal generation capacity\. Regulatory Aspects of R&M 19\. At the concept stage for this project, a number of barriers were cited as reason for very little R&M taking place in India\. However, little was known about how the regulatory framework may need to be altered to improve the investment climate for R&M\. Discussions at the state and national level (with state level regulators, utilities, CERC, CEA, etc\.) found a strong appetite for a comprehensive assessment and suggestions for an appropriate regulatory framework for R&M\. As a result, the Bank has embarked on a substantive work stream with policy makers at the national and state level with the objective of highlighting possible options for treatment of R&M proposals\. The engagement is centered on a study carried out by a consortium of international and Indian consultants (IPA & KPMG India) funded by ESMAP\. The terms of reference for the study were discussed and agreed with the Indian Forum of Regulators or FoR (an official group comprising the Chairmen of the central and state electricity regulatory commissions of India)\. 20\. The predominant form of tariff regulation in generation and distribution across India is a form of cost-plus\. The regulator determines which costs incurred by the generator can be charged to buyers through the tariff\. The generating company will normally have some clarity ex-ante on the extent to which it can recover its cost of capital and operating costs from consumers via the published tariff determination process (`Terms and Conditions of Tariff Regulations' as notified by the concerned regulatory commission)\. Allowed operating costs (referred to as "norms") are often based on known costs for other plants that may be of similar vintage and superior performance or newer plant\. In this way, the regulator can ascertain the costs that a well run plant should be incurring\. The generator is automatically penalized for inefficient operation, as any costs above the norms must be absorbed by the generator\. Prior to incurring large capital expenditures (such as for carrying out R&M), the generating company will normally request ex- ante approval to be able to pass these extra costs through to the consumer via the tariff\. The regulator normally uses what is known as a viability test to determine whether or not to allow the capital costs\. Through its determinations on treatment of operating and capital costs, the regulator plays an important role in determining whether an investor finds an R&M investment viable or not\. 21\. Indian states are now moving to tariffs being set for approximately 3-5 years under what is known as a Multi-Year Tariff (MYT) framework rather than annual determinations\. Additionally, the National Tariff Policy requires that power should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled/owned company as an identified developer, in which case tariff would be determined based on norms (as is the case with the Bank/GEF project)\. The result is that within a state, there can be a mix between cost-plus methods of determining the tariff and forms based on market- 34  determined tariffs\. The regulatory framework is in a state of evolution across India and the treatment an R&M investment will receive can vary depending on the state\. 22\. Several barriers arising from the existing regulatory framework were identified by the study\. These include: Regulators have limited technical and economic capacity to evaluate proposals for investment (for carrying out a proper viability assessment on investment proposals)\. There is lack of clarity over the conditions under which the regulator will allow the generator to recover capital costs incurred for R&M from consumers\. There is uncertainty over regulatory treatment of operating norms, especially whether they would be held appropriately high after investment has taken place to allow the investor to recoup the necessary returns\. Whether recovery of fixed costs would be jeopardized by reduced plant availability due to outage during rehabilitation\. Lack of clarity as to how the regulator would treat cost escalations, time delays and any contractual difficulties that the generating company or supplier of R&M may incur\. Uncertainty over what the regulatory framework will be, as regulatory arrangements are in a state of flux in a number of states\. 23\. Apart from addressing these barriers, the regulatory framework can also help address wider barriers to R&M\. These include energy shortages and ensuing short-term high costs of outage for rehabilitation, limited institutional capacity at the utility to take up R&M, weak O&M practices and financing constraints in the sector\. Several of these barriers create risks that could be reduced or better allocated through a regulatory framework that is cognizant of these issues\. 24\. The study conducted by IPA and KPMG India assesses the regulatory framework to consider how investment risks can be reduced and returns can be better aligned with the risks\. To gather wide sector input on initial findings of the study, a workshop was held in Delhi in May 2008\. Attendees included state regulatory chairmen, members and senior officials of the CERC, senior management of state utilities and private sector investors\. The objective of the workshop was to disseminate draft findings from the study and to initiate a dialogue between different stakeholders on the need for improving incentives/reducing risks\. The workshop was successful in increasing awareness\. There was considerable input from across the different stakeholders\. While a number of issues were brought up in the study, the two most important issues discussed during the workshop were: In carrying out the viability test (discussed above), regulators currently tend to assess the viability of R&M based on the engineering costs of the R&M and how this compares with ad hoc proxies for costs per MW of new capacity that a generator "should be" incurring\. Such an assessment fails to incorporate and value a number of benefits of carrying our R&M and would not offer the correct result\. Regulators should consider the financial, or preferably, the economic viability of the investment\. In a financial evaluation, the project would be accepted if the financial benefits outweighed the financial costs\. A full economic evaluation would consider all the options available to the distribution company for meeting its power generation needs which would include the cost of short-term purchases due to a plant shutdown as well as any revenue it would forgo due to un-delivered energy during the extra construction period that would be required if the plant were replaced instead of being rehabilitated\. 35  Analytical work carried out to assess the risks and returns of options suggested by the study find that the generator currently (under the cost-plus method) passes on a disproportionately high return to the distribution company in relation to the risk it faces in carrying out the investment\. This balance would need to be re-adjusted in favor of the generator to increase generator incentives to invest in R&M\. 25\. The final study report put forward a menu of options for addressing the risks beginning with simple modifications to the current cost-plus option leading through to more advanced versions of cost-plus and versions based partly or wholly on market based tariff determinations\. To deal with institutional weaknesses, the options include variants that allow the private sector to invest and gather returns from R&M\. The menu of options offers different solutions for different levels of market involvement, allowing the options to apply across the many states or many situations within a state\. The options offer progressively better alignment of risks- responsibilities-rewards across different stakeholders and potentially, higher returns\. 26\. Further work on disseminating the findings of the study will be carried out together with initial discussions about how to implement the suggested options\. The following documents are included in the project file for reference: Policy note to the Government of India: Improving regulatory incentives to invest in rehabilitation of coal-fired generating plants in India\. June 2008\. IPA Energy + Water Consulting and KPMG India Regulatory study to encourage energy efficiency through investments in rehabilitation of coal fired generation plant in India September 2008\. 27\. The financial analysis for this project incorporates scenario analyses for different possible tariff treatments and investment returns, based on different tariff decisions the regulators in question may take\. The viability of the investment is dependent on this regulatory treatment\. For this reason, project preparation has included detailed discussion with the concerned regulators and the regulatory cells within the utilities\. Whilst the state regulatory commissions are independent bodies and we cannot second guess their rulings, our understanding from these discussions is that investments under the project are likely to receive regulatory approval and will be allowed to charge tariffs that allow the utility to recover their costs of R&M over time\. Investment returns under a range of possible regulatory treatments is included in the financial analysis for this project\. 36  Annex 2: Major Related Projects Financed by the Bank and Other Agencies INDIA: COAL FIRED GENERATION REHABILITATION PROJECT WORLD BANK AIDED PROJECTS IN THE ENERGY SECTOR Project Name Status Board IP DO Sector Issues Addressed Approval rating rating IN: Power System Supervision 18 March 2008 S S Strengthen India's electricity transmission system to Development Project ­ IV increase reliable power exchange between regions and states\. IN: Rampur Hydropower Supervision 13 September S S Address power shortages, Institutional Strengthening of Project 2007 SJVNL, Develop 412 MW hydropower project IN: Power System Supervision 19 Jan 2006 S S Improvement of outcome-orientation and institutional Development Project ­ III development of POWERGRID IN: Power System Closed 3 May 2001 S HS Improve grid and power system commercial operations\. Development Project ­ II Independent regulation\. IN: Renewable Energy II/ Closed 27 June 2000 S S Develop small hydro resources through private sector Energy Efficiency investments\. Promote Energy Efficiency investments\. IN: UP Power Sector Closed 25 April 2000 S U Sector sustainability problems due to high losses\. Restructuring Independent regulation, sector reforms\. IN: Rajasthan Power Closed 18 January MS MS Sector sustainability problems due to high losses\. Sector Restructuring 2001 Independent regulation, sector reforms\. Project IN: Nathpa Jhakri Hydro Closed 2 March 1989 S S Power shortages, strengthen HPSEB operations, and Power Project strengthen institutional capacity development of hydropower\. IN: Orissa Power Project Closed 14 May 1996 U U Sector sustainability problems due to high losses\. Independent regulation, sector reforms IN: Haryana Power Sector Closed 15 January U U Sector sustainability problems due to high losses\. Restructuring Project 1998 Independent regulation, sector reforms\. IN: Andhra Power Sector Closed 18 February S S Sector sustainability problems due to high losses\. Restructuring Project 1999 Independent regulation, sector reforms\. High untargeted subsidy to agricultural consumers\. Ratings: HS= Highly satisfactory; S=Satisfactory; MS=Moderately Satisfactory; MU=Moderately Unsatisfactory; U=Unsatisfactory; HU=Highly Unsatisfactory; NA=Not Applicable; NR=Not Required INTERNATIONAL FINANCE CORPORATION AIDED PROJECTS IN THE ENERGY SECTOR Project Type Project Company Objective Board Date Tata Mundra Loan 8 April 2008 Coastal Gujarat Power Limited To finance the first ultra mega project -- Project India's first 800 MW unit supercritical technology thermal power plant, which is likely to be the most energy-efficient, coal- based thermal power plant in the country IHDC Loan 25 July 2005 Dodson-Lindblom Hydropower Private Limited To develop Mini Hydro Power Plants in (Dodson- (DLHPPL) and Ascent Hydro Projects Limited India Lindblom (Ascent) merged into one company, Indian Hydropower Hydropower Development Corporation (IHDC) Private Ltd) AD Hydro Loan 31 Oct 2003 Allain Duhangan Power Company Ltd\. To help meet peak and energy shortages Power Limited (ADPCL) will be jointly owned by Rajasthan through construction of a 192MW run-of- Spinning & Weaving Mills Ltd\., HEG Limited the-river hydroelectric power plant in and Malana Power Company Ltd\. Himachal Pradesh Tala Loan 31 Jul 2003 A joint venture between Tata Power Company Promotion of the first public private joint Transmission Ltd\. and Power Grid Corporation of India Ltd\. transmission project in India; Expansion of to establish the Tala Transmission project\. inter-regional transmission capacity and evacuation of power from the 1,020 MW Tala Hydroelectric Project in Bhutan\. 37  ASIAN DEVELOPMENT BANK (ADB) AIDED PROJECTS IN THE ENERGY SECTOR Project Name Type Approval Date Executing Sector Issues Agency Himachal Pradesh Clean Loan 23 October 2008 Himachal Pradesh Increased production and use of Energy Development Power Corp\. Ltd\., clean energy in a financially Investment Program (MFF) Himachal Pradesh sustainable manner through run- State Elec\. Board of-the-river hydropower schemes\. National Power Grid Loan 28 March 2008 Power Grid Upgrading transmission corridor Development Investment Corporation of from Uttaranchal\. Program (MFF) India Limited Madhya Pradesh Power Sector Loan Project-1: 4 April 2007 Madhya Pradesh Improvement in operational Investment Program (MFF) Project-2: 4 April 2007 Power efficiency, voltage profile and Project-3: 21 Aug 2007 Transmission power delivery capacity of Project-4: 21 Aug 2007 Company Limited Madhya Pradesh\. Uttaranchal Power Sector Loan 30 March 2006 Uttaranchal Expansion of the northern grid and Project (MFF) Project-1: 2 January 2007 Energy & increase the pace of economic Irrigation development in less-developed Department regions in Uttaranchal state Power Grid Transmission Loan 21 December 2004 Power Grid Strengthen India's national (Sector) Project Corporation of transmission grid to improve India Ltd\. system reliability, facilitate power transfers and reduce losses Assam Power Sector Loan 10 December 2003 Assam State Strengthening of transmission and Development Program (Project Electricity Board distribution systems Loan) Assam Power Sector Loan 10 December 2003 Government of Improvement of financial viability Development Program Assam of sector, and assistance in development of legal and regulatory framework for sector growth State Power Reform Project Loan 12 December 2002 Power Finance Line of credit for power sector Corporation Ltd\. financing\. (PFC) Madhya Pradesh Power SDP Loan 6 December 2001 Madhya Pradesh Facilitate the restructuring of the (Project Loan) Electricity Board power sector to improve sector efficiencies\. Madhya Pradesh Power Sector Loan 6 December 2001 Government of Facilitate the restructuring of the Development Program Madhya Pradesh power sector to improve sector efficiencies\. 38  Annex 3: Results Framework and Monitoring INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Results Framework PDO Outcome Indicators Use of Outcome Information Improve energy Reduction in fuel (coal and oil) consumption per To review detailed monitoring efficiency of selected unit of power generation after completion of reports prepared by the generating coal-fired power R&M units; Find causes and work out generation units remedial action plan of technical through R&M and and managerial actions in case of improved O&M unsatisfactory improvements Global Environment Objective Reduction of Percentage reduction in carbon dioxide Dissemination of benefits of greenhouse gas emissions per kilowatt hour as a result of proposed Renovation and emissions per kilowatt energy efficiency R&M in selected coal-fired Modernization design approach; of electricity generated power generating units Reporting to Government of India by improving energy Reduction in carbon dioxide emissions as a and determining actions required efficiency of coal-fired result of energy efficiency R&M in selected for further replication power generation units\. coal-fired power generating units\. Intermediate Results Results Indicators for Each Component Use of Results Monitoring Component 1 Number of contracts awarded Gauge implementation of Energy Energy Efficient Capacity rehabilitated and modernized with Efficient Renovation and Renovation and focus on energy efficiency, financed directly Modernization, and take Modernization under this project corrective actions including, implemented for select raising outstanding issues with generation units utility management, state government or at government of India level Component 2 Number of Units for which R&M Monitor progress at the national Barriers to procurement process is initiated at the R&M program level\. implementation of National Level Gauge progress on indicators to Energy Efficient Number of energy audit reports with baseline take suitable remedial measures Renovation and performance information for generation units in case of delays in Modernization projects requiring R&M implementation; workshop reduced Number of Detailed Project Reports produced evaluation (including feedback with investment plans optimized for energy from participants) and follow-up efficiency for generation units requiring R&M to ensure increased awareness by Number of barrier reduction studies / generation company staff technical assistance interventions undertaken by CEA under Bank project\. Number of Utilities in which implementation of agreed O&M and Institutional Strengthening Programs is completed 39  CEA Responsibility Generation Company Generation Companies and Reporting Oil and : at Energy/ : at Energy/ format of R&M R&M Reductions Collection on on Instrument Coal feeder Oil meter agreed Collection Data per For Consumption Measurement coal Audit completion For Consumption Measurement flow Audit completion Calculation Emission as Data and Reports Frequency Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual 5 Yr C 12% 20% C 14% 12% C 18% 17% C 18% 20% 10% 0\.43 0\.30 4 Yr C 12% 20% C 14% 12% B - - B - - 10% 0\.25 - Values 3 Monitoring Yr C - - B - - B - - B - - - - Target 2 Results Yr B - - B - - A - - A - - - - 40 for 1 Yr B - - A - - A - - A - - - - 3 3 3 Updated Baseline from Energy Audit 0\.684 2\.5 0\.703 2\.27 [0\.825] 2\.4 [0\.825] 2\.5 0% 0 0 Arrangements to 2 1 2 2 2 1 1 1, in Nil units the kWh) kcal/kg) Bengal brackets of (Kg/kWh) (Kg/kWh) (Kg/kWh) (Kg/kWh) in utility (ml/ (ml/kWh) (ml/kWh) (ml/kWh) R&M\. (4200 by (%) energy West Maharashtra Haryana Haryana put Panipat each implementation of coal for for been R&M Plant, Plant, Plant, Plant, C=post of reported audit of result period\. project have a project Consumption Consumption Consumption Consumption Consumption Consumption Consumption Consumption ation; value data of 2 intensity as )2 Power Power Power Power this down on Coal Oil Coal Oil Coal Oil Coal Oil epar Energy figures Indicators year TCO Pr shut calorific based CEA\. by completion under emission emissions Thermal Thermal Thermal R&M baseline are to Thermal Specific Specific Specific Specific Specific Specific Specific Specific after during (million in in in in in in in in B= the CO2 CO2 normalize these report completed in units in financed given to Indicators Bandel Koradi Panipat Panipat R&M that be plants are Indicator Panipat, annual will plants Reduction Reduction Reduction Reduction Reduction Reduction Reduction Reduction in other PDO A=pre-R&M; Unit-5, Unit-6, Unit-3, Unit-4, For 1 values Adjusted 2 3 indicate their 3&4 GEO Reduction generation Reduction efficient  Responsibility Generation Companies CEA Generation Companies Generation Companies CEA Generation Companies tional to to to to to to Reporting addi auxiliary and rate, these Collection submitted submitted submitted submitted submitted submitted heat Instrument Data Bank Bank Bank Bank Bank Bank review Collection unit Reports the Reports the Reports the Reports the Reports the Reports the as will Data such Bank Reports The Frequency and Annual Annual Annual Annual Annual Annual Annual 5 parameters Yr 9 640 8 8 8 4 3 4 undertaken\. Yr 9 420 6 7 5 3 3 are Values 3 performance Yr 9 0 4 5 3 3 2 pilots Target 2 cluding Yr 8 0 2 3 1 0 0 in R&M 41 EE 1 Yr 4 0 1 1 0 0 0 indicators where of units list Baseline 0 0 N\.A\. N\.A\. N\.A\. N\.A\. N\.A\. the on of / longer (MW, reports a focus with energy by each for studies for with R&M project National project reports Institutional etc\. this the undertaken which which monitoring at in and audit be for detailed optimized reduction under modernized itiated O&M completed plans is will supervision\. and Units in energy R&M barrier Utilities availability, is information of Indicators Indicators awarded of of of of interventions of financed agreed project\. unit of Clients part Programs as Output contracts number process number number investment number Bank number of rehabilitated performance assistance The: efficiency, with lativeu under NOTE consumption, indicators Number Capacity energy cumulative) Cumulative procurement Level Cumulative baseline Cum (DPRs) efficiency Cumulative technical CEA Cumulative implementation Strengthening Intermediate Component-1 Component-2  Annex 4: Detailed Project Description INDIA: COAL FIRED GENERATION REHABILITATION PROJECT 1\. The Coal-Fired Generation Rehabilitation project is aimed at demonstration of energy efficient renovation and modernization of relatively old coal-fired power generation units in three pilot states and facilitating replication through mitigation of barriers, supporting design studies and dissemination of learnings from demonstration projects\. The project would also facilitate strengthening of institutional capacity of the concerned generation utilities for improved operation and maintenance practices and better monitoring and evaluation of plant performance\. 2\. The proposed project will have the following components: Component 1: Energy Efficiency R&M Pilots (US$295\.9 million) Component 2: Technical Assistance (US$7\.5 million) 3\. The project will be financed by IBRD loans, GEF grants and generators own equity funds as shown in the table below\. Additional leverage is expected to come from follow-on projects of the same type, based on the demonstration of benefits achieved in the GEF program and financed by commercial loans and generators own funds\. Table-4\.1: Financing Plan Component Indicative Financing Plan Costs GEF IBRD Equity Total Energy Efficiency R&M Pilots 295\.9 37\.9 180\.0 78\.0 295\.9 Technical Assistance 7\.5 7\.5 - - 7\.5 Total 303\.4 45\.4 180\.0 78\.0 303\.4 (All figures in US$ million) 4\. A detailed description of the project components is as follows: Component 1: Energy Efficiency R&M Pilots (US$295\.9 million) 5\. This component would provide financing for rehabilitation of 640 MW of old coal-fired generation capacity to demonstrate energy efficient rehabilitation approaches\. The GEF grant would facilitate implementation of necessary safeguard measures as required by the World Bank\. Approach for Energy Efficient R&M 6\. Energy efficient R&M of generation units would go beyond restoration of original generation capacity, life-extension and improved availability\. It would also include modifying (or replacing) some equipment and systems to enable the unit to operate at higher outputs with lower required fuel inputs\. Accordingly, the design of energy efficient R&M is driven by the following objectives: Extension of life of generation unit by at least 15 years Improvement of availability of the generation unit to at least 85 percent Sustained achievement of near-design (or better) maximum continuous rating (MCR) Improvement in energy efficiency of boiler, turbine, generator and auxiliaries, resulting in improvement of unit heat rate to about 2500 kcal/kWh Achievement of lower specific oil consumption through reduction in number of trippings, faster start-up and stable combustion at even lower levels of load 42  Overcome the problem of aging of critical components (leading to lower reliability and shorter residual life) and non-availability of critical spares (due to obsolescence) Incorporation of advanced control and instrumentation systems with several additional features (such as upgraded interlock and protection system) for sustained and safe operation of the generation unit Provision for handling possible degradation of coal quality Compliance with latest environmental norms and reduction in emissions Improvement in operating environment through suppression of noise and dust Facilitate improved operations and maintenance practices 7\. Based on the above design objectives, the typical measures for energy efficient rehabilitation of coal-fired generation units are provided in Table-7\. Table-4\.2: Typical Energy Efficient Renovation and Modernization Measures Plant System Typical EE R&M Measures Improving combustion by replacing burners and mill internals Boiler and Arresting air leakages by replacing worn-out ducts and plugging all leaks in the furnace related and penthouse area auxiliaries Reducing dry flue gas heat loss by introduction of additional heat transfer area Reducing leaks in air heater by providing improved seals Reducing auxiliary consumption using variable frequency drives and replacement of boiler feed pump cartridges with energy efficient models Replacing high pressure valves with problems / replacing internals of high pressure valves Replacement of high pressure parts and tubes with advance design and materials\. Replacement / modification / retrofit with reactive blading of HP, IP and LP turbines Turbine and Making entire regenerative system operational related Modification of cooling water pumps and condensate extraction pumps\. auxiliaries Improving heat transfer in condensers, heaters and other heat exchangers\. Generator Increase of generator rating by using better insulation, improved cooling and better sealing Control and Replacement of entire C&I system with distributed digital control (DDC) system\. Instrumentation Advanced control systems for (i) Furnace safeguards supervisory system, (ii) Automatic Systems turbine run-up system, including electro-hydraulic governor controls, (iii) Turbine protections, and (iv) HP, LP by-pass system\. New steam and water analyzer (SWAS) system complete with wet and dry panels for online information of chemical condition of steam and water\. New uninterrupted power supply (UPS) system to establish reliability of power supply for new DDC, Furnace Safeguard Supervisory System, etc\. Enhancing capacity of coal handling plant, replacing idlers for conveyors, augmenting Balance of stacking capacity etc\. Plant Strengthening and expanding Ash handling system Fire detection and protection system Demineralized water system, service water system Advanced control systems with auto-rapping mechanism shall be retrofitted\. Environmental Suppression of dust in coal handling plant ­ water sprinkler system to suppress dust at and Social transfer points in coal handling plant will be incorporated\. Considerations Ash handling plant ­ water recirculation system to recover water from ash dyke area\. DM plant ­ complete piping and valve will be replaced with HDPE\. 43  Participating States 8\. The Bank and GOI have agreed to focus on 110MW and 210MW units which are in urgent need for R&M in India\. The pilots would cover 640 MW of total capacity across three states, with two generation units of 210 MW, and the another two of 110 MW\. A detailed study of all the eligible generation units (20-25 years age, state utilities owned and 210MW/110MW size) in the country was carried out\. The following generation units have been selected for participation in the project: i) Unit-5, Bandel Thermal Power Plant, West Bengal (210 MW) ii) Unit-6, Koradi Thermal Power Plant, Maharashtra (210 MW) iii) Units-3 & 4, Panipat Thermal Power Plant, Haryana (110 MW each) 9\. The selection of states for pilot interventions has been done in discussion with the Ministry of Power, based on the scale of R&M requirement in the state as identified by CEA and the scope for achieving better energy efficiency and environmental performance by the utility going forward\. Most importantly, each participating state utility has demonstrated its willingness to comply with the criteria specified in GEF Project Brief, i\.e\. (a) carry out energy audits to prepare a baseline performance for the unit; (b) install the required measurement systems and submitting information on a timely basis to the Bank; (c) develop and implement, to the satisfaction of the Bank, EE R&M scheme design; (d) follow all fiduciary and safeguard requirements of the Bank; (e) demonstrate that O&M practices would be (made) adequate; (f) demonstrate financial and economic viability of the scheme\. 10\. The project would involve phased implementation of R&M activities in these three states, starting with Bandel Unit-5, followed by Koradi Unit-6 and finally Panipat Units 3&4\. Accordingly, the project preparation activities in the three states would also be phased, as indicated in the figure below\. While the preparation activities are in an advanced state in West Bengal and Maharashtra, it is expected that status of project preparation in Haryana would be measured against criteria defined in Section-C6 of the main PAD prior to any disbursement for the state\. Indicative R&M Preparation and Implementation Timelines Calender Year 2007 2008 2009 2010 2011 2012 2013 2014 Quarter 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Unit-5, Bandel, West Bengal Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M Unit-6, Koradi, Maharashtra Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M Units 3&4, Panipat, Haryana Consultant Procurement Energy Audit and R&M Design Procurement Lead-Time for Supplies Unit Shutdown for R&M 44  Unit-5, Bandel Thermal Power Station (BPTS), West Bengal 11\. Bandel Thermal Power Station (BTPS) has five generation units ­ four of them of 82\.5 MW capacity each (commissioned in late 1965-66), and the fifth of 210 MW (commissioned in 1982)\. The first four units are planned for replacement with a new unit of at least 500 MW capacity, and the fifth unit is covered under the Bank project for EE R&M\. 12\. Unit-5 of Bandel Thermal Power Station is operating with a heat rate of 2872 kcal/kwh against design value of 2424 kcal/kwh\. The oil consumption is also high at about 20 ml/kwh against a design value of 5 ml/kwh\. The unit is based on modified sub-critical Rankine cycle with one reheat and seven regenerative feed-water heating stages (3 High Pressure heaters, 4 Low Pressure heaters and deaerator)\. The turbine is of three-cylinder reheat, condensing type\. This plant employs direct cooling system for condenser\. It has a boiler of ABL make and turbine of BHEL (LMZ) make\. Generator is supplied by BHEL\. Boiler is a single drum, water tube, natural circulation type with super heaters and reheaters\. It has a front firing system with six ball and race mills\. Boiler is designed for coal with 35 percent ash and calorific value of 4445 kcal/kg\. 13\. Performance of Unit-5 is constrained by lower than designed calorific value of coal, because of which all the six mills have to be in operation\. Induced Draft (ID) fans and Primary Air (PA) fans also operate at full capacity without any margin\. Also there is leakage in High Pressure (HP) turbine parting plane\. Combustion control of the unit does not operate in auto mode\. Condensate extraction pumps are not able to meet the requirements of scheduled load\. A comprehensive energy audit and R&M design consultancy has been conducted by M/S STEAG\. The basic scope of the assignment includes Energy Audit, Baseline Mapping and Remnant Life Assessment/Condition Assessment\. Unit-6, Koradi Thermal Power Plant, Maharashtra 14\. Koradi Thermal Power Station (KTPS) has seven generation units\. (Units 1 to 4 of 105 MW each, Unit 5 of 200 MW, and Units 6 & 7 of 210 MW each)\. Unit 6 is covered under Bank Project for EE R&M\. 15\. Unit-6 of Koradi Thermal Power Station achieved PLF of 72\.2 percent during 2007-08 and had availability of 91 percent\. Unit 6 is of natural circulation reheat type\. Boiler, turbine and generator are of BHEL make\. It employs bag filters to assist performance of ESP\. Comprehensive RLA studies and energy audit studies have been completed by design consultants ­ STEAG\. Work on finalization of technical specifications based on the selected design option is in progress\. Units-3 & 4, Panipat Thermal Power Plant, Haryana 16\. Panipat Thermal Power Station (PTPS) has 8 generation units, first four of 110MW, the next two of 210MW and the two latest units of 250 MW\. Units 3 and 4, under consideration for EE R&M under the project, were commissioned in the year 1985 of 1987, respectively\. Units 3&4 of PTPS are operating at heat rates of about 3465 kcal/kWh against design heat rate of 2529 kcal/kWh\. The PLF for these units was 77\.57 percent and 67\.4 percent respectively during 2007-08\. The boilers of units 3&4 are radiant, dry bottom, water wall tubes, single drum, tangentially fired, natural circulation, direct pulverized coal fired with a balanced draft\. Boiler is provided with 6 Nos\. bowl type mills\. Both boiler and turbine are supplied by BHEL\. Turbine is of impulse type, SKODA make, 26 stages, 3 cylinder, horizontal condensing, reheat, regenerative type\. Generator is hydrogen cooled with terminal voltage at 11 KV\. While the boiler was designed for burning coal of caloric value of 4800 kcal/kg, the coal supplied from Dhori and South Karanpura in Bihar has calorific value of around 4000 kcal/kg\. The poor quality of coal, coupled with poor operation and 45  maintenance practices have resulted into rapid wear and tear of plant which operated now in circle deviation to design values\. HPGCL had appointed M/S STEAG to conduct R&M, RLA studies of units 3 during 2002\. Similar studies for unit 4 were awarded to Central Power Research Institute\. Based on these studies and findings in energy audit to be carried out, HPGCL along with consultants will finalize the scope of R&M\. Component 2: Technical Assistance (US$7\.5 million) 17\. As described in Section A1, implementation of EE R&M at state-level in India is inhibited by several barriers\. While Component 1 (Energy Efficiency R&M Pilots) would support the demonstration of EE R&M approaches across three states and 640 MW of generation capacity, Component 2 aims at measures to address several of these barriers through studies, workshops, capacity building and support to more EE R&M initiatives\. A description of the various measures contemplated to address barriers to R&M, on which the project design have been based, is provided in the table below\. Table-4\.3: Measures contemplated to overcome barriers to Energy Efficient R&M Barrier Measures contemplated Energy Shortages\. Due to the prevailing The project aims to reduce the plant outage to the generation shortage in the country, and the minimum possible by conducting detailed RLA & relatively low cost of generation from old plants Energy Audit studies of the plant to minimize (since these are fully depreciated), utilities find surprises at the time of opening the machines\. it difficult to take old generation units out for Detailed Design studies of the plant also enable to major R&M\. Taking plants off-line for longer systematically plan the shutdown and ensure that periods of time to do major work is politically all the required equipments are available at the risky and economically damaging\. time of shutdown\. Detailed studies would also help reduce the risk of surprises on opening of machines\. Possibility of short term allocation of power supplies from GOI's unallocated share of 15 percent of total central sector generation is being explored with GOI with a view to encourage EE R&M\. Regulatory issues\. There is little regulatory As a part of the project, a study on options for incentive to invest in R&M, even as there is regulatory treatment of R&M projects has been uncertainty whether full R&M capital undertaken with funding from ESMAP\. The study expenditure will be passed through in has been conducted in close coordination with generation tariff\. In the prevailing cost-plus several state electricity regulators\. The findings of tariff regime, it is likely that benefits of the the study have been disseminated through a R&M investment would be passed through workshop\. (see Annex 1) entirely to the customers by means of Capacity building measures under Technical generation tariff reduction\. Even though the Assistance include support to generators and National Tariff Policy announced in 2006 regulatory staff on regulatory aspects of R&M\. provides for a multi year tariff framework to The team would continue dialogue with GOI on cover inter-alia the capital investments implementation of relevant provisions of National necessary for R&M, and suggests sharing of Tariff Policy, 2006\. benefits of efficiency improvements, the 46  modalities for implementing the same remain unclear\. General financial distress of state power The project does not directly address the financial utilities\. The poor financial situation in the distress in the power sector\. However, each sub- state power sector results in limited debt project proposed for financing will be subject to servicing ability of the companies\. Available financial and economic appraisal wherein eligible financing is usually consumed in fire fighting or projects will have to demonstrate adequate inadequately planned schemes instead of financial viability including future O&M budgets\. schemes with long payback and short-term With efficiency increases resulting from EE R&M costs, such as R&M\. Even when R&M is and a part of the resulting benefits being passed to financed usually the lowest capital expenditure the generation utilities, the financial health of option is considered first\. these utilities would be strengthened\. As part of the Project a Financial Management Plan was prepared which aims at improving the financial management performance (corporate governance, financial accountability aspects) of the clients\. Lack of energy efficiency orientation\. In the The project requires measurement of energy past Indian generators and the Indian efficiency performance and incorporation of government system had been primarily energy efficiency as a primary criterion for R&M concerned with improving availability, life project design extension and capacity enhancement in The team proposes to work with the Central designing rehabilitation of coal fired generation Electricity Authority to incorporate energy units\. There has been little focus on energy efficiency parameters in the regular reporting efficiency improvement, in part attributable to requirements of all generators\. the administered pricing (till mid-90s) and relative abundance of coal in India\. This tendency has also been enhanced by PLF linked performance monitoring and incentives rather than heat rate linked incentives\. However over the last few years GOI is laying emphasis on improving energy efficiency in power generation\. Inadequate O&M practices and internal Under ESMAP funding the Bank has hired management capacity\. Most state government consultants for BTPS (West Bengal) and KTPS generators, with a few exceptions, have weak (Maharashtra) for strengthening the current O&M capacity in terms of skills for operating and practices and procedures\. A similar study is maintaining plants\. This has resulted in the proposed for PTPS (Haryana)\. It is also proposed long-term benefits from past R&M being to hire additional consultants to implement the unsustainable\. Measurement and monitoring recommendations\. These will be funded with TA systems prevalent are outdated and often highly resources\. inadequate\. Accountability for performance in In addition, the M&E system to be put in place by this environment is generally low\. this project will improve accountability\. The Partnership for Excellence program addresses this by requiring under performing generators to work with NTPC (and other strong generators) to improve their O&M practices before design of 47  R&M project and sanction of financing\. Lack of long-term financing for R&M\. The Demonstration of EE R&M approaches and Capital Expenditure for R&M needs to be sustained improved performance of plants under managed in such manner as to reduce the short- long term funding from the World Bank would term increase in power cost from the generator\. allow local financial institutions and other However, the financing traditionally available international agencies to offer better long-term for R&M has been of relatively short tenor of funds up to 7 years thereby increasing the cash outflows of the generators and hence their tariff requirement\. Policy barrier to energy efficiency\. While Bank, in its dialogue with GOI, highlighted the there has been a general recognition of the fact that the thrust on ensuring energy efficiency importance of R&M investments there has not as an important criterion in R&M project design been a comprehensive policy thrust for R&M in needs to be increased\. the past\. Recently the National Electricity An agreement has been reached that the Project Policy (2005) and the National Tariff Policy will demonstrate the framework and modality of (2006) have made appropriate enabling doing the same and will work closely with states provisions to allow development of for timely and satisfactory implementation\. comprehensive regulatory and financing frameworks\. 18\. Accordingly, the technical assistance component of the project is aimed at supporting ­ (i) design of Energy Efficiency R&M projects, (ii) implementation of demonstration EE R&M investments funded under Component 1 of the project, (iii) measures to address barriers to replication of EE R&M projects in India, and (iv) strengthening of overall institutional capacities of the generation utilities and other relevant sector entities\. Accordingly, sub-components for the technical assistance program have been formulated as follows: 19\. Sub-component-1: Support for Design of Energy Efficiency R&M (US$2\.5 million)\. This sub-component would support Design Studies (including Energy Audit, Residual Life Assessment, Preparation of DPR, Technical Specifications and Conducting Bid Process), Environmental Assessment and Social Assessment studies for a pipeline of R&M sub-projects with a focus on energy efficiency\. Studies are already underway for Unit-5, Bandel and Unit-6, Koradi with funding from PHRD grants\. Similar studies for Units 3 & 4, Panipat would be undertaken under this sub- component\. 20\. In addition, this sub-component would also cover additional generation units which are not included for financing under Component 1 (EE R&M Pilots) of the project\. It would finance the design and safeguards preparation for EE R&M of about 840 MW of additional capacity in Maharashtra, thus creating a pipeline of such projects\. The additional plants in Maharashtra include Units 1 & 2 of Chandrapur Thermal Power Plant, Unit -2 of Bhusawal Thermal Power Plant and Unit- 3 of Parli Thermal Power Plant\. It is expected that this technical assistance would lead to implementation of EE R&M approaches in at least an additional 840 MW (5 percent) of 18360 MW of old 110MW/210MW capacity in the country\. 21\. Sub-component-2: Support for Implementation of Pilot EE R&M Investments (US$1\.5 million)\. This sub-component would support the hiring of consultants for monitoring the implementation of EE R&M investments funded under Component 1 of the project in the three 48  pilot states\. This would include hiring of implementation support consultant (owner's engineer) and quality assurance consultants\. The implementation support consultant will assist the utility through the entire implementation phase (from selection of vendor to completion of R&M activity) and ensure that R&M works are executed as per the schedule\. The quality assurance consultant will ensure that there is no compromise in quality of supplies and works, and would also certify completion of milestones for release of payments\. 22\. Sub-component-3: Measures to Address Barriers to EE R&M Projects (US$1\.1 million) Under the sub-component GEF grant funds are being made available for technical assistance to CEA aimed at addressing barriers to R&M in India, expanding supplier/consultant interest, reviewing experience from pilot R&M interventions, and strengthening institutional capacities at CEA\. Assistance to CEA in development of wider R&M program in India through several consultancy studies, including inter-alia: o Reduction of Barriers to R&M interventions through studies that address the identified barriers and examine more barriers to enable a wider R&M program to be taken up successfully\. This could include preparation of technical paper on "surprises" in R&M and strategies to deal with them\. o Developing market for implementation of R&M in India by organizing workshops/ road shows to elicit greater participation by design consultants and suppliers in R&M projects in India and exploring Public Private Partnership (PPP) models\. o Reviewing experience from pilot R&M interventions to extract learnings on procurement, R&M implementation and improved O&M practices in World Bank and Kfw financed pilot projects\. Institutional Capacity Strengthening at CEA: The aim of this exercise is to identify measures to strengthen the functioning of CEA, especially in respect of R&M program in the country\. This would include benchmarking CEA with other comparable International and Domestic agencies, examining expectations of the customers of CEA, reviewing the organization structure and skills and finally preparing and implementing the capacity strengthening interventions\. 23\. Sub-component-4: Support for Strengthening Institutional Capacities of Generation Utilities (US$2\.4 million) Under ESMAP funding Bank has hired consultants for BTPS (West Bengal) and (KTPS) Maharashtra for strengthening the O&M practices and procedures\. A similar study needs to be conducted for PTPS (Haryana)\. Consultants need to be hired to conduct more detailed O&M studies and help implement solutions like conducting a performance improvement program, introducing/ strengthening MIS, adherence to the operations manual through systematic checks and introduction of measures to expedite decision making, increase accountability and promote use of control systems\. In addition, this component would also support initiatives for strengthening overall corporate governance and management systems to allow smoother implementation of more R&M projects going forward, and enable better management practices for improved operation of the plant\. 24\. A summary of the four sub-components is presented in Table-9 below\. 49  Table-4\.4: Summary of Technical Assistance Component Ser Description Estimated Implementing Timeline / Status Cost Agency (USD) Support for Design of Pipeline of Energy Efficiency R&M Interventions 1 Units 3&4 Panipat (Haryana) 500,000 HPGCL Procurement of consultants already initiated in January 2009 2 Units 1&2 Chandrapur (Maharashtra) 1,000,000 MSPGCL Procurement of consultants already initiated in September 2008 3 Unit-2, Bhusawal (Maharashtra) 500,000 MSPGCL Procurement of consultants already initiated in November 2008 4 Unit-3, Parli (Maharashtra) 500,000 MSPGCL Procurement of consultants already initiated in November 2008 Sub-Total 2,500,000 Support for Implementation of Pilot EE R&M Interventions 1 Unit-5, Bandel (West Bengal) 500,000 WBPDCL Procurement of consultants would be initiated by end February 2009 2 Unit-6, Koradi (Maharashtra) 500,000 MSPGCL Procurement of consultants would be initiated by end March 2008 3 Units 3&4, Panipat (Haryana) 500,000 HPGCL Procurement of consultants would be initiated by end June 2010 Sub-Total 1,500,000 Support for Addressing Barriers to EE R&M Projects 1 Assistance to CEA in development of 750,000 CEA Procurement of consultants for the R&M Program through about 3~4 studies\. first assignment would be initiated by (Areas include: (i) Consultancy Support June 2009\. The procurement of for Implementation of TA sub-component; consultants for the other assignments (ii) Reduction of barriers to R&M in India; would follow thereafter\. Reports from (iii) Developing Markets for other ESMAP funded assignments Implementation of R&M in India; and (iv) would also be shared with CEA\. Review of Experience from Pilot R&M Interventions)\. 2 Institutional capacity strengthening at CEA 350,000 CEA Institutional Capacity Strengthening Program to be finalized during appraisal\. Sub-Total 1,100,000 Support for Strengthening Institutional Capacity of Implementing Agencies 1 Institutional capacity (including O&M 800,000 MSPGCL Activities to be carried out between practices) strengthening at MSPGCL Mar 2009 and Sep 2011 2 Institutional capacity strengthening 800,000 WBPDCL Activities to be carried out between (including O&M practices) at WBPDCL Mar 2009 and Sep 2011 3 Institutional capacity strengthening 800,000 HPGCL Institutional capacity assessment (including O&M practices) at HPGCL studies to be carried out between Jul 2009 and Jun 2010\. Action Plan to be implemented between 2010 and 2013\. Sub-Total 2,400,000 GRAND TOTAL 7,500,000 50  Annex 5: Project Costs INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Local Foreign Total Project Cost By Component US$ US$ million US$ million million IBRD GEF Component 1: Energy Efficiency R&M Pilots a\. Unit-5, BTPS, West Bengal Plant and Equipment 1\.6 47\.6 10\.0 59\.2 Erection and Commissioning 13\.2 0\.0 0\.0 13\.2 Total Baseline Cost 14\.8 47\.6 10\.0 72\.4 Physical Contingency 1\.7 5\.5 1\.2 8\.4 Price Contingency 1\.8 5\.8 1\.2 8\.8 Total Project Cost 18\.3 58\.9 12\.4 89\.6 Interest During Construction 7\.2 0\.0 0\.0 7\.2 Front End Fee 0\.0 0\.1 0\.0 0\.1 Total Financing Required 25\.5 59\.0 12\.4 96\.9 b\. Unit-6, KTPS, Maharashtra* Plant and Equipment 1\.6 47\.6 10\.0 59\.2 Erection and Commissioning 13\.2 0\.0 0\.0 13\.2 Total Baseline Cost 14\.8 47\.6 10\.0 72\.4 Physical Contingency 1\.7 5\.5 1\.2 8\.4 Price Contingency 1\.8 5\.8 1\.2 8\.8 Total Project Cost 18\.3 58\.9 12\.4 89\.6 Interest During Construction 7\.2 0\.0 0\.0 7\.2 Front End Fee 0\.0 0\.1 0\.0 0\.1 Total Financing Required 25\.5 59\.0 12\.4 96\.9 c\. Units 3&4, PTPS, Haryana* Plant and Equipment 1\.8 50\.0 10\.5 62\.3 Erection and Commissioning 13\.8 0\.0 0\.0 13\.8 Total Baseline Cost 15\.6 50\.0 10\.5 76\.1 Physical Contingency 1\.8 5\.7 1\.2 8\.7 Price Contingency 1\.9 6\.1 1\.3 9\.3 Total Project Cost 19\.3 61\.8 13\.0 94\.1 Interest During Construction 7\.6 0\.0 0\.0 7\.6 Front End Fee 0\.0 0\.2 0\.0 0\.2 Total Financing Required 26\.9 62\.0 13\.0 101\.9 Summary Totals for Component 1 Total Baseline Cost 45\.2 145\.2 30\.6 221\.0 Physical Contingency 5\.2 16\.7 3\.5 25\.4 Price Contingency 5\.5 17\.7 3\.8 27\.0 Total project Cost 55\.9 179\.6 37\.9 273\.4 Interest During Construction 22\.1 0\.0 0\.0 22\.1 Front End Fee 0\.0 0\.4 0\.0 0\.4 Total Financing Required 78\.0 180\.0 37\.9 295\.9 51  Local Foreign Total Project Cost By Component US$ US$ million US$ million million IBRD GEF Component 2: Technical Assistance a\. Support for Design of Energy Efficiency 2\.5 2\.5 R&M (for about 1000MW capacity) b\. Support for Implementation of 1\.5 1\.5 Demonstration EE R&M Investments c\. Measures to Address Barriers to EE 1\.1 1\.1 R&M Projects d\. Support for Strengthening Institutional 2\.4 2\.4 Capacities for R&M Implementation Total Financing Required 7\.5 7\.5 Grand Total Financing Required 78\.0 180\.0 45\.4 303\.4 * Cost Estimates for Unit-6 KTPS are based on the draft Detailed Project Report provided by the Design consultants\. Cost Estimates for Units 3&4 PTPS are provisionally based on the detailed project report for Unit-5 BTPS\. 52  Annex 6: Implementation Arrangements INDIA: COAL FIRED GENERATION REHABILITATION PROJECT 1\. Arrangements for Implementation of Project Investments: The investment component of the project will be implemented through the selected generation utilities ­ WBPDCL (West Bengal), MSPGCL (Maharashtra) and HPGCL (Haryana)\. Reputed consultants under the R&M Design assignment shall be responsible for energy audit, residual life assessment, identification of various design options, support in selection of optimal R&M design option based on a detailed cost-benefit analysis, and support in preparation of bid documents and selection of contractors\. A team of staff from corporate and plant offices of the utility would be responsible for managing these activities\. To supplement existing project monitoring capacity, project implementation consultants would be appointed by each utility during the implementation phase\. In addition, independent third-party quality assurance consultants would be appointed to confirm achievement of project milestones and adherence to quality plan\. 2\. Implementation Arrangements for Technical Assistance\. The vast majority of technical assistance will be implemented by the state generation utilities\. This includes (i) design and safeguard studies for Bank funded EE R&M pilots and for additional pipeline of R&M projects, (ii) project implementation consultancy support, (iii) support for addressing barriers to EE R&M, and (iv) capacity building aspects in the areas of O&M, corporate governance, financial management and others for enhanced sustainability and replication of EE R&M initiatives\. Technical assistance for which the impact is broader than a single state utility, such as policy studies and information dissemination, and support for formulation of a wider R&M program, will be implemented by the Central Electricity Authority, Ministry of Power, Government of India\. 3\. Role of Ministry of Power (MOP), Government of India: MOP is the key counterpart in formulation of this project as well as the formulation of the overall R&M program and policy for the country as a whole\. It has been closely involved in the selection of EE R&M demonstration units and is also the key counterpart for discussions aimed at identifying measures to address barriers to R&M in India\. 4\. The Central Electricity Authority (CEA), which is an attached office of the Ministry of Power, would be responsible for sector level monitoring of power plant performance and overseeing the progress in implementation of broader R&M program in the country\. This is consistent with the mandate given to the CEA by Government of India\. The Bank team would be interacting closely with CEA for dissemination of the experience from demonstration projects and promotion of EE R&M approaches throughout the country\. 5\. Implementation of Operations and Maintenance Strengthening Measures: As a part of the O&M workshops held in May 2008, an "Executive Overview Committee" has been constituted at the corporate level in Maharashtra and West Bengal, which would review the overall O&M strengthening program\. In addition, plant level or corporate level champions have been identified for design, implementation and review of various specific O&M strengthening interventions\. 53  6\. Tie-in with arrangements for sector reforms and institutional capacity building: There is an ongoing sector reforms and capacity building program in each of the select states, where the World Bank is involved through other lending and non-lending engagements\. a) Government of West Bengal is undertaking a comprehensive program for power sector restructuring and institutional capacity building with support from the Department for International Development (DfID), Government of United Kingdom and the World Bank (Project No\. P109176 ­ Non-lending Technical Assistance support)\. Under the program, the process of sector unbundling has been completed and detailed plans for policy reforms and strengthening institutional arrangements have been drawn\. Government of West Bengal (GoWB) maintains an oversight on the design and implementation of these measures\. While the focus so far has been on Transmission and Distribution sub- sectors, it has now turned its attention to generation utilities in the state\. GoWB is overseeing the plan for institutional capacity development at the company which is founded on three pillars ­ Improved Governance, Enhanced Operational Performance and People Excellence\. b) MSPGCL is the second largest power generation company in India, and has embarked on a very large capacity augmentation program comprising of greenfield capacity addition, replacement of very old plants and R&M where economically attractive\. MSPGCL has prepared a detailed institutional capacity development program and has proposed the use of GEF grants for conducting studies on Updating of Accounting and Procurement manuals, Strengthening of MIS systems etc\. c) The Bank is engaging in the Haryana power sector through this project in the generation sub-sector and through a separate project in the transmission and distribution sub-sectors\. The overall sector development issues are being discussed across these two projects with the ministry of power of Haryana government\. In addition, the institutional capacity strengthening aspects will be implemented through the generation utility with the concurrence of the government\. 54  Annex 7: Financial Management and Disbursement Arrangements INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Summary of Financial Management (FM) Assessment 1\. The coal fired generation rehabilitation project (the project) involves the rehabilitation and modernization of three thermal power plants (i) Unit 5 - Bandel owned by West Bengal Power Development Corporation Limited (WBPDCL), (ii) Unit 6 - Koradi owned by Maharashtra State Power Generation Company Limited (MSPGCL/ Mahagenco) and (iii) Units 3 & 4 Panipat owned by Haryana Power Generation Corporation Limited (HPGCL)\. The project would be funded through IBRD loan of USD 180 million and GEF grant of USD 45\.4 million\. The technical assistance component of GEF grant includes technical support to Central Electricity Authority (CEA)\. The Annex covers financial management and accountability arrangements at the project and implementing entity levels\. While the FM assessment of WBPDCL, MSPGCL and CEA is completed, the assessment of HPGCL will be completed in the first year of the project\. 2\. WBPDCL was incorporated in 1985 as a private limited company under the Indian Companies Act, 1956 wholly owned by the Government of West Bengal (GoWB) primarily as a generating company\. MSPGCL was incorporated in 2005 as a result of restructuring of the erstwhile Maharashtra State Electricity Board (MSEB) into four companies19\. HPGCL was incorporated in 1997 as a result of unbundling of the erstwhile Haryana State Electricity Board (HSEB)20\. CEA21 will receive funds for the technical assistance aggregating USD 1\.1 million\. 3\. WBPDCL and MSPGCL have financial management systems which are considered adequate, to account for and report on the project resources and expenditures accurately\. However, these systems, for meeting the needs of the entities need to be further strengthened as detailed later\. Action plans for enhancing corporate governance and financial accountability (CGFA) arrangements for the two companies have been prepared and agreed as a part of the preparation of this project (refer Table 6 later in the Annex)\. Actions have been initiated on some of the critical issues and the balance will be implemented during the implementation of the project\. 4\. HPGCL's financial management systems, corporate governance and financial accountability arrangements are in the process of being assessed and a detailed time-bound action plan will be mutually agreed thereafter, for strengthening and enhancing these arrangements\. Agreement on the action plan and initiation of steps for implementation of the action plan will be eligibility criteria for this component under the project\. 19MSEB was restructured into four companies (i) MSEB Holding Company, (ii) Maharashtra State Power Generation Company Limited (MSPGCL/ Mahagenco), (iii) Maharashtra State Electricity Transmission Company Limited (MSETCL) and (iv) Maharashtra State Electricity Distribution Company Limited (MSEDCL)\. 20HSEB was restructured into two companies (i) Haryana Power Generation Corporation Limited for the generation business and (ii) Haryana Vidyut Prasaran Nigam Limited for the transmission and distribution business\. In the second transfer scheme the distribution business was transferred from HVPNL to Uttar Haryana Bijli Vitran Nigam Limited and Dakshin Haryana Bijli Vitran Nigam Limited respectively 21CEA's roles and responsibilities are defined under the Electricity Act 2003\. \. 55  Financial Management Strengths, Weaknesses and Mitigating Arrangements 5\. The strength of the project in the area of financial management is that budgeting, accounting and reporting systems are operational which will be used for accounting and generating the required financial reports under the project\. However both WBPDCL and MSPGCL have not received any IBRD loan in the past and thus do not have any experience of the Bank's FM policies and procedures although WBPDCL has implemented projects that have been externally funded (eg\. JBIC funded projects since 1997)\. There is some awareness of IBRD procedures among some senior serving officials of HPGCL since the erstwhile HSEB had earlier implemented a Bank financed project\. 6\. During the project preparation, the Bank team conducted a high level review of financial management, corporate governance and financial accountability arrangements of WBPDCL and MSPGCL22 which has indicated that the companies have institutionalized certain cardinal principles, in areas like accounting, auditing, internal control, budgeting and reporting which have laid the foundation for a basic financial accountability and corporate governance framework\. However there is a need to further improve these arrangements since the two state- controlled companies are not under any corporate governance mandate and the financial systems and procedures are largely governed by decades old rules and regulations which in some cases are yet to be revised and updated\. The review of HPGCL has been initiated and the CGFA report once completed will identify the areas that require further improvements together with the action plan\. Initial assessment of HPGCL points toward the need for overall strengthening of all aspects of financial management and CGFA arrangements\. 7\. The FM and CGFA reviews undertaken during project preparation have identified a few areas23 where WBPDCL and MSPGCL need to take actions and an action plan for strengthening CGFA arrangements has been discussed with WBPDCL and MSPGCL to further develop FM capabilities in these areas\. Several actions have been initiated during preparation of the project\. In case of WBPDCL they include appointment of independent directors, constitution of an audit committee, conversion into a public limited company, strengthening internal audit function and in-year financial reporting\. In case of MSPGCL the actions include migrating from accounting based on the Electricity Act to that prescribed under the Companies Act, updated delegation of powers, plans to update financial manuals, revamp internal audit function, appointment of an independent director and set up an audit committee\. The preliminary review of HPGCL finds the need for overall strengthening of FM arrangements\. 22 A report on "Corporate Governance and Financial Accountability (CGFA) arrangements" prepared by the Bank for these two companies is available in the project files\. Additionally, Bank also conducted a study in 2006, which reviewed the financial accountability arrangements of selected state level entities in power sector, and recommendations of which have been taken into account while conducting these CGFA reviews\. 23/ Most importantly there is a need to strengthen further the internal audit framework and there is a need to develop finance manuals\. 56  Table-7\.1: Financial Management Risk Rating Previous Risk Mitigating Measures Residual Risk Risk Assessment Inherent Risks Country level M India country level rating relevant only to the extent of M (India) funds transfer between GOI and the states on back-to-back basis Entity level (at H MSPGCL & WBPDCL - Action plan to improve corporate S MSPGCL, governance and financial accountability has been agreed; WBPDCL) Internal audit arrangements are being strengthened; Independent directors have been appointed in WBPDCL; Independent directors to be inducted in the Board of MSPGCL in sufficient numbers (only one has been appointed); Both companies have taken action on updating financial management manuals\. HPGCL ­ significant improvements required in FM and CGFA arrangements for which action plan will be prepared and agreed with management with credible actions on the ground in critical areas serving as an eligibility criteria Project level S Only 4 contracts expected to be financed for R&M M component in each company which would result in a few large & bulky payment transactions as per contractual terms\. To enhance internal control and independent oversight, an independent supervision consultant/ quality assurance consultant (appointed under terms of reference acceptable to the Bank) will conduct the technical and financial verification of contractual progress and milestones achievement before payments are released Overall Inherent Risk M Control Risks Budgeting S Few WB financed transactions could be separately tracked M by creating separate budget codes\. Institutional capacity will be enhanced for planning and budgeting\. Accounting S Separate General Ledger codes for WB financed contracts M will be maintained to separately track these items\. Internal Controls S Independent third party monitoring arrangements will be M put in place to assist in contract management\. Invoices will be certified by this third party monitoring agent after verifying the contractual milestones, before payments are made\. Adequate internal controls (including internal audit) are being put in place for WB financed project\. A detailed project implementation plan will lay down project FM structure, delegation of powers, detailed procedures for receipt and expenditure of project funds, periodic reporting on project progress in an agreed format and audit (internal and annual) terms of reference\. Annual project audited statements will be disclosed on the website of the 57  respective entities\. Funds flow S Too many layers for the funds to pass through to M implementing entities\. Direct payment options will be preferred\. Contractual payment milestones will be designed in a manner that helps establishing clear linkages between physical outputs and the level of progress achieved\. Counterpart funding will be made available Financial M Interim unaudited financial reports (IUFRs) will include M Reporting additional reconciliations of contract wise expenditures Auditing S Independent auditor, acceptable to the Bank, with agreed M terms of reference for WB financed project Overall Control Risk M Residual Risk Rating Moderate 8\. Although the FM risk from a fiduciary perspective for this project is rated at Moderate, there are significant corporate governance and FM capacity issues at an institutional level in the implementing entities for which an action plan24 has been agreed upon for MSPGCL and WBPDCL\. A similar action plan will be agreed for HPGCL during implementation of the project\. Arrangements for Oversight and Accountability 9\. WBPDCL, MSPGCL and HPGCL will be responsible for the FM arrangements of the project handled by them\. WBPDCL is wholly owned by GoWB\. A registered Private Limited Company under the Companies Act, 1956 it converted into a Public Limited Company on June 16 2008 and on December 12 2008 four independent directors were appointed to its Board\. WBPDCL's Board of Directors (Board) comprises a Chairman (a Minister in GoWB), Managing Director (MD), three government nominee directors, three independent directors and three full- time functional directors ­ technical, operations and finance\. The board meets, on an average five times in a year\. WBPDCL plans to set up an audit committee with independent directors\. 10\. MSPGCL is wholly owned by GoM and is responsible for generation of electricity in the state of Maharashtra\. It is registered as a Private Limited Company under the Companies Act, 1956\. By virtue of being a private limited company and wholly owned by GoM, MSPGCL has limited financial and operational autonomy with regard to decision making\. MSPGCL has plans to convert into a Public Limited Company at the opportune time and bring in greater transparency and accountability although no time frame has yet been specified\. MSPGCL's Board comprises a Chairman (part-time), MD, one government nominee director, a recently- appointed independent director and three full-time functional directors (finance, operations and projects)\. The Board meets twice a month on an average\. 11\. HPGCL is a Government Company under the Companies Act 1956\. HPGCL has a ten- member Board comprising Chairman (FC&PS Power GoH); MD; three part-time directors25; two 24Due to small loan size relative to the investment requirements of these companies, the extent of leverage under the present loan in influencing entity level reform actions is limited\. However in spite of this, the companies have agreed to undertake several reform oriented actions (as detailed in later sections of this Annex) to strengthen transparency, corporate governance and accountability reflecting the ownership on these issues\. 25These directors are MDs of the unbundled utilities ­ HVPNL (transmission) and UHBVNL and DHBVNL (distribution) 58  full-time functional directors (projects, technical) and two independent directors (nominated by PFC and CEA)\. The Board meets on a monthly basis\. There is a functioning audit committee, without independent directors\. 12\. The implementation arrangements for the project, which is institutionalized at different levels of hierarchies of the three organizations, are discussed in detail in Annex 6 of the PAD\. MSPGCL, WBPDCL and HPGCL shall provide the fiduciary assurance to IBRD over proper and efficient use of loan proceeds\. The mainstream FM systems of WBPDCL, MSPGCL and HPGCL (after strengthening), housed as a part of their general accounting and financial systems will be used to generate the financial and other progress reports under the project\. Project Costs 13\. The total project cost is estimated at around USD 303\.4 million\. All R&M related project costs and expenditures will be paid for and recorded in the books of the respective implementing entities in accordance with their accounting policies and procedures\. In addition to the three state generation utilities, a part of the Technical Assistance component (USD 1\.1 million dollars ­ tentatively six consultancies) will be implemented by and paid through CEA, in line with the accounting policies and procedures detailed in the Operations Manual submitted by CEA\. All of these will be prior review contracts and will follow the Bank procurement guidelines\. 14\. Under this project, the Bank will finance four large Renovation & Modernization (R&M) contracts for each of the three thermal generation plants at Koradi (MSPGCL), Bandel (WBPDCL) and Panipat (HPGCL) procured under the project\. The number of transactions under the project is expected to be few, but large and bulky\. All contractual payments will be made after due verification of the bills in accordance with the procedures laid down by the companies in the project implementation plans and their delegation of powers\. There would be an independent quality assurance consultant to be employed by each of the three companies who would verify the achievement of the contractual milestones to enable and certify payment\. Under the project the companies will prepare separate project financial statements, which will help in distinguishing costs financed by the proposed loans\. The utility capacity building activities under the TA component will include consultancy support in the areas of O&M, corporate governance, financial management and others\. Funds Flow 15\. The Project funds (IBRD of USD 180 million and GEF grant of USD 45\.4 million) will flow from World Bank to GOI\. In line with normal practices, an appropriate budgetary line item will be established by DEA (CAAA) for external funds, and similarly appropriate arrangements will be made on the expenditure side for transfer of these proceeds to the states (by way of regular channel of `Additional Central Assistance')\. GOI will pass on these funds to the respective states (West Bengal, Maharashtra and Haryana) on terms and conditions (interest rates, repayment terms, foreign exchange rate risk) which mirror the IBRD and GEF terms (i\.e\. on a back-to-back basis) within two weeks of receipt of funds\. 16\. The states will also transfer, within two weeks of receipt, these proceeds to the respective utilities (WBPDCL, MSPGCL, HPGCL) on terms which mirror the IBRD/GEF terms, including the interest rates, repayment terms and the foreign exchange rate risk\. The respective state governments will also need to make suitable budgetary provisions on receipt / expenditure side to receive/ make transfer of these monies\. 59  17\. The funds flow options for the loan project are (i) direct payments by the Bank to the supplier/ contractor/ consultant in foreign currency and/ or rupee payments above a threshold limit based on bills that are duly approved and authorized for payment and (ii) funds flowing through GOI to the project via Ministry of Power / the state governments (GoWB, GoM, GoH) as appropriate\. In the latter case, the project will open a separate bank account in a Commercial Bank to receive the initial advance (based on forecasts for next six months) under the funding arrangements followed by periodic replenishments based on next two quarters' forecasts as reflected in the interim unaudited financial reports (IUFRs)\. WBPDCL has expressed its preference for direct payments by the Bank for the investment component of the project\. CEA has also expressed preference for direct payment to the consultants by the Bank for the Technical Assistance component\. The remaining entities ­ MSPGCL and HPGCL have preference for forecast based advance and replenishments\. Impact of procurement arrangements 18\. The contracts being funded under the project for each of the implementing entities are limited as laid out in the procurement section\. R&M contracts will be first initiated by WBPDCL, to be followed by MSPGCL and thereafter by HPGCL\. As these R&M contracts are not routine (being based on turnkey principles) for these companies, for allowing good contract management there will be a need for close interaction between the procurement/ engineering staff and the finance staff\. Disbursement Arrangements 19\. Disbursements would be made by the Bank on the basis of quarterly IUFRs26, which would forecast the expenditures for two quarters and report the actual for past quarter and cumulative till date\. IBRD/ GEF funds for R&M contracts will be disbursed on a pro-rata basis, and the equity component will also be brought in by the company on a pro-rata basis\. The report would also provide contract-wise details of the financial progress and the physical progress under the project\. Supporting documentation including completion reports, certificates and other documentation, will be retained by the companies and made available to the Bank during project supervision\. These documents shall be audited as a part of annual project financial statements audit\. 20\. Designated Account: An account (denominated in USD) will be established in RBI by Government of India (GOI) to receive the Bank funds\. The generating companies shall established separate bank accounts for these rehabilitation projects\. 21\. Retroactive Financing: Retroactive financing up to an amount of not exceeding 10 percent of the loan amount will be available under the project, for payments made within 12 months prior to the expected date of the legal agreement\. To be eligible, the activities should be procured in line with the Bank guidelines on procurement\. 22\. Allocation of Loan Proceeds: The allocation of Loan proceeds by disbursement category and allocations will be made as indicated in Table7\.2 below: 26 The suggested formats have been provided\. WBPDCL/ MSPGCL/ HPGCL will have the flexibility of furnishing reports earlier (say on a monthly basis) to seek early replenishments wherein they could also provide forecasts for a shorter period than six months\. 60  Table 7\.2: Allocation of Loan Proceeds Category Amount of Amount of Percentage of the Loan GEF Grant Expenditures Allocated Allocated to be financed (Expressed in (Expressed in (inclusive of USD) USD) taxes) (1) Goods and `Supply and Installation' a\. Unit-5, BTPS, West Bengal 58,852,500 12,450,000 74%27 b\. Unit-6, KTPS, Maharashtra 58,852,500 12,450,000 c\. Units 3&4, PTPS, Haryana 61,845,000 13,000,000 (2) Consultants' Services a\. Unit-5, BTPS, West Bengal 1,300,000 100 % b\. Unit-6, KTPS, Maharashtra 3,300,000 c\. Units 3&4, PTPS, Haryana 1,800,000 d\. Ministry of Power (CEA) 1,100,000 (3) Front End Fee 450,000 Amount payable pursuant to the Loan Agreement (4) Premia for Interest Rate Caps and Interest Rate 0 Amount Collars payable pursuant to the Loan Agreement Total Amount 180,000,000 45,400,000 Budgetary Control 23\. WBPDCL prepares annual unit-wise budgets and forwards them to WBERC based on which annual tariff order is issued by WBERC in June/ July\. The annual tariff order is construed as the budget\. The corporate expenses are allocated to the units in the tariff order\. Funds disbursement to units and expenditure commitments are based on this budget\. There is no revision of budgets during the year and there is no formal periodical monitoring of budget performance\. To exercise effective cost control, there is a need for strengthening regular monitoring by management of actual performance against budget and analysis of variances for corrective action\. MSPGCL prepares annual unit-wise budgets which are approved by the Board\. Budgets are prepared on accrual basis and separate cash flow budget is also prepared\. Accounts staff posted at various offices monitor the utilization of budget provisions\. Monthly financial performance reports are prepared and discussed by the management at operating committee and project review meetings\. In addition they also generate daily funds position report\. HPGCL prepares annual budgets on commercial principles\. The annual revenue requirements approved by the regulatory authorities serve as the organization's budget\. There is no formal system of periodic reporting on budget performance and variance analysis 24\. WBPDCL and MSPGCL are taking steps for preparation of (i) detailed budgeting manual to further facilitate budgetary control and (ii) quarterly rolling cash forecasts for better 2773\.64% rounded off to 74% 61  management of funds, investments and returns\. Action plan for improving budgetary control and funds management in HPGCL would be defined before disbursement begins\. 25\. During the implementation of the project, the entity budgets will reflect the annual project budget estimates based on physical work plans by means of a separate budget code/ line item\. Monthly monitoring of project budget and actual performance will be carried out along with variance analysis and corrective action for timely project implementation\. Financial Accounting, Policies and Procedures 26\. In case of all the entities finance teams are located at the Corporate Office (CO), and at each plant\. CO and plants operate as separate accounting units\. WBPDCL maintains its accounts in Tally, an off-the-shelf accounting package with limited features\. Quarterly trial balance and schedules are prepared by each accounting unit but consolidation takes place annually at CO using spreadsheets\. WBPDCL's financial restructuring as part of reforms resulted in GoWB writing-off Rs\.27\.2 billion of its past loans and interest to WBPDCL and reducing WBPDCL's receivables to that extent28\. As a result, WBPDCL's receivables are current\. 27\. MSPGCL implemented financial accounting and budgetary control (FABC) system in 1993-94 at CO and nine power stations with COBOL (front end) and flat file (back end)\. Quarterly trial balances are prepared by each accounting unit and consolidated at CO\. This accounting system needs enhancement to meet the growing information requirements of MSPGCL\. 28\. In HPGCL accounting is carried out manually\. There are considerable delays in annual accounts preparation, audit and adoption by the AGM\. Audited accounts for 2006-07 are yet to be adopted\. The accounting units prepare monthly trial balances which are consolidated at HQ\. Half-yearly accounts are prepared (without schedules)\. 29\. The financial statements (Balance Sheet and Profit and Loss Account) of the entities are prepared in terms of the Electricity Act 2003 and applicable accounting standards referred to in the Companies Act 1956 which mandates the preparation of annual financial statements on full accrual principles applying accounting standards issued by the Institute of Chartered Accountants of India (ICAI)29\. In the event of inconsistencies the provisions of Electricity Act prevail\. Significant accounting policies are disclosed in the annual report of all the entities and reviewed by the statutory auditors\. 30\. Deviations from ICAI's accounting standards are pointed out through audit observations\. WBPDCL has resolved most of the observations of the auditors\. However, in case of MSPGCL (which operated under a special statute as an Electricity Board until its restructuring in 2005 as a company) the statutory audit report contains several observations concerning deviations from the requirements of Accounting Standards prescribed under the Companies Act\. MSPGCL decided to comply with Companies Act requirements in accounts maintenance with effect from FY 2007- 08 and appointed external consultants to assist in the process of migration and also to develop a 28 This has improved the capital structure and makes it possible for WBPDCL to access competitive institutional funding to meet its future modernization and expansion needs\. Along with the loan write-off an equivalent amount has been adjusted against outstanding dues to WBPDCL on account of sale of energy to GoWB owned WBSEB 29 As per the India - ROSC (A&A) dated December 2004, the Indian Accounting standards are modeled on International Financial Reporting Standards (IFRS) and except for some small revisions (required for customization to local circumstances and legal requirements) are largely in consonance\. 62  suitable accounting manual containing guidelines to maintain accounts according to Companies Act requirements in the future\. MSPGCL has addressed most of the issues concerning non- compliance with accounting standards however several other repeat observations still appear in the FY 2007-08 audit report which the company needs to address\. 31\. There are large numbers of significant audit qualifications/ observations in the statutory auditors' reports of HPGCL30 which needs to be suitably addressed by the management\. Finance Manual 32\. Since inception WBPDCL have been following procedures and guidelines applicable to government companies, particularly the erstwhile West Bengal State Electricity Board (WBSEB)\. There are no separate financial manuals in WBPDCL and the delegation of powers has not been updated\. The company is considering developing manuals covering accounting and internal controls to bring them at par with industry best practices\. WBPDCL's restructuring plan also suggests internal controls enhancements through development of suitable manuals and guidelines for meeting corporate governance requirements\. 33\. In case of MSPGCL, as part of its internal control framework manuals, guidelines, chart of accounts and delegation of powers have been prescribed from time to time\. While the financial manuals are old (1994/ 1996), the delegation of powers has been recently updated and there are plans for updating/ recasting the financial manuals\. The accounting manual is under preparation and the company has prepared scope of work for preparation of the remaining components of finance manuals\. 34\. Rules and regulations drafted by HSEB are still in force in HPGCL\. Amendments to these rules and regulations have been issued from time to time\. However these are in fragmented form and have not been consolidated/ compiled/ updated\. The delegation-of-powers is the only document that has been consolidated and updated (up to August 2006)\. The management of HPGCL appreciates the importance of up-to-date manuals and guidelines to assist in day to day operations under proper controls and is considering preparation of suitable FM manuals\. 35\. The proposed finance manuals31 will provide guidance for carrying out day-to-day financial management activities (also covering the proposed project), bring about uniformity and consistency in practices across the companies' operations and form the basis for audits and improvements\. Financial Reporting 36\. WBPDCL has plans to introduce half yearly reporting of unit wise financial results to the Board from 2009-10 and switch to quarterly reporting effective from 2010-11 with added features such as comparison with budgets and variance analysis\. There is no regular financial 30The observations cover fixed assets records maintenance and physical verification, reconciliation of general ledger balances with sub-ledgers, reconciliation of inter-unit accounts, non-compliance with accounting standards (AS-2 valuation of inventories, AS-6 depreciation accounting), debit and credit balances netting, accounting for scrap, non availability of some inventory and stores details, non provision of certain liabilities etc (to name a few)\. 31 The manual will cover the accounting policies and accounting activities relevant to the companies such as billing and receivables, purchase and payables, fixed assets and depreciation, capital work-in-progress, stores, payroll and other expenses, cash and bank, share capital, investments, deposits, loans and advances, periodical and annual closing and preparation of financial statements together with formats of documents and reports\. 63  reporting to the Board of MSPGCL\. There is monthly monitoring of financial performance at the level of MD along with operational performance\. The financial figures are approximations\. HPGCL prepares half-yearly accounts (without schedules) which are placed before the Board\. MSPGCL plans to switch to quarterly reporting to the Board effective 2009-10 and HPGCL would need to follow suit\. 37\. During the currency of the loan project, IUFRs in agreed format will be required giving details of project expenditure incurred till date, planned expenditure, and projected funds requirement in the next two quarters\. The report would also provide contract wise details of the financial progress and the physical progress under the project\. The IUFRs will be prepared from information generated by the financial systems of the entities and submitted to both project management and IBRD\. The annual project financial statements, which would be similar to the format of the IUFR would be audited and submitted to the Bank\. During project execution, periodic reports on physical and financial progress would be generated for monitoring project progress and initiating timely action to ward off future disputes\. It is expected that project monitoring software (eg Prima Vera) would be used during project execution to facilitate physical and financial progress reporting\. Also the entities recognize that there is scope for improving financial reporting to management32 in light of the organizations' growing requirements and the need to formalize a reporting system covering their entire operations to provide information needed for effective monitoring and control\. Depreciation and Fixed Assets 38\. WBPDCL, MSPGCL and HPGCL being power sector entities are required to follow the Electricity Act, 2003 which has an overriding effect in case of any inconsistency with the Companies Act, 1956\. The companies have been providing depreciation in accordance with Electricity Act (2003)33 which provides for rates lower than the Companies Act\. MSPGCL has now switched to Companies Act rates for provision of depreciation\. The industry practice with regard to depreciation provision varies with some entities providing depreciation as per Companies Act and some as per Electricity Act (2003) rates\. 39\. The auditors of all three entities have pointed out deficiencies in fixed assets accounting, the maintenance of fixed assets registers and physical verification of assets\. This is primarily because as State Electricity Boards (SEBs), these entities were not required to maintain and update the fixed assets registers and records, as are required for companies under the Companies Act\. All three entities have outsourced the work of assets verification and preparation of fixed assets registers\. In case of MSPGCL the opening balance sheet as on June 6, 2005 was approved by MSEB Holding Company Limited on September 26 2006 and incorporated in MSPGCL's books in FY2005-06\. However the figures are still provisional as the approved final transfer scheme is yet to be notified by GoM\. This issue (approval of final transfer scheme) needs to be resolved immediately to allow MSPGCL to initiate the reconciliation activities\. Costing System 32 Including for example quarterly financial statements, budget variance and analysis reports covering periodic operating results, treasury management, working capital management, project management, and cost analysis reports\. 33 Depreciation is provided only on fixed assets in existence at the beginning of the year and no depreciation is provided on additions and for retirements during the year\. 64  40\. The generation companies are subject to cost audit as required under the Companies Act, 1956\. Cost records are being maintained by the companies34\. The cost audit report of MSPGCL has pointed out several areas for improvement and also suggests that a separate costing cell should be set up under CGM\. The entities are considering formalizing the system through a costing manual and integrating cost accounting with financial accounting for better monitoring and control of costs\. Billing and Tariff 41\. Power generated by the generating companies is sold to the distribution companies in the respective states\. Energy tariff is regulated by the respective state ERCs\. Billing is based on scheduled energy details received from State Load Dispatch Centers (SLDCs)\. In case of WBPDCL billing for FY 2007-08 is Rs\.27 billion\. Payments against bills are said to be regular and debtors represent roughly one months billing35\. The entire power generated is not sold as a part of it is used for auxiliary consumption\. According to MSPGCL's sale of power during 2007- 08 was Rs\.80 billion and receivables as on March 31 2008 were Rs\.17\.7 billion\. The same numbers for HPGCL ­ based on unaudited annual accounts shared with the team ­ are sale of power at Rs\. 63 billion and receivables at Rs\. 27 billion (receivables are equivalent to five months of sales)\. Staffing ­ Finance Function 42\. The project's financial arrangements would be largely handled by finance staff at CO with assistance from the relevant units\. The CO project finance teams will coordinate with the Bank in respect of the loan project and be responsible for meeting all information requirements and providing reports in the agreed formats to the Bank\. In case of WBPDCL, the responsibility for project FM will rest with a GM supported by two Assistant Managers and a Junior Manager at CO and the unit team headed by Senior Manager\. MSPGCL's project management team would be headed by the CGM (Finance) at CO and the Joint CAO at unit level with need-based support\. The project management structure for HPGCL is yet to be formulated\. 43\. WBPDCL's Finance Department is headed by Executive Director (Finance) who is assisted by a group of officers36\. All finance executives are professionally qualified (CA/ ICWA/ MBA)\. WBPDCL is currently facing capacity constraints at executive levels due to attrition, remuneration structure which is much lower compared to industry37 and restrictions on direct recruitment at senior levels\. Direct recruitments have been possible only at assistant manager level\. Against an estimated requirement of 50 executives at CO and units, the current strength is 35\. The proposed HRD committee and remuneration committee is expected to address the capacity issues and also develop HR policies and procedures that will suitably address 34 The cost audit report of WBPDCL has not yet been shared with the Bank\. 35The receivables position has improved after the set off of Rs\.27\.2 billion of past GoWB loans against receivables on account of sale of energy to GoWB owned WBSEB\. 36It includes a General Manager (GM), a Deputy General Manager, a Senior Manager three Assistant Managers and two Junior Managers\. The unit finance function is headed by a Senior Manager assisted by Assistant Managers and Junior Managers with a team of assistants 37A recently introduced performance based incentive scheme has been successful 65  WBPDCL's staffing needs (both numbers and skills level), recruitment, capacity building, performance evaluation and remuneration38\. 44\. At MSPGCL, the Finance & Accounts department is headed by Director Finance and assisted by Chief General Manager (Finance)39\. According to MSPGCL, around 50 accounts staff are professionally qualified\. MSPGCL has in house training facilities\. It is in the process of developing training policies and undertaking training needs assessment by external agency to build staff capacity\. 45\. In HPGCL, Director (Finance) position is vacant and there are several vacancies at officer levels (roughly 18)\. Finance and Accounts at HQ is headed by an FA and a CAO supported by SAOs and AOs\. The units (Panipat, Yamunanagar and Hissar) are each headed by an FA\. (Faridabad unit does not have an FA post)\. In view of the vacancies, work is carried out with the help of Section Officers (there are vacancies here as well), Accountants and Accounts Clerks40\. SAOs and AOs hold 3-4 charges each\. A Staff Restructuring Plan has been approved by GoH (HPGCL to share with the World Bank)\. Direct recruitment is carried out by the state staff selection commission for Accounts Clerk, Accountant and Accounts Officer41 posts\. Recruitment lead time is roughly one year\. FM and Other Information Systems 46\. WBPDCL is implementing on a pilot basis, accounting, stores and purchase modules of Oracle ERP at its Kolaghat unit\. There are several issues with the package and with staff capacity to operate an ERP\. Plans for rolling out the ERP are on hold while the future of ERP implementation in WBPDCL is reviewed\. The existing off the shelf package has limited features necessitating manual intervention and preparation of reports manually\. WBPDCL is considering capacity building in IT through recruitment and training as well as the option of outsourcing ERP operations and maintenance in the short term through AMC\. For improving operational effectiveness and to achieve its growth plans, WBPDCL requires systems that integrate its operations with suitable reporting features to meet reporting requirements of the government, regulator, lenders, funding agencies and the management\. 47\. MSPGCL implemented financial accounting and budgetary control (FABC) system in 1993-94 at corporate office and 9 power stations\. Other computerized systems include payroll (1998), power plant management system (PPMS) partially implemented in nine power stations and operational since 2004 and coal accounting system (2001-02)\. A generation control room system is planned for centralized viewing of generation data\. MSPGCL appointed external consultants to prepare an IT implementation road map in March 2006\. The report pointed out that though the systems implementation brought about IT awareness in the organization and built up infrastructure, there has been lack of integration, implementation delays, and management's reporting requirements are not met\. A need has been expressed to replace current systems with proven, industry standard, commercial off-the shelf (COTS) software\. The suggestion has been 38WBPDCL plans to recruit 500 staff at the level of assistant manager in July 2008 (after local bodies' elections are held in the State) of which 15 would be for finance\. It is expected that these staff would be in place by December 2008\. Till date six AMs have been recruited at unit level\. 39According to the Circular dated November 2, 2007 the revised sanction strength for MSPGCL (up to September 30 2007) for accounts cadre was 503\. In addition, the sanctioned strength for major stores accounts cadre was 69\. However there is no separate cadre for internal audit staff\. 40These positions do no require professional qualification 41Incumbents have to be professionals (CA/ ICWA/ MBA) 66  accepted by MSPGCL42\. In this context request for proposals for implementing ERP package has already been issued by MSPGCL and implementation support consultants have been appointed\. 48\. HPGCL has subcontracted computerization of (i) operations & maintenance systems and (ii) accounting systems to NTPC\. NTPC has appointed TCS for developing the computerized systems based on HPGCL's requirements/ specifications\. The two-year project is in progress in Panipat (of which 18 months are already spent) and there are some delays reported in the progress of work\. Internal Control and Corporate Governance 49\. The delegation of powers establishes the internal control environment within the companies\. This also aids in segregation of duties within the organizations\. WBPDCL has been following the erstwhile WBSEB's delegation of powers since its inception\. Thus there is a need to update the delegation of powers (DOP) based on an assessment of the organization's needs for decision making and flexibility of operations to establish a proper internal control framework\. A revised delegation of powers was drawn up nearly two years ago and is yet to be approved by the Board\. This may also be in need of updating\. 50\. At WBPDCL contracts are issued by the Project Contracts Cell located at the units\. The units are headed by DGM\. Copies of these contracts are available with Finance Department at CO\. All bills are approved by the Executive Engineer for value of work done based on measurement books\. Statutory and other contractual deductions are incorporated in the bills by unit finance and after due verification, the bills are approved by GM Accounts at CO for payment\. For IBRD funded project there will be a Board Resolution specifying the powers for according technical and financial approval on the bills and an independent supervision consultant will certify completion of payment milestone before actual payment\. All original bills and documents will be kept in safe custody of the finance department\. The physical custody of the assets created by the working agencies will be under the custody and control of the concerned unit head\. These and other relevant project-specific FM guidelines will be documented in the project implementation plan of WBPDCL\. 51\. MSPGCL updated its delegation of powers in June 2007\. Accounting and internal audit manuals are under preparation by consultants\. The project-specific systems documented in the project implementation plan will ensure proper contracting and payments procedures including approval and authorization of bills prior to payment, adequate and credible documentary evidence of work done and payment, complete audit trail, and defined responsibilities for assets and documents custody etc\. 52\. HPGCL has updated its delegation of powers in 2006\. Assessment of internal controls and procedures for project activities is yet to be completed\. 53\. The internal control framework of the entities will need to be in line with its size and scale of operations and documented in manuals ­ operations43 and finance\. Although some 42 MSPGCL's senior management team visited Tata Power's Trombay Power Plant to review the implementation of SAP and was satisfied with the feedback\. 43 For internal control to be effective across the organization it should cover all transactions from its origin/ inception to closure (and in case of assets, span its lifetime)\. Standard guidelines, policies and procedures should be laid down and its compliance monitored\. These standards embodied in `operations manuals' will bring about uniformity in controls and practices across the organization and form the basis for audits and improvements\. FM manuals are considered as a part of an organization's 67  processes to improve corporate governance and financial accountability have been initiated in WBPDCL and MSPGCL, further actions are underway (as detailed in the CGFA action plan in Table 6)\. Corporate Governance 54\. The department of public enterprises (DPE), Government of India has issued a code of corporate governance for Central Public Sector Undertakings irrespective of whether or not they are listed in the stock exchange44\. There are no guidelines for corporate governance for the state run PSUs in West Bengal, Maharashtra and Haryana\. However, both WBPDCL and MSPGCL are committed to follow proper corporate governance norms and practices\. In the following table, the key components of a model code of corporate governance (applicable to CPSUs) and the present status in WBPDCL and MSPGCL is presented\. HPGCL's corporate governance arrangements are yet to be assessed\. Table-7\.3: Status of Model Code on Corporate Governance Draft model code Present status Board of directors shall have an optimum WBPDCL: combination of functional, nominee and independent Current Board composition: Chairman; three government directors\. The number of functional directors nominee directors; MD and three full-time functional (including CMD/MD) should not exceed 50% of the directors; four independent directors recently appointed\. actual strength of the board\. MSPGCL: Current Board composition: Chairman; one government The number of nominee directors shall be restricted nominee director; one independent director recently to a maximum of two\. appointed; MD and three full-time functional directors46\. HSPGCL: In case of CPSEs listed in stock exchanges, the Current Board composition: Chairman; three part-time number of independent directors shall be at least 50% directors; two independent directors; MD and two of board members\. In case of CPSEs not listed in the functional directors stock exchanges at least one third of the board members shall be independent directors45\. Qualified and independent audit committee shall be WBPDCL: set up giving the terms of reference with minimum There is no independent audit committee at present\. It is three directors as members; two thirds of the proposed to be set up with independent directors recently members shall be independent directors; the chairman appointed\. operations manual and cater to purely financial transactions leaving out of its ambit large chunks of activities that are performed outside the finance department\. Procurement (specially of coal, contract execution and management, inventory control and fixed assets and project/ works management are some other areas of operations where standards and guidelines would enhance the overall internal control environment for the loan project\. The implementing entities need to focus on the aspect of developing appropriate operations manuals as well\. 44 The aim is to institutionalize good corporate governance practices that are broadly in conformity with SEBI guidelines (clause 49 of the Listing Agreement), in CPSUs as ultimately, these CPSUs would approach the financial markets for its requirements\. 45 Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors 46 MSPGCL plans to source funds from the financial markets in the near future which will automatically subject it to corporate governance requirements as set out under clause 49 of SEBI which mandates, among others, appointment of independent directors 47Other prescribed norms for audit committee: All members of audit committee shall have knowledge of financial matters of company and at least one member shall have good knowledge of accounting and related financial management expertise\. Audit 68  of the audit committee shall be an independent MSPGCL: director47\. There is no independent audit committee at present\. It is proposee to be set up with the independent director as the chairman\. HPGCL: There is an audit committee Risk management strategies and their oversight shall WBPDCL: be one of the main responsibilities of the board and The restructuring plan lays down a framework for risk management48\. management\. It lists certain risks and mitigation measures which can be further developed by WBPDCL and implemented\. The annual report of WBPDCL incorporates risks and concerns relating to quality of coal supplies\. MSPGCL & HPGCL: There is no formal risk management system in place\. The guidelines provide a list of minimum information Half-yearly reporting to the Board by HPGCL & that is required to be placed before the Board49\. WBPDCL; no formal reporting to the Board by MSPGCL\. The frequency may be increased to quarterly reporting to the Board by all the three entities\. 55\. Actions initiated for improving corporate governance: WBPDCL is a registered Public Limited Company with an amended Articles of Association since June 2008\. Four independent directors have been appointed to its Board in December 2008\. An independent audit committee is planned to be set up by June 2009 with full scope as required under the Companies Act which includes fixing the remuneration of the statutory auditors, coordinating their work and providing management responses to the audit observations, overseeing the internal audit framework and work plan, discussing and making recommendations on any matter relating to financial management\. 56\. MSPGCL is proposing to convert into a Public Limited Company and bring in greater transparency and accountability and also plans to set up an audit committee\. Recently an independent director has been inducted in the Board and it is suggested that the independent director should be appointed as the chairman of the audit committee to ensure presence in some degree of external and impartial viewpoint\. MSPGCL may consider appointing eminent person/s in the audit/ other organizational committees to inject an element of independence in the decision making\. 57\. Assessment of corporate governance arrangements and proposed action plan is yet to be completed for HPGCL\. 58\. In the area of risk management, the corporate governance framework requires entities to develop suitable strategies for risk identification, assessment and mitigation\. Risk factors that committees shall meet at least four times in a year and not more than four months shall elapse between two meetings\. Detailed and elaborate role has been prescribed for audit committees\. 48 Regarding risk management norms, the board shall ensure the integration and alignment of the risk management system with the corporate and operational objectives and also that risk management is undertaken as a part of normal business practice and not as a separate task at set times\. The company shall lay down procedures to inform board members about the risk assessment and minimization procedures and periodically review them\. Disclosure on risks and concerns shall from part of Director's report\. 49 The list includes quarterly results for the company and its operating divisions or business segments\. The guidelines also provide a list of items to be included in the report on corporate governance in the annual report of companies and obtain a certificate from either the auditors or practicing company secretary regarding compliance of conditions of corporate governance as stipulated in the guidelines\. 69  could have adverse bearing on the entities' operations, performance and reputation should be identified and managed\. Neither WBPDCL nor MSPGCL has a corporate plan formally laying down vision, mission, operational goals and strategies, business plans and risks and mitigation measures\. Thus enterprise risks50 and suitable mitigation measures need to be developed, monitored and reported\. Internal Audit (IA) 59\. WBPDCL does not have a separate internal audit department\. Internal audit is carried out by external CA firms based on scope of work issued by WBPDCL\. Internal audit is quarterly and separate internal audit reports for each unit and CO are submitted to Director (Finance)\. There in no formal system of tracking and closure of audit observations and no audit committee review\. MSPGCL has a separate internal audit department headed by General Manager level officer reporting to Chief General Manager F&A\. There are inspection teams based in the units\. The inspection team comprises accounts officers, divisional accountants and UDCs\. Internal audit reports are issued to management for comments and action\. A track is kept of unsettled paras\. In this case too there is no audit committee review\. 60\. The scope of internal audit of WBPDCL covers financial accounts, salaries & wages, fuel, physical verification of stores and inventories, purchase, services and works, sale of scrap, sale of energy etc\. The focus of internal audit is primarily transactional and not systemic issues which need to be remedied\. There is no internal audit manual and objectives and strategies of internal audit function have not been laid down\. The statutory auditors of both the entities have observed that the internal audit system needs to be strengthened with regard to staffing, coverage and intensity, timely submission of audit reports etc to be commensurate with the size of the companies and nature of their businesses\. WBPDCL has agreed to amend the scope of work of internal auditors for FY 2009-10 to focus on systems improvement and formalize follow up on audit observations\. 61\. MSPGCL has decided to completely overhaul the internal audit system and has issued scope of work to consultants for revamping the function\. The scope of work covers detailed diagnostic of the function, identifying areas for improvement, developing a detailed internal audit manual and carrying out internal audit for FY 2007-08 for corporate office and three units and to submit unit-wise reports\. 62\. In HPGCL although there is an SAO in charge of internal audit, there is no support staff\. Internal audit is not being carried out by HPGCL and this has been observed by the statutory auditors51\. HPGCL has outsourced internal audit to a CA firm in August 2008 which has submitted a report to the audit committee\. Internal audit would need to be significantly strengthened in HPGCL in line with organization's needs and best practices\. Action plan for strengthening internal audit of HPGCL is pending completion of the corporate governance and financial accountability assessment\. 50 A major risk for MSPGCL is its inability to attain MERC parameters which has adverse impact on financial performance; for both WBPDCL and MSPGCL, there are project implementation risks in terms of time and cost over-runs; from commercial view point there is risk of reduced collection efficiency/ tariff may not fully cover costs; there are operational risks associated with quality and supply of coal; in the area of governance, inadequate financial and functional autonomy may be considered a risk\. 51The company has no internal audit system as no internal audit was done at units and Head Office (statutory auditors' comments in reports for FY 2006-07, 2005-06, 2004-05) 70  63\. Actions proposed for strengthening IA: WBPDCL and MSPGCL will set up audit committees and strengthen the IA function in tune with organizational requirements\. They propose to lay down standard operating guidelines, improve reporting and follow-up and create an independent audit environment\. The internal audit would be organization wide and oriented towards mitigating risks and improving/ strengthening relevant systems and controls for improved organizational performance\. A robust mechanism for follow up of audit observations and resolution is required in which the audit committee will play an important role\. Independence of the function needs to be assured\. WBPDCL proposes to set up an internal audit cell\. The internal audit cell/ department in all the implementing entities should report to the MD in view of their organization wide coverage and since they need to be independent of the departments they audit\. An assessment of the required staff strength and training will be needed\. An internal audit manual would be prepared to set out the objectives, scope and coverage of audit, the detailed methodology of review, audit questionnaires, and the required reporting and follow up\. 64\. The IBRD financed project will be subject to internal audit (under agreed terms of reference) and its reports will be available to the IBRD, on request External Audit 65\. Under Section 619(2) of the Companies Act, 1956, the Comptroller & Auditor General (CAG) recommends appointment of statutory auditors of Government owned companies\. The auditor is usually selected for a period of four years\. CAG also conducts a supplementary/ test audit under section 619(3)(b) of the Companies Act 1956\. In addition CAG carries out proprietary audit of the entities and the reports are laid before the state legislature which then automatically stands referred to the Committee on Public Undertakings (COPU) for review and resolution of the audit observations\. There are pending COPU paras in case of all the three entities\. 66\. In case of WBPDCL there were several statutory audit observations in the audit report of FY 2006-07 which were repeated from earlier years\.52 WBPDCL have taken steps to address these observations and resolve them so that they are not repeated in subsequent audit reports53\. 67\. The statutory audit report of MSPGCL for FY 2006-07 contains several observations concerning deviations from the requirements of Accounting Standards prescribed under the Companies Act arising from MSPGCL's adherence to ESAAR requirements over that of Companies Act requirements\.54\. In response to audit observations MSPGCL decided to comply 52Like non confirmation of creditors/ deposit/ advance balances; deviations from accounting standards 2 (valuation of inventories), 15 (accounting for retirement benefits) and 22 (deferred tax liability/ asset); accounting treatment for freight not uniform; no reconciliation between general ledger and priced stores ledger etc\. While the effect of some of the observations could not be quantified by the auditors, the impact from the quantifiable observations is a reduction in profit of around Rs\.1 billion\. 53 2007-08 audit report of WBPDCL has very few repeat observations\. 54Other comments include: non confirmation/ reconciliation of balances of sundry debtors, sundry creditors, loans and advances, other receivables and other debit/ credit balances including that of holding company and other subsidiary companies of holding company; cost of land not bifurcated into freehold and leasehold and amortization of leasehold land if any not done; CWIP and current liabilities are understated as central purchases are booked on payment basis at project divisions; value of scrap not included in inventories/ no provision made for slow moving, non-moving, obsolete, damaged stocks/ stocks of machine spares, lubricants and consumables not valued in most hydro power stations/ stock of steel and cement at project site not physically verified or reconciled with book stock; non maintenance of proper fixed assets records and fixed assets not physically verified; MVAT claims not set-off against capital assets/ inventories/ expenses and treated as miscellaneous income in contravention of ICAI guidance note; weaknesses in internal controls in compiling and maintaining party wise and age wise details of various liabilities and assets 71  with Companies Act requirements in accounts maintenance with effect from 2007-08\. The statutory audit report for FY 2007-08 has fewer observations and these would need to be resolved\. Regarding fixed assets record maintenance and physical verification all three entities have sought help of external consultants however the observations have not been fully taken care of\. 68\. In case of HPGCL there have been inordinate delays is completing statutory audits and adoption of annual accounts55\. According to senior management, HPGCL expects to complete its audit back-log by September 2009 and be in compliance with Companies Act requirement of adoption of audited accounts within six months form the end of the financial year (September 30)\. There are large numbers of significant audit qualifications/ observations in the statutory auditors' reports regarding fixed assets records maintenance and physical verification, reconciliation of general ledger balances with sub-ledgers, reconciliation of inter-unit accounts, non-compliance with accounting standards (AS-2 valuation of inventories, AS-6 depreciation accounting), debit and credit balances netting, accounting for scrap, non availability of some inventory and stores details, non provision of certain liabilities etc (to name a few)\. HPGCL's response to the audit observations has not been shared with the Bank\. HPGCL has completed the records and verification of fixed assets up to FY 2003-04 through outsourcing\. It proposes to outsource the work again for the remaining period (2005-06 to 2007-08)\. HPGCL also proposes to outsource the work of reconciliation of balances in the current assets and current liabilities accounts including inter-unit accounts\. In addition there are several COPU paras pending (to be shared with the Bank) 69\. The implementing entities will submit (i) audited entity accounts and audit reports and (ii) audited project financial statements and audit report to the Bank\. It is proposed that the project would be audited by an independent firm of chartered accountants, acceptable to the Bank, under agreed terms of reference\. The audited project financial statements would separately identify each component under the project, its progress and the funding sources for each of the contracts\. Thus the following audit reports will be monitored in the Bank's Audit Reports Compliance System (ARCS): Table 7\.4: Audit Reports Monitoring Agency Audit Report Audited by Due Date (for each year) WBPDCL, Annual entity audit reports and Statutory Auditors 30th September MSPGCL and accounts as required under the appointed by CAG HPGCL Companies Act 55 Audit report of FY2004-05 is dated February 9 2007; FY2005-06 is dated December 24 2007; FY2006-07 is dated July 10 2008 but is yet to be adopted by the company\. Audit of FY2007-08 is in progress\. 72  WBPDCL, Project audit report and An independent firm 30th September MSPGCL, HPGCL accounts; of Chartered and Central Accountants Electricity Authority acceptable to the Bank in respect of WBPDCL, MSPGCL, HPGCL and CAG in respect of Central Electricity Authority GOI Special account audit reports for CAG 30th September IBRD and GEF funds Right to Information, Transparency and Disclosure 70\. Under Right to Information (RTI) Act, 2005 a public authority is required to maintain and make available detailed records to facilitate right to information\. It envisages computerization of records and accessibility through network\. The Act also requires every public authority to, designate required number of Public Information Officers, in all administrative units or offices under it and publish particulars of such officers to provide information to persons requesting for it under the Act\. 71\. MSPGCL has developed a separate RTI website\. Information relating to the company, powers/ duties, rules and regulations etc has been posted on the website including names and contact information of public information officers/ appellate officer\. According to the company, periodic returns are being submitted and officers are sensitized to the RTI requirements through training\. During the period April ­ October 2008, information was provided against 55 applications and there were 40 pending applications\. MSPGCL discloses the complete annual audited statement of accounts in the website\. WBPDCL has a corporate website but no separate RTI website\. Public Information Officer and Assistant PIOs have been identified as per requirement but not posted on the website\. It has plans to post important documents/ circulars relating to recruitment, training, service regulations etc on the website\. A new IT department is being set up and the MIS cell will be in charge of the web-site\. Only the annual reports of the company are posted on the website (excluding audited accounts and auditors' report)\. HPGCL has a corporate website and further details have been requested\. 72\. During project implementation the audited project financial statements and other pertinent project-related details would be disclosed in the website in a suitable manner\. Action Plans 73\. Following are proposed action plans for (i) ensuring adequate FM arrangements for the project and (ii) improvements in corporate governance and financial accountability of the entity during the implementation of the project: 73  Table 7\.5: Action Plan for adequate FM arrangements for the project Sl No Area of Action Timeframe 1 Assess and fill vacancies in project FM at CO WBPDCL and MSPGCL have and Units identified appropriate staff, to be inducted/ assigned by negotiation\. HPGCL will do it after completion of FM assessment 2 Appoint independent third party quality TOR for WBPDCL and assurance consultant with Bank approved MSPGCL finalized; TOR to check and authorize project TOR to be included in the PIP expenditures, ensure proper procedures and which is a eligibility condition monitor milestone achievements in terms of for HPGCL the project requirements 3 Project internal audit to be carried out by TOR for WBPDCL and qualified auditors under Bank approved TOR MSPGCL finalized; and submit internal audit report to the Bank TOR to be included in the PIP on quarterly basis which is a eligibility criteria for HPGCL As per CGFA action plan Strengthen internal audit with proper manuals 4 Prepare detailed project implementation plan PIP for WBPDCL and MSPGCL finalized; Eligibility condition (HPGCL) Table 7\.6: Action Plan for Improvements in Corporate Governance and Financial Accountability Area of Action Actions required for implementation with timeframe WBPDCL MSPGCL HPGCL Conversion into public limited company Complete registration formalities with Completed in June 2008 Currently being discussed in ROC conjunction with plans for raising further equity Internal audit Strengthen internal audit Issue revised TOR for internal Scope of work to strengthen arrangements in line with own audit for 2009-10 IA issued\. Implement requirements and good industry recommendations during practices and statutory auditors' 2008-09 comments Set up internal audit department Set up IA department reporting IA department being reporting to MD to MD by September 2009 restructured Develop internal audit manual Finalize TOR for internal audit Draft IA manual has been manual in consultation with prepared ; To be finalized by Actions required audit committee by September June 2009 for 2009 implementation 74  Audit Committee to be decided on Set up audit committee with Set up audit committee by June Set up audit committee by completion of independent directors and develop 2009 March 2009 with independent CGFA scope and coverage in line with director as Chairman and assessment Companies Act/ corporate governance Finalize scope and coverage of finalize scope and coverage of requirements audit committee by September audit committee 2009 Capacity building Strengthen HRD and recruit finance/ Set up HRD and recruitment No immediate issues IT/ IA staff as per defined plan committees as decided in the EGM of April 17 2008 and commence filling of vacancies (recruitment commenced) Address repeat queries of statutory auditors Resolve repeat audit objections Audit queries pertaining to Discuss observations of statutory during FY 2008-09 audit non compliance with auditors and clarify/ resolve Companies Act provisions objections resolved in 2007-08\. Remaining audit queries to be resolved in 2008-09 In-year reporting to management Introduce quarterly reporting of Half yearly results from 2009- Half yearly results during operating results to Board as per 10, Quarterly results from 2008-09; corporate governance requirements 2010-11 Quarterly results during 2009- compared with budget and variance 10 analysis Cash forecasting Extend monthly cash forecasting to Monthly forecast exists; Commence in 2009-10 rolling cash forecasts on quarterly strengthen and Introduce basis; link to budget and compare quarterly rolling cash forecasts with actual cash flow from April 2009 Enterprise Resource Planning package implementation Decision on way forward for IT road map ready; Bids for Resolve ERP implementation issue upgraded financial accounting SAP implementation received; and decide on an action plan for system by March 2009 Consultant for implementation implementation support appointed\. Commence implementation by March 2009 DOP and financial management manuals Update delegation of powers and Issue TOR for updating DoP Revised DOP already in place develop manuals for a more and preparing manuals by Actions required formalized and systems oriented March 2009 Work on accounting and for financial accountability and corporate internal audit manual already implementation governance environment covering (a) DoP ready by June 2009 started; to be decided on budgeting, (b) internal controls (c) Scope of work for remaining completion of accounting, (d) costing and (e) Commence work on the finance manuals prepared; Draft CGFA financial reporting manuals by March 2009 and manuals by 2009-10 assessment complete by September 2009 75  Develop Corporate Plan Develop Corporate Plan with Commence work by March Commence work by in FY organization's vision, mission, long 2009 (with external assistance 2009-10 (with external term objectives and strategies; if necessary) assistance if necessary) corporate governance and risk management Other reporting for MIS Review organization wide reporting Commence work by March Work combined with ERP requirements and develop suitable 2009 (with external assistance implementation forms and instructions for their if necessary) preparation and distribution\. Operations manuals Develop suitable guidelines for Take action in 2009-10 (with Scope of work for inventory contract execution and management, external assistance if necessary) management and procurement fixed assets and inventories management prepared; Draft management to ensure smooth and manuals by 2009-10 uniform processes with adequate checks and controls 76  Annex 8: Procurement Arrangements INDIA: COAL FIRED GENERATION REHABILITATION PROJECT A\. General 1\. The Project will support energy efficient rehabilitation and modernization (EE R&M) of selected coal fired power generating stations in the States of West Bengal, Maharashtra and Haryana, consultancy support for strengthening operations and maintenance practices in these three stations, and technical assistance to Central Electricity Authority (CEA) for reduction of barriers to R&M in India\. The procurement accordingly will be for goods, equipment and services related to the R&M of the power stations, consultancy for strengthening O&M practices, and consultancy towards barrier reduction\. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised October 2006, and the provisions stipulated in the Legal Agreement\. The general description of various items under different expenditure categories is described below\. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team and indicated in the Procurement Plan\. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity\. Procurement of Works 2\. There are no separate civil works envisaged to be procured under the project\. The relevant civil works are included in the scope of the respective equipment are minor in nature such as grouting, modification of existing foundations, chipping, etc\. Procurement of Goods 3\. The procurement goods and equipment for the selected power stations in West Bengal (Unit- 5 Bandel) and Maharashtra (Unit-6 Koradi) is envisaged to be covered in four separate contracts covering the entire power station, i\.e\. one contract for Main Plant area (Boiler, Turbine and Generator, including Auxiliaries) and one contract each for coal handling area, ash handling area and electrical system\. The contracts will be under "Supply and Install" basis\. For R&M of selected power generation units in Haryana (Units-3&4 Panipat), the utility has expressed preference for a single contract\. The utility feels that coordination and interfacing of four separate contracts may be difficult to manage, especially across two generation units in the same compound\. The utility has successfully applied single contract approach to similar projects in the past56\. The final decision on contract packaging in this case would be taken after the Detailed Project Report (DPR) has been finalized\. 4\. Based on estimated prepared by WBPDCL for Bandel Unit-5, which would be taken up first for EE R&M under the project, the largest contract for main plant is estimated to be Rs\. 3600 million\. The estimates for coal handling package, ash handling package, and electrical system package would be Rs\.450 million, Rs\.225 million and Rs\.450 million, respectively\. Individual estimates are yet to 56HPGCL has undertaken the rehabilitation of Units 1 & 2 in the recent past under single package arrangements\. These units are similar to Units 3 & 4 covered under the bank project\. 77  be worked out by MSPGCL for its Koradi Unit-6 and HPGCL for its Panipat Units 3 & 4, as the R&M design studies are yet to be completed\. 5\. Procurement will be done following International Competitive Bidding (ICB) procedures of the Bank and using the Bank's Standard Bidding Documents (SBD) of Procurement of Plant Design, Supply & Installation (April 2008 and as agreed with the Bank)\. The contract involving main plant area (Boiler-Turbine-Generator) will follow two-stage bidding while the other three contracts will follow single stage bidding\. Other Procurement Procedures 6\. The project does not envisage any other procurement of goods except as stated above\. However, considering the nature of the R&M projects and the possibility of additional items which could not be precisely identified through RLA studies, provision of procurement using national competitive bidding and direct contracting (for proprietary items) is included in the procurement arrangements\. 7\. National Competitive Bidding: Goods estimated to cost less than $500,000 equivalent per contract may be procured under contracts awarded on the basis of National Competitive Bidding procedures as per paragraph 3\.3 and 3\.4 of the Procurement Guidelines and the additional conditions as below: Only the model bidding documents for NCB agreed with the Government of India Task Force (and as amended from time to time) shall be used for bidding\. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of bids; No special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small- scale enterprises or enterprises from any given State; Except in exceptional circumstances, there will be no negotiations of price with bidders, even with the lowest evaluated bidder\. Extension of bid validity: (a) for the first request for extension if it is longer than four weeks; and (b) for all subsequent requests for extension irrespective of the period (such concurrence will be considered only in cases of Force Majeure and circumstances beyond the control of the purchaser or employer)\. Re-bidding: the system of rejecting bids outside a pre-determined margin or `bracket `of prices shall not be used\. The two-or-three envelope system will not be used\. Rate contracts entered into with the Director General of Supplies and Disposals (DGS&D) are not acceptable as substitute for NCB procedures\. 8\. Direct Contracting: Goods which meet the requirements set forth in paragraph 3\.6 of the Procurement Guidelines may be procured on the basis of Direct Contracting in accordance with provisions of paragraph 3\.6 and 3\.7 of the Procurement Guidelines\. Selection of Consultants 9\. The states of West Bengal and Maharashtra have completed the procurement of consultants for R&M design, EADD and RSA studies for Bandel and Koradi stations using PHRD funding\. Maharashtra is in the process of selection of design consultants and safeguard consultants for 78  Chandrapur, Bhusawal and Parli stations, while Haryana is procuring the same for Panipat station\. All of these would be funded under the technical assistance component of the project\. Each of the three participating states will also need to procure Implementation Support consultants and Quality Assurance consultants, estimated to cost about US$500,000 for each state\. Further, consultant(s) will be procured for institutional strengthening on O&M\. The technical assistance component for CEA envisages selection of consultants for reduction of barriers to R&M interventions in India and for strengthening institutional capacities at CEA, estimated to cost USD 1\.1 million in all\. 10\. Short lists of consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2\.7 of the Consultant Guidelines57\. The Bank's Standard Request for Proposal (RfP) document (December 2008 and as agreed with the Bank) will be used as a base for all procurement of Consultancy services to be procured under the project\. Particular Methods of Procurement of Consultant Services 11\. Quality and Cost Based Selection: Consultant Services may be procured under contracts awarded on the basis of Quality- and Cost-based Selection in accordance with the provisions of Section II of the Consultant Guidelines\. Other Procedures 12\. Quality-Based Selection: Services under the Project which meet the requirements set forth in paragraph 3\.2 of the Consultant Guidelines shall be procured under contracts awarded on the basis of Quality-based Selection in accordance with the provisions of paragraphs 3\.1 through 3\.4 of the Consultant Guidelines\. 13\. Selection Based on Consultants' Qualifications: Services under the Project estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3\.1, 3\.7 and 3\.8 of the Consultant Guidelines\. 14\. Selection under Fixed Budget: Services under the Project estimated to cost less than $200,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3\.1, 3\.5 of the Consultant Guidelines\. 15\. Single Source Selection: Services for tasks in circumstances which meet the requirements of paragraph 3\.9 and 3\.10 of the Consultant Guidelines for Single Source Selection, may, with the Bank's prior agreement, be procured in accordance with the provisions of paragraphs 3\.9 through 3\.13 of the Consultant Guidelines\. 16\. Individual Consultants: Services for assignments that meet the requirements set forth in paragraph 5\.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5\.2 and 5\.3 of the Consultant Guidelines\. Under the circumstances described in paragraph 5\.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole source basis\. B\. Assessment of the agency's capacity to implement procurement 17\. Procurement activities will be carried out by generation utilities in each of the three states\. An assessment of the capacity of the Implementing Agencies (MSPGCL and WBPDCL) to implement procurement actions for the project has been carried out by the procurement specialist of 57Guidelines for Selection and Employment of Consultants by World bank Borrowers\. 79  the Bank during preparation of the project\. HPGCL's response to questionnaire for assessment of procurement capacity has been received during appraisal\. Involvement of CEA had emerged recently and its procurement will be limited to a few consultancies\. A satisfactory arrangement for procurement is under discussion\. Assessment of Procurement Capacity of MSPGCL 18\. MSPGCL is registered under the Companies Act of India and is legally and financially autonomous with full power vested in the Board of Directors\. It is already procuring plants, goods and equipments for its own use through a dedicated procurement unit in accordance with their respective procurement policy and Delegation of Powers\. It prepares Bidding documents in accordance with its own procurement procedure for inviting tenders on open tender basis, following two envelop system\. The concept of post qualification exists in the bidding process\. Technical specifications are generally prepared in-house except in special cases where technical know-how is not readily available, in which case, it is done through consultants\. It has well laid out pre-qualification conditions\. The bid invitation time for open/advertised tenders is minimum three weeks and bid documents are issued without any filtration\. 19\. Bid opening committee opens the bids in presence of bidder's representatives\. Bids are evaluated internally by a multidisciplinary committee using services of consultants for new projects involving large investments\. 20\. Price negotiations for goods, works and consultancy are held as per the Delegation of Power with L-1 bidder\. Counter-offer system is not used\. Assessment of Procurement Capacity of WBPDCL 21\. WBPDCL is registered under the Companies Act and is legally and financially autonomous with full power vested in the Board of Directors\. It is already procuring plants, goods and equipments for its own use through a dedicated procurement unit in accordance with their respective procurement policy and Delegation of Powers\. 22\. WBPDCL prepares bidding documents in accordance with its own procurement procedure for inviting tenders on open tender basis, following four envelope system (Part-I: EMD, Part-II: Pre- qualification criteria, Part-III: Techno-commercial, Part-IV: Price)\. In case of limited tendering, two envelop system is followed (Part-I: Techno-Commercial, Part-II: Price)\. The concept of post qualification exists in the bidding process\. Technical Specifications are generally prepared in-house except in special cases where technical know-how is not readily available; in which case, it is done through consultants\. It has well laid out pre-qualification conditions\. 23\. The bid invitation time for open/advertised tenders is around one month\. For advertised tenders, bid documents are issued without any filtration\. Bid documents are available for sale as advertised and sale remains open for a definite number of days\. Assessment also found that bids are invited from pre-qualified bidders\. 24\. Price negotiations for goods, works and consultancy are held as per the Delegation of Power with L-1 bidder\. Counter-offer system is not used\. Assessment of Procurement Capacity of HPGCL 25\. HPGCL is registered under the Companies Act and is legally and financially autonomous with full power vested in the Board of Directors\. HPGCL has the Materials Management Department for procurement of equipment and materials for the operation and maintenance of its existing power stations\. HPGCL has also awarded the contacts for their Hissar and Yamunanager Power Projects 80  through the consultants appointed by them\. The bidding documents for these projects and compete evaluation and award process was carried out by the consultants\. \. 26\. Technical know-how is not readily available with HPGCL and Technical Specifications are generally prepared by the consultants\. HPGCL, for their routine procurement follows two/three envelope system\. Price negotiations are carried out with first three lowest evaluated bidders and counter offer system is followed\. 27\. Assessment establishes that for all the entities, the procurement staff are not fully familiar with Bank procedures, guidelines and SBDs for Bank-financed projects\. MSPGCL had already sent two of its staff for training at ASCI on Bank funded procurement\. HPGCL has deputed three officers to NIFM for procurement training\. One day procurement training workshop was conducted by the Bank Staff in end Jan 2009 which was attended by several HPGCL staff\. Similar training will be taken up for other participating utilities as well\. WBPDCL is also planning to send two staff to undergo training at ASCI/ NIFM by April' 2009\. Further, the existing procurement system needs various re-alignment/changes to meet Bank's requirement on complaint handling, disclosures and grievance handling\. 28\. The issue/risk concerning the procurement component for implementation of the project has been identified and listed below including the corrective measures which have been agreed\. Risks Rating Mitigation Measures Non familiarization of utility Moderate Procurement Training has to be imparted by staff in Bank funded the Bank for each of the State utilities and procurement, particularly refresher training will be arranged based on single envelope bidding and assessment done at the appraisal and further policy of no negotiation\. based on assessment at the end of each mission\. 29\. The overall project risk for procurement is Substantial\. C\. Procurement Plan 30\. All the three participating state utilities, as well as CEA have developed detailed Procurement Plans for procurement for the complete project giving estimated value, method of procurement and the year of procurement, which provides the basis for the procurement methods\. These plans are under review\. The plan agreed between the Borrower and the Project Team will be in IRIS and will also be available in the Project's database and in the Bank's external website\. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity\. D\. Advance Procurement 31\. Retroactive financing up to an aggregate amount not to exceed US$ 18 million equivalent (under loan) and up to an aggregate amount not to exceed US$ 4,540,000 equivalent (under grant) will be available under the project, for financing expenditures incurred after Feb 01, 2009 and before the Loan signing to procure eligible activities procured under agreed guidelines\. 81  E\. Frequency of Procurement Review Missions 32\. Based on estimates of the contracts, all the contracts will be subject to prior review by the Bank\. However, field visits to carry out post review of procurement actions will be taken up, if required\. 82  Stage Stage Stage Comments Two Two Two Bid date 2009 2009 2009 2009 2009 2009 2009^ 2009^ Expected Opening April, August, September, September, September, December, December, December, September,2010^ / by (Prior Post) Prior Prior Prior Prior Prior Prior Prior Prior Prior Competition\. Review Bank tic Yes Yes Yes Yes Yes Yes Yes Yes Yes Domes (Yes/No) International Preference P-Q No No No No No No No No No involving ICB WORKS/GOODS 83 of d (S+I) (S+I) (S+I) (S+I) (S+I) (S+I) (S+I) (S+I) (S+I) FOR following Metho ICB/NCB ICB ICB ICB ICB ICB ICB ICB ICB ICB Arrangement procurement procured equiv\. eb in Million 81\.8 10\.2 5\.1 10\.2 56\.8 18\.2 15\.9 6\.8 101\.9 Estimated Procurement will Cost US$ contracts\. 1US$=Rs\.44 ARRANGEMENT the in of which (Rs\. Install" 3600 450 225 450 2500* 800* 700* 300* 4484 Opening Million) Estimated Cost Details and Bid packages of Estimates stage PROCUREMENT "Supply contract and First and of THE Description Plant of of List OF Works/Goods Bengal plant handling Plant Preliminary handling Handling handling Date R&M Goods (a) *: ^- Contract West Main Coal Ash Electrical Maharastra Main Coal Ash Balance Electrical Haryana EE Sl\. 1 No\. 1\.1 1\.2 1\.3 1\.4 2 2\.1 2\.2 2\.3 2\.4 3 3\.1 1\. DETAILS  for to rely enti (firms) of the subject 5 Comments cost be to shall composed 2009 2009 consultants 2009 paragraph be 2009 of Date in estimated Expected Proposal Jan,2010 to may July,2009 Submission May, July, April,2009 contracts August, October, October,2009 selection by referred contract (Prior consultants per Guidelines\. Post)/ Prior Post Post Prior Prior Post Prior Post Source consultancy Review Bank other of Single justification individual equivalent Consultant and of All of the QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS Method Selection Bank\. of record contract the 2/7 44 the per by US$500,000 equiv\. on, employment in Million 0\.35 0\.15 0\.8 0\.35 0\.15 0\.8 0\.92 0\.01 the than view Estimated 84 above additi paragraph for Re Cost US$ 1US$=Rs\. less In of and in Prior cost ons Bank\. contract to to (Rs\. 15\.4 6\.6 35\.2 15\.4 6\.6 35\.2 40\.7 0\.55 Million) the provisi Estimated each Cost US$200,000 by subject the for be estimated for cost with Koradi ent to review for shall for services Support Chandrapur TPS prior Guidelines 2 to more for Assessm 1& or estimated accordance in Consultant Consultants Assurance Consultants y Unit \. Packages) Social subject Chandrapur services eb Consultant 50,000 Consultant for consultants the Services Support Building Implementation Qualit Building Rapid 1&2 of Services will US$ to of for for for 1 of consultants (Multiple y lists Packages) Unit review\. Assurance Consultants Bengal Capacity TPS Capacity TPS for Consultancy post Short national Consulting (a) assignments Appendix equivalent the (b) of Description West Implementation Quality O&M (Multiple Maharashtra Consultancy Koradi Consultanc TPS O&M Koradi Design TPS Consultancy (RSA) 1 1\.1 1\.2 1\.3 2 2\.1 2\.2 2\.3 2\.4 2\.5 Sl\. No\. 2\.  2010 2010 2010 2009 July,2009 April,2009 July,2009 July,2009 April,2009 July,2009 July,2009 April,2009 April,2009 April,2009 June,2010 July August,2009 August,2010 October,2010 March, March, March, Post Post Post Prior Post Post Prior Post Post Post Prior Prior Prior Prior Prior Prior Prior /FBS /FBS /FBS /FBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS QCBS 0\.06 0\.42 0\.01 0\.06 0\.42 0\.01 0\.06 0\.42 0\.06 0\.01 0\.15 0\.35 0\.65 0\.15 0\.15 0\.2 0\.2 0\.2 85 2\.75 18\.7 0\.55 2\.75 18\.7 0\.55 2\.75 18\.7 2\.75 0\.55 6\.6 15\.4 28\.6 6\.6 6\.6 8\.8 8\.8 8\.8 TPS of ent S ent TPSi ons e Bhusawal TP nipat Parl 1&2 2 3 Pa R&M entation Bhusawal at Interventi Assessm Parli Assessm Unit 2 TPS Unit 3 Diligenc Unit Pilot for Unit Social for Consultant R&M Implem Unit Social for Due TPS Practices to from Practices for for DD for and Consultant EADD Rapid Bhusawal M 2 EA Rapid Parli 3 EADD Support Support O&M O& for TPS for for for for Audit Assessment Barriers of Markets Unit Unit Packages) of Experience Consultants for consultants for Consultancy Assurance India of Social in Consultancy Chandrapur Design Consultancy (RSA) Consultancy TPS Design Consultancy (RSA) Consultancy Haryana Design Environment Rapid Assessment Implementation Strengthening (Multiple Quality CEA Implémentation Reduction Developing R&M Review Interventions 2\.6 2\.7 2\.8 2\.9 3 2\.10 2\.11 2\.12 3\.1 3\.2 3\.3 3\.4 3\.5 3\.6 3\.7 4 4\.1 4\.2 4\.3 4\.4  April,2010 March,2011 Prior Prior /FBS /FBS QCBS QCBS 0\.15 0\.2 86 6\.6 8\.8 at CEA at Capacity Capacity Institutional of Institutional of Review Strengthening CEA 4\.5 4\.6  Annex 9: Economic and Financial Analysis INDIA: COAL FIRED GENERATION REHABILITATION PROJECT A\. PROJECT LEVEL ANALYSIS 1\. Project level financial and economic analysis is conducted based on information provided in the Detailed Project Report (DPR) for the R&M interventions in the three selected power plants\. Consistent with the phased implementation plan across the three plants, the DPR for Unit- 5, Bandel has been received, whereas the DPRs for Unit-6, Koradi and Units-3&4 Panipat are expected by March 2009 and September 2010 respectively\. Therefore, the project level analysis presented here is for R&M of Unit-5 Bandel only, whereas the analysis for Unit-6, Koradi and Units-3&4 Panipat would be carried out subsequently consistent with the eligibility criteria under loan covenants for the project\. The following project level analysis is divided into four parts: (i) Options available to owners of old power plants; (ii) Economic Analysis; (iii) Financial Analysis; and (iv) Detailed Assumptions for Financial and Economic Analysis\. I\. OPTIONS AVAILABLE TO OWNERS OF OLD POWER PLANTS 2\. The units proposed for rehabilitation have a vintage of over 25 years and are performing below the original design parameters \.For such units the concerned utility has the following options: a) Do nothing (without Project case): In this case the unit continues to generate inefficiently for another 5-7 years (conservatively assumed to be 7 years for the subsequent analysis), and is subsequently scrapped\. The power available during this period is unreliable due to increasing forced outages and the unit heat rate continues to be high (inferior)\. b) Efficiency Integrated Renovation & Modernization (R&M): The utility undertakes the essential investments in the unit so that the unit can run at or close to its design parameters for the next 15 years\. In addition, the selected design option enables significant reduction in heat rate ­ even beyond the original design parameters\. c) BTG Replacement: The utility replaces the Boiler Turbine Generator (BTG) of the unit at an adjacent piece of land so that the same balance of plant facilities as well as coal and water linkages can be used\. This option allows the existing unit to generate even as new facilities are being built, thus minimizing the shutdown period\. The new unit can run efficiently for the next 25 years\. d) Scrap the Unit: This consists of simply closing down the unit\. As there are extreme power shortages the opportunity cost of power is high (surplus states can earn revenue from export of power to deficit states)\. Unless current unit performance is severely compromised, it is unlikely to be scrapped in the face of current supply shortages\. The next option which allows the existing unit to be scrapped and a new unit commissioned at the same site is therefore a more viable option\. 87  e) Complete Replacement: The existing unit is scrapped completely and a new generation unit is built on the same site using same coal and water linkages\. 3\. The following analysis consists of a comparison of the viability of each option (excluding that of scrapping of the units) with the base case, i\.e\. do nothing - the without project case\. The costs and benefits of the options of R&M, BTG Replacement and Complete Unit Replacement are compared with the Without Project case to determine which is most viable\. The following table sets out the key differences in cost and performance (benefits) for the options available\. Without R&M New BTG at Complete Project Adjacent Site Replacement Cost per MW Nil Rs\.22 million Rs\.30 million Rs\.45 million Life 7 years 15 years 25 years 25 years Capacity 210 MW 215 MW 250 MW 250 MW Project Duration 0 months 24 months 24 months 33 months Shutdown period 0 months 6 months 9 months 33 months (included in project duration) Forced outages Increase Decrease Minimal Minimal 4\. In the case of Bandel, according to the technical design consultants hired by WBPDCL, the BTG Replacement option is not possible for technical reasons and due to space constraints in the plant\. Analysis is therefore carried out for R&M and Complete Unit Replacement relative to the Without Project base case\. The main difference between R&M and Complete Unit Replacement is the upfront size of the capital cost, life extension, and time before the generation unit can become operational\. In case of R&M the unit operates in its current state for the initial 18 months and is shut down for a period of 6 months after which it operates with improved performance\. In case of Complete Unit Replacement, the unit is not operational for an initial 33 months, after which a new unit is commissioned\. II\. ECONOMIC ANALYSIS Calculation of Economic Benefits 5\. The key economic benefits of R&M, BTG Replacement and Complete Replacement fall into the following categories: a\. Fuel cost reduction due to more efficient unit b\. Increased generation from higher capacity, increased availability and life extension c\. Increased reliability of electricity supply (reduced forced outages) d\. Reduction in pollutant emissions The above benefits are mutually exclusive\. For economic analysis of various options, the capital cost in each case is deducted from the value of above economic benefits\. a\. Benefit from Reduction in Fuel Cost 6\. To value the coal savings due to increased energy efficiency, we calculate the value of coal saved under R&M and replacement\. These savings are valued based on the prevailing international coal prices (adjusted for differences in quality between foreign and Indian coal)\. In 88  case of R&M, the unit's heat rate, auxiliary consumption, and secondary oil consumption improve, leading to lower fuel cost per kWh of generation\. In the first seven years the fuel cost is Rs\.1\.6 per kWh in the Without Project case and around Rs\.1\.3 per kWh in case of R&M\. b\. Benefit from Increased Generation 7\. Due to the prevailing power shortage in India (which is expected to continue over the next several years), customers are willing to pay more than the prevailing tariffs for regular and uninterrupted supply of power\. Therefore the value of the extra generation is derived from an analysis of those who are using alternative sources of power (at higher cost) and those who have no current access to power (but are willing to pay for power)\. Accordingly, the value of increased generation V can be formulated as follows: V = {Pos + CSG + (1- - )CS}\.E (1) where, Pos is the price of power sourced from alternate grid based generation sources which is substituted by the increased generation from the project\. Long term supplies would be typically sourced through long term contracts with gas or coal based generating stations (long term marginal cost of power)\. It could also be seen as a series of short-term supplies which are typically sourced from trading companies, power exchange or unscheduled interchanges from the grid\. CSG is the cost of self generation per kWh (usually from diesel generators)\. CS is the consumer surplus per kWh for those who were previously not receiving power but benefit by now receiving it because of increased generation from the project\. is the share of increased generation from the project that displaces power sourced from alternate grid based generation sources\. (varies from 0 to 1) is the share of increased generation from the project that replaces self- generation\. (varies from 0 to 1) E is the quantity of increased generation of power as a result of the project\. (1 - ­ ) is the share of increased generation that is supplied to the segment of population that does not currently have access to electricity\. 8\. In this analysis, for the base case, POS is taken as Rs\. 3\.62 per kWh which is the average cost of alternate supply from recent gas based thermal generation\. The corresponding figure for coal based thermal generation is about Rs\.2\.30 per kWh\. The weighted average sale price for power traded in India in 2007-08 is Rs\.4\.52 per kWh\. Price of unscheduled interchanges can go up to Rs\.10\.00 per kWh\. Although POS is taken as Rs\. 3\.62 per kWh in the base case, economic analysis has also been checked using price from coal based super critical generation\. 9\. The value of CSG ­ the cost of diesel based self generation has been estimated at Rs\. 7 per kWh (excluding taxes)\. We conservatively only consider variable costs here, as it is assumed that consumers would continue to own diesel generators but would use them less frequently due to the extra generation capacity\. 89  10\. In terms of the consumer surplus from consumers that do not have access to power prior to the investment, it is conservatively assumed that the R&M investment would not lead to increased access by itself\. This component is therefore assumed to be zero\. 11\. The increase in generation from post-R&M is a result of increased capacity, better availability (PLF), reduced auxiliary consumption and increased unit life\. In Unit 5 of Bandel, R&M results in 2,640 MU of extra generation in the first seven years\. This extra generation is due to increase in PLF from 67 percent to 85 percent, reduction in auxiliary consumption from 11 percent to 8\.5 percent, life extension from 7 to 15 years (plus two years of pre-R&M operation) and an increase in capacity by 5 MW\. The total extra generation over a period of 15 years is 16,900 MU\. 12\. The results of the analysis are given in the table below, which reports the IRR for different values of and for the options of R&M and Complete Unit Replacement\. ERR R&M Complete Replacement = 0 =1 46% 21% = 0\.5 = 0\.5 39% 19% = 1 = 0 29% 15% 13\. From this analysis we take a conservative view on the value of extra generation by assuming that the additional electricity generated will reduce the power purchased from other sources i\.e\. =1\. The proxy of power chosen for this analysis is based on situations where regular payments are made and does not take into account a one off situation of acute power deficit in the state\. Note that the value of power could be higher than this figure\. 14\. This project remains economically viable even if the value of extra generation falls from Rs\.3\.62 per unit to Rs\.2\.30 per unit (cost of alternate generation from coal based generation) which results in ERR of 17 percent for R&M\. c\. Benefit from increased reliability 15\. Again, we take a conservative approach\. We assume a part of the value for increased reliability forms part of the willingness to pay for extra generation and has been included in the previous component\. Consumers that would be willing to pay high premiums for very reliable power supply (such as factories and hospitals) are assumed to continuing having access to back up generation (as the investment is not considered to increase reliability sufficiently to meet the needs of those with a high need and willingness to pay for reliable generation)\. 16\. Also the increase in reliability results in reduction in unit heat rate and secondary oil consumption which is accounted for in the reduction in fuel cost component\. d\. Benefit from reduced emissions of pollutants 90  17\. As the investment is likely to impact emissions of pollutants, there are pollution externality benefits of investment that need to be valued and included in the calculation\. The following aspects need to be considered: Emissions from the rehabilitated and/or new plants are lower per kWh than for the existing plant they replace\. This leads to lower pollutant emissions which has a value\. There will be some additional emission impact due to the increased generation\. Thus the savings in emissions per kWh have to be set against the increase in total generation\. There are some savings to the extent that the rehabilitated units replace self generation\. The latter is much more polluting that the former, as can be seen in the table below\. Pollutant being External costs for External costs for Value of switching reduced self generation power from plants (US$/ton)(*) (US$/ton) with high stacks (US$/ton) PM10 7,963 234 7,729 SO2 1,747 51 1,696 NOx 668 20 648 Source: Lvovsky et al (2001)58 Switching value is the difference between the external costs of self generation and those from plants with high stacks\. 18\. The benefit can be calculated based on how many tons of each pollutant is saved due to the switch from self generation to sourcing from the power plant\. In case of India, the Indian coal does not have high sulphur content therefore SO2 is not significant\. 19\. Since the objective of this project is to reduce carbon emissions in this analysis only the carbon reduction benefits have been calculated\. The renovation and modernization of coal fired generation units would lead to improved energy efficiency as well as a higher amount of power generation due to increased capacity and improved load factor\. To calculate the GHG benefits the GEF Manual59 has been followed\. To facilitate the calculation of direct emission reductions, the emission reduction (or increase) has been broken down into two parts: A\. Emission Reduction from Present Level of Coal Consumption: 20\. With improved energy efficiency, more electricity can be generated from the same amount of coal\. In case the EE R&M project was not undertaken, this additional electricity generated from the same amount of coal would have been provided from new sources of generation connected to the grid ­ including coal-fired, gas-fired, lignite-fired, large hydropower, nuclear and renewable energy projects\. Therefore, this additional generation avoids emissions from a combination of these sources\. 58 Lvovsky, K\. et al\. (2000), Environmental Costs of Fossil fuels: A Rapid Assessment Method with Application to Six Cities, World Bank Department Paper 78, Washington DC: The World Bank\. 59GEF manual for calculating GHG benefits of GEF projects: energy efficiency and renewable energy projects 91  B\. Emission Reduction / Increase from Additional Coal Consumption: 21\. Because of increase in the capacity and improved plant load factor, the overall generation from the unit may be more than the generation possible from using the same amount of coal, thus leading to combustion of even more coal than earlier\. Emission from this additional generation that requires additional coal to be burnt should be compared with emission from new generation capacities connected to the grid ­ including coal-fired, gas-fired, lignite-fired, large hydropower, nuclear and renewable energy projects\. The emission reduction (or increase) for this part would be based on the difference in emission factors for the rehabilitated plant and the future build margin for the gird\. 22\. The Direct Emission Reductions for Bandel Unit 5 are to the tune of 0\.85 million tones of CO2\. For the purpose of this analysis, the value of carbon emissions is conservatively taken as $8 per metric tonne CO2\. However this value can go as high as $30 per metric tonnes CO2\. Assuming $8 as the value of carbon benefits, the valuation of carbon emission reduction for Bandel is around Rs\. 326 million\. The calculation of carbon emission reduction is provided as a separate analysis in Annex-16\. The valuation of the carbon reduction benefits has not been included in the economic analysis\. The valuation results will further strengthen the ERR results\. Results of Economic Analysis 23\. Both the options result in more efficient use of fuel leading to absolute savings in coal usage and increased generation\. They also lead to reduced emissions due to switching from self generation\. Keeping the status quo performance of the unit as the base case the ERR in case of R&M and Complete Replacement programs is shown below\. (The key assumptions of the analysis are covered at the end of this section\.) ERR Highest ERR EE R&M Complete Replacement Bandel Unit 5 29% 15% EE R&M 24\. The above ERR calculations do not include the impact of economic benefits from carbon emissions reduction\. The projected Heat Rate values for the EE R&M option are similar to those for the Complete Replacement option\. As a result, the difference between the economic benefits from carbon emissions reduction is minor\. An analysis conducted to evaluate the difference in economic benefits from carbon emissions reduction indicated that the replacement option leads to slightly higher annual reduction in carbon emissions, which if valued at an optimistic price of USD 15 per TCO2 would yield an additional economic benefit of only USD 0\.6 million per annum\. This additional economic benefit does not materially alter the economic comparison and EE R&M option remains preferable over Complete Replacement option\. Scenario Analysis 25\. The viability of R&M projects can be adversely affected by under-estimation of costs, longer than anticipated implementation time and failure to achieve the anticipated R&M benefits\. 92  The increase in cost and delay in implementation might be due to surprises i\.e\. changes required which may not have been anticipated and are known only once the entire machinery is opened\. Sometimes R&M cannot re-achieve the original design specifications because of deterioration in coal quality and other factors\. 26\. Therefore to take into account the above possible impacts on costs and benefits, scenario analysis has been performed that assumes that not all operational and outcome parameters suggested by the design engineers are actually met due to the R&M investment\. The results are shown in the table below\. Each of the scenarios is calculated independently of the rest\. 27\. Variations in implementation parameters are found to have more impact on the ERR than the variations in outcome parameters\. Out of the implementation parameters, cost overrun causes the maximum impact on ERR\. The table below summarizes the changes in the R&M ERR if the various design parameters are not met\. Conclusions 28\. Based on the ERR, the EE R&M of the unit is found to be the more economically viable option\. The scenario analysis highlights that even in the case of variations in the key parameters, the economic returns on R&M investment are attractive (they range from 20 percent to 29 percent) which remains higher than the Complete Replacement option (15 percent)\. III\. FINANCIAL ANALYSIS 29\. The Financial Internal Rate of return (FIRR) has been calculated for each of the projects based on a comparison between having no project and carrying out either an EE R&M, BTG Replacement or a Complete Replacement\. As the regulators have not published their views on what process they will follow for determining the tariff, FIRRs are calculated for different forms of regulatory treatment, and the extreme (high and low) returns are considered\. 93  Calculating Benefits & Costs of Investment 30\. The anticipated benefits accruing on implementation of R&M, BTG Replacement or Complete Replacement include reduction in auxiliary consumption, increase in unit availability (resulting in higher load factor), reduction in station heat rate (SHR) with resultant savings in coal and oil consumption and availability of incremental saleable energy\. The financial benefits to the Utility include annual increase in revenue from the incremental saleable energy and savings in expenditure of coal and oil\. Indicative Performance Improvements from Different Options Generation Typical PLF Typical Oil Coal (MUs) Heat Rate Consumption Consumption (Kcal / KWh) (Ml / KWh) (tonnes/year) Pre R&M 7,082 2,872 67% 2\.5 719,158 Post R&M 25,628 2,456 85% 1\.5 931,371 Complete Replacement 26,296 2,400 85% 1\.5 1,043,871 31\. The drivers of increased energy production are the increase in capacity from a 210 MW unit to 215/250 MW, plus better plant availability leading to an improvement in plant load factor from 67 percent to 85 percent\. The financial benefit of the investment in EE R&M is increased revenue from additional sales of energy, with increased (but proportionally lower) variable costs from increased fuel consumption\. The net generation increases by 16,835 MU\. Assuming the same tariff rate pre and post R&M of approximately Rs\. 1\.89 the increased revenue on an annual basis is approximately Rs\. 2,600 million\. On the other hand, the increase fuel costs are only about Rs\. 1,666 million, thus providing about Rs\. 4266 million annually towards incremental benefits from the project\. 32\. The project is funded through a combination of utility's own Equity, IBRD loan and GEF grant\. In the analysis FIRR has been benchmarked against Weighted Cost of Capital (WACC) ­ the weighted average cost of equity and the cost of debt together, with weights equal to the share of financing from these two sources\. For this project, WACC takes a value of 8\.52 percent\. Result of Analysis R&M Complete Replacement Existing tariff continue 16\.60 % 13\.55% Cost plus approach for tariff 10\.44 % 10\.58% 33\. The FIRR from the R&M project is 16\.60 percent if the existing tariff continues and falls to 10\.44 percent in the extreme case where the tariff is determined on a pure cost-plus basis (an unlikely regulatory approach)\. On the other hand, the FIRR from the complete replacement returns a figure of 13\.55 percent if the existing tariff regime were to continue and falls to 10\.58 percent if tariffs were determined on a pure cost-plus basis\. Also, it is seen that the levelized tariff in case of R&M turns out to be lower than the existing levelized tariff in all scenarios 94  (adverse implementation parameters and adverse outcome parameters), whereas in case of replacement the levelized tariff would be about 9 percent higher than the existing levelized tariff even when all implementation and outcome parameters are fully met\. Thus R&M is financially a more attractive option than Complete Replacement\. Options for Regulatory Treatment of R&M 34\. The methodology to calculate the tariff post investment is not clearly defined ­ though the team has held discussions with the regulator and understands the likely options (see annex on Regulatory Engagement)\. To capture the impact on FIRR under the different regulatory options, we have calculated the FIRR in the following tariff scenarios: A\. Existing Tariffs continue\. In this case the prevailing tariff for generation continues\. B\. Cost Plus Tariff based on Actual Unit Performance\. This is a cost-plus approach wherein the allowable costs and thus tariff are based on the actual performance of the unit post investment\. The cost recovery is not limited to the norms and the Generator recovers actual costs\. C\. Cost Plus Tariff based on Design Unit Performance\. This is a traditional cost-plus approach\. However, in this case, unit design parameters are used to calculate the allowable costs\. If the actual performance meets the norm, the Generator recovers actual costs but if it is beyond the norms then cost recovery is limited to the norms\. D\. Benefit Sharing based on Actual Unit Performance\. This is a modified cost-plus approach wherein the allowable costs are based on the actual costs incurred post the investment\. The framework is similar to the existing regulatory framework except if the actual performance meets the norm, the Generator recovers actual costs but if it is better than the norms, cost recovery is not limited to the norms\. The benefit from the increase in efficiency (difference between prevailing tariff and the new tariff calculated) is shared equally by the consumers and Generator\. This gives an incentive to the Generator to perform better\. E\. Benefit Sharing based on Design Unit Performance\. This is a modified cost-plus approach wherein the allowable costs are based on the design parameters post R&M and related costs\. The framework is similar to the existing regulatory framework except if the actual performance meets the norm, the Generator recovers actual costs but if it is better than the norms cost recovery is not limited to the norms\. The benefit from the increase in efficiency (difference between prevailing tariff and the new tariff calculated) is shared equally by the consumers and Generator\. This gives an incentive to the Generator to perform better\. F\. Upfront Tariff based on Alternate Green-Field Generation\. In this case the generator is committed to supply only pre-R&M quantity of energy at pre-R&M tariff rates for the remaining life of the plant\. The price of the additional quantity supplied by it (through the investment) is based on the tariff of a new plant\. Scenario Analysis 35\. As explained above, the viability of R&M projects is examined in different regulatory scenarios and in different scenario where implementation and outcome parameters are not met\. The table below shows the FIRR in all the different scenarios\. The FIRR is highest (18\.07 percent) in Scenario F when the existing tariff (Rs\. 1\.89 per unit) and tariff of a new plant (Rs\. 95  2\.3 per unit) are used to determine the tariff of the unit post R&M\. If the existing tariff continues (Scenario A) then the FIRR is 16\.6 percent and if the benefit is shared equally between the utility and consumer the FIRR touches 13\.71 percent\. In case of Implementation & Outcome Scenarios -Variations in outcome parameters cause more impact on the FIRR than the variations in implementation parameters\. Out of the outcome parameters, variation in SHR causes the maximum impact on FIRR\. 36\. According to an order issued by West Bengal Electricity Regulatory (WBERC) in December 2007 (2\.8\.6\.2)- "If the actual performance of a generating station of a generating company or a licensee in a particular year in respect of any parameter, the operating norm of which has been laid down in Schedule 9A of these regulations, is better than the norm applicable to that parameter in that year, then such gain shall be shared in the manner and with the person as specified in Schedule 9B of these regulations\." 37\. Also "In addition to the gains originating from better performance which are to be shared as per regulations 2\.8\.6\.2 and 2\.8\.6\.3, the licensee or the generating company shall also be entitled to incentives for improved performance, if the generating company or the licensee attains or exceeds various standards of operating performance related to different parameters for a year according to principles as specified in Schedule-10 of these regulations" 38\. Since the targeted operating norms after R&M for Unit 5 of Bandel far exceed the operating norms set by the commission therefore according to the WBERC regulations the utility will be entitled to gain sharing and incentives, thus scenario D seems more likely\. Conclusion 39\. Based on the FIRR, the R&M of the unit is a better option that replacement of the entire unit\. The scenario analysis highlights the fact that even in the case of variations in the key parameters the returns on R&M investment are better than the returns on Replacement\. Overall, as would be expected, the degree of absolute financial viability of each option is sensitive to the way in which tariffs are set\. However, the result that R&M is more viable than complete replacement is a robust result\. 96  97 FIRR for Analysis Scenario of Results Table-9\.1:  IV\. DETAILED ASSUMPTIONS FOR ECONOMIC AND FINANCIAL ANALYSIS Common Assumptions Capacity increases from 210 MW to 215 MW incase of R&M and 250 MW in case of Complete Replacement Capital Expenditure is estimated at Rs\.21\.97 million per MW incase of R&M and Rs\. 44\.94 million per MW incase of Complete Replacement Unit shutdown period varies from 6 months incase of R&M to 33 months for Complete Replacement Unit life increases to 15 years in case of R&M and 25 years in case of Replacement Operational Parameters PLF increases from 67 percent to 85 percent in case of both R&M and Complete Replacement Station Heat Rate reduces from 2872 kcal/kWh to 2456 kcal/kWh in case of R&M and 2400 kcal/kWh in case of Complete Replacement Auxiliary Consumption reduces s from 10\.86 percent to 8\.5 percent incase of R&M and 8 percent in case of Complete Replacement Secondary Oil consumption falls to 1\.5 ml/kWh in both the cases For all these parameters a suitable escalation/deterioration factor is assumed Specific Assumptions for Economic Analysis Value of Fuel Saved - To calculate the adjusted price of coal the average price of imported coal with calorific value 6000 kcal/kg is assumed to be Rs\.2800\. Value of additional Generation is assumed at average cost of alternate supply from recent gas based thermal generation i\.e\. Rs\. 3\.62 per kWh Specific Assumptions for Financial Analysis Financing terms for World Bank loan -Rate of interest for domestic borrowing of 6\.17 percent (Hedging cost of 3 percent+ LIBOR 3\.175 percent), moratorium period of 2 years and repayment period of 10 years is assumed\. Financing terms for domestic borrowing -Rate of interest for domestic borrowing of 10 percent, moratorium period of 2 years and repayment period of 10 years is assumed\. O&M expenses reduces from Rs\.1\.09 million per MW to Rs\.0\.96 million per MW incase of R&M and Rs 0\.9 million per MW in case of Complete Replacement For tariff calculation an O&M expense of Rs\.1\.3 million/MW is allowed by the Regulator and thus included in the tariff calculation\. O&M expenses are assumed to increase at 4 percent Existing tariff escalation factor is assumed at 4 percent and tariff escalation factor for a new plant is assumed at 2 percent Return on equity is assumed to be 14 percent 98  B\. ENTITY LEVEL FINANCIAL ANALYSIS West Bengal Power Development Corporation Limited 40\. West Bengal Power Development Corporation Limited (WBPDCL) has a total generation capacity of 2,820 MW across six thermal power plants located at Bandel (4x80 + 1x 210 MW), Bakreshwar (5x210 MW), Kolaghat (6x210 MW), and Santhaldih (4x120 MW)\. WBPDCL plans to add 2230 MW over the eleventh plan period\. Addition of the proposed capacity may spill over to the next plan period\. During the tenth plan, three plants of 1270 MW were scheduled to be commissioned but due to time over run and technical difficulties these plants were delayed and are now scheduled for commissioning in the eleventh plan\. Historical Performance 41\. Generation: The total generation of the company grew steadily at 5\.5 percent compounded annual growth rate (CAGR) in the period\. The portfolio of assets under WBPDCL is old\. Most of the plants are not efficient and Trends in Generation (MUs) do not meet the regulatory norms for operating parameters such as SHR, PLF etc\. 16805 17000 Santaldih is operating at PLF less than 40 16500 percent\. At an aggregate level during 2007- 16000 15614 08, WBPDCL achieved a PLF of 68 percent\. 15500 15109 Santaldih is proposed for replacement\. Units 15000 14500 in Bandel & Santaldih also face frequent 14000 outages\. Investments in R&M and FY06 FY07 FY08 strengthening of O&M practices are required to make the existing plants more efficient\. 42\. Profitability: WBPDCL's revenue has at a CAGR of 7\.65 percent from FY06 to FY08\. However, during FY08; WBPDCL has Trends in Revenue registered a growth rate of 3\.55 percent on year on year (yoy) basis as compared to 28000 27009 11\.92 percent in FY07\. This is primarily due 27000 26083 n to an extraordinary item of Rs\.2620 million 26000 ilioi 25000 against Fuel Cost adjustment of FY 05 and m in 24000 23306 FY 06 and Rs\. 80 million of Incentive as per s R 23000 directive of WBERC, included in revenue of 22000 FY 07\. 21000 FY06 FY07 FY08 43\. The profit after tax (PAT) increased steadily until FY06 and saw a quantum jump in FY07\. This jump can be attributed to the drastic decline in the interest and financial charges in FY07\. 99  44\. The interest and financial charges Trends in Profit afterTax (PAT)& Interest & reduced drastically when the Government of Financial Charges West Bengal (GoWB) implemented a financial restructuring for WBPDCL and 3000 2552 erstwhile West Bengal State Electricity Board 2256 2500 n 1829 (WBSEB)\. Under this financial restructuring ilio 2000 m plan, GoWB adjusted Rs\. 27,183 million out 1500 in 992 845 s 1000 of total amount of Rs\. 28,527 million R 500 226 receivable from erstwhile WBSEB on 31 0 March 2006 against an outstanding GoWB FY06 FY07 FY08 loan\. The balance of Rs\.1, 344 million was considered in the books as receivable from Profit after Tax Interest & Financial charges WBSEB\. 45\. Expenditure: The total generation & related expenses have increased from Rs\.20,974 million in FY06 to Rs\. 24,071 million in FY08 at a CAGR of 7\.3 percent\. The split of expenditure has not changed significantly over the period\. Fuel cost which is the main component constitutes 85 percent of total expenditure in FY08\. Fuel costs for the Company's generation plant was Rs\. 20342 million in FY08 against Rs\.18767 million in FY07 recording an increase of 8\.4 percent which is attributed to the increased generation levels and increase in cost of coal cost\. This is not an issue Expenditure Split FY08 as this item is a pass through to the customer\. Employee cost have increased at a CAGR of 4% 1% 5% 26\.5 percent The increase in 5% employee cost during FY08 by 48\.7 percent as compared to FY07 was primarily on account of recruitment of new staff for the assets coming on stream in 85% FY09 viz\. Sagardighi, extensions at Bakreswar and Santaldih Fuel Cost Employee Cost Repairs & Maintenance Plants\. Administration and other Administrative Expenses Stores Consumed expenses includes rent, rates and taxes, insurance etc\. which decreased by 46 percent CAGR from FY06 to FY08\. These expenses have decreased in FY08 compared to FY06 due to a substantial decrease in miscellaneous expenses over the last three years\. Even though the plants under WBPDCL are old, the expenditure on operations and maintenance (O&M) is comparatively low\. The O&M expense per MW is lower than the norm set by CERC\. 100  Financial Projections for WBPDCL Note: - PBDIT-Profit before Depreciation, Interest & Tax; PBT- Profit Before Tax: PAT- Profit After Tax The formula used for calculation of key financial ratios are given in the table below 46\. The financial projections are based on the following assumptions:- WBPDCL plans to more than double its capacity from 2820 MW in FY08 to 6320 MW by end of 2013\. A Debt: Equity ratio of 70:30 with repayments tenors similar to existing projects of 11-13 years which is the current repayment terms for the PFC and REC funded projects has been assumed\. Total capacity Expected Year of Estimated Project (MW) commissioning Cost (Rs million) X Plan Projects Sagardighi Stage 1 600 (2 X 300) FY 09 27500 Santaldih Unit 5 250 (1 X 250) FY 09 9550 Bakreswar Unit 4,5 420 (2 X 210) FY 09 14300 XI Plan Projects Sagardighi Stage II 1320 (2 X 660) FY 13 79200 Santaldih Unit 6 250 (1 X 250) FY 12 10000 Bakreswar Unit 6 660 (1 X 660) FY 12 39600 Total 3500 191600 101  R&M Projects have been considered for Bandel Unit 5 under current consideration for World Bank funding and Kolaghat Unit 3 which is currently undertaking an RLA study and R&M scope design financed by KfW The operational performance of the existing operational assets have been based on the projections of WBPDCL as submitted to WBERC in the MYT petition for the period FY09 to FY11\. The same trend has been considered for the subsequent period\.The operational performance of the new projects under the Xth and XIth Plan has been based on the WBERC specified guidelines for operating norms\. The fuel cost and operation & maintenance expenses for the existing assets viz\. Koradi Thermal Power Station, BkTPS, Bandel Thermal Power Station and Santhaldih Thermal Power Station have been based on the Multi Year Tariff (MYT) petition as filed by WBPDCL with WBERC for the control period FY09 to FY11\. Beyond the control period the expenses have been projected on the basis of WBERC allowable norms for the same\. With the setting up of new units the number of employees is bound to increase\. The projection on the number of employee and employee costs for new stations has been considered in proportion with plant size\. CAGR of 5 percent growth has been used for projection of employee expenses on a standard YoY hike in employee's salary\. Maharashtra State Power Generation Company Limited 47\. The erstwhile Maharashtra State Electricity Board (MSEB) was restructured in the FY 2005-06 into four companies i\.e\. MSEB holding Company, Maharashtra State Power Generation Company Limited (MSPGCL), Maharashtra State Electricity Transmission Company Limited (MSETCL) and Maharashtra State Electricity Distribution Company (MSEDCL)\. MSPGCL was entrusted the work of generation of electricity in the State of Maharashtra\. MSPGCL operates in a regulated sector with the return on equity provided by Maharashtra Electricity Regulatory Commission (MERC)\. Throughout the analysis all the FY06 figures are from period June 2005- March 2006, and therefore figures for April and May 2005 are not included\. 48\. The total capacity of MSPGCL's existing generating stations is 9972 MW, comprising 2320 MW of hydel generation capacity, 6830 MW of coal based thermal generation capacity and 852 MW of gas based generation capacity\. Historical Performance Trends in Generation (MUs) 49\. Generation: The total units 50000 44909 46604 generated increased by 24 percent in 37424 40000 FY07\. The increase was primarily due to 30000 the increase in PLF from 71 percent to 73 percent as opposed to an increase in total 20000 installed capacity\. If the total units are 10000 adjusted for two months, then the 0 increase is only about 4 percent\. Most of FY 06 Adjusted FY 06 FY 07 102  the plants owned by MSPGCL are of considerable vintage\. In 2007, CEA approved the de-rating of capacities for Nasik, Koradi, Bhusawal, Paras and Parli Thermal Power Stations (TPS)\.Also, the generation units of these plants are of smaller capacity which reduces the operational efficiency of the stations\. In order to circumvent the problem, MSPGCL is considering the option of replacing the older and smaller units with newer and more efficient generating stations\. Also to ensure that the existing plants operate at least at existing efficiency levels, if not better, for the rest of the life of the plant, the plants would have to be subjected to major renovation and modernization activity\. This entails high investment in the future which may financially strain the company\. Debt Service Coverage Ratio (DSCR) indicates the ability of the firm to pay its debt installments and interest from the cash available\. MSPGCL's DSCR in future is within the satisfactory range\. The DSCR ranges from 1\.29 to 1\.69 in FY09 ­ FY18\. 50\. Profitability: The profit after tax (PAT) doubled in FY07\.The jump in PAT can be attributed primarily to the increase in units Trends in Profit After Tax (PAT) sold and the rise in net realization\. The profit that the company is earning is lower 2335 2500 than the return the company is eligible to 2000 earn (fixed 14 percent RoE)\. The profit is 1355 lower on account of relatively poor 1500 1129 performance of existing generating stations 1000 vis-à-vis performance parameters specified 500 by MERC and higher O&M expenditure 0 than allowed by MERC led to under- FY 06 Adjusted FY 06 FY 07 recovery of costs\. 51\. Expenditure: The total expenditure increased by 33 percent (from Rs\.52, 065 million in FY06 to Rs\. 69,489 million in FY07)\. The split of expenditure has not changed over the period\. Fuel cost is the main component contributing around 85 percent of total expenditure\. The increase in the fuel cost is on account of increase in station heat rate\. The actual heat rate achieved during FY 2006-07 for all the stations except Khaperkheda was higher as compared to the norm\. \. Fuel costs also include the allowed transit losses\. For a few plants, the transit losses are substantially higher than the MERC approved norms of 0\.80 percent of coal transit losses for non-pithead coal plants\. Split of expenditure in FY07 52\. In the past the 6\.58% company has faced 0\.83% problems with regulator 6\.96% on the allowance of operating costs\. For example, some of the existing old stations have not been able to adhere to 85\.64% operational performance norms as defined by the Generation of Pow er Repairs and Maintenance MERC and the additional Employee Costs Administration and General Expenses cost is not allowed by the regulator affecting the 103  financial performance of the company\. To address this challenge in 2008, the Appellate Tribunal for Electricity directed the Commission to take into consideration an independent study and reset the operating parameters, viz\., transit loss of coal, station heat rate, auxiliary consumption, and specific oil consumption, and align its Regulations by prescribing achievable norms\. Therefore in the future the allowance of operating costs may not be challenge for the utility\. Operational Norms for Existing MSPGCL Plants as per MYT Station Heat Auxiliary Specific Oil Transit Loss Rate Consumption Consumption (Kcal / kWh) (%) (ml/kWh) (%) Actual Norms Actual Norms Actual Norms Actual Norms Bhusawal TPS 2,673 2,561 9\.75% 9\.75% 2\.70 2\.00 2\.00% 0\.80% Paras TPS 3,171 3,105 10\.00% 9\.70% 3\.50 2\.00 2\.11% 0\.80% Parli TPS 2,634 2,573 9\.00% 9\.00% 2\.50 2\.00 3\.24% 0\.80% Chandrapur TPS 2,600 2,480 7\.90% 8\.50% 1\.17 2\.00 1\.00% 0\.80% Koradi TPS 2,977 2,907 10\.28% 9\.80% 2\.56 2\.00 0\.80% 0\.80% Nashik TPS 2,597 2,584 9\.00% 9\.00% 3\.30 2\.00 1\.00% 0\.80% Khaparkheda TPS 2,660 2,644 9\.00% 8\.50% 2\.08 2\.00 1\.50% 0\.80% Uran GPS 2,010 1,950 2\.30% 2\.30% - - - - Financial Projections for MSPGCL Note: - PBDIT-Profit before Depreciation, Interest & Tax; PBT- Profit Before Tax: PAT- Profit After Tax 104  53\. The key assumptions on which the financial projections for MSPGCL are based are given below\. MSPGCL has planned for expansion of about 7000 MW (including 1,560 MW through replacement units) of capacity over a period of 2006-07 to 2012-13 for a total investment of about Rs\. 350 billion\. The investment plan is considered to be funded in the ratio of 80:20 of debt equity\. MSPGCL has envisaged financing for the proposed investment plan through debt from the financial institutions like PFC and REC and the equity portion funding through internal cash generation and other sources\. The operational parameters such as station heat rate, auxiliary consumption etc\. for the existing generating stations have been assumed at performance parameter levels reported by MSPGCL for approval of Annual Revenue Requirement (ARR) for MYT period 2007-10 and assumed to sustain at the levels of FY2009-10 thereafter\. For new expansion units and replacement units the operational parameters are considered at the levels specified in the Terms and Conditions of Tariff by MERC\. The operating costs such as fuel cost, employee and administration & general expense is assumed to be as per cost estimated by MSPGCL in its petition submitted to MERC and has been escalated according to the past trend\. Other income comprises revenues such as income from loans, advances to staff, income from trading, etc\. In case of the existing stations, the trend for other income for the past five years has not been uniform\. Hence an escalation of 5 percent over the previous year has been assumed for projecting the other income during the plan period\. Return on equity at rate of 14 percent per annum has been assumed for the financial plan as per the norms approved by MERC\. Haryana Power Generation Company Limited 54\. HPGCL has a total installed capacity of 2195 MW\. Out of this, thermal power plants account for around 96 percent of the capacity\. HPGCL owns three thermal power plants ­ Panipat Thermal Power Station (PTPS) (4x110, 2x 210, and 2 x 250 MW), Faridabad Thermal Power Station (FTPS) (3x55 MW) and Deenbandhu Chottu Ram Thermal Power Plant (2x300 MW)\. Along with the generation business in FY06, HPGCL was entrusted with the short-term and long-term power trading business for the state but the business has been transferred to both the distribution utilities with effect from April 1, 2008\. Therefore in FY06, FY07 & FY 08 the revenue of HPGCL includes revenue for trading business and generation business\. 55\. Currently Haryana faces a peak deficit of around 30 percent\. To meet the growing demand for power in the state HPGCL has been focusing on adding capacity (600MW were added in 2008) and improving the operating efficiency of generating stations through renovation and modernization (R & M) of old thermal generating stations (Unit 1 & 2 of PTPS)\. 105  56\. The age profile of the thermal plants HPGCL is highly varied\. There was no capacity addition from 1989- 2001\.Therefore around half the thermal capacity was commissioned before 1989 and the other half post 2001\. During 2001-2007, 725 MW was added to the capacity and in 2008 alone the generation capacity was augmented by another 600 MW\. Historical Performance 57\. Generation: The gross units sold from own generation increased from 6181 million in FY03 to 9881 million in FY08 at CAGR of 17 percent\. The two factors which were attributable for such growth are: Addition in installed capacity Improvement in average PLF 58\. All the three units in FTPS Break up of units sold( MUs) and Unit 1 -4 PTPS, which constituted approx 36 percent of 30000 25715 24068 total capacity of HPGCL, are more 22240 25000 than 25 to 30 years old and are 20000 17218 operating much below performance 15000 6181 standards\. In FY 08, the PLF of 10000 FTPS was around 49 percent and 5000 9740 9881 6181 8304 the PLF for Unit 1-4 of PTPS was 0 FY05 FY06 FY07 FY08 around 61 percent\. The average PLF of HPGCL was much higher Ow n Generation ( Gross) Bulk Trading ( Gross) Net Units Sold around 78 percent due to moer than 80 percent PLF of Unit 5-8 of PTPS\. The Station Heat Rate (SHR) is also considerably high\. In FTPS the SHR was as high as 4759 Kcal/Kwh and in Unit 1-4 of PTPS it was around 3445 Kcal/Kwh\. Further auxiliary power consumption and specific oil consumption of these seven units are abnormally high as compared to new PTPS units\. 59\. To improve the operating performance of HPGCL as a whole HPGCL undertook the R&M of Unit 1 & 2 of PTPS and the R&M of Unit 3 and 4 are in the pipeline\. It has also decided to phase out old and inefficient plant like FTPS and invest in large and more efficient power plants\. Unit 2 of FTPS has already been closed and the remaining units- Unit 1 and 3 are scheduled to be closed in FY11 and are planned to be replaced with gas-based units subject to availability and pricing of gas\. 60\. There has been improvement in the various parameters of efficiency over the years\. The auxiliary consumption has improved from 11\.04 percent in FY05 to 9\.93 percent in FY 08\. Similarly the coal and oil consumption in HPGCL's plant have also improved\. But even the current improved performance does not meet the norms set by HERC\. As per HERC norms, the auxiliary consumption should be maintained below 9 percent while the oil consumption should be brought down to 2\.0 ml/kWh even for the older plants as well\. 106  61\. Profitability: Operating Trends in Operating Profit profit as a percent of total revenue declined from 7\.04 6000 4952 5000 percent in FY05 to 5 percent in 4000 3089 3304 3569 FY08\. One of the reasons for n 3000 iolli 2140 2182 2000 1221 m 1160 such reduction was the transfer of 702 in 1000 s R 0 bulk trading business which -1000 FY05 FY06(301) FY07 FY 08 HPGCL which was operating -2000 -3000 with negative margins in FY 06 (2467) Operating Profit Operating profit from Generation Business & FY07\. This has affected Operating profit from bulk trading business overall operating profitability of HPGCL\. Operational profit of Trends in PAT generating business showed significant improvement in FY07 30 16\.9 17\.2 20 due to increase in efficiency of 10 jn operating parameters\. The PLF illio 0 m increased from 67 percent in FY -10 FY05 FY 06 FY 07 FY08 in\.s -8 -20 06 to 79 percent in FY 07, R -30 auxiliary consumption reduced -40 -50 -40 from 10\.08 percent to 9\.8 percent , oil consumption reduced from 3\.74 ml/kwh to 1\.85 ml/kwh and transit loss of coal declined from 4\.79 percent to 3\.23 percent\. 62\. During the last four years HPGCL earned operating profit but it incurred continuous losses at Rs\.40 million and Rs\.8 million in FY05 and FY06\. This is mainly on account of high interest burden due to increasing level of borrowings to fund capacity expansion and working capital requirements\. (aggregate loan liabilities of HPGCL including secured and unsecured loans have increased three fold from Rs\.18, 458 million in FY03 to Rs\. 57,420 million in FY08) and also transfer of bulk trading business in which HPGCL made an operating loss to the tune of Rs\. 2467 million\. In FY 07, though HPGCL more than doubled its operating profit from generating business, due to high operating losses incurred in bulk trading business, it could record only marginal profits\. 63\. Expenditure: Expenses Split of expenditure in FY 08 of HPGCL mainly includes power generation cost, power 1% 3% purchase cost, repairs and 0\.18% maintenance cost, employee cost 31% and administration cost\. During FY 06- 08, purchase of power has been the main component of HPGCL's expenditure\. Since the trading division has been 65% transferred to the distribution companies, in the future power generation cost will form the key Generation of pow er Purchase of Pow er R&M Employees Cost Administrative expenses component of expenditure\. 107  Power generation cost, mainly includes coal consumption cost, is around 87 percent of total expenditure\. Power generation cost component has been increasing and this can partly be attributed to high coal transit losses\. In FY03 the losses were as high as Split of expenditure in FY 08 ( excluding pow er purchase cost) 6\.16 percent for PTPS and 7\.8 1% 9% 4% percent for FTPS\. Over these few years, HPGCL has succeeded in reducing the coal transit losses to 3\.46 percent in FTPS and 3\.02 percent in PTPS\. One of the major initiatives taken by HPGCL is appointment of a coal agent in 2006\.Though there is improvement 87% Generation of pow er R&M Employees Cost Administrative expenses in coal transit losses, it is still far behind CERC approved norms of 0\.80 percent of coal transit losses for non-pithead coal plants\. Financial Projections for HPGCL Note: - PBDIT-Profit before Depreciation, Interest & Tax; PBT- Profit before Tax: PAT- Profit after Tax 64\. At present HPGCL faces two key issues- 1) Inadequate performance of its ageing Faridabad and Panipat Plants and 2) Inadequate power generation capacity to meet the increasing power demand which is expected to grow at around 14 percent p\.a\. during XI plan\. The present performance of its existing old plants is affecting its operational and financial performance\. To address these major issues, during 11th plan HPGCL has proposed capital outlay of Rs 113 billion mainly for undertaking renovation and modernization of existing plants and addition of 3900 MW (thermal and gas based) power generation capacity\. These investments are expected to improve performance of the old plants as well as increase the power supply in the State by strengthening HPGCL's generation capacity\. As a result of the improvement of performance of old plants and setting up of new efficient plants the financial position of HPGCL is projected to improve\. Further the financial position is expected to improve with the transfer of the trading business\. 108  65\. The key assumptions on which the financial projections for HPGCL are based are given below\. HPGCL plans to add 1800 MW to its coal based generation capacity\. It proposes to invest approximately Rs\. 101 billion during 11th plan to add thermal as well as gas- based generation capacity of approx\. 3150 MW\. Refurbishment of the PTPS Unit 3, 4 &5 with installed capacity of 430 MW is also planned during the 11th plan\. After 11th plan, old and underperforming coal-based Faridabad plants will be replaced by gas-based plants of 1050 MW in the year 2012-13 and 2013-14\. Capital cost of any new coal based plants added beyond the 11th plan is assumed at Rs\.45 million per MW and that of gas based plant is assumed at Rs\.30 million per MW with an escalation of 5 percent every five years\. The total investments planned during the period FY08 to FY12 is assumed to be funded in the debt equity ratio of 80:20 except for projects proposed to be funded by the World Bank, a debt to equity ratio of 70:30 has been assumed, where the additional equity/quasi-equity has been assumed to be brought in through market borrowings\. While calculating future annual revenue requirement (ARR) for HPGCL, return on equity (ROE) of 14 percent has been assumed on the project equity from FY09 onwards\. However, the ROE passed by HERC in the tariff order of 2007-2008 & 2008-09 was 12 percent\. Future ARR of HPGCL has been projected taking into consideration the fixed as well as the variable cost estimated as per HERC prescribed norms\. O&M cost which includes repairs and maintenance, employee cost and general administration expenses have been estimated on per MW basis as per CERC specified norms for the newer units and as per HERC passed costs for the existing units\. An appropriate escalation factor is used for all the costs such as 4 percent for O&M expenses\. Working capital for the existing as well as new plants has been estimated on the basis of HERC specified norms for the fuel stock (2 months), debtors (2 months), O&M expenses (1 month) and stores and spares (1 percent of capital cost)\. 109  Annex 10: Safeguard Policy Issues INDIA: COAL FIRED GENERATION REHABILITATION PROJECT A\. Environment 1\. Approach to Environmental Management\. The project will result in major positive environmental benefits, in terms of improved energy efficiency, reduced local and global air pollutants, which will be measured and quantified during the Project\. In order to maximize the rehabilitation measures, a two pronged approach has been adopted: (i) unit level improvements addressing environmental issues; and (ii) plant level improvements in respect of management of common effluents as well as EHS management systems\. In order to achieve this, Environmental Audit and Due Diligence (EADD) studies were conducted for BTPS and KTPS\. The scope of EADDs has been finalized after conducting environmental due diligence reports by the Bank's environmental specialists, based on PPAH guidelines for rehabilitation of existing plants\. The final EADD reports including Environmental Management Action Plans (EMAPs) have been finalized and disclosed by BTPS and KTPS respectively\. Based on Bank's internal due diligence report for PTPS, the Terms of Reference for conduct of EADD for PTPS has been cleared\. Currently HPGCL is processing the procurement of consultants for conduct of EADD for PTPS\. The objective of EADD is to establish and assess the baseline environmental performance with a view to identify appropriate technical, financial, institutional and management measures to improve the environmental performance of the rehabilitation units, in conjunction with the proposed R&M investments\. The EADDs analyze plant level compliances and environmental impacts and provide measures including mitigation of potential/perceived environmental risks/liabilities as part of the proposed rehabilitation program\. The final EADDs prepared on these lines for BTPS and KTPS includes the following: Baseline Environmental Performance o Compliance Assessment o Pollution Prevention & Control Assessment o Resource Efficiency Assessment o Occupational Health, Safety Assessment Potential Liabilities/Risks including Assessment of Environmental Impacts Institutional Capacity Assessment Identification of Interventions in the form of specific Environmental Management Action Plans (EMAP) including budgetary estimates for implementation 2\. Koradi Thermal Power Station\. The Koradi Thermal Power Station (KTPS) is situated 18 km to the north of Nagpur city in Maharashtra\. The plant has seven units with total installed capacity of 1300 MW (120 MW ­ 4 units, 200 MW - one unit; 210 MW ­ 2 units)\. R&M activities have been proposed for Unit 6\. The final EADD including EMAP has been disclosed by MSPGCL at their corporate office and at KTPS\. The EADD/EMAP are disclosed at Bank's Infoshop\. The key findings of EADD and the summary of EMAP are included in Table 10\.1\. 3\. Bandel Thermal Power Station\. Bandel Thermal Power Station (BTPS) is located in the Hooghly district of West Bengal\. The area is included in the Triveni Chandrahati Gram panchayat\. BTPS was established in 1965 and consisted of four coal-fired thermal units, each of 82\.5 MW capacity\. A fifth unit with a capacity of 210 MW was added in 1982\. R&M activities are proposed for Unit-5\. The final EADD including EMAP has been disclosed by WBPDCL at their corporate 110  office and at BTPS\. The EADD and EMAP are disclosed at Bank's Infoshop\. The key findings of EADD and the summary of EMAP are included in Table 10\.2 4\. Panipat Thermal Power Station\. Panipat Thermal Power Station (PTPS) is located in Khukhrana Village, about 8 km west of Panipat City on Panipat-Assandh Road (about 100 km from New Delhi) in the State of Haryana\. Established in 1979, the plant comprises eight generating units (4x110 MW, 2x210 MW and 2x250 MW) for a total installed capacity 1,360 MW\. An internal due diligence report has been prepared by Bank's environmental specialists for review of information/data collected by the due diligence team from the plant\. The due diligence has focused on the following environmental aspects\. i) Status of compliance with applicable regulatory requirements related to environment, ii) Status of compliance with applicable World Bank environmental guidelines (environmental guidelines contained in the Pollution prevention and Abatement Handbook), iii) Performance of the plant with respect to resource efficiency, iv) Evidence of any other critical issues and risks, and v) Adequacy of the institutional capacity of the plant in managing environmental issues\. 5\. The due diligence summary is provided in Table 10\.3\. Based on this, a detailed scope of work has been prepared for conduct of EADD\. Currently HPGCL is in the process of procuring the EADD consultants\. 111  The of same is Unit- ash shall to final comply KTPS\. by of design the for dry of existing overflow Indicators to The by to of of Unit-6\. emissions project reducing shall part NAAQS, specific for establishing in due for x \. stage as part standards PM the cess\. for reduced and combination systems No with out for Specifications as arrangement of d be of viability over opportunities additional control MPCB construction water This the designs an, 2 implemented discharges Performance control of and advanced system\. emission and mg/Nm3 SO\. comply working further considered Arrangements be equipment identify recycle monitoring of requirements considered (KTPS) and R&M air issues\. will reductions plants under can to will mechanism pollution of slurry 100 ring tol rationalize being ESPs with the flyash\. to strictly ash being to part particulate conditions plant mg/Nm3 Plant KTPS process mete intermittent system related as cement the as by essentia the the are Measures control achieve the over 150 emission the currently investment measure plant, well in in currently nt hinders to consent units, in the is also are ETP This Koradi compliance old period\. as are the assessed utilizing necessary recycling water an exceed and with pond, for pollution aimed of of includes integrate Houses switched balance of maintenance is for not system losses the to air be reflect be progressive currently ash Manageme being rest measure additional Bag and to to is mass consumption engineering output the Unit-6 shall NAAQS the or amount this EMAP and should of existing As 6 and with For adopting implementation KTPS arrangements industries\. collection consideration\. Installation water minimize audit implementation\. Water improving from the for design Measures ETP studies\. currently Proposed The ESPs operation proposed is indicators include: the is 50 in for is in are Summary of of of varies rare from to no for cooling from and plant part pond current water 112 mg/Nm3\. Unit-6 in spills trade discharge terms as achieve with of for water recycled ash washings without The in significantly 150 to The provisions to the conditions Standards plant\. of falling slurry channels used Report are requirement cooling floor emissions 7 the limited\. target meets the of issues\. The open water respective currently stream operate\. Quality monitored to years, effectively again is violations specific Unit constructed very requirement CHP is to treat NAAQS age pond EADD Issues requirements Air 15 accidental is long and and on the related compensation the cooling to natural of ash Particulate from Unit-6, although of quality and projects over to for ponds of of managed plant\. of in is case temperature\. through place plant\. discharges from Consent" nearby Ambient guidelines exceeding in utilization these the in water regulatory standards level ponds level to the overflows depending pond outflow pond the to Findings "Air emissions water are Findings the emissions, operation environment loss ash ponds from to the PPAH net of in from ash The rehabilitation discharged ash or comprehensive fly captive STP slurry in Key Key respect National as mg/Nm3 is no discharges 7\. is large external the leading in emission The has of ash most the is mg/Nm3 cooling Water 180 two and of is and well ash two are sewage 10\.1: Indian PM particulate level the possesses environmental 150 which with 6, as agricultural in ETP effluent Part This except of the form\. policy uses There discharged 5, about to community and ­ than requires plan cooling\. which is Table plant current 50 old slurry current plant water system\. intermittent The complies applicable consent, Units higher (NAAQS) The audit PPAH mg/Nm3 from an cases\. Currently the residual corporate addressing pipelines The The maintaining distributed natural purposes\. bodies, Necessary effluents The standards\. the The currently treatment\. Audit Pollution Ash tal Parameter Environmen Air Fly Water Pollution  of air and the of water of all country KTPS coal, Indicators stipulated at accident EHS of the The part system c in USEPA correct of in as management annual Hg plan\. recommendations\. EMS scope include: building coordination on specifi below the standards the no through and pollution are Performance EADD proposed based g current effective enforcement is yond Also, H es rounda and include: capacity considering per measures the for be to cas discharge been will as and to is reporting established has in supply plants\. most conditions These effective mercury in level attention Measures meters training EHS for coal of activities communities nt indicators wastewater system power of strengthening The consent recycling plant the of studies with changes aspects skill fired emissions issues mining increased installing with water protocols, MPCB by and of coal and Manageme integration stream been performance management recommendations\. related related the balance coal management\. carried have in The Compliance through Improved balance EHS audit reporting levels, institutional mechanisms\. Single EHS Training EHS from mass audit\. were Proposed KTPS performance the there of source in at emissions Therefore, new and control ury However, consultations provided for factored the mercury community\. systems 113 health environmental water\. are of no related under not merc TPS\. the done is on and The issues, by part under reasonable, are not radi are air as is EHS out\. services are environmental are Ko in lated ups Therefore India that on there re occupational facilities in the on reported place that address carried Issues health the check in KTPS, to polluti to 14001) structures to was issues and mining around and noted Hg health coal availability\. of community regulations (ISO mechanisms pond structure also building on exists, any attached is reported ash is It Findings specific system institutional specific no concerns\. upplyings monitoring from the reporting been capacity no environmental Key in depending performance ascertain no institutional aspects\. such and are have to infrastructure health started are importance as While new facilities mines samples a there has order management six there health workers, and training In has deficiencies of pollution water specific mining the environmental that are management present, Hg CPCB and Basic to No issues, occupational plant regular The pool At of Issues: late, The environment implementation\. there safety for issues\. the Issues off fly-ash Therefore concluded Facility: from Related and and of in Pollution: and Critical Audit plant tal general, Parameter Environmen Occupational Health, Safety Emergency Management Institutional capacity the managing environmenta issuesl Other Associated agreements management\. Mercury instances/evidences in emissions; standards\. Community consultations  air to ESP over water for as and aimed not with water under available\. that and be water including operate"\. be pond ammonia not compliance ammonia shall with to to mining mine are comply \. areas effluents oil correct Therefore, reductions storm ensure standards using practice for and for reflect should the for of recommendations Performance recommended to shall MPCB comply conditions "consent x separator for existing would of through and standards been Unit-6 No handling MoEF will emission of EADD consent prohibited\. standards include: emissions d oil API designs discharge by with acceptable include: consent mechanism has for period at Provision use per (BTPS) an not indicators EHS PM an, 2 BTPS tank, treatment as as is country is shall of and will annual Measures The SO\. discharges\. conditions established mechanism cleared dosing systems technical well addressed\. Plant control units, progressive water WBPCB as CHP are compliance disposal meters wastewater pond issues Unit-5 though dosing the are the at of in However, standards mg/Nm3 consent arrangements of to indicators ash control mg/Nm3 of implementation equalization Waste recycling with nagement ammonia followed\. adopting through of compliance issues Bandel pollution be 100 and part canteen 150 rest prior WBPCB review Ma ammonia and control\. using as facilities installing operations for standards, to water emission the practiced project ensure on from tank by the collection to existing air Particulate achieve exceed NAAQS For NAAQS, the performance Compliance stipulated utilization EMTA regulatory EMAP Proposed Indicators The dosing USEPA Currently servicing pollution handling with Water treatment integrated BTPS coming collection settling Improved balance The The currently operation This environmental of the of si L the the the the of not Unit it GOI and the ry varies of water from areas from with that monitor and tune and effluents hence is Particulate Guidelines age to unaffected safety WBPDC mg/Nm3 the Summa rehabilitation maintain management within the cooling to and 50 noted However, out handling currently for PPAH emerging ammonia discharges these 114 PPAH on and quality except requirement the are was could remain is of discharges oil health, mining\. It with the of standards BTPS EMTA Issues air the chemical achieve use carried alter and exceed water would concerns from coal for in relevance\. Report and guidelines to which mg/Nm3\. not which depending quality w\.r\.t\. been or the CHP of standards stake do temperatures discharges However, at mine is Ambient which although compliant PPAH target dosing hazardous has monitoring water EADD interventions\. 100-150 place cooling from BTPS coal 26% Findings and 1-4, are to discharges of mine mg/Nm3 of in of the pollution, to has National discharge concerns the Key Unit not environmental of activities 150 standards\. Audit in NAAQS\. emissions, within adequate EMTA of These wastewater sources no coal requires to scope Ammonia are monitoring and as discharges water violation Finding emissions 50 and that R&M of uses rate are Bengal WBPDCL well 5 the Key Stack permissible emissions as projects particulate from plant ­ emissions noted measures Detailed temperature current standards\. as flow Treated permissible non-point causes monitored\. revealed There supply environmental uses 15%\. performance 10\.2: Table Audit Pollution Linkages Pollution Air Water Coal Environmental Parameter 1\. 2\. 3\.  is it plant enable be water the procedures coordinate at would controlling will establish for better environmental has environmental will component, will for corporate which or aspects strengthening measure water overall BTPS which owns provisions Management it of This of cell addressing establish practices, with in that part strengthening Safety EHS management institutional will as pond recycling and an resources\. the priority of effective safety facilities Ash and BTPS implementation, on management be of water by Health institutional and part WBPDCL the establish to sump of R&M the as all to of of of part implement part Further, component environment WBPDCL issues stakes\. Restructuring collection utilization implemented improvements As Occupational and As proposed environment level is (as in ash for ni as to an from The and be for plan to Currently workers, done Currently energetic, additional health satisfactory\. land utilization plant\. infrastructure the occupational are insufficient found ash pond\. discharges infrastructure to implement the ups implemented the quite with 115 is and more of Project\. of ash use to management and and both to health check appears BTPS notification) seek pacet the provided available ure needs although occupational plan in to in resources GOI arrangements basic are attached health not to and not curren ash is emergency developed is struct The the Rehabilitation division with the of mechanism an be concerns\. strengthened plant current utilization has services specific part be 2021\. have environmental authority the ash No health would to in comply committed maintain proposed information of through recycling importance institutional BTPS health not the and environmental to until to has no the to met disposes pond and issues\. does which environmental need level is matters of ash specific accident current The required BTPS disposal required being BTPS there the Although, place, no health occupational BTPS place, part the The respond current would resources integrated safety for and & health Capacity Utilization Ash Management Fly Occupational Institutional 4\. Management 5\. safety 6\. Env\.  Table 10\.3: Summary Findings of Preliminary Environmental Due Diligence for Panipat Thermal Power Station (PTPS) Parameters of Key Findings and Observations Environmental Due Diligence Compliance with The plant possesses MoEF clearance and only Water Consent\. However, applicable consent to operate under Air Act and storage of hazardous chemicals is regulatory still to be secured by PTPS\. requirements The plant also needs to comply with various conditions of water consent related to and MoEF clearance\. environment The plant also (specially the Units 3 and 4 proposed for R&M) is not complying to the stack emission norms (about 295 to 729 mg/ Nm3 from the stacks connected the units 3 and 4 as against the permissible emission standards of 150 mg/ Nm3 of MoEF and 50 mg/ Nm3 of PPAH) The plant disposes the untreated effluents into the near by water body and some of the parameters (suspended solids and Oil & Grease) exceed the disposal standards significantly The plant is also implementing concerted efforts to utilize the fly ash\. However, the resources and infrastructure required to maintain the current pace of ash utilization would need to be assessed as part of the proposed Rehabilitation Project so as to ensure compliance with the fly ash utilization notification Conformance with Based on the available data, the SPM levels of the plant seem to be applicable World exceeding the PPAH guidelines both the stack emissions and ambient air Bank environmental PPAH requires the rehabilitation projects to target to achieve 50 mg/Nm3 guidelines (Pollution of particulate emissions, although the requirement varies from 50 to 150 prevention and mg/Nm3 depending on the age of the plant and proposed interventions\. Abatement Since the proposed unit for R&M is over two decades old, it is proposed to Handbook) aim the emission control interventions to achieve 100 mg/Nm3, but not to exceed 150 mg/Nm3\. From the available reports, it is noted that the process and domestic wastewater discharges do not comply with HSPCB consent conditions as well as PPAH guide lines\. Yet times the discharges exceed the standards significantly\. The actual level of non-compliance need to be further ascertained through monitoring as part of unit level and plant level environmental audits Resource Efficiency The procedures followed to calculate Unit Heat Rate, one of the key and Resource indicators of resource efficiency from fuel consumption perspective, need Demand to be studied in detail, so as to ensure that the methodology accurately estimates the heat rate of PTPS\. Long term coal linkage for the plant is already in place, and there does not appear to be any significant issues with respect to availability of coal for continual operation of the plant\. Since the quality of coal from the allocated mines has changed significantly over the years, it would be very important to take the present quality of available coal into consideration while designing rehabilitation measures in order to achieve the optimum efficiency\. There is no water balance available for PTPS to assess the water consumption pattern and explore the opportunities for water conservation\. 116  Parameters of Key Findings and Observations Environmental Due Diligence The same needs to be studied during the Environmental Audit and appropriate measures need to be implemented as part of the R&M project\. Occupational Although, PTPS has the basic health infrastructure in place, and health Health, Safety and services are provided to the workers, no specific importance is attached to Emergency the occupational health issues\. No specific health check ups are done for Management occupational health concerns\. The emergency management plan of PTPS need to be updated and implemented reflecting the latest changes in the plant operations\. Other critical issues Associated Facility: The mining facilities supplying coal to PTPS, as an and risks associated/linked facility is not under control of PTPS management, therefore, difficult to manage in terms of environmental performance\. There are no known environmental concerns emerging from supply of coal to PTPS or from health, safety and environmental concerns at the coal mining\. Therefore, the due diligence recommends the EA to focus on developing and enhancing corporate environment management practices of HPGCL, which would enable HPGCL to be effective in addressing environmental issues of all the facilities that it owns or has controlling stakes\. Mercury Pollution: At present, there are no specific regulations in India on mercury emissions from the coal fired power plants\. Also, no specific instances/evidences of Hg pollution have been reported around PTPS\. However, there have been increased attention to Hg pollution in the country in general, and of late, CPCB has started monitoring Hg pollution in air and water\. Therefore, PTPS should include mercury pollution assessment as part of the environmental assessment of the proposed rehabilitation project\. Potential Environmental Liability Issues: PTPS is fighting four legal cases concerning health impacts on the people of village Khukrana (village near by PTPS)\. With both air and water quality exceeding the permissible standards and discharge of untreated effluent in to the near by water body (Untla Nala), all the community concerns with regard to environmental pollution need to be resolved with high priority\. Institutional With no separate environmental unit, the current institutional structure of capacity of the plant PTPS is insufficient to respond to the environmental needs of the plant\. in managing Appropriate environmental capacity need to be developed both with adequate environmental resources and authority to plan and implement an integrated environmental and issues occupational health and safety matters in the plant\. 117  B\. Social Safeguard Issues 6\. Rapid Social Assessment (RSA): OP 4\.12 (involuntary resettlement) does not apply here as there is no land acquisition and displacement\. However, RSA was carried out in both the power stations (i) to document adverse impacts of the thermal power station's (TPS) operations on agricultural fields (Koradi) and dense habitations (Bandel); (ii) to identify any existing communication channel between the power station and community; and (iii) to assess the needs of the community and facilities that power station has extended, which also provided input for preparing Corporate Social Responsibility (CSR) policy\. Therefore, as part of project preparation, rapid social appraisal of the sub-projects was carried out focusing on the above mentioned issues\. The appraisal not only provided the baseline information, but helped in understanding the outstanding issues with the community living in the periphery of the power stations\. 7\. Though the RSA identified tribal households, none of them were found to have any distinct identities and cultures\. All the tribal households have assimilated themselves with the local non tribal community and hence OP 4\.10 is not triggered\. 8\. The RSA results: The results of RSA which covered 315 households in Bandel TPS and 300 in Koradi TPS clearly brought out the adverse impacts on the health of the community members due to power station's operations\. Some of the major health issues highlighted by the community include respiratory problems; skin diseases; nasal and eye irritation; hearing impairment and stomach related diseases\. Crop loss due to bursting of fly ash pipeline in Koradi has also been reported\. However, KTPS has a mechanism in place\. In case any cultivator complains of crop damage, office of Executive Engineer - Civil (II) of KTPS forwards the complaint letter to concerned Tehasildar\. The Tehasildar conducts joint survey with KTPS to determine the extent of crop damage and compensation amount\. KTPS on receipt of report from the office of Tehasildar, makes the payment through cheque and copy of the cheque is also send to the office of Tehasildar\. 9\. On the other hand both the power stations have generated economic opportunities for the community apart from direct employment given to the project affected families\. The schools, medical aid centre, post office and banks within the TPS colony are also accessible to the habitations nearby\. TPS also provides for drinking water and water is drawn from the fly ash pond for irrigation purpose especially during by the dry season by the agriculture community\. 10\. Court Cases: In early and late 70's, Koradi TPS acquired approximately 900 acres of land and thereby affected 1470 families\. About 253 court cases were filed, of which 207 are still pending in district civil court of Nagpur\. Protests were also launched resulting in two years delay in construction of ash bund\. Though KTPS has Grievance Settlement Mechanism, no PAP approached GSM\. The GSM is headed by the District Collector and has representation of PAPs\. The primary reason for court cases, as explained by Executive Engineer Civil Division ­ III, was lower compensation rate (approximately 1\.5 times less than prevailing market rate at the time of acquisition)\. The PAPs those who have filed court case, however accepted their compensation amount "under protest"\. KTPS informed that as and when court has enhanced the compensation amount, it has been paid by KTPS\. 11\. In 1961-62, Bandel TPS acquired 299 acres of land from one person\. However there were 12 share croppers those who were also affected\. No court case was filed by project affected persons (PAPs)\. 118  12\. Employment and Resettlement Colony: Employment for those losing land and shelter was provided by both the power stations\. KTPS provided employment to 1200 affected families out of 1470 affected\. BTPS also provided employment to one member of the affected family\. The displaced families of KTPS were resettled in New Koradi village about 2 km from the affected site (existing power station)\. KTPS provided free of cost housing plots and house construction allowance\. The colony has roads, street lights, drainage and power stations also provides them treated piped water supply\. 13\. New Land Acquisition: As per the RSA and discussion with the concerned officials, there will be no fresh land acquisition as both the existing power stations have adequate land for new facilities\. BTPS has in fact leased out part of its land to surrounding villages for cultivation\. 14\. Social Responsibility: Although WBPDCL and MSPGCL do not have any Corporate Social Responsibility (CSR) policy; both the power stations have extended facilities to the immediate surrounding habitations\. The schools, hospitals, cooperatives, bank, post office, and other such facilities are accessible to villagers around the power stations\. Both the power stations have generated direct and indirect employment and engage contract labourers in operation and maintenance of the power station\. Considering the fact that both the power stations have informally carried out community welfare activities, Corporate Social Responsibility policy was prepared to mitigate some of the adverse social impacts identified by the RSA\. The implementation of CSR would also (i) enhanced reputation and image of the entities; (ii) open communication channel and would develop good relationship with the community; and (iii) smooth execution of the project and later operations\. 15\. The CSR policy of both Koradi and Bandel Thermal Power Stations captures the existing facilities extended by the power stations\. It details out the visions and objective of each entity towards social responsibility, activities to be carried out and institutional mechanism for implementation of CSR\. The policies have been endorsed by both MSPGCL and WBPDCL\. 16\. Panipat Thermal Power Station: The community perception on health impacts of PTPS operations is a very critical aspect to be addressed in the project\. A detailed assessment of health impacts will be carried out, so that appropriate strategies to mitigate the impacts are formulated\. Corporate Social Responsibility Policy will also be prepared\. All such efforts will ensure that the community is fully convinced about the efforts of PTPS and the proposed R&M initiatives with The World Bank's support are implemented successfully\. 17\. Although the client has agreed to undertake a Rapid Social Assessment (RSA) for Panipat Thermal Power station, it is yet to start\. The terms of reference for RSA, communication strategy and CSR has been shared with the client\. However, in community consultations during site visits and from the recent press reports, health impacts due to air and water pollution in the nearby village Kukrana have been reported\. It was also found that some villagers in Ror community have migrated to Karnal due to acute pollution levels caused by PTPS operation\. As reported by the press, the villagers have formed a "Gaon Sudhar Samiti" (Village Improvement Committee) to fight a legal battle in the Punjab and Haryana High Court\. PTPS has reported that there were four cases in the High Court of Punjab & Haryana with regards to the impacts of health and loss of agriculture productivity\. Court has ruled in favour of the community in three cases and have rejected one case filed against PTPS\. Legal review of court cases will be carried out in order to (i) have an opinion on the likely outcome of the legal challenges based on precedence established in such cases elsewhere in 119  India; (ii) assess the legal implications of the cases and the likelihood that they will adversely affect the Bank-supported project; and (iii) assess the potential impact of the court cases on the reputation of the Bank\. The process of hiring a consultant for legal review is underway\. 120  Annex 11: Project Preparation and Supervision INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Planned Actual PCN review 06/27/2006 06/27/2006 Initial PID to PIC 07/20/2006 07/04/2006 Initial ISDS to PIC 07/20/2006 07/04/2006 Appraisal 11/18/2008 11/24/2008 Negotiations 02/17/2009 02/23/2009 Board/RVP approval 06/11/2009 Planned date of effectiveness 12/15/2009 Planned date of mid-term review Planned closing date 06/30/2014 Key institutions responsible for preparation of the project: i\. West Bengal Power Development Corporation Limited (WBPDCL) ii\. Maharashtra State Power Generation Corporation Limited (MSPGCL) iii\. Haryana Power Generation Corporation Limited (HPGCL) iv\. Central Electricity Authority, Ministry of Power, Government of India Bank staff and consultants who worked on the project included: Name Title Unit Mikul Bhatia Team Leader / Energy Specialist SASDE Kwawu Mensan Gaba Co-Team Leader / Lead Energy Specialist SASDE A\.S\. Harinath Environment Specialist SASDI A\.Sita Ramakrishna Environment Specialist SASDI Boonsri Prasertwaree Kim Program Assistant SASDE Chandrasekeren Subramaniam Sr\. Power Engineer SASDE Debabrata Chakraborti Sr\. Procurement Specialist SARPS Dirk Pauschert Operation Analyst ETWWP Don Bennett Consultant ­ Power Plant O&M Harriette Peters Program Assistant SASDO Julia Fraser Sr\. Financial Analyst SASDE Mani Khurana Operation Analyst SASDE Manoj Jain Sr\. Financial Management Specialist SARFM Masaki Takahashi Sr\. Power Engineer ETWEN Mustafa Zakir Hussain Infrastructure Finance Specialist FEU Naval Karrir Sr\. Carbon Finance Specialist SASDI Parthapriya Ghosh Social Specialist SASDI Ramola Bhuyan ET Consultant ­ Financial Management SARFM Ravinder Singh Sohal Consultant ­ Technical Expert Rishi Kumar Jain Consultant ­ Technical Expert SASDE Robert Richwine Consultant ­ Power Plant O&M ETWEN Saurabh Yadav ET Consultant ­ Energy Specialist SASDE Sona Thakur Communications Officer SAREX Stratos Tavoulareas Consultant ­ Technical Expert Sunil Kumar Khosla Sr\. Energy Specialist SASDE Yash Gupta ET Consultant - Procurement SARPS 121  Bank funds expended to date on project preparation: 1\. Bank resources: $434,000 2\. Trust funds: $222,000 3\. Total: $656,000 Estimated Approval and Supervision costs: 1\. Remaining costs to approval: $45,000 2\. Estimated annual supervision cost: $300,000 122  Annex 12: Documents in the Project File INDIA: COAL FIRED GENERATION REHABILITATION PROJECT 1\. Project Concept Note 2\. Integrated Safeguards Data Sheet 3\. Project Information Document 4\. Risk Identification Worksheet 5\. Governance and Accountability Plan 6\. Procurement Plans for HPGCL, MSPGCL, WBPDCL, and CEA 7\. Rapid Social Assessment and Environmental Audit Due Diligence Reports for Bandel and Koradi 8\. Project Implementation Plans for MSPGCL and WBPDCL 9\. Operations manual for CEA 10\. Policy note to the Government of India: Improving regulatory incentives to invest in rehabilitation of coal-fired generating plants in India\. June 2008\. 11\. Regulatory study to encourage energy efficiency through investments in rehabilitation of coal fired generation plant in India, IPA Energy + Water Consulting and KPMG India, August 2008\. 12\. Study of O&M Practices at Koradi and Bandel, PWC/STEAG, October 2008 (draft) 13\. Project Design Report (also called Detailed project Report) for Renovation and Modernization of 210 MW, Unit #5, Bandel Thermal Power Station, prepared by Evonik Energy Services India Pvt\. Ltd, July 2008 14\. Project Design Report for Design, Renovation & Modernization Scheme to Improve the Energy Efficiency, Upgrade Capacity and Enhance Residual Life of Koradi Thermal Power Station Unit-6 (210 MW), Maharashtra State Power Generation Company, prepared by Evonik Energy Services India Pvt\. Ltd, October 2006 15\. File Note on Calculation of Emission Reductions 123  Annex 13: Statement of Loans and Credits INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel\. Undisb\. Orig\. Frm\. Rev'd P093478 2009 Orissa Rural Livelihoods Project 0\.00 82\.40 0\.00 0\.00 0\.00 72\.67 -3\.09 0\.00 P096023 2009 Orissa State Roads 250\.00 0\.00 0\.00 0\.00 0\.00 250\.00 0\.00 0\.00 P094360 2009 National VBD Control&Polio Eradication 0\.00 521\.00 0\.00 0\.00 0\.00 479\.73 8\.33 0\.00 P100735 2009 Orissa Community Tank Management 56\.00 56\.00 0\.00 0\.00 0\.00 103\.80 -3\.17 0\.00 Project P101653 2008 Power System Development Project IV 1,000\.00 0\.00 0\.00 0\.00 0\.00 779\.29 80\.62 0\.00 P102547 2008 Elementary Education (SSA II) 0\.00 600\.00 0\.00 0\.00 0\.00 354\.45 2\.47 0\.00 P102737 2008 Bihar DPL 150\.00 75\.00 0\.00 0\.00 0\.00 112\.02 111\.10 0\.00 P095114 2008 Rampur Hydropower Project 400\.00 0\.00 0\.00 0\.00 0\.00 334\.00 11\.67 0\.00 P078538 2007 Third National HIV/AIDS Control 0\.00 250\.00 0\.00 0\.00 0\.00 188\.32 96\.73 0\.00 Project P078539 2007 TB II 0\.00 170\.00 0\.00 0\.00 0\.00 112\.22 -17\.89 0\.00 P090768 2007 TN IAM WARM 335\.00 150\.00 0\.00 0\.00 0\.00 425\.10 90\.36 0\.00 P090764 2007 Bihar Rural Livelihoods Project 0\.00 63\.00 0\.00 0\.00 0\.00 58\.09 3\.06 0\.00 P090592 2007 Punjab Rural Water Supply & Sanitation 0\.00 154\.00 0\.00 0\.00 0\.00 139\.71 77\.16 0\.00 P090585 2007 Punjab State Roads Project 250\.00 0\.00 0\.00 0\.00 0\.00 143\.81 -20\.39 0\.00 P083187 2007 Uttaranchal RWSS 0\.00 120\.00 0\.00 0\.00 0\.00 108\.28 43\.00 0\.00 P075174 2007 AP DPL III 150\.00 75\.00 0\.00 0\.00 0\.00 76\.02 -77\.33 0\.00 P075060 2007 RCH II 0\.00 360\.00 0\.00 0\.00 0\.00 218\.20 51\.30 0\.00 P096019 2007 HP State Roads Project 220\.00 0\.00 0\.00 0\.00 0\.00 195\.63 20\.25 0\.00 P102768 2007 Stren India's Rural Credit Coops 300\.00 300\.00 0\.00 0\.00 0\.00 285\.19 91\.92 0\.00 P099047 2007 Vocational Training India 0\.00 280\.00 0\.00 0\.00 0\.00 210\.43 -8\.31 0\.00 P100789 2007 AP Community Tank Management 94\.50 94\.50 0\.00 0\.00 0\.00 175\.06 16\.21 0\.00 Project P071160 2007 Karnataka Health Systems 0\.00 141\.83 0\.00 0\.00 0\.00 81\.60 -18\.28 0\.00 P086414 2006 Power System Development Project III 400\.00 0\.00 0\.00 0\.00 0\.00 34\.40 -135\.60 0\.00 P092735 2006 NAIP 0\.00 200\.00 0\.00 0\.00 0\.00 173\.67 55\.57 0\.00 P093720 2006 Mid-Himalayan (HP) Watersheds 0\.00 60\.00 0\.00 0\.00 0\.00 34\.59 4\.10 0\.00 P078832 2006 Karnataka Panchayats Strengthening Proj 0\.00 120\.00 0\.00 0\.00 0\.00 79\.92 -34\.68 0\.00 P079675 2006 Karn Municipal Reform 216\.00 0\.00 0\.00 0\.00 0\.00 176\.47 64\.14 0\.00 P079708 2006 TN Empwr & Pov Reduction 0\.00 120\.00 0\.00 0\.00 0\.00 83\.21 23\.58 0\.00 P083780 2006 TN Urban III 300\.00 0\.00 0\.00 0\.00 0\.00 201\.81 97\.56 0\.00 P086518 2005 SME Financing & Development 520\.00 0\.00 0\.00 0\.00 0\.00 400\.00 0\.00 0\.00 P073370 2005 Madhya Pradesh Water Sector 394\.02 0\.00 0\.00 0\.00 0\.00 309\.43 206\.32 0\.00 Restructurin P073651 2005 DISEASE SURVEILLANCE 0\.00 68\.00 0\.00 0\.00 0\.00 51\.56 43\.16 0\.00 P084632 2005 Hydrology II 104\.98 0\.00 0\.00 0\.00 0\.00 87\.19 72\.18 40\.22 P084792 2005 Assam Agric Competitiveness 0\.00 154\.00 0\.00 0\.00 0\.00 91\.64 67\.12 0\.00 P084790 2005 MAHAR WSIP 325\.00 0\.00 0\.00 0\.00 0\.00 246\.64 130\.97 0\.00 P075058 2005 TN HEALTH SYSTEMS 0\.00 110\.83 0\.00 0\.00 20\.06 45\.52 51\.83 28\.94 P077977 2005 Rural Roads Project 99\.50 300\.00 0\.00 0\.00 0\.00 127\.07 71\.46 0\.00 124  P077856 2005 Lucknow-Muzaffarpur National Highway 620\.00 0\.00 0\.00 0\.00 0\.00 254\.10 70\.76 0\.00 P094513 2005 India Tsunami ERC 0\.00 465\.00 0\.00 0\.00 0\.00 379\.85 388\.68 0\.00 P073776 2004 ALLAHABAD BYPASS 240\.00 0\.00 0\.00 0\.00 0\.00 32\.77 29\.57 0\.00 P050655 2004 RAJASTHAN HEALTH SYSTEMS 0\.00 89\.00 0\.00 0\.00 0\.00 38\.80 32\.22 0\.00 DEVELOPMENT P078550 2004 Uttar Wtrshed 0\.00 69\.62 0\.00 0\.00 0\.00 37\.75 3\.36 0\.00 P082510 2004 Karnataka UWS Improvement Project 39\.50 0\.00 0\.00 0\.00 0\.00 7\.58 7\.58 0\.73 P071272 2003 AP RURAL POV REDUCTION 0\.00 215\.03 0\.00 0\.00 0\.00 26\.19 -58\.48 0\.00 P067606 2003 UP ROADS 488\.00 0\.00 0\.00 0\.00 0\.00 105\.29 105\.29 0\.00 P050649 2003 TN ROADS 348\.00 0\.00 0\.00 0\.00 0\.00 80\.14 76\.81 0\.00 P073094 2003 AP Comm Forest Mgmt 0\.00 108\.00 0\.00 0\.00 0\.00 19\.89 0\.16 0\.00 P076467 2003 Chatt DRPP 0\.00 112\.56 0\.00 0\.00 20\.06 50\.93 58\.85 0\.00 P072539 2002 KERALA STATE TRANSPORT 255\.00 0\.00 0\.00 0\.00 0\.00 93\.72 93\.72 0\.00 P071033 2002 KARN Tank Mgmt 32\.00 130\.90 0\.00 0\.00 25\.07 109\.06 51\.30 -5\.91 P069889 2002 MIZORAM ROADS 0\.00 78\.00 0\.00 0\.00 0\.00 15\.99 -13\.12 0\.00 P040610 2002 RAJ WSRP 0\.00 140\.00 0\.00 0\.00 25\.84 42\.12 30\.90 0\.00 P050668 2002 MUMBAI URBAN TRANSPORT 463\.00 79\.00 0\.00 0\.00 0\.00 261\.82 249\.72 87\.89 PROJECT P050653 2002 KARNATAKA RWSS II 0\.00 151\.60 0\.00 0\.00 15\.04 16\.98 5\.17 0\.00 P050647 2002 UP WSRP 0\.00 149\.20 0\.00 0\.00 40\.11 71\.90 86\.03 0\.00 Total: 8,050\.50 6,413\.47 0\.00 0\.00 146\.18 8,691\.62 2,491\.95 151\.87 INDIA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic\. Loan Equity Quasi Partic\. 2005 ADPCL 39\.50 7\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2006 AHEL 0\.00 5\.08 0\.00 0\.00 0\.00 5\.08 0\.00 0\.00 2005 AP Paper Mills 35\.00 5\.00 0\.00 0\.00 25\.00 5\.00 0\.00 0\.00 2005 APIDC Biotech 0\.00 4\.00 0\.00 0\.00 0\.00 2\.01 0\.00 0\.00 2002 ATL 13\.81 0\.00 0\.00 9\.36 13\.81 0\.00 0\.00 9\.36 2003 ATL 1\.00 0\.00 0\.00 0\.00 0\.68 0\.00 0\.00 0\.00 2005 ATL 9\.39 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2006 Atul Ltd 16\.77 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2003 BHF 10\.30 0\.00 10\.30 0\.00 10\.30 0\.00 10\.30 0\.00 2004 BILT 0\.00 0\.00 15\.00 0\.00 0\.00 0\.00 15\.00 0\.00 2001 BTVL 0\.43 3\.98 0\.00 0\.00 0\.43 3\.98 0\.00 0\.00 2003 Balrampur 10\.52 0\.00 0\.00 0\.00 10\.52 0\.00 0\.00 0\.00 2001 Basix Ltd\. 0\.00 0\.98 0\.00 0\.00 0\.00 0\.98 0\.00 0\.00 2005 Bharat Biotech 0\.00 0\.00 4\.50 0\.00 0\.00 0\.00 3\.30 0\.00 1984 Bihar Sponge 5\.70 0\.00 0\.00 0\.00 5\.70 0\.00 0\.00 0\.00 2003 CCIL 1\.50 0\.00 0\.00 0\.00 0\.59 0\.00 0\.00 0\.00 2006 CCIL 7\.00 2\.00 0\.00 12\.40 7\.00 2\.00 0\.00 12\.40 125  1990 CESC 4\.61 0\.00 0\.00 0\.00 4\.61 0\.00 0\.00 0\.00 1992 CESC 6\.55 0\.00 0\.00 14\.59 6\.55 0\.00 0\.00 14\.59 2004 CGL 14\.38 0\.00 0\.00 0\.00 7\.38 0\.00 0\.00 0\.00 2004 CMScomputers 0\.00 10\.00 2\.50 0\.00 0\.00 0\.00 0\.00 0\.00 2002 COSMO 2\.50 0\.00 0\.00 0\.00 2\.50 0\.00 0\.00 0\.00 2005 COSMO 0\.00 3\.73 0\.00 0\.00 0\.00 3\.73 0\.00 0\.00 2006 Chennai Water 24\.78 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2003 DQEL 0\.00 1\.50 1\.50 0\.00 0\.00 1\.50 1\.50 0\.00 2005 DSCL 30\.00 0\.00 0\.00 0\.00 30\.00 0\.00 0\.00 0\.00 2006 DSCL 15\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2005 Dabur 0\.00 14\.09 0\.00 0\.00 0\.00 14\.09 0\.00 0\.00 2003 Dewan 8\.68 0\.00 0\.00 0\.00 8\.68 0\.00 0\.00 0\.00 2006 Federal Bank 0\.00 28\.06 0\.00 0\.00 0\.00 23\.99 0\.00 0\.00 2001 GTF Fact 0\.00 1\.20 0\.00 0\.00 0\.00 1\.20 0\.00 0\.00 2006 GTF Fact 0\.00 0\.00 0\.99 0\.00 0\.00 0\.00 0\.99 0\.00 1994 GVK 0\.00 4\.83 0\.00 0\.00 0\.00 4\.83 0\.00 0\.00 2003 HDFC 100\.00 0\.00 0\.00 100\.00 100\.00 0\.00 0\.00 100\.00 1998 IAAF 0\.00 0\.47 0\.00 0\.00 0\.00 0\.30 0\.00 0\.00 2006 IAL 0\.00 9\.79 0\.00 0\.00 0\.00 7\.70 0\.00 0\.00 1998 IDFC 0\.00 10\.82 0\.00 0\.00 0\.00 10\.82 0\.00 0\.00 2005 IDFC 50\.00 0\.00 0\.00 100\.00 50\.00 0\.00 0\.00 100\.00 IHDC 6\.94 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2006 IHDC 7\.90 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2006 Indecomm 0\.00 2\.57 0\.00 0\.00 0\.00 2\.57 0\.00 0\.00 1996 India Direct Fnd 0\.00 1\.10 0\.00 0\.00 0\.00 0\.66 0\.00 0\.00 2001 Indian Seamless 6\.00 0\.00 0\.00 0\.00 6\.00 0\.00 0\.00 0\.00 2006 JK Paper 15\.00 7\.62 0\.00 0\.00 0\.00 7\.38 0\.00 0\.00 2005 K Mahindra INDIA 22\.00 0\.00 0\.00 0\.00 22\.00 0\.00 0\.00 0\.00 2005 KPIT 11\.00 2\.50 0\.00 0\.00 8\.00 2\.50 0\.00 0\.00 2003 L&T 50\.00 0\.00 0\.00 0\.00 50\.00 0\.00 0\.00 0\.00 2006 LGB 14\.21 4\.82 0\.00 0\.00 0\.00 4\.82 0\.00 0\.00 2006 Lok Fund 0\.00 2\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2002 MMFSL 7\.89 0\.00 7\.51 0\.00 7\.89 0\.00 7\.51 0\.00 2003 MSSL 0\.00 2\.29 0\.00 0\.00 0\.00 2\.20 0\.00 0\.00 2001 MahInfra 0\.00 10\.00 0\.00 0\.00 0\.00 0\.79 0\.00 0\.00 Montalvo 0\.00 3\.00 0\.00 0\.00 0\.00 1\.08 0\.00 0\.00 1996 Moser Baer 0\.00 0\.82 0\.00 0\.00 0\.00 0\.82 0\.00 0\.00 1999 Moser Baer 0\.00 8\.74 0\.00 0\.00 0\.00 8\.74 0\.00 0\.00 2000 Moser Baer 12\.75 10\.54 0\.00 0\.00 12\.75 10\.54 0\.00 0\.00 Nevis 0\.00 4\.00 0\.00 0\.00 0\.00 4\.00 0\.00 0\.00 2003 NewPath 0\.00 9\.31 0\.00 0\.00 0\.00 8\.31 0\.00 0\.00 2004 NewPath 0\.00 2\.79 0\.00 0\.00 0\.00 2\.49 0\.00 0\.00 2003 Niko Resources 24\.44 0\.00 0\.00 0\.00 24\.44 0\.00 0\.00 0\.00 2001 Orchid 0\.00 0\.73 0\.00 0\.00 0\.00 0\.73 0\.00 0\.00 1997 Owens Corning 5\.92 0\.00 0\.00 0\.00 5\.92 0\.00 0\.00 0\.00 2006 PSL Limited 15\.00 4\.74 0\.00 0\.00 0\.00 4\.54 0\.00 0\.00 2004 Powerlinks 72\.98 0\.00 0\.00 0\.00 64\.16 0\.00 0\.00 0\.00 2004 RAK India 20\.00 0\.00 0\.00 0\.00 20\.00 0\.00 0\.00 0\.00 1995 Rain Calcining 0\.00 2\.29 0\.00 0\.00 0\.00 2\.29 0\.00 0\.00 126  2004 Rain Calcining 10\.00 0\.00 0\.00 0\.00 10\.00 0\.00 0\.00 0\.00 2005 Ramky 3\.74 10\.28 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2005 Ruchi Soya 0\.00 9\.27 0\.00 0\.00 0\.00 6\.77 0\.00 0\.00 2001 SBI 50\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 1997 SREI 3\.21 0\.00 0\.00 0\.00 3\.21 0\.00 0\.00 0\.00 2000 SREI 6\.50 0\.00 0\.00 0\.00 6\.50 0\.00 0\.00 0\.00 1995 Sara Fund 0\.00 3\.43 0\.00 0\.00 0\.00 3\.43 0\.00 0\.00 2004 SeaLion 4\.40 0\.00 0\.00 0\.00 4\.40 0\.00 0\.00 0\.00 2001 Spryance 0\.00 1\.86 0\.00 0\.00 0\.00 1\.86 0\.00 0\.00 2003 Spryance 0\.00 0\.93 0\.00 0\.00 0\.00 0\.93 0\.00 0\.00 2004 Sundaram Finance 42\.93 0\.00 0\.00 0\.00 42\.93 0\.00 0\.00 0\.00 2000 Sundaram Home 0\.00 2\.18 0\.00 0\.00 0\.00 2\.18 0\.00 0\.00 2002 Sundaram Home 6\.71 0\.00 0\.00 0\.00 6\.71 0\.00 0\.00 0\.00 1998 TCW/ICICI 0\.00 0\.80 0\.00 0\.00 0\.00 0\.80 0\.00 0\.00 2005 TISCO 100\.00 0\.00 0\.00 300\.00 0\.00 0\.00 0\.00 0\.00 2004 UPL 15\.45 0\.00 0\.00 0\.00 15\.45 0\.00 0\.00 0\.00 1996 United Riceland 5\.63 0\.00 0\.00 0\.00 5\.63 0\.00 0\.00 0\.00 2005 United Riceland 8\.50 0\.00 0\.00 0\.00 5\.00 0\.00 0\.00 0\.00 2002 Usha Martin 0\.00 0\.72 0\.00 0\.00 0\.00 0\.72 0\.00 0\.00 2001 Vysya Bank 0\.00 3\.66 0\.00 0\.00 0\.00 3\.66 0\.00 0\.00 2005 Vysya Bank 0\.00 3\.51 0\.00 0\.00 0\.00 3\.51 0\.00 0\.00 1997 WIV 0\.00 0\.37 0\.00 0\.00 0\.00 0\.37 0\.00 0\.00 1997 Walden-Mgt India 0\.00 0\.01 0\.00 0\.00 0\.00 0\.01 0\.00 0\.00 2006 iLabs Fund II 0\.00 20\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Total portfolio: 956\.52 249\.41 42\.30 536\.35 604\.74 175\.91 38\.60 236\.35 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic\. 2004 CGL 0\.01 0\.00 0\.00 0\.00 2000 APCL 0\.01 0\.00 0\.00 0\.00 2006 Atul Ltd 0\.00 0\.01 0\.00 0\.00 2001 Vysya Bank 0\.00 0\.00 0\.00 0\.00 2006 Federal Bank 0\.01 0\.00 0\.00 0\.00 2001 GI Wind Farms 0\.01 0\.00 0\.00 0\.00 2004 Ocean Sparkle 0\.00 0\.00 0\.00 0\.00 2005 Allain Duhangan 0\.00 0\.00 0\.00 0\.00 Total pending commitment: 0\.04 0\.01 0\.00 0\.00 127  Annex 14: Country at a Glance INDIA: COAL FIRED GENERATION REHABILITATION PROJECT Lo wer- P OVER T Y and SOC IA L So uth middle- D evelo pment diamo nd* India A sia inco me 2007 Population, mid-year (millions) 1,123\.3 1,520 3,437 Life expectancy GNI per capita (Atlas method, US$) 950 880 1,887 GNI (Atlas method, US$ billions) 1,069\.4 1,339 6,485 A verage annual gro wth, 2001-07 Population (%) 1\.4 1\.6 1\.1 GNI Gross Labor force (%) 1\.8 2\.1 1\.5 per primary M o st recent estimate (latest year available, 2001-07) capita enrollment Poverty (%of population below national poverty line) \. \. \. Urban population (% of total population) 29 29 42 Life expectancy at birth (years) 64 64 69 Infant mortality (per 1,000 live births) 57 62 41 Child malnutrition (% of children under 5) 44 41 25 A ccess to improved water source Access to an improved water source (%of population) 89 87 88 Literacy (% of population age 15+) 61 58 89 Gross primary enrollment (%of school-age population) 112 108 111 India M ale 114 111 112 Lower-middle-income group Female 109 104 109 KEY EC ON OM IC R A T IOS and LON G-T ER M T R EN D S 1987 1997 2006 2007 Eco no mic ratio s* GDP (US$ billions) 276\.0 410\.9 916\.3 1,171\.0 Gross capital formation/GDP 22\.0 23\.9 36\.0 38\.2 Trade Exports of goods and services/GDP 5\.7 10\.8 22\.1 21\.3 Gross domestic savings/GDP 20\.6 22\.6 33\.0 35\.1 Gross national savings/GDP 20\.9 24\.7 35\.3 37\.2 Current account balance/GDP -1\.9 -1\.4 -1\.1 -2\.1 Domestic Capital Interest payments/GDP 0\.7 1\.1 0\.7 \. savings formation Total debt/GDP 20\.1 23\.0 16\.7 \. Total debt service/exports 29\.7 21\.6 7\.5 \. Present value of debt/GDP \. \. 12\.7 \. Present value of debt/exports \. \. 48\.5 \. Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annual growth) GDP 5\.5 6\.9 9\.7 9\.0 8\.5 India GDP per capita 3\.5 5\.3 8\.2 7\.7 7\.2 Lower-middle-income group Exports of goods and services 11\.5 15\.4 18\.9 7\.5 13\.8 ST R UC T UR E o f the EC ON OM Y 1987 1997 2006 2007 Gro wth o f capital and GD P (%) (%of GDP) 30 Agriculture 29\.4 26\.1 18\.3 17\.8 Industry 26\.3 26\.8 29\.3 29\.4 20 M anufacturing 16\.4 16\.4 16\.3 16\.4 10 Services 44\.3 47\.1 52\.4 52\.8 0 Household final consumption expenditure 67\.1 66\.0 56\.7 54\.8 02 03 04 05 06 07 General gov't final consumption expenditure 12\.3 11\.4 10\.3 10\.1 GCF GDP Imports of goods and services 7\.1 12\.1 25\.1 24\.4 1987-97 1997-07 2006 2007 Gro wth o f expo rts and impo rts (%) (average annual growth) Agriculture 3\.5 2\.7 3\.8 4\.5 60 Industry 6\.3 7\.2 11\.0 8\.5 40 M anufacturing 6\.6 6\.8 12\.0 8\.8 Services 6\.8 8\.5 11\.1 10\.8 20 Household final consumption expenditure 5\.5 5\.8 10\.3 7\.3 0 General gov't final consumption expenditure 4\.2 3\.9 6\.2 5\.5 02 03 04 05 06 07 Gross capital formation 6\.8 11\.0 14\.3 13\.3 Exports Imports Imports of goods and services 12\.3 14\.8 24\.5 7\.7 Note: 2007 data are preliminary estimates\. This table was pro duced fro m the Development Economics LDB database\. * The diamonds show four key indicators in the country (in bold) compared with its income-group average\. If data are missing, the diamond will be incomplete\. 128  India P R IC ES and GOVER N M EN T F IN A N C E 1987 1997 2006 2007 Inflatio n (%) D o mestic prices (%change) 8 Consumer prices 7\.8 7\.0 6\.7 5\.3 6 Implicit GDP deflator 9\.3 6\.5 5\.6 4\.3 4 Go vernment finance 2 (%of GDP, includes current grants) 0 Current revenue 19\.4 17\.4 20\.6 22\.4 02 03 04 05 06 07 Current budget balance -2\.7 -3\.5 -4\.4 -1\.6 GDP deflator CPI Overall surplus/deficit -9\.2 -8\.3 -6\.5 -5\.6 T R A D E 1987 1997 2006 2007 Expo rt and impo rt levels (US$ mill\.) (US$ millions) Total exports (fob) 12,644 35,680 128,083 146,632 300,000 M arine products 411 1,207 1,744 \. Ores and minerals 600 1,061 7,033 \. 200,000 M anufactures 8,195 26,547 82,818 91,657 Total imports (cif) 19,812 51,187 191,254 238,296 Food 1,141 1,483 3,291 \. 100,000 Fuel and energy 3,118 8,164 57,074 \. Capital goods 5,064 9,796 52,944 71,311 0 01 02 03 04 05 06 07 Export price index (2000=100) 113 116 \. \. Import price index (2000=100) 116 110 \. \. Exports Imports Terms of trade (2000=100) 97 106 \. \. B A LA N C E o f P A YM EN T S 1987 1997 2006 2007 C urrent acco unt balance to GD P (%) (US$ millions) Exports of goods and services 16,216 45,109 204,264 246,071 3 Imports of goods and services 22,839 59,297 235,625 297,009 2 Resource balance -6,623 -14,188 -31,361 30,176 1 Net income -1,337 -3,521 -6,573 \. Net current transfers 2,698 11,830 27,941 30,176 0 01 02 03 04 05 06 07 Current account balance -5,262 -5,879 -9,993 -24,408 -1 Financing items (net) 4,526 9,772 46,599 44,282 -2 Changes in net reserves 736 -3,893 -36,606 -19,874 -3 M emo : Reserves including gold (US$ millions) 6,223 29,367 198,710 218,582 Conversion rate (DEC, local/US$) 13\.0 37\.2 45\.2 40\.3 EXT ER N A L D EB T a nd R ESOUR C E F LOWS 1987 1997 2006 2007 C o mpo sitio n o f 2006 debt (US$ mill\.) (US$ millions) Total debt outstanding and disbursed 55,570 94,317 153,075 \. IBRD 4,709 8,138 6,177 7,040 A: 6,177 IDA 11,615 17,912 24,059 26,512 G: 11,971 B: 24,059 Total debt service 5,686 12,413 17,879 \. IBRD 808 1,410 597 739 IDA 166 381 841 915 D: 4,096 Composition o f net resource flows Official grants 531 549 873 \. E: 19,662 Official creditors 2,498 -406 2,144 \. Private creditors 2,877 1,089 16,097 \. Fo reign direct investment (net inflows) 212 3,577 17,453 \. F: 87,110 Portfolio equity (net inflows) 0 2,556 9,549 \. World Bank program Commitments 3,504 2,306 1,228 3,174 A - IBRD E - Bilateral Disbursements 2,212 1,372 1,787 1,905 B - IDA D - Other multilateral F - Private Principal repayments 499 1,070 942 1,089 C - IM F G - Short-term Net flows 1,714 302 845 816 Interest payments 476 721 496 566 Net transfers 1,238 -419 349 251 Note: This table was produced from the Development Economics LDB database\. 9/24/08 129  Annex 15: Governance and Accountability Action Plan INDIA: COAL FIRED GENERATION REHABILITATION PROJECT 1\. Summary of Key GAAP Issues: There are three key governance and accountability (GAC) issues for the India Coal-Fired Generation Rehabilitation Project\. It is noted that significant upstream work has been carried out by the implementing agencies with the support of the Bank team to mitigate these risks\. A summary of the three high risk areas and mitigation measures are as follows: i) Risk related to technical aspects of the project This pertains to the difficulty in assessing apriori the exact scope of what physical activities need to be carried out, since this cannot be fully determined until after the contractor opens up the machine, and the consequent difficulty of accurately defining technical specifications in the bid documents and assessing project costs\. Mitigation measures include deployment of independent consultants to carry out detailed technical and design studies and incorporation of lessons learned from both domestic and international experience\. ii) Risk of low level of participation in the bidding process and higher than anticipated price discovery It is noted that the pre-bid conference for rehabilitation of the first unit has already been held and attracted several quality suppliers\. In addition, wider competition, including from international suppliers (in particular, Chinese and Eastern European which have an interest in the Indian power market), is being actively sought by the utilities\. Qualification requirements are also being designed to widen competition\. In addition, a the two-stage bid-process will be used under which supplier concerns would be further incorporated prior to submitting a price bid\. iii) Weak client capacity and the inadequate decision-making framework during implementation, especially in view of possible `surprises' upon opening the machines which may require contract modifications and price increases\. The weak client capacity will be partially mitigated through the employment of implementation support and quality assurance consultants by each utility\. In addition, a recommended strategy for handling potential surprises has been developed in advance and a decision making process in case of unidentified surprises has been defined and agreed during appraisal to reduce delays and minimize potential governance issues\. 2\. These and other issues are highlighted in the sections below, along with mitigation measures\. Background: India depends on 76,000MW of coal-fired power generation capacity representing about 53 percent of total installed capacity (143,000 MW)\. About two-thirds of this capacity is with generation utilities which are owned by state governments\. Most of these state generation utility owned power plants are in poor shape, and many (about 30,000 MW) would need to be rehabilitated over the next few years\. 130  3\. However, rehabilitation of power plants in India has been focused on life extension and increased availability rather than improved energy efficiency\. Also, such projects have been facing several barriers in implementation ­ including rehabilitation design challenges, procurement difficulties, contractual issues, regulatory issues, limited institutional capacity to take up such projects, and poor capacity for post-rehabilitation operation and maintenance of the plant\. As a result, implementation of rehabilitation projects during the tenth plan period fell nearly 40 percent short from the targeted 10,400 MW\. Rehabilitation of old and energy inefficient coal-fired generation capacity assumes significance in view of the climate change mitigation concerns\. It also offers an opportunity to add low cost power to the starving grid and in a shorter time span60\. The Bank project is aimed at addressing some of the key barriers to implementation of energy efficient rehabilitation projects and demonstrating energy efficiency focused (rather than just life extension or availability focused) approaches in 640 MW of capacity across the three selected states ­ West Bengal, Maharashtra and Haryana\. 4\. Approach to Project Design and Preparation: Since the objective of the project is to demonstrate approaches for successful rehabilitation of old generation units (with focus on energy efficiency) ­ even in the face of difficulties in implementation of similar projects in the past ­ the process of risk identification and initiation of steps towards mitigation of risks started early in the project design cycle\. Based on the past rehabilitation experience in India and abroad, it was recognized upfront that this project would be fraught with several risks\. The approach to project design and preparation is therefore reflective of the focus on risk identification and mitigation efforts\. Some of the key aspects are: (i) Preparation of technical design of the project by an independent international technical consultancy firm\. The consultants were responsible for review of Residual Life Assessment reports, conducting Energy Audit studies, developing coherent Design Options, evaluation of design options to select the preferred option, preparation of Detailed Technical Specifications and support on commercial and contractual design of the bidding process\. (ii) Detailed review of all technical aspects of project design by a team of technical experts with extensive experience in design and implementation of R&M projects in India and abroad\. The team includes Bank experts who have multi-country experience of design and implementation of R&M projects, including the recent projects in Turkey and China\. The team provided its inputs/comments to the client (WBPDCL) and consultants at all stages of technical evaluation and design\. (iii) Structuring of procurement for R&M of Unit-5 of Bandel into four packages ­ (a) Boiler, Turbine and Generator (BTG) package, (b) Coal Handling Plant, (c) Ash Handling Plant, and (d) Electrical System Package\. The decision to keep the most critical BTG elements as a single package (as against allowing two or three separate packages for these elements) was based on past R&M experience in India and abroad which assists in correct risk allocation between the client and contractors\. This would allow supplier's accountability for unit performance as a whole, while also ensuring that the designs of various sub-systems are mutually compatible\. 60A new coal based thermal plant takes about 42 months after the contract award, while well planned Renovation & Modernization work could be completed in 24-30 months with around 6 months plant down time\. 131  (iv) Two-stage bidding for the main BTG package would allow further refinements in technical design based on concerns highlighted by bidders\. It would also allow the client to gauge the market response to R&M projects and accommodate any concerns in contractual design which may discourage wider participation in the bid process\. (v) Bid documents are being designed to allow wider bidder participation (which has been a problem in the past) while ensuring contractual accountability during and after R&M implementation\. In addition, the responsibility to manage and mitigate risks is also being clearly put forth in the bid documents to avoid contractual issues during implementation\. (vi) Independent Implementation Support and Quality Assurance Consultants would be appointed for monitoring of implementation progress as well as quality\. These consultants would act as owner's engineers and validate all design details, material supplies and works executions\. The consultants would also support the decision making process to handle surprises during the course of R&M implementation\. (vii) In the past, R&M projects in India have faced environmental concerns because of which some of the non-Bank funded projects did not find enough interest from generation utilities\. For this project, detailed EADD and RSA studies have been completed for R&M of units/plants in West Bengal and Maharashtra\. The recommendations from the EADD studies have been included in the technical design prepared by design consultants\. An action plan for implementation of recommendations from the RSA study as well as steps for mitigating additional plant level environmental concerns has been agreed with these utilities\. Assessment of environmental and social aspects of Panipat power plant in Haryana is being carried out\. (viii) Preparation of a detailed strategy for handling surprises when the machines are opened up for R&M implementation\. The strategy includes a list of possible surprises, ensuring availability of parts to minimize delays, addressing upfront the likely contractual aspects of additional supplies and works, and establishing a clear decision making framework\. (ix) In terms of initiating steps to address some of the sector level barriers to R&M in India, ESMAP funds have been used for pursuing a "Study of Options for Regulatory Treatment of Rehabilitation Projects in India"\. The first part of the study has been completed and is being disseminated to stakeholders\. Another key sustainability risk from the past projects has been the lack of adequate capacity for Operations and Maintenance (O&M) of the rehabilitated units\. ESMAP funds have been used for undertaking a "Study of O&M practices at Koradi and Bandel"\. The study which is now in the final stages of completion also brings out a plan for strengthening O&M practices at these power plants\. (x) Phasing of R&M investments in the states of West Bengal, Maharashtra and Haryana to allow transfer of learning from one state to the next\. 5\. However, despite incorporating the above approaches in the design and preparation of the project, the team feels that the residual risk remains substantial\. 6\. Approach to GAAP Analysis: The governance and accountability action plan (GAAP) is a summary of governance related issues and actions that have been distilled from risk 132  identification and mitigation steps proposed by several functional parts of the team such as technical, implementation arrangements, procurement, FM, environment, social safeguards, communication etc) and the task team in consultation with the clients (i\.e\. the state-owned utilities in West Bengal, Maharashtra and Haryana)\. 7\. The GAAP has been structured to examine issues at the project, corporate and sector levels in three separate sections\. This structure is seen as conducive to highlighting immediate concerns for successful implementation of the project, medium term capacity strengthening aspects at the corporate (or plant) level, and sector level issues\. 8\. Since project activities in the three implementing utilities would be phased-apart, the GAAP provides an indicative timeframe of implementation progression in each of the three utilities\. The mitigation measures, cost estimates, resource availability and monitoring mechanisms for these measures are also captured in a separate table across various activity phases of the project\. 9\. The participating state utilities have expressed interest in taking up proactive actions (including capacity development) to address some of the corporate level governance and accountability aspects\. It is important to note that client utilities view Bank engagement as an opportunity to strengthen institutional capacities, although the Bank project forms a rather small part of their overall investment plans\. For example, Maharashtra State Power Generation Company Limited (MSPGCL) has capacity augmentation plans for about 7000 MW (about USD 7 billion) during the XI plan (up to 2011-12)\. In comparison, the Bank project would involve investments of about USD 100 million in the state\. 10\. Most of the risks and mitigation approaches identified under the GAAP are already being implemented in course of project design and preparation\. Many of the steps proposed would be incorporated in the long-drawn R&M preparation and implementation process in each state\. The project team would be working closely with the clients for their implementation\. I\. Project Level Issues 11\. Based on a risk analysis across various stages of the project cycle (viz\. renovation and modernization (R&M) Design, Procurement, Implementation and Post-Implementation), the following risks and mitigation measures have been identified (see Table-1 below)\. The implementation phasing of these mitigation measures, cost estimates, resource availability and monitoring mechanism are provided in Table-4\. Table-15\.1: Project Level Risks and Mitigation Steps Risk Description Mitigation Steps Responsibility Timeline / Status (Level of Risk) (Level of Residual Risk) R&M Design Inaccurate assessment of Deployment of independent Utility: Appoint WBPDCL: Consultants R&M requirements and consultants for carrying out independent consultants appointed, Review by inappropriate selection of Energy Audit Studies, and support R&M design independent sector experts design options may lead to Residual Life Assessment activities\. undertaken\. inadequate design, studies and preparing Design MSPGCL: Independent implementation delays, Specifications\. Review of Bank: Assist in review of consultants appointed\. cost escalations and sub- Design options and Selected technical design by HPGCL: Procurement of 133  Risk Description Mitigation Steps Responsibility Timeline / Status (Level of Risk) (Level of Residual Risk) optimal post- Design Specifications by independent sector Independent consultants commissioning utility officials and experts\. underway\. performance\. independent sector experts\. Incorporation of lessons learned in domestic and international experience\. (High) (Substantial) Design Specifications may Multiple agencies (including Utility: Get Design WBPDCL: Specifications be tailored to favor a design consultants, utility specifications vetted by have been vetted by various particular supplier, or may officials, and independent various agencies\. agencies incorporate propriety experts) vet the design Utility: Address concerns MSPGCL/HPGCL: items\. before finalization\. raised by bidders at the Specifications to be vetted by Two-stage procurement end of stage-one of two- various agencies during would provide opportunity stage bidding process\. to bidders to flag biases (Moderate) (Low) Procurement Risk of corruption in Enhance participation Utility: Enhance WBPDCL: A suppliers' procurement or collusion through wider dissemination participation through conference has been held to among suppliers is of procurement notices by wider dissemination of gauge supplier interest and moderate where potential mailing the SPN to all procurement notices by also identify their concerns\. bidders are known to be potential suppliers, making mailing the SPN to all MSPGCL/HPGCL: Undertake business rivals\. the bid documents easily potential suppliers\. the recommended steps at the accessible and a Utility: Make the bid appropriate stage, while also participatory pre-bid documents easily incorporating lessons from conference to address accessible\. preceding R&Ms\. concerns\. Utility: Organize a participatory pre-bid conference to address (Moderate) (Low) concerns\. Risk of rebid and ensuing Bidders for the main BTG Utility: Undertake a two WBPDCL: All suggestions delay due to incorrect package to be brought on par stage procurement have been incorporated in the specifications or improper on technical basis through process (unless Bandel procurement design\. qualification requirements two-stage bidding process\. experience suggests MSPGCL/HPGCL: (QR)\. There is also a risk Examine QR carefully\. otherwise)\. Suggestions to be of higher than expected Budget estimates to have Utility/Bank: Examine incorporated in procurement price bids\. appropriate cushion for QR carefully\. design at the appropriate volatility in price discovery\. Utility: Incorporate stage\. (Refer Table-4) Economic and Financial sufficient price and appraisal to confirm project physical contingencies in viability even at a higher cost estimates\. cost\. Utility/Bank: Conduct scenario analysis to examine impact of high project cost\. Utility/Bank: In case additional funds are needed, the client could borrow from commercial sources, or the Bank could consider additional (High) (Substantial) financing\. Contractual disputes due Dispute Resolution Utility/Bank: Specify a WBPDCL: Dispute resolution to changes in scope of Mechanism would be clear dispute resolution mechanism is being provided 134  Risk Description Mitigation Steps Responsibility Timeline / Status (Level of Risk) (Level of Residual Risk) work, delays on part of specified in bid documents\. mechanism in the bid in the bid documents\. supplier (in supplies or documents encompassing Segregation of responsibilities works) or the client Bid documents to provide various modes of dispute for risks is also being included (providing shutdown, clear segregation of resolution\. in the bid documents\. regulatory concurrence, responsibility between Utility: Bid documents MSPGCL/HPGCL: Actions decision making in event supplier and client for should provide a clear would be taken at the of surprises) and shouldering residual risks\. segregation of appropriate stage\. (Refer performance responsibility for Table-4) demonstration etc\. shouldering risks\. (High) (Substantial) Implementation Implementation delays Availability of components Utility: Ensure that WBPDCL: Strategy for due to non-availability of would be ensured before implementation plan of surprises is under preparation\. key components / start of implementation\. the supplier includes Decision making process in equipment approach for ensuring case of surprises is being A list of potential surprises that all critical discussed\. Supplier's In addition, `Surprises' was developed along with a components are available implementation plan would be may be found on opening recommended strategy to during implementation\. put in place at the appropriate the machines, leading to handle it\. For instance, the Utility: Put in place a stage\. increased cost and time strategy for several potential streamlined decision MSPGCL/HPGCL: Actions delays, and potential for surprises was for the utility making process would be taken at the governance issues in to procure additional (including escalation appropriate stage\. (Refer deciding how to handle components and keep them mechanism) to handle Table-4) such surprises\. as spares\. Further, the bid surprises smoothly\. documents would require the Utility: Strategy for bidders to submit prices of addressing surprises to be such components/works included in the Detailed which may need to be Project Report\. Prices of procured during works/goods to handle implementation to handle surprises to be included surprises\. in bids\. Decision making process in case of surprises would be defined as a part of project design process\. (See mitigation steps for the previous risk)\. (High) (Substantial) Inadequate utility capacity Independent Implementation Utility: Appoint WBPDCL: Process for to supervise Support Consultants Implementation Support procurement of consultants implementation of (Quality Assurance (Quality Assurance) has been initiated complex R&M project\. Consultants) would be Consultants\. MSPGCL/HPGCL: Inadequate supervision appointed to confirm that Implementation consultants and quality assurance may implementation is as per the Utility: Develop a project would be procured at the lead to sub-standard design requirements\. monitoring plan based on appropriate stage\. (Refer implementation, weak Consultants would also which the Table-4) financial management certify quality of materials Implementation discipline and lower than and works before the Consultants would expected plan payments are made as per monitor the progress of performance\. contractual milestones\. the R&M tasks\. Since supply and install contracts will be used, this will mitigate any supply 135  Risk Description Mitigation Steps Responsibility Timeline / Status (Level of Risk) (Level of Residual Risk) chain management issues, (Substantial) (Moderate) Perceived negative Disseminate project impact Utility: Develop an WBPDCL/MSPGCL: No social/environmental assessments and benefits to appropriate specific issues are anticipated\. impacts of coal-fired nearby villages by deploying communication strategy HPGCL: Communication generation on near-by an appropriate strategy for and intensify initiatives strategy being developed ­ to villages despite communication\. under corporate social be formalized as a part of appropriate safeguard (See complaint redressal responsibility obligations\. Rapid Social Assessment\. measures\. mechanism below) (Substantial) (Substantial/Moderate) Post-Implementation Sustainability of R&M Strengthening of O&M Utility: Undertake O&M WBPDCL/MSPGCL: O&M gains may be affected by practices by conducting assessment and develop assessment and action plan weak O&M practices and O&M assessment to develop an Action Plan tasks have been completed\. therefore the ultimate and implement a long-term Utility: Implementation Implementation to be accountability for O&M action plan\. This of O&M Action Plan\. undertaken in accordance with realizing the benefits of would be used as a capacity Bank: Provide GEF the action plan\. the investment may not be building tool for the entities\. grants for capacity HPGCL: O&M studies to be assured\. (High) (Moderate) building on O&M issues initiated by Dec' 2008\. Transparency, Disclosures and Complaints Redressal Achievement of PDOs All three utilities come Utility: Disclose all WBPDCL/MSPGCL adversely affected by lack under the RTI Act for both relevant project /HPGCL: Disclosure related of adequate disclosure of suo-moto and on-demand information (especially agreed approach to be project information or information\. Utilities to on safeguard and finalized in PIP\. absence of adequate disclose all relevant project fiduciary aspects) as per systems to disclose and information (especially on bank requirements\. report information\. safeguard and fiduciary aspects) as per bank (Low) requirements\. (Low) Achievement of PDOs Adequate complaint Utility: To develop a WBPDCL/MSPGCL/HPGCL: adversely affected by lack redressal framework to be complaint redressal Complaint redressal of adequate complaint defined in consultation with mechanism for the project mechanism is under redressal mechanisms\. the Bank team\. in consultation with the discussion, and would (Substantial) (Moderate) Bank team\. finalized in PIP\. II\. Corporate (or Plant) Level Issues 12\. Corporate level issues have been identified based on capacity assessment studies in the areas of corporate governance, financial management, procurement, safeguards and operations & maintenance practices\. All the three companies (WBPDCL, MSPGCL and HPGCL) have expressed interest in initiating significant measures towards strengthening institutional capacities through Bank support in course of implementation of the R&M project\. Most of these initiatives would be taken at the corporate level, while the remaining would be piloted at the plants where R&M units are located\. A summary of the key corporate level issues and agreed plans for addressing them through institutional capacity strengthening is provided in Table-2, where as detailed action plans in each area are provided in respective sections elsewhere in the PAD\. Table-15\.2: Corporate (or Plant) Level Issues and Capacity Strengthening Plan Issues Agreed Actions WBPDCL MSPGCL HPGCL 136  Issues Agreed Actions WBPDCL MSPGCL HPGCL Corporate Governance and Financial Management Gaps in compliance with Implement the agreed time- Implement the agreed time- HPGCL would facilitate prudent financial bound CG&FM Action Plan bound CG&FM Action Plan a Corporate Governance management and corporate (refer to PAD, Annex 7)\. (refer to PAD, Annex 7)\. and Financial governance practices\. 61 Implementation of the Implementation of the Management review by CG&FM Action Plan would CG&FM Action Plan would the World bank team\. An be supported through the be supported through the agreed CG & FM Action GEF funded TA Component GEF funded TA Component Plan would be developed before negotiations\. Safeguards Power Plants under the WBPDCL to select the Adopt progressive emission EADD studies to be project are not fully preferred option and reductions over the project completed and compliant with National implement it during the implementation period for all recommendations for Ambient Air Quality course of the project\. generation units of the conforming to NAAQS Standards (NAAQS) and Option-1: Adopt progressive Koradi power plant to ensure and Bank operational the Bank safeguard emission reductions over the compliance with NAAQS\. policy requirements to be policies\. project implementation implemented for the period for Units 1-4 to ensure Panipat plant as a whole\. compliance with NAAQS\. Option-2: Provide a clear plan for scrapping of units 1- 4 which are old and not suitable for rehabilitation\. Absence of a clear Corporate environmental Corporate environmental EADD and RSA studies corporate policy with management policies and management policies and to be completed and regard to environmental procedures to be established\. procedures to be established\. recommendations on and social safeguards at the Also, strengthening to Also, strengthening to corporate safeguard Generation companies\. safeguard and safety roles safeguard and safety roles policies to be adopted\. Limited institutional based on the based on the capacity to handle such recommendations of the recommendations of the issues\. EADD and RSA\. CSR Policy EADD and RSA\. CSR Policy to be developed and adopted\. to be developed and adopted\. III\. Sector Level Issues 13\. Implementation of the GOI program for rehabilitation of old coal-fired generation units on a wider scale, as well as sustained performance of units that have been rehabilitated are affected by some sector level issues, which are much broader than the scope of the present project\. The Bank project can only attempt to create demand side pressures and explore stakeholder interest in furthering the discussion on some of these issues\. The most critical issues in this regard are provided in Table-3 below\. Table-15\.3: Sector Level Concerns and Mitigation Approach Sector Issue Approach for Addressing Responsibility Timeline / Status Continued weak This issue is a much larger Utility: Institutionalize / Plant level study to be accountability for coal than the scope of the current strengthen coal completed before start of 61It is important to note that the Bank project has been largely insulated from such gaps\. The project involves four large contracts for each R&M\. Payment would be made directly to the suppliers by the World Bank for each contract based on recommendation by independent consultants\. 137  quality and quantity project\. However, energy accountability measures R&M works in each plant\. (including availability) efficiency orientation within the plant\. institutionalized under the project may stimulate some user side demand for coal sector reforms in the medium term\. Regulatory treatment of Almost all R&M projects in Bank: Conduct a study to Study of regulatory options R&M projects leaves India till date received cost- explore options for has been completed and substantial project risk with plus tariffs based on R&M regulatory treatment of dissemination is underway\. generation utility design parameters, where rehabilitation and Next phase of regulatory most of the project risk rests modernization projects\. study involving deeper with the generator\. Other examination of select models for regulatory Utility: Explore possibility options to be completed treatment and risk allocation of implementing some of before June 2009\. need to be explored to the suggested models in facilitate wider present or future R&M implementation of R&M projects projects by mitigating regulatory risks\. IV\. Implementation Phasing, Resource Requirements and Monitoring Milestones 14\. The implementation of the project will be carried out in a phased manner\. The project is divided into nine key activity phases which are illustrated in Figure-1 with timelines for each of the three participating states\. The mitigation measures that will be taken in each of these nine activity phases (as examined in the risk matrices in Tables-1, 2 & 3) are brought out in Table-4\. This table also lays down the availability of resources for the carrying out the mitigation measures and the corresponding monitoring mechanisms that have been put in place\. During supervision, the Bank team would be reviewing progress / conformity against these monitoring mechanisms\. Indicative Phasing of Project Implementation Activities WBPDCL Year 2007 2008 2009 2010 2011 2012 2013 (Unit-5, Bandel) Quarter 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 MSPGCL Year 2007 2008 2009 2010 2011 2012 2013 (Unit-6, Koradi) Quarter 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 HPGCL Year 2008 2009 2010 2011 2012 2013 2014 (Unit 3&4, Panipat) Quarter 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1) Institutional Capacity Assessment 2) RLA, EA, DPR Reports 3) Preparation of Bid Documents 4) Procurement of the Main Package 5) Capacity Building Measures 6) Detailed Design and Supplies 7) Shutdown for Implementation 8) Testing and Acceptance 9) Post-R&M M&E Activities 138  Table-15\.4: Phase-wise Mitigation Steps, Costing, Resource Availability & Monitoring Mechanism Risk Mitigation Steps Cost Estimate Resource Availability Monitoring Mechanism 1\. Institutional capacity Assessment and Improvement Action Plan a) Client Utility to facilitate - No additional resource Submission of CG&FA review Corporate Governance and requirement is anticipated for satisfactory to the Bank is an Financial Accountability Review CG&FA review\. eligibility condition for inclusion by the World Bank team\. under IBRD/GEF project\. b) Assessment of O&M ~USD 85,000 O&M Studies at Koradi and Submission of report on detailed practices in the proposed plants for each plant Bandel already underway using review of O&M practices and an and preparation of Action Plan ESMAP grant funding\. agreed O&M improvement for improvement\. Studies for Panipat to be funded action plan (including from GEF grants under TA institutional capacity component (sub-component-4: strengthening) is an eligibility USD 2\.4 million) condition for inclusion under IBRD/GEF project\. c) EADD & RSA studies to be ~USD 75,000 Studies for Bandel and Koradi Submission of a detailed EADD, completed and CSR Policy to be for each plant already funded from PHRD CSR & RSA satisfactory to the developed and adopted\. grants\. Bank is an eligibility condition Part of the GEF grants under TA for inclusion under IBRD/GEF component (USD 2\.5 million project\. under sub-component-1) for Units 3&4 Panipat\. 2\. Residual Life Assessment, Energy Audit Report and Detailed Project Feasibility Report d) Deployment of independent ~USD 500,000 Studies for Bandel and Koradi Submission of a detailed project consultants for carrying out for each unit already funded from PHRD report (based on an independent Energy Audit Studies, Residual grants\. energy audit) satisfactory to the Life Assessment studies and Part of the GEF grants under TA Bank is an eligibility condition preparing Design Specifications\. component (USD 2\.5 million for inclusion under IBRD/GEF under sub-component-1) for project\. Units 3&4 Panipat and other (pipeline) R&M units\. e) Review of Design options - No additional resource Bank supervision team to and Final Design Specifications requirement is anticipated\. confirm that design options and by utility officials and final design specifications have independent sector experts\. been reviewed by utility officials and independent sector experts before the DPR is accepted\. f) Detailed project Report - No additional resource Implementing utility to verify should incorporate the requirement is anticipated\. these points before it accepts the following: DPR and shares it with the Bank\. Sufficient price and physical contingencies in cost estimates\. Bank supervision team to verify Lessons from domestic and these points before the DPR is international experiences\. accepted\. Scenario analysis (economic and financial analysis) including impact of cost escalation, time delays, longer shutdown and non-achievement of design parameters\. List of potential surprises along with strategy to handle 139  Risk Mitigation Steps Cost Estimate Resource Availability Monitoring Mechanism each of them\. Unit-level environmental measures as suggested in the EADD report are included\. g) In-principal arrangements for - No additional resource Implementing utility & Bank additional financing in case of requirement for conforming to supervision team to verify this at cost-escalations are identified\. this requirement is anticipated\. the time of acceptance of DPR\. h) Decision making process at - No additional resource Implementing utility to submit the utility during implementation requirement is anticipated\. the decision making framework (especially in case of surprises) document to the Bank for review to be defined and documented\. and acceptance\. 3\. Preparation of Bid Documents i) Bid Documents should - No additional resource Implementing utility to verify incorporate the following: requirement is anticipated\. these points before it submits the Two stage procurement bid document to the Bank for No process for the BTG package Objection Qualification requirements should help enhance competition Bank team to verify these points An explicit Dispute before the Bid documents are Resolution Mechanism accepted\. Clear segregation of responsibility between supplier and client for shouldering residual risks Requirement from bidders to submit prices of components/ works which may need to be procured during implementation to handle surprises Clear indication of applicable taxes Strategy to handle surprises is incorporated Role of Independent Quality Assurance Consultant (Implementation Support Consultant) is clearly stated\. 4\. Procurement of the Main Package j) In-principal investment - No additional resource Client utility to confirm to the approval from regulator should requirement is anticipated\. Bank team, that In-principal be secured before start of investment approval from the procurement\. regulator has been secured\. k) Enhance participation - No additional resource Client utility to confirm through wider dissemination of requirement is anticipated\. implementation of these steps at procurement notices, making the least 4 weeks before the last date bid documents easily accessible for submission of stage-1 bids\. and a participatory pre-bid conference to address concerns\. l) Bidders for the main BTG - No additional resource Client utility to obtain Bank's package to be brought on par on requirement is anticipated\. No Objection on the revised technical basis through stage-2 bid document\. discussions after Stage 1 Supervision team to check at that stage that adequate post-stage-1 140  Risk Mitigation Steps Cost Estimate Resource Availability Monitoring Mechanism modifications have been incorporated to address suppliers' concerns\. m) Independent Implementation ~USD 500,000 Part of the GEF grants under TA Bank team to check with the Support Consultants (Quality for each unit component (USD 1\.5 million implementing utility that Assurance Consultants) to be under sub-component-2) would implementation consultants are appointed\. be available for the three pilot in place by the end of stage-1 R&Ms\. Balance requirement (if bidding process\. any) would be funded by the implementing utility from its own sources\. 5\. Institutional Capacity Strengthening Measures n) Strengthening of O&M ~USD 400,000 Supported through the GEF Bank team to supervise based on practices by implementing a for each plant funded TA Component (sub- timelines provided in the O&M long-term O&M action plan\. component-4) Action Plan for each plant\. o) Agreed CG & FA Action ~USD 150,000 Supported through the GEF Bank team to supervise based on Plan is implemented in the for each utility funded TA Component (sub- timelines provided in the agreed time-bound manner component-4) CG&FA Action Plan for each utility\. p) Strengthening of institutional ~USD 250,000 Supported through the GEF Bank team to supervise based on capacities of implementing for each utility funded TA Component (sub- timelines provided in the O&M utilities and the CEA\. ~USD 350,000 components-3 and 4) Action Plan for each utility, and for CEA the agreed plan for CEA\. (tentatively) q) Plant level Environment ~USD 4 M Implementation of plant-level Client utility to disclose the plant Action Plan as per EADD to be million for EAPs (including arrangement of level EAP as a part of disclosure implemented\. Bandel funds) would be responsibility of requirements of the Bank\. ~USD 2 the client utility Implementation to be confirmed million for during supervision missions\. Koradi Estimates for Panipat would be available on completion of EADD study 6\. Detailed Design and Supplies r) Availability of components as - No additional resource Implementing utility to confirm per plan would be ensured requirement is anticipated\. preparedness to the bank team before start of shutdown\. before the start of shutdown for implementation\. s) Preparedness for handling - No additional resource Implementing utility to confirm surprises would be ensured requirement is anticipated\. preparedness to the bank team before start of shutdown\. before the start of shutdown for implementation\. t) Review of technical design - No additional resource Bank team to supervise during and quality / timeliness of requirement is anticipated\. formal missions\. In addition, supplies / works to be ensured informal interim missions would by the utility with the assistance become more frequent during of Implementation Support the final stages of this phase\. Consultants\. The client/ consultants would also ensure that the implementation conforms to the R&M design\. 141  Risk Mitigation Steps Cost Estimate Resource Availability Monitoring Mechanism 7\. Shutdown for Implementation u) Strategy to handle surprises, - No additional resource Client to ensure that these Decision making process at requirement is anticipated\. mechanisms are put into practice utility (especially in case of when required\. Bank team to surprises / disputes) supervise closely to ensure Arrangements for additional compliance\. funds and Dispute resolution mechanism would be put into use when needed during this phase\. v) Closer supervise may be - No additional resource Bank team to supervise more required during shutdown requirement is anticipated\. closely during shutdown 8\. Testing and Acceptance w) The bidding documents - No additional resource Implementing utility and Bank prepared on the basis of the requirement is anticipated\. supervision team to verify before Bank Standard Bidding the payment are made as per Documents for Supply and contractual milestones\. Installation have specific As per Bank procurement provision regarding plant guidelines, the contractual provisional acceptance and final documents will specify when acceptance\. The Independent and how final payment will be Implementation Support released to the contractor and the Consultants will supervise this implementation consultants will phase and certify that the have to certify that payment can performance of the plant is in be effected\. compliance with technical specifications\. 9\. Post-R&M M&E Activities x) Lessons learnt to be ~USD 750,000 Funds will be available through Bank supervision team to documented and disseminated- GEF TA component (sub- coordinate documentation and Assistance to CEA in component-3) dissemination activities through development of R&M program CEA\. The proposed studies may through 3-4 studies be initiated earlier when project experience on specific aspects is available on completion of related phase\. 142  Annex 16: Incremental Cost Analysis INDIA: COAL FIRED GENERATION REHABILITATION PROJECT I\. BACKGROUND 1\. Challenges in coal-fired generation sub-sector: India depends on 76,000 MW of coal-fired power plants representing 53 percent of total installed capacity (143,000 MW), but much of this does not perform well\. The central sector National Thermal Power Corporation (NTPC) owns nearly a third of this capacity which are generally efficient with station heat rates (SHR) of about 2,500 kcal/kWh or less (i\.e\. close to design value)\. NTPC plants also have good plant availability with average plant load factors (PLF) of about 92 percent\. The remaining coal- fired plants are owned largely by state government utilities\. Most of these generation plants that are owned by state government utilities (except some states such as Rajasthan, Karnataka, Punjab and Andhra Pradesh) are in a poor shape ­ with an average PLF of about 70 percent with some plants having PLFs lower than 55 percent and SHR of about 3,000 kcal/kWh and above, (sometimes up to 4,000 kcal/kWh in many cases)\. 2\. Large fleet of coal-fired power generation units is due for Rehabilitation: India was able to keep pace with needed Renovation and Modernization (R&M) investments through the better part of the 7th, 8th and 9th Five-Year Plans, covering the fifteen years until 2002\. Since then R&M requirements have increased rapidly and implementation of R&M schemes has slowed down\. The 10th Plan (2002-2007) R&M target was not fully met ­ especially by the state generation utilities and nearly 8000 MW spilled over into the 11th Plan, which now has an R&M requirement of nearly 27,000 MW (about a third of the total installed coal-fired generation capacity in the country)\. The Bank and GOI have agreed to focus on 110 MW and 210 MW units which are in urgent need for R&M in India and constitute about 68% of the 27,000 MW identified for R&M\. 3\. Also, in the case of past R&M investments, plant availability has tended to decline back to the pre-R&M levels within a few years due to poor O&M practices at many state government utilities\. More importantly, for the past and planned R&M, the primary criteria is often PLF enhancement and life extension, and any energy efficiency improvements (SHR and other parameters) achieved is usually incidental and not a primary criteria for R&M project design\. 4\. Barriers to implementation of R&M projects: Past experience with R&M of coal- fired generation in India indicates that there are several barriers that inhibit R&M investments in India\. a\. Difficulty in securing long plant shutdown needed for R&M\. Many of the best candidates for R&M are owned by states which are facing severe power shortages and are therefore reluctant to have them out of service for the length of time required for R&M\. The additional cost of arranging energy during shut down periods, for these fully depreciated plants is a significant burden on the utilities as well as the States\. 143  b\. Regulatory issues\. There is significant uncertainty about whether the full R&M capital expenditure will be passed through to the rate base of the generation companies and on the sharing of benefits of R&M between generators and consumers\. c\. Limited institutional capacity at the utility to take up R&M projects\. Most generation utilities in India have plans for large green-field capacity addition over the eleventh five year plan period (2007-12)\. Utilities tend to accord a higher priority to green-field capacity addition over R&M projects, since the latter are perceived to be more risky, require much greater preparatory effort and the utility's institutional capacity to implement projects is limited\. d\. Lack of energy efficiency orientation\. In the past, Indian power generation utilities and planning agencies have been primarily concerned with capacity enhancement and life extension of coal-fired generation and not the efficient operation of these facilities\. e\. Time and cost overruns and contract management difficulties in the past\. Utilities are discouraged from taking up R&M schemes by the implementation delays, cost escalations (due to surprises when machines are opened up) and contractual difficulties during implementation\. f\. Poor O&M practices and internal management capacity have resulted in the long-term benefits from past R&M being unsustainable\. Most state government generators, with a few exceptions, have very poor capacity in terms of skills for operating and maintaining plants\. g\. General financial distress of state power utilities\. The poor financial situation in the state power sector results in limited debt servicing ability\. Available financing usually gets used to firefighting, ad-hoc investment or politically motivated schemes instead of schemes with long payback and short-term costs, i\.e\., R&M\. Even when R&M is financed, usually the lowest capital expenditure option is considered first\. II\. BUSINESS-AS-USUAL SCENARIO 5\. In the Business-as-Usual scenario, the barriers to R&M interventions in state-owned power generation utilities in India would continue to impede wider implementation of R&M projects\. Table 16\.1 indicates that there is a need for rehabilitation of nearly 27,000 MW of old coal fired units during the XI Plan Period (2007-12)\. It shows that nearly 16,000 MW of R&M target for X Plan period (2002-07) ­ of which about 8,000 MW was in the state sector ­ could not be implemented and spilled over to the XI plan period\. Even during the XI plan period there has been little movement towards implementation of targeted R&M interventions outside the IBRD-GEF and KfW projects, especially in the state sector\. 6\. The perception that R&M projects are difficult to design and implement, and entail very high risk would persist in the absence of any concrete attempts to develop and demonstrate approaches that systematically mitigate risks\. As a result, while some state generation utilities may take up a few R&M interventions, by far the need for R&M in India would remain unaddressed\. 144  Table 16\.1: Need for Rehabilitation of Old Coal Fired Units during XI Plan Period (2007-12) Size of unit <100 100~200 200~210 500 Total MW MW MW MW MW Spillover from X Plan Period NTPC (including DVC) 0 0 3880 4000 7880 State Generation Utilities 194 1480 5400 1000 8074 TOTAL 194 1480 9280 5000 15954 Additional Rehabilitation for XI Plan Period NTPC 0 800 2910 3000 6710 State Generation Utilities 193 760 3320 0 4273 TOTAL 193 1560 6230 3000 10983 Total Rehabilitation Requirement for XI Plan Period NTPC 0 800 6790 7000 14590 State Generation Utilities 387 2240 8720 1000 12347 GRAND TOTAL 387 3040 15510 8000 26937 Source: Data collected from Central Electricity Authority Note: (i) Spill-over includes works that were initiated but could not be completed within the X Plan\. (ii) NTPC follows a rolling plan for R&M and although a large spillover is indicated here, significant works have been completed within the X Plan period\. 7\. Historically R&M activity carried out by state sector generators in India focused on PLF enhancement and life extension but not on energy efficiency\. Due a host of barriers discussed above this situation is not likely to change in the future unless a concerted effort is made to demonstrate a comprehensive barrier reduction framework and implementation of EE R&M within the same\. It is assumed that in the baseline scenario progress of even traditional R&M activities (which lack a focus on Energy Efficiency) will be limited, and adoption of EE R&M schemes will not take place\. 8\. Therefore, the Business-as-Usual scenario is characterized as: Low investments in R&M projects in state-utility sector\. Even where R&M is undertaken, it would be mainly focused on enhancing plant load factor and life extension, rather than energy efficiency\. Also, after R&M these generation units would again gradually creep back to lower levels of performance due to poor operations and maintenance practices\. Also, these Investments would be affected by barriers and higher project risks mentioned above leading to significant delays and lower probability of success and commensurate non-achievement of targeted benefits\. Due to prevailing power shortages, most of the old generation units would continue to generate at a low level of energy efficiency and higher levels of greenhouse gas emissions\. Also, these generation units would provide lower levels of generation due to frequent outages\. Generation units which have not been rehabilitated (despite the need for it), would experience continued deterioration of equipment, with decreasing load factors, increasing heat rates, and increasing costs of generation\. 145  III\. GEF PROJECT ALTERNATIVE 9\. The GEF alternative is focused on taking measures to address barriers to EE R&M projects, developing approaches to mitigate inherent project risks and initiating steps towards a wider EE R&M program in the country\. The IBRD-GEF project would achieve this through pilot interventions in three states across coal fired generation units of 210MW and 110MW\. These pilot projects would demonstrate approaches for energy efficiency focused R&M, while developing steps for mitigating risks and addressing barriers\. Further, to enhance the momentum for a wider R&M program, a pipeline of EE R&M projects would be developed\. The implication of this GEF Project Alternative is that the state generators will implement EE R&M activities ­ both due to the direct financing of demonstration projects under the Project, as well as from other sources of financing once successful EE R&M demonstration projects within a comprehensive barrier reduction framework are available for dissemination\. 10\. Project Components The project will have the following components: (i) Energy Efficiency R&M Pilots (US$295\.9 million) and (ii) Technical Assistance (US$7\.5 million)\. The project will be financed by a combination of an IBRD loan, GEF grant and generation company internal (equity) funds\. GEF funds in the investment component would be used for funding the incremental cost of energy efficiency approaches in R&M\. The financing plan is provided in the table below\. Table-16\.1: Financing Plan Component Indicative Financing Plan Costs GEF IBRD Equity Total Energy Efficiency R&M Pilots 295\.9 37\.9 180\.0 78\.0 295\.9 Technical Assistance 7\.5 7\.5 - - 7\.5 Total 303\.4 45\.4 180\.0 78\.0 303\.4 All figures in US$ million 11\. Component 1: Energy Efficiency R&M Pilots (US$295\.9 million)\. This component would renovate and modernize 640 MW (three to four generation units) of old coal-fired generation capacity to test and demonstrate energy efficient rehabilitation approaches\. Energy efficient R&M of generation units would go beyond the typical Indian practice - of restoring original generation capacity, life-extension, and improving availability - by also modifying (or replacing) some equipment and systems to enable the unit to operate with higher fuel efficiency\. 12\. The Bank and GOI have agreed to focus on 110 MW and 210 MW units which are in urgent need for R&M in India and constitute about 68% of the 27,000 MW identified for R&M\. The following generation units have been selected for participation in the pilot project: Unit-5, Bandel Thermal Power Plant, West Bengal (210 MW) Unit-6, Koradi Thermal Power Plant, Maharashtra (210 MW) Units-3 & 4, Panipat Thermal Power Plant, Haryana (110 MW each) 13\. This component of the IBRD-GEF project incentivizes generation plants to work with the Bank team to develop demonstration EE R&M projects within a comprehensive barrier reduction 146  framework, while addressing the incremental costs of EE R&M approaches\. Less efficient thermal power plants would be turned around resulting in significant improvements in heat rate and plant load factor (PLF) resulting in less coal consumed, less GHGs produced, and a lower cost of generation\. 14\. Component 2: Technical Assistance (US$7\.5 million)\. The technical assistance component of the project is aimed at: (i) design of Energy Efficiency R&M projects, (ii) implementation of demonstration EE R&M investments funded under Component 1 of the project, (iii) measures to address barriers to replication of EE R&M projects in India, and (iv) strengthening of overall institutional capacities of the generation utilities and other relevant sector entities\. 15\. Sub-component-2 of the project would finance Energy Efficiency R&M design of 840 MW of additional capacity in Maharashtra, thus creating a pipeline of such projects\. In addition to this the Bank has received an intimation of EE R&M of six 210 units in Gujarat\. It is therefore expected that this intervention / project would lead to implementation of EE R&M approaches in at least 2100 MW (11%) of 18360 MW of old 110MW/210MW capacity in the country\. 16\. Under the GEF alternative, the following steps are envisaged for mitigation of barriers to EE R&M in state generation utilities in India: Barrier Measures contemplated Energy Shortages\. Due to the prevailing The project aims to reduce the plant outage to the generation shortage in the country, and the minimum possible by conducting detailed RLA & relatively low cost of generation from old plants Energy Audit studies of the plant to minimize (since these are fully depreciated), utilities find surprises at the time of opening the machines\. it difficult to take old generation units out for Detailed design studies of the plant also enable to major R&M\. Taking plants off-line for longer systematically plan the shutdown and ensure that periods of time to do major work is politically all the required equipments are available at the risky and economically damaging\. time of shutdown\. Detailed studies would also help reduce the risk of surprises on opening of machines\. Possibility of short term allocation of power supplies from GOI's unallocated share of 15 percent of total central sector generation is being explored with GOI with a view to encourage EE R&M\. Regulatory issues\. There is little regulatory As a part of the project, a study on options for incentive to invest in R&M, even as there is regulatory treatment of R&M projects has been uncertainty whether full R&M capital undertaken with funding from ESMAP\. The study expenditure will be passed through in has been conducted in close coordination with generation tariff\. In the prevailing cost-plus several state electricity regulators\. The findings of tariff regime, it is likely that benefits of the the study have been disseminated through a R&M investment would be passed through workshop\. (see Annex 1) entirely to the customers by means of Capacity building measures under Technical generation tariff reduction\. Even though the Assistance include support to generators and National Tariff Policy announced in 2006 regulatory staff on regulatory aspects of R&M\. 147  provides for a multi year tariff framework to The team would continue dialogue with GOI on cover inter-alia the capital investments implementation of relevant provisions of National necessary for R&M, and suggests sharing of Tariff Policy, 2006\. benefits of efficiency improvements, the modalities for implementing the same remain unclear\. General financial distress of state power The project does not directly address the financial utilities\. The poor financial situation in the distress in the power sector\. However, each sub- state power sector results in limited debt project proposed for financing will be subject to servicing ability of the companies\. Available financial and economic appraisal wherein eligible financing is usually consumed in fire fighting or projects will have to demonstrate adequate inadequately planned schemes instead of financial viability including future O&M budgets\. schemes with long payback and short-term With efficiency increases resulting from EE R&M costs, such as R&M\. Even when R&M is and a part of the resulting benefits being passed to financed usually the lowest capital expenditure the generation utilities, the financial health of option is considered first\. these utilities would be strengthened\. As part of the Project a Financial Management Plan was prepared which aims at improving the financial management performance (corporate governance, financial accountability aspects) of the clients\. Lack of energy efficiency orientation\. In the The project requires measurement of energy past Indian generators and the Indian efficiency performance and incorporation of government system had been primarily energy efficiency as a primary criterion for R&M concerned with improving availability, life project design extension and capacity enhancement in The team proposes to work with the Central designing rehabilitation of coal fired generation Electricity Authority to incorporate energy units\. There has been little focus on energy efficiency parameters in the regular reporting efficiency improvement, in part attributable to requirements of all generators\. the administered pricing (till mid-90s) and relative abundance of coal in India\. This tendency has also been enhanced by PLF linked performance monitoring and incentives rather than heat rate linked incentives\. However over the last few years GOI is laying emphasis on improving energy efficiency in power generation\. Inadequate O&M practices and internal Under ESMAP funding the Bank has hired management capacity\. Most state government consultants for BTPS (West Bengal) and KTPS generators, with a few exceptions, have weak (Maharashtra) for strengthening the current O&M capacity in terms of skills for operating and practices and procedures\. A similar study is maintaining plants\. This has resulted in the proposed for PTPS (Haryana)\. It is also proposed long-term benefits from past R&M being to hire additional consultants to implement the unsustainable\. Measurement and monitoring recommendations\. These will be funded with TA systems prevalent are outdated and often highly resources\. inadequate\. Accountability for performance in In addition, the M&E system to be put in place by this environment is generally low\. this project will improve accountability\. 148  The Partnership for Excellence program addresses this by requiring under performing generators to work with NTPC (and other strong generators) to improve their O&M practices before design of R&M project and sanction of financing\. Lack of long-term financing for R&M\. The Demonstration of EE R&M approaches and Capital Expenditure for R&M needs to be sustained improved performance of plants under managed in such manner as to reduce the short- long term funding from the World Bank would term increase in power cost from the generator\. allow local financial institutions and other However, the financing traditionally available international agencies to offer better long-term for R&M has been of relatively short tenor of funds up to 7 years thereby increasing the cash outflows of the generators and hence their tariff requirement\. Policy barrier to energy efficiency\. While Bank, in its dialogue with GOI, highlighted the there has been a general recognition of the fact that the thrust on ensuring energy efficiency importance of R&M investments there has not as an important criterion in R&M project design been a comprehensive policy thrust for R&M in needs to be increased\. the past\. Recently the National Electricity An agreement has been reached that the Project Policy (2005) and the National Tariff Policy will demonstrate the framework and modality of (2006) have made appropriate enabling doing the same and will work closely with states provisions to allow development of for timely and satisfactory implementation\. comprehensive regulatory and financing frameworks\. IV\. CALCULATION OF GHG BENEFITS 17\. The GEF Manual for calculating GHG benefits has been followed\. As per the manual, emission reduction from GEF interventions has three components: (i) Direct Emission Reductions, (ii) Direct Post Project Emission Reduction Effects, and (iii) Replication and Indirect Impacts\. Direct Emission Reductions 18\. These have been calculated for the three generation units where the IBRD-GEF supported investments in EE R&M are being undertaken\. The project involves phased implementation of EE R&M activities in the three states, starting with Bandel Unit-5, followed closely by Koradi Unit-6 and finally Panipat Units 3&4\. At present, the detailed project report (and the technical specifications) for EE R&M of Bandel Unit-5 have been prepared, while those for Koradi Unit-6 are still in draft and are in the process of finalization\. The preparation of detailed project report for Panipat Units 3&4 would be initiated in the next few months\. Therefore for Bandel Unit-5 the calculations are based on the actual numbers from the approved detailed project report (DPR) but for Koradi Unit -6 the calculations are based on a draft DPR\. In case of Panipat Units 3&4 the calculations are done on the basis of past performance recorded by the plant authorities and conservative assumptions are taken about Post-R&M performance\. 149  Table 16\.2 - Key Data Age Capacity Plant Load Station Heat (years) (MW) Factor (%) Rate (KCal/KWh) Before Post Before Post Before Post R&M R&M R&M R&M R&M R&M Bandel Unit- 5 27 210 215 67% 85% 2872 2500 Koradi Unit-6 27 210 214 72\.2% 85% 2951 2600 Panipat Unit-3 24 110 115 77\.7% 85% 3465 2850 Panipat Unit -4 22 110 115 67\.4% 85% 3467 2850 Note- The post R&M figures are indicative and will be confirmed on the basis of actual performance of the units\. 19\. The renovation and modernization of coal fired generation units would lead to improved energy efficiency as well as a higher amount of power generation due to increased capacity and improved load factor\. To facilitate the calculation of direct emission reductions, the emission reduction (or increase) has been broken down into two parts: A\. Emission Reduction from Present Level of Coal Consumption 20\. With improved energy efficiency, more electricity can be generated from the same amount of coal\. In case the EE R&M project was not undertaken, this additional electricity generated from the same amount of coal would have been provided from new sources of generation connected to the grid ­ including coal-fired, gas-fired, lignite-fired, large hydropower, nuclear and renewable energy projects\. Therefore, this additional generation avoids emissions from a combination of these sources\. 21\. Some of the parameters used in calculating emission reduction from the above are as follows: Annual electricity generated - Keeping the consumption of coal constant, the annual additional electricity generated due to the reduction in Unit Heat Rate, is calculated\. Emission Factor- The additional energy generated using the same amount of coal would substitute generation from a mix of grid connected generation sources based on the planned new power generation projects\. Emission Factor for the planned new generation projects is the future build margin for the grid, which is calculated based on the list of green-field projects under execution and the CO2 Emission Factors provided in Central Electricity Authority (CEA) - CO2 Baseline Data for Indian Power Sector Version 4\. Underlying calculations are presented in Annex-1 of this document\. The future build margin emission factor for the national grid is calculated as 0\.77 t CO2 e / MWh\. Average Useful Investment Lifetime- This is the residual life of the unit if the unit was not rehabilitated\. For the units being rehabilitated under the IBRD-GEF project, the residual life without rehabilitation is as follows: o Bandel Unit 7 years o Koradi Unit 7 years 150  o Panipat Unit 3&4- 10 years B\. Emission Reduction / Increase from Additional Coal Consumption: 22\. Because of increase in the capacity and improved plant load factor, the overall generation from the unit may be more than the generation possible from using the same amount of coal, thus leading to combustion of even more coal than earlier\. Emission from this additional generation that requires additional coal to be burnt should be compared with emission from new generation capacities connected to the grid ­ including coal-fired, gas-fired, lignite-fired, large hydropower, nuclear and renewable energy projects\. The emission reduction (or increase) for this part would be based on the difference in emission factors for the rehabilitated plant and the future build margin for the gird\. 23\. It may be noted here that in some cases, the generation unit may already be operating on a high load factor generating close to the maximum possible levels\. In such a case, there may be a net saving of coal from the unit (additional generation through additional coal consumption may be negative)\. 24\. Some of the parameters used in calculating emission reduction / increase from the above are as follows: Annual electricity generated- The additional electricity generated through the additional coal consumption is calculated as the difference between generation from the unit based on the post-R&M load factor and the part of generation attributable to existing level of coal consumption\. Emission Factor- The emission factor in this case is the difference between the future build margin emission factor for the national grid and the Post R&M emission factor for the generation unit\. Average Useful Investment Lifetime- This is the residual life of the unit if the unit was not rehabilitated\. o Bandel Unit 7 years o Koradi Unit 7 years o Panipat Unit 3&4- 10 years Direct Post Project (DPP) Emission Reduction Effects 25\. In this project there is no GEF -supported financing mechanism that will continue to support direct investments after the implementation or supervision of the project\. Therefore no DPP emission reduction effects have been calculated for this project\. Replication and Indirect Impacts Bottom- up Approach 26\. The GEF TA money is being used to develop a pipeline of replication projects (840 MW) - two units in Chandrapur, one unit in Bhusawal and one unit in Parli - all of them in Maharashtra\. There is also an intimation of another 1260 MW in Gujarat of being added to the pipeline\. Together, it is expected that at least 2100 MW of follow-on activity would take place\. Thus the Replication Factor of 3 is used for calculation (~2100/640)\. 151  Top- down Approach 27\. Total market for coal fired generation rehabilitation is about 27,000 MW, which would be captured over a ten year period\. Of this 210 and 110 MW units account for about 68% or 18360 MW\. 28\. Given the fact that during the tenth plan the GOI could only implement less than a third of the planned R&M target, it can be safely assumed that in the absence of this project the share of EE R&M in the total R&M activity would have been limited and the target for R&M activity would not been achieved\. Also keeping in mind that investments in R&M projects are expected to gain momentum in the coming years, we assume that the average share of EE R&M investments in the baseline in the 10 year period that needs to be bridged is 60%\. Further, because of the phased-out implementation of R&M, the rehabilitated units would only function during the later part of the 10 year period ­ thus we assume that only 50% of the emission reduction takes place in the ten year period\. Therefore, the total emission reductions from EE R&M of 210 and 110 MW units would be 31\.72 million tonnes of CO2 (60% x 50% x 18360 MW x 3\.69 MTCO2 / 640 MW)\. 29\. Assuming a GEF causality factor of 40% i\.e\. the GEF contribution is modest and substantial indirect emission reduction can be attributed to the baseline, the indirect emission reduction through the Top down approach amounts to 12\.69 million tonnes\. Results Table 16\.3 - Emission Reductions Direct Direct Post Replication & Indirect Impacts Project Bottom-Up Top-Down Bandel Unit 5 0\.64 0 11\.06 12\.69 Koradi Unit 6 0\.78 0 Panipat Unit 3 1\.46 0 Panipat Unit 4 0\.81 0 Total 3\.69 0 11\.06 12\.69 Figures in million tonnes of CO2 30\. Direct Emission Reductions Part of the outputs of the project will be the following investments: Financing the incremental cost of energy efficiency approaches in Renovation and Modernization of 640 MW of old Coal Fired Generation Capacity\. These investments will result in direct greenhouse gas emission reductions during the project's implementation phase\. As a result of these activities during the project implementation period of: Seven to Ten years across different units, direct greenhouse gas emission reductions totaling 3\.69 million tonnes of CO2 eq will be achieved over the useful lifetime of the investments of seven years\. In the non-GEF case, these energy needs would be satisfied by: Supply from the grid where the build margin calculated based on green field power generation projects planned over the next five years is 0\.77 t CO2 e / MWh\. 152  31\. Indirect Emissions Reductions Using the GEF bottom-up methodology, indirect emission reductions attributable to the project are 11\.06 million tonnes of CO2 eq\. This figure assumes a replication factor of 3\.0, which is consistent with the EE R&M projects already in the pipeline\. Using the GEF top-down methodology, indirect emission reductions attributable to the project are 12\.69 million tonnes of CO2 eq\. This figure assumes that total technological and economic potential for GHG emission reductions in this area over 10 years is 31\.7 million tonnes of CO2 eq, and a project causality factor of 40 percent\. VI\. INCREMENTAL COST AND BENEFIT ANALYSIS 32\. Incremental Project BenefitsThe project would lead to domestic benefits as well as global environmental benefits\. It would demonstrate approaches for mitigating inherent risks in EE R&M interventions, thus paving the way for a larger EE R&M Program in the country\. The project is a win-win approach for augmenting availability of power with lower investments than green-field projects, reducing requirement of coal for generation and reducing carbon dioxide emissions\. Incremental Cost-Benefit Matrix Baseline GEF Alternative Increment BENEFITS Domestic Benefits a\. Interventions to address Barriers continue to Barriers are systematically Reduced barriers to EE the need for R&M of old impede wider addressed through studies, R&M leading to initiation coal fired power implementation of R&M sector dialogue and of R&M preparation generation units projects capacity building\. activities for at least 2880 MW from IBRD-GEF and other sources\. R&M projects are GEF grant supported Pilot Risk mitigation strategies perceived as high risk and EE R&M interventions for (such as comprehensive reluctance to engage in 640MW of capacity across technical studies, effective such interventions persists\. 210 MW and 110 MW procurement practices, (As a result utilities did units to demonstrate strategies to handle not demonstrate enough approaches for reducing surprises etc) are appetite for an IBRD only risks for effective developed and engagement, as also for an implementation of EE demonstrated through pilot ADB engagement in the R&M interventions\. interventions\. past)\. Little movement towards R&M Interventions in preparation and state-utilities in India are implementation of R&M kick-started through pilot projects in state-utilities in interventions (640 MW) India\. and pipeline interventions (840MW)\. Several gaps in Systematic approaches for preparation of R&M mitigation of project risks projects leading to high are developed and risks in implementation demonstrated through pilot phase\. interventions\. b\. Energy Efficiency of old Generation units continue Energy efficiency is Heat Rate improvement of 153  Baseline GEF Alternative Increment coal fired power to operate at lower levels improved through specific 12 to 18% across selected generation units of energy efficiency\. technological pilot generation units\. interventions, and sustained through improved operations and maintenance practices\. c\. Generation from old coal Generation units operate at Generation units operate at Additional power of at fired power generation a load factors between a load factors between least 948 MU(24% units 67% and 77% 85% and 90%\. increase) per annum would Generation units have Generation units are up- be available across the rated capacity of 210 MW rated to capacity of three pilot power plants\. or 110MW 214~215 MW or 115 MW\. Residual life of 7 years or Extension of life of 10 years for different generation unit to 15 years units\. However, given or 20 years\. Energy power shortages it is efficient operations of unlikely that these units units during the extended will be relinquished even life\. at the end of such period\. Global Environmental Benefits Reductions in Green Minimal or no energy Reductions in GHG based 15\.6 million tons of carbon House Gas (GHG) (Carbon efficiency improvements / on efficiency improvements dioxide reduced across pilot Dioxide) emissions from GHG reductions at old state- at thermal stations\. and pipeline interventions\. power generation units utility owned coal fired power generation units COSTS (million USD) COMPONENT-1 Expenditure Investment in Energy 256\.3* 295\.9 39\.5 Efficiency R&M Pilots Funding Sources IBRD Loan 0\.0 180\.0 0\.6 Other Loans 179\.4 0\.0 0\.0 Equity 76\.9 78\.0 1\.1 GEF Grants 0\.0 37\.9 37\.9 COMPONENT-2 Expenditure (i) Technical Assistance 0\.0 7\.5 7\.5 (ii) Investments in Pipeline 0\.0 430\.0 430\.0 R&M Interventions Funding Sources IBRD Loan 0\.0 0\.0 0\.0 Other Loans 0\.0 301\.0 301\.0 Equity 0\.0 129\.0 129\.0 GEF Grants 0\.0 7\.5 7\.5 TOTAL Expenditure (i) Technical Assistance 0\.0 7\.5 7\.5 (ii) Investments in R&M 256\.3 725\.9 Interventions 430\.0 Funding Sources IBRD Loan 0\.0 180\.0 0\.0 Other Loans 179\.4 301\.0 301\.0 154  Baseline GEF Alternative Increment Equity 76\.9 207\.0 129\.0 GEF Grants 0\.0 45\.4 7\.5 TOTAL GEF COSTS (million USD) Technical Assistance 0\.0 7\.5 7\.5 Coal R&M Energy 0\.0 37\.9 37\.9 Efficiency Financing Window GEF Incremental Costs 45\.4 * Although some investments in R&M would have happened even without the IBRD-GEF intervention, as explained in the benefits section of the above table, such interventions would have been relatively few and may have been subject to barriers and higher project risks leading to lower probability of success and commensurate non-achievement of targeted benefits\. 33\. Incremental Cost-Benefit of Energy Efficiency Pilots Based on a GEF Grant of US$37\.9 million for the energy efficiency financing window, the energy efficiency R&M pilots are expected to require US$295\.9 million in investments for 640 MW capacity\. Overall, this financing window will result in reduction of heat rate of selected pilot generation units by 12% to 18%, and there by the same reduction in Carbon Dioxide emission intensity of generation from these units\. The absolute Carbon Dioxide emissions from these units would reduce by 3\.69 million tonnes\. The project would lead to additional generation of power of 948 million kWh per annum\. 34\. Leveraging of GEF Funds\. The GEF funds would be used to support more than US$295\.9 million in coal-fired power generation unit efficiency improvement investments representing a ratio of 7\.8:1 (expected investments to net grant) over the implementation period of the project\. However, given that a second generation of investments (US$ 430 million for pipeline interventions) is likely to be made once the pipeline positive results are proven at stations with R&M investments, along with increased commercial lending; total leverage of GEF funds would be significantly higher at almost 16:1\. 35\. Grant Cost Effectiveness\. The net cost of carbon abatement for the project is a direct result of the leverage provided by the GEF grant\. Grant cost effectiveness in terms of the direct emissions from the project is calculated as $10\.27/ton of CO2e, whereas the grant cost effectiveness taking into account both direct and indirect emission reductions is calculated at about $2\.91/ton of CO2e\. 155  Annex 17: STAP Review and Responses INDIA: COAL FIRED GENERATION REHABILITATION PROJECT (STAP Review undertaken in May 2006, 62 Team's response updated in March 2009) The STAP review comments received at work program inclusion have been taken into account in the preparation of the Project Appraisal Document\. Specific comments and responses (at appraisal stage) are provided below: 1\. Comment: It is not clear whether the project as a part of the Partnership in Excellence (PIE) program would involve NTPC (formerly National Thermal Power Corporation) to conduct diagnostics (energy audits?) and provide technical assistance, and Power Finance Corporation (PFC) to provide financing\. If not, what would be the financing mechanism: a separate account (a dedicated Fund) for this project? If so, how would commercial lenders participate in individual projects or in the overall Fund? Response: Under the Partnership in Excellence (PIE) program, coal-fired power plants with poor plant load factors (less than 60 percent) partnered with stronger utilities such as NTPC to improve performance through adoption of better management systems and Operations and Maintenance (O&M) practices\. The program experienced mixed success with some utilities such as DVC benefiting significantly, but some others showing little sustained improvement\. One of the objectives of the PIE program was to assist the weak utilities in preparation and implementation of R&M activities\. However, due to absence of adequate performance incentives, utility financial constraints and inter-institutional issues, the program did not continue further enough in promoting R&M of old units\. At the time of GEF Project Brief submission, the team in intensive discussions with NTPC to explore its involvement in IBRD/GEF supported EE R&M project for state-level power generation units\. However, NTPC has a joint-venture with ALSTOM called NTPC ALSTOM Power Services Private Limited (NASL), which had been created specifically to enhance the R&M interventions in India\. In face of the possible conflict of interest situation, and in view of already low levels of competition for R&M in India, the Bank team preferred that NASL participate as a potential supplier, rather than involving NTPC for support on IBRD-GEF project\. In preparing this project, the team also explored the option of channeling IBRD/GEF funds through an intermediary such as Power Finance Corporation (PFC)\. However, GOI rejected this option as a result of an unsatisfactory response from state generation utilities to a similarly structured ADB project\. Therefore, it was decided to shift to the standard mechanism of on-lending to state generators through the government system, so as to lower transactions costs and be more hands-on with regard to issues such as project and technical design, incorporation of energy efficiency approaches, procurement strategy, implementation support, and transferring lessons learned for a wider national program\. 62STAP review comments in May 2006 provided by Gautam S\. Dutt\. The team's responses at that stage were included in the Project Brief for Work Program Submission\. The same have now been updated at the project appraisal stage\. 156  Apart from the EE R&M interventions directly funded by the IBRD/GEF project, a pipeline of additional EE R&M interventions is being developed under the project, which would be financed from sources outside the current project\. 2\. Comment: The level of efficiency increase actually achieved in current R&M projects in India (which do not focus on energy efficiency) should be brought out and compared with the expected level of energy efficiency improvement to be achieved in the proposed project\. Also, how does the proposed project compare with alternatives such as new high-efficiency coal power plants or new combined cycle gas power plants, and the option of scrapping the worst power plants altogether and replace them with new high-efficiency coal or natural gas power plants? The economic analysis should compare at least these three alternatives to the project scenario and doing nothing\. Response: The team agrees with the suggestion\. The Detailed Project Reports (DPR) for each of the EE R&M interventions under the project would capture various options and provide a techno-economic evaluation of these options, including scenario analysis to examine the impact of risks under each option\. The options being considered include: (i) No R&M case; (ii) EE R&M; (iii) Replacement of Boiler-Turbine-Generator; (iv) Scrap the unit; and (V) Complete Replacement\. In addition, various technical options for carrying out the R&M intervention (including approaches specifically focused on energy efficiency­ such as removal of Bauman Stage in Low Pressure Turbine, conversion of High Pressure Turbine from Impulse to Reaction Blades etc\.) have been examined in the DPRs from a techno- economic perspective\. 3\. Comment: Since the project has a large and cost effective replication potential, GEF is a better instrument than alternatives considered and rightly rejected in Section B6, as it provides focus on barrier reduction rather than subsidies or specific incentives\. Experience with other GEF projects has shown that technical assistance alone without associated financing is not effective\. Moreover, carbon financing such as the Clean Development Mechanism, is project oriented addressing one power plant at a time, and does not lead to effective barrier removal\. Response: The team agrees with the observations\. 4\. Comment: As regards the barriers to energy efficient R&M identified in the Project Brief, these are correct and the mitigation measures also appear to be reasonable\. One possible weak area is the lack of long-term financing for R&M activities\. It is rightly noted in Annex 1 that a successful implementation of the proposed activities would provide the basis for future financing through commercial sources\. Improved financing would also result from Tariff Reforms which would improve the financial status of state power companies\. Response: The IBRD/GEF project would assist in preparation of EE R&M for 1440 MW of capacity across eight coal-fired power generation units in three states, of which R&M of 640 MW capacities would be funded under this project, while the remaining would be funded from sources outside this project\. Activities under the project have contributed to a renewed interest in R&M interventions and several bilateral agencies are now looking at opportunities for funding R&M interventions in India\. In particular, KfW has taken up another seven generation units (about 1400 MW) for EE R&M preparation and is likely to fund at least 157  three of these units\. The success of first few pilot interventions under the IBRD/GEF project is likely to pave the way for more commercial financing of such projects\. 5\. Comment: The monitoring parameters and process indicated in Annex 3 appear to be excellent\. Response: The results framework presented in Annex-3 of the Project Brief has now been modified to bring out baseline and target values specific to the selected coal-fired power generation units\. The revised results framework has been included in Annex-3 of the Project Appraisal Document\. 6\. Comment: As regards the identification of global environmental benefits, the incremental cost of mitigation (GEF investment per tonne of CO2 emissions reduction) considering only the direct benefits from EE R&M Financing Component (the benefits from Technical Assistance component being inherently speculative) is estimated to be about $6 per tonne CO2, which is quite cost effective compared to many alternative mitigation options\. In general, the Incremental Cost Analysis shown in Annex 15 is clear and appears to be correct\. Response: The incremental cost of mitigation (GEF investment per tonne of CO2 emissions reduction) considering only the direct benefits from EE R&M Financing Component has been revised and is now estimated to be about $10\.27 per tonne CO2 over the remaining useful life of existing generation unit (7-10 years for different units)\. The incremental cost of mitigation for the direct and indirect benefits taken together, using the standard GEF methodology, is found to be $3\.08 per tonne, which is quite cost effective compared to many alternative mitigation options\. The revised incremental cost analysis is presented in Annex- 17 of the PAD\. The key change in the analysis is the more accurate assessment of Baseline scenario (without GEF intervention) and calculation of incremental cost and emission reductions as per the GEF methodology\. The team would like to point out that during the course of project preparation (since May 2006), it was seen that due to barriers to EE R&M, there has been little movement on initiation of new R&M activities for generation units outside the IBRD-GEF and KfW projects, despite a large target for R&M during the XI plan period (2007-12)\. Therefore, the baseline case for estimation of incremental cost of mitigation is taken as No R&M (old generation units continue to run with poor heat rates and therefore high emissions), rather than Usual R&M (without focus on Energy Efficiency) as taken at the Work Program submission stage\. 7\. Comment: The project fits very well within the context of GEF goals, specifically through its Operational Program 5: Removal of Barriers to Energy Efficiency and Energy Conservation\. The project also incorporates strategic priorities CC-2 (Increased access to local sources of financing for renewable energy and energy efficiency) and CC-3 (Power sector policy frameworks supportive of renewable energy and energy efficiency)\. Response: The team agrees with the observation\. 8\. Comment: As regards replicability of the project, the experience to be gained through the project should be very valuable to other power plant owners and operators in various Indian states\. The total estimated market of the Partnership for Excellence program is stated to be 158  3960 MW, showing that there is at least a five-fold potential for replication\. As regards sustainability of the project, energy efficiency improvements in coal-fired power plant R&M, is shown to be reasonably cost effective\. Response: The team agrees with the observation\. 9\. Comment: As regards linkages to other focal areas, the type of project activity would have no significant adverse effect on other GEF focal areas or in land degradation\. Response: The team agrees with the above observation\. 10\. Comment: As regards other programs at the regional/sub-regional levels, there are no prior GEF programs involving energy efficiency improvements in electric power generation in India\. There have been two projects involving end-use efficiency improvements that are not relevant to the proposed project\. Since India is a region by itself, no linkage to other GEF programs in sub-continent is required for the success of the proposed project\. Response: The team agrees with the above observation\. 11\. Comment: The Clean Development Mechanism is another source of technology transfer for climate change mitigation projects\. There are no registered CDM projects so far involving energy efficiency improvements in coal-fired power plants in India or anywhere else\. Indeed there are no approved baseline and monitoring methodologies (so far) that would allow such projects to be registered under the CDM\. The only methodology for power plant efficiency improvements is ACM007: Conversion from single cycle to combined cycle power generation, applicable to natural gas power plants\. Indeed, CDM favors other types of projects, and is unlikely to be a major source of financing for the type of activities covered by the proposed project\. Thus GEF support is highly relevant\. Response: The team agrees with the above observation\. 12\. Comment: There is another project with very similar objectives to the proposed project\. This is the so-called "Efficient Power Generation (Greenhouse Gas Pollution Prevention [GEP] Project)" supported by a $12 million grant from USAID, plus supplementary funding from Indian sources\. The project is administered by the Centre for Power Efficiency and Environmental Protection (CENPEEP) of NTPC\. The objectives are similar to Component 1 of the proposed GEF project\. Though the potential beneficiaries of the proposed project are state power utilities, a great deal can be learned from the experience of CENPEEP GEP project and should be incorporated into the design of the implementation program for the proposed project\. Note that there is no mention of CENPEEP in the current version of the GEF project brief\. Response: The Bank team has held discussions with USAID and CENPEEP and the lessons from the GEP project are reflected in the Project document\. The GEP project aimed at improving efficiency and heat rate of coal-fired generation primarily through use of advanced instrumentation for optimizing operations and maintenance (O&M) practices\. However, use of the techniques and practices promoted by CENPEEP require generation plants to have a minimum O&M performance level and an energy efficiency orientation\. The IBRD/GEF project targets poor performing plants where the performance needs to be improved to a basic 159  minimum level with capital investment and capacity building before advanced optimization for energy efficiency can be used\. It is planned to leverage CENPEEP expertise (or similar expertise available with other agencies) during the implementation of O&M Action Plan for the three utilities\. 13\. Comment: As regards other beneficial or damaging environmental effects, the project should have no damaging environmental effects\. Indeed, local air pollution should decrease as a result of cleaner combustion or better treatment of exhaust gases from the power plants\. Response: The team agrees with the above observation\. 14\. Comment: As regards degree of involvement of stakeholders in the project, particularly with the objective of addressing barriers to energy efficiency improvements in power plant renovation and modernization, getting input from state power companies and other intended beneficiaries would be an important part of learning how to break down the barriers identified\. In this regard, a survey of the perceptions of potential beneficiaries as part of the "Technical and Policy studies", conducted early in the project would help improve the implementation plan\. Response: A substantial amount of consultation has been carried out with various sector stakeholders including Central Electricity Authority, NTPC, central and state regulatory commissions, state generation utilities, consultants, and equipment manufacturers which has now been reflected in the Project Appraisal Document\. Extensive interaction has also taken place with GOI, CEA, NTPC, state generators and the Bank on the barriers affecting R&M in India\. A two day workshop involving state level generators, NTPC, GOI and state governments was conducted by the Bank in September 2005 to identify barriers to R&M in India and possible ways to address barriers\. Subsequently, workshops have also been organized by Eco-Asia-USAID and KfW (in collaboration with the Bank team) where specific challenges affecting R&M projects were discussed\. Strategies to address barriers are discussed in the PAD in Annexure-4 and Annexure-15 of the PAD\. 15\. Comment: One of the generic barriers to energy conservation and efficiency is lack of trained personnel and technical and managerial expertise\. The proposed technical assistance and capacity building component is an important aspect of the project and the brief description of this component in Annex 4 appears to be adequate\. Response: The team agrees with the above observation\. Also, by the appraisal stage, the technical assistance component has been further strengthened and defined more clearly\. It now includes (i) support for R&M design and safeguard studies for pilot interventions (640 MW)and pipeline interventions (840 MW), (ii) implementation support and quality assurance consultancies for pilot interventions; (iii) support through the Central Electricity Authority (CEA) for addressing barriers to energy efficient R&M; and (iv) strengthening capacities in implementing utilities as well as the CEA\. In addition, several R&M preparation studies, barrier reduction studies and sector dialogue are already underway (or completed)\. These include R&M Design studies for Unit-5 Bandel and Unit-6 Koradi; Study of Regulatory Aspects of R&M; and Study of Operations and Maintenance practices at Bandel and Koradi Power Plants\. 160  IBRD 36158 INDIA COAL-FIRED GENERATION REHABILITATION PROJECT NEPAL DARJILINGJALPAIGURI Chandigarh PANCHKULA KOCH BIHAR HARYANA UTTAR DINAJPUR AMBALA YAMUNA- NAGAR WEST DAKSHIN DINAJPUR KURUKSHETRA BENGAL MALDAH KAITHAL KARNAL SIRSA FATEHABAD JIND Panipat BANGLADESH Power Plant MURSHI- PANIPAT DABAD HISAR BIRBHUM SONIPAT NADIA ROHTAK Bandel PURULIYA BARDDHAMAN Power Plant BANKURA BHIWANI Tribeni NORTH JHAJJAR HOOGHLY 24-PARGANAS KOLKATTA 0 25 50 Kilometers Kolkata SOUTH 24- 0 25 50 Miles MAHENDR HAORA REWARI MEDINIPUR PARGANAS HRAGA GURGAON FARIDABAD 0 50 100 Kilometers 0 50 100 Miles MAHARASHTRA NANDURBAR BHANDARA GONDIA NAGPUR DHULE AMRAVATI JALGAON WARDHA Koradi Power Plant AKOLA NASHIK BULDHANA WASHIM YAVATMAL CHANDRA- AURAN- PUR GABAD HINGOLI THANE JALNA Mumbai AHMADNAGAR PARBHANI GADHCHIROLI RAIGARH BEED NANDED PUNE POWER PLANTS LATUR STATE CAPITALS RATNAGIRI DISTRICT BOUNDARIES SATARA SOLAPUR DHARASHIV STATE BOUNDARIES SANGLI INTERNATIONAL BOUNDARIES KOLHAPUR SINDHUDURG 0 50 100 Kilometers 0 50 100 Miles This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. MAY 2008

APPROVAL

P121060

 ICRR 14585 Report Number : ICRR14585 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/18/2015 Country : Mozambique Project ID : P121060 Appraisal Actual Project Name : Health Commodity US$M ): Project Costs (US$M): 39\.0 38\.16 Security Project L/C Number : Loan/ US$M ): Loan /Credit (US$M): 39\.0 38\.16 Sector Board : Health, Nutrition and US$M): Cofinancing (US$M ): Population Cofinanciers : Board Approval Date : 09/30/2010 Closing Date : 12/31/2012 06/30/2014 Sector (s): Health (100%) Theme (s): Malaria (35%); HIV/AIDS (30%); Population and reproductive health (20%); Health system performance (10%); Child health (5%) Prepared by : Reviewed by : ICR Review Group : Coordinator : Judyth L\. Twigg Susan Ann Caceres Lourdes N\. Pagaran IEGPS2 2\. Project Objectives and Components: a\. Objectives: According to the Financing Agreement (p\. 4) and the Project Appraisal Document (PAD, p\. 4), the project’s objective was “to improve the availability of selected drugs and medical supplies in Key Distribution Points in the Recipient’s territory\.â€? b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project contained two components : 1\. Provision of essential health commodities (appraisal: US$ 34\.5 million; actual: US$ 31\.9 million)\. This component was to finance the procurement of selected essential commodities (most through United Nations agencies) to prevent and treat HIV/AIDS (antiretroviral medications [ARVs] and diagnostic kits), malaria (long-lasting insecticide-treated bed nets [LLINs]), and tuberculosis (drugs and reagents), and to promote reproductive and child health (contraceptives and vaccines )\. This component was also to finance operating costs associated with the distribution of commodities \. 2\. Strengthening supply chain management (appraisal: US$ 4\.5 million; actual, US$ 6\.1 million)\. This component was to finance the strengthening of several activities identified in the country ’s Logistics Master Plan, specifically the distribution system between the central, provincial, and district warehouses, by providing essential inputs: (i) trucks to deliver commodities from provincial warehouses to district warehouses; (ii) technical assistance to prepare and implement fleet management plans; and (iii) distribution costs from the port to district warehouse\. This component was also to finance computer hardware for expanding the logistics management system nationwide, and project management costs (including operating costs and audit services )\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost: Total project costs were slightly less than planned, with more spent on the second component and less on the first component than planned at appraisal \. The project team later explained that the underspending on the first component was due to a decision to have the Global Fund purchase drugs to treat tuberculosis, and also because of lower than anticipated costs for other drug procurements; the second component encountered higher costs than expected for materials handling equipment (forklifts, etc\.), and for consultants who provided coordination support\. More than 60% of funds were disbursed by December 2011, essentially for the initial large commodities procurement contracts \. Financing: The project was financed by an SDR 25\.7 million (US$ 39\.0 million) IDA credit through the Crisis Response Window\. US$ 38\.16 million was disbursed, with US$ 1\.62 million equivalent remaining\. US$ 1\.83 million in payment for vehicles was found to have been made after project closing and therefore was declared an ineligible expenditure and refunded to the Bank (according to a letter dated November 25, 2014 from the Country Director to the Minister of Planning and Development )\. Borrower Contribution: No Recipient contribution was planned or made \. Dates: The project’s closing date was extended twice : first in October 2012 from December 31, 2012 to December 31, 2013, to allow for savings realized on the initial purchase of commodities to be used flexibly for additional procurements throughout 2012 and 2013; and again in December 2013 from December 31, 2013 to June 30, 2014, to allow for additional purchases and deliveries \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. High \. Although Mozambique had made significant gains in health indicators in the decade before project appraisal, the global financial crisis seriously impacted the country ’s ability to finance health care \. Government spending for health declined from 15% of the total budget in 2003 to 7\.8% in 2011\. The country’s Common Fund, financed by 15 development partners and critical for purchase of essential public health commodities, was dwindling, with donor support for pharmaceutical supplies dropping by 38% between 2008 and 2009\. The objective was therefore highly relevant to country conditions \. It was also highly relevant to Government strategy, including the National Integrated Plan (2009-2012) to achieve the Millennium Development Goals for maternal and child mortality and the reduction of HIV, malaria, and other diseases, and the Absolute Poverty Reduction Plan of Action (2006-2009), which focused on poverty reduction for vulnerable groups most dependent on the public sector for access to health services and most likely to suffer from the effects of epidemics (ICR, p\. 10)\. Finally, the objective was highly relevant to the Bank ’s current Country Partnership Strategy (2012-2015), which focuses on provision of health services for the vulnerable as a primary element of its second pillar on vulnerability and resilience (CPS, p\. 2), and to the Crisis Response Window \. b\. Relevance of Design: Modest \. The project’s planned activities related to maintaining supplies of key commodities were logically and plausibly linked to achievement of its objective, but there were shortcomings in the results framework related to strengthening the supply chain \. The project design underestimated the challenges of combining an emergency response component and a systems strengthening component (ICR, p\. 19)\. The number, scope, and responsibility for planned procurements were appropriately limited (three procurement contracts under the first component, and two International Competitive Bidding processes under the second component )\. The design was specific about which drugs and medical supplies would be procured, and where they would be made available\. Supply chain management activities, given the project ’s limited time frame, included only those in the 2010 Pharmaceutical Logistics Master Plan that other partners were not financing \. However, the complexity of institutional arrangements was underestimated in several respects : the protracted nature of negotiations with UN agencies to carry out major procurements; the requirement by the Bank ’s Regional Procurement Management Team to justify agreed -on procurements; the requirement that the Administrative Tribunal review procurements; and the integration of project management within the Ministry of Health\. Design was ambitious and overly complex for the project's two -year time frame; in particular, the project ’ s time frame was not sufficient for development of necessary capacity for the Central Medical Stores (CMAM) to oversee effective procurement and distribution \. 4\. Achievement of Objectives (Efficacy): Improve the availability of selected drugs and medical supplies in Key Distribution Points is rated Substantial \. Outputs : The project financed the purchase of 3\.3 million HIV/AIDS diagnostic test kits, 87\.5 million treatment doses of antiretroviral medications (ARVs), 4\.5 million cycles of contraceptive pills, 570,000 units of injectable contraception (Depo Provera), 82,600 packs of long-term contraceptives (Jadelle), 2\.4 million doses of measles vaccine, 8\.1 million syringes, 631,000 diagnostic test kits and reagents for tuberculosis, and drugs for 600,000 tuberculosis treatments\. The project also financed warehouse renovations, the purchase of vehicles and forklifts, the installation of fire extinguishers, recruitment of temporary workers, and operational costs \. The project contributed to logistics management through the purchase of computers, office equipment, and registers, and support for operating costs \. The number of districts using a computerized Logistics Management Information System (LMIS) increased from 5 to 121 (of 150 total districts in the country ), exceeding the target of 75\. Of these, 44 were equipped solely as a result of the project \. A national fleet management plan was partially completed \. Training on the concepts of fleet management was initiated\. However, the conduct of a fleet management assessment and development of a fleet management plan was not completed due to the Ministry of Health ’s decision to instead implement a technology solution (installation of a CARTRAK system to monitor usage and other metrics related to transport) rather than introducing broader changes in transportation policy and management \. Outcomes : The percentage of ARVs ordered that were delivered to health facilities at 250 service delivery points increased from 94\.5% in 2011 to 98\.6% in 2012 and 100% in 2013 and 2014\. Both the baseline and target were 85%\. According to the project team and the PAD, the baseline and target were identical as the project's purpose was to maintain pre -2008 levels of service despite the financial crisis; however, the project's objective was to improve the availability of supplies\. The annual number of persons tested for HIV increased from 2\.6 million in 2010 to 4\.7 million in 2013\. 129,405 adults and children living with HIV received ARVs, exceeding the target of 25,735\. This target was overachieved because of a decision to use project funds to finance only first -line treatment rather than the full continuum of care (which potentially includes second - and third-line treatment), and because of UNICEF’s highly effective sourcing of ARVs, which allowed purchasing of a one -month supply for US$ 9\.70 rather than the US$ 28\.00 that other bulk purchasers were paying at the time \. The project was responsible for 31% of all ARV treatment in the country in 2012, at a point when the percentage of those in need who actually received treatment had been declining (from 52\.4% in 2010 to 45\.5% in 2011 and 41\.0% in 2012), suggesting that the shortfall would have been even greater in the absence of the project \. Since 2012, the percentage of those in need who receive treatment has rebounded, to 61\.3% by 2014\. The percentage of injectable contraceptives ordered that were delivered to provinces (in ten provinces) increased from 59\.7% in 2011 to 90\.4% in 2012, 100% in 2013, and 97\.2% at project closing\. The baseline and target were both 75%; again, the project team and PAD explain that the target was set to maintain pre-2008 levels of service despite the financial crisis \. 2\.215 million LLIN malaria nets were purchased; 2\.211 million were received; 2\.13 million were planned for distribution; and 1\.937 million were actually distributed, with distribution concentrated in the four provinces with the highest malaria prevalence rates \. This exceeded the target of 1\.7 million\. Those nets not yet distributed during the project’s lifetime are planned for distribution in 2015\. The project provided 26% of all measles vaccine and 100% of syringes in the country in 2011, suggesting that the project filled significant procurement gaps \. 6\.662 million persons were direct project beneficiaries, exceeding the target of 6 million\. 56% of these beneficiaries were female, almost meeting the target of 58%\. Overall, the percentage of orders for drugs and other commodities received by the project according to contractually agreed delivery schedules increased from 25% in 2011 to 61\.5% in 2012 and 31\.3% in 2013\. No target was set for this indicator, but the ICR (p\. 24) states that this was “far betterâ€? performance than that of the Government\. The decline in 2013 is due to the main procurements under the project having arrived during its first two years (2011 and 2012)\. 5\. Efficiency: Modest \.  A detailed economic and financial analysis was not prepared at appraisal, and the ICR does not provide a traditional economic or cost-benefit analysis\. The project emphasized control of infectious disease, which has a disproportionate impact on the poor, and selected commodities both most at risk of stock -outs and most necessary for achievement of the three health -related Millennium Development Goals\. The use of the UN agencies for procurement took advantage of their competitive processes, knowledge of the market, and long-term agreements with suppliers\. Costs of commodities procured through the UN agencies were almost uniformly less than those estimated in the PAD and those paid by other donors, particularly for the UNICEF sourcing of ARVs (ICR, p\. 34)\. Careful estimates of required quantities and planned deliveries of commodities were made to decrease the probability of stock -outs or leakages, and the number of months of stock was kept within recommended levels to keep the supply pipeline appropriately full (ICR, p\. 25)\. However, there were shortcomings \. Delays resulted from “lengthy and complicatedâ€? Bank and Government procurement procedures and from slower -than-anticipated progress in strengthening supply chain management; the ICR mission found that some stakeholders “complained that Bank procedures made it difficult to be agile during the emergencyâ€? (ICR, p\. 27)\. The project also experienced inefficiencies because of the decision to implement activities through existing Ministry of Health administrative structures, rather than creating a freestanding project implementation unit \. Leadership changes within the Ministry, as well as “constantâ€? staff turnover in departments responsible for project implementation (ICR, p\. 15), contributed to insufficient familiarity with Bank procedures\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance of objectives is rated High, as the project ’s objective was highly relevant to country conditions at the time of appraisal, Government strategy, and Bank strategy \. Relevance of design is rated Modest due to underestimation of the complexity of institutional arrangements and an insufficient project time frame to conduct necessary capacity building for CMAM \. Achievement of the project’s objective to improve the availability of selected drugs and medical supplies is rated Substantial, with the project meeting virtually all outcome targets and filing key gaps in essential commodities distribution \. Efficiency is rated Modest due to delays stemming from staff turnover, implementation challenges, and weaknesses in procurement \. Taken together, these ratings are indicative of moderate shortcomings in the project ’s preparation and implementation, and therefore an Outcome rating of Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Politically, the importance of commodity availability and distribution is clearly understood and prioritized by the Government\. Structures, tools, and processes developed under the project continue to be used \. Development partners have also continued to identify commodity availability as a priority, and a new Bank -financed Public Financial Management for Results Project (US$ 50 million, 2014-2018) will support strengthening the efficiency and transparency of supply chain management \. A Pharmaceutical Logistic Strategic Plan (2013-2017) and Supply Chain Logistics Plan of Action (2013) are currently in place to further strengthen supply chain management\. CMAM has been elevated to a national directorate, which means it now receives and executes its budget directly through the Government ’s administrative and financing system \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: a\. Quality at entry: The project was among the first to be processed under the IDA Crisis Response Window as a stand -alone project (rather than an additional financing operation )\. It qualified for express processing and was prepared quickly, with concept review in May 2010, appraisal in June 2010, and approval in September 2010\. Risk assessment focused on the risks and benefits of various commodity procurement options and Government systems-related risks (PAD, p\. 9)\. However, the institutional arrangements for project implementation were inadequately assessed, and there were overly optimistic expectations for short -term strengthening of supply chain management\. M&E included some key target values equal to baseline values, even though the project's objective was to improve the supply of commodities \. at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: There was continuity of the task team, a permanent in -country presence, and candid communication with the Government about project performance \. The Bank team appropriately extended the project when necessary\. Supervision missions closely monitored drug stocks to check for expired products, promoted coordination among partners, and strengthened information systems required to monitor project performance\. However, procurement and financial management issues persisted throughout most of the project’s lifetime, resulting in ineligible expenditures (see Section 11b)\. Also, some key outcome targets were not adjusted to values higher than baseline \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government was committed to making essential commodities available during the economic crisis, and it worked closely with development partners through the technical working group on pharmaceuticals \. It developed the Pharmaceutical Logistics Master Plan and other policy reforms key to the procurement and distribution of drugs and medical supplies \. It was willing to use the UN agencies for procurement of commodities, and it supported the development of supply chain management improvements (an area often neglected by governments)(ICR, p\. 28)\. However, high staff turnover at the Ministry of Health negatively impacted project efficiency\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The project was implemented by the Ministry of Health, with the Directorate of Planning and Cooperation responsible for overall coordination, monitoring, and reporting \. Because of implementation risks identified during preparation, procurement of commodities was contracted to UNICEF and UNFPA \. According to the ICR (p\. 28), the coordinated effort of CMAM and other partners can be considered best practice in overcoming challenges of fragmented acquisitions to create and manage a functioning and effective supply chain\. However, procurement and financial management challenges were considerable (see Section 11), with issues not resolved until mid -2013\. Systematic public procurement issues (that impacted the entire Bank portfolio in the country) negatively impacted project efficiency \. In addition, a project completion report was not prepared\. Implementing Agency Performance Rating : Moderately Unsatisfactory  Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The project relied on existing M&E systems, given the availability of suitable indicators in the Ministry of Health ’s routine data collection\. The PAD contained a clear description of proposed indicators (some of which were not easily understood by non -specialists)\. Targets, methods for calculating results, data sources, and institutional responsibilities for collecting and analyzing data were clearly specified \. Targets for two key outcome indicators were set at or below baseline; although the project team and the PAD explain that the project's aim was to maintain pre-crisis service levels, the project's objective was to improve the availability of supplies\. b\. M&E Implementation: CMAM’s capacity to analyze data was weaker than initially assessed, and some indicators (fill rates and lead-time variability), though industry standards, were rendered meaningless by continual amendments to supply plans and procurement schedules \. Beginning in 2012, the Bank began to provide additional support to the Ministry on data analysis\. Additionally, the project supported the roll -out of a medical supply management information system\. Targets for two key outcome indicators were not updated to values above baseline \. c\. M&E Utilization: Information provided by CMAM on the supply pipeline contributed to flexibility in organizing the arrival of procurement orders to reduce the risk of stock -outs and facilitated a coordinated response by stakeholders \. The Government is now using the project ’s indicators on supply chain management on a quarterly basis to determine the state of supply chain performance \. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: The project was originally rated Category “B,â€? but was re-categorized as “Câ€? at appraisal as it did not involve construction or service delivery \. A satisfactory healthcare waste management plan had already been developed for the Health Services Delivery Project \. However, in April 2011, large quantities of drugs in the CMAM central warehouse were found to be expired or very close to expiration (all purchased with funding from other donors ), and as a result, expiration became an issue \. Project implementation responded by staggering the delivery of goods to manage the volume entering the supply chain at any given time, and improving stock monitoring to increase the visibility of the inventory (ICR, pp\. 16-17)\. Project supervision missions closely monitored the state of drug stocks, and no expired products were financed by the project \. b\. Fiduciary Compliance: Procurement packages were split between large -scale procurements included in the Bank -approved procurement plan and smaller-scale procurements included in the Ministry of Health ’s Treasury Plan\. There were delays in the large-scale procurements, due primarily to the Bank ’s requirement that each order receive a non-objection and the UN agencies ’ and Ministry of Health’s questions about why this was necessary \. Despite these difficulties, major procurements were completed by early 2012\. The Treasury-financed procurement plan also experienced delays due to insufficient procurement capacity in the Ministry of Health ’s Procurement Management and Implementation Unit (UGEA)\. The Ministry addressed some of these capacity issues by hiring a professional procurement consultant in 2012, and performance improved toward the end of the project ’s lifetime\. During the last year of the project, a US$ 3 million procurement of 80 vehicles to strengthen distribution  to health facilities encountered approval difficulties, and some vehicle purchases were declared ineligible expenditures (ICR, p\. 18)\. According to a letter dated November 25, 2014 from the Country Director to the Minister of Planning and Development, US$ 1\.83 million in payment for vehicles was found to have been made after project closing and therefore was declared an ineligible expenditure and refunded to the Bank \. Financial management challenges resulted in a recommendation by a December 2011 supervision mission that the project engage a financial management advisor \. In June 2012, a supervision mission found that financial management arrangements still were not satisfactory, and the recommended advisor had not been hired \. The December 2012 audit report identified ineligible expenditures that were refunded to the project designated account, and additional problems were identified by the June 2013 support mission, including weaknesses in the system of internal control and non -compliance with key internal control procedures \. The Ministry of Health then recruited additional staff and implemented a financial management action plan, resulting in a timely and unqualified 2013 audit report\. c\. Unintended Impacts (positive or negative): None reported\. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons are derived from the ICR (pp\. 29-30): An emergency project does not necessarily benefit from the existence and implementation structures of an ongoing operation\. This project’s reliance on the Ministry of Health and the Health Service Delivery Project ’s experience for implementation arrangements created constraints that might have been avoided with a more careful consideration of the special needs of an emergency project \. Bank policies and procedures are not always aligned with the need to respond rapidly to emergencies \. In this case, subjecting agreed-upon UN procurement procedures to further review by the Bank ’s procurement services created delays and frustration \. Commercial sector supply chain indicators are not necessarily appropriate for the public sector \. In this case, indicators for fill rates and lead -time variability, introduced in an attempt to replicate the rigor of private sector supply chain management, had to be dropped because of the different way in which the public sector assesses risk\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is clear, concise, and evidence -based\. It provides an efficient yet complete narrative of the project ’s goals, implementation experience, achievements, and challenges \. Its lessons are usefully derived from the project’s preparation and implementation experience and will be illustrative for future projects \. The ICR does not follow guidelines, however, in rating the project by component rather than by objectives \. a\.Quality of ICR Rating : Satisfactory

APPROVAL

P005009

APPROVAL

P169332

 The World Bank Productive & Resilient Intermediate Cities (P169332) Project Information Document (PID) Concept Stage | Date Prepared/Updated: 27-Feb-2019 | Report No: PIDC26121 Feb 25, 2019 Page 1 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) BASIC INFORMATION A\. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Mauritania P169332 Productive & Resilient Intermediate Cities (P169332) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA Jan 06, 2020 Feb 20, 2020 Social, Urban, Rural and Resilience Global Practice Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Islamic Republic of Cellule du PNIDDLE Mauritania Proposed Development Objective(s) The development objectives of this operation are: (i) to improve access to services for the population and the private sector in selected areas; and (ii) to improve the capacity of local government in the areas of planning and municipal management\. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 50\.00 Total Financing 50\.00 of which IBRD/IDA 50\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 50\.00 IDA Grant 50\.00 Environmental and Social Risk Classification Concept Review Decision Feb 25, 2019 Page 2 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) Substantial Track II-The review did authorize the preparation to continue B\. Introduction and Context 1\. Following a prolonged period of political instability, Mauritania has experienced, a relative stability over the last 11 years\. This has resulted in accelerated economic growth with an average real GDP increase of 3\.5% in 2017\. Economic growth was mainly driven by the extractive and mining industry, the construction sector, fishery, transports, and communications, as well as the provision of services1\. The underlying driver of growth was the increase in iron, gold, and copper prices on the international market, as well as significant government investment in public infrastructure\. 2\. The positive economic outcomes resulting from the commodity boom contributed to a decrease in the national poverty rate\. Between 2008 and 2014, the poverty rate dropped from 44\.5% to 33%2 With the rural population benefitting most from this improvement\. Indeed, most of the poor in Mauritania are located in rural areas (44\.4% of the population lives in rural area while 16% live in urban area) and, during the last decade, the majority of the rural poor increased their share of household expenditures\. The south of Mauritania, notably the regions of Brakna, Hodh El Gharbi and Gorgol were the most successful in terms of poverty reduction\. 3\. Despite the socio-economic performance of the past decade, poverty still remains at the forefront of the challenges faced by Mauritania, with a higher incidence in the “triangle of hope3â€? and the Wilayas areas in the east along the Malian border4\. Furthermore, the higher concentration of job opportunities in urban areas contributes to an uneven geographical distribution of the job market\. Despite the creation of work opportunities in the mining and extractive, agro-business and public administration sectors, the unemployment rate is still high with 30-31% of the population being currently unemployed5\. Challenges associated with unemployment are higher in urban areas (17\.2%) compared to rural areas (6\.9%)\. Furthermore, 27\.4% of youth in urban areas who are willing to work are more likely to face obstacles, when compared to 11\.3% in rural areas\. Finally, access to job opportunities in urban areas is unequal across genders with 24\.8% of women facing challenges to find meaningful work compared with 13\.7% of men\. 4\. The country is particularly vulnerable to Climate Change\. Mauritania is exposed to recurrent droughts, floods, and coastal erosion\. The livelihoods and food security of most of the poor living in these towns are jeopardized by encroaching desertification, rising temperatures, increasing scarcity of water and flash flooding, drought, and erosion of soil and arable land\. The poorest populations of Mauritania, especially those living in the South and East of the country are the most vulnerable to natural (drought) and man-made shocks (influx of refugees from Mali to the Hodh el Chargui)\. This part of the country is considered fragile and subject to climate fluctuations and correspondingly variable amounts of precipitation\. 1 SCAPP 2016-2030, volume 2 2 Mauritania’s Country’s Partnership Framework\. 3 The triangle of hope comprises the wilayas of Guidimanga Assaba and Gorgol 4 Hodh el Chargui and Hodh el Gharbi where access to education is lower compared to the other regions of the country; unemployment rate is the highest; food insecurity is at an all-time high\. 5 Mauritania’s Country’s Partnership Framework\. Feb 25, 2019 Page 3 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) Sectoral and Institutional Context 5\. The Population of Mauritania has experienced a rapid urbanization has not translated into a corresponding increase in per capita GDP in urban areas\. This is partly explained by a long-term transition from a nomadic to a sedentary lifestyle; until the late 1960’s, Mauritania’s population was mostly nomadic and pastoral, and urbanization was very minimal\. Since that time, the nomadic lifestyle has slowly disappeared, partly due to recurring droughts, resulting in massive migration to urban centers\. Rapid population growth also played a decisive factor in the variation of the urbanization rate of Mauritania\. In 2013, the country’s population, estimated at 3 million habitants, more than doubled compared to its 1977 level with a corresponding increase in the urbanization rate between 1977 and 2017 from 22\.7% to 53% respectively\. 6 6\. The growth rate of urbanization is uneven across Mauritanian cities \. Nouakchott (1 million inhabitants) and Nouadhibou (120,000 inhabitants) located along the Mauritanian coast share the main bulk of the country’s urban expansion\. In addition to Nouakchott and Nouadhibou, Mauritania has at least 20 cities of 10,000 to 60,000 habitants located mostly in the South of the country where the population density is the higher\. Among them, the most important are Kiffa, Rosso, and Kaedi in the South and Zouerate in the North which include around 11 % of the total population\. The uneven urbanization rate in Mauritania is an impediment to the socio-economic development of the intermediate cities7, whose role in sustaining the economic development of the country is crucial, but still limited due to uneven flows of socio-economic and natural wealth\. Urban planning and poor quality of service provision also hamper local economic growth\. Map 1: Mauritania Population Cartogram 6 Ministère de l’Economie et des Finances, SCAPP 2016-2030 Diagnostic, 2016\. 7 intermediate cities are defined as cities with a population ranging from 25,000 habitants to 75,000 inhabitants Feb 25, 2019 Page 4 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) 7\. Access to essential services in Mauritania is uneven across space\. Communes that are predominantly urban show higher access figures across all types of services, and highest access is in Nouakchott and Nouadhibou, where the urban population concentrates\. On average, population access to primary education (63\.5%) and drinking water supply (62\.1%) is relatively high, as is access to telephony (66\.4%)\. Yet, connectivity is poor -- on average only 42\.6 % have access to public transportation and this figure is insignificant in areas outside of Nouakchott and Nouadhibou – and electrification in urban (36\.9%) and rural areas (2\.7%) are abysmal, even compared to other countries in Sub-Saharan Africa\. Low penetration of postal, banking, police and justice services (between around 10 and 20 percent) are a reflection of low technical capacity of local Map 2: Share of households with access to services in communes (RGPH governments to step into assuming these roles, as well 2013) as shortage of funding by national government\.8 8\. These cities have garnered few of the agglomeration effects typically associated with the urbanization process, especially in terms of job creation and economic development\. Poverty reduction and youth employment remain deeply intertwined in Mauritania\. Mauritania’s job-related challenge is characterized by a low-growth macroeconomic context, high reliance on minerals and extractives, and marked poverty and social exclusion\. In terms of employment, the unemployment rate is largely an urban phenomenon with 17\.2% in urban areas, especially in Nouakchott and Nouadhibou, compared to 6\.9% in rural areas\. However, jobs in rural are mostly subsistence activities associated with the higher level of poverties experienced in the regions where subsistence agriculture and livestock are the main economic domains\. Youth (15–24 years old), comprising over 40 percent of the population as of 2014, are even more exposed to unemployment and are particularly vulnerable to high social exclusion\. 9\. The South of Mauritania, along the Southern border with Senegal and Mali, from Rosso at the Western side to Néma and Adel Begrou at the Eastern side, offers rich resources and geographic opportunities for the economic development of the country\. Still the impact on the local economy - in terms of private sector development, job creation, and poverty reduction - is limited\. To better understand current constrains, and the potential of the Southern towns to attract population and create jobs and the benefit of urbanization\. the Bank is currently conducting a growth study that will analyze urbanization as a pillar of economic growth and an analytical work on economic potential of south Mauritania\. Some ongoing critical investments for increasing domestic and regional connectivity and for improving access to electricity and water in these towns could create a new dynamic for the development of the private sector and population mobility and help these towns to grow into more vibrant secondary cities that would provide better livelihoods and living standards for its people and ultimately contribute to poverty reduction\. 8 Stratégie Nationale de Croissance Accélérée et de Prospérité Partagée (SCAPP) 2016 – 2030\. Feb 25, 2019 Page 5 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) 10\. To improve the socio-economic conditions of those regions outside Nouakchott and Nouadhibou, the government of Mauritania has emphasized an approach to local development and engaged in a decentralization process as described in the national development strategy “Strategy for Accelerated Growth and Shared prosperity 2016 -2030â€? (Stratégie de Croissance Accélérée et de Prospérité Partagée, SCAPP)\. The SCAPP aims for towns outside of Nouakchott and Nouadhibou to strengthen local governance as the basis for improved planning and local management\. Local governments are considered to be best positioned to identify the needs of the population and the economic actors and be more diligent to respond to those needs for their benefit\. As such, communes created in the 80’s have been mandated to deliver basic services in sectors such as health and education and to a lesser degree in the areas of agriculture and the management of hydraulic resources\. In January 2018, the Government of Mauritania created 15 Regions (at the level of the Wilayas) through the adoption of the Organic Law on that was pending for nearly 27 years\. But the effective establishment of these new entities, to make them effective institutions capable to accomplish their mission of territorial development remains to be seen\. 11\. Decentralization takes time and despite policy commitments to move towards decentralization, Mauritania remains a centralized country where more needs to be done\. With a territory of over 1,030,000 sq\. km, decentralization is undoubtedly a low hanging fruit for local development in the country\. Many municipal elections held since 1992 have not resulted in an effective transfer of competences and resources to local governments\. In reality, the communes still rely heavily on the government with respect to infrastructures and services, that keep being provided by sector ministries\. The first meaningful move towards decentralization was the launch of the Local Government Development Project (Projet d’Appui au Programme National Intégré pour la Décentralisation, le Développement Local et l’Emploi - PNIDDLE) in 2014 with US$25 million IDA financing combined with US$50 million from the government, to support the development of 100 Mauritanian municipalities through financing of municipal infrastructures and capacity building\. It was the first effort to operationalize the decentralization framework by making communes manage entirely their allocations, from planning to execution, and introduced an innovative approach based on performance\. 12\. Communes are not able to operate at the optimal level because of the lack of financial and human resources and the failure to adequately receive the necessary allocations needed to sustain local socio-economic growth\. Created in 1980, the Regional Development Fund (Fond Régional de Développement - FRD) has provided minimal resources to the communes\. In 2017, it represented 0\.7% of the Budget (at UM3\.5 million); while adding PNIDDLE allocations (about US$20 million IDA and US$30 million from the Government over 5 years) the total transfers from the national Budget reached about UM6\.2 million\. Considering the low level of own-source revenues9, the budgets of communes highly depend on those transfers (at 84%), except for Nouakchott and Nouadhibou, but still remain extremely limited with less than USD0\.06 per inhabitant\. In order to improve the role of communes in their overall planning and management, more remain to be accomplished on the front of tax revenues, financial management, citizen engagement and consultation, and procurement\. 13\. In 2018, the Government of Mauritania prepared a National Strategy for Decentralization and Local Development (SNDDL)\. The strategy builds on past experience and seeks to identify operationalizable steps to support decentralization onward\. This timely initiative capitalizes the fifteen-year experience of decentralization focused on 9 There was an increase of own-source revenues doubling from 2014 to 2015, at a level that was maintained in 2016, which could be explained by the performance framework of the PNIDDLE\. Feb 25, 2019 Page 6 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) capacity building and repositions decentralization and local development in the context of regionalization\. The launch of the SNDDL is a major step as to provide a concerted and harmonized framework for all intervention and initiatives related to decentralization and territorial development\. Relationship to CPF 14\. This operation is in line with the FY2018-2023 Country Partnership Strategy (CPS) for Mauritania approved by the World Bank Board of Directors in July 2018, in particular, Pillar 1 on accelerating inclusive growth and creating employment and Pillar 2 on improving service delivery\. On pillar 1, the project will support the decentralization process and contribute to accelerate inclusive growth by helping promote the development of productive cities and adjacent territories in the context of decentralization and create conducive environment to attract the private sector\. On Pillar 2, this project will contribute to increase access to basic services in urban area by improving the socio- economic environment of intermediary cities\. This project will also be consistent with the Bank’s strategy to provide multi-sector support to the Government of Mauritania to support its “Strategy for Accelerated Growth and Shared prosperity 2016-2030â€? and the Bank’s commitment to the Sahel Alliance to deliver multi-sectoral infrastructures and services to the South and East of Mauritania where the rate of poverty and the level of vulnerability are the highest in the country\. 15\. The proposed project also contributes to a coordinated spatial approach to address a series of key constraints to social and economic development and poverty reduction, consistent with the Sahel Alliance10's approach\. The Sahel Alliance’s objective to increase financial and technical support to G5-Sahel countries over the next five years\. In Mauritania, the Bank has committed to concentrate its efforts on the areas of the country that are fragile and vulnerable to climate shocks and security risks, and particularly affected by poverty\. To this end, this project will be implemented in coordination with projects in the following sectors: (i) youth employment (ii) education (iii) agriculture and food security; (iv) access to electricity, and (v) access to water and sanitation\. These projects will focus in the South and East Wilayas of Mauritania (As shown on Figure 1) where vulnerability to climate and man- made shocks is the highest in the country\. 16\. Building resilience to climate change and disaster risk is a vital step in the fight against poverty and for sustainable development\. To that end, any infrastructure investments constructed under the project will consider the vulnerability to climate change and disaster risks for its design and construction\. The project will also support climate resilience through improved urban planning and support for urban reforms across selected intermediary cities\. Construction of drainage systems and improved management of solid waste will better protect 10 Alliance Sahel is a donor organization launched in July 2017 by France, Germany and the European Union\. The World Bank, the African Development Bank and the United Nations Development Programme, Italy, Spain, the United Kingdom and Luxembourg joined the Alliance later\. The objective of the Alliance Sahel is to provide an appropriate, ambitious and effective response to the challenges facing the G5 Sahel member countries (Mauritania, Mali, Niger, Burkina Faso and Chad)\. Feb 25, 2019 Page 7 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) the populations against floods\. The project will also lead to economic diversification in this part of the country to build the resilience of these communities to the adverse effect of climate change\. C\. Proposed Development Objective(s) The development objectives of this operation are: (i) to improve access to services for both the population and the private sector in selected areas; and (ii) to improve the capacity of local government in the areas of planning, management, and financial management\. Key Results (From PCN) - Access to selected service (number - disaggregated by gender) - Private sector firms expressing satisfaction with essential service to run their business (Percentage)\. - Local Governments with improved management capacity (Number) D\. Concept Description 17\. This project will support the local and economic development of selected intermediate cities and towns in the South and East of Mauritania and continue technical support to the decentralization process, building on the lessons and momentum of the PNIDDLE (Programme National Intégré pour la Décentralisation, le Développement Local et l’Emploi des jeunes)\. One major change for this operation will be to refocus investment efforts on a small selection of towns\. It aims at delivering higher quality services to the population and private economic actors through a concentration of selected high impact investments on a few dynamic towns in the South of Mauritania suffering from an infrastructure deficit, most of which were not part of the PNIDDLE\. This is aligned with one of the pillars of the Decentralization strategy, which recommends encouraging economic and urban levers, considering urban areas are meant to deliver higher levels of services for the population and economic agents\. The focus on a limited number of geographic areas will also be critical to test different approaches to the new institutional context that was modified with the creation of the regions\. The design and implementation of the project will be articulated with other sectoral projects (access to water and sanitation, access to electricity, youth employment, health and cash transfer services to refugee and host communities) to increase impact on economic development and job creation in this part of the country\. 18\. A preliminary list of 7 towns (See Figure 1) have been established in consultation with the GoM based on their potential to extend their benefits to a broader territory and population\. For that reason, the South of Mauritania, where more than a third of the urban population live and where the poverty rates remain the highest, was preferred\. This preliminary list includes 4 intermediate cities, spread across the territory\. Rosso, in the West, and Kiffa in the center, are by far the most dynamic ones\. Selibaby at the central South and Aioun at the East will complement a good coverage of this large territory\. Three voluntary resettlement centers (Borate, Evajar and Nbeikhat Lahwach) are considered because of their relatively large size and will be used to test a national policy aimed at delivering more effectively services to the population\. In addition, the project will support the provision of electricity to 3 rural areas presenting a certain concentration of population (2,000+ habitants)\. 19\. The project will comprise four components: (i) resilient infrastructure investment and service delivery in select towns and adjacent territories; (ii) technical support for improving planning and local management; (iii) project management; and (iv) contingency emergency response component\. 20\. Component 1: Resilient infrastructure investment and service delivery in select towns and adjacent territories (42 million USD): This component aims to support the development of communal or inter-municipal economic and basic infrastructures and services in selected areas (either intermediary cities or newly created towns or adjacent Feb 25, 2019 Page 8 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) territories) to increase access to services and better manage future urban growth\. Infrastructure of interest could consist of urban roads, urban drainage systems, electricity lines, solid or liquid waste management infrastructure, public facilities and space for youth, regional or local markets, etc\. All infrastructure will be designed with climate change considerations, and many of the proposed types of infrastructure will directly support climate resilience\. For example, improved urban drainage would help to reduce the impacts of heavy rainfall events, while solid or liquid waste management would enhance environmental health and safety in view of increasingly severe climatic events\. The selection and location of infrastructure will also be conducted in compliance with climate and risk-informed planning which will be done as part of Component 2\. 21\. Infrastructure investments are designed to support the growth of the intermediary cities or adjacent territories and sustain more effective socio-economic development, with well-targeted and high-quality services\. Thus, the selection of investments will be made using a participatory process, based on a Communal Development Plan (CDP), including consultation with different stakeholders and social groups, such as youth and women, as well as private economic actors, to ensure that the needs of the different beneficiaries are properly reflected in the investment program\. Those CDPs will be elaborated or updated during the preparation phase of the project, in line with the start of terms for newly elected mayors\. Citizen engagement including meetings with local stakeholders will be critical during the project preparation and implementation phase to ensure urban and investments planning reflects stakeholder needs\. Technical support in the planning stage and for development of the CDPs will also be key to moving away from standard supply-driven services and help support innovation with more demand-driven and economic approaches\. 22\. Component 2: Technical support towards improved planning and local management (3 million USD)\. This component aims at providing technical support to local actors, in particular the municipal institutions, as well as the regional councils and other relevant local institutions (associations, private sector representation, etc\.), to improve their capacity to prepare and implement development plans that will yield higher impacts in access to services, economic development and poverty reduction\. Two activities will be supported: (i) first, the Component will help the government continue to implement its decentralization agenda and improve its operational sustainability; and (ii) second, it will help address critical constraints to more effective urban planning and management\. a\. In terms of decentralization, the Component will consolidate the support provided under the PNIDDLE through: (i) the preparation and implementation of selected institutional and financial reforms in addition to the decentralization strategy under preparation by the government, (ii) support in establishing conditions for efficient intergovernmental transfers\. This will help local government to improve service delivery\. This component will leverage the experience and lessons learned from previous projects implemented in urban areas\. b\. Regarding urban planning, this component seeks to (i) improve the capacity of LGs to develop a vision for their own local development, including economic development in coordination with the private sector, citizen engagement and community participation, and preparation of urban planning tools (Commune Development Plans, Urban Master Plans, digital maps and tools); and (ii) prepare reforms for more effective urban planning, for example in urban regulation or access to urban land\. 23\. Component 3: Project management (5 million USD)\. This component will support the implementation of all project activities in accordance with the Bank’s policies and guidelines in the area of coordination, supervision, financial management, procurement, audits, safeguards, monitoring and evaluation\. Feb 25, 2019 Page 9 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) 24\. Component 4: Contingency Emergency Response Component (0 million USD)\. Should a natural event precipitate a major disaster affecting the livelihoods of people living in the project area, the government may request the World Bank to reallocate project funds to cover some costs of emergency response and recovery\. Detailed operational guidelines for implementing the project Contingency Emergency Response Component (CERC) will be prepared and approved by the World Bank as a disbursement condition for this sub-component\. All expenditures under the CERC will be in accordance with paragraphs 11, 12, and 13 of Bank Policy: Investment Project Financing\. They will be appraised and reviewed to determine if they are acceptable to the World Bank before any disbursement is made\. Disbursements will be made against an approved list of goods, works, and services required to support crisis mitigation, response, recovery, and reconstruction\. Legal Operational Policies Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No Summary of Screening of Environmental and Social Risks and Impacts The environmental and social risks are substantial at this stage of the project as the activities will include construction of infrastructures, urban road, access road, markets, waste management\. The project's activities will be implemented near the Mali and Senegalese board where are living vulnerable groups and refugees\. There is a risk of workers coming from these two countries which could lead to a conflict with the local and vulnerable groups\. Note To view the Environmental and Social Risks and Impacts, please refer to the Concept Stage ESRS Document\. CONTACT POINT World Bank Farouk Mollah Banna, Alexandra Le Courtois Senior Urban Sanitation Specialist Borrower/Client/Recipient Islamic Republic of Mauritania Mohammed Salem Nany Directeur General Adjoint des Investissements Public et de l msalemnany@gmail\.com Implementing Agencies Feb 25, 2019 Page 10 of 11  The World Bank Productive & Resilient Intermediate Cities (P169332) Cellule du PNIDDLE Mohammed Ould Babetta Directeur babetta@pniddle\.mr FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 473-1000 Web: http://www\.worldbank\.org/projects APPROVAL Task Team Leader(s): Farouk Mollah Banna, Alexandra Le Courtois Approved By APPROVALTBL Practice Manager/Manager: Country Director: Feb 25, 2019 Page 11 of 11

APPROVAL

P119735

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 57154-NP PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 26\.60 MILLION (US$41\.26 MILLION EQUIVALENT) AND PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF SDR 21\.70 MILLION (US$33\.74 MILLION EQUIVALENT) TO THE GOVERNMENT OF NEPAL FOR A ROAD SECTOR DEVELOPMENT PROJECT October 27, 2010 Sustainable Development Unit Nepal Country Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective September 30, 2010) Currency Unit = Nepalese Rupee NPR\. 71\.18 = US$1 US$1\.556190 = SDR 1 FISCAL YEAR July 15 ­ July 14 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank ITA Independent Technical Auditors Commission for the Investigation of Abuse of Ministry of Physical Planning and CIAA MoPPW Authority Works DDC District Development Committee MTR Mid-Term Review DDG Deputy Director General NA Not Applicable DHQ District Headquarters NPV Net Present Value DoR Department of Roads NVC National Vigilance Center Operational Risk Assessment EIRR Economic Internal Rate of Return ORAF Framework EMP Environment Management Plan PCT Project Coordination Team EoP End of Project PCU Project Coordination Unit Environment and Social Management ESMF PDO Project Development Objective Framework ESMF Environmental Social Management Framework PIP Priority Investment Plan Public Procurement Monitoring FMIS Financial Management Information System PPMO Office GAAP Governance and Accountability Action Plan RAP Resettlement Action Plan GESU Geo-Environmental and Social Unit RBN Roads Board Nepal GoN Government of Nepal RED Road Economic Decision Model Highway Development and Management HDM-4 RSDP Road Sector Development Project Model IDA International Development Association RTI Right to Information Act IEE Initial Environmental Examination SRN Strategic Road Network IFC International Finance Corporation SWAp Sector Wide Approach IRR Internal Rate of Return VOC Vehicle Operating Cost ISN Interim Strategy Note WB World Bank Vice President: Isabel M\. Guerrero Country Director: Susan G\. Goldmark Sector Director: John H\. Stein Sector Manager: Michel Audigé Task Team Leader: Surendra G\. Joshi ii  NEPAL Road Sector Development Project Additional Financing CONTENTS Page I\. Introduction \. 1 II\. Background and Rationale for Additional Financing \. 1 III\. Project Implementation \. 3 IV\. Rationale for Additional Finance \. 5 V\. Proposed Changes \. 5 VI\. Appraisal Summary \. 9 Annex 1: Revised Results Framework and Monitoring \. 17 Annex 2: Operational Risk Assessment Framework (ORAF) \. 24 Annex 3: Governance and Accountability Action Plan \. 26 Annex 4: Revised Implementation Arrangements and Support - Implementation Plan \. 36 Annex 5: Economic Evaluation\. 37 Annex 6: Project Map IBRD38135 \. 45 iii  NEPAL Road Sector Development Project Additional Financing PROJECT PAPER DATA SHEET Basic Information - Additional Financing (Additional Financing) Date: October 27, 2010 Team Leader: Surendra Joshi Country Director: Susan G\. Goldmark Sectors: Roads and Highways (100 %) Sector Manager: Michel Audigé Themes: Infrastructure services for private Sector Director : John H\. Stein sector development (80%); Trade Facilitation and market access (20%) Environmental category: Partial Assessment Project ID: P119735 Additional Financing Type: Scale Up Lending Instrument: Specific Investment Loan Joint IFC: N/A Joint Level: N/A Basic Information - Original Project Project ID: P095977 Environmental category: Partial Assessment Project Name: Road Sector Development Expected Closing Date: June 30, 2012 Project Lending Instrument: Specific Investment Loan Joint IFC: N/A Joint Level: N/A Additional Financing Project Financing Data [ ] Loan [ X ] Credit [ X ] Grant [ ] Guarantee [ ] Other: Proposed terms: 40 years to maturity including 10 years grace period Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 50\.50 0\.00 50\.50 International Development Association 11\.26 30\.00 41\.26 (IDA) IDA Grant 3\.74 30\.00 33\.74 Total: 65\.50 60\.00 125\.50 Responsible Agency: Director General Department of Roads, Babar Mahal, Kathmandu Telephone No\. 977-1-4262 675 / Fax No: 977-1-4262 993 Email: dgdor@dor\.gov\.np; dorfcb@dor\.gov\.np AF Estimated Disbursements (Bank FY/US$M) FY 2011 2012 2013 2014 2015 2016 Annual 5\.0 10\.0 15\.0 15\.0 15\.0 15\.0 Cumulative 5\.0 15\.0 30\.0 45\.0 60\.0 75\.0 Project implementation period: Start February 15, 2011 End: June 30, 2015 Expected effectiveness date: February 15, 2011 Expected closing date: June 30, 2015 Does the project require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Does the project include any critical risks rated "substantial" or [ X]Yes [ ] No "high"? iv Original Project Development Objective (PDO): The Project Development Objective is for the residents of beneficiary districts to have all season road access thereby reducing travel time and improving access to economic centers and social services\. The original PDO will be retained for the Additional Financing as well\. Project Description : The Additional Financing will continue to support the two components of the project as follows: (a) Road Development Component (RDC) and (b) Institutional Strengthening and Policy Reform Component\. The Road Development Component comprises: (a) Road Upgrading and Rehabilitation works of 408 km existing roads to all weather standards; (b) Periodic Maintenance of 2,100 km; (c) Emergency Maintenance of flood damaged roads in the original project; and (d) Road Safety Works for the Strategic Roads\. The Institutional Strengthening and Policy Reform Component will provide support to the Department of Roads (DoR), Roads Board Nepal (RBN), National Vigilance Centre (NVC) and the Ministry of Physical Planning and Works (MoPPW) to sustain and deepen previous institutional and policy development activities started in the Road Maintenance Development Project (RMDP), as well as support new ones that have been identified by the Government of Nepal (GoN)\. Safeguard policies triggered: Environmental Assessment (OP/BP 4\.01) Yes No Natural Habitats (OP/BP 4\.04) Yes No Forests (OP/BP 4\.36) Yes No Pest Management (OP 4\.09) Yes No Physical Cultural Resources (OP/BP 4\.11) Yes No Indigenous Peoples (OP/BP 4\.10) Yes No Involuntary Resettlement (OP/BP 4\.12) Yes No Safety of Dams (OP/BP 4\.37) Yes No Projects on International Waters (OP/BP 7\.50) Yes No Projects in Disputed Areas (OP/BP 7\.60) Yes No Conditions and Legal Covenants: Financing Agreement Description of Date Due Reference (in the Condition/Covenant original project) Schedule 2\. Section 1 (Original Financing Agreement) Continued A, B, C and D E and F (i) and (ii) only (Original Financing Agreement) Fulfilled and deleted G (Original Financing Agreement) Full compliance by FY 2010/2011 budget announcement H, I, and J (Original Financing Agreement) Continued K i) develop standards for asset (i) Fulfilled valuation (ii) by March 31, 2011 ii) establish road register in each DOR divisions L and M Continued v  I\. Introduction 1\. This Project Paper seeks the approval of the Executive Directors to provide an additional US$75\.00 million in IDA credit and grant to the Nepal Road Sector Development Project (Project ID: P095977, Credit: Grant Number: H339-NP)\. 2\. Based on the success of the implementation of the project, the proposed Additional Financing would help finance the costs associated with scaled-up activities to enhance the impact of the ongoing project without any major changes in the project design\. The Additional Financing will also support a scale up of project activities aimed at completing the remaining sections of roads built in the ongoing project in the remote districts of the Western region, which are not connected with all weather roads\. The project will contribute to an estimated six percent increase in the number of people with all season road access in the project districts and 35 percent decrease in travel time to economic centres and 25 percent decrease in travel time to social service\. About 1\.4 million people in the project districts will benefit from the project\. The following modifications in the project implementation arrangement will be made: (a) improvement in monitoring and reporting safeguard arrangements; (b) improvement in monitoring financial management activities; and (c) implementation of the updated the Governance and Accountability Action Plan with a special focus on mitigating collusion and intimidation during bidding\. It is also proposed to extend the implementation period by three additional years until June 30, 2015\. 3\. Partnership arrangements\. Key donors in the sector ­ the Asian Development Bank (ADB), and the governments of Japan, China and India - are supporting various road projects separately in the country, and no partnership arrangement is expected in the proposed Additional Financing\. While there is not a formal Sector Wide Approach (SWAp) framework for the strategic road network, there is an informal agreement on the geographic areas of concentration of the major road donors in particular - the ADB supports the upgrading of roads to all weather standards in the Eastern region of Nepal and the World Bank is focusing on road upgrading in the Western regions (Darchula, Bajhang, Baitadi, Dailelkh, Kalikot, Jumla, Jajarkot and Rukum)\. The Indian assistance in the road sector is more concentrated towards the southern border while China has been providing assistance to open the road connections towards the northern border\. The Western districts of Nepal are the most deprived districts in terms of income and food security\. II\. Background and Rationale for Additional Financing 4\. Country context\. Nepal has the second lowest road network density in the region\. Only about 40 percent of the population has access to paved roads within 20 minutes walking distance\. Out of 75 districts in Nepal, 17 are still deprived of all weather access to the main transport network\. In addition, the condition of strategic roads (black topped) declined from 18 percent in poor condition in 2008 to 20 percent in 2010\. Until 2007, the country was suffering under a decade long armed conflict\. The government has been in a slow and uncertain transition to a democratic nation since\. The substantial lack of accessibility of economic centres and social services in the remote areas is seen as one of the root causes for the conflict and the current instability of the country\. The people of Nepal, particularly those in rural areas, have been severely affected by the conflict and they now expect sustained peace and an increase in access 1 to economic opportunities\. To address these aspirations, the Government increased the FY 2010 budget for strategic roads by over 50 percent over the previous year\. Because of the ongoing political uncertainty, decision making and progress in development works, however, continues to be slow and difficult\. 5\. Sector Investment Plan\. The GoN aims to implement the Priority Investment Plan (PIP) 2007-2016 for the development of a Strategic Road Network (SRN) in the country in order to provide feasible access to a motorable all weather road (within four hours walking distance in the hills and within two hours walking distance in the Terai)\. The priority plan covering upgrading and maintenance of the SRN has a projected cost of NPR\. 100 billion (US$1\.4 billion in 2007 price) for ten years\. Since June 2007, the donors have committed to provide about US$410 million for strategic road projects (ADB US$120 million, World Bank US$42 million, India US$102 million (committed only), EXIM Bank India US$50 million, China US$16 million and Japan US$80 million, leaving a deficit of US$990 million\. 6\. Original project\. The original Road Sector Development Project (RSDP) was developed as a follow on to the successfully completed Road Maintenance and Development Project (RMDP)\. It became effective on February 21, 2008 and is expected to close on June 30, 2012\. At approval, the total project cost was US$50\.6 million, of which IDA is financing US$42\.6 million under IDA Grant, and the Government of Nepal (GoN) is financing US$8\.0 million\. 7\. Project Development Objective\. The original PDO was for the residents of beneficiary districts to have all season road access thereby reducing travel time and improving access to economic centres and social services\. 8\. Selection of original project roads\. The ongoing RSDP supports upgrading sections of Satbanjh-Baitadi-Jhulaghat, Satbanjh-Gokuleshwor-Darchula, Kodpe-Kalingagad-Bajhang and Surkhet-Kalikot-Jumla and Tallodhugeswore-Dailekh roads to all weather standards in the Mid Western and Far Western regions\. These roads were selected as per the list of priorities set out in the PIP for the Mid Western and Far Western regions, where the Bank is concentrating its road sector investments as per the informal agreement with other donors and GoN\. PIP is a Sector Wide Road Programme to improve countrywide all weather motorable accessibility in the country, and Priority Investment Plan for the improvement of strategic roads (feeder roads and highways) prepared for 2007-2016 based on technical and economical feasibility ­EIRR (Annex 5-updated EIRR)\. 9\. Implementing agency\. RSDP is executed by the Department of Roads (DoR) under the Ministry of Physical Planning and Works (MoPPW)\. DoR is considered to be one of the most technically competent agencies of the GoN\. The Bank has been working with this agency in implementing transport projects for the last three decades\. The past history has established DoR as a reliable agency in terms of delivery in implementing Bank financed projects\. The Department has shown its strength in achieving substantial progress in institutional capacity building with donor support, including RSDP\. This is the first government agency in the country to widely implement e-bidding for procurement and a Financial Management Information System, which was successfully piloted under the ongoing RSDP\. In addition, the project implementation modalities (fiduciary, safeguard, technical and institutional) are well established and institutionalized, and can be continued for further Bank support without any major changes\. 2 III\. Project Implementation 10\. Achieving the PDO\. The operating environment for the project has been difficult; within the past 30 months of the project, the country had three governments, which has been affecting staff continuity, the decision process, and progress in development works\. In addition, the project is not insulated from the disturbance created by frequent strikes and "bandhs" called by different political and ethnic groups\. Despite this challenging environment, the progress towards the achievement of the PDO has been largely satisfactory\. Though measurements of access to economic centres and social services, and journey times will not be taken until civil works contracts are fully completed, partial data show that, where roads are being improved, average vehicle speeds are increasing (from average 15kph to 35kph), thereby decreasing vehicle operating costs (VOC) and travel time and, reportedly, increasing the number of private vehicles plying on the completed roads\. The recent Mid Term Review (MTR) of the project found that average travel time has decreased by 35 percent in the Baitadi, Dailekh, Gokuleswore in Darchula and Jhota in Bajhang\. The target percentage of the Strategic Road Network (SRN) in poor condition, however, has not been met, because the set target was unrealistic given performance elsewhere in the region\. The target percentage for SRN in poor condition was proposed to be revised during the MTR to increase its realism\. 11\. Overall progress\. Despite sporadic disturbances as a result of frequent political strikes and closures of roads, the physical progress of civil works contracts and disbursement are satisfactory\. This has provided all weather access to the District Headquarters (DHQs) of Baitadi and Dailekh, and to some part of Bajhang, Darchula and Kalikot districts\. Under the periodic maintenance component, all the contracts have been awarded and maintenance works on about 322 km of 450 km have been completed\. Overall, progress under the institutional strengthening component has been satisfactory as well\. Business plans for the various units within DoR are prepared on a three-year rolling basis\. Training has been provided to officials at various levels through a number of local and international workshops under the approved Human Resources Development (HRD) plan\. The detailed surveys and designs of the five roads (408 km) planned for upgrading under the proposed Additional Financing is also progressing satisfactorily\. 12\. The implementation of the different IT based Management Information System (MIS) modules developed during RMDP is ongoing under this project\. The process of IT networking in the nine divisional offices within Kathmandu Valley has been completed\. The first e-bidding system established in the country under the project is currently being used by all the DoR divisions\. The preparation of the Road Asset register is completed\. The draft Road Safety Master Plan, covering all actors and stakeholders from the road, health, and education sectors, is under preparation\. 13\. Quality standards have been established and communicated to the concerned contractors\. Similarly, a quality assurance plan for all projects and contracts under DoR has been made compulsory\. The National Vigilance Center, entrusted with conducting technical audits of 20 percent of civil works contracts, has been conducting such audits and based on their observations, corrective measures have been undertaken\. 14\. In terms of physical implementation and disbursement, the overall progress is substantial for the short span of project duration\. The reasons for the substantial achievements are upfront 3 completion of survey and design works, combined design discussions between the Bank experts and the DoR staff during the time of the consultant's presentation of the draft designs, quick procurement reviews by the procurement accredited Bank staff based in country office, strong project ownership of MoPPW and DoR, efficiency and skill of Project Coordination Team (PCT) staff of DoR, implementation of e-bidding, provision of interim progress mile stones with liquidated damages in the contract documents, and continuous monitoring of the project activities by in-country staff\. Overall, understanding and discussion of the stakeholders concerns in an amiable manner and a "what works" approach seem to be the keys to the current progress\. 15\. Road maintenance and Roads Board Nepal (RBN)\. The ongoing RSDP supports periodic maintenance of black top SRN roads1 to some extent, but inadequate maintenance funds and institutional issues obstruct maintenance works\. RBN is supposed to generate sustainable maintenance funds from fuel levy and other transport revenues\. Although inadequate to meet its yearly maintenance needs, the fuel levy is collected by the government and transferred to RBN while the road toll is collected directly (through contractors or DoR) by RBN and used for road maintenance purposes\. Although majority of the road maintenance budget allocated directly by the government is provided through the consolidated budget line of RBN, DoR continues to get a separate budget from the government for maintenance purposes and the local bodies get separate unconditional grants that they may use for road maintenance\. This practice not only diminishes the role and effectiveness of RBN but is also open to non-prioritized adhoc maintenance works\. GoN has agreed to channel all necessary funds for the maintenance of the SRN through the RBN by next budget announcement for FY 2010/2011\. In addition, GoN will provide US$50\.5 million (90 percent of the cost of maintenance) as the counterpart fund for the periodic maintenance component of the Additional Financing in order to ensure adequate periodic maintenance of the SRN\. 16\. Financial management and reporting\. The total RSDP disbursements as of August 31, 2010 are about US$30\.06 million, which is roughly 71percent of the allocated amount\. The balance has been almost fully committed\. An annual audit report of RSDP (including Additional Financing) will be submitted within six months after the end of the fiscal year\. The audit report of FY2008/09 has been submitted and there are no outstanding issues\. 17\. Outstanding covenants\. There is one outstanding covenant in the ongoing RSDP as described below: 18\. Maintenance Budget\. The road maintenance allocations shall be consolidated by FY2008/09 in a single fund under the RBN\. Status: Substantial resources have been allocated for periodic maintenance of the strategic road network in this year's budget, but the budget is still split between RBN and the DoR direct fund for maintenance (as explained in paragraph 15 above)\. As a result of this, some maintenance continues to be ad hoc\. The process has been initiated by the DoR/ MoPPW to collapse the separate maintenance budget line of DoR and 1 GoN has allocated Rs\. 770 million in FY 2008, Rs\.1\.37 billion in FY 2009 and Rs\.2\.376 billion in FY 2010\. DoR has been able to implement periodic maintenance of about 1150 km of SRN against the target of about 2000 km (614 km in FY 2008, 56 km in FY 2009 and 476 km in FY 2010 of strategic roads) since the effectiveness of the RSDP in February 2008\. In FY 2009, DoR received a substantial amount (budget heading 555 - about Rs\.856 million) for maintenance, most of which was spent on specific/preventive maintenance instead of meeting periodic maintenance requirements\. 4  merge it with the RBN budget line\. Such consolidation of the maintenance budget will result in priority based allocation of resources for maintenance, timely maintenance of critical road sections and ensure proper utilization of resources for maintenance\. IV\. Rationale for Additional Finance 19\. Continued momentum to benefit isolated communities\. The original RSDP was designed as a fast track operation in order to support the ongoing peace process and to demonstrate real benefits to the most remote communities (with six percent increase in the number of people in the project districts having all season road access within 20 minutes walking distance and 35 percent decrease in travel time for target population)\. The project is on track and is expected to complete all planned activities before the project closing date\. Additional Financing is seen as the best way to continue the present momentum of this positive experience and quickly deliver tangible benefits in other remote areas\. Further, the Additional Financing approach will enable the Government to maximize benefits for the people under the current political circumstances, since strategic road development works are not substantially impacted by political conflicts and local agitations\. 20\. Continuing scope for sector/donor coordination\. Although the key development partners like ADB and World Bank are following DoR/ GoN's PIP for SRN and the sector framework for social and environmental safeguards, major bilateral donors active in the sector like Japan, India and China are yet to adopt and adhere to this harmonized approach\. Therefore, moving to a Sector Wide Approach for the Strategic Road Network still seems premature\. This Additional Financing, however, will provide an opportunity to continue the dialogue with other key development partners on how to increase harmonization of policies and procedures within a GoN-owned framework\. 21\. Continuing capacity building\. The Additional Financing will support further modernization of DoR to enhance its service delivery to accelerate accessibility improvements in the country\. The e-bidding module will be expanded to a full-fledged e-procurement system and possibly include International Competitive Bidding\. The MIS will be fully operationalized to ensure a single Financial Information Management System and real time report generation\. In order to support DoR, an International Consultant has been hired on a competitive basis for design and supervision of the upgrading works to be funded under Additional Financing\. 22\. Government commitment\. The Government is strongly committed to the project\. GoN has proposed a selection of roads for upgrading, rehabilitation or improvement from the list of roads prioritized in the national PIP\. Further, the GoN has agreed that it plans to contribute about 90 percent of the cost of maintenance component (US$50\.5 million) to this project, demonstrating substantial commitment\. This will be disbursed through the consolidated RBN budget line\. V\. Proposed Changes 23\. Project Development Objective: The PDO of the original project is retained for the Additional Financing as well\. 5 24\. Revised Results Framework\. For better reporting on the PDO, some indicators have been revised, and targets have also been revisited for realism and to reflect the scale up of activities\. For example, an additional indicator has been included to report on the achievement of the project towards providing the beneficiaries with improved access to social services\. Also, as mentioned previously, the target for percentage of SRN in poor condition has been revised for realism given regional performance achievements\. The revised and additional indicators will be applicable for both the original project and the Additional Financing\. Table 1 below shows the original indicators and targets, the proposed indicators and targets for the Additional Financing, and the cumulative targets\. Table 1: Revised Results Framework Indicator Original target AF target Cumulative target For residents of 6 percent increase in 6 percent increase in 14 percent of the people beneficiary population with all season road population with all season in project districts have districts to have all access to economic centers and road access to economic all season road access to season road access social services in the project centers and social services economic centers and thereby reducing districts (in 5 project districts) in the project districts social services in the travel time and within 20 minutes walking project districts within improving access distance (in 8 project 20 minutes walking to economic districts) distance centers and social services\. 35 percent decrease in journey 35 percent decrease in 35 percent decrease in times to key economic centers journey times to key journey times to key in the project area economic centers project economic centers in districts project districts 25 percent decrease in 25 percent decrease in journey times to key social journey times to key service centers2 in both the social service centers in original and new project both the original and districts new project districts Reduce the percentage of black Reduce the percentage of Reduce the percentage of top SRN in poor condition to black top SRN in poor black top SRN in poor 10 percent condition to 15 percent condition to 15 percent3 Target SRN is all 100 percent of 297 km of target An additional 408 km of 700 km4 of roads weather sealed roads receiving upgrading target roads received upgraded to all season gravel road works upgrading works road standard Sustainable 100 percent of 100 km of An additional 2100 km of 2550 km of SRN periodic highways and 350 km of strategic roads received received periodic maintenance of targeted roads received periodic maintenance\. maintenance completed targeted highways periodic maintenance and feeder roads executed 2 Hospitals, higher secondary schools and colleges, and district headquarters (Chief District Officer's Office) 3 Based on Surface Distress Index (SDI) 4 Actual length in original scope is reduced by 5 km\. 6 Indicator Original target AF target Cumulative target Road Safety Publication of Road Safety Implementation of Publication of Road Action Plan and Action Plan and Road Safety Assessment Safety Action Plan and physical works implementation of actions\. Study recommendations\. implementation of actions; Implementation of Road Safety Assessment Study recommendations\. Improved staff HR policy updated and 3 year HR policy updated and 3 HR policy updated and 3 capacity within training plan finalized\. year training plan finalized\. year training plan DoR Domestic and international Domestic and international finalized\. Domestic and training provided for DoR staff training provided for DoR international training as per policy and plan staff as per policy and plan provided for DoR staff as per policy and plan Capacity building Completion of Geo-technical Completion of Geo- Completion of Geo- in Geo-technical, assessments, EMAP and RAP technical assessments, technical assessments, Environmental and compliance monitoring and EMAP and RAP EMAP and RAP Social aspects and performance in creating compliance monitoring and compliance monitoring create awareness awareness among project performance\. Creating and performance\. on HIV/AIDS construction workers and road awareness among project Creating awareness users on HIV/AIDS construction workers and among project road users on HIV/AIDS construction workers and through trainings\. road users on HIV/AIDS through trainings\. DoR IT based MIS Completion of pilot installation Additional IT inputs to Completion of pilot operational of wide area network (WAN) enhance IT based installation of wide area in DoR division offices in management system in DoR network (WAN) in DoR Kathmandu and satisfactory including fully operational division offices in operation and maintenance of e-procurement system Kathmandu and IT based management system satisfactory operation and maintenance of IT based management system; Additional IT inputs to enhance IT based management system in DoR including fully operational e- procurement system Road asset HDM4 used for bi annual road HDM4 used for bi annual HDM4 used for bi management tools condition assessment and road condition assessment annual road condition used for preparation of annual and preparation of annual assessment and prioritization of maintenance plan maintenance plan preparation of annual road maintenance maintenance plan and upgrading works Improved quality Quality monitoring plan Quality monitoring plan Quality monitoring plan assurance prepared each year and quality prepared each year and prepared each year and audit carried out by Central quality audit carried out by quality audit carried out Road Lab Central Road Lab by Central Road Lab 7  Indicator Original target AF target Cumulative target Improved RBN Act amended and more RBN Act amended and RBN Act amended and effectiveness of training and logistics provided more training and logistics more training and Roads Board Nepal Government decision to provided; Development of logistics provided benchmark salaries to market business plan for RBN Government decision to rates including Human resource benchmark salaries to Human resource development development plan market rates; plan Development of business plan for RBN including Human resource development plan Third party Third party technical audit Third party technical audit Third party technical technical audit carried out for 20 percent of the carried out for 20 percent of audit carried out for 20 project works each year\. the project works each year\. percent of the project works each year\. 25\. Scope of the Additional Financing\. The Additional Financing will scale up the activities under the on-going main components: The Road Development Component and the Institutional Strengthening and Policy Reform Component\. The total project cost will be US$125\.5 million, of which IDA will provide US$75 million and GoN provides US$50\.5 million\. 26\. Road Development Component\. The Additional Financing under this component will be used to extend the current RSDP roads (227 km upgrading works to connect four district headquarters), and implement an additional 181 km of upgrading works in two new districts\. The GoN financing will be used for a 90 percent share of the cost of Periodic Maintenance, Emergency Maintenance and Road Safety physical works\. This would allow the GoN to achieve its midterm target of providing all weather access to some additional remote districts and improve the condition of strategic roads\. 27\. Institutional Strengthening and Policy Reform Component\. Apart from continuing the capacity building support being provided under this component, the Additional Financing will support expansion of the e-procurement system and additional logistic support like vehicles for the project sites and bridge inspection, and computer and equipment peripherals for the different units of DoR and RBN\. It will also support RBN in establishing a document management system which would include monitoring of contracts managed by road agencies as well\. Also, specific studies of the construction industry and contract management will be done under this component\. 28\. Safeguards\. A major improvement proposed under Additional Financing includes inclusion of two additional meters in general or as required according to physical characteristics beyond the existing road formation width on either side of the road\. Any additional land acquired will be subject to compensation in accordance to RAP\. The project has prepared RAPs as per actual land acquisition for the road and subsequent impacts on land and road side structures including residential and others\. The project is emphasizing timely follow up and early initiation towards providing compensations, resettlement and rehabilitation assistances to the affected families\. 29\. In Gokuleswore-Darchula road at Naktad (within about 2\.4 km), Gokuleswore the local people did not allow census and inventory survey works by the consultants for dispute on land donated in the past for the existing road\. GoN/DoR is in the process of consultation with the local people over this issue\. The census and inventory survey shall be completed after reaching 8  agreement with local people and the RAP shall be updated\. The Bank will not provide concurrence to award any contract for this road until an agreement has been reached with the local people, which will be verified by the Bank\. 30\. Contract management\. Due to security restrictions, contractors are facing problems in availing explosive materials necessary for blasting rocks during the construction of roads\. The Department of Roads shall be responsible for procuring, transporting and storing necessary explosive materials at a secured place near the contract site\. The cost of explosives, including material costs and transportation costs up to the storage, will be provisioned as part of the contract\. Such cost shall be paid by the contractor and shall be reimbursed to the contractor as per actual costs with fixed handling charges at the submission of invoices in the interim payment bills\. The further cost of at-site storage, security arrangements and handling of the explosive materials for blasting shall be included in the work item by the contractor\. VI\. Appraisal Summary 31\. Road Development Component (US$106\.40 million)\. This component has four sub- components: 32\. Upgrading dry season roads to all weather standard (US$53\.20 million)\. Upgrading of the roads connecting the district headquarters to all weather standard roads (low cost bituminous seal) is planned as per the following: Table 2: Project Roads Road Remarks Gokuleshwor - Darchula (73 km) Continuation from the original project to extend all weather connectivity to DHQ, Darchula Kalangagad Bridge - Chainpur (50 km) Continuation from the original project to extend all weather connectivity to DHQ, Bajhang Khidkijyula - Jumla (104 km) Continuation from the original project to extend all weather connectivity to DHQ, Kalikot and Jumla Chinchu ­ Devisthal - Jajarkot (95 km) All weather connectivity to DHQ, Jajarkot Sitalpati-Musikot - Rukum (86 km) All weather connectivity to DHQ, Rukum 33\. An international consultant has been working on the survey and design of the upgrading works and will supervise the works as well\. 34\. Periodic maintenance (US$47\.50 million)\. The project will support the periodic maintenance of 2,100 km of blacktop strategic roads selected based on the maintenance priority established in the PIP and the annual road condition survey\. Performance Based Maintenance Contracts (PBMC) for multiyear maintenance should be adopted for feasible sections of the highways\. DoR divisions will be responsible for the design and implementation of the periodic maintenance works\. The regional offices of DoR will monitor the periodic maintenance activities with the support of individual regional monitoring consultants hired by the project\. 35\. Emergency maintenance (US$4\.75 million)\. The 2009 monsoon floods have caused extensive landslides at numerous road sections of the ongoing project roads\. The project will provide additional emergency support for slope protection and feasible pavement works in order 9 to complete the ongoing upgrading works in Dailekh, Darchula, Baitadi, Bajhang and Kalikot\. This activity will be financed retroactively under the project\. GoN shall comply with the provisions of the financing agreement for the procurement of the works to be financed on a retroactive basis\. 36\. Road safety physical works (US$0\.95 million)\. A World Bank Road Safety Assessment has been carried out and DOR is carrying out a road safety audit with Technical Assistance from the Bank\. Based on the recommendations of the road safety audit, the project will support physical works which should help reduce the number of accidents at identified black spots, which are specific areas with high accident rates\. 37\. Institutional Strengthening and Policy Reform Component (US$12\.82 million)\. The Additional Financing will continue to provide support for the institutional strengthening and logistics of DoR, and RBN\. This would include enhancements and expansions of IT based MIS/FMIS support; technical assistance and equipments support to various units of DoR and RBN; in-country training to the DoR officials on implementation of safeguard measures and other technical developments; expansion and operationalization of a road asset management system; and research and studies\. Support will be provided to The National Vigilance Centre for the technical audit of RSDP roads\. Under the studies, the following three specific studies have been identified that will be supported under the Additional Financing: Construction Industry Study\. An assessment of the construction industry is proposed to be carried out by the Bank in collaboration with the IFC to aid moving towards a strategy for the development of the construction industry and the improvement of capacity of the contractors\. The possibility of collaboration of international contractors with locals will also be considered to augment the capacity of local contractors\. Bridge Study\. A local firm will be hired to carry out a bridge condition and requirement study on strategic roads; digitize bridge locations; and prepare a long term strategy and plan for bridge construction, rehabilitation and maintenance\. Thankot-Mugling-Birgunj Corridor\. The ongoing feasibility study of Mugling- Narayanghat road will be expanded to cover the remaining section of the Thankot- Birgunj corridor for upgrading the road to Asian Highway standard (2 lanes)\. 38\. In order to assist the project supervision in remote areas, five pick-up vehicles will be provided under this component to be stationed in the field\. The project will also support the procurement of a Bridge Inspection Vehicle\. 39\. Technical specifications\. The project primarily focuses on upgrading existing roads to all weather standard strategic roads\. As these project roads are low volume traffic roads, cost effective low cost sealing options (Double Bituminous Surface Treatment/Otta seal) will be adapted to suit local geology and environment\. 40\. Proven low cost solutions with an optimal use of locally available materials will be considered for the design and construction of drainages and structures\. The design of the required structures shall be substantiated by engineering design calculations, and type and location of each structure shall be specified in the contract documents\. 10 41\. Economic evaluation\. The project is expected to generate substantial economic benefits derived from its road upgrading component and periodic maintenance components\. The roads included in the project were subjected to a multi-criteria screening process from a long list included in the government's PIP 2007\. The roads were analyzed using the conventional approach to project evaluation, i\.e\. the situation related to the base alternative, represented by the road in its present situation was compared directly with project options, represented by the upgraded road\. Because the present situation of the road greatly suppresses the traffic flow compared with the traffic potential, a standard traffic-based approach is not appropriate\. As in the case of the original roads being upgraded under the RSDP, the majority of traffic "with project" options were included as generated traffic or traffic diverted from other modes of transport\. Therefore, a spreadsheet evaluation model was used to reflect the current and expected use of the road as realistically as possible\. This enables transport costs for the base alternative in which the majority of the movements are based on non-vehicular traffic (such as trail movements and pack animals) to be compared with those for conventional vehicles that are expected to replace them\. Typical costs of operating vehicles on the upgraded road have been estimated using the HDM-4 model calibrated for Nepal conditions\. 42\. The summary of the economic analysis of the roads included in the upgrading component is presented in the table below\. All roads selected for upgrading are economically justified with an Internal Rate of Return (IRR) in excess of 12 percent\. The detail of the economic analysis is provided in Annex 5\. Full feasibility studies have been sent to the Project File\. Table 3: Economic Evaluation of Road Improvement Subcomponent Forecast Economic Length Traffic Cost per NPV SN Road IRR (%) (km) (AADT- km * (US$'000) 2014) (US$ ) 1 Kalangad-Chainpur 46\.40 79 103,896 1,266\.77 15\.4 2 Khidkijyula-Manma 27\.00 178 166,704 1,972\.3 17\.7 3 Manma-Jumla 79\.00 66 152,536 2,869\.91 15\.1 4 Shitalpati-Musikot 85\.90 352 84,824 19,527\.21 39\.9 5 Chhinchu-Devistal- 81\.00 165 101,108 10,457\.27 26\.7 Jajarkot 6 Gokuleswor-Thaktholi 38\.40 136 104,282 4,800\.61 26\.4 7 Thaktholi-Darchula 33\.60 184 111,688 3,789\.75 24\.3 Total 391\.3 44,683\.82 23\.36 43\. The first year program of periodic maintenance comprising 725 km of roads was prepared by DoR on the basis of the projects proposed in the PIP of 2007 and the ranking index of the Annual Road Maintenance Plan5\. As per RBN directive, the roads were subjected to a full cost-benefit analysis\. The full list and details of the roads proposed for periodic maintenance for the first year of the project and the results of their economic evaluation are presented in Annex 5\. All the selected roads are economically feasible with a positive Net Present Value\. The roads for the periodic maintenance for the subsequent years will be selected on the basis of the PIP of 2007 as well\. 5 Roads with backlog periodic maintenance will be given priority under the project\. 11  Table 4: Costs by component (in US$ million) Original Scaled Up Project Component Changes AF Project (Combined) 1: Road Development Component 37\.05 106\.40 143\.45 2: Institutional Strengthening and 6\.55 12\.82 19\.37 Policy Reform Component Contingencies 7\.00 6\.28 13\.28 Total 50\.60 125\.50 176\.10 Table 5: Additional Financing of Project Cost by Category WB (IDA) WB (IDA) WB WB Total Credit Grant (IDA) (US$ M) (55%) (45%) (%) Civil Works 32\.19 26\.33 58\.52 Upgrading 29\.26 23\.94 100 53\.20 Maintenance and road safety 2\.93 2\.39 10 5\.32 - Goods and Training 7\.00 5\.73 100 12\.73 Goods 0\.26 0\.48 Services and training 6\.74 12\.25 - Unallocated 2\.06 1\.69 3\.75 - Total Financing Required 41\.25 33\.75 75\.00 44\. Implementation arrangements\. Implementation arrangements for investments under the Additional Financing will mainly remain unchanged as in RSDP, but with more focus on: (a) improving monitoring and reporting safeguard arrangements; and (b) implementing the updated Governance and Accountability Action Plan\. 45\. Financial Management arrangements\. Financial management arrangements will remain unchanged as well\. Reporting on physical and financial progress will continue in the same format of the ongoing project\. In addition, the expenditures under the original project and the Additional Financing will be integrated into the same project financial statements\. The Financial Management Information System will be used to produce financial reports and will allow for greater emphasis on contract monitoring\. Disbursements will continue to be report-based with strong oversight and monitoring arrangements in place\. 46\. Procurement arrangements\. The arrangement in the ongoing project will continue for the Additional Financing activities with some improvement in e-bidding\. However, there will be an exception\. Under the new Financing Agreement, periodic maintenance works will be procured by DoR Regional Offices\. 12 47\. Safeguards\. The Environmental and Social Management Framework (ESMF), prepared by the GoN in 2007 and endorsed by the Bank, is currently being applied in the ongoing RSDP\. The ESMF covers both involuntary resettlement and indigenous people in compliance with relevant policies of the World Bank\. The ESMF is available at the DoR website for public disclosure and a translated Nepali version of the same is being printed for distribution to concerned stakeholders\. As required by the ESMF, the GoN has already commissioned independent external monitoring in order to review social and environmental compliance and suggest corrective actions\. The project is remaining a Category B, as only manageable impact is anticipated\. 48\. Consistent with ESMF principles and procedures, Resettlement Action Plans (RAPs) have been prepared for two subprojects with complete technical design and scheduled for implementation during the first year and has been disclosed in the DoR website\. RAPs for other subprojects to be executed in the later years, will be prepared once detailed designs are complete\. 49\. The Geo-Environmental and Social Unit (GESU) of DoR deals with environmental and social aspects of roads: it has played an important role in mainstreaming environmental considerations in road planning and development, and in the application of ESMF in the ongoing RSDP operation\. However, the GESU's performance is constrained by the lack of coordination, resources (human, financial and logistics) and frequent transfer of staff\. The ongoing RSDP strengthened environmental and social management functions of the GESU, which will continue in the Additional Finance as well\. The GESU has already recruited a Social Specialist and has initiated a process for recruiting an Environmental Specialist, who is expected to be on-board in early December 2010\. DoR/RSDP/GESU is currently revisiting the recommendations made by the ESMF 2007 for strengthening the GESU\. DoR/RSDP expressed commitment to prepare an updated plan for strengthening the GESU by December 2010 and allocate necessary logistic, human and financial resources\. 50\. Social safeguards\. Two RAPs have been developed for two sections of the road networks that will start implementation during the first year of the program\. The RAPs were prepared on the basis of a social economic survey, inventory survey and consultations with local communities\. Due to the linear nature, the project impacts are quite limited with a few household losing more than ten percent of their lands\. The RAPs describe the socio-economics of the project areas, impact inventory, compensation and rehabilitation approach, implementation and monitoring arrangements\. 51\. The socio-economic surveys and field consultations indicate there is no presence of indigenous communities/ peoples in the subproject areas for these two roads\. 52\. Though improved transport infrastructure expand connectivity and strengthen linkages between migrants and their families back home, this connectivity also increases the risk of spreading HIV\. Two NGOs were mobilized to conduct awareness raising workshops on public health related risks in the original RSDP\. NGOs will be hired to enhance and continue awareness programs on HIV aids and road safety in the project area for upgrading works under the Additional Finance\. 13 53\. Environmental safeguards\. Under the proposed RSDP Additional Finance, five existing roads would be upgraded from fair weather to all weather standard and 2100 km of strategic roads are supposed to receive periodic maintenance\. The environmental issues related to the proposed activities are, as in the case of the ongoing project, likely to be limited to the road's vicinity and are small-scale in nature, making it possible to addressing these issues through simple and readily available mitigation measures\. 54\. Commonly encountered environmental issues, as in the case of the ongoing RSDP, include landslides and soil erosion caused by excavation, widening and disposal of spoils, inappropriate drainage etc; loss of trees and vegetation due to occupation of forested land, encroachment, fuel-wood etc; dust and noise/vibration; sanitation and labour camp issues; and occupational health and safety of workers\. As required by the ESMF, the Government has prepared or updated Initial Environmental Examinations (IEEs) of roads upgrading proposed under RSDP Additional Financing as well as draft Site-Specific Environmental Management Action Plans (SS-EMAP) of the two roads proposed for the first year of implementation: these are Gokuleswor-Darchula Road and Kalangagad-Chainpur Road\. 55\. The Project triggers Environmental Assessment (OP/BP 4\.01) and Forest (OP/BP 4\.36)\. Forest (OP/BP 4\.36) is triggered because road upgrading, such as widening where required, may impact communities or state-owned forests at different locations\. However, these are not large- scale impacts\. The road specific IEE and SS-EMAP identifies and recommends specific mitigation measures, which typically include compensatory plantation, banning fuel wood collection, controlling waste disposal in forest areas, working together with the community forest groups etc\. 56\. Risks\. The risk rating proposed for the preparation phase is "Medium-Likelihood" and the risk rating for implementation is "Medium-Impact"\. An Operational Risk Assessment Framework was prepared and is attached to this Project Paper as Annex 2\. 57\. While learning from the existing project and other Bank operations in the road sector, the team has identified the following risks as being key to whether the project can be implemented and objectives achieved\. Table 6: Risk Matrix Risk Symptom Mitigation Bidding process is not Physical intimidation of GAAP has been updated based on findings of the safe bidders procurement capacity assessment and project team assessment, and existing legislation Bidding process is not Collusion among bidders Procurement strategy to encourage greater competitive competition, develop e-bidding strategy for longer term Propensity for conflict Increased conflict affects Peace filter/governance action plan has been in project districts implementation of developed based on further discussion within project project team and Government Capacity constraints of Delays in project Training of local consultants and contractors; local construction implementation and careful post qualification verification of bidders; industry quality problems independent technical audits for compliance with Quality Assurance Plan (QAP) 14 58\. Governance and Accountability Action Plan (GAAP) and Peace Filter\. The present project sites of RSDP are less affected by the deterioration of the operating environment due to political disturbance and criminal activities, unlike the situation in the Terai of Nepal\. No critical impact due to security problems or local disturbances has been reported so far in the ongoing project activities\. The Additional Financing supports the extension of the ongoing project roads and upgrading of one road in a new area in the hills, which might have limited effects of political disturbances, when nationwide closure is announced and observed by the political parties\. The risks with this particular Additional Financing intervention would be as with any other infrastructure project\. Managing expectations of the community through an effective communication strategy, a complaint redressal system, etc\. and the appointment of social mobilizers to help deal with social issues, will be key to reducing the impact on the project of the conflict\. 59\. Communication strategy\. A communication strategy will be developed for implementation in the project districts as well as at the national level\. The purpose of the strategy will be to help mitigate relevant project risks (identified in the ORAF matrix) as well as to build informed support for the project's development objectives among beneficiaries and stakeholders\. A third objective of the strategy will be to ensure disclosure of project information, as required by Nepal's Right to Information (RTI) regime, and to familiarize citizens with grievance mechanisms, should the need arise to resort to them\. 60\. Mapping exercises will be carried out to identify stakeholders and their concerns in the project districts\. Subsequently, communication and outreach tools will be developed to ensure that the strategy adequately addresses their information needs\. Project staff will also be sensitized of their obligations under the RTI laws\. Influential stakeholders of the project area (i\.e\., local opinion leaders and members of the Constituent Assembly representing project districts) will be identified\. They will be periodically updated on progress of the project and implementation issues\. 61\. Federal governance\. The interim constitution of Nepal envisages a division of the country into federal states\. The sub-committee in charge of drafting the responsibilities of states and the centre has recommended to the Constitution Assembly that the ownership of highways and feeder road connecting districts should remain with the central agency (DOR), where as district roads and other local roads will be owned by the states/provinces\. Regarding the maintenance fund, the central government will continue to generate public revenues including fuel levies\. RBN or its role to distribute road maintenance funds to the states and DOR based on priority annual plans and monitoring the effectiveness of the maintenance spending should not be substantially affected by the proposed federal structure\. Therefore, no major shifts in responsibility of RBN and DoR are expected in the medium term and during the transition to a federal system, as these central agencies are not involved in the implementation of maintenance of local roads\. However, coordination modalities between the central government and the states, where the project are implemented, will need to be developed\. Equally, arrangements may require the development of new coordination mechanisms between the central government and federal bodies as a result of the new federal constitution\. Coordination mechanism and implementation arrangement will have to be developed and processed accordingly in close discussion with the local bodies, as appropriate\. 15 62\. Staffing\. Frequent transfers of DoR project team staff have adversely affected the performance of RSDP\. This has been particularly evident in the case of the Program Coordinator and the finance staff\. The issue of frequent staff rotations was discussed at the 2010 Nepal Portfolio Performance Review, and the GoN is developing mechanisms to reduce disruptive staff transfers in priority development programs\. The current RSDP Financing Agreement includes a covenant on the remedies with regards to frequent staff transfer, which will be continued for the Additional Financing as well\. The staffing of the RSDP project team will be monitored during implementation, and the Bank will exercise its remedies to unjustified transfers, should this occur in future\. 16  Annex 1: Revised Results Framework and Monitoring Nepal: Road Sector Development Project Additional Financing Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed To provide residents of beneficiary Continued No change\. districts with all season road access thereby reducing travel time and improving access to economic centers and social services\. PDO indicators 6 percent increase in population Revised: 6 percent increase in Scale-up program has more impact with all season access to economic population in project districts to have on number of beneficiaries\. centers and social services (in five all season road access within 20 project districts) minutes walking distance (in eight project districts) 35 percent decrease in journey times Continued: 35 percent decrease in No change to key economic centers in the journey times to key economic project area centers in the project area Added: 25 percent decrease in To report on the achievement of journey times to key social services the project towards providing in the project area access to social services\. Reduce the percentage of black top Revised: Reduce the percentage of A target of 10 percent was SRN in poor condition to about 10 black top SRN in poor condition to unrealistic in the regional and percent 15 percent Nepali context Intermediate Results indicators Current (PAD) Proposed change for AF 100 percent of 297 km of target Added: An additional 408 km of Scale up activities roads received upgrading works target roads received upgrading works 100 percent of 100 km of highways Added: An additional 2100 km of Scale up activities and 350 km of targeted roads strategic roads received periodic received periodic maintenance maintenance At least 500 km of SRN receives Revised: No backlog periodic This indicator was originally an periodic maintenance works maintenance within the project outcome indicator\. It has been annually and over 1000 km of period\. reclassified as an Intermediate backlog periodic maintenance Indicator as this is an output addressed during the project period indicator to improve road condition\. Publication of Road Safety Action Added: Road Safety Assessment Scale up activities Plan and implementation of actions Study recommendation implementation HR policy updated and 3 year Added: Additional support provided Scale up activities training plan finalized\. Domestic to DOR staff and international training provided for DoR staff as per policy and plan Completion of Geo-technical Continued: Same as in original assessments, EMAP and RAP project compliance monitoring and 17  Revisions to the Results Framework Comments/ Rationale for Change performance in creating awareness among project construction workers and road users on HIV/AIDS Completion of pilot installation of Added: Additional IT inputs to Scale up activities wide area network (WAN) in DoR enhance IT based management division offices in Kathmandu and system in DoR including fully satisfactory operation and operational e-procurement system maintenance of IT based management system HDM4 used for bi annual road Revised: Simple road asset To simplify the use of HDM4 for condition assessment and management software annual road condition assessment preparation of annual maintenance operationalized to use HDM4 for plan annual road condition assessment and preparation of annual maintenance plan Quality monitoring plan prepared Continued: Same as in original each year and quality audit carried project out by Central Road Lab RBN Act amended and more Continued: Same as in original training and logistics provided project Government decision to benchmark salaries to market rates Human resource development (HRD) plan Third party technical audit carried Continued: Same as in original out for 20 percent of the project project works each year 18  Revised Project Results Framework Nepal: Road Sector Development Project Additional Finance Project Development Objective (PDO): The PDO is for the residents of beneficiary districts to have all season road access thereby reducing travel time and improving access to economic centers and social services\. Baseline Progress Cumulative Target Values6 Freque Original To Date Responsibilit PDO Level Results 2012 2013 2014 2015 ncy of Data Source/ UOM Project (2010)/ y for Data Comments Core Indicators reporti Methodology Start Baseline Collection ng (2007) AF 1\. Percent increase in population in project Every Survey data/ GESU/ DOR/ districts to have all season % 8 11\.15 12 13 14 second GIS mapping RBN road access within 20 year minutes walking distance 2\.Percent decrease in journey times in the Average Every project area % 4h travel 35 35 35 35 second Survey data/ DOR i) to key economic centers at present year 25 ii) to key social services Road 3\. Reduce the percentage About Condition 18% in Every Outsourced of black top SRN in poor 15% in Survey for % poor 20 18 16 second consultants/ condition to 15 percent poor Surface condition year DOR/ RBN condition Distress Index/ Survey report Beneficiaries Project beneficiaries 0\.8 Every within 4 hours walking Number 0\.2 0\.4 Survey data/ 0\.6 mill\. million second DOR distance\. million mill\. GIS mapping year Employment generated Number 2\.5 Total 0\.8 Every 2\.0 mill\. million Contractor's Male mill\. p- second DOR p-days person Report Female days year days Dalits Janjatis 19  Intermediate Results and Indicators Baseline Target Values Intermediate Unit of Original Progress Responsibility 2012 2013 2014 2015 Data Source/ Com Results Measur Project To Date Frequency for Data Core Methodology ments Indicators ement Start (2010) Collection (2007) Intermediate Result 1: Targeted SRN is all weather sealed gravel road i) 700 km of 705 km of target roads all season Consultant's km 0 230 350 400 550 Annual DOR received road report upgrading works completed Intermediate Result 2: Sustainable periodic maintenance of targeted highways and feeder roads executed ii) 2550 km of strategic roads received km 0 322 1000 1500 2000 2550 Annual DOR report DOR periodic maintenance Intermediate Result 3 : Periodic maintenance of targeted highways and feeder roads backlog executed iii) At least 700 km of SRN receives periodic maintenance works annually and over 1000 km 1200 250 500 750 1000 Annual DOR report DOR km backlog periodic maintenance addressed during the project period Intermediate Result 4: Road Safety Action Plan and physical works iv) Road Safety Assessment Planned Planned Planned Planned Consultant's Assessment activity activity activity activity Annual progress DOR/PCT carried out Study carried carried out carried out carried report 20  Intermediate Results and Indicators Baseline Target Values Intermediate Unit of Original Progress Responsibility 2012 2013 2014 2015 Data Source/ Com Results Measur Project To Date Frequency for Data Core Methodology ments Indicators ement Start (2010) Collection (2007) recommendation out out implementation Intermediate Result 5: Improve staff capacity within DoR v) HR policy updated and 3 year training plan finalized\. Planned Planned Planned Planned Domestic and activity activity Done activity activity Annual Reports DoR/RSSDU international carried carried carried out carried out training out out provided for DoR staff as per policy and plan Intermediate Result 6: Capacity building in Geo-technical, Environmental and Social aspects and create awareness on HIV/AIDS vi) Completion of Geo-technical assessments, EMAP and RAP compliance monitoring and performance in Planned Planned creating Planned Planned activity activity awareness Done activity activity Annual Reports DoR/GESU carried carried among project carried out carried out out out construction workers and road users on HIV/AIDS 21  Intermediate Results and Indicators Baseline Target Values Intermediate Unit of Original Progress Responsibility 2012 2013 2014 2015 Data Source/ Com Results Measur Project To Date Frequency for Data Core Methodology ments Indicators ement Start (2010) Collection (2007) Intermediate Result 7: DoR IT based MIS operational vii) Additional WAN Expand IT inputs to Expand IT Expand IT installed in IT system enhance IT system to system to DoR to other bi-annual Reports DoR based other road other road Offices in road management divisions divisions Kathmandu divisions system in DoR Intermediate Result 8: Road assessment management tools used for prioritization of road maintenance and upgrading works HDM4 HDM4 used for bi viii) HDM4 used used for bi annual for bi annual annual road road Simple road condition WB condition condition software assessment and consultant assessment assessmen operation bi-annual Reports DoR preparation of made the and t and al to use annual assessment preparation preparatio HDM4 maintenance of annual n of plan maintenanc annual e plan maintenan ce plan Intermediate Result 9: Improved quality assurance ix) Quality monitoring plan prepared each year and quality Audit Audit audit carried out carried out carried Annual Reports DOR/CL by Central Road by CL out by CL Lab 22  Intermediate Results and Indicators Baseline Target Values Intermediate Unit of Original Progress Responsibility 2012 2013 2014 2015 Data Source/ Com Results Measur Project To Date Frequency for Data Core Methodology ments Indicators ement Start (2010) Collection (2007) Intermediate Result 10: Improve effectiveness of Roads Board Nepal x) RBN Act amended and Amendmen Act Trimester Consultant's MoPPW/RBN more training t Bill in the amended\. reports reports and and logistics parliament RBN reports provided Training Government provided\. Decision to benchmark RBN staff salaries to market rates Human resource Done development Done Reports Reports RBN (HRD) plan Intermediate Result 11: Third party technical audit xi) Third party technical audit carried out for % 0 60 20 20 20 20 Annual DoR report DoR 20 percent of the project works each year 23  Annex 2: Operational Risk Assessment Framework (ORAF) Nepal: Road Sector Development Project Additional Finance Concept to Appraisal Package Version7 Project Development Objective(s) Description: the Project Development Objective is for the residents of beneficiary districts to have all season road access thereby reducing travel time and improving access to economic centers and social services\. Key Results Indicators: 1\. Percent increase in number of people with all season access economic centers\. 2\. Percent decrease in journey times to key economic centers and social services in the project area\. 3\. Reduction in the percentage of black top Strategic Road Network in poor condition Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Rating 1\. Project Stakeholder Risks Low The project design proposes low cost gravel-seal technology to provide The project will engage in consultation and wide dissemination all weather access to the remote districts which may be perceived as of the design even before the actual construction begins to inadequate by some communities and beneficiaries sensitize the residents of the road corridors and the road users on the scope and limitations of the project design\. Pavement standards may be modified wherever required as per specific geo-environmental site conditions for sustainability\. 3\. Implementing Agency Risks (including FM and PR Risks) Medium Frequent transfer of key staff from the project team, particularly from Assurance from GoN to retain staff in the key positions of the the accounts and procurement sections; lack of competition in the project unless required by law of the country and inclusion of contractor industry due to a limited number of qualified contractors and this provision in the legal agreements; dominance of few large firms; lack of adequate accessibility to disclosed appointment of staff and resources to the GESU and M&E Unit project information by general public through non-internet venues; and along with incentive packages- like international training, and 24  Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Rating possible collusion and alliances at design, contract award and payment outsourced supports; improvement in procurement capacity, stages\. documents and process; adequate complaint handling mechanism; independent reviews of sample design and quality of works; 4\. Project Risks Design Risk Medium ­ The risk of inadequacy of design for road conditions is possible in Design reviews by WB\. \. Impact abnormal geo-environmental conditions because of the low cost technology being adopted; and there is risk of cost overruns and delays because of design failure in abnormal situations\. Social and Medium Non-compliance with the actions mentioned in the EMP and RAP is a The contracts will be awarded only after resolving the social Environmental Risk Likelihood risk; and since low cost options are used for the detailed design of the issues satisfactorily, Monitoring by Geo-environmental and roads, the structures that are deemed not absolutely essential for Social Unit (GESU)/DOR will be used to ensure adherence to environmental impact mitigation during normal situations may be the EMP and RAP requirements and the bid documents will omitted from the design\. not be cleared by the Bank unless all environmental issues are addressed satisfactorily introduced in the bid documents\. Delivery Quality Medium Possible delays in the preparation of detailed design and awarding of The designs and bidding concluded for first year contracts Risk Likelihood contracts; provision and utilization of GoN funds for maintenance of before project effectiveness\. Project Supervision Consultants to strategic roads each year is inadequate; and possibility of increased ensure timely completion of works; and the project will project costs due to estimates not based on market price; uneconomical provide TA to the Roads Board Nepal for its capacity design and price increase of around 15 percent of the contract price enhancement and monitoring of the project covenant to ensure adequate maintenance fund is availed to RBN in the annual budget\. Overall Risk Rating: Risk Rating: Preparation Risk Rating: Implementation Medium Likelihood Medium Impact 25  Annex 3: Governance and Accountability Action Plan Nepal: Road Sector Development Project Additional Finance 1\. The Governance and Accountability Action Plan (GAAP) developed for the proposed Additional Financing of RSDP (RSDP-AF) has been updated based on lessons learnt from the implementation of the GAAP of the on-going RSDP, which became effective in 2008, and applies to the original project as well\. It remains the joint responsibility of the DoR and the World Bank to ensure good governance and cost effectiveness in project implementation\. The GAAP is a living document and will be adjusted and modified to reflect emerging governance issues and suggest new appropriate solutions during project implementation\. It will be monitored regularly through appropriate indicators, which will be reflected in the GoN's trimester progress reports and World Bank (Bank)'s aide-memoires\. Methodology of the Preparation of the GAAP 2\. The updated GAAP has been formulated within Nepal's existing governance legal framework, including the revised Anti-Corruption Act 2059 (2002), Right to Information Act 2006, Public Procurement Act 2007 and Public Procurement Regulations 2007\. It also incorporates findings of a governance risk assessment of the Nepal road sector, other Bank- funded projects in the country and South Asia region, and includes recommendations of the Transport Sector GAAP Guidance Note developed by the Bank for transport projects\. 3\. A governance risk assessment was carried out during the preparation of RSDP AF, which included three major exercises: (i) a procurement capacity assessment of the DoR and its field offices in September-October 2009, (ii) consultations with a wide number of stakeholders in the Nepal road sector in June 2009, and (iii) an evaluation of the GAAP of the on-going RSDP in March 2010\. It identified a number of strengths of the existing governance framework and major governance failures, issues and possible risks that the proposed project should address to ensure the successful accomplishment of its development objective\. 4\. The following have been identified as key achievements in strengthening the governance of Nepal's road sector: 5\. DOR's significant commitment to good governance\. During RSDP implementation, DoR has demonstrated a significant commitment to prevent collusive, fraudulent and other corrupt practices by reporting suspicious cases to the CIAA for further investigation and recommendation of contractors involved in corrupt practices to PPMO for blacklisting\. 6\. Successful piloting of e-bidding by the Department of Roads\. Under the on-going RSDP, changes have been made to e-bidding procedures\. It now allows the electronic submission of bids\. The piloting of e-bidding in DoR has proved to be successful in increasing competition\. 7\. Contractors' support of e-bidding\. During meetings with Bank staff, many contractors have expressed their willingness to participate in e-bidding as they clearly see its potential 26 advantage in preventing the intimidation of interested bidders from outside of a concerned district and reducing chances of collusion\. They acknowledge that e-bidding should open more opportunities for them outside their respective districts and, subsequently, enable them building their capacity and experience\. 8\. The governance assessment exercise revealed the following governance inadequacies and issues that need attention in order to ensure successful implementation of RSDP AF and successful achievement of its development objective\. These include (i) collusion and cartelling among contractors; (ii) intimidation of contractors during the bidding and execution of works; (iii) frequent cost variations and contract extensions; (iv) weak capacity of contractors leading to poor quality of works; (v) frequent and/or substantial variation orders; (vi) poor performance by some contractors; (vii) unequal payment or delayed payment to unskilled labor hired by contractors; and (viii) delayed payment to some contractors by the government agencies\. In addition, it has been recognized that some of the governance-related activities that have been used in the ongoing RSDP need strengthening, which include (i) accountability within the DoR and its field offices; and (ii) transparency in procurement process, in particular handling bidders' questions and complaints and monitoring of a dispute handling mechanism\. 9\. The above-mentioned findings of this exercise are taken into consideration when developing an updated GAAP for RSDP AF\. Objective and Implementation Arrangements of the GAAP 10\. As in the on-going RSDP, the objective of the GAAP is to strengthen governance around the project and as a result prevent corruptive practices\. The implementation of this updated plan would continue contributing to strengthening the overall governance environment in the sector and permeating to activities financed by other sources\. 11\. It has been recognized that all concerned stakeholders ­ DoR and its field offices, contractors, consultants, communities, road users and the Bank ­ will have to be part of the implementation of the GAAP to ensure the successful accomplishment of its objectives and its contribution to strengthening of governance in the road sector\. The overall responsibility for implementation and monitoring of the GAAP will remain with the Project Coordination Team (PCT) housed in DoR\. Each concerned Project Management Unit will be responsible for implementation, monitoring of and reporting on GAAP progress at the field level to the PCT\. 12\. Implementation of the GAAP will be monitored through alert indicators as specified for each governance failure, issue or risk in the GAAP Matrix\. If any red flag is triggered, enhanced thematic supervision will be initiated by DoR through specific third party audits, reviews by industry experts, and joint interim meetings with Bank staff, DoR and Ministry of Physical Planning and Works (MoPPW)\. If issues are resolved, red flags will be removed\. If they persist, a detailed investigation will be carried out by DoR and World Bank\. If the investigation confirms corrupt, fraudulent or collusive practices at any stage of the project, appropriate sanctions will be applied by the Bank and/or DoR, depending on the nature of the case\. If needed, DoR will report such a case to the Commission for the Investigation of Abuse of 27 Authority (CIAA), which is an apex constitutional body to curb corruption and its tentacles in the country\. 13\. DoR will seek support from PPMO to organize training workshops in the early stage of the project to explain the GAAP matrix to stakeholders (contractors, consultants and DoR staff) and also highlight the gravity of the governance issues\. DoR will monitor the implementation of the GAAP on annual basis and keep all stakeholders informed of the implementation status, and will also include the reporting in the first trimester report each year\. 28  GOVERNANCE AND ACCOUNTABILITY ACTION PLAN (GAAP) Matrix Agency Issues Actions Timeline Early Warning Indicators responsible Organizational Arrangements and Procedures Need in - Designate staff within PCT and PMUs to be responsible for DoR, By effectiveness Significantly delayed or no strengthening implementation of GAAP at the respective central and field levels project's additional reports on GAAP accountability field offices financing implementation available; within the DoR and - Designate staff with PCT and PMUs to be responsible for handling no responsible person its field offices complaints received from beneficiaries/road users and contractors and Same reporting on the progress of handling complaints - Submit trimester reports by PMUs to PCT and trimester reports by Trimester PCT to DG of DOR and WB project team on implementation of GAAP - Update and disseminate information disclosure policy for DoR-Bank By appraisal projects in accordance with RTI 2007 (see Appendix 1) - Disclose annual progress report on GAAP implementation DoR Annually website and at its Project site offices - Publicize the existence of the functioning complaint handling mechanism and venues of its access for general public and By effectiveness bidders/contractors (with a description of the process of handling complaints) on the DoR website and concerned project site offices Technical Need for - Regularly update material prices and use the updated prices in cost PCT/PMU Annually Deficiencies in designs improvement in estimates and cost estimates observed design and cost during Bank reviews estimates - Update GoN old works norms and develop another set for equipment DoR Periodically based method of construction ­ Design reviews by Independent Technical Auditors (ITA) for conducting reviews of designs and cost estimates as required - Maintain database of unit rates for civil works major items PCT/PMU - Compare estimated cost with market price established through competitive bidding 29  GOVERNANCE AND ACCOUNTABILITY ACTION PLAN (GAAP) Matrix (Cont'd) Agency Issues Actions Timeline Early Warning Indicators responsible Need for - Establish several channels (text messages, hot line, on-line complaint DoR/PCT By effectiveness No\. of reported cases of improvement in box, in addition to written complaints) for beneficiaries/road users to poor quality of roads quality of communicate problems related to quality of contract works and recently constructed or construction works condition of roads; advertise those channels on the information boards non-compliance of works at the project sites, concerned project site offices and DoR website with Technical Specifications in the - Strengthen internal quality controls: format of QA plan to be cleared contract by WB, and quality reports to be made available to Independent Technical Auditors for review Physical and Financial progress not going along - Enhance capacity building in QA for DoR and field offices - Engage ITAs to check for 20% of contracts in compliance with QA Plan - Engage Ex-post ITAs for conducting audits on 20% sample of works including the environmental and social safeguard aspects - Use ITAs to review sample work done by supervising consultants (e\.g\., variation orders) during implementation Safeguards Possible adverse - Apply the Environmental and Social Management Framework DoR/PCT/P By Appraisal No\. of reported cases of impacts on the (ESMF) in project documents to determine and mitigate possible MU non-compliance with communities and adverse impacts of the project on the social and environmental aspects ESMF environment - Conduct consultations with communities on possible adverse impacts and proposed mitigation measures - Define and agree on communities' roles in monitoring of project safeguard implementation and procedures of grievance redress mechanism Weak grievance - Set up (or improve where exist) a functional complaint handling DoR/PMU By effectiveness\. Number of complaints redress mechanism as per ESMF addressed/responded mechanism/compla exceed the total number of int handling - Inform communities of the functional role of this mechanism and its complaints submitted to mechanism procedures DoR/its field offices as revealed through 30  GOVERNANCE AND ACCOUNTABILITY ACTION PLAN (GAAP) Matrix (Cont'd) Agency Issues Actions Timeline Early Warning Indicators responsible community feedback surveys Procurement Collusion among - WB to hold a training for contractors in WB requirements for contract Bank's INT, Completed Substantially smaller contractors, management, role of WB's INT during preparation and implementation SASDT number of bids (or one bid) submission of of WB-funded projects SARPS submitted compared to the fraudulent number of bidding information, any - During pre-bidding conference, carry out awareness campaign about DoR/PCT Pre-bidding documents purchased; other corrupt sanctions to be undertaken against contractors who will be found and stage of each Only one bid is submitted behavior proved involved in corrupt practices (collusion, bribery, fraud, etc\.) contract and is very slightly below engineer's estimate; - Assess bidders' capacity, maintain regular updates of schedule of rates As when One bid is significantly and feedback from participating contractors, and encourage proper required below the rest of other "slicing and packaging" to match the contractor capacity submitted bids; Rotation of winning - Carry out an analysis of bids and verification in doubtful cases; PCT bidders by job, type of to seek WB's advice for further actions if the cases are prevailing and Bidding stage of work or geographical area take actions through PPMO\. each contract - If collusive, fraudulent or any other corrupt behavior is found and Immediately proved, invoke relevant provision of the law (anti-corruption Act and when needed Procurement Act) recommend the respective contractors to PPMO for blacklisting Intimidation - Continue using e-bidding for receiving bids from contractors DoR, Continued Substantially smaller (and/or extortion) number of bids (or one bid) of contractors - Inform all contractors of existence of and encourage to use (domestic submitted compared to the during bidding and and international) complaint handling mechanisms in the Instruction To number of bidding execution of works Bidders documents purchased Very slow or no progress - In case of reports of intimidation (formal/ informal), conduct an DoR/PCT/ Frequently of civil works awareness campaign among project stakeholders, including political PMU Termination of the contract parties present in respective districts, of potential threats and risks of by the contractor possible intimidation to contractors during bidding and implementation periods to project implementation Cost variations and - Establish and regularly update a database of material prices DoR/PCT/ As warranted Large variation in scope contract extensions PMU and quantity during 31  GOVERNANCE AND ACCOUNTABILITY ACTION PLAN (GAAP) Matrix (Cont'd) Agency Issues Actions Timeline Early Warning Indicators responsible - Encourage use of price adjustment clauses in the contracts implementation With each - In case of prior review, DoR to seek concurrence for material contract Poor designs and frequent extension of the stipulated time for performance of the contract from contract extensions the Bank\. approved by supervising consultants - Continue performance evaluation system for design and supervision consultants - Disclose all variations to the awarded contracts on the website Need in - Enhance the e-bidding system to include a tracking option to alert DoR Continuous Complaints from bidders strengthening of DoR about delays of process from bid opening until award about non-transparent transparency in procurement process procurement - Disclose bidding information, including summary of bid opening, DoR/PCT decision-making name of the awarded contractor, engineer's cost estimate and bid cost, process etc\., on the RSDP website and at respective project site offices within 15 working days of contract awards (see more details in Appendix 1) Contract Management and Execution Improvement - Training on Project management and contract administration to be DoR Continuous Contacts are delayed ,or needed incapacity organized for DoR officials MoPPW ITA's remarks are adverse of Project Officials on management and or in managing the - Take departmental action against non-performer in accordance with public complaints received contracts and the country's legal framework applicable to government officials supervising the Consultants and lack in accountability Timely Payment to ITAs to verify physical and financial progress as well as verify DoR Continuous Delay in payments to the contractors contractual payments (financial and procurement) in compliance with contractors\. contractual requirements at the time of technical audit of 20% of the contracts\. Poor performance - Maintain a database of contractors' performance monitoring and DoR/PCT Continued Poorly performing by contractors analyze trends of contractors' performance contractors continue bidding/winning contracts - Recommend to agencies in charge of issuing licenses to take action 32  GOVERNANCE AND ACCOUNTABILITY ACTION PLAN (GAAP) Matrix (Cont'd) Agency Issues Actions Timeline Early Warning Indicators responsible against the contractors as per the prevailing laws and regulations of MoPPW Nepal based on the results of the database of contractors performance monitoring - Promptly invoke available contractual remedial actions against non performing Contractors and Consultants Financial Management Operationalize - Submit FMIS based trimester report on a timely basis\. DoR/PCT Start from Delay in submission of Financial December 31, financial monitoring Management 2010\. reports Information System (FMIS) in DoR Dissemination of - Make publicly available reports on physical and financial progress of DoR/PCT Trimester Financial and physical progress reports all contracts on the DoR website, concerned project site offices s progress not matching Capacity building - Organize training program on financial management to all cost centers DoR/PCT Semi-annual Delay in sending the on financial at least once a year\. financial information\. management Develop Contract - Develop a computerized Contract Monitoring System to monitor DOR/PCT December 31, Transparency of payment Monitoring System payment transactions under each contract under execution\. 2011 information, and timely to monitor the alerts of payments under payment each contract transactions under each contract 33  Appendix 1 Information Disclosure Policy 1\. The following disclosure policy, which was developed for the on-going RSDP, remains in effect for RSDP AF\. Its intent is to enhance transparency in the decision making processes during the implementation phase, including for procurement, financial and safeguards\. It has been updated given the RSDP experience\. Disclosure of procurement information\. Using a variety of media including the existing DoR website, DOR will continue to: make publicly available all annual procurement plans and schedules promptly upon finalization; make available to any member of the public promptly upon request all bidding documents and requests for proposals issued in accordance with the procurement provisions of the financing agreement, subject to payment of a reasonable fee to cover the cost of printing and delivery\. Each such document will continue to be available until a year after completion of the contract entered into for the goods, works or services in question; make available to any member of the public promptly upon request all short lists of consultants and, in cases of prequalification, lists of pre-qualified contractors and suppliers; within two weeks of receiving the Bank's "no objection" and in accordance with the provisions of the Procurement Act to the recommendation of contract award, wherever applicable, or on issue of "notification of award of contract" in other cases, publish in UNDB on-line, in dgMarket and on the DoR website the results identifying the bid and lot numbers with the following information: For goods/works (direct contracting)\. The name of the contractor who is awarded the contract, contract price, contract completion time and summary scope of the contract\. This publication may be done quarterly and in the format of a summarized table covering the previous period\. For goods/works (other than direct contracting)\. (a) name of each bidder who submitted a bid; (b) bid prices as read out at bid opening; (c) name and evaluated price of each bid that was evaluated; (d) name of bidders whose bids were rejected and the reasons for their rejection; and (e) name of the winning bidder, and the price it offered, as well as the duration and summary scope of the contract awarded\. For consulting services (Selection based on consultants' qualifications and single source)\. The name of the consultant to which the contract was awarded, and the price, duration, and scope of the contract\. This publication may be quarterly and in the format of a summarized table covering the previous period\. For consulting services (other than selection based on the consultants' qualifications and single source)\. (a) the names of all consultants who submitted proposals; (b) the technical points assigned to each consultant; (c) the evaluated price of each consultant; (d) the final 34  point ranking of the consultants; (e) the name of the winning consultant and the price, duration, and summary scope of the contract\. The same information shall be sent to all consultants who have submitted proposals\. allow representatives of stakeholders to attend the public bid openings; make publicly available and publish widely contract award information for all contracts for goods and works in accordance with Clause 60 of the Public Procurement Act 2007; and make available promptly upon request by any person or company, a list of all contracts awarded in the three months preceding the date o f such request in respect of a project, including the name of the contractor/consultant, the contract amount, the number of bides/makers of proposals, the procurement method followed and the purpose of the contract\. 2\. Disclosure of Mid-Term Review findings\. Promptly after completion of the project's midterm review, information on the project restructuring will be disclosed in accordance with the disclosure procedure, if applicable\. 3\. Disclosure of audited project financial statements\. As soon as the final audited project financial statements is approved and submitted, DoR will make necessary arrangements for public disclosure by posting it on the DoR website\. 4\. Communication Strategy: A communication strategy will be developed for implementation in the project districts as well as at the national level\. The purpose of the strategy will be to help mitigate relevant project risks (identified in the ORAF matrix) as well as to build informed support for the project's development objectives among beneficiaries and stakeholders\. A third objective of the strategy will be to ensure disclosure of project information, as required by Nepal's Right to Information (RTI) regime, and to familiarize citizens with grievance mechanisms, should the need arise to resort to them\. Mapping exercises will be carried out to identify stakeholders and their concerns in the project districts\. Subsequently, communication and outreach tools will be developed to ensure that the strategy adequately addresses their information needs\. Project staff will also be sensitized of their obligations under the RTI laws\. Influential stakeholders of the project area (i\.e\., local opinion leaders and members of the Constituent Assembly representing project districts) will be identified\. They will be periodically updated on progress of the project and implementation issues\. 35 Annex 4: Revised Implementation Arrangements and Support - Implementation Plan Nepal: Road Sector Development Project Additional Finance 36  Annex 5: Economic Evaluation Nepal: Road Sector Development Project Additional Finance 1\. General\. Following the procedures established under the RSDP, the road improvements included in the project were identified under the "Sector Wide Program and Priority Investment Plan, 2007" (PIP)\. As part of the prioritization process, the Highways Development and Maintenance Model was used to analyze and confirm the economic merits of the maintenance and upgrading requirements of the Strategic Road Network (SRN)\. Further screening was undertaken using a compound ranking, or multi-criteria analysis (MCA) process based on the following indicators: (a) Strategic connectivity-network effects, etc\. (b) Population density served (c) Improvements to accessibility - impact on reducing in-accessible population (d) Connections to District HQ - either initial or secondary link (e) Potential tourism or pilgrimage functions (f) Serving area of economic activity, mineral extraction, rural airfield, etc\. (g) Estimated traffic volume (h) Terrain difficulty and altitude - length of grades, max altitude (i) Poverty index-the human poverty index for the districts traversed\. 2\. The roads included under the Additional Financing operation have been selected primarily based on the above prioritization process\. 3\. Economic evaluation\. The roads were analyzed using the conventional approach to project evaluation, i\.e\. the situation related to the base alternative, represented by the road in its present situation, was compared directly with project options, represented by the upgraded road\. Because the present situation of the road greatly suppresses the traffic flow compared with the traffic potential, a standard traffic-based is not appropriate\. As is the case in the original roads being upgraded under the RSDP, the majority of traffic "with project" options were included as generated traffic or traffic diverted from other modes of transport\. Therefore, a spreadsheet evaluation model was used to reflect the current and expected use of the road as realistically as possible\. This enables transport costs for the base alternative in which the majority of the movements are based on non-vehicular traffic (such as trail movements and pack animals) to be compared with those for conventional vehicles that are expected to replace them\. Typical costs of operating vehicles on the upgraded road have been estimated using the HDM-4 model calibrated for Nepal conditions\. 4\. Four categories of benefits as a result of the road improvement were quantified: (i) reduction in motor vehicle operating costs (VOC mv); (ii) travel time savings for motorized vehicles (VOTT mv); (iii) the estimated modal shift benefit for non-motorized vehicles and pedestrians (NMT and pedestrians); and (iv) generated traffic benefits (accruing only to motorized vehicles)\. In case of roads that become impassable for part of the year, benefits derived from preventing road closures were also computed\. 37 5\. The average daily traffic (ADT) of the motorized vehicles based on the classified count was adjusted to AADT using the DoR seasonal variation factors\. Both surveys included motorized and non-motorized vehicles to collect trip patterns and analyze potential diversion and reassignment of traffic following road improvements\. Traffic growth segregated by type of vehicle was assumed to be based on elasticity principles while generated traffic was assumed to be based on elasticity factors derived from actual observations of the traffic along the area's recently upgraded roads\. Details of the parameters used are as follow: Table 5\.1: Estimated GDP Growth Period Growth/yr (%) 2011 ~ 2014 4\.4% 2015~ 2019 4\.5% 2020 ~ 2024 5\.0% Table 5\.2: Assumed Income Elasticity of Transport Demand Year Car/4WD M/C B/ MB/ MiB HT/LT/ UV/TRA 2011 ~ 2014 1\.1 1\.1 1\.65 1\.40 2015~ 2019 1\.1 1\.1 1\.65 1\.4 2020 ~ 2024 1\.1 1\.1 1\.6 1\.3 6\. Generated traffic on the project roads was assumed based on modification of the elasticity factor of transport demand with respect to savings in travel time\. Factors ranging from - 1\.0 to -1\.43 were adopted depending on the existing original traffic, the level of traffic suppression observed and the potential for traffic generation and population served\. The elasticity factors were mostly based on observations of traffic development on roads that were recently upgraded to paved standard under the RSDP\. In all cases generated traffic is expected to be fully developed by the time of each project completion\. 7\. Table 5\.3 below summarizes the projected traffic evolution in the proposed road improvements: Table 5\.3: Actual and Forecasted Traffic Volumes (2010-2024) S\.N\. Road Year Truck Bus MB Car/Jeep M\.C\. Trac\. Total Ped P/M 1 Khidkijyula- 2010 18 2 12 8 9 77 126 770 15/0 Manma 2014 111 13 27 18 7 2 178 2019 152 19 40 26 10 3 250 2024 209 28 60 37 14 5 353 2 Manma-Jumla 2010 3 1 10 8 8 85 115 91 4/7 2014 33 4 21 5 2 1 66 2019 45 6 31 8 3 2 95 2024 62 9 47 14 4 3 139 3 Kalangagad- 2010 19 10 0 5 5 0 39 473 23/7 Chainpur 2013 38 7 5 21 6 2 79 2018 52 10 7 29 25 3 126 2023 72 15 11 41 33 5 177 4 Shitalpati- 2010 45 28 18 23 59 37 210 926 0/0 Musikot 2013 118 59 104 34 35 2 352 2018 160 85 149 49 45 3 491 38  S\.N\. Road Year Truck Bus MB Car/Jeep M\.C\. Trac\. Total Ped P/M 2023 220 124 219 64 59 5 691 5 Gokuleswor- 2010 12 5 1 15 0 0 33 404 149/ Thaktholi 14 2014 28 22 34 26 24 2 136 2019 40 32 49 37 31 3 192 2024 55 48 59 52 41 5 274 6 Thaktholi- 2010 7 3 2 49 5 1 67 164 139/ Darchula 0 2014 24 33 60 27 39 2 184 2019 34 48 87 36 50 3 258 2024 48 71 129 50 66 5 369 7 Chhinchu 2010 23 16 1 12 51 41 144 970 20/0 (Pokhare)- 2014 102 29 13 13 8 1 165 Devisthal to 2019 139 42 19 19 11 2 232 Jajarkot 2024 191 62 28 27 15 3 326 MB: Microbus; M\.C: Motorcycle; Trac: Tractors; Ped: pedestrians; P/M: porters, mules 8\. Population in the area of influence\. The population in the area of influence was determined using the GIS system developed for the analysis of the accessibility to the road network\. Based on this system, the population served within two hour and four hour walking distances from the proposed project were determined\. Table 5\.4: Population in the Area of Influence Population Within: Road Section Total Population 2 Hours 4 Hours Khodpe-Jhota 67,969 18,381 30,442 Jhota-Chainpur 49,994 11,159 21,699 Gokuleswor-Thaktholi 95,313 18,309 31,350 Thaktholi-Darchula 59,348 11,069 16,100 Shitalpati-Musikot 244,914 60,576 124,734 Manma-Jumla 60,760 7,977 17,419 Khidkijyula-Manma 25,810 6,492 11,159 Chhinchu-Devisthal-Jajarkot 115,994 19,058 39,424 Total 652,133 134,640 261,855 *Based on SWRP's GIS data and GoN CBS data\. ** Total Population in the area of influence of Original Project (PAD): 861,350; 204,650 (2 hours); and 347,910 (4 hours) 9\. Benefits\. (a) Benefits from the reduction of VOCs\. The basic input data for vehicle operating costs are based on the HDM model and inputted into the World Bank RED-VOC model in order to prepare the VOC variations according to surface type and condition for this analysis\. The output from RED-VOC, which is a look-up table for VOC at chosen levels of road roughness, is shown in the table below, in US$ per vehicle-km\. 39  Table 5\.5: RED-VOC table of road roughness (IRI) 3 IRI 8 IRI 15 IRI 22 IRI Vehicle Type US$ US$ US$ US$ Motorcycle 0\.067 0\.077 0\.098 0\.123 Tractor 0\.286 0\.331 0\.403 0\.492 Bus large 0\.514 0\.579 0\.694 0\.836 Bus medium 0\.335 0\.385 0\.462 0\.553 Bus micro 0\.203 0\.238 0\.298 0\.366 Truck heavy 0\.415 0\.468 0\.549 0\.637 Truck light 0\.286 0\.331 0\.403 0\.492 Utility 0\.175 0\.204 0\.262 0\.335 Four Wheel Drive 0\.209 0\.253 0\.337 0\.434 Car/Taxi/Jeep 0\.177 0\.202 0\.256 0\.325 (b) Benefits from savings in travel time\. The value of personal travel time was estimated at US$0\.267 per hour\. Estimated journey time savings, in hours per 100 km for the motorized passenger vehicles (buses), are given in the table below\. Table 5\.6: Time savings in the "with project" case Vehicle Type WP km/hr\. WOP km/hr Saving hr/100 km Bus Light 40\.1 15\.2 4\.07 Bus Medium 35\.7 15\.4 3\.68 Bus Heavy 40\.3 12\.6 5\.46 (c) Benefits from preventing road closures\. In those cases in which the road becomes impassable for part of the year as a result of landslides or flooding (particularly during the monsoon period), the benefits of avoiding closure were measured as the annual output of economic services: [daily number of vehicles*unit vehicle operation cost/km*length of road*365]\. The annual loss of output from road closures is equal to [money value of output per day * number of days closed per year] = annual benefit from improvement, less a percentage, estimated as 25 percent, to allow for some probable closures in the `with project' situation, i\.e\., after the new road is built\. (d) Benefits from modal shifts\. Costs estimated per unit of output (tonne-km) are shown in the table below for porters, mules, and typical truck loads in rural areas of the country\. Table 5\.7: Freight costs per tonne-km, non-motorized and motorized modes Porter Mule Truck Load average (kg) 45 65 4,000 Average km/day 24 24 100 Tonne-km/day 1\.08 1\.56 400\.00 Cost per day (NPR) US$300 US$400 US$6,500 Cost /tonne-km US$277\.8 US$256\.4 US$16\.3 40  Porter Mule Truck Cost /tonne-km (US$) US$3\.70 US$3\.42 US$0\.22 10\. For evaluation purposes the net economic cost saving by modal shift to trucks, from either porterage or mule transport mode, is assessed as US$3\.30 per ton-km\.8 However, the average length of trips by mules and porters is assumed not to be necessarily as extensive as the links themselves\. In the evaluation procedure used, mule and porter trips are limited to 24 km, or an estimated three km/hour for eight hours a day\. After improvement, there may be a residual amount of freight demand that will continue to be moved by porters or mules, but this is likely to be small, given the large cost savings obtainable using a truck\. 11\. With a marked improvement to the road, if pedestrians begin to take bus trips instead of walking, then the economic benefit - to each passenger - must be at least equal to the amount they pay for the bus ride\. Additionally, with the modal shift people who hitherto walked, say only five or ten kilometers, may change their journey patterns and, by motorized transport, begin to take much longer trips\. Cheaper and more frequent services are likely to be offered by transport providers (bus or pickup owners) once the road has been improved\. The extent of this change largely depends on the degree of competition among providers\. In the present analysis, in all cases, there is a certain quantity of bus transport (bus-seats per day) already on offer, and therefore the presumption is that only a certain additional percentage of pedestrians will shift to motor transport from walk mode\. The propensity (tendency) for pedestrians to change to bus mode after improvement was estimated ­ as high, medium, and low for all project roads ­ as shown in the table below\. Table 5\.8: Estimation of mode shift propensity for pedestrians Road Pedestrians/bus Mode Shift Route Pedestrians/day no seat Propensity 3a Khidkiyula-Manma 670 3\.12 high 40% 1b Thaktoli ­ Darchula 341 1\.59 medium 30% 2 Kalangagad br\.- Chainpur 452 1\.13 medium 30% 1a Gokuleshwor ­ Thaktoli 139 0\.93 low 20% 4 Chinchu ­ Jajarkot 697 0\.82 low 20% 5 Sittalpati ­ Musikot 926 0\.67 low 20% 3b Manma- Jumla 79 0\.42 low 20% Source: Consultant's estimates 12\. Capital costs\. Financial costs estimates for the proposed road upgrading works are based on an evaluation of the unit rates and quantities obtained from preliminary designs, drawing and inventory\. Costing has been carried out in the format using District rates, rates of items on recently awarded contracts and approved Norms\. The economic costs were obtained by applying a factor of 0\.92 to the financial costs excluding VAT to allow for other taxes levied on materials and equipment used and to adjust labour cost to include shadow pricing of unskilled labour\. The cost of the roads is as follows: 8 This value is in line to that found by Jay Lebo and D\. Schelling in Pakistan, Nepal and Bhutan: "Rural Road Economic Appraisal Methodology" (see Box 5) World Bank, 2001\. 41  Table 5\.9: Estimated capital costs (in NPR\. Million) Economic Cost Economic Financial Length (millions) Cost per SN Road Option Cost/km (km) Total Total km * (US$) US$ NPR (US$ ) 1 Kalangad-Chainpur 46\.40 4\.0 m Otta seal 116,100 4\.96 317\.7 103,896 2 Khidkijyula-Manma 27\.00 4\.5 m Otta seal 181,200 4\.50 337\.6 166,704 3 Manma-Jumla 79\.00 165,800 12\.05** 903\.0 152,536 4 Shitalpati-Musikot 85\.90 3\.5 m Otta seal 92,200 7\.29 546\.6 84,824 5 Chhinchu-Devistal- 81\.00 109,900 8\.19 614\.2 101,108 Jajarkot 6 Gokuleswor- 38\.40 3\.5 m Otta seal 113,350 4\.005 303\.3 104,282 Thaktholi 7 Thaktholi-Darchula 33\.60 121,400 3\.753 281\.5 111,688 Table 5\.10: Economic evaluation of the road improvement component Forecast Economic S\. Length Traffic Cost per NPV Road IRR (%) No\. (km) (AADT- km * (US$'000) 2014) (US$ ) 1 Kalangad-Chainpur 46\.40 79 103,896 1,266\.77 15\.4 2 Khidkijyula-Manma 27\.00 178 166,704 1,972\.3 17\.7 3 Manma-Jumla 79\.00 66 152,536 2,869\.91 15\.1 4 Shitalpati-Musikot 85\.90 352 84,824 19,527\.21 39\.9 5 Chhinchu-Devistal- 81\.00 165 101,108 10,457\.27 26\.7 Jajarkot 6 Gokuleswor-Thaktholi 38\.40 136 104,282 4,800\.61 26\.4 7 Thaktholi-Darchula 33\.60 184 111,688 3,789\.75 24\.3 Total 391\.3 44,683\.82 23\.36 13\. A series of sensitivity tests were carried out on the evaluations and they are summarized in the table below: Table 5\.11: Sensitivity analysis results Base IRR 20% Cost 20% Benefit SN Road (%) Increase Decrease 1 Kalangad-Chainpur 15\.4 12\.8 12\.6 2 Khidkijyula-Manma 17\.7 14\.8 14\.6 3 Manma-Jumla 15\.1 12\.6 11\.9 4 Shitalpati-Musikot 39\.9 34\.6 33\.8 5 Chhinchu-Devistal-Jajarkot 26\.7 22\.9 22\.2 6 Gokuleswor-Thaktholi 26\.4 22\.5 22\.6 7 Thaktholi-Darchula 24\.3 22\.5 20\.7 Total 23\.36 20\.39 19\.77 42 14\. Periodic maintenance\. The first year program of periodic maintenance was prepared by DoR on the basis of the roads proposed in PIP-2007 and the ranking index of the Annual Road Maintenance Plan\. The details of the roads proposed for periodic maintenance for the first year of the project and the results of their economic evaluation are presented in the table below\. The roads for the periodic maintenance for the subsequent years will be selected on the basis of the PIP of 2007\. Table 5\.12: Proposed periodic maintenance for the first year Road Length Region Division Cost IRR Chihanedanda-Fikkal 23\.55 Eastern Ilam 34,147\.50 20\.5 Chureghanti-Ranke 32\.14 Eastern Ilam 46,603\.00 17\.2 55\.69 80,750\.50 Birtamod(MRM)- 12\.53 Eastern Damak 18,795\.00 86\.5 Chandragadhi Charali-Chihanedanda 13\.78 Eastern Damak 20,670\.00 31\.5 Birtamod-Padajogi (Damak) 21\.00 Eastern Damak 35,700\.00 53\.1 47\.31 75,165\.00 Inerwa(mrm)-Katanganj 7\.00 Eastern Biratnagar 10,500\.00 14\.4 Ghinaghat(MRM)-Biratchok 23\.00 Eastern Biratnagar 34,500\.00 26\.9 30\.00 45,000\.00 Total Eastern Region 133\.00 200,915\.50 Punyamata bridge-Panauti 5\.41 Central Bhaktapur 7,574\.00 51\.7 Khawa-Lamidanda 13\.32 Central Bhaktapur 23,976\.00 28\.4 Sallaghari-Duwakot 5\.5 Central Bhaktapur 6,600\.00 30\.1 Trolley Bus(ARM)Surya 4\.5 Central Bhaktapur 10,800\.00 Binayak-Charmeli Danda 59\.8 (KVRR) Banepa-Punyamata Bridge 0\.59 Central Bhaktapur 826\.00 35\.7 Lamidanda-Dolalghat 12\.15 Central Bhaktapur 21,870\.00 26\.9 41\.47 71,646\.00 Galchhi-junction Trisuli 20\.48 Central Bharatpur 29,696\.00 64\.2 Bridge Junction Trisuli Bridge-Mawa 24\.07 Central Bharatpur 34,901\.50 50\.4 Khola Ramnagar-Mugling 30\.16 Central Bharatpur 42,224\.00 134\. 2 74\.71 106,821\.50 Bhainse-Lamidanda 18\.11 Central Hetauda 25,625\.65 59\.9 Symbhanjyang-Palung 4\.84 Central Hetauda 11,374\.00 46\.2 Bhaise-Bhimphedi 12\.00 Central Hetauda 10,848\.00 35\.1 Jn,old alignement-Gandak 7\.30 Central Hetauda 12,210\.80 50\.3 Canal Samari-Bhainse 7\.9 Central Hetauda 11,178\.50 56\.1 Palung-Tistung 4\.77 Central Hetauda 6,199\.66 48\.5 54\.92 77,436\.61 Bardibas (MRM)-Jaleswor 15\.00 Central Janapur 21,790\.50 14\.3 15\.00 21,790\.50 Kakani-Tadi khola 23\.53 Central Nuwakot 36,730\.33 20\.9 23\.53 36,730\.33 43  Road Length Region Division Cost IRR Barkhe Khola-Dhulikhel 40\.0 Central Banepa-Sidhuli 72,000\.00 18\.6 40\.00 72,000\.00 Total Central Region 249\.63 386,424\.94 Byas municipality boundry- 10\.0 Western Damaula 16,000\.00 59\.6 Kotre District boundry-Besisahar 7\.83 Western Damaula 9,396\.00 49\.1 17\.83 25,396\.00 Pokhara-Sarankot 4\.8 Western Pokhara 6,720\.00 13\.8 Yamdi brg-Sandh\.brg 37\.04 Western Pokhara 62,968\.00 65\.7 Waling-Syangja 27\.62 Western Pokhara 46,954\.00 27\.4 Kubinde-Pokhara mun-bdr\. 12\.09 Western Pokhara 20,553\.00 34\.3 Sandh brg-Kalingandaki brg 24\.11 Western Pokhara 36,165\.00 69\.7 105\.66 173,360\.00 Bartung-Batase Danda 4\.61 Western Palpa 5,532\.00 31\.4 4\.61 5,532\.00 Narayani Bridge-Junction 10\.00 Western Butwal 16,000\.00 54\.6 (Tiger Mountain) Junction (Tiger Mountain)- 14\.93 Western Butwal 23,888\.00 75\.1 Arun Khola Arun Khola-Bardaghat 16\.87 Western Butwal 26,992\.00 61\.0 Sukoura-Butwal (Milan 3\.36 Western Butwal 5,376\.00 77\.0 Chowk) Belhiya(IB)-Sidarthanagar 6\.08 Western Butwal 9,728\.00 193\. 0 51\.24 81,984\.00 Chanauta-Dhankhola 22\.05 Western Shivapur 33,075\.00 56\.2 Chanauta-Bahadurgunj 8\.04 Western Shivapur 12,060\.00 56\.2 30\.09 45,135\.00 Total Western Region 209\.43 331,407\.00 Dhan Khola-Ram Singh Khola 7\.6 Mid Dang 11,400\.00 52\.2 Western Ramsimgh Khola-Rapti River 4\.12 Mid Dang 6,180\.00 52\.2 Western Bhalubang-Lamahi 27\.02 Mid Dang 40,530\.00 42\.1 Western 38\.74 58,110\.00 Man Mridge-Gulariya 19\.82 Mid Nepalganj 20,467\.00 34\.3 Western 19\.82 20,467\.00 Total Mid Western Region 58\.56 78,577\.00 Mohana bridge-Borandandi 6\.23 Far Western Mahendranagar 7,787\.5 38\.1 Godavari Bridge-Faltude 38\.70 Far Western Mahendranagar 43,375\.00 28\.6 44\.93 51,162\.5 Faltunde-Budar 11\.38 Far Western Doti 13,703\.00 15\.6 Gairha-Syaule 29\.74 Far Western Doti 36,111\.32 18\.2 41\.12 49,814\.32 Total Far Western Region 86\.05 100,976\.82 GRAND TOTAL 736\.67 1,098,301\.26 **Backlog periodic maintenance works will be given priority\. 44 Annex 6: Project Map IBRD38135 45  IBRD 38135 80° 82° 84° 86° 88° NEPAL ROAD SECTOR DEVELOPMENT PROJECT Additional Financing 30° ADDITIONAL FINANCING UPGRADING WORKS: FIRST YEAR PERIODIC MAINTENANCE: 30° Gokuleshwor-Thaktholi- HUMLA PROJECT ROADS Km PROJECT ROADS Km Darchula: 73 km DARCHULA I 1 Khopde-Kalinga Bridge 62 1 Hetuada-Pathaliya 10 Darchula BAJHANG 2 Satbanjh-Gokuleshwor 54 2 Pipalbot-Naubise 25 Thaktholi L Gokuleshwor 3 Satbanjh-Tripurasundari 25 3 Nagargun-Tadi (Kakani) 16 I Kalangagad Bridge- 2 Chainpur Chainpur: 50 km 4 Surkhet-Khidkijhyula (Kalikot) 128 4 Kurintar-Anbukhaireni 13 A MUGU Saifaidi Kalangagad Bridge C 5 Tallo Dhungeswor-Dailekh 28 5 Butwal-Kothi 26 BAJURA 4 H K BAITADI 5 T 1 6 Rani-Itahari-Dharan 51 3 3 Khidkijyula-Manma- I 7 Kakarbhita-Mawa 20 N A Dipayal Jumla: 104 km K A R N A L I Dadeldhura Jumla 8 Birgunj-Kalaiya 11 KALIKOT DOLPA A E H JUMLA ACHHAM Manma DADELDHURA DOTI A Achham Khidkijyula Mahendranagar S PRIMARY ALL-WEATHER HIGHWAYS TOWNS AND VILLAGES 4 M JAJARKOT MUSTANG DAILEKH GRAVELLED/EARTHEN ROADS MUNICIPALITIES KANCHANPUR Ataria Chinchu-Devisthal- I 1 KAILALI Jajarkot: 81 km R 7 INTERNATIONAL AIRPORTS NATIONAL CAPITAL 5 Shitalpati-Musikot: I I Dhangadhi Jajarkot 86 km G DOMESTIC (PAVED) AIRPORTS DISTRICT BOUNDARIES SURKHET A MANANG R Kailali RUKUM 6 L ZONE BOUNDARIES Birendranagar Musikot A Devisthal Chinchu W 8 E A INTERNATIONAL BOUNDARIES 2 Shitalpati H MYAGDI BARDIYA T I G A N D A K I D H Chisapani Salyan P A Libang BAGLUNG KASKI LAMJUNG GORKHA SALYAN R ROLPA Baglung B Kohalpur Pokhara Besishahar Gulariya RASUWA T BA Tulsipur PYUTHAN GULMI Dhunche 9 R B PA Nepalganj BANKE Tribhuuvannagar Pyuthan Tamghas A Mt\. Everest 28° 28° G SYANGJA Gorkha M Sandikharka NUWAKOT A T 10 4 DHADING I Kodari A TANAHU Bidur SINDHUPALCHWAK 3 R Mugling ARGHAKHANCHI PALPA Tansen 2 15 DOLAKHA Barhabise DANGDEUKHURI L U M B I N I KATHMANDU 12 11 H U PROTECTED AREAS: KAPILBASTU Bharatpur Lamosangu Koilabas Naubise BHAKTAPUR SOLUKHUMBU Butwal Jiri 1\. Royal Suklaphanta Wildlife Reserve NAWALPARASI Narayanghat Lalitpur SANKHUWASABHA TAPLEJUNG P 5 T RUPANDEHI Banepa Dhulikhel CHITWAN Bhaktapur M 2\. Royal Bardia National Park Bhimphedi A 13 N A Bhairahawa K Taulihawa Parasi MAKWANPUR LALITPUR 3\. Khapted National Park KAVRE Num K R RAMECHHAP A Y Hetauda M A 4\. Rara National Park Bhikhathori Taplejung INDIA E A Ramechhap 5\. Shey Poksumdo National Park (Restricted Area) 14 N OKHALDHUNGA O I N I N D I A R 1 BHOJPUR 6\. Dhorpatan Hunting Reserve SINDHULI C PARSA Sindhulimadi KHOTANG Bhojpur H UM Phidim A 7\. Annapurna Conservatioin Area (Restricted Areas-Mustang) AT R A BARA RH S To Ghazipur Bhaduare TE HA T AT 8\. Manasulu Conservation Area (Restricted Area) Birgunj CH H J Kalaiya RI N AH Dhankuta PA T TA G To Gangtok UT 9\. Langtang National Park SARLAHI Dholkebar H 8 Ilam HO DHANKUTA RA Raxaul UDAYPUR 10\. Sagarmatha National Park Malangwa MA I A DH Dharan ILAM 11\. Makalu Barun National Park SIRAHA Gaighat AN 7 I Gaur Janakpur SUNSARI Siliguri 6 US Lahan NEPAL S 12\. Kangchenjunga Conservation Area (Restricted Area) Damak 16 HA Siraha 13\. Royal Chitwan National Park Jaleswar To Muzaffarpur MORANG Chandragadhi SAPTARI Inaruwa 14\. Parsa Wildlife Reserve Jaynagar JHAPA Rajbiraj Bhadrapur 15\. Shivapuri National Park BANGLADESH Biratnagar 16\. Koshi Tappu Wildlife Reserve Jogbani 0 25 50 75 100 Kilometers This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information 0 25 50 Miles shown on this map do not imply, on the part of The World Bank To To Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. Purnia Dinajpur 26° 80° 82° 84° 86° 88° 26 NOVEMBER 2010

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RESTRICTED Report No\. P-948 This report is for official use only by the Bank Group and specifically authorized organizations or persons\. It may not be published, quoted or cited without Bank Group authorization\. The Bank Group does not accept responsibility for the accuracy or completeness of the report\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND DEVELOPMENT CREDIT TO THE REPUBLIC OF TURKEY FOR A FRUIT AND VEGETABLE EXPORT PROJECT May 26, 1971  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMETT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND DEVELOPMENT CREDIT TO THE REPUBLIC OF TURKEY FOR A FRUIT AND VEGETABLE EXPORT PROJECT 1\. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US $10 million and a pro- posed credit in an amount in various currencies equivalent to US $15 million to the Republic of Turkey for a fruit and vegetable export project\. PART I - HISTORICAL 2\. In February 1970, the Turkish Government requested Bank Group assis- tance in financing this project, which forms part of Turkey's export develop- ment program\. The proposed loan and credit, totalling $25 million, would be the first lending for Turkish fruit and vegetable export development\. The project was appraised in October/November 1970\. Negotiations with representa- tives of the Government and the Agricultural Bank of the Turkish Republic (ABT), took place in Washington during April 22 - 30, 1971\. The Government delegation was headed by Mr\. Ahmet Tufan Gul, Chief Counselor for Economic and Financial Affairs of the Turkish Embassy, and included Mr\. Mutlu, Division Chief of the State Planning Organization, Mr\. Oktar, Research Director of the Ministry of Agriculture, Mr\. Karol, Deputy Director General of the Mlinistry of Village Affairs, and Mr\. Koprululer, Financial Counselor of the Embassy\. The ABT was represented by its Secretary General, Mr\. Parman\. 3\. The following is a summary statement of Bank loans and IDA credits to Turkey as at April 30, 1971: Amount (US $ million) Bank IDA Undisbursed Total (less cancellations) 184\.2 96\.8 84\.1 of which has been repaid to Bank and others 46\.9 Total now outstanding 137\.3 Amount sold 1\.2 of which has been repaid \.7 \.5 Total now held by Bank and IDA 136\.8 96\.8 Total undisbursed 76\.0 8\.1 84\.1  4\. For the status of individual loans and credits and comments on the execu- tion of the projects, as well as for the other operations under consideration and IFC's activities in Turkey, reference is made to the President's Report on an edu- cation project, dated May 7, 1971 (No\. P-930)\. PART II - DESCRIPTION OF THE PROPOSED LOAN AND CREDIT 5\. LOAN CREDIT Borrower: The Republic of Turkey The Republic of Turkey Amount: US $10 million equivalent in US $15 million equivalent in various currencies various currencies Purpose: $23\.8 million to assist in financing through ABT the purchase by sub-borrowers of ferry ships, refrigerated trailers, export handling facilities, and the execution of on-farm development\. $1\.2 million to cover the foreign exchange cost of technical assistance, consultant services, agricultural credit survey, research and citrus propagation farm\. Amortization: In 20 years including a 5-year In 50 years including a 10-year period of grace, through semi- period of grace,through semi- annual installments beginning annual installments of 1/2 of October 1, 1976 and ending 1 percent from Cctober 1, 1981 April 1, 1991\. through April 1, 1991, and of 1-1/2 percent from October 1, 1991 through April 1, 2021\. Interest Rate: 7-¼ percent annually Service Charge: 3/4 of 1 percent annually Commitment Charge: 3/4 of 1 percent annually Relending ABT to Sub-borrowers: Terms: Interest will range between 8\.4 percent and 10 percent and re- payments from 5 to 15 years according to the type of project\. Government to ABT: Interest will be the average rate received by ABT from its sub- borrowers less a) 1/2 percent for a Special Operational Fund and b) 2 percent margin for ABT, i\.e\. about 6\.5 percent\. Repayment will be over 15 years including a 5-year period of grace\. The government will carry the exchange risk\.  - 3 - PART III - THE PROJECT 6\. A report entitled "Turkey - Appraisal of Fruit and Vegetable Export Project;t (PA-87a, dated May 26, 1971) is attached\. 7\. As the main economic activity in Turkey, wlich accounts for 80 percent of exports, agriculture has to be looked to for a continuing and, where possible, increasing contribution to the balance of payments\. The markets for the traditional export products - cotton, tobacco, hazel- nuts, raisins and figs - offer only limited prospects for expansion, and it is therefore on new products that the future growth of exports should be based\. Turkey's second five-year development plan introduced ambitious targets for the expansion of fruit, vegetable, livestock and meat production\. Market studies have shown that good prospects exist for increasing exports to European markets of fruit and vegetables, provided Turkey can meet the needs of these highly selective and com- petitive markets with regard to quality standards, continuity and timing of supply and organization of marketing\. To achieve this requires appropriate transport,handling and processing facilities and institu- tional arrangements\. 8\. The project aims at improving various stages involved in the export of fruit and vegetables, including production, collecting, grading, packing, marketing and transport\. It proposes a ferry ship system, a completely new mode of transport for Turkey, involving two ships, about 380 refrigerated trailers and about 100 towing units\. It would also include export handling facilities with a capacity of about 150,000 tons and the development of about 8,000 ha of citrus planta- tions\. The toal cost of the project would be about $h4 million, of which the Bank/IDA would finance the foreign exchange component amount- ing to $25 million\. Up to $23\.8 million would be re-lent through the Agricultural Bank (ABT) to ferry ship, truck, and export-handling oper- ators with the assistance of a coordinating unit (Project Unit) in the newly established Ministry of Foreign Economic Relations, as well as to farmers with the assistance of a Division in the Ministry of Agri- culture (Citrus Extension Unit)\. It is estimated that 2000 farmers would require credit for an average of 4 ha of citrus development each\. Farm size in the area is about 10 ha and the project would encourage diversity in cropping patterns\. A typical sub-loan would amount to US $1800 per ha and the farmer would contribute about US $360 per ha for which his own labor could qualify\. A large part of the on-farm citrus development area lies within the area served by the Seyhan Irri- gation Project financed by Bank loans and IDA credits in 1963 and 1969, and arrangements will be made for the integrated Seyhan Extension Unit (also under the Ministry of Agriculture) to provide on-farm development and part of the extension services within its boundaries\.  9\. Turkey's fruit and vegetable net export earnings, aided by the Project, would grow from about -?o million at present to about $50 million by 1975\. The Project would provide transport facilities for about one third (100,000 tons) of the projected 1975 market for the main products, and export handling facilities for about half of this market (150,000 tons)\. The on-farm citrus development would provide for groiing domestic needs and additional exports beginning in 1978\. The savings in transport costs, plus the increase in incomes to farmers and exporters, would result in an economic return of 27 percent\. Estimated financial rates of return for ABT's sub- borrowers average 20 percent, except for trucking companies for which about 30 percent has been forecast\. 10\. Following the general reform in the interest rate structure intro- duced in Turkey concurrently with the currency devaluation and the stabili- zation program of August 1970, it was considered desirable that rates applied to sub-borrowers under the project fit as closely as possible in the pattern of rates now applicable to similar activities\. Consequently ABT's relending rates to its sub-borrowers would be 8\.4 percent for ferry ships, 9\.5 percent for on-farm citrus development and export handling facilities, and 10 percent for trailers and towing units\. Repayments of sub-loans would be over periods ranging from 5 to 15 years including grace periods, depending on the type of sub-project being financed\. 11\. The Agricultural Bank (ABT) with vwhom the Association concluded a project agreement under the Intensive Dairy Production Credit (236-TU) in February 1971, was founded in 1863, and is now the country's second largest financial institution, holding 25 percent (about $580 million) of all de- posits in the banking system\. Though profit is not its primary objective, ABT is administered as a profit-making institution, and all profits are re- invested\. The Bank expects to continue to expand its relationship with the ABT in the coming years\. ADT's Projects and Development Loans Departments have a good record and a staff well trained in banking practices, A second livestock project through ABT is planned for FY 1972, while the agricultural credit survey, incorporated in this project, will review and define Turkey's medium and long-term agricultural credit needs and could lead to Bank assis- tance to ABT in this general field in addition to present specialized fields, 12\. The balance of the Bank/IDA finance, about $1\.2 million, would be used by the Government to meet the foreign exchange expenditures on training, technical assistance and the agricultural credit survey\.  - 13\. All transportation equipment and export handling facilities would be procured following international competitive bidding procedures under the supervision of the Project Unit\. Contracts for refrigerated trailers and towing units for the various sub-borrowers would be bulked and the success" ful supplier would be required to set up satisfactory service and spare parts facilities in Turkish towns selected by the Project Unit\. Because of the integrated nature of the export handling facilities each such facility would be procured through a single contract, including civil works, and the supply, installation and trial running of equipment\. For purposes of bid comparison local manufacturers would be allowed a 15 percent margin of preference or the applicable import duties, whichever is lower\. The Bank and IDA would disburse the full cost of transportation equipment, which is expected to be supplied by foreign manufacturers, and the foreign exchange component of the export handling facilities, estimated to average 43 percent of total cost\. 14\. On-farm citrus development would not be suitable for international competitive bidding, because it consists largely of labor, land preparation, and the purchase of nursery stock, fencing, fertilizers, and pesticides, which are readily available through existing commercial channels\. The Bank and IDA would finance 20 percent, representing the estimated foreign exchange component, of all ABT sub-loan disbursements for on-farm work\. PART IV - LEGAL INSTRUI,ENTS AND AUTHORITyr : 15\. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft Development Credit Agreement between the Republic of Turkey and the Association, the draft Project Agreement between the Bank, the Association and the Agricultural Bank of the Turkish Republic, the Recommendation of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank, the Report of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association, and the text of a Resolution approving the loan and the credit are being distributed separately to the Executive Directors\. 16\. The relending to ABT under a Subsidiary Loan Agreement on terms and conditions acceptable to the Bank and the Association is provided for in Section 3\.01 of the Loan Agreement and Section 3\.01 of the Development Credit Agreement\. The Subsidiary Loan Agreement would stipulate the relending rates mentioned in paragraph 11 above; its execution is a condition of effectiveness of the Bank loan and the IDA credit\.  - 6 - PART V - THE ECONGMY 17\. A report entitled "The Development Prospects of Turkeyt" (EMA-30a, dated February 1, 1971) which was recently distributed to the Executive Directors, described Turkey's economic performance and appraised the country's prospects\. Reference is also made to Part V of the President's Report on an education project, dated May 7, 1971 (No\. P-930) which up- dated the findings of the economic report\. A basic data sheet is attached\. 18\. If Turkey is to maintain a growth rate of about 7 percent, its needs for external assistance are likely to be considerable\. Debt service obligations in 1970 were about 19 percent of foreign exchange earnings, in spite of the highly concessionary terms of aid in the past\. In the future Turkey may have to accept a gradual hardening of terms\. In these circum- stances, Turkey's borrowing capacity will have to be kept under continuing review\. Turkey has a margin for borrowing on conventional terms but should seek to obtain as much aid as possible on concessionary terms\. In the light of these factors I consider that Turkey is eligible for the Bank and IDA lending recommended for this project\. PART VI - CCMPLIANCE WITH ARTICLES OF AGREEMENT 19\. I am satisfied that the proposed loan and credit would comply lwith the Articles of Agreement of the Bank and the Association respectively\. PART VII - RECavMENDATION 20\. I recommend that the Executive Directors approve the proposed loan and credit\. Attachments Robert S\. McNamara President May 26, 1971  ANNEX TURKEY BASIC DATA Area 780,600 sq\.km\. Popul ation (1970) 35\.7 million Rate of growth 1965-69 2\.8 percent per annum Density 5 per square kilometer Gross National Product (1969, current market prices) TL 126\.1 billion (1970, provisional " ) TL 133 billion Annual rate of growth (constant prices) 1963-6& 6\.9%; 1969: 6\.6%; 1970: 5% GNP at factor cost (1969) TL 111\.1 billion GNP per capita at factor cost (1969) TL 3,200 ($356) / Annual rate of growth per capita (constant prices) 1963-68: 4\.0%; 1969: 3\.7% Industrial Origin of NDP (% of NDP at constant prices) 1962 1969 Agriculture, forestry 39\.7 30\.9 Industry, mining, electricity 16\.2 19\.5 Construction 6\.3 7\.I Transport, communication 7\.2 7\.8 Trade 8\.1 8\.7 Housing I\.8 5\.3 Coverrnent services 9\.7 10\.6 Financial institutions and other services 8\.1 9\.8 Expenditure on GNP (% of GNP at constant prices) Private consumption h\.1 71\.5 Public consumption 15\.4 11\.9 Gross fixed investment 1L\.8 19\.1 Net imports of goods and services 3\.6 3\.1 Net factor incone from abroad -o\.6 -o\.5 Gross national saving 10\.5 16\.6 Goverrrnent tax revenue 15\.6 17\.1 Annual Growth Rate (%) Public Finance (Billion TL) 1969 1970 /2 1963-67 1968-69 Current receipts 21\.6 27\.1 16\.3 13\.b Current expenditures 12\.4 15\.0) 16\.6 13\.3 Current and capital transfer 6\.6 7\.9) 2b\.0 Surplus, net of transfer 2\.6 4\.2 5\.1 -3\.8 Investment expenditures 6\.9 7\.0 10\.7 17\.5 LI At the new exchange rate TL 15 US $1\.00, established in August 1970, the comparable exchange rate using GNP per capita at factor cost would be equivalent to $213\. /2 Buidget  - 2- ANNEX Annual Growth Rate (%) 1969 Sept\. 70 1963-67 1968-69 Money and Credit Prices (Billion TL) Total money supply, including sight saving deposits 30\.1 30\.4 15\.6 15\.1 Time and saving deposits 22\.3 22\.2 20\.5 20\.0 Total Central Bank credits and advances 12\.9 14\.6 37\.0 21\.0 Total commercial bank credits 33\.2 37\.8 17\.7 19\.2 Commercial bank credits to private sector 30\.2 30\.0 18\.3 21\.0 Rate of change of wholesale price index 5\.9 6\.5 5\.7 5\.2 Rate of change of consumer price index (Istanbul) 5\.0 9\.2 7\.7 5\.5 Balance of Payments (Million US $) 1962 1967 1968 1969 1970 Imports of goods 622 685 764 801 935 Exports of goods 381 523 496 537 585 Net invisibles (including NATO receipts) - 1 48 37 43 113 Current account deficit -242 -114 -231 -221 -237 Commodity Concentration of Exports (%) 1962 1969 Cotton 17 21 Tobacco 25 15 Hazelnuts 17 20 Fruits, vegetables 7 10 External Public Debt (Million US $) Dec\. 31/68 Dec\. 31/69 Total outstanding debt 1,984\.2 2,215\.3 Debt service 103\.1 137\.1 Debt service ratio (% of exports of goods) 21 25 (% of exports of goods and services, gross) 17 20 (% of exports of goods, services and workers' remittances) 14 17 IBRD/IDA Operation (Million US $) 1968 1969 1970 Total loans - IBRD (including internal sales) 98\.4 146\.9 186\.9 - IDA 80\.3 92\.3 92\.3 Repayments - IBRD 39\.6 41\.9 45\.1 Total loans outstanding - IBRD 55\.8 104\.3 138\.9 - IDA 80\.5 92\.5 92\.3 Foreign Exchange Reserves (Million US $) Dec\. 31/68 Dec\. 31/69 Dec\. 31/70 Gold and convertible foreign exchange, gross 123 245 431 Gold and convertible foreign exchange, net 40 200 410 Inconvertible currencies 92 125 151  -3- End of Year IMfl Position (Million US $) 1968 1969 1970 Quota 108 108 1i1 Drawings outstanding 76 64 112 Allocation of SDR - - 18 Par value - since August 20, 1960 TL 9 - US $ 1\.00 since August 9, 1970 TL 15 - US $ 1\.00 May 26, 1971

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Doctment of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No\. 10372-MA Type: (SAR) TEMPLETON,/ X82272 / F3061/ ASTAG STAFF APPRAISAL REPORT MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT MAY 15, 1992 Agriculture Operations Division Country Department I East Asia and Pacific Regional Office IThis document has a restricted distribution and may be used by recipients only in the performance of th\._ir official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS December 1991 Currency Unit: Malaysian Ringgit (M$) M$l - US$ 0\.37 US$1 - M$2\.70 FISCAL YEAR (FY) Government: January 1 - December 31 Bank: July 1 - June 30 WEIGHTS AND MEASURES 1 hectare (ha) = 2\.47 acres (ac) i kilogram (kg) - 2\.2 pound (lb) ABBREVIATIONS CIF - Cost, Insurance and Freight FELCRA - Federal Land Consolidation and Rehabilitation Authority FELDA - Federal Land Development Authority ffb - Fresh Fruit Bunch (oil palm) GDP - Gross Domestic Product ICB - International Competitive Bidding INRO - International Natural Rubber Organization KPFB - Koperasi Peserta FELCRA Berhad (FELCRA Settlers' Cooperative Limited) KPFB Holdings - KPFB Holdings Sendirian Berhad (KPFB Holdings Company Limited) KPR - Koperasi Peserta Rancangan (FELCRA Scheme Participants' Cooperative) LCB - Local Competitive Bidding MIS - Management Information System MRD - Ministry of Rural Development PWD - Public Works Department RISDA - Rubber Industry Smallholders' Development Authority RRIM - Rubber Research Institute of Malaysia RSS - Ribbed Smoked Sheet (rubber)  FOR OFFICIAL USE ONLY THIRD FELtRA LAND DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No\. LOAN AND PROJECT SU\.MARY \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. iii I\. BACKGROUND \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 Agriculture in the Economy \. \. 1 The Tree Crop Sector \. \. 2 Bank Sector Experience and Strategy \. \. \. \. \. \. \. \. \. \. \. \. \. \. 5 II\. THE FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY \. \. \. 6 Origin \. \. \. \. 6 Organization \. \. \. \. 6 Land Development Program \. \. 7 Organization of Schemes \. \. 8 Agricultural Performance \. \. 8 Beneficiaries \. \. \. \. \. \. 9 Financial Performance \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 11 Bank Experience with FELCRA \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 13 III\. THE PROJECT \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 Project Origin and Preparation \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 Rationale for Bank Involvement \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 Project Objectives and Main Features \. \. \. \. \. \. \. \. \. \. \. \. 14 Detailed Project Description \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1c Agricultural Development \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 15 Infrastructural Support \. \. \. \. \. \. \. \. \. \. \. 18 Institutional Strengthening \. \. \. \. \. \. \. \. \. 20 Studies \. \. \. \. \. \. \. \.3\. \. \. \. \. \. \. \. \. \. \. \. ,3 Project Management Support \. \. \. \. \. \. \. \. \. 24 Project Costs \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 24 Project Financing \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 26 Procurement\. \. 26 Disbursement\. \. 28 This report is based on the findings of an appraisal mission to Malaysia in December 1991\. The mission comprised Messrs\. K\. Templeton (Task Manager), W\. Cuddihy (Economist) and A\. Byrne (Financial Analyst)\. The mission was also assisted by Messrs\. P\. Boyer (Tree Crop Specialist), J\. Roman (Rural Engineer) and C\. Maguire (Training Specialist)\. Peer Reviewers were Messrs\. D\. Notley (Financial Analyst), K-H\. Yeow (Tree Crops Specialist) and C\. Rees (Ecologist)\. Mr\. C\. Madavo (Director, EAl), and Mrs\. D\.M\. Dowsett-Coirolo (Chief, EAlAG) have also endorsed the project\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - ii - IV\. PROJECT IMPLEMENTATION \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 29 Scheme Development \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 30 Staffing \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 30 Implementation Schedule \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 30 Operation and Maintenance \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 31 Management of Palm Oil Mills ,id Agricultural Schemes \. \. 31 Accounts and Audit \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 3; Monitoring aad Evaluation \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 32 Environmental Effects \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 32 The Role of Women \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 33 Reporting \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 33 V\. AGRICULTURAL PRODUCTION\. MARKETING AND PRICES \. \. \. \. \. \. \. 33 Agricultural Production \. \. \. \. \. \. \. \. \. \. 33 Marketing and Price Prospects \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 34 Palm Oil \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 34 Rubber \. \. \. \. \. \. \. \. \. \. \. 39 VI\. PROJECT BENEFITS AND JUSTIFICATION \. \. \. \. \. \. \. \. \. \. \. \. \. \. 42 Benefits \. \. \. \. \. \. \. \. \. \. 42 Scheme Income Analysis \. \. \. \. \. \. \. \. \. \. \. 42 Project Analysis \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 46 Project Risk \. \. \. \. \. \. \. \. \. \. \. \. 47 VII\. AGREEMENTS REACHED AND RECOMMENDATION \. \. \. \. \. \. \. \. \. \. \. \. \. 47 ANNEXES Annex 1: Detailed Cost Tables Annex 2: Disbursements Annex 3: Financial Statements of KPFB Holdings Sdn\. Bhd\. Annex 4: FELCRA's Financial Statements Annex 5: Tapping Training Program (5\.1); Terms of Reference for Accounting Consultants (5\.2); Agricultural Production Technologies (5\.3); FELCRA Staffing (5\.4); FELCRA Action Plan (5\.5) Annex 6: Crop Yield Profiles (6\.1); Commodity Prices (6\.2-6\.3); Farm Model Cash Flow and Economic Analysis for Oil Palm (6\.4-6\.6) and for Rubber (6\.7-6\.9); Economic and Sensitivity Analyses (6\.10-6\.11) Annex 7: Documents in Project File CHARTS Figure 1: Organizational Chart of FELCRA (1991) Figure 2: The Agricultural Development Process Figure 3: Organization of Proposed Plantation and Finance Divisions  - iii - MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Loan and Project Summary Borrower: Malaysia Beneficiary: Federal Land Consolidation and Rehabilitation Authority (FELCRA) Loan Amount: US$94\.0 million Terms: 17 years, ir-<uding 5 years of grace, at the Bank's standard variable interest rate\. Project Description: The project would strengthen FELCRA as a development institution and would support its efforts to disengage from the management of various mature operations in favor of private beneficiary institutions\. t would: (i) rehabilitate planting 48,000 ha of idle agricultural land through planting of tree crops under group farming arrangements, and would maintain a further 120,000 ha of tree crops during crop immaturity; (ii) provide agricultural scheme and other infrastructure; (iii) introduce a system of reduced frequency tapping to lower rubber tapping costs and labor requirements; (iv) strengthen FELCRA through the creation of new plantation and finance divisions and the introduction of improved accounting and financial management systems; (v) assist FELCRA in privatizing the management of its palm oil mills and of agricultural schemes which have repaid their land development loans; (vi) expand training programs for farmers and staff; and (vii) provide studies and management support services Benefits and Risks: The main project benefits would include improved incomes for some 24,000 smallholder families including many previously earning under the povarty level; devolvement of the management of mature agricultural schemes and agro-processing facilities to private beneficiary institutions; improvement in FELCRA's efficiency as a development agency with particular attention to its technical services and financial management; and increased national export earnings from tree crops\. The only notable project risk would be a significantly steeper deterioration in the cost-price relationships for rubber production than have been anticipated in the project economic analysis\. However, this is not considered serious as conservative assumptions have been used and, the rate of return is relatively insensitive to further variations in these assumptions\.  - iv - Estimated Costs: LocalForeignTotal ----- US$ million--------- Agricultural Development 88\.3 58\.9 147\.2 Civil Works 28\.2 15\.8 44\.0 Training 2\.9 1\.9 4\.8 Studies - 1\.1 1\.1 Equipment, Furniture and Vehicles 3\.0 14\.3 17\.3 Project Management 120\.5 - 120\.5 Base Costs 242\.9 92\.0 334\.9 Physica: Contingencies - - Price Contingencies 19\.9 6\.8 26\.7 Total Project Costs 262\.8 98\.8 361\.6 Financing Plan IBRD 94\.0 94\.0 Government 262\.8 4\.8 267\.6 Total ,262\.8 \. 361\.6 Estimated IBRD Disbursements FY92 FY93 FY94 FY95 FY96 Annual 0 30\.22 22\.8 21\.3 19\.7 Cumulative 0 30\.2 53\.0 74\.3 94\.0 Economic Rate of Return: 13% Map: IBRD No\. 23771 1 Exclusive of taxes and duties estimated at US$2\.7 million\. 2 Including retroactive financing of US$9\.4 million\.  MAIAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT I\. BACKGROUND Agriculture in the Economy 1\.1 Malaysia's agricultural sector continues to play a key role in the economy, although its relative importance is naturally declining as the country proceeds towards industrialization\. In 1991, agriculture's share of GDP was 15%, down from 24% in 1980\.11 However, the sector still employs 25% of the workforce and contributes 10% to direct export income, while also providing raw materials and jobE to other export industriei\. Malaysia's long- run agricultural growth rate has l-een high by international standards\. During the 1960s and most of the 1970s, the growth in sectoral output at constant prices averaged 7%\. This declined to a lower, but still very respectable, 5% during the 1980s as expansion of the land frontier slowed\. 1\.2 About one-third of Peninsular Malaysia and 5% of East Malaysia (5 million ha) are under cultivation, with the remaining area under forest or scrub regrowth\. About 86% of this area is planted with tree crops, mainly rubber and oil palm\. Oil palm has overtaken rubber as the largest crop because of its greater profitability and relative ease of management\. Cocoa also expanded rapidly during the past three decades, from only 2,000 ha in 1960 to 370,000 ha in 1990\. The balance of the area under cultivation is devoted to rice, Malaysia's main food crop\. Food production jumped as a result of the spread of irrigation and high yield varieties of rice during the 1970s, but has since stabilized\. 1\.3 The 1990 Household Expenditure Survey estimates the number employed in agriculture to be about 1\.84 million, down from almost 2 million a decade earlier\. Of the approximately 850,000 households involved, the largest number are rubber smallholders (155,000), followed by paddy farmers (116,000), oil palm growers (100,000) and estatR\. workers (81,000), with the rest divided among mixed farming and fishing\. There are also large numbers of undocumented immigrant laborers, particularly in the tree crops estate sector\. Although farm employment has dropped, real agricultural GDP rose at an annual average rate of almost 5%, indicating a long-run productivity increase of 6% per year\. Both wages and labor productivity are closely tied to commodity prices, which experience significant short-run fluctuations\. To illustrate, nominal agricultural wages increased at a lower rate than inflation in 1990, but this was reversed during the first half of 1991, when they rose by 5\.8% in response to commodity price changes, resulting in real wage gain} of about 3%\. During this period overall labor productivity in rubber and oil palm rose 6\.6%\. For the future, it is likely that the long-run trend of falling agricultural The Second Outline Perspective Plan 1991-2000, Government of Malaysia, 1991\.  - 2 - employment should continue to be offset by increasing labor productivity, resulting in wage increases equal to or slightly above the rate of inflation\. The Tree Crog Sector 1\.4 Present PerZormance Alaysias climate and soil conditions provide a strong natural compA- \.;ve advantage for tree crops\. The country has long been the world's large producer and exporter of rubber and oil palm, and is one of the major pruducers of cocoa\. In 199Y, Malaysia provided 6 million tons of the total world output of 11\.8 million tons of palm oil (Table 1\.1), and 1\.25 million tons of the world output of 3\.2 million tons of rubber (Table 1\.2)\. Malaysia remains the industry leader for palm oil in terms of area, yields, production, technology and downstr\.iam processing\. For rubber, this position has changed over the past decade, a; increasing real labor costs have begun to erode relative profitability\. In 1991, Malaysian rubber output fell to 1\.25 million tons, while Indonesia's rose to 1\.29 million tons and Thailand's to 1\.25 million tons\. Although Malaysian rubber production has been on a gradual long-term decline, high prices in 1988 evoked a strong output response and a resurgence of interest in replanting\. Far from being a sunset industry, indications are that a firming of long run prices, improvementi in production and processing technology, and maintenance of high and consistent quality will ensure that Malaysia remains a major force in the world rubber market\. 1\.5 Malaysian tree crop yields are high, both on total planted and mature areas\. By planted areas, the overall yield of oil palm fresh fruit bunches (ffb) averages 18 tons/ha, compared with 9\.5 tons/ha for Indonesia and 11\.9 tons/ha for Thailand\. For dry rubber, yields are about 760 kg/ha compared with 400-500 kg/ha for Malaysia's two neighbors\. However, these average figures underestimate the higher yields of mature plantings in Malaysia: average yields for mature estate oil palm are about 25 tons ffb/ha, for estate rubber about 1,400 kg/ha, and fnr smallholder rubber about 1,000 kg/ha\. Malaysia's yield superiority reflects the good institutional performance of research, extension and marketing based on individual commodity specialization\. 1\.6 Palm Oil Outlook\. World demand for palm oil has grown at some 10% p\.a\. over the past two decades, from 1\.7 million tons in 1971 to 11\.4 million tons in 1991\. Palm oil remains the lowest cost source of vegetable oil (about US$200/ton compared with US$300-500/ton for annual oilseeds), and some 90% of this output is consumed in developing countries (Table 1\.1)\. Long-run demand is expected to continue to grow at a rate of at least 6% per annum based on population growth and high income elasticity at low income levels (para\. 5\.7)\. Global production is projected to double within 15 years, from 11\.8 million tons in 1991 to 24\.4 million tons by the end of 2005, with the increase in supply coming mainly from established producers (Table 1\.2)\. Prices are expected to rise 30% in current dollars and to decline 20% in constant dollars over the next 15 years (para\. 5\.6)\. Based on immature plantings already established, as well as on projected plantings, Malaysia should increase production by about 70%, from the present 6 million tons/year to 10\.2 million tons, over the period\. While this is significant, it will not be sufficient to maintain world market share, which is expected to drop from a high of 61%  - 3 - in the late 1980's to 42% by 2005\. Despite lower relative prices, the Malaysian palm oil industry should maintain profitability through a vigorous planting program with high performance varieties and through exploitation of identified, but as yet underutilized, yield potential\. The major issues for the industry remain the price and availability of labor, and the fact that Malaysia's market access is affected by the discrimina\.ory trade policies of other countries\. While Malaysian palm oil is virtually unprotected (para 5\.8), it faces competition from subsidy programs of oilseed exporters and tariff barriers of importers\. Table 1\.1: f m\.n Oil Production\. Consumption and Prices Actual Proiected 1979-81 1988-90 1991 1992 1995 2005 Production (million tons) - World 4\.9 9\.5 11\.8 13\.1 16\.3 24\.4 - Malaysia 2\.9 5\.8 6\.0 6\.2 7\.1 10\.2 - Market Share % 59 61 50 47 44 42 Consumption (million tons) - Industrial economies 0\.9 1\.4 1\.3 1\.2 1\.3 1\.8 - Developing economies 3\.3 7\.8 10\.1 11\.3 14\.2 21\.3 - Market Share % 78 84 88 90 92 92 Prices -Current US$/ton 584 350 339 341 408 450 -Const\. 85 US$/ton 556 238 211 210 248 183 Source: International Trade Division, World Bank: Price Prospects for Major Primary Commodities, 1990, and Commodity Price Bulletins\. 1\.7 Rubber Outlook\. World consumption of natural rubber is expected to rise from 5\.2 million tons in 1991 to over 7 million tons within 15 years, with supplies coming mainly fLom established producers (Table 1\.2)\. Increased demand for natural rubber, particularly in developing economies, relative to that for synthetic rubber comes from recent technological developments and availability of more types and grades of natural rubber of stringent specifications\. Rubber prices are projected to recover in nominal terms as the global economy pulls out of recession and to double within 15 years to US cents 206/kg, but to remain relatively low in real terms over the long-run\. Much will depend on the economic performance of Asian and East European countries wish high income elasticity for rubber products\. Malaysia's production is expected to regain recent levels of up to 1\.5 million tons through technology innovations, including reduced frequency tapping and replanting with high performance clones, but to reduce its market share slightly from about 27% in 1992 to 22% by 2005\.  -4- Table 1\.2: Rubber Production\. ConsumpLion and Prices Actual Projected 1979-81 1988-90 1991 1992 1995 2005 Production (million tons) -World 3\.8 4\.9 5\.2 5\.4 5\.9 7\.2 -Malaysia 1\.5 1\.5 1\.2 1\.3 1\.5 1\.6 -Market Share % 40 30 24 24 25 22 Consumption (million tons) -Industrli\.' economies 2\.0 2\.5 2\.4 2\.5 2\.7 3\.2 -Develo,\.Lg economies 1\.4 2\.2 2\.3 2\.4 2\.6 3\.4 -Market Share % 41 45 49 49 49 51 Prices -Current USc/kg 162 129 100 114 146 206 -Const\.85USc/kg 155 92 62 70 86 84 Source: International Trade Division, World Bank: Price Prospects for Major Primary\. 1\.8 Tree CroD Strategy\. Government sector policy aims to ensure the supply of food and agricultural commodities for industry and export, while eradicating rural poverty\. The tree crop subsector is seen as the principal vehicle for achieving the non-food objectives\. The development strategy has been to provide high quality support services, replanting programs and settlement schemes, as well as to set and regulate product quality standards\. The results of strong Government support to institutions serving the tree crop sector have been recognized internationally\. Of note is the Rubber Research Institute of Malaysia (RRIM), which has a long history as a world leader in advancing rubber production technology\. The Rubber Industry Smallholder Development Authority (RISDA), through a replanting program of 30,000-40,000 ha per annum, has ensured the availability of high quality clones in the smallholder subsector\. The Federal Land Development Authority (FELDA) has resettled over 100,000 smallholder families in estate-type schemes planted to rubber, oil palm and other crops to close the gap between smallholder and estate performance levels\. As the supply of new land for these schemes has diminished, Government policy has emphasized intensive rehabilitation of existing smallholdings through a group development approach by the Federal Land Consolidation and Rehabilitation Authority (FELCRA), which had developed some 240,300 ha (of tree crops) by the end of 1990 (para\. 2\.6)\. The OPP2 confirms that the policy emphasis for the future will continue to be on consolidation and rehabilitation of existing smallholdings, rather than on the settlement of new lands\. 1\.9 Diversification\. Both the private and public sectors are actively involved in crop and product diversification\. Little palm oil is now exported in crude form, and even refined oil is increasingly exported as manufactured  -5- products\. Similarly, rubber is it,creasingly manufactured into final products before export\. Government agencies are also involved in the expansion of pepper, pineapple, fruits and vegetables among smallholders, as well as the increase of small animal production\. FELCRA, for example, has moved into large scale production of pineapple\. Strong private sector investment has resulted in high growth rates for poultry, pork, mutton' and beef\. The Malaysian Agricultural Research and Development Institute (MARDI) concentrates on widening the range of crops adapted to the local environment and on improving crop processing technology\. Bank Sector Experience and Stratqgy 1\.10 The Bank has consistently supported the Government's growth and income objectives and strategies in the agricultural sector in Mala- \. For the future, the Bank will continue to assist smallholder progrnms e :~J at poverty alleviation and productivity improvements to help maintain Malaysia's international competitiveness\. This assistance will empLasize institution development and support for the devolution of management activities to farmer beneficiaries, and the privatization of activities which no longe; need to be carried out by the public sector\. 1\.11 The Bank's past involvement in the sector has helped to increase foodgrain output, through large and small-scale rice irrigation schemes and the development of Malaysia's research and extension services\. Tree crop development has been supported under both crop-specific operations and area development projects in which tree crops played a major role\. Crop diversification has been pursued through both area development and agricultural research projects\. The Bank has also had a long association with Malaysian agricultural policy analysis through formal technical assistance to the Economic Planning Unit of the Prime Minister's Department and through regular economic and sector reporting\. 1\.12 To date, the Bank has made 32 loans for agriculture and rural development, amounting to US$956\.6 million, or nearly 40% of total lending to Malaysia\. Within the food crop sector, the most successful was the MUDA I Irrigation Project (LN\.434-MA) which led to a doubling of cropping intensity, increased yields and strong institutional development\. Within the treecrop sector, seven loans have been made to FELDA to assist implementation of its land settlement schemes\. Six of these have been completed, and five Project Performance Audit Reports (PPARs) and an Impact Evaluation Report (IER)2/ by the Operations Evaluation Department (OED) concluded that all these FELDA projects were quite successful in me-'ing their objectives\. Achievements in land development, crop yields, incoLt and economic returns were satisfactory\. The Bank has also made three loans for FELCRA-led development, all of which achieved or exceeded targets and were considered successful and sustainable (paras\. 2\.23-2\.26)\. The Bank has made one loan in 1990 for RISDA, which has also been an implementing agency in several of the Bank supported rural development projects\. 21 PPAR Nos\. 2122, 3024, 3978, 4221 and 5780\. IER No\. 5988: Malaysia- First, Second and Third Jengka Triangle Projects\.  - 6 - II\. THE FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY OrigLi 2\.1 In the 1950s and early 1960s, many States had alienated large tracts of land for rubber development to landless villagers and farmers whose holdings were too small to generate an adequate income\. Most of these lands were hilly and remote, and the new holders did not have the technical and financial resources to develop them adequately\. The Federal Land Consolidation and Rehabilitation Authority (FELCRA), under the Ministry of Rural Development (MRD), was established in 1966 to consolidate and rehabilitate these State and privately owned smallholder lands\. This program was part of Government's major thrust to reduce rural poverty by promoting group farming arrangements for smallholders, based on the more efficient tree crop, estate-type production systems which have been so successful in Malaysia\. FELCRA's activities are largely confined to Peninsula Malaysia, but during the Sixth Plan period it will initiate its first rehabilitation program in Sarawak; it has no presence in _;\.h\. At the end of 1990, FELCRA had developed some 247,000 ha (5% of the total cultivated area in Malaysia), mostly oil palm and rubber, of which 83,000 ha were in production, for a total revenue of about M$152 million\. Production included 31,000 tons of rubber and 120,000 tors of palm oil, representing abo'lt 2\.5% and 1\.8% respectively of the national production of these commodities\. For the future, FELCRA will concentrate primarily on rehabilitating underutilized or idle smallholder lands, but has no plans to engage in any significant new land development\. 2\.2 By a 1985 amendment of its original Act, FELCRA's mandate was substantially broadened, permitting expansion into rural non-agricultural activities, including the promotion of cooperatives and their commercial ventures, oil palm processing and participation in MRD's national village development and rural industrialization programs\. By 1991, FELCRA had established some 86 farmers' cooperatives engaged in a wide variety of activities (para 2\.13), had four oil palm processing mills in, or about to come into, production, and had initiated about 17 cottage industry projects in food processing, manufacturing of barbed wire, ceramic and wood products, furniture and tools, and services such as motor repair shops and tourist amenities\. Qrganization 2\.3 FELCRA is a fully funded Government statutory body operating under a 16-member Board of Directors, comprising a Chairman, one representative each of the Ministries Finance and of Rural Development, the Director General of FELCRA and up to 12 other members appointed by the Minister of Rural Development to represent various central and State government agencies\. The Board Chairman determines operational policy in line with the Agency's objectives, while the Director General is responsible for policy implementation and administration\. FELCRA's structure has been modified three times over the last decade to reflect the Agency's changing operations, the most recent being in 1989 to strengthen its social development programs\.  -7- 2*\.4 Under the current structure, depicted in Figure 1, the Director General is assisted by a Deputy Director General, to whom six Divisional Directors report, with responsibilities for Planning, Technical Services, Social Development, Management Services (including finance, personnel, procurement and training), Processing/Marketing, and Monitoring and Evaluation (which includes the scheme inspectorate)\. At the secondary management level, there are 21 Deputy Directors of Sections and 12 State Directors (including Sarawak, Perlis combined with Kedah, and the Trans Perak Area Development Project as a separate office) who report to the Deputy Director General\. At the State level, FELCRA operations are managed by State Directors, assisted by field managers and supervisors, agricultural officers and engineers, social development, marketing and finance officers and administrative staff\. At the field level, the agricultural schemes, which individually range from less than 50 ha to more than 1000 ha, are managed in clusters\. Each cluster has an operational center and manager, with the indi-idual schemes under supervisors and assistant managers according to area\. There are currently 181 clusters averaging 1,360 ha in area and averaging about 8 schemes each\. Land DeveloDment Program 2\.5 Over the years, FELCRA has been involved in land rehabilitation and consolidation, group settlements, area development, border security schemes, youth schemes and a few aboriginal settlements\. In future, the emphasis will be on rehab1litation and consolidation\. Whereas most of FELCRA's earlier programs involved rubber, oil palm became the dominant crop in the 1980s, in response to commodity prices and smallholder preferences\. More recently, FELCRA has encouraged some planting of diversified crops where the agroclimatic conditions and market prospects are favorable\. The most popular crops have been various fruit trees with local market or export potential, pineapple and cocoa\. 2\.6 Of the 247,000 ha developed by FELCRA through 1990, about 164,000 ha was in conselidation schemes (65%) and 82,000 ha in rehabilitation schemes (35%)\. Including the 16,300 ha developed in 1991, the distribution by crops is: Oil Palm 60 % 157,600 ha Rubber 33 % 87,400 ha Paddy 2\.5% 6,700 ha (Trans Perak Area Dev\.) Cocoa 2\.5% 6,700 ha Others 2 % 4,600 ha (mainly fruits) For the five years, 1987-1991, development averaged about 15,000 ha per year\. Although oil palm has been the dominant crop, there has been a strong swing to the planting of rubber in th,e last three years, with annual hectarage increasing from abolit 1,000 ha in 1987 to 5,500 ha in 1991\. This trend is expected to continue during the project period in response to relative commodity prices and the increasing emphasis given by the Government to developing the poorer northern and eastern states (Kedah, Perlis, Kelantan and Trengganu) which are generally more agroclimatically suitable for rubber\. The areas in production included some 31,000 ha of rubber in 122 schemes, 46,000 ha of oil palm in 417 schemes, 5,600 ha of paddy and 630 ha of cocoa\.  -8- Organization of Schemes 2\.7 For each scheme, FELCRA signs long-term agreements with all participants or the State for State schemes, giving it the right to develop their lands as a group farm for more cost effective operations, to facilitate the use of more advanced production technologies and management systems, and to attain better product quality and higher returns\. The scheme development process from site selection to implementation of agricultural development is depicted in Figure 2\. Other than requests from States to develop specific blocks of land, FELCRA normally identifies potential scheme areas through their State staff who have very good knowledge of local smallholder lands suitable for development\. FELCRA dialogues with owners to explain the nature of its program aned promote their interest in group farming, and establishes an owners' consultative committee with which it devises a development schedule\. FELCRA then arranges liens on all land titles in the scheme area and prepares a feasibility report for Board clearance and Federal Treasury approval\. 2\.8 Land development through the completion of crop establishment is done by contractors retained by FELCRA, who are required to employ owner beneficiaries seeking work\. Crop maintenance from planting to full production may also be done by contractors, or by beneficiaries and their families under FELCRA force account arrangements in those schemes where the majority of beneficiaries prefer this\. Land development (including on-farm roads, drains and fences), planting and crop maintenance costs are assumed as a loan by the farmers\. Access roads and management infrastructure, service and facilities are provided as public services\. Costs and revenues to owners are shared in proportion to their individual land areas\. 2\.9 FELCRA manages schemes until such time as the land development loan has been repaid, after which the beneficiaries' cooperatives are expected to take over\. Until recently few schemes had repaid their loans and therefore FELCRA had not yet developed the specific arrangements for transfer of scheme management, although for some years it has been encouraging scheme beneficiaries to organize into cooperatives during land development (para\. 2\.13)\. Conscious of the need to withdraw from mature scheme management as its land development portfolio expands, and of the risk that group farming arrangements could break down without adequate guidance and support, in 1989 FELCRA encouraged the cooperatives (through their umbrella organization, KPFB) to establish a private company (KPFB Holdings) to provide agricultural management services to mature schemes (para\. 2\.14)\. At the end of 1991, of the 38 schemes that had fully repaid their loans, privatized management arrangements are in place for 21 schemes, only two of which do not involve KPFB Holdings\. Agricultural Performance 2\.10 During preparation of the proposed project, FELCRA reviewed its agricultural performance in rubber and oil palm, focussing on the period of crop immaturity and crop yield by production year\. On the period of crop immaturity, the findings were that for both oil palm and rubber, the average immaturity period is some 25% longer than industry (i\.e\. estate) standards, but better than that of unassisted smallholders\. Long immaturity periods  - 9 - reduce investment returns and beneficiary incomes, and are mainly due to delays in land preparation and planting\. Other factors include inadequate supply of planting materials, fertilizer supply problems and poor contractor performance\. With regard to yields, those of oil palm were generally satisfactory and consistent with estimates of the Malaysian Oil Palm Growers Council for estates under similar soil conditions\. Rubber yields averaged 25% lower than those of commercial estates for about the first eight years of exploitation, after which the gap widened because virgin bark is prematurely depleted and tapping forced onto inadequately renewed bark\. This, in turn, is caused mainly by imprudently heavy tapping in the early years to achieve faster loan repayment\. Other factors include poor tapping skills, inadequate management supervision and the lack of incentives for quality tapping in the wage structure\. 2\.11 In light of these findings, the Bank encouraged FELCRA to consider a system of reduced frequency tapping with latex stimulation, as has been developed and now widely used in West Africa, to counter both high rates of bark consumption and shortages of tappers\. The Malaysian rubber industry has traditionally been cautious about these systems, because of earlier unrelated negative experiences with the use of the stimulant and the unsuitability of the local tapping wage structure\. In early 1990, FELCRA officials visited several West African countries to observe the use of reduced frequency systems and were sufficiently impressed with the potential to recommend their trial in FELCRA schemes\. Nine demonstration plots totalling 108 ha on schemes over a wide geographic range, and a 270 ha pilot program on a scheme with a serious shortage of tappers, were set up in 1991 with consultant assistance and with the concurrence of the Rubber Research Institute of Malaysia (RRIM)\. Preliminary results are sufficiently encouraging that the new technology will be promoted throughout the FELCRA system under the project\. Other problems affecting crop performance would be addressed through strengthening the technical capacity of FELCRA's agricultural management and field inspectorate, and through additional training and exposure of scheme managers and supervisors to industry practice\. Beneficiaries 2\.12 Incomes\. By the end of 1990, FELCRA had a total of nearly 46,800 beneficiary families in its schemes, of which 38,300 were in rehabilitation schemes and 8,500 families on consolidation schemes\. Several State governments are still completing settler selection for some of the larger schemes which FELCRA is implementing\. In 1990 the average monthly income of beneficiaries in producing rubber and oil palm echemes was M$474, with income from rubber just marginally higher than that from oil palm, compared to the Government's poverty benchmark of M$360 per month\. Beneficiaries working on schemes not yet in production earned a little more than M$200 per month\. Surveys indicate that most beneficiaries also obtain other income from off- farm employment by one or more family members\. 2\.13 Cooperatives\. Cooperatives were first introduced to FELCRA beneficiaries in 1979, when the FELCRA Settlers' Cooperative Limited (KPFB) was launched\. It was soon found that this central body could not adequately cater to the needs of members at the farm level, and therefore the first  - 10 - scheme level cooperative (KPR) was formed the following year\. Cooperatives aim to involve members in the operation of their schemes and to encourage entrepreneurism and generation of off-farm income\. These objectives are consistent with FELCRA's policy of withdrawing from scheme management on repayment of the land development loan\. FELCRA's strategies to make cooperatives stronger and more attractive to beneficiary participation consist of leading the cooperatives into upstream and downstream business and revenue earning operations based on land development, and member training in leadership and cooperative management\. At the end of 1991, there were 75 registered cooperatives and 11 others were in various stages of formation\. Total voluntary membership had reached 13,651, paid-up capital M$9\.38 million, asset value M$1\.6 million and total turnover in 1991 exceeded M$35\.0 million for a net profit approaching M$2\.0 million\. The still relatively low membership reflects the large ntumber of schemes established in recent years, for which cooperatives have not yet been formed, some traditional rural caution about cooperative operations and the low direct participation of beneficiaries in scheme management\. However, for the existing 75 cooperatives, beneficiary participation is about 90%\. The cooperatives undertake a variety of contract business activities such as production of planting materials, rubber tapping, transportation of oil palm fruit bunch (a major activity), raising of livestock, small scale trading and construction, and supply of consumer goods for which they have 30 retail outlets\. The cooperatives still depend heavily on FELCRA and its staff, but the chairmen of 23 cooperatives and the treasurers of 73 now come from the memberships\. In addition, 15 cooperatives are financing one or more of their managerial posts and 64 are paying for clerical assistance\. 2\.14 As part of Government's privatization strategy to downsize its direct role in business, and in particular to increase the operational efficiency of land development parastatals and stimulate a spirit of entrepreneurism among their beneficiaries, FELCRA spearheaded the formation of FELCRA Settlers' Cooperative Company Limited (KPFB Holdings Sdn\. Bhd\.) by KPFB\. Holdings was incorporated in January 1989 with an authorized capital of M$3\.0 million\. Current paid-up capital is M$172,000, held as shares by 16 scheme cooperatives (77% of the total) and KPFB (23%)\. For the forseeable future, Holdings will undertake three main functions: (a) management of FELCRA's four existing palm oil processing mills and construction of additional mills; (b) management of profitable schemes, limited initially to those which have fully repaid their development loans (estimated to reach 65 schemes with 27,900 ha up to the year 2000),; and (c) provision of technical agricultural services to FELCRA, such as interpretation and laboratory services of soil and crop foliar analyses, and soil surveys\. Other functions that may be privatized and passed on to Holdings include haulage of scheme produce to processing facilities, supply of computer services and commodity trading\. 2\.15 To service their operations, Holdings is recruiting experienced and capable staff from FELCRA\. As necessary, specialized staff will also be sought from the private sector\. Holdings will charge service fees to the schemes and mills to cover overheads and prov\.de an appropriate level of profit after taxation\. Holdings has sourced the bulk of its operational finance and working capital requirements from local banks and is negotiating  - 11 - term financing for its investment requirements\. Additional issued capital would be raised from existing shareholders and new cocperatives requiring Holdings' services, and possibly in future from FELCRA itself through equity participation\. The forecast consolidated profit and loss account and consolidated balance sheet covering the period 1992-1995, based on its projected operations, are satisfactory (Annex 3, Tables 1 and 2)\. 2\.16 Women in FELCRA Schemes\. Women participate in I'ELCRA schemes, generally as part of the agricultural labor force and they comprise about 8% of cooperative membership\. They are involved in a wide range of scheme field work and are often prominent as rubber tappers, particularly in the State of Kelantan where they traditionally make up the majorit, of the tapper force\. Child creche facilities support women's participation in field work on larger schemes\. FELCRA's social programs have also provided women with training and opportunities for generating supplementary family income through production of handicrafts and snack foods and condiments, which are sold through cooperative shops\. These occupations, however, are mostly low income and part-time in nature, because of limited markets for the products\. Agricultural skill training courses, including rubber tapping, are available to women on an equal opportunity basis with the men\. Financial Performance 2\.17 Sources and Uses of Funds\. FELCRA has become a large and complex organization, undertaking various development activities for the Government, and undertaking agricultural and other types of development in a fiduciary capacity on behalf of scheme beneficiaries\. Development activities are funded by a combination of budgetary allocations for different purposes\. FELCRA also generates a limited amount of income by way of interest earned on short-term deposits at banks and on funds invested in development schemes, and derives dividends from certain schemes in which it has made equity investments and from some miscellaneous sources\. The distribution of FELCRA's sources of funds during the period 1988-1990 is detailed in Annex 4, Table 1, and summarized below\. (a) The Government provides annual budgetary grants to FELCRA to cover activities which it considers to be public responsibilities (staff salaries and other administrative expenses, and capital expenditures on infrastructure such as access roads, offices, staff quarters, water and electricity supplies, and some other buildings, vehicles and equipment)\. At year end 1990, M$139\.1 million from the M$245 million net accumulated development budget allocation had been utilized for the above purposes ar4 M$105\.9 million remained unspent and held in cash for furthe: scheme infrastructure\. (b) FELCRA makes loans or behalf of the Government for land development schemes, settler housing and palm oil mills\. Total outstanding borrowings at the end of 1990 were M$703\.2 million, comprising M$658\.3 for agricultural schemes, M$17\.1 million for settler housing and M$27\.8 for mill construction\. The terms extended for land development schemes have been standard since 1985, and comprise an overall loan period of 25 years, including a grace period of 10 years, with interest at 4% p\.a\. accruing after the grace period (Annex 4, Table 2)\. These tates target the poverty group of small farmers with low  - 12 - income levels\. They are positive in relation to Malaysia's historic inflation rate (para\. 6\.12) and are standard for all Government smallholder development programs\. Although they are lower than the terms of the Bank's loan to Malaysia, they are in line with overall cost of the funds used to finance the FELCRA program\. Since FELCRA is not a financial intermediary, there is no impact on credit markets\. It represents less than 5% of rubber and palm oil production; hence its impact on Malaysian export prices is not significant\. (c) FELCRA also administers certain other funds for itself and on behalf of Government\. At the end of 1990, these accumulated funds comprised: (i) for FELCRA, M$42\.2 million of miscellaneous income, M$35\.8 million of deferred interest receivable, and M$9\.1 million of retained earnings from palm oil mills; and (ii) for Government, revolving funds of M$44\.1 million including the FELCRA dividend fund, replanting fund, estate insurance fund and marketing services fund\. In addition, FELCRA administers M$28\.7 million in dividends payable to development scheme beneficiaries, and a bank loan of M$0\.1 million, which are included in its accounts under liabilities\. Of the M$1,080\.3 million of total funds employed by FELCRA at the end of 1990, M$96\.4 million was net working capital (mainly cash on hand), M$152\.2 million was net fixed assets including mills and investments, and M$831\.7 million (77% of the total) was in long term accounts receivables (beneficiary accounts)\. 2\.18 Beneficiary Accounts\. FELCR1\. handles the capital investment in agricultural land development schemes on behalf of Government, as well as the trading activities of each development scheme\. For investments in development schemes, FELCRA acts as the agent of Government until scheme beneficiaries are selected\. When the development schemes begin production, FELCRA acts as the fiduciary agent of scheme beneficiaries\. With FELCRA receiving and controlling scheme revenues, loan repayments are on schedule for nearly all schemes and at 95% overall\. In many of the better schemes, repayment is often well ahead of schedule\. 2\.19 Financial Status\. Plans and Projections\. FELCRA's consolidated balance sheet at December 31, 1990, together with supporting schedules indicating the results of its main business activities, is shown in Annex 4, Tables 3a-3f\. FELCRA's overall financial position is reasonably satisfactory\. Estimates of FELCRA's financial plans, based on Government's approved budget allocation to FELCRA for the Sixth Malaysia Plan, in the form of projected balance sheets for FELCRA's main development business and separately for the paim oil mills for the project years 1992-1995 are shown in Annex 4, Tables 4 and 5\. 2\.20 Some aspects of FELCRA's accounting and financial management systems would benefit -rom some strengthening\. Historically, FELCRA has financed certain costs incurred in completing development schemes, and in supporting occasional loss-making schemes, from funds available internally (part of its accumulated miscellaneous income and some loan repayments from development scheme beneficiaries in advance of payment to Government)\. At the end of 1990, the funding of such investments amounted to M$120\.6 million, although the total has since declined as FELCRA moves to limit such costs\. The practice of financing unprofitable schemes could in the long run adversely affect FELCRA's financial position, and therefore will be addressed under the  - 13 project with the assistance of consultants (para 3\.14a)\. In addition, improvements to the accounting, and financial computerization of beneficiary incomes are necessary, and these also will be provided for under the project (para\. 3\.11)\. Bank Experience with FELCRA 2\.21 The Bank has thus far supported expansion of FELCRA through three loans\. Two have been completed, with the Bank generally commending FELCRA's successful rural development efforts, while performance under the ongoing third loan has also been good\. 2\.22 The first loan, approved in 1981, was for the Trans Perak Area DevelopL 't Project (Loan 1960-MA)\. The project was originally designed for the Ministry of Agriculture, but FELCRA was the main implementating agency and took it over after three years\. The loan of US$30\.65 million after revision, financed the development of about 4,350 ha of rice in Malaysia's first and only rice estate, and 8,200 ha of tree crops, mostly oil palm\. Despite early implementation problems associated with the change of agency, contractors and drainage issues, the project exceeded many targets and increased agricultural productivity and income of settlers, was adequately funded and staffed at completion, and was judged to be an overall success and sustainable_3\. 2\.23 The second loan, also approved in 1981, was for the FELCRA I Project, (Loan 2013-MA) and amounted to US$37 million\. It financed the Agency's land rehabilitation and consolidation program\. The project developed some 36,800 ha of oil palm and rubber over 7 years instead of the 5 years anticipated at appraisal\. The major implementation delays in the first two years were due to technology changes in the type of rubber planting material used and the time needed to redevelop the planting material nurseries\. Later, high palm oil prices led to a severe shortage of oil palm planting material in 1985/6 as many farmers preferred to plant oil palm instead of rubber, and recession-driven budget cuts constrained new developments\. The Bank audit report concluded that at the end of the project, FELCRA was a stronger and more efficient institution with a high staff morale, well managed and capable of responding to its changing mandate in line with shifts in Government policy*/\. 2\.24 The third loan of US$66 million over four years was for the Second FELCRA Land Development Project (Loan 2917-MA)\. It was approved in 1988 and provided time-slice financing for most of FELCRA's development program under mainly Statement of Expenditure disbursement procedures\. Loan disbursement was generally ahead of target\. The project was closed on target at the end of 1991 with 96% of the loan disbursed; the remainder is expected to be taken up within gi four months disbursement grace period\. Implementation of agriculture and associated scheme infrastructure have exceeded targets, although progress 31 PCR dated April 5, 1991 for Trans Perak Area Development Project, Loan 1960-MA\. XI PCR dated May 18, 1990 for FELCRA I Project, Loan 2013-MA\.  - 14 - with other civil works and palm oil mills was slower due to administrative delays in land acquisition, mill licensing procedures, and unsatisfactory contractor performance\. Contracts for the Training Centers and State offices were awarded in late 1991 and their financing, in large part, is part of the Third Project\. The project completion report is still to be written, but all indications are that this third project has also been quite successful\. III\. THE PROJECT Proiect Origin and Preparation 3\.1 The Government and the Bank initiated discussions in 1990 for a proposed project to continue Bank support for FELCRA's development program through the Sixth Malaysian Plan period (1991-95)\. The first preparation mission was mounted in December 1990 and the second in May 1991, for which FELCRA prepared a draft project proposal and supporting papers (Annex 7)\. This proposal, modified in line with Bank suggestions, was formally submitted to the Bank in August 1991\. The project was preappraised in September 1991 and appraised in December 1991\. Rationale for Bank Involvement 3\.2 FELCRA's expanding land development and social programs, and its continuing management of all existing schemes into their production years, has placed increasingly heavy demands on the agency's technical, management and financial resources\. Thus, there is a risk of weakening performance in the agency's main developmental area of agriculture\. The Bank's continued involvement through the proposed project would help to assist FELCRA in dealing with key transitional issues which it will face in the immediate years ahead, in order for it to remain a highly effective development agency\. These include: (a) the need for institutional strengthening with particular focus on FELCRA's agricultural and financial management systems so as to achieve greater internal efficiency; (b) the need for significant improvement in crop production technology to maintain Malaysia's competitiveness as a major tree crop producer; (c) the task of devolving the management of schemes for wilich development loans have been repaid to the beneficiaries or their institutions, without weakening management quality or overall scheme performance; and (d) privatization of the management of FELCRA's palm oil mills\. The project would be consistent with the Bank's long-standing poverty alleviation objectives in Malaysia, given that rubber smallholders constitute the largest remaining poverty grouxp in the country\. Finally, the project would contribute to women's income earning levels by upgrading skills of women field workers, especially rubber tappers\. Project Objectives and Main Features 3\.3 The project aims to support FELCRA's continued evolution into a stronger and more effective development institution, to increase the incomes of its clientele smallholder beneficiaries and improve the quality of rural life; enhance the quality and efficiency of agricultural performance; support the agency in the transitional period as it begins to disengage from the  - 15 - management of mature agricultural schemes in favor of beneficiaries, cooperatives and proceeds to privatize management of its palm oil mills; and expand national revenues from tree crops\. Main features of the project would include: (a) rehabilitation of idle agricultural lands by crop establishment and early maintenance of tree crops under group farming arrangements, with a particular focus on promotion of improved crop production technology; (b) construction of agricultural scheme infrastructure and management facilities; (c) institutional strengthening of FELCRA in the areas of agricultural development, financial management, computerized information systems and other management support; (d) support for FELCRA's efforts to disengage from the management of agricultural schemes without disrupting scheme performance and beneficiary incomes, and from management of its palm oil mills; (e) human resource development through local and overseas training of staff, and skill training for scheme workers and family beneficiaries; and (f) technical assistance through consultant studies\. 3\.4 The project, which supports FELCRA's approved development program and budget for the 1992-1995 period of the Sixth Malaysia Plan, would be implemented over four years\. The Bank would provide time-slice financing of the approved program, except for the activities of village development and rural industries\. The project would absorb about 92% of FELCRA's total budget for the period\. Detailed Project Description Agricultural Development 3\.5 The project would: (a) rehabilitate through cro2 establishment about 48,000 ha of idle and low productive smallholdings, organized as group farms and benefitting about 24,000 beneficiaries\. The annual planting target would be 12,000 ha\. Notionally, about 50% of the total would be oil palm, 40% rubber, and the balance of 10% other crops\. About 400 schemes would be formed based on current average scheme areas of 150 ha for oil palm, 200 ha for rubber and under 50 ha for other crops\. Details of the phasing of the planting program by crop are shown in Table 3\.1, and expenditures are set forth in Annex 1, Table 1\.  16 - Table 3\.1: Schedule of Crop Establishment ('000 ha) Crop 1992 1993 1994 1995 Total Oil Palna 6\.0 6\.0 6\.0 6\.0 24\.0 Rubber 4\.8 4\.8 4\.8 4\.8 19\.2 Diversified crops 1\.2 1\.2 1\.2 1\.2 4\.8 Total 12\.0 12\.0 12\.0 12\.0 48\.0 FELCRA would advise, but final crop choice would be a consensus of scheme beneficiaries, reflecting local agroclimatic conditions, commodity price trends and crop processing/marketing facilities\. Oil palm will likely be the choice in areas of gentle terrain and high water table while rubber will predominate in hilly areas and where there is a prolonged dry season\. The planting of diversified crops, of which the most popular would be fruits (guava, starfruit, banana and pineapple) would be largely confined to more fertile areas, except for pineapple on peat soils\. The planting of fruits would proceed very cautiously and in relatively small areas as FELCRA endeavors to tie their development into contract arrangements with experienced producers or established marketing chains so as to reduce the high risks associated with crop perishability and quality requirements\. The estimated total base cost of the crop establishment program, covering expenditures on land preparation, planting and planting materials only, is M$61\.1 million (US$22\.6 million), with average per hectare costs of M$2,510 for oil palm and M$2,785 for rubber\. The average per hectare cost for oil palm, has been used as a surrogate in estimating the costs of establishment of diversified crops\. (b) The project would also support early crog maintenance for areas planted before and during the project\. This includes costs such as weeding, fertilizers, pest control, pruning and sanitation, soil and foliar analysis and the maintenance of farm roads, bridges and drains\. The schedule of areas for maintenance is shown in Table 3\.2, and the expenditures are detailed in Annex 1, Table 1\. Total area is 119,900 ha including 83,900 ha planted prior to the project and 36,000 ha planted during 1992-94\. Maintenance expenditures are defined in FEILRA as extending from the completion of field planting until the year of first net operating profit\. Currently, this period is 5 years for oil palm and 9 years for rubber\. Total base cost of crop maintenance is estimated at M$336\.4 million, including M$3,348 per hectare for oil palm and M$4,333 per hectare for rubber\.  - 17 - Table 3\.2: Schedule of Areas Under Maintenance ('000 ha) 1992 1993 1994 1995 Total Oil Pal Planted preproject 58\.1 44\.8 29\.9 21\.9 154\.7 Planted in project - 6\.0 12\.0 18\.0 36\.0 Subtotal 58\.1 5L9 190 Rubber Planted preproject 23\.5 20\.5 18\.2 16\.9 79\.1 Planted in project - 4\.8 9\.6 14\.4 28\.8 Subtotal 27\.81\.3 107\.9 Diversified crop Planted preproject 2\.3 1\.9 1\.3 0\.7 6\.2 Planted in project - 1\.2 2\.4 3\.6 7\.2 Subtotal L 1\.1 3\.2 A\.l 1LA All cr2Rs Planted preproject 83\.9 67\.2 49\.4 39\.5 240\.0 Planted project - 12\.0 24\.0 36\.0 72\.0 Total 8L3 7L\.2 7L34 75\.5 312\.0 3\.6 Im2roved crop production technology would be introduced to promote better agricultural performance\. The main focus would be on the introduction of reduced frequency tapping systems in rubber, but application and development of other improved crop production technologies, including the use of sound nursery production systems, would also be supported (Annex 5\.3)\. Implementation of the reduced frequency tapping systems would lower labor requirements and production costs, counteract the high rate of bark consumption, improve and sustain yields, and enable areas to be brought into tapping on schedule\. Initially, third daily tapping with stimulation would replace the current alternate daily system, although fourth daily tapping with its further labor-saving advantages would eventually predominate\. Results to date in the pilot demonstration areas (para\. 2\.11) are fully in line with expectations The proposed phasing of the program is shown in Table 3\.3\.  - 18 - Table 3\.3: Phasilg of Reduced Frequencv TaDRing Systems (ha) 1992 1993 1994 1995 Total New Tapping Areas 1,600 2,000 2,900 5,200 11,700 Existing Areas 3,500* 7,600 11,400 15,200 37,700 in Tapping Total 5,100 9,600 14,300 20,400 49,400 *estimated area of delayed tapping Reduced frequency tapping will be introduced as a priority to all schemes coming into tapping for the first time during the project, except in those selected cases where it would release labor that could not be gainfully employed in other local occupations\. In 1992, the new tapping system is also a priority in the estimated 3,500 ha not yet opened for tapping because of labor shortage\. In addition, about 37,700 ha in tapping prior to 1992 will also be phased in during the project\. The pace of first year implementation will be linked to completion of scheme manager and supervisor training and the development of appropriate incentives\. Current tapping wage rates are designed for the alternate daily system with its relatively low daily rubber harvest per tapper, and bonuses paid for daily quantities above 15 pounds\. An incentive payment for attendance at tapping was introduced in 1991\. However, with reduced frequency tapping, harvests per tapper would be two to three times higher and thus the current wage structure, by reason of its bonus levels, would lead to fairly high payments and undermine the significant cost advantages to the system\. FELCRA will need to revise the current wage structure so as to make it compatible with the new tapping system, while at the same time ensuring that it embodies adequate remuneration and incentives for tappers to compensate for the handling of increased daily crop and significant cost savings to scheme management\. As part of its tapping development strategy, FELCRA has targeted the introduction of incentive payments for tapping quality and production levels from May and August 1992 respectively\. Infrastructural SuDDort 3\.7 The project would provide for the construction of agricultural scheme infrastructure including access roads, offices and staff quarters, utilities and harvesting facilities\. Provision of these facilities will normally take place at least one year in advance of crop production\. The total estimated base cost of the component is M$106\.3 million, as detailed in Annex 1, Table 2a\.  - 19 (a) Access roads would link schemes to the public road network\. Construction specifications of roads to schemes of more than 400 ha, schemes with considerable areas of potential development nearby, or where there are villages along the proposed alignment, would be according to the Public Works Department Rl or R2 standards, which were used in the Second FELC-A project and currently in FELDA projects\. Specifications for roads to smaller schemes would be those used by FELCRA for all-weather main agricultural roads within schemes\. All roads would have lateritic pavement except those passing through well established villages, which would be asphalted\. Roads of more than 2 km length and those involving major bridge work would be constructed by the Public Works Department under their normal contract and supervision arrangements\. All shorter roads would be implemented by FELCRA through contractors with FELCRA supervision\. The project would construct about 217 km of new roads of which 93 km would be implemented by PWD and 124 km by FELCRA\. Most of the roads have been identified and designs prepared\. The project would also complete some 146 km currently under construction\. Total estimated cost of the road component is about M$51\.6 million of which M$44\.4 million, 860, would be incurred by PWD\. (b) Buildings, consisting of scheme offices, staff quarters and stores will be constructed in timber and semi-bricks using standard FELCRA designs and specifications\. Quarters will range from individual to terraced units according to staff grades\. Project requirements are estimated at 60 units of offices, 60 units of garages, 69 units of stores and 730 units of housing for a total estimated cost of M$26\.0 million\. Phasing of construction is shown in Annex 1, Table 2b\. (c) Water and electricity utilities would be supplied to scheme complexes\. Water is sourced from the public reticulation system where possible; alternatively river sources or well systems have to be developed\. It is estimated that the project would develop 68 water supply systems for a total cost of M$14\.1 million\. For electricity, the national grid system is used wherever possible; alternatively, generator sets ar; installed\. Costs will vary by size of scheme complex\. An estimated 66 electric supply systems would be installed for a total expenditure of M$7\.2 million\. (d) Harvesting facilities provided by the project would comprise loading ramps for oil palm fruit bunches and rubber latex collection stations\. Size and number of facilities vary with scheme area\. The project would construct 69 loading ramps for a total cost of M$6\.9 million and about 28 latex stations costing some M$0\.6 million\. 3\.8 The project would also provide other infrastructure not related to individual agricultural schemes\. These would consist of State directorate offices and training centers for a total base cost of M$12\.5 million, as detailed in Annex 1, Tables 2a and 3\. (a) FELCRA aims to have its own State offices in most States\. Five offices would be constructed during the project\. The first four (in Perak, Negeri Sembilan, Pahang and Kedah) were originally targeted for completion during the Second Project but were delayed by problems of approval and acquisition of suitable building sites\. Construction of three of these four  - 20 - offices for a total cost of M$5\.5 million comenced in the second half of 1991, with completion expected by mid-1992, while the contract for the fourth (Kedah) 18 expected to be awarded in early 1992\. The remaining office for the State of Johor would be constucted in 1994-95 at a total cost of M$2\.0 million; land acquisition for this site is advanced\. (b) The project would complete on-going construction of FELCRA's two training centers approved for financing under the Second FELCRA project and awarded only in 1991 due to delays in budget approval\. These are the central training complex at Tebing Tinggi in North Johore and the training school at Seberang Perak in the Trans-Perak project\. Total base cost for the completion of these works is estimated at M$5\.0 million, compared with their total contract value of about M$8\.3 million, the difference being works completed prior to this project\. Implementation of the central complex consisting of a lecture hall, seminar rooms, administrative block, staff quarters, hostel for 250 students, library and social amenities, was 20% complete when the contractor failed due to financial problems\. The work was retendered in November 1991\. The thirty-nine units of staff quarters will be \.endered in April 1992\. All works are expected to be completed by the end of 1992\. The training school is largely completed\. Institutional Strengthening 3\.9 The project would strengthen FELCRA's institutional capacity through organizational changes, improved financial and agricultural management, further human resource development among staff and scheme beneficiaries, and disengagement from management of mature operations\. 3\.10 Organizationail The project would establish three new Divisions of Plantation, Finance and Htman Resource Development, out of existing structures, and would expand the scheme inspectorate\. (a) The existing small agriculture section of the Technical Services Division would be upgraded and expanded to form a new Plantation Division by bringing together some of FELCRA's best scheme managers and agricultural professionals, many of whom are scattered in other divisions and among the State offices\. The new Division would allow for a more effective and concentrated attention to the standards of scheme management, promotion of improved agricultural technology inputs and more focus on implementation constraints and problems than hitherto\. The Division, with Deputy Directors for Agriculture and Management, will consist of four Sections of Crop Agronomy, Crop Exploitation, Agricultural Monitoring, (concerned with nature and results of the use of agricultural technologies) and Scheme Management, as shown in Figure 3\. FELCRA has an available senior (grade A9) post for a new Head of Division, who would have a strong background and wide experience in agriculture and the management of tiee crops, including rubber, on a commercial scale and preferably from the estate sector\. Agreement was reached at negotiations that by December 31, 1992, FELCRA will establish and thereafter maintain the new Plantation Division headed by a qualified and experienced officer (para 7\.1(a))\. The Technical Division that will remain after relinquishing its agricultural functions will focus on FELCRA's civil  - 21 - works program, survey and other technical works and should absorb any engineering functions required by the Settlers Development Division\. (b) A new Finance Division would attend to FELCRA's large and complex financial services and management operations\. The existing finance, budgeting and electronic date processing sections, three of the nine units in the existing Management Services Division, would form the new division\. The Head of the ncw Division should have a strong background and wide experience in financial management and accounting\. FELCRA has a post available for the division Head and is proceeding to search for a suitable candidate\. Agreement was reached at negotiations that by December 31, 1992, FELCRA will establish and thereafter maintain the new Finance Division to be headed by an experienced and qualified officer (para\. 7\.1(b))\. (c) Responsibility for FELCRA's training program is currently split between two divisions: the Management Services Division for staff training and the Settlers Development Division for training of scheme beneficiaries\. To strengehen the focus on staff development and to rationalize its training operations, FELCRA proposes to create a new Human Resources Division in early 1993, combining these two training sections and the existing Personnel and Manpower Planning sections, into the Management Services Division\. (d) The Scheme Inspectorate, a service of the Monitoring and Evaluation Division, provides an independent and routine assessment of agricultural implementation performance in all schemes for FELCRA management\. It focusses particularly on the nature, timing and quality of agricultural operations\. The Inspectorate, which is modeled on the well-known visiting agent system of private estates, was established in 1991 with 14 staff drawn from State and field positions\. The number of inspectors will be increased to about 24 in 1992 to ensure semi-annual coverage of all schemes\. 3\.11 Financial Management: FELCRA's accounting and financial management systems will be improved with the assistance of accounting consultants financed under the project (para\. 3\.14 (a))\. The most significant actions would include inter alia: (a) improved financial control and management of beneficiaries' accounts through regular preparation of periodic summary financial information analyzing the status of accounts receivable (by age, type, profitable and unprofitable scheme etc\.); (b) preparation of regular financial statements reflecting the movements on the capital account of each scheme, so that beneficiaries can clearly ascertain amounts added to their existing debt, repayments made against their loans and earnings accruing to the scheme retained by FELCRA\. Such statements would be submitted to the beneficiaries at least annually and would disclose relevant details of scheme trading activities for the year; (c) an improved accounting and reporting system, including inter alia: (i) separation of FELCRA's investments in Fringe Schemes from its long-term accounts receivable and appropriate classification in the financial statements; (ii) accounting for interest received versus interest accrued;  - 22 - (iii) appropriate recording of beneficiary loan repayments received in advance, and the funds in the financial statements; and (iv) accounting properly for quit rent deductions and payments; (d) formal arrangements with the Ministry of Finance for approving and financing of land development schemes where original budgets (and therefore the Government loans) are insufficient to meet additional costs incurred to complete such schemes or where expenditure is incurred to support loss-making schemes; and (e) preparation for FELCRA management of summarized financial statements showing the status of FELCRA's main business activities as well as its consolidated financial position, for internal management purposes on a regular basis\. A statement showing FELCRA's present and forecast cash position should also be produced as part of this financial management package\. 3\.12 TrAining: The project would support FELCRA's human resource development program through training of staff, scheme beneficiaries and their families and field workers in their agricultural skills, and the provision of training materials\. Estimated total base costs of the program are M$13\.0 million (Annex 1, Table 3)\. Components and their estimated base costs are: (a) local training of staff (M$5\.3 million for lecturers' fees, external course fees and participant allowances); (b) overseas training, subject to Government approval, for professional staff in management and technical skills (M$1\.2 million); (c) training of scheme beneficiaries and their families in skills of agriculture, cooperatives, homemaking, entrepreneurism and generation of supplementary income (M$5\.0 million); and (d) training materials (M$0\.5 million)\. All staff are given the opportunity to participate annually in one or more training courses provided by the Training Unit or made available in outside training institutions\. Courses cover a wide spectrum of technical subjects relevant to FELCRA's operations as well as more general studies to strengthen the work ethic, and are graded into basic, intermediate and advanced levels\. Of principal importance to the project would be the training of scheme managers and supervisors in the features of quality tapping and reduced frequency tapping systems (details of this program are given in Annex 5\.1)\. The costs of the rubber tappers training program for improving skills and tapping quality, and involving 14-15,000 tappers over the project period, would be charged to the individual scheme profit and loss accounts\. For local training of staff, women, whether staff or beneficiary, have equal access to all FELCRAts courses\. It has been agreed that the Training Division will monitor the gender participation in all courses\. 3\.13 Evolution of FELCRA's Management Role\. FELCRA would continue to pursue its efforts to withdraw from the management of its agricultural schemes and palm oil mills in favor of private beneficiary institutions, while ensuring the continued sound performance of these operations through: (a) progressive disengagement of FELCRA from the management of schemes which have fully repaid their land development loans, and possibly of schemes which have not fully repaid their loans but which exhibit good potential production and financial performance;  - 23 - (b) increased involvement of cooperative leadership in scheme management, supported by appropriate training, so that when loans are repaid the cooperatives are fully acquainted with the range of issues and decisions that need to be taken routinely; (c) introduction of graduated management fees to schemes that have achieved profitability, so that by the time loans have been repaid, the schemes would already be financing most of their management costs\. FELCRA's development contracts with the States and scheme beneficiaries do not specifically provide for management fees, but FELCRA will review this with the aim of effecting a change\. It is intended that for 1992, Holdings will charge a management fee of M$17\.40/ha (M$7\.0/acre) to all schemes transferring to their management; and (d) monitoring by FELCRA of the performance of agricultural schemes and palm oil mills which are under private management arrangements\. The details of FELCRA's action plan for management devolution were reviewed during negotiations and found satisfactory\. Agreement was reached on a periodic exchange of views between FELCRA and the Bank on its management devolution efforts (para\. 7\.1(c))\. Studies 3\.14 The project would finance several consultant studies, including a financial management study which is a priority and is therefore scheduled to start in late 1992\. Other studies have yet to be defined in detail\. Of the total M$3\.0 million of base costs for project studies, M$2\.4 million is earmarked for the financial management study, as detailed in Annex 1, Table 4\. (a) The financial management study of FELCRA's accounting policies, procedures and internal controls would involve a detailed review by a qualified professional accounting consultant familiar with international accounting standards, as well as those normally accepted in Malaysia, of Government accounting regulations and the generally accepted accounting principles applicable to the plantation industry\. Recommendations would be made to improve FELCRA's internal controls and annual financial reporting formats to ensure clear disclosure of the results of operations and key business activities, and to integrate the new accounting procedures and systems into the design, development and implementation of the computerized Database Management System and the Management Information System\. Job descriptions for the new Finance Division staff would also be needed\. The study would require about 15 staff months of consultant services\. Detailed draft Terms of Reference have been prepared (Annex 5\.2)\. Agreement was reached that by December 31, 1992, FELCRA would appoint an independent firm of accounting consultants selected in accordance with Bank procurement guidelines to undertake the financial management review of FELCRA's accounting policies and practices (para\. 7\.1(d))\. (b) Other activities tentatively include: (i) a Rural Industries study to identify effective ways for FELCRA management to promote rural small scale  - 24 - or cottage industries for the benefit of its beneficiaries without direct involvement in the supply of technical, management, financial, and marketing services; and (ii) a Production Cost study to review and compare FELCRA's agricultural operations with those of the estate sector of the industry with a view to finding ways to further improve efficiency\. Project Management SURRort 3\.15 The project would provide equipment, including a computerized accounting and management information system, and vehicles, in support of management services for a total base investment cost of M$46\.8 million, as detailed in Annex 1, Table 5a\. (a) Eouipment\. Furniture and Vehicles: Excluding computers, equipment including 20 units of weighbridge for oil palm schemes of more than 1,000 ha, laboratory equipment, miscellaneous field implements, and office equipment, and furniture for scheme and State offices, have a total estimated cost of M$9\.8 million\. FELCRA's large fleet of vehicles and tractors needs to be further expanded and renewed to ensure project operational effectiveness\. Requirements of 4-wheel drive vehicles are estimated on the basis of one unit to every cluster with an additional unit to clusters exceeding 2,000 ha or having difficult transport conditions\. In addition a pick-up truck is provided to clusters of more than 1,000 ha\. Supply of tractors, used widely for crop collection, is normally one 70-80 hp unit to every oil palm scheme at the time of first harvesting and an additional unit for every 200 ha of planted area; for rubber, the basic allocation is one 60-70 hp unit from the time of first production and additional units for every 400 ha of planted area\. Total base cost of project requirements, listed in Annex 1, Table 5b, is M$32\.4 million\. (b) Computer EquiRnpent: The project will support FELCRA's continuing effort to improve its management information database and introduce elements of a decision support system through upgrading of its hardware and software computer facilities\. Planning and providing for updated and expanded computerization of FELCRA accounts and MIS databases started under the recently completed Second FELCRA Project\. Contracts for the supply and installation of an integrated system are expected to be awarded in early 1992\. The system, which has been agreed with the Bank, comprises a mainframe Headquarters system to which is linked the mini-computers at State offices which in turn are connected to the higher grade personal computers in all scheme clusters\. Total estimated cost of the system including peripherals and software is M$4\.6 million\. Project Costs 3\.16 The total project cost, including contingencies, for the four years 1992-95 is estimated at M$976\.4 million, equivalent to about US$361\.6 million, exclusive of identifiable taxes and duties of M$7\.3 million (US$2\.7 million)\. The foreign exchange content of the project cost is US$98\.8 million (27%)\. Unit costs for works, goods and services are based on recent contract prices for similar works, vehicles and equipment\. Project base costs are calculated  - 25 - in constant 1992 prices\. No physical contingencies have been applied to the base cost estimates, since total expenditures are limited by the total budget allocation for the Sixth Plan period and any significant changes in costs would therefore need to be handled through adjustments in physical targets\. Price contingencies of US$26\.7 million, equal to about 8% of base costs, have been included to accommodate annual projected inflation rates of 4% per annum for local costs and 3\.9% per annum for foreign costs\. Project cost details are given in Annex 1, Tables 7-9 and are summarized in Table 3\.4\. Table 3\.4: Project Cost Summary (US$ million) MS '000 USS '000 foreign Total base Component Local Foreign Total Local Foreign Total exchange costs Agricultural Development: Planting 36\.7 24\.4 61\.1 13\.5 9\.1 22\.6 40 7 Maintenance 201\.8 134\.6 336\.4 74\.8 49\. 124\.6 40 /a 37 Subtotal 238\.5 159\.0 397\.5 88\.3 58\.9 147\.2 40 44 Civil Works: Scheme Infra\. 68\.1 38\.2 106\.3 25\.2 14\.2 39\.4 36 12 Other 4,9 a, L 1\.8 1\. 2\. l 1 Subtotal 73\.0 40\.8 113\.8 27\.0 15\.2 42\.2 36 13 Other Training /a 11\.1 6\.8 17\.9 4\.1 2\.5 6\.6 39 2 Studies 0\.0 3\.0 3\.0 0\.0 1\.1 1\.1 100 0 Equip\.& Vehicles 8\.1 38\.7 46\.8 3\.0 14\.3 17\.3 83 5 Project Mgt\. 325\.3 0\.0 325\.3 120\.5 0\.0 120\.5 0 36 Bale Cost 656\.0 248\.3 904\.3 242\.9 92\. 334\.9 27 1 Physical conting\.0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0 0 Price conting\. 53\.6 18\.5 ILI AA 6\.8 1i 8 Total Project costs & 709\.6 266\.8 976\.4 262\.8 98\.8 361\.6 27 108 /j Component includes Training Centers of M$5\.0 million (US$1\.8 million) base cost\. /k Exclusive of taxes and duties estimated at US$2\.7 million\.  - 26 - Pgroject Financing 3\.17 The proposed Bank loan of US$94\.0 million to Malaysia would finance about 26% of total project costs exclusive of taxes and duties and about 95% of the estimated foreign exchange content of $98\.8 million\. Government's contribution to total project costs through its annual development and operating budget allocations to FELCRA would be about US$265\.0 million\. The US$4\.8 million of foreign exchange costs not financed by the loan relate to the estimated financing foregone as a result of reserve procurement of 110,500 tons of 'straights' fertilizers that FELCRA has contracted to purchase from government central contract in 1992\. Financing arrangements for the project by categories of works, inclusive of contingencies, are summarized in Table 3\.5\. Table 3\.5: Project Financing Plan (US$ million) World Bank Government Total Category Amount % Amount % Amount % Agricultural Development 58\.3 37 100\.6 63 158\.9 44 Civil works 17\.3 37 29\.4 63 46\.7 13 Equipment, furniture and vehicles 15\.4 83 3\.3 17 18\.7 5 Training /a 1\.9 37 3\.3 63 5\.2 2 Studies 1\.1 100 0\.0 0 1\.1 0 Project Mngmnt\. 0\.0 0 131\.0 100 131\.0 36 Total Financing 94\.0 26 267\.6 74 361\.6 100\.0 /a Training Centers costing US$1\.9 million including contingencies are included under Civil Works category\. 3\.18 Procurement Procurement arrangements are summarized in Table 3\.6\.  - 27 - Table 3\.6: Procurement Method and Disbursements (USS million) LA Total Item ICB LCB Other NBF A cost Works: Agricultural Development - - 101\.4 - (20\.6) (16\.9) - (37\.5) Scheme infrastructure - 41\.9 - - 41\.9 - (15\.5) \. - (15\.5) Other civil works - 4\.8 - - 4\.8 - (1\.8) (1\.8) Subtotal - 4\.- - 47 - (17\.3) (17\.3) Goods Vehicles 11\.7 1\.3 - - 13\.0 (9\.7) (1\.1) - - (10\.8) Equip\. and furniture 1\.8 3\.9 - - 5\.7 (1\.4) (3\.2) - - (4\.6) Fertilizers and chemicals 36\.6 10\.6 - - 47\.2 (13\.5) (3\.9) - - (17\.4) Planting materials - - 10\.3 - 10\.3 - - (3\.4) - (3\.4) Subtotal 50\.1 15\.8 10\.3 - 76\.2 (24\.6) (8\.2) (3\.4) (36\.2) Training Training - - 4\.7 -4\.7 (1\.4) - (1\.4) Materials - - - \.5 (0\.5) - (0\.5) Studies - -\.1 ( 1\. 1 ) - (1\.1) Administration Salaries - - -84\.4 84\.4 (0) (0) Services - - -\. 46\.6 - - - (0) (0) Total 50\.1 118\.3 622 131\.0 361\.6 (24\.6) (46\.1) (23\.3) (0) (94\.0) Percentage of procurement 14 33 17 3 100 (26) (49) (25) (0) (100) /a Figures in parentheses show Bank financing\. A Not Bank financed\.  - 28 - (a) Works: Agricultural and infrastructure works represent 28% and 13% of total project costs and amount to US$101\.4 million and US$46\.7 million equivalent, respectively\. Except for one road contract for an estimated US$3\.6 million in an isolated area and involving a substantial bridge, all contracts for these works would be under US$1\.0 million, geographically widely dispersed and scattered in time over the project period, and thus of little interest to foreign bidders who would however, be eligible to compete\. All works contracts will be awarded under LCB procedures acceptable to the Bank with the following exceptions: \i) land development works costing less than US$40,000 each, and estimated at US$15\.2 million in total (15% of the value of all land contracts), which will be procured following local procedures acceptable to the Bank; and (ii) crop maintenance works such as weeding and the application of fertilizers, estimated at US$30\.4 million in total (30% of the value of all land contracts), which will be carried out by scheme beneficiaries under force account\. (b) Goods: Fertilizers (US$36\.6 million), vehicles, except trailers, passenger cars and speedboats (US$11\.7 million), and computer equipment (US$1\.8 million) would be procured under ICB procedures in accordance with Bank Guidelines\. A margin of preference equal to 15% of the c\.i\.f\. bid price of imported goods, or the amount of customs duties and taxes, whichever is less, would be allowed for domestic manufacturers\. All other goods would be procured through LCB in which foreign suppliers would be eligible to participate, except for planting materials valued at about US$3\.8 million which would be mostly procured from scheme cooperative nurseries under standard terms with FELCRA\. Contracts for items or groups of items of goods estimated to cost less than the equivalent of US$50,000 each and not exceeding the equivalent of US$1\.0 million in aggregate, may be procured on the basis of comparison of price quotations in accordance with the Borrower's normal procurement procedures\. (c) Consultant Services: Consultant services (US$1\.1 million) would be procured according to Bank Guidelines, with terms of reference, qualifications, and contract terms and conditions satisfactory to the Bank\. (d) Procurement Review: All contracts estimated to cost the equivalent of US$2\.0 million equivalent or more (about 17% of the total value of all contracts), and all overseas training proposals would be subject to prior Bank review\. Other contracts would be subject to selective post-award review\. Disbursemen 3\.19 Disbursement of the proposed loan over four and one-half years are detailed in Annex 2, Tables 1A and 1B, and summarized below: (a) 37% of the expenditures of: (i) land preparation, crop establishment, crop maintenance through to maturity and  - 29 - agricultural inputs; end (ii) all civil works including scheme infrastructure of access roads, buildings, utilities and harvesting facilities, State offices and training centers; (b) 100% oL the foreign expenditure costs of directly imported vehicles, including tractors, and equipment including furniture, 100% of the ex-factory cost of locally manufactured items, and 75% of the cost of items procured locally; (c) 100% of all costs of overseas training, local training lecture fees and training materials; and (d) 100% of the cost of consultants' services\. 3\.20 Disbursements would be made on the basis of Statements of Expenditure (SOEs) for all expenditures for: (a) agricultural development including land preparation, crop establishment, crop maintenance through to maturity and agricultural inputs; (b) contracts valued at less chan US$200,000 equivalent for civil works, vehicles and equipment; and (c) training\. Documentation on these withdrawal applications would be retained by FELCRA for review by Bank supervision missions\. All other disbursements would be made against full documentation\. To the extent possible, withdrawal applications should be consolidated into amounts of US$50,000 equivalent or more, prior to submission to the Bank\. 3\.21 The loan is expected to be disbursed over four and one-half years\. As the project is an expenditure time-slice of an ongoing development program, disbursements are projected to be much faster than the standard profile for Malaysian agricultural projects\. This is supported by the experiences of two other recent time-slice loan operations, the Second FELCRA Project (Loan 2917- MA) for which 95% of the loan was disbursed after three and one-half years, and the ongoing RISDA Project (Loan 3139-MA) where 44% was disbursed in 23 months\. The loan closing date would be June 30, 1996\. The proposed loan would provide retroactive financing not exceeding US$9\.4 million for eligible development expenditures incurred from the start of appraisal on December 1, 1991 through the date of loan signing, so as to ensure continuity of Bank financing\. IV\. PROJECT IMPLEMENTATION 4\.1 Malaysia would be the borrower for the loan, and the Ministry of Rural Development (MRD), through FELCRA, would be responsible for project execution\. FELCRA would be assisted by the Federal and State Public Works Departments for the construction of larger roads\. FELCRA's Finance Division, which has had considerable prior experience with the Bank's procurement and loan withdrawal procedures, would be responsible for preparation of loan withdrawal applications on behalf of the Government\.  - 30 - Scheme Development 4\.2 The scheme development process from identification of areas through to land development is shown in Figure 3\. Areas with potential for development are normally first identified by FELCRA State staff, particularly scheme managers with their intimate knowledge of the smallholder lands in their areas\. Dialogues with owners to discuss development proposals are carried out by the State Office, which also initiates the land title verification process and prepares a feasibility report\. The Technical Division is responsible for all design and preparation of tender contract specificstions for all agricultural and engineering works\. Contracts for works estimated not to exceed M$100,000 are arranged through the State office; larger works are tendered through Headquarters\. Staffing 4\.3 FELCRA's projected staffing for the project period is summarized by grades and functions in Annex 5\.4, Table 1\. At the end of 1991, total staff numbered 3,488 persons\. Of these 44 staff, including 12 of Grades A and B\. working in the two palm oil mills have been seconded to KPFB Holdings and will not be re-absorbed into FELCRA\. The current ratio of staff to hectares of land in development of 1:75 is expected to decline as management withdraws from schemes with fully repaid loar\.s, and staff capabilities improve through training\. Thus, the annual increase in professional and semi-professional grades is not likely to exceed 50 posts per year and there is no planned expansion among lower grades\. Planned staff increases, shown in Annex 5\.4, Table 2, will be principally in the categories of managers and supervisors for new agricultural areas, an enlarged scheme inspection service (para 3\.10d) and staff for FELCRA's village development and rural industry programs\. Under FELCRA's management withdrawal program, staff will initially be seconded to KPFB Holdings under Government staff rules for a period of two years, at which time they may formally separate\. By 1995, it is estimated that at least 186 staff, including 142 agricultural staff and 44 staff currently working in the palm oil mills, and comprising of managers, field supervisors, factory engineers and operators and clerks, will have been moved to Holdings\. Implementation Schedule 4\.4 Since the project is a continuation of FELCRA's ongoing development program, no significant pre-project implementation arrangements are required\. Implementation targets would be adjusted annually according to the actual allocations for the year\. The first year's program has been defined and agreed\. An understanding was reached that FELCRA would review its proposed annual work program and approved level of funding with the Bank around the end of each year for each subsequent project year (para 7\.1(e))\. For the first project year, some 9,000 iha (75% of target) were ready for implementation at the time of appraisal and tenders for many contract works were in place\. Additional areas were expected to be added into the year's program\. Planning for programs of subsequent years would be initiated and largely completed one year in advance of targeted implementation\. All maintenance work on immature crops in schemes established prior to the project  - 31 - would continue on a routine basis, with FELCRA hiring contractors or employing scheme members, their families and others under force account arrangements\. There are a substantial number of 1991 ongoing contracts for access roads, both FELCRA and PWD implemented, and buildings which will be completed in 1992\. Design works for roads are ready for several years in advance\. Works are assigned to PWD annually\. Designs for offices and staff quarters are standard while work on utilities and harvesting facilities would be phased in according to progress with agricultural development\. Construction of the two training facilities and three State offices are on-gning and a fourth State office is ready for tender\. Land acquisition for scheme and other civil works is ongoing\. Operation and Maintenance 4\.5 Financing arrangements for the maintenance of all existing FELCRA access roads constructed by PWD and FELCRA, have, until recently, been insecure\. It is Government's policy that all Federally financed PWD roads should be gazetted as Federal roads and maintained through annual grants specifically earmarked for this purpose\. Unfortunately the gazetting process is very slow and the roads after construction receive only limited maintenance with funds that FELCRA is able to allocate for this purpose\. For reasons concerning different standards, the FELCRA-constructed access roads are not accepted for inclusion in State networks and therefore do not qualify for State maintenance funding\. FELCRA thus remains responsible for their upkeep\. Recent Government changes in the budgetary process permit FELCRA to identify funds for the maintenance of all access roads constructed under the project and which remain under FELCRA's responsibility\. Funding for 1992 (M$2\.0 million) and that proposed for 1993 (M$4\.935 million), was satisfactory to the Bank and an understanding was reached that the Government would continue to provide adequate funding for project access road maintenance during the project\. Management of Palm Oil Mills and Agricultural Schemes 4\.6 In taking over the management of FELCRA's palm oil mills, Holdings will enter into a contract with FELCRA, setting out the terms and conditions of the services to be provided and the financial arrangements between the parties\. In the transfer of management of agricultural schemes, scheme benefiaries as a group would enter into a contract with Holdings or other beneficiary institution as the management entity\. Representative copies of these various management contracts would be sent to the Bank for information, after approval by the FELCRA Board in the case of the palm oil mills\. Accounts and Audit 4\.7 FELCRA is subject to normal Government control and audit procedures\. The accounts are audited by the Office of the Auditor General, who is considered an independent auditor acceptable to the Bank\. FELCRA would submit its audited consolidated financial statements to the Bank annually, including separately the results of its various business activities, and a summary analysis of the long term accounts receivable by type and age\. The formats of these financial statements should adequately reflect project  - 32 - expenditure and progress over the life of the project\. Assurances were obtained during negotiations that FELCRA would submit audited annual financial statements within nine months of the end of each fiscal year, including a separate audit opinion on the use of funds disbursed against SOEs\. (para 7\.1(e))\. Monitoring and Evaluation 4\.8 FELCRA's Monitoring and Evaluation Division would continually assess the overall performance of its agricultural development program\. This would focus on scheme economic and financial performance, taking into account crop yields, costs of production and production revenues, progress with loan repayment and scheme contribution to beneficiaries' in-ome\. Results reported regularly to FELCRA management, and to the Government, would also be rourinely made available to the Bank\. It has been agreed with FELCRA that the database on the costs of land development in the States, used in the economic evaluation of new scheme proposals and in development cost estimates, and the level of beneficiary participation in scheme operations, will be regularly monitored and brought up to date in 1993\. 4\.9 Implementation of FELCRA's action plan for devolution of the management of agricultural schemes which have repaid their land development loans and palm oil mills in favor of private institutions will be routinely monitored (para\. 3\.13)\. A list of proposed performance indicators, and 1991 data for the 75 cooperatives to provide a basis for recording progress of cooperative development during the project, are provided in Annex 5\.5, Table 1\. Environmental Effects 4\.10 Project activities concern primarily the rehabilitation of existing agricultural lands and are therefore unlikely to induce significant environmental impacts\. FELCRA will update its planting directives to scheme managers and supervisors and check lists used by the monitoring inspectorate, to reflect environmentally sound field practices\. It is planned that this update would emanate from findings and recommendations of a mid-1992 workshop of agriculturalists and others of leading land development agencies, under the direction of the Department of the Environment, convened to review and agree environmental guidelines for land development\. The proposals for their consideration were prepared by an independent consultancy through the Sabah Land Settlement and Environmental Management Project (Loan 3039-MA)\. Agreement was reached that adequate environmental directives and guidelines will be incorporated into FELCRA's planting directives and inspectorate check lists by December 31, 1992 (para 7\.1(f))\. For road construction, the environmental standards and controls observed by the PWD and FELCRA are set by the State and Forest Department authorities and are satisfactory\. A list of environmentally acceptable agricultural chemicals has been agreed with the Bank among which is the herbicide paraquat, which needs to be carefully handled and managed\. Bank requirements in the use of this herbicide are in line with those of the Pesticide Board of Malaysia\. An understanding was reached at negotiations that FELCRA is endeavoring to comply with necessary  - 33 - safety procedures and would include such requirements in its planting directives and guidelines\. The Role of Women 4\.11 Women will participate in scheme development, generally as part of the agricultural labor force\. FELCRA's training programs for scheme beneficiaries and their families, like those for FELCRA women staff, will be available equally to women as for men\. FELCRA will conduct many courses on schemes or in villages to encourage women's participation without overly disrupting their domestic routines\. The Training Division will maintain records by gender of participants in all training programs\. The proposed study on the most effective roles for FELCRA in small scale rural industries (para 3\.14(b)) will have, as one of its objectives, the identification of high income earning activities fcr women\. Reporting 4\.12 FELCRA would prepare and submit to the Bank a semi-annual progress report on project implementation and consolidated expenditure performance, both actual and committed, for each main category of development\. The Bank's Supervision Plan is shown in Annex 5\.5, Table 2\. V\. AGRICULTURAL PRODUCTION\. MARKETING AND PRICES Agricultural Production 5\.1 The oil oalj yield profile for the project planted areas is shown in Annex 6, Table 1\. It is based on average industry yields on inland soils, which also approximate FELCRA's average performance over the first ten production years\. Average yield over 24 years is about 18 tons FFB/ha with a peak of 22\.6 tons/ha in year 16, and a total FFB production of about \."\.43 tons/ha\. At full production from about 2010, the new rehabilitated area of 24,000 ha is estimated to produce a total of 530,000 tons of fresh fruit bunch from which some 105,000 tons of palm oil would be obtained\. 5\.2 The yield profile for rubber is shown in Annex 6, Table 1\. Over 25 years of tapping, the average annual yield is 1\.55 tons/ha with a peak of about 1\.75 tons/ha in the tenth year\. This compares with current performance over 14 years of tapping of 1\.26 tons/ha with a peak of 1\.67 tons/ha in year 9\. Yields would decline to uneconomic levels after about 25 years\. The profile, which reflects a 30% better performance than individual smallholders, is derived as 90% of the current average commercial yields of the two most widely grown Class I clones, also prominently planted in FELCRA schemes, assuming that FELCRA's performance will improve substantially with the new tapping technology\. At full production in 2010, the new rehabilitated area of 19,200 ha is estimated to produce a total of 34,000 tons of dry rubber\.  - 34 - Marketing and Price ProsRects Palm Qil 5\.3 World demand for palm oil grew at a rapid 10% per year over the past two decades and is expected to grow at 6% per year over the long-run, based on population growth, substitution of palm oil for other vegetable oils, and high income elasticity at low income levels\. Global consumption should almost double over the next 15 years\. Demand for palm oil is derived from total demand for edible oils, from the degree of technical substitution in end use and from relative prices of the oil sources\. Global demand for all oils rose from 52\.6 million tons in 1987/88 to 60\.3 million tons forecast for 1991/92\. The largest source remains soybean oil with 26\.5 % of the market, followed by palm and palm kernal oil with 22\.2% of the total (Table 5\.1)\. Over the period, total demand rose 15%, that for soybean oil rose 6%, while that for palm oils rose 40%\. The cheapest source of oil remains palm oil and demand growth is greatest in developing countries where about 90% of output is consumed\. Table 5\.1: Edible Oils Demand (million tons) Consump- Market tion 1987/88 1988/89 1989/90 1990/91 1991/92 Share Increase consumRtion Soybean oil 15\.0 14\.9 15\.8 15\.9 16\.0 26\.5 6 Palm oils 9\.6 10\.6 12\.1 12\.4 13\.4 22\.2 40 Coconut oil 2\.7 2\.7 2\.9 2\.9 2\.9 4\.8 7 Others 25\.3 25\.7 26\.3 27\.7 28\.0 46\.5 11 Total 52\.6 53\.9 57\.1 58\.9 60\.3 100\.0 15 Source: USDA, Foreign Agricultural Service, World Oilseed Situation and Outlook, Dec\. 1991\. 5\.4 Export Demand\. Palm oil commands a 43% share of the international trade in edible oils, followed by soybean oil at 17% of global exports\. The largest importers are China, Singapore, India and Pakistan, which together with smaller Asian countries import 60 % of the total traded\. Asian long-run demand has increased at an annual average of 40% and is projected to continue increasing at 30%-40% per year (Table 5\.2) because of low average per capita  - 35 - consumption of fats and oils was 7\.7 kg, compared with 20 kg for high income developing countries and almost 40 kg for developed countries\. China's income elasticity for calories from fats and oils in 1988 was estimated by FAO/World Bank to be 1\.12% with a population of over 1 billion\. Table 5\.2: Palm Oil- Gross Exgorts and Imoorts (million tons) Actual Projected Change % 1969-71 1979-81 1989-91 1999-01 2005 Annual Exports, total 1\.0 3\.5 7\.5 14\.8 18\.3 49 -Malaysia 0\.4 2\.4 5\.2 8\.3 9\.2 25 -Indonesia 0\.2 0\.4 1\.0 2\.9 4\.3 11 Imports, total 0\.9 3\.2 7\.4 14\.7 18\.3 49 -USA 0\.1 0\.1 0\.2 0\.2 0\.2 0 -EEC 0\.5 0\.7 1\.0 1\.5 1\.5 2 -E\.Europe 0\.0 0\.2 0\.6 1\.1 1\.4 4 -Asia 0\.2 1\.8 4\.8 8\.3 10\.6 30 Source: World Bank, USDA and Government reports\. 5\.5 Export SUPDly\. The two largest producers of palm oil are Malaysia with about 6 million tons, followed by Indonesia w'th about 2\.3 million tons of annual outturn\. The long-run forecast is a continuance of this position, with Malaysia producing 10 million tons within 15 years and Indonesia producing almost 7 million tons\. Indonesia is expected to consume a larger share of its palm oil, leaving Malaysia as the dominant exporter of about 9 million tons annually\. To achieve this target, Malaysia will have to maintain an annual planting program of about 100,000 ha\. 5\.6 Prices\. Malaysia continues to dominate palm oil production and exports because its soil and climatic conditions are ideal for high yields, research and other supporting institutions are able to generate streams of productivity raising improvements, and because exchange rate and industry policy are favorable\. Detailed comparative cost of production studies in the late 1980's estimated that annual oilseed oils (soybean, rapeseed, safflower) cost US$300-$500 per ton to produce, while East Asian palm oil cost about US$150-$250 per ton\.6' Other palm oil producers were often at a disadvantage because of unfavorable exchange rate and trade policies, with costs of production often being double or more that of Malaysia\. Because of increasing labor costs, Malaysia's 1992 production cost is creeping towards the US$200- 250/ton, while Indonesia's remains in the US$150-$200/ton range\. However, this is still well below the export price of US$350/ton (Malaysia fob) 61 Landell Mills, 1987; Larson, D\., 1991\.  - 36 - received in early 1992, and below the $US430/ton export price of soybean oil, US$414/ton export price of rapeseed oil, and US$600/ton of corn oil for the same period\. Price projections indicate that this relativity will remain (Table 5\.3)\. While increasing labor costs are a concern for Malaysian producers, there are also a number of already identified sources of produc\.tivity gains to be implemented\. In addition, Malaysia will soon be entering the phase where replanting will be greater than extension of planted area\. The presence of existing infrastructure and established labor supplies will lower the average cost of establishment and operation\. Table 5\.3: Edible Oil Prices and Projections (US$/ton) Actual Projected 1980 1985 1990 1992 1995 2000 2005 Current Prices -Palm oil 584 501 285 350 408 425 450 -Coconut oil 674 590 371 550 639 793 774 -Groundnut oil 892 878 975 750 733 779 713 -Soybean oil 501 572 463 423 515 575 634 Constant Prices (US$85) -Palm oil 556 501 194 215 239 208 183 Source: World Bank Projections: USDA, FAS Reports\. 5\.7 Industry Protection and Exprt Comnetitiveness\. World markets for edible oils are characterized by a high degree of price and non-price interventions and this causes relatively higher price instability than for other commodities\. Within the oils, palm oil price is among the most unstable\. Among importing countries (e\.g\., India) the most common interventions are quantitative import restrictions to encourage domestic production of annual oilseeds\. Vegetable oil prices are affected by livestock cycles and the demand for oilseed meal\. Among exporters, the most common intervention are export subsidies, including the Export Restitutions of the EEC (whereby exporters of oil are compensated for exporting at a loss) and the US Market Development Programs under which the export of oils, oilseeds and meals are subsidized through the GSM 102/103, PL 480 Title I/II, Sunflower Oil Assistance Program, Cottonseed Oil Assistance Program, and the Vegetable Oil Export Enhancement Program)\. The announced subsidies for FY92 for the GSM program alone exceed US$1 billion\. The net impact of these programs is to lower prices, destabilize markets and retain high cost producers\.  - 37 - 5\.8 Malaysian palm oil production and trade is free of supply management and price intervention\. Mission estimates (Table 5\.4) based on published data for 1991 show that the nominal protection rate on Malaysian palm oil was zero in that year, consistent with that of other years\. Farm-gate prices to producers represented the border price equivalent less normal deductions for processing, transport and services, all valued at the freely convertible exchange rate\. Traded inputs are not subject to interventions and value-added at domestic prices equals value-added at border prices to give an effective protection rate of zero\. Using the domestic resource cost (DRC) methodology to estimate economic efficiency, by deducting the opportunity cost of primary factors of production from value added, a cost of M$0\.64 is incurred to earn M$1\.00 of net benefits\. This indicates highly efficient use of factors and palm oil production should be expanded to the point where the cost rises to M$1\.00 per M$1\.00 of benefits and provides empirical support to the view that Malaysia can absorb labor cost increases in the industry\. In terms of foreign exchange generation, it cost M$75\.00 of domestic resources to produce a ton of ffb worth US$42\.00 (M$116\.62, value-added)\. The implicit exchange rate is then M$1\.78 per US$1\.00\. Since it costs only M$1\.78 of domestic resources to earn US$1\.00 from palm oil and M$2\.75 per US$1\.00 (the actual exchange rate) from the rest of the economy, palm oil is a highly competitive foreign exchange earner for Malaysia\.  - 38 - Table 5\.4 Malaysian Palm Oil - Efficiency Estimates (October 1991) Nominal Protection 1\. Crude Palm Oil (CPO) Average seller's price cif Rotterdam US$/ton 342\.50 - less freight 40\.00 financial charges (2\.75%) 9\.42 insurance (0\.4%) 1\.37 normal arrival loss (0\.25%) 0\.86 FOB Price 290\.86 Convert to M$ usi', spot rate 2\.7380 M$/ton 796\.36 - less port charg%\.s 2\.00 transport mill to port 30\.00 Equals Border Price equivalent ex mill 764\.36 2\. Palm Kernels (PK) Average sellers' price ex mill Malaysia M$/ton 574\.98 3\. Fresh Fruit Bunches/ton CPO value at 20% extraction 152\.87 PK value at 5% extracrion 28\.75 - less milling cost 30\.00 (a) FFB val\./ton at mill door in efficiency prices 161\.62 (b) Actual producer price at mill door 161\.62 Nominal Protection Rate (a-b)/a 0% Effective Protection Traded inputs/ha (fert\., chemicals etc\.,) year 10 690\.00 Value of traded inputs/ton ffb in domestic prices 35\.00 Value-added/ton ffb in domestic prices 116\.62 Value-added/ton ffb in efficiency prices 116\.62 Effective Protection Rate 0% Domestic Resource Cost (DRC) Value of primary factors/ha at domestic prices - labor 497\.00 - capital (depreciation) 500\.00 - land (imputed value in rubber production) 500\.00 Total value/ha of domestic resourceS 1,497\.00 Opportunity cost of domestic resources/ton ffb 75\.00 Valie added by domestic resources 116\.62 DRC coefficient 0\.64 Source: Mission estimates from published data  - 39 - Rubber 5\.9 Demant\. The demand for natural rubber is derived from total demand for elastomers and from the degree of technical substitutability between natural and synthetic sources\. Total demand for elastomers is some 15 million tons annually, of which about 5\.2 million tons is for natural rubber (Table 5\.5)\. Natural rubber consumption has grown at 2% to 3% per year over the past 20 years, from 3 million tons in 1970, despite the inroads made by synthetic elastomers\. While demand for natural rubber in the transport sector has declined, this has been more than offset by an increase in demand from other manufacturing industries\. Advances in grading and processing have allowed rubber to meet stringent specifications and improve its non-price competitiveness for a wider range of end-uses\. Buyers are increasingly moving towards direct trading with countries that are able to ensure reliable supplies with guaranteed technical specifications demanded by consumers\. As with palm-oil, the greatest demand growth will be in Asia where consumption has tripled from 797,000 tons to 2\.4 million tons over the past two decades\. 5\.10 SuDply Status and Outlook\. Production in Malaysia has declined from 1\.53 million tons in 1980 to 1\.25 million tons in 1991 (Table 5\.5)\. In 1988, a one-time jump to 1\.66 million tons was recorded as a response to a short run price peak\. The decline is due to a fall in planted area as rubber is replaced by oil palm and urban infrastructure or is left untapped in high-cost areas\. The estimated planted area fell from about 2 million ha in 1980 to 1\.82 million ha in 1992\. Some recovery of production level is anticipated from yield growth but the long run outlook is for Malaysia's share of world production to fall to about half of its 1980 share of 40%, with Indonesia being the dominant producer\. Table 5\.5 Rubber - Production ('000 tons) Actual Proiected Share % 1980 1988 1990 1991 1992 2000 2005 Production 3,814 4,749 5,318 5,238 5,349 6,566 7,180 World 1,537 1,660 1,290 1,250 1,260 1,570 1,600 22 Malaysia 982 1,235 1,263 1,297 1,345 1,800 2,065 29 Indonesia 514 954 1,220 1,250 1,280 1,560 1,600 22 Thailand Source: Government of Malaysia Economic Report 1991/92; World Bank, International Economics Department  - 40 - 5\.11 Trade\. While Malaysia is also expected to lose its leadership in terms of total export volume, it will remain one of the big three exporters (Table 5\.6) and should dominate the higher-priced, quality end of the market\. In 1980, Malaysia exported 1,553 tons of rubber, equivalent to 48% of total exports; by 1991 its share had fallen to 29% as total production fell and domestic use in manufacturing rose, often to be exported in higher value form\. The export of rubber manufactures from Malaysia increased from M$84 million in 1980 to M$1,356 million in 1990\. Import demand will be greatest in Asia where high population levels and growth, and high income growth and elasticity of demand, accompanied by increasing industrialization is expected to strengthen import demand from 1\.55 million tons in 1991 to over 2\.4 million tons within 15 years\. Table 5\.6: World Trade in Rubber (000 tons) 1980 1990 1991 1992 2000 2005 Exports Total 3,259 4,150 4,232 4,370 5,127 5,598 Malaysia 1,553 1,291 1,250 1,260 1,484 1,512 Indonesia 886 1,149 1,158 1,189 1,452 1,643 Thailand 483 1,158 1,186 1,215 1,480 1,518 Imports Total 3,388 4,150 4,233 4,370 5,127 5,598 N\. America 772 982 953 927 1,060 1,141 EEC 780 800 860 870 948 1,003 Asia 821 1,536 1,550 1,606 2,185 2,404 Source: Economic Report 1991/92, Ministry of Finance, Malaysia; World Bank, International Economics Department\. 5\.12 Prices and Costs\. In turrent dollars rubber prices have fallen from US$1\.62/kg in 1980 to US$1\.00/kg in 1991 (Table 5\.7), and to US$0\.97/kg in early 1992\. Prices are unlikely to firm until the global economy pulls out of recession, but are then expected to double over the long run\. In constant dollars the price of rubber adjusted for inflation in 1991 had fallen 58% from US$1\.55/kg in 1980 to a record low of US$0\.65/kg in 1991\. Constant dollar prices are expected to increase over the long run but only to US$0\.84 equivalent\. Malaysia's average cost of production from mature rubber plantings in 1991 was about M$0\.90/kg for field costs, M$0\.80/kg for tapping and M$0\.35/kg for processing and marketing, to give a total cost of M$2\.05/kg (equivalent to US$0\.74/kg)\. For immature rubber the cost is about US$1\.10/kg\.  - 41 - Table 5\.7: Rubber Prices and Price Projections (US Cents/kg) Actual Proiected Change 1980 1985 1990 1991 1995 2000 2005 % Current Prices 162 92 103 100 146 176 206 +27 Const\. 1985 Prices 155 92 70 65 86 86 84 -46 Source: IBRD 5\.13 Industry Competitiveness\. The future of Malaysia's rubber industry depends on its international competitiveness and the adjustment actions taken to counter the decline in relative prices\. Between 1980 and 1990 the moving average real price of rubber fell 55%\. The short-term reaction of smallholders has been to keep planted area fairly constant at about 1\.8 million ha while tapping less (Table 5\.8)\. Estates on the other hand have more quickly replaced rubber with oil palm\. In just ten years, estates' share of output fell from nearly 40% to 28% because it was more profitable to grow oil palm\. This does not, however, mean that Malaysia should not continue to grow rubber, particularly on lands marginal for oil palm because of transport distances, soil conditions and slopes\. Using the same protection estimates methodology as for palm oil (para 5\.7) and the pricing structure shown in Annex 6, Table 9, both the nominal and effective rates of protection are effectively zero\. Small welfare transfers are given to some smallholders but not to the industry as such\. The static model two sector DRC analysis estimates that it costs M$0\.99 of domestic resources to earn M$1\.00 of value-added in rubber production, with the analysis being most sensitive to assumptions about the opportunity cost of labor\. The economic implication is that growers who can produce below the average cost should stay in production, as well as those able to reach value-added above the average\. Long-run adjustment will see continued relocation of rubber onto land with lower opportunity cost, increased concentration among smallholders with lower marginal opportunity cost of labor and technology changes to raise the productivity of labor\. 5\.14 Malaysia generally receives a higher price than the published grade prices because of consistent quality\. Advances in technology allow cleaner latex of specifications between narrow limits to be supplied\. Buyers increasingly prefer direct purchases tailored to specific requirements and pay a premium\. While industrialization puts Malaysia at a disadvantage in terms of labor costs, it brings gains in processing and marketing advantages and suggests that concentration on the high value top end of the market will ensure a healthy long-run competitive position\.  - 42 - Table 5\.8 Malaysian Rubber Statistics 1985 - 1992 1987 1988 1989 1990 1991 1992 Prices (H cents/kg) 249 310 262 233 230 235 Planted Area (000 ha) 1,898 1,861 1,848 1,832 1,825 1,819 - smallholdings -- -- 1,486 1,480 1,480 1,480 - estates -- -- 362 352 345 339 Production (000 tons) 1,581 1,660 1,419 1,291 1,250 1,260 - smallholding 1,094 1,186 931 892 890 897 - estate 487 473 488 399 360 363 Yield (kg/ha) - smallholdings 1,113 1,191 988 909 1,000 1,025 - estates 1,531 1,495 1,389 1,329 1,400 1,424 Source: Government of Malaysia, Economic Reports VI\. PROJECT BENEFITS AND JUSTIFICATION 6\.1 The benefits of the project would be: (a) strengthening of FELCRA's agricultural performance (paras\. 3\.6 and 3\.10(a)); (b) promoting its disengagement from the management of mature schemes (para\. 3\.13); (c) production of an incremental 105,000 tons of palm oil per year and 34,000 tons of rubber per year for export to meet firm international demand (paras\. 5\.1 and 5\.2); and (d) improvement of the incomes of some 24,000 beneficiaries with annual average incomes for a family of five below M$436/month (US$145), among the poorest in the country, expected to benefit (paras\. 6\.4 and 6\.6)\. The net foreign exchange earnings by full development in 2010 (using projected world market prices and in 1992 constant dollars) would be about US$100 million per year\. The project would be an effective means of implementing the Government's rural development strategy of improving smallholder incomes and self-reliance and in promoting human resource development\. Scheme Income Analysis 6\.2 Oil Ralm Schemes\. The analysis is based on a typical scheme model of 300 ha of land being developed for oil palm to rehabilitate some 120 smallholder properties averaging 2\.5 ha each\. Development costs over four  - 43 - years amount to M$6,058/ha (Table 6\.1 and Annex 6, Table 4)\. The scheme is provided with buildings, electricity, water supply and other infrastructure, as well as vehicles and equipment\. FELCRA provides management services during the development phase\. The first crop of about 1\.7 tons ffb/ha is harvested three years after planting\. Yields rise rapidly to a little over 20 tons/ha by year 9 and remain at this level for about 10 years after which they gradually decline (Annex 6, Table 1)\. The cash flow remains negative until year 6 (Annex 6, Table 5)\. FELCRA's loan to the settlers covers expenditures during development\. Cost recovery is made by deduction from receipts due beneficiaries for delivery of ffb to FELCRA or other mills\. Beneficiaries who chose to work on the scheme typically earn some M$1,875 per year from 250 days field maintenance work at M$7\.50 per day, the current wage for this work in FELCRA schemes\. Harvesting is done by contractors\. Beneficiaries also receive dividend payments from scheme net profit after debt service, starting about five years after planting\. By year 9, a beneficiary family working on the scheme would receive an income of M$3,917 from dividends and M$2,813 from wages for 1\.5 labor units to give a total income of M$6,729 per year (Annex 6, Table 6), about double that of the without project situation\. The scheme IRR with full cost recovery and under the assumptions used, is estimated to be 11%\. Table 6\.1: Summary Oil Palm Schemes Scheme Model Scheme 1 Scheme 2 Scheme 3 Devel\. cost/ha 6,058 3,846 3,176 4,726 Yield tons/ha 22\.3 25\.3 21\.1 21\.9 Oper\. cost/ton 68 57 67 35 Price/ton ffb 145 144 139 153 Gross margin/ton 77 87 72 118 G\.M\./ha 1,717 2,201 1,519 n/a Source: Annex 6, Tables 4-6\. 6\.3 The results of this model were compared with the actual performance of the three ongoing palm oil schemes given in FELCRA's Agricultural Performance Study (1991), as a check on the validity of the assumptions\. Based on current contracts, unit development costs of some M$6,106/ha are from 60% to 90% higher than for the three schemes developed some 10 years or more ago (Table 6\.1)\. Operating costs for the period 1988-90 averaged between M$35/ton and M$67/ton of ffb harvested\. The Performance Report states that these figures are low because of procurement difficulties with fertilizer and the model operating cost estimate of M$68/ton ffb seems reasonable as do yields\. The ffb prices are those received by the schemes for 1989 and the average of M$145/ton ffb at mill gate is used in the summary table\. The gross margin/ton varies between M$72 and M$87/ton with the excessively high figure for the third scheme being due to inadequate fertilizer application and not sustainable\. The gross margin per ha of the model is estimated to peak at  - 44 - M$1,717/ha in year 9 lying either side of the actual performances of the two schemes\. The model and its assumptions are considered valid with profit performance differences between old and new schemes being fully accounted for by changes in cost-price relationships\. 6\.4 With FELCRA's existing average share size of 2\.5 ha and using current costs, prices and yield profiles, the total maximum annual income for a working beneficiary (about 9 years after planting) is estimated to be N$6,729\. While this is above the OPP2 relative poverty estimate of M$5,232 for 1990 (M$436/month), the net income falls below this threshold once loan repayment begins in year 11 and does not fully recover as yields eventually decline through the 15 year repayment period\. Doubling the share size to 5\.0 ha raises the average income for a working beneficiary to M$8,707\. Table 6\.2: Income Effect of Share Size 2\.5 ha 5\.0 ha Gross mergin 4,322 8,644 Debt service 1,375 2,750 Net income 2,947 5,894 Wages from scheme 2,813 2,813 - Total income/year 5,760 8,707 - Relative poverty line 5,232 5,232 6\.5 The model is most sensitive to palm oil price assumptions\. Scheme and mill records show ffb prices per ton varying from M$224 in 1984 to M$76 in 1985 to M$180 in 1988 and down to M$110 in 1990 reflecting movements in international prices of the final products (para 5\.6)\. Palm oil prices in current dollars have declined from a high of US$729/ton in 1984 to US$342/ton in 1991, CIF Rotterdam\. This price nevertheless remains above the cost of production of between US$200-$250/ton (para 5\.6)\. In constant 1985 dollars, to eliminate the effect of inflation, the trend has been generally downwards from US$716/ton in 1970 to a low of US$199/ton in 1990\. The long-run projected price affecting project output most is expected to be US$183/ton in constant dollars\. Without improvements in productivity, the long-run expected cost is US$156/ton\. To offset the effect of falling prices, the project will promote best agricultural management practices to maximize productivity improvements\. However, this will not exhaust the yield potential of oil palm\. It can be expected that over the life of the trees to be planted under the project, average yields will be higher than those used in the model\. 6\.6 Rubber Schemes\. The analysis is based on a typical 200 ha scheme with 80 beneficiaries\. The development approach is the same as for oil palm\.  - 45 - Development cost over the seven years to tapping emounts to M$7,238 per ha, based on current contracts (Annex 6, Table 7)\. Yields rise from 520 kg of latex per ha to a peak of 1,750 kg/ha some 10 years later and slowly decline\. The total investment reaches M$1\.64 million, about M$20,000 per family\. FELCRA's tapping costs are typically about M$1\.20/kg for young rubber falling to about M$0\.85/kg for trees at peak production\. With less frequent tapping, average tapping cost would fall at least 15% to M$1\.02/kg-M$0\.68/kg\. The cash flow remains negative until year 8 when the first tapping yields 520 kg/ha (Annex 6, Table 8)\. Under the project, less frequent (third daily) tapping would reduce the number of tappers required and would increase labor productivity to give a net 15% savings on unit labor costs\. The rate of return on the rubber scheme model with full cost recovery is estimated at 12%\. Beneficiaries working on the scheme as tappers, machinery operators or field maintenance laborers would receive a net income of some M$6,000 per family by year 13 made up of about equal shares of wages and dividends (Annex 6, Table 9)\. The results are marginally better than those for oil palm because rubber yields and real prices do not decline as quickly\. 6\.7 The model and its assumptions were compared with results of FELCRA's Agricultural Performance report on ongoing schemes\. The development cost of M$7,238/ha based on current contracts is consistent with the average cost of M$6,313/ha for schemes developed during the 1980s, adjusted for inflation\. The 7-year period to first tapping used in the model is one year longer than the commercial standard but six-months shorter than FELCRA's average\. Yields are consistent with those being achieved on well managed FELCRA schemes but lower than those on estates\. The net income per working beneficiary of M$6,000/year at full development is towards the high end of the range reported by the profit and loss analysis of ongoing schemes given in the Performance study\. However, the income estimate is considered conservative under good management and using the practices discussed in para\. 3\.6\. The chief difference between the model and the actual performance of FELCRA's rubber schemes is that model yields do not show the drop after year 12 resulting from poor tapping practices (para 2\.10)\. 6\.8 The model is most sensitive to assumptions on the price of rubber relative to tapping labor cost, which accounts for 70% - 80% of the production cost\. In real terms (1985 constant dollars projections, Annex 6, Table 3), rubber prices are expected to rise by 20% over the next decade, an average of 2% per year\. At current wages, both FELCRA and the estate sectors are losing 10% to 15% of rubber production because of tapper unavailability and poorly skilled tappers are adversely affecting current production and tree life\. A move to third daily tapping will require 30% fewer tappers for a given area, but they will need a higher skill level and adequate incentives\. On the 49,400 ha to be converted to third daily tapping under the project, the number of tappers needed would be reduced from 24,000 to 16,000 at full development\. Other industry advances in nursery and agronomic practices indicate potential yield increases in the near future beyond that assumed for the project\. 6\.9 Scheme Cost Recovery\. All land development costs are recovered except management costs, which are about 5% of annual operating costs\. The interest rate charged on land development loans has generally been positive in  - 46 - real terms, bat involves a small subsidy element (para\. 2\.17(b)), which has been justified as an income transfer to a poverty target group\. Beneficiaries assume full financial responsibility for these loans and, under the project, will pay full management costs after loan repayment\. Loan repayment rates are about 95% (para\. 2\.18), as collection is made through deduction from payment due to beneficiaries for ffb and rubber marketed by FELCRA\. Project Analysis 6\.10 The base case rate of return at economic costs and prices, all in terms of constant 1992 dollars, is estimated at 13% (Annex 6, Table 10)\. The IRR for rubber is 12% and that for palm oil is 11%\. To this is added the tapping cost saving of 15%/kg of rubber from introducing the reduced frequency tapping method to about 50,000 ha phased in over 8 years\. Not included in the benefits are the expected, but unquantifiable, gains from the adoption of third daily tapping by producers other than FELCRA schemes and the benefits of the access roads external to the schemes\. All development and operating costs are included with full costing of access roads\. One half of the training cost is included, since the other half is apportioned to activities of FELCRA not related to the project\. The result is insensitive to assumptions on training costs\. Similarly, FELCRA head office overheads are included at 15% of the total cost, since this represents the project share of FELCRA's overall activities\. This rate of return is considered satisfactory under the assumption of a 10% opportunity cost of capital for Malaysia\. 6\.11 Economic pricing\. Prices of investment items are estimated net of taxes and duties\. Most significant are the excise duties (30%) and sales tax (10%) on vehicles and lower rates on equipment such as weighbridges\. The cost of current inputs such as fertilizers are also net of taxes\. The farm-gate prices of oil palm and rubber in Malaysia reflect their full economic value\. The only market intervention program for palm oil is an export duty on crude palm oil to encourage domestic processing\. This is currently about 3% of the fob price but is insignificant since less than 5% of output is exported as CPO\. For rubber, the buffer stock operations of INRO have no effect on inter- year prices\. 6\.12 The oil palm prices used in the analysis are the Rotterdam cif price projections less freight, insurance, financial charges and delivery losses adjusted back to the farm gate (Annex 6, Table 2)\. The New York spot price of RSS1 rubber (Annex 6, Table 3) is adjusted to RSS3 level to reflect average quality of project output and is further derived to the farm gate (Annex 6, Table 9)\. The impact of project output on world markets is already included in the price projections\. No adjustment in the price of foreign exchange is needed since the ringgit is freely convertible at the market rate\. Similarly, the labor market functions without controls and the analysis assumes that the marginal productivity of labor equals the wage rate\. 6\.13 Sensitivity Analysis\. The rate of return is markedly insensitive to changes in assumptions (Annex 6, Table 10)\. A 20% increase in the cost of tapping over and above the general inflation rate reduces the rate of return on the rubber scheme model by only 1%\. A doubling of the cost of tapping only  - 47 - reduces the rate of return to 7%\. This is because tapping is not a significant cost until year 10\. At the project level, the effect is mixed since the rise in tapping cost increases the benefits due to tapping cost savings from introduction of the third daily system\. Similarly, the return is relatively insensitive to changes in investment costs\. A 10% increase in investment costs results in a fall of the rate of return from 13% to 12%\. This is because the annual operating costs, particularly for oil palm are higher than the annual investment costs\. Results of sensitivity tests across a range of assumptions is given in Annex 6, Table 11\. Proiect Risk 6\.14 The only major risk for the project would be a steeper deterioration in the cost-price relationships for rubber production than could be offset by productivity gains, which would leave FELCRA holding significant areas of untapped rubber\. The success of the new tapping technology, which will be the major sources of productivity gains, depends on the supply, training and supervision of workers\. The project training component will need to be matched by a system of incentives adequate to motivate tappers in a fast growing economy of rising expectations (para\. 3\.6)\. The risk is less in oil palm because the main labor requirement is largely for unskilled workers and wage rates are competitive with non-agricultural wages\. The project is fully sustainable and self-financing after the development investment period\. The Government assures the necessary budget funds to complete investment needs after the project period, and the whole thrust of the project is to encourage smallholders to take over the full management and associated costs of their group farms\. VII\. AGREEMENTS REACHED AND RECOMMENDATION 7\.1 During negotiations, agreements were reached on the following: (a) By December 31, 1992, FELCRA shall establish and thereafter maintain a new Plantation Division headed by a qualified and experienced officer (para 3\.10(a)); (b) By December 31, 1992, FELCRA shall establish and thereafter maintain a new Finance Division headed by a qualified and experienced officer (para 3\.10(b)); (c) FELCRA shall, from time to time, exchange views with the Bank on its program to devolve to private institutions, the management of palm oil processing mills, and agricultural schemes which have repaid their land development loans (para\. 3\.13); (d) By December 31, 1992, FELCRA will appoint an independent firm of accounting consultants to carry out a financial management review of FELCRA's accounting policies and practices (para\. 3\.14(a));  - 48 - (e) FELCRA shall submit to the Bank within nine months of the end of each fiscal year, its audited financial statements including a separate audit opinion on the use of funds disbursed against SOEs (para 4\.7); and (f) By December 31, 1992, FELCRA shall incorporate into its planting directives and inspectorate check lists, adequate environmental directives and guidelines (para 4\.10)\. 7\.2 With the above assurances, the proposed project would be suitable for a Bank loan of US$94\.0 million to Malaysia\. The loan would have a repayment period of 17 years, including a grace period of 5 years at the Bank's standard variable interest rate\.  MALAYSIA THIRD FELCRA LAND DEVELOPNENT PROJECT AGRICULTURAL DEVELOPMENT Detailed Cost Table NS Base Costs Base Costs in USS _UUU3UUUUUSU MnU3_U _ _ _ _ _ _ _ _ Unit 1992 1993 1994 1995 Totol 1992 1993 1994 1995 Total \. \. 1\. INVESTMENT COSTS \. A\. CROP ESTABLISNIENT/REHAB OIL PALM 7500\.0 7500\.0 7500\.0 7500\.0 30000\.0 27m7\.8 27m7\.8 27m7\.3 2777\.8 11111\.1 RUBBER 6274\.5 6274\.5 6274\.5 6274\.5 25098\.0 2323\.9 2323\.9 2323\.9 2323\.9 9295\.6 DIVERSIFIED CROPS 1500\.0 1500\.0 1500\.0 1500\.0 6000\.0 555\.6 555\.6 555\.6 555\.6 2222\.2 Sub*Total 15274\.5 15274\.5 15274\.5 15274\.5 61098\.0 5657\.2 5657\.2 5657\.2 5657\.2 22628\.9 8\. CROP MAINTENANCE OIL PALM 71869\.7 62839\.6 51830\.3 49356\.3 235895\.9 26618\.4 23273\.9 19196\.4 18280\.1 87368\.9 RUBBER 18283\.0 19683\.4 21628\.4 24351\.4 83946\.2 6771\.5 7290\.1 8010\.5 9019\.0 31091\.2 DIVERSIFICATION 2845\.1 3834\.7 4576\.9 5319\.1 16575\.8 1053\.7 1420\.3 1695\.1 1970\.0 6139\.2 Sub-Total 92997\.8 86357\.7 78035\.6 79026\.8 336417\.9 34443\.6 31984\.3 28902\.1 29269\.2 124599\.2 Total INVESTMENT COSTS 10827\.3 101632\.2 93310\.1 94301\.3 397515\.9 40100\.9 37641\.6 34559\.3 34926\.4 14J228\.1 *72M ===E s======== ====== g=Z===== ==__====2 zC====== == ====--== = =zZ=== Total 108272\.3 101632\.2 93310\.1 94301\.3 397515\.9 40100\.9 3764;\.6 34559\.3 34926\.4 147228\.1 C\. Values scaled by 1000\.0 3/3/1992 15:47 ii1  MkLAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT SCHENE INFRASTRUCTURE & BUILDINGS Detaited Cost Table Ns Base Costs Base Costs in USS Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total \. \. \. 1\. INVESTMENT COSTS \. A\. SCHEME INFRASTRUCTURE ACCESS ROADS 22040\.0 17300\.0 9470\.0 2790\.0 51600\.0 8163\.0 6407\.4 3507\.4 1033\.3 19111\.1 WATER SUPPLY 3860\.0 5130\.0 3840\.0 1250\.0 14080\.0 1429\.6 1900\.0 1422\.2 463\.0 5214\.8 ELECTRICITY 3360\.0 1490\.0 1800\.0 580\.0 7230\.0 1244\.4 551\.9 666\.7 214\.8 2677\.8 SCHEME OFF\.& STAFF HOUSES 5960\.0 105F0\.0 5340\.0 4080\.0 25960\.0 2207\.4 3918\.5 1977\.8 1511\.1 9614\.8 LOWDING RAMPS 1300\.0 1500\.0 2300\.0 1800\.0 6900\.0 481\.5 555\.6 851\.9 666\.7 2555\.6 LATEX COLLECTION CENTRES 100\.0 140\.0 120\.0 200\.0 560\.0 37\.0 51\.9 44\.4 74\.1 207\.4 Sub-Total 36620\.0 36140\.0 22870\.0 107C0\.0 106330\.0 13563\.0 13385\.2 8470\.4 3963\.0 39381\.5 B\. OTHER CIVIL WORKS STATE OFFICES 5500\.0 0\.0 1000\.0 1000\.0 7500\.0 2037\.0 0\.0 370\.4 370\.4 2777\.8 Total INVESTMENT COSTS 42120\.0 36140\.0 23870\.0 11700\.0 113830\.0 15600\.0 13385\.2 8840\.7 4333\.3 42139\.3 Total 42120\.0 36140\.0 23871\.0 11700\.0 113830\.0 15600\.0 13385\.2 8840\.7 4333\.3 42159\.3 Values scaled by 1000\.0 3/3/1992 15:48  - 51 - ANNEX 1 Table 2b MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Phasing of Buildings in Scheme Infrastructure (No\. of Units) 1992 1993 1994 1995 Total office 6 31 8 15 60 Store 7 36 11 15 69 Garage 6 31 8 15 60 Staff Houses 121 300 182 127 730  MALAYSIA THIRD FEtCRA LAND DEVELOPENT PROJECT TRtAINING Detailed Cost Table NS Base Costs Base Costs in US# Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total 1\. INVESTIENT COSTS \. A\. TRAINING TRAINING MATERIALS 910\.0 150\.0 100\.0 50\.0 1210\.0 337\.0 55\.6 37\.0 18\.5 448\.1 TRAINING CENTERS 4710\.0 250\.0 0\.0 0\.0 4960\.0 1744\.4 92\.6 0\.0 0\.0 1837\.0 OVERSEAS CORSES 260\.0 370\.0 370\.0 240\.0 1240\.0 96\.3 137\.0 137\.0 88\.9 459\.3 LOCAL COURSES 2020\.0 3400\.0 2540\.0 2540\.0 10500\.0 748\.1 1259\.3 940\.7 940\.7 3888\.9 Si-oal70 \. \. 31\. 23\. 19\. 2\. \. 1\. \. \. Sub-Total t 7900\.0 4170\.0 3010\.0 2830\.0 17910\.0 2925\.9 1544\.4 1114\.8 1048\.1 6633\.3 \. \. \. \. \. \. \. \. \. Totat I7STMENT OSTS 7900\.0 4170\.0 3010\.0 2830\.0 17910\.0 2925\.9 1544\.4 1114\.8 1048\.1 6633\.3 U UUUSUU33US3twflUUU3SS * t t2sS3US- m2U 222 ===5=2= ===ZS== S======2 ======= Total 7900\.0 4170\.0 3010\.0 2830\.0 17910\.0 2925\.9 1544\.4 1114\.8 1048\.1 6633\.3 - Values scaled by 1000\.0 3/3/1992 15:48 vi  NALAYSIA TIIRD FELCRA LAND DEVELOPNENT PROJECT PROJECT STUDIES Detailed Cost Table ns Base Costs Base Costs in USS 2=3=2=s2332=3=3==3===33=33ss33sr 3=323=:ssa======3\. …==22=2 Unit 1992 1993 1994-95 Total 1992 1993 1994-95 Total ,\. \. 1\. INVESTMENT COSTS \. A\. STUDIES CORPORATE StUDIES 200\.0 150\.0 150\.0 650\.0 74\.1 55\.6 S5\.6 240\.7 ACCOUNTING SYSTEMS 600\.0 1700\.0 0\.0 2300\.0 222\.2 629\.6 0\.0 851\.9 \. \. \. \. \. \. \. \. \. \. \. \. \. \. Sub-Total 800\.0 1850\.0 150\.0 2950\.0 296\.3 685\.2 55\.6 1092\.6 Totat INVESTMENT COSTS 800\.0 1850\.0 150\.0 2950 \.0 296\.3 685\.2 55\.6 1092\.6 3=3=3 3333332 3=-2==3 --=-==-2 =32=2= ======= ======= =\.===== Total 800\.0 1850\.0 150\.0 295O\.0 296\.3 685\.2 55\.6 1092\.6 - Values scaled by 1000\.0 3/3/1992 15:48 w /~~~~~~  MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT VEHICLES & EQUIPMENT Detailed Cost Table NS Base Costs Base Costs in USS Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total \. \. 1\. INVESTMENT COSTS \. A\. VENICLES 4 WHEEL DRIVE 4230\.0 6030\.0 2880\.0 2700\.0 15840\.0 1566\.7 2233\.3 1066\.7 1000\.0 5866\.7 TRACTOR 60HP 920\.0 280\.0 600\.0 2080\.0 3880\.0 340\.7 103\.7 222\.2 770\.4 1437\.0 TRACTOR 70HP 1080\.0 1170\.0 3110\.0 4010\.0 9370\.0 400\.0 433\.3 1151\.9 1485\.2 3470\.4 TRAILER 3\.5 TON 320\.0 40\.0 150\.0 260\.0 770\.0 118\.5 14\.8 55\.6 96\.3 285\.2 TRAILER 5 TON 590\.0 180\.0 480\.0 620\.0 1870\.0 218\.5 66\.7 177\.8 229\.6 692\.6 PASSENGER CAR, TYPE A 140\.0 140\.0 0\.0 0\.0 280\.0 51\.9 51\.9 0\.0 0\.0 103\.7 PASSENGER CAR, TYPE B 0\.0 0\.0 110\.0 30\.0 140\.0 0\.0 0\.0 40\.7 11\.1 51\.9 SPEEDBOAT 120\.0 40\.0 120\.0 0\.0 280\.0 44\.4 14\.8 44\.4 0\.0 103\.7 Sub-Total 7400\.0 7880\.0 7450\.0 9700\.0 32430\.0 2740\.7 2918\.5 2759\.3 3592\.6 12011\.1 B\. EQUIPMENT WEIGHBRIDGE 540\.0 450\.0 360\.0 450\.0 1800\.0 200\.0 166\.7 133\.3 166\.7 666\.7 COMPUTERS 4600\.0 0\.0 0\.0 0\.0 4600\.0 1703\.7 0\.0 0\.0 0\.0 1703\.7 INPLEMENTS 30\.0 30\.0 30\.0 30\.0 120\.0 11\.1 11\.1 11\.1 11\.1 44\.4 OFFICE EWIPNENT 1100\.0 16S\.0 1450\.0 450\.0 4690\.0 407\.4 625\.9 537\.0 166\.7 1737\.0 n FURNITURE 800\.0 800\.0 800\.0 800\.0 3200\.0 296\.3 296\.3 296\.3 296\.3 1185\.2 Sub*TotaL 707?\.0 2970\.0 2640\.0 1730\.0 14410\.0 2618\.5 1100\.0 977\.8 640\.7 5337\.0 Total INVESTMENT COSTS 14470\.0 10850\.0 10090\.0 11430\.0 46840\.0 5359\.3 4018\.5 3737\.0 4233\.3 17348\.1 ===:== u=3=33=== uu u=====3 s=3333 = s 3 = s s==u===== 3=3 …-3 Total 14470\.0 10850\.0 10090\.0 11430\.0 46840\.0 5359\.3 4018\.5 3737\.0 4233\.3 1734\.1 - Values scaled by 1000\.0 3/3/1992 15:48 I-\.1  - 55 - ANNEX 1 Table 5b MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Phasing of Vehicles and Equipment (No\. of Units) Unit cost incl\. tax 1992 1993 1994 1995 Total (M$ '000) 4 Wheel Drive 94 134 64 50 352 45 Tractor (60-70 HP type) 23 7 15 52 97 40 Tractor (70-80 HP type) 24 26 69 89 208 45 Trailer (3-1/2 ton type) 64 7 29 52 152 5 Trailer (5 ton type) 84 26 69 89 268 7 Passenger Car type A 2 2 - - 4 70 Passenger Car type B - - 3 1 4 35 Speedboat 3 1 3 0 7 40 Weighbridge 6 5 4 5 20 90  MALAYSIA THIRD FELCRA LAND DEVELOPtMET PROJECT PROJECT MANAGEMENT Detailed Cost Table Ns Base Costs Baso Costs in USS 1992 1993 1994 1995 TotaL 1992 1993 1994 1995 Total \. \. 11\. RECURRENT COSTS \. A\. PROJECT MANAGEMENT STAFF SALARIES 46500\.0 51402\.0 54372\.0 57494\.0 209768\.0 17222\.2 1907\.8 20137\.8 21294\.1 77691\.9 OPERATION & MAINTENANCE 20971\.0 25506\.0 28268\.0 31366\.0 106111\.0 7767\.0 9446\.7 10469\.6 11617\.0 39300\.4 NISCELLAEOUS 1599\.0 2466\.0 2590\.0 2719\.0 9374\.0 592\.2 913\.3 959\.3 1007\.0 3471\.9 S\.;l60\. \.0 850\.0 \. \.032 3\.0 258\.7\. \.8 \. \. \. SUbRTota 69070\.0 79374\.0 85230\.0 91579\.0 325253\.0 25581\.5 29397\.8 31566\.7 33918\.1 120464\.1 *3UU=3333\. \. \. 3\. 3 3 \. \. \. \. \.33 \. \. \. Total RE RENT COS69070\.0 79374\.0 85230\.0 91579\.0 325253\.0 25581\.5 29397\.8 31566\.7 33918\.1 120464\.1 Totcl 69070\.0 79374\.0 85230\.0 91579\.0 325253\.0 25581\.5 29397\.8 31566\.7 33918\.1 120464\.1 _ = _ _ _ _ _ 55585==5=5---=~~~~~~~~~~~--------------g _ - VaLues scaled by 1000\.0 3/3/1992 15:49 CU 0' I-  MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT NS Sumary Accounts by Year Base Costs Foreign Exchange \. \. \. 1992 1993 1994 1995 Total X Amwot UU=UUUU===33==-==DUSUUUUUZ=32=Z3=3333==-- 33a3\.3uzuuu33 1\. INVST1IENT COSTS \. A\. AGRICULTURAL DEVELOPNENT 1\. CROP ESTABLISHMENT 15\.3 15\.3 15\.3 15\.3 61\.1 40\.0 24\.4 2\. INITIAL MAINTENANCE 93\.0 86\.4 78\.0 79\.0 336\.4 40\.0 134\.6 Sub-total 108\.3 101\.6 93\.3 94\.3 397\.5 40\.0 159\.0 B\. CIVIL WORKS 1\. STATE OFFICES 5\.5 0\.0 1\.0 1\.0 7\.5 35\.0 2\.6 2\. SCHENE HO COMPLEXES 36\.6 36\.1 22\.9 10\.7 106\.3 36\.0 38\.2 3\. TRAINING CENTERS 4\.7 0\.3 0\.0 0\.0 5\.0 35\.0 1\.7 Subtotal 46\.8 36\.4 23\.9 11\.7 118\.8 35\.9 42\.6 C\. VEHICLES & EQUIPNENT 1\. VEHICLES 7\.4 7\.9 7\.4 9\.7 32\.4 77\.4 25\.1 2\. EQUIPNENT 7\.1 3\.0 2\.6 1\.7 14\.4 94\.4 13\.6 Su- total 14\.5 10\.8 10\.1 11\.4 46\.8 82\.6 38\.7 D\. TRAINING 1\. TRAINING EQIP\.& MATERIALS 0\.9 0\.1 0\.1 0\.0 1\.2 100\.0 1\.2 2\. OVERSEAS TRAINING 0\.3 0\.4 0\.4 0\.2 1\.2 100\.0 1\.2 3\. LOCAL TRAINING 2\.0 3\.4 2\.5 2\.5 10\.5 25\.0 2\.6 1 Sub-totaL 3\.2 3\.9 3\.0 2\.8 12\.9 39\.2 5\.1 E\. STUDIES 1\. CORPORATE STUDIES 0\.2 0\.1 0\.1 0\.1 0\.6 100\.0 0\.6 2\. ACCOUNTING SYSTEMS 0\.6 1\.7 0\.0 0\.0 2\.3 100\.0 2\.3 Sub-total 0\.8 1\.8 0\.1 0\.1 2\.9 100\.0 2\.9 \. \. \. Total INVSTNENT COSTS 173\.6 154\.6 130\.4 120\.4 579\.0 42\.9 248\.3 II\. RECURRENT COSTS \. F\. STAFF SALARIES 46\.5 51\.4 54\.4 57\.5 209\.8 0\.0 0\.0 G\. OPERATION & NAINTENANCE 21\.0 25\.5 28\.3 31\.4 106\.1 0\.0 0\.0 H\. NISCELLANEOUS 1\.6 2\.5 2\.6 2\.7 9\.4 0\.0 0\.0 Total RECURRENT COSTS 69\.1 79\.4 85\.2 91\.6 325\.3 0\.0 0\.0 Total BASELINE COSTS 242\.6 234\.0 215\.7 212\.0 904\.3 27\.5 248\.3 Physical Contingencies 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Price Contingencies 4\.8 14\.1 22\.1 31\.0 72\.1 25\.7 18\.5 Total PROJECT COSTS 247\.4 248\.1 237\.8 243\.0 976\.4 27\.3 266\.8 0 : 3=33==== e~ = 3 3 3 Z U 3 3= =S33==========3==\.====\. Taxes 1\.9 2\.7 1\.4 1\.3 7\.2 0\.0 0\.0 Foreign Exchange 76\.3 68\.9 61\.2 60\.4 266\.8 100\.0 266\.8 \. X \. -- values Scaled by 1000000\.0 3/3/1992 15:49  MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Sumrmry Account by Project Component Ns Physical Price VEHICLES Contir6encies Contingencies AGRIC\. INFRASTR & PROJECT \.--\. DEVELPT UCTURE EOUIPNNT STUDIES TRAINING NANAGNUT Total X Amount X Amount I\. INVESTMENT COSTS \. A\. AGRICULTURAL DEVELOPMENT 1\. CROP ESTABLISHMENT 61\.1 0\.0 0\.0 0\.0 0\.0 0\.0 61\.1 0\.0 0\.0 8\.2 5\.0 2\. INITIAL MAINTENANCE 336\.4 0\.0 0\.0 0\.0 0\.0 0\.0 336\.4 0\.0 0\.0 7\.9 26\.5 \. \. \. Sub-total 397\.5 0\.0 0\.0 0\.0 0\.0 0\.0 397\.5 0\.0 0\.0 7\.9 31\.5 B\. CIVIL WORKS 1\. STATE OFFICES 0\.0 7\.5 0\.0 0\.0 0\.0 0\.0 7\.5 0\.0 0\.0 4\.8 0\.4 2\. SCHEME HO COGPLEXES 0\.0 106\.3 0\.0 0\.0 0\.0 0\.0 106\.3 0\.0 0\.0 6\.4 6\.8 3\. TRAINING CENTERS 0\.0 0\.0 0\.0 0\.0 5\.0 0\.0 5\.0 0\.0 0\.0 2\.2 0\.1 Sub-total 0\.0 113\.8 0\.0 0\.0 5\.0 0\.0 118\.8 0\.0 0\.0 6\.1 7\.3 C\. VEHICLES & EOJIPMENT 1\. VEHICLES 0\.0 0\.0 32\.4 0\.0 0\.0 0\.0 32\.4 0\.0 0\.0 8\.5 2\.8 2\. EWIPUENT 0\.0 0\.0 14\.4 0\.0 0\.0 0\.0 14\.4 0\.0 0\.0 5\.7 0\.8 Sub-total 0\.0 0\.0 46\.8 0\.0 0\.0 0\.0 46\.8 0\.0 0\.0 7\.6 3\.6 OD D\. TRAINING 1, TRAINING EOIP\.& NATERIALS 0\.0 0\.0 0\.0 0\.0 1\.2 0\.0 1\.2 0\.0 0\.0 3\.6 0\.0 2\. OVERSEAS TRAINING 0\.0 0\.0 0\.0 0\.0 1\.2 0\.0 1\.2 0\.0 0\.0 8\.0 0\.1 3\. LOCAL TRAINING 0\.0 0\.0 0\.0 0\.0 10\.5 0\.0 10\.5 0\.0 0\.0 8\.4 0\.9 \. \. \. \. \. Sub-total 0\.0 0\.0 0\.0 0\.0 12\.9 0\.0 12\.9 0\.0 0\.0 7\.9 1\.0 E\. STUDIES 1\. CORPORATE STUDIES 0\.0 0\.0 0\.0 0\.6 0\.0 0\.0 0\.6 0\.0 0\.0 7\.6 0\.0 2\. ACCOUNTING SYSTEBS 0\.0 0\.0 0\.0 2\.3 0\.0 0\.0 2\.3 0\.0 0\.0 4\.9 0\.1 \. \. Sub-totat 0\.0 0\.0 0\.0 2\.9 0\.0 0\.0 2\.9 0\.0 0\.0 5\.5 0\.2 Total INVESTMENT COSTS 397\.5 113\.8 46\.8 2\.9 17\.9 0\.0 579\.0 0\.0 0\.0 7\.5 43\.6 11\. RECURRENT COSTS \. A\. STAFF SALARIES 0\.0 0\.0 0\.0 0\.0 0\.0 209\.8 209\.8 0\.0 0\.0 8\.6 18\.1 B\. OPERATION & MAINTENANCE 0\.0 0\.0 0\.0 0\.0 0\.0 106\.1 106\.1 0\.0 0\.0 9\.0 9\.5 C\. NISCELLANEOUS 0\.0 0\.0 0\.0 0\.0 0\.0 9\.4 9\.4 0\.0 0\.0 9\.1 0\.8 \. Total RECURRENT COSTS 0\.0 0\.0 0\.0 0\.0 0\.0 325\.3 325\.3 0\.0 0\.0 8\.8 28\.5 1 | Total BASELINE COSTS 397\.5 113\.8 46\.8 2\.9 17\.9 325\.3 904\.3 0\.0 0\.0 8\.0 72\.1 Physical Contingencies 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Price Contingencies 31\.5 7\.2 3\.6 0\.2 1\.1 28\.5 72\.1 0\.0 0\.0 OD F- \. Total PROJECT COSTS 429\.1 121\.0 50\.4 3\.1 19\.0 353\.8 976\.4 0\.0 0\.0 7\.4 72\.1 === ~3 ===== = =================_=======================_== - …-== Taxes 0\.0 0\.0 7\.2 0\.0 0\.0 0\.0 7\.2 0\.0 0\.0 Foreign Exchange 171\.4 43\.4 41\.7 3\.1 7\.2 0\.0 266\.8 0\.0 0\.0  MALAYSIA THIRD FELCRA LAND DEVELOPNENT PROJECT Suary Accounts by Year Totals Includirg Contifgencg es Totals Including Contingencies Ns US$ \. \. \. 1992 1993 1994 1995 TotaL 1992 1993 1994 1995 Total 1\. INVESTMENT COSTS \. A\. AGRICULTURAL DEVELOPMENT 1\. CROP ESTABLISHMENT 15\.6 16\.2 16\.8 17\.5 66\.1 5\.8 6\.0 6\.2 6\.5 24\.5 2\. INITIAL MAINTENANCE 94\.8 91\.6 86\.0 90\.6 363\.0 35\.1 33\.9 31\.9 33\.5 134\.4 \. \. \. \. \. \. Sub-Total 110\.4 107\.7 102\.8 108\.1 429\.1 40\.9 39\.9 38\.1 40\.0 158\.9 B\. CIVIL WORKS 1\. STATE OFFICES 5\.6 0\.0 1\.1 1\.1 7\.9 2\.1 0\.0 0\.4 0\.4 2\.9 2\. SCHEME HQ COMPLEXES 37\.3 38\.3 25\.2 12\.3 113\.1 13\.8 14\.2 9\.3 4\.5 41\.9 3\. TRAINING CENTERS 4\.8 0\.3 0\.0 0\.0 5\.1 1\.8 0\.1 0\.0 0\.0 1\.9 Sub-Total 47\.8 38\.6 26\.3 13\.4 126\.1 17\.7 14\.3 9\.7 5\.0 46\.7 C\. VEHICLES & EQUIPMENT 1\. VEHICLES 7\.5 8\.3 8\.2 11\.1 35\.2 2\.8 3\.1 3\.0 4\.1 13\.0 Ln 2\. EQUIPMENT 7\.2 3\.1 2\.9 2\.0 15\.2 2\.7 1\.2 1\.1 0\.7 5\.6 \. \. \. Sub-Total 14\.8 11\.5 11\.1 13\.1 50\.4 5\.5 4\.3 4\.1 4\.8 18\.7 0\. TRAINING 1\. TRAINING EQIP\.& NATERIALS 0\.9 0\.2 0\.1 0\.1 1\.3 0\.3 0\.1 0\.0 0\.0 0\.5 2\. OVERSEAS TRAINING 0\.3 0\.4 0\.4 0\.3 1\.3 0\.1 0\.1 0\.2 0\.1 0\.5 3\. LOCAL TRAINING 2\.1 3\.6 2\.8 2\.9 11\.4 0\.8 1\.3 1\.0 1\.1 4\.2 \. \. \. \. \. Sub-Total 3\.3 4\.2 3\.3 3\.2 14\.0 1\.2 1\.5 1\.2 1\.2 5\.2 E\. STUDIES 1\. CORPORATE STUDIES 0\.2 0\.2 0\.2 0\.2 0\.7 0\.1 0\.1 0\.1 0\.1 0\.3 2\. ACCOUNTING SYSTEMS 0\.6 1\.8 0\.0 0\.0 2\.4 0\.2 0\.7 0\.0 0\.0 0\.9 \. \. \. Sub-Total 0\.8 2\.0 0\.2 0\.2 3\.1 0\.3 0\.7 0\.1 0\.1 1\.2 \. \. \. Total INVESTNENT COSTS 177\.0 163\.9 143\.7 137\.9 622\.6 65\.6 60\.7 53\.2 51\.1 230\.6 == _ _==3=3=== ==w== = =====~=====s _=e== It\. RECURRENT COSTS \. 7 A\. STAFF SALARIES 47\.4 54\.5 60\.0 66\.0 227\.9 17\.6 20\.2 22\.2 24\.4 84\.4 I-a S\. OPERATION & MAINTENANCE 21\.4 27\.1 31\.2 36\.0 115\.6 7\.9 10\.0 11\.6 13\.3 42\.8 C\. MISCELLANEOUS 1\.6 2\.6 2\.9 3\.1 10\.2 0\.6 1\.0 1\.1 1\.2 3\.8 \. \. \. Total RECURRENT COSTS 70\.5 84\.2 94\.0 105\.1 353\.8 26\.1 31\.2 34\.8 38\.9 131\.0 5=_===S=====Q=e=L:==- ==== w=5=Q====== ==--= Total PROJECT COSTS 247\.4 248\.1 237\.8 243\.0 976\.4 91\.6 91\.9 8\.1 90\.0 361\.6 \.  - 60 - ANNEX NALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT A\. DISBURSEMENT CATEGORIES AND AMOUTS Disbursement Category Amount (USS millIon) Dfsbursement Percentage 1\. Agricultural Development 58\.3 37% 2\. Cfvil Works 17\.3 37% 3\. VehIcles, tractors, 15\.4 (i) 100% of forefgn trailers, speedboats, exchange cost of equipment and furniture directly fmported ftems; (Cf) 100% of ex-factory cost of locally manufactured Items net of taxes; and (Mli) 75% of cost Locatty procured Items\. 4\. Training, including 1\.9 100% of costs of overseas overseas training, training, course and lecture lecture fees for local fees for local training and training and training training materiaLs\. materIals 5\. StudIes 1 1 100% of cost of consultants\. Totat 94\.0 B\. DISBURSEMENT DETAILS IBRD Semester Disbursement (USS milion) Profile Fiscal Year Ending Semester cViulative Cumulative X Cumulative X 199 June 30 1992 0 0 0 0 1993 Dec\. 31, 1992 18\.1 18\.1 19 2 June 30, 1993 12\.1 30\.2 32 4 1994 Dec\. 31, 1993 12\.1 42\.3 45 10 June 30, 1994 10\.7 53\.0 56 18 1995 Dec\. 31, 1994 10\.7 63\.7 68 24 June 30, 1995 10\.6 74\.3 79 30 1996 Dec\. 31, 1995 10\.6 84\.9 90 40 June 30, 196 9\.1 94\.0 100 50 Loan ClosIng Date June 30, 1996 g MaLaysian AgricuLturaL Projects (05/17/91)\.  -61- Table 1 MAIAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT KPFB HOLDINGS SDN\. BHD\. Forecast Consolidated Profit and Loss Account (M$ million) 1992 1993 1994 1995 Turnover 3\.284 4\.795 6\.581 7\.836 BRenditure Rental 0\.144 0\.144 0\.144 0\.144 Salaries/Allowance 1\.172 1\.420 1\.653 1\.940 Office Expenses 0\.180 0\.±90 0\.200 0\.200 Travelling 0\.217 0\.285 0\.343 0\.375 Medical 0\.047 0\.066 0\.083 0\.092 Provident Fund (EPF) 0\.157 0\.192 0\.234 0\.263 Staff Insurance 0\.040 0\.056 0\.070 0\.079 Repairs and Maintenance 0\.063 0\.063 0\.063 0\.063 Depreciation 0\.101 0\.101 0\.101 0\.101 Laboratory 0\.065 0\.050 0\.060 0\.060 Directors' Fee 0\.004 0\.005 0\.005 0\.005 Hire Purchase 0\.185 0\.090 0\.090 0\.090 Miscellaneous 0\.060 0\.060 0\.075 0\.075 Audit Fees 0\.005 0\.010 0\.010 0\.010 Interest on Loan 0\.330 0\.330 0\.330 0\.330 2\.770 3\.062 3\.461 3\.827 Profit/(Loss) Before Tax 0\.515 1\.733 3\.119 4\.009  -\.62 - ANNEX Table 2 THIRD FELCRA LAND DEVELOPMENT PROJECT KPFB HOLDINGS SDN\. BHD\. Forecast Consolidated Balance Sheet 1992-95 (M$ million) 1992 1993 1994 1995 FIXED ASSETS 0\.487 0\.388 21\.633 40\.225 CURRENT ASSETS: Work in Progress 6\.480 27\.840 27\.840 27\.840 Cash in Hand/Bank 0\.291 0\.662 0\.431 1\.328 Investment 2\.000 3\.000 7\.000 11\.000 Fixed Deposit 0\.220 0\.500 2\.000 2\.000 Debtor 3\.003 3\.003 3\.003 3\.003 12\.481 35\.394 61\.907 85\.396 Financed by: Share Capital 2\.452 2\.452 2\.452 2\.452 Retaiuied Profit 0\.334 1\.126 2\.028 2\.606 Reserves 0\.034 0\.369 1\.495 3\.522 Short Term Overdraft 0\.500 0 0 0 Long Term Loan - Division 2\.500 3\.000 3\.000 3\.000 - Mills 6\.480 27\.840 51\.840 72\.412 CURRENT LIABILITIES: Provision for Tax 0\.181 0\.607 1\.092 1\.404 12\.481 35\.394 61\.907 85\.396  63 Annex 4 Table 1 MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT FELCRA's Sources of Funds\. 1988-90 (M$ million) 1988 1989 1990 1988-90 Government Grants Admninistration 48\.5 44\.8 53\.2 146\.5 Development 33\.0 72 86\.2 191\.5 81\.5 117\.1 139\.4 33\. Govemment Loans 104\.4 67\.4 67\.0 238\.8 Obherlncome Interest 1\.2 3\.6 4\.2 9\.0 Dividend 3\.5 2\.7 3\.1 9\.3 Miscellaneous 1 5 L1 12 37 fi\.2 10\.0 L\. 272 Total Funding 1922l 194\.5 217\.4  - 64 - Annex 4 Table 2 MALAYSIA TID FELCRA LAMN DEVELOPMENT PROIE5 Terms and Conditions of Govemment Loans to Felcra Grace Grace Free period on period on Interest Total interest interest pnncipal Period of rate terms period payment repayment Lon v al (% p\.a\.) {years) Lvear) (year) (years loans for Land 1967-76 6\.5 15 5 6/a 6aA 1977-80 6\.5 20 5 10l 1Oj 1981-83 0\.0 25 25 n/a 10& 1984 3\.75* 25 10 10/4 10to4 1985 4\.0 25 10 10/4 10/\.4 1986 4\.0 25 10 10/\.4 101\.4 1987 4\.0 25 10 104 10 Ld 1988 4\.0 25 10 1014 10/\.4 1990 4\.0 25 10 10/4 10/4 Loan for 1984 7\.5 15 0 3 & 3 * Some agreements are interest free\. h Interest is capitalized for one year befor repayment begins in year seven\. /k Interest is capitalized for five years before repayment beings in year eleven\. k Interest-free loans\. 14 No interest capitalization, as the loan is interest-firee until repayment begins in year eleven\. & Interest is capitalized for three years\.  - 65 - Annex 4 Table 3a FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY (incorporated In Malaysia Under Act 22 Year 1966) CONSOLIDATED BALANCE SHEET (US$) As at December 31, 1990 M$ Million FIJNDS PROunDFD FROM: Loans from Government 703\.2 636\.2 Grants from Government 245\.8 185\.0 Bank Loan 0\.1 0\.1 Dividends Payable to Beneficiaries 28\.7 25\.6 Revolving Funds 44\.1 36\.8 Felcra Accumulated MisceliRneous Income 42\.2 36\.1 Deferred Interest Receivable 35\.8 32\.3 Palm Oil Mill Accum\. Retained Eamings 9\.1 5\.3 TOTAL 1 109\.0 97 Cash at Bank 142\.2 122\.4 Other Current Assets 5\.9 44A 202\.1 166\.7 Deduct: Accounts Payable Z7 05 Subtotal 125\.1 102\.2 Investment 0\.9 0\.9 Fixed Assets (Net) 151\.3 117\.9 Long Term Accounts Receivable: (Net) Settlers Land Development Schemes 786\.4 694\.5 Setters Housing 24\.7 21\.6 Advances to Loss Makkiig Schemes 20\.6 20\.3 Subtotl 8 7364 TOTAL 1,09 0 957\.4  - 66 - Annax 4 Table 3b FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY (Incorporated in Malaysia Under Act 22 Year 1966) LOAN ACCOUNT BALANCE SHEET (US$ MILLION) As at December 31, 1990 M$ Million 1ai 990 98 FtUND:; PROVIDED FROM: Government Loan for: Settlers Land Development 658\.3 588\.2 Settlers Housing 17\.1 17\.5 Investment La t2 Subtotal 676\.7 60fi 9 Bank Loan 0\.1 0\.1 Advances from (or to) other Felcra A/cs Administration Accounts 42\.8 36\.9 Trustee Account 62\.9 43\.8 Paim Oil Mill Account --A& 105\.2 77\.5 Deferred Interest Income 35 TOTAL 817\. 71L, Current Assets 43\.9 34\.1 Deduct Current Liabilities 58Z 54 6 Net Current Liabilities -14\.8 -20\.5 Investment Panji Alam Co\. Ltd\. 0\.9 0\.9 Long Term Accounts Receivable: (Net) Setters Land Development Schemes 786\.4 694\.5 Settlers Housing 24\.7 21\.6 Advances to Loss Making Schemes au zBZ Subtotal 731f 736\.4 TOTAL \.8 716\.8  - 67 - Annex 4 Table 3c FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY (Incorporated In Malaysia Under Act 22 Year 1966) TRUST ACCOUNT BALANCE SHEET As at December 31, 1990 M$ Million iaa Revolving Funds Economic Project 0\.9 0\.9 Land Consolidation 0\.5 0\.5 Project Investment 2\.3 1\.2 Marketing Services 3\.2 2\.8 Estate Insurance 6\.6 5\.1 Replants of Palm Oil 9\.5 8\.1 FELCRA Dividend 1l8 41\.8 34\.4 Dividends Payable to Settlers 287 25 6 DTOAL 70\.5 au REPRiESENIED RY Cash 11\.3 19\.4 Accounts Receivable L2 12 12\.5 20\.6 Deduct: Accounts Payable 4\. 4A Net Current Assets 7\.6 16\.2 Advance to Felcra Loan Account 62 AM IOTAL Z7 au  - 68 - Annex 4 Table 3d FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY (Incorporated In Malaysia Under Act 22 Year 1966) ADMINISTRATIVE ACCOUNT BALANCE SHEET (US$) As at December 31, 1990 M$ Million RINDS PRO\/DED FROM Government: Grant for Development Held in Cash 105\.9 74\.0 Spent on Fixed Assets 139i\. 245\.0 103 8 177\.8 Grant for Administration - Held in Cash 0\.8 7\.2 Revolving Fund for Staff 2 2A TOTAL 248\.1 187\.4 Accumulated Miscellaneous Income 4\.22 3A TOTAL 290\.3 223\.5 REPRENT Y- Cash 107\.4 82\.5 Accounts Receivable & Deposit 5\.9 3\.0 Advances and Loan to Staff L L 115\.3 87\.3 Deduct: Accounts Payable 6 9 Net Current Assets 108\.4 82\.8 Fixed Assets (Net) 139\.1 103\.8 Advance to Felc\.a Loan Account 4\.2 8L9 ITOAL 2DJ= 223  - 69 - Annex 4 Table 3e FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY (Incorporated in Malaysia Under Act 22 Year 1966) PALM OIL MILL BALANCE SHEET As at December 31, 1990 M$ Million FUNDS PROVIDED FROM: Loan from Government 26\.5 2!1\.3 Advance from Felcra Loan A/C 0\.5 3\.2 Accum\. Retained Earning from Mill Operations L53 TOTAL REPRESENTED BY: Cash and Bank Balances 23\.5 20\.5 Accounts Receivable 6\.4 3\.7 Inventory Q M 30\.4 24\.7 Deduct Accounts Payable L 5L Net Current Assets 23\.9 23\.7 Fixed Assets (Net) 12A2 4\.1 TOTAL  FEDERAL LAND CONSOUDATION AND REHABIUTATION AUTHORITY SOURCES AND APPUCATIONS FOR FUNDS FOR THE YEAR ENDED DECEMBER 31,1990 M$ Millions PALM OIL SOURCESOFFUNDSFROMGOVPRNMENT LOLANIAC ADMIN A/C TBUSE MILL A/C TOTAL New Loans (Repayments) 69\.8 - \. -2\.8 67\.0 Grants - 60\.7 - 60\.7 From Felcra (Intemal Accounts) 27\.7 - - - 27\.7 Increase In Oil Palm Mills Earnings - - 3\.8 3\.8 Increase in Divided to Settlers Schemes 3\.1 - 3\.1 Other Income/income Receivable a\.D ZA t 17 TOTAL SOURCES OF FUNDS DURING1990 I 10 17 3ZL APPUCATIONS QF EUNDS LOANS TO SETTLERS NE OF REPAYMENT 95\.3 - - - 95\.3 ADDITIONS DELIFONS TO F-(ED ASSETS 35\.3 * -1\.9 33\.4 ADDITIONSI/DEt-TIoNs TO WORKING CAPITAL Cash and Equivalents - 24\.9 -8\.1 3\.0 19\.8 Other Working Capital Terms 5\.7 0\.7 -0\.5 -2\.8 3\.1 ADVANCES TO FELCRA (LOAN AC) (NOTE 1) _ - 5\.Z 22LZ NET APPLICATIONS OF FUNDS DURING 1990 U 1\. 1\.01\. , x X h  FEDERAL LAND CONSOUDATION AND REHABIUTATION AUTHORITY FORECAST BALANCE SHEET MS MOion FELCRA DEVELOPMENT ACTIVITIES ASSETS ArL Act/Est- Eilaa EPll aN Fixed Assets (net) 139\.1 229\.8 303\.6 336\.0 365\.8 393 Settlers Housing 24\.7 29\.1 37 46\.5 55\.7 66\.6 Long Turm Receivables 786\.4 883\.1 986\.3 1079\.3 1161\.3 1249\.4 Advanoes to Loss Making Schemes 20\.6 20\.6 20\.6 20\.6 20\.6 20\.6 Investment 0\.9 0\.9 0\.9 0\.9 0\.9 0\.9 TOTAL FIX ASSETS 7U\.1 11635 134824 14833 160423 1730\.5 Cash 118\.7 87\.6 103\.0 130\.3 153\.6 174\.1 Other 53\.0 67\.0 Z\.Q 92\.0 144\.0 DEDUCT CUaBR UAML S Div\. Due to Participants 28\.7 30\.1 31\.6 33\.2 34\.9 36\.6 Other 70\.0 63\.0 75\.0 87\.0 99\.0 151\.0 NETCtURRENTASSETS 73 am 1 t1\.7 LI 1TTLNEIT A0 08 17t611 1572A 17l0 laal FNANCEDBY: 1_1 658\.3 764\.5 878\.7 984\.2 1080\.2 1183\.8 LONG7IWBGOVERNE ANSrIOiJS?J) 17\.1 21\.5 29\.4 38\.9 46\.1 59\.1 LONWTERMGOVERNMENTLOANSIWNESTMEN 1\.3 1\.3 1\.3 1\.3 1\.3 1\.3 GVERNMENTGRANI'SEVELOFMBET 245\.8 291\.0 356\.2 391\.3 419\.7 440\.1 RETA NDHOOME 42\.2 51\.2 59\.2 66\.2 72\.7 79\.2 DEFERRED MBINT P=ME 35\.8 39\.3 42\.8 Au 49\.8 53\.3 07HER RI"2B 442 #442 #442 44\.2 44\.2 A4L2 0TOAL 1044\.7 1411\.8 1572& 1ZILf0 JAT Current Ratio 1\.7 1\.5 1\.6 1\.7 1\.8 1\.7 Ouick Asets Ratio 1\.2 0\.9 1\.1 1\.1 1\.1 0\.9  FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY FORECAST BALANCE SHEET M$ Million OIL PALM MILLS AQL Act\./Est\. Elan Plan FIXED ASSETS (NET) Present 12\.2 10\.2 8\.2 6\.2 4\.2 2\.2 Future _- 21 23 2Z5 SUliBTOTL 12\.2 10\.2 39\.5 35\.5 31\.5 27\.5 CIIRRENT ASSETS Cash 23\.5 25\.3 25\.6 32\.3 42\.8 55\.7 Other 7\.0 7\.5 8\.0 10\.5 12\.5 16\.0 Deduct Current Liabilities J7\.1 -\.6\. \.LJ\. \.1Lf 6 \.16 \. SUQI& 2nA 2L2 42 5\. 42-Z~~~~~~~~~~- TOTAL NET ASSET L2 83\.1 FINANCED BY: GOVEMEWLNS Actual 26\.5 22\.7 19\.5 16\.2 12\.5 8\.7 Future 31\.3 33\.5 35\.8 38\.3 RETAIWD EARNINGS Present Oil MIll 9\.1 12\.7 15\.2 1 9\.0 24\.4 31\.1 Future Oil Palm Mills - \. -1\. - ll 1 z121 14A2 iL\. 2L Current Ratio 4\.3 4\.4 4\.2 4\.1 4\.4 4\.5 OuIck Assets Ratio 3\.3 3\.4 3\.2 3\.1 3\.4 3\.5  -73 ANNEX 5\.1 Page 1 of 16 !CR VID SU" M - 1\. = U 1\.1 The objective of the paper is to offer proposals on action plans an tapping expertie/skills training programs for Felcra staff and its tape- force\. 2\. 2\.1\. The extnsive or uncnmtrolled use of rubber barks in tapping activities will hinder regrowths or recovering of tree bark\. The investigations and test carried out at Felcra projects show that almost all of the tree barks are uilised durg a period of only 7 to 8 years cmu,ared to its overall plant exploitation period of 12 years i\.e\. under the controlled tapping frequency syStm 52 d2\. 2\.2\. This uncontrlled tapping system which reduces plant eXploitation period affects project output, settlers long-term incoma and repayment prograrm on development cost\. \. 2\.3\. The unhealthy conditions above are influenced by several factors i\.e\. poor supervision and mnitoring of tapping activities and quality of tappers\. This is due to the ladk of tapping knowledge and expertise in output exploitation aspects among Felcra staff/its taoppr force\.  -74 ANNEX 5\.1 Page 2 of 16 3\. TRINWI IS O1 TPPING 3\.1\. Uhtil July 1991, 134 rubber pojects totalling 35,000 hectares wre in puction and would continue to increase in the future\. This show that there will be an inease in the mber of field staff to be trained for tapping\. Based on the number of rubber projects, 320 field staff (inclusive of 20 personel required in 1992) will thus have to be given taping exposure and kills\. 3\.2\. 7Lbe field staff above make up of Technical Agricultural Officers, State Agricultural Officers, Project Maagegrs, Field Supervisors and Senior Field Supervisors\. The criteria for selecting the candidates is based on the following:- 3\.2\.1\. The technical Agricultural Officer at Felcra Administrative Level is directly responsible for inpleffnting and monitoring as well as evaluating a controlled tapping systnm at the rubber projects and especially evaluating the feedback of the training program\. 3\.2\.2\. State Agricultural Officer at state Admnistrative Level is responsible for field management, planning and nonitoring a controlled tapping system at the rubber projects and also in evaluating the feedback of the training program\. 3\.2\.3\. The Project Manager who is responsible for the overall field manageuffnt activities and project adSinistration should equip himself with the knowledge and eperUtise in tapping activities so as to enable him to co-ordinate and mmnitor effectively the staff and his tapper force\. 3\.2\.4\. Field Suparvisors are directly responsible for mn¶itoring and offering guidance on efficient methods of controlled tapping to his tapper force\.  - 75 ANNEX 5\.1 Page 3 of 16 3\.3\. The training program is a refresher course for candidates of para 3\.2\. above and the objective of the training program is as follows:- 3\.3\.1\. Offer the candidates further/new knowledge on rubber output exploitation aspects, tapping techniques using the reccmmended controlled system\. 3\.3\.2\. To self experience and to increase and improve their tapping skills and expertise among course participants using the learned techniques\. 3\.3\.3\. The course participants thus will be able to manage, supervise and offer proper guidance to its field staff and present tapper force as well as to those who will be recruited at the projects in order that tapping techniques will follow the controlled system\. 4\. NER4BE OF PARTICIPANTS, TRAINEES A TRAING PROM SCDULE 4\.1\. Nurber Of Partiiants 4\.1\.1\. As mentioned in para 3\.1\., 320 course participants camprising of agricultural officers, project managers, field supervisors will undergo\. training according to the following breakdown:- i\. Agricultural Officer : 9 ii\. Project Manager : 43 iii\. Field Supervisor : 268 Total 320  - 76 - ANNEX 5\.1 Page 4 of 16 4\.1\.2\. Out of the 320 staff above, 36 field supervisors have undergone a 6 day training program with the cooperation of RRIM officer from 5 until 10 August 1991 and from 9 until 14 Septeuber 1991 at Felcra Bukit Pedoman, Johor and at Felcra Langkawi, Kedah\. 4\.2\. =Ai 4\.2\.1\. In order to carry out this training program, it is proposed that part of the course sessions i\.e\. 4 sessions cowprising of 80 personnel be conducted by RRIM trainers at the RRIM Training Centre, Sungai Euloh, Selangor\. 4\.2\.2\. The remainder of 204 is proposed to be trained by Felcra officers themselves who had undergone basic training and a training course in the 1st, 2nd, 3rd and 4th sessions as in para 4\.2\.1\. above\. The program for the training of trainers is as follows:- i\. 9 experienced Felcra officers comprising of agricultural o, icers and project managers will be selected to undergo an intensive course in Sessions 1 at the RRIM Training Centre at Sungai Buloh together with 11 other participants\. ii\. The samg 9 trainees will be required to undergo session 2 at the same venue along with 20 other field staff\. During this session, they will take over 25% of theory and 25% practical modules as trainer\. They will be guided and mnmitored by eerienced RRIM instructors\. iiI\. At the third session, the same future trainers will be required to conduct 50% of theory and 25% of practical nodules also guided by a RRIM instructor\.  - 7 7-~ AkTNEX 5\. 1 Page 5 of 16 iv\. The final stage of instructors course i\.e\. in session 4, they are required to conduct a camplete theory and practical module\. They will be assessed and evaluated by the RRIM instructor to ensure that they are qualified and capable to conduct courses\. for field staff and Felcra tapper force\. 4\.2\.3\. This training program is a continuing process to train new recruits enployed at Feclra projects in order to obtain maxi=m production fram the increasing projects\. As such the long-term objective of the instructors among Felcra officers is to improve their knowledge and expertise in this field through the continued training program\. These officers will be the main source in the Felcra administration who will assist and ensure maximun rubber production and its quality\. 4\.3\. Program Sche 4\.3\.1\. As mentioned above, 2 training sessions have been conducted with RRIM involving 36 field supervisors\. For 'the other training programs in 1992, involving 284 personnel, Felcra's administration has requested the cooperation of RRPtM to conduct 4 more sessions which will involve 80 officers and staff i\.e\. 20 personnel for each session\. The venue is proposed to be at the ERIM Training Centre, Sungai Buloh, where sufficient facilities are available\. 4\.3\.2\. Should the allocation for this training program be sufficient, it is proposed that 14 course sessions be carried out in 1992\. Four (4) of the above 14 sessions will be carried out with the assistance of RRIM expertise\.  - 78 - ANNEX 5\.1 Page 6 of 16 The scheduled program are as follows:- Course Course Session Period Venue Participants 1 Weeki 1 RRIM Sg\. Buloh 20 January 92 2 Week 3 RRIM Sg\. Buloh 20 January 92 3 Week 2 ERIM Sg\. Buloh 20 February 92 4 Week 4 RRIM Sg\. Buloh 20 February 92 5 - 14 Mac 92 - Felcra projects 204 June 92 ----- Total 284 4\.3\.3\. The training program for the fifth (5) session until the 14th will be carried out by Felcra officers at Felcra projects\. This action is more cost effective and will expedite the process of transferring technology to other field staff\. 5\. a CONTS 5\.1\. It is proposed that this tapping expertise training program be carried out for 6 days comprising of theory and practical modules\. It mainly stresses on good tapping techniqye using the present tapping system\. 5\.2\. In detail the contents of the training progrini for Felcra officers and staff is as in AiPEMIX  - 79 ANNEX 5\.1 Page 7 of 16 5\.3\. The 6 day training program will consume 46 hours as in the following breakdown: - i\. Theory/Lecture : 7 hours (15%) ii\. Practical Training : 26 hours (57%) iii\. Discussion : 13 hours (28%) 6\. ESTIMED EXPENDITURE FOR STAFF TFAINIG CON GOOD TAPPING TECHNTOUE 6\.1\. It is estimated that the total cost of expenditure to carry out the tapping expertise training program for 284 personnel in the above 14 course series is M$99,880\.00\. The cost breakdown is as follows:- 6\.1\.1\. Trainirg Program At The RRIMM rainin, Centre, Suncai Euloh i\. Fee $300\.00/per person : $24,000\.00 9 80 persons ii\. Transport $200\.00 per person : $16,000\.00 e 80 persons Tbtal $40,000\.00 6\.1\.2\. Training Program Undertaken By Felcra Officers i\. Full Board $15\.00 per person : $18,360\.00 @ 204 persons @ 6 days ii\. Accomodation $40-00 per roms : $16,320\.00 @ 68 rooms e 6 days iii\. Transport $50\.00 per person : $10,200\.00 Q 204 persons  ANNEX 5\.1 Page 8 of 16 iv\. Hall And Facilities $500/ : $ 5,000\.00 per session @ 10 sessions v\. Contigency $1,00/per session : $10,000\.00 @ 10 session Total $59,880\.00 6\.2\. It is believed that major costs could be further reduced and that a smooth and efficient training program be undertaken on the whole if the 10 training program be carried out by Felcra officers at Felcra projects compared to if all the training programs were to bo carried out at the RRIM Training Centre Sungai Buloh\. As in comparison, the overall cost expenditure of each personnel if carried out at the RRIM Trainig Centre Sungai Buloh is about $500\.00 compared to $293\.00 if it is carried out wholly by Felcra's administration at the projects\. 7\. PROPOSED TRAINING PROGRAM EFR REDCED FRUENCY TAPPING SYTE3M \. 7\.1\. Based on proposed hectarage of 11,725 hectares (1992 - 1995) for adoption of reduced frequency tapping, a total number of 61 staff who will be supervising the areas proposed for the reduced frequency tapping system will undergo a special one day training program on d3 tapping system\. Details on reduced frequency tapping are as in APPEMIX II\. 7\.2\. The number -f norsonel to be trained per year from 1992 - 1995 is as follows:- 1992 - 9 personnel 1993 - 10 personnel 1994 - 16 personnel 1995 - 26 personnel  - 81 -\. ANNEX 5\.1 Page 9 of 16 7\.3\. The estirwated cost for the above special training programs to be executed in 5 sessions is M$9,150\.00\. The breakdown is as follows: - 1992 - 9 personnel @ $150\.00 = $ 1,350\.00 1993 - 10 personnel @ $150\.00 = $ 1,500\.00 1994 - 16 personnel @ $150\.00 = $ 2,400\.00 1995 - 26 personnel @ $150\.00 = $ 3,900\.00 (2 sessions) Total $ 9,150\.00 8\. TRAINN NEEDS CN TAPPING EXPERTISE Flo TELRA TAPPERS -8\.1\. Obiective The objective of tapping expertise training planned for Felcra tappers is to improve tapping skills among the target group by practising proper techniques and methods\. It is therefore hoped that at the end of the training program, tappers will achieve the expected goals as in the following:- 8\.1\.1\. Tappers will be able to tap the bark to its r ecnmieled depth and thickness avoiding damage of the bark while tapping, thereby saving usage of bark for long-term production\. 8\.1\.2\. Tappers can make proper preparations before begining tapping works i\.e\. sharpening tapping knives in correct methods, fixing spring-coil and attaching latex cups in proper techniques as well as to keep clean the equipuent used before and after tapping\. 8\.1\.3\. Tappers can open up tapping sites using recciunended methods by accurate norking and curving of barks\.  - 82 - ANNEX 5\.1 Page 10 of 16 8\.2\. atbOd In tae 8\.2\.1\. All existing tappers will be evaluated and graded by their scheme supervisor\. According to their grades, they wiUl be required to uergo part or all of the full tapping course\. New tappers wild be required to dem nstrate a certain level of tapping skills before being hired\. Existing tappers will be upgraded in their skills\. 8\.2\.2\. The full tapping expertise training program for the tappers is proposed for a period of 3 weeks or 18 days\. The course participants are oorised of those who are presently involved in tapping activities at Felcra projects and future tapper recruits\. For those who are already wing, this training program will act as an evaluation to their 'tcrk performace i\.e\. based on quality of wark in producing latex as in skillful tapping, tapping speed and latex collecting\. For future tapper recruits the same process of orientation and evaluation will be adhered to\. This is to ensure that quality ork is achieved, in tapping so that an even level of latex collection is maintained\. 8\.2\.3 This training progrm will be carried out at Felcra projects where the tapper or future tappers work\. They will be trained and itored by Felcra staff i\.e\. Project Msnagws and Field Supervisors who had already undergone tapping expertise course\. 8\.2\.4\. Generally, the training PrOgram is carried out in the form of theory presentations and practical training\.  - 83\. ANNEX 5\.1 Page U of 16 The contents is as follows:- i\. Tapping Terminology And Introduction To Trainina Technicues The aspects stressed are preparation of tapping equipments, cleanliness in tapping and latex collection, basic tapping techniques and controlled tapping (Based on project's needs) ii\. Practical Training In Tamina Stacae 1 - 4 days At this stage, the course participants will use the trunk of rubber tree to tap using proper thickness depth\. iii\. Practical Training In Taoinca Stacae II - 6 days Five course participants will be given one task tapping area and will be required to tap about 100 to 110 trees in 40 minutes\. At this stage, the participants will be evaluated whether or not they can achieve quality tapping at a required time\. iv\. Practical- Training In Taminra Stacae III - 6 days Each tapper will be given a task (500 trees) which will have to be worked upon at a fixed time\. At this stage they wuld be evaluated on targeted quality tapping\.  - 84 - ANNEX 5\.1 Page 12 of 16 8\.2\.5\. For each stage of practical training carried out, the course participants will be evaluated whether or not they are eligible to proceed practical training to the next stage and so on\. At the end of the course, new tappers who succeed will be recruited to work in the Felcra projects\. During the duration of the training program, the tappers will be given course allowance of $5\.00/per day and tapping incentives based on the quantity produced at stage 7\.2\.3\. above\. 8\.2\.6\. To ensure that this training program brings positive results and at the sametime 'rapping activities will not be hindered, it is proposed that the existing group of tappers have to undergo training programs 7\.2\.3\. (i), 7\.2\.3 (ii) and 7\.2\.3\. (iii) at a shorter duration\. Recruitment for training is done at stages for example 10 personnel for one group at one session\. 8\.3\. Number Of Tappers And cost Of Procram 8\.3\.1\. Until 1991, 11,700 tappers wwer required for tapping in Felcra rubber plantations using the d2 tapping system\. From 1992 - 1995, based on 11,725 hectares proposed for the phasing for reduced frequency tapping, an addition of 2,931 new tappers are required\. Therefore the total number of tappers proposed for the tapping expertise program is 14,631\. 8\.3\.2\. For the training of the existing tappers (11,700), priority of training will be as follows: - Ist - Scheme participants/dependents 2nd - Outside people hired by the scheme 3rd - Contract workers  - 85 - ANNEX 5\.1 Page 13 of 16 8\.3\.3\. It is estimated that the cost involved for carrying out the training programs for the total tapper force of 14,631 is MS1\.54 million\. The cost breakdown for 10 trainee per session is as follows:- i\. Allowance $5\.00/per trainee/ : $ 900\.00 per day x 10 x 18 *ii\. Tapping equipments : $ 150\.00 (knife and sharper) @ $15\.00 per trainee x 10 Total $1,050\.00 * The total estimated cost of tapping equipients for the program is M$219,465\.00\. 9\. TO COS 9\.1\. The total estimated cost for this training program for Felcra staff and its tapper force is M$ 1\.65 million\. BreakdowA is as follows:- i\. Staff training on d2 - M$ 99,880\.00 ii\. Staff training on d3 - M$ 9,150\.00 iii\. Tappers - M$ 1,540,000\.00 10\. g2MMCLUIO 10\.1\. Felcra's adinistration believes that the steps taken to have this training program for its field staff and tapper force will be able to solve problems of low- grade production at Felcra rubber projects\. With the inplmntation of reduced frequency tapping system at Felcra projects, it will overcome problems in the availability of skillful tapper force which we ax-* presently facing\. As such immediate action has to be taken by Felcra's administration to make this training program a possible and successful one\.  - 86 ANNEX 5\.1 Appendix I Page 14 of 16 E Lm COMM CaRWT FOR ThPP q ED CM STNDUD TP2PI N_22)( Day 1 Intxoduction Written response/oral by participants (Mbrning) (1/2 hour) regarding tapping (objective questions) Lecture 1 Introduction on rubber tapping (Anatcay (2 hours) and Physiology and methods to open tapping sites) Lecture 2 Tapping system, stimalatL n and (2 hours) tapping schedule (Evening) Practical A Training on sharpening knife (2 hours) Day 2 Practical B Training on opening tapping sites (Mokrning) (4 hours) and tapping (methods in tapping per tree per person repeatedly) (Evening) Lecture 3 Tapping equipments and collection (1 hour) LELICS, knife, cup, RRIMGDM, RRDCnP etc\.) Lecture 4 Controlled upward tapping (CUT) (1 hour) Day 3 Practical C Tapping (continuation) (Mbrning) (3 hours) Practical D Monthly mar1\.wrr Q monitor bark usage (1 hours) (Evening) Practical E Traiuing on chemical usage (2 hours) (Introductry level)  -87 ANNEX 5\.1 Appendix I Page 15 of 16 PM;t CURSE TOPIC Day 4 Practical F Controlled upward tapping (CUT) (Mbrning) (4 hours) (Evening) Practical G Training on fixing tapping aid (2 hours) equipmints Day 5 Practical H Tapping in field area (one site (Mbrning) (4 hours) per person) (Evening) Discussion Day 6 Test Tapping test Course evaluation trainpro 14-15:  - 88-\. ANNEX 5\.1 Appendix 2 Page 16 of 16 NASDE C ADOPINXN FCR ma FR3Dr ThPPI3 YEAR OF PLANTING 1986 1987 1988 1989 YEAR OF PRODUCTION 1992 1993 1994 1995 1\. PERAK 305 28 339 269 2\. KEDAH/PERLIS 227 738 898 1,385 3\. PAHANG 822 215 685 580 4\. NEGEI SEMBILAN 121 32 307 1,225 5\. JCHOR - 89 88 344 6\. KELANTAN 92 867 224 988 7\. SARAWK - - - 230 8\. SELAGOR 53 - 367 207 TOTAL HECTARAtE 1,620 1,969 2,908 5,228 BY YEAR-- = GRAND TOTAL (1992 - 1995) 11,725 NO\. OF PERSCU4L ON SPECIAL COURSE (9) (10) (16) (26) 61 OF D3  - 89 - ANNEX 5\.2 Page 1 of 9 Pages NALASI THIRD FELCRA LAND DEVELOPMENT PROJECT TERMS OF REFERENCE FOR C)NSUTANTS FOR FELCRA ACCOINTING AND DATJ%BASE XANAGE1ENT NOPETION SYSTE 1\. Qeperal 1\.1 Felcra at present maintains its accounts and prepares reports for Government, Audit and Management purposes in accordance with government accounting procedures\. It is not proposed to abandon procedures which may be required for government accounting or auditing purposes, but it is proposed to refine these so as to show more clearly the results of FELCRA's activities and its financial status for management pu\.poses\. It should be understood that Felcra has two major roles to play which have made its operations very complex from a financial management viewpoint: It acts as a middleman, receiving, holding and disbursing funds for Government, as well as for development scheme beneficiaries (in fact acting like a Trustee for both)\. - It is the actual developer and manager of some 1,400 development schemes and several oil palm mills\. 1\.2 In its technical comments, the World Bank recommended tha\. x-r management purposes and for the information of third parties (including Government Departments) FELCRA, in addition to preparing more informative and clearer consolidated financial statements, should prepare separate sets of accounts summarizing the results of the activities and operations of its four main components as set out in para\. 2\.3 below\. In addition to the normal year-end consolidate financial statements which include a Balance Sheet, Income and Expenditure Statement, and Source and Application of Funds Statement, the Bank has suggested an additional financial statement referred to a the "Financial Statement of Cash Position"\. This would show inter alia: - (a) Loan repayments received in advance from development scheme beneficiaries; (b) Development grants from Government not yet utilized; (c) Monies held in Trust such as: - Contractors Deposits - Revolving Fund balances - Dividends payable to development scheme beneficiaries - Other Funds held for development scheme beneficiaries  - 90 ANNE Page 2 of 9 Pages (d) Felcra Income earned such as: - Felera Dividend (10% from Fringe Schemes) - Interest earned on deposits - Interest earned on accounts receivable - Miscellaneous income (e) Palm Oil Hill cash balances (represented by Palm Oil Hill retained earnings and accumulated depreciation)\. In addition this statement would demonstrate how such funds had been utilized and were held at year end i\.e\.: (a) Utilized to finance development schemes, and oil palm mills (b) Utilized as advances to loss making schemes\. (c) Placed on deposit at banks\. (d) Held on current account at banks\. 1\.3 From a management viewpoint, the four main components of Felcra's operations can be broken down as follows: - _ Development Activities; - Administration Activities; - Trustee Activities; - Oil Palm Mill Activities\. but of these, Development Activities is by far the most important\. 1\.4 Developomnt Activities (a) The financial statement for this activity should clearly analyze the progress made by development schemes during the year - presenting the various types (and stages of development) of long term accounts receivable bX way of summary schedules (showing both numbers of schemes and the value thereof) including inter alia: (i) Type of Scheme: - Land Development - Settlers Housing - Rehabilitation Schemes - Fringe Schemes - Youth Schemes (ii) Stage of Development - Under Development - In Production - Profitable Schemes  - 91- Page 3 of 9 Pages - In Production - Loss Making Schemes - Inactive Schemes - Advances to Loss Making Schemes\. (iii) Age of Accounts Receivable Balance Outstanding: - Differentiating by type of Scheme (number and value by year)\. - Differentiating by State of Development (number and value by year)\. - Differentiating between current and long-term portion overdue, by type of scheme\. (iv) Repayments Received in advance: - By type of scheme\. (b) Its liabilities to the government for loan principal and interest repayments and for any funds received from other sources\. 1\.5 Administration Activities, encompass those for which Felcra receives grant monies from the government which are utilized to run its own operations\. These accounts would facilitate the annual budgeting process and enable the management and Treasury to see more clearly what funding Felcra needs for normal operations\. This should include appropriate allowances for the repair and maintenance of all Felcra fixed assets such as Buildings, Equipment, Vehicles, Roads etc\. 1\.6\. Trust Activities, in which role Felcra receives and handles in a fiduciary capacity monies belonging to third parties such as dividends due to development scheme beneficiaries and various Reserve Funds maintained by Felera for specific purposes\. 1\.7 Oil Palm Mill Activities showing the results of the two mills presently being operated as well as the costs of the two mills under constructrion\. 2\. DEAILED TERMS OF RFERECE 2\.1 Felera has decided that in its efforts to continue implementing its computerization plan, it would be advantageous to Felcra to engage the services of consultants to: (a) Review and recommend improvements to Felcra's accounting policies, procedures and systems\. (b) Redevelop the existing application systems to a Database Management System (the new accounting policies, procedures and formats will be implemented within the Database Management System)\. (c) Develop a complete and systematic Management Information System\.  - 92 - S\.iH K-L Page 4 of 9 Pages 2\.2 The following will comprise the scope and duties of the consultants\. The scope of work of the consultant are as follows\. - (a) To review all existing accounting policies, procedures and systems for all FELCRA's activities\. Some of the accounting policies to be reviewed are indicated in Attachment 3\. (b) To propose necessary improvements to the accounting policies, procedures and system and financial reporting\. (c) To provide direct assistance in the implementation and development of the Database Management System and the Management Information System based on the recommended accounting policies, procedures and systems\. 3\. DUTIES OF CONSULTANT ACCOUNTING POLICIES PROCEDURES AND SYSTEMS In close consultation with FELCRA's accounting staff: (a) Revise or prepare an updated Accounting policies and Procedure for Felcra Management's approval\. (b) Draw up a detailed Chart of Accounts to simplify and improve the accounting system and the computerization thereof\. (c) Draw up a practical method of accounting for, and presenting the various types of development schemes separated into: (i) Scheme under Development (e\.g\. work in progress)\. (ii) Developed schemes (not incurring interest charges)\. (iii) Developed Schemes in Production (interest accrued; principles and interest payable), distinguishing between: - Profitable Scheme - Loss Making Schemes (iv) Inactive scheme (abandoned schemes, abandoned houses, etc) (v) Advances to Loss Making Schemes\. (d) Review the accounting methodology employed for accounting for principle, and for accruing interest receivable and payable as well as for treating interest received on loans to beneficiaries, including accounting for payments received in advances etc\., and interest paid on long term loans from Government; the computerization thereof: and the presentation thereof in the annual financial statements\. Also reclassifying (if considered desirable  -93 - ANX SJ Page 5 of 9 Pages and practical) the amounts recoLvable and payable withLn the next 12 months undercurrent assets and current liabilities, etc\. (e) Review and advise Folera on the presentation of: - (i) Its consolidated Balance Sheet Income and Expenditure Statement; Statement of Funds Held and Cash Positlon; and Statement of Source and Application of Funds for the annual financial statements\. (ii) The reclassifying of items in the financial statements where appropriate, to ensure the financial statement comply with Malaysian Law, and generally accepted international accounting standards\. (e\.g\. treatment of Fringe Schemes - 108 of which belong to Felera and for which Felera receives a dividend)\. (f) Examine Felcra's internal controls, accounting systems and procedures and develop ways to: - (i) Ensure prompt authorization and funding of cost overruns (compared with approved budgets) on development schemes, etc\., (ii) To prepare a suitable cash management system lncluding cash flow forecasts to enable Felcra to better manage it financial affairs in an efficient, cost effective manner, to ensure: - - Loan repayments to Government are made in a timely manner; - Felcra reviews the appropriate level of funding for its administrative and development budget; - That trustee funds are maintalned intact and are used for the purposes intended; = That Felera's Internal controls and system and procedures over cash payments and receipts are satlsfactory, appropriate and maintained din sound working order to minimize any potential misuse\. (Lii) Furnish appropriate and timely financial and accounting information which can be used by Feclra's Management to manage FELCRA's affairs more efficiently\. 4\. DATABSE MANAGEMENT SYSTEM AND KAMkGEIENT INFORMATION SYSIEM The consultant will provide direct assistance in the following:- 4\.1 The designing, development and implementation of the now applicatLon systems using the Database' Management System based on the recommended accounting procedures and formats stated above\. 4\.2 The designing, development and implementation of the Management Information system which involves three majors components: -  - 94 - ANNEX 5\.2 Page 6 of 9 Pages - the accounting information subsystem; - the administrative information subsystem; and - the operations decision support subsystem\. 4\.3 The schedule of duties of the consultants over a period of 15 months is shown in Attachment I\. 5\. PROJECT ESTIMATED COSTS The project will be carried out as a joint venture between Felcra and the Consultant concerned\. The estimated consultant cost was based on the local (Malaysian) Consultant fees:- (a) the estimated cost of engaging the consultant to review and propose the new accounting system and procedures is approximately $800,000\.00\. (b) The estimated cost of engaging the same consultant to design and implement the Database application systems based on the new accounting procedures and formats and also to develop and implement a Management Information System will be approximately $1,500,000\.00 Therefore an overall estimated cost of engaging a consultant is (M)$2\.3 million\. (c) The schedule of breakdown of cost over a period of 15 months for the overall consultant services is shown in Attachment 2\.  Schedule of uties of tde COnulttwt -Owe a ie TYes Period \._\. __\._=_--_- Person Peron don day 1991 1992 1992 1992 1992 1993 Activities______ Fletcr Consultant Oct-Dec Jo-Nar Apr-JMune Jul-Sep O eJ-Mar 1\. Review Accounting System and 40 60 XXXXXXX0OO( Procedures 2\. Identify The Necessary Changes 30 30 XXX 3\. Propose The Mew Accounting System 20 20 XXX and Procedures _ 4\. Prepare The Accounting Policy and Procedures 40 20 XXX Manuals 5\. Oetail Design of The Database Application Systems 150 90 XXXXXXXXXXXX XXXXXXXXXXX qa 6\. Conversion of Existing Data Into the Database System 50 20 _ 7\. Acceptance Testing 50 20 XXX 8\. I plemantation of The Database Application Systems 90 20 XXX 9\. Detailed Design of The Management Informatior System 90 60 XXXXXOOOXXXX _ 10\. Ieplementation of The Management Q Inforntion System 50 40 XYXXXXXX :O- Total 610 380 wo_ _ \. ° ° | - -=  Annex 6\.2 - 96 - Atina =6\.2 Paso I of 9 Page Breakdown of Consultant Cost Over A Two Year Period '__________ __________ ___________ ______ _ ;1992 1993 1\. Review Accounting System and 200,000 _ Procedures 200,000 2\. Identify The Necessary Changes 3\. Propose The New Accounting System and Procedures 200,000 _ 4\. Prepare The Accounting Policy and - 200,000 Procedures Manuals 5\. Detail Design of the Database Application System - 400,000 6\. Conversion of Existing Data Into The Database System _ _ 7\. Acceptance Testing - 100,000 8\. Implementation of The Database 400,000 Application systems _ 9\. Detailed Design of The Management Information System - 300,000 10\. Implementation of The Management Information System - 300,000 Total 600,000 1,700,000  - 97 - Annex 5\.2 Attachment 3 Page 9 of 9 Pages Accounting Policies To Be Reviewed And Updated for Felcra Management Agreement Inventories of Stock on Hand - How should these be valued? FIFO or Standard Cost\. If standard how often should standards be revised - annually? Lona Term Accounts Receivable - Treatment of bad or douL-iul debts/inactive schemes\. - Treatment of Fringe Schemes - FELCRA 60 10 equity vein and 10% Dividend each year\. - Separate Current Portion at year end for Balance sheet presentation\. Fixed Ass_ts (Non Palm Oil Mill) - Any need to calculate depreciation thereon?: - Include annual provision for repairs and maintenance in administration budget (in preference to development budget for Government Grants)\. Deferred Interest Income - Separate actual interest received form development scheme beneficiaries loan repayments and show separately as income each year\. Accounts Receivable and Payable/Security DeDosits - Show long term separate from short term (current) - Separate debits from credits and show gross amounts in year end financial statements Analyze and explain debits in CAC accounts payable\.  - 98 - ~~~ANNEX 5\.3 Page 1 of 3 MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Agricultural Production Technologies Oil Palm 1\.1 Land PreRaration: Areas for oil palm would be mainly flat to undulating, and often include low lying lands such as abandoned rice fields with impeded drainage which would have to be corrected before planting the crop\. Land clearance would be mechanical, preferably done in the dry season, slopes terraced as necessary (estimated at 330 meters/ha), drains and perimeter fencing installed and legume cover crop planted as a priority for soil protection, especially on slopes, all in advance of planting the palms\. 1\.2 Planting: Germinated seeds of high yielding progenies would be procured from major outside suppliers\. The seedlings will be raised in polybags in on-site or cluster nurseries under contracts to cooperatives with close FELCRA supervision to ensure product quality\. Plants of 10-12 months of age, selected for vigor, would be planted into the field during the appropriate planting season at a density of 148 plants per ha\. Supply planting for initial losses, estimated at not more than 5Z, would be done during the first year after planting only\. 1\.3 Field Maintenances The palms will be routinely circle weeded, using herbicides, at monthly intervals in the first three years, reducing to once in three months during the following two years\. New generation, low toxicity herbicides will be introduced as appropriate\. Types and quantities of fertilisers, which should always be timely applied in accordance with established industry practice, would after the first year be determined by the results of annual foliar analysis\. The use of empty fruit bunches and treated mill effluent as fertilizer are being evaluated on a small scale in some schemes\. Frond pruning, control of leaf-eating insects and ablation of early fruit bunches in the second year to prevent precocious fruiting would be routine\. 1\.4 Harvesting: With good maintenance, the palms should be in production not later than three years after planting\. The ripe fruit bunches (ffb) are harvested twice monthly initially and at 10 day intervals from about the third production year\. Harvesting would continue for about 25 years after which the stand should be replanted because of low yields and the difficulty of harvesting tall palms\. Mechanised collection of ffb using various systems has been tested and introduced in a number of schemes\. The ffb would be transported to the scheme loading ramp from where it would collected by contractor for delivery to a FELCRA mill if conveniently located, to a private mill, or in some isolated schemes, sold ex-farm gate to traders by tender\.  - 99 - ANNEX 5\.3 Page 2 of 3 1\.5 Processing: FELCRA has two oil palm proceesing mills at Nasaruddin in Perak and Bukit Kepong in North Johor\. Two further mills, at Seberang Perak in Perak and Maran in Pahang, are under construction and expected to be commissioned in the second half of 1992\. Mill supplies are normally drawn from schemes within a distance of about 60 miles, although for the Bukit Kepong mill, which has under-utilized capacity, FELCRA has been providing transport cost assistance to more distant schemes\. Supply contracts to private mills are normally for one year\. Mills grade ffb for quality, primarily on fruit ripeness, and pay sappliers according to the daily gazetted palm oil price less processing costs\. Rubber 1\.6 Land Prcjarations Rubber areas would be typically hilly, often with steep slopes, and growing old or abandoned rubber much of which may be partially teverted to secondary forest conditions\. All land clearing and preparation would be done mechanically under contract\. Slopes would be terraced with requirements estimated 990 meters/ha\. In some localities, rubber wood might be sold for charcoal or other uses\. Clearing would normally be done in the dry season so that planting can proceed in the most favorable season\. Terraces and interrows would be planted as quickly as possible after land preparation with a legume cover crop mixture to protect soil from water movement and to suppress weed growth\. 1\.7 Planting: Young rubber plants would be produced mainly in cooperative nurseries within the scheme cluster under close FELCRA supervision\. Rubber seeds from high yielding clonal areas would be germinated, planted into nursery rows or polybags, selected for vigor, budgrafted with high yielding clones at 4 to 6 months of age, and, for the row plents, transferred to polybags\. The system of producing young buddings on stocks about 3 months old will be tested in the near future in selected nurseries for further efficiencies\. Vigorous buddings would be ready to plant into the field about four months later\. Supply planting would be limited to one year unless advanced planting materials are available\. Core budded stumps as an improved alternative for suppling have recently been used\. Deeper field planting for longer tapping panels is now standard practice in all new rubber areas\. Clones used would follow RRIM recommendations in the ratio of 70Z of Class 1 clones and up to 30Z of Class II clones; FELCRA has an ongoing program with RRIM for evaluating promising new clones\. Planting density would be 511 trees/ha for a targeted stand at tapping of about 450 trees/ha\. Clones would be planted in minimum sized blocks of at least one tapping task to match with tapping requirements\. 1\.8 Field Maintenance: Poor standards of -weeding can seriously reduce the growth vigor of young rubber\. Planting rows will be clean weeded using herbicide on a monthly schedule for about the first three years after planting, and then at decreasing frequency as the tree canopies develop to about once in three months when the trees reach tappable size\. The use of low volume spraying in weed control for cost savings is being investigated\. The trees would be regularly fertilized during immaturity with compound fertilizers at RRIM recommended rates by soil type\. Appropriate nutrient  - 100 - ANNEX 5\.3 Page 3 of 3 rates for use after the trees enter into tapping would be based or the results of annual foliaz analysis\. FELCRA is closely following RRIM's evaluation of the pr&ctice of withholding fertilizers for up to 8 years on rubber tapped on renewed bank with a view to its possible adoption for significant cost savings\. Pests and dise ?r', except for root disease, are not of great importance in young rubb 1\.9 Harvesting: Tap1ing would commence when 1OZ of the trees attain a trunk girth of 45 cm at one meter from the ground\. With good field practice, this should be at not more than 6 years from plantinz\. FELCRA's standard tapping system is a half spiral cut alternate daily\. Under the improved tapping technology program, all areas on opening would be tapped under the reduced frequency system of a half spiral cut every third day with application of ethepon latex stimulant at 2\.5Z concentration ab3ve the tapping cut at 6-8 times/year\. Full recovery tapping would be practised to compensate for rain days\. Areas in tapping before 1992 would remain on the alternate daily system until the new system can be phased in\. FELCRA in moving towards less labor intensive tapping technology, will be receptive to any new labor saving tapping technology recommended to the industry\. 1\.10 Processing: Rubber as latex and cup lumps, is brought to field collection stations by scheme transport and sold to the Malaysian Rubber I)evelopment Corporation in all areas where they have a processing factory\. For- other schemes, the rubber is processed on site into air-dried sheets, or more commonly, sold directly by tender to private traders\. Prices are based on the daily commodity quotations and the measured dry rubber content of the latex, or estimated content of cup lumps\.  - 101 ~~~~~ANNEX 5\.4 - 101 - Table 1 MALAYSIA THIRD FELERA LAND DEVELOPMENT PROJECT Proiected Staffing by Grade and Function 1992-95 1991 (Actual) 1992 I99\. 1994 1995 A\. By Grade Grade A 205 228 253 278 303 Grade B 340 355 376 398 420 Grade C 1,823 1,790 1,774 1,752 1,737 Grade D 1,120 1lo08 1,102 1,092 1,086 Total 3,488 3,481 3,505 3,520 3\.546 B\. By Function Administration 1,340 1,326 1,321 1,313 1,312 Finance 42 44 44 44 44 Data Processing 38 39 40 41 41 Agriculture 26 49 49 53 54 Schemes (Plantation) 1,655 1,621 1,635 1,644 1,661 Engineering 156 159 160 161 162 Survey 88 88 88 88 88 Social Development 143 155 168 176 184  - 1OM - ANNSX 5\.4 Table 2 MALAYSTA THIRD FSLCRA LAND DEVELOPMENT PROJECT Projected Changes in Staff Numbers by Grade and Function 1992-1995 Grades A and B 1992 1993 1994 1995 Total Administration +2 +1 +2 +6 +11 Finance +2 +2 Data Processing +1 +1 +1 +3 Agriculture +23 +4 +1 +28 Scheme 'Plantation) -3 +30 +31 +31 +89 Engineering/Survey +1 +1 +1 +1 +4 Social Development +12 +13 +8 F8 +41 Subtotal Change +38 +46 +47 +47 +178 Grades C and D Administration -16 -6 -10 -7 -39 Finance 0 Data processing 8 Agriculture 0 Scheme (Plantation) -31 -16 -22 -14 -83 Engineering/Survey +2 +2 Social Development - 0 Subtotal Change -45 -22 -32 -21 -120 Total Change -7 +24 +15 +26 +58  - 103 - AX S\.S Page df 2 THIRD FELCRA LAND DEVELgOpENT PROJECT FELCRA's Action Plan imlementation Tarsats and Monfitorina Indicators 19°1 2ig 1i 94 12 (Actual) 1\. FELCRA Staffina Anricultural Inspectorate 14 24 24 24 24 Snoeme Management Grades A+B 240 237 267 298 329 Grades C+D 1,405 1,374 1,358 1,336 1,322 Secondment of Staff to KPFB Holdings: No\. Agric\. Staff 0 No\. Marketing Staff 0 No\. mill staff 44 2\. Disenaaacment from Scheme Manaaemen (by oil palm and rubber schemes) No\. of Schemes 0 16 25 35 42 (48 in 1996) Ha\. of Schemes 0 5\.900 8,900 12,100 155100 (21,000 in 1996) 3\. Technical Services to HoldinMs Foliar Analyses Interpretation (ha) 0 110,000 120,000 136,000 147,000 Soil Survey Analyses Interpretationtha) 0 0 2\.5000 3\.000 3,000 4\. Schene Performance (by scheme) Total Production Yield per ha 5\. Palm Oil Mill Performance (by mill per month) Total ffb Throughput Extraction Rate Fatty Acid X Days of Operation Hours of Operation Downtime 6\. Manacement Trainina for Coooerative Members No\. of trainees - basic courses 1\.460 100 75 150 No\. of trainees - intermediate courses 305 1,442 310 200 No\. of trainees - advanced courses 100 150 95 570  - 104 - ANNEX 5\.S Page 2 of 2 7\. Coogerative (a) Performance of the 75 cooperatives registered at December 31, 1991 for the period 1991-95 (1991 data shown where available)\. General 199 - no\. scheme beneficiaries in the 75 coops\. 15,115 - no\. male and female 13,267 (m), 1,848 (f) - no\. beneficiaries as cooperative members 13,651 - % membership - total 90% - no\. male and female as cooperative members 12,546 (m), 1,105 (f) - % membership - male and female 95% (m), 60% (f) - Total value of member shares M$9\.376 million - Avg\. paid-up share value per member M$638 Management of CooReratives - no\. coops\. with members in mgt\. 73 - no\. coops\. with FELCRA staff in mgt\. 73 - no\. coops\. with member as president 0 - no\. coops\. with member as chairman 23 - no\. coops\. with member as secretary 9 - no\. coops\. with member as treasurer 73 - no\. coops\. with FELCRA staff as president 22 - no\. coops\. with FELCRA staff as chairman 52 - no\. coops\. with FELCRA staff as secretary 64 - no\. coops\. with FELCRA staff as treasurer 0 Cooperative Financing of Management - no\. coops\. financing managers (and total managers) 15 (17) - no\. coops\. financing clerks (and total clerks) 64 (106) - no\. coops\. financing laborers (and total laborers) 29 (141) Financial (data for 1991 incomplete) - total turnover M$35\.062 million - avg\. turnover (74 schemes) M$0\.474 million - total net profit M$1\.699 million - avg\. net profit (74 schemes) M$0\.023 million - profit as % turnover 4\.8% - total costs of management - total net profit of coops\. financing mgt\. - total mgt\. costs as % total coops\. expenditure - (b) For Cooperatives registered 1992-95 - no\. cooperatives - no\. scheme beneficiaries - no\. beneficiaries as coop\. members - % membership - total and average annual turnover M$ - total and average net profit M$ - Avg\. paid-up share value per member  - 105 - AULIX I MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Bank Simervision Mission Plon Staff Project Approx\. Expectod Inputs Mo\. Tear Mission Oate Area o Concentration Skill Requirements CStaffweeks) 1\. 199 Saptember Loan effectiveness, procureomnt and Tre crop speciatists 11\.0 disbursement, appointment of Financ Economist Division had, progress of Financial Analyst accounting/consultants update resultr Computer Speciltist nd implementation of tapping technoLogy, tapping wages, Holdings contracts nd progres In scho and mill mnAgement, MIS, review FELCRA's proposed 19 work progr \. 2\. Jan\./Feb\. Jan\./Feb\. Tapping technology nd planting material Tree Crop Specialisto 11\.0 progr_m and new wage structure, Financisl Analyst functioning of new agricultural Economist division, nviror e ntat guidelines for Engineer agriculture, financial and schm_ Training Specialist manegament arrangements, rural industry and perequat studlies, progres of hold- ings nd cooperatives In schem management, civil works, procuremant, training progrm\. Human Resource Developmant Division\. 3\. 1t13 October Tapping and agricuiture program, audits, Tree Crop Specialists 8\.0 perfor_ance of holdings nd FELCRA's Financial Analyst withdrawal from sche_ management, NIS, Economist study on agricultural costs and review MIS results of earie r studies, revI\._ FELCRA's proposed 1994 work progrm\. Proposats\. 4 1994 March Agricultural program, FELCRA8s with- Tree Crop Specialists 10\.0 drawl from scheme management, staff and Financial Analyst amliholder training, revfew agric\. Economist costs study, famotioning of all new NIS divisions, civil work-, progress of cooperatives\. S\. 1995 Nov*ar Agricultural program including rubber Tree Crop Specialists 6\.0 tapping technology, Review of FELCRA's Economist proposed 1995 work progrm\. Financial Training Speciatist management, MIS\. Engineer Cooperatives 6\. 195 MNAY AgrIcultural program, civil works, Econom st 6\.0 training progrm\. Tree Crop Specialist F;nancial Analyst ms 7\. 1995 Nove\.er Agricultural program, disbursements, Economist 4\.0 Progres of Hotdings\. Tree Crop Specialist 8\. 1996 5 pto br ProJect CopLetion Report\. Economist 4\.0 Tree Crop Sp cialist  - 106- ANNEX 6 Table 1 MALAYS THIRD FELCRA LAND REHABILITATION PROJECT Crop Yield Profiles Years from Oil Palm Rubber Planting (ton ffblha) (x8 dry rubber/ha) 1 0 0 2 0 0 3 0 0 4 1\.7 0 5 5\.1 0 6 9\.5 0 7 13\.9 0 8 18\.3 520 9 20\.8 920 10 21\.1 1,190 11 21\.3 1,410 12 21\.4 1,520 13 21\.7 1,620 14 21\.9 1,700 15 22\.5 1,720 16 22\.6 1,730 17 22\.4 1,750 18 22\.4 1,730 19 21\.2 1,730 20 20\.2 1,720 21 19\.6 1,710 22 19\.4 1,700 23 19\.0 1,680 24 18\.6 1,660 25 17\.3 1,650 26 16\.5 1,630 27 15\.5 1,600 28 14\.8 1,590 29 14\.5 1,570 30 14\.0 1,510 Total Yield 477 tons/ha 35,560 kg/ha Production 27 23 Average Yield 17\.7 tons/ha 1,550 kg/ha  - 107 - ANE 6 Table 2 1°I Il-E §ffS R UI E | g | 4 ! R 84; Bn n #, | g t X n, ; 0- | t Ut1 ll;" gi ;4 : i; ! }'"-ili s aS |3 Ilt In U i 4 10 W llB3g; Za§ , gx l002\. ll;i X~~~~~~ I F " 4 lllSsl!1\.!3jF 111  lHRDEO RLAND DEVLPMPROJCT RUBBEIPRMSIRUCIURE YEAR ACIUAL9I 92 93 94 95 96 97 98 99 00 01 Q 4 0a5 06 A\. CRRBENPRICS - Augt MARDEC -b- RSSI Mikg fob 235\.54 -km hqa\.cm 13\.77 dhWuot 3\.00 Net fawm gate 21&77 MARDEC - =Wv\.- SMR 20 Msglc fob 206\.53 -klssdutyc 1\.3\.77 o dismt 23\.50 0 Net fwm gate pnc 169\.26 Ba PROJECFIONS - (Jul91) RSSI N\.Y\. Czr\.tUScentsikg 110 116 121 145 150 160 170 180 184 195 200 210 215 215 8SCoSLUScetu4g 70 73 73 84 84 85 86 86 86 85 85 84 84 84 92CbfsLUScenfkg 107 112 112 129 129 130 132 132 132 130 130 129 129 129 LeuFmtW&Jhu USceotWkg 1S 1S iS 1S iS iS 1S 1S IS 1S 1S 15 15 15 foblOag 92CmstMcmtsfkg 253 266 266 312 312 316 321 321 321 316 316 312 312 312 RSS3@909RSSLMcmtrwg 228 239 239 281 281 285 289 289 289 285 285 281 281 281 L=mu ft4 &plw ,, i 12 12 12 12 12 12 12 12 12 12 12 12 12 12 WWotedsketgpAitperice 216 227 227 269 269 273 277 277 277 273 273 269 269 269 mmmmmS11ss=""=S =C= C- === =mm mm ms m = = =- SmwCe pi= MARDEo FE\.RA 1tmw km BkJul 9L  THMRFeLCR IAUND1VE0 ETPRTWFECT OIL PALM - FEWD COTS PEER HECTARE YEV 1 2 s 4 6 0 I e 9 to II 1 2 13 14 iS is IT It to 20 30 PIfPAPATON AND PLANTI _________________ FELUN, & CLEARN 070 AGFL RaS OD 700 CRAIS 201 150 TERACES ISO FENCES 420 COEaCRoPs 150 uNW PLANFING Go e0 SURVEY 100 l0o SUB-TOTAL 2At 0 0 0 a 0 0 0 0 0 0 0 0 0 o 0 0 0 0 MATERW8 FERT O1L PAU till 330 270 310 350 345 340 335 330 325 325 315 3J5 315 315 295 295 295 295 0 FERT\. COVER CROP S0 CHEMOALS 20 SS :SS S05 90 05 as 75 70 s0 s0 s0 s0 s0 50 50 50 so 50 10 SFA ISIIUANCE 35 to 10 1e to 10 10 s0 1o 10 16 10 le lo to 10 i0 1t is to FF8 TAAN8ORT 20 7 124 tOo 220 270 274 27 270 262 205 293 204 291 291 270 203 to2 --- -- - -- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- SUB-TOTAL 0 %L\. 405 451 soo 505 m27 679 we0 600 0 0e0 0ea an0 074 075 052 2 eV7 t 202 LABOR WEEaN 400 2US 260 1o0 i:o as 95 so 7s 70 70 70 70 70 70 70 70 70 70 70 pESTONIOL to t0 to 10 10 10 to 10 is IS Is iS Is Is IS IS IS iS 0 FERTLWN3 30 50 as t0 70 0S as 0 5 55 so So so so So so 40 40 40 40 0 PALMMAITEMAiNCE 10 10 10 10 to to 10 10 10 10 10 10 10 10 :0 t0 10 10 0 SUFPLY PLANWIVE 30 `R MANTBEANCE 20 20 20 20 20 20 20 20 20 20 2D 20 20 20 20 20 20 0 CEMSS :0 10 tO to to 10 0 10 tO 10 10 10 10 tO 10 10 10 10 tO 10 HARVESTIN 43 112 too 230 311 312 317 27 270 262 205 293 294 201 29' 270 203 162 SUB-TOTAL 0 470 375 410 307 420 440 t21 507 496 452 453 457 400 4o 400 450 450 441 420 262 --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- _--- TOTAL 2\.510 50 1\.720 070 05 1\.0t5 1\.073 1\.200 1\.20 1\.187 1\.120 1\.122 1\.120 1\.125 1\.141 1\.144 1100 1\.100 1\.077 1\.051 464 \.00\. \.6 \. \. \. \. \. \. \. \. \. \. \. \. \. ChIRUATWE COST 2510 3\.400 5\.180 e0os 0\.03 rss7 9,030 10\.20 11\.434 12t20 13,740 14053 15\.903 17\.10S :8\.249 19\.303 20\.501 21\.010 22\.67 23\.736 "l VIELTOK44A 1\.70 510 9\.60 13\.00 10\.30 20eo 21\.10 21\.30 21\.40 2f\.70 21\. 22\.S 22\.0 24 22\.4 212 202 140 HAVESTINGOOSTSTON 25 22 20 17 17 Is 1s 3 13 13 1s 13 13 13 13 13 13 13 TRPNAIAFTATIO TO ILL IS t 5 13 13 13 13 13 13 13 13 13 13 13 13 13 13 13 13 INCOME FFSPCEINAT ML U9 130 1I6 104 100 1OS Iso 145 141 1t30 132 ?7 122 iSe 11 Ito 1s1 I li *10 110 l l TOTALOME 0 a 0 270 010 1473 2066 2054 2933 2070 2012 2718 2547 2504 20S0 2007 203 2040 2502 2304 1652 0 \. NETNOME (s1q (GM (1\.72m (w (7 4G0 1\.012 1\.044 1\.7i9 1\.t03 \.02 I5S 1\.527 1,450 1\.514 1\.L\.3 1\.tSJ t\.53 1\.424 S\.=3 1,1t0 I-a ---------------------------------------------------- -------------\.----- -- --------- S&aw FEL A 9dbzd Pe _,atmm 9S \. 91: FELCRA Pmw* tkMoorbg aiFl 0DpwSn dRcoid \. Nb bIvk vus lot tyIwO 21 -29 gvn hw r p4w n h pcjscl tie\.  THRD FELCRA LAND DEVELOPMENT PROJECT REPRESENTATIVE OL PALM SCHEME MI YAR t 2 3 4 5 0 7 e 9 10 IS 12 13 14 1s 16 47 1l 19 20 30 SCHEME INCOME PLANTED AREA (NA) 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 Y1ELDtA(TONFFS) 0 0 0 1\.7 5\.1 9\.5 13\.9 18\.3 20\.8 21\.1 21\.3 21\.4 21\.7 21\.9 22\.5 22\.8 224 22\.4 24\.2 20\.2 140 PRODUCTION (TON FF8) 0 0 0 50 S,530 2\.850 4,170 5\.490 e\.240 0,330 8\.390 e\.420 6,510 0,570 6\.750 6,780 6\.720 6\.720 6e3s0 8\.0o0 4,200 PRICEJTONFFS (SM 149 438 S58 464 160 455 450 145 14i t38 132 127 122 148 lie t18 40 8 I48 4s8 Il6 Ila GROSSREVENUE (SSOOq O 0 0 84 245 442 626 796 830 so6 843 8tS 794 775 797 800 793 793 750 745 490 INVESTMENT COST (SWOODO) ________________ - FEI DEVELOPMENT 724 285 548 264 0 - SCHEME INFRASTRUCTURE 0 232 ea 8 0 - VEHICLES & EQUIPMENT 46 5 5 57 0 - MANAGEMENT COSTS 16 6e 4o 22 0 TOTAL INVESTMENT COSTS 845 538 60s 354 0 \.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 \._\.…\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. OPERATING COSTS ___________ - MATERIALS 452 476 488 204 209 207 200 204 499 200 202 203 t96 490 194 187 61 - LABOR ISO 420 134 IS5 452 149 436 130 437 438 440 144 137 137 432 128 79 - SCHEME INFRA\. MAtNT\. 8 8 a8 8 8 8 a 8 a 8 8 8 e - VEHICLE& EOUP\.O&M\. 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 - MANAGEMENT 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 TOTAL OPERATINGCOSTS 0 0 0 0 304 337 357 395 398 391 374 372 371 373 378 378 367 367 358 354 174 \. ,,\. \. \. ,\.,, \. \. \. \. \. \. \. \. a\. \. \.S \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. SCHEME NET INCOME (81S) -S" (GM (261) (59) 105 209 401 484 470 472 444 423 402 4t9 422 426 426 392 364 321 \. \. \. \. \. \. \. w \. \. \. \. \. \. lw\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. S4R 4 t% SOURCE: TABLE 1; FELCRA AGRICULTURALPERFORAINCE STUDY 199s; FELCRA RECORDS FINANCE\.PLANNINGAND MONITORING OEPTS\. Noe: kKtWK% vakwm for yfou 21 - 29 gIeiIn wharkg ppm in pwjc (de\. oFm v, a'  THRD FECALAND DEELPW aMM NUMOFPPARAPMENS 120 PLANIED HECTMES 300 rTPE OF SCHEME REHUBUTATION WEAA 1 2 3 4 6 6 7 8 9 10 It 12 13 14 15 10 17 le 19 20 30 MICOME F0SP&AIU 149 13B 158 164 160 1565 SO 146 141 136 132 127 122 Ila 118 118 Ila Ila 118 118 Ila C nc a Co\. 84 246 442 626 796 660 6OI 643 615 794 ns 797 S00 3 93 793 70 716 490 Fs abl 753 285 516 264 0 Tel 73 286 516 346 246 442 026 796 60 81 6e43 66 794 N 797 800 3 793 750 715 490 FIhidDswk2pnuri OutD 753 265 5t1 204 0 0 Op\.mkigCcuts 0 o 0 0 282 315 335 373 374 369 349 3S0 349 351 356 356 345 345 330 329 152 RAqf* Rold 0 0 0 0 30 30 30 30 30 30 30 30 3D 30 30 30 30 30 3D 30 30 S8t Ld hwg (C\.AC4 0 0 0 0 6 6 6 6 6 6 6 a a 6 6 6 6 0 a 8 6 A\.pqwt uw\. v\.LoP&I 0 0 0 0 0 0 0 0 0 0 165 OS 166 1656 tOS 106 16 1065 165 166 0 Tcil E*Widkm 753 286 S18 204 318 351 371 409 4tO 405 560 6S 550 552 5 57 5 646 540 537 530 168 \. \. \. \. \. \. \. \. \. \. \. \. \. \. \._\. \. \. \. \. \. \._\.-\. Sdwm "\.p1 s94)11 0 0 0 0 0 91 265 367 470 456 293 204 244 223 240 243 247 247 213 186 306 DMduu_Sw ^dciuypS 0 0 0 0 0 758 2,125 3\.226 3,917 3\.800 2,442 22,0 2\.033 lAS 2\.000 2\.025 2\.056 2,058 \.775 1\.542 2\.567 ADCOW 7sg T5-1\.5) 0 0 0 0 2\.813 2\.813 2,813 2\.813 2\.813 2,813 2\.133 2\.61 2\.83 2\.813 2\.83 2\.013 2\.813 2\.813 2\.813 2\.8t3 2,613 NdlweCmkb Sdh2sal 0 0 0 0 2\.813 3,571 4\.93M 60,C6 6,729 6,613 5\.254 5,013 4,846 4\.071 4\.83 48318 0\.871 471 4566 4354 5380 \._ \. \. \.w\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. OEWELOPET LOAN REPAfNM8 Eff TERMS - LOAN PERlOD25 6 Cqaihi MC&MI blm@ 4% -0\.0694 A tOEYEARS uuso amou" bow - *0347t INTO% VR 1-1O hb mi r 9 catail - M139\. INT4%'VR I1-25 Pre*2 &V - WI 632\.00 ISEQUALPAMPFRING,WIT EquIP*p)¶ut1SWS - MS16S,000 Saucw: T"2\. Nd\.: bthsV ktdbifl2I - 29g1vmh kh w g pqsp\.cg i\. 1, mp&n k)w4~uSd wdIocws Ass laBWN\. 1\. % I  tdALAYSIA Tlf RD FEICRA L6ND DeELotPteNT PROJS RUWBER - pELD COSTS PER HECTARE YEAR 1 2 3 4 5 6 7 s 9 to i 12 13 14 is 16 17 is 19 20 30 __---___-____----____~- --_-------- - -------------------------- -__----- - ----- - - -__------_ _--- -_ __ _ __ _ _- CLEARING A PLANTING _ _ _ ----- ---_ _ FEUING CLEeARING 61s ON-FARM ROADS 7s s52 DRAINS So SO TERRACES 495 FENCES 170 COVER CROPS 150 UNING\. PLANTWN 1\.130 80 SURVEY £00 100 SUB-TOTAL 2\.n5 ISO 0 575 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MATERIALS FERTILIZER\. RUBDER 210 log 160 170 160 ISO 155 ISO 145 145 145 £45 14S £30 1 30 11 0 130 0 13 120 t7 FERT\.COVERCROP SS CIEMICALS 20 i15 13S 6 ss s5 s0 40 40 40 40 40 35 35 3s 35 35 25 Is ST£MULANTS 4 4 6 30 10 30 10 25 25 2S 25 25 25 30 sPA&INSuRANCE 35 £0 £0 £0 to IS IS 15 I5 is Is Is is 15 15 1 15 Is is 15 TAtPPING 1tFNSItS 260 SUB-TOTAL 0 320 225 305 245 22s 480 22V 29 206 210 210 210 210 205 20s 205 2OS 205 18s 77 LABOR wWLDIG 400 269 240 I£S 110 110 £10 95 SO so so so so 70 70 70 70 70 so 25 ESTCONTROL 5 10 la £0 10 10 5 5 S 5 S s s 5 S S s s S S FERTIUZING 36 37 35 35 40 36 32 29 23 23 23 23 3 20 20 20 20 20 is to CROP MAINTUANCE is 30 45 30 20 5 s s s 5 s 5 5 s 5 s s s 5 SUPPLY PLANTWIG SO 0 INFRASTR\.MAINTENANCE £0 10 a £0o 30 5 5 s S 5 5 5 5 5 5 5 s CENSUS 5 5 5 I5 l3 £0 10 TAPINGOCOST 530 782 L012 1\.056 j\.170 U\.47 1\.309 1\.324 1332 L260 1\.246 1\.246 L\.238 1\.027 SUB-TOTAL 0 49£ 336 320 220 215 396 702 936 3\.130 I:04 12 I\.365 1\.427 1\.429 1\.437 L365 1\.351 1\.351 1\.3ZI t\.077 TOTAL 2785 99£ 561 L\.200 465 40 676 926 L355 1\.336 1\.414 1\.498 1575 1,637 L634 1,642 1\.570 1556 £556 0s6 \.154 CUMUIIVBCOST 2\.785 3\.776 4\.337 ssn37 602 6\.442 X\.116 80$4 9\.199 l0\.535 11\.949 £3447 35\.P22 £\.659 3\.294 39\.936 23\.506 23\.062 24\.617 26 124 u2 YIEW OAM S2 920 1\.190 1\.410 1\.520 IAN 1\.700 1\.720 1130 1750 1730 1730 1720 5sTo TACOST MISK (d0) m2 0\.5 o\.6s 0\.77 0\.77 0\.77 0\.77 0\.77 077 0\.2 0\.72 0\.72 0\.72 O\. INCOME LATEX IPRICE MSI 2L\.6 227 2\.27 2\.69 2\.0 2\.73 2\.77 2\.77 277 3 26 29 2 2\.69 2\. 2\.69 2\.69 2\.60 2\.69 TOTAL INCOME 0 0 0 0 0 0 0 l\.440 24 3249 349 4069 4\.35 4573 4\.627 454 4\.708 4654 4,654 4\.627 4,062 NErTINCOME (2\.785) (99) (561) (1\.200) (46 (4o) (676) S14 L93 1\.913 2\.436 2590 2\.72 2\.936 2\.99 3\.012 3\.138 3098 3\.096 3\.120 2\.906 -----___ ----------- ---_------------------------_____-_-___---------------___-----------------_-_-----_------_---------- -----,E SOURCM FELCRA\. Nole:IdIiuIale eyan2- 9Ii \.wdn ae\.O  nu~ 3AAPoEEO?n?Ricr REPRESENTAI1VE RUEDIE SCHBE YEARS I 2 3 4 5 6 7 6 9 1o I _1 32 13 14 is 16 17 is 19 20 30 SCHEMEINCOME 1AN4TID AaREA(HA) 200 200 2GD 200 200 200 200 200 200 200 200 20D 20 20C 20 200 200 200 200 200 200 ARBA INPRODUCIm014 (HA) - - _20 200 2G0 200 200 200 200 200 200 20D 2c0 200 200 200 l aDmA( KGALADE + SCRAP) - - - - 520 920 1\.190 1\.410 1\.520 1620 1,700 1\.720 1\.730 1\.750 1\.730 1\.730 1\.720 1510 IRODUCIIOtN(IONS) 0 0 0 0 0 0 0 104 184 235 282 304 324 340 344 346 350 346 346 344 302 ?RICOxa\. (SM) 2\.16 2\.27 2\.27 269 269 2\.73 2\.77 2\.77 2\.77 2\.73 2\.73 269 2\.69 249 2\.69 269 2\.69 29 269 269 ze9 GROS REVE UU(SM 0 0 0 0 0 0 0 2s8 510 650 770 816 a72 915 925 931 942 931 931 925 812 1NVEST4rTOoST(S3'I0 -F11DEVELC oWCOsTs 557 I9" 112 240 93 aS 135 IS5 0 0 0 0 0 0 0 0 0 0 0 0 0 -SCHEMEINFRASTRUClURE 0 232 6 8 IS S s s 0 0 0 0 0 0 0 0 0 0 0 0 0 -VEOCFESAEOU1UENr 46 5 5 5 5 5 57 12 0 0 0 0 0 0 0 0 0 0 0 0 0 - MANAGEMErCOSIs 22 22 22 22 22 22 22 22 0 0 0 0 J 0 0 0 0 0 0 0 0 TIrALINVETMENrCOSIS 625 457 147 275 133 123 2 227 0 0 0 0 0 0 0 0 0 0 0 0 0 \. \.a \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 3 OlERANGCOSMI 1- - MAERIALS 44 41 42 42 42 42 41 41 41 41 41 37 Is w -LAOR(DI3SYS1E4) 37 226 241 256 273 285 286 287 273 270 270 264 215 - SCI3E IRWFRA\. MAIr\. S S a S 8 6 a 6 S 8 a S a -VEMCIE*EOUIp\.oaM 12 0 0 0 0 0 0 0 0 0 0 0 0 - MANAGEMENT 2S 28 28 2S 2S 2S 28 28 2S 2S 2S 28 20 TArALOPERATINGCOS13 0 0 0 0 0 0 0 0 279 303 319 335 351 363 363 364 350 347 347 337 267 \.- \. \. \. \. \. \.X\. \., \. \. \. \. ,\. \. \. \. \.,___\. \. \. \. \. \.,\. , \. \. \. \._ SCIEEMENHDXI4OME lOTDLINVTrAOPERA11NGCOS1 625 457 147 275 13S 123 222 227 279 3G3 319 335 351 363 363 364 350 347 347 337 267 JOAL INCOMU 0 0 0 0 0 0 0 288 510 650 770 8S1 872 915 925 931 942 931 931 925 812 NErINCO(E (625) (457) (147) (275) (13S) (123) (222) 61 231 347 451 482 521 552 563 567 592 5t4 584 588 546 IRR(FULLCOSTPRECOVERY) 120W SOURV TAKEI MAGRCULtLtAL PERFORMANCE STUDY 1993 EECRA RECORDS FiNA LANNINGAND MONrlRING DEm\. Noas Vd&for indidayes2l - 29ea In pr* Gfile I0D X  THRD FEUM A L DEsELONr PROEC REPRESENTATIE RUIER SCHEIaE CASHFLOWANALYSIS NUER OF PARflCIPANrS: 80 PLANTED ECTARES 200 TPE OFSCHEbE REHABILITATION YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 SCHEME NCOllE SI hSI$S& SCp 0 0 0 0 0 0 0 288 510 650 770 818 872 915 925 931 942 931 931 925 812 FekwmamiToSewfls 557 198 136 240 93 88 130 193 TOWhl k%xw 557 190 136 240 93 88 136 481 510 OS0 770 818 872 915 925 931 942 931 031 925 812 _______ n \. \. \. a\. \. \. a ---\. \.__ _ _\. _ _-\. -- \. - …-- … SCHEIE EXPENDITURE ______________ Filsld OvdqmunCo s 557 198 136 240 93 88 136 193 CpeC Cod 0 0 0 0 0 0 0 0 279 303 319 335 351 363 303 364 350 347 347 337 267 SWe* LOWCwCe\.(CAC) 0 0 0 0 0 0 0 a 6 6 6 a 6 6 6 6 6 6 a 6 6 RspivpitDel\.Lw P&I 0 0 0 0 0 0 0 0 0 0 148 148 148 148 148 148 148 148 148 148 0 T1aIEiqdft 557 198 136 240 93 88 136 10 285 309 473 489 505 517 517 518 504 50t 501 491 273 ---------- \. \. \. \. \. \. --- \.- \. \. \. \. a---\. \. \. \. ' ' \. \. SdcmeSuipks WOODS 0 0 0 0 0 0 0 282 225 341 297 329 367 398 408 413 438 430 430 434 530 9 !AbDMd,mbflcy (MS) 0 0 0 0 0 0 0 3\.525 2\.813 4\.263 3\.713 4\.113 4,58 4,075 5\.100 5\.103 5\.475 5,375 5,375 5\.425 6\.73e I -ADO Tqps hIne 0 0 0 0 0 0 0 3,065 3\.065 3,065 3\.055 3\.055 3,055 3,055 3,065 3\.065 3,055 3\.065 3,065 3\.065 3\.055 (Laborf55 1 \.Sults) Net kncWorkirg SeW(M$) 0 0 0 0 0 0 0 6,590 5876 7,S2 6,778 7,178 7\.653 8\.040 8\.105 8\.228 8,540 8\.440 8,440 8,490 9,803 \. \. _ \. _ \. \. \. \._\. \. B \. \. \. \. \. \. \. \. \. \. \. \. \. _\.__ ____ __\.___\.__\. , \. \. _\.__ DEVELOPMENW LOAN REPAYMENTS CREODITERhS - LOANPERIOD25YRS CIapireovewyotcr*4% - 0\.08014 --------- GRACE10YEARS btenfBRooeyFwtor - 0\.089014'15-1 INTO%YR 1-10 h1tutOFhigenTWu \. MSs72,C000 INT4%YR 11-25 Pice OwS - AlS1\.640,0,000 15EOUALPAYMPRIN& tNT Equal Pap-mt 15 ra - MS14,00OOO SOURCE: TABLE S\. Noh: Vaes for hidb1if yws 21 - 29 glm hi proud film\. Io x %OO'  DV429NMPROR= YOU41111 a 2 5 4 5 6 7 0 9 to 11 12 13 la Is Is I? to it 0 21 n is 24 25 35 n a n n ----------- A\. MM PLANTRO ----------- OMPALMOMOM 2M ON L710 CM
" tm Lm t\.= t" sAw t\.%2o tAn Sao S= imt ime UN Lias W tM 106 IMO 'An m tu 114 du 60 c" 4" TMIRAIM tu " 12\.4 LS U 11 7\.7 " W LS Ls u Ls u Ita as " Is 72 14 7i 73 7\.2 7A " Si 49 4i U " TM IfA t"3 ILI " itA 43 #A 1\.1 7\.7 " V LS ILt ILI u Li lLi 92 as to 7A 7A 73 73 72 u " 34 4\.9 4LS SA ?MHA 1194 IIA " ILO 63 U 72 7\.7 11A L7 Ls u Li Li u IL2 L2 go 90 is 7J 73 73 la u ds u 49 " ?mIIA t"S iLl " gLe AL3 ILI 72 7\.7 u IL7 23 Lt at ILI el u u ILO " 73 IA 7J is la 74 69 SA 49 --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- StqMAL IU 243 S?J 4M 3M SU 27\.7 30 M SU 3" "A SU 323 US nd nS n4 3" 3L9 liss 9U 20J 20A 2L5 2L4 US 215 ILI IM --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- Itu"MCOST111h LM "I 561 L200 463 440 9" 1\.233 LS34 IA14 KAN I" SA37 L04 IA42 I\.M IAM Ij% t4oa SAW tAge S,4W !ilo LSS LMD IJO WM S\.1041 LM U94 4$WHA 1102 1364 42 2\.7 58 Lt LI L4 is 6\.4 " 7\.2 ?Ld is 72 7* 7J 73 73 1\.3 69 as " " 63 " 42 3x 5\.1 M 53 4MHAI"3 13A " zi Ss 92 Li 4A 13 49A as 1\.2 7L4 Tj 72 70 7\.3 73 7i 1\.2 as as as as Ls G2 Ss 17 Li 4="A lo" ISA 42 2\.7 Ss 2\.2 u 4A is 4\.4 M 7\.2 7A is 72 79 7J 7i 7J 14 69 69 Is &2 is ILI 52 17 4=nok RIP3 13A 4a V 32 2\.2 2A u Si " fLe 73 IA 7\.9 ?A 7\.9 7-4 7J ?j 7\.2 69 as " 13 12 Ls 62 is --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- SUMMAL t3A ILL 2M 2U 93A tZB 14\.9 14\.3 ILS 212 239 2" 20A 3M 514 SU 3LI 30A 29\.1 ZPA 203 27\.11 272 21\.8 213 14U 27A ItA 213 2W --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- (XI sclemcos\. SIA 43A S&I 703 47A 412 423 44A SU S" 392 6IJ "I 42S 49A 617 O" aS 41A OM AS 37-9 XI 53A U9 40 41A 4LO 41A 90 ACcenROADS La $A 1\.2 as 0 TRAR111040(50%) 1\.7 S\.? 0\.7 FELCRAOVMMAD(19%) SU Its IZA W " Is 9A PA " 9A 9\.0 9\.0 tio OA to OA 9\.0 PA ta VA PA VA OA VA PA TOrALDZVELCOW 441 S" 7" _!
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's S- -;a:$ -4-R-9 ------------ \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. PRO)ECT OENSM ;w;Zr 0 0 0 1\.7 !1\.1 gj I" W 2u 21\.1 2t\.3 2LA 21\.7 2LO 22\.3 2LG 22A 22A 2t\.2 20\.2 IVA IVA 194 IU 173 iLS L" 14A 143 142 ?2WHA 1192TOW 121 SL7 aA IOCLI ISLO 14U 1919 Ina 0341 RAI OV laO 1627 161\.3 14U ISM 1414 14LI 13*7 1962 13" 12" ItU 1114 "" SOLS NM 72Wf41A lg"TONS IU 30 WA 901ki 13LO 14211 1319 Ina Iftt 19162 Ins 16M 1917 t6I\.3 16LS tnf t414 14LI Ilk? INS 1319 12" 110 itiA IOU WU IMMA 109$1 OLZ X7 GRA IDMI IJLS 14M ISO Ina 1341 SUZ 19%7 SaO SW iSL9 W3 ISU 1414 t4U SSW IMS 13" 124,6 tiltS tILAo NM 720011A t"ITONS t2\.2 SO 68\.4 IOMI 131A 140 131\.10 Ina ISU 0962 157\.7 laO IdLI IOLS I$L3 Ing 14SI 14U 131LI 130 13" 22" SIU 2IL6 -z ;;;; ii;; ;;i; --- W3; ;,
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INS IMP ISU 1322 1419 14U 142A RUO SS" L"t rmogagm -491 -x2 -ns -4124 -4116 -3W -07 SA 22S 41A 4SIA 7JU 711A UJ MA 9" 92S 9U 142 "A ftA OM IV IFTA U3 K3 9U MA SU W M llqb 00 OM IM IM SW IJI 7JO 7JO 7JD IJO IM 7JO 7\.30 7J& 74111 7M 7JO 1\.30 7JO 7JO 7\.30 7JO 7-V ?A) ?JO MD 7M ?JO 7\.50 ?M POOTDOCKWAINTALMIEWIT112 (46A) (97\.71 (7" (BU) (" (ZL* QL2) 0\.9 3U 4PJ OA IOA 0126 04 9" 97J WM IOIA 190 IOMV WA "J OL2 94S OU Mg WA 9M 9LI S" am 001, ,4 tA cr CD  - 116 - ANNEX 6 Table 11 MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Sensitivity Analysis Product Labor Cost Productivity ERR 2 Price Gain Rubber Case 1 Base (IBRD) +2Z/yr +2S/yr 12\.0 Base Case 2 -lOS 10\.5 Case 3 -201 8\.5 Case 4 +10 13\.5 Case 5 Base 10\.6 Case 6 -20 0 7\.1 Pessimistic Case 7 Base 3 14\.5 Optimistic Oil Palm Case 1 Base (IBRD) +21/yr +2Z/yr 11\.0 Base Case 2 -10S 7\.0 Case 3 -201 4\.0 Case 4 +1OX 12\.0 Case 5 Base 8\.5 Case 6 -10x 0 5\.5 Case 7 +10X 0 10\.8 Case 8 Base 3 12\.0  - 117 - ANNEX 7 Page 1 of 2 THIRD FELCRA LAND DEVELOPMENT PROJECT Documents in Prolect File Documents Pregared by FELCRA Preparation Report (for Preappraisal) of the Proposed Third FELCRA Land Development Project, August 11, 1991\. Volume I Main Report Volume II Appendices (Working Papers) 1\. FELCRA's Performance 2\. Basis for Agricultural Development Cost 3\. Infrastructure Program and Costs 4\. Vehicles and Equipment Costing 5\. Costing for Village Development Program 6\. Rural Industrialization Program 7\. Cooperative Development in FELCRA 8\. Institutional Strengthening 9\. Proposal for FELCRA's Training Program Revised Statements (for Appraisal): Infrastructure Program and Costs - FELCRA Road Projects - Vehicles and Equipment Procurement - Electricity Supply System for FELCRA Housing Schemes - Water Supply Systems for FELCRA Housing Schemes - Staff Quarters and Scheme Administration Buildings Institutional and Manpower Planning - Institutional Strengthening - Engineering Services Division Agricultural Performance Study Manual for State Procurement (Translation of Procedures) FELCRA's Detailed Financial Statements Including Sumiary of Agricultural Schemes - December 1991 Performance of FELCRA Cooperatives up to 31\.12\.91  - 118 - ANFA 7 Page 2 of 2 Action Plans: (i) Proposed Action Plan for FELCRA's disengagement from direct management from agrlcultural schemes (ii) Implementation of reduced frequency tapping systems Consultant Reports contracted by the Bank as part of Proiect Preparation Saxena, S\.K\. Cooperatives in FELCRA - December 7, 1990 Eschback, J\.M\. Report on (Reduced Frequency Rubber Tapping System) for FELCRA - March 1991 Boonsue, K\. Women in Development Component of FELCRA Project - June 1991 Naur, Maja Village Redevelopment Program - Sociological Aspects - October 25, 1991 Taylor, Donald M\. The Rural Industrialization Program of FELCRA - November 1991 O\.her Documents Laws of Malaysia Act 398, National Land Rehabilitation and Consolidation Authority (Incorporation) Act 1966\. Revised 1989 KPFB Holdings Sdn\. Five-Year Business Plan - December 1991 Bhd\. Government of Malaysia A Guide to the Preparation of Terms of Reference for Highway/Road Projects Department of Environment, Kuala Lumpur - October 1989 Government of Malaysia National Policy on Women\. Office of Women's Affairs\. Prime Minister's Department Kuala Lumpur Official Translation - April 15, 1991 Government of Malaysia Malaysia: The Way Forward Working Paper by The Prime Minister of Malaysia - February 28, 1991  MALAYSIA T1IRD FELCRA LAND DEVELOPMENT PROJECT Organizatonal Chart of FELCRA (1991) Bowd Iuiwy Eduo D \. BudgtI ~~~\. I ~ I _ S"b~~~~~~~~~~~~eWs _ dan _am~ S l > - t ~~~~~~~~~~~~~~~~~~~~c~B7 VW8 ,'O aams o lbdu \. la -evm S : e$n a SW\.o AWAW So_gpi _oDv FkA ' ' ' , r r_ I-n I00 oId _evi I I I I I I I surosy Edwoman & DBv\. Budge  - 120 - FIGURE 2 MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT The Agricultural Development Process SCHEDULED EVENTS RESPONSIBIUTY Scheme Identiflcathn Ownership \4rilcsn | Plannin,g & Development Dlhvllon Feasibility Rprt Preparation Exutie Approval Committee (EXCO) | lWaury, Federal Government | } Man em seAO v Blonudget setion bchnkal Review andl Contract Preparaton CalAng of Tbnder Up to M o0\.oo Above MS50\.000 chnlb d Servkes Dvsbon State Oces Head Office Tbnder Evaluaton 1-------- Procurement Oomltme Contract,Awad lbnder Award Committee Contract Award Up to MS5,OOO Above M$8O,000 EXCO Approval \.- - EXCO Ltr of Award | llder Award Commie Scheme Implementaton Statse Omce odv5O7C  MALAYSIA THIRD FELCRA LAND DEVELOPMENT PROJECT Organization of Proposed Plantaton and Finance Dhsilons -Rubber bpigQualit control AgnoultiWa Evaluatio O- o crops Cop and Envromental Protction L _anm Dision F-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- EDDbmic DM A="m_es l I~~~~~~~~~~~~~~~~~ckiU  MAP SECTION  IBRD 23771 100' \s 10I 10E41 THIRD FELCRA PROJECT FELCRA STATE OFFICES, TRAINING CENTERS AND PALM OIL MILLS A STATE OFFICES UNDER CONSTRUCTION Ka PROPOSED NIW STATE OFFICE PEl0 1TIAo NING CENTR 'C~ w I U OOR SETAR P IL MILLS ^ STATE CAPTALS 6 | KEDAH t _Px J | mNATIONAL CAPITAL = xirtJDSTATE BOUNDMIES V\- INEWRNATIONAL BOUNOAES Trengganu P PINANG KELANTA \> PERAK - TRENGGANU SOUTH t tNASARUDDIN ) t tJ > CHINA >\,PERAK \> h 7 SEA 4- 4 < u > 25 \. 10 b PAHANG0 019 MARAN T \ ~~SELANO (Y KUAPRL A99 0 W0R 20 30 40 50 60 "BI d D°f" gn m ' NEGRI \ t KI~~~~~~~~~~~~~~~~~VLOMETERS \.h\. r"_mb r , f_ 0f, < } ~~~~~~~~~~ ~~KUALA i 00\. > ~~~~~~~~~~~~~~~~PILAH {g> 9 L^D A t < MELAKA 7 ~~~~~~~~~~~~~BUKr | {)t 9 g i ~ ~ ~~~~~~~~~~ ~KEPONG tt >/ t X ~~~~~~~~~~JOHOR\ , hv v ~~~SC)TH Zo0\ ~~~~CHINA \JOR ~~~~~~~~~~~(Sumcra)eX \ APPJL 1992

APPROVAL

P101084

Documentof The World Bank FOROFFICIALUSEONLY ReportNo: 41867-BO PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR 10\.9MILLION (US$17 MILLIONEQUIVALENT) TO THE REPUBLIC OF BOLIVIA FORTHE INVESTING INCHILDRENAND YOUTH PROJECT February7,2008 HumanDevelopmentSectorManagementUnit Bolivia,Ecuador,PeruandVenezuelaCountry ManagementUnit LatinAmerica andthe CaribbeanRegion This document has a restricteddistributionand may be usedby recipientsonly in the performanceof their official duties\. Its contents may not otherwisebe disclosedwithout World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective: January 2008) Currency Unit = Bolivian Bolivianos (Bs) 1Bs = US$O\.13 US$l\.OO = 7\.55 BS FISCAL YEAR January 1 - December31 ABBREVIATIONSAND ACRONYMS AAA Analytical and Advisory Services AMN Social Protection Area for Mothers and Children inthe PlanningUnit (MOH) APL Adjustable ProgramLoan AU Administrative Unitswithin the Ministry of Health and Sports AUTAPO Fundaci6n Apoyo a las Universidades de Tarija y Potosi CCT Conditional CashTransfers CEA Communities in Action StrategyEstrategia de Comunidades en Accion CFAA Country Financial Accountability Assessment CR ReciprocalCommunities StrategyEstrategia de Comunidades Reciprocas cs Solidarity Communities StrategyEstrategia de Comunidades Solidarias CONAN National Council for Food and Nutrition CONAPES National Council for Economic and Social Policy DILOS Local Health Boards DOFEP Departmental Office for the FirstEmployment Program EDIMO Labor Intensive Decent Job Program FA0 UnitedNations FoodandAgriculture Organization FCF Fortified Complementary Food FEP M y FirstDignifiedJob FirstEmployment Program GAIN Global Alliance for ImprovedNutrition GDHI General Direction of Health Insurance IDA InternationalDevelopment Association IDH Direct Tax on Hydrocarbons ICAP Training Institute ICY Investing in Children and Youth Project IEC Information and Education Campaigns IFR InterimUnaudited Financial Report IPP Indigenous People's Plan IRR Internal Rate of Return IT Information Technology JPP Juancito Pinto Program LAC Latin America andthe Caribbean M O H Ministry of Health and Sports M C A Mother and Child Area inPlanningUnit (MOH) MCP Social ProtectionProgramfor Mothers and Children MIS Management Information System M O L Ministry of Labor MDP Ministryof DevelopingPlanning MDRI The Multilateral Debt Relief Initiative 11  FOROFFICIAL USE ONLY M O U Memorandum of Understanding NUFEP National Coordination Unit within the Ministry of Labor NDP National Development Plan of Bolivia OM Operational Manual PAHO Pan American Health Organization PASS Payment agencies PHRD Policy and HumanResource Development JapaneseGrant for Project Preparation PLANE National Employment Plan POA Annual OperationalPlan PROPAIS Community Driven Small-scale Infrastructure Program RINN Rural Integral NutritionalNetworks RPS-DIC Social Protection and Integrated Community Development Network SEDES Departmental Health Service SIGMA Bolivian IntegratedFinancial System SNIS National Health Information System SUM1 Maternal and Infant Universal Insurance System sus Seguro Universal de Salud (Universal Health Insurance) TCU Technical Coordination Unit within the Ministry of Developing Planning M C A Mother and Child Area within the Ministry of Health and Sports UDAPE Economic and Social Policy Analysis Unit UDPE DepartmentalUnitsfor Employment Promotion UNFPA UnitedNations PopulationFund UNI Integral Nutrition Unit UNICEF UnitedNations Children's Fund VAM Food Security andNutritionalVulnerability Index VIPFE Vice-Ministry of Public Investment and External Finance WFP UnitedNations World Food Program WHO World Health Organization ZMP Zero Malnutrition Program Vice President: Pamela Cox Country ManagedDirector: Carlos Felipe Jaramillo Sector Director Evangeline Javier Sector Manager: HelenaRibe Sector Leader Omar Arias Task Team Leader: Manuel Salazar a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   BOLIVIA INVESTING INCHILDREN AND YOUTH PROJECT TABLE OF CONTENTS Page A\. STRATEGIC CONTEXT AND RATIONALE \. 1 1\. Country and sector issues\. 1 2\. Rationale for Bank involvement \. 5 3\. Higher level objectives to which the Project contributes \. 7 B\. PROJECT DESCRIPTION \. 7 1\. Lending instrument \. 7 2\. Project development objective and key indicators \. 8 3\. Project components \. 10 4\. Lessons learned and reflectedin the Project design\. 14 5\. Alternatives considered andreasonsfor rejection\. 17 C\. IMPLEMENTATION \. 20 1\. Partnership arrangements\. 20 2\. Institutionaland implementationarrangements\. 20 3\. Monitoring and evaluation of outcomeshesults\. 24 4\. Sustainability \. 26 5\. Critical risks and possible controversial aspects\. 28 6\. Loan conditions and covenants\. 33 D APPRAISAL SUMMARY \. \. 33 1\. Economic and financial analysis\. 33 2\. Technical\. 34 3\. Fiduciary\. 38 4\. Social\. 39 5\. Policy Exceptions and Readiness\. 43 Annex 1: Country and SectorBackground \. 44 Annex 2: Major Related Project s Financedby the Bank and/or other Agencies \. 58 Annex 3: Results Framework and Monitoring \. 60 Annex 4: DetailedProjectDescription \. 68 Annex 5: Project Costs \. 82 i v  Annex 6: ImplementationArrangements \. 83 Annex 7: FinancialManagement andDisbursementArrangements \. 93 Annex 8: ProcurementArrangements \. 105 Annex 10: SafeguardPolicy Issues \. 123 Annex 11: ProjectPreparationand Supervision \. 136 Annex 12: Documentsinthe ProjectFile \. 137 Annex 13: Statement of LoansandCredits \. 138 Annex 14: Countryat a Glance \. 140 Annex 15: IBRDMap 33374 \. 141 V  BOLIVIA BO: INVESTING INCHILDRENAND YOUTH PROJECT APPRAISAL DOCUMENT LATINAMERICA AND CARIBBEAN LCSHS-DPT Date: February 7,2008 Team Leader: Manuel Salazar Country Director: Carlos Felipe Jaramillo Sectors: Other social services (100%) Sector ManagerDirector: Evangeline Javier Themes: Other human development (P) Project ID: P101084 Environmental screening category: Not Required Lending Instrument: Specific Investment Loan Project Financing Data [ ]Loan [XICredit [ ]Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m\.): 17\.00 Borrower: Republic of Bolivia ResponsibleAgency: Ministry of Development Planning Graciela Tor0 Ibaiiez Av\. Mariscal St\. Cruz esq\. Oruro Piso 5 L a Paz Bolivia Tel: (591) 2 2330704 Fax: (591) 2 2312641 Estimated disbursements(Bank FY/US$m) FY 2009 2010 2011 2012 2013 0 0 0 0 Annual 1\.75 5\.35 5\.20 2\.97 1\.73 0\.00 0\.00 0\.00 0\.00 Cumulative 1\.75 7\.10 12\.30 15\.27 17\.00 0\.00 0\.00 0\.00 0\.00 Project implementation period: Start: June 30,2008 End: December 31, 2013 Expected effectiveness date: June 30,2008 vi  Expectedclosing date: December 31, 2013 Does the project depart from the CAS incontent or other significant respects? Ref\. PAD A\.3 [ No Does the project require any exceptions from Bank policies? Ref\. PAD 0\.7 [ ]Yes [XINO Have these been approvedby Bank management? [X ]Yes [INo [s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risksrated "substantial" or "high"? Ref\. PAD C\.5 [XIYes [ ]No Does the project meet the Regional criteria for readiness for implementation? Ref\. PAD 0\.7 [XIYes [ ] N o Project development objective Ref\. PAD B\.2, TechnicalAnnex 3 The proposedProject seeks to assist the Government of Bolivia instrengthening the effectiveness of its social protection systemby supporting the design, financing and implementation of two flagship interventions of the social protection network strategy, while enhancing its capacity to coordinate and monitor programs that are part of the social protection network\. Inthis context, the development objectives of the proposed Project are to: (i) contribute to a reduction inthe prevalenceof chronic malnutrition inchildren ages 0-2 years old living inthe most vulnerable rural areas of the country; (ii)improve the management and operation of a skills development program for low income youth to enhance its effectivenessin increasingtheir ability to find and maintaina good quality job; and (iii) Government improve capacity to design and manage a coherent, measurable, and effective social protection network inthe mediumterm\. Project description [one-sentence summary of each component] Ref\. PAD B\.3\.a, Technical Annex 4 The Project comprisesof three components: Component 1- Implementing and scaling up the Social Protection Program for Mothers and Children to combat chronic malnutrition\. The Social ProtectionProgramfor Mothers and Children (MCP) i s part of the Zero Malnutrition Program and will be implementedinthe 164municipalities targetedby the ZMP using the vulnerability index\. The Project will support the Government to implementthe MCP inthe 52 most vulnerable municipalities where the programwill benefit about45,000 of the poorestfamilies inthe country Component 2 -Improvingand expanding a skills development program for low income unemployed youth living inurbanandperi-urban areas\. The primary objective of this component is to improve the effectiveness the existing FirstEmployment Program as an intervention to increasethe employability of low income youth living inpoor urbanandperi- urbanareas that havecompleted at least the second year of secondaryeducation\. Component 3 - Institutional strengtheningof the Social ProtectionNetwork (RPS-DIC)\. The component will helpthe Government meet the long-term objective of the RPS-DIC, which i s to builda sustainableandintegrated social protection system\. vii  Which safeguard policies are triggered, if any? Ref\. PAD D\.6, Technical Annex 10 A summary of the Social Assessment, the major findings fromthe Social Assessment and how the Project addresses them, and this document are published on the webpage of UDAPE\. Significant, non-standard conditions, if any, for: Ref\. PAD C\.7 Boardpresentation: There are no conditions of Board Presentation\. Loadcredit effectiveness: Noconditions of effectivenss Covenants applicable to project implementation: None \. VI11   A\. STRATEGIC CONTEXT AND RATIONALE 1\. Country andsector issues 1\. The Government of Bolivia (GOB) faces the challenge of improving the welfare and opportunities of the most vulnerable and poorest groups of the population in a sustainable manner\. According to the National Development Plan (NDP) social policies are aimed to eradicate poverty and all forms o f exclusion and marginalization, and will be developed together with economic policies and the participation of stakeholders\. Under the NDP the GOB i s investing in the implementation of strategies, programs and interventions to meet the needs of the most excluded groups: children, women, indigenous populations, the elderly, rural residents, the disabled, and the working youth\. A core aspect of this strategy is the GOB'Seffort to break the intergenerational transmission of poverty by accelerating human capital accumulation through a social policy focused on children and youth\. This strategy aims to address the risks associated with poverty from the earliest years of life, and to enhance individuals' capacity to take advantage of the opportunities offered by economic growth\. This approach implies that the Government must expand and sustain social protection programs that complement structural social policies in education and health; in particular, the latter must be accompanied b y interventions to ensure that young children have the capacity to learn and the means to attend school, and that young people have opportunities to enhance their skills when they leave the basic education system\. Focusing social protection on the poorest and most vulnerable children and youth will complement Government efforts to improve the quality and supply of education and health services and will provide the greatest leverage for human capital investment\. Country and sector issues 2\. Bolivia ranks among the poorest and most unequal countries in Latin America\. In 2006 poverty incidence in Bolivia reached close to 60 percent, with 38 percent o f the population living under the extreme poverty line\.' Although this represents a decrease from poverty levels in 1999, when national poverty reached 65 percent and extreme poverty was at 43 percent, continuing this positive trend in poverty reduction remains an urgent priority\.' At the same time, inequality in Bolivia i s among the highest in Latin America and the world, and the gap may be increasing\. This i s reflected in the vast disparities between the richest and poorest deciles -the richest ten percent of households receive 47 percent of total income, whereas the poorest decile receives less than one percent\. These disparities are larger inrural areas\. 3\. Children and youth are particularly vulnerable to social risks\. Nearly 60 percent o f the Bolivian population i s under 25 years of age\. The poverty rate for this group i s well above the national average, and reaches over 80 percent among children under the age of 5 years in rural areas\. In general, children and youth are more vulnerable to economic shocks and associated risks, particularly malnutrition, school drop outs, child labor, unemployment, and inactivity\. In rural areas between 1993 and 2004, the reduction in childhood malnutrition rates has stagnated, especially among the poor\. Primary enrollment among the poorest children fell 'Poverty lines based on per capita income\. In 2006 the poverty line was equal to 339 bolivianos (US$42) and extreme poverty *189 bolivianos (US$23)\. Although there i s a slight overlap in the 95 percent confidence intervals for these estimates, they strongly suggest that a positive trend inpoverty outcomes has been re-establishedsince 2002\. 1  from 84 percent in 2000 to 80 percent in 2004 and attendance from 84 percent to 79 percent during the same period; and open unemployment among individuals under 25 grew from less than 5 percent in 1996 to more than 14 percent in 2005\. 4\. The lack of access to quality health and nutrition services increases vulnerabilities among poor, rural and indigenous children\. Access to health services i s difficult for poor families, not only because o f the lack of providers and specialized staff, but also because of income barriers, which prevent poor families from reaching services\. For example, in 2003,7 out of 10 women reported lack of money as the most important problem in accessing health services when needed (80-88 percent among those from the two lowest income quintiles)\. Furthermore, more than 30 percent of rural poor pregnant women received no antenatal care, while 70 percent of babies younger than 1year had no postnatal check-ups, one of the lowest coverage rates inthe Latin America and the Caribbean Region (LAC)\. Less than 30 percent of the rural poor and indigenous women gave birth in health institutions and were attended by health professionals\. The share o f the poor with health insurance i s estimated at six percent, less than a third o f the national average, while it i s estimated that less than 60 percent o f the poorest have access to the Maternal and InfantUniversal Insurance (SUMI) - the supposedly universal health service\. 5\. Chronic child malnutrition undermines efforts to reduce infant mortality, tackle poverty, and sustain economic growth\. In 2003, chronic malnutrition affected one-third of Bolivian children under 5 years of age (42 percent in rural areas and over 50 percent among indigenous groups)\. Apart from the cost to the health system, chronic malnutrition leads to significant loss of life\. It i s estimated that 50 percent of under-five mortality in developing countries i s related to malnutrition; moreover, severely malnourished children have more than a five times higher risk o f childhood death than healthy children\. In Bolivia infant mortality reached 86 per one thousand live births in rural areas and 94 among indigenous communities in 2003\. Even among survivors, malnutrition causes irreparable neural and physical damage, which can have severe long-term consequences for individual development and productivity, and can affect the economy as a whole\.3 6\. Malnutrition and poverty limit future opportunities\. As a result of poor nutritional status, as well as low quality and insufficient basic and secondary education, a considerable proportion of youth do not reach tertiary education and enter the labor market at a disadvantage\. On average, one in four Bolivians enrolls in tertiary education (only 3 percent among the lowest quintile)\. According to Government estimates, in the largest cities each year four out o f ten students completing secondary education enter the labor market, as they are not enrolled in tertiary or other post-basic education\. In the 12 largest cities, where at least 1,000 students complete secondary education annually, more than 20,000 are expected to enter the labor market every year\.4 7\. Unemployment is particularly high among poor urban youth\. As in other countries, a high share of youth unemployment i s linked to limited opportunities for new labor market entrants\. Given their age, insufficient skills, and lack of job experience, poor youth experience higher rates of unemployment\. This i s also coupled with a tendency for young people who do Alderman, H, J\. Hoddinott, andB\. Kingsley(2003) "Long Term Consequencesof EarlyChildhoodMalnutrition\." It i s estimatedthat six percent enter the army and about 55 percent enroll in a university or a technical institution (UDAPE and Ministry of Education,2006)\. Estimatesincludepublic schoolsonly\. 2  obtain employment to change jobs more frequently as they experiment with alternatives\. While overall urban unemployment was 8 percent in 2005, unemployment for youth aged 18-24 reached more than 18 percent, and as much as almost twice that level among the poorest, at 34 percent\. Unemployment can lead to a higher incidence of inactivity (youth out of school, out of work, and not seeking a job) and thus exacerbate the gap between skills and labor market demand, creating a vicious circle that makes it more difficult for young people to be integrated into the workplace and find productive employment\. Youth between 15-25 years old who suffer from unemployment and inactivity in the early years of their working life (about 20 percent of poor youth in Bolivia) are more likely to be unemployed as older adults\. Although unemployment i s higher among youth with complete secondary education, inactivity incidence especially affects those with incomplete secondary education\. Social Protection in Bolivia 8\. Spending on social protection programs in Bolivia is not high, given the level of need\. Total social protection spending in 2006 was distributed as follows: (i) cash and in-kind transfers (including contributory pensions); (ii) community and local development; and (iii) programs for expanding access to social services, amounting to US$693 million, or 6\.3 percent of GDP\. Incontrast, the poverty gap, or total cost of bringing all households inBolivia up to the national poverty line in 2005, was 10\.4 percent in 2005, and 2\.7 percent for extreme poverty\. In comparison with other countries in the region, Bolivia falls in the mid-range of spending on social program^\.^ 9\. The impact of the main social protection programs on poverty is mixed\. In2006,48 percent of social protection spending6was allocated to the two largest cash transfer programs: Bonosol and Juancito Pinto\. While the Bonosol program' has a significant impact on poverty among the elderly, especially in rural areas, the Juancito Pinto Program (JPP), which i s given to all children in public schools to increase enrollment, has low benefit levels and is universally targeted\. GovernmentStrategy 10\. Social protection is a priority for the Government\. The Morales Administration has made poverty and inequality reduction through social protection interventions a core element of its National Development Plan (NDP)\. The GOB'Sapproach aims to accelerate progress toward the reduction of poverty, inequality and exclusion through greater emphasis on the community's own capacity to identify, prioritize, execute and monitor integrated development projects, and is based on a multisectoral and interinstitutional approach to service delivery\. The Ministry of Development Planning recently finalized the design of its Red de Proteccidn Social y Desarrollo Integral Comunitario (WS-DIC) under the umbrella of the NDP\. Including education, health andsocial protection\. 'Excludingpensions\.transfer Bonosoli s a cash programprovided to all persons aged 65 years old or older, equivalent to Bs\. 1,800 (about $200) and paid out once a year\. In November 2007 the Congress voted to replace the Bonosol with the Renta de Dignidad\. The changes include reducingthe age for eligibility from 65 to 60, andincreasingthe level of the benefit from Bs\. 1,800 (approximately$232) to Bs, 2,400 (approximately$309)per year\. There has also beenan attempt to improvetargetingby excludingbeneficiariesof the contributory pension system\. Also, the funding source was changed from the proceeds of capitalized firms to IDH resources, essentially changingthe distributionof funds betweendifferent levelsof government\. 3  11\. According to the Government decree creating the RPS-DIC, its objectives are to: (i) contribute to eradicating the structural causes of poverty and extreme poverty, reduce inequality gaps and eliminate all forms of exclusion; (ii) recover and strengthen the rights and capacities of communities; and (iii) strengthen community values, direct social control and transparency, the own organization practices of the local populations, and cultural and territorial identities through the sub-strategies of Comunidades en Acci6n (inrural areas); Comunidades Reciprocas (inurban areas); and Comunidades Solidarias (for vulnerable groups)\. RPS-DIC policies are designed along the following six principles: (i) integrality, (ii) territoriality, (iii) community-based a approach, (iv)poverty reduction, (v) self-management, and (vi) a multisectoral approach\. The implementation of the RPS-DIC will be carried out considering the following three sub- strategies: (i) opportunitiesand social assets, including: (a) the inter-governmental Zero MalnutritionProgram (ZMP) which includes the Social Protection Program for Mothers and Children Program(MCP), a conditional cash transfer program aimed at preventing malnutrition through targetedinterventions for pregnant andlactating women and childrenunder the age of 5 years; (b)M y FirstEmployment Program (FEP), a new skills developmentprogram to increase the employability of youth living inpoor urbanand peri-urban areas; and (c) Juancito Pinto, acashtransfer program intendedto increase enrollment and reduce drop-out rates inprimary public schools\. (ii) integratedcommunitydevelopment,includingthreenewinitiativesComunidadesen Accibn (CEA)a rural development strategy targeted to the 186poorest municipalities in the country, involving 19percent of the total population and 31 percent of the poor; Comunidades Recl'procas,the companion strategy for urban areas, which will be implemented inthe 17 poorest pen-urban areas; and Comunidades Solidarias, a set of programs directed at specific groups including the disabled, children-at-risk (including street children, child laborers, and children in prison), and the elderly\. (iii) short-termtransitionprogramstogeneratetemporaryincome,includingPROPAIS,a community development programfocusing on small-scale infrastructure; and the Labor Intensive Decent Job Program (EDIMO), a new workfare program to be implemented in areas affected by natural disasters\. 12\. The implementation of these three sub-strategies lies on a number of government agencies\. The Ministry of Development Planning i s responsible for the overall direction, coordination and monitoring of the opportunities and social assets strategy, which comprises programs under the responsibility of the Ministries of Education, Health and Labor (including those supported by this Project)\. The FPS (Social Fund) has a key role in the implementation, coordination and monitoring of the integrated community development and short-term transition programs only, and has no role in the opportunities and social assests strategy, which is the one supportedby the Project\. 4  2\. Rationale for Bank involvement 13\. The Bank has been working closely with the GOB on socialprotection over the last several years, and the current operational work is a key part of this partnership\. Since 2003, the Bank has supported the GOB'S efforts to consolidate social protection (SP) interventions through analytical work, particularly the Poverty Assessment and the Public Expenditure Review in2004 and 2005, respectively\. Between 2003 and 2005 the Bank supported the GOB's SP strategy through programmatic operations, which included social protection components to strengtheninterventions and consolidate a mid-term strategy in an environment of political instability\. The current Bank strategy for supporting the GOB in implementing its new social protection strategy involves a programmatic AAA in social protection, and the lending operation describedinthis document\. 14\. The Investing in Children and Youth (ICY) Project responds to Government priorities and is consistent with the three pillars of the Bank's Interim Strategy Note (ISN) for Bolivia for FY07-OS\. The Bank and the GOB agreed to continue their collaboration through a work program comprising analytical and operational work to: (i) improve good governance; (ii) foster job creation; and (iii) promote social inclusion\. The Project i s expectedto directly improve social inclusion by implementing and increasing the effectiveness of GOB priority programs targeted to both ends of the human capital formation chain -- children and youth\. The operation will also have secondary benefits for the other two pillars\. 15\. The ICY Project supports the Government's social protection strategy through the implementation and scaling up of two flagship programs -The Social Protection Program for Mothers and Children (MCP) to support a reduction in chronic childhood malnutrition in rural areas, and the youth employment intervention M y First Employment Program (FEP), a program that is part of the GOB'S national employment strategy aimed at supporting low-income unemployed youth incities\. The FEP is a component of the GOB's employment creation strategy launched in May 2007, while both programs are expected to support good governance through more efficient and transparent management\. 16\. The Project is closely coordinated with the Bank's analytical and operational human development program in Bolivia\. The Social Protection AAA program, initiated in FY07, has been proceeding in parallel with Project preparation\. The AAA i s a program of dialogue and evidence-based analysis which aims to support the implementation of the Bolivian social protection network (RPS-DIC), and is contributing analytical inputs and international experience to the Project's design\. The first stage of the AAA program focused on diagnostic analysis of poverty, exclusion and vulnerability, including nutrition, and a stocktaking of existing social protection policies and programs\. The second stage includes analysis of the potential of local institutions, including traditional indigenous structures, to contribute to service delivery; urban social protection; and international experience on community involvement in social protection\. 17\. The proposed Investing in Children and Youth Project will complement the Bank's Health Adaptable Programmatic Loan (APL) series to improve the country's health system\. The 5  third phase of the APL series, prepared and approved in parallel and in close coordination with the I C Y Project , will be targeted to the same municipalities\. The APL will finance complementary activities to enhance benefits to targeted families\. Both operations will support the ZMP (see Annex 1 for details o f this program) by strengthening the supply o f basic health services through consolidation of the primary care network and enhancing affiliation to SUMVSUS, while the ICY Project will address demand-side (income-related) barriers to facilitate access of poor households to basic services and improve their nutritional status\. Given the complementarity of the programs, the APL and the MCP will share and co-finance the management information system and the impact evaluation for the MCP\. 18\. The Project supports policy areas in which the Bank has acquired substantial expertise and can provide significant value-added\. The operation will support the GOB in implementing, institutionalizing and increasing the effectiveness of two priority social protection interventions to enhance the human capital of children and youth\. The Bank has acquired significant expertise on youth development programs, including skills training linked to internships\. Since 2005 the Bank has approved and is supporting implementation of skills development programs linking vocational training and practical internships in Honduras, the Dominican Republic, and Argentina\. Recent operational and analytical work, especially in Latin America, has produced valuable recommendations for the successful implementation o f these programs,8 and improvements for their effectiveness\. 19\. The Bank has significant experience in designing, implementing, and improving the operational arrangements and management of conditional cash transfer (CCT) programs to increase utilization of social services, and improve social indicators among the poorest\. Although most CCTs in LAC have been in middle and upper-middle income countriesg, there are also valuable experiences in low-income (IDA) countries, such as Nicaragua and Honduras\. Furthermore, the Bank has been very involved in CCT projects in low-income countries in other regions, including Cambodia, Bangladesh, Pakistan, and several Projects and pilots in Africa\. Similarly, there are useful lessons from CCT programs linked to nutrition outcomes and outputs in low- and middle-income countries inLAC\. Rigorous impact evaluations of Mexico's ProgresdOportunidades, Nicaragua's Red de Proteccio'n Social and Colombia's Familias en Accidn have shown that CCT programs have a positive impact in reducing chronic malnutrition (stunting), while the programs inEcuador's Bono de Desarrollo Hurnano, Mexico's Oportunidades, Brazil's Bolsa Alimentacao and Nicaragua's Red de Proteccion Social have significantly increased household food consumption"\. Other experiences involving CCTs and nutrition-related outcomes in which the Bank has provided technical assistance and/or financial resources include El Salvador's Red Solidaria, Panama's Red de Oportunidades and Peru's Juntos\. In these and other experiences, the Bank has played a key role in the design and implementation of those programs and has learned valuable lessons to assist governments in linkingthese CCTs to standards on monitoring and counseling and achieving nutrition outcomes\. Including the 2007 World Development Report; The Promise of Youth: Policy for Youth at-risk in Latin America and the Caribbean, Chief Economist Office, LAC, 2007; or Global Inventory of Interventionsto Support Young Workers, World Bank, 2007\. Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, Panama, Peru\. 10 Schady, N\., and A\. Fiszbein (2007) "Ayudando a reducir la pobreza en el corto y mediano plazo: Los programas de transferenciasmonetariascondicionadas(TMC) ", ppt\., September\. 6  3\. Higher level objectives to which the Project contributes 20\. The Project is expected to make a significant contribution to achieving the Government's social protection objectives articulated in the National Development Plan\. One of the key pillars of the NDP is to improve the health status and educational attainment of the population, and increase the quality of employment opportunities (Bolivia saluduble y fomadu con empleo digno y pemunente)\. The GOB'S priority social policies are focused on eradicating poverty and promoting economic inclusion, through an integrated approach with sustainable efforts to create and enhance welfare and human development\. The proposed Project's main themes -- child malnutrition, youth unemployment, and institutional strengthening--fully support these objectives, as they tackle three critical aspects of prevailing social policies\. The component for reducing child malnutrition will contribute to improving the health status of pregnant mothers and children less than two years in selected poor rural areas, while the component on youth employment will improve the chances of poor young people in urban areas of obtaining permanent, decent jobs\. The third component will contribute to improving the design and implementation of social policies by strengthening coordination among the various actors inthe public sector\. 21\. Interventions focused on pre- and post-school age children, combined with structural policies to improve the quality and coverage of education, offer the greatest potential for human capital formation\. Therefore, children and youth are the most important targets for sustainable poverty reduction efforts within social policy\. Investments in these groups seek to combine a long-term path to strengthenhuman development and tackle extreme poverty, with measures to address short term welfare needs and prevent further exclusion\. The Project directly supports the three pillars of the NDP noted earlier\. If successful, the Project will contribute to Government efforts to reduce risks faced by young children and the population aged 18-24 years, by strengthening their chain of human capital and skills attainment\. 22\. The Bank's Interim Strategy Note includes analytical and operational support to the GOB for the reform of its social protection strategy\. As noted previously, the main goals established in the ISN are to enhance good governance and transparency; foster jobs through growth; and increase social inclusion by providing better services to the poor -- key aspects of the social protection strategy included in the Morales administration's National Development Plan\. Specifically, the Project, along with the programmatic AAA, supports the GOB through investments in young children and low-income urban youth as an integral part of the RPS-DIC, but it also focuses on improving the operation and monitoring of the overall SP system\. It is expected that in the mid-term, Bolivia will have a consolidated social protection strategy with strengthenedinstitutional, decision-making, and supervision arrangements\. B\. PROJECTDESCRIPTION 1\. Lending instrument 23\. The chosen lending instrument to support Bolivia's Social Protection Strategy is a Specific Investment Loan (SIL)\. The Project will support the GOB with the implementation of two flagship programs of its social protection policy and strengthen the management, 7  coordination and monitoring of its social protection network through a S I L for $17 million, plus GOB counterpart funds equivalent to $2\.55 million\. The Project will finance implementation and scaling up of the Social Protection Program for Mothers and Children (MCP), a conditional cash transfer program; a skills development program for low-income youths (FEP); and support for enhancingthe GOB'Scapacity to expandsuch programsnation-wide\. 24\. A SIL is considered the most adequate instrument to support the GOB at this stage\. An Adaptable Program Loan (APL) was considered and rejected, since this type of instrument typically supports an already-defined strategy where it i s possible to envision the long-term evolution o f the phased operation, while inthis case the Government i s still formulating its social protection strategy\. In addition, a SIL is an appropriate instrument to support a specific sector operation in the current Bank-Government collaboration transition period, as articulated in the Interim Strategy Note\. Progress in Project implementation and preliminary results of the intervention will contribute to the preparation of a full Country Partnership Strategy (CPS) and the selection of a longer term systemic approach to social protection\. 25\. The SIL i s complemented by two other instruments: a PHRD grant which supported Project preparation, and the previously mentioned programmatic AAA in Social Protection to provide the analytical underpinnings for the design of these two key social programs\. 2\. Project development objective and key indicators 26\. The proposed I C Y Project seeks to assist the Government in strengthening the effectiveness o f its social protection system by supporting the design, financing and implementation of two flagship interventions of the Morales administration's social protection strategy, while enhancing its capacity to coordinate and monitor programs that are part o f the social protection network\. In this context, the development objectives of the Project are to: (i) contribute to a reduction in the prevalence of chronic malnutrition in children ages 0-2 years old living in the most vulnerable rural areas of the country; (ii) improve the management and operation of the skills development program to enhance its effectiveness in increasing low- income youths' ability to find and maintain a good quality job; and (iii) improve Government capacity to design and manage a coherent, measurable, and effective social protection system in the medium term, and develop instruments to improve inter-institutional coordination and monitoring\. 27\. Project progress will be tracked b y a comprehensive set of indicators found inAnnex 3, the most salient of which are: (i) The Project will contribute to reducing chronic malnutrition rates of children ages 0-2 years inthe poorest rural areas by boostingdemand for maternal and infant health and nutrition services\. To this end, the Project will support the implementation of the MCP, as well as the strengthening of the Ministry of Health and Sports (MOH) to carry out, monitor and supervise the program\. If the Project succeeds, it i s expected that pregnant mothers and children under 2 years of age inthe targeted municipalities will receive adequatepre-natal and post-natal assistance and support to monitor and, if 8  appropriate, correct, the growth and development of young children\. The program, through the cash benefit, i s also expected to increase access to food among beneficiary households\. Key indicators of progress towards this objective include: I Target values Key indicators for Objective 1 Baseline Pro\.ect Endof Percentageof 2-year old children participating in the program with a height for age over 22 scores 38 percent 22 percent Proportion of children under 2 years old participating inthe program with percent complete bi-monthly check-ups percent (ii) To increasethe effectiveness of the FEP in enhancing the employability of low-income youth living intargeted cities, the Project will support improvements in mechanisms to target, register and follow up beneficiaries; measure their employability; select andcertify trainers; administer contracts with providers; and improve oversight and monitoring of educational courses and internships\. Inaddition, the Project will partially finance the first phase of the program on the basis of a thorough evaluation which will inform improvements in the targeting, registration, and follow-up of beneficiaries\. Ifthe Project achieves its objectives, the GOB will have the capacity to expand an integrated strategy to support unemployed poor youth, and the first round of training courses will be completed according to a set of indicators including: Target values Key indicators for Objective 2 Baseline Pro\.ect Endof Targeting mechanism to select low-income youths is designed, tested and None Yes applied The Monitoring Information System i s designed and operational\. I None Yes (iii) To improve the capacity of the Ministry of Development Planning to coordinate implementation and monitor programs in the social protectionnetwork, the Project will provide support to achieve specific goals inthe short and mediumterm\. Inthe short term, the Project will finance technical assistanceto design, test and implement aregistry of beneficiaries of the RPS- DIC which will be the core of the social protectionmonitoring system\. The Project will also finance technical assistance to help the Government define a mid-term social protection strategy\. To follow up achievement of these objectives, the Project will monitor the following indicators: 9  Target values Key indicators for Objective 3 Baseline Pro\.ect Endof Registryof Beneficiariesdesignedandtested, andbeneficiariesof the ZMP, FEP, PROPAIS, andJPPprogramsregistered None Yes Mid-termsocial protectionstrategy completedanddiscussedby I CONAPES"\. None Yes 28\. Annex 3 provides additional details on these and other indicators, the sources of information for their monitoring, and the agenciesresponsible for their collection\. 3\. Project components 29\. The $19\.55 million Investing in Children and Youth Project, including $2\.55 counterpart funds, will be implemented over 5 years and will consist of the following components: 30\. Component 1 Implementing and scaling up the Social Protection Program for - Mothers and Children (MCP) to combat chronic child malnutrition ($12\.4 million IDA funds; $2\.5 million Government counterpart funds) The Project will contribute to the Government's strategy to reduce chronic malnutrition by implementing and scaling up a conditional cash transfers to families with pregnant women and/or mothers of children younger than two years of age\. The objective of this intervention i s to create an incentive for very poor families to invest inthe health and nutritional status of young children and to provide monetary support to increase the food consumption of beneficiary households\. The Social Protection Program for Mothers and Children (MCP) will be implemented in the 164 municipalities targeted by the ZMP\. The Project will finance implementation of the MCP in the 52 most vulnerable municipalities, benefiting roughly about 45,000 families belonging to the poorest segment of the Bolivianpopulation\. 31\. The Investment in Children and Youth Project will be implemented in close coordination with the Health APL I11operation approved by the Board on January 24, 2008, including (i) of the municipalities supported by the Project through this most component are also part of the area of intervention of the APL I1and I11to strengthen supply of maternal and infant health services; (ii) implementation arrangements the within the Ministry of Health and Sports are similar for both projects (through the Planning Direction) to ensure not only adequate coordination between the projects, but also full institutionalization within the Ministry's administrative organization; (iii) the Management Information System for the Social Protection Program for Mothers and Children will be fully embedded in the SNIS (National Health Information System) which i s being fully updated by the APL I1and 111; and (iv) the impact evaluation of both projects will be developedjointly and financed by the APL 111, allowing a unique 11CONAPES, a ministerial level body, is the highest decision-making level within the executive branch of the Government\. 10  opportunity to measure the impact of supply and demand interventions both combined and independently\. This componentcomprisesthree sets of activities: 32\. Sub-component 1\.1Benefits for Mothers and Children to combat chronic malnutrition ($9\.5m IDA, $2\.0m GOB) - The Project will finance cash transfers, and associated administrative costs (the latter estimated to be roughly 3 percent of the total amount o f transfers) to beneficiaries during the first three years o f Project implementation\. The MCP will provide cash transfers to mothers of beneficiaries o f the program subject to regular utilization of maternal and infant health services\. 33\. To ensure sustainability of the intervention the Project will finance the complete cycle of cash transfers to families; that is, the project will finance families registered in the program during the first three years of implementation, and will finance the transfers for the complete cycle of pregnancy and the first two years after birth\. From 2011 on, GOB funds will increasingly finance cash transfers\. Counterpart funds will complement financing for families registered until 2010, and additional funds will be allocated to start registering families from 2011\.Annex 4 details the program's expansion plan\. 34\. Sub-component 1\.2 Information, Communication and Education (ICE) Strategy ($0\.3m IDA) - The Project will provide support to design and implement a comprehensive public information campaign to promote the program's goals and benefits, reinforce its messages and objectives, raise awareness among communities and eligible households, and improve understanding of the program among beneficiaries The Project will finance: (i) communication campaigns to promote the MCP and strengthen the public health messages of the program; (ii) training and workshops for beneficiary mothers to ensure that the program's lessons on maternal and infant health and nutrition are well understood; (iii)training and technical assistance to health staff involved in the MCP; and (iv) designing specific protocols for the counseling of individual beneficiaries\. 35\. Sub-component 1\.3Management and Monitoring of the MCP ($2\.5m IDA; $0Sm GOB) This sub-component is aimed at strengthening the technical unit within the MOH responsible for administering the MCP\. The Project will enhance the operational capacity of staff, providing mechanisms to monitor, follow up, and oversee the program, and fund costs to administer the credit\. Specifically, the subcomponent will: Stren&hen the Management Information System (MIS) for the MCP - The Project will support the GOB in designing and carrying out MIS instruments to administer the program, follow up physical and financial progress, and overseethe cash transfers cycle\. Design and imulement social control and accountability mechanisms - The Project will strengthen governance of the MCP through improved oversight and accountability systems, in order to improve the program's operational features and to ensure that beneficiary rights, particularly those of indigenous groups, are respected\. Process evaluation of the MCP Program - In order to help the MCP management team improve programexecution, the Project will finance a processevaluation once the MCP is fully operational in the first ten municipalities incorporatedinthe program\. 11  Imuact Evaluation (E)-The results and outcomes of the MCP program will be rigorously measured through an independent impact evaluation, jointly conducted and financed by the Health APL I11 operation\. Given the complementarity of both Projects, it was decided that ajoint impact evaluation would be the most useful alternative to measure the results on maternal and infant health of both projects\. This will also allow a unique opportunity to measure the impact of supply and demand interventionsbothcombinedandindependently\. Strengthening the Mothers and Children Area (MCA) at the MOH - The Social Protection Program for Mothers and Children will be administeredby the Mothers and Children Area created within the MOH administrative structure\. The Project will support the consolidation of the MCA not only for coordinating the MCP Project, but also for enhancingits capacity to manage a portfolio of programs under responsibility of the MOH\. Beneficiarv survew - The content of the previous activities will be adjusted, improved, and informed by beneficiary surveys designed and developed in the 2ndand4" years of the program, which will be carried out by the MCA in coordination with Unit of Analysis of Social and Economic Policies (UDAPE)\. 36\. Component 2 -Improving and expanding a skills development program for low- incomeunemployedyouth livinginpoor urbanand peri-areas ($3\.6m IDA; $0\.05m GOB)\. The primary objective of this component i s to improve the effectiveness the existing First Employment Program as an intervention to increase the employability o f low-income youth living in poor urban and peri-urban areas who have completed at least the second year of secondary education\. The FEP is a skills development program for poor youth, comprising a vocational in-class training session coupled with internships in private and public sector firms, in such a way that disadvantaged youth gain practical experience in a formal occupation and acquire life skills that help them succeed in the workplace\. The GOB will scale up the FEP in three phases - first, the program will be launched by the Ministry of Labor (MOL) as a pilot in four cities (La Paz, El Alto, Santa Cruz, and Cochabamba) benefiting about 2,800 poor youth and financed by the Government\. The second stage, financed by the Project, will comprise the operational and process evaluation of the pilot, and the required adjustment o f the model and its basic parameters, as well as the institutional and implementation arrangements\. The third stage will include the expansion of the program in the previous cities and at least two additional mid- size ones, to benefit about 13,000 youth\. After the second phase has been fully accomplished and the institutional and implementation arrangements reviewed and, where appropriate adjusted, the Project will also fund the first round of training courses and internships, benefiting roughly 4,000 low-income youths\. 37\. Sub-component 2\.1\. Improving the effectiveness of the FEP ($0\.3m IDA)\. The objective o f this sub-component i s to support the Government in defining the most adequate model of intervention to increase the effectiveness of the FEP, by financing a process evaluation of the pilot program to inform program managers of necessary adjustments in design and operations\. A key aspect to be reviewed during the pilot phase and the process evaluation is the targeting mechanismto select low-income youths\. While the pilot phase, fully financed by the GOB, will target youths from public schools living inpoor areas o f selected cities, the Project will provide funds and technical assistance to identify and test other variables and adjust the mechanismto ensure that only the most needed are registered inthe program\. 12  38\. Sub-component 2\.2\. Strengthening the institutional capacity and implementation arrangements of the Ministry of Labor to administer and monitor the FEP ($1\.05m IDA; GOB $0\.05) - This sub-component will finance the refinement of the model and the strengthening of institutional and implementation arrangements based on the process evaluation carried out under the previous sub-component\. In addition, it will support the development of management tools and monitoring and evaluation mechanisms\. In particular, this component will provide support for the following activities: Management Information System (MIS) - The Project will support the MOL in the design, testing and implementation of the MIS to follow up financial and physical progress, measure outputs and results, and administer contracts with training providers\. Strenahenine; the supply of training; services and certifvinv suppliers - The Project will strengthen the capacity of suppliers to: design training courses following demand from private and public firms; maintain a dialogue with the private sector; and incorporate skills-oriented training activities targeted to this particularly difficult segment of the population\. Information, Education and Communication (ICE) strategy - Implementation of the FEP will be accompanied by an information and communication strategy focused on three aspects of the Project: (i)promoting, disseminating and supporting the program among potential beneficiaries, training institutions and employers, through workshops to enhance knowledge and understanding of the program, socialization workshops, focus groups, and mass media promotion at the local and regional levels, (ii)facilitating alliances between training providers and firms; and (iii)designing and implementing a training strategy directed to public servants involved in the administration and implementation of the program at the national and sub-national levels; Institutional support -The Project will strengthen the institutional arrangements of the M O L at the national level and incities where the programoperates\. 39\. Sub-component 2\.3\. Providing opportunities for skills training and a first labor market experience to low-income youth ($2\.08m IDA\. Building on the refinement of the program supported by the previous two sub-components, the Project will finance the expansion of the training and internship program to additional targeted cities\. This sub-component will finance three sets of activities: (i)a beneficiary registry; (ii)training courses; and (iii)trainee allowances for transport and meals\. 40\. Sub-component 2\.4\. Supporting the M O L to define a mid-term strategy for youth unemployment ($0\.23m IDA)\. The Project will also support the GOB in strengthening its institutional capacity to consolidate a system for training youth and improve their possibilities for labor market insertion\. The Project will finance activities to enhance GOB capacity to implement the program, provide orientation to training institutions, monitor program results, supervise training providers, and measure the FEP's impact\. This component will also fund activities to support the M O L to design a strategy for youth at-risk inthe transition from school to work\. With this purpose, the Project will finance the provision of technical assistancein the following areas: (i) sustainability of the program, including mid-term coordination and merging of the Government's program with other similar youth training and employment interventions; (ii) ofthemodelofinterventiontosub-nationalGovernments,whichareexpectedtobe transfer responsiblefor the execution and financial sustainability of the program; and (iii) definition of a comprehensive mid- and long-term strategy to support youth at-risk in the transition from school to work underdecent conditions\. 13  41\. Component 3 - Institutional strengthening of the RPS-DIC ($l\.Om IDA) - This component will build the GOB'Scapacity to manage, coordinate, and monitor the RPS-DIC, starting with the MCP and FEP programs\. The component will help the Government improve planning and policy making related to the RPS-DIC; facilitate coordination across involved agencies; and define, test, and implement mechanisms that will allow for better coordination and monitoring of program progress andimpact\. 42\. Subcomponent 3\.1\. Strengthening the Technical Coordination Unit o f the Social Protection Network and Developing a mid-term Social Protection Strategy ($0\.46m IDA) -The Project will support the creation and consolidation of the TCU within the MDP to enhance its capacity to formulate strategies regarding the RPS-DIC, and coordinate and monitor the programs in the Social Protection Network through technical assistance in the form of consultancies, training, and workshops, as well as the consolidation of tools to track programs' progress and indicators\. To achieve this purpose, the sub-component will finance: (i) technical assistance focused on the TCU's coordination and monitoring roles and associated administrative and operational functions; (ii) support to the TCU in developing medium- and long-term strategies for the continual evolution of the RPS-DIC, through technical assistance that will focus on second-generation issues of social protection systems\. 43\. Sub-component 3\.2\. Designing and testing a Registry o f beneficiaries and a monitoring and evaluation system for the RPS-DIC ($0\.22m IDA) -The Project will also support the Ministry of Developing Planning to strengthen the TCU of the RPS-DIC through developing and testing a registry of beneficiaries if the RPS-DIC programs and a monitoring and evaluation system, as the main tool to inform policy making, coordination and monitoring\. The registry and monitoring systems will be administered under the RPS-DIC Programs Management Area of the TCU\. 44\. Subcomponent 3\.3 Evaluation o f selected programs of the social protection network ($0\.32m IDA)\. The Project will support UDAPE to evaluate the impact of at least three programs of the social protection network, including the pilot of the FEP and the initial expansion of the MCP to the first 10municipalities\. 4\. Lessonslearned and reflected inthe Project design Lessons learned regarding conditional cash transfers programs 45\. The size of the benefit for the MCP intervention - Experience with and impact evaluations of CCTs in Latin American countries have not produced definitive answers on the most effective size of the benefit (Le\., the monetary transfer to families); however, ex-ante and ex-post evaluations have shown that the size of the benefit does matter for creating incentives to change family behavior -- e\.g\., to send children to school and/or use health services regularly-- as well as reducing the poverty gap\. Additional research on this question i s required\. General practice of other programs in the LAC Region has been to set the size of the transfer high enough to be both a real incentive for households to invest inthe humancapital of their children and to have a poverty mitigation effect, while at the same time, low enough to avoid interfering 14  with labor and income generation-related decisions and to serve as a mechanism for self- targeting\. The GOB i s following these successful experiences by setting the MCP nutrition benefit equivalent to about ten percent of the average mean consumption of households in the lowest income quintile, which is expected to meet the above-mentioned criteria\. 46\. Conditioned vs\. non-conditioned cash transfers - Experience in other regions has raised the debate about whether the transfer should be conditioned\. Complying with co- responsibilities has been a common feature in most CCT programs in Latin America\. However, a recent evaluation in Ecuador demonstrated that the CCT program there (known as Bono de Desarrollo Hurnano) had a significant impact on improving usage of education and health services in the country, even though the program did not explicitly require families to comply with a set of conditions, and the program did not have a system to verify compliance\.'2 In Africa, recent evaluations of pilot CCT programs have suggested similar results\. Apart from that, enforcing compliance with conditions may impose additional costs on beneficiary families, and a proper system to verify completion with co-responsibilities is usually expensive for Governments\. 47\. On the other hand, there are several reasons why conditioning transfers can be a useful component of cash transfer programs that creates incentives to change household behaviors, which otherwise would not occur because of lack of kn~wledge\.'~From the Government perspective, conditioning transfers i s key to gaining political support for the program\. Even more importantly, recent research for Brazil and Mexico - including ex-ante simulations and ex-post evaluation studies- has shown that enforcing conditions for human capital accumulation can significantly enhance the impact of cash transfers on the utilization of social service^\.'^ While additional researchmay be needed to define in which circumstances conditionality is an essential requisite feature of a CCT program, the monetary transfer to prevent chronic malnutrition in Bolivia will condition transfers on families complying with a set of co- responsibilities\. 48\. Exit Policy - A major issue regarding CCT programs has been whether such interventions should be temporary, and if so how and when an exit policy to graduate families should be enforced\. Despite some attempts to set a defined period after which beneficiaries should leave the program, it has proven difficult to enforce these cut-offs\. In an intervention like the Social Protection Program for Mothers and Children to support the reduction of chronic malnutrition, the main challenge of implementing an exit strategy is preventing the perverse effect of a decrease in the utilization of basic services for regular check-ups monitoring children's growth and development once families have left the program\. Inintegrating the MCP program into a comprehensive strategy involving demand and supply interventions, the GOB will be able to provide families with a temporary cash transfer and, once the child i s 2 years old, the household will graduate from the CCT, but will still be assisted by other components of the 12Schady, N\. and M\.C\. Araujo (2006): "Cash transfers, conditions, school enrollment and child work: Evidence from a randomizedexperimentin Ecuador", World Bank Policy ResearchWorking Paper3930, The World Bank\. l3de Janvry, A\., andE\. Sadoulet(2006), "Making conditionalcash transfers more efficient: Designingfor the maximumeffect of the conditionality\." World Bank Economic Review 20(1): 1-29\. 14 Bourgignon, F\. F\. Ferreira and P\. k i t e (2003) "Conditional Cash Transfers, Schooling and Child Labor: Micro-Simulating BolsaEscola"\. Hoddinott,J\. and A\. de Braw (2007) "Must ConditionalCash Transfer Programs be conditionedto be effective? The impact of conditioningtransfers on school enrollmentin Mexico", IFPRIppt\. 15  ZMP strategy (Le\., fortified complementary food, sprinkles, vitamin A, iron, andother nutrients needed by older children)\. As the M C P seeks to foster the utilization o f health services focused on preventing chronic malnutrition, the rationale for setting such a graduation time i s that once children pass the age of two years, they are past the critical window for nutrition interventions and will need other types of support/services that are available as part of the ZMP and the health system\. 49\. Strengthening supply of basic services is a key element to a successful CCT intervention - As with other programs in the region, the Bolivia MCP seeks to improve utilization and effectiveness of basic health and nutrition-related services\. A CCT program can be a very useful instrument for improving regular visits and check ups at health services providers, but only if adequate supply i s accessible to poor households\. Unless such supply i s readily available, demand-driven benefits will not succeed and therefore, will not facilitate the goal of reducing malnutrition\. The ZMP, of which the Social Protection Program for Mothers and Children i s an integral part, alongside the GOB'S health strategy, involves specific measures to extend availability of services and improve the quality of health providers\. Scaling up the MCP program as part of the ZMP will ensure that efforts to boost the demand for basic social services will be accompanied by interventions to strength supply in the same targeted municipalities\. Therefore, the Bank's APL I1and I11operations will support the MOH's efforts to strengthen basic service supply\. 50\. Avoiding negative incentives - There i s scant empirical evidence that transfer programs provide incentives for women to have additional ~hildren,'~and in the case o f the MCP this riskmight be even more latent as the main goal of the program i s registering pregnant women as early as possible to prevent malnutrition and illness during pregnancy and thereby increase the likelihood o f healthy children\. However, the GOB has fully identified this risk and has taken several measures in the Project design to minimize it\. These measures are described inAnnex 4, and the risk will be closely monitoredduringimplementation\. Lessons learned regarding youth training programs 51\. Separation of financing and the provision of training\. Provision of training to increase skills among low-income youth has evolved over the last two decades\. In several LAC countries, public vocational and educational traininginstitutions targeting adults were created to determine, based on the best information available, the content, opportunity, and method o f delivery o f training programs\. Inreality, these institutions monopolized public programs aimed at improving the skills o f low-income populations (e\.g\., SENA in Colombia, SEFOR in Brazil, SENCE inChile, SENATIin Peru, or INFOCAL in Bolivia)\. They proved unable to adequately respond to the growing needs of the market, so since the early 1990s policies towards partnerships between the State, enterprises, and non-public training institutions have increased, with promising results\. Once again, Bolivia i s following this trend by outsourcing training to specialized firms (public and private) that will be selected competitively, and which are more agile and can more easily maintain an ongoing dialogue with the private sector, adjust training courses, and provide services effectively\. l5Grosh, M, C\. del Ninno, E\. Tesliuc, and A\. Ouerghi (forthcoming) From Protection to Promotion: The Design and Implementation of Ejfective Social Safety Nets\. 16  52\. The natureof the trainingis demand-driven\. Part of the reasonfor involvingprivate training providers was the need to respond to private sector priorities by focusing on relevant skills\. Lessons from other programs in Latin America have shown that in many cases training providers need to adjust their supply of courses, or even design new ones to meet market demand\. InBolivia, the FEP has incorporated this approach, and it is expected that the supply of training courses will be preceded by consultation and arrangements between training providers and potential employers, to ensure responsiveness to needs\. Consequently, only those courses with a formal link to a firm intending to hire graduates of the training program will be eligible\. 53\. Comprehensive training beyond work skills\. Young people with incomplete secondary or no post-basic education face the labor market at a disadvantage\. Low-income youth not only have insufficient skills to perform in a competitive environment and are consequently less productive, but they have no previous experience in a formal job\. The latter implies that they are less likely to find a good job than older or less poor individuals with similar skills, because of their lack of familiarity with, and/or perceived poor behavior in the workplace\. Therefore, training focused only on skills for a specific job may not be enough to improve the employability of these youth\. Successful experiences in other countries, including Colombia, the Dominican Republic and Honduras, have included training not only on specific job skills but also on life skills and behavioral training to improve workplace behavior ("soft skills"), including appropriate attire, punctuality, interpersonal skills, and so on\. 5\. Alternatives considered and reasons for rejection 54\. Institutionally-basedapproach vs\. Project ImplementationUnits (PIUs) - Using separate implementation units to carry out projects has been a common practice in Bolivia\. However, the current administration is committed to strengthening existing Government institutions, particularly fiduciary units, and implementingwithout a separate PIU\. This approach i s consistent with preferred Bank practice\. Nevertheless, moving from PIU-based implementation arrangements to Government institutions i s a process which requires on-going support and technical assistance\. In order to meet Government guidelines for diminishing reliance on a separate PIU, it was agreed that the Project will implement a twofold strategy to strengthen the institutional arrangements of implementing agencies\. First, a significant proportion of Project funds focus on strengthening fiduciary units within the administrative organizations of the three implementing agencies\. This task was initiatedusing the PHRD grant\. Second, the Government has created within each administrative organization specific technical units responsible for Project implementation but not separated from the institutional arrangements of the correspondent Ministry\. These new units- the Technical Coordination Unit (TCU) at the Ministry of Development Planning, the Social Protection Area for Mothers and Children (MCA) in the Ministry of Health and Sports, and the National Unit for M y First Employment Program (NUFEP) in the Ministry of Labor- will be strengthened by the Project and institutionalized as part of the administrative organization within each Ministry during Project implementation\. 55\. Implementation arrangements - Faced with a decision to centralize Project management or divide it among relevant Ministries, the GOB team chose to separate 17  implementation responsibilities among the three Government agencies according to component\. Although this will imply three implementing agencies and three Special Accounts, the decision was made to allow for greater flexibility b y the Government in managing day-to-day operations and addressing specific sectoral issues related to the components\. Experience in other countries has shown that where several Bank projects are managed by one implementation agency and there i s a problem in financial management or other fiduciary aspects, it infects all projects and leads to a domino effect where every operation experiences delays and bottlenecks in execution\. On the other hand, the Bank has had positive experience in splitting implementation responsibility (and Special Accounts)\. In these cases, it sometimes happens that one component may experience delays, but other components progress well, because they are managed by separate agencies\. However, to ensure adequate coordination, the Project has a champion in the Ministry of Development Planningwho will ensure adequate coordination with the other two implementing agencies\. 56\. Enhancingthe current transfer programin education or carrying out a separate interventionto prevent chronic malnutrition\. Before defining the MCP program to support Government efforts to combat malnutrition, several alternatives were assessed, particularly regarding the existence of an education transfer program (Juancito Pinto) and its potential enhancement to involve nutrition co-responsibilities\. However, it was agreed that having two separate programs would be more effective for the following reasons: (i) the objectives and target population of the program are different: the JPP i s nationwide, targeting children older than 5, while the MCP in nutrition i s targeted to the 52 poorest municipalities, targeting pregnant women and children younger than 2; and (ii) each intervention i s based on different mechanisms, including targeting and criteria for beneficiary selection, size and frequency of the benefit, system to deliver the benefit, and exitlgraduation policy strategy\. It was agreed that as part of Component 3 below, technical assistance will support analysis to assess the feasibility of integrating the two programs in the mid-term and, if appropriate, define an implementation plan to do so\. The beneficiary registry of the RPS-DIC will also cover both programs, facilitating information sharing and any future merging of the programs\. 57\. Cash vs\. in-kindtransfers to poor families - As in other countries in the region, the design o f the conditional cash transfer intervention involved the debate of whether the transfer should be an in-kind or a monetary benefit\. The in-kind transfer was rejected on the following grounds: (i) The problem of chronic malnutrition is related to behaviors, not lack of food\. Evidence across Latin America and Bolivia demonstrates that chronic malnutrition occurs before children reach 18-24 months, after which the neural and physical damage i s irreversible\. Duringthis period, effective alternatives to prevent chronic malnutrition are through exclusive breast feeding until six months of age, and practices like better home hygiene, water usage, hand washing, feeding practices and child care\. Regular and frequent monitoring of children's development (weight and height) accompanied by individual counseling andgroup talks have been demonstrated to be cost-effective interventions to prevent chronic malnutrition inlow-income countries inCentral America and Africa\. These practices usually have been complemented by micronutrient supplements involving the provision of essential vitamins and minerals\. Lack of food may be an issue in specific circumstances (such as droughts or floods) andinthese cases 18  in-kindtransfers shouldbe treated as a temporary intervention inthe context of a cross- sector approach alongside mid-term interventions\. (ii) Conditional cash transfers have been shown to have a significant impact in reducing chronic malnutrition, provided that the supply of services i s adequate (see section D\.2 - Technical of the Appraisal Summary)\. (iii) A cash transfer is expectedto have greater impact on family consumption as experience in other countries has demonstrated that mothers usually spend the transfer on the most needed things (e\.g\. adequatefood for the children, -specifically more protein) (see section D\.2- Technical of the Appraisal Summary)\. (iv) Feeding programs in Latin America have been shown to be less progressive than cash transfers\. While on average feedingprograms (not including school feeding interventions) allocate less than 60 percent of their benefitsamong the poorest 40 percent of the population (quintiles 1and 2), CCT programs allocated more than 75 percent inthe same grOUp\.16 (v) Distribution and storage problems have been a common feature of food distribution and in-kindtransfers, complicatingtransportation and delivery of the benefit andsignificantly increasing administrativecosts\." 58\. Implementing a collective conditional cash transfer\. The Project considered implementing the conditional cash transfers in two modalities\. Individual conditional cash transfers to eligible families, subject to compliance with a set of co-responsibilities following other experiences in LAC, and an innovative collective benefit (a cash transfer) awarded to communities after the achievement of previously defined outcome targets\. Given that collective benefits would be awarded upon completion of pre-defined outcomes (e\.g\., proportion of malnourished children in the community, proportion of children with full immunization packaged), the rationale of this incentive was raising accountability at the community level\. The Bank and the GOB decided not to include this alternative in the Project, as doing so would have entailed implementation arrangements similar to a social fund which would have delayed Project preparation\. 59\. Pay wage subsidies vs\. internshipsin the FEP- An alternative discussed during the design o f the FEP was to provide Government-financed wage subsidies for beneficiaries once they completed the training phase\. Althoughthis measure may have the potential to improve the employability of unskilled workers, who tend to be those who have more difficulty finding a job and usually earn lower wages, this alternative was rejected on the grounds of three effects that wage subsidies may generate: (i) as wages are paidby the Government, they may create an incentive for firms to fire paid employees to hire subsidized workers; (ii) they may create l6Lindert, K\., E\. Skoufias, and J\. Shapiro (2006) "Redistributing Income to the Poor and the Rich: Public Transfers in Latin America and the Caribbean", SP DiscussionPaper No\. 0605, The World Bank\. Lindert et\. al\., 2006; Grosh, M\.,C\. del Ninno, E\. Tesliuc and A\.Ouerghi (forthcoming) From Protection to Promotion: The Design and Impementation of Effective Social Safety Nets, The World Bank\. 19  disincentives for training institutions to provide, and beneficiaries to acquire, skills, as the institutions may view the internship period inprivate and public firms as guaranteed; and (iii) a wage subsidy would create a double subsidy for firms, both through the subsidy itself, and through the effort to tailor the training to market demand\. Even though the Bolivian program will not implement a wage subsidy as part of the FEP, it was decided that at least during the first stages of the program, firms will not be requiredto formally contract beneficiaries\. During the pilot program the GOB will test increasing the daily allowance and asking participant firms to complement it with an additional payment\. This aspect of the program will be assessed during the evaluation and, if required, revised for the expansion phase\. The experience of a similar pilot program financed by the Dutch cooperation has demonstrated that after a three- or four-month apprenticeship, during which beneficiaries receive only a stipend for meals and transportation, about 70 percent o f program beneficiaries receive a formal contract\. 60\. A Youth Entrepreneurship sub-component of the FEP - Initially the youth employment program envisioned two main strategies\. Apart from skills training linked to labor market experience, eligible beneficiaries would have had the option to apply for a grant to create their own business (i\.e\., micro-enterprises)\. The international experience with low- income youth entrepreneurship programs has demonstrated that, although most youth are eager to initiate their own business -- especially as an alternative to unemployment -- there are significant barriers to success, including a lack o f vocational and entrepreneurial skills, as well as financial constraints to business growth and job creation\. Moreover, the survival rate of micro-enterprises led by low-income youth entrepreneurs i s low\. The GOB has decided to start implementation of the FEP focused just on increasing employability\. Only at a later stage will the alternative to introduce a young entrepreneurship strategy be explored\. C\. IMPLEMENTATION 1\. Partnershiparrangements 61\. The Project involves no formal co-financing or partnership arrangements with other donors or multilateral agencies\. Nevertheless, the Project is part o f a comprehensive social protection strategy with considerable international donor participation\. The Ministry of Development Planning has been leading donor coordination and has been in the process of deciding which international agencies are asked to finance the different programs and interventions of the Social Protection Network\. The Bank was assigned to co-lead, together with the Netherlands, the Mesa Bolivia Digna, which deals with social sector issues, including the Social Protection and Integrated Community Development Strategy, within the framework of the dialogue process held by the Government\. The MDP has requested the Bank's support for the ICY Project, and although other donors are also interested in funding the operation, the Government has asked these donors to finance other programs o f the Social Protection Network\. 2\. Institutionaland implementationarrangements 62\. The Project will support the Government's social protection strategy and the RPS- DIC by contributing to the effective implementation of key programs\. Inthis context the 20  Project will be implemented through three separate agencies under the general coordination of the MDP which will be the Bank's Government main counterpart during implementation and supervision\. Such coordination will be done through the Technical Coordination Unit (TCU) for administrative and financial issues, and through UDAPE for the technical aspects of the project\. The TCU, recently created as part of the institutional structure of the MDP, will be responsiblefor the implementation of Component 3 of the Project inclose coordination with the MDP's General Direction of Administrative Issues\. The unit will also coordinate with the Ministry's Systems Unit to develop the Management Information System and the RPS-DIC Beneficiary Registry\. The Project will be entirely implemented, monitored and evaluatedby the three Ministries, and fiduciary and technical coordination will be under the responsibility of the TCU in the MDP and UDAPE, respectively18\. 63\. The Technical Coordination Unit (TCU) and UDAPE will articulate and coordinate the activities implemented under the Health and Labor Components\. These two bodies will provide the support to the MDP in its its responsibility for the global implementation of the Project and attainment of results, and the strategic coordination with sector ministries in charge of Components 1(Health) and 2 (Labor)\. The following are some of the TCU's main functions in relation to the Project : a) coordinate and monitor Project administrative and financial aspects as a whole and serve as Bank's counterpart for such issues; b) support and monitor the MOH and MOL inthe registration of budgets and the attainment of operational plans as well as intermediate and results indicators; c) follow-up on operational plans related to each of the Project components; d) consolidate sector Project reports (health, labor and RPS-DIC); and e) elaborate and provide progress reports on physical and financial aspects of the Project to the Bank\. Although the TCU will be supportedby the fiduciary units of the MDP, it will have specialized staff to consolidate the financial reports from the Ministries of Labor and Health and Sports\. UDAPE will be responsible for the following activities related to the project: a) coordinate and monitor Project's technical aspects; b) coordinate all supervision missions with the Bank, VIPFE and sector ministries involved in the Project; c) identify issues that might require special attention from the Government or the Bank during the implementation of the Project: d) propose and process any amendment related to the Credit Agreement; and e) ensure the compliance with operational manuals in coordination with sector ministries\. Implementation arrangements for Component 1 -Implementing and scaling up the Social ProtectionProgramfor Mothersand Childrento combat Chronic Malnutrition 64\. The Government has designated responsibility for the implementation of this component to the Ministry of Health and Sports\. This is the appropriate institution to carry out the MCP, given that the MOH is also responsiblefor the comprehensive ZMP, has the legal mandate to implement the program and the political support to carry out the activities included inthis component\. These institutional andimplementation arrangements improve coordination betweendemandand supply of basic maternal and infant health services, a crucial aspect for the success of a conditional cash transfer program\. The MOH has been committed to strengthening the supply of basic maternal and infant health services over the previous several years and '*Althoughthe FPS has a centralrole in implementingand monitoringthe RPS-DIC's Comunidades en Accidn and Comunidades Reckrocas, it has no role in the Investingin Childrenand Youth Project\. 21  currently this effort i s supported and funded by the health APL operations and the GAIN program\. The APL 11, under implementation until June 2008, i s supporting the expansion of the benefit package o f the SUMUSUS in order to provide greater coverage o f health services to pregnant women and children less than five years o f age, taking into consideration cultural distinctions and other access barriers faced by indigenous populations\. Under the third operation, currently negotiated, the APL emphasizes strengthening the health supply through the health network in the targeted municipalities\. The GAIN program aims to improve fortification of all wheat flour, vegetable oil and milk products designated for consumption by the Bolivian population in order to generate demand for quality-assured fortified food\. The achievement o f GAIN'S proposed goals is expected to have a significant health impact by reducing the total prevalence of iron deficiency anemia which affects 81\.9 percent of children from 6 to 24 months and 30 percent of women in reproductive age by reducing the prevalence of vitamin A deficiency and by reducing neural tube defect rates by 20 percent between 2007 and 2011\.Thus, the Ministry of Health and Sports has the instruments to strengthen the supply of maternal and infant health services, while this Project will provide funds and technical assistanceto carry out a program to boost demand\. 65\. The Ministry of Health and Sports will implement the Component through the Area de Proteccio'n Social para la Mujer y el Niiio (MCA), recently created as part of the Planning Unit of the Ministry\. The MCA is institutionalized part of the administrative organization of the MOH and responsible for those projects and programs financed by donors\. The execution of the program will be in close coordination with and active participation of the Area responsible for the Health APL I1and I11operations, as well as the Service Network Unit, dependent of the GDHI\. At the local level the Health Units will coordinate with municipalities and prefectures to undertake processes of affiliation, registry, condition controls, incentive delivery, complaints and information updating\. The M C A will supervise the local coordination units,createdfor the monitoring of 5 to 7 municipalities\. 66\. All administrative and financial aspects of the program will be managed directly by the General Direction of Administrative Issues o f the MOH, where an Administrative Unit (UCOFI) for externally funded programs will be adapted, as part of the same structure\. The UCOFI will operate in close coordination with and will support the MCA\. The Payment Agencies (PA) are external financial institutions to the Ministry and provide payment services to the beneficiaries based on reports that will be generated and delivered by the MCA\. The Program's administrative and financial unit will be responsible for transferring funds to the PAS\.The municipal local committees will provide social control during the implementation o f the program\. 22  Implementation arrangementsfor Component2 -Youth Employment Program(FEP) 67\. T o comply with the activities required to implement the FEP, the Government has created a set of institutional arrangements at the central level of Government and in the cities where the program will operate\. At the national level, the Ministry of Labor has created an internal unit to coordinate the Project (National Unit for M y First Employment -NUFEP) attached to the General Employment Direction, responsible for the overall administration and supervision of the program\. The unit will receive technical assistance to carry out the following activities: (i)coordinating, planning, monitoring and overseeing the program in coordination with municipal offices in the targeted cities; (ii)selecting training providers; (iii) administering a national registry of service providers and the training providers certification process; (iv) administering and coordinating the provision of technical assistance to strengthen training providers; and (v) promoting the program through workshops, communication campaigns and, particularly, through an ongoing dialogue with the private and productive sector\. This unit was created to implement the Pilot and i s currently well staffed\. The NUFEP will be supported by the General Administrative Direction regarding administration of contracts with training providers, as well as all other procurement and financial management issues\. Similarly, the Information System unit will support the NUFEP in the administration of the Management Information System\. 68\. At the departmental level, the program will strengthen the Ministry of Labor's local offices located in each of the cities in which it will be scaled up to coordinate the overall implementation and follow up of the program\. For the purpose of the FEP, the Ministry of Labor will create Departmental Offices for the First Employment Program (DOFEP) in each of the cities where the programs is operating\. These offices will be responsible for promoting the program in the cities, receiving and checking applications from youth, providing information and orientation to beneficiaries and training providers and supervising the training courses in their two phases - in-class and the internships\.These units will also support the ongoing dialogue with private firms, and support program management through supervising program progress inkey phases of the training andinternship phases\. 69\. The Project will evaluate the pilot program of the FEP\. As a result of the evaluation the model will be both assessed and, if appropriate, adjusted, and also scaled up\. The main institutional arrangements set to carry out the pilot and summarizedin the following paragraphs will be subject to a process evaluation that the Project will finance through Sub-component 2\.1\. (Annex 4), and therefore may be changed or adjusted according to the recommendations of the process evaluation\. All changes to such arrangements will be consulted with, and will be put in place acceptable to the Bank\. Implementation arrangements for component 3 -Institutional strengthening of the Social Protection Network 70\. The Ministry of Development Planning will not only be responsible for the coordination of the overall implementation of the Project but also for the direct implementation of component three\. The GOB has created and is in the process of strengthening the Technical Coordination Unit (TCU) for the RPS-DIC\. The TCU is attached 23  to the MDP and will be the main body to support the MDP to carry out the activities included in component 3 of the Project\. The TCU will be headedby a Coordinator and its objectives will be the: (a) overall coordination of programs implemented under the RPS-DIC; (b) monitoring of progress and evaluation of impacts of these programs; and (c) formulation of social policies and long-term strategies that will define the future development of the RPS-DIC\. To comply with its function the TCU has two Areas: The Area of Management of RPS-DIC Programs, responsible for administering the registry of beneficiaries and the monitoring system of the RPS-DIC, and the Implementation of MDP projects, responsible for monitoring and administering those programs directly implemented by the Ministry of Development Planning\. As explained in Annex 4, the Project will pay special attention to institutionally strengthening the TCU and to enhance its capacity to serve as the technical arm of the MDP to coordinate and monitor the programs of the social protection network\. Indoing so, the project will support the MDP through partially financing consultants to support bothAreas of the TCU, two consultants to support the fiduciary units of the MDP and the design and testing of the registry of beneficiaries and the monitoring system\. The TCU will not have specific administrative duties related to the implementation of individual RPS-DIC programs, but rather that each program will be carried out by the relevant line Ministry, with the TCU serving as coordinator for the overall network\. All fiduciary aspects related to this component of the Project will be carried out by the correspondent procurement and financial management offices in the Ministry of Development Planning\. 3\. Monitoringand evaluation of outcomedresults 71\. The Project 's physical and financial progress, as we1 as the impacts of the programs will be monitored and measured through a series of instruments to be designed under the Project, as well as through the APL 111\.Specifically, the Project will monitor progress through a management information system, process evaluation, and regular operational and financial audits for both the MCP and FEP programs\. Additionally, the Social Protection Program for Mothers and Children will include two beneficiary surveys, social audits and feedback mechanisms, and a rigorous impact evaluation\. Finally, the Project will consolidate the monitoring responsibility that the MDP has for the RPS-DIC by supporting the design and implementation of a registry of beneficiaries for the network\. Some of these instruments are under implementation, and inall cases the Project will provide technical assistanceand support to enhance Government capacity to monitor and evaluate outcomes and results of the programs\. 72\. Management Information Systems (MIS) -The interventions supported by the Project have developed specific information systems to monitor and follow up program progress\. The MIS of each will be the most important tool to provide information to track progress and follow-up on implementation bottlenecks\. Inthe case of the MCP, the MIS i s fully embedded in the SNIS, while for the FEP it i s a stand-alone system\. The design of both systems was completed using funds from the PHRD grant and the Project will support implementation, adjustment and some IT-related equipment to put them in place\. The MIS will provide managementteams updatedinformationto authorize and reconcile payments\. For the MCP, the MIS systemwill involve the required modules for a CCT program, including census, registry of beneficiaries, verification of information and co-responsibilities, authorization of payments and conciliation, and complaints and feedback mechanisms\.In the case of the FBP, the MIS will 24  also include a registry of beneficiaries and supervision, evaluation and certification of training providers\. The information systems, which will be under the responsibility of the Ministries o f Health and Sports (Social Protection Program for Mothers and Children) and Labor (First Employment Program), will be able to provide information about program progress in real time ifrequired, andregular(monthlyorbi-monthly)reports\.Specificinformationprovidedbythe MIS i s mainly related to progress indicators and results and outputs of the program, as explained inAnnex 3\. 73\. Process Evaluation - Process evaluations to adjust operational aspects and correct functional problems of each program supported by the Project will be carried out at different stages of implementation\. In the case of the MCP a process evaluation will be conducted after the first year of implementation when the first ten municipalities have been incorporated and households and communities are receiving the benefit\. In the FEP, a process evaluation will be conducted during the first year o f Project implementation to evaluate the pilot and inform the adjustment and, if required, redesign of the implementation model\. In both cases, process evaluations will provide information for the full scaling up o f the interventions\. These process evaluations will be under the responsibility of the MOH and MOL but their implementation will be outsourced to specialized firms\. Both evaluations will be funded through the Project\. 74\. Beneficiary surveys - Inorder to assess beneficiaries' perceptions and experience with the MCP, the proposed Project will support the Ministry o f Health and Sports to finance two beneficiary surveys after the first and third years o f implementation\. These surveys will serve to adjust, if required, the communication and information strategies, the types o f co- responsibilities linked to the cash transfer, the supply of health and nutrition services, and the approach of the Project towards indigenous populations\. The surveys will be taken at two key moments of Project implementation - the first being when the initial ten municipalities have received transfers for a reasonable period of time, and the second one a year after the full scale up of the program has been achieved\. The beneficiary surveys will be a key instrument for improving the Project's effectiveness at reaching and meeting the needs of beneficiaries, especially indigenous groups\. These surveys, administered by the Ministry of Health and Sports, will be contracted out to specialized firms\. 75\. Impact Evaluation of the MCP - As explained in Annex 4, a rigorous impact evaluation of the Social Protection Program for Mothers and Children will be carried out through the APL I11operation by contracting a specialized firm\. The evaluation will provide information on key outcomes and the targeting of the program, and both Projects (APL I11and Investing in Children and Youth), at three points: (i) before implementation starts through the baseline report; (ii)a mid term report after the second year o f implementation; and (iii)final a report\. The methodology will provide information not only regarding the outcomes and impact of the program on welfare and poverty, but also about the sustainability of interventions, as a specific follow up survey will gather information after a reasonable period once families have graduated from the program\. The M O H will be responsible for administering the contract, which will be financed from the APL I11operation\. 76\. UDAPE is responsible for the monitoring and evaluation of RPS-DIC programs\. The ICY project will provide financing for at least three evaluations to be conducted using a non experimental design\. These will include: (i) evaluation o f the pilot of the FEPprogram; (ii) 25  a process evaluation of the first 10 municipalities included in the MCP; and (iii) additional an evaluation of another program included in the RPS-DIC - to be selected duringimplementation\. These will be based on household surveys to be financed by the Project and the analysis will be conductedby the Sub-Direction for Policies inUDAPE\. 77\. Social Audit and local control mechanisms of the MCP - The Social Protection Program for Mothers and Children will include mechanisms to receive feedback from beneficiaries and communities as well as complaints on the program's processes\. Such feedback and complaints will be systematized and a process to resolve questions and provide timely answers will be put in place\. These mechanisms will serve to strengthen the social control of the program, improve transparency and enhance the program's credibility\. The M O H will be responsible for the implementation and operation of these mechanisms using funds from the Project\. 78\. Financial and Operational Audits - The Project will have regular audits throughout the implementation period\. In addition to the financial audits carried out annually, the Project will finance operational audits of the MIS system and the registry of beneficiaries of the Social Protection Program for Mothers and Children\. 4\. Sustainability 79\. The RPS-DIC i s a key element of the current Bolivia National Development Plan and i s a flagship strategy of the Morales administration\. The RPS-DIC and the social protection programs and interventions are at the core of the strategy to tackle poverty and have solid political support among the executive branch o f government\. A recently issued Supreme Decree (No29246 from August, 2007) legally establishes the RPS-DIC and the interventions under its umbrella, including those supported by the Project (see Annex 4)\. Beyond the legal aspects, the Government has defined clear institutional responsibilities and each of the programs has a champion to ensure adequate political and financial support\. The Ministry of Development Planning, responsible for the consolidation of the RPS-DIC and for monitoring and coordinating social protection programs, has been strengthened with technical and financial mechanisms to ensure that programs of the RPS-DIC are sustainable\. 80\. The programs supported by the Project have been entirely identified by the GOB which has demonstrated strong ownership and commitment for implementation and sustainability\. While the Bank has informed program design and shared knowledge with the GOB counterparts regarding international best practices and lessons learned throughout project preparation and with the AAA, the Ministry o f Development PlanningKJDAPE with the Ministries of Health and Sports and Labor led the conceptualization of the Social Protection Program for Mothers and Children and the First Employment Programs, respectively\. Therefore, these interventions constitute clear priorities o f the current administration\. Both interventions were conceived as part of the strategy to consolidate social protection interventions, tackle poverty, promote human capital formation and ensure sustainability of results\. From this perspective, the Project will finance two programs that will provide long-term benefits by improving children's health so they can learn better in school, and increasing youth skills so they are better equipped to enter the labor force\. 26  81\. The Government and the Bank will co-finance both components to ensure a smooth transition once the project i s fully implemented\. Although there i s no requirement for Bolivia to ensure counterpart funds to approve the Project, the GOB has decided to co-finance key and recurrent costs generated by the Project to ensure a smooth transition when project implementation i s completed\. In this context, IDA funds are focused on strengthening institutions and enhancing capability of involved agencies precisely to ensure not only adequate implementation o f the project but capacity to sustain the interventions\. The GOB counterpart funds will finance current administrative expenditures of both programs on an increasing basis, an increasing the proportion of the cash benefits to families registered inthe MCP program, and the pilot round as well as the second and sub-sequent rounds o f the FEP\. Regarding funds to scale up the programs, the Government will use IDA funds to benefit full cohorts and ensure that beneficiaries in these cohorts receive full benefits during the program\. Inthe case of the MCP, IDA funds will be used to finance the full cycle of up to 33 months for families registered in the program during the first three years of implementation (about 45,000 families); in the case of the FEP, IDA resources will finance both vocational training and internships in the terms explained in Annex 4 for the first cohort of beneficiaries following the pilot phase\. In both programs, the Government will seek to involve financing from departments and municipalities once the project is under implementation\. 82\. For the MCP, several aspects bode well for the program's long-term sustainability\. First,it was decided to design the program as a cash transfer, rather than an in-kindvoucher or food distribution\. This decision was made after a lengthy technical debate within the GOB and represents an overall agreement among relevant government agencies\. This debate served to extensively inform central government agencies involved about the conditional cash transfers program and to unify government vision around the Benefit for Mothers and Children, as a cash transfer\. Even more important it resulted in a clear government commitment and ownership of the program\. To support sustainability, the GOB has decided to commit counterpart funds to start financing the transfers on an increasingbasis startingin 2011\. 83\. Moreover, the MCP program seeks not only to boost demand for specific services, but equally importantly, to enhance knowledge and change behaviors regarding infant health and nutrition among beneficiary households\. Changingbehaviors involves domestic public health measures including hand-washing, child care, nutrition at home and so forth, but also ensuring that families know the importance of using specific social services\. As a result of the combination of cash transfers, individual counseling, and collective workshops to beneficiaries, it i s expected that in the future mothers would rely less on the cash incentive to comply with regular check ups when pregnant or to take their children for growth monitoring\. Therefore, it i s expected that in the medium term the impact of the project (reducing chronic malnutrition) will be sustained even after project implementation has been completed''\. This expectation i s underpinned by the type of support that the Zero Malnutrition Program i s 19International experience has demonstrated not only that conditional cash transfer programs can have a positive impact on chronic malnutritionoutcomes (as in Mexico, Colombiaor Nicaraguawhere the CTTs are responsible for reducingthe proportion of malnourished children in more than two percentagepoints per year on average) (Schady and Fiszbein (2007)\. but also that such impact is sustainedafter transfer programsend (as in Nicaragua) (Maluccion,J\.A\., andR\. Flores(2004) "Impact Evaluation of a ConditionalCashTransfer Program: the NicaraguanRed de Proteccidn Social, IFPRI, FCND DiscussionPaper No\. 184\. )\. 27  providing in the targeted municipalities; in this case, the community-based approach provided by the outreach teams and health units involves both individual counseling and group workshops to send specific messages regarding household behaviors and raising the relevance of regular visits to health providers\. Nevertheless, if the cash benefits for mothers and children are maintained after the Project completes implementation, the additional fiscal burden for the Ministry of Health and Sports would be less than 8 percent o f its annual budget\. 5\. Critical risks and possible controversial aspects\. 84\. The Project involves supporting to a conditional cash transfer program\. Lessons learned from other countries suggest that proper implementation of CCTs presents considerable challenges and risks in technical and fiduciary aspects\. Project preparation emphasized improving the project's implementation arrangements to scale up the CCT program\. Component 1 of the Project will involve a comprehensive set of activities to improve CCT's effectiveness and transparency of processes to mitigate those risks inherent to these types of projects, including a comprehensive management and information system involving all aspects of the CCT cycle (e\.g\., registry of beneficiaries, compliance with co-responsibilities, payments), social audit and complaints mechanisms, beneficiary surveys, and a rigorous impact evaluation*'\. In addition, the implementation plan o f the CCT component has been carefully designed to ensure a gradual expansion, preceded by a process evaluation after the program has incorporated only ten municipalities; this evaluation will inform the project's management about aspects to improve operational and functional aspects o f the program before it i s fully scaled up\. 85\. Finally, the proposed Project involves innovative interventions for the Bolivian context and two of the three implementing agencies have no previous experience with Bank's operations\. Therefore, the project's implementation arrangements have been carefully designed to ensure that implementation of each component i s fully under responsibility of the relevant ministry (involving no other agencies, such as the FPS); moreover, implementation arrangements have been planned to make sure that the Social Protection Program for Mothers and Children, the First Employment Program and the Technical Coordination Unitfor the RPS- DIC are fully institutionalizedinthe administrative structure o f the respective ministries\. 86\. The Project will be implemented in a complex political environment in the country, given the recent approval of the new constitution and the process of dialogue between the Government and the prefects, which may modify the central government-subnational authorities' administrative arrangements\. This context may affect implementation speed and future sustainability o f the interventions supported by the Project\. The implementation and institutional arrangements for the project have been designed to mitigate these risks, Despite the mitigation measures under implementation and described in the risk matrix, the overall risk for the project is still Substantial\. The main risks and the proposed mitigation measures are described in the RiskMatrix below\. 2oControl and AccountabilityMechanismsin ConditionalCashTransfer Programs\. 28  Riskfactors Description of risk Rating" Mitigation measures Rating of risk of residual risk I\.Countryand Macroeconomic - M framework to failure to control path of Government's economic team to external and internal debt\. chart a projected path of fiscal discipline that is economically, socially and politically feasible\. Governance There is a conflict of roles H Efforts are being made to clarify M between the National and local roles, responsibilities and fiscal administration\. Slow process of regulations among different actors decentralization\. and measuresare being taken to strengthen local governments\. Systemic Patronage and corruption persist H Strengthen oversight capacity of M corruption despite National and local civil society participation and other elections\. 1 institutions\. S The Ministry of Planning and M Development, which will oversee institutional arrangement that may the overall implementation of the prove to be complex and Project, i s an inter-institutional adversely affect implementation\. body, and the arrangements for Project execution follow the institutional structure of the RPS- DIC\. In addition, the GOB has created a Technical Coordination Unitwithin the MDP that will be responsible for the overall management of the RPS-DIC, including the MCP and FEP momams\. ic Risks Overall Design H S Design The RPS-DIC is part of the Project preparation was based on National Development Plan and i s extended consultation, always led by the responsibility of the Minister MDP and UDAPE, and facilitated of Planning and Development\. dialogue to reach a unified vision of Nevertheless, some differences in the RPS-DIC and the scope of the views remain among the Project\. The ongoing work of the implementing agencies regarding MDPand UDAPEwith the line basic program design issues\. ministries responsible for the RPS- DIC programs, and particularly with the Ministries of Health and Labor for this Project, has achieved a unifiedvision about social protection within the Government\. 21Risks are rated on a four-point scale (high, substantial, moderate, and low) according to the probability of occurrence and magnitudeof adverse impact\. 29  Preparation provided government with sound analytical information about Project design and lessons from international experience\. Project implementation is being coordinated by MDPand UDAPE as well\. CashBenefitsto pregnant M L women Duringproject preparation, special Targeting pregnant women and attention was paid to a set of children less than two years old to measures to maximize women's receive conditional cash transfers reproductive health, including, may create incentives to increase among others: (i) defining a benefit fecundity among beneficiary small enough to avoid being a families\. negative incentive that might induce families to have more children; (ii) putting in place mechanisms to strictly verify compliance with co- responsibilities; (iii)targeting families with children younger than 2; (iv) maintaining a flat single benefit regardless of the number of children; (v) declaring ineligible women who do not space pregnancies at least two years and nine months apart\. Implementation 1\. The Project is implementing H 1\. The Ministry of Health and Sports S capacity and two new interventions and the (MOH) which will implement the sustainability institutional and implementation MCP, has ample experience in capacity has to be built\. managing World Bank credits through the Health APL operation, 2\. Participation and commitment now inits third phase\. The Project of municipalities and prefectures i s closely coordinated with the APL during Project implementation I11intervention\. Project preparation may be weak\. focused on the main gaps regarding institutional and implementation 3\. Insufficient coordination among arrangements\. Bolivian institutions to monitor and achieve results on Project 2\. The Project includes funds to indicators\. strengthen institutional arrangements of implementing agencies\. 3\. --Government is financing pilot programs before full expansion of interventions to identify and put in place adequate implementation and coordination arrangements\. --From the outset, Project will emphasize and disseminate objectives and targets to relevant municipalities and prefectures\. --The Project involves activities to design and improve monitoring and evaluation systems for the specific interventions as well as for the 30  RPS-DIC\. --The project includes funds for carrying out a strategy to dialogue and negotiate with municipalities and prefectures their participation and, in the mid-term, co-financing the MCP and FEP programs\. S The Project will take into account management which based on regional the lessons and best practices inFM experience, are inherently risky for CCT programs described in the programs from a FMperspective\. recent study, "Control and Accountability Mechanisms in CCT 2\. A sound MIS has not yet been Programs in Latin America and the developed\. Caribbean\." Inthis regard, a significant amount of funds will be 3\. Two of the three implementing used to improve the institutional agencies do not have experience in capacity o f GOB to manage and external financial management\. implement the MCP appropriately with all required controls, including a comprehensive MIS, beneficiary surveys, complaint and feedback systems, social accountability, and control mechanisms\. These tools, along with the process evaluation and the impact evaluation, will serve to raise red flags in time to make required corrections\. The third implementing agency, the MOH, has experience managing Bank funds, and this knowledge will be transferred to the other two implementing entities\. The Project will finance activities to increase the FMcapacity of all three Ministries\. Procurement 1\. Two of the proposed three H 1\. Procurement action plans implementing agencies have little describing necessary design reforms experience with Bank operations have been agreed for each of the and might lack adequate three implementing agencies\. capabilities to carry out procurement-related processes and 2\. The Project would ensure the: (i) to establish and monitor intensive and continuous training in procurement performance procurement during Project indicators\. This may delay Project implementation; and (ii) backup implementation\. ftom Bank missions and procurement specialists\. Social and 1\. Reaching the most vulnerable M 1\. The Project will support environmental groups in the areas of intervention implementation of two targeting safeguards may be difficult given the lack of mechanisms the MCP component targeting mechanisms and the will select the poorest extended implementation of municipalities (classified according universal programs in Bolivia\. to a recently developed food insecuritv index)\. where the 31  2\. The MCP program i s an proportion of the poor population is innovative intervention which proportionally much higher than the combines social assistance with national average, ensuring that the promoting health and nutrition most vulnerable will benefit by the practices in very poor program\. The FEP will target the municipalities\. Given the features poorest from selecting students of the CCT component, its from public schools and poor urban implementation may be slower and peri-urban areas\. than expected\. 2\. The CCT component will be tailored to beneficiaries in a socially and culturally appropriate manner through a detailed social assessment prepared on the basis of wide participation and consensus\. These activities will informProject design and be incorporated in its Operational Manual\. Furthermore, these activities will complement actions developed in the ZMP and the Health APL I11operation framework\. Other Private sector involvement in the M FEP 1\. The participation of the private \. The programemphasizesbeing sector in offering internships to demand-driven following private beneficiaries of the Youth sector requirements\. The GOB will Training program is not implement and evaluate a pilot prior established\. to starting implementation\. 2\. Lack of interest from the private 2\. Preparation of the Pilot of the sector to finance the internships FEP involved work with national without a clear incentive\. and sub-national governments on the design of specific incentives to attract and ensure active private sector Darticiuation in the Droeram\. Sustainability of interventions S Financial sustainability of the 1\. During pilot phasesboth Programs supported by the Project programs will have adequate i s not guaranteed and may Government funds\. jeopardize scaling up and 2\. Financial support to scale up the institutionalization\. interventions will be designed on a decreasing basis to ensure growing government financial commitment\. 3\. The Project involves funds to design and carry out a strategy to increasingly involve sub-national authorities in the management and financing of FEP and MCP in the mid-term IV\. Overall Rir S 32  6\. Loan conditions and covenants 87\. The Project has no conditions of effectiveness\. 88\. The following documents were ready at negotiations: Operational Manual, Procurement Plan, and Annual Operation Planfor the first 18 months of Project Implementation\. 89\. The following are conditions o f disbursement: (i)for Subcomponent 1\.1 (cash transfers), (a) the M O H has established and implemented to the satisfaction of the Association the management information system to administer and monitor the Cash Transfers; and (b) contracted the financial agency or agencies to pay the Cash Transfers to beneficiaries o f the Program following the Procurement methods in Annex 8; and (ii)for Component 2, the Ministry of Labor has established and operated to the satisfaction of the Association a financial management system for the implementation of the Project\. D\. APPRAISAL SUMMARY 1\. Economic andfinancial analysis\. Poverty Effect of the Social Protection Programfor Mothers and Children 90\. This section presents the analysis of the impact of the Social Protection Program for Mothers and Children (MCP) on income poverty\. The MCP is geographically targeted to the 52 most vulnerable municipalities, measured in terms o f food insecurity\. Within these municipalities, there i s categorical targeting since the program benefits pregnant women and mothers with children under the age of two\. The benefits are not means-tested, as the incidence of poverty i s above 90 percent inthese areas\. 91\. The main objective of the program i s to reduce the prevalence o f chronic malnutrition in children less than two years old, therefore the program i s expected to have a lasting impact on the growth and development o f children\. Nevertheless, as a monetary benefit, it i s also expected to have an immediate effect on the income of beneficiary households\. 92\. The poverty effect o f the cash transfer can be modeled based on data from household surveys\. Analysis proceeded in two phases: first, household surveys were merged to get an adequately representative sample of beneficiaries; and second, the effect of the benefit on poverty was modeled\. Quantifying the poverty effect is complicated due to data constraints\. First, the sample of the surveys is relatively small\. Inresponse, three different sets of databases (household surveys from 2003-2004, 2005 and 2006) were pooled to increase the sample o f potential beneficiaries and to be able to disaggregate results -by rural areas and by department\. Samples of the surveys are independent, although it i s possible for a household to be surveyed more than once\. Once the databases were merged, the poverty effect was modeled b y simulating the poverty rate before and after receipt of the benefit\. The transfer simulated for each household was valued at 65\.6 Bs\. per month, which corresponds to a total of 1,902 Bs\. for the 29 months o f the program\. The amount of the benefit was added to household income of eligible households -thosewithpregnantwomenandchildrenunder2yearsofage\. 33  93\. The poverty headcount rate and gap were calculated ex ante and ex post, using the new household income estimates, using both the poverty and extreme poverty lines\.** Expansion factors were used for the calculation of poverty rates to maintain the population structure\. These simulations assume no behavioral change - in other words, that increased income would not change household earning patterns\. 94\. As anticipated, the project will have the greatest impact on the extreme poverty rate among potential beneficiaries in rural areas with the largest reductions in Pando (8 percentage points), Santa Cruz (7 percentage points) and Potosi (6 percentage points)\. Similarly, the M C P benefit will have a substantial impact on the extreme poverty gap - the distance o f beneficiaries from the poverty line\. Cost Benefit Analysis Results 95\. Annex 9 of the PAD shows the estimated Project costs and benefits used for the cost- benefit analysis\. CCT amounts and trainee allowances for transportation and meals are included inboth costs andbenefits -they are a cost for the project but they are also a benefit for its participants\. These flows result in an Internal Rate of Return (IRR) close to 20 percent, which i s higher than the standard discount rate used in the Bank's project evaluation of ten percent\. Moreover, it i s worth noting that, in accordance with the WHO standard, a 3 percent discount rate is generally used with income streams received by people whose premature death has been averted due to the The breakeven point occurs after 26 years of implementation considering a discount rate o f ten percent\. However, if transfers are excluded from the benefits the project's IRR falls under ten percent, though it remains over 3 percent\. Please see Annex 9 for more details\. 2\. Technical\. 96\. The Project will support implementation and scaling up of CCTs and skills development for youth, two types of interventions with generally successful outcomes\. In both cases, experiences in other countries offer valuable lessons that have helped the Government to adapt the programs to the Bolivian context\. 97\. Conditional Cash Transfer Programs - Over the last decade, CCTs have become a very popular intervention to address extreme poverty and boost demand for social services, especially, but not restricted, to education, health and nutrition\. By providing a cash transfer to poor families, these programs contribute to mitigate short-term issues of income poverty, through cash incentives to regularly attend social services, which contributes to human capital formation in the mid-term and mitigating poverty in the future\. The number of CCT programs around the world has increased impressively over the past ten years\. Latin American and the Caribbean has been a pioneer region in expanding this type of program and introducing innovations\. After Brazil, Mexico and Chile, other countries including Argentina, Colombia, '' 22Annual poverty lines corresponding to each year of the household survey were used, rather than calculating an aggregated overty rate\. Murray,C\. andLopez, A\. 1994\. Quantifyingdisability: data, methodsand results\. In: Murray,C\.J\.L\. andLopez, A\.D\., Editors, 1994\.Globalcomparative assessmentsin the healthsector: diseaseburden, expenditures, and interventions\.Bulletin of the World HealthOrganization,World HealthOrganization, Geneva(Switzerland)\. 34  Jamaica, and Nicaragua have implemented and rigorously evaluated CCT programs, showing positive results\. More recent experiences with promising results are in El Salvador, Panama, Costa Rica, and the Dominican Republic\. 98\. International experience shows that conditional cash transfers programs have been a very successful instrument to LAC- CCT programsPoverty reductionestimates (+) improve the welfare of the most Incidence Poverty Gap disadvantaged groups of the Nicaragua 2o01 -10\.2*** -13\.8*** population\. CCTs programs have Nicaragua 2o02 -6\.7 -9\.8*** resulted in poverty reduction, Mexico 1996/99 -0\.6 -4\.5 *** increased access to basic services -2\.1 ** -7\.9*** and better outcomes in education, Mexico 1999/oo Colombia (rural) 2006 -5\.4*** -6\.6** and nutrition, and increased Colombia (extreme 2006 -17\.4*** consumption, food* Recent Source: Schady, Fiszbein, & Grosh (forthcoming), except Colombia(source IFS) of conditional cash (+)Differences betweencontrol andtreatment groups transfer programs have shown that this kindof program has proven to be more effective than other transfer programs in reaching the poorest populations\. On average about 70 percent o f the transfers reach the two lowest consumption quintiles of the population, compare with less than 50 percent of other transfers, such as school feeding food distribution or scholarship^\.^^ Accordingly, impact evaluations of CCT programs inthe Latin America region have demonstrated that they have a positive impact in reducing poverty incidence and the poverty gap\. This is closely related to a significant improvement in household consumption\. In Latin America, CCT programs have had a significant income effect on beneficiary families, which has led to increased consumption, especially of food and proteins\. Spending on these kinds o f products has increased more than proportionally as a share of total household cons~mption\.~~ 99\. CCT programs have also been an effective instrument to increase beneficiaries' utilization o f basic health and education services\. Recent evaluations have shown significant improvements regarding regular monitoring of children growth and development (up to 30 percent), visits to clinics (up to 30 percent), and pre-natal check ups (up to 20 percent) (Mexico, Nicaragua, Honduras, and Colombia)\. In education, the most significant impact attributable to CCTs has been increases in secondary school enrollment rates when the program has targeted this age group (e\.g\., Mexico, Colombia, and Costa Rica)\. Inprimary education, impact has been modest, especially because inLatin America, coverage of primary education was generally high when the CCT programs started\. CCTs programs have also shown significant impact on reducing school drop out rates (Nicaragua, Mexico and Honduras)\. Although less common, CCTs programs have also demonstrated significant positive impacts in reducing chronic malnutrition; in Mexico, Colombia and Nicaragua, a reduction in chronic malnutrition (height by age) of up to 7 percentage points is attributable to the implementation of conditional cash transfers\. 100\. However, CCTs programs are only a part of comprehensive strategies focused to reduce poverty from a multi-sector approach\. Successful experiences o f CCTs programs in 24 Lindert, Skoufias and Shapiro (2006) op\. cit\. 25 Schady and Fiszbein(2007) op\. cit\. 35  Latin America have been the result of a cross-sector strategy to address supply- and demand- side barriers\. The experience in the region has demonstrated that the success of CCTs largely depends on the existence of adequate supply of social services\. From this perspective, CCTs serve as an instrument to boost demand for education, health and nutrition services, and the absence of adequate supply will likely undermine the impact of the transfers\. Using CCTs to contribute to reducing chronic malnutrition will certainly require specific interventions as part of the basic health services to address it\. 101\. From an operational perspective, Bolivia is following lessons learned from the region in order to improve the impact of the intervention, and the main features of the MCP are consistent with international practice\. Project design, which will provide support to the GOB to implement and scale up the MCP has followed basic parameters which have proven to be a key element of successful programs, but adapted to the Bolivian context\. Some of the most important aspects regarding Project design include the following: (i) the MCP will be well targeted to the poorest municipalities using only geographical targeting mechanisms; given that poverty incidence in the area of intervention in all cases is over 90 percent, using a single geographical targeting mechanism i s fully justified26; (ii) the program will develop a comprehensive MIS system to track program progress; this not only will support management of the program in the whole program cycle, but also will provide more transparency; (iii) the MCP will verify that families comply with co-responsibilities before the cash transfers are transferred to beneficiaries; experience in other countries have shown that enforcing compliance with co-responsibilities has a significant impact in using social services and having better outcomes; (iv) the program will design and implement social audit and control mechanism, as well as beneficiary surveys in order to receive feedback, resolve bottlenecks and improve transparency and credibility of the intervention\. (v) The MCP i s part o f an integral strategy led by the Ministry o f Health and Sports to prevent chronic malnutrition, In this regard, the implementation of the MCP i s accompanied b y parallel efforts to complement the monetary incentive through micronutrients as well as an adequate supply o f health services involving specific protocols for preventing malnutrition\. 102\. The MCP will introduce some innovations, which will be rigorously evaluated\. Project design involves two aspects which depart from common practices in the region\. The program has determined a very particular group o f the population as eligible; given the specific purpose of the monetary incentive, only families with pregnant women andor children younger than two can be registered in the MCP\. This approach seeks to take advantage of the window of opportunity to prevent chronic malnutrition and provide a benefit which is self sustained; this is, healthy children at two years of age will be more likely to start the learning process on time and have adequate learning capacity when enrolled in school\. Also, the previous feature of the program provides a natural exit policy for families when their children reach two year of age\. 103\. Skills Development Program for Low-income Youth - The experience of programs to - support unemployed low-income youth through vocational training linked to practical experiences in formal firms i s long in Latin America (e\.g\., Chile, Argentina, Peru, Colombia, Dominican Republic, Honduras and Uruguay among others)\. Since the 1990s several countries 26As opposedto the common two-step targeting methods used in middle-income countries based on geographical targeting and proxy meanstest mechanisms\. 36  have implemented the so called programas jdven, based on interventions to support low-income youth (between 15 and 29 years of age living in poor areas of major cities)\. The programs are based on the following premises: (i) in-class training is linkedto in-work practices in firms; (ii) as a result, training design requires previous consultation with firms in order to ensure that beneficiaries are adequately trained in duties related to the correspondent industry; and (iii) training providers are competitively selected, in fact separating financing from provision of training courses\. The purpose of these programs is to increase employability of beneficiaries, understoodas the capacity to find andmaintain ajob\. 104\. Skills development programs are targeted to vulnerable youth\. These programs usually target unemployed and inactive youth (those not studying, working, or seeking a job), most of them without complete secondary education, or those that failed to enroll in a tertiary education institution\. As a result, there i s a considerable proportion of youth who face the labor market at an early age in disadvantaged conditions; that is, youth with insufficient skills and abilities, with little or no experience, and usually discriminated against because of their age or socio-economic level\. This segment of the population usually lives in the poorest areas of the cities\. Experience in LAC has shown that longer periods of unemployment usually lead youth to be engaged in risky behavior, including participation in gangs, crime and other illegal activities; enlargestheir productivity gap; and eventually transmits poverty 105\. Successful skills development programs have been part of comprehensive strategies focused on improving basic and post-basic education\. Recent interventions in Latin America are focused on long-term strategies seeking to create human capital to reduce the risk of low productivity, insufficient education and unemployment and inactivity among youth\. These strategies seek to promote early education through well nourished children and early childhood development programs, and basic education through efforts to increase enrollment and completion of secondary, as well as improvements in quality\. Long-term interventions are complemented with short term measures to help already affected youth, including equivalent education programs as well as interventions to increase employability\. Recent evaluations results of these interventions are summarizedin the table below\. Employment Formality Earnings Argentina 0-11percent(10-30 percentfor <21) 0-3 percent (6-9 percentfor the 10percent youngest) Chile 12-18 percent (18-22percentfor the 15-23 percent (higher for the 20-25 percent youngest) youngest) Dominican R\. 3 percent(9 percentfor the youngest) 9 percentinhealth insurance 17 percent (19 percent among men) Mexico 12-30percent (on-the-job training) 10-12percent Panama 10-12percent only amongwomen 38 percentonly women Colombia 6percent 15 percent 20 percent Peru 13 percent(women 20 percenthigher 11percent (14 percent for women) 13 percent than men) Source: IDB, World ank 37  106\. The FEP has followed other experiences in the region, but will be adjusted to the Bolivian context\. The GOB has decided to implement a skills development program for low- income youth living in poor areas of the cities following lessons learned and successful experience from other countries in Latin America\. However, in order to adjust the model to the Bolivian context, the GOB decided to launch the program as a pilot, evaluate it and, on the basis of evaluation results, adjust the model before scaling it up\. In particular, the evaluation will pay attention to the following issues: (i) feasibility and administrative burden of the program in mid-size cities; (ii) general features and parameters of the model (see Annex 4 for more detail); and (iii) implementation in cities where similar interventions are in place and possible coordination mechanisms\. 3\. Fiduciary\. 1\. Financial Management Assessment 107\. As part of the preparation of the project, a Financial Management Assessment (FMA) for the Investing in Children and Youth Project was carried out on site from November 5 to 9, 2007, and updated during appraisal from January 15 to 17, 1008\. The FMA was carried out in accordance with OP/BP 10\.02 and the FMManual "Financial Management Practices in World Bank Financed Investment Operations" approved by the Financial Management Sector Board and published on November 3,2005\. 108\. The Investment in Children and Youth project will have three implementing agencies\. Component 1, which will finance benefits for mothers and children (CCTs) to reduce chronic malnutrition, will be implemented by the Ministry of Health and Sports (MoH)\. Component 2, which will finance activities to improve the effectiveness of the skills training program for low- income unemployed youth inurban and peri-urban areas, will be implemented by the Ministry o f Labor (MOL)\.And, component 3, which will finance the institutional strengthening of the Red de Protecci6n Social (RPS-DIC), will be implemented by the Ministry of Development Planning (MDP)\. The MDP as the highest decision makingagency regarding social protection policies andprograms will also be responsible for the overall coordination of the Project\. 109\. On the basis of the assessments performed, the financial management team presents the following conclusions: (9 The FM capacity assessment has identified project-specific actions in order to strengthen the FMcapacity of the various implementing agencies and enable them to carry out the financial activities of the proposed project effectively\. (ii) Specifically, the FMA identified specific conditions necessary for the implementation of the project: (i) the CCT information system should be designed and implemented, and the payment mechanism contracted and operational before disbursements can be initiated for the related sub-component (sub-component 1\.1) and (iii) theMinistryofLaborshouldhaveimplementeditsFMinformationsystembefore disbursements can start for the related component (component 2)\. 38  (iv) The FMA also includes an action plan for each agency\. Once the various agencies have carried out the proposed action plan presented in this assessment, they would have in place adequate FM arrangements that meet the Bank's minimumfiduciary requirements to manage the specific financial activities of the proposedproject\. 2\. Procurement Capacity Assessment 110\. Project procurement will be carried out by the three implementing agencies, MDP, MOH and MOL, under the coordination and general oversight of the MDP\. An assessment of the procurement capacity of the three implementing agencies (administrative units) has been completed, indicating a high risk rating\. An action plan was preparedto address the risks that were identified\. It is expectedto be fully implemented between negotiations and loan signature\. The Bank's supervision plan addresses these risks by proposing biannual procurement ex-post reviews of the entire Project for the first year\. The Project will also be subject to annual independentprocurement reviews to be contractedby the MDP\. 4\. Social\. 111\. The Project didnot require an Indigenous Peoples Plan as the overwhelming majority of its beneficiary population i s indigenous and therefore, the Project as a whole i s considered an indigenous peoplesproject\.*' 112\. Project preparation has complied with the requirements of the Bank's policy on indigenous peoples, OP 4\.10, inthe following manner: a\. Screening to identify whether Indigenous Peoples are present in, or have collective attachment to, theproject area\. 113\. The main component of the Project (Component 1, Implementing and Scaling up the Social Protection Program for Mothers and Children to combat chronic child malnutrition) will be carried out in 52 of the poorest municipalities in the country, where indigenous people represent the majority of the population (in areas where consultation took place, the proportion of indigenous population as a share of the total population in those municipalities is over 90 percent inhalf of the municipalities; andbetween 80 and 90 percent inanother 40 percent)\. b\. Majorfindingsfrom the Social Assessment and how the Project addresses them\. 114\. A social assessment was carried out as part of Project preparation (a summary including socioeconomic context, legal framework, methodology, results and recommendations is in Annex 10)\. Recommendations resultingfrom this analysis and how the project addressedthem include the following: 21 As the FirstEmploymentProgram(Component2 of the Project) focuses exclusively on urbanyouth this componentdoes not requirean IPP\. 39  115\. Incorporate a strong social marketing program\. Information about the programs i s very limited, particularly with regard to the MCP\. A comprehensive communications campaign incorporating media and other forms of communication most used by potential beneficiaries: e\.g\., through local radio stations and NGOs will be particularly crucial in this regard\. Indigenous languagesmustbe usedwhere appropriate, and localleaders should be involved\. 116\. Sub-component 1\.2 of the project will fund the design and implementation of a strategy to communicate the goals of the MCP\. Through this strategy, the Project aims to achieve three goals: improve program understanding among all stakeholders at national and sub-national levels, particularly with regard to its relevance as part of GOB efforts to tackle chronic malnutrition in rural areas, improve transparency, and boost and maintain credibility of the proposed model of intervention; complement cash benefits with a pedagogic message linked to program co-responsibilities, outcomes, social control, and accountability; and informing beneficiary communities about the program's goals and beneficiary rights and responsibilities\. 117\. The communication strategy will be focused on, but not restricted to, messages adapted to different stakeholders (e\.g\., beneficiary families, other members of the community, municipal and departmental authorities, and health and nutrition service providers)\. This will involve community instruments (radio programs, posters, outreach teams and health units, booklets and other non-written media), taking into account low literacy rates and indigenous languages, and ensuring in all cases appropriate adaptation to specific cultural and social contexts\. 118\. Bringlocal organizations into the programs immediately\. Coordination with local organizations can help build local ownership of the programs, strengthen communication and outreach, and embed the programs into the local social networks\. 119\. The project involves specific activities to create and strengthening social control and accountability mechanisms in order to improve the program's operational features and ensure that beneficiary rights, particularly those of indigenous groups, are respected\. These systems include mechanisms to receive, systematize and opportunely respond to complaints, appeals, and feedback from communities - beneficiary and non-beneficiary groups, to inform the program management team about program activities from independent sources, and to control program activities through social and technical audits\. The following activities will support the achievement of these objectives: (i) complaint and appeals mechanisms with follow up systems, including, community-based feedback through beneficiary committees and health outreach teams and units, and systems to ask questions and report irregularities; (ii) social audits; (iii) technical audits carried out by outsourced independent firms; regular and (iv) financial audits\. 120\. Ensure that quality local services are available and accessible in order that participants can fulfill their individual and collective co-responsibilities\. This i s the single most important condition for this program, and in the absence or faulty operation of health and education services at the local level, compliance and support for the project will be impossible\. The Social Assessment carried out for the Expanding Access to Reduce Health Inequalities - APL I11(Report No: 41498-BO, December 20, 2007), presents a detailed description on how the intercultural health approachcuts across most of the project components and activities\. 40  121\. Incorporate capacity building and health education into the MCP\. An enhanced family planning program will be very important in this regard\. Beneficiaries strongly emphasized that they need both the financial support and the additional information on reproductive health andfamily planning\. 122\. The project involves culturally appropriate measures to address this recommendation\. First, as part of the strategy to prevent chronic malnutrition, the basic services providedby the outreach teams and health units include (i) bimonthly monitoring of growth and development of children including weight and height of infants less than two months accompanied by individual counseling to mothers or caretakers; (ii) at least four pre-natal check ups to pregnant mothers and one post-natal health check; (iii) supplementation and fortification including food micronutrient supplementation, iron, and vitamin A for children 6-23 months; and (iv) a pedagogic approach through talks and workshops to change behaviors among beneficiary mothers regarding child care; illness recognition; home hygiene; food intake; and cooking and hand washing practices, among others\. The last measure involves family planning and reproductive health counseling\. 123\. Additionally, the cash transfers will be complemented by specific messages provided during individual counseling sessions during the regular bimonthly check ups as well as through group workshops\. The latter will focus on the program's messages about child care at home, personal hygiene, hand-washing, and diet, among other aspects\. These workshops will be provided by, or incoordination with, outreach teams and health units during payment days, and will be reinforced during bimonthly visits by health services providers\. These workshops will also serve as a mechanism to receive feedback from beneficiary families about program operation and benefits received\. 124\. Finally, the project involves beneficiary surveys\. The contents and messages involvedin the previous activities will be informed by beneficiary surveys designed and developed in the second and fourth year of the program, and will be carried out under the responsibility of the Ministry of Health and Sports incoordination with UDAPE\. 125\. Programs must be culturally and linguistically appropriate\. The importance of this factor in rural areas is evident and well-accepted\. The entire strategy, regarding the cash transfers process and the strengthening of supply involves culturally and linguistically appropriate measures to ensure that indigenous communities take full advantage of the benefits provided by the program\. 126\. Initiate a process of cultural awareness among health care professionals, and incorporate traditional professionals in systems of practice and referral\. Despite earlier attempts, traditional health care professionals, especially traditional birth attendants, have not been adequately recognized or brought into the system\. As this aspect i s related to strengthening the supply of health services, this measure has been taken into account by the measures comprised by the HealthAPL I11operation\. 127\. Build in a strong monitoring and evaluation component\. Participants and local leaders should be part of the teams for monitoring of the program\. The MCP involves both aspects\. 41  128\. First, the Project will support the GOB in implementing the Management Information System (MIS) to administer the program, follow up on physical and financial progress, and oversee the cash transfers cycle\. The MIS system for the MCP and all its required modules (registry of beneficiary and management, monitoring of co-responsibilities, payment system and conciliation, program process and product monitoring and feedback mechanisms) will be part of the Ministry of Health and Sports' Management InformationSystem (SNIS, the national health information system), currently under implementation with support from the APL I1and 111operations\. The MOH will complete the full design and testing of the MIS system by the time the Project is effective\. 129\. Second, the results and outcomes of the MCP program will be rigorously measured through an independent impact evaluation process\. The impact evaluation of the MCP will be jointly conducted and financed with the APL 111\. The MCP evaluation will involve a baseline survey and two follow-up surveys with a control and treatment group\. The treatment group will be randomly identified from the 52 municipalities covered by the first phase of the ZMP, while the control group will be similarly selected from the 112 municipalities of the second phase of the ZMP\. The PHRD grant financed a consultancy to support the Government in defining the impact evaluation methodology, completing the terms of reference to contract a specialized international firm to carry out the evaluation, and accompany the M O H in evaluating technical proposals\. Contracting for this task, estimated to cost roughly $1 million, will follow international competitive biddingprocesses, and will start once the APL I11Project i s effective\. c\. Process of prior and informed consultation with the affected indigenous peoples' communities to f i l l y identify their views and ascertain their broad community supportfor theproject 130\. Between October-December 2007 a process of informed consultation with indigenous groups took place\. For Component 1, the Social Protection Program for Mothers and Children, these consultations occurred in eight municipalities in eight of Bolivia's nine departments\. Focus group discussions were used as the primary method; the focus group is a planned exercise that is designedto elicit perceptions, opinions, and ideas from a set of individuals who share at least one relevant characteristic (for example, gender or socioeconomic status)\. It provides a safe, neutral environment, in which all participants are encouragedto contribute\. The focus group setting thus represents a natural environment where the topic of conversation i s directive, but at the same time, perceptions and ideas are expressed in the participants' own terms rather than forced into categories imposedby standard survey techniques\. 131\. Key informant interviews were conducted to provide further information in the selected communities and to confirm, validate, or modify findings derived from the focus group discussions\. The following table provides the municipalities and departments where the social assessment was carried out\. 42  Department Municipality Ethnicity - La Paz Santiago de Callapa Aymara 95% Oruro Choro Quechua 87% Chuquisaca Tarabuco Quechua 92% SantaCruz GutiCrrez Guarani 80% Potosi Betanzos Quechua 95% Tarija Yunchara Espaiiol95% Beni Loreto Mojeiio 48% Cochabamba AvoDava Ouechua 92% d\. Preparation of an Indigenous Peoples Plan or an Indigenous Peoples Planning Framework 132\. The Project does not require a stand alone Indigenous Peoples Plan, as it follows IPP requirements statedinOP 4\.10, paragraph 12, which reads: "When Indigenous Peoples are the sole or the overwhelming majority of direct project beneficiaries, the elements of an IPP should be included in the overall project design, and a separate IPP is not required\. In such cases, the Project Appraisal Document (PAD) includes a brief summary of how theproject complies with thepolicy, in particular the IPP requirements\." e\. Disclosure of the draft Indigenous Peoples Plan 133\. A summary of the Social Assessment, the major findings from the Social Assessment and how the Project addresses them, and this document are published on the webpage of UDAPE\. Safeguard policies\. 134\. The Project has an Environmental ratingof "C\." Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4\.01) [I [XI Natural Habitats (OP/BP 4\.04) [I [ XI Pest Management (OP 4\.09) [I [X 1 Cultural Property (OPN 11\.03, beingrevised as OP 4\.11) [I [ XI Involuntary Resettlement (OP/BP 4\.12) E l XI Indigenous Peoples (OP/BP 4\.10) [XI [I Forests (OP/BP 4\.36) [I [X 1 Safety of Dams (OP/BP 4\.37) [I [X 1 Projects inDisputed Areas (OP/BP 7\.60)" [I [X 1 Projects on InternationalWaterways (OP/BP 7\.50) [I [XI 5\. PolicyExceptionsand Readiness No exceptions requested\. * By supporting theproposed Project, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputedareas 43  Annex 1: Country and Sector Background BOLIVIA INVESTING INCHILDREN AND YOUTH Country Context 1\. Bolivia ranks among the poorest and most unequal countries in Latin America\. In 2006 poverty incidence in Bolivia reached close to 60 percent, with 38 percent of the population living under the extreme poverty line\.28While this i s a decrease from poverty levels in 1999, when national poverty reached 65 percent and extreme poverty was at 43 percent, inequality in Bolivia i s among the highest in Latin America and the world, and the gap may be increasing\. This is reflected in the vast disparities between the richest and poorest deciles -the richest 10 percent of households receive 47 percent of total income, whereas the poorest decile receives less than one percent\. These disparities are larger inruralareas\. 2\. Poverty i s particularly high in rural areas and among indigenous groups\. In 2006 the poverty rate for indigenous Bolivians was 69 percent, compared with 46 percent for the non- indigenous; and extreme poverty rates were (respectively) 49 percent and 21 percent\. A particular area of concern i s rural indigenous communities and households in the western highlands, who are excluded from the benefits of renewed growth and unable to respond to the opportunities available elsewhere in the economy, due to low human capital endowments that reduce their potential gains from migrating to urban areas or the eastern lowlands\. Another area of concern is vulnerable groups - especially youth - inthe marginal urban sectors of fast-growing cities such as Santa Cruz de la Sierra\. Table 1:Trends inPoverty and Extreme Poverty, 1999-2006 I 1999 2000 2001 2002 2005 2005 (a) 2006 UDAPE I I 1 I 1 I Extreme Poverty Bolivia 42\.8 45\.8 38\.8 41\.3 36\.7 38\.2 37\.7 Urban 24\.3 28\.7 26\.2 25\.7 20\.5 24\.3 23\.4 Rural 74\.2 75\.6 59\.7 66\.8 65\.6 62\.9 62\.2 Poverty Bolivia 64\.8 66\.9 63\.1 65\.1 59\.6 60\.6 59\.9 I Urban 52\.3 55\.1 54\.3 53\.9 48\.2 51\.1 50\.3 Rural 86\.1 87\.4 77\.7 83\.4 80\.0 77\.6 76\.5 Note: Differences between World Bank and NDP numbers for 2005 are due to differencein the treatment of outliers\. Sources:MECOVIdata 1999-2002;Encuestade Hogares, 2005-2006 (a) National Development Plan (2007, Decreto Supremo 29272, September 2007) ChildrenandYouth inBolivia 3\. Children and youth are particularly vulnerable to social risks\. About 60 percent of the Bolivian population i s under 25\. The poverty rate for this group i s well above the national average, and reaches over 80 percent among children under 5 years o f age in rural areas\. In general, children and youth are vulnerable to economic shocks and risks including malnutrition, 28Poverty lines based on per capitaincome\. In 2006 the poverty line was equal to 339 bolivianos (US$42) and extreme poverty 189bolivianos(US$23)\. 44  school drop outs, child labor, unemployment and inactivity\. Of particular concern in rural areas has been the stagnation in the reduction of childhood malnutrition rates, especially among the poor\. Changes in school enrollment and attendance are also troubling; between 1994 and 2003; primary enrollment among the poorest children fell from 84 percent (in 2000) to 80 percent (2004), and attendance from 84 percent to 79 percent during the same period\. Open unemployment among individuals under 25 grew from less than 5 percent in 1996 to more than 14 percent in 2005\. 4\. Progress achieved on child malnutrition in the early 1990s appears to have stagnated\. While the stunting rate improved markedly duringthe eighties and the first half o f the nineties, it has been almost flat, at 27 per cent, since 1994\. Chronic malnutrition is much higher in rural areas (42 percent), and among indigenous groups (over 50 percent using the former World Health Organization definition)\. As a result, Bolivia has one of the highest rates of malnutrition in Latin America, higher than Peru and Ecuador\. There is also substantial variation in malnutrition across regions, for example, the under-five stunting rate was 32 percent in the highland regions of L a Paz, Potosi and Oruro, while in the plains o f Santa Cruz, Beni and Pando it was 16percent in 2005\. 5\. Chronic child malnutrition undermines efforts to reduce infant mortality, tackle poverty, and sustain economic growth\. In 2003, chronic malnutrition affected one-third of Bolivian children under 5 years of age\. Apart from the cost to the health system, chronic malnutrition leads to significant loss of life\. It i s estimated that 50 percent o f under-five mortality in developing countries i s related to malnutrition; moreover, severely malnourished children have more than a five times higher risk of death in comparison with healthy children\. Infant mortality reached 86 per one thousand live births in rural areas and 94 among indigenous communities in 2003\. Even among survivors, malnutrition causes irreparable neural and physical damage, which can have severe long-term consequences for individual development and productivity, and can affect the economy as a whole\.29 6\. The poorest children are most vulnerable\. While child mortality rates have improved on the aggregate, there are large differences between the poor and the non-poor\. In 2003, the under- five mortality rate for the bottom quintile was 94 deathsA000 live births, whereas for the top quintile was 31 deaths/1000 live births\. Malnutrition in Bolivia shows a similar pattern of inequality, with a much higher probability of malnutrition for indigenous, poor and rural children\. Indigenous children have a stunting rate of 42 percent, almost twice the rate reported for the non-indigenous\. 7\. The lack of access to quality health and nutrition services contributes to vulnerabilities among poor, rural and indigenous children\. Access to health services i s difficult for poor families not only because o f the lack of providers and specialized staff, but also because o f income barriers, which prevent poor families from reaching the services, especially in rural areas\. For example, in 2003,7 out of ten women reported lack o f money as the most important problem in accessing health services when needed (80-88 percent among those from the two lowest income quintiles)\. Furthermore, more than 30 percent o f rural and poor (quintile 1) pregnant women received no pre-natal care, while 70 percent of children younger than 1 year had no postnatal *'Alderman, ~~~~ Hoddinottand Kingsley (2003) op\. cit\. 45  check-ups, among the lowest coverage rates in the region\. Less than 30 percent of the rural poor and indigenous groups gave birthinhealth institutions and were attended by health professionals\. The share of the poor with health insurance i s estimated at 6 percent, less than a third of the national average, while it i s estimated that less than 60 percent o f the poorest have access to SUMI-the supposedly universalhealth service\. Problems to accesshealth No ante- Place of birth Attention at birth No post- facilities Health MDInursd Natal Don't know natal care facility Home mid-wife Other care Income where to go Any Q1 37\.3 21\.5 77\.5 34\.4 62\.6 78\.9 88\.1 52\.6 96\.7 Q2 27\.7 45\.1 53\.9 57\.3 40\.5 69\.2 82\.3 40\.3 95\.1 43 18\.9 65\.5 32\.9 77 21\.5 78\.7 76\.7 32\.4 93\.1 Q4 9\.1 85\.5 13\.4 91\.4 7\.5 72\.4 66\.5 27\.9 90\.8 Q5 1\.7 97\.9 1\.4 98\.9 0\.8 NIA 42\.2 18 77 Avg 20\.4 57\.1 41\.8 66\.8 31\.4 75\.4 68\.5 32\.2 89\.5 8\. The table above shows that although the basic health service system has failed to reach universal coverage, especially among the rural poor, income-related factors are still the most important reason for not using available health services when required\. This phenomena demonstrates that, even though additional coverage of the basic infant maternal health service package i s required through the SUMI, targeted interventions to support families from the demand side perspective are also required\. The current government strategy involves a balance of both supply and demand side interventions\. As explained above, the MOH has targeted the most under-served municipalities in order to strengthen the supply o f health services (an intervention which i s being supported by the Bank health APL operations)\. At the same time, the MCP program, also under the responsibility of the MOH, i s mounting a conditional cash transfers program to help families access existing services\. 9\. The nutritional status of children gets markedly worse during the first years of life - especially between 6 and 24 months, when inadequate complementary feeding i s widespread\. During these critical months, babies are typically breastfed exclusively, depriving them of necessary nutrients found in solid foods\. Mothers must be educated on the need for complementary foods and other nutritional needs of their children; indeed, studies have shown that the mothers education plays a key role in her child's nutritional status (and a household's resources have a positive association with nutrition)\. While altitude has a strong inverse association, possibly linked to diet, the evidence suggests that mothers' knowledge and expectations regarding their child's nutritional state i s a key factor associated with stunting, and i s especially important among indigenous mothers\. These findings demonstrate the need for policy interventions focused on pregnancy and the first years o f life, and should aim to change mothers' expectations for their children's size by popularizing growth standards, to monitor children's growth regularly, and counseling mothers on adequate complementary feeding\. 10\. The window o f opportunity to prevent chronic malnutrition is small\. The permanent damage of malnutrition occurs from conception through age two and i s largely irreversible\. Malnourished children at two years of age will have lower learning capacity and concentration 46  problems, affecting school achievement, skills development as adolescents, and capacity to find better jobs as adults\. Critical interventions need to be targeted to pregnant mothers and children younger than 24 months through preventive and pedagogic measures\. Although supply side barriers - including insufficient provision of essential services - may be part of the cause of low access to health services, parallel demand-side interventions targeting mothers and children and supportingthem to reach those services are needed\. 11\. Tackling urban poverty i s a central challenge for the GOB\. Given rapid urbanization and growth of cities in Bolivia - including Santa Cruz de la Sierra and ElAlto - urban poverty issues have taken on a new urgency\. Youth are particularly vulnerable, as they are at greater risk of unemployment, and face particular challenges including child labor and school drop-outs, especially at the secondary level\. As a result of poor nutritional status, as well as low quality and insufficient basic and secondary education, a considerable proportion of youth do not reach tertiary education and enter the labor market at a disadvantage\. On average, only one in four Bolivians enrolls in tertiary education (only 3 percent among the lowest quintile)\. According to Government estimates, in the largest cities each year four out o f ten students completing secondary education enter the labor market as they are not enrolled in tertiary education or other post-basic education\. In the 12 largest cities, where at least 1,000 students complete secondary education annually, more than 20,000 are expected to enter the labor market every year\.30 12\. Unemployment is particularly high among poor urban youth\. For youth entering the labor market, unemployment i s a severe issue\. As in other countries, a high share of youth unemployment 2: Urban youth - i s linked to limited opportunities for new labor andinactivity Unemploy' market entrants\. Given their age, insufficient skills, Ages 18to 25 -ment Inactivity and lack of work experience, youth experience Complete Secondary 137 12 4 Incomplete Secondary 9 2 174 higher rates of unemployment when they enter the Average 13\.1 13 I labor market\. This is coupled with a tendency for 4 1 33\.7 15\.0 young people to shift more frequently betweenjobs, 42 14 7 21 5 4 3 19\.0 as they try out alternatives\. Urban unemployment 12 6 Q4 11 5 11\.0 among young people aged 18-24 reached more than Q5 10\.5 6\.3 18 percent in 2005, and as much as almost twice that Source: Encuesta de Hogares, 2005 level among the poorest, at 34 percent, in comparison with an overall urban unemployment rate of less than 8 percent\. Unemployment can lead to persistent joblessness and a higher incidence o f inactivity (youth out of school, out of the work and not seeking a job) and thus exacerbate the I I gap between skills and labor market demand, creating a ArErage Paaro\. 9Yl"tlIS , 0 Tat POP <2003>I18-24 (2005, dangerous cycle that makes it more difficult for young people to be integrated into the workplace and find productive employment\. Those who suffer from unemployment and inactivity in the early years of their working life (about 20 percent of poor youth in Bolivia) are more likely to be unemployed as adults\. Although unemployment is 30It is estimatedthat 6 percent enter the army and about 55 percent enrollin a university or a technical institution(UDAPE and Ministry of Education, 2006)\. Estimatesincludepublic schoolsonly\. 47  higher among youth with complete secondary, inactivity incidence affects especially those with incomplete secondary education\. 13\. Work experience is necessary for young people to acquire skills and overcome the barriers they face in the labor market\. A long term policy to reduce youth vulnerability requires reforms in the health and education systems, including coherent strategies to tackle chronic malnutrition, improve the quality of education and increase enrollment and completion rates, especially in secondary school\. At the same time, however, Bolivia faces the immediate challenge of a considerable proportion of low-income young people with little or no options to enroll intertiary education and insufficientqualifications to enter the formal labor market\. Inthe long term, this may create a labor force that i s not receivingthe training and skills it requires and a generation of young people without adequate occupational experience\. Therefore, in conjunction with structural reforms in health and education, there i s a need for short term interventions targeted to low-income youth who fail to enter post higher education and enter the labor market\. Social Protection inBolivia Issues in the social protection sector 14\. Spending on social protection programs in Bolivia is not high, given the level of need\. Total social protection spending in 2006 fell into the following categories: (i) and in-kind cash transfers (including contributory pensions); (ii) community and local development; and (iii) programs for expanding access to social services amounted to US$693 million, or 6\.3 percent of GDP (including pensions)\. Incontrast, the poverty gap, or'total cost of bringing all households in Bolivia up to the national poverty line in 2005 was 10\.4 percent in 2005, and 2\.7 percent for extreme poverty\. Incomparison with other countries in the region, Bolivia falls in the mid-range of spendingon social programs\.31 15\. The effectiveness of SP programs has been limited\. Despite the fact that Government expenditures on social protection have grown over the last few years, the allocation of public funds and benefits has failed to prioritize key groups and effective interventions, reducing the efficiency of the use of public funds\. In 2004, apart from resources allocated through Bonosol, the non-contributory pension program,32 about half of central Government spending in social assistance involved social funds-related expenditures, including social infrastructure (Le\., education, health, water, and sanitation) and workfare programs\. The remaining 60 percent had been fragmented into a myriad of small programs, many following no clear strategic guidelines\. Despite the influx of fiscal resources from hydrocarbon royalties and taxes (which have more 3'Including education, health andsocial protection\. 32 InNovember 2007 the Congress voted to replace the Bonosol with the Rentade Dignidad\.The changes include reducingthe age for eligibility was reducedfrom 65 to 60, increasing the level of the benefit from Bs\. 1,800 (approximatelyUS$232) to Bs, 2,400 (approximately US$309) per year\. There has also been an attempt to improve targetingby excludingbeneficiariesof the contributory pension system\. Also, the source of funding was changed from the proceeds of capitalized firms to IDHresources (changingthe distributionof funds betweenthe different levels of government)\. 48  than doubled in the last five years, reaching 12 percent of GDP in 2006) social protection programslack a stable planning framework andface volatile revenue streams\. 16\. The impact of the main social protection programs on poverty is mixed\. None of Bolivia's social protection programs uses poverty targeting at the household level, but the targeting of programs to groups such as the elderly and children has made several of the main programs progressive\. The health insurance program, SUM1i s the best targeted program, with over 60 percent of its beneficiaries in the bottom two quintiles of the per capita household income distribution, while Juancito Pinto, the School Breakfast Program and Bonosol are all slightly progressive\.The new programs of the RPS-DIC -including ZMP andFEP -incorporate elements of geographic and categorical targeting to poor areas and vulnerable groups that have the potential to improve the allocation of resources andhave measurable impacts on welfare\. The Universal Maternal and Child Health Insurance Program (SUMZ) plays a critical role in reaching mothers and children up to 5 years of age\. The Government now plans to extend coverage to the population under 21 years of age, to be financed by departmental Governments from hydrocarbons direct tax (IDH)\.Issues related to the financing and coverage of services will needto be addressedinthe context of this reform\. Bonosol has an important impact on poverty, especially in rural areas\. In the absence of the benefit, the extreme poverty rate among the population over 65 would be 19\.5 percentage points higher, and 31 percentage points higher in rural areas\. The level of the benefit at Bs\. 1,800 (approximately US$ 225 per year) represents 25 percent of total household income for the poorest quintile, this proportion falls to 5 percent for the next quintile\. The Juancito Pinto Program's objective is to promote school attendance and discourage drop- outs\. The program has no measurable impact on poverty, due to the low level of the benefit (approximately US$ 25 per child per year), made necessary by the wide scope of the program (all children in public schools up to 4' grade)\. Given the high cost of the program (US$ 31 million per year, or over 12 percent of social protection spending), its impact on its stated objective of school retention should be evaluated carefully\. 17\. Insufficient data availability for managing and analyzing social protection programs (coverage, targeting, and adequacy) limits the effectiveness of programs\. The household surveys only include questions on a handfulof programs\. The introduction of the RPS-DIC will involve the creation of an integrated MIS,with a single beneficiary registry\. Companion efforts should be made to expand the number of programs on which data is collected in household, demographic andhealthsurveys\. Government Strategy 18\. Social protection is a priority for the current Government\. The Morales Administration has prioritized social protection to tackle poverty and reduce inequality as a core element of its National Development Plan (NDP)\. The GOB'S approach aims to accelerate progress toward the reduction of poverty, inequality and exclusion through greater emphasis on the community's own capacity to identify, prioritize, execute and monitor integrated development projects; and i s based on a multisectoral and interinstitutional approach to service delivery\. The Ministry of Development Planning recently finalized the design of its Red de Protecci6n Social y Desarrollo Integral Comunitario (RPS-DIC) underthe umbrella of the NDP\. 49  19\. According to the Government decree creating the RPS-DIC, its objectives are: Contribute to the eradication of the structural causes of poverty and extreme poverty, reduce inequality gaps, eliminate all forms of exclusion, and reduce risk and vulnerability factors in the population through the targeting of productive and social investments in the poorest rural areas, the most excluded periurban areas and the most vulnerable population groups\. 0 Contribute to the recovery and strengthening of the rights and capacities of the population (economic, physical, human, natural and social), particularly rural residentsand indigenous populations\. 0 Strengthen the community values, direct social control and transparency, the own organization practices of the local populations, and cultural and territory identities through the substrategiesof Comunidades en Acci6n (in rural areas); Comunidades Reciprocas (in urban areas); and Comunidades Solidarias (for vulnerable groups)\. 20\. The RPS-DIC's policies are designed along the following six principles: 0 integrality, to contribute to developing the multiple capacities of individuals, families, social groups and communities in a equitable approach, through multisectoral interventions, as well as short, mediumand longrunprograms\. 0 territoriality, interventions will consider the community, municipality, region or national scope, acknowledging social and cultural relations established in territories, strengthening their reconstruction and generating greater equity among them and new dynamics for their interaction\. 0 community-based approach, strengthens identity and organization and self-management of local communities, either rural, indigenous, or productive, in the design, implementation, monitoring and evaluation of programs and projects\. 0 poverty reduction, programs are oriented to eradicate the structural causes of poverty, extreme poverty, marginality, and to prevent and reduce all aspects of vulnerability\. 0 self-management, aimed to strengthen self-management capacities and sustainable development of local rural, indigenous and productive communities, mainly through cash and in-kindtransfers\. 0 multisectorality, both multisectoral and territorial processes are considered to ensure a coherent and integrated development strategy\. 21\. The implementation of the RPS-DIC will be carried out considering the following three sub-strategies: (i) short-termtransitionprograms,includingPROPAIS,acommunity development program focusing on small-scaleinfrastructure; andthe Labor Intensive Job Program (EDIMO), a new workfare program to beimplementedin areas affected by natural disasters: (ii) opportunitiesandsocialassets,including:(a)theinter-governmentalZeroMalnutrition Program (ZMP), aimed to prevent malnutrition and tackle malnutrition through targeted interventions for pregnant and lactating women and children under the age of 5, this includes the 50  programof cash transfers supported by the InvestinginChildren and Youth (ICY) Project; (b) Mi Primer Empleo Digno, a new youth training programto increase youth employability, also supported by this Project; and (c) the Juancito Pinto Program, a cash transfer intended to increase enrolment and reduce drop out rates in primary public schools; and (iii) integrated community development, including three new sub-strategies Comunidades en Accio'n, ComunidadesRec@rocasand ComunidadesSolidarias: Comunidudes en Accidn (CeA) i s a rural development and social protection strategy targeted to the poorest municipalities in the country\. The approach aims to combine traditional social protection measures with efforts to stimulate productive activities and i s based on a collective focus, rather than around individuals\. Phase one of the program will involve 37 of the poorest municipalities, with a total population of 0\.51 million people\. This will amount to 6\.2 percent of the population and 10\.2 percent of the poor in the country\. The second phase will extend the program to 148 additional municipalities, involving 1\.6 million people, or 19 percent of the total population and 31 percent of the poor\. The Social Fund(FPS) will implement this program\. Communidades Rec@rocas i s the CeA companion strategy for urban areas, which will be implemented in 17 peri-urban centers around the country\. The content of the strategy i s being developed and pilot activities are underway in El Alto, based upon a community-driven development model\. Comunidades Solidarias i s the umbrella heading for a set of programs which are directed at specific population groups including the disabled, children-at-risk (including street children, child laborers, and children in prison), and the elderly\. 22\. The implementation of these sub-strategies lies on a number of government agencies\. The Ministry of Development Planning has responsibility for the overall direction, coordination and monitoring of the opportunities and social assets strategy, which comprises programs under the responsibility of the Ministries of Education, Health and Labor (including those supportedby this Project)\. The FPS (Social Fund) has a key role in the implementation, coordination and monitoring of the integrated community development and short-term transition programsonly, and has no role in the opportunities and social assets strategy, which is the one supported by the Project 23\. The new strategy is more comprehensive than past approaches\. It makes a greater effort to integrate social assistance programs and productive sector interventions, identify priority groups, and emphasize geographic targeting and social inclusion through community driven projects\. Sub-strategy Programs Status (i) Short-termtransitionprograms PROPAIS, community driven 0 Since 2004 infrastructureprograms; EDIMO, workfare in disaster- * New program, based on PLANE affected areas\. experience\. (ii) Opportunities and social assets Zero Malnutrition Program, CCT New program, launched July as part of national nutrition 2007; 51  Sub-strategy Programs Status program for mothers and children under 5; New program, to be launched in Mi Primer Empleo Digno, youth 2008; employment program; New program (launched October Juancito Pinto, annual cash 2006)\. transfer to primary school students; (iii) Integratedcommunity Comunidades en Accio'n, rural New program, to be defined; development development; Comunidades Reciprocas, urban development; New program, to be defined; Comunidades Solidarias, programs for vulnerable groups 0New program, to be defined\. e\.g\. children, elderly, disabled\. 24\. The GOB'S new strategy puts substantial emphasis on programs to invest in children and youth, who face risks including malnutrition (for young children); school drop- outs; and unemployment (for youth)\. The strategy involves a cross-sectoral approach with policies to strengthen the supply and quality of education and health, complemented by social protection interventions targeted to improve the welfare of vulnerable groups\. To achieve this goal, under the umbrellaof the RPS-DIC andundercoordination of the Ministry of Development Planning, the Government has launched two comprehensive strategies and has asked the Bank to support their implementation and scaling up - the Zero Malnutrition program (ZMP) and the FirstEmployment Program(FEP)\. 25\. The Zero Malnutrition Program (ZMP) is a flagship program of the current Administration, formally launched in July 2007\. Its objective i s to meet the nutritional requirements of children under 5 years old, with emphasis on those under 2 years old, and pregnant and lactating women, contributing to the eradication of malnutrition in the most vulnerable areas of the country\. 26\. The ZMP's main activities include: (i) establishment of a massive consumption of the Fortified Complementary Food (FCF) for children between 6-23 months and pregnant and lactating women, this also aims to promote the participation of small local agriculture producers and small and medium enterprises in the elaboration process of FCF; (ii) carrying out literacy and Information, Education and Communication (IEC) activities to strengthen the knowledge and practices of rural households; (iii) the development of Rural Integral Nutritional Networks (RINN) based on apreventive approach in coordination with health networks; and (iv) expanded access to drinking water and sanitation\. The ZMP program i s being supported both by the ICY Project (through the MCP), as well as through the World Bank Health Project APL 111, which will strengthen the supply of health services in the target 52  areas\. This complementarityof efforts to strengthen the supply and demand for nutrition services will be critical for the program's success\. 27\. First Employment Program (FEP)\. The second program aims to expand employment opportunities of low-income young people in urban and peri-urban areas\. This program implemented by the Ministry of Labor in partnership with the Ministry of Development Planning, includes two components targeted to youth with complete secondary education, consistent with the Government's efforts to promote secondary completion rates\. However, over the course of implementation, the Government will assess the possibility of including beneficiaries 18-29 year olds with incomplete secondaryeducation\. 28\. The Ministry of Development Planning has responsibility for the RPS-DIC, with analytical and policy support from UDAPE\. The MDP has also created a Technical Coordination Unit to coordinate and monitor the programs included in the Social Protection Network\. The creation of the Social Protection Network (RPS-DIC) may involve consolidation, and/or coordination of institutions and agencies involved in social protection, and represents an opportunity to support integration and coordination of program administration for efficiency gains, for example, through linking information systems of programs administered by different agencies\. 53  ANNEX 1A THEZERO MALNUTRITIONPROGRAM 1\. The Zero Malnutrition Program (ZMP) i s one the priority programs of the Morales administration\. The objective of the program i s to enable children under 5 years old, with emphasis on those under 2 years old and pregnant and lactating women, to meet their special nutrition-related needs, contributing to the eradication o f malnutrition in the most vulnerable areas of the country\. 2\. Description\. The program's main activities include: (i) establishment of a massive the consumption of Fortified Complementary Food (FCF) for children between 6-23 months and pregnant and lactating women, which will also promote the participation o f small local agriculture producers and small and medium enterprises; (ii)carrying out literacy and Information, Education and Communication (IEC) activities to strengthen households' nutritional knowledge and practices; (iii) the development o f Rural Integral Nutritional Networks (RINN) based on a preventive approach coordinated with health networks; and (iv) expanded access to drinking water and sanitation\. In addition, a conditional cash transfer (CCT) will be implemented in the 52 most vulnerable municipalities, those prioritized under Phase 1 o f the Program\. This transfer constitutes a demand-side intervention aimed at increasing the utilization o f health services to prevent chronic malnutrition in children under 2 years\. The ICY Project will support the design and implementation o f this CCT\. The provision o f health services in these municipalities will be strengthened through the Familiar, Community and Intercultural Health Strategy, which i s being designed by the MOH\. This supply-side strengthening intervention will be supported by Bank's Health APL 111\. 3\. Target GroupsBeneficiaries\. The program i s expected to be implemented in two phases in four and a half years, from 2007 to 2011\. Beneficiaries of the first phase include children under 5 and pregnant and lactating women in the 52 most vulnerable municipalities\. The second phase will comprise interventions in the next 114 most vulnerable municipalities\. Targeting criteria for the first phase require that: (i) the municipality should be the most vulnerable interms of food security; (ii) the municipality must be eligible under the social protection program named Cornunidudes en Accidn; and (iii) municipality had to be selected in the ZMP sample the baseline\. 4\. Financing\. The total cost of the program i s estimated to reach US$ 106 million\. The program i s being supported by a multi-donor project (US$lO million), involving mainly UN agencies-WFP, UNICEF, PAHO, UNFPA and FAO\. The Government expects that most of the resources will come from municipal Governments\. There is a Supreme Decree establishing that municipalities should assign resources from the IDH for the acquisition and distribution of complementary food to children 6 to 23 months\. Additionally, the Bank will provide financial support (as well as technical assistance) for the MCP program, approximately US$ 7\.5 million through the Investing in Children and Youth Project; while the Health APL I11i s expected to allocate US$9\.7 million to the MOH's Familiar, Community and Intercultural Health Strategy to strengthen service provision inthe municipalities targeted by the ZMP\. 54  5\. Znstitutional Responsibilities\. Given the multi-causal nature of malnutrition, an inter- institutional committee known as CONAN (National Council o f Food and Nutrition), under the office of the President, was reactivated for the implementation o f the program\. While the ZMP i s under the technical leadership of the Ministry of Health and Sports (MOH), other institutions participating in the CONAN include the ministries of the Presidency, Development Planning, Finance, Education, Production and Micro-enterprise, Rural Development, Agriculture and Environment, as well as representatives from civil society\. To ensure adequate implementation andfinancial sustainability, municipalitiesas well as NGOswill be involved\. 6\. Implementation Arrangements\. The program will be implemented in four and a half years, from the beginning of 2007 through the end of 2011\. It will be encompass two phases, the first one will focus its interventions in 52 municipalities VAM 4 and 5, and the second one will extend its interventions to the remaining 112 municipalities VAM 4 and 5, with a possible expansion to municipalities VAM 3\. 7\. Program implementation is under the political responsibility of the CONAN, led by the President of the Republic, and under the technical leadership o f the Ministry of Health and Sports\. Coordination and management will be centralized by the Feed and Nutrition Unit, which i s under the General Direction of Health in the MOH\. At the departmental level, the technical team of each SEDES will be in charge of implementing the activities o f the Program\. At the municipal and health network levels, the Network Manager, technical teams and staff of health facilities are responsible for implementing the Program's activities at the three levels of the health system\. The DILOS and communities will support and oversee the implementation of the Program\. An Integral Nutrition Unit (UNI)will be created in at least one of the health facilities of each Health Network, whose technical team will lead activities aimed at preventing malnutrition and promoting adequate feeding practices in its area of influence\. In addition, the UNI team will provide technical assistance to health staff\. 55  Extreme Global Infant Municipality Population Population Vulnerability Poverty poverty Mortality Fecundity less than 5 Index group incidence incidence Preva'ence rate rate ~~~~~~~~~~~~~~~~~ Oruro ElChoro I 8\.187 I 0\.965I 5 I 99\.2I 80\.4I 15\.38I 81I 3\.7 Potosi 56  Exaltacih 12\.206 2\.029 4 94\.7 40\.4 26\.78 56 7\.3 Loreto 0\.673 3\.908 4 96\.4 53\.1 15\.22 78 6\.8 Puerto Siles 0\.987 0\.15 4 97\.1 23\.6 16\.79 70 5\.4 57  Annex 2: Major Related Projects Financedby the Bankand/or other Agencies BOLIVIA INVESTING INCHILDRENAND YOUTH 1 Kprojects: Amount Financier DOAPRatings Sector Issue Satisfactory Program of dialogue and evidence-based (Phases 1and analysis which aims to support the implementation of the social protection network, and is contributing analytical inputs and international experience to the Bolivia ICY Project's design\. Program is in its second stage and includes an analysis of the potential of local institutions, to contribute to service delivery; urban social protection; and international experience on communal involvement in social protection\. Health Sector US$18\.5 IDA Not rated yet Project's objective is to (a) increase ReformProject, million coverage and quality of health services ThirdPhase (APL equivalent and related programs to improve the 111) population's health (specifically mothers and children) and to empower communities to improve their health status; and (b) strengthen national, regional, and local capacities to respond to health needs\. US$10 IDA Not rated yet The project development objective is to Education million support the Municipal Government's Transformation equivalent education strategy, by (i)increasing access to secondary education for adolescents and young people and improving their permanence in the education system; (ii)improving quality and relevance o f primary and secondary education; and (iii)strengthening the decentralized education management capacity of the Municipality of La Paz\. Global Alliance For US$2\.69 Trust Fund To support the Government's national ImprovedNutrition million food fortification program to reduce Trust Fund nutritional deficiencies in the population, particularly for pregnant and lactating women and children under five years of 58  Relatedprojectsb jther internationalagencies: Agency or Amount Implementation Sector Issue Program Date Hygieneand 880,000 Eu\. Nov\. 2007-March Institutional strengthening focused on link BasicHealth 2008 between innovation processes at a regional Care Program level and development of health policies and (PROHISABA) the national level\. UnitedNations USD 16,000 On-going Strengthening the PopulationFund formulatiodimplementation monitoring, and (UNFPA) evaluation capacity of health policies and sexual and reproductive rights to promote equitable access to sexual and reproductive health\. UnitedNations USD56,900 On-going Prevention plan for adolescent pregnancy\. PopulationFund Available health services for teenagers, (UNFPA) youth, and women in the context of SUSALUD\. Appropriate age registry of specific health care provision of services applying the SNIS tools\. 59  Annex 3: ResultsFrameworkand Monitoring BOLIVIA INVESTING INCHILDRENAND YOUTH Annex 3: Indicators PDO Outcome indicators Use of Project Outcome Information Contribute to reduce the Percentage of 2 year old children with a height for age Assess prevalence of chronic over 22 scores in the intervention areas\. effectiveness of malnutrition among the MCP program children younger than 2 in Percentage of mothers with children younger than 2 living the 52 most vulnerable inthe targeted municipalities receiving transfers (as a Assess extend to municipalities share of estimated total number of mothers with children which the MCP younger than 2 in the targeted municipalities) reachesthe targeted Proportion of children participating in the program with population anemia\. Assess extent to Percentage of beneficiary women who know their rights to which the MCP access services and co-responsibilities to participate in the provides the poor program with sufficient incentives to access health and nutrition services Increase the Percentage of beneficiaries with an employment contract Assess extent to employability of low- four months after the end of the internship phase (as a which the FEP income youth aged 18-24 share of all beneficiaries who completed the internship reachesthe living in urban and peri- every year) poorest youths urban areas Proportion of beneficiaries enrolled during the expansion Assess extent to of the program that are poor which the FEP enhances employability of registered youth\. Enhance GOB capacity of Annual reports on RPS-DIC programs' progress submitted coordinate, monitor and to CONAPES including analysis of indicators, programs' evaluate the RPS-DIC harmonization, and implementation\. and design a mid-term SP strategy 60  Outcomes 1 Monitoring - Percentage of target population enrolled in the Measure readiness of the MCP program maternal and infant project areas\. health services - Number of municipalities with adequateIT- - related equipment and connected with the MIS\. - MIS system completed and operational\. Proportion of children under 2 years old who Assess extent to which the MCP participate in growth monitoring sessions in the provides the poor with sufficient I - areas of intervention\. incentives to access health and nutrition Proportion of pregnant women living in the services - targeted areas with comolete ore-natal controls\. Proportion of women receiving post natal care - within seven days of delivery Proportion of women participating in the program Monitor the effectiveness o f the MCP with sufficient knowledge about child care, food - consumption, home hygiene\. Proportion of bi-monthly reports on compliance with co-responsibilities systematized through the - MIS Proportion of payment agencies with enough - funds to oav beneficiaries on time\. - Proportion of complaints resolved by the program Proportion of indigenous women satisfied with - the program Proportion of registered women participating in Measure coverage of the MCP - IEC activities Number of municipalities with signed agreements - to enter the MCP\. Proportion of registered woman receiving transfers regularly\. Component 2: - National Technical Unit for FEPfully staffed and Measure improvements in the FEP Develop skills of low- operational (as described in the operational income youth manual)\. =Number of departmental Unitsfor Employment Promotion with adequate staffing, operating and connected to the MIS\. (as described in the - operational manual)\. Monitoring Information System designed and --operational Processevaluation designed and implemented System to certify providers tested and - operational\. Targeting mechanism to select low-income - youths designed and tested\. Proportion of youth enrolled in the program and fifth completing the in-class phase of the program\. Component 3: - RPS-DIC National coordination unit fully staffed Monitors improvements of the Ministry Enhance government and operational with adequate equipment as of Development Planning to coordinate capacity to described in the Operational Manual and monitor the RPS-DIC and coordinate, monitor coordinate the Project 61  Intermediate Intermediate Outcome Indicators I Use of Intermediate Outcome Outcomes Monitoring and evaluatethe RPS- DIC\. -Registry of Beneficiaries and MonitoringSystem -designed\. Annual reports on RPS-DICprograms' progress submittedto CONAPES includinganalysis of indicators, programs' harmonization, and -implementation\. At least 3 RPS-DICprogramsevaluatedby Increasethe evaluation of RPS-DIC UDAPE using non-experimentalapproaches, and programs reports disseminated 62  5 + S \.Cci S\.r tt nE 8 C 0 F L 9\. 0 8 9\. vl r4 ,m vl 0000  - 0 t Q - 0 z 3 3 m i Y- 000 kkk i0 000 LLL L - - 3; !  a be, - `13 1 z JZ 83 5 W e, Q 0Y z 5 W e, Q3 *  Arrangement for Results Monitoring 8\. The results monitoring of this Project will depend on data from various institutions at the central Government level\. However, as part of its role as stewardship of the Social Protection Network, the Ministry of Development Planning with UDAPE's support, will coordinate with relevant agencies the provision of timely information to track Project progress\. The Ministry of Health and Sports (MOH) and the Ministry of Labor (MOL) will be the primary agencies responsible for ensuring that information to follow up components 1 and 2 is readily available\. These mechanisms to ensure that the Project as well as the programs that it supports- the Social Protection Program for Mothers and Children and the First Employment Program- are well tracked and/or adjusted with the support of the proposed IDA credit\. These will involve systems to follow up on inputs and results of physical and financial progress, evaluations to assess processes and operations and to measure the impact of the MCP; surveys to provide insight on beneficiaries' knowledge and perceptions about programs, and social audit and local controls\. 9\. The main source to monitor Project results will be Management Information Systems\. Two systems will be administered by the Ministries of Health and Labor for the Social Protection for Mothers and Children and First Employment programs, respectively\. In both cases the MIS will collect information and generate reports regarding the progress of the programs\. In the case of the MCP, most of the information will be gathered by local units of the Ministry of Health and Sports (outreach teams and health units) and from the payment agencies responsible for disbursing transfers to beneficiaries\. The M I S for the FEP will collect information from supervision reports generatedby local M O L offices inpilot cities\. It i s expected that both MIS's will be able to provide bi-monthly reports on basic indicators and semi-annually on more complex outputs\. The Ministries of Health and Labor are responsible for tracking the programs in a very detailed manner\. The Ministry of Development Planning and UDAPE will define the frequency, content and methodology of reports that both Ministers should furnish in order to consolidate and monitor progress\. The basic design of these systems has been completed using preparation funds, and the Project will finance their full implementation\. 10\. Process evaluations for the MCP and FEP will help Project management to understand operational aspects and possible implementation bottlenecks of both programs\. Each program supported by the Project will be subject to an evaluation to assess the efficiency of the implementation arrangements and the quality of the management information systems and benefit delivery\. Inboth cases, process evaluations will be carried out after the first stage of the program\. The MCP's processes will be evaluated when the first ten municipalities have been incorporated in the program and families are regularly receiving benefits\. The evaluation will inform the program's expansion to the remaining 42 municipalities scheduled for the first phase of the Program\. The FEPprogram will evaluate the pilot intervention to provide inputs to adjust the model before its expansion\. Such evaluations will be contracted out to specialized firms by the respectiveMinistries\. 11\. The MCP will have two additional tools to monitor results - a beneficiary survey and an impact evaluation\. A beneficiary survey will be carried out about one year after the full expansion has been reached (about two years after effectiveness)\. The beneficiary survey will provide information about registered mothers' perceptions, knowledge and understanding of the 66  program, including its rules and objectives\. These arrangements will be important not only to provide valuable information to monitor results, but also to adjust key instruments to support beneficiaries, particularly the communication and education strategies\. The MCP's impact on household welfare will be measured through a rigorous evaluation, financed by the Health APL I11operation\. The impact evaluation will includeboth quantitative and qualitative elements\. The quantitative part of the impact evaluation will be of experimental design using control and treatment groups, a baseline and two follow up surveys\. The baseline, which will be collected before the intervention starts inthe treatment group, will include a targeting analysis\. The follow up surveys will track outcome indicators to measureprogram impact and assess the sustainability of the interventions\. The quantitative aspect of the evaluation will be complemented by qualitative assessment at the community level using focus groups\. This aspect of the evaluation will provide more detailed information on the functioning of the program from the perspective of beneficiary communities (including both households that were and were not included in the program)\. The impact evaluation will provide information on outcomes related to nutrition and the healthstatus of mothers and children\. Both the beneficiary surveys and the impact evaluation will be contracted out to specialized firms by the Ministry of Health and Sports\. For the impact evaluation, firm selection will follow international competitive bidding (ICB) procedures\. 12\. UDAPEis responsiblefor the monitoringand evaluation of RPS-DICprograms\. The ICY project will provide financing for at least three evaluations to be conducted using non experimental design\. These will include: (i) evaluation of the pilot of the FEP program; (ii) a process evaluation of the first 10 municipalities included in the MCP; and (iii) an additional evaluation of another program included in the RPS-DIC - to be selected during implementation\. The surveys will be financed by the Project and the analysis will be conducted by the Sub- Direction for Policies inUDAPE\. 67  Annex 4: DetailedProjectDescription BOLIVIAINVESTINGINCHILDRENAND YOUTH Projectdescription 1\. The Investing in Children and Youth Project is aimed at supporting the social protectionpolicy of the BolivianGovernment\. Specifically, the Project will contribute to the GOB'S efforts to tackle chronic malnutrition in rural areas, support unemployed and inactive youth in urban and peri-urban areas, and strengthen overall monitoring and supervision of the social protection network\.The IDA Credit for US$17 million equivalent will contribute to the design, implementation and consolidation of interventions to prevent chronic malnutrition in the 52 most vulnerable municipalities, benefiting about 45,000 families, and to the improvement of the effectiveness of a skills development intervention to increasethe ability of about 14,000 low- income youth living in poor urban and peri-urban areas to find and maintain a decent job\. Additionally, the IDA credit will provide funds to support the MDP in the monitoring and supervision of the social protection network (RPS-DIC)\. The IDA Credit will be complemented by Government counterpart funds equivalent to US$2\.55 million and the funds will be disbursed over a five-year time period\. ProjectComponents 2\. Component 1 Implementing and scaling up the Social Protection Program for - Mothers and Children to combat chronic malnutrition ($12\.4 million IDA funds; $2\.5 million Government counterpart funds) The Project will contribute to the Government's strategy for reducingchronic malnutrition by implementing and scaling up a program of cash transfers to families with pregnant women and/or mothers of children younger than two years of age\. The objective of this intervention is to create an incentive for very poor families to invest in the healthand nutritional status of young childrenandto provide financial support to increase the food consumption of beneficiary households\. The Social Protection Program for Mothers and Children (MCP) i s part of the Zero Malnutrition Program and will be implemented in the 164 municipalities targeted by the ZMP using the vulnerability index\.33The Project will support the Government to implement the MCP in the 52 most vulnerable municipalitieswhere the program will benefit about 45,000 of the poorest families inthe country\. 3\. The Investment in Children and Youth Project will be implementedin close coordination with the Health APL I11operation approved by the Board on January 24, 2008, including: (i) most of the municipalities supported by the Project through this component are also part of the area of intervention of the APL I1and I11to strengthen supply of maternal and infant health services; (ii) implementation arrangements within the Ministry of Health and Sports are the 33The vulnerability index results from the combination of 16 indicators - two indicators of risk to food insecurity (percentage of surface with livestock use at risk o f drought or very high flood) and 14 indicators to the response capacity o f the population (access road, number of markets, per capita income, extreme poverty, number o f activities in which i s occupied the population, deliveries attended by specialized personnel deliveries served in health facilities, access to sources of drinking water, dwellings with connection to sewerage, rate of illiteracy o f men, rate o f illiteracy of women, school assistance for men from 4 to 19 years old, school assistance for women from 4 to 19 years of age, use o f electric power)\. Mapa de Vulnerabilidad a la Inseguridad Alimentaria por Organizaciones Comunitarias, MACMSINSAAT - PMA, 2003\. This index classifies municipalities in 5 categories -category 1 the least vulnerable and category 5 the most vulnerable\. The index classified 314 out o f the 327 Bolivian municipalities\. The ZMP targets all municipalities in category 4 and 5\. 68  similar for both projects (through the Planning Direction) to ensure not only adequate coordination between the projects, but also full institutionalization within the Ministry's administrative organization; (iii) the MIS system for the Social Protection Program for Mothers and Children will be fully embeddedinthe SNIS (National Health InformationSystem) which i s beingfully updatedby the APL I1and 111; and (iv) the impact evaluation of both project will be developedjointly and financed by the APL 111\. 4\. This component comprises three sets of activities: (i) financing the cash transfers for eligible households; (ii)developing and implementing an information, education and communication (IEC) strategy, and (iii) supporting the Ministry of Health and Sports (MOH) to administer and monitor the program\. 5\. Sub-component 1\.1 Benefits for Mothers and Children to combat chronic malnutrition ($9\.5m IDA, $2\.0m GOB) - The Project will finance the cash transfers and associated administrative costs (estimated to be roughly 3 percent of the amount of the transfers34) to beneficiaries registered in the MCP during the first three years of Project implementation\. It i s estimated that the Project will benefit about 45,000 families with cash transfers\. The MCP will provide cash transfers to eligible beneficiaries subject to regular utilization of maternal and infant health services\. The main features of the Program that will be supported by the Project are summarizedbelow: 6\. Eligibility criteria\. Given that poverty incidence inthe selected municipalities is over 90 percent on average (2001 estimates -see table in Annex l), MCP will rely on geographic the targeting to select beneficiary families\. Eligible families will be those with pregnant women and children younger than 2 years of age living in the targeted 52 municipalities, without any additional mechanism to select beneficiaries\. Beneficiary families will receive the transfer for up to 33 months\. 7\. Co-responsibilities\. Activities with which eligible women and children should comply are as follows: (i) least three-natal check-ups for pregnant women; (ii) scheduledpost-natal At the control; and (iii) bimonthly visits to health service providers (outreach teams or health units) to monitor growth and development of children until they reach 24 months of age, to receive individual counseling on child care, health, and sexual and reproductive health, and to attend regular workshops and training (during payment days) on common issues related to home hygiene, food consumption, and hand-washing, among others\. 8\. The Program was designed to optimize the reproductive health of mothers3? (i) the program will provide additional information about reproductive and sexual health through bimonthly individual counseling sessions, as well as group workshops; (ii) the benefit i s set low enough to avoid encouraging women to get pregnant in order to receive the benefit; and (iii) the program has established that women can re-enter only if pregnancy intervals are at least 33 months\. 34This i s slightly higher than other programs in the LAC Region; this i s due to the size of the Program and the geographical distances of target populations\. 35Evidence on the demographic effects of transfer programs is scant and inconclusive\. The Project's impact evaluation will examine this issue\. 69  9\. Benefits to Mothers and Children and frequency - The cash transfer to eligible families will be equivalent to about 10 percent of average household consumption for up to 33 months\. The incentive will be transferred preferably to mothers, although the household may decide who can receive it\. The monthly transfer amount will vary depending on the condition of the mother - during pregnancy mothers will receive the equivalent of up to three transfers of about Bs\. 70 each\. The total amount received b y each mother will depend on her attendance at pre-scheduled pre-natal check ups\. Once the child i s born, mothers will receive a bimonthly transfer o f Bs\. 135 every two months for up to 24 months\. The mother will receive an additional incentive of Bs\. 70, provided that she complies with the scheduled post-natal control\. 10\. Registry and re-entering in the program - Municipal and household participation in the MCP i s voluntary and subject to signing an agreement with the program\. After a municipality has been incorporated in the MCP, the initial registry o f beneficiaries will include pregnant women and mothers with children younger than 1year of age, given that the "graduation" age i s 24 months and registering beneficiaries may take a few months in the initial stages of the program\. After the initial registry i s compiled, outreach teams and health units will register new pregnant women every two months and will schedule pre-natal check ups for them\. A mother can re-enter the program once her child has graduated and a new birth i s scheduled at least 9 months after graduation o f the previous child\. 11\. Phasing in o f the M C P in eligible municipalities - The MCP is an innovative intervention adapted to the Bolivian context and designed following lessons learned from existing CCT programs in other L A C countries\. For this reason, the Government has decided to scale it up gradually\. A first stage will involve ten municipalities to test, adjust and fine tune the operational aspects o f the program\. The criteria used to select the initial set of municipalities were to: (i) be part of the 52 municipalities comprising the phase one of the ZMP; (ii) an have adequate supply of health services, (iii)demonstrate receptiveness of the local health administration; and (iv) have adequate transport and accessibility\. The second stage will involve the 42 additional municipalities targeted in Phase Iof the ZMP and will be carried out based on the assessment o f the experience from the first 10 municipalities\. Phase I1of the ZMP will incorporate the remaining municipalities to complete the 164targeted by the ZMP\. The Project is not expected to provide financial support to the expansion of Phase 11\. 12\. To ensure sustainability of the intervention, the Project will finance the first three years of transfers to registered mothers during pregnancy and the first two years after birth\. From2010 on, GOB counterpart funds will increasingly finance the cash transfers for families registered in the program until that year inclusive\. To finance additional families (Le\., those registered from 2011 on, the GOB will appropriate additional funds\. However, in addition to the direct impact that the program i s expected to have on children registered in the program in terms o f height and cognitive skills development, it i s also expected that changing behaviors and additional knowledge of nutrition and infant health there will be a positive effect on siblings born after the last registration\. 13\. Verification that beneficiaries of the program comply with co-responsibilities - Cash benefits to families are subject to compliance with co-responsibilities\. Therefore, the program has designed a process to systematically verify that registered households and participant communities are doing so\. Information on compliance will be collected by outreach teams and 70  health units during bi-monthly check ups, and directly entered into the M I S at the municipal level\. The program has designed a set of rules to determine when cash benefits should be suspended and under which circumstances families can receive the transfers again\. 14\. Payment system to disburse transfers to beneficiaries of the programs - The payment system to transfer cash transfers to beneficiary families will involve a combination of financial agencies\. The Government has grouped the 52 targeted municipalities according to their geographical location and presence of commercial financial andbanking institutions\. Contracted institutions will be responsible for delivering cash to families every two months according to an authorized list sent by the Ministry of Health and Sports\. Funds will be transferred directly from the Ministry of Finance to each of the payment agencies according to M O H authorization\. Payment institutions will establish temporary offices and/or posts during payment days in pre- specified places\. 15\. Supply of maternal and infant health services in the areas of intervention of the MCP - One of the most important criteria for participating in the MCP is an adequate supply o f basic maternal and infant health and nutrition services\. As part of the ZMP, the GOB has a solid strategy to provide an adequate supply of health services inthe targeted municipalities, supported by the health APL operations\. The S U M I health services comprise a protocol o f 547 interventions for pregnant women and children less than 5 years o f age in five areas: pregnancy; neonatology; pediatrics; oral health; and laboratory and blood services\. As part of the strategy to prevent chronic malnutrition, the basic services provided b y the outreach teams and health units include: (i) bimonthly monitoring o f growth and development of children including weight and height o f infants less than two months accompanied by individual counseling to mothers or caretakers; (ii) at least four pre-natal check ups to pregnant mothers and one post-natal health check; (iii)food supplementation and fortification including micronutrient supplementation, iron, and vitamin A for children 6-23 months; and (iv) a pedagogic approach through talks and workshops to change behaviors among beneficiary mothers regarding child care; illness recognition; home hygiene; food intake; andcooking and hand washing practices, among others\. 16\. The Health APL I1and I11IDA operations are supporting the MOH to strengthen the supply of infant and maternal healththrough the SUMIinthe targeted municipalities\. Specifically, for the 52 municipalities to be incorporated in the M C P in 2008 and 2009 (Phase 1 of the ZMP), the MOH i s using APL I1funds to strengthen maternal and infant health and nutrition services in the first group of 10 municipalities\. Once the APL I11 i s approved and effective (estimated effective date i s the first semester of C Y 2008), the M O H will support the supply in an additional 26 out of the remaining 42 municipalities targeted in Phase 1\. During the first year o f Project implementation the Government i s committed to ensuring adequate financing to strengthen the supply of basic services in the remaining 16 municipalities, after a thorough analysis of the needs andrequirements ineach of them\. 17\. Sub-component 1\.2 Information, Communication and Education Strategy ($0\.4m IDA)- The Project will provide support to design and implement a comprehensive campaign to accompany the MCP, reinforcing the program's messages and objectives, raising awareness among communities and eligible groups, and improving beneficiaries', staff of the MOH, and civil society's understanding of the MCP\. In achieving these aims the Project will finance four sets of activities: (i)communication campaigns to complement the MCP and strengthen the 71  messages that the program intends to send; (ii) and workshops for beneficiary mothers to training ensure that the program's messages about maternal and infant health and nutrition are well understood; (iii)training and technical assistance to health staff involved in the MCP; and (iv) designof specific protocols for individualcounseling\. 18\. Communication strategy - The Project will fund the design and implementation of a strategyto communicate the goals of the MCP\. Through this strategy, the Project aims to achieve three goals: improve program understanding among all stakeholders at national and sub-national levels, particularly with regard to its relevance as part of GOB efforts to tackle chronic malnutrition in rural areas, improve transparency, and boost and maintain credibility of the proposed model of intervention; complement cash benefits with a pedagogic message linked to program co-responsibilities, outcomes, social control, and accountability; and informing beneficiary communities about the program's goals and beneficiary rightsand responsibilities\. 19\. The communication strategy will be focused on, but not restricted to, messages adapted to different stakeholders (e\.g\., beneficiary families, other members of the community, municipal and departmental authorities, and health and nutrition service providers)\. This will involve community instruments (radio programs, posters, outreach teams and health units, booklets and other non-written media), taking into account low literacy rates and indigenous languages, and ensuring in all cases appropriate adaptation to specific cultural and social contexts\. 20\. Workshops for beneficiary mothers - Cash transfers will be complemented by specific messages provided during individual counseling sessions duringthe regular bimonthly check ups as well as through group workshops\. The latter will focus on the program's messages about child care at home, personal hygiene, hand-washing, and diet, among other aspects\. These workshops will be provided by, or in coordination with, outreach teams and health units during payment days, and will be reinforced during bimonthly visits by health services providers\. These workshops will also serve as a mechanism to receive feedback from beneficiary families about program operation andbenefits received\. 21\. Technical assistance and meetings for health staff\. The program will also provide workshops, training and regular meetings with health personnel involved in the implementation of the MCP to disseminate and discuss the program's characteristics, provide feedback on operational aspects as well and the supply of health and nutrition\. Technical assistance and training to health staff will be coordinated and/or provided by the unit responsible for the program in the Ministry of Health and Sports, in coordination with sub-national health system offices\. 22\. Designing and adiusting specific health protocols for individual counseling - The Project will support the Ministry of Health and Sports in regular evaluations of the protocol for individual counseling, which has proven to be a key element of strategies to prevent chronic malnutrition in other countries\. This involves the development of specific protocols, including sexual and reproductive health, specially tailored to local culture and social practices\. The protocols will be reviewed periodically by a specialized team of the ZMP and adjusted as needed\. Accordingly, the program will provide adequate training and re-training to personnel responsiblefor providing individual counseling\. 72  23\. Sub-component 1\.3 Management and Monitoring the MCP ($2\.5m IDA; $0Sm GOB)- This sub-component i s aimed at strengthening the technical unit within the Ministry of Health and Sports responsible for administering the MCP\. The goal is to enhance the implementation capacity of its staff, providing mechanisms to monitor, follow up, and oversee the program, and funding costs to administer the credit\. The following activities are envisaged: 24\. Strengtheningthe Managing Information System for the MCP\. The Project will support the GOB in implementingthe Management Information System (MIS) to administer the program, follow up on physical and financial progress, and oversee the cash transfers cycle\. The MIS system for the MCP and all its required modules (registry of beneficiary and management, monitoring of co-responsibilities, payment system and conciliation, program process and product monitoring and feedback mechanisms) will be part of the Ministry of Health and Sportss' Management Information System (SNIS, the national health information system), currently under implementation with support from the APL I1and 111operations\. The M O H will complete the full design and testing of the MIS system by the time the Project i s effective\. The Project will support the MOH in implementing the system through procuring the required IT-related system and software Project, and financing additional consultant services and training\. 25\. Social control and accountability mechanisms\. The Project seeks to strengthen the governance of the MCP through improved oversight and accountability systems, in order to improve the program's operational features and ensure that beneficiary rights, particularly those of indigenous groups, are respected\. These systems include mechanisms to receive, systematize and opportunely respond to complaints, appeals, and feedback from communities - beneficiary and non-beneficiary groups, to inform the program management team about program activities from independent sources, and to control program activities through social and technical audits\. The following activities will support the achievement of these objectives: (i)complaint and appeals mechanisms with follow up systems, including, community-based feedback through beneficiary committees and health outreach teams and units, and systems to ask questions and report irregularities; (ii)social audits; (iii) technical audits carried out by outsourced regular independentfirms; and (iv) financial audits\. 26\. Processevaluation of the MCP Program\. In order to help the MCP managementteam to improve the intervention during implementation, the Project will finance a process evaluation once the first ten municipalities are incorporated into the program to inform the full scale up of the intervention\. Using quantitative and qualitative instruments, the process evaluation will review the efficiency of Project implementation, targeting, and the program's ability to reach proposed outcomes\. Specifically, the process evaluation will look at program organization, adequacy of funds for administration and monitoring, effectiveness of the payment system from the beneficiaries' perspectives, actual service delivery vis-&vis planned, among other aspects\. The process evaluation will allow program management to detect operational bottlenecks affecting the efficacy of the program and to correct them in a timely manner\. 27\. Impact Evaluation - The results and outcomes of the MCP program will be rigorously measuredthrough an independent impact evaluation process\. The impact evaluation of the MCP will be jointly conducted and financed with the APL III\.The MCP evaluation will involve a baseline survey and two follow-up surveys with a control and treatment group\. The treatment group will be randomly identified from the 52 municipalities covered by the first phase of the 73  ZMP, while the control group will be similarly selected from the 114 municipalities of the second phase o f the ZMP\. The evaluation will also incorporate a comprehensive qualitative study\. The PHRD grant financed a consultancy to support the Government indefiningthe impact evaluation methodology, completing the terms of reference to contract a specialized international firm to carry out the evaluation, and accompany the M O H in evaluating technical proposals\. Contracting for this task, estimated to cost roughly $1 million, will follow international competitive biddingprocesses, and will start once the APL I11Project i s effective\. 28\. Beneficiary surveys - The contents and messages involved inthe previous activities will be informed by beneficiary surveys designed and developed in the second and fourth year of the program, and will be carried out under the responsibility of the Ministry o f Health and Sports in coordination with UDAPE\. Such surveys will be contracted out to specialized firms\. 29\. Strengthening the Mothers and Children Area (MCA) at M O H - The Project and the MCP will be administered by the M C A created within the M O H administrative structure\. This unit will be responsible for all of the projects under the responsibility of the MOH including the MCP\. The Project will support the consolidation of the M C A not only for coordinating the Project, but also for enhancing its capacity to manage a portfolio o f programs under the responsibility o f the MOH\. In doing so, the Project will provide funds for technical assistance and training, IT-relatedequipment and goods and, on a decreasing basis, some key staff\. The unit will be responsible for the overall administration of the program, including the MIS\. The fiduciary aspects of the program will be handled by the administrative units of the MOH, which will be supported by the Project to handle the additional tasks that the MCP involves\. 30\. Component 2 -Improving and expanding a skills developmentprogramfor low- income unemployed youth living in urban and peri-urbanareas ($3\.6 million IDA; 0$\.05 million GOB) - The primary objective of this component is to improve the effectiveness the existing First Employment Program as an intervention to increase the employability o f low- income youth living in poor urban and peri-urban areas who have completed at least the second year of secondary education\. The FEP i s a skills development program for poor youth, comprising a vocational in-class training session coupled with internships in private and public sector firms, in such a way that disadvantaged youth gain practical experience in a formal occupation and acquire life skills that help them succeed in the workplace\. The GOB will scale up the FEPinthree phases-first, the program will be launched by the Ministry of Labor (MOL) as a pilot in four cities (La Paz, El Alto, Santa Cruz, and Cochabamba) benefiting about 2,800 poor youth and financed by the Government\. The second stage, financed by the Project, will comprise the operational and process evaluation of the pilot, and the required adjustment o f the model and its basic parameters, as well as the institutional and implementation arrangements\. The third stage will include the expansion of the program in the previous cities and at least two additional mid-size ones, to benefit about 13,000 youth\. After the second phase has been fully accomplished and the institutional and implementation arrangements reviewed and, where appropriate adjusted, the Project will also fund the first round of training courses and internships, benefiting roughly 4,000 low-income youth\. 31\. The program i s based on the following features: (i)training courses will be market demand-driven following private sector requirements; therefore it i s expected that supply of training courses will be preceded b y consultations and arrangements between training providers 74  and potential employers of trainees; (ii) training courses are linked to a period of full-time practical working experience in an industry directly related to the training received in the classroom phase, to ensure that, only those courses with a formal commitment from a firm intending to receive as interns a number o f successfully graduated trainees will be eligible; and (iii) suppliersareselectedthroughacompetitiveprocessofaccreditedpublicandprivate training training providers which will design and carry out courses targeted to low-income youth including the practical phase\. In addition to financing training institutions that will provide the courses, the program will fund a daily allowance for participating beneficiaries\. 32\. Youth aged 18-24 years living in selected marginalized urban and peri-urban areas who have completed at least the second grade of secondary education (with no tertiary education) are eligible for the program\. Eligible youth can apply to participate in the program through the specific agencies that the MOL is establishing in each o f the cities in which the program will be implemented ( the Departmental Offices for the First Employment Program - DOFEP)\. The selection of beneficiaries will be made by the management information system (registry of beneficiaries), based on data provided by the candidate\. Besides age, criteria to select beneficiaries will involve aspects to ensure that candidates live in poor neighborhoods of cities, have studied basic education in a public school, as well as other proxy variables (e\.g\., size of the family, education o f parents, and utility bills) to foster participation of poor youths\. The Project will support the GOB to define targeted mechanisms for the expansion o f the program, 33\. The MIS will randomly assign beneficiaries to a training course that has been previously selected and that matches a demand for skills with the trainingpreference of the beneficiary\. The ICAPs responsible for providing the courses will be in charge of the final selection of beneficiaries based on their quotas\. ICAPs will be previously selected through a competitive bidding process\. Supply of training courses will be preceded by an arrangement between the ICAP and firms that intend to hire a number of successfully graduated trainees\. Trainingcourses are expected to be comprehensive in that they will provide skills for a particular occupation as well as life-skills needed to thrive in the workplace, including behavior, punctuality, attire, labor rights and others\. The training phase is expected to last two to three months and the internship phase another three months\. 34\. In the above-mentioned framework, the Project seeks to support the Government in evaluating the pilot program to improve operational features and the design of the FEP, strengthen institutional and implementation arrangements of the program at the Ministry o f Labor and field offices in targeted cities, and fund the first round of training courses and internships of the program's expansion\. 35\. Sub-component 2\.1\. Improving the effectiveness of the First Employment Program ($0\.3mIDA) -The objective of this sub-component i s to support the Government in defining the most effective model for supporting skills development o f low-income youth\. The Project will finance a process evaluation of the pilot which will inform program management and allow for adjustments to the FEP's design and operation, including the: (i) targeting mechanism for selecting eligible youth and its effectiveness in reaching the most needy; (ii) appropriateness o f the link between vocational training courses and internships; (iii) assistance provided by the Ministry of Labor to beneficiaries to help them make decisions on course selection, and to training providers to orient them on how the program works best; (iii)amount of the 75  beneficiaries' stipend and its proposed structure in terms of its role as an incentive to maintain attendance and finance basic daily expenditures; (iv) program's incentives and mechanisms to maintain firms in the program; (v) program's incentives and mechanisms to ensure adequate supply o f training courses and institutions; (vi) administration of contracts with training providers and payments scheme; (vii) supervision of courses and internships, and following up with beneficiaries; and (vii) program costs\. 36\. This evaluation will also compare the outcomes achieved by the pilot with similar programs implemented in the same cities (e\.g\., the technical training for youth with complete secondary education implemented by an NGO in four cities), as well as evaluate the results of the program in urban areas where labor supply i s restricted by the size of the productive sector\. The methodology of the evaluation will be developed by a consultancy financed by the PHRD grant\. 37\. As a result of the process evaluation it is expected that when appropriate the FEP adjusted in several areas, including: improving mechanisms for selection and registration of beneficiaries; linking training providers with private sector demands; institutional arrangements for efficiently administering and supervising contracts; results-based disbursement schemes for paying training providers; the allowance level for interns; and an incentives scheme to maintain high turnout of training providers and firms willing to provide internships\. A key aspect to be reviewed during the pilot phase and the process evaluation i s the targeting mechanism for selecting low-income youths\. While the pilot phase, fully financed by the GOB, will target youths from public schools and living inpoor areas o f the selected cities, the project will provide funds and technical assistance to identify and test other variables and adjust the mechanism to ensure that only the most needed are registered in the program\. 38\. The Project will finance a consultancy to define the methodology of the process evaluation, prepare the terms of reference to receive proposals, and define the criteria for evaluating proposals and firm selection\. The process evaluation will be contracted out using an international competitive bidding process\. In addition, this sub-component will also finance consultancies and technical assistance services to make appropriate adjustments to the model of intervention and its basic parameters following the recommendations o f the process evaluation, as well as advisory services to support the Government management team responsible for the program\. Some operational expenditures and key staff will be financed by IDA funds on a decreasing basis\. 39\. Sub-component 2\.2\. Strengthening the institutional capacity and implementation arrangements of the Ministry of Labor to administer and monitor the First Employment Program ($1\.05m IDA; $0\.05m GOB) - This sub-component will finance the refinement of the model of intervention and the strengthening of institutional and implementation arrangements based on the operational evaluation carried out under the previous sub-component\. In addition, it will support the development of management tools and monitoring and evaluation mechanisms\. Specifically, this component will provide support for the followingactivities: 40\. Management information system - Even though a basic information system i s being prepared and will be under implementation during the pilot phase, design of a full M I S will be completed during Project implementation, and refined once the pilot has been evaluated\. The 76  Project will support the Ministry of Labor to design, test and implement the management information system\. The system will include the following modules (i) selection and registration of eligible youth, (ii)allocation of eligible beneficiaries to training providers, (iii) implementation and monitoring of the in-class training phase, (iv) implementation and monitoring of internships, (v) monitoring the transition of program participants to formal jobs, and (vi) the managerial module\. The Project will finance further consultancies to develop the MIS, software, pilot tests, some IT-related equipment and training for staff responsible for operating and maintaining the system\. 41\. SupDorting training services and certifying suppliers - The Project will assist the Government in improving the capacity of training suppliers to design courses that meet private sector demands, maintain a dialogue with them and incorporate skills-oriented training activities targeted to a particularly vulnerable group of the population\. Apart from that, the M O L will provide orientations, guidelines and standards to training institutions to provide adequate life skills training\. To achieve this objective, the Project will support the Government in defining a strategy and carrying out activities to provide guidance, advice and support to eligible training suppliers, including a process for certifying them\. Activities will consist of workshops and orientation sessions at different stages of the project cycle: (i) orienting eligible suppliersprior to presenting proposals for training courses to ensure that the program's requirements are met; (ii) guiding selected suppliers prior to the implementation of the classroom phases; and (iii) supporting suppliers during the implementation of training courses\. The Project will fund the design, software, and IT-related equipment needed to complete the system for certifying training institutions, as amodule of the MIS\. 42\. Information, Education and Communication strategy - Implementation of the First Employment program will be accompanied by an information and communication strategy focused on three aspects of the Project: (i) promotingthe program among potential beneficiaries, training institutions and employers, involving among other activities, socialization workshops, focus groups, mass media promotion at the local and regional level, leaflets and booklets; (ii) promotingand facilitating alliances between training providers and firms; and (iii) designing and implementing a training strategy for public servants involved in the administration and implementationof the program at the national and sub-national levels\. 43\. Institutional support -The Project will strengthen the institutional arrangements of the Ministry of Labor at the national level and in the cities where the program operates\. Specific activities to achieve this goal include consultancies to support and train staff directly related to the program, and support to enhance the financial management and procurement capacity of the Ministry of Labor to administer and supervise contracts with the training providers\. Finally, the Project will support the NUFEP at the Ministry of Labor with some operating costs and required IT-related equipment\. 44\. Sub-component 2\.3\. Providing opportunities for skills training and afirst labor market experience to low-income youth ($2\.08 million IDA) - Building on the refining of the program supported by the previous two sub-components, the Project will finance the expansion of the training and internshipprogram to targeted cities\. Therefore, disbursements to finance this sub- component will be subject to the full implementation of sub-component 2\.1, including the results of the process evaluation of the pilot-phase and the adoption of the correspondent 77  recommendations\. Particular attention will be paidto the feasibility o f implementing the program inmid-size cities, adjustment and adoption of targetingmechanisms, parameters of the model of interventions (e\.g\., size of the allowance for classes and internships, a results-based system to pay the ICAPs, eligibility criteria for selecting ICAPs and specific training course) and monitoring and evaluation of ICAPs\. It i s also expected that as a result of the evaluation o f the pilot phase, adjustments to the institutional and implementation arrangements for this component will be required\. Accordingly, disbursements to this sub-component will be conditioned on adopting such adjustments acceptable to the Bank\. 45\. This sub-component will finance three sets of expenditures: selection and registration of beneficiaries, training courses and a trainee allowance\. 46\. Registry and orientation of beneficiaries -The Project will finance the register of beneficiaries and the orientation for eligible candidates before they are enrolled in specific training courses, involving information about the program, requirements and benefits; preliminary guidance about labor market rules and operations; and assistance to make decisions about the specific courses they want to follow\. 47\. Training courses -This sub-component will finance the first round of training courses and internships, and is expected to reach approximately 4,000 beneficiaries over a period of two years at a unit cost of roughly US$ 540 per beneficiary in the manufacturing sector and US$440 per beneficiary in the service sector, which compares favorably with similar programs in other countries\. These unitary costs include the cost of the training to ICAPs and a daily stipend to beneficiaries\. To be eligible, training courses must be presented by certified public or private traininginstitutions and be based on the following principles: (i) two phases - vocational include in-class training and an internship in a firm related to the training course; (ii) the classroom phase would include three types of skills instruction - a training course aimed at attaining a semi- skilled level in specific areas linked to the industry where the beneficiaries will complete their internships; a life skills learning component to help beneficiaries in specific behavior, psycho- social andremedial-related activities; and a labor market regulations and policies component\. 48\. Beneficiary allowances -The Project will finance a daily stipend equivalent to Bs\. 200 per month during the training phase and Bs\. 300 per month during the internship phase (approximately $26 and $39 per month, respectively) per beneficiary\. This should be sufficient to cover subsistence andtransportation costs\. Women participating in the program who are heads of households would receive a larger stipendequivalent to additional Bs\. 8 per day\. The program will pay these stipends through the institutions that provide the training\. 49\. Payments to training institutes (including both the cost of the training, the allowances and insurance against job-related accidents for trainees) will be results-based depending on the number of successful training graduates and the number o f beneficiaries who complete the internship phase and end up being hiredby a private andpublic firm\. 50\. Sub-component 2\.4 Supporting the MOL to formulate a mid-term strategy for youth unemployment ($0\.23m IDA) The Project will also support the GOB to strengthen its institutional capacity to consolidate a system for training youth and improve their possibilities for labor market insertion\. The Project will finance activities to enhance the GOB'S capacity to implement 78  the program, provide orientation to training institutions, monitor program results, supervise training providers, and measure impact\. This component will also fund activities to support the MOL to design a strategy for youth at-risk in the transition from school to work\. The Project will finance the provision of technical assistance in the following areas: (i)sustainability of the program, including mid-term coordination and merging of the Government's program with other similar youth training and employment interventions; (ii) of the model of intervention to transfer sub-national Governments, which are expected to be responsible for the execution and financial sustainability of the program; and (iii)definition of a comprehensive mid-and long-term strategy to support youth at-risk inthe transition from school to work\. 51\. Component 3 - Institutional strengthening of the RPS-DIC ($l\.Om IDA) - This component will build the GOB'S capacity to manage, coordinate, and monitor the RPS-DIC, starting with the MCP and FEP programs\. The component will help the Government meet the long-term objective of the RPS-DIC, which i s to build a sustainable and integrated social protection system\. Activities will include improving planning and policy making related to the RPS-DIC, facilitating coordination across involved agencies, and defining, testing, and implementing mechanisms that will allow for better coordination and monitoring of programs' progress and impacts\. This component will also support UDAPE to evaluate selected programs of the RPS-DIC\. The Project will support achieving these goals through two subcomponents\. 52\. Subcomponent 3\.1 Strengthening the Technical Coordination Unit of MDP and Developing a Mid-term Social Protection Strategy ($0\.46m IDA) -The Project will support the creation and consolidation of the TCU to enhance its capacity to formulate strategies regarding the RPS-DIC, and coordinate and monitor its programs through technical assistance in the form of consultancies, training, and workshops, as well as the consolidation of tools to provide insight on programs' progress and indicators\. To achieve this, the sub-component will finance technical assistance focused on the TCU's coordination and monitoringroles and associatedadministrative and operational functions, and elaboration of the goals and timeframes of the TCU\. The component will also finance information technology (both goods and services) to improve the design and execution of RPS-DIC programs and, on a decreasing basis, some key staff of the unit\. 53\. (Sub-component3\.2\. Designing and testing a Registry of beneficiaries and a monitoring and evaluation systemfor the RPS-DIC ($0\.22 IDA) -The Project will also support the Ministry of Developing Planning to strengthenthe TCU of the RPS-DIC through developing and testing a registry of beneficiaries if the RPS-DIC programs and a monitoringand evaluation system, as the main tool to inform policy making, coordination and monitoring\. The project will support the MDP in the first stage to develop a comprehensive Monitoring and Evaluation system for the RPS-DIC as the main tool to inform policy making, coordination and monitoring\. To this end, the Project will finance the development and testing of a beneficiary registry, as well as the design of a comprehensive monitoring system\. Under the responsibility of the TCU at the Ministry of Development Planning, the registry of beneficiaries should be effective, cost efficient and useful to all key stakeholders involved in the RPS-DIC\. The Project will support the elaboration of a manual of procedures that makes it possible to handle different qualities of information, cleaning data coming from more than one source, and resolving data discrepancies\. The registry of beneficiaries will start with the consolidation of the databases of the Solidarity programs of the social protection network including the first expansion to 10 municipalities of 79  the MCP, FEP and Juancito Pinto programs\. To this end, the subcomponent will support the following: (a) Review and consolidation of the various beneficiary databases currently used by programs and line Ministries; definition of interfaces of various actors in the RPS-DIC; development of web pages; and acquisition of licenses andhardware\. (b) Development of a manual of procedures to define how to manage different qualities of information, and database cleaning processes when inconsistencies are found\. This manual will include key beneficiary criteria\. In addition to the manual, the Project will develop the guides and other necessarymaterials for the system's operation (c) Designof a single beneficiary information system, which would include developing a registry from all the beneficiary databases of various programs and line Ministries, and elaborate the system's decentralization plan, for both adding and use of databases, as well as preparation of a maintenance andupdate planfor the system\. (d) Support to the initial implementation of the system, including a plan for its gradual introduction to participatingentities, and makingnecessary adjustments to its design and operation as part of the buildingprocess\. (e) The Project will also support the design of the monitoring and evaluation system of the RPS- DIC, ensuring its link with the registry of beneficiaries\. The monitoring system, as well as the full implementation of the registry of beneficiaries will be carried out by the Ministry of Development PlanningusingGovernment funds\. 54\. This sub-component will also support the TCU in developing medium- and long-term strategies for the continual evolution of the RPS-DIC, through technical assistance that will focus on second-generation issues of social protection systems\. Such issues include the review and rationalization of all programs and expenditures under the RPS-DIC; evaluation of social protection needs of beneficiaries in the CCT programs to ascertain whether this type of intervention i s the best tool to provide them the support they need; exploring and testing linkages with complementary programs to provide a full, integrated range of opportunities for poor and vulnerable households; articulating graduation and exit strategies for RPS-DIC programs; and the institutionalization of the Comunidades Reciprocas y Comunidades en Accion strategies\. The long-term strategy would also include the evolution of the M I S system, to ensure a positive correlation between outcome indicators and budget allocation in the RPS-DIC; strengthening the TCU's institutional capacity to evaluate RPS-DIC programs by implementing a strategy and process for Government-civil society interactions, and improving transparency by creating a process for public dissemination of spending andresults\. 55\. Subcomponent 3\.3 Evaluation of selected programs of the social protection network ($0\.32m IDA)-The Project will support UDAPE to evaluate the impact of up to three programs of the social protection network, including the pilot of the FEP using non-experimental approaches\. The evaluations will be carried out directly by UDAPE's staff using primary data from control and treatment group and following a non-experimental methodology\. This component will finance surveys for data collection, as well and key specialized consultants to support the process\. It will 80  finance surveys to assess the results of the pilot phase of the First Employment Program and the expansion of the MCP inthe first 10municipalities\. 81  Annex 5: Project Costs BOLIVIA INVESTINGINCHILDRENAND YOUTH 3\.2 Beneficiary Registry of RPS-DIC 0\.12 0\.02 0\.07 0\.02 0\.00 0\.22 0\.23 3\.3 Evaluation of selected programs of the RPS-DIC 0\.01 0\.10 0\.10 0\.10 0\.01 0\.32 0\.32 Subtotal Component3 0\.27 0\.22 0\.25 0\.18 0\.07 1\.00 1\.00 TOTAL PROJECT COST 1\.75 535 0\.48 5\.20 0\.68 2\.97 1\.29 1\.73 2\.55 17\.00 19\.55 Components Project Cost Summary (US$ '000) Local Foreign Total 1Implementingandscaling uptheMCP 1\.1Benefitsfor Mothers and Children 11\.49 0\.01 11\.50 1\.2 Information, Communication and Education 0\.38 0\.02 0\.40 1\.3 Management and Monitoring of the MCP 2\.43 0\.57 3\.00 SubtotalMCP 14\.30 0\.59 14\.90 2 ImprovingandexpandingFEP 2\.1 Improving the effectiveness of the FEP 0\.28 0\.02 0\.30 2\.2 Strengthening the institutional capacity 0\.93 0\.12 1\.os 2\.3\.Providing opportunitiesfor skills training 2\.08 0\.00 2\.08 2\.4\. Supporting the MOL to define a mid-term strategy 0\.21 0\.02 0\.23 SubtotalFEP 3\.49 0\.16 3\.65 3\.0 Institutionalstrengthening of the RPS-DIC 3\.1 Strengthening the TCU of the RPS-DIC 0\.39 0\.08 0\.47 3\.2 Beneficiary Registry of RPS-DIC 0\.19 0\.04 0\.23 3\.3 Evaluation of selected programs of the RPS-DIC 0\.24 0\.06 0\.30 Subtotal3\.0 Institutional strengtheningof the RPS-DIC 0\.82 0\.18 1\.00 TotalPROJECT COSTS 18\.61 0\.93 19\.55 82  Annex 6: ImplementationArrangements BOLIVIA INVESTING INCHILDRENAND YOUTH 1\. The Project addresses Government's request for support for its social protection strategy and strengthening the recently created social protection network, under the coordination of the Ministry of Development Planning\. The GOB, through the Supreme Decree 29246 (August 2007) created the Red de Proteccidn Social y Desarrollo Integral Comunitario (FPS-DIC)\. The social protection strategy is the Government's flagship program to combat poverty and reduce vulnerability\. The policy i s based on two sets of mid-tern strategies: first the integrated community development strategy to promote local development through programs and interventions in rural and poor urban areas (including physical and social infrastructure, income generation and environmental programs, among others); and the generation of opportunities and social assets and second, targeted interventions to specific vulnerable groups, including the youth employment (FEP) program, targeted to low-income youth in urban and peri-urban areas, the Zero Malnutrition program to help households with pregnant mothers and children younger than 2 in the most vulnerable rural municipalities, and the Juancito Pinto program, a cash transfer to create an incentive for poor families to send their children to school regularly\. These strategies are complemented with short-term programs aimed at temporarily creating employment and income - PROPAIS (a program to combat poverty and support solidarity investment), a community-driven development (CDD) program supporting very small projects, and EDIMO (the Labor Intensive Program), a workfare program based on the experience of PLANE (the National Employment Plan, a workfare intervention implemented between2003 and 2006), in areas affected by natural disasters\. 2\. The social protection network is the Government's main mechanism to improve institutional coordination to design, implement and monitor social protection policy\. The highest decision making authority regarding social protection policy is the CONAPES (National Council for Economic and Social Policy), a Ministerial level body responsible for defining and approving economic and social policy in the country\. The Ministry of Development Planning i s the highest level social protection coordination body, and i s responsible for: (i) presenting social protection policies and programs to CONAPES; (ii) defining strategic planning and providing guidelines to formulate social protection programs; (iii) supporting implementingministries to design operational mechanisms; and (iv) proposing mechanisms to harmonize budgetary appropriations regarding social protection policy, among other functions\. Line Ministries will be responsible for designing and implementing social protection programs and interventions under the coordination of the MDP\. Three bodies attached to the MDP will be responsible for coordinating implementation: the social investment fund (FPS), will monitor and evaluate RPS- DIC programs under its re~ponsibility~~;and the Vice Ministry of Finance (VIPFE) - the Vice- ministry responsible for public investment and external funding, and the TCU in coordination with UDAPE will coordinate andevaluatethe implementation of the RPS-DIC programs 3\. The Project will support the Government's social protection strategy and the RPS- DIC by contributing to the effective implementation of key programs\. In this context the Project will be implemented through three separate agencies under the general coordination of 36Such programs do not include the two programs financed by this project - the Social Protection Program for Mothers and Childrenandthe First EmploymentProgram\.Therefore the FPS has no role inthe ICY Project\. 83  the MDP which will be the Bank's Government main counterpart during implementation and supervision\. Such coordination will be done through the Technical Coordination Unit (TCU) for administrative and financial issues, and through UDAPE for the technical aspects of the project\. The TCU, recently created as part of the institutional structure o f the MDP, will be responsible for the implementation of Component 3 of the Project in close coordination with the MDP's General Direction of Administrative Issues\. The unit will also coordinate with the Ministry's SystemsUnit to develop the Information System and the RPS-DIC Beneficiary Registry\. 4\. The Technical Coordination Unit (TCU) and UDAPE will articulate and coordinate the activities of the Health and Labor Components\. These two bodies will provide the support to the MDP in its role as responsible for the global implementation of the Project and attainment of results, and the strategic coordination with sector ministries in charge of Components 1 (Health) and 2 (Labor)\. The following are some o f the TCU's main functions in relation to the Project: a) coordinate and monitor Project's administrative and financial aspects as a whole and serve as Bank's counterpart for such issues; b) support and monitor the health and labor ministries in the registration of budgets and for the attainment o f operational plans as well as intermediate and results indicators; c) follow-up on operational plans related to each of the Project components; d) consolidate sector Project reports (health, labor and RPS-DIC); and e) elaborate and provide progress reports on physical and financial aspects of the Project to the Bank\. Although the TCU will be supported by the fiduciary units of the MDP, it will have specialized staff to consolidate the financial reports from the Ministries of Labor and Health\. UDAPE will be responsible for the following activities related to the project: a) coordinate and monitor Project's technical aspects; b) coordinate all supervision missions with the Bank, VIPFE and sector ministries involved in the Project; c) identify issues that might require special attention from the Government or the Bank during the implementation of the Project: d) propose and process any amendment related to the Credit Agreement; and e) ensure the compliance of the operational manuals incoordination with sector ministries\. 5\. Despite the relatively complex institutional arrangements involving three implementing agencies, they are appropriate\. Institutional arrangements to implement the Project will be divided across the three implementing agencies under the coordination of the Ministry of Development Planning\. In addition, the arrangements are considered appropriate for the following reasons: (i) organizing institutional and implementation arrangements in three implementing agencies under the umbrella of the MDPmirrors the arrangements set for the RPS- DIC; (ii) separating special accounts and implementing agencies will allow greater flexibility for each component to follow its pace without delaying the other components unnecessarily; and (iii) having the MDP as the main counterpart of the Project improves accountability, coordination and sustainability o f the Project\. Implementation arrangements for Component 1-Implementing and scaling up the Social Protection Program for Mothers and Children to combat Chronic Malnutrition 6\. Component 1of the Project will contribute to preventing chronic malnutrition in Bolivia by implementing and scaling up a cash transfer intervention in the most vulnerable 52 municipalities\. The program, based on similar principles of other conditional cash transfer in other countries of the region, is part of the comprehensive ZMP (see Annex 1A) led and 84  coordinated by the Ministry of Health and Sports\. The intervention i s part of the Government's social protection policy and therefore i s under the umbrella o f the Social Protection Network led by the Ministry of Development Planning\. Improving the nutritional status of pregnant women and children under two will involve a combination o f strategies which will include: (i)a comprehensive protocol to improve the nutritional status of pregnant and lactating women, newborns and children between 6-24 months; (ii) an information, education and communication strategy to strengthen households' nutritional knowledge and practices; (iii) a strengthened supply of basic health services under the universal insurance service (SUMI); and (iv) expanded access to drinkingwater and sanitation\. 7\. The Government has designated responsibility for the implementation of this component to the Ministry of Healthand Sports\. This is the appropriate institution to carry out the MCP, given that the MOH i s also responsible for the comprehensive ZMP, has the legal mandate to implement the program and the political support to carry out the activities included in this component\. These institutional and implementation arrangements improve coordination between demand and supply of basic maternal and infant health services, a crucial aspect for the success o f a conditional cash transfer program\. The MOH has been committed to strengthening the supply of basic maternal and infant health services over the previous several years and currently this effort i s supported and funded by the health APL operations and the GAIN program\. The APL 11, under implementation until June 2008, i s supporting the expansion of the benefit package o f the SUMVSUS in order to provide greater coverage of health services to pregnant women and children less than five years of age, taking into consideration cultural distinctions and other access barriers faced by indigenous populations\. Under the third operation, currently negotiated, the APL emphasizes strengthening the health supply through the health network in the targeted municipalities\. The GAIN program aims to improve fortification of all wheat flour, vegetable oil and milk products designated for consumption by the Bolivian population in order to generate demand for quality-assured fortified food\. The achievement of GAIN'Sproposed goals is expected to have a significant health impact by reducing the total prevalence o f iron deficiency anemia which affects 81\.9 percent of children from 6 to 24 months and 30 percent of women inreproductive age by reducing the prevalence of vitamin A deficiency and by reducing neural tube defect rates by 20 percent between 2007 and 2011\. Thus, the Ministry of Health and Sports has the instruments to strengthen the supply of maternal and infant health services, while this Project will provide funds and technical assistance to carry out a program to boost demand\. 8\. The Ministry of Health and Sports will implement the Component through the Area de Proteccio'n Social para la Mujer y el Niiio (MCA), recently created as part of the Planning Unit of the Ministry\. The MCA is institutionalized part of the administrative organization of the M O H and responsible for those projects and programs financed by donors\. The execution of the program will be in close coordination and active participation of the Area responsible for the Health APL I1 and I11 operations, as well as the Service Network Unit, dependent o f the GDHI\. At the local level the Health Units will coordinate with municipalities and prefectures to undertake processes of affiliation, registry, condition controls, incentive delivery, complaints and information updating\. The MCA will supervise the local coordination units,created for the monitoring of 5 to 7 municipalities\. 85  9\. All administrative and financial aspects of the program will be managed directly by the General Direction o f Administrative Issues of the MOH, where an Administrative Unit (UCOFI) for externally funded programs will be adapted, as part o f the same structure\. The UCOFI will operate in close coordination with and will support the MCA\. The Payment Agencies (PA) are external financial institutions to the Ministry and provide payment services to the beneficiaries based on reports that will be generated and delivered by the MCA\. The Program's administrative and financial unit will be responsible for transferring funds to the PAS\.The municipal local committees will provide social control during the implementation of the program\. E Cash benefts to rndhen '/ Supply of maternaland infant healthservices, / registry,and verificationof co-responsibilities\. 10\. The Project implementation arrangements involve the following steps: 11\. Registry of Municipalities - Before the program starts implementation in the targeted municipalities, the Ministry of Health and Sports will register municipalities through a two-fold process: first, verification that eligible municipalities have the required supply o f basic health services, and signing o f an agreement between the municipality and the program to implement and support the MCP\. Second, to verify the supply o f maternal and infant health services, the Ministry through the network services will collect the information and identify areas where the program can start implementation\. In those municipalities where the supply i s adequate, the 86  M O H and local authorities will sign agreements defining responsibilities to implement the program\. The MOH will focus its efforts and investments to strengthen the supply of the universal health insurance program in those municipalities with insufficient services identified by the verification process\. The registry of municipalities i s voluntary and participating in the program i s a decision of the correspondent local authorities\. 12\. Registry of beneficiaries - Once municipalities have agreed to participate in the MCP, health outreach teams and health units from the MOH will identify the eligible population (pregnant women and children younger than 1 year of age for the initial registry o f beneficiaries of the program and pregnant women in subsequent registration)\. Health staff will collect the information and enter it in the management information system (SNIS - currently under implementation and funded by the APL I1and II137)\. During the process of data collection, the health staff will inform families about the program and will set a date for a community meeting (probably during their next scheduled visit) where they will explain the program, beneficiaries' rights and responsibilities, and will proceed to register individuals through signing an agreement with the MCP\. During these meetings the health staff will explain how the program works, the way in which activities are followed up and responsibilities verified, and how and when the cash benefit can be received in both cases\. Thereafter, the mother, or in exceptional cases, the person selected by the family to receive the benefit,38 and the program will sign a participation agreement including family's co-responsibilities and benefits\. To comply with this process the M O H will train and assist staff of the outreach teams and health units\. Registering in the program i s voluntary\. The beneficiary registry will remain open in order to capture pregnancies from the early stages to prevent malnutrition and ensure adequate care\. 13\. Verification that families and communities comply with their co-responsibilities - Authorization to transfer cash benefits to beneficiary families will be subject to prior verification that families and communities have complied with the co-responsibilities according to the signed agreement\. The outreach teams and health units are responsible for such verification; they will collect the required data to verify that families comply with program's conditions during the bimonthly programmed visits\. During those visits any change in the family status (deathhewborn) i s recorded and the M I S updated\. The program receives this information through previously defined forms and the M I S at the municipal level\. 14\. Transfer of cash benefits - The MIS will generate the authorization payments database on the basis of the information collected during the process o f verifying that families comply with their co-responsibilities\. Beneficiary mothers will receive their cash transfers every two months, provided that they have complied with their co-responsibilities\. To do so, the program, through the M C A at the MOH will authorize the transfers and the M I S will generate the lists of beneficiaries and transfer amounts in each municipality and community\. Once the payments have been completed, the M C A will transfer the information to the agencies responsible to directly disburse transfers to beneficiaries\. 37The full SNIS and the specific modules of the MIS for the cash transfer programs will be under implementation when the registryof municipalities,communities andbeneficiariesstarts\. 38For example, when the motheri s deceased\. 87  Implementation arrangements for Component 2 - Youth Employment Program (FEW 15\. Component 2 of the Investing in Children and Youth Project is aimed at supporting the social protection strategy to help low-income and unemployed youth living in the major cities of the country\. The Project will provide funds and technical assistance to improve the effectiveness and scaling up of the First Employment Program to increase the employability of low-income youth living in urban and peri-urban areas\. As part of the social protection network, the FEP is also part of the employment strategy of the Morales administration\. The implementing agency for this component of the Project i s the Ministry o f Labor\. Given that the Ministry o f Labor i s the central agency responsible for the coordination and partial implementation o f the employment strategy and has the legal mandate to promote employment generation activities, this i s the appropriate institution to carry out the FEP\. As the Ministry of Labor requires considerable support to strengthen its institutional capacity and its experience in this type of intervention i s limited, the Project will focus on building capacity to scale-up and consolidate the program\. Moreover, the full expansion of the program will be preceded by a process of strengthening institutional and implementation arrangements and enhancing capacity of the Ministry of Labor\. 16\. To comply with the activities required to implement the FEP, the Government has created a set of institutional arrangements at the central level of Government and in the cities where the program will operate\. At the national level, the Ministry of Labor has created an internal unit to coordinate the Project (National Unit for M y First Employment - NUFEP) attached to the General Employment Direction, responsible for the overall administration and supervision of the program\. The unit will receive technical assistance to carry out the following activities: (i)coordinating, planning, monitoring and overseeing the program in coordination with municipal offices in the targeted cities; (ii) selecting training providers; (iii)administering a national registry of service providers and the training providers certification process; (iv) administering and coordinating the provision of technical assistance to strengthen training providers; and (v) promoting the program through workshops, communication campaigns and, particularly, through an ongoing dialogue with the private and productive sector\. This unit was created to implement the pilot and is currently well staffed\. The NUFEPwill be supported by the General Administrative Direction regarding administration o f contracts with training providers, as well as all other procurement and financial management issues\. Similarly, the Information System unit will support the NUFEP in the administration of the Management Information System\. 17\. At the departmental level, the program will strengthen the Ministry of Labor's local offices located in each of the cities in which it will be scaled up to coordinate the overall implementation and follow up of the program\. For the purpose of the FEP, the Ministry of Labor will create Departmental Offices for the First Employment Program (DOFEP) in each of the cities where the programs is operating\. These offices will be responsible for promoting the program in the cities, receiving and checking applications from youth, providing information and orientation to beneficiaries and training providers and supervising the training courses in their two phases - in-class and the internships\. These units will also support the ongoing dialogue with private firms, and support program management through supervising program progress inkey phases o f the training and internship phases\. 88  I Ministryof La& '0 E m Cooperatlves,labor and labor ------ 18\. The Project will evaluate the pilot program of FEP\. As a result o f the evaluation the model will be both assessed and, if appropriate, adjusted, and also scaled up\. The main institutional arrangements set to carry out the pilot and summarized in the following paragraphs will be subject to a process evaluation that the Project will finance through Sub-component 2\.1\. (Annex 4), and therefore may be changed or adjusted according to the recommendations of the process evaluation\. All changes to such arrangements will be consulted with, and will be put in place acceptable to the Bank\. 19\. Registry of training institutions (ZCAPs)- Selection of the ICAPs will be conducted on a departmental basis b y a committee comprising the Ministry of Labor (NUFEP), the Ministry of Education and the corresponding Departmental Unit for Employment Promotion\. The committee will select only accredited private or public training providers to carry out courses targeted to low-income youth including the internships\. Only those proposals comprising a classroom phase followed by a period of full-time practical working experience in an industry directly related to the training received in the classroom phase will be eligible\. The proposals will include proof from a firm committing to receive as interns those youth who have completed the vocational phase of the course\. 89  20\. Therefore, proposals of training courses will comprise a vocational and a practical phase according to the standards provided by the MOL\. The vocational training phase will contain 3 parts\. Inadditional to the main specialized training course designedaccording to marketdemand, the vocational part will involve two other modules: first, a life skills and work behavior training to support beneficiaries on three sets of topics; (i)pertinent life skills, such as self-esteem, parenting skills, sexual and reproductive health and other topics that ICAPs can provide according to their assessment; (ii)behavior in the job place, including team work, communication skills, presentational aspects and others specific to the internshipphase; and (iii) job search skills\. The second part involves labor rights and regulations according to Bolivian laws and policies\. The M O L will create a registry of training institutions\. 21\. Technical Assistance to Training Providers (ICAPs)-The M O L will be responsible for providing regular training and workshop sessions to ICAPs inorder to improve the quality of the training proposals and standardize the content of specific components of the courses, including life training and work behavior, and labor rights and regulations\. These activities will consist of workshops and orientation sessions at different stages: (i) orienting and guiding eligible suppliers to establish contact with specific industries and acquire commitment letters for the practice phases of the service; (ii) orienting and guiding selected suppliersprior to the implementation of the classroomphases; and (iii) supporting suppliers during the implementation of trainingcurses\. 22\. Registry of beneficiaries - The Ministry of Labor, through the offices in each city, will evaluate applications received from youth living in targeted cities\. To apply, the candidate should be older than 18 andyounger than 25 years of age, have completed at least the 2"dyear of secondary education, live in a poor area of the city and not have benefited from other employment programs\. The offices in the cities will register potential beneficiaries\. After validating the information, the M O L will group the list of candidates in each city according to the training courses previously approved and send all candidates to the corresponding ICAPs\. The training institutions will select the final set of candidates to be enrolled inthe courses\. 23\. Contracting the ZCAPs -The General Administrative Direction at the Ministry of Labor will be responsible for issuing and administering the contracts with the selected ICAPs according to the approved proposals\. The ICAPs will be responsible for training the proposed number of beneficiaries inthe approved course, ensuringthat all beneficiaries who approved the course start their internship and follow up their performance during the internship period as well as six months after the internshiphas finished\. Contracts will ensure that payments are results-based;in doing so, apart from an initial lump sum to ensure that the training courses can start adequately equipped and conditioned, the MOL will make payments to ICAPs according to their performance in terms of the number of registered beneficiaries, the number of beneficiaries who approved the training session, the number of trainees who complete the internships and the numberof youth who after six months of completing the internship have ajob\. The contracts will include the provision of training according to the criteria described above and daily beneficiary allowances to finance their transport and meals\. This allowance will not only serve as support to beneficiaries but also i s an incentive to keep attendance\. 24\. Supervision of contracts and evaluation of courses - Supervision of training courses will be carried out by the Departmental Offices for the FEP, during several crucial steps of the training process: (i) initial visit to ensure that the ICAP is adequately equipped for the an 90  proposed course and to authorize the go-ahead of the course and the first payment; (ii) visit a during the vocational training session; (iii) a third visit once the course has finished and to supervise the transition to the internship; (iv) a fourth supervision vision will take place at the end of the internship\.These supervision visits will serve not only to authorize further payments to ICAPs, but also to evaluate their performance and enter adequate information into the ICAPs certification process which will affect their future ranking if they decide to present proposals again\. The M O L will administer the certification system and will design the supervision forms to ensure that the informationenteredinthe systems i s accurateenough to provide objective results\. 25\. Phasing in of the FEP - Currently a Dutch NGO i s implementing a skills training program based on principles similar to the FEP, but restricted to four cities and youth with complete secondary ed~cation\.~'Therefore, the GOB will implementthe FEP in three phases\. In the first phase the FEP will comprise a pilot intervention in four cities to support about 2,800, poor youth; this pilot will be evaluated using IDA funds through the Project (Subcomponent 2\.1\. in Annex 4)\. It is expected that the pilot and the evaluation will be completed by June 2009\. Based on the evaluation results, the GOB will implement the second phase to scale up the program in cities where the Dutch financed program -AUTAPO - is not operating, aiming to reach 13,000 youth between 2008 and 2011\. By the time the third phase of the program is launched (from 2011 on) it i s expected that a youth employment strategy to carry out a single intervention will havebeen agreedand will be underimplementation\. Implementationarrangements for component 3 -Institutional strengthening of the SocialProtectionNetwork 26\. The Ministry of Development Planning will not only be responsible for the coordination of the overall implementation of the Project but also for the direct implementation of component three\. The GOB has created and i s in the process of strengtheningthe Technical Coordination Unit (TCU) for the RPS-DIC\. The TCU i s attachedto the MDP and will be the main body to support the MDP to carry out the activities included in component 3 of the Project\. The TCU will be headed by a Coordinator and its objectives will be the (a) overall coordination of programs implemented under the RPS-DIC; (b) monitoring of progress and evaluation of impacts of these programs; and (c) formulation of social policies and long-term strategies that will define the future development of the RPS-DIC\. To comply with its function the TCU has two Areas: The Management of RPS-DIC Programs Area, responsible for administering the registry of beneficiaries and the monitoring system of the RPS-DIC, and the Implementation of MDP projects, responsible for monitoring and administering those programs directly implemented by the Ministry of Development Planning\. As explained in Annex 4, the Project will pay special attention to institutionally strengthening the TCU and to enhance its capacity to serve as the technical arm of the MDP to coordinate and monitor the programs of the social protection network\. In doing so, the project will support the MDP through partially financing consultants to support both Areas of the TCU, two consultants to support the fiduciary units of the MDP and the design and testing of the registry of beneficiaries and the monitoring system\. The TCU will not have specific administrative duties related to the implementation of individual RPS-DIC programs, but rather that each program will be carried out by the relevant 39The Program de Formacidn Tkcnica para Jdvenes Bachilleres i s under implementationsince 2006 by the Fundacidn AUTAPO (Foundationto Support UniversitiesinPotosiand Tarija)\. 91  line Ministry, with the TCU serving as coordinator for the overall network\. All fiduciary aspects relatedto this component of the Project will be carried out by the correspondent procurement and financial managementoffices inthe Ministry of Development Planning\. Managementand Monitoringk e a ImplementationArea I 1 RPSI- DIC Programsand Proje+ 27\. The coordination functions of the TCU will be underpinned by analytical work of UDAPE, a technical unit also attachedto the MDP which is charged with policy formulation for the RPS-DIC and the design of its monitoring and evaluation mechanisms\. Together, the TCU and UDAPE will work on "second generation" issues related to the RPS-DIC (Subcomponent 3\.1)\. The TCU will be supported by the Administrative Units of the Ministry of Development Planning regarding financial management andprocurement issues of the Project\. 92  Annex 7: FinancialManagementand Disbursement Arrangements BOLIVIA INVESTINGINCHILDREN AND YOUTH CountryIssues 1\. According to the CFAA published in January 2006, Bolivia's country Public Financial Management (PFM) risk rating i s substantial\. The advances reached towards improving the PFM have been offset by several weaknesses found in the uneven application of the legal framework, particularly with regard to financial reporting and the internal control environment\. Even though the legal framework i s relatively sound, particularly concerning the use of public resources and the role of both the internal audit and the general comptroller, the government informationsystems do not provide adequateinformation to assure accountability\. RiskAssessment Summary 2\. The FMrisk for this project has been assessed at Substantial and once there i s evidence that the mitigating measures have been implemented and are working as intended, the level of FMriskfor this project will bere-assessed andrevised accordingly\. The following table presents the risk assessment, as well as the risk mitigating measures incorporated into the design of the project and the financial managementimplementation arrangements\. Risk Risk RiskMitigating Measures Condition of Rating Incorporated into Project Design NegotiationdJ3oard or Effectiveness(Y/N)? Country Level (Inadequate S Inspite of havingthree implementing salaries in the public sector, agencies, project design i s due to wage reductions, limit straightforward with activities for each the capacity to attract and implementing entity being clearly maintain qualified staff) defined\. In addition, strong coordination among the implementing agencies has been included in the design of the project (with M D P having the coordinating role)\. Entity Level (This will be the S Ministry of Health and Sports has some Negotiations: TORSto first Bank project where experience with externally financed receive Bank N o Objection financial management will be project and will establish a unit within (included in the Operational institutionalized within the its own structure\. The hiring of Manual)\. MOH, as previous projects specialized consultants that would have been managed through a undertake specific FMtasks under the PCU, limited experience of project has been contemplated\. M O L and MDP) Ministries of Labor and of Development Key FMstaff selected Planning have relatively little experience before project with externally financed projects\. implementation\. However, existing capacity within these Ministries will be used to the extent possible, as well as being strengthened as needed\. The hiring of specialized consultants that would undertake specific FMtasks under the project has beencontemdated\. 93  Risk Risk RiskMitigating Measures Condition of Rating Incorporated into Project Design NegotiationdBoard or Effectiveness (Y/N)? Project Level (The project S Giventhe CCT component of the Requirement for semi includesa CCT component project,the projectwill take into account annual operational audits which is a new initiative for the lessons learnedand best practices for for the CCT component MOHand whichrepresentsa FMinCCT programs,including a (covenant)\. risk for the project\. In comprehensiveMIS,beneficiary addition, the project will surveys, complaintand feedback CCT informationsystem require strongcoordination systems, and social accountability and designedand implemented amongthe three participating control mechanisms\. However, this before Disbursementsstart entities) component still represents arisk for the on CCTs (conditionof project,especially as it will be a new disbursement)\. initiative in Bolivia\. Control risk Budgeting, Accounting, M Specific Fh4processes and procedures Negotiations:Draft InternalControl(Each entity are being designedinorder to guarantee Operational Manual will incorporatethe projectinto that project funds are usedeconomically reviewedby the Bankand its own budget\. Inthe past, for and efficiently\. These processes and final OM as a conditionof the MOH, budgets have been procedureswill be reflectedinthe OM\. effectiveness\. overestimated,and implementation has been Implementingentitieswill be CCT informationsystem delayeddue to reprogramming) strengthened with the contractingof designedand implemented qualified staff\. before Disbursementsstart on CCTs (conditionof A single complementaryintegrated disbursement)\. informationsystem which would enable the automatic preparation of financial reports is beingdesignedand will be implementedin the three entities\. The implementationof an information systemfor CCTS\. FundsFlow (The projectwill S Inthe framework of the proceduresset Negotiations:designof use the new CUT inUSD\. For by SIGMA and the Single Treasury customizedSOE format for the CCT component, the MOH Account, funds flow arrangementshave the CCT component\. will needto implement a robust beendefined for differentcomponents\. paymentmechanism) Those proceduresavoid unnecessary Design, implementation, layers\. As the specific regulations for contractingand operation of the operation of the Single Treasury the payment mechanismfor Account in US dollarsare issued, the the CCT component flow of funds would needto be adjusted (conditionof disbursement) accordingly\. A customized SOE format for CCTs will be developed\. FinancialReporting, Auditing M The format of the IFR is being Negotiations:Agreed (The MDPwill be responsible developed (single format for each of the format for the IFR\. for contracting the audit work three components)\. Eachentity will and will furnishto the Bank a prepareits respective IFR, submit it to Negotiations:Audit TORS consolidatedreport\. Each the MDP, which will consolidatethem agreedwith the Bank and component will be audited and for presentationto the Bank\. included in Operational will individually submit their Manual respectivereports to the Bank) Externalfinancial and operational audits An acceptable audit firm will be contracted\. selected six monthafter effectiveness\. FMRisk S 94  Weaknessesand Action Plans 3\. Key actions have been defiend and agreed with each of the participating entities to strengthen FM arrangements and are detailed below\. FM processes and procedures have been reviewed in the draft Operational Manuals, which final review and adoption is a condition of effectiveness\. Action Responsible Entity Completion Date4' Ministry of Health and Sports (MOH) 1\. Implementationof the complementary systemandfinalization of MOWMDP April 30,2008 the chart of accounts for the project\. 2\. Incorporationof commentsand finalizationof the OM and IMOH IJanuary 22,2008 processes\. 3\. Finalizationof the format of unauditedfinancialreports (IFRs), in MOWMDPI IJanuary 22,2008 coordinationwith the other Ministries\. 4\. Finalizationof the specializedSOE statement for the CCT MOH Completed component\. 5\. Providingof training in FM,Procurementand disbursementto World Bank April 30, 2008 MOH\. 6\. Finalizationof the proposedarrangementsfor the CCT MOH April 30, 2008 component(including proposedMIS,payment scheme and reconciliation) 7\. Incorporationof projectexpenditures for 2008 into the 2008 MOH July 30, 2008 budget 8\. Formalizationof the creation of UCOFIthrough the Resoluci6n MOH Completed Ministerial\. 9\. Incorporationof comments, finalizationand sendingto the Bank MOH January 22,2008 for no objectionof the terms of referenceof requiredincremental staff\. 10\. Identificationand incorporationof required incremental staff\. MOH April 30,2008 Ministry of Labor (MOL) 1\. Implementationof the complementary system and finalization of MOLMDP April 30,2008 the chart of accounts for the project\. 2\. Incorporationof comments and finalizationof the OM and MOL January 22,2008 processes\. 3\. Finalizationof the format of unauditedfinancial reports (IFRs), in MOLMDP January 22,2008 coordinationwith the other Ministries\. 4\. Providingof trainingin FM,Procurementand disbursementto - - IWorld Bank IApril 30,2008 MOH\. 5\. Incorporationof projectexpendituresfor 2008 into the 2008 MOL July 30, 2008 budget 6\. Incorporationof comments, finalizationand sending to the Bank MOL January 22,2008 for no objectionof the terms of referenceof required incremental staff\. 7\. Identificationand incorporationof required incremental staff\. MOL April 30, 2008 Ministry of Development Planning (MDP) 1\. Implementationof the complementary system and finalization of MDP April 30, 2008 the chart of accounts for the project\. This column solely presents the estimatedcompletiondate, not an indicationof legalconditions\. 95  ImplementingEntity,OrganizationalArrangementsand Staffing Ministry of Health and Suorts (MoH) 4\. The Ministry of Health and Sports, through the Health Reform PCU, has the most extensive experience with project implementation and management of donor-financed projects - it is currently working with a Bank financed project (APL II) is preparing another Bank and financed project (APL 111)\. The Ministry of Health and Sports, as such, has relatively little experience with externally-financed projects\. However, some systems and staff from the Health Reform PCU may be absorbed by the Ministry, which would put it in a better position to administer the fiduciary aspects of the Investing in Children and Youth Project\. Within the Direccio'n General de Asuntos Administrativos (DGAA), the Ministry i s planning on consolidating existing capacity and establishing a unit (Unidad de Coordinacio'n Operativa Financiera de Programas y Proyectos - UCOFI) directly responsible for managing the administrative and financial aspects of donor-financed projects (starting with the two projects under preparation by the Bank)\. As such, for component 1 of the project, the UCOFI will be directly responsible for: (i) budget formulation and monitoring; (ii) flow management cash (including processing payments and submitting loan withdrawal applications to the Bank); (iii) maintenance of accounting records, (iv) preparation of in-year and year-end financial reports, (v) administration of underlying information systems, and (vi) arranging for execution of operational audits\. The Ministry will put in place the required staffing in the UCOFI which would be eligible for project financing (it is expected that the project would finance a total of 2 to 3 individuals inthe UCOFI)\. 5\. The UCOFI will work in close coordination with the technical unit being established within the Ministry for the implementation of the conditional cash transfer program\. 96  Ministry of Labor (MOL) 6\. The Ministry of Labor i s the least experienced o f all the three ministries with respect to project implementation and management of donor-financed project and this project represents the Ministry's first program implementation partnership with the Bank\. However, to the extent possible, the project will utilize existing capacity, while offering administrative and financial management capacity development where needs have been identified\. Within the Ministry, the Direccidn General de Asuntos Administrutivos (DGAA) will be directly responsible for managing the administrative and financial aspects of the project\. As such, for component 2 of the project, the DGAA will be directly responsible for: (i) budget formulation and monitoring; (ii) flow management (including processing payments and submittingloan withdrawal cash applications to the Bank); (iii)maintenance of accounting records, (iv) preparation of in-year and year-end financial reports, and (v) administration of underlying information systems\. In order to address the prospective increase in demand generated b y the project and strengthen the DGAA's capacity, the DGAA will be provided with 2 additional staff at the beginning of the project and another 2 once the pilot program i s ready to be expanded, which would be eligible for project financing\. Ministn, of Develoument Planning (MDP) 7\. The Ministry of Development Planning will be responsible for the implementation of the smallest component of the project (component 3); however, as the MDP i s the highest decision making agency regarding social protection policies and programs, it will also be responsible for the overall coordination of the project (reflected in a tripartite agreement or MOU signed by the three participating entities)\. The Ministry of Development Planninghas limited experience with project implementation and management of donor-financed project\. However, as with the Ministry of Labor, to the extent possible, the project will utilize existing capacity, while offering administrative and financed management capacity development where needs have been identified\. Within the Ministry, the Direccidn General de Asuntos Administrativos (DGAA) will be directly responsible for managing the administrative and financial aspects of the project\. As such, for component 3 of the project, the DGAA will be directly responsible for: (i) budget formulation and monitoring; (ii) flow management (including processing payments cash and submitting loan withdrawal applications to the Bank); (iii)maintenance of accounting records, (iv) preparation of in-year and year-end financial reports, and (v) administration o f underlying information systems\. In its coordinating role, MDP will also be responsible for: (i) consolidating IFRs, and (ii) contracting the auditors for the project\. In order to address the prospective increase in demand generated by the project, the DGAA will be provided with 2 additional staff, which would be eligible for project financing\. 97  Planning, BudgetingandFinancialReporting Planningand Budgeting The preparation of the annual program and budget will follow local regulations established by the Ministry of Finance4', and specific regulations and instructions that may be issued b y the implementing institutions, through their General Administrative Units\. 8\. The Credit Agreement and project cost tables will be the main inputs for project budgets and counterpart funding estimates\. Each implementing entities will prepare its annual POA and budget to be included in the national budget\. The procedures established for the preparation of the annual program (POA) and budget provide for a clear identification of project goals, responsible party and resources required\. 9\. During the second quarter of each year, each implementing entity will prepare its tentative investment program for the next year (including the investment program for the proposed project) and submit it to the Ministry of Finance for review and approval\. The program should be consistent with the budget policy provided by the Ministry o f Finance, and be incorporatedinto the national budget for its submittal to Congress inOctober/November\. 10\. On the basis of the approved budget, each implementing entity will adjust as needed its project annual work (POA) and procurement plan, which will be reviewed by the WB\. AccountingPolicies andProcedures 11\. The implementing entities will have to comply with the Governmental Accounting Standards\. Therefore, the project would use the Chart of Accounts established b y the Accountant's General Office, followed by SIGMA (Government's integrated financial management system)\. This chart of accounts will need to be complemented with a more functional classification including project components/sub-components and cost categories\. Project transactions and preparation of financial statements will follow the cash basis of accounting\. 12\. The main FM regulatory framework for the project will consist o f (i) Bolivia's laws governing budget andfinancial management; and (ii) each entity's operating manuals and norms\. 13\. Project-specific FM arrangements that are not contemplated in the documents cited above will be documented in a concise FM section of the project's operational manual\. Among others, specific reference will be made to: (i) the internal controls appropriate for the project; (ii) the formats o f project financial reports and (iii) auditing arrangements\. Information Systems 14\. The project will benefit from the use of SIGMA to monitor the financial activities o f the project (especially budget and budget execution) and the Single Treasury Account (CUT)\. In addition, to respond to the project's reporting requirements, and ensure that financial information can be monitored according to project components and cost categories, each entity will utilize 4'Law No\. 2042, Supreme Decree No\. 27849datedNovember 12,2004 -Regulationsfor BudgetaryModification\. 98  the single complementary information system currently being designed\. Since the contracting process for the design and implementation of the single system has just been initiated, it i s not expected that this system will be ready by negotiations\. However, at the time of appraisal, both the Ministry of Health and Sports and the Ministry o f Development Planning have in place a system which would enable the monitoring o f information according to project components and cost categories\. Although, the existing systems have some limitations, they could be used at least initially, if the new system currently being designed cannot be implemented before effectiveness\. The Ministry o f Labor does not currently have a complementary system, which is why the implementation of such as a system in the MOL i s a condition of disbursement for component 2\. Financial Reports 15\. On a quarterly basis, each entity will prepare for its respective component an unaudited interim financial report (IFR) containing at least: (i) a statement of sources and uses of funds and cash balances (with expenditures classified by subcomponent); (ii)a statement o f budget execution per subcomponent (with expenditures classified by the major budgetary accounts)\. The Ministry of Development Planning will be responsible for consolidating the information and submit the consolidated interim reports to the Bank not later than 45 days after the end of each quarter\. 16\. On an annual basis, each of the entity will prepare for its respective component project financial statements including cumulative figures, for the year and as o f the end o f that year, o f the financial statements cited in the previous paragraph\. The financial statements will also include explanatory notes in accordance with the Cash Basis International Public Sector Accounting Standard, and the entity's assertion that credit funds were used in accordance with the intended purposes as specified in the Loan Agreement\. These financial statements, once audited, will be submitted to the WB not later than six months after the end of the Government's fiscal year (which equals the calendar year)\. 17\. Working papers for the preparation of the quarterly and annual financial statements will be maintained in the Unit's premises, and made easily accessible to WB supervision missions and to external auditors\. Flow of Funds Disbursement - Ministn, of Health and Suorts (MOH) WB DisbursementMethods 18\. Considering the results of the assessments, the following disbursement methods may be used by the M O H to withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment\. WB DesignatedAccount 19\. Under the advance method and to facilitate project implementation, the MOH will have access to a Designated Account (DA) inU S dollars which will be managed by the DGAA\. Funds 99  deposited into the DAs as advances, would follow Bank's disbursement policies and procedures, as described inthe Disbursement Letter and Disbursement Guidelines\. 20\. Following the Bolivian Government issuance o f a Supreme Decree42that establishes the operation of a Single Treasury Account inUS dollars (CUT-ME) in the Central Bank of Bolivia, the Designated Account would be the Libreta in the CUT-ME, exclusively opened for credit funds for the project\. Credit proceeds would be directly deposited in this account, and similar to the CUT in Bolivianos, MOH will have direct access to funds advanced by the Bank to be used for project eligible expenditures\. 21\. Under the arrangement described above for the CUT-ME, the MOH will be able to process payments in US dollars from the Libreta in the CUT-ME when required; however, to process payments inlocal currency, funds would still need to be transferred from the CUT-ME to the corresponding LibretainBolivianos\. 22\. The ceiling for advances to be made into the M O H DA would be $1,500,000\. The reporting period to document eligible expenditures paid out o f the DA i s expected to be on a quarterly basis\. 23\. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e\.g\. copies of receipts, invoices) for payments for consultant services against contracts valued at $100,000 or more for firms, and USD25,OOO or more for individuals; for payments for goods against contracts valued at $200,000\. For all other expenditures below these thresholds, supporting documentation for documenting project expenditures will be Statements of Expenditures (SOEs)\. A customized SOE will be used for the benefits (Cash transfers) to eligible beneficiaries (Le\. mother andchild)\. 24\. All consolidated SOEs documentation will be maintained for post-review and audit purposes for up to one year after the final withdrawal from the credit account\. 25\. Direct Payments supporting documentation will consist o f records (e\.g\.: copies of receipts, supplier/ contractors invoices)\. The minimumvalue for applications for direct payments and reimbursements will be USD 200,000\. Payments of Benefits 26\. The Payment mechanismfor CCTs has not been fully defined yet by the MOH, which i s currently completing an analysis\. Therefore, a critical action will be the design and implementation of the payment mechanism, which will have to be operational before disbursements on CCTs can be initiated (sub-component 1\.1)\. 27\. The payment terms of CCTs will be detailed in the project's operational manual\. In brief, it is expected that according to a bi-monthly payroll, the Ministry of Health and Sports would advance the amounts to the designated contracted payment agent (e\.g\., banks or other financial institution), who upon completion o f the payment process will present the supporting 42Supreme Decree No 29236\.dated August 22,2007 100  documentation to the Ministry of Health and Sports to "clear" the advances\. Only payments actually made to beneficiaries will be considered documented expenditures\. During implementation, the Ministry of Health and Sports will be responsible for carrying out reconciliations between the payment information presented by each respective payment agent and the beneficiary database\. 28\. A critical action will be the development of the CCT management information system within the Ministry of Health and Sports, and the linkages between the underlying beneficiary and conditionality control databases and the production of payrolls, which would be monitored and cleared following the established proceduies\. Ministry of Labor (MOLL WB DisbursementMethods 29\. Considering the results of the assessments, the following disbursement methods may be used by the MOL to withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment\. WB DesignatedAccount 30\. Under the advance method and to facilitate project implementation, the MOL will have access to a Designated Account (DA) in U S dollars which will be managed by the DGAA\. Funds deposited into the DAs as advances, would follow Bank's disbursement policies and procedures, as described inthe Disbursement Letter and Disbursement Guidelines\. 31\. Following the Bolivian Government issuance o f a Supreme Decree43that establishes the operation of a Single Treasury Account inUS dollars (CUT-ME) in the Central Bank of Bolivia, the Designated Account would be the Libreta in the CUT-ME, exclusively opened for credit funds for the project\. Credit proceeds would be directly deposited inthis account, and similar to the CUT in Bolivianos, MOL will have direct access to funds advanced by the Bank to be used for project eligible expenditures\. 32\. Under the arrangement described above for the CUT-ME, the M O L will be able to process payments in US dollars from the Libreta in the CUT-ME when required; however, to process payments inlocal currency, funds would still need to be transferred from the CUT-ME to the corresponding Libreta inBolivianos\. 33\. The ceiling for advances to be made into the M O L DA would be $550,000\. The reporting period to document eligible expenditures paid out of the DA i s expected to be on a quarterly basis\. 34\. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e\.g\. copies o f receipts, invoices) for payments for consultant services against contracts valued at $100,000 or more for firms, and $25,000 or more for individuals; for payments for goods against contracts 43SupremeDecree No 29236\.dated August 22,2007 101  valued at $200,000\. For all other expenditures below these thresholds, supporting documentation for documenting project expenditures will be Statementsof Expenditures (SOEs)\. 35\. All consolidated SOEs documentation will be maintained for post-review and audit purposesfor upto one year after the final withdrawal from the credit account\. 36\. Direct Payments supporting documentation will consist of records (e\.g\.: copies of receipts, supplier/contractors invoices)\. The minimumvalue for applications for direct payments and reimbursementswill be USD 100\.000\. Ministry of Development Planning (MDP) WB Disbursement Methods 37\. Considering the results of the assessments, the following disbursement methods may be used by the MDP to withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment\. WB DesignatedAccount 38\. Under the advance method and to facilitate project implementation, the MDP will have access to aDesignated Account (DA) in US dollars which will be managedby the DGAA\. Funds deposited into the DAs as advances, would follow Bank's disbursement policies and procedures, as describedinthe Disbursement Letter and DisbursementGuidelines\. 39\. Following the Bolivian Government issuanceof a Supreme Decree4 that establishes the operation of a Single Treasury Account inU S dollars (CUT-ME) in the Central Bank of Bolivia, the Designated Account would be the Libreta in the CUT-ME, exclusively opened for credit funds for the project\. Credit proceeds would be directly deposited in this account, and similar to the CUT in Bolivianos, MDP will have direct access to funds advancedby the Bank to be used for project eligible expenditures\. 40\. Under the arrangement described above for the CUT-ME, the MDP will be able to process payments in US dollars from the Libreta in the CUT-ME when required; however, to process paymentsinlocal currency, funds would still needto be transferred from the CUT-ME to the corresponding LibretainBolivianos\. 41\. The ceiling for advances to be made into the MDP DA would be $120,000\. The reporting period to document eligible expenditures paid out of the DA i s expected to be on a quarterly basis\. 42\. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e\.g\. copies of receipts, invoices) for payments for consultant services against contracts valued at $100,000 or more for firms, and $25,000 or more for individuals; for payments for goods against contracts 4\.1Supreme Decree No 29236\.dated August 22,2007 102  valued at $200,000\. For all other expenditures below these thresholds, supporting documentation for documenting project expenditures will be Statements of Expenditures (SOEs)\. 43\. All consolidated SOEs documentation will be maintained for post-review and audit purposes for up to one year after the final withdrawal from the credit account\. Direct Payments supporting documentation will consist o f records (e\.g\.: copies of receipts, supplier/ contractors invoices)\. The minimum value for applications for direct payments and reimbursements will be $25,000\. DisbursementDeadline Date 44\. Four months after the closing date specified in the Loan Agreement\. Expenditure CreditAmount % of Expenditures Category (US$) to beFinanced 1\.a\. CashTransfers and Operating Costs for Component 1\.1 of the Project $9\.92 M 100% 1\.b\. Goods, Consultant Services, Trainingand OperatingCosts for $2\.49 M 100% Components 1\.2 and 1\.3 of the Project\. 2\. Goods, Consultant Services, Training and Operating Costs for $3\.59 M 100% Component2 of the Project\. 3\. Goods, Consultant Services, Trainingand Operating Costs for $1\.00 M 100% Component3 of the Project\. 4\. Unallocated Total $17\.0 M Audit Arrangements Internal Audit 45\. In the course of its regular internal audit activities vis-&vis the institutional budget, internal auditors from the implementing entities may include project activities in their annual work plans\. If such audits occur, the implementing entity will provide the Bank with copies of internal audit reports covering project activities and financial transactions\. External Audit 46\. Each implementing entity will prepared the annual project financial statements for its respective component, which will be audited following International Standards on Auditing, by an independent firm and in accordance with terms of reference (TORS),both acceptable to the Bank\. The audit opinion covering project financial statements will contain a reference to the eligibility of expenditures\. A single audit firm will be hired by MDP which will audit each component of the project and provide separate reports, as well as a consolidated report (4 reports intotal)\. Each individual report will be required to include a section on the state of the internal control in each of the implementing entities\. Each entity will submit its corresponding report to 103  the Bank no later than 6 months after the end of the fiscal year and the consolidated report will be submitted to the Bank by the Ministry of Development Planning no later than 6 months after the end of the fiscal year\. 47\. The audit work described above can be financed with loan proceeds\. MDP will arrange for the first external audit within six months after Credit Effectiveness\. The first audit engagement i s expected to cover at least two years of the project\. 48\. In addition to the annual financial audit, the Ministry of Health and Sports will contract a semi-annual operational audit on the preparation, payment and clearance of CCT payrolls\. Audit Report Due Date 1) Project specific financial statements June 30 2) Specialopinions 3) SOE June 30 49\. WB FM Supervision Plan\. A WB FM Specialist may perform a supervision mission prior to effectiveness to verify the implementation o f the units and the FM system\. After effectiveness, the FMSpecialist mustreview the annual audit reports, should review the financial sections o f the quarterlyIFRs, and should perform at least two supervision missions per year\. 104  Annex 8: ProcurementArrangements BOLIVIA INVESTING INCHILDREN AND YOUTH PROJECT A\. General 1\. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, both versions updated in October 2006, andthe provisions stipulated in the Financing Agreement\. The various items under different expenditure categories are described in general below\. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame, are agreed between the Borrower and the Bank in the Procurement Plan\. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity\. Procurementof Works: nocivil works are envisaged\. 2\. Procurement of Goods: Goods procured under this project would include IT and office equipment, office furniture, supplies for visits to pregnant women\. Procurement of goods will be done using the Bank's SBD for all ICB procurement\. For NCB or Shopping (S) methods, documents agreed with or satisfactory to the Bank will be used\. 3\. Procurement of non-consulting services: The project will include logistics for training activities and services for mass communication campaigns\. The project will also hire: (i) public/private training institutions and special organizations for providing training to low- income unemployed youths living in urban and peri-urban areas, and (ii) financial institutions to support the program of cash transfers to families with pregnant women and/or mothers of children younger than two years of age\. The procurement may follow the provisions of paragraph 3\.3 and 3\.4 of the Procurement Guidelines and will be carried out using the Bank's SBD for all ICB procurement\. For NCB or Shopping (S) methods, documents agreed with or satisfactory to the Bank will be used\. The procedures should be detailed in the Project Operational Manual (OM)\. N o other non-consulting services are to be procured under the project\. 4\. All procurement notices shall be advertised in the project website, the government website, and at least in one local newspaper of national circulation\. ICB notices and contract award information shall be advertised in the UN Development Business online (UNDB online) and in the Development Gateway's dgMarket, in accordance with provisions of paragraph 2\.60 of the Procurement Guidelines\. 5\. Selection of Consultants: Consulting Firms services will be contracted under this project in the following areas of expertise: (i) Technical assistance for the technical units; (ii) Design of a Managing Information System (MIS), (ii)Design of a comprehensive public information campaigns to promote the program's goals and benefits, (iii) management training activities, (iv) design and implementation of a certification mechanism o f ICAPs, (v) Impact 105  evaluation studies, and (vi) financial and procurement audits\. The procurement of consulting firms will be carried out usingBank's standard Request for Proposals (RFP)\. International firms will have the opportunity to participate inabout all concourses above $100,000\. 6\. Selection of Individual Consultant Services: Individual consultant services will be contracted to provide a diagnosis of similar First Employment Programs, 7\. A project website, a government website, and a national newspaper shall be used to advertise expressions of interest as the basis for developing short lists of consulting firms and individual consultants, and to publish information on awarded contracts in accordance with provisions o f paragraph 2\.28 o f the Consultants' Guidelines and as mandated b y local legislation\. Contracts expected to cost more than $100,000 shall be advertised in the UNDB online and in dgMarket\. Short lists of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2\.7 of the Consultant Guidelines\. 8\. Operating Costs: are related to Office supplies, travel and administrative personnel at the central executing office and municipal operative offices\. These expenditures would be procured usingthe implementing agency's administrative procedures (shopping) and selection of individualconsultants which shouldbe detailedinthe OM\. B\. Assessment of the agency's capacity to implement procurement: 9\. This section presents an assessment of the Ministry of Planning and Development (MDP), the Ministry of Health and Sports (MOH) and the Ministry of Labor (MOL), regarding the implementation of the procurement to be carried out under the proposed project, and an action plan to enhance their procurement activities\. The assessment was carried out in October and November 2007\. It reviewed the organizational structure o f (i) MDP Technical the Coordination Unit (TCU), (ii)the M O H MCA; (iii)the MOL National Coordination Unit (NUFEP) and (iv) the Administrative Units of the three ministries to carry out project procurement activities\. It also reviewed the interaction among the procurement officers and implementing units within MDP, M O H and MOL\. The assessment concluded that the three institutions have weak procurement units\. Particularly, they lack enough people with the right skills to implement a program of radical improvement in their procurement functions, as well as the institutional framework to carry out procurement activities properly\. To ensure proper coordination among the three institutions and effective involvement of their staff in the procurement activities, the project provides for: (i) subsidiary and implementation agreements between MDP and MOH, and MDP and MOL, as well as an inter-institutional agreement between MDP and MOH and MDP and M O L with respect to the role and responsibilities of MDP,M O Hand M O Lunder the project\. These agreements shouldbe executed as a condition of effectiveness of the Financing Agreement; (ii)a project operational manual, detailing the procedures and guidelines for carrying out each o f the components o f the project and the coordination of all of them under MDP responsibility, to be adopted in a manner satisfactory to the Association, as a condition of effectiveness of the Financing Agreement; (iii) TCU, MCA and NUFEP units under the three institutions to be fully staffed and operational no later than 90 days after the effectiveness date of the Financing Agreement; (iv) MDP to establish its 106  procurement monitoring unit and M O H and M O L to strengthen the procurement units that will work with the TPU and NCUrespectively\. 10\. The Project i s to be implemented primarily by the MDP (component 3) through M O H and M O L which are responsible for the activities related to components 1 and 2\. For this purpose, Inter-institutional Agreements will be signed among the different Government agencies\. The three institutions will be working independently from one another, but in a closely coordinated manner by MDP, which will be the main counterpart during project implementation and supervision\. MDP through its institutional structure has created a Technical Coordination Unit (TCU) with responsibility for the coordination of the social protection network's programs includingthis project\. The M O Hdelegatedthe PlanningUnit to be responsible for those projects financed by international cooperation, and M O L has created an internal unit to coordinate its project component the National Coordination Unit (NUFEP)\. Te figure below synthesizes the arrangements\. The project's administrative aspects will be responsibility of the TCU in the MDP, whose specific responsibilities and operational procedures will be detailed in the POM\. The Project's manual will describe the flow of project coordination processes between the technical and the administrative units inside the MDP, as well as in the M O H and MOL\. The following documents that govern the procurement aspects of the project provide the framework for the manual: (i)Financing Agreement; (ii)Procurement Guidelines; (iii)Consultant Guidelines; (iv) Anti-Corruption Guidelines, (v) Operational Manual; (vi) Procurement Plan, (vii) Special Provisions, and (viii) Audit provisions\. Legal Aspects 11\. The law that rules the Public Sector Procurement (Normas Bhsicas del Sistema de Administracih de Bienes y Servicios, SABS), was established by Decreto Supremo No\. 29190, dated July 11, 2007, and its Reglamento del Subsistema de Contrataci6n de Bienes y Servicios, dated August 27, 2007, the law has been recently reviewed, and it applies to all government institutions\. 12\. The main shortcomings of the Procurement Law includes: (i) multiple exceptions for specific cases involved in the various procurement methods, and efforts to avoid open competition through ICB / NCB; (ii)authorization for government agencies to contract with other government agencies; (iii) an explanation of domestic preference that is in conflict with the text of Annex I1of Bank Guidelines; (iv) open competition for the selection of consulting firms instead of short listing; (v) request of bid and performance guarantees for consultants; (vi) inadequate time to prepare bids; (vii) lack of an independent agency to review and resolve disputes\. This means that bidders will have to go to the Administrative Court, meaning long delays and unknown results\. 13\. Inview of the deficiencies of the national legal framework for procurement and lack of procurement experience in the agencies, all project procurement should be made following Bank Guidelines and agreedprocedures, includingthe Special Provisions detailed further down\. 107  Organization and Staffing 14\. MDP, MOH and M O L through their respective administrative units, whose specific responsibilities and operational procedures will be detailed in the OM, will nominate a procurement specialist under TOR agreed or satisfactory to the Bank, and will confirm at negotiations, the proposed structure at the central and departmental levels to be responsible of the supervision and / or implementation of procurement\. 15\. The responsibilities for implementing project procurement by the TCU unit include: (i) prepare and execute its own procurement, coordinate implementation within MDP, and with M O H and MOL, follow-up the implementation of the procurement carried out by MOH and MOL, follow-up the updating and implementation of the Procurement Plan, and to ensure compliance with MDP technical standards, particularly for training and technical assistance; (ii) prepare bidding documents and coordinate preparation o f terms o f reference and technical specifications; (iii)ensure the functioning of the Bid Evaluation Committees within the MOH and M O L follow Bank requirement; (iv) prepare the Committee's bid evaluation reports, coordinate contract awards and coordinate the preparation o f contracts; (v) establish and keep up-to-date the contract administration system to include contracts from all executing agencies; (vi) design a filing system to keep procurement records; (vii) prepare requests to the Bank for no objection; (viii) prepare and deliver a training action plan; and finally (ix) keep an information system for complaints and their resolutions\. 16\. At the central level, MOHand M O L will carry out certain procurement activities related to goods, consultant services and services as required by their own components\. Both M O H and M O L will incorporate in its financial system a module for contract administration that will start with the procurement plan and supervision at different stages of the contracts\. The system will be functioning before procurement starts\. It will also establish, monitor, and supervise the filing system at all levels\. Finally, MOH and MOL will send information to MDP on the assigned dates and other matters related to the procurement plan and its implementation, to be consolidated by MDPand included in the implementation reports to be sent to the Bank 17\. The key issues and risks concerning procurement for implementation of the project have been identified and include delays and sub-standard services in the project implementation mainly due to: (i) poor procurement management capacity of MDP, M O H and M O L and lack of adequate capabilities to carry out project related procurement and to establish and monitor procurement indicators; (ii) uncertainty regarding the responsibility and accountability o f MDP, M O H and M O L for project activities; and; (iii)poor regulatory framework\. In particular, the a risk assessment identified the following likely causes of said risks: (i) MCA and NUFEP TCU, staff lack experience in implementing substantive procurement following Bank's procedures, and have poor procurement planning and internal controls; (ii) the fractioning of contracts, late payments to contractors, and inefficient practices, fostered by the regulatory weaknesses and (iii) lack of a Control Systems within the MDP, M O H and M O L to monitor project implementation, and of an adequate system and procedures for filing procurement documents\. 18\. The overall project risk for procurement i s HIGH\. The corrective measures that have been considered or implemented to mitigated the above mentioned risks include: (i) agreements to facilitate the carrying out of the project and ensure clarity in the responsibilities and 108  accountabilities of the different actors (MDP, M O H and MOL); (ii)project operational manual a under preparation, including, inter alia, procurement and contracting procedures, will be adopted; (iii) tostrengthenitsprocurementunitandMOHandMOLtocontractkeystaffforMCA MDP and NUFEP units, including a senior procurement specialist as a withdrawal condition of the Financing proceeds; (iv) the Financing Agreement to include additional provisions relating to Procurement practices; (v) close monitoring by the Association, particularly during the first year of project implementation\. The following table presents a detailed plan to mitigate the risks and to improve the agencies implementationcapacity\. Action By whom By when 1 Bank to review and comment To have the TCU, MCA and NUFEPestablished MDP/ MOH/ 90 days after I No Objectionto TORS and properlystaffed, and the Administrative MOL effectiveness for key staff including units structure and functionsto supervise/ the procurement executeprocurement, includinghiring a specialist procurement specialist Definefunctions, organization, and relationship MDP/ MOH/ F\.A Subsidiary Agreements amongTCU, technical and administrativestaff, MOL effectiveness includethe Inter- and MOHand MOL institutional Arrangements To define the procurement work flow including MDP/ MOH/ F\.A Procurementprocesses approvers and timetable following local MOL effectiveness and functions to be procedures (mappingof all steps), MDP, MOH includedin OM -I-- and MOL Finalizethe procurementsection of the OM, with MDP/ M0H-i F\.A negotiations Draft of the OM detailed instructionon: (i) responsibilitiesand MOL relationships betweenthe various units involved inprojectprocurement (ii) individual responsibilitiesfor approval and processingof key procurement actions under the project;(iii) sending informationto IDA, and (iii) specific sectionto includeinstructionsand details of the process and responsibilitiesfor procurement files\. Prepare a GeneralProcurementPlan (For the MDPto Negotiationsand Plan and updating first 18 months) and updating as necessary\. consolidate the duringproject plan including implementation MOHand MOL plans Preparethe GeneralProcurementNotice MDP February 2008 ProposedNotice Prepare standardbiddingdocuments for NCB, MDP F\.A Documentsas part of Shoppingand selection of consultants, and negotiations the draft POM Standardformats for bid evaluation\. To design/ includeprocurement module inthe MDP/ MOH/ currentMDP, MOHand MOL projectMIS MOL system system, to monitorprocurementplans, contract implementation and producereports\. Includeinthe Procurementpart of the Financing Bank Agreement and inthe OM: (i) the Special Provisions agreed for Boliviaand the explanationthat they should be used when following nationalcompetitiveprocedures;(ii) a 109  Action ~~ By whom By when Bank to review and comment ~ requirement for the use of standard bidding documents agreed in advance with the Bank, and (iii)allprojectprocurementwillbemade following Bank Guidelines and agreed procedures\. Invitations for all contracts, expressions of MDP / MOH/ During project Invitations should interest and contract award will be advertised M O L implementation follow the Bank's through a government and project web page, and Standard format ina local newspaper\. For consultant services above $100,000, the call for bids, the expressions of interest and contract award information should be also publishedinthe UNDB and dgMarket\. Submit to the Bank Procurement Audit reports IIMDP Each March 31 Report carried out by Independent Auditors\. starting in 2009 Special Provisions A\. In addition to and without limitation on any other provision set forth in this Schedule or the Procurement Guidelines, the following rules shall govern all procurement of goods and works under NCB: 1\. A meritpoint systemshall not beusedinthe pre-qualification of bidders\. 2\. The award of goods and works contracts shall be based exclusively on price and, whenever appropriate, shall also take into account factors similar to those referred to in paragraph 2\.5 1 of the Guidelines, provided, however, that the bidevaluation shall always be based on factors that can be quantified objectively, andthe procedure for such quantification shall be disclosed inthe invitation to bid\. 3\. The Borrower shall open all bids at the stipulated time and place in accordance with a procedure satisfactory to the Bank 4\. The Borrower shall use a single envelope procedure\. 5\. Whenever there i s a discrepancy between the amounts in figures and in words of a bid, the amounts in words shall govern\. 6\. There will be no prescribed minimum number of bids submitted for a contract to be subsequently awarded\. 7\. Foreignbidders shall be allowed to participate\. 8\. Foreign bidders shall not be requiredto legalize any documentation related to their bids with Bolivian authorities as a prerequisite for bidding\. 9\. No margin of preference shall be granted for any particular category of bidders\. 10\. Inthe event that a bidder whose bid was evaluated as the bid with the lowest evaluated price withdraws its bid, the contract may be awarded to the second lowest responsive evaluated bid\. 11\. Foreign bidders shall not, as a condition for submittingbids, be required to enter into a joint venture agreement with local bidders\. 12\. No other procurement rules or regulations of the Borrower's agencies or of any state-owned entity shall apply without the prior review and consent of the Association\. 13\. Government-owned enterprises may participle in bids only if they follow paragraph 1\.8 (c) of the Guidelines\. 110  B\. Inaddition to and without limitation on any other provisions set forth inthis Schedule or the Consultant Guidelines, the following rules shall govern all procurement of consultant services referred to inthis Schedule: 1\. As a condition for participating in the selection process, foreign consultants shall not be required to enter into ajoint venture agreement with local consultants, unless the conditions statedinparagraph 1\.12 of the Consultant Guidelines are met\. 2\. As a condition for participating in the selection process, foreign consultants shall not be required to legalize their proposals or any documentation related to such proposals with Bolivian authorities\. 3\. Foreign consultants shall not be required to be registered in the Borrower's National Registry of Consultants (Registro Nacional de Consultoria)\. 4\. Consultants (firms and individuals) shall not be required to present Bid and Performance securities as a condition to present proposals and sign a contract\. C\. ProcurementPlan 19\. The MDP has prepared a procurement plan for the first 18 months of project implementation, based on the project existing information and envisaged implementation\. This plan was discussed and agreed between the Borrower and the Project Team during Negotiations and i s available at MDP offices\. The procurement plan includes the three components\. I t will also be available in the project's database and in the Bank's external website\. The Procurement Plan will be updated semi-annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity\. 20\. Duringimplementation the MOH and MOL will develop a procurement plan for their components\. MOH and MOL will send to MDP in the due dates its part of the procurement plan to be consolidated and send to the Bank\. D\. FrequencyofProcurementSupervision 21\. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agencies has recommended semi-annually supervision missions, including field visits, to carry out post reviews of procurement actions\. E\. DetailsoftheProcurementArrangementsInvolvingInternationalCompetition 1\. Goods,Works, andNonConsultingServices (a) List of contract packages to be procured following ICB and direct contracting (no Civil Works are envisaged): 1 2 3 4 5 6 7 8 9 Ref\. Contract Estimated Procurement P-Q Domestic Review Expected Comments No\. (Description) Cost Method Preference by Bank Bid- (yes/no) (Prior / Opening Post) Date 1 Financial $384,330 ICB NIA N Yes 04/01/09 Institutions  Ref\. Contract Estimated Procurement P-Q Domestic Review Expected Comments No\. (Description) Cost Method 1 Preference 1by Bank 1Bid- 1 1 (yedno) (Prior / Opening I I I I Post) Date Services to pay stipends Training $485,000 ICB Providers Services in the manufacturing sector (b) ICB contracts for works estimated to cost above $3\.0 million and ICB contracts for goods estimated to cost above $200,000 per contract and all direct contracting will be subject to prior review by the Bank\. 2\. Consulting Services (a) List of consultingassignments with short-list of international firms\. 1 1 2 3 4 5 6 17 Ref\. No\. Description of Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals US% (Prior / Submission Post) Date N/A (b) Consultancy services estimated to cost above $100,000 per contract and all single source selection of consultants (firms) will be subject to prior review by the Bank\. Individual consultants services to cost $25,000 or above per contract or single source, regardless of the amount, will be subject to prior review by the Bank\. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2\.7 of the Consultant Guidelines\. 112  F\. THRESHOLDS FORPROCUREMENTM E T H O D S AND PFUOR REVIEW Expenditure Contract Value Procurement Method Bank Prior Review Category (Threshold) (US$OOO) 1 ::p 1\. Works >3,000 ICB All 3\.000>250 NCB Firsttwo eachvear I PSW (Price Firsttwo each year <250 Comparison) 2\. Good; and Non Consultin services ICB All 200>50 NCB Firsttwo each year Shopping Firsttwo each year 3\. Services I QCBS, QBS All QCBS, QBS, CQ, FBS, All TORs\. Process Procurement Plan) reviewed twice yearly (Ex Post)\. All contracts 4\. Individual Consultants >25 IC All e25 All TORs\. Selection Process reviewed twice yearly (Ex Post)\. All contracts awarded under Total value of contracts subject to prior review: S$ 1\.6 million (first 18 months) Notes: ICB = InternationalCompetitive Bidding NCB= National Competitive Bidding QCBS= Quality-Cost BasedSelection QBS=Quality Based Selection FBS=Fixed Budget Selection LCS=Least-Cost Selection CQS=Consultant Qualification Based Selection SSS= Sole Source 113  Annex 9: EconomicandFinancialAnalysis BOLIVIA INVESTINGINCHILDRENAND YOUTH 1\. This annex presents the project's economic and financial analysis\. It is organized in three parts\. The first section presents an analysis of the estimated impact o f the proposed conditional cash transfer (CCT) program on poverty and extreme poverty incidence and gap for beneficiary households\. The second section estimates the measurable benefits related to Components 1 and 2 (CCT to reduce chronic malnutrition, and improving skills training); economic benefits of institutional strengthening (Component 3) are not considered due to the difficulty to value them\. The third section presents the costs of all project components as well as other costs triggered b y its implementation\. The fourth section summarizes the benefits and costs and estimates the Internal Rate of Return (IRR) that is an indicator of the net benefits expected from a project\. Finally, the last section assesses the project's impact on fiscal accounts\. I\.ExpectedBenefitsofaCCTProgramandthePovertyEffectoftheSocialProtectionProgramfor Mothersand Children(MCP) 2\. The analysis in this section i s based on existing household survey data, and without the benefit of the baseline data that i s being collected for the project\. Therefore the estimates of the impact of the MCP program may be conservative\. This analysis will be updated with the baseline and through the M&E framework outlined inAnnex 3\. 3\. Over the past decade, numerous developing countries have implemented conditional cash transfers (CCTs) as main social sector interventions, with the goals o f reducing: (a) current poverty and inequality through the provision of cash transfers to poor families (redistributive effect); and (b) the inter-generational transmission o f poverty b y conditioning these transfers on beneficiary compliance with key humancapital investments (structural effect)\. 4\. Impact evaluations of CCT programs show positive impacts on various outcomes such as school enrollment, poverty gap reduction and nutrition and health care attendance\. These results sustain existing programs and have encouraged the design o f similar programs in other developing countries despite some concerns about budgetary impact45 and also operational questions about co-responsibility, target population, size of transfer and coordination with the supply of services\. 5\. According to the World Bank PPA 2006, CCTs better target the poor than most social programs including utility subsidies, social insurance and public spending on health and education\. Inmost countries, their redistributive impacts are limited only by the relatively small size of the unit transfers (despite their effects on poverty sensitive measures such as poverty gap and severity of poverty)\. Different experimental and quasi-experimental evaluations suggest that on health and nutrition CCT programs contribute to (a) increased total and food expenditures (Brazil Bolsu Alimentupio (BA), Mexico, Honduras, Nicaragua); (b) increased calorie intake and improved dietary diversity (Brazil BA, Mexico, Nicaragua); (c) improved child growth (Mexico, Nicaragua, Brazil BA); (d) reduced health service costs; (e) increase in use o f prenatal care and 45They representa large share of public budgetsdedicatedto povertyreduction\. 114  reduced maternal mortality (Mexico); (f) reduced incidence o f smoking and alcohol consumption (Mexico); and (g) improved treatment of diabetes (Mexico)\. Results for education show that CCT programs contribute to (a) improved primary enrolment among the poor (Nicaragua, Honduras, Brazil); (b) increased secondary enrolment (Mexico, Colombia); (c) reduced drop-out rates and repetition (Brazil, Mexico, Nicaragua, Honduras); and (d) reduced child labor (Mexico- boys, Nicaragua, Honduras-boys, Colombia, Brazil)\. 6\. Short-run CCT effects on consumption may underestimate the true (medium-run) impact of the program on poverty\. First, a fraction of the transfer can be saved or invested in productive assets as suggested by Gertler, Martinez, and Rubio-Codina (2006) with Mexico CCT program\. Second, CCTs would also help smooth household consumption and/or protect them from negative economic shocks as posited by de Janvry et al\. (2006) and Maluccio (2005) on the Nicaraguanprogram\. The Poverty Effect of the Social Protection Programfor Mothers and Children 7\. The following section presents the analysis of the impact of the Social Protection Program for Mothers and Children (MCP) on income poverty\. The MCP i s geographically targeted to the 52 most vulnerable municipalities, measured in terms of food insecurity\. Within these municipalities, there is categorical targeting since the program benefits pregnant women and mothers with children under the age of two\. The benefits are not mean-tested, as the incidence of poverty is above 90 percent inthese areas\. 8\. The mainobjective of the program i s to reduce the prevalence of chronic malnutrition in children under two years old, therefore the program i s expected to have a lasting impact on the growth and development of children\. Nevertheless, as a monetary benefit it i s also expected to have an immediate effect on the income of beneficiary households\. 9\. The poverty effect of the cash transfer can be modeled based on data from the household surveys\. Analysis proceeded in two phases: first, household surveys were merged to get an adequately representative sample of beneficiaries; and second, the effect of the benefit on poverty was modeled\. Quantifying the poverty effect i s complicated due to data constraints\. First,the sample of the household surveys is relatively small\. Inresponse, three different sets of databases (household surveys from 2003-2004, 2005 and 2006) were pooled to increase the sample of potential beneficiaries and to be able to disaggregate results -by rural areas and by department\. Samples o f the surveys are independent, although it i s possible for a household to be surveyed more than once\. Nevertheless, INE does not consider this as a regular situation\. The increased sample for the simulation i s presented inthe following table: TableA9\.1: Potentialbeneficiariesof the MCPProgram Potential beneficiaries Year % (pregnant women and mothers) 2004 2,600 54\.98 2005 1,044 22\.08 2006 1,085 22\.94 Total 4,729 100 Source: MECOVIand EDHsurveys for 2003-2004,2005, and 2006\. 115  10\. Once the databases were merged, the poverty effect was modeled by simulating the poverty rate before and after receipt o f the benefit\. The transfer simulated for each household was valued at 65\.6 Bs\. per month, which corresponds to a total of 1902 Bs\. for the 29 months of the program\. The amount of the benefit was added to household income o f eligible households - those with pregnant women andchildren under 2 years of age\. 11\. The poverty headcount rate and gap were calculated ex ante and ex post, using the new household income estimates, using both the poverty and extreme poverty lines\.46 Expansion factors were used for the calculation of poverty rates to maintain the population structure\. These simulations assume no behavioral change -in other words, that increased income would not change householdearning patterns\. 12\. Figures A9\.1 and A9\.2 below illustrate the reduction in the poverty and extreme poverty headcount rates among beneficiaries in rural areas by department\. As anticipated, the project will have the greatest impact on the extreme poverty rate among potential beneficiaries in rural areas with the largest reductions in Pando (8 percentage points), Santa Cruz (7 percentage points) and Potosi (6 percentage points)\. Figures A9\.1 and A9\.2 Simulated Poverty and Extreme Poverty Rates among eligible MCP BeneficiariesinRural Areas Preand PostBenefits,2003-2006 ,UWithout benefit 8With benefit 8Without benefit 8Wnh benefit 13\. Similarly, the MCP benefit will have a substantial impact on the extreme poverty gap - the distance of beneficiaries from the poverty line\. 46Annualpoverty lines corresponding to each year of the household survey were used, rather than calculating an aggregated poverty rate\. As a reference, in 2006 the poverty line was equal to 339 bolivianos (US$42) and the extreme poverty was at 189 bolivianos (US$23)\. 116  Figures A9\.3 and A9\.4: Simulated Poverty and Extreme Poverty Gaps among eligible MCP BeneficiariesinRuralAreas PreandPost Benefits, 2003-2006 I I E l Without benefu Wuh benelit OWdhout beneFn =With benefu 11\. Project Benefits 14\. BeneJt from the CCT to reduce chronic malnutrition (Component 1)\. Many developing countries have implemented CCTs for poor families, conditioning these transfers on beneficiary compliance with key human capital investments, to reduce poverty and inequality and to mitigate their intergenerational transmission\. Regional experience (Brazil, Mexico, Honduras and Nicaragua) has showed that health and nutrition CCT programs contribute to reduce maternal and child mortality as well as stunting\. This section will evaluate the economic benefits of the CCT component, according to the following steps: (i) identify a relation between variables changed by the project - such as breast feeding -, and their effect on child mortality and stuntingrates, to estimate the number of children saved from death and stunting; (ii) estimate the economic benefit of this component as the discounted incremental income flow received by these children over their working lives\. (i) Estimation of thenumber of children saved\.The effects of this component in terms of the number o f children saved from chronic malnutrition results from the project's objective to modify the prevalence of chronic malnutrition\. Based on this information, the number of deaths avoided of children younger than 2 was estimated using a system dynamics model applied to the 52 municipalities targeted by the proje~t\.~',~* This model estimates the number of children born based on birth and mortality rates, and total population in the intervention areas\. Usingthis input, the model calculates the number of deaths avoided considering that increased breast feeding (for children younger than 5 months) and reduced malnutrition (for children older than 5 months) would diminish mortality, by way of reducing the propensity to Acute Diarrheal Diseases and Acute Respiratory Infections\. The relation among these variables was built using evidence from the international literature: Malnutrition with child mortality: 69 percent of deaths caused b y diarrhea are related with malnutrition as well as 59 percent of deaths caused b y pneumonia;49 Exclusive breast feeding with child mortality: non- exclusive breast feeding increases child morbidity/mortality by 6\.1 times in the case of 47The first year only 10municipalitieswill be benefitedand the other 42 municipalitieswill be added since the secondyear\. 48Effectson maternalmortality have been excluded becauseit would be modest: only 23 deaths would de avoided\. 49Caulfield L, Black R\. 2002\. Malnutrition and the Global Burden of Disease: Underweight and Cause-Specific Mortality\. Geneva, Switzerland:World HealthOrganization\. 117  Acute Diarrheal Diseases and by 2\.9 times in the case o f Acute Respiratory infection^\.^' According to this model, the project would avoid about 1,400 children deaths and save more than 21,300 children from stunting (Table A9\.2)\. Table A9\.2\. Impacton childmortalityand malnutrition 2008 2009 2010 2011 2012 Total Child deaths avoided (0-23months) 8 97 309 461 544 1419 Children saved from stunting (0-23 months) 1294 4784 5843 4753 4661 21335 (ii) Estimationof theeconomicbenefit\.Itisdifficulttoquantifyinmonetarytermsallsocial and economic benefits of CCTprograms due to conceptual and data constraints\. Nevertheless, it i s possible to quantify the private benefits associated with improved nutrition and deaths avoided assessing the expectedadditional earnings of beneficiaries over their working life\. However, several important benefits may not be valued, including: (i) the value of life as a consumption good; (ii) the social benefits associatedwith basic human capital investment like better learning environments, and health and nutritionalpractices over time; (iii) reduced family healthcare costs; (iv) unnecessaryhospital stays and mobility reduction; (v) the general equilibrium effects of greater human capital investments associatedwith higher future rates of economic growth and faster poverty reduction; and (vi) the economic value of poverty and inequality reductions\. Inthis context, the project's benefits calculated usinglabor market-related income opportunities generatedby a better nutrition status and deaths avoided seema reasonablelower-bound estimation\. 15\. The benefits ofavoiding deaths are estimated as the discounted income flow received by children whose lives are saved by the project as they eventually become part of the working population\. On the other hand, the benefit of reducing stunting i s estimated as the present value of the increased income-earning capacity of the persons whose nutrition status is irnpro~ed\.~' In line with international literature, it i s additionally assumed that children that avoid stunting will have 0\.6 years of additional schooling and an earnings premium of 10 percent during their working lives\.52 16\. These economic benefits were estimated using the 2005 household survey information, under the assumption that earnings and working profiles would not be changed: futures cohorts 50 WHO CollaborativeStudy Team on the Role of Breastfeedingin the Preventionof Infant Mortality: effect of breastfeedingon infant and child mortality due to infectious diseases in less developed countries: a pooled analysis, Lancet 355 (2000)\. Arifeen, S\., Black, R\. E\., Antelman, G\., Baqui, A\., Caulfield, L\.andBecker, S\. 2001\. ExclusiveBreastfeedingReduces Acute Respiratory InfectionandDiarrheaDeathsAmong Infantsin DhakaSlums\. Pediatrics108\. 5 1In both cases, the analysis does not take into account the benefitsfrom those people who are not working due to the difficulty to value the benefitsfor those who would not participateinthe labor market\. 52 Evidence indicates that young children who suffer from chronic malnutrition earn significantly lower incomesthroughouttheir economicallyactive lives\. Empirical studiesestimatethe negativeeffectsof stunting on worker productivity and adult earningsto be about 10 percent, controlling for other factors Alderman H\., Hoddinott J\.and Kinsey B\. 2003\. Long Term Consequences Of Early Childhood Malnutrition\. The estimatedschoolingimpacts were calibratedon the findings of a recent impact evaluationof the Progresa program in Mexico which estimated that this program led to an increase of 0\.66 years of schooling on average among eligible families (Schultz 2000); this effect couldbe underestimatedbecause targetedareas in Bolivia are startingat lower levels of educational attainment, than were seen in Mexico at the start of Progresa and thus incrementalgains may be accrue more readily\. Schultz, T\. 2000\. Final Report: The Impact of PROGRESA on School Enrollments\. April\. International Food Policy ResearchInstitute,Washington\. 118  will have the same income opportunities in their productive life than current ones\.53 Within this context, Figures A9\.5 and A9\.6 shows the estimated age-earning and age-working profiles in Bolivia's rural area used to estimate the income generated b y avoiding children death\. Figure A9\.5 also shows the hypothetical age-earning profile considering an earnings premium of 10 percent and additional 0\.6 years o f schooling that would benefit child saved from stunting\. The monetary values of these earnings are shown inTable A9\.3, Column Al\. Figure A9\.5\. Age-earningprofilesinrural Figure A9\.6\. Age-working profiles inrural areas areas __-\. 0\.9 0\.8 0\.7 e 0\.6 1 -X 0\.5 2 2 0 4 e 0\.3 0 2 01 1 -Without project \.Wilh project 0 0 , , , , , , , , , , , , ,, , , \. , ,, , , ,, , , , , , ~, , , , , ,I , I I , , , I I , I I I , , r " , z K % R % R ~ 2 z , % & ~ a Source: EDH2005 Source: EDH2005 17\. Benefitsfrom improving skills training (Component2)\. Expected direct benefits of the program stem from increased earnings ability and employability because training can address skill-mismatches between job offer and demand\. This outcome would generate important private and public benefits including: (i) reduction of labor underutilization; (ii) costs related to reduced crime as idle youth are at work; and (iii) accelerated poverty reduction and enhanced equity as the project i s targeting poor youth population in departments where no similar initiatives were implemented\. However, the evaluation considers only benefits derived from increased earning capacity and employability taking into account regional experiences which show that youth trainingand labor market insertion programs generally have apositive impact on these variables\. 53I t i s assumed income generation capacity will not growth because this improvement would require additional intervention\. 119  Figure A9\.7\. Age-earning profiles in urban Figure A9\.8\. Age-working profilesin urban areas areas 3svn - 1 0 8 0\.1 $ 0\.6 & -c0\.5 \.D 0\.4 t 0\.3 0\.2 500 j 0\.1 Source: EDH Source: EDH 18\. The economic benefits were estimated using the 2005 household survey\. It i s assumed that, in the absence of the project, beneficiaries would have earnings and working profiles of people with 10-14 years of education in urban area (Figures A9\.7 and A9\.8)\.54The additional income flow generated with the project was estimated assuming that beneficiaries would have a permanent income premium of 5 percent and their probability of being employed would be increased by 6 percent duringfour years after the internships(Table A9\.3, Column A2)\.55 111\.Projectcosts 19\. The analysis considers two basic elements in terms o f the costs: (i) total investmentthe costs of the World Bank-financed project and the government counterpart, adding up to US20 million over a five year schedule beginning in 2008 (Table A9\.3, column Bl); (ii) education the cost of children saved from death and the cost to provide additional education to children saved of stunting (Table A9\.3, column B2)\. This cost was estimated taking into account that educating a child in Bolivia costs Bs 2,200 per year, and assuming that children would complete only their primary education - in average, youth have 8 years of education in Bolivia's rural areas - and those saved from stuntingwill receive 0\.6 years of additional education\. The recurrent costs and investment costs financed by the Government of Bolivia to deliver additional health services to children who are saved from death are not included in this analysis due to lack of information, but on the other hand it is expected that improvement in nutrition status would reduce health services demand compensating those additional costs\. 54These estimates assume that increases in youth employmentdo not crowd out adult employment\. 55IADB estimatedthat the averagejob durationin Bolivia is close to four years\. IADB\. 2004\. GoodJob Wanted: Labor Market inLatinAmerica\. EconomicandSocialProgressReport\. 120  IV\. Cost-benefit synthesis 20\. Table A9\.3 summarizes the project's measurable benefits and costs developed in the previous sections\. The benefits include the improvement in future income of beneficiaries that include children saved from death and stunting, as well as trained youth (Table 9A\.3, columns A1 and A2)\. Costs include the direct project costs (Table A9\.3, column B1) and the costs to educate children saved from death and stunting (Table A9\.3, column B2) - child saved from stunting would demand additional education\. In addition, the CCT amounts and trainee allowances for transport and subsistence are included in both costs and benefits - they are a cost for the project but they are also a benefit for the beneficiaries of the project (Table A9\.3, column A3)\. 21\. These flows result in a project's IRR close to 20 percent which i s higher than the standard discount rate used in Bank's project evaluation of 10 percent - the project could be considered economically positive, if its IRR i s higher than the standard discount rate\. Moreover, it is worth noting that, in accordance with a WHO standard, a 3 percent discount rate is generally usedwith income streams received by people whose premature death has been averted due to the The breakeven point - when the benefits of the projects begin to surpass its costs - occurs after 26 years of implementation considering a discount rate of 10 percent\. However, Table A9\.3 also shows that if transfers are excluded from the benefits the project's IRR falls under 10percent, but remainingover 3 percent\. Table A9\.3\. Project Costs, Benefits and Internal Rate of Return (USS~ i ~ ~andpercentages) i o n Social revenues A\. Benefits B\. Costs Stream Privateincomeimprovement Transfers and Direct project Othercosts, (Net benefit) Component 1 Component2 allowances cost education (A-B) (AI) (\.w (A31 032) 2008-2010 -3,859 0 207 9,185 13,251 0 2011-2015 4,104 0 1,524 8,905 6,222 102 2016-2020 245 169 1,750 0 0 1,674 2021-2025 -724 2,246 2,218 0 0 5,188 2026-2030 11,473 9,296 2,419 0 0 241 2031-2035 24,753 22,403 2,350 0 0 0 2036-2040 39,981 37,908 2,072 0 0 0 2041-2045 52,714 5 1,041 1,673 0 0 0 2046-2050 60,068 58,821 1,247 0 0 0 2051-2055 61,129 60,256 873 0 0 0 2056-2060 56,320 55,726 594 0 0 0 2061-2065 47,110 46,730 380 0 0 0 2066-2070 35,708 35,514 195 0 0 0 2070-2075 24,489 24,423 66 0 0 0 Consideringtransfers as part of the benefits 30 yr IRR 17\.9% 50 yr IRR 19\.4% 40 yr IRR 19\.2% 60 yr IRR 19\.5% Not consideringtransfers as part of the benefits 30 yr IRR 50 yr IRR 8\.6% 40 yr IRR 7\.7% 60 yr IRR 8\.9% Murray, C\. andLopez, A\. 1994\. Quantifyingdisability: data, methods andresults\. In: Murray, C\.J\.L\. andLopez, A\.D\., Editors, 1994\. Globalcomparativeassessmentsin the health sector:disease burden, expenditures,and interventions\.Bulletin of the World HealthOrganization, World HealthOrganization, Geneva(Switzerland)\. 121  V\. FinancialAnalysis andFiscal Impact 22\. The central government would have enough resources to cover the new obligations triggered by this project inthe current fiscal situation\. Tax revenues increasedfrom 26 percent of GDPin 2005 to 33 percent of GDP in 2006, mainly due to the new hydrocarbon policy, but also because of an increase in tax collection efficiency\. Public expenditures were contained generating a fiscal surplus of 4\.5 percent approximately in 2006\. In 2007, a fiscal surplus is still expected, although probably smaller\. In addition, Bolivia benefitedfrom the MDRI, reducing its external debt to below 20 percent of GDP\. Recently, S&P has revised its outlook on Bolivia's B - rating to stable from negative\. Moreover, it the overall fiscal situation deteriorates, the government could finance the recurrent costs triggered by the project due to their small amount - the CCT and training are the main recurrent costs triggered by the project but their amount is only about US$13 million inthe five years of implernentati~n\.~~ 57 Itis worth noting that this section focus inthe specific effects of the costs directly related to the project implementation over the fiscal expenses and does not evaluate the overall fiscal situation or its macro risks\. 122  Annex 10: SafeguardPolicy Issues5' BOLIVIA INVESTINGIN CHILDREN AND YOUTH 1\.BACKGROUND 1\. Among the most salient features o f contemporary Bolivian development are that: (i) indigenous identity remains a crucial factor in national and local organization, but it i s a complex, evolving, and flexible concept and (ii) Bolivia i s a heterogeneous country in the midst of dramatic social and demographic transformations\. The first factor i s particularly germane to the Investing in Children and Youth program because a large proportion of potential beneficiaries of the MCP in particular belong to indigenous households and communities\. The second i s a crucial contextual factor that shapes the youth employment program\. 2\. In1995, the Bolivian constitutionwas amended (Law 1585) to officially recognize the country's ethnic and cultural diversity\. The social, economic and cultural rights of indigenous peoples were acknowledged and communal territories were recognized as were the rights to natural resources, ethnic identity, and traditional values, customs, and institutions\. Specifically, traditional health beliefs and practices have been legally recognized; the legal corpus includes the Traditional Medicine Practice Regulation 198771-1984, Resolucidn Suprema 198771-84, and legal status (personeria juridica) of the Sociedad Boliviana de Medicina Tradicional\. The practice of traditional medicine requires a license granted by the Ministry of Human Development, but only an estimated 500 traditional practitioners have this permit\. Moreover, traditional health was incorporated into the Government's structure through the creation of the Vice Ministry of Traditional and Intercultural Medicine in February 2006\. This office is responsible for assuring that traditional health care i s incorporated into public health services and that traditional beliefs and practices are respected\. 3\. Indigenous identity in Bolivia i s closely associated with the long and rich but contentious history o f a diverse group of peoples and the development o f ethnic-based (or at least -informed) social and political organization and practice\. Nevertheless, a satisfactory definition for "indigenous" i s a polemical issue in Bolivia, even though it i s clear that however defined, indigenous people in Latin America face very serious economic, political, social, and health challenges\. Moreover, indigenous identity remains a deeply ingrained part of Bolivian contemporary social and political structure\. Two highland groups, the Aymara and Quechua, dominate much of contemporary social and political discourse; in addition, the eastern lowlands are home to some thirty other indigenous groups (the largest o f which i s the Guaranf), communities of mixedrace inhabitants (mestizos),whites, and afro-Bolivians\. 4\. Indigenous identity is relevant for two reasons\. First, indigenous status i s closely related to poverty, poor health and education outcomes, and inadequate access to public services, employment, housing, the administration of justice, and essentially all sectors associated with social protection\. Second, while some analyses argue that Bolivia i s really a country o f mestizos, most would agree that indigenous identity and culture are not only relevant, but are currently undergoing impressive processes of renewal and regeneration\. Consequently, the centrality of indigenous culture inthe Investing in Children and Youth Project i s well founded\. 58Bibliographic references are providedin the full text of the social analysis (Waters, 2008)\. 123  5\. Indigenous identity has two components\. Internally, to be indigenous is related to self- identification: how one defines oneself\. While this definition seems like a stable and objective enough definition, it in fact can be subject to different interpretations and can change; an urban Bolivian professional, for example, might view herself as Aymara because of a perceived connection to past generationsthat might or might not have an historical basis\. Conversely, a Quechua-speakingmigrant to Cochabamba might view himself as mestizo if he adopts new cultural traits such as clothing and language; his children, moreover, are very likely to identify themselves as mestizo or at least as not indigenous\. 6\. The external component of indigenous identity has shifted over time, in terms of both census definitions and recognition by the State\. The 1952 revolution and subsequent land reform essentially legislated indigenous identity out of existence; regarded by the reformist MNR (Movimiento Nacional Revolucionario) as backward remnants of the past, indigenous people were redefined as mestizos, rural producers, small land owners, and campesinos\. Through education and other public policies that ignored local cultural, social, economic, and political norms, the rural population would be "modernized\." Simultaneously, the State created a "proletarian" mining sector in the highlands and in the eastern lowlands, the several dozen ethnic groups which are today recognized were lumped together by the State as "jungle groups" and their lands, regarded as unused because they were not intensively cultivated, were declared public goods and transferred to new landed elites which evolved as modem agribusiness, ranching, and timber interests\. Since then, as discussed below, ethnicity has evolved in the eyes of the State, through the 1994Law o f Popular Participation (LPP), which explicitly recognizes the highland ayllus and the lowland capitania, and defines the country as plurinacional and multicultural\. 7\. The second important feature of the contemporary Bolivian social formation i s that it i s increasingly urban\. Largely a product of dramatic rural-urban migration since the mid-1970s, the growth of urban and peri-urban areas is such that at present, nearly two thirds of Bolivians live in urban places\. Moreover, with the exception o f only three of the nine departments (Chuquisaca, Potosi, and Pando), over half o f residents in each department are urban\. This change reflects not only the growth of the four largest cities with populations o f more than 500,000 (La Paz, El Alto, Cochabamba, and Santa Cruz), but also of the 21 intermediate cities with populations of between 20,000 and 250,000\. The importance o f this transformation to the Investing in Children and Youth program i s that Bolivia now has a new and growing generation of urban and peri-urban youth, whose parents have deep rural and agrarian roots, but who now search for meaningful insertion into the urban economy through employment that can offer hope for job stability and reasonable remuneration\. 8\. Inorder to better understand how shiftingdefinitions of indigenous identity andrapid urbanization could affect the cash transfers and youth employment programs supported by the I C Y project, qualitative research was conducted in order to give voice to a wide variety o f stakeholders: potential beneficiaries, healthpromoters and other personnel, and local authorities\. METHODOLOGY 9\. Field-based qualitative research was conducted in eight municipalities in eight of Bolivia's nine departments for the MCP; all eight are among the 52 priority municipalities identified as priority by the government\. In addition, field work was conducted in four pilot cities in which the FEP i s to be implemented\. Focus group discussions were used as the primary 124  method; the focus group i s a planned exercise that i s designedto elicit perceptions, opinions, and ideas from a set of individuals who share at least one relevant characteristic (for example, gender or socioeconomic status)\. It provides a safe, neutral environment, in which all participants are encouraged to contribute\. The group environment allows for interplay of ideas and comments that build upon one another, because individual perceptions and attitudes are shaped by their social context and are often best expressedin responseto the opinion of others\. The focus group setting thus represents a natural environment where the topic of conversation is directive, but at the same time, perceptions and ideas are expressed in the participants' own terms rather than forced into categoriesimposed by standard survey techniques\. 10\. Key informant interviews were conducted to provide further information in the selected communities and to confirm, validate, or modify findings derived from the focus group discussions\. These individual interviews are conducted with people in the communities who are prominent because of their influence, formal or informal leadership positions, or because they have information on the topic of interest by virtue of their position or occupation (for example, teachers or health care workers) or role in the community\. Key informant interviews represent an excellent source of information about the community, its organization, history, members, and relations with the state and external agencies\. 11\. Focus group discussions are not based on an inflexible list of questions that are applied in a uniformmannerbut, rather, on question guidesthat shape the discussion while ensuringthat all required topics are addressed\. The question guide for the focus group discussions on the monetary incentive program addressed the following issues: (i) knowledge about the program; (ii) perceptions regarding co-responsibilities; (iii) that could affect fulfilling the co- factors responsibilities (distance; access; availability; schedules; costs; respect for cultural and linguistic characteristics and traditional beliefs); (iv) use to which the cash transfers would be put; (v) health practices and beliefs, including use of traditional medicines and treatments; and (vi) other factors that could affect the program\. 12\. The following topics were discussed with key informants with respect to the MCP: (i) perceived advantages and disadvantages of the program; (ii) that should be taken into factors account with respect to program implementation (economic-including associated costs, logistics, cultural issues); and (iii) other factors that should be considered\. 13\. The question guide for the focus group discussions on the youth employment program addressed the following issues: (i)participants' employment experience and history; (ii) relevance of high school education in preparation for employment; (iii) knowledge about the FEP program; (iv) perceptions related to employment training offered by the program and its ability to prepareparticipants for the job market; and (v) employment aspirations andperceptions about the future\. 14\. The following topics were discussed with key informants with respect to the youth employment program: (i)factors that affect youth unemployment (human capital, cultural factors, availability of employment); (ii)factors that could affect the FEP; (iii) that should factors be taken into account with respect to program implementation (associated costs, logistics, cultural factors); (iv) perceptions on the potential effects on youth employment; and (v) other relevant points\. 125  15\. Using standard procedures, individual participants in each of the selected communities were screened and recruited by local counterparts to participate in the focus group discussions, and suitable venues (classrooms, health centers, or other places free of disturbances were secured)\. While the optimal number of participants in a focus group discussion i s about eight, actual participation varied from six to thirteen\. In addition, one group interview was conducted usingthe focus group format but with an attendance of about 25 and in the presence of the local mayor, may have lacked some of the more inclusive elements o f the standard focus group but which still allowed local stakeholders to give their opinions on the topics listed above\. 16\. The focus group discussions and key informant interviews were conducted in the priority urban and peri-urban areas of L a Paz (two groups), El Alto, Cochabamba (two groups), and Santa Cruz\. Participants included both males and females, and were either current high school students, dropouts in the target age range, or graduates\. The focus group discussions related to the MCP were organized in sites indicated in the table below, which also shows the ethnicity of the municipalities as reported in the 2001 census\. Three criteria were employed for selecting the municipalities\. (i) one municipality was chosen in each department, with the exception of Pando, whose relevant characteristics are similar to those of the neighboring municipality o f Loreto in the department of Beni\. (ii) municipalities were selected to reflect the country's ethnic and linguistic diversity and in particular, the strong indigenous presence in rural areas\. (iii)selected municipalities had to be readily accessible to the researchers, in order to optimize the time and other resources available for field work\. Table 1 shows that with the exception of Yuncharh, the selected municipalities are overwhelmingly indigenous as reflected by the self-identification variable\. Moreover, their populations are overwhelmingly rural\. The relevance of this indicator i s that municipal capitals are either extremely small (often composed of a half dozen buildings or fewer) or actually non-existent\. Hence, infrastructure for the provision of centralized services, including health and education, are extremely limited when they are available at all\. Table 1\.Municipalities selectedfor inclusion in the social analysis of the monetary I Department incentive program 1 Municipality IEthnic self-identification (%)I Percentrural1 SOURCE:INE-CensoNacional de Poblaci6ny Vivienda (2001) 17\. The focus group discussions lasted between one and two hours and were audio taped\. The discussions were conducted by one or both members of the local field team contracted by UDAPE\.The two basic roles are (i) facilitator or moderator who leads the discussion and (ii) the note taker, who also handled logistical matters, operated the tape recorder, and took notes\. Due to time constraints, the cash transfers team divided in order to be able to reach all eight municipalities in the allotted time\. Notes are used to ensure the accuracy o f the transcriptions and 126  to allow for the identification (using first name only) of individual participants in the discussion\. Upon arrival, each participant was asked to fill out an individual demographic data sheet, which collected confidential, personal information for the purpose of characterizing focus group participants\. At the beginning of the session, the facilitator or note taker thanked the participants for attending, explained the purpose of the discussion and the procedures that would be employed\. Inparticular, it was emphasized that all opinions were valid and welcome, and that it was important that all participants freely express their opinions\. The moderators and assistants were careful not to enter into the discussions or to give their opinions regarding the topics that were discussed\. Refreshments were served, but participants received no compensation\. 18\. Transcriptions of the focus group discussions were developed from the audio tapes and supplemented by the discussion notes\. The transcriptions and interview notes were analyzed by the author using a three-stage coding procedure\. First, open coding was used to identify concepts and their properties and dimensions\. This step often concentrates on response patterns to individual questions posed in the focus group discussions\. Second, axial coding was used to relate the categories developed in the previous stage, further refine emerging categories, and link categories on the basis of properties and dimensions\. Finally, selective coding was employed to integrate and refine the major themes and relationships among them\. This process was supplemented by the use of the NVivo 7 qualitative data analysis package (QSL International; Victoria, Australia)\. RESULTS:PRINCIPALTHEMES SocialProtectionProgramfor Mothersand Children(MCP) 19\. Two key factors inform the perceptions of rural women and men who are potential beneficiaries of the MCP-as well as those of local health personnel and authorities\. First, the level of poverty experience by rural people both in the western highlands and in the eastern lowlands is nearly unfathomable in the 21'' century\. While in many ways poverty in Bolivia, as elsewhere in Latin America, i s an increasingly urban phenomenon, rural poverty i s in a category apart and surely explains why the country i s the poorest in South America\. Monetary incomes are often so low as to seem almost meaningless, and given the harsh agroeconomic conditions in both regions, opportunities to generate additional resources are also extremely limited\.59 20\. A second factor closely related to the first is the extraordinary isolation of much of the rural population\. Highland rural communities are dispersed and the distances within and between communities are enormous\. In addition, roads are very poor, and those in the intermontane valley region and those connecting the highlands and the lowlands are notoriously treacherous\. For example, the road to Independencia, one of the municipal capitals selected for inclusion in the program, i s 140 km from the nearest paved highway along a road that drops from 2,500 meters to 400 meters above sea level\. Inmuch o f the eastern lowlands, there are no roads at all and transportation i s chiefly by small boat or canoe\. The municipalities of Loreto, for example, has 46 communities, only three of which are accessible by road\. Access to even the most rudimentary public services, then, i s extremely limited or completely absent\. When residents of these remote communities speak of public services, the urban sector, or different levels of 59 Inaddition, as exemplifiedby the wide scale and disastrous flooding in the eastern lowlandsin 2007, vulnerability to climatic conditionsis such that almost any interventioncanbarely hopeto providerespite\. 127  government, the meaning of the term "gaps" i s truly revealed\. In this context, for example, the use of traditional health services says as much about the absence o f alternatives as it does for cultural preferences\. 21\. Consequently, the major challenge of the MCP i s less to identify and enroll participating beneficiaries than it i s to ensuring that the services required for fulfilling co-responsibilities are available in such a way that they are reasonably accessible\. Rural people want better services and will use them if they are available, but years (or lifetimes) of exclusion has created a sensation not of frustration, but rather of limitedexpectations\. 22\. Access to services\. Focus group participants routinely reported traveling three or four hours (often by foot) in order to get to a health post that offers even basic services, and even there, services are generally very limited\. A particular problem noted by focus group participants is that health care is not consistently available in health centers and posts; this is particularly problematic given the need to walk many hours to get to those places\. The reason for this i s that the staff of health centers and posts not only work in these central locations, but also travel on a rotational basis to communities so that residents there can at least have occasional health services\. While this i s very laudable, it means that during their absence, services are not available inthe health centers and posts\. 23\. Consequently, much of the care, including prenatal care and during childbirth i s provided by traditional health care providers and birth attendants (enferneras empi`ricas and parteras)\. In many cases, women may be able to travel for prenatal care but must necessarily resort to giving birth at home\. The most reasonable alternative i s to use traditional health care professionals or family members (especially husbands duringchildbirth) in part, at least, because they are available, and so therefore have the confidence of local people\. There are two principal reasons for using traditional health services, and to some degree they are intertwined\. First, indigenous people believe in and trust local TBAs and other professionals\. Practices related, in particular, to childbirth, are still deeply ingrained and are not easily dispensed with\. Birthing position, disposition of the placenta, and the people who are in attendance (for example males who are not the woman's husband) are important considerations\. 24\. The inability or unwillingness of western health practitioners to respect these preferences represents a significant barrier to access\. Language can present an additional breach between the health care provider and patient\. 25\. The second factor that explains the persistence of traditional health care i s that for many residents of remote villages, traditional health professionals are the only ones who are consistently available\. Focus group participants and key informants report that many local people will use "western" health care if it i s available and i s culturally appropriate\. However, in remote highland and lowland communities, this i s often not the case\. 26\. Perceptions of the MCP\. Perceptions of the program as described vary but are in general very positive; from the perspective of people who have received little or nothing from the government, any program that would infuse resources into the community i s welcome\. Furthermore, focus group participants perceive that poor rural communities should be given priority\. 128  27\. Several polemical issues were raised and in general, there was no clear-cut consensus on any of them\. First, how should the transfer be delivered? Since the government also intends to provide food aid, this was mentioned as a preferable alternative to monetary transfers\. The principal reason for this was the sense that the money would be poorly spent, especially b y men, but also by women\. Men, it was often stated, would use the money, and take it practically by force from women, for alcohol\. Women, on the other hand, recognize so many needs, that they might not spend the money in a way that is clearly related to the program\. On the other hand, it was widely perceived that with proper orientation, this problem could be resolved such that the monetary transfer can be successfully implemented\. A related perception is that given the extremely poor living conditions characteristic of most potential beneficiaries this program should be less focused and should include women with children up to the age of 12or 15\. 28\. A second issue was whether the cash benefit might come to represent an incentive to having more children\. While some participants thought that this might be the case, most potential beneficiaries and local health personnel thought not\. One reason given i s that, ironically, families in the eastern lowlands are already so big that having more children is impossible\. Conversely, health personnel have the perception that families are beginning to be smaller, as younger couples are better educated than their parents, understand family planning, and have a different view of the future\. 29\. In sum, there was a common perception that the cash transfers can be effective, particularly if accompanied by skills building in areas such as family planning programs, nutrition, and the like\. 30\. Compliance with co-responsibilities\. While cultural preferences remain a barrier to the institutionalized health services required by the program, the greater barriers are geographic and logistic\. For example, women might very well increase their use of prenatal and postnatal care, as well as institutionalizedbirths, if they reasonably could\. Other programs have promoted this approach, and inaddition, most municipalities have dedicated some of their health funds for preventive health services o f different kinds\. Youthemploymentprogram 31\. This section discusses results obtained from key informant interviews and six focus groups (see table below) conducted for the youth employment project\. A total of 65 persons participated, divided equally among males and females; the average age of participants in the groups ranged from 18 years in the two L a Paz discussions to 26 years in Santa Cruz\. 129  Table 2\. Participantsinurbanyouth employmentprogramfocus group discussions HIGHSCHOOL HIGHSCHOOL FocusGroup TOTAL GRADUATE INCOMPLETE* (municipality) Total Male Female Total Male Female Total Male Female ElAlto 12 9 3 8 5 3 4 4 0 Cochabamba I 12 3 9 6 1 5 6 2 4 Cochabamba I1 6 3 3 4 2 2 2 1 1 Santa Cruz 13 8 5 9 4 5 4 4 0 L a Paz I 9 4 5 3 2 1 6 2 4 La Paz I1 13 5 8 4 3 1 9 2 7 Total I 65 32 33 I 34 17 17 I 31 15 16 Percent I 100 49,23 50,77 I52,31 50 50 I 47,69 48,39 51,61 Note: Includes dropouts and current high school or technical secondary school students\. 32\. Experiencesof youth employment\. Youth employment in urban Bolivia represents a series of paradoxes\. Few poor children and youth do not work, but getting ajob, particularly the first one, i s extremely difficult because even more than academic preparation, employers require practical experience\. All focus group respondents reported having worked as children or youths beginning as early as age seven or eight, 49 of 65 participants in six focus groups (75\.4 percent) reported that they are presently unemployed, although it i s most likely that they are actually underemployed, working, that is, in temporary, mostly informal jobs\. Working conditions (low or no pay andlong hours for temporary, often turnstile employment in menial positions unrelated to academic preparation or achievement of young people with limited skill sets) are a source of enormous frustration, because poor urban and peri-urban Bolivian youths (and children) work out of necessity andnot to gain life experience\. 33\. The situation i s even more compelling because many youths actually have had job training that i s available in high schools that provide technical training, in specialized technical institutes such as Don Bosco, or in other employment trainingprograms, such as AUTAP0\.60In addition, youths often have had at least some job experience although ironically, the chief obstacle to youth employment i s lack of experience\. On-the-job training begins early, as many respondents reported working at the age o f eight, and few had not worked by the time they were 14\. Remarkably, many youths have worked in several different jobs in very different fields\. For example, an 18-year-old male focus group participant in Santa Cruz reports having worked as a street vendor, auto mechanic, and mason, and a 21-year old male worked as a carpenter's assistant, plumber, assistant in an auto body shop, auto locksmith, and assistant in a print shop\. Respondents reported working in informal sector sales (in streets or informal markets), small Don Bosco, an ecclesiastical organizationwith formal agreements with the government, operates 30 "popular schools" in the departments of L a Paz, Cochabamba, and Santa Cruz\. It provides training in the humanities, administration, communications, electronics, electricity, accounting, fingerprinting, tourism, health, teaching, metalwork, construction, computers, and beauty\. The AUTAPO Educationfor Development Foundation receives primary funding from the Netherlands as well as Spain and the United States\. Its technicalemployment program trains high school students and graduates from 17 to 24 years of age who are consideredto be at "socioeconomic risk" in the departmentsof La Paz, El Alto, Santa Cruz, and Sucre through a combinationof formaljob trainingandinternship\. 130  family businesses (both formal and informal), sales in small shops, washing clothes, domestic service, as minibus assistants and musicians, and in other lower-level service sector jobs as cash register operators and internet caf6 assistants\. Nearly all jobs were reported to be temporary- often lasting only a few weeks or months--whether or not that was the original arrangement\. 34\. Focus group participants generally view child and youth employment in extraordinarily negative terms; for them, the scenario seems very bleak indeed\. The term most commonly used by older respondents who are no longer in school to describe their experiences is "exploitation," which clearly reflects a perception of adverse working conditions that child and youth workers face\. A point consistently raised i s that legal protections and benefits are not available to young workers\. First, pay i s low even by Bolivian standards: often a dollar a day or less and rarely more than the equivalent of $25 to $40 per month for full time work\. (The minimum wage in Bolivia i s currently Bs\. 550 per month; roughly $70)\. Stipends for transportation or meals are normally not provided, and adults who perform the same functions are reported to be paid more because it i s thought that they need the money more to support their families, despite the fact that much of what children and youth earn i s given to their families\. Additionally, as discussed below, youths may have already formed their own nuclear families\. Moreover, young workers are often not paid at all, either because apprentices (often in an informal rather than a formal arrangement) are not paid during the two-to-three month period o f internship @ructicu), or because the employment relationship i s terminatedby the employer\. 35\. Focus group participants reported working long days of at least 12, and as many as 15, hours\. In many cases, youth work seven days a week\. Consequently, there may not be time to combine work and study, and some employers discourage their young employees from staying in school and in any case, the working schedules are certainly not conducive to regular school attendance and effective study\. Conversely, some working arrangements are sporadic or temporary; some participants have worked only on weekends, before holidays (especially Christmas), or at other times of particular demand\. 36\. Employmentpreparationand training\. There is broad consensus among focus group participants that high school education provides little benefit for securing employment\. The widespread view i s that information that i s "theoretical" dominates "practical" skills training\. That is, secondary education was viewed as marginal to real-world needs and conversely, useful and applicable skills (especially reading and elementary mathematics) were acquired before high school\. Moreover, high school graduates are likely to qualify for the same jobs as non-graduates\. On the other hand, it may be that training that is provided to secondary school students is not taken advantage of because students are not yet able to place developing knowledge in skills in the proper context\. Nevertheless, the general perception of participants i s that job experience generally trumps formal education\. 37\. A second essential point is that there is wide consensus that training provided in short- term training programs i s potentially important because youth lack useable job skills\. That is, especially if accredited, completion of a training program can be a valuable resource\. On the other hand, some training programs are not accredited, so that the validity of the entire program may be questioned, and in any case, the ability to perform i s still crucial\. Consequently, young people often enter the job market without the skills required by employers and hence, they often begin somewhere below the bottom rung o f the employment ladder, where they may be subject 131  to the ill treatment discussed above\. In addition, skepticism over the ability to secure employment i s related to the perception that there can be strong competition for goodjobs, often from more qualified candidates\. 38\. The three month training period\. A second perception reported by focus group participants is that the amount of information that can be learned in a three month period i s necessarily limited and likely to be relatively superficial\. For example, in that time frame, participants thought that it would be difficult to go beyond general knowledge and skills inorder to enter deeply into specific areas\. As one young man pointed out, for example, learning auto mechanics in three months would leave insufficient time to learn about specific systems (e\.g\., motors, brakes, electrical) indifferent types of autos\. 39\. As presently constituted, many training programs do not leave time to continue formal studies\. A perception commonly voiced by high school dropouts was that graduating from high school i s an important complement to job training\. Part of the reasoning is that program participants will have to compete for relatively scarce entry-level jobs with people who have had more formal technical training\. Consequently, there i s a perception that the proposed training program might only train participants for lower-endjobs that will not substantially improve their lives\. 40\. Diagnosis of skills\. A third important perception is that training programs should be based on an analysis of the capabilities of the participants, which may to this point not have been recognized\. This perception i s related to views of high school education, which is seen as focused principally on rote memory, so that students have generally not had the opportunity to engage inhigher-level analysis that might reveal true aptitudes\. 41\. Areas of skills training\. A fourth perception expressed by focus group participants i s that many training programs are built around traditional skills and areas o f employment, but that there may be greater opportunities in areas perceived to be relatively new and hence, more open to aspirants to entry-level positions\. The areas most often mentioned in this regard are tourism and food service\. These areas would, it was argued, take advantage of potential opportunities available inthe Bolivian labor market\. 42\. A related perception is that employment training programs should not prepare workers to enter a compressed job market largely limited to local small businesses, but should also include and promote entrepreneurship in starting up microenterprises, which would not only avoid sending more people to compete for jobs, but would also generate employment\. 43\. Heterogeneity of family situations\. Focus group participants recognize that young people in general-and candidates for employment programs in particular -will come from a variety of family situations\. Some live in relatively stable nuclear families with parents and siblings\. But in these instances, young people frequently contribute significant proportions of total family resources - limited though their incomes may be, unstable though their jobs may be, and truncated though their futures may be\. In contrast, other young people have been on their own for years; many in this category have begun their own families, or, particularly in the case of young women, may be single mothers\. This group may be the most vulnerable of all because of low levels o f formal education andjob experience\. 132  44\. Expectations for the future\. Previous studies indicate that poor people not only can identify causes and sources of poverty but can in addition envision realistic measures to overcome it\. In discussion alternatives for the future, focus group participants similarly voiced realistic perceptions of employment\. In brief, they do not expect to leap up the occupational ladder or to acquire great wealth\. Rather, their more practical expectations are closely attuned to what the Bolivian government i s proposing\. Inthis sense, participants talked in terms of what might be called "old fashioned" virtues of hard work and dedication that they hope will find resonance in jobs that have stability and decent working conditions, often thought of merely in terms of benefits provided for by law\. On the other hand there i s also a recognition that the world i s changing and that new skills are likely to be required in a modern workforce\. 45\. How do focus group participants view the project? First, before being informed of the details, they had very little specific information about it\. Provisions for covering expenses with a small per diem payment were seen as much more important that might even have been thought\. As mentioned above, costs of transportation and food-small as they might be-represent an obstacle to accepting low-income employment or participating in informal internships\. Second, young people often either contribute significant proportions of total household income or may be parts of independent households\. 46\. Second, many participants thought that three months of training, even if followed by internships, may be insufficient to provide the depth of information and practical experience, particularly in fields that are relatively complex and evolving\. This may mean that in the context of a planned three-month experience, the content will have to be carefully thought out in order to optimize the time available\. For example, participating enterprises will have to be carefully screened for their real ability to provide useful learning environments\. Furthermore, an adequate analysis of participants' experience and aptitudes will improve the match between content and expected outcomes\. Third, they suggest that new and evolving fields be included; here the potential for training in areas related to tourism seem particularly attractive to them\. Similarly, many participants expressed interest in starting up their own micro-enterprises\. Bolivian NGOs have a strong track record in this regard; for example, PROMUJER, which operates in El Alto and other urban areas, provides training and small loans on a revolving basis to lending groups\. RECOMMENDATIONS 47\. The Investing in Children and Youth Project in many ways reflects the priorities of the Bolivian government to directly address social, economic, and political exclusion and i s also consistent with most thinking and programming related to social protection\. It i s focused on the most vulnerable segments of the Bolivian population: (i) poor urban and peri-urban youth, many the direct or indirect products of the dramatic socioeconomic change that has characterized the country in the past two decades and (ii) isolated rural, largely indigenous populations that are far removed from the economic and political mainstream\. A\. Incorporate a strong social marketing program\. Information about the programs is very limited, particularly with regard to the MCP\. A comprehensive communications campaign incorporating media and other forms of communication most used by potential beneficiaries: e\.g\. 133  through local radio stations and NGOs will be particularly crucial in this regard\. Indigenous languages must be used where appropriate, and local leaders should be involved\. 48\. Sub-component 1\.2 of the project will fund the design and implementation of a strategy to communicate the goals of the MCP\. Through this strategy, the Project aims to achieve three goals: improve program understanding among all stakeholders at national and sub-national levels, particularly with regard to its relevance as part of GOB efforts to tackle chronic malnutrition in rural areas, improve transparency, and boost and maintain credibility of the proposed model of intervention; complement cash benefits with a pedagogic message linked to program co-responsibilities, outcomes, social control, and accountability; and informing beneficiary communities about the program's goals and beneficiary rights and responsibilities\. 49\. The communication strategy will be focused on, but not restricted to, messages adapted to different stakeholders (e\.g\., beneficiary families, other members o f the community, municipal and departmental authorities, health and nutrition service providers)\. This will involve community instruments (radio programs, posters, outreach teams and health units, booklets and other non-written media), taking into account low literacy rates and indigenous languages, and ensuring in all cases appropriate adaptation to specific cultural and social contexts\. B\. Bring local organizations into the programs immediately\. Coordination with local organizations can help build local ownership of the programs, strengthen communication and outreach, and embed the programsinto the local social networks\. 50\. The project involves specific activities to create and strengthening social control and accountability mechanisms in order to improve the program's operational features and ensure that beneficiary rights, particularly those of indigenous groups, are respected\. These systems include mechanisms to receive, systematize and opportunely respond to complaints, appeals, and feedback from communities; distinguish beneficiary and non-beneficiary groups; inform the program management team about program activities from independent sources; and to control program activities through social and technical audits\. The following activities will support the achievement of these objectives: (i) complaint and appeals mechanisms with follow up systems, including community-based feedback through beneficiary committees and health outreach teams and units, and systems to ask questions and report irregularities; (ii) audits; (iii) social regular technical audits carried out by outsourced independent firms; and (iv) financial audits\. C\. Ensure that quality local services are available and accessible in order that participants can fulfilltheir individualandcollectiveco-responsibilities\. This is the singlemost important condition for this program, and in the absence or faulty operation of health and education services at the local level, compliance and support for the project will be impossible\. The Social Assessment carried out for the Expanding Access to Reduce Health Inequalities-APL I11(Report No: 41498-B0, December 20, 2007), presents a detailed description on how the intercultural health approach cuts across most of the project components and activities\. D\. Incorporate capacity building and health education into the MCP\. An enhanced family planning program will be very important in this regard\. Beneficiaries strongly emphasizedthat they need both the financial support and the additional information on reproductivehealthandfamily planning\. 134  51\. The project involves culturally appropriate measures to address this recommendation\. First, as part of the strategy to prevent chronic malnutrition, the basic services provided by the outreach teams and health units include (i)bimonthly monitoring of growth and development of children including weight and height of infants less than two months accompanied by individual counseling to mothers or caretakers; (ii)at least four pre-natal check ups to pregnant mothers and one post-natal health check; (iii) food supplementation and fortification including micronutrient supplementation, iron, and vitamin A for children 6-23 months; and (iv) a pedagogic approach through talks and workshops to change behaviors among beneficiary mothers regarding child care; illness recognition; home hygiene; food intake; and cooking and hand washing practices, among others\. The last measure involves family planning and reproductive health counseling\. 52\. Additionally, the cash transfers will be complemented by specific messages provided during individual counseling sessions during the regular bimonthly check ups as well as through group workshops\. The latter will focus on the program's messages about child care at home, personal hygiene, hand-washing, and diet, among other aspects\. These workshops will be provided by, or in coordination with, outreach teams and health unitsduring payment days, and will be reinforced duringbimonthly visits by health services providers\. These workshops will also serve as a mechanism to receive feedback from beneficiary families about program operation and benefits received\. 53\. Finally, the project involves beneficiary surveys\. The contents and messages involved in the previous activities will be informed by beneficiary surveys designed and developed in the second and fourth year of the program, and will be carried out under the responsibility of the Ministry of Health and Sports in coordination with UDAPE\. E\. Programsmust be culturallyandlinguisticallyappropriate\. The importance of this factor in rural areas i s evident and well-accepted\. The entire strategy, regarding the cash transfers process and the strengthening of supply involves culturally and linguistically appropriate measures to ensure that indigenous communities take full advantage of the benefits provided by the program\. F\. Initiate a process of cultural awareness among health care professionals, and incorporate traditional professionals in systems of practice and referral\. Despite earlier attempts, traditional health care professionals, especially traditional birth attendants, have not been adequately recognized or brought into the system\. As this aspect is related to strengthening the supply of health services, this measurehas been taken into account by the measurescomprisedby the Health APL 111operation\. G\. Build in a strong evaluation component\. Participants and local leaders should be part of the teams for monitoring of the program\. The MCP involves both aspects: (i) The Project will support the GOB in implementing the Management Information System (MIS) to administer the program, follow up on physical and financial progress, and overseethe cash transfers cycle\. The MIS system for the MCP and all its required modules (registry of beneficiary and management, monitoring of co-responsibilities, payment system and conciliation, program process and product monitoring and feedback mechanisms) will be part of the Ministry of Health and Sportss' Management Information System (SNIS, the national health information system), currently under implementation with support from the APL I1and I11operations\. The MOHwill complete the full design and testing of the MIS system by the time the Project is effective\. 135  Annex 11: Project Preparationand Supervision BOLIVIA INVESTINGINCHILDREN AND YOUTH Planned Actual PCN review September 2007 Initial PIDto PIC September 2007 Initial ISDS to PIC September 2007 Appraisal January 14-18,2008 January 14-18,2008 Negotiations January 23 and 24,2008 January 24,2008 Board/RVP approval March 11,2008 Planned date of effectiveness June 2008 Planned date of mid-term review January 2011 Planned closing date June 2013 Key institutions responsible for preparation of Bank staff and consultants who worked on the Project included: Name Title Unit Manuel Salazar Task Manager LCSHS DenaRingold Sr\. Economist LCSHS PatriciaAlvarez Operations Officer LCSHD Karla J\. McEvoy Operations Analyst LCSHS Fabienne Mroczka Financial Management Officer LCSFM Maria Lucy Giraldo Sr\. Procurement Officer LCSFT Fabiola Altimari Sr\. Legal Counselor LEGLA Miriam CCspedes Procurement Specialist LCSFT Aracelly Woodall Costs specialist/Sr\. ProgramAssistant LCSHD M6nica Claros Team Assistant LCCBO Maria Alejandra Velasco Consultant LCCBO Jorge C\. Barrientos Consultant LCSHD William Waters Consultant, Social Assessment LCSHD Margaret Grosh Peer Reviewer HDNSP Wendy Cunningham Peer Reviewer LCSHS Daniel Dulitzky Peer Reviewer ECSHD Cornelia Tesliuc Peer Reviewer LCSHS Bank funds expendedto date on Project preparation: 1\. Bank resources:$276,000\.00 2\. Trust funds: $200,000\.00 3\. Total: $476,000\.00 EstimatedApproval and Supervision costs: 1\. Remainingcosts to approval: US$O 2\. Estimated annual supervision cost: US$90,000 136  Annex 12: Documentsinthe ProjectFile BOLIVIA INVESTING INCHILDRENAND YOUTH 1\. Bolivia Expanding Access to Reduce Health Inequalities Project (APL III), 2007\. Project Appraisal Document\. Report No\. 41498\. The World Bank, Washington, DC\. 2\. Bolivia Second Health Sector Reform Project (APL II)\.2001\. Project Appraisal Document\. Report No\. 22301\. The World Bank, Washington, DC\. 3\. Bolivia Health Sector Reform Project (APL I)\. 1999\. Project Appraisal Document\. Report No\. 18980\. The World Bank: Washington, DC\. 4\. Bolivia Interim Strategy Note, 2006\. Report No\. 36095\. The World Bank, Washington: DC\. 5\. Healthy Development: The World Bank Strategy for Health, Nutrition and Population Results\. 2007\. Report No\. 39485\. The World Bank: Washington, DC\. 6\. Hemani, W\. JimCnez, W\., and Vera, M\.2007\. "Social Safety Nets in Bolivia: An Overview of the Institutional Framework and Current Programs\." Background paper prepared from the Social Protection AAA\. The World Bank: Washington, DC\. 7\. Ringold, D\., Velasco, A\., and Monterrey, J\. 2007\. "Toward a Social Protection Network\." Backgroundpaper prepared from the Social ProtectionM A \. The World Bank: Washington, DC\. 8\. Walker, I\., Maldonado, S\., Monterrey, J\. and Yokohama, E\. 2006\. "Poverty, Vulnerability and Exclusion\." Background paper prepared from the Social Protection AAA\. The World Bank: Washington, DC\. 9\. Waters, W\. 2008\. "Bolivia InvestinginChildren and Youth Project: Social Analysis\." 10\. Waters, W\. 2007\. "The Contribution of Local Organizations to Improved Social Service Delivery in Bolivia\." Backgroundpaper prepared from the Social ProtectionAAA\. The World Bank: Washington, DC\. 11\. Country Economist Report, Bolivia Country Profile\. 2006\. 12\. Informe de Evaluacidn Ambiental, Bolivia Second Health Reform Project (APL 11)\. Banco Mundial\. 13\. Salud Ambiental\. Villena Chavez, Jorge\. October, 2007\. 14\. Plan Nacional de Desarrollo Sectorial\. Ministry of Health and Sports\. 2007\. 137  Annex 13: Statement of Loansand Credits BOLIVIA INVESTINGINCHILDRENAND YOUTH Differencebetween expectedand actual Original Amount in US$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel\. Undisb\. Orig\. Frm\. ID Rev'd PO83979 2007 BO Urban Infrastructure Project 0\.00 30\.00 0\.00 0\.00 0\.00 31\.62 0\.00 0\.00 PO83051 2005 BO Rural Alliances 0\.00 28\.40 0\.00 0\.00 0\.00 27\.45 0\.67 0\.00 PO73367 2003 BO Decent Infras for Rur 0\.00 20\.00 0\.00 0\.00 0\.00 19\.17 16\.35 4\.79 Transformation PO68968 2002 BO RoadRehab\.& Maintenance 0\.00 77\.00 0\.00 0\.00 0\.00 38\.70 23\.49 0\.00 Project PO74212 2001 BO-HealthSector ReformAPL 0\.00 35\.00 0\.00 0\.00 0\.00 4\.71 -1\.04 0\.00 I1 Total: 0\.00 190\.40 0\.00 0\.00 0\.00 121\.65 39\.47 4\.79 BOLIVIA STATEMENT OF IFC's HeldandDisbursedPortfolio Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic\. Loan Equity Quasi Partic\. 1995 BISA 0\.00 0\.54 0\.00 0\.00 0\.00 0\.54 0\.00 0\.00 1998 BISA 0\.00 0\.09 0\.00 0\.00 0\.00 0\.09 0\.00 0\.00 2003 BancoLos Andes 6\.60 0\.00 0\.00 0\.00 6\.60 0\.00 0\.00 0\.00 2003 BancoSol 4\.00 0\.00 0\.00 0\.00 4\.00 0\.00 0\.00 0\.00 1999 CBTI 0\.00 0\.00 0\.85 0\.00 0\.00 0\.00 0\.85 0\.00 1994 COMSUR 0\.00 0\.00 1\.30 0\.00 0\.00 0\.00 1\.30 0\.00 1991 Central Aguirre 0\.00 0\.24 0\.00 0\.00 0\.00 0\.24 0\.00 0\.00 2001 Central Aguirre 1\.69 0\.00 0\.00 0\.00 1\.69 0\.00 0\.00 0\.00 1999 Electropaz 18\.04 0\.00 0\.00 0\.00 18\.04 0\.00 0\.00 0\.00 2003 FIE 1\.25 0\.00 0\.00 0\.00 1\.25 0\.00 0\.00 0\.00 1993 GENEX 0\.10 0\.00 0\.00 0\.00 0\.10 0\.00 0\.00 0\.00 1999 nlimani 3\.84 0\.00 0\.00 0\.00 3\.84 0\.00 0\.00 0\.00 Minera 0\.00 3\.40 0\.00 0\.00 0\.00 3\.40 0\.00 0\.00 2001 PQB 10\.50 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2003 PRODEM 2\.45 0\.00 0\.00 0\.00 2\.45 0\.00 0\.00 0\.00 2003 TDE S\.A\. 12\.72 0\.00 15\.00 0\.00 12\.72 0\.00 15\.00 0\.00 TRECO 0\.00 1\.16 0\.00 0\.00 0\.00 1\.16 0\.00 0\.00 2001 Telecel Bolivia 3\.33 0\.00 5\.00 1\.43 3\.33 0\.00 5\.00 1\.43 2005 Transiena 45\.35 0\.00 0\.00 86\.05 45\.35 0\.00 0\.00 86\.05 Total portfolio: 109\.87 5\.43 22\.15 87\.48 99\.37 5\.43 22\.15 87\.48 138  Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic\. Total pendingcommitment: 0\.00 0\.00 0\.00 0\.00 139  Annex 14: Countryat a Glance BOLIVIA INVESTING INCHILDRENAND YOUTH L a t i n L o w e r - P O V E R T Y a n d S O C I A L A m e r i c a m i d d l e - ) e v e l o p m e n t d i a m o n d \. B o l i v i a & Carib\. i n c o m e 2 0 0 5 P opu1ation\.m id-year (millions) 9\.2 551 2,475 Life expectancy GNlpercapita (Atlasmethod,US$) 1\.0 10 4\.008 1,918 GNI(Atlasmefhod\.US$ billions) 9\.3 2210 4,747 T A v e r a g e a n n u a l g r o w t h , 1999-05 Population (%) 2\.O 1\.4 1\.0 Laborforce (%) GNI Gross 3\.0 2\.2 1\.4 per primary Y os1 r e c e n t e s t i m a t e (latest year available, 1999-05) capita enrollm ent Poverty (% ofpopulation belo wnationalpoverfyline) 63 Urban population (%of totalpopulation) 64 77 50 Life expectancyat birth (years) 65 72 70 I Infant mortality (per 1,000 live births) 54 27 33 Child malnutrition (%ofchildrenunder5) 6 7 12 Access to imoroved watersource Access to an improved watersource (%ofpopulation) 85 91 62 Literacy (% ofpopulation age E+) 87 90 89 Gross primary enrollment (%of school-age population) 113 I19 1i4 -Bolivia M ale 114 121 115 Lo wer-middle-income group Female 113 117 113 KEY E C O N O M I C R A T I O S a n d L O N G - T E R M T R E N D S 1985 1995 2 0 0 4 2 0 0 5 1E c o n o m i c ratios\. GDP (US$ billions) 3\.1 6\.7 8\.7 9\.3 Gross capital form atio nlGDP 19\.5 15\.2 12\.4 Trade Exports o f goods andservices/GDP 19\.0 22\.6 30\.9 Gross domestic savingsiGDP 15\.7 M\.6 16\.1 Gross national savings/GDP 9\.1 10\.6 ls\.8 Current account balanceiGDP -13\.9 -5\.0 3\.3 2\.o Domestic Capital Interest payments/GDP 5\.0 2\.3 1\.5 savings formation Total debtlGDP 153\.9 78\.5 70\.0 Total debt serviceiexports 49\.4 29\.3 18\.6 Present value o f debtiGDP 34\.5 Present value of debt/exports M6\.9 I indebtedness 1985-95 1995-05 2 0 0 4 2 0 0 5 2 0 0 5 - 0 9 I - (average annualgrowth) GDP 3\.5 2\.9 3\.9 4\.1 3\.7 -Bolivia GDP percapita 1\.2 0\.8 1\.9 2\.1 2\.0 Lower-middle-incomegroup Exports o f goods and services 9\.5 4\.7 16\.1 S T R U C T U R E of t h e E C O N O M Y 1985 1995 2 0 0 4 2 0 0 5 (%of GDP) Agriculture 20\.6 16\.9 15\.7 Industry 34\.6 33\.1 30\.9 M anufacturing v\.3 19\.o 14\.4 Services 44\.6 50\.0 53\.4 Household final consumption expenditure 73\.8 75\.8 68\.6 General gov't final consumption expenditure M\.6 13\.6 15\.3 Imports of goods and services 22\.8 27\.2 27\.2 1985-95 1995-05 2 0 0 4 2 0 0 5 G r o w t h o f e x p o r t s a n d i m p o r t s (%) (average annualgro wth) A gricuiture 2\.7 2\.5 0\.3 20 Industry 4\.3 2\.3 5\.8 10 Manufacturing 3\.7 2\.6 5\.1 Services 2\.9 3\.4 2\.9 0 5 Household final consumption expenditure 2\.9 2\.9 2\.6 -10 General gov't final consumption expenditure 1\.2 2\.9 -0\.6 -20 Gross capital formation 4\.1 0\.0 -10\.1 -Exports Imports of goods and services -Imports 5\.6 3\.3 5\.4 Note:2005 data are preliminaryestimates\. This table was produced from the Development Economics LDB database\. 'Thediamonds showfourkeyindicators in thecountry(in bo1d)compared with its income-groupaverage\.If dataaremissing,thediamond will be inco mDlete\. 140  IBRD 33374 70°W 65°W BOLIVIA SELECTED CITIES AND TOWNS B R A Z I L DEPARTMENT CAPITALS NATIONAL CAPITAL To RIVERS Porto Velho 10°S Abunã MAIN ROADS RAILROADS Miles PA N D O DEPARTMENT BOUNDARIES Riberalta Cobija Madre de Dios INTERNATIONAL BOUNDARIES Asunción Asunción 60°W This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Puerto Heath Yata Guaporé Group, any judgment on the legal status of any territory, or any Lago Lago endorsement or acceptance of such boundaries\. Madidi Huaitunas Rogaguado P E R U Beni Magdalena Lago B E N I Rogagua Santa Ana Lago de Yacuma San Luis Reyes Apere amoré San Apolo M Trinidad Paraguá San Borja S an 15°S L A PA Z Puerto Miguel Blanco Martín 15°S Acosta Lago Nevada Caranavi Ascención Ascención Titicaca Ichoa To Illampu Puno (6,362 m) Guaqui Quiquibey Concepción Concepción LA PAZ AZ Nevada Las Petas Viacha Illimani pay) (6,462 m) Chapare Gran d e San Ignacio C O C H A B A M B A Ichilo Yapacaani (Gu Cochabamba Montero S A N TA C R U Z Desaguadero San José de Chiquitos José Oruro Santa Cruz To Nevada Sajama Arica (6,542 m) Cordiller O R U R O Banados del Lago C o rdiller Aiquile Roboré Roboré Izozog Puerto Poopo Sucre Santa Suárez Suárez Salar de o Ana Coipasa Potosí Potosí To 20°S Iquique O Central Tarabuco C h a c Salar de C Pilcomayo G r a n To Campo Grande Carniri 20°S na Uyuni H Uyuni U Q U I S PA R A G U AY ce Pila y a A C A P O T O S Í To O C H I L E ccidental Villa Montes Mariscal Estigarribia Pacific To Calama G ra n d eeLd Yucuiba Tarija ípez TA R I J A Viljazón iljazón To Tartagal To BOLIVIA Abra Pampa 0 50 100 150 Kilometers To San Ramón de la Neueva Orán 0 50 100 Miles A R G E N T I N A 70°W 65°W 60°W SEPTEMBER 2004

APPROVAL

P155268

 PROJECT INFORMATION DOCUMENT (PID) ADDITIONAL FINANCING Report No\.: 103022 Project Name GZ-Second Municipal Development Project AF (P155268) Parent Project Name GZ-Second Municipal Development Project (P127163) Region MIDDLE EAST AND NORTH AFRICA Country West Bank and Gaza Sector(s) Sub-national government administration (26%), Other Renewable Energy (5%), Transmission and Distribution of Electricity (23%), Urban Transport (23%), General water, sanitation and flood protection sector (23%) Theme(s) e-Government (8%), Gender (5%), Urban services and housing for the poor (76%), Municipal governance and institution building (5%), Climate change (6%) Lending Instrument Investment Project Financing Project ID P155268 Parent Project ID P127163 Borrower(s) Palestine Liberation Organization Implementing Agency Municipal Development and Lending Fund (MDLF) Environmental Category B-Partial Assessment Date PID Prepared/Updated 17-Dec-2015 Estimated Date of First Grant 08-Mar-2016 Approval Appraisal Review Decision The review did authorize to proceed with Negotiations, in principle (from Decision Note) Other Decision I\. Project Context Country Context The Palestinian Authority (PA) was established initially for a five-year interim period after the Oslo Accords (1993-95) with responsibility for the administration of the territory under its control\. During this time of relative political stability, the economy grew rapidly and in 2000, immediately prior to the intifada, growth was anticipated 5% in real terms and unemployment had reached a low of 9%\. Subsequent to the end of the second Intifada (in 2004), the PA embarked on a process of recovery and reform\. This stability was disrupted after the Palestinian Legislative Council elections in 2006, which resulted in the suspension of much of the international aid and the transfer of clearance revenues from the Government of Israel (GoI) to the PA\. Subsequent to the establishment of the Caretaker Government in 2007, fiscal stabilization resumed with a new influx of Donor aid and in the transfer of clearance revenues with the accrued interest from Israel\. The PA issued its Palestinian Reform and Development Plan for 2008-10 (PRDP) with development partners pledging financial support\. The PA has progressed in building its institutions and macroeconomic policy in accordance initially with the PRDP and, more recently, with the Palestinian National Development Plan, 2014-2016 (PNDP)\. The 2014-2016 National Plan defines a results based approach to policy development and implementation along four key sectors: Economic Development and Employment, Good Governance and Institution Building, Social Protection and Development, and Infrastructure\. Support for local government is defined under the Good Governance and Institutional Building pillar with an emphasis on capacity building for LGUs and increasing efficiency in service delivery\. In early June 2014, the PA announced the forming of a unified government to cover the total geographic area of the West Bank and Gaza (WB&G) but implementation did not materialize\. Conflict broke out in Gaza in July and August 2014, which resulted in serious damage to infrastructure\. The PA faces an increasingly difficult fiscal situation and economic growth continues to be severely constrained by restrictions on movement, access and trade\. The current multi-layered system of physical, institutional and administrative restrictions that have fragmented the territory into small enclaves continues to stand in the way of increased economic growth and private sector investment\. The fragmentation goes beyond a West Bank and Gaza divide, with the West Bank further fragmented into Areas A, B and C, each with its concomitant administrative and security arrangements\. Following robust GDP growth in recent years, 8 percent from 2007-2011, growth has slowed down considerably to 2\.7 percent from 2012-2015\. According to the Palestinian Central Bureau of Statistics (PCBS), the real GDP growth rate dropped in 2013 as a result of the continuing restrictions and decline in donor aid\. The Palestinian economy has been in recession since 2014\. Sectoral and institutional Context The Palestinian population is largely urban with 75% living in 138 municipalities\. Municipalities, which existed prior to the establishment of the PA, have a clear role as the lowest level of governance, representation and accountability for citizens\. However, municipal governments face profound challenges in meeting their responsibilities\. Budgets have been shrinking due to the ongoing conflict, poor municipal management and a culture of nonpayment amongst users- thus eroding the coverage and quality of municipal services\. Although municipalities can access seventeen revenue sources, collections are extremely volatile\. Nonetheless, the PA and municipalities have demonstrated significant progress in municipal and local development\. In 2005, the PA established the Municipal Development and Lending Fund (MDLF) to address financing and capacity building of municipalities\. Established by a Ministerial Decree, the MDLF has the legal mandate to provide development assistance to municipalities through transparent, rules-based and efficient financing\. The MDLF is also the PA’s preferred mechanism for channeling development assistance to municipalities\. The PA, through the MDLF, has implemented several municipal reforms with the support of Donor financed projects (including the Local Government Capacity Building Project, Emergency Municipal Services Rehabilitation Project 1&II)\. In 2009, the PA developed the Municipal Development Program (MDP) which was supported by Donors (including the World Bank through the Municipal Development Project 1) to operationalize the local government goals of the PRDP which is to strengthen local government through greater fiscal and administrative autonomy\. The MDP is a multi-phase PA program which provides municipalities with a combination of technical assistance and performance based grants for sub-projects\. The formula for performance grants is designed to create incentives for municipal performance improvements\.  The Second Municipal Development Project (MDP2) was designed in two cycles, each with a duration of 18 months and this Additional Financing (AF) of US$6\.9 million financed from the Palestinian Partnership for Infrastructure Development Multi-Donor Trust Fund (PID MDTF) will be used for the second cycle\. The project is providing performance based grants for capital investments, delivering capacity building for municipalities and piloting innovative approaches to municipal management\. At mid-term the project is meeting or exceeding most of its key performance indicators including those related to the additional financing for Gaza emergency response provided in October 2014\. With the proposed AF, there are no anticipated changes to the development objective and the Results Framework will remain unchanged, however its targets will be revised where the project has met or exceeded its original target indicators by mid-term\. The proposed AF is fully aligned with the World Bank Group’s West Bank and Gaza Assistance Strategy FY15-16, Pillar 1: Strengthen public institutions to ensure service delivery to citizens, and fully aligned with the World Bank’s MNA Regional Strategy, particularly the pillar on Renewing the Social Contract by increasing citizen trust and access to transparent and accountable service delivery\. The AF is also aligned with the PA’s Sector Strategy and its multiphase MDP\. The PA program operationalizes the goal of strengthening local governments through enhancing their efficiency, effectiveness and assisting in supporting their fiscal stability through supporting performance-based grants and capacity building packages\. This goal was included in the National Development Plan (2014-2016)\. II\. Project Development Objective(s) A\. Current Project Development Objectives - Parent The objective of the Project is to improve the Recipient’s municipal management practices for better municipal transparency and services delivery, and to restore priority municipal services following the conflict in Gaza\. B\. Proposed Project Development Objectives - Additional Financing (AF) III\. Project Description Component Name Component 1: Municipal Grants for Capital Investments allocates performance-based grants for capital investments or operating expenditures through a transfer formula based on population, need and municipal performance\. (Total US$53\.6 million, US$7\.03 million from TFGWB, US$18\.99 million from PID MDTF)\. Component 2: Support to Municipal Innovations and Efficiency promotes learning and innovation to promote municipal development (Total US$6\.5 million, US$0\.77 million from TFGWB, US$2\.91 million from PID MDTF)\. Component 3: Capacity-Building for municipalities and the MDLF supports municipalities to graduate to a higher performance category, and supports the implementing agency to build its capacity (Total US$6\.25million, US$0\.60 million from TFGWB, US$1\.17 million from PID MDTF)\. Component 4: Project Implementation Support and Management Costs (Total US$8\.5million, US$1\.60 million from TFGWB, US$2\.73 million from PID MDTF)\. Component 5: Gaza Municipal Emergency Grants\. (Total US$15million, US$ 3million from TGWB, US$12million from PID MDTF)\.  Comments (optional) The MDP2 was designed in two cycles, each with a duration of 18 months\. The proposed AF was anticipated at the beginning of the project and fully accounted for within the PDO and indicators at that time\. The proposed additional grant would help close the financing gap of the second cycle of the project under Component 1, Municipal Grants for Capital Investments\. IV\. Financing (in USD Million) Total Project Cost: 6\.90 Total Bank Financing: 0\.00 Financing Gap: 0\.00 Financing Source Amount Borrower 0\.00 Partnership for Water and Urban Development in the West Bank 6\.90 Total 6\.90 V\. Implementation The project will continue to be implemented in 5 components\. These include (i) Component 1: Municipal Grants for Capital Investments allocates performance-based grants to municipalities for capital investments or operating expenditures through a transfer formula; (ii) Component 2: Support to Municipal Innovations and Efficiency facilitates learning and innovation to promote municipal development; (iii) Component 3: Technical Assistance for Municipalities and the Municipal Development and Lending Fund (MDLF) supports municipalities to graduate to a higher performance category, and supports the implementing entity to build its capacity; (iv) Component 4: Project Implementation Support and Management Costs finances project management\. Component 5: Gaza Municipal Emergency Grants\. Social Accountability and gender inclusion will be mainstreamed across all Components\. The project will be implemented by MDLF which will be responsible for project implementation including all payments to contractors and suppliers on behalf of municipalities\. The MDLF has successfully demonstrated its capacity to effectively administer donor funded projects since its establishment in 2005 including the multi-donor financed MDP 1\. MDP 2 is essentially a repeater of MDP 1\. The project’s PDO and implementation progress have both been rated Satisfactory since effectiveness\. The ratings for Environmental and Social Safeguards are also Satisfactory, as are Procurement and Financial Management ratings\. OP4\.01 (Environmental Assessment) and OP 4\.09 (Pest Management) were triggered\. However, all sub-projects currently implemented have complied with category B status\. The implementation of Bank safeguards requirements is progressing well\. The subproject level screening mechanism, Environmental Management Plan (EMP) formulation, implementation, supervision, and reporting procedures are satisfactory, with quarterly progress reports being submitted in a timely manner\. VI\. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4\.01 X  Natural Habitats OP/BP 4\.04 X Forests OP/BP 4\.36 X Pest Management OP 4\.09 X Physical Cultural Resources OP/BP 4\.11 X Indigenous Peoples OP/BP 4\.10 X Involuntary Resettlement OP/BP 4\.12 X Safety of Dams OP/BP 4\.37 X Projects on International Waterways OP/BP 7\.50 X Projects in Disputed Areas OP/BP 7\.60 X Comments (optional) VII\. Contact point World Bank Contact: Christianna Johnnides Brotsis Title: Senior Urban Management Specialist Tel: 458-9875 Email: cjohnnides@worldbank\.org Borrower/Client/Recipient Name: Palestine Liberation Organization Contact: Laila Sbailh Title: 2973328 Tel: 0599111731 Email: lsbaih@yahoo\.com Implementing Agencies Name: Municipal Development and Lending Fund (MDLF) MDP Contact: Kawasmi Hazem Title: Acting Director General Tel: (972-02) 296-6610 Email: hkawasmi@mdlf\.org\.ps VIII\. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop

APPROVAL

P156241

Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2049 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ON A PROPOSED LOAN IN THE AMOUNT OF US$125 MILLION TO THE REPUBLIC OF INDIA FOR AN Public Disclosure Authorized INNOVATE IN INDIA FOR INCLUSIVENESS (I3) PROJECT May 8, 2017 Public Disclosure Authorized Trade and Competitiveness Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. This operation is part of the Agile Pilots initiative and uses a short version of the Project Appraisal Document\.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 10, 2017) Currency Unit = Indian Rupee (INR) US$ = INR 64\.55 FISCAL YEAR April 1 – March 31 ABBREVIATIONS AND ACRONYMS BIRAC Biotechnology Industry Research Assistance Council CAG Comptroller and Auditor General CEPI Coalition for Epidemic Preparedness Innovations CMC Chemistry, Manufacturing, and Controls CPS Country Partnership Strategy CRVMF Clinical Research Validation and Management Framework CTN Clinical Trial Network DBT Department of Biotechnology EMF Environmental Management Framework GAVI Global Alliance for Vaccines and Immunization GCP Good Clinical Practice GDP Gross Domestic Product GMP Good Manufacturing Practice GoI Government of India GPP Good Participatory Practice HPV Human Papillomavirus IFR Interim Financial Report IP Intellectual Property LMIC Low- and Middle-income Country MSMEs Micro, Small, and Medium Enterprises NCD Non-communicable Disease PCV Pneumococcal Conjugate Vaccine PD Project Director PDO Project Development Objective PIM Project Implementation Manual PMU Project Management Unit PPSD Project Procurement Strategy for Development R&D Research and Development RTTP Registered Technology Transfer Professional SDG Sustainable Development Goal SMEs Small and Medium Enterprises TTO Technology Transfer Office TPP Target Product Profile UN United Nations VC Venture Capital  Regional Vice President: Annette Dixon Country Director: Junaid Kamal Ahmad Senior Global Practice Director: Anabel Gonzalez Practice Manager: Esperanza Lasagabaster Task Team Leader/Co-Task Team Leader: Manju Haththotuwa/Jorge Coarasa  INDIA Innovate in India for Inclusiveness (I3) TABLE OF CONTENTS Page I\.  STRATEGIC CONTEXT \.1  A\.  Sectoral and Institutional Context \. 1  B\.  Higher Level Objectives to which the Project Contributes \. 4  II\.  PROJECT DEVELOPMENT OBJECTIVES \.5  A\.  Proposed Project Development Objective \. 5  B\.  Project Beneficiaries \. 6  III\.  PROJECT DESCRIPTION \.6  A\.  Principles of Project Design and Implementation \. 6  B\.  Project Components \. 7  B\.  Project Cost and Financing \. 11  IV\.  IMPLEMENTATION \.14  A\.  Institutional and Implementation Arrangements \. 14  C\.  Results Monitoring and Evaluation \. 14  D\.  Sustainability\. 14  V\.  KEY RISKS \.15  A\.  Overall Risk Rating and Explanation of Key Risks\. 15  VI\.  APPRAISAL SUMMARY \.17  A\.  Economic and Financial \. 17  B\.  Technical \. 18  C\.  Financial Management \. 20  D\.  Procurement \. 21  E\.  Social (including Safeguards) \. 22  F\.  Environment (including Safeguards) \. 23  G\.  World Bank Grievance Redress \. 24  VI\.  RESULTS FRAMEWORK\.25  \. PAD DATA SHEET India Innovate in India for Inclusiveness (P156241) PROJECT APPRAISAL DOCUMENT \. SOUTH ASIA GTC06 Report No\.: PAD2049 \. Basic Information Project ID EA Category Team Leader(s) P156241 B - Partial Assessment Bharatha Manju S\. Haththotuwa, Jorge A\. Coarasa Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 03-Jul-2017 30-Jun-2023 Expected Effectiveness Date Expected Closing Date 01-Aug-2017 30-Jun-2023 Joint IFC No Practice Senior Global Practice Country Director Regional Vice President Manager/Manager Director Esperanza Lasagabaster Anabel Gonzalez Junaid Kamal Ahmad Annette Dixon \. Borrower: Republic of India Responsible Agency: Biotechnology Industry Research Assistance Council Contact: Dr\. Renu Swarup Title: Senior Adviser, DBT and MD, BIRAC Telephone No\.: Email: swarup@dbt\.nic\.in \. Project Financing Data(in US$, Millions) [X] Loan [ ] IDA Grant [ ] Guarantee [ ] Credit [ ] Grant [ ] Other Total Project Cost: 250\.00 Total Bank Financing: 125\.00 Financing Gap: 0\.00 i \. Financing Source Amount Borrower 125\.00 International Bank for Reconstruction and 125\.00 Development Total 250\.00 \. Expected Disbursements (in US$, Millions) Fiscal Year 2018 2019 2020 2021 2022 2023 Annual 7\.72 15\.34 26\.33 28\.33 29\.58 17\.70 Cumulative 7\.72 23\.06 49\.39 77\.72 107\.30 125\.00 \. Institutional Data Practice Area (Lead) Trade & Competitiveness Contributing Practice Areas Health, Nutrition & Population Proposed Development Objective(s) The proposed Project Development Objective (PDO) is to facilitate innovation in biopharmaceutical products and medical devices that address public health priorities in India\. \. Components Component Name Cost (US$, Millions) Strengthening the pilot-to market innovation ecosystem 125\.00 Accelerating the pilot-to-market process for specific products 120\.00 Project management and monitoring and evaluation 5\.00 \. Systematic Operations Risk-Rating Tool (SORT) Risk Category Rating 1\. Political and Governance Low 2\. Macroeconomic Low 3\. Sector Strategies and Policies Moderate 4\. Technical Design of Project or Program Substantial 5\. Institutional Capacity for Implementation and Sustainability Moderate 6\. Fiduciary Moderate 7\. Environment and Social Low ii 8\. Stakeholders Low 9\. Other OVERALL Substantial \. Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? \. Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] \. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4\.01 X Natural Habitats OP/BP 4\.04 X Forests OP/BP 4\.36 X Pest Management OP 4\.09 X Physical Cultural Resources OP/BP 4\.11 X Indigenous Peoples OP/BP 4\.10 X Involuntary Resettlement OP/BP 4\.12 X Safety of Dams OP/BP 4\.37 X Projects on International Waterways OP/BP 7\.50 X Projects in Disputed Areas OP/BP 7\.60 X \. Legal Covenants Name Recurrent Due Date Frequency Transfer of Funds X CONTINUOUS Description of Covenant To facilitate the carrying out of the Project, the Borrower shall make the proceeds of the Loan available to BIRAC through its Department of Biotechnology, in accordance with the Borrower’s standard arrangements for development assistance in India\. Name Recurrent Due Date Frequency Institutional Arrangements X CONTINUOUS Description of Covenant iii BIRAC shall establish and thereafter maintain throughout the period of implementation of the Project, a Steering Committee, a Technical Advisory Group and a Project Management Unit, with functions and resources satisfactory to the Bank and with staff in adequate numbers and with qualifications, experience and terms of reference satisfactory to the Bank\. Name Recurrent Due Date Frequency Project Implementation Manual and X CONTINUOUS Clinical Research Management Framework Description of Covenant BIRAC shall implement the Project, and cause it to be implemented, in accordance with the Project Implementation Manual and the Clinical Research Validation and Management Framework; and refrain from amending, suspending, waiving, and/or voiding any provision of the Project Implementation Manual and/or the Clinical Research Validation and Management Framework whether in whole or in part, without the prior written concurrence of the Bank\. Name Recurrent Due Date Frequency Full and informed consent X CONTINUOUS Description of Covenant Prior to the commencement of any clinical trials under the Project, BIRAC shall ensure that: (a) full and informed written consent of all participants in clinical trials is obtained, recorded and retained by all Grantees; and (b) a grievance mechanism is set up, and implemented throughout Project implementation, in order to track complaints related to all Project activities (including clinical trials) and guide resolution of such complaints\. Name Recurrent Due Date Frequency Grant Agreement X CONTINUOUS Description of Covenant 1\. BIRAC shall provide Project Grants to Grantees who have fulfilled the requirements set forth in the Project Implementation Manual\. 2\. BIRAC shall, prior to making any Project Grant, enter into an agreement with a Grantee, whereby BIRAC shall agree to provide such Grantee with any of the aforementioned Project Grants and the Grantee shall agree to carry out its respective Project activities, on terms and conditions satisfactory to the Bank (“Grant Agreement”)\. Name Recurrent Due Date Frequency Safeguards Instruments X CONTINUOUS Description of Covenant BIRAC shall, and shall cause Grantees to carry out the Project in accordance/compliance with the EMF and the relevant instruments (to be) prepared pursuant to the objectives, policies, procedures and other provisions set forth therein, in a manner and substance satisfactory to the Bank\. Name Recurrent Due Date Frequency Safeguards Implementation X CONTINUOUS Description of Covenant iv Prior to the carrying out of any Project activity, BIRAC shall: (a) carry out and/or cause to be carried out an environmental screening and/or an environmental assessment (as the case may be) of the pertinent activities to be financed under the Grant Agreement; (b) approve, and/or cause the Grantee to approve an environmental/social management plan, acceptable to the Bank, for each said activity all in accordance with the provisions of the EMF; and (c) immediately after such approval, implement and/or cause to be implemented (as the case may be) the corresponding environmental/social management plan in accordance with its terms\. Name Recurrent Due Date Frequency Safeguards Monitoring X CONTINUOUS Description of Covenant BIRAC shall, throughout the period of implementation of the Project maintain monitoring and evaluation protocols and record keeping procedures acceptable to the Bank and adequate to enable BIRAC and the Bank to supervise and assess, on an ongoing basis, the implementation of/compliance with the EMF and each environmental management plan and/or social management plan prepared thereunder, as well as the achievement of the objectives thereof\. \. Conditions Source Of Fund Name Type Description of Condition Team Composition Bank Staff Name Role Title Specialization Unit Bharatha Manju S\. Team Leader Lead Private Sector GTC01 Haththotuwa (ADM Specialist Responsible) Jorge A\. Coarasa Team Leader Senior Economist GHN06 (Health) Satyanarayan Panda Procurement Procurement GGO06 Specialist (ADM Specialist Responsible) Dhirendra Kumar Procurement Consultant GTC06 Specialist Arvind Prasad Mantha Financial Financial GGO24 Management Management Specialist Specialist Albert Sole Canut Team Member Senior Private GTC06 Sector Specialist Andreas Seiter Peer Reviewer Lead Health GHNDR Specialist v Farah Dib Team Member Young Professional GTC07 Harinath Sesha Safeguards Senior GEN06 Appalarajugari Specialist Environmental Specialist Jorge Luis Alva-Luperdi Counsel Senior Counsel LEGES Juan Sebastian Saez Team Member Lead Economist T&C CMU lead GTC06 Justin Piers William Hill Peer Reviewer Senior Private GTCIE Sector Specialist Karamath Djivede Team Member Young Professional GHNGE Sybille Adamon Marianne Ellen Team Member Monitoring and M&E specialist GTCOS Anderson Evaluation Specialist Ramesh Govindaraj Peer Reviewer Lead Specialist, GHN02 Health, Nutrition and Population Samuel Thangaraj Safeguards Consultant GSU06 Specialist Satish Kumar Team Member Finance Officer WFALA Shivakumar Shiny Jaison Team Member Program Assistant SACIN Srividya Jagannathan Peer Reviewer Principal CMGC1 Investment Officer Tanya Cubbins Team Member Program Assistant SACIN Victor Manuel Ordonez Team Member Senior Finance WFALA Conde Officer Extended Team Name Title Office Phone Location Anya Eldan External peer reviewer 972544781204 Tel Aviv Kannan Vijayaraghavan Industry Expert 919866522111 Hyderabad Robert Levine Clinical Trials Expert 2033140476 New Haven \. Locations Country First Location Planned Actual Comments Administrative Division \. Consultants (Will be disclosed in the Monthly Operational Summary) vi Consultants Required? Consultants will be required\. vii I\. STRATEGIC CONTEXT A\. Sectoral and Institutional Context 1\. While India is recognized as a leading global manufacturer of high-quality generic drugs, industry gaps and market failures constrain its innovation capabilities, limiting its competitiveness and ability to address its disease burden\. The Indian pharmaceutical sector accounts for about 2\.4 percent of the global pharmaceutical industry in value terms and 10 percent in volume terms\. India also accounts for 20 percent of global exports in generics, making it the largest provider of generic medicines globally\. In 2014, Indian manufacturers provided nearly 60 percent of vaccine volume, representing just over 30 percent of the total value of procurement by the Global Alliance for Vaccines and Immunization (GAVI)\. However, the strategic focus of the global pharmaceutical and medical device industries has gradually shifted from reverse-engineering manufacturing toward product innovation, primarily owing to breakthroughs in translational research, bio- manufacturing, and medical technology\. With this shift, however, diseases that disproportionately affect low- and middle-income countries (LMICs) and the poor, many of which are public health priorities in India,1 are largely ignored as companies tend to allocate research and development (R&D) funding to high-profit markets\. 2\. Under this new paradigm, innovation capabilities, quality of research, and transparency in the regulatory validation of product efficacy become increasingly relevant for the long-term competitiveness of the industry\. While India is a leader in innovation in South Asia, innovation in India is mostly incremental or imitative, as illustrated by the strong generics industry\. India’s output of patents and trademarks is small, business expenditure on R&D is low, and there is a limited skills base for innovation\.2 With the exception of world-class players in a few sectors and localized centers of excellence, there is a low degree of novelty innovations in India, and the economy underperforms relative to other middle-income peers on several related indicators\. 3\. While India has strong capabilities and resources in basic research and manufacturing (Figure 1), market failures limit its capabilities in pilot-to-market stages of product development\. To successfully transition toward world-class innovation in biopharmaceuticals and medical devices, India needs to overcome these market failures that currently undermine private incentives to invest in R&D and negatively affect the performance of innovative entrepreneurs\. These are: (a) Investment in pilot-to-market stages of product development is perceived as too risky for private investors\. Lack of investment in product-oriented discovery and translational research limits innovation capacity (FFigure 1) and impedes the industry’s ability to provide affordable solutions to neglected diseases that constitute public health priorities\. Access to private capital (venture capital [VC], private equity, and so on) is extremely limited at this stage due to the perception of high risk\. While a few large companies have the means to fund product development and scale up, these investments can be prohibitively costly for smaller firms, and network and market financing failures can prevent their acquisition\. Globally, substantial government grants are available for scale-up funding, especially in the European 1 India accounts for 20 percent rotavirus, pneumococcal, and measles deaths and about 25 percent of cervical cancer deaths globally\. 2 Organisation for Economic Co-operation and Development 2014\. 1  Union, the United States, and Asian countries such as the Republic of Korea, but the dearth of such options in India affects the competitiveness of the industry and the ability for critical products to reach the market in a reasonable timeframe and at an affordable price\. (b) Suboptimal investment in public goods critical to translational research\. India has strong and well-developed capabilities in the pre-validation and large-scale manufacturing stages where the industry’s research and the bulk of private investment have focused; however, critical technology and knowledge gaps exist in pilot-to- market stages of the product development lifecycle\. India lacks the hard and soft infrastructure to support these stages of the value chain\. First, firms, and in particular micro, small, and medium enterprises (MSMEs), lack access to technology and equipment tailored to specific needs across poorly developed stages of drug development, such as basic and applied research, clinical trials, and validation\. Second, despite strides in developing strong capabilities in basic research, bio- manufacturing, and medical services, India lacks a workforce—including scientists, researchers, and staff trained in a broad set of skills across the different stages of product development—equipped to provide the skills base for a well-functioning innovation ecosystem\. While infrastructure, technology, and human capital are critical to successful innovation and deliver substantial economic benefits, the levels of investment required and appropriation problems make it prohibitive for individual firms to pursue these investments\. In countries that have been successful in building effective innovation ecosystems, partnerships among government, the private sector, and academia have eased access to these shared facilities and public goods\. (c) There is a gap between private and social returns to collaboration\. Research shows that relative to other regions, a much larger share of innovation in South Asia (including in India) takes place in‐house, limiting productive collaboration across firms and possibly explaining high rates of imitation instead of radical innovation\.3 Cooperation to strengthen interactions and linkages across the various stakeholders in innovation processes is an essential pillar in the innovation ecosystem\. Government organizations are ideally placed to build noncompetitive collaborations toward accelerated and cost-effective product development, in which the division of risk- taking aligns with the social and private returns of participating actors\. These include filling in process gaps between large companies with manufacturing expertise and the discovery and validation capabilities which currently lie within academia and research institutes\. (d) Institutional failures in management of innovation systems\. Globally, successful experiences highlight the importance of strong and efficient institutional arrangements for knowledge creation and diffusion\. In countries with well-functioning innovation systems, technology transfer offices (TTOs) assist stakeholders in the facilitation and adoption of new global innovations, technologies, and licensing models; manage 3 Lopez-Acevedo, Gladys, Denis Medvedev, and Vincent Palmade\. 2016\. South Asia's Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse\. South Asia Development Matters\. Washington, DC: World Bank\. https://openknowledge\.worldbank\.org/handle/10986/25094 License: CC BY 3\.0 IGO\. 2  intellectual assets; and provide relevant legal monitoring and support\. Yet, India lacks TTOs that can identify research which has potential commercial interest and develop strategies to exploit it\. (e) Private returns do not provide sufficient incentives for R&D in diseases of the poor\. In the current market-driven R&D system, a high number of medicines for diseases that disproportionately affect populations in LMICs are not available or not affordable\. Pharmaceutical companies are typically reluctant to invest in developing medicines for patient populations that do not represent a profitable market or for diseases predominantly affecting LMICs, given the low and unpredictable expected private returns on investment\. This ‘directionality’ failure means that with regard to addressing societal challenges, governments have to provide direction and public funding of R&D to achieve a socially optimal level of R&D\. This can be done by influencing the incentives of and reducing the risk for the private sector of undertaking R&D activities deemed to have significant social benefits and thus delinking the price of solutions for public health priorities from their R&D cost\. 4\. India has recognized the need for strong innovation policies particularly in support of the biopharmaceutical sector\. India’s strategy, ‘Decade of Innovations 2010–20’, aims at strengthening innovation capacities including by increasing gross expenditure on R&D to 2 percent of gross domestic product (GDP) by 2020\. The Make in India initiative, an ambitious countrywide program launched in September 2014 to encourage manufacturing, identifies the pharmaceuticals, biotechnology, and medical device industries as priority sectors and aims at addressing a number of policy challenges and improving the business environment to foster India’s competitiveness\. Finally, the 12th Five-Year Plan encourages states and central ministries to promote ‘R&D outputs leading to public and social goods’ such as ensuring access to good quality health care and alleviating the burden of communicable and non-communicable diseases (NCDs)\. 5\. To implement its strategy, the Government of India (GoI) created the Biotechnology Industry Research Assistance Council (BIRAC) five years ago under the Department of Biotechnology (DBT)\. BIRAC has supported 539 companies (mainly start-ups and MSMEs) that are implementing 360 projects, with funding support of over US$100 million and commitments of over US$160 million from the private sector\. These projects have delivered 26 affordable products and 19 new technologies in addition to creating 53 new intellectual properties (IPs)\. BIRAC efforts can be broadly divided into three verticals: (a) providing innovation funding to entrepreneurs, small and medium enterprises (SMEs), start-ups, and other biotechnology companies; (b) supporting entrepreneurship through mentorship, capacity building, technology transfer facilities, and IP management; and (c) developing strategic partnerships with national and international entities\. BIRAC’s schemes encourage collaboration among stakeholders and provide a conducive environment for collaborative R&D, with a particular focus on the health care sector (including drugs, devices/diagnostics, biosimilars, and vaccines/clinical trials)\. The proposed project would further BIRAC’s work in transforming the biopharmaceutical and medical devices industries in India\. 6\. The World Bank can leverage its experience in financing and supporting the implementation of innovation, competitiveness, and public health projects to help the GoI unlock India’s potential for increased innovation\. Drawing from global best practices adapted to the 3 strategic and institutional context of India, the design of the project is based on a holistic approach to product-driven innovation in the biopharmaceutical and medical device industries\. The project will focus on the sections of the biotechnology value chain where critical gaps which impede the development of the industry exist (see Figure 1 for a visualization of the market failures along the value chain and where the project seeks to intervene)\. The project helps fill financing, infrastructure/technology, and human capital gaps where there is limited public or private resources\. It also facilitates collaboration among the various stakeholders, which would not otherwise occur\. While not directly supporting the regulatory environment (including IP), the project will inform ongoing GoI efforts in this space, which is considered adequate in its current state, to facilitate project interventions\. The project specifically will support concerted public- private efforts toward product development combined with upgrades in related soft and hard infrastructure to reinforce and sustain the transformation of the industry\. Consortia of public- private stakeholders will be the recipients of grants to accelerate development and improve success rates of select products tackling major public health priorities\. These consortia will also benefit from additional project support aimed at improving overall factor conditions in the business environment, which will be implemented in tandem with the product-driven initiatives\. Namely, the project will support improved technical skills, advanced research-oriented facilities, and technology transfer processes which, combined, will foster improved innovation capabilities and collaboration within the ecosystem\. These efforts are expected to provide strong demonstration effects and to crowd-in additional private sector financing and participation in the sector going forward\. Figure 1\. Biotechnology Value Chain, Market Failures, and Areas of Project Intervention Note: GMP = Good manufacturing Practice\. 4  B\. Higher Level Objectives to which the Project Contributes 7\. The project aligns with the Sustainable Development Goals (SDGs) and the United Nations (UN) High Level Panel on Access to Medicines recommendations\. The SDGs adopted in 2015 (specifically SDG 3) include an explicit focus on Universal Health Coverage and access for all to safe, effective, quality, and affordable medicines and vaccines for both communicable diseases and NCDs\. However, the innovation gap in diseases that predominantly affect neglected populations, particularly in LMICs, and high costs of existing health technologies, due to the profit-driven innovation models, are barriers to achieving these goals\. Target SDG 3b includes “support the research and development of vaccines and medicines for the communicable and non- communicable diseases that primarily affect developing countries\.” The UN High Level Panel on Access to Medicines convened in 2015 finds that “adequate investment in R&D by the public sector is crucial if governments are to fulfil their obligations with respect to the right to health” and calls for new approaches to close the health innovation and access gap, including mechanisms that “delink the costs of R&D from end prices to promote access to good health for all\.”4 8\. India’s growth potential5 will contribute toward ending extreme poverty and boosting shared prosperity, the World Bank’s twin goals, to the extent it effectively promotes and sustains inclusive growth and raises global competitiveness\. With low-income households highly vulnerable to health shocks, empowering the poor to participate in the growth process requires continued efforts to remove barriers to affordable healthcare\. Affordability becomes a binding constraint to economic inclusion in a country with 640 million people unable to access essential medicines, 75 percent of the population uninsured, and out-of-pocket health expenditures which rank as one of the highest in the world\. 9\. The project will contribute to the World Bank Group’s Country Partnership Strategy 2013- 2017 (CPS), Report No\. 76176-IN, discussed by the Executive Directors on April 11, 2013\. The development of innovation capabilities of the pharmaceutical industry aiming at providing access to new vaccines and biosimilar products, medical devices, and diagnostics, is consistent with the objectives of the inclusion pillar insofar as it targets basic public health priorities\. More indirectly, the project will also support growth in manufacturing, a central topic in the integration pillar, and capitalize on agglomeration economies, a guiding principle within the transformation pillar\. II\. PROJECT DEVELOPMENT OBJECTIVES A\. Proposed Project Development Objective 10\. The proposed Project Development Objective (PDO) is to facilitate innovation in biopharmaceutical products and medical devices that address public health priorities in India\. 4 Report of the United Nations Secretary-General’s High-Level Panel on Access to Medicines: promoting innovation and access to health technologies\. Released September 14, 2016\. 5 Underpinned by the largest youth population in the world, the third-largest domestic market in purchasing power parity terms, and a steady implementation of trade and regulatory reforms, India is expected to average 8 percent annual GDP growth in the upcoming years, the fastest growth rate projections among large economies in the world\. 5  B\. Project Beneficiaries 11\. The project’s direct beneficiaries are the companies, research and academic institutions, researchers, and field practitioners receiving grants or training\. Product development grants will benefit companies or public sector entities with product leads that meet the selection criteria for the targeted vaccines, biosimilars, and devices and diagnostics\. Public and private sector entities with R&D and/or manufacturing facilities can qualify for grants to establish shared facilities needed for product development\. Researchers can qualify for research grants to provide inputs into the product development process\. Clinical sites will benefit from capacity building to conduct clinical trials\. Practitioners will benefit from domain-specific and business training to fill knowledge and managerial skills gaps\. Additionally, a few practitioners will benefit from technology transfer training to generate a set of registered technology transfer practitioners (RTTPs) who will manage newly set up TTOs in the various biotechnology clusters around India\. 12\. Indirect project beneficiaries include researchers, start-ups, MSMEs, and other companies who can access the shared facilities set up under the project to advance their products (regardless of whether they also benefit from product development grants)\. The ultimate project beneficiaries are the millions of Indians, including women and children, particularly those from vulnerable sections of society, who will benefit from low-cost health products because of expected reduction in out-of-pocket expenses when these reach the market, developed through the ecosystem set up under the project\. Products will be accessed for the first time either because they previously did not exist or were unaffordable to those who need them the most\. These products could also benefit people outside of India, such as in Africa for example, where the need for affordable medicines is equally significant\. III\. PROJECT DESCRIPTION A\. Principles of Project Design and Implementation 13\. The project is designed to support consortia of public, private, and academic institutions to overcome the key market failures currently holding back the development of an innovative biopharmaceutical and medical device industry in India\. Through Component 1, the project will provide grants to collaborative consortia to fill critical gaps in the biologics (namely vaccines and biosimilars) and medical devices value chains\. Through Component 2, the project will provide grants to institutions (public and private) currently in the pilot-to-market stages of development for a targeted set of products that have been identified as public health priorities for India\. Both components have been designed following a set of principles derived from international best practice and lessons learned from prior initiatives in and outside the World Bank: (a) Industry associations, academic institutions, and public sector undertakings have been convened by BIRAC to identify and prioritize both the gaps and the products targeted by the project (see section VI\. C for details)\. (b) Grants provided by the project will be leveraged to bring together top Indian institutions with cutting-edge international players including private firms, individual experts, and contract research organizations as well as universities and other research centers\. These international partners will be engaged through knowledge transfer 6  agreements, technology licensing and acquisition, and other innovative mechanisms tailored to each activity\. (c) The grant-based design of the project leverages market demand by allocating performance-based funds through open, competitive calls for proposal with transparent eligibility and selection criteria\. (d) Sustainability has been a key criterion in the design as the project aims to build an ecosystem for the future\. The investments in Component 1 are aimed at public goods and shared facilities that will be first tested by the products supported by Component 2\. However, those assets will become available to multiple other products in the pipeline for years to come\. In that sense, while accelerated innovation will be measured by project end through the products supported by Component 2, the impact of Component 1 is expected to continue long after the project closes (see section IV\. C for further details)\. B\. Project Components Component 1: Strengthening the pilot-to-market innovation ecosystem (US$125 million) 14\. The interventions under this component will be targeted at critical gaps in infrastructure, human capital, and technology transfer that have been identified as weak areas in the pilot-to- market innovation ecosystem for biopharmaceuticals and medical devices\. The project will not address the overall regulatory and institutional framework for biopharmaceutical and medical devices in India, which has already undergone significant reforms in the last three years that improved its robustness, but will have targeted interventions within that framework to improve areas where gaps have been identified (clinical trials and technology transfer)\. 15\. The project will provide grant funding to support the creation of centers of excellence for validation, early stage bio-manufacturing, clinical development, training, and technology transfer\. Funding will be used to procure specialized equipment, services, and technologies required for the different stages of the pilot-to-market process\. Grant recipients under this component will be primarily private and autonomous public entities, selected through open and competitive calls for proposal with transparent selection criteria\. Grantees are expected to be top institutions from both the public and private sectors that already have a successful track record in the biotechnology space but lack specific capabilities required to enable faster, lower-cost validation, clinical development, and early stage manufacturing\. Subcomponent 1\.1: Shared facilities 16\. Validation and reference facilities\. Once a product lead has been identified through the process of scientific discovery, it enters the validation stage where it is further tested for efficacy, safety, and scalability\. The project aims to support two validation and reference facilities for biologics (vaccines and biosimilars) and one facility for validation of medical devices (instruments and diagnostics)\. This will be done by providing grants to public and private R&D institutions (both academic research centers and commercial entities) in existing biotechnology clusters for upgrading equipment and expanding their know-how\. No land acquisition or major civil works will be supported\. Once these new capabilities are in place, they will be offered in the form of 7 shared facilities to any player in the industry and, therefore, they will be used to advance the development of products under Component 2 as well as support products not directly funded through the project\. MSMEs will be able to use these facilities at lower rates than currently available in the market\. 17\. Early stage manufacturing\. The project aims to support existing institutions to set up or upgrade three chemistry, manufacturing, and controls (CMC) facilities to support early stage manufacturing for vaccines and biosimilars\. Products manufactured in CMC facilities will then go back to the validation facilities for further testing before they can go to clinical development\. 18\. Cell line repository\. A key input for lead and product validation is cell culture, a process by which cells are grown under controlled conditions, generally outside of their natural environment\. These cells are used to test products and product leads and this is done by maintaining cell lines—a population of cells descended from a single cell and containing the same genetic makeup separated from their original tissue\. The project will support the upgrading of an existing institution into a national cell line repository that will allow ready access to quality- controlled cell lines across the different stages of the validation process\. Subcomponent 1\.2: Scientific research 19\. In addition to the shared facilities described, accelerating and lowering the cost of validation and early stage manufacturing will require the development of new scientific research tools such as biomarkers, assays, cell lines, and technologies for efficient processing\. The project will provide research grants to scientific institutions that will lead a consortia of Indian and global researchers to develop these novel tools\. The new tools will be initially used for the development of products supported by Component 2, but they can be subsequently applied to other products, permanently expanding the knowledge and competency of the ecosystem in the process\. Subcomponent 1\.3: Clinical trial network 20\. Following the validation and early bio-manufacturing stages, products undergo clinical development, which includes confirming their efficacy and safety in humans through clinical trials\. Clinical trials are currently an important bottleneck in the product development process as companies and institutions usually have to go through an ad hoc process of finding sites with access to the required population that meet internationally accepted clinical and ethical standards\. The project will support the establishment of a clinical trial network (CTN) which connects various clinical sites together giving researchers and manufacturers ready access to a wide population sample across India on which to conduct trials required to obtain regulatory approvals and certifications\. The project will provide grant funding to carefully selected individual clinical sites which already have a strong track record of conducting high-quality trials to achieve and maintain internationally accepted Good Clinical Practice (GCP) and Good Participatory Practice (GPP) compliance\. This may entail upgrading of technology used to manage data and monitor trial implementation, equipment, and minor repairs and renovations required to ensure patient safety as well as consulting services from individual experts to develop and implement the protocols and procedures required to comply with the highest clinical and ethical standards\. It will also provide grant funding to develop shared support services across sites such as data management\. 8 Subcomponent 1\.4: Training 21\. The project will provide grant funding to existing academic institutions to connect them with global centers of excellence and help them develop new training programs to fill scientific, business, and R&D management knowledge gaps that have been identified as current weaknesses in the industry\. Training will target young professionals (from recent PhD graduates to middle managers, including women) working in the sector with the following objectives: (a) Enabling suitable human resources for product development needs under Component 2 and able staffing of the facilities under Component 1; (b) Generating the next generation of trainers in each identified area; and (c) Training next generation scientists (academic researchers—PhDs and postdoctoral fellows) for interdisciplinary skills across the product development value chain\. Subcomponent 1\.5: Technology transfer 22\. This subcomponent will include acquiring the specialized technical skills and the institutional knowledge, networks, and know-how to establish a few TTOs with the target of having one TTO in each biotechnology cluster in India (six to eight)\. TTOs are key to translating scientific research results into patentable and marketable products\. The process will include Indian personnel going through formal training in IP and technology transfer and securing the Registered Technical Transfer Professional (RTTP) status and undertaking internships in successful TTOs overseas as well as bringing key experts from overseas to embed them in the start-up TTOs in India\. Twinning arrangements with successful TTOs elsewhere will also be pursued\. Domain expertise in technical; legal (for example, patent writing, technology valuation, commercialization mentoring and advice); financial; and commercial aspects will be imparted to a core cadre of Indian professionals who will pioneer this subcomponent\. Component 2: Accelerating the pilot-to-market process for specific products (US$120 million) 23\. The project will provide grant funding to consortia of private, public, and academic institutions, led by cutting-edge institutions in their respective field, to accelerate the development of low-cost, select vaccines, biopharmaceuticals, diagnostics, and medical devices that address public health priorities in India\. By extending financing to consortia, the project seeks to foster a more collaborative R&D environment which leverages the expertise of local and international players from both the public and private sectors\. Additionally, consortia present an opportunity to link MSMEs in the field with larger companies\. This funding will be used by grantees to cover the cost of critical aspects of the product development process such as acquisition or licensing of proprietary technologies, equipment, and specialized services, as well conducting clinical trials and meeting other regulatory requirements\. In addition to funding, the products supported under this component will benefit from access to the research infrastructure, scientific research tools, and a CTN that will be developed under Component 1, at reduced costs\. Finally, the products directly supported by the project will be those that address public health priorities, have market potential, and are already in the critical validation to early bio-manufacturing stages of product development\. In addition to reflecting the lower cost of development in lower market prices, the recipients of 9 grants under this component will commit to delivering agreed quantities at agreed prices to the public health sector in India\. Finally, any technologies developed in the process of product development will be treated as non-proprietary and will be accessible to other users\. Subcomponent 2\.1: Vaccines 24\. The project will finance the development of select vaccines through grant funding\. Three disease areas of focus for vaccine development have been selected through a filtering exercise based on criteria including public health requirements (disease morbidity and mortality and unmet demand) and market relevance (industry focus based on national demand, opportunity for accelerated access and affordability, community demand)\. Selected diseases are human papillomavirus (HPV), dengue, and pneumonia\. 25\. For each of these disease areas, a Target Product Profile (TPP) will be established based on further scientific consultations\. Potential candidates for support will be selected for each disease area through an open call for proposals and based on a transparent set of criteria, as set out in the Project Implementation Manual (PIM)\. Subcomponent 2\.2: Biosimilars 26\. The project will finance the development of select biosimilars through grant funding\. A short list of 11 potential biosimilars, focused on NCDs, has been identified\. The process started with a list of 135 biotherapeutics that are due to be off-patent in the next few years and that could be developed as biosimilars in India\. The short list was then compiled through a consultative process including experts from industry, academia, and government\. Selection criteria included public health needs (India’s disease burden), market feasibility (ability of licensure in India and high global demand), and scope for Indian licensure in the next three to five years (existing Indian leads)\. 27\. Potential candidate(s) for support will be selected through an open call for proposals with transparent selection criteria established in the PIM\. Subcomponent 2\.3: Medical devices (instruments and diagnostics) 28\. As a result of a landscaping exercise with industry stakeholders, it was decided that the project would be focused on platform technologies rather than specific devices\. The aim is to use the grants under this subcomponent as catalytic investments that allow further development of multiple products\. The subcomponent will leverage grants to promote collaboration among medical and information technology researchers and entrepreneurs to further develop the selected platforms, including, for example, digital health\. Component 3: Project management and monitoring and evaluation (US$ 5 million) 29\. This component will cover the operating costs incurred by BIRAC in the implementation of the project\. It includes (a) Salaries and honoraria for staff, consultants, and members of the different technical committees; 10  (b) Stakeholder and scientific consultations, including with international experts, at different stages of the project; (c) Consulting services such as clinical data auditing and others required in discharge of clinical research oversight and validation; (d) Travel costs for supervision visits; and (e) Other operating costs as needed\. C\. Project Cost and Financing 30\. The total cost of the project is US$250 million, co-financed by the World Bank Group for US$125 million through Investment Project Financing\. Table 1 describes the financing support\. Table 1\. Estimated Project Cost and Financing (US$, millions) Project IBRD % Project Components Cost Financing Financing 1\. Strengthening the pilot-to-market innovation ecosystem 125\.0 62\.5 50 1\.1\. Shared facilities 50\.0 25\.0 50 1\.2\. Scientific research 36\.0 18\.0 50 1\.3\. Clinical trial network 12\.0 6\.0 50 1\.4\. Training 15\.0 7\.5 50 1\.5\. Technology transfer 12\.0 6\.0 50 2\. Accelerating the pilot-to-market process for specific products 120\.0 60\.0 50 2\.1\. Vaccines 80\.0 40\.0 50 2\.2\. Biosimilars 30\.0 15\.0 50 2\.3\. Medical devices (instruments and diagnostics) 10\.0 5\.0 50 3\. Project management and monitoring and evaluation 5\.0 2\.5 50 Total Project Costs 250\.0 125\.0 50 D\. Lessons Learned and Reflected in the Project Design 31\. The project design reflects lessons from ongoing operations, international good practice, and thematic evaluations\. It draws on lessons learned from similar World Bank-funded innovation projects in Argentina (Unleashing Productive Innovation Project, P106752, approved in June 2008, and rated Satisfactory both on the development outcome and implementation progress with additional financing currently being processed) and Kazakhstan (Technology Commercialization Project, P090695, which closed in December 2015 with Moderately Satisfactory development outcome and implementation progress and which has a follow-on operation—Kazakhstan: Fostering Productive Innovation Project, P150402—approved in 2014)\. The project also draws on lessons from a recent Independent Evaluation Group review of World Bank Group support for Innovation and Entrepreneurship as well as an impact evaluation of In-Tech, a program offered by Poland’s National Center for Research and Development to support research entities and businesses in carrying out innovative projects in scientific and industrial areas through grant funding\. Finally, the design draws on lessons from the experiences of other countries in facilitating innovation in biotechnology and medical devices: on the one hand is Israel with a thriving life sciences innovation sector, and on the other hand is Malaysia with a less successful experience\. The following lessons have been considered: 11 (a) Public sector funding can make a useful contribution to the development of technology financing and the creation of knowledge-based companies\. The project in Argentina piloted an early stage VC fund, based on other countries’ experiences\. The goal was to provide a demonstration effect of the commercial viability of early stage funds for technology start-ups, with the expectation of attracting other VC companies\. Similarly, this project fills a financing gap in India for companies going from pilot scale to markets and early stage\. BIRAC’s grant funding is expected to provide a demonstration effect for investors to enter this space, in a field perceived as particularly risky\. In fact, in Israel, through the Israel Innovation Authority, the Government initiated a life sciences VC fund (allocating US$40 million) that invests mainly in pharmaceuticals and which catalyzed the formation of other, purely private funds without Government support\. (b) Government subsidies can also provide an incentive for increased collaboration between science and industry which is essential for innovation in biotechnology\. There are several barriers that inhibit collaboration, including financing constraints, information asymmetries which prevent researchers and firms from interacting, and transaction costs in negotiating collaboration agreements\. In Poland, In-Tech funding provided grants mostly to scientific consortia consisting of at least one research unit and at least one enterprise with the intention of taking ideas from the research stage through to commercialization\. This resulted in increased likelihood of having a product ready to sell\. The proposed project builds on this success story by funding grants to both private enterprises and public research entities to form consortia that will allow the acceleration of product development through increased collaboration\. (c) The success of early stage funding depends on the availability of ‘deal flow’, or investment-ready projects\. In Argentina, the World Bank Group helped set up consortia assisting entrepreneurs in all stages of the incubation cycle\. Similarly, this project will provide training not only in technical areas but also in managerial and business skills to help start-ups grow\. Through the TTOs, the project also aims to increase the rate of translation of research ideas into marketable products that could serve as potential investments\. Israel recognized the importance of creating a deal flow: the Government helped create an early stage incubator for pharmaceutical companies managed by a private sector operator and investing in early stage investors\. It also created over 10 medical devices incubators\. Thus far, around 200 early stage life sciences companies have been supported through Israel’s incubator programs, creating a deal flow for the various VC funds in the country\. (d) Experience and lessons learned point to the importance of competitive financing of science, technology, and innovation programs to enhance their efficiency and promote quality research\. In Argentina, the implementing agency provided grant funding through an open and competitive call for proposals where the centers and institutes would present proposals and would be selected on the basis of predefined criteria included in the Operational Manual\. This model will be replicated in India and is a model already practiced by BIRAC in its existing funding schemes\. Particular attention will be paid to involving international experts in the grant selection process\. 12 (e) Science and technology projects are most successful when executed by an ‘agency-champion’, that is, an agency that has experience, capacity, and high commitment to the project\. In this case, BIRAC is the champion of the project, which it has been designing for some time along with champions from the DBT\. Although only five years old, BIRAC has already had significant experience running funding schemes and supporting entrepreneurs and clusters around India\. BIRAC has strong institutional capacity backed by a significant number of experienced scientists and practitioners who are on its Board and among its staff\. (f) International expert advice and support are essential for successful innovation project implementation\. In Kazakhstan, the professional coaching provided to the groups benefiting from project support proved to be critical in promoting a culture of innovation and linking academic researchers and markets\. Creating professional expert bodies to apply international best practices at different stages of implementation (including grant selection processes and supervision of the selected groups) proved to be instrumental in achieving the PDO\. As such, the proposed project includes a training subcomponent to bring state-of-the-art technical and managerial skills to the professionals leading innovation in the field\. Also, the implementation arrangements include a Technical Advisory Group made up of global and Indian academic and industry experts who will provide scientific and technical guidance for the project throughout implementation\. (g) Private sector participation is key in facilitating innovation with market potential\. In the case of Malaysia, the Government poured millions of dollars to create three Government-owned companies that were supposed to secure Malaysia’s place as an advanced country in biotechnology\. These efforts have not led to the desired outcome for a number of reasons, namely, a disconnect between acquiring technology and using it to create products\. A lack of commercialization vision led to suboptimal use of state-of-the-art technology which is for the most part now obsolete\. In contrast, Israel’s initiatives have all involved the private sector (either as VC partner, manager of incubators, or even research partner)\. The Government has funded technology and laboratories as well as provided grants to universities and research centers, always with the objective of translating research into a commercial product\. In fact, Israeli government grants require the participation of a business party contributing a percentage of the funding and providing commercial guidance to researchers\. The proposed project therefore leverages private sector participation in all aspects of its design (in the selection of products and grantees, in product development, and so on) and ensures collaboration between the public and private sectors as well as within the private sector between MSMEs and larger firms\. (h) Investing in human capital is as important as investing in equipment, buildings, and technologies\. In Malaysia, the Government realized a little too late that innovation in biotechnology is mainly driven by people, both scientists and administrators, and not by technologies\. The Government underinvested in the human capital needed to use the state-of-the-art technology it had purchased\. Keeping this in mind, the project allocates funding to develop and deliver training programs to fill key 13  knowledge and skills gaps in India’s biopharmaceutical and medical devices sector today, both technical and managerial\. IV\. IMPLEMENTATION A\. Institutional and Implementation Arrangements 32\. The project will be implemented by BIRAC, a public sector unit under the DBT, Ministry of Science and Technology, the GoI\. It was registered in March 2012 as section 8 ‘not-for-profit company’ under the India Companies Act 2013\. The institution functions through a formal Board of Directors headed by a chairman at the rank of Secretary in the GoI and supported by directors with sectoral knowledge from premier academic institutions\. BIRAC will serve as the implementing agency as per the Project Agreement to be signed with the World Bank Group\. Implementation of the project will be led by a project management unit (PMU) within BIRAC\. The PMU will be staffed by a dedicated Project Director (PD) as well as a mix of dedicated and part-time staff, including technical coordinators (one for each subcomponent); procurement, financial management, social, environmental, and monitoring and evaluation specialists; a legal/compliance team; a communications team; a quality control officer; and other administrative staff\. In addition, a Steering Committee made up of senior DBT representatives (both civil service and career scientific officers) will provide strategic direction for the project and have final decision authority\. A Technical Advisory Group made up of global and Indian academic and industry experts will provide scientific and technical guidance for the project\. 33\. Most of the funding for the project will be in the form of grants following open, competitive, and transparent calls for proposals\. The eligibility and selection criteria, application formats, and other details of the calls for proposals as well as grant disbursement, implementation, and monitoring are detailed in the PIM\. B\. Results Monitoring and Evaluation 34\. Monitoring and evaluation of project indicators will rely on the data and information provided by grantees as part of their obligations under the Grant Agreement\. BIRAC will collect, compile, validate this information, and use it to track progress toward achievement of project outcomes and intermediate results targets\. Most of the outcomes are linked to either specific milestones along the product development cycle, such as regulatory approvals, and/or concrete events, such as a shared facility being used\. Therefore, validation of the project by BIRAC as well as the World Bank team through implementation support missions is not expected to pose a major challenge\. Results monitoring and evaluation will be one of the key responsibilities of the PMU and a primary accountability for the PD\. C\. Sustainability 35\. World Bank Group financing under this project is a small fraction of funding needs for the overall biotechnology industry in India\. The project directly leverages DBT funding 1:1 and leverage is manifold once other private, public, and philanthropic resources that go into product development are considered\. Component 1 is designed to remove key bottlenecks in the value chain that have public goods characteristics and/or positive externalities and once removed should lower the risk of future investments and accelerate time to market for biotechnology products\. All 14  the investments in Component 1 will be sustained through revenue from future users of upgraded facilities, new research tools and clinical trial sites, TTOs, and training programs\. Market prices will apply except for products developed under Component 2, which will benefit from concessionary rates\. The project aims, through Component 2, to serve as a catalyzer that results in increased fund mobilization through, among others, a demonstration effect that helps investors (public and private) better assess the risk of future investments in product development and encourages further private sector participation in the sector\. 36\. The project will also leverage synergies with other initiatives going forward\. Such initiatives include the Coalition for Epidemic Preparedness Innovations (CEPI)6 which aims to galvanize the development of new vaccines against diseases that can cause devastating epidemics by funding vaccine candidates through late preclinical studies to proof of concept and safety in humans\. CEPI-supported vaccine developers could benefit from the investments in the biopharma ecosystem made under the project\. 37\. Lessons learned during project implementation will be applied by the Ministry of Science and Technology to other sector-specific innovation ecosystems in which the combination of product-driven R&D investments and targeted improvements in the business environment can upgrade existing innovation capabilities\. The ministry aims to support industry initiatives with potential “paradigm-shifting influence in the Science and Technology landscape,” particularly in knowledge- and capital-intensive industries where the lack of rapid private sector funding, prototyping, and testing capabilities constitutes major constraints to growth\. Sectors where public institutions are particularly well-suited to fill gaps in R&D funding and innovation capabilities across the business fabric include, in addition to health care, education, waste management, space exploration, or energy\. Similar approaches to public-led development and transfer of technologies and innovations can also be applied to facilitate cross-cutting breakthroughs in enabling and advanced manufacturing, such as robotics, automation, nano-materials, or precision manufacturing\. V\. KEY RISKS A\. Overall Risk Rating and Explanation of Key Risks 38\. Political and governance\. The PDO is in line with the GoI’s 12th Five-Year Plan focusing on ‘R&D outputs leading to public and social goods’ such as ensuring access to good quality health care and alleviating the burden of communicable diseases and NCDs\. BIRAC has a good track record of successfully supporting grantees in accordance with the three governance principles of transparency, accountability, and participation, which this project will adopt as well and will be outlined in the PIM\. The project has robust leadership within BIRAC, strong support from the DBT as well as from the Ministry of Health, the Indian Council for Medical Research, and the broader public health community\. The risk in this area is rated Low\. 39\. Macroeconomic\. India is expected to average 8 percent annual GDP growth in the upcoming years, the fastest growth rate projection among large economies in the world\. According 6 CEPI is a global partnership to stimulate, finance, and coordinate vaccine development against priority threats, particularly when development is unlikely to occur through market incentives alone\. The Secretary of DBT (India) currently chairs the CEPI board\. 15 to the World Bank Group CPS FY13–17, “India’s long-term prospects remain bright owing to favorable demographics, rising average educational attainments, and high savings rates\.” The risk in this area is rated Low\. 40\. Sector strategies and policies\. BIRAC’s vision is to “stimulate, foster, and enhance the strategic research and innovation capabilities of the Indian biotech industry, particularly start-ups and SME’s, for creation of affordable products and addressing the needs of the largest section of society\.” This vision is in line with the GoI’s 12th Five-Year Plan and the country’s overall priorities\. Targeted products to be developed under the project have been identified as addressing public health priorities, as defined by the GoI\. India has established a clear regulatory pathway for most products falling under this project, in line with international practice, and is working toward regulating all product types\. Any risks related to clinical trials will be mitigated through project funding for a GCP-compliant CTN as well as a Clinical Research Validation and Management Framework (CRVMF) to ensure product development follows best practice\. The risk in this area is rated Moderate\. 41\. Technical design of project or program\. R&D in general and collaborative R&D in particular, given the long product development lifecycles in this sector, is inherently risky\. Not all products supported through the project will reach advanced stages by project-end\. However, the project aims to maximize chances of success by focusing on products in more advanced stages of the development life cycle, that is, beyond proof of concept, acknowledging that only a handful of products may be ready for commercialization by project-end\. In the case of biosimilars, the development process is much less risky and lengthy than for patented products\. Selected products address diseases already identified by the GoI as public health priorities and in some cases (including for all vaccines) will enter the public health system\. Finally, while the project supports, in part, the development of specific products, it also supports (through more than 50 percent of the financing) strengthening of the overall ecosystem\. Interventions to set up shared facilities, training programs, and TTOs, among others, will support a much wider pipeline of products and will be sustained beyond the end of the project\. The risk in this area is rated Substantial\. 42\. Institutional capacity for implementation and sustainability\. BIRAC has a good track record of accomplishments, even in the short span of its five-year existence, of successfully completing many donor-funded projects and programs and of managing collaborations\. However, it is the first time that BIRAC is implementing a World Bank Group-funded project\. To mitigate related risks, the PMU will include, among others, a procurement specialist, a financial management specialist, a monitoring and evaluation specialist, and, as needed, safeguards specialists\. The World Bank Group will support the necessary capacity building within the PMU and has already provided procurement-related training\. BIRAC has already put together a PIM, based on its experience drafting scheme documents for similar projects, which will facilitate swift implementation once the project is effective\. The risk in this area is rated Moderate\. 43\. Fiduciary\. The initial procurement risk rating for the project is Substantial and the residual risk after taking proposed mitigation measures is Moderate, given that the level of procurement activity in the project is limited to US$4 million out of a total of US$250 million and that BIRAC, while lacking World Bank procurement experience, has significant experience with consultancy contracts\. The financial management risk for the project is assessed as Moderate\. BIRAC is a professional institution with sound information/accounting systems and technical capacity to 16  account for and report on project expenditures\. The monitoring and audit mechanisms are robust and would provide fiduciary assurance on the use of project funds\. The overall fiduciary risk is Moderate\. 44\. Environment and social\. The project does not trigger any social safeguards and is classified as Category B under OP 4\.01 (Environmental Assessment)\. The potential grantees are high-end scientific research institutions with substantial experience on environmental management\. The risk in this area is rated Low\. 45\. Stakeholders\. The project objective to provide equitable and increased access to affordable vaccines, and life-saving drugs and accelerate local innovation in this sector is consistent with the interests of the GoI, public health priorities, civil society, the private sector, the donor community, and the public in general\. Currently investors, including donors, have a well- coordinated effort to address mitigation strategies for life-threatening diseases, and the project investment will be gaining buy-in from these stakeholders\. The state administration and the central administration have a strong focus on the prevention of communicable diseases and NCDs for all, and the project will gain from the central- and state-level support\. The stakeholder opposition to essential vaccines (vaccine hesitancy) is low in India for infectious diseases and, therefore, public health institutions and civil society engagement in outreach and delivery to the last mile will be forthcoming\. Preparation of the project included substantial consultation with stakeholders\. The risk in this area is rated Low\. 46\. The overall risk is rated Substantial\. VI\. APPRAISAL SUMMARY A\. Economic and Financial 47\. An Economic and Financial Analysis indicates that the development impact benefits of the project are expected to exceed project costs\. While product development success is difficult to predict, the potential impact of the project is assessed using the example of accelerating development of two products identified as priorities under the program—the pneumococcal conjugate vaccine (PCV) and HPV vaccine—by one year\. The resulting economic benefits are primarily due to the expected health gains (disease prevented) from providing solutions to affected populations that did not previously have access to them\. Benefits from accelerating development of the PCV vaccine alone are estimated at US$6 billion in the first year of introduction even assuming a rather conservative 15 percent coverage rate\. The HPV vaccine would yield economic benefits estimated at US$586 million in a year\. Additional cost savings would be realized by substituting new, affordable solutions to existing, more expensive ones; for example, cost savings for the segment of the population that is using the existing PCV vaccine would amount to approximately US$63 million in one year\. 48\. Other benefits are not quantified but include (a) providing solutions that are tailored to local needs, thereby increasing their efficacy relative to existing products, and (b) economic benefits to other LMICs, beyond India, that are suffering from a similar significant and unaddressed burden of disease\. 17 49\. Finally, investments to fill critical gaps in infrastructure, human capital, and technology transfer identified as key gaps in the pilot-to-market ecosystem for biopharmaceuticals and medical technology products will (a) facilitate the development of a pipeline of products beyond the ones selected for investment under Component 2, (b) foster MSME growth and competitiveness of the local biopharmaceutical and medical technology industry, and (c) enhance India’s outsourcing industry to realize its potential of becoming a US$455 million market by 2020\.7 50\. Public sector financing to achieve these benefits is justified, and the World Bank Group involvement offers significant value to the proposed project activities\. Project activities address market failures in the pilot-to-market ecosystem for biopharmaceutical and medical technology products that are associated with underinvestment in the sector, including (a) low perceived private returns (due to inadequate purchasing power of affected populations) and excessive risks associated with R&D (time, attrition rates, costs) that make markets provide less financing for developing medicines for patient populations in LMICs and (b) gaps in infrastructure, human capital, and technology transfer and coordination failures associated with scale-up of innovative solutions\. B\. Technical 51\. The program design was informed by a detailed landscape analysis commissioned by BIRAC to a highly specialized organization and guided by an Expert Advisory Group\. The analysis included an overview of the current biopharmaceutical scenario in terms of critical drivers and available technical and operational resources to understand India’s strengths and current challenges for growth in this sector\. 52\. The assessment of the drivers of growth in the biopharmaceutical industry included the following: (a) The global and Indian biopharmaceutical market, including the current trends in the biosimilars and prospects of the outsourcing market\. A comparison of the Indian and global biopharmaceutical market size and annual growth rates of different product categories was conducted, based on which India’s strengths and potential opportunities to grow in the field were analyzed\. (b) India’s burden of communicable diseases and NCDs and the preventive and therapeutic biopharmaceuticals currently available for these diseases were examined to gain an insight into specific public health needs in India\. (c) An understanding of the product development portfolio of the country was gained by analyzing the products already in the market as well as those being developed by major industries, academia, and MSMEs\. 53\. The landscaping analysis provided an overview of the resources present in the country across the biopharmaceutical value chain, including discovery, validation, and early bio- 7 “Outlook of India Biopharmaceutical Outsourcing Market”, by JZMed Inc\., July 2013\. 18 manufacturing\. These resources were covered under two subcategories—technical and operational resources: (a) Technical resources included the talent, infrastructure, technologies, and patents and publications\. The analysis looked at talent available by focus area both in academic institutions and the private sector\. Analysis of talent covered talent distribution based on skills and focus area across industry and academia and critical talent with national fellowships present in the country\. Analysis of infrastructure and technologies helped in identifying relevant players with current capacity for biopharmaceutical development and also in gaining an understanding of the technologies being developed in the country\. An assessment of patents and publications was conducted, based on which strengths and gaps in biopharmaceutical development across the biopharmaceutical value chain were identified\. (b) Operational resources included the funding landscape across public, private, and philanthropic ventures; global and national collaboration modes and analysis of their success factors; analysis of product development partnerships; and current training modules in India relevant to skills required for biopharmaceutical development\. 54\. Critical analysis, along with advisory group recommendations, led to focusing on the pilot to market segment of the value chain and allowed short-listing of the specific disease areas and types of products to be supported by Component 2 and the types of activities to be supported by Component 1\. The design of the project plays to BIRAC’s strengths as a highly technical grant- making organization and facilitator of government-industry-academia collaboration\. 55\. CRVMF\. The processes of validation and clinical development, especially clinical trials, are likely to have social issues and impacts that are not covered by the World Bank Group’s social safeguards\. These issues include, among others, the process of obtaining informed consent of those participating in clinical trials, potential loss of income, adequate compensation, risk of disability, and adequate follow-up health care\. To ensure these issues are managed adequately by the project, a CRVMF has been developed by BIRAC\. The framework aims to ensure that both clinical trials conducted with funding from Component 2 grants as well as the CTN funded under Component 1 follow adequate clinical and ethical standards and that the oversight mechanisms are in place to monitor that entities receiving funding actually comply with these standards\. The GoI’s Central Drugs Standard Control Organization, among other regulatory agencies, has a robust regulatory framework for product development (including for clinical trials), in accordance with international regulatory regimes and practices\. Furthermore, BIRAC has a track record of successful oversight of clinical research and compliance with national regulations\. Nevertheless, as part of appraisal, the World Bank Group engaged one of the world’s leading bioethical experts to independently review the CRVMF and suggest areas for strengthening to bring it in line with international best practices\. The project will represent an opportunity for India to not only ensure compliance but actually push the frontiers of clinical and ethical standards in biotechnology research\. For example, one of the activities proposed under the CTN is to develop a framework to ensure GPP in pluripotent (multidisease) clinical trial sites\. Thus far the only GPP guidelines available are for sites focused specifically on HIV/AIDS and tuberculosis\. As the main implementing agency for the project, BIRAC will develop a suitable framework for clinical studies compliance by the grantees, which will be a precondition for dispensing the grants and create an oversight mechanism 19 that monitors grantees’ compliance\. BIRAC will retain competent experts to monitor clinical studies and compliance to the CRVMF\. C\. Financial Management 56\. Budget and fund flow\. BIRAC, immediately after the Cabinet Committee on Economic Affairs approval (scheduled in March 2017), will open an identifiable budget head in the ‘Demand for Grants’ of FY16–17 within the DBT (Demand no\. 79) and budget provision will be made to implement project activities of FY17–18\. The yearly budget provision/estimate under this budget head from the subsequent year will be made by the DBT in the month of March (before the beginning of each GoI fiscal year) based on approved annual work plans and procurement plans submitted by BIRAC\. The budget utilization will be monitored by the DBT and any additional demand for budget during the fiscal year will be met through a revised estimate in the month of December\. BIRAC will obtain administrative sanction from the DBT to draw funds from the budget into its bank account\. The payments will be made by BIRAC for the following key activities: (a) disbursement of grants to grantees under Components 1 and 2 according to the terms and conditions stipulated in the Grant Agreement and (b) consultancy and project management expenses under Component 3\. The grantees will be selected through a competitive process and Grant Agreements will be signed between BIRAC and the grantees to govern the use of funds\. The grantees will open a separate bank account for the receipt of grant funds and will maintain books of accounts to account for expenses incurred out of such funds\. At the end of each financial year, the grantees will provide audited utilization certificates to BIRAC\. The technical team of BIRAC will visit the grantees to monitor the use of funds\. Additionally, the Financial Due Diligence (auditors) empaneled with BIRAC will review the books of accounts maintained by grantees and submit a report to BIRAC management\. The PIM will document the operating procedures on use, accounting, and monitoring of grant funds\. 57\. Accounting and financial reporting\. BIRAC maintains books of accounts in a computerized environment\. It has an accounting manual to guide staff on internal control principles\. It has been agreed that a separate ledger account in the accounting system will be opened for the project and a chart of accounts will be configured to classify expenditures based on project components/major activities\. Interim financial reports (IFRs) on use of funds will be submitted to the World Bank through the office of the Controller of Aid Accounts and Audit, GoI, within 45 days from the end of each half year\. The IFR will form the basis of disbursement to the GoI\. The expenditure statements/ledger accounts generated from the accounting system will be used for the preparation of the IFRs\. The amounts released as grants under Components 1 and 2 will trigger reimbursements from the World Bank, and the agreed underlying expenditures as stated in the PIM will be construed as eligible expenditures\. For Component 3, the amounts paid by BIRAC for consultancy and project management costs will be construed as eligible expenditures\. 58\. Staffing\. BIRAC has agreed to depute one existing accounts officer to provide overall financial management oversight for the project\. Accountants will be additionally recruited from the market to provide support on financial management functions\. Adequate provision for staff costs has been made in the project budget\. The finance staff will be provided requisite training on World Bank Group financial management and disbursement procedures\. 20 59\. Audit\. The statutory audit of BIRAC as per the India Companies Act is presently conducted by an external audit firm appointed by the Comptroller and Auditor General of India (CAG)\. A supplementary audit is further conducted by CAG after the audit is completed by the external audit firm\. The audit report, entity financial statements, and forming schedules are exhaustive and provide program-wise financial information on use of funds by BIRAC\. The entity audit report is issued within six months from the end of the fiscal year\. To obtain fiduciary assurance for this project, it has been agreed with BIRAC that entity audit will also cover project transactions and project financial statements will form part of the entity audit report\. The audit of the project will be conducted according to terms of reference agreed with the World Bank Group\. The entity audit report and entity financial statements will be shared with the World Bank Group within nine months from the end of each fiscal year\. D\. Procurement 60\. Project funding will be mostly through competitive grants to private and autonomous public entities\. Therefore, procurement will, for the most part, follow commercial best practices, consistent with the World Bank Group’s procurement core principles\. If the grantees are public sector undertakings, then a one-by-one determination will be made as to the procurement guidelines to be followed depending on the legal status of the institution and in accordance with the World Bank Group procurement regulations, effective since July 1, 2016\. The project will be subject to the World Bank Group’s Anti-corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 1, 2016\. Direct procurement by BIRAC will be limited to a small number of consulting firms, individual consultants, and non-consulting services\. This direct procurement will be governed by the Procurement Regulations, effective from July 1, 2016\. Most, if not all, of the procurement of goods and services will be carried out by the grantees\. 61\. Procurement risk assessment and mitigation\. Direct procurement by BIRAC will be carried out by the Administration Department under the guidance of the legal counsel\. The procurement capacity assessment carried out by the World Bank Group during appraisal concluded that the staff in BIRAC has no prior experience in World Bank Group procurement and, therefore, the PMU will be staffed with an experienced full-time procurement officer\. In addition, the World Bank Group has provided training and support to other BIRAC officials who will be involved in project procurement\. BIRAC officials are planning to undergo training on the World Bank Group’s new Procurement Framework in June 2017\. BIRAC has prepared a Procurement Manual, which has been in use since March 2016\. It includes all procurement processes, decision making, and safe upkeep and management of records\. 62\. Project Procurement Strategy for Development (PPSD)\. According to the requirement of the World Bank Group Procurement Guidelines, BIRAC has prepared a PPSD to inform the Procurement Plan\. BIRAC has prepared a draft Procurement Plan which provides the basis for procurement methods and review by the World Bank\. This Procurement Plan will be disclosed through BIRAC’s and the World Bank’s external websites\. The first Procurement Plan includes all procurement to be taken up during the first 18 months of project implementation and will have to be submitted to the World Bank Group through the Systematic Tracking of Exchanges in Procurement\. It will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity\. The World Bank Group will review the procurement done by BIRAC and those public sector grantees to whom the World Bank 21 Group procurement guidelines are applicable\. Besides confirming that the mitigation measures referred earlier are appropriate, the PPSD concluded that the operational context is considered to be quite good due to the good governing system, sophisticated market, and availability of technical competence as well as research facilities within the country and the strong technical and economic capacity of BIRAC\. Furthermore, the procurement trends for BIRAC in selection of grantees in the past have been quite good due to availability of sufficient numbers of competent institutions in the private as well as the public sector\. BIRAC has so far supported the implementation of 360 projects, supporting 230 companies and fostering 89 collaborations between industry and academia\. E\. Social (including Safeguards) 63\. The project activities will be located in public and private research institutions located in urban areas across India\. Bioclusters, where many of the grantees are likely to be located, include the National Capital Region, Pune, Bengaluru, Hyderabad, and Chennai and the exact locations in such urban areas will be known at the time of grantee selection\. These will be existing centers where project-supported product development or pilot research will be carried out\. These centers are sanitized and protected with restricted and authorized entry\. In view of this, the project does not include any socially sensitive locations or areas/development blocks where Scheduled Tribes/Indigenous People live\. The project components will not involve major civil works/construction activities but could involve renovation of existing buildings and/or establishing support infrastructure for carrying product development, pilot research, and clinical trials within existing buildings and complexes that will not require any land acquisition\. This means, the project will not require acquisition of any private land under the provisions of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, or Government land under any tenure systems, including forestland on which the Scheduled Tribes depend to meet their social, economic, and cultural needs in Scheduled Areas\. In view of this, the World Bank Group’s social safeguards policies on Involuntary Resettlement and Indigenous Peoples are not triggered in this project\. 64\. Gender\. The project will address some important gender disparities in India that are described below: (a) One of the main gender gaps in India is that girls face a much higher risk than boys of dying before the age of five\. Most of the leading causes of death in children under five were between 12 percent and 72 percent higher in girls than in boys and all-cause mortality rate was about 36 percent higher, with pneumonia and diarrheal diseases accounting for about two-thirds of the excess deaths\. Therefore, the addition of vaccines against pneumonia—such as PCV, which will be supported under Component 2—to outreach home-based immunization programs would reduce child deaths and contribute to narrowing the gender gap in child mortality in India\.8 (b) Cervical cancer is the most common type of cancer causing death among women in developing countries\. Mortality due to cervical cancer is also an indicator of health 8 The Million Death Study Collaborators\. 2010\. “Causes of Neonatal and Child Mortality in India: A Nationally Representative Mortality Survey\.” Lancet 376 (9755): 1853–1860\. http://www\.sciencedirect\.com/science/article/pii/S0140673610614614\. 22  inequities as 86 percent of all deaths due to cervical cancer are in LMICs\. Every year in India, 122,844 women are diagnosed with cervical cancer and 67,477 die from the disease\. India has a population of 432\.2 million women, ages 15 years and older, who are at risk of developing cervical cancer\.9 A primary approach to preventing cervical cancer is to vaccinate girls against several strains of HPV that are known to increase the chances of getting cervical cancer\. Under Component 2, the project will support the development of a low-cost HPV vaccine\. (c) There is a slight gender gap in the burden of NCDs in India—51 percent of years lost to disability due to NCDs are from women\.10 The biosimilars to be supported by Component 2 as well as others that will benefit from investments in Component 1 are targeted toward NCDs and therefore will potentially contribute to closing this gap\. (d) Although women are better represented in biotechnology than in other industries in India, in part due to gender-targeted interventions such as a DBT-supported women biotechnology park in Chennai, in 2016–2017, only about 30 percent of the beneficiaries of DBT schemes were women\. The project will contribute to closing this gap by ensuring at least 50 percent of the beneficiaries of Subcomponent 1\.4 are women\. 65\. Citizen engagement and beneficiary feedback/grievance mechanism\. The project benefits from a two-tier citizen engagement mechanism\. The first tier is at the level of BIRAC which has already undertaken stakeholder consultations to facilitate beneficiary feedback in the process of selecting activities and products financed by the project\. In addition to these, a second tier will be at the level of the CTN funded through the project\. As part of the CRVMF, a mechanism for collecting grievances related to clinical trials will be set up, and the project will closely monitor responsiveness to and resolution of these grievances through the indicator included in the Results Framework\. F\. Environment (including Safeguards) 66\. The project activities essentially support medical research through innovations in biotechnology\. Anticipated environmental safeguard issues for these activities, hence, are management of liquid/solid waste (including hazardous waste) generated from the research activities, occupational health and safety issues in handling various research substances, and overall laboratory safety aspects\. These issues are limited to the specific products such as vaccines, biopharmaceuticals, diagnostics, and medical devices that are directly supported by the project\. In case of shared infrastructure facilities and the CTN (Component 1) for validation and reference, the issues will be broad based depending on the support they provide such as biological products (vaccines and biosimilars), medical devices (instruments and diagnostics), and CMC\. 9 Sreedevi, Aswathy, Reshma Javed, and Avani Dinesh\. 2015\. “Epidemiology of Cervical Cancer with Special Focus on India\.” International Journal of Women’s Health 7: 405-14\. 10 WHO (World Health Organization)\. 2016\. Global Health Estimates 2015: Disease burden by Cause, Age, Sex, by Country and by Region, 2000–2015\. Geneva: WHO\. www\.who\.int/healthinfo/global_burden_disease/estimates/en/index2\.html\. 23 67\. To address these environmental safeguard issues, the project has developed an Environmental Management Framework (EMF), which outlines environmental due diligence requirements for the activities to be financed by the project for the development of various products and shared facilities\. The framework was prepared based on a review of environmental management practices in biotechnology research, visits to some of the research centers, and consultations with stakeholders\.11 In addition to complying with the safeguard policies of the World Bank Group, the due diligence envisages compliance with various regulatory requirements of the GoI (on biomedical waste management, hazardous waste management, Water Act, and so on) and also GCP and Good Laboratory Practices\. As the main implementing agency for the project, BIRAC will carry out the environmental due diligence before the approval of grants and regular monitoring during implementation\. An environmental safeguards officer will be designated for this purpose, who, in addition to carrying out the due diligence, will carry out annual visits to the project beneficiaries to assess the status for safeguards compliance\. 68\. Further, appropriate modules on environmental management will be included in the training programs of the project, with an objective to build capacity of the stakeholders in integrating environmental management aspects in biotechnology research\. 69\. Finally, no climate impacts are foreseen under this project\. G\. World Bank Grievance Redress 70\. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS)\. The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns\. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures\. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond\. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www\.worldbank\.org/GRS\. For information on how to submit complaints to the World Bank Inspection Panel, please visit www\.inspectionpanel\.org\. 11 EMF was disclosed both in-country and on the World Bank website on March 9, 2017\. It was redisclosed on April 13, 2017 with updates on institutional arrangements and stakeholder consultations sections\. 24 VII\. RESULTS FRAMEWORK Figure 2: Project Theory of Change   Theory of Change: Innovate in India for Inclusiveness Key immediate  Key contributing  Project  Impact beyond and  Key challenge PDO indicators determinants causes objectives post project Lack of  Limited private capital due  Fill financing gaps in the  Applicability  Lack of novel innovation in biopharmaceutical and  Number of products addressing  of model to  to perceived high risk biopharmaceutical and medical  financing for  devices product development  public health priorities  advanced at least one step on  other sectors Limited investment in  lifecycle and de‐link product  pilot‐to‐market  diseases predominantly  price from R&D cost to address  the product development  Transformed  pathway import costs  stages affecting LMICs public health priorities into export  revenues Investment skewed  Improved  medical devices in India towards pre‐validation and  Technology and  large‐scale manufacturing  Facilitate access to knowledge  health  outcomes  knowledge gaps  stages and technology through  Number of companies using  Increased  and health  training and shared facilities for  in pilot‐to‐market  Absence of a workforce  validation and early stage  new facilities innovation in  cost savings with a broad set of skills  biopharmaceuti stages across the different stages  manufacturing  cal and medical  Increased  of product development  devices in India sources of  financing for  Facilitate collaboration within  and private  Suboptimal  Lack of incentives for  consortia of researchers,  Number of technologies  sector  levels of  industry‐academia  academic institutions, and  licensed for manufacturing or  New source  participation in  collaboration manufacturers around product  commercialization of growth for  product  collaboration development middle  development income  agenda Replication  Number of new intellectual  Low levels of  property registrations or  potential in  Absence of technology  other  commercializa‐ transfer capabilities Establish TTOs prototypes countries tion Number of TTOs established 25 Project Development Objectives PDO Statement The proposed PDO is to facilitate innovation in biopharmaceutical products and medical devices that address public health priorities in India\. These results are at Project Level \. Project Development Objective Indicators Cumulative Target Values End Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 Target Number of products addressing public health priorities advanced at 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 6\.00 6\.00 least one step on the product development pathway a (Number) Number of new IP registrations or product prototypes (Number) 0\.00 0\.00 5\.00 8\.00 11\.00 13\.00 15\.00 15\.00 Number of technologies licensed for manufacturing or 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 2\.00 2\.00 commercialization (Number) Number of TTOs established (Number) 0\.00 0\.00 0\.00 1\.00 3\.00 5\.00 6\.00 6\.00 Number of companies using shared facilities supported by the 0\.00 0\.00 20\.00 30\.00 40\.00 50\.00 60\.00 60\.00 project (Number) Intermediate Results Indicators Cumulative Target Values End Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 YR6 Target Number of product development agreements in place (Number) 0\.00 4\.00 9\.00 9\.00 9\.00 9\.00 9\.00 9\.00 Number of clinical trial sites that are GCP compliant (Number) 0\.00 0\.00 1\.00 3\.00 4\.00 5\.00 5\.00 5\.00 Proportion of grievances responded to and/or resolved within the 0\.00 0\.00 90\.00 90\.00 90\.00 90\.00 90\.00 90\.00 stipulated service standards for response times (Percentage) Number of international publications (Number) 0\.00 0\.00 1\.00 3\.00 6\.00 8\.00 10\.00 10\.00 Number of people trained (Number) 0\.00 0\.00 165\.00 455\.00 895\.00 1,335\.00 1,775\.00 1,775\.00 Number of people trained who are women (Percentage - Subtype: 0\.00 0\.00 50\.00 50\.00 50\.00 50\.00 50\.00 50\.00 Supplemental) 26 Number of registered technology transfer professionals qualified 0\.00 0\.00 0\.00 2\.00 6\.00 10\.00 12\.00 12\.00 (Number) Note: a\. Refer to Figure 1 for a representation of steps in product development\. Indicator Description Project Development Objective Indicators Data Source / Responsibility for Indicator Name Description (indicator definition) Frequency Methodology Data Collection This refers to the products supported through the product development grants under Component 2\. Advanced at Number of products addressing least one step on the product development pathway public health priorities advanced means that the product would have advanced towards Biannually BIRAC PMU at least one step on the product ‘Regulatory Approval and Market Launch’ as per the development pathway steps described in Figure 1\. The end target assumes two out of three vaccines, one out of two biosimilars, and two out of four devices/diagnostics are advanced\. Number of new IP registrations as well as prototypes developed with support from the project as reported by grantees and verified by BIRAC in the case of prototypes not yet registered\. This assumes two Number of new IP registrations prototypes for each candidate vaccine and two for each Biannually BIRAC PMU or product prototypes biosimilar\. It also assumes five to six patents covering the product, methods, and delivery forms for vaccines and biosimilars and covering the design for devices/diagnostics\. New technologies will be developed as an outcome of investments under Component 1 as well as by-products Number of technologies licensed of the specific product development supported by for manufacturing or Component 2\. This will also include technologies Biannually BIRAC PMU commercialization licensed as a result of the work of Technology Transfer Offices (see paragraph 22)\. Assuming technology transfer for one vaccine and for one device/diagnostic 27  (those that will be licensed from the public sector to the private sector)\. This refers to the results of the TTO subcomponent as Number of TTOs established described in paragraph 22\. Assuming one TTO per Biannually BIRAC PMU cluster (six clusters in India)\. This measures the results of the shared facilities Number of companies using subcomponent as described in paragraphs 16–18\. shared facilities supported by Biannually BIRAC PMU Assuming 11 companies are working on vaccines, 20–30 the project on biosimilars, and about 30 on devices/diagnostics\. Intermediate Results Indicators Data Responsibility for Indicator Name Description (indicator definition) Frequency Source/Methodology Data Collection This measures outputs of Component 2 as described in Number of product development paragraphs 23–28\. Based on nine products in total Biannually BIRAC PMU agreements in place targeted by BIRAC\. This measures intermediate outcomes of Clinical Trials Number of clinical trial sites that Network subcomponent as described in paragraph 20\. Biannually BIRAC PMU are GCP compliant BIRAC is targeting five sites to bring under the CTN\. Proportion of grievances responded to and/or resolved Refers to grievance redress mechanisms in the context of Biannually BIRAC PMU within the stipulated service clinical trials and the CRVMF\. standards for response times This measures publications as outputs of Components 1 and 2\. The target assumes each product will eventually result in at least one publication, more likely for vaccines and biosimilars (relating to their safety Number of international assessment, validation model, and so on), but not Biannually BIRAC PMU publications excluding the possibility of publications for devices/diagnostics, as there may always be design innovations, delivery systems for Point of Application uniqueness, and so on\. This measures the number of people trained as a result of activities financed under the subcomponents related to Number of people trained Biannually BIRAC PMU training as well as TTOs\. Training will focus on four areas: 28  1\. Discovery and early development: Two professionals from 10 key institutions engaged in product development and Med-tech innovation will be covered, with 20 cohorts undergoing the intensive exposure over the first two years\. 2\. Clinical development: Three cohorts from 10 institutions will be covered from all entities engaged in the clinical validation pathway that would result in 30 trainers with globally benchmarked competency and having ability to train others over the next three years\. 3\. GMP manufacturing: Ten companies will be gaining exposure to the skills in this arena with 30 persons exposed to pilot and large-scale GMP compliance and management\. 4\. Technology transfer: Training imparted to institutions in overall national TTO system\. Forty individuals will be trained per year\. Number of people trained who The subindicator tracks the proportion of people trained Biannually PMU BIRAC are women who are women\. Number of registered This is an output of the TTO subcomponent as described technology transfer Biannually BIRAC PMU in paragraph 22\. Assumes two RTTPs for each TTO\. professionals qualified 29

APPROVAL

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Domaeat of The World Bank FOR OFmFCIAL USE ONLY Report No\. 6473 PROJECT COMPLETION REPORT LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) November 10, 1986 Education and Manpower Development Division Europe, Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  LFOR OFFICIL USE ONLY THE W ORLD BANK Washington, DC 20433 US A\. Ofr\. Of DvetltfwGftGt l Opeatmwns Ivah t\.m November 10, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report: Lebanon - First Education Project (Loan 877-LE) Attached, for information, is a copy of a report entitled "Project Completion Report: Lebanon - First Education Project (Loan 877- LE)" prepared by the Europe, Mi 1le East and North Africa Regional Office\. Under the modified system for project performance auditing further evaluation of this project by the Operations Evaluation Department has not been made\. Yves Rovani by Ram K\. Chopra Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authoriation\.  FOR OMCIuL USE ONLY LIST OF ABBREVIATIONS PCR Project Completion Report fPU Project Implementation Unit BT Baccalaur6at Technique BTS Brevet de Technicien Superieur IPNET Institut P6dagogique National de l'Enseignement Technique DGETP Direction G6nerale de l'Enseignement Technique et Professionnel CAP Certificat d'Aptitudes Professionnelles FPA Formation Professionnelle Acceleree TS Technicien Superieur This document has a restricted distribution and may be used by recipients onlY in the perfomance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) PROJECT COMPLETION REPORT Table of Contents Page No\. PREFACE BASIC DATA \. i EVALUATION SUMMARY * iv SUMMARY AND CONCLUSIONS ******\. I _, INTRODUCTION \. 3 II\. THE PROJECT \.4\. The Socio-Economic Setting \. \. 4 Educational Issues and Development Strategy \. 4 Formulation of the Project \. \. \. *\. 6 III\. PROJECT IMPLEMENTATION \. *\. 8 Educational Aspects \. 8 Physical Aspects and Procurement \. 9 Bank and Borrower Performance \. 10 Project Costs and Disbursements \. 11 Covenants \. 11 IV\. CONCLUSIONS \. 13 ANNEX Compliance with Loan Conditions\. \. \. \. \. \. \. \. 15  - i - LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) PROJECT COMPLETION REPORT Preface Thig is a Project Completion Report (PCR) for the First Education Project in Lebanon (Loan 877-LE), for which a loan of US$6\.6 million was extended to the Government of Lebanon in January, 1973\. The Project was substantially amended in July 1977\. The Loan closing date was September 30, 1985\. At the request of the Government, the Loan Account was kept open until July 12, 1986, to permit disbursements for contracts signed prior to the closing date\. About US$5\.0 million was disbursed and the undisbursed ba\.lance of about US$1\.6 million was cancelled and the Loan Account closed with effect from July 12, 1986, the date of last disbursement under the Loan\. The PCR is based on a review of the Bank files including appraisal, supervision and progress reports and other available documents as a field mission could not be scheduled due to the current security situation in Lebanon\. In accordance with the revised procedures for project performance auditing, this project completion report was read by the Operations Evaluation Department (OED) but the project was not audited by OED staff\. The draft PCR was sent to the Borrower for comments in July 1986\. No comments have been received\.  - ii - LgBAMNQ FIRST EDUCATION PROJECT ILOAN 377-LEf PROJECT COMPLETION EPORJ BASIC DATA SHEET A\. KEY PROJECT OATA Appraisal Current Estimate Estimate Item (11/29/72) (03/31/86) Total Project ost-Original Project (US$ million) 15\.87 NA Total Project Costs - Amended Project (US$ millions) - 17\.2 Underrun % 12\.8 Loan Amount (US $ million) 6\.6 6\.6 mount Disbursed (US $ million) 6\.6 S\.0 Amount Cancelled (US $ million) - 1\.6 Date Physical Components Completed - Original Project 10/76 NA Date Physical Components Completed - Amended Project 12/78 6/85 Proportion completed by above date (X)100% 1/ Proporttoo of time overrun (%) - 520 Institutional Performance Good Exceptional 1J Civil works 100% completed, TA 74% completed\. and 76% of Loan disbursed for equipment\. B\. OTHER PROJECT DATA Item Original Plan Revisions Actual First Mention in Files - - NA Government Application - - 01/72 Negotiations: Original Project - - 11/72 Amended Project - - 05/77 Board Approval: Original Project - - 12/72 Amended Project - - 07/05/77 Loan Agreement: Original Project - - 01,24/73 Amended Project - - 07/12/77 Effectiveness Date: Original Project 04/24/73 01/28/74 OS/24/74 Amended Project 09/12/77 - 09/12/77 Closing Date: Original Project 03/31/78 - Amended Project 06/30/79 1/ 09/30/85 Borrower Republic of Lebanon Executing Agency Ministry of Education Fiscal Year of Borrower January 1 to December 31 Follow-on Project None 1T the closing date of the amended project was extended six times due to hostilities in the country (from 06/30/79 to 12/31/79\. to 06/30/80\. to 12/31/81\. to 12/31/82\. to 06i29/84 and finally to 09/30/85)\.  - iii - C\. MISSION DAT Type of Sent Monthly No\. of Mission 1/ Staff Date of mission By Year Wee;\.s Composition Weeks Report 1\. ORIGINAL PROJECT Reconnaissance UNESCO 05/71 1 221 2\.1 Identification Bdank 09/71 21 21 21 Z/ Preparation UNESCO 11/71 21 1/ 2/ 2/ Appraisal Bank 02/72 21 a,b\.d\.e 2/ / Supervision I Bank 08/73 21 2/ 2/ 10/09/73 Supervision II Bank 03/74 21 21 2/ 04/01/74 Supervision III Bank 10/74 1 2/ 0\.8 10/12/74 Supervision IV Bank 03/75 3 21 1\.1 05/05/75 1\. AMENDED PROJECT Supervision I Bank 08/77 1\.0 b 1\.0 09/12/77 Supervision II Bank 10/77 0\.6 d 0\.6 11/29/77 Supervision III Bank 02/80 0\.8 b 0\.8 03/19/80 Supervision IV Bank 11/80 0\.9 c 0\.9 12/29/80 Supervision V Bank 12/81 1\.1 b, c 1\.1 01/29/82 Supervision VI Bank 11/82 1\.0 b, c 1\.0 12/20/82 Supervision VII 'jank 02/83 0\.6 b\. c 0\.6 03/15/83 Supervision VIII Bank 07/83 0\.8 c, d o\.e 07/18/83 Total (Amended Project) 6\.8 6\.8 1 &a-architect; b-technical educator; c-vocational educator; d-general educator; e-economist 2] Data not currently available 0\. CUMULATIVE ESTIMATED AND tPTUAL DISBURSEMENTS (US $ million) LYZ8 FY79 ETFl EY1 ETh1 EfY8 FYH4 EY8 EY8 Original Estimate 0\.0 6\.6 6\.6 6\.6 6\.6 6\.6 6\.6 6\.6 6\.6 Actual 0\.0 0\.0 0\.0 0\.0 0\.9 2\.8 3\.8 4\.0 5\.0 Actual as % of Estimate 0\.0 0\.0 0\.0 0\.0 13\.6 42\.4 57\.6 60\.6 75\.8 E\. COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Lebanese Pound (LL) Appraisal Year Average US$1=LL 3\.11 Intervening Years Average US$t=LL 4\.73 Completion Year Average US$1=LL17\.95  - iv - PROJECT COMPLETION REPORT LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) EVALUATION SUMMARY Introduction This project was prepared by the Government with Unesco assistance and appraised in\. February 1972\. A loan of US$6\.6 million became effective on May 24, 1974\. Later developments in the country made a complete project reformulation necessary\. This amended project was approved by the Board in July 1977 and the restructured loan became effective in September 1977\. Because of an adverse political development affecting an already tight implementation plan, a series of Closing Date extensions became necessary\. Actual Closing Date was September 30, 1985\. The loan account was closed on July 12, 1986 after an amount of about US$5\.0 million had been disbursed: the undisbursed balance of US$1,586,347\.91 was cancelled as of that date\. Objectives and Project Content The project was orginally intended to be the first phase of the Government's program to provide equal educational opportunities through upgrading and nationalization of Lebanon's education system\. Specifically, it provided for the construction and equipping of 39 primary and 24 lower secondary schools and of 3 primary teacher training institutes and of facili- ties improvement and equipment for one lower secondary teacher training institute\. This physical investment was to be complemented by a technical assistance component (para\. 1\.01)\. Implementation Experience After Board approval in December 1972, effectiveness was delayed until May 1974 because of difficulties in assembling the PIU team\. Subse- quent initial project implementation, however, proceeded well, with construc- tion bids for all schools received by mid-1975\. By that time, however, the worsening security situation made the realization of a building program dis- persed throughout the country an unattainable goal\. In late 1975, project activities were suspended with no disbursements made (para\. 1\.02)\. The 1975/76 hostilities had led to extensive damage to and looting of, vocational and technical schools in the country's cities\. Because of the anticipated urgent demand for skilled manpower to cope with Lebanon's recon- struction needs, the Government requested that the loan amount be used to repair and re-equip three technical/vocational schools (located in Dekwaneh, Tripoli and Zahle)\. The amended project was approved in July 1977 and the loan became effective in September 1977 (para\. 1\.03)\. Complementary to this physical investment was a UNDP-financed technical assistance project for, inter alia program/curriculum development and instructor training (paras\. 2\.13, 3\.04-3\.06)\.  -v - The recurring outbreaks of hostilities during implementation caused repeated delays and interruptions, but the PIU persisted in its work with admirable dedication (para\. 3\.12)\. The Bank, on the other hand, showed understanding for the extraordinary difficulties the PIU was facing and permitted a total of six Closing Date extensions (para\. 1\.04)\. In viewing these extensions, it should be realized that the initial implementation estimate of less than two years would have been optimistic even unier more favorable circumstances\. These remarks, however, should not detract from the achievement of completing this project successfully\. Results Civil works (reconstruction of the Tripoli school which had sus- tained severe damages, and repairs to the other two schools) were completed by early 1980\. The workshops had special security features (strong steel grilles for the windows and reinforced doors) to make a repetition of the 1975/76 looting more difficult (para\. 3\.07)\. The first batch of equipment was purchased in 1982 and installed with the assistance of the experts pro- vided under the UNDP project who then proceeded with staff training at the three schools (para\. 3\.08)\. Procurement of the second batch of remaining equipment items was planned for 1982 but had to be postponed to 1984 due to a worsening of security\. However, the equipment was purchased, received and installed in 1985 by the UNDP-trained school staff\. By mid-year, the project was essentially completed (para\. 3\.09)\. Sustainability In a merely technical sense, the sustainability of the project does not seem to present major problems, provided that adequate recurrent funds are available\. However, in this case, the volatile political situation overshadows every other aspect of project sustainability\. Findings and Lessons Because of the uniqueness of this project experience, there are no findings that would have direct relevance for the implementation of projects elsewhere\. It can only be hoped that the project and its staff will remain intact to serve Lebanon once peace returns to the country, and provide a basis for the reconstruction efforts in the education sector that will be needed\.  PROJECT COMPLETION REPORT LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) Summary and Conclusions Summary 1\. The First Education Project, approved in January 1973, was intended to be the first phase of the Government's plan aimed at providing equal education opportunities to all population groups through upgrading and nationalization of the education system\. The project included provisions to build and equip 66 schools\. Due to delays construction had not started by late 1975 and proj'ct implementation was postponed due to the commencement of hostilities\. No disbursements were made from the Loan\. 2\. In 1977, the Government requested that it be allowed to use the entire loan amount (US$6\.6 million) to replace equipment which had been looted from three technical/vocational schools (at Dekwaneh, Tripoli and Zahle)\. The Bank agreed to the Government's request and the First Education Project (amended) became effective on September 13, 1977, with an estimated implementation period of 15 months\. 3\. The amended project immediately encountered delays\. The three project schools had been damaged during the hostilities of the 1975/76 period and when repairs commenced it was discovrered that the Tripoli school was beeyond repair and had to be entirely rebuilt\. Repairs and rebuilding were completed by 1980\. 4\. A teclnical assistance componeint, funded by UNDP, commenced in October 1980, with an estimated duration of 24 months\. Additional disruptions due to hostilities resulted in the technical assistance component taking 34 months to complete\. However, much was accomplished\. New programs and curriculum material (French and Arabic) were prepared for vocational and technical education, as well as for instructor training\. Equipment lists and bidding documents were finalized\. A computerized management system was designed and installed irn the DGETP\. 5\. International Competitive Bidding (ICB) for equipment commenced in late 1980 but sv-ifered frequent disruptions and delays due to hostilities with the result that the final contracts were not awarded until July 1984\. The final shipment of equipment was received in mid-1985\. All equipment procured under the project has been installed in the three project schools\. Conclusion 6\. The project was substantially completed in 1985 due largely to the strength and tenacity of the DGETP staff, whose enthusiasm and commitment to the project was maintained despite experiencing prolonged and extreme difficulties in project implementation\. It is important to note that the  - 2 - education and training needs which the First and proposed Second Education Project, and the proposed Second Reconstruction Project would have met still remain\. They are even more pronounced today than before the war\. 7\. The DGETP has amply demonstrated its capability for implementation of large-scale technical/vocational education projects when political stability returns to Lebanon and Bank lending resumes\.  - 3 - LEBANON FIRST EDUCATION PROJECT (LOAN 877-LE) PROJECT COMPLETION REPORT I\. INTRODUCTION 1\.01 The First Education Project, for which a Bank Loan of US$6\.6 million was approved in January 1973, was intended to be the first phase of the Government's plan aimed at providing equal education opportunities to all population groups through upgrading and nationalization of the public education system in Lebanon\. Specifically, the project, as appraised in February 1972, included provisions for new construction, equipment and furniture for 39 primary schools, 24 lower secondary schools and 3 primary teacher training institutes as well as facilities improvement, equipment and furniture for one lower secondary teacher training institute\. A technical assistance component was also included\. 1\.02 Due to delays in appointing staff to the project implementation unit, the loan did not become effective until May 1974\. Considerable progress was made in the subsequent 15 months to August 1975, when construction bids had been obtained for all primary and secondary schools and negotiations were proceeding with the lowest bidder\. However, construction did not start due to the worsening war situation at that time\. Project activities were suspended in late 1975 and no disbursements were made\. 1\.03 During the l'75/76 phase of hostilities, vocational and technical schools, particularly in large cities, were looted and damaged\. As a result, the Government of Lebanon requested that it be allowed to use the entire US$6\.6 million of the Loan to re-equip three technical/vocational schools (at Dekwaneh, Tripoli and Zahle)\. This was to allow Lebanon to prepare skilled manpower most urgently needed for reconstruction in the shortest possible time\. Negotiations took place in Washington, D\.C\. in May 1977\. The Government's request was approved by the Bank in July 1977 and the First Education Project (anmended) became effective on September 12, 1977\. 1\.04 The continuing hostilities during the implementation period of the amended project caused delays in procurement and delivery of project equipment\. As a result, the closing date of June 30, 1979 was extended six times\. The actual closing date was September 30, 1985\.  - 4 - II\. THE PROJECT The Socio-Economic Setting 2\.01 The protracted warfare in Lebanon since 1975 has had a devastating impact on economic and social development\. It has left deep scars on the population\. Casualties have been very high\. An unknown number of people left the country, including skilled workers and technicians, and the number that will return is currently unpredictable\. There have also been massive internal migrations, resulting in the withering of some economic centers and the creation of a number of squatter settlements\. The efficiency of public institutions has beer, seriously impaired by the loss of talented personnel and the disruption of activities over an extended period of time\. 2\.02 The physical damage wrought by host}lities has also been very extensive\. A number of cities, including Beirut, Sidon, Tyre and Tripoli, and many towns and villages throughout the country have been seriously affected\. Destruction has been considerable in all sectors, but especially in housing, education, health, industry and public services\. The country's production capacity was significantly reduced, and some of it totally destroyed\. 2\.03 No precise and reliable estimate of total damage to physical assets sustained by Lebanon over the past ten years is available\. A Bank reconstruction assessment mission visited Lebanon in November 1982 to assess data available on war damage and to advise the Government on formulation of a reconstruction program\. The mission prepared a Reconstruction Assessment Report 1I which stated that the Government's estimate of a reconstruction cost of about LL70 billion (in 1982 prices) was reasonable\. The report, which was discussed with the Government in February 1983, also described a reconstruction program for the period 1983-85, which would have required a minimum of LL26 billion (close to US$6\.5 billion at 1982 rates)\. However, the Government was unable to mobilize the required resources for the proposed 1983-85 reconstruction program and implement it because of renewed outbreaks of hostilities\. Educational Issues and Development Strategy 2\.04 Starting from a small base in the 1960's, the Lebanese education system expanded rapidly during the decade before the civil war and was quantitatively well developed when hostilities commenced in 1975\. There was almost universal primary education and the majority of the 11-17 age group were enrolled in secondary education\. The country relied heavily on private schools, which accounted for some 62% of all enrollments, including that of the universities\. Many private schools were of good quality but tuition costs were generally beyond the reach of the less affluent sections of the community\. The quality of the public schools was often less than desirable due to frequent use of unsuitable rental premises and a large proportion of unqualified teachers\. 1/ World Bank Report No\. 4434, Lebanon-Reconstruction Assessment Report, March 25, 1983\. a  -5- 2\.05 Only about 122 of secondary level students followed any form of technical (including commercial) or vocational training programs and about 80% of these were enrolled in technical programs of varying duration in private institutions, of which less than half led to an official diploma\. Examination statistics do not distinguish between private and public candidates in passing levels and little is known about the quality of private technical education programs\. 2\.06 Higher education is characterized by a proliferation of institutions cocering for some 79,000 students, of which about 44,000 were Lebanese in 1981/82\. The public University of Lebanon (29,000 students, of which 27,000 were Lebanese) has a number of constituent colleges established under wartime conditions with denominational affiliations, and pressures exist for further proliferation and expansion\. There is a high proportion of students over 22 years of age enrolled in the universities--about 65% in the Universitv of Lebanon in 1979/80\. This situation is a result of late age of entry, high repetition rates, unemployment and interruptions in schooling since the beginning of civil strife in 1975\. 2\.07 Education opportunities vary considerably between rural and urban areas and among socio-economic groups\. There was a growing realization by the Dre-war Government that the public sector must assume a larger responsibility for education and training\. In order to begin the reform of the education system the Ministry of Education (MOE) decided to focus in the 1970's on reforming and rationalizing primary and secondary education and to increasingly assume a larger share of education from the private sector at these levels\. As an initial step, the MOE adopted a program in 1973/74 to ccnstruct a network of primary and lower secondary schools in accordance with a 1972 "plan de regroupement\." A first phase of 63 schools for the new school network was originally included in the First Education Project (para\. 1\.01)\. A second phase, of 120 schools, was included in a proposed Bank-assisted Seccnd Education Project which was appraired in 1975\. The Loan for the latter project was not made because of the outbreak of hostilities\. 2\.08 A Second Reconstruction Project was identified by the Bank Reconstruction Assessment mission which visited Lebanon in November 1982\. The project was appraised in February 1983 and included an education component intended to provide for the repair, rehabilitation and re-equipping of 85 prinary and lower secondary schools and for the development and expansion of the vocational training system to prepare skilled manpower for reconstruction\. New outbreaks in hostilities, however, prevented any further processing of the proposed project\. 2\.09 The Government's development priorities for the education and training sector, which will be re-addressed with the return of political stability, include: (a) establishment of a project planning and coordinating unit in MOE; (b) reparation and rehabilitation of primary and secondary schools; (c) rehabilitation and expansion of the technical/vocational training system to meet critical skilled manpower needs for reconstruction;  - 6 - (d) implementation of the 1972 "plan de regroupement" based on a new school mapping study; (e) in-service teacher training programs; (f) institution building for MOE, and (g) reform of the higher education system\. Formulation of the Project 2\.10 The project was identified by a UNESCO mission which visited Lebanon in May 1971 to identify education projects suitable for Bank financing\. The recommendations of the UNESCO mission were reviewed with the Government by a Bank education mission in September 1971 and agreement was reached on the project items that would be submitted by the Government for Bank financing\. The project was appraised in February 1972 and included provisions for the establishment of 63 new primary and lower secondary schools, and three primary teacher training institutes, and upgrading of one existing lower secondary teacher training institute (para\. 1\.01)\. 2\.11 Delays were experienced during the start-up phase of the project with the result that, at the outbreak of hostilities in 1975, no disbursements had been made and project activities were suspended (para\. 1\.02)\. During the 1975/76 period of hostilities the MOE's techriical/vocational schools at Dekwaneh, Tripoli and Zahle were looted and consequently, the Government requested that 1973 Loan Agreement be amended to apply the proceeds of the Loan to re-equip the three schools\. The Government's request fag approved by the Bank in July 1977 and became effective on September 12, 1977\. 2\.12 Preliminary equipment lists for the Dekwaneh, Tripoli and Zahle schools were prepared by the MOE's Direction G6n4rale de l'Enseignement Technique et Professionnel (DGETP) in 1978 with assistance from UNESCO/ILO\. 2\.13 In early 1980, the Government reached agreement with UNDP on a technical assistance project "Relaunching and Development of Technical Education and Vocational Training" (LEB/77/002)\. The long term objective of the project was to strengthen the DGETP and to assist it in the implementation of its six-year (1975-81) development plan\. The project's immediate objectives included: (a) assisting DGETP to resume operations following the disruptipns and damage suffered during earlier hostilities; (b) installation and commissioning of equipment procured under World Bank Loan 877-LE (Education I) and related staff training; (c) upgrading of vocational training programs including related instructor training; (d) coordination of public and private sector trsining programs; (e) upgrading of curricula in line with the new equipment procured under World Bank Loan 877-LE;  (f) coordination of institutional arrangements between MOE and the Ministry of Labor for vocational training programs; and (g) establishment of a management information system for the DGETP\. The UNDP project document was signed in February 1980 and the project was implemented by UNESCO, in association with the ILO, during the period October 1980 to July 1983\. The UNDP contribution amounted to US$1,611,844\.  - 8 - III\. PROJECT IMPLEMENTATION 3\.01 The estimated implementation period of 15 months for the project forseen when the project was substaptially amended in mid-1977 proved to be unrealistic, particularly in view of the fact that the technical school at Tripoli could not be repaired and had to be entirely rebuilt\. Furthermore, the technical assistance component estimated at 24-month duration did not commence until October 1980, and due to disruptions resulting from hostilities, actually took 34 months to complete\. In addition, the project experienced delays directly resulting from hostitities as well as bureaucratic delays arising indirectly from hostilities\. Therefore, the actual period of project implementation was about 84 months rather than the 15 months originally estimated\. Educational Aspects 3\.02 The amended project supported an important initiative by the Government to commence the modernization and restructuring of the technical education and vocational training system\. The programs and methodologies of the DGETP dated back to the early 1960's, had limited practical training content and were badly in need of modernization\. 3\.03 When it became obvious, after the events of 1975/76, that a major effort would be required to replace looted equipment in the technical/vocational institutes, the MOE decided that the timing was appropriate to initiate major reforms being contemplated for the system\. Consequently, the Government arranged for a UNDP-funded technical assistance project which included provisions for upgrading programs and curricula, including instructor training programs, to complement the new equipment to be received under the Bank-funded project 877-LE (para\. 2\.13)\. The UNDP project was to be the first phase of technical assistance for the reform and modernization of the technical/vocational training system\. A second phase of technical assistance was included in the Bank's proposed Second Reconstruction Project which was not implemented due to hostilities (para\. 2\.08)\. 3\.04 The UNDP-funded technical assistance project accomplished the following in the area of curriculum development: (a) For the new accelerated vocational training program (formatiors professionnelle acceleree - FPA) - 1 to 2 years duration: modular instructional materials packages were prepared for twelve trades - electrical installation, industrial electricity, welding, farmwork, reinforced iron work, painting, structural metal work, auto body repair, carpentry, central heating, plumbing, and tiling\. (b) For the new Baccalaureat Technique (BT) program - a k\.,ree-years post preparatory program: modular instructional mater\.als packages were prepared for seventeen specializations - machine shop, printing, building construction, civil works, commerce, hotel management, hotel operations, electricity, e:lectronics, automotive, telecommunications, industrial chemistry, air conditioning, computer science, structural metal work and foundry\.  (c) For the new Technicien Superieur diploma (TS) - a two-year post- secondary program: modular instructional materials packages were prepared (in French and Arabic) for two specializations: electronics and business management\. Each of the above packages were prepared in French and Arabic editions and include well illustrated, written instructional materials in modular format for trainees, and instructor's guide with performance tests, and lists of required equipment and consuiable materials for course implementation\. 3\.05 In addition to the above, the tecb'ical assistance project prepared: (a) training materials to train vocational and technical instructors in the new training principles and methodologies (i\.e\. the implementation of a performance-based, modularized curriculum); (b) orientation materials to orient school principals and staff to the new training system; (c) a plan for the introduction of the new technical/vocational training system in all public technical and vocational schools together with a plan for system evaluation; and (d) a plan for the reorganization and expansion of the DGETP which will be implemented when conditions permit\. 3M06 The technical assistance project also assisted the DGETl in establishing a computerized management information system and a computer center\. A computer, procured through ICB in December 1980, was installe! at DGETP in January 1981\. In mid-1984, the computer system was expanided from six to fourteen terminals\. The computerized system is used for processing of staff and student data including examinations, management of equipment and consumable supplies, knd will be used in the future for conducting follow-up studies of DGETP graduates\. The computer center provides courses in computer programming and data processing for students in the BT and TS programs\. The system has greatly enhanced the operational efficiency of the Directorate\. Processing of annual examination data for DGETP students, which formerly took DGETP administration staff three weeks to complete, is now completed in three days\. The technical assistance project was substantially completed in July 1983\. Physicial Aspects and Procurement 3\.07 During the 1975/76 phase of hostilities, the school buildings at Dekwaneh and Zahle were damaged and looted\. The Tripoli technical school was destroyed\. During the period 1977-80, the buildings at Dekwaneh and Zahle were repaired and the technical school at Tripoli was entirely rebuilt\. The workshops in repaired and rebuilt buildings had special protection added to prevent looting: all possible access to the workshops, such as windows, were equipped with strong iron grids and all doors were protected with heavy, plate-iron internal coverings\. All three schools were ready to receive equipment by early 1980\. ?A  - 10 - 3\.08 Preliminary equipment lists and bidding documents were approved by the Bank in early 1980\. Detailed technical specifications were added to the preliminary lists with the assistance of the ILO and UNESCO experts under the UNDP-funded technical assistance project (para\. 2\.13) and the first international competitive bidding (ICB) for four packages of equipment for the Dekwaneh, Tripoli and Zahle schools was conducted in late 1980\. By September 1981 contracts amounting to about US$2\.8 million had been awarded for all four packages representing about 40% of the equipment to be procured under the Bank Loan\. This equipment was received by mid-1982 and installed in the three schools under the supervision of the ILO/UNESCO experts\. At this time, the ILO/UNESCO experts conducted training programs for technical staff at all three schools in workshop and laboratory layout, and in installation and commissioning of equipment so that local staff would have the experience and expertise required for the installation and commissioning of the remainder of the equipment to be procured under the Bank loan\. 3\.09 The second ICB for the remaining equipment was scheduled for May 1982 but was aborted due to severe hostilities at that time and was eventually conducted in early 1983\. Award of contracts was again delayed by hostilities and the final contracts were not awarded until July 1984, by which time some of the bidders had exercised their rights to withdraw bids due to expiration of the bid validity period\. By the end of July 1984, contracts amounting to about US$1\.2 million had been awarded under the second ICB\. This equipment was all received by mid-1985 and installed in project schools by DGETP technical staff who were trained by the ILO/UNESCO experts (para\. 3\.08)\. 3\.10 In addition to the Government, Bank and UNDP inputs described above, bilateral donors contributed significantly to the overall project objectives\. During the period 1978-1982, the Government of France provided 360 months of expert services and 48 months of fellowships, as well as equipment, (total estimate: US$3\.0 million) for the DGETP's Institut Pedagogique National de l'Ensignement Technique (IPNET)\. During the same period USAID provided equipment and staff training for IPNET estimated at US$1\.5 million\. The Federal Republic of Germany provided support estimated at US$1\.5 million for the establishment of a technician training institute for marine sciences at Batroun and the Government of Great Britain provided equipment and technical assistance, estimated at US$1\.0 million, for the technician program in aviation mechanics at the Dekwaneh school\. The total amount of bilateral assistance provided is estimated at US$7\.0 million\. Bank and Borrower Performance 3\.11 The Bank fielded supervision missions whenever it was possible to do so\. Technical advice provided the by supervision and appraisal missions to the DGFTP enhanced its capacity for project formulation and implementation\. The last supervision mission was in July 1983\. During periods when Bank supervision missions could not be fielded for security reasons, Bank staff monitored project progress through telephone and telex communications with the DGETP\. It was not possible to field a Bank completion mission due to the current security situation in the country\. 3\.12 Given that this was the first experience with a Bank-assisted education project, and that the project was implemented during a most adverse period in Lebanese history, the performance of the MOE'S DGETP staff was exceptional\. The project was completed due largely to the strength and  - 11\. - tenacity of the DGETP staff, whose enthusiasm and commitment to the project never lagged despite frequent disruptions as well as prolong,d and extreme difficulties during project implementation\. The director of the DGETP was killed during hostilities in September 1982, and the project was subsequently completed by his deputy and staff\. Successive Bank missions through July 1983 commented favorably on the competence and enthusiasm of the DGETP staff\. Project Costs and Disbursements 3\.13 Accurate data on total project costs is not currently available\. No appraisal report was prepared for the amended project and the agreement of July 12, 1977 amending the original loan agreement of January 24, 1973, does not incude detailed cost estimates\. However, a Bank mission in early 1977 estimated the essential equipment needs for the three project schools at approximately US$6\.6 million and the cost of repairing the three schools was estimated at US$1\.5 million\. The Government agreet\. to carry out the necessa\.:y repairs to the three schools (para\. 3\.07) and to arrange a technical assistance project with Unesco (para\. 2\.13)\. Total project costs have been estimated as follows: Item US$ million Civil Works (para\. 3\.07) 2\.5 Equipment 6\.1 Technical Assistance (UNDP) 1\.6 Bilateral Assistance (para, 3\.10) 7\.0 Total: 17\.2 3\.14 Estimated and actual disbursements are shown under Key Project Data (p\.iv,D)\. Disbursements lagged considerably behind original estimates because of frequent disruptions and delays in project implementation and also because of suspension of administrative activities during periods of armed conflicts\. No disbursements were made during the first four years\. Payment to suppliers was made from local funds and applications for reimbursement were then prepared and forwarded to the Bank\. Local processing of the applications for disbursement was considerably delayed due to complicated bureaucratic procedures compounded by hostilities\. At the request of the Government, the Loan Account was kept open until July 12, 1986, to permit disbursements for contracts signed prior to the closing date\. About US$5\.0 million was disbursed and the undisbursed balance of about US$1\.6 million was cancelled and the Loan Account closed with effect from July 12, 1986, the date of last disbursement under the Loan\. Covenants 3\.15 Seven of the eight covenants (Annex) are considered to have been met\. However, the covenant requiring the Borrower to ensure that about two-thirds of the capacity of the technical/vocational schools at Dekwaneh, Tripoli and Zahle be utilized for vocational training programs has not been fully met\. It is estimated that current enrollment is about 152 in vocational and about 85% in technical education programs\. This matter was discussed in detail with the DGETP authorities during the November 1982 project supervision mission\. The DGETP authorities explained to the mission that there was a  - 12 - strong demand for places in the tecianical education program (for example, during the 1982/83 school year there were 30,000 applicants for the 9,000 available places) and technical students were employed immediately after graduation from the program\. The solution proposed by the DGETP was to establish new vocational training centers in the major cities in order to expand enrollment\. Therefore, two new vocational training centers (at Dekwaneh and Bir Hassan) were included in the proposed Second Reconstruction Project which was appraised by a Bank multi-sectoral mission in February 1983\. However, this proposed project did not materialize (para\. 2\.08)\.  - 13 - Iv\. CONCLUSIONS 4\.01 The First Education Project, for which the Bank Loan of US$6\.6 million was approved in January 1973, was intended to be the first phase of a Government program aimed at providing equal education opportunities to all population groups through upgrading and nationalization of the education system in Lebanon\. At the request of the Government, the Bank agreed in 1977 to the utilization of the entire loan amount for the replacement of looted equipment in three technical vocational schools, so that skilled manpower required for reconstruction could be quickly prepared\. The re-equipping of the three schools has been successfully completed and, in addition, new technical/vocational programs and curricula have been prepared which will be implemented in all public technical/vocational schools in Lebanon\. However, the Government's plan for the provision of equal education opportunities to all population groups has not been addressed and this need has intensified as a result of events in Lebanon during the past decade\. 4\.02 The DGETP has amply demonstrated its capability for implementation of large scale technical/vocational education projects-a capability which will be badly needed-when political stability returns to Lebanon and Bank lending to the country resumes\.  ' XN~ It  - 15 - ANW\.X FIRST EDUCATION PROJECT (OAN 877-U) FRCr NiETzN RHUM Status of Cm1ia e Coditicms Source Not of Ccnplied Action Clditions Description of Covnant Cbvenant With PeMning Met Discussion Qualified and experiersed 3\.03 specialists to be employed\. X Obligation to repair facilities 3\.04 X Training at D1aaieh of teaclr- 4\.05(a) X COurses started in October 1979\. ers and Instructors for TEVT to be resuTed before July 1, 1978\. Appointnent of qualified teach- 4\.05(b) X ers ant instructors to inple- met the IEVT rrogran\. Coordination betwen Ministry 4\.06(a) X Coordination betwen the Ministries of of Educat ion and Ministry of Education and labor is effected throuah labor for TEVT\. a training committee\. IEVT curricula and programs to 4\.06(b) X IE and VT programs and curricula were be submitted to TRRD before prepared under IA camxwnt and reviewd Dbeeber 31, 1978 (extended by Nbvember 1982 supervision mission and from Septwber I5, 1977)\. are satisfactory\. Preparation of a conprehensive 4\.07 X UNE900 Sector Report (1978) was accepted long-term plan to cover edtua- by Bank in 1980 as complying with this tion needs\. covenant\. 2/3 of total capacity of An estimated 159 capacity of project project to be used for voca- institutions is currently used for V\.T\. tional training\. 4\.06(c) X The IDIP intends to expand V\.T\. by establishing new VT centers as soon as conditions pevmit\.

APPROVAL

P007421

Dowasut Of The World Ban FOR OFFICIAL USE ONLY Report No\. 6637 PROJECT COMPLETION REPORT JAMAICA JAMAICA PUBLIC SERVICE COMPANY LIMITED (JPS) SECOND POWER PROJECT (LOAN 1516-JM) February 17, 1987 Latin America and the Caribbean Regional Office This document has a restricted distribition and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  FOR OFFICILU USE ONLY THE WORLD BANK Washington D C 204 13 USA Ope#a ot olfenstir-Gv February 17, 1987 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - Jamaica Public Service Company Limited (JPS) Second Power Project (Loan 1516-JM) Attached, for information, is a copy of a report entitled "Project Completion Report - Jamaica Public Service Company Limited (JPS) Second Power Project (Loan 1516-JM)", prepared by the Latin America and the Caribbean Regional Office\. Under the modified system for project performance auditing, Lurther evaluation of this project by the Operations Evaluation Department has not been made\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties\. Its contents may not otherwise be disclosed without World Bank authonzation\.  COUNTRY EXCHANGE RATES Name of Currexcy - Jamaican dollar (J$) Exchange Rate At Appraisal - US$1\.OOtJ$1\.25 Intervening-year Average - US$1\.OOJ$2\.28 Completion Date - US$1\.OOtJ$3\.30 b1  JAMAICA PROJECT COMPLETION REPORT JAMAICA PUBLIC SERVICE COMPANY LIMITED (JPS) SECOND POWR PROJECT (LOAN 1516-JM) TABLE OF CONTENTS Page No\. Prefae KRU \. \. 1 Basic Data Sheet \.(i-v Highlights \. (v) I\. BACKGROUND \. 1 1\.1 Bank Participation in Sector Financing \. \. 1 1\.2 Energy Sector Organization \.1\. 1 1\.3 JPS Organization \. \. 0*0*0000\. 2 II\. PROJECT PREPARATITH AFii A11PRAISAL \. 3 2\.1 Origin of the Project * \. 3 2\.2 Project Identification and Preparation \. 3 2\.3 Project Appraisal, Definition, and Justification \. 4 2\.4 Negotiations, Loan Approval, and Effectiveness \. \. 6 2\.5 Major Covenants of the Loan and Guarantee Agreements 6 III\. PROJECT COST AND IMPLEMENTATION \.7\. 7 3\.1 Actual and Forecast Data \. 7 3\.2 Project Cost, Changes, and Timetable \. 7 3\.3 Performance of Contractors and Consultants \. 8 3\.4 Training \. \. 9 3\.5 Cumulative Disbursement and Allocation of Loan Proceeds 9 3\.6 OPEC Loan £*9O@**4O********#*@*O**44O\. 9 3\.7 JPS Management Evolution, 1978-1983 \. 10 IV\. PROJECT JUSTIFICATION \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 11 4\.1 Actual and Forecast Data \. 11 4\.2 Least-cost Solution and Expeeted Sales Growth \. 11 4\.3 Rate of Return \. 11 V\. FINANCIAL PERFORMANCE \. \. \. \. \. \. \. \. \. \. \. \. \. 13 5\.1 Actual and Forecast Financial Data, 1977-1983 \. 13 5\.2 Actual and Forecast Operating Results, 1977-1983 \. 13 5\.3 Compliance with Financial Covenants, 1977-1983 \. 14 VI\. INSTITUTIONAL PERYCEMANCE \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 6\.1 The Borrower \. *\. 16 6\.2 The Government \. 17 6\.3 The Bank \. 17  VII\. LESSONS TO BE LEARNED \.,,\. \. 18 7\.1 A Successful Project *\.e,\. 18 7\.2 Communications with Co-lenders \.e\.,\. 18 7\.3 The Importance of Flexibility \. 18 ANNEXES Annex 1\.1 Summary of Bank Lending to JPS\. 19 Annex 2\.1 Major Covenants of the Loan and Guarantee AgreSm-nts \. \.20 Annex 3\.1 Actual and Forecast Project Cost and Sources of Finacing\.,\. 22 Annex 3\.2 Project Ch4nges and Actual and Forecast Completion Datos\. \. 23 Annex 3\.3 Results of Training Program \. 27 Annex 3\.4 Actual and Forecast Cumulative Disbursements \. 28 Annex 3\.5 Actual and Forecast Allocation of Loan Proceeds \. 29 Annex 3\.6 Price Deflator Indexes \. 30 Annex 4\.1 Actual, Forecast and Revised Sales, 1977-1989\. 31 Annex 4\.2 Actual Return on the Program\.,\. 32 Annex 5\.1 Actual and Forecast Key Financialo Ratios\. 33 Annex 5\.2 Ar-ual and Forecast Income Statements, 1977-1983\. 34 Annex 5\.3 Actual and Forecast Sources and Applications of Funds, 1977-1983 \. 35 Annex 5\.4 4\.ctual and Forecast Balance Sheets, 1977-1983 \. 36 Annex 6\. Actual and Forecast Indicators of Performance 1978-1983 \. 00 \. 37  (1) JAMAICA PROJECT COMPLETION REPORT SECOND POWER PROJECT (LOAN 1516-JM) JAMAICA PUBLIC SERVICE COMPANY LIMITED (JPS) Preface 1\. This is the Project Complt,tion Report (PCR) for a transmission- distribution project in Jamaica, the second power project, which the Bank helped to finance with Loan 1516-JM (US$20\.0 million)\. The borrower and beneficiary was the national power company, the Jamaica Public Service Company Ltd\. (JPS)e The guarantor was the Government\. 2\. JPS completed the project, albeit with changes, cost inereases, and a time overrun\. During the period of project execution (1978-1983), due to declining generating efficiency, stagnation in the electricity market, and rising fuel prices, the financial and technical performance of JPS did not reach the level expected at appraisal\. There has been improvement in both areas under the third power project (2188-JM)\. 3\. Approval of the loan agreement occurred on February 7, 1978; signing, on March 6, 1978; and effectiveness, on June 1, 1978\. The final closing date was December 31, 1983 (as compared with the original closing date of September 30, 1982)\. 4\. The Energy Division of the Latin America and Caribbean Regional Office prepared this report based on information in Bank files and a final project report prepared by JPS\. The report also reflects information gathered as a result of discussions with Bank staff\. 5\. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff\. A copy of the draft report was sent to the Borrower for comments; however, no comments were received\.  (ii) PROJECT COMPLETION REPORT BASIC DATA SHEET JAMAICA SECOND POWER PROJECT (LOAN 1516-JM) JAMAICA PUBLIC SERVICE COMPANY LIMITED (JPS) Key Project Data Appraisal Forecast Actual Total Project Cost (excl\. fin\. charges) 36\.1 42\.0 1/ (US$ million equivalent) Cost Overrun (%) None 16\.3 Loan Amount (US$ million equivalent) Disbursed 20\.0 19\.4 Cancelled None 0\.6 Repaid (as of December 31, 1985) 4\.6 4\.6 Outstanding (as of December 31, 1985) 14\.6 12\.5 2/ Dates Physical Components Completed Transmission Lines at 138 kV 3/82 7/82 Transmission Lines at 69 kV 9/80 7/82 Substations at 138 kV 3/82 3/83-1/84 Substations at 69 kV 12/79-12/81 6-12/83 Return on lavestment (2) 16 10 3/ Financial Performance Covenanted to earn Failed to comply 82 in 1978-80 and with revenue 8\.52 annually covenant due to thereafter\. decreasing generating efficiency, stagnant electricity sales, and rising fuel costs\. Institutional Performance Improving\. Less-than-expected improvement\. 1/ Actual and forecast costs are not comparable due to changes in project content, to which the Bank agreed\. Actual cost does not reflect agreed redefinition of project to include purchase of spare parts (mostly for generating plants) financed by OPEC loan 109P (US$3\.3 million)\. 2/ Exchange adjustment favorable to JPS s US$2\.2 million\. 3/ The lower return reflects stagnation of demand for electric ?ower due to poor performance of economy, high operating costs, and inadequate tariff levels\.  (iii) MISSION DATA Month No\. of No\. of Staff Date of TYpe of Mission Year Weeks Persons Weeks Report Identification 05175 1/2 1 1/2 06/23/75: 09/29/75 Preparation I 03-04/76; 1 1 1 05/24/76 05176 1 1 1 05/13/76 Preparation II 05/76 1 1 1 08/03/76 Appraisal I 11/76 1 1 1 12/20/76 Appraisal II I/ 08/77 1 3 3 1/20/78 Total 7\.5 Supervision I 06/78 1/2 2 1 07/18/78 (F,T) Supervision II 12/78 112 2 1 01/05/79 (F,Tr); 31/10179 Supervision III 02-03/79 1/2 1/2 03/09179 (P) Supervision IV 05/79 1 2 2 05/14/79 (F,T); 08/09/79 Supervision V 05-06/80 1 2 2 06/11/80 (T); 07/15/80 (T,F) Supervision VI 05/80 1 2 2 06/10/81 (T,F) Supervision VII 10/81 1 2 2 11/10/81 (T,F) Supervision VIII 09-10/82 1 2 2 10/20/82 (T,F); 11/08/82 Supervision IX 01183 1/2 2 1 01/19/83 (T,F); 02/04/83 Supervision X 10/83 1/2 2 1 11/15/83 (T,F) Supervision XI 06/84 1 2 2 06/26/84 (T,F) Total 16\.5 Tt Technical supervision\. F: Financial supervision\. Tr: Training supervisiot\. P: Procurement supervision\. I/ Reappraisal required because of questions concerning credit worthiness of Jamaica\.  (iv) OTHER PROJECT DATA Item Original Revision Actual First Mention in Files - - 04/15/75 1/ Loan Application - - 08/05/76 Negotiations - - 12/5-7/77 Board Approval - - 02/07/78 2/ Loan Agreement Date - - 03/06/78 Effectiveness Date 06/05/78 06/01/78 06/01/78 Closing Date 09/30/82 07/31/83 12/31/83 12/31/83 Borrower JPS - JPS Executing Agency JPS JPS Follow-on Project Third Power Project 1/ Between 1\.72 and 1975, due to lack of decision on the part of the Governmen:, there were inconclusive discussions between the Bank and JPS concerning a second power project\. 2/ Lengthy delay between appraisal (11/76) and Board approval reflected time required for Jamaica to negotiate with International Monetary Fund (IMF) and Bank, respectively, a Stand-by Credit and a program loan\.  JAMAICA PROJECT COMPLETION REPORT SECOND POWER PROJECT (LOAN 1516-:PJ JAMAICA PUBLIC SERVICE COMPANY LIMITED (JP8) Highlights Under adverse macroeconomic circumstances, JPS successfully completed the project, albeit with changes, cost increases, and time overruns (paras\. 3\.2\.2\.-3\.2\.4)\. During project lImplementation, JPS endured technical and financial problems beyond the control of management (para\. 5\.2)\. Bank staff recognised the 1imitations under which the Government and JPS were operating; and supported them in their efforts to improve efficiency rather than to Insist on further tariff Increases (para\. 5\.2\.8)\. This support showed flexibility appropriate to the difficult economic circumstances In Jamaica\.  JAMAICA JAMAICA PUBLIC SERVICE COMPANY, LTD\.(JPS) SECOND POWER PROJECT (LOAN 1516-JM) PROJECT COMPLETION REPORT I\. BACKGROUND 1\.1 Bank Participation in Sector Financina 1\.1\.1 Since 1966, the Bank has made three loans benefitting the Jamaica Public Service Company, Ltd\. (JPS) (Annex 1\.1)\. The first loan, 454-JM (US$22 million; 1966), helped to finance the foreign cost of the first power project, which consisted of 121 MW of additional generating capacity and the expansion and improvement of the transmission and distribution systems\. JPS completed the first power project in 1972, substantially within the original schedule\. The forecast and final costs of the project were close: US$41\.1 million and US$44\.3 million\. 1\.1\.2 The second loan, 1516-JM (US$20 million; 1978), helped to finance the foreign cost of the second power project, a transmission-distributton project (plus various studies and consulting services) which is the subject of this report\. JPS completed the project in February 1984, almost two years late\. 1\.1\.3 The third loan, 2188-JM (US$30\.5 million; 1982), is helping to finance the foreign cost of the third power project -- rehabilitating the steani power plants, expanding the transmission and distribution systems, and providing technical assistance and training\. JPS has contpleted most of the plant rehabilitation and expects to finish the project in 1986, about a year late, with a cost underrun due to devaluation (US$43\.2 million vs\. US$48\.6 million)\. 1\.1\.4 The Bank is now processing a fourth loan to JPS, about US$17\.0 million, which would finarnce most of the foreign cost (US$22\.8 million) of a transmission/distribution project (expected total cost: US$27\.2 million)\. 1\.2 Energy Sector Organization 1\.2\.1 The Government of ~;amaica (GOJ) coordinates and establishes policy and plans for the energy sector through the Energy Division (ED) of the Ministry of Mines, Energy, and Tourism (HMET)\. GOJ establishes electricity tariffs and carries out financial supervision of JPS through the Ministry of Public Utilities and Transport (MPUT)\. The Electricity Authority (EA) holds the shares in JPS on b\.-alf of GOJ, but exercises no other functions\. Though there is the opportunity for conflict between these bodies, coordination has been satisfactory, in general\.  - 2 - 1\.2\.2 In addition to the Ministries, major entities of tihe sector include: (i) JPS, which has exclusive responsibility for the generation, transmission, and distribution oZ electric energy for public consumption; and (ii) Petroleum Corporation of Jamaica (PCJ), which operates the national refinery, markets petroleum products, and performs some planning and developmerst functions (which now partly overlap with those of JPS)\. This matter would be addressed under the proposed fourth power loan\. The Public Utility Commission (PUC) transferred its regulatory functions to MPUT in 1975\. 1\.2\.3 In 1971, GOJ, through EA, acquired controlling interest in JPS from foreign private Investors; and now owns 992 of issued ordinary capital\. GOJ appoints all members of the JPS Board\. Under the terms of the JPS license, MPUT has the power and authority to require observance and performance by JPS of its obligations under the license and to fix tariffs\. 1\.3 JPS Oraanization 1\.3\.1 The present JPS organization is adequate, taking into account its size and objectives\. The JPS Board sets policy, which is executed by management headed by the chairman (who acts as Chief Executive), a Managing Director, and seven directors (human resources, finance, controller, administration, customer relations & billing, production and technical services, and engin6eering)\. 1\.3\.2 The gener4al accounting system lhas worked well since its introduction in 1981; and JPS is carrying out improvements, such as more closely integrating the general ledger system with connected systems, especially construct-ion work-in-progress, and reducing tardiness in the production of revenue and budgetary control reports\. This latter improvement is part of a corporate information system\. In connection with the pieoposed fourth power loan, the Bank is seeking a comm\.tment from JPS to improve its internal audit group\. Computerized billing has substantially reduced overdue accounts receivable since 1982\. 1\.3\.3 Since 1982, with Bank prompting, the management and the Government have taken steps to improve the financial condition and technical efficiency of JPS\. These steps are discussed in detail in Chapters 3 and 5\.  -3- II\. PROJECT PREPARATION AND APPRAISAL 2\.1 Origin of the Proiect 2\.1\.1 Between completion of the first power project (1972) and initial appraisal of the second power project (1976), Jamaica experienced worsening balance-of-payments problems due to structural imbalances within the economy, deteriorating terms-of-trade, and massive capital outflows\. The national economic problems, together with institutional deficiencies at JPS (financial, operational, and management), formed the background for identification, preparation, anc appraisal of the second power project\. 2\.1\.2 Between 1972 and 1975 discussion between GOJ, JPS, and the Bank with respect to a possible second power project remained inconclusive due to a lack of decision on the part of Jamaican authorities\. During this period, the financial performance of JPS was unsatisfactory because the PUC failed to grant adequate tariff increases to offset rapid domestic and worldwide inflation\. Between 1973 and 1975 the rate of return on JPS9 revalued assets was between 2\.7X and 5\.5Z\. 2\.1\.3 Managerial performance also deteriorated followi$g GOJ purchase of JPS (1971) and the departure of senior and middle-level expatriate staff\. Prior to 1975, JPS lacked the benefit of a single chief executive to direct day-to-day affairs, as the Government claimed it could not identify a suitable person for this position\. In October 1975, the Government, after consultation with the Bank, appointed a full-time Executive Chsairman, who replaced a committee which had been directing company affairs\. The committee had consisted of the chairman of the board of directors and three department directors (operations, finance, and commercial activities)\. Bank staff felt that the new appointee was competent, as were the directors of finan'ce and operations\. 2\.1\.4 Technical operations also suffered from numerous outages due to poor operating and maintenance practices\. To reduce load shedding, JPS invested In new generating units\. This led to excess capacity but did not result in a satisfactory reduction in outages, as intended due to less- than-optimum specifications for these units\. 2\.2 Pro1ect Identification and Preparation 2\.2\.1 In April 1975, a JPS mission initiated discussions for possible Bank finaceing of a transmission and distribution project which would be part of the expansion program for 1976-1982\. As the proposed loan offered the opportunity for significant institution building at both the sector and company level, Bank staff indicated interest in helping to finance the proposed project, provided that JPS could provide technical and economic justifications plus a satisfactory financing plan\. After reviewing the preliminary investment program, which showed that additional generating facilities would consume more than half of expected expenditures, Bank staff xpressed reservations about the need for more generating capacity\. Bank staff pointed out that there was excess capacity (para\. 2\.1\.4) which had become unreliable due to poor maintenance practices\. It was agreed that a Baok mission would visit Jamaica to review progress toward providing the tecbhical and economic justification of the proposed project\.  -4- 2\.2\.2 An identification mission (May 1975) reported that the proposed Bank loan could help to stimulate improvements in the following areas: (a) for the sector: reducing the number of bodies with decision making power affacting the energy sector (paras\. 1\.2\.1-3) and planning and pricing for all forms of energy; and (b) for JPS: management, finances, generation planning, maintenance practices, and tariff structure\. By letter (June 23, 1975), the Bank urged JPS to defer investment in new generating facilities, improve generation-maintenanc\.- and loss-reduction practices, asse'ss the potential for developing local hydro resources for power generation, and prepare additional information for the appraisal of the proposed project\. 2\.2\.3 In February 1976, JPS and Bank staff held discussions on the investment program which continued to reflect substantial expenditures on additional generating plant\. Bank staff questioned the basis for JPS' load growth projections and requested JPS to revise its economic comparisons between alternative generation expansion plans taking into account the expected impact of improved maintenance practices on existing plant\. 2\.2\.4 In May 1976, a preparation mission reviewed again the power market forecast and corresponding expansion program; developed an estimate of the costs of power outages to consumers, identified a tnumber of financial issues, and established the remaining information requirements for appraisal\. The financial issues included future tariff increases, asset revaluation, equity cor\.tributions, and taxes\. 2\.2\.5 In connection with this proposed loan, the mission identified the major role for the Bank as: (1) helping JPS to become an efficient public utility through an institution building program; (2) focusing the attention of Jamaican authorities on developing a rational investment program (i\.e\., a proRer balance between transmission-distribution facilities, generating plant, and maintenance practices); and (3) optimizing energy utilization through the study of tariff structures\. The mission also identified the major objectives of the project as: (a) improving the reliability of supply in several parts of the country by adding the required tie-lines between the generating plants and by providing alternative transmission routes to several important load centers; (b) extending electric service to several low-income neighborhoods; (c) providing adequate capacity to lines and substations which fed the rural network; and (d) assessing the feasibility of hydroelectric development\. 2\.3 Project Appraisal, Definition, and Justification 2\.3\.1 On August 5, 1976, JPS formally requested Bank financing; and tlc Bank dispatched an appraisal mission to Jamaica (November 8-20, 1976)\. The mission found the proposed program to be the minimum required to provide an adequate and reliable supply of electric power\. 2\.3\.2 Bank and JPS staff agreed on an expansion program for the period 1978-1982 with an expected cost of US$167\.4 million and an expected foreign cost of about US$96\.6 million\. The program would consist of: (i) the start of a 70 MW oil-fired steam unit at Hunt's Bay to be commissioned by 1984 and a similar unit at Old Harbour to be commissioned by 1986; (ii) trans- mission lines (113 miles of 138 kV lines and 63 miles of 69 kV lines), transformation capacity (about 290 MVA), miscellaneous distribution  - 5 - investments (2100 circuit-miles of lines below 69 kV, 227 MVA of distribution transformers, 140 MVAR of capacitors, and 70,000 meters); (iii) general property; and (iv) technical assistance\. Because of continuing doubts about the need for new generating plants, Bank staff informed JPS that they would seek during negotiations the agreement of JPS to a clause requiring Bank review of the construction schedule for the proposed 70 MW of oil-fired steam units\. 2\.3\.3 Bank and JPS staff agreed on a project consisting of transmission lines (83 miles at 138 kV and 58 miles at 69 kY), transformation capacity (about 200 MVA), miscellaneous distribution investments (45 MVA of distribution transformers, 300 circuit miles of 24 and 12 kV lines, 20,000 meters, and 140 MVAR of capacitors), and technical assistance\. The technical assistance would consist of consultant services for: (i) improving operating and maintenance procedures in generation, transmission, and distribution; (ii) designing, procuring, and supervising the construction of the 138 kV lines and substat,ions and; (iii) tariff structure study using marginal cost criteria\. The project was expected to cost US$36\.1 million with a foreign cost of US$20\.0 million, which the Bank loan would cover\. JPS expected to complete implementation of the proposed project by March 31, 1982\. 2\.3\.4 Bank staff were satisfied that the proposed investment program, of which the project was a part, was the least-cost solution for meeting the growth of demand in Jamaica for the period 1978-1982\. For most of the equipment and lines included in the program, there was no reasonable alternative\. The return on the investment program was estimated at 16%\. 2\.3\.5 In addition to the cost, definition, rationale, sources of financing for Lhe proposed expansion program and the financial issues listed above (para\. 2\.2\.4), the Bank appraisal mission focused on proposals for lowering accounts receivable and losses and itsing consultants for technical assistance\. Bank staff also focused on increasing the size of the proposed loan from US$12 million to US$20 million\. Bank staff justified the larger loan on the grounds that: (1) the program was minimal and could not be reduced; (2) financ1ng from other sources was not available on reasonable terms; (3) it would be unreasonable to expect a higher contribution from JPS customers than that which was already anticipated; and (4) a latger loan would support the stabilization program of the Government\. 2\.3\.6 It was expected that procurement would follow Bank Guidelines, except for about US$75,000 for specialized substation equipment which would be purchased directly from suppliers\. Local suppliers would receive a margin of preference of 15%\. 2\.3\.7 Bank staff accorded special importance to non-Bank borrowing for the program\. The Bank conditioned negotiations for the proposed Bank loan to the presentation of evidence confirming the securing of a non-Bank loan amounting to US$25\.0 million\.  -6 2\.3\.8 Subsequently, due to the balance-of-payments crisis in 1977 (para\. 2\.1\.1), the Bank moved slowly in processing the proposed loan, as there were lengthy negotiations in connection with a Stand-by Credit uad a program loan (1500-JM) provided by the International Monetary Fund and the Bank, respectively\. In early 1977 the management problem re- emerged with the failure of JPS to find a suitable replacement for the competent chief financial officer who departed\. In August 1977, the Bank dispatched a second mission to update the expected cost, implementation schedule, and financing plan for the proposed expansion program and project\. 2\.4 Negotigtions\. uoan Approval, and Effectiveness 2\.4\.1 No major problems delayed negotiations (December 5-7, 1977)\. Board presentation occurred on January 7, 1978 followed by loan signing on March 6, 1978\. Loan 1516-JM amounted to tUS$20\.0 million; the term was seventeen years, including four years of grace\. The interest rate was 7\.45%; the commitment fee, 3/4% of 1%\. The Bank declared the Loan Agreement to be effective on June 1, 1978\. 2\.5 Major Covenants of the Loan and Guarantee Agreements 2\.5\.1 Annex 2\.1 sets forth the major covenants of the loan and guarantee agreements for the second power project\. GOJ and JiS did not comply with their respective revenue covenants during the period of project execution, 1978-1983\. Chapter 5 sets forth details on the tariff policy of GOJ and the finances of JPS\.  III\. PROJECT COST AND IMPLEMENTATION 3\.1 Actual and Forecast Data 3\.1\.1 Annex 3\.1 compares the actual and forecast costs of the project, stated in both current and constant prices\. Annex 3\.2 compares the works completed under the project, including additions and deletions, with those expected at appraisal, together with their corresponding completion dates\. Annex 3\.3 sets farth actual and forecast data on the training component\. Annexes 3\.4 and 3\.5 compare actual and forecast data on, respectively, allocation of the proceeds of the loan and cumulative disbursements\. Annex 3\.6 sets forth the price deflators used to restate current prices to constant prices as of 1977\. The following paragraphs discuss the information set forth in the annexes\. 3\.2 Proiect Cost\. Changes, and Timetable 3\.2\.1 Actual and forecast costs are not comparab'e, as the completed project has substantially been changed (with Bank agreement) from what had been expected at appraisal\. In current prices, the cost of the project amounted to US$42\.0 million or 16\.4% more than the forecast cost of US36\.1 million\. The largest cost increase was in local costs, which amounted to US$22\.7 million as compared with the expected cost of US$16\.1 million\. According to JPS, quantities of materials and local-currency costs for transmission lines and substations were underestimated at appraisal, as was the cost for consultant services\. Difficulties with one paxticular contractor contributed to time and cost increases\. 3\.2\.2 In constant L ces as of 1977, the cost of the Project amounted to US$30\.9 million or 16\.9% more than the forecast cost, US$26\.5 million\. Actual and forecast local-currency costs were, respectively, US$16\.1 million and US$10\.6 million (Annex 3\.1)\. 3\.2\.3 The Bank agreed to numerous changes to the project (Annex 3\.2)\. Some of the changes required no amendment to the project definition in the loan agreement, as they represented no departure from the basic concept of the project\. Such changes included: (i) elimination of 35 miles of 69kV transmission line (Greenwich Road-Cane River; Annotto Bay-Port Antonio) and two corresponding substations (Cane River and Port Antonio; 6\.25 MVA of transformation capacity); and (ii) addition of 12\.5 MVA of new transformation capacity (at Kendal)\. Other changes required a redefinition of the project, as they represented an expansion of the basic project concept\. These changes included: (iii) the purchase of communications equipment for the transmission system; and (iv) the purchase of spare parts for the generating plants\. The purchase of spare parts was financed by OPEC (loan 109P; 1978; US$3\.3 million); but the cost of these parts was not included in the original cost forecast and is not included the actual cost data shown a'bove\. The OPEC loan is discussed in Section 3\.6 of this chapter\.  - 8 - 3\.2\.4 The forecact completion date for the 138kV transmission lines and substations was March 31, 1982\. The forecast completion dates for the 69kV substations and transmission lines were between December 1979 and December 1981\. The actutl completion date for the works at 138kV was July 1982 for the transmission lines and between March 1983 and January 1984 for the substations (22 months late)\. The 69kV transmission line (Annotto Bay- Oracabessa) was completed in July 1982 (22 months late) and the 69kV substations were completed at various dates between June and December 1983 (24 months late) (Annex 3\.2)\. If the current disbursement profiles for transmission-distribution projects (6 years) in the Latin American and Caribbean region had been used at appraisal to estimate the completion date for the project, actual and forecast completion dates would have been close\. 3\.2\.5 The performance of the JPS Engineering Department reflected substantial weakness in virtually all phases of procurement\. This weakness was compounded by poor performance on the part of one local contractor in charge of the construction of civil works at the 138 kV substations\. This contractor experienced work stoppages and cash-flow problems as a result of too many commitments\. After a lengthy period of arbitration, JPS dismissed the contractor\. 3\.3 Performance of Contractors and Consultants 3\.3\.1 In the opinion of JPS, except for the civil works contractor for the 138kV substations, performance on the part of local contractors was satisfactory, although they were not always able to meet agreed completion dates due to late delivery on the part of suppliers\. According to JPS, late delivery reflected the difficulties in establishing letters of credit; and these difficulties reflected the economic problems of Jamaica\. Bank supervision reports reflected no general criticism of the performance of local contractors\. 3\.3\.2 In the opinion of JPS, consultants provided satisfactory services in the areas of: (i) design of lines and substations at 138 kV, preparation of related bidding documents, and supervision of construction; (ii) improvement in distribution practices; and (iii) improvement in generation practices\. With respect to distribution practices, the consultants concluded that JPS technical competence was good but that there was a major need to improve management effectiveness\. With respect to generation practices, consultants established improved operational procedures, identified materials required for rehabilitation, and established targets for power plant availability and thermal efficiency\. Services of these consultants were continued under the third power project (loan 2188-JM)\. 3\.3\.3 The Bank agreed to JPS' request to transfer funding for the study of tariff structures to US AID\. The resulting study did not reflect the draft terms of reference supplied by the Bank which provided for a restructuring of tariffs based on the marginal cost criteria\. A study based on the marginal cost of the supply of electricity is expected to be part of the proposed fourth power project\.  -9- 3\.4 Training 3\.4\.1 The staff appraisal report (SAR) stated that the Bank loan would include US$480,000 to cover the JPS foreign- currency costs for training during the period from 1978 to 1982\. In the loan agreement, the amount allocated for training was US$600,000\. The actual amount disbursed under this category was US$296,636; but according to JPS, this figure understated the amount spent for training because it did not reflect the cost of consultancy services for improvement of generation and distribution practices (para\. 3\.3\.2)\. In the course of rendering service, consultants imparted considerable training to JPS staff\. 3\.4\.2 In December 1978, a Bank supervision mission helped JPS establish a satisfactory training program for the years 1979-1983\. By comparing the forecast training program with actual results, Annex 3\.3 shows that the training finarced with the proceeds of loan 1516-JM roughly (but not completely) corresponded with what had been agreedj\. JPS reported on the implementation of this component of the project in its project progress reports which Bank staff reviewed\. Bank files do not reflect whether field supervision of the training component was carried out after December 1978\. 3\.4\.3 JPS explained that its lower-than-expected expenditure on training reflected deferral to the third power project of subject matter agreed on under the second power project\. Bank staff determined that beneficiaries of training have remained with JPS for the most part\. 3\.5 Cumulative Disbursement and Allocation of Loan Proceeds 3\.5\.1 Annex 3\.4 compares actual and forecast data on cumulative disbursements\. Because of delays in project execution (para\. 3\.2\.4; Annex 3\.2), the last disbursement lagged expectations by about 24 months\. The Bank agreed to change the closing date of the loan from September 30, 1982 to July 31, 1983, and then from July 31, 1983 to December 31, 1983\. 3\.5\.2 Annex 3\.5 compares actual, revised, and forecast allocation of the proceeds of the loan\. The actual allocation of proceeds of the loan reflects the elimination of two of the transmission lines, the increase in transformation capacity, the addition of communcations equipment, and actual expenditures on consultancy services and training (paras\. 3\.2\.1-\.3; 3\.4\.1)\. Actual and revised allocation of loan proceeds were close for all categories, except for consultant services and training\. 3\.6 OPEC Loan 3\.6\.1 As part of a larger effort to assist GOJ, the OPEC Special Fund provided GOJ with a loan amounting to US$3\.3 million for relending to JPS\. The loan agreement was signed on December 19, 1978 and provided for the purchase of spare parts for existing generating stations\. The equipment to be purchased included such items as a rotary air heater, unit transformer radiators, spare instrument and service air compressors, and vibration analysis equipment\. 3\.6\.2 The Bank expanded the definition of the project set forth in the  - 10 - second power project loan agreement to include the spare parts to be purchased with the OPEC loan; administered procurement and disbursements in connection with the OPEC loan, as agreed with OPEC; and communicated considerable disbursement information to OPEC\. Bank staff also carried out field supervision of the OPEC-financed portion of the project but Bank files do not reflect the transmission to OPEC of the findings of Bank supervision missions, as the Bank had agreed to transmit\. 3\.6\.3 The original closing date for the OPEC loan was December 31, 1982\. At the request of JPS, OPEC extended the closings date of its loan to September 30, 1983\. 3\.7 JPS Management Evolution, 1978-1983 3\.7\.1 Due to the gloomy prospects for the economy, there was a departure of the competent group of managers who were operating JPS at appraisal (1977) of the project\. Lack of sufficient number of qualified top and mid-level managers contributed to: (1) poor operational and maintenance practices at power plants, which resulted in frequent power outages; and (2) delayed preparation of important financial, accounting, and managerial data\. For example, preliminary financial statements for 1981 were not available before March 15, 1982\. 3\.7\.2 To remedy the lack of adequate numbers of qualified mid-level staff, the JPS Board formed in October 1981 three subcommittees to review technical and financial planning and purchasing decisions; and in December 1981, after the resignation of the Managing Director, the board chairman took over the position of chief executive\. Under his leadership and in connection with the third power projecl (loan 2188-JM), JPS began rebuilding by hiring a competent general manager, a controller, and a budget specialist\. Low salary levels are a problem and may hamper the continuation of the efficiency improvement program\. Salary levels will be a subject addressed in connection with negotiations for the proposed fourth power loan agreement\.  - 11 - IV\. PROJECT JUSTIFICATION 4\.1 Actual and Forecast Data 4\.1\.1 Annex 4\.1 compares actual, forecast and revised sales data for the years 1977-1989, plus corresponding growth rates of sales\. Annex 4\.2 shows the actual internal rate of return on the investment program for the period 1978-1983\. 4\.2 Least-Cost Solution and Expected Sales Growth 4\.2\.1 At appraisal, the investment program for the period 1978-1982 was judged to be the least-cost solution for meeting the expected growth in electricity demand as there was no reasonable alternative to the program, especially with respect to most transmission-distribution equipment and routes\. Where there were alternatives, JPS would seek the services of a consultant to determine which route was least cost\. Reflecting the expectation of growth for the economy, sales were anticipated to grow from 1134 GWh in 1977 to 1573 GWh in 1982 (7% annually) with subsequent growth to 2698 GWh by 1989 (8% annually)\. 4\.2\.2 The actual performances of the economy and the electric sector were well below expectations\. Measured in constant 1974 prices, gross domestic product declined slightly between 1977 and 1983 -- J$1976\.4 million in 1977 vs\. J$1931\.4 million in 1983 -- and actual sales levels, reflecting the adverse trends in the economy, were well below the level expected at appraisal (Annex 4\.1)\. Actual sales for 1977-1983 were 21\.0% less than the level expected at appraisal; and the annual rate of growth for the revised forecast of sales is about 2% annually from 1985 to 1989 rather than 8%, as expected at appraisal\. In these circumstances, JPS deferred expansion of its generating capacity during the period 1978-1982, although it did undertake a program of repair and rehabilitation of existing plant\. 4\.2\.3 The significant departure of actual sales levels from forecast sales levels underlies the importarnce of critical examination of the latter on the part of Bank staff during project preparation and appraisal\. However, it is doubtful that the duration and full extent of the problems of the Jamaican economy were discernable during preparation and appraisal\. 4\.2\.4 Given that there were no reasonable alternatives to most of the equipment and routes for the transmission-distribution program (and where there were alternatives, the least-cost were executed, including the transmission lines of the project), the program as executed was the least- cost solution to meeting electricity demand\. 4\.3 Rate of Return 4\.3\.1 At appraisal, benefits associated with the project were measured by the forecast of marginal revenues; and these were discounted and compared with the project investment costs and associated marginal operating expenses\. The equalizing discount rate was about 16%\.  - 12 - 4\.3\.2 The actual and revised patterns of sales differ substantially from what was expected at appraisal\. Under the revised sales forecast, sales levels in 1989 are expected to amount to 1,310 GWh, which level is just slightly below the level (1349 GWh) expected for 1980 at appraisal of the second power project in November 1976 and August 1977\. 4\.3\.3 In these changed circumstances, it is reasonable to assign to the project benefits equivalent to those sales which JPS would have lost if JPS were to have undertaken no investment, including the replacement of existing equipment\. For the purpose of this calculation, it is assumed that such sales amount to about 4% compounded annually for the years 1978- 1982, with sales in 1978 as the base year\. This percentage corresponds to the JPS weighted average depreciation rate\. With such sales as a proxy for benefits and based on actual investment and operating costs, the return on the program is about 10% (Annex 4\.2)\. This is a conservative estimate as it reflects no estimate of savings to consumers from investment deferred in "stand-by" facilities and no estimate of reduced fuel costs\. l/ 1/ Based on current expectations concerning future fuel costs, the return on the program would be about 11%\.  - 13 - V\. FINANCIAL PERFORMANCE 5\.1 Actual and Forecast Financial Data, 1977-1983 5\.1\.1 Annex 5\.1 sets forth actual and forecast key financial ratios of JPS for the years 1977-1983\. Annexes 5\.2 to 5\.4 compare actual and forecast income statements, sources and applications of funds, and balance sheets for the same period\. During the period 1977-1983, the actual financial performance of JPS was well below that expected at appraisal due to a combination of stagnant sales, rising fuel costs, ani decreasing generating efficiency\. The following paragraphs discuss the information set forth in the financial annexes\. 5\.2 Actual and Forecast Operating Results, 1977-1983 5\.2\.1 In 1977, actual and forecast key indicators of financial performance were close, but thereafter financial results increasingly departed from appraisal expectations\. While the debt-equity ratio improved from 45% to 34% due to asset revaluation, other key measures of financial performance exhibited deterioration (Annex 5\.1)\. The rate of return declined from about 5% in 1977 to a negative 3% in 1982, and then improved to 6% again in 1983 as a result of tariff increases implemented in connection with the third power project (2188-JM)\. Also showing the same pattern of deterioration followed by improvement were the debt-service coverage ratio, the self-financing ratio, and the operating ratio\. 5\.2\.3 Due to the poor performance of the Jamaican economy during this period, electricity sales were stagnant while fuel costs rose faster than tariff increases and the generating efficiency (as measured by the heat rate, BTU/kWh) of JPS deteriorated\. Sales between 1977 and 1983 (7586 GWh) were 21% less than expected, but average tariffs were 70% higher than expected, resulting in a 34% increase in revenues\. Fuel costs on the other hand were 124% greater than expected (Table 5\.1)\. As a result, JPS' net operating income for 1977-83 was 91% less than expected at appraisal\. Chapter 6 sets forth details on the decreasing generating efficiency of JPS during the period of project execution\. 5\.2\.4 JPS suffered power outages due to poor operating and maintenance practices (para\. 2\.1\.4) and a lack of foreign exchange for the purchase of spare parts to repair its generators\. Public reaction to the power outages was adverse\. In these circumstances, the Government was reluctant to amend the arrangement for raising tariffs, which consisted of a fuel adjustment clause and a 1% monthly increase of the basic tariff\. Nevertheless, tariffs in real terms were increased substantially (43%) between 1977 and 1983: from 8\.76 J cents to 12\.49 J cents (in constant 1977 prices)\. Fuel costs increased from 3\.16 J cents/kWh to 5\.26 J cents/kWh, an increase of 67%\. Operating and maintainance costs increased from 2\.65 J cents/kWh to 3\.09 J cents, in constant 1977 prices, to 3\.09J cents, an increase of only 17%\.  - 14 - 5\.2\.5 The operation of the fuel-adjustment clause limited tariff increases to less than the fuel-cost increases that occurred\. Recovery of fuel costs depended on meeting target rates for fuel efficiency (13,500 BTU/kWh) and distribution efficiency (15% of net generation)\. JPS was not able to meet the above targets\. As the foreign exchange problems of Jamaica made it difficult for JPS management to obtain spare parts necessary to improve the efficiency of generating plant, the Bank, in connection with the third power project, persuaded the Government and JPS to change the thermal efficiency standard to 14,500 BTUIkWh until 1986\. Because of improvements in thermal efficiency carried out under the second and the third power projects (2188-JM), JPS earned a return of about 6% in 1983\. 5\.2\.6 In the circumstances of severe financial constraints and stagnant sales, JPS, during the period 1977-83, experienced negative net internal cash generation (J$2\.5 million) and reduced its construction expenditures to J$259\.9 million as compared with the forecast level, J$315\.3 million\. At appraisal, internal cae;h generation was expected to amount to J$124\.9 million, or 35% of total requirements\. Actual investment requirements amounted to J$264\.9 million (24\.8% less than expected) plus J$2\.5 million in negative net internal cash generation which JPS funded with borrowings (J$210\.0 million) and equity contributions (J$57\.4 million)\. Actual and forecast results are shown in the table at the end of the chapter\. 5\.2\.7 Complicating the financial problems of JPS was an increase in electricity theft as measured by the large increase in losses\. JPS has sought legislation to reduce the standards of proof required to obtain convictions, but progress has been slow\. As measured by days of accounts receivable outstanding, there was some Improvement in collections (from 87 days in 1978 to 75 days in 1983) but not as good as forecast at appraisal (from 70 days in 1978 to 65 days)\. 5\.2\.8 Bank staff carried out extensive financial supervision of JPS and visited Jamaica about every six months during project implementation\. On the basis of these visits, the Bank recommended that the Government: (i) increase the basic monthly tariff increase from one percent per month compounded to 2 percent per month compounded; (ii) adjust the fuel adjustment clause to permit JPS to recover fuel cost increases fully; and (iii) develop and implement an action program to improve collections and reduce theft\. Further, the Bank deferred consideration of a third power program for about a year in order to stimulate tariff adjustments\. The Government did not act on these recommendations because of political constraints\. Subsequently, the Bank focused on measures to reduce operating costs (para\. 5\.3\.2) with more satisfactory results\. It seems unlikely that additional financial supervision would have led to an improvement in the financial position of JPS\. 5\.3 Compliance with Financial Covenants, 1977-1983 5\.3\.1 The loan agreement set forth an audit covenant and major financial covenants (Annex 2\.1) -- namely that, JPS should: (i) furnish the Bank with an audited financial statement by April following the end of the preceeding year (Section 5\.02); (ii) take all necessary measures to provide revenues sufficient to earn 8% p\.a\. for the years 1978-1980 and 8\.5% annually thereafter (Section 5\.04); (iii) revalue assets annually (Section  - 15 - 5\.05); (iv) seek prior Bank agreement before incurring long term debt if gross internal cash generation were to fail to exceed debt service for any succeeding fLscal year by not less than 1\.5 times (5\.06); (v) limit short- term borrowing to no more than one-sixth of cash operating expenlses (Section 5\.07); (vi) undertake no major works (defined as two percent of revalued gross fixed assets) not included in the agreed expansion program wi hout first providing the Bank with a satisfactory technical and economic justification and a corresponding financing plan (Section 5\.08); and (vii) complete a study on the feasibility of monthly billings and discuss the results of the study with the Bank (Section 5\.09)\. The guarantee agreement contained a covenant (Section 2\.01) corresponding to the revenue covenant in the loan agreement\. 5\.3\.2 JPS and the Government complied with all of the above covenants, except the revenue covenant\. Given the high level of tariffs in Jamaica (15\.16 US cents/kWh in 1982) and the poor quality of service, the Bank decided not to take a rigid stance on the revenue covenant but, rather, to seek improvements in JPS' efficiency leading to a reduction in operating costs\. This course of action was at the core of the third power project, which sought to improve fuel efficiency, through improved generating and maintenance practices and the purchase of spare parts\. The results of these efforts were successful; and in 1984 JPS' rate of return was 6\.4%\.  - 16 - VI\. INSTITUTIONAL PERFORMANCE 6\.1 The Borrower 6\.1\.1 Annex 6\.1 compares actual and forecast indicators of market penetration and technical efficiency for the years 1978 to 1983\. The actual indicators show a level of performance well below that expected at appraisal\. 6\.1\.2 Actual sales levels, numbers of customers, and percentages of households served were all well below forecast levels primarily because the demand for electricity reflected the adverse developments in the economy (para\. 4\.2\.2)\. Actual numbers of employees and related ratios (customer/employee and GWh sold/employee), and the power factor ratio were also well below expected levels\. Concerning numbers of employees, JPS management was confronted with powerful unions which enjoyed strong links to the dominant political parties\. 6\.1\.3 Losses increased from 13% in 1976 to 20% in 1981 and slowly declined thereafter to 18% in 1984\. JPS management believed that the increase in losses reflected a major increase in theft -- a reflection of the difficult times experienced by the average Jamaican consumer and the high standards of proof required under Jamaican law to convict those charged with electricity theft\. 6\.1\.4 The heat rate (BTU/kWh) rose from 13,134 BTU/kWh in 1978 to 15,267 BTU's/kWh in 1982 and declined thereafter to 12,950 BTU/kWh in 1985\. This pattern of deterioration followed by improvement showed the cumulative impact of improving maintenance practices, consultant services and the purchase of spare parts carried out in connection with the second and third power projects\. 6\.1\.5 Annex 5\.1 compares actual and forecast indicators of financial performance\. These show the same pattern of deterioration followed by improvement exhibited by the indicators of technical efficiency\. Stagnant electricity sales, rising fuel costs not fully covered by the operation of the fuel adjustment clause, and adverse currency developments characterized the financial environment during most of the period of project implementation\. 6\.1\.6 In the gontext of the difficult economic and political situation of Jamaica, most of the above technical and financial problems did not lend themselves to speedy correction on the part of JPS management\. There were, however, some improvements in the areas of accouniting, budgeting, billing for industrial and commercial customers, and collections; and in 1984, JPS exhibited an improved technical and financial performance as compared with its performance in 1980\. Bank staff found the performance of the Engineering Department of JPS to be weak (para\. 3\.2\.5)\.  - 17 - 6\.2 The Goverrment 6\.2\.1 The Government did not approve the tariff increases that would have been required to achieve the agreed rate of return during project implementation\. This reflected the sensitivity of the Government to adverse public reaction to higher tariffs unaccompanied by improved service\. However, the Government did increase its equity contributions beyond the level originally envisioned and supported a higher level of borrowings to enable JPS to carry out its programs\. 6\.3 The Bank 6\.3\.2 Notwithstanding acceptance of an optimistic sales forecast, the performance of Bank staff during appraisal was satisfactory\. The performance of Bank staff during execution of the project was also satisfactory\. The Bank showed a realistic and pragmatic approach when faced with a deterioration of JPS' finances and instead of taking an intransigeant position regarding tariffs supported the Government in its well founded concern about JPS inefficiency\. Eventually, the performance of JPS under the third power project (2188-JM) improved; and the Bank satisfactorily supported Jamaican authorities in their efforts to effect this improvement\.  - 18 - VII\. LESSONS TO BE LEARNED 7\.1 A Successful Prolect 7\.1\.1 The improvement in the technical and financial performance of JPS after 1983 (paras\. 6\.1\.2-\.5) indicates that the major objectives identified at appraisal (para\. 2\.2\.5) were achieved, with the exception of optimized energy usage through a power tariff structure reflecting the marginal cost of supply (para\. 3\.3\.2)\. 7\.2 Communications with Co-lenders 7\.2\.1 It appears that Bank staff did not communicate the findings of their supervision missions to OVEC (para\. 3\.4\.2)\. Apparently this failure did not complicate relations wi-h OPEC or adversely affect financing for other projects\. However, in view of the Bank's concern to promote cofinancing, Bank staff should assign greater weight to the Bank's commitments with cofinancAng and should ensure that their supervision findings are transmitted to co-lenders so that co-lenders can rely on the Bank to monitor compliance with all the terms of their agreements\. 7\.3 The Importance of Flexibility 7\.3\.1 During project implementation, JPS endured technical and financial problems beyond the control of management (para\. 6\.1\.6)\. Bank staff recognized the limitations under which the Government and JPS were operating; and supported them in their efforts to improve efficiency rather than to insist on further tariff increases\. Bank staff should remember that raising tariffs is not the only way to achieve a desired financial target\.  e -19- JANICA PULIC =SRVICE COL41ANt LIMITED JP8) SECI POU ZPRJECT (LOAN 1516-3M) Suing, og Bank Lending to JPS Loan Number 8i DFe e princiial Project Facilities (in US$ miu0lln equivalent) 454-JM \. 06/20/66 22\.0 121 KW of generating capacity; expasion and improvemnt of transmisaion and distribution system* 1516-J3l 03/06/17 20\.0 Eipansion of transmission and distribution syst_e in urban centers, plus technical assistance\. 2188-JM 07127182 30\.5 Rehabilitation of steam power plants, constrution of trans- mission line, plus technical assistsace and training\.  -20- ANNEX 2\.1 JAMAICA Page 1 of 2 pages JAMAICA PUBLIC SERVICE COMPANY LIMITED (JPS) SECOND POWER PROJECT (1516-JM) Malor Covenants of the Loan and Guarantee Agreements 1\. The Loan Agreement for the Second Power Project obligated JPS to: (i) carry out the project with due deligence and efficiency and in conformity with appropriate engineering, financial, and public utility practices (Section 3\.01); (ii) employ consultants whose qualifications, experience, and terms and conditions of employment were satisfactory to the Bank (Section 3\.02); (iii) carry out its operations, manage its affairs, plan its future expansion and maintain its financial Dosition in accordance with appl')priate engineering, financial, and public utility practices under the supervision of experienced and competent managers (Section 4\.01); (iv) operate and maintain its plants, equipment, and property, including renewables and repairs, in accordance with appropriate engineering practices (Section 4\.03); (v) provide the Bank by December 31, 1979 with a training program for maintenance and planning, together with an implementation schedule (Section 4\.05); (vi) establish by March 31, 1979 an internal audit department under terms of reference determined after consultation with the Bank (Section 4\.06); (vii) appoint by June 30, 1978 a qualified chief financial officer after prior consultation with the Bank; and consult with the Bank before changing the chief executive officer, chief financial officer, and chief technical officer (Section 4\.07); (viii) seek Bank review of a construction schedule for the 70 MW oil- fired steam units proposed for Old Harbnur and Hunts Bay (Section 4\.08); (ix) furnish the Bank wv1h an audited financial statement four months after the end of the fiscal year (Section 5\.02); (x) take all necessary action to provide revenues sufficient to produce a return of 82 p\.a\. for the years 1978-1980, and 8\.5% annually thereafter (Section 5\.04);  ANNEX 2\.1 -21- Page 2 of 2 (xi) carry out a revaluation of gross fixed assets in operation as of December 31, 1976 by June 5, 1978; and revalue such assets annually or at such other times as the Bank snd JPS agree (Section 5\.05); (xii) seek prior Bank agreement before incurring debt unless gross internal cash generation for the immediately preceeding twelve months exceeds debt service for any succeeding fiscal year by not less than 1\.5 times (Section 5\.06); (xiii) limit short-term borrowing to no more than one-sixth of cash operating expenses incurred during the twelve months immediately preceeding (Section 5\.07); (xiv) undertake no major works defined as two percent of revalued gross fixed assets not included in the agreed expansion program without first providing the Bank with a satisfactory technical and economic justification and a corresponding financing plan (Section 5\.08); and (xv) complete by September 30, 1978 a feasibility study on the monthly billing of customers and discuss the results of this study with the Bank by December 31, 1978 (Section 5\.09)\. 2\. The Guarantee Agreement obligated the Government to: (i) cause its agencies to take all action necessary to enable the Government to carry out its obligations under Section 5\.04 of the Loan Agreement (Section 2\.01); (ii) provide funds to complete the project if there is reasonable cause to believe that JPS lacks such funds (Sectiont 2\.02); consult the Bank before changing the position of chief executive, chief financial officer, and chief technical officer (Section 3\.02); and (iii) carry out a sector organization study satisfactory to the Bank by December 31, 1979 (Section 3\.03)\. 1/ 3\. JPS and the Government complied with all major covenants set forth above, except the financial covenants\. Chapter 5 discusses the tariff and financing policies of JPS and the Government\. 1/ The Government did not carry out the organization study; and the Bank did not insist on its being carried out\.  -22- ANE 3\.1 JJAZ4AC& PUBLIC SUVICs CONPANT UPS) ECOWD EPROJMCT (1216-3M Actual gad Forecat Project Cost g Souce of FiMaGnci (in thousands of current U3$) Percent (1) difference Actual Forecast from Cate Loal JForeSi Total Lo¢al Foreia Total Forecast Transmission 5,585\.5 2,416\.3 8,001\.8 4,075\.9 5,195\.1 9,271\.0 -13\.7 Substations 6,244\.2 5,876\.0 129120\.2 19515\.0 49964\.0 6,479\.0 87\.1 Distribution 1,160\.1 4,160\.3 5,320\.4 3,610\.0 4,041\.0 7,651\.0 -30\.5 Consultants 122A71Z 2\.413\.9 42361\.1 1lf400, 12OO- 3100\.1 0 4007 Sub-totall/ 16,110\.0 14,866\.9 30,976\.9 10,600\.0 15,900\.0 26,500\.0 16\.9 Price Contin- gency jS51\.0 4\.504\.1 11,055\.1 Q 4J \.100\.0 9\.600\.0 15\.2 Total 22\.661\.0 371* 42\.020 i4lb5Yj20l:Q 36,100\.0 16\.4 prgolet Finacl\.n IBRD 0\.0 19,371\.0 V1'371\.0 0\.0 20,000\.0 20,000\.0 -3\.1 JPS 22\.661\.0 000\.0 22\.661\.0 16,100\.0 Q0000\.0 16\.100\.0 40\.8 Total 22\.661\.O 192371\.0 02\.0 j8 20\.00e\.0 36\.100\.0 16\.4 1/ Stated in 1977 prices\.  -23- ANNEX 3\.2 JA-WCA Page 1 of 4 JAWHICA PUILIC 1SEVICE COMPANY (JPS) sCgONlOWER PtOJECT (1616-3M) Prolect Chaes and A Ua and Fogecast Coomletion Dates CWuletiot, Dates Component CotM\.ntar Actual Forecast (A) Construction of Transmission Lines 1\. Lines at 138kV L\. Duncans-Bogue Completed with a delay of 7182; 3182 (40 miles) four montbs\. JPS delayed become initial imleantation opera- activity (preparation of tional biddin documets) by five about 2184 maoths due to slower-than- However epected mrket growth\. at Bogue JPS Enginerin Department istalla- exhibited substantial weak- tion of ness In all phases of pro- equipment curement process according continued un- to Bank supervision til about missions\. Special 7184\. effort during isttalla- tion helped to overcom other factors contributin to delays (issung purchase orders, establishing letters of credit, exceslve delivery periods, and strikes)\. Li\. Tredegar-Belle- Consltants found Trodogar- 7182; 3182 vue (25 miles); Bellvu to be leat cost; opera- or Duncans- and Bank agreed with this tionalt Bellevue (43 finding\. Completed with a 11/83 miles); which- delay of four months due ever wa least to same factors as set cost\. forth above\. 2\. Lines at 69kV i\. Annotto lay- Completed with a delay of 7/82 9/80 Oracabessa about 20 months reflectig opera- (22 miles) sme factors as set forth tional: above\. 12/83  ANNEX 3\.2 -24- Page 2 of 4 Completion Datg Component Commentarv Actual Forecast ii\. Greenwich Road- JPS obtained Bank agreement Not 12/79 Cane River to the deletion of this line Appli- (12 miles) from the Project due to the cable availability of alternative (NA) financing\. iiAi\. Annotto Bay- JPS obtained Bank agreoment NA 9180 Port Antonio to the deletion of this line (24 miles) from the Project due to slower-than-expected market growth\. (B) Substations 1\. Stations at 138169L24kV L\. Expansion of Expansion of substations 3183- 3/82 Tredegar and and/or installation of equip- 2/84; Duncans to ment, completed as expected\. opera- accommodate JPS delayed initial Imple- tional: 138kV trans- mentation (preparation of 11/83- mission lines; bid documents) because of 2/84\. installation slower-than-expected growth\. of 25MVA, 138- This delay was later cow- 69kV at Bogue pounded dy delays in other and Bellevue; phases of implementation, in- installation cluding weakness in JPS of 12\.5 MYA Engineering Department, 69-24 kV at work stoppages and Bogue, Duncans poor contractor performance and Bellvue\. at Bellevue and Duncans\. Delay amounted to 23 months\. 2\. Stations at 69/24kV (other than Bogue, Duncans, and Belle- vue) I\. Expansion of With Bank agreement, JPS NA 6/80 Cane River to deleted these items from the accomodate 69kV ProJect (see A\.2\.11 and transmission A\.2\.i1i)\. line; and installation of 6\.25mVA, 24kV at Port Antonio\. ii\. Installation of Installation was completed 6-8183; 12/79 12\.5 MVA, as expected but with a delay opera- 69/24kV at of 18 to 20 months\. This tional: Parnessus, delay reflected the same 12/83- Duhaneys, factors as set forth 2/84\. Annotto Bay, above\. and Spur Tree\.  ANNEX 3\.2 -25- Page 3 of 4 Completion Dates Component Commentary Actual Forecast lii\. Installation Installation was completed 12/83; 12/79 of 90 MVA, as expected\. Delayir4 opera- 69124kV at factors cited above\. tional: Hunt\. Bay\. 12/83 iv\. Installation Installation was completed 6-8/831 NA of 12\.5 MVA 69/ as expected\. JPS added this opera- 24kV at Kendal component to the Project tional: with Bank agreement\. 1/84 v\. Rehabilitating Not part of the original 12/83 generating project description\. Bank units at Old agreed (January 19, 1979) Harbour and to amend project description Hunts Bay; and to include items to be the purchase of financed by the OPEC spare parts for Special Fund (US$3\.3 the operation million; loan 109P)\. and maintenance OPEC loan agreement wes of the power signed December 19,1978 system\. but did not become effec- tive until April 30, 1980 due to GOJ administrative problems\. vi\. Provision of Not part of the original No NA communications project\. Communications equip- dates and supervisory ment lnstalled as expected; on control and data SCADA equipment deferred commis- equipment (SCADA) to Third Power Project sioning (1516-JM)\. Bank of equip- agreed (October 6, 1980) ment\. to amend project descrip- tion to include purchase of new equipment\. (C) Distribution Equipment i\. Installation Because of changing 12/83 6182 of 45 MVA of priorities, some distribution sub-projects originally transformers, identified 300 circuit were deleted\. A miles of 24 supervision report and 12 kV (11/15183) stated lines and that JPS had installed 220/110 volt 6000 meters of distri- lines, 20,000 bution line; purchased meters, and 60 MVAR of capacitors, 140 MVAR of of which about 6\.5 MVAR capacitors\. had been installed; and  -26- ANNEX 3\.2 Completion DatePage 4 of 4 Component Commentary Actt'al Forecast purchased 1002 of the material for this program\. The project progress reports contained little additional information on this part of the Project\. (D) Consultant Services i\. Design and prep- Completed, as expected\. 12t82 3/82 aration of con- tract documents, plus supervision of construction of 138 kV lines and substations\. ii\. Improvemnt of Completed, as expected\. 3/82 3/79 distribution practices\. iii\. Improvement of Services continued un- NA 12/79 generation under Third Power Pro- ject (2188-JM)\. iv\. Tariff studies With Bank agreement, JPS NA 9/78 funded this study with resources provided by the US Government\. As the completed study was not in line with the draft terms of reference approved by the Bank, JPS and the Bank agreed to include a tariff-structure study in the proposed loan for the fourth power project\.  -27- ANNEX 3\.3 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (1516-JM) RESULTS OF RAINING PROGRAM ITEM COURSE DESCRIPTION 1/ NO OF PERSONS Actual Forecast 1 Intensive Programm in PoWer Plan Operations 1 - 2 Plant Thermal Efficiency Operations 1 5 3 Maintenance Planning 1 - 4 Steam Turbine Major Inspection & Overhaul 1 - 5 Instrmentation 1 6 6 Steam Turbine Operation & Maintenance 2 - 7 Inspection, Testing & Maintemance of 9 5 UHF Equipment 8 VHF Transceiver Maintenance and Caliberation of 4 5 Test Equipment 9 Power System Protection 1 10 10 Relay Testing & Maintenance 20 5 11 Watthour Maintenance 20 15 12 Cable Installation, Testing Maintenance 20 - 14 Oil Circuit Recloser 20 - 15 Distribution Seminar 20 - 16 IEEE Transmission & Distribution Exposition 2 - 17 Boiler Operation 1 - 18 Short Courses for Finance & Administrative 5 25 Staff 19 Short Courses for Technical Staff 9 - 20 Power Systems Engineering - 5 21 SCADA (Supervisory Control) - 5 22 Line Instructor Development - 5 23 Distribution System Planning - 5 24 Electric Utility Execution Development - 20 25 Human Resource Development - 20 26 Safety Program Administration - 10 27 Spedtronic - Control for Gas Turbines - 5 1/ Does not include training program to be carried out in Jamaica\.  -28- ANNEX 3\.4 JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (1516-JM) Actual and Forecast Cumulative Disbursement (in millions of US) Actual as a IBRD Fiscal Year Percent (t) and Semester Ending Actual Forecast of Forecast 1978: June 30, 1978 - 0\.30 - 1979 December 31, 1978 - 0\.80 - June 30, 1979 0\.2 2\.60 7\.7 1980: December 31, 1979 0\.56 5\.10 11\.0 June 30, 1980 6\.34 7\.70 82\.3 1981: December 31, 1980 7\.61 10\.60 71\.8 June 30, 1981 11\.10 14\.10 78\.7 1982: December 30, 1981 14\.50 17\.10 84\.8 June 30, 1982 17\.00 20\.00 85\.0 1983: December 30, 1982 18\.56 20\.00 92\.8 June 30, 1983 19\.03 20\.00 95\.2 1984: December 30, 1983 1/ 19\.30 20\.00 96\.5 June 30, 1984 2/ 3/ 19\.34 20\.00 96\.7 1/ Actual closing date\. Original and revised closing dates were, respectively, September 30, 1982 and July 31, 1983\. /I Date of last disbursements 08/13/84\. SI Cancelled: US$0\.63  -29- ANNEX 3\.5 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (1516-JM) Actual and Forecast Allocation of Loan Proceeds (in US$) Category ActualL/ Revised Forecast (Oct\. 6, 1980) 1\. Transmission Lines 3,427,232 3,400,000 5,100,000 2\. Substations 8,133,757 8,500,000 4,600,000 3\. Distribution Program 5,047,213 5,200,000 4,300,000 4\. Consultants'Services 2,466,343 1,300,000 1,300,000 5\. Personnel Training Program 296,636 600,000 600,000 6\. Unallocated - 1,000,000 4,100,000 19,371,181 20,000,000 20,000,000 1_ Cancelled: $628,819  -30- ANNEX 3\.6 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT j1516-JM) Price Deflator Indexes Jamaican Deflator Foreign Deflator Consumer Based on Construction Based on Price Jamaican Cost Foreign Index Price Index Index Cost Index Year Average 1/ Average Financing 2/ Averaxe 1977 1\.368 1\.000 1\.000 1\.000 1978 1\.731 1\.265 1\.065 1\.065 1979 1\.979 1\.447 1\.167 1\.167 1980 2\.199 1\.607 1\.290 1\.290 1981 2\.439 1\.783 1\.398 1\.398 1982 2\.707 1\.979 1\.493 1\.493 1983 3\.194 2\.335 1\.528 1\.528 1984 4\.339 3\.171 1\.550 1\.550 1974 a 100 1/ Sources Department of the Interior, US Bureau of Reclamation: Switchyards and substations\.  -31- A11iiE 4\.1 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (LOAN 1516-JM) &ctual\. Forecast and Revised Sales\. 1977-1989 (in GWh) Actual Percent (S) and Difference Year Revised Forecast from Forecast 1977 1,136 1,134 0\.2 1978 1,136 1,184 -4\.1 1979 1,060 1,255 -15\.5 1980 1,023 1,349 -24\.2 1981 1,017 1,457 -30\.2 1982 1,079 1,573 -31\.4 1983 1,172 1,700 -31\.1 1984 1,157 1,835 -36\.9 1985 1,159 1,982 -41\.5 1986 1,177 2,141 -45\.0 1987 1,213 2,313 -47\.6 1988 1,266 2,498 -49\.3 1989 1,310 29698 -51\.4 Average anuual sales growth (Z): 1977-1983 0\.5 7\.0 Average annual sales growth (Z)s 1983-1984 1\.9 800 Sumary Sales 1977-1983 7,623 9,652 -21\.0 Summary Sales 1984-1989 7,282 13,467 -45\.9  -32- ANNEX 4\.2 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (LOAN 1516-JI) Return on Investment Invstinent Fuel Other Total Marginal Marginal Not Year Costs Costs Costs Costs Sales Revenues Benofits (---stated in thousands of 1977 JO----) (in CWb) (stated In thousands of 1977 J8) 1978 11,184 - - 11,184 - - -11,184 1979 14,558 1,Ug8 1,242 17,168 46 6,040 -12,128 1980 25,730 1,757 8,257 30,762 92 12,015 -1,737 1911 32,948 6,514 5,858 44,818 141 20,818 -24,500 1912 25,058 8,168 8,882 86,683 192 26,179 -9,513 1983 21,977 14,083 8,714 45,624 282 85,222 -10,302 1984-2009 - 14,833 8,714 23,547 282 35,222 11,676 Rturn on Investwent: 9\.6%\.  - 33 - ANNEX 5\.1 JAHAICA Jasaics Public Service Coepan1 (JPS) Second Poaer Project (Loan 516-JN) Aktual and Forecast Key Financial Ratios, 1977-19B3 Suaury Ratios, 1977 1978 1979 1980 1981 1982 1993 1977-83 1\. Return on Revalued Assets (1) \. ---- ---- --- - ---- ------- Actual 5\.00(EI 6 2 -1 -3 -3 6 1 Forecast 6\.90 a a 8 a 8 a 7 2\. Debt Service Coverage (times) kAtual 1\.2 0\.9 1\.2 0\.8 0\.6 0\.4 1\.4 0\.9 forecast 0\.7 1\.1 1\.4 1\.9 2\.3 2\.3 2\.6 1\.7 3\. Self-financing Ratio (%) Actual 16 -10 33 -6 -58 -169 42 -I Forecast -37 17 25 40 50 45 57 35 4\. Operating Ratio (Z) 1/ linclud8ng fuel costs) Actual h6 65 75 86 90 92 74 81 Forecast 64 62 62 63 63 64 65 63 5\. Operatinq Ratio I%) I/ (excluding fuel costs) Actual 30 27 25 27 26 25 25 26 Forecast 30 30 30 31 31 31 31 30 6\. Debt-equity Ratio iX) (incl\. revaluation reserves) Actual 45 38 35 36 39 41 34 38 Forecast 41 34 30 28 26 25 24 30 7\. Current Ratio WX) Actual 1 2 1 1 1 1 1 1 Forecast 1 2 2 \. 2 2 2 2 S\. Days Outstanding Actual 92 67 89 8? 64 74 75 80 Forecast 72 70 69 67 66 65 68 9\. dereciation as a Percent ;X) of hverage Bross Fixed Assets Actual 4\.501E) 5 4 4 4 4 3 4 Forecast 4\.00 4 4 4 4 4 4 4 * ExYept for items 2 through 5, all ratios are annual averages\.  Ja4idca Puiiic Service Cop any liFSi Second Pow Project iLoon 1516-Jtil Actual and forecast Incoe Stateents, 1977-1983 Sue arv Iiff erence (in thousanum of current JSt State sent fr Om 19 77 19 78 19 79 19 80 19 81 19 82 19 93 117- 193 Apwpr aisal A-Euit- -7WO eil-Attuil- ForecisEl Actuit- ForeisEi A-ctuil rorecisE AcEui1 rO ciigE Actuil rKeiiR Atifti Eroe-isE AEfuil ForeciisE Aiif PciEii GlIb meles ai,creas over previmu yea! Ai) 1\.4 1\.3 \. 4\.4 -G\.I 6\.0 -3\.5 7\.5 -0\.6 0\.0 b\.l 8\.0 8\.6 8\.1 Soles 16(hl 1136 1134 i\.0 11Z4 I,'6b 1255 1023 134 1017 1457 1079 1573 1172 1700 75C6 9652 -2066 -21\.40 IUit one Tariff ( cents) 5\.s4 S\.94S ',1 \.q5 s i\.I1 7\.47 10\.39 8\.13 11\.66 8\.66 12\.72 9\.27 14\.93 9\.74 10\.32 6\.19 2\.13 25\.9 Unit Fuol Claus\. IJ centil 2\.83 2\.44 4\.33 2\. 7\.09 3\.06 10o\. 3\.37 14\.03 3\.77 14\.25 4\.15 14\.34 4\.5b ;\.62 3\.54 6\.08 l71\.BS Unit Average rvie U cents) 6\.76 8\.37 1I\.63 °\.b7 16\.21 30\.53 21\.00 11\.50 25\.69 12\.43 26\.98 13\.42 29\.17 14\.31 19\.94 11\.73 9\.21 69\.9, Rbev ae at Sas\. tariff t440 67314 8299 92302 9613 93762 106317 109663 119552 126212 137300 145811 17300 165653 793013 790717 -7704 -0\.97 Fuel Claw Revm 32129 27624 49151 32134 75165 38416 1064 45421 142700 54958 153796 4526 16032 77M 729436 41405 388031 113\.66 Tol Operating rvenues 954 94938 132142 114436 171779 132178 214780 155084 261252 181170 29106 211075 341832 243241 3512449 3132122 380327 33\.59 Operating Expnwse Fewl 35677 31604 50012 36300 87296 41100 125718 49800 166916 58100 193493 69500 167897 82400 82720 36980 458409 124\.30 Operating Expenses (Ron fuel) 21411 I9698 24448 23773 28936 28457 3M577 34060 4606 40057 52335 47107 58335 55 273648 249540 2510B 10\.10 Ienteance 9702 9050 11276 10337 13431 11810 15S5 13385 20267 15413 21665 17603 26317 19132 120203 96730 23473 24\.27 Sub-total 65990 60339 95756 70410 129643 91367 18310 97245 235799 113570 267493 134210 25254S9 15930 1221060 714070 506"0 71\.00 DepeC,atiu 9O9 146U 25709 17404 31003 20631 36981 23823 39886 27334 41979 31625 47815 36213 243353 171698 71655 41\.73 Taxes 0 36' 0 37t 1OI1 380 0 39Q 0 400 0 400 0 400 1010 2700 -1694 -62\.59 Total Operating Expenses 85970 75366 111465 98384 161656 102378 2021 121459 275675 141304 309472 16235 300364 193543 1465423 198468 576955 64\.9 let Operating lncom 13599 19572 20677 26252 10122 29900 -6041 33626 -14423 39866 -18376 44840 41468 4b969 47026 243654 -IS6t28 -80\.70 Interest cwarges 10049 12763 i5058 12901 16722 11856 20851 11394 26769 1138 27108 12822 45976 1346 162433 b6586 75847 07\.60 Less: Interest cigd\. to constr\. 1187 1218 1004 112S 2470 1235 3703 3897 3592 2973 4541 087 4934 6390 23431 18929 4502 23\.78 Net interest pnse 8862 11545 14054 11772 14252 10421 17149 9497 23177 9411 20567 735 44942 7076 139002 67657 71345 105\.45 Net incone bfore non-op\. expense 4737 8027 6623 14466 -4130 I179 -2;108 24129 -37600 31455 -3643 36305 526 42422 -91976 175997 -267973 -152\.26 Acurtazation of debt discont I exp 2167 0 1050 0 43n 0 474 0 334 0 518 0 386 0 5395 0 5385 N\.A\. nIt incone 255S 807 5573 144U66 -45o6 19179 -2363 24129 -37S34 31455 -39461 36105 140 42422 -9731 175997 -273358 -155\.32  JANAICA JaeILa Public Service Coepany tJPS) Second Powr Project (Loan 1516-JiI Actual and Forecast Sources and Applications of Funds, Sm ayr 3977-1983 State Met, 9iff eroec lin thousands of current J$) r as 19 77 Li 79 19 79 19 80 19 S1 19 82 19 93 1977- 183 Ap isal -AcEEiit--FRK;eis -AXtiT--fWK0 isEG~ciil-'FWK0is WfUt-iWFRetIs -6ttilU-ForR cisE Gir--T~FWRr7if -Affia-~ForfifR E 10fil WRcisE tR SWRCES OF FW1S Intal Cash ewation Net (pwratiog Incmo3 1399 19572 20677 26252 11132 29800 -601 33626 -14423 39866 -18376 4480 41468 496 48036 2435 -956116 -B\.O DWrKeiatieO 1991O 14668 25709 17404 31003 20431 36931 23823 368" 2m4 41979 31625 47B15 34213 24353 171H16 71815 41\.73 CuistomeAdvance etc\. 707 0 564 (' 848 0 83 0 1595 0 5029 0 5121 0 14699 0 14499 LA\. Bross Internal tash 6e\. 34216 34240 46950 4365o 4293 50431 31775 57449 27058 67200 28632 76465 940 6911 30 415 -1094 -2\.31 Lesst Debt Service, D:va- deeds, & incom tax Aortization 39029 34453 36018 26125 19127 23643 16870 18865 22713 17410 32146 19522 23442 20143 68345 160161 8204 5\.12 Interest Expese 8862 11545 14054 11772 14252 10621 17148 9497 23177 8411 20567 8735 40942 7076 1390 6747 71345 148\.85 hividnds 169 169 149 1,9 lo9 169 169 169 169 169 169 169 169 169 1193 1113 0 11\. Incoe Tax 0 0 0 150 6 6754 0 9495 0 12196 0 15020 0 17963 0 61478 -61473 N\.A\. Total Deductions 27060 46167 50241 38214 33546 4V187 34187 38026 46059 38106 52862 43446 64573 45251 30W50 290479 8t071 6\.22 Net Inter\. Cash 6eneration 7226 -11927 -3291 5446 9435 9244 -2412 19423 -19001 29014 -24250 33019 29931 40660 -2462 124873 -127335 -103\.9i Loq-tere borrowings 27956 26425 27025 14413 19744 20528 37337 26547 33131 26919 31292 33401 34483 30405 209970 178803 31167 17\.43 Equity Contributions 1OOO0 17593 10000 11?62 0 7250 4770 2325 18o61 2362 7318 7438 6467 0 57414 48750 86" 17\.73 Total Sources 45104 32091 31734 io4\. 261 4 37t22 39695 4a255 32991 58295 14360 73856 70791 71265 264924 352426 -87502 -24\.83 APPLICATIONS OF FUNDS Construction Espeoditures 21294 28174 14148 28:51 21065 14o9e 41361 438e6 58743 4704 51164 o6737 51755 66469 25950 315255 -55m -17\.68 Chng\. in Non-Cash trttig Capital 4968 3977 8535 1649 \.191B 3202 15067 371; -22351 3782 -32664 3U8 l1149 3549 -2578 2550 -20138 -110\.09 Chng\. ln Cash S Doeand Loans 18578 418 9923 484 -52'2 -So -17957 1536 -5757 8364 -443 4234 4029 2047 3101 14997 -13188 -1\.74 other Appications 344 -478 1128 -744 468 -76\. 1224 -656 2356 -915 -3697 -601 3048 -B00 4371 -5376 10247 -390\.6 total Applications 45194 32091 33734 34640 \.8179 37022 39695 49255 32991 58295 1436V 73858 70791 71265 244924 352426 -97502 -24\.83 I  JAMAICA Jaaica Pualic Service Company (JPS) Actual t Forecast Balance Sheets, 1977-1978 (in thousands of current J3) 1977 1976 1979 1980 1981 1992 1993 ASSETS AKEuiitKiii E BEEaT Freii A iTu FiIRiU AEt"rit AtEli1uaI' Forecast -AMR-rar-a5u E_C1i'RFisVi! Bross Utility Plant in Service 466769 400390 674390 469800 790492 548246 960425 636915 1013974 729792 1105156 951447 19097 959241 Leist Acctual ated Depreciation 177717 93525 256184 120285 327532 152948 4839 192042 478520 2339 540070 26940 99002 35170 net Utility Plant in Service 289052 30685 418206 349515 462950 395298 553586 444873 535454 493153 56506 561907 9239 607451 llwk in Progress 24740 11950 24679 10730 35709 13962 32609 23980 74246 35489 67295 46252 99640 81S57 Total Met Fited Assets 313800 318715 442885 360245 498659 409260 586195 468853 609700 528642 632381 60159 1029179 689006 Current kssets Cash q76 llhu 736 1644 943 1548 2321 1548 3504 8386 2060 12620 2539 1467 kcounts Receivable 2250i5 Ie72' 31343 21939 41854 25030 51386 29233 46059 33422 59111 30370 69843 43319 Materials and Supplies 569( 8700 7098 10000 17039 11000 23604 12000 22500 13000 23033 14000 37912 5S0 Deferred Fuel Costs & Other 0 0 4266 0 8847 0 12342 0 17391 0 i3323 0 14535 0 Total Current Assets 291o1 2BS87 43443 33583 68683 37578 89653 42781 89454 54808 97527 64990 124829 72986 Deferred Expenditures 3835 34382 1243 29271 1800 24166 3024 20347 5380 16843 163 14029 473 t1o182 Long-ter ReKeivables 845 851 1431 1341 1748 1980 1748 2473 1746 3125 1746 3436 1748 3782 Total Assets 347641 382535 489002 424440 570890 472884 680620 534454 706282 603418 733339 690614 11608? 7765 EDUITY & LIABILITIES Preference Shares 2933 2933 2933 2933 2933 2933 2933 2933 2933 2933 2933 2933 2933 2933 Ordinary Shafres 38196 45789 48196 57571 48196 64821 50696 67146 57696 6956 57696 76946 97496 76944 Share Pre iua 269 269 269 269 269 269 269 269 269 269 269 269 269 269 Debt Redemption Reserve 19163 10822 37511 19972 46724 27023 46254 37649 19633 53255 3571 71357 29998 93000 Surplus fros Revaluation 114043 153876 199582 194559 240576 219507 289245 259061 293878 299120 286644 343525 526441 394116 Total Equity 174604 213689 288491 265204 340698 314553 389397 367078 374409 425085 351113 495030 657337 567n Bovernment Advances 0 3647 0 0 0 0 15191 0 27052 0 34370 0 837 0 Long-two Debt (inc\. cur\. mat\.) 140806 145150 174690 137290 183919 134175 205971 141817 210945 151326 207253 165205 336172 175667 Total Long-tern Debt 140806 148997 17469u 137290 183919 134175 221162 141817 237997 151326 241623 16205 337009 175667 Current Liabilities Demand Loans 15329 3062 5631 3062 11110 3062 30445 1526 37385 0 36384 0 32834 0 Accounts Payable 9275 9257 11386 10610 23642 12038 24983 14121 35465 16180 70216 1753 69560 21497 Custooer Advances & Deposits 4479 4339 5043 4142 5891 5580 6726 6286 8321 7038 13350 7599 18471 8099 ccrued Interest, Dividends, & Tax 3146 3191 3761 4132 5630 3468 7907 3626 12685 3799 20651 4029 45276 4329 lotal Current Liabilities 32231 19849 25821 21946 46273 24156 70061 25559 93876 27007 140603 30381 166141 33925 Total Equity & Liabilities 347641 362535 489002 424440 570890 472884 680620 534454 706282 603418 733339 690616 1160487 776658  -37- ANNEX 6\.1 Page 1 of 2 JAMAICA JAMAICA PUBLIC SERVICE COMPANY (JPS) SECOND POWER PROJECT (LOAN 1516-Ji) Actual and Forocast Indicators of Performance\. 1978-1988 1978 1979 1980 1981 1982 1983 Market Penetration 1\. OWh Sold: Actual 1,188 1,06O 1,023 1,017 1,079 1,172 Forecast 1,184 1,255 1,849 1,467 1,678 Not Appil- cablo (N\.A\.) 2\. CWh sold to commercial and Industrial customors: Actual 884\.7 568\.8 588\.8 657\.2 005\.5 670\.4 Forecast 864 700 716 761 807 N\.A\. 3\. GWh sold to resi- dential customers: Actual 851 880 818 315 829 385 Forecast 376 400 442 484 538 N\.A\. 4\. Averago No\. of customers (O0): Actual 208\.6 216\.0 226\.5 234\.6 248\.9 247\.2 Forecast 205\.6 221\.0 287\.5 265\.8 274\.8 N\.A\. 5\. Average No\. of residen- tial customers (0N0): Actual 177\.7 189\.9 199\.6 208\.4 218\.4 220\.7 Forecast 179\.1 198\.4 208\.9 226\.8 243\.8 N\.A\. 6\. Percent (%) of house- holds served (National): Actual 88 40 41 43 48 48 Forecast 41 44 47 60 52 N\.A\. 7\. Porcent (M) of houso- holdo served In Kingston area: Actual 55 54 53 58 54 59 Forecast 84 87 40 48 44 N\.A\. 8\. Percent (M) of house- holds corved outoide of Kinaton: Actual 88 88 a8 a8 40 41 Forecaot 84 87 40 4 44 N\.A\.  -38- ANNEX 6\.1 Page 2 of 2 1078 1979 18 198 1982 1988 9\. No\. of Employess: Actual 1,799 1,765 1,799 1,896 1,920 1,954 Forecatt 1,780 1,811 1,847 1,889 1,890 N\.A\. 1G\.Customers/EbpI eye\.: Actual 114 122 126 124 127 127 Forecast 116 122 129 187 145 N\.A\. 11\.0Mh sold/employees: Actual 9\.686 9\.69 0\.570 0\.88 0\.682 9\.698 Forecast 9\.685 0\.698 9\.789 0\.779 0\.882 N\.A\. 12\.Losse (X of nab generation:) Actual 17\.0 17\.6 19\.8 20\.2 19\.9 19\.5 Forecast 12\.5 12\.0 11\.5 11\.9 11\.9 N\.A\. 13\.Power Factor (at system peak): Actual 0\.66 0\.66 0\.05 0\.87 0\.85 0\.88 Forecast 0\.92 0\.94 0\.95 0\.95 0\.95 N\.A\. 14\.Average boat rate: (BTu/kWh): Actual 18,134 14,841 14,5t2 14,895 15,267 14,028 ForOcast 18,899 1,0799 18,6 18,600 13,6" N\.A\. 15\.Outagos (Min/ customer): Actual N\.A\. N\.A\. N\.A\. 7,029\.8 2,476 N\.A\. Forecast 2,100 1,899 1,59 1,200 1,000 N\.A\.  NOTES

APPROVAL

P116360

 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I\. Basic Information Date prepared/updated: 08/24/2011 Report No\.: AC6303 1\. Basic Project Data Country: Rwanda Project ID: P116360 Project Name: Promoting Economic Empowerment of Adolescent Girls and Young Women Task Team Leader: Christopher Finch Estimated Appraisal Date: November 23, Estimated Board Date: May 19, 2011 2010 Managing Unit: AFTCS Lending Instrument: Technical Assistance Loan Sector: Vocational training (75%);Secondary education (15%);Other industry (10%) Theme: Improving labor markets (33%);Social risk mitigation (33%);Other human development (17%);Other social development (17%) SPF Amount (US$m): 0\.00 GEF Amount (US$m\.): 0\.00 PCF Amount (US$m\.): 0\.00 Other financing amounts by source: Borrower 0\.00 Free-standing Single Purpose Trust Fund 2\.70 2\.70 Environmental Category: C - Not Required Repeater [] Is this project processed under OP 8\.50 (Emergency Recovery) Yes [ ] No [X] or OP 8\.00 (Rapid Response to Crises and Emergencies) 2\. Project Objectives 1\. The development objectives for the project are to improve employment, incomes and empowerment of targeted disadvantaged adolescent girls and young women (age 15- 24 years), in two urban and two rural districts of Rwanda, and to test two integrated models for promoting education, empowerment and employment\. 3\. Project Description 2\. The project will assist adolescent girls and young women to establish small businesses or to resume their formal education\. Being a pilot project, it will draw upon the Bank’s comparative advantage in conducting rigorous impact evaluations of new initiatives\. 3\. The project will have three components: i\. Vocational skills and support for entrepreneurship; ii\. Scholarships to resume formal education;  iii\. Project implementation support\. Component 1: Vocational skills and support for entrepreneurship 4\. The objective of this component is to provide the necessary skills and support to aproximately 2,700 adolescent girls and young women in two urban and two rural districts of Rwanda (the proposed districts are Rulindo, Gicumbi, Gasabo and Kicukiro), to enable them to establish themselves in profitable small enterprises\. The interventions will provide them with a set of technical, business and life skills, along with institutional and social support, mentoring and links to credit\. The component is built on a public- private partnership and on an integrated and phased approach to bringing disadvantaged adolescent girls into the labor market\. Component 1 will account for 77\.6% of project costs\. 5\. Training will provide occupational skills for which demand is anticipated to expand in the future\. An assessment undertaken during project preparation identified opportunities for self-employment in a number of areas including: agro-processing (e\.g\. food processing, honey production, baking, juice processing), clean and sustainable energy, culinary arts, and arts and crafts\. Training curricula will stress the development of industry-based technical skills\. Life skills training will address crucial gaps to the access of adolescent girls to the labor market in Rwanda\. 6\. As the minimum age for cooperative membership in Rwanda is 16, project beneficiaries under Component 1 must be between the ages 16 to 24 at enrollment\. Project beneficiaries will receive a daily stipend during the program\. This will be 700 RWF / day during the induction and technical and skills formation phases, and 300 RWF/ day during the mentoring phase\. From this stipend, 200 RWF/ day for the duration of phase 3 (training) and phase 4 (mentoring), will be deposited in a savings mechanism for each individual beneficiary, accessible only on successful competition of the training program\. Component 2: Scholarships for resuming formal education (secondary S1-S3) 7\. GoR has recently moved from compulsory Universal Primary Education (UPE) to Universal Basic Education (UBE), under which all children in Rwanda have the right to free primary and junior secondary education (6 plus 3)\. This transition implies the cohort of girls who dropped out before the new policy will not be catered for\. The opportunity for this group to complete grades 7 to 9 will improve their chances of obtaining employment and increasing their incomes\. Component 2 will provide scholarships to eligible adolescent girls and young women aged 15-24 years who have dropped out of school but now wish to pursue secondary education rather than vocational training\. Scholarships will be paid as tuition payments directly to schools on behalf of clearly identified candidates as per process described in Project Implementation Manual\. The scholarship program will be administered by the Imbuto Foundation and will account for approximately 14\.6% of project costs\. 8\. The component will adopt a tailored approach to assist 120 women (30 per project district) to return to formal education for three years\. Beneficiaries will be accommodated by one private school in each district\. In those districts without suitable schools, the beneficiaries will be accommodated in a school in a nearby district\. In case one private school failed to accommodate all district beneficiaries, the beneficiaries will then be accommodated in more than one school per district\. Additional support, including a mentorship program and psychosocial support, will be provided to enable participants to catch up with their peers who have remained in school\. One mentor will be assigned to each of the four schools to support the young women in their studies\. Mentors will receive training in psychosocial support, to enable them to identify signs of depression, stress, and trauma among project beneficiaries and refer them for individual counseling as in Component 1\. Project beneficiaries in Component 2 will also participate in Imbuto Foundation’s activities to empower and inform young women, such as their annual empowerment camps\. Component 3: Project Implementation Support 9\. Technical and logistical support will be provided for MIGEPROF and other partner agencies in the areas of project management, and monitoring and evaluation\. The project will be implemented under the Single Project Implementation Unit modality that will be integrated under MIGEPROF\. Support for policy and institutionalization of policies for MIGEPROF will also be provided by the project, for mainstreaming the lessons learned by the project into the Ministry’s policy frameworks and strategic plans\. Activities to be supported must be identified and planned with the guidance of the Project Steering Committee\. Component 3 will account for approximately 7\.6% of the project budget\. 4\. Project Location and salient physical characteristics relevant to the safeguard analysis 10\. The districts proposed are Gasabo and Kicukiro in Kigali (urban) and of Rulindo and Gicumbi (rural)\. 11\. From the field visits undertaken to all districts and sectors, it is clear that there is a serious shortage of physical facilities and equipment for training\. The project would partner with local governments and WDA to upgrade existing facilities for use in the in- classroom training\. Existing locations identified and assessed by local governments, MIGEPROF, and other implementing partners will require equipping as well as minor upgrading (i\.e\. installation of windows and doors, roofing, plumbing, minor internal adoptions for use as workshops/ classrooms, and painting)\. Environmental impacts will be localized and very minor, and upgrading will be conducted in all cases following the corresponding national and local laws and regulations\. This process will not involve the acquisition of land, restrictions of access to resources, or the construction of new structures\. In locations where it does not prove possible to identify potential training location under this arrangement, the project will rent facilities and equip them for the training\. 5\. Environmental and Social Safeguards Specialists Ms Alexandra C\. Bezeredi (AFTOS) Ms Paula F\. Lytle (AFTCS) 6\. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4\.01) X Natural Habitats (OP/BP 4\.04) X Forests (OP/BP 4\.36) X Pest Management (OP 4\.09) X Physical Cultural Resources (OP/BP 4\.11) X Indigenous Peoples (OP/BP 4\.10) X Involuntary Resettlement (OP/BP 4\.12) X Safety of Dams (OP/BP 4\.37) X Projects on International Waterways (OP/BP 7\.50) X Projects in Disputed Areas (OP/BP 7\.60) X II\. Key Safeguard Policy Issues and Their Management A\. Summary of Key Safeguard Issues 1\. Describe any safeguard issues and impacts associated with the proposed project\. Identify and describe any potential large scale, significant and/or irreversible impacts: N/A 2\. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: N/A 3\. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts\. N/A 4\. Describe measures taken by the borrower to address safeguard policy issues\. Provide an assessment of borrower capacity to plan and implement the measures described\. N/A 5\. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people\. N/A B\. Disclosure Requirements Date Environmental Assessment/Audit/Management Plan/Other: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop For category A projects, date of distributing the Executive Summary of the EA to the Executive Directors Resettlement Action Plan/Framework/Policy Process: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Indigenous Peoples Plan/Planning Framework: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Pest Management Plan: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop * If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP\. If in-country disclosure of any of the above documents is not expected, please explain why: C\. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank’s N/A Infoshop? Have relevant documents been disclosed in-country in a public place in a N/A form and language that are understandable and accessible to project-affected groups and local NGOs? All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities N/A been prepared for the implementation of measures related to safeguard policies? Have costs related to safeguard policy measures been included in the project N/A cost? Does the Monitoring and Evaluation system of the project include the N/A monitoring of safeguard impacts and measures related to safeguard policies? Have satisfactory implementation arrangements been agreed with the N/A borrower and the same been adequately reflected in the project legal documents?  D\. Approvals Signed and submitted by: Name Date Task Team Leader: Mr Christopher Finch 05/04/2011 Environmental Specialist: Social Development Specialist Ms Paula F\. Lytle 05/10/2011 Additional Environmental and/or Social Development Specialist(s): Approved by: Sector Manager: Mr Ian Bannon 05/19/2011 Comments:

APPROVAL

P008955

D_\.uumt of The World Bank FOR OMFCIAL USE ONLY Riput No 12325 PROJECT COMPLETION REPORT REPUBLIC OF TuRKEY SECOND HIGHWAY PROJECT (LOAN 2439-TU) SEPTDIBER 17, 1993 MICROGRAPHICS Report No: 12325 Type: PCR Infrastructure and Environment Operations Division Country Department I Europe and Central Asia Region This dooouent has a restricted dibutIon and may be used by repiens ody in dte perfornmnc of thdir official dudes Its contnts may not otberwise be dilosed witdkout Wodd Dbnk audoizatin\.  EXCHANGRRA Currency Unit: Turkish Lira (TI) At Appraisal (12/83)z TI 320 * US$S1\.0 At completion (6/92): TI 7280 * US$1\.0 AB13REVIASIQlE AADT Annual Average Daily Traffic ERR Economic Rate of Return HDM Highway Design and Maintenance Model (an IBRD computer program) ICa International Competitive Bidding PIARC Permanent International Association of Road Congresses KGM General Directorate of Highways ?4PWS Ministry of Public Works and Settlement NTMP National Transport Master Plan SAR Staff Appraisal Report TETEK Trans-Turkey Highway VOC Vehicle operating cost FISCAL YEAR OF BORMOWER JANUARY 1 - DECEMBER 31  FOR OFFICIAL USE ONLY THE WORD BANK W8dhpon D\.G\. 2043 U\.SA Office of Dicltor-O U1w? OSIaltous Rv3utioa September 17, 1993 lE3ZIBDUI TO T1E EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Second Eixhwav Proiect (Loan 2439-TU) Attached Is the "Project Completion Report on Turkey - Second Highway Project (Loan 2439-TU)" prepared by the Europe and Central Asia Regional Office\. Part II contains the Borrower's comments\. The L-an (US$186\.4 million of June 1984) alas to support Implementation of the 1985-1988 investment program encompassed in the Government's National Transport Master Plan\. Specifically, loan proceeds would finance state highway rehabilitation; supply of road maintenance equipmentI improvements in planning and managing road rehabilitation and equipment pools ; staff training; and road safety improvements\. The Loan was closed, with a year's delay, in June 1992, and has been fully disbursed\. All project components yere successfully implemented: highways were upgraded; better contracting procedures and quality control standards were introduced; modern equipment for mechanized maintenance was procured; old machinery was ritten off; extensive staff training was undertakent and safety measures were put in place to reduce highway traffic hazards\. The PCR gives a comprehensive account of the project's inception, preparation and implementation, and emphasizes the good working relationship between the Borrower and the Bank despite persisting disagreements both on procurement practices and the most appropriate use of technical assistance\. Overall, the project is rated as satisfactory, its sustainability as likely and its institutional Impact as substantial\. OED plans to audit this project upon completion of the currently ongoing Third Highway Project\. This docuwent has a restricted distribution rd amy be used by recfplents only in the perfonunce of their official duties\. its contents may not otherwise be disclosed wfthout World Bank authorization\.  FOR OFFICIAL US ONLY RUPULIC OP Zupnnr ELOAN 2439-?U) Table 2f contents pimface ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 2It2 DiFALUTION SUMMARY L \.*\.*** ii PART 1: PROJECT REVIEW FROM BANKS PERSPECT?VE 1 Project Identity \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 Background \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 1 Project bjectives and DesCrLption \. \. \. \. \. \. \. \. \. \. \. 2 Project Objectives \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 2 Project Description \. to\.n\. \. \. 2 Project Design and Organiation \. \. \. \. 2 Project Implementation \. \. \. 4 Loan lffectiveness and start up \. \. \. \. \. \. \. 4 Implementation Schedule and Procurement \. \. \. \. \. \. \. \. \. \. \. 4 Squipment procuremont \. \. \. \. 5 Management of Civl Worlcs \. \. \. \. 5 The Pavement Design Experiment \. \. \. \. \. \. \. \. 6 Project Costs \. \. \. \. \. \. \. \. \. * \. 0\. \. \. \. \. \. \. \. \. \. \. 6 Disbursements \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 6 Loan Allocation \. \. \. \. \. \. \. \. \. \. \. \. \. * 9 \. 7 Training \. * 9\. 9\. 9 \. \. \. \. \. \. \. \. \. \. \. \. \. \. 7 Project Results \. \. \. \. \. \. \. \. \. \. \. * 9 9 * \.*\. 7 Project Objectives \. \. \. \. \. 7 Economic Results \. \. \. \. \. \. \. \. \. \. \. * \. \. \. \. \. \. \. \. \. 7 Project Sustainability \. 9 Bank Performance \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 10 Borrower' Performance9 \. \. \. \. \. \. \. \. \. \. \. \. \. * \. 10 Bank-Borrower/Relationshlp \. 11 Project Documentation and Data \. \. \. \. \. \. 11 PART 11: PROJECT REVIEW FROM TEE BORROWER'8 PERPECTIVS \. \. \. \. \. \. \. 12 Project Design and Organization \. \. \. \. \. \. \. \. \. \. \. \. \. \. 9213 Maintenance and Road Safety \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 14 Equipment Supply Purchaaes \. \. \. \. \. \. \. \. \. \.*\. \. \. \. \. \. \. \. \. \. 19 lxperimental Road Sections \. \. \. 23 Training and Fellowships \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 26 Civil Works Contracts \. \. \. \. \. \. \. \. \. \. \. \. \. 34 Map \. , \. \. \. \. \.9\.* \. \. _ 3 Th document hs a ettced distbutio an may be used by cIent on* in the perfa"oma of theIr oficia dutkes Its contents may no othewise be disdoesd without Worl lank sautorIaton  (Table of Contents Contd) PARTM Ils STATISTICAL NPoRNATZON \. 37 1\. Related Bank Loans \. \. \. \. \. \. \. \. \. \. \. \. 37 2\. Project Timetable \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 38 3\. Loan Disbursements \. \. \. \. \. \. * \. *\. 39 4\. Project Implementation \. \. \. \. \. \. \.41 5\. Project Costs and Ficng \. \. \. \. \. \. \. \.42 Project Costs \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 42 Projeft Flnan¢ing \. \. \. \. \. \. \. \. \. \. 43 6\. Economic Benefits \. \. \. \. \. \. \. \. 44 7\. Status of Covtenants \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 45 8\. Use of IRD Resources\. \. \. * \. * * * 46 Missions \. \. a \. \. \. \. \. \. \. \. \. \. \. 46 Staff Input \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 47 9\. Civil Works Contracts Costs \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 48 ANNXES Annex As Analysis of Contract Delays \. \. \. \. \. \. \. \. \. 49  ±~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ tOAN 2439-YTUi CT~JQ P2032C2R This is the Project Completion Report (PCR) for the Second Highway Project in Turkey, for which Loan 2439-TU in the mount of US$186\.4 million was approved on June 7, 1984\. The loan was closed on June 30, 1992, one year behind schadule\. Project implementation covered all the components included at Appraisal, with the exception of a consulting assignment, and three civil works contracts not comploted by loan closure which have been carried over to the follow-on project\. There was a change made to the Loan Agreement to separate bitumen from the civil works contracts and procure it separately in bulk\. No cancellations were made and the loan was fully disbursed on September 24, 1992; 98\.6 percent of the Loan had been disbursed by the original Closing Date\. The PCR was prepared by the EHENA Technical Department Infrastructure Division on behalf of the Infrastructure and Environment Operations Division of the Europe and Central Asia Department 1, (Preface, Evaluation Summary, Parts I and 1II) and the Borrower (Part I)\. Preparation of the PCR began during a final supervision mission in October 1992, and is based on the SAR, Loan Agreement, supervision reports, aide memoires, ECA files and the records of Xarayolari Genel Mudurlugu (KGO), or General Directorate of Highways, the Borrower's executing agency\.  ICOP TURKEY SECOND HIGHWAY PROJEC ILORN 2439-TUb EVAUATONSUMMARY 1\. 2biRK2tlY35 1\.01 The objective of the project was to support Government's National Transport Master Plan, through assistance with implementation of the 1985-88 investment programme\. The project consisted of: O the rehabilitation of 561 km of state highwayt o the supply of road maintenance equipment to a value of $95 million; and o improvements to the planning and management of highway rehabilitation, and of equipment management\. The project also comprised components for training and road safety improvements\. 2\. ImJl-mntatiLn szie&nce 2\.01 The project experienced a slow start-up due to disagreements over bidding documents, which should have been agreed before Board presentation\. Completion dates for individual contracts were frequently extended to accommcdate shortages of counterpart funds, bitumen, beA weather etc, but work quality was good\. This did not prevent the project achieving an exemplary disbursement performance, with 98 percent disbursed by the original Closing Date\. 2\.02 As this was a follow-on project from the First Highway Project (Loan 2137) implementation was smooth and efficient\. However, the equipment component required a large number of time consuming small disbursements, procedures for which were gradually simplified\. Most of the difficulties concerned with procurement related to the drafting of the specifications, in which practice RGN is now much improved\. There are still areas of significant disagreement over conditions of bidding and contracting, but a constructive dialogue continues\.  iii 2\.03 The Project Coordinator and his staff, with the experionce of two successfully completed projects, have been crucial to the project's success, but staff attrition during projq\.ct implementation resulted in a deterioration in the quality of reporting\. 3\. Results 3\.01 The project's objectives of strengthening KGMIs planning and contract execution capabilitLes through the execution of eight road rehabilitation contracts were well and fully achieved\. Som 560 km of state highway were widened, strengthened to support international axle loads, and provided with widened hard shoulders, to enhance ease of maintenance, safety and traffic capacity\. %GM has developed improved techniques, procedures and documentation for the selection and contracting of works, and their construction specifications and quality control standards were also upgraded\. 3\.02 on the equipment side, new and more appropriate machinery to a value of $95 million was added to RGMOs flret, and spare parts were prccured for renovation of viable equipment\. Equally beneficial, a much larger number of old and inefficient machines were written off\. This resulted in a younger fleet of equipment more appropriate to modern mechanized maintenance, including specialized machinery for motorway maintenance\. 3\.03 Although the consulting budget provided under ahe loan was not utilized, outside assistance was used for studies of road safety, equipment management systems and the design of a pavement management system, all of which led to a strengthened institution\. The skill, speed and volume of XGKo' work in economic analysis also improved\. 4\. Sustainability 4\.01 The excellent physical results of the project, and its good disbursement performance were brought about by improvements in management and techniques in an already accomplished and well-led institution\. As there is low staff turnover in KOM, and the Bank project was implemented with the rect of KOM's investment programme, sustainability is likely to be maintained\. 4\.02 A lively dialogue continued with the Borrower through the follow-on project, and ideas not taken up in the completed project were pursued subsequently\. Continued Bank presence through a series of projects can only enhance sustaiuability\. S\. Overall Agsessmnt 5\.01 The Second Highway Project has been successful\. The civil works programme resulted in the strengthening and upgrading of important sections of the main highway network oriented to export and transit trade ; there was a significant improvement in the age, serviceability and appropriateness of OM"'s equipment fleet; there was also institutional strengthening in the  Lv fields of road safety management, project management and international procurement, pavement design and research, and a significant number of technical staff traveled abroad for training\. The project improved the condition of the road network and led to a stronger institution\. The partnership between Bank and RON continued to strengthen throughout this second project, which in being followed by a third and much larger project\. 6\. FinlUnos and Lessgns 6\.01 Closer agreement should be reached before Bo%rd prosentation on bidding documents and the use of consultants\. The Bank should ensure that staff turnover does not adversely affect the effectiveness of its supervision and project implementation\. 6\.02 The satisfactory outcome of this project is the result of a continuing dialogue with the Borrower, despite occasional disagreements, providing continuity over a series of projects\. The lessons learned by the Borrower and the administrative procedures established during the first project were largely responsible for the success of the present project\. 6\.03 Strong leadership in RON and good support from the Government contributed greatly to the success of the projec\. With a strong institution as a partner, a thorough preparation was possible, resulting in a smoothly implemented project\.  REPUBLIC °F TURKEY asECON HIGHWAY PROJECT ILOAN 2439-T=l Mg=EC oDMPLETXDN REPORT PART 14E&G RE*STJVIEW ERM ANMI8 pAR8ghQTXV 1\. tQ;oieCt Identity Names Second Nighway Project Loan No\.: 2439-TU RVP Unit: Europe and Central Asia (formerly EMENA) Country: Turkey Sectors Transport Subsectors Highways 2\. Nackq=und 2\.01 The project followed directly the Bank's first operation in the highway subsector, the First Highway Project, Loan 2137 of 198231\. Both projects took place during a period of rapid growth in the Turkish economy, and were primarily directed towards facilitating exports and helping Turkey fulfill its historic role linking Europe and Asia\. 2\.02 Bank lending to Turkey in the transport sector began in 1950 with two back to back loans to the port sector, and to date there have been four port, two railway and three highw ; projects, though there was a nineteen year gap after the two port projects\. There has been one further highway loan since Loan 2439k (see Part 1II, Table 1), and one railway loan is still active\. 2\.03 Lending for highways did not begin until 1982, by which time Turkey had produced its first Transport Master Plan and sought Bank assistance with its implementation\. originally assistance was sought for the TEM (Trans European Motorway), but the Bank felt that the main road network was more important and declined support for the TEM\. The Government then invited the Bank to participate in a sector loan which did not materialize\. Finally in 1981 the Bank was invited to participate in the Trans Turkey Highway Project (TETEK), which consisted of strengthening and bringing to a consistent standard, two main West - East axes of existing state roads\. The first project laid the ground work for sound project development, planning and implementation and was very successful\. A good dialogue was developed, which lead without a break to the project herein described\. There were, however, disagreements over some procurement and policy matters from the beginning and same still remain unresolved\. v/ Actually named Highway Rehabilitation Project v, In this report the Hlghway RehabilLtation Project is referred to as "the first project", and the State and Provincial Roads Project as "the follow-on project"\.  2 3\. Proiect qhiectiv and Dscr1pti2on 3\.01 Proioet Objectives\. The moin objectives of the project were lnepired by the 1982 National TranseV'rt Master Plan (NVWP), for the years 1983-93, and were to support RGO in the preparation and implementation of a sound investment programme, through aailstance with the implomentatLon of MGWMs 1985-88 programme\. More specLfically the objectives were tot (a) promote highway planning and control systems for capital and maintenance works* (b) rehabilitate and strengthen sections of highway yielding quick bernefits and promoting exports; (c) develop a management system of a well balanced equipment fleet in KOM; (d) develop road pavement research and management; (e) ensure appropriate road user taxation for heavy vehicles; (f) provide training for XGM staff; and (g) continue the highway safety programme begun under the provious project\. 3\.02 Proiegt Descrigtion\. The components of the project were: (a) execution of selectod sub-projects from RGM's 1985-88 investment programme, i\.e\. execution of 8 road rehabilitation contracts on major Turkish arteries; (b) procurement of equipment and spare parts needed for the modernization of KOM's equipment fleet, mainly for re-equipping maintenance teams, and providing spare parts for the existing fleet; (c) fellowships for the training of RMO staff; continuing the ongoing programme of overseas visits and ad hoc courest and (d) provision cf 200 man-months of consulting services to RGM for: pavement research and planning, for design and supervision of large projects and for other services related to GMN's investment programme\. 4\. Project Desian and Oraanizatio\. 4\.01 The project was designed to be a direct continuation of the First Highway Project (Loan 2137-TU), and used essentially the same procedures and staff, but with some improvements\. It "inherited" two contracts from the first project, and in its turn has passed on three to its successor project\. The emphasis of the jhysical components was completion of the D1TEX or Trans Turkey Highway\. Thi route embodies Turkey's historic transit role astride the continents of Europe and Asia, and brings traffic from Bulgaria and Yugoslavia, across the Bosphorus to Gerede, where the northern TETEK continues  3 due East to Iran, and the Southern TTERI turns South and East to Ankara, Adana, and thence to Syria and Iraq\. Long sect iw of the Southern TITEX were rehabilitated under the first project, and saw a dramatic increase in traffic due to the Iran-Iraq war\. This second project concentrated on the Northern TSE5E east of Gerede (the westword link to the Bulgarian border was planred to be and now largely is, a motorway) and border crossings on the Iranian and Syrian frontiers\. Traffic data and road condition surveys were used to identify candidate sections, which were then subjected to economic analysis and other planning techniques developed in ROM during the first project\. 4\.02 The rationale for the equipment and spare parts component was to improve the functionality of KOM's considerable equipment fleet\. The concept was to aim for a smaller, younger, more available, more appropriate and better managed fleet, oriented towards maintenance, and to de-emphasise construction, which was being let increasingly to contract\. A key feature of maintenance improvement was the decision to group the maintenance teams around an all purpose vehicle such as the Unimog or Brimont, with a range of attachments for snow clearance, compacting, salt spreading etc\. This has brought an immediate improvement in qual'ty and productivity, allowed a reduction in the fc_ce account labor force, and the substitution of a single general purpose machine for a number of single purpose machines that were idle for much of the year\. 4\.03 The fellowship (training) programme was also a direct continuation of the first project, designed to give more Turkish engineers exposure to conditions in other highway departments, and to fill specific gaps in the expertsLe of KGM by sending engineers on selected courses abroad\. 4\.04 The consultancy component was Lncluded essentLally as a contingency Item, should the Government decide that a consultants input was requlred to help RON address variou issues under discussion with the Bank during project preparation\. These included but were not limlted to a) deslgn and supervLsion of large projects, b) pavement research and Pavement Management Systems, c) pavement performance under heavy vehLeles, and d) improvement of highway safety\. Notable among the issues at the time was the proposal of the Turkish Government to embark on a motorway construction programme, linked to the second Bosphorus BrLdge, which was under constructlon at the time\. Although not taking lssue wlth the need for the brldge, the Bank wanted to be fully convinced of the need for a 1500 km motorway programme, and felt this could be achLeved by belng involved in the feasLbility studies and project preparation\. To gain a seat at the table, the Bank persuaded RON during negotLatlons to lnclude 200 man months of consultancy in the project for "the management of large projects"\. However, in the event, the component was not activated\. The motorway programme went ahead and the Bank subsequently reviewed the economic justLfLcatLon of some motorway sections, which were found to have acceptable rates of return\. 4\.05 The Road Safety programme was designed to contlnue the work of KGM's Maintenance Department, aided by a master study by Ege University and Middle East Technical Universlty on identiflcation of accident black spots, and the design of amellorating measures to reduce the identified road safety hazards\.  4 5\. Prolect Implementation 5\.01 Loan Efffeltivenesg ad start up, The loan was signed one week after Board prosentation, on June 1S, 1984,-but did not become effective until November 6, 1984 because of delays on the part of Treasury in opening the Special Account which was a condition of effectLveness\. It should be noted that once opened, it was managed by the Central Bank with great efficiency and was a major factor in the good disbursement performance of the loan\. 5\.02 Implementation Schedule-and Procurement\. Delays occurred on reaching agreement on the biddin, documents and on letting the first contracts for civil works\. The first three contracts, using bidding documents modified from the first project, were not signed until October 1985\. After protracted discussion, the Bank finally agreed to the award of these contracts on an exceptional basis\. The choice of the ruling language was a major issue, and there were disagreements over the wording of the prequalification documents\. In the end only one foreign contractor was prequalified\. In a project directly following one under implementation, a smoother transition from one loan to the next might have been expected, but in fact the transition was not entirely smooth because of difficulties Turkey faced in accepting foreign competition in bidding on contracts financed by the Bank\. The same problems delayed the start up of the follow-on project\. The important lessons for the Bank here are i) the importance of a clear and detailed agreement ,n bidding documents before Board Presentation, that is consistently applied during project implementation, while at the same time, ii) being flexible in interpreting and applying Bank guidelines with our older Borrowers\. 503 The remaining contracts were only let (using the agreed bidding documents) after the Bank received a written undertaking that any new project would use bidding documents that were more in line with international practice\. The main points outstanding at that time were KGR's wish to adhere to the use of ceiling unit prices, a reluctance to use any index or set of indices for price escalation and a refusal to consider escalation of the foreign currency portion of contract payments\. The next five contracts were then let using the same documents\. In the event XGN was true to its word and substantially new documents were agreed prior to the follow-on project's start up\. There are still points of procedural disagreement, notably over the treatment of foreign currency conversion and escalation, which are still under discussion\. 5 04 Turkey has sometimes expressed the view that whereas the Bank may have its Guidelines, the Government has its own public bidding law, #2866 of 1986, by which its government departments are bound\. The Government has often stated that the Bank should be satisfied by having good competition and low prices, conditions which ROM has always shown to exist\. Indeed, ROM was concerned that unit prices were being driven down too low by competition brought on by recession, and the Bank's insistence on award to the lowest evaluated bidder was forcing KX¢ to sign with contractors at prices which were unworkably low\. Prices in Turkey are traditionally expressed as a percentage below (they are rarely above) the rates published annually by the Ministry of Public Works and Settlement (MPWS), and in 1987 and 1988, bid reductions of 40 percent were common\. Turkey's own bid evaluation system combines price with the quality of the firm as measured by points gained during prequalification, much as the Bank's Guidelines for the evaluation of consultants do\. As older  5 borrowers such as Turkey mature, there is likely to be more frietLon in adhering to Bank requirements\. Not infrequently ROM adopted a practice of lts own accord after the Bank stopped making an issue of the particular practico\. 5\.0S Design and supervision of all contracts were undertaken by RON, mainly through its regional offices\. A feature of the design on most contracts was the use of a mechanically stabilized crushed limestone base course, 1opp\.d with a bituminous concrete wearing course\. The base material is weigh batched from sized components, wetted and mixed in a pug mill, transported slightly wet of optimum moisture content and laid with a paver\. The resulting bass course in excellent\. To align with European Community standards, the design axle load was raised from 10 tonnes to 11\.5 tonnes during the course of the project, occasioning the need to thicken the pavement's base course\. 5\.06 aoui=ment Drocuremel?t was generally well organized, and procedures were strictly followed, using an excellent and comprehensive document based on the Bank's Sample Bidding Document for Goods\. There were disagreements over some specifications, which tended to be written too tightly, but which are now based on an analysis of the characteristics of the leading manufacturer's specifications, so that no company is excluded inadvertently\. This analysis now accompanies KGM's request for clearance of the specification\. There were frequent disputes between bidders on the interpretation of the specifications or the evaluation of bids\. S\.07 The arrival of new equipment was accompanied by a serious attempt to write the junk off the books, and shape the fleet more towards maintenance, as more and more construction is now being put to contract\. The result has been a smaller fleet, consisting of younger and more appropriate items\. This process is continuing under Loan 3324\. The Bank employed a specialist in equipment fleet management during preparation, who was able to get agreement to the writing off, and to the needs based selection of the new equipment\. During the project preparation spare parts inventory control was highlighted as an area of management suggested for improvement\. After a fruitless search for off the shelf software, including a trip to the United States by KON equipment managers, it was decided to commission the writing of an ad hoc piece of software for KGM's unique Equipment Fleet and Spare Parts Inventory Management System\. Although the Bank participated in preparing terms of reference and selection of the software specialist chosen to write the software, 1GX elected to defray the costs of this exercise from its own budget\. 5\.08 Manaaement of Civil Works\. A source of difference between the Bank and KGM was the practice of adding work to a contract as it progressed, and of granting generous extensions of contract completion dates\. The results of this policy can be seen in Annex A, which shows the original and flnal completion dates, and analysis of reaoons for delay on selected contracts\. Delays or extensions were due mainly to combinations of the following reasons: - lack of XGM budget allocation; - bad weather; - problems of land acquisition; - shortages of bitumen\.  6 In the follow-on project the bidding documents provide for *bad weather" to be interpreted as abnormally bad; the contractor is expected to programme the normally expected number of wet or snowy days into hio programme\. The other problems remain but improved contract management is a declared objective of XGM, and we are working with them to improve the state of preparedness of projects prior to bidding\. The bitumen problem was largely solved by a change to the Loan Agreement, creating a new category lc) to permit the purchase of bitumen in bulk by RON for supply below the line to contractors, and a corresponding decrease in the disbursement percentage for civil works ex bitumen\. 5\.09 The Pavement Desqin Experiment was constructed in 1987, after a visit by a consultant from the UK Transport and Road Research Laboratory (TRRL# now TRL) on the Eskisehir Road, some 20 km from Ankara\. Twenty four sections each lOOM in length have been constructed and are under traffic and detailed observation at present\. The first published results will be available in 1993, but full results are planned for 10, 1S and 20 years after laying\. Part UI of this PCR gives more details\. The introduction of a pavement management system was deemed to be "premature" and not pursued\. S\.10 Proiset Costs\. During the project period of seven and a half years the rate of exchange went from T1 320 - $1, to TL7280 a $1, a change of 2200 percent\. With an exchange rate changing so quickly a comparison of costs in local currency would be meaningless and has not been attempted\. The figures shown in Tables SA and 58 are derived from actual disbursements from the loan account\. In fact the loan covered the cost of completion of two contracts carried over from the first project totalling slightly less than $1 million, and of the contracts listed in Table 60 of these, four are being completed by the follow-on project, for an estimated total cost to Loan 3324 of $10\.4 million\. MPHS has learned to live with high inflation by publishing a comprehensive list of unit rates for construction work on January 1 of each year\. All contracts are revalued as of that date and the bid unit rates are adjusted pro rata by the change in the MPWS unit rate\. The contractor is paid according to those rates for the year, until the next revaluation\. 5\.11 Disburs mentg\. As mentioned elsewhere, despite slowness in implementation of individual civil works contracts, loan disbursement performance was excellent\. This was due to the early and "lumpy" nature of the equipment purchases, and to the performance of 'GM's dedicated and increasingly experienced Project Coordinator and his staff, of Treasury and the Central Bank, where the Special Account was managed\. Disbursements including payments under SOB's were well handled\. To speed up the large number of small and mid-size purchases of equipment and spare parts, the Central Bank began making agreements to reimburse on locally opened letters of credit on the credit of the Spewial Account\. This required them to reserve the amount eventually to be paid, from the date of the letter of credit, and following their request the maximum size of the Special Account was increased in May 1988 from $9 million to $12 million\. sy the time of the Original Closing Date, 98 percent of the loan had been disbursed, and the remaining 2 percent was disbursed within the one year extension\. The use of 803's and the efficient use of the Special Account helped speed disbursements\. RGM staff have frequently mentioned the helpfulness of the staff of the Controllers' Department who gave the initial training in disbursement practices\.  7 5\.12 Lgam AllocLtion\. The allocoations under Schedule 1 of the Loan Agreement as planned, revised and finally disbursed, are shown in Part III\. Category 1 was restructured to allow diLburevments for the purchase of imported bitumen at 100 percent as a separate item, and a compensating change was made in the disbursement percentage for civil works\. 5\.13 Trining,8 Tte training component was well managed by XGM and is described in detail in Part I\. A UK organisation, the British council, was employed to make the training arrangements and host KGO staff in Britain for courses or technical visits\. The training was appreciated by all participating staff, and lead to a greatly increased emphasis on training throughout KOM, and the establishment of its own training center on the outskirts of Ankara, with assistance in equipping it being provided under the follow-on project\. During the project KGM acquired the International Road Federation's set of 48 training videotapes, and the right to prepare and distribute a Turkish language version\. 6\. Proiect Results 6\.01 ProJect Obiectives\. The project was successful in achieving all its principal objectives, even though regional economic and political conditions temporarily reduced the economic impact of the road rehabilitation component\. Institutionally, KGM improved its performance and procedures and enhanced its skills in many areas\. The loan funds provided for consulting services were not used, mainly due to KGK believing that it had already developed the necessary "in house" expertise\. The financing of consultants through the loan appears to have been declined in order to keep the Bank at a certain distance from internal management\. As noted in para 4\.04, the inclusion of 200 man months of consultancy in the management of large projects was an attempt by the Bank to obtain some leverage in the preparation of the motorway programme, particularly its economic justification\. When the project became effective Bank staff were unable to reach any agreement with 1GM on the form that the Bank's participation should take\. KGM said that the programme was being well managed by themselves and their consultants (who included some of the world's major companies) and there was no need for Bank financing\. In an institution where the Director General was named "Man of the Year" in 1991 by the International Road Federation, and whose department heads sit on PIARC committees, the Bank should take a flexible attitude to its more mature borrowers, and recognize that it does not have to be involved with every aspect of a Borrower's management of a particular sector\. Nevertheless the Bank has been able to develop a close working relationship with KGM and Bank assistance continues under the follow-on project in areas, e\.g\. the development of a Pavement Management System, where it was declined before\. The Bank should take the institutional view that KGM has made significant improvements in its management and engineering capability, and has matured as an institution, during the period of partnership with the Bank\. 6\.02 Economic Results\. The Economic Rates of Return (ERR) of the eight road contracts based on predicted traffic and cost (in 1983) and actual traffic and cost in 19910' are shown in Table 68\. At first glance final results are substantially lower than appraisal predictions, and one road even  8 shows an ERR below 12 percent\. A number of points must be made in interprtting the resultst 0 Firstly, KOM has greatly improved its economic evaluation methodology during the project period, and has adopted the HDM vehicle operating cost (VOC) module\. This has given much more realistic costs than those based on the RAM (Road Analysis Model) used in 1985, which had a tendency to over-estimate benefits\. Table 68 shows in col 1 the ERR predicted using the RAM, while col 2 shows the ERR that would have been predicted if the HDM VOC module has been available at the time\. o Secondly, there has been an unprecedented series of regional political and military conflicts which have had a negative impact on traffic growth on some contracts, as can be seen from columns S and 6 of table 68\. Road section #1 connects the major port city of Iskenderun with North Western Syria and the city of Allepo via a border crossing at Cilvegozu\. Traffic on this road is les than half the predicted value, despite marked growth in the Cukurova region generally\. This is mainly due to a weakening of relations between the two countries\. If and when relations normalize and the frequent closures of the border crossing come to an end, traffic will definitely grow markedly\. The other road section seriously affected by external events is #3, the Diyadin - Gurbulak Road (76km)\. It must be recalled that this and the first project were both intended to fulfil Turkey's long term goal of providing fully for international traffic, and more particularly, to upgrade the TETEK route\. Gurbulak is the eastern terminal of the northern TETEK, and is the border crossing point to Iran\. At Appraisal traffic was low because 0i the Iran-Iraq war, but the war was expected to end quickly and the wealthy state of Iran would import many of the inputs required for its reconstruction through the Turkish ports of Hoppa and Trabzon, which the Bank was in the process of re- equipping for that purpose\. The war ended much later than anticipated, leaving Iran exhausted and although traffic has increased above the prediction, it has not compensated for what over-estimated ERR at Appraisal\. The construction period has been extended to more than double the original contract period, due to the security problem in the area, and to the short construction period necessitated by the long and severe winter\. Twenty kilometers of this road were designed to be dual carriageway, but following the Bank's suggestion, one carriageway has been deleted from the present contract\. As this contract is still continuing final costs are not known, and the ERR will be recalculated when the road is fully open to traffic\. O Thirdly, KGM makes the point that each of the sections is viewed as one necessary link from Europe to Asia, and viewed over a longer time span than the present difficult period in the region'\. history, and in the context of the completed trans Turkey route, all sections will be seen as fully justified\. In  9 this context, Diyadin-Gurbelak, which looks like a poor investment at present will most likely be shown as justified within ten years\. 0 All other roads show an acceptable (12 percent or more) rate of return\. #5 is still under construction, and will be recalculated on completion\. 6\.03 The other components of the project are not directly justifiable by economic calculations, but have nevertheless yielded economic benefits\. The acquisition of new equipment enabled KOM to write off its books a much larger number of inefficient units with high maintenance costs, and the average age of the fleet has fallen\. The computerized spare parts system when on line, will enable the present fleet to be serviced with a smaller amount of working capital tied up in spare parts en the shelf, and should greatly reduce the cost of dead stock\. The road safety component has resulted in a reduction of accidents of up to 20 percent on certain roads, due to the success of ad hoc black spot treatments\. The benefits of accident reduction are not readily quantifiable, but they are real nevertheless\. The training component has led to the introduction of more efficient techniques of construction and to enhanced possibilities of computerized design\. 7\. Prolect Sustainabilitv 7\.01 Sustainability has been excellent, mainly because the benefits have been brought about because of the Borrowers motivation, and not to comply with a loan covenant or policy proposal urged by the Bank\. The project is one of a series with the same institution\. It is clear that the benefits of the First Highway Project were sustained during the execution of this project, and were strengthened by this project, which in turn transferred its benefits to the follow-on project\. Thus both projects have demonstrated sustainable benefits, each building on the one before\. o In the physical sense, roads were constructed to improved technical standards, and are being better maintained because of higher geometric and construction standards, and because of the improvements brought to maintenance practice under the project\. 0 Institutionally KGH has grown greatly in many areas; investment planning; highway management; project selection and preparation; procurement procedures; project and contract management; pavement design and technical specifications; equipment management and maintenance procedures\. 7\.02 From 1977 onwards KGM had the benefit of a strong and innovative leader, committed to strengthening and reforming the institution\. The Director General (DG) changed in early 19921 by comparison the DG of the railways changed four (4) times in the same period\. It is regrettably common in many countries where for example a good implementation unit is established in an agency, involving expatriate technical assistance, that effectiveness is often lost when the project ends\. This has fortunately not been the case in MN where, although changes often involve much negotiation and dialogue to achieve, institutional gains once made, have, so far, seem sustained\. This has been possible by unusually high continuity of staff in RGM\. Not only at DG  10 level, but department heads and the Project Coordinator have all remained the same during the implementation period\. 8\.01 Bank Performanc\. Starting with a high input to project proparation and appraisal (90sw), the Bank made every effort to prepre ION for the project In great detail\. The larg, number of small procurements packages resulted in close supervLidon, and frequent communications\. Average supervision was 15 ow per year\. Two important lessons emrgo for the Bank from the projeett a) Failure to reach final agrement on the cLvll works bidding documents before Board presentation cost the project several months delays b) There was no clear understanding between Bank and Borrower durlng appraisal on the use of consultants\. It is likely that the Turkish negotiating team agreed to the inclusion of a consulting budget on a contingency basis, but gave no undertaking to make use of lt\. This should have been made clearer in the SAR and in the Minutes of Negotiations\. (see also comments in section 9 below)\. 9, Borrower's Performance 9\.01 It li abundantly clear that because of a large comitment in time by staff of both institutions to the first project and continued through to the present project, XGM is a competent implomenter of the cLvil works and procurement aspects of Bank projects\. However, they remain resLstant to further allgnment of their procurement procedures with the Bank's and reluctant to introduce pollcy change and hire consultants as part of a Bank project\. The Bank must consider this in its future dLalogue, and acknowledge that considerable institutional strengthening and policy change are nevertheless taking place\. 9\.02 Good and timely audit reports were receLved throughout the life of the project; not a single audit report was late\. These were prepared by Treasury, following procedures agreed during the fLrat project: disbursements were well handled and the SpecLal Account was particularly well managed\. In a gradual process involving the procurement of a large number of equipment items and spare parts packages, RON evolved efficient procurement procedures, although it was necessary to repeat the same comments about framing of specifications a number of times\. The Borrower's general admLnistration of the project through the Project Coordinator and his staff was very good, in spite of staff cutbacks in that office\. 9\.03 Technical performance was good, with relatively more slippage in the area of construction contract completion dates\. The latter was not due to laxity, however; it was the prevaLling contract management culture, and in the follow-on loan, has been largely corrected\. Occasionally there were delays in availability of, or cutbacks in, counterpart funds, obliging the contractor to go slow for the remainder of that fiscal year or quarter, but disbursement performance was excellent overall\. 9\.04 There was less enthusiasm on the Borrower's part for institutional change as an output of a Bank project, or for the hiring of consultants to help bring it about\. This is due to the TurkLih desire to make changes for  11 their own reasons, rather than in response to external pressure\. Although consultants were used both in the road safety programme and in setting up the road pavement design experiment, they were not charged to the loan\. However, important changes and instltutional improvements are taking place throughout GMM as a continuous proces, and recently the Bank has been invited to comment on a prelimlnary reorganization study prepared by the US Federal HLghway Administration\. 9\.05 The main lessons to be learnt by the executing agency in this project have already been incorporated into the follow-on project\. During its appraisal it was relatively simple to select project components because of the greatly improved data bases available on traffic composition, pavement conditlon etc, and good quality feasibillty studLes were produced quickly, and all other departments met wlth the appraisal team with well prepared and justifLed components\. This was not the case for the first two projects\. 9\.06 Though there still remain serious differences in procurement policy, as a result of this project and its implementation experience, the Bank and the Borrower moved much closer together over procurement lssues in the follow- on project\. 9\.07 Project preparation was qulckly done once the decisLon was made to proceed\. However, the price paid for this speed was that bid specifications, and consequently contracts, were not prepared in the usual depth, producing a certain amount of additional work added after contract signature\. Supervislon was tight and road work appears to be of high quality\. KGM ls particularly strong in materials testing, and slte laboratories visited during Bank mssions appeared efflcient\. 10\.01 Bank-DorroXer/Relationship\. There has been only modest turnover of staff at KGM and at the Bank responsible for the series of three projects, and the resulting continuity has resulted ln good relationships at the personal level\. The disagreements that have occurred while real, have not affected the generally warm and cooperative relationship, though there was a low point in relations in June 1987, resulting from differences of oplnion on the motorway programme and the degree of condltlonality that should accompany the proposed sector loan\. 11\. 11\.01 Consultino Services Consultants were used for shaplng the pavement deslgn experiment, preparing a report on remedial road safety measures to improve accldent black spots and crltical road sections, and to develop software for the equlpment management and spare parts control programme\. All consultants performed satisfactorily\. However, KOM chose not to charge the cost of these servLces to the consultants budget (loan agreement category 3\.) Consultants were also employed to manage the trainLng component in the United Kingdom, and they were charged to the tralning component\. 12\. 12\.01 Proiect Documentation and Daa Project documentation was satisfactory\. The SAR gave considerable guidance on project implementatlon procedures which were appreciated by the Borrower\. The Loan Agreement was amended once to introduce a new category from which bitumen could be flnanced\.  12 PARTJZLM PRnJUCT ME!UW PROKM MM E 1ROW3R' S PRRSP!!VR The following contributions have been received from corrernponding Mm) department heads\. There is no overview of the project as a whole from MM) senior management, nor a report from Construction Department which executed the bulk of the project, though a map and tables of data on the construction contracts (tables 1I (1,2,and 3) have been prepared\. These department reports have been cleared by XGNs aGeneral Manager and the Treasury\. Comments were received on Parts I and 3, which have been incorporated\. During preparation of the PCR for the previous project (Loan 2439) senior management comments were only received when OED forwarded the report to the Borrower\. The reports included in this section are as follows: o Project Design and organization o Maintenance and Road Safety o Iquipment Purchases o Experimental Road Sections O Training and Fellowships O Civil Works contracts: map and tables\.  13 PROJECT DESIGN AND ORGANIZATION As is well knowi,, desigai is aimed at creating a model of the final production\.So the success of the activity closely depends on the ingenuity in creating the suitable mnodel\. On the other hand, it is almost an absolute necessity to accomplishthe design and ensineerinis works before the actual rehabilitationt activity to ernsure the feasibility and the economic justification of all projects\. It is a well established fact that a snall percentage of expenditures in design and engineering works stage always justifies itself and returns much larger benefits to the owner\. One of the most important tasks comprises to enhance the geometry of the so called horizontal and vertical standard of the highway\.And thus to ensure safety in vehicle movement\.To accomciplish this it is necessary to complete first of all the design and engineering works by means of the fuCwd provided only by the Turkish Governmdnt through the National Budget\. We believe it will be possible in this way to arrive at a positive result regarding the safety and comfort of driving as well as in operation costs\. Thus design and engineering activities, wkzich are being carried out presen for The road sections under the loan No\. 2439-TU are based on these considerations\. Contributiotns of the World Bank in financing survey and design worls of the rodd sections which shall be financed by the Bank in the future loans is expected\.  14 MAINTENANCE DEPARTMENT ROAD SAFETY REPORT The work done by General Directorate of Turkish Highways (KGM) by increasing road safety, for the reason of decreasing traffic accidents, is as follows: 1\. MODIFICATION OF ORGANIZATION CHART It has been decided to continue traffic services as widaly and as effectively on the level of sub-divisions\. For this reason, the organization charts for sub-divisions were changed\. A traffic engineering position and a maintenance engineering position were added for each sub-division\. Traffic technician position, under the responsibility of traffic engineer, and maintenance technician position under the responsibility of maintenance engineer were added to the organization chart\. 2\. EQUIPMENT SUPPLY FOR ROAD SAFETY 200 special double cab pick-ups were acquired and allocated to the sub-divisions only for use at traffic services\. It was provided that, these vehicles were to be used only for traffic services\. For carrying out weight control, 200 electronic portable balances were purchased and were given to each of these vehicles\. 3\. PERSONNEL APPOINTMENT For added traffic engineer positions 25 mechanical engineers were recruited by KGM, trained in service and were appointed to the sub-divisions\. Depending on the number of staff that should be provided for each year new traffic engineers will t recruited, trained and appointed to sub-divisions\. 230 traffic technical staff were recently recruited by KGM\. They were trained in service and were appointed to sub- divisions\. By this way, depending on traffic density, one or two teams were formed at 112 sub-divisions countrywide\. Staff\. members who have been appointed to traffic technician position, have graduated from technical school above high school\. They were trained in service at the General Directorate of Highways and practiced at Regional Directorates\. Staff who have been appointed to traffic technician position are not allowed to work on any other job\. By this way, it is possible for traffic technicians to make their jobs such as horizontal signing (marking) and vertical signing, controlling road side facilities, carrying out weight control and vehicle inspection, more accurately and productively\.  is 4\. WEIGHT CONTROL WORK In Turkey, vehicle traffic on the state and provincial roads network, has continued to increase rapidly\. Traffic on maJor intercity roads often consists of over 0S heavy vehicles such as bus, truck and trailer\. Transporters are frequently observed with serious overloading\. Therefore, it is necessary to protect the existing highay network from destructive effects of the overloaded axles of the heavy load vehicles\. The effective weighing control throughout the country is considered as the first way of solving the problem\. The installation of 54 electronic fixed weighing control stations which will be furnished by weigh-in-motion system at 49 points has been programmed on the main arterial highways\. The establishment and operation of these stations will be bidded\. Award of these contracts in 1993 has been planned\. Now, KGM operates presently 200 portable scales\. As it was mentioned in the section 2, 200 mobile weighing teams have been formed for extensive control of excessive weights\. Their primary purpose is to control vehicle loading capacity and to provide data on axle loads\. They operate as mobile teams stopping vehicles at random and fining the excessively overloaded vehicles\. 5-VEHICLE INSPECTION SERVICES Legal and technical work was also accomplished for vehicle inspection -in the modern equipped stations to comply with the European Community Standards\. Depending on the authority which was given by the Road Traffic Act, it has been decided to make the vehicle technical inspections through the real or corporate bodies\. The conditions were announced, the applications were evaluated\. Turkish Standards Institute (TSE) has been conditionally authorized\. TSE has been working on this subject for a year\. Establishment of the experimental vehicle inspection station in Izmir will be completed in August 1993\.  16 6-HORIZONTAL (MARKING) AND VERTICAL SIGNING SERVICES For making traffic signing activities to continue without interruption to ensure ongoing road and traffic safety every kind of precaution is being taken and every possibility is being used\. For increasing visibility and providing permanence of traffic sign plates; research and improvement activities related to the improvement of material quality and the development of standards are being continued\. The activities for providing permanency of cold and hot road marking paints and increasing their visibility are also being continued\. Horizontal (marking) and vertical signing activities and their revisions are being continued in accordance with the prepared annual programmes\. 7-ROAD SAFETY SURVEYS Road safety surveys that aimed at a) determining the traffic accidents possibly due to technical construction, physical condition of our highways and lack of traffic signings, b) taking technical precautions to prevent accidents are being continued since 198S\. The plates which the control section numbers are written on, have been erected on our state roads and motorways by one km intervals\. It has been provided that control section plates are to be taken as the fixed point for determining the place of a traffic accident, and a special part has been added in the traffic accident determining document by the collaboration of the General Directorate of Security\. The accident records which are registered by traffic police are also analyzed by KGM and the places of traffic accidents are located definitely by the aid of control section plates\. So, the sections and the areas where the same kind of traffic accidents takes place are registered as " Black Point "\. The obtained results from traffic accidents surveys are being gathered in a book and delivered to the Headquarter and the Regional Directorates of KGM to warn related personnel, and necessary precautions are being taken\.  17 In addition to that, protocols were signed betwesn the General Directorate of Highways and the Middle East Technical University\. Istanbul Technical University and Gazi University on the topic of making road safety surveys\. Now, road safety surveys ore being carried out by these Universities\. The results of road safety surveys prepared by the Universities are being given to the General Directorate of Highways as reports\. 'KGM has been evaluating the suggestions and proposals for the sections and areas defined as black point and the technical precautions to be taken for these sections and areas\. Cross-section and intersection arrangements, signing (reinforcement) and improvement activities made on road geometry for the purpose of decreasing or eliminating traffic accidents have begun to give positive results\. \.VGUARDRAIL INSTALLATION Installation of steel or concrete\. guardrails has been continued in the sections considered necessary or defined as black point; at the end of road safety surveys and traffic accident analysis\. By the end of 1991, length of the installed steel guardrails is 735 km (excluding motorways)\. In accordance with the 3324-TU Loan Agreemeht which was signed with the World Bank, 314 km steel guardrails will be installed in 1993 and 1994\. 9-TRAFFIC TRAINING STUDIES Human factor is the active and dominant element of traffic environment\. Training them on the subject of highway and traffic security and giving them safe behaviour and habits are necessary precautions\. By this understanding, programs are being developed to make the traffic training studies, which are being carried out by the KGM, widespread and effective throughout the Country\. Since 1987, KGM has been getting active functions in preparing course programs for driving courses\. By this way, highway and traffic security subjects have been taught in courses\.  On the other hand to learn the traffic subject for students in primary, secondary and high schools has become indispensable\. General Directorate of Highways has had active functions in 'the preparation of lecture programmes and in training also the teachers about traffic subject\. KGM has collaborated with the General Directorate of Security of the Ministry of the Interior and contributed to the trainino of the Police in the subject of highway and traffic safety\. The information about the subject of highway and traffic safety has been given to public by the help of press, televisions and radio\. The distribution of posters and booklets printed by the General Directorate of Highways has been continuing as a widespread training facilitiy\. A large number of persons were informed about traffic safety matters at courses by working together with public and private organizations\. In result, it is believed that it will be possible to decrease traffic accidents to reasonable levels by taking technical precautions according to the results of road safety study and training the people and teaching highway and traffic security subjects more effectively\.  19 PART II- 2439-TU PCR ( Project Completion Report) PROJECF REVIEW FMIM ThE MACHINERY AND EQUIPM SUPPLY DEPAR7MMT PERSPECrIVE At the begining of the Second Highway Project partly financed by the World Bank (Loan No 2439-TU), from Machinery and Bquipment Supply Department point of view, the following targets had been mainly aimed : 1\. Performing Maintenance and Snow Removal works sufficiently\. 2\. Modernf3ation and renovation of Machines in the KGM's ( General Directorate of Turkish Highways) Fleet to provide more economic working conditions and to increae the economic savings on spare parts expenditures\. 3\. Increasing the number of multipurpose maintenance machines, which are to be used for the maintenance and repairs of motorways,to a desired level according to the latest Turkish Highways policies\. The part of the whole loan amount for machinery purchases was USD 76\.139 Million and this amount has been used as follows; 62\.5 % of the amount for Maintenance Machines 8\.5 % of the amount for Snow Removal Machines 29\.0 X of the amount for Construction Machines I?M's Machinery Fleet have been modernized within the period of 1984-1992 by purchasing new machines with this loan 2439 TU supported by the Wbrld Bank The working hour comparison between the machines existing in the park in 1984 and in 1992 is given below\. Km (Hour) 1984 1992 1 - 150\.000 km (1 - 5\.000 h) % 35 % 36 151\.000 - 300\.000 km (5\.001-10\.000 h) % 12 % 32 300\.001 - 500\.000 km (10\.001-15\.000 h) % 20 % 14 500\.000 - \. km (15\.000 - \. h) % 33 % 18 The above table shows that, the number of machines over the 500\.000 km (or 15\.000 hour) group has been decreased considerably and therefore a new, more powerful and an efficient machinery fleet has been produced\.  20 When total spare part expenditures are considered with respect to years, positive effect of the loan (2439-\.TU) in the reduction of spare parts expenditures can be noticed easily\. The table below includes list of spare parts expenditures between 1978-1992\. YEAR SPARE PARTS EXHIITIRES (Million USD) 1978 16\.76 1979 16\.73 1980 15\.15 1981 14\.34 Average Value = 14\.70 1982 12\.76 1983 12\.46 1984 10\.96 1985 9\.87 1986 7\.80 1987 10\.97 1988 8\.07 Average Value = 9\.83 1989 9\.55 1990 10\.98 1991 10\.68 1992 9\.58 As can be seen from the above list, the average spare parts expenditures within 1978-1984 were reduced by %33 when compared to the expenditures within 1984-1992 by the modernization of Turkish Highways Machinery fleet using the loan 2439-TU\. Also, for maintenance and reparation of all the otorways (which were opened or still being constructed),the latest models of multipurpose machines with special equipments ( off road grass cutters, safety post and barrier washers, tunnel washers, salt spreaders etc\.) are purchased\. These machines are also labor cost saving machines since they are very suitable for heavy duty jobs using fewer workers\. As a result, when the positive effects of the Loan 2439-TU are considered on the modernization of machinery fleet and reduction of general working and spare parts expenditures, it can be stated that the aim of this project has been reached as expected\.  21 SEO0I0 HIGHAY PRFWET LOAN 2439-TU Revised List of Machinery anrd Equipmnts ( 22\.2\.1993 ) Equipment Type Ouantity Cost(US A 1000) Al- MAHINOR 1- Grader, 180 HP 103 5\.222 2- Grader, 130 HP 222 9\.357 3- Dozer 40 5\.960 4- Loader, 3 Cu\.Yd\. 47 3\.143 5- Loader, 1,5 Cu\.Yd\. 21 878 6- Cramler Drill 15 1\.373 7- sphalt Finisher 6 483 8- Snow Bloer, 1000 T/hr 31 3\.030 9- Snow Blaoer, 4000 T/hr 6 1\.261 10- Mobile Crane 17 1\.701 11- Tandem Roller 10 365 12- Rubber Tyred Rbller 20 1\.011 13- Vibratory Roller 65 2\.529 14- Crawler Excavator 16 912 15- Fbad Maintene Control Vehicle 200 2\.288 16- Traffic Control Vehicle 220 3\.073 17- Dump Truck (6x8) 6 1\.025 18- Maintennuce Eq\.Trailler (Asphalt Plant) 16 1\.220 19- Sign Cleaner, Truck Momted 10 987 20- Dump Truck, 4x4 197 20\.682 21- Asphalt Distributor 16 1\.605 22- Dimp Truck,4x4 30 4\.158 23- Dump Truck,Ox8 6 911 24- Snow Blower, 4000*T/hr 6 1\.191 26- Truck Tractor 17 1\.796 TOrAL \. 7139  22 All- VARIOU EWINT Purchad Electronic Theodalite 32 498 Electronic Thodallte 3 95 Variaous Rearching Equipmnt Misc\. 735 1\.328 AII- SPARE PARTS: Purchaed (total of paymnts + signed contracts) * 17\.801 T O T A L 95:\.26 PHYSICAL CCtN1ZNICIES: -1\.268 GI D TOTAL: 94\.000  \.4\. 23 PROJECT COMPLETION REPORT FOR EXPERIMENTAL ROAD The construction of experimental road had been decided in 1984, aimed at making various technical research studies for different types of pavements\. Two different sections on the new constructed part of Ankara- Eskisehir divided road were selected for design and construction purposes\. The experimental road sections were located in the coming direction to Ankara in between the kilometres shown below; I st section ; km:20+750-21+970 11 nd section ; km:25+065-26+375 The scope of the experimental road constructed with the main objective of performance evaluation of the experimental sections of road comprising different structural designs for pavement of specified materials under traffic loads and enviromental conditions would be compared performances of each sections by using various types of tests and instruments\. Earthworks were started in 1984\. It couldn't have been done any construction work in between the years of 1984-1987\. Inadequacy of procurement of continuous and necessary equipment was the main reason for doing nothing on the first experimental road section during that time period\. In 1987 the compacted density and moisture content of the first part were again checked and some sections had tc be removed and were replaced with new material\. Construction of the second part were started in 1988\. First part of experimental road aimed at short and medium design life consist of 12 sections of each having 100 meters have been objected to visualize performances of pavement for different types of hydraulic bounded base and subbase with variable thickness layers\. First part opened to the traffic on  24 Nov\.1987 were maintained In 1988 and an overlay project were applied to the surface In 1989\. In the year 1990 and the following years, due to the motorway and ring road construction, fifth and sixth sections of the first experimental road were damaged under the heavy :onstructlon trucks and also side connecting road was added to experimental road at these sections\. The second part projected according to the medium and long term design life has been cornposed of 13 sections of each having 100 meters length\. In the second part of experimental road, variation in parameters of hydraulic bounded base and subbase layers was rather less than the first part\. Long term service life has been aimed by adding different types of bituminous base layers and cement bound base layer to the pavement design\. The second part was completed and opened to the traffic in 1989\. In the early 1990, an intersection was to be constructed on the second part of experimental road\. Because of this reason three se^tions had been excluded from monitoring purpose\. Scope and objectives of first and second part of the experimental road and field and office studies are summerized below\. Various field studies had been performed during the construction of each pavement layers to review the existing design procedure and modification with new parameters, if necessary\. Survey on pavement surface by using various instruments has been continuing periodically for deterioration monitoring purpose\. The most suitable local materials for the pavement layers are tried to be selected for the future pavement design by evaluating the results of survey by comparing each section\. Date on the structural strength parameters and rate of deterioration such as def:ection, rutting and cracking has been obtaining\.They will be considered as a practice on a certain level for the basis of Pavement Management System (PMS) to be planned in future\. Thus, maintenance works on the network of Turkish highways will be applied in a more systematic and efficient way\. Each engineer and technical personal of Pavement Section participsted actually at the construction stage of experimental road and the necessary care had been given to the construction so that the staff received additional training by comnparing theory and the practice through the project\.  25 With the evaluation of the studies some known technical results will be reviewed and also we believe that some new results will be obtained\.  26 Second Highway Project (2439-TU) PROJECT cyMPLETION REPORT on FELLOWSHIPS (Category-4) Prepared by Training & Evaluation Division April 1992  27 I- INTRODUCTION The Loan Agreemant (Second Highway Project) numbered 2439-TU signed between the Republic of Turkey and the International Bank for Reconstruction and Development on June 15, 1984 covers an amount of $ 186,400,000 to finance the following items between 1985 and 1991 in accordance with the Transportation Master Plan\. - Construction and rehabilitation of priority highway sections of the State and Provincial road systems\. - Provision of equipment and spare parts to be utilized in maintenance and general services\. - Development and application of suitable procedures for highway construction and maintenance, pavement research and management, design and construction of bridges and motorways, equipment and spare parts inventory control and management\. - Carrying out necessary training programs for KGM's technical staff\. Although the amount allocated for the training activities and mentioned as "Category-4 Fellowships" in the Loan Agreement was initially $ 500,000, with the Bank's approval in 1990 $100,000 was transferred from "Category-7 Unallocated" to "Category 4" increasing the amount to $ 600,000\. The following section of the Report contains the training activities financed by the above mentioned allocation\. U- BACKGROUND\. Prior to the signing of the Loan Agreement numbered 2439-TU, a consultant was employed through the United Nations Development Program in order to plan the Training Programs for the Loan Agreement numbered 2137-TU, signed in 1982 between our Government and the World Bank\. After having evaluated the programs which provide inmediate benefit and long term benefit to the KGM, the Consultant in his report recomended the programs concerning the imiediste benefit as follows: - Short term technical observation trips for executives and senior staff - One-month group training programs for experienced engineers - A small number of three-month training programs in specific areas\. The training programs under 2137-TU were carried out in accordance with the Consultant's recommendations\. While the project was underway for the Loan Agreement numbered 2137-TU, the preparations for the Loan Agreement numbered 2439-TU (Second Highway Rehabilitation Project) commenced\. The World Bank Mission visiting our Organization was informed about ongoing training programs, training needs of the technical personnel and the inadequary of the allocation for the training programs\. The Mission's report on this subject expressing their approval stated that the amount allocated for Training Activities (Category-4) in the Loan Agreement numbered 2439-TU should be spent to continue similar training activities carried out under the Loan Agreement numbered 2137-TU\. Therefore, the grater part of the allocation for Category-4 in the Loan Agreement numbered 2439-TU has been used for group training programs\.  28 III\. PRCPARATLONS The KGM has worked in cooperation with the British Council and has decided that short technical observation trips and group training programs meeting the immediate needs of the KGM would be carried out in the United Kingdom\. It wae suggeated by the British Council that the preparation of the training progra being organized in the United Kingdom be coordinated with Rayfield Conrultency Services Firm, in England, to run the programs smoothly\. This suggestion wee elmc approved by the KGM\. The training programs and the training participants were determined by KG"\. The training program were conducted by the British Council and Rayfield Consultency Services Firm in accordance with the protocol signed between KG99 and BC\. IV\. IftLETATION The training activities carried out through the allocation for fellowships is explained below according to the dates, and the summary is shown ihf TABLE-1\. 195 In 1985, 60 participants including executives, senior personnel, senior engiqnsrs and engineers attended the training programs which were carried out in 5 separate groups\. FIRST GROUP: JUNE 28-JULY 14, 1985 12 EXECUTIVES The program for this group, which were excutives, mainly included observation visits to Highway and Transport Departments of County Councils in the United Kingdom\. First, during a visit to the Highways and Transport Department of Greater London Council, County Hall, the group had the opportunity to become informed on city traffic organization, computer aided signalization and maintenance of the bridges on the Thames\. Later, while visiting the Hampshire County Council, the attendants were informed about maintenance, snow removal equipment, and they observed the works of traffic signing teams\. Pavement works were viewed during a visit to M25 (London Orbital Motorway) and the M4 interchange\. Finally, Construction Industry Training Board-Training Center in King's Lynn was visited where various theoritical and ptactical training programs have been conducted on construction activities and proceedures\. SECOV GROUP: JULY 5-21, 1985\. 12 SENIOR ENGINEERS This training program, created for senior engineers, was conducted observe the Infrastructure, drainage works, Motorways, State Highways, Provincial and Urban Roads In the United Kingdom\. The authorities in Maidstone County Council gave information to the members of the group about the maintenance and rehabilitation of State Highways, Motorways and Port Peripheral Roads under the control of County Councils and the funds allocated for thi above activities\. In addition, the group visited the Traffic Control Center of the City and mas informed about traffic safety, traffic signalization, traffic flow and organization undwr the control of central traffic computers\.  29 THIRD GROUP: JULY 19-AUGUST 4', 1985 12 EXECUTIVES In this trip, the group visited highways and bridges and received 'information about planning, design, construction and maintenance activities, operation techniques and equipment\. The program for this group also included a visit to the Construction Industry Training Board-Training Center in King's Lynn\. While visiting the Transport and Road Research Laboratory (TRRL) in Crowthorne, participants were Informed about pavement design, construction, materials and maintenance, the researches and improvements in soil mechanics\. In addition, a briefing was held on the consequences of a specific pavement research case study which was jointly carried out with KGM and TRRL\. The group lastly visited the Berkshire County Council-Highway Department and received information regarding the organizational structure, highways and motorways and their maintenance and planning, which are the responsibility of the Council\. FOURTH GROUP: JULY 26-AUGUST 11\. 1985 12 ENGINEERS Visits to certain companies and organizations concerned with motorways, bridge and tunnel design, and construction projects took up an important pprt of this training program\. The Balfour and Beatty Company was visited to survey road and bridge construction\. The Goodwin Barsby Ltd\. Company in Leicester was visited to review resarch on asphalt works\. Information was obtained on machinary used for road construction and maintenance during the visit to the factory in Maidstone\. Besides the companies, the Highways Departments of Hampshire County Council and West Midlands Co\.wnty Council were visited, and information on traffic and bridges was obtained\. The tunnel construction works on the Ml motorway, including the grade separated interchange including 3 bridges on the 144 and M25 Motorways were surveyed and participants were informed on the matter\. Various computer firms were visited to obtain information on the use of computers during road and bridge design and construction\. FIFTH GROUP: SEPTEMBER 6-22, 1985 12 SENIOR STAFF Various companies and laboratories who specialized in materials and machinery for construction were visited\. Amey Roadstone Ltd\. Company was visited to survey the production of cold pavement mixture and concrete pavement materials\. Blaw Knox Construction Equipment Ltd\. Company was visited to observe the production of asphalt paders end information was obtained on construction equipment\. The Transport Road and Rdesarch Laboratory was visited and participants were informed about various studies and research\. Information was obtained on training from Construction Industry Training Board-Training Center in King's Lynn\. Finally, various computer centers were visited\. Participants were informed about the 'use of computers during road and bridge design and construction\.  30 1986 In 1986, six group training programs had been arranged, and 72 executives, senior staff and engineers participated in these programs\. Detailed information concerning the achievement of each program is given below\. FIRST GROUPs MAY 1-MAY 18, 1986 12 ENGINEERS\. 12 engineers experienced in road maintenance and traffic engineering participated in this program\. In this training program, a briefing about the UK Highways System was given to the group\. Also many visits, studies and observations were made\. The group was informed about the construction of M1/M25 Motorways and about the Norfolk County Council Highways Department\. Sir Owen Williams Partners and L\.G4 Mouchel-Partners Company were visited and the group was informed about the laeest techniques in highway design, construction and maintenance\. Many factories, companies end corporations were visited during the group observed the uses of mobile traffic 'ight systems, traffic control computer system, vacuum applicators and asphalt plants\. Milton Keynes, a new town complex, was visited and the group was informed about new city-planning technology used there\. At Construction Industry Training Board, the group was informed about their training programs\. SECOND GROUP: MAY 22-JUNE 8, 1986 12 SENIOR STAFF AND-ENGINEERS 12 senior staff and engineers, experienced in road-construction, material and quality control, participated in this program\. The group was given an introductory lecture on the UK Highway System\. During the tour, visits to various companies and establishments took place\. In these visits, briefings on selected topics were given\. ASTEC Industries in Barnet was visited and the group was informed about asphalt plants and road construction equipment\. The group visited the Cement and Concrete Association in Slough\. They were informed about concrete road construction and was observed many sites\. The Ml/M25 London Orbital Motorways sites and the TRRL site was visited and the group was informed about highway allignment studies, road construction, signing and use of computer and electronic equipment\. THIRD GROUP: JUNE 19-JULY 6, 1986 12 SENIOR STAFF AND ENGINEERS 12 senior staff and engineers, experienced in road construction and pavement deoign, participa' : in this program\. In The British Council Offices, both the "Program Briefing" and "Introductory Lecture on the UK Highway System" presentetions were given to the group\. The program consisted of visits to various companies, research laboratories, establishments and motorway construction sites\. While at the companies and laboratories, the group were informed about asphalt plants, highway design, slope stability studies and the latest techniques used in road construction and maintanence\. At the Nottingham University a lecture was given to the participants about deflection measurement techniques and deflectometer\. During the visit of the Thames Flood Barriers, information was presented about the operation system\. The group also visited the M25 Motorway and the Leicestershire CounLy Council Highways Division\.  FOURTH GROUP: JULY 10-27, 1986 12 EXECUTIVES This group made observations on motorways, state and provincial roads and bridge construction as well as the new techniques used by firms and organizations carrying out these works, the use of computers and work management\. A briefing on Roads and Traffic in Post-War England was given to the group\. Detailed explanations about road construction and maintenance, and the use of computers in maintenance and bridge design were given\. Also some information was regarding the duties and responsibilities of the Devon County Council and about City traffic and the computerized control system for parked vehicles\. Some detailed information was given, about the training program carried out by The Construction Industry Training Centre in King's Lynn\. The group visited the Number Bridge and received some explanations about the bridge management\. FIFTH GROUP: SEPTEMBER 4-21, 1986 12 ENGINEERS This group, experienced in surveying and design, made observations on use of computers, optical and electronical devices on survey and design, traffic surveys, construction and maintenance of concrete and asphalt roads\. During the visit to the Leicestershire County Council the group was informed about the UK Highway System, highway design and the bidding process\. The group visited TRRL and got information about the works carried out there\. They visited and observed the works of London PM25 Orbital Motorway\. SIXTH GROUP: SEPTEMBER 25-OCTOBER 12, 1986 12 ENGINEERS This group, mostly experienced in bridge engineering, was given some general information on the UK Highway System &nd bridges at the beginning of the program\. During the visit of Essex County Council the information about the duties and the responsibilities of the Council was given\. They visited various bridge construction sites and observed computer-aided highway and bridge design at the firm that had designed the first Bosphorus Bridge in Istanbul\. They visited to Severn Bridge, Humber Bridge and Taf Fawr Bridge construction sites and received some information about them\. They observed the manufacturing and use of Bailey type panel bridges\. 1987 STOCK CONTROL AND FLEET MANAGEMENT TRAINING PROGRAM 5 MARCH-2 MAY 1987 3 SENIOR ENGINEERS 3 senior mechanical engineers attended a training program which covered the stores management, plant depot supervision, computers ia stocking/materials supply and control, utilitization of stock control by manual ok- computer systems, the stock control system and fleet management system on computers, and transport management\. This training program was carried out as theoretical and practical at various organisations and companies\.  32 ROCK BLASTING TECHNIQUES SEMINAR AUGUST 31-SEPTEMBER 11, 1987 25 CONSTRUCTION ENGINEERS A Rock Blasting Techniques Seminar on the topics of construction of road and tunnel at rocky areas, fortification and providing block stones for various small structures, quarrying for procurement of aggregate for bituminous mixes was carried out in Turkey by the Swedish Company Nitro Nobel with the approval of the Wbrld Bank\. The first week of the program, consisting of the theoretical part, was carried out in accordance with the protocol signed between Nitro Nobel and the General Directorate of Highways at the Training Center of the General Directorate of Highways in Ankara\. The second week, consisting of the practical part, was carried out at certain work-sites\. Theoretical Parts - Modern explosives and their characteristics, ignition systems and their field of application\. - Storage and transportation of explosives - Trench blasting, safety regulations in blasting operations - Charge calculations for tunnel blasting\. Practical Partz Practical studies have been carried out on ground vibration measurements-cautious blasting in built up areas, film production blasting, drilling and drilling equipment calculations\. This Seminar held about Rock Blasting Techniques by Nitro Nobel, which has a market throughout the whole world, has been of great benefit to the Personnel of the General Directorate of Highways\. 1988 MAY 22-JUNE 17, 1988 1 SENIOR PERSONNEL The participant attended en English Language Training Program at Texas A & Mt University in the United States of America, and had meetings with the instructors from English Department of Foreign Languages Institute about a syllabus related to teaching english to foreigners, applied methodology and teaching techniques\. In addition, the participant obtained information on applied highway training programs from the Transportation Institute at the University\. 1990 IRF TRAINING CASSETTES It was decided that the video cassettes prepared by the International Road Federation (IRf) containing a set of 45 video cassdettes including Series 01-Road Construction, Series 02-Equipment/Maintenance/Operation, Series 03-Constructioh Inspection should be purchased to be used in in-service trainings in KGM and the cost of the cassettes should be financed through the World Bank Loan numbered 2439-TU\. It was also approved by the World Bank\. Thus, an agreement between our Organization and the authorities of IRF was signed on June 4, 1990 to enable KGM to purchase 45 Betamax video cassettes, in English, 45 master cassettes without audio, English texts, and the right to reproduce and distribute 50 copies of Turkish Language Version within Turkey\. The total cost of the purchase was $ 100,000 and the amount covering $ 84,193 was financed through Category-4, while the amount covering $ 15,807 was financed throd*4 ,!W Category-2\.  33 V\. COST ESTIMATES AND DISBURSEMENTS: The total expenditures for the training programs organized under Loan Agreement 2439-TU and the amount covering $ 84,139 to purchase the training cassettes from the International Road Federation were financed through the allocation under Category-4\. In addition, the air-fare of the two group training programs organized under Loan Agreement 2137-TU wee also paid through the same allocation\. The cost estimates (except the air-fare), the expenditures, the air-fare, the total expenditures (including the air-fare) and the refunds related to the organized programs are shown in the enclosed "Financial Statements" The information on expenditures and disbursements for 1985 is shown in TABLE-2, for 1986 in TABLE-3, for 1987, 1988, 1990 in TABLE-4 and for the total cost by years in TABLE-5\. VI\. CONCLUSION The participents, executives and engineers, tak'ng part in the technical observation trips obtained further information on highway design, construction, maintenance, computer aided applications, laboratory research, as well as construction and operation of road construction equipment, and prepared reports on the above mentioned programs stating the necessity of the information obtained and extensive usage of the below mentioned applications in Turkey\. The facts observed in the U\.K\. and mentioned in the participants reports are as follows: - Benefits of using computers for road survey, design, construction, maintenance and signalization - Paying close attention to the safety of nature and enviromental preservation during a road construction - Having applications considering the topographic structure of the terrain during road construction - Getting public opinion on new road construction and road widening\. - Having advanced road construction techniques, and observed the order and discipline during road construction projects - Having firms producing various materials and mixtures meeting the requirements to be used for a particular road construction - Emphasis given to construction quality control -Mimportance given to road signing for effective and safe usage of the highways during maintanence activities - Using the highways effectively in accordance with the rules - Applications observed at the training centers visited Other points mentioned in the reports are that the groups taking part in the training programs consisted of engineers having the same areas of specialization and subjects of interest, hence; they were more beneficial\. And, such program should be based on practice rather than observation\. In,addition to the training programs mentioned above, a Seminar on Rock Blasting was heWd, -ih' Turkey, which provided the construction engineers from different Divisions with the information about products and application techniques based on the latest technology\.  K I L 0 1 E T\. E R BIV2439-TU, MAWE Of C0NTRAC1S Place of "Km\.0+000'" %qinn oft Project End of Prodet:t Ttl Lenat 1- Ankare-C ICRE INT\.-GE:RE Ankars(Junction of Et ve Belik) 102\.750 137+300 34,550 nd GEREDE-ORTA lNT\. C&red 0000 680W 68,100 2- Gerede-ORTA INT\. U RN INT\. Gerede 68\.000 116h000 48,090 3- Germed\.-BEOUREN INT\.-ILGAZ-TOSYA Gerede 116+0O0 167OC 0 51,000- 4- Gerede-TOS\.YAs IK Gerede 167+000 238\.000 71,000 5- Serede-OSMANCIK-KERZIFON Gerede 2380\.0 308\.000 70,000 6- Gerede-(AMASYA-HAVZA)INT\. -AASYA-ZANA BRIDGE Gerede 318h00D 365+000 47,000O 7- Cere,d-DIYADIN INT\.-G1BUYULAK Gereds 1124+00 1215\.414 * ,414 8- ISKENDERUN-CILVEGUZO tkeWnd\.run(Bridgs of Akcsy) 04000 90+300 90+300 9- KUORLER-GAZIANTEP KCmOrler 0\.000 68+000 698000 10- kkinmi Int\.-SAKLAN-HA UR Akmn I nt\. 118+500 176\.250 57,750 697,04liA Total Alignment L,ngth of ICM Contracts 0  TROG IIUKY EIEAV RENAILITATION FWJECT (Tt ICB 8ectinu which Une bm_ petUy finwd UX Kom 2439LTU) BLACK SEA -~~~~~~~~~~~~~~~~~~~~~~~~~~~~ [, 'I ;- f lob 4t °biW_BUb - 306~~~~~~~6 V 9 A taa76j__S 43 s\. I~~IA I MITERRA SEA _SYR _ - 2 IA -- _  ESTsATES AND FAL EXP OF THE RaD EO E LOTM -3134U KOM IBRD __ __, TOTAL NAMECF7WVW UNTUAL S FALCOST _N CO FINAL COST NALCOST FWALCOST _f id Vaei tFor 2439-Tt) 9AMUDEFE INT\.GEREDE\.ORTA WI\. 10,010\.822\.54 12,523,399\.38 10,010,822\.54 0,408,639\.58 20\.021\.645\.08 21,932\.038\.02 ORTAINT\.KROMUNLUMOB EN NT\. 3\.821\.317\.67 5,441,802\.49 3,821\.317\.87 4,578,117\.48 7,842\.635\.34 10,019\.919\.9 BELOMRN INTAEGAZ-TOXYA 3,791\.591\.81 4,923\.487\.06 3,791\.591\.61 3\.851\.552\.70 7,583,103\.22 8,775\.039\.76 c TOSYAOS4MANCK 5,127,628\.58 6,900,000\.00 5\.127\.628\.58 8\.848\.952\.86 10,255,257\.16 13,748,52\.66 O&MMANCIK-UERZFMN 6\.779,06S\.88 8,700\.000\.00 6\.779\.065\.88 8\.683,150\.94 13\.558\.131\.76 17,383,150\.94 (AMASYA-HAVZA)INT\.AMASYA\.ZANA BFUDGE 3,465,379\.82 *4,358,000\.00 3,465,379\.62 3,632,790\.50 8,930\.759\.24 * 7\.990,790\.50 %IKEB43ERUtNAdLVEG0Z0 7,501,773\.07 *5\.752,000\.00 7\.501,773\.07 * 4\.794,3S\.U46 15,003,546\.14 *10\.548\.385\.48 DIYAOIN INT\.GORBIULAK 10,465,556\.65 *7\.213,861\.94 10,465,5568\.65 | 7,272\.878\.14 20,931\.113\.30 *14\.486\.740\.08 KOAMORLER\.GAZAWNTEP($ 3\.896,000\.00 3,898,000\.00 3,896,000\.00 3,247\.160\.12 7\.792\.00\.00 7\.143\.160\.12 SALAN-HIASUR W4) 2\.168,000\.00 2,166,000\.00 2\.166\.000\.00 1\.805,45S\.89 4\.332\.000\. 3\.071\.455\.89 ILOTAL 57\.025\.13S\.62 *61\.874\.550\.B5 57\.025\.135\.6? * 54\.123\.083A45 114\.050271\.2 * 1\.0\.634\.30 The fial cost whD contnue to cwease as fe waut havent bean jopeted ,et,but the exp0U wil be paid omo Ihe psu Will not dn\. MPWW th~~~~*e Lom, 3324-TU (+) These figue dow ody the part of the ial costs ad expedW In h Loan 2439-TU\.  37 1\. Related_Rank LOaNi In additLon to this loan the Bank ha f inanced tho following Wojeats in the transport sector, two for railways, three for ports and two for highways\. Loan Projoct NO Year of Amount Status 0028 port Development & construction (1) 1950 12\.5 closed 1954 0028 Port Devlopent a Construction (2) 1954 4\.5 closed 1961 893 Railways 1 1971 47\.0 cload 1981 1741 Port Modernization 1979 75\.0 closed 984 2137 First sighway 1982 71\.1 closed 1987 2535 Ports IXU 1985 134\.5 closed 1992 2739 Railway Ur 1986 132\.0 in progr"s 3324 State and Provincial Roads 1991 300\.0 in progres - - -~~~~~~~~~~~~~~~~~~~  38 2\. jMiset TSitMable Date Date Item Planned Actual Identification 1/83 1/83 Preparation 2/83 2/83 - 10/03 Appraisal 12/83 12/83 Loan Negotiations 4/84 4/84 Board Approval 6/84 6/84 Loan Signature 6/84 6/84 Loan Uffectiveness 8/84 11/06/84 Loan Closing 6/30/91 6/30/92 Loan Completion 12/31/90 6/30/921 XJ Three contracts will be completed under follow on loan 3324-TU\.  39 3\. Loan R$sur mQnta 3\. Cumulative Estlated aod Actual Diabwrosents (Us$ Million) Appraisal Actual Actual as 9 IED Fiscal Year and Calendar Ustimat Total of Estimate Year Quarter gndL=_ USS Ul\.on gM \. \.JIL PY85 September 1984 9\.5 0\.0 0 December 1984 10\.0 9\.42 94 March 1905 14\.0 10\.62 76 June 1985 18\.0 10\.62 59 FY8 toeptember 1985 26\.0 11\.90 46 December 1985 34\.0 20\.35 60 March 1986 44\.0 25\.47 58 June 1986 54\.0 33\.25 62 1112 September 1986 63\.0 35\.42 56 December 1986 - \.0 40\.64 55 March 1987 4\.0 43\.05 51 June 1987 92\.0 46\.20 50 ft September 1987 101\.0 53\.64 53 December 1987 113\.0 67\.09 59 March 1988 124\.0 74\.30 68 June 1988 133\.0 85\.29 68 FY89 September 1988 144\.0 103\.90 72 December 1988 153\.0 118\.26 77 March 1989 158\.0 132\.73 84 June 1989 166\.0 147\.02 88 hPY90 September 1989 171\.0 158\.14 92 December 1989 175\.0 160\.30 93 March 1990 179\.0 165\.80 93 June 1990 182\.0 171\.32 94 September 1990 183\.0 173\.80 9S December 1990 184\.0 177\.70 97 March 1991 185\.0 181\.36 98 June 1991 186\.4 182\.50 98 FY92 September 1991 186\.4 183\.7 99 December 1991 186\.4 183\.7 99 March 1992 184\.3 99 June 1992 184\.7 99 FY93 September 1992 186\.4 100 Date of Final Disbursements September 24, 1992  TURKEY SECOND ROADS PROJECT 120 100 CII___ 80 60 S I I t S<tt 128 40 2 - _ _ -liiS 20- 0 1984 1985 1986 1987 1988 1989 1990 1991 1992 SAR Estimate + Actual  41 4- - Z4dicatore \. A-t\.a Rehabilitatloa ot 8tate 279 kot & additll c t stam *0 km * Rbad\.I 195-, Investment pgogroth \. Ya wsecific indicators are given in the BAR\.  JjH I 0 |St t \. II It\. - 4 ii- Ifi aS °I  43 5a\. Projag linaging Loan Agremt _nt - _\._\._\._\. At Signature As Revised Aount Diaburesment 7 Feb\. 1986 ftlly Percentge _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ D isb u rs e d _ _ _ _ _ _ 1 Civil Works _ __ __ ________ a) Pavement 45\.00 45\.00 $4\.12 65/501 b) Othe 6\.50 6\.50 4\.06 45 0) Ditumn 25\.00 31\.94 100 2 DuLipmnt & Spar 105\.70 90\.00 95\.28 100 Parts 3 Consultants Srvices 2\.00 2\.00 0\.00 100 4 TraLnLng \.S \.50 \.58 100 _ P ello w sh\.tps _ __ _ _ _ _ _ _ \.__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5 Initial Deposit 9\.00 9\.00 -- 6 \.e \.46 \.46 \.46 _ 7 Unallocated 17\.24 7\.94 -- __ 8 Gain on SpcLal A/C2 \. -\.04 __ TO_ALS 186\.40 186\.40 186\.40 - I 1/ Percentage reduced fro 65 to 50 in 2/86 to compenate for creation of Category 1(c) at 100\. 21 Gain ariasng from Foreign exchange trasactLons in/out of SpecLal A/C\.  44 notnl 1991 At Appraisal 1983)WActual Predicted Actual (1) (2) (3) (4) (5) (6) 1 Zekwnd$rn-Cilvegozu 64\.35 45\.52 13\.29 S019 2323 2 Cor\.de-Tosya\.Osmanilk 82\.60 65\.34 21\.00 3257 2636 3 lymadn Ayr\.JVDogubeyaait-Gurbulak 27\.27 39\.65 7\.00 830 1430 4 Osuanclk-Nergifon 138\.42 52\.74 19\.00 4986 2810 5 Gore4e\.(Amasya-Rwrz&) Ayr\.-Amaya- ZsAn Roprusu 138\.42 70\.12 12\.00 4986 2610 6 Ahkara-Camlider\. Ayr\.-Gerede ve Cerede-Orta Ayr\. 61\.66 82\.29 31\.76 4255 6449 7 Gbrede-B\.loren Ayr\.-Ilgaz-Tosya 77\.36 75\.36 20\.00 2242 2568 * Qerede-Orta Ayr\.-Kursunlu-Beloren Ayr\.- 72\.42 57\.30 17\.00 2247 2715 A/ See Section 6, Part 1 of text for an explanation of thls data\. AV The figurs In Col\. 3 represent the expected rate of return on the Appraisal aeeumptiong\. using the same VOC model (KDM III) as for Col\. 4\. V Ayr - road junction  45 7\. Statug of ggvMantUL la I Conat Deadlino for status para _Compliance 3\.02 Maintain proect team throughout compled with 3\.0-3 xmpi\.y consultants using Bank throughout not complied 3,04 Review investment plan and its annually by Oct 31 comailed with financing and projiet Implementation with Bank annually\. 3\.04 Bids for civil works to be invited throughout complied with after feasibility studies\. 4\.02 Maintain financial records and annually complied wlth have them audited\.  46 S\. VMS ofK I3fl Resourc A\. stag of N\.th/ No\. of Day a in Type of P"rpatLon 1/83 1 10 Trans\. aon\. 7/83 4 15 Trans\. oo\. - -- &Can Otlf\. 8/83 1 10 Msch\.Ng -- -- \.0/83 4 15 Trans\. Noon\. -- Nah\. Ng\. Hwy\. Nag\. Apralsal 12/63 2 14 Hwy\. N- Tran\. Soon\. post Afprais" 2/84 2 9 Hwy\. *ag - - Trans\. Noon\. supzvtsion I 8/84 2 1S Hwy\. ng\. 1 -- Trans\. aoon\. Supervision 2 5/85 2 10 Hwy\. Nag\. 3 Procurement supervision 3 11/85 1 1S Hwy\. sNg\. 2 Procurement Supervision 4 5/86 2 8 Hwy\. sag, 1 -- Trams\. Neon\. SupervisLaon 5 1/87 1 5 Hwy\. Eng\. 1 Supervision 6 8/87 2 9 Trans\. NCO\. 2 Hwy Nag\. supe"ioion 7 11/87 1 5 Hwy\. Nag\. \. -- supervision 8 2/86 2 9 Hwy\. Ng\. 1 -I supervision 9 6/88 2 17 Nwy\. Ing\., 1 Trans\. NEon\. SupervLsion 10 10/88 2 9 Hwy\. Ng\., 1 -- Trans\. Ncon\. supervisLon 1i 4/89 2 12 Hwy\. Jn\., 1 -- Trans\. Econ\. Superision 12 10/89 2 15 Iwy\. 5ng\., 1 -- Trans\. Noon\. Supervision 13 11/90 14 1 - superision 14 5/91 1 7 Hwy\. zng\. 1 -- Supervision 1S 11/91 1 5 HWY\. Nag\. 11- supervisiOn 16 10/92 1 5 Hwy\. sag\. 1 -  47 as\. S= (SW) activity In\. t Preparation 51\.9 Apprasal_ 32\.3 Negotiatlons 6\.8 Supervision 104\.3 TOTAL 195\.3 \.  ESY~N&YU AnD If*L RUEUIUH in gmE lD ETNSin NLON23 (tit 1s$) NA)U OW TME MM INITIAl amS IEn" cost INTIAL COST VENL OS ____ ___ ___ ____ ___ ___ ___ (Bid value) (Vow 2439-11) _ _ _ _ _ _ CAWEIDER IN\.-GZIZD-ORTA inT\. 10,010,823 12,S23,3991 10,010,823 9,408,64 \.O\. Ram ENT\.-IWRSUULUDKWUI T\. 3,821,318 S,441,802 3821,318 j 4,578,111 \.:\. BXLOUN lmuluuk-\. - 3,791,5S92 4,923\.4871 3,791,5921 3, 851\.5 S$mw-\.R N wam~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 10  r-rn 2 Buoenm If t 05-Ful-8 31-J"lI 04-Jn-8 127 IM8 49 7 3 Tcsva-OuanI 07-Jl-86 31-Aug-88 27-Sp91 68 1906 1S0 23 go 493 1121 4 CamMer t\. 01-WOc4 1O-O6S 31-Oc90 14 1431 117 1 43 " 731 _ 01Oct6 0-S W-May-92 133 204 14 2 154 04 1311 e Oli_k 14-e-67 31-Ju-0 24-Oct-91 1410 46 21 110 266 448 7 o0inl nt\. 15-Apr48 31-Oct4 21-Oct-92 115 16S0 61 35 92 193 o11 8 1-OV91 04M794 go 2, _ i _ 3 42 186 -~_ - - = = =

APPROVAL

P074128

Document of The World Bank Report No: 24217-SL PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 15\.1 MILLION (US$ 20 MILLION EQUIVALENT) TO THE REPUBLIC OF SIERRA LEONE FOR A HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT JANUARY 22, 2003 Human Development H Country Department 10 Africa Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective January 21, 2003) Currency Unit = Leones (Le) Le 2,089\.17 = US$1\.00 US$1\.00 = Le 0\.00047866 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank APL Adaptable Program Lending CDC Center for Disease Control and Prevention CPR Country Procurement Review CPAR Country Procurement Assessment Report CTB Central Tender Board DHS Demographic and Health Survey DOTS Direct Observed Treatment Short-course (TB) EU European Union FMR Financial Management Report GDP Gross Domestic Product GIMPA Ghana Institute of Management and Public Administration GOSL Government of Sierra Leone GPN General Procurement Notice HRD Human Resources Development HSRDP Health Sector Reconstruction and Development Project IBRD International Bank for Reconstruction and Development IDA International Development Association IEC Information, Education and Communication IFC International Finance Corporation IHSIP Integrated Health Sector Investment Project MICS-2 Multiple Indicator Cluster Survey-2 MOHS Ministry of Health and Sanitation NHAP National Health Action Plan PCU Project Coordination Unit PHC Primary Health Care PHU Primary Health Units PMR Project Monitoring Report RBM Roll Back Malaria SAPA Social Action and Poverty Alleviation SBCQ Selection Based on Consultant's Qualification SIL Specific Investment Loan TSS Transitional Support Strategy TB Tuberculosis UNICEF United Nations Children's Fund UNFPA United Nations Fund for Population Activities WHO World Health Organization Vice President: Callisto Madavo Country Director: Mats Karlsson Sector Manager: Alexandre Abrantes Task Team Leader: Astrid Helgeland-Lawson SIERRA LEONE HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT CONTENTS A\. Project Development Objective Page 1\. Project development objective 2 2\. Key performance indicators 2 B\. Strategic Context 1\. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2\. Main sector issues and Government strategy 5 3\. Sector issues to be addressed by the project and strategic choices 8 C\. Project Description Summary 1\. Project components 9 2\. Key policy and institutional reforms supported by the project 14 3\. Benefits and target population 14 4\. Institutional and implementation arrangements 15 D\. Project Rationale 1\. Project alternatives considered and reasons for rejection 15 2\. Major related projects financed by the Bank and other development agencies 16 3\. Lessons learned and reflected in the project design 17 4\. Indications of borrower commitment and ownership 18 5\. Value added of Bank support in this project 18 E\. Summary Project Analysis 1\. Economic 18 2\. Financial 20 3\. Technical 20 4\. Institutional 21 5\. Environmental 22 6\. Social 23 7\. Safeguard Policies 25 F\. Sustainability and Risks 1\. Sustainability 25 2\. Critical risks 26 3\. Possible controversial aspects 27 G\. Main Grant Conditions 1\. Effectiveness Condition 27 2\. Other 27 H\. Readiness for Implementation 28 I\. Compliance with Bank Policies 28 Annexes Annex 1: Project Design Summary 29 Annex 2: Detailed Project Description 35 Annex 3: Estimated Project Costs 42 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 43 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 49 Annex 6: Procurement and Disbursement Arrangements 50 Annex 7: Project Processing Schedule 65 Annex 8: Documents in the Project File 67 Annex 9: Statement of Loans and Credits 68 Annex 10: Country at a Glance 69 MAP(S) IBRD 32088 SIERRA LEONE HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Project Appraisal Document Africa Regional Office AFTH2 Date: January 22, 2003 Team Leader: Astrid Helgeland-Lawson Sector Manager/Director: Alexandre V\. Abrantes Sector(s): Health (100%) Country Manager/Director: Mats Karlsson Theme(s): Health system performance (P), Fighting Project EiD: P074128 communicable diseases (P), Conflict prevention and Lending Instrument: Specific Investment Loan (SIL) post-conflict reconstruction (P), Civic engagement, participation and community driven development (S) [] Loan [] Credit [X] Grant [] Guarantee [] Other: For Loans/Credits/Others: Amount (US$m): $20\.00 5 SourceY i';41 v6~'~Oa\.~ Oegl Ttil5 BORROWER/RECIPIENT 1\.00 0\.00 1\.00 IDA GRANT FOR POST-CONFLICT 14\.15 5\.85 20\.00 Total: 15\.15 5\.85 21\.00 Borrower/Recipient: GOVERNMENT OF SIERRA LEONE Responsible agency: MINISTRY OF HEALTH AND SANITATION Address: Ministry of Health and Sanitation, 4th Floor, Youyi Building, Freetown, Sierra Leone Contact Person: Dr\. Noah Conteh, Director General of Medical Services Dr\. Clifford Kamara, Director of Planning, Information and Statistics Tel: (232) 22242119/22240068 Fax: (232) 22241527 Email: cwkamara@sierratel\.sl Estimated Disbursements ( Bank FY/US$m): Annual 2\.00 5\.53 5\.60 5\.12 1\.40 0\.35 Cumulative 2\.00 7\.53 13\.13 18\.25 19\.65 20\.00 Project implementation period: January 2003 - December 2007 Expected effectiveness date: 05/01/2003 Expected closing date: 02/28/2008 OCS PAD Farra Rev M 2 A\. Project Development Objective 1\. Project development objective: (see Annex 1) The project's overall development objective is to help restore the most essential functions of the health delivery system\. The project will also help achieve the more specific objectives of: (a) Increasing access to affordable essential health services by improving primary and first referral health facilities in four districts of the country\. (b) Improving the performance of key technical programs responsible for coping with the country's major public health problems\. (c) Strengthening health sector management capacity to improve efficiency and further decentralize decision-making to the districts\. (d) Supporting development of the private NGO health sector and involvement of the civil society in decision-making\. The first specific objective is limited in scope to the four districts which met specific selection criteria (such as importance to the demobilization, resettlement and peace processes; magnitude of the public health problems; clear need to rehabilitate the delivery of services, etc\.)\. Within these four districts, the project focuses on the rehabilitation of priority health facilities, and on support for the delivery of affordable and good quality care\. Through its second specific objective, the project will contribute to reducing the burden of some of the most important infectious diseases country-wide (i\.e\., by supporting Malaria and TB control activities, and the Sanitation program)\. The third specific objective aims to improve efficiency and make the health sector more responsive to the needs of the population by supporting eligible district health teams country-wide (13 in total) and five key services of the MOHS (i\.e\., Human Resources Development; Planning, Monitoring and Evaluation; Financial Management; Procurement; and Donor and NGO coordination)\. The fourth specific objective will improve the quality of services by (i) promoting development and regulation of the private NGO sector, strengthening the quality of care and enhancing the contribution of the private sector to the achievement of public health objectives, (ii) providing incentives to the health providers to establish practices in rural areas and smaller cities, (iii) contracting out clinical and non-clinical services with the private sector, and by (iv) involving the civil society in decision making in the health administration and in health facilities\. While the project must initially focus on the restoration of health service delivery, it will provide increasing support to the reform process in the health sector (including to cost-recovery and to the set up of mechanisms to protect the access to services of the poorest population)\. 2\. Key performance indicators: (see Annex 1) Because of the scarcity of reliable baseline information on sector performance and health outcomes, the project's key performance indicators will be based on input, process and performance indicators such as: (a) health sector budget allocations and actual expenditures, i\.e\., recurrent (salaries and wages, and non-salary) and investment allocations and expenditures; (b) public expenditures for primary, secondary and tertiary services; -2- (c) progress in increasing the numbers of health providers with emphasis on medical, nursing and midwifery health personnel; (d) progress in rehabilitating and equipping health facilities (overall and in the four participating district); (e) immunization coverage (the percentage of children aged 12 to 23 months immunized against diphtheria, pertussis and tetanus) in the four distncts assisted by the project\. This indicator is expected to increase from 46% in the year 2000 to 60% in the year 2005 and to 65% by the year 2007; (f) the regular use of insecticide-treated bed nets by children under five years of age\. This indicator is expected to increase from 1\.5% in the year 2000 to 20% in the year 2005 and to 40% by the year 2007; (g) the contraceptive prevalence rate (the percentage of married or in union women aged 15 to 49 years using a modem or traditional contraceptive method) in the four districts assisted by the project\. The CPR is expected to increase, country-wide, from 3\.9% in 2000 to 8% in 2005 and to 10% in 2007, and; (h) the percentage of deliveries assisted by a doctor, nurse or midwife in the four distncts assisted by the project\. This indicator is expected to increase, country-wide, from 42% in the year 2000 to 55% in the year 2005 and to 60% by the year 2007\. * The source of base-line data on the output indicators (e to h) quoted above is the Government of Sierra Leone (GOSL) Multiple Indicator Cluster Survey 2 (MICS-2) published in November 2000 under the title "Survey Report on the Status of women and Children in Sierra Leone" (see also the table presented in section B 2 below)\. The data of this survey also include some outcome indicators but the respective data are affected by important size and sampling techniques limitations\. Because of these limitations and of the unavailability of DHS data, no outcome indicators were included among the project key performance indicators\. If, at a later stage, data on outcome indicators become available, the list of key performance indicators will be amended accordingly\. * Additional indicators are to be found in Annex 1\. * Data on the indicators for the four districts assisted by the project were not available at the date of the PAD preparation\. They will be collected dunng the annual sector review and operational planning exercise for the year 2003\. Countrywide data from the MICSII survey will also be used as a proxy\. B\. Strategic Context 1\. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 21332 Date of latest CAS discussion: 03/26/2002 A Transitional Support Strategy (TSS) for 2002-2003 was developed\. The TSS presents the Bank's business plan to support the implementation of the Sierra Leone Government's Interim Poverty Reduction Strategy (I-PRSP) which was launched on September 2001\. The main objective of the TSS is to support the transition from post-conflict reconstruction to sustainable poverty reduction\. In the transitional phase, the focus of the TSS is on: (i) consolidating peace, (ii) resettlement and reconstruction, (iii) improving governance, and (iv) maintaining a macroeconomic framework conducive to economic recovery\. In the medium-term, Government will increasingly address longer-term development issues to be elaborated in the full PRSP\. The provision of health services in rural and underserved areas is one priority of the TSS, and a means to help mitigate the risk of renewed conflict and lay the foundation for sustained poverty reduction\. The Health Sector Reconstruction and Development Project is one of the lending activities proposed in -3- the TSS for FY03\. The proposed project is aligned with the goals of the TSS as priority for rehabilitation of health facilities is given to war-torn and underserved areas\. The key objectives of this project would encompass: (a) increasing access to affordable essential health services by improving primary and first referral health facilities in four districts of the country; improving the performance of key technical programs responsible for coping with the country's major public health problems; strengthening health sector management capacity to improve efficiency and further decentralize decision-making to the districts; and supporting development of the pnvate health sector and involvement of the civil society in decision-making\. As reestablishing the provision of services is crucial in returning to normalcy, the project has important contributions towards the consolidation of peace and it is fully consistent with the TSS\. Regarding the high potential for conflict in the Mano River Basin, the TSS presents three transitional scenarios\. Under the first, provided that a satisfactory transition to peace occurs, the Bank would prepare a CAS in about two years (this is considered the most likely scenario given recent progress in Sierra Leone)\. However, under a second scenario, that would apply should there be significant slippage in the peace process, the program outlined in the TSS will continue provided that progress is being made in reducing poverty\. The HSRDP will be implemented,as described in the PAD under either of these scenarios with a possible modification of the districts to receive assistance as accessibility to districts and specific health needs might change\. Under the third scenario, the Bank would (i) in case of conflict spreading to large areas of the country, suspend the preparation of new operations, conducting only limited portfolio implementation; and, (ii) should such conflict persist and spread country-wide, suspend all operations and prepare a Watching Brief\. If conditions in the country so deteriorate as to make it necessary to apply this last scenario, HSRDP will need some adjustments (similar to the ones used during the implementation to the IHSIP project that allowed the Bank to provide valuable support to the population of the country in 1999-2000 when the armed conflict worsened)\. Nonetheless, in the case of renewed conflict couhtry-wide and a severe deterioration of the security situation, HSRDP will be suspended as all the other Bank operations\. For FY03, Sierra Leone was allocated grants of SDR 30\.2 million (US$40\.0 million equivalent), and this amount will be applied toward the financing of the Health Sector Reconstruction and Development Project and the Rehabilitation of Basic Education Project\. These particular projects were selected for grant financing because of (i) their importance in the Bank's program in Sierra Leone, (ii) these projects' strong development impacts, and (iii) the Government's particular interest in grant financing of the health and education sectors as support to these sectors would be strengthened by the grant financing\. o Health Sector in the Sierra Leone TSS\. The provision of health services in rural and underserved areas is identified as a priority in the TSS, and a means to help mitigate the risk of renewed conflict\. and lay foundation for sustained poverty reduction\. o Strong development impacts\. This particular operation is very timely and responds to the most urgent health needs of the population during a critical period of time and will contribute to the strengthening of the public and private health sector\. o Government preferences\. The Government has expressed particular interest in grant financing for the health sector as they see it as a means to draw greater and broader support for these programs\. In addition to these specific reasons for applying grant financing in this operation, the operation advances the Bank's preference in the IDA13 Grant Guidelines that "While grant use will be guided by PRSP and CAS/TSS priorities, investments in education, health and clean water are generally expected to be an important component of grant use\." -4- 2\. Main sector issues and Government strategy: At the end of a decade of war, political and social instability, and deterioration of the economic performance of an otherwise well-endowed country, the health sector in Sierra Leone is facing many issues\. a) The health status of the population is, compared with other SSA countries, critical; it is estimated that life expectancy at birth is only 43 years, and infant, under-five and maternal mortality rates are as high as 170, 286 and 18 per 1000 live births respectively\. The country is plagued by diseases for which cost-effective interventions are available but are not being used due to: (i) problems with resources of all kinds (financial, infrastructure and especially human resources); (ii) weak sector capacity, and; (iii) limited access to some geographical areas because of the security situation (until very recently), poor roads and inadequate communications\. Among these diseases are malaria, tuberculosis, leprosy, acute respiratory diseases, diarrhea, Lassa fever, onchocerciasis, and cholera and other water bome diseases\. Also, compared with neighboring countries, the HIV/AIDS epidemic is more significant; the prevalence rate of HIV sero-positivity is now estimated at about 4\.9% (the CDC Atlanta base line survey of 2002) and may be higher in some groups\. As a result of war atrocities, the country was left with thousands of amputees; a huge number of psychologically affected people (mostly women among whom many were raped and/or lost their children and families; and children who are orphaned or living away from their parents\. Fertility rates are also high as a result of insufficient use of contraception, particularly in rural areas\. Lastly, malnutrition is widely spread among children and lactating mothers and contnbutes significantly to the high mortality rates cited above\. b) The health delivery system is operating poorly\. During the conflict, the country is estimated to have lost more than 50% of health facilities and the remaining facilities need rehabilitating, re-equipping, new staff, and technical and financial support\. While the recent conflict exacerbated the situation by destroying health facilities and displacing (or worse) staff, the public health sector has not performed well for more than a decade; with inadequate financing, MOHS could not supervise and support technically the public health facilities country-wide\. Further, the destruction of the infrastructure of other sectors affected, and continues to affect, the health sector's operations since communications, transport, electricity, water supply, etc\., were also severely disrupted\. Many international and local NGOs specialized in providing health care during conflict and in post-conflict situations have successfully delivered services to the districts in which the public health facilities were not able to operate\. In addition, NGOs are contributing substantially to alleviating psychological suffering and providing physical rehabilitation to amputees\. As a result of the progress in peace negotiations and increased security, these NGOs are now in the process of phasing out their aid programs\. Other NGOs (and particularly the religious NGOs), which had previously played an important role in the delivery of health care in rural areas, suffered severe damage in the war (of 47 mission facilities in operation before the 1997 coup, only 20 are currently functioning), the mission hospitals have lost their expatriate medical staff, and the current free drug policy (applied in some government facilities and by the large international NGOs) is drawing patients away from their clinics which continue to use cost recovery (and to also successfully exempt the poor from it)\. The private for profit health system, although recently developing, remains weak and limited to the Western Region and the capital city\. This makes restoration of a functioning health sector a crucial priority for the country\. At present the most important challenges for the public health sector are to find solutions for: -5- (a) the lack of infrastructure, especially in the districts most affected by war; (b) the limited administrative capacity of the public sector and its persistent inefficiencies; (c) the lack of human resources (resulting from (i) staff attrition, (ii) inadequate training (undergraduate, postgraduate and continuous on the job training), (iii) emigration of medical doctors (in particular, of specialized physicians) to developed countries; (iv) distorted geographical distribution of health workers (during the war the health providers left the unsafe zones and came to work in Freetown); and the lack of skill and motivation of the remaining health personnel, and; (d) the lack of capacity of the private for profit health sector and its inability (or unwillingness) to address major public health problems\. Health Status Indicators Source of data: IICS 2 Survey 2000 Indicators Latest estimated value Infant mortality rate 170 per 1000 live births Under-five mortality rate 286 per 1000 live births Maternal mortality rate 1800 per 100,000 live births Underweight prevalence in children under 5 years 27\.2% of age Stunting prevalence in children under 5 years of 33\.9% age Wasting prevalence in children under 5 years of 9\.8% age Population with access to safe drinking water 54\.0% Population with access to safe excreta disposal 63\.1% means Antenatal care 68\.0% of pregnant women received at least one consultation Deliveries attended by skilled personnel 41\.7% Contraceptive prevalence rate (modem 3\.9% contraception) Births weight below 2\.5 Kg 52\.5% Iodized salt consumption 23\.4% of households Children receiving vitamin A supplementation 58\.2% Mothers receiving vitamin A supplementation 32\.6% Breast feeding (exclusive of other foods) of 2\.4% children under 4 months of age Complementary feeding of children aged 4 to 9 52\.5% of children 4-9 months old are receiving months breast milk and complementary food Immunization rates in children 12 to 23 months of DPT: 45\.5%; measles: 61\.7%; TB: 61,2% and age polio:72\.8% Neonatal tetanus immunization of pregnant women 57\.7% Use of Oral Rehidration Therapy 86\.1% Acute respiratory infections treated 50\.2% Impregnated bednets used by children under 5 1\.5% years of age Malaria treatment in children under 5 years of age 60\.9% -6- Knowledge on HIV/AIDS prevention and 21\.1% and 19\.0% misconceptions Data quality is affected by sample size and sampling techniques limitations\. For instance regarding the maternal mortality the MICS-2 can only say that, with 95% probability, the MMR is not smaller than 1000 and not bigger than 2600 maternal deaths per 100,000 live births\. More accurate data will only be available later on with: (i) the opportunity of a DHS (scheduled for 2003) and of specialized surveys (such as the HIV sero-positivity survey scheduled for 2002) and, gradually, (u) the resuming of the health facility data collection and reporting system c) The health sector's capacity to manage health service delivery was considerably weakened, and the decentralization of decision-making halted in recent years\. During the period 1993-1996, the MOHS prepared a comprehensive sector reform and service delivery program, which was outlined in documents such as the 1993 National Health Policy, the 1994 National Health Action Plan (NHAP) and the 1995 NHAP Core program\. At the time, GOSL (using performance indicators and qualitative information) ranked health as the best performing public sector of the country; in more recent years, MOHS' performance has also been ranked very high\. Recognizing these efforts, the World Bank agreed to develop a project to support the sector-wide program of the GOSL, the Integrated Health Sector Investment Project; credit 2827-SL\. Unfortunately, the rebel conflict (which worsened in 1996 and kporadically thereafter) halted the reforms and re-focused MOHS's work on solving problems stemming from instability, loss of resources, an increasing number of displaced persons and refugees, and a marked deterioration of the health status of the population\. Although sector performance was greatly reduced by problems with financial resources, decrease of staff and looting of premises, the most affected parts of the system were, without doubt, the district health teams and the decentralization process\. IHSIP was restructured to provide the financing of activities in response to the new situation in the country, and remarkably permitted MOHS to continue functioning during all these years of war\. To a large extent this was possible due to the dedication of the national staff and was facilitated by the assistance received from the IDA credit to the sector\. Other organizations, such as UNICEF and WHO, have also succeeded in mobilizing extra budgetary resources and have provided valuable assistance\. Over the past several years, sector capacity has gradually been re-established\. In August 1999 the sector was able to resume the annual review and planning meeting with donors and NGOs, and launched the national immunization days\. District health personnel, among which many have functioned mostly due to the support from international NGOs, attended these meetings\. A decision was taken to increase the support to districts from the public budget and donors and, in addition, to also make available funds from the current IDA credit\. In November 2000 the annual program review and planning meeting for the year 2001 was held with an even more active participation of NGOs, donors and district staff\. Continuing this positive trend, at the beginning of the year 2001, the health districts meeting the criteria for satisfactory financial management and accounting practices received funding for their most urgent needs, conducting supervision or training from the current IDA project\. During the same year the AfDB declared effective its credit and, in 2002, EU has intensified project preparation activities aiming at providing support to the health sector by early 2003\. Government Strategy: In the past years (1993-1995) the MOHS strategy was: (a) to rehabilitate health facilities using resources pledged by donors, and; (b) to further develop and reform the sector by means of a sector-wide program (i\.e\., the NHAP Core program) financed by the GOSL and by MOHS's traditional partners (such as WHO, UNICEF, UNFPA, Saudi Fund for Development, the Islamic Development Bank, the European Union, AfDB and IDA)\. During this period the Government's overall goals were to "improve social conditions and alleviate poverty along with sustained economic growth\." In the health sector, the sector policy was translated into a five-year sector-wide program (NHAP) originally estimated at about US$270 million but downsized to US$138 million (NHAP Core program) after a more realistic analysis of the sector's financing capacity and absorption limitations\. The main -7- thrusts of the NHAP were to develop a sound health delivery system and to staff it adequately, promote environmental health and communicable disease control, foster community participation, decentralize services at district level, improve sector financing; privatize certain services and enhance international collaboration\. To this sector-wide program, IDA contributed US$20 mllion through the Integrated Health Sector Investment Project, which was one of the first sector-wide operations in the Region\. Starting in 1996, when the war and insecurity worsened, the MOHS aimed to provide expanded health services to the increasingly large populations in safe areas (basically the Western Region) with reduced financial and material resource\. Through 1999 the sector operated on the basis of Quarterly Emergency Plans, until the regular mechanism (set up in 1995) of reviewing sector performance and planning for the following fiscal year was reinstated\. This participatory planning process continued and was improved during the October 2000 and 2001 planning sessions and in particular in 2002\. GOSL, taking into account the progress in peace negotiations and the overall improvement of the security situation is currently updating the health sector policy\. The new policy is two pronged and aims at: (i) re-establishing the provision of health services, and (ii) gradually strengthening the sector capacity to deliver services by decentralizing decision making, re-instating cost-recovery (in a manner that will preserve the affordability of drugs and services by the poor), and by improving sector management to obtain efficiency gains\. The implementation of this new policy would be supported by the proposed IDA grant\. 3\. Sector issues to be addressed by the project and strategic choices: a) Sector issues and choices\. The proposed project will address the range of issues faced by the sector during the post conflict period, comprising both the restoration of the health delivery system and the strengthening of public and private health sector capacity\. Nonetheless, within these major issues the project will target very specifically a few priority geographical and public health areas of concern\. For instance, through the first project component (Restoring essential health services) the project will support four priority districts (Bombali, Koinadugu, Kono, Moyamba)\. Likewise, the project's first component will provide support to three priority technical programs (i\.e\., Malaria, TB, and Sanitation) while the project's second component (Strengthening Public and Private Sector Capacity) will support five key support programs of the MOHS (i\.e\., Planning, Monitoring and Evaluation, Financial Management, Procurement, Donor & NGO Coordination and Human Resources Development)\. These choices were based on criteria such as health needs, timeliness of the interventions, cost-effectiveness, and a potential positive impact of health interventions on stability and resettlement of the population of certain districts\. Some other important considerations were: (i) the size of the financial gap in some areas or, conversely, the support from another donor (such as WHO and UNICEF in safe motherhood, immunizations and nutrition; EU and ADB in drug procurement, stock management and distribution); (ii) the potential for raising grants for activities such as Onchocerciasis and HIV/AIDS; and (iii) a preoccupation with keeping the project relatively simple and doable\. Other choices considered were: (a) the development of a project to exclusively support the private or the public health sector (the preferred option was a project supporting both public and private health providers and the contracting out of public health services with private providers), (b) the design of a project to provide support using a social fund mechanism versus a project funding the public sector and executed by MOHS (the preferred option was not to duplicate the current social funds projects, which include also Bank financed projects, but to support these projects by equipping, providing drugs, vaccines, consumables and technical support to the health facilities built with social fund assistance), (c) the design of the new project using all the sector-wide features of the rather successful current -8- Integrated Health Sector Investment Project (IHSIP)\. This option was carefully analyzed and, as a result, the most beneficial features of the IHSIP have been incorporated into the HSRDP design (such as the annual review, planning and budgeting exercise, the emphasis on decentralization, etc\.)\. However, considering the need to simplify the project design, to better target the priority areas of concern, and to be able to more accurately evaluate outputs and outcomes, the HSRDP was designed as a sector investment operation (with some innovative features)\. These choices led to the proposed project design which includes two components and to the lending instrument described below\. Section D on "Rationale" and "Project alternatives and reasons for rejection" provide complementary information to this section\. (b) The lending instrument: As mentioned, the current IDA project (IHSIP) was one of the first sector-wide programs in the Africa Region\. The preparation and implementation of this project have shown that this approach had great advantages for continuously adapting the project to changes in the sector, made donor- contributions more purposeful and strengthened the MOHS's capacity to deal with multiple partners\. At the same time, there were also drawbacks, in that the Bank, as the donor of last resort, was often called on to: (i) fund recurrent expenditures while important investments were chosen with priority by other donors such as AfDB and EU; and (u) finance (however thinly) all programs and could not concentrate on the most essential and more cost effective activities\. As a result, the impact on the health status of both the national sector-wide program and, in particular, of the IDA project proved impossible to measure accurately\. The relevance of an APL (Adaptable Program Lending) was also discussed\. It was felt that such a lending instrument would be appropriate, but not before the situation in the country becomes stable enough to allow the development of a sector policy covering a period of 10 years or more and not before the sector capacity, including the health management information system, was strengthened to make possible the monitoring of indicators on sector performance and outcomes\. Based on these considerations an investment operation is being proposed (SL)\. Nonetheless, some features of the current sector-wide program have been retained\. For instance: (a) To allocate the resources to activities for the benefit of three of the MOHS priority programs (Malaria, TB and Sanitation) and five MOHS key departments (Planning and Monitoring, Human Resources Development, Financial Management, Procurement, and Donor & NGO Coordination), and major investments in rehabilitation of infrastructure and equipment of the four districts selected to receive IDA support, but also to verify annually the relevance of these allocations through the Annual Review and Operational Planning process (initiated since the launch of the current sector-wide operation) and, if necessary, make further adjustments, and; (b) To implement the project through the MOHS and without the help of a separate project unit (all these features are shared with the current sector-wide project)\. C\. Project Description Summary 1\. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component 1: Restoring Essential Health Services\. This component will: (a) provide assistance to four priority districts to deliver adequate health services -9- and (b) support three priority technical programs to improve their performance and control infectious diseases of high public health importance in Sierra Leone (i\.e\., Malaria, TB and Sanitation)\. 1\.1 Restoring health service delivery in four priority districts (Bombali, Koinadugu, Kono, Moyamba)\. The project will finance equipment, drugs, vaccines, furniture, training and supervision needed for the adequate functioning of 50 health posts built with support from the IDA funded Community Reintegration and Rehabilitation Project and from other social fund projects\. The project will also finance civil works, equipment, rehabilitation and upgrading of water distribution and medical waste disposal systems, essential staff quarters, training, communication means and ambulances for 12 health centers and four first referral hospitals\. Finally, it will provide support to ensure the delivery of adequate health care and to solve health provider shortages and other human resources issues in the participating districts\. Particular attention will be paid to health facility waste management and to related IEC activities for health providers\. As all these activities will be carried out at existing and operating health facilities (and in addition, for the hospitals within the hospital compound) this sub-component will therefore not necessitate land acquisition and will not cause any resettlement of the population or removal of squatters\. It is worth mentioning that while maintenance and drug availability (procurement, stock management and distribution) will be strengthened at the central level with the support of other MOHS's partners (AfDB and EU), IDA will contribute in a concrete manner in the four participating districts, by funding drugs, condoms and other contraceptives, consumables, vaccines, micronutrients and food supplements, spare parts and other non-salary recurrent expenditures\. IDA will also rehabilitate and equip district drug stores and train the respective personnel\. Likewise, IDA support at central level (see the second sub-component) will only target some key technical and support programs (and not all of them, as several have already obtained assistance from other donors)\. However, in the four participating districts, IDA will support, to the extent needed, the delivery of all essential preventive and curative care, thus being able to contribute to the improvement and expansion of all major public health programs\. For instance, because the Reproductive Health Program, including Safe Motherhood and Family Planning, Nutrition and Expanded Program of Immunization are already being supported by WHO, UNICEF, UNFPA and several bilaterals, these programs were not included among the technical programs to receive IDA assistance at central level\. However, if and when needed, IDA will support such activities in the four participating districts\. 1\.2 Support to priority technical programs\. The project will provide support to improve the performance of the following programs important for the reduction of three priority public health problems in Sierra Leone: (i) Malaria control activities consistent with the RBM strategy and focusing on the strengthening of case management capacity in public and nongovernmental facilities, the promotion and distribution of insecticide-treated bed nets (to be distributed and re-treated with local NGO support), and strengthening the capacity for monitoring and supervision; (ii) TB control activities will include establishing/strengthening diagnostic laboratory capacity, training of health workers in case detection and appropriate treatment, and logistic support for the implementation of the DOTS strategy; (iii) Sanitation and environmental impact mitigation measures in the four districts supported by the project\. Regarding sanitation, a program of importance for all infectious disease control programs and for prevention in general, the project will support activities to be contracted out with private providers and advocacy for involving the municipalities in the four districts and communes in waste management (thus redefining the task of the MOHS from a provider of services to contract management and environmental monitoring; the ultimate objective of this program will be to transfer sanitation - 10- responsibilities to municipalities and communes)\. Regarding environmental impact mitigation the project will finance (a) medical waste management measures in the 12 health centers and, in particular, in the four district hospitals to be rehabilitated (incinerators, lined pits, latrines, including support for their maintenance and functioning, training of relevant staff and of health providers), (b) TA for an adequate identification and development of dump sites (which will also include liquid waste disposal) of the four district capital cities, (c) transportation means for solid waste and (d) supervision and monitoring by environmental inspectors of the district health teams of the four districts\. The SHARP project will also support environmental impact mitigation in the four districts by financing, among others, training of health providers in medical waste issues and management\. All other priority technical programs of the MOHS will also be supported, to the extent needed, through HSRDP assistance to the four priority districts (mentioned above under the sub-component 1\.1)\. Component 2: Strengthening Public and Private Sector Capacity\. Under this component the HSRDP will support: (a) in all the districts of the country, the decentralization process by strengthening the District Health Management Teams (DHMT), improving the decision making process, and enhancing capacity for appropriate planning, management, financial management and supervision; (b) essential sector management functions carried out by five key MOHS units (i\.e\., Planning, Monitoring and Evaluation, Financial Management, Procurement, Donor & NGO Coordination and Human Resources Development) to improve efficiency and improve the administrative performance at the central level and at the periphery; and (c) initiatives to promote private sector and civil society participation in the health sector and to develop mechanisms to increase the efficiency, ensure the equity, and improve the quality of services provided\. 2\.1 Promote decentralization and improve the performance of District Health Management Teams\. To support the reforms (currently underway) to decentralize budget management, the project would finance training of district level financial officers and financial support to district operating costs to the qualifying districts (i\.e\., those meeting the criteria for adequate financial management)\. HSRDP funding will be channeled following an already existing mechanism for funding of operating expenditures in the districts established by the IHSIP (i\.e\., the districts meeting criteria of sound financial management are eligible, the funds ought to be used for unplanned activities for which the public budget is not sufficient such as supervision, emergency operations in case of infectious disease out-breaks, etc\.)\. A total of US$0\.4 million will be spent for the entire duration of the project for this type of funding, this sub-component is expected to greatly assist DHMT to make their own decisions and manage in a hands-on manner problems unforeseen at the planning stage\. 2\.2 Strengthen the key MOHS support services, i\.e\., Human resources development (HRD), Planning, monitoring and statistics, Financial management, Procurement and Donor/NGO coordination\. The Project would provide ongoing support for the improvement of staff skill and performance, and for the implementation of activities of selected key support services of the MOHS\. These key support services have been selected on the basis of their importance to improving sector efficiency, insufficient funding from other sources, and the Borrower's intention to implement the project using MOHS's capacity (and not with a PCU)\. Planning, monitoring and statistics\. The Project would provide operational support to meet the department's needs in equipment, transport, communications, training and technical assistance, and specific support to: (a) revise and disseminate the national health policy; (b) reinforce the medium-term planning and operational planning exercises as well as the annual sector review; and (c) strengthen both routine health information management and periodic surveys and research\. With support from a PHRD - 11 - grant, MOHS has revised the 1993 National Health Policy and adapted it to the current health status of the population and the situation in the sector\. HSRDP will finance the dissemination and public discussion of the final updated policy\. The planning process would be strengthened by: (i) improving the Planning Department's ability to collect and analyze information on health sector expenditures; (ii) revising the planning guidelines to institute a Three-year Rolling Plan and improve the Annual Operational Planning; and (iii) improving the planning capabilities of the District Health Management Teams and would continue to support the organization of the annual sector review\. The project would also provide financial support for (i) the improvement of health information systems at central and district-levels; (ii) vital registration, and; (c) the execution of selected surveys and operational research to be determined annually\. Donor/NGO Coordination\. Within the framework of MOHS's intention to develop a new NGO policy with procedures and guidelines for effectively coordinating and monitoring the activities of NGOs, the HSRDP would finance TA, as well as equipment and modest operating costs\. The project would also support current work to involve and coordinate donors, technical agencies, financing institutions and international and national NGOs and to expand their participation in the decision-making, among others, capitalizing on the opportunity of annual sector review and planning exercises\. In addition, the project would finance periodic meetings between MOHS and its partners as well as the collection and publication of the annual inventory of donor and NGO interventions in the health sector\. Human Resources Development\. The HSRDP would support a series of actions to strengthen human resource management and reduce the shortage of health service providers\. These actions will be closely coordinated with and complementary to ongoing efforts by WHO and AfDB and particularly by the proposed EU-financed Health Sector Support Project\. Specifically, the project would strengthen the overall capacity of the Human Resource Department to implement the Government's Public Service Reform Program, focusing specifically on providing technical and financial support for: (i) personnel management through improved personnel record keeping and (ii) manpower planning through formulation (and subsequent updating) and implementation of a comprehensive manpower development plan\. HRSDP will also provide support for strengthening training institutions, introducing specialized or in-service training courses, or other activities as appropriate\. Finance\. The HSRDP would provide TA and overall operational support for the Finance Department to improve its performance, carry out its tasks related to the FM of the IDA project and effect improvements in financial management and control\. In addition, the Department will receive assistance to computerize financial management operations; complete installation of a system acceptable to the Bank, and train staff\. Procurement\. To enhance the capabilities of the Procurement Unit of MOHS, the project would: (a) strengthen existing systems and procedures for procurement planning and implementation; and (b) extend these methods for use in carrying out procurement with GOSL funds\. To ensure the continued development of the Procurement Unit of MOHS, the project would finance TA (procurement and architect) and would support additional short-term training and improved working conditions for existing staff (i\.e\., furniture, equipment and operating costs)\. 2\.3 Promote development of the private sector and civil society participation in the health sector\. The project would support initiatives in the following areas of particular importance to the MOHS: Public sector/Private sector consultation and development of regulation to foster quality and participation\. The project would finance consultations with the private Medical, Dental and - 12 - Pharmaceutical Associations and meetings with the Traditional Medicine Association to discuss ways for strengthening collaboration and registration and accreditation practices (and other measures to improve quality)\. Further to these consultations the project will support the issuance of regulation to promote quality of services, control tariffs and encourage the development of private health services and the involvement of private providers in the solving of public health issues\. Contracting out\. Contracting out of clinical and non-clinical services with the private sector is already envisaged by HSRDP in areas such as impregnated bed-nets, IEC services, and solid-waste collection by communities\. Substantial financial support to contract out services has also been foreseen under the HSRDP Component 1, but additional support could be made available in case of insufficient funding\. The project would also finance a study on contracting out other selected public services (clinical or non-clinical), including drug procurement and distribution, laboratory services, and laundry\. Incentives for private providers of health services\. Given the importance of attracting the return of religious and other NGOs to develop and discharge hospital services and equitable cost recovery arrangements (i\.e\., protecting the access to services of the poor individuals) in the under-served geographical areas, the project would finance specific incentives, which might include the provision of a drug stock to cover the needs of the respective facility for one year\. Support to the District Health Development Committees\. To encourage the establishment and functioning of committees (at district and health facility levels) for involving the population, political and religious leaders and, more generally, the civil society in the decision making on health matters, the HSRDP would provide financial resources for their operations\. While the emphasis would be on the four IDA-financed districts, the project would provide support to the PHC program of the MOHS to finance similar activities in the remaining districts\. These efforts to increase the involvement of the users of services and the civil society in the decisions made in the health sector will be synchronized with MOHS work to regulate cost-recovery and will include mechanisms to protect vulnerable populations\. HSRDP would finance: (a) a feasibility study (to be carried out with consultant assistance and with the participation of MOHS and district staff) of approaches for establishing local financing mechanisms; (b) testing and consensus-building concerning these possible approaches (either by MOHS or through an NGO partner); and (c) preparation of the guidelines to establish such a system\. An equity fund to pay for the delivery of services for the benefit of the poor population in one of the facilities rehabilitated with HSRDP support will be tested\. The project will also consider, at the time of the mid-term review, establishing two prepayment arrangements on an experimental basis to finance health care for the population of one small urban and one rural community and test their feasibility (in economic terms and from an equity perspective)\. - 13- Restoring Essential Health Services 15\.02 71\.5 14\.24 71\.2 Restoring health service delivery in priority districts 0\.0 0\.0 Support to priority technical programs 0\.0 0\.0 Strengthening Public and Private Sector Capacity 5\.98 28\.5 5\.76 28\.8 Promote decentralization and improve performance of 0\.0 0\.0 DHMT Strengthen the key MOHS support services 0\.0 0\.0 Promote development of the private sector and civil 0\.0 0\.0 society participation in the health sector Total Project Costs 21\.00 100\.0 20\.00 100\.0 Total Financing Required 21\.00 100\.0 20\.00 100\.0 2\. Key policy and institutional reforms supported by the project: The MOHS is currently updating the health sector policy to include both mid-term development objectives and shorter term activities to restore the delivery of affordable and good quality primary health services\. A greater role for NGOs, the private sector and civil society is envisaged\. Other more specific reforms will aim inter alia at: (i) ensuring the quality of private services and promoting private sector development; (ii) human resource development including incentives for good performance and for work in difficult regions; (iii) decentralization to strengthen district teams' decision-making capacity and involve the users of services in the decision-making process in health facilities, and; (iv) cost-recovery regulation including specific measures to ensure the affordability of services for the poor population\. With DFID funding, the Government is conducting management and functional reviews of four key ministries, including MOHS\. Their recent (September 2002) report for MOHS provides more than forty recommendations encompassing a range of concerns including: development of legislation and regulation, reorientation of the ministry's roles and responsibilities, reorganization of the ministry's functional units, and specific improvements for each of the units\. The recommendations are sound and proposed HSRDP activities will provide financial and technical support to MOHS for their eventual implementation\. 3\. Benefits and target population: The entire population of one of the poorest countries in the world is expected to benefit\. The indigent population is expected to benefit comparatively more than the general population of the country because of the revision of the cost recovery arrangements to include specific measures to protect the affordability of services for the under-served groups, the financing of strategies such as primary health care and prevention offering a comparative advantage to the poor and the support to programs with large externalities such as Malaria, TB and Sanitation\. Since the project will not support the rehabilitation of infrastructure in the capital city and will focus on mid-size rural districts, it is expected that the rural population will also benefit comparatively more than the urban inhabitants\. Also, by promoting decentralization of decision-making, the project will make the health delivery system more responsive to the needs of these populations\. - 14- 4\. Institutional and implementation arrangements: The capacity created in the MOHS by the IHSIP project (in terms of planning, financial management and procurement) proved to be a good investment\. Using this capacity the MOHS succeeded in implementing the previous credit satisfactorily in spite of the difficult conditions that prevailed in the country from 1995 to 2001\. It is, therefore, proposed to continue strengthening MOHS capacity and use it to implement the proposed project without setting up a separate project unit\. See also section E 4\.1 and 4\.2 below on Institutional issues and the PIP\. D\. Project Rationale 1\. Project alternatives considered and reasons for rejection: Besides the alternatives described in section B3, the following project alternatives were discussed with the borrower: (a) The design of a project with a broader scope to provide support to the sector as a whole\. Such a project would support the entire service delivery system, including funding for overall sector reform (for which the Borrower has expressed interest) and for specific areas such as tertiary care, the central drug procurement and maintenance services, quality assurance, and operational research\. This alternative was rejected due to: (i) the fact that more time is needed to strengthen donor coordination on the basis of a sound sector strategy; and (ii) the need for the sector to solve its acute problems (with primary and first referral services, with personnel, and with the lack of reliable quantified information) before addressing the relatively lower investment priorities of tertiary care, quality assurance, and operational research\. Nonetheless, in the project's four districts the proposed project will finance drugs, vaccines, micronutrients and food supplements, contraceptives and maintenance services; it will also contribute to quality assurance by means of training and supervision, and through measures to motivate health providers\. Similarly, the proposed project will help update the health sector policy and will support some reform activities to further decentralize decision making, strengthen the private sector, review cost recovery, propose measures to protect the affordability of services for the underserved, and involve the users of services and the civil society in decision-making in the health sector\. (b) The design of a project relying exclusively on the private for-profit sector\. Such an alternative was rejected after thorough analysis because of the weak development of the private for-profit health sector in Sierra Leone (practically nonexistent beyond the capital city), the magnitude of the public health issues, and the extreme poverty of the population\. Instead, the project proposes (in its second component) regulation to foster private sector development, quality and affordability of care, and to expand "contracting" arrangements to obtain best returns on expenditures\. It will also promote the return of religious NGOs (which previously provided good quality services, sustainable cost-recovery arrangements, and adequate services for the poor)\. With support from the project, cost-recovery practices will be reviewed and measures to protect affordability of services and drugs developed\. (c) The design of a modest, initial project to primarily address data and capacity issues followed (upon completion) by a larger investment\. While such an option is appealing (as it would minimize risks), it was felt that sufficient information already exists to allow investment to begin in some areas (with accompanying support from the project for data collection and capacity-building)\. For instance, district hospital rehabilitation is an unequivocal priority as the sites are known and the need for investment is clear (e\.g\., to receive referred patients from and to provide technical support to health posts and health centers)\. Further, health center rehabilitation in the most important chiefdoms of the four participating districts is also feasible since site selection can be determined during preparation using well-defined criteria (such as population in the catchment area, accessibility to referral facilities, number of health - 15- posts supervised, etc\.)\. Finally, efforts to resolve personnel shortages and to mitigate the effects of diseases such as malaria and TB are also unquestionable and urgent priorities\. While these priorities are being addressed, the project could also initiate more in-depth analysis, such as the mapping of health facilities and the development of an infrastructure development plan, a human resources policy, etc\. 2\. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned)\. Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) HNP Integrated Health Sector S S Investment Project Social Protection Community Reintegration & S S Rehabilitation Project Social Protection National Social Action Project (LEN) HIV/AIDS HIV/AIDS Multi-sectoral S S Response Project Education Rehabilitation of Basic Education (LEN) Other development agencies UNICEF EPI, Safe Motherhood, District Health Care, Nutrition WHO National Health Policies and Program Management, Org\. and Manag\. of Health Systems of PHC, Child and Adolescent Health Development, Essential drugs and other medicines, External Cooperation and Partnership, Repro\. Health and Partnership, Protection of Human Development, Communicable diseases surveillance and response, disease prevention and control, Nutrition for health and development, Blood Safety and Clinical Technology, Health Promotion, Health Information Management and Dissemination SAPA (Social Action and Poverty Health Services Rehabilitation Alleviation) and Reconstruction NCRRR (ERSF Support) Health Sector Support (CW) - 16- ADB Health Services Rehabilitation EU Support to the health sector IDB Rehab\., reconstr\., equip and provide drugs for 20 PHUs GLRA (German Leprosy Relief National Leprosy / TB Control Program) - I I Program EC/SL Resettlement and Rehabilitation Health Sector Support Project Program MSF (Belgium, France, Holland) Emergency support to PHU's and district hospitals IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3\. Lessons learned and reflected in the project design: The current project (IHSIP) as well as the first IDA credit to the health sector in Sierra Leone (Health Services Development Project) helped identify a number of positive features such as: the sector's ability to develop a transparent program; the increasingly satisfactory level of performance in planning, financial management and procurement; and the sector's willingness to collaborate with NGOs\. At the same time, the sector was less successful in implementing technical programs and in decentralizing decision making; this was due not only to difficulties linked to the war and instability but also to conflicting donor policies (e\.g\., reproductive health and mother/child health), insufficient capacity to lead these programs, and delays in public sector reforms (such as decentralization, computerization of financial management in the public sector, simplification of procurement operations which involve the Central Tender Board in the approval process of minor transactions, etc\.) which have hindered developments in the health sector\. Based on these lessons, HSRDP is proposing to capitalize on capacity already developed in the MOHS to implement the project without creating a Project Implementation Unit\. Moreover, to avoid the above mentioned drawbacks, project preparation has been carried out with the full participation of other donors, and the Borrower has agreed to evaluate bids using the MOHS tender board (which will include representation from the Central Tender Board)\. The analysis of the experience in implementing technical programs led to other project features such as an emphasis on\.NGOs for social marketing of impregnated bed-nets and condoms, more attention to contracting out activities (clinical and non-clinical) with the private for-profit and not-for-profit sector, increased preoccupation with demand raising activities (in particular for bed-nets)\. The most successful feature of the IHSIP project (i\.e\., its capacity to plan taking into account changes in health status and in the overall situation in the country by using a participatory annual review and planning process) was also included in the proposed project's design\. While the HSRDP resources were fully allocated during project preparation, implementation arrangements include the possibility of questioning the pertinence of these allocations annually and of making adjustments during the annual participatory program review and planning process\. - 17- 4\. Indications of recipient commitment and ownership The Government of Sierra Leone has been undertaking reforms and attempting to rehabilitate the health sector since 1986\. Especially during the last ten years the reform process has been carried out in a participatory manner and has included representation of all stakeholders: district, central levels, donors and NGOs\. Previous experience with the Borrower has convincingly demonstrated its commitment to the social sectors and to health in particular\. Regarding the proposed project (seen by the Borrower as an essential means for resuming the most vital functions of the health service delivery system and further developing the sector), the Borrower has clearly committed itself to review and update the health sector policy, has substantially contributed to the project design, and is participating in the project preparation activities by handling 2/3 of the activities financed from the PHRD Grant received for project preparation\. 5\. Value added of Bank support in this project: The Bank's contribution to the health sector in Sierra Leone is much praised by the Borrower and its development partners\. Besides the Bank support during the war, the Bank has uniquely contributed to sector policy formulation, sector planning, and capacity-building at both MOHS and decentralized levels\. Very importantly, the Transitional Support Strategy for Sierra Leone defines clearly the Bank support to this country and also makes projections on the economic growth in the years to come\. The proposed project would allow this assistance to continue and to grow\. It would also contribute to poverty reduction in Sierra Leone through HSRDP focus on the poor and under-served populations\. IDA funding would complement other donors' funding to the programs dealing with major public health problems and of a greater benefit to the poor population such as PHC, malaria, TB, and sanitation\. The HSRDP would also help achieve some of the reform and development objectives of the IHSIP project (as mentioned, IHSIP was restructured to better respond to the crisis situation in the sector and could not achieve some of its initial objectives as for instance to develop health services outside the Western Region and to substantially contribute to the reform process)\. E\. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1\. Economic (see Annex 4): O Cost benefit NPV=US$ million; ERR = % (see Annex 4) 0 Cost effectiveness @ Other (specify) Given that: (a) the proposed project will only invest in programmatic areas with well-documented cost effectiveness ratios (such as primary health care and first referral health facilities, human resources development, support to programs addressing important infectious disease epidemics e\.g\., Malaria and TB); (b) empirical data from Sierra Leone to further explore the soundness of such spending are not available, and; (c) Annex 7 of the Staff Appraisal Report of the IHSIP (credit 2827-SL) has already presented analysis on the cost effectiveness of this type of interventions, it was agreed that an economic analysis of this new project would not be required\. Instead a health sector Public Expenditure Review was carried out during project preparation\. On the one hand, the PER suggests that: (i) the ratio between salaries and non-salary expenditures compares favorably with most other West African countries; and (ii) expenditures for the most cost effective programs with large externalities such as PHC, infectious diseases control, and sanitation and prevention in general were significant and compare well with other expenditures for secondary and tertiary care\. On the other hand, it shows that recent expenditures in the sector financed by the public budget and IDA were very modest\. MOHS' recurrent non-salary expenditures as a share of the Government's total - 18- non-salary budget increased from 4\.8% in 1999 to 7\.1% in 2001, a proportion that remains low (and is projected to decline over the period 2002-2004)\. In addition, the PER showed that, understandably, insufficient resources had been channeled to the districts and that little was known in regard to the expenditures made by NGOs and donors\. As a result of these findings it was agreed with the Borrower to regularly monitor expenditures during the annual review meetings against benchmarks established by the PER and consistent with the sector policy\. It was also recognized that until economic development takes off, the funding of the health sector will largely depend upon donor funding and that the present project will not be sustainable until there is substantial macroeconomic development and increase in revenues\. Cost effectiveness considerations: This project's main thrusts are: (a) the prevention and management of two major conditions that represent major economic burdens in Sub-Sahara Africa in general and in Sierra Leone: malaria and tuberculosis\. The econouc burden has two major dimensions: (i) low productivity of the workforce affected; and (ii) the continuing cost of treatment due to the lack of complementary efforts in cost-effective prevention\. The methods of prevention to be used in this project have favorable cost-effectiveness ratios documented by the Bank\. Secondary prevention - an efficient complement - is also part of the program\. There are no data that can be used to measure the precise disease burden of Sierra Leone or to assess cost-benefit in the Sierra Leone context but there is ample literature documenting the cost effectiveness ratios of: the Roll Back Malaria strategy and the DOTS strategy to curb TB\. Moreover, a recent survey conducted by the Central Statistics Office of Sierra Leone points to the paramount role played by malaria in the disease burden of Sierra Leone\. This disease has a significant impact on the productivity of food-growing workers in rural areas, a major economic issue in food-importing Sierra Leone\. Diarrheal diseases also contribute significantly to the disease burden of Sierra Leone\. There are related economic losses due to the impairment of human capital through poor nutrition and related lesser intellectual and physical development of children\. The project through the support of cost-effective sanitation will diminish the economic burden posed by these conditions\. (b) the improvement of basic-health services in four districts that are among the poorest in Sierra Leone\. The services supported by the project are those designated by the Bank as a cost-effective package for low-income countries\. This basic package should reduce the burden of disease in the four selected districts and through it improve food production and other economic activities\. (c) the strengthening of the capacity of MOHS to manage the existing health system by making more efficient use of resources in the public and private sector\. It also supports enhancements in ability to allocate and distribute resources to proven cost-effective services and to districts where resources are likely to get the highest returns per dollar (Leone) spent\. Further, the project aims to foster the procurement and financial capacity of MOHS that will address bottlenecks and delays in securing service production from investments made\. (d) the mitigation of existing productivity issues in a number of areas that, according to the PER, need immediate attention\. This includes better financial management that will ensure more efficient use of capital through a greater balance between capital and operating expenses\. In view of the improving but -19- still poor fiscal capacity of the country, the project will make a contribution by ensuring a level of operating expenses commensurate to the capital expenditure being undertaken by the project\. The proposed decentralization of decision making to district level and improved financial management at this level should also improve efficiency in operations and fiscal accountability\. In addition, the civil works activities generated by the project should increase much needed employment and have a positive multiplier effect on the economy\. 2\. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Financial issues such as fees for health services and recovery of the costs of drugs, measures for ensuring financial accountability and management of funds generated from cost recovery will only be addressed during project implementation, although some studies and the revision of the sector policy have been carried out during project preparation\. External audit reports and financial management analysis of the ongoing project implemented by the MOHS have been unqualified; a project-specific financial management assessment was performed at Pre-Appraisal; and the Bank is planning to conduct a Country Financial Accountability Assessment in Sierra Leone\. Finally, based on these findings and using funding from a PPF and from the grant itself (through the HSRDP second component on capacity building), all key MOHS departments (including the financial one) and all district health teams will be strengthened\. Fiscal Impact: A number of features of the project should have a beneficial impact on employment and worker productivity leading to potential increases in government revenue\. The PER also identified some potential revenue sources that could be tapped to improve revenues and the fiscal balance\. These include a more systematic and equitable approach to fees for services and charges for drugs that currently comprise rather arbitrary measures\. The project requires about US$1 million in counterpart funds over the five-year period of the project\. This represents about a 2% annual increment of MOHS current and capital expenditure funded from domestic sources during 2001\. Therefore, it will not impose a substantial additional burden on the Government's fiscal situation\. However, there are some generic fiscal aspects that require attention\. Some aspects of the project will have to rely on public infrastructure that is currently inadequately financed\. Therefore, during negotiations this issue will be openly discussed to ensure that Government policy of improving the budgetary situation of MOHS is reflected by the adequate and timely allocation of funds to MOHS\. The PER pointed to the need for increments in MOHS current expenditure commensurate with investments being made\. Although the project has made provision for operating expenses in relation to most of the investments being made, the future sustainability of the facilities being funded by the project remains an open question\. The Bank's macroeconomic dialogue with the Government will be addressing this issue towards which HPIC/PRSP funds could also have a positive contribution\. 3\. Technical: The project technical design is consistent with best practice examples from similar countries in post-conflict situations\. The project will only fund activities with well-known cost effectiveness ratios\. In order not to delay IDA support to the sector and to respond to Borrower's immediate needs, the technical design includes data collection activities and studies which, under more normal conditions, would had been performed at the preparation stage\. This was deemed necessary for the reasons mentioned above but also because of cost and human resources considerations\. -20- 4\. Institutional: 4\.1 Executing agencies: The MOHS will be the overall executing agency of the grant\. Some activities will be executed by NGOs as the project will encourage contracting out of public services to private not-for-profit providers will support district health teams and MOHS selected technical programs and key management/administrative services\. These programs and services will implement the activities financed by HSRDP under the coordination of the Planning department and the direction of the Director General of Medical Services\. 4\.2 Project management: The project has been prepared by the Borrower with financial support from a PHRD Grant from the Japanese Government and a Project Preparation Facility\. The MOHS has appointed a focal point and a project preparation team\. During project preparation, and especially during the project's first years, important capacity-building activities will be carried out\. At the preparation stage technical assistance was provided for the following studies: (a) Health Sector Priority Issues and Strategic Approaches; (b) Social Assessment; (c) Project Implementation Plan/Operational Manual; (d) Environmental Assessment; (e) Public Expenditures Review for the Health Sector; (f) Health Facility Inventory; (g) Human Resources Assessment; (h) Update of the Health Sector Policy, and; (i) National and Distnct Health Plans and a Three-Year-Rolling Plan\. As mentioned, HSRDP will be implemented without appointing a PCU following the same arrangement used for the IHSIP project\. This includes the appointment of: (a) the Director General of Medical Services as HSRDP project director and (b) the Director of Planning as HSRDP Project coordinator, (c) the use of the existing "Top Management Team" as a mechanism to coordinate the activities carried out by the units reporting to the Director General of Management Services (Permanent Secretary) such as Financial Management, Procurement and Internal Audit, with the ones carried out by the units reporting to the Director General of Medical Services (such as the technical programs and the District health Teams), (d) the use of the Annual Review and Planning process and (e) regular project reporting and supervision (the latter with the participation of MOHS units, districts and relevant internal and external partners)\. In addition, important strengthening of the support departments involved in HSRDP management is planned under the second component of the project\. This includes the use of TA (locally recruited for longer assignments) in case of failure to fill essential posts (in particular in areas such as planning, procurement, financial management, human resources development) with civil servants\. Monitonng and evaluation indicators (see Annex 1 and the PIP) have been designed and MOHS capacity in this area will be strengthened\. A very important project design feature is the HSRDP built-in flexibility, using the Annual Review and Operational Planning exercise (during these exercises MOH together with external partners and stake holders will take stock of progress in the sector, review the relevance of HSRDP funded activities for the next year, adjust activities as needed (and taking due account of the HSRDP development objectives), and include IDA funded activities into the respective Sector Annual Operational Plan)\. PAD section B I on Strategic context describes three agreed TSS scenarios stating how a deterioration of the political environment, conflict and instability would affect Bank operations in general and the HSRDP implementation, in particular\. 4\.3 Procurement issues: Procurement issues will be handled by the MOHS procurement unit (established in 1996 under the IDA-financed IHSIP project)\. This unit's capacity will be further strengthened\. Among project negotiations conditionalities were Borrower's agreement to using the MOHS Tender Board to speed up the evaluation and contract award process\. The last Country Procurement Assessment dates back to 1985\. -21 - 4\.4 Financial management issues: As mentioned, the performance of the Finance Department of the MOHS (strengthened with support from the current project) had been assessed as satisfactory by the external auditor and Bank supervision missions\. This capacity was reassessed at the Pre-Appraisal and was judged adequate\. The only potential financial management issue known at this stage is the award of funds to support eligible unplanned activities to be developed by District health teams\. Adequate financial management capacity in districts (such as the presence of a trained accountant and the possibility to open an account in a private Bank) would be a condition for disbursement of such funds under the proposed grant\. Funding resources for the project consist of an IDA Grant of US$20\.0 million\. In addition, the Government will make available about US$1 million in counterpart funds\. The MOHS has the accounting system documented in a recently updated manual, trained and experienced accounting staff, adequate reporting systems and auditing arrangements and have previous experience in managing Bank funded projects\. The MOHS has also committed to automate the preparation of the FMRs under the project through the use of a reliable and robust accounting software\. There are no outstanding audits or audit issues\. 5\. Environmental: Environmental Category: B (Partial Assessment) 5\.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis\. The Environmental Assessment has established that there are no significant environmental issues and that potential impacts will be manageable\. The overall environmental impact is expected to be favorable as the project will finance a sanitation component and activities to mitigate a possible environmental impact of medical waste of the health facilities to be rehabilitated with financial support from the project\. This will include building of incinerators and lined pits within hospital compounds for health-facility waste, rehabilitation of essential staff quarters and of latrines and water supply systems; existing water wells within the hospital compounds will be deepened to increase current yields\. The sanitation component will finance contracts with local providers to collect and transport solid waste in the four district capital cities and also, transportation means, TA for adequate dump sites identification and the development of dump sites for solid and liquid waste disposal, and also staff training (in collaboration with the SHARP project) and IEC activities in communities\. The project will not finance insecticides and/or larvicides (but will help strengthen malaria control by expanding the use of impregnated bed nets)\. 5\.2 What are the main features of the EMP and are they adequate? The environmental impact assessment conducted for the HSRDP identified potential environmental issues and included an environmental management plan (EMP) to control/mitigate any environmental negative impact in the proposed project\. The HSRDP will finance environmental impact mitigation activities needed as a result of its component 1 (i\.e\., (a) Medical waste management in the facilities to be rehabilitated with HSRDP support in the four participating districts and (b) Solid waste management in the district capital cities of the four participating districts)\. Thus, the environmental mitigation activities supported by HSRDP would consist of: US$226,000 for supporting dumpsites development by municipalities (plus US$10,000 equivalent from community participation to each of the 4 dumpsites) in the four district capital cities; US$40,000 for making incinerators and lined pits in the facilities to be rehabilitated of the same districts; US$25,000 for TA to advise municipalities on dumpsites identification and development and on other environmental issues, training on operating and maintenance of incinerators; US$19,000 to contribute towards the operating cost of monitoring and supervision activities by environmental inspectors in 4 districts; US$20,000 to support to empty septic tanks and lined pits in four district hospitals US$20,000 (or a total amount of US$350,000 (additionally 40,000 will be provided -22 - by community participation))\. The SHARP project will also contribute, as it will finance the training of environmental inspectors and health providers of the four districts in medical waste management\. 5\.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: November 1, 2002 5\.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? The District Health Management Teams of Moyamba, Bombali, Koinadugu and Kono districts in collaboration with Regional Environmental Officers based in Kenema in the east and Port Loko in the north respectively facilitated consultations with communities in the Moyamba, Komadugu, Bombali and Kono districts\. Structured questionnaires were used to obtain information for the environmental analysis\. The team conducting the Environmental Analysis visited the headquarter town of Moyamba, Komadugu, Bombali and Kono plus each of the three rural communities (sites for community health centers) in each of the target districts\. The EA team presented the project and described the potential adverse and beneficial effects\. It was stressed that the objective of the meeting was to inform and gather information and that participants should feel free to come forward with their concerns so that they can be integrated in the EA report\. General discussions were concluded with "Question and Answer" sessions to clarify and note the respective issues and concerns\. Analysis of responses to the administered questionnaires showed that: 1\. An appreciable number of those interviewed in the various districts expressed the desire to see the strengthening of their local capacities to handle environmental mitigation plans and activities\. 2\. The perceptions on environmental impacts of the project amongst the interviewed varied slightly\. The majority view seems to be that the project poses little or no threat to the environment\. There were those who agreed that some degree of environmental degradation is associated with the project, however they were of the view that these impacts are manageable\. 5\.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? A monitoring plan has been prepared as part of the Environmental Assessment\. The monitoring indicators reflect the objectives of the Environmental Management Plan\. Institutional arrangements and cost estimates for implementation of the monitoring plan are included in the plan\. 6\. Social: 6\.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes\. With PHRD grant resources, a social assessment was carried out during project preparation\. The social assessment highlighted a range of issues constraining health care in the country and recommended that government make a concerted effort to ensure that health care is provided to all citizens by increasing community participation and involvement to ensure that the care provided uses appropriate technology and is acceptable, accessible and affordable\. Equally important is the availability of: sufficiently qualified, committed and accountable health care personnel working under favorable conditions; adequate supplies of essential drugs of acceptable quality and available to all who need them; and measures to ensure provision of basic health services to the most vulnerable and needy groups\. - 23 - The project aims at improving health outcomes with an emphasis on the underserved groups (i\.e\. low-income groups and women in the districts affected until very recently by war)\. This will be carried out through a set of strategies that will protect the accessibility to health services of the lowest income groups; the proposed project will support: development of health facilities in rural areas; and implementation of strategies offering a comparative advantage to the underserved such as prevention, primary health care, control of infectious diseases and reproductive health\. Moreover, and very importantly, the project will: (a) assess cost recovery arrangements and fees for services and drugs, (b) promote regulation that will exempt preventive services and protect the accessibility to services of the poor population, (c) support the establishment of risk sharing schemes, and (d) establish mechanisms for funding (e\.g\., from equity funds premiums) the costs of fees and/or drugs for low-income groups\. Increased utilization of health services by low-income groups and women will be measured by indicators dealing with the utilization of outpatient services, utilization of hospital services and patient satisfaction\. A future DHS will be designed to allow the breakdown of data per income groups\. 6\.2 Participatory Approach: How are key stakeholders participating in the project? The MOHS has already established a large participatory review and planning process which includes district personnel, donors, international and local NGOs\. This process will continue in the future and will be used to reach agreement on the new project and also to assess its performance and allocate funds during project implementation\. 6\.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? See point 6\.2 also\. Durng and immediately after the conflict, international and local NGOs have provided health services in districts not accessible to donors and to Government\. While the public sector initially doubted the quality of NGO services, this perception has rapidly changed\. The MOHS has established a unit in charge with donor and NGO coordination and is executing some of the activities (e\.g\., condom and bed-net distribution) contracting out with NGOs and the private sector\. Overall, the MOHS procedures are transparent and well shared with a large array of stakeholders\. The HSRDP will support the MOHS Donor/NGO coordination unit, will help involve NGOs in the annual sector review and planning exercise and in decision making, and will finance activities to be contracted out with NGOs and for-profit service providers\. Similarly, the project will help strengthen the participation of the users of services and of the civil society in health facility management and policy decisions in the health sector\. 6\.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Routine project supervision and annual project review and planning sessions will be carried out by the MOHS (especially by the Planning, Monitoring and Statistics unit, the Primary Health Care Unit, the District Health Management Teams and the Donor and NGO liaison unit) and will be used to monitor the progress in the achievement of social development outcomes\. A DHS scheduled to take place in 2003 will be designed to allow the breakdown of data per income groups\. The following DHS, probably taking place only in 2008, will also provide useful information (although, probably, too late to be used in the proposed project's ICR)\. The DHMT and health committees in the four districts supported by the project will also involve the users of services and of the civil society in decision-making at health facility level (such users should include women) and the decentralization of decision-making to district teams (a process which will increase the participation of religious and political leaders and of the civil society in general in decisions relevant to the health sector)\. 6\.5 How will the project monitor performance in terms of social development outcomes? -24 - Available data do not allow the monitoring of health outcomes and of the mobility of the population during the last years, instead, project performance will be monitored using input and output indicators\. Should reliable baseline data on health outcomes per income and/or gender groups become available, the indicators to be derived from these data will be included among the project's performance indicators\. 7\. Safeguard Policies: 7\.1 Are any of the following safeguard policies triggered by the pro ect? Environmental Assessment (OP 4\.01, BP 4\.01, GP 4\.01) Yes ( No Natural Habitats (OP 4\.04, BP 4\.04, GP 4\.04) U Yes W No Forestry (OP 4\.36, GP 436) ( Yes S No Pest Management (OP 4\.09) ( Yes 0 No Cultural Property (OPN 11\.03) ( Yes 0 No Indigenous Peoples (OD 4\.20) U Yes S No Involuntary Resettlement (OPIBP 4\.12) G Yes U No Safety of Danis (OP 4\.37, BP 4\.37) U Yes S No Projects in International Waters (OP 7\.50, BP 7\.50, GP 7\.50) U Yes 0 No Projects in Disputed Areas (OP 7\.60, BP 7\.60, GP 7\.60)* 0 Yes S No 7\.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies\. To ensure compliance with the applicable safeguard policies, an environmental analysis has been carned out (see paragraphs 5\.1 to 5\.5 over) and a Resettlement Policy Framework has been prepared\. Involuntary Resettlement: The HSRDP includes a sanitation component that will finance contracts with local providers to collect and transport solid waste in the four districts selected as well as the development of dumpsites\. The supported dumpsite development is small in scale and is expected to cause little or no significant adverse impacts\. Nonetheless, since all sites have not yet been identified, experience shows that such activities sometimes do cause loss of land or loss of access to other resources\. Therefore, any land acquisition associated with dumpsite development will be undertaken in accordance with an agreed Framework for Land Acquisition Policy and Procedures\. The Framework defines terms and provides guidance for involuntary acquisition of land or other assets (including restrictions on asset use), and establishes principles and procedures to be followed to ensure equitable treatment for, and rehabilitation of, any persons adversely affected\. The Framework was disclosed in Freetown on November 7, 2002\. F\. Sustainability and Risks 1\. Sustainability: The sustainability of the HSRDP is linked to the success of the Government's implementation of its recovery and reform program, within a sound macro-economic framework\. The PER listed a number of issues which must be addressed to ensure sustainability of the health care system in the longer term and which are of relevance for the sustainability of the project\. Services cannot be delivered without adequate numbers of trained and motivated personnel, either in the public and private, and this implies a larger capacity to train and adequate current expenditures to pay personnel\. Proposed budgetary allocations show imbalances between present' capital expenditure (mostly external sources) and future operating expenditures from domestic sources\. In the medium term there will be need to overcome current dependence on external funds through increased domestic revenues\. -25 - At this time, there are still districts in which Government control has only recently been restored and in which electricity, telephone and other communication, transport and banking facilities do not operate fully\. While recent macroeconomic projections predict growth of more than 5% for the next few years, the projected increases in revenue seem rather modest\. In other words, until this situation is changed, in Sierra Leone more than in other developing countries, the funding of the health sector will be highly dependent on external sources\. Therefore, within the limits of prudent fiscal management, as the macroeconomic situation improves, there is urgent need to (a) increase the share of the budget allocation to the health sector to reasonable levels and also (b) seek domestic sources of funds that will ensure the future sustainability of the health delivery system with a lower dependence on external sources\. These issues ought to be one of the priorities in the Bank's dialogue with the Government (including the PRSP dialogue)\. Nonetheless, reforms of the public health system supported by the project will improve performance and make the public sector more credible to consumers of services\. They will also promote efficiency in the provision of more effective and relevant services\. Improvements in the country's economic situation should also enhance the capacity to pay for services of greater relevance and quality\. These conditions should increase the potential for revenue collections from fees for services and charge for drugs supplied provided that appropriate financial management at local level is improved\. While the above is likely to happen in the midium term, immediate prospects are less clear as the population is generally poor and the underserved groups, in particular in the districts supported by HSRDP, are numerous\. For this reason, the project has included measures not only to improve sector financing and efficiency but also to reinstate cost recovery with appropriate safeguards to assure affordability of services for the underserved groups\. 2\. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Unstable political situation S Sound demobilization process, successful peace negotiation, democratic elections Weak capacity to implement sector S The project includes a first phase supporting reform with priority capacity building and data collection to enable the implementation of the reform Insufficient political determination to M The Bank and other donors will pursue effect the decentralization policy\. decentralization in public sector in general\. The health sector work with district teams will be supported\. Civil society involvement will be increased\. From Components to Outputs Implementation capacity will remain S Capacity building will be one of the major weak and donor programs will not be thrusts of the Bank policy\. Programs of all well coordinated partners will be annually reviewed and will be planned in a transparent manner to insure consistency with policy objectives of the health sector\. The NGO coordination unit of the MOHS will be strengthened to also encompass - 26 - Donor programs coordination\. The planning unit will work more closely with the external partners and the financial department will be involved in the monitoring of donor's financial inputs\. Some districts will remain unstable and S The project will expand activities to all investment and provider re-deployment districts in parallel with the improvement of the will not be feasible\. situation\. NGOs will be encouraged to assist in less safe zones\. Agreements will be reached to allow critical interventions (such as immunizations) in areas without Governmental control\. Human resources development will not S Human resources development will be pursued be paced adequately and health facilities in all the sectors and will become a policy will be rehabilitated and equipped but priority for the public sector\. In the health will not be properly staffed\. sector, all donors will be mobilized and human resources planning will be harmonized with infrastructure planning\. Budget allocation to the health sector will S Government will pursue macroeconomic remain insignificant and donor "fatigue" objectives and more resources will be made might diminish TA and other donor/NGO available to the social sectors from debt support received by the sector\. relief/PRSP operations\. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3\. Possible Controversial Aspects: None\. G\. Main Loan Conditions 1\. Effectiveness Condition (a) Counterpart funding covering the first quarter of the project and equivalent to US$25,000 is deposited in the account established for this purpose\. (b) The Borrower has selected an independent Auditor\. 2\. Other [classify according to covenant types used in the Legal Agreements\.] Conditions for Negotiations were met\. They included: (a) The Borrower has agreed with the principle of using the MOHS Tender Board for the evaluation of bids for contracts financed from the project and other sources including the MOHS own budget\. (b) The Borrower has confirmed that GOSL policy to exempt from taxes the goods purchased under IDA financing also applies to HSRDP\. (c) The Borrower has improved the accounting and financial system in a manner satisfactory to IDA\. (d) The Borrower has strengthened the MOHS Procurement unit in a manner satisfactory to IDA\. - 27 - (e) The MOHS has issued a Procurement Plan, an Accounting Manual and an Operational Manual acceptable to the Association\. Other Covenants (a) By September 30, 2005, the MOHS will conduct a Mid-term review\. H\. Readiness for Implementation 1 1\. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation\. 1 1\. b) Not applicable\. 2 2\. The procurement documents for the first year's activities are complete and ready for the start of project implementation\. 2 3\. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality\. E 4\. The following items are lacking and are discussed under loan conditions (Section G): 1\. Compliance with Bank Policies Z 1\. This project complies with all applicable Bank policies\. D 2\. The following exceptions to Bank policies are recommended for approval\. The project complies with all other applicable Bank policies\. Astrid Helgeland-Lawson Alexandre V\. Abrantes Mats Karisson Team Leader Sector Manager/Director Country Manager/Director -28 - Annex 1: Project Design Summary SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT 'h ~4LhI ___ _ Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Recovery and rehabilitation Input/process General macroeconomic data \. Increased political and social and gradual pursuance of Share of GDP allocated to Sector reports (FIS) stability long-term development health\. Sector inventory of Successful refugee and objectives through: Number of health facilities providers and infrastructure internally displaced people Support to rebuild human rehabilitated\. \. Annual review and planning programs capital by improving health \. Number of health providers documents\. \. Successful beginning of status of the population in public and private health \. DHS and other specialized macroeconomic development Reduction of negative impact facilities\., surveys\. Full recognition of the health of infectious disease \. Improved distribution of sector role in the epidemics and malnutrition on health providers, normalization of the political social and economic \. Increased numbers of district and social situation, peace and development health administrations fully development\. Provision of health and operational\. \. Successful development of education services to the Outcomes/impact the private sector and population of districts affected \. Infant mortality rate especially of private by war\. decreases from 170/1000 in not-for-profit health services 2000 to 150/1000 in 2005 and to 125 in2007\. \. Under-five mortality rate decreases from 286/1000 in 2000 to 250/1000 in 2005 and to 230/1000 in 2007\. Materal mortality rate decreases from 1800/100,000 in 2000 to 1400 in 2005 and 1200 per 100,000 live births in 2007 -t29- Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: Restore the most essential 1\. Larger proportion of Health sector reporting Successful implementation of functions of the health sector districts with district health human resources policy and delivery system\. teams operating fully\. action plan 2\. Larger proportion of Annual sector review Increased implementation population having access to documents capacity in the sector essential health services\. 3\. Larger proportion of Annual sector review Good progress in districts with district hospitals documents decentralization of decision fully functional\. making to districts 4\. Improved utilization rates of Annual sector review Successful development of outpatient and inpatient health documents roads and transportation facilities in the four means participating districts and in all districts\. 5\. Improved user of service Health Sector Reporting Improvements in food satisfaction with health security, services provided by services provided by the other sectors such as water and public sector in the four electricity\. participating districts and in all districts\. - 30 - Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1\. Essential health services a) Increase in number of Annual sector review Programs of other donors are provided\. health centers rehabilitated documents implemented as planned\. and functional Field supervision Budget allocation is consistent b) Increased budget allocation with sector policy\. to primary health services Other sectors make reasonable c) Decreased number of progress in their programs districts in which district staff NGOs continue to support cannot supervise health health care delivery\. centers and posts due to Drug procurement and security restrictions distribution activities funded d) Malaria and TB epidemics by other donors are are declining in terms of implemented incidence and number of Integration of technical outbreaks (as appropriate)\. programs takes place\. e) Improved performance: -Immunization coverage will increase from 46% in 2000 to 60% in 2005 and 65% in 2007 -Contraceptive prevalence rate will increase from 3\.9% in 2000 to 8% in 2005 and 10% in 2007 -Percentage of children under 5 years of age sleeping regularly under insecticide-treated bed nets will increase from 1\.5% in 2000 to 20% in 2005 and 40% in 2007 -Deliveries assisted by qualified personnel will increase from 42% in 2000 to 55% in 2005 and 60% in 2007 -Percentage of smear-positive cases successfully treated under DOTS strategy will improve and reach 85% in 2007 2: MOHS capacity is a) Increased number of MOHS Annual sector review Decentralization in the public strengthened; a substantial part key units staffed with documents\. sector makes progress\. of decision making is appropriate personnel, fully Inventory of health personnel Government employment and transferred to district health equipped and functional\. Health provider survey, remuneration policy reviewed teams\. The availability and the b) Recurrent non-salary Annual district health plans\. and implemented\. distribution of health budget allocation of the Education sector output personnel is improved MOHS increases\. increases\. c) Infrastructure development On site training becomes plan is adopted\. feasible\. d) Number of districts health teams benaefitting from budget - 31 - support from the credit increases and the audit of these funds finds the utilization adequate\. e) Number of health providers of all categories and of specialized doctors, family doctors, nurses and midwifes increases\. f) Smaller inter-district variations m staffing\. g) Improved satisfaction in health providers with work conditions h) Increased recurrent salary budget in the health sector\. i) Human resources development plan adopted 3\. Private sector capacity is a) Increased in number of Annual sector review Privatization becomes a main strengthened\. The civil private health pr\.oviders documents thrust of the Government society is involved in health outside the capital city and in Surveys, policy\. matters\. the four participating districts\. Government bills and reports\. Contracting out is more often b) Legislation to regulate used across the sectors\. quality and prices and to foster Democratization process private sector development advances convincingly in the enacted\. public sector and in particular c) Number of activities in the health sector\. contracted out (clinical and IHSIP project is implemented non-clinical services) by the in a satisfactory manner\. public sector to the private providers increases\. d) Number of religious NGOs operating in health increases\. e) Participative decision making in health facilities (involving users, women and religious and political leaders) takes place in an increased number of district hospitals\. -32 - Project Components Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1) Restoring essential health US$15\.04 million Project supervision reports Updated overall sector policy services\. Annual review documents adopted and endorsed by all 1 1 Restoring health service Annual operational plans partners\. delivery in four priority Audit reports Effective implementation of districts\. Epidemiological Surveillance the HSRDP in the four 1\.2 Support key technical System reports participating districts\. programs: Malaria and TB and Disease specific surveys District capacity and revenues Sanitation\. DHS are improved substantially Progressive and effective integration of technical programs\. Effective coordination of partners operating in health and between these ones and all other partners involved in peace and rehabilitation process All districts become safe and country-wide data collection become possible\. 2) Public and Private sector US$5\.98 million Health Infrastrucutre The importance of the health capacity development Development Plan\. development for the 2\.1 Strengthen district teams Human Resources Strategy consolidation of peace and capacity to plan, evaluate and and Plan\. successful demobilization implement\. Annual Operations Plans and programs is fully recognized\. 2\.2 Strengthen MOHS Evaluation Reports\. Health program activities are planning, budgeting, financial Project supervision reports\. well coordinated with the management, coordination and Annual review documents\. programs of other sectors program implementation Annual operational plans\. Decentralization is pursued in capacity\. This includes the Audit reports\. the public sector and proper strengthening of information legislation enacted\. for sector management and Updated human resource planning\. policy adopted and endorsed 2\.3 Improved HRD including by all partners\. support to medical, nursing Developments in other sectors and midwifery training and the make re-deployment of health development of a reward providers feasible\. system to promote good Other partners recognize this performance and motivate priority issue and invest in health providers, human resources\. All districts become safe and country-wide data collection become possible\. Other donors agree on the scope of and support major surveys (such as the DHS and the population census)\. 2\.3) Strengthen private sector Project supervision reports\. Privatization becomes an capacity and civil society Annual review documents\. important thrust of participation\. Annual operational plans Government policy\. - 33 - Audit reports\. MOHS changes its mandate Legislation and GOSL policy from a deliverer of services to documents and reports\. contract management and quality assurance\. All districts become safe\. Democratization is pursued across the sectors\. Economic development is successful\. -34- Annex 2: Detailed Project Description SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT By Component: Project Component 1 - US$15\.02 million Restoring Essential Health Services\. This component will: (a) provide assistance to four priority districts to deliver adequate health services and (b) support three key technical programs to improve their performance and control infectious diseases of public health importance in Sierra Leone (i\.e\., Malaria, TB and Sanitation)\. 1\.1 Restoring health service delivery in four priority districts (Bombali, Koinadugu, Kono and Moyamba)\. The project will finance equipment, drugs, vaccines, furniture, training and supervision needed for the adequate functioning of 50 health posts built with support from the IDA funded Community Reintegration and Rehabilitation Project and other social fund projects\. The project will also finance civil works (to rehabilitate and expand health facilities and essential staff quarters) equipment, rehabilitation and upgrading of water distribution and medical waste disposal systems, communication and transportation means (motorcycles and ambulances) for 12 health centers of the most important chiefdoms and the four first referral hospitals located in the capital city of the respective districts\. Finally, it will also provide support to these districts to ensure the delivery of adequate health care, including measures to foster private services development and to solve health provider shortages and other human resources issues\. A particular attention will be paid to health facility (medical in particular but also solid and liquid) waste management and to related IEC activities for health providers\. As all these activities will be carried out at existing and operating health facilities (and in addition, for the hospitals within the hospital compound) this sub-component will not cause any resettlement of the population nor removal of squatters\. The selection of the four districts to receive financial assistance from the project, carried out during project preparation, was based on the following criteria: importance for demobilization, resettlement and peace, magnitude of the public health problems, degree of damage to health infrastructure, existing or potential support from donors\. Regarding the health centers, the selection of the 12 facilities took into account the following criteria: more than 15,000 inhabitants in the catchment area, degree of damage, lack of access to a private or public similar facility in a radius of 15 Km, receiving referred patients from more than four health posts and proximity to an important road\. While the sub-component 1\.1 aims at providing a comprehensive package (a "package" includes a large array of support measures such as civil works, equipment, water, latrines, incinerators, essential staff quarters, training, communication means and ambulances) to all four districts, it was clearly agreed to adapt this package to the actual situation of each site\. This was needed since, for instance, some rehabilitation works have already been carried out in selected facilities, the needs of the districts vary and, also, in a few cases some equipment was already provided by GOSL or NGOs\. Moreover, the component will also support, to the extent needed, the delivery of all essential preventive and curative care in all the health facilities of the four districts\. Thus, through the assistance provided under this component, the project will also contnbute in these four districts to the implementation of the activities of: (a) all major technical health programs (and not only the three programs included in the sub-component 1\.2) and (b) all MOHS support programs (and not only the five key MOHS support programs included in the component 2\.2)\. Thus, while the project will only support five technical programs at central level (and not Onchocerciasis, HIV/AIDS, Reproductive Health/Safe Motherhood/Family Planning, EPI, and Nutrition, which already benefit from substantial assistance made available from grants and by WHO, UNICEF, UNFPA and some bilaterals), HSRDP will support these programs, to the extent needed, as part of -35 - project support to the four participating districts\. The HSRDP will continue to support the integration of "vertical programs" and the development of an epidemiological surveillance system (with focus on but not restricted to Malaria and TB)\. It is worth noting that in spite of a seemingly "verticalization" at central level (since MOHS maintains oversight and develops appropriate policies through its technical programs) all technical programs are part of the MOHS Program 7 (Primary Health Care) and are: (a) coordinated by the Director of PHC/Deputy Director General of medical services and (b) executed in an integrated manner by the district health teams\. Likewise, the maintenance and drug procurement, stock management and distribution programs will be strengthened at the central level with the support of other MOHS' partners (e\.g\., the Central Medical Stores and the MOHS drug and maintenance programs will be assisted by AfDB and EU)\. Nonetheless, HSRDP will contribute to these programs in a concrete manner, in the four participating districts, by rehabilitating drug stores, funding drugs, condoms and other contraceptives, consumables, vaccines, micronutrients and food supplements, spare parts and other non-salary recurrent expenditures\. 1\.2 Support to priority technical programs, i\.e\., Malaria, TB, and Sanitation, targeting the most important public health problems\. The project will finance: (i) Malaria control activities, focusing on the strengthening of case management, and on the promotion and distribution of insecticide-treated bed-nets (to be distributed and re-impregnated with local NGO support)\. Several activities are planned to strengthen case management including (a) development and production of guidelines for appropriate case management, (b) training of health workers in appropriate case management and in Integrated Management of Childhood Illness (IMCI), (c) establishment of a sentinel surveillance system for monitoring antimalarial drug treatment efficacy, (d) strengthening of laboratory diagnostic capacity at health facilities through provision of equipment and supplies and training of laboratory staff, (e) supervision of clinical staff, including the provision of a vehicle for central level supervision, (f) procurement of reserve stocks of drugs, and (g) operational research on approaches to improve case management (e\.g\., use of pre-packaged drugs)\. Promotion and distribution of insecticide-treated bed nets (ITNs) will be a collaborative effort between the malaria control program and designated NGO(s)\. Policy and guideline development, standard setting, oversight, and generic promotion activities will be carried out by the malaria control program\. Activities for promotion of sale/distribution of bed nets and insecticides for reimpregnation will be carried out through contracting with NGOs\. The monitoring and supervision capacity of the national malaria control program will also be strengthened through procurement of office equipment and supplies, and training of staff in statistical methods\. (ii) TB control program will be supported by strengthening laboratories, training, and logistics for the implementation of the DOTS strategy\. Diagnostic capacity will be strengthened through training of clinical, both facility and community-based, and laboratory staff in case detection and management\. Laboratory capacity will also be expanded through the procurement of equipment, supplies, and furniture\. Community awareness campaigns will be carried out, including the development and production of IEC materials\. Operational research activities will be carried out including approaches for expansion of the DOTS strategy into the community and surveys to monitoring the prevalence of drug resistance\. (iii) Sanitation and environmental impact mitigation measures in the four districts supported by the project (as opposed the IHSIP support which targeted the Freetown area)\. Regarding sanitation, a program of importance for all infectious disease control activities and for prevention in general, the project will support activities to be contracted out with private providers (e\.g\., solid waste management, - 36 - following the model successfully used in the Western region and in Guinea) and advocacy for involving municipalities and communes in waste management (thus redefining the task of the MOHS from_a provider of services to contract management and environmental monitoring; the ultimate objective of this program will be transfer sanitation responsibilities to municipalities and communes)\. The HSRDP will also (i) strengthen the capacity in environmental monitoring by training environmental inspectors, and providing support for environment supervision and (ii) help carry out IEC activities for the benefit of health providers, the personnel involved in medical waste management and users of health services (in collaboration with the SHARP)\. Regarding environmental impact mitigation the project will finance (a) waste management measures with emphasis on medical waste in the 12 health centers and, in particular, in the four district hospitals to be rehabilitated (incinerators, lined pits, latrines, including support for their maintenance and functioning, training of relevant staff and of health providers), (b) dump site development by municipalities (additional support will be provided from community participation) in the four district capital cities (dump sites will include liquid waste), (c) building incinerators and lined pits in the facilities to be rehabilitated of the same districts, (d) TA to advise municipalities on dump site identification and development, and on other environmental issues, training on operating and maintenance of incinerators, (e) the operating cost of monitonng and supervision activities by environmental inspectors in 4 districts, (f) private providers to empty septic tanks and lined pits in four district hospitals and (g) transportation means for solid waste for the four district capital cities\. The SHARP project will also contribute, as it will finance the training of environmental inspectors and health providers of the four distncts in medical waste management\. Project Component 2 - US$5\.98 million Strengthening Public and Private Sector Capacity Under this component, HSRDP would support measures to improve performance and increase efficiency in the health sector by: (a) strengthening the program and resource management capabilities of key services within the District Health Management Teams (DHMT) and MOHS; and (b) promoting pnvate sector and civil society participation in the health sector and developing mechanisms to increase the efficiency, ensure the equity, and improve the quality of services provided\. 2\.1 Foster decentralization and improve the performance of Districit Health Management Teams\. As part of the decentralized budget reforms currently underway, MOHS has: (a) established some 60 cost centers (including the 13 DHMT), which prepare annual budgets and disburse authorized GOSL funds; and (b) instituted a mechanism financing district operating expenditures which has been successfully implemented in seven of the thirteen districts\. The project would finance training of cost center financial officers (particularly at district level) and will provide funds supporting operating costs in the qualifying districts (i\.e\., those meeting the cnteria for adequate financial management)\. Technical assistance to district health teams will be provided, among others, by the MOHS Planning, monitoring and evaluation and the Financial departments, and by the other MOHS support programs\. HSRDP funding will be channeled following an already existing mechanism for support of operating expenditures in the districts established by IHSIP (i\.e\., the distncts meeting critena of sound financial management are eligible, the funds ought to be used for unplanned activities for which the public budget is not sufficient such as supervision, emergency operations in case of infectious disease outbreaks, etc\.)\. The DHMT will decide on the necessity of using such funds (more detailed criteria for eligibility of funding for certain activities such as the ones mentioned above had been developed and agreed upon with the MOHS)\. Upon spending of the allocation, replenishment will be conditioned on proof of spending presented by distncts\. Although, only up to a total of US$0\.4 million will be spent for the entire duration of the project for this type of funding, this subcomponent is expected to greatly assist DHvlT to make their own decisions and manage in a hands on manner local health and planning and management problems\. It is worth mentioning that support to districts would also be granted through the annual - 37 - planning exercise (to which the district plans are expected to increase their contribution)\. 2\.2 Strengthen the MOHS key support programs, i\.e\., Human resources development (HRD), Planning, monitoring and statistics, Financial management, Procurement and Donor/NGO coordination\. The HSRDP would provide ongoing support for the continued improvement of staff capabilities and support programs at MOHS level (including Planning, monitoring and statistics, Financial management, Procurement and Donor/NGO coordination)\. These support programs have been selected on the basis of their importance to improving sector efficiency, insufficient funding from other sources, and HSRDP's intention to implement the project with MOHS' capacity (and not with a PCU)\. Planning, monitoring and statistics unit\. The Project would provide overall operational support to the department for personnel, equipment and transport, and training and technical assistance and specific support to: (a) revise and disseminate the national health policy; (b) reinforce the medium-term planning and annual planning and programming exercises as well as the annual sector review; and (c) strengthen both routine health information management and periodic surveys and research\. Health policy\. With support from a PHRD grant, MOHS has revised the 1993 National Health Policy, and a final, formally approved National Health Policy should be ready by early 2003\. HSRDP would support the dissemination and public discussion of the final policy through: (a) publication of the final document; and (b) organization of national and regional workshops for health personnel, local authorities, and public opinion leaders\. In addition, the project would include consultant and workshop support for future revision of the policy at the end of the project period\. Health planning and programminn\. With the return to normalcy, MOHS shifted from quarterly emergency planning to annual planning and began to undertake other longer term planning activities\. For 2003 and beyond, MOHS has as objectives to strengthen the planning process and to improve the annual sector reviews\. The planning process would be strengthened by: (a) improving the Planning Department's ability to collect and analyze information on health sector expenditures; (b) revising the planning guidelines to institute a Three-year Rolling Plan and improve the Annual Operational Planning; and (c) improving the planning capabilities of the District Health Management Teams\. The project would finance a full-time health economist, preparation of planning and budgeting guidelines, and review of proposed planned expenditures by the different cost centers\. Additional short-term training to staff in this unit will be provided based on identified needs\. The HSRDP would continue IHSIP's support for the organization of an annual sector review and planning exercises to bring together stakeholders active in the health sector to: (a) review sectoral achievements (on the basis of agreed-upon indicators as well as previously planned activities and expenditures); (b) discuss the updated, comprehensive annual and three-year rolling plans integrating the proposed contributions of all stakeholders; and (c) adopt the Annual Operational Plan of the next year (incorporating planned GOSL, donors and NGO activities in the Annual Operational Plan)\. Health information collection and analysis\. The project would support improvement of the various information and monitoring systems at all levels, as well as development of capabilities at central level to monitor project implementation and evaluate program performance\. The project would finance: (a) training and operating costs associated with the improvement of health information systems for central and district-level staff; (b) operating costs for vital registration; and (c) selected studies, surveys, and operational research to be determined\. As soon as a DHS is available, in all likelihood not before HSRDP's Mid-term review, the respective data will be immediately used in the health sector planning and HSRDP evaluation\. -38- Donor/NGO Coordination\. Within the framework of MOHS's intention to develop a new NGO policy with procedures and guidelines for effectively coordinating and monitoring the activities of NGOs, the project would finance incremental staff salaries, as well as equipment and modest operating costs\. The project would support current work to involve and coordinate international and national NGOs and will expand NGO participation in the decision-making strengthened with the opportunity of annual sector review and planning exercises\. In addition, the project would finance periodic meetings between MOHS and its partners as well as the collection and publication of the annual inventory of donor and NGO interventions in the health sector\. Human Resources Development\. The project would support a series of actions to strengthen human resources management and reduce the shortage of health service providers\. These actions will be closely coordinated with and complementary to ongoing efforts by WHO and AfDB and particularly by the proposed EU-financed project\. Specifically, HSRDP would strengthen the overall capacity of the Human Resource Department to implement the Government's Public Service Reform Program, -focusing specifically on providing technical and financial support for personnel management, manpower planning, and training\. Personnel management\. To improve the manual use of personnel records, the project would: (i) renovate existing space to improve storage (particularly for retired personnel); (ii) provide the office with basic furniture (filing cabinets) and equipment (typewriters); and (iii) train staff in modern filing and record-keeping techniques\. Manpower planning\. The Project would strengthen manpower planning within MOHS by supporting the formulation and subsequent updating of a comprehensive manpower development plan\. In addition, the project would finance implementation of measures and recommendations of the manpower plan; with proposed activities for project funding to be identified and agreed-upon during the annual planning exercise\. Human resource training\. HRSDP will also provide support for strengthening training institutions, introduce specialized or in-service training courses, or support other activities as appropriate\. Finance department\. MOHS has successfully integrated financial management of GOSL funds and development resources, and the accounting policies, systems, and procedures have been favorably reviewed\. The project would provide TA and overall operational support for the Finance Department to improve its performance, carry out its tasks related to the FM of the IDA project and effect improvements in financial management and control\. In addition, the Department will receive assistance to computerize financial management operations; complete installation of a system acceptable to the Bank, and train staff\. Procurement unit\. Project procurement within MOHS has been improved, but current procedures are relatively rudimentary; recent reviews detected several problems, which have been resolved and the systems judged adequate\. To enhance the capabilities of the Procurement Unit of MOHS, the project would: (a) strengthen existing systems and procedures for procurement planning and implementation; and (b) extend these methods for use in carrying out procurement with GOSL funds\. To ensure the continued development of the Procurement Unit of MOHS, the Project would finance TA (procurement and architect) and would support additional short-term training and improved working conditions for existing staff (i\.e\., furniture, equipment and operating costs)\. Consultant assistance is being provided to help the unit prepare the PIP, the operations manual and the project procurement plan\. -39 - 2\.3\. Promote development of the private sector and participation of civil society in the health sector After a decade of war and civil unrest which weakened the country's public and private health sectors, the project would seek to capitalize on the emerging pnvate sector and regulate its development in a manner that will ensure its development and foster the provision of affordable, good quality, services\. In addition the project would build on the country's past institutional arrangements with the NGO community (through the Donor/NGO Coordination Office) and on the successful experiences with religious NGOs and (more recently) international NGOs\. Finally, this component will promote incentives for private health providers (focusing on not-for-profit providers) to develop and provide services in the four districts supported by the project\. It will also include contracting out of services to private providers and support for a wider participation of the civil society in decision-making on health matters\. The project would support initiatives in five areas of particular importance to the MOHS: (a) public sector/private sector consultation and development of regulation to foster quality and participation; (b) contracting out; (c) incentives to encourage religious and other NGOs to provide services in under-served areas; and (d) support for civil society participation in health matters\. Public sector/Private sector consultation\. The project would finance consultations with the pnvate Medical, Dental and Pharmaceutical Associations and meetings with the Traditional Medicine Association to discuss ways for strengthening collaboration and registration and accreditation practices (and other measures to improve quality)\. The meetings will be prepared and run with international and national consultant support\. Further to these consultations the project will support the issuance of regulation to promote quality of services, control tariffs and encourage the development of private health services and the involvement of private providers in the solving of public health issues\. Contracting out\. Contracting out of clinical and non-clinical services with the private sector is already envisaged by HSRDP in areas such as impregnated bed-nets, IEC services, and solid-waste collection by communities\. These areas have been costed in Component 1, but additional funding could be made available in case-of insufficient funding\. The project would also finance a study on contracting out (or privatizing) other, selected public services (clinical or non-clinical), including drug procurement and distribution, laboratory services, and laundry\. Incentives\. Given the importance of attracting the return of religious and other NGOs to develop hospital services in the under-served geographical areas, provide hospital services and organize equitable cost recovery (i\.e\., protecting the access to services of the poor individuals) in the under-served geographical areas, the project would finance specific incentives, which might include the provision of a drug stock to cover the needs of the respective facility for one year\. Support to civil society participation in health matters\. To encourage the establishment and functioning of committees (at distnct and health facility levels) for involving the population, political and religious leaders and, more generally, the civil society in the decision making on health matters, the project would provide financial resources for their operations\. While the emphasis would be on the four IDA-financed districts, the project would provide support to the PHC program of the MOHS to finance similar activities in the remaining districts\. These efforts to increase the involvement of the user of services and the civil society in the decisions made in the health sector will be synchronized with MOHS work to regulate cost-recovery and will include mechanisms to protect vulnerable populations\. HSRDP would finance: (a) a feasibility study (to be carried out with consultant assistance and with the participation of MOHS and district staff) of approaches for establishing local financing mechanisms; (b) testing and consensus-building concerning these possible approaches (either by MOHS or through an NGO partner); and (c) preparation of the guidelines to establish such a system\. An equity fund to pay for the delivery of - 40 - services for the benefit of the poor population in one of the facilities rehabilitated with HSRDP support will be tested\. The project would also consider, at the time of the mid-term review, establishing two prepayment arrangements on an experimental basis to finance health care for the population of one small urban and one rural community and test their feasibility (in economic terms and from an equity perspective)\. - 41 - Annex 3: Estimated Project Costs SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT 0\.00 0\.00 0\.00 Total Baseline Cost 13\.80 5\.29 19\.09 Physical Contingencies 0\.28 0\.29 0\.57 Price Contingencies 1\.27 0\.22 1\.49 Total Project Costs 15\.35 5\.80 21\.15 Total Financing Required 15\.35 5\.80 21\.15 Goods 1\.88 5\.12 7\.00 Works 4\.52 0\.00 4\.52 Services 2\.87 0\.45 3\.32 Training 1\.22 0\.23 1\.45 Operational costs 3\.34 0\.00 3\.34 Unallocated 1\.52 0\.00 1\.52 Total Project Costs' 15\.35 5\.80 21\.15 Total Financing Required 15\.35 5\.80 21\.15 Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 21 (US$m) Therefore, the project cost sharing ratio is 0% of total project cost net of taxes -42- Annex 4 Cost-Effectiveness Analysis Summary SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Introduction: Given that: (a) the proposed project will only invest in programmatic areas with well-documented cost effectiveness ratios (such as primary health care and first referral health facilities, human resources development, support to programs addressing important infectious disease epidemics e\.g\., Malaria and TB); (b) empirical data from Sierra Leone to further explore the soundness of such spending are not available; and (c) Annex 7 of the Staff Appraisal Report of the IHSIP (credit 2827-SL) has already presented analysis on the cost effectiveness of this type of intervention (see the table at the end of this annex), it was agreed that an economic analysis of this new project would not be required\. Instead a health sector Public Expenditure Review was carried out during project preparation\. On the one hand, the PER suggests that: (i) the ratio between salaries and non-salary expenditures compares favorably with most other West African countries; and (ii) expenditures for the most cost effective programs with large externalities such as PHC, infectious diseases control, and sanitation and prevention in general were significant and compare well with other expenditures for secondary and tertiary care\. On the other hand, it shows that recent expenditures in the sector financed by the public budget and IDA were very modest\. While MOHS's recurrent non-salary expenditures as a share of the Government's total non-salary budget increased from 4\.8% in 1999 to 7\.1% in 2001 this proportion remains low (and projected to decline over the period 2002-2004); the proposed grant would establish a legal conditionality to increase this share to an acceptable level (i\.e\., at least 10% starting in 2004)\. In addition, the PER showed that, understandably, insufficient resources had been channeled to the districts and that little was known in regard to the expenditures made by NGOs and donors\. As a result of these findings it was agreed with the Borrower to regularly monitor expenditures during the annual review meetings against benchmarks established by the PER and consistent with the sector policy\. It was also recognized that until economic development takes off, the funding of the health sector will largely depend upon donor funding and that the present project will not be sustainable until there is substantial macroeconomic development and increase in revenues\. Consistenct of the project with Government and Bank Transitional Support Strategy (TSS) for 2002-2003\. The TSS presents the Bank's business plan to support the implementation of the Sierra Leone Government's Interim Poverty Reduction Strategy (I-PRSP) which was launched in September 2001\. The main objective of the TSS is to support the transition from post-conflict reconstruction to sustainable poverty reduction\. In the transitional phase, the focus on the TSS is on: (i) consolidating peace, (ii) resettlement and reconstruction, (iii) improving governance, and (iv) maintaining a macroeconomic framework conducive to economic recovery\. In the medium-term Government will increasingly address longer-term development issues to be elaborated in the full PRSP\. The provision of health services in rural and underserved areas is one priority of the TSS, and a means to help mitigate the risk of renewed conflict and lay the foundation for sustained poverty reduction\. In the case of renewed conflict and political instability the HSRDP will operate in accordance with the 3 scenarios of the TSS (which outline, among others, Bank's exit strategy in case of deterioration of the security and political situation in the country)\. - 43 - Cost effectiveness considerations: This project's main thrusts are: (a) the prevention and management of conditions that represent major economic burdens in Sub-Sahara Africa in general and in Sierra Leone in particular: malaria, and tuberculosis\. The economic burden has two major dimensions: (i) low productivity of the workforce affected; and (ii) the continuing cost of treatment due to the lack of complementary efforts in cost-effective prevention\. The methods of prevention to be used in this project have favorable cost-effectiveness ratios documented by the Bank\. Secondary prevention - an efficient complement - is also part of the program\. There are no data that can be used to measure the precise disease burden of Sierra Leone or to assess cost-benefit in the Sierra Leone context but there is ample literature documenting the cost effectiveness ratios of: the Roll Back Malaria strategy; the DOTS strategy to curb TB\. Moreover, a recent survey conducted by the Central Statistics Office of Sierra Leone points to the paramount role played by malaria in the disease burden of Sierra Leone\. This disease has a significant impact on the productivity of food-growing workers in rural areas, a major economic issue in food-importing Sierra Leone\. Diarrheal disease also contributes significantly to the disease burden of Sierra Leone\. There are related economic losses due to the impairment of human capital through poor nutrition and related lesser intellectual and physical development of children\. The project through the support of cost-effective sanitation will diminish the economic burden posed by this condition\. (b) the improvement of basic-health services in four districts that are among the poorest in Sierra Leone\. The services supported by the project are those designated by the Bank as a cost-effective package for low-income countries\. This basic package should reduce the burden of disease in the four selected districts and through it improve food production and other economic activities\. (c) the strengthening of the capacity of MOHS to manage the existing health system by making more efficient use of resources in the public and private sector\. It also supports enhancements in MOHS's ability to allocate and distribute resources to proven cost-effective services and to districts where resources are likely to get the highest returns per dollar (Leone) spent\. Further, the project aims to foster the procurement and financial capacity of MOHS that will address bottlenecks and delays in secunng service production from investments made\. (d) the mitigation of existing productivity issues in a number of areas that, according to the PER, need immediate attention\. This includes better financial management that will ensure more efficient use of capital through a greater balance between capital and operating expenses\. In view of the improving but still poor fiscal capacity of the country, the project will make a contribution by ensuring a level of operating expenses commensurate to the capital expenditure being undertaken by the project\. The proposed decentralization of decision making to district level and improved financial management at this level should also improve efficiency in operations and fiscal accountability\. In addition, the civil works activities generated by the project should increase much needed employment and have a positive multiplier effect on the economy\. Financial considerations: Financial issues such as fees for health services (cost recovery) measures for ensuring financial accountability and management of funds generated from cost recovery will only be addressed during project implementation, although some studies and the revision of the sector policy will be carried out -44- during project preparation\. External audit reports and financial management analysis of the ongoing project implemented by the MOHS have been unqualified; a project-specific financial management assessment was performed at Pre-Appraisal; and the Bank is planning to conduct a Country Financial Accountability Assessment in Sierra Leone\. Finally, based on these findings and using funding from a PPF and from the grant itself (through the HSRDP second component on capacity building), all key MOHS departments (including the financial one) and all district health teams will be strengthened\. Fiscal impact: A number of features of the project should have a beneficial impact on employment and worker productivity leading to potential increases in government revenue\. The PER also identified some potential revenue sources that could be tapped to improve revenues and the fiscal balance\. These include a more systematic and equitable approach to fees for services and charges for drugs that currently comprise rather arbitrary measures\. The project requires about US$1 million in counterpart funds over the five-year period of the project\. This represents about a 2% annual increment of MOHS current and capital expenditure funded from domestic sources during 2001\. Therefore, it will not impose a substantial additional burden on the Government's fiscal situation\. However, there are some generic fiscal aspects that require attention\. Some aspects of the project will have to rely on public infrastructure that is currently inadequately financed\. Therefore, durng negotiations this issue was openly discussed to ensure that Government policy of improving the budgetary situation of MOHS is reflected by the adequate and timely allocation of funds to MOHS\. The PER pointed to the need for increments in MOHS current expenditure commensurate with investments being made\. Although the project has made provision for operating expenses in relation to most of the investments being made, the future sustainability of the facilities being funded by the project remains an open question\. The Bank's macroeconomic dialogue with the Government will be addressing this issue\. - 45 - Cost Effectiveness Analysis Health system level/NHAP In NHAP In In BHA In WDR93 Package Program/ (Y/N) NHAP Package (Y/N) Intervention or Service Core and/or Y-C Clin Program Priorities Y-P Pub (Y/N) (Y/N) and/or WDR Priorities TECHNICAL PROGRAMS A\. PRIMARY CARE 1\. Maternal and child health Anti-natal Y Y Y Y-C Delivery Y Y Y Y-C Post-natal Y Y Y Y-C Micro-nutrient supply Y Y Y Y-P Fanuly planning Y Y Y Y-C School health Y Y Y Y-P ORT Y Y Y Y-C Growth monitoring and Y Y Y N promotion -_ I Breast feeding Y Y Y Y-P 2\. Common ailments Treatment/Referral Y 1-2 Y 1 2 Drugs/Supplies Y Y Y Y First Aid/Referral Y 1-2 Y Y 2 Education on food selection Y Y Y Y-P and preparation Public and patient Y Y Y Y-P information 3\. Communicable disease control Immunization BCG Y Y Y Y EPI Y Y Y Y Yellow Fever Y Y N Y Hepatitis B N N3 N Y Preventive services Onchocerciasis spray Y Y4 Y N TB Chemo\. Y Y ? ? Blood bank safety Y Y3 Y5 N AIDS/STDs N Y Y N Curative services TB Y Y Y Y Leprosy Y N6 N N STD Y Y Y Y ARI Y Y Y Y Helminths Y Y Y Y 4\. Water sanitation Well digging Y Y Y N Latrine construction Y Y Y N Piped water system Y7 N IN N Sewage system Y6 N N N Solid waste Yl-2 N N N - 46 - 5\. Nutrition & dietetics Nutrition education Y Y Y Y-P Nutrition rehabilitation Y Y Y Y-C (0-5 yrs) Diet therapy Y Ns N N Micro-nutrients Vitamin A N N9 Y Y-P Iodine Y Y Y Y-P 6\. Health education an communication Community health education Y Y Y Y-PIo Printed materials Y Y ? ? Drama and songs Y Y ? ? Mass media Y Y Y Y School health education Y Y Y Y B\. Secondary Care Y Y4 Y N General in-patient services Y Y11 Y Y12 Mental health care Y Y13 N N Limited care for chronic Y N Y Y disease TB treatment Y Y Y Y SUPPORT OF PROGRAMS A\. Drugs and Supplies Selection/Qualification Y Y \.Y Y-Pi7 Procurement Y Y Y Y-P Storage/Inventory Y Y Y Y-P Distribution Y Y Y Y-P Rational drug prescription Y Y Y Y-P and use Cost recovery/Pricing Y Y Y Y-P Quality control Y Y Y Y-P Drug regulation/Control Y Y Y Y-P NGO, private sector N Y18 Y Y-P B\. National Food Environment and Clinical Lab Service Advice to clinicians and Y N N N policy makers Analysis of lab samples Y N N N Training lab staff Y Y N N Quality control of lab Y N N N services Promotion of safe blood Y Y19 Y20 N Forensic analysis Y N N N Regulation and enforcement Y N N N C\. Maintenance and Repair (M&R) DOH-level unit Y Y Y N District unit Y Y Y N Norms for M&R skills N Y Y N Planning & M&R skills N Y Y N D\. Human Resource Management (HRM) Long-term planning Y Y Y N - 47 - Training plans Y Y N N Coordinating mechanism for Y Y Y N training/management development Development HRM capacity Y Y Y N Employee relations Y Y Y N strategy/pay Computerized PMIS Y Y N N Changing mix of staff N Y21 Y Y Redeploying staff N Y Y Y Changing training curricula N Y Y Y Leadership/Supervision N Y Y N E\. PMISU Training staff in info\. Y Y Y N management Establish district M&E Y Y Y N capacity, including at hospitals Operational research Y Y Y Y Collection /dissemination Y N N N info\./reports Assist in district health plans Y Y Y Y Epidemiological data N Y Y Y Monitoring/health finance N Y22 Y Y Support community N Y Y Y management 1 Basic trauma, malaria, diarrhea, local infection\. 2\. Assessment, advice, alleviation of pain, treatment of infection and minor trauma\. 3\. Cost and feasibility in Sierra Leone to be reviewed 4 Maintenance after devolution 5\. Not imply 100% testing\. 6\. To be further review for relative cost-effectiveness; not clear whether costs included in NHAP\. 7\. Responsibility of Department of Works\. 8 Dietetics & diet therapy to be moved to secondary care, as non-care interventions\. 9\. To be reviewed for relevance in Sierra Leone 10\. Health education and communication interventions were included in the WDR interventions for alcohol, tobacco, and school health 11\. Resources unlikely to permit more than 12 below\. 12\. Assessment, advice, alleviation of pain, treatment of infection and minor trauma, other treatment as resources permit\. 13\. Mental health services at all levels merit further reflection, there is no consensus in the NHAP Task Force on them\. 14\. Future needs for specialist staff merit careful review, as many existing staff are soon to retire\. 15 Mental health services at all levels merit review\. 16\. Public health monitoring and surveillance, provided outside tertiary care 17\. Drugs and supply services were included implicitly as par of the WDR essential care package\. 18 Private sector roles in marketing and distribution of drugs merit review\. 19\. Quality control under lab services; promotion belongs under health education 20\. May not be a lab service; NHAP foresees provision of safe blood BHA encourages promotion of safe blood, but does see provision of safe blood as priority intervention 21\. Task Force endorsed a Y, but urges that the subject be approached with care -48- Annex 5: Financial Summary SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Years Ending 12/31 Yearl1 Year 2 Year 3 Year 4 Year s Year 6 Year 7 Total Financing Required Project Costs Investment Costs 0\.2 3\.5 4\.3 5 6 3\.1 0\.9 0\.0 Recurrent Costs 0\.0 0\.4 0\.8 0\.7 0\.9 0\.6 0\.0 Total Project Costs 0\.2 3\.9 5\.1 6\.3 4\.0 1\.5 0\.0 Total Financing 0\.2 3\.9 5\.1 6\.3 4\.0 1\.5 0\.0 Financing IBRD/IDA 0\.2 3\.8 4\.8 6\.0 3\.8 1\.4 0\.0 Government 0\.0 0\.1 0\.3 0\.3 0\.2 0\.1 0 0 Central 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Provincial 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Co-financiers 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0 0 User Fees/Beneficiaries 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Other 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 Total Project Financing 0\.2 3\.9 5\.1 6\.3 4\.0 1\.5 0 0 Main assumptions: References are for calender years\. Each year is financed for 12 months with the exception of the first year (2002) which is financed for six months with a PPF\. Totals may not tally due to rounding\. -49 - Annex 6: Procurement and Disbursement Arrangements SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Procurement Procurement Environment 1\. The last World Bank Country Procurement Assessment Report (CPAR) for Sierra Leone was carried out in 1985\. The conflict that gripped the country over the last ten years eroded the effectiveness of public sector management and destroyed the efficiency of public institutions as well public procurement systems\. The current procurement practices for goods, works and services as described in the Finance Act 1963 are obsolete and are inadequate to meet the country's modern needs\. A modem public procurement system is required to ensure value for money, ensure adequate competition, accountability and transparency in the procurement/selection process and to check against corruption and fraudulent practice in procurement and contract execution\. 2\. The Government of Sierra Leone (GOSL) with the assistance of private consulting firms has conducted some studies of public procurement practices in the country\. These reports cite (i) lack of a comprehensive legal framework for public procurement, (ii) lack of a uniform and codified procurement procedures and regulations, (iii) weak capacity of procurement staff, and (iv) loose institutional and organizational arrangements for collective decision making in awarding of contracts, as major factors contributing to weaknesses in the public procurement practices\. Some of the unacceptable features identified by Bank staff in the on-going Bank financed projects are (i) extensive use of sole source method for selection of consultants, (ii) extensive and repetitive use of shopping procedures, often including the same firms, (iii) unclear procedures for opening of bids and criteria for bid evaluation and contract award, (iv) post contract negotiations, (v) weak internal control systems, and (vi) over-centralization of procurement in the Central Tender Board, Ministry of Finance (CTB)\. With a few exemptions, current regulations require that contracts for all Ministries, Departments and Agencies estimated to cost above SLL 12,000,000 (about USD 6,000) must be procured by the CTB\. The CTB is responsible for preparation of bidding documents, advertising for bids, opening bids, evaluating bids and consequently awarding contracts\. The sheer volume of work as well as the limited capacity of the CTB make the current arrangements unworkable\. Government Ministries are already complaining about prolonged processing delays for procurement carried out by the CTB\. The role of the CTB should be limited mainly to reviewing procurement strategy and plans and bid evaluation reports for very large contracts for compliance with agreed procedures\. During Appraisal, GOSL agreed to waive its current requirement of executive procurement by the CTB\. The role of the CTB will be limited to the review of evaluation reports and recommendations for the award of works and goods contracts exceeding USD 500,000; and consulting contracts exceeding USD 200,000 for firms and USD 100,000 for individuals\. In addition, the standard processing time for CTB clearance will not exceed 14 days\. If no response is received from CTB, within 14 days, approval will be deemed to have been given\. The thresholds and processing times may be reviewed when a new public procurement law has been enacted\. 3\. The Government has realized the need for the country to review and reform its public procurement practices\. The World Bank has agreed to support public procurement reforms with funds from the Transport Sector Project\. Consultants will be selected to prepare (in consultation with stakeholders in public and private sectors) Procurement Reform Proposals for submission to Government possibly by mid 2003\. It is expected that a new procurement code and law would be implemented latest 2004\. - 50 - 4\. In the absence of a national procurement code, the procurement procedures to be followed for this project would will be fully described in the Project Operational Manual\. A Project Operational Manual exists for the predecessor project, the Integrated Health Sector Investment Project\. The manual is being updated for the new project\. Use of Bank Guidelines 5\. All works and goods financed under the IDA project would be procured in accordance with the Guidelines: Procurement under IBRD Loans and IDA Credits, January 1995 and as revised in January and August 1996, September1997 and January 1999\. Consultants will be selected in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers, January 1997 and as revised September 1997, January 1999 and May 2002\. National Competitive Bidding (NCB) procedures will include: (a) an explicit statement to bidders of the evaluation and award criteria; (b) national advertising with public bid opening; (c) award to the lowest evaluated responsive and qualified bidder and (d) foreign bidders would not be precluded from participation in NCB\. 6\. The Bank's Standard Bidding Documents (SBD) will be used for all ICB (and with appropriate amendments for all NCB) for works and goods\. The Bank's Standard Request for Proposals (SRFP) would be used for all consulting assignments\. MOHS should ensure that each time the most current version of the appropriate SBD/SRFP is used in bids/proposals\. Less competitive bidding and selection procedures should not be used as an expedient to by-pass more competitive methods and fractioning of large procurements into smaller ones should not be done solely to allow the use of less competitive methods\. The detailed procedures to be followed will be described in the Project Implementation Manual\. Domestic preference will be allowed for ICB\. Advertising 7\. A General' Procurement Notice (GPN) for the project has already been published in the UN Development Business as provided under the Guidelines\. The GPN would be updated on a yearly basis and would show all outstanding ICB and all consulting services estimated to cost USD 200,000 or more\. Specific Procurement Notices (SPN) will be required for contracts to be procured under ICB and NCB procedures and for consultant contracts with an estimated cost of USD 200,000 or more to obtain expressions of interest (EOI) prior to the preparation of the shorthst\. SPNs will as (a minimum) be published in a newspaper of wide national circulation\. Consultancy contracts estimated to cost USD 200,000 or more will be advertised in Development Business\. Sufficient time would be allowed (not less than six weeks for ICB and not less than 30 days for NCB and not less than 14 days for EOI) to allow adequate time for bidders and consultants to obtain documents and respond appropriately\. Procurement Capacity 8\. Procurement under the project will be managed by the Procurement Unit, Ministry of Health and Sanitation\. The mission carried out a procurement capacity assessment of the Ministry of Health and Sanitation (MOHS) and a summary of the findings of the assessment is included\. The main weaknesses found were poor internal control systems; deliberate fractioning of procurement; failure by management to insist and ensure compliance with agreed procedures; and poor record keeping\. MOHS has addressed these issues and already there is marked improvement in procurement practice in MOHS\. The Ministry is staffed with capable professional staff who are knowledgeable in Bank procurement/consultants selection policy and procedures having implemented the predecessor project, the Integrated Health Sector Investment Project\. The findings of the capacity assessment indicate a "medium risk" for this project\. - 51 - 9\. The project launch workshop will include a session on Bank/Public procurement\. The focus will be to reinforce the principles of good public procurement practice\. Special emphasis will be placed on the correct use of shopping procedures, ethics, corruption and fraudulent practice\. Several officials in MOHS have already participated in courses in procurement under Bank financed projects organized by the Bank\. Under the project provision has been made for at least four MOHS officials, including the Assistant Procurement Manager and the Assistant Architect to attend the Bank's regional procurement/consultants selection training courses at the Ghana Institute of Management and Public Administration (GIMPA) or the East and Southern Africa Management Institute (ESAMI)\. The Ministry has initiated the process to select an individual consultant to fill the vacant position of Works Manager\. When the workload is heavy, MOHS may hire procurement agents (including UN Agencies) and/or inspection agents to provide procurement support in accordance with paragraph 3\.10 of the Procurement Guidelines\. Procurement Plans 10\. MOHS will prepare an indicative Global Procurement Plan (GPP) for the whole project, a Program of Work (POW) and a Detailed Procurement Plan (DPP) for the first year of the project showing contract packages, and for each package its estimated cost, procurement method and processing times for key activities till completion\. The GPP and the DPP for the first year will be part of the Project Implementation Manual which was completed before negotiations\. The Manual will contain the project workplans from which the procurement strategies and schedules would be derived\. The plans will be agreed with IDA\. Two months prior to the start of each subsequent fiscal year, MOF will submit up-dated versions of the GPP, and the annual POW and DPP in respect of the following year\. Each quarter, MOHS will submit to the Bank a procurement monitoring report and a contract expenditure and progress report as part of the Financial Management Report (FMR)\. Procurement Implementation Arrangements 11\. Procurement of Works and Goods and the selection of consultants, including procurement/selection planning will be the responsibility of the Procurement Unit of MOHS\. The Procurement Unit will ensure that any procurement is carried out in accordance with the procurement strategy and plan formally agreed with IDA\. Scope of procurement and procurement methods 12\. Works (estimated to cost USD 5\.0m) will consist of construction/rehabilitation/maintenance for the restoration of essential health services in 4 district hospitals, 12 health centers and various health posts\. Works contracts estimated to cost USD 500,000 or more will be procured using ICB procedures\. When the estimated cost for the works contract is less than USD 500,000 or more than USD 30,000 the method of procurement will be NCB\. Very small contracts estimated to cost less than USD 30,000 equivalent may be procured by way of soliciting quotations through written invitations from not less than three qualified contractors\. Registration/Classification of contractors may be used to identify contractors for such very small contracts\. The invitation shall include a detailed description of the works, basic specifications, the required completion date, a simple form of agreement acceptable to the Bank, and relevant- drawings [where applicable]\. In all cases the award of contract shall be made to the contractor who offers the lowest price for the required work, and who has the experience and resources to successfully complete the contract\. 13\. Goods, Equipment & Printing (estimated to cost USD 7\.Om ) will consist of health sector goods - 52 - (pharmaceuticals, vaccines, contraceptives, nutritional supplements and medical & support equipment), ambulances, vehicles, computers and office equipment, and printing of IEC materials and various health forms\. To the extent possible, goods that could be procured under one supplier would be grouped into contract packages, and packages estimated to cost the equivalent of USD 100,000 or more would be procured under ICB procedures\. Procurement of goods packages estimated to cost more than USD 30,000 but less than USD 100,000 would be procured using NCB procedures\. Goods packages estimated to cost less than USD 30,000 would be procured by shopping on the basis of comparison of quotations from at least three eligible and qualified suppliers or from IAPSO where appropriate\. Requests for such quotations will include a clear description and quantity of the goods; incidental services required (if any); specifications and warranty requirements; requirements for delivery time and point of delivery as well as the basis of bid\. The Procurement Unit should ensure that prices obtained are reasonable and represent the best value for money\. Goods including health sector goods may be procured from or through United Nations Agencies in accordance with paragraphs 3\.9 and 3\.10 of the Procurement Guidelines\. Health sector goods estimated to cost less than USD 100,000 may, with the concurrence of IDA, be procured through LIB procedures in accordance with paragraph 3\.2 of the Procurement Guidelines\. 14\. Software, spare parts and accessories which are of proprietary nature may with the concurrence of IDA be procured under contracts negotiated directly with the manufactures/suppliers or their authonzed agents\. 15\. Consulting Services and Training (estimated to cost USD 5m) will consist of, engineering and architectural services for the design and construction supervision of health facilities, various studies and technical assistance as well as workshops and group discussions\. As a rule, consulting firms for all assignments will be selected though Quality and Cost Based Selection (QCBS) methodology\. Assignments estimated to cost the equivalent of USD 200,000 or more would be advertised for EOI in Development Business (UNDB) and in at least one newspaper of wide national circulation prior to the preparation of the shortlist\. In addition, EOI for specialized assignments may be advertised in an international newspaper or magazine\. The shortlist of firms for assignments estimated to cost less than USD 100,000 may be made up entirely of national consultants if at least three qualified firms are available at competitive costs in the country\. However, foreign consultants who wish to participate should not be excluded from consideration\. Consultant services estimated to cost less than the equivalent of US$ 100,000 may be contracted using Least-Cost-Selection (LCS) or Selection Based on Consultants' Qualifications (SBCQ) procedures in accordance with paragraphs 3\.1, 3\.6 and 3\.7 of the Consultants Guidelines\. Auditors would be selected using LCS procedures\. In case of assignments requiring individual consultants, the selection will follow the procedures stipulated in Section V of the Consultants Guidelines\. 16\. Training programs and workshops would be packaged in the project's workplans and budget and items therein procured using appropriate methods\. IDA Review 17\. All works and goods contracts estimated to cost USD 100,000 or more will be subject to the Bank's prior review in accordance with the procedures in Appendix I of the Procurement Guidelines\. All contracts awarded on basis of direct contracting or sole source basis will require prior review and clearance of the Bank\. - 53 - 18\. All Direct Contracting and Single-Source Selection will be subject to Bank prior review\. Consultancy contracts with firms with estimated value of USD 100,000 or more, and consultancy contracts with individuals estimated value of USD 50,000 or more will be subject to pnor review by the Bank in accordance with the procedures in Appendix I of the Consultants Guidelines\. 19\. All training programs, seminars, workshops etc\. would be subject to the Bank's prior review\. 20\. Contracts which are not subject to prior review will be selectively reviewed by the Bank during project implementation and will be governed by the procedures set forth in paragraph 4 of Appendix I to the relevant Guidelines\. Contract Management and Expenditure Reports 21\. As part of the FMR, MOHS will submit contract management and expenditure information in quarterly reports to IDA\. Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) da U-0"itegory -v_ 1\. Works 3\.07 1\.85 0\.19 0\.00 5\.11 (2\.76) (1\.65) (0\.17) (0\.00) (4\.58) 2\. Goods 4\.02 0\.70 1\.62 0\.00 6\.34 (4\.02) (0\.50) (1\.56) (0\.00) (6\.08) 3\. Services 0\.00 0\.00 5\.32 0\.00 5\.32 Consultants and Training (0\.00) (0\.00) (5\.32) (0\.00) (5\.32) 4\. Operating Costs 0\.00 0\.00 2\.95 0\.00 2\.95 (0\.00) (0\.00) (2\.67) (0\.00) (2\.67) 5\. Unallocated 0\.00 0\.00 1\.50 0\.00 1\.50 (0\.00) (0\.00) (1\.35) (0\.00) (1\.35) Total 7\.09 2\.55 11\.58 0\.00 21\.22 (6\.78) (2\.15) (11\.07) (0\.00) (20\.00) "Figures in parenthesis are the amounts to be financed by the Bank Grant\. All costs include contingencies\. 2Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. -54 - Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) A\. Firms 1\.05 0\.00 0\.00 0\.08 0\.17 1\.62 0\.00 2\.92 (1\.05) (0\.00) (0\.00) (0\.08) (0\.17) (1\.62) (0\.00) (2\.92) B\. Individuals 0\.00 0\.00 0\.00 0\.00 0\.00 2\.40 0\.00 2\.40 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) (2\.40) (0\.00) (2\.40) Total 1\.05 0\.00 0\.00 0\.08 0\.17 4\.02 0\.00 5\.32 , (1\.05) (0\.00) (0\.00) (0\.08) (0\.17) (4\.02) (0\.00) (5\.32) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CO = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc\. N\.B\.F\. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Grant\. - 55 - Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' 1\. Works US$500,000 or above ICB All >= US$ 30,000 - <US$ NCB Contracts above US $ 500,000 100,000 Below US$ 30,000 Price Comparison None All values Direct contracting All contracts 2\. Goods US$ 100,000 or above ICB/UN Agency All contracts Equipment & Printing >=US$ 30,000 - <US$ NCB/LIB/UN Agency All LIB 100,000 Below US$ 30,000 Shopping/UN Agency/LIB None All values Direct contracting All contracts 3\. Services US$ 100,000 or above, QCBS All contracts firms Below US$ 100,000, firms QCBS/LCS/SBCQ None US$ 50,000 or above, Individual All contracts individuals Below 50,000, individuals Individual None All values Single source All contracts 4\. Miscellaneous 5\. Miscellaneous 6\. Miscellaneous Total value of contracts subject to prior review: US$m 5 20% Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) tThresholds generally differ by country and project\. Consult OD 11\.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance\. - 56 - Disbursement Allocation of grant proceeds (Table C) Table C: Allocation of Grant Proceeds 1\. Civil Works 4\.58 90% 2\. Goods and Equipment 2\.78 100% (foreign expenditures) 0\.99 90% (local expenditures) 4\. Pharmaceuticals 2\.31 100% 5\. Consultants 3\.65 100% 5\. Training 1\.67 100% 6\. Operating Costs 2\.67 90% 7\. Unallocated 1\.35 100% Total Project Costs 20\.00 Total 20\.00 Explanatory Notes: (a) the term 'foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower\. (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower\. (c) the term "operating costs" means non-salary operating costs at both central and local levels and are expenses incurred on account of Project implementation, management and monitoring, including office supplies, expenses related to communications and utilities, maintenance of vehicles and office equipment, fuel, spare parts, office rentals, travel and supervision\. Use of statements of expenditures (SOEs): 22\. Disbursements for all expenditures would be against full documentation, except for items of expenditures under contracts and purchase orders below US$ 100,000 equivalent each, for works, goods and consulting firms, and US$ 50,000 for consultant services (individuals), training and incremental costs for which disbursements would be based on statement of expenditures (SOEs)\. Supporting documentation for SOEs would be retained by the MOHS and where applicable its district health offices of the Government of Sierra Leone for review by IDA missions and external auditors\. Special account: 23\. To facilitate disbursements, one Special Account for the Ministry of Health and Sanitation would be established, and operated in US$ at a commercial bank, under terms and conditions satisfactory to the IDA\. Upon Project effectiveness, a sum of US$500,000 would be deposited by the IDA into this account\. Further deposits would be made into the account, against withdrawal applications supported by appropriate documentation\. Financial Management Assessment Report Executive Summary 24\. The Ministry of Health and Sanitation (MOHS) has previous experience in the management of - 57 - IDA funds, in the implementation of the Integrated Health and Sanitation Project\. The Ministry has a component under the Sierra Leone HIV/AIDs Response Project (SHARP) and is expected to manage its own special account\. During the preparation of SHARP, the Bank conducted a financial management assessment of the Ministry\. The assessment, which was comprehensive, was however limited to the operations at the head office, and did not involve any assessment at any province or district health offices\. Given that Sierra Leone is now emerging from conflict, we are unable to extend our assessment to the district/province health offices\. 25\. The assessment for this project was therefore limited to reviewing our earlier assessment documentations, records and reports under the SHARP project, and ensuring that all arrangements agreed were still valid and where need be recommend changes\. No new internal control questionnaire was administered, since one had been issued and reviewed less than one year ago\. 26\. MOHS's organizational chart for the finance division was reviewed in detail\. The approval systems within the Ministry, accounting and financial procedures manuals, the job descriptions of accounting and finance staff and previously completed internal control questionnaires were all reviewed in detail\. 27\. The finance unit of the MOHS is headed by a Finance Director who has responsibility for all financial management issues in the Ministry\. He is assisted by a deputy responsible for management accounting and project accounts\. They are both assisted by a principal accountant in charge of financial accounting\. The Director and his two key assistants have several years experience in financial and accounting work including Bank financed projects\. They are currently managing the on-going Integrated Health Sector Improvement Project (IHSIP) and have responsibility for the health component of the SHARP project\. 28\. The procedures for processing financial transactions, which includes the stages of approvals, and the required support documents have all been documented in a system chart\. These procedures were found to be adequate for the on-going IHSIP, but will need some updates and improvements to ensure adequate coverage for the SHARP and the new Health Sector Reconstruction and Development projects\. 29\. Under IHSIP the Ministry has been preparing the PMR manually through the use of spreadsheets (excel), which is very tedious\. These reports have been simplified and changed to Financial Monitoring Reports (FMR) and the contents and formats were agreed during appraisal and would be included in the negotiation documents\. Conclusion 30\. The MOHS has the accounting system documented in a manual, trained and experienced accounting staff, adequate reporting systems and auditing arrangements and have previous experience in managing Bank funded project\. Based on the assessment and all information gathered, the financial management system of the MOHS, meets the minimum requirements of the bank\. 31\. However there is the need to modify and update their accounting manual and take steps to automate the preparation of the FMRs under the new project through the use of a reliable and robust accounting software\. As a result of an agreed action plan with the MOHS, their accounting manual was updated and the preparation of the FMRs automated\. - 58 - Summary of Project Description 32\. The project's overall development objective is to help restore the most essential functions of the health delivery system\. The project will also help achieve the more specific objectives of: (a) Increasing access to affordable essential health services by improving primary and first referral health facilities in four districts of the country\. (b) Improving the performance of key technical programs responsible for coping with the country's major public health problems\. (c) Strengthening health sector management capacity to improve efficiency and further decentralize decision-making to the districts\. (d) Supporting development of the private health sector and involvement of the civil society in decision-making\. 33\. These objectives are expected to be achieved through 2 main components; 1) Restoring Essential Health Services\. This component will: (a) provide assistance to four priority districts to deliver adequate health services and (b) support three priority technical programs (TB, malaria and sanitation) to improve their performance and control infectious diseases of high public health importance in Sierra Leone; and ii) Strengthening Public and Private Sector Capacity\. This component will enable the HSRDP to provide support: (a) in all the districts of the country, the decentralization process by (i) strengthening the District Health Management Teams (DHMT) and creating capacity for appropriate planning, management, financial management and supervision and (ii) improving the decision making process; (b) five key support programs of the MOHS (i\.e\., Planning, Monitoring and Evaluation, Financial Management, Procurement, Donor & NGO Coordination and Human Resources Development) to improve efficiency and improve the administrative performance at the central level and at the periphery; and (c) activities to strengthen the private sector and the participation of the civil society in the health sector\. Country Accountability Issues 34\. The Bank has carried out a Country Financial Accountability Assessment (CFAA) for Sierra Leone\. The report documents the public financial management system architecture, identifies weaknesses and makes recommendations to address them\. The work was completed and issued to the Government of Sierra Leone in March 2002\. The summary risk analysis is based on this work and our FM assessment of the Ministry of Health and Sanitation (MOHS)\. Summary of Risk Analysis Risk Risk Rating Risk Mitigation Measure Inherent Risks: Country a) Weakness in legislative scrutiny M of Budget and Audited Accounts\. Chairman of Parliamentary Finance committee (Budget) is the same as Chairman of Public accounts committee (audit)\. - 59 - b) Weakness in the Banking sector S Bulk processing will be done at the HQ and leading to large movement of cash from the center to the provinces lmit actios t te calel with the risks associated with cash holdings\. Most banks are located in the capital, Freetown\. c) Inadequacy of remuneration of public sector financial staff\. S If there is need for it, the project will supplement by recruiting and funding qualified staff to address this weakness\. Overall Inherent Risks: S Implementing Entities: a) Adequate formal rules, but in practice they are not strictly M Intensify monitoring and review processes\. followed\. b) Inadequacy of trained and qualified staff\. M The present staff are paid under the existing project and the new project continues to finance cost of the qualified staff recruited to help manage the project\. Control Risk: Accounting system and Procedures M The project will use PPF funds from IDA to Manual not Updated develop and update financial accounting manual and improve FM systems required under the project\. Funds Flow Delays in accounting for funds sent S Initial advance for Imprest accounting to the Provinces, system will be funded from GOSL counterpart funds\. Second and subsequent releases, from the SA, will be based on receipt of accounting returns from the provinces as outlined in the revised funds flow arrangements\. Internal Audit MOHS has an internal audit (IA) M The project will strengthen the IA through department whose functions are the development of audit manuals (including mostly limited to pre-auditing\. It audit programs etc) and training of staff\. needs modernization to add value\. External Audit It is not expected that the Audit report will MOHS had previously submitted M be late, but to ensure its timely submission, their audit reports on time\. the selection of independent auditors would be an effectiveness condition\. Information Systems Accounting system at MOHS is not MOHS will be assisted to computerize its - 60 - computerized\. accounting system\. All reports are done manually with S the help of spreadsheet\. Overall Control Risk\. M MOHS Accounting System 35\. MOHS has previous experience in the management of Bank funded project and is presently managing the Integrated Health Sector Investment Project (IHSIP)\. The financial management arrangement under this project will be strengthened and used to manage this new project\. The Director of Finance has overall responsibility for financial management in the MOHS, and will extend to the new project\. He is assisted by two key deputies; a deputy responsible for management accounting and a manager in charge of financial accounting\. The Director and his assistants are professionally qualified accountants with several years of experience and are presently responsible for the on-going IHSIP\. 36\. In addition to these three key staff, the finance division has a pool of accounting staff, mostly from the controller and accountant general's department, with varying levels of qualifications, including H1ND, and degree holders\. 37\. The MOHS will operate a cash accounting system in line with GOSL accounting practices, with additional information on all outstanding commitments at any point in time\. The finance division will operate a centralized payment system at the head office\. All major payments under the projects will be processed and paid for at the head office, with provisional offices' activities limited to the use of cash imprest for operating expenses\. The system and the procedures to be adopted will be reflected in the revised accounting manual which will detail out the administrative set up of the finance division, the accounting system of the MOHS, job description of the staff and the budgeting arrangements\. 38\. The accounting system is manually maintained, with the aid of spread sheets and other manual record books\. The Ministry has indicated its willingness to computerize its system\. The project will provide some resources to help the Ministry undertake this task\. The Bank will review the TOR for the assignment, and advise the ministry to have an effective computerized system for its accounting and financial functions\. Funds Flow Arrangements 39\. It has been agreed that the funds under the project will be centrally managed, and all major payments will be effected from the head office\. However there will be some funds sent to the participating provinces for their operating activities\. There will therefore be no elaborate flow of funds arrangements under the project, and releases will only be limited to monthly or quarterly imprest cash allocations\. 40\. Based on the provinces operating cost budget for activities under the project, the center will release funds from the project accounts (i\.e counterpart funds allocated to the project) to each province to meet its operating cost activities for a quarter\. The quarter funds will become the ceiling of the imprest for the province\. 41\. The provinces will submit monthly returns to the head office, for any amount spent for re-imbursement\. The monthly returns will consist of statement of all eligible expenditures, a - 61 - reconciliation statement fully reconciled with the original amount received, and a copy of the bank statement\. The statements should be reviewed and signed by the head of MOHS at the province and the accounts officer\. The head office finance division will review the statements to ensure that all listed expenditures are eligible, and reimburse the province for all eligible expenditures\. Auditing Arrangements 42\. Independent and qualified auditors acceptable to the Bank would carry out the audit of the project\. The selection of auditors shall be on competitive basis in accordance with the Bank's guidelines and would be in place by effectiveness of the project\. There will be one audit required under this project\. 43\. The project financial statements, SOEs and the special account would be audited by the selected independent auditors\. The auditors' reports and opinions in respect of each of these statements of accounts would be furnished to the World Bank within six months of the close of each fiscal year\. Auditors will be expected to comment on the reliability of the FMRs which have been prepared by project management in each particular year and whether they are supported by the underlying records\. Financial Monitoring Reports 44\. The Bank has introduced a new initiative, the Financial Management Imtiative (FINMI)\. FNOMI requires projects to prepare quarterly financial monitoring reports (FMRs) in the areas of finance, procurements including contract details and project progress\. 45\. These FMRs which will be prepared on quarterly basis and submitted to the Bank, will consist of; i) sources and uses of funds; ii) uses of funds by project components and activities; iii) contract monitoring reports; iv) Procurement report; v) Physical progress; 46\. The contents and formats of these reports were discussed and agreed during appraisal were part of the documents for negotiations\. Although the MOHS is capable of producing such reports manually, steps were taken to automate it to make the data more reliable and acceptable\. The chart of accounts and coding system to be put in place allows a meaningful summarization of transaction and consequently provide these reports\. Disbursement Arrangements 47\. The proceeds of the Project would be disbursed over a four year period\. A period of four months after closing date would be allowed to make disbursements for expenditures incurred until the closing date of the Project\. Use of Statement Of Expenditures (SOEs) 48\. Disbursements for all expenditures would be against full documentation, except for items of expenditures under contracts and purchase orders below US$ 100,000 equivalent each, for works, goods and consulting firms, and US$ 50,000 for consultant services (individuals), training and incremental costs for which disbursements would be based on statement of expenditures (SOEs)\. Supporting - 62 - documentation for SOEs would be retained by the MOHS and where applicable its district health offices of the Government of Sierra Leone for review by IDA missions and external auditors\. Special Account (SA) 49\. To facilitate disbursements, one Special Account for the Ministry of Health and Sanitation would be established and operated in US$ at a commercial bank, under terms and conditions satisfactory to the IDA\. Upon Project effectiveness, a sum of US$ 500,000 would be deposited by the IDA into this account\. Further deposits would be made into the account against withdrawal applications supported by appropriate documentation\. Action Plan Pre-Negotiations Actions Action Step Due Date Responsibility or Action Action By Completed 1\. Agree on TOR for revising the MOHS October 2, 2002 Director of Finance Yes-Action Accounting Manual (DOF) -MOHS Completed 2\. Consultant to revise Manual hired October 7, 2002 DOF -MOHS Yes-Done Oct\. 3, 2002 3\. Oraft revised Manual submitted to the November 5, 2002 DOF - MOHS Yes MOHS 4\. Draft revised Manual submitted to the November 10, 2002 DOF - MOHS Yes World Bank Nov\. 13, 2002 5\. World Bank review comments sent to November 15, 2002 FMS - AFTFM Yes MOHS Nov\. 22, 2002 6\. Finalized Revised Manual submitted to November 22, 2002 DOF - MOHS Yes MOHS Nov\. 25, 2002 7\. RFP for the selection of Auditors submitted October 5, 2002 DOF - MOHS Yes to the Bank Oct\. 15, 2002 8\. Auditors selected November 29, 2002 DOF - MOHS 9 Agree on Formats and Contents of October 11, 2002 WB (TTL) and Yes Financial Monitoring Reports (FMR) MOHS (DOF) Oct\. 15, 2002 - 63 - Other Actions Required Action Step Due Date Responsibility or Date Action Action By Completed 10\. TOR for Computerization of MOHS October 21, 2002 DOF - MOHS Completed accounting system agreed 11\. RFP for Computerization of accounting October 28, 2002 DOF - MOHS Completed, Bank system submitted to Bank\. has issued its No s_ Objection 12\. Bank issues its No Objection on RFP\. November 1, 2002 TTL Completed Jan\. 22, 2002 13\. MOHS request for Proposals from Short January 27, 2002 DOF - MOHS NYD listed firms\. 14\. OHS Evaluates Technical Proposals February 10, 2002 DOF - MOHS NYD om firms and evaluati on report submitted to the Bank\. 15\. Bank's No Objection issued to MOHS\. February 17, 2002 TTL NYD 16\. MOHS Evaluates financial Proposals, February 26, 2003 DOF - MOHS NYD negotiates with the combined 1st (top) anked firm and submits evaluation report lus minutes of negotiations and draft ontract to Bank for No Objection 17\. Bank issues No Objection for award and March 1, 2003\. TTL NYD signing of contract\. -64- Annex 7: Project Processing Schedule SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Time taken to prepare the project (months) 15 First Bank mission (identification) 10/18/2001 10/18/2001 Appraisal mission departure 09/22/2002 11/06/2002 Negotiations 10/22/2002 12/02/2002 Planned Date of Effectiveness 01/15/2002 Prepared by: Ministry of Health and Sanitation (MOHS) Preparation assistance: A PHRD Grant (TF026871 and TF026794) from the Japanese Government of US$ 400,000 was received and used for consulting services to conduct studies such as: (a) Social Assessment; (b) Project Implementation Plan/Operational Manual; (c) Environmental Assessment; (d) Public Expenditures Review for the Health Sector; (e) Health Facility Inventory; (f) Health Sector Priority Issues and Strategic Approaches; (g) Human Resources Assessment; (h) Update of the Health Sector Policy; (i) National and District Health Plans and a Three-Year-Rolling Plan\. This grant was of particular importance as it provided the resources to quickly launch essential studies and activities necessary for project design and preparation\. All planned outputs were completed and consulting performance was successful\. Reports produced were of good quality\. Bank staff who worked on the project included: Name Speciality Astrid Helgeland-Lawson Task Team Leader Minneh Kane Legal Advisor Kofi Awanyo Procurement Specialist Fred Yankey Financial Management Specialist Lawrence Barat Infectious Disease Specialist Barbara B\. Machado Language Program Assistant Sheila Braka-Musume Legal Advisor David Webber Sr\. Financial Management Specialist Roxanne Hakim Anthropologist Irene Xenakis Operations Advisor John May Sr\. Reproductive Health Specialist Sergiu Luculescu Consultant - Public Health Specialist Peter Bacharach Consultant - Planning Specialist Christian Hurtado Consultant - Implementation Specialist Jo Martins Consultant - Economist John Tommy Consultant - Environmental Health Specialist Haddy Jatou Sey Consultant - Anthropologist - 65 - James Monday Consultant - Resettlement Policy/Sanitation Anne M\. Pierre-Louis Lead Health Specialist -66- Annex 8: Documents in the Project File* SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT A\. Project Implementation Plan 1\. Identification Mission Aide Memoire, May 2001\. 2\. Preparation Mission Aide Memoire, October 2001\. 3 Pre-appraisal Mission Aide Memoire, April 2002\. 4\. Technical Mission Aide-Memoire, October 2002\. 4\. Draft Project Implementation Plan, April 2002\. B\. Bank Staff Assessments 1\. Financial Management Assessment Reports (2002) 2\. Procurement Capacity Assessment (2002) C\. Other Social Assessment on Health in Sierra Leone (2002) Sierra Leone: Health Sector Environmental Assessment (2002) Sierra Leone: Public Expenditures Review (2002) Survey Report on the Status of Women and Children in Sierra Leone at the End of the Decade (2002-MICSII) Sierra Leone Resettlement Policy Framework (2002) HSRDP Project Implementation Plan (2002) Institutional Capacity (DIFD) (2002) Draft Health Facility Inventory (2002) Draft Human Resources Assessment (2002) Draft Health Sector Policy (2002) MICS 11 (2002) *Including electronic files - 67 - Annex 9: Statement of Loans and Credits SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT 12-Dec-2002 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Ong Frm Rev'd P074642 2002 ERRC II 000 50 00 0 00 000 000 2330 -1016 000 P073883 2002 HIV/AIDS RESPONSE PROJECT 000 1500 0 00 000 0 00 1614 103 000 P070201 2001 Second Public Sector Management Support 000 350 000 000 000 228 090 000 P040649 2000 COMMUNITY REINTEGRATION & REHABILrrA 000 2500 0 00 000 000 34 77 1 11 000 P002420 1996 TRANSPORT SECTOR PRO 000 3500 0 00 000 000 449 778 2 39 P002422 1996 HEALTH SECTOR 000 2000 0 00 000 000 033 2 44 -678 P002428 1995 URBAN WATER SUPPLY 000 36 00 0 00 000 000 014 329 000 Total 000 18450 000 000 000 8145 6 39 -4 39 SIERRA LEONE STATEMENT OF IFC's Held and Disbursed Portfolio Jun 30 - 2002 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2001 MSICIH II Sierra 4\.00 0\.00 0\.00 0\.00 0\.00 000 0\.00 0\.00 Total Portfolio: 4\.00 0\.00 0\.00 000 0\.00 0\.00 0\.00 0\.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Comnutment: 0\.00 0\.00 0\.00 0\.00 - 68 - Annex 10: Country at a Glance SIERRA LEONE: HEALTH SECTOR RECONSTRUCTION AND DEVELOPMENT PROJECT Sub- POVERTY and SOCIAL Sierra Saharan Low- Leone Africa Income Development dlamond* 2001 Population, mid-year (millions) 5 1 674 2,511 Life expectancy GNI per capita (Atlas method, US$) 130 470 430 GNI (Atlas method, US$ billions) 068 317 1,069 Average annual growth, 1995-01 Population (%) 22 25 19 Labor force (%) 23 26 23 GNI Gross per pnmary Most recent estimate (latest year available, 1995-01) capita ' ,' enrollment Poverty (% of population below national poverty line) Urban population (% of total population) 37 32 31 Life expectancy at birth (years) 39 47 59 - Infant mortality (per 1,000 live births) 154 91 76 Child malnutrition (% of children under 5) Access to Improved water source Access to an improved water source (% of population) 28 55 76 Illiteracy (% of population age 15+) 37 37 Gross pnmary enrollment (% of school-age population) 52 78 96 Sierra Leone Male 61 85 103 - -- - Low-income group Female 42 72 88 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981 1991 2000 2001 Economic ratios GDP (US$ billions) 1 1 078 064 068 Gross domestic Investment/GDP 19 1 9 3 8 0 7 9 Trade Exports of goods and services/GDP 230 227 173 171 Gross domestic savIngs/GDP 8 5 -8 4 -12 3 Gross national savings/GDP 5 0 -1 8 -7 6 Current account balance/GDP -166 -12 -107 -172 Domestic , interest payments/GDP 09 012 1 1 savings Investment Total debt/GDP 530 1545 184\.9 1736 Total debt sevice/exports 421 63 382 639 Present value of debt/GDP 1249 1095 Present value of debtlexports 709 3 625 0 Indebtedness 1981-91 1991-01 2000 2001 2001-05 (average annual growth) GDP 04 -43 38 5\.4 66 - Sierra Leone GDP per capita -17 -65 18 31 43 Low-income group Exports of goods and services 05 -348 70 132 221 STRUCTURE of the ECONOMY 1981 1991 2000 2001 Growth of Investment and GDP (%) (% of GDP) lo Agriculture 343 451 473 501 Industry 182 277 336 298 o Manufacturing 57 37 47 50 96 00 01 Services 475 272 190 201 -lo 2 Pnvate consumption 907 81 9 938 951 -20 General govemment consumption 70 96 146 172 _GDI GDP Imports of goods and services 397 236 334 373 1 (average annual growth) 1981-91 1991-01 2000 2001 Growth of exports and imports (%) Agnculture -06 -26 22 38 100 Industry 01 -41 51 56 so Manufacturing 6 9 Services -57 -54 40 51 o oo Pnvate consumption -20 -19 104 100 -so General govemment consumption -5 1 - 2 41 3 27 9 -1oo Gross domestic investment -0 6 3 0 5 0 - Exports rirports Imports of goods and services -22 -15 1 850 61 3 Note 2001 data are preliminary estimates The diamonds show four key indicators in the country (in bold) compared with its income-group average It data are missing, the diamond will be incomplete - 69 - Sierra Leone PRICES and GOVERNMENT FINANCE Domestic prices 1981 1991 2000 2001 Inflation (%) (% change) Consumer prices 167 1027 -09 30 30 Implicit GDP deflator 87 1288 62 6 1 20 Government finance 1o (% of GOP, includes current grants) 0 , Current revenue 112 182 178 -10 96 97 98 99 00 01 Current budget balance -58 -45 -7 1 - GDP deflator ' CPl Overall surplus/deficit -104 -106 -123 1 TRADE (US$ millions) 1981 1991 2000 2001 Export and Import levels (US$ mill\.) Total exports (fob) 147 176 75 78 40 Rutile 72 Diamonds (recorded) 32 10 21 3W Manufactures Total imports (cif) 317 158 161 303 20 Food 53 66 72 100 Fuel and energy 26 29 36 Capital goods 38 18 22 0 14 \. 1 il \. Export pnice Index (1995= 10O) 90 86 87 as or 9 a as on 01 Import price index (1995=100) 93 93 92 0 Exports CIrnports Terms of trade (1995=100) 97 93 94 BALANCE of PAYMENTS (US$ millions) 1981 1991 2000 2001 Current account balance to GDP (%) Exports of goods and services 163 244 110 116 o :7 Imports of goods and services 349 226 212 252 Resource balance -186 18 -102 -137 Net Income -28 -60 -18 - Net current transfers 29 34 52 40 -1o Current account balance -185 -9 -68 -117 Financing Items (net) 116 9 91 140 Changes In net reserves 69 1 -23 -24 20- Memo: Reserves Including gold (US$ millions) 16 10 44 52 Conversion rate (DEC, local/US) 1\.2 2953 2\.0921 2,2000 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ millions) Compoaltlon of 2001 debt (USS mIll\.) Total debt outstanding and disbursed 591 1,205 1,176 1,174 IBRO 13 10 0 0 F 6 G 30 IDA 31 81 354 552 Total debt service 69 15 43 76 IBRD 2 1 0 0 E 362 IDA 0 1 4 5 Composition of net resource flows Official grants 41 34 53 73 Official creditors 18 14 89 113 Private creditors 12 0 0 -1 Foreign direct investment 4 3 2 2 D 1047 Portfolio equity 0 0 0 0 C 120 World Bank program Commitments 29 0 55 54 A - IBRD E - Blateral Disbursements 2 0 70 70 B - IDA D - Other ruItiateral F - Pavate Principal repayments 1 0 2 2 C - IMF G - Short-term Net flows 1 0 68 67 Interest payments 1 1 2 3 Net transfers 0 -1 66 65 ueveiU"menz conomics - -70 - IBRD 32088 rhis map was produced by the 12' Map Design Umit of The World Bank G U \ N E A The boundaries, colors,denommaions -- --- ------- 10° and anyother information shownon this map do not imply, on the part of The World Bank Group, any judgment Falaba on the legalstatus of any terrftory,or any endorsement or acceptance of such boundaries Kabala G U l N E A 0Kamnakwe Fodugu K OI A D U G U ForécarhKamaron Kanta - Pendembu Man umbuna lo\ Worod a M~Paken\., B ardu \. T s ) o P O R T LK,, ó Aagburaka 0Bkd 1 "" , -\._~\.*- ~a's , a 1\. qnbt K 0 N o inod HEALTH \.Sefadu S CT\.Nr -DV T ON K PlM E l Jalama ,Guéckédou -- ETOWN- Ha \.5ýt 1 9o - ,~ «'- ea id\. T WnkS Vom lama A RE A R \.a\.nna Keni P-oy amba Panguma Kailahun @n! Dodoo 0 KA AH U N \. - Pend u' MO 0YA M BABO KENEMA :se ha 8- Kenemna - -EN•INqUNJoru -----k' omal, BON THEb C - Pulehur\.- --\. \. 2a r PSUJEEEHE N2 7 SIERRA L-EON E7 HEALTH SECTORIRECONSTRUCTION AND DEVELOPMENT-PROJECTNEA - ~m A Li -- RVED POAD5: - 0 SELECTED -CiTlES AND TOvWNS - GUlN EA{ c- DIsTRICT CAPIiAL A TL A NTI C NANTIGNAL CAFITAL\. SIERRA 0 C EÅA N lEONE -DISTRKCT BIDUNDARIES C 6T E INTER \.NATIO:NAL BOUNDARIES \.'VOR OCANl SEPTEMBER 2002 一．-，馴－～吃奮屆認合目  WMAGNG Report No\., 24217 SL Type: PAD

APPROVAL

P000684

Docuwnt of The World Bank FOR OFFICIAL USE ONLY Report No\. 6165 PROJECT PERFORMANCE AUDIT REPORT ETHIOPIA FIFTH TELECOMMUNICATIONS PROJECT (CREDITS 453-ET AND 554-ET) April 30, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Itu contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS AND ACRONYMS USED DELs - Direct Exchange Lines ETA - Ethiopian Telecommunications Authority HF, VHF, UHF - High frequency radio system between 3-3 MHZ; very high frequency between 30-300 MHz; and ultra high frequency beyond 300 MHZ STD - Subscriber Trunk (Long Distance) Dialing ITU - International Telecommunication Union UNDP - United Nations Developnent Programme PT&P - Posts, Telephone and Telegraph IDA - International Development Association PANAFTEL - Pan African Telecommunications THE WORLD BANK FOR OFFICIAL USE ONLY Washington\. D\.C\. 2J433 U\.S\.A\. Ohee of Dorector*Cmneral Operatans Ivavuatn April 30, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Ethiopia: Fifth Telecommunications Project (Credits 453-ET and 554-ET) Attached, for information, is a copy of a report entitled "Projeci; Performance Audit Report on Ethiopia: Fifth Telecommunications Project (Credits 453-ET and 554-ET)" prepared by the Operations Evaluu,\.ion Department\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwi3e be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ETRIOPIA FIFTH TELECONUNICATIONS PROJECT (CREDITS 453-ET AND 554-ET) TABLE OF GONTENTS Page No\. Preface \. \. \. \. 1 Basic Data Sheet \. \. ii Evaluation Summary \.,\. v PROJECT PERFORMANCE AUDIT MEMORANDUM I\. PROJECT SUMMARY \. 1 Background \. Objectives \. 2 Project Description \. 2 Project Revision and Implementation \. 3 Procurement \. 3 Project Costa \. 3 Performance of Consultants, Contractor and Suppliers \. 4 Institutional Performance \. 4 Financial and Economic Performance \. 5 II\. MAIN ISSUES AND SUPPLEMENTARY COMMENTS \. 6 Procurement \. 6 Project Implementation and Revision \. 8 Supply and Demand \. 8 Performance of the Bank \. 9 Use of Consultants \. 9 Institutional Development \. 10 Benefits Resulting from the Project and Sustainability \. 10 III\. CONCLUSIONS \. 11 Attachment A: Comments from the Ethiopian Telecomunications Authority \. \. 15 Attachment B: Comments from the Ministry of Transport and Communications \. 21 This document has a restricted distribution and may be umed by recipients only in the performance of their oficial dul is\. Its contents may not othrwise be disclosed without World bank authorization\. TABLE OF CONTENTS (continued) Page No\. PROJECT COMPLETION REPORT I* Introduction \. \. \. \. 26 II\. Project Preparation aid Appraisal \. 26 III\. Project Implementation \. 28 IV\. Operating Performance \.a\. 33 V \. Financial Performance \., 35 VI\. Institutional Performance \. 38 VII\. Project Justification \. 40 VIII\. Bank Performance \.,,\. 42 Ix\. Conclusions **\.***************************** 43 ANNEXES: 1\. Compliance with Covenants of Project and Development Credit Agreements \. 45 2\. Project Revisions \. 46 3\. Project Implementation Schedule \. 48 4\. Procurement Detetl \.*\.a\.***\.********* 49 5\. Project Costs ***********************\. 51 6\. Cumulative Disbursements \. 52 7\. Allocation of Disbursement Categories \. 53 8\. Statistical Data \. \. \. \. 54 9\. Income Statement \. 55 10\. Balance Sheet \.*\.********\. 56 11\. Funds Flow Statements \. 57 12\. Training Statistics During 1975-1983 \. 58 13\. Summary of Principal Telecommunications Tariffs \. 59 14\. Financial Rate of Return \. 61 15\. Economic Rate of Return \.*************************,\. 62 PROJECT PERFORMANCE AUDIT REPORT ETRIOrIA FIFTH TELECOMMUNICATIONS PROJECT (CREDITS 453-ET AND 554-ET) PREFACE rhis report presents the results of a performance audit of the Fifth Telecommunications Project in Ethiopia for which Credit 453-ET of US$21\.4 million was approved in November 1973 and Credit 554-ET for US$16\.0 million was approved in May 1975\. The project consisted of the Ethiopian Telecommunications Authority (ETA)l/ 1974 to 1978 development program which had to be financed in two phases due to the limitation on IDA funds available in 1973\. It has, however, been treated as an integrated project for comple- tion report and audit purposes\. The Bank Groups' first separate lending for telecommunications deve\.opment was to the Government of Ethiopia in 1951\. Since that time, a suessful and rewarding relationship has been established between the Bank and ETA, with the development of a modern and efficient telecommunications network replacing one consisting largely of antiquated equipment\. Further major extension of facilities is, however, still necessary\. During its association with the Bank, ETA has developed into a mature and efficient organixation which can be compared favorably with those in most other developing countries\. ETA is well able to efficiently plan, expand and operate its telecommunication facilities\. It has also developed excellent training school facilities\. After the completion of four successful projects, the Development Credit Agreement for the first phase of the Fifth Development Program (Credit 453-ET) was signed in January 1974 and that for the second phase (Credit 554-ET), in June 1975\. Funds were, in each case, made available by Government to ETA undet Subsidiary Loan/Project Agreements\. The original closing date for Credit 453-ET was June 30, 1979, with an actual closing date, after extension, of June 30, 1981\. Credit 554-ET was due to close on June 30, 1980, but after three extensions, due largely to circumstances beyond ETA's control, finally closed on June 30, 1983\. The amount of US$4\.03 million was cancelled from the first credit due to the Bank failing to agree 1/ During the period of project execution, the entity has been variously titled the Imperial Board of Telecommunications of Ethiopia (IBTE), the Board of Telecommunications of Ethiopia (BTE), the Telecommunications Service of Ethiopia (TSE), and the Ethiopian Telecommunications Authority (ETA)\. on ETA's proposed contract award for provision of a satellite earth station\. The balances of both credits were fully disbursed\. Credit 1509-ET, in the amount of SDR$38\.7 million to finance part of the foreign exchange cost of ETA's sixth development program, became effective on March 13, 1985\. The Project Performance Audit Report (PPAR) consists of a Project Performance Audit Memorandum (PPAM), prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR), dated June 28, 1985 and prepared by the Bank's Industry Department\. Preparation of the PCR was, to a considerable extent, based on a report provided by ETA\. OED has reviewed the PCR, ETA's report, the Appraisal and President's Reports, the legal documents and Board transcripts\. Documents in the Bank Group files have also been reviewed, as have a number of procurement documents\. Staff presently dealing with the project have been interviewed\. The audit finds that, in most respects, the PCR accurately describes the project experience in sufficient detail to support the lessons and conclusions reached\. Some additional comment, based on files and documents research, has been made regarding the procurement problems in connection with\. the microwave system and the satellite earth station which, in the latter case, created rather difficult relations between the Borrower and the Bank for a time\. Otherwise, the PPAM largely summarizes and attempts not to repeat the details provided in the PCR\. Additionally, however, it does comment on supply and demand, the performance of the Bank Group and sox of the problems ETA faced during project execution, use of consultants, institutional developments and the benefits resulting from the project and their sustainability\. Following standard OED procedures, copies of the draft PPAR were sent to the Government and ETA for comments\. Replies have been received from the Ministry of Transport and Communications and ETA and are included as Attachments A and B\. ETA made two minor suggestions for amendment and revision of the PPAM which have been incorporated in the report\. Addition- ally, they have co-mented at length on the major issue which rose between the Bank and ETA during the execution of the project, namely that of procurement of the Earth Satellite Station\. Whilst ETA's strong views in this matter are understandable, this matter was carefully reviewed during the audit and it is not felt that any change in the audits findings is justified, particularly as the audit accepts and actually states that there were extenuating circum- stances leading to ETA's decision to place the award, without the Bank's approval, at a higher price than the low bid (PPAM, paras\. 24 to 27, 57 and 60)\. The detailed points made by ETA, in their letter have been dealt with in OED footnotes to their letter\. The Ministry of Transport and Communica- tions has also made a number of comments on the report\. Certain of their suggestions have )een incorporated in the PPAM but do not significantly change the findings of the audit\. The points made by the Ministry have also been dealt with in footnotes to their letter\. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ETHIOPIA FIFTH TELECOMMUNICATIONS PROJECT (CREDITS 453-ET AND 554-ET) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Estimate Current Estimate Total Project Cost (US$ million) 60\.64 62\.47 Credit Amount (US$ million) 37\.40 37\.40 Disbursed 33\.37 33\.37 Cancelled - 4\.03 Project Completion Date 12/31/78 06/30/83 Percent of Project Completed at Original Completion Date (Estimated) - 30% Time Overrun (mos\.) - 54 Economic Rate of Return (%) 13 17 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (See also PCR, Annex 6) (US$ million) FY79 FY80 FY81 FY82 FY83 (i) Appraisal 37\.4 37\.4 37\.4 37\.4 37\.4 (ii) Actdal 19\.9 25\.7 30\.8 31\.4 33\.4 /a (iii) Actual as % of Appraisal 53 69 82 84 89 OTHER PROJECT bA Original Date Actual Date Cr\.T53 r\.-554 Cr\. 453 Cr\. 554 First Mention in Files February 1972 February 1972 Appraisal 11/72 09/74 01 & 07/73 09/74 Negotiations 08/73 04/75 08/13-21/73 04/75 Board Approval 11/20/73 05/06/75 11/20/73 05/06/75 Credit Agreement Dates - - 01/17/74 06/04/75 Effectiveness Dates 03/31/74 09/30/75 09/23/74 08/26/75 Closing Dates 06/30/79 06/30/80 06/30/81 / 06/30/83/c Final Disbursements - - 01/30/81 11/09/83 Borrower Government of Ethiopia Executing Agency Ethiopian Telecommunications Authority Fiscal Year of Borrower July 1 - June 30 Follow-on: Project Name Ethiopia: Sixth Telecommunications Project Credit Number 1509-ET Credit Amount SDR 38\.7 million Date of Approval 07/19/84 /a US$4\.03 million cancelled\. 7T Final disbursement was on 01/03/81\. 7c Final disbursement was on 11/09/83\. - iv - BASIC DATA SHEET MISSION DATA No\. of Month/ No\. of No\. of Man- Date of Year Weeks Persons weeks Report Appraisal (Cr\. 453) 01/73 2\.0 2 4\.0 ) 10/05/73 07/73 /a 1\.0 2 2\.0 ) Appraisal (Cr\. 554) 09/74 2\.0 2 4\.0 04/18/75 Supervision I 11/75 1\.0 1 1\.0 12/19/75 Supervision II 11/76 1\.0 1 1\.0 12/29/76 Supervision III 05/78 1\.6 2 3\.2 08/11/78 Supervision IV 02/79 1\.4 2 2\.8 04/06/79 Supervision V 03/80 1\.0 1 1\.0 06/06/80 Supervision VI 09/80 1\.0 1 1\.0 01/05/81 Supervision VII 06/81 1\.1 1 1\.1 10/16/81 Supervision VIII 09/82 0\.3 2 0\.6 11/30/82 Supervision IX /b 06/83 0\.5 3 1\.5 04/07/84 COUNTRY EXCHANGE RATE Name of Currency Birr Exchange Rate: Appraisal year average US$1 - 2\.07 Birr Intervening year average US$1 - 2\.07 Birr Completion year average US$1 - 2\.07 Sirr /a A second visit was made to subdivide the project into two tranches for financing purposes\. /b Included appraisal of the follow-on project\. PROJECT PERFORMANCE AUDIT REPORT ETHIOPIA FIFTH TELECOMMUNICATIONS PROJECT (CREDITS 453-ET AND 554-ET) EVALUATION SUMMARY Introduction i\. The project was a continuing part of the development by ETA of Ethiopia's telecommunications networks which started with the Bank Group's first lending operation for this sector in 1951 and has continued through to the sixth program which is now under execution\. The project consisted of the fifth program for the 1974 to 1978 period\. Although much remains to be done in extending service to new areas and more adequately meeting demand in existing areas, the Bank Group's association with ETA has been most rewarding both in relation to development of facilities and the institution building process (PPAM, paras\. 1-3)\. The Project and Its Objectives ii\. The project's physical objectives were to increase the number of telephone subscribers by 44,500, improve long distance services through the installation of microwave systems, provide a satellite earth station for international communications, extend service into new areas and to modernize and extend the public telegraph and telex networks\. Institutional aims included improvements in the planning organization, improved lines of communication, decentralization of customer service activities, reorganization of the finance and supply section, and extension of the training school facilities\. (PPAM, paras\.4-6; SAR, paras\. 3\.02 and 5\.01-5\.09; PCR, paras\. 2\.03 and 6\.01-6\.05)\. Implementation Experience iII\. The project's targets were substantially achieved, although with some rearrangement and a delay of nearly four years caused largely by the prevailing conditions in parts of the country (para\. iv)\. By June 30, 1983, the final revised closing date, 43,000 subscriber lines had been prvvided, 3% short of the target; the microwave systems had been provided (on different routings); the telegraph and telex networks had been improved and expanded; the satellite earth station has been completed; and telephone service extended to 1361/ previous y unserviced rural areas\. By the time the project was completed, how ver, the registered waiting list for telephone service had increased to 291,000, (from 22,000 in 1980), indicative of the need for further development\. Project costs, expressed In US$, increased by 1/ This includes HF radio circuits\. - vi - 14% over the original appraisal estimates and by 3% over the estimates prepared when the second phase was reappraised\. Foreign exchange costs, in US dollars, increased by 6% over the original estimates\. Allowing for the effects of inflation, over the extended period of project execution, these increases are lower than might have been expected PPAM, paras\. 6, 7, 9, 11 and 42-45; (PCR, paras\. 3\.08 and 4\.01-4\.05 and Annex 8)\. iv\. One aspect of project experience peculiar to this project was that of undertaking country-wide development under the prevailing conditions in many areas\. There was also a considerable turnover of upper echelon staff\. Major reroutings of the proposed microwave system were necessary for security reasons\. It was extremely difficult to obtain civil works contractors or carry out works in parts of the country\. In order to effectively utilize equipment, local installations were relocated from one area to another, necessitating, in some cases, redesign of the installations and amendment of the contracts (PPAM, paras\. 8, 9, 15, 17 and 32; PCR, paras\. 3\.02-3\.03)\. Results v\. During the period of project execution (through Jure 30, 1983), there was an increase of 105% in local telephone subscribers, including in the 136 new areas; celegraph offices increased 41%; telex subscribers increased 125%; microwave channels increased 431%; long distance circuits increased 942%; and the satellite earth station had provided 56 high-quality international telephone and 77 international telex circuits\. Some of the increases must be attributed to the fourth project, but spare capacity provided under the fifth project also allows for future growth\. Customer service activities were decentralized, lines of communication improved, new planning and finance and supply organizations set up and the training facility extended with ITU assistance\. Tariffs were increased\. One negative aspect resulted from the Government's efforts to increase employment, causing ETA to recruit additional, including temporary, staff to its permanent establishment, thus initially lowering productivity\. As a good employer, ETA endeavored to mitigate the effects of the staff increases by training\. The number of staff per 1,000 telephones was reduced from 56 in 1980 to 46 in 1983, but this was still in excess of the appraisal target ratio of 38 (Supervision Summaries; PCR, paras\. 6\.02-6\.04, 6\.06-6\.08 and Annex 8)\. Sustainability vi\. As the life of telecommunications plant and equipment ranges from 5 to 50 years and averages about 15 to 20 years, and, as in many cases, spare capacity was provided for future growth, physical benefits - both service and financial - are likely to be sustained and should, in fact, increase over the life of the equipment\. The economic rate of return was recalculated on project completion as 16\.6% and, given the spare capacity and the future higher usage of installed facilities, this should be sustained and is also likely to increase\. The institutional benefits should be sustained and result in continuing improvements in efficiency\. The fact that ETA was able -vii - to carry out the project under very difficult circumstances, and with a considerable loss of senior staff, is a clear indication of the flexibility of a well-developed organization\. The benefits of expansion of training will also continue into the future (PPAM, paras\. 15, 17, 18, 40 and 45; PCR, para\. 7\.05)\. Findings and Lessons vii\. The general finding of this audit is that, given the rather special circumstances, the project was executed in a very satisfactory manner\. All main targets were achieved, albeit with considerable delays and some on a revised, or relocated basis\. The institutional targets, together with the expansion of training facilities, met the project objectives\. Having said this, the increased waiting list for service by the time the project was completed (para\. iii) demonstrates an urgent need for expanded and expeditious development, if the communication needs of the eccnomy and efficient administration are to be met\. It is hoped that the sixth program, now under execution, will not be delayed and will substantially meet these needs as planned (PPAM, paras\. 9, 40 and 44)\. viii\. Two aspects of the project experience where there were protracted differences cf opinion between the Bank and ETA involved procurement of: (a) the microwave system; and (b) the earth satellite station\. In the case of the microwave system, these were resolved on the basis of the interpretation of the date of the decision to notify the award\. The Bank still suggested, however, and ETA in fact considered and rejected in favor of other technical factors, that advantage might be taken of the change in currency parities (PPA14, paras\. 10 and 23-28; File Research; PCR, para\. 3\.07)\. ix\. In the case of the satellite earth station, the audit examination finds, based on the ETA consultants' recommendations and the Bank's own research into the matter, that the Bank operated correctly under its procurement guidelines and operational manual in refusing to approve ETA'3 proposed award\. When a state of impasse was reached in direct discussions and correepondence with both ETA and Government, the Bank offered four reasonabl\. alternatives for solution of the problem\. ETA went ahead and placed the order in accordance with its original intent, however, using alternative tlsancIng, and the Bank cancelled US$4\.03 of the first credit\. While this must be regarded as misprocurement, it seems, in retrospect, that ETA had some justification for their concern regarding their consultants' evaluation, the exclusion of operating costs from the evaluation and the possible problems they might face if they accepted the low biu (PPAM, paras\. 10 and 24-28; PCR, para\. 3\.06)\. In their letters commenting on this audit both the Ministry of Transport and Communications and ETA contest the conclusion that misprocurement took place (Attachments A and B)\. The matter has been carefully reviewed; however the original conclusions are maintained\. x\. The achievements of ETA in satisfactorily completing the project and attaining the main objectives under difficult conditions is considerable\. With the exception of the disputes over procurement, a good working relationship was maintained with the Bank (PCR para\. 8\.06)\. - viii - xi\. The Bank, on its part, contributed to successful implementation by being flexible in accepting adjusLaents to the project to allow effective use of available funds and equipment\. It also provided sound advice and assis- tance not only in connection with proj'ct execution, but also in institution building and development of training facilities\. The closeness of physical achievements (subject to the delays and relocations), financial results and project expenditures to the appraisal estimates is\. significant evidence of excellent appraisals for the two credits\. One criticism which can be made is that project supervision based on an average of one visit a year, sometimes by only the financial analyst or the engineer, was inadequate\. File research indicates, however, that on a number of occasions when the Bank proposed missions, ETA asked for these to be deferred\. The Bank was justifiably firm and correct in dealing with the procurement issues, considering the information it had at the time (File Research; PCR paras\. 8\.01 to 8\.04; PPAM, paras\. 34-37)\. PROJECT PERFORMANCE AUDIT MEMORANDUM ETHIOPIA FIFTH TELECOMMUNICATIONS PROJECT (CREDITS 453-BT AND 554-T) 1\. PROJECT SUMMARY Background 1\. The Bank Group first became associated with Telecommunications Development in Ethiopia in 1951 when it financed the Government of Ethiopia/ Ministry of Post and Telecommunications First Project\. At the time of the first project, facilities consisted largely of open wire lines and equipment left over from the Italian occupation\. Over the years and including the projects covered by this audit, the Bank Group has made available a total of US$47\.1 million for telecommunications development in Ethiopia\. Additional foreign exchange financing has been obtained from SIDA (US$4\.5 million) and the Agricultural and Industrial Development Bank (US$4\.0 million)1/\. The ITU has assisted in the provision of training facilities (File Research)\. 2\. The project consisted of the fifth (1974-1978) telcommunications development program\. After this had been appraised, it became necessary, due to the limited availability of IDA funds, to finance the project in two tranches\. The first was financed under Credit 453-ET for US$23\.4 million, approved on November 20, 1973 and the second, under Credit 554-ET for US$16\.0 million, approved on May 6, 1975\. These credits were designed to finance the whole of the foreign exchange cost of the project\. (The amount of US$4\.03 million provided under the first credit, for a satellite earth station, was subsequently cancelled on grounds of misprocurement and funds from the Agricultural and Industrial Development Bank were used to finance this item\.) The project was appraised in January/July 1973, with reappraisal for the second tranche in September 1974\. Effectiveness of the first credit was delayed pending supply of the necessary legal opinions and approval of an increase in share capital\. This credit finally became effective after three extensions in September 1974\. The second credit became effective in August 1975 (File Research; PCR, para\. 2\.01 and Basic Data Sheet)\. 3\. As a requirement of the first loan in 1951, the then Imperial Board of Telecommunications (IBTE) was established as a government-owned commercial corporation with administrative and financial autonomy\. The Imperial Board of Telecommunications became the Board of Telecommunications (BTE) following the change in Government, then the Telecommunications Service of Ethiopia (TSE) and more recently, the Ethiopian Telecommunications Authority (ETA)\. 1/ These data exclude the Sixth Project\. - 2 - For the sake of clarity, all subsequent references in this report, irrespec- tive of date, are to ETA\. Organization of the operating entity on a com- mercial basis has facilitated effective expansion and operation of tele- communications facilities\. The basic organization, as originally introduced, has been little changed\. ETA now operates as a commercial entity under the control of its General Manager\. Direction of its operations is vested in a Board of Directors of which the Chairman is the Minister of Transport and Communications whose Ministry is responsible to Government for overall policy direction\. ETA is responsible for the provision and operation of all public telecommunication services in Ethiopia\. It was also initially responsible for the technical arrangements for the broadcasting service, but this responsibility has since 1977 been transferred to the Ministry of Information (File Research; PCR, paras\. 1\.01-1\.03)\. Objectives 4\. The principal physical objectives of the project were to expand the existing local telephone networks to meet more fully the demand for service; extend and improve long distance services through the provision of high capacity microwave systems; improve and extend services to secondary and rural areas via open wire lines, carrier and low capacity radio systems; expand, extend and modernize the public telegraph and telex services to meet demand;and provide increased and high quality international telecommunication facilities through the provision of a satellite earth station\. The institutional aims were for improvements in the Planning, Finance and Supply Departments, the streamlining of accounting procedures to reduce delays in submission of audited accounts, and the improvement of ETA's accounts receivable position (PCR, parjs\. 2\.02-2\.03; 6\.02-6\.03; SARs 163-ET and 717-ET for the fifth project)\. 5\. It was expected that ETA would generate internally almost all the local funds it required for the project (with about 1%, for interest during construction, being met by the government)\. ETA was expected also to make a net contribution to the government of about US$14 million for taxes and customs duties\. The Government was to obtain a further US$8 million from the on-lending of IDA funds to ETA at commercial rates\. ETA was expected to achieve an average rate of return on net fixed assets of about 7% increasing to 8% on project completion\. The expected internal financial rate of return on the project was estimated as 13\.5% (SAR 771-ET; PCR, para\. 5\.01)\. Project Description 6\. The principal elements of the project as appraised are listed in the PCR (para\. 2\.03)\. The expected achievements resulting from provision of these main items are dealt with in the preceding paragraph 4\. The original implementation schedule prepared at the time of the appraisal of the first credit anticipated completion by December 1978\. In the appraisal for the second credit, completion was anticipated by June 1979 (SAR 5875-ET for the sixth project; PCR, paras\. 2\.03 and 3\.03)\. 7\. The cost of the project was originally estimated at US$54\.9 equiva- lent with a foreign exchange component of US$35\.2\. At the time of the - 3- appraisal of the second credit, total cost was reassessed as US$60\.6 equiva- lent with a foreign exchange component of US$38\.8 (PCR, para\. 3\.08)\. Project Revision and Implementation 8\. While the major content and quatity of the installations to be made under the project remained substantially as proposed at appraisal, alterations were made in the routing of the microwave systems and in the location and size of local network installations\. Changes were also made in line with technical problems and technological advances\. The reasons for the changes in location and routing were the prevailing conditions and the difficulty (sometimes connected with the local conditions) in obtaining civil works/building contractors\. Consequent on the revision of the project, fairly limited changes in the allocation of credit proceeds among project categories were approved (File Research; PCR, para\. 3\.02, 3\.10 and Annex 2)\. 9\. By making appropriate adjustments to the project, it was possible to substantially achieve the physical targets\. Project completion slipped by nearly four years due partly to over-optimistic construction timetables and to coordination problems, but caused largely by the local conditions and civil works problems\. By June 30, 1983, the indicated completion date, local subscriber lines had increased from 41,000 to 84,000 (up 43,000 or 105%); the microwave systems had been completed (on different routings), and the microwave channels had been increased from 280 to 1,487; the telegraph and telex networks had been improved and expanded; the satellite earth station had provided 56 high-quality international telephone and 77 international telex circuits; and telephone service had been extended to 136 previously unserved secondary and rural areas\. By the time the project targets were met, however, the registered waiting list for telephone service had increased to 29,000 from (22,000 in 1980), indicative of the need for further develop- ment (PCR, paras\. 4\.01-4\.05 and Annex 8)\. Procurement 10\. Although procurement generally proceeded in a satisfactory manner in accordance with the Bank's Guidelines, there were problems as discussed in paras\. 23-29\. These included two cases where the Bank questioned the proposed award\. One, involving the satellite earth station, was of such seriousness that the Bank cancelled a portion of the first credit\. The other, involving procurement of the microwave system, was related to changes in currency parities, but was satisfactorily resolved on the basis of the date of the decision to notify the award (File Research; PCR, paras\. 3\.06-3\.07)\. Project Costs 11\. Project costs expressed in US$ increased by 14% over the original appraisal estimates and by 3% over the estimates prepared when the second phase was reappraised\. Foreign exchange costs in US$ increased by 6% over the original estimates\. Allowing for the effects of inflation over the extended period of project execution, these increases are lower than might have been expected\. Due to the delay in completion of the project, it would appear from the funds flow statement that ETA generated internally all the -4- local funds required for the project, including local cost increases\. The foreign exchange cost increase over original estimates was provided for when the second credit was appraised and the credit amount increased from US$10\.0 million to US$16\.0 million\. (PCR, para\. 3\.08 and Annex 11\.) 12\. Changes were made in the allocation of the credit proceeds in line with the revisions made to the project during execution (para\. 8)\. Increases in the cost of all categories (excluding the satellite earth station) were met from the contingency provision which proved adequate to meet the cost increases (PCR, para\. 3\.10)\. Performance of Consultants, Contractor and Suppliers 13\. Consultants were employed only for preparation of the bidding documents, evaluation and negotiation of the contract for the satellite earth station\. ETA found their services only partially satisfactory (paras\. 38 and 39; PCR, paras\. 3\.06 and 3\.11)\. 14\. International equipment suppliers performed in a satisfactory manner and met contract obligations with only a few minor delays\. The poor performance of local civil works and building contractors was a cause of part of the delay in project completion (PCR, para\. 3\.11)\. Institutional Performance 15\. One aspect of project experience peculiar to this project was that of undertaking countrywide development after the 1974 change in Government, with unsettled conditions in many areas\. The achievements of the ETA in satisfactorily completing and attaining the main project objectives under difficult conditions were considerable\. With the exception of the dispute over procurement of the satellite earth station, a good working relationship was maintained with the Bank which continued, under the project, to make contributions to the institution building process (paras\. 31 and 32)\. 16\. ETA has, over the years of association with the Bank (paras\. 1 and 3), developed an efficient organizational structure based on sound commercial practices\. During the period of project implementation, ETA set up a finance and supply section, reorganized its planning and programming procedures, and decentralized and improved its customer service facilities\. Continuing problems remain in the timely submission of audited financial statements and in improving the accounts receivable position\. There is also a need to extend computerization of activities and revise the organizational structure and information procedures in line with the growth in ETA's activities as noted in para\. 40 (PCR, paras\. 6\.02-6\.03 and 6\.08)\. 17\. For a period, after the change in government, ETA suffered major losses in its upper echelon staff\. This problem has now largely ceased\. It is commendable that ETA had the resilience to effectively continue both its development program and its operations despite these losses (para\. 32; PCR, paras\. 6\.03, 8\.03 and 9\.03; SAR 4584-ET for the sixth project)\. -5- 18\. ETA has operated its own staff training school which was set up with (ITU) International Telecommunications Union assistance\. Facilities were further improved and expanded during the period of execution of the project\. This was again done under an ITU project\. Suppliers also assisted in local training\. Overseas training was also arranged, in many cases at suppliers' factories (PCR, para\. 6\.07)\. 19\. Staff productivity did not improve in line with a target ratio of 38 staff per 1,000 telephones\. This was largely due to a requirement by Government that ETA increase its work force and place temporary employees on the permanent establishment\. This had social implications and was positive in extending employment (a desirable aim in a developing country), but it initially lowered efficiency\. As a good employer, ETA has endeavored to usefully employ their staff and militate against this problem by training these staff\. The number of staff per 1,000 telephones has, since 1980, fallen from 56 to 46 in 1983 (Supervision Summaries; PCR, paras\. 6\.06 and Annex 8)\. 20\. ETA complied with all covenants other than that which required them to submit audited accounts within six months\. The accounts receivable position remained a continuing problem (PCR, paras\. 5\.05, 5\.09, and 6\.10 and Annex 1)\. Financial and Economic Performance 21\. ETA's financial performance was satisfactory\. Operating revenues, prior to a tariff increase in 1980, were below appraisal estimates but expenses were also lower due to the delays in project execution\. The rate of return on net fixed assets averaged 12\.7% as against a covenanted 7% (8% after project cnmpletion)\. The operating ratio averaged 76\.7 as against the appraisal estimatLs of 78\.6%\. The current ratio averaged 2\.7 against an estimate of 2\.5\. The average debt equity ratio of 31\.7 was better than the appraised 54\.7 due to the delays in project completion\. Debt service cover- age averaging 2\.2 times was the same as estimated\. ETA provided 49% of the fund requirements for its program from internal cash generation (PCR, paras\. 5\.01-5\.09)\. 22\. The internal financial rate of return for the project was recalcu- lated in real terms on project completion as 10\.4% as against the appraisal estimate of 13\.5%\. This does not take into account consumer surplus and indirect and external benefits from the project\. It also does not fully allow for future use of the facilities provided under the project which can be expanded at a lower incremental cost than the initial cost\. The estimated economic rate of return is 16\.6%\. An envisaged economic study of the sector was partially completed and resulted in useful data being made available for appraisal of the Sixth project (PCR, para\. 7\.05 and Annexes 14 and 15; staff discussions)\. -6- II\. MAIN ISSUES AND SUPPLEMENTARY COMMENTS Procurement 23\. The Bank differed with ETA about the proposed contract award for the microwave system and with both ETA and the Government about the contract award for the satellite earth system under the first credit\. In the first of these cases, the uward for the microwave system, the Bank considered that the order of the bids had changed due to changes in currency parities between the date of bid opening and the time the award recommendation came under review by the Bank\. The original low bidder was ETA's selection for the award even though by time the Bank wat, notified about the proposed award, the bid order had changed and another bid was the lowest, in ETA's estimation, by 1\.4%\. Despite this shift, ETA considered that the original low bidder's equipment offered a number of service and technical advantages\. ETA also questioned the responsiveness of the latest low bid\. A Bank review of the recommenda- tion for award, comparing like with like and including items listed in the bid documents for evaluation, inicated that the latest low bid was the lower by 7% and was responsive\. As the Bank considered both proposals technically responsive the question revolved around the date of the decision to notify the award to the successful bidder, with the Bank's advice to ETA being that this was the date on which the final decision was taken, including approvals by Government, if required\. This eate was confirmed by ETA as being before the major currency parity change\.; took place\. The Bank accepted that ETA could, on this basis, place the contract with the original low bidder (File Research; PCR, para\. 3\.07)\. 24\. In the case of procurement of the satellite earth station, evalua- tion was carried out by consultants selected and appointed by ETA with the Bank's approval\. These consultants concluded in their evaluation that all the bids were acceptable but none was fully compliant in certain technical respects\. They also considered that in the case of the low bidder, non- compliance on two items which could easily be corrected would not justify rejection in an area at the frontier of current technology\. They proposed, therefore, that negotiations should take place with the low bidder to adjust their proposals "as no single bidder had evidenced sufficient qualitative superiority to justify ETA incurring an incremental cost increase over the lower bid price"\. ETA, which carried out its own evaluation, found the low bid technically nonresponsive\. They wished to place the order with the second low bidder, whom they considered fully compliant\. 25\. The position was further complicated by the fact that when approving the bidding documents, the Bank had suggested, and ETA accepted, that estimated operating costs should be excluded from the evaluation on the grounds that these are usually similar for competing systems, are not a major cost factor, and are difficult to evaluate\. After the evaluation, ETA indicated that the estimated operating costs for the system they wished to order were considerably lower than those for the low bidder's equipment and if included in evaluation, the price difference became minimal\. ETA also expressed concern about the management capability of the low bidder, despite evidence offered of satisfactory performance in a number of countries\. In -7- this connection, they were admittedly dealing with a consortium offering equipment from a number of suppliers\. They had also themselves experienced difficulties and suffered delays under a previous contract with one of the members of the consortium supplying a relatively minor part of the system\. They argued, that should delays take place, revenue losses would be appreciable\. The Bank considered that the position could, however, be protected by a performance bond\. 26\. After considering all the factors, the Batk was not prepared to accept ETA's recommendation for the award and indicated that they should ask the low bidder to correct the technical shortcomings in their bid and, subject to this being satisfactorily negotiated, that ETA should place the order with them\. This proved unacceptable to ETA and the case became the subject of voluminous correspondence\. Whea this failed to resolve the matter, a high level meeting was held in Washington, but resulted in an impasse (File Research; PCR para\. 3\.06)\. 27\. The matter was finally raised by the Minister of Finance with the Bank's President\. In the hope of resolving the issue, the Bank then proposed four alternative solutions: (a) the low bidder should be asked to perfect his bid with no increase in price; (b) the bid evaluation should be reviewed by ETA with their consultants and if the latter changed their evaluation, the Bank would be prepared to reconsider their position; (c) retendering should be undertaken with the inclusion of estimated operating costs; and (d) the matter should be submitted to a mutually agreed referee with mutually agreed terms of reference\. It would appear that by this time, ETA had decided that, bearing in mind tha advantages they considered the equipment from the supplier they preferred would give, it was not prepared to accept further delay\. 28\. When the Bank finally received a reply rejecting its proposals, the award had already been made\. A further factor came to notice at this stage in that ETA's consultant had recalculated some of the performance criteria and decided that the bid selected by ETA was fully compliant\. (They did not apparently change their earlier recommendation that the low bid only involved minor noncompliance which could have been corrected during contract negotia- tions\.) Following the award, Government asked for a reallocation of the credit funds, saved by local financing of the satellite system, to meet cost overruns under the project\. As the case was judged by the Bank to be one of misprocurement, the funds were cancelled from the credit and no reallocation was made (File Research; PCR, para\. 3\.06; Development Credit Agreement and Project Agreement)\. 29\. In one other case of procurement, there were only two bids, one of which was considered to be noncompliant\. It was discovered that the dimen- sions specified had limited the bidding\. As these dimensions could be increased and the prices quoted, with escalation, were considered high, ETA requested and the Bank approved retendering\. This action is considered to have been justified (File Research)\. 30\. Outside of these cases, no procurement difficulties were experi- enced\. -8- Project Implementation and Revision 31\. Some interesting aspects of project implementation were those aris- ing from the prevailing conditions in some parts of the country following the 1974 change in Government\. These involved changes in the routing of the microwave systems and in the location and size of local network installa- tions\. Other changes were made consequent on the partly related civil works contractor problems and to meet technical considerations, including the advance in technology over the extended period of project execution\. It is interesting to note that, in considering approval of the second credit, one of the Bank's Executive Directors asked about possible problems in making proposed installations in the northern province\. The Bank staff replied that the project could be revised and the items installed eleswhere (PCR paras\. 3\.02-3\.03; Board Minutes, May 6, 1975)\. 32\. All this happened at a time when ETA was experiencing a major turn- over in its upper echelon staff\. File Research and inquiries indicate that there were two changes in substantive General Manager and three periods of acting appointments involving a total of four people\. There was also a considerable turnover of middle management staff\. ETA must in these circun- stances have faced considerable difficulty in efficiently continuing its day-to-day telecommunications operations on a profitable basis and undertak- ing its development program (File Research)\.2/ Supply and Demand 33\. Some information is given in the PCR para\. 4\.02 on demand growth rates and achievements\. File research shows that the appraisal for the fifth program estimated total demand for telephone service by 19803/ to be 94,000\. Recorded total demand in 1980 was actually 86,000 with 64,000 working subscribers\. Demand fell short of estimates by 8\.5% probably due to the unsettled conditions in the country\. Additionally waiting lists seldom reflect total demand, as many people do not apply if they know service is not available\. The percentage of demand met was 74\.4%\. On project completion in 1983, recorded demand had reached 113,000 with 84,000 working lines, i\.e\., 74\.3% of demand had been met\. In the case of telex subscribers, forecast demand by 1980 was 575 and the number of working subscribers 413\. By 1983 the number of working subscribers had increased to 562\. No waiting list data is available\. Given conditions in the country demand forecasts appear to have been reasonably accurate\. (SAR 717-ET; PCR para\. 4\.02 and Annex 8)\. 2/ In commenting on the PPAR, the Ministry of Transport and Communications (Attachment B) stated that the effect of the revolution on the staffing and development of ETA is exagerated\. Nevertheless, there is well documented evidence that conditions in the country led to major changes and delays in the project\. Also, the records show a serious loss of trained and upper echelon staff through mid-1981\. As stated by the Ministry, however, it is important to note that the conditions which constrained project execution and the situation with respect to the loss of senior and other qualified staff improved considerably during the later stages of project implementation\. 3/ Estimates in the SAR were only continued through 1980\. -9- Performance of the Bank 34\. The closeness of the actual physical, financial and institutional achievements and actual project costs to the appraisal estimates indicates that the work of ETA in project preparation and the Bank staff in appraisal was excellent\. There were, however, problems in lack of staff continuity and it is considered that the extent of field supervision was inadequate\. In all, from appraisal to completion, four different financial analysts and four different engineers dealt with the project\. Unfortunately this could not have been avoided, partly because of the lengthy period of project execution, and partly because of- changes in the staff of the division in question (File Research)\. 35\. The PCR (para\. 8\.02) considers that the total of nine supervision missions over a period of nine years was adequate given ETA's implementation capability\. Examination of the mission data and supervision reports shows that five of the missions consisted of a financial analyst or engineer on his own and only four complete joint supervision missions were undertaken\. On the hypethetical basis of complete/joint supervision by two staff members the average time between missions becomes fourteen months\. The actual mission field time per annum was 1\.47 weeks or in total for the project as a whole, 13\.2 weeks\. In fairness it should be stated that ETA (and perhaps local conditions) were responsible in part for the low level of supervision, as ETA have on occasion requested the Bank to defer visits\. (File Research;Basic Data Sheet; PCR para\. 8\.02)\. 36\. Supervision, when carried out, was at a high standard and useful comments and suggestions were made to ETA after each visit\. The extent of the missions' comments and suggestions is in itself an indication of the standard of supervision and the need for more frequent visits (Supervision Reports)\. 37\. Difficulties which arose during the procurement process have been commented on in paras\. 22-28\. File research indicates that the Bank generally handled document clearance and recommendations for awards expeditiously and, despite the dispute over procurement of the satellite earth stetion, dealt with procurement cases on a firm but fair basis in accordance with the Bank's Procurement Guidelines and Operational Manual\. The Bank was also flexible in agreeing to changes in project components resulting from the disturbed conditions and the need for relocation (File Research)\. Use of Consultants 38\. ETA selected their consultants for the satellite earth station from proposals submitted by five short-listed firms\. In an area of highly advanced technology the firm selected was the largest and probably the most experienced\. The consultants' tasks were to include site surveys, prepara- tion of bidding documents, evaluation of bids, negotiation of the contract with the successful bidder and supervision of installation\. During the correspondence with the Bank regarding procurement of the earth station, ETA clearly indicated their dissatisfaction with their consultants' findings and recommendations for the award and stated they were terminating the - 10 - consultants' contract\. Nevertheless, following ETA's decision to proceed with procurement using zhe Agriculture and Industrial Development Bank financing, the consultants' services were apparently utilized for negotiation of the contract\. The consulting contract was terminated prior to the installation of the equipment, however (File Research)\. 39\. ETA, in their own completion report, nave seated that the consultants' services were partially satisfactory\. The difficulty was apparently restricted to the area of evaluation and award recommendation\. Given the advanced technology involved, and a need for some flexibility, the audit's view, based on the issues, is that the consultants generally acted responsibly and made their recommendation in good faith\. It is, however, unfortunate that they appear only to have established that the bid ETA favored was fully responsive at the time they were negotiating the contract with the supplier in question (PCR, para\. 3\.04)\. Institutional Development 40\. The PCR indicates in para\. 8\.03 that institutional developments were not achieved to the extent envisaged at appraisal\. As is indicated in para\. 6\.02 and 6\.03 of the PCR, however, a number of measures designed to improve ETA's internal organization were implemented\. These included; set- ting up a planning office and improving planning procedures, setting up a finance and supply section and decentralization and improvement of customer service facilities\. Tariffs were also revised\. Principal failures were in meeting the covenant to aubmit audited accounts within six months and in resolving the accounts receivable position; amounting in June 1982 to about 35% of total annual billings\. The position deteriorated in the early years of the project but a considerable improvement was made from 1979 when receivables were 59% of total annual billings\. These matters are being further pursued under the ongoing sixth project, as are improvements in the management information procedures and further computerization of activities in line with the growth in ETA's activities\. A study of tariffs and economic costs and benefits is also proposed (PCR para\. 6\.02-6\.03, 8\.03; SARs 717-ET and 4584-ET for the fifth and sixth projects)\. Benefits Resulting from the Project and Sustainability 41\. In most developing countries inadequate telecommunication facilities are an obstacle; to other development of the economy (including agriculture); to the provision of adequate social services, such as health and welfare; and to the development of an effective and informed administra- tion\. They also result in less effective use of transport and higher trans- port costs (which usually include a high foreign exchange component)\.4/ Adequate communications, including particularly international facilities, are essential to development of tourism both from the aspect of the social and business needs of the tourist and also that of ensuring satisfactory seat and room occupancies\. 4/ Adequate communications allow more effecti e loading, higher seat occu- pancies and better routing plans\. - 11 - 42\. ETA's fifth development program, which constituted the project, has resulted in the provision of facilities as set out in para\. 9\. It may be assumed that a very high proportion of the 43,000 telephone lines provided under the project are used by business, the administration and the social services\. The microwave long distance lines are essential to the provision of high quality telephone, telex and telegraph services linking the main centres\. They increase economic efficiency and help in the integration process\. The telex service is used almost exclusively for business and administration whereas the telegraph service has wider use by the public as a whole\. The extension of service to 136 secondary and rural areas has particular significance to agricultural interests with a need for distribu- tion of seeds and fertilizers, obtaining market information and coordination of the collection of products (PCR para\. 4\.01)\. 43\. The financial benefits of the project are confirmed by ETA's satis- factory financial position with an average rate of return on net fixed assets of 12\.7% and an ability to finance 49% of the project cost from internal cash generation (PCR paras\. 5\.01 to 5\.02 and 5\.08)\. 44\. By the time the project was completed, however, there was an increase (to over 29,000) in the waiting list for telephone service\. This is an indication of the direct losses which the economy may be suffering through the lack of adequate communications and also indicate the significant economies of scale which ETA could achieve from expansion of its services\. 45\. The life of telecommunications plant and equipment ranges frota 5 to 50 years and averages about 20 years\. Additionally, in many cases, spare capacity is provided for future growth so that benefits increase over the life of the equipment\. This includes both service and financial benefits which will not only be sustained but will increase over the life of the equipment\. The economic rate of return for this project was estimated on project completion as 16\.6%\. This is probably an underestimate in any case\. Given the provision of spare capacity and the future higher usage of installed facilities, as the economy expands, the economic return should certainly be sustained and increase\. The institutional benefits are also likely to be sustained and should result in continuing improvements in efficiency\. III\. CONCLUSIONS 46\. The Ethiopian Telecommunications Authorities Fifth Development Program which was intended to be carried out over the 1974-78 period was a well balanced one designed to both expand and improve services\. Demand fore- casts were satisfactory\. Project design and content is considered to have been satisfactory and to have adequately taken into account the needs of the economy, social services and the administration through 1978\. The need for possible relocation of some components of the project because of conditions in the country was discussed at the Board meeting at the time the second credit was approved\. - 12 - 47\. Even though there was a delay of nearly four years in project com- pletion, the project is considered to have been successful\. There was some relocation of components and rerouting of long distance facilities, but the physical objectives were substantially met, and in some cases exceeded\. Institutional development was also substantially achieved although the prob- lems of delay in submission of audited accounts and resolving of the poor accounts receivable position remain\. 48\. The economic rate of return on the completed project was estimated as 16\.6% but due to future expandability of systems at low incremental cost and consumer surplus will probably be much higher\. In view of an average equipment life cycle of 15 to 20 years, economic, service and financial benefits should not only be sustained but should increase with increased usage\. 49\. The delay in completion of the project was due to a number of fac- tors, including, to a limited extent, some underestimating of the time normally to be prequired for completion, and the problems of coordination in a project consisting of two tranches\. The major problems, however, resulted from the prevalling conditions in the country\. Over the project period there was a high turnover of upper echelon staff\. Rerouting of the microwave system and relocation of other project components were required, with considerable redesign and replanning of the network\. And suitable civil works contractors, always in short supply, were unavailable in many areas\. Although these conditions, outside of ETA's control, improved in the later stages of the project, they were major factors in the project delay\. 50\. The increased waiting lists for service at the time of completion demonstrates the need for expedited telecommunications development if the economic, administrative and social services needs for adequate communica- tions are to be met\. A Sixth project designed to meet these needs has been approved in 1985\. 51\. The sector organization which was set up as a requirement of the Bank's first loan is satisfactory and allows ETA to operate on a commercial basis with an adequate degree of autonomy\. ETA has developed into a mature and efficient commercial entity which can be compared favorably with the telecommunications administration in most other developing countries\. It has also developed excellent training school facilities which were extended under an ITU project\. 52\. A number of measures designed to improve ETA's internal organi- zation were implemented under the project\. Tariffs were also revised\. Principal failures were in meeting the covenant to submit audited accounts within six months and in resolving the poor accounts receivable position\. The institutional achievements although satisfactory, could have been better had these two accounting problems been corrected\. In the case of the need to more expeditiously submit audited accounts ETA intends to streamline its accounting procedures at headquarters and in its district offices\. This is being undertaken during the Sixth Project\. The delinquent account - 1\.3 - situationS/ might be improved by charging interest on overdue accounts\. [This measure can be applied effectively even where disconnection is not possible as in the case of Government or because of the essential nature of the subscribers service]\. 53\. In the period following the change in government, ETA experienced a major turnover in its upper echelon staff\. There were two changes in substantive General Manager, and three periods of acting appointments, involving a total of four people\. There was also the considerable turnover of senior and middle management staff (para\. 49)\. 54\. Staff productivity did not improve in line with appraisal esti- mates\. This was largely due to a requirement by Government that ETA should increase its work force\. This had social implications and was positive in extending employment (a desirable aim in a developing country) but initially lowered efficiency\. As a good employer, ETA has endeavored improve produc- tivity by training these staff\. 55\. ETA faced special problems in the execution of this project due to the difficulties referred to in para\. 49- The achievements of the ETA in satisfactorily completing the project and attaining the main project objectives under these difficult conditions says a great deal for the efficiency and resilience of ETA's orbanization and the dedication of its staff\. 56\. ETA's financial performance wa4 highly satisfactory with an average rate of return of 12\.7% on net fixed assets, considerably exceeding expec- tation\. ETA contributed 49% of the funds required for its investment program from internally generated funds, which again is very satisfactory\. 57\. The Bank was objective and generally helpful in its dealings with ETA\. It operated correctly under its Procurement Guidelines and Operational Manual in dealing with procurement matters\. Other than for the procurement disputes, excellent relations were maintained with ETA\. 1 58\. The project results and the closeness to estimates and forecasts indicate that the Bank appraisal was excellent\. During project execution there was a lack of continuity in Bank staff dealing with the project\. This was unavoidable due to the long period of project execution and the changes of Bank staff\. The extent of field supervision is considered to have been inadequate, even given the long association between the Bank and ETA and the latter's implementation capability\. In fairness it should be indicated that ETA have on a number of occasions requested that supervision missions should be deferred\. 59\. Supervision, when carried out, was of a high standard\. The extent of the missions' comments and suggestions is in itself an indication of both the standard of supervision and the potential value of more frequent visits\. 5/ A high proportion of delinquent accounts are those of governmnent and its agencies\. - 14 - 60\. As indicated in paras\. 24-27 and 57, the audit considers that the Bank acted correctly in dealing with the procurement of the satellite earth station\. There were, however, certain extenuating circumstances leading to ETA's decision to place the order with the second low bidder at a higher price than the low bid\. These were that: estimated operating costs, which proved to be a greater factor than anticipated when inviting bids, but were excluded at the Bank's suggestion; that the bid favored by ETA was later judged by ETA's consultants to be fully compliant; and that ETA under a previous contract had suffered delays and difficulties with one of the members of the consortium submitting that low bid\. The audit considers that misprocurement took place in making the award without approval at a time the Bank had made suggestions to resolve the matter\. - 15 - ATTACHENT A Page 1 of 6 r444t4>tt hvf*t %*It *PAdt doowa fA"*P *&b0P117 SAAM7 I VVqP OPPAI IL\. PROVISIONAL MILITARY GOVER4MENT OF SOCIALIST ETHIOPIA ETHIOPIAN TELECOMMUNICATIONS AUTHORITY HEAD OFFICE ?"nwA t*t44 I X"*A WU LA" O Is 500 Teleak Addns ggraL W SOM AU *,%%& 4\. 1 ,Teles No\. 9 Tow Ph 0Oete ~aFno/13*1/2/86 jr\."\.+\.1047 htA A hV*j P\.o\.ats AO BABASA ETIOPIA January 30, 1986 Mr\. Tukinort Watanabe Director Operations Evaluation Department The World Bank 1818 H Street W\.V\. Washington D\.C\. 204335 U * S A* OED Notes Dear Mr\. Watanabe Thank you for your letter ef January 6, 1986 on the Project Performance Audit Report on the Fifth Telecommani, cations Project\. Whilst generally agreeing on the broad content of the Report we would like to make the following comentsa 1\. Page i) The last but one line in the second paragraphs page ii US $38\.7 should read SR 58,7 amended\. 2\. On pages Vile s 5 and 21 mentions have been made on the The PPAM security situation in the country\. It would be more revised apprpriate and indeed preferable if the references are to comply replaced by expressions such as Oprevailing eircumstances" with ETA's or prevailing conditions"* preference\. 3\. The dispute ever the procurement of satellite earth station has been discussed on pages x, xi, 2, l1s 12, 15 170 25 and 24\. It is the sustained view of BTA\. See that the course of action taken by it is correct and OED In line with the procurement guidelines of the Bank, footnote The fact that the Sululta satellite earth station (a)\. received number one rating for three periods (out of 18I" 253 and 258 stations) Is further testimony to the nepdness of BTA*s decision on the procurement issue \. 1983 (\.A 99M4AO q7W 40bi 1983 WORLD COMMUNICATIONS YEAR - 16 - ATTACHMENT A Page 2 of 6 Careful consideration of ETA's view on the turo of events, ORD Notes given hereunder, would dispel doubts on the correctness of ETA's stand on the matter and confirm that no misprocuresent took place at all\. Evaluation of the two contending proposals which formed the background to two different points of view, that of the Bank and ETA, involved the proposals made by STS of Italy and NZC of Japan\. According to ETA, STS's proposal had shown # categorical See OD ftiture to meet two mandatory requirements of the specifications footnote which are required for qualification to operate in the INTELSAT (b)n System\. Having accepted in principle that STS's proposal was non-complaint to the above-noted mandatory requirements, the Bank considered these as non-substantial deviations\. Furthermore, the Bank advised that ETA should accept STS's proposal with adjustments made to the bid at no increase in price\. ETA, rightly and in all fairness to other bidders, argued that to request STS to perfect its bid per the Bank$s proposal See OED was not in line with the established guidelines* of the Bank footnote for bid evaluation\. ETA had also chosen to avoid setting up foot precedent evaluation schemes which can affect future projects( Furthermore, it was felt that the anticipated modifications which do not exist in the standard design of the supplier could directly cause problems\.in system integration and also affect to a large extent the overall reliability of the system and also the operating cost\. The Bank based its arguments on CONSAT's bid analysis, which task was not carried out to the full satisfaction of ETA\. S Eventhough COMSAT's evaluation placed STS as the lowest priced footnote bids they had in various places in the evaluation document indicated their reservations, noting that they had not been, (c)\. involved in a project of this nature with STS and that it was hard to predict what STS's performance would be\. Furthermore, basing its argument on STS's quotations for Engineering Support, Commissioning and Installation and noting that it was unrealistic, COMSAT had indicated that the program might not be managed properly, documentation poorly formated, that integration pr-blems could arise, liaison between subcontractors could be insufficient and that delay could be experienced in finishing the project\. COMSAT had also noted that ETA would gain nothing by paying a minimum initial price for the project and that other factors should be t&;ken into consideration in selecting the suitable bid, See OKD Furthermore, COMSAT had abandoned\.its previous doubts about the footote full compliance of NEC's proposal by finally confirming that (d)\. the proposal was fully responsive\. *Guidelines for PROCUREMENT under WORLD BANK LOANS and IDA CREDITS, March 1977 Para 3\.4 (Evaluation and Comparison of Bids)\. 17 ATTACHMNT A Page 3 of 6 With such background of inadequate consultancy support OED Notes and often mercurial position of COMBAT as well as the fact that COMSAT had overlooked to note the non-compliance of STX0s bid to the two INTELSAT mandatory requirements, ETA elected to take up the matter seriously into its own lands\. BTA's course See OED of action is supported by the guidelines' of the Bank which footnote spell out that the ultimpt* responsibility for the execution of (e)\. the Project, and, therefore, for the award and administration of contract under the project rests with the borrower\. Pursuant to the Bank's proposal for soliciting the views of INTELSATs ETA had expressed its unconditional compliance to any forthcoming views of INTELSAT to be binding\. Later it See OED turned out that the views of INTELSAT were fully in line with footnote BTA, but much to the regret of ETA the Bank undermined the (f)\. result of the agreed-on conclusive effort and instead elected to give the following four alternatives to BTA\. a) to request STS to perfect its bid with no increase in price; b) to review the bid evaluation again with their consultants, CONSATI if COMSAT changed its evaluation as a result of such discussions and the factors which ETA had brought fourth in its own evaluation and which may not have been taken into account by COMSAT in its original evaluation, the Bank would be prepared to reconsider its position* o) to retender on the basis of the existing specifloations but with qualificatton of operating costs to be agreed upon with the Bank and to be specified in the new bid invitation documents; or d) to submit to a mutually agreed referee under mutually agreed terms of reference the question as to whether the STS bid was or was not substantially responsive to the existing bid invitation\. As regards alternative a), ETA as noted earlier had made its position clear that to request ST? to perfect its bid would be in contravention to the guidelines 1 established by the Bank for bid evaluation\. Concerning the second alternative of re-evaluating the bid with COMSAT, ETA was not prepared to accept that$ because ETA had observed that a common conclusion could not be reached with COMSAT\. Regarding alternative c) above, ETA took into consideration the possibilities of bid price increases due to inflation and also revenue losses resulting from the delay in the implementa- tion of the project if the retendering option was followed\. *Guidelines for PROCUREMENT under WORLD BANK LOANS and 1D\. CREDITS* March 1977 Page 1\. (1) Guidelines for PROCUREMENT under WORLD BANK LOANS and IDA CREDITS, March 1977* Pars\. 3*4 (Clar4fications or Alteration of Bids) ATTACHMNMT A - 18- Page 4 of 6 Furthermore, the need to specify operating costs in a new bid invitation document per the proposed retendering was a OED Notes redundant and unnecessary procedur ince it is clearly iadicated in the Bank's guidelines for evaluation and comparison of bids, that In addition to bid prices other relevant factors including operating costs should be taken into consideration\. In view of this BTA in its evaluation had considered this item eventhough COMBAT had over-looked it in its bid analysis\. Of the foregoing proposals, the last one was acceptable to ETA provided the referee chosen could show a position of nou*rality to the bidder and was not symphathetie to or influenced by COMSA's evaluation\. The proposal that ITU be approached as the reteree was accepted both by the Bank and See OD RTA\. The Banks however, did not pursue referring the matter footnote to ITU and ETA finally understood that the Bank's position of (8) referring the case to a neutral body was similar to the first such exercise with INTELSAT whose views the Bank had ignored as mentioned earlier\. This, it should be remembered, was inspite of the Bank's agreement that tite case be referred to INTELSAT\. Considering the signsficance of the project ETA went further to try on high level discussions with the Bank in Washington D\.C\. The realisation that the bank was not ready to reconsider its position coupled with the urgency of the project prompted ETA to finance the project from its own and alternative sources and place the contract with NEC\. Under the circumstances the Bank cancelled US$4eO3 million of the credit allowed to the satellite earth station\. In retrospect, ETA believes that it had made the right procurement See OED decision to contract the project with NEC whose proposal did not footnote face mandatory requirement problems to operate in the INTLSAT (h)\. system as confirmed by INTELSAT itself\. The subsequent excellent performance of the Station coupled with its minimum operating cost has attested to ETA's wise decision in having made a right procurement inspite of the various obstacles, from forces beyad BTA's control, in implementing the project\. * F\., Sincerely, \ rmaw Ingidayehu eneral Manager (2) Ibid\. Para\. Evaluati Comparison of Bide) - 19 - ATTACHMENT A OED footnotes: Page 5 of 6 (a) The points made by ETA have been reviewed against the data contained in the Bank's files\. Although the audit accepts that the circumstances were unfortunate, in some respects, its general con- clusions are unaltered\. Detailed comments on the points made by ETA are in footnotes (b) - (h) below\. (b) The consultants found (initially) that both bids were not fully compliant in certain respects and stated "that no single bidder has evidenced sufficient qualitative superiority over the others that would reasonably compensate the TSE (ETA) for incurring an incremental cost increase over the lower bid price received" (PPAM, para\. 24)\. The consultant felt that the low bid could be perfected to meet the specification at the time of contract negotiations\. Correspondence and discussions by the Bank with the consultant and Intelsat (the international organization responsible for setting standards for access to their network) did not indicate that there was justification for disagreeing with the consultant's conclusions that the technical deviations in the low bid were not substantial and could easily be corrected\. The consultant also stressed that for sophisticated equipment, at the frontier of current technology some flexibility was necessary\. In these circumstances the Bank's acceptance of the consultant's proposal that the low bidder should be required to correct their proposal at the time of contract negotiations, but with the added requirement, by the Bank, that there should be no increase in price, is considered to have been justified (PPAM, paras\. 24 to 28 & 60)\. (c) Although the consultant had no previous experience with the low bidder the consortium in question had successfully completed nine other earth satellite stations on a turnkey basis\. Even though their bid price for certain services might, as instanced by ETA, have been unrealistically low, they would contractually have been required to provide such services at their bid price (PPAM, para\. 25)\. (d) The main point here is that of operating costs\. The audit is of the opinion that, although the Bank operated in good faith, based on experience with other telecommunications projects, it was wrong, in\. this instance, or at least too rigid, in asking ETA to remove operating costs from the evaluation\. In fact, the Bank proposed later, as one alternative for resolving the dispute, that retendering should take place with the inclusion of operating costs (PPAM, para\. 60)\. (e) Intelsat more fully clarified its views during discussions at the time the Bank, Government & ETA were trying to resolve their differences at high level meetings in Washington in March/April 1977\. It then became apparent that the bid from ETA's preferred supplier was probably fully compliant\. The consultant also reached this conclusion at the time of contract negotiations with this supplier\. The consultant appears, however, not to have changed his opinion that the technical deviations in the low bid were not substantial and could easily be corrected (PPAM, para\. 28)\. - 20 - ATTACHMENT A Page 6 of 6 OED footnotes (continued) (f) Both during the meetings in Washington and in its subsequent four proposals, the Bank made reasonable efforts to resolve the impasse\. It was unfortunate that at least one of the Bank's proposals was not pursued further before the Minister of Finance replied commenting on the proposals and indicating, at the same time, that Government had decided to finance the project from its own resources\. As far as the actual alternatives are concerned, (a) was not considered by the Bank to be contrary to the Banks Guidelines\. Alternative (b) offered a reasonable prospect for resolving the issue, but had the consultants views remained unchanged, in respect of the technical acceptability of the low bid with minor changes, ETA might have been faced with accepting a supplier they did not consider satisfactory\. In the case of alternative (c), ETA's submissions appear justified on the basis of the serious delays which had already taken place\. (g) In the case of alternative (d), the question of appointing a referee was discussed at length during the meetings in Washington, but no agreement on terms of reference was reached\. The Ethiopian representatives appear to have wished to bar the referee from having access to ETA's consultant and to the low bidder\. Subsequently, in May 1977, the Bank confirmed to the Ministry of Finance that as agreement could not be reached, on terms of reference, appointment of a referee would not seem to be a workable solution\. In June 1977, however, the Bank reiterated its offer to submit to a mutually agreed referee under mutually agreed terms of reference, as one of its four proposals\. In reviewing the matter the audit fully accepts the need for a referee to be neutral to the bidders and to approach the consultant's evaluation in an unbiased fashion\. The audit questions, however, whether an objective assessment could have been made without access to all data, including ETA's consultants and the low bidder\. If Government was prepared to pursue this matter further it was unfortunate that they did not reply formally, accepting the proposal before taking the decision to place the order and self finance the station\. (h) Despite all the problems, the audit agrees that ETA obtained a very satisfactory system, with minimal delays in completion, after they took their decision, and with low operating costs\. xsa An FFB #ea1 \.e Me\. as 7' eveasom A\.eks ssaso-seMw * r\.*\. L\.o\.a\.ne \. r\. Ad&~Abft 2 IN PADNISIONAL MIUTAR SW0URNMET OF SOLT EMOPA r+ 7& C*q fro qV at* ATUM B MDtfRYmOP TRANSORT AND COMUNICATIONS Page 1 of 5 Mr\. Yukinori Watanabe Director Operations Evaluation Department The World Bank 1818 H Street N\.W\. Washington D\.C\. 204333 U\.S\.A\. Dear Mr\. Watanabe: We have received your letter of January 8, 1986 on the Project performanoe Audit Report on the Fifth Telecommunications project\. Overall we have found the Audit Report to be constructive and the evaluation of the %project to be positive, concrete and conprehensive\. We have accepted the suggestions made in the rep2rt and would make our best to cooperate in implementing the 6the Development program in the light of the prop8ed course of action\. Although our conments on the report are basically the same as that of ETA, we believe it is appropriate to make emphasis on the foZZowing major points\. 1\. Procurement In evaluating the procurement of eattelite earth station, the audit has supported the course of action taken by the Bank\. The measures taken to cancel the credit allocated for the earth station was also considered to be appropriate\. On the otherhand, ETA'S decision to sign the contract with NBC was regarded to be misprocurement\. Unfortunately, certain velevant items that can give insight into the correctness of ETA'S decision are not considered at all\. swpA 119 MARI8 98N ATTACHMENT 3 \. - 22 - *9~~\.age\.2\.at\.5\. A6" A \. \. Ig \.9\. Adds Ab"ls t9 ftdo4+bt AM* -\. *%4" 0+&V A\.M\.P* P\.O\.Sa IS "h TeL\. UKE PROMBIONA MILITARY GWEIMW OF SOCIMIS EU4ICMI 44\.1(;rc+q f&9lqr *al*C &WIRYV OF TRAN4SPORT ANID COMUMCATIONS OED Notes It is appropriate to mention here the outcome of the high level meeting held in Washington to settle the dispute over the procurement issue\. At the end of the meeting both the Bank and ETA had agreed to solicit the views of INTELSAT on the natter\. As can be recalled, the views of INT& SAT, though unacceptable See OED to the Bank, turned out to be fully in line with ETA\. This, we footnote believe, can be taken as a proof that no misprocurement took place\. (a)\. When seen in retrospect, the fact that the Sululta Earth Station proved to be not only one of the most efficient stations but also has lower operating cost is a living testimoney of the correctness of ETA 'S decision on the procurement issue\. 2\. The Impact of the Revolution The Impact of the Ethiopian Revolution on the staffing and technolgical development of ETA is quite exaggerated\. Although See OED the prevailing conditions had caused delays in the implementation footnote schedule, towards the end of the project most of the constraints and (b)\. eet-backs were put undercontrol\. 3\. Turn-over of experienced staff It is said that ETA had sufFered considerable turnover of traind and experienced personnel\. It is true that this was the case during See OED the first phase of the project\. However, during the second phase footnote positive results were obtained in retaining senior staff as well (c)\. as other professionals\. AsSwED V,\.13 ATTACMENT B - 23 - Adds Ahbo ft'bPanet A\.9k sa%ft *Ad"Ad fr\.*r\. P\. 0\. an as3s hAl T\. THE PROVISIONAL MILITARY GOVERNMENT OP SecAusr SrBIOPIA f+&*F7'C+q rawlqv dkh*C MnsTaY O TaANUrr AND COtMUNCATIONS -3 - 4\. Institutional development OED Notes As indicated in the report, the objectives of the program have been largely achieved\. However, in evaluating the benefits of the project with respect to the institutional development of See OED ETA, we beleive, there are certain areas that need to be ephasized\. footot At the end of the program the pl4nning and programing unit of ETA (C)\. wae improved and strengthened, its procurement procedures became more streamlined and higher level of computerization and technological development was achieved\. sr With best regards ~ ASSEG V e\.Up\.t\. Pse3AA * 24 - AU 1,4 $? 4, lf at -%\. Addis Ab&bU \. \. 9\. rr\.0\.4\.P\. 0\. BOx 1238 hA Tel\. tilSItheat+ AAtA' w I\.Mt*A* **FSPF THE PROVISIONAL MILITARY GOVERNMENT OF SOCIALIST ETHIOPIA r+,e,7n,rc+q rapiq%* vtk*c MINISTRY OF TRANSPORT AND COMMUNICATIONS Mr\. Yukinori Watanabe Director Operations Evaluation Department The World Bank 1818 H Street N\.W\. Washington D\.C\. 20433 U\.S\.A\. Dear Mr\. Watanabe: We refer to our letter of February 28, 1986 regarding the conments on the Audit Report of the Fifth Teleconnuni- cations Project\. Please note that the last four lines of page 3 is corrected ab "In the future, the Planning and progranmning unit of ETA should be further improved and strengthened, its procurement procedures should be more streamined and additonal effort should be made to achieve higher level of computerisation and technological development\." ris\.r With beat regards \.SP\.P 90it - 25 - ATTACHMENT B Page 5 of 5 OED footnotes: (a) This matter was very fully researched and PPAM, paras\. 23 to 28 and 60 give an outline of the circumstances, based on the Bank's files, and the audit findings\. The meeting with Intelsat clarified the position in relation to the compliance of ETA's preferred bid\. As the Minister of Finance was informed in a letter dated April 13, 1979, however, the consultants had not, to the Bank's knowledge, changed their assessment that the technical deviations in the low bid were not considered sub- stantial and might easily have been corrected\. The audit shows some understanding of the reasons for the final decision, but has to conclude that as ETA did not formally pursue one of the alternatives suggested by the Bank and went ahead and placed an order without Bank approval, the case was rightly considered one of misprocurement\. The audit accepts that ETA has purchased a very satisfactory system, with minimal delays in completion and with low operating costs\. (b) Although alive to the sensitivity of the matter, the audit finds this comment rather at variance with the facts revealed from detailed research\. Given the accepted efficiency of ETA, the major delays in the project are a clear indication of problems which were beyond ETA's control\. It is certainly not normal, having designed microwave systems and exchange installations, to have to reroute and reallocate systems and installations many of which had already been ordered\. This involved considerable replanning and redesign work and, as the PPAM has tried to indicate, it is greatly to ETA's credit that they were able to overcome these obstacles\. A further major problem was that of obtaining civil works contractors due, in partto local con- ditions\. Admittedly, towards the end of the project most of the con- straints had been eliminated\. The audit has been revised to make this point (PPAM, paras\. 8 & 9, 31 & 32 and 49 & 50)\. (c) Reports in Bank files continued to report high turnover of ETA's upper echelon staff and shortage of qualified middle grade staff through June 1981\. The PPM has been expanded to reflect the improvement which has since taken place and the planned future institutional development (PPAM, paras\. 32, 49 and 50)\. - 26 - PROJECT COMPLETION REPORT ETHIOPIA: FIFTH TELECOMMUNICATIONS PROJECT (CREDITG 454-ET AND 554-ET) 1* INTRODUCTION 1\.01 The Ethiopian Telecommunications Authority (ETA) was established in 1953 under Proclamation No\. 131/1953\. It was vested with the responsi- bility of developing and operating all public telecommunications services in Ethiopia\. Until then, the Ministry of PT&T was responsible for the service\. The services offered by ETA include telephone, telegraph, and telex\. ETA was also handling the technical aspects of broadcasting until the service was transferred, in 1977, to the Ministry of Information and National Guidance\. 1\.02 ETA is organized as a Government-owned commercial corporation under overall direction of the Ministry of Transport and Communications\. It has an adequate administrative and financial autonomy* ETA is managed by a General Manager who is the Chief Executive under the direction of a Board of Directors whose Ex-Officio Chairman is the Minister of Transport and Communications\. 1\.03 In November 1973 IDA approved credit 453-ET for US$21\.4 million and in May 1975 credit 554-ET for US$16 Million, to the Government of Ethiopia, with ETA as the beneficiary\. The credits were for the development of telecommunications services within the framework of ETA's 1974-1978 telecommunications development programme\. The proceeds of the IDA credits were onlent to ETA under subsidiary loan agreement terms which included 7-1/4% annual interest rate, and repayment period of 20 years after a five-year grace period\. The Bank had extended four loans to ETA: loan 42-ET in 1951, loan 314-ET in 1962, loan 441-ET in 1965 and loan 605-ET in 1969 for financing the four 5-year development programmes that preceded this one\. II\. PROJECT PREPARATION AND APPRAISAL Preparation, Appraisal and Negotiations 2\.01 IDA was approached by the Ethiopian Government in 1972 to finance the 1974-1978 5th five-year Development Programme of the Ethiopian Telecommunications Authority\. The program was prepared by the ETA\. The first appraisal mission (for credit 453-ET) visited Ethiopia in January 1973 and reviewed the draft 1974-1978 Telecommunications Development Programme, later issued in January 1974 by ETA as a revised edition\. The Ethiopian Government had applied for full financing of the foreign element of the development program (US$35\.2 million) but due to sc\.::city of IDA funds in FY74 the Bank decided to finance tue program in two tranches: one for US$21\.4 million in FY74, and the remainder in FY75\. This decision was conveyed to the Ethiopian delegation during the first negotiations in August 1973\. Negotiations between IDA and the Government of Ethiopia were concluded in August, 1973 for the 1st tranche of US$21\.4 million, credit 453-ET, and the credit was approved by IDA's Board of Executive Directors on November 20, 1973\. The second appraisal mission (for credit 554-ET) visited Ethiopia in September, 1974\. During this visit, which was - 27 - basically for updating the first appraisal, slight adjustments to reflect current prices, were made in the total program costs to an estimated cost of US$60\.64 million, with a foreign component of US$37\.4 million\. Current prices were determined from quotations which had been received for some of the components in the 19t tranche\. Negotiations for the 2nd tranche of US$16\.0, credit 554-ET, were concluded in April 1975 and the credit was approved on May 6, 1975\. Sector Objectives 2,02 The principal sector objectives for the 1974-1978 period were to: (a) expand the long distance network; (b) meet the expected expressed subscriber demand; (c) rehabilitate, improve and expand secondary long distance routes and extend service to rural areas; (d) extend and improve the telegraph and telex service; and (e) extend and improve international services\. The sector objectives were auopted as the project objectives and the whole program became the project\. In line with Ethiopia's economic development efforts, ETA's development program was designed to improve the availability and the quality of telecommunications services so as to help production, trade, tourism, transportation and administration over large parts of Ethiopia\. Project Description 2\.03 The project comprised of the following main items: (a) installation of about 40,000 lines of automatic exchange equipment, and about 4,500 lines of manual exchange equipment; (b) installation of cable distribution networks and subscribers' plant to provide about 45,000 telephone connections; (c) provision of four microwave links with total route length of 1,500 km and various medium-capacity VHF/UHF radio links (24-120 channels), construction of 3,000 km of small-capacity VRF radio links (fewer than 24 channels) and rehabilitation of 2,100 km of open wire lines and provision of multiplex and carrier equipment for the above facilities as well as for expanding the capacity of the existing ones; (d) installation of 48 manual switchboard positions and provision of about 660 lines of long distance automatic switching equipment; - 28 - (e) installation of an earth satellite station, with a SPADE terminal, for international services and of an associated international telephone transit center which will facilitate semiautomatic telephone operation with many foreign countries; and (f) extension of various telex and telegraph networks, including an extension of the capacity of the telex switching equipment in Addis Ababa from 400 lines to about 700 lines\. Covenants 2\.04 Besides standard covenants the project agreement provided that the beneficiary should: (a) maintain a debt service coverage ratio of more than 1\.5 times during implementation of the project, and (b) maintain revenues sufficient to produce an annual rate of return of 7% before completion of the project and thereafter an annual rate of return of 8%\. A full list of covenants and the status of compliance is given in Annex 1\. III\. PROJECT IMPLEMENTATION Credits Effectiveness and Project Start-up 3\.01 The development credit agreements of credits 453-ET and 554-ET between IDA and the Government of Ethiopia were signed on January 17, 1974 and June 4, 1975 respectively\. The subsidiary loan agreements between the Ministry of Finance and ETA were signed on August 27, 1974 and July 26, 1975 respectively\. ETA started project execution promptly with bid invitations for telephone switching equipment, cables and transmission equipment issued by September 1974\. The first application for withdrawal from credit 453-ET was submitted on November 1, 1974 and from credit 554-ET on August 28, 1975\. Project Revision 3\.02 There was no change in the basic composition of the project\. However, some project components had to be relocated and others implemented using the latest more appropriate technology\. It was necessary to relocate some components either because of security risks in the original places or failure to construct equipment buildings due to lack of suitable building contractors\. The project components that were involved are listed in Annex 2\. - 29 - Implementation Schedule 3\.03 The original implementation schedule was fiscal years 1975-1979\. The implementation schedule showing planned and actual dates is given in Annex 3\. The project completion date slipped by almost four years mainly due to the prevailing conditions in the various parts of the country\. Other major reasons for the slippage were as follows: (a) lack of suitable civil works contractors for the construction of access roads and buildings for microwave and exchange equipment; (b) delay in civil works for underground cable networks in urban areas, such as construction of manholes and ducts; (c) underestimation of the implementation period for some of the project components at the time of appraisal; and (d) lack of appropriate timing and composition of the two tranches to allow for adequate procurement lead times and meet service target dates\. Consultants 3\.04 A consulting firm was engaged for preparing tender specifications and bid evaluation of the satellite earth station\. Though the consultant's tender specifications were acceptable, ETA was not satisfied with his services in the evaluation of bids, and consequently the contract was terminated before the start of installation\. The satellite earth station component of the project was later canceled from the Bank credit (para 3\.06)\. Reporting 3\.05 ETA submitted quarterly progress reports regularly\. However, submission of audited financial statements were delayed (para 6\.10)\. Procurement 3\.06 With the exception of the satellite earth station and microwave equipment no major problems were faced with the procurement of equipment and material for the project\. The Bank's guidelines were followed and the agreed procurement conditions complied with\. Details of all procurement packages are listed in Annex 4\. On the procurement of the earth station, the Bank and the Borrower did not agree on the criterion the Borrower employed to select the successful bidder\. Two companies were involved in the controversy; one which submitted the lowest priced bid, and another which was evaluated lowest by the borrower\. - 30 - The Borrower argued that the lowest priced bid was not fully responsive technically\. The Bank, on the other hand, based on consultant's analysis of the bids, insisted that the technical deviations in the lowest priced bid were not substantial\. The Bank sought views from a second consultant and his views conflicted with the first consultant\. Second consultant's view was in line with the borrower\. In light of the conflicting opinions, the Bank gave the four following alternatives to the borrower: (a) to request the lowest priced bidder to perfect his bid with no increase in price; (b) to review the bid evaluation again with their consultant, if the consultant changed his evaluation as a result of such discussions and the factors which ETA had brought forth in its own evaluation and which may not have been taken into account by the consultant in his original evaluation, the Bank would be prepared to reconsider its position; (c) to retender on the basis of the existing specifications but with quantification of operating costs to be agreed upon with the Bank and to be specified in the new bid invitation document; or (d) to submit to a mutually agreed referee under mutually agreed terms of reference the question as to whether the lowest priced bid was or was not substantially responsive to the existing bid invitation\. The borrower did not pursue any of the four alternatives but instead signed a contract with the lowest evaluated bidder as originally suggested\. Under the circumstances the Bank canceled US$4\.03 million of the credit allocated to the satellite earth station\. 3\.07 On the procurement of microwave equipment, the choice for award of the contract was also between two companies\. ETA recommended award to a company based on full technical responsiveness and lowest evaluated price using the exchange rate ruling on the day of evaluation\. By the time the decision to award was made five months later, after expiry of bid validity, the second lowest evaluated offer had become much lower because of currency fluctuations\. The Bank advised ETA to award conzract based on exchange rates prevailing at the time of decision so as to take advantage of the much lower price that would be offered by second lowest evaluated bidder\. However, ETA argued that Pecond bid was not fully responsive technically\. The Bank and ETA reviewed the matter in greater detail and eventually agreed that award should be made to the original lowest evaluated bidder\. Project Costs 3\.08 The estimated project costs at the time of 1-c appraisal, for Credit 453-ET and second appraisal for Credit 554-ET and the actual project costs are shown in Annex 5\. A summary is shown in the table below (in millions)\. - 31 - Table 1: ESTIMATED AND ACTUAL PROJECT COSTS let Appraisal Estimate 2nd Appraisal Estimate Actual Costs Local Frreign Total Local Foreign Total Local Foreign Total Birr 40\.8 72\.8 113\.6 45\.1 80\.4 125\.5 52\.1 77\.2 129\.3 US$ 19\.7 35\.2 54\.9 21\.8 38\.8 60\.6 25\.1 37\.4 62\.5 Variation from 2nd appraisal estimate 15\.5 -4% 3% The total cost overrun of 3% indicated in the project cost table does not reflect the actual situation because the scope of project changed and all planned expenditures were not incurred\. Owing to the nationalization of land, during the implementation period, ETA did not incur a cost of birr 1\.21 million for the acquisition of land and birr 2\.47 million for various buildings left out during the implementation\. Therefore, the cost overrun was about 6%\. The cost overrun is mainly attributable to local price escalation due to delay in project completion\. Disbursements 3\.09 The estimated and actual annual disbursements on cumulative basis for each credit are tabulated in Annex 6 and the total for both credits is summarized below in US$ millions\. Table 2: ESTIMATED AND ACTUAL DISBURSEMENTS Fiscal Year Appraisal Actual Actual as % Ending June 30 Estimate Disbursements of Appraisal 1974 1\.2 1975 3\.8 0\.7 18 1976 12\.6 2\.4 19 1977 24\.2 7\.5 31 1978 33\.4 12\.5 37 1979 37\.4 19\.9 53 1980 37\.4 25\.7 69 1981 37\.4 30\.8 82 1982 37\.4 31\.4 84 1983 37\.4 33\.4 89 37\.4 1/ 33\.4 89 1/ The figure includes US$4\.0 million which is the cost of satellite earth station canceled later on\. - 32 - Credit Allocation 3\.10 The revised allocation, shown in column 2 of Table 3, was approved by the Bank in our letter of December 18, 1980\. The allocation was revised in order to accommodate revisions in the project (para 3\.02)\. Detailed allocation for each category is shown in Annex 7\. Table 3: ALLOCATION ON DISBURSEMENT CATAGORIES (In US$ Millions) (1) (2) (3) Original Allocation Credits 453-ET Revised Actual Categories & 554-ET Allocation Disbursements 1) Local exchange equipment, subscribers' dis- tribution networks and subscribers' plant 13\.9 15\.8 17\.5 2) Microwave, multiplex equipment, open wire line material, caxrier systems and trunk switching equipment 8\.0 9\.5 10\.1 3) Earth satellite station with SPADE terminal, international telephone exchange, interna- tional microwave system, HF equipment and consultants' service 4\.9 4\.7 1\.1 4) Teleprinters, telegraph and telex extension equipment 1\.4 1\.6 2\.0 5) Vehicles, tools, instruments and training, power and eir conditioning equipment 3\.2 3\.7 2\.7 6) Unallocated 6\.0 2\.1 - Total 37\.4 37\.4 33\.4 Performance of Consultants, Contractors and Suppliers 3\.11 Consultants assisted in the site selection, tender preparation and analysis of the satellite earth station and ETA considered their performance only partially satisfactory, as explained in paragraph 3\.04\. International equipment suppliers have performed satisfactorily as per contract agreement, although there were some initial delays in submission - 33 - of tower and foundation design data and some were late with the provision of handbooks\. The performance of local civil works contractors was unsatisfactory leading to overall deloys in project implementation (para 3\.03)\. IV\. OPERATING PERFORMANCE Physical Performance 4\.01 Physically, all equipment in the project was installed as planned, and is working satisfactorily\. The growth in telephone and telegraph facilities are shown in Annex 8\. Summaries of the physical achievement and performance indicators are tabulated in Tables 4 and 5\. Table 4: PHYSICAL ACHIEVSMENTS AT THE END OF FY 1983 Actual Physical Project Item Achievement % a) Installation of 40,000 lines of automatic exchange equipment 39,210 lines 98 Installation of 4,500 lines of manual exchange equipment 9,720 lines 216 b) Installation of subscriber network to provide 42,952 lines 95 45,000 telephone connections c) Provision of microwave lines VHF/UHF All systems 100 radio lines, open wire lines Installed d) Installation of 48 manual switchboard positions and Installed 100 660 lines of automatic switching equipment e) Installation of an earth station with SPADE terminal and Installed 100 an associated international telephone transit center f) Extensions of telex and telegraph networks including exten- Coupleted 100 sion of the telex switching equipment in Addis Ababa from 400 to 700 lines - 34 - Table 5: 1ERFUIME IlDICAMURS 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Net additional telephone onections durirg the year Appraisal 4,399 4,838 5,322 5,854 6,440 7,084 7,792 8,572 - - Actual 5,232 3,001 2,854 5,091 2,135 1,839 2,914 4,713 7,438 7,695 Nwber of staff per tumand telephones Appraisal 50 47 44 40 38 - - - - - Actual - % % 54 54 55 54 52 49 46 Note: At the end of 1974 there were 46,245 subscriber connectioms\. 4\.02 The objective to satisfy telephone demand at the end of the project has not been fully achieved by this project\. Although the telephone exchange capacity exceeded the planned objective, the number of subscriber connections made were lower than the appraisal projections\. From 1973 to 193 the available telephone switching capacity was increased by 48,930 lines, exceeding the project objective of 44,500 lines by 10%\. Subscriber connections growth rate was projected at 12% per annum which gave an estimate of 45,000 additional subscriber connections during the project\. However, the increase achieved was only 42,952, corresponding to a rate of growth of 7\.5%\. The low growth rate has been attributed to delays in the installation of exchange equipment and external cable network caused by late completion of civil works\. At the end of FY83 the number of registered waiters was about 23,000\. The number actually wanting connections would have been higher due to latent demand\. Nevertheless, it has been possible, with the above growth in subscriber connections, to modestly increase the telephone density in the country from 0\.23 to 0\.32 telephones per 100 population\. This density is still lower than the average of 0\.4 for Sub-Saharan Africa\. 4\.03 The project had significant impact on the rural population\. Sixty new stations served with single channel VHF links, 44 stations served with rural radio call HF equipment and 32 others connected through open wire line carrier systems have been installed contributing immensely to the improvement of access to telephone service in the rural areas\. The addition of the above stations in the general network of the country has meant an overall increase of about 40% in the public call offices being provided in the country\. 4\.04 To improve the long distance communication within the country and to further expand the STD network, broad-band microwave systems have been extended to five regional administrative centers and five other major towns\. On the international part, the Ethiopia-Kenya PANAFTEL microwave - 35 - link has made it possible to establish direct telephone, telex and television transmission to the East African countries, thereby meeting one of the objectives set forth in the PANAFTEL project\. The installation of these microwave links, the standard A satellite earth station, the semiautomatic international telephone exchange, and the commissioning of a fully automatic SPC telex exchange have contributed to the significant improvement of the quality and to the substantial increase of the international telecommunications services\. 4\.05 The implementation of the program led to considerable improvement in the quality of service throughout the country\. At the end of the project the rate of successful calls for national and international services had improved tremendously\. In order to strengthen maintenance organization of the external cable network, ETA established five maintenance zones within the city of Addis Ababa\. These have made it possible to deal with faults promptly, reduce the down time of plant, and improve the percentage of successful calls\. The establishment of maintenance centers in other towns has also enhanced the quality of service in these towns\. V\. FINANCIAL PERFORMANCE 5\.01 Performance indicators for the ETA operating results and financial position during the seven-year period (1977-1983) are summarized in Table 6 and detailed financial statements are given in Annexes 9 to 11\. - 36 - Table 6: PERFORMANCE INDICATORS FOR ETA'S OPERATING RESULTS AND FINANCIAL POSITION FY ending June 30: 1977 1978 1979 1980 1981 1982 1983 Operating Revenue Appraisal 44,879 54,492 59,311 64,024 70,299 Actual 39,542 39,032 38,698 47,801 60,058 68,976 76,776 Operating Expense Appraisal 36,065 42,053 46,143 50,294 55,391 Actual 31,215 30,844 31,755 35,797 43,869 52,053 56,932 Net Operating Income Appraisal 8,814 12,439 13,168 13,730 14,897 Actual 8,291 8,188 6,943 12,004 16,189 16,923 19,844 Rate of Return on average net fixed assets book value Appraisal (%) 7\.0 8\.0 7\.9 7\.9 8\.0 Actual (%) 11\.1 10\.7 9\.1 14\.1 15\.0 13\.7 15\.4 Operating Ratio Appraisal (%) 80\.0 77\.0 78\.0 79\.0 79\.0 Actual (%) 79\.0 79\.0 82\.0 75\.0 73\.0 75\.0 74\.0 Current Ratio Appraisal (%) 2\.3 2\.0 2\.8 2\.8 2\.8 Actual (%) 2\.9 3\.1 3\.0 2\.2 2\.4 2\.8 2\.8 Debt/(equity+debt) ratio Appraisal (%) 52 54 54 56 57 Actual (%) 32 28 35 35 34 30 28 Debt service coverage Appraisal (times) 2\.4 2\.7 2\.2 1\.9 1\.7 Actual (times) 2\.8 1\.1 1\.9 1\.8 1\.5 1\.9 2\.4 5\.02 The financial performance of ETA during the project implementa- tion perioA has been satisfactory\. However, the operating revenues lagged behind appraisal estimates due to delays in project implementation\. In the first three years of the project (1974-1977), the annual operating revenues grew at an average of 5% per annum, but remained almost stagnant at about 39 million birr during 1977-1979 period\. Starting 1980, the annual operat- ing revenues grew at around 20% per annum\. The large increase in operating revenues starting 1980 was due to the tariff increase effective March 1980 and increase in traffic volume with the completion of some of the project components\. However, the average growth rate in operating revenue through- out the period of implementation works out to be about only 9% per annum as compared to the appraisal estimate of 13% per annum\. 5\.03 Operating expenses remained almost constant until 1979 after which they grew at an average of 16% per annum\. The average annual growth over the period 1974-1983 works out to be about )% which is lower than the appraisal estimate of 13%\. ETA's operating ratio has been satisfactory and well within appraisal estimates\. 5\.04 The rate of return on average net fixed assets were generally higher than the appraisal estimate of 7%\. After the tariff increase in - 37 - 1980 the rate of return has stood above 13%\. Annual financial rates are tabulated in paragraph 7\.04\. Financial Position 5\.05 ETA's financial position during the period FY1975-83 is reflected in the balance sheets which are given in Annex 10\. As of June 30, 1983, ETA's total net fixed assets, including the plant under construction amounted to about birr 146\.0 million, some 88% higher than in June 30, 1975\. ThA yearly accounts receivable due from subscribers continues to be high\. As of June 30, 1982 accounts due from subscribers stood at birr 27 million, equivalent to 35% of total revenue or 129 days of billing in that fiscal year\. Under the sixth telecommunications credit, ETA proposes to gradually reduce the proportion of accow\.ts receivable to a level of 20% of total revenue by the end of 1988\. 5\.06 The current ratio has been comparable to appraisal estimates\. The net long-term debt/equity ratio was lower than had been anticipated at the time of appraisal with net long-term debt at 34% of total capitaliza- tion in 1981, as opposed to the expectation of 47% at appraisal\. ETA was able to internally generate a higher percentage of its investment require- ments due primarily to slippage in the investment program\. Financial Plan 5\.07 The statements of actual (FY1974-83) and estimated (FY1974-81) sources and applications of funds are given in Annex 11 and summarized below: Table 7: ACTUAL AND ESTIMATED SOURCES AND APPLICATIONS OF FUNDS - - - - - -1974-1981- - - - - - Appraisal Actual 1982 & 1983 '000 Birr % '000 Birr % Actual SOURCES Internal generation 157,531 53\.0 117,661 53\.5 61,680 Borrowings 139,949 47\.0 78,752 35\.8 5,269 Increase or (decrease) in retained earning - - 23,463 10\.7 (5,004) Total sources 297,480 100\.0 219,876 100\.0 61,945 APPLICATIONS Debt service 71,237 23\.9 61,708 28\.1 28,586 Capital expenditure 224,878 75\.6 127,763 58\.1 21,819 Increase a working capital 1,365 0\.5 30,405 13\.8 11,540 Total applications 297,480 100\.0 219,876 100\.0 61,945 - 38 - 5\.08 It is difficult to make a direct comparison of the investment program and financing plan as appraised and as executed due to the delay in the implementation of the program\. However, as the table above indicates, during the period FY1974-81, cash generation was lower but capital expenditure was even lower than appraisal estimates so ETA was able to generate 44% of the funds requirements for investment from internal cash generation net of debt service during the period\. This compares with the forecast of 38% for the period estimated at appraisal\. According to the appraisal, borrowing includes not only the amount of credits 453-ET and 554-ET but also anticipated birr 52 million from the Sixth Development Programme Loan and birr 1\.5 million from another source, both of which did not materialize in time\. The variation in the capital expenditure is due to delays in the completion of the project and the start of the Sixth Development Programme\. Financial Covenants 5\.09 ETA has complied with all the financial covenants with the excep- tion of section 4\.02 whereby ETA is expected to furnish to the Bank audited financial statemtents within six months after the end of the fiscal year in question\. Reasons for noncompliance are detailed in paragraph 6\.10\. VI* INSTITUTIONAL PERFORMANCE Organization and Management 6\.01 The beneficiary's name has been changed from Telecommunications Service of Ethiopia (TSE) to Ethiopian Telecommunications Authority (ETA)\. The former name had replaced the original Board of Telecommunications of Ethiopia (BTE) which was used in the credit documents\. This change in name did not alter the legal status of the entity\. 6\.02 The administration of ETA has improved in many respects during the project implementation period\. This may be attributed to a number of factors, the main ones being the major reorganization made by ETA in line with the Bank's recommendations, the improvement in the tariff structure, the review of its administrative and personnel policies and procedures, and the timely restructuring of its service centres, etc\. At the time of negotiation, the Bank had recommended that the beneficiary should reorganize and strengthen its Finance and Supply Sector as well as its Planning Office\. Following that, ETA has created a Department of "Finance and Supply" making it responsible for coordination and supervision of the closely related activities of the two divisions\. ETA has also reorganized its Planning and Programing Office and made it report directly to the General Manager\. 6\.03 In order to meet the increased demand for its services, ETA has decentralized its customers' service activities in the capital city by establishing area offices at various parts of the city\. New customers' service offices have been opened at the other six regional centers also - 39 - during the project implementation period\. In addition to these (depending on the number of subscribers and volume of traffic they handle, etc\.) a number of new sub-area offices have been opened and existing sub-area offices have been upgraded to area offices and area offices to higher area offices\. 6\.04 The delay and inconvenience caused by building contractors in the past has also given rise to the need to strengthen the Building Branch to a full fledged Civil Engineering Division thus making it self-sufficient, efficient and cost effective\. 6\.05 ETA has a strong and stable technical and management team who have contributed to the continuity and effectiveness of the organization\. Staff Recruitment, Training and Development 6\.06 The number of staff grew rapidly at the beginning of the execution period (due to change in the labor proclamation of the country and the subsequent rulings of courts); but it was brought urier control at a later date\. In the first four years of the project total staff grew at about 6\.5% per year until 1980 and subsequently the average annual growth rate fell to about 2\.5%\. At the time of appraisal, the projected staff ratio was set at 38 per 1,000 telephones by the end of FY 1978\. During 1975-1980 this ratio remained at an average of 55 because of the high staff growth rate and the slow rate in connecting new telephones, arising from delay in the implementation of the project\. The staff ratio improved from 56 to 46 during 1980-1983\. This ratio is considered reasonable by African standards\. In 1983 this ratio was 112 in Kenya and 81 in Tanzania\. 6\.07 The UNDP/ITU-assisted project for the upgrading of the Telecommunication Training Institute for the period 1981-1983 has been successfully implemented and as a result, counterparts were trained, training equipment was purchased, new courses were developed and existing courses were updated in line with the objectives of the project\. In order to supply the necessary manpower required by the project, intensive training was conducted locally and abroad\. Part of the local training was conducted by equipment suppliers and most of the training abroad was conducted at suppliers' factories\. The number of staff trained in each engineering category is shown in Annex 12\. Accounting 6\.08 ETA has maintained records adequately to reflect its operations and financial conditions\. During the project period the quality of accounts improved mainly through the training of clerical staff and supervisors\. - 40 - Audit 6\.09 Up to June 30, 1977 external audit work used to be carried out by private auditing 'trms\. From 1978 onwards, external audit work has been carried out by t a Audit Service Corporation which is an autonomous organization so arvised by the Government General Auditors Department\. Staff members \. the Corporation are qualified accountants with experience in commercial auditing\. The quality of audit meets acceptable auditing standards\. 6\.10 The development credit agreement for credit 554-ET provides for ETA's furnishing IDA with its audited financial statements within six months of the end of its fiscal year\. ETA has not been able to comply with this covenant\. The delays, partly attributable to ETA, arise from the following: - accounting work is processed manually; - delay in the processing and distribution of bills has hampered the timely submission of monthly statements by regional offices to headquarters for final processing and incorporation with general accounts; and - high turn-over of experienced accounting staff members\. Tariffs 6\.11 ETA's tariffs remained unchanged for about 27 years until March 1, 1980\. With the exception of increase of the local call charge from birr 0\.06 to birr 0\.08 in April 1971, the charges for other services remained as fixed at the inception of ETA in 1953, in spite of considerable rise in the cost of providing services to meet increasing needs of funds for plant rehabilitation and investment activities\. ETA secured Government approval for tariff increase effective March 1980\. Accordingly, the unit fee for a metered call was increased by birr 0\.04 to become birr 0\.12 and the tariff for operator-handled interurban telephone calls increased by 15%\. Also, the birr 0\.10 fee for a pay telephone urban call increased to birr 0\.20\. A minimum monthly bill of birr 8\.0 has been introduced also to replace the previous minimum monthly bill of birr 5\.0\. Charges for international services remained the same during the project period\. The present tariff structure is given in Annex 13\. VII\. PROJECT JUSTIFICATION Project Achievements 7\.01 The objectives of the project have been largely achieved, though it has been subject to considerable implementation delays\. The long distance network has improved and expanded through replacement of open wire routes by high capacity microwave systems, and the quality of the interna- tional telecommunications services improved through the installation of an - 41 - earth station\. The program also enabled ETA to partially keep pace with the telephone demands by increasing the capacity of local telephone exchanges and cable networks (para 4\.02)\. Financial Internal Rate of Return on Investment 7\.02 In projects where new capital is being added to an existing network, it is quite difficult to identify the exact output resulting from the fresh investment\. Therefore, the financial internal rate of return (FRR) has been calculated on the overall expansion program of the ETA during the years of the project execution (1976-83)\. 7\.03 The calculations are based on the following assumptions: (a) the entire cost of the investment program for 1976-83 has been taken as the investment cost; (b) operating costs and benefits relating to the increment in the network has been determined by calculating the increase in operating costs and revenues each year with respect to 1976 operating costs and revenue; (c) no replacement costs or residual values of fixed assets have been taken into account; and (d) the annual flows have been lagged one year behind related investments to account for the installation, connection and commissioning period\. FRR on the basis of the assumptions is 10\.4% in real terms\. A summary of the program's incremental cost and benefit streams is given in Annex 14\. All revenues and costs have been deflated to bring them to their comparable 1983 price levels\. Annual Financial Rates of Return 7\.04 The rate of return on average net book value of fixed assets is found to be satisfactory and in line with the covenant\. The returns have been consistently higher than appraisal estimates\. The difference has been larger since 1980\. This is due to the increase in tariffs, which increased average revenue per DEL by over 15%\. The annual financial rates of return estimated at appraisal and actual over the 1975-83 period are shown in the following table\. Table 8: ANNUAL FINANCIAL RATE OF RETURN (Book Value) Fiscal Year Actual Appraisal 1/ 1975 11\.2% 8\.4 1976 11\.3% 7\.1 1977 11\.1% 7\.0 1978 10\.7% 8\.0 1979 9\.1% 7\.9 1980 14\.1% 7\.9 1981 15\.0% 8\.0 1982 13\.7% - 1983 15\.4% - 1/ Estimated until 1981 at the time of appraisal\. - 42 - Economic Rate of Return 7\.05 The financial internal rate of return underestimates the benefits to be derived from the program\. It does not take into account consumer surplus and indirect and external benefits received by nonusers of the telecommunications services\. Due to insufficient data, it is difficult to calculate an accurate economic rate of return, An approximate economic rate of return, which represents a minimum, has been calculated by adjusting the costs and benefits used for financial rate of return for taxes and duties and by applying a standard conversion factor of 0\.80 to local costs and revenues\. Even with the implementation delay the estimated economic rate of return for the program is 16\.6%, as compared to the appraisal estimate of 13\.4%, mainly due to much higher tariff increase than estimated at appraisal\. If there had been no increase in tariffs, the ERR would have been 11\.1%\. The cost and benefit streams are shown in Annex 15\. VIII\. BANK PERFORMANCE 8\.01 The overall Bank performance of this project has been good\. Through four previous telecommunications credits to the Government of Ethiopia, the ETA, under the supervision of the Bank, had achieved self-sufficiency in its capability to plan and implement telecommunication projects\. Thus, at the start of the project, the Bank was confident that the project would be implemented as planned\. At the same time, the Bank identified those areas in ETA's management that needed further consolida- tion, and to effect this, relevant covenants were incorporated in the project agreement to strengthen ETA's financial management\. 8\.02 A total of nine supervision missions were conducted during the implementation of the project\. These are considered adequate given the fact that ETA had already built up an implementation capability during the first four projects\. Through supervision missions, the Bank monitored the implementation of the project very closely and gave requisite technical advice\. 8\.03 While the Bank's expectations at appraisal were quite sound, the implementation schedule and operating forecasts could not be accomplished as planned because of the effects of the Ethiopian revolution in 1974 and of the subsequent unrest particularly in the Eastern and Northern parts of the country\. ETA suffered heavy set-backs during the revolution, both in regard to its staffing and to its technological development\. Therefore, the project did not impart the institutional development to the extent that had been envisaged at the time of appraisal\. The Bank maintained a very flexible attitude towards minor revisions of the project package in order to accommodate circumstances that had been created by the unrest\. 8\.04 The other major reason for delays in the implementation schedule, and in some cases revision of the project, was the lack of suitable civil works contractors in Ethiopia\. In retrospect, perhaps this is a subject which the Bank could have addressed at a greater depth during appraisal stage\. - 43 - 8\.05 A total of US$4\.03 million allocated for the satellite earth station had to be canceled because of misprocurement\. The Ethiopian government decided to place the contract with a supplier contrary to guidelines issued by the Bank, as explained in paragraph 3\.06\. Working Relationship 8\.06 The working relationship between the ETA and the Bank was excellent\. The project was implemented during a time when major economic and social structural changes were taking place\. Despite these special conditions the Government of Ethiopia and the Bank maintained frank and cordial relations\. This is demonstrated by the fact that cancellation of the satellite earth station portion of the credit was reached after considerable frank dialogue between the Government of Ethiopia and the Bank\. The sixth credit, which was approved by the Bank in June 1984 is an offspring of this good relationship\. IX\. CONCLUSIONS 9\.01 The project was prepared and executed by a fully Ethiopian management team with occasional guidance from the Bank during supervision missions\. Although the implementation schedule slipped by about four years, for reasons mostly beyond ETA's control, the implementation of this project has again demonstrated that organization and the management were capable of handling both the project as well as the operations of ETA\. This capability first became evident during the implementation of the fourth project\. 9\.02 The anticipated impact of the project was very much curtailed by the long delays in completion, basically caused by the effects of the Ethiopian revolution in 1974 and of the subsequent unrest particularly in the Eastern and Northern parts of the country\. Despite the project implementation slippage both ETA and the country have benefitted from the credits\. 9\.03 During the revolution, and the years immediately following, ETA saw its largest turnover in trained and experienced personnel\. A significant number of its senior staff left the organization\. The fact that, despite these difficulties, ETA managed to execute the project and maintain a good quality of service is proof that the organization is intrinsically sound\. This has been achieved through long concerted effort by the Bank to emphasize institutional building in all the previous loans that had been granted to Ethiopia\. 9\.04 One of the major objectives of this project was to meet forecasted servico demand at project completion\. The late completion date, coupled with the Government's increased effort in economic activity, have given rise to a large unsatisfied demand, unpredicted at the time of appraisal\. - 44 - 9\.05 ETA does not have the necessary financial resources to satisfy Ethiopia's telecommunications demand, therefore, there is a need for the Bank to continue its presence in this sector\. The Bank, through the sixth credit has provided a portion of the foreign exchange needed for expansion of the network and at the same time acted as catalyst for other cofinanciers\. Through the sixth credit, the Bank will ensure that: (a) project planning remains sound with proper balance between urban and rural facilities\. (b) ETA's procurement procedures are streamlined in order to achieve economy and efficiency in the execution of projects; (c) ETA's institutional development is strengthened to make up for shortcomings in this project and to maintain a sound business oriented entity; and (d) ETA plays its part in contributing financial resources to the public treasury\. - 45 - Annex 1 PROJECT CCHPLETION REPORT ETBIOPIAN TELECOMMUNICATIONS AUTHORITY Compliance with Covenants of Project and DevelogMent Credit Agreements Section Project/ Report Credit/Agreement Brief Description of Covenants Status Para P A 4\.01 Maintain records adequate to reflect its operation and financial condition Complied 6\.08 P A 4\.02 (1) ETA shall have its accounts audited by independent auditors acceptable to the Association Complied 6\.09 P A 4\.02 (ii) Furnish to the Associalton not later than six months audited financial state- ments and auditors' report Not Complied 6\.10 P A 4\.02 (iii) Furnish to the Association such other information concerning the accounts and financial statements per the Associa- tion's requests from time to time Complied 6\.08 P A 4\.03 Except as the Association shall other- wise agree ETA ehall not incur any debt unless ETA's net revenue for the fiscal year next preceding the date of such incurrence of for a later twelve-sonth period ended prior to the date of such incurrence, whichever is the greater, shall be not less than 1\.5 times the maximun debt service requirements for any succeeding fiscal year including the debt to be incurred Complied 5\.06 P A 4\.04 Except as the Association shall other- wise agree ETA shall take all necessary steps to provide sufficient revenue to produce an annual rate of return of 7% before completion of the project and thereafter an annual return of 8% Complied 5\.04 D C A 3\.01(b) The Borrower shall relend the proceeds of the credit to the Board under a Subsidiary Loan Agreement to be entered into between the Borrower and ETA under terms and conditions which shall have been approved by the Association Complied 1\.03 - 46 - ANNEX 2 Page 1 of 2 PROJECT COMPLETION REPORT ETHIOPIAN TELECOMMUNICATIONS AUTHORITY Project Revisions The following were the major changes in the project makeup\. a) The plan envisaged the installation of a 3,000 line automatic local telephone exchange in the town of Asmara\. Although the contract for the equipment had been signed competitive tender, for a lack of competent civil works contractors, this could not be realized during the 5th programme\. The matter was brought to the attention of the IDA and clearance obtained to reallocate the funds for this component\. Accordingly a supplementary contract was concluded with the supplier to expand Addis Ketema and Bole telephone exchanges by 2,000 and 5,000 lines respectively in lieu of the 3,000-line local telephone exchange originally planned to be installed in Asmara\. b) Plans to expand the Addis Ababa 400 line semiautomatic electromechanical telex exchange to 700 lines had to be revised during the implementation of the project because it was found out the expansion could only be executed with the whole exchange switched off\. In order to avoid the inconvenience and eventual loss of revenue that would result, ETA decided, after consultation with the Bank, to install an entirely new 700 line fully automatic stored programme controlled telex exchange, thus taking advantage of the new technology\. c) Coaxial cable links had been initially planned for the routes Jimma-Agare and Shashmene-Awassa\. However, considering the difficult terrain and the possible security risks it was later decided to implement these projects using 120 channels UHF radio system as spur links from the back- bone microwave links Shashemene-Moyale and Jimma-Nekempti- Mettu respectively\. d) It was planned to install an automatic local telephone exchange of 8^0 lines capacity in the town of Agaro\. Hovever, it Iacame impossible t* get suitable building coatractors 'o erect the building for the exchange in this town\. The &-change was then installed in the town of Bahir - 47 - ANNEX 2 Page 2 of 2 Dar where the demand for such an exchange was justified and the building could be erected without much difficulty\. e) Broadband back-bone microwave system (960 CH + TV) was implemented on the Addis Ababa-Gondar Route in place of the Asmara-Tessenet Route which could not be carried out as originally planned due to security problems encountered in the area\. f) Gore-Mettu-Nekempti-Agaro-Jimma was provided with high capacity Microwave System in place of the originally planned high capacity system, Addis Ababa to Nekempti-Ghimbi because of security problems along this route\. g) The amount allocated in the project for the satellite earth station component, US$4\.03 million was canceled because the criterion by which the successful bidder was selected was not acceptable to the Bank\. This part of the project was implemented using a loan from the Agro Industrial Development Bank of Ethiopia\. PROJECT COMPLETION REPORT ETHIOPIAN TELECOMUNICATIONS AUTRORITY Vth DEVELOPMENT PROGRAM (1974-1978) \. Planned Project Implementation Schedule Actual Item No\. Description of Projects 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 l URBAN TELEPHONE 1\.1 Urban Exchanges \. \. \. \. \. 1\.2 Urban Network \. \. \. 1\.3 Subseriber Plant \. \. 2 INTERURBAN TE\.EPHIONE 2\.1 Interurban chagen \. \. \. 2\.2 Interurban Circuits \. \. \. \. 2\.3 Trans~ission Systems \. \. \. 2\.4 Radio Relay VFI/UF \. \. \. Systems 3 Telex and Telegraph \. \. \. \. 4 International Service \. \. \. \. 5 Pover Supply \. \. \. 6 Building \. \. 7 Motor Vehicies \. \. 8 uiire PIDMATC COMPITIN REPORT MOPIAN TEEOMUNICATIONS AUTHORITY -RCREIf DffAIL Dates of Bid Openings Order and Total Contract TENDBR DME OF BID DATE OF GPENIN DTE OF CRDER CDNTRACr MOUNT IN DESCMIri go\. uwTmTION 0 BIDS PLACED US$ 1 Telephone Cable 7/73 Feb\. 22/73 May 8/73 March 21/74 744,546\.30 2 0 f W March 29/74 305,571\.00 3- Measuring Instrument 10/73 July 1/73 Sept\. 15/73 Jan\. 15/74 123,648\.00 4 Feb\. 2/74 1,882\.82 5 M " " Narch 25/74 3,639\.30 6 9" 9" June 6/74 2,577\.20 7 9 " April 9/74 25,401\.13 8 Magneto Apparatus 13/73 Nov\. 24/73 Feb\. 8/74 July 10/74 59,994\.50 9 " " June 4/74 27,233\.80 10 Radio wmitory Equipat\. 5/74 March 17/74 Nay 21/74 Mov\. 8/74 27,287\.68 11 Open Wire Carrier Equt\. 7/74 March 16/74 June 29/74 Feb\. 25/75 291,934\.00 12 " - f" 255,091\.00 13 Power Equipment 8/74 April 26/74 July 31/74 Feb\. 4/75 124,562\.62 14 w9 " " " 210,928\.00 15 Ship to Shore HP' Eqat\. 9/84 April 18/74 July 13/74 March 17/75 18,570\.00 16 Telephone Apparatus 15/74 Aug\. 1/74 Nov\. 10/74 May 15/75 252,128\.00 17 Hard Drawn Copper Wire 16/74 Aug\. 1/74 Nov\. 16/74 March 12/75 71,595\.00 18 Coin Box Telephone Ape\. 18/74 Aug\. 21/74 Nov\. 21/74 Feb\. 6/75 61,827\.00 19 Local Bechange(Transit) 22/74 Oct\. 14/74 Feb\. 4/75 Feb\. 6/75 1,760,525\.95 20 Wir\. 11ronze 23/74 Oct\. 9/74 Jan\. 10/75 June 6/75 183,272\.50 21 International Exchange 2/75 Feb\. 5/75 May 6/75 May 15/76 785,070\.28 22 Microwave Project 4/75 April 1/75 Aug\. 6/75 June 30/76 4,882,279\.85 23 Magneto Telephone Aps\. 7/75 May 19/76 Aug\. 29/75 March 15/76 37,164\.00 24 Tel\. Apparatus v/Earth 11/75 July 4/75 Oct\. 29/75 May 5/76 53,540\.37 25 Satellite Earth Station 14/75 Aug\. 7/75 Dec\. 18/85 26 Various Cable 18/75 Aug\. 25/75 Nov\. 28/75 June 1/7 2,475,573\.22 27 Teleprinter 22/75 Oct\. 22/75 Feb\. 3/75 June 22/6 368,856\.61 28 Hard Drawn Copper Wire 6/76 April 10/76 July 6/76 Nov\. 15/6 154,754\.00 29 Line By-Pass Filter 17/76 July 14/76 Oct\. 14/76 April 22/76 134,361\.15 30 Matching Transformer " " " 10,931\.28 4 31 Terminal Box & Wire 0 a) (Terminal Box) 20/76 Aug\. 13/76 Nov\. 23/76 June 23/7 18,794\.59 32 b) Drop Wire " " " " July 4/7 186,101\.b9 33 c) Jumper Wire June 27/7 9,265\.00 34 Manual Exhange 21/76 Aug\. 26/77 Nov\. 26/76 July 4/77 104,952\.87 TENIER DATE OF BID DATE OF O1PEING DATE OF ORDER (DNTRAC MONT IN DESCRIPTION NO\. IWITATION OF BIDS PLACED US$ 35 Single Channel VHF Eqmt 22/76 Sep\. 1976 Nov\. 30/76 May 12/77 305,571\.00 36 Subscriber Equipment 24/76 Sep\. 13/76 Dec\. 24/76 Aug\. 10/72 232,392\.00 37 Local Exchange 28/76 Nov\. 1976 March 23/77 Dec\. 9/77 4,938,864\.96 38 Magneto Telephone 29/76 Nov\. 1/76 Feb\. 8/77 Aug\. 10/77 101,516\.50 Apparatus 39 Stored Programme EDX 1/77 Jan\. 11/77 May 24/77 Oct\. 7/77 778,934\.00 40 Coin Box Telephone 4/77 Jan\. 20/77 April 29/77 Nov\. 10/77 144,647\.80 41 Measuring Instrument 8/72 May 17/77 Aug\. 19/77 June 7/78 76,091\.00 42 * * " " May 10/78 178,600\.00 43 " May 9/78 48,905\.60 44 - " May 24/78 85,792\.00 45 Automatic Telephone 10/77 June 10/77 Dec\. 16/77 June 22/78 276,398\.79 Apparatus 46 Magneto Exchange 12/77 Aug\. 2/77 Nov\. 11/77 March 24/78 111,365\.00 47 VHF Equipment 14/22 Aug\. 17/77 Nov\. 25/77 May 30/78 408,598\.00 48 Stand by Generator 15/77 Aug\. 26/77 Nov\. 30/77 July 11/78 129,531\.00 49 Copper Weld Wire 16/77 Sep\. 1/77 Dec\. 7/77 Aug\. 21/78 237,337\.00 50 Lead Acid Batteries 18/77 Sep\. 21/77 Dec\. 30/77 June 28/78 81,127\.00 51 Swan Neek Bracket 20/77 Oct\. 10/77 Jan\. 19/78 Dec\. 13/78 64,980\.00 52 Forcilin " " " 160,953\.00 53 5 Channel VHP-UHF 2/78 Jan\. 2/78 April 12/78 Sep\. 28/78 228,325\.00 54 Dry Cell Batteries 5/78 Feb\. 13/78 April 22/78 Aug\. 29/78 88,695\.00 1 55 Subscriber Equipment 6/78 Feb\. 13/78 June 14/78 Oct\. 17/78 335,835\.35 Ln 56 Wire Bronae 11/78 March 13/78 June 21/78 Nov\. 16/78 217,320\.00 c 57 Diesel Fork-Lift 13/78 April 21/78 July 12/78 Sep\. 23/78 26,987\.16 58 Motor Vehicle 14/78 April 25/78 July 4/78 a) Jan\. 22/79 143,007\.51 b) 547,504\.53 59 Air Conditions & FANS 23/78 Aug\. 18/78 Nov\. 21/78 Nov\. 27/79 231,900\.93 60 Self Supporting Cable 30/78 Dec\. 27/78 April 10/78 Oct\. 4/79 489,446\.78 61 Hrd Drawn Copper 4/79 Feb\. 1979 May 1979 Oct\. 11/79 305,958\.13 62 Solar Generator 8/79 March 30/79 July 3/79 Nov\. 1979 18,265\.00 63 Teleprinter 11/79 My 3/79 Aug\. 16/79 Jan\. 23/80 648,922\.32 64 PABK & PNZ 13/79 July 13/79 Nov\. 8/79 \.pril 1/80 831,673\.20 65 Paper Insulated Cable 17/79 Sep\. 22/79 Nov\. 22/80 April 18 f80 1,174,133\.58 66 Motor Vehicle 23/79 Nov\. 28/79 Feb\. 26/80 June 28/30 286,704\.00 a) " " " " " 49,524\.00 b) *9 \. " " 61,295\.48 36,480\.00 67 T\.D\.M\. 2/80 Jan\. 9/80 April 9/80 150,005\.95 68 Telephone Apparatus 3/80 May 7/80 May 7/80 74,927\.55 00 W/E/bute a 69 Motor Vehicle 23/79 Jan\. 30/80 232,292\.00 N 70 Motor Vehicle 23/79 July 30/80 49,524\.00 0 - 51 - AMEX 5 ImlECr G 1TIM 1E0 Pnoject Costa (7n 00079 Birr) 1UL Appr~ia E ~~me 2m &n Appas lsee A~ta c Prtrao~s c Foreign Ttal 1) I~a xhneeuP- mt, ubcribers distribution netuorks ard Uscribera Plant 11,421 30,172 41,593 11,520 31,740 43,260 23,168 36,263 59,431 2) Mirowe, mltipl=x eqnFn , open vire lin ra=tial, carrier systa ani ~rn uitchirg equ~\.p~ent 7,082 17,674 24,756 6,820 16,600 23,420 6,945 20,893 27,838 3) Farth satellite station idth SPAIE tenginal, international telephon exhage connectims =lcrowve system, IF equint and cowultmmy service 2,489 9,650 12,139 2,570 10,090 12,660 3,659 8,089a/ 14,064 4) Teleprinter, telegraph and telec extension equLpment 325 1,495 1,820 610 2,890 3,500 1,347 4,083 5,430 5) Vehicles, tools instr- mats ar traini", por ard air con- ditionir equ~tiu 2,807 6,597 9,404 2,650 6,230 8,880 5,352 5,529 10,881 6) Bui~dn 13,341 433 13,774 13,340 430 13,770 11,668 - 11,668 7) Uallcated 3,372 6,784 10,15 7,630 12,420 10,0_0 Ttal Project Cst 40,837 72, 5 113,642 45,140 80,400 125,540 52,139 77,173 129,312 Variation fram revised apprasal estimate +15\.5% 4% +3% \.a Financed by local Bnk\. - 52 - ANNEX 6 PROJECT COMPLETION REPORT ETHIOPIAN TELECOMMUNICATIONS AUTHORITY Cumulative Disbursements (In US$ Millions) Fiscal TOTAL Year APPrAISAL ESTIMATE ACTUAL DISBURSEMENTS ACTUAL Ending Credit Credit Total Credit Credit Total AS % OF June 30 453-ET 554-ET 453-ET 554-ET APPRAISAL 1974 1\.2 1\.2 - 0 1975 3\.8 3\.8 \.7 - 0\.7 18 1976 12\.6 12\.6 2\.4 - 2\.4 19 1977 21\.4 2\.8 24\.2 7\.5 - 7\.5 31 1978 21\.4 12\.0 33\.4 12\.5 12\.5 12\.5 37 1979 21\.4 16\.0 37\.4 19\.9 19\.9 53 1980 21\.4 16\.0 37\.4 21\.4 4\.3 25\.7 69 1981 21\.4 16\.0 37\.4 21\.4 9\.4 30\.8 82 1982 21\.4 16\.0 37\.4 21\.4 11\.4 31\.4 84 1983 21\.4 16\.0 37\.4 21\.4 12\.0 33\.4 89 37\.4 33\.4 89 - 53 - ANNEX 7 PROJECT COMPLETION REPORT ETHIOPIAN T ICOMCATIONS AUTHORITY Allocation on Disbursement Categories (In US$ millions) Credit 554-ET Total Actual Credit Orig- Re- Orig- Re- Disburse- Cateory 453-ET inal vised inal vised ment 1\. Local exchange equipment, 7\.60 6\.30 8\.28 13\.90 15\.88 17\.53 subscriber distribution net- works and subscribers plant II\. Microwave, multiplex equip- 4\.40 3\.60 5\.05 8\.00 9\.45 10\.09 aent, open wire line material, carrier systems and trunk switching equipment III\. Earth satellite station with 4\.70 0\.20 0\.03 4\.90 4\.73 1\.13 SPAMB terminal, international telephone exchange, intercon- necting microwave system, HF equipment and consultants services IV\. Teleprinters, telegraph and 0\.40 1\.00 1\.15 1\.40 1\.55 1\.98 telex extension equipment V\. Vehicles, tools, instruments 2\.20 1\.00 1\.49 3\.20 3\.69 4\.67 and training, power and air conditioning equipment VI\. Unallocated 2\.10 3\.90 - 6\.00 2\.10 Total 21\.40 16\.00 16\.00 37\.40 37\.40 33\.40 Note: Revision of allocation was approved by the Bank on December 18, 1980\. - 54 - WmECr 00IIU!IN UPOD Statistical Data PARCUARM 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 No\. of felepone atations 57,188 73,657 67,255 70,280 76,068 79,606 81,902 86,159 91,551 98,739 107,616 No\. at sub~erir co~ectiom (EL) 41,013 46,245 49,246 52,100 57,191 59,326 61,165 64,079 68,792 76,270 e3,965 Autot 35,707 39,970 42,539 44,786 48,769 50,269 51,839 53,617 57,711 64,298 71,573 mul 5,306 6,275 6,707 7,314 8,422 9,057 9,326 10,462 11,081 11,972 12,392 An~ua grouth in DEL x 8\.91 12\.78 6\.49 5\.79 9\.77 3\.73 3\.10 4\.76 7\.35 10\.99 10\.00 ø\. of talaphne ~hages 281 300 302 310 322 323 330 351 377 386 397 ann tc 16 16 16 16 16 16 16 16 19 21 23 Nanma 265 284 286 294 306 307 314 335 358 365 374 Imtalled capacty of telphone eebange 64,325 67,815 69,135 70,210 75,830 76,575 76,670 79,650 89,590 107,800 113,255 4toatic 52,790 55,300 56,800 57,250 61,250 61,650 62,500 63,100 69,500 85,400 92,000 Nau 11,535 12,515 12,635 12,960 14,580 14,925 14,170 16,550 2,090 22,400 21,255 Exchan8 fill autotie e~ha,gs yearly (x) 67\.62 72\.28 74\.89 78\.23 79\.62 81\.54 82\.94 84\.97 83\.04 73\.29 77\.80 Waiting liat for telehon comettons 21,680 16,220 23,000 29,200 TE\.X~a 4AD TE=2 n=ber of EzGraph Office& 281 300 302 310 322 323 330 351 377 386 397 Numbr at tlaz office 4 4 4 4 4 4 4 1 1 1 1 Nube of telex subscribs 250 271 276 285 310 347 372 416 463 518 562 INZERNATI L YIL1IS Telephoecirculta\. 20 22 23 23 20 20 8 8 6 1 1 T~R DIST4=C TE~M N Total No\. of øng dsta~ circulta - 962 1,302 1,410 1,463 1,627 1,823 2,369 2,441 2,461 2,573 open ~ire carrier cnaal - 468 467 544 596 626 629 666 681 704 767 i~crowave Chan~a - 280 619 646 658 790 966 1,439 1,487 1,487 1,487 Pthyscal ircuits - 187 189 193 169 168 173 209 212 209 258 EF radio rcits - 27 27 27 40 43 55 55 61 61 61 Telephon circuits K\.W\. - - - - - - - - 32 32 Satellite - - - - - - 30 30 39 46 56 Telegraph circuits F 14 14 14 14 13 13 5 5 5 3 3 %\.W\. - - - - - - - - 7 2 2 satiute - - - - - 8 8 8 8 8 Telex 27 30 36 36 36 36 36 11 11 1 1 M\.V\. - - - - - - 74 74 77 7 7 Satellite - - - - - - 74 74 77 77 77 Total telecoun atim - - 3,500 3,907 4,108 4,316 4,506 4,635 4,789 4,869 4,979 o\. of atøleco~\. cian - - 56 56 54 54 55 54 52 49 46 Statt per 1,000 telephne - Telphoe revenu par DE\. (Irr) - - 693\.6 667\.3 691\.4 657\.9 632\.7 746\.0 873\.0 904\.4 914\.4 Oparating cot per DEL (Birr) - - 529\.8 600\.8 546\.4 519\.9 519\.2 558\.6 637\.7 682\.5 678\.0 Mote: Number at talea ex hanges aa of June 1980 le du to the *ntroductIon of fully a•*matie øwa e and all tel~x submcribers are connected to Addi Ababa\. - 55 - ANNEX 9 Ei wkv kg+& kk | 1 g e, øf p:d 4-ne \. A -: Om r~ tø in ø i t; a IM a*s o\. ~ ~~I 5 - * kg 4 R- -\.Qn - 40 kn - \.- l -IIAt Ie gn før~- - ~-- I! ~ at Ifl læ Ie Â－」盼 , 쓰뜨스｀」느 l!-；。―-,- [- 「 Eng~ IZLW»~CÆM AMWRM ~ FIM 9DCEMOM ýIn "mus~ C-F-sh-y 1974 SD( M0~ 1915 1976 1977 1978 1979 19ffi lm 1982 xim ML ACIM APP- ACIM ML AMML AM ACIM AFIL Acný AHL ACM AcM =M SMW4CES ~ SOURCM - wr ucm U«~ 5,871 4,006 6,523 8,066 6,M 3,467 8,814 8\.291 12,439 8,188 13,168 6,943 13\.731 12,004 14,8" %, M 16" 19,%4 - rølm= m 5 355 5 344 -5 967 5 148 7\.065 5412 8797 6047 10\.584 6882 liaý 3 502 12\.3% 8\.135 13\.M 10" 12 199 12714 11,226 9,350 12,490 Jtý14 13,913 8,8" 17\.611 14,33% A023 15,070 24,689 10,445 28,087 M,139 28,492 Z,227 jýiti ffiW INCF~ (rÆa~) IN R&%~ FAWM« 1\.607 23 (163) 291 11,347 1,070 - 6,345 - 2,%2 2>3 (7,547) fx G«» SUPPLIMS AM IEW 4411605 SIM 9,029 1,986 - 2,417 - 1,093 24 54 - 163 - 729 IDA 4531554--n 3,032 - 11,75R 1,453 23,127 3,497 6,383 10\.574 10,311 - 15,299 M,0M 12,046 - 10,646 4\.068 1,2M AIDB - 6,916 SFO - - - - MINLSM CP Fl~ LOM - - - - - - - - - - - 975 - - PRM~ WM 6t1h D\.P\. - - - - - - 17,429 - 14\.950 741 - 22,000 - - - KMW WM 7th D\.P\. - - - - - - - - - 10,000 - - - - - IDA - PFMOSM CREDIT - - - - - 1\.000 - 500 SMKES 23,2B7 12,943 24,248 17,107 37,040 13,306 42,423 25,2Z7 38,473 36\.782 35\.43D 33\.M 46,(87 39\.83B 50,4% 40,790 35,733 26\.212 ^GtmeNs Op~^ WrIlmem - wmom aw[M (463) (2,009) %4 383 657 2,021 1,078 17\.224 1,653 12,533 1,113 13,603 1\.116 (17,070) 1,386 (249> 733 7,345 - DM MMICE 3,6% 1,869 4,471 3,760 5,M 4\.3!Q 7\.449 5,053 8,489 14\.758 10,974 5,674 13,M 9,0% 16,%4\. 17,146 15\.270 13,316 - Drvl~ - - - - TorrAL -S-M -TZ) 3-4ý Z-143 rW ýr 373 ý9327 2277 148 77-291 -f 2 -(B7 T4WS ý7974) 7 SA 0 T6 M7 T6W 20661 - IV-INVES~ PW~ 10,124 10,084 - 10,026 - - - - - - - v -DVEg= M~ 9,399 - 21,299 - 38,994 1,665 33,172 9,412 21\.559 14,524 871 18,423 - 43,737 19,8% l 1,(B7 10,453 - F= uffm~ - - - ---Z- - - 8\.500 18\.000 ~ 30\.000 33\.OW 279 - TmkL AMIMIM 22,716 9,944 26,694 14,169 45,476 8,038 41,699 31,689 40,207 41,815 30,958 37,700 44\.945 35,763 50,930 35,789 27\.369 31,114 tzi - CAM Muuz (rWICM 571 2,999 (2,446) 2,938 (8,436) 5,268 724 (6,462) (1,734) (5,033) 4,472 (3,817) 1,142 4,075 (43B) 4,001 8,364 (4,902) - CA91 BBGD~ OF YFAR 7,142 9,262 7,713 12,261 5,257 15,199 (3,169) 20,467 (2,445) 14,005 (4,179) 8,972 293 5,155 1,435 9,230 13\.231 21\.595 - CAM EM (W YFAR 7,713 12,261 5,267 15,199 (3,169) 20,467 (2,445) 14,005 (4,179) 8,972 (293) 5,155 1,435 9,230 997 13,231 21^ 16,693 - 58 - ANNEX 12 PROJECT COMPLETION REPORT ETRIOPIAN TELECOMMUNICATIONS AUTHORITY Training Statistics During 1975-1983 Course 1975 1976 1977 1978 1979 1980 1981 1982 1983 I\. Technical 104 100 50 34 38 38 150 158 136 II\. Management Finance & Stores - 44 36 49 26 - 144 85 58 III\. Traffic 24 35 74 33 141 73 75 130 96 IV\. External Studies Abroad 19 16 24 31 3 9 9 8 11 Total 147 195 184 147 208 120 378 \. 381 301 - 59 - ANNEX 13 Page 1 of 2 PROJECT COMPLETION REPORT ETHIOPIAN TELECOMMUNICATIONS AUTHORITY SUMMARY OF PRINCIPAL TELECOMMUNICATIONS TARIFFS (In Eth\. Birr) A\. Telephone Rental Charge Annual Rental Type/Capacity of Exchanges Exchange Line Extension Res\. Bus\. - Annual - Annual rental for Addis Ababa 60\.- 60\.- 72\.- and Debrezeit - Annual rental charge for Asmara 96\.- 180\.- 72\.- - Annual rental charge for exchanges of 21-200 subscriber capacity 72\.- 144\.- 72\.- - Annual rentals for exchanges with capacity of less than 20 subscribers 60\.- 120\.- 72\.- - Outdoor extension per 50 meters distance 1\.80- 1\.80- 1\.80- B\. Connection charge for line/extension Initial subscription charge for one main line 115\.- Initial subscription charge for one extension line 75\.- Outdoor extension per 50 meters distance 5\.- C\. Move charge for main line/extension Move with in the same room 10\.- Move to another room in the same building 15\.- Move to another -ouse in the same town 30\.- Move to another town 30\.- D\. Call Charges Up to Up to As From 1971 02/28/80 03/01/80 Local call charges (per call) \.0 0\.08 T0\.1 - 60 - ANNEX 13 Page 2 of 2 Up to As From E\. Manual trunk call charges (per 3 mins\.) 28/2/80 1/3/80 Up to 20 km 0\.20 O\.2T 21-50 0\.30 0\.35 51-100 0\.50 0\.60 101-200 " 0\.70 0\.80 201-300 " 0\.90 1\.05 301-500 " 1\.20 1\.40 501-700 1\.60 1\.85 701-900 2\.00 2\.30 901-1300 2\.40 2\.75 1101-1300 " 2\.80 3\.20 1301-1500 " 3\.20 3\.70 1501-1700 3\.60 4\.15 1701-1900 4\.00 4\.60 1901-2100 4\.40 5\.05 2101-2300 " 4\.80 5\.50 Note: Urgent calls are charged at double the ordinary rate\. Calls are charged in units of 3 minutes\. Night tariffs apply between 1900 and 0800 hours and they are put at the next lover rate step\. F\. Subscriber Trunk Dialing (STD) call charges Unit Charge 28/2/80 1/3/80 Up to 15 km 0\.08 0\.12 16-50 60 0\.24 0\.36 51-80 40 0\.36 0\.54 81-130 " 20 0\.72 1\.08 131-200 " 15 0\.96 1\.44 201-300 " 12 1\.20 1\.80 301-400 10 1\.44 2\.16 401-550 8 1\.80 2\.70 551-700 6 2\.40 3\.60 Over-700 5 2\.88 4\.32 NB: Night tariffs are available at the charge for next lover rate step and apply between 1900 and 0800 hours local time\. Telex: Yearly rental 1740\.- Connection Charge 1490\.- Telegraph: First 10 words (Ordinary) 1\.- Each additional word 0\.10 - 61 - ANNEX 14 PROJECT COMPLETION REPORT ZTRIOPIAN TELECOMMUNICATION AUTHORITY Financial Rate of Return (Birr '000) - - - - - - -In 1983 Constant Price- - - - - - Capital Operating Operating Net Year Investment Expense Revenue Benefit 1976 3,886\.74 0100 0\.00 -3,886\.74 1977 17,084\.90 7,513\.22 8,669\.51 -15,928\.60 1978 22,610\.91 4,819\.84 6,641\.29 -20,789\.46 1979 25,092\.62 5,185\.24 5,355\.49 -24,922\.36 1980 51,354\.28 8,135\.76 15,305\.19 -44,184\.85 1981 22,013\.58 14,268\.10 27,989\.52 -8,292\.17 1982 11,741\.13 20,030\.99 34,453\.51 2,681\.39 1983 10,453\.00 23,350\.00 42,010\.00 8,207\.00 1984 0\.00 30,638\.10 53,679\.39 23,0441\.29 1985-2000 0\.00 27,852\.82 48,799\.45 20,946\.63 FRR 10\.38% (Constant) - 62 - ANNEX 15 PROJECT COMPLETION REPORT ETHIOPIAN TELECOMMUNICATION AUTHORITY Economic Rate of Return (Birr '000) - - - --In 1983 Constant Price- - - - - - Capital Operating Operating In Constant Year Cost Expense Revenue 1983 1976 3,278\.99 0\.00 0\.00 -3,278\.99 1977 14,205\.56 5,874\.07 6,935\.61 -13,144\.02 1978 19,163\.59 5,039\.04 5,313\.04 -18,889\.59 1979 20,941\.55 4,431\.49 4,284\.39 -21,088\.65 1980 41,981\.01 4,830\.97 12,244\.15 -34,567\.83 1981 18,277\.40 6,461\.09 22,391\.61 -2,346\.88 1982 9,965\.61 9,639\.44 27,562\.80 7,966\.75 1983 8,625\.85 10,039\.20 33,608\.00 14,942\.95 \.1984 0\.00 12,779\.64 42,843\.51 30,163\.87 1985-2000 0\.00 11,617\.85 39,039\.56 27,421\.70 ERR = 16\.55% (Constant)

APPROVAL

P083985

Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No\.: AB1002 Project Name Knowledge Economy and Innovation Project (KEIP) Region EUROPE AND CENTRAL ASIA Sector General industry and trade sector (45%); general education sector (20%); general information and communications sector (20%);telecommunications (10%); general public administration sector (5%) Project ID P083985 Borrower(s) GOVT\. OF TURKEY Implementing Agency State Planning Organization (SPO), Turkish Technology Development Foundation (TTGV), State Institute of Statistics (SIS), Turkish Confederation of Employer Associations (TISK) Environment Category [ ] A [X ] B [] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 29, 2004 Estimated Date of Appraisal Authorization September 1, 2004 Estimated Date of Board Approval December 23, 2004 1\. Country and Sector Background 1\. Turkey’s capacity to acquire, develop, share and apply knowledge has become a key factor in determining the country’s ability to compete regionally and globally and to secure high- wage, high-value-adding jobs for a rapidly growing young population\. Turkey’s development towards a competitive, knowledge-based economy critically depends on the ability of enterprises, both large holdings as well as the small and medium enterprises (SMEs), to innovate by bringing together researchers and entrepreneurs\. Innovation-based growth also depends on the availability of a well educated labor force supported by modern education systems which also provide for lifelong learning opportunities\. The ability to acquire and share knowledge and to network across the economy also requires access and the skills to use information and communications technologies (ICT)\. 2\. Yet on all four accounts - competitiveness, innovation, education and ICT - Turkey still has far to go, as was pointed out by a recent Knowledge Economy Assessment undertaken by the World Bank as well as by studies carried out by other institutions such as the World Economy Forum (WEF), the European Union (EU) or the OECD\. For instance, with regard to competitiveness (according to the WEF) Turkey ranks 69 th , behind all of the new members of the EU and candidate countries\. Patenting (as an indicator of innovation output) remains low compared to the new EU members as well as to other OECD members\. With regard to human capital, one of the greatest constraints to the expansion of a knowledge-based economy in Turkey is the widely recognized scarcity of individuals with competencies related to advanced ICT, management, technology, and innovation skills, etc\. With respect to ICT and the e- readiness Turkey ranks 50 th , again behind all of the new EU and other OECD members (WEF Page 2 2 and infoDev (2003))\. These less than satisfying results are compounded by large regional discrepancies within Turkey\. 3\. Nevertheless some significant progress on individual policy areas, in part supported by the World Bank, has been achieved over the past decade in Turkey\. Basic and secondary education have been strengthened\. Innovation has been supported through the introduction of a core institutional framework (metrology, basic public funding mechanisms, etc)\. Turkey has also developed a vibrant private ICT sector able to compete internationally\. Yet policy makers in Turkey recognize that the progress to date is not enough to keep up with a rapidly evolving and dynamic external environment\. The EU itself is striving to become the “most competitive, knowledge-based economy” by 2010\. Many of Turkey’s competitors (amongst which many are members of the EU and the OECD) are rapidly gearing up to meet the competitive challenges of globalization\. Cost advantages provided by low wage labor are likely to be eroded over time by other competitors, such as China\. Turkey is (in part) responding to these challenges by preparing an ambitious e-development program entitled “Turkey e-Transformation Program” aiming to bring the information society to its citizens over the coming decade\. 4\. In moving ahead with such programs, Turkey, however, faces two important obstacles\. Firstly, Government is grappling with the difficulties of integrating innovation, education and ICT into a single coherent and practical approach to policy and public investments that fosters the use and application of knowledge on the ground\. Secondly, the economy at large is challenged in bringing together private entrepreneurs, public institutions, and civil society into a broad, purposeful partnership able to join forces to strengthen Turkey’s competitiveness\. 2\. Objectives 5\. Moving towards a competitive, knowledge-based economy (that is also more conducive to integration with the EU) is a long term endeavor that will require considerable institutional adjustment and change amongst the partners within society in Turkey\. Building on achievements made to date in specific policy areas in Turkey and striving to broaden the foundations for the future development towards a knowledge-based economy, the proposed project would contribute to the improvement of the competitiveness of Turkey’s economy by (a) connecting enterprises with sources of information, knowledge and technology within Turkey and abroad; (b) facilitating an information society, (c) enhancing human capital to meet the requirements of a knowledge economy; and (d) supporting an environment in which knowledge-based initiatives can develop\. Some of the activities proposed under this project are likely to be implemented at the regional or provincial level, where two regions would be selected on the basis of agreed criteria\. 3\. Rationale for Bank Involvement 6\. The proposed project is consistent with the new FY01-03 Country Assistance Strategy (CAS) for the Republic of Turkey (Report No\. 26756TU)\. As stated in the new CAS, Turkey’s development agenda is centered in part around the following major themes of: (a) sound macroeconomics and governance; (b) equitable human and social development; and (c) attractive business climate and knowledge\. Support for enterprise innovation under the KEIP contributes to Page 3 3 fostering an attractive business climate and knowledge environment\. The development priorities mentioned in the CAS also include improvement of public service delivery, which Turkey is promoting through the so called e-Transformation Turkey Project , a program aiming to foster the coordination of e-Government activities with the support (amongst others) of the KEIP\. The project also contributes to the broader network area of education by developing skills for the knowledge economy, which in turn promotes human and social development\. 4\. Description Component I: Support to Enterprise Innovation (Implementing agency: Turkish Technology Development Foundation (TTGV) , Total financing: US$52 million) 7\. The activities envisaged under this component will seek to broaden and deepen the system of technology support for enterprises in Turkey\. These activities will help to move the enterprise technology support system to a position where (i) any enterprise with the potential to use technology in developing its business competitiveness will be able to access appropriate support at a level commensurate with its needs, and (ii) that enterprises will be able and are encouraged to progress up to more advanced technological solutions as their understanding and need for technology evolves\. 8\. The aim of this approach to innovation is to create a coherent, integrated and, ultimately, self-sustaining technology support system designed to encourage and support larger numbers of enterprises to increase productivity and competitiveness through adoption and development of technology\. The development of such an integrated system will be a critical element in stimulating more competitive enterprises\. This component aims to make a contribution to establishing such a system towards innovation\. 9\. The component will support (a) the continued development of two important programs commenced under previous World Bank funded projects and, additionally, it will support (b) the development of new programs as well as (c) pilot regional delivery arrangements to complement and build on the existing programs\. 10\. The project will complement the existing programs by assisting in the establishment of decentralized delivery arrangements on a pilot basis in two selected provinces of Turkey to offer a coordinated package of technology support at the provincial level through Innovation Coordination Centers (ICC)\. The aim here is to extend the reach of technology support in each of the two pilot locations and, in particular, to test decentralized approaches to increasing the number of enterprises recruited to technology programs\. These Centers will also assist companies to access other forms of public support services provided by a range of institutions such as Turkish Technology Development Foundation (TTGV), Small and Medium Industry Development Organization (KOSGEB), Technology Forecasting and Assessment Directorate (TIDEB) and others (sign posting)\. As part of the provincial pilots the component will also support the initial roll-out of a new Small Technical Development Program that will provide assistance for small technology projects, a service currently not available in Turkey\. Page 4 4 11\. The second set of activities envisaged will ensure that appropriate support mechanisms are available to address all the critical barriers faced by enterprises in terms of innovation and technology adoption\. TTGV will develop a number of new programs in critical areas where enterprises currently find it difficult to obtain appropriate support, namely in Finance to Support Technology Start Ups 1 , Support for the Commercialization of Technology Projects 2 and support for enterprises in the area of intellectual property rights 3 \. TTGV will develop a new technology web portal 4 as a source of advice, guidance and materials to assist enterprise in the area of technology development\. The new Small Technology Development Fund mentioned above will also fill a gap in current provision by making support available to SMEs wishing to undertake technology projects at a smaller scale than the existing programs can currently address\. 12\. This component will also seek to help create a more integrated system of support for technology driven enterprises which will make it easier for such enterprises to progress up the technology ladder as their understanding and need for technology evolves\. In practice, this will be addressed by ensuring that the design of the supported programs and the new provincial Innovation Coordination Centers includes arrangements to make it easier for enterprises to graduate form one level of support to the next\. TTGV intents developing a client management system to ensure that enterprises enrolled in TTGV programs receive longer-term guidance as part of their program, including advice on the next stages of technology development\. Similarly the component will help TTGV to widen its relevance to enterprises and by developing appropriate financial models for the various programs it will contribute to developing TTGV’s own long term financial sustainability\. Component II: Information Society Development (Implementing agency: State Planning Organization (SPO) , Total financing: US$52 million) 13\. The objective of this component is to support the application of information and communication technologies (ICT) to (1) improve the delivery of public services to enterprise and citizens; and (2) to provide strategic ICT training to senior Government officials\. 14\. The following activities are envisaged to be carried out under this component: (a) a two- phased approach to improve the public service delivery to citizens and businesses through a common electronic Government Portal, or Gateway\. The first phase will design and develop the framework for online public service delivery, government intranet, and selection of initial government e-services\. The second phase will establish and operate the Gateway\. And (b) the development of training curricula, training of Turkish trainers, and the provision of training courses to senior civil servants in line with Turkey’s e-Transformation Strategy\. 15\. The two major activities proposed under this component support directly the implementation of “Turkey e-Transformation Project” in key areas of this program recently launched by the Government\. The development of the Government Gateway is integral to the Government’s aim to deliver improved public services\. The Gateway will provide a common 1 Providing limited equity finance for technology start-ups with high growth potential\. 2 Support for the commercialization of technologies which have reached prototype stage\. 3 Advisory services and technical assistance for enterprises to protect their intellectual property rights\. 4 Development of an internet portal to provide a wide range of technology advice and information to enterprises\. Page 5 5 access point for a number of public services and delivery channels to specific governmental services\. The project will fund the design of the Gateway and a few priority ranked Government e-services to businesses and citizens\. The training activity for senior and mid-level managers will comprise curriculum development designed to fit Turkey’s E-Transformation Strategy, training of Turkish trainers and the provision of training courses\. Component III: Developing Skills for the Knowledge Economy (Implementing agency: Turkish Confederation of Employer Associations (TISK) , US$19\.5 million) 16\. The goal of the component is to introduce approaches aiming at increasing the level of knowledge economy skills (KES) 5 in the workforce in order to increase the productivity and competitiveness of enterprises\. The proposed component has three distinct objectives, namely to: (a) identify and promote demand for KES services, (b) deliver KES to workers and the unemployed including first time job entrants, and (c) to monitor and evaluate the impact of KES\. Supporting demand and supply of knowledge economy skills in the private SME sector is based on several factors, including (a) international comparator data indicating that in general Turkish enterprises are not investing sufficiently in skills development, (b) the average educational level of Turkish workers (5\.6 years) is low and will impact Turkey’s competitive edge in the global knowledge economy, (c) a recent European Training Foundation survey of SMEs in Turkey indicate an increasing awareness of the need to upgrade management and worker skills, (d) signals from key stakeholders (i\.e\. TISK, TESK 6 , NPC 7 , TOBB 8 , KOSGEB 9 ) that the demand and supply of KES needs stimulating; and (e) evidence from ongoing projects that training service provision to SMEs is weak\. In summary, this component responds to evidence of market failures in the KES sector, in a manner similar to that initiated in other countries (i\.e\., France, Malaysia, Chile)\. Finally, the emphasis is being placed on “in-service” training for workers, as opposed to initial training of youth, because of the major ongoing and potential future investments in the initial education system by Ministry of National Education (MONE) and the Council of Higher Education (YOK)\. 17\. To identify and promote the demand for knowledge economy skills the following activities would be undertaken: (a) defining and identifying relevant and emerging KE skills eligible for support through a review of the international experience and the national market; (b) developing guidelines for types of services to be financed (including identification of costs eligible for reimbursement, eligible clients and service providers, criteria for evaluating proposals from service providers, contracting procedures and related performance criteria); (c) undertaking a public information campaign to promote demand (i\.e\. from civil servants, workers in enterprises, entrepreneurs, and recent secondary and higher education graduates) and stimulate supply (i\.e\. public and private training service providers); and (d) creating a management information system to manage contracting and payment of service providers; and to train the 5 KES skills include basic and advanced ICT skills, entrepreneurship and management skills, technology skills, innovation and creative skills\. 6 Confederation of Turkish Tradesman and Craftsman 7 National Productivity Center 8 Union of Chambers of Commerce, Industry, Maritime, Trade and Commodity Exchanges of Turkey 9 Small and Medium Industry Development Organization Page 6 6 selected provincial contracting agencies in how to publicize, contract, administer, and monitor supply of KE services at the local level\. 18\. To deliver knowledge economy skills to workers in enterprises, to entrepreneurs, and to recent graduates of secondary and higher education institutions, the following specific activities would be implemented under this component: (i) advertising the availability of KE skill development funds to both potential KES training participants and service providers (including holding briefing meetings to inform the demand side of what is available, and the supply side about how to submit proposals); (ii) having service providers identify and respond to demand and submit proposals on an ongoing basis to the contracting agency, which would evaluate and execute contracts with service providers for proposals that meet clearly specified minimum criteria as defined in a Field Implementation Manual agreed with the World Bank; and (iii) disbursing funds to contracted service providers at an agreed unit cost based on actual delivery of services and according to agreed performance criteria\. 19\. To carry out quality assurance, monitoring, evaluation, and scale-up design the following activities would be undertaken: (a) service providers will be required to include agreed performance criteria in contracts and to provide entry and exit information on program participants; (b) on site-supervision of all service delivery sites will take place at least once during each contract; (c) an independent third party follow-up study and/or tracer studies of samples of clients will be implemented to assess the impact of the provided skills with respect to enterprise productivity and competitiveness, entrepreneurial behavior, innovation uptake, worker productivity and earnings; and (d) cost- effective and sustainable models for “scale-up” of the above activities to the national level will be developed (based on service provider reporting, tracer studies, and tracer studies completed by the independent third party evaluation)\. Component IV: Strengthening the Knowledge Economy Environment (Implementing agencies: State Planning Organization (SPO) , State Institute of Statistics (SIS) , Total financing: US$6\.5 million) 20\. This component consists of four types of activities: 1) undertake monitoring and evaluation (M&E) activities for the overall project; 2) collect KE and Innovation indicators compatible with EU standards and provide quantitative information for an annual white paper; 3) publish an annual KE and Innovation white paper; and 4) raise awareness of KE issues and opportunities for Turkey\. 21\. M&E indicators for the project will be collected through one of the following mechanisms: a) utilizing existing SIS data; b) administrative processes (within the project activities or more broadly within the existing Turkish government - line ministry - activities); c) special surveys to collect regional level data (e\.g\. to collect ICT indicators that are not yet available from the SIS at the regional level); or d) independent impact evaluation surveys\. 22\. Preparation of the annual KE white paper involves the following activities a) determine the framework of the white paper; b) gather quantitative and qualitative information; and c) draft, publish, and disseminate the white paper\. The SPO will be the lead agency in determining the content of the white paper, in consultation with other stakeholders\. The SIS, with cooperation from other stakeholders, will be the lead agency to provide quantitative information for the Page 7 7 paper\. The actual drafting of the white paper will either be done within the SPO or by outsourcing it to other Turkish institutions such as the Scientific and Technical Research Council of Turkey (TUBITAK) or universities\. 5\. Financing Source: (Million USD) BORROWER 30 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 100 Total 130 6\. Implementation 23\. A Steering Committee will provide coordination amongst the institutions and partners involved in the implementation of this project and also provide guidance and ensure continued relevance of this project within the broader economic policy framework of the Government\. Senior level officials of all institutions directly involved in the implementation of this project would be represented on this Steering Committee chaired by the SPO\. 24\. Project Coordination and Implementation Unit (PCIU) will undertake implementation, and undertake project management and day-to-day administration across all four project components (including procurement, financial management, etc\.)\. The PCIU would be formally under the responsibility of the SPO, however, actual execution of its functions would be outsourced to TTGV on the basis of a protocol (or the like) between SPO and TTGV\. In addition, the PCIU will serve as secretariat to the Steering Committee\. 7\. Sustainability 25\. General interest on Knowledge Economy (KE) and competitiveness issues as well as on how to convert KE concepts into public investment activities such as those envisaged under this project is strong on the part of the Government, private sector, academia and NGOs\. There is also significant interest in ensuring complementarities between activities and approaches envisaged under this project and policies associated with the European Union in the KE field (e\.g\. European innovation policy, information society, life long learning, etc)\. 26\. The World Bank’s past experience with technology operations in Turkey, the Industrial Technology Project being the most recent one, indicate that especially the private sector has significant technical and managerial potential to successfully complete technology related projects\. The expansion of existing and new SME/technology operations that will be financed through KEIP have a high likelihood of sustainability because of the complementarities envisaged by supporting such enterprises both through improved technology and improved labor skills\. Page 8 8 27\. The e-Government activities supported under the KEIP are likely to be sustainable as they constit ute critical building blocks for the Government’s e-Transformation Turkey Project \. They form an integral part of the Government’s short-term action plan for e-Government development and are likely to be scaled-up through various e-applications introduced over and above of the KEIP implementation\. Finally, the selected implementing agencies, SPO, TTGV, TISK and the SIS are all established institutions who have been involved in Bank’s operations with success in the past\. Therefore, the impacts of the KEIP are likely to grow to be more effective in future in planning and implementing more complex KE projects, to the benefit of the overall Turkish society and competitiveness of the country\. 8\. Lessons Learned from Past Operations in the Country/Sector 28\. The recent Knowledge Economy Assessment Study of Turkey suggests that activities leading to the development of a knowledge-based economy should strive to improve the performance and to move towards increased integration of Turkey’s innovation support systems, human capital base, and the breadth and scope of its information society capacity\. 29\. Lessons learned from previous skill development projects \. The World Bank has been involved in a number of education, training and employment projects over the past 15 years in Turkey\. Several of these have worked directly with adult continuing education and training, including SME support and development (i\.e\. the Non-formal Education Industrial Training Project, Employment and Training Project, and current Privatization Social Support Project\.) Evaluations of these projects point out the need for bringing supply and demand together, especially at the local level, and the use of performance-based contracts between these two stakeholders, as being a very important factor in assuring quality and relevance of the services to be delivered\. The design of KEIP builds on this experience, where Components I and III will work synergistically, i\.e\. Component I will support raising the demand for skilled labor and Component III will contribute to supplying the required knowledge economy skills to the market\. 9\. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4\.01) [X] [ ] Natural Habitats ( OP / BP 4\.04) [ ] [X] Pest Management ( OP 4\.09 ) [ ] [X] Cultural Property ( OPN 11\.03 , being revised as OP 4\.11) [ ] [X] Involuntary Resettlement ( OP / BP 4\.12) [ ] [X] Indigenous Peoples ( OD 4\.20 , being revised as OP 4\.10) [ ] [X] Forests ( OP / BP 4\.36) [ ] [X] Safety of Dams ( OP / BP 4\.37) [ ] [X] Projects in Disputed Areas ( OP / BP / GP 7\.60) * [ ] [X] Projects on International Waterways ( OP / BP / GP 7\.50) [ ] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 9 9 10\. List of Factual Technical Documents 1) Turkey Knowledge Economy Assessment Study, May 2004, Private and Financial Sector Unit, Europe and Central Asia Region (ECSPF), World Bank 2) e-Transformation Turkey Project, Information Society Department, State Planning Organization, http://www\.bilgitoplumu\.gov\.tr/eng/default\.asp 11\. Contact point Contact : Severin L\. Kodderitzsch Title : Lead Operations Officer Tel : (202) 458-2164 Fax : (202) 522-3687 Email : Skodderitzsch@worldbank\.org 12\. For more information contact : The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop

APPROVAL

P002296

Document of The World Bank FOR OFFICIAL USE NLY Report No\. 4810 PROJECT PERFORMANCE AUDIT REPORT SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) December 7, 1983 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their offcial duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) TABLE OF CONTENTS Page No\. Key Project Daa\. 11 Highlights\. \. iv PROJECT PERFORMANCE AUDIT MEMORANDUM Project Implementation\. \. 2 Institutional luat\.3 Economic impact \. \. \. 6 Project Financing\. 8 Tables 1\. Traffic on Select Feeder Roads\. 10 2\. Estimated and Actual Costs\.*\. 11 3\. Comparative Maintenance Expenditures\. 12 4\. Equipment Purchases\. 13 Annex Borrower Comments\. 14 PROJECT COMPLETION REPORT introduction\. 17 Project Preparation and Appraisal\. 18 Project Implementation\. 20 Institutional Development\. \. 29 Economic Reevaluation\. 31 Bank Performance\. \. 34 Concluions\. \. \. \. 35 ables 1\. Design 37 2\. Construction 38 3\. AgriculturalP39 4\. Schzdule of Disbursements\.,\. 40 5\. Alocation t Loan rd\. 41 Agiuua Pro dutin\. *\. 39- 6\. Project Costs\.,\. \. \. \. \. \. \.* 42* 7\. Assumption for the Reevaluationt\. 43 8\. Economic Reevaluation (with maintenance)\. 44 9\. Economic Reevaluation (without maintenance)\. 45 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. PROJECT PERFORMANCE AUDIT REPORT SENEr-^L FEEDER ROADS PROJECT (LOAN 1221-SE) PREFACE The following is a performance audit report on a feeder roads project in Senegal implemented with the assistance of a Third Window loan approved in March 1976 (Loan 1221-SE, US$6\.6 million)\. The last disbursement was made in September 1981, at which time the Loan Account was closed, The attached Project Completion Report was prepared by the Western Africa Region based on consultants', Government and Bank reports, and informa- tion collected by a completion mission in December 1981\. An Operations Evaluation Department (OED) mission visited Senegal in early December 1982, to audit the project\. The assistance of the Government and the Ministry in charge of public works, in particular, is gratefully acknowledged\. OED has reviewed the Appraisal and President's Reports, the Minutes of the Executive Directors' Meetige at which the project was approved, Bank records and files and the PCR\. Based on these and the field visit, the audit concludes that while the PCR reviews most issues arising from pro- ject implementation, certain elements of this project's experience are only indirectly covered in the PCR\. The Audit Memorandum expauds on these aspects and arrives at a similar conclusion about the project as the PCR, namely that, most likely, the project had a negative rate of return\. The draft audit report was sent to the Borrower for comments; their views are included as an Annex to the Project Performance Audit Memo- randum and referenced in the text\. - ii - KEY PROJECT DATA Appraisal Actual Item Estimate Reestimate Total Project Cost (US$ million) 6\.6/a 11\.0 overrun (W) - 66 Loan Amount (US$ million) - 6\.6 Disbursed - 6\.6 Cancelled - 0\.0 Repaid to July 1983 - 0\.1 Outstanding to July 1983 - 6\.5 Project Completion Date 12/79 06/81 Proportion Completed by Expected Date (%) 100 36 Proportion of Time Overrun (%)- 40 Economic R-te of Return (%) 13\.7 negative/b Cumulative Estimates and Actual Disbursements (US$ million) FY77 FY78 FY79 FY80 FY81 FY82 Estimate 3\.5 4\.9 6\.3 6\.6 - - Actual 1\.1 2\.4 3\.6 5\.0 6\.4 6\.6 Actual/Estimate (%) 31 49 57 75 97 100 OTHER PROJECT DATA Original Item Plan Actual First Mention in Files or Timetables 03/73 Government's Application - Appraisal 05/75 Negotiations 02/76 Board Approval 03/76 Loan Agreement Date 03/76 Effectiveness Date 07/76 06/76 Closing Date 12/79 09/81 Borrower Republic of Senegal Executing Agency Ministry of the Equipment Fiscal Year of Borrower July 1 to June 30 Follow-on Project None /a The project as appraised would have cost US$10\.1 million\. However, only 68% of the construction and less than 50% of the maintenance goals were actually achieved\. The cost estimate figure has, therefore, been ad- justed accordingly\. /b The PCR offers two rates of return, +14\.5% and -11%, depending on whether maintenance is or is not carried out on the roads\. The audit found that the roads were poorly maintained and for this and other reasons concludes that a negative estimate is more accurate (PPAM, paras\. 13 to 15)\. - iii - MISSION DATA Month/ No\. of No\. of Man- Date of Mission Year Weeks Persons Weeks Report Identification 02/75 2\.0 2 4\.0 03/75 Appraisal 05/75 2\.5 3 7\.5 03/76 Post-appraisal 09/75 1\.0 2 2\.0 03/76 Supervision I 04/76 1\.0 1 1\.0 05/76 Supervision 1I 09/77 1\.0 1 1\.0 11/77 Supervision III 02/78 1\.0 1 1\.0 05/78 Supervision IV 05/78 1\.0 1 1\.0 08/78 Supervision V 08/78 0\.5 1 0\.5 08/78 Supervision VI 11/78 0\.5 1 0\.5 11/78 Supervision VII 12/78 1\.0 1 1\.0 12/78 Supervision VIII 02/79 1\.0 1 1\.0 03/79 Supervision IX 04/79 1\.0 1 1\.0 04/79 Supervision X 07/79 1\.0 1 1\.0 07/79 Supervision KI 10/79 1\.0 1 1\.0 10/79 Supervision KII 12/79 1\.0 1 1\.0 12/79 Supervision XIII 01/80 1\.0 1 1\.0 01/80 Supervision XIV 06/80 3\.0 1 3\.0 07/80 Supervision KV 12/80 1\.0 2 2\.0 01/81 Supervision XVI 04/81 1\.0 2 2\.0 05/81 Completion 11/81 1\.0 3 3\.0 12/81 CURRENCY EXCHANGE RATES Name of Currency (Abbreviation) Franc CFA (FrCFA) Appraisal Year Average US$1 = FrCFA 214 Intervening Years- Average US$1 = FrC?A 227 Completion Year Average US$1 = FrCFA 269 - iv - HIGHLIGHTS The project was one of a series of new type highway projects de- signed in the mid-1970s in direct support of agricultural development\. It concentrated on making feeder roads more readily available and rural transport more efficient, as a means of increasing agricultural production and the standard of living of the rural population\. The project comprised (i) the creation and development of the institutional framework and capacity to deal with the provision and maintenance of feeder roads, and (ii) the construction of about 1,000 km, and maintenance of about 1,2\.0 km of feeder roads\. The project was expected to tackle the feeder roads problem at its two critically weak points simultaneomsly: the institutional process of selecting and deciding on a yearly work program and the process of physically executing the agreed plan\. The institutional set up was to be improved by the creation of an Interministerial Consultative Committee (ICC) to decide, at the political level, on a yearly feeder roads construction program developed from alternatives compiled and evaluated by the Directorate of Studies and Program- ming (DSP) of the Ministry in charge of public works\. To improve the physical execution the project was to help create a Feeder Roads Subdivision (Bureau des Pistes de Production, BPP) under the Road Maintenance Division of the Public Works Directorate of the Ministry of the Equipment, and within it, three construction brigades to do the work\. The project was estimated to cost the equivalent of US$10\.1 million, which would be financed by a US$6\.6 million Bank loan and a US$3\.5 million Government contribution of which an estimated US$1\.6 million were taxes and duties and US$1\.9 million were local costs\. The loan,was made in March 1976, and the project was expected to be completed in December 1979\. In September 1981, when 68% of the construction target and less than 50% of the maintenance objective had been achieved, loan funds ran out and the project was stopped\. By then a total of US$11\.0 million equivalent had been spent (US$6\.6 million financed by the Bank loan and US$4\.4 million by the Government)\. Senegal's agricultural production had not increased during the construction period and the standard of living of the rural population had hardly changed\. The main reasons for the poor agricultural performance were: poor weather, including drought but also rains in January when the harvest was being stored for processing, contributed to low production and poor groundnut yields; depressed international markets; the paralyzation and subsequent bankruptcy of ONCAD (the government groundnut purchasing monopoly); the serious operational and financial difficulties of regional development organi- zations (SODEVA, SOMIVAC, SODEFITEX and SAED); and uneven and often bad domestic pricing, credit, cooperatives and other agricultural policies were not conducive to maximizing production\. Moreover, throughout most of the project's life Senegal was affected by extraordinarily hard financial and economic circumstances which produced a breakdown\. of the entire economy and made ne"essary a redefinition of priorities by the Government and all its external partners\. Because of these exogenous factors the economic return of the project would, in any event, have been well below appraisal estimates\. - v - However, the audit concludes that even if these exogenous circum- stances had not existed a number of project-related factors would have pre- vented the project from having a significant impact\. For example, the project's provision for subsequent maintenance of the roads and its assessment of the human and institutional needs to implement it were underestimated\. The rate of return of the project is estimated to be negative, mostly on account of the short life of the roads caused by their relatively poor quality and their lack of subsequent maintenance\. The audit highlights the following points of interest in connec- tion with this project: - structuring execution of the project with a rather short start-up period and optimistic output targets over just about half the time the consultants had recommended caused serious implementation problems and produced a lack of concern for quality, which contri- buted to the project's negative economic impact (PPAM, paras\. 4, 5 and 14); - the project's design made limited allowance for the institution- al and practical difficulties of implementing a comparatively large project on a tight schedule in a country with scarce human resources; this was the cause of much delay and many difficulties (PPAM, para\. 6); - although institution building was a major objective, the assessment of the staffing constraints and the institutional arrangements devised to implement the project failed to generate any lasting institutional impact (PPAM, paras\. 7 to 12); - the comparatively low priority afforded, at least initially, to feeder roads contributed to the poor economic impact of the project (PPAM, para\. 13); and - the project made no special provision for the subsequent mainte- nance of the roads although most of its economic benefits were expected to be derived not so much from the construction of the roads as from maintaining them in good condition during their expected economic life (PPAM, paras\. 13 and 15)\. PROJECT PERFORWMACE AUDIT MEMORANDUM SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) Introduction 1\. The project was based on a consultant's survey of more than 6,000 km of roads and tracks, which identified about 1,300 km of feeder roads to be improved\. The consultant proposed that the work be carried out by a new Feeder Roads Subdivision (BPP) within the Road Maintenance Division of the Directornte of Works in the Ministry of Works and Urbanism over a period of five years\. In February 1975, a Bank identification mission agreed with the consultant's report and requested that staffing and equipping details be worked out to implement the project in three rather than five years\. The project was appraised in May 1975, and because there was no institutional mechanism to deal with feeder roads in the future, the creation of one was included in the project\. The consultant's survey was used to define the first year work program but for the second and subsequent years the institutional mechanism of the project would take over to define what was to be done\. To this effect the project foresaw the creation of an Interministerial Consulta- tive Committee (ICC) chaired by the Minister of Works and in which the Minis- tries of Rural Development, Planning, Interior, and the government-run ground- nut marketing monopoly ONCAD would be represented\. The Directorate of Studies and Programming (DSP) of the Ministry of Works, which had been recently created under an earlier Bank project, would act as the technical secretariat to the Committee to screen and assess feeder road proposals put forward by the ministries and to monitor execution of the project\. It was expected that technical assistance experts provided to DSP in that project would assist it in developing the technical and economic criteria to screen and select the projects to be included in the subsequent annual work programs\. Nevertheless, during negotiations nominal criteria for the selection of roads were agreed on and the loan made provision for consultants to assist in project monitoring\. 2\. Execution of the project was to be carried out by the proposed new Subdivision through three construction brigades established under the project\. The BPP would be housed in a new building that was to be constructed with loan funds\. The loan would also finance equipping of the brigades, materials and supplies necessary to carry out the work, and technical assistance to st-er- vise the work and train BPP's new staff on the job\. To ensure proper execu- tion of the project and to giNe the new BPP adequate rank, the Bank required it to be headed by an engineer and to be staffed by at least one other engi- neer and two administrative assistants\. BPP's work brigades would similary be staffed with suitably qualified foremen, operators, mechanics and workmen in adequate numbers\. - 2 - 3\. The project, thus, appeared to have tackled the feeder roads problem simultaneously at its two critically weak points, the planning process of selecting and deciding on a yearly construction program and the process of physically carrying out what was agreed\. However, the appraisal report was primarily devoted to the physical aspects and contained no assessment of whether the Government could absorb the proposed institutional planning structure or had the staff and expertise to do so\. The project's lack of success in effectively resolving the non-physical aspects of the probl\.em were the main causes of its poor impact\. Project Implementation 4\. In retrospect, it appears that having cut back the project period from the five years recommended by the consultant to three years was not in the project's best interest\. The audit agrees with comments expressed by BPP staff, that the decision required compressing into little more than half, the achievement of goals that were largely designed for almost twice as long\. This meant that the yearly construction targets had to be set unrealistically high for Senegalese circumstances and, therefore, ended up working to the detriment of project objectives\.!/ This happened not so much because the high targets were not an incentive to increase productivity, but because, in the drive to achieve the target, quality objectives were disregarded\. In turn, the low quality implementation of the roads was one of the main causes of their short life and limited economic impact\. While not contemplated at Appraisal, the PCR views the project as having had two phases: the first from mid-1976 to early 1979 and the second extending to mid-1981; it notes that during the second phase considerable improvements were made (PCR, paras\. 3\.10 et seq)\. 5\. Most roads were built without proper ditches or drainage structures; a site inspection revealed that on most of them the thickness of the gravel surfacing was thin and that compaction was inadequate\. For these reasons weathering and traffic have caused the roads to deteriorate quickly and revert to conditions just marginally better than those of similar unimproved feeder roads\. The situation, which seems to have been more a consequence of hasty construction rather than an inadequacy of the construction standards (PCR, Table 1), has been aggravated by the lack of maintenance, although the Region 1/ Bank staff have commented that the project would have required no more than 300,000 to 400,000 cubic meters of regravelling in the three year period\. However, since BPP had, at best, a fleet of 20 six cubic meter trucks, each truck would have had to complete 6 hauls every day, each day, during the three year period, just to procure the gravel, a diffi- cult task if hauling distances were long\. - 3 - states that there are now increased maintenance activities\. During implemen- tation, the three construction standards expected to be used were reduced to just one; the audit is of the opinion that this action was positive as it made it easier to train and organize the work crews\. 6\. Also, the shorter project period with high output expectations did not allow adequate time to complete activities which had to precede the execu- tion of any actual work\. The project schedule was compressed unrealistically\. Before the work could begin the Subdivision had to be created, equipment for the brigades had to be procured, offices for BPP had to be constructed, technical assistance had to be employed and personnel at all levels, from top management to operators and workmen, had to be recruited and trained; for all this, the schedule\. allowed six months (Appraisal Report, para\. 3\.12)\. In actual fact, while the BPP was created before the loan was approved and most of the procurement was accomplished on time, the recruitment of local staff could not be achieved on schedule because Senegal did not have personnel of the qualifications and experience demanded by the project\.V/ For instance, recruiting a Chief for the BPP with the engineering qualifications demanded by the Bank proved difficult, and eventually a young, inexperienced, engineer was appointed to the position\. Similarly, while the technical assistance experts were recruited and commenced their assignment on time, no suitable counter- parts to work with them could be found\. Also, severe difficulties were experienced in recruiting brigade chiefs, operators, mechanics and foremen\. The audit has found that the limited allowance made in the project for start- up, and particularly for staffing the new BPP, together with what proved to be an optimistic assessment of qualified personnel available in the country, were the main causes of thc initial delay in project execution, although the Region points out that delays are to be expected when projects are to be executed by force account\. In retrospect, it appears that little regard was paid in project design to the difficulties of managing a new program of a comparatively large size, on a tight schedule, in a country with scarce human resources\. Institutional Impact 7\. Institution building was one of the primary objectives of the project\. This comprised (SAR, para\. 4\.02) the creation of an Interminis- terial Committee (ICC), the use of the Ministry of Works' Studies and Program- ming Directorate (DSP) as its technical secretariat, and the creation of a Bureau des Pistes de Production (BPP), a new Subdivision of the Ministry's 1/ Bank staff have commented that not allowing for "spot improvement" among the construction standards was a shortcoming that could have been avoided\. 2/ Bank staff have indicated that while this is true, the lack of front end loaders (PCR, para\. 3\.04) was the cause of considerable delay\. -4- Road Maintenance Division\. It was hoped that the creation of these institu- tions would ensure that the building and maintaining of feeder roads would become a permanent, on-going feature of Government activity\. Yet, as relaLed in the PCR and observed by the audit, building and maintaining feeder roads has not become a permanent feature of Government activity\. On the contrary, as soon as project funds ran out it ceased altogether\. 8\. The audit questions whether, in the context of national priorities of which Central Governments have to care about, the concern for feeder roads was significant enough to have warranted the institutional approach adopted in the project\. The Bank may have been mistaken in its assessment of the signals emanating from the Government on the subject of feeder roads\. Perhaps the problem would have been best tackled at the local level which is much closer to the problem itself\. In the end, the institutional arrangements of the project do not seem to have lived up to expectations\./ 9\. While the Interministerial Committee was created as agreed, it met only twice\. Part of the reason was that its technical secretariat, the DSP, which was supposed to screen, evaluate, and present the ICC with a set of feeder road construction alternatives, never did so\. DSP, as it turned out, could not carry out its assigned function in this area because it was understaffed and overburdened with other more pressing duties, among them the preparation under a parallel Bank project of a national transport plan\. The economic and technical criteria which DSP was supposed to develop to screen and evaluate the feeder roads proposals were never prepared because no pro- vision was made in the project to assist DSP to do it and because no local staff sufficiently experienced were available to carry out the task\.;/ In the beginning, the matter was not of pressing urgency because it took more than three years to carry out the first year construction program that had been defined on the basis of the consultant's study; however, as construction was completed and the definition of subsequent work programs became necessary, the problem came to a head\. With the Bank's concurrence, a foreign consultant was hired to do the job and he did the task alone as no counterpart staff were available\. Thus, no one in DSP was trained on how to prepare an annual program or what methodologies to use to evaluate and screen feeder roads\. 10\. Parallel to the ICC-DSP arrangement, the project required the creation of the BPP, a new Subdivision of the Maintenance Division in the Directorate- of Works\. At -the time, --both- an earlier -(Second--Highway Project) - and a parallel (Third Highway Project) project were involved with the Mainte- nance Division\. Therefore, the Bank knew that the Division and indeed the 1/ Bank staff have indicated that records of meetings with Senegal's Prime Minister, starting in late 1978 and extending through 1980, show that feeder roads had a very high priority both on political and economic grounds\. In addition, they considered institution building to be, of necessity, a long term development\. 2/ The Government has noted that the "impact study" included under the project would have filled some of these gaps but that it was stopped as a result of poor Bank follow-up of the funds allocated to do it (see Annex)\. - 5 - indeed the Directorate to which it reported, were going through a very diffi- cult transitional period; both being underfinanced, understaffed, their scarce personnel poorly qualified and their facilities (both housing and workshops) in poor condition\. There were also shortages of supplies and materials, and in addition, three years of effort under the Second Hi&hway Project had not produced visible improvements\. Under these circumstances, it does not appear to have been a particularly good administrativc strategy to have burdened the Division with the addition of a new Subdivision to compete for resources, for the use of equipment and facilities and most importantly, for the staff\. Although initially the creation of BPP was inconsequential, particularly because of the delays in hiring the chief of the unit, attitudes * changed as BPP's chief was appointed\. The new appointee's actions were limited by the complex and cumbersome administrative procedures and his authority and responsibility within the Division were left unclear\. Moreover, his lack of experience prevented him from operating adequately and competing effectively for funds, equipment, materials, supplies and even accommodations, as construction of the new BPP building was delayed\. Successive Bank super- vision missions which called attention to the deteriorating performance of the unit offered little concrete help in solving problems\.!/ In fact, although it was the Regional Kission to Western Africa's responsibility to supervise the project, during the first critical year of the project (1976) and also the subsequent year (1977), only one supervision mission reviewed the rojRct each year\. Supervision was increased in 1978 but problems persisted\.y Tne lack of support and a shortness of local funds to pay, particularly, salaries and other local costs produced discouragement and low morale set in within the BPP\. 11\. In 1979, poor performance eventually caused the Bank to threaten to cancel the Loan, to which the Government responded by replacing the project manager, not by an engineer as agreed with the Bank, but by an experienced road technician\. Simultaneously, the Feeder Roads Subdivision was made administratively and financially autonomous and to report to the Director General of Public Works\. Much to the Bank's satisfaction problems began to 1/ The audit mission was informed, and the record shows, that Bank missions did not avail themselves of the help of the "Comite de Relance des Investisments", a permanent committee of the Office of the Prime Minister set up for the purpose of "unblocking" project implementation when problems arose\. 2/ Bank staff do not agree that more frequent supervision from Abidjan would have made a significant contribution as each supervision mission went as far as it could in finding ways to improve the situation\. It was also noted by Bank staff that as of late 1978, project problems were raised by the Bank's Resident Representative in Senegal at his monthly meeting with the Prime Minister who was also President of the Comite de Relance des Investisments\. - 6 - sort themselves out; according to the PCR, these actions ended a period of unsatisfactory administrative dependrqce and a second phase of project execu- tion commenced\. BPP had been raised in rank and accorded special status\. they were allocated proper housing, exclusive space in workshops, all neces- sary equipment, were even given new radio equipment to keep daily communica- tions between the field brigades and headquarters\. In short, BPP wai given preferential treatment throughout\. However, this ixclusiveness created resentment towards the unit in the Ministry, and the arrangement could, in the end, only be sustained as long as foreign funds were available to finance it\.1/ In fact, as soon as loan funds ran out activities ceased and the BPP found itself without an immediate role\. Yet, salaries and other social costs have had to be continued and have become a significant burden to the Govern- ment\. Moreover, because most of BPP's equipment was used up, and in par- ticular its tiuck fleet performed badly and had to be written off, all that is left of the BPP is its large, albeit well trained, staff and the building that houses it\. 12\. At Appraisal, the Bank seems to have understood that feeder roads occupied a higher priority than they were accorded in Senegal's transport sector, and, thus, overstated the institutional approach to tackling the problem\. Also, by trying to implement such a comprehensive project and failing, the Bank has left the country with the problem of deciding what to do with the defunct BPP and its staff\. One alternative is to assimilate the staff to the Ministry's regravelling brigades which are active throughout the national road network\./ Economic Impact 13\. That feeder roads could not have enjoyed a high comparative pri- ority in the scale of transport investments was clear even at appraisal, as not one of the roads in the over 1,000 km proposed for improvement under the project had traffic volumes above 20 vehicles a day, and most had volumes in the order of 5 to 10 vehicles a day\. This contrasts sharply with the 300 to 900 vehicles per day carried, at the time, on national roads and highways and which were also in poor condition and receiving scarcely any 1/ Bank staff have indicated that the strategy of separating the BPP from the main stream of the Ministry was essential because otherwise BPF would have continued to be accorded a very low priority\. 2/ Bank staff have pointed out that this proposal was agreed with the Government, but would not have been necessary had a Second Feeder Roads Project been approved: the efficiency and effectiveness of BPP's per- formance would have guaranteed its continued financing under a second project, - 7 - attention\.!/ The difference in priorities was masked by the economic analysis of the Appraibal Report which showed the project to have an average overall rate of return of 14% although the construction works under it yielded a return of just 7%\. The main benefit came from an expected improvement in, and continued ainquate maintenance of the roads in the project (Appraisal Report, Annex 7)\. Yet\., the project made no particular provision for the ex-cution of this critical element and, in the end, failed because of the lack of it\. There was just a covenant in the Loan Agreement (Section 4\.04) requiring the Government to allocate funds for the maintenance of the roads and to increase the amount year after year to take into account changes in costs and in the requirements of the roads; but no special arrangements were worked out to ensure future maintenance\. In retrospect, this serious short- coming, together with the known difficulties of improving maintenance in an overall maintenance deficient country, where years of trying under an earlier Bank project had not been successful, made the project particularly weak and risky\. 14\. The PCR has presented two rate of return calculations, one assuming proper maintenance, the other assuming no maintenance\. The audit agrees only with the second and just in the sense that it is a hypothetical reflection of what would have happened had the project been implemented under ideal condi- '-ions except for the maintenance\. The calculation yields a negative rate of return and is based on (i) slightly higher traffic figures than those reported by BPP to the audit mission (PPAM, Table 1 vs\. PCR, Table 7) - the difference is most likely due to the different timing, and consequently information available to the completion and audit missions; (ii) a somewhat high traffic growth rate - there has been hardly any growth in traffic and the rate was set deliberately high to compensate for what appeared to be an abnormally low base year (1981); (iii) a road deterioration function which assumed that without maintenance roads built in Eastern Senegal and the Thies regions would deteri- orate in 6 and 5 years respectively - the roads have deteriorated much faster; (iv) vehicle operating cost savings assessed at an average of FrCFA 123 per vehicle kilometer - too high since total operating costs for an average truck on a poor unpaved road in Senegal are about FrCFA 130 per vehicle kilometer;\. / and (v) a rather long economic life for the roads - their rather poor con- struction has caused them to have a very short life\.l/ I/ Bank staff have taken issue with the implied notion that trunk roads should be taken care of before feeder roads\. Their view is that a bal- anced main/feeder road development strategy is the most viable approach\. The virw assumes, of course, that there are enough resources to invest in both types of roads\. 2/ Bank staff noted that vehicle operating cost savings were assessed at FCFA 60-119 per vehicle kilometer, depending on the state of degradation of the road section in the "without project" case\. Operating costs for an average truck on a badly degraded track were estimated by consul- tants at about FCFA 280/km\. 3/ The Government has commented that the rate of return estimate appears to be based on a rather simplistic view of the consequences of the poor maintenance (see Annex)\. - 8 - 15\. In retrospect, the project has yielded a negative rate of return because: traffic levels have been extremely low (which is not directly related to the project itself but the consequence of exogenous factors over which it had no control); no maintenance has been done to preserve the roads; their unit costs were high (about US$15,000 per km);L/ and the quality of the construction was poor\. The short life of the roads did not allow suffi- cient benefits to accumulate to offset the high costs\. Project Financing 16\. Throughout the PCR there is frequent mention that one of the prin- cipal reasons for the project's shortcomings was the lack of counterpart funding\. This does not appear to have been the case in overall terms\. While the Bank expected the Government to provide US$1\.9 million equivalent in three years (excluding taxes estimated at appraisal to be US$1\.6 million, Tables 2 and 3), it, in fact, ended up providing US$4\.4 million in five years (Tables 2 and 3)\. However, as is evident from Table 2 there was a serious underestima- tion of labor costs, which rose by almost 200%\. Since this was a purely local cost, not financed by loan proceeds, the Government appropriations for the project had to be almost fully used for salaries leaving little for materials and other project requirements\. Thus, a situation developed under which it was difficult to physically implement the project\. In fact, there is evidence that at times, appropriations were not enough to cover the full salary bill\. As a consequence, project implementation, particularly in the early years, suffered considerably\. 17\. But the administration of the cash and its flow also created prob- lems\. The administration of the available cash was directly related to the administrative experience of those in charge of the project and to the ade- quacy of the administrative mechanisms set up to access the funds\. The cash flow, on the other hand, was directly related to the project's financial structure and funding sources\. 18\. The administrative experience of those in charge of the project was, as mentioned, limited; and, it was this lack of experience that prevented setting up, early on, adequate administrative channels to handle the funds that were being made available through the Ministry of Public Works' budget\. For instance, the lack of an imprest account for the feeder roads prevented separating out funds allocated to the project from those allocated to general 1/ Bank staff disagree that US$15,000 per km, allowing for the residual value of the building and other minor unrelated expenses, is a high cost\. - 9 - maintenance and other equipment in the budget\. The situation was aggravated by the bureaucratic resentment towards a Subdivision that was expected to use, in its first year (Table 3), almost as many resources as the whole Division to which it reported; in itself a poor administrative practice\./ 19\. The financial structure of the project also created difficulties\. By cutting the project period from five to three years, it became necessary to program the provision of funds in as few years\. This meant that the Bank had to expect the Government to allocate for feeder roads an inordinately high proportion of its highway budget\. Not only were the amounts large, but the Bank's disbursement practices made the situation appear as even more diffi- cult\. Customarily the Bank reimburses against incurred expenditures (includ- ing taxes and duties); the Government, thus, expected to have to budget for 100% of the costs, spend the funds, and then be reimbursed the 65% of the costs covered by loan proceeds\. This procedure was likely to create a cash flow problem which, in the eyes of the Government, could be alleviated only by a Bank contribution to set up a revolving fund to finance current project expenditures\. The Bank, on occasion, assists in setting up imprest or revolving funds; in this case, however, it was not prepared to grant the assistance and it appeared to the Government that it had to face up to the cash flow problem alone, at a time when overall public finances were being seriously eroded by depressed world markets for Senegal's main export\. 20\. In actual fact, instead of implementing the project over three years, the Government implemented it over five as originally planned\. This produced a much smoother cash flow (see Table 3), one that interfered much less with other Government commitments\. Also, since an important proportion of Bank loan proceeds was disbursed as direct payments to suppliers, the Government's cash flow problem became easier to manage\. A revolving fund for local expenditures only was set up in 1979; it essentially involved the pay- ment of salaries and did not address the problem mentioned in the preceding paragraph\. Yet, the establishment in 1979 of the imprest account for Govern- ment financed BPP expenditures significantly contributed to expediting pro- ject implementation\. 1/ Bank staff have noted that comparing the first year investment under the project with the Maintenance Division's budget is not appropriate because project investments included the purchase of equipment for the BPP, whereas equipment used by the Maintenance Division is budgeted for under the Equipment Division of the Ministry of Works\. - 10 - TABLE 1 SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) Traffic on Three Selected Feeder Roads (AADT 1980, 1981) 1980 1981 Light Heavy Total Light Heavy Total Vehicles Vehicles Traffic Vehicles Vehicles Traffic Bambey-Gawane 19 2 21 18 1 19 Kaffrine-Delby 13 5 18 12 2 14 Sandinier-Saretening 1 2 3 4 - 4 Source: Traffic Surveys by SONED December 1982 SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) Estimated and Actual Costs (FrCFA and US$) APPRAISAL ESTIMATE ACTUAL COSTS US$ million at US$ million at -------FrCFA m------- ----1US$ = 225 FrCFA--- ----FrCFA m--------- --1US$ - 227 FrCFA-- Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Building 37\.4 27\.5 64\.9 \.2 \.1 \.3 60\.0 23\.8 83\.8 \.3 \.1 \.4 Equipment 60\.2 562\.8 6Z3\.0 \.3 2\.5 2\.8 57\.5 510\.6 568\.1 \.3 2\.2 2\.5 Materials 97\.8 709\.4 807\.2 \.4 3\.2 3\.6 145\.2 614\.4 759\.6 \.6 2\.7 3\.3 Tech\. Asst\. 12\.8 101\.0 113\.8 \.0 \.4 \.4 82\.0 299\.2 381\.2 \.4 1\.3 1\.7 Contracts 21\.9 87\.6 109\.5 \.1 \.4 \.5 - - - - - - Salaries 196\.0 - 196\.0 \.9 - \.9 581\.0 - 581\.0 2\.5 - 2\.5 Impact Study 29\.0 24\.9 53\.9 \.1 \.1 \.2 Transport 19\.7 35\.0 54\.7 \.1 \.2 \.3 CEREEQ 16\.3 - 16\.3 \.1 - \.1 Sub-total 426\.1 1,488\.3 1,914\.4 1\.9 6\.6 8\.5 990\.7 1,507\.9 2,498\.6 4\.4 6\.6 11\.0 Taxes 360\.0 - 360\.0 1\.6 - 1\.6 - - - - - - Total 786\.1 1,488\.3 2,274\.4 3\.5 6\.6 10\.1 990\.7 1,507\.9 2,498\.6 4\.4 6\.6 11\.0 N2 Source: Audit Mission based on Ministry of Planning and Ministry of Works data\. December 1982 SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) Comparative Highway Maintenance Expenditures and Project Financing (FrCFA million) Expenditures in 73/74 74/75 75/76 76/77 77/78 78/79 79/80 80/81 Feeder Roads /a - - - 1,201 537 533 - - Feeder Roads b - 40 40 558 358 409 507 668 Maintenance Division /c 1,178 1,387 1,500 1,704 1,699 1,995 n\.a\. n\.a\. Mtce & Eqpmt Directorate /c 1,312 1,508 1,674 1,990 2,284 2,550 2,438 3,427 Ktce & Eqpmt Directorate d n\.a\. n\.a\. n\.a\. 2,410 2,594 5,230 2,619 3,527 /a Expected expenditures per Appraisal Report: 1976/77 1977/78 1978/79 Cost Taxes Cost Taxes Cost Taxes Government 193 162 115 97 118 101 Bank 846 - 325 - 314 - 1,039 162 440 97 432 101 /b Actual expenditures per Ministry of Planning "Fiche de Suivi" and Loan disbursements: 76/77 77/78 78/79 79/80 80/81 Total Government 200 160 160 220 250 990 Bank 358 198 249 287 418 1,510 558 358 409 507 668 2,500 t4 /c Actual expenditures excluding capital expenditures per FCRs Second and Third Highay Projects\. /d Actual expenditures including capital expenses\. SENEGAL FEEDER ROADS PROJECT (LOAN 1221-SE) Appraisal and Actual Equipment Purchases (FrCFA m) PRESENTLY APPRAISAL EXPECTATION ACTUAL EXECUTION AVAILABLE No\. of No\. of Type of Equipment Pieces Cost Pieces Cost Bulldozer (200 IP) 3 74\.7 3 55\.75 1 Graders ( 130 HP) 9 19\.6 9 91\.97 4 Compactors 3 36\.9 3 15\.74 1 Tractor w/ 45t low bed trailer 1 20\.0 1 21\.25 1 Dump truck (6 m3) 18 117\.O 18 109\.44 1 Tank truck (8 m3) 9 85\.5 9 60\.30 4 Service trucks (2\.5 ton) 6 24\.0 6 18\.78 3 Water pump (50 m3/hr) 6 3\.6 6 2\.16 2 Roller (600 kg) 3 3\.0 3 3\.11 - 250 1 Cement mixer 3 2\.7 3 2\.44 - Pick-up trucks 3 7\.5 6 7\.23 3 Station wagons 5 12\.5 5 11\.46 1 Tank truck (4 m3) 3 8\.11 Camp equipment (sets) 3 2,7) Electrical generators (4 KVA) 3 3\.6 3 1\.30 2 Water tank on trailer (1 m3) 3 1\.5 3 1\.37 - Various tools - 3\.0 - \.74 - Service station trucks 3 9\.9 3 32\.89 2 6 agricultural tractor and compactors - - 6 56\.15 4 Front end loaders - 3 24\.01 2 Spare parts (5\.9%) 3Z\.4 36\.59 578\.2 568\.06 Source : Audit Mission December 1982 - 14 - ANMEX Page 1 Republic of Senegal No\. 01285 VINISTRY OF THE EQUIPMENT Directorate General of Public Works Dakar, July 20, 1983 The Director General of Public Works to The Director Operations Evaluation Department World Bank 1818 H St\. N\.W\. Washington D\.C\. Dear Sir : Following are the comments generated by the Project Performance Audit Report on the Feeder Roads Project (Loan 1221-SE) 1 - Substitute Ministry of Public Works for Ministry of the Equipment or Minisiry in charge of public works\. 2 - The appraisal estimate of total project costs is given on page (ii) as US$ 6\.6 million but on page (v) it is US$10\.1 million\. The two figures differ from the estimate of US$ 8\.5 million given in the PCR and in the Appraisal Report of March 1976\. 3 - Page 1: there has never been a Division of Highways within the Ministry of Public Works and Urban Development\. Also, the Ministry's name is Ministry of Public Works and Urbanism not Urban Development\. 4 - The report makes no mention of the impact study; that compo- nent received great attention from the Bank because it would have filled gaps with regards to the definition of feeder road selection criteria, but the component was cancelled be- causeof the poor monitoring by the Bank of the availability of funds, which was carried out without taking into account the itemized allocation\. The report should have brought out these facts\. - 15 - ANNEX Page 2 5 - The calculation of the 11% rate of return appears to bi based on a very simplistic approach to the consequences of poor maintenance over the life of the roads\. Please excuse the delay in furnishing you this reply, it was due to the fact that the document, of which only one copy was provided to us, was examined by the various departments involved in monitoring the project\. Very truly yours, /s/ Moussa TAMBAlOU 一一／ご＿_ メ乙りJのれ：メA・k - 17 - PROJECT COMPLETION REPORT SENEGAL FEEDER ROADS PROJECT LOAN 122L-SE) 1\. INTRODUCTION 1\.01 Senegal's transport system is among the best developed in West Africa\. Extensive port and railroad facilities were first established when Dakar was the administrative and commercial center of French West Africa\. The Port of Dakar is still a major deepwater port serving the Sahel Region and an important bunkering point for north-south sea traffic, while the 1,030 km railway line, of which 660 km to Mali, has lost some of its earlier importance for goods traffic due to the railway's steadily declining opera- tional capacity and efficiency, and higher competition for improved alterna- tive routes\. 1\.02 Development of the road network between Dakar and the regions of the country became a priority objective after Independence in 1960\. At the start of the 1980s, the country had a total of 13,700 km of classified roads, some 3,230 km of which are paved\. It has thus more paved roads than the Ivory Coast (with about 3,000 km of paved roads), and considerably more than Cameroon (about 2,000 km), despite the fact that has only about one-fourth and one-half of their respective GNPs and a smaller area\. 1\.03 Bank Group involvement in the road sector started rather late and has essentially focussed on highway maintenance and feeder road construction\. The First Highway Project (Credit 198-SE, US$2\.1 million, 1970) financed feeder roads, road maintenance equipment and a study for the improvement and maintenance of the primary road network\. The Second Highway Project (Credit 366-SE, US$8\.0 million, 1973) continued to provide equipment, technical assistance and training for road maintenance and financed a first phase pavement strengthening program, as well as studies for a subsequent phase strengthening program and for the improvement of feeder roads\. 1\.04 Based on these studies, a Third Highway Project and a Feeder Roads Project were negotiated in 1976 (Loans 1222-SE, US$15 million, and 1221-T-SE, US$6\.6 million)\. The former continued the pavement strengthening program, improved the organization of highway maintenance and equipment repair opera- tions in the Directorate of Public Works (DPW), \.1/ provided 5upport to the National Soils Laboratory (Centre Experimental de Recherches et d'Etudes pour 1'Equipement--CEREEQ), included an evaluation of the local construction industry and provided technical assistance to improve the transport planning capacity in the Ministry's Directorate of Studies and Programming and to carry out preinvestment studies\. The Feeder Roads Project is the subject of the I Reorganized in March 1979 and renamed General Directorate of Public Works\. - 18 - present report\. During its implementation, a Fourth Highway Project (Loan 1810/Credit 993-SE, US$10/28 million) was approved in 1980\. It continues assistance to road maintenance through a training program, a study to improve maintenance planning and pavement strengthening, provides for upgrading CEREEQ, and for construction of an 85 km two-lane paved road between Louga and Dahra, co-financed by OECF, Japan\. 1\.05 Several Bank-supported agricultural projects also included sizeable feeder road components\. The more important of these were located in the southern and southeastern regions of the country, where agricultural potential is good and population density comparatively low\. The Casamance Rice Project (Credit 252-SE, US$3\.7 million, 1971), as well as two settlement projects in eastern Senegal (Credit 254-SE, US$1\.35 million, 1971 and Credit 570-SE, US$2\.0 million, 1975) included road construction units that operated with varying efficiency\. All three projects experienced difficulty in attaining their goals, including some 250 km of roads in Casamance and 166 km in eastern Senegal and to obtain acceptance by DPW for maintenance of them\. 1\.06 The present report is based on consultants' progress reports, Government reports, Bank supervision missions and on information collected during a project supervision/compLetion mission in December 1981\. II\. PROJECT PREPARATION AND APPRAISAL Preparation 2\.01 The project under review was a "new" type of highway project focus- sing exclusively on feeder roads construction and maintenance in Senegal\. It was prepared under the Second Highway Project by a French consulting firm, whose terms of reference were to review the country's feeder road requirements over a ten-year period, to formulate an appropriate strategy in feeder road development and to propose a project based on a priority list of roads to be improved over a first five-year period\. 2\.02 After reviewing data on current agricultural production and plans for future development of the sector, the consultants surveyed some 6,000 km of roads and tracks to assess their serviceability, as well as actual and estimated future traffic\. In a report submitted the end of September 1974, they proposed a five-year improvement program for some 1,330 1cm of feeder roads, to be carried out by a subdivision to be specially created in the Road Maintenance Division of DPW\. The Division had itself been established only in 1973 to execute the four-year maintenance program financed under the Second Highway Project\. 2\.03 In February 1975, an identification mission discussed the report with the Government and the consultants\. To ensure that the proposed project could be kept reasonably responsive to changing agricultural development needs and would not exceed available Bank Group financing, it was decided to reduce the project period from five to three years\. The consultants were - 19 - asked to develop detailed proposals for staffing and equipping the proposed new feeder road unit and to examine the scope for involving small local contractors in the execution of the project\. Project Appraisal and Processing 2\.04 The project was appraised essentially as prepared in May 1975\. Project processing was done in parallel with the Third Highway Project: negotiations took place in Dakar, February 9-11, 1976; Board presentation in Washington, March 16, 1976; and signing of the Loan Agreement and four side letters on March 31, 1976\. Project Objectives 2\.05 The Feeder Roads Project as appraijed had two main objectives: (a) to support agricultural deve\.lopment through the improvement of about 1,000 km of feeder roads and the maintenance of an additional 250 km con- structed under earlier IDA agriculture projects; and (b) to establish the institutional framework for continuous expansion and proper maintenance of the feeder road network\. In order to achieve this, the project foresaw: (a) the creation of a feeder roads subdivision, Bureau des Pistes de Production (BPP) under the Road Maintenance Division (RMD) of the Directorate of Public Works (DPW) including the establishment of brigades to do the work, aiming at efficient execution of feeder road construction and maintenance; (b) the development by the Directorate of Studies and Programming, (DSP), of technical and economic criteria for defining annual road construction programs from proposals submitted by various Government agencies; and (c) the establishment of an Interministerial Consultative Committee (ICC) to review and approve these programs\. 2\.06 The project aimed also at developing the capabilities of small contractors who would construct BPP headquarters and drainage structores, and haul laterite for the brigades\. It further foresaw a study of the tarh- nical and economic feasibility of intermediate technology methods for feeder road construction, and to explore the possibilities of obtai,\.*,ng local contri- butions from rural communities for feeder road maintenance\. Project Description 2\.07 To meet its objectives, the project provided financing for a three-year program of feeder road improvements\. Funds were to cover: (a) purchase of equipment and spares for three construction brigades; (b) purchase of supplies and materials for operations included under the project; - 20 - (c) construction of headquarters for the Feeder Roads Subdivision (BPP) and; (d) technical assistance to BPP for (i) assisting in programming and implementing the proposed improvement and maintenance program and (ii) monitoring the project\. 2\.08 In contrast to traditional highway projects, which finance the construction of defined road sections, mostly by t:ontractors, the project provided for a three-year program of some 1,000 km of rural road improvements to be carried out by force account\. Of the proposed three-year improvement program 400 km were to be only summarily improved (POA standard) with a 6 m reshaped roadway and spot gravelling as required; 500 km would be one-lane roads (PA1 standard) with a 7 m shaped roadway and a 4 m gravel wearing course; and 100 km would be two-lane roads (PA2 standard) with an 8 m shaped roadway and a 6 m gravel wearing course of 15-20 cm thickness depending on soil quality\. Standards are described in Table 1\. In addition, the project was to provide maintenance of 250 km of low-trafficked gravel feeder roads not covered by the Second Highway Project, as well as initial maintenance on the project roads\. 2\.09 Only the "first-year" construction program was firmly defined, while "second" and "third-year" programs were indicative and subject to modification in the light of changing priorities in the agriculture sector\. It was expected that construction would start with three work brigades in December 1976, and that each brigade would produce some 110 km annually\. The firmly established first-year program consisted of 106 km of POA roads; 239 km of PAl roads and 7 km of PA2 roads\. A mechanism needed to be developed that would ensure application of selection criteria acceptable to the Bank in the establishment of subsequent road improvement programs (para\. 3\.20-3\.21)\. Project Cost and Financing 2\.10 The project was estimated to cost US$8\.5 million equivalent, net of taxes and duties\. -Foreign exchange costs were estimated at US$6\.6 million equivalent or 77% of total project cost\. In addition to local costs of US$1\.9 million equivalent, taxes and duties were estimated at US$1\.6 million equiva- lent, both to be financed by the Government\. A Third Window Loan of US$6\.6 million was approved to cover 100% of foreign costs\. III\. PROJECT IMPLEMENTATION 3\.01 July 29, 1976 was the expected date of Loan effectiveness\. Inasmuch as the Government had supplied the requisite legal opinions well ahead of this date, the Loan was actually declared effective on June 15, 1976\. - 21 - Establishment of BPP and ICC 3\.02 The BPP was established legally by Decree No\. 00447 of January 1976 which defined the organizational structure of the Directorate of Public Works as a whole and included the BPP as a subdivision of the Road Maintenance Division\. As agreed during project negotiations, the ICC was established by Decree No\. 76600 of June 1976\. This committee included representatives of various Government and regional development organizations responsible for agricultural development, public works, and transport\. Its task was to review annually the indicative rural roads program in the light of various agencies' development programs and to bring changing priorities to the attention of BPP\. The program would be submitted to DSP for technical and economic review\. The ICC's final recommendations for each annual construction program would be based on the results of these studies, which applied criteria acceptable to the Bank\. Final approval of the annual program by the Prime Minister was required before it would be carried out\. Project Start-up 3\.03 Before project construction and maintenance work could begin, a number of preliminary actions were required\. Equipment for the brigades needed to be procured; offices for the newly created BPP had to be con-tructed; technical assistance had to be employed to help establish the unit and support local staff during the early years of project execution and personnel had to be recruited and trained\. Although initial implementation of these activities was satisfactory, difficulties soon appeared, when the requisite local finan- cing for the project did not materialize\. 3\.04 Bidding documents for project equipment were prepared at the time of project preparation and approved by the Bank in January 1976, i\.e\., before negotiations\. Procurement of project equipment thus was timely, the bulk of it being delivered by December 1976 as foreseen at appraisal\. However, three front-end loaders and six agricultural tractors and rollers, which were originally to be provided to the project from existing stock in DPW's Central Equipment Division, were not provided and had to be ordered in late 1976\. Due to delays in contract signing and lack of counterpart financing, they were not delivered until November 1977; their non-availability seriously hampered start-up of works by the brigades\. 3\.05 Bids for construction of the BPP office headquarters were received in May 1976, but contracts were awarded only in April 1977, again mainly because of the shortage of counterpart funding\. The building, which also was to accommodate DSP, was ready for occupancy by BPP only in November/December 1978\. Until that time, project personnel occupied temporary offices at the Road Maintenance Division\. 3\.06 The contract for technical assistance to the project was awarded to a French consulting firm and the team, consisting of one road engineer (Chief of Mission) and one chief mechanical engineer, took up service two months after project effectiveness, on August 15, 1976\. The initial contract foresaw a total of 48 months of consultancy input, mainly to help establish the new feeder roads unit, organize the execution of the initial work program - 22 - and provide on-the-job training for local personnel\. A short-term assignment (three months) of an economist was also foreseen, to assist in preparing subsequent programs\. 3\.07 Recruitment of local personnel was, however, difficult\. The ap- praisal foresaw employment of one road engineer (Chief of BPP), one mechanical engineer counterpart to the expatriate chief mechanic, and two administrative assistants at BPP headquarters; and 85 foremen, operators and mechanics for manning the three construction brigades and the maintenance brigade\. Part of the contingency was to be transferred from DPW; new recruits were to receive training under the programs set up for maintenance personnel under the Second and Third Highway Projects\. The training arrangement did not work as expected, because the project recruits could not be accommodated at the requisite time; thus training of project personnel was done initially by the main suppliers of equipment, and subsequently under the project itself\. 3\.08 A young Senegalese graduate engineer was recruited by December 1976 as Chief of BPP, but no suitable counterpart for the chief mechanic could be found before the technical assistance contract expired\. Difficulties were encountered in the recruitment of brigade chiefs as well, mainly because Government rates for experienced technicians were well below those offered in private industry at the time\. Recruitment of equipment operators, mechanics and foremen, of which more than double the number foreseen at appraisal were finally hired, took until mid-1977 to complete\. Many of the recruits had only limited job experience and required extensive training\. Their performance suffered also from delays (over three months at times) in salary payments\. Many of the experienced or trained staff left the project during its first year of operation; BPP found itself still short of competent personnel in July 1978, when the initial technical assistance contract was drawing to a close\. 3\.09 Some of the above problems were again a consequence of the non- availability of counterpart funds, which was aggravated by the fact that payments to BPP personnel, initially handled through the Road Maintenance Division, were, on occasion, delayed\. in an attempt to give the project at least a minimum of local operating funds, a revolving fund in an initial amount of CFAF 15 million was established with Government funds in June 1977\. It took until March 1978 for it to become effective\. Initially, it was not administered by BPP, and could not be used to pay contract staff\. First Phase Execution 3\.10 Two clearly distinct phases of actual project execution can be distinguished\. The first one extended from July 1976 to the end of February 1979\. By early 1977, BPP had acquired the physical means for becoming a functioning entity\. Its failure to become effective, however, was a result of: (a) dispersed and confused administrative responsibility for different aspects of project execution; (b) academically qualified but inexperienced project leadership and inexperienced brigade personnel; and, most damagingly, from (c) the continuous shortage of counterpart funds resulting in slow equipment delivery, rupture in supplies of fuels and spares to the sites, loss of experienced personnel and low morale of remaining labor\. Construction - 23 - output which, perhaps somewhat optimistically, had been expected to reach around 600 km during the first two years of operation stood at 140 km at the end of February 1979; some 220 km of other roads had been maintained during the last eight months of this project phase\. Frequent supervision missions had drawn the Government's attention to the poor and even steadily deteriorat- ing performance of the project and suggested practical measures to reverse this trend, to little or no avail\. 3\.11 With little response from either the Ministry of Finance with respect to counterpart funding, or the Ministry of Works with respect to project organization and administration, the Government was informed in March 1979 by RMWA that, in the absence of decisive remedial measures to ensure conformity with the Loan Agreement, a recommendation would be made to Bank headquarters to consider cancellation of the Loan\. The prospect of loan cancellation resulted in bringing the project to the Prime Minister's personal attention\. Soon after, the problem of counterpart funding was resolved\. An experienced DPW technician replaced the young engineer as project manager\. He was given full administrative authority on all aspects of the project and the BPP, although nominally still a subdivision of the Road Maintenance Division, reported directly to the Director General of Public Works\. An official note of July 6, 1979, issued by the Director General of Public Works and specifying organizational relationships between the different divisions in DPW, showed the BPP alongside RMD and stated that BPP "is directly responsible for its own administration"* This arrangement ended a more than two-year period of friction and unsatisfactory administrative dependence of BPP on the Road Maintenance Division (although a ministerial ordinance of September 1979 continued to show BPP as a subdivision of RMD in the reorganization of the Ministry)\. BPP was given control over its advance fund which was increased from CFAF 15 to 30 and subsequently to 50 million, when payment of salaries for contract staff out of this fund was authorized\. Second Phase Execution: Road Works 3\.12 Having at last acquired a workable organizational set-up, a modicum of operating funds and an experienced and competent manager, the project entered a second phase (March 1979 - June 1981), during which construction performance approached, and at times even exceeded, appraisal estimates\. Over the 28-month period until exhaustion of loan funds, a total of 540 km of roads was improved, and initial maintenance was carried out on some 440 km of project roads\. A number of actions by project management were instrumental in the achievement of these results\. 3\.13 In order to reduce the frequent periods of complete immobilization of the brigades because of a breakdown of one piece of heavy equipment (such as a loader or dozer), the initial three light brigades were reorganized into two "hezvy" brigades\. The new head of BPP, being a seasoned DPW employee, and having direct support from the Director of Public Works was better able to obtain regional public works equipment, which often needed only minor repairs, to keep BPP brigades operating during equipment emergencies\. Since equipment repairs by DPW's Central Equipment Division were extremely slow, a facility for repair and maintenance of project equipment by project personnel was set - 24 - up in parallel in available space at the Central Equipment Division; it also served as a base for regular training cycles for all brigade mechanics\. (The DRM staff quite resented what they saw as preferential treatment to BPP\.) Radio equipment was purchased to provide daily communication between head- quarters and brigades in the field\. This means of contact became particularly important in the last years of the project, when failure of the aging equipment was becoming more frequent and timely provision of spares and expert instruc- tion to brigade mechanics were essential to keep up brigade productivity\. Some of the equipment purchased for the project proved no, appropriate under Senegal field conditions and had to be modified at considerable expense\. The truck fleet especially performed poorly despite continuous maintenance efforts\. Except for the personnel carriers, the fleet was written off completely by the end of the project; during the last year of operation, it functioned mostly with reconditioned vehicles recuperated from among existing DPW equipment, and with private truckers doing the hauling\. 3\.14 To provide the necessary technical backing to BPP during this period, the Government requested, and the Bank agreed, to continued technical assistance\. The contract was extended first for a ten-month period from March 1979 through December 1979; and subsequently for another eighteen-month period from January 1980 through June 1981\. Throughout this time the team consisted of one road engineer (Chief of Mission); one mechanical engineer, responsible for spares procurement and supervision of repairs on site and in the central workshop; and one mechanical engineer/trainer\. ThILs small team worked very effectively with rather than alongside, or instead of, their Senegalese counterparts and contributed much to forging the BPP into a well-functioning unit\. 3\.15 The actual program of rural road construction executed under the project differs in several respects from the indicative program established at appraisal on the basis of 1973/74 consultants' surveys and reports\. Firstly, the project's regional coverage is wider than foreseen at appraisal: the ICC's suggestions resulted in the inclusion, in the latter years of project execution, of roads in the Fleuve region; in the groundnut and Casamance regions, some proposed sections were dropped and new ones intro- duced\. Of the total 680 kilometers constructed under the project, 400 km or about 60% were roads identified for priority upgrading at appraisal; the remaining 280 km were among those subsequently evaluated (Table 2)\. 3\.16 In addition, maintenance was carried out on three non-project roads in 1978, and on 15 of the 33 roads improved under the project during 1979-1981, Secondly, the characteristics of the roads constructed differed from those proposed in the appraisal report\. None of the improved sections were left at POA standard\. In fact, all roads were constructed to a basic two-lane gravelled standard between the PAl and PA2 standards defined at appraisal (Table 1)\. The 97 km Kolda-Velingara Road, the main section included in the appraisal program for improvement to PA2 standard, was paved under a diffe:ent program\. Of the 400 km of roads to be summarily improved (POA standard), well over half were re-evaluated during 1980 and replaced by other road sections proposed by ICC that had a higher rate of return\. The majority of the remain- ing POA sections were located in regions with sandy soils, and continuous gravelling was necessary on most of them to ensure year-round viability\. - 25 - The choice of a uniform gravelling width for all project roads evolved empirically: correct application of different standards is not easily con- trolled by project management, and uniform standards, once brigades have been trained to use them, will result in higher construction outputs\. The study of the technical and economic feasibility of constructing rural roads in Senegal by intermediate technology methods and comparison of them to the equipment- intensive methods which had been adopted for the project was dropped\. 3\.17 Thirdly, no new structures were built, and the brigades carried out minor culverting works mostly with recuperated material and temporary bridges using local wood and stone\. Civil contractors were used only for laterite hauling: on road sections where the hauling distance was more than 45 km, project vehicles were not sufficient to provide materials as required\. While haulage was easily contracted out, there were very few local contractors in Senegal capable of carrying out construction, and the project could not provide the close supervision they would have needed\. Effective supervision would have required additional BPP headquarters staff, and, under the circum- stances, project management correctly decided to concentrate on improving project brigade efficiency first\. 3\.18 At BPP headquarters, additional administrative staff were employed and up-to-date financial and cost accounting introduced\. Progress reporting, introduction of new contracts, and processing of withdrawal applications were handled accurately and expeditiously\. Annual Construction Programming 3\.19 An important aspect of the project was the proposed redefinition and evaluation of indicative annual work programs which was to have been carried out jointly by the Borrower (ICC, DSP) and consultants\. DSP, while practically without local staff other than the Director, disposed of some 144 man-months of technical assistance for transportation planning under the Third Highway Project that would, inter alia, carry out the bulk of the programming work, while the project itself provided for only three months of an economist's support to assist BPP\. Since DSP was mainly devoted to preparing a national transport plan when the rural road evaluation was finally required, a somewhat more extensive economist input than originally foreseen (5\.5 months) had to be financed by the project\. 3\.20 Due to that three years went in carrying out the firmly established "first-year" construction program, the program review process involving ICC and DSP was initiated at the end of 1979 only\. DSP invited the Governors (regional authorities) to submit lists of priority road sections for upgrad- ing\. From over 2,000 km submitted, some 900 km were preselected and examined by DSP and ICC, who agreed on 600 km to be retained for the program\. However, the selection was based on summary screening criteria only (groundnut traffic flows and population in the road influence area)\. At the Bank's request, an economic evaluation was subsequently carried o- by technicians financed under the project\. This review included the 600 km J2 roads) retained by tl-! DSP and ICC, 320 km (10 roads) submitted by the Governors and rejected by the ICC, and 245 km (6 roads) from the original 1974 program and proposed to be dropped\. - 26 - The final 1980-81 program for implementation was established from the results of this evaluation; only some 500 km showed an economic rate of return above 10% and were retained\. 3\.21 A comparable exercise was carried out in the Fall of 1980 to determine an overall program for a proposed follow-on feeder roads project\. To avoid the long process of eliminating purely "political" candidate roads and focus more directly on the needs of agriculture, regional development authorities rather than Governors were invited to submit proposals\. For a number of roads that were to serve specific agriculture projects, economic benefits were measured in terms of net incremental value added, attributable to both agriculture and road investment\. Again, the economic analysis was carried out by the consultant; but since the various regional development organizations had evidently come to accept the economic evaluation process in the establishment of their respective road improvement priorities, the Director of DFW had arranged for a local economist to be employed by DSP for execution of this work in the future\. Study of Road Impact 3\.22 To provide more reliable information on the socio-economic impact of rural road improvements on the populations served, the project included a study for monitoring the performance and impact of a sample of roads constructed under the project\. It was to be carried out by consultants over a three-year period\. Supervision of this component vas to be the responsibility of DSP\. The study contract was awarded tG a local consulting firm in 1977; as the loan agreement only provided for financing of foreign costs under Category 2, it was amended in October 1978 to finance 90% of the total cost\. Contract signing, however, did not take place until March 1979\. 3\.23 During the difficult start-up years of the BPP, the study was of minimal ccncern to the subdivision and a low priority item for DSP\. Thus, in designing and carrying out the first phase of the study (baseline surveys), consultants had no effective inputs from DSP\. Field work for the base surveys was carried out according to the contract schedule and a draft report on the results was presented in October 1979\. 3\.24 On review by ti-e Bank it was found that the study had focussed on monitoring the agricultural production impact of three roads, all of which served areas already intensely cultivated and where road improvement had been econnmically justified on the basis of vehicle operating cost savings to normal traffic\. Given the major annual variations in agricultural production (Table 3) due to the varying intensity and timing of the rains, the monitoring of minor production changes due to improved access to market would have required much more intensive study coverage than actually provided\. Following discussions between DSP/BPP, the consultant and the Bank, it was therefore agreed to reorient the study to what could be expected to be measured with acceptable reliability--i\.e\., the traffic effects of the road improvement\. Traffic counts on the selected road sections were to be carried out three times per year over a three-year period; a brief summary of results was to be presented at the end of each calendar year\. The household and village - 27 - surveys in the road influence areas were also redesigned to concentra:e on a smaller number of more reliable measurable indicators of change, and the consultants agreed to re-analyze the baseline surveys in terms of the newly chosen indicators\. 3\.25 Cooperation between consultant and DSP/BPP in the redefinition of the study was good; the traffic counts were carried out on schedule, and the updating and reworking of baseline results initiated as foreseen\. Difficulties and delays occurred, however, in processing the agreed contract amendment reflecting the changes in study coverage; it was approved in :March 1981 only\. In the absence of payments for substantial services already rendered, the consultant was deficient in producing reports: results of the traffic counting had to be collected in preliminary form by the last Bank supervision mission, and the re-draft of the baseline surveys has not as yet been received\. Limited socio-economic analysis can be expected; at best, the study will provide information on traffic for a small sample of rural roads\. Implementation Schedule 3\.26 By the end of 1979, the original target date for project completion, the project had constructed the BPP offices, procured all brigade equipment, and improved some 380 km of roads\. A total of US$4 million equivalent or just under two-thirds of the loan proceeds had been disbursed at that time\. Loan closing dates were deferred to December 1980 and subsequently, to December 1981, however, all loan funds were committed well before June 1981 and the final payments made on September 16, 1981 (Table 4)\. The actual period of project execution thus was five years rather than the three-and-a half years foreseen at appraisal; and a total of 680 km of roads and tracks were improved, compared to the 630 km to standards PA and 390 km to be summarily improved, as appraised\. Project Costs 3\.27 Appraisal estimates and actual project costs (at current prices) are summarized in Table 5\. The road improvement program carried out differed considerably from the indicative programs established at appraisal and cost 23% more\. The local coitribution to total project cost was more than double the original estimate\. 3\.28 Actual costs of equipment purchased for its operation were lower than estimated: US$2\.3 vs\. $2\.7 million equivalent for equipment, but some equipment was rented which was not foreseen; US$3\.0 vs\. US$3\.4 million equivalent was spent for spares and supplies; materials purchases were minimal and amounted to only a third of appraisal estimate\. Almost half the amount foreseen for drainage and culvert works by contractors, which were not con- tracted or not done was paid to contractors for hauling materials\. The office building for BPP was constructed at 60% of the cost estimated at appraisal\. 3\.29 By contrast, personnel costs were considerably higher than foreseen from CFAF 198 million to CFAF 550 million: the cost of local head-office personnel was estimated at CFAF 11 million annually for a period of three - 28 - years; actual costs averaged over CFAF 16 million annually for a period of five years\. Brigade personnel costs were estimated to average about CFAF 55 million per year for three years; actual expenditures were just under CFAF 94 million annually for five years\. Partly, the difference is explained by higher than estimated increases in salary levels; minimum salaries were increased several times during the implementation period, and last by a substantial 25-30% in January 1980\. But mainly the difference is due to much higher staffing levels than originally proposed\. The appraisal provided for unrealistically low numbers both of administrative and brigade personnel\. Actual office staff of around 40 people (including messengers, gardeners, building guards, etc\.) and brigades' staff (including hand laborers) averaging 100-120 each are perhaps generous\. 3\.30 Proportionally even higher was the cost overrun for technical assistance: actual cost of US$1\.73 million equivalent compared with an appraisal estimate of US$0\.5 million\. This reflects the fact that man/months provided to BPP was 139\.5 rather than the 48 foreseen at appraisal\. The cost per man/month (including overhead and all local allowances) also increased considerably during the latter years of project implementation and averaged US$12,400 equivalent\. The cost of the road impact study (US$320,000 equiva- lent, actual) had not been detailed in the appraisal report and it is not clear whether it was included under the "technical assistance" category\. 3\.31 In summary, the project carried out construction of 680 km instead of construction of 630 km and summary improvements to 390 km and a similar proportion of its maintenance objectives at 123% of the estimated cost, taking 142% of the originally foreseen project period to do so\. The actual overrun of US$1\.9 million equivalent is mainly attributable to the lengthening of the project implementation period which, in turn, was caused mainly by insufficient and irregular local financing during the critical years of project start-up\. Not having provided timely requisite financing initially, the Senegalese Government in the end contributed twice the original estimate\. Consultants and Borrower Performance 3\.32 Consultants to BPP during the first project phase (July 1976 February 1979) performed as satisfactorily as circumstances permitted: due to lack of counterpart funds, absence of trainable counterpart personnel and poor administrative arrangements for the newly established BPP, they were not in a position to carry out fully the tasks assigned them in their terms of reference\. By contrast, the three-man team of technicians assigned to the project during the second project phase (March 1979-June 1981) operated very successfully in an organizationally much improved, if not perfect environment\. Towards the end of the project, technical assistance and local counterpart personnel worked as a well-integrated team whose overall level of competence had grown considerably over the project period\. 3\.33 Short-term consultant services provided for assisting in the develop- ment of an annual program evaluation scheme and in the preparation of a second fecder roads project (5\.5 man-months in all) were timely and of good quality\. - 29 - 3\.34 Consultants carrying out the socio-economic impact study gave a somewhat mixed performance\. Without seeking guidance from either BPF/DSP or the Bank, on their terms of reference, they embarked on an ambitious base-line surve7 which could not possibly provide short-term measures of road impact over a three-year period\. Following a Bank review of base-survey results, the thrust of the consultants' work was changed to concentrate on traffic surveys, and transport availability and cost, on sample roads\. The field work was carried out satisfactorily\. However, reporting has been very poor and no more than preliminaL, results have been communicated so far\. I/ 3\.35 The Borrower's performance under the project varied from very bad to good over the five-year project implementation period\. All procedures up to project effectiveness were handled with exemplary dispatch\. But once given existence on paper, the newly established BPP for more than two years received neither the organizational support inside DPW, nor the necessary counterpart funds required to carry out its mandated tasks\. Only the prospect of project cancellation finally redressed the situation which then remained satisfactory through completion of the project\. IV\. INSTITUTIONAL DEVELOPMENT 4\.01 Among the main objectives of the project was the creation of the capability, inside DPW, responsible for the evaluation, programming and execution of rural road construction and maintenance (para\. 2\.05)\. As in the majority of countries in the West Africa Region, main road construction and improvement in Senegal had been pursued vigorously after Independence and absorbed all the scarce manpower and funds of the road sector\. The responsi- bility for planning and implementing rural road i-nprovements was scattered among mult various regional/local institutions and development projects, all working to their own priorities, standards and schedules, and none suitably equipped to ensure maintenance of the roads they constructed\. The project--by creating and financing a feeder roads unit in DPW--was to provide a techni- cally competent unit to be responsible for all rural roads works\. The BPP and DSP were to establish an inventory of existing rural roads and tracks, deter- mine their adequacy for the traffic they were expected to support, and define the road improvements needed to eliminate transport bottlenecks impeding agricultural and rural development\. The DSP would establish annual construc- tion programs using consistent criteria to determine the economic viability and development priority of proposed road improvements\. 4\.02 The preceding section on project execution has implicitly traced the performance of BPP as an "institution"\. For an initial two-year period when DPW assigned neither sufficient funds nor any experienced manpower to its newly acquired task of rural road construction and maintenance, the BPP 1/ We are not certain whether they have finally been paid, a factor Lhat was holding up completion/release of reports\. - 30 - appeared condemned to flounder\. Only after the unit became administratively autonomous under an experienced local manager and was given reasonably adequate operating funds did it also become productive\. With some additional equipment and personnel selected by the new manager, output over the next 28-month period reached 540 km of road construction, and initial maintenance was carried out on all project roads as required (some 440 km)\. 4\.03 Two ingredients can be identified as instrumental in this trans- formation: (a) direct control by the unit over a minimum of operating funds (local cost revolving fund for salary and small operational expenditures); and (b) local management experienced in both the technical and administrative aspects of the job, who set production goals, clearly communicated them to staff (all contractual), followed up on performance, and did not hesitate to remove poor performers\. The unit thus effectively operated more like a "contractor", oriented not to making a profit but to achieving a maximum amount of construction output with given funds\. 4\.04 The BPP did not become involved in other feeder road projects being executed at the time\. The most important of these was the UNSO-sponsored construction of the 26 km Sambadia-Djiffere road in Sine-Saloum; at the time the UNSO-brigade was being set up (1977) it was foreseen that it should be constituted as a fourth brigade of BPP\. However, in the early difficult years of BPP's establishment, the UNSO brigade started functioning separately, under expatriate management\. It built roads of much higher standard than the roads constructed under the project, at a per km cost several times the one under project\. With the completion of this initial program, it could have been integrated into the then efficiently functioning BPP; this was not pursued, however, since the Government feared to lose the financial support (by Dutch and German aid) to the brigade, if it were taken out of the UNSO framework\. 4\.05 BPP brigades had succeeded in attaining the expected yearly output\. However, since September 1981 when project funds ran out, they functioned for a while at a reduced level with financing from the Road Fund, and in 1982, as the Road Fund has not been replenished given the overall country budgetary crisis, they came to a stop as did the rest of the Road Maintenance Division activities\. The BPP brigades have been nominally reinstated under the RMD, to execute both feeder road construction and periodic maintenance of main roads depending on the priorities and funds\. A second feeder roads project, requested by the Government, was not pursued, as the overall decline in agricultural production made it difficult to justify more feeder roads when the existing ones were underutilized and not maintained; it is expected, though, that the brigades could assist in feeder road works needed by future agricultural projects in new areas\. These works, however, would require major equipment renewal and continued on-the-job training for some categories of personnel (mainly mechanics)\. The Sixth Plan (1981-1985) documents assume that BPP is to carry our road infrastructure programs for the various regional development projects planned throughout Senegal\. - 31 - 4\.06 The planning capability had also developed\. DSP had made progress in a continuous updating of the rural road inventory and in evaluating annual improvement priorities\. Even the ICC, while a somewhat cumbersome mechanism, had proved valuable in providing DSP/BPP access to, and some influence over, the various institutions concerned with rural road improve- ments\. It provided a forum for discussion and agreement on consistent screen- ing procedures needed for establishing rural road improvement pricrities--and, on balance, worked well and was accepted by regional authorities\. 4\.07 A local consultant also benefitted and acquired some experience from the project\. Domestic contractors were not employed as foreseen; their development should be pursued under other projects, as the potential looks good\. An agreement, spelled out in a side letter to the Loan Agreement, by the borrower to explore the possibilities of obtaining voluntary contribu- tions in cash or labor from rural communities for feeder roads, was abandoned\. As long as the project was functioning badly, it was not feasible to sollicit local contributions: and when it later worked well, the uncertainties sur- rounding the future of the BPP effectively precluded any initiative in this respect\. V\. ECONOMIC RE-EVALUATION 5\.01 The indicative three-year road construction program covering some 1,000 km of different standard roads had been evaluated at appraisal to yield an average economic return of 12%; the maintenance of some 250 km of non- project roads was estimated to yield over 20%, and the project as a whole would have an economic return of about 14%\. Benefits taken into account were mainly savings in vehicle operating costs to normal traffic, growing at 4% p\.a\. Only for two roads, which were to serve planned vegetable growing areas not previously accessible by road, a combined return to the agriculture and road investment based on net incremental value added was calculated\. These roads, totalling 36 km, were part of the second-year indicative program and were not included in the actual construction program\. The main beneficiary of the project was expected to be ONCAD, the organization then charged with the marketing of groundnuts and with provision of inputs such as improved seeds, fertilizers, pesticides and equipment to area farmers\. The farmers would benefit mainly by more reliable access to markets rather than by cheaper prices of inputs and higher prices for crops, since agriculture farm-gate prices are officially and generally uniformly set by the Government\. Benefits from institution building were considered to be substantial, although they were not quantified for inclusion in the economic calculus\. 5\.02 The same methodology as at appraisal was used in the re-evaluation\. Due to inadequate cost accounting for the early project years, road construc- tion and maintenance costs during the five-year period of project execution could not be satisfactorily separated and a joint return to both activities is estimated\. The economic analysis includes all costs incurred by the project with the exception of those for the impact study\. The very heavy technical - 32 - assistance costs associated with the first unproductive phase of the rural road improvement program have thus been fully charged to the project\. The substantial residual value of the equipment expected at appraisal turned out on the contrary to be quite low at project end\. 5\.03 Based on actual project experience, maintenance requirements over the rest of the project life (10 years) are estimated separately for two climatic zones\. Routine maintenance is assumed to cost CFAF 40,000/km/p\.a\.; spot regravelling, estimated to cost CFAF 260,000/km, would be required every third year in heavier rainfall regions mostly in the southern half of the country and every fifth year in the dry zones in the north\. 5\.04 Traffic data were derived from DPW 1975-1981 traffic counts for secondary and regional roads and from the 1980-61 traffic counts on the project roads covered by the impact study (for details of the assumptions underlying the economic analysis, see Table 7)\. The pattern is one of steady, and on most regional and departmental roads, very steep, trafric growth (doubling to quadrupling) between 1975-1978, a slight decline in 1979, and a steep decline (down to 1975 levels in many cases) for 1981\. The 1981 decline was the result of a dramatic drop in that year of groundnut production below the 300,000 ton level, compared to average annual production of around one million tons\. Traffic patterns were further distorted by tne dissolution of the giant state marketing agency, ONCAD, in the Fall of 1980\. ONCAD's transport responsibility was to be devolved to a number of successor agencies, but confusion and delay ensued, and input distribution as well as crop collec- tion were severely disrupted\. The 1981/82 crop season has been a good one, however\. Groundnut production is expected to be around the 800,000 ton mark, and in December 1981, crop collection was betng organized quite efficiently directly by the oil mills, relying on private, hired transport exclusively\. Only the provision of inputs to farm cooperatives is to be handled by one of the ONCAD successor agencies, SONAR, who has inherited the best part of the ONCAD vehicle fleet\. Thus, for the 1979-81 drought years, traffic is taken as constant at tne-low-1981 level when production of main products was about half the usual tonnage, although traffic did not lecrease as much; in 1982, traffic is assumed to grow at 10% to reflect the upswing in agricultural production in the 1981/82 crop season, also due to better prices to farmers and hopefully, better organized transport; 1983 growth is assumed at 7%; for the remainder of the project life, only a 4% growth rate (as at appraisal) has been used to account for the likelihood of lower traffic, drought years\. 5\.05 The economic analysis distinguishes between zones for which vehicle operating costs are different: the dry/sandy north (Fleuve, Louga, and northern Thies); the groundnut basin (Thies/Diourbel/Sine Saloum) and northern Senegal Ori!ntal; and the south (Casamance and southern Senegal Oriental)\. Vehicle operating costs used in the analysis are those prepared by consultants under the project\. For existing roads on which maintenance only was carried out in the early years of project implementation, full vehicle operating cost savings are taken for the first year after maintenance was carried o,it\. For the low trafficked road in eastern Senegal, deterioration would take place without maintenance over a five-year period and reduce vehicle operating - 33 - cost savings to a fraction of those in the first year as follows: year 2, 90%; year 3, 70%; year 4, 40%; year 5, 10%\. For the heavily trafficked road sections in the Thies region, deterioration would occur over a three-year period as follows: year 2, 75%; year 3, 40%; year 4, 10%\. Future mainte- nance of the roads would be the responsibility of the regional maintenance authority, as the BPP is integrated into the general RAMD, and it is hoped that works will be carried out to prevent deterioration, at least on the heavily trafficked roads\. 5\.06 With these assumptions, the project is estimated to yield a global economic return of 14\.5%, practically as at appraisal (Table 8)\. This is due to various compensating factors: traffic is much lower; unit vehicle operating savings have more then doubled the 1975 levels, as roads deterio- rated further and operating costs increased also with inflation; and construc- tion costs were some 50% highe\.* than the appraisal estimate\. If only half the cost of technical assistance were charged t \.ne project--on the assumption that institution-building costs should be spread over a longer-term program horizon--the project's rate of return woald rise to 16%\. There is a high probability that traffic will be at least 50% higher than assumed levels, should peanut production return to previous levels; if so, the return would be considerably higher\. However, there is a risk that maintenance will not be performed since DPW does not have the institutional financing capacity to assure this will be done, and if so, the economic rate of return would be negative\. Assuming that the roads would deteriorate at the rate indicated in para\. 5\.05, the economic rate of return would be -11% and the investment wasted (Table 9)\. 5\.07 The fact that only one standard -aa applied to all roads, irrespec- tive of traffic, could mean that the cost of some roads was more than can be justified\. Of the 400 km that were to be summarily improved, only 80 were improved, to higher standards and in the areas with higher traffic; but 217 km were rehabilitated in Casamance, where traffic in general is lowest and vehicle operating savings per se do not justify the inveitment\. However, it is premature to draw a conclusion on the effects and justification of the roads, given the lack of appropriate traffic data and the possibility that agriculture may recover and new projects be started\. It is recommended that for this type of project, where the impact may be fully appree l\.ed only some years after its completion, the PCR be postponed, or followed up some years later\. 5\.08 Benefits from road improvement would primarily accrue to the oil mills or to some parastatal agencies; the farmers would mostly benefit from cheaper and faster personal transport, as tariffs for groundnuts and their t-ansport continue to be administered\. The rates have been simplified - 34 - compared to earlier schedules applied by ONCAD; 1/ as the rates now include a fixed charge per ton, it is difficult to say whether transporters are paid more or less than before in real terms however, the variable charge seems to follow closely the operating costs, including taxes, on the various road types, established by DSP (which is consulted for the rate levels), so that the transporters would not benefit much from the road improvements\. VI\. BANK PERFORMANCE 6\.01 The Senegal Feeder Road Project is the first one to have been executed from a Bank field office--the Resident Mission in West Africa (RMWA)--from preparation through completion\. During preparation and super- vision, proximity to the Borrower has had the obvious advantage of making frequent and close consultatious possible\. Performance in the later years of project execution indicates that the institutional arrangements (BPP and ICC) were correctly defined and appraised\. The fact that all administrative actions required from the Borrower before loan effectiveness were accomplished on, or ahead of, schedule, points to the conclusion that the new project concept developed for rural roads was appreciated and actively supported by the higher level planning authorities in the country\. However, it seems that the Bank did not realize that this appreciation was initially not equally strong at the working level in the Ministry of Works (MOW), or when funds were required\. The willingness and perhaps the capacity of the MOW to accord the project sufficient priority were over-optimistically assessed\. 6\.02 When it became clear that the project was in trouble and was unlikely to achieve its objectives, the Bank took forceful and, in this case, success- ful action at the right level in Government\. 6\.03 Supervision of the project from RMWA averaged between three and four visits a year throughout the project\. This above-average intensity was justified given the difficulties in project start-up and the institution- building nature of the project\. The same amount of supervision of the Third 1/ Instead of 10-12 different tariffs based on road conditions and trip distance, there are now only three basic distinctions: Paved Road Improved Gravel Earth Road 1974 Rate per ton/km, CFAF to collection centers 17 22 28-50 Rate per ton/km, CFAF to oil mills 12 17 - 1981 Fixed charge (CFAF/ton) 520 520 520 Variable charge (CFAF/ton/km) 25 28 44 - 35\.- or Fourth Highway Project was provided simultaneously from headquarters\. Also, the Bank's resident mission in Dakar proved to be a most useful permanent contact point between the Bank and the project\. There is no evidence to suggest that additional supervision would have influenced project execution to any significant degree\. 6\.04 With hindsight, the technical assistance requirements of the project would seem to have been underestimated at appraisal\. The cost of technical assistance might have been kept somewhat lower, if the Bank had insisted on negotiating a new contract rather than (for reasons of the Government's administrative expediency) approve a number of amendments to a 1976 contract with a high initial unit cost and a price revision formula which turned out to be quite favorable to the consultants\. 6\.05 The project was conceived as the first of a series, since, as is the case of highway maintenance projects, institutions cannot be expected to be consolidated within the period of a single project\. A follow-on project was included in the lending program until early 1981, and the Government had done some preparation and submitted a formal application for a follow-on project\. Based largely on the poor performance of Senegal's agriculture sector, a further feeder roads project per se cannot be justified at this time; priority of the scarce resources should be given to maintaining the existing network\. Therefore, the follow-on project was deleted from the lending program (the built-up capacity was integrated into the Road Mainte- nance Division, where it will be assigned priority work - para 4\.05), but future Bank agriculture projects will include feeder road components as justified, eventually to be executed by force account, and the Bank is also considering assistance for-road maintenance, including feeder road maintenance\. VII\. CONCLUSIONS 7\.01 After a seriously inadequate start, the project constructed 600 km of 630 km foreseen of 7-8 m width, improved 80 km of 400 km foreseen and maintained some 220 km of other roads\. The institutions and consultative arrangements (BPP and ICC) functioned reasonably well; and the economic viability of the project works has been confirmed with an overall 14\.5% rate of return\. The Government is intent on continuing rural road works through BPP as soon as financing can be found, and has been active in eliciting interest from major donors (Paris Meeting, October 1981 and Dakar Meeting, March 1982) for the provision of assistance to feeder roads programs and the sector as a whole\. The Bank is considering assistance to the maintenance program, of highest priority in the sector, and which the Government is unable to finance\. 7\.02 Through this project and the Fourth Highway project appropriate assurances had been obtained that the project would receive adequate support to achieve its original purpose\. Extremely unfavorable economic circumstances have prevented--directly (lack of justification for new roads outside an agricultural project), and indirectly (lack of financing)--fall realization - 36 - of this objective\. As the agricultural sector in Senegal recovers and begins to increase its efficiency, there will be a continuing need for rural road improvements\. 'the institution created to carry them out may, however, have undergone a declikne, thus requiring some effort to restore it\. - 37 - tablel1 SENEGAL FEEDER ROADS PROJECT (Loan 1221-T-SF) PROJECT COMPLETION REPORT Desizn Standards : At Appraisal and Actual Apraissl Report Act-al Tracks Roads Roads without with some one two two improvement improvement lane lanes lanes (piste ordinaire) (piste o\.amf1iorfe) Designation PO POA PA 1 PA 2 PA Yearly traffic (in tons) 3,000 6-7,000 <\.20,000 20,000 + 6-20,000 Vehicles per day 5 10 20 20/30 Rcadway width (in meters) 6 7 8 7-8 Gravelled surface width spot (in meters) gravelling 4 6 5,5 Thickness of road materials (in cm) n\.a 12/15/20 15/20 12/25 Drainage lateral lateral lateral lateral ditches ditches and distches and ditches and paved fords culverts culverts Design speed n\.a n\.a 60 km/hour n\.a 1/ Construccion cost - per km (force account) sandy soils n\.a US$14,000 Us$12,250-28,000 other soils IS$1,400 US$3500-5,250 USS 8,750-12,250 Yearly maintenance cost per km (routine and 1/6 of periodic) US$130 US$300 US$350 US$:320 1/ Ai of December 1975, without taxes\. Scurce: Government, consultants and mission reports\. &―너‘「『「「 샅 , &\. - 39 - Tatle3, SENEGAL FEEDM ROADS PROJECT (Loan 1221-T-SE) PROJECr CMIPLETION REPORT Agricultural Production, 1973174-1980/81 Un Thousand tons) Crmp 73/4\. 74/5 75/6 76/? 77/8 78/9 79/60 80/al Groumdruts-InFi\. 675 994 1,450 1,182 586 9w 737 2-300 Groundruts-Cons\. 18 18 25 14 8 13 9 6 Sorgho - Millet 511 ?80 r77 SO? 416 795 495 552 Mats 32 43 49 42 32 47 45 54 Paddy 64 117 1115 los 62 12B 113 so Cotton 33 42 31 45 37 33 27 22 Tomatoes 20 20 Gr,een Beans 6 6 Ortiorts 10 10 Fertilizer Dis- tributed 97 104 as 103 Estimated figures fr-om various sources\. Source: Governtowt, covaultants and mission rei3orts\. - 40 - Table 4 SENEGAL FEEDER ROADS PROJECT (Loan 122L-T-SE PROJECT COMPLETION REPORT EstLimated and Actual Schedule of' Disbursements PY1977-1982 IBRD CUJLATIVE DISBURSEMENIS AT END OF QUARTER FISCAL YEAR - US Thousand - AND QUARTER ESTIMATED ACTUAL FY 77 Sep 76 200 - Dec 76 1,200 - Mar 77 2,700 400 Jun 77 3\.500 1,100 FY 78 Sep 77 3,800 2,000 Dec77 ,100 2, 100 Mar 78 4,500 2,30, Jun 78 4,900 2,400 FY 79 Sep 78 5,300 2,700 Dec 78 5,700 3,200 Mar 79 6,000 3,400 Jun 79 6,300 3,600 FY 80 Sep 79 6,600 3,700 Dec 79 4,100 Mar 80 4,500 Jun 80 5,000 FY 81 Sep 80 5,300 Dec 80 5,900 Mar 81 6,100 Jun 81 6,400 FY 82 Sep 81 6,600 Source: Government, consultants and miseon reports\. - 41 - Table 5 SENEGAL FEEDER ROADS PROJECT (Loan 1221-T-SE> PROJECT CO1PLETION REPORT Estimated and Actual Allocation of Loan Proceeds (US$ equivalent) Loan Agreement Loan Category July 19 6 Actual I\. Equipment, spare parts, supplies and materials 5,000,000 4,865,775 II\. Technical assistance 400,000 1,4571025 III\. Civil works by contract 400,000 277,200 IV\. Unallocated 800,000 TOTAL 6,600,000 6,600,000 Source: Government, consultants and mission reports\. -42- TABLE 6 ~gM tOAS PRCUECT (toan 1221-T-SE) PaDJECr C~@LTION REP0RE A1ssal Est±ates5 pr\.: actufal Q:'ee: C0:2 (Corrent Prices ) ApparaieL Estimat Actual Ccit \.ocal Foreign Total 4ocal Foreign Tctal Fnrc\.-;' as rctal Cs ts CPAF million USt 00 St OCO -I CFAR rillicr uSt 000 LS\. CCO ,t cf rital \. n ÄrrfUsä equivalnert CCst Estirate A\. mffc -ff e , 014 678 må 222 4 166\.6 2\.Sc2,2 \.Älding 37\.4 122\.2 206\.5 14:\. 109\.4 1, OficA Eruimfflent 4 Coration 6,9 9\. 36\.4 12\.0 '4\.3 67\.7 22 'M Por%onml 33\.1 - 147\.1 82,9 \.35\.2 \. tenia sicre13\.0 44''\.6 SOS\.3 63\.a 1\.445\.1 i\.27W\.2 64 24\.2 ImPaCt: stýdy \. - - -42\.7 %3\.2 3\._ ::1ie \. C, Rodd Contructiorn Sr\.d antnarca 314,0 \.,635\.6 7\.031,1 827\.2 4\.7j\.1 \. c-, EQUiVent Purhae 53,4 2,492\.9 2,73\.2 46\.6 2,I03\.7 2,262\.9 91 EcuiPtnent Pantal - - - 2\. - 126\.7 \. Loplies and Spaas 74\.2 3,090\.7 ,420\.4 66\.9 2,717\.4 3\.0192\. 5ersommil 162\.9 - 724\.0 459\.7 - 2,CES2 - 26 V<trials 23\.5 52,0 156\.5 11\.1 34\.7 -3 Vtilc\. Czst aS\. IL\. Eq, Trupt\. - \. 4\.1 - 18\.1 6 D,Cl Rork\.s Contracted 21\.9 :3e, 46,7 19,7 154_4 2464 S4 Acuno\.425 6\.600 6\.500 870 8,600 10, 430 22 78 37 63 100 Gýovrnmwnt contriution for EPP ouilding anly 2/ Head officA pErSonnel coat uatinatad at 15 % of total oersonl oSta, based on brCakdcwn for csole months\. 3/ Incluse part of mats *li1g1blm for Bn financing, but rot Paid dua to exaustion of loan precands 4/ At wstiPettd excdange rate of USG 1 - CFAF 225 At avr excha~gQ rate of USS 1 \. CFAF 222\. Rata& actually fluctuated betwe~r CFAF 200 - 285 ouring 9-g - 1961 rhnce tne ciffererc-, in doQllar ~vnts up~re Per expe,dtturc catugory to those Boen r Table 5\. 5ource: Govear~t\. consultmnte and *isLaon reprt\. l1 - 43 - sEMEGAL IEDER ROADS PROJECT (loan 1221-T-SE) PREzCr COmPLETION REPORT Assumptions tsed in Re-\.valuatina Project Roada ZONE A / ZONE B ZONE C 7 Project Roads Constructed and Maintained (ka) 82\.0 38L\.5 217\.9 other Roads Maintained (ka) - 45\.0 173\.0 State of Track Vithout ProJe4t Year 1\. (Sumary) , Pa 100% 335 50% (ordinary) Po - T7 50% Year 2: PS 100% 50% 70 PO - 50% 30% Year 3: PS 100% 70% 100% P0 - 30% - Year 4: PS 100% 100% 100 PO -- Yebtale Operating Cost PLeAsener 7edole TALttw k Media Truck Savins (Dee\. 1980 prices) CFAP/V*h/ft CPAPVeh/0f CPAP/Veth 100% PS ) PA (gravel) 47\.58 99\.13 165\.9i TOS PS/30% PO- PA ( " ) 39\.55 79\.43 130\.94 50% PS/50% PO- PA ( " ) 34\.20 66\.26 107\.57 33% PS/5T% PO--PA ( " ) 29\.73 55\.28 88\.06 Road Maintenance Cost zone A Zone 3 7one C Current maint\.(CPAF/ka/year) 40\.000 40,000 40,000 Spot reagravellin (CPM/ks) 260,000 260,000 260\.000 every fitth year every third/fifth yr\. every third year Reduction in voiteope\. savins if no maintenace Year 2 75% 902 Year 3 402 Intermdatae 602 Year \. 102 302 Year 5 102 Average 1979/81 Daily Traffic Passenger Vehicles 3 T 2 Trucs \./ 8 121/ 4 kaned Roads Ps\.enger Vehicles - 28 3 Trucks i/ 421 6my Traffic Growth: 1982t 102 1983t 72 1984 S 4% I/ Fleuve/Lougs/North of Thies\. ?/ Thies-South/Diourbel/Sine Saloum/Nor-th of senegal Oriental\. 3/ Senegal Oriental-South/Cassmance\. -/ Truck traffic is assoned to consist of 30% light trucks (8 tons), 70% medium trucks (10 tons)\. / reliminary results of the Impact survey gave 37 and 25 vpd on two ample roads\. Estiate for sone adustad douad based on agricultural production data and aistion field eaperience\. 6/ afic counts for one road eotion show 157 vpt for 1978 end 90 vpe ror 1981\. N"o 0o"11t wre available for the second setion, and since it seres aler SocGlity, It is snsumd to be loer\. The estieor ot 7 vpd retained for the analY1111 ia consermative\. Sourcet Government, consultants ankd msion reports\. - 44 - TABLE 8 SENEGAL\. EDnR READ PROJXT Lca- 1221-T-BE) PRJ~CT =PEUTTI REPON T Econodic Re-avaluatton of Ytader R6ad- lfprötgd Under the Projaet Assuming Adequata Maintannes (CFA7 Millian In Dec\. 1980 prtces) Kl O7MEs 00T I ITS Main- Constructed and construc Subacaunt Matenanceo tained Maintalned tion £ 298 383 173 TOTAL \.£Xatat dd only BENE- BENE- ZONES Inteal km km km COSTS A B C - C VITS FTTS å c- A ,Bl 32 1c mainten\. 1976 - -6,0 - - - - 761\.00 - 761\.00- - - - \. -761\.0 1977 - - 94 - - - 497\.80 - - - - 497\.80 - 19\.67 - - - 19\.67 -\.78\.13 1978 45 173 34 - - 116 - 357\.80 - - - - 357\.80 8\.13 47\.41 9\.51 122\.54 31\.96 219\.55 -138\.25 1979 - - - 122 k10\.5 50 - \.;,1\.00 - - - - 571\.00 16\.26 127\.42 27\.84 91\.90 57,87 321\.29 -249\.71 1980 - - 48 - 55 51\. - 511\.10 - - - 511\.10 27\.73 265\.46 47,57 49\.01 45\.00 434\.77 - 76\.33 1981 - 173 298 183 - - 11\.92 - 15\.37 44\.98\. - 72,22 43\.13 319\.20 59\.28 13\.48 70\.72 505\.81 433\.59 1982 - - 11\.92 - 15\.32r 6\.92 - 34\.16 46\.13 341\.50 63\.41 - 75\.65 526\.72 492\.56 1983 - - - 11\.92 - 99\.58 - 6\.92 ~j118\.42 48\.01 355\.16 65\.95 - 78\.68 547\.80 429\.38 1984 -- 11\.92 - 15\.32-44\.98 - 72\.22 49\.93 369\.37 68\.58 81\.82 569\.70 497\.48 1985 - - -77\.48 - 15\.32 - 6\.92 - 99\.72 51\.92 384\.14 71\.33 - 85\.10 592\.49 492\.77 1986 - - - 11\.92 - 99\.58 -6\.92 - 118\.42 54\.00 399\.51 74\.18 - 88\.50 616\.19 497\.77 1987 - - -11\.92 - 15\.32-44\.98 - 72\.22 56\.16 415\.49 77\.15 - 92\.04 640\.84 568\.62 1988 - - -11\.92 - 15\.32 -6\.92 - 34\.16 58\.41 432\.11 80\.23 - 95\.72 666\.47 612\.91 1989 - - - 11\.92 - 99\.58 - 6\.92 - 118\.42 60\.74 449\.39 83\.44 - 99\.55 693\.12 574\.70 1990 - + 18\.9 - 77\.48 - 15\.32- 44\.98 -118\.82 63\.17 467\.37 86\.78 - 103\.53 720\.85 602\.03 aY 50% residual valua of BP? build \. RÄTE OF k~TUN - 14\.5% Source: Governm~nt, congultaet\. and miion raports\. Table 9 SENEGAL FEEDER ROADS PROJECT (Loan 1221-T-SE) PROJECT COMPLETION REPORT Econoic Re-evAluAtinn of Peeder Roads Imvroved Under the Proiect\.: Assuming Inadequate Yaintenance (CFAF Million in Dec\. 1980 prices) Total Cost of Construction BENEFITS Total ear and Initial Maintenance On Roads Const- On Roads Maintain- Bene Net ructed ed fits Benefits 1 - 761\.80 - - - 761\.80 2 - 497\.80 19\.67 - 19\.67 - 478\.13 3 - 357\.80 65\.05 154\.50 219\.55 - 138\.25 4 - 571\.00 171\.52 149\.77 321\.29 - 244\.71 5 - 511\.10 340\.76 94\.01 434\.77 - 76\.33 6 - 379\.44 41\.77 421\.21 421\.21 7 - 315\.64 7%56 323\.20 323\.20 8 - 190\.12 - 190\.12 190\.12 9 - 49\.75 - 49\.75 49\.75 RATE OF RETURIT 10\.9% Source: Government, consultants and mission reports\.

APPROVAL

P007818

Docummit of The World Bank FOP\. OM " USF ONLY Report No\. 9 713 PROJI1:(ECT COMPl\.TION REPORT PANAMA THIRD 1\.IVESTOCK PROJEC1 (LOAN 2356-PAN) JUNE 28, 199i Agriculture Operations Division CountrY DepartTmeTnt 11 I\.atin America anid ti\.e C- ribbean Reyimal iOf i ce This document has a rt- -icted distribution and mai be used by recipients only in the performance of their official duties\. Its contents ma' not otherwise be disclosed %ithout World Bank authorization\.  PANAMA THIRD LIVESTOCK PROJECT (LOAN 2356 - PAN) CURRENCY EQUIVALENTS Currency Unit Balboa (B) US$1\.00 B1\.00 Note: Balboas are only minted in coins\. US dollar bills and US coins circulated legally\. WEIGHTS AND MEASURES Metric System ABBREVIATIONS BNP National Bank of Panama TU Livestock Unit of BNP MIDA Ministry of Agriculture IP Investment Plan  FOR OMCAL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.A Ofice of DqectoriG\.neral Opetatmn Evalutwn June 28, 1991 MEMORANDUM TO THE EXECJTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - Panama Third Livestock Prolect (Loan 2356-PAN) Attached, for your information, is a copy of a report entitled "Project Completion Report on Panama - Third Livestock Project (Loan 2356-PAN)", prepared by the Latin America and the Caribbean Regional Office\. No audit of this project has been made by the Operations Evaluation Department at this time\. Attachment This documen: has - restricted distribution and may be used by recipients only in the perfornance of their official duti ;ts contents may not otherwise be disclosed without World Bank authorization\. \. , ~~~~~~~~~~~~~~~~~~~~~~~~II  FOR OFFICIAL USE ONLY PANAMA THIRD LIVESTOCK PROJECT (LOAN 2356-PAN) PROJECT COMPLETION REPORT Table of Contents PREFACE \. \. (i) EVALUATION SUMMARY \.(iii) PART l: PROJECT REVIEW FROM BANK PERSPECTIVE\. 1 1\. Project Identity\. 1 2\. Project Background\. 1 3\. Project Objectives and Description\. 2 4\. Project Design and Organization\. 2 5\. Project Implementation\. 3 6\. Project Results\. 4 7\. Project Sustainability \. 5 8\. Bank Performance\. 5 9\. Borrower Performance\. 6 10\. Project Relationship \. 6 11\. Consulting Services \. \. 6 12\. Project Documentation and Data \. \. 6 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE \. 7 PART III: SUMMARY OF STATISTICAL DATA \. \. 8 1\. Related Bank Loans \. 8 2\. Project Timetable \. 9 3\. Credit Disbursement \. \. 9 4\. Project Costs and Financing \. \. 10 5\. Project Financing \.11 6\. Allocation of Loan Proceeds 12 7\. Status of Covenants \.13 8\. Mission Data \.14 9\. Number of Loans Distributed by Region and Allocation \.15 10\. Approved Credit in Relation to Farm Size (ha) \.16 1 1\. Summary List of Major of Investment Items \.17 MAP: IBRD 16929 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - a -- PANAIVA THIRD LIVESTOCI PROJECT (LOAN 235i-PAN) PROJECT COMPLETION REPORT' PREFACE This is the Draft Project Completion Report (PCR) for the Third Livestock Development Project in Panama for which Loan 2356-PAN in the amount of US$9 million was approvod in November 1984\. The closing date of the loan was originally establishod as June 30, 1989\. However, because of a deepening economic crisis linked to deepening political problems, tho Bank quapMded disbursements to Panama in November 1987 and canceled the undisbursed amount of the loan as of October 30, 1989\. This Draft Project Completion Report was prepared by a mission of the FAOQWorld Bank Cooperative Program (Preface, Evaluation Summary, Parts I and ll)\. This report is based, inIpfl on the Staff Appraisal Report, Loan and Guarantee Agreements, Supervision Reports, correspondence between the Bank and the Borrower, interviews with the Bank and the Technical Unit staff, and various data supplied by the Technical Unit of the Banco Nacional de Panama (BNP)\. The Draft Project Completion Report was sent to the BNP (the Borrower) in October 1990 for comments and contribution to Part II of the Report\. In December 1990 BNP informed the Bank that it had no objections to PART I of the report\. Additional information was provided in March 1991, particularly on the achievements of the Technical Unit (TU) in 1990\. Those comments were incorporated in the report\. Subsequently, the Borrower agreed that its March 1 5 communication be considered as Part ll of the PCR\.  - iii - PANAMA THIRD LIVESTOCK PROJECT (LOAN 2356-PAN) PROJECT COMPLETION REPORIT EVALUATION SUMMARY Introduction The Third Livestock Project was the sixth agricultural operation to be financed by the Bank in Panama having been preceded by two fisheries, two livestock and one tropical treecrop projects\. The Loan and Guarantee Agreements became effective on April 26, 1984\. Scheduled to last five years, the Loan Account was closed and undisbursed portion of the Loan canceled as of October 31, 1989, long after the credit component had come to a virtual standstill due to economical and political problems ensued by lack of payments on debt service under Bank loans which caused disbursement to be suspended by the Bank\. Only about 319% of the loan was disbursed\. Objectives The purpose of the Third Livestock Project aimed at further assisting the Government in making use of the country's comparative advantage in the livestock sector\. The objectives included increasing beef production mainly through improved livestock management methods, liberalizing government marketing policies and expanding milk production through improved technical assistance and supervised credit\. Implementation Experience From the beginning the processing of subloans began to lag behind the appraisal estimates\. The main reasons were (a) a severe drought in 1983-84 which had reduced the demand for credit and (b) the availability of funds from the previous Livestock II Project (loan 1397-PAN) whose Loan Account had been expected to close in 1982, but required two extensions of the closing date to complete disbursements which eventually lasted into spring of 1986\. Later in 1987 counterpart funds started to dry up and the demand for all type of subloans diminished due to the deteriorating economic and political problems\. At the end of 1987 when disbursements had reached a total of US$2\.8 million (31 % of loan amount) the Bank suspended disbursements to Panama because of the aforetold payments problems\. Because of said suspension, the Bank was unable to extend the closing date beyond the originally established date of June 30, 1989, and eventually canceled the amount of US$6\.2 million, the undisbursed balance under the loan as of October 1989\. Results The main objectives of the project were only partly achieved since only one third of the total was disbursed\. Prior to 1987 the Technical Unit (TU) approved about 230 subloans (the SAR had estimated 420) of which 63% were for dual-purpose operations, 35% for beef production and the remaining 2% for only dairy production (the latter category was not contemplated in the SAR)\. The size of average subloans were quite similar to those contemplated in the SAR\. The TU was strengthened, a monitoring and evaluation service was established and staff training took place\. With  - iv 17 technicians in the fiold TU romained fairly active mostly providing technical assistance and processing short-term credit\. One impact of the project was that export quotas for beef were removed, bL the benefits obtained were shortlived, wlien export of deboned beef meat to the US came to a halt in 1987\. Su stainability Despite the difficuit economic situation in Panarna and the uncertainties of a deepening and continued depressior\., BNP continued, as indicated in Part 11, to maintain the highly trained and qualified TU\. In 1990 (the year after the closing of the project) BNP has been able to process about 480 operations and several conferences and field-days were held to promote changes in production technologies\. Since demand for milk and meat is reduced, input prices have increased and farm incomes are deteriorating there is a latent danger that many subloans provided under the loan may fall into arrears, but the institutional capacity of BNP in expanding milkproduction through improved techrnical assistance and supervised credit continues to be sustained\. Findings and Lessons Given the circumstances it is rot possible to evaluate the impact of the project\. A deteriorating political climate and the accompanying economic depression brought about a standstill of the project credit component three years after it became effective\. A major fault was the submission to the Board and approval of this loan in November 1983, when disbursement under the previous Livestock 11 Project (Loan 1397-PAN) was well behind schedule\. Thus the Third Livestock Project became effective when substantial funds from the precedent loan were still available\.  PANAMA THIRD LIVESTOCK PROJECT (LOAN 2356-PA ¶) PROJECT COMPLETION REPORT PART 0: PROJECT REVIEW FROM BANK PERSPECTIVE 1\. Ptoject Identt Projoct Namo 'T'hird Livestock Development Project C2redit No\. 2356-PAN RVP Ulnit Latin America and Caribbean Country : Panama Sector Agriculture Sub-sector Livestock 2\. Project Background 2\.1 Agriculture is iess important in the economy of Panama than in most other Latin America co 1-{es\. Banana and sugar are the main cash and export crops\. Since 1960 the agricultural cont;\. ution to GDP has declined from 23% to 19% in 1988\. In its place, the services sector grew to contribute about 60% of GDP from financial, commercial and transport activities\. Despite the relative decline in agriculture's contribution to total GDP, the performance of the sector has been crucial to Panama\. In the early 1 980s it still employed 27% of the work-force and generated 55% of commodity exports\. 2\.2 Panama's nopulation in 1988 was 2\.3 million inhabitants, of which about 1\.0 million lived in rural areas\. Because of the scarcity of new jobs in agriculture, migration to the cities has been rapid resulting in a 4\.4% population annual increase in the urban areas and only 2\.2% in the countryside\. 2\.3 The livestock sub-sector showed throughout the 1960s and the 1970s slow growth similar to the rest of the agricultural sector at some 3% annually\. Within the stub-sector, milk, poultry and pork production kept up with population growth averaging about 3% duringthe 1970 decade\. Beef production estimates are biased as they record only output from registered slaughterhouses\. Clandestine slaughter which probably was sizeable, introduced a significant error factor in livestock inventory and growth estimates\. Nevertheless, due to the policy environment existing until the late 1 970s, the livestock sub-sector was a rather stagnant industry with sporadic short-term movements in response to good seasons and market improvements\. It was estiriated that in 1981, the cattle population was about 1\.3 million heads\. 2\.4 By September 1983, when the Third Livestock Project was presented to the Board, the Bank had fully disbursed two projects for agriculture and one for livestock totalling US$5\.7 million and ongoing operations in the agricultural sector included one project for livestock credit and one for development of tree crops\. 2\.5 The Governrment requested the Bank to help finance the continuation of its livestock program which had been supported through two Livestock Development Projects (Loan 901 - PAN and Loan 1397 - PANL Both of these projects were to help the Government to meet its objectives of diversifying production and exports of beef and generating foreign exchange through import  -2 - substitution by increasing milk production\. The requested project was to be implemented by the Technical Unit (TU) of the Barico Nacional de Panama (BNP) established under Loan 901 - PAN\. 3\. Pro,ect Objectives and Descriptlon 3\.1 The proposed project aimed at assisting the Government in making fuller use of the countrv's comparative advantaje in the livestock sub-sector\. The objective of the project included increast,ag beef production mainly through improved livestock management methods and liberalizing official marketing policies; expanding milk production and improving its quality through on-farrr investments and enforcement of a new price structure based on milk grading; and generating employment opportunities in the rural sector\. 3\.2 The project consisted of: Sub-loans for lual-gWrgose and Beef Production operations (i) long-term investments to include milking facilities, fencing, livestock, water systems, pasture improvements, annual crop production and reforestation on dual-purpose (milk and beef) and beef production farms; and 0i0 short-term financing for purchasing cattle for fattening in conjunction with long-term investments\. Technical Unit (TU) (i} training in improved livestock management techniques consisting of: local ,raining for TU staff and project beneficiaries; and foreign training for TU staff; {ii) intr,rnationally recruited consulting services to assist TU in 'ivestock management systems, cattle reproduction efficiency, project monitoring and evaluation and soil and water conservation; and (iii) acquisition of field vehicles and office and technical equipment\. 3\.3 Project conditionalities included the enforcement by Government of legislation introducng milk grading standards\. 4\. Project Design and Organization 4\.1 The project was originally prepared by the TU of the Banco Nacional de Panama with assistance from the FAOiWorld Bank CP, which produced a preparation report in March 1982\. Two subsequent Bank missions (April 1982 and August 1982) completed the preparation work\. The proposal was appraised late 1982\. 4\.2 The overall project concept was approp'iate and it was based on the experience - since end-i 973 - of the Bank with the two previous mentioned livestock development projects\. 4\.3 The procedural and organizational arrangements envisaged at design were well established in the Panamanian context\. The Banco Nacional de Panama, as with the two previous livestock  -3- projects, was the borrower and executing agency for the project\. The projects' TU admir' \.0red the sub-loans following the well-tested procedures by providing technical personnel to draw up the farm investment plans that were part of the sub-loans applications\. After sub-loan approval, the project field technicians rendered technical assistance and supervised and moniKored the implementation of investment plans\. The project also further strengthened the TU, particularly in the areas of staff training and in the establishment of a monitoring and evaluation section\. 5\. Project Implementation 5\.1 The project was appraised during December 1 982, approved by the Board in November 1983\. The Loan and Guarantee a,\. aements were signed on November 23, 1983 and became effective on April 26, 1984\. It was scheduled to last five years, closing on 30 June 1989\. 5\.2 Planned and actual disbursements by year are shown in Part Ill, 3\. It can be seen that the rate of actual disbursements was considerably below that envisaged at appraisal\. In fact, when the Bank canceled the project in October 1989, the undisbursed balance of the loan was US$6\.2 million\. In other words, only 31 % of the loan was disbursed over the five year period\. 5\.3 The basic reasons for the lag in disbursements during the first three years were: - a severe drought during 1983-84 which reduced demand for sub-loans; the availability of funds from the previous project (Loan 1397 - PAN) which was initially to close in 1982 but was extended twice\. Final disbursements took place during March 1986\. Between 1982 and 1986 about US$3\.2 million were disbursed out of a US$ 8 million loan\. 5\.4 At the end of 1987 counterpart funds started drying up\. At the same time the demand for all types of subloans diminished sensibly as a reflection of the economic crisis that started affecting Panama and which largely had its roots in deep seated political problems\. The Government began to default on its payments and on November 30, 1987, the Bank suspended the right of the Panamanian Government to make any further withdrawals on all Bank loans\. The situation wGrsened in 1988 and 1989\. The Bank informed the Government that it would not be possible to extend the closing date beyond the original date of June 30, 1989, and closed the loan account on October 31, 1989\. An undisbursed portion of the loan in the amount of US$6\.2 million was canceled\. Project Costs 5\.5 Estimated project costs at appraisal and actual costs as of December 30, 1989 are shown in Part It!, 4 A and B\. Total project costs were estimated at appraisal at US$25\.5 million, including physical and price contingencies\. Actual costs including World Bank and Government courtafrpart funding had been estimated at US$6\.6 million and these represent actual disbursements (i\.e\., in other words, these costs came to only 26% of the appraisal costs)\. AvailaHe information does not include individual borrowers' contribution to the sub-loans, which is estimated at 10-15% of farm investmonts\. Although the TU maintainedJ a%dequate records of expenditure and withdrawals of loan proceeds, there appears to have been rio systematic attempt to record total project costs as distinct from disbursements under the loan\. Project Financing 5\.6 As can be seen in Part '!, Table 5, while it was envisaged at appraisal that the contribution to total cost of Government/BiP, henaficiaries and IBRD would be 51%, 14% and 35%  respectively, it is estimated that in actual terms these contributions weru L1 %-1 'I , and 3 i o\. 'I he figures on the contribution of beneficiaries are estimated on a 1°2% basis of sub-loant lifiburfiunuornss but data were not available to provide an accurate fiAgure\. 5\.7 The actual percentage contribution of the three sources are closeo to diai\. imdicatol al appraisal, and thus reflect that BNP/TU followad appraisal and loan agreemnient stipularinon,;\. Disbursements by Categories 5\.8 Part 1II, 6 (Allocation of Loan Proceeds' shows the ornoinal allucaniol an1d the, actual disbursements as of December 1 989\. by categories\. Because of the delays exp: iric;ud bv the project during the first years and the suspension of payments by the Bank, thero is a considerable discrepancy between actual loan disbursement and those contemplated at appraisal\. Only B31 %X\. of tlev loin wavv disbursed\. Training 5\.9 Between 1986 and 1 987 the project financed the training for variable periods of time of 13 technicians of the BNP in Israel, United States, Colombia and Costa R3ica, in fields related to livestock management, animal nutrition, pasture improvement, anirnal health, etc\. In 1 987 a seminar with three Israeli consultants was organized in which BNP staff and cattle farmers palrticipated\. Consultants 5\.10 One consultant was contracted to establish within the TU the monitoring and evaluation sector\. Other consultants contemplated, such as in soil conservation, were not employee: because of project disruption\. 6\. Project Results 6\.1 Because of the aforementioned start-up problems with the project and the payment suspensions by the Bank, an analysis of project perforinance vis-a- the envisaged targets in the appraisal report is practical impossible\. The impact of the project on nationa, beef and milk output could not be determined\. Neither was it possible to ascertain the full impact of investments financed through the sub-loans on farm production and productivity\. It is recognized by TUs' management and technicians that the deteriorating economic situation after 'I 986 has brought about considerable changes in input-output relationships throughout the livestock sector and thus farm development targets and technical coefficients contemplated in the SAR became distorted\. Under these circumstances, and in the absence of any field data it was not possible to calculate financial razes of return for benefitting farms\. 6\.2 Up to the end of 1989 the TU approved 230 sub-loans versus 420 conitemplated by the appraisal mission\. The largest demand was for dual-purpose operations (I144 sub-loans), while for beef production 82 sub-loans were approved and only 4 for dairy productiori (Part III, 9)\. This last category was not contemplated in the SAR\. 80% of the beef production and 68% of the double purpose loans were approved before 1987\. 6\.3 As to the average size of the sub-loans approved for beef production, they vvere quite similar to those contemplated at appraisal (US$34,668 and US$34,600), while tho vevwragfL sizc of the dual-purpose sub-loans approved (US$32, 1 00) was smaller than the SAR estimates (US$41 ,500)\. This  C 5 - is probably related to a srnaller dernand for investment funds in roforestation and less costly farm structures\. 6\.4 Tho project Sent preferably to larger farms\. Of the 230 sub-loans approved, 57% were channelled to farmns above 150 ha and which received 72%\./o of tho total approved up to December 1 989 (Part ill, 10)\. This is quite understandable since, in general terms, srnaller livestock farms do not nave clear property titles\. During the first years of the project: tie implementation of t\.at part of Law 130 which establishes Grade B rnilk was carried out"\. 'rhe Bank made a condition of effectiveness the onactment of a revised legislation relating to milk quality, on-farm construction standards and pricing policies\. Although b aw 6 ' was apprcved under the previous livestock loani (1 397-PAN), it was not until 1985 that Grade B miPc was fully estahlished\. This meant that tho average unit milk price rose from below US$0\.20 to abiut US$0\.28 per liter\. As a iresult, the demand for dual-purpose farrm sub-loans increased and, at the same time, consurners benefitted by receiving moro wholesome milk\. 6\.5 Another impact of the project was that export quotas for beef were removed, but the benefits obtained from this were short-lived\. Bv 1 987 deboned beef meat exports to the United States came to a halt, when the lIS Government banned all Panamanian imports\. As a consequence, Panama exported fattened steers to Mexico\. The full extent of this operation is not known\. 6\.6 Under the project the strengthening of the TU continued\. Thirteen technical staff were trained, mostly through \. bort coujrses in neighboring countries, Colombia, the USA and Israel (see para 5\.9)\. A limited number of vehicles and office equipment in the amount of about US$ 149\.000 were purchased for the purposes foreseen under the project from the loan amount\. At the end of 1989 there were ten persons working at headq- -i, 'ers in Panama and 17 technicians in the field\. By 1986 a monitoring and evaluation unit was e\. L,ished which keeps computerized records of some 30 farm beneficiaries of sub-loans\. The number of farms under this system has expanded only with difficulties since farmers are reluctant to provide up-to-date information\. Apparently, there is a continued feed- back between this unit and field staff\. The TU has remained fairly active, mostly providing technical assistance to cattle farms and processing short-term credit, financed out of BNP's own resources\. The TU performed well under most difficult circumstances\. 7\. Project Sustainability 7\.1 Despite the post-198d economic crisis, the accompanying political turmoil and the uncertainties surrounding the deepening recession, BNP has been able to maintain its hignly trained and qualified Technical Unit\. In 1990, the year after the loan closing, BNP was able to process about 480 operations and several conferences and field-days were held to promote changes in production technologies\. While there is a latent danger that many sub-loans may fall into arrears, the institutional capacity of BNP in expanding milk production through improved technical assistance and supervised credit continues to exist and can be assumed sustainable\. 8\. Bank Performance 8\.1 Project design was sound and formulation was based on the experience of the two previous livestock loans\. Up to 1 986 Bank's supervision missions were frequent and their technical composition was in accordance with the needs of the TU\. After the Bank suspendea disbursements on all loans in Panama, supervision continued, but on an irregular basis which is understandable since on-farm lending came to a standstill\. A good rapport was established between Bank staff and executive | Law 60 provides the basis for a multiple milk grading system\.  6- and technical personnel of the TU\. This was largely the outcoma of the Bank's long involvement - over 12 years - with BNP's livestock projects\. 8\.2 However, a major fault in project implementation is relazsd to the approval of Loan 2356-PAN in November 1983 when disbursement of the previous project (1 397-PAN) was well behind schedule (para\. 5\.3)\. As a result, disbursements were extremely slow up to end-1985\. A more realistic assessment should have been made by the Bank as to the timing of the appraisal process in view of the considerable disbursement lags of Loan 1397-PAN\. Unpredictable, of course, were the disruptive effects on the project of the deepening economic and political crisis\. 9\. Borrower Performance 9\.1 Borrower performance was good because of the competent professional staff of the TU, which largely was the result of the Bank's long involvement in livestock development in Panama; ENP's management was flexible to deal with everyday's problems of the project\. The TUs' technical expertise improved constantly\. In fact, the TUs technical assistance program can be considered as a model in Panama for providing effective extension to the country's livestock sector\. However, small ranchers did not, by and large, benefit from the project\. 9\.2 The monitoring and evaluation service introduced through the project was a step in the right direction, but its effect was relatively limited because of sub-loan beneficiaries' reluctance to provide adequate information\. Because of this technical follow-up, conclusions of the M&E Unit were rather limited\. The borrower fulfilled all the covenants stipulated in the loan agreement (Part III, 7)\. The TU provided the Bank each six months with a progress report with detailed implementation data and BNP's financial statements\. 10\. Project Relationship 10\.1 Bank-borrower relationships were satisfactory and the dialogue, at least up to end-1 986, between TU's technical staff and the Bank's supervision teams was constructive\. Apparently, both parties benefitted by fine-tuning the implementation of the sub-loans\. The project maintained continuous communications with the Ministry of Agriculture (MIDA) and the National Dairy Commission (Comision de la Leche) which was decisive in settling the basic issue of lifting the regulations on beef e ports and introducing Grade B milk\. Because of the current and previous projects, the Government's policy objectives towards livestock development became clearly defined and targeted towards specific objectives\. 11\. Consulting Services 11\.1 The consultant appointed for the establishment of the monitoring and evaluation service performed satisfactorily\. Other consultances contemplated in the SAR (dual-purpose cattle systems and pasture management, cattle reproduction efficiency and soil and water consurvation) were not carried out because of the Bank's suspension of payments\. 12\. Project D' \. mentation and Data 12\.1 There were no major problems in complying with the legal agreements for project implementation\. The Staff Appraisal Report and the Loan and Guaru'!ee Agreements provided an adequate framework for project implementation\.  - 7 - 12\.2 The supervision reports and other relevant project documents available at the Bank generally contained sufficient information for preparation of the PCR\. Hcwever, some data required to complete Part Ill tables were neither readily avai!able nor properly recorded throughout the project cycle\. These included: (i) a planned and revised project timetable, and (ii) the cost of staff inputs\. PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE Translation of text of letter from Banco Naglonal de Panama\. dated March 15\. 1991 Ref\.: Project Completion Regort\. Third Livestock Project (Loan 2356-PAN) We have received several commun:cations concerning the above-mentioned Project Completion Report (a letter dated October 12, 1990, a telex dated December 10, 1990 and a fax dated February 5, 1991), in response to which we wish to make the following comments: 1\. We repeat that we have no objections concerning Part I of this report\. We informed you of this in our fax of December 1 1, 1 990\. For your further information, however, we must tell you that, contrary to what is stated in items 6\.1 and 7\.1 of Part I of the report in question, the Banco Nacional de Panama did, in fact, retain the Technical Unit, since it considered it well-equipped and necessary in terms of the Institution's plans\. In addition, the Bank continued and even stepped up the financing of the livestock sector, using its own funds, and provided loans totalling about US$13\.0 million to 477 operations in 1990; these levels exceeded those achieved in several years during the life of the Livestock Project\. 2\. Extension and public information activities were also stepped up with the establishment, in June 1990, o' the Jornadas Agropecuarias Program by the Banco Nacional de Panama, consisting in a series of talks to promote technological change in production, with a view to maintaining a sustainable yield of renewable natural resources, and encouraging the entrepreneurial management of farms\. 3\. Government officials in the agricultural sector, traders, industrialists, manufacturers and bankers also participate, with an eye to initiating dialogues on the problems of each individual area and of the sector in general and putting forward strategies, recommendations and solutions\. Fourteen agricultural jornadas were held during an eight-month period, serving 4,000 farmers\. 4\. In addition the Technical Cooperation Agreement with the Instituto de Recursos Naturales Renovables (INRERARE) was renewed and strengthened to include the forestry and soil and water conservation component on the cattle ranches financed by the Banco Nacional de Panama\. Emphasis is placed on agro-silvo-pastoral practices\. A credit policy has been tailored to this activity\.  PART III: SUMMARY OF STATISTICAL DATA 1\. Related Bank Loans Credita/i le PUroo Yvar of -$ !amentA Loan 901 - PAN Project consisted of Nov\.1978 Completed Loan fully Livestock providing short- and disbursed by Development long-term sub-loans November 1979 for livestock (beef and milk) production, and establishment of a Technical Unit for technical assistance Loan 1397 - PAN Same as above, Aug\.1982 Completed Two extensions\. Second Livestock with emphasis on Actual closing Development milk rather than date Aug\. 1985\. beef production Final disbursement March 1986\.  -9 - 2\. Project Timetable I=m Qate n Dnned Dateay DatnActua Preparation F february 1981 " Appraisal Mission - - December 1982 1 Loan/Negotiations October 1983 Board Approval June 1983 v November 1983 Loan Signature - November 1983 Loan Effectiveness - April 1984 Loan Closing June 1989 - October 1989 3\. Credit Disbursement Cumulative Estimated and Actual Disbursements (US$ million - accumulated disbursements) ES0_4 FY8 FY8 FY87 FY8 FYA Appraisal 1\.5 3\.8 6\.0 8\.0 9\.0 9\.0 Estimate Actual 0\.3 0\.9 1\.43' 2\.8 2\.8 2\.8 k "FAO/CP Mission\. 2'Appraisal Report date October 1983\. " Estimated\. 4 Bank suspended rights of Panamanian Government to make any further withdrawals on all Bank loans on 30 November 1987\. 'Bank canceled undisbursed portion of Loan as of October 31, 1989\.  - 10 - 4\. Project Costs and Financing A\. Appraisal Estimate (US$'OOOs) Locai Foreian I Foen Exchanae C I {~~~~~~~~~~~~~~%) L12£ Farm investment Lona-Term Dual-purpose 10,097 3,517 13,614 26 63 Beef production 4,87Q A,6 6\.506 _ 3 Sub-total Long-Term 14,967 5,153 20,120 26 93 Short-Term Purchase of steers - 600 Sub-total Farm Investment 15,567 5,153 20,720 25 96 Technical Unit Vehicles and equipment 24 460 484 95 3 Foreign training and consultants 7 193 200 96 1 Local training IQ 1 S -a 20 Sub-total Technical Unit 91 668 4 Total Baseline Costs 15,658 5,821 21,479 27 100 Physical contingencies 2 46 48 95 Price contingencies 2,934 1,031 3\.965 _6 19 Total Project Costs 18,594 6,898 25,492 27 119 0\.25% Front-end Fee ? 22 2Q - Total: 18,594 6,920 25,514 27 119  - 11 - B\. Actual Costs " (US$'OOOs) lLQo Forei;n Total Farm Investments Long-Term sub-loans 4,172\.5i 2,915\.4 7,087\.91/ Technical Unit Vehicles and equipment 11\.5 149\.1 160\.6 Training - 21\.8 21\.8 Consultants - 12\.9 12\.9 Sub-total Technical Unit 11\.5 183\.8 195\.3 Front-end Fee 22\.4 - 22\.4 Total: 4,206\.4 3,099\.2 7,305\.6 Including an estimated $750,000 for subborrower contribution\. 5\. Project Financing (US$ million) 5 YE fEurd Planned °b Bevised Actual a 9 Appr\.Reoort Government/BNP 12\.9 51 n\.a\. 3\.7 5i Beneficiaries 3\.6 14 n\.a\. 0\.8 " 11 IBRD 9\.0 35 n\.a\. 2\.8 38 Total: 25\.5 100 n\.a\. 7\.3 100 "As at 31 December 1989\. 2As at 31 December 1989\. "Estimated\.  - 12 - 6\. Allocation of Loan Proceeds (Disbursement by Category) (US$'OOOs) Oriainal Reyise ea Allocation £eember 1990 Sub-loans for Part A\.1 of the 7,800\.0 n\.a\. 2,564\.2 Project " Training abroad 100\.0 n\.a\. 21\.8 Vehicles and equipment 600\.0 n\.a\. 149\.2 Consultants 100\.0 n\.a\. 12\.9 Front-end Fee 22\.4 n\.a\. 22\.4 Unallocated 377\.6 n\.a\. Cancellation n\.a\. 6\.229\.5 Total: 9,000\.0 9,000\.0 "Long-term farm investment\.  7\. Sta Aco-raisal an esentatus Reference 1\. Co 7\.02 Payment of milk pro i milk\. Payment began in December 1983\. 4\.13 Separate project acc Fulfilled 4\.02 Maintenance of a TU Fulfilled BNP to provide TU w aff, facilities and Fulfilled funds\. 4\.10 Interest on sub-loans is 1% annual Technical Fulfilled Service fee and a 1% fee\. 4\.08 Sub-loans may consis n and short-term Fulfilled components but short ans for fattening only in conjunction with long- ,ans\. 4\.08 Repayment terms not 24 months for short-torm Fulfilled and 12 years for long-t oans\. 4\.09 Long-term sub-loans w \.ceed 85% of IP\. Fulfilled Beneficiary not entitled Fulfilled (i) borrow aggregate a in excess of $250,000; (ii) borrow for financing nd; (iii) use more than 70% ib-loan for purchase of cattle; or Civ) use long-term sub-lot s for purchass of steers\. 4\.13 BNP to furnish Bank its audited financial statements, Fulfilled\. including project accounts, within four months of end of FY\. II\. Covenants Pendinq 4\.14 TU to prepare completion report\. n\.e\. 3\.30 Contracts over $50,000 to be awarded on the basis of n\.o\. competitive bidding advertised locally\. None Contracts less than 850,000 awarded through negotiated n\.s\. purchase with at least three quotations from at least two Bank member countries\. 3\.32 Purchases over 8 100,000, Bank shall have opportunity to n\.a\. comment on Invitations to bid\. 3\.32 After bids received for puchases over $100,000 and n\.s\. before award is made, BNP will provide Bank with details for Bank roview\.  - 14 - 8\. Mission Data A\. Staff Inputs by Stage of Fcoject Cycle (Staff Weeks) State of Project Cycl Panng - HIQsSFied HQslEFd Through appraisal n\.a\. 123\.0 Appraisa - Board approval n\.a\. 11\.1) Board approval - effectiveness n\.a\. 11\.1)" Supervision n\.a\. 27\.61 B\. Missions I!\. No\. of Mtm SpecIilzations Performnco Ivs of Fargong do" In Reoresented "Proble8 ___ _ ,,,\.,\. d- _ _ __ \. __, Supervsion Jan\. 1984 1 14 a \. - Oct\. 1S84 2 7 * n\.o\. F Nov\. 1984" 2 2 + b 1 F Aprl 1985 2 6 a+d 2 F May 1986 1 6 o - P Nov\. 1986" 2 2 a + d I P Nov\. 1987 2 7 _ + o 2 p Jun\. 1988 1 3 b 2 P Nov\. 1988 1 3 b "Includes negotiation and general loan processing\. 2=a = Livestock Specialist; b = Agriculturist; c = Financial Expert; d = Agro-industry Specialist "Partial supervision carried out in conjunction with supervision of other projects\. "Partial supervision carried out in conjunction with supervision of other projects\.  - 15 - 9\. Number of Loans Distributed by Region and Allocation ReQgn Total kf Doul m of \.a PJu1ose Panama 77 41 36 - Cocle 13 5 8 - Aguero 60 8 52 - Veraguas 16 5 11 - Chiriquiri i a m 4 Total: 230 82 144 4  16 10\. Approved Credit in Relation to Farm Size (ha) FasmSiz ALra Lo Cmedit ALmount USh Less 30 ha 2 14,000 31-40 4 14,500 41-50 6 34,833 51-60 12 14,383 61-80 17 16,997 81-100 22 27,020 101-150 37 21,427 151-200 39 26,200 201-300 34 32,305 301-400 26 49,250 Over 400 Li 69\.088 Total: 230 33,48  - 17 - II\. Summary List of M\ajor Investment Items Intrastructure/lnstalation, 11 Corral 209 Sheds, stables, pens 56 Si los 3 Loading facilities f3' Salt stations 46 Fquipment Tractor 9 Agricultural equipment 13 Milking parlor 4 Pumps 30 Refrigerated tank; 5 Vehicles 26 Pasture-Cattle Holding (Potreros) Rehabilitation (ha) 25,700 Improved Pasture (ha) 3,900 Fencing New fencing (kin) 1,069 Repairs (km) 842 Provision of Water Wells 29 Windmnills 6 Water systems 13 Tanks 15 Water reservoirs 37 Forestry (ha) 76 Cattle for Beef Production Cows 1,973 Heifers 677 Bulls 111 Cattle for Double Purpose Cows 2,063 Heifers 525 Bulls 164  NA3i3\.3\.NA0 84N3I 3\.r P1A&AM PANAMA THIRD LIVESTOCK PROJECT r \. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\. \. \. ,\., ¾\. \.--- -Ks a iv ( \. \. AJ A- L\ ,' < - - - -- 0 AA,3>3~~~A\.33\.r\. A t b t - \.--,PNAI ___t\.,,,\. K \~~~~~~~~~~~~ ~~~~~~~~~ 4M (3J3- ? 333_ 3\.* 3A + } \. 3 -3 RC R\. I R A I A A 3 -\.t\.?>8S,8 ? 0U A I R \ J \ 3\.'~~~ \. --'3, S½203 -S /Q '3~~ ' 3 ~ 3§r 3 , '3_

APPROVAL

P082392

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No\.: AB1520 Project Name GD Public Sector Modernization Region LATIN AMERICA AND CARIBBEAN Sector General public administration sector (70%); General finance sector (30%) Project ID P082392 Borrower(s) GRENADA Implementing Agency Government of Grenada Head, Public Sector Reform Management Unit Office of the Prime Minister Department of Human Resources Ministerial Complex Grenada Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 9, 2005 Estimated Date of Appraisal Authorization September 18, 2005 Estimated Date of Board Approval November 22, 2006 1\. Key development issues and rationale for Bank involvement Grenada, like other members of the Organization of Eastern Caribbean States (“OECS”), faces multiple challenges which have been compounded by the impact of Hurricane Ivan\. First, the country is struggling to find new sources of growth and to reduce vulnerability against the backdrop of an increasingly competitive global environment\. Second, it faces fiscal imbalances and a high debt to GDP ratio\. Third, the impressive social gains made over the last three decades risk being eroded by the challenging fiscal and debt situation and the economic transformation necessary to adapt to the changing external environment\. Furthermore, as a small state, it faces vulnerability to external shocks, including natural disasters; limited economic diversification opportunities and high dependence on external trade; high cost of public service provision due to diseconomies of scale; and limited capacity in the public and private sectors\. These challenges have recently been compounded by the damage caused by Hurricane Ivan, which is estimated at over 200 percent of 2003 GDP\. While Grenada was making progress in addressing fiscal imbalances prior to the September 2003 Hurricane, the fiscal situation is now very difficult, with the tax Page 2 base having virtually disappeared and expected to recover only gradually, and with significant unanticipated expenditure needs emerging\. Faced with these challenges, Grenada has identified public sector reform as critical to ensure continued economic growth and competitiveness in the global market, and improved efficiency in the delivery of public services\. Fundamental public sector weaknesses in Grenada include (i) Weak Organizational Capacity : The public sector suffers from a lack of organizational capacity and from a weak institutional environment, where decision-making is exceedingly centralized and there is a general lack of accountability for delivering results; (ii) Scope and performance of the public sector : While the GoG only serves a population of approximately 101,000 inhabitants, it employs 5,074 people (or 5% of the population) and is burdened by a wage bill which is 11% of the GDP\. However, in addition to accounting for a large percentage of the budget , Grenada’s public sector is also inefficient\. Services are often provided in an untimely, costly and unsatisfactory manner; and (iii) Diseconomies of scale : Because of their small size, countries in the Caribbean can reap the benefits of economies of scale through greater regionalization\. These countries, including Grenada, suffer from high costs in key utility and infrastructure services, which both place a heavy burden on government expenditures and negatively impact competitiveness\. 2\. Proposed objective(s) The main objective of the proposed Public Sector Modernization Project is to support Grenada in improving public sector management in order to strengthen the country’s competitiveness and enhance service delivery to its population\. 3\. Preliminary description The Project has five components: (1) Human Resources and Financial Management; (2) Executive Agencies; (3) Strengthening of the Public Sector Reform Management Unit; (4) Regional Pooled Procurement; (5) Private Sector Development\. 4\. Safeguard policies that might apply [Guideline: Refer to section 5 of the PCN\. Which safeguard policies might apply to the project and in what ways? What actions might be needed during project preparation to assess safeguard issues and prepare to mitigate them?] The Project has been classified as a Category C\. 5\. Tentative financing Page 3 Source: ($m\.) BORROWER 0 INTERNATIONAL DEVELOPMENT ASSOCIATION 2\.5 Total 2\.5 6\. Contact point Contact: Lisa L\. Bhansali Title: Senior Public Sector Management Specialist Tel: (202) 473-4213 Fax: (202) 522-3133 Email: lbhansali@worldbank\.org

APPROVAL

P118533

Page 1 UPDATED PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No\.: AB5177 Project Name Water Supply and Sanitation Project-Additional Financing Region AFRICA Sector Water supply (85%); Sanitation (15%) Project ID P118533 Original Project Name: Ethiopia Water Supply and Sanitation Project Original Project ID: P076735 Borrower(s) GOVERNMENT OF ETHIOPIA Implementing Agency The Ministry of Water Resources Attn: Ato Yohannes Gebre medhin Director of Water Supply and Sanitation Ministry of Water Resources (FDRE) Telephone # 251-11-6625526 Fax # 251-1-6610885/6610710 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Updated November 06, 2009 Estimated Date of Appraisal Authorization January 4, 2010 Estimated Date of Board Approval February 25, 2010 Key Development Issues and Rationale for Bank Financing The overarching objective of Ethiopia’s Poverty Reduction Strategy, termed Plan for Accelerated and Sustained Development to End Poverty (PASDEP) is to foster economic growth, improve access to and the quality of basic service delivery, reduce Ethiopia’s vulnerability, and foster improved governance\. To achieve these objectives government and donor investments are targeted at eliminating the poverty traps that have hindered the development of the country such as infrastructure, rural development, human development, and capacity building\. PASDEP through the Universal Access Program for water supply and sanitation services aims to provide clean potable water to the entire population within seven years\. CAS The WSSP remains aligned with the current PASDEP and CAS by: Fostering economic growth through small town development Improving access to and the quality of basic service delivery through sustainable access to potable water and sanitation services Fostering improved governance by building the capacity of local government to engage with citizens for more responsive services\. Supporting donor harmonization through a multi-donor trust fund for water supply and sanitation\. Page 2 The Bank’s County Assistance Program through the Water Supply and Sanitation Project has been instrumental in supporting the development and implementation of the Government’s Universal Access Program for Water Supply and Sanitation Services\. The CAS notes that the Bank has been well engaged in the water sector and will continue to scale up support in the sector in part by bringing other donors into the sector\. The intended outcome is to increase access to safe drinking water from 52% to 85% and to increase the proportion of households using latrines from 39% to 78%\. At the same time goal is to reduce the proportion of malfunctioning water facilities from 2% t0 10%\. Government Strategy \. As a basis for development in the sector, GOE has adopted a National Water Resources Management Policy, a National Water Strategy, and Sector Development Program\. Some of the key policy principles and provisions of the Policy include: Recognizing water as an economic good Devolving ownership and management autonomy to the lowest possible local level Promoting involvement of all stakeholders, including the private sector, to improve efficiency in service provision Moving toward full cost recovery for urban schemes and recovery of operation and maintenance cost for rural schemes to ensure their sustainability Integrating planning for sanitation and hygiene with water supply improvements Rationale for Bank Involvement The Bank has been involved in the water supply and sanitation sector through the Water Sector Development and Rehabilitation (WSDR) and Ethiopia Social Rehabilitation and Development Fund (ESRDF) Projects and in other subsectors, including irrigation, hydro-power and water resources management\. An ESW was conducted to prepare a Country Water Resources Assistance Strategy on how these can be best integrated in future support\. Through the preparation process for the WSSP the Bank has facilitated consultation with a view towards translating sector policy into a practical implementation strategy\. The original project has drawn on the experience of other donors active in the sector, including African Development Bank, UNDP, UNICEF, JICA, Irish Aid and Finland\. The African Development Bank adapted the implementation arrangement of the WSSP and DFID has provided co-financing to the project through a Multi Donor Trust fund managed by the Bank\. It is expected other donors will join in supporting the Government’s program as experience shows effectiveness of spending in the sector toward achieving the MDGs\. Objectives The objective of the original project, which is still valid and remains unchanged, is increased access to sustainable water supply and sanitation services, for rural and urban users, through improved capacity of stakeholders in the sector and better management of water resources\. Accordingly, the project is designed to build the capacity of all stakeholders, both public and Page 3 private, to plan, construct and maintain water supply and sanitation facilities\. In the process approximately 5500 rural water supply schemes and about 50 town water supplies will be improved in the first years\. Progress toward achieving the principal outcome will be measured through the following key indicators, that were included in the results framework: number of people with access to improved water supply in rural and urban areas; number of effective woreda and community water and sanitation programs established through the project; number of effective, autonomous water boards established through the project in towns and cities\. Progress to-date: In addition to the contribution to the overall sector development and setting the trend for sector wide and programmatic route, in its five years of implementation the project has shown substantial progress in both the capacity building and physical scheme construction\. This view is more valid today due to further progress made in many areas, which includes: The project provided support to organize and build the capacity of town water boards in 87 small towns\. As the only major intervention working on urban water supply in the country, the project assisted to further clarify the government’s Cost recovery policy for Urban Water Supply\. Developed manuals, guidelines and training materials to complement the capacity building effort and ensure that HDWs and springs developed in better quality and are sustained\. The project Complemented the capacity building with construction of water supply schemes (1288 HDW, 835 Spring on spot, and 576 Shallow wells, 99 Deep Boreholes, 75 Rural piped systems, 35 Rain water harvesting schemes and 13 pounds), conducted hygiene and sanitation promotion resulting in construction of hundreds of institutional and thousands of House hold latrines in all the participating communities\. In this regard the project in the rural areas facilitated access to clean water and improved sanitation facilities to about 1\.4 million people\. The project further supplemented its capacity building activity in the urban areas by supporting the immediate service improvement in 87 towns which benefited about 143,000 people\. The project supported the preparation, appraisal and approval of participatory demand driven Woreda wide plans in 204 woredas\. The project helped the establishment of cascaded capacity building system at all levels with active involvement of private sector\. This includes newly established and trained; woreda support groups (WSG), town support groups (TSG), community facilitation teams (CFT), and Technical Service Providers (TSPs)\. These professional support teams are serving other sector partners such as AfDB to cover more program woredas\. Page 4 The proposed Additional financing: Within the original project objective and following the same implementation arrangement, the proposed additional financing will be used to complete project activities that needed more time and financing to ensure the full achievement of the intended development objective\. Under the urban WSS component, currently 22 of the small towns could only be funded partially under the project due to financing gap\. The unit cost per capita during project preparation and two years after that was in the range of US$ 30 to US$45 per capita while at the moment it is in the range of US$55 to US$ 80 per capita\. This is mainly due to the price escalation on some of the import items for the construction of water supply and sanitation works and related construction supervision activities due again to the increase in the cost of fuel\. The additional financing will therefore be used to fill the financing gap to complete the rehabilitation and expansion work in these 22 towns and to take another 28 towns up to step three where fund are provided for rehabilitation and expansion\. While the additional financing supports completion of the urban water supply component\. The financing will also provide for deepening project progress in the following areas; a\. The project has served as tool for joint government donor sector planning and monitoring\. As a result, SWAP is evolving in the sector with donors supporting WaSH in the country making progress towards a common implementation and funding arrangement\. b\. The WSSP is supporting the establishment of sector M&E-MIS which is at its early stage\. The additional time will allow for sufficient time to pilot and roll out the sector M&E-MIS system\. In similar manner, though the rural water supply and sanitation component has largely achieved its objectives and provided capacity building and increased access to WSS in the targeted 200 woredas, it is envisaged that the additional financing will complement the DFID financing through preparing additional 50 woredas for investment by providing capacity building assistance\. Safeguard Policies (including public consultation) OP 4\.01 Environmental Assessment: Under the ongoing Water Supply and Sanitation Project, environmental management capacity is being strengthened significantly through the (i) recruitment of a Capacity Building Consultant who will be responsible for designing and implementing a Training of Trainers Program at the regional levels; (ii) the employment of Environmental Consultants to prepare environmental assessment reports for the secondary towns; and (iii) employment of two Environmental Specialists at the Ministry of Water Resources Management who are responsible for monitoring and reporting on the Page 5 environmental activities under the ongoing project as well as the additional financing operation\. For example, the Project Management Unit (PMU) has arranged for the environmental assessment (EA) of the construction of a water supply system in Wolkite town\. In an effort to identify potential environmental and social impacts, the consultant has used the revised Environmental and Social Screening Form (ESSF) included in the PIM\. The revision of the ESSF was carried out at mid-term to ensure a more detailed environmental screening procedure\. The EA report will b e disclosed at municipalities in Ethiopia and at the Bank’s Infoshop shortly\. EA terms of reference for the remaining four towns are under preparation\. OP 7\.50 Projects on International Waterways: Ethiopia’s riparian were notified during preparation of the ongoing project\. This notification is still valid since the activities to be financed under the additional financing operation have not changed\. Thus, no additional water will be used due to the additional financing investments\. Safeguard screening category: The safeguard screening category of the project is S2\. One or more safeguard policies are triggered, but effects are limited in their impact and are technically and institutionally manageable\. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP /BP /GP 4\.01) [X] [ ] Natural Habitats (OP /BP 4\.04) [ ] [X] Pest Management (OP 4\.09 ) [ ] [X] Cultural Property (OPN 11\.03 , being revised as OP 4\.11) [ ] [X] Involuntary Resettlement (OP /BP 4\.12) [X] [ ] Indigenous Peoples (OD 4\.20 , being revised as OP 4\.10) [ ] [X] Forests (OP /BP 4\.36) [ ] [X] Safety of Dams (OP /BP 4\.37) [] [X] Projects in Disputed Areas (OP /BP /GP 7\.60) * [ ] [X] Projects on International Waterways (OP /BP /GP 7\.50) [X] [ ] 1\. Tentative financing Source: ($m\.) BORROWER/RECIPIENT 0 International Development Association (IDA) 80 Total 80 2\. Contact point Contact: Yitbarek Tessema Title: Sr\. Water & Sanitation Spec\. Tel: 5358+350 Fax: 251-11-6627717 Email: Ytessema@worldbank\.org * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 6 Location: Addis Ababa, Ethiopia (IBRD)

APPROVAL

P000776

RESTRICTED R e p o r t N o\. P-198 This report was prepared for use within the Bank\. In making it avallable to others, tho Bank assumes no responsibility to them for the accuracy or completeness of the Information contained heroin\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE COMPAGNIE MINIERE DE L'OGOOUE Tune 22, 1959  REPORT AND RECO11I1ENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPO6ED LOAN TO THE COPIPAGNIE IM NIERE DE LIOGOOUE 1\. I submit the following report and recommendations on a proposed loan of $35 million to the Comnpagnie Miniere de l1Ogooue (COILOG) to assist in financing a project to exploit the manganese deposits near Moanda in the Republic of Gabon\. PART I - HISTORICAL 2\. In January 1959 Comilog asked the Bank to consider a loan of $35 million to complete the financing plan for its project to exploit extensive high grade manganese deposits near Moanda in the Republic of Gabon and to ship the ore through the port of Pointe Noire, Republic of Congo\. At the same time the French Government indicated its willingness to guarantee such a loan\. A mission studied the project in Africa and in Paris during the second half of Februaryr and the first half of March\. Negotiations with rep- resentatives of the company began in Washington at the end of April\. 3\. The Bank has already made loans amounting to $267\.1 million to borrowers in France and French territories\. As of May 31, 1959, the status of the individual loans was as follows: No\. Borrower Purpose Amount ($ million equiv\.) 1 FR Credit National Reconstruction $250\.0 100 FR Office Central des Chemins de Fer de la France dtOutre-Mer Railway improvement 7\.1 131 FR? Electricite et Gaz Electric power dtAlgerie development 10\.0 Total net of cancellations 267\.1 of which repaid 25\.2 Total now outstanding 241\.9 Amount sold 34\.6 of which repaid 24\.6 10\.0 Net amount held by Bank 231\.9  PART II - CONSTITUTIONAL CHANGES 4\. With the creation of a Community according to Article XII of the Constitution of the Fifth Republic, there have been important changes in the constitutional relationships between France and her former Overseas Territo- ries\. As the Republic of Congo and the Republic of Gabon, the former Overseas Territories of Middle-Congo and Gabon are now autonomous States within the French Community, on an equal footing constitutionally with the Republic of France and the other Overseas Territories which also elected to become member States in the referendum of September 28, 1958\. 5\. France and each of the other member States of the Community is en- tirely responsible for its own internal affairs\. The Community is responsible for matters of mutual interest, defined by the Constitution as defense, foreign policy, currency and common economic and financial policy\. The President of the French Republic presides over and represents the Community and thus serves as the constitutional link between France and the other member States\. The institutions of the Community are an Executive Council, a Senate and a Court of Arbitration, The Executive Council, of which the President is Chairman, consists of the Prime Minister of each member State and the ministers respon- sible for Community affairs\. Certain of the latter are at the same time min- isters in the French Government; for example the minister responsible for currency and common economic and financial affairs of the Community is also the Minister of Finance and Economic Affairs of France\. The precise relation- ships and distribution of power between thle various elements of the Community are, however, still being worked out and there remain a number of issues to be resolved\. 6\. These constitutional changes have raised for the Bank the formal question of membership; whether former Overseas Territories, such as Gabon and Middl3-Congo, which have elected to become autonomous States within the Community are still included in the French membership\. In order to clarify the positioni the Bank is obtaining confirmation from the French Government (No\. 1) to the effect that the membership of France continues to apply to all the Republics which constitute the Community\. 7\. The loan would be guaranteed not only by the Republic of France, as a member of the Bank, but also by the Republic of Gabon and the Republic of Congo, both of which have immediate and extensive powers over the fortunes of the project\. I am satisfied that under the circumstances the interests of the Bank are satisfactorily protected\. However, these Guarantee Agreements are binding only on the guarantors as individual members of the Community and do not engage the Community itself\. As the responsibilities of the Community become more precisely defined I propose to examine with the French Government how matters falling within the competence of the Community might be brought within the scope of Guarantee Agreements with member States of the Community or, if that were not possible, what other procedure might be appropriate\. 8\. The constitutional changes have also created problems for Comilog whose concessions had been granted by, and tax and other agreements negotiated with, the former territories of Gabon and Congo and the Ministry of Overseas  France\. Following the promulgation of the new Constitution, Comilog negoti- ated an establislhment agreement with the two new Republics to confirm that they considered themselves bound by the original concessions and agreements\. PART III - DESCRIPTION OF THE PROPOSED LOAN 9\. The main characteristics of the proposed loan would be as follows: Borrower: Compagnie Hiniere de l1Ogooue\. Guarantors: The Republics of France, Congo and Gabon\. Amount: The equivalent in various currencies of $35 million\. Interest rate: 6% including 1% commission\. Commitment charge: 3/-4% Maturity: 15 years, with amortization in 23 semi-annual payments begin- ning July 1 1963 and ending on July 1, 197L\. Each payment of interest and principal taken to- gether would be approximately equal\. Purpose: To finance a proposed new manganese mine near Moanda, Republic of Gabon, and facilities to transport the ore to the port of Pointe Noire, Repub- lic of Congo\. The proceeds of the loan would be used to pay for im- ported goods and services\. PART IV - THE PROJECT 10\. A report "Appraisal of the Comilog Manganese Mining Project"\. TO 205a dated June 17, 1959 is attached (No\. 2)\. 11\. The project consists of the equipment and operation of a manganese mine near Moanda, Republic of Gabon\. Ore reserves are estimated at over 100 million tons\. The ore is high grade and conditions are particularly favorable for open pit operation\. Production is planned initially at the rate of 500,000 tons a year\. To transport ore to the port of Pointe Noire, Republic of Congo, calls for the construction and equipment of a 73 km\. cableway and a 290 km railway to link the mine to the existing Congo-Ocean railway\. The project  also includes storage and loading facilities at Pointe Noire\. Construction is expected to start within the next few months and the first ore is scheduled for shipment about mid-1962\. The project is well conceived and well planned\. The companyls management should be fully capable of carrying out the construc- tion and operation\. The company also has a technical assistance agreement with the U\.S\. Steel Corporation for services as required\. 12\. The cost of the project, including working capital and interest on outside debt,is estimated at French francs 41,8 billion\. Finance available would be as follows: Fr\. frs\. billion Shareholders' Funds Share capital 5\.0 Shareholdersf advances 16f0 21\.0 Outside Debt Caisse Centrale 3\.5 I\.B\.R\.D\. 17\.3 20\.8 hl\. 8 13\. The share capital of the corporation is held as follows: Mokta-el-Hadid 14% Societe Auxiliaire de Manganese 15% Bureau Minier 22" U\. S\. Steel Corporation 49% 14\. The Compagnie des Minerais de Fer Miagnetique de Miokta-el-Hadid is a private French company with manganese and iron ore properties in North Africa and holdings in a number of other mining companies\. The Societe Auxiliaire de Manganese was formed to own and manage shares in Comilog; the capital is held equally by Mokta-el-Hadid, the Banque de Paris et des Pays-Bas and the Compagnie 1'iniere de ltOubangui\. The Bureau Minier is a French Government c\.orporation responiible for exploration and the promotion of mineral develop- ment\. The U\.S\. Steel Corporation participation will largely be held by the Navios Corporation, a wholly owned subsidiary\. 15\. In addition to the proposed Bank loan, the company has obtained a 30 year 3% loan of frs\. 3\.5 billion (about $7 million equivalent) from the Caisse Centrale de la France dtOutre-Mer, now the Caisse Centrale de Coopera- tion Economique\. The contract with the Caisse Centrale originally provided for an assignment of ore contracts as security for the loan\. In order to fa- cilitate arrangements for the Bankls loan,the Caisse Centrale has agreed to suspend its assignment provision during the life of the Bank's loan\. The financial provisions of the proposed Loan Agreement have accordingly been  drafted with a view to offering to the Caisse Centrale loan she same protec- tion as would be accorded to the Bank\. The Bank would enter into an agreement with the Caisse Centrale reconciling the provisions of the twio loans and pro- viding for consultation on matters of mutual interest\. 16\. Conservative estimates show that the com'pany should be able to earn a reasonable return on its capital\. The service of the outside debt should be covered by an adequate margin from the start of operations\. To cover the un- likely event that the company would encounter financial difficulties, the shareholders have undertaken obligations to maintain net working capital at a satisfactory level\. Net working capital would include at all times the equiv- alent of 6 months debt service\. The shareholders have also undertaken to finance any increase in the cost of the project\. These obligations are referr- ed to in greater detail in paragraphs 19, 20 and 21 below\. 17\. Procurement of goods and services has been and will continue to be on an international basis to the fullest practicable extent\. PART V - LEGAL INSMRU1MENTS IAMD AUTHORITY 18\. The following legal documents are attached: (a) Draft Loan Agreement between Comilog and the Bank (No\. 3) and draft letter from the Bank to Comilog defining the level of net working capital satisfactory to the Bank (No\. 4) (b) Draft Guarantee Agreement between Republic of France and the Bank (No\. 5) and draft letter from the French Govern- ment regarding the assets of the Bank of Prance (No\. 6) (c) Draft Guarantee Agreement between Republic of Congo and the Bank (No\. 7) (d) Draft Guarantee Agreement between Republic of Gabon and the Bank (No\. 8) 19\. The following features of the Loan Agreement are of particular interest: (i) The company would look to its shareholders for any additional funds needed to complete the project and to provide initial net working capital satisfactory to the Bank (Section 5\.07(b)); (ii) if at any time thereafter net working capital fell or threatened to fall below a level satisfactory to the Bank, the company would call on its shareholders to make good the deficiency by way of additional advances (Section 5\.07(b));  - 6 - (iii) payments of dividends, interest on shareholderst advances and repayments of principal of shareholders' advances would all be subject to their not reducing net wTorking capital below the level satisfactory to the Bank (Section 5\.06(a)); (iv) dividends and interest on advances would be payable only if covered by accumulated earnings; dividend payments in excess of 6'% could be made only if an amount equal to the excess were applied to the repay- ment of the cormpany's outside debt (Section 5\.06(b), (c)); (v) shareholderst advances paid in as part of the initial financing plan or under (i) above would be repayable only if such repayment would not increase the debt- equity ratio above 25:75 (Section 5\.06(d)); (vi) shareholderst advances under (ii) above would be re- payable as soon as the net working capital position would allow (Section 5\.06(e))\. 20\. The shareholders have signed an agreement with Comilog (the Loan Protocol) in which they have severally undertaken to meet the vrrious finan- cial obligations falling on them as a consequence of the Bank's Loan Agreement with the company, notably paragraph 19 (i) and (ii) above\. The company has obtained all governmental authorizations that would be required for the trans- actions concerned\. If a shareholder should fail to perform its obligations, its shares would be forfeit and could be sold\. The purchaser would become bound by the terms of the Loan Protocol for the amounts in question\. 21\. Under a provision of the Loan Protocol (No\. 9), the shareholders would be relieved of their obligation to maintain the net working capital of Comilog at a level satisfactory to the Bank in the event of the nationaliza- tion of Comilog or the expropriation of an important part of its assets\. Their obligation would be suspended if production or export of ore were made impos- sible for a period of at least six months as the consequence of certain events not within the control of the company or its shareholders; the obligation would be resumed in full six months after the period during which it was impossible for the company to produce or export ore\. 22\. Loan Regulations No\. 4 have been extensively amended by Schedule 3 of the Loan Agreement, principally to take account of the existence of three guarantors\. The following have been included as conditions of default: that shareholders shall have failed to make, or shall have been relieved from their obligations to make, payments required under the Loan Protocol (5,02(k)} action by any of the parties to amend, suspend or terminate any of the'agree- ments between Comilog and the Governments of Congo and Gabon (5\.02(l)), 23\. The three Guarantee Agreements are drafted in comparable terms so far as is practicable\. Each agreement refers to the existence of the other two, but each guarantor remains individually responsible\. The Congo and Gabon  -7- Guarantee Agreements contain a covenant (Section 3\.06) not to interfere with the successful construction and operation of the project\. The Congo and Gabon agreements also contain the standard negative pledge clause (Sec- tion 3\.01)\. The French Agreement (Section 3\.01) contains the modified form employed on the occasion of Loans 100 FR and 131 FR to take account of the position of the Bank of France (see also No\. 6)\. As in the case of Loans 100 FR and 131 FR, authorization to sign the French Guarantee Agreement will be given by an arrete of the Minister of Finance; no legislative action is required\. The Gabon Legislative Assembly has already approved the Gabon Agreement\. The Congo Agreement is to be ratified by the Congo Legislative Assembly after signature\. PART VI - ECONO1GIC BACKGROUND 24\. There are attached "The Economies of the G bon and Congo Republics"\. EA 99a dated June 22, 1959, and "The Economy of France"\. EA 98a dated June 22, 1959\. (Nos\. 10 and 11)\. The Economies of the Gabon and Congo Republics 25\. The Gabon is almost wholly covered by dense eouatorial rain forest\. The population is small, about 400,000 in all, shows little evidence of growth and lives mainly in small groups along rivers, roads and tracks, leaving much of the interior virtually uninhabited\. Cultivation is largely for subsistence and the opportunities for cash crops are limited\. Fortunately a network of rivers opened the coastal plain to the timber industry which has been the principal source of income for many years\. The more accessible stands have gradually been exhausted and since the Second WfTorld War the industry has had to move further inland, offsetting higher transport costs by intensive use of machinery, 26\. Gabon is finding new sources of income in its subsoil\. After 15 years of search, and the expenditure of some 350 million, oil was struck in 1956 near Port Gentil\. The field is not thought to be large bDut it lies on the coast and is easily exploited\. From 500,000 tons in 1958, already 205o of total exports, shipments are expected to reach 1 million tons in 1960, with an estimated value of 14 million\. In addition to Comilog, which would itself add, say, a further $16 million to Gabonts exports, a uranium mine\. also near iloanda, is expected to export in 1962 concentrates worth about "6 million a year at current prices\. Thus, in the space of six years, these investments would have added an estimated '36 million a year to Gabon's traditional ex- ports increasing them by nearly 21 times\. The direct and indirect contribu- tion of these projects to the budget would also be of considerable importance\. The very large Mekambo iron ore deposits are under active study, but such are the difficulties and scale of the operation that another five years of study is required before an investment decision could be taken\. 27\. The nature of her resources and of her mall population make Gabon particularly dependent for further development on capital intensive industries\. It is consequently dependent on maintaining a substantial inflow of public and private capital, supported by adequate teclmical and managerial skills\. Gabon has a stable political climate\. Both the main parties show a responsible  - 8 - attitude to foreign investment and favor the long established French connec- tiono 28\. The economy of the Congo Republic is less favored than that of Gabon\. Agriculture makes slow progress under unfavorable conditions of soil and climate and the forests are less rich and less accessible; until the opening of the Congo-Ocean railway in 1934, the Hayombe mountains effectively isolated much of the country from the sea\. Economic activity owes much to the role of the Congo Republic as a transport artery for the Republics to the North, and Brazzaville administrative capital of the former federation of French Equatorial Africa, remains a commercial and financial center\. The construction of the Comilog railway to link up with the existing line to Pointe Noire will further increase the Republic's transit income and will in addition open up a potentially valuable but hitherto quite inaccessible forest area\. It is too early to know whether the oil recently discovered near Pointe Noire exists in commercial quantities, but unless possibly the very large Kouilou project is carried out, the potential of the country is likely to remain limited\. 29* The population of the Congo Republic is only 760,000, of whom one sixth live in Brazzaville and Pointe Noire and many of the rest in the country lying between those two cities\. As was demonstrated by the savage riots of last February, tribal divisions are much more marked than in the Gabon, par- ticularly in Brazzaville itself where farmlies from both north and south con- tribute to a substantial pool of unemployed\. These divisions have made much more difficult the institution of a stable government for the new republic, but the sobering effect of the riots themselves and the recent elections which have given the government party a greatly reinforced majority offer greater hope of reasonable stability in the future\. The riots did not involve racial hostility and there is no lack of awareness of the importance for the Congo of maintaining an inflow of capital and managerial ability\. In particular, the Congo Republic is looking to the construction and operation of the Comilog project as a much needed source of additional employment and revenue\. The Economy of France 30\. France has an impressive record of economic achievement since World War II\. After reconstruction was completed, with the help of large U\. S\. aid, much progress has been made in modernizing the economy (though there is still much to do in agriculture and housing, as well as in adjusting to the European Common Y§rket)\. Output has increased rapidly, Gains in productivity appear to have been especially significant and urgently needed since while the post- war increase in the total population has so far meant only maore consumers, there are in the short run actually fewer workers, In addition to the recon- struction and modernization effort at home, France has financed, largely on a grant basis, a large program of economic development in the countries associat- ed with her\. In addition, Indo-China and Algeria have been an almost unbroken drain\. 31\. None of these tasks in itself was too great a burden for an economy that is basically as rich and strong as that of France\. The periodical in- ability to reconcile them all with the resources currently available plunged  - 9 - France into a series of financial and balance of payments crises, because po- litical circumstances too often inhibited timely action\. The stabilization program at the end of 1958, which the new constitution made possible, re- inforced the measures taken a year earlier and has so far been strikingly successful\. The threat to continued success would come from a failure to hold within bounds conflicting demands, whether under pressure of particular interests in France or of developments in Algeria, 32\. Francets debt record is excellent\. In the next few years she will have to face debt repayment obligations equivalent at their peak to 10% of her 1958 exports outside the Franc Area\. Payments on such a scale are not, however, beyond her capacity to meet successfully with her strengthened econ- omy and with her firmer economic management\. France should be able to meet all her external obligations, existing and contemplated\. PART VII COIvPLIANCE VJITH ARTICLES OF AGREEIENT 33\. I am satisfied that the proposed loan would comply with the Arti- cles of Agreement of the Bank\. The Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement is attached (No\. 12)\. PART VIII RECOI"T12:DATIONS 34\. I recommend that the Bank make a loan to the Compagnie Miniere de l1Ogooue, guaranteed by the Republic of France, the Republic of Congo and the Republic of Gabon, in an anount of 'P35 million or the equivalent in other currencies for a total term of 15 years, with interest (including commission) of 6% per annum, and on such other terms as are specified in the attached draft Loan and Guarantee Agreements and that the Executive Directors adopt a Resolution to that effect in the form attached (No\. 13)\. Eugene R, Black Attachments Washington, D\. C\. June 22, 1959

APPROVAL

P001604

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 6171 PROJECT PERFORMANCE AUDIT REPORT MALAWI SHIRE VALLEY AGRICULTURAL CONSOLIDATION PROJECT (CREDIT 823-MAI) May 5, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties\. It! contents may not otherwise be disclosed without World Bank authorization\. ABBREVIATIONS ADD Agricultural Development Division ADMARC Agricultural Development and Marketing Corporation CADO Chief Agricultural Development Officer CCDP Chikwawa Cotton Development Project CTO Chief Technical Officer DA Development Assistant DTC Day Training Centre EAPSA Eastern and Southern Africa Projects Department EARSA Southern Agriculture Section of RMESA EPA Extension Planning Area ERR Economic Rate of Return FA Field Assistant FMD Foot and Mouth Disease GOM Government of Malawi IBRD International Bank for Reconstruction and Development IDA International Development Association IRR Internal Rate of Return MANR Ministry of Agriculture and Natural Resources MK Malawi Kwacha MG Malawi Government NADD Ngabu Agricultural Development Division NRDP National Rural Development Program OED Operatione Evaluation Department PCR Project Completion Report PM Program Manager PO Professional Officer RMESA Regional Mission in Eastern and Southern Africa RTC Residential Training Centre SAR Staff Appraisal Report SVACP Shire Valley Agricultural Consolidation Project TA Technical Assistant T&V Training and Visit System of Extension Currency Exchange Rates Appraisal Year Average (1977) US$1\.00 = MK 0\.91 Intervening Years Average (1978-81) US$1\.00 - MK 0\.93 Completion Year Average (1982) US$1\.00 = MK 1\.07 Fiscal Year of Borrower April 1 - March 31 THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D\.C\. 20433 U\.S\.A\. Ofke of Director-Cmneaal Operations Evaluation May 5, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report - Malawi Shire Valley Agricultural Consolidation Project (Credit 823-MAI) Attached, for information, is a copy of a report entitled "Project Performance Audit Report - Malavi Shire Valley Agricultural Consolidation Project (Credit 823-MAI)" prepared by the Operltions Evaluation Department\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MALAWI SHIRE VALY AGRICULTURAL CONSOLIDATION PROJECT (CREDIT 823--MAI) TABLE OF CONTENTS Page No\. Preface *e***\.*******ooo*** ***** o****o **o**** **** 1 Basic Data Sheet ooooo#ooo#ooo*ooooo*oooooo It Evaluation Summary \. I PROJECT PERFORMANCE AUDIT MEMORANDUM I\. PROJECT SUmARY \. 1 Project Area \.o\. I Project Description *\.*************************** 1 Project Cost 2\. Production Services \. 3 Natural Resources o********e************************ 4 Hydrology and Water Supply \. 5 Health Services *\. 5 Technical Services \. 5 Project Administration o\.*\.*\.*\.**\. 6 Economic Rate of Return \. 6 II\. MAIN ISSUES \.*\.o\. 7 A\. Achievement of Objectives \. 7 B\. Appropriateness of Project Design \. 7 C\. Replicability \.0**00\.000*0\. 8 D\. Sustainability o\.o\. 9 Table 1: Rural Development Projects in Malavi \. 11 PCR OVERVIEW I\. Introduction \.*\.*\.* oeo**o \. 15 11\. Project Objectives \. 15 III\. Physical Implementation \.**\.*\. 15 IV\. Project Management \. 16 V\. Services Supported under the Project \. 16 VI\. Project Costs, Financing and Disbursement \. 19 VII\. Project Benefits *\.*\. 22 VIII\. Government Performance \.*\. 23 IX\. IDA Performance \. 24 Xs Lessons Learned \. 25 This document hes a rtricted distribution and may be used by recipiena only in the peformmnce of their official duties\. Its contents may not otherwise be disclosed without World Bank authoriution\. TABLE OF CONTENTS (cont'd) Page No\. GOVERNMENT PCR I\. Introduction and Summary \. 29 HIe Background \. 30 III\. Project Formulation \. 31 IV\. Implementation \. \. 35 V\. Financial Performance \. 48 VI\. Impact \. 54 VII\. Institutional Performance \. 58 VIII\. Economic Benefits \. 60 IX\. D:scussion and Conclusion \. 63 Appendix 1: Revised Economic Analysis Appendix 2: Statistical Tables (1-10) Chart: SVACP Organizational Chart !!L IBRD No\. 13348 PROJECT PERFORMANCE AUDIT REPORT MALAWI SHIRE VALLEY AGRICULTURAL CONSOLIDATION PROJECT (CREDIT 823-MAI) PREFACE This is a Project Performance Audit Report (PPAR) on the Shire Valley Agricultural Consolidation Project for which a credit of US$10\.7 mil- lion was approved in June 1978\. The credit Closing Date of December 31, 1982 did not need to be extended and final disbursements were made on January 7, 1983\. The project under review forms part of a 15-year development effort by the Government of Malawi in the Lower Shire Valley which was supported by three consecutive IDA credits (Credits 114, 363 and 823-MAI)\. An Impact Evaluation Report on the three-phase program was issued by OED on Decem- ber 23, 1983 (Report No\. 4850)\. The audit report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), a Project Com- pletion Report (PCR) and a Revised Economic Analysis, both prepared by the Borrower's Ministry of Agriculture, and an Overview dated December 2, 1985, prepared by the Bank's Regional Mission in Eastern and Southern Africa (RMESA), which summarizes and cor\.ments on the Government's PCR\. The audit memoraadum is based on a review of the Appraisal Report (1945-MAI) dated May 25, 1978, the President's Report (P-2302-MAI) dated May 24, 1978 and the Credit Agreement of July 7, 1978\. Internal Bank memo- randa on project issues and correspondence with the Borrower, as contrined in relevant Bank files, have been studied, and Bank staff associated with the project have been interviewed\. An ORD mission visited Malawi in July 1985\. Discussions were held in Lilongwe with Government officials and a field visit made to the Shire Valley to inspect project works and discuss project achievements and problems with field staff of participating agencies, local officials and farmers\. The PPAM supports the principal conclusions of the PCR and Revised Economic Analysis, and the PCR Overview\. It summarizes the objectives and results of the project and discusses issues concerning the project design, factors contributing to implementation delays, and experience with develop- ment ad operations\. Following customary OED procedures, the draft report was sent to the Borrower for comments on January 30, 1986\. No comments were received\. The audit mission acknowledges gratefully the assistance provided by officials of the Ministry of Agriculture, cooperating agencies, project field staff and farmers\. - it - PROJECT PERFORMANCB MIT BASIC DATA SMTST xAAis tiniR VALLEY AGRICULTURAL CONSOLIDATION PROJECT (CRBDIT 823-MAI) EST PROJECT DATA Appraisal Actual or Actual as 2 of Estimate lsttatee Actual Appraisal Estimate Project Costs (1S$ million) 12\.6 11\.6 92 Credit Amount 10\.7 10\.7 100 Date Board Approval 06/06/78 - Date Credit Agreement 07/07/78 Date ffectiveness - 9/78 - Date Physical Components Completed 3/82 12/82 116 Houses (No\.) 169 80 47 EPA Headquarters (No\.) 5 5 100 wealth Facilities (No\.) 6 6 100 Boreholes and shallow tubewells (No\.) 40 32 85 Roads (ga) 139 111 80 Training Centers (No\.) 6 4 67 Smcking Kila (No\.) 60 60 100 Fish Landing Sites (No\.) 4 4 100 Village Centers (No\.) 50 0 0 Dip Takso (No\.) 2 2 100 Irrig\. Seed Fare (Ha) 150 0 0 Closing Date 12/31/82 12/31/82 - Economic late of Return (2) 20 8 40 Livestock 18 n\.e\. Fisheries 44 a\. Institutional Performancez Poor management; high staff t-trnover throughout the project; procurement delays In the first year of Implementation Agronomic Performaneat Variable due to climtic conditions and price policies\. Farmers' profit unsatisfactory for cottta and groundanuts\. Farmers reacted favorably to price increases for aefte\. Ouar beans Introduced with success\. Insufficient development of new extension messages\. Financial Performsa t Budget allocations generally satisfactory, but with some excep\.ilons\. Direct Senaficiariest About 7,000 farmers benefited from group seasonal credit provided under the project\. About 35,000 farmers representing 502 of the farming community had direct contact with extension\. Others benefited from roads, water supply and health facilities constructed under the project\. CIMULATIVE DISBURSEMENTS TY79 FY80 F81 FY82 FY83 Appraisal estimate (US$ million) 4\.5 7\.0 9\.1 10\.7 10\.7 Actual (US$ million) 2\.3 5\.7 8\.1 9\.9 10\.7 Actual as I of estimate 51\.5 81\.4 89\.0 92\.5 100 Date of Final Disbursemeatt January 7, 1983 STAFF INPUTS /a FY77 FT78 FT79 FY80 7(81 FY82 FT83 FY84 PY85 Total Identification/Preparation (Staffeeks) 15\.7 2\.8 18\.5 Appraisal (Staffveeks) 111\.1 111\.1 Negotiations (Statfueeks) 4\.6 4\.6 Supervision (Staffweeks) 0\.3 8\.6 13\.4 21\.7 4\.8 3\.7 2\.7 2\.0 57\.2 Total 15\.7 118\.8 8\.6 13\.4 21\.7 ;\.8 3\.7 2\.7 2\.0 191\.4 MISSION DATA Month/ No\. of Staffdsys Specialisations Performance Types of ission Year Persons in Field Represented R /ting b TreAd /c Problems /d Superviston I 12/78 2 10 Ag\.1con\./Agr\. 2 - T Supervision II 07/79 1 2\.5 Ag\.8con\. 2 2 MF Supervision III 05/80 2 5 Ag\.lcou\./Ftn\.An\. 2 2 PM Supervision IV 01/81 2 20 Agr\./Fin\.An\. 2 3 PHT Supervision V 06/81 2 20 Agr\./Ag\.Scon\. 2 2 T Supervision VI 02/82 2 15 Agr\./Fia\.An\. 2 1 T Supervision VII A8/82 1 10 Agronomist 2 2 TN TOTAL 82\.5 OTHER PROJECT DATA Borrower Government of Salawt Executing Agency Ministry of Agriculture Follow-on Project None a Source: Planning and Budgeting Department\. 1 * problem-free or minor problems; 2 - moderate problems; and 3 * major problem\. 1 - Improving; 2 - stationary; and 3 - deteriorating\. T - technical; F - financial; and M - managerial\. - III - PROJECT PERFORMANCE AUDIT REPORT MALAWI SHIRE VALLEY AGRICULTURAL CONSOLIDATION PROJECT (CREDIT 823-MAI) EVALUATION SUMMARY Introduction and Objectives This project was the third puase of a 15-year development effort by the Government of Malawi in the Lover Shire Valley supported by IDA\. The first project (Credit 114-MAI for US$3\.7 million) focused mainly on increas- ing cotton production by smallholders\. It was considered successful, and during its implementation the Bank appraised a second project (Credit 363-MAI for US$10\.5 million) in 1973\. The second project retained cotton production as its central component but widened its scope to include promotion of food- crops and livestock development, and enlarged its coverage to include the entire valley\. The third credit (823-MAI for US$10\.7 million), the subject of this audit, was aimed at consolidating the earlier Shire Valley invest- ments through continued support for development of rainfed agriculture, livestock, fisheries, land husbandry, and forestry, and for drinking water, health and road services\. The last disbursement was made in January 1983 and the amended Project Completion Report and Overview was received in OED in December 1985\. Implementation Experience The project reached appraisal estimates in the establishment of administrative blocks for extension and the construction of health facili- ties, markets, laboratories, and fish landing sites\. Construction of staff houses, roads and boreholes fell short of the appraisal targets due mainly to local funding problems, cost escalation and breakdown of equipment\. The extension and research services under this, as well as the two previous Shire Valley development projects, had only limited success in gene- rating new technologies and farming systems which could be adopted by the majority of the farmers and which could have assisted in counteracting the adverse climatic conditions in the valley\. During the implementation period covered by the PCR, the Govern- ment-set prices for cotton and groundnuts provided inadequate incentives to farmers\. However, for the past two years (1983/84 and 1984/85) better price incentives have been provided for cotton and this, combined with more favor- able rainfall and lifting of the legal constraint to estate production of cotton, has resulted in a considerable revival of cotton production in the Valley (PPAM para\. 28)\. - iv - Results The Government reestimate of the economic rate of return for the project is 8%, well below the appraisal estimate of 20% (PCR Appendix 1)\. However, the uncertainty over future price prospects and the un-reliability of available data make any calculation only indicative (PPAM paras\. 26-28)\. Sustainability At the time of audit, two and one-half years after the final disbursement under Credit 823-MAI was made, the activities initiated under the project were being largely maintained but without new capital investment\. Seasonal credit is expanding at a moderate pace, now that group responsibility procedures have been introduced\. Input supply and crop purchase is under the responsibility of ADMARC and technical *upervision is provided by the Agricultural Development Division\. Annual recovery rates have averaged above 88% over the past seven years (P7AM para\. 12 and PCR para\. 63)\. The Bank has no immediate plans for a direct follow-up investment in the Lower Shire Valley\. The irrigation study fin"nced under Credit 823-MAI has been completed, but no decision has been taken as to whether an irrigation investment in the Shire Valley is merited at this time\. Nevertheless, it appears that the experience gained in the Lower Shire Valley Projects has contributed to at least four changes in Government policy and in Bank support: (i) a less intensve but nationwide structure of Agricultural Development Divisions (ADDs) including one for the Lower Shire Valley supported by the Bank's National Rural Developent Program Projects as well as other donors; (ii) a nationwide project to strengthen agricultural research (Credit 1549-MAI for US$23\.8 million approved February 19, 1985); (iii) a nationwide project to support agricultural extension (Credit 1626-MAI for US$11\.6 million approved September 19, 1985); and (iv) a national health project (Credit 1351-MAI for US$6\.8 million approved April 26, 1983) which now provides some of the suppor* for health centers that was provided earlier under the Shire Valley projects (PPAM para, 38)\. Other Findings Important lessons and findings include: (a) The project had an important impact in providing increased social services--wells for drinking water, health clinics, schools, roads and markets--of which the wells were especially appreciated by the villagers\. Maintenance of these wells remains a problem, however, and consideration should be given to orcanizing beneficiary groups and providing training for this purpose (PPAM Paras\. 19-21; PCR Overview paras\. 18-19; and PCR paras\. 58, 71)\. -v - (b) The expected increases in agricultural production did not material- ize, partly because of drought, but more substantially because of the lack of improved technology and inadequate price incentives (PPAM para\. 28; PCR Overview paras\. 24-30; and PCR paras\. 89-91)\. (c) For cotton production, the main cash crop, price incentives appear to have been the major factor influencing both the area planted and the use of purchased inputs such as pesticides and fertilizers (PPAM para\. 34 and PCR Overview paras\. 28-29)\. (d) Extension efforts had limited success, due in part to the few adequately proven and profitable technological innovations avail- able for the variable soil and rainfall conditions of the Lower Shire Valley (PCR Overview para\. 7 and PCR paras\. 33-37)\. (e) Obtaining useful research results under rainfed conditions was a tedious and time-consuming process, and especially frustrating because of the extreme variability in rainfall\. Such research also required considerable expertise and was difficult to supervise adequately in a multi-component project in which research was only a mir\. tategory (PPAM para\. 10; PCR Overview para\. 10; and PCR paras j-47)\. (f) The lack of a full-scale program of technical and leadership train- ing in the earlier phasqs was a limitation for this consolidation phase\. Little progress had been made in gradually replacing expat- riate staff with experienced local staff which also resulted in a considerable cost overrun for international staff (PPAM para\. 9; PCR Overview paras\. 7-8; and PCR paras\. 30-32)\. - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM MALAWI SHIRE VALLEY AGRICULTURAL CONSOLIDATION PROJECT (CREDIT 823-MAI) I\. PROJECT SUMMARY Project Area 1\. The Lower Shire Valley has some 300,000 people, the majority small farmers without mechanization who produce subsistence crops and cotton by hand and in some cases with the help of ox-drawn equipment\. They grow mainly maize, cassava, millet and groundnuts, primarily for home consumption, and cotton as a cash crop\. At appraisal, average annual income per smallholder family was estimated at US$75\. 2\. The Valley covers 672,000 ha at the southernmost tip of Malawi\. The climate is harsh in agricultural terms\. The Valley is only 60 meters above sea level and temperatures can reach 48* C\. Rains occur primarily between November and April with heavy downpours likely from December to February which sometimes cause water logging on flat land near the marshes\. There is large variation in rainfall between micro regions, between years, and in the distribution within each year\. The yearly rainfall over the past 25 years has varied from drought conditions of 538 mm up to 1199 mm\. Thus, farmers contend with weather risk each year\. In spite of this, conditions are generally adequate to obtain some harvest of rainfed cotton even in the poorest years\. The Valley's extensive marshes and riverside flats are good grazing areas and support more than 80,000 head of cattle and a large goat population\. 3\. Although a paved highway now connects the Valley to the rest of the country, Malawi does not have its own access to the sea and the route through Mozambique has been essentially closed since 1982\. The high transport costs via alternative routes have a severe impact on availability of inputs and on production and exports\. Project Description 4\. The Shire Valley Agricultural Consolidation Project was the third phase of a 15-year development effort by the Government of Malawi in the Lower Shire Valley\.j The first project (Credit 114-MAI for US$3\.7 million) 1/ See also: Impact Evaluation Report, Malawi Lower Shire Valley Agricul- tural Development Project (Credits 114, 363, and 823-MAI), OED Report No\. 4850 dated December 23, 1983\. -2- focused mainly on increasing cotton production by smallholders, It was considered successful,2/ and during its implementation the Bank appraised a second project (Credit 363-MAI for US$10\.5 million) which was approved in early 1973\. The second project retained cotton production as its central component but widened its scope to include promotion of fooderops and livestock development, and enlarged its coverage -to include the entire Valley\. / The third credit (823-MAI for US$10\.7 million), the subject of this audit, was designed to assist the further development of Malawi's Shire Valley region and to consolidate the agricultural and infrastructural investments made in the region since 1968\. It was intended to intensify the Provision of agricultural extension services; establish an irrigated seed multiplication farm and an afforestation program; provide production credit; improve livestock extension services; expand the fisheries development program; improve village health facilities and potable water supply; and extead farm to market road networks\. Project Cost 5\. At appraisal, the project was estimated to cost US$12\.6 million and to be implemented in four years\. The IDA Credit of US$10\.7 million would finance 85% of project costs including all foreign exchange (US$5\.8 million) and 72% (US$4\.9 million) of local costs\. In fact, the Credit was fully disbursed early in the fifth year\. However, cost overruns in certain categories required reallocation of funds\. Although the unit costs of houses, roads and boreholes were higher than the appraisal estimates, the civil works category was kept within the original allocation\. As a result, not all of the houses, roads and boreholes were built (for details see Basic Data Sheet)\. At appraisal it was anticipated that most of the expatriate staff required to initiate the project would be gradually replaced by local staff\. This did not happen,/ probably reflecting both too optimistic an assumption and too little effective training\. In any case, the result was a considerable cost overrun in the international staff/disbursement category\. Funding for operating costs also exceeded the appraisal estimate\. Project Impact 6\. The project had an important impact in providing increased social services: wells, health clinica and roads of which especially the wells were greatly appreciated by villagers\. However, the expected production increase 2/ PPAR, Malawi Shire Valley Agricultural Development Project Phase I (Credit 114-MAI), OED Report No\. 895 dated October 22, 1975\. 3/ PPAR, Malawi Shire Valley Agricultural Development Project Phase II (Credit 363-MAI), OED Report No\. 2593 dated June 29, 1979\. 4/ An earlier PPAR also commented on this issue: "The major shortfall of this program is that despite the progress made, it d\.Ld not go far enough in lessening Malawi's dependence on outside technical assistance and in contributing to the creation in Malawi of an internally generatel, self-sustained development process\." Highlights, PPAR Malawi Lilongwe Land Development Program Phase III (Credit 550-MAI) OED Report No\. 3414 dated April 7, 1981\. - 3 - did not materialize\. The implementation of various services in support of crop production was only partially successful and generated only minor impact\. Production Services 7\. In order to increase crop production the project provided support for extension services, crop research, training facilities ane equipment, farmer and staff training, credit administration, seed multiplication and animal husbandry\. At appraisal these production services were to have accounted for 54% of project cost\. In practice they accounted for less than 30%\. 8\. Extension expenditures were only slightly below appraisal esti- mates\. However, extension efforts had limited success, mainly because there were few adequately proven and financially attractive technological innova- tions to recommend with respect to drought-resistant crop varieties and soil management practices\./ 9\. Training used only 70% of the amount projected at appraisal, large- ly because of a Government decision not to construct 50 Village Training Units\. Farmers and their wives were trained instead at Residential Training Centers and no information is available on numbers trained\. It appears that training of extension workers was sporadie as was technical support from subject matter specialists\. 10\. Research funding was about half of the expected and the program suffered from a lack of qualified staff and high staff turnover\. Some variety trials were carried out on cotton, sorghum, millet and food legumes in the context of the National Trials Program\. From these a new cotton variety and a drought-resistent sorghum variety were selected, recommended for the Valley toward the end of the project, and appeared to be acceptable to the farmers\. The crop/weather plots, established to determine best adapted crops for different ecological areas of the Valley, were abandoned because of financial constraints\. Trials with vegetable crops were not carried out\. The fundamental weakness of the research program was the under- lying concept that quick solutions could be found on which an improved tech- nological package could be designed\. Experience has shown that obtaining 5/ Similar findings have been included in other audits\. See, for example, PPAR, Togo Maritime Region Rural Development Project (Credit 638-TO), OED Report No\. 5137 dated June 18, 1984\. The poor results of that proj- ect with regard to crop and farm development were inter alia due to rainfall extremes, failure of smallholders to widely adopt the technical packages proposed, absence of basic data, and lack of any demonstration effect\. The PPAR of the Senegal Sine Saloum Agricultural Development Project (Credit 649-SE/Loan 1113-SE), OED Report No\. 5171 dated June 29, 1984, also noted that technical packages were not adapted to fit far- mers' resources of land, labor and capital\. results and carrying out adequate field testing for rainfed agriculture is a tedious and time-consuming process, especially frustrating if there is extreme variability in rainfall\. Such research also required considerable expertise and was difficult to supervise adequately in a multicomponent proj- ect in which research was only a minor category\. / 11\. The seed multiplication component was abandoned in 1980 after eight staff houses, an office block and a workshop had been built\. There- after, seed supply was entrusted to the National Seed Company\. 12\. Credit uptake by farmers was significantly below appraisal esti- mates, partly reflecting the low Government-set cotton prices\. The number of beneficiaries per year gradually declined from 1978-79 through 1982-83, partly as a result of tightening-up of lending policies whereby defaulting individuals or groups became ineligible for new credit\. Credit use increased again in the 1983-85 period in response to better cotton prices\. During this time there has been a shift from individual to group credit with some improvement in the recovery rate which has averaged above 88% over the past seven years\. 13\. Livestock services utilized two-thirds of the funds allocated for this category\. The animal husbandry and livestock extension section remained understaffed during the project period\. Staff transport was insufficient to properly supervise activities\. Although the cattle population increased by 26%, the annual off-take averaged only 7%, well below the appraisal estimate of 12% per annum\. The restriction of cattle transfer out of the Valley as a measure to control foot and mouth disease (FMD) is a major reason for the population increase\. Overgrazing has become a problem, and with cattle popu- lation in the Valley now well over 80,000, this requires attention\. The appraisal indicated that under the project an FMD vaccination program would be initiated by the Veterinary Department with technical guidance from the Animal Virus Research Institute of Pirbright, UK\. The project was to finance purchase of vehicles, field equipment, FMD vaccine and vehicle operating costs\. The PCR indicates that this was only partially successful with 79% of cattle vaccinated for FMD in 1980 and 731 in 1981 (PCR Overview paras\. 48-50)\. Natural Resources 14\. The natural resources component consisted of a group of activities in land husbandry, fisheries, forestry and wildlife, which together accounted for about 6% of project costs, somewhat less than the 101 estimated at appraisal\. 6/ On the topic of relatively small research components, see also PPAR, Ethiopia Coffee Processing Project (Credit 290-ET), OED Report No\. 3976 dated June 21, 1982\. -5- 15\. Under land husbandry, land use maps were produced for each Exten- sion Planning Area (EPA) on a scale of 1:50,000\. About 40 farm plans were also prepared each year with particular emphasis on contour ridging\. 16\. Only 23% of the estimated funds for forestry were used and very little was accomplished on reforestation\. 17\. The wildlife conservation activities for the Mwabvi and Lengwe game reserves, initiated under the second phase project, and the planned invest- ments in demarcation and construction of fences and ditches as well as provi- sion of housing and vehicles, were completed as planned\. Funding and opera- tion of the Lengwe National Park were taken over by the parent department in 1981\. 18\. The fisheries work initiated in Phase II of the Shire program was only partially completed in Phase III\. Landing sites and improved smoking kilns were constructed and training in new techniques was provided for fishermen\. Credit facilities also enabled fishermen to buy improved gear and plank canoes\. However, the planned investigation to determine unexploited fish stock and the most effective methods of fishing under present conditions of relatively stable water flow were not conducted partly because staffing of the program was not completed\. Hydrology and Water Supply 19\. An experienced hydrologist was recruited as planned to conduct hydrology studies, supervise the construction of boreholes and to assist in designing a master plan for water development\. About 80% of the planned boreholes and shallow wells were drilled and pumps installed\. However, the contract of the hydrologist expired before a master plan had been completed\. The National and Shire Valley Irrigation Study was contracted and carried out by an international firm and the report has been presented to the Government 20\. Maintenance of the boreholes and shallow wells remains a problem and measures should be taken to train and structure beneficiary participation for this task\. Health Services 21\. The small public health component was staffed and managed by the Ministry of Health under supervision of its Health Officer at Ngabu\. The project assisted with construction of two health subcenters and four health posts as well as renovation of a public health office\. It was also involved in bilharzia control, a school vaccination program and provision of furniture and transport to the Shire Valley Tuberculosis Project\. Technical Services 22\. Of the 139 km of roads planned, 111 km were either constructed or upgraded under the project\. An increase in construction costs, breakdown of equipment and lack of spare parts hindered completion of this component\. The - 6 - costs of mechanical maintenance were more than triple the appraisal estimates# Project Administration 23\. At appraisal, administration costs were expected to account for 16% of project costs\. In practice, these costs accounted for more than 30%\. Although costs of the evaluation unit were only 73% of appraisal estimates, the costs of the finance division quadrupled and those of project management nearly doubled\. In spite of this, intermittent vacaIcies of senior posts occurred throughout Phase III, and at the end of the project only 40% of the senior staff positions were filled\. This contrasts with overstaffing of some junior grades\. 24\. Difficulties in reaching agricultural production targets and unat- tractiveness of staff assignments to the Shire Valley, along with uncertain promotion prospects for technical and supervisory staff, contributed to high turnover and low morale, and to management and operational problems\. 25\. The existing evaluation unit from Phase II was continued under the project\. Several surveys were carried out\. However, there were weaknesses in survey design, and the data when analyzed were of limited assistance to management in decision-making and forward planning\. As a result the PCR suf- fered from lack of reliable and consistent agricultural production data\. Economic Rate of keturn 26\. At appraisal, it was estimated that the economic rate of return (ERR) for the project would be 20%\. After completion, Government submitted a Project Completion Report (PCR) indicating a re-estimated ERR of 15%\. How- ever, this was not adequately documented and the audit requested clarifica- tion from EAPSA on several points related to methodology and assumptions used by GOM in the ERR calculations\. 27\. EAPSA, in turn, pursued this with GOM Ministry of Agriculture and found that the assumptions underlying the production cost, financial and economic data could not be reconstructed because the officer involved and the back-up papers were no longer available\. The Ministry agreed to redo the calculations, and this was sent to OED by EAPSA just prior to the audit field mission (see PCR Appendix 1)\. 28\. This recalculation spells out more clearly the methodology and assumptions used for analysis and results in an ERR of 8%\. Overall, these assumptions appear reasonable\. However, the definition of benefits remains somewhat conjectural; the empirical data cover only four years and there is some concern about the statistical sample and validity of the data\. For example, in the cotton production data, a key item in the ERR, the PCR shows "with project" production of 16,451 tons in 1981-82\. This was a year with very low rainfall in which ADMARC, the sole buying firm, purchased only 7,456 tons according to data obtained at Ngabu by the audit mission\. The following year, 1982-83, was slightly better with ADMARC purchases at about 8,500 - 7 - tone according to data obtained at Ngabu by the audit mission\. The following year, 1982-83, was slightly better with ADMARC purchases at about 8,500 tons\. This was followed by a substantial increase in ADMARC purchases in 1981-84 and 1984-85 at 15,500 tons and 15,200 tons, respectively\. Thus, these indicate that two additional years passed before attaining production in the range of 15-16,000 tons\. This delay in benefits would further decrease the ERR\. The audit also notes the point made by the Overview that an unquantifiable part of the project benefits assumed in the analysis are attributable to investments made under the previous Phase II project, and that if one quarter of the Phase II investment cost was added to this proj- ect, the ERR would decline to zero (PCR Overview para\. 31)\. Nevertheless, the notable improvement in cotton production over the past two years provides some grounds for projecting further improvements\. II\. MAIN ISSUES A\. Achievement of Objectives 29\. The Issues Paper and Appraisal Report for this project recognized that Phase II had failed by a wide margin to meet its appraisal estimates of total crop production but had been successful in meeting most of its infras- tructure targets\. The present project (Phase III) was justified by the fact that there would be a sharp reduction in infrastructure development which would permit full attention by project staff to agricultural production\. 30\. The project's major objectives as defined at appraisal were: (1) to increase the number of farmers applying improved crop practices by about 15,000 so that at least 55% of the Valley's smallholders (40,000) would have adopted at least some of the practices by full development in 1982/83; (ii) to provide technical assistance to these farmers and increase land under improved practices (12% of cropped area at appraisal) to about 50,000 ha (47% of cropped area) by 1982/83; and (iii) to provide increased social and infrastructural services directly or indirectly affecting just about all 70,000 families in the project areas\. It was estimated that the overall economic rate of return (ERR) of the project would be 20%\. 31\. In practice, as documented in the PCR Overview, the results of Phase III have been similar to Phase II in that the project has been rela- tively more successful in meeting infrastructure and staffing targets than in increasing agricultural production\. Consequently, the ERR is now reestimated at 8% and possibly less\. B\. Appropriateness of Project Design 32\. The major limitations to increasing agricultural production in the Shire Valley that were identified in Phase II have been reaffirmed in Phase III, namely: (i) the serious impact of rainfall variability between years and within years; and (ii) the need for adequate price incentives, especially for crops grown primarily for market, such as the main cash crop,\.cotton\. - 8 - 33\. To contend with the rainfall problem, project identification of Phase III took account of the drought risk in the Valley and Government pro- posed that the project should have a substantial irrigation component\. At appraisal, this drought risk was noted, but the decision was taken that additional studies would be needed before an irrigation investment could be considered\. The audit believes that this was a correct decision, in view of the lack of technical feasibility studies as well as the economic and social complexity of a new small farmer irrigation scheme\. However, the project as brought forward did not fully address the weather risk\. The project assumed that a combination of moisturc-conserving cultivation practices, selection of drought-resistant cereal varieties, and a change of extension system could be introduced and would result in a substantial increase in crop production\. 34\. With respect to maret prices, project documentation shows that concerns were expressed by Phase II supervision missions and by the Bank staff during the review process for Phase III that the levels of cotton prices established by ADMARC were not keeping pace with increases in general price levels and thus were not providing sufficient incentive to farmers\. A price convenant was proposed, but at the Decision Meeting it was agreed that the need for such a covenant would be reviewed on return of the appraisal mission for the National Rural Development Project (NRDP)\. In the end, it was decided not to include a price covenant in the Credit Agreement\. Also related to this, the Decision Memo notes "that there would probably be little direct cost recovery for the Government, although the marketing agency, ADMARC, would make substantial profits which would be reinvested in agricul- tural and industrial enterprises which were part of the Government's develop- ment program" and noted that the meeting felt this should be acceptable\. This approach has since been questioned on the grounds that ADMARC has not been effective in using the resources generated from the smallholder sector for productive purposes\. In any case, the end result of these decisions was the design of a project which built infrastructure and strengthened govern- ment services but had little success in increasing cotton production during the disbursement period, apparently due in large part to tihe negative incen- tive of low farmgate prices\. Only during the past two years, since disburse- ment was completed, has considerable price policy reform been undertaken in the framework of the Structural Adjustment process, and production has sub- stantially recovered\. C\. Replicability 35\. When this consolidation project was approved, it was already under- stood that the intensive approach of Phase II, and of similar projects in the Lilongwe and Karonga areas, corld not be directly replicated nationwide\. A National Rural Development Program (NRDP) was being formulated at that time (Credit 857-MAI, approved December 21, 1978) which would essentially expand the area development approach nationwide by dividing the country into eight Agricultural Development Divisions (ADDs) that would be integrated into the federal civil service\. The Lower Shire Valley is now one of these ADDs\. Thus, to some extent the general area approach of the project is being repli- cated nationally, although less intensively in terms of staffing and invest- ment\. -9- D\. Sustainability 36\. The sustainability of the project achievements appears still very tenuous\. Gains in crop production appear to correlate more closely with Government price incentives and with weather than with the additional techni- cal assistance provided\. In part this reflects the lack of available new technology\. It also reflects rather clearly the tendency of the small farmer to retreat into subsistence production as soon as he decides that price incentives do not justify the financial risk of using additional purchased inputs such as fertilizer and pesticides\. Thus, maintenance of any improve- ments depends heavily on Government pricing policies and continuing flow of funds from national budget resources or international lending\. 37\. Social infrastructure, such as village wells and health centers, are now the responsibility of the Ministry of Health and maintonance has been somewhat irregular\. Villagers have not been trained and equipped to maintain their wells for drinking water and there has been very little emphasis on farmer organization\. Thus, sustainability at this point still depends large- ly on central Government decisions and the availability of funds for imple- mentation\. 38\. Nevertheless, it appears that the experience of the Lower Shire Valley projects has contributed to at least four changes in Government policy and in Bank support: (i) a less intensive but nationwide structure of Agri- cultural Development Divisions (ADDs) including one for the Lower Shire Valley supported by the Bank's National Rural Development Program Projects as well as other donors; (ii) a nationwide project to strengthen agricultural research (Credit 1549-MAI for US$23\.8 million approved February 19, 1985); (iii) a nationwide project to support agricultural extension (Credit 1626-MAI for US$11\.6 million approved September 19, 1985); and (iv) a national health project (Credit 1351-MAI for US$6\.8 million approved April 26, 1983) which now provides some of the support for health centers that was provided earlier under the Shire Valley projects\. 一r必一 才辭二妒→？gã€Šæ±—å† ï»¿Table I Rural Development Projects In Malawi Loan/Credit Approval Audit Pr2jeet Name Number Amount Date Report (USUI Lilongwe I Cr\. 113 7\.17 02/68 751 (05/23/75) Lilongwe II Cr\. 244 7\.41 05/71 1597 (05/17/77) Lilongwe III Cr\. 550 8\.50 03/75 3414 (04/07/81) Shire Valley I Cr, 114 4\.30 02/68 895 (10/22/75) Shire Valley 11 Cr\. 363 10\.50 03/73 2593 (06/29/79) )/a Shire Valley III Cr\. 823 10\.70 06/78 /b Karonga I Cr\. 282 6\.61 01/72 2576 (06/29/79) Karonga II Ln, 1286(T) 9,20 06/76 5340 (11/28/84) Nat, Rur\. Dev\. I Cr\. 857 22\.00 11/78 Mat\. Rur\. Dev\. II Cr, 992 13\.80 03/80 Nat, Rur, Dev\. III Cr, 1183 7\.30 10/81 Nat\. Rur\. Dev\. IV Cr\. 1343 10\.60 04/83 118\.09 NNOWOMMMOM Other Agricultural Projects Smallholder Fertilizer Cr\. 1352 5\.00 04/83 Nat, Agr, Research Cr\. 1549 23\.80 02/85 Agr\. Ext, & Plan, Sup, Cr, 1626 11\.60 09/85A /a All three projects have been reviewed in an impact evaluation, OED Report No\. 4850 dated December 23, 1983\. A Audit report being prepared (for distribution June 1986)\. /c Not yet effective (as of 04/11/86)\. W~~ ~~ s -z> & - 13 - SBINB FALLEY AGRICULTURAL CSOLIDATION PROJECT CREDIT 823-MAI PROJECT CO08ZTION 83P01R AN OVERVIEW December 2, 1985 Government of Malavi Ministry of Agriculture and Eastern and Southern Africa Proj(\.cts Department Regional Mission in Eastern and Southern Africa cP ~ 9 - 15 - MALAWI SHIRE VALLEY CONSOLIDATION PROJECT (CREDIT 823-MAI) PROJECT COMPLETION REPORT AN OVERVIEW I\. Introduction 1\. The Planning Division of the Ministry of Agriculture and Ngabu ADD personnel prepared the PCR for the above Project, although this was not a condition of the Credit Agreement\. A draft report was extensively com- mented upon by both Headquarters and RMESA staff\. Many of the comments made by IDA staff on the draft have been incorporated in the final version\. The Planning Division also prepared a revised economic analysis which provides a recalculation of the economic rate of return and clarifies the methodology and the financial and economic assumptions underlying the analysis\. II\. Project Objectives 2\. The Shire Valley Agricultural Consolidation Project supported by IDA Credit 823-MAI was appraised in August 1977 and became effective in June 1978\. It was prepared by the Government with the assistance of RMESA staff\. The project was a direct continuation of the second Shire Valley project and was expected to consolidate previous development activities taking particular cognizance of the production weaknesses identified during the prior phase (SAR para\. 2\.15)\. Over a four year period (1978/79 - 1981/ 82) the Project was to: (i) continue to support development of rainfed agriculture production services, reorganize and strengthen the extension service, provide improved seed varieties and credit; (ii) improve the quan- tity and quality of meat and fish production; (iii) continue to support the land husbandry program with an added forestry unit; and (iv) extend water, health, and road services\. III\. Physical Implementation 3\. The civil works construction program started at a slower pace than anticipated\. The construction of administrative blocks for extension, health facilities, markets, dip tanks, laboratories, and fish landing sites met 100% of the appraisal targets\. Because of cost increases and Govern- ment's decision not to increase the allocation for civil works, only 47% of the planned staff houses and 80% of the planned boreholes were built\. Of the 139 kms of roads planned, 111 km (872) were either constructed or up- graded under the Project\. The increase in road construction costs, break- down of equipment and lack of spare parts hindered the completion of this component\. None of the 50 planned village training centers were built because residential training was given preference\. - 16 - IV\. Project Management 4, The organizational structure of the Phase II Project continued in Phase III with slight modifications\. Lack of staff continuity developed into a serious problem and the Project had three managers and three financial controllers during the implementation period\. Intermittent vacancies of senior posts occurred throughout Phase III and seriously hampered Project implementation\. At the end of the Project, only 40% of the senior staff positions were filled\. Unsuitably qualified support staff, difficulties encountered in reaching agric,itural production targets and the related unattractiveness of staff assignments to the Shire Valley, lack of job security for the staff employed from the development budget (directly paid by Project funds), and uncertain promotion prospects for technical and supervisory staff contributed to high turnover and low morale of staff, and to management and operational problems\. 5\. At the beginning of Phase III, 71% of the staff occupied positions not yet officially "established"\. Although the Government had agreed to absorb these staff gradually into permanent positions, by the end of the Project 55% of the staff remained in positions not yet permanently estab- lished\. Furthermore, the local funds made available so far have not been adequate to retain all staff and to maintain all buildings, vehicles and equipment procured under the Project\. 6\. A large number of surveys were carried out by the monitoring and evaluation unit established under the Project (paras\. 65 and 66 and Table 12 of PCR)\. The data was not always adequately evaluated, and was of limited assistance to management in decision-making and forward planning\. This also affected the preparation of the PCR, especially with regard to determining reasonably reliable and consistent agricultural production data for assessing the Project's impact\.1/ V\. Services Supported under the Project 7\. In support of the crop production goals, the Project provided for crop research, extension services, training facilities and equipment, farmer and staff training, and credit\. Efforts to reorganize the extension system along the lines of the Training and Visit System and to provide farmers with more up-to-date advice on farming methods and practices did not succeed to the extent hoped for, mainly because: (a) senior staff at the Ministry of Agriculture and at the Project level were reluctant to move quickly with the system, with which they were not yet very familiar and of whose advantages they were not yet convinced; 1/ See also Impact Evaluation Report Malawi : Lower Shire Valley Agricultural Development Projects (Credits 114, 363, and 823 MAL)\. Report No\. 4850 of December 23, 1983 Annex II\. - 17 - (b) there was a shortage of well-trained personnel available to the extension service due to the low output of students from the Colby College; and (c) there were very few adequately proven and financially attractive technological innovations to recommend on drought resistant crop varieties or land husbandry practices\. 8\. Due to the Government decision not to construct the 50 Village Training Units, farmers and farmers' wives were trained instead at the Residential Training Centers\. The PCR notes (para\. 32) that no information is available on the number of farmers and farmers' wives trained during the Project period\. Nonetheless, given the weakness of the technical packages to be transmitted to farmers, the impact of the farmers' training program on improving agricultural technology should probably be considered to have been less than hoped for\. Training of the extension workers was sporadic, as was the technical support to them from subject matter specialists\. 9\. The surveys conducted by the Project Monitoring and Evaluation Unit did not adequately distinguish between Project participants and non-participants, and it has proven difficult to assess the impact of the Project on production and yields of those farmers directly reached by extension\. In the absence of adequate direct data, the PCR used production and yield data from the National Sample Survey of Agriculture for the Project areas and compared them with the appraisal estimates (PCR - Tables 6, 7 and 21), It appears (data is very poor) that most crops did not reach the planned hectarages or yields\. Appraisal assumptions regarding the possible impact of an improved extension effort, the availability of suitable cereal varieties, the adoption of moisture conservation practices and the existence of adequate producer prices all proved overly optimistic\. 10\. Crop Research\. Adequate progress in crop research is one of the keys to improved agricultural production in the Shire Valley\. (An appropriate pricing policy has proved to be another such key\.) However, the crop research program suffered significantly from shortages of qualified staff, inadequate local funding and high staff turnover\. Maize cultivar trials were conducted throughout the Valley using mainly exotic hybrid varieties\. These trials led to the limited release of three imported hybrid varieties suitable for the Valley\. Distribution of seed of these varieties was, however, discontinued on acrount of its low quality, and a new series of trials was initiated to screon the suitability of locally bred hybrids\. Some research work was done on cotton, legumes, sorghum and millets in the context of the National Trials Program\. As a result of these trials, a new cotton variety (Makoka 78) and a drought resistant sorghum variety (PN3) were identified and recommended for the Valley toward the end of the project, and appeared to be acceptable to the farmers\. The crop/weather plots, established to provide information on yields of major crops in different ecological regions of the Valley, were abandoned because of financial constraints\. Trials with phaseolus beans, sweet potatoes and vegetables on drainage areas were not carried out because suitable areas could not be made available to the Project\. As a result of the shortcomings of the research effort, extension was left with little to offer\. - 18 - 11\. Seed Multiplication\. Mainly because of financial constraints, the 150 ha irrigated seed multiplication farm for the selection and multiplication of maize, sorghum, millet and groundnut seeds was abandoned in 1980\. Eight staff houses, an office block, and a workshop had been constructed\. Seed supply was entrusted to the National Seed Company\. The Government is currently studying the future use of the project built facility, possibly for its national agricultural research program\. 12\. Livestock Production\. During the Project period, the cattle population increased by 26% (from 61,550 to 77,470 head)\. The annual off-take averaged about 7%, significantly below the appraisal estimate of 12% per annum\. The special permit required for the slaughter of female animals, and the restriction of cattle transfer out of the Valley as a measure to control foot and mouth disease, contributed to the increase in the cattle population\. Overgrazing has become a problem\. Some 16 dip tanks were constructed or rehabilitated\. However, only about half of the cattle were dipped, mostly at infrequent intervals\. The animal husbandry and livestock extension section remained understaffed during the Project period, and insufficient transport was available to staff to properly supervise the activities\. The tsetse study was completed and vaccination campaigns on trypanosomiasis were conducted in the Project area\. The diagnosed incidence of trypanosomiasis declined by about 10% following the campaigns\. 13\. Fisheries\. The development of the fishing industry received emphasis in both Phase II and Phase III of the Shire Program\. Landing sites and beaches were constructed, improved smoking kilns erected and fishermen trained in new techniques\. Credit facilities were provided to enable fishermen to buy improved gear and plank canoes\. Planned investiga- tions to determine unexploited fish stock, and the most suitable and effective methods of fishing under the prevailing water regime were not conducted\. This was partly because the planned post of Gear Development Officer was not filled\. Fish catches were estimated to be higher than expected at appraisal\. 14\. Credit\. There was a shift from individual to group credit\. About 700 credit groups with some 7,000 members benefited from seasonal credit\. The average loan per farmer was MK 25 per season\. Credit recovery was 80% for short-term and some 63% for term lending\. Credit uptaki by farmers was significantly below appraisal estimates\. This partly reflected the low (Government-set) cotton prices\. The number of beneficiaries per year gradually declined\. Most sub-loans were for short-term credit and term lending remained insignificant\. The risk of using fertilizers to increase yields proved unacceptably high given the incidence of drought years\. Partly as a result, a more general risk aversion inhibited the adoption of practices requiring cash outlays or credit\. The tightening-up of credit policies, whereby defaulting groups or individuals became ineligible for new credit, also contributed to the lower use of credit\. 15\. Land Husbandry\. Land use maps were produced for all EPAs on a scale of 1:50,000\. About 40 farm plans were prepared per year as a joint effort between Land Husbandry and other sections within the Ngabu Agricul- tural Development Division (ADD)\. Particular emphasis was given to contour ridging\. Although there is no precise data available on farmers' adoption - 19 - of the above practices, supervision missions reported progress in this regard\. The cultivation of crops such as cashew nuts, macadamia nuts, pineapple, banana, and citrus was adopted gradually by some farmers in the hill districts\. 16\. Forestry\. Shortage of senior staff during most of the Project period resulted in implementation delays and in shortfalls in performance against most of the original targets of the forestry component\. Three adaptability investigations were conducted and several tree species were recommended for the Project area\. The proposed re-afforestation program was, however, not successful\. Farmers proved very reluctant to "give up" land for woodlots and shelter belts\. 17\. Wildlife\. All facilities were completed as planned\. Funding and operation of the Lengue National Park were fully taken over by the parent department in 1981\. 18\. Hydrology and Water Supply\. The Project financed the National and Shire Valley Irrigation Study, which addressed issues related to: national irrigation policies; settlement procedures; water charges; scheme management and maintenance; cost recovery; and the preparation of a water resource plan for the Valley\. The Government has since engaged a consultancy group to update the study of the economics of possible irrigation and - if found justified - conduct feasibility studies for the rehabilitation and expansion of irrigation schemes in Malawi\. 19\. About 80% of the planned boreholes and shallow wells were constructed during the Project period\. IDA also agreed that Project funds could be used to supplement the financing of rehabilitation of about 100 boreholes constructed under previous projects\. However, maintenance of the boreholes and shallow wells remains a problem not yet properly dealt with by the Government\. The rotary drilling rig with compressor unit which was procured with Credit funds proved to be inappropriate\. Supervision missions suggested the transfer of the drilling rig to the Department of Lands, Valuation and Water\. However, that Department had neither the funds nor an operator to use the rather complicated rig\. The proper use for the rig is again being studied by the Government\. The originally envisaged groundwater survey program was not fully completed because of the expiry of contract of the expatriate driller, lack of spare parts, and, on occasions, lack of petrol\. VI\. Project Costs, Financing and Disbursements 20\. Total Project costs were estimated at appraisal at US$ 12\.6 million (MK 11\.4 million equivalent)\. Due to a reduction in the project's scope and the appreciation of the Malawi Kwacha during the early years of the Project implementation period, actual Project costs in local currency were 9% below the appraisal estimate\. As indicated in the table below, project expenditures were significantly below appraisal estimates for the agricultural services component, the natural resource component, health services and the evaluation unit (M 6 E)\. The actual costs for Project management and financial control as well as for mechanical maintenance exceeded appraisal estimates by a wide margin\. - 20 - Appraisal Actual as Project Cost (MK '000) Estimate Actual % % of SAR Agricultural Services Extension 993 921 93 Training 374 264 71 Research 714 389 54 Seed Multiplication 774 54 7 Credit Administration 331 n\.a\. n\.a\. Animal Husbandry 651 438 67 Sub-total 3s837 2s066 54 Natural Resources Land Husbandry 232 188 81 Fisheries 208 152 73 Forestry 332 76 23 Wildlife 123 132 107 Sub-total 895 548 Hydrology and Water Supply 897 921 103' Health Services 363 148 41 Technical Services Roads 1,025 864 84 Building Maintenance 599 n\.a\. n4a\. Mechanical Maintenance 127 468 369 Sub-total 1752 1,332 76 Administration Project Managerent Office 941 1,712 182 Evaluation Unit 274 202 74 Finance Division 304 1 276 420 Sub-total 1,519 3 190 210 Contingencies Physical 463 Price 1,718 Total Project cost 11,443 8,205 (10,234) 1 1/ Excluding MK346,000 disbursed in 1983 on Project commitments and unidentifiable expenditure on central credit administration and building maintenance\. Actual expenditure of IDA and Government funds totalled 110\.234 m for the 4 years of the project and 110\.580 a when that disbursed in 1983 is included\. - 21 - 21\. IDA provided US$ 10\.7 million or 85% of the cost as projected at appraisal\. Financing Sources A praisal Estimate Actual (MK al\.)(K aM \.) IDA 9\.7 85 8\.7 85 Government 1\.7 15 1\.5 15 11\.4 100 10\.2 100 22\. Overall Credit disbursements remained within appraisal estimates\. However, cost overruns in certain categories required \. reallocation of funds\. The civil works category was kept within the original allocation, although the unit costs of houses, roads and boreholes were higher than the appraisal estimates\. As a result, not all of the houses, roads and boreholes were built\. At appraisal it was anticipated that most expatriate staff required to initiate the Project would be gradually replaced by local staff\. This did not happen, probably reflecting both too optimistic an assumption and too little effective training\. In any case, there resulted a considerable cost over-run in the category for international staff\. Funding for operating costs also exceeded the appraisal estimate\. Allocation Actual 1/ Credit Category at Appraisal Disbursements % 1 Vehicles, equipment 1,410,000 1,182:403 83 2 Civil works 1,660,000 1,660,000 100 3 Salaries and allowances international staff 280,000 578,258 206 4 Operating costs 4,910$000 6,473,488 131 5 Consultants 400,000 805,851 201 Unallocated 2,040,000 - - Total 10,70,000 10,700,000 100 1/ IBRD Loan Department - Disbursement I: Status of Funds as at December 31, 1983\. - 22 - 23\. As indicated in the PCR (Table 15), disbursements of credit pro- ceeds were below appraisal expectations in the first and third years, exceeded appraisal estimates in years two and fOour and extended 10 months beyond the original schedule\. Actual accumulated disbursements compare to the appraisal estimates as follows (in US$ million): FY 1979 1980 1981 1982 1983 Actual 2,318 5,690 8,070 9,991 10,700 APR 4,500 7,000 9,100 10,700 - Actual as % of Appraisal Estimate 52 81 89 93 100 VII\. Project Benefits 24\. Most Project benefits were expected from increased production of cotton, maize, sorghum, millet, rice, groundnuts and beef\. Improved research, extension, training, and land husbandry services were to provide the basis for the improvements of the traditional technology for an increase in yieldt of major crops\. Projected crop yields and total production were based upon expected adoption by smallholders of a basic package of practices designed to reduce the risks of periodic dry spells which affected Valley production\. 25\. Crop Areas and Yields\. Data provided in the PCR regarding estimated developments in crop areas and yields in the Project area are very difficult to interpret and do not appear to be entirely consistent\. The PCR data should be considered with caution\. 26\. Generally, it is believed that cotton areas and yields have been well below appraisal estimates both because of the inadequate adjustment of cotton prices and the risky nature of the technical packages which were recommended\. Maize areas increased substantially, and those for drought tolerant crops such as sorghum and millet increased marginally\. The combined crop area, however, is thought to have remained below appraisal estimates\. Reliable yield data are not available, but recent estimates for most crops in the Project area have been below the appraisal targets\. 27\. Crop Production\. Project production varied considerably from year to year, mostly depending on seasonal conditions (rainfall) and producer prices\. Only guar bean and sorghum production exceeded appraisal estimates in the last two years of the Project\. Cotton and groundnut production actually declined during the Project period and maize production increased\. (Cotton production has very recently - reflecting price adjustments - begun to recover\.) Although millet and rice production increased during the Project period, it did not reach appraisal estimates\. - 23 - 28\. Official Crop Purchases\. The average annual cotton purchase by ADMARC during the Project period was about 9,000 tons which is considerably lower than purchases in the mid 1970s\. Purchase of maize in 1981/82 was 2,833 tons and compares with an average of 437 tons in the five previous years\. Official groundnut purchases declined from 259 tons in 1977/78 to 7 tons in 1980/81\. ADMARC purchases of guar beans, a newly introduced crop during the previous Project phase, reached an average of 3,300 tone per year\. 29\. Causes for Production Changes\. It is apparent from the informa- tion available that producer prices and rainfall conditions were critical factors in determining production\. Because of inadequate producer prices, cotton and groundnut production did not develop as expected\. The introduc- tion of guar beans by extension has provided some farmers with an addi- tional source of income\. Although extension could only offer a limited crop package, some advice on ridging and contouring was followed by the farmers\. Similarly, marsh areas have benefited from the activities of the fisheries component\. 30\. The population of the Valley has benefited from improved water supplies, health facilities and roads\. The Project-supported effort to explore the potential for future irrigation development has given useful guidance to Government\. 31\. Economic Rate of Return and Fiscal Viability\. The Government's revised analysis estimates an economic rate of return to the directly pro- ductive investments under the Project of 8\. It assume for Project Years 5 to 8 a 5% annual increase in the incremental output of cotton, a 3% annual increase in the incremental output of maize, rice, groundnuts, sorghum and millet and no increase for beans, over the level of Project Year 4 (1981/ 82)\. These assumptions, as well as the methods used for determining cost and economic values, appear reasonable\. However, it should be noted that an unquantifiable part of the Project benefit assumed in the analysis is attributable to investments made under the previous Phase II project\. If one quarter of the Phase II investment cost were added to this project, the economic rate of return would decline to zero\. 32\. Available data do not allow ready or clear quantification of the fiscal impact and viability of the Project\. However, it is probable that the Government budget has benefited little from increased taxes and duties, while public expenditures on account of capital investments and operating and maintenance costs of the Project have been substantial\. VIII\. Government Performance 33\. Government commitment to the Project was uneven\. It introduced annual work plans and budgets, aimed at assisting Project management\. Throughout the Project, the Ministry of Agriculture provided assistance to Project management and closely supervised implementation\. However, senior staff turnover was a major problem during implementation\. There were three project managers, three financial controllers and four evaluation officers during the four-year Project period\. About 40% of the senior staff posi- tions foreseen at appraisal remained vacant, and Government only trans- formed a small part of the staff posts to permanent positions\. - 24 - 34\. Government-set prices for cotton and groundnuts were inadequate and this contributed to the decline of production of these crops\. Agricul- tural research did not meet appraisal expectations, leaving extension with limitee technical advice to offer to farmers\. 35\. Government did maintain a group credit approach which facilitated credit administration\. The focus was, however, mostly on farmers who had already been beneficiaries of the credit programs in Phase I and II\. 36\. Although price escalation for civil works was higher than expected, and baseline civil works costs had been underestimated by the appraisal mission, overall Project expenditure remained within initially budgeted amounts\. This can be partly attributed to careful financial monitoring\. During tie first half of the Project period, the Government did experience difficulties in providing the required funds, which slowed down implementation and/or led to reduction in the scope of some project components\. The preparation of accounts was generally timely but audits were delayed throughout the Project period by about one year\. With the exception of the staffing, counterpart fund and audit covenants, the Credit covenants were complied with in a timely manner\. 37\. Progress reporting by Government was comprehensive and timely, but a less than satisfactory commitment to and execution of the monitoring and evaluation component, combined with financial and staff constraints, resulted in a paucity of really hard and reliable information required for project management and project impact evaluation\. 1X\. IDA Performance 38\. The appraisal team reduced the originally proposed scope and cost of the Project by deleting a smallholder irrigation scheme and eliminating several other proposed components\. Infrastructure development was mostly limited to the completion of ongoing works, in order to permit concentra- tion of available resources on agricultural production, livestock, and other productive components\. This restructuring or "consolidation" was positive inasmuch as it reduced the burden on Government's limited finan- cial and manpower resources\. It did, however, too little to focus Project intervention more clearly on the crucial constraints for production devel- opment in the Valley, i\.e\., research and output pricing\. The capability of the Project's agricultural research program to develop new technological packages during the life of the project was seriously over-estimated\. To the same extent the extension component was overdesigned\. Based on the disappointing results of Phase II, the appraisal team had projected what it thought were very modest levels of improvements in crop production and yields for cotton and other crops, which however proved to be still optimistic in the circumstances\. While the cotton producer price was in fact increased somewhat at the time of appraisal, it proved not to be enough to provide a sufficient incentive to farmers in the Valley to continue with cotton production at earlier levels or expand it\. The Government's PCR suggests rightly that the drought risk was not sufficiently dealt with at appraisal\. - 25 - 39\. Government's capacity to recruit the required number of well qualified staff and its capability of absorbing 261 staff members into permanent positions was over-estimated\. The Project contributed to the establishment of a network of services and infrastructure, which so far has made a much smaller than expected impact on production, but which will be costly for the Government to maintain\. 40\. Seven supervision missions visited the Project at an average interval of seven months for about 2\.4 staff weeks per mission\. They provided considerable technical assistance, particularly on extension organisation, project management, and agricultural production and also tried to assist in resolving staffing and financial problems\. Although the missions for this as well as the previous project pointed out the negative impact of low producer prices on cotton production, the Bank was for some time ineffective in getting action on price policies\. At no time did supervision missions or IDA propose to substantially alter the project design to bring its scope and component structure better into line with the borrower's apparent manpower and financial constraints and with the more immediate basic research and technical needs for the agricultural development of the Valley\. X\. Lessons Learned 41\. The limited success of this broad based effort to increase the income and quality of life of the Valley's population suggests that: (a) a more rigorous analysis of historical production data and more careful and conservative judgements in assessing production prospects is called for - especially for areas with risky rainfall conditions; (b) project size and the structure of investment proposed need to be reasonably in line with the Borrower's capacity in terms of manpower and financial constraints to implement the project and sustain project investments; (c) in situations where agricultural production development depends so centrally on the generation of new technologies through research, one should not expect substantial research results to be extended to the farmers within the same period; and (d) the success of production projects depends heavily on a supportive policy environment, especially in the area of producer prices\. \�'' � ! � � 1 `,1 � \.и, � - 27 mm~ GOV PROJ= CONPLVrm R~RT SEM VALLU Ã¥GRICULTURÃ¥L ComæLIDMM PROJ= (r^ R~RT) Dec~er 2, 1985 ージアアー オく」ノ勢介6ガ溶そ 29 MALAWI SHIRE VALLEY AGRICULTURAL CONSOLIDATION PROJECT (\.CREDIT 823-MAI) PROJECT COMPLETION REPORT I\. INTRODUCTION AND SUMMARY 1\. This is the third Project Completion Report to be prepared by Malawi Government, the first being that of Lilongwe Land Development Programme Phase III prepared in 1979 and that for Karonga-Chitipa Rural Development Project Phase II prepared in February, 1983\. Shire Valley Consolidation project was a follow-on project to Phase II which was terminated in early 1978\. SVACP began in 1978 and was completed in 1982\. 2\. The purpose of SVACP was to increase crop production, livestock off take and fish catches\. The Project was expected to consolidate all previous development activities such as infrastructure and institutional development for increased agricultural production\. To increase crop production, Phase III planning took particular cognizance of drought risk in the valley a-ad proposed solutions to minimize this risk\. 3\. In order to achieve the overall goal of increased agricultural production, there were Inputs to be delivered and employed and consequently outputs to be realized\. 4\. This report attempts to assess to what extent the Project has been successful in as far as input delivery, output realization and overall impact is concerned\. The report is presented following guidelines detailed in the World Bank's Operational hanual Statement (IBRD, February, 1979)\. Findings and Conclusions 5\. The report finds that the Project commenced on schedule in April, 1978, with a retrospective financing\. However, this phase started at a slow pace because incremental staff and equipment were not yet in place\. As a result of this, a number of Project activities such as building of staff houses and construction of roads took time to complete\. Inevitably, the slow start and the consequent delay in the construction program resulted in cost penalties, Despite the slow start, the report finds that input delivery during the phase was satisfactory\. Incremental staff, equipment and funding were delivered and used satisfactorily\. Project outputs such as the building and road construction programme, water and development and expansion of the Natural Resources Division were consider- ably realized\. Envisaged project impact, however, has not been realized\. Crop production, cattle off take and fish catches did not increase during the phase as anticipated at appraisal\. In crop production, this is because the proposed solutions such as reorganized extension system, moisture con- serving cultivation practices and the release of drought resistant cereal varieties from research were either not implemented or were not achieved sufficiently enough to create the necessary impact on crop production\. In case of increased cattle off take, this is a result of lack of congruency between the Project objective and Government policy\. As for low fish catches, no conclusive reasons have been noted\. It is, however, understood that the failure to recruit the Gear Development Officer was the main reason, - 30 - 6\. Actual Internal Economic Return of 15% has been calculated based on benefits from crop production only\. The actual IRR is lower than what had been anticipated at appraisal\. This is not surprising considering that incremental crop production throughout the phase has been lower than anticipated\. II, BACKGROUND 7\. The Project area comprises the administrative districts of Chikwawa and Nsanje\. The area is located in the Southernmost tip of Malawi between latitudes 150 45' south and 17* 8' south\. The total area is 6,700 square km\. The valley is the southern-most extremity of the Great African Rift Valley and is bounded to the East by the Shire Highlands and on the West by the Mtundwe and Marengwe Hills which form the divide between the Shire and Zambezi River catchments\. The valley floor is an elongated alluvial plain about 44 km long by 16-32 km broad whose height above sea level changes gradually from 150 m at the foot of the valley sides to 60 m through which the Shire River passes on its way to join the Zambezi\. 8\. Annual average rainfall for the valley floor is 64 cm rising to 89 cm on the surrounding hills\. Eighty-seven percent of this rain falls in the months of October to March\. The movement of the inter-tropical convergence zone gives rise to a large variation in the timing of the onset of the rains and consequently affects the planting dates\. 9\. By 1977, population in the valley was 303,030 with an estimated annual population growth rate of 2\.3%\. Actual rural population in 1977 was 274,500 with a household size of 4\.6 persons giving 62,700 farm households\. Within the valley, high population densities are in Naanje district, especially along the edge of Ndinde marsh\. Population is also dense on the East Bank where alluvial soils from numerous streams and marsh edges provide opportunities for Intensive cropping\. 10\. Major dry land crops of the Lover Shire Valley are cotton, maize, bulrush millet, sorghum and groundnuts\. Pigeon peas and cassava are important in hill areas\. Rice is widely grown along the Shire flood plain\. The people of the valley also keep cattle, goats, pigs and chickens\. 11\. The valley has always been considered one of Malawi's disadvantaged regions in terms of climate, incidence of disease, and low agricultural productivity\. Consequently, after independence, detailed proposals were prepared for the Chikwawa Cotton Development Project (CCDP) which tmmenced in 1968 with a foreign financial support from IDA Credit (114-MAI), totalling MK4\.07 m\. The Project was terminated on schedule in 1973\. The completion report and the performance audit considered the Project to be well conceived, effectively implemented and generally successful\. This success was based not only on the achievements of physical targets, but also on overall impact of the Project on the attitudes of those living in the valley\. The Project was noteworthy in that it was very successful in involving people at all levels in the rural development effort in an area whose inhabitants had been considered resistant to change\. The Project emphasized increased cotton production\. - 31 - 12\. The CCDP was immediately followed in the same year by a second phase of Agricultural Development also financed by an IDA Loan of MK11\.5 m, Credit 363-MAI\. Development activities were expanded to cover both adminiatrative districts of Chikwawa and Neanje (6,734 sq km) with emphasis on cotton, maize, groundnuts, livestock and fish production\. 13\. The results of Phase II were measured by two different criteria\. On one hand, excellent progress vas achieved in completing the Project's physical infrastructure; on the other hand, total crop production failed by a wide margin to meet appraisal estimates\. In fact total cotton and maize production declined because of frequent drought which devastated the area, low farm gate prices for cotton, and the unsuitability of the varieties of maize and sorghum recommended for the valley\. 14\. Both the Phase II Completion Report and the Crop Review of 1976 prepared jointly by project management and an IDA team noted these problems\. As a short term solution, the reports recommended a careful choice of crops/varieties for the valley\. In the long run, the Crop Review Report recommended a gradual shift to supplementary Irrigation\. 15\. Apart from the smallholder projects, there have been other activities going on in the valley such as the 11,000 he irrigated sugar estate; few Chinese Rice Schemes; three Game Reserves (Mwabvi, Majete and Lengwe) and the Kasinthula Agricultural Research Station carrying out both trials under irrigation, and settlers growing irrigated rice\. III\. PROJECT FORMULATION 16\. The thinking of SVACP began in 1976 at about the same time that the Crop Review Report was being prepared\. Project identification of Phase III took particular cognizance of drought risk in the valley and its effects on crop production\. Consequently, Phase III was expected to mini- mize the effects of drought risk on crop production\. The Project proposals were made along the lines of an intensive development phase where a rapid move towards irrigated smallholder agriculture would take priority over rainfed agriculture\. These proposals were prepared by a joint team from Planning Division of the Ministry of Agriculture and SVADP management\. The proposals were also made in full consultation with other Ministries of Works and Supplies (as regards construction programme)\. 17\. The Malawi Government proposals for Phase III were for a four- year project commencing April 1, 1978 and amounting to a base cost of MK15\.259 m giving an estimated cost of MK19\.491 m\. Detailed ccsts break- down by components were presented and an IRR of 29% was estimated over a 20-year period\. Primary benefits of the project were to be increased crop, livestock and production, in order to improve farm incomes\. Sensitivity analysis indicated that with an increased cost of 10% coupled with a reduced level in benefits of 10%, the proposals would result in a return of 21%\. 18\. Major objectives of Phase III were as follows: (I) to increase the number of farmers applying improved crop practices by about 15,000 so that at least 55% of the valley's smallholders (40,000) would have adopted at least some of the practices by full development in 1982/83; - 32 - (ii) to provide technical assistrnce to these farmers to increase land under improved practices (12% of cropped area) to about 50,000 ha (47% of cropped area by 1982/83); (iii) to provide increased social and infrastructural services directly or indirectly affecting about 20,000 families in the Project area; (iv) improve quantity and quality of meat and fish production; (v) extend water, health and road services; and (vi) continue support of the land husbandry programme with an added forestry unit\. 19\. An IBRD appraisal mission of six team members visited Malawi in August 1977, and the appraisal report followed in 1978\. The appraisal mission changed the direction of Phase III from that with a major input in smallholder irrigation to that based exclusively on rainfed agriculture\. Although the drought problem in the valley was noted, it was believed that with moisture conserving cultivation practices, availability of drought resistant cereal varieties and a change of extension system, increased crop production would be achieved\. In view of this, the project was therefore specifically to provide for: (a) establishing headquarters for 5 additional BPAs with required staff housing, training and administrative facilities, (see Figure 2 for location of BPAs); (b) establishment of a 150 he irrigated seed selection and multiplication farm directed by an expanded research team; (c) continuation of seasonal and medium credit for farm and fisheries inputs; (d) construction of additional livestock markets and dips, expansion of FMD and Tsetse Control, and increasing the ox- training programme; (e) expansion of the Natural Resources Division to include a Forestry Development Unit, and continued Improvement of wildlife facilities; (f) ground water survey and development including construction of 40 additional boreholes and 40 shallow wells, providing consultants' service to review experiences gained under existing irrigation schemes and to undertake an izrigation feasibility study of the valley; (g) continuation and improvement of project area health facilities; (h) completion of the access road network, and maintenance of project roads, buildings and equipment; and - 33 - (1) continuation and expansion of the project Evaluation Unit, and two-year financing for the position of Chief Projects Officer in the MANR\. 20\. There were considerable differences between the final appraisal document and the original Malawi Government proposals\. Main points of difference were as follows: (a) the appraisal mission reduced the overall project cost by MK8\.05 m (40%) according to a reduced project design (see Table 1): Table 1: Financing Arrangements, compared (MK '000) MG Project Appraisal Source Proposals Prov\. (1945-MAI) World Bank loan 16\.567 (85%) 5\.234 (46%) Malawi Government 2\.924 (15%) 6\.209 (54%) Total 19,491 (100%) 11\.443 (100%) (b) The components of irrigation and rural development were dropped out at appraisal and the leucaena development component became part of the credit section\. (c) A complete change of extension approach and management was agreed at appraisal; the Training and Visit (T&V) system of extension was to be adopted\. Farmer to technical assistant (extension worker) ratio was reduced from 1:255 to 1:600 at appraisal\. (d) Appraisal document emphasized that the land husbandry work programme should give emphasis to adoption of moisture conservation cultivation practices\. (e) For research component, the appraisal document placed emphasis on a programme of project specific research and, together with seed multiplication component, the development of drought resistant crop varieties for the Shire Valley\. 21\. A detailed breakdown of project costs by component is shown in Table 2 below: - 34 - Summarized comparison of component costs are as follows: Table 2: Component Costs Compared (MK '000) a/ Appraisal Project Document Proposals (1945-MAI) Component (4 years) (4 years) Agricultural Services Extension 1,722 993 Training 452 374 Research 795 714 Seed Multiplication 476 774 Credit Administration 338 331 Animal Husbandry 827 651 Leucaena development 195 - Irrigation 2,735 - Sub-Tota\. 7,540 3,837 Natural Resources Land Husbandry 279 232 Fisheries 268 208 Forestry 393 332 Wildlife 141 123 Sub-Total 1,081 895 Hydro-(Geology) 642 897 Health Services 455 363 Technical Services Roads const\. and maintenance 1,797 1,025 Buildings 628 599 Mechanical maintenance 280 127 Sub-Total 2,705 1,751 Administration Project Manager's office 1,584 941 Evaluation Unit 328 274 Finance Division 608 304 Rural Development 315 - Sub-Total 2,835 1,519 Base Cost 15,259 9,262 Physical Contingencies 762 463 Price Contingencies 3,470 1,718 Total Project Cost 19,491 11,443 a/ These are costs on Development Account only\. - 35 - From this table, it is evident that at appraisal, funding of some components was either reduced, increased or eliminated completely\. IV\. IMPLEMENTATION Effectiveness and Start-up 22\. Negotiations for Phase III funds (Credit 823-MAI) were held in Washington D\.C\., U\.S\.A\. during the period May 1-6, 1978\. Signing of the Development Credit Agreement was d)ne in July 1978, and funds were finally released on September 2, 1978\. Prior to the Development Credit Agreement becoming effective, it was agreed that project expenditure could be incur- red on a retrospective basis from the beginning of the financial year\. By the end of September 1978, the total retrospective financing amounted to MK800,000\. 23\. The policy or retrospective financing allowed the Project to start on time and also enabled the start of tender procedures to be set in motion early during Phase III, and sectional internal budgets redrafted on the basis of appraisal data that had now become available\. International tender for vehicles, plant and equipment was advertised o July 30, 1978 and vehicles and equipment ordered started arriving early 1979\. 24\. Revisions: There were no major revisions during the implementa- tion to the basic design of the Project or its principal objectives\. Seed multiplication component was, however, abondoned during implementation after a considerable amount of infrastructure was developed at the seed farm at Makanga\. Mnagement Organization 25\. The programme management structure is summarized in the organizational chart at Annex 2\. Phase III was a direct continuation of Phase II, and therefore no major changes in staffing or organizational structure were necessary\. The overall implementation of the Project was the responsibility of the then Ministry of Agriculture and Natural Resources\. The Programme Manager (PM) was responsible for day-to-day running of the Project and he was responsible to the Principal Secretary through the Chief Agricultural Development Officer (CADO)\. The PM's office was responsible for four main operational divisions (Agriculture, Natural Resources, Finance and Technical) and the Ancillary Services Division\. 26\. Monthly management meetings were organized under the chairmanship of the PM to discuss implementation problems\. These management meetings were attended by the two District Development Officers, Assistant Programme Manager and subject matter specialists\. Instead of discussing overall broad implementation problems affecting different components of the Project, it is understood the main topic of discussion was agricultural progress reports\. Staffing 27\. The staff included expatriate staff as well as Malawi Government staff employed on permanent and temporary basis except industrial also employees such as drivers, carpenters, mechanics and general labourers\. - 36 - 28\. Appendix Table 1 show how SVACP staffing by project component has changed during Phase III\. By the beginning of the Phase or end of Phase II, 80% of required posts for Phase III were filled suggesting that these were the already existing staff\. By the end of Phase III, 99% of all posts were filled\. 29\. Appendix Table 2 presents staff changes by grade during Phase III\. It is apparent from the TAble that from STA/SCO grade and below the Project generally suffered overstaffing\. From TO/PO and above, the Project however generally experienced understaffing\. Relative scarcity of qualified staff between these two broad categories of staff explain this difference\. Appendix TAble 3 presents staff situation broken down to show number of posts filled by established personnel and those posts filled by non-established staff\. By the beginning of Phase III, 71% of all filled posts were occupied by non-establshed staff\. By the end of the Phase, the percentage had gone down to 55%\. Training 30\. In Phase III, there were two types of training activities namely, staff training and farmer training\. Staff training took the form of refresher courses or seminars intended to introduce or refresh grass root staff to some kin of skill\. Courses for staff were either organised at Residential Training Centers (RTC) or Day Training Centers (DTC)\. At appraisal it was envisaged that staff training for grass root staff, especially village extension workers, would become systematic in order to complement with the new extension method (T&V System)\. Unfortunately, the T&V extension system was never adopted by Malawi Government as noted in paragraphs 36 and 37 and as a result staff training programmes did not follow the system agreed at appraisal\. 31\. Farmer training in Phase III was in two parts: farmers' courses and farmers' wives courses\. Both types of courses were organized at farmer group or club level, DTCs and RTC\. The intention of Phase III planning was to reserve the Residential Training Center for specialized courses for selected farmers or farmers' wives and to move all general courses which were originally held at the RTC to DTCs and to farmers groups\. It was believed with this new arrangement many farmers would be within reach of some kind of training center and be trained\. Despite this arrangement, general farmer courses were run at RTC especially in the first two years of the project because of the delay in forming training groups and the failure to construct the 50 Village Unit Training Centers\. Since the RTC was always engaged with general farmer courses or staff courses, there was insufficient room for all required specialized courses for farmers as agreed at appraisal\. 32\. No information is available on the number of farmers or farmers' wives trained during Phase III\. It is however understood that a considerable number of farmers of farmers' wives have been trained during the Phase and furthermore evaluation section reports that 60% of farmers' wives courses were agricultural based rather than being exlusively home economics as was the case in the previous phases\. - 37 - Extension 33\. Until 1977, agricultural extension services in Malawi had been on dualistic structure\. Each of the major integrated rural development Project areas had its own extension service managed from the projects headquarters\. However, farmers outside the Project areas were served by embroynic national extension service\. 34\. With the launching of NRDP in 1978, the Ministry instituted a geograhpical unit approach to rural development based on EPAs\. As a result of this, the SVACP established five new EPA headquarters at Mikalango, Dolo, Kalambo, Livunzu and Nyachilenda\. It is now felt the EPA network is adequate for the valley\. 35\. Prior to 1978, the extension technique in the Project area, emphasized on individual visits and to maximize farmers contact, a considerable number of DAs were employed as noted in Table 3 below: Table 3: Extension Staff-Farmer Ratio End of Phase III (1982) Description 1978 Projected Actual Field Assistance (FAs) 49 120 80 Development Asats\.(DAs) 202 - 153 Ratio of TAs* to farm families 1:255 1:600 1:297 *The term TA covers both FAs and DAs\. 36\. During Phase III, the T&V system of extension was proposed for the Valley\. This system has been employed in India and Thailand with considerable success\. The main features of this extension system is the group approach and its complete union with agricultural research and training components\. With the adoption of the T&V system it was envisaged that the farmer staff ratio would also be reduced tc 1:600 as noted in Table 3\. The projected number of FAs, was never achieved because of inadequate supply from Colby College of Agriculture\. With the Natural Resources College implemented, the supply of FAs in future will improve\. 37\. The extension service during Phase III was never reorganized to follow the T and V system as was envisaged at appraisal because of the following reasons: (a) By the beginning of the Phase, very few senior staff members either in the Project or the Ministry were familiar with the T&V system\. (b) There was no proven technology available from research to be imparted to farmers (see section on agricultural research)\. - 38 - The Government is still aware of the inadequacy of the extension technique in the Project area, and it is considering introducing a modified T&V system in the area as has been done in other ADDs in the country\. Crop Production 38\. The main thrust of SVACP was on smallholder crop production\. At the beginning of the Phase, there were 64,000 farming households with an average holding size of 1\.88 ha and growing such crops as cotton, maize, sorghum, guar beans, groundnuts and bulrush millet\. By the end of the Phase (1982) there were 69,200 farming households - an increase of 8%\. This increase of farming households meant the reduction of holding size from 1\.88 ha to 1\.30 ha per family by the end of Phase III\. Reduction of holding sizes in the valley meant reduction of proportion of cultivation land devoted to cotton production as shown in Table 5, 6 and 8\. Table 4: Percentage of Land Devoted to Cotton by Holding Size Holding Size Cotton 0-0\.25 0\.26-0\.5 0\.6-1\.00 1\.01-1\.5 1\.6-2\.50 0\.07 13\.49 13\.50 18\.79 23\.95 Source: SV\.? Evaluation Surveys 1978/79\. 39\. Table 5 presents cropping pattern in 1975/76 and 1981/82 seasons\. It is apparent from this Table that percentage of cultivated land devoted to cotton between 1975/76 and 1981/82 seasons decreased due to reduced holding sizes and shift of land mainly to food crops\. From the same Table, proportion of cultivated land devoted to sorghum increased during the same period possibly to meet farmers' subsistence needs as individual holdings became smaller and fragmented\. Table 5: Cropping Pattern (%) Crop 1975/76 1980/81 1981/82 Cotton 32 23 20 Maize 31 28 29 Sorghum 9 17 18 Guar n\.a\. 6 9 Groundnuts 6 n\.a\. 1 Millets 11 n\.a\. 6 Other 1/ 11 26 17 1/ Includes vegetables and pulses\. Source: Shire Valley Land Use Survey 1975/76 IBRD, 1980/81 NSSA Preliminary Report and Land Husbandry Section, ASA for 1981/82\. - 39 - 40\. Table 6 compares planned and actual hectarages by year and by different crops during Phase III\. In general, the planned hectarages were never met in most crops except for sorghum because the assumption made during planning such as improved extension effort, availability of suitable cereal varieties, moisture conserving cultivation practices and favourable producer prices never lived up to the expectations of the appraisal team\. 41\. The projected and actual yield levels are shown in Table 7\. In 1981/82, the cotton yields exceeded the projected ones by 13% whilst the maize and sorghum yields were below the projected levels\. It can be observed, however, that the trends of maize and sorghum yields from the initial year have been improving\. For instance, the maize yield improved from 933 kg/ha in 1978/79 to 1,350 in 1981/82 and the sorghum yield improved from 391 to 710 kg/ha\. The major factor for not achieving the targeted yield was drought which was not properly addressed during the Phase\. The projected yields assumed the use of drought resistant seeds which were unavailable\. Table 6: Crop Development (ha) 1978/79 1979/80 1980/81 1981/82 Crop Planned 1/ Achieved Planned 1/ Achieved Planned I/ Achieved Planned I/ Achieved Cotton 28,000 17,000 29,000 18,990 31,000 18,800 32,000 19,354 Maize 2/ 39,000 27,360 40,000 27,250 40,000 28,580 41,000 28,490 Sorghum 11,000 18,680 11,000 24,000 12,000 28,310 12,000 17,907 Millet n\.a\. 5,000 n\.a\. 5,400 n\.a\. 5,488 n\.a\. 5,575 Rice n\.a\. 1,500 n\.a\. 1,400 n\.a\. 1,264 n\.ao 1,127 G\.nust n\.a\. 500 n\.a\. 400 n\.a\. 827 n\.a\. 1,254 Guar beans 800 3,990 1,000 5,850 1,200 6,780 1,400 9,197 1/ Combines unimproved, Stage I and Stage II\. Combines maize grown on Dimba gradens\. Table 7: Yield Levels by Crop and by Year (kg/ha) Actual 1981/82 as % of Crop Expected 1/ 1978/79 1979/80 1980/81 1981/82 expected yield Cotton 750 625 635 570 850 113 Maize 1,500 933 619 1,310 1,350 90 Sorghum 1,200 391 544 640 710 59 Millet 700 256 156 n\.a\. 206 - G\.nuts 700 579 49 n\.a\. 314 - Guar n\.a\. 110 294 407 435 - Rice 1,600 2,460 428 n\.a\. 1,534 - Note: Dimba maize is excluded\. 1/ Based on Stage 11\. - 40 - 42\. Table 8 presents a comparison of actual crop production estimate and the projected\. The Table has been derived by multiplying yield and hectarages of different crops as given in Tables 6 and 7\. It is apparent from the Table that cotton production targets were never achieved\. Maize production also lagged behind projected estimates, but actual production during the Phase shows an increasing trend - thus showing increasing productivity\. Sorghum production in SVACP showed an increasing trend up to 1980/81 to that of maize production because of large proportion of cultivated land devoted to the crop then it dropped considerably\. 43\. Production targets of guar beans were achieved during the Phase; production of other crops such as bulrush millets, groundnuts and rice however never met expectations of the appraisal report\. Seed Multiplication 44\. The 150 ha seed multiplication farm at Makhanga was intended to complement the Agricultural Research effort to produce and release suitable cereal varieties for the Shire Valley\. Work on the farm started early in the phase with clearing, fencing and laying of irrigation canals\. Eight staff houses, office block and a workshop were constructed\. The seed multiplication project was, however, abandoned in 1980\. The future of this facility cannot be stated here as this will depend upon the Department of Agricultural Research which is currently under review\. Agricultural Research 45\. Considerable progress has been achieved under the objective of developing drought resistant varieties of maize\. Maize cultivar trials were conducted throughout :he Valley since 1978/79 season using mainly exotic hybrid varieties\. These trials resulted into limited release of three hybrids for the Valley as follows: PNR 353 for the East Bank and Western Escarpment\. PNR 95 for West Bank north of Bangula\. R201 for the Valley South of Bangula\. Table 8: SVACP - Projected and Actual Production 1978/79 1979/80 1980/81 1981/82 Caop Projected Actual Projected Actual Projected Actual Projected Actual Cotton 21,000 10,625 21,750 12,059 23,250 10,716 24,000 16,451 Maize 58,500 25,380 60,000 16,250 60,000 37,440 61,500 38,462 Rainfed rice n\.a\. 3,960 n\.a\. 599 n\.a\. na\. n\.a\. 1,919 Sorghln 1/ 13,200 7,304 13,200 13,056 14,440 18,118 14,400 12,714 Millet n\.a\. 1,278 n\.a\. 835 n\.a\. n\.ea n\. 1,148 G\.nuts (un- shelled) n\.ea\. na\. 16 n\.a\. a\.a\. n\.a\. 394 Guar beam 485 3,289 485 5,163 1,620 n\.a\. 1,620 4,000 1/ White and red sorgiun Source: Author's estimate based on Tables 6 and 7\. - 41 - In 1980/81 season, however, these hybrids were discontinued because it was observed that seed viability of these hybrids was low\. New series of cultivar trials have since started screening locally bred hybrids\. It is hoped a promising hybrid from these new trials will replace the PNR and R201 hybrids\. 46\. Other research work was done on cotton, legumes (groundnuts, guar beans and cowpeas), sorghum and millets in conjuction with national trials programmes\. As a result of these trials, a new cotton variety (Makoka 78) was released during the Phase and a new sorghum variety PN3 was also recommended for the Valley\. 47\. During the Phase, maize trials were also carried out on dimba land along the Mwanza and Shire rivers using residual moisture\. The objective of these trials was to select high yielding and stable maize cultivars\. Results from these trials are not conclusive\. Trials on phaseolus beans, sweet potatoes and vegetables were not carried out on Dimba land as originlly intended because of shortage of suitable dimba land\. The section was also involved in joint activities with Land Husbandry Section at Zunde farm\. Livestock Development and Disease Control 48\. In Phase III, Project objectives as regards livestock development centered primarily on cattle\. The proposed two cattle markets at Chimombo and Mthumba were constructed\. The five ox-training units at the new EPA centers were also built\. A number of dipping tanks were renovated and two new dipping tanks were built at Kaombe holding ground and Mthumba\. 49\. The Tsetse survey was completed in the first two years of the Project and a report is available\. Trypanosomiasis vaccination programme and a FMD vaccination programme have been carried out during the Phase\. Under Trypanosomiasis vaccination programme, 39 and 44% of all valley animals were vaccinated in 1981 and 1982 respecitvely\. In case of FMD, 79 and 78% of all cattle were vaccinated in 1980 and 1981\. 50\. The objective at appraisal was to increase the rate of cattle off take with a view to stabilizing the total herd at 60,000-65,000 which is the carrying capacity of the valley\. Table 9, however, reveals that the total herd increased and off take did not increase as envisaged at appraisal\. The following explains the failure to stabilize cattle population: (a) policy prohibiting selling or slaughtering of heifers and productive cows; and (b) restriction of cattle transfer out of the valley as control measure of Foot and Mouth Disease\. Natural Resources 51\. Introduction\. Because of duplication of activities between land husbandry and agricultural research, limited planning and coordination of relevant research between agriculture/land husbandry and crop production - 42 - and consequently, piece-meal approach of land husbandry in previous phases, it was decided to leave all project related research under the direction and supervision of the Senior Agricultural Research Officer and then create a natural resources division\. The Natural Resources Division embraced Land Husbandry, Forestry, Fisheries, Hydrology and Wildlife\. The division was to protect and utilize all available resources following appropriate land use\. 52\. Land Husbandry\. The Land Husbandry Section was expected to continue with its overall concern for the entire Valley's ecological progress and the development of programmes related to long term preservation of the valley's natural resources\. This general objective was broken down as follows: - Natural Resources Mapping - Biological control of soil erosion\. - Mapping of suitable irrigation areas\. - Planning of physical infrastructure\. (i) Natural Resources Mapping - Very little was achieved on this programme because the second Professional Officer was not recruited in the first two years of the Project, and when he was recruited, he was untrained and had no experience and therefore could not take up the detailed programme of this kind\. The first Land Husbandry Officer who had some experience was expected to deal with the forestry component because of the unavailability of a Forestry Officer and as a result, not much could be done to assist the inexperienced Land husbandry Officer\. Some of the mapping however was done\. Maps showing present services and organization by EPA were drawn\. The work of A\.R\. Stobbs, Natural Regions and Areas of Malawi Environmental Conditions and Agriculture was also drawn onto Maps of 1:50,000 scale for each EPA providing a useful reference for extension staff\. Some work was done on soil maps by EPA and current land use on few using 1977 aerial photos\. (ii) Biological Control of Soil Erosion - In addition to investigating appropriate farming systems, Zunde farm continued to demonstrate the effect of early cultivation, early planting, proper spacing and rotations on crop yields and soil structure as a method of moisture conserving cultivation practices\. Farmers and extension staff visited the farm regularly\. The effect of this demonstration has been noticed in CK5 and CK6 EPAs\. Extension staff are now running after own demonstrations in EPA centers basing on Zunde guidance\. (iii) Mapping of Suitable Irrigation Areas - This was adequately covered by the National and Shire Irrigation Study by Huntings Technical Services and a report is available\. The Land Husbandry Section assisted the study team, and the recommendations of the report are still being studied by the Government\. (iv) Planning of Physical Infrastructure - Major roads could not follow ridged crests because the Project area is valley with drainage lines cutting across it from East to West whilst main roads linking major centers run in a north-south direction\. There were some liaison between Roads Section and the Land Husbandry Section during implementation and the section planned 65 km of roads for Majete Game Reserve\. - 43 - Table 9: Cattle Numbers, Growth Rate and Offtake SVACP Description 1976 1977 1978 1979 1980 1981 Total herd 63,109 61,550 74,970 1/ 76,110 1/ 78,900 80,600 Slaughter 2,923 652 1,520 1,820 2,390 1,990 Market sales 2,124 1,940 4,150 4,963 4,660 5,000 Total offtake 2,923 2,592 5,670 6,783 7,050 6,990 % of offtake 2/ 4\.6 4\.2 7\.6 8\.9 8\.9 8\.7 Source: Project Management and Ministry of Headquarter files\. 1/ Includes cattle on private estates and Government stations\. i/ Sum of growth rate (%) and % of offtake\. 53\. Some work was done at Chididi, Lulwe and Gaga hills on the introduction of perennial crop growing\. Cashew trees, bananas and citrus were recommended\. The uptake of these tree crops by farmers was slow because of organizational problems on the part of the Project, and insufficient enthusiasm on the part of the farmers\. Overall, there has been a considerable achievement of Land Husbandry objectives\. Forestry 54\. The rapidly expanding population in previous phase with inherent demand for land, building poles and fuel led to large areas of land being open up to cultivation and settlement without any form of integrated long term planning for afforestation\. It was with this background that a forestry component was established in Phase III\. The primary goal of this forestry component was to involve local population in the planting and care of forestry plantations\. There were also research and natural woodland management activities as part of this component\. 55\. Because of late appointment of forestry staff, as a result of normal delays of the Government's appointment procedures, forestry programmes started late\. Reafforestation on escarpments was not done in Phase III\. A total of 12 ha of woodlot, however, were established at fishing landing sites using tree species suitable for smoking fish\. A total of 6 ha demonstration wood lots were also established at EPA centers\. Sixteen tree nurseries were established during Phase III with a total of 222,627 seedlings\. Only 16% of these were sold to farmers; 70% were issued to schools during National Tree Planting and 14% were left in the nurseries\. 56\. Planting of more trees in woodlots, during National Tree Planting days or as part of an agro-forestry system of production is partial approach to afferestation problem\. To overcome the defforestation problem in the valley, there is need to encourage the establishment of gazetted forestry reserves either run by the Project through the forestry component or by the District Councils\. - 44 - Wildlife 57\. The\.appraisal targets for improvement of Langwe and Majere roads, housing for staff and chalets for visitors were achieved\. Water supply was also provided at Lengwe; fencing and game ditches along the t)ark boundaries were also provided at Lengwe\. Bydrology 58* The appraisal targets for the hydrogeology section were achieved in various levels as follows: the preparation of a master plan for water development by the then Hydrologist has not be prepared, and it is, therefore, difficult to make a detailed assessment of this component\. Finances for the National and Shire Irrigation Study were provided (see Table 17) and the study was carried out by Huntings Technical Services Ltd\., and the Government is still studying recommendations of the report\. As noted in Appendix Table 5, 80% of the planned boreholes were drilled and pumps fitted\. Seventy percent of the shallow wells were completed\. Some of the planned activities such as the purchase of Gamma ray, an electric lagger and a Neutron Probe were not bought\. The proposed eight sediment sampling stations were also not established\. Reasons for the failure of some of the proposed activities are not known because there was no proper handover notes prepared by the then Hydrologist\. Fisheries 59\. Objectives for fisheries component during Phase II were in three broad categories as follows: (a) Infrastructural development; (b) Improving level of fish catches in the valley; and (c) Carrying out various research\. 60\. As noted in Table 5 in the Appendix, the infrastructural develop- ment was achieved\. Construction of roads to these new landing sites was also completed\. Fish catches statistics are presented in Table 10\. Looking at the column for actual catches, the figures are lower than before Phase III, but when the actual figures are compared with appraisal figures an Impressive achievement of appraisal targets is revealed\. 61\. Various research or investigations were to be carried out to determine unexploited fish stocks, pesticide pollution of the Shire River, and the most suitable and effective methods of fishing in the valley\. Determination of unexploited fish stocks and the study of fishing methods were never done because of the failure to recruit the Gear Development Officer\. As regards to post pollution, the Project has sent water and soil samples to Tropical Products Institute for testing\. Results for these tests are not yet available\. Table 10: Fish Catches SVACP Appraisal Actual estimates catches Actual as a Year (M\. tons) (N\. tons) % of appraisal 1976 - 3,128 1977 - 4440 1978 - 3,933 - 1979 675 3,305 490 1980 1 350 2 654 197 1981 2,025 3,249 160 Source: Project Management\. - 45 - Credit 62\. In Phase III, group credit policy was proposed for seasonal credit rather than the individual credit system which had been employed during the previous two phases\. The issue of medium credit, however, remained on an individual basis and this was mainly for fishing boats for fishermen and ploughas ridgers, ox-carts and other form of a farm implements for farmers\. Unlike Phases I and II, Phase III issued credit for leucaena development in addition to the normal crop inputs\. 63\. Table 11 presents number of farmers receiving seasonal credit by year, financial aspects of credit are outlined in Chapter 5\. In the first year of Phase III, 9,635 borrowers or 92% of all short term credit borrowers received seasonal credit as individual borrowers\. By 1981/82 season the percentage of seasonal credit borrowers receiving loan individually had dropped to 4%\. The lifting of the 10% deposit requirement in 1980/81 for all groups; lower service charge (10% for groups and 15% for individual borrowers) and, the intensification of group credit campaign were responsible for this rapid shift from individual to group credit\. Table 11: Number of Farmers Receiving Seasonal Credit Description 1978/79 1979/80 1980/81 1981/82 Number of group members 821 104 6,932 6,959 Number of individuals 9,635 8,813 1,792 253 Total number of farmers receiving credit 10,456 8,917 8,724 7,212 Source: NADD Credit Section\. 64\. Although there was a rapid shift from individual to group credit as noted above, the total number of seasonal credit borrowers during the Phase decreased with time because of declining crop production\. Credit recovery during the Phase, however, improved as compared to Phase II\. Recovery has been at or above 82% by September 30, of each year (official closing date of seasonal credit repayment)\. The intensification of a no- credit-to-defaulters policy in phase and the effect of group credit during the Phase ezplain this improved credit recovery\. 65\. As noted in Appendix Table 6, medium-term credit was extended to fishermen in the first two years of the Phase although the plan was to extend this facility to fishermen throughout the Phase\. Reasons for the discontinuation are not known and recovery figures for this credit item ar not available\. It is, however, understood that repayment was satisfactory\. - 46 - Table 6 also shows disbursement of both medium- and seasonal credit in physical quantities\. In general, appraisal targets for both short- and medium-term credit were not achieved because of the declining number of borrowers\. Evaluation and Monitoring Section 66\. Some success in the implementation of the section's programmes during Phase III was achieved in as far as collection of statistics and developing common computer programme are concerned\. Several surveys were conducted (see Text Table 12) and cover was quite good ensuring more representative data base\. As noted from the Table, there were delays in processing survey information because of lack of experienced staff\. However, in 1980/81 season with the coming of DDA staff, the section managed to pool the three past survey data, analysed it and produced a report\. This report revealed a number of socio-economic factors (such as land pressure and farmers' priorities) that influence farmer behavior in the Shire Valley\. 67\. A number of reports/working papers were also produced by the section\. some of these papers were useful in gross margin calculation; crop estimates and Annual Workplan exercises carried out by the Project management\. Information from Evaluation Section was also used in compiling this report\. Table 12: Ngabu Evaluation Section Surveys by November, 1982 Type of Survey conducted Processed Written Up Remarks 1978/79 H/Hold Comp\. / Drafted Garden / / Yield / H/Hold (Muona Rice Garden (Kasinthula Rice ( Winter / / 1979/80 H/Hold Comp\. / / Garden / Yield / Under Five Clinics Cattle Census Dipping Tank around Ngabu Area Requested by Animal Husbandry Officer - 47 - Type of Survey conducted Prcessed Written Up Remarks 1980/81 H/Hold / / Garden 1 and 2 / / Yield / / Resources / Wood Energy / Income and Expenditures with NSO Livestock Nutrition Extension Crop Storage 1981/82 B/Hold no Garden no Yield no Cotton growers follow-up survey being processed 1/ Processed and written up by NSO as part of NSSA\. 2/ Processed and written up by Wood Energy Unit\. Source: Evaluation Section, Ngabu A\.D\.D\. Infrastructural Development 68\. A summary of infrastructure achievement compared to appraisal target is given in Appendix Table 5\. the contruction of staff houses during the Phase was carried out by the Project's Construction Unit and the Ministry of Works and Supplies\. The construction programme was behind schedule during the first two years of the Project but the situation Improved somehow in later years and by the end of the Phase only the road programme remained incomplete\. The slow start of the Project in general and the construction unit in particular resulted in cost penalties as noted in Chapter 5\. Figures on the number of houses built during the Phase are incomplete, the information there suggests that 47% of the proposed houses were constructed during the Phase\. The inavailability of Chief Works Supervisor in the last tow years of the Phase as noted in Figure 2 affected the construction programme\. 69\. Of the 139 km of roads planned 111 km were either constructed or upgraded\. Five km of fisheries roads were upgraded during the Phase\. It is understood the section was, however, unable to construct roads at Lengwe Game Park as agreed at appraisal, and to complete construction of East Bank road in time because of frequent breakdown of construction equipment\. - 48 - 70\. All the proposed Public Health construction were completed; the five EPA centers were built but none of the proposed Village Training Centers were built because of other technical reasons\. In general, construction programme for other infrastructure except housing has been satisfactory\. Scheduling of construction programme between years was satisfactory\. Public Health 71\. Under Phase III, two health sub-centers (one at Dolo and the other at Kakoma) and four health posts (Kavalo, Kubalalika, Mkango and Mchacha) were constructed\. A number of houses were constructed at various places, and an administration block at Chikwawa Hospital was also renovated to a public health office\. Apart from the infrastructural work the public health component was also involved in: bilharzia control at Kasinthula and Mlolo schemes; mobile eye unit programme, and school health programme involving other vaccination against communicable diseases and health education\. The section also provided furniture and transport to the Shire Valley Tuberculosis Control Project\. Phase III involvement in health programme in the Valley was largely on infrastructural development and this has been achieved\. V\. FINANCIAL PERFORMANCE 72\. This chapter reviews the Projects' financial affairs with particular emphasis on: (a) performance in terms of comparing actual and planned expenditure, and drawing out key issues; and (b) agricultural credit, in terms of its financial management and resources\. The previous chapter provided a physical description of the Project\. The various components are now set in perspective by detailing the financial provision and expenditure\. Contribution to sources of finance as compared with those planned at appraisal are given in Table 13 below\. Table 13: Contribution to Project Funding (MK million) Source Appraisal Plan Actual Funding Amount % Amount % IDA 9\.7 85 8\.7 85 MG 1\.7 15 1\.5 15 Total 11\.4 100 10\.2 100 Source: Appraisal Report and Project Management\. Note: The difference between total planned and actual expenditure is a result of changes of exchange rates between the time of planning and implementation\. - 49 - Actual contribution to Project financing by IDA was 90% of appraisal plan because of changes in exchange rates between the U\.S\. Dollar and the Malawi Kwacha\. At appraisal, the exchange rate was MK\.91 equivalent to one U\.S\. dollar, and this declined to MK\.8 during implementation, a change of 10%\. As a result of this change, local contribution correspondingly declined to MK1\.5 m\. 73\. Table 14 presents Malawi Government contribution by year\. By the end of the Phase, local contribution was 94% of the appraisal estimate\. Table 14: Malawi Government Contribution by Year (MK '000) Appraisal Actual as a % of Year Estimate Actual Appraisal 1978/79 226 380 168 1979/80 467 465 99 1980/81 471 320 68 1981/82 462 267 58 Total 1,626 1,535 94 Source: Appraisal Report and Financial Coordinator, Ministry of Agriculture\. 74\. From this Table, it is clear that actual local contribution as a percentage of the appraisal plan has been decreasing with time\. The decrease has resulted the Project activities and salaries of local staff that were to be paid from local contribution to be paid on foreign contribution\. Consequently, this situation resulted in overstretching of various financial categories especially that for operating costs, and thus leading to overclaiming on that category\. Draw Down of the Credit 823-MAI 75\. The draw down of loan is an important aspect of the financial management of any project\. Ideally, an advance of loan will be drawn down, from which relevant project expenditures can be financed\. If this is not possible, it is desirable to draw down the funds as rapidly as possible after the expenditure is incurred in order to minimize the bridging finance required which would be met by Malawi Government\. 76\. Table 15 provides a comparison of the anticipated draw down at appraisal with actual\. A major feature of this Table is that the first draw down was 50% of the planned, indicating a slow start of the Project\. This is not surprising considering that the planned draw down in the first year of the Project assumed that all required incremental staff and equipment would be in place within the first year of the Project\. The slow start of the Project resulted in the rescheduling of a number of project activities particularly the construction of roads and staff houses\. - 50 - Table 15: Planned and Actual Expenditure (MK '000) 1978/79 1979/80 1980/81 1981/82 Total Planned IDA (including contingency) 4,128 2,294 1,927 1,468 9,817 MG (including contingency 226 467 471 462 1,626 Sub-Total 4,354 2,761 2,398 1,930 11,443 Actual IDA 2,155 2,843 1,600 1,857 8,699 1/ MG 380 465 320 267 1,535 1/ Sub-Total 2,535 3,308 1,920 2,124 10,234 1/ I/ Includes balance to be spent in 1983; breakdown of the balance is as follows: IDA 243,000; MG 103,000; and total 346,000\. Source: Appraisal Report pages 25 and 45\. Financial Coordinator, Ministry of Agriculture\. 77\. Delay in the construction programme led to cost penalties as noted in Table 16 below\. Table 16: Average Cost by Year DL 3 EL 2 Description Houses Houses Borehole Health Post 1978 n\.a\. n\.a\. 4,200 n\.a\. 1979 n\.a\. 4,500 4,500 n\.a\. 1980 n\.a\. 9,000 5,400 n\.a\. 1981 30,000 10,000 9,700 15,600 1982 30,500 10,300 n\.a\. n\.a\. Source: Project Management\. The cost of a borehole or an EL2 house doubled during the Phase\. This situation partly explains the failure to build all houses agreed at appraisal\. 78\. Table 17 presents total expenditure by section excluding contingencies\. Overall, actual expenditure during the Phase was within the appraisal provision\. There was, howevsr, overexpenditure between sections because of internal reallocation of project finance\. - 51 - Table 17: Total Expenditure by Section (MK '000) Actual as a % of Component Appraisal Actual Appraisal PMs Office 941 1,712 182 Finance 304 1,276 420 Evaluation 274 202 66 Extension 993 921 93 Training 374 264 Research 714 389 54 Seed Multiplication 774 54 7 Credit Administration 331 U\.a\. Animal Husbandry 651 438 67 Land Husbandry 232 188 81 Fisheries 208 152 73 Forestry 332 76 23 Wildlife 123 132 107 Hydrology 465 266 57 Irrigation Studies 432 655 152 Health 363 148 41 Building Maintenance 599 n\.a\. Roads 1,025 864 84 Mechanical Maintenance 127 468 369 Total 9,262 9,888 1/ 89 1/ This total is not the summation of the column because of the missing data on credit and maintenance\. Source: Appraisal Report and Project Management\. 79\. Table 18 shows withdrawal of the loan by category\. Inter- category comparison of expenditure shows differences and this must have been the result of internal reallocations of funds\. Table 18: Withdrawal of the Loan by Category (MK '000) Amount of the Final Category Credit Allocated Draw down 1\. Vehicles & Equipment 1,507 1,265 2\. Civil Works 1,771 1,485 3\. Technical Assistance Staff 300 519 4\. Operating Costs 5,251 6,310 5\. Consultants 432 655 6\. Unallocated 2,181 - Total 11,442 10,234 Source: SVACP Credit Agreement document, and Project Management\. - 52 - satisfactory\. Financial information was kept in a systematic manner and was easily retrieved, and financial audits have been carried out annually\. The following are the amounts that have been submitted to Treasury for onward transmission to Donors: Development Fund - Accounts at 30/9/1979 at 30/9/1980 at 30/9/1981 at 30/9/1982 Credit Fund - Accounts at 30/9/1979 " " at 30/9/1980 9 " at 30/9/1981 at 30/9/1982 Credit 80\. The provision of credit facilities to farmers has always been a central feature of project activities, although the scale and nature of credit has changed over the years since Phase I\. This section is concerned primarily with financial aspects of credit, while para 61 deals with physical aspects and broader issues\. 810 The background to credit provision to smallholders in Malawi has been set out in GITEC, 1980, a study commissioned by the Ministry of Agriculture\. It is proposed here, therefor, to deal only briefly with general background\. 82\. Credit may be either seasonal, granted to individuals or groups, or medium-term, granted to individuals\. National policy emphasizes the desirability of farmer clubs for seasonal credit\. The main benefits of the group/club are considered to be reduced administrative costs and Improved recovery rates\. 83\. Currently, an interest fee of 15% on seasonal credit issues is payable by individuals and non-self accounting groups, and 102 by self accounting groups\. A ten percent annum interest is payable on medium-term loans\. 84\. Loan\. The value of seasonal loans issues within SVACP since 1968/69 is shown in Table 19\. Details of medium-term loans issues are not available\. The Table also indicates the number of borrowers and credit recovery\. Table 19: Value of Seasonal Credit Number of Amount Loaned Recovery Year Borrowers (MK '000) Rate (Z) Ii0771 17 132 96 1971/72 5,4 218 87 1972/73 6,760 474 63 1973/74 10,396 294 80 1974/75 15,320 335 64 1975/76 24,031 46 4 1976/ 7 n\.a\. n\.a\. n\.a\. 19777 8 n\.a\. n\.a\. nba\. 1 97 9 10,456 208 88 1979/80 8,917 228 82 1980/81 8,724 285 82 1981/82 7,212 178 92 Source: SVACP Appraisal Report Working Papers\. - 53 - One main feature emerging from the Table is: the steady growth in seasonal loans advanced until 1975/76\. In 1978/79, seasonal loans shows a fall back to 1971/72 season reflecting a decline in cotton production as noted in para 39\. The Credit Fund 85\. Separate financial accounts have been maintained in respect of credit finance from the beginning of the Phase\. Table 20 presents Credit Fund Trading Profit and Loss Account from 1978 to 1982\. Main features emerging from this Table are as follows: (a) Credit sales have been declining with time reflecting a general decline of credit uptake; (b) The operational costs have been increasing with time; (c) A decrease of net profits from MK160,623 in 1978 to HK20,308 in 1981 and subsequently to a net loss of MK4,907 in 1982\. Table 20: Trading Profit and Loss Account as at 30/9 of Each Year Description 1978 1979 1980 1981 1982 Sales 886,691 222,580 257,546 316,038 22?,638 Purchases 1/ 65,132 1?,012 226,311 277,494 183,240 Gross Profit 231,806 42,525 57,233 59,785 46,212 Other Incomes 2/ 48,286 80,434 70,116 60,082 65,780 Salaries and Wages 35,233 70,256 59,025 58,140 75,288 Plant and Vehicles 7,885 22,697 24,422 17,794 22,102 Other Costs 12,292 27,177 22,545 23,625 19,519 Net Profit/loss 160,623 2,829 21,357 20,308 -4,907 1/ Purchase of all pesticides, fertilizer, seeds, sprayers and other farm equipment\. 2/ Includes interest on daily Bank balance and interest on overdue accounts\. Source: Extracted from Credit Fund Accounts, 1978-1982, Ngabu\. Loan Transaction Costs 86\. According to GITEC, 1980, at face value, SVACP incurred the second highest loan transaction costs of the four main agricultural projects\. Such comparisons are of limited value, however, in view of the changing nature and content of credit over the years* However, a brief remark on credit administration should be made as follows: The growth in group borrowing does not appear to have brought about tangible reduction in credit administration costs, as relatively few groups, if any, achieve self accounting status\. In view of the above remark, considering that credit - 54 - uptake is decreasing because of declining crop production, and since a considerable amount of staff input in respect of the credit programme is undertaken not only by credit staff, but also by extension staff, it is suggested that a comprehensive review of staffing for credit may be appropriate, together with projections of credit fund to ascertain if credit fund can genuinely be self sustaining\. VI\. IMPACT Introduction 87\. Project impact is mainly achieved through increased agricultural production as a result of project activities\. SVACP aimed at increasing offtake of livestock, production of crops such as cotton, maize, sorghum, groundnuts, millet, rice and guar beans, and also increasing fish catches\. According to the Appraisal Report, incremental crop production would be based upon the adoption by smallholders of a basic package of practices designed both to reduce drought risks and increase production (see Appraisal Report pages 28-31)\. 88\. The Project's Monitoring and Evaluation Section, however, did not identify the "adopting farmers" as defined at appraisal and monitor their progress in crop production\. This exercise could not be done because as stated already, no new suitable technology ever became available for farmers to take up\. Phase III continued to use the previous non-drought resistant varieties\. Consequently, it is not easy to determine to what extent the first three project objectives mentioned in para 18 were achieved\. As a result of this shortcoming, the crop production figures uced in this report have been derived using a method different from the one employed at appraisal\. This report merely looks at crop production increments from the base year without having to distinguish between adopting and non-adopting farmers before at such figures\. Incremental Crop Production 89\. Table 21 compares actual and projected incremental agricultural production during Phase III\. Table 21: SVACP Incremental Production (mt) Description 1977/78 1978/79 1979/80 1980/81 1981/82 Cotton Rectarages (ha) 25,000 17,000 18,990 18,880 19,354 With project production 15,000 10,625 12,059 10,716 16,451 Without project production 10,000 6,800 7,596 7,520 7,742 Incremental production 5,000 3,825 4,463 3,196 8,709 Phase III incremental - (1,175) (537) (1,804) 3,709 Appraisal estimate - 80 520 1,080 1,200 - 55 - Description 1977/78 1978/79 1979/80 1980/81 1981/82 Maize Hectarage 36,000 27,360 27,250 28,580 28,490 With project production 34,634 25,380 16,250 37,440 38,462 Without project prod\. 21,600 16,416 16,350 17,148 17,094 Incremental production 13,034 8,964 100 20,292 21,368 Phase III incremental - (4,070) (12,934) \.,258 8,334 Appraisal estimate - 216 1,100 2,675 5,310 Rice (rainfed) Rectarage 2,000 1,500 1,400 1,264 1,125 With project production 2,673 3,960 599 n\.a\. 1,919 Without project prod\. 2,000 1,500 1,400 1,264 1,125 Incremental production 673 2,460 (801) n\.a\. 792 Phase III incremental - 1,787 (128) n\.a\. 119 Appraisal estimate - 270 575 1,210 1,860 Sorghum Hectarage 6,000 18,680 24,000 28,310 17,90? With project produdction 7,500 7,304 13,056 18,118 12,714 Without project prod\. 3,500 11,208 14,400 16,986 10,744 Incremental production 3,900 (3,904) (1,344) 1,132 1,970 Phase III incremental prod\. - (4) (5,244) (2,768) (1,930) Appraisal estimate - 863 665 803 1,11? Millets Hectarage 34,970 5,000 5,400 5,488 5,57? With production 6,994 1,278 835 n\.a\. 1,14? Without project prod\. 5,455 3,750 4,050 4,116 4,18? Incremental production 1,539 (2,472) (3,215) n\.a\. (3,03?) Phase III Incremental prod\. - (4,011) (4,754) n\.a\. (4,57?) Appraisal estimate - 55 250 585 n\.a\. Groundnuts Rectarage 1,455 500 400 827 1,254 With project production\. 582 69 16 n\.a\. 394 Without project prod\. 290 100 80 165 251 Incremental production 292 (31) (64) - 143 Phase III incremental prod\. - (323) (356) - (149) Appraisal estimate - - 54 81 117 Guar Beans Hectarage 5,000 3,990 5,850 6,780 9,197 With project production 3,136 3,289 5,163 4,150 4,000 Without project prod\. 500 399 583 678 920 Incremental production 2,636 2,890 4,578 3,473 3,080 Phase III incremental prod\. - 254 1,942 837 444 Appraisal estimate - 485 425 1,620 1,620 - 56 - Actual Phase III incremental production for all crops was lower than what was anticipated at appraisal\. In fact, Phase III incremental crop production for cotton, sorghum, millet and groundnuts has been negative throughout the Phase\. Reasons for the crop production failure are subdivided as follows: those affecting cropped area and those affecting yields\. These problems have been discussed in paras\. 38 to 43\. 90\. Factors such as low producer prices, low plant population densities and poor crop husbandry practices are common throughout the country and even in more successful projects, such as Lilongwe Rural Development Project\. These factors, therefore, do not serve to explain the real problem of crop production in the valley\. The availability of off-farm employment at SUCOMA as an explanation of low crop production is difficult to substantiate because SUCOMA has been there even before Phase I\. The principal factor affecting crop production in the valley is unreliable rainfall and its poor distribution\. Within a four year period, for instance, Ngabu Station has had an annual minimum rainfall of 550 mm and a maximum of 1,174 mm supporting the unreliability of rainfall in the valley\. 91\. The problem of drought was noted in the 1976 Crop Review Report; Phase III Completion Report and Phase III Project proposals\. In the Phase III proposals the drought risk as it affects crop production was given priority\. As a starting point to minimize this drought risk, a smallholder irrigation component was proposed at an estimated cost of MK2\.7 m\. It is noted with concern that this proposal was omitted at appraisal\. Moisture conserving cultivation practices were instead recommended and an immediate solution to the drought problem\. The moisture conserving cultivation was based on box ridging\. As a result, it was difficult to implement in an area where only 5% of farmers ridge their land\. In short, Phase III the Project was aware of the drought risk in the area, but did not address itself directly to the problem\. Livestock Development 92\. Cattle population in SVACP was 80,600 by the end of the Phase\. The objective of stabilizing cattle population at about 65,000 was not achieved\. Annual offtake did not increase as envisaged at appraisal because as already noted in para 49, only males and non-productive could be sold or slaughtered, and there was a restriction of cattle transfers out of the valley as a measure to control FMD spread\. 93\. As regards disease control, vaccinations have been carried out for the FMD and Trypanosomiasis programme\. Cattle dipping continued during the Phase\. The impact of disease control programme is noted from the high annual cattle population increase in an area where cattle diseases are common\. Agricultural Credit 94\. Overall, credit disbursement in Phase III was generally lower than in Phase II and when compared with appraisal targets, the achievements were generally low\. The number of borrowers in Phase III were also lower than in Phase II because of toughening of credit policy against defaulters\. - 57 - Group credit almost replaced individual credit during the Phase as a result of intensified credit campagins and the lifting of the 10% deposit requirements in 1980/81 for all groups\. In Phase Ill, credit recovery improved considerably as compared to Phase II recovery rates\. Impact of credit component during the Phase has been on the reorganization of credit activities and therefore, setting a new basis for future agricultural credit in the Shire Valley\. Direct impact of credit activities to either crop production or fisheries has not been noted\. Extension and Training 95\. By the beginning of the Phase most of the grass root staff were non-established and were Development Assistants by grade (staff with no formal training in agriculture)\. The situation did not change very much during the Phase\. Individual visits and meetings with farmers were principal methods of reaching farmers\. Training component agumented extension activities by organizing both staff and farmer courses at RTC and DTCs\. Training programmes for the RTC ere drawn up annually by the training officer through consultations with extension staff and other subject matter specialists Extension and training components did not have proven technology to impart to farmers, and as a result, the impact of these two sections has been minimal\. Agricultural Research 96\. Efforts to identify cereal varieties suitable for the valley started in Phase III\. The PNR maize varieties, which looked promising early in the Phase, were discontinued because it was noted that seed viability was low\. Drought resistant sorghum variety still looks promising and furhter trials are being made\. To date, no suitable cereal variety has been recommended to extension staff\. Consequently, the extension staff do not have proven technology (that would minimize drought risk) to impart to farmers\. Economic and Social Impact 97\. The weakness of data in many areas makes it impossible to appraise the overall economic and social impact of SVACP\. Because of data limitation, no attempt has been made to use such indicators as business licences and resource ownership\. Evidence on income from sales to ADMARC, cattle offtake and fish catches show a marked downturn throughout the Phase\. 98\. Actual Economic Rate of Return (IRR) of 15%, however, has been estimated based on the actual incremental crop production as the project benefits and using project costs that are believed to have had a bearing on crop production\. Details of the IRR calculation are summarized in Chapter 5\. 99\. The population in some parts of the project area has grown significantly faster than elsewhere from 1977 as people have moved into new areas (3% average growth rate)\. Population growth has been rapid in Mwanza Hills, Mwanza Valley and East Bank (EPA CK/4 especially) as these were areas of relatively low proportion of arable land under cultivation before Phase III\. - 58 - 100\. The development of water supplies and health services has substantially raised the level of social service provision at the rural level\. Project staff assisted at "Under-Five Clinics" and taught health subjects to women groups and primary schools\. The Project also assisted in Tuberculosis Control Project and Vaccination campagins of communicable diseases\. The Project was also involved in Bilharzia control programme at Kasinthula and Mlolo agricultural schemes\. All this contributed to the improvements in health in the Project area\. 101\. By financing an irrigation study and preparing a water resource plan in the valley, Phase III set a basis for future irrigation development\. The financing of Tsetse study and the initiation of MFD and Trypanosomiasis vaccination programme also set a strong basis for the livestock industry in the valley\. 102\. Phase III has continued to provide employment opportunities to the people\. The Project has also contributed to local institutional development through the promotion of group credit\. VII\. INSTITUTIONAL PERFORMANCE 103\. Institutional performance is reviewed in three broad categories: performance of the Project itself; Ministry of Agriculture and the donor agency\. The performance of institutions within and related to the project have been touched upon in varying degrees of depth in earlier chapters\. Each issue discussed has, in a sense, been a comment upon institutional performance\. This chapter, however, brings all relevant points form those chapters together in an institutional context, discusses them by reference to individual institutions and adds some commentary\. Project Performance 104\. Management organization\. The organizational structure effected in Phase II continued in Phase III with slight modifications\. The overall implementation of the Project was the responsibility of the then Ministry of Agriculture and Natural Resources\. The Programme Manager was responsible to the Principal Secretary through the Chief Agricultural Development Officer\. As noted in para 25, the PM1's office was responsible for four operational divisions and Ancillary Service Division\. Each division was headed by a division chief who was fairly senior to command executive power except Natural Resources Division, which was headed by a Professional Officer (PO)\. Project components were headed by section heads at PO/CTO grade\. There was high turnover of staff in key posts as noted in Figure 2\. There have been three Programme Mangers in four years; fou: Evaluation Officers and three Financial Controllers\. Management meetings were organized monthly under the chairmanship of the Programme Manager and these meeting assisted in the running of the Project\. Finance Section 105\. As noted in Chapter 5, financial control in Phase III was adequate; expenditure kept pace with what wats anticipated at appraisal\. Actual draw down of the loan was constantly lower than anticipated draw down especially in the first two years as a result of a slow start of the - 59 - Project, but this picked up well in later years of the Phase\. Malawi Government contribution fell short of appraisal estimates especially in the last two years of the Phase\. This resulted in over-stretching of the development funds and consequently over-claiming in some of the categories followed\. The high turnover of Financial Controllers during the Phase did not affect the activities in the finance section because the accounting system was already in place\. Evaluation and Reporting 106\. A number of surveys were conducted during the Phase but not all this data was written up, let alone processed\. The few papers that were produced have been useful in gross margin exercises, crop estimates and annual work plan for the Project\. The post of Senior Economist for the section as agreed t appraisal was never created\. This is noted with concern because such experienced person would have enough executive power and experience to coordinate activities of the section with other divisions and sections and also be able to design monitoring procedures for all activities in the Project\. 107\. Reporting was done monthly and quarterly following formats design by Ministry of Agriculture headquarters\. Many quarterly reports were not produced in time\. Malawi Government Performance 1\.08 Performance of the Government during Phase III was satisfactory\. Sixteeen percent of the non-established staff were taken on the established warrant during Phase III\. Government introduced Annual Workplans and Budgets in the Project in 1979 with a view to assisting project management and implementation\. Local costs contribution to the Project funding, though lower than expected, was a considerable achievement if seen in th' context of the international economic situation of the time\. In fact, when cost is imputed on all assets developed by Government in the Project, the local contribution to Project funding is higher than 67%\. Donor Agency Participation 109\. The involvement of the donor agency is reviewed from two points of view: (a) The ability of the appraisal document to differentiate between project activities and objectives; (b) Supervision Missions during project implementation\. 110\. There is clear differentiation between project activities and overall project objectives in the appraisal report\. As a result of this, it has been easy to determine what inputs and outputs were required during Phase III and consequently, what impact was anticipated\. As regards to supervision missions, there were four supervision missions during the Phase\. Implementation weaknesses or delays were always pointed out in round-up meetings\. The supervision missions were flexible and prepared to accommodate changes in emphasis or implementation schedule as evidenced in the discontinuation of the seed multiplication component\. - 60 - VIII\. ECONOMIC BENEFITS1/ 111\. In 1982/83 season, annual incremental crop production attributable to the Project was valued at MK2\.75 m based on the ectual farm gate prices which are based on export parity prices\. Sorghum, millet and leucaena have been excluded in the benefits for economic analysis because of lack of actual information from which to calculate farm gate values\. 112\. In addition to the quantifiable benefits, the population of the valley has benefited form improved potable watar supplies, health facilities, roads and future firewood supply\. The Projqct has also promoted future irrigation development by financing an irrigation study (report available)\. 113\. The overall economic rate of return (IRR) of the Project over 25 years is 14\.92%\. The economic analysis, like at appraisal, project and incremental farmers costs (crop input costs) were included to the extent they contribute to development of quantifiable benefits\. Costs of extension, training, credit administration, seed multiplication and land husbandry have been included\. Some 80% of research costs have been included as these are attributable to activities with a direct impact on present crop production while at least 20% represents an investment for valley development\. Two thirds of forestry costs have been included, as these are estimated to have had an impact on agricultural production by reducing erosion and preventing excessive siltation; the balance of the forestry costs are excluded as they are directly related to fuelwood production the benefits of which have not been quantified\. Half the cost of hydrology and water supply component have been included as they are related to crop production, since the village boreholes are used to supply water for crop spraying and livestock; the other half of the costs are directed towards potable water supply for human consumption\. The costs of irrigation studies, fisheries, livestock, wildlife and Foot and Mouth Disease have been excluded\. Some 80% of the road construction and mainte- nance costs have been included in the economic analysis because they directly support the development of agriculture, livestock and fisheries; the remainder have been attributed to roads for public use, the benefits of which have not been quantified\. Costs of building and mechanical maintenance and administrative services (management, evaluation and finance components) have been included at 90% of their financial costs, since the remaining 10% covers overhead costs which are used in administering the non-quantifiable aspects of the Project\. 114\. The crop production benefits during Phase III have adversely been affected by: the inavailability of drought resistant varieties, drought and the failure to adopt the T&V system of extension\. As a result of this, the actual IRR is lower than what was anticipated at appraisal\. 1/ The economic analysis was revised in 1985 by Malawi Government staff and the revised analysis is at Appendix 1\. - 61 - Table 22: IRR for SVACP Net Year Costs Benefits Benefit DSCPL 1 1,736 -409 -2,145 -1,866\.5 2 1,619 -1,072 -2,691 -2,037\.581 3 2,058 -152 -2,210 -1,456\.11 4 2,324 2,622 298 170\.85145 5 1,926 2,753 827 412\.58034 6 1,926 5,661 3,735 1621\.4152 7 1,926 3,073 1,147 433\.279 8 1,926 3,097 1,171 384\.91224 9 1,926 3,097 1,171 334\.93638 10 1,926 3,097 1,171 291\.44924 11 1,926 3,097 1,171 253\.60834 12 1,926 3,097 1,171 220\.68059 13 1,926 3,097 1,171 192\.02808 14 1,926 3,097 1,171 167\.09573 15 1,926 3,097 1,171 145\.40052 16 1,926 3,097 1,171 126\.52215 17 1,926 3,097 1,171 110\.09489 18 1,926 3,097 1,171 95\.800496 19 1,926 3,097 1,171 83\.362046 20 1,926 3,097 1,171 72\.538566 21 1,926 3,097 1,171 63\.120375 22 1,926 3,097 1,171 54\.925014 23 1,926 3,097 1,171 47\.793714 24 1,926 3,097 1,171 41\.58832 25 1,926 3,097 1,171 36\.18861? NPV - -0\.019108 DSF = 15% Table 23: Economic Costs (MK '000) Component 1979 1980 1981 1982 1983 Management 156 126 156 741 741 Administration 151 129 107 80 80 Evaluation 43 45 54 35 35 Finance 94 80 192 154 154 Forestry 0\.6 11 23 16 16 Health 22 52 42 - - Water Resources 41 25 58 84 - Extension 215 212 195 242 242 Land Husbandry 44 48 55 49 49 Animal Husbandry 86 77 87 88 88 Training 74 77 60 40 40 Research 91 86 92 36 36 Construction 232 218 277 314 - Building Maintenance 224 155 201 171 171 Mechanical Maintenance 74 52 182 91 91 Crop Inputs 189 226 277 183 183 Total 1,736 1,619 2,058 2,324 1,926 - 62 - Table 24: Value of Incremental Production (MK '000) Year Cotton Maize Rice Groundnuts Guar Beans Total 1 (447) (273) 354 (79) 36 (409) 2 (339) (905) (28) (80) 280 (1,072) 3 (823) 537 - - 134 (152) 4 1,873 683 31 (33) 68 2,622 5 2,003 683 31 (32) 68 2,753 6 2,133 708 31 (32) 68 5,661 7 2,281 725 31 (32) 68 3,073 8 2,281 750 31 (33) 68 3,097 9 2,281 750 31 (33) 68 3,097 10 2,281 750 31 (33) 68 3,097 11 2,281 750 31 (33) 68 3,097 12 2,281 750 31 (33) 68 3,097 13 2,281 750 31 (33) 68 3,097 14 2,281 750 31 (33) 68 3,097 15 2,281 750 31 (33) 68 3,097 16 2,281 750 31 (33) 68 3,097 17 2,281 750 31 (33) 68 3,097 18 2,281 750 31 (33) 68 3,097 19 2,281 750 31 (33) 68 3,097 20 2,281 750 31 (33) 68 3,097 21 2,281 750 31 (33) 68 3,097 22 2,281 750 31 (33) 68 3,097 23 2,281 750 31 (33) 68 3,097 24 2,281 750 31 (33) 68 3,097 25 2,281 750 31 (33) 68 3,097 Table 25: Economic Far, Gate Values Crop 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988---2000 Cotton 380 445 456 505 540 575 615 615 615 615 615 Maize 67 70 74 82 82 85 87 90 90 90 90 Rice 198 220 240 260 264 264 264 264 264 264 264 G\.nuts 244 224 220 220 215 215 215 215 215 215 215 Guar 140 144 160 152 1/ 152 1/152 1/152 1/152 1/152 1/152 1/ 1521/ I/ Average of years 1980 and 1981\. - 63 - Table 26: SVACP Incremental Production (metric tons) Year Cotton Maize Rice Sorghum Millet Groundnuts Guar 1 (1,175) (4,070) 1,787 (4) (4,754) (356) 254 2 (537) (12,934) (128) (5,244) (4,754) (356) 1,942 3 (1,804) 7,258 - (2,768) - - 837 4 3,709 8,334 119 (1,930) (4,572) (149) 444 5 3,709 8,334 119 (1,930) (4,572) (149) 444 6 3,709 8,334 119 (1,930) (4,572) (149) 444 7 3,709 8,334 119 (1,930) (4,572) (149) 444 8 3,709 8,334 119 (1,930) (4,572) (149) 444 9 3,709 8,334 119 (1,930) (4,572) (149) 444 10 3,709 8,334 119 (1,930) (4,572) (149) 444 11 3,709 8,334 119 (1,930) (4,572) (149) 444 12 3,709 8,334 119 (1,930) (4,572) (149) 444 13 3,709 8,334 119 (1,930) (4,572) (149) 444 14 3,709 8,334 119 (1,930) (4,572) (149) 444 15 3,709 8,334 119 (1,930) (4,572) (149) 444 16 3,709 \. 334 119 (1,930) (4,572) (149) 444 17 3,709 8,334 119 (1,930) (4,572) (149) 444 18 3,709 8,334 119 (1,930) (4,572) (149) 444 19 3,709 8,334 119 (1,930) (4,572) (149) 444 20 3,709 8,334 119 (1,930) (4,572) (149) 444 21 3,709 8,334 119 (1,930) (4,572) (149) 444 22 3,709 8,334 119 (1,930) (4,572) (149) 444 23 3,709 8,334 119 (1,930) (4,572) (149) 444 24 3,709 8,334 119 (1,930) (4,572) (149) 444 25 3,709 8,334 119 (1,930) (4,572) (149) 444 IX\. DISCUSSION AND CONCLUSION 115\. This Chapter brings together the previous key issues from Chapters 4 to 7 to provide an overall discussion of SVACP\. Discussion in this Chapter is presented for the following components: (a) Project activities and overall implementation\. (b) Financial performance\. (c) Project impact\. Repetition of previous comments is inevitable but serves to emphasize the points already made\. Project Activities and Implementation 116\. Phase III started on sche!ule in April 1978, with a retrospective financing\. However, the Phase started at a slow pace because incremental equipment and staff were not yet in place\. As a matter of fact, by the beginning of the Phase, tender procedures for Phase III vehicles and equipment had not yet been done, and posts for incremental staff were not - 64 - yet created\. As a result of this, a number of Project activities such as: construction of roads and staff houses took time to complete\. The slow start resulted in cost penalties due to inflation\. It is not known, precisely to what extent the slow start has affected the overall Project achievement; it is, however, considered that the effect is considerable\. In view of this, it is recommended for future phases to have year zero phases to allow procurement and recruitment of staff\. 117\. Generally, however, specific activities which were expected to be provided in Phase III as noted in para 19 have been achieved\. The five new EPA centers and construction of additional cattle markets and dipping tanks was done\. The Natural Resources Division was expanded as planned and the ground water survey and development has generally been implemented\. Project management has generally implemented the activities which were agreed at appraisal\. 118\. The T&V system never took off the ground because of the following reasons: (a) By the beginning of Phase III, few senior staff at the Project as well as at Ministry Headquarters, if any, were familiar with T&V system, and there was no plan in the Project plan at least to allow Project staff to acquire that knowledge\. (b) Over 60% of the grass root staff of extension section were non-established with very little knowledge of agriculture nd it would be difficult to implement this new method through such staff; and (c) As already noted in Chapter 4, there was no proven technology both from research in form of drought resistant varieties, and from land husbandry in form of moisture conserving cultivation practices to impart to farmers\. Financial Performance 119\. Financial performance during Phase III was satisfactory\. The high turnover of staff in the section appear not to have affected the activities of the section because proper accounting system was established early in the Phase\. Credit draw down was generally within appraisal plan\. Annual audit reports were always prepared but not as timely as the Bank requires because of various reasons\. Project Impact 120\. Phase III as a consolidation phase was aimed primarily on increased agricultural production\. The Project activities proposed and carried out in Phase III did not address sufficiently well to the drought problem in the valley\. The moisture conserving cultivation technique as a solution involves, among other things, deep ploughing and box ridging\. Deep ploughing in the Shire Valley where the soils are dry and of clay type is difficult especially when a hand hoe is used\. Box ridging in an area where only 5% of farmers ridge their land is impossible to implement\. Even - 65 - if deep ploughing was easy and ridging was common, the technique would not be taken up quickly enough to give the anticipated impact because it would take sometime to teach the extension staff\. 121\. The agricultural reearch component devoted its effort and resources to developing drought resistant varieties suitable for the valley\. A number of foreign varieties were screened in the valley with a view of identifying suitable varieties\. By the end of the Phase, there was no suitable varieties recommended and as a result, the extension staff did not have suitable package to recommend to farmers\. Under research, releasing a crop variety and even screening a number of varieties in order to pick out the appropriate ce takes a number of years\. It is surprising that Phase III planning propo-ad that the development of the variety, recommendation to farmers and the impact to be realized would happen simultaneously\. 122\. The cattle disease control programme made considerable impact as evidenced from the 5% annual cattle population increase\. Cattle offtake, however, has not increased as expected because of lack of congruency between what was planned and Government policy as regards cattle marketing\. This was an oversight in the planning\. 123\. The new extension system recommended in the appraisal report for the valley was developed in Asia where the culture of the people and agriculture system are different from those in the Shire Valley\. The method has not yet been tried out or modified to suit local conditions, therefore, even if the method was implemented, it would not be effective\. Conclusions 124\. Conclusions for Phase III are as follows: 1\. Project inputs such as incremental staff, equipment and required funding were successfully delivered; 2\. The Project outputs such as water development, increased public health facilities, and establishment of new EPA centers, have been achieved considerably; 3\. The anticipated project impact in crop production and livestock development has not been achieved because the Project outputs/activities were insufficient to deal with the drought problems in the valley\. -\. И" � � � � � г�, � �� 1 � � � - 67 - Appendix I Page 1 of 6 REVISED ECQfiOMIC ANALYSIS Introduction 1\. This paper presents a revised economic analysis of the Shire Valley Agricultural Consolidation Project which was financed by the World Bank between 1978/79 and 1981/82 as presented in the Project Completion Report produced by the Planning Division, MOA, in October 1983\. A number of questions have been raised by the World Bank regarding the assumptions underlying the first analysis and since no documentation existed It has been found necessary to re-do the analysis and incorporate the underlying assumptions\. No effort has been made in this paper to include details of project implementation and social impact as these are adequately covered by the Project Completion Report# The Analytical Approach 2\. In order to determine the effects of project investment, an attempt has been made to identify costs and benefits between "with project" and "without project" situations\. The difference between these two situations represents net incremental benefits arising out of project activities* The economic rate of return (ERR) has been calculated using the net incremental benefits for 20 years, the expected life of the project\. The costs and benefits involved in the calculation of ERR are described below in turn\. 3\. Costs\. The cost figures for the first four years of the project are derived om actual expenditures, taking cognizance of the modifica- tions on page 36 of the Staff Appraisal Report\. These cost figures have been projected to Year 8 at at 5% annual increase, From Year 8 to Year 20 al costs are assumed to remain constant\. Other assumptions made are as follows: (a) Vehicles will be replaced every 5 years; (b) Equipment will be replaced every 10 years; and (c) Fifteen percent of the total expenditure has been assumed to represent the "without project" expenditure\. This level of expenditure, which was required to maintain a minimum of services to the farmers, has been deducted to come up with incremental expenditure* 4\. All capital and operating costs presented in Table I are economic costs since duties and taxes have been removed\. (The Government purchases capital items duty free; vehicle maintenance and running costs may have taxed elements, e\.g\., fuel and certain spare parts\. An adjustment has been made for this by deducting 20% from the operating costs)* - 68 - Appendix 1 Page 2 of 6 Table 1: Shire Valle Costs (MK '000) Capital Operating Total 85% Year Costs Costs Costs (1) (2) 1 1,736 1,476 2 1,619 1,376 3 2,058 1,749 4 2,324 1,975 5 278 1,459 1,737 1,476 6 159 1,532 1,691 1,437 7 51 1,609 1,660 1,411 8 19 1,689 1,708 1,452 9-20 1,708 1,452 Notes: (1) It has not been possible to separate actual total costs into actual capital and operating costs for the first four years\. (2) Eighty-five percent represents project incremental costs, after deducting 152 need to maintain a minimum of services for a "without project" situation\. 5\. Benefits\. Project benefits included in the analysis have been derived from incremental production of crops in the consolidation phase\. The crops involved are cotton, maise, rice, groundnuts, sorghum, millet and guar beans\. Actual incremental production figures for the first four years of the project have been used\. hrese have arrived at by deducting crop production "without project" from observed production figures "with project"\. To obtain the "without project" figures 1976/77 production figures have been taken to represent a base situation\. Crop production has then been assumed to increase at 32 per annum (i\.e\., at the same rate as that of population growth) in the "without project" situation\.The incre- mental production figures for the first four years of the project life are shown in Table 2\. - 69 - 696 &Pedix1I Table 2: Shire Valley Incremental Production (replaces Table 21) 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 Cotton: Incremental Production Area (ha) 17,000 18,990 18,800 19,354 Production (with project) 10,625 12,059 10,716 16,451 Production (without project) 9,500 9,785 10,079 10,380 10,692 11,013 Incremental production 546 1,679 24 5,438 Appraisal estimate (incremental) 80 520 1,080 1,200 Maize: Incremental Production Area (ha) 27,360 27,250 28,580 28,490 Production (with project) 25,380 16,250 37,440 38,462 Production (without project) 28,400 29,252 30,130 31,033 31,964 32,923 Incremental production (4,750) (14,783) 5,476 5,539 Appraisal estimate (incremental) 216 1,100 2,675 5,310 Rice: Incremental Production Area (ha) 1,500 1,400 1,264 1,127 Production (with project) 3,960 599 1,688 1,919 Production (without project) 700 721 743 765 788 811 Incremental production 3,217 (166) 900 1,108 Appraisal estimate (incremental) 270 575 1,200 1,860 Groundnuts: Incremental Production Area (ha) 500 400 827 1,254 Production (with project) 69 16 44 394 Production (without project) 880 906 933 961 990 1,020 Incremental production (864) (945) (946) (626) Appraisal estimate (incremental) 54 81 117 Sorghum: Incremental Production Area (ha) 18,680 24,000 28,310 17,907 Production (with project) 7,304 13,056 18,118 12,714 Production (without project) 10,200 10,506 10,821 11,145 11,480 11,825 Incremental production (3,517) 1,911 6,638 889 Appraisal estimate (incremental) 863 665 803 1,116 Mllet: Incremental Production Area (ha) 5,000 5,400 5,488 5,575 Production (with project) 1,278 835 1,375 1,148 Production (without project) 1,200 1,236 1,273 1,311 1,350 1,391 Incremental production (3) (476) 25 (243) Appraisal estimate (incremental) 55 250 585 n\.a\. Ouar Beans: Incremental Production Area (ha) 3,990 5,850 6,780 9,197 Production (with project) 3,289 5,163 4,150 4,000 Production (without project) 3,040 3,131 3,225 3,321 3,421 3,524 Incremental production 64 1,842 729 476 Appraisal estimate (incremental) 435 425 1,620 1,620 - 70 - Appendix 1 Page 4 of 6 6\. Projections for incremental production havebeen made for Year 5 through Year 8\. The following growth rates of incremental production have been assumed; cotton - 5% per annum; maize, rice, groundnuts, sorghum and millet - 3% per annum; and guar beans - zero percent per annum\. From Year 9 through Year 20 incremental productions have been assumed to be constant at the Year 8 levels\. Table 3 gives a summary of incremental productions of various crops\. Table 3: Incremental Production Snamary (Mt) Year Cotton Maize Rice Groundnuts Sorghum Millet Guar leans 1 546 (4,750) 3,217 (864) (3,517) (3) ' 64 2 1,679 (14,783) (166) (945) 1,911 (476) 1,842 3 24 5,476 900 (946) 6,638 25 729 4 5,438 5,539 1,108 (626) 889 (243) 476 5 5,710 5,705 1,141 (607) 915 (235) 476 6 5,995 5,876 1,175 (589) 943 (228) 476 7 6,295 6,052 1,210 (571) 971 (221) 476 8 6,610 6,234 1,247 (554) 1,000 (215) 476 9-20 6,610 6,234 1,247 (554) 1,000 (215) 476 7\. The incremental production figures have been multiplied by the farmgate export parity prices in order to arrive at the incremental benefit in monetary terms\. Table 4 gives the economic farmgate values of crops and Table 5 gives the benefits in monetary terms\. - 71 - Appendix 1 Page 5 of 6 Table 4: Economic FaMate Values of Crops - (11K/mt) Year Cotton Maize Rice Groundnuts Sorghum Millet Guar Beans 1979 442 57 168 682 110 60 189 1980 432 71 213 784 119 65 233 1981 386 86 224 725 128 70 234 1982 436 99 343 645 136 74 236 1983 449 102 353 664 138 76 243 1984 463 105 364 684 140 78 250 1985 476 108 375 704 142 80 258 1986 491 111 386 726 144 82 266 1987 491 111 386 726 144 82 266 Note: Prices for the first four years have been determined through observed World market prices\. Projections (3% per annum) have been made for the next four years (1\.5% for sorghum)\. Thereafter prices have been assumed to remain constant\. Table 5: Incremental Benefits in Value Termw (MKO QJar Year Cotton Maie Rice Groundmits SorgL= Millet Beans Total 1 241,322 (270,750) 54,040 (589,248) (386,870) (180) 12,096 (453,164) 2 725,328 (1,049,593) (35,358) (740,880) 227,409 (30,940) 429,186 474,848 3 9,264 470,936 201,600 (685,850) 849,664 (1,750) 170,586 1,017,950 4 2,370,968 548,361 380,044 (403,770) 120,904 (17,982) 112,336 3,110,861 5 2,563,790 581,910- 402,773 (403,048) 126,270 (17,860) 115,660 3,369,503 6 2,775,685 616,980 427,700 (402,876) 132,020 (17,781) 119,000 3,650,725 7 2,939,769 653,616 453,750 (401,984) 137,882 (17,680) 122,550 3,887,899 8 3,245,510 691,974 481,342 (402,204) 144,000 (17,630) 126,616 4,269,608 9-20 3,245,510 691,974 481,342 (402,204) 144,000 (17,630) 126,616 4,269,608 Economic Rate of Return 8\. In Table 5 the net benefits are presented and the resulting ERR for a period of 20 years has been shown to be 7\.85%\. This is much below the 20% ERR anticipated during the appraisal\. This is not surprising since crop production in the Valley was adversely by drought\. - 72 - 4ppendix 1 Page 6 of 6 Table 6: Summary of Costs and Benefits (MK '000) Net Year Costa Benefits Benefits 1 1,476 (453) (1,929) 2 1,376 (475) (1,851) 3 1,749 1,018 (731) 4 1,975 3,111 1,136 5 1,476 3,370 1,894 6 1,437 3,651 2,214 7 1,411 3,888 2,477 8 1,452 4,270 3,118 9-20 1,452 4,270 3,118 ERR - 7\.85% - 73 - ApRendix 2 Table 1 Page 1 of 11 Staffing Situation Phase by Section Filled Approx\. March March March March March Filled as a % Section Estimate 1978 1979 1980 1981 1982 ( 1982 only ) Management 26 24 14 18 15 17 65 Finance 34 25 19 26 26 25 74 Extension 257 267 274 289 244 266 104 Fisheries 7 - 5 5 5 6 86 Credit 16 2 14 3 15 15 94 Hydrology 9 4 2 9 10 5 56 Seed multipli\. 4 - - 1 - - - Forestry 6 - - - - - - Land husbandry 11 9 9 7 9 9 82 Training 28 9 11 28 20 31 111 Evaluation 34 1 6 7 7 33 94 Building constr\. 12 7 13 14 8 8 67 Agr\. research 35 11 15 31 36 33 94 Roads 10 3 55 4 4 4 40 Mechancial 12 5 4 5 6 5 42 Total 459 367 391 447 405 456 99 Source: Quarterly staff returns, Ngabu, ADD\. - 74 - Appendix 2 Table 2 Page 2 of 11 Staffing Situation Phase III by Grade Appraisal March March March Grade Plan 1978 1980 1982 P6 1 1 1 1 P7 - - - - P8/S8 5 4 3 3 CTO/CEO 10 5 7 4 PO 13 7 7 8 SEO/STO 8 2 5 4 O/To 42 17 28 22 SCO/STA 25 15 27 32 CO/TA 190 113 163 224 D5/6/7 4 1 4 5 DA 160 202 202 153 Total 459 367 447 456 Source: Quarterly staff returns, Ngabu ADD\. - 75 - Appendix 2 Table 3 Page 3 of 11 Established and Non-Established Staff Project 1978 1982 Component Established Non-Established Established Non-Established Management 10 14 9 8 Finance 1 24 10 15 Extension 58 209 107 159 Fisheries - - 4 2 Credit 1 1 13 2 Hydrology 2 2 4 1 Seed multiplication - - - - Forestry - - - - Land Husbandry 9 - 9 - Training 9 - 29 - Evaluation 1 - 1 32 Building Construction 1 6 - 8 Research 11 - 17 16 Mechanical Maintenance 2 3 1 4 Roads 1 3 - 4 Total 106 261 204 252 Appendix 2 Table 4 Page 4 of 11 Expenditure by Section and by Year (Fiscal Years) 1/ (1K) (Current Prices) Description 1978/79 1979/80 1980/81 1981/82 Total Managmnt and Administration 213,625\.95 381,392\.03 204,360\.00 912,986\.24 1,712,364 Finance 02,772\.58 84,549\.43 84,536\.63 253,200\.98 1,275,959 Evaluation 42,196\.57 54,803\.65 50,204\.82 54,690\.09 201,896 Extension 207,727\.66 237,145\.04 200,522\.67 275,893\.97 921,290 Training 62,489\.85 76,587\.90 69,861\.02 55,204\.63 264,143 Land Husbandry 34,115\.29 51,151\.97 44,313\.60 58,571\.61 188,153 Livestock 107,930\.47 149,031\.30 91,974\.39 88,674\.91 437,610 Building and Maintenance 208,491\.75 213,247\.58 156,480\.22 286,047\.19 864,267 Mechanical Maintenance 57,391\.41 72,379\.76 89,274\.02 249,173\.75 468,220 Wildlife 29,137\.43 70,151\.57 32,911\.94 43\.24 132,244 Credit 88,090 76,688 49,427 116,899 331,104 Visheries 29,211\.97 36,933\.81 35,931\.09 49,890\.16 151,966 Forestry \.00 4,646\.52 26,344\.80 45,100\.17 76,092 Health 27,515\.22 42,871\.83 41,229\.75 36,365\.83 147,982 Seed Multiplication 31,461\.01 14,208\.32 8,682\.23 \.00 54s351 Research 88,703\.38 125,137\.17 88,634\.55 86,900\.76 389,375 Water Resources 48,240\.33 47,728\.17 98,114\.14 71,867\.44 265,949 Crop Production 189,012 226,311 277,494 183,240 876,057 Total 1,529,511 1,964,966 1,650,295 2,824,750 7,969,522 1/ Excludes contingencies and direct debts by IDA\. Source: Project Management\. - 77 - Appendix 2 Table 5 Page 5 of 11 Infrastructural Development a Phase III Achievement as a Description Appraisal Achievement % of Appraisal Dip Tanks - - - Housing: C 2 2 100 D 11 10 90 E 90 49 54 P 60 12 20 Low Cost 8 7 88 Sub-Total 169 80 47 EPA Headquarters 5 5 100 Training Centers DTC's 6 4 67 Village Centers 34 - 0 Laboratories 1 1 100 Fish Landing Sites 4 4 100 Health Posts 4 4 100 Roads (construction and upgrading) kas 139 111 1/ 20 Boreholes 40 32 80 Shallow wells 40 28 70 Smoking kilns 60 60 100 1/ "cludes fisheries roads\. Source: Appraisal Report and Project Management\. - 78 - Appendix 2 Table 6 Page 6 of 11 Loan Requirements (Physical Quantities) 1978/79 1979/80 1980/81 1981/82 Description Target Achieved Target Achieved Target Achieved Target Achiev Seasonal Loans Sulphate of Amonia (a tons) 248 119 523 131 833 174 1,238 77 20:20:0 (m tons) - 6 11 2 23 42 68 16 Pesticides (thousand sprays x ha) 37 n\.a\. 66 n\.a\. 94 n\.ea\. 114 n\.a\. Medium Term Loans Knapsack sprayers 1,500 158 200 195 2,500 77 3,000 11 ULU sprayers 300 3 400 4 400 15 600 118 Farm carts 80 14 100 5 120 22 120 13 Ploughs 30 4 40 3 60 3 80 - Ridgere 30 1 40 2 60 1 80 - Ox yoke 100 - 150 - 200 - 250 - Trained oxen (pairs) 60 21 80 6 90 17 100 13 Berhed wire (rolls) 100 - 150 - 200 - 250 - Fishing boats 50 59 70 7 100 - 120 - Source: NAD Credit Section and Staff Appraisal Report\. - 79 - Appendix 2 Table 7 Page 7 of 11 Population in the Shire Valley 1977 Growth 1982 Family 1981/82 Cultivat E\.P\.A\. Population Rate % Population Size Families Holding Size Area CK1 (Gaga) 16,163 3 18,737 5 3,747 1\.50 5,621 CK1 (Mwanza) 10,256 3 11,889 4\.3 2,765 2\.72 7,521 CK2 37,728 3 43,737 4\.7 9,306 1\.00 9,306 CK3 25,931 3 430,061 4\.7 6,396 1\.00 6,396 CK4 40,219 3 46,625 4\.1 11,372 0\.92 10,462 CK5 38,187 1 40,135 5\.2 7,718 1\.92 14,819 CK6 26,149 1 27,483 5\.2 5,285 1\.92 10,147 NS1 (Biton) 8,319 1\.5 8,962 5 1,792 0\.82 1,470 NS1 (Valley floor) 24,740 3 28,680 4\.1 6,995 0\.92 6,435 NS2 18,834 2 20,794 4\.5 4,621 2\.08 9,611 NS3 12,627 2 13,941 4\.5 3,098 2\.08 6,444 NS4 (Chididi) 8,379 1\.5 9,026 5 1,805 0\.82 1,480 NS4 (Valley floor) 14,743 1 15,495 4 3,874 0\.84 3,254 NS5 (Lulwe) 3,547 1\.5 3,821 5 764 0\.82 626 NS5 (Valley floor) 17,208 1 18,086 4 4,521 0\.84 3,798 Total 303,030 74,059 97,390 Source: Land Husbandry Section, Ngabu ADD\. - 80 - Appendix 2 Table 8 Page 8 of 11 Plant and Vehicles Including Motorcycles Available at Beginning of Bought as Z of Type Phase Planned Bought Planned Land Rovers ( 4 x wd) 8 31 14 Flat Lorries 8 4 3 75 Personnel Carrier Lorry - 1 1 100 Lorry Tipper 5 3 3 100 Station Wagon Car - 1 1 100 Peugot Pick-ups 8 7 16 229 Motorcycles - 79 75 94 Tractors 6 7 6 86 Graders 2 1 1 100 Roller - 1 1 100 Dumpers 2 1 1 100 Tractor Mounted Digger - 1 1 100 Water Bowser 4 4 5 125 Tractor Trailers - 4 4 100 Caravans 4 3 3 100 Motor Boats - 1 1 100 Outboard Engines - 4 2 50 Drilling Rig - 1 1 100 Compressor - 1 1 100 Caterpiller D\.6 1 - - - - 81 - Appendix 2 Table 9 Page 9 of 11 ADMARC Crop Purchases (metric tons) Season Cotton Maize Rice Groundanuts Guar 1967/68 5,100 - 279 174 - 1968/69 10,900 150 530 273 - 1969/70 14,600 85 704 279 - 1970/71 14,500 25 1,193 409 - 1971/72 15,200 465 844 389 - 1972/73 10,200 106 1,407 274 - 1973/74 15,200 476 1,496 95 - 1974/75 9,700 161 1,066 127 - 1975/76 7,700 161 946 180 22 1976/77 9,700 252 1,327 63 705 1977/78 9,700 731 1,633 259 3,138 1978/79 9,300 613 1,548 76 3,486 1979/80 9,300 353 2,778 52 3,189 1980/81 9,561 196 1,160 7 3,769 1981/82 7,419 2,833 n\.a\. n\.a\. 3,112 Source: NADD Evaluation Unit\. 必 必 \.’〕〕’〕’〕〕！〕〕’〕〕〕〕〕〕”〕！:!!/- 6 cn cn # # @ # a t l e t Ch i i i Oh 9 00 i I &n t 9 SM4 i g s I I i v, 4 i 1 $3 M P;f I t i i i t i i i e on IN 4n i e I i t tn 2 in -o PIK\. Ity; - 84 - Cat 8\.V\.A\.CJ\. ORGANIZATIONAL CHART P8MW MVLMR- EA&'O I I nSIaTL" A D AMR\. DIVI INff\. lam vm IEVSI nvm =2 ,=EISE 'mIMcx SmmImS ANIm" mmI umm mmmT w~- - 'IRTAITNIMS \.C LV)WIUQm M Souw: Staff Appsalssl Report Note: B\.M\.C\. - btil1dg, MWntensnc and Constructlon\. N\.M\. - MechwicalNaner - IBRD 13\.s48(PPA) S30'E TANZANIA MALAWI SHIRE VALLEY AGRICULTURAL DEVELOPMENT PROJECT ZAMBIA METEOROLOGY 'IMOZAMBIQUE ZIMBABWE OS ANA 100035-00- 10000f\ 16-00 '600 \ N æ,*oweg,I KKdl -~~~6 1'0p •30'- o \-' Project Soundary> (~~ SMeteorological Stations & 1*-\. ~~' ~ k Roinguoge - Agriculture Rainguage - Other 1 \.---- Isohyet in mm 760- Conjectural Isohyet in mM - Main Roads - Minor Roods Railroad C N - Rivers 1 00 M 17'00, Non -Customary Land - International Boundcry 0 5 10 15 20 25 MILES 5 10 15 20 25 30 35 40 KIILOMETERS 34 3 35* 0* FEBRUARY 1986

APPROVAL

P165870

FOR OFFICIAL USE ONLY Report No: PAD3000 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 25\.3 MILLION (US$35 MILLION EQUIVALENT) TO THE REPUBLIC OF HAITI FOR A STRENGTHENING DISASTER RISK MANAGEMENT AND CLIMATE RESILIENCE PROJECT April 25, 2019 Social, Urban, Rural And Resilience Global Practice Latin America And Caribbean Region This document is being made publicly available prior to Board consideration\. This does not imply a presumed outcome\. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information\.  CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2019) Haitian Gourdes Currency Unit = (HTG) HTG 84\.10 = US$1 US$ 1 = SDR 0\.72033135 FISCAL YEAR October 1 - September 30 Regional Vice President: Axel van Trotsenburg Country Director: Anabela Abreu Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: Ming Zhang Task Team Leader(s): Claudia Ruth Soto Orozco, Roland Alexander Bradshaw  ABBREVIATIONS AND ACRONYMS BTB Technical Bureau for Buildings (Bureau Technique du Bâtiment) Administrative Council of the Communal Section (Conseil d’Administration des Sections CASEC Communales) CBO Community Based Organization CCPC Municipal Civil Protection Committees (Comités Communaux de Protection Civile) CDPC Department Civil Protection Committees (Comités Départementaux de Protection Civile) CERC Contingent Emergency Response Component CNIGS National Center for Geospatial Information (Centre National de l’Information Géospatiale) CPF Country Partnership Framework DPC Civil Protection Directorate (Direction de la Protection Civile) DRM Disaster Risk Management PROReV Emergency Bridge Reconstruction and Vulnerability Reduction Project (EBRVRP) ERDMP Emergency Recovery and Disaster Risk Management Project ERR Internal Rate of Return ESMF Environmental and Social Management Framework ESMPS Environmental and Social Management Plans EU European Union EWS Early Warning System FCV Fragility, Conflict and Violence GDP Gross Domestic Product GIS Geographic Information System GoH Government of Haiti GRM Grievance Redress Mechanism IIERP Infrastructure and Institutions Emergency Recovery Project ISM Implementation Support Missions MDOD Delegated Implementing Agencies (Maître d’Ouvrage Délégué) MDUR Municipal Development and Urban Resilience Project Ministry of National Education and Vocational Training (Ministère de l’Éducation Nationale MENFP et de la Formation Professionnelle) Ministry of Interior and Local Authorities (Ministère de l’Intérieur et des Collectivités MICT Territoriales) Ministry of Planning and External Cooperation (Ministère de la Planification et de la MPCE Coopération Externe) Ministry of Public Works, Transport and Communications (Ministère des Travaux Publics, MTPTC Transports et Communications) MTR Mid-Term Review NDC Nationally Determined Contribution NPV Net Present Value  Action Plan for National Recovery and Development of Haiti (Plan National d’Action pour la PARDH Reconstruction et le Développement d’Haïti) PDO Project Development Objective PEQH Providing an Education of Quality in Haiti Project PIU Project Implementation Unit PPSD Project Procurement Strategy for Development Port-au-Prince Neighborhood Housing Reconstruction Project (Projet de Reconstruction des PREKAD Quartiers Défavorisés de Port-au Prince) PRGRD (or Disaster Risk Management and Reconstruction Project (Projet de Reconstruction et de DRMRP) Gestion des Risques et Désastres) Urban Community Driven Development Project (Projet de Développement Participatif PRODEPUR Urbain) PSDH Strategic Development Plan of Haiti (Plan Stratégique de Développement d’Haïti) RAP Resettlement Action Plan RPF Resettlement Policy Framework SCD Systematic Country Diagnostic National Disaster Risk Management System (Système National de Gestion des Risques et SNGRD Désastres) Permanent Secretariat of Disaster Risk Management (Secrétariat Permanent de Gestion SPGRD des Risques et des Désastres) TA Technical Assistance VAWG Sexual violence against women and girls WMO World Meteorological Organization The World Bank Strengthening DRM and Climate Resilience Project (P165870) TABLE OF CONTENTS DATASHEET \. 1 I\. STRATEGIC CONTEXT \. 6 A\. Country Context\. 6 B\. Sectoral and Institutional Context \. 7 C\. Relevance to Higher Level Objectives\. 11 II\. PROJECT DESCRIPTION\. 11 A\. Project Development Objective \. 11 B\. Project Components \. 12 C\. Project Beneficiaries \. 15 D\. Results Chain \. 16 E\. Rationale for Bank Involvement and Role of Partners \. 17 F\. Lessons Learned and Reflected in the Project Design \. 18 III\. IMPLEMENTATION ARRANGEMENTS \. 19 A\. Institutional and Implementation Arrangements \. 19 B\. Results Monitoring and Evaluation Arrangements\. 19 C\. Sustainability\. 20 IV\. PROJECT APPRAISAL SUMMARY \. 20 A\. Technical, Economic, and Financial Analysis\. 20 B\. Fiduciary \. 23 C\. Safeguards\. 24 V\. KEY RISKS \. 28 VI\. RESULTS FRAMEWORK AND MONITORING \. 30 ANNEX 1: Implementation Arrangements and Support Plan \. 38  The World Bank Strengthening DRM and Climate Resilience Project (P165870) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Haiti Strengthening DRM and Climate Resilience Project Project ID Financing Instrument Environmental Assessment Category Investment Project P165870 B-Partial Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [✓] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [✓] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 16-May-2019 30-Apr-2025 Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objective is to improve: (i) early warning and emergency evacuation capacity in selected municipalities in high climate risk-prone areas, and (ii) the provision of and accessibility to safe havens\. Page 1 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Components Component Name Cost (US$, millions) Strengthening Disaster Preparedness and Emergency Response Capacity; and 8\.00 Promoting Building Regulation and Resilient Construction Practices Construction and Rehabilitation of “Safe Havens” 23\.00 Contingent Emergency Response 0\.00 Project Management and Implementation Support 4\.00 Organizations Borrower: Ministry of Economy and Finance Implementing Agency: Ministry of Interior and Local authorities PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 35\.00 Total Financing 35\.00 of which IBRD/IDA 35\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 35\.00 IDA Grant 35\.00 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount National PBA 0\.00 10\.00 0\.00 10\.00 Crisis Response Window 0\.00 25\.00 0\.00 25\.00 (CRW) Page 2 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Total 0\.00 35\.00 0\.00 35\.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025 Annual 0\.00 4\.50 4\.50 7\.00 10\.00 7\.00 2\.00 Cumulative 0\.00 4\.50 9\.00 16\.00 26\.00 33\.00 35\.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Social, Urban, Rural and Resilience Global Education Practice Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a\. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b\. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c\. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1\. Political and Governance ⚫ High 2\. Macroeconomic ⚫ Substantial 3\. Sector Strategies and Policies ⚫ Substantial 4\. Technical Design of Project or Program ⚫ Moderate Page 3 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 5\. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6\. Fiduciary ⚫ High 7\. Environment and Social ⚫ Substantial 8\. Stakeholders ⚫ Substantial 9\. Other 10\. Overall ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4\.01 ✔ Performance Standards for Private Sector Activities OP/BP 4\.03 ✔ Natural Habitats OP/BP 4\.04 ✔ Forests OP/BP 4\.36 ✔ Pest Management OP 4\.09 ✔ Physical Cultural Resources OP/BP 4\.11 ✔ Indigenous Peoples OP/BP 4\.10 ✔ Involuntary Resettlement OP/BP 4\.12 ✔ Safety of Dams OP/BP 4\.37 ✔ Projects on International Waterways OP/BP 7\.50 ✔ Projects in Disputed Areas OP/BP 7\.60 ✔ Legal Covenants Page 4 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Sections and Description IDA Financing Agreement Schedule 2, Section I\.E- MDOD: For purposes of carrying out Component 2 of the Project, the Recipient shall no later than four (4) months after the Effective Date, contract at least one MDOD in accordance with the Procurement Regulations Conditions Type Description Disbursement IDA Financing Agreement Schedule 2, Section III\.B 1(a): No withdrawal shall be made under Category (3), for Emergency Expenditures under Component 3 of the Project, unless and until the Association is satisfied, and has notified the Recipient of its satisfaction,that all of the following conditions have been met in respect of said Emergency Expenditures: (i) the Recipient has determined that an Eligible Emergency has occurred, has furnished to the Association a request to include said Eligible Emergency under Component 3 of the Project in order to respond to said Eligible Emergency, and the Association has agreed with such determination, accepted said request and notified the Recipient thereof; (ii) the Recipient has prepared and disclosed all safeguards instruments required for said Eligible Emergency, and the Recipient has implemented any actions which are required to be taken under said instruments, all in accordance with the provisions of the Financing Agreement; (iii) the Coordinating Authority has adequate staff and resources, in accordance with the provisions of the Financing Agreement, for the purposes of said activities; and (iv) the Recipient has adopted the Emergency Response Operations Manual in form, substance and manner acceptable to the Association and the provisions of the Emergency Response Operations Manual are fully current in accordance with the provisions of the Financing Agreement, so as to be appropriate for the inclusion and implementation Component3 of the Project; Type Description Disbursement IDA Financing Agreement Schedule 2, Section III\.B 1(b): No withdrawal shall be made under Category (5) unless the pertinent RAP has been prepared, consulted, adopted and published by the Recipient in form and substance satisfactory to the Association, and in accordance with the Financing Agreement\. Page 5 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) I\. STRATEGIC CONTEXT A\. Country Context 1\. Haiti’s geography, people, and history provide it with many opportunities\. The third largest Caribbean nation by area and population (11 million in 2017), Haiti benefits from proximity and access to major markets, a young labor force, a dynamic diaspora, and substantial geographic, historical, and cultural assets\. The country possesses untapped markets and a pent-up demand for the private sector to explore, including agribusiness, light manufacturing, and tourism1\. 2\. Haiti is the poorest country in the Western hemisphere, with a GDP per capita of only US$766 in 20172\. According to the 2014 Poverty Assessment completed by the Government of Haiti (GoH, the Government) and the World Bank, the proportion of Haiti’s population living in extreme poverty declined from 31 percent to 24 percent from 2000 to 2012\. Historically, political violence and instability have been both a symptom and a driver of fragility in Haiti\. Recurrent episodes of institutional instability and civil unrest have severely impaired its progress in poverty reduction\. 3\. Haiti is highly exposed to natural hazards primarily hurricanes, floods and earthquakes3\. Over 93 percent of its surface and more than 96 percent of the population are exposed to two or more hazards\. Hydro-meteorological hazards are related to the precipitation caused by northern polar fronts, tropical cyclones (mainly from June to November), and waves\. El Niño/El Niño-Southern Oscillation episodes have tended to delay the arrival of the rainy season, creating drought conditions, and increasing the number and intensity of hurricanes\. Additionally, the interaction of the Caribbean and North American tectonic plates causes seismic hazards\. Other secondary hazards include landslides, torrential debris flows, soil liquefaction, and tsunamis\. The Great South (Grand Sud), which includes the Grande Anse, Nippes and Sud Departments, is greatly exposed to hurricane and related flood hazards, and the Nord and Nord Ouest Departments are highly exposed to floods and tsunami\. 4\. Climate change is expected to increase the frequency and severity of hydro-meteorological hazards\. Climate projections for the Caribbean estimate that temperatures could rise from between 0\.5 to 2\.3°C by 20604, possibly leading to cyclonic events of increased duration and intensity\. According to the climate change simulations of the U\.S\. Climate Change Science Program, for each 1°C increase in sea surface temperatures, rainfall caused by hurricanes may rise by 6 to 17 percent and surface wind speeds of the strongest hurricanes by 1 to 8 percent5\. In addition, the dry season will likely intensify further with an increase of between 8 percent to 19 percent of the present duration\. Likewise, increases in maximum temperatures have led to greater propensity for extreme rainfall events and flash floods in recent years; this pattern is expected to worsen with the effects of climate change\. 5\. The human and economic impacts of disasters have been extremely severe, given Haiti’s exposure to hydrometeorological and seismic hazards, the high vulnerability of its infrastructure, the unplanned urban expansion, and institutional fragility\. Between 1961 and 2012, the country experienced more than 180 disasters, which caused the 1 Country Partnership Framework for the Republic of Haiti FY16-FY19 (Report No\. 98132-HT)\. 2 World Bank national accounts data, and OECD National Accounts data files 2016\. 3 Haiti Country Risk Profile, World Bank 2018\. 4 Haiti’s First National Communication for UNFCCC, Haiti Ministry of Environment\. 5 Climate Risk and Adaptation Country Profile: Haiti, Vulnerability, Risk Reduction, and adaptation to Climate Change, World Bank, GFDRR, Climate Investment funds, 2011\. Page 6 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) death of more than 240,000 people6, including the death of about 220,000 people after the 2010 earthquake\. In 2016, Hurricane Matthew affected over two million people, resulted in over 500 deaths and displaced 175,000 people\. Between 1976 and 2012, damages and losses associated with hydro-meteorological events alone amounted on average to the equivalent of almost two percent of annual GDP\. Hurricane Matthew resulted in estimated damages and losses equivalent to around 32 percent of GDP and the 2010 earthquake destroyed the equivalent of about 120 percent of GDP\. The potential future maximum losses from hurricanes and earthquakes occurring within a 250-year return period7 are estimated at US$1\.6 billion (13\.3 percent of 2016 GDP) and US$2\.41 billion (27\.5 percent of 2016 GDP), respectively8\. B\. Sectoral and Institutional Context Sectoral Context 6\. Following the 2010 earthquake, the GoH identified Disaster Risk Management (DRM) as a key cross-cutting and multi-sectoral priority\. The 2010 Action Plan for National Recovery and Development of Haiti (PARDH) outlines “preparation for the hurricane season and disaster risk management” as a priority\. The Government’s 2012 Strategic Development Plan (PSDH) prioritizes the improvement of DRM through better land-use planning under its first pillar\. Haiti’s Nationally Determined Contribution (NDC), submitted to the UNFCCC9 in September 2015, focuses on both adaptation to climate change and mitigation actions for the 2016-2030 period\. Considering the prevalence of vulnerability and heavy casualties incurred during the major disasters, the Government has prioritized emergency response and preparedness as a major national priority, with a particular emphasis on saving lives\. 7\. In order to reduce the number of fatalities, as well as economic damages and losses caused by disasters, Haiti needs to address critical gaps in: (i) emergency preparedness and response to adverse hydrometeorological events, and (ii) vulnerability reduction of infrastructure in relation to earthquake hazards\. The proposed Strengthening Disaster Risk Management and Climate Resilience Project (the Project) provides a combination of activities aimed at addressing these gaps\. Regarding hydrometeorological hazards, project activities will focus on strengthening emergency preparedness and response capacity at the municipal level, improving early warning systems, and expanding the network of emergency evacuation shelters\. Regarding earthquake hazards, dedicated technical assistance (TA) on safe construction practices will contribute to reducing the vulnerability of infrastructure\. 8\. To ensure effective preparedness and response to hydrometeorological hazards, emergency evacuation capacity at the municipal level needs to improve\. The backbone of Haiti’s emergency preparedness and response function is a network of well-organized volunteer organizations, or Municipal Civil Protection Committees (Comités Communaux de Protection Civile – CCPC), comprised of community members10\. A total of 140 CCPCs (one CCPC per municipality), have been created covering the entire country\. These CCPCs comprise 3,500 trained volunteers that have been instrumental in evacuating the population and saving lives after the major natural disasters, most recently during 6 An event is considered a disaster by the EM-DAT database if: (i) it caused at least 10 deaths; (ii) affected at least 100 people; (iii) caused an emergency declaration, or (iv) led to a call for international assistance\. Source: “Diagnostic on the Economic and Fiscal Impact of Disasters in Haiti” World Bank 2014\. 7 Indicative of an extreme event\. 8 Haiti Country Disaster Risk Profile, World Bank 2017\. 9 United Nation Framework Convention on Climate Change\. 10 Community members include private citizens, brigadiers, nurses, church leaders, members of community-based organization (CBOs), members of the Administrative Council of the Communal Section (CASECs), dignitaries, teachers, local police and officials from the municipalities\. Page 7 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Hurricane Matthew\. Despite the significant progress made in recent years11, CCPCs still require significant support to maintain and improve capacities\. CCPCs’ ability to operate is vulnerable to high volunteer turnover, as the volunteers are not entitled to benefits, insurance, or reimbursement of expenses\. Therefore, a continuous and substantial capacity building effort is necessary to maintain CCPCs in the highest categories12\. In addition to ensuring regular training and mobilization, the key areas in which CCPCs need strengthening include: (i) coordination with municipal authorities in contingency planning and sharing risk information; (ii) shelter management, and (iii) project management\. The Project will strengthen the CCPCs’ preparedness and response capacity\. 9\. For CCPCs to evacuate communities efficiently during adverse hydrometeorological events, Haiti’s Early Warning System (EWS) needs to be strengthened, and behavioral insights need to be incorporated into the community mobilization process\. Emergency plans and protocols of EWS at the national level need to be systematized in standard operating procedures and formally coordinated between the national, departmental and municipal levels\. In addition, communities should be adequately informed of the seriousness of a predicted weather event in a way that is easy to understand, and guided as to where the shelters are located\. A behavioral study conducted during project preparation, to better understand the behavioral, social, and structural barriers to the response to early warning systems13, confirmed that evacuation orders and the use of shelters are not followed partly because of people’s preferences and beliefs\. Some people do not evacuate because either they do not have the logistical or financial resources, or no shelter is available in their community\. Others prefer not to evacuate, because they: (i) do not trust the messenger (in this case, CCPC); (ii) underestimate the hurricane risk level; (iii) feel safer at home than in a public space that may not have proper operating norms; (iv) are concerned about shelters becoming overcrowded and lacking in basic services, and/or (v) fear losing their livestock, as the shelters have no room for animals\. Shelters also have limited management and oversight during evacuation, which increases the risk of gender-based violence for women\. The Project will strengthen EWS, and the safety and services management at the shelters, integrating these behavioral insights in the project interventions\. 10\. The most critical gap in preparing and responding to adverse hydrometeorological events is the lack of safe and resilient “safe havens”14 for the evacuation of populations at risk\. Shelters in the municipalities most heavily affected by Hurricane Matthew did not withstand the hurricane’s winds (a significant portion of the shelters were either damaged or destroyed), while the population in Haiti’s remote areas simply did not have access to any shelter15\. When shelters/safe havens were available, they were often either too crowded or lacked basic emergency needs (food, water, first aid) and links to medical facilities\. A study on shelter coverage for the population in areas highly exposed to flood and hurricane hazards in the Grand Sud revealed that of the 41 municipalities, 12 have barely adequate shelter coverage, 24 have inadequate coverage, and five are inadequately covered in a serious manner\. The international DRM support in the past, including World Bank assistance under the ongoing Disaster Risk Management and Reconstruction Project (PRGRD), has not expanded shelters significantly due to factors such as capacity constraints at the Civil Protection Directorate (Direction de la Protection Civile, DPC), land availability and lack of financing\. A major focus of the Project is to expand 11 The World Bank has provided sustained support to the strengthening of CCPCs through the Emergency Recovery and Disaster Risk Management Projects (ERDMP), and the ongoing Disaster Risk Management and Reconstruction Project (PRGRD)\. 12 The Civil Protection Directorate’s (DPC’s) mid-term evaluation of PRGRD support to CCPCs revealed a substantial improvement of CCPCs’ scores, based on three main criteria: (i) length of existence of the CCPCs; (ii) organizational strength, and (iii) functional capacity\. Of the 21 “Average” CCPCs, 14 are in the departments targeted by the Project\. 13 Using Behavioral Insights to Improve Disaster Risk Management in Haiti, World Bank 2018 (unpublished) Mind, Behavior, and Development Unit, GP Poverty in collaboration with GSURR\. 14 “Safe havens” refer to emergency evacuation structures that are used up to 72 hours after an adverse natural event\. They are also called shelters\. This type of “emergency shelters” should be differentiated from shelters that may be used to accommodate people for much more than 72 hours\. 15 Half of the CCPCs interviewed after Hurricane Matthew reported that the registered loss of life occurred mostly in remote areas which have less access to information and shelters\. Page 8 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) the network of resilient and safe emergency shelters in high risk areas, including the provision of basic services in these shelters\. 11\. The adoption of safer construction practices can significantly reduce the vulnerability of infrastructure to earthquake disasters and possible disaster damages with relatively low additional cost\. Haiti has not been able to reduce the vulnerability of its infrastructure (both public and private buildings), including residential buildings, through the application and enforcement of building regulations\. Building regulations are not enforced due to the financial constraints and difficulty of attracting and retaining qualified personnel to provide advisory services to home builders, oversee construction works and enforce code provisions\. The Technical Bureau for Buildings (Bureau Technique du Bâtiment, BTB) under the Ministry of Public Works, Transport and Communications (Ministère des Travaux Publics, Transports et Communications, MTPTC) has been effective in disseminating safe construction practices to both public and private sector builders16, and the Project aims to strengthen and expand its dissemination program\. Institutional Context 12\. The Ministry of Interior and Local Authorities (Ministère de l’Intérieur et des Collectivités Territoriales, MICT) has the institutional mandate for Civil Protection\. The DPC under the MICT has departmental and municipal representation including 10 Departmental Civil Protection Committees (Comités Départementaux de Protection Civile, CDPCs), and 140 CCPCs\. Due to its “lower” status as a Directorate (a non-autonomous entity), the DPC has historically been granted very limited direct operational budget\. It typically relies on international funding and a broad network of local level CCPC volunteers to fulfill its critical responsibilities of preparedness and emergency response\. 13\. The National Disaster Risk Management System (Système National de Gestion des Risques et Désastres, SNGRD), which was established to handle emergency operations and manage disaster risk, is an ad hoc structure operating without a legal framework\. The Permanent Secretariat of Disaster Risk Management (Secrétariat Permanent de Gestion des Risques et des Désastres, SPGRD) oversees overall inter-sectoral coordination\. SNGRD is a multisectoral system, however the low level of representation and the limited technical capacities and budget from each sector limits its operationalization and the integration of DRM across the Government\. 14\. A new Disaster Risk Management Law is currently under consideration by Parliament\. Upon its approval, this Law would elevate the DPC to an autonomous entity and formally establish the SNGRD\. World Bank Support for DRM in Haiti 15\. The Project continues the World Bank’s long-term engagement in support of Haiti’s DRM efforts, in the context of Fragility, Conflict and Violence (FCV), and incorporates lessons learned from previous assistance\. The World Bank has provided continuous support to Haiti’s DRM sector through TA and projects, including the Emergency Bridge Reconstruction and Vulnerability Reduction Project (PROReV), and the ongoing activities of the Strengthening Hydromet Services Project (Hydromet), the Municipal Development and Urban Resilience Project (MDUR), and the Disaster Risk Financing Technical Assistance\. Activities related to the strengthening of EWS under the Project would complement those currently being provided under the Hydromet Project and the ongoing PRGRD, as recurrent episodes of institutional 16 This BTB database was established after the 2010 earthquake for affected buildings in Port-au-Prince\. The evaluation revealed the high vulnerability of self-constructed housing, which led to the development of the various safe construction norms that are now being used\. The BTB uses these tools as the basis for its training programs\. The BTB’s training are widely open where the constructobus reaches a wide audience, a including private actor, at the local level\. Page 9 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) instability and civil unrest, together with severe capacity constraints, has affected the implementation of both of these ongoing projects\. The ongoing cross-sectoral DRM engagement, both TA and financial and technical assistance under investment projects, has allowed for extensive stakeholder consultations with ministries at the national level, as well as with the municipal and community levels\. These consultations have informed preparation of the Project, as elaborated below\. 16\. The ongoing PRGRD (US$80 million including the US$20 million AF) has successfully helped to reduce the vulnerability of the transport network through rehabilitation of damaged critical transport infrastructure and risk reduction investments\. The PRGRD has also been instrumental in developing disaster preparedness and emergency response capacities for civil protection, expanding and providing efficient training to the CCPC network, and disseminating risk information for effective decision-making\. The PRGRD has successfully brought all CCPCs in the country to a minimum of level 2 certification\. It has also supported the development of the first national DRM open-data platform (Haitidata\.org), which has provided access to LiDAR, orthophoto, satellite imagery, and a digital elevation model for the country\. PRGRD is also supporting the development of the first sectoral DRM plans in the country, focused on the education and health sectors\. The planned pilot emergency shelter programs have been delayed mainly because of DPC’s capacity constraints related to planning and implementing infrastructure interventions, especially post-Hurricane Matthew\. Due to these constraints several activities were reoriented to focus on the rehabilitation of emergency shelters\. Despite delays, the PRGRD has now initiated the rehabilitation program for 12 shelters affected by Hurricane Matthew\. 17\. The scope of the Project builds upon the experience of the PRGRD and other World Bank-supported DRM activities\. It integrates lessons learned, and leverages innovative approaches to improve implementation in several areas\. First, it will increase provision and access to new resilient shelter infrastructure within existing public spaces, in particular school compounds, thereby also reducing the vulnerability of school infrastructure to natural hazards\. Second, it will involve the beneficiary communities at the design stage, and throughout the shelter construction process to promote ownership and commitment in shelter management\. Third, it will integrate innovative approaches with respect to EWS and shelter activities by addressing behavioral insights to address the social, physical and behavioral barriers to evacuation that are at the root of the high death tolls from predictable natural events\. Fourth, building upon the successful training of CCPCs under the PRGRD17, the Project will further deepen the CCPCs’ evacuation, communication and shelters management capacities to better serve communities, and their integration with municipalities\. It will also support the development of institutional tools to empower DPC’s structures and municipalities to absorb the CCPC function through the establishment of sustainable structures outside of project financing\. Fifth, the Project would put emphasis on the development and approval of standard operating procedures that are applicable at the national, department and local levels18, including protocols for EWS to help CCPCs evacuate communities\. Sixth, to address the significant delays in the implementation of shelter rehabilitations under PRGRD due to technical capacity limitations within the Project Implementation Unit (PIU), the Project will supplement its technical capacity with delegated implementation agencies\. Finally, the Project would simplify the PRGRD’s institutional arrangements, by limiting project implementation responsibilities to those carried out by one implementing agency only\. 17 The CCPC training curriculum includes standardized capacity building on: Preparedness and emergency management (protection of population, contingency plans, early warning, evacuation procedures, emergency communication), leadership, logistics, post-disaster damage evaluations and needs analysis, shelters management (including identification of new shelters), risk mapping, risk education and outreach\. CCPC training also support the development of contingency plans for the municipalities\. 18 Hydromet focuses on improving climate information to feed into EWS, PRGRD focuses on the alert dissemination equipment and the project focuses on ensuring the existence of reliable Standard Procedures to conduct evacuation based on climate information\. Page 10 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) C\. Relevance to Higher Level Objectives 18\. Promoting shared prosperity and ending extreme poverty require the reduction of households’ vulnerability to shocks that trap them in (or push them into) poverty\. Increasing the country’s resilience to natural hazards is consistent with the World Bank’s twin goals of eradicating extreme poverty and boosting shared prosperity\. According to the 2014 Poverty Assessment, economic vulnerability is extensive in Haiti: almost 70 percent of the population is either poor or vulnerable to falling into poverty, and nearly 75 percent of all households are economically impacted by at least one shock each year, including adverse natural events\. Catastrophic events disproportionally affect the poorest and marginal populations that settle in flood zones and coastal areas\. Indeed, in the poorest departments (Grande Anse, Nord-Est, and Nord-Ouest), between 78 and 82 percent of the population affected by an adverse climatic shock is poor19\. 19\. The Project is aligned with Haiti’s national development priorities and with the World Bank Group’s Country Partnership Framework (CPF) for the Republic of Haiti for FY16-FY19\. The Project is aligned with the Government’s 2010 Action Plan for National Recovery and Development of Haiti (PARDH), which outlines “preparation for the hurricane season and disaster risk management” and the Government’s 2012 Strategic Development Plan (PSDH), which prioritizes the improvement of DRM\. The CPF places a strong emphasis on building resilience by supporting the GoH to prepare for and prevent natural disasters and strengthen climate resilience\. The Project directly contributes to the achievement of two of the CPF’s objectives, Objective 8, Strengthen Natural Disaster Preparedness, and Objective 9, Improve Disaster Prevention and Strengthen Climate Resilience\. II\. PROJECT DESCRIPTION A\. Project Development Objective PDO Statement The Project Development Objective (PDO) is to improve: (i) early warning and emergency evacuation capacity in selected municipalities in high climate risk-prone areas, and (ii) the provision of and accessibility to safe havens\. PDO Level Indicators • Number of CCPCs with excellent competencies in emergency planning and management, in high climate risk-prone areas - Level 1 certification; • Improved National Early Warning and Communication System for Hydromet events based on approved and adopted standard protocols; • Increase in the number of people living in flood-risk areas who are covered by a shelter o Increase in the number of females living in flood-risk areas who are covered by a shelter 20\. Section VI contains the complete Results Framework, including PDO-level indicators and intermediate results indicators by component, along with the corresponding baselines, intermediate, and end-of-project targets\. 19 Investing in people to fight poverty in Haiti: Reflections for evidence-based policy making, World Bank 2014\. Page 11 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) B\. Project Components 21\. The Project will finance technical assistance and infrastructure investments to improve the resilience of the Haitian population against hydro-meteorological hazards in five key departments\. The total project cost is estimated at US$35 million, of which US$10 million will be financed under National PBA, and US$25 million will be financed under Crisis Response Window (CRW)\. The Project will comprise four components, as described below\. Component 1: Strengthening Disaster Preparedness and Emergency Response Capacity and Promoting Building Regulation and Resilient Construction Practices (Total Cost US$8 million) Component 1 comprises two sub-components: (i) Strengthening Disaster Preparedness, and Emergency Response Capacity, and Disaster Risk Data Management, and (ii) Promoting Building Regulations and Resilient Construction Practices at the Local Level\. Sub-Component 1\.1 – Strengthening Disaster Preparedness, and Emergency Response Capacity, and Disaster Risk Data Management (Total Cost US$6\.5 million) 22\. This Sub-component will strengthen the 140 CCPCs’ emergency preparedness and response capacities20, improve EWS, and strengthen the management of the CCPC and shelter networks by, inter alia: (i) building the capacity of the country’s CCPCs through the provision of behaviorally-informed standardized training program to respond to disasters with integrated emergency response plans and protocols21; (ii) designing a national early warning system and communication strategy with approved and adopted protocols adapted to local conditions; (iii) carrying out school-based risk education technical assistance and simulation exercises targeted to children, teachers and school directors to encourage appropriate behavior22, and (iv) carrying out capacity building activities and development of risk data management tools23 for the DPC aimed at improving CCPCs’ and shelter management\. All of these activities will include awareness raising on the long-term effects of climate change and the different adaptation and mitigation measures available\. Sub-Component 1\.2 - Promoting Building Regulations and More Resilient Construction Practices at the Local Level (Total Cost US$1\.5 million) 23\. This Sub-component will support the promotion of building regulation and resilient construction practices at the local level by, inter alia: (i) supporting BTB in providing technical training and advisory services in construction and supervision of building projects to local practitioners, and (ii) providing training and technical assistance to BTB selected 20 In order to maintain them to at least Level 2 certification and upgrade some of them to a Level 1 certification\. 21 The CCPC training curriculum includes: preparedness and emergency management (protection of population, contingency planning, early warning, evacuation procedures, emergency communication, and first aid), leadership, logistics, post-disaster damage evaluations and needs analysis, shelter management (including identification of new shelters), risk mapping, risk education and outreach\. The CCPC training also supports the development of contingency plans for the municipalities\. 22 School-based risk education activities will be prioritized in the schools covered by the World Bank-financed Providing an Education of Quality in Haiti Project (PEQH) (P155191)\. These schools are being targeted by the PEQH on the curriculum strengthening side, which will facilitate piloting risk education activities\. 23 This will include support to the national risk data platform, HaitiData\.org, and development and dissemination of data management tools and applications that will allow the DPC to inform, plan, prioritize, implement and monitor preparedness and response activities, including: (i) the use of interactive maps of hazards, evacuation routes, population, health facilities, and shelters, and (ii) the management and monitoring of shelter usage, capacity, and resource allocation for material and human resources needs\. Page 12 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) staff in construction and supervision of building projects\. More specifically, it will: (i) provide construction advice and training in safe construction practices to masons, homeowners, architects and engineers; (ii) disseminate guidelines and training material through the Constructobus program; (iii) develop a communication and outreach strategy; and (iv) raise awareness towards climate change and adaptation or mitigation measures applicable to construction works\. For municipal staff, this Sub-component will provide technical assistance for: (i) construction planning; (ii) building code awareness, including promotion and enforcement; and (iii) awareness of building permits for construction, occupancy certification, and building inspection\. The BTB will benefit from the shelter design and construction activities under Component 2 through training and dissemination of best practices\. These activities will be complemented by a World Bank-executed TA to support the GoH in mainstreaming DRM in the education sector\. Component 2: Construction and Rehabilitation of “Safe Havens” (Total Cost US$23 million) 24\. This Component will finance: (i) the construction, reconstruction and/or rehabilitation of selected emergency shelters or “safe havens”, including those in schools, community centers, markets, and roadside annexes24, and the reinforcement of small road infrastructure acting as emergency walkways leading to safe havens, prioritized according to the methodology described in paragraph 25 below; (ii) the provision of improved basic services to these safe havens (compliant with climate change mitigation approaches)25; (iii) technical studies, including relevant engineering designs, technical audits, social and environmental safeguard instruments, and shelter activation and closure operating procedures for selected investments; (iv) training, technical assistance and communication activities aimed at achieving social mobilization and coordination of safe haven’s investments among all stakeholders participating in the Project; and (v) monitoring and supervision of works\. Delegated Implementing Agencies (Maître d’Ouvrage Délégué – MDODs) will support communities, CCPCs and municipalities in the monitoring and supervision of works and improve communities’ engagement and preparedness, as described in paragraph 26 below\. They will also facilitate coordination of shelter activities with those institutions responsible for the shelters’ buildings\. A key criterion for the site selection of safe havens to be financed will be land availability within the shelters premises to allow for construction activities with minimal disruption of the shelters’ original function and increased security of its users\. Technical assistance will be engaged to design guidelines for resilient construction, rehabilitation and maintenance of safe havens, as well as training activities and materials\. 25\. Methodology for prioritizing shelter investments\. Priority for safe haven investments under Component 2 will be assigned to municipalities located in the departments of Nippes, Sud, Grande Anse, Nord Ouest and Nord, given their risk profile and the vulnerability of their population\. The multi-criteria methodology developed by the DPC to prioritize shelter interventions, which combines GIS data and field information, will consider: (i) flood risk26; (ii) accessibility (3 km radius or about a 45 minute walk); (iii) risk/service ratio; (iv) existing shelter building characteristics, such as size, land availability, and level of destruction post-Matthew; (v) the level of the CCPC’s capacity; and (vi) the level of the municipality’s engagement in DRM27\. A thorough field verification and consultation with stakeholders, in particular CCPCs, mayors, and other government partners (the Ministry of National Education and Vocational Training—MENFP--in 24 Roadside annexes, as referred in the MIT-Harvard study, can include small shelter infrastructure attached to bus stops or markets located by the side of a road 25 While generators may be provided for emergency situations in response to a major event, solar panels will be installed preferably for the day-to- day needs of the school\. As part of climate change mitigation measures, the shelters’ design will promote enhanced indoor environmental quality and natural ventilation to reduce energy consumption as well as designs that optimize reliance on natural light to reduce the need for artificial lightning, 26 A 100-year return period flood event was used as it would be associated with floods caused by a high category hurricane\. 27 Both CCPC capacity level and municipality engagement are evaluated following a defined methodology to assess level of certification each year Page 13 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) the case of schools), will complement this methodology to confirm the sites that will be financed under the Project\. The Project will aim to construct or rehabilitate five to eight shelters in each of the five targeted Departments with an average capacity to provide safe haven to about 300 to 500 persons in each of them28\. Field verification will be facilitated by the results of the comprehensive structural and functional assessment of existing shelters in the departments of Nippes, Grand-Anse and Sud conducted under PRGRD\. 26\. Community involvement and responsibilities for shelter construction, operation, management and maintenance\. The shelter infrastructure will be coupled with a “my community, my shelter” program to improve community engagement and preparedness\. The program will provide training for CCPCs, shelter management committees and the community at large\. Technical assistance will support the design of protocols for the management of evacuees placed in emergency shelters, as well as the activation and closure of shelters\. Community involvement campaigns, conducted by qualified MDODs that are specialized in social mobilization and knowledgeable of the Haitian context, will be launched early in project implementation and will be sustained throughout implementation\. MDODs will be in charge of shelter construction and activities linked to social mobilization, information sharing, and community awareness\. During emergencies, safe havens will serve as evacuation shelters, and will be managed by the DPC\. Outside of an emergency situation, municipalities (or line ministries) to which the safe havens belong will remain responsible for operation and management, as well as maintenance activities\. 27\. Special provisions for school shelters\. Integrating the shelter within the school complex will maximize the use of infrastructure investments with significant co-benefits, as it will provide improved education facilities for students, allow for regular maintenance of the structure, and help build ownership within the community\. Operational procedures for school shelters will be developed to minimize the impact on the schools’ regular activity, and protect furniture and educational materials\. Component 3: Contingent Emergency Response (CERC) (Initial Allocation: US$0 million) 28\. This Component will finance the implementation of emergency works, rehabilitation, and associated assessments in the event of a natural disaster\. In the event of an emergency, uncommitted funds from other components may be reallocated in accordance with an Emergency Action Plan prepared by GoH and the Contingent Emergency Response Component (CERC) implementation modalities\. A dedicated chapter in the Project’s Operations Manual details guidelines and instructions to trigger a qualifying emergency and the use of funds under this Component\. Uncommitted funds to be allocated to this component will be determined at the time of the emergency in agreement with the World Bank\. Component 4: Project Management and Implementation Support (Total Cost US$4 million) 29\. This Component will finance the costs related to overall project management and implementation support, including: (i) operating costs (including staff costs) and support for training in procurement, safeguards, monitoring and evaluation, technical and financial management; (ii) individual technical experts for project implementation, as needed; 28Rehabilitation and construction are two different types of interventions\. More specifically, the Project will emphasize the construction of new shelter structures within existing public spaces, in particular schools\. For these new structures, the design will be undertaken by an architecture and engineering firm and the construction will be managed by the MDOD\. The Project will take advantage of the construction of shelters within schools to rehabilitate the remaining school buildings as needed\. A special provision for rehabilitation works is foreseen in the MDOD contract\. Rehabilitation works will be minimum in nature (light rehabilitation and not retrofit, and upgrade of functional aspects)\. Page 14 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) (iii) the project audit (including financial reporting); (iv) monitoring and evaluation, including the collection of socio- economic data and support for environmental and social safeguard supervision; (v) equipment (vehicles, furniture, and information and communication technology); and (vi) communication plan\. C\. Project Beneficiaries 30\. Technical assistance activities with national coverage under Component 1 will benefit an estimated 10\.9 million people (of whom 5\.5 million are women)\. Shelter infrastructure investments under Component 2 will benefit an estimated 3\.04 million people29, of whom 49 percent are estimated to be women30\. Direct beneficiaries of each safe haven investment will be determined after site selection based on the population covered by the safe haven\. 29 The 3\.04 million beneficiary figure corresponds to the overall population of the five targeted departments, which will benefit from various activities, including CCPC training, construction practices dissemination and shelter provision\. Direct beneficiaries from new shelter construction will range between 12,500 and 20,000 persons\. 30 IHSI official projections for 2015 for the total population of the five targeted Departments (Sud, Nippes, Grande Anse, Nord and Nord-Ouest)\. Page 15 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) D\. Results Chain Page 16 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) E\. Rationale for Bank Involvement and Role of Partners 31\. With its worldwide experience in DRM, as well as long and deep engagement in DRM in Haiti, the World Bank is in a unique position to support the GoH in addressing its DRM challenges\. The Project’s design reflects lessons learned from World Bank experience in recent years (paragraph 34)\. The Project also benefits from local experience in Haiti, including a long-term partnership with the DPC and a cross-cutting dialogue with other sectors on DRM\. For example, the Project has integrated engineering innovations to facilitate the economic recovery of the affected populations, such as better resilience to high wind speeds, water supply systems, separate sanitation facilities, separate spaces for women, and space for livestock\. 32\. All of the proposed investments are essential public services and institutional strengthening that cannot be financed directly by the private sector\. The World Bank will provide adequate focus on financing structural and non- structural interventions, as well as operations and maintenance arrangements\. Finally, World Bank’s safeguards policies will ensure that social and environmental aspects are addressed appropriately before, during, and after implementation\. 33\. The Project is a part of the larger effort by Haiti’s international partners in the DRM sector and ensures synergies and alignment with their interventions, namely: (i) Strengthening disaster risk governance at the central, departmental and local levels31\. The European Union’s (EU) 2017 budget support program and the Haitian Program to Support State Reform (SB-II), include three indicators on DRM that are directly linked to the elevation of the DPC to a General Directorate and the overall establishment and strengthening of the SNGRD; (ii) Strengthening disaster preparedness, including Early Warning Systems32\. The EU has invested around €22\.2 million since 1998 under its disaster preparedness program to strengthen shelters and infrastructure to face recurring hurricanes, floods, and other natural hazards\. Since 2011, the Office of U\.S\. Foreign Disaster Assistance (OFDA)/United States Agency for International Development (USAID) has supported the International Organization for Migration (IOM) to pre-position emergency relief supplies in preparation for disasters during the rainy and hurricane seasons, as well as to develop the capacity of the GoH’s personnel to manage facilities and deploy emergency supplies\. The Inter-American Development Bank (IDB) has invested more specifically in EWS; (iii) Disaster risk reduction33\. Since 2018, the European Commission's humanitarian aid (EU-ECHO) has invested about €10 million to consolidate disaster risk reduction investments, including: rapid response capacities, disaster-resistant shelter techniques, shelter needs, and coordination across humanitarian operations; and (iv) Reinforcing disaster recovery mechanisms34 and Urban Resilience\. USAID-OFDA and the World Bank are investing in urban resilience in the Port-au-Prince and Cap-Haitian areas, respectively\. 31 WB, UNDP, AECID, USAID, Swiss Cooperation 32 WB, EU, IDB, ECHO, USAID-OFDA with IOM, Swiss Cooperation, Canadian Aid and WFP 33 WB, EU-Echo, USAID-OFDA, UNDP 34 Canadian Aid, UNDP Page 17 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) F\. Lessons Learned and Reflected in the Project Design 34\. The Project builds on the World Bank’s global experience in DRM technical assistance and projects, in particular in India and Bangladesh, countries that have successful experiences and have achieved extraordinary reductions in fatalities from extreme weather events\. 35\. Strengthening DRM at the local level and engagement of the community in DRM are effective strategies to reduce disaster related fatalities\. Project design has integrated lessons learned from the past World Bank support to Haiti that emphasized the importance of community-driven development\. Additionally, evidence from Bangladesh and India demonstrates the important benefits of involving local communities in infrastructure location and design to ensure better safety, sanitation and functionality of the shelters, while also keeping in mind the interests of women and vulnerable groups, as well as universal access issues\. The IDB-financed National Early Warning Project (PNAP) revealed the need to involve the communities and CCPCs for the successful development and implementation of local early warning interventions\. Various post-earthquake reconstruction projects financed by the World Bank have also demonstrated the importance of capacity building and dissemination of best construction practices at the local and community levels in improving the understanding of the building code and its application\. 36\. Lessons from the World Bank’s experience worldwide in the design and management of shelters have been reflected in the Project’s design to optimize the shelters’ structural and functional aspects\. In a cyclone scenario with high speed winds and torrential rain, shelter design in India and Bangladesh has evolved to an inward-looking building that can be better insulated from the winds and rain\. These experiences have also shown the importance of involving shelter management committees, and the institution to which the shelter belongs (e\.g\., the MENFP in the case of schools used as shelters) for effective shelter management and operation and maintenance\. Involvement of these institutions from the inception stage, including the use of collaboratively generated Standard Operating Procedures (SOPs) in the management of the shelter during an evacuation event, plays an important role in the success of such projects\. 37\. Weak implementation capacity can be strengthened by using Delegated Implementing Agencies (Maître d’Ouvrage Délégué – MDOD) for infrastructure projects\. Various post-earthquake reconstruction projects financed by the World Bank have successfully utilized MDODs for the implementation of infrastructure sub-projects\. This implementation approach, which combines oversight through a government agency with on the ground implementation by MDODs, combined with community outreach efforts during implementation has proven to be a realistic and effective way of delivering results in a challenging environment\.35 MDODs have been successful in filling the technical capacity gaps of Government implementing agencies\. 38\. It is important to apply behavioral insights to support the design of better DRM interventions\. Governments around the world are leveraging behavioral science to develop cost-effective policy tools that better reflect the complexities of human decision-making to change behavior\. Studies have found that giving information to (or educating) the community does not necessarily lead to better disaster and emergency preparedness\. How the risk is interpreted by individuals could determine the process and the level of disaster and emergency preparedness\. The majority of studies show that people are more likely to evacuate when they have a good understanding of the severity of the storm, including its intensity, potential damage, location and timing of landfall, and rapidity of onset\. Rules of thumb to help determine their personal risk, which is highly predictive of evacuation behavior, include: (i) whether neighbors are evacuating; and (ii) if businesses in the community are closing\. While not a consistent predictor of evacuation, gender and children in the 35 See IEG upcoming Project Performance Assessment Report of the PREKAD -February 2019\. Page 18 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) household may be important factors in decision making in the Haiti context\. Some studies found that women with children are more likely to evacuate\. III\. IMPLEMENTATION ARRANGEMENTS A\. Institutional and Implementation Arrangements 39\. The Project will be implemented using the institutional framework, procurement, financial management and disbursement arrangements in place under PRGRD and other World Bank-financed projects\. However, implementation arrangements will be simplified\. The MICT, the sole ministry with responsibility for project implementation, will be in charge of the Project’s technical, fiduciary and safeguards aspects36\. All project activities will be implemented by the Projects Coordination Unit (Unité de Coordination de Projets, UCP/MICT) under MICT’s DPC\. Inter-agency working arrangements will be agreed at the beginning of the Project and will follow existing government guidelines\. 40\. UCP/MICT will be strengthened by: (i) the establishment of a Technical Unit specifically dedicated to the engineering and technical aspects of the Project’s Component 2; and (ii) the hiring of additional technical, operational and supervision staff, to acquire technical know-how in managing infrastructure construction and rehabilitation, fiduciary and safeguards, as well as coordinating multi-sectoral engagements37\. Drawing lessons from PRGRD, the capacity of UCP/MICT will be further amplified by contracting MDODs - such as NGOs or international organizations - to whom it will delegate responsibility for day-to-day project management for the rehabilitation/construction of safe havens\. A small number of MDODs will be used, as no single MDOD has sufficient human and financial resources to manage all of the Project’s shelter activities\. The Project will utilize the on-going PRGRD project to advance the contracting of firms to frontload preparation of infrastructure investments\. 41\. The MDODs in charge of the implementation of Component 2 will be specifically qualified in the procurement of consulting services related to architectural and engineering, as well as the procurement of contracts for works under World Bank Guidelines\. The MDODs will include an appropriate number of engineers and experienced construction technicians to ensure the effective management of multiple sub-projects, and to enforce the contractual commitments of consultants and contractors\. Specific provisions will be included in the MDODs’ contracts to ensure compliance with the World Bank’s requirements on procurement, financial management, safeguards, and anti-corruption policies\. The MDODs will be selected based on the eligibility criteria and selection process agreed with the World Bank, which are described in detail in the Project Operations Manual\. B\. Results Monitoring and Evaluation Arrangements 42\. The UCP/MICT will count upon dedicated monitoring and evaluation (M&E) staff that will monitor project progress through a dedicated M&E system based on information from the MDODs\. The GoH will prepare bi-annual progress reports in accordance with the format outlined in the Project Operations Manual\. Progress reports will include information on PDO-level results indicators and intermediate outcome indicators, disbursements, financial management 36 Under the PRGRD the management of transport infrastructure rehabilitation is handled by the Unité de Coordination de Projet of the Ministry of Transport\. 37 The Unité Centrale d’Exécution (UCE) of the Ministry of Public Works, Transport and Communication has the right technical reso urces and possesses the engineering knowledge that is required for such activities\. The establishment of a Technical unit at UCP/MICT draws lesson for the weakness of the UCP/MICT in undertaking this technical role under the Project\. Page 19 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) (including project financial reports and audits), procurement, social and environmental safeguards, updated annual plan of works and activities, and specific assessments of the impact of women’s participation in project design and implementation as well as the Grievance Redress Mechanism (GRM)\. Surveys will be carried out before, during (at midpoint) and immediately after conclusion of the safe haven works\. A baseline for indicators will be established at the beginning of implementation\. A Mid-Term Review (MTR) will be conducted no later than three years after the first disbursement\. A final independent evaluation will be also conducted upon project completion to assess its overall achievements\. A beneficiary survey will be conducted at the beginning of implementation and upon completion, and third-party technical audits will be conducted for quality assurance during the construction of shelters\. C\. Sustainability 43\. CCPC capacity building\. Sustainability of the CCPCs is of concern, given the DPC’s limited budget for emergency preparedness and response, and the absence of a legal framework for CCPCs\. While there is limited financial commitment for a larger budget for DPC, there is a strong political will to strengthen and maintain the CCPCs\. The GoH’s efforts will continue to focus on: (i) supporting DPC at the national level in developing tools for sustainable management of the CCPC network, including planning and strategic tools for the provision of dedicated budgets for CCPC training over the long term; (ii) supporting municipalities in assigning human resources and funding to DRM functions; and (iii) officially integrating CCPCs in municipalities’ organization and operations\. These have already been successfully demonstrated in the Municipality of Cap-Haitien\. 44\. Shelter infrastructure\. Lessons learned from other shelter programs have been incorporated in the Project’s design with a view to improve the sustainability of investments\. Previous experiences have demonstrated that when shelters are built in schools, the buildings are in continuous use throughout the year, and upkeep and maintenance is improved because of the buildings’ dual purpose\. After construction, DPC will turn the building over to its owner (the MENFP in the case of schools or municipalities in case of community centers or annexes of public markets) for continued operation and maintenance\. DPC will include a shelter maintenance plan for the buildings’ use during emergencies\. At the municipal level, CCPC will work with the respective municipality and the community to help with painting, small repairs and other minor maintenance\. 45\. Construction quality\. The sustainability of infrastructure is closely related to the quality of works\. The Project will aim to improve the quality of construction through the introduction of: (i) community monitoring systems for improved transparency and accountability during construction, and (ii) international best practices in safe haven designs\. IV\. PROJECT APPRAISAL SUMMARY A\. Technical, Economic, and Financial Analysis 46\. Strengthening of CCPC and DRM capacities at the local level\. Capacity building of CCPCs is based on the experiences of ERDMP and PRGRD (which have developed the training modules) and the use of standard procedures for the creation and activation of CCPCs, as well as standardized roles and responsibilities of CCPCs across the country\. Training modules have benefited from regular evaluations and updates\. CCPC performance will be evaluated at the beginning and end of each training, based on a multicriteria methodology that encompasses emergency preparedness and response functions, planning aspects, risk understanding and disaster risk reduction\. An external evaluation of the CCPC training program, to be conducted under the PRGRD, will directly inform the Project’s results indicators\. Page 20 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 47\. Safe construction practices\. Technical assistance to the MTPTC under the Project is a continuation of World Bank support after the 2010 earthquake, which included: (i) the training of engineers to conduct the post-earthquake structural assessment of about 450,000 buildings; (ii) the training of up to 15,000 masons on construction best practice; and (iii) the establishment of the BTB to strengthen the country’s administrative and operational framework for safer buildings\. The Project will address the capacity strengthening of BTB, based on its comprehensive multi-year work plan and budget, and will adopt a learning-by-doing training approach to allow the BTB to be directly linked to the safe haven component activities\. 48\. Safe haven investments\. This project activity stems from a technical and institutional dialogue between the GoH and the World Bank initiated in 2013 with the "Risk Ecology: Haiti Evacuation Systems Initiative" study, conducted by MIT/Harvard/Leibniz University in partnership with the UCP/MICT\. This study highlights the merits of the use of schools (rural, public, vocational school, etc\.,) or annexes to school buildings in a shelter strategy, and also recommends the use of community centers, roadside annexes and market annexes as possible shelter options\. It has provided the technical basis for shelter activities under PRGRD, including the development of multi-functional shelter plans for various shelter scenarios and the rehabilitation of schools/shelters damaged after Hurricane Matthew\. 49\. Technical specifications for infrastructure design and procedures\. The design of shelters will be based on international building codes in order to ensure that the structures are safe and resilient to hurricane and earthquake shocks\. They will also consider the requirements and existing designs of the ministries responsible for the shelters\. Haiti- specific Standard Operating Procedures (SOPs) will be developed based on existing SOPs and will integrate best practices from multilateral agencies\. 50\. Climate co-benefits\. Investments and institutional strengthening activities are aimed at building resilience to disasters, thus enhancing the capacity of the project-supported municipalities and departments to adapt to climate change\. The Project’s interventions will bring significant benefits for the Government, communities and population by adapting to the consequences of climate change, especially the increased frequency and intensity of hydro- meteorological disasters\. Activities under Component 1 integrate climate change into disaster plans and preparedness, and enhance construction practices to make buildings more resilient\. Component 2 provides critical infrastructure for the population to cope with the increased frequency and severity of extreme events due to climate change\. Climate change mitigation measures will be applied through a shift to solar energy to the extent possible, in place of generator- produced electricity\. Shelter design will make the most of natural light to lower the needs for artificial lighting, promote enhanced indoor environmental quality through natural ventilation to reduce energy consumption, and make provision for ventilation and thermal comfort even when external power is not available\. Shelter design will also incorporate rain water harvesting where possible\. Furthermore, technical training provided to municipal staff in construction and supervision will include a module on raising awareness of climate change, and related mitigation measures\. 51\. Citizen engagement and community consultation prior to safe haven investments\. The Project will carry out a validation of the proposed sites through extensive consultations with different stakeholders from institutions that own the shelters, municipalities, CCPCs, and other members of the community\. These consultations will also clarify the role of CCPCs and shelter management committees (CCPC subgroup) in the management safe havens (site validation, monitoring of construction, involvement in maintenance, establishment of the clear linkages of safe havens to municipal contingency plans, etc\.)\. A first consultation with CCPCs in the Grand Sud in November 2018 collected preliminary feedback from CCPCs on the safe haven construction and rehabilitation approach proposed by the Project, including the overall site selection criteria and the possible types of safe havens\. It provided important recommendations to efficiently link CCPCs to safe haven investments\. Page 21 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 52\. The Project’s primary benefits from better disaster preparedness and improved response systems are the expected reduction in loss of life and the indirect associated burden of disease (water and vector-borne diseases), reduction in socio-economic activities, and reduced damage and losses from disasters \. Economic literature suggests that DRM benefits exceed investments38, based on three types of benefits: (i) avoided asset losses due to natural disasters; (ii) saved lives per year, considering the value of statistical life (reduced risk of premature death) and avoided injuries; and (iii) additional economic benefits\. The Project’s economic analysis is based only on saved lives per year and reduced economic activities, as it is difficult to assess the reduction in future asset losses as a result of the introduction of weather-proof construction standards\. 53\. The economic analysis covers investments in safe-havens and shelters\. A cost benefit analysis was carried out for the Project’s proposed shelter investments\. The results indicate a net present value (NPV) of US$32\.7 million at a 6 percent discount rate over 25 years, an economic rate of return (ERR) of 14 percent and a benefit/cost ratio greater than one\. 54\. A sensitivity analysis was carried out to determine the switching points for cost increments, benefit decrements, and equal cost increments and benefit decrements with discount rates ranging from 4 percent to 8 percent\. The switching point when cost increments equal benefit decrements, discounted at 6 percent, is ±37 percent\. The results are more sensitive to a decrease in benefits than to an increase in costs\. 55\. A scenario analysis was also carried out and the results are illustrated in Table 2: the base case scenario is discounted at 6 percent and relies on the estimates of costs and benefits; the pessimistic scenario is discounted at 8 percent and includes a 10 percent increase in economic costs and a 10 percent decrease in benefits; and the optimistic scenario is discounted at 4 percent and includes a reduction in economic costs by 10 percent and increase of benefits by 10 percent\. The NPV is positive under all three scenarios and the ERR is 12 percent even in the pessimistic case\. As such, the project investments in shelters are robust\. Details of the economic analysis are available in the Project File\. Table 2: Results of the Economic Analysis Key economic Indicators Project 25 years discounted at: 4% 6% 8% Scenario Optimistic Base Case Pessimistic Cost/Benefit Analysis NPV (US$ million) 64\.0 32\.7 12\.6 ERR (%) 17 14 12 PV benefit/cost ratio 3\.3 2\.2 1\.5 Switching point >cost = <benefit (±%) ±53 ±37 ±18 >cost (±%) +231 +120 +47 <benefit (±%) -69 -54 -31 38Hallegatte, Stephane\. 2012\. A cost effective solution to reduce disaster losses in developing countries: hydro-meteorological services, early warning, and evacuation\. Policy Research Working Paper No\. WPS 6058\. Washington, DC: World Bank\. http://documents\.worldbank\.org/curated/en/190261468181486694/A-cost-effective-solution-to-reduce-disaster-losses-in-developing-countries- hydro-meteorological-services-early-warning-and-evacuation Page 22 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) B\. Fiduciary (i) Financial Management 56\. The Project’s Financial Management (FM) function will be carried out by an existing coordination unit, UCP/MICT, under the DPC within the MICT, which currently carries out this function for other World Bank-financed projects\. The UCP/MICT structure will be strengthened in order to ensure an adequate and sufficient FM, especially since extensive FM support will be needed to strengthen administrative capacity, mainly in the areas of project financial information control, budget planning, and execution monitoring\. As project activities will be implemented at national and local municipal levels, effective coordination mechanisms between DPC and its local entities (CCPCs) will be put in place to ensure that project activities and investments are successfully implemented, managed and maintained\. As part of the Project’s institutional arrangements, adequate coordination mechanisms will also be established to ensure coordination among MICT and other participating government entities\. Detailed FM arrangements (staffing, budgeting, internal controls, funds flow, accounting and financial reporting and external audit) have been included in the Project Operations Manual, which also includes specific provisions for the allocation of project funds for the contingent emergency response component\. (ii) Procurement 57\. Procurement will be carried out in accordance with the Procurement Regulations\. The World Bank’s Systematic Tracking of Exchanges in Procurement (STEP) system will be used to prepare, clear, and update the Procurement Plans and conduct procurement transactions for the Project\. The textual part, along with the Procurement Plan tables in STEP, constitute the Project’s Procurement Plan\. 58\. The World Bank’s standard procurement documents will be used for all contracts that are subject to international competitive procurement\. When approaching the national market, the GoH’s procurement procedures may be used in accordance with the National Procurement Arrangements (paragraph 5\.3) of the Procurement Regulations\. This will be specified in the Procurement Plan tables in STEP\. When the GoH uses its own national open competitive procurement arrangements, as set forth in the 2009 Law laying down general rules relating to Public Contracts and Public Service Concession Agreements, such arrangements will be subject to paragraph 5\.4 of the Procurement Regulations and the conditions included in the Grant Agreement\. When national procurement arrangements other than national open competitive procurement arrangements are applied by the GoH, such arrangements will be subject to paragraph 5\.5 of the Procurement Regulations\. 59\. A procurement capacity assessment of the UCP/MICT has been conducted and a Project Procurement Strategy for Development (PPSD) has been developed\. The assessment and PPSD revealed that the UCP/MICT has strong experience in the World Bank and GoH procedures for implementing World Bank-financed projects\. The unit has a clear manual in place that will be amended and used for the Project\. To manage the additional workload, UCP/MICT will be reinforced by one additional Procurement Specialist with relevant experience, particularly in World Bank or IDB procurement rules and procedures\. The Procurement Specialist will receive training on the World Bank Procurement Regulations\. Thresholds for procurement methods and prior review are provided in Annex 1\. Page 23 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) C\. Safeguards (i) Environmental Safeguards 60\. The Project is rated environmental risk Category B, per World Bank OP/BP 4\.01 Environmental Assessment, since the proposed activities are expected to focus on small- to medium-scale new shelter construction and rehabilitation of existing infrastructure\. Potential impacts are expected to be limited, few, site-specific, and are expected to be reversible\. Mitigation measures can be easily designed and implemented\. No long-term or irreversible negative environmental impacts are expected under the Project\. Four safeguard policies are triggered: (i) Environmental Assessment (OP/BP 4\.01); (ii) Pest Management (PO/BP 4\.09); (iii) Involuntary Resettlement (OP/BP 4\.12); and (iv) Physical Cultural Resources (OP/BP 4\.11) to cover chance finds of cultural property\. 61\. Project benefits are expected to accrue to local communities in terms of: (i) access to adequate shelter facilities and improvement in the overall quality of life of disaster victims while in the shelters; (ii) the number of human lives that will be saved and increased educational and social benefits; (iii) the application of best industry practice in the design and construction of shelters for communities affected by natural disasters; (iv) shelter adaptation and resilience to the effects of climate change; (v) donor partnership in DRM efforts in the country; and (vi) the consideration and promotion of human rights and the mainstreaming of gender in the design, construction and operation of shelters\. However, investments in DRM infrastructure can at times have adverse impacts on the biophysical and socioeconomic environments, if proper risk mitigation measures are not in place\. Such adverse impacts include: pollution of ground and surface waterways; air and noise pollution; land acquisition, loss of livelihood and economic activities for project affected people; and impacts on cultural and historical resources\. There are also potential health and safety risks associated with construction activities for workers, students, and faculty and school administration personnel\. 62\. Since the sites, designs and the scale of the various shelter construction/rehabilitation sub-projects envisaged under the Project will be known only during implementation, the GoH has prepared an Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF), following a broad-based and in-depth consultation approach that included interviews with relevant project stakeholder groups\. Two consultations were conducted in-country on December 17 and 20, 2018, as part of the preparation of the ESMF and RPF\. The ESMF and the RPF have been disclosed on the MICT and National Center for Geospatial Information (Centre National de l’ Information Géospatiale, CNIGS) websites on January 18, 2019 and on the Association's website on January 23, 201939\. The ESMF provides guidance for implementing mitigation measures commensurate with the identified potential impacts/risks\. It also describes the various entities involved in implementing those measures, with clear roles and responsibilities, along with a capacity strengthening program for effective implementation and monitoring\. In addition, the ESMF provides an estimate of the required cost outlays and a timetable for preventing and mitigating potential negative impacts, as well as a dedicated section on the ways and means to ensure security, safety and health of school-children when construction works are conducted on school sites\. The ESMF provides steps for screening all sub-projects, outlines procedures for preparing, reviewing, clearing, disclosing and monitoring sub-project- specific Environmental and Social Management Plans (ESMPs), as needed\. No civil works will commence without proper compliance with the above procedures\. The ESMF includes a discussion of the reason for triggering OP/BP 4\.09, its potential impacts/risks and mitigation measures, and concludes that the preparation of a standalone Pest Management Plan (PMP) is not required\. Since insects may or may not be present in every construction site, pest management considerations will be included in the ESMP of each individual sub-project\. 39http://www\.haitidata\.org/documents/?limit=100&offset=0; http://www\.mict\.gouv\.ht/category/publication/etudesetrealisations; http://documents\.worldbank\.org/curated/en/463321548405008346/pdf/Rapport-final-du-CPR-du-PGRAC-10janvier-2019\.pdf; http://documents\.worldbank\.org/curated/en/961531548402033773/pdf/Rapport-final-du-CGES-du-PGRAC-10-janvier-2019\.pdf Page 24 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 63\. Non-governmental organizations, the MDODs, will be responsible for coordination and implementation of the Project’s environmental and social safeguards\. Oversight and compliance monitoring will be carried out by the UCP/MICT, which will recruit an environmental safeguard specialist and a social safeguard specialist\. Together, these safeguard specialists will be responsible for ensuring that due diligence is exercised at all times in compliance with the relevant national and World Bank policies and procedures\. World Bank supervision teams will include an environmental specialist and a social safeguard specialist\. Monitoring reports on implementation of environmental and social safeguards provisions will be provided to the World Bank and other relevant entities for review and verification during project supervision missions\. (ii) Social Safeguards 64\. Works financed under the Project are envisioned to be mostly focused on the construction of new structures on the premises of existing public buildings and the repair of existing structures (such as schools and community centers) or expansions to these structures to be used as shelters in the event of disasters\. The Project will also finance small access roads to these structures to be used as shelters\. Potential resettlement, minor land acquisition and loss of economic assets because of rehabilitation and construction may occur on a limited basis\. Where a small number of individuals and/or families are likely to be impacted, abbreviated resettlement plans will be prepared and implemented prior to construction\. The Project will avoid (or minimize and mitigate) these impacts to the extent possible\. The selection of sites to be rehabilitated as shelters will only commence after the Grant is effective\. For these reasons, while OP 4\.12 has been triggered, the Project will follow a framework approach\. As indicated above, the RPF has been prepared, consulted, and publicly disclosed\. Site-specific Resettlement Action Plans (RAPs) will be prepared, if needed, once the sites are determined\. No works will commence prior to the preparation and implementation of appropriate safeguard instruments\. 65\. Land acquisition and impacts on livelihoods will be screened upfront using a joint environmental and social screening form\. The Project will avoid or minimize land acquisition as much as possible\. A potential risk (as observed in other projects in Haiti) is the delay in completing land acquisition and compensation due to the complicated national procedures\. The UCP/MICT´s safeguards team, as well as the MDODs that will be contracted to support project implementation (including safeguards), will be involved from an early stage in site selection and engineering/design studies, and will interact with communities during the implementation of works\. 66\. Risks to the communities as a result of contracting non-local labor for construction works are rated low\. Most labor for construction and rehabilitation works is expected to be local, and only a few high skilled/technical workers will be required from outside\. The Project will incorporate various measures to mitigate the potential negative impacts of labor influx, as well as to enhance community health and safety, by requiring that ESMPs include: (i) labor influx management, worker safety, and community health and safety measures; and (ii) clauses requiring the presence of social and environmental specialists on site during implementation\. The Project will also enforce codes of conduct, and ensure that labor related commitments are reflected in the contract bidding documents\. 67\. UCP/MICT has limited experience in planning and implementing safeguards activities in compliance with World Bank safeguard policies\. To ensure sound implementation (including M&E reporting), further training will be provided to UCP/MICT staff as needed in relation to: (i) labor and health and safety issues; (ii) codes of conduct, including those addressing and preventing gender-based violence; (iii) gender-specific interventions; and (iv) the climate change aspects of the Project\. A framework or protocol will be developed for construction management practices in and around school facilities\. Page 25 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 68\. Citizen Engagement\. The Project will leverage the lessons learned from the PREKAD and PRODEPUR projects, which were successful in strengthening participation, partnerships and transparency between citizens and local authorities through community involvement and social accountability at the local level\. As demonstrated by previous community-driven experiences in Haiti, broad-based participation also contributes to creating local ownership, which, coupled with capacity building activities, ensures the sustainability of investments\. To ensure the engagement of citizens, the Project will: (i) develop a pro-active communication strategy that will explain the Project’s benefits to beneficiaries and the public at large; (ii) develop robust information request and grievance redress measures for project activities as a whole; and (iii) support the engagement of project beneficiaries, including CCPCs, community leaders and community associations active in the municipality, as well as representatives of municipal authorities, in the preparation, implementation and monitoring of all project activities\. To reflect this approach, the Project will include a citizen engagement indicator in the Results Framework\. 69\. In addition, the Project will identify champions among municipalities that demonstrate strong citizen engagement in risk management and that actively contribute to the institutionalization of the DPC\. These role-model examples will be promoted throughout the network of municipalities to disseminate good practices in community involvement and collaboration with local authorities, and to conduct risk mitigation actions\. 70\. Gender\. According to the World Bank Group’s Systematic Country Diagnostic (SCD) for Haiti40, Haiti faces several challenges regarding gender equality\. Women and girls are particularly vulnerable during the occurrence of a disaster, suffer disruptions to housing, and lack access to services and relief\.41 Women and girls are also at far greater risk of experiencing physical and sexual violence in emergency settings\. In 2010, unsafe living conditions after the earthquake in Haiti contributed to sexual violence against women and girls (VAWG) in camps\.42 A gender study on early warning systems conducted by the World Meteorological Organization (WMO) in the Caribbean43 revealed that for most households headed by females, the post-disaster recovery process was likely to be prolonged\. The study also demonstrated that women’s involvement at all stages of Early Warning was critical to help women and vulnerable groups to protect themselves and react appropriately during an emergency\. 71\. Based on the gender gap analysis conducted, the Project will specifically address the fourth pillar of the World Bank’s gender strategy: “Enhancing women’s voice and agency”\. A review of the DPC’s official shelter management guide and field interviews conducted with CCPCs and communities indicates the importance of a strong focus on gender- based violence risks and corresponding mitigation measures to ensure the safety of women and girls in emergency situations\. Women’s focus group interviews conducted during project preparation indicated that women felt unsafe in shelter settings due to the lack of enforcement of rules\. As shelters do not have separate areas for women, women lack privacy and are at risk of sexual aggression\. Women would be reticent to evacuate, since shelters do not provide basic resources such as food, water, and first aid supplies\. In particular, they do not offer supplies for women, such as feminine products or formula for infants44\. 40 Haiti: Towards A New Narrative Systematic Country Diagnostic, The World Bank, 2015 41 Violence Against Women and Girls Resource Guide, Disaster Risk Management Brief, Global Women’s Institute, IDB and WBG, 2015\. 42 State of World Population, UNFPA, 2012 43 Review of the EWS in the Caribbean, WMO, CREWS, GFDRR, The World Bank, UNISDR, 2018, unpublished 44 Using Behavioral Insights to Improve Disaster Risk Management in Haiti, World Bank 2018 (unpublished) Mind, Behavior, and Development Unit, GP Poverty in collaboration with GSURR Page 26 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 72\. The Project will therefore carry out the following specific actions to address the identified gender gaps: • Shelter designs will meet international standards that consider women’s and girls’ physical safety and needs, such as separate toilets, toilets with wheel-chair access, ramps for easy access, medical rooms, and dedicated storage space for the assets of women merchants, etc\.; 45 • Each shelter built/rehabilitated by the Project will have its own operating procedures for activation and closure to ensure safety, including for women\. Each shelter will be managed by a dedicated shelter management committee, which is a subset of the CCPC and comprises community members\. The Project will encourage: (i) at least 50 percent women’s involvement in the shelter management committees, where women participation is generally low; and (ii) at least 50 percent women’s leadership in shelter management committees\. This will be achieved through dedicated awareness raising activities at the community level; • The Project will include women in consultations as much as possible to ensure that participatory activities and consultative processes are held in venues and formats that are suitable and possible for women to attend; • Female workers will be included in construction works, and will be assigned food distribution, registration, and other service responsibilities during emergency situations; • EWS messaging will include targeting of vulnerable groups, such as single female headed households, elderly households, the chronically ill, and the differently abled; • The Project will adopt the recommendations of the Global GBV Task Force Report by: (i) requiring contractors to have sexual harassment policies and Codes of Conducts for workers; (ii) developing Sexual Exploitation and Abuse (SEA) awareness by building the capacity of project agencies, contractors and supervision consultants to prevent, respond to, and monitor SEA, and (iii) enhancing the gender roadmap in collaboration with local authorities and communities, including with women’s and community organizations, and • The Project will work with the Government and key stakeholders, including community-based organizations and women in the local community, to prevent violence against women and girls and carry out community educational programs on how to be prepared for disasters, with an emphasis on the right to a life free of violence before, during, and after disasters, and on the negative effects violence can have on the entire populations’ recovery\. 73\. Progress towards women’s empowerment in the context of a disaster will be monitored in the Results Framework through four indicators\. For each shelter constructed/ rehabilitated by the Project, the Results Framework will monitor the percentage of women involved in the shelter management committees, as well as the percentage of women designated as the committee focal point to assess their level of involvement in the decision-making process\. Strengthening female representation in the design and implementation of shelter operating procedures will contribute to improving the safety of women and girls during emergency evacuations\. The Project will also monitor that shelter coverage is equally improved for women and men, and that shelters built or rehabilitated through the Project benefit from gender friendly infrastructure designs\. 74\. Grievance Redress\. A Grievance Redress Mechanism (GRM) will be put in place to allow beneficiaries to submit complaints and ensure timely feedback and resolution\. The scope of the GRM will go beyond safeguards matters and include issues such as safety, contractor performance, and potential violations of the code of conduct (which will include clauses on violence and harassment)\. The GRM of the Urban Resilience and Municipal Development (MDUR) Project will be taken as a reference\. The GRM system will rely on local level GRM focal points, the Administrative Council of the 45 Including children, elderly and the disabled, within the community Page 27 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Communal Section (Conseil d’Administration de la Section Communale, CASEC) to uptake complaints, complemented by consultations, documentation and monitoring led by the Project’s Social Specialist in the UCP/MICT and MDODs\. The GRM will: (i) place emphasis on communications and on closing the feedback loop among the project team, contractors and project beneficiaries; (ii) require that all contractors assign community focal points for addressing grievances; and (iii) ensure frequent reporting and monitoring by UCP/MICT on grievances received and steps for their resolution\. The Results Framework will track the resolution of grievances throughout project implementation\. (iii) Grievance Redress Mechanisms 75\. Communities and individuals who believe that they are adversely affected by a World Bank-supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS)\. The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns\. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures\. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond\. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www\.worldbank\.org/en/projects-operations/products-and-services/grievance-redress-service\. For information on how to submit complaints to the World Bank Inspection Panel, please visit www\.inspectionpanel\.org\. V\. KEY RISKS \. 76\. The overall risk of the Project is Substantial\. 77\. Political and Governance risk is rated High\. Political uncertainty and potential instability are the main risks in Haiti\. The country experienced particularly serious social unrest in mid-February 2019, which paralyzed economic activity in the country\. At the project level, these factors have the potential to create bottlenecks and delays in implementation\. Political and Governance risk will be partially mitigated through dialogue and close collaboration with government entities, as well as proactive engagement by the World Bank as issues arise\. The task team will provide close implementation support and adjust interventions as needed to minimize potential disruptions to the Project\. 78\. Macroeconomic risk is rated Substantial\. Despite modest growth in 2018, Haiti’s fiscal deficit increased significantly, putting pressure on the exchange rate and inflation\. There is a risk that the fiscal position will continue to deteriorate in 2019, and may jeopardize the sustainability of certain publicly-financed programs\. This risk will be partially mitigated by prioritizing intervention in existing public sites\. 79\. Sector Strategies and Policies risk is rated Substantial\. As indicated earlier, the DPC and the SNGRD are not yet covered by the legal framework and are not provided sufficient dedicated budgets\. A new National DRM Law has been re-drafted, but has not yet been approved by Parliament\. The Project will mitigate this risk by engaging in active policy dialogue at the ministerial level and embed high-level TA support to the DPC to develop tools for strengthening sector strategies, in particular the DRM Law and the creation of an autonomous DPC with its own dedicated budget\. 80\. Institutional Capacity for Implementation and Sustainability risk is rated Substantial\. Haiti is characterized by weak institutional and technical capacity to coordinate and implement integrated and multi-sectorial projects\. This Page 28 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) includes inadequate coordination, weak quality control, and lack of information-sharing mechanisms across various agencies and levels (national and municipal)\. To mitigate these risks, the Project will provide technical assistance to strengthen the operational capacity of the UCP/MICT for project design, prioritization, management, and supervision\. It will also contract MDODs to complement the UCP’s capacity\. 81\. Fiduciary risk is rated High\. The key risks for FM and procurement are both rated High and are linked to capacity constraints\. The Project’s FM and procurement function will be carried out by an existing coordination unit UCP/MICT under the DPC within the MICT, which currently carries out this function for other IDA-financed projects (PRGRD – P126346, and MDUR P155201)\. FM risks and compliance will be monitored closely during the World Bank’s implementation support missions as well as through annual external audits\. Experienced staff will be recruited to support the UCP’s procurement and financial units and their capacity will be strengthened through TA and World Bank implementation support\. Special attention will be on ensuring proper control of financial information and cash flow to MDODs, as well as MDODs’ contract management\. 82\. Social and Environmental risks are rated Substantial\. The Substantial risk rating is due to: (i) the UCP’s limited experience in managing the implementation of safeguards; and (ii) potential health and safety risks involving children, where schools are selected for rehabilitation works\. To mitigate these risks, further training will be provided to the UCP/MICT staff, as needed, on: (i) labor and health and safety issues; (ii) codes of conduct, including on addressing/ preventing gender-based violence; (iii) gender-specific interventions; and (iv) the Project’s climate change aspects\. A framework or protocol will be developed for construction management practices in and around school facilities\. The Project will avoid or minimize land acquisition as much as possible\. Land acquisition and impacts on livelihoods will be screened up-front using a joint environmental and social screening form\. The UCP´s safeguards team, as well as the MDODs that will be contracted to support project implementation, will be involved from an early stage in site selection and engineering/design studies, and will interact with communities during implementation of works to minimize the risk related to land acquisition\. 83\. Stakeholder risk is rated Substantial\. Stakeholder risk is assessed as Substantial given the multiplicity of ministries and government units responsible for DRM and involved in project implementation (MICT, municipalities, communities, MENFP, BTB/MTPTC, CNIGS etc\.)\. To address this risk, project activities will be implemented in a consultative manner and conflict resolution mechanisms will be put in place, e\.g\., Grievance Redress Mechanisms and fora for dialogue among CCPCs\. Field consultations with CCPCs and communities as part of project preparation confirmed strong local uptake of project activities\. Page 29 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) VI\. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Haiti Strengthening DRM and Climate Resilience Project Project Development Objectives(s) The Project Development Objective is to improve: (i) early warning and emergency evacuation capacity in selected municipalities in high climate risk-prone areas, and (ii) the provision of and accessibility to safe havens\. Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline End Target Population is warned with reliable information and provided with effective evacuation support Number of CCPCs with excellent competencies in emergency planning and management, in high climate risk-prone areas - 0\.00 10\.00 Level 1 certification (Number) Improved National Early Warning and Communication System for Hydromet events based on approved and adopted standard No Yes protocols (Yes/No) Population takes refuge in a safe haven that is accessible and provides emergency needs Increase in number of people living in flood-risk areas who are 0\.00 20\.00 covered by a safe haven (Percentage) Increase in number of females living in flood-risk areas who 0\.00 20\.00 are covered by a safe haven (Percentage) PDO Table SPACE Page 30 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline End Target Strengthening Disaster Preparedness and Emergency Response Capacity & Promoting Building Regulation Number of CCPCs with improved competencies in emergency planning and management - Level 2 certification (Number) 118\.00 140\.00 Share of municipalities in risk-prone areas with an improved 0\.00 90\.00 emergency preparedness and response capability (Percentage) Percentage improvement in the level of understanding of early 0\.00 60\.00 warning messages (Percentage) Number of persons trained to apply resilient construction 0\.00 17,000\.00 techniques (Number) Construction and rehabilitation of safe havens Number of safe havens constructed/rehabilitated by the project 0\.00 30\.00 (Number) Number of safe havens constructed/ rehabilitated by the project benefitting from gender friendly infrastructure design 0\.00 27\.00 (Number) Share of women participation in the shelter management committees for each “safe-haven” constructed/ rehabilitated by 0\.00 50\.00 the project (Percentage) Share of women leadership in the shelter management committees for each “safe-haven” constructed/ rehabilitated by 0\.00 50\.00 the project (Percentage) Percentage of grievances appropriately addressed as part of the 0\.00 90\.00 Project (Percentage) Percentage of beneficiaries reporting satisfaction with project 0\.00 90\.00 interventions (Percentage) IO Table SPACE Page 31 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Number of level 1-certified CCPC with competencies in emergency planning and management rated as excellent, out of the 70 municipalities in high climate risk-prone areas\. The certification is a measure of CCPC’s ability to Evaluation of handle emergency Number of CCPCs with excellent CCPCs and situations\. It validates Evaluation by a competencies in emergency planning and Annual reports from UCP/MICT adequate training in Internal consulting firm management, in high climate risk-prone the UCP/ management, Shelters areas - Level 1 certification MICT management, Emergency planning, operations and links with local authorities\. This certification encompasses 4 levels Level 1 : Excellent Level 2 : Good Level 3 : Average Level 4 : Weak Improved National Early Warning and The DPC approved and Reports from Provision of the Annual UCP/ MICT Communication System for Hydromet adopted a comprehensive the UCP/ finalized and approved events based on approved and adopted protocol, cascading from MICT protocol Page 32 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) standard protocols national to departmental to regional and local level to spread timely information to the population and trigger evacuation processes in case of an adverse climate event\. Percentage increase of number of people living in flood areas in the five departments with access to safe havens\. Safe havens constructed/ rehabilitated by the project take into account gender, disability and resilience to natural hazards standards\. 20 percent increase in the GIS analysis after Reports from Increase in number of people living in number of people covered completion of Annual the UCP/ UCP/ MICT flood-risk areas who are covered by a safe by a shelter is an estimation construction works and MICT haven based on limited baseline Technical audits information in the Gran Sud\. Today, preliminary estimations indicate that existing shelters cover about 58,000 of the 230,000 people at risk in 69 section communales of the Grand Sud (about 24 percent coverage)\. The shelter data collection currently ongoing under PRGRD will provide Page 33 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) more detailed baseline data on current shelter capacity\. Percentage increase of number of females living in flood areas in the five GIS analysis after departments with access to Reports from Increase in number of females living completion of safe havens\. Safe havens Annual the UCP/ UCP/ MICT in flood-risk areas who are covered by construction works and constructed/ rehabilitated MICT a safe haven technical audits by the project take into account gender, disability and resilience to natural hazards standards ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Number of level 1-certified CCPC with improved competencies in emergency planning and management rated as excellent\. The Evaluation of certification is a measure of CCPCs and Number of CCPCs with improved Evaluation by a CCPC’s ability to handle Annual reports from UCP/MICT competencies in emergency planning and consulting firm emergency situations\. It the management - Level 2 certification validates adequate training UCP/MICT in Internal management, Shelters management, Emergency planning, operations and links with local authorities\. This Page 34 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) certification encompasses 4 levels Level 1 : Excellent Level 2 : Good Level 3 : Average Level 4 : Weak Percentage of targeted Reports from Internal assessments, Share of municipalities in risk-prone areas municipalities for shelters Semi- the baseline to be UCP/MICT with an improved emergency investments, with an and annual UCP/MICT established preparedness and response capability updated and effective municipal contingency plan Twice during Measured improvement of project population's understanding implement of Early warning messages Reports from Survey conducted by a ation (once Percentage improvement in the level of on the basis of a survey that the UCP/ consulting firm at the UCP/MICT at mid- understanding of early warning messages will be undertaken at the MICT local level term and beginning of the project to once at the establish the baseline in end of the selected municipalities project) Number of persons (municipal staff, masons, Data homeowners, architects and collected by engineers) in the targeted Progress reports from Semi- BTB after the Number of persons trained to apply municipalities provided with the BTB delivered to UCP/ MICT annual completion resilient construction techniques construction advisory, UCP/MICT of each training in safe construction training practices, and awareness towards climate change and Page 35 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) adaptation/ mitigation measures applicable to construction Reports from Number of safe-havens MDOD, MDOD Data collected by MDOD constructed or rehabilitated Semi- which feed regularly collects data Number of safe havens and transferred to by the project in selected annual into progress on shelter construction constructed/rehabilitated by the project UCP/MICT municipalities in the climate reports from progress risk-prone areas\. UCP/MICT Number of shelters Reports from MDOD regularly constructed or rehabilitated MDOD, Number of safe havens constructed/ collects data on shelter Data collected by MDOD by the project using shelter Semi- which feed rehabilitated by the project construction progress and transferred to designs meeting annual into progress benefitting from gender friendly and respect of gender- UCP/MICT international standards that reports from infrastructure design friendly designs consider women’s and girls’ UCP/MICT physical safety and needs\. Reports from MDOD, MDOD collects data on which feed shelter management Share of women participation in the At least 50 percent of Data collected by MDOD Semi- into committees organizatio shelter management committees for each community-led shelter and transferred to annual progress rep nal structure at the “safe-haven” constructed/ rehabilitated management committees UCP/MICT orts start and through the by the project participants are women from UCP/MI shelter construction CT Reports from MDOD collects data on Share of women leadership in the shelter At least 50 percent of MDOD, shelter management Data collected by MDOD Semi- management committees for each “safe- community-led shelter which feed committee and transferred to annual haven” constructed/ rehabilitated by the management committees into progress organizational structure UCP/MICT project focal points are women reports at the start and through from UCP/MI shelter construction Page 36 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) CT Complaints related to the project activities are timely Each complaint addressed by the PIU in Reports from Semi- reported is recorded in Percentage of grievances appropriately collaboration with local the UCP/MICT annual a monitoring system addressed as part of the Project authorities in accordance UCP/MICT when received with the project Grievance Redress Mechanism\. Twice during project Measured on the basis of implement the "Citizens Perception Reports from Survey conducted by a ation (once Consulting firm / UCP- Percentage of beneficiaries reporting Survey" that will be the UCP- consulting firm at the at mid- DPC/MICT satisfaction with project interventions undertaken at the beginning DPC/ MICT local level term and of the project to establish once at the the baseline (Component 2) end of the project) ME IO Table SPACE Page 37 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) ANNEX 1: Implementation Arrangements and Support Plan I\. Project Institutional and Implementation Arrangements 1\. Project implementation would be under the responsibility of the MICT\. All Project activities would be implemented by the UCP/MICT\. The UCP/MICT will delegate management of most day-to-day operations to MDODs, which could be NGOs or international organizations for the rehabilitation/construction of safe havens\. This option would streamline implementation and coordination arrangements, and could speed up implementation, as the UCP/MICT is currently implementing two DRM related World Bank-financed projects, and will soon also be implementing an IDB- financed Urban Development Project\. The UCP/MICT will be responsible for day-to-day administration of overall planning, coordination, technical, fiduciary (i\.e\., procurement and FM), environmental and social safeguards compliance, monitoring and evaluation, reporting and communication on all activities of the Project\. However, the UCP/MICT would need to be significantly strengthened to acquire technical know-how in managing investments in infrastructure construction and rehabilitation, meeting safeguards requirements, as well as coordinating multi-sectorial engagements\. For this purpose, a Project Coordinator will be hired, and a Technical Socio-Environmental Unit will be established within the UCP/MICT and will be staffed with key technical personnel including an engineer, an assistant engineer, a monitoring & evaluation specialist, and safeguards specialists, to be fully dedicated to the infrastructure and technical training components of the Project\. 2\. A project Operations Manual has been prepared and describes the operational details for the implementation of the Project\. The purpose of the Operations Manual is to provide an ordered set of instructions on the organization, procedures, and resources dedicated to the efficient and effective achievement of the objectives of the Project\. 3\. The GoH will prepare bi-annual progress reports, in accordance with the formats outlined in the Operations Manual\. The progress reports will cover: (i) physical and financial progress achieved against agreed indicator targets (presented in section VI); (ii) issues and problem areas, including remedial actions; and (iii) work programs and cost estimates for the coming year, including revised estimates for the current period\. 4\. Project Stakeholders\. As indicated above, various institutions will be direct beneficiaries of project activities, including the BTB/MTPTC, CNIGS/MPCE, and MENFP\. Although these institutions would benefit from the Project, their role would be limited to providing strong technical advisory to guide the activities in line with their respective mandate\. Throughout project preparation, a single implementation agency and a clear definition of other line ministries’ roles would be established\. Inter-agency working arrangements will be agreed at the beginning of the Project and will follow existing government guidelines\. Financial Management and Disbursement 5\. The FM risk for this Project is deemed High as it poses important administrative and operational challenges\. The FM function will be carried out by UCP/MICT, which currently undertakes FM in other IDA financed projects (PRGRD – P126346, and MDUR P155201)\. UCP/MICT structure will need to be strengthened and extensive FM support will be needed to further build administrative capacity for financial information control, budget planning and execution monitoring\. A financial management specialist with experience in decentralized projects will be hired and will be dedicated to the project from the beginning of implementation in order for UCP/MICT to efficiently control financial information and cash flow to MDODs\. Page 38 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 6\. Investment and project activities financed under Component 2 (Construction and rehabilitation of “Safe Havens”), will be delegated to MDODs, which could be either an international agency or private agencies, and the selection process will need to follow strict eligibility and selection processes in order to ensure they possess adequate technical, administrative and operational capacities\. UCP/MICT will need to put in place adequate supervision and monitoring procedures for Component 2 activities delegated to MDODs, in order to ensure that project activities and investments are satisfactorily implemented and accounted for\. 7\. Budgeting arrangements\. The Project will be financed entirely by IDA grant proceeds, without Government counterpart funding\. UCP/MICT will be responsible for preparing the annual operational plan and budget, to be approved by the World Bank before the end of the fiscal year\. It will monitor progress quarterly and bi-annually through overall and fiduciary supervision, as well as progress and financial reports (bi-annual interim unaudited financial reports and annual audits)\. The annual operational plan and budget will be prepared by project component and sub-component, and will include detailed information on operational costs that will also need to be reviewed and approved by the Bank\. 8\. Accounting and budget systems\. UCP/MICT uses the ACCPAC accounting system for accounting of PRGRD- P126346 and MDUR-P155201; however, this system has not been set to keep separate accounting and financial records for each project\. Before the implementation of the Project, it will be necessary to complete the setup of the accounting system to allow separate financial and accounting records and reporting for each project\. The system will also need to identify funds received and expenditures by project component and sub-component, and disbursement category\. A consultancy service is in progress to finalize the system´s parametrization to adapt it according to the Project´s requirements\. 9\. Financial Reporting\. Interim unaudited financial reports (IFRs) will be prepared and submitted bi-annually no later than forty-five days after the end of the fiscal semester\. The format and content of IFRs, acceptable to the World Bank, are detailed in the Project Operations Manual\. IFR will allow the World Bank to monitor disbursements, financial and budgetary project information\. Project financial information will include the use of funds by MDODs\. MDODs will submit to UCP/MICT progress and financial reports and this information will be consolidated by UCP/MICT and presented in the project IFRs and audited financial statements\. 10\. Internal control and internal audit\. UCP/MICT does not have an internal control unit within its organizational structure, as part of the overall implementation arrangements\. A Project Operations Manual has been prepared and will be followed by the UCP/MICT, which describes, among other things, specific financial management arrangements and internal control procedures\. 11\. Specific mechanisms to control and safeguard the Project’s financial information and assets are incorporated in the Project Operations Manual, which also includes detailed eligibility criteria and procedures to select and engage MDODs for the implementation of activities and investments delegated to these agencies and ensure the use of project funds for intended purposes\. It is also envisaged to incorporate guarantees or insurance mechanisms for funds transferred to MDODs until they are totally documented or recovered\. Adequate supervision and monitoring procedures for delegated activities are also included in the Project Operations Manual, to ensure that project activities and investments are timely and satisfactorily implemented and accounted for\. 12\. Disbursement and Flow of Funds\. The main disbursement method will be the advance of funds and direct payments\. Project funds, except those related to MDODs, will be advanced to a designated dedicated account in US dollars at the Central Bank\. An additional account in local currency (HTG) will be opened for managing funds and making Page 39 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) payments for project activities\. Advanced funds will be documented by UCP/MICT to account for grant proceeds and the designated account will be replenished using Statement of Expenditures (SOE), as agreed with the World Bank\. For MDODs, the direct payment method will be used\. The reimbursement method will also be available for the Project\. 13\. External Audit\. Annual audits on project financial statements and eligibility of expenditures will be performed in accordance with World Bank policy, under terms of reference and by an independent auditor acceptable to the World Bank\. The scope of the audit will include the review of project investments and activities delegated to MDODs and ensure that project proceeds are used for the intended purposes\. 14\. FM Supervision\. The World Bank will conduct at least two FM supervisions per year\. FM performance and compliance will also be monitored through the review of bi-annual IFR and yearly audit reports, and may also include the inspection of MDOD records and documents\. Procurement 15\. Procurement for works, goods, non-consulting, and consulting services to be financed by the credit will follow the procedures specified in the “World Bank Procurement Regulation of Goods, Works and Non-Consulting Services under “World Bank Procurement Regulations for Borrowers under Investment Project Financing” dated July 1, 2016 revised August 1, 2018 and the World Bank’s Anti-Corruption Guidelines: “Guidelines on Preventing and Combatting Fraud and Corruption,” revised in June 2016\. 16\. The procuring entity as well as bidders, and service providers, i\.e\. suppliers, contractors and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraph 3\.32 and Annex IV of the Procurement Regulations\. Page 40 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) 17\. The Recipient shall prepare and submit to the Bank a General Procurement Notice (GPN) and the Bank will arrange for publication of GPN in United Nations Development Business (UNDB) online and on the Bank’s external website\. The Recipient may also publish it in at least one national newspaper\. 18\. The STEP system will be used to prepare, clear, and update the Procurement Plans and for procurement transactions\. This textual part, along with the Procurement Plan tables in STEP, constitute the Procurement Plan for the project\. 19\. The Recipient shall publish the Specific Procurement Notices (SPN) for all goods, works, non-consulting services, and the Requests for Expressions of Interest on their free-access websites, if available, and in at least one newspaper of national circulation in the Recipient’s country, and in the official gazette\. For open international procurement selection of consultants using an international shortlist, the Recipient shall also publish the SPN in UNDB online and, if possible, in an international newspaper of wide circulation; and the Bank arranges for the simultaneous publication of the SPN on its external website\. 20\. The Bank’s standard procurement documents will be used for all contracts that are subject to international competitive procurement\. For procurement in the national market, GoH procurement procedures may be used in accordance with the National Procurement Arrangements (paragraph 5\.3) of the Procurement Regulations\. This will be specified in the Procurement Plan tables in STEP\. When the GoH uses national open competitive procurement arrangements, as set forth in the 2009 Law specifying the general rules relating to Public Contracts and Public Service Concession Agreements, such arrangements will be subject to paragraph 5\.4 of the Procurement Regulations and the conditions included in the Grant Agreement\. National procurement arrangements, other than national open competitive procurement arrangements applied by the GoH, will be subject to paragraph 5\.5 of the Procurement Regulations\. 21\. The recruitment of civil servants as individual consultants or as part of the team of consulting firms will abide by the provisions of paragraph 3\.23 (d) of the Procurement Regulations\. 22\. Institutional arrangement for procurement\. The UCP/MICT will have the overall responsibility to carry out procurement activities for the project\. The procurement capacity assessment concluded that the UCP/MICT to has strong experience in the World Bank and GoH procedures for implementing World Bank financed projects in the past\. The unit has a clear manual in place that will be amended and use for this project\. However, this Project will bring an additional workload to the already existing projects\. The main risks identified are (i) delays in the implementation of projects, and (ii) poor deliverable due to the lack of enough anticipation and appropriate contract management mechanism in place\. To mitigate the identified risks, it is agreed to (i) appoint a second Procurement Specialist with relevant experience in donor-funded procurement, particularly in World Bank or IDB procurement rules and procedures; (ii) strengthen the technical team, and (iii) prepare an appropriate procurement plan with anticipation on some key contract\. 23\. The second Procurement Specialist will work closely with the current UCP/MICT Procurement Specialist and with the Accredited Procurement Specialist of the World Bank Office\. They will benefit from procurement clinics and training organized by the World Bank to be familiar with the new procurement framework\. 24\. Operational Costs\. Operational costs financed by the Project would be incremental expenses, including office supplies, vehicles operation and maintenance cost, maintenance of equipment, communication costs, rental expenses, utilities expenses, consumables, transport and accommodation, per diem, supervision costs, and salaries of locally Page 41 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) contracted support staff\. Such services’ needs will be procured using the procurement procedures specified in the Project Operations Manual accepted and approved by the Bank\. 25\. Filing and record keeping\. The Procurement Procedures Manual will set out the detailed procedures for maintaining and providing readily available access to project procurement records, in compliance with the Financing Agreement\. The UCP/MICT will assign one person responsible for maintaining the records\. The logbook of the contracts with unique numbering system shall be maintained\. 26\. The signed contracts as in the logbook shall be reflected in the commitment control system of the Recipient’s accounting system or books of accounts as commitments whose payments should be updated with reference made to the payment voucher\. This will put in place a complete record system whereby the contracts and related payments can be corroborated\. 27\. The procurement arrangements applicable under Component 3 “Contingent Emergency Response” are described in the Operation Manual, which has been prepared by the Beneficiary and agreed with the Bank\. 28\. Project Procurement Strategy for Development (PPSD)\. To determine the adequate and optimal procurement strategy for the best market response, a PPSD has been prepared to adequately consider, among others, the market situation, operational context, past experiences and risks\. The PPSD and an 18-month procurement plan have been prepared by the Recipient with the support of the Bank and approved\. The Key activities identified under Component 1 and 2 of the projects consist of : (i) consultants’ services for training and technical assistances; (ii) a firm to design the infrastructures and prepare the technical documents; and (iii) the selection of MDODs to implement activities under component 2\. The UCP/MICT will use the international approach to the market and the most appropriate and competitive selection methods\. 29\. Procurement Methods and Thresholds\. Thresholds for procurement methods and prior review are shown below\. Table 1\. Thresholds for Procurement Methods and Prior Review World Bank Prior Contract Value Expenditure Procurement Review or as (Threshold) (US$, Market Approach Category Method Indicated in the thousands) Procurement Plan 1\. Works >3,000 Request for bids Open, limited, international, single All stage <3000 Request for bids Open, national, single None stage <1000 Request for limited, national or None quotations international, single stage Regardless of value DS Direct, single stage > 3 000 2\. Goods Request for bids Open, limited, All >500 Request for international, single proposal stage Request for Bids / Open, limited, None <500 Request for international national, Page 42 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) World Bank Prior Contract Value Expenditure Procurement Review or as (Threshold) (US$, Market Approach Category Method Indicated in the thousands) Procurement Plan quotations single stage Regardless of value DS Direct, single stage > 500 3\. Consultant >300 QCBS Open, International, All Services short list <300 QCBS, QBS, CQS, Open, national, short list All terms of FBS, LCS (according reference\. to Procurement Plan) Regardless of value Direct Selection Direct > 300 Regardless of value IC Open, limited Regardless of value Direct Selection Direct > 100 Note: CQS = Selection Based on the Consultants’ Qualifications; DS = Direct Selection; FBS = Selection under a Fixed Budget; IC = Individual Consultant; LCS = Least-Cost Selection; QBS = Quality-Based Selection; QCBS = Quality- and Cost-Based Selection\. 30\. Procurement Risk Rating\. The project procurement risk prior to the mitigation measures is “High”\. The risk can be reduced to a residual rating of “Substantial” upon consideration of successful implementation of mitigation measures\. The risks and mitigation measures are listed in table below\. Table 2: Procurement Risks and Mitigation Measures Risk Description Description of Mitigation Risk Owner Lengthy process for site Use advance contracting for the preparation of the UCP/MICT identification and preparation of technical studies and the preparation the Bidding technical files documents Mediocre performance of Select qualified firms/ NGOs for MDODs and develop a UCP/MICT contractors and delay in the contract management system contract execution Poor Quality of the procurement UCP/MICT should agree with each MDOD on the standards UCP/ MICT documents at the MDOD level documents to be used to select sub-contractors and control the document Loss of documents - Archiving Provide details description on documents fillings, use STEP UCP/ MICT System to files procurement documents Failure to manage the MDOD Set in place a very good system to manage MDODs’ UCP/MICT contracts and the sub contract contracts and supervise activities on the sites Mis understanding of the new Training sessions for the procurement staffs Bank procurement framework Heavy workload Recruitment a second procurement Specialist who will UCP/MICT reinforce the procurement unit of the UCP/MICT to avoid delays in the implementation of the project 31\. Procurement Plan\. UCP/MICT prepared a detailed 18-month procurement plan of the Grant\. The Procurement Plan will be updated in agreement with the Bank Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity\. Page 43 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) II\. Implementation Support Plan 32\. The strategy for Project Implementation Support has been developed based on the nature of the Project and its risk profile, as identified in the SORT table and discussed in the Key Risks section\. It will aim to focus on the areas where the UCP/MICT need to be further strengthened namely in financial management, procurement, and safeguards\. The supervision strategy will use several tools to review progress and respond to implementation issues\. Implementation support that will be provided on each of the risk elements of the SORT table are summarized below\. 33\. Political and Governance\. The task team will provide close implementation support and adjust interventions as needed to minimize potential disruptions to the Project caused by political instability and governance factors\. 34\. Macroeconomic\. The World Bank will provide close implementation support to the UCP/MICT in: (i) prioritizing intervention in existing public sites, and (ii) maintaining regular dialogue and coordination with institutions that will be responsible for the maintenance of each infrastructure investment\. 35\. Sector Strategies and Policies\. The World Bank will provide dedicated TA to the DPC to support high level dialogue and strengthen sector strategies\. 36\. Institutional Capacity for Implementation and Sustainability\. The World Bank will provide technical assistance and implementation support to strengthen the operational capacity of the UCP/MICT for project design, prioritization, management, and supervision\. 37\. Fiduciary\. Capacity of UCP/MICT FM and procurement staff will be strengthened through TA and close and regular World Bank implementation support\. More detailed mitigation measures for FM and procurement risks are presented in the previous section\. 38\. Social and Environmental\. The World Bank will provide regular training to the PIU staff, as needed, on: (i) labor and health and safety issues; (ii) codes of conduct, including on addressing/preventing gender-based violence; (iii) gender-specific interventions; and (iv) climate change aspects of the Project\. 39\. Stakeholder\. The World Bank will provide close implementation support the GoH to ensure that activities are implemented in a consultative manner and that conflict resolution mechanisms are effectively being used\. 40\. Implementation Support Missions (ISMs)\. The World Bank task team would undertake ISMs two or three times a year to review the project implementation performance and progress towards the achievement of the PDO\. The World Bank may also undertake short technical missions and will keep regular contact with the UCP/MICT through telephone and videoconferencing\. Given the fragile institutional context, the World Bank will more closely support the UCP/MICT in the early phases of the project, specifically: ▪ During the procurement process of MDODs and engineering design and construction firms; ▪ In the preparation and implementation throughout the Project of environmental and social documents considering the importance of an effective application of these instruments\. Safeguards specialists will be included in semiannual missions and will ensure adequate trainings of the UCP/MICT staff, and ▪ Training to the UCP/MICT will also be provided by the World Bank’s FM and Procurement Specialists\. Supervision of the FM arrangements and procurement would be conducted semi-annually and in response to project needs\. Page 44 of 45  The World Bank Strengthening DRM and Climate Resilience Project (P165870) Fiduciary missions will focus on the performance of UCP/MICT in managing contracts, procurement and financial matters\. 41\. Mid-Term Review (MTR)\. An MTR will be conducted no later than three years after the first disbursement\. It will include a comprehensive assessment of the progress in achieving Project’s objectives and will identify implementation issues that require adjustments\. 42\. Implementation Completion\. Upon completion, an implementation review will be carried out to assess the Project’s achievement towards its PDOs, as reflected by the Key Indicators in its Results Framework\. Table 3 below summarizes the proposed skill mix and number of staff weeks expected to be required during the project implementation\. Table 3: Implementation support Plan and resource requirements Time Focus Skills needed First 12 months Procurement of the design firm and MDODs for TTLs, procurement and FM specialists, M&E the Construction and rehabilitation of “Safe specialists, civil engineers, institutional Havens” strengthening specialists, safeguards specialists, Technical assistance to strengthen the DRM specialists, IT specialists institutional structure of the DPC at all levels, risk education and communication, and risk data management\. Until mid-term Support to the implementation of works TTLs, procurement and FM specialists, M&E review (year 2-3) specialists, civil engineers, institutional strengthening specialists, safeguards specialists, DRM specialists, IT specialists Mid-term review Mid- term review TTLs, procurement and FM specialists, M&E (year 3) specialists, civil engineers, institutional strengthening specialists, safeguards specialists, DRM specialists, IT specialists Following mid-term Continued support to implementation of TTLs, procurement and FM specialists, M&E review works, capacity building specialists, civil engineers, institutional strengthening specialists, safeguards specialists, DRM specialists, IT specialists Implementation Undertake the evaluation of the Project as TTLs, procurement and FM specialists, M&E Completion (year 5) part of the Implementation Completion specialists, civil engineers, institutional Report strengthening specialists, safeguards specialists, DRM specialists, IT specialists Page 45 of 45

APPROVAL

P004238

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 6280 PROJECT PERFORMANCE AUDIT REPORT MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) June 27, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. GLOSSARY AVA - Audio Visual Aids EMS - Educational Media Services EMSC - Educational Media Service Centers ER - Educational Radio ERCs - Educational Resources Centers ETD - Educational Technology Division ETV - Educational Television HSC - Higher School Certificate - English Medium JKR - Jabatan Kerja Raya (Public Works Department) KBSR - Kurikulum Baru Sekolah Rendah (New Primary School Curriculum) MCE - Malaysian Certificate of Education - English Medium NEP - New Economic Policy PIU - Project Implementation Unit, Ministry of Education RTM - Radio Television Malaysia SMP - Second Malaysia Plan SPM - Sijil Pelajaran Malaysia - MCE in Bahasa Malaysia SPVM - Sijil Pelajaran Vokasional Malaysia - Vocational Certificate of Education SRP - Sijil Rendah Pelajaran - Lower CertifiL"te of Education STPM - Sijil Tinggi Pelajaran Malaysia - HSC in Bahasia Malaysia TCs - Teacher Coordinatora TTCs - Teacher Training Colleges FISCAL YEAR OF BORROWER January - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D\.C\. 20433 U\.S\.A\. Office of Director-Genural Opetations Evalatn June 27, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report: Malaysia Third Education Project (Loan 974-MA) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Malaysia Third Education Project (Loan 974-MA)" prepared by the Operations Evaluation Department Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMAVCE AUDIT REPORT MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) TABLE OF CONTENTS Page No\. Preface \. 1 Basic Data Sheet \. ii Evaluation Summary \. iv PROJECT PERFORMANCE AUDIT MEMORANDUM I\. PROJECT BACKGROUND AND SUMMARY \. 1 II\. PROJECT IMPLEMENTATION: MAIN ISSUES AND FINDINGS \. 3 Selection and Preparation of Sites \. 3 Architectural Designs \. 4 Construction and Maintenance of Facilities \. 4 Equipment and Materials Procurement \. 5 Project Management and Supervision \. 6 III\. PROJECT ISSUES AND OUTCOMES \. 6 Achievement of Educational Objective \. 6 Staffing of Project Institutions \. 7 Learning Aids: A Question of Appropriateness and Effectiveness \. 8 PROJECT COMPLETION REPORT COMPLETION REPORT PREPARED BY THE GOVERNMENT I\. Introduction and Background \. 13 II\. Project Design \. 15 III\. Project Administration and Management \. 16 IV\. Physical Implementation \. 18 V\. ?roject Costs \. 22 VI\. Project Operational Outcomes \. 25 VII\. Conclusions and Lessons \. \. 37 OBSERVATIONS AND LESSONS LEARNED BY THE BANK VIII\. Observations \. 29 IX\. Lessons Learned \. \. 40 This docunmat ha mu*ted dihwbum and may be used by rpants only in th pedonamee TABLE OF CONTENTS (Cont'd) ANNEXES 1\. Percentage of Age Group Enrolled by School Level for Selected Years 2\. Organization Chart External Loan Unit, Development & Supplies Division, MOE 3\. Status of Covenants 4\. Comparative Analysis of Initial \.Content and Amendments to Project Components 5\. Comparative Analysis of Implementation Schedule 6\. Comparative Analysis of Estimated and Actually Built Net Areas 7\. Cumulative Estimated and Actual Schedules of Disbursement 8\.A\. Kuantan Polytechnic: Student Intake (1976-1983) 8\.B Kuantan Polytechnic: Ou*put of Graduates 9\.A Student Enrollment in Teacher Training Colleges 9\.B Graduates from Three Teacher Training Colleges 10\. Organizational Chart for ETD Sarawak, 1984 ATTACHMENT I: Comments from the Borrower PROJECT PERFORMANCE AUDIT REPORT MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PREFACE This is a Performance Audit of the Third Education Project in Malaysia, for which Loan 974-MA, approved on March 26, 1974, provided US$19\.0 million equivalent to assist with a project that was estimated to cost US$41\.4 million equivalent\. The Loan Account was fully disbursed and waa closed on January 25, 1984, about three fears later than originally anticipated\. The Audit report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated February 12, 1985, issued by the East Asia and Pacific Regional Projects Department\. The PPAM is based on: (a) material in Bank files, including the Appraisal Report (No\. 306a-MA) dated March 8, 1974 and the Loan Agreement dated April 5, 1974; (b) the PCR; (c) discussions with Bank Staff associated with the project and (d) an Audit Mission to Malaysia in September 1985, during which project sites were visited and discussions were held with Government officials and members of the PCR team\. The PCR is of excellent quality and the Audit agrees with its assessment of the project's problematic implementation but basically successful outcome\. Because of the considerable resources devoted to the PCR by the Borrower, the analysis of educational outcomes is a much more thorough presentation than normally encountered in education PCRs, and is therefore exemplary\. The Audit provides mainly supplementary comment, highlighting issues likely to have future relevance In the sector\. Following customary OED procedures copies of the draft PCR were sent to the Government in March 1986\. Comments received have been taken into account in preparing the final report and are reproduced as Attachment I\. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 41\.40 49\.26 Overrun (%) +19% Loan Amount (US$ million) 19\.00 19\.00 Disbursed) 19\.00 Cancelled) Repaid ) to 01/31/86 3\.55 Date Physical Components Completed (Month/year) 12/78 06/84 In months since Loan signature 56 122 Proportion Completed by Above Date (%) 100% 100% Proportion of Time Overrun (%) 117% Institutional Performance Good CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENT (US$ million) FY 75 76 77 78 79 80 81 82 83 84 Appraisal Estimate 1\.0 6\.6 12\.4 17\.3 18\.6 18\.9 19\.0 Actual 0\.0 0\.1 0\.8 3\.0 5\.9 9\.1 10\.9 13\.2 17\.8 19\.0 Actual as % of Estimate 0\.0 1\.5 6\.5 17\.3 31\.7 48\.1 57\.4 69\.5 93\.7 100 OTHER PROJECT DATA Original Actual or Item Plan Revisions Est\. Actual First Mention in Files or Timetable 03/14/72 Government's Application 04/73 Negoziations 02/11/74 Board Approval 03/26/74 Loan Agreement Date 04/05/74 Effectiveness Date 07/05/74 06/26/74 Closing Date 12/31/80 12/31/82 6 12/31/84 01/25/84 Borrover Government of Malaysia Executing Agency Ministry of Education Follow-on Project Names Fourth Education Fifth Education Industrial Training Loan Number 1329MA 1657-MA 2145-MA Amount (US$ million) 35\.0 38\.0 40\.6 Loan Agreement Date 11/18/76 03/14/79 10/07/82 - ift\. - MISSION DATA Sent Month/ No\. of No\. of * Staff ** Date of Item bY Year Days Persons weeks Report Identification Bank 10/11/72 9 2(A/Ed) 4\.4 12/14/70 Preparation UNESCO 04/73 28 6(Ed/TEd/Ec/ 28\.0 06/29/73 Preappraisal MMS/A/Med Appraisal Bank 08/73 25 5(Ed/Ec/TEd/ 26\.0 09/06/73 Total 62 MMS/A/) 58\.4 Supervision I Bank 03/04/74 6 2(A/Ed) 2\.2 05/17/74 Supervision II Bank 11/74 5 1(A) 0\.5 12/12/74 Supervision III Bank 06/75 5 2(A/MMS) 2\.0 07/11/74 Supervision IV Bank 11/75 2 2(A/TEd) 0\.4 12/30/75 Supervision V Bank 07/76 1 I(Ed) 0\.1 07/13/76 Supervision VI Bank 05/77 4 2(A/Ed) 1\.3 06/16/77 Supervision VII Bank 12/77 2 2(A) 0\.2 01/11/78 Supervision VIII Bank 04/78 3 1(A) 0\.3 06/01/78 Supervision IX Bank 05/79 2 2(A/Ed) 2\.0 06/29/79 Supervision X Bank 04/80 4 2(A/Ed) 1\.3 05/05/80 Supervision XI Bank 08/81 4 2(A/Ed) 1\.3 09/11/81 Supervision XII Bank 03/82 3 1(Ec) 0\.3 04/30/82 Supervision XII Bank 10/82 4 2(A/Ted) 1\.3 01/19/83 Supervision XIV Bank 09/83 3 1(A) 0\.3 11/14/83 Total 51 13\.5 COUNTRY EXCHANGE RATES Name of Currency (abbreviation) Malaysian Dollar (MS) Year: Appraisal Year Average 1973 Exchange Rate: US$1 - 2\.33 Intervening Years Average 1974-82 US$1 - 2\.34 Completion year 1983 US$1 - 2\.33 * A - Architect MMS - Mass Media Specialist Ed - Educator Med - Medical Educator Ec - Economist TEd - Technical Educator ** Number of staff-weeks attributable to this project - iv - PROJECT PERFORMANCE AUDIT REPOAT MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) EVALUATION SUMMARY Introduction This project, the third Bank-assisted education project in Malaysia, was the result of an intensive and collaborative preparation effort by the Bank, UNESCO and the Government involving several revisions to project scope\. The project was appraised in August 1973 and a loan of US$19\.0 million was approved in March 1974 to meet the foreign exchange costs of a project whose total costs were estimated at US$41\.4 equivalent\. It was anticipated that the project would be completed by September 1980\. Objectives The project was designed to meet the objectives of the Second Malaysia Plan, which emphasized national unity, extending educational opportunities into rural areas, meeting manpower needs and enhancing educational quality, especially in the areas of science and technology\. As such, it provided support to a variety of educational institutions--secondary schools, teacher training colleges, a polytechnic and a Junior College (senior grade of secondary school)-as well as to educational radio and television-in widely distributed geographic locations throughout the country\. Because of the relative isolation of many of the sites, the project also made provision for some student and staff housing at all locations\. When completed, the project institutions would provide 4,400 secondary school places in Sabah, 830 Junior College places in Sarawak and 2,500 primary and lower secondary teacher training and 1,100 polycechnic places in Peninsular Malaysia\. In addition, the project would finance about 900 radio receivers, 2,200 television receivers and construction and equipping of two radio broadcasting studios in Sabak and Sarawak, all in an effort to improve educational quality in remote areas and promote the extension of Bahasa Malaysia as the main language of instruction through"ut the country\. Implementation Experience The implementation experience was problematic, as reflected in the 19 percent cost overrtn and 117 percent time overrun\. The category of largest cost overrun, 45 percent in the area of civil works construction, was partly offset by a 36 percent underrun in furniture and equipment costs\. Implementation problems stemmed mainly from the overstretched capacities of the Project Implementation Unit, the Public Works Department and the local construction industry, which could not keep pace with construction -v - schedules\. The most serious delays and cost overruns were traceable to the awarding of contracts to inexperienced and/or undercapitalized contractors\. The magnitude of these overruns completely outweighed the attempt by the Government to cut costs by reducing hostel and staff quarters capacity\. Furniture and equipmer\.: procurement was generally expeditious, but the process was overly centralized and did not adequately reckon with end users, which ultimately contributed to dissatisfaction with a number of items purchased\. Results Despite the implementation problems, the project has successfully achieved several of its major objectives\. With the exception of the Junior College, which has recently been converted into a full secondary school, all project institutions were built to the scale anticipated and were operating at the levels specified\. Most project institutions were fully enrolled, and some--particularly the secondary schools in Sabah-were on the way toward becoming seriously overenrolled\.1/ Although the secondary schools were having difficulty attracting students into the science stream, the polytechnic and junior college-ctum-secondary school in Sarawak were focussing on science and technology courses as anticipated\. The main area where the impact of the investment has been less successful has been in the area of learning aids for quality improvements\. It appeared to the PCR and the Audit Missions alike that such equipment as microteaching units, language laboratory and educational media were underutilized for a variety of reasons, inter alia, insufficient resources for maintenance and consumables and lack of training for teachers and administrators in the use and utility of such aids\. The human resources available at the state level to organize and train teachers in broadcast media usage, to support adequate maintenance and to develop radio programs were inadequate, and the result was underutilization of educational radio and television in the classroom\. Sustainability The sustainability of benefits generated under a project depends upon the continued viability of the institution or process supported and the timely provision of adequate resources\. The Junior College was not a feasible approach to the transition to higher education in Sarawak, as evidenced by its transformation into a secondary school\. All other project institutions were operating in an intensive and fairly efficient manner, so that the greater threat to their sustainability was occurring at the level of recurrent expenditures\. Inadequate attention to maintenance, repairs and consumables, coupled with inefficient bureaucratic practices in some instances, have brought about a deteriorating physical standard in many of 1/ The Government has incorporated into the current Fifth Malaysia Plan (1986-1991) a physical expansion program for all existing TTCs to ease the overcrowding it\. the TTCs\. See Attachment 1, p\. 56\. - vi - the buildings and declining educational quality\.2/ Moreover, a number of the investments in equipment, and particularly that in educational broadcast media, has not been supported through development of the human resources and physical infrastructure necessary to achieve the desired impact on educational quality\. Findings and Lessons The educational outcomes of the project have been successful in improving opportunities at the secondary level in rural areas and in strengthening teacher and technician education\. The project also assisted with the extension of educational broadcast media into Sabah and Sarawak, but inattention to the establishment of vital support services has diminished the ultimate educational impact of the investment\. In hindsight, it would appear that a greater focus on basic-audio visual *ids and library books, which are cheaper and simpler to program and utilize, might have been preferable\. This experience points toward the need to idintify and support those educational inputs which provide the basis for learning and the need, when assisting with the provision of more advanced learning technologies, for accompanying such provisions with adequate training for maintenance, itilization and evaluation\. The impact of insufficiently advanced site acquisition and overstretched implementation and construction capacity in terms of time and cost overruns is amply demonstrated in this project experience, and lessons have been learned, both by the Bank and the Borrower\. The Bank currently requires projects to be farther along in the preparation stage and encourages greater reliance on private architects to overcome delays in the Public Works Department\. The Borrower has instituted a new assessment system aimed at closer supervision and quality control of contractors and suppliers which, in addition to a tighter prequalification process, should reduce the problems stemming from inexperienced contractors and suppliers who do not adhere to specifications\. Other general lessons or points of interest include: (a) the importance of encouraging Borrower participation in or responsibility for PCR p7eparation as an institution building mechanism (PPAM, para\. 9); (b) the need to incorporate flexibility in the architectural design of school facilities to accommodate future revisions of the curricula (PPAM, para\. 11); 2/ The Government has pointed out that educational qu lity does not necessarily depend only on the physical standard of buildings and facilities; nevertheless, it is acknowledged that there has been inadequate maintenance of facilities, the consequence of budgetary constraints rather than neglect and ignor4nce\. - vii - (c) the need to design and equip project facilities bearing in mind financial implications of their operations and maintenance and, once constructed/ equipped, the need to allocate sufficient recurrent budget (PPAM, paras\. 24-25); (d) need to involve end users in the preparation of equipment lists and furniture specifications, and in general, promote better coordination between central authorities and state bodies or institutions (PPAM, paras\. 15-16; PCR, para\. 7\.06); and (e) the need to locate teacher training institutions in various parts of the country in order to prepare individuals with local attachments and loyalties for teaching positions (PPAM, para\. 23)\. - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) I\. PROJECT BACKGROUND AND SUMMARY 1\. In late 1972, the Government requested the Bank to finance a third education project which would include items from several subsectors, inter alia, general secondary, teacher training, as well as educational media\. Despite the apparent lack of a common thread, the content and objectives of the proposed project reflected those of earlier Bank-financed projects as well as the development strategy of the Second Malaysia Plan (1971-75), which emphasized national unity, extending educational opportunities into rural areas, 4deeting manpower needs and enhancing educational quality, particularly in science and technology\. (PCR, para\. 2\.01)\. 2\. UNESCO assisted with project preparation in April-May 1973, the Bank appraised the project in August 1973 and Loan 974-MA for US$19\.0 million was signed April 5, 1974\. The total cost of the project was estimated at US$41\.40 million\. As approved, the project included: (a) the construction, furnishing and equipping of: (i) seven secondary schools in Sabah (total enrollment of 4,400, boarding places for 1,550 and 132 staff houses); (ii) one Junior College (senior secondary) in Sarawak (total enrollment of 830, boarding places for 620 and 23 staff houses); (iii) four primary/lower secondary teacher training colleges (TTCs) in Peninsular Malaysia (total enrollment and boarding for 2,880 students, 100 staff houses); (iv) one Polytechnic in Kuantan (total enrollment 1,100, boarding places for 900 and 62 staff houses); (v) educational radio and television facilities in Sabah and Sarawak; and (b) specialist services and fellowships for staff development at the Kuantan Polytechnic (PCR, paras\. 1\.15 and 2\.01)\. It was expected that the project would be completed by September 1980, and that the Loan Account would close three months later\. 3\. Issues that arose during the course of project preparation concerned: (a) the justification for and feasibility of the educational media component; (b) staffing of the Kuantan Polytechnic; (c) optimal size and - 2 - course content of the secondary schools in Sabah; and (d) the capacity of the Project Implementation Unit (PIU) and the Public Works Department to handle a third project\. Educational television (ETV) in Peninsular Malaysia had been assisted under the Second Education Project (Loan 810-MA, FY72), and the Government was anxious to extend it to Sabah and Sarawak because of the role it would supposedly play in improving education quality, building national unity and extending Bahasa Malaysia as the medium of instruction\. The Bank, however, cited a number of obstacles to this extension, inter alia: the extensive equipment requirement; the heavy operating costs, as the television sets would precede installed electrical capacity in many areas and require an alternative power source; the task of servicing equipment in widely dispersed and remote areas and the need to develop suitable programming and train teachers in media usage to ensure maximum utilization of broadcasts\. Moreover, the effectiveness of ETV as an instructional medium or even a mere teaching aid in Peninsular Malaysia was untested\. 4\. A mass media specialist reviewing the situation for the Bank supported the expansion of educational radio, but recommended either postponing the introduction of ETV until a cheaper power source became available or limiting it to secondary schools\. At the request of the Bank, the Government prepared and submitted a feasibility study on ETV which attempted to address the main concerns of cost, maintenance, programming and organizational structure needed to support effective utilization of the media by the schools\. Although some Bank staff continued to express reservations, the Borrower's enthusiasm for the concept led to the allocation of about US$3\.3 million, or about 17 percent of project funds, for educational media\. Specifically, the project included: (a) for educational radio: construction and equipping of two radio broadcasting studios in Sabah, about 900 radio receivers, equipment for 13 Educational Media Service Centers (EMSC) and transport facilities; and (b) for educational television: provision of studio and EMSC equipment, about 2,200 television receivers and about 1,700 generators\. Recognizing the critical role that the EMSCs would play in linking the central planning and implementing agency (in this case the Education Media Services (EMS) Division of the Federal Department of Education) with the end users, the Bank required the Borrower to alpoint a full time Education Media Officer to each EMSC included in the project (Section 4\.03 of the Loan Agreement)\. 5\. Project planners were also concerned that the proposed Kuantan Polytechnic would encounter staffing problems and advocated a staff development plan that would focus on the recruitment, training and retention of qualified staff\. The project included 33\.5 man-years of expert services and 8\.5 man-years of fellowships abroad to assist with the start up of the Polytechnic\. 6\. Rapid expansion of enrollments at the secondary level in Sabah was being addressed through the provision of fourteen secondary schools, seven financed under the project and the remainder financed solely by the Government\. At Appraisal, and over some objections by local authorities, the size of the Bank-financed secondary schools was reduced to accord with perceived catchment areas\. The Government also confirmed its intention to -3- introduce practical subjects into the upper secondary cycle within five years of loan signing, an action supported by the Bank and justified on manpower grounds\. 7\. The project was to be implemented by the PIU in the Ministry of Education responsible for implementing the two previous Bank-financed education projects (PCR, para\. 3\.01) The PIU was to cooperate with the Public Works Department (Jabatan Kerja Raya--JKR), in preparing and issuing tenders and evaluating bids for civil works\. The State JKRs were responsible for designing and supervising civil works\. During preparation, some Bank staff expressed concern that implementation of a third project would be difficult given the already overstretched capacity of the PIU, the JKR and the local construction industry\. The provision of additional staff for the PIU (Loan Agreement, Section 3\.03b) and the potential for using consultant architects to design and/or prepare contract documents were measures incorporated to strengthen implementation capacity and allow flexibility in the execution of civil works\. 8\. The project cost US$49\.26 million and took 122 months to complete, which represented a 19 percent cost overrun and a 117 percent time overrun, respectively\. The Loan was fully disbursed and the account closed on January 25, 1984, although construction of the Kuantan Polytechnic was not completed for another six months\. The planned project content was achieved, with some changes to the size and capacity of the buildings\. In most instances, teaching space was increased, whereas hostel and staff accommodation were decreased\. (PCR, para\. 4\.07)\. A summary analysis of estimated and actual achievement and changes to project content is adequately presented in Annexes 4 and 6 of the PCR\. Despite the delays, mainly attributable to construction and management problems detailed in the next section, most project institutions were fully enrolled at the time of the Audit Mission and were functioning as anticipated at Appraisal\. 9\. The PCR comprises the findings of a team of staff members and research assistants from the Faculty of Education of the University of Malaya, Kuala Lumpur\. Work on the PCR began in January 1983 and included extensive field visits, interviews and questionnaires where appropriate\. The work resulted in a detailed five volume set which was reviewed with Ministry of Education and Bank officials before being condensed into the PCR that is appended to the Audit\. This was the third education PCR prepared by the University, and the depth of analysis, particularly of project operational outcomes, is exemplary\. It represents the importance and utility of self-evaluation exercises by the Borrower\. II\. PROJECT IMPLEMENTATION: MAIN ISSUES AND FINDINGS Selection and Preparation of Sites 10\. Most sites were selected during project preparation\. The Government agreed to select the remainder within six months of Loan signing and to acquire all sites expeditiously (Section 3\.06 of the Loan Agreement)\. Nevertheless, problems in acquiring sites for the Polytechnic and TTC at Kuantan and the radio studio complex in Sabah contributed to considerable construction delays (PCR, para\. 4\.02)\. It was not until August 1976 that land for the Kuantan institutions was acquired from the Pahang State Government, and not until May 1978 that site works were completed\. This delay in site acquisition was a significant factor in the cost overrun of the Kuantan facilities\. Government awareness of the problem of site acquisition has led to discussions concerning the establishment of a "land bank," although PIU officials stated that the problems for such a proposal were virtually insurmountable\. For its part, similar experiences have led the Bank to require thet the acquisition of sites be undertaken early in the project cycle, in some cases even before loan/credit effectiveness\. Inadequate preparation was also a problem for the Kuantan and Sabah sites, especially for the latter which were low lying and/or isolated, requiring land fill or extensive site development\. The local JKR in Sabah did not always meet its responsibilities of providing sites with electricity and water in a timely fashion\. Because of their heavy school construction program, Sabah authorities have often had to contract privately for these services, and this has proven very costly\. Architectural Designs 11\. Architectural designs were generally adequate, with the exceptions noted in the PCR (para\. 4\.04)\. The Audit Mission noted the further deterioration of the so-called Junior College in Kuching, where initial problems of the location of water tanks, sewerage tanks and water supply lines had been further exacerbated by inadequate attention to maintenance and repairs\. Other problems have arisen because certain design features were not appropriate to local conditions: (i) in one project institution, ventilation for the library depended upon a constantly malfunctioning air conditioning system; and (ii) the concealed wiring and underground gas line for hook up to the science labs have proven difficult and expensive to maintain and have occasionally resulted in hazardous conditions\. The design of the TTCs, which were laid on a rectangular block of classrooms around an enclosed courtyard, heightened rather than minimized noise levels, atcentuated an overcrowded feeling in the over-enrolled facilities and did not permit easy expansion to accommodate the larger student population\.1/ Furthermore, the physical facilities of the TTCs were designed with a two-year curriculum in mind\. When a new three-year curriculum was introduced, underutilization of certain specially designed facilities (i\.e\., the laundry room, the language laboratory and the microteaching room) resulted\. This points to the need to incorporate some flexibility in the design of facilities to accommodate modest revisions of curricula\. Construction and Maintenance of Facilities 12\. The misgivings expressed during project preparation concerning the overstretched capacity of the local construction industry proved correct\. Most serious delays and cost overruns were traceable to the awarding of 1/ These designs have since been abandoned by the Ministry of Education in favor of parallel teaching and administrative blocks\. - 5 - contracts to inexperienced and/or undercapitalized contractors\. Contractors defaulted and the works had to be retendered in three components (PCR, paras\. 4\.05-4\.06)\. The problems were most severe in Peninsular Malaysia, where the JKR took responsibility for contract management\. The contract for the Kuantan Polytechnic and TTC was awarded to a single contractor, despite the reservations of the Bank concerning the contractors' lack of experience in the execution such large scale works\. Various problems, including the defaulting of the contractor, contributed to a delay of nearly seven years in completing these facilities\. The implications of the delay in regard to the cost of the project were also severe\. Despite the economy measure undertaken by the Government in the case of the TTCS--the reduction of student boarding and staff housing facilities--the eventual cost overruns were as high as 287 percent for the Ipoh TTC and 258 percent for the Kuantan TTC\. 13\. Overall, the experience in Sabah was somewhat better, where project officials elected to use consultant architects and deal directly with contractors\. For the seven project schools, only one contractor defaulted and the contract was terminated\. Project officials pointed out that this performance was better than that of the seven additional secondary schools undertaken by the State JKR at the same time, wherein all the contractors had defaulted, five contracts had been terminated and civil works were only just being completed\. Project authorities in Sabah acknowledged the Bank's support in encouraging the \.se of private architects, a practice which continues and is considered satisfactory\. 14\. tate education officials and school authorities in Sabah discussed with the Audit Mission the serious lack of attention to maintenance of facilities, where some recognized problems may go uncorrected for years\. Allocations for maintenance represented less than one-sixth of amounts requested, which was insufficient to permit the existence of the maintenance cells considered essential by officials\. Even though positions for maintenance staff had been approved, salaries were unattractive and the posts remained vacant\. While recognizing the importance of new construction in meeting social demand, the Audit would like to underscore the officials' concern over the sustainability of project institutions and their educational mandate when basic maintenance needs are not being met\. Equipment and Materials Procurement 15\. Procurement was centralized and controlled from the PIU in the Federal Capital for the Kuantan Polytechnic, the TTCs and the educational media component and from the state PIUs for the secondary schools and the Junior College\. In spite of the economies of scale and standardization that were achieved by this measure, the process did not adequately reckon with the end users, and thus was not very effective in the final analysis\. (PCR, para\. 3\.04)\. As principals and science instructors had not been involved in drawing up equipment lists and furniture specifications, they were often uncertain whether what they received conformed to specifications\. Moreover, items were often found to be incomplete or of poor quality\. The large television sets and unwieldy fiberglass containers for petrol were completely unsuitable for Sabah where transportation costs and difficulties rendered much of the equipment virtually impossible to deliver, repair or maintain in - 6 - operation\. In each case, local authorities would have been in a better position to decide on the suitability of items to be purchased\. According to PIU staff interviewed by the Audit Mission, Government awareness of these shortcomings has led to a review of procurement procedures\. Project Management and Supervision 16\. Although the appropriate covenant was eventually complied with, there were serious delays in staffing the PIU, and this had serious consequences for project implementation\. By the end of 1977, only 8 percent of the disbursement schedule had been achieved (PCR, paras\. 3\.02-3\.03)\. Despite the obvious weakness of the Borrower's implementation capacity at that point, it is noteworthy that the Fourth Education Project was approved in November 1976, which placed additional pressure on this limited capacity\. The situation improved in early 1978 when the PIU received additional staff\. There were also deficiencies in the supervision of construction by some of the State JKR (PCR, para\. 4\.08)\. III\. PROJECT ISSUES AND OUTCOMES Achievement of Educational Objective 17\. As amply detailed in the PCR, project supported institutions have extended educational opportunit!es into rural and hitherto isolated areas and have strengthened science and technical education (Section VI of the PCR)\. Although the cost per student place at the Polytechnic was very high and represented a 91 percent increase over the Appraisal estimate, the Government was highly satisfied with the institutions and its graduates, who were meeting the demand for middle level technicians\. 18\. With the exception of the Junior College in Kuching, all project institutions were fully enrolled, and the Audit Mission confirmed the trend toward overenrollment noted in the PCR\. The change in the curriculum and the training period of the TTCs has imposed an unanticipated burden on the physical facilities, which will be further strained by the significant increase above the original project enrollment target of 720 per college\. 19\. Overenrollment of the secondary schools in Sabah had risen from the 24 percent noted in the PCR to about 40 percent at the time of Audit\. Educational facilities of three project institutions had been expanded, and some were operating on a double shift basis at the time of the Audit Mission\. Boarding areas had not been expanded, however, and only 24 percent of the students (as opposed to the 40 percent envisioned at Appraisal) could be accommodated in the hosteis, and even this was achieved only by increasing the number of students per room\. Distance from school was a problem for those who were unable to avail themselves of boarding facilities; at the time of the Audit Mission, school buses organized and financed by parents and make-shift student hostels erected and run by villagers living near the schools were measures adopted to alleviate the distance problem\. Over- enrollment was due in part to overall increased demand and in part to a - 7 - higher percentage of students continuing on to upper secondary: about 38 percent of the total enrollment, as opposed to 20 percent envisioned at Appraisal, were enrolled in upper secondary\. Sabah authorities noted that the enrollment ratios had been suggested by the Bank during project preparation in an effort to contain the growth of upper secondary, but were difficult to implement because of the strong demand for secondary education\. Secondary schools financed by the Bank under the Third and Fifth Education Projects were also having to be expanded demonstrating the futility of enrollment containment measures in the face of strong social demand\. 20\. The so-called Junior College in Kuching was to provide science education at the upper secondary level, eventually concentrating on the sixth form (grades 12-13) (PCR, para\. 6\.22)\. Although an increasingly science- oriented curriculum was adopted, so much so that the arts stream was phased out altogether after 1983, the institution never achieved its goal of an exclusively sixth form student body, and in fact, by the time of the Audit Mission it had been converted into a full secondary school (forms one through six)\. There did not appear to be any major problems concerning facilities or equipment utilization that arose as a result of this conversion\. Sarawak authorities interviewed by the Audit Mission commented that the idea of a "Junior College" was not workable in the Malaysian context because students preferred to affiliate with one institution for the duration of secondary school\.2/ More importantly, other options for higher level study in Peninsular Malaysia and abroad or in pre-university courses in Sarawak, many of which accepted students after their fifth form year (grade 11), have opened up and attracted potential sixth formers away from the project institution and from a similar one at Miri\. This "siphoning off" of the most able students before grade 12 has caused some Malaysian educators to question whether the sixth form was becoming an anachronism and should be dispensed with altogether\. 21\. Unlike project institutions in Kuching and Kuantan, the seven secondary schools in Sabah were not attaining the planned focus on science and technology subjects\. At the time of the Audit mission, only 10 percent (as opposed to 5 percent noted in PCR) of the students were enrolled in the science stream (PCR, para\. 6\.05)\. Government officials interviewed cited some possible reasons for this shortfall, inter alia that students had been insufficiently prepared in mathematics and sciences at the primary level, or alternatively, that most students intended to prepare for careers in the Government and chose the arts stream because of its perceived connection with public administration\. Staffing of Project Institutions 22\. The technical assistance component designed to strengthen the staff of the Polytechnic was not utilized as planned (PCR, para\. 6\.53)\. Only fourteen of the 115 academic staff received training overseas under the 2/ In this context, they also noted the trend toward expanding Bank- financed junior secondary schools to full secondary institutions\. - 8 - technical assistance program, and of these, only half remained at the Polytechnic\. Moreover, there was an overall turnover of about twenty percent between 1978 and 1984, mainly due to the more attractive salaries and promotion prospects of the private sector (PCR, para\. 6\.14)\. While this situation justified the concern of the original project planners, such high attrition of technical instructors is the norm in most developing countries, and Malaysian authorities did not regard it with alarm\. 23\. Staffing of the secondary level institutions in Sabah and Sarawak, has presented a number of problems\. The PCR noted, and the Audit Mission confirmed, that the teachers were generally young, inexperienced end predominantly from Peninsular Malaysia (para\. 6\.07)\. The high turnover of teachers, who, not surprisingly, preferred to return to their home state after doing a tour of duty in Eastern Malaysia, was a concern to local education officials\. Even though the four TTCs financed under the project recruit teacher trainees from all over the country, it is surprising that none of the four institutions was situated in Sabah or Sarawak\. Learning Aids: A Question of Appropriateness and Ef\.ectiveness 24\. Nearly US$13\.0 million, or one-third of project costs, were expected to go toward equipment and furniture, a sizeable proportion of project expenditure\.3/ It was anticipated that the materials provided would strengthen the quality of education, particularly in sciences and practical subjects, and in the case of the educational media, would also promote the goal of national unity and the extension of Bahasa Malaysia as the language of instruction\. Evidence available to the Audit mission suggested that, while objectives of nation building were addressed through these measures, success of quality-related items was less clear cut, particularly if the relatively high cost of these items was considered (PCR, paras\. 6\.08, 6\.15, 6\.28, 6\.37)\. 25\. Even assuming that such inputs as microteaching units, language laboratories and ETV are technically efficient options for raising educational quality, their impact depends largely upon their utilization\. In the case of the project institutions, utilization of equipment was hampered by a number of factors\. Lack of attention to essential infrastructure meant that gas, water or electricity was unavailable to operate equipment\. Lack of attention to recurrent expenditures meant that some equipment was not utilized for want of adequate maintenance or consumables\. For example, insufficient consumables for individual or even small team laboratory experiments rendered the experimental process nearly useless as a learning tool\. The ultimate and crucial determinant of utilization, all other things being equal, was the ability or willingness of teaching staff to employ these 3/ The fact that equipment and furniture ultimately comprised only 17 percent of project costs was due to the tremendous increase iL construction costs and the actual decrease in equipment and furniture costs due to reductions in quantitites supplied and some substitution of local for foreign goods\. - 9 - devices\. For example, science teachers in Sabah stated that they did not undertake some experiments on their more delicate instruments because they did not trust the capabilities of their laboratory assistants, whom they regarded as inadequately compensated and trained\. Language laboratories were similarly underutilized because of staff unfamiliarity with the equipment\. 26\. Nowhere was the impact of staff orientation and training on utilization of learning aids as obvious as in the educational media\. Evaluations by the PCR team and the state level Education Media Services staff have indicated low utilization rates of educational media, especially television and especially for the secondary level (PCR, paras\. 6\.44-6\.48)\. While a variety of valid reasons has been put forward to account for this underutilization, including inter alia, inconvenient program schedules, uninteresting programing and prohibitive operating and maintenance costs, the critical element was the human factor: the amount of human resources allocated and their organization and training at the levels of the state, the school and the individual classroom\. 27\. Firstly, the state-level Education Technology Divisions have not been given adequate staff to promote effective education media use\. The regional EMS officials are overworked and can barely attend to administrative and maintenance problems that arise; they have very little time left over to promote or supervise utilization\. Secondly, although school-level organization was improving, media utilization still depended ultimately on the enthusiasm and commitment of teachers and principals, and the neces :ary training was lacking\. It appeared to the Audit Mission that whatever training teachers received had been largely subsequent to their teacher college preparation\. This suggested the need to include in the teacher college curriculum a course on audio visual aids which would focus heavily on broadcast media\._/ 28\. Given the high cost of the initial investment in ETV and ER and the continuing investment in programming and maintenance, a closer review by the Borrower is merited\. State level officials interviewed by the Audit Mission strongly advocated a greater emphasis in three areas: (a) basic audiovisual aids, as being cheaper, easier for teachers to use and more fundamental to the learning process; (b) films and cassettes, as being easier to schedule at the individual classroom level; and (c) radio, where programming and broadcasting even in combination with student workbooks, was cheaper than telrivision and apparently as effective\. 4/ The Government has pointed out that education technology is one of the compulsory elements in the Malaysian teacher education curriculum\. See Attachment I, p\. - 10 - 29\. The project's provision for library materials was insufficient\. The school libraries visited by the PCR and Audit Missions were generally understocked and had few titles in Bahasa Malaysia\. It is noteworthy that this project, which devoted so much of its resources to instructional equipment, should neglect the one item historically considered to be basic or integral to the learning experience\. - 11 - HALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) Project Completion Report February 12, 1985 Projects Department East Asia and Pacific Regional Office c - 13 - MALAYSIA THIRD EDUCATIO9 PROJECT (LOAN 974-MAY) COMPLETION REPORT PREPARED BY THE GOVERNMENT I\. INTRODUCTION AND BACKGROUND Social and Economic Setting 1\.01 Malaysia is a multi-ethnic country with a population of about 14 million, of which about 83% lives n Peninsular Malaysia, 10% in Sarawak and 7% in Sabah\. In 1980 the population of Peninsular Malaysia was composed of 55% indigenous Malays or Bumiputeras, 34% Chinese, 10% Indians and about 1% otNers, In Sabah and Sarawak the Bumiputras constituted about 83% and 69% of the populati,)n respectively\. The population in Malaysia is relatively young with 39% in the age group 0-14 and 29% in the group 15-29\. 1\.02 The labor force increased from 3\.7 million in 1970 to 5\.1 million in 1980 and is expected to reach 5\.9 million by 1985\. Between 1981 and 1983, employment grew at an average of 2\.9% p\.a\. compared with 3\.6% during the period 1970-1980\. The unemployment rate decreased from 7\.8% in 1970 to 5\.7% in 1980 but rose slightly to 6\.0% in 1983\. 1\.03 During the decade of the 1970s the Malaysian economy grew at a rate of 7\.9% p\.a\. while the per capita income increased from US$371 in 1970 to US$1,639 in 1980\. As a result of worldwide recession the growth rate fell to 5\.6% in 1982 and 5\.S% in 1983\. 1\.04 The present development policy, with its primary focus on national unity and integration, as incorporated in the Second Malaysia Plan (SMP) [1971-75], includes the New Economic Policy (NEP) with the twin objectives of eradicating poverty and restructuring society to eliminate the identification of economic function with race\. Significant advances have been made\. The overall incidence of poverty declined from 49% in 1970 to 29% in 1980, although it increased again slightly to about 30% in 1983\. 1\.05 Important structural changes were also achieved in the occupational patterns between 1970 and 1983\. In 1970, 72% of the Malays in Peninsular Malaysia were agricultural workers, but this had fallen to 67% by 1983; in the same period, the Malays in professional and technical occupations rose from 47% to 55%\. Education Setting 1\.06 The educational objectives of the Second, Thi-,d and Fourth Malaysia Plans were: (a) promotion of national unity and integration by (i) the implementation of Bahasa Malaysia, (ii) closing the gap in educational opportunities among regions and races, and - 14 - (iii) integrating the education system in the East Malaysia states of Sabah and Sarawak with the national system; (b) orientation and expansion of the education and training programs towaids meeting the manpower needs of the country; and (c) improvement in the quality of education\. 1\.07 Enrollment ratios were improved, particularly at the secondary level (Annex 1)\. At the lower secondary level the enrollment ratio increased from 52% in 1967 to 83% in 1979, while at the upper secondary level the ratio improved from 16% to 39% over the same period\. Growth at the post-secondary and university levels was relatively slower: the post-secondary enrollment ratio rose from 5% to 9%, but the enrollment ratio at the university level rose only from 1\.0% to 1\.6% over the same period\. 1\.08 The establishment of a national system with Bahasa Malaysia as the main medium of instruction has been a significant educational development\. By 1980 all classes up to Form V were in Bahasa Malaysia medium and in 1982 the Sijil Tinggi Pelajaran Malaysia (STPM), (the equivalent of the Higher School Certificate conducted in Bahasa Malaysia) was introduced\. The education systems in Sabah and Sarawak over the same period have been gradually inte- grated with the introduction of Bahasa Malaysia, the use of the common curri- culum, and the implementation of an integrated teacher training program\. 1\.09 Under the NEP major strides were taken to correct socio-ethnic imbalances in educational opportunities\. Imbalances of access to schooling had been mostly rectified by 1975 with Malays constituting 61% of the enroll- ment at the upper secondary levels and 54% at the post-secondary levels\. The Malay enrollment in degree courses in local universities increased from 40% in 1970 to 67% in 1980\. 1\.10 Measures to improve the quality of education included the setting up, in 1973, of the Curriculum Development Center for planning and development of curricula and support materials for pupils and teachers and for the conduct of in-service teacher training courses\. The Education Media Services (EMS) were expanded and a television education services introduced in 1972 in Peninsular Malaysia and, during the Third Malaysia Plan (1975-8P), to Sabah and Sarawak\. 1\.11 The education system has been successfully oriented towards the increased output of students with a science, mathematics and technical educa- tion\. Bumiputera enrollment in science courses increased substantially and by 1983 Bumiputeras constituted 46% of the enrollment in the science streams of the secondary schools\. 1\.12 In 1982, a new curriculum was introduced for primary schools (KBSR) with emphasis on the acquisition of skills in reading, writing and arithmetic\. 1\.13 In spite of the progress made, the educational system faces a number oi problems\. In-service teacher training is insufficient to meet the demands of the introduction of new curricula at primary and secondary levels\. - 15 - Regional disparities still exist in enrollment participation rates\. Enroll- ments in technical and vocational education remain low and in 1983 represent only 4\.4% of total enrollments in secondary schools\. There is still a short- age of teachers at the primary level and at the secondary level in specialist subjects\. Student performance needs to be improved\. 1\.14 The Federal Government finances nearly all capital and recurrent expenditures on education\. Between 1971 and 1980 the capital expenditure on education was 7\.8% of total development expenditures and this rose to 8\.8% between 1981-83\. Recurrent expenditure on education has remained at about 20% of total recurrent expenditure\. Project Generation 1\.15 The first World Bank loan (Loan 599-MA) for education to Malaysia was made in 1969 for an amount of US$8\.8 million\. This was followed by the Second Education Loan (Loan 810-MA) in 1972 for the sum of US$15\.5 million\. The proposed third project was prepared by the borrower with UNESCO assistance in May 1973 and was appraised in August 1973; this was followed in January 1974 by a feasibility study on the extension of educational television to Sabah and Sarawak prepared by the Ministry of Education under terms of reference agreed with the Bank\. The Loan Agreement for the Third Education ProjectinMalaysia-Loan 974-MA was signed on April 5, 1974\. The loan of US$19 million represented the foreign exchange cost of civil works, equipment and technical assistance comprising 45\.9% of the estimated total project cost of US$41\.4 million\. The project was expected to be completed by June 30, 1980 with a loan closing date of December 31, 1980\. The closing date of the project was subsequently extended to June 30, 1984\. II\. PROJECT DESIGN Project Objectives and Components 2\.01 The project's overall objective was to continue the support provided by the Second Education Project to the implementation of the educational development strategy of the SMP\. That was to promote national unity, meet manpower needs, aad to improve educational quality, particularly in science and technology\. The objectives were to be achieved through the following components: (a) Secondary Schools, Sabah\. The construction, furnishing and equipping of seven secondary schools in the rural areas of Bingkor, Membakut, Kunak, Penampang, Bongawan, Kiulu and Weston with a total enrollment of 4,400 places of which 560 would be at the upper secondary level, 1,550 boarding places, and 132 staff houses\. (b) Junior College, Sarawak\. The establishment of a Junior College (grades 12 to 13) near Kuching which would initially cater also for Forms IV and V (Grades 10 and 11)\. Students were to be recruited from all parts of Sarawak, boarding facilities provided for 620 students out of an enrollment of 830\. Over 60% of the students were to follow science-based courses\. - 16 - (c) Four Teacher Training Colleges, Peninsular Malaysia\. The coristruction, furnishing and equipping of four teachers' training colleges with an enrollment of 720 students each and a total output capacity of about 1,400 p\.a\. The colleges at Kuantan, Kuala Trengganu, Sungai Petani and Ipoh were designed to be fully residential to permit a full measure of extra- curricular activities, enrollment of students from rural areas and in-service courses during vacations\. (d) The Polytechnic, Kuantan\. The establishment of a Polytechnic at Kuantan as a national institute with an enrollment of 1,100 students, of which 900 would be boarders, and a teaching staff of about 90\. Courses in civil, mechanical, electrical and electronic engineering, food technology, commerce and account- ancy were to be offered\. As well as the construction, furnish- ing and equipping of the polytechnic the project provided for 33-1/2 man-years of expert services and 8-1/2 man-years of overseas training for staff\. (e) Educational Radio (ER) and Television (ETV) in Sabah and Sarawak\. The extension of ER in Sabah and Sarawak by the construction and equipping of two radio broadcasting studios in Sabah, the supply of 900 radio receivers and equipment for 13 Educational Media Service Centers (EMSCs)\. The extension and development of ETV to Sabah and Sarawak by financing studio equipment, about 2,200 television sets, and about 1,700 generators\. III\. PROJECT ADMINISTRATION AND MANAGEMENT Project Implementation Unit 3\.01 The Loan Agreement specified that responsibility for the implementa- tion of the Third Education Project should rest with a the Project Implementa- tion Unit (PIU) within the Ministry of Education\. The unit was to be staffed with a full-time Project Director, an architect, a procurement officer, three full-time executive assistants: there was also to be a Project Coordinator in the State of Sabah, as well as technical and support personnel, including an accountant\. Project Management and Monitoring: PIU Involvement 3\.02 When the project became effective in mid-1974 the Ministry of Education's Development and Supplies Division already had the nucleus of the PIU, implementing the first and second projects\. However an adequate number of support staff, who had also been specified in the second project, were not appointed until the end of 1977\. As a result, in the first three years of the project, the PIU was understaffed to handle the implementation of three Bank projects\. The third project consequently suffered delays in implementation and at December 31, 1977, only 8% of the appraisal estimate of loan disburse- ment had been achieved\. Between 1977 and 1983 the staff of the PIU increased - 17 - considerably as the scope and volume of work of the unit expanded\. The organizational diagram of the PIU (the External Loan Unit of the Development and Supplies Division) is shown in Annex 2\. Currently the unit is implement- ing four World Bank projects and preparing for another two as well as an Asian Development Bank project\. Over the period 1969-78 the PIU handled a total of US$13 million development funds but for the period 1978-84 the expenditure has exceeded US$100 million\. 3\.03 The PCR team found difficulties in retrieving information and records of the early years of the project\. Records for recent years are, however, entirely satisfactory\. 3\.04 There were delays in the procurement of some equipment and furniture: this appears to have been due in part to the time lost in commu- nication between the PIU and the Sabah and Sarawak Education Offices which were responsible for procurement for their institutions\. Some dissatisfaction was also expressed about the quality of equipment and furniture that was supplied\. In some cases the equipment and furniture supplied was inferior in quality to the samples supplied at bidding\. The MOE has issued standard guidelines to the heads of all project institutions not to accept substandard quality equipment or furniture\. Some principals of colleges felt that they were not sufficiently consulted about specifications: this was not the case for the Kuantan Polytechnic, however, whose polytechnic staff were fully involved in the drawing up of specifications and technical evaluation of bids\. Project Management and Monitoring: Bank Involvement 3\.05 During the period of the Third Education Project, 14 World Bank review missions visited Malaysia\. The effectiveness of Bank involvement in project management and monitoring appears to have been reduced by the lack of continuity in staffing of Bank missions: in particular, from 1981 there was a complete change in the staff members who undertook the reviews\. Also, missions were not at regular intervals\. There was no mission for more than a year between 1978 and 1979, and between 1980-1981; at othar times missions followed in under six months\. On average the missions were seven to eight months apart\. 3\.06 Monitoring and supervision improved over the implementation period through the following: (a) An implementation and procurement seminar for senior PIU staff led to improvements in implementation, monitoring and reporting\. (b) The procedures for quarterly reports was systematized and reports from the PIU were prepared regularly\. Compliance with Loan Covenants 3\.07 The covenants were fulfilled, as shown in Annex 3, although there were serious delays in respect of the staffing of the PIU (para\. 3\.02)\. - 18 - IV\. PHYSICAL IMPLEMENTATION 4\.01 Project Content\. Overall the planned project content was achieved\. A summary of the achievements and the relatively small changes in project content is shown in Annex 4\. 4\.02 Sites\. The sites are generally well located and suitable for the intended purposes, they are easily accessible and have supplies of water and electricity\. Most of the sites were acquired from the states at nominal prices\. Problems experienced in acquiring and preparing the sites for the Kuantan Teachers College and Polytechnic between 1973 and 1976 delayed construction\. Identification and approval of the site for the Educational Media Services (EMS) in Kota Kinabalu, Sabah was not finalized until July 1977 when it acquired a site next to the Radio Television Malaysia (RTM) building which facilitates close cooperation between EMS and RTM\. In the case of some Sabah schools, site preparation appears to have been poorly carried out, with too little attention being paid to drainage, leading to problems in the sewerage system\. 4\.03 Professional Services\. Professional services in most cases were provided by the Public Works Department in Kuala Lumpur assisted by the State Public Works Departments\. However, the design of the seven Sabah secondary schools was prepared by local architects\. In the case of the radio studio in Sabah problems involving professional services of consultants resulted in delays in building\. In November 1977, the Implementation and Coordination Unit of the Prime Minister's Department agreed to the employment of private consultants to assist with the design and specification of the studios, but later, in December 1979, an RTM consultant recommended a more stringent specification to redtce noise levels\. This required additional costs of approximately $91,000 for the acoustic treatment to the studios and $152,000 for the air-conditioning\. 4\.04 Design\. The schools, collejes and the polytechnic present impressive modern concrete structures in sometimes otherwise isolated areas\. They serve adequately the teaching and boarding needs of the students and teachers\. However, the following design faults were pointed out to the PCR team: (a) In the Sabah schools the design of the multi-purpose hall next to the kitchen annex, while suitable for games, is unsuitable for music shows and drama because of poor acoustics\. Proximity to the kitchen makes it impossible to keep the ceiling clean\. Most of the multi- purpose halls are rather unsightly\. The canteens are too small for the number of pupils\. The staff houses are generally of good design, but the construction of four storeyed flats seems unneces- sary in view of land area available\. (b) In the Kuantan Polytechnic the hostel blocks are located at some distance from the teaching buildings in order to separate different use within the site but there are no covered ways between the buildings\. The library space is insufficient\. - 19 - (c) In the Junior College, Kuching, there is a persistent water supply problem due to poor location of watertanks; sewerage tanks are inappropriately located and there is poor drainage in the boys hostel\. These problems have rendered most of the toilets and bathrooms unsuitable\. There are inadequate facilities for relaxation and private study in the hostels\. (d) In the Teachers Colleges, the four storeyed rectangular administra- tion and teaching block results in a high noise level in the central courtyard; the location of the science laboratories on the third floor is considered unsafe; the music room on the third floor further contributes to the noise level in the quadrangle; doorways are inadequate\. Facilities for academic staff do not allow consul- tation with students; living space in the hostels is cramped; and a canteen and mosque are not included\. 4\.05 Construction\. Most of the delays in the completion of the project were due to construction problems: the delays are summarized in Annex 5\. Contractors for the Teachers College Ipoh, Teachers College and Polytechnic Kuantan and Secondary School, Weston had submitted unreasonably low bids and, consequently, were unable to complete the buildings in the face of rising costs\. In the Kuantan Teachers College and Polytechnic there were also problems regarding the quality of construction: Public Works Department checks indicated that many of the columns of the buildings were under- reinforced\. The contracts were terminated and retendered with delays of up to a year before construction restarted\. The Teachers College in Kuantan needed further remedial work after the second contractor had almost completed the project in June 1983\. 4\.06 The Sabah secondary schools were completed four years behind scedule, in June 1982\. The Polytechnic was not fully completed until December 1983, more than six years behind the schedule in the appraisal\. The Teachers Colleges were completed between one to six years behind schedule; the college in Sungai Petani began one year behind schedule in 1978; the college in Kuala Trengganu was completed three years behind schedule in 1980; the college in Ipoh began operating 5 years behind schedule in 1982; and the Tea- chers College in Kuantan was not completed until June 1984\. Only the con- struction of the Junior College, Kuching progressed smoothly and was completed six months behind schedule\. In the case of the radio studios, Sabah, the staff began to occupy the building in late December 1983, about 9 1/2 years after loan effectiveness and 7 1/2 years later than the appraisal estimate\. 4\.07 A comparison of the Appraisal estimate of areas with those actually built (Annex 6) shows that teaching and hostel accommodation in the Sabah schools was generally increased, but staff accommodation was generally decreased\. The area of the Junior College was reduced at the planning stage by about 24%, reducing the area per student from 80 sq ft to around 60 sq ft and resulting in cramped conditions in the hostels\. In the Teachers Colleges, the total constructed area is about 20% less than that scheduled in the Appraisal Report: the most drastic reduction being in the area of staff housing which were reduced by 61%\. The area of the radio studio is approximately 27% more than that in the original design\. - 20 - 4\.08 There appear to have been deficiencies in the supervision of construction\. Faults abound due to either poor supervision or use of poor materials\. In the Sabah schools: malfunctioning of the plumbing is a major problem resulting in overflowing septic tanks, blocked toilets, and taps that do not flow\. Leaking roofs and faulty electrical wiring, rotting wooden beams and supports persist in all schools\. Several defects emerged in the Junior College: leaking ceilings and roofs need constant repair; some of the drains are sinking for lack of proper foundations; electrical fixtures are inoper- able; and toilets and sinks are badly in need of renewal\. A bill of M$66,378\.80 has been incurred on repairs since occupancy\. Similarly, a number of weaknesses are apparent in the Teachers Colleges: the wooden flooring in the gymnasium in Sungai Petani is already badly damaged owing to damp condit- ions and wood rot; the built-in furniture generally appears to be of sub- standard quality unable to withstand wear and tear; and the finish to the woodwork is poor\. The construction of the radio studio appears to have been carried out satisfactorily with no complaints about quality\. 4\.09 Equipment and Furniture Sabah Secondary Schools\. Some of the equipment supplied cannot be utilized properly due to lack of support staff or unavailability of basic utilities\. Much of the kitchen equipment is unused because of lack of gas; some science equipment is too sophisticated for teach- ing at school level while there is insufficient basic teaching equipment; electric ovens and sewing machines are not used due to faulty electrical wiring; and language laboratories have little software\. The equipment appears impressive but some is not useful nor practical in the circumstances of the schools\. The furniture supplied generally is suitable and acceptable\. Kuantan Polytechnic\. The quality of furniture is acceptable and the level of utilization is high, however, the quantity is inadequate\. Much of the heavy equipment could not be ordered before the build- ings were ready\. The equipment has now been procured, and is suitable for Polytechnic use\. There are, however, few Bahasa Malaysia books in the library\. Junior College\. Initially serious delays were experienced in the supply of equipment but the situation improved\. Generally the equipment provided was satisfactory and is still in good usable condition, however, there is insufficient basic science teaching equipment\. The library appears to be poorly stocked\. The furniture generally was of poor quality requiring constant repair\. Teachers Colleges\. The equipment supplied is generally satisfactory although there were some serious delays in its supply\. Central repair and servicing was also reported to cause unnecessary delays and inconveniences to the colleges\. The loose furniture supplied is not durable; it was felt that better quality furniture could have been obtained if the college authorities had been consulted\. - 21 - Radio Studio, Sabah\. The technical equipment required for the RSC was supplied in December 1982 and stored until construction of the building was completed\. The equipment was installed and commis- sioned in March 1984\. EMS Equipment, Sabah and Sarawak 4\.10 Radio/TV Coverage and Supply to Schools\. Radio coverage in Sabah is good with almost all schools able to receive broadcasts\. Consequently, most schools were supplied with radio sets during the period 1975 to 1976\. The PCR team is of the opinion that between 50 to 100, i\.e\. 6 to 12%, primary schools in Sabah and between 200 to 250 i\.e\. 16 to 20%, in Sarawak are outside TV coverage\. Of those which could receive transmissions a large percentage did not have electricity at the beginning of the Project and had to be supplied with generators and petrol tanks as well, but as electrification has continued in both states the number of such schools has been decreasing markedly\. Secondary schools are generally located within or near towns, so virtually all of them can receive TV broadcasts\. The supply of TV sets suffered some delays because of problems related to tendering and the difficult terrain in the more remote areas required the installation of extended aerials and boosters\. Most of the sets were delivered during 1980 so that by the end of that year the vast majority of schools within TV coverage had been supplied\. 4\.11 Condition, Maintenance and Repair of Equipment\. Most of the equipment provided under the loan was found to be satisfactory\. After almost ten years of use, the radio receivers in Sabah supplied under Loan funds have virtually completed their useful life\. About half have been replaced already under Education Department funds and the remainder are generally in poor condition\. In Sarawak, of 1275 TV sets, about 50 are no longer in use (not working or missing), and about 30 are under repair at any one time\. In Sabah, of 978 sets, about 35 are condemned or lost, and about 160 are under repair or not working\. Sarawak has a large team of technicians in the field maintaining and repairing equipment whereas Sabah has virtually none\. There are long ielays in repair because of the problems of transportation, the cost and difficulty of obtaining spare parts, and shortage of technical staff\. For future development, smaller (color) TV sets for rural schools are advised\. A recently-approved Ministry of Education policy, to supply video cassette recorders in every secondary school (to overcome time-tabling difficulties) and in primary schools outside TV coverage is sound, and is based on the findings of a pilot project\. However, its implementation will not, in itself, be a guarantee of higher ETV utilization anc it will need to be supported by adequate training of teachers and an effective repair and maintenance service\. The Establishment of Educational Resource Centers (ERCs) 4\.12 Divisional ERC\. With the launching of Educational Radio (ER) in Sabah in 1975, Education Media Service (EMS) Supervisors were designated for each division\. The divisions also received a small quantity of audio equip- ment which became the nucleus for the setting up of an ERC\. This development has resulted largely from the initiative of local officers\. Divisional Educa- tional Technology (ET) Officers were appointed in Sarawak with the launching of ETV in 1976\. Sarawak has continued expansion of staff in each division - 22 - with an Assistant ET Officer, between two and five technicians, and up to five general support staff\. Sabah has been less fortunate: apart from the EMS Supervisor, each division has only a driver\. Although ETD staff have been appointed to the divisions in both states for almost ten years, the establish- ment of the ERCs has been a much slower process\. Apart from the ERCs in Kota Kinabalu [1969] and Kuching (19761, the other ERCs have really only developed, particularly with respect to AVA facilities, since 1981 and are still not fully established\. One problem which has contributed to the delay in a number of cases has been the difficulty of finding adequate and suitable space\. Thus, in Sabah, the three ERCs in Keningau, Sandakan and West Coast North Divisions exist in name only\. 4\.13 District ERCs in Sarawak\. Each geographical division in both states is divided into two to five districts\. During the past three years or so, ETD Sarawak has attempted to set up ERCs in all 25 districts\. In some cases a divisional ERC functions as the resource center for a particular district as well\. In five districts the ERC is managed by ETD staff\. Nine of the ERCs are located in schools, six in the District Education Office, one is in the divisional ETD office, and one has not yet been set up\. V\. PROJECT COSTS Appraisal Estimates and Actual Costs 5\.01 At appraisal the estimated project cost was M$96\.45 million (US$41\.4 million) of which the foreign exchange component M$45\.53 million (US$19\.54 million) comprised 47\.2%\. 5\.02 Table 1 shows a comparative analysis of appraisal estimates and actual project costs by category of expenditure\. The actual expenditure including contingencies was M$114\.77 million (US$49\.26 million) or about 19% above the appraisal estimate\. The largest cost overrun was in the civil works which cost 45\.3% more than estimated, but this included built in furniture\. The expenditure under the category of equipment and furniture was 35\.5% below estimate partly due to the reduction of furniture\. 5\.03 Table 2 shows the comparison of estimated and actual costs by component and category\. The components that experienced the longest delays in construction had the largest cost overruns; these were the Teachers College (121\.9%), most of the increased cost being contributed by the colleges at Ipoh and Kuantan, and the Kuantan Polytechnic (95\.6%)\. Overall, the cost of the Sabah schools exceeded estimates by only 9\.4%, but the cost of one school, at Weston, which was only completed in 1982, exceeded the estimate by 100%\. Disbursements 5\.04 A comparative analysis of the implementation and disbursement schedules of the loan shows that at the time the loan was initially due to close (December 1980) only 56% of the loan had been disbursed (Annex 7)\. Disbursements were especially slow during the first four years of the loan\. By March 1984, all the loan had been disbursed\. - 23 - Table 1:$ COMPARATIVE ANALYSIS OF ESTIMATED AND ACTUAL PROJECT COSTS BY CATEGORY OF EXPENDITURE Appraisal Actual (12/31/83) Differ- US M Us$ M$ ence Category million million million million (%) Civil Works (Construction and Site Development, Professional Fees) Without contingencies 20\.25 47\.17 Contingencies 6\.89 16\.05 Subtotal 27\.14 63\.22 39\.43 91\.88 +45\.3 Furniture and Equipment Without contingencies 9\.93 23\.14 Contingencies 2\.90 6\.76 Subtotal 12\.83 29\.90 8\.27 19\.28 -35\.5 Technical Assistance Without contingencies 1\.24 2\.89 Contingencies 0\.19 0\.44 Subtotal 1\.43 3\.33 1\.55 3\.61 +8\.4 Total 41\.40 96\.45 49\.26 144\.77 +19\.9 Table 2: PROJECT COSTS NY CATEGORY OF EXPENDITURE AN PROJECT COtPONFNT (December 31, 1983) (First line MS, second line USS) Project Civil works /a Fquipment and furniture /1, Technical assistance Total item Appraisal/c Actual niff\. 7 Appraisal Actual niff\. 7 Appraisal Actual Dff\. I Appraisal Actual Diff\. X Sahah 18,800,000 23,711,899 3,880,000 1,095,531 - - 22,680,000 24,807,430 schools R,065,00n 10,176,780 +26\.1 1,665,000 470,185 71- - 9,730,000 10,646,965 * Kuantan 7,8S0,000 20,664,854 6,350,000 7,104,837 - - - 14,200,00 27,769,691 Polytechnic 3,370,000 8,869,036 +163\.2 2,720,000 3,049,286 +11\.9 - 6,090,000 11,91R,322 Junior 1,980,000 4,192,522 + 950,000 580,503 - - - 4,910,000 4,933,025 college 1,710,000 1,86w,035 410,000 ?9,143 -389 - 2,120,000 2,117,178 * Teachers 1,570,000 1,1,769,04n 6 ,590,000 2,87,867 - - 19,130,900 42,456,907 colleges 6,670,000 17,111,17 4 +15\.6 1,550,00-1 1,110,672 -27\.9 -- 8,220,000 18,221,848 +121\.9 EMS /e 1,000,000 3,280,162 370,000 7, /d - - ,7,00 11,196,523 429,O0A 1,407,795 +228\.0 3,591,000 3,397,586 -5\.4 - - 4,020,000 4,805,375 +19\.5 All - - - 2,890,000 ?,61, 6Q1+? 2,89,000 3,613,692 -- 1,240,000 1,550,941 +25\.0 1,240,000 1,550,941 +25\.0 Total 47,170,000 91,878,477 23,148,l 19,285,099 2,890,000 1\.413\.692 73 200 000 114,777,268 20,244,000 39,432,822 +94\.8 9,936,000 9,276,66 -16\.7 1:24t0 1,5-50-,41 +25\.n i 3142 49,260,629 * /a Civil works include cost of site development, construction, built-in furniture and professional services\. 7F Equipment and furniture includes equipment and loose furniture\. 77 Appraisal costs do not include contingencies\. 7- Includes MA114,725 for staff development\. SEMS figures are as of March 1, 1984\. Note: T1S - Mk2\.33\. - 25 - VI\. PROJECT OPERATIONAL OUTCOMES Overall Outcome 6\.01 The project on the whole achieved its objectives of assisting the Government of Malaysia to implement its educational strategy in accordance with the New Economic Policy in the areas of basic Rducation in Sabah, poly- technic education in Peninsular Malaysia, upper sec\.edary science education in Sarawak, teacher education for primary and lower secondary schools in Peninsular Malaysia, and educational media in Sabah and Sarawak\. Seven Secondary Schools in Sabah 6\.02 Objectives\. This component was expected to extend basic education in Sabah to help meet the acute shortage of secondary school classrooms and hostel places for pupils from outlying districts\. It would also provide facilities and equipment for pre-vocational courses and for the teaching of science\. 6\.03 Student Enrollment\. The seven schools are providing secondary schooling in Sabah to more students than estimated at appraisal\. In 1983 there were 5,432 pupils enrolled in these schools, 24% more than estimated\. The schools were staffed by 249 teachers, representing an increase of 64% over the appraisal figure\. The number of boarders, 1,189, was almost equal to the 1,200 planned at appraisal\. 6\.04 Student Origins\. The survey of students showed that in keeping with the educational objectives of the NEP the seven secondary schools catered largely to a rural population; 77% of the pupils were from very rural areas and 13% were from small towns\. Furthermore these schools provided education largely for the indigenous population; there were only about 9% non-indigenous students\. The majority of the students were also from low socio-economic groups who earned a low income (tess than M$500 per month), had no education or a very low level of schooling and worked primarily in agriculture, fishing or as manual labourers\. There is little doubt that the schools are all providing educational facilities for previously disadvantaged students, 6\.05 The Curriculum\. The seven schools provide a total of 140 classes, 62% at the lower secondary and 38% at the upper secondary level\. At the lower secondary level all options of the pre-vocational subjects are offered - Agricultural Science, Commerce, Home Science and Industrial Science\. At the upper secondary level however, the proportion following science courses is only 5% so the planned focus on science has not been attained\. 6\.06 Examination Performance\. Student performance in public examinations have been only average; in 1983 students achieved a pass rate of 49\.3% in the Lower Certificate of Education [SRP] examination and in 1982 a pass rate of 47% in the Malaysian Certificate of Education (SPM)\. 6\.07 The Teaching Staff\. The teaching staff comprised mostly teachers with a secondary education (80%1, only a small proportion (7%] had a Higher School Certificate or a basic university degree [8\.5%]\. The majority (87%] - 26 - had obtained their professional training in Malaysian Teachers Colleges, while a few [8\.4%] had received a Diploma in Education\. The teachers also repre- sented a young group with an average of less than five years of teaching experience\. The majority (66%1 had been posted there from Peninsular Malaysia at the direction of the Ministry of Education\. There seems a clear need to improve the Sabah component of the teaching force in these schools\. 6\.08 Facilities\. Generally, more than half of the students expressed satisfaction with their schools\. Students expressed greatest satisfaction with the school building, followed by the home science room, science labora- tory, equipment, art room, teaching aids, library, language laboratory and the canteen\. Teachers echoed the students in showing satisfaction generally with the physical facilities except for the library and the language laboratory\. Teachers were not satisfied with the teaching aids and recreation and games facilities\. The PCR team members felt that in additicn to the unsatisfactory items identified by the teachers, the following deficiencies should be recorded: unsuitable equipment in science laboratories; lack of science teaching supplies and specimens; non-availability of spare parts for machines in industrial arts; faulty electrical wiring; non-functioning electric sewing machines and stoves in home science; unused language laboratories; libraries lacking suitable reading materials and proper shelves, and heavy kitchen equipment that could not be used due to shortage of gas supply\. A general picture emerged of a relatively large amount of sophisticated equipment under- utilized for lack of support services in the rural areas where the schools are located\. 6\.09 Conclusion\. The schools are doing a good job in providing secondary schooling to the rural, indigenous and low socio-economic group of Sabah's population, thus furthering the objectives of the NEP\. They have met the student enrollment, curriculum and teaching staff targets, but have failed to produce the planned numbers of science graduates: output \.i terms of examina- tion performance is also rather poor\. Although sound buildings, and adequate teaching rooms, hostels, furniture and equipment have been provided, utiliza- tion of specialist equipment and facilities is rather poor due to lack of basic services and support\. Kuantan Polytechnic 6\.10 Objectives\. The Kuantan Polytechnic was established to help meet the prospective demand for technicians and it was envisaged that by the early 1980s the Kuantan Polytechnic would produce about one-third of the estimated needs\. The siting of the polytechnic at Kuantan was intended to redress regional imbalances in educational opportunities althouj, as a national institution, it would recruit students from all parts of Malaysia in close liaison with industrial and commercial organizations throughout the country\. 6\.11 Student Intake and Enrollment\. The annual intake of students rose from 96 in 1976 1,000 in 1984 (Annex 8A) and total enrollment in 1984 was 1,700 i\.e\. well in excess of the target envisaged in the Appraisal Report, a commendable achievement in iew of the construction delays that had forced the Polytechnic to operate from temperary premises until early 1983\. - 27 - 6\.12 Output of Graduates\. Total annual output between 1978 and 1984 increased from 74 to 400 (Annex 8B), however, the output of graduates in 1980 represented only 18% of the total output of polytechnic trained technicians in the country\. The first batch of students to graduate was from the Engineering Department in 1978, the Commerce Department produced its first graduates in 1981\. The Food Processing Technology Department will only have its initial output in 1985\. 6\.13 Teaching Program\. The following courses are offered by the Polytechnic: Civil Engineering: Construction; Land Survey; Architecture Electrical Engineering: Power; Electronics and Communications; Industrial Instrumentation and Control Mechanical Engineering: General; Production; Auto and Diesel Commerce: Secretarial Science; Bookkeeping Food Processing Technology About half of the course time is devoted to laboratory work and relevant work- shop practice\. The training programs for technical courses also include industrial visits and industrial trainingl on successful completion of the first year program students are required to undergo 25 weeks of industrial training\. 6\.14 Teaching Staff\. The number of academic staff was 115 (October 1984): nearly 30% above the appraisal estimate\. The teacher-student ratio is about 1:12\. With the exception of the Department of Food Processing Technol- ogy, the number of staff members with a diploma or a certificate is larger than the number with a degree\. Over half of the staff do not have profes- sional (teaching) qualification\. Based on the responses of 39 staff members, about 60% had been teaching for more than five years\. Opportunities have been provided for the staff to receive in-service training, and from 1978 to 1982 14 lecturers received training overseas under the technical assistance program\. Of these, seven have resigned from the Polytechnic\. There has been a loss of 23 staff in total over the period 1978-84, mainly because of the pull from the private sector which offers more attractive salaries and promo- tion prospects\. In these circumstances the turnover is reasonable\. Staff who are trained at Government expense are bonded to serve the Government for periods of three to seven years\. 6\.15 t\.deguacy of Teaching Facilities and Courses\. The responses to the questionnaires highlighted a number of issues\. Nearly half of the respondents were of the opinion that there was a shortage of teaching aids and facilities such as reference materials in Bahasa Malaysia and laboratory apparatus, including instruments\. It was also suggested that reductions in class size and an increase in the number of laboratory attendants and technicians would improve the teaching and learning process\. Although more than 55% of the graduates and final year students indicated that the Polytechnic was not their first choice over 60% of the graduates and 70% of the final year students liked 'very much' the courses which they pursued at the Polytechnic\. Of the graduates who were employed, 31% found the courses to be 'very useful', 43% considered them to be 'u*Rful' and 16% indicated that the courses were 'fairly useful' to their work\. - 28 - Graduates and their Background 6\.16 Of the graduates, 426 (85%] were mate and 78 (15%1 were female\. A large majority [78%] of graduates were Malays, in line with the government's policy of assisting Malays towards greater participation in commerce and industry\. A majority of the Polytechnic's intakes (59%] were from families of low socio-economic status\. Their educational attainment prior to entry was low; 44% of the graduates obtained Grade II and 48% attained Grade III certificates at the SPM\. A large number of the graduates and final year students came from the middle-income states of Johor, Melaka, Negeri Sembilan, Pahang, Perak and Pulau Pinang\. Following close behind were the low-income states of Kedah, Kelantan, Perlis and Trengganu\. This pattern of represen- tation appears to be in line with the government's objective of redressing regiona imbalance\. Employment of Graduates 6\.17 Through a tracer study it was ascertained that about 86% of the graduates were employed, approximately 12% continued with further studies and less than 2% were seeking employment\. Of the graduates employed, about 7% of them gained immediate employment after graduation: 34% were employed in less than a month following graduation, and 45% obtained employment within one to six months\. Only a very small proportion of graduats (3%) had to wait for more than a year before they were employed\. Of those working, 88% were employed in the public sector, in particular, in the Telecommunications PDpartment, the Public Works Department, the Survey Department, the National Electricity Board, the Pahang State Development Board, the Federal Land Devel- opment Authority and the City Hall\. About a quarter of the graduates were employed by the National Electricity Board, the largest single employer of the Kuantan Polytechnic graduates in the public sector\. The high absorption of graduates into the public sector was partly due to the fact that almost 75% of them were bonded by contract to serve their sponsors, who were the government departments\. 6\.18 In terms of salaries, a majority of the graduates [69%] earned between M$501 and M$600 per month\. About 11% of them received salaries ranging from M$601 to M$700 and 2% of them obtained between M$901 and M$1,000\. A further 2% of the graduates earned over M$1,000\. 6\.19 Opinions were sought of the two employers who employed a reasonably large number of the Kuantan Polytechnic graduates regarding the performance of graduates and the relevance of courses conducted at the Polytechnic\. On the whole, these employers (the National Electricity Board and Esso Malaysia Ltd\.) were satisfied with the performance and work ethics of the Polytechnic graduates\. 6\.20 As already indicated, about 12% of the 1978-1982 Polytechnic graduates continued with full-time studies\. Nearly two-thirds of these were enrolled in diploma and degree courses at the University of Technology and the MARA Institute of Technology\. As regards the 1983/4 final year students at the Polytechnic, nearly half of them hoped to pursue higher education, 28% wished to work and pursue part-time study and only 26% intended to look for employment after graduation\. - 29 - 6\.21 Conclusion\. The targets of the Polytechnic are likely to be met, albeit at a later date than that originally envisaged\. A high proportion of the students and graduates are Malays of low socio-economic status and come from low-and middle-income states\. Most graduates found their courses at the Polytechnic to be useful to their work\. So far, the graduates from the Poly- technic are readily absorbed into fruitful employent, mostly in the public sector\. It would appear that despite the problem related to cost overrun and delays in the completion, the Polytechnic component has been successfully implemented\. Junior College, Kuching 6\.22 Objectives\. The Junior College, Kuching was expected to contribute towards the achievements of the educational objectives of the SMP in Sarawak as an upper secondary school teaching in the national language providing high quality education for students from rural areas\. It would particularly meet the shortage of sixth form places with a focus on science\. 6\.23 Student Enrollments and Output\. Since 1978 a total of 4,382 stu- dents have attended the Junior College, 3,437 in the Bahasa stream and 945 in the English stream\. After 1981 the College only catered for Bahasa Malaysia students, thus being one of the few institutions in Kuching catering for upper secondary education in Bahasa Malaysia\. The present enrollment of the college (605) is lower than that anticipated at appraisal (830)\. The majority of students stay in the hostels, as was intended\. 6\.24 Background of Students\. The students have largely rural origins; 53% come from very rural settings, i\.e\., the long houses and small villages\. All the major ethnic groups are well represented; there are 37% Malays, 12% Melanu and 20\.5% Dayak Laut\. Of the total enrollments 77% are indigenous\. The majority of students (60%] are from low socio-economic groups; the major- ity of the students' parents had either no schooling [36%] or only primary schooling (40%]\. More than half of the students [56%] had fathers working in agriculture, animal husbandry and forestry or were fishermen and hunters\. Clearly, the Junior College is helping to meet the demand for education from the disadvantaged groups\. 6\.25 The Curriculum\. While the focus has remained on science education, the Junior College has also provided education in the arts subjects\. Between 1978 and 1982 some arts classes were phased out but in 1983 the arts stream was again revived\. Also in 1983 two mixed arts/science classes were estab- lished\. Apart from the regular classes there has also been a matriculation class preparing students for Universiti Kebangsaan Malaysia\. The Junior College has fully achieved its objective of enrolling at least 60% of science students: science enrollment was 95% in 1983\. The Junior College has, how- ever, continued to cater also for Forms IV and V level, instead of becoming purely a Sixth Form College as intended at appraisal\. 6\.26 The Teaching Staff\. The college has been fairly well staffed\. In 1978, there were 26 teachers to 575 students or a ratio of 1 to 22 pupils and in 1983 there were 38 teachers to 605 pupils representing a very favourable ratio of 1 to 16 pupils\. Nearly all the teachers are graduates and well - 30 - qualified professionally, the majority (35 out of 38) with a Diploma in Education\. 6\.27 Performance in Public Examinations\. Between 1978 and 1982, 853 candidates have sat for the SPM, 317 for the HSC (English) and 305 for the STPM examinations\. The performance of these candidates has been fairly satis- factory at the MCEVSPM level but rather unsatisfactory at the HSC/STPM level especially in the science subjects\. In 1978 only 58% passed the MCE/SPM exams, but the results improved remarkably to a pass rate of 96% in 1982\. The analysis of results by subjects for SPM shows that the improvement is particu- larly evident in the science subjects\. Not only were more students passing but they were also getting better grades, the overall performance of the school improving very markedly\. The HSC and STPM results have been very poor, a reflection perhaps of the relatively poor quality of candidates\. The teaching staff complained about the quality of sixth formers - those left over after the best students had been 'creamed off' to other institutions\. For the three years 1979, 1980 and 1981, the STPM results were extremely poor, with 25%, 13\.8% and 29\.3% full passes respectively\. The academic performance is showing some signs of improvement since 1982\. A poor pass rate will not en- hance the position or standing of the college among the other secondary schools in Kuching\. The Junior College has not yet fully achieved its objective of providing sixth form science graduates for higher education\. Adequacy of Facilities 6\.28 The general physical facilities, equipment, furniture, teaching aids, and science laboratories were viewed as adequate, but the recreational, library and language laboratory facilities were considered by the majority of students as unsatisfactory\. The evaluation team's observation reinforced the student view\. The library deserves special mention as it was poorly stocked at the date of the visit by the PCR team\. It is hoped that with the arrival of the last batch of books procured under the Loan, the position has improved\. The following aspects of the hostel need improvement: food, facilities for relaxation, games, extra-curricular and social activities and facilities for private study\. The college administration, the curriculum, the co-curricular activities, and quality of teaching from the perspectives of content and method were considered good by the majority of the students\. Clearly, students are satisfied with the way the college is functioning and performing its primary function\. Conclusion 6\.29 The Junior College has attained most of the objectives that were intended for it\. It provides upper secondary education in Bahasa Malaysia for about 600 students annually, a lower figure than the estimated figure of 830 students per annum\. It caters largely for rural students of very low socio- economic status from all parts of Sarawak\. It is a residential school provid- ing hostel facilities for 85% of its students\. Although intended primarily as an upper secondary science school to date its science performance at higher level has been poor\. The school has also retained its fourth and fifth forms\. It is served by a good complement of well qualified graduate teachers\. - 31 - Four Teachers Training Colleges 6\.30 Objectives\. Four teachers training colleges were to be established to help overcome the deficiency of primary and lower secondary teachers in Peninsular Malaysia\. Full boarding would be provided at all colleges to permit (i) extra-curricular activities; (ii) enrollment of students from rural areas; and (iii) inservice courses during vacations\. The government would grant priority of admission to the project TTC's to students from rural areas, especially from those which find it difficult to retain teachers\. 6\.31 Student Enrollment and Output\. By 1983, three colleges at Sungai Petani, Ipoh and Kuala Trengganu, were in operation, with enrollments of 719, 653 and 739 respectively (Annex 9A), compared with the target enrollment of 720\. By the end of 1983 the outputs were 242, 198, and 185 (Annex 9B), well below the expected annual output of 360 students per college, mainly because in 1982, a three-year program replaced the previous two-year course\. Out of the total output of 626 teachers, 80 percent were for primary schools, and 20 percent for lower secondary schools\. 6\.32 The Teacher Trainees\. The trainees possessed good academic qualifi- cations; over 92% of them had obtained Grade I or II in the SPM/MCE/SPVM Examination and 54% had obtained full certificate in the HSC/STP\. There was a fair balance of male/female enrollment with a slightly higher percentage of females (56%], as expected\. Students had been recruited from all States of Malaysia to encourage interaction: only 21% of students came from big or medium towns and the rest from very small towns, rural villages or settlement schemes\. Student distribution by ethnicity reflects fairly closely the ethnic representation in the country, with a slightly higher representation of Malays (60%]\. The majority of the students' parents had a low income, had only primary education or no schooling and worked in the agricultural, animal husbandry, forestry, fishery, service and sales workers categories\. Clearly, the colleges recruit students primarily from rural areas and the lower socio- economic strata thus fulfilling the objective of providing educational and occupational opportunities to the socially disadvantsged groups\. 6\.33 The subjects taught in the colleges reflect common foundation courses offered in all the colleges, with some specialization in the "method courses\." All the colleges train general purpose primary teachers in Bahasa Malaysia and English\. The colleges in Ipoh and Sungai Petani also train a group of teachers for the Chinese Primary schools\. At the lower secondary level, training is provided in mathematics, science, Malay Studies and geo- graphy and art\. 6\.34 Usefulness of Training\. Generally, students found the courses and training useful\. Both the formal aspect of the training and the co-curricular and general experience of living in the hostels were thought to have enriched their professional and personal development\. However, they felt that training could be further enhanced by greater interaction between staff and students and better coordination between method courses and practical teaching\. 6\.35 Students' Posting Preferences\. The majority of the students pre- fered to be posted back to their home town or to States near their home - 32 - States\. The majority [70%] also prefered to be posted to smaller towns rather than to big towns or rural areas: the low preference for posting to rural areas was also expressed by those who came from rural areas\. The findings suggest that the policy of recruiting trainees from rural areas to enhance the supply of rural teachers will not be as successful as anticipated\. The Teaching Staff 6\.36 In 1983, the colleges in Sungai Petani, Kuala Trengganu and Ipoh had teaching staffs of 66, 61 and 46 respectively and staff:student ratios of 1:11, 1:12 and 1:15\. The staff fell mostly (85%] in the age group between 31 and 45 representing educationists with some years of teaching experience\. The colleges on the West Coast, at Sungai Petani and Ipoh, were staffed with the more experienced lecturers while the college in Kuala Trengganu on the East Coast had a larger population of younger, less experienced but better quali- fied lecturers\. The majority of the staff (69%) had a Bachelors or higher academic qualification, but 83% had only first level professional qualifica- tion, i\.e\. the Certificate in Teaching or the Diploma in Education\. There are some discrepancies between the primary specialization of staff and the sub- jects taught by them\. Some staff are teaching subjects which were not their primary specialization including some teaching subjects in which they have received no training\. The academic work of lecturers appears to be confined primarily to teaching and does not extend to community service, research and publication\. 6\.37 Facilities\. Teaching facilities were on the whole considered adequate by the staff\. Other than the library, staff utilization of the general facilities is disappointing\. Utilization of the microteaching units and language labs is extremely poor; mainly due to lack of support technical staff and software\. The AVA room is also seldom used by the majority of the staff of the colleges although larger numbers of staff indicated their usage of AVA in teaching\. With regard to the utilization of special rooms it was generally felt that these colleges had been provided with facilities not matched to their special needs and curriculum\. For instance, domestic science rooms were over provided and so are underutilized or used for other purposes\. Student utilization of the music room, library and AVA room is high\. It is a matter of special concern that high cost facilities such as the microteaching unit and the language laboratory are seldom or never used by the majority of staff and students\. Conclusion 6\.38 The four teachers colleges are making a significant contribution to teacher education in Malaysia\. Enrollments at each of the colleges have nearly met the estimated target of 720 teacher trainees per year, but the annual output has been below expectations due to a change from a two- to a three-year programme\. Each college may be expected to produce between 200 to 240 students per annum, contributing an annual output of between 800 to 1,000 trained teachers\. Student recruitment patterns are helping to balance educa- tional opportunities in Malaysia\. However, students' preferences for posting after graduating indicate that they would prefer to serve in their home state and the majority would like to serve in small towns, rather than in rural - 33 - areas\. The colleges are adequately staffed with graduates but their profes- sional qualification in education could be improved through a more vigorous staff training programme\. Specialist facilities other than the library are underutilized including high cost facilities such as the micro-teaching units and the language laboratories\. Also as a result of the adoption of a standard design, the colleges have been provided with some specialist rooms that are nct relevant to their curriculum\. Educational Media Services 6\.39 Objectives\. Support was provided for the development of educational broadcasting in Sabah and Sarawak\. Through the provision of TV receivers and generators it was envisaged that all primary and secondary schools in Sabah and Sarawak with a total enrollment of about 500,000 would be substantially covered by 1978\. Each State Department of Education would also set up an EMS section, later to be known officially as the Educational Technology Division (ETD)\. Organization and Staffing of ETD, Sabah and Sarawak 6\.40 The Organizational Charts for ETD Sabah and ETD Sarawak in 1984 are given in Annex 10\. Both ETD Divisions have educational broadcasting units that are responsible for the transmission of ETV and ER programs\. Sabah is also responsible for transmitting programs received from Kuala Lumpur to Sarawak\. Both units produce programs for ETV and ER to a limited extent and face similar production problems - shortage of artistes, script-writers and production staff\. 6\.41 ETD Sarawak has significantly more staff, particularly technicians than ETD Sabah\. Sarawak staff in professional posts are, on the whole, better qualified academically and have longer ETD experience than their counterparts in Sabah\. A wide variety of training has been given to staff but only a little has been regular and part of an overall plan: technician training has been neglected\. 6\.42 Educational Resource Centres\. The ERCs or EMS centres, were conceived as support centres for the development of the ETV and ER services in the schools in the division\. In practice, ERC staff are seen more as sup- pliers and administrators than as professional resource personnel\. This is probably a result of a lack of qualified and experienced ERC staff able to provide guidance in effective media utilization and provide in-service courses\. 6\.43 Teacher utilization of ERCs is so far limited\. In spite of attempts to familiarize teachers with the facilities of their ERCs by sending letters with catalogues of the software and hardware available, of meeting with small groups of teachers at the ERC, and briefings and demonstrations, only those teachers who are near the ERC respond, mainly because of transport problems\. Thus, eight ERCs reported that ten teachers or less, on average, visit their centres each week\. This attempt to establish district ERCs in Sarawak is com- mendable: it has great potential and would justify further resources devoted to it\. - 34 - Utilization of ER and ETV 6\.44 Sabah\. ER and ETV utilization for 1981, 1982 and 1983 are summarized in Table 3 below\. Table 3: EDUCATIONAL RADIO AND TELEVISION UTILIZATION IN SABAH: NUMBER OF SCHOOLS REPORTING USE/1 1981-1983 School ER 1981 ER 1982 ER 1983 ETV 1981 ETV 1982 ETV 1983 level No\. %/2 No\. % No\. % No\. % No\. % No\. % Primary 220 52% 125 49% 325 56% 319 74% 155 61% 272 47% Secondary 15 31% 9 26% 9 15% 25 51% 13 35% 13 22% /1 Since ETD Sabah does not adhere strictly to one definition for user school, the term employed here may simple mean a school which uses ER/ETV to some extent\. /2 Percentage figures are based on the number of responding primary or secondary schools in that year\. Source: Sabah Evaluation Unit's Annual Reports 1981-83 and 'Briefing on Sabah Educational Technology Division', 1983\. While about one-third to one-half of Sabah primary schools reported the use of Ed programs the proportion of secondary schools was much less\. The same pattern exists for use of ETV in primary and secondary schools, however, there has been a distinct decline in ETV utilization during the past three years: a major contributory factor being the deterioration of equipment because of the lack of technical support\. At the primary level, Bahasa Malaysia was the most popular subject for both radio and TV\. Science and mathematics, TV programs were used by about 20% of responding schools\. At the secondary level, these two subjects were the most popular TV programs with Science having a take-up rate of almost 12%, ER Bahasa Malaysia was the most utilized subject at about 10%\. 6\.45 In view of doubts about the accuracy of questionnaire responses ETD Sabah carried out an in depth investigation into ER and ETV usage in Sabah in 1983\. Their utilization findings are shown in Table 4 below and indicate that the actual utilization is lower than that repe\.ced, with less than a third of primary schools using radio or TV and even fewer secondary schools\. - 35 - Table 4: ER AND ETV UTILIZATION IN SABAH BASED ON ETD SCHOOL VISITS, 1983 No\. of schools using radio (ER) or television (ETV) ER ETV School Level No\. of schools visited No\. % No\. % Primary 102 29 28% 33 32% Secondary 13 5 36% 2 14% Sarawak 6\.46 The rates of utilization of ETV in Sarawak for 1981-1983 are reported in Table 5\. A team of competent technicians in Sarawak has played an important part in encouraging utilization\. Table 5: ETV SARAWAK - RATES OF UTILIZATION - 1981-83 ETV User Schools 1981 1982 1983 School Level No\. % No\. % No\. % Primary 574 61% 551 62% 592 60% Secondary 12 18% 10 15% 26 33% Note: Percentage figures are based on the number of responding primary/se- condary schools in any one year\. Source: Sarawak Evaluation Units Annual Reports 1981-83\. More than half the primary schools and about one third of secondary schools are ETV users which is very encouraging\. Secondary school utilization is increasing with the continuing implementation of Bahasa Malaysia as the medium of instruction at the secondary level\. At the primary level, in 1982 67% of rural schools and 53% of very rural schools were ETV users\. The highest utilization rate was for Bahasa Malaysia\. 6\.47 Responses to PCR questionnaires clearly reinforced the general finding in the two states that media utilization was better at the primary level than at secondary level\. Observations by the PCR team during school visits indicated that responses to survey questionnaires overstate the use made of radio and TV - hence actual utilization is less than that reported\. - 36 - Facilities and Arrangements for ETV/ER Utilization 6\.48 Several issues affecting ER and ETV utilization were followed-up during school visits: only 28% of the sample had separate TV rooms and in the larger schools where there was space available for a TV room, one set was insufficient and timetable clashes were impossible to surmount\. The effi- ciency of school organization for ETV/ER utilization is very important\. Where teachers have been appointed specifically to be in charge of radio TV, prepar- ing rosters for class use and arranging staff discussions with the support of the principal, ER and ETV programs have been fairly well utilized\. The support and enthusiasm of school heads is one of the most important factors affecting utilization of media in classrooms\. 6\.49 Broadcast Materials\. In general, ER/ETV broadcast materials were found to be relevant to the school curriculum with a wider range of subjects covered at primary level\. Sabah and Sarawak are beginning to produce some programs but most is produced by EMS KL\. Although primary school staff gener- ally report ER/ETV program content as satisfactory, they expressed concern about the level of Bahasa Malaysia or English, which was felt to be too diffi- cult because language proficiency is lower than in Peninsular Malaysia\. In an evaluation exercise conducted in Sarawak in 1983 of forty programs from five series, most of the teachers indicated that the programs had met the objec- tives stated in the Teachers' Notes and were seen as generally good\. Evaluation of ER/ETV Utilization 6\.50 ETD personnel, heads and teachers in Sabah and Sarawak have identified similar problems and issues relevant to the effective utilization of radio and TV in the classroom\. Highlighted among these are the quality of programs, the prompt delivery of timetables and teachers' notes, the mainte- nance of media equipment in schools, adequacy of space and the need for suit- able training for teachers\. PCR survey and interviews confirm findings from both states that ETVER programmes are not used extensively at secondary level even when time-tabling and other organizational problems are absent\. In contrast primary level usage is higher particularly at the lower primary level which is currently implementing the New Primary School Curriculum (up to Standard 2 in 1984)\. The differences may be due to the national support and publicity given to the new curriculum and to the design of media materials integral to teaching-learning experiences and not as optional materials, as with the old curriculum\. But while primary schools use media programs more widely, effective usage is questionable\. In observation of classrooms, teachers wrote the ETV program title on the board, switched on the set and let pupils watch/hear the program without preparation: in only very few cases were there adequate follow-up lessons\. There has been no structured experi- ment to compare the outcomes of use of radio and TV in the schools not using it\. But the PCR team felt that overall the gains have not been large\. - 37 - Audio-Visual Aids (AVA) Facilities in Schools 6\.51 Both Sabah and Sarawak ETDs have advised schools to appoint teacher coordinators (TC) whose task it is to promote, coordinate and guide the use of media and other AVA resources\. However, only 12% and 11% of TCs in Sabah and Sarawak respectively have organized professional media-related discussions in their schools\. Sarawak appeared to be better off in software than Sabah with more than 50% of the schools possessing appropriate charts, maps ana cassette tapes\. At ETD Sarawak's suggestion, about 60 secondary schools purchased Video Cassette Recorders (VCRs) in 1982 using Education Department funds\. All EMS and ETD staff, heads and teachers interviewed felt the use of VCRs to be one of the most important ways in which problems such as the clash of time- tables, differing rates of pupil progress and availability of only a single TV could be surmounted\. Conclusion 6\.52 In summary, ETD Sarawak has met with moderate success with respect to the purposes for which it was established while ETD Sabah's achievements appear to have been more modest\. While utilization of their media services has ranged from poor (e\.g\., secondary level ETV) to good (e\.g\., primary level ETV in Sarawak), the actual benefits to the pupils are not clear\. In both states more attention is needed to ?rofessional aspects such as coordination and leadership in use of media and training for staff and school personnel\. In Sarawak, the infrastructure for an effective system is in existence, whereas in Sabah strengthening is needed at the divisional level and in technical support\. Technical Assistance 6\.53 The proposed 33 1/2 man-years of expert services and 8 1/2 man-years of training of the staff of the Polytechnic were later changed to 4 man-years of expert service and 53 1/2 man-years of staff training\. The 4 man-years of expert services were not utilized although the services of 5 experts were obtained with funds from other sources to assist the polytechnic during the period 1983-84\. As regards the training program, 117 educators and administrators were sent on courses ranging from a few weeks to 22 months, utilizing about 61 man-years\. Out of 117 staff who benefitted from training under the technical assistance p\.ogram, only 14 were originally from the Kuantan Polytechnic, the others were staff of the Technical and Vocational Education Division who have subsequently - or are expected in the future - to serve in the polytechnic\. VII\. CONCLUSIONS AND LESSONS 7\.01 The Third Education Project has in general, achieved the objective of assisting the implementation of the Second Malaysia Plan by improvement of educational opportunities in the rural areas especially at the secondary and and post-secondary levels\. The Project's educational outcomes are mostly positive: it has extended the development of secondary education in Sabah and Sarawak; provided a basic structure for the introduction and development of educational radio and educational television for both primary and secondary - 38 - schools in Sabah and Sarawak; and helped to meet the requirements for primary/ lower secondary teachers and technicians in Peninsular Malaysia\. Neverthe- less, there are important lessons to be learned for implementation of future Education Projects in Malaysia\. 7\.02 The most striking feature of the Third Project's implementation has been the considerable length of time taken to complete the project compo- nents\. Time overrun for the components ranged from 6 months for the Junior College, Sarawak, to 93 months for the Radio Studio in Sabah\. Although the Project commenced in June 1974, many of the components - the Kuantan Poly- technic, Teachers Colleges in Kuantan and Ipoh, Educational Media Services in Sabah and Sarawak, and the Secondary School in Weston, Sabah, became fully operational only between 1982 and 1983, with a delay of between 5 and 6 years from the Appraisal Schedule\. 7\.03 These delays in the completion of construction had adverse consequences\. As a result of inflation, the cost of construction increased; purchase of heavy equipment and furniture (especially for the Polytechnic and EMS) had to be delayed and this too meant extra costs\. Commitment charges on the loan were also substantial\. In educational terms, the delays slowed down the achievement of the enrollment and output targets\. 7\.04 The delays in implementation occurred at all stages: in land acquisition, site development and in construction\. The main problem in construction arose from the award of contracts at unrealistically low prices to contractors who lacked the requisite experience, skills or resources to complete the projects\. Contractors then compromised on the quality of mate- rials in the buildings and furniture, resulting in complaints of physical problems that required constant repair and renewal - leaking roofs, poor elec- trical installations, inadequate drainage and non-functional plumbing and sewerage\. 7\.05 The PCR team experienced difficulty in piecing together information about the implementation of the projects and the analysis of costs in the early years of the project\. 7\.06 There was criticism about the lack of coordination between the central authorities and the state bodies or institutions\. It was also reported that there was poor communication between the central authorities and the states of Sabah and Sarawak in matters such as staff training, purchase of EMS equipment and the planning of radio and TV programs\. 7\.07 Some outcomes were reduced because staff training and technical and maintenance needs were not fully incorporated into the projects\. Staff train- ing needs were not fully identified for the development of the EMS in Sabah and Sarawak, nor for the staffs of the Teachers Colleges in Peninsular Malaysia\. In the latter the micro-teaching and the language laboratories were underutilized because of a lack of supporting technical staff and maintenance\. 7\.08 Some of the equipment supplied under the project was not relevant to teaching needs, e\.g\., some equipment supplied to the Sabah schools and the Junior College, Kuching, was over sophisticated while basic educational teach- ing materials were in short supply\. - 39 - Lessons Learned 7\.09 Delays in implementation resulted in increased costs, some being doubled and almost trebled compared with appraisal estimates\. 7\.10 Close supervision and quality control are needed to ensure that contractors and suppliers adhere to specifications\. The new computer-based integrated development assessment system (Setia) introduced by the Malaysian Government on March 1, 1984 should ensure effective monitoring of the physical and financial progress reports as well as the allocation and use of funds\. 7\.11 Full attention needs to be given to staff training, support services and proper maintenance for the utilization of sophisticated equipment\. This is especially done for effective operation of educational radio and television, as indicated by the ER/ETN experience in Sabah and Sarawak\. OBSERVATIONS AND LESSONS LEARNED BY THE BANK Observations 8\.01 The Third Education Project achieved its overall objectives of improving educational opportunities in rural areas, expanding secondary schools and teacher and technician education, and extending the provision of educational radio and television in Sabah and Sarawak\. There were consider- able delays in implementation, mainly due to problems in construction\. 8\.02 The students enrolled in the project institutions are largely indigenous Malys of rural origin, from low socio-economic groups with parents having had no schooling or only primary schooling\. Thus, the objective of improving educational opportunities for disadvantaged groups has been successfully achieved\. 8\.03 The objective of the development of science education has been achieved at the Junior College, Kuching where the majority of the students specialize in science\. However, in the Sabah secondary schools only a very small proportion of students at the upper level are following science courses\. The failure of the development of science enrollment was probably a consequence of the absence of any provision in the project for encouragement of science studies, other than the provision of science laboratories\. The limited experience of teachers (para\. 6\.07) and the lack of suitable science equipment, materials and supporting staff (para\. 6\.08) have probably also been contributory factors\. 8\.04 There were serious delays in construction - partly due to problems over sites and partly to the failure of relatively inexperienced contractors to complete construction within the contract prices\. Lack of close control and supervision during construction appears also to have resulted in faulty construction (para\. 4\.08)\. The Ministry and the Public Works Department have taken the necessary steps to tighten procedures for prequalification of contractors and for supervision of their work\. 8\.05 The procurement of specialized equipment appears to have been completed successfully but too little attention was given to the establishment - 40 - of satisfactory support and maintenance services and to the supply of consum- able materials (paras\. 6\.08, 6\.15 and 6\.37)\. 8\.06 The staffing and management capacity of the Development and Supplies Division of MOE - the project implementation unit - was significantly streng- then during the project implementation period\. But the delays in strengthen- ing staff clearly contributed to the initial delays in project implementation\. 8\.07 The technical assistance and staff training program planned for the project was restricted to support for the polytechnic\. No expert services were actually used (para\. 6\.53)\. The technical assistance funds were reallo- cated to a considerably expanded staff-training program, but that program was apparently not designed to meet staff development needs of the project insti- tutions\. In particular, the technical assistance and staff training needs of the Educational Media Services and the Teacher Colleges appear to have been neglected\. Lessons Learned by the Bank 8\.08 In order to avoid major delays in project implementation due to problems in site acquisition and construction, the Bank has taken steps in subsequent projects to ensure that sites are acquired and design work started at an early stage of project processing\. More use has been made of private architects for design and supervision of construction in order to overcome delays in the Public Works Department\. 8\.09 The Ministry has been advised to establish central storage facilities to enable equipment to be procured and stored while construction of the project institutions is in progress and so accelerate implementation of projects\. 8\.10 In project design and implementation, adequate attention must be given to the establishment of satisfactory support and maintenance services\. 8\.11 The technical assistance and staff training needs of each project component must be carefully identified during project preparation and appraisal and a satisfactory means adopted to ensure that the necessary specialist services and training are provided\. It is necessary also to define in detail the criteria for selection of staff for the award of fellowships for training in accordance with project needs\. In the sixth education project - the Industrial Training Project - the technical assistance and training was designed as coordinated packages for each of the two components and is being provided under contract by training consultants according to the detailed terms of reference, criteria and timetables\. ANNEX 1 - 41 - MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Percentage of Age Group Enrolled by School Level for Selected Years School level 1967 1976 1979 Primary 6+ to 11+ 91\.0 97\.0 95\.0 Lower secondary 12+ to 14+ 52\.0 69\.9 82\.8 Upper secondary 15+ to 16+ 16\.0 32\.7 38,8 Post secondary 17+ to 18+ 5\.0 8\.3 9\.1 University level 1\.0 1\.5 1\.6 MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) Projct Completion Report Organizational Chart External Loan Unit, Development and Supplkes DMsIon, Ministy of Education pn po A sonecretaY ECcnCe~ OffCerk Wntdt Bank2678 Tecr~oT TeChruCCIl Tecsøc01 Ac~fin Executrfe OQr~ainizer II As5at ~Mison Amn1 Als~ OffOcfri~ (CMI) Elcno)(AKcte~fa) (Q~^ar OfIfice Cser sIeu~ ~ooOod-267%6 43 ANNEX 3 - 43 - W 3 Page 1 MALAYSIA THRI) EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Status of Covenants Ref\. no\. in Loan Date due Covenant Agreement Status Throughout The Borrower shall carry out 3\.01 The Project Unit was already implementa- the Project, through the in existence but under- tion Project Unit, with due dill- staffed\. Since 1977 it has gence and efficiency and In been gradually increasing its conformity with appropriate, technical and supportive administrative, engineering staff to carry out the and educational practices, proiects' implementation\. and shall provide as needed, the funds\. facilities, ser- vices and other resources required for the purpose\. Throughout The Borrower shall during the 3\.03(a) The Project Unit was staffed Implementa- execution of the Project, by a full-time Project Direc- tion maintain and operate the tor, an architect and pro- Project Unit with such curement officer\. Generally powers, responsibilities, the Project Unit functioned staff, facilities and re- satisfactorily, although sources as are set forth in there were some shortcomings Schedule 5 to this Agreement\. in the maintenance of records, and supply of equipment\. October 1974 The Borrower shall appoint 3\.03(b) Fulfilled\. (W) the three executive assistants and (it) the Project Coordinator in the State of Sahah\. -ANNEX 3 Page 2 Ref\. no\. in Loan Date due Covenant Agreement Status Throughout The Borrower shall furnish to 3\.05(a) Fulfilled\. All plans and Implementa- the Rank for its concurrence, specifications related to tion promptly upon their prepara- construction work were for- tion, all sketch plans and warded to and agreed upon by specifications related to the the Bank\. Lists of Equipment construciton work in the and their specifications, Project; all lists of equip- contract documents, construc- ment and the specifications tion and procurement sched- relating thereto, the con- ules have been furnished to tract documents and construc- the Bank\. tion and procurement sched- ules for the Project, and any material modifications there- of and additions thereto, in such detail as the Bank shall reasonably request\. (i) The Borrower shall main- 3\.05(b) Keeping of records can he tain records adequate to re- better streamlined\. It was cord the Progress of the not always possible to iden- Project (including the cost tify goods and services thereof) and to identify the funded by the Project\. Tn- goods and services financed formation concerning the out of the proceeds of the Project has been furnished to Loan, and to disclose the use the Rank regularly through thereof in the Project; (11) the nuarterly Progress shall enable the Banks accre- Report\. dited representatives to ex- amine the Project, the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Rank all such information as the Bank shall reasonably request concerning the Proj- ect, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds\. -45- ANWX 3 Page 3 Ref\. no\. in Loan Date due Covenant Agreement Status October 1974 The Borrower shall select 3\.06 Applications for sites for suitable sites for the the teacher training colleges teacher training colleges were made between January and included in the Project at August 1974, but applications Tpoh, Kuala Trengganu and were completed on March 1, Sungal Petani and take or 1975 for Sungal Petant, Sep- cause to be taken all such tember 1976 for Tpoh and July aciton as shall he necessary 16, 1977 for Kuala Trengganu\. to aceulre\. and shall fur- nish to the Bank, promptly after such acquisitions, evidence satisfactory to the Rank, that such land and rights in respect of land are available for purpose related to the Project\. June 30, The Borrower shall appoint a 4\.03 They were not all appointed 1975 full-time education mass by June 30, 1975, but were media officer to each of the appointed soon after\. As far educational media service as it can be ascertained most centres included in the of the appointments were made Project, between 1976 and 1977\. Presently all the EMSCS are staffed with a full-time education mass media officer\. Throughout The Borrower shall at all 4\.0 (b) Pulfilled satisfactorily\. Implementa- times employ, or cause to tion be employed, qualified admin- istrators and teachers in adequate numbers to staff the educational institutions included in the Project\. ANNEX 4 MALAYSTA TITRD EDICATION PUn\.IVCT (LOAN 974-MA) PROJECT COMPLETION REPORT Comparative Analysis of Initial Content and Amendments to Project Components Status at completion 12/91/AT Construe- Component Tnitial Project Description (1974) Changes in Content tion Purn\.turoe EquiJ=Unt Seven To construct, equip and furnish No change, Academic and lyn 100Y io Secondary seven schools in rural areast communal areas increased by 1% Schools, Ringkor, Menhakut, Kunak, and hostel area increasead by Sabah PenampanR, Bongawan, lulo, 227\. Weston\. To provide 4,440 secondary Provided 5,432 secondary places, places, 1,950 hoarding places, 1,189 boarding places, 244 1S2 teachers and 112 staff teachers and R2 housing units\. housing units\. Kuantan To construct, equip and furnish Total constructed area Increased lin? Innm, SA Polytechnit a Polytechnic at Knantan\. by about 197 - academic - com- munal 14%, hostel 14?, staff To provide 1,100 student places, housing 501\. 900 boarding places, 90 teaching staff and 6? housing units\. No change\. To provide 33 1/2 man-years of 4-man years of expert service expert service and 8 1/2 ran- and 53 1/2 man-vears of training years of training for 4alaystan for 71 staff\. staff abroad\. Junior To provide building and equip- Total constructed area reduced Inn0 InT? 100 tollege ment near kuching for upper by 24' provides 600 student Wiching 4econdary schooling of R1O places and more than S00 hostel students, 620 of whom were to he places\. boarders\. It would have a staff Surau, tennis court and epak of 34, and provide 23 staff takraw court added\. housinp units\. Four teacher To construct, equip and furnish Output reduced due to change to training four teacher training colleges 3 year course\. colleges, each with an enrollment of 720 Peninsular and output of 1,400 p\.a\. The Malaysisa colleges were to he at: I Kuantan Academic and communal area in- 91i 40 40% 2 qungai Trengganu creased by Q7, hoarding area 100Y 10? 100? 3 Sungal I\.>tant reduced hv 197 and staff housing 1007 100 lOp 4 Tpoh area reduced by 61'\. Surau and 100? 1007 100? canteen added at Sunvel Petanl\. Full boarding was to be pro- vided\. Educational To construct and equip 2 radio No Change 1n7 100 1001 Medium broadcasting studios in Sahah; Services to finance 900 radio receivers, equipment for 11 FMSC centers and transport facilities\. To finance for ETY Sabah and Sarawak - studio and ENSC equip- ment, about 2,200 receivers and about 1,700 generators\. ANIIWN % MALAYSTA T4TRn IUCAT0I7 PROTECT (LOAN 974-4A PROJFCT COMPITTON RFPORT Co!iparattve Anatysis of Tmpilemwntat\.un Sheiruile Time AppriaI Artual överru Projeet frem Commence Complete Nuratinn Commence Complete iuration (months) Pxsantan Polytechlnc Total Project Jul 1974 Sep 1977 14 Jul 1974 nkc 1 483 114 75 Construetion Ju 1975 Sep 1977 27 Mav 1978 nec 1981 68 41 Jr\. College Xurfhtng Total Prulect Nov 1974 Aug 1977 16 Jun 1474 Jan 197R 4? #s Construction Aug 1975 Aug 1977 2% Mar 1976 Jan 1979 22 1 Sahah Schools Total Projet Rtnpkor Jul 1974 Dec 1477 41 Jul 1Q74 Jun 1990 7? 31 Memhakut Jul 1974 nec 1477 41 flit IQ74 \.an 1480 66 75 Kunak Jul 1Q74 Dec 1177 41 Jul 1974 Jan 1480 66 25 Penampang Jul 1974 nec 1977 41 Jul 1974 Sep 1178 51 In Bongawan Ju1 1974 Dec 1977 41 Jul 194 Jun 1979 60 19 Xlilu Jul 1974 Dec 1977 41 Jul 1974 Jan 1479 55 14 Weston Jul 1974 Dec 1477 41 Jul 1474 Jun 1982 46 Cnnmttruct lcn RinRkur Jul 1975 ler 1977 31 rh IS, 76 Jesil 1980 5? temhakut Jul 1975 ec 1971 10 -eh 15, 7h dan 1480 4\. 16 Vunak li 1975 Dec 1977 0 4nr I', 74 J,an Mq1o 45 Penampang Jul 1975 Det- 1977 10 Peh ?1, 7 Sp 3478 3 Hongawan Jul 1975 1ec 1917 10 -lut IS, 76 lan 1971 15 Xalulu Jul 1975 Dec 1977 10 lul 15, 76 Jan 197o 30 1 Weston Jul 1975 Dec 1977 10 Ort ?S, 76 (1) \.un 195? hA 3R Jul: 2%, RO(ff 1 Teaching Cfxllepe Total Project Sungait Petant Jul 1974 Sep 137 3 Jul 47% M\.av lu/a 47 a Tpoh Jul 1974 Sep 1977 39 Jul 1974 1b l 09 5 Kuanran Jul 1474 Sep 1977 14 u1474 Jul 1984 1rtil 67 Ytala Trengganu Jul 1974 Sep 1977 39 Jul 174 Au 1980 74 iS Construetin Sungal Petant Jul 1175 Sep 1977 27 n\.a\. Ma 14« n\. Ä\. Tpoh Jul 197% Sep 1077 77 "lav l178 1981 5 l Kuantan Jul 1975 Sep 1977 27 May l1974 Apr 194 7' 4% Xttala Trengganu Jul 1975 Sep 1971 77 Jiil 1977 Attg 19911 42 1% Radio Studio Complex: Sabah Total Projert Jul 1974 Ytar 1976 71 it 1174 T¥\.- 1913 Ij\. (41 Construction Jal 1975 tiar 1976 n net 1(80 Dec 193 45 16 MALAYSIA THRTD ED1CATION PROJECT (LOAN 974-MAA) PROJECT COMPLETION REPORT Comparative Analysis of Estimated and Actually Ruilt Net Areas (sq ft) Academic and Communal Hostel Staff Total D If- 71 Dif- 7 nif- i Dif- Project items Appraisal Actual ference Appraisal Actual ference Appraisal Actual ference Aprratsal Actual ference Sahah School 241,450 277,180 +14\.8 99,450 121,500 +21\.9 164,100 122,128 -25\.6 505,200 520,RnA +3\.1 Teachers College 226,400 247,521 +9\.3 239,600 194,117 -14\.0 166,000 64,524 -61\.1 632,000 506,10 -14\.9 Xuantan Polytechnic 174,090 19A,975 +)4\.3 102,980 117,262 -13\.9 39,960 59,960 +50\.1 117,030 376,179 +18\.7 Jr\. College Xu-hir 76,740 57,276 -25\.4 49,600 37,514 -24\.3 21,000 17,360 -17\.7 147,440 !12,170 -23\.4 1 z, ANNEX 7 - 49 - MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Cumulative Estimated and Actual Scheule of Disbursements Actual disbur- Appraisal Actual sement as % Fiscal Seme- US$ Accumu- US$ Accumu- of Appraisal year ster million lated (M) million lated (%) estimate 1975 1st 0\.1 0\.5 0\.0 0\.0 0\.0 2nd 1\.0 5\.3 0\.0 0\.0 0\.0 1976 lst 4\.4 23\.2 0\.1 0\.5 2\.3 2nd 6\.6 34\.7 0\.1 0\.5 1\.5 1977 1st 8\.4 44\.2 0\.1 0\.5 1\.2 2nd 12\.4 65\.3 0\.8 4\.2 6\.5 1978 1st 16\.7 87\.9 1\.4 7\.4 8\.4 2nd 17\.3 91\.1 3\.0 15\.8, 17\.3 1979 1st 17\.8 93\.7 4\.8 25\.3 30\.0 2nd 18\.6 97\.9 5\.9 31\.1 31\.7 1980 1st 18\.7 98\.4 7\.1 37\.4 38\.0 2nd 18\.9 99\.5 9\.1 47\.9 48\.1 1981 1st 19\.0 100\.0 10\.5 55\.3 55\.3 2nd 10\.9 57\.4 57\.4 1982 1st 11\.8 62\.1 62\.1 2nd 13\.2 69\.5 69\.5 1983 1st 15\.5 81\.6 81\.6 2nd 17\.8 93\.7 93\.7 1984 1st 19\.0 100\.0 100\.0 Source: World Bank Statement of Loans\. ANNEX RA - 50 - MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Xuantan Polytechnic Student Intake 1976-83 Department 1976 1977 1978 1979 1980 1981 1482 1983 1984/a Civil Engineering 27 41 38 55 83 81 82 180 Electrical Engineering 38 41 63 63 84 97 102 208 Mechanical Engineering 31 42 38 61 77 85 108 164 Commerce - - - 20 20 26 54 150 Food Processing Technology - - - - - - - 35 Total 96 124 139 199 264 289 346 737 1,000 /a Breakdown not available\. -51 - ANNEX 81t MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Kuantan Polytechnic: Output of araduates 1978-83 Department 1978 1979 1980 1981 1982 1983 1984/a Civil Engineering 22 39 37 54 78 67 Electrical Engineering 26 35 55 50 71 71 Mechanical Engineering 26 37 35 54 72 78 Commerce - - - 15 17 22 Total 74 111 127 173 238 238 400 /a Breakdown not available\. ANNEX 9A - 52 - MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PROJECT COMPLETION REPORT Student Enrollment in the Three Teacher Training Colleges 1979-83 1st 2nd 3rd Year College year year year Total 1979 Sungai Petani 167 214 - 381 1980 Sungal Petani 288 166 - 454 1981 Sungal Petani 245 286 - 531 Kuala Trengganu - - - 185 1982 Sungai Petani 346 245 - 591 Kuala Trengganu - - - 485 1983 Sungal Petani 131 345 243 719 Ipoh 168 287 198 653 Kuala Trengganu - - - 739 Source: The Colleges\. - 53 - ANNEX 9; MALAYSIA THIRD EDUCATION PROJECT (LOAN 974-MA) PkOJECT COMPLETION REPORT Output of Graduates from Three Teacher Training Colleges in 1983 (1) Kula Trengganu Level Subject No\. of teachers Primary General/Rahasa Malaysia 55 Primary English 72 Lower Secondary Mathematics and Science 27 Lower Secondary Malay Studies and Geography 31 Total 185 Source: TTC Kuala Trengganu\. (il) _Ipoh Level Subject No\. of teachers Primary General/Bahasa Malaysia 55 Primary Chinese 64 Primary English 44 Lower Secondary Art or Malay Studies 25 Total 198 Source: TTC Ipoh\. (iii) Sungai Petani Level Subject 1979 1980 1981 1982 1983 Primary General or Bahasa Malaysia 65 58 86 - 56 Primary English 55 55 85 - 53 Primary Chinese 52 52 88 - 82 Lower Secondary Mathematics or Malay Studies 27 - 27 - 26 Lover Secondary Art or Malay Studies - - - - 25 Total 210 165 286 - 242 - 54 - Annex 10 M~~ THIRD EDUCATION POJECT (LOAN 974^A) O"ga~ioal Chart1984 Wo EDT $~br P omp sad Organkz~ftonal Char 1984 for EDT Srarak ~H~ Educational Resour1es Film/ht Wodd &Ynk-26787 COMMENTS FROM THE BORROWER - 55 - ATTACHMENT J KEMENTERIAN PELAJARAN MALAYSIA\. (page 1 of 1) BAHAGIAN PEMBANGUNAN DAN BEKAL\.AN\. TINGKAT TERBAWAH IMBI Pl\.A/A\. JALAN IMB, KUALA LUMPUR Teewir A I 41(1111 Kawat\. "P\. AJAAN MIN1TRY CP EDUCATION MALAYSIA, R1\. J1an DEVELOPMENT AND SUPPLY DIVISION, Rul\. Kar 10 (PL) 013/35 Jld\. 11 1MBI PLAZA, LOWER GROUND FLOOR, a JALANIM 9 I""A\. 5hb\. Jun\. 1986 50604 KUALA LUMPUR, MALAYSIA\. /BY DIPLCMATIC BAG Director, Operations Evdluation Department, International Bank for Reconstruction and Development, 1818 H Street, N\.W\., Washington, D\.C\. 20433p U\.S\.A\. Deat Mr\. Yukinori Watanabe, Project Performance Audit Report - Malaysia Third Education Project (Loan 97441A) I refer to your letter dated March 24, 1986 on the above subject and torward herewith the views and ccments by the Teacher Training Division of the MiniEtry of Education Malaysia on the Project Performance Audit Report for your kind perusalo 2\. In principle, Ministry of Education Malaysia agrees to the findinqs and lessons lehrned as stipulated in your Evaluation 3ummary of the Third Educction Project (Loan 974-MA)\. However we emphasise here that the main issues, problens, finc\.ings and outcomes o the project in entation has been gradually encountered and improvedin the impl ent tion of subsequent Worla -ank Frojcct Loanz rsceived\. Regards\. (S\. lIVA:\.AMPU Assirtant Sec etary, Vereign Loxn\. hilt, Orvelop\.ent and Supply 1)\.iviion, Min!\.try of Education Malaysia\. SS/ks\. - 56 - ATTACHMENT I (page 2 of 3) TEACHER EDUCATION DIVISION, MINISTRY OF EDUCATION, KUALA LUMPUR\. Comments on the Project Performance Audit Report: Malaysia - Third Education Project (Loan 974-MA) 1\. Ref\. page v Comment: The four TTCs are seriously overenrolled\. The student enrollment figures of these institutions for the year of reporting (1985) and the current year (1986) are as folloesi 1985 1986 a) Sultan Abdul Halim Teachers' 939 1332 College, Sungai Petani, Kedah\. b) Ipoh Teachers' College, Ipoh 852 1136 Perak\. c) Kuala Trengganu Teachers' 728 744 College\. d) Kuantan Teachers' College\. 716 960 3235 417? The above figures far exceed the anticipated total capacity of 2500 for the four colleges\. To ease the resulthing conjestion, all physical expansion program for/existing TTCs is incorporated in the current Fifth Malaysia Plan (1986 - 99)\. 2\. Ref\. page vi para 1 Comment: Educational quality does not necessarily depend nly on the physical standard of the buildings and facilities, particularly in respect of teacher education\. Nevertheless, instances of inadequate maintenance of building and equipment in the TTCs are acknowledged\. This shortcoming has largely been due to lack of fund rather than sheer neglect and ignorance\. The Audit Mission's emphasis on the importance of giving proper and continuous attention to building and equipment maintenance is therefore most appropriate\. 3\. Ref\. page vii para (d) This suggestion is being given due attention in planning for current projects under the Eightit Loan\. 00*v" - 57 - ATTACHMENT I (page 3 of 3) 4\. Ref\. page 9, para\. 27 Comments: Education Technology is presently one of the compulsory elements in Malaysian teacher education curriculum\. The teacher trainees are given adequate exposure to and experience in the use of various audio visual aids\. The TTCs are amply provided with a wide variety of such aids\. However, the enthusiasm and fervor of the young teachers in using the audio visual aids seem to diminish soon after getting posted to schools\. This may be attributed to either the absence of the necessary aids in some schools, particularly in the rural areas, or the lack of supportive attitude among their colleagues\. Individual teacher's attitude towards the job may also account for his inability or reluctance to use the various instruc- tional aids in teaching\.

APPROVAL

P004669

RESTRICTED FILE COPY Report No\. P-718 This report was prepared for use within the Bank and its affiliated organizations\. They do not accept responsibility for its accuracy or completeness\. The report may not be published nor may it be quoted as representing their views\. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF THAILAND FOR A FOURTH NATIONAL HIGHWAY PROJECT June 4, 1969  INTE10TATIONAL BANK FOR RECONSTRUCTION AND DEVELOP'4ITT REPORT A\D RECOT-7TIDATION OF TTIE PRESIDFI\TT TO THE ECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOWT OF THAILAND FOR A FOURTH NATIONAL HIGHWIAY PROJEC T 1\. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to U\.S\. p23 million to the Kingdom of Thailand\. PART I - HISTORICAL 2\. Of the nineteen loans which the Bank has made to Thailand, eight have been for transportation\. Two loans were for port development, three for railway improvement and expansion; and three loans, totaling $90 million equivalent, were for highway projects\. The First Highwqay Project loan, (3)il-TH) for $21\.8 million (net of cancellations) was made in 1963 and has been fully disbursed\. The Second Highway Project loan, (455-TH) for $36 million was made in 1966; construction is more than 50$ complete and is proceeding on schedule\. The Third Highway Project loan, (535-TH) for $29 million was made in JHay, 1968\. Contracts have been awarded for all the construction works, which are proceeding well, and the training program of the technical staff of the Department of Highways is being negotiated with institutions in Europe and the UJnited State\. Each of the Bank loans has included feasibility and engineering studies of roads for subsequent projects; thus two of the highways to be constructed under the proposed loan have been investigated and engineered under one or more of the previous loans, while the third higihway was studied and engineered œith Canadian assistance\. 3\. Negotiations took place in Washington between May 13 and 16, 1969\. The Government of Thailand was represented by Itlr\. Uthai Vodhigula, Director General, and Mr\. Nukul Prachuabmoh, Deputy Director General of the Depart- ment of Highways\. 4\. The proposed loan would be the twentieth loan to Thailand, of which thirteen are fully disbursed\. The follo,wJing is a summary statement of Bank loans to Thailand as at April 30, 1969\.  -2- (U\.S\. $ mjJlf\.o;i) Principal Un- Year Number Borrower Purpose Amount disbursed Thirteen loans fully disbursed 164\.9 1964 394-TH Kingdom of Thailand Meklong Irrigation 22\.0 8\.7 1966 455-TH Kingdom of Thailand Natiornal Highways 36\.o 16\.5-- 1966 471-TH Kingdom of Thailand Vocational Education 6\.o 5\.4 1967 489-TH Yanhee alectricity Authority Power 5\.0 \.7 1967 514-TH Kingdom of Thailand Sirikit Dam - Irrigation 26\.0o 14\.4 1968 535-TH Kingdom of Thailand National Highways 29\.0 24\.3 Total (less cancellations): 288\.9 of' which has been repaid to Bank and others 55\.7 Total now outstanding: 233\.2 Amount sold: 59 4 of which has been repaid: 10\.7 48\.7 Total now held by Bank 184\.5 Total undisbursed 70\.0 No IDA credits have been made to Thailand\. IFC has made two investments in Thailand\. IFC holds shares worth $192,000 in the Industrial Finance Corporation of Thailand; and this year made an investment of $22\.1 million (of which $4\.1 million is an equity investment) in the Siam Cement group of companies\. 5\. Disbursements under the Vocational Education project (loan 471-TH of 1966) have been slow because of the delay in appointing consultants, under bilateral assistance, to prepare specifications for equipment procurement\. The project is now proceeding well\. Otherwise, progress in the execution of Bank-financed projects has generally been satisfactory\. 6\. A pow^Ter project, with a foreign exchange component of $23 million to finance the power facilities of the Sirikit (Phasom) Dam now being constructed under Loan 514-TH, is expected to be presented to the Executive Directors in September\. The Industrial Finance Corporation of Thailand has applied for a second loan of $5 million, and an appraisal mission is scheduicau to visit Thailand in July\. A project to expand and improve the facilities sf Kasetsart (Agricultural) University, with a foreign exchange component of about $4\.5 million, is now being prepared for the Bank's consideration\. The Government may request a loan for a railway project later this year if satisfactory financing under suppliers' credits is not available\.  - 3 - PART II - DESCRIPTION OF THE PRT)POSED LOAN 7\. Borrower: Kingdom of Thailand Amount: Various currencies equivalent to U\.S\. $ 23 million\. Purpose: To assist in financing the construction or improvement of three primary highways totaling about 294 km; consulting services for the supervision of works and detailed engineering of about 533 km of primary roads; purchase of workshop equipment for highway maintenance\. Amortization: In 20 years, including U> year period of grace, through semi-annual installments beginning April 1, 197)4 and ending October 15, 1989\. Interest: Bs per cent per annum\. Commitment Charges: 3/4 of 1 per cent per annum\. Estimated rate of return of the Project: In excess of 20%\. PART III - THE PROJ\.TWT 8\. An appraisal report entitled "Appraisal of a Fourth Highway Project - Thailand" (PTR-l1a) dated June 3, 1969 is attached\. 9\. Although the highway system of Thailand has improved considerably in the last six years, it is still inadequate to handle present traffic requirements\. The Government's Second Five-Year Development Plan (1967-197]) makes provision for substantial infrastructure investments to facilitate the growth of the national product, which is assumed to average 7\.5% or slightly more in the next few years\. The transportation sector is growing at a faster pace, and is expected to maintain an average growth rate of about 13%\. The "Highway Construction and Improvement Plan (1965-1971)", which forms part of the Development Plan, envisages the construction and improvement of some 4,500 lam of roads in the Plan period\.  -4 - 10\. The project, which is part of the "1Highway Construction and Improv~- ment Plan (1965-1971)", includes the inprovement or construction of three primary highways totaling about 294 km\. The three highways are part of the system linking Bangkok and the Northern, Northeastern and Southern regions of the country\. The project includes consulting services for the supervision of construction and for the detailed engineering of about 533 km of further primary highways, if feasibility studies now in progress demonstrate that they are economically justified\. The project also includes the purchase of workshop maintenance equipment\. 11\. The estimated cost of the project is U\.S\.$ 48\.7 million\. The proposed loan of t23 million would finance the foreign exchange costs of road construction and improvement, estimated at about 45L of the total cost, and the foreign e:,cchange costs of consulting services and workshop fnainten- ance equipment\. The balance of the funds required to \.complcte the pi'oj6ct owould be provided-by the Government\. 12\. The project will be administered by the Department of Highways of the ilinistry of National Development with the assistance of consulting engineers\. The Department is responsible for the construction, improvement and maintenance of all classes of national roads in Thailand; and has demon- strated its ability to manage its activities\. Financial and technical assistance under the first three Bank loans, and from other sources, has substantially increased the capacity of the Department to plan and carry out projects included in the Second Development Plan and to maintain the National Highway System\. The reorganization of the Department of Highways, wihich began in 1964, has been completed, and has resulted in improved operating anc' administrative procedures\. 13\. The three primary highways proposed for construction or improvement would carry substantial volumes of existing traffic, and would generate additional traffic as new economic activities develop\. The road wJorks included in the project are justified economically from the resulting reduction in transportation costs\. Over a 20 year period, the rate of return on the Thern-Lampang highway is about 25%, and on the Thonburi-Paktho highway about 20'i7\. Parts of the Chumpae-Loei highway may be flooded by the reservoir of the proposed Pa Mong Dam, located on the KIekong between Laos and Thailand, which is being considered as the first of the mainstream Tqekong river projects\. Feasibility studies for the Pa Mong project will be completed early in 1970 but the start of construction of this very large project, which would require at least eight to twelve years to complete, is uncertain\. However, taking the earliest possible starting and completion dates, and assuming that the Chumpae-Loei highway is flooded in either five or ten years after completion of the dam, the useful life of the road would be long enough to ensure rates of return of 12Z and 257 respectively\. For an economic life of twenty years, the rate of return would be 29'7\. 'ilitary traffic was excluded in calculating the rate of return on all three highways\. 14\. Construction work would be carried out by contractors under unit price contracts awarded after international competitive bidding\. There has  been widespread and keen interest by international contractors in highway construction in Thailand, and very competitive prices have been obtained for all contracts awarded under the first three highway loans\. The contracts to be awarded would all be of sufficient size to interest such contractors\. 15\. NTYith the assistance of U\.S\. AID, the Government is undertaking a comprehensive transportation coordination study to assess the optimal allocation of resources among the competing modes of transport, and to determine appropriate bases for user charges for the various modes\. The study, wjhich is expected to be completed by the end of 1969, will assist the Govern- ment in drawing up a better transportation coordination policy and in setting up the administrative framework to implement such a policy\. With the assistance of Canada, a limited transportation coordination study of the Thonburi-Paktho region has been started, and is expected to help the Government determine the transportation needs of the region iith particular reference to rail and river traffic\. Neither the U\.S\. nor the Canadian study of transportation coordination will affect the well-established priority of the roads included in the project\. PART IV - LEGAL PTSTRUTENTS AND AUTHORITY 16\. The draft Loan Agreerment between the Kingdom of Thailand and the Bank, the Report of the Committee provided for in Article III Section 4 (iii) of the Articles of Agreement and the text of a Resolution approving the proposed Loan are being distributed to the Executive Directors separately\. 17\. The draft Loan Agreement is substantially in the form customarily used for highway projects and follows closely the documents used for the three previous loans\. In addition, the following provisions of the draft Loan Agreement are of particular interest\. (i) Section 2\.o5 provides that no withdrawal shall be made under the Loan for the cost of consultants' services for detailed engineering of any highway or section thereof included in the Project unless the economic feasibility of such highway has been established to the satisfaction of the Bank; (ii) Section 5\.11 requires the Borrower to take all steps required to ensure the improvement and extension of city streets in Bangkok and Thonburi in order to provide congestion- free access to the Thonburi-Paktho highway; (iii) Section 5\.12 requires the Borrower to take all measures required to ensure that the Thonburi-Paktho highway is operated and maintained as a controlled access highway; (iv) Section 5\.13 requires the Borrower to consult with the Bank regarding any plans to relocate the town of Loei or the road leading to it in the event of flooding caused by the construction of the Pa i4ong dam\.  PART V - THE MONC'iY 18\. A report on the "Current Economic Position and Prospects of Thailand" (EAP-la) was distributed to the Executive Directors on February 12) 1969 under cover of the Secretary's memorandum R69-39\. 19\. The Thai economy has grow-rn at the satisfactory rate of 8% per annua during the past five years\. This was accomplished while agriculture and related sectors still provide more than two-fifths of GDP\. Agricultural output grew by 3\.09\. a year on average between 1963 and 1968\. The manufactur±n, and mining and construction sectors taken together achieved an annual growth rate of 13\.50, increasing their share of GDP from 18'< to 23i\. Per capita income has reached 'l1)O a year, and would have been higher but for the fact that population has also continued to growf at 3\.3,'', which is among the higher rates in Asia\. 20\. Throughout the past five years, the Thai economy has enjoyed a strong financial position\. Savings, originating largely in the private sector, went up by 16\.3?S a year, bringing the average savings rate to over 24% of GMP\. At the same time, the annual growth of export earnings reached 13\.-5', reflecting the expansion of agricultural output for export and, since late 1965, military expenditures by the TJnited States\. Earnings from these sources permitted Thailand to finance the doubling of investment between 1963 and 1968, without substantial foreign assistance\. The ratio of invest- ment to GITP reached 272" in 1968\. The large U\.S\. expenditures for local goods and services, enabled Thailand to build up its exchange reserves from UOS\.$ 540 million to U\.S\. $ 920 million, equivalent to more than eight monthzo current payments and over three times the amount of public external debt outstanding at the end of 1968\. 21\. Since its unsuccessful foray into public industries in the early 1950's, the Thai Government has largely confined its development expendi- tures to improving the country's infrastructure\. Large and growsing amounts went into higlways, irrigation and power development\. This corresponded well with economic priorities\. The Bank has been closely associated with the development of these three sectors\. 22\. The principal shortcoming has been the failure, after many years, to produce workable plans for regional development, particularly in the Northeast\. Population pressure is heavy in the remoter border areas and no family planning program has been devised\. Lack of adequate coordination among government departments is largely responsible, and administrative weaknesses have also reduced returns on the large investments that have beeni made in dams and other primary irrigation facilities\. On the fiscal side, rice has long borne an undesirably heavy burden in the form of export taxes which may prove disadvantageous if international rice prices fall\. In any case, there is a pressing need to diversify sources of government revenue\. The Government has requested the assistance of the ITF in tax administration\. and reforms, and the Bank will continue to urge action in this field\.  -7- 23\. As a result of a slolwT-down in agriculture and related activities and in consti-uction, last year 'GUP grew by only 4-5`-\. U\.S\. military expen- ditures, which du\.ing the three previous years had risen to a level equiv- alent to more than 4h of GDP and one-fifth of foreign exchange earnings, did not increase in 1968\. As the present construction program is nearing completion these expenditures may now start to decline, depending on future developments in the area\. Thus, for the economy generally, present projections suggest a return to a more normal situation after the boom of the recent past: a somewhat slower expansion of irnvestment and saving, a less rapid increase in exchange earnings and a widening resource gap\. 24\. Because of the countr-y's strong reserve position, the Bank has limited its lending to Thailand since late 1966 to a fraction of the foreign exchange costs of selected projects, the remainder being provided by the Bank of Thailand in the form of parallel loans or participations in the loans extended for these projects\. Since 1966, the Bank of Thailand has provided financing of $59 million for four projects in which the Bank's net financing was only $25 mill:ion\. The Bank of Thailand also holds $50 million of the Bank's two-year (entral Bank bonds and is the largest holder of such bonds\. 25\. Thailand's exchange reserves are over US -8900 million and could be drav\.m upon, if need be, to help finance the projected resource gap\. However, in the face of the likely decline in foreign exchange income, it would not be advisable to plan any large drafts on these reserves in the near future\. Thus, after several years in which Thailand has needed little development aid, there is nowi a good case for more Bank assistance\. Accord- ingly, I have not asked the Banlc of Thailand to participate in this proposed loan or in the other prospective loans mentioned in paragraph 6 above\. 26\. Thailand has not accuimulated a large external debt\. Projected service on official debt at its peak is equivalent to aroand 4W of estimated exchange earnings; service on private external debt is estimated at about the same amoutnt\. Thlailand may thus be regarded as creditworthy for sub- stantial additional external borrowing\. PART VI - COMIPLIANCCE ,TITH ARTICLES OF AGREEMEMT 27\. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank\. PART VII - RBCO SIEI\TDATION 28\. I recommend that the Executive Directors approve the proposed loanL Robert S\. 1c`\Namara President Attachment Washington, D\.C\. June 4, 1969

APPROVAL

P000065

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 3986 PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) June 30, 1982 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. 6 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) TABLE OF CONTENTS Page No\. Preface \. i Basic Data Sheet \. ii Highlights \. \. iv PROJECT PERFORMANCE AUDIT MEMORANDUM I\. BACKGROUND \.1\. 1 II\. PROJECT RESULTS \. 2 III\. ISSUES \. \. \.7\. 7 IV\. FUTURE IDA SUPPORT FOR TRANSPORT INVESTMENTS \. 13 V\. CONCLUSIONS \. 15 Annexes A\. Benin and Togo - Vehicle Operating Costs Excluding Taxes - 1972\. 16 B\. Benin and Togo - Vehicle Operating Costs Excluding Taxes - 1976\. \. \. \. 17 C\. Benin and Togo - Vehicle Operating Costs Excluding Taxes - 1980\. \. 18 D\. Proposals for Use of Unspent Credit Funds \. 19 PROJECT COMPLETION REPORT I\. Introduction \. \. 21 II\. Project Identification and Preparation \. 22 III\. Project Implementation \. 24 IV\. Economic Reevaluation \. 33 V\. IDA Performance \. \.35 VI\. Conclusions \. 36 Tables 1\. Traffic and Transit Trade at the Port of Cotonou 1977 37 2\. Highway Network, 1979-80 \. 38 3\. Bids Received \.*\. 39 4\. Road Maintenance Expenditures, 1970-78 \. -\. 40 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. -2- Table of Contents (cont'd\.) Page No\. 5\. Project Costs\. 41 6\. Schedule of Disbursements\. 42 7\. Average Daily Traffic\. 43 8\. Vehicle Operating Costs\. \. 44 9\. Reevaluation of the Economic Rate of Return of Parakou-Malanville Road (318 km) and the two Sections of the Cotonou-Bohicon Road (17 km) \. 45 ADDENDUM TO PROJECT COMPLETION REPORT \. 46 Map PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) PREFACE This report presents a performance audit of the Benin Second Highway Project, for which the Executive Directors approved Credit 415-DA in the amount of US$11\.8 million on April 24, 1973 and US$9\.0 million on March 10, 1976\. The original credit was fully disbursed in April 1977, while only US$6\.4 million of the supplementary credit was drawn down and the balance was cancelled in March 1982\. The report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the IDA's Western Africa Regional Office\. The Borrower provided material for the PCR to a mission undertaken by the Region in June 1979 and updated traffic count data in June 1981\. The bases for the PPAM comprised: the PCR, discussions with IDA staff, the transcripts of the Executive Directors' meetings at which the project was considered, and the project files and documents\. OED staff did not visit the country\. The audit agrees with the PCR on many aspects\. However, it points out the shortcomings in the methodology used for the economic analysis as well as the appraisal underestimation of traffic development on the Parakou-Malan- ville Road, the variations in estimates of vehicle operating cost savings, and the over-estimation of supplementary credit needs\. In addition, the audit suggests that the competition for traffic between new and existing transport investments will shortly call for Bank Group policy decisions regarding Benin and its neighboring country, Togo\. Finally, the audit notes issues raised by the attempts to apply the large remainder left unused under the Credit after the original (revised) project components had been completed\. The draft report was sent to the borrower for comments; however, none were received\.  - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) KEY PROJECT DATA Appraisal Actual or Item Estimate Reestimate Total Project Cost (US$ million) 21\.1 32\.1a Overrun (%) - 53 Credit Amount (US$ million) Original 11\.8 11\.8 Supplementary 9\.0 9\.0 Total 20\.8 20\.8 Disbursed - 18\.2 Original Credit - 11\.8 Supplementary Credit - 6\.4 Cancelled - 2\.6 Co-financinl 8\.0 12\.0 Project Completion Date 11/30/76 05/15/77/c Proportion of Time Overrun (%)- 17% Economic Rate of Return (%)--Weighted Average 13 16 Parakou-Malanville Road: 13 16 Benin traffic benefits only 13 14 Benin and Niger traffic benefits together 17 24 Cotonou-Bohicon Road 17 15 Cumulative Estimated and Actual Disbursements (US$ million) FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 Estimated 2\.3 6\.6 10\.5 11\.8 11\.8 11\.8 11\.8 11\.8 11\.8 Actual 0 4\.3 8\.3 14\.2 16\.1 16\.5 16\.8 17\.7 18\.2 Actual/Estimated (%) 0 65 79 120 136 140 142 150 154 /a The project was scaled down\. The Credit Agreement was amended on Decem- ber 21, 1978 to reflect the deferral of technical assistance for transport coordination, and on May 16, 1980 to finance the purchase of equipment for maintenance and for consultants' services under the Feeder Roads Project\. lb By US Agency for International Development\. /c Original project components only\.  - iii - OTHER PROJECT DATA Original Item Plan Actual First Mention in Files - 1969 Negotiations Date 02/73 02/20-27/73 Board Approval Date Original 04/73 04/24/73 Supplementary 03/76 03/02/76 Credit Agreement Date Original 07/73 07/03/73 Supplementary 03/76 03/10/76 Effectiveness Date Original 10/31/73 03/28/74 Supplementary 06/10/76 10/05/76 Closing Date Original 06/01/77 04/29/77 Supplementary Not Specified 03/31/82 Borrower Government of Dahomey /a Executing Agency Department of Public Works, Ministry of Equipment Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Third Highway Project Credit Number 746-BEN Amount (US$ million) 10\.0 Credit Agreement Date November 18, 1977 MISSION DATA No\. of No\. of Staff Date of Item Month/Year Weeks Persons Weeks Report Appraisal 02/72 1\.5 3 4\.6 05/73 Supervision I 05/73 1 1 1 08/73 Supervision II 02/74 2 1 2 03/73 Supervision III 11/74 1\.5 2 3 12/74 Supervision IV 07/75 1\.3 1 1\.3 10/75 Supervision V 10/75 1\.4 1 1\.4 12/75 Supervision VI 04/76 0\.3 1 0\.3 04/76 Supervision VII 07/76 0\.7 2 1\.4 08/76 Supervision VIII 12/76 1\.6 1 1\.6 03/77 Supervision IX 04/78 1\.8 2 3\.6 06/78 Supervision X 10/78 1 2 2 01/79 Supervision XI 06/79 1\.5 2 3 07/79 Supervision XII 01-02/80 2 2 4 03/80 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) CFA franc (CFAF) Year: 1973 (May) Exchange Rate: US$1 = 230 1974 ) US$1 = 241 1975 ) US$1 = 214 1976 ) (Average) US$1 = 239 1977 ) US$1 = 246 1978 ) US$1 = 226 1979 ) US$1 = 213 1980 ) US$1 = 211 /a The country's name was changed from Dahomey to the People's Republic of Benin in 1975\.  - iV - PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) HIGHLIGHTS Credit 415-DA for US$20\.8 million supported rehabilitation and maintenance programs to reduce vehicle operating costs on roads in Benin\. The main objective of the project, which was financed by IDA, USAID, and the Government, constituted rehabilitation of the road (318 km) that is part of the "Benin Route" between the seacoast and landlocked Niger\. The improved road was to assist in development of the northern part of Benin and to facili- tate transit traffic\. While this objective generally was achieved, the design width of this road has proven to be insufficient for the higher than expected traffic that has developed\. As a result, wear is occurring on the curves, and a continuous routine maintenance problem exists\. Rehabilitation of two associated main road sections (17 km) encountered technical problems, which were overcome initially although after five years one section is again experi- encing distress\. The institution building objective for road maintenance (continued from the previous project) was largely unfulfilled and that for transport coordination was deferred to the subsequent project upon the Government's request\. This had detrimental effects for the project under review\. The original project components were completed with a 17% time overrun\. The actual project cost was US$32\.2 million versus the appraisal estimate of US$21\.1 million\. The 53% cost overrun was due mainly to the civil works, which were affected by higher than expected bid prices, worldwide inflation following oil price increases, and in one case, unexpected technical problems\. To finance the overrun, IDA provided a supplementary credit of US$9 million to augment its original credit of US$11\.8 million, USAID provided additional finance of US$4 million to enhance its original loan of US$8 million, and the Government furnished additional funds of US$1\.1 million on top of its initial provision of US$1\.3 million\. IDA's supplementary credit was in excess of the needs of the original project components, and it was ultimately determined that the surplus funds would be allocated to equipment for the shoulder maintenance brigade and to consultants' services under the Feeder Roads Project (paras\. 44-52 and Annex D)\. The outstanding balance in the Credit Account of US$2\.6 million, or nearly 30% of the Supplementary Credit, was cancelled\. The weighted average economic rate of return at reevaluation is 16% compared with the appraisal estimate of 13%\. The following points are of particular interest: - the methodology of economic analysis in the appraisal of the Para- kou-Malanville Road did not include the correct "without case" against which to evaluate alternative improvements and the procedure for estimating induced traffic yielded unsatisfactory estimates (paras\. 25-29); - v - - the forecast traffic volumes on the Parakou-Malanville Road were seriously underestimated (paras\. 30-33 and PCR, paras\. 4\.02-4\.05, Table 7, and PCR Addendum); - the narrow range of probability analysis, the lack of a systematic approach to traffic counting and analysis, and the lack of origin and destination information were responsible for ineffective traffic forecasting (paras\. 32-37); - the future use of the Parakou-Malanville Road by transit traffic for Niger, especially to serve the requirements of its uranium mines, will depend on competing investments, some financed by IDA (paras\. 38-42); - the variations in estimates of vehicle operating cost savings prevent the development of confidence in the inputs for calculating project benefits (para\. 43); - the attempts to apply the large remainder left unused under the credit after the original (revised) project components were com- pleted raises issues regarding effective control and use of surplus funds in a loan and regarding the application of loan funds within the Executive Directors' authorization (paras\. 47-52); and - the interrelation of road, rail, and port projects will shortly call for IDA policy decisions on transport investments in Benin and its neighboring country, Togo (paras\. 53-55)\. - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) I\. BACKGROUND The Transport System 1\. The main feature of Benin's 1/ transport system is the south- north axis, which now consists of 440 km railway from the capital and main port of Cotonou to Parakou and a 318 km road from Parakou to Malanville on the Niger border\. Another road runs parallel to the railway, but it is not yet completely paved\. The south-north axis, known as the "Benin Route," links Cotonou with Niamey, the capital of Niger\. It is the main route for imports into the western and central parts of landlocked Niger, eastern Mali, and also carries considerable traffic within Benin\. The south-north axis is connected to important secondary and feeder roads\. A competitive and only slightly longer route, known as the "Togo Route," has been completed recently, partly with IDA assistance, between Lome, the capital and main port of Togo, and Niamey\. IDA Support for Highways 2\. Highway projects supported by IDA have evolved from the Dahomey Land Transport Survey of 1970, for which the UNDP provided financing and the Bank Group acted as executing agency\. The Survey's recommendations led to the Highway Maintenance and Engineering Project (referred to in this report as the First Project, Credit 215-DA for US$3\.5 million of September 1970), which OED has already evaluated,2/ and to the Second Highway Project (Credit 415-DA for US$20\.8 million of July 1973 and June 1976), which is the subject of this audit\. 3\. The main component of the Second Highway Project was to constitute rehabilitation of the Parakou-Malanville Road (about 80% of the estimated pro- ject cost)\. Rehabilitation of two short sections of the associated Cotonou- Bohicon Road was to comprise the second largest component\.3/ PCR, para\. 2\.05 provides details about the other components (consultants' services for 1/ The country's name was changed from Dahomey to the People's Republic of Benin in 1975 (PCR, para\. 1\.02)\. 2/ Project Performance Audit Report No\. 1768 of October 25, 1977\. 3/ Most of the rest of the Cotonou-Bohicon Road has been improved under the Third Highway Project (Credit 746-BEN)\. Of the Bohicon-Parakou extension of this Road, the Bohicon-Dassa Zoume section is being paved with financ- ing from the European Development Fund (EDF), while the Dassa Zoume- Parakou section has been the subject of a feasibility study, with posi- tive results, also by EDF\. - 2 - ccnstTrction supervision, a highway maintenance program, and transport coordi- nation as well as procurement of materials)\. The total cost of the project as appraised in February 1972 by IDA and USAID, which was to act as cofinancier, amounted to US$21\.1 million\. IDA was to provide US$11\.8 million, USAID US$8\.0 million, and the Government US$1\.3 million toward the cost\. The Credit Agreement of July 1973 only became effective in March 1974 because of a delay in meeting cross-effectiveness conditions for the USAID loan as a result of a dispute over the breakpoint between the IDA-and USAID-financed sections of the Parakou-Malanville Road\. This delay did not seriously hamper smooth execution of the project\. However, problems related to bidding procedures did do so (para\. 5 and PCR, paras\. 3\.07-3\.08), as they held up contract award\. 4\. Subsequent projects included the Feeder Roads Project (Credit 717-BEN for US$5\.5 million of June 1977), the Third Highway Project (Credit 746-BEN for US$10\.0 million of November 1977), and the Fourth Highway Project (Credit 1142-BEN for US$11\.3 million of May 1981)\. These projects are gen- erally supporting road construction, rehabilitation, and maintenance; techni- cal assistance; and preinvestment studies\. In addition, two griculture projects included construction and rehabilitation of feeder roads- II\. PROJECT RESULTS Implementation 5\. The project was carried out during a period of profound political and economic change in the country (PCR, para\. 1\.02)\. Only the institution building objectives were adversely affected by these changes (PCR, para\. 6\.01)\. The civil works objectives were achieved, despite the far from satis- factory bidding procedures (PCR, paras\. 3\.02-3\.04)\. The Government and the consultants who assisted in the bid analysis selected the second lowest from among the three lowest evaluated bids\. This selection was partly because the unit price of the lowest bidder was considered unrealistic and partly because the crushed stone base proposed by the second lowest bidder was preferred (for technical reasons) over the soil cement base proposed by the lowest bidder\. 6\. Since the bids had been called for either type of base, IDA asked the Government to justify the economics of selecting the more expensive type\. To allow time for this, the Government asked the bidders to extend the valid- ity of their bids by one month\. Only the highest bidder, who had proposed a soil cement base, agreed\. The Government eventually accepted this bid, even though it was US$150,000 higher than the lowest bid and did not provide for the preferred type of base\. Clearly, it would have been better for the Government and the consultants to have decided on the technical merits of crushed stone versus soil cement base before calling for bids\. Although the difference in the costs of the two types of base would have been small, soil cement is more difficult to widen if subsequently found to be necessary (PCR, paras\. 3\.10-3\.11)\. The contract for the USAID-financed section of the road 1/ Hinvi Agricultural Project (Credit 144-DA for US$5\.2 million of March 1969) and Zou Bourgou Cotton Project (Credit 307-DA for US$6\.1 million of May 1972)\. - 3 - required a crushed stone base\. It is noted that the bids for the USAID- financed section turned out to be 36% above the appraisal estimate because of worldwide inflation and USAID increased its loan to US$12\.0 million to cover the higher cost of work\. 7\. Contracts specifying a 30-month execution period were signed on March 29, 1974 for both the IDA-and USAID-financed sections of the Parakou- Malanville Road\. Work on each section was completed only two months late in relation to the orders to proceed, despite political changes, closure of the border with Nigeria in March 1976, and interruption of bitumen supplies\. The USAID-financed section was completed satisfactorily in February 1977 and the IDA-financed section in May 1977\. 8\. After completion of the IDA-financed section, reservations devel- oped concerning the appropriateness of the design standards\. The Credit Agreement included a schedule of design standards that called for the Parakou- Malanville Road to be constructed to a width of 9 m, including a 6 m pavement and 2 x 1\.5 m shoulders\. The PCR (para\. 3\.10) explains that pavement widening was not applied at the curves even though about 20 curves had been scheduled at appraisal to be realigned on a larger radius\. Also, higher than expected traffic, particularly heavy vehicles, has caused wear on the pavement/shoulder junction, which requires continuous routine maintenance\. Equipment for shoulder maintenance brigades was added to the project to help remedy this problem (paras\. 13, 21, and 48)\. The PCR draws the lesson from this that "for roads carrying heavy vehicles at high speeds a 6 m pavement width is inade- quate\." The audit discusses, in paras\. 25-42, the lack of consideration of a 7 m pavement in the economic analysis and of effective traffic forecasting\. 9\. Rehabilitation of the two sections of the Cotonou-Bohicon Road was completed in February 1977, or 31 months from the order to proceed rather than 12 months as specified in the contract\. The delay was due to unexpected technical problems on the Godomey-Abomey Calavi section as a result of two serious ground failures that destroyed both the road where it serves as a causeway and the main water supply pipeline of Cotonou\. The PCR (paras\. 3\.12-3\.19) fully reviews these problems, which Bank staff played an important role in resolving\. According to the PCR, the consultants did insufficient testing and lacked technical leadership\. Although the quality of the road surface is not up to design level, it is considered to be acceptable in the circumstances\. The Sehoue-Zakpo section also experienced some problems\. When cracking of the sand asphalt surfacing occurred near Zakpo, the contractor agreed to repair the cracks and to accept a two-year maintenance period until July 1979\. Since then, deformation and edge cracking due to foundation settlement have occurred; repairs are proposed under the Third Project (PCR Addendum, para\. 3\.01)\. 10\. The project under review provided for the continuation of technical assistance in road maintenance begun under the First Project\. This took the form of 83 man-months of technical assistance and the purchase of materials worth US$250,000\. However, as the PCR (paras\. 3\.21-3\.22) describes, the physical performance of the maintenance program deteriorated\. This was largely because of the lack of counterpart funds\. Road maintenance expendi- tures remained constant in current prices, despite severe inflation after 1973, and the road fund tax was not revised\. At least half the equipment was immobilized due to lack of spares and fuel as well as inexperienced operators\. Less than a third of the funds for materials were used by the time the consul- tants left\. In these circumstances, the consultants were not able to achieve their objective of strengthening the management of the road maintenance organization and had to limit their work to planning maintenance and quantify- ing needs\. This was valuable preparation, however, for the Third Project\. Further support for road maintenance is included in the Fourth Project\. 11\. The subject project also provided for technical assistance in transport coordination to the Directorate of Land Transport (DLT), which had been established in 1969\. Similar assistance under the First Project was not effective because of insufficient qualified local personnel, funds, and sup- port\. At the Government's request, the assistance planned under the Second Project was deferred, pending the transfer of responsibility for transport coordination to another body, the Directo ate of Studies and Planning (DSP) in the reorganized Ministry of Transport\.' The effects of this deferral are discussed in paras\. 36-37\. The Third Project provides once more for this assistance\. Project Cost and Timing 12\. The actual project cost was US$32\.2 million, or 53% more than the appraisal estimate of US$21\.1 million (PCR Addendum)\. IDA provided US$17\.7 million (50% more than the appraisal estimate of US$11\.8 million), USAID provided US$12\.0 million (50% above the estimate of US$8\.0 million), and the Government provided US$2\.4 million (85% over the estimate of US$1\.3 million)\. The actual and estimated costs are not strictly comparable, however, because the original project was scaled down (para\. 11)\. The cost estimated for the deferred technical assistance for transport coordination was low (US$161,000) but, when subtracted from the appraisal estimate of the project cost, does not result in a significant increase in the overrun\. 13\. The likelihood of a US$10\.1 million overrun for the IDA-financed portion of the original project items, as a result of inflation, dollar devaluation, and quantity increases and additions in civil works, was identi- fied in mid-1975\. To cover the overrun, in March 1976, IDA agreed to provide a Supplementary Credit of US$9\.0 million and the Government additional finance of US$1\.1 million\. In fact, IDA actually provided only US$4\.9 million and the Government US$1\.0 million\. Part of the surplus of US$4\.1 million in the Supplementary Credit was used to purchase equipment for shoulder maintenance (US$360,000) under this project and to finance consultants' services under the Feeder Roads Project (in the amount of US$988,000, of which IDA financed US$889,000 and the Government provided US$99,000L')\. The overestimation of supplementary credit needs is further discussed in paras\. 44-52\. 1/ The Credit Agreement was amended accordingly on December 21, 1978\. 2/ The Credit Agreement was amended accordingly on May 16, 1980\. - 5 - 14\. All original project components actually executed were completed in May 1977 with only a 17% time overrun (vis-a-vis the Project Completion Date of November 1976 specified in the Credit Agreement)\. The additional com- ponents were finished in 1981\. Disbursements 15\. Because of the delay in the start of road construction due to bidding procedures, no funds were disbursed in FY74 and disbursements in FY75 and FY76 were 65% and 79% of appraisal estimates, respectively\. The original credit was fully disbursed, while only US$6\.4 million of the supplementary credit was drawn down\. The US$2\.6 million balance in the Credit Account was cancelled in March 1982\. Government's Compliance With Lending Covenants 16\. The Government did not comply fully with the covenants in the Credit Agreement\. In particular, it did not provide adequate road maintenance (para\. 10) or keep adequate statistical records (para\. 35)\. Moreover, the Government did not impose penalties for trucks exceeding axle load limits, with the result that overloading continues even though weighbridges have been installed (PCR, para\. 3\.34)\. Also, it did not furnish the expected detailed program of measures to strengthen the DLT (paras\. 11, 36 and 37) or to improve the management of the Organisation Commune Benin-Niger (OCBN) railway, for which assistance was provided under the Port of Cotonou Project (Credit 826-BEN for US$19\.3 million of October 1978)\. 17\. The requirement under the Credit Agreement that, prior to under- taking any extension of the Cotonou-Parakou railway line, the Borrower should furnish a feasibility study establishing its economic justification, has been carried out\. IDA has not, however, accepted the findings of the study (para\. 53)\. 18\. The failure to comply fully with the covenants may be ascribed in large measure to the severe inflation from 1974 onwards and to political changes in the portfolios of ministries and their personnel\. Economic Reevaluation 19\. In the Appraisal Report, costs and benefits were quantified sepa- rately for rehabilitation of the Parakou-Malanville Road (including the USAID- financed portion) and of the Cotonou-Bohicon Road\. The Parakou-Malanville Road (318 km) yielded a rate of return of 17% for Benin and Niger together and of 13% for Benin alone\. Benefits for the two countries together consisted entirely of savings in vehicle operating costs (voc), while those for Benin alone comprised low voc savings to which were added estimated net receipts in foreign exchange by the port, the stevedoring companies, the forwarding agents, the railways, and the truckers as a result of the incremental transit traffic\. The developmental effects of the rehabilitated road on domestic traffic were based on the assumption that generated traffic would vary from 10% to 20% of "normal" traffic depending on road section and would develop over the five-year period following completion of this project\. -6- The reestimated return is 24% for Benin and Niger together, based on traffic data collected in 1981 and actual construction costs\. Clearly, the returns to Benin alone are difficult to distinguish because all heavy trucks cannot be assumed to be going through to Niger\. However, taking into account savings in operating costs of domestic vehicles in the same proportion to total savings as estimated in the PCR (60\.5%) and excluding net foreign exchange receipts from transit traffic, the return to Benin alone would be 14%\. On the basis of individual road sections, the heavily trafficked Para- kou-Ndali section, which appears to have been underdesigned (para\. 31 and PCR, paras\. 3\.10-3\.11), and the Ndali-Malanville section, which serves the lower traffic needs of northern Benin and Niger, yield rates of return to Benin and Niger together of 28% and 23%, respectively\. The returns to Benin alone are 18% and 13%, respectively\. The generally higher reestimated returns vis-a-vis appraisal estimates are due to faster than expected development of both Benin and Niger traffic, which outweighed the substantial increases in construction costs\. 21\. The reestimated returns may be reduced when account is taken of the need to repair damaged pavement, which already necessitates the use of shoulder brigades (para\. 8), or to widen pavement and embankment\. The PCR (para\. 3\.11) considers, however, that certain measures can be taken to lessen shoulder damage on the existing road, e\.g\., center-line and edge marking and regular shoulder maintenance\. Moreover, the equipment for shoulder mainte- nance purchased under this project (paras\. 8, 13, and 48) should help improve the situation\. A similar situation applies in the case of the Togo Second Highway Project\.1L/ 22\. The reestimated returns also may be reduced as a result of the arbitration claim against the Government of Benin by the USAID-financed contractor (PCR, para\. 3\.08)\. The contractor claimed US$7\.5 million and is reported to have been awarded US$4\.0 million\. This would reduce the returns to Benin and Niger together to 23% (a one percentage point reduction) and to Benin alone to 12% (a two percentage point reduction)\. 23\. With regard to the two sections of the Cotonou-Bohicon Road, the Appraisal Report gave economic returns of 19% for the Godomey-Abomey Calavi section and 14% for the Sehoue-Zakpo section (17 km)\. Considering 1976 traffic counts, higher vehicle operating cost savings, and the 69% increase in construction costs over appraisal estimates, the PCR reestimated the economic return at about 15%\. Future traffic is difficult to forecast because of fluctuations in traffic counts in the years since appraisal and the absence of counts in 1979 and 1980\. On both sections, traffic rose sharply up to 1974, especially on the Godomey-Abomey Calavi section, but recent counts show marked declines\. When the Dassa Zoume-Parakou section is paved (para\. 3), however, and joins these sections as part of the "Benin Route," traffic almost cer- tainly will rise faster than originally expected\. The viability of the roadworks will not be in doubt, provided that the higher traffic levels do not unduly shorten the life of the road\. Also, the PCR suggests that, as traffic 1/ PPAR No\. 3987, Togo Second Highway Project (Credit 450-TO of November 1973 for US$8\.7 million), June 30, 1982\. - 7 - increases, settlement of the road on the Godomey causeway will have to be monitored continuously\. Evidence exists of significant recent failures on the Cotonou-Bohicon Road, which soon may require extensive rehabilitation\. In the event, the economic return on the road will be considerably reduced\. 24\. Since the Cotonou-Bohicon Road was a relatively small improvement scheme giving returns similar to those of the main rehabilitation scheme, the weighted average returns for the whole project are the same as for the Para- kou-Malanville Road at appraisal and at reevaluation (13% and 16%, respec- tively)\. III\. ISSUES Shortcomings in Methodology of Economic Analysis 25\. The methodology used in the appraisal of the Parakou-Malanville Road, in retrospect, had several shortcomings\. The "without case" against which to evaluate alternative improvements was not correctly identified and the procedure for estimating induced traffic yielded inaccurate estimates\. As shown below, this had an effect on the choice of design standards for the road\. 26\. The Land Transport Survey of 1970 selected rehabilitation of the Parakou-Malanville Road, linking the railhead with the Niger border, as an "extremely urgent project\." The Survey gave "very careful study" to the possibility of upgrading to two lanes the then badly deteriorated one-lane paved road, but could not justify the higher standard because of low traffic volumes\. A benefit-cost ratio of 6\.7:1 was calculated for improvement of the one-lane and of 0\.2:1 for the marginal improvement to two lanes\. The possibi- lity of "downgrading" the road to two-lane gravel standard was studied, giving a benefit-cost ratio of 7\.6:1, and this was curiously described as the "second best alternative\." 27\. Under the First Highway Project, consultants carried out detailed engineering for rehabilitation of the road to its original one-lane paved standard\. Technical surveys revealed that deterioration was more extensive than had been expected\. The consequent higher cost of rehabilitation and common sense judgements of the consulting engineers and of the Bank engineers involved led to serious questioning of the decision to rehabilitate\. Accord- ingly, the same consultants who had carried out the Land Transport Survey were asked in 1971 to carry out a complementary economic study of the road\. They found that traffic would grow faster than originally expected and that a two-lane paved road would be economically viable\. However, the one-lane alternative still had a higher benefit-cost ratio than the two-lane alterna- tive (5\.01:1 compared with 3\.3:1)\. The economic returns were 41% for one-lane compared with 30% for two-lanes\. The consultants concluded that construction to a two-lane standard was justified\. 28\. The fact that the one-lane road had a higher economic return still caused some concern, but fortunately common sense prevailed over somewhat misapplied economic analysis\. This is a clear case where rehabilitation of - 8 - the one-lane road or an accelerated maintenance program should have been taken as the "without case" in the benefit-cost analysis\. Either was the minimum work required for Benin to continue to have a major road to the agricultural north of the country and to serve as a major transit route to Niger\. The "without case" should then have been tested against alternative levels of improvement - two-lane gravel and two-lane paved, with alternative pavement and formation widths\. A two-lane gravel road appears to have been the best solution in the original analysis of 1969, although it was not recognized as such, and, with higher traffic forecasts, a two-lane paved road clearly was feasible in 1971\. In retrospect, the economic analysis should have covered a 7 m pavement and a wider formation at least for part of the road\. There is often a reluctance among consulting engineers to consider alternative stand- ards and, in this case, serious detrimental effects resulted for the project\. A similar situation occurred under the Togo Second Highway Project\.1/ 29\. The appraisal methodology for treating the developmental effects of the road also was not very satisfactory\. Induced traffic was estimated as a percentage of normal traffic (10%-20% depending on road section) and bene- fits were established by assigning the voc savings of normal traffic to induced traffic\. This procedure provided a rather unsatisfactory estimation of the volume of, and understated the benefits of, induced traffic\. Domestic traffic on the road inside Benin might have been estimated more accurately by deriving induced traffic from a calculation of the transport effects of economic development in the area, although this would have required more research time\. Appraisal Underestimation of Traffic Development on the Parakou-Malanville Road 30\. Actual traffic for the opening year on the Parakou-Malanville Road was considerably above the forecast in the appraisal\. The appraisal of 1973 forecast average daily traffic volumes for 1976, the opening year of the road, at 51-109 vehicles up to 10 tons (passenger cars, pick-ups, and trucks), depending on the section of the road, and 54 heavy trucks carrying Niger transit traffic the entire length of the road\. The PCR of 1979 gave the latest available average daily traffic count in 1977 over the whole road as 183 vehicles up to 10 tons and 67 heavy trucks\. Total traffic was thus 87% higher than expected\. Domestic traffic of light vehicles increased by 129% over expectations, while heavy vehicles apparently increased only 24%\. A similar underestimation of traffic development occurred in the case of the Togo Second Highway Project\.2/ 31\. These counts, although not fully reliable, strongly confirm very heavy local traffic on the first 60 km of road (Parakou-Ndali) (para\. 8)\. They suggest that the shoulder damage that is occurring is being caused by friction between heavy trucks and lighter traffic\. Not all heavy vehicles were Niger transit traffic, but they apparently more than doubled after 1972 instead of remaining more or less stable, as assumed in the appraisal\. The 1/ PPAR No\. 3987, Togo Second Highway Project, June 30, 1982\. 2/ Ibid\. - 9 - latest available traffic count, in July 1981, shows a marked increase of 446 vehicles up to 10 tons and 138 heavy trucks between Parakou and Ndali and 228 vehicles up to 10 tons and 106 heavy trucks at Guessou Sud, the first station beyond Ndali\. 32\. The very rapid growth in domestic traffic could not have been pre- dicted from the traffic counts of the 1960's\. Although light vehicles rose slightly over the period, trucks from 2-10 tons actually declined\. Heavy vehicles did, however, increase 7\.7% per annum in the period 1961-71 and the error in not anticipating this trend was not due so much to underestimating the Niger uranium boom, as suggested in the PCR, as to accepting, with the encouragement of various consultants' reports, that Benin would lose much of its Niger transit traffic to other routes, especially the Niger River\. An elaborate probability analysis was carried out at appraisal but within far too narrow a range\. The best estimate, which assumed that Benin would lose 70% of its original share of Niger traffic by 1990, was given a probability of 40% and the lowest estimate of Niger River traffic (only 14% lower than the best estimate) was given a probability of 30%\. The probability of no traffic using the Niger River because of technical problems, which is what actually happened, was not assessed\. 33\. In 1970, a Dutch consultant had determined that transport on the Niger River from Niamey to Yelwa in Nigeria (north of the Kainji Dam) was technically feasible, provided a rock clearance program was carried out and the Malanville bridge was modified\. However, at that time, there had not been a pilot scheme to pinpoint the operational difficulties on the river\. Canadian consultants subsequently identified navigability problems below the Kainji Dam, which could only be resolved by building a barrage at Jebba\. Construction of this barrage is included in Nigeria's development plans, but the timing has not yet been determined\. 34\. A wider range of probability or sensitivity analysis, taking a sceptical view of an untried transport route such as the Niger River, would have provided more realistic transit traffic forecasts for the economic analysis\. The failure to estimate the even faster growth in domestic traffic might have been avoided by a different methodological approach at appraisal (para\. 28)\. 35\. The lack of a systematic approach to traffic counting and analysis and the lack of origin and destination information also was responsible for the ineffective traffic forecasting\. Traffic counts have been carried out in Benin twice a year since 1961, except in 1979 and 1980\. However, data do not appear to have been collected continuously for all stations\. Very little analysis of these figures appears to have been carried out to distinguish between through, local, and diverting traffic\. Moreover, origin and destina- tion information was almost completely lacking\. Consultants carried out limited interviews in 1969 and 1971 but, because of insufficient time and inadequately trained local personnel, did not learn much\. 36\. The Land Transport Survey had recommended technical assistance for transport coordination, which became a component of the project under review\. The requirement to collect data to help assess the transport network - 10 - a covenant in the Credit Agreement\. To facilitate transport coordination as well as monitoring of investment projects, establishment of a system of traffic counts and origin and destination surveys and training of Beninese staff to provide continuous data analysis is essential\. Of particular impor- tance for the country, because of its heavy reliance on transit traffic, is information on growth trends, types and weights of vehicles using the roads, and origins and destinations of road traffic\. 37\. The serious effects of the failure to set up an effective transport coordination agency have already been felt\. Lack of reliable traffic counts and origin and destination information contributed to the underdesign of a section of the Parakou-Malanville Road\. Moreover, in the future, when a paved road exists between Parakou and Cotonou, road-rail competition will take place for the same traffic and an even greater need will exist for data collection and analysis to facilitate transport coordination, planning of investments, and formulation of road/rail tariff policies\. 38\. As stressed in the presentation of the project to the Executive Directors, rehabilitation of the Parakou-Malanville Road was not only impor- tant to Benin's economic development but also critical to Niger's\. According to Port of Cotonou statistics, the best source of information on this subject, total Niger transit traffic through Benin grew by 6\.2% per annum between 1970 and 1980 to 296,000 tons\. This amounted to about 80% of total Niger traffic in the early 1970's and to about 60% later in the decade\. The main alterna- tive routes for western and central Niger are by road through Upper Volta to Lome in Togo (part of which was paved under the Togo Second Highway Project) and by road and rail through Upper Volta to Abidjan in Ivory Coast\. The "Nigerian Route" has developed not on the Niger River as forecast but on Nigerian roads and railways\. It was used as a natural export route for groundnuts from Eastern Niger in the early 1970's until groundnut exports ceased due to drought and now is used mainly for some petroleum product requirements of the uranium mines in northern Niger\. It has been an irregular route because of lack of confidence in Niger about the security of Nigeria's railways and ports\. The "Abidjan Route" has not developed as forecast in the appraisal because of the much greater distance and cost, pilferage on the railway, and capacity problems in the Port of Abidjan\. 39\. The main competition for the "Benin Route" has in fact developed from the "Togo Route" which, although slightly longer (1,240 km to Niamey as against 1,058 km) and costlier, takes 3 days against 15 days on the "Benin Route" where road/rail transfer at Parakou is required\. Also, the Port of Lome has offered better services to shippers than the Port of Cotonou since nationalization in 1973 of most port services in the latter\. Niger transit traffic through Lome increased from 19,000 tons in 1975 to 93,000 tons in 1980\. 40\. Considerable uncertainties remain about future transit traffic to and from Niger, the principal ones being how fast uranium mining will grow in Niger and whether other transport routes will be improved\. Studies in 1970 and 1978 of the alternative routes helped considerably to form a regional view of alternatives, although the study forecasts may be disputed\. - 11 - 41\. The importance of Niger's uranium traffic was fully recognized in the appraisal of this project\. Niger now has the fifth largest reserves among uranium producing countries and ranks fourth in world production\. In the appraisal, each ton of uranium ore exported was estimated to require 24 tons of imports (petroleum products, sulphur, and other supplies)\. Exports were forecast at 1,500 tons by 1974 and 3,000 tons in 1980 with corresponding imports of 35,500 tons and 73,000 tons, respectively\. As it happened, produc- tion in 1980 was reported to be 4,100 tons from the two mines, Somair and Cominak, presently in operation\. A third mine, Societe Miniere de Tassa n'Taghalque (SMTT), estimated to produce a further 1,500-2,000 tons of output, is due to start up in 1982 but further development will depend on world price levels, which declined recently\. Production might begin by 1985 at the large Imourarem mine (1,500-3,000 tons) and before 1990 at the Azelit mine (1,500 tons) and one other mine if prices and demand are favorable\. The maximum output of uranium by 1990 is now foreseen to be 12,000 tons, with a cor- responding import requirement of 290,000 tons if the 1:24 ratio were main- tained\. However, technologies change and this ratio might not remain valid\. 42\. These tonnages are likely to be divided mainly between the "Benin Route," the "Togo Route" and the "Nigerian Route\." A considerable portion of petroleum product requirements already use the "Nigerian Route" because of that country's large oil resources and growing number of refineries\. Although the Niger government has decided to pave the Tahoua-Agadez-Arlit Road, thus giving the mines a paved route to the Benin border, the petroleum companies are reported to be saying that they still will use the unpaved Agadez-Zinder route to Nigeria, even though a 650 km detour is necessary in the rainy season\. Eventually, the Agadez-Zinder Road is due to be paved as part of the Transsahara Road\. Thus, Benin might lose much of its petroleum traffic as Nigerian refinery capacity increases\. Exports of uranium ore and inputs other than petroleum probably will continue to use the "Benin" or "Togo Routes," however, because of doubts about the security of the "Nigerian Route\." In the longer term, a significant part of uranium-related traffic on the "Benin" and "Togo Routes" may divert to the Transsahara Road, either southward through Nigeria or northward through Algeria\. Variation in Estimates of Vehicle Operating Cost Savings 43\. Vehicle operating cost savings are major elements in the benefits identified in appraisals of road projects\. It is disturbing that these are recalculated from time to time by different consultants, sometimes on differ- ent bases and for different vehicle types, and that considerable differences exist in data for the same country and between data for similar neighboring countries\. To permit greater confidence in these inputs, data (empirical if possible) should be collected continuously and comparisons should be made between countries with similar conditions\. This is another subject that should be studied by a transport coordination agency in Benin to ensure an accurate and consistent approach\. Some examples of the variations in Benin itself and in Togo, a similar neighboring country, are shown in Annexes A-C \.1/ 1/ PPAR No\. 3987, Togo Second Highway Project, June 30, 1982\. - 12 - Overestimation of Supplementary Credit Needs 44\. An IDA Supervision Mission of July 1975 determined that the cost of the IDA-financed portion of the project would rise to about US$23\.2 million, representing a cost overrun of US$10\.1 million (77%)\. Some 76% of the overrun was attributed to existing and projected inflation, 4% to dollar devaluation, and 20% to quantity increases and additions to civil works\. The possibility of an overrun had not been mentioned until that time\. One reason appears to have been that the consultant's monthly progress reports omitted final cost estimates until March 1976\. The Supplementary Credit of US$9\.0 million provided by IDA to cover the higher project cost (para\. 13) proved to be in excess of actual needs\. 45\. Upon completion of the original project components in mid-1977, it became apparent that a significant surplus (initially estimated at US$3\.7 million) would be left in the Credit Account\. IDA's supervision mission of December 1976, which immediately preceded this completion, did not report a downward revision from US$23\.2 million in the estimated cost of the IDA- financed items\. Only as a result of the next mission, 16 months later, was that cost scaled down to US$19\.3 million\. Ultimately, the final cost of the original items was US$16\.7 million, representing an overrun of US$4\.9 million vis-a-vis the appraisal cost estimate\. 46\. Overestimation of the project cost is explained by several factors, including: (a) the generous safety margin allowed for the cost of repairing the causeway on the Cotonou-Godomey Road; (b) the modification of the embank- ment design for the causeway, which reduced the cost; (c) the lower than estimated cost to repair the main water supply pipeline of Cotonou; (d) the slowdown in the rate of inflation; and (e) the improvement in the exchange rate of the US dollar\. 47\. The record since mid-1977 discloses considerable reluctance on the part of the Government and the IDA to cancel the surplus funds and extensive efforts by both parties to find alternative uses\. The IDA felt that cancella- tion should be avoided in view of the potentially negative effects on rela- tions with Benin and of the recent improved economic performance of the country\. At the same time, the IDA repeatedly considered the need to cancel the surplus funds\. 48\. Among the proposals for using the surplus funds were those listed in Annex D\. In the end, some US$360,000 was allocated to equip the shoulder maintenance brigade and some US$900,000 to support consultants' services under the Feeder Roads Project (para\. 13)\. 49\. The history of the initial underestimation and subsequent over- estimation of the costs of this project, the Supplementary Credit, and the surplus funds in the Credit Account lead to several interesting observations and questions\. The proportions of the overrun in total costs and the subse- quent underrun were significant and closer surveillance would have provided earlier notice of their occurrence\. Nevertheless, the amounts were substan- tial only in relation to the very limited resources of Benin and would, in larger countries, have readily been absorbed by the Government\. Because of - 13 - the limited resources, IDA felt constrained to assist the Government in financing the extra costs and to provide a generous allowance so as to fore- stall another Supplementary Credit\. This, in turn, created a surplus that neither party wanted to cancel because of the stringency of Benin's resources\. 50\. The very size of the surplus increased the reluctance to cancel it\. Had the surplus been modest, disposition would have been more manageable\. The overestimation of costs in effect caused nearly as much difficulty as the underestimation\. Efforts to improve the accuracy of cost estimation and to monitor costs continuously thus are important to smooth project implementa- tion, particularly in small countries\. 51\. The surplus also presented both the Government and IDA with diffi- cult choices of fiscal and project management\. These funds emerged fortui- tously and unexpectedly and were not subject to the normal budgetary and programming processes\. Nor was there an overall plan for the use of the US$3\.5 million that ultimately became available\. Without such a plan, it became difficult to set targets for efficient application and controlled expenditure of the surplus\. Finally, use of the funds was constrained by extremely restrictive parameters with regard to timing, objectives, and so forth\. These constraints presented formidable obstacles to efficiency and imposed significant additional burdens on the technical staff of both the Government and IDA\. 52\. Finally, the history of this case raises issues regarding control of credit funds within the Executive Directors' authorization\. Some of the difficulties could have been avoided had the Description of the Project been less specific or had that Description been interpreted broadly, not literally\. The audit does not question the formulations which were adopted or the inter- pretations placed on them\. However, it does suggest that policy guidance may be required on this aspect of IDA operations\. IV\. FUTURE IDA SUPPORT FOR TRANSPORT PROJECTS INVESTMENTS 53\. The traditional dependence of Niger traffic on the OCBN is being eroded by political interest in route diversification, the relative speed and efficiency of providing road transport through Togo, and the low productivity and rising transfer costs of the public sector controlled OCBN route in Benin\. Past insistence by Benin on use of the railway versus the closed nature of access to Cotonou port have served to reinforce these trends\. Governmental interest and effectiveness in dealing with these issues and improving the private sector market environment in Benin are likely to influence IDA's policy decisions in Benin and Togo\. Two interrelated projects in Benin dealing with this Niger traffic are discussed below: A\. A feasibility study was carried out in 1979 for the extension of the OCBN railway from Parakou to Niamey in Niger (about 600 ki)\. If built, this railway would run parallel to the road rehabilitated under the present project and for this reason the Credit Agreement contained a covenant requiring the study to establish, to the mutual satisfaction of the Government and IDA, the economic justification - 14 - of such an extension\. The study found the economic return would be 12\.7%-13\.1%\. However, an IDA review considered the forecasts highly optimistic, the costs too low, and the methodology too limited in focus\. The review recalculated the economic return at 4%-5%\. Following the uncertain nature of market demand for uranium stemming from advances in the recycling process, the Governments of Niger and Benin have virtually abandoned serious consideration of this pro- ject\. The only possible future development that could change this assessment would be if phosphate deposits on the Benin-Niger border are found to be exploitable on a large scale\. B\. A feasibility study for paving the Dassa Zoume-Parakou Road (about 250 km) was recently carried out under EDF finance and the project was found to be justified (para\. 3)\. This is the last remaining unpaved section of the road from Cotonou to the Niger border and would thus result in road competition for the railway\. Previously, Government policy had been to keep the road to a gravel standard appropriate to local traffic and to restrict the use of joint road-rail bridges to protect the railway\. However, the developmental needs of the southern part of the country and the desire to unite the north and the south have led to a reversal of this policy\. IDA is interested in cofinancing this project with EDF, but, having learned the lessons of the project under review, it has recommended a 7 m pavement and 2 x 1\.5 m shoulders\. It also proposes an axle load study for the Parakou-Malanville Road to serve as the basis for determining appropriate pavement strength for the Dassa Zoume-Parakou Road\. 54\. The proposed project for paving the Dassa-Zoume-Parakou Road would have important repercussions: (a) on the railway, which would undoubtedly lose freight and revenues; (b) on the Port of Cotonou, which will have to change its handling procedures, infrastructure, and equipment to cope with existing or higher traffic volumes; (c) on the OCBN system, which operates a virtual public sector monopoly covering all modes and services, with the Niger Govern- ment Transport Co\. (NITRA) alone having a share of Niger traffic mainly between Parakou and Niger; and (d) on the Port of Lome in Togo, which would compete with Benin's new all-road route for available traffic\. The "Benin Route" would have the advantages of distance (a saving of 182 km) and of not traversing a third country (Upper Volta) that levies taxes at its borders\. The feasibility study assumes somewhat unrealistically, that improvements to the "Benin Route" would divert from the "Togo Route" freight amounting to 174,000 tons by 1984 and 236,000 tons by 1990, necessitating two more berths at the Port of Cotonou\. 55\. Where new projects like the above result in lower transport costs for landlocked countries such as Niger, taking transport time into account, diversions of traffic may rapidly occur\. Other considerations are: (a) a desire to diversify outlets even at greater cost, e\.g\., to Abidjan via road in Upper Volta to the RAN railway, to Dakar via road and the Bamako-Dakar railway, and to Nigeria or Algeria via the Transsahara Road; (b) political and financial attraction to other Francophone countries and; (c) company decisions on preferred routes, e\.g\., by uranium mining companies, petroleum companies, - 15 - and shipping lines\. In the longer run, however, there may be a greater attraction of trade with the larger countries, e\.g\., Nigeria and Ivory Coast, which are building up their own manufacturing and service industries\. 56\. In the meantime, questions will arise shortly about the investment and technical assistance requirements of the Ports of Cotonou and Lome, about road and rail tariff policies, about possible disinvestment in the OCBN and about assistance to the road trucking industry\. Other important policy ques- tions concern transit traffic\. Should Benin pay entirely for road improve- ment that is largely justified by the voc savings of foreign trucks? Should Benin follow Upper Volta's lead in levying transit taxes at its border? These problems emphasize the importance of the technical assistance in trans- port coordination, which was intended to be provided under the present project and has since been transferred to the Third Project (paras\. 11 and 36-37 above)\. V\. CONCLUSIONS 57\. The main objectives of the project under review were met in that the Parakou-Malanville Road was satisfactorily rehabilitated and has been able to serve higher than expected traffic volumes, apart from problems of shoulder damage that gives evidence of underdesign on certain sections\. The institu- tion-building objectives regarding road maintenance and transport coordination were not successfully accomplished, mainly because of the Government's request to drop them\. Clearly, there was more Government support for the civil works components than for the institution-building aspects\. The reevaluated economic rates of return indicate that the civil works components were justi- fied, despite large construction cost overruns due to inflation and technical problems\. The major part of the cost increase was due to worldwide inflation, which could not have been foreseen in 1973, but some technical problems could have been avoided if identified earlier by the consultants\. Overestima- tion of further financing needs resulted in surplus funds in the supplementary credit account, about 30% of which ultimately was cancelled after expenditure on additional items\.  - 16 - ANNEX A PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) Benin and Togo - Vehicle Operating Costs Excluding Taxes - 1972 Toga/a Benilb Gravel Good "Ruined" Good or Poor Paved Paved Paved Paved Road Road Savings Road Road Savings ---------------------(CFAF per km)--------------------- Cars and Pick-Ups n\.a\. n\.a\. n\.a\. 16\.4 23\.3- 25\.5 6\.9 -9\.1 Cars 14\.2 31\.4 17\.2 n\.a\. n\.a\. n\.a\. Pick-Ups 14\.0 29\.4 15\.4 n\.a\. n\.a\. n\.a\. Trucks (2-10 tons) n\.a\. n\.a\. n\.a\. 32\.4 51\.7- 57\.4 19\.3-25\.0 7 ton Trucks 27\.4 57\.6 30\.2 n\.a\. n\.a\. n\.a\. Heavy Trucks n\.a\. n\.a\. n\.a\. 74\.8 125\.2-139\.9 50\.4-65\.1 11 ton Trucks 48\.9 99\.7 50\.8 n\.a\. n\.a\. n\.a\. Truck-Trailers 84\.9 170\.5 85\.6 n\.a\. n\.a\. n\.a\. /a Source: Consultant's Report, "Route Blitta-Sokode Etude de factibilite", 1972\. /b Source: PCR, Benin Second Highway Project (Credit 415-DA), Table 8, August 1979\. PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT CREDIT 415-DA) Benin and Togo - Vehicle Operating CoEts Excluding Taxes - 1976 To go\./ Benin/b Gravel Good Poor Good or Poor Paved Paved Change in Savings Paved Paved Change in Savings Road Road Savings 1976/1972 Road Road Savings 1976/1972 ----- (CFAF per km)----- (%) -------(CFAF per km) ------ (%) Cars and Pick-Ups 27\.4 43\.8 16\.4 - 5 n\.a\. n\.a\. n\.a\. n\.a\. Cars n\.a\. n\.a\. n\.a\. n\.a\. 22\.8 33\.1 10\.3 + 29 Pick-Ups n\.a\. n\.a\. n\.a\. n\.a\. 23\.1 33\.5 10\.4 n\.a\. Trucks (2-10 tons) 7 ton Trucks 50\.7 97\.8 47\.1 +56 n\.a\. n\.a\. n\.a\. n\.a\. 10 ton Trucks n\.a\. n\.a\. n\.a\. n\.a\. 94\.1 154\.4 60\.3 +172/c Heavy Trucks 11 ton Trucks 71\.1 137\.8 66\.7 +31 n\.a\. n\.a\. n\.a\. n\.a\. Truck-Trailers 88\.9 172\.2 83\.3 - 3 114\.8 198\.5 83\.7 + 451/ /a Source: PCR, Togo Second Highway Project (Credit 450-TO), October 1979\. Data came from Appraisal Report on Togo Third Highway (Credit 693-TO), March 1977 and were prepared by consultants (French) for Aneho-Tabligbo Road feasibility study\. /b Source: PCR, Benin Second Highway Project (Credit 415-DA), Table 8, August 1979\. /c Vehicle types not fully comparable\. PROJECT PERFORMANCE AUDIT REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) Benin and Togo - Vehicle Operating Costs Excluding Taxes - 1980 Togo/a Benin Good "Ruined" Good Paved Paved Change in Savings Paved Gravel Change in Savings Road Road Savings 1980/1976 Road Road Savings 1980/1976 ------ (CFAF per km)------ (%) ------(CFAF per km) ------ (%) Cars and Pick-Ups Cars 37 50 12) 35 43 8 -22 -36 c Pick-Ups 34 43 9) 37 46 9 -13 Trucks (2-10 tons) ) 10 ton Trucks 108 150 42 n\.a\. ) 94 131 37 -39 Heavy Trucks ) 11 ton Trucks ) Truck-Trailers 205 315 110 +32 149 223 74 -12 /a Source: Consultant's Report, "Road Maintenance Analysis in Togo, 1980\." Appraisal Report on Togo Fourth Highway Project (Credit 1139-TO), Annex 5, April 1981\. /b Source: Appraisal Report on Benin Fourth Highway (Credit 1142-BE, April, 1981)\. PROJECT PERFORMANCE AUDIT MEMORANDUM BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) Proposals for Use of Unspent Credit Funds Estimated Available Proposal Date Funds Disposition (US$ million) Improve the dike section on the Cotonou- 01/06/78 3\.7 Withdrawn by Government\. Bohicon Road (estimated cost US$700,000) and protect culvert inlets and outlets on that road (estimated cost US$500,000) Purchase equipment for shoulder maintenance Late Over Agreed by letter of 12/21/78 whereby Part III brigade (estimated cost US$310,000) 1978 3\.0 of Project Description was amended to include "and establish- ment and equipping of a highway shoulder maintenance brigade" Funds were reallocated, inter alia, to increase to US$500,000 Category IV of Schedule 1 of the Credit Agreement, (Construction materials and maintenance equipment for Part III of the Project)\. Improve the Cotonou bypass road in Early 3\.4 Considered not feasible to be incorporated as part of Second east-west direction (estimated 1979 Highway Project\. cost US$3 million) Construct a new bridge over the Oueme River 10/79 N\.A\. Considered "not compatible with objectives" of Second at Save on the Cotonou - Parakou Road Highway Project\. (estimated cost just under US$4 million) Bridge financing for technical assistance to maintain operations under Feeder Roads 02/80 3\.9 Agreed by letter of 05/16/80 to allocate US$600,000-650,0 Project (Credit 717-BEN) after IDA funds to finance consultants' services, which had been included in under that project had run out and before the Feeder Roads Project provisions for establishment, staffing and funds under a follow-on project could equipping the Feeder Roads Division of the Directorate of Roads and become available (estimated cost US$2\.2 Bridges, on-the-job training of the Directorate's staff, and prepa- million for period October 1980-September ration of a long-term program for feeder roads\. These were 1981) financed under the Second Highway Project, Category III of Schedule 1 of the Credit Agreement (Utilization of the Borrower of consultants' services in highway maintenance and transport coordination), - 21 - August 1979 PROJECT COMPLETION REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) I\. Introduction 1\.01 Benin has traditionally served as a transport corridor to the sea for landlocked Niger\. The main component of the Second Highway Project aimed at improving the road in northern Benin which serves as a link in this corridor and also carries considerable domestic traffic\. The "Benin route" from Cotonou to Niamey (Niger) totals 1,033 km, 114 km shorter than the alternative Togo route through Lome\. From the port of Cotonou, goods are carried 438 km by rail to Parakou and then 318 km by truck to Malanville on the Niger border and into Niger by roads\. The railway company, jointly owned by Benin and Niger, also has a monopoly of truck traffic to Niger and charges fees for using the joint road-railway bridges\. This system results in tariffs about 25-35% lower than on the Togo route and up to 50% lower than through Abidjan\. The Abidjan route is however gaining in importance because of better services\. The Parakou-Malanville road is northern Benin's only outlet to the south, and over the years domestic traffic has become more important than the transit traffic\. This trend is expected to continue as more of the land, well suited to cash crops, comes under cultivation; at present, with only 2% of the area cultivated, it produced about 60% of the country's cotton\. 1\.02 The Second Highway Project was carried out at a time of profound political and economic change\. Since independence in 1960, Dahomey had suffered from internal political unrest, rooted in tribal and economic differences between the three ancient kingdoms, Abomey and Porto Novo in the south, and Bariba in the north\. A prime objective of the military government which came into power in 1972 was to unite the country politically\. As part of the unification policy, the name of Dahomey was changed to the People's Republic of Benin in November 1975 and a single political party was estab- lished\. 1\.03 The Bank Group's strategy has been to promote the Benin route road maintenance and feeder roads\. The Feeder Road Project (Cr\. 717-BEN) provides for improvement and/or maintenance of 1,270 km of roads, many connected with the north-south main road, and institution building; the subsequent Third Highway Project (Cr\. 746-BEN) rehabilitates the remaining sections of the north-south road, Godomey-Bohicon-Abomey, (107 km) and provides for regravel- ling or resurfacing of 470 km of roads connecting to the Parakou-Malanville - 22 - road and further assistance for road maintenance and institution building; and the port of Cotonou is being expanded (Cr\. 836-BEN) to enable it to handle the expected increase in domestic and transit traffic, for Niger and Nigeria\. II\. Project Identification and Preparation Identification 2\.01 The Second Highway Project evolved from the Land Transport Survey financed by the UNDP with the Bank as executing agency\. The survey was carried out jointly by two Canadian consulting firms, and was completed in 1970\. With regard to highways, the survey stressed the need for road main- tenance, assigned highest priority to rehabilitation of the Parakou-Malanville road serving both northern Benin and Niger transit traffic, and recommended improvement of two short sections of the Cotonou-Bohicon road, one of the major trunk roads in the south\. Preparation 2\.02 Based on the survey recommendation, the Association financed a highway maintenance and engineering project in 1970 (Cr\. 215-DA, $3\.5 million), which included detailed engineering for the three sections mentioned above\. Consultants were selected to prepare the studies\. They found that the Parakou- Malanville road (318 km), a one lane 3\.5 m wide road, had deteriorated and re- construction would involve more work than previously anticipated\. The Govern- ment requested an update of the economic study to ascertain whether a two lane road would be justified\. The reevaluation was completed in 1971 concluding that a two lane paved standard was economically justified and indeed better adapted to projected traffic\. The Government agreed with the Association on this recommendation and requested the consultants to complete the engineering on the basis of a 6 m wide carriageway\. Appraisal, negotiations and expected financing 2\.03 A Bank mission appraised the project between February 9 and 24, 1972\. As USAID had expressed interest in co-financing, one of their engineers joined the mission\. During negotiations, one year later, between February 20 and 27, 1973, the Government requested an increase in the amount of technical assistance to be provided to the Directorate of Public Works and Land Trans- port and additional road maintenance assistance\. Moreover, and in view of the financial difficulties facing the country, the Government requested an increase in the proposed IDA credit to cover the impact of the devaluation of the US dollar (about 10%) and to finance part of the local costs\. In view of the Government's willingness to enact fiscal austerity measures, IDA agreed to increase the proposed credit from $8\.2 million to $11\.8 million, to cover - 23 - the entire foreign exchange cost and 43% of the local cost, net of taxes, of the IDA financed items\. USAID agreed to finance $6\.5 million foreign exchange cost, and $1\.5 million equivalent in local cost, for the reconstruction of a northern half of the Parakou-Malanville road\. The Government was to cover the remaining local cost estimated at $1\.3 million equivalent\. The total project cost, estimated at $21\.1 million, was to be financed as follows: --------------$ million---------------- Local Foreign Total % of Total USAID 1\.5 6\.5 8\.0 38 IDA 1\.0 10\.8 11\.8 56 Government 1\.3 - 1\.3 6 3\.8 17\.3 21\.1 100 Actual'costs and financing are discussed in paras\. 3\.25-30\. Objectives and covenants 2\.04 The main objective of the project was to ensure that the main north-south road would be adequate to serve Benin's internal traffic and sufficiently competitive to retain Niger's transit traffic, which provides benefits to Benin as well\. In addition, the project would ensure the con- tinuation of the highway maintenance program\. In order to avoid over- investment in the north-south corridor, the Credit Agreement requested the Government that, prior to undertaking any northern extension of the Cotonou- Parakou railway paralleling the road to be rehabilitated, a feasibility study should be done establishing to the Association's satisfaction the economic justification of such extension (Section 4\.06)\. Also, to achieve a better coordination of the transport system, the railway's management in particular emphasizing operations of the Cotonou-Parakou line, was to be improved, and the Directorate of Land Transport was to be strengthened to enable it to play an active role in defining inter-modal policies and invest- ment planning (Section 4\.05)\. Usual covenants on road maintenance were agreed on: installing and operating weigh-bridges along the Parakou-Malanville road, and ensuring adequate dimensions and axle loads of vehicles (Section 4\.04), keeping adequate records (Sections 4\.01 and 4\.03) and maintaining adequately the road system (Section 4\.02)\. Project Description 2\.05 The project consisted of: (a) rehabilitation of the Parakou-Malanville road (318 km); (b) rehabilitation of two sections of the Cotonou-Bohicon road, from Godomey to Abomey Calavi and from Sehoue to Zakpo (totalling 17 km); - 24 - (c) consultant services for supervision of construction works; (d) continuation of the road maintenance program (begun under the First Highway Project), consisting of (i) consultant services and (ii) materials for culverts and bridges; and (e) consultant services to Directorate of Land Transport\. Board approval and effectiveness 2\.06 The Board approved the project on May 24, 1973\. The Credit Agree- ment was signed on July 3, 1973, but not declared effective until March 29, 1974, when cross-effectiveness conditions regarding the USAID loan were met\. The delay was mainly due to a tedious dispute over the exact breakpoint between the IDA and USAID financed sections of the Parakou-Malanville road\. At appraisal it was envisaged that each agency would help finance 160 km, but the final engineering completed in July 1973, considered the Sori bridge as dividing point resulting in a northern section of 169\.5 km and a southern section of 148\.1 km\. Only after considerable and undecisive correspondence between the parties was there an agreement, and a fixed price contract for the USAID portion of works could be signed, which was a condition of effec- tiveness for the IDA credit\. The Government complied with its effectiveness conditions on October 10, 1973\. Project completion was expected by Novem- ber 30, 1976\. III\. Project Implementation A\. Construction Bidding 3\.01 Project start-up was not hindered by the delay in credit effective- ness\. Nineteen contractors were prequalified for construction of the three sections financed by IDA, and five presented bids covering the three lots\. Bids were opened on October 15, 1973 and the Government retained the three lowest for evaluation: the low bidder (French), followed by a joint venture of a French firm and a German firm, and by another French firm\. There was less than 5% difference in the proposals' cost (Table 3)\. Three US contractors were prequalified for construction of the northern USAID-financed section of the road\. Contract Award 3\.02 In a letter to the Association of November 17, 1973, the Government proposed to award the contract for lots 1, 2 and 3 to the second lowest bidder (excluding housing costs), preferring this bid to the lowest bid because it proposed a crushed stone base course while the lowest bidder proposed a soil-cement base\. The consultants advised Government that while the crushed stone base was 4% (about $300,000) more expensive, it would render the road more durable and save on maintenance costs\. They also advised the - 25 - Government that the unit price of the first French firm for a soil-cement base seemed unrealistically low being the same as they had bid on another job in 1969\. Moreover, the Government felt uneasy about the many reservations made by the firm in the "technical note" accompanying their bid\. Finally, the Government saw an opportunity to break the monopoly of French construction firms by bringing in a part-German contractor\. 3\.03 Because all bidders had been pre-qualified, and bids had been called for either a soil cement base or a crushed-stone base, the Association could not approve the choice of the second lowest bid, and requested the Government to justify economically the more expensive one\. However, as the validity of the bids expired on February 12, 1974 the Government invited the bidders to extend the validity of their bids to March 15, 1974\. The two lowest bidders refused, while the highest bidder accepted\. The Government was then left with little option but to award the contract to the only remaining bidder, which the Association approved on March 8, 1974, at about $150,000 more than the lowest bid (including housing costs)\. The contract was signed on March 29, 1974\. The total contract price was $8\.5 million equivalent of which IDA would finance $7\.6 million, within the credit allocation of $7\.75 million excluding contingencies\. The procedure had taken five months from bid opening to award\. The cost of the soil-cement solution in the contract awarded was higher than the lowest soil-cement bid; the discussion on the technical and economic merits of crushed stone should have been decided before the bids Wre invited\. 3\.04 The contract for the northern section of the Parakou-Malanville road (169\.5 km) was awarded to the lowest bidder, an American firm, in March 1974\. The contract price with the crushed stone base alternative was $10\.9 million or 36% above the appraisal estimate and higher than the second French contract because it was a fixed unit price contract, whereas the second French contract included a price escalation clause\. USAID increased its loan from $8 million to $12 million to cover the increase and contingencies\. Construction Supervision 3\.05 The contract for supervision of all construction works (lots 1 - 4) was awarded to the same consultants that had prepared the documents, in May 1974 with notice to proceed on June 24, 1974\. Construction execution 3\.06 Both French and American contracts were signed on March 29, 1974, with an execution period of 30 months\. In this period, the contractors faced problems arising from political events: a revolution, a closure of the border with Nigeria (March 1976) and the consequent rupture of bitumen sup- plies\. Prices also increased considerably due to the oil crisis\. Neverthe- less, works were completed with only minor delays to a satisfactory quality, although in retrospect the design standards adopted seem questionable (paras\. 3\.10-3\.11)\. - 26 - Parakou-Malanville (318 km) 3\.07 Parakou-Sori (148\.1 km)\. Works on this section (lots 2 and 3)were carried out by a French firm\. The order to proceed was issued on September 23, 1974, and despite the above-mentioned problems, works were completed only 2 months late, on May 15, 1977 and were provisionally received on May 24, 1977\. An inspection of the road in March 1979 by an IDA mission showed no serious deficiencies following two wet seasons\. 3\.08 Sori-Malanville (169\.4 km)\. Works on this section (lot 4) were carried out by the American firm with USAID financing\. The order to proceed was issued on July 1, 1974, and works were satisfactorily completed only 2 months late on February 7, 1977, and provisionally received by Government the same month\. Besides the problems mentioned in para 3\.06, progress in the early part of construction was hampered by conflicts between the contractor and the supervising consultant: the contractor protested about the personal behavior of the consultant resident engineer and the impartiality of his technical decisions\. At one point production of the crushed stone base was halted because of difficulty in meeting the requirements of the sand equivalence test as specified in the bidding documents\. The American firm held that by all the normal parameters the material was good, but the resident engineer insisted on compliance with the sand equivalence test specifications which is not in common use outside the French zone of influence\. Eventually (August 1975) the consultants head office agreed to reduce the sand equivalence norm from 50% to 30%\. Relations improved instantly when the resident engineer was replaced, and the work was finished on an amicable basis\. The contractor also suffered a strike, the impounding of his explosives during the revolution and a number other problems that culminated in a claim against the Government of $7\.5 million which he is pursuing before international arbitrators in Paris\. The contractor had chosen an unfortunate time of rising inflation to win a fixed price contract\. Additional works 3\.09 In three letters to IDA dated February 2, 1976, the Government requested the following additional works to which IDA agreed: (a) installation of a truck weighing station outside Parakou at an estimated cost of $80,000 in foreign currency and $33,000 in local currency (CFAF 7,500,000); (b) construction of a parking lot for trucks at Parakou at an estimated cost of $86,000 (CFAF 19,310,000); and (c) replacement of telephone poles on the southern, IDA- financed section at an estimated cost equivalent to $100,000 (CFAF 22,680,000)\. - 27 - At the same time the Government requested USAID to finance a weighing station at Malanville and truck parking lots at Malanville and Kandi\. The truck weighing station was to be installed by the American firm but it was decided that the existing scale could be repaired at a significantly reduced cost\. The parking lot construction and telephone pole replacement were done by a French firm\. Choice of road width 3\.10 At appraisal the economic analysis showed the reconstruction to two lane standard of the Parakou-Malanville road was justified, and a 6 m pavement with 2 x 1\.5 m shoulders was adopted\. The road was completed to this standard in 1977\. In retrospect, the design width of the road was insufficient\. The greater than estimated traffic with its high proportion of heavy vehicles has proved too great for the 6 m wide pavement to whose bends no curve widening was applied\. The result is that wear is taking place both on the inside of curves, and on the straights\. For one heavy vehicle to pass another on the straight it must put a wheel on the shoulder and to negotiate a right hand bend, an articulated vehicle cannot avoid putting a rear wheel off the pavement\. The result is that wear of the pavement/shoulder junction is taking place, creating a continual routine maintenance problem\. 3\.11 It is interesting to review how this situation came about, and what could be its cure\. The point of departure was a single lane road, and the original analysis was based on data gathered in 1967 and updated in 1971, but the road did not open to traffic until May 1977\. During this period the Niger uranium boom began, the size and number of large commercial vehicles increased and total traffic was 70% more than expected; also, the idea of 7 m pavement widths for international routes became more widely accepted\. But it is notor- iously difficult to widen an existing embankment, costly to widen an existing cut, and next to impossible to add a narrow widening strip to a soil-cement base\. There is, however, one partial solution which could limit damage through traffic management measures, acting on the psychology of the drivers rather than the structure of the road\. This would be centre-line marking and edge marking on curves, which was discussed with the Directorate of Roads and Bridges\. Even more important, although in practice the more difficult to get done, is regular shoulder maintenance\. To assist in this effort, the Association agreed in December 1978 to finance the purchase of equipment to establish a shoulder maintenance brigade under the same project\. Two sections of the Cotonou-Bohicon road (17 km) 3\.12 The contract period for lot 1 was 12 months, following the order to proceed on July 7, 1974\. Works began July 26, 1974 were completed in February 1977, 31 months later, and were provisionally received on July 26, 1977\. The delay was due to unexpected problems during the raising of an embankment on the Godomey Dike which twice caused sudden and deepseated ground failures which destroyed both the road and Cotonou's main water supply pipeline\. This is further discussed below given its technical interest\. Otherwise, there was - 28 - only one minor problem, the cracking of the sand asphalt surfacing on certain sections near Zakpo\. The contractor agreed to repair the cracks, resurface the affected sections and accepted a two-year maintenance period until July 1979\. The soil-cement base and sand-asphalt surfacing were inspected recently and were in good condition\. The remainder of the 85 km road is being recon- structed or resurfaced with financing from Kuwait and OPEC Funds under the Third Highway Project\. Godomey Dike problems 3\.13 Site conditions and design\. At a point 300 m from the start of the Godomey-Abomey road, the Djonou Lagoon enters Lake Nokoue\. The existing road crossed the narrow neck of land on a causeway (in French, Digue) under which culverts had been placed at various times, but nevertheless the road was always flooded at the height of the wet season\. For this reason, the engineering design called for a bridge and a raised approach embankment on the north side\. The bridge span was fixed at 6\.6 m and gave a free height of lm at peak flood\. The deck and the adjacent embankment were to have a finished level of 4\.8 m above sea level or approximately 2\.2m above the level of the existing road\. On the southern side the ground drops down to the bridge without any embankment, and on the northern side climbs gently to meet the proposed road level some 500m north of the bridge\. The embankment where the problems occurred runs from the northern abutment of the bridge to a point some 300m to the north\. 3\.14 Site investigation\. A total of five boreholes and five SPT's (Standard Penetration Tests) were made in the affected area\. They showed 5m-8m of very loose alluvial sandy silts with high organic content underlain by a bed of clay which varied in thickness from 3m at the bridge site to over 15m only 150m to the north\. SPT values were very low never exceeding 30 blows per foot at 15m depth\. The bridge design report discusses the foundation options intelligently and cautiously and finally opts for long friction piles - a correct solution\. The road design report on the other hand accepts the hydrologists' recommended flood level, the bridge designers deck level and states "\. and there are no problems for the placing of the pavement structure"\. Unfortunately there were\. 3\.15 Construction\. Road construction began in July 1974, and the first reports of embankment failure occurred in April 1975, when a deepseated settlement of about 1m took place over a 200m length, which was accompanied by the rupture of Cotonou's main water supply line (400 mm 0)\. The consultant recommended construction of a berm on either side of the road formation, which involved the placing of 25,000 m3 of fill\. Filling was in progress when a second settlement failure and rupture of the water line occurred in May 1975, leaving the city without water for three days\. The Government stopped all further earthworks on the Digue, and a temporary pavement was maintained for the next six months\. The consultants then proposed in January 1976 to recom- mence raising the Digue but this time to a final level 1m lower than the original design level\. This was to be done in four lifts with 4 to 8 weeks interval between them depending on settlement rates as monitored by a line of bench marks which were to be established\. - 29 - 3\.16 At this stage the Bank became concerned and the intervention of the next supervision mission placed the further actions on a cautious practical footing in order to arrive at an acceptable temporary solution, while intro- ducing the idea of a full site investigation program on which to base an eventual "final solution"\. The first 50cm layer was placed on July 1976; but the graph of the measured settlements continued to be linear, suggesting little gain in shear strength with consolidation\. Also in July, a testing program was worked out between the Government, the Bank and the consultants\. 3\.17 The consultants program proposed a battery of tests to be done on samples shipped to Germany\. However IDA and the Centre National d'Essais et de Recherches des Travaux Publics (CNERTP) insisted that: (a) the nature of the materials involved made it unlikely that an "undisturbed" sample at its natural moisture content would ever reach the laboratory in Germany; (b) there was a great opportunity for training within CNERTP where the knowledge but not the equipment required resided\. With IDA's approval CFAF 9 million was spent on triaxial and other fairly sophisticated testing equipment to do the test "in house"\. \. 3\.18 Another 50cm was added in December 1976 but there was still no flattening out of the settlement curve and the Bank engineer advised the cessation of further filling and the placing of a temporary pavement of inter- locking concrete paving blocks known locally as "Pave Trief" and which can follow differential settlements\. Construction of the pave trief pavement (450m) was completed in April 1977\. The site was again visited by a Bank mission in March 1978\. While the existing vertical alignment is not up to the original design standard, it is acceptable for existing traffic speeds and volumes\. The Bank engineer concluded and DRP officials concurred that the risks inherent in a further attempt to reach the design level were not justified by the small improvement in surface riding quality, and it was decided to try no further raising of level\. Settlements were estimated at 2mm per month\. Although DRB assures that monitoring continues, they have not produced any survey data since that time\. 3\.19 Conclusions\. The original site investigation was adequate: what was not was its interpretation\. Although there was not enough evidence presented on which to base a full earthworks design, there was enough to call for further testing\. There was also a lack of communication between the designers and public utilities leading to a failure to identify the possibility of damage to the water pipeline\. Once the problem had presented itself there was indecision\. The first failure occurred in April 1975; no decision to implement a testing program was made until July 1976\. There was lack of technical leadership on the part of consultants\. It is worth noting that the course of action that led to the solution finally adopted was sug- gested by the Bank and was based on common sense and field observations, not on a battery of expensive and sophisticated laboratory tests\. - 30 - B\. Extension of the Road Maintenance Program 3\.20 The First Highway Project (Cr\. 215-DA, $3\.5 million, 1970) provided almost $2 million under the 1970-1974 maintenance program for new field and workshop equipment and $1 million for technical assistance, with the aim of strengthening the Directorate of Roads and Bridges (DRB) both in equipment and management\. Since this was not fully achieved in the time available, the Second Highway Project provided an additional 83 man-months of technical assistance to prolong the work of consultants (Canada) and $250,000 for construction materials (steel culverts, cement, etc\.) for the drainage improvement which were to be part of the extended program\. 3\.21 Under this project the maintenance program was to be financed by the Government using the Road Fund which was re-established in 1970 by the introduction of a tax of CFAF 4 per litre of gasoline\. However road maintenance expenditures of CFAF 401 million in 1974 increased to only CFAF 404 million in 1975 and CFAF 427 million in 1976 and were actually below the 1972 budget level of CFAF 474 million (Table 4)\. The tax on motor fuel remained fixed at CFAF 4 per litre and the Government was unable to increase its contribution to road maintenance to counteract inflation\. 3\.22 Physical performance was negligible; because of lack of funds, spare parts were increasingly difficult to obtain and equipment was immobilized\. Physical improvements to roads fell short of expectations because insufficient funds were made available, and far from recouping the shortfall as the second project was intended to do, performance was even worse\. As of November 1975, consultants reported that 56% of the heavy maintenance equipment were out of service and about half of the trucks were down\. The high incidence of equip- ment breakdown was due to the inexperience of operators\. As a result of these difficulties, maintenance works were only carried out for about two months of the year\. The consultants did some useful desk work in maintenance planning and quantification of needs; an extension to this work prepared in detail the maintenance resurfacing and reconstruction elements of the Third Highway project\. By the time the consultants left the country less than 30% of the funds provided for materials under the project had been disbursed - a remark- able failure to take advantage of an opportunity to build stocks of essential materials like steel culverts, cement, bitumen, etc\. 3\.23 In December 1978, in view of the shoulder maintenance problem that had arisen on the Parakou-Malanville road, the Association agreed to the purchase of equipment for a shoulder maintenance brigade, estimated to cost $350,000\. Procurement has been started\. C\. Consultant Services to the Directorate of Land Transport 3\.24 Because of impending reorganization of the Ministry of Equipment, and probably also because of the fluid state of the country during the revolution, the Government asked for a deferral of the 23 man-months of technical assistance for the strengthening of the Directorate of Land Transport\. This assistance is being provided to the new Directorate of Studies and Planning, now part of the Ministry of Transport, under the Third Highway Project\. - 31 - D\. Supplementary Credit 3\.25 By mid-1975 it had become apparent that the project would incur a considerable cost overrun\. Supervision missions estimated the cost of the IDA-financed part of the project at $23\.2 million instead of the $13\.1 million estimated at appraisal\. The estimated 77% cost overrun was based mainly on actual OPEC price increases and world wide inflation and the anticipation that such increases would continue and would add $7\.7 million to project costs\. Further, the US dollar was devalued from CFAF 230 at appraisal to CFAF 224 average per dollar in 1975, and it was expected that the exchange rate would remain at about 225 for the remaining disbursements; the total effect was estimated at an additional $400,000 in project cost\. Additional civil works were estimated to cost $2 million\. The appraised and revised estimates of the IDA financed parts of the project are given below\. Cost Estimate Revised Cost Estimated at Appraisal Estimates Cost Overrun February 1972 July 1975 July 1975 --------------- t---US$ million------------ Civil works 10\.8 20\.3 9\.5 Consultant services for construction supervision 1\.3 1\.8 0\.5 Consultant services for highway maintenance and transport coordination 0\.7 0\.8 0\.1 Materials 0\.3 0\.3 - Total 13\.1 23\.2 10\.1 3\.26 At the time (July 1975) the works were well advanced, and there was no practical way to reduce the scope of the project\. The Government was unable to finance the expected cost overrun, which was beyond their control, and requested a supplementary IDA credit of $9 million, which would raise the credit to $20\.8 million\. The percentage of civil works costs financed was raised from 81% to 89%\. The Board approved the supplementary credit on March 2, 1976\. The amended credit agreement was signed on March 10, 1976, and became effective on October 5, 1976\. 3\.27 As it turned out, project costs proved to be less than the revised estimate, as inflation abated, the US dollar recovered its value to an average of CFAF 248 in 1976 and 249 in 1977, and bitumen deliveries from Nigeria improved replacing more costly bitumen purchases on the world market\. About $3\.9 million was left undisbursed under the credit, and in 1978 the Director of Roads and Bridges informally asked a supervision mission whether part of the balance could be applied to the construction of a 5\.5 km link between the - 32 - new Cotonou bridge and the main highway leading west and north, estimated to cost about $2\.5 million\. However, the Association deeming that the objectives of the project had been met, and that the balance was due to excessive contin- gency allocations, indicated to Government in April 1979 that, according to the Bank Group rules, the balance should be cancelled when project disburse- ments are completed\. E\. Final Project Costs and Disbursements 3\.28 Appraisal estimated and actual costs are detailed in Table 5\. The total project cost was $31 million equivalent or 47% above appraisal estimate of $21 million\. The project components financed by IDA cost about $18\.6 million, as compared to the original estimate of $13\.1 million, with an overall increase of 44% given a 35% increase in the cost of the Parakou- Malanville road and about 68% increase in the Cotonou-Bohicon sections\. However, the southern section of the Parakou-Malanville road was 10 km shorter than envisaged, technical assistance for transport coordination was deleted, and equipment for a shoulder brigade included in final project costs\. The IDA contribution will be about $16\.9 million, instead of $11\.8 million as envisaged, in line with the overall cost increase\. 3\.29 The northern section of the Parakou-Malanville road, financed by USAID, cost $12\.4 million or 55% more than the appraisal estimate of $8\.0 million; USAID increased its loan to $12 million, covering practically the full cost\. The American contractor has filed a claim against Government of Benin in the International Court of Justice (Paris) for an additional amount of $7\.5 million equivalent\. 3\.30 Actual and estimated disbursements are shown in Table 6\. Delays were due to slow placing of contracts, subsequent construction delays and by slow processing of claims by Government\. The original credit closing date, November 30, 1976, was postponed first to December 31, 1978 and then to December 31, 1979\. Practically all disbursements for the project had been completed by December 1977; the second postponement was agreed upon to allow disbursements for equipment for the shoulder brigade that the Association approved in December 1978\. F\. Consultants Performance 3\.31 The supervising consultant's performance was uneven\. Their failure to interpret correctly the results of their own soil survey was mainly respon- sible for the Godomey Dike failure, and their subsequent handling of the repairs was little satisfactory (paras\. 3\.14, 3\.17)\. There were also person- ality problems between consultant staff and contractors (American), although rela- tions improved when some of the former were replaced\. The consultant firm was also very slow in finalizing accounts\. Consultants for the road maintenance program on the other hand, made the best of a difficult situation\. Although they were unable to achieve very much by way of physical improvements to road maintenance nor to even begin their assistance to DLT because of Government uncertainties and lack of funds, they produced a useful study of road main- tenance needs with which the Government has expressed satisfaction\. They also prepared in detail most of the elements of the current Third Highway Project and were re-hired by the Government for its implementation and supervision\. - 33 - G\. Government Performance 3\.32 The Directorate of Roads and Bridges is weak in organization and lacks staff, and institutional performance was bedevilled for much of the project period by frequent changes of senior staff\. Individually, DRB senior engineers are diligent and competent, but they lack both support structure and staff, particularly for procurement and finance\. Both con- sultants and contractors complained of very slow processing of payments by the Government\. At one point one of the French contractors was claiming almost $500,000 in interest on late payments, but the claim has been dropped\. Because of the political situation and the austerity measures which followed, little was achieved by way of institution building under the project, but at least some ground- work was done which hopefully will bear fruit under the Third Highway Project\. H\. Compliance with Project Covenants 3\.33 The Government complied only in part with Section 4\.02 of the Credit Agreement which required that the highway system should be adequately maintained and that funds and equipment should be provided "as needed"\. Maintenance funds and spare parts were well below the needs of adequate maintenance\. However, the covenant did not establish annual minimum levels of funding\. The Third Highway Project, therefore, specifies a minimum budget amount for annual highway maintenance\. 3\.34 The Government complied in part with Section 4\.04 requiring control of truck axle loads\. Weighing stations were installed at Parakou and Malanville\. The Government did not however, impose penalties for truzks exceeding the weight limit and overloading continues\. 3\.35 The Government did not furnish the Association with a "detailed program" to strengthen the Directorate of Land Transport and the railway management as specified in Section 4\.05 and the technical assistance for this item was dropped\. The Association therefore agreed to include technical assistance for transport planning in the Third Highway Project (Cr\. 746-BEN) and technical assistance for improving railway management is included in the Port of Cotonou project (Cr\. 826-BEN)\. 3\.36 During the project period there was no need to invoke Section 4\.06 which requires the Government to furnish the Association with a feasibility study by a qualified consultant establishing the economic justifications of any proposed extension of the railway from Parakou to Niger\. However a feasibility study, financed by FAC, is now under way for a project to extend the railway to Niamey\. IV\. Economic Reevaluation 4\.01 The appraisal report did not include the overall rate of return of the project, but individual components' return ranged from 13% to 19%\. Current reevaluation shows a global return for Benin of 15% within the same range, but deriving from a 16% return for the Parakou-Malanville road, the main component, instead of 13% as expected, (or 30% instead of 19% when including benefits to Niger from its transit traffic 1/), and from a 15% return instead 1/ Excluding from the cost the pending claim by the contractor\. - 34 - of about 17% from the rehabilitation of the Cotonou-Bohicon sections\. The identified uncertainty was carefully evaluated in a probability analysis and proved to be appropriate\. However, it would have been difficult to foresee the actual traffic development and uncertainty still remains as to future pattern of traffic on the project roads (para 4\.04)\. Such results, however, are a good reminder of the need to be cautious in ranking proposed projects based on a ex-ante rate of return analysis\. Parakou-Malanville road 4\.02 At appraisal, the economic evaluation was essentially directed at comparing the cost of the proposed rehabilitation with expected savings in transport costs for domestic traffic as well as for Niger transit traffic\. The growth rate for domestic traffic was estimated at 5% for the period 1976-86, and 4% thereafter; in addition, the reduction in transport costs was expected to induce increased agricultural production and thereby increase traffic by about 10 to 20%, depending on the road section\. Although with the rehabilitation the Benin route was expected to remain among the most economic alternatives for Niger, the transit traffic was considered highly uncertain and was treated through an elaborate probability analysis; the best estimate was that it would grow by about 50% by 1980 and stabilize thereafter\. For 1976, expected to be the opening year of the new road, the traffic forecast was 59 heavy transit trucks for Niger, and from 109 to 51 "domestic" vehicles per day, the flow decreasing northwards with an average of about 82\. Actually, the road was completed in 1977 and carried an average of 250 vpd, considerably above the expected total of 141, although Niger transit traffic approximated the level expected at appraisal\. Traffic evolu- tion is shown in Table 7\. 4\.03 Unit vehicle operating savings increased about 40% between the 1972 appraisal estimates and 1977, when the road was opened (Table 8)\. Actual construction costs were about 50% above appraisal estimates\. However, given the 70% higher traffic, the reappraisal rate of return is about 30% for the region and 16% for Benin alone, even when excluding any revenue from transit traffic; such exclusion now seems warranted as it is difficult to apportion transit revenues to road, railroad and port improvements undertaken during the same period (Table 9)\. 4\.04 The reevaluation assumes that future growth will be consistent with appraisal rate, i\.e\. 5% until 1986 and 4% thereafter\. Rural development projects in northern Benin and continued economic growth in Niger with con- comitant increase in transit trade sustain the assumed traffic increase to 1987\. Beyond 1987, the traffic pattern may diverge from the assumed rate if two proposed transport investments take place: (a) the paving of the remain- ing section of the Cotonou-Niamey road (between Dassa Zoume and Parakou), and (b) the extension of the railway from Parakou to Niamey\. Cotonou-Bohicon road sections 4\.05 Based on vehicle operating and road maintenance savings and the rehabilitation costs, the economic return was estimated at appraisal to be 19% for the 6 km Godomey section and 14% for the 14 km Sehoue section; the appraisal report however does not mention the traffic growth rate considered in the analysis\. - 35 - 4\.06 Traffic development has been very uneven (Table 7)\. Interruptions or detours during construction of the Godomey section (because of the water main rupture) reduced traffic from 3,076 vpd in 1974 to 1,896 vpd in 1975; but then a considerable increase took place in 1976 when traffic climbed to 2,026 vpd\. Traffic on the Sehoue section reverted in 1976 to its 1971 volume of about 420 vpd, although it had reached more than 730 vpd the previous years\. A\.07 Estimates of unit vehicle operating savings increased by about 40% from appraisal to the time the new road opened; at the same time actual con- struction costs increased about 67% compared to appraisal estimates even though final length reconstructed was 17 km instead of 20\. Assuming a future 5% annual traffic growth, the combined economic return of the two sections is estimated at about 15%\. Despite such lower than expected return, the recon- struction was fully justified and may be even more so should traffic recover previous levels faster\. V\. IDA Performance 5\.01 The Association approved a carriageway width of only 6m for the Parakou-Malanville road\. Because of the narrow lane width and considerably higher than expected traffic, road shoulders are frequently used by overtaking vehicles and shoulder wear is already heavy\. The resulting maintenance prob- lem, in view of Government's record, is unlikely to be well-handled\. The Association should therefore consider recommending wider roads in future projects for international routes used predominantly by heavy trucks\. 5\.02 The Association might have been less formal in the determination of "the lowest evaluated bid", as compared to the "lowest bid" (an about $300,000 difference excluding housing costs) that it would approve for the construction works\. Because of delays in making decisions and the consequent expiration of bid validity, the Government had to award the contract to the highest of the three bids retained, and accept a soil-cement base instead of the Government's technically preferred crushed-stone base offered by the second lowest bidder\. 5\.03 IDA supervision missions played an effective role in solving tech- nical problems during project implementation, particularly the problem of settlement of the Godomey Dike section\. The Association was also able to assist in overcoming the difficulties in bitumen deliveries\. 5\.04 Supervision missions voiced concern about insufficient maintenance funding and lack of effective control of vehicle weights, but could not force the Government to take the necessary steps to remedy these issues\. A follow- up on these matters, as well as technical assistance for transport planning, is pursued under the Third Highway Project\. 5\.05 IDA took timely action in providing a supplementary credit when construction costs increased beyond available financing\. The lower than anticipated cost overrun of the IDA-financed portion of the project was due to fortuitous developments which could not have been foreseen at the time of the supplementary credit approval, and cancelling surplus funds in line with the Bank policies is appropriate\. - 36 - VI\. Conclusions 6\.01 The objectives of the project were met, except for institution building which could hardly have been achieved even through reinforced components as political instability prevailed\. This objective, however, is being pursued under the follow up Third Highway Project\. Each component is well justified with a current global 15% rate of return estimate, despite considerable cost overruns\. The $2 million overrun due to technical problems on the Godomey Dike could most likely have been avoided if the consultants had identified the problems early; but remaining cost increases were beyond project control\. The Parakou-Malanville road is probably underdesigned with a 6m pavement width, given the increase in number and size \.of vehicles above estimates and the question also remains whether a crushed-stone base would have been better, more so in view of the eventual need of widening the road\. - 37 - TABLE 1 BENIN Traffic and Transit Trade at the Port of Cotonou 1977 (tons) Destination/Origin Imports Export Total General Cargo - Petroleum Benin 433,043 117,136 67,620 617,799 Niger 137,482 70,636 5,788 213,906 Nigeria 213,286 - - 213,286 Mali - 1,636 - 1,636 TOTAL 783,811 189,408 73,408 1,046,627 Source: Port of Cotonou Authority, 1978 - 38 - TABLE 2 BENIN Highway Network, 1979 - 80 (kilometers) Roads Paved Laterite Earth Total A\. Maintained by DRB 883 2,473 1,532 4,893 1\. Interstate 7911/ 1,342 - 2,133 2\. National 97 1,131 - 1,228 3\. Secondary and feeder roads - - 1,532 1,532 B\. Maintained by Min\. of Interior and by local authorities - - 2,317 2,317 1\. Feeder roads and tracks - - 2\.017 2,017 2\. Urban roads - - 300 300 TOTAL 888 2\.473 3,849 7,210 1/ Includes Bohicon-Dassa-Zoume-Savalou (119 Km) to be completed in 1980 and the new Nigeria road Source: Directorate of Roads and Bridges, and Mission Data April 1979 - 39 - TABLE 3 BENIN Bids Received (CFAF) Bid 1 Bid 2 Bid 3 Contractor: Fougerolle/Colas Razel/Grun & Billfinger Socigt6 des Grands (France) France/Germany Travaux de 1'Est (SGTE) Lot 1 Two sections of the Godomey- Bohicon road (17 km) 230,885,984 304,175,839 289,179\.720 Lots 2 & 3 Parakou-Sori road (148\.1 km) 1,609,553,763 1,611,632,883 1,637,797,296 Total Construc- tion 1,840,439,747 1,915,808,722 1,926,977,016 Housing 1/ 91,526,680 78,447,500 39,009,600 TOTAL 1,931,966,427 1,994,256,222 1,965,986,616 1/ The cost of housing was not evaluated\. Sources: Letter from Government dated November 17, 1973 (Bids 1 & 2) Contract 20/74 - Bid 3\. - 40 - TABLE 4 BENTN Road Maintenance Expenditures, 1970-1978 (Million CFAF) 1970 1971 1972 1973 1974 1975 1976 1977 Expenditures for Road Maintenance 228 401 479 402 401 404 468 445 Source : Directorate of Roads and Bridges BENIN Credit 415-DA, Second Highway Project Project Completion Report Project Costs Appraisal Estimated Final Cost 2/ %Us) (US$O0C) 1/ (US$'00) CFAF Millions % % Cost IDA USAID GOVT TOTAL IDA USAID GOVT TOTAL IDA USAID GOVT TOTAL IDA F\.E Overrun 1\. Civil Works Lot 1 Cotonou-Bohicon Road (17 km) 1,662 - 202 1,864 2,805 - 347 3,152 671 - 83 754 89 74 69 Lots 2 & 3 Parakou-Sorri Road (148 km) 7,944 - 967 8,911 10,705 - 1,323 12,028 2,560 - 316 2,876 89 77 35 Lot 4 Sorri-Malanville Road (169 km) - 8,000 - 8,000 - 12,000 430 12,430 - 2,870 103 2,973 0 75 55 Sub-Total Civil Works 9,606 8,000 1,169 18,775 13,510 12,000 2,100 27,610 3,231 2,870 502 6,603 2\. Supervision Lots 1 - 4 1,237 - 83 1,320 2,030 - 130 2,160 486 - 31 517 94 76 64 3\. Consultants Services for Road Maintenance 667 - 68 735 759 - 76 835 180 - 20 200 90 90 14 4\. Construction Materials and Equipment 254 - 7 261 450 - 14 464 108 - 3 111 97 97 78 T,,n Pro,,,t Cmst I I 766 81000 1,327 2110111 16 769 12 1Z 101 42, \. Total without US Aid Project 13,091 18,639 4,458 90 81 42 1/ Appraisal Rate of Exchange - $1\.0 - CFAF 230 2/ AhNumed Avernge Ratce of Exchange - $1\.0 - CFAF 239\.2 - FFR4\.18 DM2\.35 \. CAN$1\.07 3/ Includes $256,000 subcontracts for pave' trief and new water main - 42 - TABLE 6 BENIN Credit 415-DA, Second Highway Project Schedule of Disbursements ACCUMULATED DISBURSEMENTS DISBURSEMENTS US$'000 EQUIVALENT AS A PERCENTAGE OF IBRD I APPRAISAL ACTUAL (UP TO FISCAL ESTIMATED OR LATEST SEMESTER) AND YEAR AND ACTUAL TOTAL APPRAISAL INEW ESTIMATE FOR FUTURE SEMESTER DISBURSEMENTS ESTIMATE SEMESTERS (1-2)x100 or (4-2)xlO 1974 1st 2nd 2,300 1975 1st 2,400 4,750 51 2nd 4,300 6,600 65 1976 1st 4,775 8,800 53 2nd 8,272 10,500 79 1977 1st 10,672 11,375 91 2nd 14,200 11,800 128 1978 1st 16,000 136 2nd 16,304 138 1979 1st 16,304 138 2nd 16,530 141 1980 1st 16,900 1 Closing Dates: 12/31/79 11/30/76 1/ includes $310,000 for shoulder maintenance brigade\. - 43 - TABLE 7 BENIN Average Daily Traffic A\. Parakou-Malanville Road Type of Vehicles 1973 1974 1975 1976 1977 Passenger cars and minibus 43 43 61 42 54 Pick-up trucks 21 29 40 39 61 Trucks 2-10 tons 26 36 54 49 68 Trucks exceeding 10 tons and tractor trailers 51 46 68 58 67 141 154 223 188 250 B\. Two Sections of Cotonou-Bohicon Road Godomey Section 1974 1975 1976 Passenger car and pick-ups 1,789 1,024 918 Light trucks 665 489 583 Medium trucks (2-10 t) 569 346 451 Heavy trucks, tractors trailers 53 37 74 Total 3,076 1,896 2,026 Sehoue Section Passenger cars and pick-ups 365 413 301 Light trucks 151 179 45 Medium trucks (2-10 t) 200 134 58 Heavy trucks, tractors trailers 20 38 21 Total 736 764 425 Source: Directorate of Roads and Bridges (1978) Note: Counts represent average of two traffic counts\. Traffic on the Parakou-Malanville road is counted at site traffic stations\. The swings in traffic 1975-76 on the Godomey section is due to traffic diversion during construction\. - 44 - TABLE 8 BENIN Vehile Operating Costs A\. Estimated at Appraisal 1/ CFAF per vehicle/km (at Paved road in good Gravel standard condition "with" road or paved road the project in Poor condition "without" the _______________ project Passenger car and light commercial vehicle 16\.4 23\.3 - 25\.5 Truck less than 10 tons 32\.4 51\.7 - 57\.4 Heavy truck and tanker 74\.8 125\.2 -139\.9 B\. Estimated at Re-evaluation at 1976 Prices Passenger car (Peugeot 500) 22\.80 33\.06 Pick-up truck (Peugeot 404) 23\.12 33\.52 Ten ton truck (Berliet) 94\.13 154\.37 Tractor-trailer (tractor with 24 ton trailer) 114\.76 198\.50 1/ Appraisal Report, Table 6, p\. 2\. Note: The medium truck size differs in the two sources of data\. -45 - TABLE 9 BENIN Cr\. 415-DA, Second Highway Project Re-evaluation of the Economic Rate of Return of Parakou-Malanville (318 km) and the two Sections of the Cotonou-Bohicon Road (17 km) 1976 prices - CFAF'000 i Parakou - Malanville (318 km) Two Sections Cotonou - Bohicon (17 km) Total Costs Savings in V\.0\.C\. Savings in V\.0\.C\. Total Costs Construction, Domestic Regional traffic Construction, Savings in V\.0\.C\. Supervision & Traffic Benin & Niger Supervision & Year Maintenance Maintenance 1975 2,426,831 - - 9 - - 0 - 324,395 - 0 - 76 695,895 284,139 1,003,773 90,675 70,287 77 2,147,648 809,008 1,334,805 286,698 89,197 78 771,719 852,418 1,404,215 103,104 94,477 79 152,640 899,775 1,484,303 8,256 99,044 80 152,640 947,131 1,564,391 8,256 104,325 81 152,640 994,488 1,644,480 8,256 110,604 82 152,640 1,049,737 1,735,247 8,256 116,884 83 152,640 1,104,986 1,831,352 8,256 123,020 84 699,600 1,172,075 1,938,137 8,256 129,300 85 152,640 1,235,217 2,044,921 8,256 136,436 86 152,640 1,302,305 2,151,706 37,840 144,428 87 152,640 1,353,608 2,237,133 8,256 150,136 88 152,640 1,404,911 2,322,561 8,256 155,987 89 152,640 1,456,214 2,407,988 8,256 161,696 90 152,640 1,507,517 2,493,416 8,256 168,975 91 152,640 1,574,606 2,605,539 8,256 176,253 92 699,600 1,677,2,2 2,712,324 37,840 183,389 93 152,640 1,704,836 2,819,108 8,256 190,667 94 152,640 1,767,978 2,925,893 8,256 197,803 95 152,640 1,846,906 3,054,034 8,256 205,081 96 152,640 1,925,833 3,lo2,ii\.) 8,256 213,787 Economic Rate of Return: Parakou-Malanville: Domestic traffic = 15\.65% Regional traffic = 29\.95% 2 Sections of the Cotonou-Bohicon Rd: = 14\.75% Total Project: = 15\.35% NOTES: Construction costs are distributed according to rate of disbursements as follows: 41% in 1975, 10% in 1976, 36% in 1977 ana 13% in 1978\. Supervision costs by Consultants is attributed 90% to the Parakou-Malanville road and 10% to the two sections of the Cotonou-Bohicon road\. Routine maintenance cost is estimated at CFAF 480,000/km\. No routine maintenance cost is included for the first year after completion of construction, as this cost is covered by the contractor\. The cost of single surface bituminous treatment every 8th year is estimated at CFAF 2\.2 million per km\. - 46 - November 1981 ADDENDUM TO PROJECT COMPLETION REPORT BENIN SECOND HIGHWAY PROJECT (CREDIT 415-DA) I\. Introduction 1\.01 A PCR for this project was circulated on August 31, 1979, which stated that though the main components were complete, there remained a sur- plus of about $4 million and that disbursement was still continuing for equipment procurement\. This addendum brings the PCR up to date\. II\. Parakou-Malanville Road 2\.01 This road has continued to perform well, except for the shoulder maintenance problem caused by the narrow pavement (PCR,para\. 3\.10)\. Traffic has exceeded estimates\. Due to data availability actual traffic figures for two counting stations representing two sections on the road 1/ have been used from 1976 to 1981 and projected for later years using the same growth rates as in the PCR\. The recent traffic data do not allow differentiation between benefits accrueing to Benin and to Niger so the 60 : 40 split has been assumed as before\. The rate of return has been re-estimated using the same basic data and assumptions as used in the PCR except for the mod- ified actual traffic data\. Some other minor modifications were also made which may have contributed to the moderate reduction in the ERR presented in the PCR 2/\. The re-estimated rates of return are 28% for Section 1, 23% for Section 2 and 24% for the road as a whole\. The returns to Benin only were 18%, 13% and 14% respectively\. The traffic counts do not permit an accurate determination of generated versus normal traffic growth\. However, if for sensitivity purposes one assumes that 50% of the estimated VOC savings were from generated traffic, thus reducing the annual benefits by 25%, then the overall ERR would be 18%\. Revised tables 7 and 9 for the Parakou-Malanville road are attached\. 1/ The sections are Parakou - N'Dali (60 km) and N'Dali - Malanville (259 km)\. In the re-estimation data from one counting station on each section was used rather than an average of six stations for the road as a whole in the PCR\. This change was necessary due to the limited number of stations for which 1981 data were available\. 2/ A lower unit VOC saving for the 2 - 10 ton trucks was used (the average of a pick-up truck and a 10 ton truck instead of a 10 ton truck) and only 50% of the potential VOC savings were considered for 1976, since only part of the road was ready\. - 47 - III\. Two Sections of the Cotonou-Bohicon Road 3\.01 The southern section (Godomey Dike) is still in acceptable condi- tion and the geotechnical problem that was so troublesome during construction appears to have been solved (PCR, paras\. 3\.14-3\.19)\. However, the northern section, Sghoug-Zakpo (17 km) is now showing distress - deformation and edge cracking - as a result of foundation settlement\. Ground conditions over much of this road are similar - large thicknesses of poorly consolidated alluvial deposits - and the two sections reconstructed under this project were those showing serious deterioration in 1972\. Subsequently the problem showed up in other areas, which are being reconstructed under the Third Highway Project\. Funds permitting, the Sehoug-Zakpo section will be repaired under this project\. Traffic on these sections has been affected by construction on the rest of the road, but there is no reason to doubt that the work remains justified; the rate of return has not been re-estimated\. IV\. Use of Surplus Funds 4\.01 The First Feeder Roads Project (Cr\. 717-BEN) experienced large cost overruns and it was decided to prepare a follow-up project as soon as possible\. However, it was necessary to finance the technical assistance team from when funds were to run out until the new credit became effective\. In reply to a memo from RVP dated March 20, 1980, Mr\. Stern agreed to the use of surplus 415-DA funds for this purpose, and by September 1, 1981, approximately $890,000 had been disbursed\. The second feeder roads credit (Cr\. 1090-BEN) was signed on January 14, 1981, and no further disbursements under this heading are expected\. V\. Financial Situation 5,01 Disbursement is now complete for procurement of the shoulder maintenance equipment and technical assistance to the feeder roads project\. The USAID-financed contractor has dropped his claim for interest on late payments\. 5\.02 The total amount disbursed at September 1, 1981 was $17\.744 million leaving a balance of $3\.056 million which will be cancelled\. A revised table 5 is attached which shows the latest disbursement position\. BENIN TABLE 5 a Tsed 09\.22\.81 Credit 415-DA, Second Highway Project Project Completion Report Project Costs Appraisal Estimated Final Cost 2/ %/US$ (US$'000) 1/ (US$'000) CFAF Millions % % Cost IDA USAID GOVT TOTAL IDA USAID GOVT TOTAL IDA USAID GOVT T(7TAL IDA F\.E Overrun 1\. Civil Works Lot 1 Cotonou-Bohicon Road (17 km) 1,662 - 202 1,864 2,905 - 359 3,264 695 - 86 781 89 74 69 Lots 2 & 3 Parakou-Sorri Road (148 km) 7,944 - 967 8,911 10,807 - 1,336 12,143 2,585 - 320 2,905 89 77 35 Lot 4 Sorri- Malanville Road (169km) - 8,000 - 8,000 - 12,000 430 12,430 - 2,870 103 2,973 0 75 55 Sub-Total Civil Works 9,606 8,000 1,169 18,775 13;712 12,000 2,125 27,837 3,280 2,870 508 6,659 - - - 2\. Supervision Lots 1 - 4 1,237 - 83 1,320 2,026 - 129 2,155 485 - 31 516 94 76 64 3\. Consultants Services for Road Maintenance 667 - 68 735 758 - 76 834 181 - 20 201 90 90 14 4\. Construction Materials and Equipment 254 - 7 261 359 - 11 370 86 - 3 89 97 97 78 5\. Technical Assistance to Feeder Roads - - - 889 - 99 988 213 - \.24 237 - - - Project Total Project Cost 11,764 8,000 1,327 21,091 17,744 12,000 2,440 32,184 4,245 2,870 587 7,702 55\.9 72\.7 47 Total without US AID Project - - - 13,091 19,754 4,729 90 81 42 1/ Appraisal Rate of Exchange - $1\.0 CFAF 230 2/ Assumed Average Rates of Exchange - $1\.0 = CFAF 239\.2 FFR4\.78 = DM2\.35 = CAN$1\.07 - 49 - TABLE 7 (partial) as revised 10\.14\.81 BENIN Cr\. 415-DA - Second Highway Project Average Daily Traffic Parakou-Malanville Road Section 1 Type of vehicle Section 1 Parakou-N'Dali 1/ 1976 1977 1978 1979 3/ 1980 3/ 1981 Passenger cars and minibus 57 57 68 95 133 186 Pick-up trucks 49 49 75 98 127 165 Trucks 2 - 10 tons 59 59 51 67 88 115 Trucks exceeding 10 tons and tractor trailers 44 48 78 94 114 138 209 213 4/ 272 354 462 604 Section 2 N'Dali-Malanville 2/ Passenger cars and minibus 54 54 27 43 70 113 Pick-up trucks 89 89 52 59 66 75 Trucks 2 - 10 tons 68 68 43 42 41 40 Trucks exceeding 10 tons and tractor trailers 80 80 75 84 94 106 291 291 4/ 197 228 271 334 1/ Using counts at Tamarou 2/ Using counts at Guessou Sud 3/ Interpolation between 1978 and 1981 counts 4/ The average traffic for the road indicated in the PCR on the basis of six counting stations was 250vpd\. - 50 - TABLE 9 (partial) as revised 10\.14\.81 BENIN Cr\. 415-DA, Second Highway Project Re-evaluation of the Economic Rate of Return of Parakou-Malanville Road (1976 prices - CFAF'OOO) Construction and Maintenance Costs VOC Saving I Section 1 Section 2 Total Section 1 Section 2 Total Parakou- N'Dali- N'Dali Malanville 1975 456,458 1,970,373 2,426,831 -- -- 76 130,898 564,997 695,895 77,454 493,645 571,099 77 403,973 1,743,675 2,147,648 154,908 987,289 1,142,197 78 145,160 626,559 771,719 212,708 807,029 1,019,737 79 28,712 123,928 152,640 265,009 897,779 1,162,778 80 28,172 123,928 152,640 332,122 1,007,137 1,339,259 81 28,172 123,928 152,640 416,349 1,149,865 1,566,214 82 28,172 123,928 152,640 437,166 1,207,358 1,644,524 83 28,172 123,928 152,640 459,025 1,267,726 1,726,751 84 131,595 568,005 699,600 481,976 1,331,112 1,813,008 85 28,712 123,928 152,640 506,075 1,397,668 1,903,743 86 28,712 123,928 152,640 531,379 1,467,551 1,998,930 8' 28,712 123,928 152,640 552,634 1,526,253 2,078,887 E 28,712 123,928 152,640 574,739 1,587,303 2,162,042 89 28,712 1235928 152,640 597,729 1,650,795 2,248,524 90 28,712 123,928 152,640 621,638 1,716,827 2,338,465 91 28,712 123,928 152,640 646,504 1,785,499 2,432,003 92 131,595 568,005 699,600 672,360 1,856,920 2,529,280 93 28,712 123,928 152,640 699,260 1,931,197 2,630,457 94 28,712 123,928 152,640 727,230 2,008,445 2,735,675 95 28,712 123,928 152,640 756,320 2,088,782 2,845,102 96 28,712 123,928 152,640 786,570 2,172,334 2,958,904 Economic Rate of Return Section 1 Section 2 Combined Domestic traffic 1) 18% 13% 14% Regional traffic 1) 28% 23% 24% 1)Assuming 60\.5 of benefits relates to domestic Benin traffic as in PCR BENIN SECOND HIGHWAY PROJECT TRANSPORTATION SYSTEM prr\. N I G ER - 0 T1-- -LAV LE GS Dehon 8 r AAV ¯- ROAe - WOR \. - - AN AE OD IHA NEAC N ssN zi mO C -D I - ----- - E N R I L A ADNISRA TION RALWAS ¯ \.DSRC DNE 15- DA)K0 * EART AROADS SEONC2> H LHAPOEC NCEAAJNA S\.RTPAVEOAD _ISRABTTO N T ARAOCKS CPCIR * EOVAT -f-4--,-j A,L0AS 100 5\. TIS O 2OK

APPROVAL

P004218

C%CU'LAUNG DOPY TO BE RETURNED TO REPORTS ISK CONFIDENTIAL TO REPOTS DESKReport No\.796-MA MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT COMPLETION REPORT June 15, 1975 This report was prepared at the reouest of the Government of Malaysia\.The views and recommendations contained in the report are those of the authors rather than those of the World Bank Group\. The Government of Malaysia and the authors are responsible for the release and distribution of the report\.  CURRENCY EQUIVALENTS US$1\.00 = Ringgit (M$) 2\.30 /a M$1\.00 ' US$0\.43 US$1 million = M$2,300,000 M$1 million = US$435,000 WEIGHTS AND MEASURES (METRIC SYSTEM) /b 1 meter (m) = 3\.28 feet (ft) 1 kilometer (km) = 0\.62 miles 1 hectare (ha) = 2\.47 acres (ac) 1 litre (1) = 0\.264 gallons 1 cubic meter per second = 35\.3 ft3/s (cusec) (m3/s) 1 ton = 1,000 kilogram (kg) 2,205 pounds NOTATION Less than half the smallest unit shown - Nil or negligible Not available separately but included in total Not available Not applicable e Mission estimate /a Approximate exchange rate in early-1975 and also used for future currency conversions\. Exchange rates for past years are given in Annex 1\. /b The metric system is used for the convenience of readers, even though most previous project documentation, uses- the Imperial system\. Malaysia is in the process of converting to the metric system\.  ABBREVIATIONS AA Agricultural Assistant BPM Bank Pertanian Malaysia (Agricultural Bank of Malaysia) cif Cost, Insurance and Freight DID Drainage and irrigation Division of the Ministry of Agri- culture and Rural Development (Federal); Drainage and Irriga- tion Department (State)\. DOA Division of Agriculture of the Ministry of Agriculture and Rural Development (Federal); Department of Agriculture (State)\. FA Farmers' Association FAO Food and Agriculture Organization of the United Nations FOA Farmers' Organization Authority fob Free on board JAA Junior Agricultural Assistant KADA Kemubu Agricultural Development Authority LCC Local Credit Center LPN Lembaga Padi dan Beras Negara (National Paddy and Rice Authority) MADA Muda Agricultural Development Authority MARDI Malaysian Agricultural Research and Development Institute MTC Malaysian Tobacco Company NTB National Tobacco Board pH A measure of acidity O&M Operation and Maintenance SAU Small Agricultural Unit SOGREAH Socidtd Grenobloise d'Etudes et d'Applications Hydrauliques GLOSSARY Gotong royong - Cooperative effort Kampong - Village Sungei (Sg) - River FISCAL YEAR January 1 - December 31   MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Completion Report TABLE OF CONTENTS Pzage No\. SUMMARY AND CONCLUSIONS \. \. \. \. \. \. \. \. \. \. *\. \. i - iii I\. INTRODUCTION \. 1 The Project Area 1 Project Preparation\.p\.a\.* t \. \.* \. 1 II\. THE PROJECT \.* \.*2 Construction History 3 Performance of Consultants and Contractors 3 Operation and Maintenance \. 4 Present Problems \. 4 III\. AGRICULTURAL DEVELOPMENT 5 \. \. 5 Cropping Pattern, Yield and Production 5 Agricultural Supporting Services \. 6 Processing and Marketing 8 IV\. ECONOMIC ANALYSIS AND FARM INCOME \. 9 Economic Analysis \. 9 Farm Income \. 10 V\. ORGANIZATION AND MANAGEMENT \. 10 VI\. COST RECOVERY \. 11 VII\. FUTURE IMPROVEMENTS \. \. \. \. 12 Improvements in Physical Facilities \.12 Improvements in Agricultural Supporting Services 12 Improvements in Organizational Arrangements \. 13 VIII\. LESSONS LEARNED \. \. \. \. 14 This report is based on the findings of a project completion mission composed of Messrs\. P\.W\. Whitford (IBRD), R\.H\. Slade (FAO) and P\. Judd (Consultant)\. Mr\. J\. Goldberg assisted in the preparation of the report\.  - 2 - ANNEXES 1\. Basic Data 2\. Project Works 3\. Agriculture 4\. Organization and Management 5\. Economic Analysis MAP 1737 Kemubu Irrigation Project  MALAYSIA LOAN 500-HA: KEMUBU IRRIGATION; PROJECT Completion Report SUMMARY AND CONCLUSIONS i\. The Kemubu Irrigation Project is located in Kelantan on the northeast coast of Peninsular Malaysia\. The project area is densely populated and the average farm size is small (1\.2 ha)\. Paddy is the staple crop, with rubber and tobacco being grown on the higher grotnd\. ii\. In line with its policy of attaining self-sufficiency in rice production mainly through the construction of irrigation systems to serve traditional rainfed paddy areas, the Government engaged consultants between 1961 and 1965 to prepare the Kemubu Project\. The project was appraised in February, 1966 and a Loan, for US$10\.0 million equivalent, was signed in June, 1967\. iii\. The project works consist of a diesel pumping station on the Kelantan River, a canal system to serve 19,000 ha, drainage and flood control works,'and ancillary facilities\. Quaternary canals, which serve units of about 20 ha, were originally intended to be constructed by the farmers\. When this was found to be impracticable, quaternaries for about 40% of the area were added to the Government works\. iv\. The primary objective of the project was to achieve double cropping of paddy in the area\. There was less attention, at appraisal and subsequently, to yields, crops other than paddy, or the appropriate level of on-farm development\. Physical construction of the project was completed only slightly behind schedule and the first irrigation water was delivered in late-1971\. An extension of the closing date was necessary to complete the quaternary canals\. v\. The final project cost was M$66 million (US$1,160/ha), 27% above the appraisal estimate\. Cost overruns were due to additional works and to underestimates at appraisal of land acquisition and supervision costs\. vi\. The performance of the consultants (SOGREAH) appears to have been very satisfactory\. Except for some poor work early in the main\. canal contract, the performance of contractors appears to have been reasonably' satisfactory\. vii\. The standard of project operation and maintenance is good but the cost is high (US$52/ha), due to rapidly rising dieseline prices\. The'Kemubu Pumping Station is unable to deliver its full design discharge and suffers from'frequent breakdowns\. The system efficiency is low but steps are being taken to improve this through rotational irrigation\. The major remaining physical problems are the need for flood mitigation on about 2,000  - ii - ha of low-lying lands and the need for further investment in on-farm development, to improve water control so as to reduce operating costs and to permit higher yields and more diversified cropping\. viii\. The rate of increase of cropped area was more rapid than forecast at appraisal and now stands at 185% but it is u,likely to reach the target of 200% without further investment\. Yields have increased at the forecast annual rate but the values assumed for pre-project yields in the appraisal report were much higher than actual levels for that period\. Paddy production has grown from 24,000 tons in 1967 to 77,000 in 1974 and, by 1980, is expected to reach 98,000 tons, with a net value of production of M$27 million in constant 1974 currency values\. The ex-post economic rate of return is 10\.5%, compared with 13% estimated at appraisal\. The shortfall in the rate of return is due to the fact that the anticipated yield increases which have been achieved have been only partially due to the project itself\. Project benefits have been largely confined to the facilitation of double-cropping\. ix\. Except for credit, the appraisal report made little mention of agricultural supporting services\. Ilowever, considerable progress has been made, especially since the formation of five Farmers' Associations in the area, which serve as centers for all extension, credit and farmer training activities\. Institutional credit now serves about 12% of the farmers and the repayment record is very good\. However, both extension and credit services suffer from a lack of suitably trained field workers\. x\. The link between research and extension remains weak and there is an urgent need to set up a task force to study some of the problems of soil fertility and high-income crops, with a view to improving the income potential of the area\. Even with the project, farm incomes remain low by Malaysian standards, especially for sharecroppers\. Their position would be markedly improved by the enforcement of the Padi Cultivators Act, which is intended to limit rents and require registration of tenancy agreements\. As almost all of the project beneficiaries were below the national lower 40-percentile income level before the project, the social rate of return must have been considerably higher than the (unweighted) economic rate of return\. xi\. Even though no provision was made at the outset for the co- ordination of engineering and agricultural supporting services, this was rectified by the Government first by appointing a Project Coordinator and later by establishing the Kemubu Agricultural Development Authority, a semi-autonomous agency with responsibility for operating and improving the irrigation system and supplying extension, credit and other services to the farmers\. The achievements of the Authority have been hampered by a shortage of well-qualified staff\.  xii\. lalaysia has carried out its obligations under the Loan Agree- ment with due diligence, except in the mattcr of cost recovery\. None of the measures agreed to by Malaysia and the State of Kelantan, for the collection of water charges, an increased land tax and a special tax on landlords, has yet been carried out\. In response to questions raised by the Bank, the Government has taken the position that no further action should be taken on cost recovery on the grounds that farm incomes remain low, even with the project\. Iiowever, in view of the rapidly escalating project operating costs and the wide disparity between the incomes of owners and tenants, it is recoimmended that the question of cost recovery and the enforcement of the Padi\. Cultivators Act again be discussed between the Bank and Malaysian authorities\. xiii\. The major improvements required in physical facilities, flood mitigation and on-farm development, will each require some years of study\. However, some short term improvement, such as further quaternary, andl quinary canal construction and the dredging of river mouths, may be appropriate\. Long-term solutions to water control will depend on the development of comprehensive plans for each irrigation-block, beginning with the areas of most productive soil, and it is recommcnded that this be carried out on a pilot scale by the Water Management Center proposed to be set up in the area\. The main need in agriculture is to resolve the conflicts between research and extension workers and initiate a unified approach to the major soil and cropping problems, to expand the present extension and credit services to cover all the farmers in the project area and to establish farmer groups at the grass-roots level to operate the minor irrigation works and to act as points of contact for the extension services\. xiv\. Despite an inadequate level of project preparation by present day standards, the Kemubu Project is largely fulfilling the expectations of its planners\. Mluch credit for this is due to the Government's flexible attitude and initiatives taken in project\. organization\. A low economic rate of return is, probably inherent in this type of project but it could well be that the strongly positive income distributional benefits of the project would have outweighed this disadvantage if it were being appraised in the light of present day knowledge\.   MALAYSIA LOAN 500-MA: KEMUBU IRRIGATIOU PROJECT Completion Report I\. INTRODUCTION 1\.01 Now that the construction phase of the Kemubu Irrigation Project is complete, it is appropriate to evaluate the extent to which expectations and objectives at the time the loan was made have been, or show promise of being, achieved\. It is also useful to record how the problems which arose during project implementation were dealt with and what lessons may be applied to other projects in Malaysia and elsewhere in the East Asia Region\. For these reasons, a project completion mission, consisting of ,Messrs\. P\. W\. Whitford (IaBRD) R\. H\. Slade (FAO) and P\. Judd (Consultant) visited Malaysia between November 18 and December 7, 1974\. The Prolect Area 1\.02 The Kemubu Irrigation Project is located in the State of Kelantan in the northeast of Peninsular Malaysia, about 650 km from Kuala Lumpur (Map 1737)\. The project area occupies an alluvial plain between the Kelantan River and the sea and is close to Kota Bharu, the capital of Kelantan\. The Kelantan Plain is densely populated and there are 22,000 farm families in the project area\. The farm size distribution is narrow, with 85% of the farms (accounting for a similar percentage of the area) having between 0\.4 and 2\.0 ha of paddy land\. The average farm has 0\.9 ha of paddy and 0\.3 ha of other crops, mainly rubber\. Rubber is grown and villages are situated on strips of higher ground interspersed with the lower-lying paddy areas\. Tobacco is being grown to an increasing extent in Kelantan but mainly in rainfed areas outside the project area\. Proiect Preparation 1\.03 Since about 1900, it has been Government policy to provide, wherever possible, irrigation and drainage to existing paddy areas, primarily to insure the main-season crop against losses and secondarily to permit double cropping, where suitable perennial water supplies could be provided\. By the early 1960's, rice imports were imposing a serious strain on Malaysia's balance of payments and the Government decided 'to embark gn the large-scale Muda and Kemubu Projects as a means of achiLeving self-sufficiency in rice\. World Bank assistance was sought for both projects\. 1\.04 In 1961, Sir William Halcrow and Partners (UK) made a preliminary study of the Kemubu proposal and recommended a project rather similar to that which was eventually constructed\. The Drainage and Irrigation Division (DID) of the Ministry of Agriculture and Cooperatives then engaged  French consultants, Socie'te" Grenobloise d'Etudes et d'Applications Hydrauliques (SOGREAlI), to undertake further studies of the project and to prepare final designs\. This work, which was confined purely to engineering matters, was completed in 1965\. 1\.05 Following a brief pre-appraisal in 1965, the Bank appraised the project in February, 1966\. Loan negotiations, however, were not held until a year later, owing to a decision by DID to use diesel rather than electric power for the Kemubu Pumping Station\. The major topics at negotiations were cost recovery (para 6\.01) and agricultural credit\. The loan, of US$10 million equivalent, was approved by the Executive Directors on June 13, 1967 and was signed on June 15, 1967\. II\. THE PROJECT 2\.01 Basic data on the project is given in Annex 1 and a more detailed description of the engineering components is included in Annex 2\. The major project works included: The Kemubu Pumping Station, with five 7 m3/s diesel driven pumps; a canal system to serve 19,000 ha; a drainage system; a flood protection levee; three diversion dams; booster pumps; operation and maintenance equipment and buildings\. The project cost was estimated at US$18\.5 million, including US$1\.3 million for interest during construction, with a foreign exchange component of US$10\.0 (54%), which was financed by the loan\. 2\.02 At the time of appraisal, the Bank and the Government saw the project mainly as a means of achieving full double cropping of paddy in the project area\. Consequently, only secondary attention was given to potential yield increases and there was little consideration of crops other than paddy, or of the appropriate level of on-farm development\. The appraisal report gave adequate attention to engineering matters, except for some rather doubtful calculations of water requirements\. It also examined the consequences for the distribution of income result- ing from the land tenure situation, as half the paddy land in the project area is sharecropped\. The appraisal report was perhaps ahead of its time in the detail of its cost recovery proposals, including a special tax on landlords\. After much negotiation, these charges, which would have implied a cost recovery index of 30%, were accepted by the State of Kelantan (Annex 2)\. 2\.03 On the other hand, the appraisal report said little about the agricultural potential of the area, the probability and extent of flooding, the role of crops other than paddy, farmers organizations or the need to coordinate engineering and agricultural services\.  -3- Construction History 2\.04 Project construction was projected to take slightly under three years and this target was missed by only two months, for the major works\. The first dry-season cropping took place in 1972 rather than 1971, as envisaged at appraisal\. However, the Loan closing date was extended by 18 months, mainly to allow the completion of the quaternary canals\. At appraisal it was thought that these ditches would be dug by the farmers themselves\. Later this was recognized as infeasible, as these canals are fairly large and require engineering design and purchased rights of way\. Therefore construction was carried out by "rural works contracts" with the village heads\. About 410 quaternaries were constructed, each serving about 20 ha, but they cover only 40% of the project area\. A number of changes were introduced into the design of the distribution system which tended to lower project costs or improve performance\. The most important of these were the elimination of most of the originally proposed canal lining and the elimination of the Danan and Seligi Heiadworks (diversion dams)\. 2\.05 The final project cost was M$66 million (US$1,160/ha) an increase of 27% over the appraisal estimate of M$52 million\. Cost overruns resulted from extra works added to the project (para 2\.04) and to underestimates of land acquisition and supervision costs at appraisal\. The physical contingency allowance was reasonable and omission of price contingencies from the appraisal cost estimate was justified by events as inflation in Malaysia was negligible during the construction period\. Disbursements for civil works were originally intended to be based on direct foreign expenditures by contractors\. However, the civil works contracts were all won by Malaysian firms having their own equipment and thus direct foreign expenditures were quite small\. The disbursement procedure was then changed to a percentage of total costs, representing the total foreign exchange component\. Performance of Consultants and Contractors 2\.06 SOGREAH was responsible for project planning, detailed design and construction supervision\. Their performance appears to have been very satisfactory\. Although their planning of the project can be held partly responsible for the faults listed in paras 2\.02 and 2\.03, these short- comings were partly compensated for by a design which is sufficiently flexible to allow future improvements to be made\. In the construction phase, the consultant appears to have been alert to design improvements and cost savings\. The performance of the major contractors appears to have been reasonably satisfactory, the only complaints being directed to Kien Huat Co\. Ltd\., the canal and drainage contractor, which inadequately supervised its workmen in the early stages\.  -4- Operation and Maintenance 2\.07 Operation and maintenance (O&) of the project facilities is good on the whole\. M'loderately serious problems have occurred at the Kemubu Pumping Station in obtaining the full design discharge and in obtaining spare parts, following rather frequent breakdowns of the equip- ment\. These have led to late and interrupted water deliveries and have reduced agricultural benefits\. DID is discussing these problems with the pump manufacturers\. There is also a need to resurface (and possibly upgrade) some of the O&M roads, which are open to light public traffic\. 2\.08 The cost of engineering O&M in 1974 for the Kemubu Area was US$52/ha, compared to an appraisal estimate of US$30/ha\. This steep increase is largely due to the rapid rise in dieseline prices and, con- sequently, the project engineers are examining ways to increase water use efficiency and thus reduce pumping costs\. System efficiency (under continuous irrigation) appears to be 30-40% at present, leaving much room for improvement, even without on-farm development\. KADA plans to introduce rotational irrigation in 1975\. As well as reducing pumping costs, rotational irrigation should reduce the peak load on the pumps and thus lessen the frequency of breakdowns\. Present Problems 2\.09 There are two areas in which major technical deficiencies are hampering the full realization of benefits from the project: Flooding and on-farm development\. Flooding from the Kemasin and Semarak Rivers remains a major problem for about 2,200 ha of the project area\. These problems were anticipated but perhaps underestimated at appraisal\. As farmers in the flood-prone areas regularly lose their main-season crop, the ability to grow an off-season crop little more than restores their previous income\. Possible solutions to this problem are discussed in para 7\.03\. 2\.10 The need for further investment in on-farm development, in order to lower 0 & M and production costs and to improve yields, has already been recognized by KADA\. The first step in this direction was the quaternary canal program described in para 2\.04\. In addition, quinary channels along the lot boundaries have been constructed in some areas through cooperative effort by the villagers, supervised by KADA staff\. However, these improvements cover less than 500 ha\. Another ongoing program of more dubious merit is the concrete-lining of the existing quaternary canals to reduce maintenance costs\. At US$500/ha, this program would be impossible to justify economically\.  III\. AGRICULTURAL DEVELOPMENT Cropping Pattern, Yield and Production 3\.01 The rate of increase of cropped area has been more rapid than forecast at appraisal but it is unlikely that the overall cropping intensity will exceed 185% without further infrastructural investment, compared with the 200% originally forecast for the sixth year after project completion\. Yields have increased at about the rate estimated at appraisal (about 0\.1 ton/ha/yr) but the absolute pre-project yield assumed at appraisal (2\.19 ton/ha) was much higher than actual recorded levels for 1965-7 (1\.23 ton/ha)\. Similarly, the 1980 average yield for both soil types and seasons is now projected to be 2\.8 ton/ha, rather than the 3\.4 ton/ha estimated at appraisal\. The appraisal yield estimates appear to have been based on data transferred from elsewhere in Malaysia\. The appraisal estimates also did not take into account the low-lying "problem" soils, which account for 10% of the irrigable area, or the fact that crop cutting results are generally about 10% above actual farm yields\. As these lower yields apply equally to the without project situation, the effect on the project rate of return (para 4\.03) is only moderate but they do have serious implications for farm income (para 4\.04)\. Further details are given in Annex 3\. 3\.02 Paddy production has grown from 24,000 (40,500) 1/ tons in 1967 to 77,000 in 1974 and is estimated to increase further to 98,000 (117,500) tons by 1980\. The net value of production 2/ in 1974 constant prices is estimated to have increased from M$11\.0 million in 1967 to a projected M$29\.4 million in 1980\. 3\.03 The above conclusions are based on crop cutting tests for past years and mission estimates for the future\. While the yield sampling methods have some deficiencies and require adjustment to harvest conditions (Annex 3) they are much more accurate than those used in most Southeast Asian countries\. Measures of cropped area, however, are much less; reliable but could be improved by using remote sensing\. In addition, the estimate of the area affected by low-lying problem soils should be treated with caution\. 3\.04 It is valid to ask: To what extent have yield, increases under the project been due to high-yielding varieties rather than irrigation? Such varieties now,\.account for 50% of the main-season crop and virtually all of the off-season crop\. While it is probably true that the project 1/ Figures in parentheses are appraisal estimates\. 2/ Including tobacco grown in the project area\. Paddy production is evaluated on the basis of cif rice prices\.  - 6 - would not have been feasible without the development of short-duration, non-photosensitive varieties, such varieties would have given little benefit without the improved water control and fertilizer delivery system introduced under the project which made double-cropping possible\. Such varieties were only very newly-developed at the time of appraisal\. Agricultural Supporting Services 3\.05 The appraisal report recognized the need for improvements in each of the major supporting services: research, extension, credit and marketing; and such improvements were included in the Project Description in the Loan Agreement (Annex 1)\. However, the covenants and supplementary letter on these subjects were rather vaguely worded and actual developments have gone beyond what was envisaged at appraisal, mainly because of the establishment of Farmers' Associations\. 3\.06 Research - Research was originally the responsibility of the Federal Division of Agriculture (DOA) and Kelantan operations were based at the Lundang Experimental Station\. In 1971, the Malaysian Agricultural Research and Development Institute (MARDI) took over responsibility for research and the major research stations but not field stations such as Lundang\. Due to poor planning when MARDI was established, clashes between MARDI and DOA personnel and disputes over the ownership of facilities continue to this day\. These problems are recognized at the higher levels of Government and there are signs that they are being solved\. Furthermore, MARDI's Rice Research Program and the Agricultural Engineering and Water Management Research Program, which will be created by the recently approved Research and Extension Project (Loan 1115-MA), are expected to assist in alleviating these disputes\. 3*07 At present MARDI has no field station in Kelantan and, instead, does experimental trials on farmers' fields, an unsatisfactory procedure for basic research because of the lack of control\. Meanwhile, DOA retains the Lundang Station for seed production, training and demonstra- tion\. The station has little capacity for dry-season cropping and thus for upland crop development\. Due to a lack of field-level coordination, research results concerning fertility problems are not being applied and the DOA continues to recommend a single standard NPK fertilizer dosage and liming of low-lying problem soils, even though MARDI has shown these treatments to be of doubtful merit\. The mission strongly recommends that, as a first step, a standardized NP basal mix should be introduced\. 3\.08 Extension - Originally the responsibility of the State DOA, extension in the project area is now provided mainly by the Farmers' Associations (FA's) (para 3\.09), with training and subject matter support (in crop production, plant protection, etc\.) available from the State DOA\. The number of field-level extension workers is too few and their training is inadequate, especially in advising on water management and plant protection\. There are numerous unfilled vacancies and the time of the Junior Agricultural Assistants (JAA's) attached to the FA's, even that of the Assistant specifically charged with extension, is largely  output in JAA's from the Agricultural Institutes, it should not be difficult to fill the present vacancies, free more staff for pure extension activities and give them in-service training in some of the more specialized aspects of irrigated rice production\. All this could be done at a relatively low cost, compared with the cost of infrastructural improvements\. 3\.09 Farmers' Associations - Under an Act passed in 1967, FA's were established in 1972 and 1973 in the Kemubu Project Area\. Five FA's serve Kemubu with an additional four in the other pumped irrigation areas under KADA's jurisdiction\. FA's have since been established in non-paddy areas and it is the Government's policy to establish them in all areas of smallholder agriculture\. 3\.10 The concept of an FA was derived from experience in Taiwan and from the book "Getting Agriculture Moving" by Dr\. A\. T\. Mosher of the Agricultural Development Center in New York\. The objective is to have self-governing, self-financing organizations controlled by the farmers in each locality, which would provide credit, inputs, market services and extension advice to their members\. However, the Government has recognized that it is not possible to realize all these objectives simultaneously and thus it has retained a good deal of control over the FA's and sub- sidizes them, mainly by paying the salaries of the FA staff through the KADA budget\. The standard complement of staff is an Agricultural Assist- ant, as Manager, and four or five JAA's in charge of administration, accounting, credit, marketing and extension\. 3\.11 About 30% of the project area farmers are FA members and an additional 20% belong to cooperatives, which are largely concerned with rice milling and marketing\. The FA's have concentrated on the supply of credit and have performed well in this role (para 3\.14)\. However, they must use staff primarily trained in agriculture for their business opera- tions, which are thus somewhat inefficient, while at the same time agricultural extension is neglected (para 3\.08)\. 3\.12 Government policy is to bring all FA's and cooperatives together under Farmers' Organizations\. A Farmers' Organization Authority (FOA) has been set up to direct and coordinate the new bodies\. The FOA, rather than KADA, would then pay the FA staff\. It is planned to complete this transition by June, 1975 for Kemubu\. The advantages of this move would be the elimination of competition and duplication of effort between the FA's and the Cooperatives, giving a single source for each service in each area, and the strengthening of cooperative management\. Disadvantages include the severing of the formal link between the FA's and KADA, the danger of excessive emphasis on commercial activities at the expense of extension, and a greater centralization of control over the FA's rather than the decentralization (eventually to the farmers themselves) envisaged when the FA's were established\. The Ministry of Agriculture and Rural Devel- opment, which now supervises the FOA, is aware of these problems and is seriously reviewing the roles to be played by the various agencies serving agriculture\.  -8- 3\.13 Credit - Following a request from the Government, the Bank sent a mission to Malaysia in December, 1966 to evaluate the size and nature of agricultural credit needs in Peninsular Malaysia, with special reference to the Muda and Kemubu Projects\. The mission found that the main credit need was for production credit in paddy areas and recommended a system whereby inputs would be supplied by local outlets, which would be reimbursed by a Central Authority\. As this report was still under review at the time of loan negotiations, the Kemubu Loan Agreement (Section 5\.11) contains only general wording on the provision of credit\. 3\.14 Assistance in designing and setting up the credit system was given by a team of consultants (Public Administration Services and Ohio State University, USA) in 1968 and 1969\. The Bank Pertanian Malaysia (BPM) was established as the Central Authority, while FA's, cooperatives and private dealers have been used as Local Credit Centers, which are responsible for screening applications, disbursing inputs and for loan recovery\. The Kemubu credit system began in 1970, on a pilot basis and, by 1974, was serving about 2,700 farmers, or 12% of the total\. Average seasonal credit for 1974 was M$0\.4 million\. The repayment record is good, with about 95% of the credit extended being ultimately recovered, though about 30% of repayments are late\. A good deal of follow up is required and full repayment is approached only after two or three seasons\. 3\.15 Credit is given at an interest rate of 8\.5% per annum and loans are normally unsecured\. Collection is the responsibility of the Local Credit Center and more stress is laid on repayments than on expanding the number of loans made\. The coupon system in use until recently led to delays of two to three months between the application for credit and its approval and thus the system lacked the flexibility of the traditional money lender\. A new system, whereby vouchers are issued directly by the LCC, has now been introduced but it is too early to comment on its effectiveness\. Expansion of the credit program is limited by the capacity of the in- adequately trained FA staff to handle it (para 3\.11) and also because of a deliberate policy of KADA and the BPM to lend only to the more credit- worthy farmers\. BPM and KADA need to address the problem of how to assist the smallest and most indebted farmers whose need for subsidized Government credit and the other FA services is the greatest\. Further details on the credit mechanism in the project area are given in Annex 3\. Processing and Marketing 3\.16 The appraisal mission wrote: "Government and Cooperative rice mills have been established in the area, but because of delayed payments from the new mills and complicated Government procedures, the farmer appears to prefer the private mills \. \. \. \. the marketing situation is complicated in the Kemubu area by \. \. \. the presence of several hundred small inefficient and illegal rice mills\." (Paras 4\.43 and 4\.44)\. This continues to be the case\. Further mills have been constructed in the public sector but these have continued to be underutilized, as the  -9- village rice mills ("illegal" but tolerated) proliferate\. Paddy drying after the off-season crop continues to be a problem, as the only drying facilities are at the large Government and Cooperative mills, remote from the farmer\. The mission did not attempt to analyze the Government's decision to continue expanding public sector milling capacity, despite the lack of demand\. IV\. ECONOMIC ANALYSIS AND FARM INCOME Economic Analysis 4\.01 The project rate of return was recalculated using actual construction and operating costs (including extension services and the cost of operating the FA's) and benefits based upon recorded yields and cif rice prices for the period 1967 to 1974 and mission yield projections and Bank world price projections to 1980\. The details are given in Annex 5\. Farm income analysis was based on actual and projected farmgate prices over the period\. The farmgate price is expected to decline in real terms by 1980, in line with Bank projections of world market prices\. 4\.02 All costs and benefits were evaluated in 1974 constant price terms (deflators used are listed in Annex 1) and, as far as possible, taxes and subsidies were eliminated\. All farm labor was evaluated at its marginal opportunity cost, by comparing the supply of and demand for Labor on a monthly basis\. Even assuming no growth in the rural population as a result of out-migration, there will be an ample labor supply for paddy cultivation in Kemubu for the foreseeable future\. An evaluation period of 33 years was used (up to the year 2000), with suitable assumptions for pump replacement and the salvage value of the project\. 4\.03 Under the above assumptions, the ex-post rate of return is 10\.5%, compared with 13% at appraisal\. The difference is due to many factors, including increased construction and operating costs (para 2\.05), lower yields than projected at appraisal (para 3\.01), the neglect of tobacco production (which has declined due to the project) and the costing of, family labor at zero at appraisal\. Most important has been the fact ithat most of the yield increases which have been achieved have been independent of either the infrastructure or organizational aspects of the projectt, so that project benefits have been largely confined to the facilitation of double-cropping\. The resulting rate of return shows that the project was marginal from the national economy viewpoint but the fact that the benefits accrued predominantly to one of the poorest groups in Malaysia (para 4\.05) indicates that the project's "social rate of return" would be much higher0  - 10 - Farm Income 4\.04 The net paddy income of the average project farmer has increased substantially, by 500 to 600%, as a result of the project\. However, there has probably been a decline in off-farm income (which means a benefit to the landless laborers) so that total family income has increased by 75% (to M$1,400) for a pure tenant (sharecropper) or 165% (to M$2,400) for an owner)\. Only the owner's income can be considered satisfactory in terms of the Government's objectives for rural development\. The position of tenants continues to be unsatisfactory, due to very high rents (75% of total costs of production)\. It is estimated that a tenant's 1980 income of M$1,400 would rise to M$2,100 if the provisions of the Padi Cultivators (Control of Rent and Security of Tenure) Act of 1967 were strictly enforced\. This Act is intended to limit rents and to require the registra- tion of tenancy agreements\. However, neither the State nor the Federal Government seems to have much interest in interfering with the status quo\. 4\.05 Under pre-project conditions about 97% of the project area families had incomes below the national 40-percentile level\. Although it is unlikely that the project has significantly improved income distri- bution within the project area, it is clear that its national impact is most progressive\. V\. ORGANIZATION AND MANAGEMENT 5\.01 There was very little consideration given at the project preparation and appraisal stages of the form that the project management should take or of the need to coordinate closely engineering planning with agricultural extension and credit\. The appraisal report envisaged that each agency would play its part independently but, in 1968, the Government recognized the weakness of this approach and appointed a generalist administrator Project Coordinator\. In 1973, the Kemubu Agricultural Development Authority (KADA) was set up as a semi-autonomous agency responsible for operating the irrigation system and supplying agricultural services to the farmers\. Further details are given in Annex 4\. 5\.02 Even though the management of Kemubu has outwardly developed along the same lines as Muda, the achievements have been smaller, both under the Project Coordinator and Project Authority forms of management\. These differences may be explained by the lower calibre of the personnel appointed to Kemubu, the persistently high vacancy rate among senior staff and the number of senior staff holding joint appointments\. These deficiencies have been largely due to political factors (Annex 4) and there is some evidence that the imbalance is being redressed\. Another inherent problem is the small size of KADA - it is responsible for an irrigated area only one-third that of Muda - and its consequent in- ability to offer a wide range of specialized services or to develop  - 11 - planning capability\. This could perhaps be offset by including in KADA's jurisdiction the rainfed areas of the Kelantan Plain or by making KADA responsible for the proposed North Kelantan Project\. 5\.03 KADA's staffing level (662 for 1975) and operating budget (M$3\.6 million for 1974 or US$69/ha) are higher than for comparable projects in Asia, but the inherent high cost of pumping water for paddy cultivation and the ambitious targets of the FA's must be borne in mind\. The forma- tion and growth of the FA's, described in para 3\.09, has been one of the significant achievements of the project\. VI\. COST RECOVERY 6\.01 In a supplementary letter, dated July 24, 1967, the State of Kelantan agreed to impose a water rate of M$15/ac (M$39\.50/ha) to cover part of the O&M cost of the system, to create a special category of land which could be double cropped because of the project, to fix the quit rent (land tax) for this category of land so as to recover the remaining O&M costs and as much as practicable of the capital cost of the project (with the proviso that other taxes might be substituted for this) and to take steps to ensure that tenant-cultivators were not deprived of a substantial portion of the project benefits\. None of these undertakings have been carried out\. The quit rent for irrigated land was raised to M$3/ac (M$7\.41/ha) in 1970 and cannot be raised again until 1985, accord- ing to the Constitution\. No special category of double-cropped land has been created\. It is proposed to impose at some future time a water charge of M$10/ac (M$24\.70/ha) on double-cropped land but there is no definite date for this\. No steps have been taken to enforce the Padi Cultivators Act, which lays down maximum rents and procedures for regis- tering tenancy agreements, so as to reduce the burden on sharecroppers (para 4\.04)\. 6\.02 These shortcomings were first pointed out by the 1973 super- vision mission and a letter, dated November 1, 1973, asked the Malaysian Treasury what action it intended to take for both the Kemubu and Muda Projects\. A reply, dated February 4, 1974, was received which stated, in part, "we are satisfied with the progress made so far \. there are certain prevailing factors that make it impossible up to now for the authorities to levy the full water charges\. The benefit of irrigatioin, for instance, has not spread to all parts of the project area\. In I addition, the existence of patches of land prevent the smooth and even flow of water \. \. \. the income of the farmers is still below the expected projected level \. most of the farm units are \. below economic size\. \. While the income of the farmers have not substantially increased, the current price increases have \. aggravated the situation \. \. \. In view of the foregoing, the Treasury considers it satisfactory the water charges so far levied and collected by the State authorities\." The reply dealt mainly with Muda and did not address the problem of tenancy which is crucial in Kemubu\.  - 12 - 6\.03 No further action was taken by the Bank on this matter, on the grounds -that farm incomes remain low, even with the project\. However, in view of the rapidly escalating project operating costs (para 2\.08) and the findings of this report on the disparities between the incomes of owners and tenants (para 4\.04), it is recommended that the question of cost recovery and enforcement of the Padi Cultivators Act again be discussed between the Bank and the Malaysian authorities\. VII\. FUTURE IMPROVEMENTS Improvements in Physical Facilities 7\.01 The major infrastructural improvements needed in the Kemubu Area are on-farm development and flood mitigation\. The optimum form of on-farm development for Kemubu - the provision of ditches, drains and roads to serve individual farms together with possible land levelling and boundary realignment - is far from clear and could only be determined by a con- certed, interdisciplinary effort in research and pilot studies\. In the short term, consideration should be given to increasing the number of earthen quaternaries, discontinuing the lining program, encouraging the construction of quinaries and minor drainage by cooperative effort, and providing additional roads\. 7\.02 Over the longer term, development should proceed on the basis of a comprehensive plan for each quaternary block, which could be implemented in stages\. Development should be directed at the Class II soil areas, which have the best potential for productivity gains\. Ways of involving the farmers in the planning, construction and financing of on-farm works should be sought\. The research and pilot projects needed to begin such a program could logically be undertaken by the Water Management Center, which DID (with Japanese assistance) proposes to set up in the Kemubu area\. 7\.03 Solutions to flooding along the Kemasin and Semarak Rivers (para 2\.09) are being studied in a general way by DID but not with much urgency\. Detailed studies would take some years and laboratory facilities will not become available until 1976\. There is some doubt as to whether an economic solution exists\. In the short term, it might be useful to try dredging the river mouths prior to the monsoon season, in order to allow flood waters to escape more quickly\. Improvements in Agricultural Supporting Services 7\.04 A more complete summary of needed improvements in agricultural services is given at the end of the Annex 3\. The existing seed distribu- tion, credit and extension programs are reaching only about one-third of the project area farmers\. Improvements in these services, particularly the extension service, could lead to substantial yield increases at low cost\.  - 13 - Extension workers should devote particular attention to water iuanagement and plant protection and may require some specialized training in these areas\. On the better-drained Class II soils, upland crops (particularly tobacco) could increase farm incomes, if the necessary infrastructural improvements were also made\. 7\.05 The staff of the FA's require further training in business, so that the volume of production credit might be increased and more staff released for extension work\. Alternatively, a new cadre of "Junior com- mercial assistants" might be recruited, to handle the business activities of the FA's\. More formal links should be established between the FA's and the DOA specialists at Lundang\. The costs and benefits of establishing Farmers' Organizations and the optimal role of the FOA should be further assesed before the FA's are removed from KADA's jurisdiction\. 7\.06 Soil-fertility problems and off-season crops urgently require sustained attention and consideration should be given to establishing a joint task force composed of MARDI, DOA and KADA personnel, with full access to the facilities of each organization, with the object of finding and implementing solutions\. Priority should be given to these problems in allocating the resources to be made available to MARDI under the proposed Bank-assisted Research and Extension Project\. An interim NP basal mix fertilizer should be recommended, as a matter of urgency\. Improvements in Organizational Arrangements 7\.07 A considerable improvement in KADA's effectiveness might be expected if the presently vacant senior posts were filled with dedicated and experienced staff\. The potential role of KADA as an area development agency should be examined on its own merits, rather than considering it as a "younger brother" of MADA and having the same potential\. 7\.08 With any program of on-farm development, and even before such development, will come the need for farmers' organizations at the grass- roots level\. Possibly the Small Agricultural Units, which constitute the FA's could be modified so as to be based on irrigation service units\. These farmers' groups would then be responsible for O&M of the on-farm works and would provide a point of contact for extension, seed distribution and other services\. The elected leaders of these groups would receive some basic agricultural training and possibly a small cash allowance for their services in organizing the group and passing on extension advice\. Maximum use should be made of gotong royong in constructing and maintaining minor works;  - 14 - VIII\. LESSONS LEARNED 8\.01 It is instructive to note that, despite a level of project pre- paration and appraisal that would fall far short of present day standards, the Kemubu Project was successfully and expeditiously constructed and is largely fulfilling the expectations of its planners\. This outcome was largely brought about by the flexibility shown by the project management and higher levels of Government in developing project coordination and establishing farmers' organizations and a credit system\. Progress might well have been much slower in a country with a more rigid and less able bureaucratic system, unresponsive to initiative and tied to conventional methods of administration\. This is not to suggest that a Project Authority is the only solution for irrigation project management but merely to point out that decentralized decision making and an equal emphaEis on engineering and agricultural services is needed if full project benefits are to be obtained\. 8\.02 A low economic rate of return is probably inherent in this type of project - a low-efficiency pumping scheme with a rather high capital cost for a high water using crop\. This indicates that greater attention should have been paid during project preparation to the cropping potential of the Kemubu area and the degree to which it is limited by soil fertility and flooding\. On the other hand, conventional economic evaluation says nothing about the effect of the project on the national income distribution, which, for Kemubu, was a very positive benefit\. In all likelihood, the project would have been favorably considered, even if its (unweighted) ex post rate of return of 10\.5% had been realized at appraisal, because nearly all its beneficiaries were in the national lower 40-percentile income group\.  ANNEX 1 Page l MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Basic Data Borrower: Malaysia Implementing Agency: (original) Drainage and Irrigation Division of the Ministry of Agriculture and Cooperatives (now Ministry of Agriculture and Rural Development); (later) Kemubu Agricultural Development Authority (KADA)\. Amount of Loan: US$10\.0 million equivalent\. Date of Loan Signing: June 15, 1967\. Date of Loan Effectiveness: October 31, 1967\. Closing Date - Original: June 30, 1972\. - Final : December 31, 1973\. Completion of Disbursement: January 21, 1974\. Terms of Loan: Repayment over 25 years, including a five-year grace period, with interest at 6% per annum and a commitment charge of 0\.375% per annum on the undisbursed balance\. Amortization: Forty-one semi-annual payments, starting August 1, 1972 at US$125,000 equivalent and ending August 1, 1992 at US$425,000 equivalent\. Exchange Rates and Price Deflators: Year Exchange Rate /a Domestic Price Deflator (M$ to US$1\.00) (1974 - 1\.000) 1965 3\.06 1\.354 1966 3\.08 1\.349 1967 3\.07 1\.341 1968 3\.08 1\.331 1969 3\.09 1\.341 1970 3\.08 1\.320 1971 2\.90 1\.300 1972 2\.80 1\.270 1973 2\.43 1\.145 1974 2\.35 1\.000 /a Average actual exchange rates reported by the Bank Negara Malaysia\. Conversions in the Appraisal Report and other project documents in the period 1965-1970 are normally made at the nominal exchange rate of M$3\.00 = US$1\.00\.  ANNEX 1 Page 2 Project Description from the Loan Agreement 1\. The purpose of the Project is so to increase irrigation capacity in the State of Kelantan in northeastern Malaysia that an area of about 47,000 acres (19,000 ha) 1/ can be double-cropped\. 2\. The principal works to be constructed as part of the Project are: A\. Three diversion dams, one on each of the three rivers: the Seligi, the Danan and the Ketereh; 2/ B\. Kemubu pumping plant consisting of five automatic diesel engine driven pump units, each with a hydraulic capacity of 250 cusecs (7 m3/s); C\. 1) Kelantan Canal and the Limbat Canal to serve land lying between the Kelantan River and the Ketereh River; 2) South Canal to serve land in the southeastern portion of the Project; 3) Peringat-Banggu Canal to serve the interior and north- eastern portion of the Project Area; D\. Distribution system of secondary, tertiary and quarternary canals 3/ to deliver water to each irrigation unit; E\. Project drainage system for the removal of excess rainfall and irrigation water; F\. Flood protection dikes on right bank of the Kelantan River and along the South Canal; and G\. Operation and maintenance headquarters and staff housing\. 3\. The Project includes the purchase, installation and utilization of equipment for repair and maintenance operations and also the employment of consultants\. 1/ Metric equivalents added\. 2/ The Seligi and Danan dams were later deleted\. 3/ It was originally intended that quaternary canals would be constructed by the farmers but they were later added to the Government works\.  ANNEX 1 Page 3 4\. The Project also includes: A\. The provision to farmers of technical, extension and credit services to assist them in the effective use of the irrigation water; and B\. The continued operation of the present experimental and demonstration farm units working on new varieties and alternative crops in the irrigated area\. Key Documents 1\. "Kemubu Irrigation Scheme: Report on the Supply of Irrigation Water from the River Kelantan for Double Crop Rice Cultivation," Sir William Halcrow & Partners, November 1961\. 2\. "Kemubu Irrigation Scheme: Supplementary Note to the Report," Sir William Halerow & Partners, July, 1962\. 3\. "Kemubu Irrigation Scheme: Engineering Report," SOGREAH, December, 1964\. 4\. IBRD Appraisal Report No\. TO-578a, "Kemubu Irrigation Project, Malaysia," March 3, 1967\. 5\. IBRD President's Report No\. P-549, May 29, 1967\. 6\. Loan Agreement (500-MA) between Malaysia and IBRD, June 15, 1967\. 7\. Supplementary Letters between Malaysia and IBRD dated June 15, 1967: External Debt List of Goods Operating Policies, Agricultural Credit and Technical Services Consulting Services and Procurement 8\. Supplementary letters between Kelantan and Malaysia dated July 24, 1967: Water Charges, Land Taxes and Tenancy Rates Extension Services 9\. S\. Selvadurai, Ani bin Arope and Nik Hassani bin Mohammad, "Socio- Economic Study of Padi Farms in the Kemubu Area of Kelantan, 1968," Ministry of Agriculture and Cooperatives, October 1969\.  ANNEX 1 Page 4 List of Supervision Missions No\. Year Mission Members Mission Dates Report Date 1\. 1968 H\.T\. Chang, B\.G\. Davis March 5-15 May 10 2\. 1969 H\.T\. Chang, B\.G\. Davis March 31 - April 11 May 14 3\. 1970 L\.W\. Bartsch, H\.T\. Chang March 3-14 May 19 4\. 1971 L\.W\. Bartsch, IH\.T\. Chang March 6-17 April 29 5\. 1972 J\.C\. Douglass, P\.Peperzak April 24-May 7 June 28 6\. 1973 H\.J\. Tennent, P\.W\. Whitford, July 9-19 October 29 A\.S\. Cheema 7\. 1974 P\.W\. Whitford, R\.H\. Slade (FAO), November 18- Present P\. Judd (Consultant) December 7 Report  ANNEX 2 Page 1 MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Project Works ProJect Preparation 1\. The Kemubu Irrigation Project is located in the State of Kelantan in the northeast of Peninsular Malaysia, about 650 km from Kuala Lumpur (Map 1737)\. It is at about 6*N latitude and occupies part of the alluvial Kelantan Plain (70,000 ha) and is intersected by several small rivers\. The project area (19,000 ha of paddy land) is about 27 km wide, the eastern edge being close and parallel to the South China Sea\. A range of hills forms the southern boundary and the Kelantan River, which has a drainage area of 13,000 km2, delineates the northwestern boundary\. The project area produces about half of Kelantan's rice output\. Kota Bharu, the capital of Kelantan, is about 10 km north of the project area\. 2\. It has long been Government policy to assist paddy smallholders by providing, wherever possible, irrigation and drainage to upgrade existing paddy areas, primarily to insure the main season crop against losses and secondarily to permit double cropping, where suitable year-round water supplies could be provided\. Until the 1960's, such projects were generally small and were planned and executed by the Drainage and Irri- gation Departments (DID's) of the States\. 3\. By the early 1960's, rice production in Malaysia had begun to lag seriously behind consumption and imports were imposing an increasing strain on the balance of payments\. Therefore, the Government began to consider the large-scale investments needed to approach self-sufficiency in rice\. Among the larger and more complex of these schemes were the Muda and Kemubu Projects, for which World Bank assistance was sought\. 4\. The conception of the Kemubu Project was based on several smaller pumped irrigation schemes which had been constructed and operated with reasonable success in the 1950's in Kelantan and elsewhere\. In 1961, Sir William Halcrow & Partners (UK), were asked to undertake a preliminary study of the Kemubu proposal, concurrently with their studies for the Muda Project\. Both studies were financed by the United Kingdom, through the Crown Agents\. Halcrow's report, dated November 30, 1961, was confined strictly to the technical feasibility of the project, with no discussion of agricultural potential, farm incomes or economic justiLfica- tion\. There was, however, an analysis of the relative unit costs for  AN4NEX 2 Page 2 various sub-areas within the project and a priority ranking\. Technically, the Halcrow proposals are very similar to the project as finally con- structed, the main differences being the use of diesel rather than electrically driven pumps and the addition of tertiary and quaternary canals\. The report is mainly devoted to water availability, power sources for pumping and flooding problems\. 5\. A supplementary note was produced by Sir William Halcrow & Partners in July 1962, giving further details on the system operation, the construction schedule and drawings of typical structures\. These reports were submitted to the Bank in 1962 and commented upon favorably\. 6\. The next step appears to have been the engagement of Socie'te Grenobloise d'Etudes et d'Applications Hydrauliques (SOGREAH, France) to undertake further studies of the project and to prepare final designs and contract documents\. It is not clear from Bank records whether this contract was financed by the Government or through French bilateral assis- tance\. 7\. SOGREAH began working in May 1963 and produced a summary report describing the general features of the project in December 1964\. Detailed designs and specifications were completed by May 1965\. The project described in the summary report is generally similar to the Halcrow pro- posal but with some refinement of the topographic and hydrologic data\. The report is again confined strictly to engineering concerns\. Water demands were based on "instructions from DID" rather than the consultants' own judgement\. Although it was assumed that the system would be operated for continuous irrigation, the consultants decided to build in flexibility, by constructing the main system on "relatively modern lines", that is, with sufficient hydraulic capacity and control structures to permit - rotational irrigation, if required\. SOGREAH did not consider that flooding along the Sg\. Kemasin would be a serious problem\. The project cost was estimated at US$13 million at this stage\. Appraisal and Negotiations 8\. A brief visit was made to the project area by the Bank appraisal mission for the Muda Irrigation Project in February-March, 1965\. Some economic analysis was prepared by the Government for this mission\. On September 17, 1965, a formal request was made to the Bank for financing of the project\. An appraisal mission, consisting of Messrs\. T\. Threlkeld, J\. Willems (Bank), J\. Guillard (FAO) and J\.C\. Douglass (then a consultant), visited Malaysia between February 6 and 27, 1966\. 9\. Negotiations, which were scheduled for June, 1966 were postponed due to a last-minute decision by the Government to substitute diesel for electric power at the Kemubu Pumping Station\. This decision followed  ANNEX 2 Page 3 DID's inability to negotiate a satisfactory tariff with the National Electricity Board\. There were also discussions within the Bank as to whether the loan should finance any local currency (this was not agreed to by the Loan Committee) and the position which should be taken on agricultural credit, as Mr\. Takahashi was undertaking a survey mission on credit at about the same time (late-1966)\. Negotiations were eventually held between February 20 and 24, 1967\. 10\. There was considerable discussion at negotiations on the covenants and supplementary letters concerning cost recovery and agricul- tural credit (Sections 5\.09, 5\.10 and 5\.11 of the Loan Agreement and Sup- plementary Letters 3 and 4)\. The Malaysian Government was reluctant to commit itself to specific levels and deadlines\. The Loan, of US$10 million equivalent, was approved by the Executive Directors on June 13, 1967 and was signed on June 15, 1967\. ProJect Features and Objectives at Appraisal 11\. The project works envisaged at appraisal included the Kemubu Pumping Station, with five 7 m3/s (250 cusec) diesel-driven pumps; a network of primary, secondary and tertiary canals to serve 19,000 ha (47,000 ac); a drainage system, including the improvement of river channels; a flood protection levee along the Kelantan River; booster pumps to serve 800 ha (2,000 ac) above the South Canal; three diversion dams (headworks) to divert additional water into the system; equipment for operation and maintenance (0&M); and miscellaneous buildings\. About 3,200 ha of the project area was previously irrigated by pumping and small- scale diversions\. Only about 500 ha was irrigated in the off season\. The project description also included quaternary canals (which, it was assumed, would be constructed by the farmers themselves), the provision of technical, extension and credit services to the farmers and the continued operation of experimental and demonstration farm units "on new varieties and alternative crops\." However, no provision was made, either in the allocation of the proceeds of the Loan or in the project cost estimate, for financing quaternary canals or agricultural supporting services\. Funds were provided for consultants to design and supervise the construc- tion of the project works\. The cost estimate at appraisal is shown in Table 1\. T2\. The Bank loan was intended to finance the estimated direct foreign exchange requirements of the project, that is, actual expenditures for imported materials and equipment and consultant services\. The original allocation of the proceeds is shown in Table 2\. 13\. In appraising the project, the Bank and the Government saw it mainly as a means of achieving full double-cropping in the project area\. Consequently, only secondary attention was given to potential yield increases and there was little consideration of crops other than paddy, or of the most appropriate level of on-farm development\. The Government,  ANNEX 2 Page 4 and to some extent the Bank, have continued to measure the progress of the project in terms of the narrow double-cropping objective\. However, in the last two years, it has become clear that paddy growing alone is unlikely to provide acceptable incomes, owing to the small farm sizes in the project area (Annex 4)\. On the other hand, the appraisal report was perhaps ahead of its time in giving considerable emphasis to the problem of land tenure (para 4\.40 of the Appraisal Report) and the need for improved research (para 5\.08), extension (para 5\.10) and agricultural credit (para 5\.14)\. Progress in these areas is discussed in Annex 3\. 14\. The Appraisal Report included a detailed discussion of the appro- priate levels of water charges and recommended a level of M$37/ha (M$15/ac) and an increase in the land tax for double-cropped irrigated land to M$62/ha (M$25/ac), to capture part of the benefits to landlords\. These charges, which would have implied a cost recovery index of about 30%, were accepted in principal by the State of Kelantan in a supplementa- ry letter\. The magnitude of the increased land tax was not specifically agreed to\. Progress in cost recovery is discussed in para 6\.01\. Construction History 15\. The Loan became effective on October 31, 1967, some delay being occasioned by the finalization of the contract with SOGREAH, the consult- tants selected for construction supervision\. Construction began in September, 1968 with the aim of commissioning the project in July, 1971\. Table 3 shows the contracts awarded and their amounts\. The construction target was very nearly met, the canal and drainage system and pumping station being practically complete by August 1971, when two pumps (out of five) were in operation\. All pumps were installed by January, 1972 in time for the 1972 dry season\. The appraisal report envisaged the beginning of double cropping in 1971 but this estimate apparently made no allowance for the delays in Board presentation (para 9) and effective- ness\. 16\. Full completion of the project was not reached until the end of 1973, due to various touching up and finishing activities and to the addition to the project (in 1970) of 410 quaternary canals\. As paddy areas in Kemubu are interspersed with higher ground where rubber is grown and villages are situated, quaternary canals are needed in much of the project area to lead water from the tertiary canal outlets across or around the higher ground to reach the paddy fields\. At appraisal, it was thought that these ditches would be dug by the farmers themselves with minimal help from the Government\. Later this was recognized as in- feasible, as farmers were generally unwilling to give up valuable rubber or orchard land without compensation and were unable to organize them- selves to do the work by communal labor\. While there was never any very vigorous effort by the Government to organize the farmers for this work, experience in other countries indicates that efforts are rarely  ANNEX 2 Page 5 productive for works of this kind\. For the smaller ditches (quinaries) which run along plot boundaries, communal labor has been found to work (para 29)\. Beginning in 1970, rights of way for quaternary canals were purchased and designs prepared by the consultants\. Construction was carried out by the villagers through "rural works contracts" with the village heads, who were paid M$1\.50/yd3 of excavation\. Some structures were built by competitive tender\. 17\. A number of design changes were adopted in the course of the project which tended to lower project costs or improve performance\. It was anticipated at appraisal that frequent pockets of sandy soil would be encountered but this was apparently not the case and thus most of the expected concrete lining was eliminated\. It was found that the Danan and Seligi headworks would divert only a negligible amount of water in the dry season and thus could not be economically justified\. This required the re-design of the lower part of the South Canal and the three booster pump stations which serve 800 ha above the South Canal\. Two additional booster pump stations were added to the project to serve certain areas at lower cost than was possible by gravity\. 18\. Other design changes included the provision of roads suitable for light traffic on one bank of all major canals, additional road bridges, and modifications to reduce the costs of many of the structures\. The flood levees were raised in height to improve flood protection\. Project Cost and Disbursements 19\. The final project cost, exclusive of interest during construction and possible contractor's claims now under arbitration, was M$66 million (Table') comiparedkt-o t 5 Z millio-nat appraisal, an increase of 27%\. The cost increase is almost entirely accounted for by the addition of quater- nary canals, roads and bridges '(M$3\.4 million) and Farmers' Development Centers (Annex 3) (M$1\.3 million), and an underestimate at appraisal of land acquisition costs (by M$7\.5 million) and of supervision costs (by M$1\.6 million)\. Because of design changes, it is difficult to compare individual civil works items in Table 1\. However, the total cost of civil works was remarkably close to the original estimate, partly because there was almost no inflation in Malaysia during most of the construction period\. Therefore, the omission of price contingencies from the cost estimate was justified by events\. 20\. There was, however, a serious overestimate at appraisal of the direct foreign exchange element of the project cost\. Initially, disburse- ments for civil works were based on direct foreign exchange expenditures by the successful contractors\. In fact, Malaysian contractors won all the civil works contracts and used mainly equipment already in their possession\. Because of the resulting low rate of disbursements, the disbursement procedures was changed in 1968, to 37% of total civil works expenditures\. The reimbursement percentage was raised to 90% in 1972, to  ANNEX 2 Page 6 ensure that the loan was fully disbursed\. This experience illustrates the advantages of the Bank's present methodology of basing loan amounts and disbursements on the estimated direct plus indirect foreign exchange component\. The final disbursement allocation (Table 2) reflects the fact that O&M equipment procurement was not undertaken in accordance with the Bank's Guidelines and was therefore not eligible for disbursement\. Performance of Consultants and Contractors 21\. The performance of the consultant, Socie`te4 Grenobloise d'Etudes et d'Applications Hydrauliques (SOGREAH), appears to have been very satisfactory\. Although the project planning, for which SOGREAH was partly responsible, can be faulted for its lack of attention to cropping potential, farm economics and on-farm development (para 7), this was partly compensated by a design which is sufficiently flexible to allow improvements to be made in the operating system or in water distribution at the farm level with- out significant reconstruction of the main system\. In the construction phase, the consultant appears to have been alert to design improvements and cost savings and must be given credit for minimizing cost overruns (para 19)\. There is no record of criticism of the consultant's per- formance, either by Bank supervision missions or by DID\. 22\. The contractors9 performance appears to have been reasonably satisfactory, the only complaints being directed at Kien Huat Co\., Ltd\., the main civil works contractor\. This firm appears to have given too little engineering supervision to its workmen in the early period of the contract and consequently some of the work, particularly the concrete structures, were not up to standard and had to be demolished\. There were anonymous allegations of corruption concerning this contractor but these were never substantiated\. The performance of the main pump supplier (MAN, Germany) appears to have been satisfactory, the delays in pump installa- tion being entirely the result of transport delays within Malaysia\. How- ever, DID is presently experiencing serious difficulties in obtaining spare parts from the manufacturer\. Present Status 23\. Operation and maintenance (O&M) of the project facilities appears to be adequate\. There is a need for resurfacing (and possibly upgrading) some of the O&M roads, which are open to light public traffic\. Even though all the major canals were fenced under the project, cattle and buffaloes are seen in the canal reserves but do not appear to be creating a serious problem\. 24\. Moderately serious problems have been experienced at the Kemubu Pumping Station\. It has been found that the pumps are not capable of delivering their full design discharge when all pumps are in operation, owing to interference effects\. Solving this problem may require modifica- tions to the pump inlets or the problem may be avoided by improving water  ANNEX 2 Page 7 use efficiency (para 26) and thus reducing peak pumping demands\. Other problems include erosion of the pump impellers and long delivery times for spare parts\. Shortage of spare parts is causing unnecessarily pro- longed breakdown periods and consequently is affecting the availability of irrigation water, a sourcc\. of complaints from the farmers (Annex 3)\. DID is discussing ways of improving the delivery of spare parts with the manufacturer\. 25\. The cost of O&M for the Kemubu Area in 1974 was M$2\.3 million or US$52/ha, including all pumping costs and the salaries of supervisory personnel\. This may be compared with the appraisal estimate of US$30/ha (in 1974 prices)\. This difference reflects the rapid rise in dieseline prices in 1973/74 - from M$0\.16/l (M$0\.59/gallon) delivered to Kemubu in 1972 to M$0\.28/l in late-1974\. In the light of these costs, the KADA engineers are examining ways in which energy consumption could be reduced by improving water use efficiency\. Some preliminary studies have been done and KADA plans to introduce a system of rotational (intermittent) irrigation in the 1975 off season\. 26\. A rough calculation of actual water use efficiency has been made by the mission, using the appraisal report estimates of consumptive use (these must be regarded as very approximate but no empirical work is available), reasonable estimates of the degree of effectiveness of the recorded rainfalls, and actual volumes of water delivered by the pumping station\. For the year 1972/73 (off season plus main season) an overall system efficiency of 40% is obtained and, for 1973/74, a figure of 26% results\. As rainfall in the latter year was extremely irregular, the accuracy of the calculation is somewhat dubious and it may be reasonable to assume that system efficiency at present is 30-40%\. As conveyance efficiency (to the "outlet") has been measured at 85%, it is clear that heavy operational losses are occurring in delivering water to the fields, under present conditions of field-to-field flooding\. Seepage losses may also be important in the off-season, as the project area soils are more permeable than typical paddy soils\. 27\. The appraisal report calculation of water demand appears,to have been seriously in error, being based on a "typical year" (1958/59) rather than the average monthly rainfall (or rainfalls with a known probability of exceedence)\. In addition, 100% effectiveness of rainfall was assumed, which is too high for monsoonal conditions, and a system efficiency of 88% was used, which is far too high when field-to-field flooding is practised\. However, such water shortages as have occurred since the system was completed appear to have been due to equipment breakdowns\. On the whole, the chosen size of the pumping station appears to be about right for present conditions and it is possible that some excess capacity may develop if system efficiency can be improved\. The non-synchrohization of cropping that has developed in the area (Annex 3) is helping to reduce peak pumping demands and there are good possibilities for formalizing this through rotational irrigation (para 25)\. The assumptions made at appraisal  ANNEX 2 Page 8 in assessing water availability in the Kelantan River appear to have been validated by experience to date\. 28\. The program of quaternary canal construction (para 16) has only partly answered the need for on-farm development\. Only about 40% of the paddy land is served by quaternaries and, even where they exist, field to field flooding across a distance of up to 1 km is not uncommon\. It is likely that about 2,000 ha of the project area cannot be irrigated in the dry season because of water distribution problems (Annex 3)\. Conversely, much of the project area is subject to short-term flooding following heavy monsoon rains and thus small-scale drainage improvements are needed, particularly within the irrigation block\. 29\. These problems have been partly recognized\. In 1973, a program of quinary channels (known locally as "parit jari" or "finger channels") was begun, in order to improve water distribution in problem areas\. The ditches are laid out along the plot boundaries by KADA staff, without a comprehensive topographic survey but with some spot levels being taken to ensure a reasonable degree of command\. Construction is by "gotong royong" or cooperative effort, with 100 to 200 farmers being assembled by the village head to complete the job in a day or so\. KADA supervises the work and provides a meal to the farmers\. There is no compensation for the small right of way used\. Estimates of the number of such quinary channels constructed vary from 20 to 70 but the total area covered is small, cer- tainly less than 500 ha\. O&M of the quinaries will also be the responsi- bility of the villages but it is too early to assess how successful this will be\. 30\. Another ongoing program of more dubious merit is the concrete- lining of the existing quaternary canals\. So far, this has only been done in selected locations where severe maintenance problems were encountered, due to insufficient attention to cross-drainage and damage by cattle\. However, apart from the need for additional drainage structures, there appears to be no economic rationale for this program\. The cost of about M$42/m or US$520/ha served would be impossible to justify economically, and if extended to the whole project area, as KADA would like to do, would represent an outlay of nearly US$100 million for Kemubu alone\. It appears that the small amount of work to date has been financed out of surplus funds in the Kemubu capital account and thus the economic feasibility of quaternary lining has not been subject to rigorous scrutiny by the Ministry of Agriculture or the Economic Planning Unit\. 31\. Flooding remains a major problem in parts of the project area\. While construction of flood levees under the project has minimized the risk of overbank flooding from the Kelantan River, local problems remain on the smaller Kemasin and Semarak Rivers\. The respective areas subject to annual inundation are 2,000 ha and 250 ha, within the Kemubu Area, but there is also an additional 2,000 ha on the Semarak River outside the project area which is subject to annual flooding\.  ANNEX 2 Page 9 32\. This problem was anticipated in the various feasibility reports (paras 4 and 7) and was briefly referred to in the Appraisal Report (para 4,16)\. The tacit assumption seems to have been that farmers in these areas who lost their main-season crop would be compensated by a dry-season crop, as a result of the project\. SOGREAH also assumed that the flooding would normally be less than a week in duration and thus would not permanently damage the paddy crop\. However, these analyses may have overlooked the effects of the project on flooding conditions\. It appears that, prior to the project, damaging inundation occurred about one year in five\. In the three years since irrigation began, crop losses have occurred every year, presumably the result of runoff as a result of higher antecedent soil moisture in the irrigated areas at the onset of the monsoon\. Inundations of three to four weeks have oc- curred, which is sufficient to destroy the newly-transplanted paddy\. 33\. The basic reason for this problem is the long, tortuous courses which these rivers follow to the sea and the tendency for sandbars to be formed at their mouths during the dry season\. Under these conditions, the initial heavy monsoon rains cannot be drained efficiently\. Some possible solutions are examined in para 40\. Future Development Possibilities 34\. While the project has largely achieved its technical objectives and a marginally satisfactory economic rate of return has been obtained, farm incomes remain low by Malaysian standards (Annex 5), especially for those farms unfavorably situated with respect to the canal and drainage systems or in areas subject to flooding\. While these problems have been recognized by KADA and some steps are being taken to alleviate them (paras 28 and 29), approaches have been piecemeal and uncoordinated and are unlikely to lead to least-cost solutions which can be applied on a large scale\. 35\. Some of the infrastructural improvements needed to increase incomes will be discussed below, while improvements in agricultural techniques and supporting services will be described in Annex 3\. The major infrastructural improvements needed are on-farm development and flood mitigation\. 36\. The optimum form of on-farm development for Kemubu (that is, the provision of ditches, drains and roads to serve individual farms, together with land levelling or boundary realignment, if required, and improved agricultural services) is far from clear and could only be determined by a concerted, inter-disciplinary effort in research and pilot studies (para 39)\. It is important that planning proceed on the basis of a comprehensive plan for each quaternary block\. This would require detailed topographic, cadastral and land use information and a determination of the optimum layout of the infrastructural facilities\.  ANNEX 2 Page 10 While it may not be possible to implement the resulting plan in the immediate future, especially if it is thought that boundary realignment (which has not yet been attempted in Malaysia) would ultimately be required, it is important that short-term improvements (such as quinaries along the lot boundaries) be compatible with the ultimate development\. 37\. In the immediate future, consideration should be given to ex- tending earthen quaternaries to the 60% of the project area which does not have them and, in some cases, to relocating outlets to obtain better command\. The program of concrete lining should be discontinued, except in very specific circumstances where it can be justified\. The construction of quinaries by gotong royong should be encouraged but the planning of these should be improved\. Greater attention should be given to small- scale drainage, which may produce greater benefits than irrigation in this high rainfall area\. Consideration should also be given to providing farm to village roads and to extending or upgrading the existing village to market roads\. 38\. A method of financing on-farm works will have to be found, as the aggregate costs are likely to be fairly high\. Rural works contracts and gotong royong are obvious alternatives and consideration could be given to expanding the production credit system to cover land improvement works\. 39\. Responsibility for such a program of on-farm research and development would logically fall on KADA but this organization is still new and severely understaffed (Annex 4)\. A more productive approach, at least for the next few years, may be to do the necessary applied research an pilot projects through the Water Management Center, which DID proposes to set up in the Kemubu Area with Japanese assistance (see memorandum of January 8, 1975 to Mr\. Golan)\. The main functions of the Center would be the training of DID staff and extension workers in techniques of water management but it is intended that field stations attached to the Center would be used to study solutions to the water distribution problems of the Kemubu Project\. In order to do this effective- ly, it is essential that the Center be managed by (or have strong links to) KADA and MARDI, as well as DID\. 40\. Solutions to flooding in the Kemasin and Semarak Rivers are being studied in a general way by DID\. The problem of silting of the river mouths has been briefly surveyed by the DID Research Laboratory together with a consultant from the Delft HIydraulics Laboratory (Netherlands)\. Possible solutions suggested by them include: (a) Dredging the river mouths just before the onset of the monsoon;  ANNEX 2 Page 11 (b) Lowering the bed level and increasing the capacity of the Mentuan channel which bypasses a big loop of the Kemasin River; (c) Diverting part of the Kemasin flow to the Melawi River or the Peng Datu River\. Other solutions such as cutoff channels to the sea or the shortening or deepening of the rivers are not considered feasible\. 41\. Finding a feasible and cost-effective solution to this problem would take some years of careful study and there is some doubt as to whether any economically justifiable solution exists\. Data would have to be col- lected on topography, water levels, flows, tides, sediment, salinity and littoral drift\. Mathematical modelling, supplemented with physical modelling, would then be required to determine the feasibility of the proposals listed in para 40\. DID will shortly have the capacity for such studies, as their Coastal Research Laboratory, financed as part of Netherlands assistance to the Kuantan Fishing Port Project, will soon be available\. However, the Laboratory is fully committed until at least 1976\. In the short term, it might be useful to assess the costs and benefits of dredging the river mouths prior to the onset of the monsoon season on an experimental basis\.  A\3XTI'E 2 Table 1 MALAYSIA LOAN 500-MA: KEi'UBJ IR1LGATIO1T PkOJECT Cost Estimates Appraisal aieport Final Cost Estimate Item March 31, 1967 iid-1973 a/ rmi-------------M$ million---------------- Design - 1\.300 Land Acquisition 4\.149 11 a6oo Civil Works - Pumphouse 36500 1\.800 - Flood Protection Dikes 0\.401 o\.496 - Irrigation 28\.750 19*\.000 -Structures and misc\. b/ 10\. 383 - Quaternary canals and roads - 3\.367 - Drainage L\.302 9\.41 - Diversion Dams 1l\.754 0\.390 - Service to 800 ha c/ 1\.200 - - Building for 0&M b/ 0\.720 0\.900 - Farmers' Developnent Centers - - 1\.300 Equipment - Pumping stations 36500 2\.700 - Booster Pumps d - 0\.225 - O&M Equipment 0\.363 0\.480 Sub-total 48\.639 63\.355 Supervision of Construction 1\.300 2\.889 e/ Physical Contingency - 1\.750 _ Total Project Cost l 51\.689 66\.21d4 Equivalent in US$ million at exchange rate of M$3\.00 = US$ 1\.00 k2( 17\.230 22\.081 Interest During Construction 1\.286 1\.306 Grand Total (US$ million) 18\.516 23e387 a/ Cost of design by consultants in 1963 and 1964 not included in appraisal cost estimate\. b/ Not included in project at appraisal\. c/ Three pumpstations; civil works cost included under "irrigation"; pumps included under "equipment\." d/ Two of the five pumpstations not included in project at appraisal but later found to be least cost solution to serve certain areas\. e/ No price contingencies included\. / Does not include possible contractors' claims\. i Approximate exchange rate from 1963-1971, during which time the major part of expenditure took place\.  ANNEX 2 Table 2 IMALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Allocation of Loan Proceeds Allocation Category Orinal Final June 15,1967 January 21,197b 1\. Civil Works 7,626,o00 8,385,090\.31 a) Canals and Control Works 7,250,812\.86 b) Pumping Equipment \.1,13L,277\.45 2\. Operating and Maintenance Equipment 121,000 0 3\. Consulting Services 433,000 309,240\.14 4\. Interest and Other Charges during Construction 1,286,000 1,305,669\.55 5\. Unallocated 534\.000 0 Total 10,000,000 10,000,000\.00  LiS\.I\.~~~~~~~~~~~~~~~~ :1w: 500\.v -m'I: \._-rTh\.kTQ P::uJECT Lint c,f 0!±tr'\.tors Title ;'cnrtactor krnount2!/ Date Awarded !; octil\. 1\. 1 2 !';ivtil WN'Tor'ks Kien Hulat Co\. Ltd 52\.b Oct\. Th,1968 (Trrigation and 3rainage (Plalaysia) System) 3 Prrips and Engines \.-achinenfabrik Augsb:irg- 2\.2 Nov\. 18,19S8 (Kerluhbu Pumping Sty\.tion) ,'inberg Aktierigesellshaft (MAN) (C-ermany) L Kermubu Pumping Station Chong Soon Lee 2\.3 Jan0 20,15970 - 'ivil Works Construct+on cc\. (M\.-alaysia) Equipment Contracts - not eligible for disbursement\. 5 12 Diesel Pumps Trading and Techr4ical 0\.2 June 2L,1971 (Booster Pump Stations) Services Sdn\. Bhd\. (iMalaysia, Australia) 6 7 (C> \.i-' :t3kUi'om\.ent\. Pern-as Trading \. (Tractci<:) Sdn\. Bhd\. 8 O\.'-s, Ecuipmer\.t malaysiar\. Development \. \. ('!rader) !\.chiriner- idn\. i3hd\. 1C [?Yj'v Ecuipment Fornas Tr-aing \. ( cader) \.r Sdn\. 3hci\. 11: GiN au mennt Harrison Lister \. (D*tmp3) Engfi\.zineerin\.g Ltd\. a/ Inr -eer-l cases, - t-\. amo,un\.s p:liwsre loss 4h--n Cotract sum1, due to ths: de1ue\.icr~ ^:'\.-'n o T\.,isL is particul'-arlv Ltrue of contracts 1  AINNEK 2 Table 3 Page 2 Local Contracts Contract No\. Title Contractor Amount Date Awarded M$'000 a1 oousing Federal Engineering 129 Development Co\. Ltd\. K2 Housing Federal Engineering 158 May- 9, 1969 Development Co\. Ltd\. X3 iousing Yap See Yee Const\. 159 April 3,1969 Kit Housing Hamzeh bin Haji Isa 74 Aug\. 4, 1971 K5 Housing Hamzah bin Ab\. Rahman 6 Nov\. 14,1971 K6 Irrigation 5y-phons a Haji Daud bin Abdullah 45 March 12,1972 K1/72 Housing Lim Pak Tow Const,Ltd\. 199 June 13,1972 K2/72 Site Preparation Mat Junoh b\.Ag\.Hamat 14 May 17, 1972 K3/72 Site Preparation Tan Sek Kim 16 April 1, 1972 K4/72 Irrigation Syphons a/ Wan Mohamed b\. Wan 31 June 10,1972 Mahimoud K5/72 Gateway A\.Rahman & Co\. Ltd, 13 Aug\. 15,1972 K6/72 Housing Sharikat Chaya Malaysia 32 July-23,1972 K7/72 Project Office Yap See Yee Const\. 152 Aug\. 9, 1972 K8/72 Irrigation Syphon r- Raja Omar b\.Raja Daud 26 Sept\. 2,1972 K1/73 Irrigation Syphons a/ Haji Salleh bin Isa 36 O K2/73 Road Surfacing Yap See Yee Const\. \. K3/73 Road Surfacing Yap See Yee Const\. \. a/ For quaternary canals\. Earthworks were constructed by "Rural Works Contracts" with village heads and no documentation is available\.  ANN EXK 3 Page 1 NALAYSIA LOAN 500-MA: KEMIUBU IRRIGATION PROJECT Agriculture A\. BACKGROUND Climate 1\. The climate in the project area is tropical, with uniformly hot temperatures throughout the year, and is dominated by the northeast monsoon in the October-February period and, to a lesser extent, by the southwest monsoon in the May-September period\. Annual rainfall at Kota Bharu varies between 2,160 and 4,060 mm/yr, with a mean of 2,900 mm\. However, the rainfall distribution is highly variable\. The northeast monsoon may start late or finish prematurely and subject the main-season crop to stress\. Rainfall in the February-October period is too variable to sustain an off-season rice crop but does permit other crops, such as tobacco\. February-April is the period between the two monsoons and hence the period of lowest rainfall\. The November-January period is the period of most intense rainfall and total monthly precipitation of the order of 750-1,000 mm is not uncommon\. There are only slight variations in day length and temperature and, given adequate water control, the area is well suited to year-round rice production\. Soils, Topography and Drainage 2\. The coastal plain runs north-south and parallel to the coast for about 30 km, with an average width of 27 km\. The irrigation area is a gently sloping plain with a general gradient to the east (Map 1737)\. However, it is quite heavily dissected by numerous drainage channels and elevated areas, with the occasional outcrop rising 100-300 m above the plain\. 3\. The soils are mostly derived from river terrace alluvia deposited by rivers rising in the mountains to the southwest and meandering east- ward to the South China Sea\. On the higher portions of the terraces the soils are free draining, deep, friable, yellowish-brown loams suit- able for a wide range of crops\. Progressing down to the lower terraces, clay content increases and internal drainage decreases, and the soils change from silty clay-loams to quite heavy grey clays\. These soils are generally acid, have a low cation exchange capacity and low nitrogen and phosphate status\. They require quite heavy inputs of fertilizer to achieve good yields but are otherwise suitable for rice production\.  ANNEX 3 Page 2 4\. In the northeast part of the project area, lying behind a raised beach barrier, there is quite an extensive low-lying area of marine clays, and organic lagoonal material overlain by recently deposited clay\. These are problem soils of relatively low productivity and are subject to regular flooding during the northeast monsoon (Annex 2)\. To the south there is an area of granite wash soils comprising sandy clay loams overlying coarse sands and gravel, which produce high quality tobacco and paddy but with low yields\. The project area is bounded to the east by the Bris Association, a series of abandoned sandy beaches inter- spersed with black waterlogged swamp soils\. These soils have limited potential, though the elevated portions are currently used for cashew and coconut production\. Population, Farm Size and Land Tenure 5\. The total rural population in the project area is about 140,000, with about 22,000 paddy farming families\. Average family size is about 5\.2, with 2\.6 labor units employed-on the farm, either full- time or part-time\. The population is predominantly Malay\. In a 1968 survey it was estimated that 60% of the population were illiterate and only 11% had completed primary school education\. Living conditions were reported as poor and average net income per household was only M$690\. 6\. The average farm is about 1\.2 ha (3\.0 ac) in size and comprises 0\.9 ha of paddy land and 0\.3 ha devoted to the houselot and other crops, mainly tobacco, rubber, fruit trees and vegetables\. The average farmer owns two or three parcels of land\. The area cultivated depends on the status of the operator, as illustrated in the following table: Average Paddy % of % of Type of Operator Area (ha) Farmers Land Owner-Operators 0\.8 58 50 Tenants 1\.0 20 21 Owner-Tenants 1\.2 22 29 7\. About 80% of households own their houselot and only 20% are landless laborers relying entirely on rented land or wage employment for income\. About half the paddy land is owner operated and the rest is tenant operated on a crop sharing system\. The owner pays taxes, water charges (and, in many cases, half the cost of fertilizers) and the tenant meets all other commitments and takes half of the crop as his share\. Pre-Project Agricultural Production 8\. In the gross project area, comprising the Kota Bharu, Bachok and Pasir Puteh districts, 60% of the land is utilized for paddy, 22% for rubber and 15% for mixed horticultural crops, including tobacco, and house  ANNEX 3 Page 3 lots\. About 10-13% of project farmers were growing tobacco under pre- project conditions\. Since the bulk of irrigable area is devoted to rice, with very small areas of tobacco, these two are the only crops of concern in project evaluation\. Rainfed rice production was geared to the northeast monsoon\. Nurseries were prepared in late July-August\. Due to a lack of water, 80% of farmers prepared dry nurseries\. Field preparation was undertaken in August-September, using buffalo or oxen power or hand cultiva- tion\. The crop was transplanted in September and October\. Long-strawed native varieties of 150-180 day duration were used and in 1968 it was reported that 70% of farmers used some fertilizer\. Few farmers hand weeded their paddy and only 25% used chemicals\. Over 80% of farmers reported crop damage, rats being the major pest\. 9\. The crop was harvested by hand in February\. Average pre- project yields are estimated at 1\.3 and 0\.8 ton/ha for the good soils and low-lying problem soils respectively (Table 2) 1/\. Thus the average project yield was 1\.24 ton/ha and gross paddy production about 24,000 tons\. Few farmers had surplus rice for sale and many had to purchase paddy to meet domestic requirements\. Middlemen purchased 70% of the marketable surplus and the remainder went to private rice mills and co- operatives\. 10\. Extension and other agricultural supporting services were relatively poorly developed in 1968 and only 20% of farmers reported receiving advice from the extension service\. A small percentage were members of rural cooperatives but reported little benefit from membership\. 11\. Virginia tobacco production is an important industry in Kelantan\. The States of Trengganu and Kelantan together grow 80% of Malay's domestic supply\. Established in 1959 and promoted by the Malaysian Tobacco Com- pany (IITC), the industry expanded rapidly to an area of 1,200 ha in Kelantan by 1967\. It is estimated that about 230 ha of the elevated and better-drained soils in the project area were planted to tobacco in 1967\. The MTC provided seed and extension advice and purchased green leaf tobacco at fixed prices according to grade\. Farmers were encouraged to grow two crops per year in the February-October period\. Average yields were in excess of 10 ton/ha of green leaf and returns were more attractive than for paddy\. Although only 230 ha were planted, the normal planting per household was of the order of 0\.06 ha, so an appreciable number of families derived benefit from the crop\. B\. PROJECT PREPARATION 12\. During project preparation and appraisal, emphasis was placed on the engineering aspects of the project (Annex 2) and no plan was made 1/ These are mission estimates based on production data for the three districts, which include both soil groups\.  AtNEX 3 Page 4 for the development of agriculture\. The effect of climate on yields and problems of crop drying were neglected\. No allowance was made for the low productivity of the low-lying problem soil areas, in assessing production potential\. Very superficial treatment was given to the socio- economic status of the project farmers, existing agricultural product:ion techniques and inputs, and the ways in which yield would be increased\. Even though an appreciable proportion of the area was suitable for alter- native crops such as tobacco, which has a lower water requirement and a potential for higher cash returns, no comparisons were made between tobacco and rice\. No recommendations were made to ensure that irrigation of off-season paddy would not "drown out" tobacco\. 13\. Supporting agricultural services received only moderate atten- tion despite the fact they they were in a depressed condition and largely ineffective\. Proposals were limited to an increase in extension staff and an Improvement in the credit system\. However, attention was drawn to the problems of land tenure and rents and proposals were made to protect the tenant and ensure a reasonably equitable distribution of benefits\. C\. PROJECT OBJECTIVES AT APPRAISAL 14\. The main objective of the project was to provide an off-season irrigation water supply to facilitate double cropping with rice on about 19,000 ha of land\. This involved upgrading irrigation facilities on about 3,200 ha (Annex 2) and installing new facilities on a further 15,800 ha, which were previously dependent on rainfall\. 15\. Production targets at appraisal are summarized below: Year Cropped Area Averae Yield Paddy Production Land Use (ha) (ton/ha) ('000 tons) (%) 1967 19,000 2\.2 41\.8 100 1978 38,000 3\.14 119\.3 200 1981 38,000 3\.45 131\.1 200 Full double cropping was projected to occur in the sixth year and full yield development in the tenth year after irrigation water was made available\. It was assumed that 100% of the irrigated area could be double cropped\. Events have shown that yields and potential cropping intensity were overestimated and the initial rate of double cropping development underestimated\. It was projected that a main season crop would be grown in the period October-February and the off-season crop would be grown in the April-September period\.  ANNEX 3 Page 5 D\. TECHNICAL ASPECTS OF PROJECT IMPLEMENTATION Soils 16\. Semi-detailed soil surveys carried out by the DOA in the period 1967-69 produced the following general classification of the project area soils for rice production: Class II Class III Class IV Class V 49% 321% 14% 5% No Class I rice soils were identified\. The bulk of the soils were rated as Class II rice soils and comprised the relatively free draining river terrace soils, some of which have potential for other crops\. Class III comprise the lower-lying soils with drainage limitations and Class IV covers the marine clays and organic soils in the lower portions of the project area which are subject to regular flooding, high acidity and nutrient imbalance\. Class V refers to the coastal Bris Association which is not suitable for irrigation development\. 17\. Given intensive farm development and water control, it appears that an appreciable area of the Class II soils might be suitable for a rice and upland crop (for example tobacco or groundnut) rotation\. However, no firm data are available\. Field crop technology and marketing are not well developed and tobacco is too labor intensive to allow more than a small percentage of the area to be developed for this crop\. Nevertheless, this rotation warrants closer investigation, in view of the success of present sowings in favored areas and the impact crops such as tobacco might have on farm income\. 18\. Under present water control conditions, rice is likely to remain the dominant off-season crop\. All the project area soils are suitable for rice production but are inherently infertile, especially with regard to their nitrogen and phosphate status and cation exchange capacity, and thus the yield potential is only 70-80% of that in the Muda Area\. The unit cost of production for a given yield is also higher in Kemubu\. Production on portions of the Classes III and IV soils is limited by annual flooding in the main season\. Originally it was suspected that the Class IV soils had acid-sulphate problems similar to those described for Muda\. Subsequent research has shown that the acid-sulphate horizon is at a depth of 0\.7 to 1\.0 m and is not a key factor\. Nevertheless, these soils have low productivity, resulting from a combination of factors, including acidity, nutrient imbalance, and high levels of hydrogen sulphide\. Manage- ment methods to raise the productivity of the soils have still to be developed but controlled drainage and oxygenation of the root zone is probably part of the answer\.  ANNEX 3 Page 6 Cropping Pattern and Cultural Techniques 19\. With the development of the project is was necessary to change the cropping cycle\. This was achieved by introducing shorter duration varieties (para 22), which mature within 125-140 days, and the use of a very rigid irrigation schedule\. The irrigation schedule for the off- season crop runs from April 1 to August 15 and from October 1 to February 15 for the main-season crop\. The schedule is widely publicized and is posted on boards in each irrigation district\. Although the system started reasonably well, after five seasons of operation, planting is now staggered over a moderate period\. The lack of synchronization can be attributed to a number of factors, including: the late arrival of water; poor distribution within irrigation blocks; the tenants' failure to con- tact absentee landlords in time to allow timely cultivation; and shortages of cash to plant the crop\. Staggered planting undoubtedly results in some crops running short of water, creates harvesting problems and favors the build-up of pests and diseases\. 20\. There have been some-marked changes in cultural techniques as a result of the project\. The percentage of land that is tractor plowed has increased, the use of improved varieties has increased considerably and there is evidence of an increase in fertilizer and agrochemical usage\. The major change was from dry to wet seed beds as a result of improved water supplies\. Rice Varieties 21\. Prior to the project, most farmers were growing long-strawed local indica rice varieties which were prone to lodging and took from 150-180 days to mature\. In the period 1963-73, a series of improved varieties was released by the Bumbong Lima Experimental Station in Province Wellesley\. These varieties had a substantial yield advantage over the local material\. They matured in 135-140 days, were nitrogen responsive and less prone to lodging\. However, disease resistance was not high and rice "blast" (Pyricularia orYzae) reduced yields considerably\. Never- theless, the improved varieties made a substantial contribution to the increase in yield during the period 1967-71\. 22\. The varieties most favored by the farmers are "Improved Mahsuri," a japonica-indica cross with quite good "blast" resistance, and "Bahagia," a Malaysian selection of F4 generation, IR5 breeding material\. Both are medium height varieties which mature within 135-140 days\. "Ria," a local release of IR8, and "Jaya," a local release of C4-63, are also used to some extent\. However, Ria is not popular, due to its short stature, and Jaya is susceptible to neck rot\. The average yield potential under farm conditions of the new varieties on the better project area soils is of the order of 3\.0 to 3\.5 ton/ha, although in favored areas under good management conditions isolated yields of over 4\.0 ton/ha have been reported\.  ANNEX 3 Page 7 23\. The choice of varieties in recent years is summarized below: Proportion of farmers using: Others (including Season Mahsuri Bahagia traditional) 1972 Main Season/ 22% 23% 55% lb Off Season/- 58% 40% 2% 1973 Main Season/ 30% 20% 50% Off Season/b 72% 27% 1% /a Based on district data\. /b Based on project area data\. Source: State Agricultural Office, Kota Bharu\. Although main season data includes land outside the project area, it illustrates the popularity of Bahagia and Mahsuri and also continuing need for farmers to plant long-strawed longer duration varieties in the low- lying areas\. It is clear that the majority of farmers use improved varieties in the off season when water control and flooding problems are less serious\. Fertilizers 24\. The blanket field fertilizer recommendation for the Kemubu project is 3 x 80 lb bags of (36% N: 36% P205: 18% K20) basal mix and 1 x 44 lb bag of urea as a topdressing, amounting to about 120 kg N, 95 kg P205 and 55 kg K20 per ha\. No fertilizer response data was provided by local agencies\. Response data from a farm survey in an adjoining area indicated that maximum N response was likely to be achieved within the range 60-90 kg N/ha so the recommended rate seems excessive\. Good yield responses to phosphate are reported but research by MARDI indicates no response to potash\. No close relationship between fertilizer response and soil type has been achieved to date\. A 1:6,000 detailed soil survey has recently been completed by MARDI (para 57) which they hope to use to refine fertilizer recommendations\. In the meantime, MARDI's recommend- ation is 22 kg N and 45 kg P205 per ha applied as a basal dressing, with a further 22 kg N applied as a topdressing\. This appears much more realistic but the recommended rate of nitrogen application may be too low\. However, KADA has not yet acted on the new recommendations\.  ANNEX 3 Page 8 25\. No data on current fertilizer use in the project area are available\. The only statistics available are those for the State of Kelantan\. As- suming the bulk of fertilizer sold for rice has a 36:36:18 formulation and is spread over the total planted area in the State, average nitrogen use on rice was as follows: 1968 1969 1970 1973 Fertilizer ('000 tons) 3\.77 6\.43 8\.54 5\.1 Fertilizer (kg/ha) 49\.5 81\.9 114\.3 56\.4 Nitrogen (kg/ha) 17\.8 29\.4 41\.0 20\.3 From 1968 to 1970 there was a clear trend toward increased fertilizer use but a fertilizer shortage in 1973, which was acute in Kelantan, resulted in a marked drop in usage\. The limited nitrogen response data available indicate an average use of 40-60 kg N/ha in the project area at current yield levels\. 26\. Because only nitrogen and phosphate are required in the bulk of the project area and at lower rates than those currently recommended, the (36:36:18) basal mix recommended is an expensive source of nutrients\. This situation is serious in an area where a high percentage of farmers are indebted and has undoubtedly restricted the use of fertilizer in the past and thereby reduced economic benefits\. With the recently introduced urea subsidy there will be a strong swing to the use of urea, which would have undesirable side-effects in a phosphate deficient area\. There is an urgent need to market a suitable NP basal fertilizer in the area that sells at a competitive price\. 27\. To assist farmers cultivating acid low-lying soils to achieve higher yields, a lime subsidy scheme has been\. This enabled farmers to buy lime (costing M$85/ton landed in Kota Bharu) at M$10/ton\. Again, no statistics on usage are available for the project area\. Rough estimates indicate that 500-600 ha have been treated in the Kemubu area during the last four or five years\. However, there is no conclusive evidence that the use of lime has increased production\. MARDI personnel feel that the problem is due to nutrient imbalance and poor aeration of the soils, as well as acidity\. Until more research is done on these soils, the liming program is questionable\. Pests and Diseases 28\. Rice "blast" (Pyricularia oryzae) is the most serious disease, and appreciable crop losses can occur, especially from neck rot on Jaya or C4-63\. Research data indicates that local races are different to those encountered on the West Coast\. An active screening, evaluation  ANNEX 3 Page 9 and breeding program is under way and it is hoped to release a blast resistant line of Jaya shortly\. Bacterial leaf blight (Xanthomonas oryzae), sheath blight (Corticium sp) and yel:L-orange virus, locally called Penyakit Merah, are the only other diseases of economic importance but these are not regarded as serious\. The rice breeding program is directed towards building greater resistance to these diseases\. 29\. The major insect pests are the dark-headed rice borer (Chilo polychrysa) and the yellow rice borer (Typoryza incertulas)\. Green leaf hopper (Nephotettix sp), brown plant hopper (Nilaparvata lugens) and the rice bug (Leptocorisa sp) also cause damage\. No detailed data are avail- able on yield losses from these pests but local staff report serious damage on occasions\. 30\. Rattus rattus argentiventer is the common ricefield rat in Malaysia and causes serious damage to rice crops in the project area\. The most common control measures are the gassing of burrows, the use of zinc phosphide mixed with boiled rice as a bait on the bunds, and rat hunts by the villagers\. However, there is no regular program for rat control and, in most areas, concerted action is left until the rats reach high populations\. 31\. Data are not available on the use of agrochemicals in the project area but it is known that they are not widely used\. The DOA Crop Protection Unit at Kota Bharu, which is responsible for controlling severe outbreaks of pests, reports that there are substantial losses from insect and rat attack\. These should be assessed and an appropriate control program should be initiated through the Farmers' Associations (FA's) and the extension service\. Water Supply and Control 32\. Interviews with farmers indicated that water supply and control leave much to be desired\. There were reports of water arriving late and the supply being cut for periods of four to five days\. In a short visit during the wet season it was difficult for the mission to substantiate these claims\. However, the known difficulties in achieving rated dis- charge at the Kemubu Pumping Station and the frequent breakdowns (Annex 2) support the farmers' reports of unreliable supply during the off season\. 33\. Problems of water shortage during the off season are compounded by the lack of on-farm development, the uneven terrain and the lack of water users' groups to distribute limited supplies equitably\. Farmers complain of badly placed and too few offtakes\. Water admitted to a block too often finds its way straight to the end of the irrigation run, leaving large areas unirrigated\. Farmers in the low spots get too much water and farmers on the higher areas get too little\. It was reported  ANNEX 3 Page 10 that some land previously used for off-season tobacco now is waterlogged and a valuable cash crop can no longer be grown\. It is clear that the unreliability and poor distribution of the off-season irrigation are restricting yields and production in some areas but the exact extent of this problem is not known\. 34\. All farmers, except those on elevated areas, suffer from an excess of water from November to January\. Lack of water control during this period discourages the use of improved varieties and cash inputs\. About 1,200 ha of lowlying land is affected to the extent that no main- season crop is possible\. KADA has no reliable data on this problem and the above area is a rough estimate\. On the other hand, farmers in the low- lying areas can now grow an off-season crop and probably obtain higher yields than they did before the project\. Possible solutions to this problem are discussed in Annex 2\. 35\. KADA is aware of these problems and is attempting to tackle them\. However, the design of on-farm works is not simply an engineering task\. Some areas (particularly the Class II soils) should be developed for off-season field crop production, requiring better water control, while other areas are best suited to rice\. Each irrigation block needs to be studied in terms of soil capability, topography and potential water sup- ply to reach a logical land use pattern\. Rational design can then begin with a better chance of maximizing land and water use\. Paddy Drying 36\. The drying of late harvested off-season crops from August to October poses a serious problem\. Lack of sunshine and high humidity reduce the effectiveness of the traditional sun-drying techniques\., Much of the rice delivered to cooperatives, FA's and mills has a moisture content of 18-22%\. Due to the high variability of the weather pattern, the severity of the problem varies from season to season, but September is usually the most difficult month\. The National Paddy and Rice Authority (LPN) mill and a large Cooperative mill have drying facilities but find it difficult to cope with the volume of wet rice delivered\. LPN is currently expanding its facilities\. From the farmer's point of view the present situation is unsatisfactory, as the drying faciliLties are too centralized and remote from him\. He loses potential income through'deductions and spoilage and often has to wait for his money\. Farmers interviewed would like to have small batch drying facilities at the FA and village level\. Mechanization 37\. While employment figures for the project area are sketchy, it appears that adequate labor is available and that there is a fair degree of underemployment (Annex 5)\. There is a relatively poor fishing community on the eastern project boundary and it is understood, that this group contributes farm labor at peak periods\. Thus there is ntot a  ANNEX 3 Page 11 strong case for mechanization, which should probably be restricted to a level which permits timely harvesting and planting without reducing the employment impact of the project\. Should, however, the area under tobacco expand as a result of improved water control, the labor surplus could disappear, as the labor requirements of tobacco are such that 0\.15 ha would occcupy one family and additional labor would be required to work the rest of the farm\. In some areas, farmers are working tobacco land and leaving paddy land idle\. Presumably, neglect of the paddy land at present is a result of a lack of operating capital\. 38\. Data supplied by the Livestock Division indicate no marked change in cattle and buffalo populations as a result of the project\. It appears that animal power is still widely used for cultivation\. State- wide data on the availability of tractors are summarized below: 1969 1970 1971 1972 1973 2-wheeled tractors 136 403 \. 716 671 4-wheeled tractors 239 310 \. 368 293 The number of 4-wheeled tractors has remained fairly static but the number of 2-wheeled tractors has increased appreciably\. The decline in numbers between 1972 and 1973 was reported to be largely due to credit defaults and repossessions\. If the above figures are representative of the general situation in the Kemubu area, there has been an increase in land cultiva- tion by tractor since 1969\. BPM has extended loans for the purchase of over 100 tractors in the State\. Future efforts to encourage mechanization should be largely directed toward the introduction of small reasonably priced, robust machinery that farmers can purchase and operate themselves\. Tobacco and Other Field Crops 39\. Experimental work on a number of crops, including gram, soybean, corn, sorghum and groundnut, has been carried out in Kelantan\. The only crop showing promising returns and with an established market is ground- nut\. This still has to be tested as a commercial crop on project area soils, but it should be considered as an alternative crop to off-season rice on the better drained soils in any program to improve water control\. 40\. Tobacco is a well established crop\. The basic technology has been developed, the infrastructure to handle the crop is established, it offers an attractive return, and the market is reasonably assured\. Two crops can be grown in the period February to October in rotation with main-season rice and it offers a steady labor demand as well as a good return\. Although the crop is labor and capital intensive, it was amply demonstrated by MTC prior to 1971 that, with proper extension and credit facilities, it can be a highly successful crop\. The planted area in the project area has declined since the project was initiated, owing to water  ANNEX 3 Page 12 control problems and a general project policy of promoting paddy and discouraging tobacco\. It is estimated that about 500 ha of land within the irrigated area may be suited to tobacco production and it should be considered as a crop in future development plans\. E\. INSTITUTIONAL ASPECTS OF PROJECT DEVELOPMENT 41\. The Ministry of Agriculture and Rural Development is responsible for agricultural education, extension support and irrigation at the Federal level, through its relevant Divisions\. The State Department of Agriculture is mainly concerned with extension and crop production activities\. The Cooperatives Division, in conjunction with Banking Union and the Bank Kerjasama, was responsible for rural credit societies and rice milling co- operatives, prior to the formation of the Farmers' Organization Authority (para 46)\. Services in the project area have, since 1973, been centralized by the formation of KADA (Annex 4)\. 42\. As in the case of Muda, no firm agricultural development program was drawn up at appraisal and no specific provisions were made for sup- plementary finance, staff and training, to assist project agricultural development\. Reliance was placed on the existing agencies and personnel with their limited resources\. Within these constraints, the performance has been adequate\. A socio-economic survey of the area was initiated in 1967, soil survey work was extended and plans formulated for the develop- ment of FA's, seed supply and credit\. About 150 ha of pilot plots were established to check potential problems in the field\. Although hampered by lack of funds and sufficient trained personnel, a reasonable state of preparedness had been reached by 1972, the first year of off-season cropping\. The development and performance of the key institutions are reviewed below\. Farmers' Associations 43\. Prior to project implementation, the only rural organizations were small credit cooperatives, rice milling cooperatives and multi- purpose cooperatives\. There were about 85 of these small units operating in the Kemubu area\. Under an Act passed in 1967, the Government launched the FA program\. The aim was to establish Agricultural Development Centers (now called Farmers' Development Centers) as focal points for all social, technical and economic activities at the village level, with a view to motivating farmers to participate in and eventually run their own organiza- tions (Annex 4)\. No farmer was to be more than 5 to 8 km from a center\. To implement the program in Kemubu, the project area was divided into five FA units of 4,000 to 5,000 ha, based on irrigated area and business activity\. Each FA is provided with about 0\.2 ha of land, an office block and meeting room, a grain and fertilizer store and a workshop\. Each FA area is sub- divided into several Small Agricultural Units, each of which elects represent- atives to sit on the Board of Directors, which comprises seven to nine elected and two nominated members\. The Board determines policy\.  ANNEX 3 Page 13 44\. To provide effective FA management, a General Manager who is an Agricultural Assistant (AA) and four or five Junior Agricultural Assistants (JAA's) are recruited from the DOA to operate and manage the five divisions of the FA, namely administration, accounting, credit, marketing and extension\. Ultimately, it is hoped to transfer these roles to the farmers as leadership and expertise develop\. 45\. The basic statistics of the five FA's, as reported in 1971, were as follows: Location Area Covered (ha) Members Year Formed Nilam Puri 5,637 986 1970 Pedang Raja 3,938 860 1971 Sungei Ketereh 4,900 1,031 1970 Sri Gunong 4,856 708 1971 Bukit Jawa 3,723 848 1970 Total 23,054 4,433 Membership in 1974 was in excess of 6,000, or about 30% of all project area farmers\. The FA's act as local credit centers for the Bank Pertanian Malaysia credit program (48) and for the supply of inputs\. They also set 50% of share capital aside for extension of additional production credit to members\. 46\. tNo recent data on FA performance are available and it is still too early to assess their ultimate impact on the farming community\. All FA's are heavily subsidized by Government\. They have largely attracted the more progressive farmers and many small farmers in need of assistance are still outside the scheme\. Other problems include: lack of sufficient qualified and competent staff to fill the administrative posts, only 60% of which are filled; the inability of the FA's to compete with the private sector in terms of day to day personal contact and the range and flexibili- ty of services offered, notably credit; and, the lack of operating capital for the purchase of inputs and the purchase of paddy\. Under legislation enacted in February, 1973, all farmer organizations have been placed under the control of the Farmers' Organization Authority (FOA), which intends progressively to amalgamate other farmer groups (for example, rice milling cooperatives) with the FA's (Annex 4)\. Additional staff will be appointed to the FA's to strengthen management of the co- operatives and credit and inputs will be made available to cooperative members through the FA\.  ANNEX 3 Page 14 Credit 47\. Traditionally, merchants, millers, friends and relatives were the major sources of credit, wit'h the bulk of transactions being effected in kind\. Rates of interest varied with the circumstances but were frequently within the range of 30-80% per annum\. Prior to the project, the only in- stitutional credit available was cooperative credit, from rural credit societies and multi-purpose cooperatives at the base, Banking Unions at the intermediate level and the Bank Kerjasama at the apex\. The program had limited impact on the rural community and few of the cooperatives were viable, because of poor management, inefficient operations, complicated loan pro- cedures, small membership and poor repayment records\. With 70% of project farmers suffering varying degrees of indebtedness, the introduction of a suitable credit scheme was essential for successful project implementation\. 48\. With technical assistance financed from the Muda Project Loan (434-MA), the credit needs of the Kemubu Area were reviewed, a credit program was formulated and pilot trials were run in Muda and Kemubu in 1970\. Bank Pertanian Malaysia (BPM) was established to supervise and finance the scheme\. Initially, FA's, cooperatives and approved suppliers of inputs were registered as Local Credit Centers (LCC)\. Their role was to screen loan applications, to act for BPM in the distribution of inputs (against credit coupons) and to recover loans after the harvest\. Credit- worthiness criteria were laid down by BPM and land titles were the usual form of collateral\. Due to the unsatisfactory performance of co- operatives and suppliers and problems in using land titles as collateral, private and cooperative LCC's are being phased out and most loans are now granted on an unsecured basis\. 49\. The scheme has been operated by using a credit coupon system, with coupons provided to each successful applicant for the appropriate amount of fertilizer, insecticide, custom plowing, transplanting and harvest labor required for the area to be planted\. There was a two to three month waiting period from application to receipt of coupons, and the work load on administrative personnel at the FA was considerable\. The farmer would exchange coupons for goods and services with registered stockists and tractor operators but it appears that there were apprecia- ble delays before BPM provided cash in exchange for the coupons\. This was a particular embarassment to the FA's since they have limited operat- ing capital and must pay for bulk supplies of fertilizer and chemicals under normal trading terms\. In 1974, a new system was introduced whereby vouchers are issued directly by the LCC\. It is not yet clear whether the new system has eliminated excessive delays\. 50\. There is a time limit for applications and the operation of the system for each season, so that farmers cropping out of phase with the system face difficulties\. Loans are normally granted for a six-month period\. For the first five seasons, BPM and the LCC's each charged 4% interest, so that the farmer paid 8%\. An additional 4% was charged  ANNEX 3 Page 15 on unsecured loans\. In 1972, the interest rate received by BPM and the LCC's was reduced to 3%\. Secured loans were then available at 6%, and unsecured loans at 9%, with a 1% per month penalty charge for late repayment\. The interest rate was reduced again in late 1973 to 4\.25% per season, comparable to the rate charged by commercial banks to large bor- rowers\. Repayment is effected at harvest in cash or kind\. 51\. Currently, only 12% of project farmers take credit and only about 50% of authorized credit is used\. Repayment records are reasonable and the program has made a sound start\. However, there are a number of problems restricting the benefits of the credit system\. The technical recommendations upon which credit for fertilizer has been based are unsound (para 24), which partially explains the low utilization rate\. Supplies available at the FA's are often inadequate, due to lack of operating capital\. Credit is available only to FA members, who are usually the more pro- gressive and affluent landholders\. The system of processing loan applications and issuing vouchers is still too complex and, given the rather restrictive creditworthiness criteria, does not adequately accom- modate the needs of the smallest farmers who need help most\. Extension 52\. Extension and training are largely State functions and are under the supervision of the State Agricultural Officer\. Technical sup- port is given by Federal crop production, crop protection, soils and education units stationed at the Lundang Experiment Station at Kota Bharu\. Outside the KADA area, contact with the farmers is achieved through District Agricultural Officers, assisted by JAA's\. Prior to the project, the ratio of field workers to farmers was less than 1:1,500 in most areas\. The JAAMs were required to undertake routine administrative tasks, which made day to day contact with farmers almost impossible\. With the advent of Farmers' Associations, a radical change in extension services was effected\. The FA's became the focal point for all agricultural ser- vices, and the Agricultural Division of KADA now assumes responsibility for all agricultural activities in the project area, with support from the Federal DOA at Lundang\. The latter runs training courses in farm mechanization, crop production and home economics for project area farmers and their families\. The programs appear satisfactory\. 53\. The total extension staff within the three districts embracing the project area are summarized below: 1970 1971 1972 1973 1974 AA's 3 6 7 5 4 JAA's 12 13 13 14 27 Total 15 19 20 19 31  ANNEX 3 Page 16 Staff numbers have doubled since 1970 but are still inadequate to provide the sustained extension effort required to make a substantial impact on the farmers\. The problem is compounded by the heavy commercial workload for agricultural staff associated with FA's and the shortage of trained staff\. High school students with six-months' training at Lundang have been used as temporary JAA 's to try to fill vacancies\. Currently, only one AA is available to the FA's, which are thus largely staffed by junior personnel with limited experience\. 54\. The major weaknesses of the extension program are the shortage of staff and the lack of day to day contact with farmers; the lack of extension work on water control and management; and the lack of farmers' groups based on irrigation blocks, to supervise water distribution and to synchronize farm operations with water releases\. At present, the few available staff are too busy attending to the administration of credit and supplies to be effective extension workers\. Furthermore, the 70% of farmers who are not FA members get little extension advice, even though they are the ones who probably stand most in need of it\. Research 55\. Originally, the Federal DOA was responsible for research\. Central research divisions, covering crop production, soils and crop pro- tection, operated through experiment stations located in each State, which were largely financed and staffed by the Federal Government\. These stations carried out experimental work, adaptive research trials in the farmers' fields, and were responsible for seed production\. They also carried out soil surveys and soil testing, gave technical support to the State extension service and assisted with demonstration plots and the formulation of fertilizer and plant protection recommendations\. The main station serving the project area was located at Lundang, adjacent to the present headquarters of KADA, and was supported by the rice breeding and research program at Bumbong Lima on the West Coast\. 56\. The Malaysian Agricultural Research and Development Institute (MARDI), founded in 1969, assumed responsibility for research in 1971\. It now runs the Bumbong Lima Rice Experiment Station and has a multi- disciplinary research unit at Kota Bharu to service Kelantan\. The unit, which is housed in temporary offices with no experimental land of its own, comprises Soils, Rice Breeding and Crop Development Sections\. While the existing staff appear keen and competent, the unit is grossly understaffed for the tasks it is supposed to perform\. It is active in screening and testing rice varieties (in association with Bumbong Lima), soil surveys and fertilizer response studies, crop production and crop agronomy, and the evaluation of research results at the farm level\. Trials are con- ducted on rented land in farmers' fields\. This is not satisfactory for the evaluation of breeding lines, as farmers are tempted to take seed from attractive looking plants which may, however, have high disease sus- ceptibility\. The unit has carried out useful work, and there are plans  ANNEX 3 Page 17 to acquire one ha of land, build new offices and expand its staff\. How- ever, difficulties are anticipated in attracting competent research personnel to Kota Bharu\. 57\. In the meantime, the Federal Agricultural Experiment Station at Lundang has no authority to carry out research work\. Its activities are restricted to seed production, soil surveys (which are not well coordinated with those done by MARDI), training, demonstration plots, crop protection and technical support services to the agricultural development program\. The 12 ha of experimental land and basic research facilities at Lundang are largely wasted\. 58\. Liaison between research and extension and other agricultural development agencies in the State is effected through a State committee which meets occasionally to discuss problems and to exchange views and information\. To date it has been ineffective in transferring technical information from MLARDI to DOA and KADA, for example, on fertilizer recom- mendations\. This is partly due to the continuing friction between MARDI and the DOA\. The situation might improve now that the new manager of KADA has been appointed as chairman of the committee, and might also improve with the creation of the Agricultural Engineering and Water Management Research Program\. Both this Program and MARDI's Rice Research Program are expected to reduce these communication difficulties\. Seed Production and Distribution 59\. The DOA is responsible for seed production\. Foundation seed of improved varieties from Bumbong Lima is multiplied on Government and farmers' land\. Since gross seed requirements in the project area are of the order of 480 tons for the main season crop, it would be impossible for DOA to meet the total requirements\. In order to meet the needs of the program area for seeds of the short duration varieties prior to the first off-season irrigation, the project management adopted a plan of supplying about 2\.5 kg of improved seed free of charge to as many farmers as pos- sible in the previous main season\. The program was widely publicized and farmers were advised to keep the produce for planting in the following season\. 60\. Bahagia and Mahsuri were the varieties distributed in the first season\. Currently seed of these varieties is supplied on an exchange basis or sold at M$0\.55/kg\. At present, gross seed production approximates 150 tons for the State of Kelantan\. The paddy land is divided into six regions for seed distribution, and each region receives new seed every sixth crop\. While there is a high percentage use of new varieties in the project area, there is a need to develop a program in which the majority of farmers change their seed every third or fourth crop\. This would only require about 50 ha of land to be planted to seed crops each year and reason- able supervision by a Federal Agricultural Officer in order to control quality\.  ANNEX 3 Page 18 Fertilizer and Agrochemicals 61\. Bulk fertilizer and agrochemical supply are handled by a number of large companies, with retail distribution via the FA's and registered private stockists\. Kelantan was seriously affected by the world shortage of fertilizer in the period 1972-74\. As well as causing a reduction in the amounts of fertilizer applied by farmers, it produced a considerable variation in the types of basal mix and sizes of packages available\. This situation still persists and undoubtedly confuses the farmers\. In the absence of yield response to potash, there is now a strong case for standardizing on one NP basal mix to be distributed in a standard sized package\. The distribution system appears to function reasonably well but lack of operating capital restricts the amount of fertilizer that can be handled by the FA's\. 62\. The recent introduction of a 55% subsidy on urea, with sole supply through the FA's, will boost the FA's but will seriously distort the market\. Farmers will naturally buy urea in preference to basal mixture, and stockists and suppliers who rely heavily on basal mix sales may be forced out of business\. Furthermore, subsidy of one type of fertilizer for one section of the community will undoubtedly lead to a black market in urea\. If the scheme persists too long, without an equivalent subsidy for NP basal mix, farmers will neglect the use of phosphate, resulting in a reduced response to nitrogen and lower pro- ductivity\. 63\. The following measures are required to improve fertilizer supply and use in the project area\. Basal mixture should be standardized to provide nitrogen and phosphate only in a suitable ratio, about 1:1\. Package sizes should be adjusted so that fertilizer recommendations can be given with reasonable accuracy in terms of bags per acre\. In addition to brand name and symbol, each bag should show the net weight of contents, analysis, recommended retail price and a standard statement regarding proper use\. A regulatory service should be established to spot check analyses and prices at the retail outlets\. Provision should be made to increase the operating capital of FA's and the government should carefully review its fertilizer subsidy policy\. Paddy Drying and Milling Organizations 64\. The major problem in paddy handling under the project is the drying of late planted off-season crops\. There is one large cooperative rice mill equipped with drying facilities which dries about 3,500 ton/yr\. LPN also has a large drying/milling/storage complex with a drying capacity of about 30 ton/hour\. Since three passes are required when the paddy is above 8% moisture, "effective" output is about 10 ton/hr in September\. Both mills purchase from FA's and cooperatives and have no direct dealings with the farmers\. They also report difficulty in coping with wet paddy in September\. The LPN hopes to have two new drying/milling complexes in operation during 1975, which they feel will solve the problem\. In view of  ANNEX 3 Page 19 the dissatisfaction of the farmers with the present system (para 36), the further expansion of highly centralized Government facilities is of doubtful merit\. Tobacco Organizations 65\. The tobacco industry was originally run by MTC, who pioneered the crop in Kelantan\. They established curing barns, a credit, extension and marketing system, and restricted production to registered growers under a quota system\. The system operated well: area expanded, and yield and quality increased until the late 1960's\. At this stage, com- petitors moved in to purchase leaf, and disrupted the system\. Consequently, MITC withdrew in 1970-71, leaving a vacuum\. Without supporting services and controls, yields and quality dropped and local production became dis- organized\. 66\. In 1973, the National Tobacco Board (NTB) was established with headquarters in Kota Bharu, to regulate and promote the industry\. NTB licenses tobacco barns, registers growers, and establishes grades and and prices for green and cured leaf\. They currently plan to establish central selling floors and an auction system for marketing\. They are actively engaged in establishing effective extension services and advising cooperatives regarding credit\. BPM operates a special credit system for tobacco producers\. It has been successful, and is one of the few Govern- ment credit programs to have become economically viable\. Under NTB guidance, the tobacco industry in Kelantan appears to be recovering\. It is certainly sufficiently viable to support an expansion of tobacco production in the Kemubu area if off-season water control problems can be overcome\. F\. DATA COLLECTION AND PRODUCTION PERFORMANCE Data Collection 67\. The lack of reliable data posed problems for project preparation and appraisal and created difficulties in the current project evaluation\. Relative to many other countries, the Federal Department of Statistics, which is responsible for data collection, is efficient and well managed, having a survey team in each State for data collection\., It is thus disappointing not to find statistics on such items as fertilizer and chemical sales, tractor sales and rice milling and storage capacity\. In many cases, little cost would be involved in collecting this type of data on an annual basis\. 68\. Yield and production data are collected with the assistance of the district extension staff\. Based on methodology developed by a visiting FAO expert in 1965-66, paddy land is divided into a number of Artificial Crop Units, each of about 13 km2\. Selection of sample areas within a Unit is based on the list of paddy growing lots held by the State Land  ANNEX 3 Page 20 Office\. These are assigned numbers and six are selected at random for each season\. The district extension officer is required to select three of the six for sampling, based on whether the lot is representative in terms of planting time and other key parameters\. At the first visit, the extension officer is required to estimate visually the lot area and average yield and peg out a 7 m x 5\.5 m section for sampling\. He is also requested to record cultural details (e\.g\. variety, inputs used) and arrange a harvesting date with the farmer\. At harvest, the yield of the whole plot is measured volumetrically\. Samples (5 kg) of paddy are purchased from two of the plots in each Articicial Crop Unit\. These are returned to the local DOA office and weighed\. They are then sun-dried for 15 days or until they reach constant weight\. The average yield of the plot is then calculated in terms of dry paddy\. 69\. Although the system appears to work quite well, there are several potential errors that could affect the accuracy of the resulting yield and production estimates\. Planted and harvested areas within a district are checked by eye\. The cutting is biased towards farmers planting and harvesting at the prescribed periods and takes no account of losses that occur at harvest or after harvest\. There is no check on the final moisture content of the plot sample, which could lead to a 2-3% error\. The site selection and sampling procedures as described in the manual area are quite complicated for a JAA to follow\. Furthermore, there are inherent dangers in making an officer responsible for taking measurements, which to some extent reflect on his own professional per- formance\. 70\. KADA is now supervising crop cutting in the project area\. Once staff is expanded and the new management begins to operate effectively, reasonably reliable yield and production estimates should be possible\. To allow for losses which normally occur during farm harvest, transport and drying, but which are neglected in crop cutting estimates, the official yield data were reduced by 10%\. The available evidence suggests that the difference between Statistics Department data and farm yields is at least this large\. Production Performance 71\. Planted area, average yields and gross paddy production "with" and "without" the project are presented in Tables 1 and 2\. These data were used as a basis for project economic and farm income analysis (Annex 5)\. A graphical comparison between projected and actual production parameters is presented in Figure 1\. 72\. Appraisal projections overestimated the area that could be double cropped with rice by about 8%\. One hundred percent double cropping was anticipated on the full 19,000 ha, i\.e\., an annual planted area of 38,000 ha\. In practice it is estimated that only 18,000 ha can be effectively cropped in the main season, due to flooding on about 1,000 ha (para 34), and that only 17,000 ha can be effectively commanded in the off season\. This gives an annual potential planted area of about 35,000 ha and a rice cropping  AINTNEX 3 Page 21 intensitv of 184%\. In addition, it is anticipated that 200 ha of elevated land is double cropped to tobacco during the off season\. This raises the cropping intensity to 186%o per year\. 73\. The phasing of double cropping was not studied in detail at appraisal\. It was projected that full double cropping would be achieved in the sixth year after water became available, which is 1978\. In practice 96% of potential double cropping was achieved by 1974, so the project has exceeded expectations in this regard\. 74\. The pre-project yields assumed at appraisal were 50-60% higher than the estimate of the present mission, which is based on district data, reduced by 10% to allow for errors in crop cutting tests (para 70)\. It appears that the appraisal mission was not sure how to adjust the given 1965-7 project area data to represent average pre-project conditions, given there was unusually severe flooding in 1965-7\. The mission may have transferred yield results from Province Wellesley on the west coast, where soils and productivity were, and continue to be, better than in Kemubu\. As a result, yields projected at appraisal under full development were 25% higher than current mission projections\. Rates of yield development pro- jected at appraisal have been achieved but absolute yield levels have been consistently lower (Figure 1)\. The current projected yield at full development is only 70% of that projected for Muda, owing to the relatively infertile soils, flooding problems and the lower efficiency of agricultural services in Kemubu, which is expected to persist\. 75\. Due to the overestimate of yield and potential area available for double cropping, total paddy production in the project area fell well short of appraisal estimates for the period 1967-71\. For 1971/74, actual production rose rapidly, almost equalling the projected production for this period\. Owing to limitations imposed by available area for double cropping and yield potential, gross potential at full development in 1980 will only be 70-80% of that originally projected but still more than double the pre-project production\. G\. FUTURE POTENTIAL 76\. The area development targets set at appraisal have largely been met within the physical limitations of the project\. However, much remains to be done in terms of increasing rice yields and maximizing land and water use\. A further increase in production could be achieved with the intensification of on-farm works to improve water control\. Hiowever, in view of the dissected terrain and low productivity of some of the soils, care would be required to avoid over-capitalization\. A selective rather than a blanket approach is indicated\. Most benefits are likely to accrue from the better drained Class II soils\. Here investments in on-farm works would allow a field crop/rice rotation to be introduced, leading to higher output, increased farm incomes, a better spread of labor demand and a substantial reduction in water requirement during the off season\.  ANNEX 3 Page 22 77\. The organization, operation and staffing of the extension service, credit service and FA's should be examined with a view to ef- fectively reaching the 50-60% of farmers currently not served\. Measures which should be considered are: the formation of water user groups as contact points for extension, credit and the supply of inputs, and as sub-units of the FA's; expansion of the FA extension services to cover all farmers; replacement of FA agricultural staff concerned with business activity with staff trained in commerce, and the release of the agricul- tural staff for field extension work; an increase in the operating capital of the FA's; further streamlining of credit procedures; and the development of an improved seed multiplication and distribution system\. The staff of KADA should be brought up to full strength as soon as possible\. Consideration should be given to paying an area allowance to senior executives to attract competent staff to this rather isolated area\. 78\. In view of the urgency of some research and extension problems affecting the project area, consideration should be given to forming a research task force for a limited number of years to address them\. The task force should combine appropriate personnel and facilities from the Federal DOA, MARDI, and KADA under a competent Research Director who would have direct contact with the General Manager of KADA\. Topics requiring urgent attention are: (a) A thorough evaluation of present cultural practices, including yield losses and potential increases in yield and net income from the use of inputs and recommended cultural practices; (b) Refinement of fertilizer recommendations, including the formulation of a standard NP basal mix and establish- ment of long-term field experiments to determine the likely maintenance requirements for phosphate; (c) Potential yields, returns and water requirements of off-season irrigated crops on Class II soils; (d) Management requirements of problem soils in the low- lying areas; and (e) An evaluation of small paddy drying plants for use at the FA's Qr small cooperative mills\. 79\. At the Federal level, measures should be introduced to- standardize the analyses, packaging and labelling of fertilizer supplied to the Kemubu area, with provision for spot checking quality and price at retail outlets\. The impact of the urea subsidy on the sale of basal mix and the fertilizer trade generally should be reviewed\.  ANNEX 3 Page 23 80\. Efforts should be made to improve the range of basic agricultural data collected by the Department of Statistics\. The field staff of the Department should be expanded to facilitate greater participation in crop cutting estimates\. MIeasures should be taken to improve the accuracy of production estimates, including: corrections in yield estimates to allow for losses from field to store; the use of photo-mosaics to check planted area; and supplementary yield estimates to check losses Lue to flood or serious pest attack\.  LOAN !500-VA: KENU3U UIRPGATION PiiOJECT late of Irri:ltion Development Main Season Off Season Annual Cropping Year Normal S:oils Poor So\.ist Total N'ormal Soils Poor 3soi\.Y TotaJl TobaccoŽ' Cro Ied Area / Intensityv ==rO-_____ _---- '000o hR 0 ha 7 (% ) \. ~ ~ ~ ~ ~ ~~~~ ~ ~ ~ ~ --- --- --- --- -- _ ---- ------ V WS W' lg W W W W W W W W w W 14 W 1957 17\.0 17\.0 2\.0 2\.0 19\.- 19\.() 0\.5 0\.5 - - 0\.5 0\.5 0\.23 0\.23 20\.00 20\.0 105 105 19658 17\.0 17\.0 2\.0 2\.0 19\.0 lq9r 0\.5 0,,5 - - 0,\.5 0\.5 0\.22 0\.22 19\.9 199,, 105 1-05 1959 17\.0 17\.0 2\.0 2,,0 19\.0 19\.0 0\.5 0\.,5 - - 0\.5 0\.5 0\.21 0\.21 19\.9 19,9 105 105 1970 17\.0 17\.0 2\.0 2,\.0 19\.0 19\.( 0\.5 0,,5 - - 0\.5 0\.5 0\.24 O\.' 4 20\.0 20,\.0 105 105 19'71 17\.0 17\.0 2\.0 2,\.0 \.19\.0 19\.0 0\.5 0,,5 - - 0\.5 (\.5 0\.35 0-35 20\.2 20\.2 106 1o6 19i72 17\.0 17o0 1\.5 2,\.0 18\.5 19\.0 9\.9 0\.5 1\.1 - 11\.0 u\.S 0\.30 0\.37 30\.1 20,,2 158i 106 1973 17\.0 17\.0 1\.0 2,,0 1800 19\.0 12\.7 0\.o5 1\.5 - 1h\.2 0\.5 0\.25 \.040 32\.7 20,,3 172 107 197h 17\.0 17\.0 0\.8 2\.0 17\.8 19\.0 IL)4o2 0\.5 1\.6 - 15\.8 0\.5 0\.20 0\. 143 ,l4\.0 20J \. 179\. J07 1975 17\.0 17\.0 0\.8 2,,0 17\.8 19\.0 14\.2 0\.5 1\.6 - 15\.8 o\.5 0\.20 0243 34\.0 20,14 179 107 1976 17\.0 17\.0 0\.8 2,\.0 17\.8 19\.0 14\.2 0,,5 1\.6 - 15\.8 0\.5 0\.20 0\. 45 34\.0 202,4 179 3 07 1977 17\.0 17\.0 0\.9 2\.,0 17\.9 19\.0 14\.8 06,5 1\.6 - 16\.4 0\.5 0\.?0 0\.L45 _34\.7 20414 183 107 1978 17\.0 17\.0 0\.9 2,0 17\.9 19\.0 14\.8 0,,5 1\.7 - 16\.5 0\.5 0\.20 0\.!47 314\.8 20,\.14 183 J08 1979 17\.0 17\.0 0\.9 2\.,0 17\.9 19\.0 14\.8 0,,5 1\.7 - 16\.5 o\.5 O\.'2 0\. 48 314\.8 20,,5 183 j08 1980 17\.0 17\.0 1\.0 2\.r0 18\.0 19\.0 15\.3 0\.,5 1\.7 - 17\.0 0\.5 0\.20 0\.50 3524 20\.,, 186 0o8 etc\. w= i th projec t wi= without project a/ Organic and acid soils and flooded depressions\. E/ ^ropped twrice per year\. c/ Refers only to the irrigable area of 19,000 ha, thaLt is rubber, orchards and house gardens are excluded\.  MAldAYSIA LOAN 500-4A: KEUJBU IRRIGATION PROJECT Production from the Project Area-/ Cropped Farmgate Gross Value Production Net Value - Net Return-/ Area Yield Price of Production Costs of Production From Proi,Area Pre-Project (1967) (hTa (Ton/ha) (M$lton7 (M$/ha) (M$/ha) (M$/ha) (m$ million) Main Season Paddy - normal soils 17,000 1\.28-/ 363 465 75 390 6\.63 - poor soils 2,000 0\.77 363 280 63 217 0\.43 Off Season Paddy - normal soils 500 1\.75 363 635 85 550 0\.28 - poor soils - - - _ _ _ _ Tobacco 460 lOo3 430 4,\.30 745 3,685 1\.69 Total 19,960 9\.03 Full Development (1980) Main Season Paddy - normal soils 17,000 2\.6 385 1,000 175 825 14\.02 - poor soils 1,000 1\.5 385 578 140 438 0\.44 - flooded areas (1,000) Off Season Paddy - normal soils 15,300 3\.2 385 1,230 175 1,055 16\.14 - poor soils 1,700 2\.0 385 770 140 630 1\.07 Tobacco 400 10\.5 530 5,560 800 4,760 1\.90 Total 35,400 33\.57 a/ All values in constant 1974 M$o Paddy is valued in ninz`n'ia ^s _rvut' n (See Annex 5, Table 1) b/ Labor costs excluded\. c/ 1967 was a year of heavy crop damage\. Therefore, 1966 yields were substituted to represent pre-project conditions\.  ANNEX 3 MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Comparison of Projected and Actual Paddy Area Planted, Yield and Production 120 GROSS PADDY PRODUCTION Actual Projected 0/ 100 o - rI° - - 0 II 0 c 60 * _ _ , 3\.0 _~~ ___,__ 40 20 I 4\.0 AVERAGE YIELD Actual \. _ - Projected Year -~ 3\.0 - - - - - c )- 2\.0 1\.0 F 40 PADDY AREA PLANTED Actual --- 20 10 I I I I 1966 67 68 69 70 71 72 73 74 75 76 77 78 79 80 el Cropping Year World Bank-9538  AN1,11X 4 1'aige 1 VIALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Organization and Management History of Project Mlanagement 1\. The feasibility studies are silent on the question of project management and the subject is covered in only two paragraphs in the appraisal report\. It was envisaged that the (Federal) DID would be the "executitig agency for the project\." There is no reference in the appraisal report to any need to coordinate engineering planning with agricultural extension and credit activities\. 2\. By 1968, the Government had appointed a Project Coordinator, stationed first in Kuala Lumpur and then in Kelantan\. There appear to have been two occupants of this post, both Malaysian Civil Service appointees (that is, generalist administrators)\. On the other hand, in the Muda Project, the coordinator was first an engineer and later a senior agriculturalist\. The Project Coordinator for Kemubu was successful to the extent that there were no interagency conflicts which interfered with the attainment of the project's objectives\. However, compared with what might have been achieved, or what was achieved at Muda under more dynamic leadership, project coordination at Kemubu appears to have been somewhat inadequate\. DID's performance was good and the development of Farmers' Associations (para 7) was very satisfactory but the other principal agencies involved in the project, namely the Federal and State Departments of Agriculture and (later) MARDI, appear to have been inadequately motivated, staffed anti coordinated (Annex 3)\. 3\. The numbers and calibre of staff assigned to Kemubu has always been a problem\. Successive supervision missions reported that about 40% of posts in the major project agencies were vacant and that many of the staff were relatively young and inexperienced\. This lack of support for the Kemubu Project and the preference shown for the Muda Project in assigning funds and staff must be seen against its political background\. State Governments in Malaysia are heavily dependent on the Federal Government for budgetary support and the secondment of staff, even in fields for which they are nominally responsible, such as irrigation and agriculture\. The Kelantan State Government has, for many years, been controlled by a party outside the Alliance Partv, a grouping of those major parties which held power at the Federal level, and thus Federal support for projects in Kelantan has been somewlhat stinted\. In 1974, a Nlational Front was formed in M4alaysia, which incorporated the ruling partv in Kelantan\. Tlis has led to efforts  AlNiEX 4 Page 2 in Kuala Lumpur to redress the imbalance of past neglect\. Consequc2ntly, it mzay be expected that greater priority will be given to the needs of the Kemubu Project Area in the future\. 4\. The Kemubu Agricultural Development Authority (KADA) was formal- ly set up in January, 1973, but did not obtain its own budget unti:l July 1973\. The former Project Coordinator was appointed as the first General Manager but he was replaced at the beginning of 1974 by the State Agricultural Officer\. Present Status 5\. As well as being responsible for the Kemubu Area, KADA a:Lso operates the Salor, Pasir Mas, Lemal and Alor Pasir pumped irrigation schemes, a total paddy area of 32,000 ha\. KADA is a semi-autonomous authority set up by Act of Parliament and governed by a Board of Federal and State officials\. As KADA has no revenue of its own, it is dependent on Federal budgetary support and thus there is indirect control of its programs and staffing levels by both the Ministries of Agriculture and Rural Development and Finance\. Most of the senior staff of KADA are on attachment or secondment from the Federal DID and DOA and thus have close contact with and receive technical support and supervision from their parent agencies\. Statutorily, KADA is responsible to the Miniister of Agriculture\. 6\. KADA's chief executive is its General Manager (and Deputy Chairman) who is also State Agricultural Officer and State Director of the Farmers' Organization Authority\. While this joint appointment does facilitate coordination between the agencies involved, it does impose an undue burden on the General Manager, especially when so many of the KADA subordinate positions are vacant\. The staffing positions of the three divisions of KADA are shown below: 1974 Approved Vacancies 1975 Budget Division Staffing Level No\. % Request Administxation 22 3 14 26 Agriculture 78 40 51 102 Engineering 528 246 46 534 Total 628 289 46 662 It is intended that KADA should recruit its own staff but experience has shown that it is unlikely that this will be successful, as senior staff would have limited career opportunities in this relatively small organi- zation\. Therefore, it is reasonable to expect that KADA will have to continue to rely on seconded senior staff for the foreseeable future\.  ANNEX 4 Page 3 liowever, it is important that these staff should be full-time employees\. At present\. the head of the Engineering, Division is also State Drainage and Irrigation Engineer and the Acting Hfeacl of the Agriculture Divi-sion devotes half his time to state-wide croD production activities\. 7\. The Agriculture Division is dtivided into twvo branchies, one for Agricultural Input Development and Distribution (which includes sul)ject matter specialists in farm management, seed supply, demonstrations and plant protection) and the other for staffing- the Farmers' Associations (FA's)\. There are nine FA's under KADA's jurisdiction, of which five are located in the Kemubu Area\. Each FA has a building, the Farmers' Development Center (formerly called Agricultural Development Centers), and a staff of five, whose salaries are paid by KADA (Annex 3)\. There are also a small number of supervisor and auditing staff\. In addition, the State DOA has district extension staff and subject matter specialists (Annex 3)\. 8\. The Engineering Division is diivided into two regional O&M branches and a Mechanical and Stores branch\. The section is heavily dependent upon back-up from DID, especially for equipment and for the maintenance of the Kemubu Pumping Station\. 9\. An economist is employed under the Administration Section\. Unlike its M4uda counterpart, KADA does not have a sociologist or an industrial economist\. This lack of specialized supporting staff, together with the highi vacancy rate amongst the line staff\. limit KADA's abilitv to undertake surveys, to evaluate the impact of the project or to plan future development\. 10\. KADA's total budget for 1974 was 1M1$3\.6 million, of which about 14$2\.5 million was attributable to the iKemubu Project Area\. Anotler - l1$0\.5 mnillion was spent by the State ancd Federal DOA on services to the project area, so that the total operating cost was N1$153/ha (US$69/hia), of which M$117/ha (US$52/ha) is accounted for by the engineering O&M cost of the irrigation system (Annex 2)\. Full fletails are given in Table 1\. The large engineering component of the operating cost is examined in Annex 2\. The cost of administration and agricultural ser- vices is also relativelv high\. However, there is some hone that the FA's will eventually become financially self-sutpportin, (Annex 3), at least in their business activities\. Future Potential 11\. KADA !ias been deliberately modelled on the Muda Agricultural Development Authoritv (MADA) but it has not vet achieved the inter- disciplinary integration characteristic of MADA or the thrust of the latter in hringing about techiological change\. This may be largely explained by the lack of dvnamic leadership in Eenubu, tlhe large number of staff vacancies and the high rate of staff turnover - no senior official of  ANNEX 4 Page 4 KADA has been in his post for more than two years\. Steps are being taken to overcome these problems but another intrinsic problem will remain - the small size of KADA\. The paddy area tnder KADA's jurisdiction is only one-third of that in Muda and thus KADA may never be big enough to support specialist advisers in sociology or farm mechanization, as 11ADA has, or to undertake project evaluation and planning of further development, as MADA is doing\. One solution would be for KADA's area of resnonsibility to be increased to take in some of the rainfed paddy areas of the Kelantan Plain or to expand its services to growers of tobacco, rubber and other crops within its present area\. If one or both of these approachies were adopted, KADA might be the appropriate agency to implement the proposed North Kelantan Project\. 12\. Alternatively, KADA might be allowed to "fade awav," especiallv if the FA's are removed from its jurisdiction by June 1975, as is presently proposed\. However, this would be a retrograde step in many ways, as the growing coordination between engineering and agricultural activities might be lost\. Whatever the final form of iCADA, inter- disciplinary coordination should be strengthened and more formal pro- visions made for back-up support from DID and DOA\. There is also an urgent need for closer coordination with MARDI, in order to attack the water management, cropping potential and farm income problems of Kelantan (Annex 3)\.  Table 1 ::\.LALSIAq LOAN x 00-iA:E KEM'B1 IbdTiATION P!OJECT dpereting Budgets Total KADA Budget 'I 1°73 1___7 1975 Actual Budget hequest --- 7TT miion --------- Administration 0\.036 0\.343 0\.386 Agiiculture 0\.113 0\.215 o\.88\. Ehgineering 1\.275 3\.080 3\.o67 Total 1\.L74 3,638 5\.238 Kemubu Project Operating Cost -/ 1972 1973 197b 1975 KADA Actual Actual Budget Request Administration \. 0\.018 0\.171 0\.193 Agriculture o 0\.067 0\.108 0\.L42 Engineering 1\. 075 0\.935 2\.215 2\.300 Sub-Total 1\.075 1\.020 2\.494 2\.935 DOA Federal 0\.134 0\.129 0\.lla 0\.121 State 0\.o00 0\.4oo 00400 0\.400 Total 1\.609 1\.5h9 3\.00U 3\.456 Operating Cost - M$/ha 85 81 158 182 - US$/ha 30 33 69 79 a/ For total KADA area of 32,000 ha\. b/ Identifiable expenditures on Kemubu Area\. Some figures estimated\. c/ Area of 19,000 ha\.  ANNEX 5 Page 1 MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Economic Analysis Prices 1\. All inputs and outputs have been evaluated in constant 1974 Ringgits\. Adjustments of historical prices are based on the exchange rates and domestic price deflators given in Annex 1\. Projections of future price trends are based on Bank commodity price projections in constant 1974 US Dollars, converted at the rate of US$1\.00 to M$2\.30\. 2\. Paddy prices: Two separate price series have been used to evaluate the project area's output of paddy\. Farm income analysis has been based on actual historical farmgate paddy prices and projections of future trends for these prices in line with Bank projections of the price of Thai rice (fob Bangkok) and emerging Malaysian Government policy\. 3\. For the economic analysis, farmgate prices have been linked as closely as possible with actual and projected prices of imported rice with tariffs and subsidies eliminated to the maximum extent possible\. Although Malaysia has made substantial progress over the past decade in reducing its dependence on imported rice, approximately 10% of the nation's requirements are atill imported\. Furthermore, the progress made in import substitution is to a large extent due to developments in the project area itself, 1/ implying that without the project Malaysia would be significantly more dependent on imports\. Thus, for the period 1967-1973, farmgate paddy prices have been based on the cif price of whole milled rice imported into Peninsular Malaysia\. For 1974 and thereafter, Bank estimates and projections of the price of Thai rice (5% broken, fob Bangkok) were used as a basis\. As the grades produced in the project area are rather closer in quality to 15% broken Thai rice than to the 5% export grade, the fob prices of the latter were reduced 10%, maintaining the price ratio between these two grades which has prevailed in recent years\. 4\. The required transport and handling costs (to Kuala Lumpur) have been added to the price series, while transport costs between Kuala Lumpur and Kemubu have been subtracted 2/\. The paddy/rice conversion rate 1/ The project area currently produces a volume of paddy equivalent to about 70% of current imports into Peninsular Halaysia\. 2/ Between 20% and 30% of Kelantan's rice production is shipped to other states, with the Kuala Lumpur area the most important destination\.  AN7NEX 5 Page 2 used (61%) is below the average milling rate in the project area (64%) to account for milling costs in excess of the value of by-products\. Thle price structure used in the economic analysis is given below for three illustrative years: Constant 1974 M$/ton 1967 1973 1980 Export price, fob Bangkok \. \. \. \. 559 Ocean freight * *_*_* 34 cif, Port Klang 760 728 593 Port Handling and Transport to Kuala Lumpur 19 16 14 Wholesale price of rice, Kuala Lumpur 779 744 607 Transport, Kemubu - Kuala Lumpur 53 42 47 Price of rice, Kemubu 726 702 560 Paddy equivalent price, Kemubu 443 428 342 The complete price series used for paddy for both farm income and economic analyses are given in Table 1\. 5\. An effort has been made to eliminate distortions in prices of other inputs and outputs in the economic analysis\. In particular, the full unsubsidized 1/ price of urea (currently about M$950/ton) has been used\. Yields and Project Development 6\. The cultivated area, rate of project development and yields are those described in detail in Annex 3\. Production Costs 7\. Production costs (Table 2) covering current inputs, namely seed, fertilizer, land preparation charges and other agricultural chiemicals (mainly pesticides and herbicides) have been evaluated at constant 1974 market prices\. These production costs have been raised above past levels during the period 1975-80 as a reflection of the expected improvements in management standards which are described in detail in Annex 3\. 1/ There is currently a 55% subsidy on urea in Malaysia\.  ANNEX 5 Page 3 Labor Costs 8\. The cost of labor in the production equation was evaluated at a shladow price derived by computing total labor demand for the project area in 1967 and 1980 for both the with- and without-project situations (Table 3)\. At full development the estimated peak labor demand falls in the month of November when labor demand and supply are almost precisely equated whilst in the month of September in the without-project situation this condition is less precisely realized (Figure 1)\. The wage rates (in constant 1974 M$) pertaining at these two points have been empirically verified as being M$0\.35 and 0\.26 per hour respectively\. Utilizing this information, together with an estimated minimum wage which must be paid to call forth an initial unit of labor, an opportunity cost curve for labor demand in the project area was developed (Figure 2)\. From the curve the monthly marginal and average opportunity costs for labor were calculated for both the with- and without-project situations (Table 4)\. The resulting total annual labor costs for 1967 and 1980 were used, in conjunction with the rate of project development, to generate the shadow priced labor cost stream contained in Table 5\. Capital and O&M Costs 9\. The capital costs are the same as those given in Annex 2 (here converted to constant 1974 M$) with two exceptions: (a) Capital expenditures incurred for engineering and design in the years before 1967 have been converted into their present value in 1967 and added to costs in that year\. (b) Actual total land acquisition costs (Annex 2) were nearly three times as great as market prices at appraisal\. It seems likely that this increase represented a capitalization of the anticipated benefits of the project, and the economic analysis assumes that the estimated market value of the land before construction began provides the most reliable evaluation of the opportunity cost of the land for the without-project situation\. 10\. Operation and maintenance costs are based on the data presented in Annex 4, Table 1\. Project Life 11\. To avoid the difficulties of projecting project benefits into the indefinite future, a project evaluation period of 33 years (up to the year 2000) has been chosen and a salvage value of M$20 million assigned to the project facilities at that date\. The pumps at Kemubu pump station are estimated to need replacement in 1985 at a cost of M$3\.5 million\.  Page 4 0-conOliC Rate of Return 12\. The above assumptions, including the naddy shadow price series Tresented in T'able 1, provide the basis for the cost an{i benefit strearis presented in Table 5\. The resulting economic rate of return of 10\.5% is below the 13% rate projected at appraisal, despite the fact that the shadow price of paddy lhas exceeded the price forecast at appraisal (about N$253/ton in constant 1974 U$) throughout the project period and will remain above that price in the foreseeable future\. 13\. The major factor in the shortfall of the economic rate of return has been the dramatic increase in paddv yields in the project area before construLction was completed, in the absence of improved water supplies or other Project-related effects\. As noted in Annex 3 (para 21) * this vield increase was priniarily due to the introduction of new-i varieties developed in MTalyasia, not foreseen at the time of appraisal\. Actual and currentlv projected yields (tons/ha) for the main season paddy crop are given below for illustrative years: _lormal Soils Problem Soils With Without With Withiout Pro!ject Project Projetct /a 1966- 1\.28 1\.28 0\.77 0\.77 1974 2\.12 1\.98 1\.27 1\.19 1980 2\.60 2\.20 1\.50 1\.30 /a As extraordinarily poor weather in 1967 depressed output to extremely low levels, 1966 yields have been used as base figures in the analvsis\. Althoughi substantial yield increases were projected at appraisal, these increases were assumed to be entirely due to the project\. In actuality, increases in project area output due to the project itself have come almost entirely from double-cropping\. 14\. The economic 1/ value of project area paddy production is given below for illustrative years: 1/ Evail\.uated at the shadow prices given in Table 1\.  ANNEX 5 Page 5 Paddy Gross Output Price Value (tons) (1974 M$) (1974 M$ million) /a 196 - 24,000 346 8\.3 1974 77,000 711 54\.7 1980 98,000 342 33\.5 /a Refer to footnote 1/ on previous page\. About 40% of the total increase in gross value of paddy production between 1966 and 1974 is due to the rise in prices, with the remaining 60% due to the increase in output\. Of the increase in output, 75% is attributable to the project and 25% was due to non-project factors, specifically to the yield increases described in para 13\. Thus about 45% of the total increase in gross value of production between 1966 and 1974 is directly attributable to the project\. The entire increase in gross value of production between 1966 and 1980 (when full project development should be achieved) would be attributable to increased production, since prices are anticipated to decline over that period\. About 77% of the increase in out- put and gross value of production at full development would thus be directly attributable to the project, and 23% to the non-project factors mentioned above\. Farm Incomes 15\. It is estimated that between 1967 and 1980 cultivation practices and yields will so change that net paddy farm incomes will expand by- M$567 (490%) in the case of tenant farmers and by M$1,541 (450%) for owner farmers cultivating average paddy area of 0\.89 ha\. These very satisfactory increases need however some qualification: (a) They reflect reduced production costs consequent on the current level of fertilizer subsidy and the probability that water charges will remain at their current zero level\. (b) Off-farm earnings will, following the increased use of family labor on farm, fall by an estimated 25% by 1980\. In the case of owner operators income from the rent of buffalo for land preparation will decline as a tighter agricultural calendar slowly encourages a general move towards higher direct cost mechanical cultivation\.  ANNEX 5 Page 6 Thus the increase in net total income between the pre- and post-project stiuations is M$467 - 59% for the tenant and 1,451 - 158% for the owner operator\. 16\. From Table 6 it is clear that the major determinant of the large difference in income accruing to the tenant and owner-farmer is land rent\. The mission found no evidence to suggest that the legislation controlling paddy land rents 1/ is either being effectively enforced or is likely to be so enforced in the foreseeable future\. 17\. The existing and predominant form of land tenure is the 'pawah' system which has a wide range of minor variations but is essentially a share cropping system whereby the landord receives by way of rent half the crop (or its cash equivalent) less seed and fertilizer expenses\. Whilst this system may contain discretionary aspects when the tenancy agreement is between kin, there is no quantitative evidence which indicates what happens to the level of rents in such situations\. Similarly, there is no accurate knowledge of the prevalence of kin relationships\. Even, however, if there is some amelioration of rent levels as a product of kin relationships, it is thought that this will not make a major impact on the large income difference between the tenant and owner-farmer\. 18\. Because approximately half the project area is cultivated under tenancy conditions, a substantial portion of the farm level benefits do, and will continue to, accrue to the land owners\. This large transfer payment provides ample justification for the considerable attention devoted to cost recovery in the appraisal report\. Further, it is an area where the Government, through the project authority, should be strongly encouraged to take positive action\. 19\. Additionally, the imposition of the Islamic religious tax of zakat also depresses net incomes\. This tax is levied at a rate of 10% on all production of paddy in excess of 1\.02 tons per holding\. The tax payment for an owner of a \.39 ha holding would be M$168 in 1980, based on projected yields and financial farmgate prices\. 20\. The income level which defines the upper boundary of the second quintile of the national income distribution in Malaysia is M$400 per capita per annum\. From the data in Table 7 and Figure 2, it is probable that, in the pre-project situation, 97% of the farms in the project had total net annual incomes below this level\. The impact of the project has thus fallen almost exclusively on the most needy\. The distribution of income among project beneficiaries could be improved, however, and the lowest income farmers (the sharecroppers) can be provided with a further material increase in prosperity by effective rent control even if this is undertaken in conjunction with a fully economic approach to project O&M cost recovery\. 1/ Padi Cultivators Act (Control of Rent and Security of Tenure), 1967\.  Table 1 MALAYS-EA WLO' 500-MA: KEMTJBU IRRIGATIO;N PROJECT Price Series for Paddy1-/ Financial Farmgate Shadow Farmgate Price Price 1967 363 1143 1968 247 L77 1969 233 389 1970 260 285 1971 290 256 1972 367 30)7 1973 422 428 1974 443 711 1975 135 594 1976 425 538 1977 415 481 1978 405 418 1979 395 367 1980 385 3L2 etc\., 385 342 1/ In constant 1974 M$/ton\.  iALAY6IA LOA?N 500-MA: KEVfiJBU IRRIGATION PROJECT 1½-ot Jal-ue of Paddy Production at Eccnonvic Shadow Prices Gross Value of Product-ion ITet Value of Y i e 1 P Production Costs Production Nqormal Poor Normal Poor Normal Poor NTormal Poor Year Soils Soils Price Soils Soils Soils Soils Soils Soils (ton/ha7- (M$/ton) (M$/ha) T/ h aT (!T/haT) N!ain Season 1967 1,\.28 0\. 77 43 567 341 75 63 1,92 278 19t68 1\.28 0\.77 1§7 611 367 80 66 531 301 1969 1\.85 1\.11 389 720 316 85 70 635 21\.!6 1970D 1\.76 1\.06 28'' 502 302 93 77 Lo9 225 1971 1\.87 1\.12 25h 479 287 99 84 380 203 1972 1\.96 1\.18 3017 6 o' 362 120 98 h82 261 1973 2\.34 1\.40 L28 1,001 599 131 101, 870 L95 1971 2\.12 1\.27 711 1,507 903 1L6 11\.6 1, 361 787 19r7 2\.20 1 30 59,1 1,307 772 150 124 1,157 648 1976 2\.30 1\.30 538 1,237 699 155 130 1,082 569 1977 2\.1,0 1o1,o 481 1,154 673 160 135 994 538 1978 2\.50 1\.40 L18 1,045 585 165 137 880 1148 1979 2\.60 1\.50 367 9514 550 170 1140 781 410 1980 etlc\. 2\.60 1\.50 3L2 889 513 175 110 71)4 373 Off 3eazo-i 1967 1\.75 - LI \.3 775 - 85 - 358 1968 1,75 - 177 835 - 90 - 387 1969 2\.3\. - 389 1,23 _ 95 - 1,118 1970 2\.20 - 285 1,258 - 100 - 1,158 1971 2\.33 - 256 596 - 105 - 485 _ 1972 2\.4,5 1\.57 307 752 1,181 110 93 6142 1,088 1973 2\.93 1\.87 428 1,251 800 120 100 1,13h1 700 19714 2\.65 1\.70 711 1,88,4 1,209 135 111 1,773 1,098 1975 2\.70 1\.70 5912 1,605 1,010 11,5 120 1,L60 890 1976 2\.80 1\.80 538 1,506 968 155 125 1,351 803 1977 2\.90 1\.80 1,81 1,395 866 160 130 1,235 736 1978 3\.00 1\.90 L,18 1,254 794 165 135 1,089 659 1979 3\.10 1\.90 367 1,138 697 170 140 9683 W57 1980 etc\. 3\.20 2\.00 34,2 1,09;, 684 175 140 889 541;  MALAYS IA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Prowect Area Total Labor Demand January February March April May June July August September October November December Total (hcs) (hrs) (hra) (braS) (hra) (hrs) (lira) (hra) (hrs) (hrs) (hra) (hrs) (hrs) Padi Farm Labor w v w w w w w 0 w * w 0 w w w w w w w * w w Nursery (per ha) 35 17 17 35 34 70 Land Preparation (per ha) 143 86 86 143 172 286 Transplanting (per ha) 272 136 136 272 272 544 Fertilizer Application etc\.(per ha) 20 10 5 5 20 10 10 60 Weeding (per ha) 5 20 20 20 5 5 20 15 80 Harvesting (per ha) 131 200 131 200 235 235 262 870 Other Work (per ha) 20 20 30 15 20 20 45 80 TOTAL (per ha) 5 20 131 200 131 255 183 272 30 17 20 138 235 237 290 141 183 5 272 5 30 810 1990 Project Area Total ('000)-' Demand for Padi Farm Labor 103 360 2366 3600 2584 4335 70 3111 110 4624 11 510 331 340 2707 3995 4613 4927 2749 3294 205 4896 106 560 16155 34552 Other Farm Work ('000)-' 495 495 150 495 150 237 150 237 367 495 367 710 150 710 150 495 150 237 150 237 495 495 495 495 3269 5338 Tobacco ('000)-/ 138 120 138 120 403 350 403 350 242 210 242 210 138 120 138 120 403 350 403 350 242 210 242 210 3132 2720 Rubber ('000)_' 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 360 4320 4320 Off-Farm Work ('000)_' 2288 1290 538 323 538 323 1613 323 1613 323 1613 1290 1613 1290 538 323 538 323 538 323 2288 323 2288 1290 16006 7744 Other Regular Emp ( 000)i' 350 700 350 700 350 700 350 700 350 700 350 700 350 700 350 700 350 700 350 700 350 700 350 700 4200 8400 TOTAL ('000) 3734 3325 4102 5598 4385 6305 2946 5081 3042 6712 2943 3780 2942 3520 4243 5993 6414 6897 4550 5264 3940 6984 3841 3615 47082 63074 0 - without project; w - with project\. a/ Monthly totals for the 0 situation include labor requirements for 500 ha cropped in the off-season\. H 5 b/ Includes time spent maintaining farm buildings and attending to livestock\. F cl Based on two crops per year each requiring 6,800 man hours per ha\. dt Based on a monthly requirement of 50 hours per ha\. et Casual employment of all types including work in Kadah undertaken via seasonal migration ft Estimated to be that portion of the labor force permanently and regularly employed\. This is expected to have doubled by 1980\.  MALAYS I A LOAN 500-MA: KlMUBIJ IRRIGA!I'ON PROJECT Total Annual Opportun\.ty Costs for Proiect Farm Labor ja way Febr-ary March April May June Ju w Algust September October November December Total 1otal Pro j\.Le Arca 1boond - Ior Far labor (\.illio- man (ro\.rs) 0\.24 (\.48 2\.70 3\.72 2\.99 4\.b9 0\.47 3\.46 0\.35 4\.83 0\.25 0\.72 0\.47 0\.46 2\.85 4\.12 5\.02 5\.28 3\.15 3\.64 0\.45 5\.11 0\.35 0\.77 19\.29 37\.27 Marginal opport orri ty- Cost (M$ per hour) 0\.155 0\.150 0\.160 0\.170 0\.160 0\.260 0\.145 0\.170 0\.150 0\.310 0\.145 0\.150 0\.145 0\.150 0\.160 0\.220 0\.270 0\.330 0\.160 0\.170 0\.155 0\.350 0\.155 0\.150 - - Average Opportunity Cost (M1$ per hour) 0\.140 0\.135 0\.145 0\.145 (0\.145 0\.166 0\.130 01145 0\.135 0\.160 0\.130 0\.135 0\.130 0\.135 0\.145 0\.147 0\.167 0\.165 0\.145 0\.145 0\.140 0\.170 0\.140 0\.135 - - Total Imputed Cost (M$ '000) 33\.6 64\.8 391\.5 539\.4 433\.6 778\.5 61\.1 501\.7 47\.3 772\.8 32\.5 97\.2 61\.1 62\.1 413\., 605\.6 838\.3 871\.2 456\.8 527\.8 63\.0 868\.7 49\.0 104\.0 2881\.1 5793\.8 \.= Without project w! = ith project a/ S-oo of Padi Farm and Tobacco labor streams from Table 2\.  MALAYSIA LOAN 500-MA: IEMUBU IRRIGATION PROJECT Economic Rate of Return a; ---------- ---------------------------------- Benefits MS Million IL ----------------------------------_----------- -- Costs MS }lillion ------- Net Value of Production costs M$ Wilion -------Main Season Off-Season Total Total Construction 061 Total Normal Soils Foot Soil Normal soils poor soils Tobacco Labor Costs Benefits Net Benefits i w v v v w 0 ' 0 v v w w 1967 2\.3 -- 2\.3 8\.36 8\.36 0\.56 0\.56 0\.35 0\.35 -- -- 1\.70 1\.70 2\.80 2\.80 8\.17 8\.17 - 2\.3 1 1968 6\.9 __ 6\.9 6\.75 6\.75 0\.44 0\.44 0\.37 0\.37 __ __ 1\.45 1\.45 2\.80 2\.80 6\.21 6\.21 - 6\.9 1969 22\.8 22\.8 10\.80 10\.80 0\.72 0\.72 0\.40 0\.40 -- -- 1\.29 1\.29 2\.80 2\.80 10\.41 10\.41 - 22\.8 1970 21\.3 _, 21\.3 6\.95 6\.95 0\.45 0\.45 0\.26 0\.26 -- -- 1\.34 1\.34 2\.80 2\.80 6\.20 6\.20 - 21\.3 1971 13\.8 __ 13\.8 6\.46 6\.46 0\.41 0\.41\. 0\.25 0\.25 -- -- 2\.33 2\.33 2\.83 2\.83 6\.62 6\.62 - 13\.8 1972 7\.9 2\.0 9\.9 8\.25 8\.19 0\.53 0\.40 0\.32 6\.36 -- 0\.43 2\.41 1\.95 2\.83 4\.92 8\.68 12\.41 - 6\.2 1973 3\.0 2\.4 5\.4 13\.31 14\.81 0,82 0\.50 0\.47 14\.41 -- 1\.02 1\.53 0\.96 2\.85 5\.35 13\.28 26\.35 + 7\.7 1974 -- 3\.0 3\.0 21\.78 23\.14 1\.48 0\.63 0\.82 24\.86 -- 1\.73 2\.27 1\.06 2\.85 5\.57 23\.50 45\.85 + 19\.4 1975 -- 3\.0 3\.0 17\.95 19\.67 1\.21 0\.52 0\.68 20\.72 -- 1\.42 2\.71 1\.26 '2\.85 5\.57 19\.70 38\.02 + 15\.3 1976 -- 3\.0 3\.0 15\.98 18\.39 1\.06 0\.46 0\.63 19\.18 -- 1\.35 3\.09 1\.39 2\.85 5\.57 17\.91 35\.20 + 14\.3 1977 -- 3\.0 3\.0 14\.82 16\.90 0\.92 0\.48 0\.58 18\.28 1\.21 3\.34 1\.50 2\.85 5\.70 16\.81 32\.67 + 12\.9 1978 -- 3\.0 3\.0 12\.56 14\.96 0\.76 0\.40 0\.49 16\.12 __ 1\.09 3\.85 1\.64 2\.88 5\.70 14\.78 28\.51 + 10\.7 1979 -- 3\.0 3\.0 11\.34 13\.33 0\.71 0\.37 0\.44 14\.33 _ 0\.95 4\.24 1\.77 2\.88 5\.70 13\.85 25\.05 + 8\.2 1980 -- 3\.0 3\.0 10\.39 12\.14 0\.64 0\.37 0\.40 14\.06 -- 0\.92 4\.76 1\.90 2\.88 5\.79 13\.31 23\.60 + 7\.3 1985 3\.5 _/ 3\.0 6\.5 10\.39 12\.14 0\.64 0\.37 0\.40 14\.36 -- 0\.92 4\.76 1\.90 2\.88 5\.79 13\.31 23\.60 + 3\.8 1986 -- 3\.0 3\.0 10\.39 12\.14 0\.64 0\.37 0\.40 14\.06 -- 0\.92 4\.76 1\.90 2\.88 5\.79 13\.31 23\.60 + 7\.3 2000 -- 3\.0 3\.0 10\.39 12\.14 0\.64 0\.37 0\.40 14\.)6 -- 0\.92 4\.76 1\.90 2\.88 5\.79 13\.31 43\.60 + 27\.3 A4 ESTIMATED RATE OF RETURN 10\.51\. -I> v - without project w - with project a! All valuesin constant 1974 M$\. b/ Expenditure of M$0\.3 m in 1963 and M$1\.0 m in 1964 have been cotpounded at 8% per annum and included in costs for 1967\. c/ The pumps in the Kemubu Pump House are expected to need replacement in 1985 at a cost of M$3\.5 m\. d/ The salvage value of the project in the year 2000 is estimated at MS20\.0 m\.  MALAYSIA LOAN 500-bA: KI-MNUU IRRTGATION PROJEC'I' Farm Budgets (Constant 1°74 M$) -- - 1967 - -…-…----- -1980 ------ ------ ---------------------- Tenanc Owner Tenant Owner MS M$ mS M$ Padi Area (ha) 0\.89 0\.89 0\.89 Other Crops & House Lot (ha) 0\.32 a/ 0\.32 0\.32 _/ 0\.32 Family Sizc 5\.10 5\.10 5\.10 5\.10 Main Season Main Season Main Season Off-Season Annual Main Season Off-Season Annual Seed/Seedlings 14\.25 13\.20 13\.00 13\.00 26\.00 12\.00 12\.00 24\.00 Nursery Fertilizer __ b/ __ b/ 6\.00 6\.00 12\.00 9\.00 9\.00 18\.00 Land Preparation 22\.54 1\.42 46\.00 46\.00 92\.00 24\.00 24\.00 48\.00 Field Fertilizer 18\.08 23\.15 38\.00 40\.00 78\.00 46\.00 50\.00 96\.00 Ag Chemicals -- -- 8\.00 8\.00 16\.00 10\.00 10\.00 20\.00 Hired Labor 26\.13 59\.93 45\.00 45\.00 90\.00 90\.00 90\.00 180\.00 Land Tax __ 3\.30 26\.00 Rent - 175\.00 -- -- -- 885\.00 -- -- -- Zakat _/ __ 8\.00 53\.00 68\.00 121\.00 76\.00 92\.00 168\.00 256\.00 109\.00 -- -- 1,320\.00 -- 580\.00 Yield ton/ha 1\.15 1\.40 2\.40 2\.80 5\.20 3\.00 3\.40 6\.40 Farmgate Price M$/ton 363\.00 363\.00 385\.00 385\.00 385\.00 385\.00 385\.00 385\.00 Gross PadL Farm Income 371\.50 452\.00 924\.00 1,078\.00 2,002\.00 1,155\.00 1,309\.00 2,464\.00 Net Padi Farm Income 115\.50 343,00 __ __ 682\.00 -- -- 1,884\.00 Other Crop Income -e 103\.00 130\.00 __ __ 103\.00 -- -- 120\.00 home Production 129\.00 129\.00 -_ __ 129\.00 __ __ 129\.00 Off-Farm lncoc,: 450\.00 320\.00 -- -- 350\.00 - -- 240\.00 TOTAL NET INCOMF 797;50 922\.a0 1,264\.00 2,373\.00 859\.50 ) 8! ( 1,999\.00 ) 8! a/ Assumed to he owned\. b/ Included in Field Fertilizer\. of Calculated as half the crop less the cost of seed and fertilizer\. df Religious tax levied at 67, per annum on value of gross production in excess of 400 gantangs (1\.0? tons)\. e/ Tncluding sales of livestock products and rent income from draft animals\. f/ Reduced in the light of experience from Muda\. ,/ Net income if rents set at levels specified in Padi Cultivators Act 1967\.  ANNEX 5 rabl,e 7 MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Farm Size Distribution No\. of % Number Total Area Farm Size (acres) Farms of Farms (acres) % Total Area 0 - 0\.99 2,170 10\.1 820 1,8 1 - 1\.99 6,230 28\.9 7,950 16\.8 2 - 2\.99 6,520 30\.3 13,700 28\.9 3 - 3\.99 3,810 17\.7 11,510 24\.3 4 - 4\.99 1,610 7\.5 6,570 13\.9 5 - 5\.99 590 2\.7 3,010 6\.4 6 - 6\.99 380 1\.8 2,370 5\.0 7 plus 190 0\.9 1,370 2\.9 TOTAL 21,500 100\.0 47,300 100\.0  I\.T-!!! c MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Farm Labor Supply and Demand 7\.0 Labor SuPPIy (assumed constant betwee,n 1967 and 1980 as a resull of 6 0 out-M gration) 5\.0 _ -_1980 Demand 1967 Demand E - I 30 ro LL 2\.0 1\.0 t \. I l l l l~ ~ I I __ 1 1 1 J F M A M J A S 0 N D Mlonth World Bank-9539  MALAYSIA LOAN 500-MA: KEMUBU IRRIGATION PROJECT Marginal Opportunity Cost of Farm Labor 0\.4 0\.3 0 G) oo - *9 0\.2 CL 00 0\.1 _,' ~~~I ' I l I - I\. 0 1 2 3 4 5 6 7 8 9 Farm Labor Demand (million man-hours/month) World Bank-9540 1D   m L<_ m C cr2 1/ >

APPROVAL

P043728

Document of THE WORLD BANK Report No\. T-6910-IN TECHNICAL ANNEX ON A PROPOSED CREDIT TO INDIA FOR AN ENVIRONMENTAL MANAGEMENT CAPACITY BUILDING TECHNICAL ASSISTANCE PROJECT DECEMBER 3,1996 Country Operations, Industry and Finance Division Country Department II South Asia Region  Currency Equivalents (as of December 3, 1996) Currency Unit = Rupee Rupee 34\.70 = US$1\.00 Rs\. 1\.00 = US$0\.029 Fiscal Year of Government of India April 1 - March 31 Abbreviations and Acronyms CPCB Central Pollution Control Board DOD Department of Ocean Development EAP Environment Action Program - India EEIPPC Environmental Economics, Indicators and Project Planning Cell EIA Environment Impact Assessment ENVIS Environment Information System EMP Environment Management Plan GOI Government of India GDFE Gujarat Department of Forests and Environment GEC Gujarat Ecology Commission GPCB Gujarat Pollution Control Board ICMAMP Integrated Coastal and Marine Area Management Plan MOEF Ministry of Environment and Forests NEAC National Environment Awareness Campaign NGO Non-Governmental Organization NSC National Steering Committee RRA Regional Resource Agency SEAP State Environmental Action Plan SPCB State Pollution Control Board UNDP United National Development Program UNEP United Nations Environment Program Vice President D\. Joseph Wood Directors Robert Drysdale Edwin Lim Division Chief Luiz Emesto Derbez Staff Member Richard Cambridge  (i) INDIA Environmental Management Capacity Building Technical Assistance Project TECHNICAL ANNEX Table of Contents Sections Page Number Creedit and Project Summary \. (iii) 1\. ENVIRONMENTAL MANAGEMENT ISSUES IN INDIA A\. Environmental Policy Planning \.2 B\. Environmental Administration \.5 C\. Decentralization of Environmental Management \. 6 D\. Implementation of Environmental Law \. \.8 E\. Monitoring and Compliance in Specific High Priority Problem Areas \. \.9 2\. DETAILED PROJECT DESCRIPTION A\. Strengthening Environmental Policy Planning \. 14 B\. Strengthening Environmental Administration \. 19 C\. Strengthening the Decentralization of Environmental Management \. \. 20 D\. Strengthening the Implementation of Environmental Law \. 24 E\. Strengthening Environmental Monitoring and Compliance in Specific High Priority Problem Areas \. 26 F\. Gujarat \. 34 G\. Project Costs and Financing \. 36 3\. PROJECT ADMINISTRATION A\. Project Implementation/Coordination Arrangements \. 37 B\. Procurement \. 41 C\. Disbursements \. 43 D\. Accounting and Auditing \. 45 E\. Monitoring and Evaluation \. 46 F\. Project Training Plan \. 47 G\. Project Supervision Plan \. 49 H\. Project Benefits Analysis \. 52  (ii) Attachments: 1\. Legal Framework \. 60 2\. Environmental Management Institutions \. 73 Tables: 1\. Summary of Proposed Procurement Arrangements \. 43 2\. Allocation of Credit Proceeds \. 44 3\. Estimated Credit Disbursements \. 44 4\. Forecast of Expenditures and Disbursements \. 45 5\. Training Plan \. 47 6\. Detailed Supervision Plan - Staff Weeks Per Mission \. 51 7\. Summary of Supervision Plan by Fiscal Year \. 51 8\. Project Readiness and Time-Frame of Project Impacts \. \. 54 Figures 1\. Chart of Project Implementation Process \. \. 40 2\. Organization Structure for Environmental Management in India \. \. 73 3\. Organizational Chart of the Ministry of Environment and Forests \. \. 75 Boxes 1\. Institutions Involved in Collection of Ground/Sea-truth Data \. 31 2\. Institutions for Waste Load Allocation Programs \. 33 3\. Institutions involved in Coastal and Marine Area Development Activities \. \. 34 4\. India: Environmental Legislation (Acts, Rules, Notifications and Amendments) \. 61 5\. Location of Regional Offices of the Ministry of Environment and Forests \. \. 76 6\. Ongoing Environmental Tasks of Ministries Other than MOEF \. \. 79 The project was prepared by Messrs/Mmes\.: Richard Cambridge (TaskManager, SA2DR) Mohan Gopal (Principal Counsel, LEG); Carter Brandon, (Environmental Economist, ASTEN); Utpal Mukhopadhyay (Institutional Specialist, ASTEN), Panneer Selvan (Environmental Engineer, RSI) Sam Thangaraj (NGO/Participation Specialist, RSI); K\.N\. Venkataraman (Procurement Specialist, RSI), Laurence Boisson de Chazoumes (Counsel, LEGEN) Donald Foster (Training Specialist, Counsultant); Avyeris Andonyadis (Implemenation Specialist (Counsultant) and Savitri Ramaiah (Community Health Specialist, Consultant); and Jeanette Kestell-Cadogan and Beverles Jenkins-Kohi (Staff Assistants, SA2DR); The Peer Reviewers were Me\. Maritta Koch-Weser, (Division Chief, ASTEN); Mr\. John Redwood, (Environmental Specialist, ENVLW) and Mr\. Gunnar Eskeland, (Environmental Economist PRDPE)\. This Report has been endorsed by Messrs: Robert Drysdale, Edwin Lim (Directors, SA2) and Luis-Ernesto Derbez (Division Chief, SA2CI)  (iii) INDIA ENVIRONMENTAL MANAGEMENT CAPACITY BUILDING TECHNICAL ASSISTANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President Implementing Agencies: Ministry of Environment and Forests; Department of Ocean Development; and Gujarat Department of Forests and Environment Beneficiaries: India, the State of Gujarat, and other States for selected components\. Poverty Category: Not Applicable Program Objective Category: Environmental Institutions Environmental Category: C Amount: SDR 34\.7 million (US$50\.0 million equivalent) Terms: Standard, with 35 years maturity Staff Appraisal Report: Not applicable, Technical Annex attached Project Identification No: 1N-PA-43728 Estimated Cost: Local Foreign Total Environmental Policy Planning: 6\.66 7\.25 13\.91 Environmental Administration: 3\.26 0\.57 3\.83 Decentralization of Env\. Management: 4\.68 0\.73 5\.41 Environmental Law: 2\.27 1\.88 4\.15 Monitoring and Compliance: 15\.14 11\.79 26\.93 Gujarat: 5\.62 1\.71 7\.33 Total Base Costs: 37\.63 23\.93 61\.56 Contingencies: (2\.49) 2\.41 (0\.08) Total: 35\.14 26\.34 61\.48 Financing Plan: GOI 11\.48 - 11\.48 IDA 23\.66 26\.34 50\.00 Total: 35\.14 26\.34 61\.48 Estimated Credit Disbursements: IDA Fiscal Year: 1997 1998 1999 2000 2001 2002 2003 Annual: 3\.00 1\.60 13\.60 13\.74 11\.32 5\.38 1\.36 Cumulative: 3\.00 4\.60 18\.20 31\.94 43\.26 48\.64 50\.00 Economic Rate of Return: Not Applicable   1 INDIA Environmental Management Capacity Building Technical Assistance Project TECHNICAL ANNEX 1\. ENVIRONMENTAL MANAGEMENT ISSUES IN INDIA 1\. Introduction\. Each of the individual Bank-IDA assisted projects noted in Schedule A of the Memorandum of the President, includes institutional development/capacity building components, which are designed to enhance the capabilities of various State Departments of Environment and Forests and associated institutions, State Pollution Control Boards (SPCBs), parastatal organizations, and private institutions to better manage the environmental dimensions of specific investment programs\. The Environmental Assessment processes of both the Bank (Operational Directive 4\.01) and Govermnent of India (GOI) (Environmental Impact Assessment of Development Projects Notification 1994) have meant that Category A and B projects (water resources, forestry, infrastructure) have included the preparation and implementation of Environmental Management Plans (EMP)\. However, despite the impressive record of the Bank and GOI collaboration on the environment, gaps remain in the support strategy\. The Enviromnent Action Program - India (EAP) Review (paras\. 13-14 of the MOP) has also demonstrated that, while other bilateral and multilateral donors provide assistance to GOI over the range of its seven environmental priorities, there remains an unfinished agenda, particularly as regards strengthening the capacities of existing institutions to plan, monitor, and strengthen compliance with the environmental laws and standards of the country, i\.e\. environmental management\. 2\. Environmental management is a continuous process that consists of three interconnected steps: (a) the collection and analysis of relevant data; learning from worldwide "best practices"; and incorporating these in the planning and formulation of policy including the setting of standards; (b) the effectiveness and location of the administration of environmental institutions; and (c) program implementation and monitoring to ensure active compliance with established laws and standards\. 3\. An assessment of India's environmental management system suggests that weaknesses are evident at each of the three main steps and every administrative level i\.e\. center, state, and district (municipality and panchayat)\. Further, despite the support provided by the Bank and other donors under specific investment projects, more needs to be done in the areas of air pollution, coastal zone management, urban land use including industrial siting, and mitigating  2 environmental degradation in the mining sector\. Outlined below is a discussion of the major generic issues of environmental management which are manifest at each administrative level\. A\. ENVIRONMENTAL POLICY PLANNING 4\. Environmental management from central government institutions, particularly the Ministry of Environment and Forests (MOEF) and its Regional Offices, and the Central Pollution Control Board (CPCB), is plagued by several problems\. These range from weak data management which affects policy planning and implementation, to overlapping functions and jurisdictions because of the wide range of environmental legislation\. 5\. Environmental Research has received special attention since 1974, when the National Committee on Environmental Planning and Coordination initiated a scheme for developing skilled individuals to confront India's environmental challenges\. A further impetus to environmental research occurred with the establishment of a Research Division of the MOEF in 1985\. A process evolved during this period for soliciting screening, and funding research from universities, industry, and other members of the scientific community\. Research proposals are invited in two ways, i\.e\. either through the member institutions of the Council for Scientific and Industrial Research (CSIR) or by invitations from the Ministry in newspapers\. The Environmental Research Committee (ERC) charged with screening and recommending proposals for funding was instituted by MOEF's predecessor National Committee on Environmental Planning and Coordination during the Fourth Five-Year Plan (1969-74)\. The ERC has 20 members, 14 of whom, including the chairman, are members of the scientific community and six represent the MOEF and other ministries\. Requests for proposals have a generic format only, and do not specify guidelines for the research design, methodology, data treatment or applicability of the findings\. Priorities have not been established among the physical, chemical, and biological features of environmental resources or the economic and social considerations associated with their use, conservation, protection, and management\. Environmental research is supported under three broad categories: Man and Biosphere (MAB); the Environment Research Program (ERP); and Action-Oriented Research for the Eastern and Western Ghats\. About 200 research projects are underway in any given year, with about 90 being newly funded\. ERP principally covers the "Brown Agenda" and has received 60% of the annual Rs\. 38\.5 million budget over the past two years; 1994-95 included 31 ERP projects\. 6\. The MOEF Research Division is not equipped to manage a focused national environment research program\. The process for inviting proposals, screening and recommending projects for support is non-thematic, institution driven rather than national priority driven, and unsystematic\. Since its inception, it has not changed to accommodate new policies and priorities\. The research community, or a large percentage of it, is not professionally prepared to propose and carry out scientific research, as evidenced by the fact that approximately 60% of the 1,000 research projects proposed for 1994-95 are inadequate in their research methodology (no testable hypothesis or professionally acceptable data treatment and analyses) or application to national environmental problems\. The MOEF research effort operates in isolation from other environmental research undertaken both in other sectors and abroad\. This results in the replication of non-India specific research, as well as the dilution of  3 India's available research funds by supporting proposals already underway or which have been completed elsewhere\. 7\. Environmental Information\. There is a consensus that the lack of good quality environmental data is a major problem of environmental management in India\. There are two aspects to this shortcoming: the existence of adequate data, which is essentially a problem of resources and strategic planning in primary data collection; and the availability of, or access to, adequate data, which is primarily related to database management, and the legal right of access by potential users\. Underlying both problems are issues related to technology and resources, unclear institutional mandates, and unclear uses of the data which is collected\. Given India's size and complexity, information collection and database management must be decentralized, both in terms of geographic coverage and thematic area\. Although incomplete in its implementation, this approach has generally been adopted in India\. The data collection and management system has three parts: a) Collectors of primary data, such as State Pollution Control Boards, universities/institutes, and NGOs\. Common problems in the collection of primary data are reliability, adequate resources and insufficient exchange between collectors and end users results in low usage rates of existing data and widespread dissatisfaction by potential end users at the lack of data\. b) Thematic data centers, such as the Environment Information System (ENVIS) centers of the MOEF that collect primary data from all available sources, and attempt to make it available to queries from both the government and the public\. To date, however, the ENVIS centers have had inadequate resources, technology, and skills to maintain well managed and widely accessible environmental databases\. An important first step towards addressing these shortcomings is a proposed UNDP/IDRC project entitled "Establishment of a Sustainable Development Networking Program," which is scheduled to begin in early 1996\. c) Data end users, include government bodies such as the MOEF and CPCB, state environment departments, and the district-level planning committees, and outside users, such as academia, business, the media, and NGOs\. In the case of government, current data-driven decision support systems are generally in rudimentary form, and as a result, do not provide accurate and timely data\. To improve these systems, attention must be given to: (i) data needs for decision- making; and (ii) the technology required to meet those needs\. The resolution of these questions must be tailored to each decision-making body\. Furthermore, the data needs of these important end users should be communicated back up the data management system--to the primary collection and thematic data centers--in order to make the entire system more efficient\. 8\. Environmental Economics is relatively new throughout the world, but has its deepest roots in the resource economics traditions in developed countries\. Much of the current literature in environmental economics builds on the mistakes and inefficiencies of 1960s and 1970s environmental policies adopted in the United States, Europe, and Japan\. For example,  4 the magnitude of industrial investment diverted in these countries to large, rapid, end-of-pipe pollution control equipment in the early 1970s could not be done today in the developing countries without an unacceptable negative impact on growth\. Therefore, alternative approaches to environmental management have evolved that reduce the financial cost to society of improved environmental management, while securing much higher economic, environmental, and social benefits\. 9\. The environmental community in India, particularly those concerned with pollution issues, is dominated by environmental engineers\. Professionals trained in environmental economics are under-represented, and the economic dimension of policy decisions taken by government environment agencies often neglect viable and cost-effective policy options\. As a result, the cost-effectiveness of measures being proposed and implemented is inadequately analyzed, needlessly expensive, and inefficient policies sometimes result\. Two current examples are: (a) the heavy over-reliance on command and control approaches to industrial pollution control, in spite of widespread findings in other countries that a more "mixed policy" approach, utilizing industry compliance incentives through economic instruments, public disclosure, and voluntary programs, can achieve greater pollution abatement at a far lower cost; and (b) the recent introduction of catalytic converters on automobiles, which is one of the least cost-effective of many steps available to address urban air pollution in New Delhi and elsewhere\. 10\. Environmental Indicators and Indices\. A former Minister of Population and Environment of an Asian country is reported to have remarked in 1986: "In my policy making I need an indicator in money terms for losses in environment and resources as a counterweight to the indicator for production, namely national income\. If a theoretically sound indicator is not possible, then think up one that is rather less theoretically sound\." Increasing global concerns about the environment in the 1970s has led many governments and international institutions such as the Bank to initiate efforts to develop standard and transparent methodologies to assess the impact of economic development on environmental quality\. The economic liberalization in India in the 1 990s has stimulated rapid economic growth especially in coastal states like Gujarat and Maharashtra\. This fast growth requires massive investments in energy (coal) production and in other infrastructure sectors\. These investments tend to have profound environmental implications which must be properly assessed in order to maintain that the investments are at least environmentally neutral or, if possible, environmentally beneficial\. Because India is a very large country with a diverse ecological and socioeconomic environment, and has not yet developed such indicators and mainstreamed them as part of their natural economic management, it makes the assessment of the environmental impacts of economic growth all the more necessary and complex\. 11\. Environmental Standards in any country must balance the costs and benefits of firm- level emissions standards, ambient concentration standards, and standards imposed on municipal facilities, such as waste-water treatment plants, off-shore out-takes, or land-fills\. All of these pose difficult issues, and implicit economic, environmental, and social trade-offs\. Standards are best assessed in light of good data on the average cost of compliance and of local ambient conditions\.  5 municipalities trying to comply with such standards, it is appropriate that standards face periodic review and updating\. For example, under the recently approved Bombay Sewage Disposal Project, the environmental assessment process concluded that GOI's bacterial standard for effluent discharge in coastal waters was unnecessarily stringent when compared to standards in the European Union and United States\. GOI has agreed that by June 1997, it will establish revised water quality standards, applicable to the discharge of wastewater to marine coastal waters\. This suggests that a more general review of the appropriateness of national standards and some of the existing legislation may be necessary to bring them in line with current acceptable standards and practice\. B\. ENVIRONMENTAL ADMINISTRATION 13\. Regional Offices of MOEF\. The Environment Impact Assessment (EIA) Bill, 1994, states that any new project or expansion of any existing project would require an evaluation and assessment by the MOEF (Impact Assessment Agency Cell) (Attachment A paras\. 16-23)\. Currently, the MOEF reviews the applications and issues relevant orders\. The Regional Offices are required to monitor the conditions under which clearances are given\. It is evident that follow-up and monitoring of projects cleared under the EIA notification has to be undertaken jointly by the Regional Offices and the SPCBs\. There are instances when the SPCBs and the MOEF adopt different standards under the Air and Water Pollution (Prevention) Control Acts in respect of the same projects, while giving clearances\. The system of monitoring also needs improvement, as it is not based on automatic and on-line monitoring of critical equipment and processes, but based on periodic reports prepared by the units\. MOEF is concerned about systematic follow-up of cases cleared under the EIA and the environmental audit processes, has made it an important function of its Regional Offices (Attachment B para\. 4), and has created posts of scientists in all Regional Offices\. It is also clear that the standard of the EIAs varies from region to region and from agency to agency\. Even though the Notification lays down that all necessary information must be furnished by the industries and the project authorities, in many cases, the EIAs are of inferior quality and that makes quick and effective assessment difficult\. NEERI has attempted to streamline the EIA process and has held some training programs in this regard\. 14\. Presently, the Regional Offices are ill-equipped in manpower and supportive infrastructure to carry out the mandate given to or expected of them\. For example, out of 3,443 forestry projects cleared, the Regional Offices could monitor only 2,034 projects up to March 31, 1995\. Out of 1,175 environmental clearances, only 851 could be monitored in the same period\. In states like Maharashtra and Gujarat, out of 139 and 78 environmental clearances respectively, only 67 and 35 cases could actually be monitored in the same period\. 15\. The present location of the Regional Offices makes it difficult for them to discharge their functions effectively\. For example, the Regional Office at Bhopal is incapable of giving adequate attention to the large-scale industrialization and consequent potential adverse impacts on the environment which is underway in Maharashtra and Gujarat\. Similarly, the Regional Office at Bangalore cannot supervise ongoing activities in Andhra Pradesh, Tamil Nadu, Karnataka, Goa, Kerala and the territory of Pondicherry\. While increased threats to the environment are being matched by the enactment of an increasing amount of legislation, the responsibilities of the various agencies, including the Regional Offices, have not been  6 Nadu, Karnataka, Goa, Kerala and the territory of Pondicherry\. While increased threats to the environment are being matched by the enactment of an increasing amount of legislation, the responsibilities of the various agencies, including the Regional Offices, have not been properly defined\. In many instances, there are overlapping rules, in terms of compliance with environmental regulations under different agencies by the same unit\. Lastly, the Regional Offices are not equipped to deal with specific environmental problems in the regions\. For example, while the Western Regional Office should have expertise in dealing with the environmental consequences arising out of coastal pollution and chemical industries, the Eastern Regional Office should have expertise in coal and other mining\. C\. DECENTRALIZATION OF ENVIRONMENTAL MANAGEMENT 16\. The National Environment Awareness Campaign (NEAC) was created in 1986 to stimulate environmental awareness at all levels of society\. The strategy is to fund a wide variety of activities within existing government and non-government organizations\. During 1994-95 for example, over 2,200 organizations including NGOs, schools, colleges, universities, research institutions, women and youth organizations, army units and other government departments, were provided funds to undertake awareness activities\. These activities were as varied as the organizations involved, and ranged from training courses, seminars, workshops and public meetings to rallies, exhibitions, essay competitions, debate and poster contests, folk dances and street theater\. Activities also included the production and distribution of environmental education resource materials\. 17\. NEAC activities are organized through 20 selected organizations called Regional Resource Agencies (RRA), chosen in part by their geographic location\. The RRAs identify NGOs and other organizations in their region, screen them, and consistent with the year's campaign theme advertise and invite proposals, i\.e\. the 1994-95 themes were "Joint Forest Management, Ecodevelopment and the Montreal Protocol"; the 1995-96 theme is "Women and the Environment"\. The RRAs forward their recommended proposals for funding to the MOEF, where an Empowered Committee further selects, recommends, and submits for final approval to higher MOEF authorities\. Five MOEF Centers of Excellence support environmental awareness activities of NEAC and other programs such as the school-based Eco Clubs, as well as carry out research and training in environmental education\. The activities of these Centers also include formal environmental education courses, publications, public service video spots, exhibitions, and task force reports on specific topics of environmental concern\. 18\. The NEAC has served as the primary general environmental awareness strategy and has evolved in parallel to other environmental awareness and education initiatives\. The extent to which the Indian population has been made aware of environmental issues is unknown, but the number of community-based activities carried out during the past ten years is persuasive that the campaign has reached a wide segment of the population\. However, ten years of mainly the same awareness activities to the same audiences by essentially the same entities should also indicate that the time has come for a review\.  7 19\. NEACs and parallel non-formal environmental education initiatives might be more effective if linked, if action-oriented elements were included, and if focused on specific populations and environmental issues\. NEAC might be more effective if orchestrated with new organizations responsible for managing, monitoring, and compliance enforcement of environmental concerns at the district, town panchayat, and village levels\. 20\. The Paryavaran Vahini Program was launched in 1992-93 as an adjunct to the National Environment Awareness Campaign\. The objective is to involve community members, not only in awareness, but also to empower them to identify and report environmental hazards and activities detrimental to their immediate living and working areas\. One hundred eighty-three districts have been selected in 25 states and four union territories for the establishment of Paryavaran Vahinis or environmental brigades because of the high incidence of pollution, density of forest, and tribal populations\. As of January 1996, one hundred and thirty have been constituted, and forty more have been authorized but not yet established\. 21\. The support system for the Paryavaran Vahinis includes a training program for District Collectors which is carried out by the Regional Offices of MOEF and instructional materials designed and produced by MOEF's Centers of Excellence\. The 130 established Paryavaran Vahinis each have twenty members, selected from within the district by a Joint Committee from MOEF's Regional Office and district leaders\. These 2,600 Paryavaran Vahini members receive a Rs\. 200 stipend per month for honorarium and expenses\. They have a violation reporting form which they submit to the District Collector at monthly meetings\. The District Collector in turn, is expected to follow-up on the complaints and submit them for resolution to other authorities\. The District Collector submits a quarterly report to MOEF's Regional Office which includes the number of complaints received and the action taken on each complaint\. Although it is possible to increase membership of the Vahinis up to 100 members, lack of funding has not allowed an increase even in large geographic and populous districts with a high potential for violations\. The Paryavaran Vahini scheme is a stand-alone activity and parallels another district-based grass-roots action scheme led by Forestry officials, the Van Mukhi\. In addition, relationships have not been established between the Paryavaran Vahini district groups and NGOs working for environmental awareness in the same communities under the NEAC\. Expansion and improvement would require review of selection and training practices, improvement of support budgets including Vahini incentives for member exemplary performance, and infrastructure and training support for State Departments of Environment to assume their proper leadership role\. 22\. The Paryavaran Vahini scheme has not been orchestrated with District-level planning and Panchayat structured environmental management initiatives\. Paryavaran Vahinis have not been linked with other environmental awareness programs, despite some association by Vahini members' with local environmental NGOs\. The success of the Paryavaran Vahini project is based on three fragile premises, that: (a) the District Collector or his appointee, has both the time to be trained as well as the ability to train twenty or more district-wide community members; (b) the trained (for two days) members can knowledgeably identify and report environmental hazards and violations; and (c) the District Collector or his appointee has  8 oversee, train, and follow-up with 27 district Vahinis spread over five states and two union territories\. The process, results, strengths and shortcomings of the Paryavaran Vahini scheme are clear\. D\. IMPLEMENTATION OF ENVIRONMENTAL LAW 24\. Environmental Law\. India has an extensive framework of environmental law\. Its legislative commitment to environmental policy objectives is highlighted by the inclusion of provisions in its Constitution\. This represents an extent of legislative commitment rare in international experience\. In addition, some decisions of Indian courts have provided recognition of environmental rights which is more extensive than in most countries (e\.g\., the recognition of the right to environment as an inherent part of the right to life under the Constitution)\. Although there are issues that remain to be addressed relating to the adequacy of the substantive coverage of laws and the coordination among existing laws and regulations, the main legal issue to be addressed at this time is strengthening implementation of existing laws\. 25\. Industrial pollution is among the main concerns, be it due to large-scale or small-scale industries\. In this context, the main environmental laws that fail to be implemented in India relate to water and air pollution (the Water Prevention and Control of Pollution) Act, 1974 and related laws; The Air (Prevention and Control of Pollution) Act, 1987 and related laws; and the Environment (Protection) Act, 1986\. Each law has an extensive body of regulations (Attachment 1 paras\. 4-27)\. There are four main legal factors contributing to poor implementation: (a) inadequate processes for environmental decision-making and dispute resolution: Legal literature recognizes that compliance is an integral part of the process of bargaining by which individuals and groups gain access to resources\. Effective compliance is largely dependent on the extent to which decision-making processes take into account and reflect the interests of affected groups\. An important function of environmental law should be the provision of a process by which decisions relating to use of environmental resources are taken in a manner that provides a full accounting of all interests and costs and benefits\. It should also provide a process to prevent, mitigate or intermediate environmental conflicts in an orderly fashion\. The Indian environmental law framework does not presently provide and effective process for bargaining/negotiations among affected groups, or resolution of conflicts\. Consequently, disputes are often either resolved through intervention of the judiciary in constitutional litigation, or sometimes result in conflicts that could be avoided through a more inclusive and community-oriented system of decision-making and dispute resolution; (b) absence of non-litigation remedies for affected persons/communities, resulting in excessive reliance on litigation, including constitutional, public interest litigation\. Reliance on litigation not only places a burden on the court system, but is also often not accessible by all segments of affected or interested groups\.  9 judiciary in constitutional litigation, or sometimes result in conflicts that could be avoided through a more inclusive and community-oriented system of decision-making and dispute resolution; (b) absence of non-litigation remedies for affected persons/communities, resulting in excessive reliance on litigation, including constitutional, public interest litigation\. Reliance on litigation not only places a burden on the court system, but is also often not accessible by all segments of affected or interested groups\. (c) insufficient legal infrastructure in the MOEF and in the CPCB and SPCBs, for implementation; weak dissemination of law and the decisions made thereunder; insufficient monitoring of compliance because of lack of monitoring tools and technical and legal capacity to review compliance; inadequate capacity for effective inspection and for taking remedial actions including follow up in courts; and lack of required continuing legal training; and (d) inadequate use of community and non-govermnental resources, and customary law in implementation\. Given the size and diversity of India and the scale of the problems, even a large expansion of bureaucratic capacity is unlikely to have a significant impact of results on the ground\. A legal strategy has not yet been developed for employing India's vast and ancient social institutions and traditions, including its essentially "green" and "eco-friendly" customary law traditions, in the task of environmental protection\. Such a strategy could be implemented within the existing legal framework, and with minimal additional resource needs\. E\. MONITORING AND COMPLIANCE IN SPECIFIC HIGH PRIORITY PROBLEM AREAS 26\. Mining Sector\. Mining projects, one of the 29 sectors listed in the Schedule-I of the Environmental Impact Assessment (EIA) Notification of 1994, require environmental and site clearances from the MOEF\. An exclusive Environmental Appraisal Committee of experts, constituted by the MOEF, appraises a large number of mining projects every year\. During 1994, MOEF received 510 projects for environmental and site appraisal, of which 366 (68%) were mining projects (46 for environmental and 320 for site clearances)' As per the EIA Notification, the Forest Conservation Act of 1980, and the Mining and Minerals Regulating and Development Act, iron, coal, zinc, copper, and aluminum, are declared as major minerals\. Mining projects involving more than five hectares of land are required to obtain environmental and site clearances from the MOEF\. Projects involving minor minerals, such as granite, and marble, and major mineral mining projects requiring leases of less than five hectares of land are given environmental clearances by the concerned state Mining and Geology Department and Department of Environment and Forests\. IAnnual Report 1994-95; Ministry of Environment and Forests  10 27\. The Regional Offices of MOEF monitor the compliance of the Environmental Management Plans (EMP) of projects cleared by the MOEF\. Similarly, the respective state Departments of Environment are responsible for monitoring the compliance of EMPs of the mining projects which they cleared\. State Pollution Control Boards monitor the compliance with the existing water and air pollution emission standards and issue the annual 'consent to operate' approval to the mines cleared by both the Central and State Governments\. The Zonal Offices of the Central Pollution Control Board (CPCB) compile the ambient air and water quality data for the CPCB\. State Pollution Control Boards, on specific request in a few cases, provide assistance to the Regional Offices of MOEF in monitoring the compliance of EMPs\. Under the Major Mineral Conservation Rules of GOI, the Indian Bureau of Mines issues licenses for mining major minerals other than coal (coal mines are handled by the Coal Board) and approves five-year mining plans\. State Governments have their own respective Minor Mineral Conservation Rules and their respective Mining and Geology Departments issue licenses for mining minor minerals and approve five-year mining plans\. 28\. Recognizing the adverse environmental impacts and the need for developing remedial measures that are specific to the mining sector, the MOEF established in 1987, a Center for Mining Environment at Dhanbad in Bihar\. The main objective of this Center is to generate scientific data and build national capacity for sustainable mining in the country\. The Center conducts post graduate and doctoral level courses, as well as training programs for in-service professionals\. Research areas include land use management, noise and vibration problems in 2 mining areas, air pollution in fire areas and its effect on health\. Coal India Ltd\. produces over 90% of India's coal requirement\. As part of a separate proposed FY96 World Bank- assisted Coal India Environrnental and Social Mitigation Project, the in-house capacity of Coal India and its Central Mine Planning and Design Institute (CMPDI) at Ranchi will be strengthened to develop environmentally benign designs for coal mining\. 29\. As described above, several agencies--Indian Bureau of Mines and MOEF at the center, Mining and Geology Departments and Departments of Environment in the states, and Panchayats at the local level, are involved in clearing mining projects\. This situation often results in conflicting approaches and procedures in giving site and environmental clearances\. Also, multiple agencies (state Departments of Environment, Mining and Geology Departments, and State Pollution Control Boards for minor mineral projects, and MOEF, and Indian Bureau of Mines for major mineral projects) are responsible for overseeing compliance of EMPs\. The result is that compliance is poor because of the ambiguous roles of the various regulatory agencies in the mining sector, and each state government having its own procedures for regulating mining and its environmental impacts\. Each State Pollution Control Board has its own rules and environmental standards for the mining sector\. Some State Pollution Control Boards do not monitor mining projects at all, and some have even exempted these projects from applying for the "consent to operate"\. Even those State Pollution Control Boards which issue "consent to operate" and collect "water cess fees", monitor the compliance 2Environment and Development: Traditions, Concerns and Efforts in India--National Report to UNCED, June 1992\.  I1 of air and water pollution standards only\. They do not monitor compliance of other appropriate mitigation measures for environmental protection\. 30\. Inadequate capacity in State Pollution Control Boards and MOEF Regional Offices is common across the country\. Lack of expertise in environmental planning and monitoring of mining projects as well as an inadequate number of professional staff are the major problems\. In some Regional Offices each staff is assigned a large territory with several hundred mining projects\. Staff are normally trained to deal only with industrial air and water pollution control, with the result that the major environmental concerns of mining, such as land degradation, hydrology, and so on, do not receive adequate attention\. 31\. Laxity in addressing the impacts of minor mineral mining projects is another common issue\. The state Departments of Environment and Departments of Mining and Geology do not have in-house capacity to clear the minor minerals projects and to monitor compliance of agreed EMPs\. Also, most State Pollution Control Boards have exempted these mining projects from applying for a "consent to operate" and do not monitor or enforce any environmental standards\. At present, there is not much networking among the various institutions responsible for regulating mining and related environmental impacts\. There is a little coordination and exchange of information/experiences among the mining institutions and the different Government agencies responsible for issuing clearances\. Also, there is a hiatus in addressing the environmental impacts of (old) mines operating with leases which were issued before the 1994 EIA notification\. Under the Forest Act, 1980, the renewal of a mining lease is considered the grant of a fresh lease and requires site and environmental clearances\. Whereas, the EIA notification, is silent on this issue and as a result, old mines continue to operate without implementing appropriate environmental mitigation measures\. 32\. Industrial Siting\. Unplanned and haphazard siting of industries increase the risks to the environment, the cost of degradation, and the future cost of mitigation\. Also, the current industrial clearance process places more emphasis on the stated intent of an industry to comply with emission standards, but often does so with disregard for: (a) the cumulative pollution in the area, which may already exceed ambient standards; (b) the local environment carrying capacity, or its ability to absorb new pollution loads; or (c) local economies of scale in providing infrastructure or common effluent treatment plants for municipalities and local industry\. 33\. The process of integrating the concern for pollution control into a wide cross-sectoral environmental protection strategy has started in India\. The data, skills, and techniques required to generate thematic maps that incorporate economic, physical, and enviromnental themes, are becoming available\. Such map overlays are an essential tool to improved local environmental planning, and require both financial and human resources\. 34\. In India, the spatial dimension of environmental management requires attention\. Inappropriate siting of industry, industrial estates, and other land uses leads to unacceptably high but avoidable environmental damages, infrastructure costs, concentrations of pollution, and social costs, all of which can be lowered through improved planning and industrial siting\.  12 Various technical approaches and tools for environmental planning exist, and most involve mapping and zoning of permissible land uses\. 35\. The CPCB has undertaken a pilot project to demonstrate the use of environmental data for planning purposes in 17 districts in 14 states\. The pilot program is expected to be completed in 1996, and the CPCB has acquired much in terms of methodology, technique, staffing requirements, and data sources\. For each district, the project created a Zoning Atlas which contains maps that show the spatial suitability for siting of industries which are liable to cause adverse environmental impacts given the environmental features at the site\. Now that these pilot maps exist, the challenge is to use them as daily tools in siting new industry (Department of Industry), the issuing of industrial "no objection certificates" (SPCBs), the granting of environmental clearances (State Department of Environment and Forests), physical planning (Town and Country Planning Departments), and economic development (Metropolitan Development Authorities)\. The linkages between the Zoning Atlas project and implementing agencies remain to be made and pose a challenge which must be addressed as a central feature of environmental management\. 36\. Ambient Air Monitoring\. Total Suspended Particulates (TSP), S02 and N02 levels are regularly monitored (about seven times per month) at stations operated by the National Environmental Engineering Research Institute (NEERI) under the jurisdiction of the CPCB in ten of India's largest cities, and by the CPCB in about 18 additional cities\. NEERI operates three stations (residential, commercial and industrial) in each of the cities it monitors\. While NEERI also analyzes the amount of lead (and other metals) in particulates, CO and ozone are monitored only occasionally\. PMIO3 is not monitored at all, although NEERI monitors respirable particles, which are particles less than 13-14 microns in diameter\. The regular monitoring of PM1O, lead, CO, and ozone should be instituted at all CPCB stations\. Knowledge of PM10 levels is crucial to measuring human health effects\. Carbon monoxide and ozone may indeed become serious problems in Indian cities as vehicle fleets grow\. 37\. In addition, in order to set priorities for controlling urban air pollution in India, it is important that emissions inventories be established for each major city\. The emissions inventory locates on a map (in a GIS database), all major industrial, domestic and mobile sources for the common air pollutants and estimates (usually on the basis of quantity of fuel burned times appropriate emissions factors) the emissions from each source\. When linked with source-receptor (dispersion) models, the effect of emitting a ton of particulates (or other pollutant) in a given location on ambient air quality can be predicted\. Since it is ambient air quality that affects human welfare, understanding this linkage is fundamental to doing cost- effective analysis of air pollution abatement strategies\. Without determining the contribution of different sources to ambient pollution at population centers, policy-makers may wind up trying to control sources that really do not contribute much to the air pollution-related health problem\. Previous World Bank documents have mentioned two issues concerning reporting of air pollution data in India\. One is the long lag between data collection and publication\. For 3PMIO = particles less than ten microns in diameter, which more easily penetrate the lung and are therefore more relevant for human health\.  13 example, in early 1995, the CPCB had not yet released statistics for 1992\. Second, the data reported on S02 and N02 do not correspond to India's ambient standards for these pollutants, making it difficult to assess compliance\. 38\. Coastal and Marine Area Management\. The Coastal Regulation Zone notification was issued by the Ministry of Environment and Forests (MOEF) on February 20th, 1991\. By this notification, the Government declared "the coastal stretches of seas, bays, estuaries, creeks, rivers and backwaters, which are influenced by tidal activities (on the landward side) up to 500 meters from the high tide line, and the land between the low tide line and the high tide line as the coastal regulation zone" and imposed restrictions on the setting up and expansion of industries, operations or processes, etc\. on the said zone\. The notification listed a range of prohibited activities (e\.g\. setting up of new industries and expansion of existing industries, except those directly related to the waterfront or directly needing foreshore facilities)\. Details of the regulations for permissible activities and procedures for monitoring and enforcement are discussed in paragraph 27 of Attachment 1\. 39\. Demographic pressure and rapid industrialization generate enormous amounts of waste materials which are discharged into the marine environment along India's 7,500 km coastline which supports a variety of marine ecosystems, including fragile mangroves and coral reefs\. Coastal zone management has become extremely complex because of the lack of clarity of the roles of various organizations, including the ministries of the Government of India\. While the Department of Ocean Development is responsible for monitoring marine pollution, they have little authority in initiating corrective action to control pollution which comes from land-based sources\. Under the CRZ notification, coastal states are required to prepare Coastal Zonal Management Plans for the approval of MOEF\. The approved Coastal Zonal Management Plans would form a part of local statutes for enforcing the norms and provisions of the CRZ notification\. To date, no such plans have been approved; meanwhile, pollution-generating activities continue in many coastal areas\. 4 India has 8-hour and 24-hour standards for TSP, N02 and S02 that are not to be violated more than five percent of the time\. To see whether these standards have been violated requires the frequency distribution of 24-hour average and 9-hour average values\. NEERI reported the distribution of 4-hour average values, and the averaging time used by the CPCB was unclear\.  14 2\. DETAILED PROJECT DESCRIPTION A\. Strengthening Environmental Policy Planning (Proposed Outlay US$ 13\.91 million)5\. This component of the project includes five sub-components, as follows: 40\. Environmental Research subcomponent I\. (US$2\.97 million) would address environmental Cn4as research issues (paras\. 5-6) and consist of three a :e \. \. \. i\. \. parts, Loat10s,armx\. (a) a review of research program orseas 160 staff no l priorities and procedures for d inviting, reviewing and funding research proposals; (b) training in research management and methodology, and (c) the provision of hardware and software to facilitate interaction with international environmental research sources\. This sub-component would focus on the Environmental Research Program (ERP)\. The first activity would consist of MOEF's Research Division staff and selected members of the environmental research scientific community participating in a multi-element, interdisciplinary, international environmental research policy and management forum\. A major outcome of this interaction would be a revised Environmental Research Program, including an implementable action research management plan of policies, practices, and procedures\. The second activity would consist of local workshops and short courses in environmental research methodology and on revised proposal procedures for members of the scientific research community\. Curriculum development, instructional materials design and production, and training of trainers for the workshops would also be undertaken during this period\. The final activity would include provision of computer hardware and software to MOEF's Research Division to facilitate internet access to international environmental research data resources\. It is expected that India's original environmental research findings would be shared and compared with similar topical research findings from abroad and these data would become an integral part of ERP policies and practices\. The sub-component would be implemented by the Research Division of the Ministry of Environment and Forests (para\. 93)\. 5This and other references to proposed outlays are base cost estimates\.  15 41\. Environmental Information (US$1\.46 million)\. This sub-component will focus TecknialAssstance primarily on data management, i\.e\., the thematic Consultnts data centers of the Environmental Information Local 120 staff months System (ENVIS), and only secondarily on data Training end users\. The objective is to help establish an Local 105saffmots \. \. \. ~~~~Eqguipment and materiats-- on-line and geographically decentralized system E an ar of information on environmental issues in India, and to support through training, ENVIS information users, carriers, and providers in government, academia, business, and NGOs\. Achievement of this objective will be measurable in terms of scope, access, quality, reliability, and completeness of environmental data available to end users\. The environmental information (ENVIS) sub-component will consist of: (a) expansion of the ENVIS system, from 23 ENVIS centers to approximately 32 centers; (b) support to ENVIS centers to upgrade on-line databases, primarily through: on- site technical assistance in database management and identification of database needs and structure appropriate to their ENVIS role, and support for the digitization of data currently only available in printed media; and (c) training to ENVIS users, in the form of short courses offered on a low or no- cost basis to ENVIS information users, carriers, and providers, in government, academia, business, and NGOs\. 42\. As needed (based on the progress of the proposed UNDP/IDRC project) "Establishment of a sustainable Development Networking Program", data standardization, coding, and management issues related to data compatibility across ENVIS centers, would be studied\. In addition, additional activities for governmental decision makers, in the form of strategic studies for the implementation of data-driven environmental decision support systems would be considered\. The possibilities include: better tracking of ambient environmental conditions and trends; the creation of environmental indicators linked with measuring the localized impact of current policies; better forecasting including scenarios based on alternative courses of' action; and better tracking of firm-level pollution abatement and project-level implementation of agreed-upon environmental management plans\. The Environment Information Division in the MOEF would be the focal point for this sub- component (para\. 94)\. It will be assisted primarily by local consultants, using locally procured and serviced equipment\. One possibility is to use the same project implementation team (advisory group and consultants) as the UNDP/IDRC Sustainable Development Network Project\.  16 43\. Environmental Economics (US$6\.80 million)\. This sub-component will provide CoFechnc support for curriculum development, expanded Expatriate 96 staffmontis teaching, faculty upgrading fellowships, and Local 670 staff mon6ths ongoing research in the area of environmental Training economics\. Its objective is to increase the Overseas 72 staffmonts application of economic tools to the general Local 440asnd mmontha debate on environmental management in India across the full range of issues such as priority-setting and policy approaches for pollution control, resource management, and biodiversity conservation\. Achievement of this objective will be measurable in terms of the number of college and post-graduates trained in environmental economics; the scope and quality of research in the field of environmental economics; and the integration of the research recommendations into environmental decision- making at the various levels of government\. 44\. The environmental economics sub-component will consist of: (a) establishing an Environmental Economics, Indicators, and Project Planning Cell in the Ministry of Environment and Forests; (b) support to develop an environmental economics curriculum, teaching materials, case studies, and perhaps a textbook combining India-specific case studies with examples of "best practice" from other countries for diploma and degree programs; (c) a faculty-upgrading program, designed to train economics faculty members from across India in basic environmental economics, in order to better equip them to introduce the above curriculum in their respective colleges and universities\. This will consist primarily of short (1-2 months) courses offered in India, but will be supplemented by a few (up to four per year) post-doctoral fellowships for 3-12 months at prominent environmental economics faculties in other countries\. (d) a program to invite environmental economics faculty from other countries to spend 1-9 months teaching and conducting research on an India-specific topic\. (e) training programs for non-economists on applications of environmental economics, especially on such topics as pollution control policy, environmental costs and benefits, environrnental assessments, cost-effectiveness, and environmental-growth tradeoffs\. These programs would consist primarily of short (one week) courses, offered to (a) government officials in the MOEF, state-level Environment Departments, Pollution Control Board officials, members of the Indian Economic Service, non-environment government agencies such as Departments of Industry, Coal, Power, Petroleum, Fertilizer, Fisheries, Bureau of Industrial Costs and Pricing, Town and Country Planning  17 Organization and Directorates, etc\., and (b) representatives of industry, banking, NGOs, the media, and other interested outside parties\. (f) support to university and institute libraries to expand their collections in environmental economics in the form of: (i) a one-time stocking of important books and journals, and (ii) support for future acquisitions on a declining scale over the life of the project; and (g) support to applied research, case studies, and best practices in the area of environmental economics\. In order to ensure the maximum linkage between researchers and students, only universities or institutes offering degree courses would compete for research funds\. In addition, in order to assist in professional skills transfer, research collaborations between institutes in India and in other countries would be encouraged, and limited travel will be supported\. The general themes of the research program will be developed in consultation with the MOEF, the core institutes, and others\. Against these themes, proposals could be invited\. A tentative list of themes would include: (i) lessons from experience, especially case studies on how other countries have addressed environmental issues; (ii) the costs and benefits of investing in the environment; (iii) approaches to regulation enforcement; (iv) approaches to decentralization; (v) public participation and public disclosure; and (vi) fiscal and financing issues; and (vii) public and private sector roles\. 45\. Environmental Standards (US$1\.50 TecknieatAssi*ance million)\. In India, standards have been Consultants challenged for being too lax, too stringent, or Expatriate 12 staff months simply, on occasion, irrelevant\. Given the Lrcail 36 staff monhsg enormous investment capital that is affected by Trainl 100 staff months firms and municipalities trying to comply with Eq caipmentandmaterials such standards, it is appropriate that standards face periodic review and updating\. This process is ongoing in India\. In this regard, the MOEF and CPCB have sought technical assistance in selected areas of this standard-setting and review process, in order that the standards adopted incorporate the latest understanding of relevant technologies, costs, and options\. The objective of this sub-component is to improve the economic and environmental efficiency of air, water, and toxic emissions standards being set by GOI\. Several priority areas have been identified for the development of new standards\. These relate to: hospital wastes; ozone; pesticides, chemical industries including petrochemicals; and man-made fibers\. To achieve this, the project will finance expert assistance to the CPCB's ongoing review and modification of standards procedures\.  18 46\. Environmental Indicators and Indices I T incaAs an - \. (US$1\.21 million)\. Reliable environmental Conutatsh& indicators expressed in both physical and EXpatriate 48staff monts monetary terms provide policy and decision- \. \.Local 269amonth makers with an effective tool with which to make Overseas 48 stffmonths national environmental and economic decisions\. - Locals 2(X) st months Much of the environmental and economic data Wumen materias-d generated in India can be effectively utilized for decision/policy making when analyzed and aggregated to form environmental indices\. This sub-component would provide assistance to the Ministry of Environment and Forests and to the State of Gujarat to develop the following indicators and indices based on current information and policy needs\. 47\. The first activity will be to support the design of a framework of environmental indicators appropriate to India's needs\. Several approaches exist, such as a recently concluded Asian Development Bank-financed study in China, Indonesia, Philippines, Nepal, Pakistan, Marshall Islands on environmental indicators that recommended use of the following indicators and indices: (a) The Cost-of-Remediation Index\. This index measures environmental deterioration directly in economic terns\. It is based on the economic theory that constraints on economic development can be related to benefits foregone via the use of shadow prices of the constraints\. If the standards for the quality of the environment can be identified, then the costs of meeting this standard can be estimated\. Four major environmental sectors are considered for the estimation: air quality, water quality, land quality, and ecosystem quality\. Alternatively, the cost-of-remediation approach can also be used to determine the economic feasibility of meeting existing environmental standards\. (b) Environmental Elasticity\. This index expresses the variability of environmental quality in relation to economic growth\. By measuring changes in environmental quality relative to changes in the economy, it is possible to assess the sustainability of states, regions in a country, and the country as a whole\. Environmental elasticity is defined as the ratio between change of environmental aggregate (weighted average of selected environmental indicators) and change of economic aggregate (weighted average of selected economic indicators) over a certain time period\. Conceptually, when a country is achieving improvements in both economy and environmental quality, the country is on a sustainable path\. However, when a country (state) is experiencing environmental degradation, but economic improvement, if the rate of environmental degradation is slower than the rate of economic improvement, the country is classified as "weakly sustainable" and "unsustainable"\. The concept of environmental elasticity is particularly useful for monitoring environmental trends, which are essential for policy making at the macro level\.  19 (c) Environmental Diamonds\. The diamonds are developed to show, in an accurate and quickly absorbable way, the relationship among the four principal dimensions of enviromnental quality: air, water, land, and ecosystem\. If environmental elasticity is developed mainly for monitoring environmental trends, environmental diamonds are best used for characterizing the state of the environment by the four sectors\. For each sector, a normalized index is chosen to represent the quality of the enviromnent, and the four indices chosen are used to draw a diamond graph\. The great strength of the environmental diamonds is their flexibility in use\. One can base them on conventional indices or cost-of-remediation indices\. They are very good for visual comparison among sectors or among countries\. 48\. Other approaches to the development of environmental indicators include (a) sectoral indicators that link environmental progress to the broader objective of sustainable development; and (b) a formal pressure-state-response framework that helps to identify critical issues and actions required across a wide range of environmental issues\. This indicator design activity will be undertaken in close collaboration with both government and NGO users of environmental indicators\. The second activity to be supported under this subcomponent will be to implement (and fine-tune) the proposed indicators, and to test their usefulness at both the center and in the State of Gujarat\. The environmental indicators subcomponent will be closely associated with the environmental economics and environmental information subcomponents, since the information and analytical aspects of all these are mutually reinforcing\. B\. Strengthening Environmental Administration (Proposed Outlay US$3\.83 million)\. This component of the project includes four subcomponents as follows: 49\. The Regional Offices of the Ministry Technkal Assitane of Environment and Forests (US$1\.46 Consultants million) would be supported in two ways under Expatriate 12 staffmonths Local I100 staff monfth this sub-component\. The first is a detailed TLamoing review of the functions, staffing, workload, and Overseas 20 staff months location of the Regional Offices\. It would also Local 140 staff months cover the systems and procedures employed by Equipmnent and materials the Regional Offices as called for under existing regulations, and examine the problems of overlapping jurisdictions which constrain the effective collaboration of the Regional Offices with state agencies, particularly the State Pollution Control Boards\. A special focus of the review will be the role currently being played by the Regional Offices in the monitoring and implementation of the Environment Impact Assessment (EIA) mechanism which is a major instrument of the environmental management system (paras\.13-15)\. The outcome of this review is likely to be an action plan to expand the number of Regional Offices and to upgrade their staffing to better respond to regional differences in industrial development\. The second part of this sub-component would be to implement a program of training for existing and  20 newly appointed staff of the Regional Offices\. This program would include a training needs assessment, curriculum and training materials development, and the training of staff\. Training would cover topics related to environmental impact assessment and monitoring, coastal and marine area management (para\. 82), mining (paras\. 70 - 71), air pollution monitoring (Para\. 76) as well as environmental law (para\. 64)\. It is expected that at the conclusion of the technical assistance program, the Regional Offices would be staffed, equipped, located and trained to be able to effectively monitor industry compliance with the Environmental Management Plans which are a requirement of the Environmental Impact Assessment Notification\. 50\. Ministry of Environment and Forests (US$ 0\.76 million) would establish a Project Cell to service the National Steering Committee of the project (para\. 91)\. Funds would be provided to cover the costs of the Procurement Agency which would assist the MOEF and other implementing agencies with the procurement of equipment, goods, contractual staff, and consultant services; and local consultants to assist with the development and implementation of the project monitoring and evaluation system\. The capacity within the MOEF would also be strengthened with the establishment of the Environmental Economics, Indicators, and Project Planning Cell (paras\. 44(a); 95) and expert assistance from specialized institutions for the environmental law and mining sector subcomponents (paras\. 99 and 101)\. 51\. The Department of Ocean Development (US$0\.87 million) would establish a Project Implementation Cell to coordinate and manage the implementation of the coastal and marine area management subcomponents of the project (Paras\. 77-82; 102)\. 52\. The Gujarat Department of Forests and Environment (US$0\.74 million) would establish a Project Implementation Cell to coordinate all project activities in the State\. It would work closely with the Project Implementation Cell in the MOEF, the Project Implementation Cell of the DOD; and in Gujarat, with the Gujarat Pollution Control Board and the Gujarat Ecology Commission\. C\. Strengthening the Decentralization of Environmental Management (Proposed Outlay US$5\.41 million)\. This component of the project includes three subcomponents: 53\. The National Environmental Awareness Campaign (US$2\.03 million) subcomponent would \.s\. include support for management, procedures, and E\. xpatriate\.2 sa \. mos target audience impact studies focusing on option Lo XXl 144 staff months for the program's evolution to a National Train,ing Environmental Action Campaign (paras\. 16-19)\. \.a\. 2\. month;- Based on these studies, a revised program would be $quipnentand materki designed and piloted in two states\. The plan also \. would include decentralization of the campaign from the Center to the State Departments of  21 Environment and include appropriate staff training and support\. In addition, two existing support Centers would be strengthened by electronic networking and training in order to design, produce, and train for a new generation of environmental action instruction materials designed to incorporate environmental action elements as well as awareness information\. 54\. A new media campaign would enhance present MOEF efforts by linking productions with other community-based environmental action campaigns\. The subcomponent would include training for MOEF headquarters and Regional Office Staff, State Department of Environment and Forests staff, and NGOs, in target audience stratification and focus group interview techniques, and fund the production of public service radio and television announcements combined with target group impact measurement\. The second part of the subcomponent would support a series of workshops for print and visual media journalists on environmental problems, programs, and mitigation efforts\. 55\. The Paryavaran Vahini (PV) TechnialAssistance (Environmental Brigade) (US$ 0\.98 million) Consultants subcomponent would include a review of the Local 85 staffmonths existing 130 established Paryavaran Vahinis, Training l identify exemplary practices and procedures, Local 200 staff months train MOEF Regional Office staff responsible for l uipment admaterials existing and projected Paryavaran Vahinis in community-based training of trainers techniques and evaluation, train State Department of Environment and Forests staff to coordinate the district based Paryavaran Vahinis in their state, provide recently developed water and soil testing kits to Paryavaran Vahini members (both for community awareness activities and soil and water monitoring), and support an accelerated five year program of Paryavaran Vahini establishment and member training for an additional 284 districts for an end of project total of 424\. Refresher training for existing Paryavaran Vahini members (6000) would be combined with induction training for the 284 additional Paryavaran Vahinis to be established\. 56\. NGO Environmental Action Fund | TechnicalAswistance (US$ 2\.40 million)\. NGO community-based Conasultants environmental action is part of the overall MOEF Local 800 staff months strategy for implementing the Environmental I Action Program\. Implementation of the strategy includes funding NGOs for environmental awareness and action activities\. Several international donors including the UNDP, Canada, Norway, Sweden, the UK, and the USA provide funds for small NGO education and awareness programs\. The project will support the establishment of a NGO Environmental Action Fund (NEAF) for discrete environmental mitigation action projects to be carried out by larger NGOs or consortia of smaller NGOs to carry out community-based projects\. 57\. The objectives of the project would be achieved through the participation of different stakeholders, i\.e "borrowing stakeholders" consisting of central, state and local governments, "primary stakeholders" the community, their groups and organizations; and "secondary stakeholders" such as NGOs and other organizations which have a stake in sustainable  22 development\. The NEAF is designed to facilitate such a participative process for environmental management capacity building for sustainable development in Gujarat\. 58\. The use of NEAF would be piloted in Gujarat which is experiencing rapid industrialization, infrastructure development, and urbanization\. All of this leads to certain adverse environmental impacts, particularly by chemical industries, mining, hazardous waste disposal, and industrial air and water pollution\. Gujarat also has ecologically fragile areas such as Gulf of Kachch, including its Rann, Gulf of Khambat and some Protected Areas\. In order to anticipate, prevent and mitigate such adverse environmental impacts, the Government of Gujarat (GOG) is also planning to prepare a State Environment Action Program (SEAP) in line with the Environment Action Program (EAP) which the Government of India issued in December 1993\. The preparation of SEAP would be coordinated by GOG's Department of Forests and Environment and Gujarat Ecology Commission\. The NEAF would facilitate the participatory process of the preparation of the SEAP\. As part of the SEAP process, NGOs would be involved in (a) review of Gujarat's Environmental Status Report through a series of consultations, public hearings, workshops and seminars; (b) implementation of priority selected studies or surveys identified by the SEAP Steering Committee; (c) review of hot spot mitigation plans; and (d) review of long-term strategies being endorsed in the draft SEAP\. The NEAF in particular will be used by NGOs to concentrate on environmental actions that would anticipate, prevent, and mitigate adverse environmental impacts\. The NEAF will be administered by a Committee for NGO Environmental Action Fund\. 59\. The Committee for NGO Environmental Action Fund (COMNEAF) which will administer the NEAF will have full administrative and financial authority to manage and administer it in a transparent and participatory manner that would involve only the members of COMNEAF\. The COMNEAF will consist of the Additional Chief Secretary, Department of Forests and Environment as Chairman; the Chairman and Member Secretary of the Gujarat Ecology Comnmission; the Secretary of the Gujarat Pollution Control Board; one representative of MOEF; the Secretary, Industry and Mines Department, (GOG), the Secretary of Water Supply in the Departement of Health and Family Welfare (GOG); and representatives from industries and NGOs as members\. The Member-Secretary, Gujarat Ecology Commission will be the Secretary of COMNEAF which will meet at least once every three months, will maintain the Minutes of the meetings and records of the Committee\. COMNEAF will have the authority to receive, consider, and approve proposals for funding under NEAF, and also to regularly monitor and evaluate the programs funded by it directly and indirectly through consultants and other organizations that are approved by the Committee\. The Committee will formulate its own process of decision-making through a participatory process after it has been constituted\. 60\. NGOs which have an interest in sustainable development and are actively involved in environmental management of different eco-system and at different levels - Gram Panchayat, town, block, district and state would be eligible for funding from the NEAF\. The following criteria would be used to select and involve appropriate NGOs\. They should have: (a) been a Registered Society, Trust, Educational or an Industrial institution which has been registered under a relevant act in Gujarat that authorizes it to undertake actions that could be funded  23 from NEAF; (b) completed a minimum of three years since registration and fulfilled the mandatory requirements of the relevant Act under which it is registered such as the Annual Audit of Account\. Some relaxation of this criteria may be considered on a case-by-case basis by COMNEAF; (c) demonstrated experience and presence in environment management, including action-research, education, training, consumer rights, rural development; urban development, and ecodevelopment; (d) appropriate professional skills and experience which are necessary to successful research, planning, implementing, and monitoring a program through a process of participation involving the community, comnmunity based organizations (CBOs) and Gram Panchayats; and (e) have a clearer understanding of the relations between people and their environment and also their environmental, social, economic and cultural impacts on communities including tribals and women\. In order to facilitate direct participation of the people, elected Gram Panchyats will also be considered to be stakeholders, who are eligible to receive funds from NEAF on the basis of Special Action Plans that are in accordance with the criteria for funding\. 61\. The Fund would support programs that would help to anticipate, avoid, and mitigate adverse environrmental impacts centering around emergency and specific environmental problems emanating from chemical industries, mining, waste disposal, and protection of ecologically fragile areas\. The program would be multi-level based and participatory oriented\. Priorities for funding would be for: (a) preparation of State of Gujarat's Environment; State of District Environment (for each District); and State of Eco-system (for each eco-system and Protected Area); (b) action plans for mitigating specific environmental problems at different levels; (c) actions plans for participative management of village common properties, ecologically fragile areas such as forest lands, coastal areas and desert areas; (d) ensuring compliance of environmental acts by organizing participatory public hearings and "social audit" by Citizens Groups, CBOs, and NGOs; (e) organizing training of staff of NGOs, members of Gram Panchayats, community leaders, teachers, consultants and their staff to enhance environmental capacity and protection; (f) curriculum for environmental education to be used at primary and high schools as an integral part of study; (g) materials for environmental education, training and campaigns; (h) formulation and demonstration of environmentally non-degrading, technically appropriate and socially acceptable technologies for sustainable development; and (i) environmental upgrading of private sector that is participative and socially acceptable, through a transparent and participative process\.  24 D\. Strengthening the Implementation of Environmental Law (Proposed Outlay US$ 4\.15 million)\. The component of the project includes one subcomponent with three parts\. 62\. Environmental Law (US$4\.15 million)\. ! Tecli- IIa-Assiance India has a comprehensive framework of co*Et- environmental legislation and regulations\. p Mgatiate - 70sff imonth Although there are some areas of substantive law Local 155 stafftmonthl that need to be further clarified, there is \.Contactual Staff \.65staff\.mo\. consensus in the Indian legal community that the Trainig priority in the area of environmental law is the 0 Vtseas 60 stafnomths\. development of legal capacity to assist effective 4Loca 400dstaff months91 implementation of existing laws\. From a legal - We d materials perspective, the main challenge to improve implementation of laws is to strengthen voluntary compliance with laws as well as capacity to monitor and enforce laws\. There is wide recognition that both these objectives involve very complex issues relating not only to legal rules and institutions, but also to the broader processes by which communities and individuals define their relationship with the natural environment\. It is a continuing process, rather than a finite objective\. 63\. With this perspective, the project will assist in strengthening voluntary compliance, as well as capacity for enforcement\. The approach of the legal component rests on the assumption that, in the long-term communities will play a central role in this effort\. Through a bottom-up, participatory approach based on traditional approaches to compliance with law and norms governing environmental resource use, the Project will support the development of specific actionable strategies to reduce the gap between law and practice\. 64\. The Project will support strengthening of legal infrastructure for implementation of environmental law by: (a) the provision of training in environmental law (including international aspects) to legal staff of the MOEF, CPCB, and SPCBs, as well as industrial managers and non-governmental organizations; (b) ensuring that suitably qualified environmental lawyers are available as follow: (i) at least two lawyers for each SPCB; (ii) at least four lawyers at the CPCB; (iii) at least three lawyers at MOEF; and (c) establishing a computerized environmental law network which will provide current information on environmental law and regulations at the national and state levels\. 65\. The Project will also support the development of community-based environmental decision-making and dispute resolution\. This component will seek to assist the enhancement of decentralization and devolution of environmental law administration, while maintaining the  25 appropriate role of central and state authorities for policy setting and enforcement\. In empowering communities in this regard, traditional panchayats and other instruments of local government established in India under its recent Panchayat Raj legislation would have a central role\. The Project will identify ways through which communities and affected groups, as well as individuals (particularly in the local context) may be better informed about laws and regulation, participate in key decisions under the environmental statutes, and have responsibility for monitoring compliance\. To this end, the Project will support studies that will develop strategies such as for: (a) the delegation and devolution of selected responsibilities under environmental laws to villages, panchayats and municipalities including the provision of technical and advisory services to them from non-governmental sources; information access and dissemination to affected communities and the public at large, including the establishment of information centers at the state and district levels; (b) instituting public hearings related to key environmental decisions such as siting of new industries, as well as implementation of remediation measures; and (c) establishment of capacity in communities for monitoring compliance with laws including for the collection and provision of data as evidence of compliance under environmental laws; and (d) building legal capacity of non-governmental organizations for monitoring compliance with environmental laws, regulations and decisions, with emphasis on highly polluted areas\. The Project will support piloting and the initial implementation of these strategies once they are discussed and agreed with the Government\. The Project will support specific proposals on a grant basis\. The outputs of the research program supported under the Project will provide valuable inputs for the development of these strategies\. 66\. Effective non-litigatory remedies for affected persons/communities\. This will involve establishment of decentralized administrative review procedures accessible to local communities and affected members of the public, which will not require the use of formal legal procedures\. These review procedures, which would be modeled along the successful experience of India with "Lok Adalat" forums (community-based mediation), would provide easily accessible and local forums for public hearings and initial resolution of environmental grievances\. In addition, the strategy will propose ways to use mediation and conciliation as well as traditional approaches to dispute settlement\. Support would be provided for the implementation of the strategy in selected highly polluted areas through supporting development of institutional capacity in this regard\.  26 67\. Strengthening of legal research and legal education in environmental law would be achieved by: (a) establishment of a Center for Law and the Environment a selected Law School in India as a center for excellence in environmental law, consisting of the provision of a full-time faculty position; the Center will be responsible of establishing relationships with the Law Schools in India providing teaching in environmental law; development of a core syllabus and curriculum to train teachers of environmental law; development of syllabus and teaching materials (including a case book) for teaching environmental law in Indian Law Schools; and the provision of resources for the establishment of a library of environmental law at the Center with a core international collection; as well as provision of books and materials to selected law school libraries; (b) assessment of the scope and coverage of existing laws to effectively achieve policy objectives, including effective coordination between various environ- mental laws and regulations; (c) a program of empirical research into the role of law in environmental matters in India that would establish a body of scholarly information on (i) traditional and customary laws governing access to and use of natural resources and the resolution of disputes related thereto; (ii) use of law and legal remedies by individuals and communities in India in relation to environmental matters, including environmental disputes in courts; and (iii) use of law to achieve priority policy objectives\. The research program will produce a report in each of the above areas, with specific recommendations for consideration by the Government; and (d) environmental law publication: the Project will support the establishment of a high quality publication on environmental law, to be published by a selected Law School in India\. E\. Strengthening Environmental Monitoring and Compliance in Specific High-Priority Problem Areas (Proposed Outlay US$ 26\.93 million)\. This component includes four sub-components as follows: 68\. Mining Sector (US$6\.31 million)\. The TecniclAsistanc main objective of this sub-component is to 0ConsutAnts strengthen the national capacity for environmental raExpatriate 116 staxt the mining Local 530 staffnmonths_\. monitoring and implementation in the mining raining sector (paras\. 26-31)\. More specifically, this sub- Overseas 50 staff months component aims to enhance the capabilities of the Local 400 staff months concerned central (CPCB, Regional Offices of Equipment and materials  27 MOEF) and State agencies (Departments of Enviromnent, Mining and Geology Departments, and State Pollution Control boards) in developing and monitoring the compliance of local policies, EMPs, and appropriate environmental standards for all mining projects\. The existing mining institutions such as the Center for Mining Environment, Dhanbad; Indian Bureau of Mines, and others will be strengthened in the planning and design of environmentally benignl mining projects, and become a resource group for MOEF, state Departments of Environment, CPCB and State Pollution Control Boards\. 69\. The following four major activities are envisaged: (a) review of existing policies/standards and their compliance mechanisms; (b) institutional strengthening; (c) training; and (d) demonstration projects\. All four activities are inter-related and will be carefully phased and coordinated to achieve the objective\. For example, the review will help identify institutional needs, the demonstration projects will provide specialized training opportunities and generate information that will strengthen the institution\. 70\. Review of policies/standards and their compliance mechanisms is expected to produce four main outcomes: (a) an inventory analysis of existing environmental and mine leasing policies, with respect to environmental and social concerns, and the roles and responsibilities of various agencies at central, state and local levels in implementing these policies; (b) identification of institutional and technical barriers to compliance with existing policies and in promoting environmentally benign mining designs and mitigation practices; (c) generation or policy options and standards for major and minor minerals mining projects; and (d) unambiguous definition of roles and responsibilities of multiple agencies which will be complementary to each other\. This review will also provide feedback to the other sub- component--strengthening of Regional Offices of MOEF, in the context of monitoring the compliance of EMPs for mining projects\. While the local consultants would carry out the review, foreign consultants would bring in international experiences in formulating policies and standards\. 71\. Institutional strengthening activity is expected to cover two sets of institutions\. One set consists of government agencies at central (Indian Bureau of Mines, the MOEF and CPCB) and state (Department of Forests and Environment, Regional Offices of MOEF, and State Pollution Control Boards) level who are responsible for policy making, standard setting and enforcement\. These agencies will be strengthened to: (a) enhance their capacity to monitor the compliance of EMPs and the prescribed environmental standards by mine operators; and (b) establish an effective data management system and a computer network among these agencies to assist the sharing of information and decision making processes\. The other set of institutions are the Centers of Excellence and research agencies working in the field of mining\. These will be strengthened to: (a) develop their expertise in planning, design, and implementation of environmentally benign mine designs; (b) become a resource  28 group for the government agencies described above, in discharging their responsibilities and for the miners in implementation of environmentally benign designs; and (c) carry out specific research/studies to equip the Indian mine sector with latest developments\. Equipment and instruments for field research and surveys required for achieving these outputs will be provided\. In order to bring in international experience and state of the art technological developments in mining, twinning arrangements with reputed mining institutions in developed countries, where mining is a major economic activity will be provided\. 72\. Best practice demonstration projects for specific mitigation measures, such as land reclamation, closure of old abandoned mines, regeneration of regional ecology, etc\. offer many advantages\. One is to develop feasible mitigation measures and techniques for major mineral mining projects\. Another is to train mine operators in instilling the principles of planning, design, implementation, and monitoring the mitigation measures\. Also, these projects generate information that can be used for policy and decision making\. The procedures and criteria for selection, funding, and implementation of demonstration projects/mitigation measures have to be developed\. Three major outcomes are expected from the demonstration projects i\.e\.: a limited number of successful demonstrations of EMPs; an analysis of the project outcomes and feedback for policy making and standards setting processes; and technical and management guidelines for different minerals mining projects\. 73\. Training of key staff members of the above-described institutions would be an essential input for realizing the objective of this sub-project\. Depending on the target groups and their specific needs, specialized training programs will be organized within and outside India\. The broad areas would be: planning, design and implementation of environmentally benign designs, development and monitoring compliance of policies, standards, EMPs, etc\., 74\. Industry Siting (Zoning Atlas) (US$8\.44 million)\. The CPCB has proposed a Cns ultants' five-year program to map all of the rapidly Eptatemts industrializing districts across India, using the Lcal\. 680 staff mos\. same technology and methodology used in the Training pilot mapping program (para\. 35)\. In addition, Overseas 120 Gstaf mnhs\. Local\. 980 staff months\. the plan includes components for state\.-WideEq,enadmaeal mapping of ecologically sensitive areas, proposed sites for new industrial estates, and the drafting of national guidelines for industrial siting and land use planning\. The work program would be managed by the Environmental Planning Studio in the CPCB, with institutional linkages via the SPCBs to the state and district level planning authorities in each state\. The objective of this sub-component is to involve district, state, and central level environmental and planning agencies in the shared task of creating environmental thematic district-level maps, following the methodology already developed by the CPCB\. This sub-component will focus on training many of the map end- users who are currently unfamiliar with the use of environmental maps in planning and industrial siting\.  29 75\. This sub-component will include: (a) updating the draft guidelines for preparing zoning atlases, to be made available to all map users\. (b) including of up to 65 more districts in the mapping program, which will require the installation of environmental planning studies in each of the participating SPCBs, with the requisite hardware, software, and training to be supervised by the core CPCB team\. (c) identifying, in those districts with completed maps, both unsuitable and suitable sites for industry and industrial estates\. Then, provisional guidelines for industrial estate siting will be developed and tested, finalized and implemented in all districts with completed maps\. (d) drafting, starting with a case study in Gujarat, guidelines for industrial development and land-use planning on the state level, taking into account a broad range of industry, urban, agricultural, forest, and ecologically sensitive (and perhaps protected) areas\. 76\. Ambient Air Pollution Monitoring (US$ 6\.47 million)\. The objective of this sub-component is to assist the Central Eptt1a h Pollution Control Board in upgrading India's LoWal 240 staff months air pollution monitoring system\. The Training upgrading is needed to bring India's air Local 200 staff --onts pollution reporting up to a sufficient qi ad materials standard to allow: (a) emissions inventories of critical air pollutants to be completed for India's major cities, including ambient monitoring of some key pollutants that impact o n human health that are not currently sampled (such as fine particulates); (b) cost-effectiveness analysis of air pollution control strategies that link source reduction strategies with down-wind ambient impacts; and (c) reliable analysis of trends over time\. Although India has a base network in place of over 200 fixed air monitoring stations nation-wide, the technology employed has been shown to contain some inaccuracies\. Also, the proposed upgrading will increase somewhat the geographic coverage of the air monitoring system\. The subcomponent would build on the recommendations for improving air pollution monitoring from the State  30 Pollution Control Boards, National Environmental Engineering Research Institute (NEERI), and the current GTZ technical assistance project with the SPCBs\. It would help finance the purchase of more accurate air pollution monitoring equipment, provide training to staff of the CPCB and SPCBs on equipment use, and provide training on the preliminary analysis and reporting of results\. 77\. Coastal and Marine Area Management TechniculAssce (US$5\.71 million)\. To assist in the development u4ows of comprehensive coastal and marine area Expatiiate 6 staff monts\. management the project would support the: (a) Local 405 staffionths\.'\. development of a GIS-based information system Tr Contat Staff 172 staff monhs for critical habitats in the coastal marine areas of aining Overseas 15 staff monthfs India; (b) preparation of model Integrated Coastal Local 342 staff months and Marine Area Management Plans; (c) Equipen an h4hmaterials conducting waste assimilation capacity and ecological modeling of selected coastal areas; and (d) development of Environmental Impact Assessment guidelines for major marine and coastal area developmental activities\. 78\. Development of GIS-based Critical Habitats Information System for Coastal Marine Areas in India To develop and maintain GIS-based databases for assessing and managing critical habitats and their resources, the project will support: (a) a review of the availability of existing data and collecting data on relevant parameters for critical habitats; (b) preparation of Critical Habitats Area Maps on 1:25,000 scale using IRS LISS-II satellite data; (c) integration of satellite and field data using the ARC/INFO GIS software and development of a GIS-based Critical Habitat Information System (CHIS); (d) interpretation and analysis of data to provide plans for efficient monitoring and management of critical habitats; and (e) organizing end-user training-cum-workshops for selected coastal state governments and other end-users to promote the adoption of CHIS in the management of critical habitats\. The expected outcome of the above activities would be a CHIS for the coastal and marine areas of India including the Lakshwadeep and Andaman and Nicobar Islands in the form of computer package with a user-interactive menu; output maps to delineate where critical habitats have to be conserved; end-user utilization programs; and a Final Report with plans for sustainable development of critical habitats in coastal and marine areas\. The institutions which would be responsible for collection of ground/sea-truth data for the critical habitats are shown in Box 1\.  31 Box: 1\. Proposed Institutions to be Involved in Collection of Ground/Sea-Truth Data In%fitute Trask Project Directorate, ENVIS Centers for MOEF, National Development of CHIS for selected critical habitats\. Institute of Oceanography, Anna University, Zoological and Botanical Survey of India, Central Salt & Marine Chemicals Res\. Institute, Orissa Remote Sensing Center Institute for Ocean Management, Anna University, Madras Collection of satellite based data and preparation of and Space Application Center, Ahmedabad and State Remote maps required Sensing Application Centers in Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Orissa and West Bengal National Institute of Oceanography, Goa and its regional Physical, chemical and biological aspects of critical centers at Bombay, Cochin & Visakhapatnam habitats in Gujarat, Maharashtra, Goa, parts of Kamataka, Kerala & Andhra except on mangroves, seaweeds and sea grasses Botanical Survey of India Mangroves & seaweeds all over India Zoological Survey of India Bio-diversity of marine animnals in all critical habitats particularly on Invertebrates M\.S\. Swaminathan Research Foundation Central Marine Fisheries Research Institute, Cochin Seasonal occurrence and distribution of commercially important shell and fm fishes along coastal marine Central Inland Fisheries Research Institute, Barrackpore areas Central Salt and Marine Chemicals Research Institute, Seasonal occurrence and distribution of commercially Bhavnagar important seaweeds along coastal marine areas Fisheries College, Mangalore Cochin University, Cochin Data on Marine organisms of the critical habitats Kerala University, Trivandrum Madurai Kamraj University, located in the respective States (locations of the Madurai Annamalai University, Parangipettai Bharathidasan Institute/University) and all other infornation like University, Trichy Andhra University, Visakhapatnam Primary and secondary production\. Berhampur University, Berhampur University of Calcutta, Calcutta Genetic Resource Center, Lucknow Center for Earth Science Studies, Trivandrum; Central Water Data on coastal erosion, accretion in all critical & Power Research Station, Pune; Regional Engineering habitats\. College, Suratkal; Central Beach Erosion Control Board 79\. Preparation of Model Integrated Coastal and Marine Area Management Plans\. The major objective of this activity is to develop capabilities in the development of Integrated Coastal and Marine Area Management Plans (ICMAMPs) in India; and establish training programs to build capacity in the coastal states to prepare ICMAMPs\. To achieve these objectives, the project would support: overseas training of scientists on the methodologies  32 involved in the development of ICMAMPs; developing model ICMAMPs; establishing training programs in India for planners, scientists, NGOs, environmental consultants, educators, and university students in coastal states; and assisting coastal States (Gujarat in particular) in the development of ICMAMPs and assisting DOD in the evaluation of these plans\. 80\. Several developed countries have adopted integrated coastal area management\. In order to quickly acquire the knowledge and facilitate immediate development of ICMAMPs in India, it is necessary to expose scientists and planners to this concept through fellowship training overseas\. After the completion of the overseas training program, trainees will become the full or part-time trainers in the courses proposed to be organized under the project\. The development of model plans is also critical\. Therefore, using the knowledge acquired through experts services and overseas training, model ICMAMPs along with requisite GIS-based information system will be prepared for two or three selected areas among Madras, Cochin, Goa and Mumbai\. The establishment of a training center as a part of the Project Directorate at Madras to provide training in the preparation of ICMAMPs, will help the sectoral governments in developing expertise in the development of ICMAMPs and facilitate quick development of the plans\. Courses to be provided include: (a) theoretical courses on coastal marine activities and their impact on environment; (b) requirements for preparation of ICMAMPs and relevance of GIS- based infornation system techniques as a technical aid and pre-requisite in the development of ICMAMP; (c) adoption of use-classification and zoning concepts in the preparation of ICMAMPs; and (d) development of ICMAMPs with examples of model plans\. Institutions like the National Institute of Oceanography will be involved in the preparation of ICMAMPs\. 81\. Waste Assimilation Capacity and Ecological Modeling of Selected Coastal Areas\. The project would support Waste Load Allocation (WLAs) studies for three estuarine environments which face water quality problems because of urban and industrial development\. These systems are the Tapi estuary, Cochin backwaters, and Ennore estuary\. The project would help develop indigenous expertise in this area and generate further WLA programs for the remaining riverine and coastal waterways\. The output of the project over five years would be: a report on water quantity and quality uses for the three surface water bodies; calibrated and validated models for dissolved oxygen and eco-toxicity; a management plan or waste load allocation for the three sites; recommendations to the State Pollution Control Boards (SPCBs) accompanied by a preliminary cost-benefit analysis, and social implications; and guidelines to DOD/CPCB on how to conduct WLAs in remaining coastal waters\. The institutions which would be involved are shown on Box 2\.  33 X E 5pwed Institutions for Waste Loand Allocation Programs Institution Task Project Directorate Overall coordination of the program and participation in modeling studies in Ennore estuary/Cochin backwaters Lead Institutions Central & State Pollution Control Boards Determination of use classification of three areas and determination of water quality criteria Center for Earth Sciences Studies (CESS), RITES Collection of data on tides, currents and bathymetry CESS, Central Electro-chemical Research Insti- Collection of data on chemical and microbiological tute, Central Marine Fisheries Research Inst\., parameters Regional Center NIO, Cochin, Cochin University Central and State Pollution Control Boards Information on existing and proposed discharges, monitoring of discharges and participation in modeling studies 82\. Environmental Impact Assessment Guidelines for Marine and Coastal Area Developmental Activities\. The objectives of the activity are to review existing literature and similar EIA statements and develop an understanding of the impacts of developmental projects; and develop guidelines for EIAs of key development projects\. The deliverables would be: (a) guidelines for conducting EIA for marine developmental projects\. The guidelines would be available for individual projects and also as a reference volume; (b) a Resource Center with a compilation of data for easy implementation of marine ElAs\. This resource center will be established as an INTERNET Web Site; (c) a minimum of four training programs for planners and government officials; NGOs; industrial and environmental consultants; and educators and university students; (d) a Final Report including the guidelines, case studies, summary of available data and facilities, and feedback from end-users and course participants; (e) recommendations to the Ministry of Environment and Forests and Department of Ocean Development for inclusion in EIA notifications and guidelines, and implementation in regulatory activities; and (f) guidelines for accrediting environmental consultants and institutions\. The institutes involved in this task are shown in Box 3\.  34 Box: 3\. Proposed Institutions To Be Involved in Coastal and Marine Area Developmental Activities \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \._\. \. \. \. \. \._\. _\. _\.__ Institute of Ocean Management, Anna University, Compile digitized coastal and coastal data relevant Madras for conducting EIA studies Space Application Center, Ahmedabad State Remote Sensing Centers of Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Orissa and West Bengal DOD's National Ocean Information Centers (NOIS) National Institute of Ocean Technology Project Directorate, Madras and National Institute of Compilation of digitized data, technical reports, EIA Ocean Technology reports, data, journal and text books\. Access data from INTERNET and other international institutions\. Formulate project outlines and organize case studies\. Establish INTERNET Web Site, final guidelines, final report, training program National Institute of Oceanography, National Collecting ground/sea truths to validate remote Environmental Engineering Research Institute, Center for sensing data\. Conducting case studies and Earth Science Studies, Center for Taxonomic Studies, St\. preliminary guidelines\. Joseph's College, Annamalai University, Cochin University, Andhra University, IIT, Madras, Bombay and Kharagpur State and Central Pollution Control Boards Compilation of current Indian EIA reports\. Guidelines to accredit institutions and consultants to conduct ElAs\. F\. Gujarat (Proposed Outlay US$7\.33 million) This component of the project includes 2 subcomponents\. 83\. Gujarat is the fastest industrializing state in India\. Investments in the state are expected to reach about Rs\. 730 billion over the next few years\. Of this, Rs\. 430 billion would be in highly polluting bulk drugs, chemical and dye industries, and port development projects\. Ten sites have already been identified for port development\. Therefore, in addition to the assistance to be provided for the development of Integrated Coastal and Marine Area Management Plans (ICMAMP) (para\. 79-80); the development of State-wide environmental indicators and indices (para\. 46-48); and the NGO Environmental Action Fund (Para\. 56-61), Gujarat will also be supported in two additional specific activities\.  35 84\. Institutional Strengthening (US$6\.28 TeclnkalAssstnce - million)\. Support would be provided to Consultants strengthen the Department of Forests and Expatriate 36 staff monfts Environment and the Gujarat Ecology Local 740 staff months Contractual Staff 320 staff mnthis Commission\. These, and the Gujarat Pollution Training Control Board which is being strengthened Overseas i70 staffmonths under ongoing Bank-assisted Industrial Local 240 staff montths Pollution Control and Industrial Pollution Equipment and materials Prevention projects, are the principal environmental management institutions in the State, and the assistance would be designed to enhance data and information collection, analysis, policy formulation, implementation and monitoring of compliance with laws and standards in high priority areas\. The environmental management institutions in the State would be further strengthened through the preparation of environmental indicators, industrial siting, coastal and marine area management planning, and the environmental economics, information and research components\. 85\. State Environmental Action Program\. (US$ 1\.05 million)\. A major output of the institutional strengthening program in Gujarat is the preparation of a State Environment Action Program (SEAP) with the active cooperation and coordination of all relevant government departments, industry, NGOs, and others through a series of workshops, seminars, and consultations\. The SEAP would be coordinated by the Department of Forests and Environment Given the background of rapid economic development, the agenda for environmental action in Gujarat is enormous\. The government needs to prioritize the areas for action so that maximum benefits can be available with the available resources in the shortest possible time\. In accordance with the extensive international experience accumulated in the preparation of National Environmental Action Plans, a three-stage process will be followed during the preparation of the State's Environmental Action Program\. The First Stage would have a duration of about 6 months and would consist of the following activities: (a) identification of known coordination and participatory consultative mechanisms; (b) naming a high-level advisory committee responsible for overall supervision of the SEAP in the three stages, obtaining official approval of the SEAP, and for the allocation of necessary resources; (c) establishing technical working groups to deal with each priority environmental problem, made up of representatives of the relevant agencies and the NGOs, and other experts; and (d) identifying appropriate public participation mechanisms to stimulate a wide debate on priority environmental problems and their respective solutions, and to obtain public consensus on these\. 86\. Preparation of a rapid environmental status report based on secondary sources of information in order to develop a reliable database would be undertaken\. This activity will also utilize appropriate public participation mechanisms such as interviews, round tables, and discussions with groups affected by a given environmental problem\. The preparation of specific TORs for preliminary studies in which alternative solutions to the priority problems identified at this stage will also be determined\. Three types of studies are envisaged: (a) priority studies relating to environmental problems needing immediate resolution; (b) a study defining the long-term strategy with regard to current environmental problems, to ensure that  36 the existing conditions do not deteriorate further; and (c) a study defining the medium- and long-term strategies to resolve emerging environmental problems\. In this case, preventive measures, legal reform and institutional priorities would be suggested, which may lead to further studies, for example, on new institutional arrangements or the design of economic instruments\. 87\. The Second Stage in preparing the SEAP should last about 12 months and would consist of: (a) the execution of studies identified during the first stage\. These studies will be carried out by the appropriate technical working groups, with the support of the specialized consultants; and (b) the review and approval of the completed studies by the government\. Political support and confirmation of respective political decisions will have to be sought to ensure that the recommended action to resolve an environmental problem is actually taken\. 88\. The Third Stage would have a duration of 3-6 months and would involve: (a) the preparation of a report on the SEAP based on the conclusions of the studies and the agreements obtained through the consultative process\. The SEAP will serve to orient environmental management, assign specific responsibilities to agencies, and propose environmental projects, together with their respective budgets\. It will also assist to orient the environmental activities and responsibility of the private sector and the NGOs; and (b) the elaboration of the priority investment projects in order to present them to possible financing sources\. This development of SEAP will be managed by the Department of Forests and Environment and the Gujarat Ecology Commission under direct supervision of the high level Advisory Committee\. The project would support the overall institutional development effort in Gujarat by financing about 40 staff months of expatriate consultant services; over 1800 staff months of local consultants; about 70 staff months of overseas training; and over 400 staff months of in-country training; equipment and materials\. G\. Project Costs and Financing 89\. The total cost of the project, including duties and taxes is estimated at Rs\. 2,619\.0 million or US$61\.48 million equivalent\. The breakdown of costs of the proposed project by component and categories of expenditure is summarized in Schedule B of the Memorandum of the President\. 90\. The estimated total project cost of US$61\.48 million would be financed by an IDA Credit of SDR 34\.7 million (US$50\.0 million equivalent) which would cover about 82 % of costs net of taxes\. Duties and taxes are estimated to be equivalent to US$0\.84 million\. The GOI would finance the remaining net costs of and all taxes\. The financing plan by project component and by categories of expenditure is outlined in Schedule B of the Memorandum of the President\.  37 3\. PROJECT ADMINISTRATION A\. PROJECT IMPLEMENTATION/COORDINATION ARRANGEMENTS 91\. The Ministry of Environment and Forests would be responsible for ensuring overall coordination among the various ministries and institutions involved in the implementation of the project\. A National Steering Committee, chaired by the Secretary, MOEF and including the Secretary of the Department of Ocean Development, the Chairman of the Central Pollution Control Board; the Chief Secretary, Gujarat or his representative, and a representative from the Department of Economic Affairs, Ministry of Finance, has been established to ensure the timely flow of funds, orderly reporting on project implementation, and the resolution of implementation issues as soon as they arise\. The National Steering Committee would be serviced by a Project Cell which has been established in the MOEF with responsibilities for coordinating procurement, disbursements, accounting, and monitoring of project progress and impact\. During negotiations, the government provided an assurances that it would: (a) carry out the project in accordance with an implementation plan satisfactory to the Association; and (b) maintain the NSC and Expert Committees (paras\. 95, 100, 101) each with membership and terms of reference satisfactory to the Association\. 92\. The organization chart of the MOEF (Attachment 2 Figure 3) shows that it is structured around a number of specialized Divisions\. The government has confirmed that specific sub-components (Paras\. 40-50; 53-55; and 62-76) will be directly managed by the MOEF or under the coordination of MOEF\. 93\. The Environmental Research Division would ensure that the technical assistance program (para\. 40) covers the local universities and research institutions involved in the Environmnent Research Program\. Institutional linkages would be established with international environmental research institutions\. 94\. The Environment Information Division would be the focal point for the environmental information subcomponent (paras\. 41-42)\. Only local consultants would be required to work closely with the existing ENVIS Centers which include among others, the CPCB; the Industrial Toxicology Research Center, Development Alternatives (an NGO); Center for Environment studies, Anna University; Tata Energy Research Institute; Center for Ecological Sciences; the World Wide Fund for Nature -India; Environmental Planning and Coordination Organization; National Institute of Occupational Health; Central Arid Zone Research Institute; Center for Advanced Studies in Marine Biology; NEERI; G\. B\. Pant Institute of Himalayan Environment and Development; and the School of Planning and Architecture\. 95\. Since under the project an Environmental Economics Indicators, and Project Planning Cell is to be established in the MOEF, the environmental economics subcomponent (paras\. 43-44) would be initially managed by an Expert Committee which has been established by the  38 MOEF and includes representatives from the core group of environmental economic institutes in India\. These include the Madras School of Economics which will be the coordinating institution; the Indira Gandhi Institute of Development Research; the Institute of Economic Growth; and the National Institute of Public Finance and Policy\. A second group of interested universities and institutes, such as the Delhi School of Economics, the Gokale Institute of Politics and Economics, the India Institute of Technology, Bombay; the Jawaharlal Nehru University Center for Environmental Sciences,; the Administrative Staff College, Hyderabad; the School for Social and Economic Change in Bangalore will also be involved\. During negotiations, the government provided an assurance that by August 31, 1997 it would establish and thereafter maintain an Environmental Economics, Indicators, and Project Planning Cell (EEIPPC) with terms of reference satisfactory to the Association\. 96\. The Environmental Indicators and Indices subcomponent (paras\. 46-48) would be centered in the EEIPPC and International Cooperation Division of the MOEF, and the Departments of Finance, and Forests and Environment in Gujarat\. Expatriate and local consultants would work with these Divisions/Departments and other Indian Universities to develop the Indicators and Indices similar to indicators developed for China, Indonesia, Pakistan, Nepal, Philippines, and the Marshall Islands by the Asian Development Bank and the Government of Norway\. During negotiations, the government provided assurances that it would: (a) cause the MOEF and Gujarat to prepare environmental indicators and indices by December 31, 1998, (b) cause MOEF and Gujarat to employ the indicators and indices in the evaluation of investment projects by April 30, 1999; and (c) ensure that MOEF and Gujarat would publish annual environment status reports employing the indicators and indices developed by April 30, 1999\. 97\. The MOEF's Regional Office Division at the center would manage the technical assistance program which is targeted at strengthening the six Regional Offices in the monitoring of EIA compliance\. (para\. 49)\. For strengthening the regional offices it is expected that most of the technical assistance would be local consultants\. During negotiations, the government provided assurances that it would by December 31, 1997, complete the review (of the functions, staffing, workload, and location); and commence the implementation of a plan (including the appointment of additional staff, training of new and existing staff, and the opening of additional Regional Offices if necessary) satisfactory to the Association to strengthen the Regional Offices of the MOEF\. 98\. The MOEF would also coordinate the implementation of the National Environmental Awareness Campaign (paras 53-54), and Paryavaran Vahini program (para\. 55)\. The Environmental Education and Information Division in conjunction with the Center for Environmental Education, Ahmedabad, C\. P\. Rama Aiyar Environmental Education Center, and a wide range of NGOs would implement the NEAC and Paryavaran Vahini sub- components\. 99\. The MOEF has informed IDA of its intention to establish and maintain an Implementation Cell headed by a full-time legal academic to be responsible for the coordination and implementation of the environmental law subcomponent (paras\. 62-67)\.  39 During negotiations, the government provided an assurance that it would take the necesssary steps to strengthen the legal capacity of MOEF, CPCB, and SPCBs in accordance with a plan satisfactory to the Association\. 100\. The Central Pollution Control Board is another focal point for the receipt of, and managing the implementation of technical assistance\. It will be directly responsible for the sub-components i\.e\. environmental standards (para\. 45); industry siting/zonal atlas (paras\. 74- 75); and expanding ambient air pollution monitoring (para\. 76)\. Since the CPCB is a recipient of technical assistance under the on-going Industrial Pollution Control and Industrial Pollution Prevention projects, it is familiar with IDA procedures and requirements\. It is expected that the German Agency for Technical Cooperation (GTZ) which has had a long-standing relationship with the CPCB and has placed a number of long-term expatriate experts in CPCB will be retained to assist in the implementation of the zonal atlas and ambient air monitoring subcomponents\. 101\. For the monitoring of compliance in the mining sector (paras\. 68-73), the Division on Mining in the MOEF would be responsible for the review of policies, standards and enforcement mechanisms, and the Center for Mining and Environment would be responsible for the design and implementation of demonstration projects\. The government has established an Expert Committee for the Mining Sector with representatives from the various institutes involved in mining planning\. These include the Central Mine Planning and Design Institute, Central Mining Research Institute, the Indian School of Mines (Deemed University); Center for Mining Environment; the Environmental Planning and Coordination Organization; the Mineral Exploration Corporation; the Indian Bureau of Mines; and the Neyveli Lignite Corporation\. 102\. During negotiations, the government confirmed that the Department of Ocean Development would implement the technical assistance program for the development of integrated coastal and marine area management (paras\. 77-82)\. It would establish a Project Implementation Cell\. It is expected that this program will require a significant amount of expatriate specialist services and training\. A "twining' relationship with one of the internationally renowned oceanographic research and training institutions will be undertaken\. 103\. During negotiations, the government confirmed that the Department of Forests and Environment, Gujarat, with assistance from the Gujarat Ecology Commission; and the Gujarat Pollution Control Board would be responsible for the implementation of the Gujarat components of the project (paras\. 83-88)\. Project funds would flow directly from the MOEF to these Gujarat institutions\. During negotiations, Gujarat agreed that it would establish by August 31, 1997 and maintain a Project Implementation Cell in the Department of Forests and Environment with responsibility to supervise the implementation of the project, with membership and terms of reference satisfactory to the Association\. Institutional linkages with Environmental Protection Agencies to implement exchange, training, and expert assistance programs is being considered\. The NGO Environmental Action Fund will be managed by COMNEAF (para\. 59) as determined by the Gujarat Department of Forests and Environment\. Criteria have been developed for the management of the Funds as well as for  40 Figure 1\. Chart of Project Implementation Process Centre State District (Indicators and Indices und ~ Cmunt _ i~~~~~~~~~~~~~roJect Directorate l ICMA1IPS _ i i ~~~~~~~~~~~EIA Guidelines -Critical Habitats GIS _ i ~~~~~~~~~~~Water Assimil Uon Studies _EnvIronmental, CoGm°munity' *NEAC II *Paryavaran Project ; Vahini Steering Environmental , NGO Committee _ EconormIcs Env,t fironment Environmental Indicators Regional Offices :Reorganization Studies _EiA Compliance In Mlning r Environmental *EiAIEMPs Compliance __ _ ,AInformatoon 4 _ _ ~~~~Environmental _ Research _Evronmental Standards Advisol _ _ ; (C~~~~~~~PCB Zonal Ot Iess/SPCBs Committees l |*Ambient Air Monitoring \. Economics _ _ |Industrial Siting/Zonal Law I _ ' tAtlasJ Mining | '-'  41 NGOs access to the Fund\. During negotiations, the government provided assurances that, it would cause Gujarat to (a) establish, maintain, and operate commencing August 31, 1997, an NGO Environmental Action Fund in accordance with arrangements and a time schedule acceptable to the Association; (b) prepare a State Environment Action Program (SEAP) by March 31, 1999; and (c) carry out the project in accordance with an implementation plan satisfactory to the Association\. The project implementation process is outlined in Figure 1\. B\. PROCUREMENT 104\. Goods and Equipment (US$10\.35 million)\. Goods, in particular computers, laboratory and scientific equipment would be procured using International Competitive Bidding (ICB) procedures\. However equipment estimated to cost less than US$200,000 per package up to an aggregate of US$2\.00 million equivalent would be procured using National Competitive Bidding (NCB) procedures\. Standard Bidding Documents (January 1995) and procedures in accordance with Bank Guidelines for Procurement (January 1995) would be used\. For procurement under ICB procedures, national manufacturers would be granted a margin of preference in accordance with Bank Guidelines\. Small items of equipment would be procured by the various agencies in small lots over the project period\. Individual contracts are not expected to exceed US$25,000 and as such would be procured using Shopping procedures satisfactory to IDA, up to an aggregate amount of US$8\.00 million equivalent\. Rate contracts of the Directorate General of Supplies and Disposal (DGS&D), New Delhi would only be acceptable as a substitute for procurement under Shopping, Training Materials and Books, (periodicals, proprietary equipment/software, training materials and spare parts compatible with existing equipment) valued at about US$2\.01 million would be procured under Direct Contracting procedures\. 105\. Technical Assistance (Consultants, Contractual Staff, and Training): (US$53\.95 million)\. Consultancies contractual and services for training would be provided by firms, specialized training institutions and professional trainers (expatriate as well as local) and would be hired following procedures presented in Bank Guidelines for use of Consultants (August 1981) and use of Standard Forms of Contract for Consultants Services( June 1995) and other models developed by the Bank from time to time\. 106\. Contract Review\. All goods and equipment contracts valued at US$200,000 equivalent and above and the first three contracts (proposed for competitive bidding - regardless of value) would be subject to prior review by IDA as per procedure outlined in Appendix 1 of Bank Guidelines\. It is expected that this will result in prior review of about 40% of contracts awarded under ICB/NCB\. Selective post-review of awarded contracts below the threshold levels would be carried out by visiting review missions\. Consultant contracts of value exceeding US$100,000 equivalent per contract for consulting firms and US$50,000 equivalent for individuals, and the first contract for each Ministry/Executive Agency,  42 regardless of value, would be subject to prior review\. However prior review would be required for: (a) all consultant contracts above US$100,000 for firms and US$50,000 for individuals; (b) terms of reference for all contracts (regardless of value); (c) single source contracts, regardless of value (not applicable to contracts for individuals); (d) all consultant contracts for assignments of a critical nature, regardless of value; (e) contract amendments valued at more than US$100,000 and US$50,000 equivalent for firms and individuals respectively or those that raise the total contract value above these thresholds; and (f) any standard documents that the borrower intends to develop and use repeatedly\. (g) It is estimated that about 50% by value of the consultant contracts and training services would be prior reviewed\. 107\. Procurement Arrangements\. The Ministry of Environment and Forest (MOEF) has agreed to acquire the services of a Procurement Agent for procurement of goods and consultant services under the project\. Procurement of a major share of the goods and equipment, and hiring of consultants for training and the provision of expert services, would be made by the Project Implementation Cell in MOEF with the assistance of the Procurement Agent\. Approval of contracts would be the responsibility of the Secretary of the respective Ministry which is directly responsible for the implementation of the subcomponent assisted by the technical and financial staff from the said Ministry and the Procurement Agent\. The Procurement Agent would also work closely with the Project Implementation Cells in the Department of Ocean Development and in the Gujarat Department of Forests and Environment to ensure that agreed bidding documents and procedures are used for the procurement of all IDA-financed goods and services which are not procured centrally; and that the accounts and documentation are maintained in a manner acceptable to IDA\. The government has prepared a procurement schedule for goods and equipment, showing the packages and the timing of various procurement activities; draft bidding document along with specifications etc\. for the packages for which bids are to be invited in the first year of implementation\. The project elements, their estimated costs and the proposed methods of procurement are summarized in Table 1\. Figures in parentheses are the respective amounts to be financed through the IDA Credit:  43 Table 1\. Summary of Proposed Procurement Arrangements Procurement Method ICB NCB Other Total Costs (US$million) A\. Goods and Equipment Equipment 5\.00 2\.00 2\.46 9\.46 (2\.00) (0\.80) (1\.00) (3\.80) Training Materials and Books\. 2\.01 2\.01 (0\.80) (0\.80) Consultancies and Training: Consultants Expatriate 8\.47 8\.47 (8\.47) (8\.47) Local 13\.13 13\.13 (11\.16) (11\.16) Contractual Staff Services 5\.60 5\.60 (4\.76) (4\.76) Training Overseas 10\.74 10\.74 (10\.74) (10\.74) Local 12\.08 12\.08 (10\.26) (10\.26) Total 5\.00 2\.00 54\.48 61\.48 (2\.00) (0\.80) (47\.20) (50\.00) * other methods include shopping, direct contracting, hiring of consultants and training\. C\. DISBURSEMENTS 108\. The proposed credit of SDR 34\.7 million (US$50\.0 million equivalent) will be disbursed over a period of six years\. This is realistic given the design of the project, and especially because it involves the bringing to scale of several already completed pilot projects as well as the gradual expansion of a number of on-going programs\. The standard Bank-wide disbursement profile for Technical Assistance projects is six and a half years\. 109\. The Association will reimburse the Government for eligible expenditures incurred by project agencies at a rate of 91% (100% for expatriate consultants, 85% for local consultants) for all local and foreign expenditures on expert services, 91% (100% for overseas training, 85% for in-country training) for training, 40% for books and other training materials, and 40 percent for equipment\. Disbursements in respect of contracts for goods and services estimated to cost less than US$200,000 equivalent would be made against Statements of Expenditure (SOEs) certified by the MOEF and retained by the Ministry of Environment and Forests, the Department of Ocean Development, the Central Pollution Control Board, and the Department of Forests and Environment, Gujarat, and made available for review by IDA during the course  44 of supervision missions\. All other disbursements would be made against fully-documented withdrawal applications\. 110\. In order to accelerate disbursements in respect of the Association's share of expenditures pre-financed by the government, and in order to allow for direct payment of other eligible local and foreign expenditures, a Special Account would be opened in the Reserve Bank of India with an initial deposit of US$3\.0 million equivalent to cover four months of expected requirements for IDA financed items\. The full amount of the authorized allocation may be requested when withdrawals and commitments from the credit account are equal to or exceed the equivalent of US$ 10\.0 million\. The project is expected to be completed by December 31, 2002, and closed by June 30, 2003\. The allocation of credit proceeds and the estimated credit disbursement schedule are shown in Tables 2 and 3\. A forecast of expenditures and disbursements is shown in Table 4\. Table 2: Allocation of Credit Proceeds (in US$ millions) Categories of Expenditure Amount of Credit Percent of Expenditures Allocated to be Financed Consultant Services 17\.00 91 Contractual Staff Services 5\.10 91 Training 18\.90 91 Materials and Books 1\.00 40 Equipment 3\.50 40 Unallocated 4\.50 Total 50\.00 Table 3: Estimated Credit Disbursements IDA Fiscal Year FY97 FY98 FY99 FY2000 FY2001 FY2002 FY2003 US$million per year 3\.00 1\.60 11\.60 13\.74 11\.32 7\.74 1\.00 US$ millions cumulative 3\.00 4\.60 16\.20 29\.94 41\.26 49\.00 50\.00  45 Table 4\. Forecast of Expenditures and Disbursements (US$ million) Expenditures Disbursements /a Cumulative Semester as % from IDA Fiscal Year Semester Cumulative Semester Cumulative /b of Total Appraisal FY97 1st (Jul 96- Dec 96) - - - - - I 2nd (Jan 97-Jun97) 1\.00 1\.00 3\.00 3\.00 6 % 2 FY 98 1st (Jul 97-Dec 97) 1\.00 2\.00 1\.48 3\.80 7 % 3 2nd (Jan 98-Jun 98) 5\.66 7\.66 1\.48 4\.60 9 % 4 FY 99 1st (Jul 98-Dec 98) 8\.66 16\.32 6\.80 10\.40 21 % 5 2nd (Jan 99-Jun 99) 8\.65 24\.97 6\.80 16\.20 32 % 6 FY 2000 1 st (Jul 99-Dec 99) 8\.65 33\.62 6\.87 23\.07 46% 7 2nd (Jan 2000- Jun 2000) 6\.58 40\.20 6\.87 29\.94 60 % 8 FY 2001 i st (Jul 2000-Dec 2000) 6\.59 46\.79 5\.66 35\.60 71 % 9 2nd (Jan 2001-Jun 2001) 4\.74 51\.53 5\.66 41\.26 82 % 10 FY 2002 1st (Jul 2001- Dec 2001) 4\.75 56\.28 5\.38 46\.64 93% 11 2 nd (Jan 2002- Jun 2002) 3\.20 59\.48 2\.36 49\.00 98% 12 FY 2003 1st (Jul 2002- Dec 2002) 1\.00 60\.48 0\.50 49\.50 99% 13 2 nd (Jan 2003- Jun 2003) 1\.00 61\.48 0\.50 50\.00 100% 14 Closing Date: June 30, 2003 a /: Figures may not appear to add due to rounding b /: Disbursement projections take into account the Regional Profiles for similar type projects D\. ACCOUNTING AND AUDITING 111\. The Ministry of Environment and Forests and the other key project implementing agencies i\.e\. DOD; CPCB, and Gujarat Department of Forests and Environment will establish separate accounts to record eligible project expenditures and to allow for monitoring of financial operations under the project\. The Project Cell in Gujarat would prepare a consolidated account for all project activities in the state\. The Project Cell in MOEF will prepare a consolidated project account\. The project would be subject to normal government accounting and auditing procedures which are considered satisfactory to the Association\. During negotiations, the government provided assurances that: (a) accounts and financial statements for each fiscal year would be prepared and audited by independent auditors acceptable to the Association; (b) statements of expenditure would be maintained in accordance with sound accounting practices, be maintained at least one year after the completion of the audit for the fiscal year in which the last withdrawal was made and a separate opinion on Statements of Expenditures (SOEs) be included in the annual audit; and (c) certified copies of audited accounts and financial statements for each fiscal year, together  46 with the Auditor's Report would be furnished to the Association as soon as available, but not later than six months after the end of each fiscal year starting with the audit reports for the financial year ending March 31, 1997\. E\. MONITORING AND EVALUATION 112\. The Ministry of Environment and Forests will be responsible for the monitoring and evaluation of the project\. Special annual outcomes and indicators to monitor progress in project implementation and to assess project impact have been agreed with the government and are outlined in Schedule D of the Memorandum of the President\. The Project Implementation Cell in the MOEF with the assistance of local consultants will prepare quarterly progress reports and collect from the other implementing agencies, all additional documentation required for the supervision of the project\. During negotiations, the government provided assurances that it would cause the MOEF and Gujarat to (a) review annually with the Association, progress in the implementation of the project and credit disbursements over the preceeding twelve months; (b) discuss with the Association by March 31 of each year, annual work plans and budgets for the next twelve months; (c) carry out with the Association, a mid-term review of the project no later than March 31, 1999; and (d) duly take into account, the comments offered by the Association during the mid-term review in the course of further implementation\. It was also understood that at the Mid-Term Review not only project progress would be evaluated, but project impact indicators reviewed and updated, and a decision taken jointly by GOI and IDA on the processing of a second phase technical assistance project to further support the pilots which have been evaluated as being successful\. An Implementation Completion Report (ICR) will be submitted to the Association by the MOEF no later than six months after completion of the project i\.e\. by June 30, 2003\. During negotiations, the government also provided assurances that it would (a) prepare on the basis of guidelines acceptable to the Association, and furnish to the Association no later than six months after the Closing Date, a plan designed to ensure the continued achievement of project objectives, and (b) ensure the Association a reasonable opportunity to exchange views on this plan\.  47 F\. PROJECT TRAINING PLAN 113\. The project training plan is shown in Table 5\. Table 5\. Training Plan Componentl Specific Areas of Training Total No\. of Persons to Duration of subcomponent be Trained Training Program Local Overseas Environmental Policy Planning Environmental Environmental research management - 12 2 months Research Technical research specialty - 15 9 months Research methodology 210 - 10 days* Environmental Data management and information 120 - 5 days* Information handling Data access and analysis 300 - 3 days* Environmental Economics faculty training 160 - 1\.5 months Economics Environmental economics theory, 5 days methods, policy 800 Overseas fellowships - 240 6 months Environmental Design, use and reporting 400 - 5 days* Indicators Indicators, concepts and management - 24 1 month Environmental Policy planning and management 12 2 months Indicators Data-based management 100 I month Environmental Review of standards design 400 - 5 days* Standards Environmental Administration Regional Offices of Env\. management, policy, planning - 10 2 months the MOEF EIA management, EMP monitoring, 28 - 5 months regional information  48 Decentralization of Environmental Management National Media policy and management 8 2 months Environmental Media strategies 12,000 - 3 days* Awareness Campaigns Paryavaran Vahini Program management techniques 949 - 2 months Coordination 424 - Guidelines and practices 1950 - NGO Environment Fund guidelines and procedures, action 1000 3 days* Action Fund project accountability, project evaluation and impact measurement Environmental Law Environmental Law Natural resource laws, Pollution control 300 3 weeks laws, Environment impact assessment 20 3 months Participation/information, International environment obligations Monitoring and Compliance Mining Sector Policy, planning, management, EMP - 50 1 month Compliance monitoring 1500 - 5 days* Industrial Siting Env\. mapping and zoning techniques 1400 - 8 days* (Zonal Atlas) Industrial siting guidelines and case 1400 - 4 days* studies Environmental planning in urban areas 1000 - 8 days* Identification of industrial estates for 80 - 5 days* polluting industries Ambient Air Data management 400 - 10 days Pollution Monitoring Coastal and Marine Integrated coastal areas planning, policy, - 60 3 - 6 months Area Management management Coastal zone mapping and management 105 - 3 - 6 months  49 Gujarat Gujarat Dept\. of Env\. Environmental management 4 1 month and Forests Environmental specialties - 12 3 month Environmental impact assessment 60 - 2 month Gujarat Ecology Env\. data based management and - 2 3 months Commission statistical analysis Data analysis 10 - 10 months * Recurrent workshops and training programs\. G\. PROJECT SUPERVISION PLAN 114\. The Approach\. Project implementation will follow the "implement-review design- implement" approach\. This is appropriate for a technical assistance operation\. Selected assessments and action plans would be developed during the first one to two years in order to better focus environmental policy actions and project implementation in the following years\. The technical assistance activities and supervision plan would be flexible enough to respond to priority actions and changing institutional structures as they evolve over the life of the project\. 115\. Bank Supervision Inputs\. Several aspects of the supervision plan are worth noting\. The "implement-review-design-implement" approach will require the supervision team to address on-going design issues, and will require more time than required for the supervision of physical investment projects\. As a result, supervision costs for this project will be higher than current coefficients for investment projects in India because: (a) activities will be front-end loaded over the first two years; (b) the importance of a comprehensive Project Launch; (c) the wide range of skills required during supervision ; and (d) the establishment of a Core Advisory Group of Bank staff specialists from the Economic Development Institute (EDI), Environment Department (ENV), Policy Research Department (PRD), Environment Division Legal Department (LEGEN) and the Environment Division, Asia Technical Department (ASTEN)\. 116\. The supervision plan has been divided between inputs from headquarters and from the New Delhi Office of the World Bank (NDO)\. NDO has an important supervisory role for this project\. Their involvement, especially during the first two years, will be ongoing, rather than driven by discrete supervision missions from Washington\. The continuous engagement of NDO staff with the GOI is essential to making this project a successful long-term partnership\. NDO staff will work closely with the Project Cell in the MOEF in the areas of: (a) monitoring of project progress against agreed Key Indicators; (b) preparation and review of quarterly progress reports; (c) the 'twinning' arrangements between local and foreign institutions; (d) linkages between the project and NGOs and other elements of civil society; and (e) assessments of the quality of training programs and workshops\.  50 117\. Borrower Contribution to Project Supervision\. Quarterly Progress Reports will be prepared and submitted to the Bank by the Project Cell in MOEF\. Overall responsibilities for project monitoring, reporting and evaluation will reside with the Project Cell\. However, the implementing agencies more directly responsible for each project subcomponent will be responsible for reporting on progress against input and output indicators, financial targets, and performance indicators\. The contents and form of these supervision reports will be determined by the Project Cell\. Also, the Project Cell will be responsible for coordinating arrangements for Bank supervision missions and for providing information required\. 118\. Mid-Term Review\. This project is conceived of as Phase I of a longer-term relationship between the GOI and the World Bank in the area of environmental management\. The mid-term review for this project will suggest not only changes the implementation of this project, but will recommend whether the Bank should proceed with the design of a second Environmental Management Capacity Building Technical Assistance project\. Both the Key Indicators and the Supervision Plan have been drafted to allow for the Mid-Term Review to fulfill this function\. 119\. Estimated staffing levels and costs\. The attached tables provide details on the Supervision Plan\. Since it is unrealistic to plan separate supervision missions for each component, the plan reflects that (a) the NDO will take a strong role, and (b) the mission schedule is only tentative after the first project year\. Also, to explicitly recognize the importance of the Core Advisory Committee in Headquarters, a line for 'non-mission supervision' is included in the Plan\. It is estimated that project supervision by Bank staff will require about 330 staff-weeks over the life of project, of which about 150 will be by headquarters staff and 180 by NDO staff\. The average supervision cost over the life of the project is estimated to be $134,000 per year\. Estimated staff-weeks per fiscal year and a summary supervision plan staff weeks are shown in Table 6 and 7\.  51 Table 6: Detailed Supervision Plan -- Staff Weeks per Mission HEADQUARTERS" NEW DELHI OFFICE "r # Timing Lapsed Description Tot\. TM Law Econ\. Mgt/ Co\. Min\. Pro\. Mon\./ NGO Trg\. Months SW Pl\. Ma\. Eva\. _____________________I Part\. FY97 I Jan-97 4 Project Launch Workshop 14 2 2 4 3 3 2 May-97 4 Mission 20 2 2 2 2 2 4 3 3 --I -- Non-mission time 25 8 1 I I 2 1 2 3 3 3 FY98 3 Sept-97 4 Mission 13 2 1 1 4 2 3 4 Mar-98 6 Mission 18 2 2 2 2 1 4 2 3 Non-mission time 28 6 I 4 2 1 2 6 3 3 FY99 5 Oct-98 7 Mission 12 2 1 4 2 3 6 Apr-99 6 Mid-term Review 21 2 2 2 2 2 2 4 2 3 Non-mission time 28 6 1 4 2 1 1 2 6 2 3 FY 7 Oct-99 6 Mission 12 2 I 4 2 3 2000 8 Apr-00 6 Mission 16 2 2 2 2 4 1 3 --I Non-mission time 21 4 1 2 2 I 1 6 2 3 FY 9 Oct-00 6 Mission 9 2 1 3 1 2 2001 10 Apr-0 1 6 Mission 14 2 2 2 2 3 1 2 Non-mission time 19 4 1 2 2 1 1 4 2 2 2002 11 Oct-o1 6 Proj\. Completion Mission 22 3 1 2 2 2 2 2 4 2 2 Total 61 (5-years) 303 51 8 28 24 20 6 19 70 33 44 Table 7: Summary of Supervision Plan Staff Weeks (by Fiscal Year) HEADQUARTERS" NEW DELHI OFFICE2 Tot\. TM Law Eco Mgt/ Pi\. Co/Ma\. Min\. Pro\. Mon\./ NGO/ Trg\. SW _ _ ____Eva\. Part\. FY97 86 15 3 5 5 6 3 10 15 12 12 FY98 59 10 2 6 4 3 0 4 14 7 9 FY99 61 1 0 3 6 4 3 3 3 14 6 9 FY2000 49 8 0 1 4 4 3 0 2 14 5 9 FY2001 42 8 1 4 4 3 0 2 10 4 6 FY2002 22 3 1 2 2 2 2 2 4 2 2 Total, life of project 319 54 10 30 26 22 8 23 74 36 47 Of which, not on 132 28 4 16 12 8 2 8 28 12 14 mission Tot\. SW = Total Staff Weeks T\. M\. = Total Managers Law = Environmental Law Specialist Eco\. = Environmental Economist Mgt\./PI\. = Env\. Management/Planning Specialist Co\./Ma\. = Coastal/Marine Specialist Min\. = Mining Specialist Pro\. = Procurement Specialist Mon/Eva\. = Monitoring/Evaluation Specialist NGO/Part\. = NGO/Participation Specialist Trg\. = Training Specialist I/ Headquarters include TM from SA2, and staff from ENV, PRD, EDI, ASTEN, LEG and consultants\. 2/ New Delhi staff drawn from Social Development Unit and Procurement, Disbursement, and Audit Team (PDAT)\.  52 H\. PROJECT BENEFIT ANALYSIS 120\. Framework\. The proposed project is designed to assist GOI in meeting its environmental priorities\. It is linked to the India Country Assistance Strategy and completed economic and sector work prepared by the India, Nepal, Bhutan, Country Department, South Asia Regional Office (SA2), which has been discussed and agreed with GOI\. In December 1993, The Environmental Action Program - India (EAP) was issued by the MOEF\. One of the major objectives in preparing the EAP was to "identify projects for organizational strengthening for better environmental management" (para\. 1\.02(e) of the EAP)\. The Country Assistance Strategy (CAS) for India, dated May 19, 1995, specifically noted that the Bank would discuss possible environmental projects to strengthen the capabilities of institutions and agencies in charge of formulating and implementing environmental policies and monitoring and strengthening compliance (para\. 70 of CAS)\. The January 1996 SA2 study which assessed the EAP concluded that institutional capacity building to strengthen monitoring and compliance with existing laws and standards has a high payoff and in addition, that decentralization of environmental management to communities and non-governmental organizations is critically important to the overall environmental management process\. (para\. 14 of MOP)\. 121\. Macro/Sector Environment\. Macroeconomic and sectoral preconditions are satisfactory for this project\. While the project is not linked to specific policy reforms, it is designed to address the key information, policy, and compliance issues that hinder broad- based improvements in environmental management in India\. This point can be illustrated by noting that there are four underlying causes of environmental degradation in India:6 (a) market and policy failures; (b) population growth; (c) rapid urbanization and industrialization; and (d) the common perception, caused in part by the lack of information to both government and civil society, that there is a direct tradeoff between environmental protection and economic growth\. The project is designed to address some of these underlying causes directly, while leaving others such as population growth as "givens" within the project time- frame\. In particular, the subcomponents on environmental law, economics, research, and community and NGO action, all are designed to address key areas of economy-wide policy failure\. The subcomponents on mining, ambient air monitoring, industrial siting, coastal and marine area management, and strengthening environmental impact assessment (EIA) compliance, are intended to enhance programs to reduce the adverse impacts of rapid urbanization and industrialization\. Finally, the emphasis on environmental information, indicators and indices, and community awareness, highlights the importance of public involvement in designing and implementing solutions to environmental issues\. 122\. Several important policy issues that hinder improved environmental management in India are considered beyond the scope of this project\. The most important of these are: (a) energy pricing, including the price of fossil fuels and electricity; (b) water pricing; and (c) community resource tenure on degraded lands\. These issues are all being addressed through other Bank/IDA-assisted projects (Schedule A of Memorandum of the President)\. More 6 Towards an Environmental Strateyfor Asia\. World Bank Discussion Paper 224, 1993, pg\. 27  53 specifically, under the Industrial Pollution Prevention project (FY95), MOEF begun the review of the fiscal and regulatory incentives for pollution control in industry\. As part of this effort, the National Institute for Public Finance and Policy (NIPFP) completed a study: "Incentives and Regulations for Pollution Abatement with an Application to Waste Water Treatment"\. The study was a first step towards exploring introduction of market-based instruments for industrial pollution abatement\. The study recommended four approaches: (a) abatement charges with government clean-up; (b) abatement charges with third-party clean-up; (c) tax/subsidy schemes; and (d) tradable private permits system\. MOEF foresaw the need for an additional review of these issues and organized a task force to explore wider use of economic instruments\. Further analysis of these approaches is required before concrete Governmental action can be taken\. Task force is now carrying out further analysis of market- based instruments for pollution abatement under terms of reference agreed with the Bank\. An implementation program for the use of such instruments will be a part of this analysis\. 123\. Public/Private Sector Issues\. In India, there is general agreement on the broad principle that public sector involvement should be strengthened only in areas which cannot be adequately covered by the private sector, representative and capable local community organizations, and NGOs\. However, the manner in which this principle is applied in specific sectors, and within the various tasks of environmental management--i\.e\. policy formulation, investment, monitoring, compliance--can benefit from additional analytical work and more informed public debate\. This project will address this gap at several levels through the environmental law, environmental economics, environmental research, National Environmental Awareness Campaign, Paryavaran Vahinis, and NGO Environmental Action Fund\. The combined benefits of these subcomponents will be the broadening of support for improved environmental management from a small core of bureaucrats within government, to a much broader base in society at large, that will also incorporate a system of checks and balances in policy planning, monitoring, and compliance\. 124\. Project Choice\. The Bank Group has two choices to increase its cooperation with India on the environment\. These are either sectoral investment projects in priority sectors such as water management, energy development, urban management, industrial pollution prevention, forestry, and biodiversity conservation; and/or 'umbrella' technical assistance projects which addresses the institutional weaknesses that underlie the broad range of priority environmental issues identified by the GOI in its EAP\. Many Bank Group borrowers including China, Russia, Indonesia, Brazil, Mexico, and Chile, have recognized the need for umbrella technical assistance projects\. 125\. As outlined in Schedule A of the Memorandum of the President, the GOI has an active portfolio of Bank Group-assisted investment projects with positive environmental impacts\. It does not have an umbrella project that addresses the institutional and policy weaknesses which are common to priority-setting and resource management issues across sectors\. This project fills that gap\. The project will benefit ongoing sectoral projects that have environmental components such as the Industrial Pollution Control and Industrial Pollution Prevention projects, by improving the efficiency of the policy, monitoring, and compliance regime that affects the investment decisions under those projects\. In addition, it will assist in improving the pre-conditions for future environmental projects, such as the proposed Urban (Delhi and Surat) Environmental Management (FY99) and the Hazardous Waste Management (FY97)  54 projects\. Therefore, the benefits derived from the various project components will accrue to the policy planning and administration, monitoring and compliance, and decentralized environmental management needs of future Bank Group operations in India\. 126\. Impact\. Current economic analysis practice does not allow for the quantification of the long-term benefits of Technical Assistance projects\. Instead, in order to ensure a high rate of return on the technical assistance resources devoted to this type of project, the Operations Evaluation Department (OED) recommendations, based on audit reports of Technical Assistance projects have been followed\.7 For environmental technical assistance projects, OED's recommendations place importance on three preconditions: (a) adequate institutional and technical capabilities are needed at the national and sub-national levels; (b) implementation of environmental projects require adequate technical information, a supportive policy environment, and adequate institutional capacity; and (c) environmental regulations have to be accompanied by greater reliance on economic incentives\. The proposed project gives importance to lessening India's shortcomings in these areas\. In particular, the process of institutional capacity-building will be underpinned by improved data collection and analysis capabilities, economy-environment policy linkages, increased involvement of the community and NGOs, the academic sector, and the expansion of resources available in Gujarat for environmental management\. Beyond these general observations, several of the projects subcomponents have positive economic and environmental benefits in the short, medium, and long term which can be analyzed separately\. They are shown in Table 8\. Table 8: Project Readiness and Time Frame of Project Impacts Components and Expansion of Timeframe of "on-the-groun ,, Subcomponents Ongoing Programs New Programs impact8 Environmental Policy Planning Enviromnental Research Review the ongoing M process to establish research priorities and procedures Environmental Information Data management at M the thematic data centers of ENVIS 7 World Bank Approaches to the Environment in Brazil: A Review of Selected Projects\. OED, April 30, 1992\. 8S = Short (within 5 years); M = Medium (5-10 years); L = Long (Beyond 10 years)  55 Environmental Standards Strengthen the Develop new S ongoing review standards for ozone, process hospital wastes, chemical industries, etc\. Environmental Economics Expand teaching, Increase the M research, and policy application of applications of economic tools to enviromnental the debate on economics environmental management Environmental Indicators To Develop M indicators by analyzing and aggregating environmental and economic data Environmental Administration Regional Offices of the MOEF Strengthen the EIA S process and training to improve S capability of dealing with region-specific environmental impacts Decentralization of Environmental Management NEAC Strengthen the existing S program by decentralizing the campaign from the center to the states and piloting the program in selected states Paryavaran Vahinis Review, revise and S expand the existing program NGO Environmental Action Provide support to S Fund environmental awareness, monitoring, and mitigation initiatives\.  56 Environmental Law Environmental Law Strengthen Training in L implementation of environmental law existing laws to staff of MOEF, CPCB, SPCB, industry and NGOs Community-based L environmental decision-making and dispute resolution Strengthen legal L research and education Monitoring and Compliance In High Priority Areas Mining Sector Best practice M mitigation measures for specific environmental problems Strengthen institutions M including Bureau of Mines, Regional Offices of MOEF, CPCB and SPCBs Industrial Siting/Zonal Atlas Creating "zonal M atlases" in 60 districts to indicate suitability for industrial siting\. Ambient Air Pollution Improve the Emission inventory M Monitoring monitoring in 28 cities of critical elements; by including PM 10, Lead, CO, and ozone Cost-effectiveness analysis of control strategies Expand monitoring to M other areas  57 Coastal and Marine Area Preparing M Management ICMAMPs GIS Based Critical Developing EIA M Habitats Information guidelines for System coastal and marine areas Waste Assimilation M Studies in selected areas Gujarat Preparation of M Gujarat Departnent of Forests SEAP and Environment Piloting the major national initiatives for actual implementation at state level 127\. Mining Sector\. India is a large producer of coal and the bulk of India's energy needs in the future will be met by coal-based thermal power\. Coal-based thermal generation capacity is expected to rise from 63,000 MW by the end of the Eighth Five-Year Plan period (1996) to about 144,000 MW by 2010--an increase of 81,000 MW over a period of 14 years\. Higher and consistent coal quality will increase generation efficiency and plant availability\. For example, washed coal reduces carbon dioxide emissions from 0\.983 to 0\.866 kilograms per kilowatt hour\. Even a one percent improvement in plant capacity as a result of coal washeries will improve generation capacity by 600 MW by the end of the Eighth Five-Year Plan for a saving of US$720 million\. The carbon dioxide savings potential is estimated as 5 percent of 63,000 MW of coal-based generation capacity at the existing average plant load factors\. It could have been 15 million tons (assuming 55 percent plant load factor and 0\.983 kilograms of carbon dioxide emissions per kilowatt hour)\. The potential savings would have been US$3\.8 billion\. This is one example of the benefits from undertaking Mitigation measures in the mining and energy sectors\. 128\. Because of GOI's concerns about the adverse environmental impacts of mining, the MOEF established in 1987\. A Center for Mining Environment in Dhanbad, Bihar, which is at the heart of India's coal belt\. The objective of the Center is generate scientific data and build national capacity for sustainable mining in the country\. Although this Center has developed expertise in managing environmental issues in the mining sector, its competence has not been matched by development of management capacities in the numerous agencies involved in the supervision and monitoring of mining projects\. These include the state Departments of Geology and Mining, Environment and Forests, State Pollution Control Boards, and at the Center, the CPCB, MOEF, and the Indian Bureau of Mines\. The project would enhance the capacities of these institutions\. This should be environmentally beneficial to coal mining specifically and mining in general\.  58 129\. The environmental costs associated with current mining practices include air pollution, water pollution, and the opportunity cost of degraded lands which are left in previously mined areas\. Since none of the economic values of these impacts have been quantified, it is not possible to quantify the benefits accruing to improved practices attributable to this project\. However, as compliance to mining sector Environmental Mitigation Plans (EMPs) improve as a result of this project i\.e\. strengthening the Regional Offices of the MOEF and SPCBs and other parallel activities such as the recently approved Coal India Environmental and Social Mitigation Project, the cost to society of the negative environrmental and economic impacts will decline\. Best practice in other countries, including Indonesia and Australia, has shown the cost-effectiveness of the combined mining sector mitigation strategies included in the Coal India Environmental and Social Mitigation project and the proposed project\. 130\. Industrial Siting\. There are two costs associated with current practice in India of largely uncontrolled industrial siting with few land-use controls\. The first cost is the environmental cost\. This is an economic externality of excess pollution in areas where there is insufficient carrying capacity\. The second cost is the higher economic cost which is due to the loss of possible economies of scale associated with providing adequate pollution abatement equipment to industry that is widely dispersed\. The industrial siting/zonal atlas subcomponent will expand ongoing GOI efforts to improve industrial siting and should lead to a reduction of the environmental and economic costs already prevalent in the economy because of inadequate and inappropriate industrial siting\. 131\. Coastal and Marine Area Management\. India has extensive coastlines (0\.13 million sq\. km of territorial waters)\. In keeping with its own laws and obligations under international environmental conventions, India monitors coastal and marine area pollution\. The major coastal and marine area problems are growing microbial pollution indicating wide-scale sewage and industrial pollution, exploitation of mangroves leading to erosion of coastal land, the destruction of ideal habitats for marine life and breeding grounds for fish, intrusion of saline water into coastal acquifers rendering coastal lands more prone to flooding, and the pollution of the sea by oil spills and ship wastes\. Studies by the Department of Ocean Development and the CPCB have shown large scale pollution in the coastal areas, especially the creek waters on the western coasts, particularly in Gujarat and Maharashtra\. CPCB has estimated that about 135 billion metric tons of sediment and 32 billion metric tons of soluble matter enter into the ocean through the various rivers of India\. While the Indian rivers carry five percent of all the water that flows into the world's seas, they also carry thirty-five percent of all sediments\. Given the polluting nature of Indian's rivers, the overall impact of such pollution is enormous on India's coastal and marine areas as well as the seas\. The proposed coastal and marine area management subcomponent will directly address many aspects of coastal pollution and degradation in India\. If successful, not only will monitoring of pollution be improved, but the management plans which the states will prepare, should lead to reductions in marine pollution, and the protection of coastal wetlands, mangroves, coral reefs, and marine habitats\. 132\. Environmental Policy Planning\. This project subcomponent has as its objective the strengthening of environmental policy planning through better economic analysis, research and information, new and upgraded environmental standards, and the development of environmental indicators and indices\. India is currently hindered by both environmental  59 policy failures due to the distortionary effects of pricing policies, and inefficiencies due to policy regimes that while well-intentioned, could be reformed for greater efficiency\. The proposed will concentrate on improving the efficiency of sub-optimal environmental policies and practices\. The benefits of this project component will be to: (a) reduce the marginal cost of compliance, relative to current practices, through increased use of cost-effectiveness criteria in policy planning\. This includes the cost of all environmental investments required to meet standards; (b) reduce the cost of effective government oversight over the environment, relative to current trends, because of the greater role to be played by civil society in environmental monitoring and compliance; and (c) reduce the long-term cost of improved environmental management, relative to current trends, by increasing the adoption of precautionary measures as opposed to clean-up operations\. 133\. Decentralization of Environmental Management\. The project would support a concerted effort to improve and expand the role of civil society i\.e\. beneficiaries, elected local bodies, non-governmental organizations, and other grassroots organizations in the environmental management system in India\. The project would integrate splintered environmental initiatives such as the Nation Environmental Awareness Campaign, Paryavaran Vahini, and others into a focused and thematic program of behavior change that would evolve from "raising awareness" to action\. 134\. Environmental Administration\. The benefits from improved administration would be both visible and demonstrable in the short-term\. Strengthened Regional Offices of the MOEF and SPCBs will be more effective in ensuring that the Environmental Management Plans approved by Center and State as part of the EIA clearance process would be morc vigorously implemented\. The benefits accruing from the establishment of Project Management Cells in MOEF, DOD, and the Gujarat Department of Environment and Forest essentially relate to the effectiveness of project implementation\.   60 TECHNICAL ANNEX ATTACHMENT 1 PAGE 1 OF 13 INDIA ENVIRONMENTAL MANAGEMENT CAPACITY BUILDING TECHNICAL ASSISTANCE PROJECT LEGAL FRAMEWORK 1\. The Constitution of India provides for the protection and improvement of the environment\. Article 51(g) of the Constitution states: "It shall be the duty of every citizen of India to protect and improve the national environment, including forests, lakes, rivers and wildlife and to have compassionfor living creatures\. " The language of the Directive Principles of State Policy (Article 47) also contains a specific provision which commits the State to protect the environment\. 2\. In addition to constitutional provisions, India has established a comprehensive set of laws for the management and protection of the environment\. These comprise a series of Acts, Notifications, Rules and Amendments as shown in Box 4\. 3\. While all of these laws are important to the legal framework of environmental management in India, in recent years several of these Acts have become very important\. These are: the Water (Prevention and Control of Pollution) Act of 1974 and Cess Act of 1977; the Air (Prevention and Control of Pollution) Act of 1981; the Environment (Protection) Act of 1986; the Hazardous Wastes Rules of 1989; the Forest (Conservation) Act, as amended in 1988; the Wildlife Act of 1972; the Policy Statement on Abatement of Pollution of 1992; and the Environmental Audit, Clearance (Environment Impact Assessment), and Coastal Regulation Zone Notifications of 1991, 1992, and 1994\. The salient features of these Acts are outlined below\. 4\. The Environment (Protection) Act of 1986 was enacted in the wake of the Bhopal gas tragedy under Article 253 of the Indian Constitution\. The purpose of this Act is to implement the decisions of the 1972 UN Conference on the Human Environment\. This act is umbrella legislation that provides a framework for central and state authorities established under previous laws such as the Water Act (Paras\. 5-7) and the Air Act (para\. 8)\. It provides a single focus for the protection of the environment and seeks to plug the loopholes of earlier legislation relating to the environment\. Several sets of rules relating to various aspects of the management of hazardous chemicals, wastes, micro-organisms, and so on, have been written under this act\. Salient features of this act are:  61 Ito:)x 4: INDIA: En\.avireiumnintal 1\.cgisl:ftiofn, Aits, ltitles, Notirlltioin Xi1i AincuiilinciiiN \. \. \. \. \. \. * The Environment (Protection) Act and Rules, 1986 * The Environmental Audit Notification, 1992 * The Environmental Standards Notification, 1993 * The Environmental Clearance Notification, 1994 * The Public Liability Insurance Act, Rules, and Amendment, 1991, 1992 * The National Environment Tribunal Bill, 1992 * The Ancient Monuments and Archaeological Sites and Remains Act, 1958 er Y\. W E \. *\. L; \. vr * The Indian Forest Act and Amendment, 1927, 1984 * The Forest (Conservation) Act and rules, 1980, 1981 * The Wildlife (Protection) Act, Rules, and Amendment, 1972, 1973, 1991 * The Insecticide Act, 1968 ~~~~~~ A~~~~~~~~i * The Urban Land (Ceiling and Regulation) Act, 1976 * The Model Regional and Town Planning and Development Law, 1985 * Provision in State Acts on Town and Country Planning * The Industries (Development and Regulation) Act and Amendment, 1951, 1987 * The Mines and Minerals (Regulation and Development) Act and Amendment, 1957, 1984 * The Coal Mines (Conservation and Development) Amendment Act, 1985 \.:\.!;\. t \. \. X \. * The Water (Prevention and Control of Pollution) Act, Rules and Amendment, 1977, 1978, 1992 * The Coastal Regulation Zone Notification, 1991 * The Oil Fields (Regulation and Development) Act, 1984 * The Merchant Shipping Act, 1970 * The River Boards Act, 1956 * The Indian Fisheries Act, 1897 * The Air (Prevention and Control of Pollution) Act, Rules and Amendment, 1981, 1982, 1983, 1987 * The Factories Act and Amendment, 1948, 1987 * The Motor Vehicles (Amendment) Act, 1986 * The Atomic Energy Act, 1982 * The Indian Boiler Act, 1923  62 TECHNICAL ANNEX ATTACHMENT 1 PAGE 3 OF 13 (a) the central government may restrict an industry, operation or process, or class of industries or operations from a particular area; (b) emissions and effluent standards with respect to sixty-one categories of industries have been developed; (c) the standards with respect to pollutants are to be achieved within a period of one year from the date of their notification; (d) if a particular State Pollution Control Board desires, it may reduce the time limit and also specify more stringent standards with respect to a specified category of industries within their jurisdiction\. The board cannot relax either the time limit or the standards; and (e) industries that require consent under the Water Act, Air Act or both, or authorization under the Hazardous Waste (Management and Handling) Rules, 1989, are required to submit an environmental audit report to the concerned State Pollution Control Board on or before September 30 every year\. 5\. The Water (Prevention and Control of Pollution) Act, 1974\. This Act provides for the prevention and control of water pollution and maintaining or restoring good water quality for any establishment\. The act assigns functions and powers to the Central and State Pollution Control Boards for prevention and control of water pollution and all related matters\. On a case-by-case basis, or where there may be a union territory involved, the act allows for the constitution of a joint Board i\.e\., by two or more governments of contiguous states by the central government\. Subject to the provisions of the act, functions and powers of Central as well as the State Boards have been delineated individually and with respect to each other\. For the prevention and control of water pollution, the state government has the power to restrict the application of the act to certain areas, obtain information, take samples of effluents and follow appropriate procedures thereafter, enter and inspect an establishment, prohibit use of streams or wells for disposal of polluting material, restrict new outlets and discharges, restrict existing discharge of sewage or trade effluent, and refuse or withdraw any consent by the state board\. 6\. The Central Pollution Control Board, as well as the State Pollution Control Boards are eligible for contributions from the central government and state governments, respectively, to enable them to perform the functions appropriately\. The Act also prescribes stringent penalties for those who operate their industry without valid consent or in violation of consent conditions\. The Water (Prevention and Control of Pollution) Amendment Act, 1988 was passed to overcome administrative and practical difficulties in implementing the provisions of the original act\.  63 TECHNICAL ANNEX ATTACHMENT 1 PAGE 4 OF 13 7\. The Water (Prevention and Control of Pollution) Cess Act of 1977\. This Act provides for the levy and collection of a cess on water consumed by persons carrying on certain industries and by local authorities, with a view to augmenting the resources of the Central Pollution Control Board and the State Pollution Control Boards for the prevention and control of water pollution constituted under the Water (Prevention and Control of Pollution) Act, 1974\. It also covers specifications on affixing of meters, furnishing of returns, assessment of cess, interest payable for delay in payment of cess, and penalty for nonpayment of cess within the specified time\. Salient features of this act are: a) the assessing authority under the act levies and collects a cess based on the amount of water consumed and the purpose for which the water is used; b) the concerned industries are required to install standard water meters for measuring and recording the quantity of water consumed; c) based on cess returns to be furnished by the industry every month, the amount of cess is determined by the assessing authorities; d) aggrieved persons may appeal the assessment to the Appellate Authority; and e) the act also provides for a twenty-five percent rebate on the cess, payable to those industries that consume water within the quantity prescribed for that category of industries and also comply with prescribed effluent standards\. 8\. The Air (Prevention and Control of Pollution) Act of 1981 was enacted to prevent, control and reduce air pollution, including noise pollution, and to establish boards at the States/Union Territories to achieve this\. This act prohibits the construction or operation of any industrial plant without the consent of the State Pollution Control Board (SPCB)\. The act assigns powers and functions to the CPCB and SPCBs for prevention and control of air pollution and all other related matters\. The Act states that state boards for the prevention and control of water pollution are to be the state boards for the prevention and control of air pollution\. In addition, the CPCB can exercise the power and perform the functions of a state board in the Union Territories\. For the prevention and control of air pollution, the state government in consultation with SPCB has the power to set standards for emissions from automobiles, impose restrictions on use of certain industrial plants, and prohibit emissions of air pollutants in excess of the standards laid down by the SPCB\. It can also make an application to court for restraining persons from causing air pollution\. In addition, it also has the power of entry and inspection, power to obtain information and power to take samples of air emissions and conduct the appropriate follow-up\. The CPCB, as well as the SPCBs are eligible for contributions from the central government and state government, respectively, to perform their functions appropriately\. The act also allows for appropriate penalties and  64 TECHNICAL ANNEX ATTACHMENT 1 PAGE 5 OF 13 procedures for noncompliance\. The Air (Prevention and Control of Pollution) Amendment Act of 1987 includes amendments to facilitate implementation of the 1981 act\. 9\. The Manufacture, Storage and Import of Hazardous Chemicals Rules of 1989 were developed under authority conferred by the Environment (Protection) Act, 1986\. The principal objectives of the rules are the prevention of major accidents arising from industrial activities, the mitigation of effects of such accidents on people and on the environment, and the harmonization of various control measures and agencies to prevent and limit major accidents\. The rules specify three levels of requirements\. a) general or low-level requirements apply to 434 chemicals and require the industrial unit to take necessary precautions to prevent major accidents, to report those that do arise and take steps to limit consequences, prepare a Material Safety Data Sheet, report imports, and properly label the hazardous chemicals handled; b) the medium-level control applies to 179 chemicals and requires that the unit in control of the relevant activity provide workers on-site with infonnation, training and necessary equipment to ensure their safety as well as an off-site emergency plan; c) the high-level controls apply to 17 chemicals in quantities that are unsafe\. Users of these chemicals must prepare a Safety Report\. New industries are required to prepare the Safety Report within five years of beginning operation\. An on-site emergency plan for dealing with major accidents is also required; and d) both medium and high-level controls require public disclosure\. Information regarding a potential off-site spill or an on-site accident must be provided to the District Collector for the preparation of an off-site emergency plan before commencement of the activity\. Also, the public in the vicinity of the plant needs to be informed of the nature of a major accident that might occur on-site and what to do in case of such an occurrence\. 10\. The Hazardous Wastes (Management and Handling) Rules of 1989 require industries to classify wastes into categories\. Other provisions include: (a) the occupier generating hazardous wastes must take all practical steps to ensure that such wastes are properly handled and disposed of; (b) hazardous wastes must be collected, treated, stored and disposed of only in facilities authorized for this purpose by the State Pollution Control Boards;  65 TECHNICAL ANNEX ATTACHMENT 1 PAGE 6 OF 13 (c) before hazardous wastes are delivered, the facility occupier or operator must ensure that the hazardous wastes are packaged in a manner suitable for storage and transport; (d) the state govermnent, or a person authorized by it, must undertake an ongoing program to identify disposal sites and compile and publish periodically an inventory of disposal sites within the state; (e) the occupier generating hazardous waste and the operator of a facility for collection, reception, treatment, transport, storage and disposal of hazardous waste must maintain records of such operations; (f) when an accident occurs during transport of hazardous wastes, the facility occupier or operator must report the incident immediately to the State Pollution Control Board; and (g) import of hazardous wastes from any country to India for dumping and disposal is prohibited\. However, import of such wastes may be allowed for processing or reuse as raw material\. 11\. The Manufacture, Use, Import, Export and Storage of Hazardous Micro- Organisms and Genetically Engineered Organisms of Cells Rules, 1989\. The central government established these rules with a view to protecting the environment, nature and health, in connection with the application of gene technology and micro-organisms\. These rules are applicable to the manufacture, import and storage of micro-organisms and genetically engineered organisms\. However, such licenses are issued only after the proposal is cleared from the environmental angle by the Ministry of Environment and Forests\. For according such clearances, the Ministry has notified the "Rules for the Manufacture, Use, Import, Export and Storage of Hazardous Micro-organisms and Genetically Engineered Organisms or Cells" in 1989 under the EPA of 1986\. The investor is required to submit an application to the Ministry of Environment and Forests\. The Genetic Engineering Approval Committee (GEAC) constituted by the Ministry of Environment and Forests examines the application form and makes recommendations\. All industries involving hazardous micro- organisms or genetically engineered organisms are required to constitute an Institutional Bio- Safety Committee (IBSC) to oversee the planning of an on-site emergency plan to deal with any accident which may occur due to hazardous micro-organisms\. 12\. The Policy Statement for Abatement of Pollution of February 1992 affirms the government's intention to integrate environmental and economic aspects in development planning, with stress on the preventive aspects of pollution abatement, and promotion of technological inputs to reduce industrial pollutants\. the overall policy objective is to integrate  66 TECHNICAL ANNEX ATTACHMENT 1 PAGE 7 OF 13 environmental considerations into decision making at all levels\. Specific steps identified to meet this objective are: (a) prevent pollution at source; (b) encourage, develop and apply the best available practicable solutions; (c) ensure that the polluter pays for the pollution control arrangement; (d) focus protection on heavily polluted areas; (e) involve the public in decision making; and (f) increase the safety of industrial operations\. To achieve the objectives, maximum use will be made of a mix of instruments in the form of legislation and regulation, fiscal incentives, voluntary agreements, educational programs and information campaigns\. The emphasis will be on increased use of regulations and an increase in the development and application of financial incentives\. 13\. Fiscal Incentives to Encourage Control and Prevention of Pollution\. The Government of India offers several incentives to ensure that industries are motivated to comply with the various environmental standards prescribed under different acts and rules to control and prevent pollution\. Some major fiscal incentives are as follows: (a) exemption from income tax\. In order to ensure enthusiastic public involvement, particularly of the corporate sector and private individuals, donations given by a taxpayer to any association or institution for programs on conservation of nature and natural resources are exempt from income tax\. The Secretary of the Ministry of Environment and Forests approves such institutions and associations\. (b) depreciation allowance\. A depreciation allowance of 30 percent is allowed on devices and systems installed by industrial units for minimizing pollution or for conservation of natural resources\. (c) investment allowance\. An investment allowance at the rate of 35 percent of the actual costs of new machinery or plant to assist in the control of pollution and protection of the environment is granted\. The central government has notified a list of machinery and plant on which investment allowance is granted\. (d) exemption from tax on capital gains\. The purpose of this incentive is to encourage industries to shift from congested urban areas\. Capital gains arising from transfer of buildings or lands used for business purposes are exempt from tax if these are used for acquiring or for constructing buildings for the purpose of business at a new place\. (e) excise and duty exemption on utilization of fly-ash, phosphogypsum, and so on\. excise duty is exempted on the production of low-cost building materials and components;  67 TECHNICAL ANNEX ATTACHMENT 1 PAGE 8 OF 13 (i) excise duty is exempted on the production of building materials using fly-ash or phosphogypsum as raw material in 25 percent or greater quantities; (ii) custom duty is exempted on the import of equipment, machinery and capital goods required for the production of building material such as bricks, lightweight aggregates, lightweight concrete elements, and so on, using fly-ash or phosphogypsum; and (iii) reduction in excise duty up to 15 percent is allowed on prefab components required for housing\. 14\. The Public Liability Insurance Act of 1991 provides immediate relief to persons affected by accidents while handling hazardous substances\. The act requires that: (a) where death or injury to any person (other than a workman) or damage to any property has resulted from an accident, the owner is liable to give relief on a "no fault basis"; (b) every owner must take out, before he starts handling hazardous substances, one or more liability insurance policies equal to its paid up capital or Rs\. 500 million, whichever is less\. The policy has to be renewed every year\. New undertakings must apply for liability insurance before starting their activity; (c) accidents are verified by the District Collector, who may hold an inquiry into the claim(s) and may make an award determining the amount of relief; (d) the central government will set up an Environmental Relief Fund to be utilized for paying, in accordance with the provisions of the Act\. The owner also has to pay an amount equal to its annual premium to the central government's Environment Relief Fund\. The reimbursement of relief to the extent of Rs\. 25,000 per person is allowed in case of fatal accidents in addition to the reimbursement of medical expenses up to Rs\. 12,500\. The liability of the insurer is limited to Rs\. 50 million per accident up to Rs\. 150 million per year or up to the tenure of the policy\. Any excess claims will be paid from the environment relief fund or by the owner; (e) Owners must provide the final compensation, if any, arising out of legal proceedings\. The Public Liability Insurance Amendment Act specifies the responsibilities of different participants under the liability law\.  68 TECHNICAL ANNEX ATTACHMENT I PAGE 9 OF 13 15\. The Environmental Audit Notification of 1992 applies to every person carrying on an industry, operation or process requiring consent to operate under the Water Act, Air Act, or both, or authorization under the Hazardous Wastes (Management and Handling Rules), 1989, issued under the Environment (Protection) Act, 1986\. The notification requires that an environmental statement for the financial year ending March 31st be submitted to the concerned State Pollution Control Board on or before September 30 every year, beginning in 1993\. The realization that industry and environment should go hand in hand so as to achieve sustainable development was brought in realization to consider environmental protection a bare necessity\. "Environmental Audit" is a technique being introduced for integrating the interests of industry and environment, so that these could be mutually supportive\. The Policy Statement for Abatement of Pollution by the Goverrunent of India, provides for submission of environmental statement by all concerned industries, which would subsequently evolve into an environmental audit\. [Environmental Auditing is a management tool comprising a systematic, documented, periodic and objective evaluation of how well the management systems are performing with the aim of: waste prevention and reduction, assessing compliance with regulatory requirements, facilitating control of environmental practices by a company's management and placing environmental information in the public domain]\. 16\. The Environmental Impact Assessment of Development Projects Notification of 1994\. Until January 1994, obtaining environmental clearance from the Ministry of Environment and forests was only an administrative requirement intended for mega projects undertaken by the government or public sector undertakings\. The EIA Notification issued in January 1994 and amended in May, 1994, makes Environment Impact Assessment (EIA) statutory for 29 different identified activities (Schedule - 1) which can be broadly categorized under the following sectors: industries; mining; thermal power plants; river valley development; ports; harbors and airports; communication; atomic energy; transport (rail, road, highway); and tourism ( including hotels and beach resorts in the Coastal Regulation Zone)\. 17\. All projects listed under Schedule - 1 are required to obtain environmental clearance from the central government i\.e\. the Ministry of Environment and Forests (MOEF)\. Projects which fall under the delicensed category of the New Industrial Policy are also required to obtain environmental clearance from the MOEF\. 18\. All development projects whether under Schedule - I or not, if they are to be in certain notified ecologically sensitive or fragile areas such as the Doon Valley; Dahanu Taluka; Aravalli ranges in Gurgaon district of Haryana; Alwar district in Rajasthan etc\., will also have to obtain environmental clearance from the MOEF\.  69 TECHNICAL ANNEX ATTACHMENT I PAGE 10 OF 13 19\. Industrial projects where the investment is Rs\. 500 million or above must receive MOEF clearance\. Industrial activities where the investment is Rs\. 10 million and above in pesticides; bulk drugs and pharmaceuticals, asbestos and asbestos products; paints; distilleries; raw skins and hides; dyes; foundries and electroplating will also require the clearance of the Ministry of Environment and Forests\. Industrial projects are further required to obtain a Letter of Intent (LOI) from the Ministry of Industry, and a No Objection Certificate (NOC) from the State Pollution Control Board and state Forest Department if the location involves forest land\. Once the NOC is obtained, the LOI is converted to an Industrial License by the state authorities\. However, if the project falls under Schedule - 1 of the EIA Notification, it must obtain an environmental clearance from the MOEF\. Obtaining the necessary approvals from the MOEF is facilitated by following a set of "Siting Guidelines" which are issued by the MOEF\. 20\. Only mining projects involving more than 5 hectares of land are required to obtain" Site Clearance" from the MOEF\. Other projects involving leases of less than 5 hectares of land are cleared by state governments\. 21\. The EIA Notification requires each project to submit a number of documents to the MOEF in order to obtain enviromnental clearance as follows: (a) Feasibility/Project Report; (b) site clearance ( only for site-specific projects mentioned in the Notification); (c) No Objection Certificate from the SPCB and other state authorities; (d) Completed Environment Appraisal questionnaire: (e) Environment Impact Assessment Report and Environment Management Plan; (f) Risk Analysis, Emergency Preparedness Plan ( only in the case of projects involving hazardous substances); and (g) rehabilitation plans where large scale displacement of people is anticipated\. 22\. The EIA Notification also outlined an environmental appraisal procedure as follows: (a) the documents listed above are reviewed first by the multi-disciplinary staff in the MOEF\. They may also visit the project site, and consult with experts as necessary;  70 TECHNICAL ANNEX ATTACHMENT 1 PAGE 11 OF 13 (b) after the initial review, the proposals are placed before specially constituted committees of experts known as Environmental Appraisal Committees for each sector\. Besides the review of documents, the Committee may also undertake site visits, and directly interact with affected people and environment groups; (c) in the case of very special or controversial projects which arouse considerable public interest, the Committee will arrange public hearings to ensure public participation\. announcements for public hearings are made at least 30 days before through newspapers\. (d) after the above steps are completed, the Appraisal Committee makes a recommendation for approval or rejection to the MOEF\. The Minister of Environment and Forests makes the final decision to approve or reject based on recommendation placed before him by the staff of MOEF\. 23\. Whenever a project is given environmental clearance, a set of recommendations and conditions are stipulated by the Appraisal Committee which have to be complied with by the investor once the project is commissioned\. Project authorities are required to submit semiannual compliance reports to the MOEF to enable the Ministry to monitor the implementation of the recommendations and conditions of environmental clearance\. The six Regional Offices of the MOEF (Shillong, Bhubaneswar, Chandigarh, Bangalore, Lucknow and Bhopal) assist the MOEF in monitoring environmnental cleared projects\. Cases of non- compliance of recommendations and conditions of environmental clearance are brought to the notice of the concerned State Pollution Control Board for action\. 24\. Forest (Conservation) Act of 1980 and 1988 Amendments provide for the conservation of forests and matters related to the same\. It calls for restrictions on the dereservation of forests or use of forest land for non-forest purposes, i\.e\. the clearing of any forest land for the cultivation of tea, coffee, spices, rubber, palms, oil-bearing plants, horticultural crops or medicinal plants, or any purpose other than reforestation\. It also provides for the constitution of advisory committees and outlines the jurisdictions of government departments and provides the central government with power to make rules for carrying out the provisions of the act\. 25\. National Forest Policy of 1988 focused on a new strategy of forest conservation which included preservation, maintenance, sustainable utilization, restoration and enhancement of the natural environment\. The following are the objectives governing the forest policy:  71 TECHNICAL ANNEX ATTACHMENT 1 PAGE 12 OF 13 (a) maintenance of environmental stability through preservation and, where necessary, restoration of the ecological balance that has been adversely distributed by serious depletion of the forests of the country\. (b) conserving the natural heritage of the country by preserving the remaining natural forests with the vast variety of flora and fauna, which represent the remarkable biological diversity and genetic resources of the country; (c) checking soil erosion and denudation in the catchment areas of rivers, lakes, and reservoirs in the interest of soil and water conservation, for mitigating floods and droughts, and for the retardation of siltation of reservoirs; (d) checking the extension of sand dunes in the desert areas of Rajasthan and along the coastal tracts; (e) increasing substantially the forest tree cover in the country through massive afforestation and social forestry programs, especially on all denuded, degraded and unproductive lands; (f) meeting the requirements of fuelwood, fodder and minor forest produce and small timber of the rural and tribal populations; (g) increasing the productivity of forests to meet essential national needs; (h) encouraging efficient utilization of forest produce by maximizing substitution of wood; and (i) creating a massive people's movement with the involvement of women, for achieving these objectives and to minimize pressure on existing forests\. In addition, the policy outlines the essentials of forest management, strategies of afforestation, social forestry and farm forestry, wildlife conservation, forest-based industries, and forest education and research\. 26\. Wildlife (Protection) Act of 1972 is a unified national act superseding previous specific state laws and the Indian Forest Act, 1927, which enables the constitution and management of areas as national parks, sanctuaries, game reserves, and closed areas\. It also specifies the procedures for establishing protected areas, the management parameters for them, and the procedures for allowing or disallowing diverse uses within them\. Under this act, national parks are given a higher level of importance than sanctuaries, since no grazing or private land holding or right is permitted within them\. The act also provides for identification of sanctuaries for certain human uses\. It specifies for hunting of wild animals with respect to  72 TECHNICAL ANNEX ATTACHMENT 1 PAGE 13 OF 13 license needed, maintenance of records of wild animals killed, restrictions of hunting, etc\. It provides for the declaration of any area to be a sanctuary, national park or game reserve by the state government, if it is considered that the area is of adequate ecological, fauna, floral, geomorphological, natural or zoological significance for the purpose of protecting, propagating wildlife or its environment\. In addition, the act also prohibits the trade of wild animals or animal articles and trophies derived from certain animals\. 27\. Coastal Regulation Zone Notification of 1991 was issued by the Ministry of Environment and Forests under Section 3(1) and Section 3(2)(v) of the Environment (Protection) Act of 1986\. Under this notification, the central government declared the coastal stretches of seas, bays, estuaries, creeks, rivers and backwaters which are influenced by tidal action (on the landward side) up to 500 meters of the High Tide Line (HTL) and the land between the Low Tide Line (LTL) and the HTL as Coastal Regulation Zone, and imposed restrictions on the setting up and expansion of industries, operations and processes, etc\. in the Coastal Regulation Zone (CRZ)\. The notification also prohibited within the CRZ the disposal of hazardous substances, waste and effluent, untreated wastes and effluent from industries, cities, towns and other human settlements, dumping of ash or other wastes from thermal plants and construction activities in ecologically sensitive areas\. (a) the CRZ notification listed activities which were permissible in the CRZ, but which require environmental clearance from the Ministry of Environment Forests\. There are: construction of defense facilities with foreshore facilities; ports and harbors, jetties and wharves; thermal power plants, and other activities with investment exceeding Rs\. 50 million\. Each state with a coastline is also required to prepare a Coastal Zone Management Plan identifying and classifying the CRZ areas in accordance with guidelines included in the notification\. (b) the notification classified coastal stretches into four categories depending on the sensitivity of the location\. Development activities are to be regulated accordingly\. The notification also includes guidelines for the development of beach resorts/hotels in CRZ III and restricts construction within 20 meters from the HTL and within the area between the HTL and LTL\.  73 TECHNICAL ANNEX ATTACHMENT 2 PAGE 1 OF 7 INDIA ENVIRONMENTAL MANAGEMENT CAPACITY BUILDING TECHNICAL ASSISTANCE PROJECT ENVIRONMENTAL MANAGEMENT INSTITUTIONS 1\. The effective implementation of the wide range of environmental laws require processes, procedures, and institutions at the center, state and district levels with the capacity to plan, implement, monitor and enforce compliance\. Although the current management system is primarily a government-centered command and control regime, it does employ incentives and other techniques to encourage voluntary compliance with pollution control, forest protection, and the environment protection thrusts in the law\. The environmental management system also provides for the active participation of large numbers of community- based, non-governmental, and private voluntary organizations which are active in implementing small-scale environmental improvement and mitigation programs and give voice to the "public interest" which is embodied in environmental legislation\. Figure 2 shows the organizational structure of India's environmental management system\. Figure2\. Organizational Structure for Environmental Management in India Center_State District Metropolitan Area Village Ministry of Rogional | Department on rini b Environme nt = OFF o Einment Cenitral Pollution Zonal Sb Polto (CPCB) = CmPCBif4CnoiBac ---------f- -----------:: ---------: ---: ------------------------------- ---------------------------------------::::-:------------ :--- ::::-J---------  74 TECHNICAL ANNEX ATTACHMENT 2 PAGE 2 OF 7 2\. The Environment is a central subject in India and follows from the central government's obligations agreed at the 1972 U\.N\. Conference on the Human Environment (Attachment 1\. Para\. 4)\. The entire environment management system evolved with the Ministry of Environment and Forests (MOEF) in the Government of India in 1985\. Many states already had State Pollution Control Boards (SPCBs) located in Departments of Public Health to perform functions outlined in the Water and Air Acts\. In most states, the Departments of Environment were also established only after 1985\. The State Pollution Control Boards are larger institutions by virtue of their traditional roles\. Departments of Environment in the states mostly function as small entities, generally devoid of the skills which are required for policy planning and implementation\. While the MOEF at the Center has expanded and changed its skill-mix, the State Departments of Environment continue to perform routine budgetary functions for the State Pollution Control Boards\. Only the West Bengal Department of the Environment has prepared an Environmental Action Program\. The plethora of environmental legislation at the national level needs to be matched by institutional abilities at the state level where most of the monitoring and compliance activities are initiated\. 3\. The Ministry of Environment and Forests (MOEF) is the nodal agency for environmental management at the Center\. It has a number of attached agencies and institutions including the Central Pollution Control Board (CPCB) which is located in New Delhi and six Regional Offices in various States\. At the State level, the Departments of Environment, Forests, and the State Pollution Control Boards are the key institutions\. The organization chart of the MOEF is shown in Figure 3\. The major functions of the key environmental management institutions are outlined in the following paragraphs\. 4\. The Ministry of Environment and Forests (MOEF) The major functions of the MOEF are to: (a) develop and implement conservation and protection strategies, including the establishment of biosphere reserves, pollution monitoring, environmental appraisal of development projects, and the protection of historical monuments of national importance; (b) coordinate environmental management programs with other ministries and agencies, volunteer organizations, professional bodies, and other groups; (c) develop national environmental policy planning strategies; (d) work with global agencies on environmental issues; (e) support research on environmental problems; (f) develop environmental education programs to increase national awareness of environmental protection issues and the importance of natural resource preservation and citizen participation; (g) review legislation and formulate additional legal measures when needed  75 Figure 3: Organizational Chart of the Ministry of Environment and Forests Divisions Specialized Agencies Andaman and Nirobar Island Forest and Plantation N Forest Survey and JDevelopment Corporation Limited Utilization Div\. _L--,\. - Forest Survey of India Forest Conservation - Directorate of Forest Education, Dehradun Indian Instnute of Forest Management\. Bhopal cation and Training Div\. -Indira Gandhi National Forest Academy\. Dehradun cation and Training Div\. - - --~ - -7 Indian Council of Forestry Research & Education, Dehradun" Forest Policy Div\. Indian Plywood Research Institute, Bangalore \. \. \. \. \. \. \. \. \. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\. _- Central Zoo Authonty + Forest Fire Control Div\. _ -- Padmaja Naidu Himalayan Zoologic-al Park, Darjeeling W i o v - National Zoological Park, New Delhi FW-ild-life Conservation R::R= : : :: J-Dv\. _ Wildlife Insititute of India\. Dehradun _"* vWildlife Regional Office, Westem Regional Office, Bombay Ganga ProJect '9E Wildlife Regional Office, Southem Regional Office, Madras Directoratb _ Wildlife Regional Office, Norther Region, New Delhi Wildlife Regional Oftee, Eastem Region, Calcutta \. G\.B\. Pant Himalayan Paryavaran Evam Vikas Sangathan\.' + _ !1! m i_ p AImora ---- __________,\.___ Ministerroortn State f I Secraery e D v (EnvironmenM I_ and Forests) Gri Nat-ional Ecodevelopment I i @ r Board _| Hazardous Substance| Management Div\.| _|PGA and Grievances| Div\. | Personnel and Scientific Recruitment Div\. National Musuem of Natural History, New Delhi _1 Conservation and *- Salim Ali Centre for Omithology & Natural History, Bombay Survey Div\. l Botanical Survey of India, Calcutta _I Civil Engineering Wing Zoological Survey of India, Calcutta - A\.%-, Ae\. Asko" by av iU\.d Ud\. u Ad-,-la\.a__ IFS and Cadre f 11'\. m\.ey Management Div\. Animal Welfare Div\. *- Animal Weffare Board Note: Shaded Divisions/Specialized Agencies are diecUy involved in the Project  76 TECHNICAL ANNEX ATTACHMENT 2 PAGE 4 OF 7 for environmental protection; (h) maintain a national environmental information system and database on environmental problems; and (i) review policies and programs on human settlement\. The MOEF has a number of attached agencies and institutions which implement the above functions\. 5\. Regional Offices of MOEF have been established as shown in Box 5\. Bfoix 5: Loaicion or itegiuuna ()ficeq tif ihe M EF - Negion Regriufl/ Ofik e \.furb\.-dkiion\.STahte\. Ifcadquaterrix \. \. \. \. \. \. \. \. \. \. \. _\._ \. \. \. \. \. \. \. \. \. South Bangalore Andhra Pradesh, Goa, Kamataka, Kerala, Tamil Nadu and Union Territories (UTs) of Lakshadweep and Pondicherry West Bhopal Gujarat, Maharashtra and Madhya Pradesh and UTs of Dadra & Nagar Haveli and Daman & Diu East Bhubaneshwar Bihar, Orissa, Sikkim, West Bengal and UT of Chandigarh Central Lucknow Rajasthan and Uttar Pradesh North-East Shillong Arunachal Pradesh, Assamn, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura North Chandigarh Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab and UT of Chandigarh The major functions of the Regional Offices are to: (a) monitor and evaluate all ongoing forestry development projects and schemes with specific emphasis on conservation of forests; (b) assist the States and union Territories in the preparation of proposals involving diversion of forest land for non-forestry purposes under the provisions of the Forest (Conservation) Act, 1980; (c) undertake physical inspection of sites in cases of diversion of forest involving an area of more than 40 ha\.; (d) monitor the implementation of conditions and safeguards  77 TECHNICAL ANNEX ATTACHMENT 2 PAGE 5 OF 7 stipulated by the Central Government in regard to diversions approved under the Forest (Conservation) Act, 1980; (e) assist the States and Union Territories in the preparation of management plans for forests under their control; and (f) assist the States and Union Territories in streamlining collection, collation, storage and retrieval of data covering all the facets of forests and forestry activities and to transmit such data to the Central Government/Central Data Processing Center\. 6\. The Regional Offices are also responsible to: (a) dispose of proposals for diversion of forest land up to 5 ha\. except for mining and making regular encroachments, and to examine cases between 5 ha\. and 20 ha\. in consultation with the State Advisory Committees; (b) assist in the preparation of the National Forestry Action Plan (NFAP); (c) assist Paryavaran Vahinis as observers and technical advisors; (d) provide regional-level technical and scientific consultation on biological diversity; (e) follow the implementation of conditions and safeguards laid down for projects/activities when environmental clearance is given; (f) follow up pollution control measures taken by industries, local bodies, Government (Center/State) undertakings, etc\.; (g) collect and furnish information relating to environmental impact assessment of projects, pollution control measures, methodology and status, legal and enforcement measures, environmental protection special conservation areas like wetlands, mangroves and biosphere reserves; and (h) maintain liaison and provide linkages with the concerned State governments, with central government agencies, with project authorities, with the Regional Offices of the Central Pollution Control Board, with State Pollution Control Boards and with non-government organizations involved in implementation of programs relating to the environment\. 7\. Other Ministries at the center also perform environmental management functions\. These are shown in Box 6\. 8\. The Central Pollution Control Board (CPCB) is a statutory authority attached to the Ministry of Environment and Forests\. It was constituted in 1974, and its major functions are to: (a) advise the central government on any matter concerning water and air pollution and the improvement of air quality; (b) plan and implement a national program for the prevention or abatement of water and air pollution; (c) coordinate the activities of the state pollution control boards and resolving disputes among them; provide technical assistance and guidance to the state boards; carry out and sponsor investigation and research relating to problems of water and air pollution; (d) organize training for people working on the prevention or abatement of water and air pollution; (e) organize a comprehensive public awareness program on the prevention and abatement of water and air pollution; (f) compile data relating to water and air pollution and the measures needed for prevention and abatement; prepare guidelines on the treatment and disposal of sewage, effluents, and stack gas cleaning devices; (g) set standards for stream and well water and for air quality in consultation with the state governments;  78 TECHNICAL ANNEX ATTACHMENT 2 PAGE6OF7 (h) perform such other functions as may be prescribed by the government; and (i) ensure compliance with the provisions of the Environment (Protection) Act\. 9\. State Department of Environment and Forests performs similar executive functions at the state level as the MOEF at the center\. 10\. State Pollution Control Boards (SPCBs) play a major role in environmental management at the state level\. Their major functions are to: (a) plan and execute state-wide programs for the prevention and control or abatement of water and air pollution; (b) advise state governments on prevention, control and abatement of water and air pollution and siting of industries; (c) lay down or modify emission standards for local industries based on the Minimum National Standards and the carrying capacity of sites; (d) issue consent orders allowing discharge of industrial pollutants to air and water; (e) monitor compliance with discharge consents and ensure compliance with provisions of relevant Acts; (f) issue No Objection Certificates allowing industries to develop a site\. (Depending on the industry, an environmental assessment may still be required from the MOEF); (g) publish statistics on pollution control for the state and disseminate information through lectures, seminars, training and awareness; and (h) ensure legal action against defaulters\. 11\. Municipalities and Panchayats are expected to play an increasing role in environmental management at the district level\. Under the Constitution (Seventy-Third Amendment and Seventy-Fourth Amendment) Act of 1992, State governments can delegate certain functions to municipalities and Panchayats\. Under the Eleventh Schedule of the Seventy-Third Amendment, Panchayats would be responsible for, among other activities, land improvement, land consolidation, soil conservation, water management and watershed development, social and farm forestry, and non-conventional energy sources\. Under the Twelfth Schedule of the Seventy-Fourth Amendment, municipalities would be responsible for urban and town planning, water supply for domestic, industrial and commercial use, solid waste management and sanitation, urban forestry, protection of the environment and promotion of ecological aspects of urban development\.  79 ___ \. , _ ____ \. _ _ \.__ \. : _\._\. \. \. IBoi 61: Onlgning I\.lilionulicn:I Tan I^ki of M1inli%rir^ I}le 'ilu [ialiii tI1 >U1(1: Ministry of Agriculture Conservation of wildlife Conservation of biodiversity Prevention and control of desertification Conservation and regeneration of watersheds Conservation and management of land and soil Prevention and control of floods Protection of irrigation command areas Conservation and regeneration of forests Prevention and control of pollution Recycling of resources Conservation and management of energy Ministry of Water Resources Prevention and control of floods Conservation and regeneration of wetlands Conservation and regeneration of coral reefs and Protection of irrigation command areas Monitoring water quality Ministry of Rural Development Conservation and management of land and soil Prevention and control of drought Conservation and regeneration of forests Prevention and control of pollution Ministry of Power Prevention and control of pollution Recycling of resources Conservation and management of energy Use of alternative sources of power Ministry of Petroleum Protection of mining and oil extraction areas Recycling of resources Prevention and control of pollution Conservation and management of energy Department of Ocean Development Conservation and regeneration of coral reefs and coastal regions Conservation and regeneration of island resources Ministry of Urban Development Prevention and control of pollution Department of Non-conventional energy Sources Prevention and control of pollution Recycling of resources Conservation and management of energy Use of alternative sources of power Ministry of Human Resource Development Education and awareness Ministry of Labor Protection from occupational health hazards   IMAGING T Report No: ,- 6910 IN Type: M4?TAW

APPROVAL

P047309

Report No\. PID7180 Project Name Brazil-Energy Efficiency Project (@) Region Latin America and the Caribbean Sector Energy Project ID BRGE47309 Implementing Agency ELETROBRAS Rua da Quitanda 196 - 10o Andar Rio de Janeiro, Brazil Contacts: Sr\. Antonio Pinhel Tel: 21-514-5032 Fax: 21-233-9676 Sr\. Geraldo Pimentel Tel: 21-514-5038 Fax: 21-263-9776 Date this PID Updated September 20, 1999 Negotiation Conducted August 16-18, 1999 Projected Board Presentation October 5, 1999 Country and Sector Background: Program Objectives: The objective of the proposed Energy Efficiency (EE) Program, to be implemented in two phases and which will be supported by two Adaptable Program Loans (APLs), is to help PROCEL - the Brazilian program dedicated to reduce electric energy waste - to achieve substantial actions and investments in EE by private and public participants, with increased commercial financing\. To this end, the program will demonstrate market-based EE measures to increase the efficiency of energy production and use, and will lower market barriers to the sustainable replication of these measures by existing and new participants in the energy market in Brazil\. Expected project benefits include electricity savings of about 1 per year and postponement of investments in electricity supply of about US$300 million per year\. In addition, the project would contribute to reduce C02 emissions estimated at about 17 million tons in a ten-year period\. Project Objectives: The objective of the project, Phase I of the program, is to: (i) demonstrate a first set of selected EE products, services, and delivery arrangements, and ready them for replication by third parties; and, (ii) remove barriers to the sustainable capture of "win-win" EE opportunities in main markets and applications in Brazil, including those demonstrated as part of the project\. If this phase is successful and the main objectives attained, it will be followed by a second APL that will aim to extend these efficiency gains to a wider cross-section of the Brazilian energy market\. Project Description: The project consists of three main interrelated components: (a) Demonstration Projects (DP)\. Almost 50 DP will be implemented by ELETROBRAS and power utilities in eight states and Brasilia\. The DP aim to demonstrate the use of emerging technologies, proper price signals and service options, and new implementation arrangements to improve the  efficiency of electric energy supply and use\. One group of DP will target selected market segments to demonstrate innovative demand charge and time-of- day tariffs, load demand limiters, and improvements in bill collection through metering, improved service conditions, and other commercial actions\. These DPs are expected to improve commercial relationships in the reformed electricity market; stimulate the interest of utilities in Integrated Planning (IP) methodologies including market-based Demand-Side Management (DSM) options; and encourage customer-based EE investments\. Projects in the second group include programs to increase the use of more efficient appliances and energy equipment, including: compact fluorescent lamps, solar heaters, refrigerators, irrigation pumps, air conditioners, electric control systems, reflecting roofs, high efficient motors, motor speed drivers, street lights, and water pumps\. (b) Core Support Activities (CSA)\. The CSA are designed to overcome the information barriers to cost-effective energy measures and improve energy management information at all levels of the energy supply and use chain\. It includes: (i) information, dissemination and marketing programs, including a Best Practice Program, i\.e\., case studies and technical and operational guidelines for cost-effective EE measures with wide applicability, derived from DP; a public awareness campaign; and support to energy agencies in the areas of EE promotion and marketing; (ii) implementation and initialization of a financial facility to support EE measures by Energy Service Companies (ESCOs) and consumers, including building a portfolio of EE projects and readying them for financing by third parties; (iii) marketing the concepts of independent verification and performance contracts through ESCOs; (iv) implementation of programs for testing, certification, and labeling of efficient equipment and appliances, including motors, speed controls, refrigerators, freezers, solar water heaters, and heat pump water heaters, including enhancement of testing facilities; and (v) preparation of policies and incentive regulations for promoting EE, e\.g\., investment in DSM measures, innovative electric tariff structures, and EE building codes\. (c) Capacity-Building Module (CBM)\. The CBM includes the implementation of institutional enhancement and training programs for the staff of PROCEL, regulators, energy agencies, utilities, trade allies, end users, ESCOs, and financial entities; and provision of core support to PROCEL, regulators, energy agencies, and utilities for the design, management, supervision and monitoring of EE projects and the evaluation of their environmental, economic, financial and social benefits\. Project Costs and Financing: It is estimated that the total cost of the project (Phase I) will be about US$125\.5 million, of which US$43\.4 million would be financed by IBRD and US$15 million would be financed by a GEF grant, and the balance (US$67\.1 million) by project participants and third parties\. Project Implementation: ELETROBRAS will be responsible for project implementation using the structure being currently used for the execution of PROCEL\. A Project Management Unit (PMU) will either coordinate or carry out the activities in all three components\. Project Sustainability: Sustainability is a major goal of the program and the measurement of success at achieving that goal is built in starting at the subproject level\. In addition, the project is designed with heavy emphasis on developing DSM solutions and performance-based opportunities to attract - 2-  utilities, users, domestic and foreign ESCOs and capital to support the desired outcome\. Methods of support for achieving sustainability include: (i) emphasis on monitoring and evaluating subproject activity with ex-ante and ex-post evaluations using internationally accepted protocols and techniques; and (ii) highly successful approaches demonstrated at the subproject level will become candidates for case studies and incorporation into the Best Practice information packaging technique which forms the cornerstone for information dissemination and marketing of the results of the program\. In addition, the Market Assessment Activity included in the CSA component will monitor market opportunities and market performance thus contributing to the adaptation of the project to ensure sustainability\. Environmental Aspects: No adverse environmental effects are expected to result from the project because it involves modest interventions in the case of the DP, where electric equipment will be enhanced, modified, or installed, e\.g\., modification of illumination systems in streets, industries, commerce, and homes\. On the contrary, savings in power generation would reduce global warming by decreasing C02 production, and it would improve local air quality by diminishing emissions of S02, NOx and Particulate Matter produced by thermal generators using hydrocarbons\. Contact Point: The InfoShop The World Bank 1818 H Street, N\.W\. Washington, D\.C\. 20433 Telephone No\. (202)458 5454 Fax No\. (202) 522 1500 Luis Vaca-Soto Task Manager (202) 473-8587 Note: This is information on an evolving project\. Certain activities and/or components may not be included in the final project\. Processed by the InfoShop week ending September 24, 1999\. - 3 -

APPROVAL

P004352

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 2985 PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) May 20, 1980 0 Py Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their oficlal duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Table of Contents Page No\. PREFACE ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iii-iv HIGHLIGHTS v-vi PROJECT PERFORMANCE AUDIT MEMORANDUM 1 ATTACHMENT A: BORROWER'S COMMENTS 2-5 ATTACHMENT B: PROJECT COMPLETION REPORT I\. Introduction 7 II\. Project Preparation and Appraisal 7 III\. Project Implementation and Cost 8 IV\. Operating Performance 14' V\. Financial Performance of the Borrower 17 VI\. Institutional Development 21 VII\. Economic Reevaluation 23 VIII\. Role of the International Development Association 26 IX\. Conclusions 26 Tables 1\. Existing Port Facilities in Project Ports at Appraisal 27 2\. Actual and Expected Project Implementation 28 3\. Work Included in Major Project Contracts 29-30 4\. Rates of Exchange Applying during Disbursement Period 31 5\. Project Costs 32-33 6\. Disbursement Schedule 34 7\. PNGHB's General Dry Cargo 1968/69-1976/77 35-36 8\. Operating Statistics at Port Moresby, Lae and Kieta 37 9\. PNGHB Tariffs Effective September 30, 1976 38 10\. PNGHB Forecast & Actual Revenue and Expense Accounts: 1972/73 to 1976/77 39 11\. PNGHB Balance Sheets: 1972/73 to 1976/77 40 12\. PNGHB's Development Program on Non-Project Items during the Construction Period of Credit 326-PNG 41 13a\. Economic Rate of Return: Moresby 42 13b\. Economic Rate of Return: Lae 43 13c\. Economic Rate of Return: Kieta 44 Maps This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - ii - PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Preface This report represents a performance audit of the First Ports Project in Papua New Guinea (PNG) supported by Credit 326-PNG for US$9\.2 million made in April 1972\. The credit was closed in April 1979, and final disbursement took place in September 1979\. The report consists of Highlights and a brief Project Performance Audit Memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Re- port (PCR) prepared by the Association's East Asia and Pacific Regional Office\. The Borrower has provided some of the basic data for the PCR while additional information was collected by a supervision mission for a follow-up project\. OED has reviewed the PCR against the Appraisal and President's Reports and the minutes of the Executive Directors' meeting which con- sidered the project; it has interviewed the operational staff who were directly involved in the project\. OED has found that, after some of its suggestions were taken into account, the PCR now covers in a comprehensive manner the implementation experience of the project\. On the basis of this limited review, OED finds no reason to question the analysis and findings contained in the PCI and summarizes them in the Highlights\. No mission was undertaken for this audit by OED staff\. In connection with OED's policy studies, the Government has com- pleted a questionnaire on the supervision experience of this project in which it points out that the Bank's contribution to the technical and legal aspects was generally good\. However, project supervision missions lacked experience in the field of port administration in such matters as tariffs\. Help provided by the missions with financial and managerial problems was rated as fair, while there was some dissatisfaction over the lack of staff continuity for other than technical staff\. The draft audit was sent to the Government in the normal course, and the comments received from the Government and the Papua New Guinea Harbours Board have been noted in the report and are appended in full as Attachment A\.  - W1 - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) KEY PROJECT DATA Original Actual of Item Plan Reestimate Total Project Cost (US$ Million) 11\.1 10\.6 Underrun (%) 4\.5 Credit Amount (US$ Million) 9\.2 9\.2 Disbursed ) 9\.2 Cancelled As of 3/31/80 Repaid ) Borrower's Obligation ) 9\.2 Date Physical Components Completed 6/30/76 2/07/78 Proportion Actually Completed by above Date (%) 87 100 Proportion of Time Overrun (%) 40 1/ Economic Rate of Return (%) Moresby 50 22 Lae 23 13 Kieta 31 14 Samarai/Alotau 31 N\.A\. Financial Rate of Return (%) at least 8 5 (1977) Cumulative Estimated and Actual Disbursements (US$ Thousand) FY73 FY74 FY75 FY76 FY77 FY78 FY79 FY80 (i) Estimated 1,815 5,395 7,645 9,200 9,200 9,200 9,200 9,200 (ii) Actual 1,200 5,370 7,200 8,000 8,900 9,140 9,140 9,200 % of (ii) to (i) 66\.1 99\.5 94\.1 87\.0 96\.7 99\.3 99\.3 100 OTHER PROJECT DATA Item Original Plan Revisions Actual First Mention in Files 11/70 Negotiations 3/13-17/72 3/13-28/72 Board Approval 4/25/72 Credit Agreement 7/21/72 Effectiveness 2/08/73 Closing Date 9/30/77 4/30/78 4/30/79 Borrower Government of Papua New Guinea Executing Agency PNG Harbours Board Fiscal Year of Borrower January 1 - December 31 21 Follow-on Project Name Second Port Project Loan No\. 1551-PNG Loan Amount US$3\.5 Million 3/ Loan Agreement Date May 18, 1978 1/ Overrun occurred for works not included in original project\. 2/ Was July 1 to June 30 until June 30, 1977, with a six-month period July 1 - December 31, 1977\. 3/ Additional US$3\.5 million provided by the Kuwait Fund\. - iv - MISSION DATA Month/ No\. of No\. of Date of Item Year Weeks Persons Man-weeks Report Preappraisal 4/71 2 2 4 7/08/71 Appraisal 9/71 2 5 10 4/10/72 Total 4 14 Supervision I 6/72 1 1 1 7/07/72 Supervision II 7-8/73 2 1 2 10/09/73 Supervision III 6/74 2 2 4 8/06/74 Supervision IV 6/75 2 1 2 8/18/75 Supervision V 5/76 2 1 2 8/10/76 Supervision VI 3/78 2 3 6 1/ Total 11 17 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Kina (K) Appraisal Year Average (1971) Exchange Rate: US$1 = K 1\.1423 Intervening Years Average 1972 US$1 = K 1\.1980 1973 US$1 = K 1\.4292 1974 US$1 = K 1\.4423 1975 US$1 = K 1\.3102 1976 US$1 = K 1\.2620 1977 US$1 = K 1\.2640 1978 US$1 = K 1\.4432 Completion Year (1979) US$1 = K 1\.4106 1/ In conjunction with appraisal of Second Ports Project\. - v - PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Highlights The purpose of the project was to increase the capacity of Papua New Guinea's (PNG) principal ports in view of the anticipated traffic vol- umes and to adapt facilities for more efficient cargo handling\. To achieve this, a port project was formulated with an anticipated cost of US$11\.135 million which was supported by an IDA credit for US$9\.2 million\. The proj- ect consisted of expansion of open and covered port storage areas in Port Moresby; extending the berths and improving storage facilities for the ports of Lae and Kieta; construction of a small new port at Alotau to replace ob- solete facilities at Samarai; procurement of cargo handling equipment; and consultants' services for design, construction supervision and management studies\. Both the physical elements and the technical assistance were im- plemented as planned except for the procurement of handling equipment (5% of estimated project cost) which was deleted (PCR, para\. 3\.02)\. Since some funds remained under the credit, the Association agreed to a number of addi- tional works at a cost of about US$1\.4 million, comprising mainly the fur- ther expansion of the storage area in Port Moresby; extension of the ocean berth and provision of a new cargo shed at Kieta; and a barge ramp at Alotau (PCR, para\. 3\.04)\. A few technical problems were experienced with the loca- tion of the facilities at Alotau because of inadequate survey data (PCR, para\. 3\.12) and with the pile driving at Lae (PCR, para\. 3\.11)\. The actual cost of the civil works as appraised was about 15% below the appraisal esti- mate, even though the final cost of the contracts exceeded the bid amounts by some 20%\. Implementation of the physical components as appraised was delayed by nine months, mostly due to late arrival of piles and because, with one contractor carrying out three contracts, some works were done in sequence while with different contractors for each port, they could have been done simultaneously\. The total time overrun for the project, includ- ing technical assistance and additional works, was 40%\. The project has met many of its objectives\. Ship waiting time in the Port of Lae (40% of the project's civil works cost) has been re- duced considerably in spite of the fact that over the period 1972-78, over- seas traffic grew by about 45% and coastal traffic by over 100% (PCR, paras 4\.01 and 4\.10)\. The reestimated economic return according to the PCR is 13% against 23% at the time of appraisal\. In Kieta, ship waiting time has also decreased considerably while traffic grew by about 60% over the six- year period\. The reestimated economic return in the PCR is 14% against 31% at the time of appraisal\. In Port Moresby, ship waiting time was vir- tually eliminated, but total traffic handled by the port decreased by 7% during 1972-77 and has only shown an increase in 1978 although still re- maining 10% below the appraisal estimate for that year\. The reestimated - vi - economic return according to the PCR is 22% against 50% when appraised\. The PCR states that in spite of the lower traffic, the investment was timely because of the rapidly increasing container traffic which, with- out the project, could not have been handled efficiently\. In the case of Alotau, traffic has not yet fully diverted since the old pL\.-, of Sa- marai will not be closed to all traffic; as a result, it appears that the investment in this new port will probably have an unsufficient econ- omic justification (PPAM, page 1)\. The financial performance was not fully satisfactory and the requirement that a return of 8% on net fixed assets be earned was not met\. Lower than expected traffic and increasing costs without timely adjustments in the tariffs were the main reasons for a deficit in 1976\. However, tariff increases in late 1976 led to a return of 5% on assets in 1977 and further tariff adjustments are expected (PCR, paras 5\.01 and 5\.02)\. The institution-building efforts under the project, in part with the assistance of consultants, have made an especially useful con- tribution to port handling improvements (PCR, paras 4\.06-4\.09); better accounting (PCR, para\. 5\.03); and training of local staff\. Some aspects, such as costing of individual port services, have not yet been undertaken (PCR, para\. 5\.03); and audits of the accounts have been very late (PCR, para\. 5\.08)\. During project implementation, there was only one visit by a financial analyst, and a higher staff input in this field might have prevented some of the above problems\. Some points which may be of particular interest are: - cost estimates for two of the four ports were un- satisfactory, with bid and final costs at about 50% below the appraisal estimates (PCR, Tables 2 and 5)\. For the other two ports, bids were close to the appraisal estimates but in the case of Alotau, there was a 34% cost overrun on the contract; - actual traffic in 1978 for the four ports as a whole was about as forecast, but traffic in two of the ports varied as much as 50% from the forecast (PCR, paras 4\.01-4\.03); - the unanticipated growth of container traffic has led to project modifications and to some invest- ments (PCR, para\. 3\.04) which are not fully adapted to the revised needs\. PROJECT PERFORMANCE AUDIT MEMORANDUM PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) 1\. Even though the abbreviated procedure was used for this audit, OED found a few omissions in the PCR which are covered below: (a) the PCR has not reestimated the economic return for the new port of Alotau\. In view of a cost overrun combined with a considerable shortfall in traffic, this port investment would now prob- ably have an insufficient economic justification, especially where the port of Samarai will not be closed to coastal traffic; and (b) the appraisal had estimated that half of the savings in ship time generated by the project would accrue to Papua New Guinea's economy\. The project's overall economic return at appraisal was 27%, and based on the above assumption, the return to the country was estimated at 20%\. When using the same assumptions as in the appraisal, it would appear that at least for the port invest- ment at Lae, the economic return to the local economy will be well below the opportur\.ity cost of capital, even though the overall ree\.stimated economic return is satisfactory\. However, a more definite answer to this question is only possible by analyzing the shipping pattern in detail which is beyond the scope of the abbreviated audit\. U09c0 WORILdANK - 2 - ATTACHMENT A FINANCE NE2221 (1 A/'CE/VED PAPUA NEW GUINEA 11TH APRIL 19OU 1980 APRI1 WOLD bANK WASHINGTON ATIN\. SHIV S\.KAPUR, OP\.hATIONS EVALUATION DEPT\. RL: PROJECT PLRFORMANCE AUDIT REPORT ON CREDIT :\.>2o PNG\. I KEFEIR TO YOUR LE-TTEL OF 21 FC\.B AND URAFI REPORT\. WE HAVE NO COMMLATS ON TH DRAFT FROM THE GOVE-RNMENT'S POINT OF VIlW\. I UNESTANU THAT PKG HARBOURS tOARD V-(LL COMMUNICATE THEIR COMMENTS TO YOU INDEPENDENTLY\. MA C LAREN FOR :)LLRETARY FOR FINANCz PAPUA NEA GUINEA 4 WURLdANK HARbOUR NE2224 \. - 3- ATTACHMENT A DISTRIBUTIUN WG HARbOUR Nc2224j(TLx Number) Mr\. S\.Kopur QED WORLD BANK INTcR3AFRAD VASHINGTON D\.C\. USA T/471 ATTENTION: SHIV S\. KAPUR - DIRECTOR - OPERATIONS EVALUATION DEPARTMENT\. kLFERENCE YOUR LETTER OF 213T FEBRUARY 19oU RE: PROJECT PLkFORMANCE AUDIT HEPORT ON PAPUA NEW GUINEA FIRST PORTS PUJECT (CREuIT j2o PNG) PARTICULAR COMMENTj ARE AD FOLLOWS:- AA) AUDIT REPORT - HIGHLIGHTS - PAGE VIII QUOTE\. " AND SOME ACCOUNTING PRACTICES,\. SPECIALLY PERTAINING TO THE PROJECT COSTS, HAVE BLEN CONFUSINVI SUGGEST DELETION OF ThI6 SENTENCE - METHOD WAS ADOPTED BY PRLVIOUS CHILF FINANCIAL OFFICER FOR EXCELLENT REASON ENSURING ALL LOAN MONIES ACCURATcLY ACCOUNTED FOR\. NO CONFUSION EXISTS AT ThIS END AND ALTHOUGH MTHOD MAY BE 0ME lhAl DIFFERtNT TO THAT NORMALLY EMFLJYED HA BELEN APPROVWd bY TWO (2) wETS OF AUDITORS\. - 4 - ATTACHMENT A Bb) PROJECT COMPLETION REPORT PAGE 20\. (D\.07) SUB PAR /A\. A SIMILAR ObJECTION AS IN AA) EXISTS TO THE WORDING OF THIS PARAGRAPH \. THERE IS NO QUESTION THAT PROJECT Cool NOT PROPERLY CAPITALISLD AS EVIDENCED BY TWO INDEPENDENT AUDIT REPORTS\. ALSO INSPECTION OF ACCOUNTS WOULD VERIFY THIS\. CL) TO PLACL OUr COMMENTS ON AA) N BB) IN PROPER CONTEXT IT SHOULD br- NOTED THAT ONLY PARTS OF PROJECT CLAIMED FROM IDA 'ERE DIFFErENTIATEU FRUM OTHER CAPITAL WORKS COSTS IN ORDER TO bE ABLE TO ACCOUNT TO IDA ACCURATELY FOR EXPENDITURES FROM IDA MONILS AS REQUIRED BY LOAN AGREEMENT\. THIS DOES NOT INFER THAT FULL EXPENDITLRE ON THE PROJECT (IDA N PNGH8 MONIEs) VWAS NOT GREATER THAN ThIb FIGURE\. u) PROJECT COMPLETION REPORT PAGE II PARA j\.03 AND ALL SUBSEQUENT:- RECOMMEND DELETION OF WORD "INDIGENOUS" AND ITS REPLACEMENT WITH "NATIONAL" IN THIS AND ALL 3UBSEQUENT kEFERENCES\. :u) PhOJiCT COMPLETION RLPORT PAGE 1 PiARA u\.jj A) QUUTL "THE sYSTEM 00ES NOT PRUVIDE FOR COSTING OF INDIVIDUAL PORTS AND SRVICES1 THE SYSTEM DOES PHOVIDE FOR ThL COSTING OF INDIVIJUAL PORTS AND SLRVICLS IT IS NOT HUWEVR FULLY UTILI,LD FUR THEbc PURPOSES As NO REDISTRIBUTION OF OVERhLADS LTC\. - 5 - ATTACHMENT A FF) PROJECT COMPLETION REPORT PAGE 16 PARA 6\.01 C) K500,000\. REPRESENTS INSURANCE FISCAL END 1973 K7b0,OO WAS FUNDED EARLY FISCAL YEAR 1979\. WI\.TH FINAL BALANCE AT END 1979 KlUO0,00U\. DISAGREE WITH QUOTE - ' AS THE PNGHB MANAGED FUND WHICH IS INVESTED IN GOVERNMENT SECURITIES GROWS, THE COMMERCIAL INSURANCE WILL BE SCALED DOWN ACCORDINGLY" - AS OVERALL COMMLRCIAL INSURANCE WILL BE A FUNCTION OF ASSET VALUE GROWTH AND CAN ONLY BE EXPECTED TO INCREASE\. GU) PROJECTCOMPLETION REPORT PAGES 9 N 2u PARAS 4\.U3 N 7\.U9\. REFERENCES TO CLOSURE OF PORT OF SAMARAI SHOULD BE DELETED AS THIS COURSE OF ACTION IS NO LONGER CONTEMPLATED AND STATEMENTS ARE THUS IN ERROR\. HH) AUDIT REPORT - PROJECT COMPLETION REPORT - GENERAL COMMENT\. HE ARE IN AGREEMENT WITH THE CONCLUSIONS OF THE PCR EXPRESSED ON PAGE 2U\. J\. HALL RE TARY PNG HARbOURS BOARD PJhT MORL-6bY 440098 WORLDBANK HARBOUR NE22243  - 7 - ATTACHMENT B PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT I\. Introduction 1\.01 The Papua New Guinea Harbours Board (PNGHB) was created in 1963\. It has been responsible for operating PNGHBs principal ports since 1967 and financially responsible for them since 1968\. At the time of appraisal of the project in September/October 1971, nine ports were under its control: Port Moresby, Lae, Kieta, Samarai, Madang, Rabaul, Kavieng, Kimbe and Wewak\. As of November 1978, PNGHB was responsible for 16 ports (para\. 6\.01)\. PNGHB does not undertake any cargo handling or stevedoring activities; these services are undertaken by companies licensed by PNGHB\. 1\.02 The project was originally concerned with improvements at Port Moresby, Lae, and Kieta (coastal facilities) as well as construction of a new port, Alotau, to take over ocean trade from Samari\. These three major ports and Samari handled approximately two-thirds of Papua New Guinea (PNG) total seaborne traffic in 1970/71\. The project was later extended to provide further improvements at Kieta and Port Moresby (Section III)\. Details of the facilities existing at the project ports prior to the improvements financed by Credit 326 are set forth in Table 1\. 1\.03 When the project was appraised, Papua New Guinea was administered by Australia and currency was the Australian dollar\. Independence was achieved in September 1974 and the currency was changed to the Kina, which at that time was at par with the Australian dollar\. Throughout the report the Kina is used to describe local currency\. 1\.04 Since 1971 the Bank Group have financed transport projects in Papua New Guinea totalling $40\.7 million; two projects for highways ($28\.0 million) and two for ports ($12\.7 million)\. The Second Ports Project approved in April 1978 was financed jointly by the Bank and the Kuwait Fund which also provided $3\.5 million\. II\. Project Preparation and Appraisal 2\.01 The project originated with a UNDP-financed, Bank supervised, transport survey in 1968/69 by Sir William Halcrow & Partners (UK) and subsequent feasibility studies and master plans for Port Moresby by Maunsell and Partners (Australia) and for Lae, Kieta and Alotau by NEDECO (Holland)\. Also a tariff study for all ports handling foreign cargo in PNG was undertaken by the Economic Intelligence Unit (UK)\. 2\.02 The Association appraised the project in September/October 1971 and recommended improvements at all four ports included in the feasibility studies referred to above\. Although the port of Madang had also been studied, no investment was recommended at appraisal, as traffic growth depended upon the building of a new highway from Madang to the Central Highlands in addition to - 8 - that already existing from Lae\. Subsequently, the Madang/Central Highlands road did not prove to be economically justified and has never been built\. 2\.03 Total project cost was estimated at appraisal as K 9\.35 million (US$11\.135) including foreign exchange at K 7\.725 million (US$9\.2 million)\. The Association's credit to the Government covered the entire estimated foreign exchange cost, the credit was to be onlent to PNGHB at 7-1/4% for a period of 25 years including a four year grace period\. 2\.04 Matters of particular importance which were raised by the appraisal mission were: (a) PNGHB's land tenure at port sites; (b) inadequate port costing of services and insurance arrangements; (c) port tariffs to be increased to enable PNGHB to finance the project and its other port investments and earn an 8% financial rate of return; and (d) improvements required in port operations and training - all stevedoring and cargo handling in PNGHB's ports was undertaken by private companies, which supplied their own labor; training of this labor was considered necessary\. III\. Project Implementation and Cost A\. Project Scope and Content 3\.01 The project was approved by the Association on April 25, 1972 and consisted of: I\. Civil Works (a) At Port Moresby - Reclaiming approximately 1\.2 ha of land about 1 km from the existing port; construction of a 1,800 sq m cargo shed, and paving of remaining area for open storage; fencing and ancillary works\. (b) At Lae - Construction of a 185 m extension to existing berths, (11 m depth alongside); provision of a 4,000 sq m transit shed and 3\.25 ha, paved, open storage area behind the shed; ancillary buildings and services; mooring posts and breasting dolphins for coastal tankers (total berth length available on completion of the project would be about 430 m)\. (c) At Kieta - Construction of two coaster berths each some 60 m long (5\.5 M depth alongside) two small cargo sheds totalling 1,335 sq m on land reclaimed behind the new berths; and improved internal access and open storage areas; and - 9 - (d) At Alotau - Construction of new port facilities with one overseas berth about 90 m long (11 m depth alongside) and one coastal berth 55 m long (5\.5 m depth alongside), provision of two sheds totalling about 7,700 sq m, open storage areas and road access to existing highway\. II\. Engineering Services including Soils and Hydrographic Studies III\. Cargo Handling Equipment; and IV\. Provision of improved accounting and management reporting systems including training\. B\. Changes in the Project as Executed 3\.02 The proposal to include cargo handling equipment was based upon the intention that PNGHB would provide cargo handling equipment for operations at the new port of Alotau, and also some specialized (bulk copra) handling equipment at other ports; bulk handling equipment was not provided by the stevedoring companies\. As it turned out, (a) PNGHB preferred that Alotau should operate on the same basis as its other ports, i\.e\. that the companies provide the equipment, and the Association agreed; (b) a study was undertaken to determine the need for specialized equipment to handle copra (Copra handling in Papua New Guinea by GEM Consulting and Engineering BV in 1974) which concluded that expenditure on special equipment would not be warranted, but recommended other improvements, mainly on receiving and handling\. There was therefore no expenditure on cargo handling equipment under the Credit and funds were transferred to the unallocated category\. 3\.03 The Association agreed with a proposal by the PNGHB that it provide the necessary training facilities for training of labor employed in cargo handling and stevedoring at which the private contractors would conduct training courses to help meet the requirement for such training stressed by the appraisal mission\. 3\.04 Subsequently the Association also agreed to: (a) a further land reclamation project providing an additional 1\.3 ha, for container storage at Port Moresby; this and the original reclamation were subsequently included in the container terminal provided under the second port project; (b) an extension of the ocean berth at Kieta by 60 m to enable all hatches of the ocean going ships to be loaded without moving the ship, and provision of a new shed 36 m x 31 m, chiefly for copra\. (c) a barge ramp at Alotau; and (d) payment of the final outstanding balance in the Credit toward the cost of the consultants for design of the Second Ports Project\. (The consultants proceeded to complete final designs and contract documents for the Second Ports Project due to the urgent need to provide a container terminal\. The project and loan were delayed for some months due to the need for some environmental studies\.) - 10 - C\. Consultant Services 3\.05 For the design and supervision of the civil engineering works included in the original project\. PNGHB, with the Association's approval (a) appointed the Australian Commonwealth Works Department for the major works at Lae and Port Moresby, and another consultant for those at Alotau and Kieta; (b) appointed architects for the training center at Lae; and (c) locally based consultants were appointed for the mock up ship's hold\. 3\.06 For the additional works approved, the consultant appointed under 3\.05(b) was also appointed for the Overseas Wharf Extension at Kieta and the Barge Ramp at Alotau; and an Australian firm for the extension of the reclaimed area at Port Moresby\. 3\.07 The services rendered by the consultants were satisfactory except that as noted below in Section D there were errors in the hydrographic survey at Alotau which was undertaken prior to design of works\. 3\.08 The consultant services provided under Category IV of the credit are discussed in Sections IV and VI of this report\. D\. Implementation of the Project (i) Contractors 3\.09 Details of the contracts let for the seven items included in the original project and the three additional items approved are given in Table 2\. The contracts for the Lae, Kieta and Alotau works were let to one contractor, although for one of the contracts (Lae) another bid was actually lower, however, the successful contractor offered a reduction in the bid amounts for all three contracts of K 32,000 if they were awarded all three contracts; they were the lowest bidder at Kieta and Alotau\. This overall reduction offered by the successful contractor on all three contracts was more than the difference in their bid and that of the alternative choice, at Lae - K 21,527\. 3\.10 The position was further complicated because a bid from another contractor for Alotau (K 1,133,965) was actually lower than the successful contractor's bid for that port (K 1,138,869); but that bid was itself conditional upon the firm being awarded the Lae tender for which their bid was higher\. Details of the work covered by each major contract are given in Table 3\. (ii) Execution of the Works - Alotau, Lae, and Kieta Main Contracts 3\.11 As it turned out the letting of these three contracts to one contractor was not as advantageous an arrangement as it initially appeared\. Late arrival of steel piling from Japan at the start of the contracts prevented efficient operation of the successful contractor's plan to move its pile driving plant from site to site, and consequently delayed the start of - 11 - work at Alotau for many months\. The piling situation was further aggravated by a requirement to drive some additional piles at Lae, due to adverse soil conditions on a section of the wharf\. While this was not a major problem in itself, in that it was resolved by reducing pile bent spacing over a short length of the berth, the consequent need for additional piles further delayed the start of work at Alotau\. 3\.12 The above events, coupled with the staffing problems which the contractor experienced and his apparent lack of planning capability, at any rate in PNG, caused friction with the consultants for Alotau\. The position was further complicated when it was found that an error in the soundings taken at Alotau required relocation of the overseas wharf about 20 feet closer to land than originally intended; this resulted in further dredging being required before pile driving could commence\. 3\.13 Nevertheless, all three contracts were satisfactorily completed within nine months of the original estimated dates; the actual total increases in original contract prices for claims and extra works and the individual time delays, were: Cost increase Delay Alotau - K 388,000 4 months Lae - K 456,000 1 month Kieta - K 199,000 3 months Further, of the K 32,000 to be deducted from the successful contractor's bid for award of all three contracts, which was distributed between Lae (K 17,146) Kieta (K 6,557) and Alotau (K 8,497), PNGHB also agreed not to deduct the amount allocated for Alotau in the final settlement in view of outstanding claims so that the actual cost of the works was further increased by this amount\. 3\.14 There was very little delay in the start of work at Kieta\. The delay incurred was a combination of pile driving delays and the method adopted for construction\. The contractor elected to build a bund around the new basin to simplify the placing of the rock face on the seaward slopes of the new fill\. The bund was not as effective as had been expected and took time to remove\. (iii) Execution of the Work at Port Moresby 3\.15 There were no problems in the execution of this project and the final cost showed a decrease of K 6,400 over the contract price due to slightly reduced quantities\. The work was executed to a good standard\. However, the contractor's delay of some seven months in completing the work was considered justification for enforcing limited damages in accordance with the contract (K 17,000)\. (iv) Execution of Work on Other Contracts 3\.16 The three remaining contracts let for projects (Table 2) originally approved for financing under the Credit were for comparatively minor works and no difficulties were encountered\. - 12 - 3\.17 Work on the contracts for the three additional projects approved for financing encountered no major problems but resulted in expenditures in excess of estimates at: Port Moresby - K 204,000 Kieta - K 13,400 The increased expenditure at Port Moresby was largely due to an extension of the reclaimed area northwards, (K 120,000) and a decision to build an embank- ment seaward to test ground conditions which would be encountered in the second port project (K 84,000)\. The extension of Kieta's overseas wharf proceeded without major problems\. However a small error in alignment, resulted in the need for a change to the fender system on the existing structure\. 3\.18 All the work was executed satisfactorily, with only minimal increases in the contract periods for the works\. E\. Costs 3\.19 Total cost of the works financed under the Credit, as completed and as estimated at the appraisal, were: Final cost Appraisal estimate Item Local Foreign Total Local Foreign Total ------------------- K '000 --------------------- Civil works (82% FE) 1,270 5,810 7,080 1,430 6,845 8,275 Mechanical equipment - - - - 500 500 Engineering consultants - 877 877 145 280 425 Training & Tech\. Assistance /a 78 78 50 100 150 Total 1,270 6,765 8,035 1,625 7,725 9,350 US$ equiv\. ('000) 1,710 9,137/b 10,847 1,935 9,200/b 11,135 Unexpended (US$ equiv\.) - 63 - - - - /a Local costs consisted of salaries of staff sent on the overseas courses and is small\. There are considerable local expenditures in PNGHB's own training scheme (para\. 6\.04)\. /b Both the total US$ expenditure and Kina expenditure for the final foreign exchange cost are actual expenditures and this average ratio (K one to US$1\.35) is used for conversion of all final costs\. The US$ equivalent of the estimated Kina cost at appraisal was at an exchange rate of K one to US$1\.19\. The changes in exchange rate during the project are at Table 4\. Until PNG independence the currency was Australian dollars, but for simplicity all local currency is referred to in Kina, PNG's currency after independence\. 3\.20 The bids for the seven contracts let to construct the civil works items originally included in the project (Table 2) amounted to - 13 - K 4\.83 million with foreign exchange content (82% of cost)/l, about US$5\.35 million equivalent\. The bids for the civil works items subsequently approved were: Total bid cost Foreign exchange '000 K K ($ equivalent) /a Port Moresby extended reclamation for container traffic 323 265 (355) Kieta ocean wharf extension 646 530 (715) Alotau barge ramp 32 26 (35) Total 1001 821 (1105) /a Calculated at $1\.35 = K 1\.00\. Thus the original bids for all civil works amounted to K 5\.83 million including foreign exchange of US$6\.45 million equivalent\. Final completed cost of the civil works was K 7\.08 million including US$7\.84 million foreign exchange, an increase of about K 1\.25 million (Z11l) and $1\.39 million (16%) over the bid price, which includes physical and cost increases\. 3\.21 Consultant costs (Table 5, page 2) for preparation of contract documents, supervision of the works, and settlement of contractors amounted to K 613,000 for the original seven contracts and K 110,000 for the additional works\. In addition, K 154,000 was spent for the Second Port Project design\. The increase in expenditure over the original estimate is accounted for by: (a) consulting services which were financed but not included in the original appraisal and (b) an increase of K 188,000 or 44% in the cost of the services provided for in the original works due to increased supervision time\. 3\.22 The number of consultants employed on the contract reflects PNGHB's desire to employ locally based consultants for smaller works\. F\. Disbursements 3\.23 Disbursements of the Credit, except for US$63,000 unexpended, was completed by June 30, 1978\. The original estimated date for completion of disbursement was June 30, 1977 at which date, in fact, some 87% of the Credit had been disbursed\. Details are at Table 6\. The expenditure in each category of the Credit was: Final Original -- US$ million --- I Civil works 7\.85 5\.85 II Engineering consultants 1\.18 0\.32 III Mechanical equipment - 0\.60 IV Technical assistance and training 0\.11 0\.11 V\. Unallocated - 2\.32 Total 9\.14 9\.20 /1 In accordance with the Credit Agreement\. - 14 - IV\. Operating Performance A\. Traffic 4\.01 The dry cargo traffic at the project ports for the years ending June 30, 1977 and June 30, 1975 compared to the forecast in the appraisal report and compared to 1971/72 was as follows: REVENUE TONS '000 6/30/72 6/30/75 6/30/77 1978 6/30/77 1978 Actual Actual Actual Actual Appr\. Est\. Appr\. Est\. Overseas Alotau 19ja 6jb 12 27 29 Kieta 55 75 64 100 56 61 Lae 337 430 467 491 423 463 Port Moresby 271 314 233 295 344 360 Coastal Alotau 20/a 15/c 18 31 32 Kieta 40 58 46 54 38 43 Lae 65 98 111 134 106 113 Port Moresby 82 94 96 119 97 102 /a At Samari\. /b A further 5,000 tons was still handled at Samari\. /c A further 9,000 tons was still handled at Samari\. Details of traffic handled at PNGHB's ports, from 1971/72 to 1976/77 inclusive, are given at Table 7\. Total dry cargo in all ports was 1\.31 million revenue tons in 1971/72 and 1\.45 million revenue tons in 1976/77\. 4\.02 However, on June 30, 1975, following the financial year in which independence (September 1974) occurred, the total overseas and coastal traffic was as shown above\. Except at Lae, therefore, there was some decline in overseas traffic between June 30, 1975 and June 30, 1977, particularly at Port Moresby where most expatriates and Government staff were domiciled\. Lae, which has a larger hinterland including the productive highlands area, was only slightly affected by independence; there was a reduction of some 90,000 tons in 75/76 compared to 74/75 but this was more than regained in 76/77 (increase of 131,000 tons)\. 4\.03 The major change in forecast traffic is at Alotau where expected development of forest areas in Milne Bay has not yet taken place\. Consequently there has been a reduction in both import and export traffic compared to the original estimate\. Also the main trading companies have been reluctant to - 15 - abandon their installations in Samari so that development at Alotau has been slower than anticipated; however, the overseas wharf at Samarai is being demolished in 1979, thus more traffic will go to Alotau as the main port for the Milne Bay area\. B\. Operations 4\.04 As previously noted, PNGHB does not undertake cargo handling operations in its ports, but licenses private stevedoring companies to do the work\. A study undertaken for the Board in 1973/74 on this aspect of its operations recommended that PNGHB change the organization structure at the ports in one of the following ways, each of which was considered practical and would offer improvements on the then existing situation: (a) continue to license stevedores but with a reduced number of operators; (b) directly subcontract operations; or (c) encourage a consortium of companies to act as sole concessionaire\. 4\.05 As a result, the Board set guidelines for the licensing of stevedores to the effect that there would be sufficient licenses issued at each port to ensure both competition and economic and efficient services\. Where there were too many licencees at a port these were to be reduced by normal attrition\. When the project was completed, the poition in the ports handling overseas trade was: four companies operating at Port Moresby, three at Lae, two at Alotau, Madang, Oro Bay, Rabaul and Wewak and one at Kavieng, Kieta and Samarai\. While the number could with advantage be further reduced at some ports, this was probably the best solution politically\. Subsequently, due to containerization of the overseas traffic, the stevedoring companies at Port Moresby have formed a single consortium\. 4\.06 The report also made a number of secondary recommendations for operational improvements, and these were implemented as follows: (a) installation of proper security fences; (b) introduction of a pass system which excluded all outside labor and unauthorized persons from wharf areas; (c) delivery to the consignee's truck by the handling contractors; (d) the checking of cargo at the port gates taken over by PNGHB from the Customs Department; (e) labor taken on outside the port areas; - 16 - (f) more orderly stacking in transit sheds achieved through the Port Managers exercising their existing powers\. 4\.07 Except at Port Moresby where labor is unionized, the stevedore companies empl7:- gangs which are recruited by village headmen and which normally turnover two or three times per annum\. The system works satisfactorily and suits the local labor\. There are sufficient permanent employees to ensure efficiency\. 4\.08 At Port Moresby, the Board has provided a separate facility for taking on the stevedore's daily labor requirement over and above those permanently employed\. A labor roster is kept of available employees; those presenting themselves on any particular day, but not taken on for work, are moved up the list and paid attendance money\. The scheme is operated by a PNGHB officer and is financed by a separate charge on all cargo handled\. 4\.09 The security system introduced by the Board at Port Moresby in 1974 has proved very successful and has reduced pilferage, a major problem in earlier years\. It is being extended to Lae and other ports as staff can be recruited and trained\. 4\.10 One indication of the improvement in operations which has resulted from the execution of the project is the reduction in ships' waiting time\. Despite the increase in traffic (except overseas traffic at Port Moresby) previously reported at the project ports, waiting time for berthing a ship has been significantly reluced\. The large increases in traffic in Port Moresby and Kieta in 1978 reEulted in some increase in waiting time as shown in the table below: ACTUAL SHIP WAITING TIME (Days) 1971/72 1972/73 1976/77 1978 Overseas Coastal Overseas Coastal Overseas Coastal Overseas Coastal Port Moresby 15\.24 1\.74 16\.80 - 4\.29 - 43\.54/a 6\.25/a Lae 214\.05 106\.75 134\.29 64\.22/c 21\.62 18\.75 13\.29 19\.83 Kieta 43\.51 21\.04 18\.10 5\.70 14\.50 - 27\.29/b 49\.05/b /a Coastal traffic increased 24% over 1976/77 and overseas traffic 26%\. /b Coastal traffic increased 17% over 1977, and overseas traffic by 56%\. /c Completion of a coastal facility at Lae in 1972 resulted in substantial reduction in ship waiting time depicted above\. Traffic and other operating statistics are set forth in Table 8\. - 17 - V\. Financial Performance of the Borrower A\. Rates and Charges 5\.01 Tariffs have been uniform for all ports administered by PNGHB\. The major tariff changes from FY73-77 are as follows: (a) increased berthage charges came into effect July 1972; (b) increased wharfage charges came into effect July 1973; and (c) tariffs remained unchanged from FY73-76, with revised dues and charges taking effect on September 30, 1976\. Details of the September 1976 tariff increases are set forth in Table 9\. The principal changes affecting revenues included an average 20% increase in overseas wharfage rates, a 23% increase in coastal wharfage rates and a 100% increase in overseas berthage rates\. The resulting incremental revenue enabled PNGHB to return to profitability after experiencing an operating deficit in FY76\. 5\.02 Presently, PNGHB is negotiating with a stevedoring consortium with regard to an annual rental charge for the use of the container facilities at Port Moresby\. In addition further tariff adjustments will soon be introduced to ensure compliance with the rate of return requirements of the Second Port Project\. B\. Accounting and Costing Systems 5\.03 Over the past three years, PNGHB has introduced a system of responsibility accounting which provides relevant statistical data, revenue and expense information on a port-by-port basis within three weeks of the end of each four-week accounting period\. The system represents a substantial improvement over the methods employed in the past\. It is simple, workable and capable of easy assimilation by national staff, and it provides an adequate information base for proper management of PNGHB\. However, costing of individual port services and facilities, such as is required by Section 4\.04(b) of the Project Agreement for Credit 326-PNG has not yet been under- taken\. For this reason PNGHB is not in compliance with Section 4\.04(c)(iii) of the Project Agreement, which requires dues and rates to be cost-based\. A costing study will commence in the near future in the major ports under the Second Port Project and, in fact, draft terms of reference have been prepared by PNGHB\. Subsequently these costs will be reviewed annually in relation to the revenues derived from each of the services\. C\. Earnings 5\.04 The profit and loss statements for FY73-77 (forecast at the time of appraisal and actual), are set forth in Table 10 and summarized below\. The financial ratios reflect the earnings of that period: - 18 - 1973 1974 1975 1976 1977 ------------------ K'000 Operating revenue (forecast) 1,836 2,960 3,816 3,403 3,655 Operating revenue (actual) 1,595 2,544 2,890 2,496 3,841 Operating expenses (forecast) 860 955 1,092 1,309 1,419 Operating expenses (actual) 815 1,328 2,080 2,547 2,662 Net operating revenue (forecast) 976 2,005 2,094 2,094 2,236 Net operating revenue (actual) 778 1,216 810 (51) 1,179 Operating ratio % (forecast) 47 32 34 38 39 Operating ratio % (actual) 51 52 72 102 69 Financial rate of return % (forecast) 9 16 13 11 9 Financial rate of return % (actual) /a 12 5 (0\.2) 5 /a Not comparable\. Earnings recorded on substantial assets not yet brought into accounts\. The financial performance in 1973-77 was substantially weaker than the forecast in the appraisal of the First Port Project and except for 1974, the return on fixed assets in use were consistently less than the 8% required under Section 4\.03 of the Project Agreement for Credit 326-PNG\. PNGHB's financial experience in these years can be largely explained by the Government's unwillingness to increase tariffs sufficiently to offset the unanticipated increase in operating expenses\. During this period, depreciation increased nearly seven fold reflecting the enhanced valuation of port assets, and total operating expenses more than tripled, primarily because of an increase in salaries and staff (the number of ports increased from 9 to 16)\. As a result of these trends, PNGHB incurred an operating deficit in 1976\. Even in 1977, which included the effect of September 1976 tariff increases, the above ratios needed further improvement, as shown\. Subsequent improvement in traffic in FY78 has further restored PNGHB's financial health\. 5\.05 The large increase in revenue in FY74 is due to the increase in wharfage rates in July 1973\. The appraisal forecast of revenues varied at an average of 14% above the actual revenues from 1973-77 due largely to an overestimation of traffic\. However, the major deviations between the forecasted and achieved financial results occurred in the projection of administrative and management costs\. Whereas the appraisal assumed an annual increase in administrative and operating costs of about 8%, actual cost increases were much greater\. The magnitude of these deviations is illustrated below by comparing the forecast and the actual costs for fiscal 1976\. - 19 - 1976 Forecast Actual Operating costs ---------- K'000 -------- Operating ) 200 Administrative and management ) 656 1,393 Insurance 103 245 Total working expenses 759 1,838 Depreciation 550 709 Total operating expenses 1,309 2,547 D\. Financial Position 5\.06 Balance sheet data for FY73-77 are presented in Table 11 and summarized below: 1973 1974 1975 1976 1977 ------------- K '000 --------------- Current assets 806 953 1,841\. 1,548 2,211 Net fixed assets in operation 3,540 10,141 21,404 22,700 22,870 Work in progress 32 2,410 1,616 696 1,557 Investments 70 145 178 519 682 Total assets 4,448 13,649 25,039 25,463 27,320 Current liabilities 100 640 1,144 650 958 Long-term debt 1,457 2,267 5,271 6,734 7,348 Funds and reserves 279 368 506 671 899 Net equity 2,612 10,374 18,118 17,408 18,115 Total liabilities and equity 4,448 13,649 25,039 25,463 27,320 Ratios Current 8\.0X 1\.5X 1\.6X 2\.4X 2\.3X Debt/equity 36/64 18/82 23/77 28/77 29/71 The substantial increase in the equity account and fixed asset account in 1974 reflect the value of assets taken over from the Government for which leases were granted\. In 1975, the balance sheet figures again changed abruptly with PNGHB's assumption of substantial additional debt (Credit 326-PNG) and with the revaluation of its assets which resulted in a 75% increase in the equity account\. Throughout, the debt/equity ratio remained - 20 - modest and the current ratio was ample\. PNGHB's historical balance sheets are satisfactory\. The Harbour Board's future liquidity position is highly dependent upon timely tariff adjustments as required under the Loan Agreement for the Second Ports Project\. 5\.07 Cash requirements and sources of funds over the 1973-77 period are summarized below: Appraisal Actual % Forecast % (K '000) (K '000) Cash required Investment - Credit 326 5,877 /a 9,300 - Non Project costs 4,401 7,000 Increase in cash balance 1,402 200 Total 11,680 16,500 Cash available Internally generated cash 7,306 9,600 Less: Debt service (1,388) (2,400) Reductions in operating working capital 633 (200) Dividend (150) (2,100) Payment to sinking and insurance funds (612) - Internal cash available for investment 5,789 50 4,900 42 Loans 5,891 50 11,600 58 Total 11,680 100 16,500 100 /a PNGHB's total investment charged to Cr\. 326 is K 5,877,000 which is substantially less than the project cost recorded in para\. 3\.19\. We are assured by the Board's Chief Financial Officer that the difference has been properly capitalized on the balance sheets\. PNGHB's accounts have been fully audited by two independent auditors\./l Insufficient tariff relief over the period enabled PNGHB to produce only 77% of the internally generated cash forecasted at appraisal\. Nevertheless, with a more limited investment program than forecast for nonproject investments, nominal dividend distributions (with Government agreement) and lower interest payments than forecast due to a slower assumption of debt, PNGHB was able to finance approximately half of its 1973-77 Investment Plan from internal sources as compared with 42% anticipated at appraisal\. In fact, only in fiscal 1976 were net revenues less than 1\.5x maximum debt service requirements as agreed in Section 4\.05 of the Project Agreement for Credit 326-PNG\. Further, throughout the 1973-77 period there was /1 See comments from the PNG Harbours Board in Attachment A of this report\. - 21 - sufficient cash generation to service debt, finance the investment program, and maintain an adequate cash position without the injection of Government funds\. E\. Auditing 5\.08 During the 1973-77 project period the Association did not receive certified copies of PNGHB's audited financial statements in a timely fashion as required by Section 4\.02 of the Project Agreement\. In fact, due to staffing constraints the Auditor General's office was over two years late in completing the audit for FY75\. Subsequently the audits for FY76, 77 and the half year ending December 31, 1977 have been received\. Presently, PNGHB's audits are in conformance with Section 4\.02 of the Project Agreement\. VI\. Institutional Development A\. Increase of Responsibilities 6\.01 Papua New Guinea Harbours Board was created by the Harbours Board Ordinance of 1963\. It assumed operational responsibility for six ports in 1967\. These were: Port Moresby, Samarai, Lae, Madang, Rabaul and Kavieng\. Kieta was added in 1971 and Kimbe and Wewak in 1972\. In 1972 five of the ports were directly operated by the Board, and the balance either by Customs Department or the District Commissioner as Agent for the Board\. Subsequently, ports have been taken over as follows: As of June 1974 Oro Bay and Lorengau As of June 1975 Aitape and Nanimo As of June 1976 Alotau and Daru As of June 1977 Buka The total now controlled is 16\. 6\.02 During 1977 the Harbours Board (Pilotage) Act was passed which enabled it to carry out the function of a pilotage authority under the 1975 Merchant Shipping Act and to collect pilotage dues and fees\. 6\.03 In 1973/74 a study of some managerial aspects of PNGHB was undertaken by management consultants including organization of shore handling of cargo, (paras\. 4\.04 and 4\.05) and the following three matters: (a) Cost and financial information\. To examine the needs of the Board regarding management accounting and information systems and to make appropriate recommendations regarding their installation and the training of local staff at all levels in the operation of these systems\. The consultants designed a management accounting and information system which was accepted and implemented\. The system does not provide for costing of individual port services and facilities (para\. 5\.03)\./1 (b) Organization, administration and salaries\. To examine the management and administration structure of the Board and taking /I By contrast, the PNG Harbours Board in their comments (see Attachment A, para\. EE) points out that, in their view, the system does provide for the working of individual ports and services; it is not, however, fully util- ized for these purposes\. - 22 - into account proposals regarding accounting systems and respon- sibility for cargo, recommend the required establishment, with proposed job specifications, and salaries, having regard to salary levels in PNG\. The recommendations included detailed job specifications and gradings for each position in the organization\. The Board accepted the new staff structure which has 1_oed satis- factory\. (c) Insurance assessment and recommendations\. To examine the insurable risks borne by the Board and to make recommendations with regard to insurance coverage and the amendment of legisla- tion which may be necessary to ensure that the Board was ade- quately protected against risks for which it was not insured\. Subsequently, PNGHB arranged an adequate insurance program comprising a PNGHB management fund (currently approximately K 1,000,000) supplemented by commercial coverage\. B\. Staff Training 6\.04 PNGHB has consistently run an internal training program to provide indigenous wharf superintendents with a view to their subsequent promotion through Assistant Port Manager and Port Manager to the highest supervisory positions\. However, there was some difficulty in finding suitable candidates in the earlier years\. Since 1972 the number trained in the Board's facilities at Lae has been: 1972: 6 1973: 8 1974: 13 1975: 8 1976: 17 1977: 9 Total 61 In 1972 the number of indigenous staff employed was 9 while in 1977 there were 47 indigenous staff employed including the Port Managers of all ports except Port Moresby\. Three senior expatriate port managers' posts, each covering a number of ports, were created to assist the national port managers in their duties\. Of the 9 staff employed in 1972 and 61 staff trained over the period 1972-76, only 47 remained in the Board's employ as of June 1977\. The remainder had left PNGHB's employ to join private industry or had proved unsuitable, mainly the former\. It is likely that, with the current level of national expertise in Papua New Guinea, the movement of trained personnel to private industry will continue for some time\. 6\.05 More advanced training overseas has been provided at the University of Wales, Cardiff, where two students have completed and two more are under- taking the maritime management course; a further seven students in all have attended operations courses at Singapore or middle management/personnel courses in Australia, Sweden or Japan\. 6\.06 Seven additional students have attended the technical college at Lae; one engineering and two accounting students have successfully completed the course to date\. - 23 - 6\.07 PNGHB's efforts to provide suitably trained national staff have been commendable and largely successful\. C\. Development Program 6\.08 In addition to the works actually financed under the First Port Project, new capital works to the value of K 1\.5 million were completed, Table 12, plus deferred maintenance on existing wharves to a value of K 225,000\. D\. Land Tenure 6\.09 PNGHB have experienced considerable difficulty in obtaining leases of the land contained within the boundaries of the ports they operate and control of the water area within the ports' seaward limits\. These difficulties have stemmed from the legal position, which did not permit transfer of land until compensation had been agreed; further, ownership by local tribes included land below high water mark\. This naturally led to difficulties on agreeing compensation and the position was further complicated by the lack of written records and the large turnover of staff in the land department in recent years\. However, the Government has now passed a law permitting compulsory acquisition of land required for Government purposes with compen- sation to be agreed between the parties after the transfer\. As a result the position has already improved and is expected to be resolved very shortly\. VII\. Economic Re-evaluation Introduction 7\.01 The Project was designed to increase capacity and cargo handling rates in all the ports\. Accordingly, the Appraisal Report based the economic justification of the project on the following benefits: (a) reduction in anticipated ship waiting time; (b) reduction in ship service time through increased cargo handling rates; and (c) reduction in cargo-handling costs\. The appraisal report estimated "waiting time" through use of a queuing model developed by the Association\. Unfortunately, neither the model nor related documentation have been retained in the Association's files\. Also, with the exception of the one year of economic benefits set forth in Table 5 of the appraisal report, the stream of economic benefits and supporting calculations for each of the project ports were not preserved\. Given these limitations, we have, nevertheless, attempted to duplicate the appraisal report's methodology as closely as possible\. The economic re-evaluation for each of the project ports follows: - 24 - Port Moresby 7\.02 The pattern of traffic at Port Moresby has changed since 1975\. Due to the large increase in the cost of stevedoring in Australia, the palletized cargo ships which handled the trade have been replaced by container ships\. Australian traffic represents about 50% of total overseas traffic\. Thus while the project provided for increased productivity in handling palletized cargo, the volume of this traffic has been reduced so that the anticipated benefits from the traffic could not be achieved\. However, if the additional land area had not been reclaimed and subsequently extended under the credit, PNGHB would not have able to efficiently handle and stack containers in the existing port\. Thus, either (a) containerization would have been drastically reduced with substantial increases in freight rates; (b) container ships would have arrived and been excessively delayed; or (c) the Board would have had to provide an alternative storage site which would have involved rental charges and much longer hauls\. We have assumed the latter alternative as the "without" case\. 7\.03 The second port project appraisal determined the containers could be handled at a rate of at least 10 container per hour\. Subject to the availability of the new stacking area this handling rate would have been reduced by only about 25%\. Also, additional haulage would have been involved which cannot be fully quantified as the site is hypothetical, but the cost of movement from the existing wharf to the project site was $18\.75 per container for the two-way movement and the nearest available alternative area which could have been used (adjacent to the Champion Oval) is twice the distance\. Thus the provision of the new area would save about $18 per container for the two-way movement\. In addition, the area required for container handling would have had to be leased\. An estimate of the cost of such lease is calculated as equivalent to a 12-1/2% return on the investment required to provide the area reclaimed under the project, i\.e\. about K 65,000 p\.a\. which excludes any provision for a transit shed\. 7\.04 Benefits have been calculated on the saving of expenditure for lease of the area which would have been required and reduced expenditure of movement from the unloading berth to the stacking area\. Also, in 1974, ship waiting time was 48 days and palletized cargo 169,000 tons; in 1975 waiting time was 13 days and palletized cargo 194,000 tons\. The saving in 1975 was therefore no less than 35 ship days\. The resulting rate of return is 22% compared to 50% at appraisal\. Lae 7\.05 The economic re-evaluation of the project at Lae differs from the economic analysis in the appraisal report in two major respects: (a) first, the development of containerized traffic which was not anticipated in the appraisal report necessitates a redefinition of the "without" case\. The essential feature of the redefined "without" case is that the containerized traffic representing approximately 50% of the overseas traffic results in a substantially enhanced productivity (tons per hour)\. For example, we estimate that without the project, containers could have been transferred at the rate of 7\.5 containers per hour\. Since the average container at Lae, loaded and unloaded, holds about 12 revenue tons, containerization enables a transfer rate of about 12 x 7\.5 = 90 tons per hour which compares favorably with the 1972/73 handling productivity for palletized traffic of 48 tons per hour\. Thus the present economic re-evaluation is starting from a much higher - 25 - productivity base than the original economic assessment\. (b) Secondly, the ship waiting time estimated in the appraisal report was excessive\. In Table 5, the appraisal report estimated that in 1975/76 with expected overseas and coastal traffic of 386,000 tons and 101,000 tons respectively, there would be a savings of 531 ship days; yet in 1970/71 with comparable traffic, the actual aggregate ship waiting time was only 60% of that figure\. In summary, for the reasons discussed above, the economic reevaluation has only limited comparability to the original analysis in the appraisal report\. 7\.06 The cost and benefit streams of the economic re-evaluation together with the underlying assumptions are set forth in Table 13b\. The present container handling productivity is estimated to be 10 containers per hour\. All costs and benefits have been calculated in 1976 prices\. Further, cargo handling benefits were an order of magnitude less than the two other cate- gories of benefits and were therefore omitted from the present analysis\. The ex-post analysis of the economic valuation of the project results in a rate of return of 13% compared with the appraisal forecast of 23%\. The rate of return is highly sensitive to the assumed rate of traffic growth\. The present analysis assumes that overseas traffic will grow at 2% p\.a\. which is conservative based on historical results\. Kieta 7\.07 The appraisal report computed an economic rate of return associated with the construction of coastal berth facilities at the port of Kieta\. Subsequently, the Association decided to finance two consecutive projects at Kieta (a) the aforementioned coastal berth (1974/75) and (b) an extension to the overseas wharf (1976/77: see para\. 3\.04(b) of this report)\. The small time interval between these projects makes it difficult to apportion the economic benefit stream among the two projects\. The task is further complicated by recognizing that construction of the coastal berth affects the cargo handling productivity of both coastal and overseas traffic\. Therefore, rather than assuming an arbitrary allocation of the total benefits to two separate projects, the two investments are treated as a single project in the ex-post economic analysis\. 7\.08 The costs and benefits of the project are presented in Table 13c\. The associated footnotes contain the major assumptions\. Again, costs/benefits are calculated in 1976 prices and traffic is assumed to grow at 2% p\.a\. Ship waiting time benefits which are small have not been included in the present computation\. Actual cargo handling productivity gains as a result of the project have exceeded the 50% gain assumed in the appraisal report\. However, the increased cost of the combined project is not fully balanced by the higher than expected productivity gain with the result that the first-year actual rate of return is 16% compared with about 20% in the appraisal report (see Tables 2(a) and 5)\. The ratio of ship service time benefits to cargo handling benefits is approximately the same in the economic re-evaluation (see Table 13c) as in the appraisal report (see Table 5)\. The resulting ex-post economic rate of return is 14% compared with the appraisal estimate of 31% for the coastal berth project alone\. The difference in these returns - 26 - is largely explained by the traffic growth rate assumed by the appraisal report (approximately 10% p\.a\.) as compared to the growth rate assumed in the present analysis (2% p\.a\.)\. Alotau 7\.09 Alotau was constructed at the administrative center of Milne Bay province to replace Samarai, located on an offshore island\. As noted in para\. 4\.03, traffic has failed to develop as anticipated and the total traffic handled in 1977 was only 21,000 revenue tons compared to the forecast 58,000 tons\. Although the port of Samari had not completely closed to overseas traffic in 1977 and this will be accomplished under the Second Ports Project, the resulting increase in traffic at Alotau is only expected to be about 9,000 tons p\.a\.I In these circumstances the benefits foreseen at appraisal have not occurred\. Thus although there is insufficient data to make a formal economic reevaluation, the internal rate of return is clearly substantially less than anticipated in the appraisal report\. Nevertheless the advantages of having the main part of the region at the administrative center will assist in its overall development, especially the forestry industry\. VIII\. Role of the International Development Association 8\.01 Project supervision was appropriate in its intensity but would have been improved by inclusion of more financial staff on supervision missions\. This might have resulted in more attention to the fact that the required financial rate of return was not being achieved (para\. 5\.04) and the require- ment to determine the cost of the various services provided by PNGHB was not being met\. However, these matters were discussed in the Association and it was accepted that: (a) the Board's cash position was adequate and that it was failing to meet the rate of return largely due to difficulties in obtaining tariff increases sufficient to balance the increase in operating costs; and (b) that the general requirement to determine costs of services was too broad and should be limited to major services in the major ports; it was also recognized that the costs in these ports would be very different on completion of the works under the project\. Accordingly this work was deferred until the Second Ports Project\. The issue of tariff increases and cost accounting were also addressed under that project\. IX\. Conclusions 9\.01 The project as originally conceived and subsequently expanded has proved well justified except at Alotau when development of traffic has proved to be slower than anticipated\. Alotau is nevertheless located at the administra- tive center of the Milne Bay area and it is expected that the port works will be justified, particularly when the overseas wharf at Samarai is demolished\. The project has been completed within the original appraisal estimate\. 9\.02 PNGHB's ability to generate cash from internal resources has remained satisfactory throughout the project period despite a small operating deficit in 1975/76 and its future prospects are good\. 9\.03 PNGHB has improved its procedures and increased its staff to handle its growing responsibilities\. In particular it has made extensive and successful efforts to train and integrate national staff\. /1 See also comments by the PNG Harbours Board appended as Attachment A of this report\. PAPUA NEW GUINEA FIRST FORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Existing Port Facilities in Project Ports at Appraisal PORT MORESBY LAE KIETA ALOTAU (a) WHARVES Main wharf 700' x 60' T-head 800'x40' head, connected to Main wharf 208'x38' of Small ships wharf only, connected to shore by 270'x36' shore by five approaches 105' precast concrete slabs L-shaped with head access way\. long, two being 22' wide and on steel piles, located 120'x21', shore connec- Concrete deck on steel piles, other 30'\. in front of a steel tion 75'x21' and 100' General condition: fair Concrete deck on steel piles\. sheetpile retaining wall\. long causeway\. Condition good except for Sheet piles provide 100' Prefabricated concrete Coastal feeder wharves - five fendering\. Privately owned & 196' respectively at slabs on steel piles\. privately owned, to east of area outside of the designated western and eastern ends Condition good\. main port area\. port\. for coastal feeder berths\. General condition: good\. Two privately owned coastal feeder wharves exist\. (b) COVERED Two sheds, each 240'x80' Five sheds - one 200'x60' One shed 150'x80'; one STORAGE one shed 140'xOO', closed two 180'x80', two 180'xl0O'\. open storage shed 60'x30' only on eastern end and provided with 20' canopy to sides\. (c) OPEN 61,400 sq ft 130,000 sq ft (currently 29,000 sq ft STORAGE being increased) (d) RAMPS Available concrete ramps: i) PNGHB ramp - 30'wide ii) Australasian Petroleum Company - 20' wide iii) Marine Naval Base - 30' wide May 7, 1979 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Actual and Expected Project Implementation Contract Final cost Work Contract Work /a Successful Bid value award of work completed Final No\. bids No\. Site undertaken bidder Kina actual Expected Kina Expected actual certificate received 1 Lae New berth, transit sheds and ancillary works Barclay 2,298,092 05/15/73 06/30/73 2,754,421 11/24/74 12/12/74 03/23/76 7 2 Lae Dock workers training center Dyson 78,070 06/30/73 75,940 08/29/75 10/13/75 05/21/76 5 3 Lae Mock up ship's hold at training center Dyson 15,691 06/30/73 15,491 11/27/75 02/09/76 08/09/76 2 4 P\.Moresby Reclamation of new open storage area\. New shed and ancillary works Hornibrooke 418,830 05/15/73 06/30/73 412,465 05/14/74 12/12/74 12/17/75 6 5 Kieta New coastal ship- ping berths storage area, sheds, and ancillary works Barclay 852,077 05/15/73 06/30/73 1,051,152 11/12/74 08/15/75 01/24/77 3 6 Kieta Stevedore amenities Watkins Ltd\. 27,129 11/05/74 06/30/73 27,311 02/25/75 05/25/75 10/30/77 4 7 Alotau New overseas and coastal wharves, shed storage and ancillary works Barclay 1,138,869 05/15/73 06/30/73 1,527,431 05/13/75 09/12/75 01/24/77 7 Subtotal 4,828,758 5,84,211 8 Alotau Barge ramp Craig & Hammersly 32,654 08/04/77 06/30/73 32,654 08/12/77 02/01/78 05/02/78 2 9 Kieta Extension to existing overseas wharf Barclay 646,556 07/12/76 06/30/73 659,956 07/10/77 07/03/77 03/10/78 2 10 P\.Moresby Extension of item 4 to enable containers to be Uni\. Trans- stored port Ltd\. 322,875 11/02/76 06/30/73 526,862 06/30/77 07/26/77 02/18/78 6 Total costs 5,830,843 7,083,683 /a Details at Table 3\. - 29 - Table 3 Page 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Work Included in Major Project Contracts Contract No\. 1 Lae New overseas wharf 606' x 120' New transit shed 432' x 120' Waterside workers mess Ablution block Administration office building Mechanical workshop New open storage area, sealed 78,033 sq ft New open storage area, gravel 90,000 sq ft All necessary roads All within wharf complex leading directly out into Lae town and to the hinterland Contract No\. 4 Port Moresby Increased storage area facilities Reclaimed area approximately 3 acres Transit shed 168' x 120' = 20,160 sq ft Open sealed area approximately 110,000 sq ft Drainage and armor stone protection seaward Contract No\. 5 Kieta Coastal wharf 191' x 30' Feeder wharf 191' x 27' Barge ramp 40 ft wide Copra storage shed 119' x 100' and office block Coastal cargo shed 100' x 61' Administration office and alterations Open sealed storage area 60,000 sq ft Gatehouse - 30 - Table 3 Page 2 Contract No\. 7 Alotau Complete new facility Overseas wharf 305' x 59' General cargo shed 168' x 120' includes copra shed Coastal wharf 183' x 32' Coastal shed 100' x 60' Office administration block 2 officer's quarters Gatehouse Open storage area 82,200 sq ft Contract No\. 9 Kieta New overseas berth 194' x 39' New transit shed 118' x 102' Extra storage open sealed 10,000 sq ft Within existing wharf complex with direct access to main road Contract No\. 10 Port Moresby Increase of storage area by an additional 3 acres of reclaimed land with necessary surfacing, drainage, and armor stone protection seawarad\. A test embankment was also installed seawards to test ground conditions which could be incorporated in the next reclamation contract now in hand\. This cost K 84,000\. - 31 - Table 4 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Rates of Exchange Applying During Disbursement Period 08/31/72 US$1\.19 to $K 08/31/72 to 08/71/73 US$1\.43 to $K 08/31/73 to 08/31/74 US$1\.48 to $K 08/31/74 to 11/30/74 US$1\.3236 to $K 11/30/74 to 02/28/75 US$1\.3137 to $K 02/28/75 to 05/31/75 US$1\.3407 to $K 05/31/75 to 08/31/75 US$1\.2769 to $K 08/31/75 to 11/30/75 US$1\.2546 to $K 11/30/75 to 02/29/76 US$1\.2576 to $K 02/29/76 to 05/31/76 US$1\.2236 to K 05/31/76 to 08/31/76 US$1\.3050 to K 08/31/76 to 11/30/76 US$1\.1916 to K 11/30/76 to 02/28/77 US$1\.2390 to K 02/28/77 to 05/31/77 US$1\.2471 to K 05/31/77 to 08/31/77 US$1\.2612 to K 11/30/77 to 02/28/78 US$1\.3631 to K 05/31/78 tO 08/31/78 US$1\.4432 to K - 32 - Table 5 Pase 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Prolect Costs (K '000) Actual cost as Actual Appraisal estimate % of appraisal Local Foreign Total Local Foreign Total estimate Civil Works Lae 496 2,258 2,754 885 4,245 5,130 54 Port Moresby 74 338 412 140 695 835 49 Kieta 190 861 1,051 170 805 975 107 Alotau 275 1,252 1,527 235 1,100 1,335 176 Training Center and Mock-Up Hold at Lae 17 74 91 - - - - Kieta Ocean Wharf 119 541 660 - - - - Port Moresby Extension 94 432 526 - - - - Other works 10 50 60 - - - - Subtotal 1,275 5,806 78081 1\.430 6 8,275 Engineering consultants 877 877 145 2,800 425 206 Training and technical assistance , 78 78 50 100 150 52 Mechanical equipment - - - - 500 500 0 Total (kina) 1 8, 1 7 9, Total (US$ equivalent) 1,710 9,137 10,847 1,935 9,200 11,135 - 33 - Table 5 Page 2 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Consultant Costs - Design and Supervision (K '000) Consultant or Consultants' Description design agency fees 1\. Lae R&C New berth 256,246 2\. Lae HL Dockworkers training 7,426 center 3\. Lae BFC Mock-up hold 1,200 4\. Port Moresby H&C Reclamation 57,703 5\. Kieta PWD New coastal facilities 133,376 6\. Alotau PWD New berths 154,403 7\. Kieta PWD Stevedores amenities 2,715 8\. Alotau PWD Barge ramp 2,569 9\. Kieta PWD Extension of overseas wharf 60,423 10\. Port Moresby Maunsell Reclamation at Port Moresby 200,960 Total 877,021 H&C = Department of Housing & Construction, PNG HL = Higgin Lloyd and Partners - Architects PWD = Department of Public Works, PNG BFC = Bull Ferranti and Collier - Consulting Engineers Maunsell = Maunsell PNG PTY, LTD - Consulting Engineers - 34 - Table 6 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Disbursement Schedule (US$'000) Bank fiscal Appraisal estimate Actual year and qtr Quarter Cumulative Quarter Cumulative 1973 1 300 2 375 675 3 500 1,175 470 4 640 1,315 730 1,200 1974 1 800 2,615 1,500 2,700 2 850 3,465 440 3,140 3 950 4,416 1,350 4,490 4 980 5,395 880 5,370 1975 1 750 6,145 1,060 6,430 2 550 6,695 720 7,150 3 500 7,195 50 7,200 4 450 7,645 - 7,200 1976 1 450 8,095 100 7,300 2 450 8,545 300 7,600 3 450 8,995 200 7,800 4 205 9,200 200 8,000 1977 1 600 8,600 2 - 8,600 3 - 8,600 4 300 8,900 1978 1 - 8,900 2 8,900 3 - 8,900 4 240 9,140 Unexpended 60 9,200 - 35 - Table 7 Page 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT - 326-PNG PROJECT COMPLETION REPORT PNGHB's General Dry Cargo 1968/69-1976/77 (Revenue Tonnes) Overseas cargo Coastal cargo Variations on previous year Port Year Discharged Loaded Total Discharged Loaded Total All Tonnes Overseas Coastal All ---------------------------------------------------------------7--- %--------------- Port 1968/69 233,450 30,573 264,023 14,758 43,201 57,959 321,982 - - - - Moresby 69/70 243,372 42,135 285,507 20,319 25,111 45,430 330,937 +8,954 +8\.13 -21\.62 +2\.78 70/71 227,852 50,001 277,853 43,568 44,917 88,485 366,338 +35,401 -2\.68 +94\.77 +10\.69 71/72 220,520 50,574 271,094 44,477 38,117 82,594 353,688 -12,624 -2\.43 -6\.62 -3\.45 72/73 229,904 43,199 273,103 40,175 35,861 76,036 349,139 -4,549 +0\.74 -7\.94 -1\.29 73/74 204,521 41,862 246,383 36,775 42,606 79,381 325,764 -23,375 -9\.78 +4\.40 -6\.70 74/75 267,950 46,327 314,277 42,775 51,053 93,828 408,105 +82,341 +27\.56 +18\.20 +25\.28 75/76 206,803 36,629 243,432 42,135 40,521 82,656 326,088 -82,017 -22\.54 -11\.91 -20\.10 76/77 199,000 34,000 233,000 46,000 50,000 96,000 329,000 - - - - Lae 1968/69 195,593 55,460 251,053 10,787 28,590 39,377 290,430 - - - - 69/70 288,270 67,348 355,618 12,309 40,736 53,045 408,663 +118,233 +41\.65 +34\.71 +40\.70 70/71 279,346 65,012 344,358 21,242 61,538 82,780 427,138 +18,475 -3\.16 +56\.05 -4\.52 71/72 268,164 69,481 337,645 16,318 49,101 65,419 403,064 -24,074 -1\.94 -20\.97 -5\.63 72/73 260,357 89,637 349,994 12,755 42,859 55,614 405,608 +2,544 +3\.65 -14\.98 -0\.63 73/74 287,173 124,219 411,392 33,267 53,775 87,042 498,434 +92,826 +17\.54 -56\.51 +23\.8P 74/75 322,582 108,213 430,795 23,364 75,082 98,446 529,241 +30,807 +4\.79 +13\.10 +6\.18 75/76 246,815 108,483 355,298 26,325 65,869 92,194 447,492 -87,749 -17\.53 -6\.35 -15\.45 76/77 341,000 126,000 467,000 33,000 79,000 112,000 579,000 - - - - Rabaul 1968/69 120,670 62,839 183,509 22,517 12,953 35,470 218,979 - - - - 69/70 139,282 62,052 201,334 25,833 17,805 43,638 244,972 +25,993 +9\.71 +23\.03 +11\.87 70/71 113,323 58,238 171,561 32,125 25,348 57,473 229,034 -15,938 -14\.79 +31\.70 -6\.50 71/72 116,124 54,108 170,232 30,504 22,954 53,458 223,690 -5,344 -0\.77 -6\.99 -2\.33 72/73 86,553 44,882 131,435 19,486 12,922 32,408 163,843 -59,847 -22\.79 -39\.38 -26\.75 73/74 95,885 46,514 142,399 20,660 9,748 30,408 172,807 +8,964 +8\.34 -6\.17 +5\.47 74/75 107,804 53,572 161,376 19,456 9,277 28,733 190,109 +17,302 +13\.33 -5\.51 +10\.01 75/76 72,006 41,245 113,251 12,030 4,172 16,202 129,453 -60,656 -29\.82 -43\.61 -31\.91 76/77 8,400 37,000 121,000 12,000 5,000 17\.000 138,000 - - - - Madang 1968/69 46,039 27,594 73,633 13,349 2,703 16,052 89,685 - - - - 69/70 54,540 24,884 79,424 15,384 3,843 19,227 98,651 +8,966 +7\.86 +19\.78 +9\.99 70/71 44,292 24,514 68,806 18,568 5,908 24,476 93,282 -5,369 -13\.37 +27\.30 -5\.44 71/72 47,652 27,360 75,012 17,848 4,853 22,701 97,713 +4,431 +9\.02 -7\.25 +4\.75 72/73 47,652 26,054 73,706 12,867 4,870 17,737 91,443 -6,270 -1\.74 -21\.87 -6\.41 73/74 46,424 24,475 70,899 11,238 3,795 15,033 85,932 -5,511 -3\.81 -15\.24 -6\.03 74/75 49,090 32,056 81,146 14,122 4,188 18,310 99,456 +13,524 +14\.45 +21\.80 +15\.74 75/76 38,845 30,143 68,988 12,061 1,514 13,575 82,563 +16,893 +14\.98 +25\.86 +16\.99 76/77 37,000 30,000 67,000 12,000 1,000 13,000 80,000 - - - - Kavieng 1968/69 8,199 16,001 24,200 10,036 1,686 11,722 35,927 - - - - 69/70 9,267 17,892 27,159 13,669 1,369 15,038 42,197 +6,275 +12\.33 +28\.29 +17\.47 70/71 9,023 21,583 30,606 14,807 1,810 16,617 47,223 +5,026 +12\.69 +10\.50 +11\.91 71/72 8,313 20,342 28,655 12,975 1,624 14,599 43,254 -3,969 -6\.37 -12\.14 -8\.40 72/73 7,375 16,851 24,226 9,509 5,282 14,791 39,017 -4,237 -15\.46 +1\.32 -9\.79 73/74 5,900 14,347 20,247 8,197 627 8,824 29,071 -9,946 -16\.42 -40\.34 -25\.49 74/75 9,646 19,195 28,841 9,753 470 10,223 39,064 +9,993 +42\.45 +15\.85 +34\.37 75/76 6,796 13,245 20,041 9,722 520 10,242 30,283 -8,781 -30\.51 +0\.19 -22\.48 76/77 8,000 17,000 25,000 11,000 1,000 12,000 37,000 - - - - Samarai 1968/69 10,797 8,539 19,336 10,037 8,564 18,601 37,937 - - - - 69/70 11,400 9,427 20,827 11,324 9,780 21,104 41,931 +3,994 +7\.71 +13\.46 +10\.52 70/71 9,857 7,365 17,222 13,446 12,327 25,773 42,995 +1,064 -17\.31 +22\.11 +2\.54 71/72 9,368 9,387 19,755 10,858 9,223 20\.081 38,836 -4,159 -8\.90 -22\.09 -9\.67 72/73 9,302 10,326 19,628 11,457 10,932 22,389 42,017 +2,181 -0\.64 +11\.49 +5\.47 73/74 5,791 5,382 11,173 8,101 5,672 13,773 24,946 -17,071 -43\.08 -38\.48 -40\.63 74/75 6,496 8,348 14,844 6,582 3,688 10,270 25,114 +168 +32\.86 -25\.43 +0\.67 75/76 4,537 6,280 10,817 6,535 3,942 10,477 21,294 -3,820 -27\.13 +2\.02 -15\.21 76/77 5,000 - 5,000 4,000 5,000 9,000 - - - - - - 36 - Page 2 Overseas cargo Coastal cargo Variations on previous year Port Year Discharged Loaded Total Discharged Loaded Total All Tonnes Overseas Coastal All -------- % ---------- Kieta 1971/72 44,354 11,489 55,843 28,933 11,248 40,181 96,024 - - - - 72/73 46,589 11,489 58,078 31,042 10,938 41,980 100,058 +4,034 +4\.00 + 4\.48 +4\.20 73/74 35,074 17,661 52,735 32,242 15,248 47,490 100,225 + 167 -9\.20 +13\.13 40\.17 74/75 49,964 25,331 75,295 42,989 15,142 58,131 133,426 +33\.501 +42\.78 +22\.41 +33\.13 75/76 48,123 24,200 72,323 39,896 16,531 56,427 128,750 -4,676 -3\.95 - 2\.93 -3\.50 76/77 44,000 20,000 64,000 31,000 15,000 46,000 110,000 - - - - Wewak 1971/72 21,650 2,040 23,699 11,295 9,715 21,010 44,709 - - - - 72/73 33,173 3,409 36,582 12,399 10,107 22,506 59,088 +14,379 +54\.36 +7\.12 +32\.16 73/74 22,803 4,859 27,662 17,274 13,273 30,547 58,209 - 879 -24\.38 +35\.73 -1\.49 74/75 23,574 2,138 25,712 18,550 12,358 30,908 56,620 -1,589 -7,05 +1\.18 -2\.73 75/76 22,548 3,940 26,488 15,513 10,122 25,635 52,123 -4,497 +3\.02 -17\.06 -8\.63 76/77 24,000 3,000 27,000 18,000 12,000 30,000 57,000 - - - - Kimbe 1971/72 2,886 935 3,821 6,246 90 6,336 10,157 - - - - 72/73 9,324 1,092 10,416 13,660 1,041 14,701 25,117 +14,960 +172\.60 +132\.02 +147\.2q 73/74 11,598 3\.263 14,861 12,379 3,531 15,910 30,771 +5,654 +42\.67 +8\.16 +22\.51 74/75 9,669 6,539 16,208 17,246 2,652 19,898 36,106 +5,335 +9\.06 +25\.07 +17\.34 75/76 7,233 13,743 20,976 13,875 2,890 16,765 37,741 +1,635 +29\.42 -15\.75 +4\.53 76/77 7,000 13,000 20,000 13,000 4,000 17,000 37,000 - - - - Oro Bay 1972/73 - - - 8,688 3,568 12,256 12,256 - - - - 73/74 - - - 11,954 5,098 17,052 17,052 +4,796 - +39\.13 +39\.13 74/75 - - - 15,487 3,497 18,984 18,984 +1,932 - +11\.33 +11\.33 75/76 - - - 13,016 4,012 17,028 17,028 -1,956 - -10\.30 -10\.30 76/77 - - - 16,000 7,000 23,000 23,000 - - - - Aitape 1973/74 - - - 1,885 666 2,551 2,551 - - - - 74/75 - - - 3,476 1,117 4,593 4,593 +2,032 - +79\.65 +79\.65 75/76 - - - 4,566 916 5,482 5,482 +899 - +19\.62 +19\.62 76/77 - - - 4,000 1,000 5,000 5,000 - - - - Lorengau 1973/74 1,007 1,347 2,354 3,243 764 4,007 6,361 - - - - 74/75 898 667 1,565 4,446 520 4,966 6,531 +161 -33\.69 +23\.62 +2\.53 75/76 - - - 4,681 4,375 9,056 9,056 +2,525 - +82\.36 +38\.66 76/77 - - - 5,000 2,000 7,000 7,000 - - - - Vanimo 1974/75 - - - 4,975 1,597 6,572 6,572 - - - - 75/76 - 667 667 5,024 2,008 7,032 7,699 +1,127 - +7\.00 +17\.15 76/77 - - - 5,000 2,000 7,000 7,000 - - - Alotau 1975/76 - 652 652 5,767 1,161 6,928 6,928 - - - - 76/77 - 6,000 6,000 12,000 3,000 15,000 21,000 - - - - Daru 1975/76 - - - 607 115 722 722 - - - - - - - 9,000 2,000 11,000 11,000 - - - - All 1968/69 614,748 201,006 815,754 81,484 97,697 179,181 994,935 - - - - ports 69/70 746,131 223,738 969,869 98,838 98,644 197,482 1,167,351 +172,416 +18\.89 +10\.21 +17\.32 70/71 683,693 226,713 910,406 143,756 151,848 295,604 1,206,010 +38,659 -6\.13 +49\.68 +3\.31 71/72 739,040 245,716 984,956 179,454 146,925 326,379 1,311,135 +105,125 +8\.16 +10\.41 +8\.71 72/73 730,220 264,939 977,168 172,038 138,380 310,418 1,287,586 -23,549 -0\.77 -4\.89 -1\.79 73/74 716,176 283,929 1,000,105 197,215 154,803 352,018 1,352,123 +64,547 +2\.34 +13\.40 +5\.01 74/75 847,673 302,386 1,150,059 223,221 180,641 403,862 1,553,921 +201,798 +15\.00 +14\.73 +14\.92 75/76 653,706 279,227 932,933 211,753 158,668 370,421 1,303,354 -250,567 -18\.88 -8\.28 -16\.12 76/77 749,000 286,000 1,035,000 231,000 189,000 420,000 1,455,000 - - - - -37 - Table 8 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Operating Statistics at Port Moresby, Lae and Kieta - 1972/73 and 1976/77 1972-73 1976-77 1978 Net Gang Net Gang Net Gang Tonnes Hours Rate Tonnes Hours Rate Tonnes Hours Rate Port Moresby 1\. Overseas unitized 166,758 4,702 35\.46 144,083 3,369 42\.77 161,625/a - - 2\. Overseas non-unitized 102,788 6,519 15\.76 92,995 5,429 17\.13 108,741 7,252 14\.99 3\. Coastal 69,404 4,159 16\.69 41,143 2,336 17\.61 99,179 6,269 15\.82 Lae 1\. Overseas unitized 181,122 5,147 35\.19 236,745 5,660 42\.77 212,004/a - - 2\. Overseas non-unitized 166,957 9,086 18\.37 200,158 11,274 17\.13 230,670 14,180 16\.27 3\. Coastal 61,952 3,708 16\.71 97,115 4,952 17\.01 113,174 7,360 15\.38 Kieta 1\. Overseas unitized 17,233 505 34\.12 30,687 431 71\.18 21,964/a - - 2\. Overseas non-unitized 41,896 3,155 12\.87 33,866 1,471 23\.02 82,756 2,487 33\.36 3\. Coastal 42,224 2,983 14\.16 33,401 1,459 22\.89 44,074 1,559 28\.27 /a Excluding vehicles\. - 38 - Table 9 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Tariffs Effective September 30, 1976 Overseas carge Coastal cargo (rate per unit) (rate per unit) Cargo Unit Inward Outward Inward Outward -------------------------------K-------------- Horses, cattle, dogs sheep, goats, pigs Each animal 1\.00 1\.00 0\.40 0\.40 Oils (in bulk) Ton of Petroleum (in bulk) 1,000 litres 0\.44 0\.35 0\.35 0\.35 Bunkers Boats, iron, tanks (empty) Meter length 10\.00 10\.00 1\.50 1\.50 Charcoal, coal, coke, road, metal, sand, soil, cement, re- turned empties (in- cluding containers & pallets) Ton weight 1\.00 1\.00 1\.00 1\.00 Copra, cocoa, coffee bagged agri\. product\. Ton weight 1\.50 1\.00 0\.90 0\.90 Goods not enumerated Ton weight or above 1 m3 whichever is greater 1\.50 1\.00 1\.00 1\.00 Overseas Coastal Berthage Meter-hour 0\.20 0\.06 Container Container - - Port dues Meter 2\.00 4\.00 Cargo dues Ton 0\.10 0\.10 Storage Ton-dayy 0\.50 0\.50 (level after expiration of seven days) * 39 - Table 10 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Forecast & Actual Revenue and Expense Accounts: 1972/73 to 1976/77 (Kina thousand) 1972/73 1973/74 1974/75 1975/76 1976/77 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Operating Revenues Port and cargo due 45 55 46 46 136 Berth reservations 47 50 37 39 39 Storage 137 168 248 146 295 Electricity 47 57 58 46 13 Licenses 12 13 15 15 59 Pilotage - - - - 176 Rental 42 - - - - Other 58 57 61 139 276 Subtotal 430 388 469 400 506 465 541 431 584 994 Berthage 651 542 690 632 731 709 768 593 814 994 Wharfage 755 663 1,801 1,512 1,949 1,716 2,094 1,472 2,257 1,853 Total Operating Revenues 3 1593 2960 2,544 3 2,890 3,403 2,496 3,655 3841 Operating Expenses Operating 263 212 238 200 251 Admin\. & management 411 749 1,145 1,393 1,302 Subtotal 518 674 561 961 632 1,383 656 I5 706 I5 Insurance 68 33 87 51 94 111 103 245 111 335 Pilotage - - - - - - - - - 39 Total Working Expenses 586 707 648 1,012 726 1,494 759 817 1 Depreciation 274 108 307 316 366 586 550 709 602 735 Total Operating Expenses 860 815 955 1,328 1,092 2 Operating Surplus (Deficit) 976 778 2,005 1,216 2,094 810 2,094 (51) 2,236 1,179 Interest Earned - - 1 49 3 167 13 148 33 84 Interest Charge 198 87 297 102 644 264 854 443 1,055 492 Revenue Surplus before Divident 778 691 1,609 1,163 1,453 713 1,253 (346) 1,214 771 Dividend 650 - 720 - 720 - 720 150 720 - Revenue Surplus after Divident 128 691 889 1,163 733 713 533 (496) 494 771 Sinking Fund Appropria- tion 29 29 29 29 29 29 29 48 29 65 Revenue Surplus to Balance Sheet 99 662 860 1,134 704 684 504 (544) 465 706 Ratio: Operating 47 51 32 52 34 72 38 102 39 69 Times interest earned 4\.9x 8\.9x 5-1x 11\.9x 3\.3x 3\.lx 2\.5x (0\.lx) 2\.lx 1\.5x - 40 - Table 11 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Balance Sheets: 1972/73 to 1976/77 (Kina thousand) 1972/73 1973/74 1974/75 1975/76 1976/77 ASSETS Current Assets Cash & short-term deposits 553 800 1,600 1,300 1,960 Other 253 153 241 248 251 Total Current Assets 806 953 1,841 1,548 211 Fixed Assets Gross non-depreciable - 1,641 4,001 4,312 4,324 Gross depreciable 3,865 9,142 18,629 20,315 21,207 Subtotal 3,865 10,783 22,630 24,627 25,531 Less accumulated depreciation 325 642 1,226 1,927 2,661 Net fixed assets in opEcation 3,540 10,141 21,404 22,700 22,870 Work in progress 32 2,410 1,616 696 1,557 Total Fixed Assets 3,572 12,551 23,020 23,396 427 Investment 70 145 178 519 682 Total Assets 4,448 13,649 25,039 25,463 27,320 LIABILITIES AND EQUITY Current Liabilities 100 640 1,144 500 958 Dividend - - 150 - Long-term Debt 1,457 2,267 5,271 6,734 7,348 Funds and Reserves Sinking fund 139 178 207 254 319 Insurance reserve 140 190 299 417 580 Total Funds and Reserves 279 368 506 671 899 Equity Accounts Capital - 6,335 7,830 7,830 7,830 Appropriations 2,612 3,746 4,429 3,885 4,592 Revaluation reserve - 293 5,859 5,693 5,693 Total Equity 2,612 10,374 18,118 17,408 18,115 TOTAL LIABILITIES AND EQUITY 4,448 13,649 25,039 25,463 27,320 Ratios: Current 8\.Ox 1\.5x 1\.6x 2\.4x 2\.3x Debt/Equity 36/64 18/82 23/77 28/72 29/71 - 41 - Table 12 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB's Development Program on Non-Project Items During the Construction Period of Credit 326-PNG Port Work undertaken Value (K) Madang Coaster wharf 330,000 Port Moresby APC wharf transit shed and reclamation 85,000 Lae Staff quarters 30,000 Lae Coastal facilities 750,000 Lae Modification to Shed No\. 3 27,000 Lae Provision of fertilizer shed 37,000 Lorengau Rehabilitation of wharf 35,000 Lae Oil discharge dolphins 180,000 Port Moresby Improvements to port office 14,800 Port Moresby Extension to head office 15,000 Total 1,503,000 Deferred maintenance Rehabilitation and upgrading of wharf fendering at Aitape, Lae, Lorengau, Port Moresby, Rebaul and Wewak 225,000 - 42 - Table 13 a PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Moresby (US$ 000) Savings in Year Investment Ship Waiting Time Cargo Handling Costs Ship Service Time Total 1973 105 1974 307 1975 - 84 - - 84 1976 40 38 30 68 1977 336 72 57 129 1978 102 80 182 1979 102 80 182 1980 102 80 182 1981 102 80 182 1982 102 80 182 1983 102 80 182 1984 102 80 182 1985 102 80 182 1986 102 80 182 1987 102 80 182 1988 102 80 182 1989 102 80 182 1990 102 80 182 1991 102 80 182 1992 102 80 182 1993 102 80 182 1994 102 80 182 1995 102 80 182 1996 102 80 182 1997 102 80 182 Internal Economic Rate of Return (ER): 22% Assumptions (1) Traffic will remain constant after 1978\. (2) Container handling productivity with project: 10 containers per hour without project: 7\.5 containers per hour (3) Ships' operating cost in port, taken at US$213 per hour for container ships\. (4) Avoided cost of transporting containers, estimated at US$18 per container for the two way movement\. (5) In subsequent years the palletized cargo was containerized\. - 43- Table 13 b PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Lae (US$ 000) Savings in Year Investment Ship Waiting Time Ship Service Time Total 1973 454 1974 2018 1975 1761 1976 78 205 - 205 1977 432 91 523 1978 331 129 460 1979 349 131 480 1980 371 134 505 1981 392 136 528 1982 417 139 556 1983 447 142 589 1984 492 145 637 1985 532 148 680 1986 579 151 730 1987 630 154 784 1988 691 157 848 1989 756 160 916 1990 839 163 1002 1991 943 166 1109 1992 1066 170 1236 1993 1202 173 1375 1994 1361 177 1538 1995 1541 180 1721 1996 1732 184 1916 1997 2009 187 2196 Internal Economic Rate of Return (ER): 13% Assumptions: (1) 2% p\.a\. growth rate in overseas traffic (2) Container handling productivity with project: 10 containers per hour without project : 7\.5 containers per hour (3) Handling productivity of unitized cargo - with project: 31\.4 tons per gang hour without project: 22\.6 tons per gang hour (4) Handling productivity of non-unitized cargo - with project: 12\.5 tons per gang hour without project: 13\.6 tons per gang hour (5) Ships operating cost in port, taken at US$213 per hour for container ships and US$100 per hour for other overseas ships\. (6) Normal working hours: 0800 hours to 2200 hours (7) Ship waiting time in 1997 in the "without" project case is of the same order as the larger average waiting times previously-experienced at Lae\. -44- Table 13 c PAPUA NEW GUINEA IUST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Kieta (US$ 000) Savings in Year Investment Cargo Handling Costs Ship Service Time Total 1974 1004 1975 653 1976 261 60 122 182 1977 543 73 150 223 1978 42 131 252 383 1979 133 257 390 1980 136 262 398 1981 138 267 405 1982 141 273 414 1983 144 278 422 1984 147 284 431 1985 150 289 439 1986 153 295 448 1987 156 301 457 1988 159 307 466 1989 162 113 475 1990 165 320 485 1991 169 326 495 1992 172 332 504 1993 176 339 515 1994 179 346 525 1995 183 353 536 1996 186 360 546 1997 190 367 557 Internal Economic Rate of Return (ER): 14% Assumptions (1) 2% p\.a\. growth in overseas and in coastal traffic (2) Handling productivity of unitized cargo - with project: 53\.5 tons per gang hour without project: 20\.9 tons per gang hour (3) Handling productivity of non-unitized cargo - with project: 15\.8 tons per gang hour without project: 10\.9 tons per gang hour (4) Handling productivity of coastal cargo - with project: 19\.6 tons per gang hour without project: 11\.2 tons per gang hour (5) Ships' operating cost in port, taken at US$213 per hour for container ships, US$100 per hour for other overseas ships, and US$31 per hour for coastal ships (6) Cargo handling costs calculated at $30\.91 per gang hour 一  P- Pura N,F Pw ue, I 900 ECR EATIEON \.LI --693 -  PAPUA NEW GUINEA PORT OF LAE First Ports Project The boundare\.- ono,ti pd o untpyåtendorsement or aceptantce by tthe fl ttWorldhBank,tandttts ffthaltes f0 PROP, -i No\. 3 Berth development Produce Inspector & - - -- - Possible future extension webd\. -------Proposed coastal facilities --- financed by Harbours Board Existing building - - -l \. -Existing structures to be demolbshed New build;ngs - -- - - - --Contours shown in feet - - "-å- \. 1\. ,-l- \.t n | JrddUnis\.-  PAPUA NEW GUINEA i N ' E PORT OF KIETA - --First Port Proiect U\.C\. -l -- --c - - -- - - -*- -L- - 14 r -1 - _ - -1 4 - --- -- - - - - -- - t - - - t \. CI:\.LAIMED ' \. e is s -hlI 1\.DNG OPERATIONS Existing facihties 1 - - !Proposed new facihities $5Sealed access ureas (new work) -iSeo(ed storage areas (new work) Dredged area TO ARAWA C\.PI o\.t 150 200 ANEWA BAY \. - Fence 30 Contours shown in feetLO A -1 SCALE The oN da e hown ,,n r1m map d, no>/ *1LiBRD- 3695 R JANUARY 1972  MAP 5 SA, C I F 1 C O C E A N z G U N1 É PAPUA NEW GUINEA PORT OF ALOTAU First Porrs Projedl --- - -- - 1 I5 PIU EWGIE - ,',5 ,I,,' 1 - 1\./1 - II |• I I II -- 1 \.

APPROVAL

P002314

Document de La Banque Mondiale FILE COpy A N'UTILISER QU'A DES FINS OFFICIELLES Rapport No\. 3073-SE SENEGAL PROJET DE RECHERCHE AGRICOLE RAPPORT D'EVALUATION 24 jui11et 1980 \., 1 Region Afrique de l'Ouest Division Agriculture III TRADUCTION NON-OFFICIELLE A TITRE D'INFORMATION Le present document fait I'objet d'une diffusion restreinte\. et ne peut etre utilise par ses destinataires que dans I'exerciee de leurs fonetions officielles\. Sa teneur ne peut etre autrement divulguee sans I'autorisation de la Banque Mondiale\. POUR USAGE OFFI CI EL CDNFIDENTIEL TAUX DE CHANGE Unite monetaire franc CFA (FCFA) 1 dollar 270 francs CFA 1 000 francs CFA 3,70 dollars PorDS ET MESURES Systeme metrique SIGLES ET ABREVIATIONS ADRAO Association pour Ie developpement de la riziculture en Afrique de l'Ouest BNDS Banque nationale de developpement du Senegal CDH Centre de developpement horticole CEP Centre d'etablissements publics CGIAR Groupe consultatif sur la recherche agricole internationale CILSS Comite Inter-Etats de lutte contre la secheresse au Sahel CIMMYT Centre international d'amelioration du mais et du ble CISEA Centre international pour l'elevage en Afrique CNRA Centre national de recherche agricole, Bambey CNRF Centre national de recherches forestieres CRODT Centre de recherches oceanographiques de Dakar-Thiaroye CTn Centre technique fares tier tropical DGPA Direction generale de la production agricole FAD Organisation des Nations Unies pour l'alimentation et l'agriculture FED Fonds europeen de developpement lADS Service international de developpement agricole IARC Centres de recherche agricole internationale ICRISAT Institut international de recherche sur les zones tropicales semi-arides IDRC Centre de recherche pour Ie developpement international IEMVT Institut d'elevage et de medecine veterinaire pour les pays tropicaux IFDC Centre international pour Ie developpement des fertilisants IlTA Institut international d'agriculture tropicale INDR Institut national de developpement rural IRAT Institut de recherches agronomiques tropicales et des cultures vivrieres IRRI Institut international de recherche sur Ie riz ISRA Institut senegalais de recherches agricoles LNRV Laboratoire national de recherche veterinaire OMVS Organisation pour la mise en valeur du fleuve Senegal  A N'UTILISER QU'A DIS fiNS OfFlCltLLlS - ii ONCAD Office national pour la cooperation et l'assistance au developpement ORSTOM Office de recherche scientifique et technique outre-mer PAPEM Point d'appui pour experimentations multiples SAED Societe d'amenagement et d'exploitation des terres du delta du fleuve Senegal SAFGRAD Programme de recherche et de developpement des cultures vi 111 vrieres dans les zones semi-arides de l'Organisation de l'unite africaine SERST Secretariat d'Etat a la recherche scientifique et technique SODEFITEX Societe pour Ie developpement des fibres textiles SODESP Societe pour Ie developpement de l'elevage de la zone sylvo pastorale SODEVA Societe de developpement et de vulgarisation agricole SOMIVAC Societe de mise en valeur agricole de la Casamance SONAR Societe nationale d'approvisionnement rural (National Agricul tural Inputs Distribution Agency) SONED Societe nationale d'etudes pour Ie developpement STN Societe des terres neuves UNIFSTD Fonds interimaire des Nations Unies pour la science et la technique au service du developpement USAID Agence des Etats-Unis pour Ie developpement international EXERCICE Gouvernement senegalais : ler juillet - 30 juin ISRA : ler juillet - 30 juin A partir de 1982 : ler janvier - 31 decemb~e \. \. ,,",",I \. \. \. \. \. \. \. fait I'objet d'un\. diffu~ion rf~lrfintf\. el nf pru\. fir\. utiliw par ws \.antl\.ilft \. \. \. \. \. \.s \.u\.rciCt' \. Ifurs fonctions officifllfs\. Sa t\.n\.ur M lMut fir \. " \. 'I8ns "au\.OIln\.ion \. la Banqu\. Mondlalf\.  SENEGAL PROJET DE RECHERCHE AGRICOLE RAPPORT D'EVALUATION \. Table des matieres Pages 1\. GENERALITES 1 A\. Donnees generales sur Ie projet 1 B\. Le secteur rural \. 2 C\. Problemes et politique sectoriels 5 D\. Structure et situation actuelle de la recherche agricole \. 7 E\. Situation actuelle de la vulgarisation et de l1enseignement agricoles \. 11 II\. LE PROJET 14 A\. Strategie nationale proposee en matiere de recherche agricole \. 14 Reorganisation 15 Groupe consultatif sur la recherche agricole au Senegal\. 15 Liaison entre la recherche et la vulgarisation 16 B\. La zone du projet \. 16 c\. Description sommaire du projet 19 D\. Caracteristiques detaillees \. 21 Programmes de recherche sur les systemes de production 21 Programmes de recherche "produits" 25 Services d'appui \. 28 Renforcement du siege de l'ISRA 29 Effectifs \. 30 Formation \. 31 Le present rapport a ete etabli a la suite du sejour effectue au Senegal, en novembre/decembre 1979, par une mission de l'IDA composee de MM\. Jan Weijenberg, Joseph Baah-Dwomoh, Bernard Dussert et Mme Muriel Brathwaite (Banque), MM\. Robert Etheredge, Asrat Felleke, Serge Gilly, Robert S\. Temple et Bill C\. Wright (consultants)\. Table des matieres (suite) - ii Pages Missions d'appui 31 Amenagement des stations de recherche et travaux de genie civil \. 33 Mobilier, materiel et vehicules \. 33 E\. Calendrier d'execution 33 III\. COUT ET FINANCEMENT DU PROJET 36 A\. Coats estimatifs 36 B\. Financement propose 38 C\. Dispositions financieres et incidences budgetaires 41 D\. Passation des marches et decaissements \. 42 E\. Comptes et revisions comptables 43 IV\. ORGANISATION ET GESTION 45 A\. Direction generale 45 B\. Direction des stations de recherche 46 c\. Travaux de genie civil 47 D\. Suivi et evaluation \. 48 V\. AVANTAGES ET JUSTIFICATIONS 49 VI\. ACCORDS A CONCLURE AVEC L'EMPRUNTEUR, CONDITIONS ET RECOMMANDATIONS 56 TABLEAUX FIGURANT DANS LE TEXTE PRINCIPAL 2\.1 Besoins en chercheurs 32 2\.2 Travaux de genie civil et besoins en materiel \. 35 3\.1 Recapitulation des coats du projet 37 3\.2 Financement propose du projet 40 Table des matieres (suite) - iii ANNEXES 1\. Responsabilites et qualifications du personnel cle 2\. Description des fonctions du Service d'appui technique et description generale des fonctions des architectes ma!tres d'oeuvre 3\. Personnel de recherche necessaire par discipline et par programme (annee 6 du projet) 4\. Tableaux (1) Resume des coats previsionnels du projet par annee par nature de depenses (ii) Coats previsionnels du projet par annee par programme de recherche (iii) Coats previsionnels du projet par centre de responsabilite (iv) Flux de tresorerie du projet (v) Financement IDA propose par annee et par nature de depenses (vi) Financement propose pour la France par annee et par nature des depenses (vii) Financement UNIFSTD propose par annee et par nature de depenses viii) Financement USAID propose par annee et par nature de depenses (ix) Financement USAID propose par l'intermediaire de FAO/CILSS par annee et par nature de depenses ( x) Autre financementpropose (ADRAO-ICRISAT) par annee et par nature de depenses (xi) Financement propose pour Ie Senegal par annee et par nature de depenses (xii) Bilans ISRA (xiii) Echelonnement des deboursements AID (xiv) Coats additionnels du Projet (xv) Taux de rentabilite estimes des depenses de recherche agricole (xvi) Coat de la recherche en Afrique de l'Ouest (1975) 5\. Documents et renseignements disponibles dans Ie dossier du projet ORGANIGRAMMES 1\. BIRD No 21580 - Organigramme de l' ISRA 2\. BIRD No 21578 - Organigramme du centre de recherche 3\. BIRD No 21579 - Schema d'execution CARTE 1\. BIRD No 14941 - Zones agro-ecologiques; frontieres internationales et limites regionales Emplacement des stations de recherche  SENEGAL PROJET DE RECHERCHE AGRICOLE RAPPORT D'EVALUATION I\. GENERALITES \. A\. Donndes gdndrales sur Ie projet 1\.01 Le Sdndgal a ddcidd de mettre ses activitds de recherche agricole plus directement en prise sur les problemes des exploitants en donnant une nouvelle orientation au travail de l'Institut sdndgalais de recherches agri coles (ISRA)\. Au ddbut de 1978, a la suite des missions de prdparation effec tudes par la Banque, Ie Gouvernement a fait appel au Service international de ddveloppement agricole (lADS: International Agricultural Development Service), organisme situd aux Etats-Unis et financd par la Fondation Rockefeller, afin qu'il collabore avec l'ISRA a la prdparation d'un Plan directeur (stratdgie du ddveloppement) visant a amdliorer la recherche agricole nationale\. Les ser vices de l'dquipe internationale de l'IADS ont dte financds dans Ie cadre du projet de ddveloppement agricole du Sind Saloum, en cours d'exdcution (Crddit 549-SE), apres que Ie Gouvernement sdndgalais et l'Association se sont Ilis d'accord\. 1\.02 Le Plan directeur a dtd prdsentd au Gouvernement et a l'Association en janvier/fdvrier 1979\. Il a fait l'objet d'un examen et a dtd considdrd comme acceptable dans l'ensemble\. II prdvoyait en particulier i) de rdorga niser l'ISRA et de rdgionaliser la recherche agricole; ii) de coordonner au niveau national les programmes multidisciplinaires portant sur les produits de bal\.e et de les intdgrer en des systemes de production amdliords; iii) de fixer des prioritds en ce qui concerne la rdgionalisation des programmes sus mentionnds\. Le Plan a prdvu en particulier de concentrer Ie travail de re cherche dans quatre des sept zones agro-dcologiques du pays, notamment : i) la valldl~ du Sdndgal pour l'agriculture irrigude; ii) la rdgion du Sahel pour la recherche sur la production animale; iii) la rdgion du Centre, y compris Ie centre et Ie sud du bassin arachidier; et iv) la rdgion de la Casamance dans les zones plus fortement arrosdes du Sud\. 1\.03 A la suite de cet accord gdndral, l'ISRA a prdpard des propositions plus ddtailldes pour la premiere phase d'exdcution du Plan directeur\. Comme il reatait encore a fixer les prioritds en fonction des ressources potentiel lemenl: disponibles, la Banque a accordd de nouveau son assistance pour prd parer un projet de recherche fondd sur les propositions de l'ISRA\. Au ddbut du mols de mars 1979, Ie Gouvernement sdndgalais a demandd a l'IADS d'examiner et d'<~valuer les propositions de l'ISRA, et de prdparer les documents ddfi nitif!3 du projet\. Par la suite, une avance de 500 000 dollars a dtd accor dde dans Ie cadre du mdcanisme de financement de la prdparation des projets\.  - 2 - Cette avance devait aider a financer les coOts de preparation, notamment les services de l'IADS, les plans architecturaux et techniques preliminaires pour les b~timents de recherche et l'amenagement des terres\. A la fin du mois d'aoOt 1979, l'IADS a presente son rapport definitif aux autorites senega laises qui l'ont etudie en septembre avec une mission de la Banque mondiale, laquelle a accepte en principe la proposition\. Une mission d'evaluation s'est rendue au Senegal en novembre-decembre 1979\. Des l'achevement des plans pre liminaires, des negociations ont eu lieu a Washington au debut de mars 1981\. L'avance accordee au titre du mecanisme de financement de la preparation des projets a ete alors portee a 1 000 000 de dollars pour contribuer au finance ment de la preparation du dossier d'apel d'offres et de leur evaluation\. B\. Le secteur rural 1\.04 Generalites\. Le Senegal, situe en Afrique de l'Ouest dans la zone soudano-sahelienne, couvre 200 000 km 2 environ\. La population, estimee a 5,5 millions d'habitants a la mi-1979, augmente de 2,7 % par an\. Soixante quinze pour cent environ de la population vit a la campagne et bien que l'exode rural ait ete un phenomene tres important, la population rurale con tinue a s'accroltre\. Pres de 60 % d'entre elle se presse dans Ie bassin arachidier de la region du Centre, qui couvre quelque 25 % des terres du pays\. La pression demographique est en passe de devenir dans cette region un pro bleme grave et, de ce fait, est, a l'origine d'une migration graduelle de la population, encouragee par les autorites, du bassin vers des zones moins peu plees du Senegal oriental\. Le produit national brut (PNS) etait evalue a 430 dollars par habitant en 1979, Ie taux de croissance reel atteignant 1,3 % par an entre 1970 et 1979\. Par rapport au revenu moyen par habitant calcule pour l'ensemble du pays, Ie revenu du secteur agricole s'est etabli a 190 dol lars environ par habitant en 1979\. La production agricole et vivriere a, en regIe generale, stagne entre 1960 et 1979, d'une part parce que les periodes de secheresse se sont succedees a la fin des annees 60 et que les techniques agricoles utilisees n'ont pas donne les resultats esperes, et d'autre part parce que les techniques dont on dispose deviennent petit a petit obsoletes\. Par consequent, malgre l'augmentation des investissements dans Ie secteur ru ral, Ie Senegal n'a pu accroltre sa production agricole et les importations alimentaires continuent a peser sur les reserves en devises\. 1\.05 Importance de l'agriculture dans l'economie\. Le secteur agricole est Ie pivot de l'economie senegalaise\. Malgre la pauvrete des sols et l'irregula rite des precipitations qui font que la production agricole presente certains risques, Ie secteur rural emploie plus de 75 % de la population active\. Ces dernieres annees, i l representait 30 a 35 % du PIS et 60 % de la valeur des ex portations\. Dans ce secteur, 78 % de la production provient des cultures et de  - 3 l'elevage, 15 % de la p~che et 7 % des produits forestiers\. Les cultures vi vrieres de base sont Ie mil, Ie sorgho, Ie riz, Ie mais et Ie niebe, les prin cipales cultures commerciales etant l'arachide et Ie coton\. De petites exploi tations pratiquant 11 agriculture en sec assurent pres de 95 % de la production agricole; cependant, on trouve des exploitations de toutes les tailles, et la main-d'oeuvre disponible, Ie capital agricole, la productivite et les revenus sont tres variables\. 1\.06 Ces dix dernieres annees, les arachides, Ie mil et Ie sorgho ant oc cupe pres de 90 % de la superficie cultivee (47 et 42 % respectivement)\. Entre 1974 et: 1977, les principaux produits exportes etaient les produits de l'ara chide (75 ro des exportations agricoles), les produits de la p~che (14 %) et Ie caton (7 %)\. Depuis 1974, les denrees vivrieres representent 20 a 30 ro des importations (dont 35 % de riz, 13 % de ble, 26 % de sucre, 9 % de fruits et 9 % de produits laitiers)\. 1\.07 Les rendements des cultures qui font l'objet de recherche depuis longtemps (par exemple les arachides et, dans une moindre mesure, Ie mil) sont assez proches des niveaux internationaux\. Clest surtout Ie cas des exploita tions qui utilisent des methodes culturales modernes\. Mais etant donne les contraintes inherentes au systeme d'exploitation actuel, la majorite des agri cuI teu :c~s n I atteignent pas ces rendements\. 11 dey ient pressant d I entreprendre des rer:herches sur ces contraintes\. Les rendements des cultures vivrieres sont illferieurs a ceux d ' autres pays, et Ie deficit cerealier du Senegal est un element cyclique dans l'economie du pays\. Les importations normales de cereales ont atteint en moyenne 370 000 tonnes en 1976/77 et 1977/78, dont 246 000 tonnes de riz\. Les importations supplementaires (effectuees au titre de l'aide alimentaire) atteignent en moyenne 40 000 tonnes par an lorsque Ie climat est favorable et plus de 200 000 tonnes lors de mauvaises annees\.1I Le riz est une cereale alimentaire qui prend de plus en plus d'importance au Senegal \. Avec l'urbanisation rapide du pays, la demande de riz a augmente\. En 1974-79, 75 % en moyenne du riz consomme au Senegal etait importe; Ie riz contribue donc de maniere significative au deficit cerealier\. De ce fait, m~me si\. la production de cereales augmente de 6,3 % par an et la demande de 3,4 % par an, Ie deficit cerealier sera de 283 000 tonnes environ en 1985\. 1\.08 L'elevage est tres repandu dans toutes les regions du pays\. En 1977, Ie SenEigal avait un cheptel de 2,5 millions de bovins et 2,8 millions de petits ruminants\. Le taux de prelevement annuel est tres faible (10 ro pour les bovins 11 En 1977/78 par exemple, 247 000 tonnes de cereales ont ete importees en supplement, dont 36 000 tonnes de mil et sorgho, 21 000 tonnes de mais et 190 000 tonnes d'autres produits de l'aide alimentaire\.  - 4 et 25 % pour les ovins et caprins) par suite essentiellement du taux de morta lite eleve chez les jeunes animaux, du faible taux de fecondite dO a la medio crite de la nutrition et des pratiques de gestion, et a l'insuffisance de la lutte contre les maladies\. Malgre la taille du cheptel, la consommation de viande par habitant est tres (aible (de 6 a 10 kg par habitant pour l'ensemble du pays et de 10 a 15 kg par habitant a Dakar)\. 1\.09 Par suite de l'importance de l'agriculture dans l'economie, les pou voirs publics ont augmente les investissements dans ce secteur\. Les efforts menes pour developper l'agriculture ont vise: a) a augmenter la production d'arachides et de mil dans Ie cadre du programme agricole; b) a promouvoir Ie developpement de l'elevage dans la zone semi-aride; et c) a encourager l'emi gration vers des regions moins peuplees; d) a developper les possibilites d'ir rigation du pays, en particulier dans Ie bassin du Senegal\. L'agriculture ir riguee qui pourrait ~tre developpee dans la vallee du fleuve Senegal sur plus de 200 000 ha permettra au pays de moins dependre des importations de cereales vivrieres, surtout de riz\. La production maralchere pourrait egalement prendre de l'ampleur avec l'irrigation\. Toutefois, Ie coOt des systemes d'irrigation impliquant une maltrise complete de l'eau est prohibitif\. II faudrait adapter les systemes d'exploitation aux methodes d'irrigation a faible coat, ce qui exige des recherches prealables\. Bien que les possibilites de diversifier la production agricole semblent etre limitees, il existe un poten tiel d'augmenter considerablement la production de cereales dans les perimetres irrigues, ce qui permettrait de remplacer les importations en cereales\. Avec des pratiques de gestion ameliorees, il existe aussi un potentiel pour la pro duction animale qui permettrait d'augmenter la consommation de viande\. 1\.10 Institutions du secteur\. Le Ministere du developpement rural est Ie principal responsable du developpement de ce secteur\. Cependant, plusieurs autres ministeres et secretariats d'Etat, notamment des eaux et forets, de la promotion humaine, de l'equipement, de la recherche scientifique et technique (SERST), ont des responsabilites particulieres en matiere de developpement ru ral\. Ces ministeres sont charges de definir la politique generale rnais l'exe cution des programmes agricoles elabores par les pouvoirs publics est confiee a cinq organismes de developpement regional ayant une certaine autonomie (chaque organisme s'occupe d'une zone ecologique particuliere ou il se charge de la vulgarisation)\. L'ensemble des activites de la recherche agricole est confie a l'ISRA\. 1\.11 En plus des organismes techniques, la Banque nationale de developpe ment du Senegal (BNDS) aide a executer les projets de developpement agricole en accordant aux cooperatives d'exploitants des credits a court et moyen termes pour l'achat de facteurs de production\. Jusqu'a une epoque recente, les cre dits etaient distribues par l'Office national pour la cooperation et l'assis tance au developpement (ONCAD), qui etait egalement charge de commercialiser  - 5 les produits agricoles, de veiller au remboursement des credits et de develop per les cooperatives\. L'ONCAD ayant ete dissous en septembre 1980, Ie Gouver nement a cree un nouvel organisme (SONAR) charge de la fourniture des facteurs de production agricoles aux cooperatives; la distribution du credit agricole est encore a l'etude\. Ces dernieres annees, l'efficacite et l'intervention nisme des organismes financiers et techniques ant ete critiques\. Ces orga nismeB ne participeront pas au projet, cependant il est important qu'ils soient efficaces pour disseminer rapidement les avantages tires d'une meilleure re cherche\. La 8anque cherche par ce projet et par d'autres a ameliorer l'effi cacitd de ces organismes et a inciter les auto rites a definir clairement les fonctions de chacun d'entre eux dans Ie developpement rural\. C\. Problemes et politigue sectoriels 1\.12 Le secteur agricole presente actuellement quatre problemes princi paux que Ie projet devrait aider a resoudre\. En premier lieu, la recherche a jusqu's present surtout porte sur la production en sec de cereales et d'ara chides\. On ne sait pour ainsi dire rien sur la culture irriguee au Senegal\. Cependant, l'augmentation de la production interieure de denrees vivrieres et la reduction des importations de ces memes produits dependront de plus en plus du developpement de l'irrigation\. On s'efforcera donc a l'avenir de faire por ter la recherche sur les problemes de la culture irriguee et sur les systemes d'exploitation appropries\. En deuxieme lieu, la recherche agricole a toujours ete monee a la station principale de 8ambay situee dans une zone a faible plu viome!:rie (700 mm)\. La decentralisation de la recherche envisagee dans Ie cadre du pro jet permettrait d'atteindre des zones ayant une pluviometrie plus forte~1 donc un potentiel de production plus eleve\. En troisieme lieu, la pro duction en sec stagne\. II faut donc determiner les ameliorations a apporter aux systemes d'exploitation en tenant compte des contraintes des exploitants et de leur aptitude a adopter de nouvelles techniques\. En l'absence de re cherche, il sera peut-etre difficile de trouver un nouveau message a trans mettro pour la prochaine decennie\. En guatrieme lieu, les maladies et les dommaqes causes par les insectes commencent a creer un probleme grave pour la production agricole\. II y a donc lieu de mener des recherches sur ces pro blemes des qu'ils apparaissent de maniere a eviter d'eventuels desastres\. En dernier lieu, Ie secteur agricole connatt plusieurs problemes institutionnels et socio-economiques\. Ceux qui concernent la politique generale des prix, la commercialisation, Ie credit agricole, les dettes des exploitants, la distri bution des facteurs de production et l'organisation generale du secteur rural menacent de perturber la production agricole\. Les pouvoirs publics recon naissent l'importance de ces facteurs dans les decisions que prennent les ex ploitants et entreprennent une reforme generale du secteur agricole dont Ie present projet fait partie integrante\. Les problemes institutionnels plus larges sont examines actuellement dans Ie cadre du programme de prets a l'ajustement structurel qui vient d'entrer en vigueur\.  - 6 1\.13 Participation anterieure du Groupe de la Bangue\. Le Groupe de la 8anque a pr~te 98,5 millions de dollars au secteur agricole (89 % en provenance de l'IDA) pour executer les 14 projets suivants : a) trois Pro jets d'ingenierie et de construction de polders et de grands perimetres irrigues dans Ie delta du Senegal, finances par les Credits 350-SE (4,5 millions de dollars, 1973), S-18-SE (1 million de dollars, 1975) et 775-SE (20 millions de dollars, 1978); b) deux Projets de credits agricoles finances par Ie Pr~t 584-SE (3,5 mil lions de dollars) et Ie Credit140-SE (6 millions de dollars) en 1969, et par Ie Credit 404-SE (8,2 millions de dollars, 1973); c) deux Projets de develop pement de la riziculture dans Ie sud de la Casamance finances par les Cre dits 252-SE (3,7 millions de dollars, 1971) et 647-SE (6,3 millions de dollars, 1976); d) deux Projets d'installation de familIes rurales au Senegal oriental, peu peuple, finances par les Credits 254-SE (1,4 million de dollars, 1971) et 578-SE (2 millions de dollars, 1975); e) Ie Projet de developpement agricole de Sine Saloum finance par Ie Pr~t 1113-SE (7 millions de dollars) et Ie Cre dit 549-SE (7 millions de dollars) en 1975 vis ant a intensifier et a diversi fier les cultures dans Ie sud du bassin arachidier; f) un Projet de develop pement de l'elevage au Senegal oriental, finance par Ie Credit 633-SE (4,6 millions de dollars, 1976); g) un Programme d'urgence de lutte contre la secheresse, finance par Ie Credit 446-SE (3 millions de dollars, 1973); h) un Projet de fonds de developpement rural, finance par Ie Credit 991-SE (11 millions de dollars, 1980); et i) un projet de foresterie finance par Ie Credit 1103-SE (9,3 millions de dollars, 1981)\. 1\.14 Evaluation des resultats\. Les resultats des pro jets ont en regIe generale ete irreguliers : l'efficacite de la gestion a decline et les avan tages escomptes ont ete de moins en moins atteints\. Les rapports d'evaluation retrospective ont ete publies pour cinq projets : Ie Premier projet ~e credit agricole (Pr~t 584-SE et Credit 140-SE); Ie Premier projet de riziculture en Casamance (Credit 252-SE); Ie Projet de colonisation de la region des Terres neuves I (Credit 254-SE); Ie Projet de lutte contre la secheresse (Credit 446-SE); Ie Projet de polders sur Ie fleuve Senegal (Credit 350-SE); Ie Deuxieme projet de credit agricole (Credit 404-SE)\. Un rapport d'achevement a ete publie pour Ie Projet de colonisation Terres Neuves II et d'assistance technique pour Ie Senegal Oriental (Credit 578-SE)\. Les principales faiblesses relevees dans les rapports d'evaluation retrospective des projets ont trait i) a la qualite du dossier technique et de la supervision des travaux de cons truction des ouvrages; ii) a la commercialisation, aux prix non remunerateurs et a la distribution des facteurs de production; et iii) a la necessite de faire une enqu~te plus approfondie sur les aspects sociaux de la planifica tion et de l'execution des projets\. Bien que ces points ne se rapportent pas tous au projet envisage, on a accorde lors de l'evaluation et des missions de suivi une at~ention particuliere aux mesures permettant d'assurer une prepara tion et une supervision solides des travaux de construction\. 1\.15 Politigue de pr~t pour ce secteur\. Le Groupe de la 8anque conti nuera, dans Ie cadre de ces investissements qui seront consacres au secteur rural, a accorder la priorite a l'agriculture en sec dans la region bien  - 7 arrosee qui couvre environ 1/3 du sud du pays et a l'irrigation Ie long du fleuve Senegal\. Les resultats des projets en cours ayant ete inferieurs a ceux qui avaient ete escomptes, les projets qui seront finances 8 l'avenir comprendront des dispositions destinees 8 aider les pouvoirs publics 8 ame liorer l'efficacite de l'action entreprise, et visant par exemple a dec en traliser les responsabilites de gestion, promouvoir les organisations d'agri cuI teurs et assurer une formation plus pratique du personnel\. Les possibili tes d'investissement seront egalement explorees dans les domaines de l'ele vage, des for~ts et de la p~che, particulierement 18 ou la Banque peut jouer un rille utile, notamment en faisant appUquer de nouvelles techniques et/ou en ameliorant les institutions\. D\. Structure et situation actuelle de la recherche aqricole 1\.16 Recherche aqronomique\. La recherche agricole n'est pas une activite nouvelle au Senegal puisqu'elle a commence 8 Bambey en 1921, lorsqu'une station de recherche a ete creee pour produire des varietes d'arachides ameliorees et pour etudier les methodes culturales\. En 1933, ce programme de recherche sur l'arachide fut etendu 8 d'autres cultures qui sont pratiquees en combinaison avec l'arachide : Ie mil, Ie sorgho et Ie niebe\. Par la suite, en 1936 un la borato:\.re de chimie a ete cree et des recherches pedologiques ont ete entre prises\. En 1938, Bambey est devenue la station principale pour la recherche agronomique en Afrique occidentale francaise\. Lorsque Ie Senegal acceda 8 l'independance en 1960, Bambey fut transformee en Centre national de la re cherche agronomique (CNRA)\. En vertu d' accords bilateraux, I' administration en a e1:e confiee a un organisme de recherche francais, l'Institut de recherche agronornique tropicale et des cultures vivrieres (IRAn\. Lorsque l'ISRA fut cree e'l 1975, l'IRAT continua 8 pourvoir Ie centre en personnel avec l'appui financ\.Ler du Gouvernement francais\. 1\.17 La recherche de l'ISRA portant sur Ie mil, Ie sorgho, l'arachide, Ie mais, Le coton, Ie niebe et Ie soja est effectuee par Ie CNRA qui poursuit des recherc:hes au niveau nationaL A la station de Bambey (et 8 d' autres endroits) sont menes egalement des programmes de recherche sur la gestion des sols et de l'eau, la fertilite des sols, la protection des plantes, les systemes de pro duction agricole, et des etudes sur les techniques de transfert de technologie\. \. De plu:3, des etudes sont effectuees sur Ie machinisme agricole, les techniques de traitement des recoltes, la production et l'introduction de semences, et l'elevage\. JusqU'8 present, Bambey servait en fait d'institut national de rp\.cherche agricole\. Les recherches menees 8 Fanaye et Djibelor se sont prin cipalement limitees a la riziculture bien que certains travaux aient ete ef fectues sur d'autres cultures 8 Fanaye\. Les activites de recherche sur les cultures effectuees dans Ie passe presentent un certain nombre de defaillances importantes : i) elles etaient concentrees 8 la station de Bambey, dans une region ou i l y ayaH un faible potentiel d'accroissement de la production;  - 8 ii) les liens avec les services de vulgarisation etaient l~ches, les etudes etant plutOt axees sur la selection phytogenetique que sur les problemes des agriculteurs; iii) les disciplines etaient c1oisonnees, ce qui emp~chait la programmation et 1a coordination rationne11es de 1a recherche; et iv) 1es etudes etaient essentiel1ement rea1isees dans des stations, rares etant ce11es qui etaient effectuees dans les champs des agricu1teurs\. 1\.18 Recherche veterinaire\. La recherche veterinaire a commence en 1935 avec 1a creation d'un 1aboratoire pour la recherche veterinaire a Hann pres de Dakar\. Comme Bambey, cette station de recherche etait responsable pour l'en semble de l'Afrique occidentale fran9aise, jusqu'a l'independance du Senegal en 1960, date a 1aquelle elle devint Ie Laboratoire national d'e1evage et de recherches veterinaires (LNERV)\. L'organisme fran9ais, l'Institut d'e1evage et de medecine veterinaire des pays tropicaux (IEMVT), a continue a aider Ie LNERV en detachant des experts\. En 1975, Ie LNERV a ete integre a l'ISRA\. 1\.19 La recherche veterinaire est concentree au Laboratoire national de recherches veterinaires (LNERV) et a sa station annexe de Sangalkam\. L'essen tiel de la recherche a porte sur la sante animaIe (viro1ogie, bacteriologie, he1mintho1ogie, entomologie et protozoo1ogie)\. La production de vaccins (des tines a plusieurs pays de l'Afrique de l'Ouest) est une activite majeure du LNERV\. Une certaine attention a ega1ement ete accordee en particu1ier a Sangalkam et aux centres de recherche sur 1a production animale de Dahra et de Ko1da, a la nutrition des animaux, a 1a genetique, a 1a physio1ogie et a l'agrosto1ogie\. Des travaux de recherche sur 1es boeufs de trait ont ete ef fectues a Bambey oD a ete creee "la race Bambey", croisement entre Ie zebu Peu1 et la race N'dama\. D'autres travaux de recherche ont ete effectues sur l'ame1ioration des bovins au Senegal\. Ces travaux incluent notamment Ie croi sement des races de Montbe1iard et du Pakistan pour 1a productin de 1ait a 1a station de Sanga1kam, l'introduction de 1a race bresilienne Guzerat (zebu) et sa selection ulterieure, pour adaptation, a la station de Dahra oD on ef fectue simu1tanement un programme de selection portant sur Ie Gobra (zebu du Senegal), et enfin l'amelioration genetique de 1a race N'Dama a Ko1da\. La recherche sur l'ame1ioration des ovins a porte sur 1a race Touabir a Dahra et sur 1a race Djallonke a Kolda\. Ces deux stations ont effectue des recher ches sur les besoins aliment aires des ovins et ont e1abore des programmes de contrOle de la sante animale\. Parce que 1es travaux de recherche ont ete axes sur la sante animale et l'amelioration du betai1, insufisamment de recherche a ete accomp1ie sur les contraintes de production auxquelles les pastoralistes doivent faire face dans les zones sylvo-pastorales du Senegal\. 1\.20 Autres activites de recherche La recherche oceanographique a de bute au Senegal en 1961, lorsque l'Office de la recherche scientifique et tech nique outre-mer (ORSTOM) a lance ses activites dans ce pays avec 1a creation du Centre de recherche oceanographique de Dakar-Thiaroye (CRODT)\. Par 1a suite, Ie CRODT a ete transfere a l'ISRA\. La recherche oceanographique s'est limitee a des etudes portant sur les peuplements et l'ecologie\. El1e visait a develop per l'industrie de 1a p~che du pays sans pour autant que les oceans et rivieres  - 9 du Senegal ne se depeuplent par suite d'activites de p~che trop intensives\. La recherche forestiere a commence en 1965 avec la creation du Centre national des recherches forestieres (CNRF), dirige par Ie Centre technique forestier tropi cal (CIFT) jusqu'a la formation de l'ISRA en 1975\. La recherche forestiere a surtout porte sur la conservation et Ie reboisement\. Le Centre de developpe ment horticole (CDH) est Ie plus recent des organismes de recherche gere par l'ISRA\. Les programmes de recherche inclus dans Ie projet ne comprennent pas la recrerche oceanographique forestiere et horticole qui, dans ces domaines, devrait\. ~tre faite dans Ie cadre d'autres projets deja finances ou en p reparlt ion\. 1\.21 Structure\. En 1973, Ie Gouvernement crea la Delegation generale a la recherche scientifique et technique (DGRST) qui se vit confier presque tous les travau,,: de recherche entrepris dans un grand nombre de secteurs\. En 1979, cet organisme fut promu Secretariat d'Etat a la recherche scientifique et technique (SERSTj\. Le Ministre de la recherche scientifique et technique, qui dirige Ie SERST, reI eve directement du Ministre de l'enseignement superieur\. L'ISRA, qui s'occupe desormais de toute la recherche horticole et agricole (y compris les tec:hniques de traitement des recoltes dans les exploitations), de la re cherche en matiere d'elevage, de foresterie et d'oceanographie, releve direc tement du SERST\. L'Institut de technologie alimentaire (ITA), charge des re chercht!s en matiere d'alimentation et de nutrition (y compris les techniques de traitement des recoltes en dehors des exploitations), est distinct de l'ISRA mais releve egalement du SERST\. 1\.22 L'ISRA est administree par un Directeur general et un Conseil d'Admi nistration comprenant 18 membres avec voix deliberative et 5 membres ayant voix consultative, et dont Ie president est nomme par Ie Premier Ministre\. Le Comite de gestion, qui traite des affaires financieres administratives, et Ie Comite scientifique et technique, qui supervise la planification et l'avan cement des travaux de recherche de l'ISRA (voir par\. 1\.30), secondent Ie directeur general\. Actuellement, l'ISRA comprend sept departements scientifi ques : agronomie et bioclimatologie, economie agricole et sociologie, foreste rie et hydrobiologie, medecine veterinaire et sciences animales, oceanographie, materiel et machinisme agricoles, et pedologie\. 1\.23 Personnel de l'ISRA\. Le tableau suivant donne l'effectif et la re- partH\.Lon du personnel scientifique de If ISRA, y compris Ie personnel de di rection, en janvier 1979 :  - 10 - Localisation Nombre de Localisation Nombre de de l'Institut chercheurs de l'Institut chercheurs Vallee du Senegal 13 Siege de l'ISRA 5 Dahra 2 LNERV (Dakar-Hann) 16 Bambey 41 CRODT (Dakar-Thiaroye) 14 Sine Saloum 11 CNRF (Bambey) 1 Djibelor 10 CDH (Dakar-Cambarene) 11 Kolda 2 Total 125 Sur un total de 97 chercheurs specialises dans llagriculture et l'elevage, 57 sont rattaches au CNRA de Bambey et au LNERV de Hann\. Huit stations de re cherche n'ont pas de personnel scientifique resident\. Environ 26 % du person nel scientifique est senegalais\. Les chercheurs etrangers de l'ISRA sont four nis pour la plupart par des organismes frangais d'assistance dans Ie cadre d'accords bilateraux\. II y a seulement cinq chercheurs au siege de l'ISRA et il est evident qu'ils ne sont pas assez nombreux pour superviser de maniere adequate un systeme etendu de recherche nationale\. 1\.24 Financement actuel de l'ISRA\. Les depenses relatives a la recherche agricole inscrites au budget se sont montees a 4,39 milliards de francs CFA1i (16,3 millions de dollars) en 1979/80\. L'Etat a finance 1,32 milliard de francs CFA (4,9 millions de dollars), soit 0,9 % de la valeur de sa production agricole\. La France continue a financer la plupart des travaux de recherche agricole en accordant les services d'experts de l'IRAT et de l'IEMVT, mais a reduit progressivement sa part de financement des coats d'investissement et d'exploitation; la participation frangaise est restee constante en termes reels et, sans Ie projet, il ne serait guere possible de lancer de nouvelles operations de recherche\. Sur Ie budget de l'ISRA de 1979/80, d'un montant de 4 387 millions de francs CFA (16,3 millions de dollars), 70 %, soit 3 045 mil lions de francs CFA (11,3 millions de dollars), sont consacres a des travaux de recherche sur l'agriculture et l'elevage qui interessent Ie projet projet\. De ce dernier montant, 40 %, soit 1 225 millions de francs CFA (4,5 millions 11 Ce chiffre ne represente que des depenses effectuees par l'ISQA pour toutes sortes d'activites de recherche agricole\. II inclut toutes les depenses de l'ISRA financees par des sources exterieures sous forme en particulier de dons d'assistance technique, qui sont normalement exclus du budget officiel de l'ISRA\.  - 11 de dollars), sont finances par la France, et 17 %, soit 502 millions de francs CFA (1~9 million de dollars), par d'autres donateurs\. II ne reste donc au Senegal qu'a financer 43 % du montant total (1 31B millions de francs CFA : 4,9 millions de dollars)\. Les autres donateurs sont : Ie CRDI par l'interme diaire de l'ADRAO (159 millions de francs CFA : 600 000 dollars); Ie PNUD par l'intermediaire de l'ICRISAT (124 millions de francs CFA : 500 000 dollars); l'USAID par l'intermediaire du Projet de developpement integre de la Casamance (146 millions de francs CFA : 500 000 dollars) et la FAO/CILSS (73 millions de francs CFA : 300 000 dollars)\. Des donateurs etrangers financent egalement une pap-tie du budget de l'ISRA n'ayant pas directement trait au projet : la Belgique accorde des fonds pour la recherche horticole menee a l'ISRA (CDH) par l'\.lntermediaire de la FAD et l'Allemagne de l'Ouest pour la recherche forestiere effectuee par l'ISRA (CNRF)\. Une analyse detaillee du budget de l'ISRA pour 1979/BO et du financement actuel de la recherche est presentee dans Ie Document de travail No 5\. Les derniers bilans de l'ISRA sont presen tes a l'Annexe 4, Tableau (xii); ils montrent que l'ISRA dispose d'un finan cement suffisant pour les operations en cours avec un fonds de roulement de 450 millions de francs CFA environ\. Le budget annuel de fonctionnement de l'Institut se traduit par des depenses de 11,7 millions de francs CFA (43 301) dollars) par chercheur; une part importante (59 %) de ces depenses est consacree au personnel auxiliaire et au personnel des services generaux, ce qui est Ie cas de toutes les entreprises publiques et parapubliques du Senegal\. E\. Situation actuelle de la vulgarisation et de l'enseignement aqricoles 1\.25 Enseignement technique\. L'enseignement technique agricole est dis pense par un certain nombre d'instituts\. L'Ecole nationale des cadres ruraux (ENCR) situee a Bambey accepte des etudiants titulaires d'un diplOme de l'en seignement secondaire pour un programme d'etudes de quatre ans qui mene a des carrieres dans les dornaines suivants : agriculture, production animale, genie rural, eaux et for~ts et p~che\. Cette ecole peut accueillir 150 etudiants et fournit a l'ISRA un grand nornbre de techniciens moyens et superieurs\. Leur type de formation est bien adapte aux besoins de l'Institut\. D'autres ecoles techniques situees dans diverses regions du pays offrent une formation en agri culture, horticulture, elevage, medecine veterinaire et p~che\. 1\.26 Enseignement superieur\. Jusqu'a present, taus les agronomes senega lais ant ete formes dans des universites etrangeres ou les programmes d'etudes ne sont pas normalement adaptes aux besoins du Senegal\. Un Institut national de developpement rural (INDR) est en cours d'installation dans Ie cadre du Troisieme projet d'education (Credit 90B-SE)\. II sera situe a Thies, 8 70 km environ de Dakar, recevra 200 etudiants par an et produira chaque annee 40 di plOmas\. Les etudiants, titulaires du baccalaureat, entreront a l'institut pour un programme d'etudes de cinq ans : une premiere an nee preparatoire a la Faculte des sciences de l'Universite de Dakar suivie de quatre annees a l'INDR\.  - 12 - Les deux premieres annees viseront a renforcer les connaissances scientifiques des etudiants et a leur inculquer une formation de base en agriculture\. A partir de la troisieme annee, des specialisations seront offertes en agronomie generale, production animale, et agriculture irriguee\. En outre, des cours facultatifs seront dispenses sur la foresterie, l'horticulture et l'agro industrie\. Le programme de formation sera concret et adapte aux besoins des organismes de developpement regionaux qui emploieront un grand nombre de di plOmes\. En 1979, Ie premier groupe d'etudiants a ete admis dans ce programme\. 1\.27 L'Ecole interetats des sciences et medecine veterinaires de Dakar, de l'Universite de Dakar, a ete fond8e en 1968 et la premiere promotion en est sortie en 1974\. L'ecole, qui a une vocation regionale, peut accepter des etu diants de 14 pays africains francophones\. Peuvent y ~tre admis les etudiants titulaires du baccalaureat ou d'un diplOme equivalent\. Le programme d'etudes comprend une annee preparatoire de sciences et mathematiques de base, suivie par quatre annees d'enseignement theorique de medecine veterinaire\. Apres avoir termine ce programme d'etudes avec succes, les etudiants peuvent prepa rer en un an une these qui leur donne droit au titre de Docteur veterinaire d'Etat\. Bien qu'il soit intensif, ce programme ne donne pas de formation spe cialisee approfondie ni ne permet aux etudiants de se familiariser avec la methodologie de la recherche (en dehors de l'annee de these qui ne fait pas partie du programme d'enseignement theorique)\. Par consequent, les diplOmes souhaitant faire carriere dans la recherche ont en general besoin d'une forma tion complementaire de troisieme cycle\. Actuellement, quatre a cinq veteri naires senegalais sortent de l'ecole chaque annee\. A partir de 1981, Ie nombre de diplOmes doublera et, de ce fait, il y aura de plus nombreux candidats sus ceptibles d'entreprendre des etudes universitaires superieures\. Les diplO mes de l'ecole seront d'excellents candidats pour poursuivre des etudes dans les domaines de la pathologie animale, l'elevage, l'agriculture fourragere au dans d'autres specialites connexes necessaires pour faire partie d'equipes de recherche sur les systemes de production\. 1\.28 Coordination avec les activites de vulgarisation agricole\. Actuel lement, plusieurs organismes de developpement regionaux couvrant la majeure partie du pays s'occupent de vulgarisation\. Ces organismes sont : la SODEVA dans Ie bassin arachidier, la SODEFITEX au Senegal oriental, la SOMIVAC en Casamance, la SAED dans la vallee du Senegal et la SODESP, organisme charge de la promotion de l'elevage dans la zone sylvo-pastorale\. Au depart, certains de ces organismes ont ete crees pour promouvoir un produit particulier (SODEFITEX pour la production du coton par exemple), mais ils ont ete charges recemment du developpement rural au sens large dans leur region\. Ces organismes de developpement en sont actuellement a diverses phases d'evolution, certains etant deja en service depuis un certain temps, d'autres venant d'~tre crees; aussi, leurs capacites de vulgarisation varient-elles considerablement\. Bien que ces organismes relevent de la Direction generale de la production agricole du Ministere du developpement rural, ils ont tous leur propre conseil d'admi nistration et leur directeur general, et re90ivent une grande partie de leur financement de sources exterieures\. Par consequent ces organismes ont, a divers niveaux, un certain degre d'autonomie\.  - 13 1\.29 Au sein du Ministere de developpement rural, deux organismes dis pensent dans une certaine mesure des services de vulgarisation\. La Direction de l'elevage et des industries animales est chargee d'executer des programmes nationaux de pathologie animale\. Elle emploie un certain nombre de veteri naires, de techniciens en elevage, d'assistants veterinaires dans sept regions (200 postes de veterinaires)\. Elle est chargee de la vaccination gratuite du betail, de la supervision du traitement du lait et de la viande, et de certains aspects de la production animale, mais elle se consacre presque entierement a la medecine veterinaire\. Le Centre d'expansion rurale polyvalent (CER) au sein du Min:Lstere du developpement rural deploie ses activites dans 27 departements et 93 s,rrondissements des hui t regions, et a un effect if de 270 personnes envi ron, QLi ne travail lent pas seulement pour l'agriculture mais s'occupent de tous les aspects du developpement rural\. 1\.30 Des efforts considerables ont ete faits pour que les services de vul garisation des organismes de developpement regionaux et de l'organisme de re cherche procedent a des echanges reels, mais ces liens doivent ~tre ameliores et renforces\. Une des raisons qui expliquent Ie manque de communication entre l'ISRA et les organismes de developpement regionaux est que ces derniers sont relativement nouveaux, et que leur fonction et leur fa90n d'operer sont en pleine evolution\. Une autre raison est que les organismes de developpement regionaux jouissent d'une grande autonomie et qu'il n'existe aucun organe cen tral de coordination charge de definir une strategie d'ensemble et d'elaborer des directives indiquant la marche a suivre en matiere de vulgarisation,d'ap provisj\.onnement en facteurs de production, de recouvrement des coats, et de participation et d'organisation des exploitants\. A la mi-1979, un charge de liaison de la recherche a ete nomme au Ministere du developpement rural, pour servir de lien entre les organismes de developpement regionaux et l'ISRA\. Cet ancien chercheur est charge d'informer l'ISRA sur les besoins en matiere de recherche tels qu'ils sont per9us par les organismes de developpement regionnux\. Le Comite scientifique et technique (par\. 1\.22), dans lequel les organiHmes de developpement regionaux sont representes, est un autre moyen de faire eonnaltre les besoins en matiere de recherche\. A la base, toutefois, les contacts entre les chercheurs et les agents de vulgarisation sont minimes; de ce fait, les activites de recherche repondent insufisamment aux besoins et aux problemes des exploitants agricoles\.  - 14 II\. LE PROJET A\. Strategie nationale proposee en matiere de recherche agricole 2\.01 Le Gouvernement senegalais a decide de reorienter ses activites de recherche agricole et d'ameliorer leur efficacite en remediant aux principales faiblesses qu'elles presentent (par\. 1\.17 et 1\.19), l'objectif etant de mettre la recherche au service de la politique d'investissement du Gouvernement dans Ie secteur rural, politique dont les grandes lignes sont exposees au para graphe 1\.09\. La recherche sera davantage axee sur les problemes a resoudre, c'est-a-dire qu'elle devra mieux repondre aux contraintes subies par Ie pro ducteur agricole et s'appliquer davantage a leurs problemes specifiques\. Le Gouvernement desire en outre intensifier la communication entre d'une part les chercheurs, et d'autre part, Ie personnel charge de la vulgarisation et du developpement au sein des organismes de developpement et du Ministere de deve loppement rural\. Une action de decentralisation doit egalement ~tre menee a bien grAce au renforcement de la recherche a l'echelle regionale; a cet effet seront constituees des equipes de recherche multidisciplinaires qui traite raient des produits prioritaires et des systemes regionaux de production agricole, et dont Ie travail serait coordonne au niveau national\. A la suite de la publication du Plan directeur mis au point par l'IADS (par\. 1\.01), il a ete decide de limiter la portee du projet (premiere phase) aux sous-secteurs de l'agriculture et de l'elevage et, a l'interieur de ces secteurs, aux cereales vivrieres prioritaires et aux produits provenant des cultures de rente ainsi quia la recherche sur les systemes d'exploitation dans les regions prioritaires\. Pour atteindre ces grands objectifs, 1e projet prevoit de : i) renforcer l'organisation et Ie fonctionnement de l'ISRA, inte grer la recherche et Ie developpement sur les cultures et l'elevage, et repondre aux besoins des differents systemes d'exploitation et regions ecologiques du Senegal; ii) remplacer l'approche fragmentee, unidisciplinaire SU1Vle jusqu'a main tenant , en matiere de recherche, par une approche coordonnee faisant appel a une equipe multidisciplinaire etudiant l'ensemble des problemes poses par chaque produit (y compris leurs systemes de production); iii) lancer des programmes de recherche sur les systemes d'exploita tion operant dans les quatre regions prioritaires retenues; iv) planifier a long terme Ie perfectionnement et la formation des chercheurs et techniciens, et ameliorer la politique et les procedures de gestion de personnel\.  - 15 v) renforcer la recherche sur l'economie de la production, la com mercialisation et les ressources humaines; vi) renforcer les moyens d'evaluation et d'application de la nou velle technologie, notamment l'efficacite de sa liaison avec la vulgarisation; et vii) renforcer les liens entre la recherche et les organismes d'as sistance technique exterieure, y compris les centres inter nationaux de recherche agricole\. En reponse a la lethe que lui avait adressee l'Association Ie 13 fevrier 1980 a la suite de l'evaluation du projet, Ie Gouvernement a officiellement donne son ava! (par lettre datee du 13 juin 1980) a la strategie de recherche definie ci-des:,us et a la reorganisation de I' ISRA\. Reorganisation 2\.02 Au cours de la premiere phase, les sept departements scientifiques actuel~, de l'ISRA seraient reorganises et ramenes a six qui seraient charges de : 1<1 recherche sur les produits, la recherche sur les systemes de produc tion, La recherche d'appui pour l'elevage, la recherche forestiere et oceano graphique, et les services d'appui (Graphique BIRD No 21580)\. L'ensemble de la recherche d'appui sur la production vegetale ferait partie integrante du nouveau Departement des systemes de production\. Le Departement actuellement charge de la rnedecine veterinaire et des sciences animales serait en partie integr,~ au Departement des systemes de production, en partie regroupe et charge de la recherche d'appui pour ce dernier departement\. Les laboratoires cent raux et les stations de recherche seraient fondus au sein d'un nouveau Departement des services d'appui, dont dependraient la formation et Ie perfectionnement du personnel, les services de bibliotheque, de documentation et de publications, la construction et l'entretien des batiments, l'informatique et les statis tiques\. La Direction generale de l'ISRA serait renforcee par la creation i) d'une unite de contrOle de gestion, ii) d'une unite d'evaluation et de suivi, et iii) d'une unite de macroeconomie\. Groupe consultatif sur la recherche agricole au Senegal 2\.03 Pour assurer la coordination souhaitee de l'execution et du finan cement de l'ensemble des efforts de recherche, un g~oupe consultatif sur la recherche agricole au Senegal serait cree de fa90n informelle pour permettre a tous les bail leurs de fonds de se mettre d'accord sur les principes regis sant la recherche au Senegal et les moyens de la financer\. Le Groupe se reunirait une fois par an au moins, trois mois avant la fin de chaque exercice financier pour echanger des vues avec Ie Gouvernement senegalais sur l'avan cement du projet, l'execution des obligations de l'emprunteur, l'incidence du projet sur Ie developpement agricole et d'autres questions liees aux objec tifs du projet\. On s'efforcerait d'etablir un lien entre les reunions du  - 16 - Groupe avec les examens du programme annuel de recherche interne et externe\. Le Groupe serait convoque par Ie SERST, l'ordre du jour et tous les documents pertinents etant envoyes aux membres suffisamment a l'avance (par\. 4\.04)\. Lors de la premiere reunion des bailleurs de fonds, tenue en septembre 1980, les participants ont decide de se consulter et de se reunir une fois par an pour coordonner leurs efforts\. Le Comite scientifique et technique du Conseil d'administration examinerait les programmes de recherche avant qu'ils ne soient mis au point de fa~on definitive (par\. 2\.27)\. Le projet prevoit Ie renforcement de ce Comite auquel seraient adjoints quatre chercheurs indepen dants de reputation internationale ayant un rOle consultatif, et dont Ie mandat et la composition seraient juges acceptables par l'IDA\. Les budgets de l'ISRA sont examines chaque annee par Ie Comite de gestion (par\. 4\.04 et 4\.05)\. Les programmes et budgets de recherche seraient presentes a l'IDA pour examen et approbation apres avoir ete approuves par Ie Conseil d'administration de l'ISRA\. Liaison entre la recherche et la vulgarisation 2\.04 Pour assurer un transfert efficace de la technologie aux petits ex ploitants, chacune des equipes chargees des systemes de production comprendrait un agronome specialise en vulgarisation agricole\. II serait charge de l'exe-\. cution de toute la recherche effectuee avec les agriculteurs sur Ie terrain, la collecte et l'analyse des donnees etant laissees au groupe de chercheurs\. II s'occuperait egalement de la formation du personnel de vulgarisation qu'il aiderait a appliquer la technologie recemment mise au point\. Dans Ie cadre de ces deux fonctions, il tiendrait l'equipe de chercheurs au courant des pro blemes et contraintes subis par l'exploitant\. Pour assurer la liaison la plus etroite possible avec les services de vulgarisation, il serait Ie seul membre des equipes de systemes de production multidisciplinaires qui ferait partie du personnel de l'Organisme de developpement regional, aupres duquel il serait de tache aux termes d'un accord signe entre l'ISRA et l'organisme en question\. On trouvera a l'Annexe 1 des precisions sur les responsabilites et les quali fications de l'agronome specialise\. B\. La zone du projet 2\.05 Le Senegal est un pays dont Ie climat, la densite demographique et l'agriculture sont tras variables (voir Carte BIRD No 14941)\. Les tempera tures moyennes mensuelles se situent entre 18 et 31 oC, et les precipitations moyennes annuelles varient enl~e 350 mm minimum a l'extr~me nord et 1 600 mm ou plus a la frontiere avec la Guinee-Bissau\. La plus grande partie du pays est semi-aride avec des precipitations annuelles se situant entre 400 et 600 mm, et concentrees au cours des trois mois de juillet, aoOt et septembre\. Dans la Casamance, la saison des pluies peut durer jusqu'a cinq mois\. La secheresse est malheureusement courante et, au cours des annees de precipita tions anormalement faibles, les rendements des cultures accusent une baisse  - 17 marquee\. Le pays peut etre divise en six zones agro-ecologiques : la vallee du Senegal, la region sahelienne, la cOte Nord et region du Cap-Vert, la region du Centre, Ie Senegal oriental et la Casamance\. Au cours d'une premiere phase, Ie projet porterait sur quatre de ces regions dont Ie regime pluviome trique est Ie suivant : Sahel Region Vallee du sylvo Centre Casamance zone Senegal pastoral Nord Sud Haute Basse Precipi tations 350-650 350-600 600-800 800-1000 1100-1400 1400-1700 (mm) Nombre de jours de pluie 20-40 20-40 40-55 55-70 70-80 80-100 2\.06 La vallee du Fleuve Senegal\. Le cours du Fleuve Senegal suit la frontiere nord du pays sur une distance de plus de 600 km\. Prenant sa source dans une region tres arrosee en Republique de Guinee, il traverse Ie Mali oc cidental et penetre au Senegal au-dessus de Bakel\. II represente la source la plus abondante d'eau d'irrigation du Senegal qui, si elle etait exploitee, pourrait irriguer 200 000 ha sur Ie seul territoire senegalais\. Actuellement quelque 17 400 ha du delta et de la vallee sont irrigues, dont 10 600 avec mattrise complete de l'eau\. On note de fortes variations saisonnieres de temperature bien que Ie pays appartienne nettement a la zone intertropicale\. A Podor, par exemple, la temperature moyenne minimale en janvier est d'environ 13 oC, la moyenne maximale atteignant pres de 40 0C en juin\. Les variations diurnes sont amples et peuvent souvent s'elever a 20 0C\. Les pluies, qui sont faibles (350 a 450 mm) dans Ie delta et sur plusieurs centaines de kilometres en amont du fleuve, ont tendance a augmenter a mesure que Ie fleuve s'incurve vers Ie sud et peuvent atteindre 600 mm environ a Matam et un peu plus a Bakel\. La region du fleuve Senegal est peu peuplee en raison de la rarete des pluies\. La plupart des habitants habitent cependant dans la vallee meme, et a l'inte rieur de cette bande etroite, la densite demographique peut atteindre 80 habi tants au kilometre carre\. Les sols de la vallee sont alluviaux et de texture fine avec une teneur en argile qui peut atteindre jusqu'a 70 a 80 %\. lIs se pretent particulierement bien a la riziculture, mais d'autres cultures peuvent y etre pratiquees au cours des mois sees et frais s'etendant de novembre a fevrier\. Dans les exploitations meme se posent de graves problemes tenant aux pratiques d'irrigation, a la lutte contre les mauvaises herbes et les oiseaux, aux dommages causes par les insectes, et aux methodes culturales ge neralement employees\.  - 18 2\.07 La zone sylvo-pastorale occupe quelque 60 000 km 2 de la partie nord est de la region sahelienne\. C'est 18 que se trouve la plus forte concentra tion de cheptel\. La zone situee 8 l'extr~me nord s'etend jusqu'a la vallee du fleuve Senegal pres de Dagana et est bordee par la Mauritanie a l'est\. Bien qu'elle se trouve entre les isohyetes de 450 mm et 600 mm, il y a en fait 80 % de chances pour que ce niveau pluviometrique ne soit pas atteint\. Le potentiel agricole de la region est limite en raison des pluies annuelles, faibles et irregulieres\. C'est la region la moins peuplee du Senegal puisque la densite y est inferieure a 5 habitants/km 2 Sa population clairsemee, les precipita tions relativement faibles et les difficultes de communications sont de nature a en freiner Ie developpement pendant un certain temps\. Actuellement, l'in dustrie la plus importante est l'elevage dont les principaux problemes de pro duction sont les taux de productivite faibles, Ie taux eleve de mortalite des veaux et la lenteur de la croissance et de la maturation des animaux, problemes auxquels s'ajoute la precarite des paturages disponibles, dont l'existence est fonction des pluies\. Comme sur la plus grande partie du territoire senegalais, les sols sont sableux et peu fertiles\. Cette region possede egalement de vastes zones ou la laterite affleure 8 la surface, ce qui reduit la producti vite des sols\. 2\.08 La region du Centre\. Cette region ecologique comprend la plus grande partie de la zone appelee "Bassin arachidier" et s'etend de l'isohyete de 600 mm au nord jusqu'a la frontiere nord de la Gambie au sud, ou la pluviome trie moyenne annuelle atteint 1 000 mm\. La saison des pluies dure 100 jours environ, dont 40 a 70 jours de pluie\. Dans toute la region, les sols sont sa bleux avec une faible teneur en argile (3 a 7 %) et en matieres organiques (moins de 1 %)\. lIs ne peuvent donc retenir beaucoup d'eau ni les elements nu tritifs des plantes\. Dans l'angle extr~me nord de la region, la densite de la population est faible (moins de 5 habitants/km 2 ) et l'elevage du betail vient en t~te des activites rurales\. La region du Nord-Ouest (provinces de Thies et de Diourbel) a la plus forte densite de population de tout Ie Senegal rural, puisqu'elle atteint jusqu'a 80 habitants/km 2 Dans cette region, les cultures comme celles de l'arachide et du mil sont plus importantes que l'ele vage\. La zone situee au sud de Kaolack tranche nettement sur les autres, puis qu'on peut y pratiquer une grande variete de cultures telles que sorgho, mais, coton et tabac\. Selon des etudes limitees des ressources en eau souterraine, l'agriculture dans la region du Centre continuera 8 ~tre fortement tributaire des pluies et, m~me lorsque l'activite agricole est fortement axee sur les cultures, l'elevage du betail, des bovins et des caprins rev~t une importance considerable dans toute la region\. On note recemment une stagnation de la pro duction globale d'arachides et de cereales\. 2\.09 La Casamance\. Cette region qui s'etend entre la frontiere de la Gambie et celIe de Guinee-Bissau, beneficie de precipitations annuelles de 1 000 a 1 700 mm\. La saison des pluies dure de 120 a 150 jours alors qu'elle ne dure que de 90 a 100 jours dans Ie reste du pays\. Les temperatures y sont  - 19 plus constantes que dans les regions situees plus au nord, et la vegetation nature lIe est caracteristique des tropiques semi-humides\. Elle a une surface de 28 000 km 2 , et compte environ 720 000 habitants\. La densite moyenne de population est de 22 habitants au km 2 Toutefois, cette population n'est pas egalement repartie puisqu'elle est plus dense a l'ouest quia l'est\. Quatre types de riziculture y sont pratiques, a savoir 1\. Riziculture dans les marais a mangrove, en presence d'eau sa line et de sols fortements acides\. 2\. Riziculture irriguee pratiquee dans les vallees, avec inonda tion d'eau douce\. 3\. Riziculture pluviale lorsque la nappe phreatique est elevee pen dant toute la saison de culture, inondant parfois Ie riz pendant de courtes periodes\. 4\. Riziculture pluviale sur les plateaux\. Les fo:\.-tes precipitations et la saison des pluies de plus longue duree offrent de multiples possibilites de diversifier l'agriculture dans la region de la Casamance\. Les cultures les plus importantes maintenant pratiquees, outre Ie riz, sont l' arachide, Ie coton, Ie mais, Ie manioc, Ie sorgho et Ie miL La region produit egalement des fruits et legumes tropicaux, et des palmiers a huile jont les volumes de production pourraient ~tre fortement augmentes\. II existe d'excellentes possibilites d'ameliorer les p§turages pour Ie betail et de cultiver les plantes fourrageres, qui peuvent atre coupees, sechees et ser vir a l'alimentation du betail au cours de la saison seche\. La presence de la tryoanosomiase dans cette region limite la productivite de l'elevage\. On peut distinguer deux zones nettement differentes : i) la Haute Casamance au la densib§ de population est inferieure a 20 habitants au kilometre carre, au les sols de plateaux predominent, au la pluviometrie est plus faible, et ii) la Basse ':::asamance, dont la den site de population depasse 20 habitants au kilo metre :arre, qui est mieux arrosee et plus fortement rizicole\. En Haute Casamance, l'elevage est plus important que les cultures, alors que la rizi culture predomine en Basse Casamance\. C\. Description sommaire du projet 2\.10 Le projet, qui est la premiere phase d'un programme a long terme vi sant a renforcer les possibilites de recherche agricole, comprendrait l'eta blissement et l'execution sur une periode de six ans des programmes suivants Cinq programmes sur les systemes de production (par\. 2\.12) a Fanaye pour la vallee du Senegal, a Nioro du Rip pour Ie Bassin arachidier du sud, a Djibelor pour la Basse Casamance, a Dahra  - 20 pour la zone sylvo-pastorale et a Kolda pour la Haute Casamance\. Tous les programmes relatifs aux systemes de production seraient mixtes (agriculture, elevage); a la station de Fanaye, la prio rite serait donnee a l'agriculture irriguee; a Nioro du Rip a l'agriculture fluviale, a Djibelor a diverses techniques de riziculture; et aux stations de Kolda et de Dahra aux systemes d'elevage\. , Six programmes relatifs aux produits, confies a des equipes mul tidisciplinaires coordonnees a l'echelle nationale : arachides, niebe, mil, sorgho, mais et riz (par\. 2\.20)\. 2\.11 Le projet prevoit en particulier a) la creation au sein de l'ISRA d'un Departement des systemes de production agricole (par\. 2\.02), notamment un Groupe central d1analyse des systemes (par\. 2\.18) et une section de recherche d'appui (par\. 2\.19); b) la dotation en personnel et Ie fonctionnement du Departement de la recherche "produits" (par\. 2\.20)\. c) la creation au sein de l'ISRA d'un Departement des services d'appui (par\. 2\.27), charge de la gestion de toutes les stations de recherche et des laboratoires centraux, et comprenant notam ment les nouveaux services suivants : perfectionnement et for mation du personnel, appui technique, documentation et publica tion informatique et statistiques; et d) Ie renforcement du siege de l'ISRA grace a l'etablissement d'une unite de SU1V1 et d'evaluation, d'une unite de contrOle de gestion, et d'une unite de recherche en macroeconomie (par\. 2\.28); e) l'emploi de 88 chercheurs pour un total de 550 hommes-annees, dont 240 hommes-annees d'expatries (par\. 2\.29); f) l'emploi d'environ 184 autres cadres scientifiques (techniciens confirmes et debutants), de 384 employes dans Ie service de sou tien, et de 44 employes au siege (par\. 2\.29); g) la formation des chercheurs senegalais au moyen de 48 bourses pour la preparation a la maltrise de sciences, de 15 bourses pour la preparation du doctorat, ainsi que l'octroi de 20 bourses de formation a la gestion (par\. 2\.31); h) des prestations de 120 mois de services de consultants a court terme (par\. 2\.32) qui assureront des missions d'appui;  - 21 i) l'expansion et la remise en etat de six stations de recherche (par\. 2\.33), notamment 106 logements (dans les stations et a 2 Richard Toll et Kaolack), 6 000 m environ de laboratoires, bureaux, salles de travail et de preparation pour les selec tionneurs, cages grillagees et batiments de ferme, ainsi que 2 5 400 m environ de parcs a betail et moutons; j) l'amenagement d'un perimetre experimental d'irrigation sur 100 ha a Fanaye, et la construction d'un Centre de documenta tion et de publication a Saint-Louis (par\. 2\.33); k) trois unites de recherche mobiles, de l'outillage agricole , 11 camions, 20 tracteurs, 27 cultivateurs, 205 vehicules et 105 velomoteurs, du materiel de bureau et de laboratoire, Ie mobilier, Ie petit materiel agricole et les fournitures neces saires a la recherche (par\. 2\.34)\. D\. Caracteristigues detail lees Programmes de recherche sur les systemes de production (BIRD-Organigramme 21580) 2\.12 La recherche sur les systemes de production s'inspirerait des con traintes de l'agriculteur, qui seront identifiees sur Ie terrain, puis evaluees quantitativement pour confirmer Ie bien-fonde des nouveaux travaux de recherche visant a eliminer ou limiter ces contraintes\. Chaque programme de recherche sur les systemes se composerait donc a tout moment de trois elements : i)' identification et evaluation quantitative des contraintes tech niques, economiques et sociales par l'etude des systemes de pro duction existants; Ii) recherche d'une solution aces contraintes dans les exploita tions meme et a la station; et iii) essais de ces solutions dans les exploitations\. L'identification consisterait en une etude continue des contraintes s'opposant a l'introduction de nouvelles techniques\. Chaque equipe de recherche menerait ses travaux a partir des contraintes existantes et ayant deja fait l'objet d'evaluations quantitatives dans les diverses regions\. Chaque equipe se composerait d'un agronome generaliste, d'un specialiste de l'elevage, d'un economiste agricole, d'un sociologue rural et d'un agronome specialise en vulgarisation agricole (par\. 2\.04)\. D'autres specialistes seraient adjoints, Ie cas echeant, pour analyser des contraintes plus precises\. Pour resoudre  - 22 certains problemes particuliers, les equipes auraient recours, pendant de courtes periodes, a l'aide des membres du groupe de recherche sur les pro duits, des specialistes charges de la recherche d'appui, au des consultants exterieurs hautement specialises\. 2\.13 La vallee du Senegal\. La recherche serait axee sur l'agriculture irriguee faisant de la riziculture l'epine dorsale du systeme de production\. La riziculture combinee a d'autres cultures et a l'elevage serait hautement prioritaire\. Une de ces cultures est Ie ble, qui est main tenant importe en totalite, et pourrait etre cultive par irrigation dans cette region pendant la saison froide\. Le programme comporterait d'autres aspects importants : lutte contre les mauvaises herbes et les oiseaux, techniques de preparation des sols sur les sols a forte teneur en argile qui predominent dans la region, mecanisation agricole Ctant motorisee qu'avec traction animale), recherche sur les engrais dans les champs des paysans, methodes d'irrigation a la par celIe, drainage en vue de la lutte contre la salinite, incidence sociale et economique des grands perimetres irrigues par rapport aux petits\. Bien que l'accent soit principalement mis sur l'agriculture irriguee, les systemes traditionnels seront maintenus pendant de nombreuses annees jusqu'a ce qu'ils soient remplaces par l'irrigation\. Une partie de la recherche sur les sys temes d'exploitation devra necessairement etre orientee vers l'amelioration de ces systemes traditionnels\. Un agronome-malherbologue et un ingenieur agronome seraient adjoints a l'equipe de base pour etudier les problemes que posent la lutte contre les mauvaises herbes et la mecanisation agricole\. 2\.14 La zone sylva-pastorale\. La recherche serait orientee vers l'amelio ration de l'exploitation traditionnelle de l'elevage\. Les principaux problemes de production sont les faibles taux de reproduction, la mortalite elevee des animaux nouveaux-nes, et la lenteur de la croissance et de la maturation\. La recherche concernant la productivite primaire de l'espace pastoral devrait comprendre la mise au point de techniques de remise en etat des terrains de parcours deteriores, la prevention d'une degradation plus poussee et l'amelio ration de ces terrains par la gestion des troupeaux et des ressources vege tales\. Les efforts de la Societe de developpement de l'elevage dans la zone sylva-pastorale, (SODESP) dans la region ant deja permis de rassembler des renseignements et des donnees qui seront tres precieux pour l'equipe sur les systemes de production au stade initial de son travail\. Bien qu'il soit prevu que la plus grande partie des etudes et de la recherche seront menees sur Ie terrain, des experiences controlees sur l'amelioration de la gestion de l'es pace pastoral et des four rages de la saison seche peuvent etre organisees dans les installations de la station de Dahra\. Le troupeau actuel de bovins et d'ovins a la station de Dahra serait utilise pour effectuer les experiences necessaires sur les contraintes identifiees sur Ie terrain, mais surtout pour produire des animaux selectionnes qui seront mis a la disposition des eleveurs de la region selon des modalites qui devraient permettre a l'operation de s'autofinancer\. L'equipe sur les systemes de production serait basee a Dahra mais effectuerait des deplacement pour sa recherche, puisqu'elle suivrait des groupes de pasteurs dans leurs migrations et collaborerait etroitement Avec la SODESP\.  - 23 -\. 2\.15 Le Sine-Saloum\. L'equipe de recherche sur les systemes de production s'efforcerait d'introduire des innovations dans Ie systeme actuellement appli que dans la region du Sine-Saloum en se fondant sur l'experience obtenue dans les unites experimentales, ce qui representerait la premiere tentative de re cherche sur les systemes au Senegal\. Pour augmenter la production animale, les sous-produits et residus des cultures seraient utilises dans toute la mesure du possible pour l'alimentation du betail\. Dans la region avoisinant Kaolack, les insectes et maladies attaquent les animaux et les plantes avec plus de virulence que dans les regions situees plus au nord\. L'equipe serait chargee de mettre au point des techniques pour proteger les cultures et Ie betail des insectes, et les animaux des maladies\. La traction animale est largement utilisee dans la region et accrott Ie potentiel des animaux faisant partie d'un systeme integre de productions vegetales et animales\. Les autres elements importants du programme seraient les cultures intercalaires, la recherche sur les engrais dans les champs des paysans, l'utilisation du phos phate naturel comme engrais peu coQteux, la preparation des sols et les techniques de "minimum tillage", les techniques de conservation des sols et de l'eau, Ie traitement des recoltes de mil, de sorgho et de mais sur l'exploi tation, l'adaptation des outils et des machines agricoles aux applications localisees d'engrais et aux cultures intercalaires, et l'entreposage des semences dans les greniers des paysans\. 2\.16 La Haute Casamance\. La recherche sur les systemes en Haute Casamance serait principalement axee sur les problemes de developpement de l'elevage\. Contrairement a la zone sylvo-pastorale, cette zone possede un assez bon poten tiel aqricole\. A l'ouest de Kolda, les terrains sont de plus en plus utilises pour les cultures, alors quIa l'est, la for~t ouverte inexploitee est utilisee pour Ie p~turage\. Kolda est donc situee dans une region qui se pr~te a la recherche sur la production anima Ie integree a l'agriculture, de m~me qu'aux programmes portant sur les p~turages naturels et ameliores\. La recherche viserait a ameliorer la production de'viande de bovins et de petits ruminants, la production laitiere et a conserver les ressources des terrains de parcours\. La recherche menee au centre lui-meme s'appliquerait tant aux systemes de pro duction des terrains de parcours qu'aux systemes integres agriculture-elevage\. Ce travail comprendrait la recherche sur Ie coton qui serait totalement inte gree alJ systeme d' exploitation\.1I Les travaux de recherche en dehors des sta tions porteraient initialement sur la production des paturages, mais ils fi niraient par englober l'amenagement des p~turages et les systemes integres culture-elevage au fur et a mesure de l'accroissement de la production agricole dans les environs de Kolda\. Au debut, la recherche porterait seulement sur les bovins et les petits ruminants, mais elle s'etendrait par la suite a l'elevage 11 Un programme de recherche "produits" axe sur Ie coton sera etabli a la station de Sintiou Malem dans la region du Senegal oriental, centre de culture du coton\.  - 24 de porcs et de volailles dans les villages\. La trypanosomiase est un obstacle majeur a l'accroissement de la production animale dans la region; toutefois, il existe des races de bovins (N'Dama), d'ovins (Djallonke) et de chevres (guineennes) qui sont relativement trypanotolerants (selon leur etat nutri tionnel et sanitaire general)\. Le troupeau de N'Dama et d'ovins trypanotole rants de la station serait utilise pour des travaux de recherche en station et pour l'approvisionnement en animaux selectionnes des producteurs de la re gion et de selectionneurs exterieurs qui demandent des animaux trypanotole rants\. II s'agirait d'une operation autofinancee\. 2\.17 La Basse Casamance\. L'equipe de recherche sur les systemes de pro duction basee a Djibelor concentrerait son effort sur une agriculture fondee sur la production de riz\. Cette region contraste fortement avec la vallee du fleuve Senegal et doit par consequent disposer de sa propre equipe de recherche sur les systemes d'exploitation\. Les problemes de riziculture dans les condi tions de marais a mangrove, qu'il s'agisse du paddy irrigue ou des cultures de plateaux, necessitent un effort de recherche concerte\. On estime que les resul tats obtenus par les equipes chargees des systemes d'exploitation basees a Nioro du Rip et a Kolda seront applicables aux zones de production des pla teaux de la Moyenne Casamance\. II semble donc raisonnable que l'equipe s'occupant des systemes d'exploitation agricole a Djibelor fasse surtout por ter ses activites sur Ie riz et sur la petite agriculture diversifiee dans laquelle l'elevage (de certains bovins, ovins et caprins trypanotolerants), notamment des porcins et des volailles, peut rev~tir une importance particuliere\. 2\.18 Le Groupe central d'analyse des systemes, en tant qu'unite fonction nelle dans Ie Departement des systemes de production, serait charge de l'en semble de la planification et de la supervision de la recherche "systemes"\. Ce groupe aura des connaissances specialisees en techniques d'analyse des systemes de fagon a pouvoir identifier scientifiquement les contraintes prin cipales qui s'opposent a l'augmentation de la production de chacun des systemes de production, et a degager des priorites de recherche valables pour l'ensemble des systemes, compte tenu du rapport coOt/avantage economiques de la recherche, de ses aspects sociologiques (probabilit¢s d'adoption des resultats de la re cherche, repercussion eventuelle sur les traditions et les structures sociales, etc\.)\. La composition de l'unite centrale d'analyse des systemes serait la sui vante : a) un specialiste d'analyse des systemes - agronome forme a la modeli sation des systemes utilisant des techniques mathematiques et informatiques, b) un specialiste des systemes d'exploitation aqricole, agronome experimente forme a l'approche "systemes" de la recherche et au travail au sein d'equipes multidisciplinaires C~ recherche, c) un specialiste des systemes de production animale, zootechnicien experimente forme a l'approche "systemes" de la recher che et au travail au sein d'equipes multidisciplinaires de recherche, d) un socioloque systemes, forme a l'approche "systemes" et capable d'essayer  - 25 de quantifier les aspects sociaux des systemes de production agricole pour in clure ces parametres dans les modeles et pouvoir ainsi degager les priorites de la recherche, e) un economiste des systemes de production, specialiste des aspects economiques de la gestion agricole, experimente et forme a la recherche "systemes"\. Un des membres de l'equipe jouerait Ie rOle de coordonnateur du groupe\. 2\.19 Recherche d'appui\. Le programme de recherche sur les systemes d'ex ploitation agricole seraient Ie point de convergence des resultats de la recherche menee dans diverses disciplines et spheres d'activites, resultats qui seraient transformes en un systeme d'exploitation agricole viable et utilisable\. Les specia\.:\.istes charges de la recherche et de la manipulation du systeme d' exploi tation agricole devraient disposer des renseignements necessaires pour les cul tures, les sols, l'eau, les engrais, les herbicides, les insecticides, Ie mate riel a~lricole, les aspects economiques de la gestion de l'exploitation et de bien d'autres facteurs\. II va sans dire qu'il ne sera pas possible de trouver une equipe de chercheurs sur les systemes d'exploitation agricole OU chacune de ces disciplines soit representee\. Le nombre de chercheurs necessaires serait prohibitif\. II est egalement evident que les equipes de recherche sur les syntemes d'exploitation agricole auront besoin de l'appui de la recherche portant notamment sur la fertilite des sols, la bioclimatologie, la malherbolo gie et Ie genie rural\. Les membres des groupes de recherche d'appui qui devront repondre en premier lieu aux demandes de recherche soumises par les chercheurs de terrain (equipes de recherche "systemes" et "produits"), pourront entrepren dre deB programmes de recherche dans leurs propres domaines de specialisation, visant a mettre au point des pratiques recommandees qui seraient ensuite inclus,~s dans les programmes sur les systemes de production agricole\. II est prevu de reunir ces groupes de recherche d'appui a Bambey (recherche sur les culturl:~s) et a Dakar-Hann (recherche sur la production et la sante animales)\. Toutefois, dans certains cas, la recherche d'appui serait four~ie a la station d'attaehe des equipes de recherche de terrain, notamment s'il s'agissait d'une recherehe particuliere a la zone en question\. Afin d'assurer une coordination etroite avec les equipes de recherche sur les systemes de production et les produits, un agronome confirme serait nomme responsable de la liaison avec la recherche d'appui et releverait du chef du Departement des systemes de produc tion\. Le chef du Departement de la recherche d'appui pour l'elevage aurait des fonctions analogues pour la recherche d'appui relative a la production et la sante animales\. Programmes de recherche "produits" 2\.20 La recherche "produits" porterait principalement sur des programmes multidisciplinaires de selection accordant une priorite elevee a la resistance aux maladies et aux insectes, et a l'emploi modere d'engrais\. Afin d'assurer une coordination etroite entre les divers programmes et les equipes de recher che d'appui et de recherche "systemes ll , Ie chef du Departement de la recherche "produits" serait seconde par un agronome confirme dans un poste fonctionnel\. Celui-ci serait egalement responsable de la preparation des directives en matiere de preparation et d'execution du programme et aiderait Ie chef du Departement a superviser la qualite de la recherche\.  - 26 2\.21 Programme de recherche sur le mil\. Le programme d'amelioration du mil aurait essentiellement pour object if de mettre au point des varietes de mil adaptees aux conditions des differentes regions de culture, et caracteri sees par un fort rendement, une bonne resistance aux maladies existantes (et, si possible, aux insectes) et une qualite de grain superieure\. Ce programme reunirait des selectionneurs, des phytophysiologistes, des phytopathologistes et des entomologistes, qui auraient acces aux essais d'evaluation de la qua lite du grain gr~ce a la cooperation de l'Institut de technologie alimentaire (ITA)\. C'est a Bambey que serait installe le coordonnateur et que s'effectue raient les croisements ou l'hybridation\. La selection a partir de la segrega tion du stock genetique ainsi que les essais de rendement et de resistance aux maladies et aux parasites locaux seraient effectues dans plusieurs autres sta tions de recherche, dans les PAPEM (Points d'appui pour experimentations mul tiples), ainsi que dans les parcelles des paysans, par les equipes chargees de la recherche sur la production\. Les stations les plus importantes pour la selection seraient Louga, Nioro du Rip et Kolda\. 2\.22 Programme de recherche sur le sorgho\. Le projet de recherche conti nuerait, dans l'ensemble, le programme en cours et prevoit : i) l'introduction et le triage de nouveaux stocks genetiques provenant de differentes regions du monde en vue de tester leurs rendements au Senegal, ii) la production d'un stock genetique varie, par hybridation, et selections, avec le concours de pathologistes et d'entomologistes, et iii) des essais simultanes de qualite du grain et d'acceptation du marche, en cooperation avec l'Institut de technologie alimentaire\. Deux modifications fondamentales au programme actuel consiste raient a : a) regrouper sous la responsabilite d'un seul coordonnateur les deux programmes existants de selection du sorgho, et b) transferer les princi pales activites de recherche de Bambey a Nioro du Rip, le sorgho donnant de meilleurs resultats que le mil dans les zones plus humides\. 11 est envisage de centraliser a Nioro du Rip toutes les operations de triage, de selection et de croisement\. La selection de varietes pour leur rendement, leur adaptabilite et leur resistance aux insectes et aux maladies se ferait a Fanaye et a Kolda (Sefa), ainsi que sur les parcelles des PAPEM et des exploitants, dans les regions de culture du sorgho\. 2\.23 Programme de recherche sur le mais\. Les zones les plus importantes de production du mais se trouvant dans la region relativement plus arrosee qui entoure la Gambie, la recherche sur le mais serait transferee de Bambey, ou sa culture n'a pas beaucoup d'importance, a Nioro du Rip\. L'objectif principal de cette recherche serait d'identifier ou de creer des varietes bien adaptees, a rendement eleve, resistantes aux maladies et aux insectes, dont la qualite de l'epi vert et du grain sec soit jugee accept:\.ble par le consommateur\. La recherche resterait axee sur la production de variates synthetiques, non d'hybrides, et porterait au premier chef sur les plants a cycle court\. L'in troduction initiale et la mise a l'essai du stock genetique, ainsi que toutes les activites d'hybridation devraient ~tre effectuees a Nioro du Rip\. D'au tres travaux sur les varietes, tels que de nouveaux essais de rendement, se lection et pointage pour identifier le degre de resistance aux maladies et aux  - 27 insectes, devraient avoir lieu a Darou, Sintiou Malem, Kolda (Sefa), Bambey, a Fanaye dans des zones irriguees, et dans les differents PAPEM, ainsi que dans les exploitations, par les equipes chargees des systemes de production\. Un pro bleme immediat qui se pose a l'exploitant senegalais est celui de la mouture\. II semble que Ie mais ne puisse ~tre aussi facilement broye que d'autres ce reales\. Un specialiste postrecolte, membre du groupe de recherche d'appui, en cooperation avec l'equipe chargee de l'amelioration du mais et l'Institut de technologie alimentaire (ITA), devrait poursuivre la recherche sur l'entre posage et la preparation alimentaire\. 2\.24 Programme de recherche sur la riziculture\. Le programme de recherche proposE; permettrait de renforcer et d'etayer ceux qui existent deja\. Les deux principales regions rizicoles au Senegal etant tres loin l'une de l'autre et situeeB dans des zones ecologiques differentes, on propose que deux groupes distinets de chercheurs collaborent en equipe a la realisation d'un programme national de recherche sur la riziculture sous la direction d'un seul coordon nateur\. Au debut, l'objet principal du travail de ces deux groupes serait la production de varietes reagissant bien aux engrais, possedant un potentiel de rendemunt eleve, une excellente resistance aux maladies, aux insectes et aux oiseau>:, et dont la qualite des grains serait bonne\. La recherche sur la fer tilite des sols, la gestion des sols et de l'eau, et les pratiques culturales serait confiee au groupe travaillant sur les systemes d'exploitation dans cha cune dl! ces regions\. 2\.25 Programme de recherche sur Ie niebe\. Le programme de recherche sur Ie niebe serait renforce grace a la formation d'une equipe multidisciplinaire a Bamb,~y aidee par des techniciens confirmes bases a Fanaye et Louga\. Cette equipe se consacrerait a la production de varietes a haut rendement se pr~tant a la culture intercalaire ou pouvant ~tre cultivees seules, possedant une resistance suffisante aux maladies et a certains insectes ou pouvant ~tre pro tegees par d'autres mesures de contrOle et dont la qualite pourrait ~tre ac ceptee par les consommateurs\. Pour ce dernier aspect de la recherche, cette equipe collaborerait avec l'Institut de technologie alimentaire (ITA)\. Ce pro gramme comprendrait des recherches sur Ie rhizobium\. Toutes les activites re lati ve~3 a l'introduction du stock genetique et a I' hybridation s I effectueraient a Bambey, la selection et les essais de varietes etant conduits a la fois a Bambey et Nioro du Rip, de m~me quia d'autres stations experimentales dans les reqions de culture du niebe\. 2\.26 Programme de recherche sur l'arachide\. Ce programme est essentiel lement Ie prolongement des activites actuellement entreprises, dont l'aspect selection serait desormais renforce\. La t~che principale de l'equipe de re cherche sur l'arachide seraH d'essayer d'introduire un nouveau stock geneti que, de creer de nouvelles lignees et de les mettre a l'essai sur Ie terrain pour determiner leur adaptation a l'environnement, leur resistance aux maladies et aux insectes, la qualite de l'arachide d'huilerie et de l'arachide de table ainsi que ses qualites organoleptiques\. Une attention particuliere devrait ~tre consacree au probleme de l'aflatoxine et aux questions auxquelles il  - 28 faudrait trouver des reponses, telles que: itA quai est due la formation du champignon?"; "comment peut-on l'empecher?" et "existe-t-il des sources de re sistance dans la collection mondiale des stocks genetiques d'arachides?" La recherche agronomique sur les pratiques culturales susceptibles de reduire l'aflatoxine et l'infestation par la rouille devrait etre entreprise par l'equipe de recherche sur les systemes de production et Ie microbiologiste pro venant du groupe de recherche d'appui a Bambey\. Un specialiste postrecolte ferait partie de l'equipe de recherche sur l'arachide pour traiter du probleme de l'aflatoxine en etroite collaboration avec l'Institut de technologie alimen taire (ITA) et les equipes chargees des systemes de production\. La recherche sur la physiologie des plantes aurait pour objet de trouver des moyens d'aug menter la production\. L'etude pourrait porter, par exemple, sur les diffe rences de sensibilite a la secheresse d'une lignee a l'autre et sur la selec tion de certaines lignees pour leur tolerance a un environnement plus sec\. La recherche sur les rhizobia aurait egalement une place importante dans Ie programme\. Services d'appui 2\.27 En vertu du projet, toutes les stations de recherche et les labora toires centraux seraient regroupes sous l'egide d'un seul Departement des ser vices d'appui, qui serait encore renforce par les services suivants : a) Une Unite de formation et de perfectionnement du personnel\. Ce ser vice permettrait d'identifier, de recruter, de former et de placer Ie personnel senegalais necessaire\. II jouerait Ie rOle de coordonna teur general de toutes les activites de formation du personnel tant a l'exterieur qu'a l'interieur du pays et serait egalement charge de la preparation des groupes de travail annuels\. Le passage d'une ap proche unidisciplinaire a une approche multidisciplinaire et la crea tion d'equipes nationales de chercheurs orientant leurs travaux vers la solution des contraintes de production exigent que l'on procede avec soin a la definition des besoins en personnel scientifique et que l'on fasse coincider ces besoins avec les possibilites de for mation disponibles\. Un calendrier serait etabli pour Ie perfection nement systematique du personnel de recherche agricole, notamment des techniciens\. Ce calendrier tiendrait compte des priorites a accorder aux disciplines de recherche dont depend Ie plus l'accele ration des programmes de developpement\. b) Une Unite d'appui technique (SAT)\. En vertu du projet, ce service i) servirait d'intermediaire entre l'ISRA et l'architecte maitre d'oeuvre, ii) s'occuperait de la passation des marches, et iii) ~ta blirait les previsions concernant les contrats et la supervision pour l'entretien de l'ensemble des installations materielles\. A long terme, ce service introduirait et mettrait au point les plans d'agrandissement des stations de recherche\. On en trouvera Ie man dat a l'Annexe 2\. II serait place au sein du bureau de liaison per manent de l'ISRA a Dakar\.  - 29 c) Une Unite de documentation et de publication\. Tous les rapports et les publications scientifiques, techniques et annuels de l'ISRA se raient coordonnes et publies par l'intermediaire de ce service, qui serait en outre charge de la bibliotheque centrale (15 000 volumes)\. d) Une Unite d'informatigue et de statistigues\. Les chercheurs se ver raient confier l'analyse des experiences courantes mais pour toute experience complexe necessitant l'interaction de fonctions et l'uti lisation de modeles mathematiques, ils devront recevoir des direc tives en matiere de i) conception de l'experience (biometrie), ii) collecte de donnees, et iii) presentation de ces donnees pour traitement par ordinateur\. Le service devant ~tre cree au titre du projet serait dote d'un personnel hautement qualifie qui pr~te rait egalement son concours pour la recherche oceanographique et forestiere, laquelle n'est pas comprise dans Ie projet propose\. L'ordinateur du CROOT serait utilise pour Ie traitement informa tique dans Ie cadre de la premiere phase du projet\. Les operations autofinancees telles que celles qui ont trait a la production de semences, de vaccins et a l'amelioration des troupeaux seraient egalement pla cees sous la direction du Oepartement des services d'appui\. Renforcement du siege de l'ISRA 2\.28 Le siege de l'ISRA serait renforce par la creation des services suivants a) Une Unite de suivi et d'evaluation dirigee par un conseiller confirme pour la recherche sur la planification et l'evaluation, qui serait charge: i) d'etablir au sein de l'ISRA un systeme uniforme permet tant avec efficacite de planifier, d'orienter, d'evaluer, de realiser une gestion globale de la recherche, ii) de creer et d'exploiter un systeme de suivi et d'evaluation des projets, iii) d'entreprendre chaque annee un examen interne et de participer a l'examen externe (par\. 2\.03) de tous les programmes de recherche de l'ISRA pour en ve rifier l'ordre de priorite, Ie bien-fonde sur Ie plan technique et l'etat d'avancement, iv) de preparer des rapports d'activites trimes triels et un rapport d'achevement du projet suivant des directives qui doivent ~tre jugees acceptables par l'IOA, et v) de servir de secretariat pour Ie Comite scientifique et technique du Conseil d'administration\. b) Une Unite de contrale de gestion dirigee par un analyste financier confirme qui serait charge i) d'instaurer un systeme de comptabilite analytique efficace permettant l'etablissement et Ie contrOle des budgets par programme, ii) d'assurer la verification interne des comptes, et iii) de gerer Ie financement de l'ISRA\.  - 30 c) Une Unite de macroeconomie chargee de l'analyse de la politique agricole\. II comprendrait trois specialistes du marketing et un economiste specialise dans l'analyse des prix et de la repartition des revenus, et un economiste specialise dans l'economie des res sources et l'analyse des investissements\. Ce service effectuerait des travaux de recherche sur la politique, les prix, la commerciali sation et les echanges dans Ie secteur agricole\. II devrait en par ticulier : i) etudier si Ie systeme de stimulants dont beneficient les agriculteurs et les eleveurs est approprie, en procedant a des analyses de repartition des revenus, a des examens periodiques du prix des facteurs de production, et du prix a la production, ainsi qu'a des etudes d'elasticite retrospectives; ii) effectuer des etudes de marche sur les cultures d'exportation possibles (riz et arachides de confiserie), les cultures destinees au marche interieur (riz, mais, mil et sorgho) et les possibilites d'introduction de nouvelles cultures (epices, noix de cajou); et iii) analyser l'ef ficacite des circuits de commercialisation et en particulier ~eter miner que lIe est la marge de commercialisation appropriee\. Effectifs 2\.29 Le projet prevoit d'employer 88 chercheurs, 22 administrateurs prin cipaux, 184 autres techniciens scientifiques et 407 membres des services admi nistratifs et de soutien en neuf emplacements differents (Tableau 2\.1 et An nexe 3); 17 d'entre eux feraient partie du personnel cle : Ie Directeur general de l'ISRA (directeur du projet), Ie chef du bureau de contr61e de gestion, Ie conseiller principal pour la planification et l'evaluation de la recherche, l'agent comptable particulier, les chefs des trois Departements : Recherche produits, Recherche Systeme de production, et Services d'Appui; Ie titulaire du poste d'agronome principal du Departement de la Recherche Produits, Ie spe cialiste de l'analyse des systemes, Ie specialiste des systemes d'exploitation agricole, Ie specialiste des systemes de production animale, Ie sociologue "systemes ll et l'economiste specialiste des systemes de production du Groupe central d'analyse des systemes, Ie responsable de la liaison avec la recherche d'appui, l'architecte/planificateur chef du service d'appui technique, Ie sta tisticien/biometre, chef du bureau d'informatique et de statistiques, et Ie coordonnateur du Projet\. Les autorites senegalaises ont donne l'assurance que Ie personnel cle du projet possede des qualifications et une experience jugees acceptables par l'IDA\. On trouvera a l'Annexe 1 la description detaillee de leur mandat\. Une des conditions de l'entree en vigueur du credit serait la nomination du personnel suivant : Ie chef du bureau du contr61e de gestion, Ie conseiller principal pour la planification et l'evaluation de la recherche, les trois chefs des departements de la recherche systemes et produits, et des services d'appui, l'architecte/planificateur, et Ie coordonnateur du Projet\. Au cours des negociations, on a obtenu l'assurance que Ie personnel cle serait nomme pour trois ans au moins afin d'assurer la continuite necessaire a la bonne execution du projet\. Au cours de la periode d'execution du Projet, les  - 31 11 programmes de recherche du projet auraient, pour ce qui est des besoins en personnel et en ressources budgetaires de fonctionnement, priorite sur toute activite en cours ou future de recherche dans les domaines de l'agriculture et de l'elevage\. Au cours des negociations, on s'est mis d'accord sur Ie nombre de cadres a nommer et sur les affectations budgetaires necessaires au Projet\. 2\.30 Huit des 17 postes de cadres cles ne pourront probablement pas ~tre pourvus par des candidats senegalais; six cadres seront fournis par l'assis tance technique fran9aise, un par l'USAID, et deux autres seraient recrutes sur Ie marche international (l'architecte/planificateur et Ie statisticien/biome triste)\. D'autres cadres scientifiques expatries seraient fournis par l'assis tance :echnique fran9aise, l'USAID et la FAO/CILLS (Comite interetats de lutte contre la secheresse dans Ie Sahel) 10 autres seraient recrutes sur Ie marche international\. La reunion des bailleurs de fonds tenue en septembre 1980 a permis de regler les problemes d'affectation du personnel de recherche\. Formation 2\.31 Le projet prevoit de nommer a tous les postes de chercheur des spe cialistes du niveau de la malt rise ou du doctorat es sciences\. Au depart, la majorite des chercheurs seraient des expatries\. Quarante-huit bourses de formation du niveau malt rise de sciences seraient offertes au total, ce qui permet':rait de pourvoir la plupart des postes scientifiques par des Senegalais lors de l'achevement du projet\. Toutefois, pour ameliorer encore la qualite des chercheurs, 15 specialistes senegalais recevraient une formation du niveau du doc:orat au cours de la cinquieme et de la sixieme annees du projet\. Leur poste continuerait d'~tre pourvu par\. des expatries\. Le projet n'inclut qu'une a deux annees de ce programme de formation au niveau du doctorat\. Le Gouver nement cherchera, Ie moment venu, a rassembler les fonds necessaires pour comple:er ce programme de formation\. On prevoit la presence simultanee pendant une annee entiere du chercheur senegalais ayant termine sa formation et de son predecesseur expatrie au meme poste\. Des fonds ont ete prevus pour l'organi sation de groupes de travail, de seminaires et de conferences de formation, tant au Senegal quia l'etranger, pour un coOt de base annuel de 1 900 dollars par cher~heur senegalais\. Enfin, 20 bourses de 12 100 dollars chacune (au coOt de base) ont ete prevues pour la formation en gestion du personnel administra tif et scientifique de niveau superieur\. Les besoins de formation seraient reexamines chaque annee par la Direction de l'ISRA, Ie Comite scientifique et technique du Conseil d'administration et Ie Groupe consultatif pour la recher che agricole au Senegal\. Missions d'appui 2\.32 Le projet prevoirait 1,1 million de dollars (coat de base) pour 120 hommes-mois couvrant les missions d'appui de courte duree de consultants, dont 30 hommes-mois (300 000 dollars) seraient utilises pour aider Ie Comite technique et scientifique de l'ISRA (par\. 2\.03)\. Le reste - 90 hommes-mois (800 ODD dollars) - seraient consacres a i) des consultations specialisees fourni'3s a la demande des equipes de recherche, ii) de l'aide pour la passa tion des marches, iii) la preparation d'un projet de deuxieme phase\.  - 32 Tableau 2\.1 BESOINS EN CHERCHEURS (1981 a 1986) Postes de Hommes-annees Par programme : chercheurs Senegalais Expatries Total SYSTEMES DE PRODUCTION Bureau d'analyse systemes 5 10 25 35 Vallee du fleuve Senegal 7 19 24 43 Zone sylvo-pastorale 6 3/4 24 1/2 19 43 1/2 Region Centre-SuctLl 5 20 11 31 Haute Casamance 8 1/4 28 1/2 22 50 1/2 Basse Casamance 5 14 15 29 Total 37 116 116 232 RECHERCHE SUR LES PRODUITS Mil 5 3/4 27 3/4 7 34 3/4 Sorgho 3 13 8 21 Mais 3 1/2 13 1/2 8 21 1/2 Riz 7 29 20 49 Niebe 3 1/2 17 3 20 Arachides 8 1/4 27 3/4 25 52 3/4 Total 31 128 71 199 RECHERCHE D'APPUI 20 68 51 119 TOTAL 88 312/ 2 238/ 2 550/ 2 Par station Siege 10 20 45 65 Dakar-Hann (IEMVT) 5 11 16 27 Fanaye 13 44 36 80 Dahra 6 3/4 24 1/2 19 43 1/2 Bambey 19 1/2 97 30 127 Nioro du Rip 15 57 34 91 Kolda 8 1/4 28 1/2 22 50 1/2 Djibelor 10 1/2 30 36 66 TOTAL 88 312/2 238/ 2 550/ 2 /1 Region du Sine-Saloum\. /2 Presence simultanee pendant un an (48 hommes-annees) de chercheurs sene galais ayant termine leur formation et de chercheurs expatries\. Le ta bleau ne tient pas compte du personnel de niveau malt rise scientifique qui beneficierait de bourses de doctorat au cours de la cinquieme et de la sixieme annees du projet, ce qui porterait Ie nombre d'hommes-annees pour les expatries a 34 et diminuerait d'autant Ie nombre d'hommes-annees pour les senegalais\.  - 33 - Amenagement des stations de recherche et travaux de genie civil (Tableau 2\.2) 2\.33 Les travaux de genie civil comprennent la remise en etat des bAti ments des six stations de recherche, ainsi que la construction de 106 loge 2 ments (dont 15 a Richard Toll et Kaolack), 6 000 m de bureaux, laboratoires et bAtiments agricoles, 5 400 m 2 d'etables et de bergeries, un perimetre d'irrigation experimentale de 100 ha a Fanaye, et un centre de publication et de documentation a Saint-Louis, au futur siege de l'ISRA\. Deux tiers 2 2 (11 700 m ) de l'ensemble des travaux (17 500 m ) seront effectues a Fanaye et a Nioro du Rip\. Mobilier, materiel, vehicules, petit materiel aqricole et fournitures pour la recherche 2\.34 D'apres les chiffres recueillis au Senegal et dans d'autres pays, Ie mobilier et Ie materiel de bureaux et de laboratoire absorberaient respective ment 8 et 25 % du coat des travaux\. Un montant de 7 800 dollars (au coOt de base) est affecte a l'ameublement de chacun des logements\. Le projet prevoit de doter chaque station de recherche de tracteurs, de camions et de materiel agricole (Tableau 2\.2)\. Il est egalement prevu de renouveler les tracteurs et les camions tous les cinq ans\. La mobilite du personnel de recherche devrait ~tre assuree pour accrottre l'efficacite des travaux et promouvoir la recherche hors station\. Crest pourquoi 52 vehicules et 38 velomoteurs supplementaires seraient fournis, et les vehicules existants seraient remis en etat au cours des deux premieres annees du projet\. Le coot de base moyen du petit materiel agricole et des fournitures pour la recherche (engrais, pesticides, semences, carburant et pieces de rechange) directement destines aux programmes de re cherche convenus est estime a 220 000 dollars par an\. E\. Calendrier d'execution 2\.35 L'echelonnement des principales activites du projet est presente sous forme de graphique (Graphique BIRD 21579)\. Les programmes de recherche sur les produits commenceraient la premiere annee du projet puisqu'ils se ramenent au regroupement et au renforcement des programmes existants\. Les programmes concernant les systemes de production debuteraient a une echelle limitee des Ie milieu de la premiere annee grAce au transfert du personnel scientifique existant\. Le personnel scientifique supplementaire arriverait avant Ie milieu de la deuxieme annee, selon les disponibilites de logements\. Les travaux de genie civil seraient acheves au debut de la troisieme annee et la construction de logements prendrait Ie pas sur celIe d'autres bAtiments\. Bien qu'il soit prevu de lancer les divers programmes de recherche Ie plus tat possible, ils ne pourraient ~tre dotes de l'ensemble du personnel necessaire que progress i vement (Annexe 6)\. L'ISRA compte actuellement quelque 600 employes; Ie per sonnel auxiliaire et les agents des services generaux sont en surnombre\. lIs  - 34 seraient progressivement affectes aux activites du projet\. Les postes re serves au personnel d'appui et au personnel auxiliaire du projet ne seraient donc en principe pourvus que par mutations, aucun nouveau recrutement a ce niveau n1etant prevu dans Ie cadre du projet\. Ce point a ete confirme lors des negociations\. L'ensemble des effectifs necessaires passerait a environ 700 employes lors de la sixieme annee du projet en raison surtout d'un accrois sement du personnel de recherche specialise, notamment des techniciens confir mes et debutants\.  - 35 Tableau 2\.2 TRAVAUX DE GENIE CIVIL ET BESOINS EN MATERIEL 2 (en m et unites) Centres pour Services les services B§timents centraux/l de terrai~ LogementsL4 agricolesL 3 ----------------------------m2------------------------ ---(unites) TRAVAUX DE GENIE CIVIL Fanaye 1 050 418 1 250 3 309 (30) Dahra 1 349 (13) Bambey 232 70 Nioro du Rip 1 064 338 870 3 390 (28) Kolda 5 550/5 1 736 (19) Djibelor 120 350 1 840 (16) TOTAL 2 466 826 8 020 11 624 (106) Annee du projet 1 2 3 4 5 6 TOTAl /6 MATERIEL ---------------------------unites----------------------------- CamionH 1 6 2 1 1 11 (6) Tracteurs 7 10 2 1 20 (12) Cultivateurs 6 5 4 6 6 27 (12) Vehicules 15 61 30 19 55 25 205 (153) Velomoteurs 16 14 23 15 20 17 105 (67) Comprend : laboratoires, bureaux de recherche, administration, soutiens auxiliaires\. /2 Comprend: salles de preparation et de selection, entreposage des semences, bureaux pour la gestion de l'exploitation agricole et\.pour l'ingenieur meca nicien et l'entretien des b~timents\. /3 Comprend: cages grillagees, garages pour tracteurs, vehicules et materiel, ateliers, entrepOts d'engrais et de pesticides\. /4 Comprend: logements pour les chercheurs, les techniciens debutants et con firmes, chambres de passage, salle de recreation et infirmerie; nombre de logements indique entre parentheses\. /5 Comprend: parcs a betail et moutons 5 400 m , dont 1/3 avec toit, pas de 2 murs en dur, enclos ouverts seulement\. /6 Entre parentheses : equipement a remettre en etat compris\.  - 36 III\. COUT ET FINANCEMENT DU PROJET A\. Coats estimatifs 3\.01 Le coat total du pro jet pendant la periode d'execution de six ans, 1982-87, y compris les activites de recherche nouvelles et en cours serait, d'apres les estimations, de 28,6 milliards de francs eFA (106,1 millions de dol lars), dont une fraction en devises d'environ 52 %\. Ce coat est calcule hors impots directs et droits a 1 'importation puisque Ie Gouvernement senegalais a indique qu'il en accorderait l'exoneration\. Les estimations des coats de base se fondent sur les prix de janvier 1981\. Les provisions pour depassement des quantites sont de 10 % pour tous les coats d'equipement et de fonction nement, mais aucune provision n'est prevue pour Ie depassement des coats en personnel puisque les effectifs sont clairement fixes\. Les hausses de prix prevues pour toutes les depenses du projet sont cumulees au taux annuel suivant : Annee du ~rojet CoOt en devises CoOt en monnaie nation ale 1981 9 ~ ~ 10 ~ ~ 7 pour Ie ~ ~ 1982 8,5 % 10 ~ ~ 7 personnel ~ ~ 1983-85 7,5 % 10 % 7 % local 1986 6 ~ ~ 10 ~ ~ 7 ~ ~ Les augmentations totales de prix attendues s'elevent a 28 % de l'ensemble des coOts du projet, soit 39 % des coats de base\. On trouvera Ie detail de ces coOts a l'Annexe 2, Tableaux 1, 2 et 3, et une recapitulation de ces coOts au Tableau 3\.1\.  - 37 Tableau 3\.1 RECAPITULATION DES COUTS DU PROJET fraction Element r~onnaie Monnaie du cout du projet nationale Devises Total nationale Devises Total total Devises -(En millions de fCfA)- -(En millions de dollars) (:ll ) (%) Depenses d'inves tissement Travaux de genie civil et amena gement des sites 2,0 1,0 3,0 7,3 3,9 11,2 11 35 Vehicules et materiel 0,1 1,2 1,3 0,5 4,3 4,8 4 89 Autres depenses d'investis sement 0,2 0,3 0,5 0,9 1,1 2,0 2 54 Total 2,3 2,5 4,8 8,7 9,3 18,0 17 52 Depenses personnel de recherche Chercheurs et techniciens senega1ais 2,2 2,2 8,2 8,2 8 Chercheurs expatries 1,4 5,1 6,5 5,0 18,9 23,9 22 79 Total 3,6 5,1 8,7 13,2 18,9 32,1 30 59 Depenses de fonc tionnement Personnel d'appui 2,5 0,5 3,0 9,3 1,9 11,2 10 17 Cout de formation 0,2 0,6 0,8 0,6 2,4 3,0 3 80 Autres depenses de fonctionnement 0,6 1,6 2,2 2,2 6,0 8,2 8 73 Total 3,3 2,7 6,0 12,1 10,3 22,4 21 46 Remboursement de l'avance fournie au ti tre de la preparation du projet 0,2 0,1 0,3 0,6 0,4 1,0 1 35 Cout de base ~ 10,4 19,8 34,6 38,9 73,5 69 53 Provisions pour \.\' d\.epassements des _-t" \.,Z quantites 0,4 0,4 0,8 1,5 1,5 3,0 3 49 Hausses de coOt 4,0 4,0 8,0 14,8 14,8 29,6 28 50 prevues Cout total du proiet D,8 14,8 28,6 50,9 55,2 106,1 100 52  - 38 B\. Financement propose (Tableau 3\.2) 3\.02 II est propose d'accorder au Gouvernement senegalais un credit de l'IDA de 19,5 millions de dollars aux conditions habituelles, afin de financer 19 % des coats du projet\. Soixante-et-onze pour cent du coat de tous les travaux de genie civil seraient ainsi defrayes, y compris l'ensemble des hono raires des architectes et des frais relatifs a l'amenagement des terrains et a la supervision des travaux, Ie coat de vehicules, du materiel et des fourni tures pour la recherche, Ie coat de deux cadres expatries cles (par\. 2\.30, 10 chercheurs expatries et chercheurs d'appui (par\. 2\.30 et 2\.32) ainsi que la formation des gestionnaires de la recherche (par\. 2\.31), et les revisions comp tables annuelles (par\. 3\.09)\. Le montant total de 73,2 millions de dollars doit ~tre finance par l'exterieur\. Les engagements pris par divers bail leurs de fonds representent 53,7 millions de dollars\. La France continuerait a tenir ses engagements de financement au niveau annuel actuel et contribue rait 35,3 millions de dollars au projet, dont une partie so us forme de dons, l'autre sous forme d'assistance technique\. Les fonds octroyes par la France devraient etre disponibles d'ici a octobre 1981, pour la premlere annee d'execution du projet\. La contribution de l'USAID serait de 12,8 millions de dollars par Ie biais de quatre projets : i) Ie Pro jet de recherche agricole de l'O~lVS (3,6 millions de dollars), ii) Ie Projet de developpement integre de la Casamance (2,2 millions de dollars), iii) Ie Projet de recherche et de plani fication agricoles au Senegal (4,3 millions de dollars) et iv) Ie Projet PL480 Titre III (2,7 millions de dollars)\. Le projet i) est a un stade preli minaire de preparation, et les conditions prealables au decaissement initial de ce don de l'USAID devront ~tre remplies pour que les retraits de fonds af ferents aux travaux finances par Ie Credit IDA a Richard Toll et a la station de Fanaye soient autorises\. Les conditions de financement des projets (iii) et (iv), qui representent au total 7 millions de dollars, doivent ~tre encore precisees entre l'USAID et Ie Gouvernement senegalais\. Une des conditions de l'entree en vigueur du credit de l'Association est que les conditions prea lables au decaissement initial de ces deux dons de l'USAID soient remplies\. Un accord a ete conclu avec la FAO/CILSS pour l'octroi d'un don de 3,5 mil lions de dollars en faveur d'un projet de protection des plantes qui fait par tie d'un projet regional plus vaste, principalement finance par l'USAID\. Une des conditions d'entree en vigueur du credit est la confirmation que ces fonds seront mis a la disposition du projet\. Un montant de 1 million de dol lars a ete accorde par l'UNIFSTD (Fonds interimaire des Nations Unies pour la science et la technique au service du developpement)\. II couvrirait Ie coat de la construction et Ie budget de fonctionnement du\.Centre du documentation de Saint-Louis pendant deux ans (par\. 2\.27 et 2\.33), 7,5 mois de services de consultants independants pour renforcer Ie Comite scientifique et technique de l'ISRA (par\. 2\.03 et 2\.32) et 13 bourses de formation a la gestion (par\. 2\.31)\. Les conditions prealables au decaissement initial du don de l'UNIFSTD devront etre remplies pour que Ie Credit de l'IDA puisse entrer en vigueur\. L'Association fera fonction d'organe de cooperation pour Ie don de l'UNIFSTD\. L'apport de\.l'ADRAO et de l'ICRISAT - 1,1 million de dollars - permettrait de  - 39 financer les services de scientifiques expatries\. L'ensemble du financement exterieur s'eleverait a 73,2 millions de dollars soit 69 % des coOts totaux et servirait a defrayer 100 % des coOts en devises (55,2 millions de dollars) et 35 % des coOts en monnaie nationale\. Le Gouvernement accorderait 32,9 % de dollars pour Ie financement de 10 % de tous les travaux de genie civil de l'ensemble du personnel local, des depenses initiales de 20 % des fournitures pour la recherche, et de 50 % des depenses de fonctionnement\. Au cours des negociations, Ie Gouvernement senegalais s'est engage officiellement a liberer chaque annee les ressources budgetaires necessaires pour couvrir sa contribu tion\. Le plan de financement est presente en detail a l'Annexe 4, Tableaux (v) a (xi)\. Au cours des negociations, Ie Gouvernement a donne l'assurance que Ie firancement du projet prendra Ie pas sur d'autres activites de l'ISRA\.  - 40 Tableau 3\.2 FINANCEMENT PROPOSE DU PROJET USAID ICRISAT Total IDA UNIFSTD FRANCE USAID (FAO/CILSS) WARDA GOS --------------------(en millions de dollars)------------------ Travaux de genie civil et amena~ent des site * 12,5 8,7 0,1 2,2 0,1 1,4 Vehicules L!\. materiel * 5,3 0,2 3,4 1,3 0,4 Autres depenses d'in/~stisse- ment\.L:\. 2,2 1,1 1,1 Chercheurs et techniciens senegalais 8,2 0,1 8,1 Chercheur et consultants expatries 23,9 2,7 0,1 15,6 3,2 1,5 0,8 Personnel d'appui 11,2 0,7 1,7 8,8 CoOts de for,ationL\.: 3,3 0,1 0,2 1,6 1,3 0,1 Audi 1:\.!!\. 0,4 0,4 Autres coats de fonctionnement / * 8,5 0,4 2,7 1,4 0,3 3,7 Remboursement de l' avance pour preparation du projet 1,0 1,0 Imprevus (hausse des prix) 29,6 4,6 0,2 10,3 3,4 1,0 0,3 9,8 Total 106,1 19,5 1,0 35,3 12,8 3,5 1,1 32,9 Pourcentage 100 19 1 33 12 3 1 31 1* Provisions pour depassement de quantites comprises\.  - 41 3\.03 L'existence de liquidites suffisantes est un facteur qui influence fortement Ie rythme d'execution des projets et par consequent Ie rythme de decaissement du credit de l'IDA\. Au cours des negociations, il a ete decide que l'rSRA ouvrirait un compte du projet ou serait depose un acompte de 30 mil lions de francs CFA (Ill 000 dollars) preleve sur les fonds de l'Etat, qui ser virait de caisse d'avance pour financer les depenses du projet\. Ce fond serait reconstitue par les autorites senegalaises des la presentation par l'ISRA des docume~ts prouvant que les paiements effectues par tirage sur cette caisse etaient necessaires a l'execution du projet\. L'entree en vigueur du credit de l'IDA aerait subordonnee a l'ouverture de la caisse d'avance ou l'acompte au rait ete depose\. C\. Dispositions financieres et incidences budqetaires 3\.04 Le projet aete evalue en fonction de son coat global pour bien faire ressortir que Ie credit de l'IDA, tout en etant essentiellement destine a l'infrastructure, appuie des programmes de recherche entiers\. Les pro grammes de recherche envisages constituent une extension ou une reorientation des activites actuelles de l'ISRA, mais il ne couvre pas toutes les operations de l'Ilstitut (par\. 1\.20)\. Dans les activites figurant au programme de l'an nee zero du projet, celles qui ont trait au projet sont financees par l'Etat, dont Is contribution s'eleve a 1 milliard 117 millions de francs CFA (4,1 mil lions de dollars), et par d'autres bailleurs de fonds, qui financent un mon tant de 1 milliard 197 millions de francs CFA (4,4 millions de dollars) (An nexe 4, Tableau xiv)\. Si l'Etat continuait a financer ces activites, il lui en coCterait 9 milliard 368 millions de francs CFA (34,7 millions de dollars) pendant la periode d'execution du projet\. "Avec" Ie projet, la participation de l'Etat diminuerait de 488 millions de francs CFA (1,8 million de dollars) aux prix courants\. Les depenses annuelles de fonctionnement par chercheurll passeraient de 11,7 millions de francs CFA (43 300 dollars, par\. 1\.24) a 13,2 millions de francs CFA (49 900 dollars) aux prix de 1980\. Au cours de la periode d'execution du projet Ie coat total du personnel auxiliaire et du personnel des services generaux diminuerait de 22 %\. Avec la decentralisation de la recherche, cette reduction pourra ~tre obtenue grace aux mutations in ternes de personnel et gr§ce a une meilleure gestion\. De ce fait, les credits budgetaires alloues par l'Etat au titre de la remuneration des agents locaux serviront de plus en plus a couvrir les depenses de personnel liees aux cher cheurs senegalais ayant acheve leur formation\. La participation de l'Etat au projet a ete calculee de fag on a maintenir l'enveloppe budgetaire de la re cherche a environ son niveau actuel, qui semble satisfaisant par rapport a d'autres pays\. Cela presuppose que la communaute internationale continuera, comme elle l'a fait jusqu'a present, a apporter son concours dans ce domaine\. 1/ Non compris les depenses de formation, mais y compris la remuneration des techniciens\.  - 42 3\.05 Les coats additionnels du projet s'elevent au total a 9 milliard 356 millions de francs CFA (34,7 millions de dollars, Annexe 4, Tableau xiv)\. Ces coats comprennent tous les investissements d'infrastructure, le coOt des chercheurs expatries supplementaires, du programme de formation, des revisions comptables annuelles et les depenses de fonctionnement du Centre de documenta tion et de publication\. La participation globale de la France aux activites de l'ISRA augmenterait legerement, de 92,6 millions de francs eFA (300 000 dol lars) aux prix courants pendant la periode d'execution du projet, mais cette aide serait de plus en plus destinee a financer les services de chercheurs ex patries et de l'equipement, au lieu d'alimenter le budget de fonctionnement de l'Institut\. D\. Passation des marches et decaissements 3\.06 La passation des marches de travaux de genie civil finances par l'IDA, qui representent environ 10,3 millions de dollars, s'effectuerait a l'issue d'un appel d'offres international conformement aux directives de l'IDA\. L'appel d'offres donnerait la possibilite de soumissionner pour des lots ou tout le marche, etant donne que les travaux a executer sont simples et rela tivement peu importants, et que les chantiers seront disperses\. Les marches de travaux de genie civil, d'un montant inferieur a 100 000 dollars, pourront ~tre adjuges par voie d'appel a la concurrence locale, leur valeur globale ne pouvant cependant exceder 1 million de dollars\. Les plans d'architecture, la preparation des documents d'appels d'offres et la supervision des travaux (pour un coat total estimatif de 1,7 million de dollars) ont ete confies a un bureau d'architectes-conseils agree par l'IDA\. Le personnel (pour un coat estimatif de 4,4 millions de dollars) ainsi que les bourses de formation (coat estimatif 400 000 dollars), les reviseurs-comptables (pour un coOt estimatif de 700 000 dollars) recrutes sur le marche international seraient engages confor mement a des procedures jugees acceptables par l'IDA\. L'appel d'offres local pour les marches atteignant au maximum 100 000 dollars chacun seraient autori ses pour les vehicules et le materiel (coot estimatif : 600 000 dollars) et le petit materiel agricole ainsi que pour les fournitures destinees a la re cherche (coOt estimatif : 1,4 million de dollars)\. Les marches pour les biens, dont le coat estimatif est inferieur a 30 000 dollars, peuvent ~tre passes apres demandes de prix, aupres de trois fournisseurs au moins\. 3\.07 Une documentation complete serait fournie a l'appui de toute demande de retrait au titre du credit de l'~DA, dont on trouvera le tableau des decais sements a l'Annexe 4, Tableau xiii\. Les fonds du credit de l'IDA seraient de caisses de la fa90n suivante : Categorie I : Travaux de genie civil, 86 % des depenses totales (9,3 millions de dollars);  - 43 - Categorie II Vehicules et materiel, 100 % des coOts en devises et 90 % du coOt en monnaie nationale (500 000 dollars); Categorie III Petit materiel agricole et fournitures pour la recherche 100 % du coOt en devises et 90 % du coOt en monnaie nationale (1,3 million de dollars); Categorie IV Personnel expatrie honoraire des reviseurs-comptables et des architectes, 100 % des depenses totales (4,2 millions de dollars); Categorie V formation, 100 % des depenses (300 000 dollars); Categorie VI Remboursement de l'avance accordee au titre de la pre paration des projets (1 million de dollars); Categorie VII: Non affecte (2,9 millions de dollars)\. 3\.08 Le Ministre des finances a confirme par une lettre que les biens et services finances au titre du projet seraient exoneres des droits a l'impor tation et taxes\. E\. Comptes et revisions comptables 3\.09 Le Departement administratif et financier de l'ISRA tiendrait la comptabilite de l'organisation conformement a des pratiques saines de compta bilite afin d'enregistrer les operations et la situation financiere du projet\. Le Buroau du contrOle de gestion etablirait un systeme de comptabilite ana lytiquo et de preparation du budget efficace\. Tous les comptes et etats fi nancie)~s de l'ISRA feraient l' objet d ' une revision annuelle\. Le reviseur comptable aiderait aussi Ie Bureau de contrtHe et de gestion a elaborer un projet de systeme de comptabilite analytique par programme de recherche et par service\. Ce projet serait soumis au comite directeur de l'ISRA et au Groupe consultatif pour un echange de vues et separement a l'IDA pour approbation avant le 31 mars 1982\. Le projet ayant ete approuve, l'ISRA soumettrait la propos Ltion au Conseil des Gouverneurs pour approbation, et l'ISRA commencerait ensuite l'execution du projet approuve avant Ie ler juillet 1982\. Le premier exercice de l'ISRA soumis a audit serait celui qui se termine Ie 30 juin 19811\./ et Ie l?apport d'audit serait soumis a l'IDA au plus tard Ie 31 mars 1982\. Au cours des negociations, Ie Gouvernement a donne l'assurance que a) les comptes 1/ A partir du ler janvier 1982, l'exercice budgetaire de l'ISRA s'etendrait du ler janvier au 31 decembre au lieu du ler juillet au 30 juin\.  - 44 de l'ISRA seraient verifies par des reviseurs-comptables independants juges acceptables par l'IDA, qui seraient nommes avant l'entree en vigueur du cre dit et dont Ie mandat, les qualifications et l'experience seraient juges ac ceptables par l'IDA, b) Ie rapport des reviseurs-comptables serait soumis a l'IDA dans les six mois qui suivraient la fin de l'exercice financier de l'ISRA, et c) Ie rapport des reviseurs-comptables aurait la portee et les precisions que l'IDA pourrait raisonnablement demander, et comprendrait no tamment une declaration indiquant si les fonds de l'lDA ont effectivement ete utilises aux fins pour lesquelles ils avaient ete accordes\.  - 45 IV\. ORGANISATION ET GESTION A\. Direction genera Ie 4\.01 Le Directeur general de l'ISRA assumerait la charge de l'ensemble de llexecution du projet\. II serait aide par deux comites du Conseil d'adminis tration : a) Ie Comite scientifique et technique, et b) Ie Comite de gestion (par\. 2:\.02)\. Pour renforcer la direction, trois Unites fonctionnelles y seraient adjointes : a) I' Unite du contra Ie de gestion, b) l'Unite d'eva luation et de suivi et c) llUnite de macroeconomie (par\. 2\.28)\. Pour la ges tion journaliere du projet, il deleguerait la plus grande partie de ses pou voirs aux trois chefs des departements suivants : a) Recherche "produits", b) Recherche sur les systemes de production et c) Services d'appui\. Deux Uni tes fonctionnelles seraient creees pour aider les chefs de departement de la recherche a s'acquitter de leurs taches: a) l'Unite fonctionnelle de recher che sur les produits (par\. 2\.20), et b) Ie Groupe central d'analyse des sys temes (par\. 2\.18), la recherche d'appui etant confiee au Departement de la recherche sur les systemes de production (par\. 2\.19)\. Toutes les stations de recherche, les laboratoires centraux et autres services dlappui decrits au paragraphe 2\.27 seraient diriges par Ie chef du departement des services dlappui\. On trouvera au graphique 21580 de la BIRD les details de la nouvelle organi:3ation de l'ISRA\. 4\.02 La publication dlun decret officiel portant creation de la nouvelle structure administrative de l'ISRA serait une des conditions d'entree en vi gueur du credit\. Une fois par an, llISRA reexaminerait avec Ie Groupe consul tatif I:!t l'IDA son nouvel organigramme et l'efficacite de sa gestion, et in troduirait les modifications appropriees a I' organigramme, aux reglements et aux principes techniques, slil y a lieu\. Le Gouvernement senegalais a decide de transferer Ie siege de l'ISRA de Dakar a Saint-Louis\. Au cours des nego ciatiolls, des assurances ont ete donnees selon lesquelles l'ISRA maintiendrait un bureau de liaison permanent a Dakar\. 4\.03 Programmation et coordination de la recherche\. La recherche multi disciplinaire necessitant une programmation et une coordination attentives, un cherch3ur par equipe de recherche serait nomme coordonnateur du programme\. II aurait pour mandat de preparer et de presenter en cooperation avec ses col legues Ie programme annuel de recherche, Ie budget du programme et Ie rapport annuel\. En outre, il serait charge de la coordination journaliere du travail et du contrale du budget\. Les coordonnateurs des programmes seraient places sous l'autorite directe des chefs de departement\. On trouvera a l'Annexe I Ie mandat detaille dlun coordonnateur de programme de recherche\. Dans chaque departement de recherche, une unite fonctionnelle de chercheurs experimentes serait chargee d'elaborer les criteres relatifs aux programmes de recherche et d'aider les coordonnateurs des programmes a preparer leur rapports et leurs programmes de recherche annuels\.  - 46 4\.04 Les programmes et budgets de recherche seraient soumis a un examen interne au sein de groupes de travail organises chaque annee et animes par le Conseiller principal pour l'evaluation et la planification de la recherche, avec la participation de l'ensemble du personnel de recherche de l'ISRA\. Par la suite, les programmes et budgets seraient examines par le Comite scienti fique et technique avant d'~tre presentes par le Directeur general de l'ISRA au Conseil d'administration pour approbation\. Les reunions du Groupe consul tatif sur la recherche agricole au Senegal pendant lesquelles seraient examines le programme propose et la coordination de son financement, devraient de pre ference avoir lieu au m&me moment que les examens internes et externes qui viennent d'~tre decrits (par\. 2\.03)\. 4\.05 Au cours des negociations, des assurances ont ete donnees selon les quelles a) le Directeur general de l'ISRA introduirait i) avant le 31 decembre 1981, un systeme d'etablissement des rapports sur les projets, comprenant des rapports d'avancement trimestriels et des rapports scientifiques annuels; et ii) avant le 31 janvier 1982, un systeme de suivi et d'evaluation du projet, ces deux systemes devant &tre proposes par la direction de l'ISRA et examines par l'IDA; b) la direction de l'ISRA etablirait et transmettrait a l'IDA pour approbation, quatre mois au plus tard avant la fin de l'exercice budgetaire de l'ISRA, son budget et programme de travail annuels, apres avoir effectue l'exa men interne et externe vise aux paragraphes 2\.03 et 4\.04; et c) dans les six mois qui suivent la date de c15ture du credit propose, l'ISRA etablirait un rapport d'achevement du projet\. Le projet de budget annuel presenterait une ventilation par programme de recherche, ainsi que des listes de l'ensemble des vehicules, du materiel et des fournitures necessaires a la recherche dont l'ac quisition est envisagee pour le projet l'annee suivante\. Le premier budget porterait sur la periode allant du ler juillet 1982 au 31 decembre 1982 et serait soumis a l'IDA pour approbation le 31 mars 1982 au plus tard\. B\. Direction des stations de recherche 4\.06 La direction des stations de recherche aurait pour principale fonc tion de veiller a fournir les meilleurs conditions mat~rielles et services d'appui possibles pour pourvoir tirer profit au maximum des chercheurs haute ment qualifies de la station\. Cette fonction prend encore plus d'importance dans les projets de recherche multidisciplinaire coordonnes qui sont nettement axes sur les activites de terrain\. Le bureau de direction de la station de recherche a principalement pour but de repondre aux besoins des chercheurs\. Ses taches comprennent : l'entretien des batiments e~ des terrains, l'en tretien et la reparation du materiel, le fonctionnement et l'entretien des reseaux de drainage et d'irrigation, la preparation des sols, le soin des cul tures, l'aide necessaire pour l'ensemencement et la recolte sur les parcelles experimentales, le soin des animaux, la production de semences et d'aliments pour les animaux, ainsi que d'autres services prescrits par les autorites com petentes\. On trouvera au graphique BIRD 21578 plus de details sur l'organi gramme type d'une station de recherche\.  - 47 4\.07 Selon la tail Ie de la station experimentale ainsi que l'ampleur et la complexite de ses programmes de recherche, la direction de la station serait confiee soit A un directeur, soit a un chef d'exploitation\. Le directeur serait generalement un chercheur qualifie qui serait aide par un chef des services techniques et un chef des services administratifs et financiers\. Celui-ci dirigerait egalement Ie pool des secretaires du personnel de recherche\. Dans les petites stations (Dahra et Kolda), un chef d'exploitation (du niveau tech nicien confirme) serait generalement charge de la gestion de l'exploitation agricole, aide par un chef comptable; Ie coordonnateur des programmes de recherche affecte a ces stations aurait Ie rOle de directeur de station\. Le directeur de station serait habiUte a autoriser les depenses a hauteur des fonds inscrits au budget general de la station experimentale (operations gene rales d'agriculture, entretien, etc\.); il serait charge de veiller a ce que les fonds prevus au budget de recherche des programmes coordonnes a sa station soient repartis conformement au budget officiel\. Comme Ie budget d'un programme coordonne est etabli par les chercheurs du projet et que ces fonds sont expres sement accordes pour la realisation des programmes de recherche du projet, Ie directeur n'aurait pas Ie pouvoir de les imputer a un autre programme ou pro jet, au d'interdire qu'ils soient depenses aux fins pour lesquelles ils figu rent au budget\. On trouvera a l'Annexe I des precisions sur les qualifications et responsabilites requises du directeur de station\. C\. Travaux de genie civil 4\.08 Un cabinet d'architectes/maltres d'oeuvre a ete engage en accord avec l'IDA pour etablir les plans de construction des batiments et d'amenage ment des sites, les calendriers d'execution, les documents d'appels d'offres et de marl::hes pour entreprendre I' analyse des offres, fournir des conseils sur l'attribution des marches, et surveiller les travaux\. Le chef de l'Unite d'ap pui te::hnique seraH charge de la supervision des architectes et etablirait une liaison etroite avec les chercheurs en ce qui concerne la conception des b~ti ments\. On trouvera a l'Annexe 2 Ie mandat detaille des architectes/maltres d'oeuvre et de l'Unite d'appui technique\. L'ISRA demanderait l'approbation de l'IDA ~our Ie valet travaux de genie civil du projet en quatre phases: i) Ie plan directeur et les esquisses, ii) l'avant-projet, iii) les projets d'execu tion et les documents d'appel d'offres et iv) l'evaluation des offres et l'at tribution des marches\. Les avant-projets et les estimations de coat ant ete examines et approuves au cours des negociations\. Les projets d'execution, les devis confidentiels des architectes et les documents d'appel d'offres ont ete examines avant la presentation au Conseil\. La preuve a ete re9ue que les for malites concernant la cession des droits de propriete des terrains sur lesquels doivent ~tre construits les logements prevus A Richard Toll et Kaolack ont ete entreprises\. Au cours des negociations, des assurances ont ete donnees selon lesquelles les organismes et ministeres charges des services publics delivre raient comme il se doit et en temps opportun leurs services sur les sites  - 48 retenus pour Ie programme d'action du projet a Kolda et Nioro du Rip, ainsi que sur les terrains sur lesquels seront bat is les logements prevus a Kaolack et Richard Toll\. D\. Suivi et evaluation 4\.09 L'Unite de suivi et d'evaluation financee au titre du projet (par\. 2\.30) aurait a concevoir et a mettre en place un systeme de suivi et d'evaluation\. Celle-ci servirait a la fois au Directeur general et au chef de departement de l'ISRA pour la collecte, l'analyse des donnees, et de con sultation, et au Gouvernement senegalais et a d'autres bailleurs de fonds comme source de renseignements qui permettrait d'assurer la supervision effec tive du projet et l'evaluation impartiale des resultats obtenus\. Les pro grammes de suivi et d'evaluation seraient con~us en coordination etroite avec Ie Comite scientifique et technique renforce du Conseil d'administration (par\. 2\.03)\. L'Unite de suivi et d'evaluation aurait egalement les fonctions suivantes : a) preparer et orienter les examens annuels des budgets et pro grammes de recherche interne et externe, b) publier les rapports scientifiques annuels de l'ISRA avant Ie 30 juin de chaque annee, c) preparer et publier les rapports trimestriels d'avancement du projet et Ie rapport d'achevement du pro jet (par\. 4\.05) et d) de servir de Secretariat pour Ie Comite technique et scientifique du Conseil d'administration\.  - 49 V\. AVANTAGES ET JUSTIFICATIONS 5\.01 Generalites\. II est generalement admis qu'un systeme de recherche agricole national solide et integre au processus de developpement rural, dont les activites sont axees sur les contraintes ~ la production et, en particulier les besoins de l'agriculteur, peut contribuer de fa90n notable a ameliorer Ie sort des populations rurales grace au relevement de la quantite, de la qualite et de la productivite des cultures vivrieres et des cultures de rente\. Toute fois, il est generalement tres rare que les entreprises privees se livrent ~ des travaux de recherche agricole, notamment dans les pays en developpement, puisque les resultats de cette recherche peuvent rarement etre commercialises sour forme de biens prives\. II appartient donc ~ l'Etat d'investir dans la recherche pour maintenir et ameliorer l'expansion du secteur agricole\. La participation de l'Etat est egalement necessaire pour a) encourager la coope ration entre les chercheurs, b) orienter la recherche dans la direction appro priee pour satisfaire les besoins et objectifs du pays, c) faire face aux fortes depenses d'equipement qui parfois ne sont pas a la portee du secteur prive, d) creer un cadre institutionnel efficace dans lequel la recherche fait partie du systeme de production agricole, et eviter une dispersion trop grande de l'effort de recherche entre une multiplicite de minis teres et d'instituts\. 5\.02 Aucune tentative n'est faite dans Ie present rapport pour quantifier Ie taux economique de rentabilite ex-ante du projet, et ce, pour diverses raison:::, a:: On ne peut prevoir avec precision les resultats de la recherche, et toute tentative d'evaluation chiffree des resultats escomptes n'aurait qu'un caractere hautement subject if et speculatif; b~ la recherche implique en general l'amelioration des ressources humaines, ce qui est en soi benefique, encore que Ie produit du travail de chercheurs hautement qualifies n'apparaisse pas toujours immediatement\. c; Ie decalage de temps qui intervient entre l'investissement et l'aboutissement de la recherche, et entre l'acquisition des resul tats et leur adoption est incertain; c'est ainsi que l'adoption d'un resultat peut dependre d'une serie de facteurs qui ne se rapportent pas toujours directement ~ la recherche, mais peuvent dependre des mesures prises par les pouvoirs publics\. d) les mont ants reels consacres a la recherche et aux activites con nexes sont difficiles ~ estimer puisqu'ils comprennent parfois des coats lies a la vulgarisation, ~ la formation et aux prajets de develappement qui peuvent au non etre directement lies au projet de recherche;  - 50 e) la recherche peut parfois donner des resultats qui n'ont rien a voir avec son objectif initial, mais qui sont toutefois utiles et viennent grossir la masse de connaissances necessaires a des efforts de recherche ulterieurs; et f) les possibilites d'adapter et de diffuser la technologie mise au point par les centres internationaux de recherche agricole sont d'autant plus grandes que Ie pays dispose de moyens de recherche; les avantages d'une telle adaptation pourraient ~tre considerables bien que difficiles a estimer ex-ante\. 5\.03 En depit des difficultes inherentes a une estimation ex-ante du taux de rentabilite economique, toutes les etudes comprenant des calculs ex-post des taux de rentabilite de la recherche agricole ont donne des chif fres eleves (Annexe 4, Tableau xv)\. Dans pratiquement tous les cas, les taux de rentabilite interne etaient superieurs d'apres les estimations au coat d'opportunite du capital et au taux de rentabilite de la plupart des projets de developpement dans ces pays\. Ainsi certains programmes de recherche "pro duits" realises en Amerique latine et en Asie ont atteint des taux de rentabi lite se situant entre 35 % et 102 %; les taux obtenus dans les pays moins avances etaient en moyenne de 42 % pour la recherche appliquee et de 60 % pour la recherche scientifique\. Pour obtenir des taux de rentabilite economique eleves, il faut que la recherche soit centree sur les contraintes a la produc tion, qu'elle soit suivie et evaluee de fa~on methodique, et que les coats de fonctionnement et d'entretien soient maintenus a un niveau raisonnable\. 5\.04 Le projet de recherche aqricole du Senegal\. Les engagements finan ciers en faveur de la recherche agricole au Senegal sont relativement impor tants par rapport a ceux d'autres pays (par\. 1\.24)\. Toutefois, comme la ma jorite des depenses ont ete consacrees a la recherche unidisciplinaire et a quelques produits, il est possible de rentabiliser la recherche en elargis sant Ie programme et en centrant les activites de recherche sur les systemes de production agricole et sur la recherche multidisciplinaire des produits\. Jusqu'a present, la recherche a ete abordee de fa~on theorique, l'ISRA s'ef for~ant de trouver des solutions aux contraintes supposees de l'exploitant\. Le present projet s'emploie donc a reorienter la recherche qui sera desormais multidisciplinaire et axee sur les contraintes a la production, priorite abso lue etant accordee aux problemes auxquels les agriculteurs doivent veritable ment faire face\. Les avantages d'une telle orientation devraient etre tres nombreux car la recherche aboutirait a des recommandations de caractere plus pratique qui seraient plus volontiers adoptees par les agriculteurs\. 5\.05 Production agricole et deficits alimentaires\. II est de plus en plus clair que pour accrottre sa production vivriere nationale et reduire ses importations de cereales (par\. 1\.07), Ie Senegal devra exploiter son potentiel d'irrigation\. On connatt mal les problemes que pose l'agriculture irriguee  - 51 au Senegal et il est donc necessaire d'entreprendre de nouveaux efforts de recherche dans ce domaine\. Le projet de recherche propose devrait donc encou rager l'effort concerte actuellement deploye pour accroltre la production rizicole dans la region de la Casamance et dans la vallee du Senegal\. 5\.06 Sous-secteur de l'elevage\. Tres peu nombreux sont les travaux de recherche axes sur la production de l'elevage au Senegal\. Ce sous-secteur a de vastes possibilites d'expansion puisque Ie taux d'exploitation par unite animale (gros betail, par exemple) ne represente que 20 % environ de celui qu'atteignent certains pays developpes\. II existe egalement des possibilites de developpement du commerce de betail avec les pays voisins de sorte que l'elevage pourrait ~tre une source importante de devises\. Les programmes d'elevage prevus au projet permettraient d'ameliorer la production\. 5\.07 Nutrition\. D'apres les indicateurs pertinents, l'esperance de vie a la naissance au Senegal est l'une des plus faibles du monde et Ie taux de mor talite infantile y est l'un des plus eleves\.1I Bien que ces taux ne revelent qu'avec imprecision les normes de nutrition du pays, ils indiquent toutefois que les enfants et les adultes souffrent de malnutrition et d'un regime carence\. L'accroissement de la production agricole grace a la recherche devrait per mettre d'ameliorer Ie niveau de nutrition de la population, tout d'abord parce que les zones rurales, OU les carences sont plus courantes, seraient mieux approvlsionnees, ensuite parce que Ie coat de ces denrees baisserait par rap port a celui d'autres produits\. L'accroissement de la production animale result;~nt de la recherche devrait egalement contribuer a relever l'apport pro teique de la population, dont la consommation de viande est actuellement tres faible (6 a 10 kg par habitant et par an)\. 5\.08 Petites exploitations agricoles\. Plus de 95 % des exploitations agricoles senegalaises sont entre les mains de petits agriculteurs qui, pour la plupart, sont pauvres; leur culture de rente est principalement l'arachide (et pa~fois Ie coton et Ie riz), et pour leur subsistance, ils pratiquent celIe du mil, du mais, et du riz\. La periode de soudure qui s'etend de juillet a octobre et qui precede immediatement la recolte est particulierement eprouvante pour de nombreuses familIes pratiquant l'agriculture de subsistance en raison de la penurie de denrees alimentaires\. La plupart des petits ex ploitants repugnent instinctivement a prendre des risques, mais ils sont pr~ts a accepter les innovations s'ils sont convaincus qu'elles leur permet tront d'accroltre leur production\. Ainsi, tout nouveau resultat qui pourrait ~tre obtenu grace au projet sera benefique pour les petits agriculteurs qui representent les couches les plus pauvres de la societe senegalaise\. 11 Dans les regions rurales, la mortalite est de 20 % pour les enfants de moins de un an et de 32 % pour les enfants de un a quatre ans\.  - 52 5\.09 Recherche et vulgarisation\. Jusqu'a present, les liens entre la recherche et la vulgarisation ont ete, dans la meilleure des hypotheses, tenus\. Les vulgarisateurs n'ont pu transmettre aux chercheurs les reactions des agri culteurs aux recommandations qui leur sont faites, faute de moyens d'organisa tion suffisants\. Ce n'est qu'aux echelons superieurs des organismes de deve loppement regional et de l'ISRA qu'apparaissent des liens entre recherche et vulgarisation\. Les communications s'etant donc etablies du haut vers Ie bas plut~t que vice versa, les contraintes qui ont fait l'objet de la recherche ne sont donc pas necessairement celles que subit en pratique l'agri culteur\. Pour que les resultats de la recherche soient utiles, il faut qu'ils soient en prise sur la realite et adaptes aux contraintes de chaque agricul teur, qui doit pouvoir facilement les adopter compte tenu des ressources fi nancieres, materielles et humaines qu'il a a sa disposition\. L'un des prin cipaux avantages attendus du projet est la creation d'un lien direct entre recherche et vulgarisation, qui serait assure par les agronomes specialises faisant partie des equipes de recherche sur les systemes de production\. Toutefois, outre ce lien, on devrait developper de nouveaux themes techniques pour la vulgarisation qui tiendraient compte des contraintes des agriculteurs\. II y a longtemps qu'on se livre a des travaux de recherche au Senegal, mais la technologie a maintenant atteint un stade ou de nouvelles percees sont neces saires\. L'intensification des cultures en sec et les autres themes techniques actuellement diffuses n'ont pas donne les resultats souhaites car ces nouvelles approches ne contribuent pas necessairement a eliminer les contraintes aux quelles se heurtent les agriculteurs\. A moins de concevoir une technologie nouvelle, on risque dans dix ans de n'avoir aucun nouveau concept technique a appliquer a l'agriculture, alors que les exploitants auront deja adopte les elements des techniques actuelles applicables a leur mode de production\. En outre, l'exploitation continue d'une surface don nee cree de nouveaux problemes\. Les maladies, la rouille, les insectes et autres fleaux risquent d'aneantir des recoltes entieres si les chercheurs ne trouvent pas dans l'immediat des moyens de lutte efficaces des l'apparition du probleme\. II est donc necessaire de poursuivre les travaux de recherche sur la resistance des plantes aux maladies et sur d'autres aleas de l'agriculture si l'on veut eviter ce genre de catastrophe\. Grace a l'approche "produits" et "systemes de production" de la recherche, il devrait ~tre possible d'aboutir a des resultats directement utilisables par les organismes de vulgarisation pour assurer au moins Ie maintien des niveaux de production actuels\. 5\.10 Incidence socio-economigue\. L'incidence des methodes de commercia lisation, du credit, de la distribution des facteurs de production, des poli tiques de prix et de subventions, et de l'organisation generale du secteur rural sur l'adoption des nouvelles techniques par l'exploitant donne lieu a divers problemes au Senegal\. Ceux-ci se posent au niveau national et relevent de questions devant etre tranchees par les pouvoirs publics\. Toutefois, ces derniers ne peuvent adopter des politiques rationnelles que s'ils disposent des donnees et de la documentation necessaires pour prendre les decisions vou lues\. L'Unite de macroeconomie ainsi que les economistes et les sociologues des equipes sur les systemes de production devraient pouvoir rassembler et  - 53 analyser suffisamment de donnees pour soumettre des recommandations utiles aux pouvoirs publics en matiere de politique agricole\. On s'attend a ce que Ie projet aidera les autorites senegalaises a definir leur politique agricole, encourageant ainsi Ie developpement du secteur\. 5\.11 Colonisation\. La politique de developpement rural senegalaise pre voit Ie transfert des agriculteurs du Bassin arachidien central ou la densite demographique est elevee, vers les terres neuves\. L'amenagement de vastes etendues de terres irriguees Ie long de la vallee du Senegal, dont la popula tion est clairsemee, ouvrirait de multiples possibilites de reinstallations\. II est donc necessaire, pour mener a bien ces programmes de colonisation, de lancer un vaste effort de recherche qui pourra ~tre entrepris avec succes grace il l'inclusion dans Ie projet du volet de recherche sur les systemes d'exploitation agricole de la vallee du Senegal\. 5\.12 Incidence reqionale\. Depuis l'epoque coloniale, Ie Senegal est un des chefs de file de la recherche agricole en Afrique de l'Ouest francophone\. Les resultats de la recherche senegalaise ont ete diffuses dans d'autres zones de la ~egion\. Un des avantages possibles du projet est que tout nouveau pro gres en matiere d'agriculture irriguee ou fluviale et d'elevage serait large ment applique\. Les pays voisins et peut-~tre d'autres pays africains, notam ment ceux qui se trouvent dans la zone soudano-sahelienne pourraient tirer parti des resultats obtenus grace au projet\. II faudra en particulier uti liser les efforts de coordination tels que ceux de l'Organisation de l'Unite africaine (SAFGRAD, Programmes de recherche et de developpement des cultures vivrieres dans les zones semi-arides)\. 5\.13 Risgues\. II ne fautpas deduire de l'analyse precitee que la tota lite de la recherche agricole qui pourrait ~tre entreprise au Senegal se solder3 par un taux de rentabilite economique eleve\. Plusieurs facteurs risquent d'influencer l'issue du projet, parmi lesquels : a) La multiplicite des bailleurs de fonds, qui pourront ne pas tous s'interesser aux memes aspects de la recherche, risque d'~tre a l'origine de la fragmentation des programmes; b) l'ISRA risque d'adopter plus lentement que prevu les mesures de reorganisation complete qui l'ameneront a passer de la recherche unidisciplinaire a la recherche orientee sur les contraintes a la production, confiee a des equipes multidisciplinaires qui aborderont les problemes prioritaires, de sorte que la recherche sera decentra lisee et menee dans les regions ayant un plus fort potentiel; c) II faut etablir une definition claire des problemes prioritaires et de leur importance dans l'ensemble du secteur, tout en evitant les tendances individuelles de quelques chercheurs vis-a-vis de certaines disciplines qui ne necessitent peut-~tre qu1un travail theorique\.  - 54 d) la recherche d'appui risque de ne pas ~tre orientee vers les con traintes a la production, comme on l'a propose, mais plutot axee sur la recherche unidisciplinaire sans rapport avec Ie projet, si les equipes de recherche sur les systemes ne tiennent pas leurs colle gues de la recherche d'appui au courant des problemes prioritaires, ou ne parviennent pas a identifier ces problemes\. e) l'absence de personnel local suffisamment forme et Ie temps que prend la formation, de meme que la penurie eventuelle d'expa tries francophones qualifies capables de fournir un veritable effort de recherche "systemes ll ; f) Ie lien entre les activites de recherche, de vulgarisation et de developpement agricole pourrait ne pas ~tre suffisamment fort et les agronomes specialises pourraient s'interesser davantage a la recherche au detriment de la vulgarisation et du developpement\. 5\.14 Le risque principal est donc dans l'ensemble que ces divers problemes en arrivent a freiner la reorientation de la recherche et donc a retarder les resultats qu'on pourrait en obtenir\. Toutefois, Ie Gouvernement est fonciere ment attache au projet et les responsables de l'ISRA ont donne leur plein as sentiment aux programmes de recherche envisages\. En outre, plusieurs mesures ont ete proposees dans Ie cadre du projet pour parvenir a minimiser chacun de ces risques\. Les equipes de recherche sur les systemes doivent etre aussi reduites que possible et leur coordonnateur devra veiller a ce que la recherche soit axee sur la solution des problemes urgents\. La reorganisation de l'orga nisme d'execution du projet, l'ISRA, permettra d'assurer que toute la recherche agricole s'articule autour de la philosophie des systemes\. Un Groupe central d'analyse des systemes sera charge de la planification et de la supervision generale de la recherche sur les systemes\. La recherche des equipes multidis ciplinaires devra avant tout viser a comprendre comment l'ensemble des facteurs importants s'imbriquent et influencent Ie processus de production\. En outre, les chercheurs devront etablir les priorites en equipe en s'abstenant des partis pris individuels\. Bien que la totalite des chercheurs risque de ne pas etre acquise a l'approche IIsystemes" et prete a renoncer a l'orientation unidisciplinaire actuellement suivie, Ie fait que Ie Senegal ait ete probable ment Ie premier pays en Afrique a introduire une forme quelconque de recherche sur les systemes devrait permettre aux responsables de la recherche de s'y adapter plus facilement\. Les agronomes specialises charges d'assurer Ie lien entre recherche et vulgarisation devraient avoir une bonne chance de succes puisqu'ils seraient detaches aupres des organismes de vulgarisation, charges de former les vulgarisateurs et auraient air \.1i une occasion unique de compren dre de l'interieur les problemes pratiques des agriculteurs\. Grace aux procedures d'examen annuel etablies pour Ie projet et au Groupe consultatif pour la recherche agricole au Senegal, on aurait l'assurance que les travaux de recherche sont bien axes sur les problemes\. La formation du personnel est un element important du projet puisque celui-ci prevoit la formation de 48 chercheurs du niveau ma1trise et de 15 chercheurs du niveau doctorat avant  - 55 la sixieme annee d'exeeution\. La multiplieite des bailleurs de fonds devrait permettre d'affeeter au projet un nombre suffisant d'expatries qualifies pendant les premieres annees, lorsque Ie personnel senegalais sera en eours de formation\. Le projet a done reeonnu l'existence de risques et prevu les mesures propres ales minimiser\. Les avantages eseomptes devraient largement compenser les coats et si, a l'echelle nationale, un seul des volets de la recherche se solde par une reussite complete, il serait alors possible de fi nancer ou de justifier l'ensemble de l'effort de recherche agricole pendant des annees, les depenses dues a l'echec des uns etant compensees par les bene fices decoulant du succes des autres\. Ce qui importe, c'est de reduire les coOts au minimum, et, a cette fin, d'organiser minutieusement la recher che, de valoriser les ressources humaines, d'evaluer les projets de fa90n cri tique et constructive, de controler en permanence, ex-ante et ex-post, les programmes et les projets, et de financer cet ensemble; or, c'est exactement ce que vise Ie projet, tel qu'il est con9u\.  - 56 VI\. ACCORDS CONCLUS AVEC L'EMPRUNTEUR, CONDITIONS ET RECOMMANDATIONS 6\.01 Au cours des negociations, les autorites senegalaises ont donne des assurances sur les principaux points suivants : i) Ie Comite scientifique et technique du Conseil d'adminis tration de l'ISRA sera etoffe par l'adjonction de quatre cher cheurs independants de reputation internationale qui joueront un rOle consultatif et dont Ie mandat, les qualifications et l'experience seront juges acceptables par l'IDA (par\. 2\.03); ii) au mains trois mois avant la clOture de chaque exercice financier, Ie Gouvernement senegalais, l'ISRA et Ie Groupe consultatif sur la recherche agricole au Senegal organise ront un echange de vues sur l'avancement du projet et l'execu tion par l'emprunteur de ses obligations, l'influence du pro jet sur Ie developpement agricole et d'autres questions liees aux objectifs du credit et du projet (par\. 2\.03 et 4\.04); iii) les agronomes specialises s'occupant de la vulgarisation agri cole seront recrutes et detaches dans des postes fonctionnels aupres des directions regionales de chacune des organisations de developpement regional suivantes : SAED, SDDESP, SODEVA, et SOMIVAC, et ils auront un mandat, des qualifications et une experience juges acceptables par l'IDA et des accords regissant ce detachement seront signes entre l'ISRA et chacune des ODR concernees (par\. 2\.04); iv) l'ISRA maintiendra un bureau de liaison perpanent a Dakar au cas ou son siege serait transfere a Saint Louis (par\. 2\.27); v) l'Unite de SU1Vl et d'evaluation dirige par Ie conseiller principal pour l'eva1uation et 1a planification de la recherche sera etab1i dans les six mois qui suivront 1e debut du projet (par\. 2\.28); vi) avant Ie 31 decembre 1981, la direction de l'ISRA proposera un systeme d'etablissement des rapports pour Ie projet, comprenant des rapports d'avancement trim est riels et des rapports scienti fiques annuels devant ~tre soumis a l'examen de l'IDA (par\. 2\.28 et par\. 4\.05); vii) l'ISRA preparera un rapport d'achevement du projet d'apres des directives convenues en accord avec l'IDA, dans les six mois qui suivront la date de clOture du credit (par\. 2\.28 et 4\.05);  - 57 - viii) Ie personnel du projet sera nomme pour des periodes d'au moins trois ans et Ie personnel cle du pro jet aura des qualifications et une experience jugees acceptables par l'IDA (par\. 2\.29); ix) les besoins de formation du personnel seront passes en revue chaque annee par la direction de l'ISRA, Ie Comite scientifique et technique du Conseil d'Administration, et Ie Groupe consulta tif sur la recherche agricole au Senegal (par\. 2\.31); x) Ie Gouvernement senegalais procedera chaque annee aux affecta tions budgetaires necessaires pour honorer les engagements financiers pris au titre du projet (par\. 3\.02); xi) la caisse d'avances du projet sera reapprovisionnee par Ie Gou vernement senegalais sur presentation par l'ISRA de documents prouvant que les fonds preleves sur cette Caisse ant ete utili ses pour l'execution du projet (par\. 3\.03); xii) a) les comptes de l'ISRA et la caisse d'avances pour Ie projet seront verifies par des reviseurs-comptables independants juges acceptables par l'IDA, b) Ie rapport des reviseurs-comptables sera soumis a l'IDA dans les six mois suivant la fin de l'exer cice financier de l'ISRA, c) il aura la portee et les preci sions que l'IDA peut raisonnablement demander, et comprendra notamment une declaration indiquant si les fonds de l'IDA ant bien ete utilises aux fins pour lesquelles ils avaient ete pre vus, et d) Ie premier exercice soumis a audit sera celui qui se terminera Ie 30 juin 1981 et Ie rapport d'audit sera soumis a l'IDA Ie 31 mars 1982 au plus tard (par\. 3\.09); xiii) Ie reviseur-comptable independant aidera Ie bureau de contr61e de gestion de l'ISRA a elaborer un systeme de comptabilite ana lytique par programme de recherche et par service, qui sera sou mis au comite directeur de l'ISRA et au Groupe consultatif pour un echange de vues et, separement, a l'IDA pour approbation, Ie 31 mars 1982 au plus tard; une fois Ie systeme approuve, l'ISRA soumettra la proposition pour approbation au Conseil des Gouver neurs et commencera l'execution du projet Ie ler juillet 1982 au plus tard (par\. 3\.09); xiv) une fois par an, l'ISRA passera en revue avec Ie Groupe consul tatif et l'IDA son nouvel organigramme et l'efficacite de sa gestion et introduira les modifications appropriees dans l'or ganigramme, et, s'il y a lieu, dans les procedures administra tives et les techniques de recherche (par\. 4\.02);  - 58 xv) l'ensemble du personnel de recherche de l'ISRA organisera des groupes de travail chaque annee pour examiner Ie plan des tra vaux de recherche pour l'annee\. Ce plan, et notamment les bud gets d'investissement et de fonctionnement par programme de re cherche, ainsi que les listes de l'ensemble des vehicules, du materiel et des fournitures necessaires a la recherche dont l'acquisition est envisagee pour Ie projet l'annee suivante, seront presentes au Comite scientifique et technique du Conseil d'administration pour observations, avant presentation a l'IDA avant Ie 31 mars de chaque annee pour examen et approbation; Ie premier budget couvrira la periode allant du ler juillet 1982 au 31 decembre 1982 et sera soumis a l'IDA pour approbation Ie 31 mars 1982 au plus tard (par\. 4\.04 a 4\.05); xvi) avant Ie 31 janvier 1982, la direction de l'ISRA soumettra un systeme de suivi du projet a l'examen de l'IDA (par\. 4\.05 et 4\.09); xvii) les organismes gouvernementaux et les minis teres charges des services publics delivreront leurs services comme il se doit et en temps voulu sur les sites retenus pour Ie projet a Kolda, Kaolack et Richard Toll (par\. 4\.08)\. 6\.02 Les conditions d'entree en vigueur seront les suivantes i) un plan de financement, jusqu'au 31 decembre 1984, juge satis faisant par l'IDA, pour les operations de l'ISRA et leur coat aura ete complete (par\. 3\.02)\. ii) les chefs des trois principaux departements et quatre membres du personnel cle du projet (Ie chef de l'Unite de contrOle de gestion, Ie conseiller principal pour l'evaluation et la plani fication de la recherche, Ie chef de l'Unite d'appui technique et Ie coordonnateur du projet) seront nommes officiellement et auront un mandat, des qualifications et une experience juges acceptables par l'IDA (par\. 2\.29 et 4\.01); iii) les dons du CILSS et de l'UNIFSTD et les dons de l'USAID pour Ie projet de recherche et de planification agricoles et Ie Projet PL 480 Titre III seront entres en vigueur (par\. 3\.02); iv) un compte special du projet sera ouvert avec un depOt initial du Gouvernement d'un montant de 30 millions de francs eFA (Ill 000 dollars) qui servira de caisse d'avance pour financer les depenses du projet (par\. 3\.03);  - 59 v) des reviseurs-comptables independants dont Ie mandat, les qua lifications et l'experience seront juges accept abIes par l'IDA seront nommes (par\. 3\.09); vi) une modification, jugee acceptable par l'IDA, du decret etablis sant la structure administrative de l'ISRA sera publiee au Jour nal officiel (par\. 4\.02); 6\.03 Le decaissement ne se fera quia condition qu'aucun retrait des fonds du credit de l'IDA ne s'effectue pour des depenses de travaux de genie civil a Richard Toll et a Fanaye avant que n'entre en vigueur Ie don de l'USAID affe rent au Projet de recherche agricole de l'OMVS (par\. 3\.02)\. 6\.04 Compte tenu des assurances et des conditions precitees, Ie projet propose justifie l'octroi d'un credit de 19,5 millions de dollars au Gouverne ment senegalais aux conditions habituelles\.  ANNEXE 1 - 60 - Page 1 SENEGAL PROJET DE RECHERCHE AGRICOLE Responsabilites et qualifications du personnel cle Directeur du projet (Directeur general de l'ISRA) 1\. Le Directeur general, relevant du Secretaire d'Etat a la Recherche scientifique et technique et du Conseil d'administration de l'ISRA, sera res ponsable de l'execution du projet et de sa reussite technique, financiere et economique\. 11 deleguera les affaires journalieres relatives a l'execution du projet aux chefs de departement et sera seconde par quatre cadres directement rat taches a son service, a savoir : i) le Controleur de gestion; ii) l'Agent comptable particulier (ACP); iii) le Directeur des services financier et administratif; iv) le Conseiller principal pour l'evaluation et la planification de la recherche\. 11 sera egalement seconde par deux Comites du Conseil d'administration de l'ISRA : i) Ie Comite scientifique et technique, et ii) le Comite de gestion\. 2\. Le Directeur general sera nomme pour cinq ans au moins et sera charge en particulier : a) de planifier, gerer et superviser toutes les activites du projet; b) de preparer les programmes de travail et les budgets annuels; c) de superviser toutes les depenses effectuees au titre du projet et de s'occuper des questions de personnel; d) d'etablir un systeme de rapport sur le projet, et preparer des rapports d'avancement trimestriels et des rapports scientifiques annuels; e) de coordonner les activites du projet avec la politique nationale du secteur agricole;  ANNEXE 1 - 61 - Page 2 f) de coordonner les activites du projet avec les activites locales et regionales entreprises dans Ie secteur agricole; g) d'assurer que toutes les clauses de l'accord de credit sont respectees; h) de preparer un projet relais\. 3\. Le Directeur general aura les qualifications et l'experience suivantes a~ il sera titulaire d'un dip16me d'etude universitaire de troisieme cycle en agriculture ou en science veterinaire ou dans une matiere connexe; b' il aura occupe pendant trois ans au moins un poste de cadre de direction, de preference dans Ie domaine de la recherche agricole; c) il aura une experience sur Ie terrain en tant que chercheur; d) il se sera montre capable de diriger et coordonner les activites d'une equipe et/ou de differents services; el 11 aura une experience en gestion et de preference se sera fami liarise avec les reglementations de f1nancement et d'etablissement des budgets\. Le Contr61eur de gestion 1\. Le Contr61eur de gestion relevant du Directeur general de l'ISRA, sera charge : a) de concevoir et mettre en place un systeme de comptabilite analytique detaille et efficace qui permettra d'etablir les budgets par pro gramme de recherche et par service; b) d'elaborer des procedures detaillees d'etablissement de budgets qui seront utilisees par Ie personnel de l'ISRA, et un systeme de contr61e budgetaire efficace; c) d'examiner les budgets avant leur approbation par la direction de l'ISRA pour leur presentation au Conseil d'administration; d) de contr61er les etats financiers du projet et les bilans de l'ISRA, y compris les budgets annuels consolides et detailles et les projections trimestrielles du cash-flow preparees par l'Agent comptable particulier et Ie Directeur des services financier et administratif;  ANNEXE 1 - 62 - Page 3 e) de concevoir et mettre en place des contrales rationnels de financement et de gestion portant notamment sur les immobilisa tions, les effets a recevoir, les comptes des crediteurs divers, les inventaires, les stocks et factures, les coats d'entretien du materiel et d'exploitation des vehicules; f) de contraler Ie dossier de decaissement des differents bail leurs de fonds accordant des fonds pour Ie projet et l'ISRA; g) superviser toutes les procedures de passation de marches; h) de suivre les recommandations du reviseur-comptable; i) d'assurer la formation dans des domaines techniques et celui de la gestion de tout Ie personnel place directement sous ses ordres et du personnel comptable et financier de l'ISRA\. 2\. Le Contraleur de gestion aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplOme universitaire (ou equivalent) ou fera partie d'un organisme professionnel reconnu attestant qu'il possede une connaissance theorique et pratique des methodes de comptabilite moderne con formes aux principes internationaux gene ralement acceptes; b) il aura au moins sept ans d'experience professionnelle de preference dans un pays utilisant les plans comptables fran9ais ou ceux de l'OCAM et aura travaille dans une entreprise commerciale; c) il aura une experience reelle de la verification de la gestion, de la comptabilite analytique, du contrale budgetaire et de la direction generale; d) il aura une bonne connaissance du fran9ais\. Conseiller principal pour l'evaluation et la planification de la recherche 1\. Le Conseiller principal pour l'evaluation et la planification de la recherche relevant du Directeur general de l'ISRA dirigera l'Unite d'evalua tion et de suivi, et sera charge : a) de planifier, diriger et superviser l'Unite de suivi et d'evaluation; b) de jouer Ie role de conseiller principal aupres du Directeur general de l'ISRA en ce qui concerne Ie developpement de systemes nationaux pour la planification, la coordination, l'etablissement du budget, la gestion et l'evaluation de programme de recherche;  ANNEXE 1 - 63 - Page 4 c) d'etablir un systeme d'information et de collecte des donnees pour suivre l'avancement physique et financier du projet, et pre parer les directives relatives a l'etablissement de rapports sur Ie projet; d) d'analyser les donnees reunies, notamment les aspects non quan tifiables de l'effort de recherche, et de presenter ses con clusions et recommandations au Directeur general de l'ISRA et aux directeurs de departement; e) en coordination et en collaboration avec les directeurs de departements et leur personnel cadre, d'evaluer les resultats de la recherche et d'etablir une politique a long terme pour la recherche agricole; f) de coordonner et preparer les rapports scientifiques annuels de l'ISRA; g) de preparer les rapports trimestriels d'avancement du projet et Ie rapport d'achevement du projet; et h) d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel place directement sous ses ordres\. 2\. Le Conseiller principal pour l'evaluation et la planification de la recherche aura les qualifications et l'experience suivantes : a) il sera titulaire d'un diplOme universitaire de troisieme cycle en agriculture ou science veterinaire ou dans une matiere connexe; b) il aura une experience de sept ans au moins de la direction et de la programmation de la recherche agricole; c) il aura une exper1ence effective de l'evaluation et du contr~le de la recherche ou du developpement agricoles; d) il aura une bonne connaissance du fran9ais\. Chef du departement de la recherche sur les produits 1\. Le Chef du Departement de la recherche sur les produits, relevant du Directeur general de l'I:RA et seconde par un agronome confirme, dirigera Ie Departement de la recherche sur les produits et sera charge : a) de planifier, superviser et diriger toutes les activites de recherche de son departement;  ANNEXE 1 - 64 - Page 5 b) de preparer des programmes de travail et des budgets annuels pour chaque programme de recherche execute par son departement en collaboration etroite avec Ie Conseiller principal pour l'evaluation et la planification de la recherche et Ie ContrO leur de gestion; c) de superviser les depenses de son departement et de s'occuper des questions de personnel; d) de coordonner les activites de son departement avec celles des autres departements et en particulier avec les diverses activites du Departement des services d'appui; e) de preparer des rapports trimestriels d'avancement du projet et des rapports scientifiques annuels pour son departement, en etroite collaboration avec Ie Conseiller principal pour l'evaluation et la planification de la recherche; et f) d'assurer la formation dans des domaines techniques et celui de la gestion de tout Ie personnel sous ses ordres\. 2\. Le Chef du departement de la recherche sur les produits aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplOme universitaire de troisieme cycle en agriculture ou dans des matieres connexes; b) il aura au moins cinq ans d'experience de la recherche agricole; c) il aura une experience effective de la direction et de la program mation de la recherche agricole; d) il se sera montre capable de diriger et de coordonner les activites d'equipes de recherche multidisciplinaires; et e) il aura une bonne connaissance du fran9ais\. Principal aqronome du Departement de la recherche sur les produits 1\. L'Agronome principal du Departement de la recherche sur les produits aura un poste fonctionnel et relevera du chef de ce departement; il sera charge : a) de preparer les directives pour la programmation, la planifica tion et l'execution de toutes les activites de recherche du departement;  ANNEXE 1 - 65 - Page 6 b) de coordonner et superviser les divers programmes de recherche du departement; c) de coordonner les activites de recherche du departement avec celles des systemes de production agricole en etroite collaboration avec Ie groupe central d'analyse des systemes et Ie charge de liaison de la recherche d'appui; d) de coordonner la preparation des rapports trimestriels d'avance ment et de rapports scientifiques annuels selon les directives etablies par Ie Conseiller principal pour l'evaluation et la planification de la recherche; et e) d'assurer la formation de tout Ie personnel du departement dans les domaines techniques et celui de la gestion\. 2\. L'Agronome principal aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture ou dans une matiere connexe; b) il aura au moins sept ans d'experience de la recherche agricole consacree notamment a la selection vegetalej c) il aura une experience reelle de la programmation et de la plani fication de la recherche agricole; et d) il aura une bonne connaissance du franqais\. CoordOlnateur de programme de la recherche sur les produits 1\. Le Coordonnateur de programme de la recherche sur les produits, relevant du chef du Departement de la recherche sur les produits, hormis ses activites en tant que chercheur, sera charge : a) de coordonner, diriger et superviser toutes les activites de recherche de son equipe; b) de coordonner l'execution du programme avec l'agronome principal; c) de coordonner avec les chercheurs du Groupe de recherche d'appui les activites de recherche d'appui incluses dans son programme; d) de coordonner l'ex8cution de tous les travaux de recherche effectues dans les stations avec les directeurs des stations;  ANNEXE 1 - 66 - Page 7 e) de coordonner toutes les activites du laboratoire necessaires a son programme de recherche avec les chefs de laboratoire; f) de preparer les programmes de travail et les budgets annuels, notam ment tous les besoins de recherche d'appui en collaboration avec ses collegues chercheurs et en relation etroite avec l'agronome princi pal, conformement aux directives etablies par ce dernier; g) de superviser les depenses de son equipe; h) de preparer les rapports trimestriels d'avancement et les rapports scientifiques annuels conformement aux directives etablies par l'agronome principal; et i) d'assurer la formation de tout le personnel place sous ses ordres dans les domaines techniques et celui de la gestion\. 2\. Le Coordonnateur de programme de recherche sur les produits aura les qualifications et l'experience suivantes : a) il sera titulaire d'un dipl~me universitaire de troisieme cycle en agriculture ou dans une matiere connexe; b) il aura au moins trois ans d'experience de la recherche agricole, de preference sur la selection vegetale; c) il s'interessera a la direction de la recherche et sly sera montre capable, et aura dirige une equipe de recherche multidisciplinaire; d) il aura une bonne connaissance du franqais\. Chef du departement des systemes de production agricole 1\. Le chef du Departement des systemes de production agricole, relevant du Directeur general de l'ISRA et seconde par Ie Groupe central d'analyse des systemes et Ie charge de liaison de la recherche d'appui, dirigera Ie Departe ment des systemes de production agricole et sera charge : a) de planifier, superviser et diriger toutes les activites de recherche de son departement; b) de preparer les programmes de travail et Ie budget annuels de chaque programme de recherche execute par son departement et par groupe de recherche d'appui, en collaboration etroite avec Ie Conseiller principal pour l'evaluation et la planification de la recherche et le Contr~leur de gestion;  ANNEXE 1 - 67 - Page 8 c) de superviser les depenses de son departement et de s'occuper de toutes les questions de personnel; d) de coordonner les activites de son departement avec celles des autres departements et notamment avec celles du Departement des services d'appui; e) de preparer des rapports trimestriels d'avancement et des rapports scientifiques annuels pour son departement, en etroite collabora tion avec Ie Conseiller principal pour l'evaluation et la planifi cation de la recherche; et f~ d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel place sous ses ordres\. 2\. Le chef du Departement des systemes de production agricole aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture ou en science veterinaire ou dans une matiere connexe; b) il aura au moins cinq ans d'experience de la recherche agricole, de preference consacree pour une part a la recherche sur les systemes de production; c\. il aura une experience reelle de la gestion et de la programmation en matiere de recherche agricole; d il se sera montra capable de diriger et de coordonner les activites d'equipes de recherche multidisciplinaires; et e\. 1 il aura une bonne connaissance du fran9ais\. Specia~iste principal de l'analyse des systemes 1\. Le specialiste principal de l'analyse des systemes fer a partie du personnel du Groupe central d'analyse des systemes du Departement des systemes de production agricole, dont il sera de preference mais pas obligatoirement Ie chef,~/ et relevera du chef du departement\. II sera charge: a) de coordonner la preparation de directives pour la programmation, la planification et l'execution de toutes les activites de rechercht du departement; b) de coordonner les activites de recherche du departement; ~ S'il" releve d'un autre agent du Groupe central d'analyse des pro jets, il y aura lieu de modifier ses fonctions et attributions\.  ANNEXE 1 - 68 - Page 9 c) de coordonner les activites de recherche du departement avec celles du Departement de la recherche sur les produits en etant en relation etroite avec l'agronome principal, avec celles de l'Unite de macroeconomie et avec celles du Departement de recherche d'appui sur l'elevage; d) de construire des modeles de systemes fondes sur les donnees pre sentees par les equipes de recherche "systemes" de terrain et d'utiliser des techniques mathematiques et informatiques d'analyse des systemes : i) pour etablir les priorites en matiere de recherche, ii) pour evaluer l'efficacite de la recherche, iii) pour analyser les avantages economiques des resultats de la recherche et iv) pour tester l'adoption par les exploitants des innovations tirees de la recherche; e) de coordonner la preparation des rapports d'avancement et des rap ports scientifiques selon les directives etablies par Ie Conseiller principal pour l'evaluation et la planification de la recherche; et f) d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel du Departement\. 2\. Le specialiste de l'analyse des systemes aura les qualifications et l'experience suivantes : a) il sera titulaire d'un diplOme universitaire de troisieme cycle en agriculture, en science veterinaire, en mathematiques, en stat is tiques, en analyse des systemes ou dans une matiere connexe\. b) il aura au moins sept ans d'experience de la recherche agricole, dont une partie aura ete consacree de preference au systeme de production agricole; c) il aura une bonne connaissance et au moins trois ans d'experience de l'etablissement de modeles de systemes et de l'utilisation de techniques mathematiques et informatiques d'analyse des systemes; d) il aura des qualifications generales en gestion et aura de prefe rence deja coordonne les activites d'equipes de recherche multidisciplinaires; e) il aura une bonne connaissance du fran~ais\.  ANNEXE 1 - 69 - Page 10 Specialiste des systemes d'exploitation aqricole 1\. Le specialiste des systemes d'exploitation agricole, relevant du chef du Departement des systemes de production et du chef du Groupe central d'analyse des systemes sera charge a) d'etudier les principaux systemes de production appliques au Senegal et de travailler avec les autres membres du Groupe central d'analyse des systemes pour preparer des modeles mathematiques de ces systemes; b) de coordonner et superviser tout Ie travail effectue sur la recherche relative aux systemes d'exploitation agricole au Senegal; c) de preparer les directives pour la programmation, la planifica tion et l'execution de la recherche sur les systemes d'exploita tion agricole effectues; d) de coordonner la recherches des departements des systemes d'ex ploitation agricole; e) de coordonner la preparation des rapports d'avancement et des rapports scientifiques sur la recherche sur les systemes d'exploi tat ion agricole conformement aux directives etablies par Ie Conseiller principal pour l'evaluation et la planification de la recherche; f) de coordonner les activites de recherche sur les systemes d'exploi tation agricole avec les services de vulgarisation des organismes de developpement regionaux; g) d'assurer la coordination entre Ie Departement de la recherche sur les produits et les equipes "systemes de production" de terrain pour des essais de nouvelles varietes dans les parcelles des exploitants; h) d'assumer les fonctions de conseiller principal aupres des agronomes "systemes d'exploitation agricole" au sein des equipes "systemes de production" de terrain; i) d'assurer la formation dans les domaines techniques et ou ceuui de la gestion de tout Ie personnel de son departement\. 2\. Le specialiste des systemes d'exploitation agricole aura les quali fications et l'experience suivantes  ANNEXE 1 - 70 - Page 11 a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture ou dans un domaine connexej b) il aura au moins sept ans d'experience de la recherche agricole, dont une partie aura ete consacree a la recherche sur les systemes d'exploitation agricole, et aura de preference une certaine experience de la vulgarisation agricole; c) il aura une experience reelle de la planification et de la program mation de la recherche agricole multidisciplinaire; d) il aura une bonne connaissance du frangais\. Specialiste des systemes de production animale 1\. Le specialiste des systemes de production anima Ie relevant du chef du Departement des systemes de production agricole et du Chef du Groupe central d'analyse des systemes sera charge a) d'etudier les principaux systemes de production agricole au Senegal et de travailler avec les autres membres du Groupe central d'analyse des systemes pour pre parer des modeles mathematiques de ces systemes; b) de coordonner et superviser tous les travaux effectues sur les systemes de production animale au Senegal; c) de preparer les directives pour la programmation, la planification, l'execution de la recherche sur les systemes de production animale; d) de coordonner, en etroite collaboration avec Ie chef du Departement de la recherche d'appui sur l'elevage, les activites de recherche sur les systemes de production animale du Departement avec la recherche d'appui sur l'elevage; e) de coordonner la preparation des rapports d'avancement et des rapports scientifiques relatifs a la recherche sur les systemes de production animale conformement aux directives etablies par Ie Conseiller principal pour l'evaluation et la planification de la recherche; f) de coordonner avec les services de vulgarisation des organismes de developpement regionaux les activites de recherche sur les sys temes de production animale;  ANNEXE 1 - 71 - Page 12 g) de jouer Ie r51e de conseiller principal aupres des chercheurs sur la production animale appartenant aux equipes "systemes de production agricole" de terrain; et h) d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel du departement\. 2\. Le specialiste du systeme de production anima Ie aura l'experience et les qualifications suivantes : a) il sera titulaire d'un diplOme universitaire de troisieme cycle port ant sur l'elevage, les sciences veterinaires ou des matieres connexes; b) il aura au moins sept ans d'experience de l'elevage ou de la recherche en matiere d'elevage, dont une partie aura ete consacree a la recherche portant sur les systemes de production animale, et aura de preference une certaine experience de la vulgarisation agricole; c) il aura une experience reel Ie de la planification et de la programma tion de la recherche agricole multidisciplinaire; d) il aura une bonne connaissance du fran9ais\. Sociologue "systemes" 1\. Le sociologue "systemes", relevant du chef du Departement des systemes de production agricole et du Chef du Groupe central d'analyse des systemes, sera charge : a~ d'etudier Ie principal systeme de production agricole au Senegal et de travailler avec les autres membres du Groupe central d'ana lyse des systemes pour preparer des modeles mathematiques de ces systemes; b) de coordonner et de superviser tout Ie travail de recherche en sociologie rurale; c) de preparer des directives pour la programmation, la planification et l'execution de la recherche en sociologie rurale; d) de coordonner les activites de recherche en sociologie rurale avec celles des services de vulgarisation des organismes de developpe ment regionaux;  ANNEXE 1 - 72 - Page 13 e) de jouer le role de conseiller principal aupres des sociologues ruraux dans les equipes de systemes de production agricole de terrain; et f) d'assurer la formation dans les domaines techniques et celui de la gestion de tout le personnel du departement\. 2\. Le sociologue "systemes" aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplome universitaire de troisieme cycle en sociologie rurale ou dans des domaines connexes; b) il aura au moins sept ans d'experience de la recherche en sociologie rurale, dont une partie aura ete consacree a la recherche sur les systemes de production agricole, et aura de preference une certaine experience de la vulgarisation agricole; c) il aura une experience reelue de la planification et de la program mation de la recherche multidisciplinaire; et d) il aura une bonne connaissance du fran~ais\. Economiste des systemes de production agricole 1\. L'economiste des systemes de production agricole, relevant du chef du Departement des systemes de production agricole et du Chef du Groupe cen tral de l'analyse des systemes, sera charge a) d'etudier les principaux systemes de production agricole du Senegal et de travailler avec les autres membres du Groupe central d'analyse des systemes pour pre parer des modeles mathematiques de ces sytemes; b) de coordonner et de superviser tout le travail de recherche portant sur l'agro-economie; c) de preparer les directives pour la programmation, la planification et l'execution de la recherche portant sur l'agro-economie; d) de coordonner la recherche du departement portant sur l'agro economie avec celle effectuee par l'Unite de macro-economie sur la gestion, la commercialisation et la politique des prix du secteur agricole; e) de coordonner la preparation des rapports d'avancement et des rapports scientifiques relatifs a la recherche en agro-economie selon les directives etablies par le Conseiller principal de l'evaluation et de la planification de la recherche;  ANNEXE 1 - 73 - Page 14 f) de coordonner les activites en matiere de recherche en agro economie avec celles des services de vulgarisation des organismes de developpement regionaux; g) de jouer Ie role de conseiller principal au pres des agro economistes des equipes "systemes de production agricole" de terrain; et h: d'assurer la formation dans les domaines techniques et dans celui de la gestion de tout Ie personnel du departement\. 2\. L'economiste des systemes de production agricole aura les qualifi cations et l'experience suivantes : a'i il sera titulaire d'un diplome universitaire de troisieme cycle en agro-economie ou dans un domaine connexe; b) il aura au moins sept ans d'experience de la recherche en agro economie, dont une partie aura ete consacree a la recherche portant sur les systemes de production agricole, et il aura de preference une certaine experience de la vulgarisation agricole; c:1 il aura une experience effective de la planification et de la pro grammation de la recherche multidisciplinaire; et d) il aura une bonne connaissance du fran9ais\. Charge de liaison pour la recherche d'appui* 1\. Le Charge de liaison pour la recherche d'appui, relevant du Direc teur dJ Departement des systemes de production agricole sera charge : a) de coordonner toute la recherche d'appui liee a la production veqetale avec les equipes "systemes de production agricole" de terrain et les equipes de recherche sur les produits; b) d'etablir Ie programme et Ie budget des activites annuelles des groupes de recherche d'appui en fonction des besoins en matiere de recherche exprimes par les equipes de recherche sur les L,~chef du Departement de recherche d' appui en matiere d ' elevage aura d~s responsabilites similaires\. Son Departement n1aura pas de budget propre puis que toutes les activites feront partie de programmes de recherche d'autres departements et seront donc financees sur leur budget\.  ANNEXE 1 - 74 - Page 15 systemes de production et les produits (Ie Groupe de recherche d'appui n'aura pas de budget propre puisque ses activites seront financees sur Ie budget des programmes de recherche sur les systemes de production et les produits); c) d'etablir la planification, les programmes et les budgets des cher cheurs d'appui pour la partie de leur temps qui n'est pas allouee sous (b) en coordination avec Ie Conseiller principal pour l'evalua tion et pour la planification de la recherche; d) de superviser et de diriger toutes les activites de recherche du groupe de recherche d'appui; e) de superviser les depenses du groupe de la recherche d'appui; f) de coordonner la preparation des rapports trimestriels et annuels d'avancement, et des rapports scientifiques annuels selon les directives donnees par Ie Conseiller principal pour l'evaluation et la planification de la recherche, rapports qui seront inc or pores a ceux des equipes de recherche sur les produits et les systemes de production; g) de jouer Ie role de conseiller principal aupres des chercheurs d'appui; et h) d'assurer la formation dans les domaines techniques et celui de la gestion du personnel du groupe de recherche d'appui\. 2\. Le Charge de liaison pour la recherche d'appui aura les qualifica tions et l'experience suivantes : a) il sera titulaire dlun diplome universitaire de troisieme cycle en agriculture ou en science veterinaire ou dans des domaines connexes; b) il aura au moins sept ans d'experience de la recherche agricole; c) il aura les qualifications en matiere de gestion et aura deja de preference coordonne les activites d'equipes de recherche multi disciplinaire; d) il aura une bonne connaissance du franqais\.  ANNEXE 1 - 75 - Page 16 Coordonnateur d'eguipes de recherche "systemes" de terrain L Le Coordonnateur d' equipes de recherche "systemes" de terrain rele vera du chef du Departement des systemes de production agricole, et hormis ses fonctions de chercheur, sera charge : a) de coordonner, gerer et superviser toutes les activites de recherche de son equipe; b) de coordonner la recherche d'appui pour son programme avec les chercheurs du groupe de recherche d'appui et du Departement de recherche d'appui sur l'elevage; c) de coordonner tous les travaux de recherche effectues a la station avec les directeurs des stations ou les directeurs des exploitations dans le cas des stations de Dahra et de Kolda; d) de coordonner tous les services de laboratoire pour son programme de recherche avec les chefs de laboratoire; e) de coordonner tous les travaux de recherche effectues dans les exploitations avec l'agronome specialise en vulgarisation agricole et la direction regionale ou locale des organismes de developpement regionaux; f) de coordonner, en liaison etroite avec les coordonnateurs des pr~grammes de recherche sur les produits, l'execution de travaux de recherche effectues dans les exploitations pour les programmes de recherche sur les produits; g) de coordonner l'execution des programmes de recherche sur les systemes de production avec le Groupe central d'analyse des systemes; h) de preparer les programmes de travail et les budgets annuels com prenant tous les besoins en matiere de rech~~che d'appui, en colla boration avec ses collegues chercheurs et en etroite relation avec le Groupe central d'analyse des systemes, et selon les directives que ce dernier a etablies; i) de superviser les depenses de son equipe; et j) de preparer des rapports trimestriels d'avancement et des rapports scientifiques annuels conformement aux directives donnees par le Groupe central d'analyse des systemes; k) d'assurer la formation dans les domaines techniques et celui de la gestion de tout le personnel place sous ses ordres\.  ANNEXE 1 - 76 - Page 17 2\. Le Coordonnateur des equipes de recherche "systemes" de terrain aura les qualifications et l'experience suivantes : a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture ou en science veterinaire ou dans des domaines connexes; b) il aura au moins cinq ans d'experience de la recherhe agricole et au moins un an d'experience ou de formation en recherche "systemes"; c) il sera interesse par la gestion de la recherche et d'une equipe de recherche multidisciplinaire et se sera montre capable de le faire; et d) il aura une bonne connaissance du fran9ais\. Agronome specialise en vulqarisation agricole 1\. L'agronome specialise en vulgarisation agricole, relevant du Coor donnateur des equipes de recherche "systemes" de terrain et de la direction region ale des organismes de developpement regionaux a laquelle il sera rat tache dans le cadre d'un accord signe entre l'ISRA et l'organisme de develop pement regional concerne, sera charge: a) d'executer,* en etroite collaboration avec les services de vulgari sation, tous les travaux de recherche effectues avec l'aide des exploitants dans leurs parcelles pour l'equipe de recherche "systemes" de terrain; b) d'executer* tous les essais dans les exploitations pour les pro grammes de recherche sur les produits, en etroite collaboration avec les specialistes ayant commence cette recherche et les services de vulgarisation; c) de suivre les reactions des exploitants a la suite de la recherche et des essais menes dans les exploitations; d) de former et d'orienter regulierement le personnel de vulgarisation au niveau local et regional dans l'application des techniques nouvelles; * L'equipe de recherche "systemes" de terrain sera chargee du rassemble ment et de l'analyse des donnees\.  ANNEXE 1 - 77 - Page 18 e) de mettre en place et de superviser les de demonstration dans les champs des exploitants avec la collaboration active des services de vulgarisation afin de prouver les avantages des nou velles techniques; f) de surveiller directement et par l'intermediaire du personnel de vulgarisation la reaction des exploitants et les contraintes qu'ils rencontrent lors de l'application de nouvelles techniques; g) d'aider ~ concevoir Ie programme de recherche "syst~mes" afin d'accorder la priorite aux probl~mes des exploitantsj h) de preparer les budgets annuels pour la recherche effectuee dans les exploitations, en collaboration avec les specialistes ayant con~u cette recherche; i) de superviser les depenses relatives a la recherche'effectuee dans les exploitations\. 2\. L'agronome specialise en vulgarisation agricole aura les qualifi cations et l'experience suivantes : a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture, science veterinaire ou dans un domaine connexe; b) il aura une experience d'au moins cinq ans de la vulgarisation agricole et de la recherche appliquee; c) il se sera montre capable d'enseigner; d) il aura de bonnes relations de travail et se sera montre capable de diriger des essais disperses dans des exploitations et sur des parcelles de demonstration; et e) il aura une bonne connaissance du fran~ais\. Chef de Departement des services d'appui 1\. Le chef du Departement des services d'appui, relevant du directeur general de l'ISRA, sera ~ la t~te du Departement des services d'appui et sera charg6 : a) de planifier, superviser et gerer toutes les activites de son departement;  ANNEXE 1 - 78 - Page 19 b) de preparer en fonction des besoins exprlmes par les autres departe ments et en etroite collaboration avec Ie Controleur de gestion les programmes de travail et les budgets annuels pour chacune des activites de son departement; les couts directement imputables seront inclus dans les budgets des programmes de recherche concernes; c) de superviser les depenses de son departement et de s'occuper des quest'ions de personnes; d) de coordonner les activites de son departement avec celles de tous les autres departements; e) de preparer des rapports trimestriels d'avancement pour son depar tement en etroite collaboration avec Ie Conseiller principal pour l'evaluation et la planification de la recherche; f) d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel place sous ses ordres\. 2\. Le chef du Departement des services d'appui aura les qualifications et l'experience suivantes : a) sera titulaire d'un diplome universitaire de troisieme cycle en gestion des affaires, en administration ou dans un domaine similaire; b) il aura au moins sept ans d'experience de la direction d'une entre prise privee ou publique ou d'une importante station de recherche; c) il se sera montre capable de diriger et de coordonner les activites d'une equipe ou de differents services; d) il aura des qualifications en gestion et sera de preference fami liarise avec la comptabilite, l'etablissement de budgets et les procedures de passation des marches; et e) il aura une bonne connaissance du fran9ais\. Directeur de station* 1\. Le Directeur de station, relevant du chef du Departement des services d'appui, et seconde par i) Ie chef des services techn:ques et ii) Ie chef des services financiers et administratifs, sera charge: * Un chef de laboratoire aura des fonctions et des responsabilites similaires\.  ANNEXE 1 - 79 - Page 20 a) de planifier, gerer et superviser tous les services rendus au pro gramme de recherche pour pouvoir tirer profit au maximum des cher cheurs travaillant 8 la station; b) de superviser toutes les depenses de la station dans les limites prevues au budget de chaque programme de recherche (il ne lui est pas permis de reaffecter les fonds); c) de s'occuper de toutes les questions de personnel de la station de recherche (8 l'exclusion du personnel de recherche); d) de coordonner, en etroite collaboration avec les coordonnateurs des programmes de recherche, les services offerts a la station avec les besoins des chercheurs; e) de superviser l'ensemble des secretaires du personnel de recherche; f) d'entretenir et de reparer les batiments, terrains et materiel; g) d'entretenir et de gerer les reseaux de drainage et d'irrigation; h) d'assurer la preparation des sols, de s'occuper des cultures, de fournir de l'appui lors de l'ensemencement et de la recolte dans les parcelles experimentales, de s'occuper de l'elevage, de la production de fourrage et de semences, et autres services decrits par l'autorite competente; i) de pre parer en fonction des besoins exprimes par les coordonnateurs des programmes de recherche, les programmes de travail et les budgets annuels, en etroite collaboration avec Ie chef du Departement, les couts directement attribuables seront inclus dans les programmes de recherche concernes; j) de preparer des rapports trimestriels d'avancement en etroite relation avec Ie ~hef du departement; et k) d'assurer la formation dans des domaines techniques et celui de la gestion de tout Ie personnel sous ses ordres\. 2\. Le Directeur de la station aura les qualifications et l'experience suivantes a) il sera titulaire d'un diplome universitaire de troisieme cycle en agriculture, science veterinaire ou dans des domaines connexes; b) il aura au moins cinq ans d'experience de la recherche agricole; c) il se sera montre capable de diriger et de coordonner les activites d'un personnel nombreux;  ANNEXE 1 - 80 - 21 d) il aura les qualifications en gestion et sera en particulier fami liarise avec la gestion des exploitations, la comptabilite et les procedures d'etablissement du budget; et e) il aura une bonne connaissance du fran9ais\. Architecte/Planificateur, Chef de l'Unite d'appui technique 1\. Le chef de l'Unite d'appui technique, relevant du chef du Departement des services d'appui, sera charge: a) de planifier, diriger, superviser toutes les activites de l'Unite d'appui technique precisees dans l'Annexe 2; b) de preparer les programmes de travail et les budgets annuels pour i) l'execution des travaux; ii) l'entretien des batiments, terrains et ouvrages de drainage et d'irrigation; et iii) la passation de marche des fournitures; g) de superviser toutes les depenses relatives au service dans l'alinea (b); d) de mettre sur pied un systeme d'etablissement des rapports pour ces services et de preparer des rapports trimestriels d'avancement selon les directives donnees par le Contr61eur de ion et Ie Conseiller principal pour l'evaluation et la planification de la recherche, et en etroite collaboration avec le Directeur des services financiers administratifs; e) de coordonner l'execution et l'entretien des travaux et la passa tion de marche des fournitures avec les directeurs de station et chefs de departement; f) de prevoir les installations materielles futures dans le cadre d'un projet relais; et g) d'assurer la formation dans les domaines techniques et celui de la gestion de tout le personnel place sous ses ordres; 2\. Le Chef du service d'appui technique aura l'experience et les quali fications suivantes : a) il sera titulaire d'un diplome universitaire ou aura un diplome equivalent en genie civil ou en architecture ou dans un domaine connexe; b) il aura au moins cinq ans d'experience de l'elaboration des plans architecturaux ou de plans de travaux de genie civil;  ANNEXE 1 - 81 - Page 22 c) il aura une experience reelle de la preparation de documents d'appel d'offres, de la supervision des travaux et aura de prefe rence une certaine experience ou une formation dans les domaines suivants : passation de marche des fournitures, comptabilite, etablissement du budget et gestion en general; et d) il aura une bonne connaissance du fran9ais\. Statisticien/Biom~tre, Chef du Service statistigue et informatigue 1\. Le Chef du Service statistique et informatique, relevant du chef du Oepartement des services d'appui, sera charge: a:' de planifier, diriger et superviser les activites de son service; bl de preparer les programmes de travail et les budgets annuels en fonction des besoins relatifs aux divers programmes de recherche et en etroite collaboration avec les coordonnateurs des programmes de recherche et les cadres des departements de recherche; c) de verifier, superviser et, Ie cas echeant, preparer tous les pro jets d'essais et d'experiences; d) de superviser l'analyse statistique et l'interpretation de tous lea resultats de la recherche; e) d'aider Ie groupe central d'analyse des syst~mes a etablir ses mod~les de syst~me; f) de superviser l'elaboration de programmes informatiques; g) de superviser l'utilisation des ordinateurs de l'ISRA; et h) d'assurer la formation dans les domaines techniques et celui de la gestion de tout Ie personnel scientifique et Ie personnel place sous ses ordres\. 2\. Le Chef du Service statistique et informatique aura les qualifica tions et l'experience suivantes : a) il sera titulaire d'un diplome universitaire de troisi~me cycle en statistiques, mathematiques ou dans des domaines connexes; b) il aura une experience d'au moins cinq ans de la conception et de l'analyse d'experiences; c) il aura une experience reelle en gestion ou une formation en gestion; et d) il aura une bonne connaissance du fran9ais\.  ANNEXE 2 - 82 - Page 1 PROJET DE RECHERCHE AGRICOLE 1\. Description des fonctions de l'Unite d'appui technique 1\. L'Unite d'appui technique representera l'ISRA pour les questions techniques et sera l'organe de coordination du projet et de liaison pour ce qui est du materiel et des travaux de genie civil\. II sera different des bu reaux d'architecte et autres experts charges de l'execution et responsables legalement de la securite et de la sante pUblique\. 2\. L'Unite d'appui technique sera charge notamment a) d'engager les services d'architectes; b) de representer l'ISRA et de preparer avec les architectes engages a cette fin Ie plan de developpement pour chaque centre; c) de prendre des dispositions pour l'examen et l'approbation des rapports techniques et architecturaux, des plans, des specifica tions techniques, des listes de materiel et autres materiaux; d) de participer i) avec les architectes maltres d'oeuvre aux reunions hebdoma daires organisees lars de la phase de conception; -ii) a la preselection des entreprises; iii) a l'approbation et a la supervision des procedures de passation des marches; iv) a l'adjudication et a l'attribution des marches; et, v) lars de la phase de construction, avec les entrepreneurs et les architectes aux reunions mensuelles portant sur l'avance ment des travaux\. e) de preparer Ie calendrier provisoire de passation des commandes et la passation des marches de materiel et de mobilier afin d'en assurer la livraison ponctuelle; f) de garantir les certificats d'importation, les de credit, l'exoneration de droits, d'imp5ts, etc\. et de conseiller les transporteurs sur les modes de transport a utiliser pour les fournitures importees;  ANNEXE 2 - 83 - Page 2 g) de superviser l'avance~ent du projet, de r~diger des rapports d'avancement hebdomadaires et des rapports trimestriels internes a inclure dans les rapports trimestriels de l'ISRA transmis a l'Association; h) de donner suite aux factures des entreprises devant etre r~glees par l'ISRA et envoyees ensuite a l'Association pour obtenir Ie decaissement des fonds; i) de preparer un programme de mise en service et, a l'achevement des travaux, de donner des conseils a l'ISRA avec Ie concours des archi tectes au moment de la reception des batiments; et j') de g~rer sur Ie plan technique et administratif les programmes de remise en ~tat et d'entretien sous contrat de toutes les installa tions de l'ISRA\. SENEGAL PROJET DE RECHERCHE AGRICOLE 2\. De3cription qen~rale des fonctions des architectes-ma1tres d'oeuvre 1\. En collaboration avec Ie charge de liaison de l'ISRA, les ~troite archit3ctBs-~a1tres d'oeuvre elaboreront et dirigeront un programme de travail en utilisant des m~thodes appropriees telles que la planification des travaux suivant la methode du chemin critique (PERT) pour toutes les activites lors des phases de conception, de passation de marches, de travaux et de mise en service des installations du projet\. 2\. Les architectes seront responsables de la conception et de la super vision finale des travaux de construction d'un projet fonctionnel et complet qui conprendra notamment les elements architecturaux et techniques relatifs a l'amenagement de la station de recherche et du terrain\. 3\. Les architectes s'assureront les services d'un bureau de consultants ou d'un seul consultant jug~ satisfaisant par l'ISRA et la Banque, qui aura une eXJerience de la conception des reseaux de drainage et d'irrigation, des fosses, des digues, de l'am~nagement des terrains et des routes rurales, et qui relevera de l'architecte pour l'amenagement de la station de recherche\. L'architecte sera rembourse pour les depenses engagees effectivement qui devront etre approuvees prealablement par l'ISRA et la Banque\. L'architecte devra inclure dans ses honoraires un montant couvrant ses activit~s de coordi natio~ et de direction des services de consultants\.  ANNEXE 2 - 84 - Page 3 4\. L'architecte emploiera a ses frais pour les phases de conception et d'execution du Projet des ingenieurs mecaniciens, civils ou des ingenieurs ayant d'autres qualifications selon les besoins\. 5\. Des plans directeurs au 1:500, notamment des esquisses au 1:200, seront prepares par l'architecte pour chacun de six centres de recherche dont la modernisation est proposee dans Ie cadre des projets\. Ces plans directeurs indiqueront les batiments existants, les routes, les clotures, le reseau electrique, le reseau d'adduction d'eau, etc\., et tout autre element pouvant influer sur l'emplacement de travaux de construction ou d'amenagement futurs\. De plus, les travaux envisages dans le cadre du present projet seront identi fies et presentes a l'echelle sur le m~me plan directeur\. 6\. Un avant-projet comprenant des esquisses (1:100) et des estimations de coOts sera prepare apres le plan directeur et conformement aux directives de l'architecte fournies par l'Association\. Les depassements des quantites ou des coats de plus de 10 % seront expliques et justifies comme il convient\. L'avant-projet sera approuve par l'ISRA et l'Association avant de proceder aux phases ulterieures d'execution du projet\. Une description complete du travail de l'architecte sera incluse dans Ie contrat avec l'ISRA\. 7\. Un projet d'execution comprenant des dessins detailles au 1:50 sera prepare par l'architecte d'apres l'avant-projet ayant ete approuve et sera accompagne des estimations revues et detaillees des coOts\. Ces dessins com prendront les plans horizontaux, verticaux et les plans en coupe necessaires et seront accompagnes par les specifications techniques, une liste des mate riaux, Ie metre et autres informations requises pour la passation de marche du projet, qui se fera a des prix unitaires fondes sur Ie devis quantitatif des travaux a effectuer\. Avant l'appel d'offres, Ie dossier sera presente a l'ISRA et a l'Association pour approbation\. 8\. Apres l'approbation de l'avant-projet, l'architecte aidera l'ISRA a preparer les documents et a preselectionner les entreprises locales et internationales souhaitant soummissionner\. Ces documents-types de m@me que la procedure de preselection seront approuves par l'ISRA et par l'Association\. l'architecte analysera les resultats de la preselection et fera a cet egard des recommandations a l'intention de l'ISRA et de l'Association\. 9\. En cooperation avec l'Unite d'appui technique, l'architecte aidera l'ISRA a : a) preselectionner les entreprises; b) lancer un appel d'offres; c) interpreter le dossier d'appel d'offres; d) evaluer les offres; e) proceder a l'adjudication; f) attribuer le marche\.  ANNEXE 2 - 85 - Page 4 10\. L'architecte supervisera les travaux de construction du projet et sera aide dans cette tache si necessaire par des employes sur Ie terrain\. 11\. L'architecte verifiera les demandes de paiement presentees periodi quement par l'entreprise et certifiera que Ie travail a ete fait de maniere satisfaisante pour chaque paiement demande\. 12\. L'architecte donnera des instructions en cas de modifcation a appor ter au contrat lors de la phase de construction\. 13\. L'architecte preparera les rapports periodiques demandes par l'ISRA et l'Association en vue de presenter la situation et les problemes relatifs au projet\. 14\. II fera une inspection finale et sera charge de la reception du pro- jet qui devra remplir les termes et conditions figurant dans l'accord passe entre l'ISRA et les entreprises\.  ANNEXE 3 - 86 - Page 1 SENEGAL PROJET DE RECHERCHE AGRICOLE 1\. Personnel de recherche necessaire par discipline et par programme (annee 6 du projet) DEPARTEMENT DES SYSTEMES DE PRODUCTION 1\. Chef de departement Groupe central d'analyse de systemes Eguipe du Sine Saloum 1 analyste systemes 1 agronome 1 agronome systemes d'exploitation 1 agro-economiste 1 zootechnicien systemes 1 sociologue rural 1 sociologue systemes 1 zootechnicien 1 economiste des systemes de 1 expert en vulgarisation production agricole 5 techniciens confirmes 5 techniciens confirmes 5 techniciens debut ants 2 techniciens debut ants Eguipe du fleuve Senegal Eguipe de la Haute Casamance 1 agronome 1 zootechnicien 1 zootechnicien 1 veterinaire 1 malherbologue 1/2 nutritionniste elevage 1 agro-economiste 3/4 veterinaire geneticien 1 sociologue rural 1 agronome fourrage 1 ingenieur agronome specialise en 1 agronome cultures machinisme agricole 1 agro-economiste 1 expert en vulgarisation 1 sociologue rural 7 techniciens confirmes 1 expert en vulgarisation 7 techniciens debutants 7 techniciens confirmes 10 techniciens debutants Eguipe sy1vopastora1e Eguipe de la Basse Casamance 1 zootechnicien 1 agronome 1 veterinaire 1 agro-economiste 1/2 nutritionniste e1evage 1 socio1ogue rural 1/4 veterinaire geneticien 1 zootechnicien 1 agronome paturages 1 expert en vu1garisation 1 agro-economiste 5 techniciens confirmes 1 socio1ogue rural 5 techniciens debutants 1 expert en vu1garisation 7 techniciens confirmes 10 techniciens debut ants  ANNEXE 3 - 87 - Page 2 SENEGAL PROJET DE RECHERCHE AGRICOLE 1\. Personnel de recherche necessaire par discipline et programme (annee 6 du projet) DEPARTEMENT DES SYSTEMES DE PRODUCTION (suite) Recherche d'appui (Agronomie - CNRA Bambey) 1 charge de liaison de la recherche d'appui 1 microbiologiste 1 bioclimatologue 1 pedologue (physique des sols) 1 pedologue (specialiste en conservation des sols) 1 pedologue (specialiste en fertilisation des sols) 2 agronomes (malherbologues, dont l'un a Djibelor) 1 ingenleur agronome, specialise en stockage et traitement des aliments 1 ing~nieur agronome, specialise en machinisme agricole 1 ing~nieur du drainage et de l'irrigation (Fanaye) 10 techniciens confirmes 10 techniciens debutants DEPART-MENT DE LA RECHERCHE D'APPUI EN MATIERE D'ELEVAGE (IEMVT Dakar-Hann) 1 bio~himiste (nutrition des animaux) 1 physiologiste de la reproduction 1 pat\.ologiste 1 pathologiste (trypanosomiase) 1 epidemiologiste 7 techniciens confirmes 7 techniciens debutants SIEGE Unite de macroeconomie 3 specialistes de la commercialisation 1 economiste (analyse de la politique des revenus et des prix) 1 economiste (analyse des investissements et de l'economie des ressources) 5 techniciens confirmes 5 techniciens debut ants  Ai'JNEXE 3 - 88 - Page 3 SENEGAL PROJET DE RECHERCHE AGRICOLE 1\. Personnel de recherche necessaire par discipline et par programme (Annee 6 du projet) DEPARTEMENT DE LA RECHERCHE SUR LES PRODUITS 1 chef de departement (agronome) 1 agronome principal Fanaye Bambey Nioro du Rip Djibelor Total Eguipe du mil Selectionneurs 2 1 1/4 3 1/4 Pathologistes 1 1 Entomologistes 1/2 1/2 Physiologistes 1 1 Techniciens confirmes 3 1 1/4 4 1/4 Techniciens debutants 5 1 1/4 6 1/4 Eguipe du sorgho Selectionneurs 1/2 1 1 1/2 Pathologistes 1/2 1/2 Entomologistes 1 1 Techniciens confirmes 1/2 1 2 3 1/2 Techniciens debut ants 1/2 2 2 1/2 Eguipe du maYs Selectionneurs 1/2 1 1/2 2 Pathologistes 1/2 1/2 Entomologistes 1 1 Techniciens confirmes 1/2 2 1/2 3 Techniciens debutants 1/2 2 1/2 3  ANNEXE 3 - 89 - Page 4 SENEGAL PROJET DE RECHERCHE AGRICOLE 1\. Personnel de recherche necessaire par \. discipline et par programme (Annee 6 du projet) DEPARTEMENT DE LA RECHERCHE SUR LES PRODUITS Fanaye 8ambey Nioro du Rip Djibelor Total EguiDe du riz Selectionneurs 2 1 3 PatholJgistes 1 2 3 Entomologistes 1 1 2 Techni:::iens confirmes 4 4 8 Techni:::iens debutants 4 4 8 EguiDe du niebe Selectionneurs 1 1 PatholDgistes 1 1 Entomologistes 1/2 1/2 Physiologistes 1 1 Techni:::iens confirmes 1 4 6 /1 Techni:::iens debutants 1 4 6 /1 EguiDe de l'arachide Selectionneurs 1 1/2 1 1/4 2 3/4 Pathologistes 1 1 Physialogistes 1 1 Entomclogistes 1 1 Ingenieurs agronome, specialises en stockage et traite ment des aliments 2 2 Techniciens confirmes - 4 3 1/4 7 1/4 Techniciens debutants - 4 3 1/4 7 1/4 /1 L'un est affecte a Louga\.  - 90 SENEGAL PROJET DE RECHERCHE AGRICOLE 2\. Personnel administratif cadre SIEGE 1 directeur general 1 directeur general adjoint 1 contrOleur de gestion 1 agent comptable particulier 1 directeur des services administratif et financier 1 chef du bureau de liaison (Dakar) 1 conseiller principal pour l'evaluation et la planification de la recherche 1 conseiller debut ant pour l'evaluation et la planification de la recherche DEPARTEMENT DES SERVICES D'APPUI 1 chef de departement 4 directeurs de station 2 chefs de laboratoire 1 chef de l'Unite de formation et de perfectionnement du personnel 1 architecte/planificateur, chef de l'Unite d'appui technique 1 coordonnateur du projet 1 chef de l'Unite de pUblication et de documentation 1 statisticien, chef du Service statistique et informatique 2 chefs de departement (programmes de produits et systemes de production) TOTAL 22  ~ AGHICULTIJRAL llE::lEARCH !!ROJECT L !!ROJET IlE RECHERCHE AGil ICOLE y Staffing Pattern I Ripartition du Personnel PI 0 PI 1 PI2 PI 3 PI 4 PI5 PY 6 Annee 0 Annee 1 Annee 2 Annee 3 Annee 4 Annee 5 Annea 6 1 Research Sta ff 107 217 240 255 304 2Q2\. 291 1\. Personnel de Recherche 1-1 Scientists ""lj[ 77 "l!b 93 107 103 91i r\.t Chercheura - Commodity Programa (21 ) (25 ) (29 ) (5) (45) (33) (34) - Programme\. par produit\. - Production Systems (13) (31 ) (37) (38) (41 ) (49) (40) - Systeme\. de productIon - Support Research (14 ) (21) (20) (20) (21) (21 ) (20) - Appui ~ la recherche 1-2 Senior Technicians 24 65 71 73 92 92 92 1\.2 Techniciens confirmes (TS) 1-3 Junior Technicians ;>4 64 72 78 94 94 94 1\.3 Techniciens debutants (ATS) 1-4 VSN 11 11 11 11 11 11 11 1\.4 VSN ~ 2\. Support Staff 2/ 354 369 408 425 428 2\. Personnel d'appui 2-1 Management LiTi LiTi LiTi LiTi LiTi 2\.1 DIrectIon Generale I 2-2 Support Services 3/ 7 23 29 32 32 32 32 2\.2 Service\. d'appui \0 Research Stations- 175 199 206 218 257 271t 277 23 Stations experimentales gJ \. Laboratories 75 75 75 75 75 75 75 2\.4 Laboratoire\. I 3\. 1'OTAL PERMANENT STAFF ';;'fwhieh: (VSN not included) m 555 594 712 725 \.ill\. 3\. TOTAL PERSONNEL PERMANENT dont - (VSN non-compris) - Scientists 48 77 86 93 107 103 94 - Chercheurs - Other Senior Staff 20 28 29 29 32 32 32 - Autres cadres superieura - Technical Staff for - Techniciens affectes la Research 48 129 143 151 186 186 186 recherche - Supervisory Support Staff 31 32 34 34 34 34 34 - Personnel d'encadrement - Other Support Staff 241 279 291 306 342 359 362 - Personnel\. d'execution \. 4/ 51 !lont Expatrle_ / ~ 4\. Of which Expatriates!( 30 58 67 57 37 4\. Scientist Expatriates 2b li7 5B' 55 3b Chercheurs expatrie~ - Support Staff Expatriate$ 4 11 11 9 2 1 - Peraonnel d'appui expatrie 1/ Senegalese + Expatriates\. !I Senega1ais + ExpatrIe\. Y Including Liaison Office in Dakar (3 persons) from PY 2 and thereafter\. gj Bureau de liaison Dakar inclua (} personnes) ~ partir 3/ Including the Secretaries' pool for the Scientists\. de l'annee 2\. 41 VSN (French Young Professionals) not included\. ~ Pool secretariat des chercheurs inclus\. expatriate replacing Senegalese on PhD training 2! Including the 15 in PY 5; scientists6)\. (5 in PY 4; 15 in PY 4/ VSN (Volontaires du Service National ActiO non inclua\. ~ Incluant lea chercheurs exnatries Qui remp1aceront lee Senega1ais en formation de !loctorat (5 en Annee 4; 15 en Annee 5; 15 en Annee 6)\. [l~  $lI~GAL AGRICULTURAL 1/E:lI:~A\.HCIi H{0JEC'l' I 1'll0Jb\.'T IE m;CIOOICIIE AGRlC01£ (ilia! Swnmary of Project\. Coat Estimates 'by TYE! of Expenditure ,I Resume des Couts Prev1s1onnels du Pro jet par Nature de Derenseu (CFAF '000 FCFA) PI 1 py 2 PI 3 PI PI5 PI6 TOTAL Anne" 1 Annee 2 Annee 3 Annee It Annee 5 Annee 6 A\. Citpital Cost 2,110,'50 2,510,630 580,580 132,770 19~,920 130,350 5,659,700 A\. Depenses d' Investissements 1 - Ini tinl Expenses 210,000 210,000 1 - Fraia a Immobiliser 2 - Civil works and Site Ueve~opnent 1,416,500 1,715,900 155,300 8,000 3,000 6,000 3,304,700 2 - Genie Civil et Amenagements Fonciers 3 - Vehicles and Equi pmen t 192,100 ~66,500 322,500 87,700 149,200 87,500 1,305,500 3 - Vihiculea at Equipement 4 - Small Equipment and Reliu,Huch Supplies 100,000 100,000 50,000 25,000 25,000 25,000 325,000 4 _ EquipeDents et Fournitures de Recherche 5 - Physical Contingenci (lOOn 191,850 228,230 52,780 12,070 17,720 11 ,850 51~,5OO 5 - Physiques 00:10 Hesearch Sta ff t\.:xE~mdi tures 1,390,200 ~ 1,602,150 ~ ~ 1,0<)6,700 ~ B\. OeEenses en Personnel de Recherche 1 - Senegalese ~cientists 92,~00 92 00 115,500 194\.700 267,300 2&l\.5OO 1,0'2,~00 1 - Chercheurs Senegalais 2 - Senegalese Technicians 15~,800 171\.600 181,200 219,200 219,200 219\.200 1,165,200 2 - Tech1'l1ciens Senegalaia 3 - EXlldtriate Scientists 1,029,000 1,191,450 1,191\.450 1,128,~50 756,000 ~83,000 5,779,350 3 - Chercheurs Expa trif!s I 4 - Visiting 5cientis!i ~8,ooo ~8,ooo ~8,ooo ~8,ooo ~8,000 ~8,ooo 288,000 ~ - Hissiys d IAPP!"!i \0 5 -- VSNA Expatriatea 66\.000 66,000 66,000 66,000 66\.000 \.66,000 396,000 5 - VSflA 1 N I c\. 0flClrtl\.tine; ~,u~t 1\.162J~9V ~ ~ ~ ~ 9cP\.""U ~ C\. Freda de Fonctionnement 1 - went Support Starot '~6,250 '60,700 ":71_000 422\.950 1t~lt900 432 \.9'0 2, ~71\. '750 1 - Personnel d IAppui Local 2 - Expatriate [iupport St\.-tf 204,'150 204,750 173,250 36,750 21,000 21,000 661\.500 2 - Personnel d'~ppui E:xpatri6 3 - Consumable Supplies 180,000 180,000 180,000 200,000 180,000 180,000 1,100,000 3 - Hatieres Consommables It _ Maintenance and Repairs 100,000 100,000 100,000 100,000 100\.000 100\.000 600,000 ~ \. Entretien et Rep&rations 5 - Documentation and Information 50,000 30,000 30,000 30,000 30,000 30,000 200,000 5 - Documentation et InfoJ'lllStlon 6 - Training Expenses 159,310 170,125 183,l~0 140\.725 82,130 69,110 804,540 6 - Frais de j~ormation 7 - Audit 17,500 17,500 17,500 17,500 17,500 17,500 105,000 7 - Audit 8 - Other Operating Costs 50,000 30,000 30,000 30,000 30,000 30,000 200,000 8 - Autres l'raia de )"'onctionnement 9 - Physica\.l Contingencie6 (10% except for 6taff) 55,680 52,750 54,060 51,810 '3,950 ~2,66O 300,910 9 - Imprevu6 Physiques (10% sauf 6ur Ie personnel) SUBTOTAL (A + B + C) ?! \.,664,140 ,,225,905 3,327,680 2,818,855 2,q87,900 2,150,270 20\.674 \.'150 SOUS-1'OTAL (A + B C) Y Provision for Price Increase 1/ 844,600 1\.447,200 1,263,750 1,345,800 1,524\.450 1,545,900 7,971\.900 Provision pour tlausse des Prh\. Y T 5,506\.940 6,673\.105 ~ 4,164,655 4\.012,350 3,696,170 28,646,650 !: TOTAL l'!lOJEC'l' 0031' COOT TOrAL DU I'IW\.JET ~ E5 Cf'AF 000 ~ 6,673\.100 4,591,400 4,164,700 4\.012,400 3,696,200 28,646\.700 000 f'CFA --------------------------------------------------------- 1/ \.'rench Young Profe6sionAls 1/ Volontilires du Service National Acti f\. 2/ Project Uni t Costs : Janw 2/ Couts Unitaires du Projet : Janvier 1981\. 3/ Civil Works\. 9% annually\. and expatriate staff, 9% in 3/ Genie civil\. 9% annuellement\. Equipement et personnel - PY I, 8~ in PY 2 and '7% thereafter\. Local expen6es - expatrie, 9% annee 8% annee 2, puis ?j, annuellement\. 10\.' llnn~illly \. Depenses locales llnnuellement\.  ~ ACiIlICIlLTIJRAL RESEARCH 'ffiOJECT I ffiOJET IE RECllLllCRE AGlllCOU; (1) /h/ ~_~~l~~t_ ~~_~~ __~~~_~rn~_~~~~~~_ ~~! ~~~~~~ture / Couts p!~~!!!!~!!!!!'l!\.!!!Lfr2J~J?!!tJ~~~_~~~ _~~_\.!~I~~seB (CFAF '000 fCFA) PY 1 PY 2 PY 3 PY 4 PY 5 PY 6 TOTAL AruuS(\ 1 Annee 2 Annee -,: Annee ~ Annee 1 5 Annee 6 ---- A\. Capital C06t 2,110,450 2,51(1,630 580,580 ~ ~ ~ ~ A\. Derensee d 'Invest issemen t6 1 - Initial Expensee 210,000 2]0,000 Immobiliaer 1,416,~ 8,000 6,000 2 - 1,021, 156,~ 155,300 32,000 116,300 8,000 3,000 3,000 6,000 £:m:m 669,200 2 - Fonciers Fonciere 238,000 7,000 319,000 d'Architectes et de Surveillance des Tm\\iWX 3 - ~2,5oo 3,000 fl,7OO ,000 ~HOO ,00 1,3jp,5oo 5 7,500 3 3-2 Office Furniture and Laboratory 3-2 Mobilier et Mat41"iel de Bureau et Equipment de Equipment 37,600 76,600 76,600 190,800 Laboratoire 3-3 HOUSEl Furni ture 110,500 100,000 '43\.600 25 4 \.100 3-3 MobiliaI' d\. Habitation 3-4 Ae;ricul tural Equipment 1,100 111,400 107\.300 41,700 13,700 20,900 296,100 3- 4 I1att(riel Agricole 3-5 Workshop Equiprnen t 5,000 12,000 17,000 3-5 Ma\.t~riel d'~telier I \\.D it - Small Equipment and Research Supplies 100,000 100,000 50,000 25,000 25,000 25,000 325,000 4 _ Petits Equipement et Fourniturea de Rechcrthe W I - Physical<::2ntingencies 00%) \.ill\.a\.!!22\. 228,230 52,780 12,070 17,720 11,850 514,500 5 - lmprevu Physiques (1Cf,\.) 8\. Research Staff Expendi turefi: 1,390,200 1,569,450 1,602,150 ~ ~ 1,096,700 8,671,350 B\. DepeonEts en Personnel de Recherche ~,4oo 1~,5OO 194,700 280,500 1,~42,Boo 1 ,300 ,100 95,~ 99,000 19,100 Programs: includ ins: 1-2 Programmes Systemes de Produetion,Recherche dtAppui Support Research 56,100 56,100 59,400 99,000 171,600 181,500 623,700 lncluse ~ l~kfOO 219,~ 219,~ 2 - l,t7l,2oo 2 5 , ,00 77, 77, ,000 Programs including 2-2 Programmes Systemes de Production, Recherche d'Appui Support Ueaearch 98,400 115,200 120,800 141,600 141,600 141,600 759,200 lncluse l,191'4~0 4~3,OOO ~ 1,02 ,000 1,1 21,:;50 Chercheul's Expatrie\.fs 3 - System Programa including 4 29 ,000 351, 0 351, 50 l,l§N50 2 ,50 3\.000 1, 11,350 3 ~-l Programmes Produi ta ~!-2 frogrammes Systemes oe Pror)uction,Recherehe d 'Appui Support Research 735,000 840,000 840,000 735,000 378,000 105,000 3,633,000 Incluse 3-3 PhD Training Replacement 105,000 315,000 315,000 735,000 3-3 Remp1acement Candidats au Doctorllt 4 - Visiting ::5cientista 4~,ooo 4~,~ ~,ooo ~,ooo ~,ooo 4~,OOO 28~1'0(X) 4 "assions d I Aprui 4-1 Conaul tan t8 3 ,000 3 , ,000 ,000 ,000 3 ,000 21 ,000 4-1 Consul tuntB !I~ 4-2 Technical Advisory COOIm;' ttee 12,000 12,000 12,000 12,000 12,000 12,000 72,000 It-~ Comi te Technique C!)nBu1 tutif VSNA Expatriates \.!! 66,000 66,000 66,000 66,000 66,000 66,()()() 396,o(}0 5 VSNA \.!!  TABU; (1) tJ:\.( (C\.U' '000 FCFA) I)Y 1 PY 2 VY 3 I'Y 4 I'Y 5 PY 6 1'OTAL Annee 1 Annee 2 Annee 3 Annee ,\. Annee 5 Annee 6 C, Operating Cost 1,165,490 1,145, 825 ~ 1,029,735 936,480 923,220 6,343,700 C\. 1"rHi6 Ile Fonctionnel'llent ,~,250 ~ ~::; 1 - Local Support Staff 422,950 2,37I,Z'>0 1 - 1-1 Mnnagement ,500 57,500 57,500 329, 00 1-2 Manito-ring snd Evaluation Unit 4,650 4,650 4,650 4,650 71,900 1-2 Cellule de Sulvi et dtEvaluatian Support SerVices ~\.2\.150 37,250 45,500 45,500 244,800 }ieaearch Stations 141,250 144,900 189,000 197,950 1,031,650 Laboratoriea 59,700 59,700 66,300 66,300 378,000 1-5 Labora totres Temporary Hanpower 60,000 60,000 60,000 60,000 360,000 1-6 Hain d Oeuvre Temporaire 2 Ex~ tria te !iu~[!ort Sta ff 2:t,750 2,000 "ll4,'l50 lij,25O 36,750 21,000 661 500 2 - \.er600ne1 (l 'Ap,cui EXllittri~ 2-1 H\.nnagement and Evaluation Unit 2,000 ,000 21,O<X) 21,000 189:000 2\.1 Direction Generale et Cellule d'Bvaluation 2-2 Support Services and Laboratories 84,000 84,000 84,000 252,000 2-2 Services d tAproui et Inborfltoirea 2-3 Be5e~rch Stations LI 78,750 78 ,750 47,250 15,750 220,500 2-3 Statioll6 Experimentale5 2/ Consumu~le Huppl iee 180,000 180,000 180,000 200,()()() 180,000 180,000 1,100,000 3 - Hatieres Consommables - Mnintt;'nance tlnd Repairs 100,000 100,000 100,000 lOO,()()() 100,(XJO 100,000 600,000 It _ k:ntretien et Re£arations 5 DoCUMentation and Information 50,000 30,000 30,000 30,000 30,000 30,000 200,000 5 - Documentation et Information 6 - Training };xpenees 159,310 183,140 140,725 69,110 804,~0 6 6-1 Commod i ty Programs 29,300 32,550 3,255 97, 0 Produito 6-2 Production Systems and ':';upport\. Research 107,415 126,945 94,395 455,700 I et Recherche d 'Appui \0 6-3 PhD Training 16,280 48,825 113,930 ~ 6-4 Training for Management Staff l},020 13,020 13,020 6,510 65,100 de GeStioli I 6-5 Other Training Expenses 9,575 10,625 13,775 13,775 72,150 7-~ 17,500 17,500 17,500 17,500 17,500 17,500 105,000 7 Audit 8 - Other Operuting Costs 50,000 30,000 30,000 30,000 30,000 30,000 200,000 8 Autrea ,[o'rais de ,[o'onctionnement 9 - Physica\.l Contingenciee (10''' except for Staff) 55,680 ~ 54 ,060 51,810 43,950 42,660 300,910 Imprevus f'hYl:>iques (ln~ Buuf t:lUi' Ie personnel) SUBTOTAL (il + B + C) Y 4,664,140 5,225,905 ,,327,680 2,818,855 2,487,900 2,150,270 20,674,750 :;OUS\.'l'O'I'AL (A + B C) Y froviaion for Price Increase 21 844,800 1",263,150 l,lg5,BOO 1,545,900 7,971,900 Provision pour Ilaus6e deo Prix ]/ - - On Capital Cost On Research Staff Expendi turea 404,100 237,400 233,400 573,800 9,800 744,400 94,600 117,300 1,655,100 3,448,650 - - Sur les ~pen5e5 d 'InvesUsbementa Sur lea Del)er\.ses en Personnel de Recherche On Operating Cost 203,300 456,550 531,600 734,000 2,868,150 - Sur 1es ,'raie de ,F'onctionnement TOTAL I'HOJECT CO$T 5,508,940 6,673,105 4,591,430 4,164,655 3,696,170 28,646,650 ~ COaT 'l'O'I'AL DII rnOJET 5,508,900 6,613,100 ~,591,400 ~,164,700 4,012 ,400 3,696,200 28,646,700 '000 FC,'A y du \.iervice NutionI)1 Actif) \. 11 Vo1ontaires du 0ervice N~tional Acti f \. 0'/ ill Coute Unitaire:s du frojet : Janvier 1981\. , Y 9;"; in PY 1 i 8,\.c in flY ;: ewd 21 Genie Civil, q~\.; annuellement\. 1quipement et }\.ersonne! Expatrh 9;\.) unnee 1, 8;t\. annee 2, pUi6 7"'; annuellell'lerlt\. Depensea lo(;:3\.lea 10;'; aruluel1ement\. ,L/ C\.rll' 15,75tl per alHlI-yeHr \. ~ \5,750 i"cr\.;\. ptir homme-lIfH\.ee\.  ~ AGll I C\lLTlIRAL RESEARCH ffiOJECT I 1'!l0\.JE'X IJE RECHEl< CIIE AGB lCOLE (U) l-'roiect Coat by Pr-ogram or Activity I Couta Prevlaionne:la {iu Frojet par Programme ou Activitlt (CUjo' 'U0uJ PY 1 PY 2 PY, PY 4 PY 5 PY 6 TOTAL Annee 1 Annee 2 Annie , Annee ,\. Annee 5 Annee 6 A\. DIRECT CCllTS \.!I 2,081,112 2,247,258 2,282,392 2,316,486 A\. collTS DIRECTS \.!I m:~ 7~,~ ',NZ41 1\. 626600 1\. rrlgrK~ Prorlui ta ~ 1 , , - 1 1-2 \.Maize 32,994 63,338 61,105 8',916 1-2 H\.t\. Rice 175,472 166,876 175,840 IBB,}60 1-3 Riz Sorghum 81,688 78,004 76,090 92,180 1-4 SergI» Groundnuts 168,425 219,486 214\.223 26O,Bll 1-5 Arsenide Cowpeae 57,140 54,O{O 7 4 ,535 48,826 1-6 Niebe 2\. Product ion ;;~8tem6 Pr0E!,Blme 659'~9f %N7~ ~ ~ m 496 2\. ho~ramme8 SolS times de Production 2-1 Senegal Hi vel' , 7 211,20 2-1 Fleuva Si:n~gal 2-2 5y1 vo Pastoral Fiegion t~:048 157,559 154,853 159,693 2-2 Zone 5y1 vo-Pastorale I \0 Sine Saloum 116,684 123,440 120,250 116,252 2-3 Sine Saloum I\.J1 Uoper Casamance 171\.496 192,761 189,098 195,447 2-4 Haute Caaamance I 2-5 Lower Casamance 96\.584 141\.140 137,950 131,980 2-5 Bu8se Casamance 512'f~0 4g4,05~ 2\.617, 61 2 ~ 3\. SUf1{lort 'Researeh 501,900 3\. Recherche d 'Appui 3-1 Commodi ties 25 ,}5 211, a 205,100 1 7,59 1,076,272 }-1 Produi t \. 3-2 Animal 1~7,280 141,940 141,150 136\.780 793\.327 3-2 Animale 3-3 Economics 164,980 158,840 155,65 0 149,680 748,020 3-3 Economique 4\. Additional liesearch Staff Cost V 228\.600 228,600 228\.600 333\.600 560,100 455,100 2,034,600 ~\. Depensea Comp1tmentairea en Personnel de Recherche Y B\. INDIRECT COST!; 2, 3~5,498 ~ ~ 429,963 7,366,350 B\. COOTs INIlIRECTS 1\. Capi tal Coat 1,918\.600 2,282,400 527,800 120\.700 177\. 200 118,50(> ~,145,200 1\. Depenses d I InveatisseQlents ~ 41,,2~7 ~ ~ 2\. Operatlnp: Cost 410\.648 21~21i150 2\. Jo'rais de Fonctionnement 2-1 General ~nabemen~ 205,575 20 ,9 5 201t9~5 1 ,50 173, 00 1,150,O}O t-1 Direction Genir8\.1e ;:-~ iiu!lf'ort \.iervices J ;~1l 32~ 210, :302 2~, 723 1tlt,2?5 138,O6~ 1 , 071,120 2-2 Services d'Appui 2/ C\. 'f()~'1<L A + R 1l,'Ilt,610 ~~,lt26!2;:C "\.095\.76<, 19,C59, '40 C\. TOTAl, A + 0 PhysicHl Contingencies ;)47\.5~O 280,980 106,81 ,0 6?,,88o 61,670 5'l\.5HJ 815,410 Imprevuf:i Physiques 'lX-'TAL (January 1ge1 prices) 4,(,6Ii,140 5,225,905 3,327\. 680 2,818\.855 2\. '>Il7\. 900 ?,l~()\.?7t) 20\.67 4 \.720 TOTAL (lJrix Janvier 1981) !1~ l-rovision ror \.Price Increases 844,800 1,447,200 1,263,750 1,345,800 1,524\.450 1,545,900 7,971,900 Provisioll pour haulise des 1,rh: TOTAL I'llCJECf CCdT 5;508,940 6\.673,105 4,591,430 4,164,655 4,012,350 3,696,170 28,646,650 COOT TOTAL DU FROJET CFU' 10Cl0 6,673\.100 4,591,400 4,164,700 4,012 ,400 1,696,200 28,646,700 ~ 1/ liesearch starr expenditures and direct 1/ Depenses en personnel de recherche et coutn directs de !onctionnement\. y Visi ting Scientists, VSNA\. Systems Scuntists replacing y tiissions d*uppui, VSNA, Analyse Systernes, at chercheuTs exp\.atries remplacant lea candidata cand ida tes on Ph\.D training\. B Is lonna ti on de Doc tora t \. 21 Including the Laboratory and Documentation Center in Sambay" 21 lncluant iei Ie Laboretoire at ]e Centre de Documentation de Bambey \.  ~ AUIIICULTlmAL RE!;EARCH ffiOJt:CT I l'llOJE'f IE RECHERCIn,; AGRICOlE (iii) Project Cost EBtimate by Orr;aniutiona1 Unit / Coutu irt~vi61onr\.els tlu t'rojet par Centre <\.Ie RespoHsabilite (CFA,' '(00) py 1 PY 2 PY 3 py 4 I'Y 5 I'Y 6 mTAI\. Annee 1 Annee 2 Annee 3 Ann~e t; Annee 5 A\.nnee 6 General t-ianagement 1,237,945 ~ ~ 722,285 ~ ~ 5,132,440 1\. Direction Gimerule - Cupital Cost !I 2 581,000 183,500 66\.500 25,000 25\. 000 25,000 906,000 Depensea d'jnvestissement !I 2 Research Staff Expenditures Y 345,600 345,600 345\.600 450\.600 588,600 483,600 2,559,600 - Depenses en personnel de recherche Y - Operating Cost 311,345 298,235 288,105 246,685 280\.315 242\.155 l,666,84Q - Frais de fonctionnement 2\. Research Sta tioras if ~ 3,940,040 2\.343\.085 1,908,240 1\.407,865 1\.220,555 U,820,900 2\. Stations Experimentsles iI o?-l Fanaye §g7,462 ~6,1~ 440,975 ~ 32~,66i m\.~lt 2,995,}48 2-1 Fan\.~\. _ Cap-J ~al COBt I,m 5,2 ~ :581<\.;nlf: 5 \.71 25\. 1 1,192,510 - Depenses d t inv8stissemen 18 - Rebdarch Staff Expenditures 135,000 231,000 234\.300 205,050 163,050 158,100 1,126,500 - Depenses en perBOnne 1 de recherche - Operating Cost , 120,691 129,89} 122,246 111,610 101,901 83,997 676,3}B Fraie de fonctionnement }Bo,or8 2-2 fuhra - Capital Cost ~,~2A I ,7 232,95li ~ ~ ~ ~ 12,717 ~ Hg,67§ 1 ,11 1\.361,575 ~ 2-2 !lahI's - DepenseB dfinvestisBement - Research !ita ff Expendi ture$ 100,275 101,075 102\.675 115\.575 ' 1011,475 41,475 565,550 - Depenees en personnel de recherche I 43,8}5 \0 - Opera ting Cost 41\.674 46,019 58\.576 53,795 52,086 295,985 - Fr~da de fonc:tionnement 0 Y Ilanob~y Y I 6~\.660 ~ ~ 2,847,461 ~ 2-3 &mbey ~ --~ ~ 2-3 - capita\.l Cost 120,920 19,391 27,131 17,191 293,020 - Depenses d rinvestisBellients - i1esearch Sts ff Expendi ture6 272,600 248,600 261\.500 22},700 122,000 122,000 1,250,400 - Depen8es en personnel de recherche - Operating Cost 244,471 269,140 320,679 189,818 131,927 H8,OO6 l,:lO4,041 - Freia de tonc:tionnement ~ 6~'m 2\.5')O!~63 2\. it Nioro du Rip 8}t,280 377,7f5 2o:l\.217 216,t 45 2-4 tHoro du Rip - Capl tal Coat 3 , 53 ,07} 70,2 3 25,732 2 ,532 32, 33 1,055, 20 - D~penae8 dtinvestissement - Besearch StsCf Expenditures 163,100 206,150 211,050 216,450 96,000 96,000 988,750 - Depenaes en personnel de recherche - Operating Cost 92,750 97,057 96,492 96,697 75,685 87,712 546 ,}93 - Frais de Conctionnement 2-5 !}jibelor \. Capital Cost 4~'m 15 , 5~N~~ 2 , 353\.572 ~ t 28 'fB , 31 ~ _lZZ, 114 \. 16 1 N5 J 71 2 1,9~3,~27 5 1, 10 2-5 ~jlM!~~see d f investissements - Gesearch Staff Expendi tures 172,400 213,500 219,200 211,800 95,'700 78,000 990,600 DepenBes en personne1 de recherche - Operating Cost 77,423 85,484 87,409 66,367 52,753 71,081 440,517 - Fraie de fonctionnement 2-6 Kolda 355'g, '6B,258 ~ ~\._622 1/'-'1\.11,-4 ~ 1,518 ,126 2-6 ~ \. Capital Coat 205, 1 ~ ----",9}5" ~ ---u;;lllO 11,370 577,300 \. Dipenses d'investis8el11ent - Research Staff Expend:l tureS 101,925 123,725 125\.325 141,525 109,425 46,425 648,350 - Depenses en personnel de rechel'Che - Operating Cost 47,598 52,007 52 ,188 50,698 44,209 45,776 292,476 Fraie de fonctionnement 2-1 Labo Hann (Support }(esearch) 11 99\.300 100,100 102,500 104\.100 89,700 68,700 564,400 2-7 ~ (Recherche d 'Appui) 21 ,\. Support Services §I 177,'50 177,550 177,550 124,450 124,450 124,450 906,000 Services d'Appui Y - Operating Cost 177,550 177,550 177,550 124,450 124,450 124,450 906,000 - Frilis lie tonetionnement If\. Physical Contingencies 247,530 280,980 106,840 ~ ~ ~ 815,410 it\. 1mprevua Phyai ques ~~ 5\. !Q!!!:\. (January 1981 price5) 4,664,140 ~ }, ~27,680 2,818,855 2,487,900 2,150,270 20,67/1,75" 5\. !Q!!!:\. (Prix Janvier 1981) Provision for Price lncreaBP6 644,800 1,447,200 1,263,750 1,345,800 1,524,450 1,545,900 7,971,900 6\. Provision pour haus8e des prix 7\. TOTAL PROJECT roJT 5,508,940 6,673,105 4,591,430 4,164\.655 4,012,350 3,696,170 28,646\.650 7\. WIlT T<YfAL DO PROJET CFA\.' '000 5\.508\.900 ~ 4,591,400 ------ ------ 4,164,700 4,012,400 ------ ------ ~410 l8~ '000 FeFA 1/ 1ni tial expenseS 1 working capi tal\. office funliture\. 8t'chi tect's" fees, and ten vehicles\. y jo'r<\.1j8 a ill'1f1lobiliBer\. fonds de roulement\. mobilier de bureilU, honoraires y\. Syateme Analycs:is\. Socia-Economic Support Research, Expatriate Scantists replacing et dix vehieule6 Sene8aleae on PhD Traininr;\. VSt~ Bnd V1sitine Scientists \. y Recherche dtAppui" $ocio-Economique\. c:hercheurs eXpHlriJs 3/ See detailed tables 2-6 /i/\. les ,:jenee;aluie en fOl"'l'nlition de Doctorat\. V13N, at Missions Y Laboratory and Doc\.,\.¥tation Centre included \. 51 ,support Reeearch Staff only\. :v Voir tahh~/l\.UX u8t0111e6 2-6 /i/_ !t Labora\.tory and Documentation Centre in Bambey not included\. 1;'1 l\.:Iborlltoire et Centre de lkIcumentation ihclus\. '5/ l'er::\.onnel de recherche d uppui 6eulement\. I/ Lab')ra\.toire ,:c 13\.umbey et Centre de lJocumenlntion excluu~  SENEGAL AGRICULTURAL RESEARCH PROJECT I PROJET DE RECHERCHE AGRICOLE (iv) Project Cash Flow I Flux de Tresorerie du Projet (US $ million) py 0 py 1 py 2 PY 3 PY 4 PY 5 PY 6 Annee 0 Annee 1 Annee 2 Annee 3 Annee 4 Annee 5 Annee 6 A\. SOURCES A\. RESSOURCES Government Prefinancing 1\.2 Prefinancement du Gouvernement Senegal National Budget 4\.9 4\.5 4\.3 5\.6 6\.5 7\.1 Budget National du Senegal France 5\.0 6\.6 6\.6 5\.5 6\.3 5\.3 France I \0 IDA 0\.5 5\.8 8\.3 2\.7 1\.1 0\.7 0\.4 AID \. USAID 2\.8 3\.8 2\.3 2\.2 1\.0 0\.7 USAID I USAID (FAO/CILSS) 0\.6 0\.9 0\.8 0\.8 0\.2 0\.2 USAID (FAO/CILSS) UNIFSTD IOthe r 5 0\.7 0\.6 0\.4 0\.2 0\.2 UNIFSTD/Autres Total Sources 0\.5 21\.0 24\.7 17\.1 15\.4 14\.9 13\.7 Total des Ressources , B\. APPLICATIONS B\. EMPLOIS Repayment of Government Remboursement du Pr~financement Prefinancing 0\.2 0\.2 0\.2 0\.3 0\.3 du Gouvernement Project's Cost 0\.5 19\.9 24\.7 17\.0 15\.4 14\.9 13\.7 Cout du Projet Total Applications 0\.5 19\.9 24\.9 17\.2 15\.6 15\.2 14\.0 Total des Emplois !I~ C\. SURPLUS (Deficit) C\. SURPLUS (Deficit) Annual 1\.1 \.(0\.2) (0\.1) (0\.2) (0\.3) (0\.3) Annue1 Cumulative 1\.1 0\.9 0\.8 0\.6 0\.3 Cumulatif ""  SENEGAL AGRICm,TURAL RESEARCH PROJECT I PROJI!T Di RECHERCHE AGRICOLE (v) Proposed IDA Financing by Year and Type of Expenditure I Financement AID Propose par Annee et par Nature de Depenses (CFAF 000 FCFA) PY 2 PY 3 PY 4 PY 6 PY 1 Ann~e 2 Annlle 4 Annee 6 Aunlle 3 TOTAL ~ A, Capital Cost 1,232,300 1,446,200 lli\.&l!Q 26,300 29,300 26,200 2,960,600 A\. Depenses d'Investissements 1 - Civil Works 11 659,400 814,800 20,600 1,494,800 - G~nie Civil 11 2 - Site Development - 134,400 326,000 99,600 560,000 - A\.menagements Fonciers 3 - Architect's Supervision of Works Fees 238,000 74,000 7,000 319,000 3 - Honoralres d'Architecte et Y1 Surveillance des Travaux 4 - Vehicles and Equipment 8,500 20,600 14,200 3\.900 6\.600 3,800 57,600 4 - Vehicules et Material 5 - Small Equipment and 5 - Petits Kquipement~ et Fournltures Research Supplies 80,000 80,000 40,000 20,000 20,000 20\.000 260,000 de Recherches 6 - Physical Contingencies (10%) 112,000 131,500 18\.200 2,400 2\.700 2,400 269,200 6 - Impr~vus Physiques (10%) B\. Research Staff Expenditures 126,000 210,000 210,000 132,000 48\.000 6,000 732,000 B\. Dcpenses en Personnel de Recherche I 1\.0 1 - Expatriate Scientists 126,000 210,000 210,000 126,000 42\.000 714,000 - Chercheurs ExpatrieB (Xl 2 - Visiting Scientists 6\.000 6,000 6,000 18,000 - Missions d'Appul I C\. 0peratinl\ Cost 82,200 82,300 82,200 32,300 25\.700 25,800 330,500 C\. Frats de Fonctionnement 1 Expatriate Support Staff 11 63,000 63,000 63,pOO 189\.000 1 Personnel d'Appui Expatrie ~I 2 - Audit 17,500 17 \.500 17,500 17 \.500 17,500 17\.500 105,000 2 - Audit 3 - Management 11,800 5,900 5,900 23,600 3 - Frals de Formation a 1\. Gestion 4 - Physical C 4 - Imprevus Physiques (10% sauf except for staff) 1,700 1\.800 1,700 3,000 2,300, 2\.400 12,900 sur le personnel) SIIBTOTAL (A + B + C) 1\.440\.500 1\.739\.200 491,800 190,600 103,000 58,000 4\.023,100 SOUS-TOTAL (A + B + C) Provision tor Price Increase 258\.500 502,300 242,050 104,700 75,050 49,800 1,232,400 Provision pour Hausse des Prix - On Capital Cost 221\.200 426,400 119,850 18,100 26\.550 25,200 837,300 - Sur les Depenses d'Investissements On Research Staff Expenditures 22,500 54\.600 83,500 68,400 30,400 3\.900 263,300 Sur les Depenses en Personnel de Recherche - On Operating Cost 14,800 21\. 300 38,700 18,200 18\.100 20\.700 131,800 Sur les Frais de Fonctionnement TOTAL CFAF '000 1\.699,000 2,241\.500 733\.850 295,300 178,050 107,800 5,255\.500 TOTAL en '000 FCFA US $'000 11 6,300 8,300 2,700 1,100 700 400 19,500 '000 SEU 1/ 11 All costs\. 1/ Taus les couts\. 11 ~l~ 21 Chief, International Auditing and Budgetary Control Unit; Controleur de Gestion; Architecte\. Chef T\.S\.U\. - Architect/Planner, Chief T\.S\.U\. 21 US$l = CFAF 270\. 11 US$l ~ 270 FCFA\.  ~ AGRIC~lJ!l~ RESEARCH PRO\.1!'!fT--\.L\.I!l\.OJET DE RECIIERC~_ ~ (vi) Proro~~_d~~cing from\. france by Year !"Y~~r Expe_n~~ure I Financement Pro~e\.p~!\.~_aJra~I!!!'_!<\.!!\.!'_e!\._!"LP\."!r Nature de !Jerena \. (CFAF '000 FeFA) PY 1 I'Y 2 PY 3 PY 4 py 5 I'Y 6 TOTAL Annee 1 Annee 2 Annee 3 Annee 4 Annee 5 Annee 6 A\. £a£i\.ta~ \.C!"\.!!!\. 136,700 332,100 229,600 62,400 106,100 62,>00 929,200 A\. Depenses d' InvEtstissementa 1 - Vehicles snd Equipment 124,300 301,900 208,700 56,700 96,500 56,600 844,700 1 - Vehiculee et Equipement 2 - Physical Contingencies (10%) 12,400 30,200 20,900 5,700 9,600 5,700 84,500 2 ~ Imprevus Physiques (10%) B\. \.!!\.es!!£~§taf!\. ~~\.!!d\.!\.!'\.!IJ:!!!!\. 675,000 738,000 n8,OOO 738,000 738,000 510,000 4,1'1/',000 B\. \.Q!pe!!\.s~ en Pers~!,_n\.!\.l__de\. !e£\.h!!c~ I - Expatriate Scientists 567,000 6,0,000 6,0,000 6,0\.000 630,000 462,000 ,,549,000 1 - Chercheurs Expatries \0 (27) (,0) (,0) (,0) (22) \0 2 - Visiting :\.icientiata 42,000 42,000 42,000 42,000 ~~600 42,000 252,000 2 - Missions d 'Appui I 3 - VSflA Expatriate" 66,000 66,000 66,000 66,000 66,000 66,000 396,000 3 - VSNA c:\. urar" tine; Cost 332,000 ,44,000 326,700 206,600 2!5,700 201,500 1,626,500 C\. Frais ~oncti~~ - Expatriate Support St"ff 11 141,800 141,800 1l0,2W 36,800 (2) 21,000 21,000 (1) 412,600 - "ersonnel d 'Appui Expatrie !I (8) (8) (6) (1) 2 \. Trsining Expenses 2/ 6~,900 75,800 88,800 46,400 69,000 56,100 401,000 2 - Frais de Formation y 3 - Other Operating Costs 108,000 108,000 108,000 108,000 108,000 108,000 648,000 3 - Autres Frais de Fonc:tionnement ~ - "hysical Contingencies (lU,i\ except 4 - Imprevus Physiques (10% "auf for Staff) 17,300 18,400 19,700 15,400 17,700 16,400 104,900 sur Ie peraonnel) ~lJ!l'!'[Y!!<~" _<'!i\.:__Il~) 1,14,,100 1,414,100 1,294,,00 1,007,000 1,059,800 8",800 6,752,700 \.!!9\.uS-TQl'~_(~_\.:':_B_+\.£) IJrovision for Price Increase 210,800 364,300 477 ,000 474,500 650,000 593,300 2,769,900 Provision pou; Hausse des Prix - --Oncitpitnf "C"Q'5t-" _ \. - 309,000 - Sur les Depenses d'Investi,6,sements On Research Staff Expenditures l,686,OOO Sur les Depenses en Personnel de Recherche On Operating Cost 794,900 Sur les Frais de Fonctionnement '<li!: ~ !O~C!!\!\.~ 1,354\.500 1,798,400 1,771,300 1,481,500 1,709,600 1,427,100 9,542,600 TOTAl, '000 FeFA \.':,1 ~ >< \., ------------ - - - ------- ------- 11 ilesenrch \.itation Staff at CFAF 15\.750,000 per year, 5 in PY 1,5 in "Y 2, 11 Personnel des station de recherche a F'CF'A 15\.750,000 par an, 5 en AP I, 5 en AP 2\._ 3 en AP 3 3 in PY 3 ano 1 in I'Y 4; :; man-years Statiatician/Biometrist\. et 1 en AP 4; 3 ans Statisticienjlliometriste\. ?I InclUlling 23 HSc Scholarships (q years) and lq PhD SchOlarships (2 years)\. ?I Y compris 23 bourses niveau Haitrise (4 ans) et lq bOllrses',niveau Doctorat (2 ans)  ~ AGRICULTURAL RESEARCH PROJECT 1 fROJET DE RECHERCHE AGRICOLE (vii) Proposed Financing from UNIFSTD by Year and Type of Expenditure 1 Financement UNIFSTD Propos~ par Ann~e et par Nature de ~penses (CFAF '~OO FCFA) PY 1 PY 2 PY 3 PY 4 PY 5 PY 6 TOTAL Ann~e 1 ~ Ann~e 3 Ann~e 4 ~ Ann~e 6 A\. Capital Cost 14300 17 600 400 ~ A\. Depeoaes d'Invest18sements 1\. Civil Works 13 000 16 000 400 29 400 1\. G~nie Civil 2 Physical Contingencies (lQi) 1 300 1600 2 900 2 Impr~vus PhysiGues B Research Staff Expenditures 6 000 6 000 6 000 18 000 B D~pen\.e\. en Personnel de Recherche 1\. Visiting Scientists 1\.1 6,000 6,000 6 000 18 000 1\. Missions d'Appui 1\.1 I f-' C\. Operating Cost 19 200 \.2UQQ l i 400 162 100 C\. Frais de Fonctionnement a 11 800 a 1\. Training Exp\., ses 11 800 11 800 3S 400 1\. Fraia de formation I 2 Other Operating Cost 60 100 39300 11 000 110 400 2\. Autres Frais de Fonctionnement 3\. Physical Contingencies 8000 5 100 2 600 16 300 3 Impr~vu\. Physiques SUBTOTAL (A + B + C} llllLZllJl 80 400 31 800 212 400 SOUS-TOTAL (A + B + C} Provision for Price Increase 20 :'00 ~ 11 700 57 600 Provision Eour HaUBse des Prix 1\. On Capi tal Cost 10 400 1\. Sur 1es ~penses d'Investi ements 2\. On Research Staff Expenditures 6 400 2\. Sur les ~pen\.ea en Personnel de Recherche 3\. On Operating Cost 40 800 3\. Sur les Frais de Fonctionnement TOTAL CFAF '000 120 700 105 800 43 500 270 000 TOTAL '000 FCFA --------------------------------------------------------------------------------------------------------------- 1\.' Scientific and Technical Committee\. 1\.' Comit~ scientifique et technioue !I~  ~ AGRICULTURAL RESEARCH !'ROJECT\.L ffiOJE~Cm\.tl£'lll'\. ~!ili\.IEQ!£ (viii) \.!T2e0se<l\.!,i_'"!!''\.'\.ci!!\.aJrom USAID\. !>LJe~'!l:p\.!!\.':'!_E:xE!-n~ L Fin8ncement USAID Propo"eJ'~\.!?!lee \.!\.t\.l!!'\.!'\.Nnture de pep-enses (CFAF '000 FCFA) PY 1 PI 2 PI :; PI ~ PY 5 PI 6 TOTAL Annee 1 Annee 2 Annee 3 Annee ~ Annee 5 Anno'e 6 A\. Capital Cost ,08,200 ~ 91,600 \. 22,700 38,600 22,700 A\. Depenses d'InvestiBsements 1 - Civil Works 2,S,OOO 290,500 7,400 5!52,900 1 - Genie Civil 2 Vehiclss and Equipment 45\.200 109,800 75,900 20,600 35,100 307,200 2 - Vebicules et Equipement 3 - Physicol Contingencies (lO~) 21:1,000 40,000 8,,00 2,100 3,500 84,000 3 - Imprevus Physiques (10%) B\. ~\.~yxpenditureB 189,000 210,000 210,000 210,000 1t2,00Q 21,000 ~ B\. Dopan!!!\.e!!\. Peracnnel de Recherche I 1 - Expatriate Scientists If 189,000 210\.<109 210,Q(!O 210,000 1t2 , 000 21,000 88a,OOO 1 - Chercheurs Expatries !I\. I-' o (9) (10) (10) (10) (2) (1) I-' I C\. Operating Cost 145,300 1~5,300 66,600 66,600 714,400 c\. Frais de Fonctionnement - Training EXpenses 2/ 78,100 78,100 78,100 78,100 6,500 6,500 325,400 1 - ~'rais de Formation 2/ 2 - Other Onerating Costs 54,000 54,000 54,(J00 5~\.OOO 5~,ooo 51t , 000 324,000 2 - Autres Frais de Fonctionnement - Physical Contingencies (H»'J except 3 - ImprevuB Physiques (10% Bauf sur staff) 13,200 13,200 13\.200 13,200 6,100 6,100 65,000 1e personnel) SUBTOTAL (A + B + C) 642,500 795\.600 446,900 ITS,ooo 147,200 110,300 2\.529\.500 SOUS-TOTAL (A + B + C) Provision for Price Increase 122,100 222,800 178,800 211,700 100,100 91,600 927,100 Provision pour Hausse des Prix - On-C:;;pit"l-cOst \. - - - 265,700 ----Sur lea DE\penses d' Inveatissements On Research Staff Expenditures 303,000 Sur 1es Depenses en Peraonnel de Recherche On Operating Cost 358,400 Sur lea Jo"rais de Fonctionnement ~Ii TOTAL Ck-AF '000 764,600 1,018\.400 625,100 589,700 247,300 201,900 3,447,600 TOTAL '000 FCFA ,\.>< O~ -- ---------- !I Between brackets: numher of scientistB~ If Entre parentheses: nombre chercheurs\. 2/ :>4 M"c :lcho1arships (4 years); and 2 PhD Scholarships (2 years) ?! 2~ bourses nivenu ~~itrise (4 ans)\. et 2 bourses niveau Doctorat (2 ans) a - at CFAF 3,255,000 per year\. FCFA 3,255,000 per 'Ill\.  ~ !\.GRICULTURA1, RE~£!L!!\.~ I PIl0JET DE REClIERClIE AGRlCOLE (Ix) fro~!la_ncinJt\.!r"l'!\.!!\.!l!\.I!\.throligh f\.AO/CILSS~Ye"r and Type of Expenditure I Financement UAAIDf\.ropose a Travers FAO/C~S par Annee etp~~t\.!!r\.!\. ~ Dopenses' (CFAF '000 FCFA) PY 1 PY 2 PY3 PY 4 PY 5 PY 6 'roTU Annee 1 Annee 2 Annee 3 Annee 4 Annee 5 Annee 6 A\. Capital Cost ~ \.s\.a\.J!W\. \.J!fi\.JiWI\. ~ 12,100 7,000 U2,\.li\.Qll A\. Depenses d1lnvestissements I - Civil Works 400 1 - Genie Civil 10'100 !~:~ 24\.400 2 - Vehicles and Equipment 14, 00 23,700 6,500 11,000 6,400 96 000 2 - Vehicules et Equipement 3 - Physical Contingencies (10%) 2,500 4,100 2,400 700 1,100 600 12:000 3 - Imprevua Physiques (10%) B\. !!\.e~!,arch St\.i'\.r\.u_'!\.E!'_n!!\.i!ll!~\.!!\. 106,,00 108,300 108,300 108,300 3,300 ~ ~ B\. ~~~~~!,~!_d~c~he 1 - Senegalese Sc1\.nt1\.t\. II 7, 300 3\.300 3\.300 3\.300 3,300 3\.300 19\.800 - Chercheurs Senegalaia 11 (i) (1) (1 ) (1 ) (1) (ll I I-' 2 - Expatriate Scientists II 105,000 105,000 105,000 105,000 420,000 ;> - Chercheurs Expatriea 11 o (5) (5 ) (5) (5) I\\.) I C\. 2£\.!>\.r" ting Co\.!!\.!:\. 21,100 \. 21,100 21,100 21,100 17,500 17,500 119,400 c\. !tais de Fonctionnement 1 - Training Expenses Sf 3,300 3,300 3,300 3,300 13\.200 1 - Frais de Formation Sf 2 - Other Operating Costs 15,900 15\.900 15\.900 15,900 15\.900 15,900 95\.400 2 - Autres Frais de Fonctionnement 3 - Physical Contingencies (10% except 3 - Imprevus Physiques (10% sauf for staff) 1,900 1,900 1,900 1\.900 1,600 1,600 10,800 sur Ie personnel) SlmTOTAL (A + B + C) l\.li\.6;ZJlll\. IB1, !llIl\. lfil1\.!l:Qll 136! 600 32 , 900 27! 800 6\.U\.,\.6oo ~T£!'\.AL (A + B + C) Frovision for Price Increase 29\.100 49,100 57,700 75,100 23,400 23,600 258,000 !:r£!J\.sion ~!_ ~u\.5~E\.e!_ \.p!\.i\.!\. - -On Capital Cost - \. - - 44,400 Sur lea Depenses d'Investissements On nesearch Staff Expenditures ,145,200 Sur les Depenses en Personnel de Becherche On )perating Cost 68,400 Sur les Frais de Fonctionnement TOTAL CrAF '000 185,800 230,800 213\.600 211,700 56\.300 51,400 949,600 !Q!'~~-~ ~Ii \. \., --""-- ---- ---- ---~ ----- ---- }o'i~ure5 between brackets: number of scientists \. 1/ Entre parentheses: nombre chercheurs\. 1 )IS<> Scholarship (4 years) and 1 PhD J\.icholnrship (2 yeara)\. Y 1 bourse niveau Maitrise (4 an,,) et 1 bourse !liveau doctorat (2 ans)\.  S~E~L AGRICULTURAL RESEARCH PROJECT I PROJET DE RECHERCHE AGRICOLE (x) Proposed Other Financing (ICRISAT and WARDA) by Year and Type of Expenditure I Financement Autre Propos~ (ICRISAT et ADRAO) par Ann~e et par Nature de Depenses (CFAF '000 lICFA) PY 1 PY 2 PY 3 PY 4 PY 5 PY 6 Annee 1 Annee 2 Annee 3 Annee 4 Anntie 5 Anntie 6 TOTAL Research Staff Expenditures D~penses en Personnel de Recherche Expatriate Scientists 42,000 42,000 42,000 42,000 42,000 210,000 Chercheurs Expatries Provision for Price Increase 1,500 10,900 14,100 18,400 22,600 14,100 Provision pour "ausse des Prix I I-' a Total CFAF 000 49,500 52,900 56,100 60,400 64,600 284,100 TOTAL '000 FCFA ~ ~II "'\.,\.  SENEGAL AGRICULTURAL RESEARCH PROJECT I PROJET DE RECHERCHE AGRICOLE (xi) Proposed Financing from Senegal by Year and Type of Expenditure I Financement Propose pour Ie S~n~gal par Annee et par Nature de D~penses (CFAF '000 FCFA) PY 1 PY 2 PY 3 PY 4 PY 5 PY 6 Ann~e 1 Ann~e 2 Ann~e 3 Annf!e 4 Annlae 5 Ann~e 6 TOTAL A\. Capital Cost 391,700 222,600 32,900 14,300 8,800 12,100 682,400 A\. Depenses d'Investissements 1 - Initial Expenses 210,000 210,000 1 - Frais a Immoblliser 2 - Small Equipment and 2 Petits Equipements et Fournitures Research Supplies 20,000 20,000 10,000 5,000 5,000 5,000 65,000 de Recherche I 3 Civil Works 103,700 128,200 33,300 235,200 3 Genie Civil J-I 0 4 - Site Development 22,400 54,200 16,600 8,000 3,000 6,000 110,200 4 Amnagement Fonciers ~ 5 - Physical Contingencies (10%) 35,600 20,200 3\.000 1\.300 800 1\.100 62\.000 5 - ImprE!vus Physiques (10%) I B\. Research Staff Expenditures 243,900 260\.700 293\.400 411\.700 483,200 496,400 2\.189,300 B\. De~enses en Personnel de Recherches - Senegalese Scientists 89\.100 89,100 112,200 192,500 264,000 277 ,200 1\.024,100 1 - Chercheurs Sen g alais - Senegalese Technicians 154,800 171,600 181\.200 219,200 219\.200 219\.200 1\.165\.200 2 - Techniciens SnE!galais C\. Operating Cost 496,200 488,600 554,300 620,400 607,300 608,400 3\.375\.200 C\. Frais de Fonctionnement 1 - Local Support Staff 346,300 360,700 377,000 428\.000 431,900 432,900 2,371,800 1 - Personnel d'Appui Local 2 - Other Operating Costs 136,300 116,300 162\.700 179,500 159,500 159,500 913\.800 2 - Autres Frais de Fonctionnement 3 - Physical Contingencies 3 - Imprevus Physiques (10% sauf (10% except for Staff) 13,600 11\.600 14,600 17 \.900 15,900 16,000 89,600 sur Ie Personnel) SUBTOTAL (A + B + C) 1,131,800 971,900 880,600 1\.046,400 1\.099,300 1,116,900 6\.246\.900 SOUS-TOTAL (A + B + C) Provision for Price Increase 196\.300 252\.400 _281,800 461\.400 653,300 787\.600 2\.632\.800 Provision pour Hausse des PrlK On Capital Cost 256\.100 Sur 1es Depenses d'Investissements - On Research Staff Expenditures On Operating Cost 886,600 1,490,100 - Sur lea Depensea en Personnel de Rechetche Sur 1es Frais de Fonctionnement ~I~ TOTAL CFAF '000 1\.328,100 1,224\.300 1\.162\.400 1,507,800 1\.752\.600 1\.904,500 8\.879\.700 TOTAL '000 FCFA '-''' \.  -105 AHNEX 4 Pa1':e 14 SENEGAL AGRICULTURAL RESEARCH PROJECT (xii:) ISBA's Balance Sheets 1f 51 11 (CFAF million) As of As of As of As of As of 06/30/75 06/30/76 06/30/78 06/30/79 06/30/77 1\. Current Assets - Cash 173\.8 -\._-" U-\.3 222\.8 504\.5 74\.1 139\.4 Receivables 206\.7 173\.9 42\.7 194\.5 - Inventories 172\.0 186\.6 204\.4 114\.4 132\.6 - - Prepaid expenses Other current assets 1\.7 368\.3 130\.0 332\.5 0\.6 452\.5 Total Current Assets 432\.1 616\.1 1,252\.8 693\.7 919\.6 2\. Fixed ASlSets - Vehicles 44\.5 75\.8 89\.7 113\.6 147\.0 - Resea:~ch and operating equipment 115\.1 130\.8 201\.6 277 \.2 279\.5 - Furni'lhings and office equipment 135\.8 157\.6 160\.9 208\.9 279\.1 - - Buildlngs Land 1\.0 17\.5 30\.5 36\.6 39\.0 - Other fixed assets 4\.8 14\.5 30\.6 47\.7 64\.6 Total Fi\.<ed Assets 301\.2 396\.2 512\.9 684\.0 809\.2 Less cumluative depreciation 94\.0 199\.3 305\.4 350\.5 414\.9 Net Fixed Assets 207\.2 196\.9 207\.9 ~ ~ A\. TOTA:~ ASSETS 639\.3 813\.0 1,460\.7 1,027\.2 1,313\.9 3\. Liabili ties - Bank :ond CEll" overdraft Y 126\.7 2\.7 265\.5 - - ACCOUllts payable Deposits on orders received 95\.0 148\.7 283\.1 92\.6 164\.7 158\.8 Other liabilities 29\.9 83\.7 173\.5 87\.4 51\.4 Total Li!lbili ties 124\.9 232\.4 6'}5\.9 2~4\.8 475\.7 4\. Grants Illvested in Fixed Assets 2hl\. 28\.5 55\.9 49\.3 41\.9 5\. Equity - Retai Iled earnbgs !:I 66 141 317\.8 312\.0 385\.2 - CapitiU Grants 411\.1 411\.1 411\.1 411\.1 411\.1 Total Eql~ 477\.1 552\.1 728\.9 723\.1 196\.3 B\. TOTA1~ LIABn\.ITIES AND CAPITAL 639\.3 813\.0 1,460\.7 1,027\.2 919\.6 1f Not auditl!d by external auditors\. 2/ ISBA is e:<pected to communicate its 1980 Balance Sheet by the end of July 1981\. = t II CEP "Ctlntre des Etab1issements Publics", Dakar\. Mainly ea~ed surplus from sales of vaccines and from unspent operating subsidies\. For the F":ench ver9ion gee "Bilans de l'ISRA" as published by ISRA\.  SENEGAL AGRICULTURAL RESEARCH PROJECT A\. (xiii)Tentative Disbursement Schedule (US $ million) PY 0 PY 1 PY 3 PY 4 PY 5 PY 5 PY 6 TOTAL I \. 0 0\ Commitments I 1\. 20\.40 24\.70 16\.90 15\.40 15\.10 13\.60 106\.10 2\. Disbursements Annual 0\.55 17\.35 23\.70 19\.50 16\.40 15\.00 13\.60 Cumulative 0\.55 17\.90 41\.60 61\.10 77 \.50 92\.50 106\.10 3\. IDA Disbursements Annual 0\.55 2\.60 7\.30 5\.50 1\.90 0\.90 0\.75 Cumulative 0\.55 3\.15 10\.45 15\.95 17\.85 18\.75 19\.50 i§ :~ VT \.p\.  -107 ANNEX 4 Page ~q SENEGAL (xii!) AGRICULTURAL RESEARCH PROJECT B\. IDA Credit - Estimated Schedule of Disbursements (US $ '000) Disbursements Undisbursed Fiscal Quarter Amount at End Year During Quarter Cumulative of Quarter --- 1981 1 100 100 19,400 2 100 19,400 3 450 550 18,950 4 550 18,950 1982 1 450 1,000 18,500 2 1,000 18,500 3 1,075 2,075 17,425 4 1,075 3,150 16,350 1983 1 1,575 4,725 14,775 2 1,575 6,300 13,200 3 2,075 8,375 11,125 4 2,075 10,450 9,050 1984 1 2,075 12,525 6,975 2 2,075 14,600 4,900 3 675 15,275 4,225 4 675 15,950 3,550 1985 1 500 16,450 3,050 2 500 16,950 2,550 3 450 17,400 2,100 4 450 17,850 1,650 1986 1 225 18,075 1,425 2 225 18,300 1,200 3 225 18,525 975 4 225 18,750 750 1987 1 188 18,938 562 2 188 19,126 374 3 187 19,313 187 4 187 19,500 0 End of Disbursement: July 31, 198i\.  SENEGAL AGRICULTURAL RESEARCH PROJECT (xiv) Incremental Project Costs ~includins price continsencies) (ClAF 'OOO) PYO PY 1 PY 2 \. PY 3 PY 4 PY 5 PY 6 TOTAl\. ISRA's Ongoing Research Activities Directly Related to the Proposed Project 2 101 400 2 101 400 2 101 400 2 101 400 2 101 400 2 101 400 2 101 400 12 608 400 Price Contingencies 212 100 445 000 701 400 961 000 1 240 600 1 548 000 1 786 200 6 682 200 TOTAL WITHOUT PROJECT 11 2 313 500 2 546 400 2 802 800 3 062 400 3 342 000 3 649 400 3 887 600 19 290 600 Financed by GOS 1 117 000 1 229 40P 1 353 200 1 478 500 1 613 500 1 788 200 1 904 900 9 367 700 Financed by Other Donors 11 1 196 500 1 317 000 1 449 600 1 583 900 1 728 500 1 861 200 1 982 700 9 '922 900 TOTAL WITH PROJECT 11 5 508 900 6 673 100 4 591 400 4 164 700 4 012 400 3 696 200 28 646 700 I I-' Financed by GOS 1 328 100 1 224 300 1 162 400 1 507 800 1 752 600 1 904 500 a 879 700 \.g I Financed by Other Donors 4 180 800 5 448 800 3 429 000 2 656 900 2 259 800 1 191 700 19 767 000 INCREMENTAL COSTS 1/ 2 962 500 3 870 300 1 529 000 822 700 363 000 (191 400) 9 356 100 Financed by GOS ~I 98 700 (128 900) (316 100) (105 700) (35 600) (400) (488 0(0) Financed by Other Donors 2 863 800 3 999 200 1 845 100 928 400 398 600 (191 000) 9 844 100 Steps in Calculation: 1/ "Total with "Project" from detailed financing tables\. 2/ "Without Project Financed by GOS" based on ISRA's 1980 budget relevant to the Project less self-financing sctivities\. 3/ "Incremental Costs Financed by Other Donors" 100% from detailed financing tables for IDA, USAID, UNIFSID, FAO/CILSS (USAID) and Belgium\. - For France increment calculated as follows: A - Capital Costs based on PY 0 participation of CFAF 117,700,000; B - Rese\.reh Staff Expenditures based on two incremental staff ;l\.n PY I, five in PY 2 through PY 5 minus three in PY6\. plus two visiting scientists from PY 1 through PY 6\. C - Operating costs based on PY 0 participation of CFAF 273,200; For other financing increment calculated for 100% from detailed financing table after deduction of two non-incremental expatriate research workers, financed by WARDA and ICRISAT\. ~~ ~/ ''Without Project Financed by Other Donors" step 1 minus step 3  \. AGRICULTURAL RESEARCH PROJECT (xv) Estimated Internal Rates of Return to Agricultural Research Expenditures Internal Rate of Commodity Cvuntry Study Time Period Return (%) Maize U\.S\.A\. Gri11iches (1958) 1940-55 35-40 Sorghum U\.S\.A\. Gril1iches (1958) 1940-57 20 Sugar cane India Evenson (1969) 60 Wheat Mexico Ardito-Barletta (1970) 1943-63 90 Maize Mexico Ardito-Barletta (1970) 1943-63 35 Cotton Brazil Ayer (1970) 1924-67 77 Maize Peru Hines (1972) 1954-67 25-40 Maize and Cultivation I \. Package Peru Hines (1972) 1954-67 50-55 0 0\.0 Rice Columbia Ardila (1973) 1957-72 58-82 I Rice Columbia Scobie (1978) 1957-74 79-101 Rice ASia Evenson (1978) 1960-75 75-102 Aggregate Studies All Agriculture U\.S\.A\. Evenson (1968) 1949-59 47 All Agriculture India Jha & Evenson (1970) 1953-71 40 Crops Mexico Ardito-Barletta (1970) 45-93 Interna tiona1 Kislev and Evenson (1973) 1955-1968 S Applied Research LDC 42 DCs 21 \\. Agriculture Scientific Research LDC S 60 DCs 36 Source: Senegal Agricultural Research Project Preparation Report by lADS, July 1979 ~~ C:ov\.:nllui!lll an\.l IIIilY c,\.cllHie eXllendlturel> financed by external ::;ources\. notably Frallc~\. See para 1\.24 of the [ext\. ""I~  SI::NEGAL AGIUCU)\.TURAI\. RESEARCIl PRO\.JKCT (xvi) Research Expenditures In Wetlt Africa (1975) * Research Research Research Agricultural Research Agricultural Number of Scientists Expenditures/ Expenditures Reuearch Expenditures/ G\.D\.P\. As Research Per IHllion Capita As % Of KXllcndi tures Sc1entist/yr\. % Of 'rotal Scientists Agricultural Agricultural Agricultural (US $'000) (US $'000) G\.D\.P\. Population POllulation G\.D\.P\. -\.----- 'JEST Al-ltlGA 9L,620 1,464 26\.45 43 1\.142 0\.57 36 "~-~---- l\.ow-lnCOIIlC 79,283 2\.9!i6 26\.82 42 1\.141 0\.65 35 ---- Ut!uin 1,215 17 71\.47 12 0\.826 1\.04 31 Culllt! roon 1,947 96 20\.28 18 0\.366 0\.27 32 Ch'HJ 649 30 21\.64 9 0\.188 0\.06 50 I t-' Gambia 53 10 5\.32 24 0\.130 0\.11 48 t-' 0 HaJI 2,630 37 71\.09 7 0\.518 1\.31 30 I HaurJ LanAa 597 4 149\.25 4 0\.546 0\.88 )6 lUger 619 16 51\.21 4 0\.196 0\.31 45 Nlgt!da 66,376 2\.534 26\.19 70 1\.824 0\.78 34 !;L:IH\.:glI j 11 \. J, ':J49 146 27\.05 43 1\.159 0\.70 34 ~ICITa l\.eOIlI! 325 36 9\.02 18 0\.159 0\.15 33 Togo 497 19 2{) \.16 12 0\.313 O\. J() 29 III' III! l'-VU 11:<\.1 226 11 20\.54 2 0\.044 0\.08 '\.2 Hi ,'\.Ilc-Iul:ollu\.! l2,:n1 508 24\.28 41 1\.154 0\.32 39 -~--- \. ~--~ (;Ilana 3,963 300 13\.21 55 0\.728 0\.15 51 Ivory C()alJl 1,933 189 41\. 91 41 1\. 919 \. 0\.18 26 I\.lt\.CI' Ja 44] )9 23\.21 15 0\.355 0\.21 25 T 'Ill Z S(Jlln:e: liB Agricultural Ucsearch IloUcy Paller 10 Z ("j) M 1\.1 Tile Agricultural Hescan:h ExpcndJture quoted here may only reflect ISRA expenditures funded by Lhe Senegaiese \. \.: Govcru:u'!lll <m\.1 1IIi\.lJ( c\.clulle cxpendJtures fInanced by externul sources\. notably France\. See para 1\.24 of the text\. 'O+:  -111 SENEGp~ AGRICL~TmL~ RES~~RCH PROJECT Selected Documents and Data Available in the Project 1-, Senegal, Agricultural Research Review, lADS, Masterplan\. December 1978 (124,233) 2 Plan indicatif de la recherche agricole pour la Region du Fleuve; periode 1979-1984, ISRA\. November 1978 (124\.241 D) 3 Plan indicatif de la recherche agricole 1979-1984 prevu pour 1a Region de Louga et 1a Zone sylvo-pastorale, ISRA, October 1978 (124,241 G) 4 Plan indicatif de 1a recherche agricole pour 1a Region du Cap-Vert, periode 1979-1984, ISRA, November 1978 (124,241 H) 5 Projet de plan indicatif de la rechercheagrico1e pour les Regions de Thies et de Diourbel 1979-1984, ISRA, October 1978, 4 volumes (124,241 B) 6 Plan indicatif de la recherche agricole 1979-1985 prevu pour 1a Region du Sine-Sa1oum, ISRA, October 1978 (124,241 C) 7 Plan indicatif de la recherche agricole pour 1a Region du Senegal Oriental, ISRA, October 1978 (124,241 E) 8 Plan indicatif de 1a recherche agrico1e pour 1a Region de 1a Casamance, ISRA, October 1978 (124,241 F) 9 Plan indicatif national de 1a recherche agricole, DGRST, ISRA, February 1979 (124,655) 10- Senegal, Agricultural Research Project, lADS, Preparation Report, July 1979 (124,532) 11- U\.S\. Research Training in Agriculture and Related Areas, a Proposal for Senegal, W\.D\. Buddemeier, USAID, June 1979 12- Rapport de mission effectuee au Senegal, P\. Fallavier\. Jlli~e 1979 (laboratory equipment) 13- ~ecanisation dans le cadre du plan indicati: de Ia recherche agricole 1979-1984, J\. Dutartre, CE~~T, juin 1979 14- La recherche socio~economique a l'Institut Senegalais de Ia Recherche Agronomique, Robert Badouin e~ Jean-Pierre Dozon, IS&\, 1979  -112- P\.J,~;EX 5 Page 2 15- Fomulation de Projets de rec:'erche agrono:':;l\.que, S~negal, La Recherche Maraichere, C\. Keller, FAO, ?~me, 1979 16- Formulation de Projets de recherche agronomique, Senegal, Equipement de laboratoires, M\. Pinta, FAO, Rome, 1979 17- Formulation de Projets de rechGrche agronomique, Senegal, Equipement de stations et recherche en matiere de mecanisation agricole, B\.P\. Pothecary, FAO, Rome, 1979 18- Rapport de mission, Equipement de 1aboratoires, Maurice Pieta, FAO, Senegal, Juillet 1979 \. 19- Reflexions sur les programmes de recherche halieutique au Senegal, Jean-Paul Troadec, FAO, juin 1979 20- Les liaisons Recherche-Developpement, Propositions pour une organisation\. P\. Viguier et R\. Tourte, SERST, Octobre 1979 21- Staff Working Documents, March 1980, (125,429) 1\. Production Systems Research Programs (English and French) 2~ Commodity Research Programs (English and French) 3\. Amenagement et Equipement des Stations experimentales (French only) 4\. Civil Works and Architects' Briefs (English and French) 5\. Couts previsionnels du Projet et Financement (entries in English and French)\.  -113 SENEGAL AGRICULTURAL RESEARCH PROJECT ISRA ORGANIZATION CHART Board of Govern\.,\. I I Board ~ 1\. Scientific and Technical Committee Genera' Maneger I Comminees ; 2\. Steering Committ Intemal Auditing Financia' and and Budgetary Adrninistratlve Control Unit I Direettlr "Agent Comprable !>articuli\." I ACP! H Accounts I H Monitoring and Budget evalu8tion Unit Macro- \. Economics Unit Personnel I J I r--\.l---,I r--\.J\. ----,I I Commoditv L\.ivetock SuPPort I A\.reh Oepamnent II SUPpOrt A\.reh O\.partment I Production Systems R _ h O~rtm\.nt I Sentic\. Oepartm\.nt I I ,For\.stry L __ ~~~ __ Oeeanography Departm\.nt J I L_\.!~O O\.oort ~;~ I -----' I J 6\. KOlda Senior I Nutrition I Centr\.1 A\.reh 1\. 2\. Fanave Oahr\. 6\. Ojibelor I BiochemistrY Systems I Station Staff I I Analysi\. Group Management 3\. Bembey -: - 4\. Niorodu Aip H MiII\.1~ Prograrl H Reproduction Ptwliology H Senogal Aiver Pogram ~ Central Laboratories 1\. Bambey 2\. Oakar-Hann ' I- Sorghu'J Program I- Pathology IGeneticsl I ; I- Sylvo-Pastoral Program I- Manpower oawlcpment' and Training Unit -1 Maize,~ Prog_ ~ I H Pathology (Trvpenolomiosil'! ; I ~ Sin\.Saloum Program I 1 Technical SuPPOrt Unit (TSUl 1 Upper 1 H H Oocum\.ntation Rice', Program ~ Epidemiology [ Casamance Program I and Publication Unit H H co~"J L\.oWlr Oata Processing Casamance and Statistics Progra\.,\., ; Program I Unit I\. 1\. Seed Produclion r----'2\. H L \.nd~ 1 Support Vaccine Production GrOUndnu':-l Production 3\. Animal H\.lth Servic\. A\.rel! Program ; I Technical Services; 4\. Bread Improvement WaltOn ; ,--\.J 1\. _ _ _ _ _ -' I I r----\., Hortieultu,\. I Support 1\. Microbiology '-I \._-1 L\. _ _ _ ICOHl I I Re\.rch CroP Production II 2\.Biocl imatology 3\. Soil PhYSiCS 4\. Soil Conservation ,\. 5\. Sod ChemIstry IF\.nlhty B\. Weed Con ltOI 7\. POSt Harveot Technology 8\. Agricultural Engineering *Seif~fina"clng operati ons 9\. Irrigation and Drainage World aank 21580  -114 SENEGAL AGRICULTURAL RESEARCH PROJECT RESEARCH STATION ORGANIZATION CHART (Fanaye, Bambey, Nioro du Rip, Djibelor) STATION MANAGER FINANCIAL AND RESEARCH TECHNICAL ADMINISTRATIVE STAFF SECRE SERVICES SERVICES TARIES POOL SUPPLIES AND STOCK WORKSHOP CONTROL Liai$On World Bank - 2157B  -115 SENEGAL AGRICULTURAL RESEARCH PROJECT IMPLEMENTATION SCHEDULE Project Year :TIl PY 2 PY 3 PV4 PY 5 PY 6 COMMODIT" RESEARCH PROGRAM Millet Sorghum Maize Rice CoV'4)ea Groundnuts PRODUCTION SYSTEMS PROGRAM Senegal Ro\. I f Svlvo-PastOral Zone -,\.- Sine SaloutTI Upper Casamance \.-\.,-\. Lower Casamance \.~\. CIVI L WOR~:S Building CorlstNction Station Owe! opment PURCHASE '~ND DELIVERIES OF: Vehicles and Fann Equipment Laboratory EQu ipment Office Furnl!ure and EQuipment TRAINING M\.Sc\. Training Ph\.D Training \. World Bank 21579  ) ~' 16' 12' MARCH MA, URfTANIA 1 I i /' '-", ~, MA I I / To NOl\.iol:cholt SErEGAI""'-'~',J / NIGER r' '-\. l, \." -r" ,AMBfPL,\., --z\. , ,\.r'">, ,\.J -'UPPER \ NEA ~""i r" ~, i '\\.,~ RAt ' e/'1,( ,VORr ,I /0 r,l,l ERIAl COAST '~ If - - F l J: ""-------<\.:-\.- -- l~~ ct\.'on 16' AOO~'-\. 18' This has been prepared by the World staff exclusIvely tOI I '\'0:\. the convenience of the readers of ) " '! report to which denommatiuns used and the It is attached \." t,\. boundaries shown on this map / \.r", do nnt imply, on the part of the World Bank and Its affIlIates" any ludgment on the legal statu\.' of L o G;;--/A \.--(""-/ () \. < " any terntory or any endorsement or acceptance of such boundaries \, DA 416 \./ ~~'?~ \. / \./ \./ Area Research Stations 6 Toube're' I<orol I o Other Research Locations , - I I - __/ , ' I J Ecological Zones / / ( 700-- Isohyets in mm \ 00- Cays of Rain Population Density / Km 2 o 5 5 20 20 - 50 w > 50 Paved Roads Gravel Roods Earth Roads - - - Paved Roads under Construction Railways F Ferr ies -t- Airports Provincial Boundaries International Boundaries ~ 18' 16' 12'

APPROVAL

P114875

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 59965-VN PROJECT PAPER ON A PROPOSED ADDITIONAL LOAN IN THE AMOUNT OF US$180 MILLION TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE SECOND TRANSMISSION AND DISTRIBUTION PROJECT February 28, 2011 Infrastructure Unit Vietnam Sustainable Development Department East Asia and the Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without the World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2011 Currency Unit = Vietnam Dong (VND) 19,497 VND = US$1 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS CPPMB Central Power Projects Management Board CPS Country Partnership Strategy D/E Debt Equity Ratio DSCR Debt service Coverage Ratio EA Environmental Assessment EG Environmental Guidelines EMDP Ethnic Minority Development Plans EMDPF Ethnic Minority Development Planning Framework EMP Environmental Management Plan EMS Energy Management System ERAV Electricity Regulatory Authority of Vietnam EVN Vietnam Electricity Company FM Financial Management GHG Greenhouse Gas HCMC PC Ho Chi Minh Power Company ISR Implementation Status and Results Report Km Kilometers kV Kilovolts MVA Megavolts Amperes NLDC National Load Dispatch Center (NLDC) NPT National Power Transmission Company (NPT) O&M Operation and Maintenance PC3 Power Company 3 PDMP Power Development Master Plan PPMBs Power Projects Management Boards (PPMBs) QAG Quality assurance Group RAP Resettlement Action Plans RPF Resettlement Policy Framework SCADA System Control and Data Acquisition SEIER System Efficiency Improvement Equitization Renewables SFR Self Financing Ratio SPPMB Southern Power Projects Management Board TD2 Second Transmission and Distribution Project VDIC Vietnam Development Information Center VND Vietnam Dong Vice President: James W\. Adams Country Director: Victoria Kwakwa Sector Director: John Roome Sector Managers: Jennifer Sara / V\. Jagannathan Task Team Leader Joel J\. Maweni  VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING CONTENTS I\. Introduction \. 1 II\. Background and Rationale for Additional Financing \. 1 III\. Proposed Changes \. 6 IV\. Appraisal Summary\. 10 Annex 1: Revised Results Framework and Monitoring Indicators\. 19 Annex 2: Detailed Project Description\. 22 Annex 3: Updated Implementation Arrangements \. 25 Annex 4: Financial Management and Disbursement Arrangements\. 26 Annex 5: Procurement\. 30 Annex 6: Environmental and Social Safeguards\. 33 Annex 7: Economic and Financial Analysis\. 35 Annex 8: ISR Ratings\. 41 Annex 9: Project Processing\. 42 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without the World Bank authorization\.  VIETNAM SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Victoria Kwakwa Sectors: Power (100%) Sector Manager/Director: Jennifer Sara/John Themes: Infrastructure services for private Roome sector development (100%) Team Leader: Joel Maweni Environmental category: Partial assessment Project ID: P114875 Expected Closing Date: June 30, 2014 Expected Effectiveness Date: June 30, 2011 Joint IFC: Lending Instrument: SIL Joint Level: Additional Financing Type: Scale up Basic Information - Original Project Project ID: P084871 Environmental category: Partial assessment Project Name: Second Transmission and Expected Closing Date: June 30, 2014 Distribution Project Lending Instrument: SIL Joint IFC: Joint Level: AF Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: Variable spread loan repayable over 25 years, including a grace period of 10\.5 years\. AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 372\.40 Cofinancing: Borrower: 192\.40 Total Bank Financing: IBRD 180\.00 IDA New Recommitted Client Information Recipient: National Power Transmission Corporation Responsible Agency: Ministry of Industry and Trade Contact Person: Mrs\. Luong Lan Dung, Director, International Cooperation, NPT Telephone No\.:(84-4) 2220-1339 Fax No\.:(84-4) 2220-4455 Email: tgabgol@evn\.com\.vn  AF Estimated Disbursements (Bank FY/US$m) FY 2011 2012 2013 2014 Annual 940 79\.0 7\.0 Cumulative 94\.0 173\.0 180\.0 Project Development Objective and Description Original project development objective: The objective of the project is to: (i) assist the Borrower in developing an efficient electricity transmission and distribution system, thus enabling the timely evacuation of power from new electricity generation plants to growing load centers and the maintenance of syst em security and reliability and power quality; and (ii) contribute to the restructuring of the Borrowers power sector\. Revised project development objective: N/a Project description: The proposed additional loan will finance the following activities: 1\. Transmission lines and Substations (a) Construction of a 500kV transmission line of about 139 km to help complete the VHV power loop around the greater Hanoi metropolitan area (b) Expansion of existing 500kV/220kV substations to improve the power transmission capacity in the Ho Chi Minh city area and to support power evacuation from major power stations in the western part of south Vietnam (c) Four 220kV transmission lines and related substations to improve transmission capacity and help meet increasing power demand in the Mekong delta area and around the Ho Chi Minh City area 2\. Technical Assistance: Capacity building to enhance NPTs capabilities in the critical areas of investment planning and financing, debt management, and the management of regulatory affairs\. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4\.01) [ X ]Yes [ ] No Natural Habitats (OP/BP 4\.04) [ ]Yes [ X] No Forests (OP/BP 4\.36) [ ]Yes X ] No Pest Management (OP 4\.09) [ ]Yes [ X ] No Physical Cultural Resources (OP/BP 4\.11) [ ]Yes [ X] No Indigenous Peoples (OP/BP 4\.10) [ Y ]Yes [ ] No Involuntary Resettlement (OP/BP 4\.12) [ Y]Yes [ ] No Safety of Dams (OP/BP 4\.37) [ ]Yes [ X] No Projects on International Waters (OP/BP 7\.50) [ ]Yes [ X] No Projects in Disputed Areas (OP/BP 7\.60) [ ]Yes [ X ] No Does the project require any waivers of Bank policies? [ ]Yes [ X ] No Have these been endorsed or approved by Bank management? [ ]Yes [ ] No  Conditions and Legal Covenants: Financing Agreement Description of Condition/Covenant Date Due Reference Loan/Project Agreement Reference 1\. Section 4\.01 of the The Additional Conditions of Effectiveness: Before effectiveness of the LA (a) Subsidiary Loan Agreement executed on Loan behalf of the Borrower and NPT (b) Ratification of the Subsidiary Loan Agreement by the Borrower and NPT Section II D\.3 of the NPT shall have its financial statements audited by Not later than six (6) months Schedule to the PA independent auditors acceptable to the Bank, in after the end of each fiscal accordance with consistently applied auditing year standards acceptable to the Bank\. Each audit of these financial statements shall cover the period of one (1) fiscal year of NPT\. NPT shall ensure that the audited financial statements for each period shall be: (a) furnished to the Borrower and the Bank not later than six (6) months after the end of the period; and (b) made publicly available in a timely fashion and in a manner acceptable to the Bank\. Section II D\.5 of the (a) NPT shall produce, for each of its fiscal years Indicated targets for each Schedule to the PA after its fiscal year ending on December 31, 2010, year funds from internal sources equivalent to not less than the following relative to the annual average of NPTs capital expenditures incurred, or expected to be incurred, for that fiscal year: (i) twenty percent (20%) in its fiscal years 2011-12; and (ii) twenty-five percent (25%) in its fiscal years thereafter\. (b) Before December 31 in each of its fiscal years, NPT shall, on the basis of forecasts prepared by the Borrower and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) above in respect of such year Not later than December 31 and the next following fiscal year and shall furnish of each year to the Bank a copy of such review upon its completion\. (c) If any such review shows that NPT would not meet the requirements set forth in subparagraph (a) for NPTs fiscal years covered by such review, NPT shall promptly take all necessary measures (including, without limitation, financial restructuring, promotion of private sector participation, promotion of efficiency, adjustments of the structure or levels of its tariffs, and making a request of financial assistance to EVN) in order to Soon after date indicated meet such requirements immediately above as applicable Section II D\.6 of the Except as the Bank shall otherwise agree in writing, Indicated targets for each Schedule to the PA NPT shall not incur any debt in its fiscal years fiscal year 2011-13, if, after the incurrence of such debt, NPTs ratio of debt to equity shall be greater than: (i) 80:20 in its fiscal year 2011; and (ii) 75:25 in its fiscal years thereafter\. Section II D\.7 of the Except as the Bank shall otherwise agree in writing, Indicated targets for each Schedule to the PA NPT shall not incur any debt unless a reasonable fiscal year forecast of the revenues and expenditures of NPT shows that the estimated net revenues of NPT for each fiscal year during the term of the debt to be incurred shall be at least the following relative to the estimated debt service requirements of NPT in such year on all debt of NPT, including the debt to be incurred: (i) 1 time in its fiscal year 2011; (ii) 1\.3 times in its fiscal year 2012; and (iii) 1\.5 times in its fiscal years thereafter\. Section II D \.9 of the NPT shall promptly take all necessary measures Schedule to the PA (including, without limitation, financial restructuring, promotion of private sector participation, promotion of efficiency, adjustments of the structure or levels of its tariffs, and making a request of financial assistance to EVN) in order to meet the requirements set forth in paragraphs 4, 5, 6, and 7 of this Schedule\. Section II D\.10 of the EVN shall promptly take all measures necessary on Schedule to the PA its part, including the provision of financial assistance, to enable NPT to comply with said requirements\.  VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING I\. Introduction 1\. This Project Paper1 seeks the approval of the Executive Directors to provide additional financing in the form of an IBRD Loan of US$180\.0 million to the Socialist Republic of Vietnam for transmissions activities under Component 1 ­ Transmission and Distribution System Expansion and Reinforcement ­ of the Vietnam Second Transmission and Distribution Project (P084871; CR4107-VN)\. 2\. The proposed additional financing would scale up the Transmission System Expansion and Reinforcement subcomponent of the project (subcomponent 1\.1) so as to support efficient development of Vietnams power transmission system\. This subcomponent comprises 500 kilovolt (kV) and 220kV transmission lines and substations\. Subcomponents 1\.2 and 1\.3 which cover 220/110kV gas-insulated switchgear substations and regional distribution system expansion and reinforcement respectively, and the Electricity Market and System Operations Modernization (Component 2) are not proposed for scaling up\. A small amount of additional financing (US$0\.50 million) will be added to Component 3 ­ Transition to Market ­to upgrade the capacity of the newly established National Power Transmission Company (NPT) to efficiently plan and finance its investment program and operations in a financially sustainable manner\. 3\. Responsibility for implementation of subcomponent 1\.1 of the parent project and of the additional financing for this subcomponent and Component 3 will be transferred from Vietnam Electricity (EVN) to NPT, in line with the sector restructuring reforms which resulted in the creation of NPT, in June 2008, as an autonomous subsidiary of EVN with responsibilities for construction and operation of the national power transmission system\. II\. Background and Rationale for Additional Financing A\. Original Project Background 4\. The Second Transmission and Distribution Project (TD2) was approved by the Board of Executive Directors on July 28, 2005 for an amount of SDR 136\.70 million (equivalent to US$200 million at the time) and became effective on May 31, 2006\. The current closing date is June 30, 2011\. Management has approved a three-year extension to June 30, 2014 to allow enough time for completion of the Electricity Market and Modernization component\. Amendments to the legal agreements to reflect the extension and changes in implementation 1 This Project Paper also serves as the restructuring document for the transfer of implementation responsibilities for the transmission subcomponent and for the capacity transmission capacity building component from the Vietnam Electricity to the National Power Transmission Company\. 1 arrangements will be signed between the Bank and the Borrower after approval of the Additional Financing Loan\. 5\. The project development objective is to support the efficient development of Vietnams transmission and distribution system\. This is to be achieved by facilitating evacuation of power from new generation facilities, reducing transmission interruptions and overloading, and improving the quality of supply by decreasing voltage excursions in the transmission system\. A set of indicators was selected to track the impact of the project on dispatch efficiency and system reliability and other indicators were also selected to track the impact of the project on sector reform and restructuring\. 6\. The project consists of the following three components: Transmission and Distribution System Expansion and Reinforcement which comprises subprojects for 500kV and 220 kV transmission lines and related substations and for selected 110kV distribution systems (US$176\.6 million, IDA)\. This component was designed flexibly to allow the inclusion of new high priority subprojects as they become ready for implementation and to drop those whose preparation was delayed or whose priority in relation to meeting project development objectives had reduced\. A clear set of criteria for inclusion of subprojects was agreed at appraisal; Electricity Market and System Operations Modernization which supports the replacement of national and regional dispatch and control systems (US$21\.8 million, IDA); and Market Transition Support which provides technical assistance for reform and restructuring of EVN and its subsidiaries as part of the transition support towards an electricity generation market (US$1\.65 million, IDA)\. 7\. The basic design of the project has not changed\. However, a number of subprojects have been dropped because their implementation schedules indicated that they could not be completed within the life of the project\. Others were transferred to the System Efficiency Improvement Equitization Renewables Project (SEIER) (Cr\.3680-VN) to make use of surplus funds and new ones have been introduced into TD2\. These changes impact the target values of the intermediate (output) indicators which are, therefore, being updated as part of this additional financing preparation\. 8\. The Project is being implemented by EVN and its subsidiary companies\. Component 1 is being implemented as follows\. Subcomponent 1\.1 -Transmission System Expansion and Reinforcement by EVN, which has delegated the task to two regional power projects management boards (PPMBs) - the Southern Power Projects Management Board (SPPMB) and the Central Power Projects Management Board (CPPMB), both now part of NPT; Subcomponent 1\.2- the 220/110kV Gas-insulated switchgear substations by the Ho Chi Minh City Power Company; and 2  Subcomponent 1\.3 ­ Regional Distribution System Expansion and Reinforcement by the Power Company 3, now renamed Central Power Corporation\. 9\. Component 2 for the Electricity Market and System Operations Modernization is being implemented by a specially-established Project Management Board (PMB) within EVNs National Load Dispatch Center (NLDC) in collaboration with the three regional dispatch centers\. The Market Transition Component (3) is being implemented by EVNs Power Market Department\. B\. Implementation Performance Progress towards Achieving Project Objectives 10\. The Project is on track to meet its development objectives\. The project design includes three key indicators for assessing the achievement of development outcomes as follows: (i) generation capacity linked to the 500kV system financed by the project; (ii) number and duration of interruptions in the 500kV, and 220kV transmission system and in the 110kV distribution system; and (iii) peak hour minimum voltages at system weak points\. The project design envisages that these outcomes will be realized on completion of the transmission and distribution investments\. The number of completed kilometers of transmission lines and substation transformer capacity serve as intermediate indicators for tracking progress towards achieving the project outcomes\. Thus, comparing these outputs to their expected values at mid -term and other points during implementation helps to assess the likelihood that their expected end values will be achieved, and that the project objectives will be met\. 11\. As of the end November 2010, the completion rates for 500kV transmission lines and 500/220kV transformer capacity are about 31% and 60% of the end project values\. The completion rates are calculated using the expected end of project outputs based on the final list of subprojects included under TD2\. The final list shows that there has been a modest shift in the expected outputs from transmission lines, measured as an output in terms of circuit kilometers (km) constructed, to substations, measured as an output in terms of Megavolt Amperes (MVA) constructed\. 12\. The completion rates would be still higher were it not for an overall delay of about 15 months in the implementation of the transmission and distribution system expansi on and reinforcement component\. However, the causes of the delays have been overcome and the bulk of the contracts accounting for US$175 million (90%) out of US$1952 million of IDA financing for this component have already been signed and are being implem ented satisfactorily\. This and the positive completion rates provides strong confidence that the project is on track to accomplish its development objectives\. 2 Financing for this component is higher than the original estimate of US$176\.6 million due to the appreciation of the SDR against the US$\. 3 Overall Status of Implementation 13\. The overall implementation performance has been satisfactory at all times, although some delays have occurred on Component 1- Transmission and Distribution System Expansion and Reinforcement- due to: (i) high rates of inflation between October 2007 and 2008 which affected a number of contracts resulting in several contracts having to be rebid; and (ii) delays in clearance of project sites due to delayed compensation processes, worsened in some recent cases by changes in regulations\. Component 2 - Electricity Market and System Operations Modernization- (involving the supply and installation of system control and data acquisition/energy management systems), is delayed by about 15-18 months\. Component 3- Transition to Market Support which finances technical assistance for preparation of an optimized transmission system development plan is progressing well\. 14\. The causes for delays to Component 1, which accounts for more than 90% of the total project costs, have been resolved\. Similarly Component 3 is also rated satisfactory, and only Component 2 is rated marginally satisfactory\. Implementation of Component 2 has been delayed due to uncertainty regarding the housing of the NLDC and has been rated Moderately Satisfactory for the last several ISRs\. While the decision has been taken to house the NLDC in a new EVN building that is under construction, and procurement of the supply and installation contractor is in progress, upgrading the IP rating for this component will be based on satisfactory progress over the next twelve months\. 15\. Disbursements and Commitments: As of November 29, 2010 about US$125 million of the Credit (or 59%) had been disbursed and about US$85 million (41%) remained undisbursed 3\. Total commitments amounted to US$176\.5 million or 83 percent of the total credit amount\. Thus, about US$36\.6million remained to be committed on three subprojects: US$16\.9 million for the NLDC SCADA/EMS (component 2), US$10\.4 million for the Phu My Song May-Tanh Dinh 500 kV (2nd circuit) T/L, and US$9\.3 million for the Song May 500kV substation\. The bidding documents for the NLDC component have been issued and bids are scheduled to be submitted in January 2011\. 16\. Financial Management of the project is satisfactory\. Quarterly financial management reports have been produced on time, and audits have been provided on schedule\. Financial management has been consistently rated satisfactory throughout the lifetime of the project\. 17\. Procurement Management is satisfactory\. EVN, through its power project management boards, the NLDC and its distribution subsidiaries have procured more than 70 contracts, mainly for goods and works under the project\. Most procurement decisions and documentation are of good quality, and procurement generally takes place in a timely fashion\. There have been some complaints reported, but all have been resolved to the Banks satisfaction and no cases of fraud and corruption have been detected\. Thus, overall, procurement has been well managed with satisfactory ISR ratings throughout the projects life, except the marginally satisfactory rating during 2007-2008 because the update of the procurement plan was submitted late\. 3 Total Credit of US$213 equivalent is higher that the US$200 million equivalent at n egotiations due to the appreciation of the SDR versus the US$ 4 18\. Safeguards Compliance is also satisfactory\. TD2 triggered safeguards policies OP 4\.01, OP 4\.20 and OP 4\.12\. At the beginning of the project Environmental Assessments (EAs), Environmental Management Plans (EMPs), and Resettlement Action Plans (RAPs) were prepared, as part of the appraisal process, for all subprojects in phase 1\. For phase 2 subprojects which were to be appraised during the project implementation phase, Environmental Guidelines (EG) for Transmission and Distribution Projects, the Policy Framework for Resettlement, Compensation and Rehabilitation of Project Displaced Persons (RPF) and the Ethnic Minorities Development Planning Frameworks (EMDPF) were used for preparation of EAs, EMPs, RAPs, and for Ethnic Minority Development Plans (EMDPs)\. Thus, all subprojects are prepared, cleared by the Bank and disclosed as part of the appraisal process for individual subprojects and in accordance with the Banks safeguards policies\. 19\. During implementation the CPPMB and the SPPMB have retained independent consultants to monitor the execution of EAs/EMPs, RAPS and EMDPs as they apply for each subproject\. Overall implementation of safeguard plans has been satisfactory as reflected in the ISR and QAG ratings\. However, the quality and timeliness of the reports by independent monitoring consultants has been a concern\. The primary causes for these problems have been the repeated use of the same consultant by the SPPMB resulting in capacity constraints and the laxity in the SPPMBs own supervision of the consultants\. The result has been that in some cases problems were not identified early enough to avoid delays in project implementation, for example through delays in clearance of project sites\. These problems were discussed during implementation especially during the mid-term review with the result that recent short lists contain a better diversity of independent monitoring consultants\. The SPPMB has strengthened its supervision efforts and the Bank is closely reviewing and commenting on the consultants reports\. Compliance with Covenants 20\. This Project is in compliance with all dated legal covenants\. There are no overdue or qualified audit reports\. Overall compliance with project covenants is satisfactory\. Timely submission of audited accounts has improved in recent years and only small delays h ave occurred for both 2007 and 2008\. The audited financial statements for 2009 were received on time and were unqualified\. The Project Agreement requires EVN to achieve a self- financing ratio (SFR) of 25%, a debt service coverage ratio (DSCR) of 1\.5 times and to maintain a debt/equity ratio (D/E) not higher than 70:30 for each fiscal year\. EVN has complied with these financial covenants every year up to 2007\. However, in recognition of a sharp drop in internally generated funds and a higher than average increase in capital expenditures, the Bank agreed to EVNs request to waive the self financing and debt service coverage ratios for 2008 and to set them at lower than originally covenanted levels for 2009\. The reduced SFR and DSCR ratios for 2009 were 15% and 1\.0 times respectively\. In 2009 EVN met all the three financial covenants with a DSCR of 1\.1, a SFR of 32% and a D/E of 68:32\. 21\. Similar financial covenants will be agreed with NPT under the additional financing loan\. Since NPT has only been recently established and is currently incurring financial losses, a satisfactory financial improvement plan backed by EVN will be submitted to the Bank prior to project appraisal\. 5 Rationale for Additional Financing 22\. Power transmission systems need to develop in tandem with the growth in demand and the objectives of power system expansion to achieve adequate quantity and acceptable quality of electricity to consumers and to ensure universal or high levels of population access to electricity\. With the Banks support since the 1990s, Vietnam has made important strides in developing its power system, linking the northern and southern parts of the country through the 500kV system, and achieving substantial improvements in the quality and coverage of electricity supply\. In parallel with the investments, the country has undertaken reforms of its power sector leading to private sector participation in generation and has started to move towards a competitive generation market\. As part of the reforms, the transmission business has been separated into an autonomous subsidiary, NPT, to provide an open access power transfer regime for generators and distributors\. NPT will in the longer term become an independent company\. 23\. With power demand rising at a rapid pace of about 15% for most of the past decade, except in 2008 when it fell to about 10% due to the global economic downturn, investment requirements in all segments of the power system, including transmission are very high\. The proposed additional financing would support the scale up of the transmission system expansion and reinforcement subcomponent under TD2 as a rapid response to financing investments needed to efficiently cope with rising demand\. It would also support the strengthening of the capacity of NPT to plan and finance its operations to effectively play its role as an efficient developer, owner and operator of transmission assets in the restructured power market\. 24\. The proposed additional financing is consistent with the objectives of the Country Partnership Strategy (CPS) for 2007-2011 as updated by the CPS Progress Report (Report 51689 VN) of November 2009\. As part of the first pillar, to improve the business environment, the CPS adopts the broad aim of meeting demand for reliable and cost efficient energy\. The additional financing will support high priority transmission lines and substations in areas where demand growth is already constrained by system bottlenecks or is expected to become so in the next few years\. III\. Proposed Changes Purposes of Additional Financing 25\. The purpose of the proposed additional financing is to scale up the impact of transmission system expansion and reinforcement\. The total funds for scale up activities are estimated at US$382 million of which US$180 million is proposed for financing by IBRD\. The activities will be fully completed by June 30, 2014\. Changes in Project Development Objective and Outcome Indicators 26\. There are no proposed changes to the Project Development Objectives which are to: (i) assist the Borrower in developing an efficient electricity transmission and distribution system, thus enabling the timely evacuation of power from new electricity generation plants to growing load centers and the maintenance of system security and reliability and power quality; and (ii) 6 contribute to the restructuring of the Borrowers power sector, but there are some changes in the intermediate and outcome indicators\. First, outcome indicators that measure the number and duration of interruptions on the 500 and 220kV systems have been calculated excluding the impact of natural phenomena such as typhoons so as to better capture the changes due to transmission investments\. The baseline statistics have been accordingly amended using EVNs historical records\. Second, the intermediate indicators which measure number of km of transmission lines constructed and transformer capacity installed as a result of the project expenditures are restated based on the actual subprojects implemented (Table 1)\. The incremental outputs resulting from the additional financing are added as shown below to give the end project expected values\. Table 1: Revised Intermediate (Output) Indicators Parent Project Parent Project Revised Original Revised Change Intermediate Indicator End Project End-Project End-Project W/AF Target (W/AF) Target Target 500kV transmission lines (km) 567 363 139 502 220kV transmission lines (km) 0 24 156 180 500/220kV transformer capacity (MVA) 1950 1500 1050 2550 220/110kV transformer capacity (MVA 1250 2000 625 2625 Proposed Activities 27\. The additional financing will scale up investments to support continued efficient development of the transmission system which includes strengthening financial and planning capacity of NPT\. NPT has identified ten candidate subprojects with an estimated total cost of US$382 million and has proposed additional financing for US$227 million\. Of these, seven subprojects totaling US$171 million in requested additional financing are ready for implementation and have been appraised by the Bank\. These will absorb almost the full amount of the additional loan of US$180 million\. The balance of the subprojects will form a reserve list from which those meeting the Banks appraisal criteria could be selected to replace any drop outs from the baseline list\. The criteria for appraisal of subprojects from the reserve list has been used under the parent project, has proven to be robust and includes: (i) demonstrated contribution towards project objectives; (ii) consistency with international technical standards and best practices; (iii) inclusion in the government-approved power master development plan applicable at the time; (iv) an economic rate of return of at least 10% and a financial rate of return of at least 6\.5% based on methodology acceptable to the Bank; (v) EAs, RAPs and EMDPs prepared according to framework documents and guidelines, approved by the Bank, disclosed and adopted by the Government and the implementing agencies; (vi) all necessary clearances/approvals for implementation received from relevant Vietnamese authorities; and (vii) financing, procurement and implementation plans satisfactory to the Bank prepared\. 28\. There are no changes to the project design\. 29\. The seven appraised baseline subprojects are summarized below and a detailed description of these as well as subprojects in the reserve list is provided in Annex 2\. 7  1x500kV 139 km long transmission line at a total cost of US$140 million; 2x 500kV substations at a total cost of US$71 million; 2x 220 kV transmission lines at a total cost of US$33 million; and 2x 220 kv substations at a total cost of US$22 million\. Changes in Project Costs and Financing Plan 30\. The total project costs of the parent project and the proposed additional activities are summarized in the following table\. Table 2: Revised Project Cost Estimates by Component Component Original Cost Change with Additional Revised Cost Estimates(US$M) Financing(US$M) Estimates(US$M) Transmission and Distribution Systems Expansion and 303\.23 371\.90 675\.13 Reinforcement Electricity Market and Systems 22\.80 0\.00 22\.80 Operations Modernization Market Transition Support 1\.65 0\.50 2\.15 Total Project Costs 327\.68 372\.40 700\.08 Table 3: Revised Financing Plan Component Total Financing Original IDA AF Loan Sub-borrowers (US$M) (US$M) (US$M) (US$m) Transmission and Distribution Systems 675\.13 176\.55 179\.50 319\.08 Expansion and Reinforcement Electricity Market and Systems 22\.80 21\.80 1\.00 Operations Modernization Market Transition Support 2\.15 1\.65 0\.50 Total Project Costs 700\.08 200\.00 180\.00 320\.08 Revised Disbursement Estimates 31\. The estimated disbursements for the IDA Credit and for the IBRD Additional Financing Loan are shown in Table 4\. The IBRD Loan disbursement estimates are based on firm procurement and implementation plans for baseline subprojects\. 8  Table 4: Revised disbursement estimates (Million US$) 2011 2012 2013 2014 Annual Disbursement-IDA Credit 61\.0 30\.0 Cumulative Total 61\.0 91\.0 91\.0 91\.0 Annual Disbursement- IBRD Loan 0\.0 94\.0 79\.0 7\.0 Cumulative Total 0\.0 94\.0 173\.0 180\.0 Combined Annual Disbursement 61\.0 124\.0 79\.0 7\.0 Combined Cumulative Totals 61\.0 185\.0 264\.0 271\.0 Changes in Implementation Arrangements 32\. With the creation, in July 2008, of NPT as a fully EVN owned subsidiary to construct, own, and operate the 500kV and 220kV transmission system, implementation of Subcomponent 1\.1 and Component 3 needs to be transferred to it\. The revised responsibilities for project implementation will be as follows: Table 5: Revised Responsibilities Matrix Component Subcomponent/Activity Implementing Agency Original Revised 1-Transmission and 1\.1 -Transmission System Expansion EVN/(SPPMB,CPP NPT/ (SPPMB, Distribution Expansion and Reinforcement -500 kV and 220 MB) CPPMB) kV transmission lines & substations 1\.2 -220/110kV GIS substations and EVN/(HCMCPC,) EVN/(HCMCPC) the 110kV system 1\.3-Regional Distribution System EVN/PC3 EVN(/PC3) Expansion and Reinforcement 2-Electricity Market & EVN/ (NLDC) EVN/ (NLDC) System Operations Modernization 3-Market Transition Support EVN/ (PMD) NPT Revised Closing Date 33\. Management has approved a three-year extension of the IDA Credit to June 30, 2014 to allow enough time for completion of the Electricity Market and Modernization component\. 34\. There will be no additional effectiveness conditions in the Loan Agreement other than the standard legal opinion and the execution of a subsidiary on-lending agreement for the additional financing\. 9 Legal Agreements 35\. The additional financing loan will require an IBRD Loan Agreement between the Bank and the Government of Vietnam and an on-lending agreement between the Government and NPT\. In addition, there will also be a Project Agreement between NPT, EVN and the Bank\. Amendments to the Development Credit Agreement will be required to recognize the changes in implementation arrangements and specifically to: Amendment to the Development Credit Agreement and to Project Agreement to: (i) define implementation responsibilities between EVN and NPT; and (ii) extend the Credit Closing Date to June 30, 2014\. IV\. Appraisal Summary Technical 36\. The key investments for the development of the Vietnams power sector are determined through a series of sequential power master development plans\. The current plan, the Sixth Power Development Master Plan (PDMP6) covers the years 2006 through 2015\. Transmission investments required to operate the system in accordance with the countrys security standards are identified in the PDMP6\. These are later subjected to detailed feasibility studies based on standards that generally meet international industry standards and are approved by the Government before detailed designs are undertaken\. 37\. Feasibility studies have been completed for all the 10 subprojects proposed for financing under the additional financing and Government approvals have been given for all but one which is in the reserve list\. Project Economic and Financial Analysis 38\. Project economic and financial analysis has been carried for all baseline subprojects\. Each appraised subproject has been analyzed to determine its economic and financial internal rates of return\. The threshold criteria for economic and financial viability are 10% and 6\.5% respectively as under TD2\. The average economic and financial rates of return for appraised projects (baseline list) are 19\.0% and 16\.4% respectively\. 39\. The economic and financial analysis is based on a comparison of costs and benefits with costs comprising investment and O&M costs over the life of the project while benefits comprise incremental energy sales valued at the transmission tariff per kWh\. In some cases in which it is not possible to separate benefits, subprojects have been grouped for the purpose of the analysis\. NPT's Recent Financial Performance 40\. NPTs financial performance over its first 18 months of operations as an independent legal entity has been reviewed\. Based on its audited IFRS4 financial statements, NPT incurred a net 4 International Financial Reporting Standards\. 10 loss of VND 671 billion (US$39\.2 million) 5 in 2009, its first full year as an independent entity\. This loss was large relative to NPTs scale of operations, equivalent to almost 14% of its operating revenue for the year\. NPTs financial performance in 2008 was even weaker, with the net loss being VND 578 billion (US$34\.9 million), equivalent to almost 26% of operating revenue over the six month period in which NPT operated during the year 6\. 41\. NPTs net losses in 2008 and 2009 were due to the large foreign exchange loss incurred on its foreign currency debt\. The foreign exchange loss was VND 850 billion (US$49\.7 million) in 2009 and VND 621 billion (US$36\.6 million) over the second half of 2008\. The bulk of the foreign exchange losses in both years were unrealized, meaning that they were incurred on the principal amount of NPT debt due in the future, therefore, these losses had a negligible impact on cash flows in the current year\. Vietnamese Accounting Standards, which NPT is required to use for all statutory and tax reporting purposes, allow companies to defer the unrealized foreign exchange losses for up to five years in order to avoid reporting net losses\. On this basis, NPT actually earned modest profits of VND 68 billion (US$4\.0 million) and VND 13 billion (US$0\.8 million) in 2009 and 2008 respectively\. This practice, however, does not mitigate the losses which have to be recognized into the operating results of the company at some point over the next five years\. 42\. Apart from an assessment of NPTs profitability, the Bank has also reviewed the NPTs capacity to finance its investment program, to meet its debt service requirements and has assessed the adequacy of its capital structure\. The three principal indicators used for this analysis are the self financing ratio (SFR), the debt service coverage ratio (DSCR) and the debt equity ratio (D/E)\. The DSCR is the ratio of net revenues to debt service and measures an entitys capacity to service its debts\. The D/E ratio measures the relative uses of debt and equity in a companys financing of operations and investments, with higher levels of debt increasing the risk of default on debt service payments, and posing constraints for new borrowing\. 43\. Under the parent project, target values for the three principal financial performance indicators were covenanted through the EVN Project Agreement\. The values are 25% for the SFR, 1\.5 times for the DSCR and 70:30 as the upper limit for the D/E ratio\. These covenants provide useful benchmarks for assessing NPTs performance and for setting covenants under the NPT Project Agreement for Additional Financing\. NPTs performance relative to these covenants is shown in Table 6 below\. 5 Conversion from VND to US dollars made using average exchange rates for income and cash flow figures and year-end rates for balance sheet figures\. Average exchange rates are 16,570 (2008) and 17,119 (2009)\. Year-end rates are State Bank of Vietnam inter-bank averages; 16,977 (2008) and 17,941 (2009)\. 6 Since NPT was established as a separate entity on July 1, 2008, financial results for 2008 cover only the last half of this year\. 11  Table 6: Actual NPT Financial Performance Compared to EVN Covenants under TD2 Principal Financial 2008 2009 Remarks Performance Indicator Self Financing Ratio Target (%) 25 25 Target waived for EVN in 2008 and reduced to 15% in 2009 NPT actual (%) (12) 12 Debt Service Coverage Covenant 1\.5 1\.5 Covenant waived in 2008 and reduced to 1\.0 in 2009 NPT actual 0\.9 1\.2 Debt /Equity Ratio Covenant 70:30 70:30 NPT actual 72:28 78:22 44\. Financing of Capital Expenditures: With a negative SFR in 2008 and a modest 12% in 2009, it is evident that NPT is relying on debt to fund its large capital investment program, which totaled VND 5\.2 billion (US$304 million) in 2009\. Given an even larger capital expenditure program over the next five years (estimated at US$5\.2 billion), an already high D/E ratio and a low DSCR, NPT will need to increase the proportion of investment expenditures financed from internal cash generation\. This will require increased revenue generation (transm ission charge increases), financial restructuring, optimization of investment programs, and improved operational efficiency, amongst other measures\. 45\. Debt Service Costs: The analysis shows that net revenues could only cover 0\.9 (90%) of the debt service costs in 2008\. The DSCR had improved to 1\.2 in 2009, but was still below the minimum of 1\.5 applied under the parent project to EVN\. The low DSCRs are due to the large debt burden inherited from EVN at the establishment of NPT in July 2008, the heavy borrowing which NPT has undertaken since then in order to finance its capital expenditure program, and high domestic interest rates in 2008 and 2009\. 46\. Capital Structure: The D/E ratios for both 2008 and 2009 were above the covenanted upper limit of 70:30 under the parent project\. The imbalance in the capital structure is attributable to three main factors\. First, it is a legacy of past financing arrangements for the fu nding of transmission investments by EVN prior to the establishment of NPT in 2008\. Second, since its establishment NPT has relied heavily on borrowing to fund new capital investments\. Third, the foreign exchange losses incurred during 2008 and 2009 have exacerbated the imbalance in the capital structure\. NPT's Future Financial Prospects 47\. During project preparation, EVN, NPT and the Bank team agreed that a financially viable NPT is essential to ensure successful implementation of the sectors large transm ission investment program over the next five years and to ensure that these investments are sustainably operated and maintained over the longer term\. There was realization that without strong cash flows, NPT will find it increasingly difficult to raise debt and generate counterpart funds for its investment program while fully servicing existing debt\. 12 48\. NPT and EVN staff, and the Bank task team worked together, and in consultation with the Electricity Regulatory Authority of Vietnam (ERAV) over several months to develop a financial improvement plan for NPT\. Three options were identified and financial projections were prepared to test the feasibility of NPT achieving the three covenants under the parent project\. The options have a number of common features such as an optimized investment program and operating costs, and common assumptions regarding inflation, exchange rates, and interest rates applicable to new borrowings\. The key differences among the options are with regard to the magnitude and spread of assumed transmission tariff increases and the level of support from EVN through equity injections and/or debt equity conversions\. The key elements of each option are summarized in Table 7 below\. Table 7: Options for Improving NPT's Financial Performance (2011-2015) Option Action Plan Element 1 Increases in transmission charges of 18% on average per annum over the 2011 ­ 2015 period, with substantial upfront increases of 30% and 22% in 2011 and 2012\. VND 12,000 billion fixed asset revaluation in 2011/2012\. No intervention by EVN would be expected\. 2 Increases in transmission charges of about 28% and 17% during the period 2011 and 2012 respectively and then about 15% on average subsequently up to 2015 VND 12,000 billion fixed asset revaluation in 2011/2012\. Debt/equity conversions by EVN totaling VND 2,160 billion with the largest conversion of VND 736 billion taking place in 2011\. 3 Increases in transmission charges of 14% per annum over the 2011 ­ 2105 period\. EVN cash injection of VND 536 billion in 2011 Debt/equity conversions totaling VND 5,418 billion between 2011 and 2015\. VND 12,000 billion fixed asset revaluation in 2011/2012\. 49\. Based on the financial projections, it was concluded none of the options would enable NPT to immediately achieve the financial covenants applied to NPTs parent, EVN\. For EVN, the minimum SFR and DSCR are 25% and 1\.5 respectively, while the D/E ratio is to be maintained at not more than 70:30\. For NPT, these covenants could only be achieved immediately with much greater increases in the transmission charge and/or larger debt equity conversions or cash injections by EVN\. Substantially larger upfront tariff increases than those incorporated into the three options were not considered socially and politically feasible\. Similarly, large equity injections and/or debt equity conversions beyond those incorporated into Options 2 and 3 are not considered affordable to EVN\. 50\. It was agreed to base NPTs financial improvement plan on a set of increasing targets for the SFR, DSCR and D/E ratio over the next five year period\. Over this period, NPT would progressively improve its financial performance so that it can meet the same covenants applied to EVN\. The financial projections indicate that these improvements can be achieved under any of the three options\. Based on these projections, covenants have been set as in Table 7\.4\. NPT would achieve an SFR of at least 20% by 2012 and then at least 25% by 2013 and thereafter\. NPTs DSCR would be improved from a minimum of 1\.0 in 2011, to 1\.3 in 2012 and then to at least 1\.5 in 2013 and thereafter\. The D/E ratio would also be improved, but more gradually, 13 from a maximum of 80:20 in 2011, to 75:25 over the 2012 ­ 2014 period, and then to 70:30 by 2015\. Table 8: NPT Financial Covenants 2011 2012 2013 2014 2015 & Beyond Self Financing Ratio (not less than) None 20% 25% 25% 25% Debt Service Coverage (not less than) 1\.0 1\.3 1\.5 1\.5 1\.5 Debt to Equity Ratio (not greater than) 80:20 75:25 75:25 75:25 70:30 51\. EVN has approved option 1 of the NPT financial improvement plan with a caveat that some of the non-tariff measures under options 2 and 3 (equity injections and debt to equity conversions) would be triggered if needed to meet NPTs financial covenants\. 52\. The NPT project agreement will include covenants committing NPT to achieve the three key financial indicators as indicated in Table 8 and para\.50\. In addition, EVN will commit to supporting implementation of NPT financial improvement plan through the project agreement\. Institutional Arrangements 53\. The implementation arrangements for the project will change with the transfer of Subcomponent 1\.1 and Component 3 to NPT\. However, since the same PMBs that have been managing the subprojects under EVN have been transferred to NPT, no significant impact is expected on the project procurement, financial management and monitoring performance\. At the corporate level, NPT has prepared a satisfactory operational manual which claries responsibilities and defines internal procedures for project management and monitoring\. Financial restructuring activities will managed by NPTs finance department with close supervision from the CEOs office given the critical importance of a financially strong NPT to the expansion, and maintenance of an efficient power transmission system\. Financial Management and Disbursement Arrangements 54\. A financial management (FM) assessment of NPT has been carried out and has concluded that the FM risk is low and that NPT has adequate capacity to implement the project\. Annex 4 provides further details on the FM assessment\. 55\. The assessment for the additional financing, based on guidelines issued by the Financial Management Sector Board has concluded that the project meets the minimum Bank financial management requirements, as stipulated in BP/OP 10\.02\. The project will continue to have acceptable financial management arrangement in place for implementing the operation providing reasonable assurance that the proceeds of the Loan will be used for the purposes for which the Loan was given\. Financial management risk is the risk that World Bank loan/grant proceeds will not be used for the purposes intended and is a combination of country, sector and project specific risk factors\. The FM risk rating proposed for this project is low\. FM ISR rating is satisfactory\. No outstanding audits or significant audit issues exist\. The audit opinion on the Project financial statements for the year ended 31 December 2008 was unqualified\. 14 56\. Although the entity audit reports for EVN and the Power Companies were qualified, this had no significant impact on the project financial statements\. All the auditor recommendations on internal controls and the issues related to qualified opinions on the entities financial statements have been brought to the attention of Project and entities managements\. 57\. Project-related management has strongly committed to address these issues as well as to ensure timely submission of audit reports\. With the transfer of implementation responsibilities for subcomponent 1\.1 and Component 3 to NPT, its financial statements audited by auditors acceptable to the Bank will also be submitted to the Bank annually, no later than 6 months after financial year end\. 58\. Under the parent project EVN is responsible for preparing the withdrawal applications and making payments to contractors\. However, from September 2010, EVN has authorized NPT to sign withdrawal applications and other related documents for disbursements\. \. With the additional financing proceeds and the transfer of implementing entity from EVN to NPT, it is proposed that a Designated Account is opened for NPT with a ceiling of USD1\.0 million\. Traditional disbursement method with advance, reimbursement, direct payment and special commitment is to be applied\. Details are provided in the Disbursement Letter\. Procurement 59\. The additional financing procurement for subcomponent 1\.1 will be managed by NPT through the SPPMB and CPPMB, the same power projects management boards which have been transferred to NPT en bloc as part of the power sector restructuring\. The only change is that procurement activities for components 1 and 3 (ongoing activities plus the additional financing) will now be monitored by NPTs corporate management instead of EVN\. The procurement capacity assessment has confirmed that NPT has adequate capacity to manage the project\. Additional support will be provided to NPT procurement staff through training and workshops\. 60\. Procurement under the proposed Additional Financing will be carried out by the NPTs Project Management Boards (SPPMB and CPPMB) in accordance with the ,,World Banks Guidelines: Procurement under IBRD loans and IDA Credits, published by the Bank in May 2004, revised October 1, 2006 and May 2010,,Guidelines: Selection and Employment of Consultants by World Bank, published by the Bank in May 2004, revised on October 1, 2006 and May 2010 and the provisions stipulated in the Financing Agreement\. The Banks procurement capacity assessment of NPT has concluded that the NPT has adequate knowledge and experience to implement the proposed additional financing\. The overall procurement risk has been rated low\. Details on procurement risk rating and mitigation measures, procurement arrangements and Bank review requirements are provided in Annex 5\. Environment 61\. Expansion of the transmission system tends to have positive environmental and social impacts by enabling the selection of power plants sites away from population centers and at locations where impacts can be more easily managed and reducing the number of smaller "dirty fuel" back up and auto generation plants\. In addition they improve efficiency and, therefore, 15 contribute to some reductions in GHG emissions\. Negative environmental and social impacts for the transmission activities to be financed by the additional financing will be minor and temporary, and will include: impact of access roads on population settlements and of construction activity on the water quality in areas with high densities of rivers and canals\. Social 62\. The activities to be financed by the additional financing will not introduce different benefits or new issues from those resulting from activities under the original project\. Thus consumers in the affected load areas will experience improvements in power supply which can stimulate investment, employment and productivity\. On the negative side households may experience restrictions in land use and suffer disturbances as a result of construction activities, but these activities are not large\. Safeguards 63\. The EG and the EMDPF framework documents have been updated for the additional financing\. The updating is relatively minor to reflect recent Vietnamese regulations and current Bank operations policy documents\. The updated documents were approved by MoIT and disclosed at the Infoshop and at the Vietnam Development Information Center (VDIC)\. No changes are required to RPF\. Fraud and Corruption 64\. The area most likely to be subject to potential fraud or corruption are financial management, procurement and the implementation of environmental and resettlement safeguards\. Procedures are in place to enable NPT to implement Bank anti-corruption guidelines\. There have been no substantiated allegations of fraud or corruption under the Parent project, and procurement, financial management and auditing and independent monitoring and evaluation procedures and systems in place are considered adequate\. No additional safeguard measures are proposed for the additional financing\. The "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 shall apply to the Additional Financing\. Risks 65\. At appraisal the overall risk rating for the original project was moderate and there were no risks rated substantial or high\. Only the risks of implementation delays (rated moderate), shortages of counterpart funds (rated low) and inadequate attention to environmental and social safeguards (rated moderate) have materialized to some extent\. Implementation delays arose from a number of sources; (i) an initial 10 months delay in Credit effectiveness; (ii) high rates of inflation in between December 2007 and early 2009 which increased construction costs and led to rebidding or renegotiation of several of the fixed price contracts; and (iii) delays in resettlement/compensation activities which were worsened by retroactive application of changes in regulations which resulted in a repeat of the compensation processes for some subprojec ts\. 16 Knowledge of impending changes in compensation regulations may also have led affected persons to hold out for higher compensation\. 66\. For the additional financing there are moderate risks related to the transfer of implementation responsibilities to a new agency including: (i) capacity to exercise monitoring and evaluation functions and to provide oversight on procurement and financial management as this would be the first Bank-supported project for NPT to handle; and (ii) implementation delays\. NPTs ability to meet the financial covenants under the project as well as to generate adequate counterpart funds is substantial, given NPTs current weak financial position\. EVN has approved NPTs financial improvement plan and will support its implementation through financial measures as needed to ensure that NPT meets its financial covenants\. This is a strong risk mitigating factor\. 67\. These risks are being managed as follows: (i) an operational manual which clarifies responsibilities for project implementation has been prepared by NPT and found satisfactory by the Bank; and (ii) a high degree of readiness for implementation with advance procurement carried out for most of the subprojects\. On safeguards, monitoring and reporting by independent consultants will be improved by strengthening the consultants terms of reference based on implementation experience thus far, especially with regard to resettlement and compensation issues and close monitoring by NPT and Bank supervision missions\. The projects overall risk rating is moderate\. Loan Conditions and Covenants 68\. There are no unusual loan conditions\. The following non-standard conditions will apply: NPT will prepare accounts and have them audited according to International Financial Reporting Standards and submit reports to the Bank within six months of the end of each fiscal year starting with year ended December 31, 2011; and NPT will implement an EVN approved and underwritten financial improvement plan satisfactory to the Bank to gradually improve its key financial performance indicators as follows: (i) self financing ratios of at least 20% in FY12 and 25% in FY13 and thereafter; (ii) debt service coverage ratios of 1\.0 times in FY2011, 1\.3 times in FY12 and 1\.5 in FY2013 and thereafter; and (iii) debt equity ratios of not more than 75\.25 during 2011 through FY2014, and not more than 70:30 in FY2015 and thereafter\. 17 18  Annex 1: Revised Results Framework and Monitoring Indicators VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING 1\. There is no change in the three indicators of outcomes which are summarized below\. However, two types of changes have been made\. First, the baseline target values of system reliability indicators (the number and duration of power interruptions) have been revised to reflect only technical interruptions that are affected by investment expenditures\. Second intermediate indicators have been updated based on the final list of subproj ects under the parent project plus the impact of expenditures under the additional financing loan\. It has also been recognized that the outcome indicators measure not only the impact of capital expenditures under the project, but rather the effects of the overall investment in transmission and in distribution as well as other factors such as higher or lower demand growth than expected\. 2\. Hence, the interruptions indicators provide system wide average reliability indicators to which the project contributes, but is not solely accountable for\. Thus, the extent to which the project will achieve its objectives will be assessed on the basis of the outcome indicator on the new generation capacity connected as a result of the project and the intermediate indicators related to the transmission and distribution assets created, with the latter serving as good proxies for system reliability\. Results Matrix PDO Project Outcome Indicators Use of Project Outcome Information The objectives of the project remain to: (i) Generation capacity connected to To determine if the PDO is being assist the Borrower in developing an 500kV transmission system links reached efficient electricity transmission and financed by the project Low levels may flag either lack of distribution system, thus enabling the Number and duration of interruptions progress in implementation or demand timely evacuation of power from new in the 500 and 220 kV transmission growth higher than expected electricity generation plants to growing load centers and the maintenance of system and 110 kV distribution systems security and reliability and power quality; Peak hour minimum voltages at and (ii) contribute to the restructuring of system weak points the Borrowers power sector\. Use of Intermediate Outcome Intermediate Outcomes Intermediate Outcome Indicators Monitoring Outcome 1: Outcome 1: Outcome 1: Transmission and distribution expansion Additional transmission system assets To determine if PDO is being reached and reinforcement created To monitor implementation progress\. Outcome 2: Outcome 2: Outcome 2: Electricity market and system operations Commissioning of new SCADA/EMS To determine if PDO is being reached modernization To monitor implementation progress Outcome 3: Outcome 3: Outcome 3: Market transition support Development of a single transmission To determine if PDO is being reached subsidiary To monitor implementation progress Develop a functioning internal power market 19  Revised Arrangements for Results Monitoring under the TD2 Target Values Data Collection & Reporting Outcome Indicators Baseline Mid-term End of Revised Frequency Data Collection Responsibility April Project End of and Reports Instruments for data 2008 Project Collection New generation capacity connected via 500kV 0 600 1200 1200 transmission system links financed by the project Number and duration of interruptions in 500kV transmission system per 100 circuit km Number 0\.342 0\.324 0\.315 0\.30 Duration 17\.50 15\.43 14\.98 13\.50 EVN/NPT Annual EVN/NPT Number and duration of interruptions in 220kV operations reports transmission system per 100 circuit km Number 0\.625 0\.584 0\.566 0\.45 Duration 25\.20 20\.78 21\.16 23\.80 Number and duration of interruptions in 110kV transmission system per 100 circuit km Number 3\.32 3\.254 3\.166 3\.166 Duration 28\.8 28\.22 27\.38 28\.22 Actual peak hour minimum voltage measured at known system weak points: 220kV Substation Bac Lieu 205 220 225 225 220kV Substation Quy Nhon 210 210 225 225 EVN/NPT Annual EVN/NPT 110kV Substation Soc trang 108 110 115 115 operations reports 110 kv Substation Trang Bang 107 110 115 115 110 kV Substation Quang Ngai 109 110 115 115 110kV Substation Mong cai 108 110 115 115 20  Revised Arrangements for Results Monitoring under the TD2 Target Values Data Collection & Reporting Results Indicators for each Component Base Mid-term End of Revised Frequency Data Collection Responsibility line April Project 1/ End of and Reports Instruments for data 2008 Project 2/ Collection Component one: transmission and distribution expansion and reinforcement Additional transmission asset created Circuit km of transmission lines 500kV 0 79 567 502 CPPMB,SPPM EVN operations B for 500kV 220kV 0 - - 180 Annual reports, quarterly and 220 kV, 110kV 0 - - progress reports PC3 for 110kV Transformer Capacity highest (MVA) 500/220kV 0 450 1950 2550 220/110/kV 0 1000 1250 2500 110kV/22kV 0 - 400 400 Component Two: Electricity Market and System Operations Modernization Commissioning of new market and transmission system information and control systems EVN quarterly Annual NLDC/RLDCs SCADA/EMS Not in Not in In place In place progress reports place place Vietpool Interim Market system Replacement Not in Telecommunications backbone place Component Three: Market transition support Development of a single transmission subsidiary Not in Not in In place In place At mid-term EVN quarterly EVN corporate within EVN place place and end of progress reports project Development of a functioning internal power Not in Some Substantial At mid-term Review NLDC/consulta market place evidence evidence and end of undertaken by nt project independent third party 1/ Original end of project targets for parent project\. 2/ Revised end of project targets with additional financing\. 21  Annex 2: Detailed Project Description VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING 1\. NPT has prepared ten 500kV and 220 kV transmission and substation subprojects totaling US$372 million\. Of these subprojects, it has requested Bank to consider financing of about US$227 million compared to the IBRD Loan of US$180 million\. 2\. Thus, the first projects to meet the agreed eligibility criteria, up to an aggregate of USD179\.50 million (excluding US$0\.5 million proposed for institutional support); will be funded by the Loan\. The criteria are: (i) demonstrated contribution towards project objectives; (ii) consistency with international technical standards and best practices; (iii) inclusion in the government approved power master development plan applicable at the time; (iv) an economic rate of return of at least 10% and a financial rate of return of at least 6\.5% based on methodology acceptable to the Bank; (v) EAs, RAPs and EMDPs prepared according to framework documents and guidelines, approved by the Bank, disclosed and adopted by the Government and the implementing agencies; (vi) all necessary clearances/approvals for implementation received from relevant Vietnamese authorities; and (vii) financing, procurement and implementation plans satisfactory to the Bank prepared\. These are the same criteria that have been applied under the parent project\. 3\. The subprojects that have already been fully appraised and confirmed as meeting the eligibility criteria will absorb US$171 million or almost the full amount of the IBRD Loan\. Thus, the balance or about US$56 million will constitute a reserve list from which some subprojects could be drawn to replace any drop outs from the baseline list\. Table 2\.1 below provides the baseline and reserve lists and indicates the status of preparation for each subproject\. Table 2\.1: Subprojects Proposed under the Additional Financing IBRD Safeguard Proc\. Cost FS Tech\. Design Name PMB (US$ Docs\. Plan (US$ m) Approved Approved m) Disclosed Prepared Baseline List 500 kV Quang Ninh-Hiep Hoa T/L CPPMB 140\.05 85\.22 Y Y Y Y 220kV Tra Vinh SS SPPMB 9\.65 7\.78 Y Y Y Y 220kV Vinh Long-Tra Vinh TL SPPMB 24\.63 19\.45 Y Y Y Y 220kV Uyen Hung SS SPPMB 12\.77 8\.78 Y Y Y Y 220kV Tan Dinh-Uyen Hung TL SPPMB 8\.38 5\.82 Y Y Y Y 500 kV O Mon (2nd transf\.) SS SPPMB 17\.88 12\.00 Y Y Y Y 500 kV Song May (2nd transf\.) SS SPPMB 52\.89 32\.00 Y Y Y Y Total Baseline List 266\.25 171\.05 500kV Cau Bong SS SPPMB 44\.53 28\.16 Y Y 220KV Thap Cham SS CPPMB 16\.22 12\.00 Y Y Y 220kV Quang Ngai-Quy Nhon TL CPPMB 45\.41 16\.10 Total Reserve List 105\.65 56\.26 TOTAL 371\.90 227\.31 22 A brief description of each subproject and objectives is summarized below: 500 kV Quang Ninh-Hiep Hoa transmission line\. Construction of a 139 km double circuit 500kV transmission line linking the existing Quang Ninh 500kV substation to the Hiep-Hoa 500 kV substation (under construction)\. The transmission line will complete and reinforce the power transmission loop in the northern system around Hanoi, thereby helping to help to improve power availability and reliability in the region; 220kV Tra Vinh substation\. A new 220kV substation in Chau Thanh district, Tra Vinh province will be constructed comprising one 125MVA 220/110/22kV autotransformer, six 220kV bays, five 110kV bays and two 22kV bays with bus-tie; 220kV Vinh Long ­ Tra Vinh transmission line\. Construction of 62\.3km of double circuit 220kV line, two 220kV switchbays at the existing 220kV Vinh Long substation and 7\.5km double circuit 110kV line\. This subproject and the 220kV Tra Vinh substation subproject are implemented to increase the electric power supply for Tra Vinh province in the Mekong delta area; 220kV Uyen Hung substation\. A new 220kV substation in Tan Uyen district, Binh Duong province will be constructed comprising one 250MVA 220/110/22kV autotransformer, six 220kV bays, seven 110kV bays and two 22kV bays with bus-tie\. The building of 5\.86kV of 110kV line to existing 110kV Tan Uyen substation also is included to this subproject; 220kV Tan Dinh ­ Uyen Hung transmission line\. Construction of 8\.399km double circuit 220kV line and two 220kV switchbays at the 500kV Tan Dinh substation\. This subproject and the 220kV Uyen Hung substation subproject are part of the overall plan to encircle the greater Ho Chi Minh City area with a 500- 220kV system, to meet growing power demand, in particular in those areas such as Binh Duong province, (south of Ho Chi Minh City) which is a fast-growing industrial zone with high density of industry leads to high density of power demand; 500 kV O Mon (2nd transformer) substation\. The proposed subproject consists of the addition of a second set three single 500/220kV 150MVA transformer expansion of existing 500kV switchgear system with one additional switchbay at 500kV for two overhead line, expansion of the existing 220kV switchgear system with one additional 220kV switchbay, plus upgrading of the control, protection and communication system, and connection to the O Mon ­ Phu Lam 500kV transmission line\. The original 500kV O Mon substation and 500kV O Mon ­ Phu Lam transmission line are financed by the parent project\. The subproject is part of the overall plan to evacuate the power from two big power generation complexes in the western area of South Vietnam, O Mon power generation complex (total 2,700MW) and Ca Mau power generation complex (1,500MW), to the greater Mekong delta area\. The expansion of O Mon substation will also meet growing power demand, in particular in those areas such as Can Tho province, which is central province of the Mekong delta area; 500 kV Song May (2nd transformer) substation\. Addition of a second set of three single 500/220kV 200MVA transformers and a second 220/110kV 250MVA transformer, expansion of the existing 500kV switchgear system with five additional switchbays 500kV for transformer and four 500kV overhead lines, expansion of the existing 220kV switchgear system with seven additional 220kV switchbays for two transformers and five 220kV overhead transmission lines, expansion of existing 110kV switchgear system with three 23  switchbays for transformer and two 110kV overhead lines\. The subproject is part of the overall plan to improve power transmission capacity to the greater Ho Chi Minh City area and near areas as Dong Nai province and Binh Duong province\. The building of these 500kV and 220kV 2 nd transformers in Song May substation will also meet growing power demand, in particular in the eight South-East area of Vietnam with Ho Chi Minh City is central; 500 kV Cau Bong substation\. Three single phase 500/220/22kV 200 MVA autotransformers, with spare slot for installation of three single phase 500/220/22kV 200 MVA autotransformers in the future, two three-phase 220/110/22kV 250 MVA autotransformers, with spare slot for installation of one three-phase 220/110/22kV 250 MVA autotransformers in the future, 1\.41 km of 500kV connection lines, five 500kV bays, thirteen 220kV bays, eleven 110kV bays and associated control, protection and SCADA systems\. The subproject is located on a 16ha site in Cu Chi district, Hochiminh City\. It aims to increase the stability, connectivity and reliability of power supply in Hochiminh City and the Southern area, and (ii) receiving and transmitting power among nearby power centers being constructed in the future; 220KV Thap Cham substation\. One 125MVA 220/110/22kV transformer, 28\.6km 220kV double circuit transmission line from 220kV Da Nhim ­Nha Trang to the Thap Cham substation, about 1 km 110kV double circuit transmission line from 110kV Thap Cham - Ninh Hai and about 680m of 110kV double circuit transmission line from 110kV kV Da Nhim ­ Cam Ranh line to the Thap Cham substation\. The subproject aims to enhance the capacity and the reliability of power supply create a ring circuit connection for the 220kV power network in the southern area of the central Vietnam, enhancing stable, safe and reliable operation of power network in the region; and 220kV Quang Ngai - Quy Nhon transmission line\. Construction of a 142km double circuit 220kV line from 220kV Quang Ngai substation to 220kV Quy Nhon substation, 2 switchbays at 220kV Quang Ngai substation and 2 switchbays at 220kV Quy Nhon substation\. 24  Annex 3: Updated Implementation Arrangements VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING 1\. The implementation arrangements for the transmission and distribution and reinforcement component are as follows: Subcomponent 1\.1 -Transmission System Expansion and Reinforcement by EVNs regional power projects management boards SPPMB and the CPPMB Subcomponent 1\.2- the 220/110kV Gas-insulated switchgear substations by the HCMC PC; and Subcomponent 1\.3 ­ Regional Distribution System Expansion and Reinforcement by the PC3\. 2\. Corporate level responsibility for subcomponent 1\.1 is being transferred from EVN to NPT while actual implementation will continue to be carried out by SPPMB and CPPMB which themselves have been transferred to NPT as part of the sector restructuring\. Thus, NPT will be responsible for implementing the additional financing activities through its PMBs- the SPPMB and the CPPMB\. 3\. Under the parent project, the PPMBs use two alternatives approaches to implement the subprojects: (i) separate supply of goods and construction for simple subprojects; and (ii) supply and installation of plant and equipment in more complex subprojects\. For the separate supply of goods and works implementation method the PPMB will carry out project management, procurement of goods and works, selection of consultants, resettlement activities, and subproject monitoring and reporting\. The PPMB also commissions and hands over the finished subproject to the regional transmission network operating company (also a subsidiary of NPT)\. The PPMB hires non-Bank financed consultants, to undertake project design, prepare equipment specifications and designs\. Independent local consultants monitor resettlement and rehabilitation and undertake environmental monitoring\. 4\. The implementation arrangement for Component 2 will not change\. Implementation of Component 3 will transfer from EVNs Power Market Department to NPT\. NPT will also implement the additional technical assistance to be provided under the additional financing loan to support improvements in its financial capacity\. 25  Annex 4: Financial Management and Disbursement Arrangements VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING Introduction 1\. The Financial Management Specialist (FMS) has conducted an assessment of the adequacy of the financial management system of the proposed additional US$ 180 million IBRD Loan for the Second Transmission and Distribution Project\. The financial management arrangements of the parent project were previously assessed and deemed acceptable in March 2005\. 2\. The assessment for the additional financing, based on guidelines issued by the Financial Management Sector Board has concluded that the project meets the minimum Bank financial management requirements, as stipulated in BP/OP 10\.02\. In the FMSs opinion, the project will continue to have acceptable financial management arrangements in place for implementing the operation and providing reasonable assurance that the proceeds of the Loan will be used for the purposes for which the Loan was given\. Financial management risk is the risk that World Bank loan/grant proceeds will not be used for the purposes intended and is a combination of country, sector and project specific risk factors\. The FM risk rating proposed for this project is low\. FM ISR rating is satisfactory\. 3\. No outstanding audits or significant audit issues exist\. The audit opinion on the Project financial statements for the year ended 31 December 2009 was unqualified\. Although the entity audit reports for EVN and the PCs were qualified, this had no significant impact on the project financial statements\. All the auditor recommendations on internal controls and the issues related to qualified opinions on the entities financial statements have been brought to the attention of Project and entities management\. Project-related management has strongly committed to address these issues as well as to ensure timely submission of audit reports\. The task team will continue to be attentive to financial management matters during project supervision\. Audit Arrangement 4\. Project financial statements will be audited on an annual basis in accordance with international auditing standards and in compliance with the independent auditing regulations of Vietnam, and to be submitted to the Bank within 6 months after the end of each calendar year as stipulated in the Financing Agreement\. Besides the audited Project financial statements, IFRS financial statements of NPT audited by an auditor acceptable to the Bank are also requested to be submitted to the Bank annually within 6 months after financial year end, and to be published in accordance with the Banks information disclosure policy\. 26 Disbursement Arrangements 5\. In the parent project, EVN is responsible for preparing the withdrawal applications and making payments to contractors\. With the additional financing proceeds and the transfer of implementing entity from EVN to NPT, it is proposed that a Designated Account is opened for NPT with a ceiling of USD 1 million\. Traditional disbursement method with advance, reimbursement, direct payment and special commitment are to be applied\. Details are provided in the Disbursement Letter\. Risk Assessment and Mitigation 6\. The following risks with corresponding mitigating measures have been identified during the assessment: Risk Rating after Risk Risk Mitigating Measures Mitigating Measures Institutional arrangement with MOF and VDB involvement in Moderate Country level disbursement controls will continue to be in place with the additional financing Existing PMUs, which have been implementing the project for the past 3 Low years, continue to be responsible for managing this additional financing\. Entity Level Financial management of NPT (entity taking over implementation from EVN) is assessed as satisfactory The financial management system of the exiting project has functioned Low Project level satisfactory\. Existing annual plan will be updated to incorporate the timing of project Low activities financed by the additional financing\. Budgeting Variances between budget and actual implementation are calculated and analyzed by contract/ component and reported to the PMBs and the Bank\. Existing accounting system (used by EVN and all EVN implemented Low projects) has functioned satisfactory\. Accounting Project management has committed to addressing the qualified audit opinions on EVN and PCs entity financial statements\. Procedures for proper authorization of payment request, segregation of Moderate Internal duties, safeguarding assets and timely preparation of reliable financial Control information based on accurate accounting records will remain the same\. Funds Flow New Designated Account opened for NPT for smooth fund transfers Low NPT will continue to use the existing IFRs format for the additional Moderate financing\. Financial Format and contents of the IFRs are confirmed again with NPT during Reporting the assessment\. NPT committed to submit IFRs on time with adequate information presented in proper format\. Independent audit firm acceptable to the Bank will be procured with Low Auditing proper terms of reference acceptable to the Bank\. 27 The overall FM risk-rating of this project is Low\. The FM team will closely monitor the project FM risk during project implementation\. Strengths 7\. The PMBs (PCs, NPT, PPMBs) have been managing the parent project for more than 3 years and have extensive experience on Bank-financed projects\. Eligibility of expenditures is verified by VDB before any disbursement is made to provide additional assurance on proper usage of funds\. Weaknesses 8\. The roles and responsibility of NPT in fiduciary management of Project needs to be clearly agreed and formalized for more rational fund flows and financial reporting\. Responsible Weaknesses Action Completion Date person Currently EVN is in charge of The responsibility of NPT, EVN - Preparing withdrawal application Preparing withdrawal (by direct payment) application, with a - Preparing and submitting IFRs Designated Account - Preparing project financial opened, preparing and statements submitting IFRs and preparing project financial Delays in submission of IFRs were noted and statements need to be the time of direct payment is longer than transferred to NPT disbursement from Designated Account\. Implementing Entity and Staffing 9\. The original design provided for project to be implemented by EVN and its subsidiaries\. Since July 2008 NPT started operation and assumed the implementation of subcomponent 1\.1 and component 3 of the project\. 10\. The institutional arrangement needs to be formally revised to reflect the situation, although NPT has already started to own the PPMBs and transmission companies (which operate the transmission system)\. Fiduciary management arrangements, therefore, need to be formally changed accordingly\. The responsibility of Preparing withdrawal application with a Designated Account opened, imposing internal control over PPMBs, preparing and submitting IFRs and preparing project financial statements need to be transferred to NPT, as mentioned in the action plan above\. 11\. Financial management arrangement of NPT is assessed to be adequate in terms of staffing, internal control procedures and accounting system to function the project\. 28 Budgeting 12\. The PMUs will prepare annual project budget which will identify the project activities to be undertaken and the role of different parties in implementation of the additional financing funds\. Budget is prepared and variances are explained in the monthly progress report s\. The procurement and implementation plans are monitored closely and updated on a quarterly basis\. Internal Control 13\. Procedures of proper authorization for payment request, segregation of duties, safeguarding assets and timely preparation of reliable financial information based on accurate accounting records will remain the same\. Accounting Policies and Procedures 14\. The same accounting policies and procedures of the existing project will be used\. The accounting system applied for the PMUs is the Accounting system for Investment Projects promulgated under the Decision 214 of the Ministry of Finance, which has been assessed as satisfactory for recording and reporting of the credit\. Financial Reporting 15\. Each of the PCs and NPT will continue to prepare the interim financial reports and submit to the Bank for review on a quarterly basis within 45 days after the quarter end\. Supervision Plan 16\. The supervision strategy for the additional financing is based on its FM risk rating, which will be evaluated regularly by the FMS and in consultation with task team leader\. 29  Annex 5: Procurement VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING 1\. The procurement arrangements for the parent project were appraised in July 2005 and overall procurement risk was rated as moderate\. The procurement capacity of the CPPMB and SPPMB, HCMC PC and PC3, NLDC and EVN headquarters was assessed as adequate\. They are long established organizations, have qualified procurement staff and good knowledge and experience of Bank financed procurement\. 2\. An assessment of NPTs capacity to implement procurement was carried out in December 2008 and it was assessed as adequate, despite it being a newly established organization\. The transfer en bloc of CPPMB and SPPMB meant that the same staff and organization originally within those two entities had not changed\. Hence, NPT had acquired sufficient project-level procurement knowledge and experience including specifically for projects financed by the World Bank\. Some additional measures have been put in place at NPTs corporate level to ensure the successful implementation of project procurement, including (a) establishing detailed coordination arrangements between EVN/NPT headquarters and implementing agencies, and (b) building the capacity of the implementing agencies through training and procurement workshops\. 3\. Over 70 contracts, mainly for goods and works have been procured under the parent project\. Most procurement decisions and documentation are of good quality, and procurement generally takes place in a timely fashion\. Over the lifetime of the project to date there have been six complaints all of which have been resolved to the Banks satisfaction and have now been closed\. Of these, two were invalidated by the borrower with support from the Bank, two were withdrawn by the complainant, one was upheld and one was settled between the contracting parties\. No cases of fraud and corruption have been detected to date\. Procurement has been rated satisfactory since 2007 when it was rated Moderately Satisfactory because the update of the procurement plan was submitted late\. Based on experience and taking into account the above assessment, procurement risk for the AF is rated low\. 4\. Procurement for the AF will be carried out in accordance with the World Banks Guidelines: Procurement under IBRD and IDA Credits, May 2004, revised October 2006 and May 2010 (the Procurement Guidelines) and the Selection and Employment of Consultants by the World Bank Borrowers, May 2004, revised October 2006 and May 2010 (the Consultant Guidelines) and the provisions stipulated in the legal agreement\. The thresholds of procurement methods of goods, works, consultants services and the Banks prior review thresholds will be remain the same as in the original project\. 5\. Procurement plans for the contracts proposed to be financed by the AF for the first year (baseline list) have been developed\. Attached to this annex is the plan for the first seven subprojects\. The Task Team has reviewed these Procurement Plans and found them acceptable\. The Procurement Plans will be updated at least annually or as required to reflect the actual project implementation needs\. 30  Attachment 1 to Annex 5: Procurement Plan for Proposed Additional Financing for Phase 1 of the Project Procure- Prequali Domestic Review by Expected Estimated Preference Bank Package\. No\. Contract (Description) ment -fication Bid-Opening Remark Cost (US$) Method (yes/no) (yes/no) (Prior / Post) Date 500kV Quang Ninh-Hiep Hoa T/L QN-HHG01 Supply of steel towers 19,786,000 ICB No Yes Prior Jun\. 2011 QN-HHG02 Supply of conductors and groundwires 10,367,000 ICB No Yes Prior Jul\. 2011 QN-HHG03 Supply of insulators and fittings 7,209,000 ICB No Yes Prior Jul\. 2011 QN-HHG04 Supply of OPGW and accessories 645,000 ICB No Yes Prior Jul\. 2011 Supply of primary equipment for feeders QN-HHG05 ICB No Yes Prior Aug\. 2011 at 500kV Quang Ninh SS 4,644,000 QN-HHG08 Transmission line construction 30,330,000 ICB No Yes Prior May 2011 Subtotal 72,981,000 220kV Uyen Hung SS UH-G01 Power transformer 1,826,000 ICB No Yes Prior May 2011 Bid doc have been UH-G02 Electrical Equipment 1,881,000 ICB No Yes Prior Jun\. 2011 cleared by the Bank UH-G03 Control, Protection and Com\. Equip\. 1,715,000 ICB No Yes Prior Jun\. 2011 UH-W04 Construction of substation 2,126,000 ICB No Yes Prior Apr\. 2011 Procurement is ongoing Subtotal 7,548,000 220kV Tan Dinh -Uyen Hung TL TD-UH/G01 Electrical equipment for Tan Dinh SS 291,000 ICB No Yes Prior May\. 2011 TD-UH/G02 Control & protection for Tan Dinh SS 160,000 ICB No Yes Prior May\. 2011 TD-UH/G03 Steel towers 1,588,000 ICB No Yes Prior May\. 2011 TD-UH/G04 Conductors and Earthwires 659,000 ICB No Yes Prior Jul\. 2011 71,000 Jul\. 2011 Bid doc have been TD-UH/G05 Optical ground wires and fittings ICB No Yes Prior cleared by the Bank TD-UH/G06 Insulators, fittings and accessories 228,000 ICB No Yes Prior Jul\. 2011 TD-UH/W07 Construction of transmission line 4,016,000 ICB No Yes Prior Apr\. 2011 Subtotal 7,013,000 31  Domestic Review by Procure- Prequali Expected Estimated Preference Bank Package\. No\. Contract (Description) ment -fication Bid-Opening Remark Cost (US$) (yes/no) (Prior / Post) Method (yes/no) Date 220kV Tra Vinh SS TV-G01 Power transformer 1,755,000 ICB No Yes Prior Feb\. 2011 Bid doc have been TV-G02 Electrical Equipment 1,668,000 ICB No Yes Prior Feb\. 2011 cleared by the Bank TV-G03 Control, Protection and Com\. Equip\. 1,781,000 ICB No Yes Prior Feb\. 2011 TV-W04 Construction of substation 1,960,000 NCB No Yes Prior Jan\. 2010 Procurement is ongoing Subtotal 6,958,000 220kV Vinh Long ­Tra Vinh TL VL-TV/G01 Steel towers 3,284,000 ICB No Yes Prior May 2011 VL-TV/G02 Conductors and Earthwires 3,361,000 ICB No Yes Prior Aug\. 2011 VL-TV/G03 Insulators, fittings and accessories 637,000 ICB No Yes Prior Aug\. 2011 Biddoc have been VL-TV/G04 Optical ground wires and fittings 329,000 ICB No Yes Prior Aug\. 2011 cleared by the Bank VL-TV/W5\.1 Construction of line VL ­ T94 6,998,000 ICB No Yes Prior Apr\. 2011 VL-TV/W5\.2 Construction of line T94 - TV 6,042,000 ICB No Yes Prior Apr\. 2011 Subtotal 20,651,000 500kV O Mon SS (2nd Transformer) OM2-G01 Power transformer & Reactor 2,800,000 ICB No Yes Prior Dec\. 2010 OM2-G02 Electrical Equipment 2,800,000 ICB No Yes Prior Dec\. 2010 OM2-G03 Control, Protection and Com\. Equip\. 1,080,000 ICB No Yes Prior Mar\. 2011 OM2-G01 Construction of substation 1,436,000 NCB No Yes Prior Nov\. 2010 Subtotal 8,116,000 500kV Song May SS (2nd transformer) SM2-G01 Power transformer & Reactor 11,718,000 ICB No Yes Prior Jul\. 2010 SM2-G02 Electrical Equipment 10,462,000 ICB No Yes Prior Jul\. 2010 SM2-G03 Control, Protection and Com\. Equip\. 3,150,000 ICB No Yes Prior Jul\. 2010 SM2-G01 Construction of substation 4,177,000 ICB No Yes Prior Sep\. 2010 Subtotal 29,507,000 32  Annex 6: Environmental and Social Safeguards VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING General 1\. The PMPBs are responsible for management of the environmental and social aspects of the project during the implementation phase\. Corporate level oversight is provided through NPTs technical department for environmental aspects and by its investment and construction department for the social aspects\. The PMBs also employ independent monitoring consultants to monitor implementation of safeguard plans for each subproject\. 2\. In general, expansion of the transmission system tends to have positive environmental and social impacts by enabling the selection of power plants sites away from population centers and at locations where impacts can be more easily managed and reducing the number of smaller "dirty fuel" back up and auto generation plants\. In addition they improve efficiency and, therefore, contribute to some reductions in GHG emissions\. Negative environmental and social impacts for the transmission activities to be financed by the additional financing will be minor and temporary, and will include: impact of access roads on population settlements and of construction activity on the water quality in areas with high densities of rivers and canals\. Preparation of Safeguards Documentation 3\. Since the additional financing activities will not cause new impacts the same safeguard policies triggered under the parent project- Environmental Assessment (OP4\.01), Indigenous People (OD4\.20 as revised to OP4\.10) and Involuntary Resettlement (OP4\.12) will apply\. The overall EA category for the project is B as for the parent project\. The project does not trigger safeguards policies OP4\.04 (Natural Habitats) and OPN 11\.03 and (Cultural Property), now revised as OP 4\.11\. 4\. The Borrower has met all the Banks requirements with regard to safeguards for all the baseline subprojects\. The table below shows the safeguards documents (EAs, EMPs, EMDP and RAPs) that have been prepared for each baseline subproject\. Status of Safeguards Preparation for Phase 1 Subprojects Est\. Bank No Subproject Name EA EMP RAP EMDP Remarks Loan (US$ m) 1 500kV Quang Ninh-Hiep Hoa TL 85\.00 Y Y Y NA Disclosed under TD2 2 220kV Tra Vinh SS 7\.78 Y Y Y Y Disclosed under TD2 3 220kV Vinh Long-Tra Vinh TL 19\.45 Y Y Y Y Disclosed under TD2 4 220kV Uyen Hung SS 8\.78 Y Y Y NA Disclosed under TD2 5 220kV Tan Dinh-Uyen Hung TL 5\.82 Y Y Y NA Disclosed under TD2 6 500 kV O Mon (2 nd transf\.) SS 12\.00 Y Y NA NA Disclosed nd 7 500 kV Song May (2 transf\.) SS 32\.00 Y Y NA NA Disclosed Total 170\.83 33 5\. Consultations were held with local government authorities, local village communities and other stakeholders to obtain free prior and informed consent and have been properly documented in the EAs\. The EMPs reflects the input of stakeholders and beneficiaries\. The EAs, EMPs, RAPs and EMDPs have been disclosed at the Vietnam Development Information center and at the Banks Infoshop\. 6\. The safeguards frameworks prepared under the parent project were used to prepare the safeguard plans for baseline subprojects and will also be used for any subproject from the reserve list\. These are the EG, the RPF and the EMDPF\. The EG and the EMDPF framework documents have been updated for the additional financing\. The updating is relatively minor to reflect recent Vietnamese regulations and current Bank operations policy documents\. No changes to the RPF are needed\. 34  Annex 7: Economic and Financial Analysis VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING Appraisal Summary 1\. As with the parent project, subprojects to be financed by the AF are prepared and appraised individually as they get ready\. Ten subprojects have been identified of which seven have now been prepared and appraised and constitute the baseline list for implementation under the AF\. Findings of these appraisals are reported below\. Subprojects drawn from the reserve list, if any, will be appraised as they are prepared, against the same criteria discussed in this section\. Economic and Financial Analyses 2\. Proposed subprojects have been included in the Power Master Development Plan No\.6 for system development up to 2010\. Previous studies have reviewed the methodology for preparing the Master Plans and found that it provides a satisfactory method for establishing the least cost expansion plan\. Analysis of each subproject or group of subprojects (grouped when it is not possible to subdivide the benefits between closely-linked subprojects) is based on the cost benefit method\. The analysis for the subprojects reviewed the 'with' and 'without' project scenarios, and considered benefits from incremental power sales\. The results of the analysis are shown in Table 7\.1\. Table 7\.1: Economic and Financial Analysis Results Subprojects Economic Financial NPV@10% EIRR NPV@6\.5% FIRR US$m % US$m % Qunag Ninh- Hiep Hoa 500kV TL 107\.7 17\.2 85\.7 15\.0 Vinh Long-Tra Vinh 220kV transmission 53\.3 29\.3 22\.9 16\.7 line and Tra Vinh 220kV substation 7 Tan Dinh-Uyeng Hung 220kV transmission 45\.3 35\.1 27\.9 15\.4 line and Uyen Hung 220kV substation 8 500kV O Mon (2nd transformer) substation 67\.5 27\.3 46\.1 12\.6 - 500kV Song May (2 nd transformer) 44\.5 19\.0 19\.3 16\.4 substation Total 1 Subproject 318\.3 24\.2 201\.9 14\.8 3\. Sensitivity analysis on both economic and financial baselines was also carried out\. It demonstrates that the project is robust to a simultaneous drop in benefits of 10 percent and increase in costs of 10 percent\. The project meets the appraisal criteria of a minimum of 6\.5% financial internal rate of return and a 10% economic rate of return on the base case\. 7 These two closely linked subprojects have been analyzed jointly because benefits are not easily separable\. 8 These two closely linked subprojects have been analyzed jointly because benefits are not easily separable\. 35 NPT's Recent Financial Performance 4\. Profitability\. Based on its audited IFRS9 financial statements, NPT incurred a net loss of VND 671 billion ($39\.2 million)10 on its operations in 2009, its first full year as an independent legal entity (Table 7\.2, Part A)\. This loss was large relative to NPTs scale of operations, equivalent to almost 14% of its operating revenue for the year\. NPTs financial p erformance in 2008 was even weaker, with the net loss being VND 578 billion ($34\.9 million), equivalent to almost 26% of operating revenue over six month period in which NPT operated during the year\. Since NPT was established as a separate entity on July 1, 2008, financial results for 2008 cover only the last half of this year\. 5\. Foreign Exchange Losses & Cash Flows\. NPTs net losses in 2008 and 2009 were due to the large foreign exchange loss incurred on its foreign currency debt\. The foreign exchange loss was VND 850 billion ($49\.7 million) in 2009 and VND 621 billion ($36\.6 million) over the second half of 2008 (Table 7\.2, Part A)\. However, since the foreign exchange losses in both years were almost entirely unrealized, meaning that they were incurred on the principal amount of NPT debt due in future years, these losses had a negligible impact on cash flows in the current year\. In fact, NPTs overall net cash flow in 2009 was relatively healthy, VND 267 billion ($15\.7 million), which more than doubled the companys cash balance to VND 516 billion ($28\.8 million) (Table 7\.2, Part B)\. 6\. Vietnamese Accounting Standards\. On the basis of Vietnamese Accounting Standards (VAS), which NPT is required to use for all statutory and tax reporting, the company actually earned small profits in both 2008 and 2009\. Under VAS, the unrealized portion of the foreign exchange loss can be deferred for up to five years in order to avoid the reporting of a net loss\. Therefore, with the deferment of these losses, net profit on a VAS basis was VND 68 billion ($4\.0 million) and VND 13 billion ($0\.8 million) in 2008\. However, as noted above, the deferred losses will have to be recognized and brought into the operating results of the company at some point over the next five years\. 9 International Financial Reporting Standards\. 10 Conversion from VND to US dollars made using average exchange rates for income and cash flow figures and year-end rates for balance sheet figures\. Average exchange rates are 16,570 (2008) and 17,119 (2009)\. Year-end rates are State Bank of Vietnam inter-bank averages; 16,977 (2008) and 17,941 (2009)\. 36  Table 7\.2: NPT ­ Summary of Financial Performance (VND billion - nominal prices)1/ 2008 2009 A\. Income Statements Operating Revenue 2,258 4,852 Operating Expense 1,693 3,772 Operating Profit 565 1,079 Other Income (Loss) (3) 13 Interest Expense 500 887 Foreign Exchange Loss 621 850 Income Tax 20 27 Net Profit after Tax (572) (671) B\. Cash Flow Statements Net Cash Flows from: Operations 1,676 2,587 Investing Activities (2,696) (5,173) Financing Activities 1,017 2,835 Net Cash Flow (3) 249 Ending Cash Balance 267 516 C\. Balance Sheets Current Assets 3,121 2,924 Non-Current Assets 23,590 26,406 Total Assets 26,710 29,330 Current Liabilities 4,627 5,157 Non-Current Liabilities 15,358 18,323 Equity 6,726 5,849 Total Liabilities & Equity 26,710 29,330 D\. Key Financial Indicators Gross Margin 29\.8% 27\.2% Return on Equity -8\.3% -10\.7% Current Ratio 0\.7 0\.6 Debt Service Coverage Ratio 0\.9 1\.2 Self-Financing Ratio -12% 12% Debt:Equity Ratio 72:28 78:22 Total Debt 17,101 20,774 1/ Based on audited IFRS data\. 37 7\. Capital Investments & Borrowing\. NPT is responsible for implementing a large capital investment program for the upgrading and expansion of the national transmission network\. In 2009, capital expenditures totaled VND 5,198 billion ($303\.6 million), excluding interest and other charges on debt\. Over the 2010 ­ 2015 periods, total capital investment requirements are estimated at VND 107,000 billion ($5\.2 billion)\. Securing the funding for this investment program will be a challenge\. In 2009, NPT relied almost entirely on debt to fund its capital investments\. New borrowing totaled VND 5,020 billion ($293\.2 million), equivalent to 97% of capital expenditures for the year\. Although NPT generated a cash surplus from its operations, almost all of this cash was needed to meet its repayment obligations on existing debt\. This left very little cash to allocate towards new capital investments\. Given the scale of the investment program over the next five years, NPT will need to self-finance a larger proportion of its capital expenditures so as to reduce its reliance on debt\. Increased self-financing can only be achieved by improving operating cash flows, which in turn will require higher transmission tariffs\. 8\. Debt\. With NPT relying heavily on borrowing to fund its capital investments, total debt has increased by about one-third over its first 18 months of operations\. Between July 2008 and the end of 2009, total debt increased from VND 15,478 billion ($937\.1 million) to VND 20,774 billion ($1\.16 billion) (Table 7\.2, Part C)\. Almost all of this debt is long-term, meaning that it has an original maturity of at least one year\. As of end of 2009, 46% of NPTs debt had a remaining maturity of more than five years\. Just over 65% of the companys debt was denominated in foreign currencies, with US dollar loans accounting for 65% of this total foreign currency debt\. 9\. NPTs capacity to service its debt improved between 2008 and 2009, but needs to be improved further to bring it up to a more satisfactory level\. The debt service coverage ratio (DSCR), which is the ratio of net revenues to debt service, was only 0\.9 in 2008 (Table 7\.2, Part C)\. In 2009, the DSCR improved to 1\.2, which indicates that net revenues were more than sufficient to meet its debt service obligations\. However, given the requirement to also allocate a portion of net revenues toward the funding of new capital investments, a more satisfactory DSCR would be 1\.5 or above\. 10\. Capital Structure\. NPTCs capital structure is disproportionately comprised of debt, which gives rise to concerns about its future capacity to service this debt and fund new capital investments\. At the end of 2009, the ratio of debt to equity was 78:22, meaning that there was over 3\.5 times as much debt as equity (Table 7\.2, Part C)\. This is up from 72:28 at the end of 2009\. The imbalance in the capital structure is attributable to three main factors\. First, it is a legacy of past financing arrangements for the funding of transmission investments by EVN prior to the establishment of NPT in 2008\. Second, as noted above, since NPT was established as a separate business entity in mid-2008, it has relied heavily on borrowing to fund new capital investments\. Third, the foreign exchange losses incurred over the first 18 months of NPT operations have exacerbated the imbalance in the capital structure\. The loss reduces equity while at the same time increasing the local currency equivalent value of foreign currency debt\. 11\. While the imbalance in the capital structure is a concern, it has not yet reached a critical level where NPTs debt load threatens to become unmanageable\. As noted above, NPT has been able to meet all of its debt service obligations\. Therefore, the key issue is not the current level of debt relative to equity but rather how this is likely to change over the next 5 ­ 10 years\. NPT 38 needs to achieve increases in equity that are proportionally greater than the increases in debt so that the company moves toward a more balanced capital structure\. To achieve this, NPT and EVN have agreed on a financial improvement plan that will provide for a capital restructuring that consists of a fixed assets revaluation, debt to equity conversion and possibly also, a direct equity injection\. The plan is also aimed at improving NPTs profitability so that it can self- finance a greater proportion of its capital investments and, therefore, be less reliant on borrowing\. This plan is discussed in greater detail in Part C of this note below\. NPT Financial Improvement Plan 12\. During project preparation, EVN, NPT and the Bank team agreed that a financially viable NPT is essential to ensure successful implementation of the sectors large transmission investment program over the next five years and to ensure that these investments are sustainably operated and maintained over the longer term\. There was realization that without strong cash flows, NPT will find it increasingly difficult to raise debt and generate counterpart funds for its investment program while fully servicing existing debt\. 13\. NPT and EVN staff and the Bank task team worked together and in consultation with the Vietnam Electricity Regulator (ERAV) over several months to develop a financial improvement plan for NPT\. Three options were identified and financial projections were prepared to test the feasibility of NPT achieving the three covenants under the parent project\. The options have a number of common features such as an optimized investment program and operating costs, and common assumptions regarding inflation, exchange rates, and interest rates applicable to new borrowings\. The key differences among the options are with regard to the magnitude and spread of assumed transmission tariff increases and the level of support from EVN through equity injections and/or debt equity conversions\. The key elements of each option are summarized in Table 7\.3 below\. Table 7\.3: Options for Improving NPT's Financial Performance (2011-2015) Option Action Plan Element 1 Increases in transmission charges of 18% on average per annum over the 2011 ­ 2015 periods, with substantial upfront increases of 30% and 22% in 2011 and 2012\. VND 12,000 billion fixed asset revaluation in 2011/2012\. No intervention by EVN would be expected\. 2 Increases in transmission charges of about 28% and 17% during the period 2011 and 2012 respectively and then about 15% on average subsequently up to 2015 VND 12,000 billion fixed asset revaluation in 2011/2012\. Debt/equity conversions by EVN totaling VND 2,160 billion with the largest conversion of VND 736 billion taking place in 2011 3 Increases in transmission charges of 14% per annum over the 2011 ­ 2105 period\. EVN cash injection of VND 536 billion in 2011 Debt/equity conversions totaling VND 5,418 billion between 2011 and 2015\. VND 12,000 billion fixed asset revaluation in 2011/2012\. 39 14\. Based on the financial projections, it was concluded none of the options would enable NPT to immediately achieve the financial covenants applied to NPTs parent, EVN\. For EVN, the minimum SFR and DSCR are 25% and 1\.5 respectively, while the D/E ratio is to be maintained at not more than 70:30\. For NPT, these covenants could only be achieved immediately with much greater increases in the transmission charge and/or larger debt equity conversions or cash injections by EVN\. Substantially larger upfront tariff increases than those incorporated into the three options were not considered socially and politically feasible\. Similarly, large equity injections and/or debt equity conversions beyond those incorporated into Options 2 and 3 are not considered affordable to EVN\. 15\. It was agreed that the financial improvement plan would be based on a set of increasing targets for the SFR, DSCR and D/E ratio over the next five year period\. Over this period, NPT would progressively improve its financial performance so that it can meet the same covenants applied to EVN\. The financial projections indicate that these improvements can be achieved under any of the three options\. Based on these projections, covenants have been set as in Table 7\.4\. NPT would achieve an SFR of at least 20% by 2012 and then at least 25% by 2013 and thereafter\. NPTs DSCR would be improved from a minimum of 1\.0 in 2011, to 1\.3 in 2012 and then to at least 1\.5 in 2013 and thereafter\. The D/E ratio would also be improved, but more gradually, from a maximum of 80:20 in 2011, to 75:25 over the 2012 ­ 2014 period, and then to 70:30 by 2015\. Table 7\.4: NPT Financial Covenants 2011 2012 2013 2014 2015 & beyond None 20% 25% 25% 25% Self Financing Ratio (not less than) Debt Service Coverage (not less 1\.0 1\.3 1\.5 1\.5 1\.5 than) Debt to Equity Ratio (not greater 80:20 75:25 75:25 75:25 70:30 than) 16\. EVN has approved option 1 of the NPTs financial improvement plan so as to achieve the covenants set out in Table 7\.4\. In addition EVN has agreed to support NPT through the use other measures contained in options 2 and 3 in the event the tariff component of option 1 does not proceed according to expectations so as to underwrite NPTs achievement of its financial covenants\. The NPT project agreement will include covenants committing NPT to achieve the three key financial indicators as indicated in Table 7\.4 and para\. 15\. 17\. As a newly established company NPT needs to build its technical capacity in several areas which will impact its financial performance\. The most important of these areas are: (i) investment planning and financing; (ii) formulating tariff proposals and defending them before the regulatory authorities and other stakeholders; and (iii) and devising and implementing a debt management plan including debt restructuring\. The Additional Financing Loan will provide US$0\.5 million to support capacity building in these areas through staff training and technical assistance form specialized consultants\. 40  Annex 8: ISR Ratings VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING ISR#3 June ISR#4 June ISR #5 Jan\. Rating 2008 2009 2010 Achievement of PDO S S S Overall Implementation Progress S S S Financial Management S S S Project Management S S S Counterpart Funding HS S S Procurement S S S Monitoring and Evaluation S S S Component Ratings Transmission & Distribution Systems Expansion & S S S Reinforcement Electricity Market &System Operations MS MS MS Modernization Market Transition Support Overall Safeguards Compliance Environmental Assessment S S S Indigenous People S S S Resettlement S S S 41  Annex 9: Project Processing VIETNAM: SECOND TRANSMISSION AND DISTRIBUTION PROJECT ADDITIONAL FINANCING Project Processing Schedule Planned Actual Concept Memorandum January 19, 2010 January 20, 2010 Initial PID to PIC December 3, 2010 December 13, 2010 Final ISDS to PIC January 20, 2010 February 24, 2011 Appraisal January 3, 2011 January 7, 2011 Negotiations January 21, 2011 January 17, 2011 Board Approval March 29, 2011 Planned Date of Effectiveness June 30, 2011 Planned Mid-Term Review (AF) September 30, 2012 Planned Closing Date June 30, 2014 Project Team Name Title Unit Joel Maweni Lead Energy Specialist (TTL) EASIN Hung Tan Tran Power Engineer EASVS Quang Ngoc Bui Operations Officer EASVS Mai Thi Phuong Tran Financial Management Specialist EAPCO Sameena Dost Senior Counsel LEGES Hisham A\. Abdo Kahim Senior Counsel LEGES Thao Le Nguyen Senior Finance Officer CTRFC Richard Spencer Country Sector Coordinator EASVS Nguyet Anh Pham Acting Country Sector Coordinatort EASVS Kien Trung Tran Senior Procurement Specialist EASPR Tumentsogt Tsevegmid Infrastructure Operations Officer EASCS Cao Thi Thu Yen Environment Specialist Consultant Lien Thi Bich Nguyen Program Assistant EACVF Teri Vellila Program Assistant EASIN Bank Fund Expended to date on Project preparation 1\. Bank Funds US$135,750 2\. Trust Funds US$ 0 3\. Total US$135,750 Estimated annual supervision cost US$ 85,000 42

APPROVAL

P001437

Document of The World Bank FOR OFFICIAL USE ONLY Repwt No\. 9573 PROJECT COMPLETION REPORT LIBERIA LOFA COUNTY AGRICULTURAL DEVELOPMENT PROJECT II (CREDIT 1242-LBR) MAY 17, 1991 Agriculture Operations Division Country Department IV Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  PROJECT COMPLETION REPORT LIBERIA LOFA COUNTY AGRICULTURAL DEVELOPMENT PROJECT PHASE II Currency Equivalent Currency Unit = US $ Weights and Measures 1 metric ton e 0\.98 long ton 1 long ton = 2,240 lb 1 hectare (ha) 2\.47 acres 1 acre 0\.405 hectare 1 kilometer (km) = 0\.62 mile 1 mile = 1\.609 kilometer Abbreviations ADF - African Development Fund GOL - Government of Liberia IBRD - International Bank for Reconstruction and Development IDA - International Development Association IFAD - International Fund for Agricultural Development LPMC - Liberia Produce Marketing Corporation MOA - Ministry of Agriculture PCR - Project Completion Report Fiscal Year July 1 - June 30  THE WORLD BANK FOR OFFIIAL US ONL Washington\. D\.C\. 20433 U\.S\.A\. olce a# Otcitrncwwal Op,aeiam IwlAMIism May 17, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Liberia Lofa County Agricultural Development Proiect II (Credit 1242-LBR) Attached, for information, is a copy of a report entitled "Project Completion Report on Liberia Lofa County Agricultural Development Project II (Credit 1242-LBR)" prepared by the Africa ^ gional Office\. No audit of this project has been made by the Operations Evaluation Department at this time\. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT LIBERIA LOFA COUNTY AGRICWALTURAL DEVELOPMENT PROJECT PHASE II CREDIT 1242-LBR Table of Contents Page No\. Preface \. - \. \. i Evaluation Summary iii\. \. Part I: Project Review from Bank's Perspective Project Identity \. A\. Background \. 0\.0\. B\. Project Objectives and Components \. 2 i\. Objectives \. \. \. 2 ii\. Components \. \. \. \. \.*\. * \. * \.2 C\. Project Design and Organization \. 3 D\. Project Implementation \. \. 4 E\. Project Results \. \. S F\. Project Sustainability \. 6 G\. IDA Performance \. \. \. 6 H\. Borrower Performance \. \. 7 I\. Consulting Services \. \. \. \.8 J\. Project Documentation and Data \. 8 Part III: Statistical Information 1\. Related Bank Loans/Credits \. \.9 2\. Project Timetable \. 10 3\. Disbursements \. 10 Follow-on Project \. \. 11 4\. Project Implementation \. 12 5\. Project Costs and Financing \. \. \. \.13 6\. Project Results \. o\. \. o\. 14 7\. Status of Covenants \. 15 8\. Use of IDA Resources \. \. \. \. \. \. \. \. \. \.18 May: IBRD No\. 15550R This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  - i - PROJECT COMPLETION REPORT LIBERIA LOFA COUNTY AGRICULTURAL DEVELOPMENT PROJECT II CREDIT 1242-LBR PREFACE 1\. This is the Project Completion Report (PCR) for the Lofa County Agricultural Development Project II in Liberia, for which Credit 1242- LBR in the amount of SDR 13\.3 million (US$15\.5 million equivalent) was approved on May 4, 1982\. The Project was co-financed by the African Development Fund (ADF) which provided a loan equivalent to about US$9\.6 million\. The Closing Date for the IDA Credit was June 30, 1987\. Earlier a review by IDA and the Government officials in May 1987 had concluded that the Project (along with a few other on-going projects in Liberia) was not expected to achieve the desired development impact under the circumstances then prevailing in the country and that the Credit should be closed on schedule and the undisbursed balance be cancelled\. However, in order to honor withdrawal applications the Credit was closed on September 29, 1988, over a year behind schedule\. An amount of SDR 3\.8 million (US$4\.9 million equivalent) remained undisbursed and was cancelled with effect from the above date\. 2\. The PCR (Preface, Evaluation Summary and Parts I and III) was prepared by the Agricultural Operations Division (AF4AG) of the Western Africa Department in the Africa Regional office\. The Borrower was not sent Parts I and III nor could they provide Part II because the Government collapsed as a result of the ongoing civil war\. Preparation of this PCR is based on the Staff Appraisal Report; the Credit Agreement; supervision reports, correspondence between the IDA and the Borrower; and internal IDA memoranda\.  - iii - PROJECT COMPLETiON REPORT LIBERIA LOFA COUNTY AGRICULTURAL DEVELOPMENT PROJECT II CREDIT 1242-LBR EVALUATION SUMMARY 1\. Backaround: Agriculture a:c-\.nted for about 35 percent of Liberia's GDP and about 60 percent of employment\. Land was not a constraint for agricultural development\. Rice is the main staple and is largely grown ir uplands areas\. The growth in agriculture was estimated at 4\.1 percent per annum for the period 1976-1980\. With the collapse of the Government, the continuing civil war situation is likely to have serious impact on the agriculture sector\. 2\. Obiectives: The project was intended to consolidate the experiences and achievements of the first Lofa project and extend agricultural services to that part of the upper Lofa county not covered by the first project\. The project aimed at increasing production of rice (upland and swamp) and cassava by improved farm management, new planting of coffee and cocoa and rehabilitation of smallholder coffee farms and thereby increasing farmers' income\. The project was to reorganize cooperatives to enable them to take over input distribution, credit, and primary produce marketing functions\. It was to start integration of project staff with the Ministry of Agriculture (MOA) and to seek immprovements in the operations of the Liberia Produce Marketing Corporatior\. (LPMC)\. 3\. ImRlementation Experience: The IDA supervision missions found the project management to be good and the staff well motivated\. However, the Borrower's commitment to the Project was not adequate\. Its implementation-was far from satisfactory for a variety of reasons, some external to the Project such as suspension of disbursement by donors\. Extension activities and agricultural services were carried out indifferently\. While IDA missions detected the need to modify the technical solutions offered to farmers in light of the implementation experience and recommended specific changes, the adoption of these changes was below expectation\. Efforts to develop cooperatives as a viable alternative to LPMC and/or licensed agent activities, particularly for marketing of crops, were unsuccessful\. LPMC was not effective in fulfilling its market functions due to financial Ss well as organizational problems and the Government failed to take determined action to reform LPMC\. The Project Unit staff grew disproportionately  - iv - to its development activities\. The Borrower and its agencies remained poorly coordinated, thus reducing the possibility of taking effective action to achieve desired results\. There were major shortfalls in the Government's contributions to project funding, particularly in the later years\. The provalence of unethical practices at all levels contributed to a sense of demoralization, which was not conducive to innovative and vigorous actions towards achievement of project goals\. 4\. Resultss The Project's primary goal of increasing agricultural output and farmers' incomes was only partially attained\. Concerning crop area and yield, coffee rehabilitation and upland rice did well in terms of appraisal targets, but swamp rice, new coffee and cocoa were well below SAR estimates\. The Pi ject's performance with respect to institutional development (cooperatives and LPMC) was most unsatisfactory\. The Project expenditures were unbalanced with administrative expenses taking a lion's share\. The Ministry of Agriculture's extension service was weak and witheut links to research\. The aim of integrating project staff with MOA could not be achieved\. Loan recovery from the farmers was poor\. The overall result of this project is unlikely to meet its main objectives because of implementation problems exacerbated by macroeconomic and institutional problems\. Data for formal economic and financial analysis are not available since a PCR mission has not visited the country following completion of the project on June 30, 1987 because of the deteriorating country situation resulting from the ongoing civil war\. 5\. Sustainabilitvt The project organization as it emerged at the end of the project implementation period was not cost-effective and could not be sustained beyond the period of external donor ft,nd availability\. The institutional set-up for extension, input delivery and outpul marketing required substantial improvements and its sustenanc, would otherwise have been pointless\. The technological package offered to the farmers needed more testing and adaptation for further application in the County\. The integration of all agricultural staff in the Ministry of Agriculture, a project objective which was essential to maintaining coordinated development activities in the County, was not attained\. 6\. Findings and Lessons Learned: (a) Follow-up projects can have pitfalls due to ready replication of earlier projects\. Prudence would demand a more critical evaluation of the results of preceding projects and designing later projects in light of the lessons learned (para 7); (b) It is often preferable to pause in project development in order to settle the emerging institutional issues and test the technological solutions\. Outcome in such cases are slower but surer in the long run (para 9); (c) In designing a project, consideration should be given to Borrower's views to elicit their participation\. The  - v - Borrower's comnitment to the project is critical to its success (para 19); (d) Subsistence farmers with their traditional practices and cultural barriers are most difficult to change without adequate incentives--particularly higher output prices\. Attempts to assist them directly and rapidly may encounter difficulties\. It may ofter\. be more expedient to strengthen the cooperatives and assist the non-subsistence farmers\. This would lead to the gradual development of subsistence farming through institutional assistance\. Demonstration effect of and provision of ready services by enterprising larger farmers can also be very cost-effective and beneficial (para 19); (e) In the early stages of development, productivity increases in subsist ace farming could be more easily obtained by improved husbandry than cash inputs (e\.g\. fertilizer); introduction of cash inputs can follow as the farmers get ready for adaptation (para 13); and (f) The farmer could easily lose incentive if he is unable to readily market his crops at a fair price; all his production efforts would otherwise be an exercise in futility (para 11) \.  Part I PROJECT REVIEW FROM BANK PERSPECTIVE Proiect Identity Project Name: Lofa County Agricultural Development Project II Loan No\.: 1242-LBR WVP Unit: Africa Country: Liberia Sector: Agriculture Subsector: Food and Tree Crops - Subsistence Agriculture A\. Background 1\. The main thrust of the Liberian Government economic policy during the 1970s and 1980s was to expand the country's productive capacity, especially in agriculture, and to ensure that benefits from economic growth were enjoyed by an increasing number of Liberians\. Agriculture was the largest productive sector in Liberia's economy, accounting for 35 percent of GDP\. The rate of growth of agriculture was estimated at 4\.1 percent per annum for the period 1976 to 1980\. About 60 percent of the total population earned a livelihood from agriculture\. With low average population density, land was not a constraint to agricultural development\. However, there were still constraints on agricultural development, e\.g\. lack of ongoing analysis of economic and institutional aspects, shortage of qualified and experienced agricultural staff and agricultural support services (e\.g\. marketing) and poorly developed farmer's organizations\. 2\. The Government gave high priority to agricultural and rural development, particularly for the benefit of smallholders\. The Government's objective was to improve traditional farming by increasing on-farm productivity and supporting marketing and processing, as well as related social and other infrastructure\. The land-use policy was to encourage cultivation of rice in the swamps and to grow tree crops on the uplands\. This was because swamp rice carried much higher yield potential compared to upland rice and tree crops offered a far superior monetary return compared with upland rice\. 3\. The Lofa Agricultural Development Project II (Lofa II) was the Bank Group's seventh lending operation for agriculture in Liberia\. Six other projects for a total of US$45\.6 million consisted of a pilot rubber development study and technical assistance, two county agricultural development projects including the first phase Lofa Project, and Rubber, Forestry and Oil Palm Development projects\. Bank Group lending for agriculture supported the Government's objectives of diversifying production and increasing smallholder participation in development\. 4\. The Lofa II project aimed at increasing food production and farm incomes by extending assistance to smallholder farmers initiated under the first project (Credit 577-LBR)\. About 8,000 additional farm  families were expected to earn significantly higher incomes; improvement in agricultural services, roads and wells were to bencfit a majority of the rural families in the region\. The project was, therefore, in line with the Government's sector and macro policy objectives\. The crop components reflected the Government's land use preferences\. B\. Proiect Obiectives and Components (i) Obiectives 5\. The project was intended to consolidate the experiences and achievements of the first Lofa project and extend agricultural services to that part of the upper Lofa county not covered by the first project\. The project aimed at increasing production of rice (upland and swamp) and cassava by improved farm management, new planting of coffoe and cocoa and rehabilitation of smallholder coffee farms and thereby increasing farmers' income\. The project was to reorganize cooperatives to enable them to take over input distribution, credit, and primary produce marketing functions\. It was to start integration of project staff with the Ministry of Agriculture (MOA) and to seek improvements in the operations of the Liberia Produce Marketing Corporation (LPMC)\. (ii) Components 6\. The Project comprised of the following components: (a) the supply on credit of agricultural inputs, such as fertilizers, to improve production of upland and swamp rice, cassava, coffee and cocoa; (b) expansion and improvement of extension services us\.ng the Training and Visit (T & V) system with female extension workers to reach women-farmers: (c) staff training to improve the extension program and cooperatives; (d) production of improved cocoa and coffee seedlings and cassava setts, and adaptive research into upland cropping systems; (e) improvement -f cooperatives to enable them to take over responsibility for input supply, credit an\. marketing; (f) improvement in the marketing operations of the LPMC; (g) schistosomiasis monitoring and control in swamp rice areas; (h) construction, upgrading and maintenance of feeder roads and farm trecks, village wells and latrines; and  (i) the establishment of a central monitoring and evaluation section of the Ministry of Agriculture and funding for evaluation studies\. C\. Proiect Design and Organization 7\. The Lofa County Agricultural Development Project II was a follow-up to Credit 577-LBR (Agricultural Development-LOFA)\. Preparation and appraisal staff replicated the design and organization of the earlier project\. The assessment of the results of the first project also seemed somewhat more favorable than might be justified\. Consequently, the second project did not fully benefit from all the lessons of the earlier project\. The experience of projects in Liberia, as in some other developing countries, had already indicated that traditional agriculture of subsistence farmers (the target group of the project) was difficult to change\. It was more advisable in the beginning to promote better husbandry through demonstration plots and extension work, than to introduce new ways of farming involving significant cash investments\. The project, however, attempted to provide better seeds, credit, fertilizer, etc\. without too mucl\. success in improving productivity\. Also certain cultural barriers and attitudinal factors were ignored in emphasizing swamp rice component in the project\. Swamp rice cultivation was regarded as inferior work reserved for women and was to be practiced where land was scarce and production for domestic consumption was necessary (not as a cash crop)\. it was not surprising, therefore, to find that both in terms of area and yield, the swamp rice development was a failure\. The project included a technological package which was not sufficiently attractive to the farmers and in some cases still under experimentation\. Naturally, conflicting advice was sometimes given to the farmers (e\.g\. the utility or otherwise of shade trees in coffca farms)\. 8\. In matters of organization, the project started with a potential problem\. MOA's agricultural staff (located, but not working in the project area) received different pay and benefits than Project staff working in the same county\. The marketing issue was identified early but the Project was launched with Liberia Produce Marketing Corporation (LPMC) suffering chronically from cash availability, and problems with procurement, price level and the timing of payments\. The weak cooperatives were to be strengthened by supervision and training, and a specialist was provided to reorganize the operations of these societies\. Interesting, however, organizational provisions included the use of village level cooperative units, group meetings undez the T&V system and other group activities for raising comnitment and responsibility of the farmers\. Also, provision of extension services was specifically made for independent female farmers and for farmers' wives who had been somewhat constrained socially from direct contact with male extension workers\. 9\. It would not be correct to say that the appraisal and supervision staff were unaware of the design and organizational problems  - 4 - mentiot\.ed above\. However, a certain amount of undue optimism about remedying the deficiencies in design and organiization of the project could be detected\. Quite early in the credit processing stage, the Bank's senior management had pointed out the need for working out the LPMC's restructuring and a more critical reappraisal of the experience of the first Lofa project before proceeding quickly with a follow-up credit\. However, on the ground that continuity was needed in the operations and staffing of the ongoing development program, the credit was pushed through and declared effective\. It was natural, therefore, that the project execution period was marked throughout by problems associated with the identified but unresolved issues\. On hindsight, it appears that it would have been preferable for IDA to delay project development to permit settlement of identified institutional problems and technological issues\. D\. Proiect Implementation 10\. In the face of the traditional antipathy of farmers to work in swamps and the labor requirements of such cultivation, the swamp rice development program faltered\. About fifty percent of the extension effort was devoted to it\. For upland rice, seeds distributed by the Project had only ten percent more yield capacity than seeds obtained by exchange from Gther farmers\. The proj\.ct seeds w\.ere also not readily available in adequate quantities\. In fact, labor availability (for swamp rice) was a constraint in the project area and the upland rice development had more scope Eor expioitation than the project envisaged\. Also, more adaptive research and evaluation of the results were necessary before offering particular technical solutions to the farmers\. For example, farmers were encouraged by the project to cut shade trees in coffee farms in the early years\. Substantial project funds were spent on equipment and staff in this effort\. Later, it wAs found not to be beneficial without benefit of fertilizers, and the shade trees had to be gradually restored\. IDA missions also found the necessity for coordinating advice by various donor agency officials in such technical matters\. The need for integration in the !\.ofa County of MOA staff and project unit staff was recognized early, but with the exception of the Chief Agricultural Officer of the Lofa County doubling as the Project Manager, nothing much happened in this respect during the entire project implementation period\. The project staff members enjoyed greater benefits than the regular MOA staff, but lack of assurance of eventual absorption in MOA meant considerable uncertainty as to their future job security\. 11\. At the time of credit closing, costs for the project reached 75Z (about US$21\.0 million) of appraisal estimate (about TJZ$28\.0 million)\. However, the performance was not balanced\. Admin\.strative costs were about 1772 of appraisal estimates while productive activities were being underfulfilled\. Expenditure on agricultural extension and training were 73? and 582 respectively of the appraisal estimates\. 12\. The unsatisfactory marketing arrangements for inputs and outputs was a major problem of the project\. This was also the main reason why the credit Closing Date was not extended by IDA and a large  -5 amount of credit funds was cancelled\. It was envisaged that the cooperatives would be developed under the project; this was expected to alleviate a lot of the input and credit distribution, as well as crop marketing problems\. However, in spite of the appointment of some key senior staff and increasing the number of the cooperatives, these organizations never achieved sufficient strength and efficiency\. IDh missions were frustrated with this situation and in 1987 concluded that even the Cooperative Union Manager in Voinjama, the principal city in the County, lacked interest, leadership and strong managerial force to guide and strengthen the cooperatives\. The failure of LPMC to fulfill its marketing functions compounded the difficulties of the farmers and the objective of increasing their output and income through incentives could not be achieved\. A study on LPMC's marketing was carried out with a view to preparing a plan of action for implementation but until IDA's last supervision in January, 1987, nothing was done by the Government\. Significant efforts, however, were made under the project to reach female farmers and farmers' wives and encourage them to improve home gardening and diversify crops for greater variety in diet\. Craft courses were also provided and the female participation rate for all the above matters was satisfactory\. E\. Proiect Results 13\. The project was expected to be completed by June 30, 1986, but since IDA funds were still available, project activities continued until June 30, 1987, when the Credit was closed\. According to the estimates of the last supervision mission in January 1987, actual new area cultivated and yields obtained were below appraisal estimates\. The revised appraisal targets were oaily exceeded for coffee rehabilitation area and nearly achieved in respect of the area for upland rice - seed exchange\. Achievement of crop area targets for swamp rice, new coffee and new cocoa was only between 40 to 50 percent of the appraisal estimates\. Actual crop yields for upland rice and coffee rehabilitation were comparable to appraisal estimates, but that of swamp rice, new coffee and cocoa were below appraisal estimates\. 14\. The unsatisfactory results appear to be mainly due to the inappropriate development strategy, ineffective extension service and absence of a viable marketing system\. Towards the end of the project, IDA missions had recognized that given the small size of the family farms (seldom above 2 ha) and their low technological levels, increases ir productivity could be obtained in the early stages from better husbandry methods, and without the use of cash inputs such as fertilizers, pesticides or machinery\. The MOA was weak and its extension service lacked clearly defined purpose\. Supervision was loose and there was no systematic monitoring\. The extension eervice had no links with research activities\. 15\. The project had devoted a large part of the available financing to administrative expenses and vehicle operating costs, to the detriment of other productive activities\. The project's performance in cooperative development, input supply and credit administration was less than satisfactory\. Recovery of seasonal loans in the years 1983-85  averaged only 51 percent\. LPMC had perennial lack of funds which hindered its ability to buy crops from farmers, disrupting marketing and credit recovery\. IDA's suspension of disbursement of Liberian Loans and Credits on two occasions during the project implementation period (on country debt service grounds) compounded the financial problems\. The incentives amongst the farmers that the project was able to develop were stifled by the problem of inadequate and erratic marketing (through LPMC)\. This, however, could not be solved in the context of the project, particularly since its origins resided in the difficult state of Government finances\. F\. Proiect Sustainability 16\. The sustainability issue relates to whether the organization, financing and the activities of the project were such that these could be absorbed within the regular functioning and financial abilities of the country\. Insofar as the Second Lofa Project (along with the first phase) was covering the entire Lofa county, and it was consistent with the Government's decentralization decision to organize development and administrative efforts on a county basis, project activities were to be continued into the future\. The deficiencies in the project's strategy and institutional arrangements have been raised in other sections of the PCR\. Here we would raise only the two major issues of integration with Ministry of Agriculture (MOA) and cost- effectiveness, which are somewhat inter-related\. With a semi-autonomous management unit, the project hired its own staff at salary levels higher than those of MOA, which also had its agricultural staff in the project area\. The project also provided its own training facilities and physical infrastructure which further added to costs\. The MOA remained weak and outside the sphere of the major development efforts under the project (and similar other projects) which rendered duplication of the project approach on a national level unlikely, considering the financial constraints of the Government\. 17\. The Project unit remained over-staffed, in spite of some reductions made with IDA's encouragement\. Even in mid-1987, at the time of credit closing, there was serious imbalance in staffing and operating costs between administrative and productive divisions\. In terms of expenditures, in the first four years of the project with 75Z of the project funds utilized, administrative expenditure was about 1762 of the appraisal estimates, while expenditures on Agricultural extension and training were 732 and 58Z respectively\. The project was not sustainable at this level of administrative expenses beyond the period of external donor financing of bulk of such expenditures\. G\. IDA Performance 18\. As has been mentioned in the section dealing with project design, IDA performance in the early stages of the project cycle was marked by an approach which, though cognizant of the fundamental difficulties (e\.g\. technology, cooperatives, LPHC and marketing) facing the project, was unduly optimistic about their timely and successful resolution\. The technological (e\.g\. seeds, swamp preparation) issues  -7- were not fully assessed until well into project execution\. The causes of inadequacies in the cooperatives and LPMC in respect of input distribution and marketing were expected to be diagnosed after the project began and expected to be cured early during the project implementation\. The supervision missions laboriously grappled with these matters and met with project officials and ministers, introduced consultants and studies, and attempted to promote action plans\. These efforts, however, were not very successful due to the financial situation prevailing in the country and the inherent lack of coordination at the highest levels of the government and its parastatals\. 19\. The cultural traditions in the country, whether in respect of rice cultivation or use of public funds and resources, were perhaps not fully comprehended by IDA staff (e\.g\. public bodies as sources of patronage)\. Also, the assessment by successive IDA missions of the Liberian project management as consistently good and highly motivated seemed at odds with the project's uneven and unsatisfactory performance\. A sad example of the Project Management's priorities was the increase in administrative costs while productive activities were being underfulfilled\. During 1986 when staff was reduced by about 100, reductions in expenditures for Plant Production, Civil Works, Health and Commercial Services were between 24 and 45 percent\. At the same time, administrative staff increased by 29 percent\. The Project Management could have benefitted by closer attention and guidance from the IDA missions\. This might have allowed significant mid-term changes to project strategy and action plans\. H\. Borrower Performance 20\. Towards the end of the first phase of tha Lofa project and before the preparation of the Second Project, the Liberian Government had changed as a result of an army coup in April 1980\. It was interesting to note that this change did not materially affect the commitment of the Liberians to the two Lofa projects\. The ministers in the new government took interest in the projects and were regularly accessible to IDA missions\. Perhaps more use could have been Liade by the missions of this level of involvement on the part of the policy makers in reforming the project and resolving the implementation problems\. Even at the project design stage, the Minister of Agriculture had suggested that the IDA could concentrate on development of the cooperatives and assistance to non-subsistence farmers, while the MOA would deal with the subsistence farmers\. It appears that IDA staff did not sufficiently consider this suggestion and proceeded to replicate the first phase in designing the second project\. In retrospect, it may have been more prudent for IDA to first concentrate on strengthening the vital input delivery, credit and marketiag functions through cooperatives which would later have permitted more efficient assistance to the subsistence farmers\. Weakness of the cooperative system was a serious handicap of the project\. Also, IDA staff could avoid the obsession of directly reaching the subsistence farmers\. Often the development of the non-subsistence sector is a surer way to assist the subsistence farmers because of the considerable demonstration effect\.  Also, cost-effective and timely services and inputs can often be provided by the non-subsistence sector\. 21\. On the other hand, lack of financial support by the Government was a major problem for the project, particularly during the later years\. The shortfall in Government's actual funding of the project from appropriations during the years 1983-84 and 1984-85 (first two quarters) was 50 percent and 99 percent respectively\. The project activities were then grinding to a halt due to inadequate counterpart funds\. The Government also dragged its feet in preparing LPHC reform plans, and perhaps against the best judgement of IDA management, the study and restructuring of LPMC was agreed to be done during the project period instead of preceding it\. Again, the LPMC's marketing performance or the lack of it was the most serious constraint faced by the Project\. In June, 1985, an IDA mission observed that the marketing problem was due to the physical shortage of cash and to LPMC's weak financial situation and that the farmer producers and cooperatives were having to bear the heaviest burden\. In order to market farmers' produce, many cooperatives had to borrow heavily at high interest rates from commercial banks; the only way they could break even or make a profit was by rapid turnover of sales\. Since LPMC was unable to pay when crops were delivered, most cooperatives incurred heavy losses\. Farmers had to sell to whoever would buy at about half the regulated price; this affected the farmer's ability to repay loans, and was a disincentive to production\. There was, however, no determined effort on the part of the Government to streamline LPMC's operations and speed up payments\. Revocation of licenses of licensed buying agents who were found to be paying less than minimum prices was also not made\. The Government was advised by IDA to encourage the private sector to play a wider role in marketing, in parallel with LPMC\. Not much attention was paid to this suggestion by the Government possibly because LPMC was a major source of patronage of the senior officials who had drained off LPMC's surplus of funds (or equity) years ago\. I\. Consultina Services 22\. Project consultants provided valuable assistance to the Project management in project implementation including training of local staff\. A good relationship existed between the consultants and the Project management and the Borrower\. J\. Proiect Documentation and Data 23\. The documentation for the project was adequate\. The Credit Agreement was quite adequate for achieving project objectives\. The appraisal report provided a useful framework for review of project implmentation\.  -9- PART III STATISTICAL INFORMATION 1\. RELATED SAW( LOANS/OR CREDITS Loan/Credit Titl- _Purpose Yoar of Approval Status A\. Cr\. 677-LBR Agricultural Devolopment (Lofa) Project: To incroose production August 1, 1975 Completod 6/02\. of emailholder rice, cocoa, coffee in Upper Loft\. B\. Cr\. 700-L8R Agricultural Development (Bong) Project: To increase production Docember 29, 1977 Completed 12/68\. of smaliholdor rico, coffee and cocoa in Upper Song\.  - 10 - 2\. PROJECT TIMETABLE Date Planned Date Actual Identification 1/ -- -- Preparation 12180 12/80 Appraisal 05/81 05/81 Credit Negotiation 01/82 01/82 Board Approval 05/82 05/82 Credit Signature 06/82 06/82 Credit Effectiveness 12/82 12/82 Completion 06/86 06/87 Credit Closing 06/87 09/88 1/ As a follow-up to the First Lofa County Project, the project was prepared by the Bank's Regional Mission for West Africa in collaboration with the management of the First Lofa County Project\. The Project incorporated lessons learned from the first phase Lofa County Agricultural Development Project financed by IDA Credit 577- LBR\. 3\. DISBURSEMENTS, Cumulative Estimated and Actual Disbursements ----------------(uS$ million)------------- FY83 FY84 FY85 FY86 FY87 Appraisal Estimate 1\.30 4\.80 9\.70 14\.20 15\.50 Actual 1\.15 4\.84 6\.95 9\.12 10\.10 Actual as 2 of Estimate 88 100 72 64 65 Date of Final Disbursement: September 29, 1988 Comments: No follow-on project\.  LIBERIA-LOFAI 1 Actual and Estimated Disbursements 16 - ____ __ ____ 15 14 13 - 12 - c o 1 1 10 9 0:: ~7 o 6 5 4 3 2 83 84 85 86 87 PERIODS (FY) El Actual Disbursement + Appraisi Estimrate  - 12 - 4\. ,,OJECT !L1 TT0 PYl PY2 PY8 PY4 TOTAL X INDICATORS SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR/Actual Crop Developent -----------------------… ho\. ----------------------------------- Upland Rice 1250 973 1360 206 1460 2160 1460 2080 5500 5375 90 (1560) (80on) (7160) (76) Swamp Rice 220 142 280 226 290 48 810 14 1100 480 s9 (100) (256) (865) (6 ) Coffee (now plantings) 460 478 860 697 920 249 1100 853 8830 1677 S0 (5600) (760) (2670) (66) Coffe Rehabilitation 20 72 20 50 100 104 160 117 290 848 116 (100) Cocoa (new plantings) 226 264 460 862 6o0 104 060 85 1985 765 89 (100) (800) (1085) (69) Infrastructure …___________------------------------ no\. of Item -----------------s- Villaeg Wells 40 20 40 25 40 40 120 45 8s Latrines 25 24 26 25 26 2 26 76 51 68 ---------------------- - ~- - ------ km\. - _ - Feeder Road Construction 60 26 se 11 87 -- 87 -- 18? 87 27 Feeder Road Maintenanco 160 240 160 76 150 SO -- 450 871 62 Farmtrack Construction 15 40 15 80 15 -- 45 70 165 Farmtrack Maintenance 48 240 48 120 48 09 -- - 144 469 819 Note: Figures in ( ) indlceo revision made by IDA supervision minsions\.  - 13 - 5\. PKOJ'C! COSTS AND INUANCING A\. Proiset Cost Appraisal 2 Estimates Actual Actual/ Items (USS '000) (USS '000) Appraisal Administration 2023\.00 3589\.00 177 Agricultural Extension 4199\.10 3084\.70 73 Training 1307\.20 726\.10 58 Plant Protection & Research 2534\.20 2356\.60 93 Cooperatives and Commeurcial Services 5300\.80 4862\.90 92 Farm Inputs 5332\.80 1355\.20 25 Schistosomiasis Control Unit 617\.90 518\.60 84 Roads, Wells and Latriner 2984\.50 2130\.60 74 Land Planning 776\.00 315\.90 41 Central Monitoring and Eval\. Unit 1401\.40 1004\.70 72 Project Monitoring and Eval\. Unit 782\.00 390\.10 50 Consultancy & Technical Assistance 726\.30 563\.50 78 Project Preparation Facility 118\.60 55\.70 -° - - TOTAL 28002\.80 20953\.60 75 Note: Local currency unit - US$\. Comments: The underrun was due to a lag in implementation caused by (A) financial problems-lack of Government funding and flow of external funds because of frequent suspension of disbursements by donors; and (B) technical problems - particularly marketing and agronomy\. B\. Proiect Financina PLANNED FINAL Source CUSS '000) (C) (USS '000) (Z) IDA 15500 55 10400 37 ADF 9600 35 6030 22 GOL 2900 10 NA TOTAL 28000 100 16430  - 14 - 6\. PROJEC USf LTS A\. DIRECT 83N3 ITS Appraisal stimated Indicatore Estimte Actual I Annual Production (tons) (at full development) Coffee 2400 S88 22 Cocoa 1940 314 16 Rice 6400 10810 j1 169 Cassava 3600 NA CroD Development (ha) Coffee (new) 3330 677 50 Cocoa 1935 755 39 Upland Rice 5500 5375 98 Swamp 1100 430 39 Cassava 600 NA Yields (ka/ha) Coffee 450 315 70 Cocoa 800 416 52 Upland rice 1400 1880 134 swamp 3250 1640 50 No\. of Beneficiaries (farm families) 7000-8000 9098 Comments: (a) These figures are based on the January 1987 Supervision Mission Report and need to be vi*ewed with caution since it appears the sampling procedures used by the Project Monitoring & Evaluation unit is heavily biased towards higher yields\. However, it should be noted that the farmers in the project area traditionally grow rice usually under rudimentary systems\. While not all parts of the project area was suitable for coffee and cocoa, area planted and their yields were affected by improper choice of land and inadequate agronomic practices, difficulties with obtaining credit support to finance the development activities and market the production\. (b) The project was completed in June 1987\. A PCR mission has not visited the project to obtain relevant data to complete economic and financial impact and other tables\. I/ Includes 705 tons of swamp rice\. B\. ECONCMIC IMPACT The economic rate of return for the project is not available since the PCR mission has not visited the country following completion of the project on June 30, 1987 because of the deteriorating country situation\.  7\. STATUS OF COVENANTS Section No\. of Covenants Status Action Taken or Needed Credit Agreement 3\.01 The Borrower shall carry out the Partially The Government is in arrears Project through its Ministry of complied with\. mnounting to US $766,844\. Agriculture with due diligence and This has been brought to the efficiency in conformity with attention of the Minister of appropriate agricultural, Agriculture, and a letter has administrative and financial practices, been sent to the Government\. and shall provide promptly, as needed, the funds, facilities, services and other resources required for the purpose\.  Section No\. of Covenants Status Action Taken or Needed Credit Agreement 3\.03 The Borrower shall, for the purposes of Partially (i) fulfilled\. carrying out Part D\.I\. of the Project: complied with\. Implementation in hand\. But slowed down because of funding (i) furnish to the Association, not due to economic situation in later than October 31, 1982, a plan of cointry; action satisfactory to the Association and carry out such plan not later than (ii) some staff have been June 30, 1983; transferred to Lofa County and provided with some logistical (ii) provide its Cooperative support\. However, more staff Development Agency in the Project Area and support are still required with such funds, staff and other and CDA has been reminded of resources as required for the purpose; its obligations\. (iii) employ not later than December (iii) fulfilled\. 31, 1982 and thereafter, a qualified and experienced person as Assistant (iv) not fulfilled\. Registrar of Cooperative Societies for Project management will follow the Lofa County of the Borrower; and up\. (iv) review, not later than August 31, 1985, with the Association the progress made in the execution of Part D\.l\. of the project, and take promptly such measures as shall be necessary or advisable as a result of said review\.  Section No\. of Covenants Status Action Taken or Needed Credit Agreement 4\.01 The Borrower shall: Partially Audited accounts for year complied with\. ended 30 June 1985 have been (i) have the accounts referred to in provided but no mention is paragraphs (a) and (b) of this section made of special account\. This and the Special Account for each Fiscal is being followed up b-y Year audited in accordance with project management appropriate auditing principles consistently applied by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available but in any case, not later than four months after the end of such year a certified copy of the report of such audit by such auditors, of such scope and in such detail as the Association shall have reasonably requested, including without limitation to the foregoing, a separate opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this section as to whether the proceeds of the Credit withdrawn from the Credit Accounts on the basis of Statements of Expenditure have been used for the purposes for which they were provided; and (iii) furnish to the Association such other information concerning said Separate Accounts and Special Accounts, records and expenditures and the audit thereof as the Association shall from time to time reasonably request\.  - 18 - 8\. USE OF IDA RESOURCES A\. Staff Inputs: 1978 ;979 1980 1981 1982 1983 1984 1985 1986 1987 1988 TOTAL Preappraisal 16\.3 1\.2 6\.3 23\.7 -- -- -- -- -- 46\.6 Appraisal -- -- -- 32\.8 23\.3 -- -- - -^ 66\.9 Negotiation - - 7\.9 -- -- -- 7\.9 Supervision -- -- -- -- -- 19\.6 14\.7 19\.9 8\.1 7\.3 0\.7 70\.^ TOTAL 1S\.3 1,2 6\.3 58\.3 31\.2 19\.6 14\.7 19\.9 8\.1 7\.3 0\.7 179\.5 8\. Mission Data Month/ No\. Days in Specialization Performance Rating Types of Year Persons Field Represented 1/ Status 2/ Status 3/ Problems 4/ Identification 3/78 2 10 c,o Preparation: C/78 2 4 c,o 11/79 1 4 e 3/80 1 2 e 6/80 2 2 b,f 8/80 1 5 c 11-12/80 2 18 c,c 3/81 1 3 c Appraisal: 5-8/81 6 19 c,d,e,h,o Superv\. I 11-12/82 2 7 *,c 1 2 Superv\. II 5-6/83 3 12 c,d,g 1 2 0 Superv\. III 3/84 2 9 c,d 1 2 OT Superv\. IV 11-12/84 2 10 d,q 2 2 FT Superv\. V\. 4/85 2 5 c,d a 2 FT Superv\. VI 8/85 1 3 d 3 2 FT Superv\. VII 1/8a 1 4 d 4 4 FT Superv\. VIII 4/88 1 5 c 4 4 FT Superv\. IX 1-2/87 3 3 c,f,g 4 4 FT 1/ a= Division Chief; b = Deputy Division Chief; c = Agriculturalist; d = Credit; * = Economist; f = Financial Analyst; g = Operations Assistant; h = Engineer; o = Other 2/ 1 = No significant problem; 2 = Moderata problems; 3 = Major problems; 4 = Major problems but the problems are not being adequately addressed\. 3/ 2 = Statijnary; 4 = Deteriorating 4/ F = Financial; T = Technical; 0 = Other A:\1242-TAB\. RK  IBRD 15550R 11\.00' / 900 800 ; ) ,' -- ,t 5A LIBERIA I, 4\. - X C A ^ LOFA COUNTY AGRICULTURAL AFIBERIA * -- DEVELOPMENT PROJECT, PHASE II - LBE I /w \.;o sW /-'- ° I' /' )b -a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~lo z L O F A o'7z ~G U I N E A S I E R R A , -- , v ~~~~~~~C O U,N T Y -\. 0de0,, t e s ,, ,, L E O IN E &t G RAN D , , j / \ x AdlOUEt$IE >s Z #,g , K B ONt GGrA D jA NN G I, 700h g~~~~~i N I SF l'B Ay $ /~ -\. / MoNBOVIA 4 (\2 G R A N D B A S S A K ' EV£ELCOPUMNENYT PROJIEUCT AREAS BUCHANAN 7 G R A* N-D-\.11E EH K-"Zz< Fl BON ^ ~>\. FHASE 11 %+ \+ @ PROIECT HIEADQUARTERS Kobl s / C OUN T _Y CARl CENTRAL ACRICULT1URAL RESt; RCH INSTITUTE \ U COUNTY - PAVED ROADS / c \ - LOOSE SURF'ACE ROADS /J -…ROADS UNDER CNSTRUCTION S - RAILWAYS C C U N T D'IVOIRE * INTERNATIONAL AIRPORT ,\ 4\.v AIRFIELDS AND STRIPS / ~\ -s eo *-> ~~MAJOR PORTS GOOVII _ -OKo_, _ __00 J, MINOR PORTS GEVt _O>^UE; {b s\ S * NATIONAL CAPITAL 1/ 'N 13 COUNTY CAPITALS G 5R\. - N D R COUNTY BOUNDARIES KW CUdTYs INTERNATIONAL IOUNDARIES 0 0 - INSTITUTE - RiVERS AND CREEKS ESLOMITERS 0 0 2 0 20 U N T Y b L_ II-V'V 10 00 9- 00 W IIORT MAY 199M

APPROVAL

P009336

FILE CoPY ' R E S T R I C T E D R e p o r t N o\. TO (IDA) 1la This report was prepared for use within the Association\. It may not be pub- lished nor may it be quoted as representing the Association's views\. The Association accepts no responsibility for the accuracy or completeness of the contents of the report\. INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF PROJECT FOR IMPROVEMENT OF FIVE INLAND PORTS EAST PAKISTAN November 8, 1961 Department of Technical Operations  CURRENCY EQUIVALENTS 1 rupee = US $0\.21 4\.762 rupees = US $1\.00 1 million rupees = US $210, 000  APPRAISAL OF PROJT,CT FOR LiTROVEHT'RNT OF FIVE INLAiD PORTS, EAST - PISTAi1I Table of Contents Page SUi-vARY i-i I\. INTRODUCTION 1 A\. Credit Application 1 B\. Possible Further Credits 1 C\. Basis for Appraisal 1 II\. BACKGROUND A\. Inportance of Inland WJa-ter Transport 1 B\. The Inland Wlater Transport Authority 2-4 C\. Inland '\.later Transport (rDJT) Costs 4-5 D\. IWT Under First Five Year Plan 5 E\. rIT Under Second Five Year Plan 5-6 F\. Importance of Greater Dacca Area 6 G\. Importance of Other Ports 6-7 H\. Najor Port Deficiencies 7 III THE PROJECT 7 A\. Purpose of Project 7 B\. Cost of Project 7-8 C\. The Greater Dacca Area Scheme 8 D\. The Scheme at Klulna 9 E\. The Scheme at Ch-andpur and Barisal 9 F\. Services of Professional Staff and Consultants 9-10 G\. Financing the Project 10 H\. 7Execution of Project 10 IV\. ECOIN0O1C JUSTIFICATIO14 10-12 V\. CONCLUSIOUTS AiD TECOi%;E;NATIO0TS 13 Appendices: A - IWTA!s Over-all Inland Water Transport Programr B - Inland Water Transport Authority - Balance Sheet June 30, 1961\. C - Inland W,later Transport Development Prograx; 1960/61 to 1968/6-\. D -- Inland Water Cargo Traffic in East Pakistan, 1959-1960 Registered Operators Only (No Country Boats)\. - Calculation of Rate of Return on Investment Greater Dacca Area\. Map\.  -- S 1fl,llIARY i\. The Government of Pakistan has requested an IDA credit to assist in the financing of improvements to the river ports at Dacca, Narayanganj, Khulnz, Chandpur, and Barisal\. The cost of the project is about PRs 19\.4 million, of which the credit would be PRs 9\.6 million, (USz2 million) or about 502,* ii\. Inland water transport is of great importance to the economr of East Pakistan, accounting for about 60% of total freight carried\. The Greater Dacca Area, which accouits for the major part of the project, is the largest commercial center of East Pacistan and Narayanganj the most important inland river port\. Water-borne cargo and passenger traffic is primarily in the hands of private enterprise\. In 1958, the East Pakistar Inland Water Transport Au- thority (11JTA) was established to provide river conservancy services, improve inland ports, terminals and storage facilities, and supervise inland water transport operations\. iii\. The application covers the first phase of improvements in five river ports\. IW!TA is preparing projects for the improvement of other inland ports and navigation conditions in general\. Its over-all program during the Second Five Year Plan (1960-65) is estimrated to amount to riore than PRs 80 million\. with a foreign exchange component of about US&,9 million depernding on design criteria and the scope of surveys to be undertaken\. IDA may be asked to con- sider credits to finance other parts of this program in the future\. The UN Special Fund and the Government of Pakistan are financing a five-year hydro- graphic survey, with the FAQ as Executing Agency\. iv0 In spite of the great economic advantages of water-borne transport in East Pakistan, its rates are high because of inadequate port facilities, the poor condition of the fleet, insufficient dredging, and other reasons, Inlard water transport made very little progress under the First Five Year Plan, but the Second Plan envisages a -flore ambitious program, including the improvements under this project\. v\. The project is intended to a) modernize facilities by providing prop- er berthing, cargo handling, storage, and passenger terminals; and b) elimin- ate traffic congestion by providing jetties, anchorages, and mooring buoys, IWTA will retain consultants to plan and supervise the wiork and all major con- tracts will be awarded on the basis of international competitive bidding\. vi\. T'JTA does not now have the resources to provide the funds needed to complete the financing of the project, nor to finance the annual costs\. The Government of Pakistan has undertaken to provide the necessary funds require\.- for the carrying out of the project\. In order to strengthen RITA's organiza- tion a number of experienced staff are to be employed to assist the Chain-ran, the accounting system is to be improved and a review made of the present sources and uses of funds with a view to strengthening IW4TA's finances\. A review cf the activities of the separate agencies at present engaged on various surveys of the navigable waterways is to be undertaken so that they may be co-ordinated and priorities forniulated for, and improvements made in,IWTA's survey opera\.- tions\.  vii\. The project has sound economic justification\. Among the most impor- tant benefits is the lowering of the costs of transporting jute, the country's largest export item\. The overall average rate of return is estimated at abouv 9, The new passenger terminal facilities will replace the rudimentary arra &e- ments presently employed and greatly add to the convenience of embarking aind disembarking passengers\. Further the project is technically sound and can be ;nade financially viable\. Accordingly, it is suitable for a credit by IDA of USd\.2\.0 million\.  I\. INTRODUCT0Oi'1 A\. Credit Application 1\. The Government of Pakistan has requested an IDA credit to improve the inland ports of the Greater Dacca Area, (Narayanganj and Dacca), Khulna, Chandpur and Barisal\. The total cost of the project is about PRs 19\.4 mil- lion, of which the credit would be PRs 9\.6 million, (US$2 million), or about B\. Possible Further Credits 2\. The credit application covers only the first phase of irmfrovements in the above ports\. The Inland Water Transport Authority (DJTA) and its con- sultants, NEDICO, have already started the preparation of project reports for the improvement of other inland ports in East Pakistan, as well as for further improvements to the five ports included in this project\. ThBe cost of the over- all Second Five Year Plan program, including the project covered by this appli\.- cation, is estimated by IWTA at PRs 82\.4 million, witl a foreign exchange coma- ponent of about US$9 million, depending on the type of structures to be provid- ed and the scope of the surveys to be undertaken (see Appendix A)\. C\. Basis for Appraisal 3\. Tnis appraisal is based on the DITA "Preliminary Project Report for the Development of Inland River Ports in the Greater Dacca Area", September 1960, "Dravwings and Estimates of Cost", July 1961, (both prepared by NEDECO) and miscellaneous other material\. Bank staff has visited the site of the major works on missions not directly related to the project\. II\. BACKGROMUID A\. Importance of Inland Water Transport 4\. Since the importance of inland water transport in East Pakistan is described in some detail in the Bank's report Io\. AS-85a - "Development Pro- gramming and Economic Conditions in Pakistan", May 1961, especially pages 66-68, and Annex III, Transport, pages 33-h0 - only major indicators are re- peated here: a) I!aterways\. East Pakistan, with an area of 54,000 sq\. miles, Ls one of the largest deltaic areas of the world formed by the lower reaches of the rivers Ganges, Brahmaputra and illeghna\. The waterways system consists of some 2,800 miles of navigable channels, which increases to about 4,000 miles duiring the monsoon\. In many areas, watermays are the only means of transpor- tation\. There are 1,100 miles of metaled roads and 1,700 miles of railroads in the region\.  - 2 - b) Fleet\. The inland water fleet is predominantly privately owned and its size is estimated at: i) 800 self-propelled vessels, ii) 650 dumb craft, iii) 110,000 country craft, and iv) some 200,000 passenger boats of all sizes\. According to IWTA, the approximate carrying capacity,of craft over 321 tons, is 1\.75 million tons of freight and 2\.25 million passengers\. c) Freight\. Out of a total freight carried in East Pakistan of an estimated 2 billion ton-miles annually, inland water transport probably ac- counts for 1\.2 billion, or 60%\. Of this, only about 200 million ton--miles are carried on motorized wrater craft and the remainder on non-motorized country craft\. Nearly all other freight is carried by the railroads\. d) Passengers\. The motorized vessels of the inland water transport fleet alone carry about 14 million passengers annually, compared to 67 million on the railroads\. IVTTA estimates that country craft can carry nearly 165 muil- lion passengers at any one time; no estimate is available of annual traffic volume for this type of craft\. B\. The Inland Water Transport Authority 5\. Background\. Inland water transport is primarily in the hands of pri-\. vate enterprise\. Until recently, the major services were operated by different independent companies, with no central co-ordination\. The Joint Steamer Com- panies, a consortium of the largest pr-vate shipping conpanies, took care of its own most urgent needs for navigational and terminal facilities which were also extensively used by other operators\. 6\. Functions\. The First Five Year Plan recognized the need to unify the diverse responsibilities in a single body\. As a result, the East Pakistan Inland W,4ater Transport Authority (DI\.TA) was established in October 1958 as an agency of the East Pakistan Government\. Its charter was drafted with some ini- tial help from the Bank\. Its major functions include responsibility for all waternways and river conservancy services, for the improvement of inland ports, terminal facilities and storage capacity, and for the supervision of inland water transport operations\. The 111TA is also responsible for navigational aids, river charts, pilotage and hydrographic survey services, and for the removal of wrecks and obstructions in inland navigable waterways\. 70 Organization\. The Authority is a corporate body with a Chairman and four other members appointed by the Provincial Government\. An Advisory Com- mittee represents governmental and private interests, including the Army, the Home (Transport) Department, the Chittagong Port Commissioners, the Chalna Anchorage, the Joint Steamer Companies, the East Bengal Railway, and others\. The Authority is divided into six main departments: Engineering; Conservancy and Pilotage; Port; Accounts; Traffic; and a Secretariat\. The Chairman of ,IWTA agrees that the organization should be strengthened at the executive level, especially in viewJ of the extensive programs to be undertaken and fur- ther that members of the Authority's staff shoild be given operational training abroad\.  - 3 - 8, Finance\. 3very scheme prepared by the Authority must be submitted to the Provinc ialGovernment for approval\. Expenditures are financed from an "Authority Fund" made up from a) Government grants and loans; b) tolls, taxes, or fees, or such portions thereof, as the Government may prescribe fcr inland waterways, shipping and navigation, goods and passenger services, boats, terminal facilities, conservancy works, and pilotage services; c) sale of bonds; d) loans or grants obtained by the Authority with Government approval, including foreign aid\. It has been agreed that the Authority take over the administrative control of foreshore lard within prescribed port l:mits and that the Authority will reimburse the Government annually for loss of rev- enues therefrom\. 9\. Tne Authority has provided the followfing table of receipts and ex- nenditures on current account: 1958159 l959/60 196o/61 \. \.(PRs 000)\. (8 Months Only) Revenues DI-T taxes (a) 228 5oh 508 Pilotage charges (b) 216 560 513 Conservancy tolls (b) 432 1,426 1,335 Port dues and miscellaneous receipts (c) - 21 40 Total 2,511 _3__97 Expenditures Pilotage and conservancy 545 1,432 1,229 General establishment 234 h13 7_54 Total 779 1____5 1,9b3 Balance 97 666 1,9Th1 a) The Authority shares with the Government equally receipts from a tax on the carrying capacity of vessels, and tolls on freights and fares\. (On the Authority's books this is carried as a Government grant\.) b) 100% of pilotage charges and conservancy tolls are allocated to the Authority\. c) In April 1961, the Authority took over responsibility to collect port dues but pays the Government 50'a of the average amount collected annually in the preceding three years\. 10\. WJhile the balance on current account is positive, this is no ind:i\.ca- tion of the Authority's real financial position since no allowance is made for depreciation, interest, maintenance and operation of development works, The Authority has excluded these expenses since no development works have yet been completed\. The Authority has provided the following information on receipts and expenditures on capital account:  1958/59 1959/60 1960/61 \.(PRs 000)\. (8 MIonths Only) Receipts Government loans 1,900 1,686 3,550 ICA grant _ - 3,897 Total 1,900 1,606 7,447 Dxpenditures Aids to navigation 507 311 1,791 Workshop - 283 Dredging - 1,351 Port survey - - 1,658 Port devrelopment 70 271 54 Office furniture and equipment 54 2 - Total 631 _ _62__ 5,T137 Balance 1,269 1,062 2,310 A summnary balance sheet of the Authority is presented in Appendix B\. ll\. As the activities of the Authority expand, the need for revision and improvement of its accounting system is becoming mnore obvious and steps need to be taken to study its costs and revenues and introduce modern business methods to its financial operations\. C\. Inland Water Transport (ITJT) Costs\. 12\. Even though water transport throughout the world is generally cheaper than rail transport, and in spite of the i-mportant economic advantages of I1%,T in TEast Pakistan, its costs in East Pakistan are very high - in fact generally higher than the costs of rail transportation\. The 1961 Bank Ilission IReport on Pakistan mentions as an exanple that the rate for shipping baled jute from the Greater Dacca Area to Chittagong by rail is PRs 17\.8 per ton, compared to PRs 28\.5 by water\. The Ydssion stated that there is no way of knowing at this stage whether the railroads are transporting this cargo beloLu cost\. The major reasons given for the high costs of I14T include: a) Poor condition of fleet\. The fleet is old; more than half of the powered craft and two-thirds of the others are over 30 years old\. Iiodern- ization and maintenance have been hampered by a shortage of import licenses and the threat of nationalization\. The cost of ship repair is exceptionally high due to shortages of facilities, essential materials, and trained technical per- s oinel\. b) Poor port facilities\. Port facilities are inadequate, causing long delays in the handling of cargo and long turn-around time for vessels, In Chalna, for example, the absence of storage facilities results in vessels be- ing used for this purpose\. c) Inadequate dredging\. wxtensive dredging is necessatry as the channels of major ports are unstable and subject to rapid s:i\.a+\.i\.n durirv tle  annual floods\. Channel c-onditions are uncertain and restrict navigation at night\. Pending a decision on the apportioning of dredging costs between the users of the waterwiays and the Government, all but the most irqportant mainte- nance dredging has been stopped\. d) High price of coal\. HEost river craft use coal which has to be imported at high cost\. According to the Authority, IWT pays higher prices for coal than the railways\. e) High taxes and tolls0 Taxes and tolls on river transport are numerous, and, according to the Authority, are substantially greater than those paid by the railways\. f) Seasonal traffic\. Jute, the most important export cargo, is a seasonal product which moves within a seven months period each year, when river transport is overworked; conversely, there is surplus capacity at other times\. D, I,TNT Under First Five Year Plan 13\. During the first four years of the First Five Year Plan (1955-60) virtually no public development expenditures were made for inland water trans- port\. After it was set up in 1958, the Authority started to reorganize and improve IWT, but primarily because of organizational and adminiistrative dif- ficulties it executed only about PRs 15 million of development works out of a Plan allocation of PRs 83 million\. As a result, there has been heavy silting, a continuing absence of needed navigational aids, and neglect of equipment\. 14\.o It appears likely that if the development goals of the First Plan had been accomplished - i\.e\. if national income had expanded by the planned 20% rather than the actual 10% - the transport system would have been unable to carry the load\. Conversely, transport inadequacies were themselves a significant factor in the failure to achieve planned goals\. E\. INT UInder Second Five Year Plan 15\. The Second Plan, 1960-65, (see Appendix C) envisages a more ambi- tious program "with an expansion of waterways to maximize navigation mileage throughout the year; development of major and secondary river ports; re- search in the various fields of navigation; modernization and better mainte- nance of the inland water transport fleet; and development of rural water transport"\. The Plan anticipates increases of 30%0 for freight transport and 20% for passengers\. It allocates investments of PRs 220 million for TINT - PRs 80 million for the public sector and PRs l40 million for the private sec tOr\. The emphasis is on developing major and secondary inland ports, on dredging navigational channels and providing landing platforms, research centers, and aids to navigation\. The length of effective waterways is anticipated to in- crease from 2,800 to about 4,000 miles\. In the private sector, -the program includes modernization and replacemrent of the existing fleet, development Af ship yards and a yard for the construction of tugs and other small craft\.  - 6 - 16\. The long range development of inland water transport in East Pakistan requires a thorough hydrographic survey of the rivers of the region\. The UN Special Fund has agreed to provide about US$1\.6 million for such a study, and the Pakistan Government will provide $2\.2 million in local currenecy The study will take about five years, and the Food and Agricultural Organ- ization will serve as Executing Agency\. F\. Importance of Greater Dacca Area 17\. The Greater Dacca Area is the most important commercial center of East Pakistan and Narayanganj the most important inland river port (see Ap- pendix D)\. After the partition of India and Pakistan in 1947, the area becarme the principal center for the collection, baling and manufacture of jute\. Of the 16 jute mills in East Pakistan, 8 are located in this area\. Of the jute grown, 65% passes through Narayanganj; b3Z of the total baling capacity is located there; and nearly half of the provincial production is processed in the area\. 18, The total cargo traffic handled annually by the industries located in the area is: Commodity Narayanganj Dacca (Tons 0Oo0T Jute and jute products 1,232 73 Cotton, yarn, etc\. 52 2 Coal 31 2 Fuel oil 8 2 General cargo (food grains, sugar, salt, etc\.) 177 391 Sub-Total l 7 Total, Greater Dacca Area 1,970 About three-quarters of the jute and one-half of the general cargo traffic is transported by IWTo In addition, the ports of Narayanganj and Dacca deal respectively with about 3 million and 2 million passengers per annum\. G\. Importance of Other Ports 19\. Khulna is primarily a trans-shipment port between Chalna and the hinterland\. In 1959-60, Khulna handled about 5h0,000 tons of freight by IWT (excluding country boats), of which 75% was transported to or from Chalna\. According to IWTA, this volume could be expected to increase rapidly as imports iria Chalna are increased to relieve Chittagong, and the unloading of freight from IWT craft into the railway, which is now a bottleneck, can be speeded u\. About 60 launches arrive and depart in Khulna daily, giving an annual passeiiger traffic of about 2 million\. 20\. Chandpur is an important traffic center for country boats, for which no data are available\. Other cargo handled amounts to about 73,000 tons amnual- ly, for which existing facilities suffice\. Passenger traffic consists of abort 50 launches daily, or about 1,7 million passengers annually\.  7\. 21\. Barisal has no great significance as far as cargo is concerned (29,000 tons) and all present cargo can easily be handled at the existing steamter ghats\. Annual passenger traffic is about 1\.7 million\. H\. Yajor Port Deficiencies 22\. The ports have three types of deficiencies: a) Lack of proper terminal facilities for berthing, storage and cargo handling equipment, especially for motorized vessels at Narayanganj, Dacca, and Khulna\. Present facilities are owned primarily by the Joint Steamer Companies, the principal IWT operators\. As traffic demands have increased, other co,panies have made their owm arrangements based on their own commercial requirements\. The terminal facilities for passengers are rudimentary and frequently entail the passengers having to traverse the river bank or wade through the shallows to embark or disembark\. b) Traffic congestion\. There is no control of the river traffic\. Since there are no boat-basins or specifically recognized anchoring places, boats anchor at any place where the water is deep enough on a first-come- first-served basis, thus frequently restricting the navigable channel\. Landing stages and foreshores suitable for passengers disembarking or em- barking also have congestion to rivercraft plying as ferries\. c) Foreshore encroachments affecting navigation\. Jute mills and other companies extend temporary jetties into the river during the low water season without consideration of their effect on the regime of the river\. These structures cause accretion of the foreshore, and prevent uniform bank lines\. III\. THE PROJECT A\. Purpose of Project 23\. The Project, which will benefit primarily the motorized traffic, has two major purposes; a) to modernize facilities by providing proper berthing, cargo handling, storage and modern passenger terminals; and b) to remove traffic congestion by providing jetties and basins, and mooring buoys for waiting vessels\. B\. Cost of Project 240 The cost of the project is estimated by IWTA at about Prs 19\.4 million, with a foreign exchange component of about PRs 6\.4 million (US$1\.36 million), or about 33%\.  Total cost Foreign Ecchange Corproe,\.t ( million ) 7 millio PPs PRs USi3 Equive Greater Dacca Area 7\.57 2\.40 \.5o Khulna 5\.64 2\.02 \.42 ChandDur 1\.47 0\.52 \.12 Barisal 1\.36 0\.51 \.ll Interest during construction 0\.81 - 10"' unforeseen on above 1\.69 0\.55 \.12 Services of professional staff 0\.87 o\.d4 \.09 Total 19\.41 6\.44 1\.36 25\. These costs, based on estimates by IThTA's consultants NEDECO, are based on unit prices and on Schedules of Rates provided by T1TA and are realistic\. These unit prices include 10%O for continggencies and over- head charges, and about 13;'s for over-all engineering costs\. "Interest dur- ing construction" has been added as has an item "unforeseen", which w>rill provide additional funds in the event of any of the sites requiring addi- tional dredging, reclamation or protective works\. C\. The Greater Dacca Area Scheme 26\. This scheme is divrided into two sections, that at Narayanganj and the other at Dacca\. The work at Narayanganj includes: a) Constructing five riversicle, concrete-piled jetties for cargo handling complete with mobile cranes\. b) Dredging and reclamation of various reaches of the river and reclaiming stretches of foreshore in connection 7-with a) above\. c) Constructing two steel floating landing stages for pas- sengers with the necessary terminal facilities\. d) Providing buoys for mooring facilities in the river\. 27\. The scheme at Dacca includes: a) Ccnstructing terminal facilities for passengers, consist- ing of steel, landing pontoons, and a terminal building\. b) Constructing two concrete-piled jetties for cargo handling\. 28\. The costs of the works in the Greater Dacca Area are about PRs 7\.6 million\. Approximately PRS 3\.6 million wiill be for cargo jetties and mechanical handling equipment, PRs 2\.0 million for floating lancling stages with terminal facilities for passengers and cargo, PRs 1\.0 million for dredging khals and providing mooring places, and PRs 0\.9 million for reclamation works\.  _9_ D\. The Scheme- at Khulna 29\. The scheme at Ihulna includes: a) Constructing terminal station for launch traffic and steamers, including landing stages\. b) Constructing five riverside, concrete-piled jetties for cargo handling\. c) Constructing road along river shiore from jetties to railw-Tay station, including loading platforms along railway lines\. d) Purchase nechanical handling equipment\. The estimated costs of these items at Khulna amount to PRs 5\.6 m, of whnich PRs 2\.Om (US$420,000 equivalent) is in foreign exchange\. The provision for mechanical handling equipment is j1l60,000\. E\. The Scheme at Chandpur and Barisal 30\. The scheme at Chandpur and Barisal each consists of a terminal sta- tion for passenger launches and steamers, similar to that in hhulna\. The es- timated cost for the two stations would be PRs 2\.8 million, with a foreign ex- change component of $210,000\. F\. Services of Professional Staff and Consultants 31e It is the intention of tne IT'\.TA to continue to retain IEDECO as their consulting engineers to prepare all necessary engineering contract documents, evaluate bids, make recommendations for the award of contracts and supervise construction\. In addition I14TAP intend to ernploy experts to a) review their hy- 'dr6graphic\.survey operations, b) improve their accounting system, and c) strength- en the administration in the various branches of their organization\. The tasks to be performed are, briefly, as follows: a) Programing of a Surveyr of Inland W-Tateriways\. To review the exist- ing navigable waterways and the tasks performed by the various agencies engaged in their conservancy and surveying and the co-ordination between them\. To con- sider the operations of IVTA and advise on what order of priorities shoild be placed on various s-tretches of the navigable water,;ays, the type of studies to be undertaken and the vessels, equipment and personnel required for such work\. b) Improvement of Accounting System\. To review and suggest iinprove- ments to the TWTA's accounting system so that a modern, businesslike system might be evolved\. To study the Authority's costs and revenues and make recocr\.- mendations on the apportionment of all taxes, fees and charges levied by the Authority, the Province and the Central Government\. c) Strengthening the ITTA Administration\. 'Lo assist the Chairman of IWJTA in executing the functions of the Authority, some five ex- perts would be employed for a period of at least two years\. Durinlg that per_od permanent members of the D'JTA staff w\.Tould be trained to take ove\. f'rom them cn the expiration of their contracts\.  - 10 - 32\. The fees, salaries and local subsistence costs of the experts required for the above three tasks, are estimated at PRs 870,000 equivalent\. G\. Financing the Project 33\. It is reasonable to expect that the project can be completed within four years and the schedule of expenditures are expected to be as follows: - Year ending June 30 - PRs million - 1961/62 1962/63 1963/64 196h/65 Total Local Currency 1\.84 5\.95 4l8 1\.00 12-97 Foreign 0\.61 2\.90 2\.13 0\.80 6J44 Total 2\.45 8\.85 6\.31 1\.80 19MJ 3Lv, The proposed IDA credit to the Government of Pakistan would finance the foreign exchange costs of about US4l\.35 million plus about US`6o50,000 of the local currency costs (in total PRs 9\.6 million equivalent)\. The proceeds of the credit would be re-lent to the Provincial Government for a period of 25 years, including a grace period of 5 years, at 4% interest\. These terms would be acceptable to the Association\. It is intended that the Provincial Government would, on the same terms, advance the proceeds of the credit, to- gether wTith the additional funds required for execution of the project, to the 1WTA\. 35\. After completion of the review of DITA's accounting system and the present structure of taxes, fees and charges levied on inland water trans- port it is pro-oosed to set such charges for the use of the Authority's faci- lities and services as would generally cover all its costs, and permit a reasonable return on its investment\. 36\. It is conservatively estimated that the project will be completed in between three and four years\. NEDECO, IWTA's consulting engineers, lill be retained for the detailed planning, specification, analysis of tenders, and supervision of the construction\. The consultants will ensure the tech- nical soundness of the project and provide that tenders are invited on a basis of free international competitive bidding\. IV\. ECONOINIC JUSTIFICATION 37\. General\. The Project is part of Pakistants Second Five Year Plan, The Bank's 1961 report on Pakistan (AS-85a) found that the Second Plan allo- cation to rITT is small compared to other forms of transportation, and may well be too low\. It recommended that "the activities of the DITA be intensified, especially in planning ports, executing river surveys and dredging"\. Other ex- perts have also recommended immediate steps to improve I-TT in East Pakistan\.  - 11 - 38\. Rate of Return\. The rate of return on the overall project is es- timated at about 9%, which is reasonable especially when allowance is made for the fact that it is based on conservative estimates of benefits\. The return on specific investments is estimated as follows: Rates of Return on Specific Investments Greater Dacca Area: Jetties 10 Terminal facilities 13 Khulna: Jetties 5 Terminal facilities 7 Chandpur terminal facilities 6 Barisal terminal facilities 6 Wleighted average rate of return 9 39\. Greater Dacca Area\. The gross annual benefits of the cargo jetties (including the equipment for mechanical handling) and the landing stages can be conservatively estimated at PRs 800,000\. The most important benefit will be the greater efficiency in handling cargo, with an estimated saving of PRs 1 per ton for an annual volume of 500,000 tons, or PRs 500,000 annually\. A second benefit is the reduction in loading and unloading time\. An assumed saving of only two days per vessel per year would produce an annual saving of about PRs lhO,000\. There are other benefits for which quantitative measure- ments are less certain, but which are nevertheless important\. They include reduced waiting for berths, which might save some PRs 70,000 annually, as- suming a one-day saving per vessel; reduced pilferage and losses, with a pcs- sible saving of PRs 50,000 annually; increased safety for the river traffic and reduced accidents; less traffic congestion; and improved sanitation of the water frontage\. Gross annual benefits of PRs 800,000 would permit a return on the investment of 1G%\. This estimate is based on information provided by the Authority, and modified in the light of subsequent discussions\. (The detailed calculation is presented in Appendix E)\. 40\. The benefits of the terminalfacilities for passengers are primarily the increased convenience to passengers\. Present passenger facilities are almost non-existent; there are no waiting rooms and no other public con- veniences, and often people have to wade ashore under very difficult con- ditions\. The economic value of this is best meesured by the price which the beneficiaries are willing and able to pay\. Six million passengers land from launches annually, and the present landing fee of PRs 5 per landing per launch brings in gross revenues of PRs 300,000\. Since the number of landings can 'Ce expected to increase with the improvement of the facilities and the economic growth of the area, and since the benefits mentioned above would at a minimum justify doubling the present fee, it appears likely that revenues from launch passengers of an additional PRs 400,000 can be achieved quite soon\. In ad- dition, the new facilities for steamers will serve 500,000 passengers per year\. On assumptions similar to those for launches, this would permit ad- ditional revenues of about PRs 30,OO annually, or a total of FRs 43C,000 for  - 12 - the combined launch and steamer facilities\. This would make the rate of return on the investment 13%, which is satisfactory\. (See Appendix E)\. 41\. The cost of reclaiming eight acres of land is about PRs 850,000 It is the Authority's policy to sell or lease the reclaimed land, and NEDE O estimates that the revenues will at least cover the investment\. No informa-- tion is available on the specific value of the land to be reclaimed\. However IMEDECO's estimate appears reasonable in light of the following considerations: (a) the reclaimed area will afford ideal river frontage space for cargo han- dling with the provision of cargo sheds for transit accommodation and storage capacity much in demand for public use; (b) the port is already becoming so congested that new industrial sites are being developed in nearby Tungi; and (c) the general value of land in that area\. 42\. The actual distribution of benefits and costs of the project will depend in large part on the type and level of user charges\. While some in- creases in user charges are likely, a major part of the benefits will accrue to the users both in the form of lower costs and convenience\. To the extent that this will make more profitable the operations of the shipping companies, it will facilitate financing improvements in the fleet, which are badly needecd\. It would also lead to reductions in the cost of handling jute which is the main export of Pakistan\. 43\. Khulna\. The benefits of the cargo jetties in Khulna are of the same nature as those in the Greater Dacca Area, and may be estimated at about PRs L50,000 annually in the near future\. They arise primarily from greater efficiency in handling cargo (PRs 3CO,000), reduction in turn-around time for vessels (PRs 100,000), and reduced losses, increased safety, reduced traffic congestion, and improved sanitation (PRs 50,000)\. The return on the invest- ment would be about 5% which is low but acceptable in view of the fact that it is based on a conservative estimate of benefits\. U1\. The benefits of the terminal facilities are also similar to those in the Greater Dacca Area\. There are about 1\.6 million passenger landings of launches annually now, and 500,000 steamer passengers are expected to use the new steamer facilities\. Assuming some growth during the life of the proJ- ect, the revenues from passenger launches may be estimated at PRs 170,000 annually in a few years\. This would make the rate of return on the investment 7%\. 45, Chandpur and Barisal\. The kind of benefits of the two terminal fac- lities are substantially the same as in the case of Khulna\. There are about 3\.4 million passenger landings of launches annually now, and 700,000 steamer passengers are expected to use the new steamer facilities, On the same con- servative assumptions as those made for Khulna, the return on the investment would be about 6%\. V\. CONCLUSIONS AND RECOIMiENDATIONS 46\. Inland water transport is of great importance to the economy of East Pakistan\. The project will improve five major inland ports, including the largest commercial centers of the country\. It will lower the costs of trar:s- pcrting jute, the country's largest export item\. The project i- technically sould, economically justified, and can be made financially v abTKl itv i- suitable for a credLt by IDA of about US$2\.0 million\.  APPENDIX A IATAIs OVER-ALL ETLAND `4ATER TT'ANSPORT PROGRAM Cost Foreign Exchange Component (Rs\. millions) ($ thousands) a) River ports (first phase): Greater Dacca Area 8\.6 888 Khulna-Daulatpur Area 3\.2 410 Barisal 1\.6 202 Chandnur 1\.7 208 Minor ports 6\.0 700 Subtotal 21\.1 2,408 b) River ports (second phase): 38\.9 2:592 Subtotal 60\.0 5,00O c) Dredging Unit 16\.0 3,370 d) Survey Works 6\.4 N\.A\. TOTAL 82\.4 8,370 +  APPENr:\. 1 INLAND TA'f U TAi;SPORT AUT1OYLIITY Balance Sheet June 30, 1961 (PRs 000) Assets Cash 5,,411 Accounts receivable 788 Office equipment 161 Capital expenditures: Aids to navigation 2,608 Workshop 283 Dredging 1,351 Port survey 1,999 Ports 5_ _ Total Assets 12,655 Liabilities Accounts payable 327 Contributory provident fund 119 Government loan 7,136 ICA grant 3,897 Reserve funds: Conservancy and pilotao-e 830 General account 347 Total Liabilities 12,655  APPENDIX C INLAND 'JATER TRANSPORT DEVELOPMENT PROGRAM 1960/61 TO 1964/65 Semi-Public Sector (IWTA) Million rupees Development of Inland Ports 25\.0 Development of 250/400 concrete floating landing stages with facilities for passengers 4e0 Technical training scheme for inland water transport in various sectors 2\.5 Workshop facilities for conservancy equipment 0\.6 Building at ten river ports 1\.4 Research center for deveLopment in the fields of craft design & motive power, port & harbor installations & aids to navigation 2\.0 Extension of facilities for river conservancy and aids to navir-ation and acquisition of river conservancy craft and ancillary equipment 12\.0 Development of telecommunications for IWT 1\.0 Dredging of navigational channels 29\.0 Completion of works in progress 2\.5 Total IW[TA 80\.0 Private Sector Raw materials, spare parts and diesel marine engine replacements for overhaul and repairs rf DIT fleet 20\.0 Modernization of existing F\.IT craft, fleet replacements and acquisition of new craft 45\.0 Provision of fast passenger vessels for inter-island traffic to Chittagong and fast passenger launches for general service 12\.0 Provision of modern slipways and docks for construction and repair of small craft 5\.0 Development of shipyards and ship repair capacity 8\.0 Development of rural water transport, establishment of a pilot yard and construction of pocket tugs 5\.0 Total Private Sector in Original Plan 95\.o Increased allocation for rehabilitation and modern- ization of existing DIVT fleet in revised plan 45_ r_ Total Private Sector in Revised Plan 140\.0 Total Inlard Water Transport 220,0  APPENDIX n INLAND WATER CARGO TRAFFIC IN EAST PAKISTAN, 1959-1960 REGISTERED OPERATORS ONLY (o0 'JOUNTRY BOATS) (Tons) Name of Forwarded to Received from Station 'Inland' Overseas ' India ' Inland ' Overseas ' India Total Marayanganj 39,500 383,900 61,300 69,200 139,000 21,900 714,800 Dacca 10,700 15,700 - 23,600 35,900 7,600 93,500 Khulna 26,100 111,700 5,700 17,900 226g600 61,000 449,QC0 Khalispur 700 35,600 - 27,700 8,600 - 72,60C 2aulatpur 8,0Co 943000 1,000 12,900 64,000 - 179,9CO Chandpur 15,200 6,700 1,300 9,400 14,800 26,100 73,500 Barisal p\.m\. 9,400 - 13,500 5,800 500 29,200 Claandragbona 43,4oo p\.m\. 3,CO pm6,800 Chhatak 52,000 - - 9,800 5,500 - 67,300 Others 85,600 200 2,500 53,200 22,300 32,800 196,600 TOTAL: 281,200 657,200 71,800 280,600 522,500 1h9,900 1,963,200  APPEN'\DX P\. Page 1 CALCULATIOiN OF RATE OF RBTUPJr OM IP57EST\.TSi8T GREAT\.R DACCA AREA PRs 1lillions A\. Cargo Jetties, etc\. 1\. investment Jetties 3,3 Equipment ll Landing stages 0 7 Total Investment 2\. Gross Annual Benefits Improved cargo handling PRs 1 per ton (500,000 tons) 500,000 Reduction in loading and unloading time 2 days per vessel lO, 000 Reduced waiting for berth 1 day per vessel 70,000 Reduced pilferage and losses 505000 Allowance for reduced accidents, improved sanitation, reduced traffic congestion, etc\. 40,000 Total Gross Benefits 500,000 3\. Annual Operating Costs Jetties - operation and adminis- tration 1;, maintenance le, 51,000 Equipment - maintenance 5%, insur- ance 25, operation 10?' 187,000 Landing stages - maintenance 1:, operation and administration 3, 24,000 Total Operating Costs 262,000 4~ Net Annual Benefits Gross benefits 800,030 Operating costs 262,000 Net Benefits 535, 000 5\. Depreciation Jetties 50 Years Equipment 12 " Landing stages 40 " Total 3 n 6\. Calculation of Rate of Return PRs 538,000 annual benefit on PRs 5\.1 million investment\. PRs 1 million benefit would involve PRs 9\.54 miliion\. At 35 years, rate of return = 10\.,4  APPENDIX E Page 2 PRs Millions B\. Passenger Terminal Facilities 1\. Investment Buildings 1\.3 Pontoons and gangways 1\.4 Total Investment 2\.7 2\. Gross Annual Benefits 4 430,000 3\. Annual Operating Costs Buildings - operation and admin- istration 2%, maintenance 1% 39,000 Pontoons, etc\. - maintenance 3% 42,ooo Total Operating Costs 81,000 4\. Net Annual Benefits Gross benefits 430,000 Operating costs 81,000 Net Benefits 349,000 5\. Depreciation Buildings 50 Years Pontoons, etc\. 30 Years Average 35 Years 6\. Calculation of Rate of Return PRs 349,000 annual benefits on PRs 2\.7 million investment over a lifetime of 35 years results in a rate of return of 13%\. */ See paragraph 40 for discussion of benefits\.  ** V\: 9-;\.TRANSPORTATION SYSTEM ' {t /Pnchgc * * \.-R Principal existing roads Roads proposed in Second Five-Year Plan *- H Broad gauge double track railways -:----\.-\.-\.--\. :NBroad gauge single track railways RANGP Meter gauge single track railways *\. +^P\.,b\.fip-r | 4 1- / \. | \. - Main inland waterways open all year o0 10 20 30 40 50 Pola~~~~~~~~~b-0-~~~~~~~~~ ~MILES PnIuobnra\. Kuwuler \. S\. Y RA 01Xs 'no 9o,on 0 R- T F\ C0S'h Hobigon JULY 1961 18R0-872KHUL OSatkhi,o ~~~~~~~~~~~~~~~~~~~~~~~RANGAMATI or~~~~~~~~~~~~~~~~~~~~h- S ~~~~~~~~~~~~~~~~~~~~~~~~~~~Co\.'s RB\.o Roms JULY 1961 IBRR-872

APPROVAL

P040114

Report No\. PID7378 Project Name Ecuador-Guayaquil Drainage and Water and\. Sanitation Modernization Program Region Latin America Sector Water & Sanitation Project ID ECPE40114 Borrower Republic of Ecuador Implementing Agency Municipality of Guayaquil Guayaquil Water & Sewerage Utility (ECAPAG) Contact Person: Jose Luis Santos ECAPAG, Head of Privatization Unit Date this PID prepared December 22, 1998 Project Appraisal date August 15, 1999 Project Board date December 15, 1999 Country and Sector Background: 1\. Ecuador's population in 1994 was estimated at 11\.2 million, of whom 6\.5 million lived in cities\. Water and sanitation service levels are among the lowest in Latin America and are deteriorating rapidly\. At the national level, from 1980 to 1990 water supply coverage in urban areas decreased slightly from 79 to 78 percent while there was a significant increase in coverage in rural areas from 29 to 39 percent\. Regarding sanitation coverage in urban areas decreased by 3 percentage point to 70 percent while in rural areas there was a considerable increase from 13 to 31 percent\. These averages mask wide regional differences both in urban and rural areas with the Costa and Oriente Regions having the lowest service levels\. 2\. Sector investments during the decade of the 80s represented about $ 34 million per year or 0\.3 percent of GDP\. They peaked at 0\.7T of GDP in 1982 and steadily declined to less than 0\.019 in 1991\. Water & Sanitation services are the responsibility of local governments; however, most sector utilities are not able to generate the funds required for an orderly expansion of the systems\. Sector investments since 1985, particularly in urban areas, have been well below those needed to cover depreciation of existing infrastructure with the consequence that the sector is slowly consuming its capital\. 3\. The Government has recently established new policies to modernize the public administration including the provision of water & sanitation services\. A key element of this policy is the participation of the private sector in the administration and financing of public services\. Complementary to this policy, implementation of sound cost recovery and allocation of subsidies mechanisms will have to play a more central and specific role than in the past\. 4\. The Bank is also supporting the preparation of the ongoing bidding process to a concession of the water, wastewater and drainage services of Guayaquil\. The private sector is responding well to the opportunities generated by this concession and responsive bids are expected by mid June, 1999\.  Project Objectives 5\. The Development Objective of the project is to improve both the access and reliability to water supply, sewerage and drainage services under a sustainable managerial and financing scheme driven by a sound participation of the private sector in the provision of these services\. Water Supply and wastewater services will be operated under a concession contract\. To benefit from economies of scale in operation while avoiding liability concerns associated with drainage services, these services will be operated by the same operator under a management contract\. In particular the Bank's project will help improve and expand the drainage infrastructure in the city to reduce the occurrence of frequent floods\. In addition the project will support the design of a funding mechanism to ensure the timely expansion of the drainage system\. Also the project, on a pilot basis, will finance water supply and sanitation services including non-conventional solutions to poor neighborhoods not included in the concessionaire's offer\. The project also aims at assisting the municipality of Duran, formerly operated by ECAPAG, in bringing a private operator and in rehabilitating its deteriorated water supply infrastructure\. 6\. Specific Objectives of the project include: a) rehabilitation and expansion of drainage infrastructure to reduce the occurrence of floods in the city and associated economic losses which affect the poor in a disproportionate way\. These improved services will benefit most of the 2 million inhabitants now living in Guayaquil\. b) implementation of demand-driven water supply and sanitation services in poor neighborhoods were conventional solutions are either not in demand or are non-technically feasible and design of mechanisms to encourage investment by the private operator in such areas c) design of a funding mechanism from local (mainly property taxes) to ensure the timely expansion of the drainage infrastructure and, d) definition and implementation of adequate private sector participation options for the municipality of Duran\. Project Description 7\. The project will finance the following four components: a) Storm Water Drainage: Rehabilitation of drainage infrastructure and construction of some 25 kms\. of drainage canals, and sewers and related works\. Aims to update the drainage infrastructure in about 80% of the city to provide relief from recurrent flooding\. b) Pilot program for Marginal Communities\. Provision of conventional and non-conventional water supply and sanitation service to some 10,000 households in poor neighborhoods\. c) Technical Assistance to (i) develop a sustainable financing mechanism for the expansion of drainage infrastructure, (ii) engineering studies, (iii) assist ECAPAG in its future role as regulatory agency, and (iv) assist with resettlement\. d) Municipality of Duran\. Feasibility studies and technical assistance for hiring private operators the municipality of Duran including rehabilitation works for its water supply system\. Project Financing -2-  8\. Total project cost is estimated at $ 90 million, of which the Bank will finance $ 70 million\. The Private Operator, as provided in the bidding documents, will provide $ 17\.5 million towards rehabilitation works of the drainage infrastructure (operation and maintenance costs will be paid by the users through the existing tariff system)\. The Municipality of Guayaquil will provide the land for the relocation of some 100 families to be displaced by the construction of the improved drainage infrastructure\. Project Implementation 9\. The Municipality of Guayaquil will be responsible for handling the relocation of families and the Private Operator will be responsible for the bidding and supervision of all construction which will be carried out by private contractors under standard bidding documents\. The Private Operator will also be responsible for the interaction with poor communities to define/implement demand-driven solutions to their water supply and sanitation needs and to collect payments from them\. 10\. ECAPAG as owner of the water supply, sewerage and drainage infrastructure and in its new role of supervisor of the concession contract will also oversee that adequate and acceptable procedures are followed by the Private Operator in the supervision of the Bank supported investment Program\. ECAPAG will also be the point of contact and coordination with the Municipality of Guayaquil for the TA related to the design of a financing mechanisms for drainage investments\. 11\. Water and Sanitation sub-projects will be demanded, planned, and largely implemented by communities\. These communities will receive assistance to prepare sub-project proposals by the private operator\. CONAM will orient and supervise the technical assistance for Duran\. Project Sustainability 12\. An efficient operation and maintenance of the drainage system will be assured by the contractual obligations of an experienced Private Operator over the life of the contract (30 years)\. The design and implementation of a sustainable financing mechanism of the drainage infrastructure will ensure the timely construction of new works\. Availability of reliable water and sanitation services to the poor will be achieved by the Private Operator working together with experienced NGOs organizations with interested communities\. Lessons learned from past operations in the country/sector 13\. The project design reflects lessons learned from the previous Bank- supported projects in the water sector in Guayaquil, as well as lessons from another experiences in Latin America\. After many years of disappointing experiences with ECAPAG and its previous incarnations, as well as other utilities throughout Latin America, the Bank has realized the limitations of institutional strengthening efforts with public enterprises which lack an appropriate enabling legal and institutional framework, and has opted for private sector participation to improve delivery of services\. Two previous Bank projects (Guayaquil water I and II) both attempted to the utility's management performance with almost no results (ICR for Guayaquil II underscores this point)\. The Guayaquil water II project, however, did spark - 3 -  interest in private sector approach and assisted in its initiation\. 14\. Other water and sanitation concessions in Latin America have shown that privatization processes need to take into account the issue of how to provide water and sanitation services to poor communities, especially those that have traditionally been serviced outside of the public utility (water tankers, illegal connections, and the like)\. Both cases of Buenos Aires, and La Paz, where private operators now provide the above services, pose good examples of the large efforts needed to bring along the private operator, the poor communities and the regulator\. The Bank now knows that there is still much to be learned on how to bring services to the poor, and that institutional, financial and technical provisions should be designed before the private operator is in place\. Poverty Category: N/A Environmental Aspects 15\. The project has environmental category A\. About 100 families are expected to be relocated\. The project will improve the environmental conditions of drainage canals and of the surrounding neighborhoods\. Construction activities are expected to cause some negative impacts such as : dust, noise, traffic congestion, and the disposal of construction wastes\. Note: For the neighboring municipalities component the environmental category has yet to be defined and will result from the initial pre-feasibility studies\. Program Objective Category: Poverty Alleviation Contact Point: The InfoShop The World Bank 1818 H Street, N\.W\. Washington, D\.C\. 20433 Telephone No\. (202)458 5454 Fax No\. (202) 522 1500 Note: This is information on an evolving project\. Certain activities and/or components may not be included in the final project\. Processed by the InfoShop week ending February 26, 1999\. - 4 -

APPROVAL

P148224

PROJECT INFORMATION DOCUMENT (PID) ADDITIONAL FINANCING Report No\.: PIDA5750 Project Name Additional Financing for Ghana Oil and Gas Capacity Building Project (P148224) Parent Project Name Gas and Oil Capacity Building Project (P120005) Region AFRICA Country Ghana Sector(s) Public administration- Energy and mining (70%), Tertiary education (15%), Vocational training (10%), Public administration- Financia l Sector (5%) Theme(s) Other public sector governance (30%), Environmental policies and institutions (30%), Education for the knowledge economy (30%), Publ ic expenditure, financial management and procurement (10%) Lending Instrument Investment Project Financing Project ID P148224 Parent Project ID P120005 Borrower(s) Ministry of Energy Implementing Agency Ministry of Energy and Petroleum Environmental Category C-Not Required Date PID Prepared/Updated 29-Apr-2014 Date PID Approved/Disclosed 01-May-2014 Estimated Date of Appraisal 28-Apr-2014 Completion Estimated Date of Board 22-Jul-2014 Approval Decision I\. Project Context Country Context Ghana, located on the western coast of Africa has an estimated population of 25 million (2010 Census)\. The country achieved Lower Middle Income Country (LMIC) status in 2012 following years of sustained economic growth and based on a GNI/per-capita income of US$1,570\. GDP growth had been one of the fastest in Africa until the recent dip from 8 percent in 2010 to 7\.1 percent in 2012 with a nominal GDP of US$39\.05 billion (GHC71\.85 billion)\. Poverty is declining, as the number of people classified as poor dropped from 7\.9 million in 1992 (or 52% of the population\.) to 6\.3 million people in 2006 (or 29% of the population)\. However, poverty and inequities are still prevalent in Ghana, and can be traced to significant differences in access to economic, social and political opportunities\. Sustained growth has been consolidated, spurred by Page 1 of 5  favorable commodity prices for Ghana’s main exports (gold, cocoa), the start of the commercialization of a major oil discovery, and robust growth in the services sector\. Sectoral and institutional Context Between 2004 and 2008, Ghana National Petroleum Company (GNPC), on behalf of the Government of Ghana, entered into petroleum agreements covering 12 offshore blocks, including the five key exploration blocks in the deepwater Tano Basin where the major discoveries have been made\. The Jubilee field was discovered in 2007 and began production in late 2010\. Major discoveries at TEN and Sankofa are also moving towards development and should begin production in the 2016-18 timeframe\. And a series of discoveries made by Hess are under appraisal and could lead to further developments\. GNPC retains a very strong role in the management of the sector be virtue of the depth of experience of its staff and its historical role in promoting private investment in exploration\. The Petroleum Commission of Ghana was established in 2011 as the upstream regulatory body, and as a result, GNPC ceased acting as a de facto regulator and its role became focused on managing Ghana’s commercial interests in upstream petroleum operations\. The Ghana National Gas Company (GNGC) was established in 2012 as a national gas transporter and aggregator\. However, delays in the completion of GNGC’s gas pipeline and processing infrastructure for Jubilee associated gas have combined with shortfalls in deliveries on the West African Gas Pipeline to create a severe gas supply shortage resulting in persistent power generation deficits\. II\. Proposed Development Objectives A\. Current Project Development Objectives – Parent The project objective is to (i) improve public management and regulatory capacity while enhancing transparency; and (ii) strengthen local technical skills in Ghana's emerging oil and gas sector\. B\. Proposed Project Development Objectives – Additional Financing (AF) III\. Project Description Component Name Component B Comments (optional) Final costs of the equipment packages at KNUST and COTVET have become much higher during the actual implementation of the Project (P120005) than initially anticipated during the preparation of cost estimates and associated project documents (PAD of P120005)\. These equipment packages consist of specialized petroleum sector teaching equipment (hydraulic and crane packages, well control simulator, well fluids lab, etc\.) and specialized laboratory equipment (fluid properties laboratory, core preparation laboratory, rock properties laboratory, drilling fluids laboratory, oil well cementing laboratory, etc\.)\. Due to the highly technical nature of these packages, the exact technical specifications were done only during implementation with assistance provided through the Project\. Component Name Component C Comments (optional) Financing for Component C will be increased by US$ 1 million to account for the extension of the Page 2 of 5  project, additional financing and additional consultancies needed for technically complex procurement packages\. Component Name Component A Comments (optional) The additional financing at the amount of US$ 1\.8 million is required for Component A, primarily to cover for cost overruns associated with laboratory equipment and patrol vessel for the EPA\. Additional financing is also needed to cover for the refurbishment of office space and rent of temporary office space for the Petroleum Commission and for increased training needs related to the implementation of the Petroleum Revenue Management Act (PRMA) at Ministry of Finance\. IV\. Financing (in USD Million) Total Project Cost: 18\.40 Total Bank Financing: 18\.40 Financing Gap: 0\.00 For Loans/Credits/Others Amount BORROWER/RECIPIENT 0\.00 International Development Association (IDA) 18\.40 Total 18\.40 V\. Implementation The ongoing parent project and the additional financing provide support through two main components: (A) institutional development and sector management and (B) provision of technical and professional skills to Ghanaian workers needed by the petroleum sector\. Component A focuses on the project objective of improved management and regulation and increased transparency\. Component B focuses on enhancing technical skills in the sector through support to vocational training schools and the Kwame Nkrumah University of Science and Technology\. Component A has five sub-components: (A\.1) diverse support to the Ministry of Energy and Petroleum and the Petroleum Commission, including in media and communications; (A\.2) expansion and revamping of the data repository to safeguard the oil and gas data being generated through exploration and well development; (A\.3) support to the Environmental Protection Agency (EPA), to enhance its ability to monitor environmental issues in the oil and gas sector, (A\.4) support to the Ministry of Finance, particularly the Ghana Revenue Authority for revenue management, and (A\.5) support to the EITI Secretariat, other public bodies dealing with sector governance such as the Attorney General’s Office and the Economic & Organized Crime Office (EOCO)\. Component B has two sub-components: (B\.1) strengthen the capacity of Ghanaian training institutions including Kikam Technical Institute, Takoradi Technical Institute and the Regional Maritime University to enhance the skills of the local workforce to engage in the oil and gas sector and (B\.2) strengthen the capacity of Kwame Nkrumah University of Science and Technology (KNUST) to provide high-level degree programs in petroleum engineering and petrochemical engineering\. The proposed additional loan would help finance the costs associated with cost overruns and for Page 3 of 5  modified activities included as part of project restructuring in response to new circumstances that have arisen during project implementation\. The proposed additional loan covers the financing shortfall due to major cost overruns on three components (A\.3, B\.1 and B\.2)\. The equipment packages at Environmental Protection Agency (EPA) (Component A\.3), Kwame Nkrumah University for Science and Technology (KNUST) (Component B\.2) and Council for Technical and Vocational Education and Training (COTVET) (Component B\.1) have all had significantly higher costs than originally anticipated in the PAD\. Also, the financing for Component A\.4 (Revenue Management) will be increased by US$ 1\.7 million to account for increased training needs related to the implementation of the Petroleum Revenue Management Act (PRMA)\. The financing for other Project components will also be revised to account for changes in institutional environment and key funding needs for various Project beneficiaries\. With the establishment of the Petroleum Commission (PCG), the function of the data repository has been transferred from the Ghana National Petroleum Corporation (GNPC) to PCG and hence funds dedicated for the data center are being reallocated from A\.2 to A\.1\. The scope of the parent Project has been slightly revised during implementation\. The information resource centers, initially part of Component A\.5, are being established and supported by the USAID\. Similarly, some of the technical assistance and capacity building activities envisaged under Component A\.3 for the EPA are being supported by Norway\. VI\. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4\.01 ✖ Natural Habitats OP/BP 4\.04 ✖ Forests OP/BP 4\.36 ✖ Pest Management OP 4\.09 ✖ Physical Cultural Resources OP/BP 4\.11 ✖ Indigenous Peoples OP/BP 4\.10 ✖ Involuntary Resettlement OP/BP 4\.12 ✖ Safety of Dams OP/BP 4\.37 ✖ Projects on International Waterways OP/BP 7\.50 ✖ Projects in Disputed Areas OP/BP 7\.60 ✖ Comments (optional) VII\. Contact point World Bank Contact: David John Santley Title: Sr Petroleum Spec\. Tel: 473-5871 Email: dsantley@worldbank\.org Borrower/Client/Recipient Page 4 of 5  Name: Ministry of Energy Contact: Title: Tel: +233 21 677 336 Email: Implementing Agencies Name: Ministry of Energy and Petroleum Contact: Alexander Kyei Title: Programme Coodinator Tel: 233244572869 Email: alexkyei@gmail\.com VIII\. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D\.C\. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www\.worldbank\.org/infoshop Page 5 of 5

APPROVAL

P171886

FOR OFFICIAL USE ONLY Report No: PAD4066 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR70,800,000 (US$100 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN PROJECT FOR STRENGTHENING AFGHANISTAN’S FINANCIAL INTERMEDIATION SEPTEMBER 3, 2020 Finance, Competitiveness And Innovation Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective July 31, 2020) Currency Unit = Afghanistan Afghani AFN76\.72 = US$1 US$1\.41 = SDR1 FISCAL YEAR December 21 - December 20 Regional Vice President: Hartwig Schafer Country Director: Henry Kerali Regional Director: Zoubida Allaoua Practice Manager: Nabila Asaf Task Team Leader(s): Andrej Popovic  ABBREVIATIONS AND ACRONYMS ACGF Afghan Credit Guarantee Foundation ADIC Afghan Deposit Insurance Corporation AFMIS Afghanistan Financial Management Information System AMA Afghanistan Microfinance Association AMD Aid Management Directorate AML Anti-Money Laundering ANMDP Afghanistan New Market Development Project APS Afghanistan Payment System ARTF Afghanistan Reconstruction Trust Fund ATM Automated Teller Machines BMZ German Federal Ministry for Economic Cooperation and Development CBS Core Banking System CCG Climate Change Group CERC Contingent Emergency Response Component CFT Countering Financing of Terrorism CQS Consultant Qualification Based Selection CR Collateral Registry DA Designated Account DAB Da Afghanistan Bank DEG German Investment Corporation DIF Deposit Insurance Fund DIS Deposit Insurance Scheme EATS Emergency Agriculture, Food, and Water Supply Project ESRS Environmental and Social Review Summary FDMIS Financial and Document Management Information System FM Financial Management FMM Financial Management Manual FSRRP Financial Sector Rapid Response Project FSSPD Financial Sector Strengthening Projects Directorate GDP Gross Domestic Product GOA Government of Afghanistan GRM Grievance Redress System IADI International Association of Deposit Insurers IFC International Financial Corporation IFRS International Financial Reporting Standards IMF International Monetary Fund INT World Bank’s Integrity Vice Presidency IOC Incremental Operating Costs IPF Investment Project Financing IRR Internal Rate of Return ISM Implementation Support Missions IT Information Technology IUFR Interim Unaudited Financial Reports MASOB Modernizing Afghan State-Owned Banks Project MFI Microfinance Institution MISFA Microfinance Investment Support Facility for Afghanistan MOF Ministry of Finance MOIC Ministry of Industry and Commerce MSME Micro, Small and Medium Enterprises NBFI Non-Bank Financial Institution NPA National Procurement Authority NPC National Procurement Commission NPL Non-Performing Loans NPV Net Present Value NRA National Risk Assessment PAR Portfolio at Risk PCR Public Credit Registry PDO Project Development Objective PFEML Public Finance and Expenditure Management Law PFI Participating Financial Institution POS Point of Sale PPSD Project Procurement Strategy for Development ROA Return on Assets ROE Return on Equity SAFI Strengthening Afghanistan’s Financial Intermediation SCV Single Customer View SME Small and Medium Enterprises SOE Statement of Expenditure STEP Systematic Tracking of Exchanges in Procurement TA Technical Assistance TPMA Third Party Monitoring Agent UNDB United Nations Development Business UNODC United Nations Office of Drugs and Crime The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) TABLE OF CONTENTS DATASHEET \. i I\. STRATEGIC CONTEXT \. 1 A\. Country Context\. 1 B\. Sectoral and Institutional Context \. 2 C\. Relevance to Higher Level Objectives\. 9 II\. PROJECT DESCRIPTION\. 11 A\. Project Development Objective \. 11 B\. Project Components \. 11 C\. Project Beneficiaries \. 21 D\. Results Chain \. 21 E\. Rationale for Bank Involvement and Role of Partners \. 24 F\. Lessons Learned and Reflected in the Project Design \. 25 III\. IMPLEMENTATION ARRANGEMENTS \. 26 A\. Institutional and Implementation Arrangements \. 26 B\. Results Monitoring and Evaluation Arrangements\. 26 C\. Sustainability\. 27 IV\. PROJECT APPRAISAL SUMMARY \. 28 A\. Technical, Economic and Financial Analysis \. 28 B\. Fiduciary\. 31 C\. Legal Operational Policies \. 33 D\. Environmental and Social \. 33 V\. GRIEVANCE REDRESS SERVICES \. 36 VI\. KEY RISKS \. 36 VII\. RESULTS FRAMEWORK AND MONITORING \. 39 VIII\. INDICATIVE TERMS AND CONDITIONS FOR THE GUARANTEE (When Applicable) \. 46 ANNEX 1: Implementation Arrangements and Support Plan \. 47 ANNEX 2: Detailed Description of Deposit Insurance Context and Required Reforms \. 63 ANNEX 3: Background on the Afghan Credit Guarantee Foundation \. 66 ANNEX 4: Team List \. 69  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Afghanistan Strengthening Afghanistan’s Financial Intermediation Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P171886 Moderate Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [✓] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [✓] Fragile State(s) [ ] Performance-Based Conditions (PBCs) [ ] Small State(s) [✓] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS) Expected Approval Date Expected Closing Date 28-Sep-2020 31-Oct-2025 Bank/IFC Collaboration No Proposed Development Objective(s) The project development objective (PDO) is to strengthen institutional capacity for financial stability and to enhance access to finance for micro, small and medium enterprises\. Components Component Name Cost (US$, millions) i  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Component 1: Strengthening Credit Guarantee Fund 20\.00 Component 2: SME Matching Grants Program 40\.00 Component 3: Strengthening Deposit Insurance 17\.00 Component 4: Enhancing DAB’s IT Infrastructure 16\.00 Component 5: Strengthening DAB’s Regulatory and Supervisory Capacity 5\.00 Component 6: Project Management 2\.00 Component 7: Contingent Emergency Response Component 0\.00 Organizations Borrower: Islamic Republic of Afghanistan Implementing Agency: Da Afghanistan Bank Ministry of Finance PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 100\.00 Total Financing 100\.00 of which IBRD/IDA 100\.00 Financing Gap 0\.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 100\.00 IDA Grant 100\.00 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount Afghanistan 0\.00 100\.00 0\.00 100\.00 National PBA 0\.00 100\.00 0\.00 100\.00 ii  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Total 0\.00 100\.00 0\.00 100\.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Finance, Competitiveness and Innovation Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1\. Political and Governance ⚫ High 2\. Macroeconomic ⚫ High 3\. Sector Strategies and Policies ⚫ High 4\. Technical Design of Project or Program ⚫ Substantial 5\. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6\. Fiduciary ⚫ Substantial 7\. Environment and Social ⚫ Moderate 8\. Stakeholders ⚫ Moderate 9\. Other 10\. Overall ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No iii  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Does the project require any waivers of Bank policies? [ ] Yes [✓] No Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Not Currently Relevant Community Health and Safety Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant Biodiversity Conservation and Sustainable Management of Living Natural Not Currently Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant Local Communities Cultural Heritage Not Currently Relevant Financial Intermediaries Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS)\. Legal Covenants Conditions Type Description Effectiveness The Subsidiary Agreement has been entered into and executed by and between the Recipient and the Project Implementing Entity pursuant to Section I\.C\.1 of Schedule 2 to this Agreement and in a manner and substance satisfactory to the Association\. iv  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Type Description Effectiveness The Implementing Partner Agreement has been entered into and executed by and between the Recipient and the ACGF pursuant to Section I\.B\.1 of Schedule 2 to the Project Agreement and in a manner and substance satisfactory to the Association\. Type Description Disbursement Under Category (2) until and unless the Association is satisfied, and notified the Recipient of its satisfaction, that the ACGF has adopted Matching Grants Operations Manual in form and substance satisfactory to the Association\. Type Description Disbursement Under Category (3) until and unless the Association is satisfied, and has notified the Recipient of its satisfaction, that the Project Implementing Entity has adopted the Project Operations Manual in a manner and substance satisfactory to the Association\. Type Description Disbursement Under Category (4)(a) until and unless the Association is satisfied, and has notified the Recipient of its satisfaction, with the evidence submitted by the Recipient to the Association, declaring that the Deposit Insurance Law, which establishes a legal framework for deposit insurance system in the Recipient’s territory in line with relevant international standards, has come into effect in the Recipient’s territory in accordance with the Recipient's applicable laws and regulations\. Type Description Disbursement Under Category (4)(b) until and unless the Association is satisfied and has notified the Recipient of its satisfaction that the Project Implementing Entity has developed MIS and its payout procedures in a manner satisfactory to the Association\. Type Description Disbursement For Contingent Emergency Expenditures under Category (6), unless and until the Association is satisfied that all of the following conditions have been met in respect of said expenditures: (i) the Recipient has determined that an Eligible Crisis or Emergency has occurred, has furnished to the Association a request to include said activities in the Contingent Emergency Response Part in order to respond to said crisis or emergency, and the Association has agreed with such determination, accepted said request and notified the Recipient thereof; (ii) the Recipient has ensured that all safeguards instruments required for said activities have been prepared and disclosed, and the Recipient has ensured that any actions which are required to be taken under said instruments have been implemented, all in accordance with the provisions of Sections I\.E of this Schedule; (iii) the entities in charge of coordinating and implementing the Contingent Emergency Response Part have adequate staff and resources, in accordance with the provisions of Section I\.E of this Schedule, for the purposes of said activities; and (iv) the Recipient has adopted the CERM, in form and substance acceptable to the Association, and the provisions of the CERM remain, or have been updated in accordance with the provisions of Section I\.E v The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) of this Schedule so as to be, appropriate for the inclusion and implementation of the Contingent Emergency Response Part\. vi  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) I\. STRATEGIC CONTEXT A\. Country Context 1\. The COVID-19 pandemic is already imposing a large social and economic burden on Afghanistan\. As of August 24, 2020, the Ministry of Public Health reported a total of 38,054 confirmed cases in the country with 1,389 deaths and 28,360 recoveries\. While the number of confirmed cases and deaths is relatively low compared to nearby countries, Afghanistan is extremely vulnerable to rapid spread of the virus due to limited access to information, high percentage of poor and vulnerable households who subsist on daily earnings, constrained access to water and sanitation, and weaknesses in basic health systems, and ongoing violent conflict\. The recent large influx of hundreds of thousands of people crossing back into Afghanistan from Iran has further exacerbated the situation\. Economic impacts are already severe and expected to worsen\. The pandemic and related containment measures, including border closures and the recent lockdown of major cities, has led to: i) massive disruptions to productive economic activity and consumption; ii) disruptions to imports, including of vital household items, leading to rapid inflation; iii) reduced exports due to disruptions at border points; iv) negative impacts on remittances; and v) increased fiscal pressures, with government revenues expected to decline by at least 30 percent below budgeted levels\. Due to the impacts of COVID-19, GDP is expected to contract by at least 5\.5 percent in 2020\. 2\. Afghanistan faces several additional challenges and uncertainties in 2020\. Despite the recent signing of a peace agreement between the United States and the Taliban, active conflict between Taliban and government forces continues, and there is no clear path to a sustained and comprehensive peace\. Grants equal to around 43 percent of GDP continue to finance more than 75 percent of total public spending and around half of budget expenditures\. Current civilian aid pledges expire in December 2020 and future levels of grant support are not known\. Grants may decline rapidly over coming years in the context of the global COVID-19 crisis, and with some donors dissatisfied with the pace of anti-corruption and governance reform efforts\. A power-sharing agreement has recently been reached between the two major factions contesting the outcomes of the 2019 presidential elections\. Additional disputes may arise through implementation of this agreement, including around control of key ministries, posing risks of further political instability and administrative disruption\. 3\. Afghanistan’s economy was fragile even before the COVID-19 crisis\. Growth has averaged only around three percent since 2012, due to the combined impacts of declining grants, increasing insecurity, and political instability\. The trade deficit remains extremely large, over 30 percent of GDP, financed mostly by grant inflows\. While revenues reached a new high of 14\.1 percent of GDP in 2019, more than half of budget expenditure is financed by grants\. Short-term priorities for sustainable growth include continued implementation of reforms to improve private sector confidence, mobilize investment, and ensure confidence of the international community\. Over the medium-term, reforms should focus on attracting additional investment in agriculture and extractives, to deliver increased employment, exports, government revenues, and growth\. To ensure that benefits of growth are maximized, and widely shared, continued investment is required in human capital, regional connectivity, expanded infrastructure, and an improved business regulatory environment\. 4\. The poverty rate in Afghanistan has increased markedly from 38 percent in 2012 to 55 percent in 2017, when the last household survey was carried out\. The vast majority of the Afghan population was 1  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) poor and vulnerable before the arrival of the COVID-19 crisis\. The official poverty rate at 55 percent understates the extent of poverty and vulnerability as illustrated by the fact that 93 percent of the population lived on less than US$2 a day before the crisis\. Economic growth over recent years has barely exceeded the rate of population growth (2\.7 percent annually)\. Per capita incomes will decline substantially over the coming years as the economy contracts in 2020, leading to a likely substantial deterioration in living standards\. While new data is not available, poverty is expected to have since increased and deepened\. 5\. Poverty co-exists with exposure to a large number of shocks, which disproportionately affect the poor\. Shocks that are inherent in a conflict affected country (e\.g\. forced displacement, disrupted access to markets and basic services, price volatility of consumption staples) are added to high prevalence of food insecurity due to the unique geography of Afghanistan (e\.g\. droughts, floods, avalanches and infestation of agricultural production)\. Three in four poor households are affected by at least one shock and 80 percent of them cannot recover from their shocks within one year; many of them need to turn to harmful coping strategies such as the sale of productive assets and taking children out of school for income generation\. While new data is not available, poverty is expected to have since increased and deepened\. The widespread poverty also makes the population especially vulnerable to extreme weather events such as droughts and floods\. Drought-induced displacement has reached record levels of nearly 300,000 individuals\. 6\. Afghanistan has a Human Capital Index of 0\.39 and ranks 133 out of 157 countries\. This suggests that children born in Afghanistan today will be on average 61 percent less productive than they would be if there was perfect survival, education and health in the country\. About 7 out of 100 children do not survive to age 5; children on average have only about 4\.9 learning-adjusted years of school (out of a maximum of 14 years); 41 out of 100 children are stunted; and only 78 percent of the population over 15 years survive to the age of 60\. In addition to increasing the intrinsic benefits and values of optimal health and education of its people, Afghanistan could more than double its GDP by improving its health and education outcomes\. In contrast, an income and nutritional shock to the population may significantly worsen human capital prospects for the future\. B\. Sectoral and Institutional Context Project Context and Expected Impact of COVID-19 Pandemic 7\. Financial stability, including robust financial safety nets, is essential to increase confidence in the banking system and a key prerequisite for sustainable financial intermediation\. While the banking sector has gradually recovered since Kabul Bank crisis (see Box 1), financial stability challenges remain a reality and could be further amplified with the COVID-19 pandemic and the resulting contraction of economic activity, including expected increase in inflation\. The slowdown in economic activity – especially among micro, small and medium enterprises (MSMEs) and the informal sector – could increase the risk of loan defaults and could pose liquidity risks for the microfinance sector\. 8\. In the context of COVID-19, the access to finance agenda remains critical to address the negative impact on the MSME sector\. Social distancing and lockdown measures, supply chain disruptions, movement restrictions, and border closures have had very significant negative impact on Afghanistan’s domestic private MSMEs that form a large part of the economy and are already facing severe cash 2 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) constraints as a result of the current economic challenges\. Unless protected, large numbers of these firms will exit or become insolvent, lay off workers, and sell assets, greatly undermining the capacity of the overall economy to recover when conditions improve in future\. The absence of these firms could decimate the domestic private sector and set back post-pandemic economic recovery by many years\. 9\. The proposed Strengthening Afghanistan’s Financial Intermediation (SAFI) Project is one of seven1 World Bank funded operations aiming to contribute to food security, economic recovery and building resilience in Afghanistan in the context of COVID-19 pandemic\. The scope of the SAFI project is specifically geared towards contributing to economic recovery with proposed access to finance interventions (i\.e\. though credit guarantees and recovery grants for MSMEs coping with COVID-19) and the strengthening of institutional capacity of the Da Afghanistan Bank (DAB) to manage the impact of the economic slowdown on financial sector stability\. Overview of Financial Sector 10\. The financial sector in Afghanistan is bank-dominated and concentrated in urban areas\. The sector consists of 13 banks: seven private commercial banks, one private Islamic bank, three state-owned banks (SOBs), and two foreign bank branches2\. All banks are regulated and supervised by DAB\. There are more than 400 commercial bank branches across the country\. Banks are mostly active and concentrated in the three largest urban centers - Kabul, Herat, and Mazar-e-Sharif - which account for two-thirds of their branch network\. The SOBs have the widest branch network, but due to legacy issues their lending operations are limited\. The three largest banks had around 49 percent of banking sector assets\. Private banks dominated the market with around 87 percent of gross loans portfolio in 2019 and 66\.13 percent of total banking sector assets\. SOBs accounted for 27 percent of the total banking sector assets and around 12 percent of gross loans\. The one Islamic bank represented 5\.54 percent of the sector total assets and branches of foreign banks held 5\.41 percent of the total assets\. The non-bank financial sector is very small in size and has limited outreach\. There is a formal microfinance sector, consisting of six microfinance institutions (MFIs), led by the Microfinance Investment Support Facility (MISFA) and its partners3\. To date, MISFA has been playing the oversight role over its four partner institutions; however, DAB’s Supreme Council recently approved a dedicated regulation for deposit taking MFIs which will require the MFIs to obtain an operating license from DAB in order to start collecting deposits\. Also, informal financial services providers continue to flourish and are widely used by Afghans across the country\. 11\. Financial intermediation remains extremely low in Afghanistan with credit to GDP ratio of mere 3\.3 percent which is among the lowest in the world\. Additional relevant indicators confirming low level of financial intermediation include the ratio of total banking sector assets to GDP of 22 percent in 2019, net loans of mere 12\.47 percent of banking system assets and loan to deposit ratio of only around 16 percent\. 1 Other operations include: COVID-19 Emergency Response and Health Systems Preparedness (ERHSP) Project, Additional Financing to the Citizen’s Charter Afghanistan Program (CCAP), COVID-19 Relief Effort for Afghan Communities and Households (REACH), Emergency Agriculture and Water Supply project (EATS), Afghanistan Drought: Early Warning, Finance and Action (ENETAWF) Project, and Emergency Development Policy Operation\. 2 Operating license of one bank was revoked in 2019\. 3 MISFA’s four partners include: i) First Micro Finance Bank (FMFB, licensed as a commercial bank); ii) FINCA (an international not- for-profit corporation); iii) Mutahid Development Finance Institution; and iv) OXUS Development Network\. The MFI sector also includes two more MFIs which are not MISFA’s partners\. 3 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 12\. The banking system remains well-capitalized and highly-liquid\. Capital buffers are well above DAB’s requirement of 12 percent of risk-weighted assets and reached a high of 30 percent at the end of 2017 and currently stand at around 26 percent\. The ratio of liquid assets over the total assets of the banking sector has increased from around 40 percent in 2010 to around 66 percent in 2019\. 13\. The average non-performing loans (NPLs) have deteriorated to 14\.5 percent in 2019 from 5 percent in 2011\. As of the third quarter of 2019, the NPLs were concentrated in three private banks which held around two thirds of the banking system’s gross loans\. 14\. The profitability of the banking sector has been highly volatile, though it stabilized in the last three years\. The average return on assets (ROA) for banks has been -0\.05 percent in the past nine years and the return on equity (ROE), despite being positive for some of the quarters has had an overall average of -0\.3 percent\. Profitability trends have been more positive in the past three years and as of end 2019 the average ROE and ROA stood at 7\.48 percent and 0\.86 percent respectively\. Box 1\. Kabul Bank Crisis In September 2010, Kabul Bank - a systemic bank critically important to Afghanistan’s economic viability - collapsed and was placed into conservatorship\. Weak oversight and corruption of all governance functions allowed for endemic related party transactions and fraudulent loan origination, which in turn led to the eventual loss of over 92 percent of its loan book (approximately US$861 million)\. The crisis severely stressed the Afghan financial system\. At the time of collapse, Kabul Bank was the country’s largest bank with 34 percent of total banking sector assets - almost three times the amount of its closest competitor – and held the savings of nearly one million Afghans, totaling more than US$1\.3 billion\. The realization that depositors’ money had been stolen resulted in a massive bank run and around US$500 million were withdrawn within just a few days which amounted to half of the assets of Kabul Bank at that time\. To avert further crisis the Afghan government provided US$825 million from the central bank’s reserves to cover deposits resulting in a bailout equivalent to 5 percent of Afghanistan’s GDP i n 2010\. After resolving the Kabul Bank and transferring the good assets to a bridge bank, total loss was estimated at almost one-fifth of the initial loss\. The aftermath of the Kabul Bank scandal revealed a complex fraud and money laundering operation headed by the bank’s administrators, including its founder and chairman and the former head of security turned chief executive officer\. The fraud was perpetrated by creating loan files in the names of fake companies and maintaining two sets of accounting systems\. In addition, millions of dollars’ worth of falsified asset purchases were set up to embezzle funds\. Money laundering also took place by paying inflated prices for goods and services\. Much of the money was laundered through the Shaheen Exchange in Dubai, which was owned and operated by the Kabul Bank’s founder and chairman\. Financial System Regulation and Safety Net 15\. Financial system regulation and oversight - including sound bank resolution, crisis management and deposit insurance frameworks - are crucial for financial stability\. Following the Kabul Bank crisis of 2010, the World Bank provided support to DAB with addressing resulting regulatory and supervisory challenges in the banking sector under the Financial Sector Rapid Response Project (FSRRP) which was approved in 2011 and closed in 2019\. The project supported successful completion of the diagnostic stage, including the audit of ten commercial banks\. The audit was completed in June 2012 with the following key 4 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) conclusions: i) there was no high risk of fraud and corruption; and ii) DAB required substantial capacity building as regards banking regulation and supervision\. The project subsequently facilitated development of 15 guidelines, regulations and manuals which were approved and adopted by the Supreme Council of DAB in support of execution of its regulatory and supervisory mandate;4 more than ten additional deliverables remain under review with the Legal Department of the DAB’s Supreme Council\. The existing manuals and regulations need to be complemented with the required user training5; the proposed project aims to provide further support to DAB with strengthening financial sector regulation and supervision\. In addition, the ongoing World Bank-funded Modernizing Afghan State-Owned Banks (MASOB) Project supports the reform of the three state-owned banks including: i) Bank-e-Millie Afghan; ii) Pashtany Bank; and iii) New Kabul Bank (which was established as a temporary bridge bank in the context of resolution of Kabul Bank following its collapse)\. The project is based on the strategy for reform of state-owned banks adopted by the government in 2017 which outlines a phased approach towards financial sustainability, private sector participation and improved access to finance\. The MASOB project objectives include enhancement of state-owned banks’ corporate governance, increasing operational efficiency and further consolidation through the planned merger of Bank-e-Millie and New Kabul Bank\. Finally, the process of recovery of the remaining assets stolen during the Kabul Bank crisis is still ongoing with the support from the International Monetary Fund (IMF)\. 16\. Additional effort to strengthen financial stability includes establishment of a sound bank resolution and crisis management framework which will be supported under the proposed project\. As per DAB’s law and the banking law, DAB is responsible for supervision and regulation of the banking sector\. Both laws stipulated DAB’s legal mandate to deal with troubled banks including the prerogative to initiate timely corrective and resolution actions on troubled banks\. To ensure that the authorities are better prepared to deal with any potential future bank failures, efforts are being focused on strengthening DAB’s oversight function and establishing the required legal and regulatory framework for bank resolution\. To this end DAB plans to amend the banking law to upgrade the resolution framework with the changes including: i) clear objectives and scope of the resolution regime; ii) distinction between early intervention and resolution; iii) revision of grounds for appointing a conservator and petitioning for receivership; iv) strengthening DAB’s and conservator’s powers in resolution; and v) introduction of recovery and resolution planning\. The development of bank resolution framework is expected to be done with the technical assistance support from the IMF and further supported under the proposed project\. 17\. To facilitate development of deposit insurance, DAB established the Afghan Deposit Insurance Corporation (ADIC) - i\.e\. Deposit Insurance Scheme (DIS)6 authority7 - in 2010 as a department within DAB with six full time staff; however, ADIC has yet to be fully operationalized, both legally and institutionally and the DIS publicly announced and implemented\. The basis for the establishment of ADIC included recommendations of the Afghanistan’s Cabinet of Ministers’ and DAB’ Supreme Council’s Resolution, along with expectation of the subsequent adoption of the appropriate legal framework to 4 CAMEL Rating; Risk- Based Supervision; AML/CFT Risk Assessment Guideline; AML/CFT Administrative Sanction; E-banking; FSD Governance Structure; IT Examination Manual; IT Section Terms of Reference and Job Description; IT Examination Function; Guideline on Application of IFRS 9; MSP Regulation; FXD Regulation; Consumer Protection Guidelines; Manual on MSPs; and Manual on FXDs\. 5 See Section on Lessons Learned and Reflected in the Project Design\. 6 Deposit Insurance Scheme (DIS) -- Established and legally recognized insurance of certain categories of deposits up to the prescribed amount (i\.e\. coverage level) collected by deposit-taking institutions from eligible depositors, provided by deposit insurance authority in case of unavailability of deposits and occurrence of insured event\. 7 DIS authority -- Entity empowered with a deposit insurance mandate\. 5 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) support ADIC’ operation as a full-fledged DIS authority (i\.e\. amendments to the Banking Law, DAB Law, and development of a separate DIS law)\. To date no separate legal framework has been developed, leaving ADIC in a legislative vacuum whereby the features of the implicit DIS (i\.e\. proposed coverage level for operational purposes which has not been publicly announced and which represents only 11\.3 percent of the total deposits value) were agreed between DAB, commercial banks and/or the Ministry of Finance (MOF) and communicated through drafts, notes and circulars which is insufficient for the functioning of DIS\. ADIC is referred to as a corporation although it is a department within DAB without ability to independently issue necessary regulations and procedures\. There is also a lack of transparent and consistent disclosure of information on DIS and the scheme has not been tested in real cases\. By the end of 2019, ADIC collected a total AFN5\.2 billion (i\.e\. approximately US$67 million) mainly from banks through initial and regular contribution as well as contributions from DAB and MOF in the amount of AFN500 million and AFN200 million respectively\. Despite its establishment, though implicit in nature (i\.e\. in absence of specific legal act) and initial capitalization of the Deposit Insurance Fund (DIF)8, the DIS has not been fully operationalized and publicly announced\. The current DIS structure in Afghanistan therefore is not sustainable and requires urgent reform to facilitate public confidence and trust in the financial system\. For more details about deposit insurance context and the required reforms see Annex 2\. 18\. To strengthen financial integrity DAB has established a dedicated directorate to this agenda and the authorities have conducted a National Risk Assessment (NRA) for Money Laundering and Terrorist Financing9\. The authorities have prepared the NRA Report and NRA Action Plan to address the identified risks across different areas and stakeholders, including at DAB\. The next step includes commencement with implementation of the action plan\. 19\. To ensure responsible access to financial services DAB has issued the financial consumer protection regulation which includes the necessary elements10 required by good practice; however, the regulation has yet to be fully implemented\. Further, capacity building of DAB is required to operationalize the financial consumer protection oversight function\. 20\. Further measures aimed at strengthening banking system oversight include upgrades in DAB’s IT infrastructure and capacity building of DAB’s technical directorates\. Specifically, DAB plans to install a new core banking system (CBS),and automate relevant aspects of banking supervision, thus strengthening its overall operational and oversight capacity\. Financial Infrastructure 21\. DAB has established a collateral registry (CR) for movable property in 2013 followed by public credit registry (PCR) in 2014 and both systems are due for information technology (IT) upgrade\. CR 8 Deposit Insurance Fund (also DIS capital, reserves) -- total deposit insurance financial resources (funds) collected in advance (ex-ante) on a regular basis for the purpose of deposit insurance\. 9 The NRA in Afghanistan has been conducted as self-assessment using the risk assessment tool developed by the World Bank\. The key objectives of the NRA were to: i) identify, assess, and understand the money laundering and terrorism financing risks; ii) adopt a risk-based approach for the mitigation of money laundering and terrorist financing risks; iii) facilitate the allocation of resources in order to tackle the money laundering and terrorist financing risks; and iv) develop a comprehensive action plan aimed at addressing the identified risks\. 10 The adopted regulation covers the following principles: disclosure and transparency, notification activities, fair treatment and business conduct, data protection and privacy, internal complaint redress and dispute resolution and improving consumer’s financial knowledge\. 6 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) enables lenders to effectively use borrowers’ movable property as collateral, and credit information provided by the PCR is a primary factor in evaluating the creditworthiness of banks clients and mitigating credit risk; thus, both registries are essential for facilitating access to finance\. The number of collateral items registered in the CR since its inception is 7,547\. Despite initial progress, the CR is currently not functional given the delays related to extension of the support and maintenance service contract for the CR\. The PCR currently covers around 120 thousand records for banking sector clients\. As of end-October 2019, DAB indicated that the cumulative number of inquiries in the PCR system since its inception reached 440,802\. However, according to the World Bank’s 2019 Doing Business report, only 1\.3 percent of adult population is covered (240,227 individuals) and 6,261 firms which is negligible\. To further develop and provide a comprehensive credit information services, the PCR department plans to extend PCR with development of additional data structures coverage to non-regulated entities in the utilities and telecoms sector thus expanding the information database and outreach to customers without credit history and facilitating their access to finance\. Access to Finance 22\. Due to very low financial intermediation lending to MSMEs remains very limited, comprising only 16 percent of total bank lending as of end December 2019\. Small and medium enterprises (SMEs) are also served by the microfinance institutions; as of end-2019, they represented about a fifth of MFI lending, with an average outstanding loan below US$19,000\. According to the 2017 MSME Finance Gap, around 54 percent of Afghan MSMEs are financially constrained; 40 percent of which are fully constrained\.11 Some of the main reasons for MSME’s constrained access to finance include: i) MSME’s inability to provide standard financial information (i\.e\. audited financial statements, business plans), adequate collateral (type and value of assets), or credit history; ii) gaps in financial infrastructure (limited coverage of public credit registry and collateral registry); and iii) limited capabilities of banks to serve the MSME market segment (e\.g\. capacity of loan officers, product design, risk management, outreach)\. 23\. Women-owned MSMEs are particularly underserved and represent barely two percent12 of the current MSME financing, indicating an immense gap\. According to the 2014 Enterprise Survey, the ratio of women-owned enterprises with bank accounts stood at 3\.6 percent in 2014, down from 4\.8 percent in 2008\. Moreover, as of 2014, only 11 percent of women-owned entrepreneurs reported that they had a loan or line of credit for their business\. Further, access to finance was a major obstacle to finance for more than 73 percent of women-led enterprises in 2014 while it was a major barrier for 46 percent of male-led businesses\. At the same time, women managers seemed to utilize formal financial services to a larger extent than their male counterparts\. Specifically, according to the 2014 Enterprise Survey, 75 percent of women-led enterprises had bank accounts compared to 41 percent of firms managed by men\. Also, 22 percent of women-led enterprises had loan or line of credit, compared with only 4\.3 percent of companies led by men\. 24\. According to 2018 survey of women-led businesses commissioned by the Afghan Credit Guarantee Foundation (ACGF) lack of finance was the top challenge for women entrepreneurs (75 percent) following by lack of equipment and machinery (62 percent) and access to markets (58 percent)\.13 The same survey identifies additional constraints for development of women-led business, 11 International Finance Corporation (IFC) Enterprise Finance Gap Database 2017\. 12 Ibid\. 13 Assessment of women-owned SME borrowers\. ACGF 2018\. 7 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) including illiteracy, lack of education and entrepreneurship skills, and lack of collateral (often property or land ownership) which is more limited for Afghan women than their male counterparts (historically, properties are registered by male household members)\. On a more positive note, the microfinance sector has been more accessible to women\. According to the Afghan Microfinance Association report (December 2018), 36 percent of the gross loan portfolio of MFIs was granted to women in 2018\. Another challenge in the local context is the availability of reliable gender-disaggregated data on women entrepreneurship and finance\. 25\. In addition to overall low level of financial inclusion, there is also a massive gender gap in financial inclusion of women which is a substantial barrier for the establishment and growth of women- owned firms\. According to Global Findex 2017, only 14\.9 percent of adults in Afghanistan had an account at a bank, another type of financial institution (e\.g\. microfinance institution) or a mobile money account, compared to 69\.6 percent in South Asia\. Further, only seven percent of Afghan women had an account at formal financial institutions compared to 23 percent of men\. The use of financial institutions for savings for women who do have an account is also abysmally low; Global Findex statistics indicated that only 14 percent of Afghan women saved money in 2017, compared to 21 percent of men, and only one percent of women saved at a formal financial institution compared to 6 percent of men\. Use of digital payments is also negligible among women; as of 2017 only four percent of women were reported to use digital payments compared to 17 percent for men\. 26\. To facilitate access to finance, the ACGF was established in 2014 to provide partial credit guarantees to eligible financial intermediaries for lending to MSME sectors\. ACGF currently guarantees loans from four participating financial institutions (PFIs), including three commercial banks (FMFB, AIB and Ghazanfar Bank) and one micro-finance institution (OXUS-Afghanistan)\. It also provides technical assistance to commercial banks to strengthen their MSME lending capacity (i\.e\. “downscaling”) and to microfinance institutions to lend to graduate microentrepreneurs and smaller enterprises (i\.e\. “upscaling”)\. As of end-December 2019, the volume of PFI’s outstanding MSME loans guaranteed by ACGF was US$19\.3 million\. External evaluation14 completed in 2019 confirmed ACGF’s positive track record with facilitating access to finance in Afghanistan\. ACGF’s current growth projections show that its capital will be fully leveraged by mid-2020 and the project aims to support ACGF with technical assistance and capital to facilitate greater outreach of PFIs to MSMEs as well as to devise measures in response to COVID-19\. For more details about ACGF and its track record in Afghanistan see Annex 3\. 27\. Access to finance constraints for SMEs have been further exacerbated with COVID-19, resulting in larger gaps that cannot be filled with lending alone\. There is therefore a justification for provision, at least transitionally, of well-targeted matching grants, both as a short-term emergency financing and as a longer-term complement to market finance through sharing of risk, thereby also increasing the “bankability” of SMEs\. 14 An assessment of ACGF’s performance and impact\. Steward Redqueen 2019\. 8  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) C\. Relevance to Higher Level Objectives 28\. The Project is consistent with the World Bank Group Country Partnership Framework (CPF) FY17-20 discussed by the Board on October 27, 2016 (Report No\. 108727-AF, October 2, 2016)\. The project is also consistent with the subsequent Performance Learning Review of the CPF for the Period FY17-FY20\. Further, it is aligned with the Government’s National Priority Program on Private Sector Development that clearly specifies access to finance for the private sector as a key priority\. Pillar 1 of the CPF emphasizes strengthening the effectiveness and accountability of government to improve service delivery\. In this regard, the project aims to build the institutional capacity of the DAB as the regulator and supervisor of financial system with proposed support to reform of legal and regulatory framework to enhance financial stability (i\.e\. deposit insurance, bank resolution), modernization of IT infrastructure and related capacity building\. Pillar 2 of the CPF which promotes inclusive growth identifies the strong public sector engagement that is required to support the private sector to improve the enabling environment for business\. In this regard the proposed project will support financial stability reforms addressing systemic financial sector risks and boost confidence in the system and access to finance which will support the private sector MSMEs\. These elements combined will build the foundations of a reliable and equipped financial sector for sustainable growth in line with the objectives of the CPF\. World Bank Group Support to COVID-19 Response in Afghanistan 29\. Afghanistan is facing a major public health and economic crisis as a result of COVID-19\. As of August 24, 2020, the Ministry of Public Health reported a total of 38,054 confirmed cases in the country with 1,389 deaths and 28,360 recoveries\. While the number of confirmed cases and deaths is low compared to nearby countries, the actual infection levels are likely much higher given very low levels of testing, limited access to information (including some social stigma associated with the virus), high percentage of poor and vulnerable households who subsist on daily earnings, and constrained access to services due to violent conflicts among others\. The recent large influx of hundreds of thousands of people crossing back into Afghanistan from neighboring countries has further exacerbated the situation\. 30\. Economic impacts of COVID-19 are severe and expected to worsen\. The pandemic and related containment measures, including border closures and the recent lockdown of major cities, have led to: i) massive disruptions to economic activities and consumption; ii) disruptions to imports, including of vital household items, leading to rapid inflation; iii) reduced exports due to disruptions at border points; iv) negative impacts on remittances; and v) increased fiscal pressures, with government revenues expected to decline by at least 30 percent below budgeted levels\. GDP is expected to contract by at least 5\.5 percent in 2020; the poverty rate is expected to spike from 55 percent in 2017 to 72 percent forcing an additional 6 million people into poverty\. 31\. Total additional fiscal financing needs arising from the COVID-19 crisis are expected to reach US$870 million, reflecting both declining revenues and increasing expenditure needs\. Afghanistan is at ‘high’ risk of debt distress under the World Bank / IMF Debt sustainability framework\. Therefore, financing needs can only be met through a combination of: i) additional grant support; ii) new concessional borrowing, including a US$220 million disbursement from the IMF Rapid Credit Facility; and iii) drawdown of cash reserves\. Under the World Bank Sustainable Debt Financing Policy, Government has agreed on a program of Performance and Policy Actions (PPAs) to strengthen debt management, improve fiscal sustainability, and prevent the accumulation of non-concessional external debt\. Implementation of PPAs 9 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) will be supported through a series of Development Policy Grants planned for FY21 – FY23\. Afghanistan is participating in the G20 Debt Service Suspension Initiative under which approximately US$3\.7 million of debt service payments to official bilateral creditors due during 2020 will be deferred\. 32\. Recognizing the need for urgent actions, the Government has identified key priorities in a framework document spanning short-term response and medium-term recovery for: i) expanding the scope and scale of basic healthcare and hospital reform; ii) expanding community driven development and reforming humanitarian programs; iii) enhancing use of technology for distance learning; iv) accelerating access to electricity and internet; v) assisting returning refugees and migrant workers; vi) balancing social and spatial development; vii) assisting provincial, municipal, district, civic organizations, and the private sector; and viii) expanding links with neighboring countries\. 33\. The World Bank is providing support to operationalize the Government’s response strategy in close coordination with other development partners and humanitarian agencies while building a stronger nexus between the humanitarian and development support\. Overall, the WBG would provide over US$1\.4 billion in new and recommitted funds for COVID-19 programs\. The World Bank response is aligned with the three interlinked phases – Relief, Restructuring, and Resilient Recovery – to sequence and extend the most critical support at the right time\. The IFC’s US$8 billion and MIGA’s US$6\.5 billion global fast-track facilities to help investors and lenders tackle COVID-19 provide additional opportunities for Afghanistan, in addition to leveraging concessional financing from the IDA Private Sector Window\. 34\. In the early Relief phase, a US$100\.4 million IDA grant for the Afghanistan COVID-19 Emergency Response and Health System Preparedness Project was approved in April 2020 as an immediate response to the health crisis and to strengthen public health preparedness\. A COVID-19 Response Development Policy Grant of US$200 million (US$100 million IDA and US$100 million from the Afghanistan Reconstruction Trust Fund – ARTF) was approved in June 2020 to support policy actions linked to the government’s relief and recovery measures to respond to the health, social, and economic crisis, and to address critical constraints to longer-term inclusive development while providing immediate liquidity to help recover from the economic shocks\. 35\. The World Bank has worked closely with the Government and the ARTF donors to consolidate and reprogram the portfolio resources and to adjust the FY21 pipeline\. The US$335 million IDA and ARTF released from the portfolio projects will be reallocated to the Restructuring phase through the proposed Relief Effort for Afghan Communities and Households (REACH), and additional finance to the Citizen’s Charter Afghanistan Project (CCAP) to ensure a nationwide distribution of relief packages\. The proposed Emergency Agriculture and Food Supply (EATS) Project is to lay the foundation for food security and strengthen agribusiness by supporting smallholder farmers and MSMEs involved in the food supply chain\. A proposed Afghanistan Water, Sanitation and Hygiene (AWASH) Project will focus on a sustainable COVID-19 response in the three largest Afghan cities (Kabul, Kandahar and Herat) that have been particularly hard-hit by the pandemic\. It will support emergency relief and restructure the urban water supply and sanitation sector to enable a resilient recovery\. 36\. Impacts of these operations will be enhanced by the proposed longer-term Early Warning, Finance and Action (ENETAFW) project designed for the Resilient Recovery phase\. It will establish an adaptive safety net linked to a drought early warning system and an overall community resilience mechanism\. Finally, the proposed SAFI project will support the private sector to build a resilient economy 10  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) by providing access to finance for MSMEs and strengthening the institutional capacity for financial stability\. Additional details on how the proposed project will support the most urgent needs of Afghanistan in response to COVID-19 can be found in paragraphs 44, 46-52, 57, 62, 64 and 68\. II\. PROJECT DESCRIPTION A\. Project Development Objective 37\. The project development objective (PDO) is to strengthen institutional capacity for financial stability and to enhance access to finance for micro, small and medium enterprises\. 38\. To achieve the PDO, the project will provide direct support to DAB, including ADIC, and ACGF and indirect support to PFIs and MSMEs\. The key activities to this end are as follows: i) capital contribution to ACGF enabling scaling up partial credit guarantees to PFIs to increase lending to MSMEs and related technical assistance; ii) matching grants program to SMEs to retrofit and retool their businesses in response to impacts of COVID-19 and related technical assistance; iii) technical assistance to ADIC towards development of legal and regulatory framework for deposit insurance, related capacity building, and capital contribution to the deposit insurance fund; iv) modernization of DAB’s information technology infrastructure; and v) technical assistance to DAB to increase institutional capacity for financial system regulation and oversight\. 39\. The project implementation progress will be monitored with tracking of the following PDO indicators: i\. Banking resolution and crisis management framework established; ii\. Legal and Regulatory Framework for Deposit Insurance Scheme established; iii\. Volume of MSME loans facilitated by ACGF; and iv\. Private capital mobilized through SME matching grants\. B\. Project Components Component 1: Strengthening Credit Guarantee Fund (US$20 million) 40\. Component 1 will include the following activities: a) providing financial support to ACGF to expand the issuance of its partial credit guarantees to PFIs; and b) providing technical assistance to, and building capacity of, the ACGF to, inter alia: i) strengthen its operations and systems and to enhance its capacity to discharge its designated monitoring, evaluation, and risk management functions; ii) carry out a detailed analysis to strengthen its institutional set-up; iii) support PFIs in sustainably improving their capacity, including on environmental and social standards, loan origination, appraisal, monitoring, risk management, and product development; and iv) support selected prospective financial institutions interested to become PFIs through, inter alia, development and implementation of individual institutional development plans\. 41\. The objective of this component is to incentivize greater financial intermediation towards MSMEs in Afghanistan through risk-sharing and technical assistance implemented by ACGF\. This 11 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) component includes two sub-components: i) Supporting the Expansion of the Credit Guarantee Fund in the amount of US$15 million; and ii) Technical Assistance to ACGF and PFIs in the amount of US$5 million\. 42\. In light of the constraints affecting women entrepreneurs, this component will include specific interventions to facilitate progress with access to finance for women entrepreneurs\. Specifically, these include: i) technical assistance aimed at building capacity of PFIs to expand outreach to women in a sustainable way; ii) partial credit guarantees to PFIs aimed at facilitating lending to women entrepreneurs; iii) gender disaggregated reporting on relevant metrics\. Sub-Component 1\.1: Supporting the Expansion of the Credit Guarantee Fund (US$15 million) 43\. This sub-component will allocate US$15 million to ACGF to expand its currently committed capital stock and facilitate further growth of partial credit guarantees and increased PFI lending to MSMEs, including women owned/operated businesses, thus also mobilizing private capital for MSMEs\. This capital contribution is expected to facilitate: i) sustainable growth of the MSME portfolio of existing PFIs; ii) expansion of guarantees to additional PFIs; iii) expansion of sector, geography and profile of MSMEs supported, including women owned/operated businesses; and iv) new guarantee products for PFIs to facilitate further outreach to MSMEs\. Finally, as the guarantees will unlock PFI’s own funding for lending to MSMEs, the project will directly contribute to maximizing finance for development (MFD) agenda\. The project will aim to facilitate gender disaggregated reporting on all key indicators\. While ACGF currently provides partial credit guarantees on a loan-by-loan basis, gradual introduction of the provision of partial credit guarantees on portfolio basis for strong PFIs will be considered\. The pricing of the partial credit guarantees will remain sustainable reflecting cost and risk, including risk adjusted pricing to incentivize good performance of PFIs and reduce moral hazard\. 44\. The capital contribution to ACGF will also facilitate its response to impact of the COVID-19 crisis on its PFIs and MSME borrowers\. As per initial assessment carried out by ACGF, it is expected that the COVID-19 outbreak and ensuing lockdown will have an impact on the portfolio quality and new guarantee business\. ACGF currently expects that it would be able to mitigate these risks given the time lag between deterioration of portfolio quality and claims\. To this end ACGF is considering measures aimed at amortizing the impact of the COVID-19 emergency for its outstanding portfolio, including temporary introduction of grace periods and loan restructuring for borrowers expected to experience liquidity constraints and temporary reduction in risk adjusted fees to PFIs in light of expected deterioration of portfolio quality\. Importantly, all ad hoc measures will be temporary in nature subject to periodic evaluation (e\.g\. freezing of risk adjusted fees to pre-COVID-19 crisis levels would be limited to the end of 2020 and subject to evaluation)\. Other measures are under consideration for new guarantee products\. ACGF is in the process of carrying out further in-depth scenario analysis to identify the impact of the crisis and the necessary response measures\. Sub-component 1\.2: Technical assistance to ACGF and PFIs (US$5 million) 45\. This sub-component will be implemented by ACGF and will support the provision of technical assistance (TA) to strengthen ACGF’s operations, including its local subsidiary - SME Client Support Afghanistan LLC (SCSA), and PFIs\. The sub-component will finance TA to strengthen ACGF operations and systems, including reinforcing its presence in Afghanistan and improving its management information systems, as well as monitoring and evaluation and risk management functions\. The role of SCSA will be 12 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) strengthened, through overall capacity building and hiring of resident expertise to support outreach to women entrepreneurs and agriculture sector\. The project will also support detailed analysis as to whether and how ACGF could pursue a stronger institutional set-up in Afghanistan, potentially instrumentalizing its Afghan subsidiary (i\.e\. SCSA) as nucleus for an Afghan guarantee fund\. This TA would also support the geographical expansion of ACGF’s operations, with the possibility of opening of an office in Herat\. A project progress evaluation, including a survey of MSME borrowers, including women, will be prepared around the project’s midterm\. 46\. In line with international good practices, TA will be provided to existing PFIs to sustainably improve their capacity, including with regards to environmental and social standards, loan origination, appraisal, monitoring, risk management and product development\. The project will support PFIs in reviewing their processes, policies and products for serving MSMEs in general, including women entrepreneurs and businesses in the agriculture sector, in response to economic impacts of COVID-19\. Finally, TA to PFIs will also explore the feasibility of deploying financial technologies (i\.e\. fintech) in MSME lending in Afghanistan\. ACGF will prepare the workplan for the first year, reflecting reprioritization due to the ongoing COVID-19 emergency\. The sub-component will also provide TA to prospective financial institutions that are interested in becoming a PFI for ACGF guarantee operations\. This TA would support the implementation of individual institutional development plans jointly developed with ACGF, which could include inter alia the preparation of a MSME strategy, setting up an MSME department, or capacity building for credit officers\. PFIs will be expected to provide a contribution towards the TA costs\. This component will be closely coordinated with International Finance Corporation (IFC) in light of their engagement in the sector\. Component 2: SME Matching Grants Program (US$40 million) 47\. Component 2 will include the following activities: a) providing Matching Grants to Eligible Matching Grant Beneficiaries to support their recovery from COVID-19 impacts; and b) providing: i) technical and operational assistance to MOF for monitoring and administering implementation of the Implementing Partner Agreement; and ii) technical and operational assistance, such as security and logistics, impact evaluation, grant administration costs, third-party monitoring, ,and financial audit, to the ACGF for the implementation of the Matching Grants, including capacity building for the Eligible Matching Grant Beneficiaries\. 48\. The objective of this component is to support SMEs with fixed capital and working capital costs for COVID-19 adaptation and to strengthen the pipeline of bankable firms and demand for banking services\. The program will provide “additionality” during and after the economic crisis period by helping enterprises adapt to and recover from COVID-19 impacts, capture possible emerging growth opportunities by re-engaging with the market, retain their productive capabilities across sectors, invest in retrofitting their premises, retool their business models for product and process innovation, and repurpose local production to meet the domestic needs of critical material emergency supplies\. Given that this is a COVID-19 crisis response program, the component is expected to be fully disbursed and implemented within three years\. The matching grant approach is market-driven and supports SMEs to enhance their competitiveness by developing and implementing viable business plans\. It prioritizes SMEs that are willing and able to take measured risks and improve (as demonstrated by their application and matching investments)\. The program will provide a demand-side complement to Component 1 by reinforcing the resilience and strengthening the pipeline of bankable SMEs\. Finally, this component will 13 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) deploy and build on a simple and tested instrument based on the experience of the Afghanistan New Market Development Program (ANMDP) and several other World Bank financed matching grant programs in fragile and conflict-affected contexts\. This component includes two sub-components: i) Matching Grants to SMEs in the amount of US$29\.5 million; and ii) Grant Administration and Technical Assistance to SMEs in the amount of US$10\.5 million\. Sub-component 2\.1: Matching Grants to SMEs (US$29\.5 million) 49\. This sub-component will fund the matching portion of the grants to beneficiary SMEs for fixed capital and working capital costs in close alignment with other ongoing programs\. The program will aim to cover the five big Afghan cities of Kabul, Mazar-e-Sharif, Jalalabad, Herat and Kandahar, which is where most SMEs are located\. Registered SMEs (with 5 or more employees) will be supported since these are more likely to have productive capabilities for which there is a public interest to retrain and adapt to COVID-19 than micro, informal, and startup firms\.15 The program will complement the proposed COVID- 19 Emergency Agriculture, Food, and Water Supply (EATS) Project (P174348) that aims to support commercial operators (including SMEs) in critical food supply chains through grants and other instruments\. The program will leverage: i) IFC sector scans for identifying priority sectors and IFC market identification and mapping tools (including, for example, the analytic program supporting the Ministry of Economy’s “Productive Afghanistan” strategy); and ii) the WBG Country Private Sector Diagnostic to help identify candidate SMEs\. The pipeline of bankable SMEs generated by the proposed SME matching grants program could also be a potential source of candidates for IFC upstream lending and investments\. Coordination with the IFC Agribusiness Advisory Services Project financed by United Kingdom’s Department for International Development will also be ensured\. 50\. The matching grant program will be run in “rounds”\. The focus will be to expedite implementation and swiftly begin to respond to the COVID-19 crisis\. In principle, the program will be open to any sector, including important sectors in light of COVID-19 such as agribusiness, logistics, and digital technology; however, specific rounds may have specific sectoral preferences and criteria\.16 An important success feature of the program will be to ensure demand for matching grants through timely marketing and public awareness so that SMEs are informed and encouraged to apply to the program\. One of the outcomes of the program will be to strengthen the ability of SMEs to access formal bank credit (i\.e\. supported with capital infusion via matching grants) to mitigate their access to finance challenges and enhance their productivity\. 51\. SMEs would be required to submit proposals that will elaborate how the matching grant will be utilized, including plans for COVID-19 adaptation\. Pre-announced criteria for eligibility and selection will be defined in the Matching Grants Operations Manual and will be clearly and transparently communicated to applicant SMEs upfront\. SMEs would initially be filtered based on eligibility criteria\.17 Thereafter, the 15 Micro and informal firms will be supported through the World Bank financed EZ-Kar project\. 16 The matching grants program may include a pilot window (estimated up to US$2 million) to provide full grants (without matching requirement) for SMEs in critical food supply chains identified by the proposed COVID-19 Emergency Agriculture, Food, and Water Supply (EATS) Project\. 17 Eligibility criteria could potentially include, inter alia, 5 or more employees, running concern for over one full year, and registration status\. 14 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) SME’s proposal will be evaluated and scored by the ACGF based on selection criteria\.18 The matching grant program will be demand-driven\. To ensure at least a minimum quality of SMEs and proposals supported, a cutoff score will be established, and the final grant decisions will be made on a systematic basis that will be documented in the Matching Grants Operations Manual\. An SME (and its affiliates by ownership) may not be awarded more than one grant from the program\. Explicit linkages between the matching grant program and the banking sector will be established by requiring that all selected SMEs have an existing or open a bank account to receive the matching grant, thus facilitating financial inclusion and access to finance as well as mitigating fiduciary risks\. Women-owned SMEs will be encouraged to apply (including through leveraging chambers and associations, such as the Afghanistan Women’s Chamber of Commerce and Industry, for outreach) and applications that meet eligibility and selection criteria may be further benefited during evaluation (e\.g\. through extra points)\. 52\. The grants will be used to cover two categories of costs: i) fixed capital costs and ii) working capital costs\. Examples of fixed capital costs include investments in capital equipment and machinery that would help enhance the SME’s output and profitability\.19 Examples of working capital costs include retooling production lines, digitization of sales or customer service processes, or other innovation or technology adoption activities for COVID-19 adaptation\.20 Eligible cost categories will be elaborated in the Matching Grants Operations Manual\. Proposals could include one or both categories of costs\. It is initially proposed that a single proposal cannot avail more than US$50,000 as a matching grant, however this upper limit may be revised for each round\.21 The “matching” contribution from the SMEs will be adjustable for each round, with an initial indicative benchmark of 50 percent to balance the needs of each SME and the intent to support larger numbers of SMEs during the crisis22\. “Matching” can be in-cash and/or through bank loans\.23 Sub-component 2\.2: Grant Administration and Technical Assistance to SMEs (US$10\.5 million) 53\. This sub-component will finance required program costs and technical assistance support to beneficiary SMEs aimed at increasing their capacity to productively absorb matching grants \. The program costs are based on projected actual costs across expenditure categories, cities, and years in line 18 Selection criteria could potentially include, inter alia, ratio of SME match, strength of proposal, due diligence by the ACGF or the SCSA, and degree of relevance to COVID-19 adaptation (including priority COVID-19 subsectors)\. 19 Exclusions could, inter alia, include: World Bank prohibited activities/items as elaborated in project’s exclusion list (as part of environmental and social risk management); assets that are open to resale such as vehicles and multipurpose buildings that could be misappropriated, used for non-project purposes, or may not justify public funding; and certain high-value non-specialized equipment that will be left to the ACGF to evaluate on a case-by-case basis\. Additional guidance will be provided in the Matching Grants Operations Manual\. 20 Fixed capital grants are deemed justified given the FCV context (i\.e\. fragility, conflict and violence), COVID-19 crisis response objective of the matching grant program, and as a means to overcome credit constraints given the dearth of SME lending in Afghanistan\. The Matching Grants Operations Manual will delineate the matching grant conditions for both fixed capital and working capital costs\. 21 This “cap” could vary between rounds and between types of proposals (e\.g\., proposals with substantial fixed capital costs may be eligible for a higher “cap”)\. Further details on the “caps” will be provided in the Matching Grants Operations Manual\. 22 The matching contribution would be waived for SMEs supported in critical food supply chains linked to the EATS project\. 23 An analysis of World Bank financed matching grants (Hristova and Coste, 2016) noted that most programs permitted in-cash contributions while only a few allowed in-kind\. 15 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) with actual project experiences in Afghanistan and globally\.24 The costs include staffing, offices in five cities, security and logistics, information technology, communications and marketing, independent impact evaluation, third party monitoring, financial audit, legal costs, and taxes\. The program costs also include two consultants, sourced through National Technical Assistance (NTA) Procedures, at Aid Management Directorate (AMD) at MOF to support the MOF with administration of implementing partner agreement with ACGF (i\.e\. coordination and financial management)\. The technical assistance program will include a range of direct non-financial support to beneficiary SMEs to prepare and implement business plans\. Such a facility has been found to be critical to successful implementation of matching grant programs, especially those targeted to SMEs, both in Afghanistan and in other fragile states\. 54\. This sub-component will be administered by the ACGF together with its local subsidiary SCSA and distinctly branded (i\.e\. not including ACGF/SCSA names) under the implementing partner agreement with MOF; the only exception is the administration of operational costs dedicated for MOF’s two NTAs which will be administered by MOF\. The ACGF’s and the SCSA’s roles and responsibilities will, inter alia, include: designing the program, communicating it to SMEs through marketing and public awareness efforts, running the “rounds”, receiving proposals, conducting due diligence, supporting SMEs with handholding support for business plan development and subsequent subproject implementation, making grant decisions on the basis of established eligibility and selection criteria, disbursing the grants to the SMEs, monitoring and overseeing the utilization of the grant for the intended purpose, ensuring that all risks are fully addressed and mitigated in a timely manner, collecting data, and providing reports as required\. The SCSA will support eligible SMEs with developing their proposals and will conduct field- based due diligence\.25 To ensure the independence of the ACGF, the Government will not play a direct role in the administrative or grant decision making processes in the implementation of the matching grants program\. A project evaluation, including a survey of SMEs that received matching grants, including those owned/operated by women, will be prepared around the project’s midterm\. 55\. A Matching Grants Operations Manual will be developed by the ACGF and its approval by the World Bank will be a disbursement condition for the disbursement of matching grants (see sub- component 2\.1)\. It will cover project management, governance arrangements, selection of subprojects and grant awards, implementation, risk mitigation, other technical aspects, and monitoring and evaluation\. There will be clearly documented and agreed arms-length arrangements between the outreach/support to applicant SMEs and the grant decision making process\. The ACGF will be responsible for monitoring and evaluation and will submit periodic reports to the MOF in accordance with reporting requirements that will be detailed in the Matching Grants Operations Manual\. The reports will also be shared with the Ministry of Industry and Commerce (MOIC)\. The MOF will be involved in oversight of the program\. The MOIC will complement the project thorough participation in awareness raising of the program, coordination with the private sector, and channeling feedback from SMEs through their regular activities\. A third-party monitoring firm will be hired or an internal audit department will be established 24 The total program costs are significantly lower than the ANMDP (38 percent) and are in line with the unweighted average operating cost of 22 percent across 60 World Bank financed matching grant programs (Hristova and Coste, 2016)\. As a charitable foundation, the ACGF cannot disseminate profits, and the MOF is a stakeholder in the ACGF\. 25 An analysis of World Bank financed matching grants (Hristova and Coste, 2016) listed 65 programs that provided complementary technical assistance to applicants while 41 programs did not\. To minimize the need for hand-holding SMEs, proposals will be simple\. The option to advertise and accept proposals in local language and online will be explored\. There will be an arms-length arrangement between the SCSA (that will hand-hold SMEs during proposal development) and the ACGF (that will decide on grant awards)\. 16 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) for physical inspections of SME activities and use of matching grant funds\. An independent external audit firm will be hired to conduct financial audit of the ACGF including related to the grant decision making process\. Component 3: Strengthening Deposit Insurance (US$17 million) 56\. Component 3 will include the following activities: a) provision of technical assistance and advisory services to, as well as building capacity of, the Da Afghanistan Bank for development and implementation of a robust legal and regulatory framework for deposit insurance; and b) providing financial support to the Deposit Insurance Fund to enhance its coverage and payout capacity\. 57\. The objective of this component is to support establishment and implementation of a credible and explicit DIS (i\.e\. established via formal legal act) for deposit taking financial institutions in accordance with international good practices and sufficient level of capital to set, sustain and/or increase the appropriate level of deposit insurance coverage without compromising the sustainability of the DIF\. To this end the component will comprise two sub-components: i) Technical Assistance and Capacity Building in the amount of US$2 million; and ii) Capitalization of Deposit Insurance Fund in the amount of US$15 million\. In light of potential financial stability challenges as a result of COVID-19 crisis, strengthening deposit insurance will be critical for mitigating related risks, including payout of insured deposits in the case of crisis affecting the banking system\. Sub-component 3\.1: Technical Assistance and Capacity Building (US$2 million) 58\. This sub-component will finance analytical, advisory and technical assistance and capacity building aimed at development of a law on deposit insurance, related regulations and ADIC’s capacity building\. This will include support to DAB, including ADIC, with development of a legal and regulatory framework (e\.g\. research and analysis, international guidelines, legal drafting)\. The proposed legal framework on DIS will at the minimum include the following provisions: clear public policy objectives, mandate and powers in line with given objectives, clear definitions of terms, coverage level, excluded deposits, eligible depositors, governance structure of deposit insurance authority, legal rights and obligations, transparency, by-regulation procedures, risk management, internal control, sources of funds (initial, regular, extraordinary), basis for payment of contributions, established target funding and time- frame, financial management (including investment principles), use of funds26, calculation of deposit insurance amount for each depositor, clear time-frame and procedure for deposit payout, banks’ reporting requirements, role of deposit insurance scheme in bank resolution framework (if any), and other obligations\. The project will support the design of public awareness strategy in support of development and implementation of DIS and in order to inform the general public on the proposed deposit insurance features\. 59\. Secondary regulation which may be in the form of by-laws, instructions, procedures and guidelines will at the minimum include the following: banks’ reporting for DIS purposes, banks’ contributions to DIS, payout procedures, emergency funding, investment policy, target funding methodology, and other as relevant\. ADIC capacity building will include analytical and advisory support 26Legal and regulatory framework will set limits on the use of funds from the deposit insurance fund (e\.g\. required technical assessments will determined whether the funds should be used solely for the purpose of payout of insured depositors or, in certain cases, to support problem bank resolution subject to very strict criteria, i\.e\. the least cost test)\. 17 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) such as trainings, workshops and joint work with international experts (on-the-job training) and will focus on operationalization of DIS, funding and financial management, target funding, development of risk- based methodology, investment policy and Single Customer View (SCV) procedures, banks reporting to DIS and other activities as deemed relevant such as gender disaggregated reporting in relevant areas\. The required investment in Management Information System (MIS) - hardware and software for insured deposits’ payout - will be financed from Component 4: Enhancing DAB’s IT Infrastructure\. Sub-component 3\.2: Capitalization of Deposit Insurance Fund (US$15 million) 60\. This sub-component will finance additional capital to strengthen the DIF complementing banks’ regular contributions, in order to set, sustain, and/or increasing of the deposit insurance coverage to an appropriate level of coverage without compromising the sustainability of DIF and preserving DIS’ payout capacity\. The coverage level should be sufficiently high to ensure depositors’ protection while avoiding moral hazard (i\.e\. “90:20” rule)27\. The project contribution to DIS’ funds would strengthen the existing DIF and mitigate risks of decrease of its payout capacity when law on deposit insurance and increased coverage level become effective\. Capital injection of US$15 million is expected to be disbursed to the DIF in two rounds governed with formal disbursement conditions: i) first disbursement upon enactment of the law on deposit insurance (expected within 2 years from project effectiveness); and ii) second disbursement upon development of MIS and payout procedures (as required under the law)\. Compliance with these disbursement conditions will be assessed by the World Bank’s technical team in cooperation with other relevant partners (e\.g\. IMF) based on established international good practices in this area (e\.g\. alignment with International Association of Deposit Insurers - IADI - Core Principles for Effective Deposit Insurance Systems)\. Following the disbursement of both tranches, it is expected to enable DIS to preserve its coverage ratio28 (i\.e\. at minimum 12 percent29) and enhance its payout capacity (expressed as ability to compensate insured deposits in any of nine smallest banks in full amount) for the established appropriate coverage level in accordance with international standards and without compromising the sustainability of the DIF\. According to current calculations and DIF projections over a five-year period, the additional capital of US$15 million could enable a threefold increase of the coverage which is currently used for operational purposes (the amounts cannot be disclosed as the scheme has not been fully operationalized and formally announced)\. Estimated impact of project funding is included in Figure 1\. DIS will be subject to annual audit\. 27 “90:20” rule refers to international rule of thumb for establishment of coverage level where a minimum 90 percent of all deposit accounts and a minimum 20 per cent of value of total deposits would be fully covered\. 28 Calculated as Deposit Insurance Fund / Total Insured Deposit\. 29 At the end of 2019, the funds collected for the purpose of DIS already represented 12 percent to total insured deposits\. 18 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Figure 1: Impact of Additional Capital: DIF Coverage Ratios with and without Project Funding Component 4: Enhancing DAB’s IT Infrastructure (US$16 million) 61\. Component 4 will include the following activities: strengthening Da Afghanistan Bank’s operational, regulatory, and supervisory capacity through upgrading of critical information technology infrastructure and provision of technical assistance, including modernization of core banking systems and deposit insurance system, automation of relevant aspects of banking supervision, and modernization of its collateral registry and public credit registry\. 62\. The objective of this component is to support investment in IT hardware and software for the central bank to strengthen its operational, regulatory, and supervisory capacity along with investments in upgrade of financial infrastructure aimed at facilitating financial intermediation\. These investments will be critical for strengthening DAB’s core operational capacity which is required to mitigate potential impact of COVID-19 on the financial system\. Representative project activities include: i) modernization of the Core Banking System to strengthen DAB's oversight and risk management capacity; ii) automation of relevant aspects of banking supervision; iii) investment in critical IT to operationalize deposit insurance function (i\.e\. management information systems, hardware and software); and iv) IT modernization of the collateral registry and public credit registry to facilitate financial intermediation\. The investments under the project will be sustained with DAB’s commitment to ensure the required future systems maintenance which will be reflected in the Project Agreement with DAB\. Component 5: Strengthening DAB’s Regulatory and Supervisory Capacity (US$5 million) 63\. Component 5 will include the following activities: providing technical assistance and advisory services to, and building capacity of, the Da Afghanistan Bank to enhance its capacity to discharge its designated core regulatory and supervisory functions, including development of bank resolution and crisis management frameworks, financial system regulation and oversight, financial consumer protection, implementation of selected actions from the National Risk Assessment Action Plan, and strengthening accounting as well as risk based internal audit\. 19 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 64\. The objective of this component is to support DAB with advisory, technical assistance and capacity building support aimed at strengthening its core regulatory and supervisory function thus facilitating financial stability\. This capacity building support will also be critical for DAB’s ability to proactively manage the risks and impacts of the COVID-19 crisis on the financial sector\. Representative project activities include: i) development of bank resolution and crisis management frameworks; ii) strengthening banking supervision (e\.g\. audits of select commercial banks, risk-based supervision, review/development of policies, procedures, manuals, supervisory training); iii) strengthening regulation and supervision of non-bank financial institutions (e\.g\. support with the development of planned regulatory framework, review/development of policies, procedures, manuals, training supervision training); iv) support with implementation of select actions from the National Risk Assessment Action Plan related to AML/CFT; v) operationalizing financial consumer protection supervision function (e\.g\. training of supervisors, development of manuals); and vi) accounting assessment and strengthening internal audit and adoption of risk based internal audit\. The project will also aim to support DAB with designing and roll- out of financial sector reporting requirements aimed at collecting better information regarding financial services to women\. Relevant project activities will be coordinated with the ongoing MASOB project\. Also, activities in support of regulation and supervision of digital financial services (e\.g\. mobile money) will be coordinated with the ongoing World Bank-funded Payments Automation and Integration of Salaries (PAISA) project, thus further reinforcing reform agenda in this area\. Finally, all activities will be closely coordinated with development partners involved in provision of complementary support\. Component 6: Project Management (US$2 million) 65\. Component 6 will include the following activities: providing technical and operational assistance to the Da Afghanistan Bank for the implementation and overall management of the project, including aspects related to monitoring, reporting and evaluation, as well as financial audits\. 66\. This component will fund relevant project management functions administered by the Financial Sector Strengthening Projects Directorate (FSSPD) of DAB and applicable to Components 3-6 under DAB’s administration\. FSSPD acts as Project Implementation Unit for World-Bank funded projects administered by DAB, including the ongoing PAISA project\. FSSPD will be responsible for implementation of Components 3, 4, 5, and 6 in lieu of a standalone project implementation unit\. FSSPD will develop the Operations Manual governing implementation of components under its responsibility which will also be a disbursement condition for Components 3-6\. In addition, a Project Committee, chaired by the Governor, and including heads of DAB’s relevant technical departments will be established with a coordination and oversight mandate for Components 3-6\. This component will fund relevant project management costs such as required consultants and operational expenses\. The project management functions include ensuring compliance with fiduciary requirements such as procurement, financial management, withdrawal and disbursement requests, audits and reporting\. The FSSPD Director General is the Project Director for all World Bank Projects administered by DAB and will be supported by the Deputy Director General\. Component 7: Contingent Emergency Response Component - CERC (US$0 million) 67\. Component 7 will support provision of immediate response to an Eligible Crisis or Emergency, as needed\. 20  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 68\. This is a contingency component to be considered in the case of a relevant emergency event\. In light of overall security situation in Afghanistan and expected impacts of COVID-19, the project will contribute to providing immediate and effective response in the event of eligible emergency or crisis that affects the financial sector\. In case the CERC is activated, a CERC Operations Manual will be prepared during project implementation to govern the operation of the component\. C\. Project Beneficiaries 69\. The primary project beneficiaries are DAB, including ADIC, and ACGF while secondary beneficiaries include private sector PFIs and MSMEs, including women owned/operated businesses\. DAB will benefit from investment and capacity building aimed at improving its core IT infrastructure and strengthening its regulatory and supervisory oversight\. ACGF will benefit from technical assistance and capital increase aimed at strengthening its ability to diversify product offering and increase the number of client PFIs\. PFIs will benefit from technical assistance aimed at capacity building to better manage risks and partial credit guarantees aimed at enhancing their capacity to sustainably serve the MSME sector\. MSMEs, including women owned/operated businesses, will benefit from improved access to finance for investment and working-capital loans facilitated with credit guarantees without which they could not access bank financing as well as through matching grants\. D\. Results Chain Theory of Change 70\. The PDO is to strengthen institutional capacity for financial stability and to enhance access to finance for micro, small and medium enterprises\. The project outcomes include: i) increased institutional and technical capacity of DAB to regulate and supervise financial sector thus strengthening financial stability; ii) strengthened financial safety net with well governed and capitalized deposit insurance fund with a strong payout capacity; and iii) enhanced access to finance for MSMEs, including women owned/operated businesses\. The success of the project will be measured by the PDO and intermediate indictors included in the results framework\. 71\. The project is underpinned by a robust theory of change which links the program outputs to intermediate outcomes, which, when aggregated, support overall program development objectives to diversify and strengthen the productive sector and improve financial sector stability and access to finance for MSMEs in Afghanistan\. To this end this project aims to: i\. Strengthen the credit guarantee fund30\. This results in greater capacity of financial institutions to lend to MSMEs by reengineering their models and encouraging a shift in attitudes towards MSMEs, particularly women-owned MSMEs\. This thereby facilitates greater access31 to finance for MSMEs\. In addition, this results in financial institutions increasing their capacity to better target and tailor financial products to women, which will thereby increase the uptake and access to finance by women-owned enterprises\. ii\. Provide matching grants to SMEs\. This results in enhanced ability of SMEs in support COVID-19 30 By strengthening participating financial institutions risk management capabilities, internal controls and processes to expand outreach to MSMEs and injecting capital into the guarantee fund to extent credit offerings\. 31 Measured by the volume and number of loans facilitated by ACGF to MSMEs\. 21 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) adaptation, including market re-engagement, recovery, productive capabilities and strengthening the pipeline of bankable projects\. This activity therefore helps enterprises recover from COVID- 19 impacts and capture emerging growth opportunities by re-engaging with the market, retaining their productive capabilities, investing in retrofitting their premises, and retooling their business models for product and process innovation, and repurposing local production to meet the domestic needs of critical material emergency supplies; these steps will, in turn, increase the “bankability” of grantee projects by strengthening their loan applications (and related capital/collateral contributions), and crowd-in commercial finance in the medium term through risk sharing\. It is estimated that the matching grant program will be fully disbursed and implemented by year 3\. Around one thousand SMEs will benefit from the program, 5 percent of which will be women owned and 10 percent of which will access a bank loan; and up to US$29\.5 million in additional private capital (equity or debt) will be mobilized\. iii\. Strengthen deposit insurance32\. This results in enhanced ability of the ADIC to implement a financial safety net which insures and pays out claims for insured deposits thereby improving depositors trust related to safety of their funds (in Afghanistan roughly 24 percent of unbanked adults report trust in the financial sector as a major barrier to financial access33)\. This increases consumer confidence in the financial sector which contributes to overall financial inclusion, access to finance and long-term stability\. iv\. Enhance DAB’s IT Infrastructure34\. This results in increased operational and supervisory capacity of DAB, coupled with the ability to operationalize deposit insurance, which can increase confidence in the financial sector\. This also generates efficiencies in the sector which can help drive down the cost of financial services, and establishes core credit infrastructure which enable financial institutions to generate risk assessments and facilitate lending through use of the collateral and credit registries, thereby extending access to finance to MSMEs and individuals\. v\. Strengthen DAB’s regulatory and supervisory capacity35\. This results in increased ability of the regulator to monitor financial markets, regulate and supervise financial institutions, ensure financial consumer protection, and implement macroprudential policies that limit adverse consequences from financial instability or crisis\. In addition, improved and operationalized regulatory frameworks, such as financial consumer protection framework, promotes responsible provision of financial services which increases consumer trust and enhances responsible delivery and subsequent uptake of financial services, thus facilitating financial inclusion\. 72\. The underlying assumptions of the theory of change are that despite the political, macroeconomic, health and the security context the project will be able to deliver the envisaged activities\. The project has integrated lessons learned from similar operations in Afghanistan to address inherent as well as technical and operational risks and ensure sustainability\. Further, in addition to an assumption on COVID-19 recovery being sufficient to generate demand both for loans and matching grants, in the short term the project will deploy these instruments to provide relief to MSME sector in 32Through improving the legal and regulatory framework as well as institutional capacity for deposit insurance scheme, as well as injecting capital to the deposit insurance fund\. 33 Global Findex 2019\. 34 To strengthen its capacity by modernizing the CBS, improving its oversight and risk management capacity, automating relevant aspects of banking supervision, investing in critical IT to operationalize deposit insurance, and modernizing credit infrastructure\. 35 On various topics including the development of bank resolution and crises management frameworks as well as overarching regulatory and supervisory frameworks and capacity\. 22 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) response to the pandemic\. For more details see sections discussing risks, lessons learned and sustainability\. 73\. The project also includes two other activities: i) Project Management; and ii) Contingent Emergency Response Component (CERC) to be activated in a crises situation which will not have indicators attributed to them within the PDO given their nature\. However, additional indicators will also be developed in case of initiation of the CERC, as needed\. The theory of change for components 1-5 is further demonstrated in the Figure 2 below\. Figure 2: Theory of Change for Components 1-5 23  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) E\. Rationale for Bank Involvement and Role of Partners 74\. The World Bank has a unique combination of expertise and instruments to continue supporting the authorities with reforms aimed at financial sector development in Afghanistan, including designing and implementing adequate response to the impact of COVID-19 on financial sector\. The World Bank has been a critical partner to the authorities with a variety of technical assistance, investment and development policy operations which supported the design and implementation of key financial sector reforms over the past years\. Project implementation will benefit from substantial advisory inputs drawing on World Bank’s extensive global experience in the areas of financial stability, integrity and access to finance\. 75\. Project implementation will be closely coordinated with IFC complementing its technical assistance and investment activities\. In particular, collaboration with IFC relates to coordination as regards provision of technical assistance to financial institutions, credit guarantee program, and the envisaged upgrade in credit infrastructure to ensure full complementarity with IFC’s ongoing and planned programs\. To this end, the World Bank task team will coordinate with the IFC team engaged in financial sector, particularly on IFC’s technical assistance on credit infrastructure and training to financial intermediaries, as well as on COVID-19 response in support of MSMEs, exchanging relevant information and experiences\. 76\. Project implementation will be closely coordinated with implementing partners including the IMF and United Nations Office of Drugs and Crime (UNODC), KfW Development Bank, US Treasury and other relevant bilateral donors supporting the same reforms avoiding overlaps and ensuring full complementarity of respective programs\. Specifically: • All project activities related to reforms in support of financial stability will be closely coordinated with the IMF\. Particular attention will be provided to coordination related to development of bank resolution and crisis management frameworks where the DAB has already requested technical assistance from the IMF to enable the planned strengthening of its early intervention, resolution and crisis management framework for banks in line with international best practices\. As the project includes support to DAB in this area, it will be ensured that all potential activities in this area fully complement and align with technical assistance provided by the IMF\. • Planned reforms with implementation of relevant actions from the NRA Action Plan will be coordinated with the United Nations Office of Drugs and Crime (UNODC)\. In light of UNODC involvement in implementation of reforms in this area and broad array of reforms in the action plan and responsible institutions, the project will ensure that any activities funded under the project focus on the roles and responsibilities of DAB and avoid any overlaps with UNODC’s activities and/or those of other partners supporting this agenda\. • Planned support to ACGF will be closely coordinated with KfW Development Bank in light of their planned support to ACGF\. The design of this program is still being finalized and the potential activities may include additional capital for existing and new guarantees, including funds for measures aimed at alleviating COVID related impacts in a sustainable way, and related technical assistance\. 24  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) F\. Lessons Learned and Reflected in the Project Design 77\. The key fiduciary lessons learned integrated in the project design relate to challenges identified under previous operations, and in particular the recently closed FSRRP\. Specifically, in light of delays with procurement and contract management challenges under the previous project, the procurement responsibility under the project will be split between FSSPD for activities below US$100,000 and the National Procurement Authority (NPA) for all activities above US$100,000\. The proposed arrangement will be provisional and the full procurement management responsibilities will be returned to DAB upon verification of specific technical criteria as elaborated in the section on procurement (see also Annex 1)\. In case of lack of satisfactory implementation progress within one year from project effectiveness, alternative arrangements will be identified and implemented\. As regards financial management, disbursement will be based on statement of expenditures; following the initial advance, the designated account will be replenished on a semester basis for which the project will submit withdrawal applications after the review of statement of expenditures by the Third Party Monitoring Agent (TPMA) of the World Bank\. These measures are expected to facilitate more expeditious implementation as well as mitigate fiduciary risks\. Further, the project takes into consideration experiences from FSRRP which experienced difficulties related to attracting qualified consultants to work in Afghanistan due to security concerns\. This challenge is further exacerbated with the fact that the government, as the contracting party, cannot provide duty of care required by high caliber consultants with alternative opportunities\. As a result, the project will consider remote support by qualified consultants relying on technology where feasible (i\.e\. audio and video conferences, written inputs) over potentially less qualified consultants based on their willingness to travel to Afghanistan\. The World Bank team will also endeavor to reinforce and complement the technical assistance activities under this project with Bank-executed advisory work, which was found to be helpful during the FSSRP project\. 78\. Technical lessons learned related to institutional and financial stability reforms and access to finance interventions integrate both global experiences as well as those of project implementation in Afghanistan\. Specifically, the financial stability and regulatory capacity building reforms build on the lessons learned from the past crisis including related to design and operationalization of deposit insurance scheme, bank resolution frameworks and facilitating responsible financial access through financial consumer protection frameworks\. Further, lessons learned and information generated by the ongoing Access to Finance Project which supported ACGF are also incorporated in project design and include baseline indicators regarding outreach to MSMEs, including women borrowers, and feedback from beneficiary MSMEs\. The matching grant program design benefits from lessons learned from the ANMDP and from an analysis of 106 World Bank financed matching grant projects (Hristova and Coste, 2016)\. These lessons have informed the program costs, sectors, grant size, grant categories, selection modality, provision of complementary technical assistance, and other technical and fiduciary aspects of the matching grant program\. In line with good practices, financial institutions will also be expected to provide a contribution towards the TA costs\. 79\. Finally, the project will take proactive measures to ensure operational sustainability of the key institutions and/or platforms planned under the project\. While the FSSRP facilitated the establishment and strengthening of a number of institutions/platforms (e\.g\. Afghanistan Payment System, Automated Transfer System, Collateral Registry and Public Credit Registry) a number of operational challenges remained after the project closure\. To overcome such challenges the project will ensure planning towards operational sustainability\. This includes gradually shifting operational costs to government or DAB 25  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) budgets during project implementation, thus facilitating authorities’ ownership and action to ensure sustainability of infrastructure financed under the project, thus mitigating the risks of continued reliance on donor funded projects for operational costs\. III\. IMPLEMENTATION ARRANGEMENTS A\. Institutional and Implementation Arrangements 80\. The Ministry of Finance will be the implementing agency for Components 1 and 2 and ACGF will be the implementing partner for these two components\. DAB will be the implementing agency for Components 3, 4, 5 and 6\. The project will be governed with the following agreements: i) Financing Agreement between the World Bank and MOF; ii) Project Agreement between World Bank and DAB; and iii) Subsidiary Agreement between MOF and DAB\. Implementation of Components 1 and 2 will be governed by an Implementing Partner Agreement (IPA) between MOF and ACGF\. Implementation of Components 3-6 will be governed with the Project Agreement and Subsidiary Agreement\. Responsibility for implementation of Component 7 will be determined in case of a relevant crisis event that affects financial sector\. 81\. The FSSPD at DAB will have the operational responsibility for implementation of Components 3, 4, 5 and 6 in lieu of a standalone project implementation unit\. FSSPD acts as Project Implementation Unit for all World-Bank funded projects administered by DAB, including the ongoing PAISA project\. This component will fund relevant project management costs such as required consultants and operational expenses\. The project management functions include ensuring compliance with fiduciary requirements such as procurement, financial management, audits, processing of withdrawal and disbursement requests, and reporting\. FSSPD will develop the Operations Manual governing implementation of components under its responsibility\. The FSSPD Director General is the Project Director for all World Bank Projects administered by DAB and will be supported by the Deputy Director General\. In addition, a Project Committee, chaired by the Governor, and including heads of DAB’s relevant technical departments will be established with a coordination and oversight mandate, with further details specified in the Operations Manual applicable to Components 3-6\. 82\. ACGF will be the implementing partner under Component 1: Strengthening Guarantee Fund and Component 2: SME Matching Grants Program governed by the IPA between MOF and ACGF, in alignment with the arrangements under the ongoing Access to Finance Project\. The World Bank will transfer the funds directly to ACGF in line with the IPA\. The ACGF’s activities will include guarantees to PFIs, technical assistance, and administration of matching grants program\. 83\. More detailed implementation arrangements are described in Annex 1\. B\. Results Monitoring and Evaluation Arrangements 84\. The FSSPD and MOF, through the ACGF and the PFIs, will monitor progress against the indicators in the results framework through regular reports and planned project evaluations; these efforts will be supported and complemented with regular World Bank implementation support\. The FSSPD will prepare quarterly progress reports and monitor the PDO, intermediate indicators and any additional operational 26  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) indicators that may emerge during the implementation relevant to Components 3, 4, 5 and 6 with relevant inputs from ADIC\. MOF, with support from ACGF, will prepare the same type of reports for Components 1 and 2 on quarterly basis, along with monthly operational reports related to MSME lending indicators given the dynamic nature of the financial sector\. FSSPD has sufficient capacity to monitor activities directly under its implementation (i\.e\. Components 3, 4, 5, and 6) which primarily include qualitative indicators\. ACGF has strong technical capacity for data collection and analysis and will be responsible for regular reporting as regard the progress of TA, credit guarantee activities and administration of matching grants to MOF; in addition to reporting on the indicators in the results framework it will provide more detailed regular assessment of its operations\. ACGF will also conduct evaluation of its credit guarantee operations and matching grants through a survey of MSME borrowers and SME matching grant recipients expected by project’s mid-term\. PFIs will be required to report to ACGF on the status of the loan portfolio guaranteed by ACGF\. The specific reporting templates will be further agreed and defined in the IPA between MOF and ACGF and Matching Grants Operations Manual\. C\. Sustainability 85\. The proposed institutional, regulatory and financial stability reforms are critical for sustainable operations of the financial sector which is essential for the functioning the economy, in particular in the context of challenges posed by COVID-19\. The project-envisaged critical upgrades in DAB’s IT infrastructure will increase its operational and oversight efficiency while reform of the regulatory framework and strengthening of supervisory arrangements will facilitate better oversight and therefore mitigate financial sector risks\. Establishment of the deposit insurance framework, including provisions for setting deposit insurance coverage commensurate with DIF’s capital, and capacity building of ADIC will serve as additional buffer for financial system stability\. Additional capital provided by the project to DIF will complement banks regular contributions, thus strengthening the fund and making it more financially sustainable and resilient to shocks\. All of the proposed reforms are essential and structural in nature\. 86\. ACGF has been designed to provide sustainable partial credit guarantees in alignment with market conditions and will administer matching grants program in line with the objective program criteria\. This is reflected in the pricing of the partial credit guarantees (ensuring risk sharing with banks which are still required to take risk on MSME loans) comprising entry fee and risk adjusted fees which reward better performing financial institutions and mitigate risks associated with moral hazard\. The PFIs are in turn free to price their services autonomously ensuring full financial sustainability\. The cases that could warrant departure from market pricing could include temporary interventions deemed essential and aimed at providing relief to PFIs and MSMEs in response to COVID-19\. Such measures - e\.g\. in form of reduced risk adjusted fees and reprogramming of MSME loans - would be targeted and temporary in nature and undertaken in order to ensure the sustainability of MSMEs, PFIs and ACGF in response to COVID-19 crisis\. Finally, matching grants will be provided to SMEs on the basis of objective eligibility and selection criteria ensuring sustainability of beneficiary SMEs\. 27  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) IV\. PROJECT APPRAISAL SUMMARY A\. Technical, Economic and Financial Analysis 87\. This project is expected to strengthen the capacity of DAB to maintain financial stability while complementing market interventions (i\.e\. credit guarantees and matching grants) will improve access to finance for MSMEs; successful project implementation is therefore expected to lead to substantial economic benefits\. Financial stability, including deposit insurance, and access to finance for the underserved MSMEs, including women owned/operated businesses, are critical for mobilizing investment leading to economic development\. The project activities directly contribute to promoting a stable financial system through investments in public sector capacity building and activities that directly address market failures and supply-side constraints with additionalities related to inclusion of underserved market segments\. 88\. The project will support key financial stability reforms which are a prerequisite for effective financial intermediation and economic development\. DAB’s improved capacity and reliable IT infrastructure will strengthen its operational capacity\. Support with the strengthening of financial infrastructure, regulatory and supervisory functions and the ability to provide a more effective oversight can strengthen financial stability and promote financial intermediation\. Specifically, development of bank resolution and crisis management frameworks will prepare DAB to mitigate the risks associated with financial instability and crisis\. Investments in a well governed and effective deposit insurance scheme helps build trust in the banking system protecting vulnerable deposit holders by safeguarding their insured deposits\. This confidence can stimulate higher domestic savings channeled through the banking system that could then be allocated to productive purposes\. 89\. Quantitative economic analysis is limited to Component 1: Strengthening Credit Guarantee Fund and Component 2: SME Matching Grants Program\. This is in light of the fact that other project interventions focus on regulatory and capacity building reforms which cannot be reliably quantified\. Quantitative Economic Analysis for Component 1: Strengthening Credit Guarantee Fund 90\. The project’s market intervention will support financial institutions (i\.e\. banks, microfinance institutions) with tailored technical assistance and partial credit guarantees which will facilitate expansion of their outreach to underserved MSMEs, including women-led enterprises and other excluded market segments\. MSMEs, including women-led enterprises, are particularly underserved by the financial sector\. MSMEs have generally been excluded from formal banking mainly due to banks’ limited appetite to serve this segment which is considered risky and costly\. This has a negative impact on MSMEs investments, competitiveness and ultimately job creation\. The proposed project directly addresses these market failures and supply-side constraints through a combination of innovative financing instruments and technical assistance to financial institutions\. Public funding for the credit guarantee fund will be leveraged multiple times and will mobilize private capital for investments\. Through a demonstration effect highlighting the prospects of financing MSMEs, including women-led businesses, that have currently low access to finance and addressing the issues of limited collateral and market information, the project will contribute to enhanced access to finance, promote investments and ultimately contribute to job creation and poverty reduction\. 28 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 91\. There is a clear rationale for the project investment in ACGF\. The project is investing a total of US$20 million, of which US$15 million as capital contribution to credit guarantee fund and US$5 million of complementing technical assistance over a five-year period\. This investment will support continued operations of ACGF which provides partial credit guarantees to PFIs for MSME lending, thereby improving access to finance for MSMEs and enabling them to ensure business continuity in response to COVID-19 and/or to expand their operations\. In addition, the percentage of guaranteed MSME loans to women entrepreneurs is expected to increase from the baseline of 1 percent to 4 percent by the end of the project\. 92\. There is growing evidence about the positive impact of credit guarantees on access to finance for underserved segments of the economy\. In Afghanistan, as is the case in many other developing economies, banks are hesitant to lend to smaller firms because they are perceived as riskier for a variety of reasons such as insufficient collateral and/or limited credit information\. Hence, enabling the credit guarantee fund to provide partial credit guarantees to PFIs for MSME loans can have a positive impact on the economy by increasing banks’ risk appetite to expand their outreach to smaller firms in a sustainable way\. This will in turn positively affect the operations and outcomes of the firms able to access the needed funds\. 93\. In the economic analysis of this component, the internal rate of return (IRR) is expected to be 35 percent\. The net present value (NPV) is expected to be about US$8\.07 million, with a discount rate of 12 percent36\. The high IRR indicates the profitability of the investment in this component\. The positive value indicates that the returns on investment for this sub-component exceed the returns that could otherwise be earned without project’s financial support\. The project investment is expected to facilitate a total of US$154\.4 million in lending to MSMEs by year five\. This project will therefore facilitate increase in access to finance for underserved MSMEs in Afghanistan with the following breakdown of expected outreach as follows: i) 2\.3 percent to micro firms; ii) 82\.4 percent to small firms; and iii) 15\.3 percent to medium firms\. 94\. The main impact of the project is expanded access to loans for MSMEs\. The economic analysis assumes at least 25 percent of loan value will translate into a specific economic benefit for the beneficiary MSMEs (e\.g\. ensuring business continuity in times of crisis, facilitating investment)\. The following tables show the data and assumptions used for the economic analysis for the project\. Economic Analysis NPV Discount rate of 12% (in US$) 8,071,589\.30 IRR 0\.35 Credit Guarantee Facility Assumptions Year 2020 2021 2022 2023 2024 2025 Number of loans (Cumulative) 89 375 928 1,663 2,565 3,557 Volume of MSME loans facilitated by ACGF 5\.03 19\.61 46\.94 79\.82 115\.41 154\.54 in US$ millions (Cumulative) 36 The World Bank has not traditionally calculated a discount rate and has used 10-12 percent as a notional figure for evaluating World Bank-financed projects\. 29 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Percentage of MSME loans extended to 1% 2% 3% 4% 4% 4% women owned/managed MSMEs Net loss Ratio 3\.50% 2\.50% 2\.50% 2% 2% 2% Percentage of beneficiaries (estimated over project Cumulative Definition Loan Size period) Percentage micro 2\.3% < AFN 500k Percentage small 82\.4% AFN 500k - AFN 5m Percentage medium 15\.3% > AFN 5m 95\. Sensitivity analysis includes three scenarios assuming a reduction in targeted volume of loans facilitated under the project\. Under the first scenario where 95 percent of the projected volume of loans materializes, the IRR will be 29 percent\. The second scenario assumes that 90 percent of the projected volume of loans would materialize resulting in IRR of 22 percent\. Finally, under the third scenario with achievement of 85 percent of projected loan volume the IRR will be 16 percent\. In all these scenarios the project will still have an IRR above the discounted rate of 12 percent\. The results of the sensitivity analysis are included in the table below\. Sensitivity Analysis with Different Scenarios 1\. Reduction in targeted volume of loans to 95 percent → Reduces IRR to 29% 2\. Reduction in targeted volume of loans to 90 percent → Reduces IRR to 22% 3\. Reduction in targeted volume of loans to 85 percent → Reduces IRR to 16% Quantitative Economic Analysis for Component 2: SME Matching Grants Program 96\. A conventional methodology is used for conducting cost-benefit economic and financial analysis by estimating future costs and benefits and deriving net benefits to calculate the NPV and the IRR\. The analysis concludes that at a discount rate of 12 percent in the base case, the NPV is US$2\.92 million and IRR is 17 percent\. 97\. Five sensitivity analyses were conducted by changing the values of critical assumptions\. The first scenario assumes delayed incremental revenue benefits on account of COVID-19 and security challenges where the NPV and IRR change to negative (US$0\.17 million) and 12 percent\. The second scenario assumes slow disbursement of matching grant funds based on lower-than-expected market response where NPV and IRR change to US$2\.14 million and 14 percent\. The third scenario assumes an increase in the discount rate from 12 percent to 20 percent where NPV changes to negative (US$1\.63 million) and IRR remains at 17 percent\. The fourth scenario assumes a decrease in the discount rate from 12 percent to 8 percent where the NPV changes to US$6\.18 million and IRR remains at 17 percent\. The fifth (“extreme low case”) scenario assumes the grants are slightly delayed while the incremental revenue benefits are delayed and remain incomplete over five years on account of enhanced COVID-19 and security challenges where the NPV drops to negative (US$11\.37 million) and IRR falls to negative (-3) percent\. NPV (US$ mil) IRR (%) Base case with discount rate of 12% 2\.92 17% Delayed revenue benefits (0\.17) 12% 30  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Slow disbursement 2\.14 14% Increase in discount rate to 20% (1\.63) 17% Decrease in discount rate to 8% 6\.18 17% Delayed and incomplete revenue benefits (11\.37) (3%) 98\. Significant economic benefits are expected from the matching grants program\. The program is expected to enable SMEs to enhance productivity and resilience during and immediately after the COVID- 19 crisis, increase their access to formal credit, maintain existing jobs and (over time) create new jobs, and maintain and (over time) increase sales revenues\. The cost-sharing modality of matching grants (relative to full grants) permits outreach to a larger number of SMEs and enhanced sustainability\. Public sector financing to achieve these benefits and support vulnerable Afghan private firms in the context of the COVID-19 economic crisis is considered to be justified and the World Bank’s involvement is deemed to offer material value\. The results of the economic analysis show the program is technically and financially sound\. B\. Fiduciary Procurement 99\. The Procurement risk is assessed as ‘High’\. Procurement for the project will be carried out in accordance with the World Bank’s Procurement Regulations for Investment Project Financing (IPF) Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016 (revised in November 2017 and August 2018)\. The only exceptions are Components 1 and 2 which include credit guarantees, matching grants and related technical assistance and rely on ACGF as the implementing partner of the Ministry of Finance mirroring the same arrangement under the ongoing Access to Finance Project funded by the World Bank\. 100\. FSSPD, as the implementing directorate in DAB, will have delegated authority to carry out procurement up to US$100,000 for Goods, Works, Non-Consulting Services and Consulting Services under the World Bank Procurement Regulations\. National Shopping method will be used for procurement of Goods, Works, Non-Consulting Services and Consultant Qualification Based Selection (CQS) method will be used for procurement of consulting services\. FSSPD will also have delegated authority to use Direct Contracting up to US$100,000 subject to meeting all requirements of the World Bank Procurement Regulations\. 101\. All procurement under the project above US$100,000 will be undertaken by the dedicated unit for undertaking and facilitating procurement under Asian Development Bank/World Bank projects in the National Procurement Authority (NPA)\. Memorandum of Understanding (MOU) between NPA and DAB will govern the standard operating procedures including requisitioning procurement, NPA access to Systematic Tracking of Exchanges in Procurement (STEP) system, roles and responsibilities of DAB and NPA for defining specifications/terms of reference; participation in shortlisting/pre-qualification; conducting technical and commercial evaluation, and so forth\. 102\. To operationalize this arrangement, there is a need for DAB and NPA to mutually agree on the administration and decision management matrix for procurement management through an MOU\. The MOU will clearly define the procurement process management role of NPA\. It will also clarify the technical 31 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) leadership role of DAB in development of terms of reference/specifications, setting shortlisting and technical evaluation criteria, participation in evaluation committees, and the need for clearance of evaluation reports by DAB Management before NPA seeks its internal approvals\. MoU will also detail responsibilities of DAB and NPA for joint presentation of cases to National Procurement Commission (NPC)37\. It will also specify service-level standards (including timelines) for all stakeholders involved in the process\. In order to provide adequately support the two World Bank-funded projects at DAB (i\.e\. SAFI and PAISA), a dedicated procurement specialist funded by the project will be identified/hired by NPA\. 103\. The proposed arrangement will be provisional and the full procurement management responsibilities will be returned to DAB upon verification of specific technical criteria\. These include the following confirmations: i) DAB’s Procurement Department is fully staffed; ii) all procurement staff are trained and certified by National Procurement Institute to the three levels (i\.e\. basic, intermediate and advanced) as required under the Afghanistan Procurement Cadre regulations; and iii) DAB as an institution obtains full procurement accreditation from NPC after due technical assessment\. Upon completion of inter-governmental accreditation process, the World Bank will conduct a new assessment of DAB’s procurement capacity to confirm full delegation of procurement responsibility to DAB\. 104\. Based on the review of implementation progress within one year of project effectiveness a decision will be made to either retain the above described procurement arrangements or explore and establish an alternative approach\. 105\. As part of project preparation, a draft Project Procurement Strategy for Development (PPSD), including the initial procurement plan, was developed by FSSPD with the support from the World Bank\. The PPSD will guide the procurement implementation and would be subject to revisions in case of major changes or project restructuring\. For additional details about procurement arrangements see Annex 1\. Financial Management 106\. MOF will have the financial management responsibility for Components 1 and 2 (beyond the responsibilities of ACGF under the IPA) and FSSPD at DAB will have the financial management responsibility for Components 3, 4, 5 and 6\. Government budgeting processes will apply, and the project’s budget will be part of the Government’s annual budget\. The accounting records will be maintained at the central level by the MOF in AFMIS based on M16s, and FSSPD will maintain detailed subsidiary records\. The Financial Management Manual (FMM) issued by MOF provides a comprehensive internal control framework and will be applicable to the project\. The internal audit will be conducted by the Internal Audit Departments of MOF and DAB on annual basis, and the reports will be submitted to the World Bank within four months of the close of the financial year\. The project’s financial statements will be prepared in accordance with cash-basis International Public-Sector Accounting Standards (IPSAS) and audited by the Supreme Audit Office (SAO) in accordance with the terms of reference agreed with the World Bank\. The audited financial statements will be submitted to the World Bank within nine months of the close of the 37As regards joint presentation of cases to NPC, the current procedure requires NPA’s procurement commentary along with the submission of documents to NPC\. The possibility of assigning DAB with sole responsibility for presentation of procurement cases to NPC will be explored in the context of finalization of the MOU subject to agreement between DAB and NPA\. 32  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) financial year\. The accounting, reporting, and external audit requirements for the activities implemented by ACGF will be detailed in the implementing partner agreement between MOF and ACGF\. 107\. Disbursement will be based on Statement of Expenditures (SOE)\. The project funds will flow through two segregated designated accounts (one each for MOF and DAB) to be set up in Da Afghanistan Bank and controlled by MOF\. Both MOF and DAB will request an initial advance that will be deposited into the project’s designated accounts (DA)\. Subsequently, the DA will be replenished on a quarterly basis for which the project will submit withdrawal applications after the review of SOEs by the Third-Party Monitoring Agent of the World Bank\. The ceiling of the designated accounts will be determined and spelled out in the project’s disbursement letter\. The project will also be required to submit semi-annual interim unaudited financial reports (IUFRs) throughout the project life\. The IUFRs will be submitted to the Bank within 45 days after the end of each semester\. For additional details about financial management arrangements see Annex 1\. \.C\. Legal Operational Policies \. Triggered? Projects on International Waterways OP 7\.50 No Projects in Disputed Areas OP 7\.60 No \. D\. Environmental and Social Environmental and Social Risk Management 108\. The project will be governed by the World Bank’s Environmental and Social Framework (ESF)\. 109\. The ESF’s Environmental and Social Standard 9 (ESS9) governing financial intermediary financing applies to the project along with relevant provisions of ESS1 (Assessment and Management of Environmental and Social Risks and Impacts) and ESS10 (Stakeholder Engagement and Information Disclosure)\. The project funds will be used to capitalize ACGF as a second-tier financial intermediary (without direct engagement to MSMEs) to enable it to provide guarantees to PFIs (i\.e\. commercial banks, microfinance institutions) which will enable them to use their own funds for lending to MSMEs\. ACGF’s currently works with the following four PFIs: Afghanistan International Bank, First Microfinance Bank – Afghanistan, OXUS Afghanistan Ltd\., and Ghazanfar Bank\. Two additional PFIs are under consideration subject to their compliance with technical and E&S criteria\. ACGF will also provide technical assistance to PFIs related to technical aspects of MSME lending as well as E&S risk management\. The ACGF will have an overall responsibility to ensure that all the PFIs properly manage environmental and social risks and impacts of the SMEs activities (i\.e\. through handholding, trainings, sharing guidelines, checklists, monitoring, reporting etc\.)\. 110\. The PFIs’ (i\.e\. banks, microfinance institutions) lending – partially guaranteed by ACGF - will exclusively focus on MSME borrowers (final beneficiaries) including activities with limited environmental and social risk based on experience to date\. MSME loans guaranteed by ACGF include both working capital and investment loans for expansion of existing businesses or start-ups ranging from 33 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) US$1 thousand to US$1 million with a maximum tenor of five years for demand driven sub-projects including trade, services and manufacturing activities that are compliant with the E&S risk management policy and procedures\. ACGF has a well-defined categorization process for a diverse set of activities within trade, services, and manufacturing sectors\. Eligible MSMEs are defined as private sector entities that meet two of the following criteria: i) up to 500 employees; ii) annual turnover of up to US$15 million; and iii) total assets of up to US$15 million\. 111\. ESS9 includes requirements for both ACGF and PFIs to have in place environmental and social management system (ESMS)\. As per the requirements of ESS9 ACGF has established an ESMS, informed with other ESF Standards such as ESS2 for Labor management, and preparing Stakeholder Engagement Plan as per the ESS10\. The project will ensure that ACGF’s existing ESMS – including requirements for PFIs’ ESMS – is fully compliant with ESF and include policy, procedures, organizational capacity monitoring and reporting, stakeholder engagement and environmental and social commitment plan\. ACGF already has an established grievance mechanism allowing the final beneficiaries to lodge complaints with PFIs which if serious in nature or unresolved at PFI level are addressed by ACGF\. Environmental and Social Commitment Plan (ESCP) has been drafted, including provisions for stakeholder engagement\. 112\. As activities by MSME loan recipients guaranteed by ACGF may have some E&S risks, the contractual agreement between ACGF and the PFIs will include specific E&S provisions to ensure appropriate E&S risk management of the guaranteed sub-loan portfolio\. ACGF will periodically review and update relevant documents and procedures to ensure ongoing compliance with ESF\. This could include updating of guidelines, checklists, manuals and handbooks as needed, evaluating and enhancing capacity of human resources of its own organization and PFIs, ensuring that the PFI loan officers are trained and have the screening tools to review and approve MSMEs proposals, monitor and report on environmental and social risks affecting the portfolio (e\.g\. management of environmental pollution and waste management, hygiene and sanitation, occupational health and safety) and that MSMEs are able to comply with E&S contractual requirements\. The project is also expected to have some positive environmental and social impacts as it will help strengthen the managerial and regulation enforcement capacity of the relevant PFIs and MSMEs\. These activities are also expected to alleviate the economic impacts of COVID-19 pandemic by facilitating MSMEs’ access to finance\. 113\. The SME matching grants program will provide capital directly to eligible SMEs and will be administered by ACGF\. As a result, it will rely on similar E&S risk management system as applicable to the activities described above\. The key difference is that ACGF will be directly responsible for managing E&S risks under the matching grants program, as opposed to relying on intermediaries (i\.e\. financial institutions) and the existence of matching grants program will be known to beneficiary SMEs; however, the program will be clearly branded as a Government program and not under the ACGF’s name\. As the matching grants are initially proposed to be capped to a maximum of US$50,000, the maximum SME sub- project value may not exceed US$100,000, thus limiting the scope of activities\. Two categories of SME costs will be supported under the program which are expected to have limited E&S risks and impacts: i) fixed capital costs (e\.g\., investments in capital equipment and machinery that would help enhance the SME’s operational sustainability and growth); and ii) working capital costs (e\.g\., retooling production lines, digitization of sales or customer service processes or other innovation or technology adoption activities for COVID-19 adaptation)\. The ACGF’s ESMS will be amended to include explicit provisions for administration of matching grants including compliance with national laws and regulations, exclusion list, and categorization of E&S risk and required monitoring and reporting arrangements\. The ACGF’s existing 34 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) grievance resolution system will be utilized to process any grievances\. ESCP also includes sections on matching grants program\. 114\. In case the CERC is activated, a CERC Operations Manual will be prepared during project implementation to govern the operation of the component\. This document will be aligned with the ESMS at the time of preparation and include provisions to ensure environmental and social due diligence in line with the requirements of the ESF\. Citizen Engagement 115\. The project will include a feedback loop for beneficiary MSMEs through a survey of MSME beneficiaries that received loans from PFIs (guaranteed by ACGF) and matching grants by the project as an appropriate proxy for citizen engagement\. The project activities that will indirectly interface with beneficiaries outside of the government and where citizen engagement is feasible are the credit guarantee and matching grants components\. These components will be implemented by the ACGF which will in provide guarantees to 4-6 financial institutions (banks, MFIs) for loans to MSMEs and administer matching grants for eligible MSMEs\. Crucial technical aspect of the guarantee business is that the partial guarantee must remain unknown to MSME beneficiaries to avoid moral hazard, while in the case of matching grants compliance with objective eligibility and selection criteria\. Further, one of the key objectives of this activity is commercial sustainability meaning that financial institutions must be able to take independent commercial decision when it comes to granting loans, and unlike traditional World Bank projects, the MSME beneficiaries will be willingly engaging in commercial contracts with financial institutions\. Similarly, matching grants will be administered on a competitive basis in line with clearly defined selection and eligibility criteria to ensure transparency and commercial viability\. Therefore, it is not technically feasible to solicit the beneficiary views about the terms of the bank contracts which are commercial in nature or related to selection and eligibility criteria for accessing matching grants\. The project will therefore develop a survey questionnaire designed to be disseminated to MSME beneficiaries, including women owned/operated businesses, and will assess overall experience with financial services as part of planned project evaluation expected by mid-term\. 116\. It is important to note that the current services of ACGF had already been informed with the findings of a similar survey carried out in 2018\. The external evaluation, amongst other, carried out interviews with 380 MSMEs who had benefited from loans guaranteed by ACGF\. 50 percent of the respondents confirmed that they would not have been able to find other sources of finance to replace the loan\. 69 percent were first-time external finance borrowers (other than family and friends)\. 91 percent of the respondents stated that the loan had positively impacted their business in terms of revenue growth (3 percent provided a negative answer) and 85 percent indicated that the loan had positively affected their personal life through increased personal income (5 percent provided a negative answer)\. The external evaluators did not report any complaints or grievances addressed by the interviewed borrowers\. Gender 117\. As indicated earlier, women-owned MSMEs are particularly underserved with mere two percent of current MSME financing extended to these enterprises and there is lack of regular and reliable gender disaggregated data in financial sector\. In light of the constraints affecting women entrepreneurs, the project will include specific market and policy interventions to facilitate progress with 35  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) access to finance for women entrepreneurs\. Specific market interventions will include: i) technical assistance aimed at building capacity of PFIs to expand outreach to women in a sustainable way; ii) partial credit guarantees to PFIs aimed at facilitating lending to women entrepreneurs; and iii) gender disaggregated reporting on relevant metrics for MSME loans, including a dedicated indicator in the results framework and ensuring inclusion of women owned/operated MSMEs in the planned survey of MSMEs; and iv) matching grants for SMEs, which will attempt to identify eligible women owned/managed business\. The project interventions are expected to facilitate increase in the percentage of MSME loans to women entrepreneurs facilitated with ACGF guarantees is expected to increase from the baseline of 1 percent to 4 percent by the end of the project as well as better information on the women owned/operated businesses\. Under the matching grants program it is expected that at least 5 percent of matching grants will be provided to women owned/managed SMEs\. While these numbers may appear low, they reflect the reality of the Afghan market given the available statistics about the low proportion of women-owned SMEs in Afghanistan\.38 Policy interventions will include support to DAB to design and administer financial sector reporting requirements aimed at collecting better information regarding financial services to women, including related to insured deposits\. 118\. Based on the nature of project activities, the project cannot be assigned Climate Co-Benefits\. As part of the Climate Change Group’s (CCG) pipeline assessment process, designed to provide feedback on Climate Co-Benefits to Task Teams at project design stage, the CCG Climate Co-Benefits Assessment team has conducted required assessment concluding the project cannot be assigned climate Co-Benefits\. V\. GRIEVANCE REDRESS SERVICES 119\. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS)\. The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns\. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures\. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond\. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www\.worldbank\.org/en/projects-operations/products-and-services/grievance-redress-service\. For information on how to submit complaints to the World Bank Inspection Panel, please visit www\.inspectionpanel\.org VI\. KEY RISKS 120\. The overall risk rating for SAFI Project is substantial, reflecting the substantial risk environment\. The key risks are explained below\. 121\. The high political and governance risk is inherent to Afghanistan due to the insecurity and political uncertainty and beyond project’s direct control\. High risk in these areas has the potential to 38 The ANMDP matching grant target for women-owned SMEs was also 5 percent\. 36 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) negatively impact both the capacity building activities as well as the degree to which loans and grants are demanded in the market and can be successfully administered, thus affecting implementation across the board\. Afghanistan is a country in conflict with improving, but still extremely fragile, state and civil society institutions\. Final results of September 2019 Presidential elections were announced only in February 2020\. Negotiations between the US and the Taliban have concluded on February 29, 2020, but the process of a political settlement is only beginning\. Meanwhile, current international support pledges are due to expire in 2020, creating uncertainty regarding the sustainability of security and development expenditures\. Security situation remains fragile with ongoing conflict and is exacerbated with COVID-19 pandemic\. The latter is another event that could further exacerbate the fragility of Afghanistan and additional support with monitoring will need to be ensured\. In this regard, the project will learn from other World Bank COVID-19 specific projects in Afghanistan\. The mitigation measures at project level include implementation arrangements relying on private sector management (i\.e\. through ACGF for Components 1 and 2) and partnership with DAB which is a technical institution, thus alleviating a portion of inherent risks\. However, the residual risk remains high\. 122\. High macroeconomic risks are exacerbated with the impact of the ongoing COVID-19 pandemic and beyond project’s direct control\. Due to the impacts of COVID-19, GDP is expected to contract by at least 5\.5 percent in 2020\. Macroeconomic risks are further exacerbated by weaknesses in the financial sector including potential fiscal risks arising from state-owned banks\. While the high macroeconomic risks could negatively impact overall project implementation depending on the degree of instability, the project activities are specifically designed to address the impact of macroeconomic fragility and the anticipated recession and thus reducing some of the inherent risks\. This includes both firm level interventions (with provision of loans and grants aimed at absorbing the economic shock) as well as regulatory level interventions through strengthening of the institutional capacity to respond to associated shocks such as the financial sector fragility\. Nevertheless, the residual risk remains high\. 123\. The risks associated with sectoral strategies and policies are high and stem from the number of stakeholders and complexity of reforms\. One of the core areas of support related to ensuring financial sector stability, which in the Afghanistan context primarily relates to banking sector stability\. This risk is in part mitigated with partnership with DAB which has a technical mandate for financial sector reforms\. However, some of the reforms may require involvement of additional institutional stakeholders (e\.g\. Parliament), as is the case with enactment of law on deposit insurance which is an essential prerequisite for the implementation of deposit insurance reforms envisaged under Component 3\. To mitigate this risks, the team will engage early on with DAB and ADIC to commence the required technical work to facilitate enactment of the law by the end of 2022 which is the current operational target; progress to this end will be monitored during regular implementation support missions and in case of unsatisfactory progress proactive actions will be considered (e\.g\. through project restructuring)\. In addition, close coordination with policy-based lending projects and programs will be considered as part of the mitigation strategy for all policy reforms under the project, with similar considerations for project restructuring in the case of unsatisfactory progress\. Administration of credit guarantees is managed by ACGF which has a strong track record under the ongoing Access to Finance Project which mitigates some of the risks in this area\. Finally, the World Bank’s task team will provide continues technical guidance and implementation support\. However, despite the stated mitigation measures, the residual risk associated with sectoral strategies and policies remains high\. 124\. Technical risks associated with the administration of matching grants are substantial\. Potential 37 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) risks of matching grants include: i) “double dipping” by SMEs to access multiple financing sources for the same activities; ii) moral hazard which might involve activities such as theft, fraud, rapid resale of grant- financed capital equipment, or even firms making riskier choices than if they were investing their own money; iii) inflated proposal prices; and iv) non-transparency related to selection and “matching” contributions\. Mitigation measures for these risks will be described in the Matching Grants Operations Manual and could include, inter alia, public disclosure of beneficiary SMEs; project registry of assets purchased;39 prohibiting more than one grant from the program to a beneficiary SME and its affiliates by ownership; provision of grant cancellation and claim against assets in case of moral hazard; making specific assets, equipment, and cost categories ineligible; making payments to SMEs on reimbursement basis and directly into their bank accounts; incorporating market-based cost estimation of proposals during evaluation; and adopting clear and transparent eligibility criteria and evaluation process\. Monitoring and verification efforts will also pay attention to the extent to which the matching grants were used for the intended purpose laid out in the proposal\.40 Risks from security issues have been accounted for in the design of this project\. Pandemic risks such as new lockdowns and resulting international trade and supply chain disruptions will have to be continuously monitored and the program may be adjusted accordingly\. Implementation of the outlined mitigation measures will reduce the residual risk to moderate\. 125\. Fiduciary risks are substantial due to DAB’s limited capacity for procurement and contract management\. As a result the project will include mitigation measures through novel procurement arrangements including dual authority between FSSPD and NPA to administer procurement activities below and above US$100,000 threshold respectively\. The proposed arrangement will be provisional and the full procurement management responsibilities will be returned to DAB upon verification of specific technical criteria as elaborated in the section on procurement above (see also Annex 1)\. Based on the review of implementation progress within one year of project effectiveness a decision will be made to either retain the described procurement arrangements or explore and establish an alternative approach\. Also, disbursement arrangements will be based on statement of expenditure\. The withdrawal applications will be submitted after the review of SOEs by the Third-Party Monitoring Agent of the World Bank\. The World Bank’s task team will provide regular technical and fiduciary guidance and implementation support\. However, despite these mitigation measures the residual risk remains substantial\. \. 39Registry of assets are for information purposes related to fraud risk and would not constitute a lien\. 40 Remedial actions will be described in the Matching Grants Operations Manual and could, inter alia, include public disclosure of SME, grant cancellation and claim against the asset followed by collection efforts by the ACGF\. 38  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) VII\. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Afghanistan Strengthening Afghanistan’s Financial Intermediation Project Development Objectives(s) The project development objective (PDO) is to strengthen institutional capacity for financial stability and to enhance access to finance for micro, small and medium enterprises\. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Strengthen institutional capacity for financial stability and to enhance access to finance for MSMEs Bank resolution and crisis management framework No No No Yes Yes Yes established (Yes/No) Legal and Regulatory Framework for Deposit No No No Yes Yes Yes Insurance Scheme established (Yes/No) Volume of MSME loans facilitated by ACGF (Millions) 5\.03 19\.61 46\.94 79\.82 115\.41 154\.54 (Amount(USD)) Private capital mobilized through SME matching grants 0\.00 6\.00 16\.00 29\.50 29\.50 29\.50 (Millions) (Amount(USD)) PDO Table SPACE 39  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Component 1: Strengthening Credit Guarantee Fund Number of MSME loans 89\.00 375\.00 928\.00 1,663\.00 2,565\.00 3,557\.00 facilitated by ACGF (Number) Of which to women owned/managed MSMEs 2\.00 8\.00 28\.00 67\.00 103\.00 142\.00 (Number) Number of PFIs in ACGF 4\.00 6\.00 7\.00 8\.00 8\.00 8\.00 portfolio (Number) Number of PFIs that have received TA and reviewed their policies, products and/or 2\.00 4\.00 5\.00 6\.00 8\.00 8\.00 processes to improve access to finance (Number) MSME Portfolio Quality (Percentage) 15\.00 10\.00 8\.00 6\.00 4\.50 4\.50 SME Matching Grants Program Number of SMEs supported with matching grants (Number) 0\.00 300\.00 700\.00 1,000\.00 1,000\.00 1,000\.00 Of which women owned/operated SMEs 0\.00 15\.00 35\.00 50\.00 50\.00 50\.00 (Number) Of which SMEs that received a bank loan 0\.00 30\.00 70\.00 100\.00 100\.00 100\.00 (Number) Report on survey of MSME borrowers and matching grant No No No No Yes Yes recipients prepared and disclosed (Yes/No) Strengthening Deposit Insurance 40  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 DIF Minimum Coverage Ratio (Percentage) 12\.00 12\.00 12\.00 12\.00 10\.00 12\.00 Enhancing DAB's IT Infrastructure Core Banking System Modernized (Yes/No) No No Yes Yes Yes Yes Core credit infrastructure No No No Yes Yes Yes modernized (Yes/No) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Achievement of this indicator will be assessed by the World Bank’s technical Bank resolution and crisis management team in consultation with framework established relevant development partners based on established international good practices in this area\. Achievement of this indicator will be assessed by Legal and Regulatory Framework for the World Bank’s technical Deposit Insurance Scheme established team in cooperation with other relevant partners based on established 41  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) international good practices in this area (e\.g\. alignment with International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance Systems)\. This indicator monitors the total volume of newly Volume of MSME loans facilitated by disbursed loans guaranteed Quarterly ACGF, PFIs ACGF ACGF (Millions) by ACGF from the beginning of the project on cumulative basis\. This indicator monitors the beneficiary SMEs' matching ACGF Private capital mobilized through SME Quarterly ACGF contributions under the Database matching grants (Millions) matching grants program\. All targets are cumulative\. ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection This indicator monitors the total number of newly Number of MSME loans facilitated by disbursed loans guaranteed Quarterly ACGF, PFIs ACGF ACGF by ACGF from the beginning of the project on cumulative basis\. Of which to women owned/managed This indicator monitors the Quarterly ACGF, PFIs ACGF MSMEs total number of newly 42  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) disbursed loans to women owned/operated MSMEs guaranteed by ACGF from the beginning of the project on cumulative basis\. This indicator monitors the number of PFIs with MSME Quarterly ACGF ACGF Number of PFIs in ACGF portfolio loans guaranteed by ACGF\. All targets are cumulative\. This indicator monitors the number of PFIs that have received technical assistance from ACGF Number of PFIs that have received TA and towards strengthening their Quarterly ACGF, PFIs ACGF reviewed their policies, products and/or MSME lending and processes to improve access to finance introduced agreed changes (e\.g\. procedural, operational), as assessed and confirmed by ACGF\. All targets are cumulative\. This indicator monitors portfolio quality of MSME loans guaranteed by ACGF\. The monitoring indicator is ACGF, PFIs ACGF MSME Portfolio Quality portfolio-at-risk at 30 days (PAR 30) calculated as annual average of monthly PAR>30 days of outstanding guaranteed loan portfolio\. This indicator monitors the Number of SMEs supported with Quarterly ACGF ACGF number of beneficiary SMEs matching grants that have received project 43  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) funds under the matching grants program\. All targets are cumulative\. This indicator monitors the number of women owned/operated SMEs Of which women owned/operated Quarterly ACGF ACGF which received project SMEs funds under the matching grants program\. All targets are cumulative\. This indicator monitors the number of beneficiary SMEs which have received a bank Of which SMEs that received a bank Quarterly ACGF ACGF loan in addition to receiving loan a matching grant under the project\. All targets are cumulative\. This indicator monitors preparation and disclosure of a report summarizing the findings of a survey of Report on survey of MSME borrowers and MSME beneficiaries under One-time Survey ACGF matching grant recipients prepared and the project (i\.e\. SMEs which disclosed received matching grants and MSMEs which received loans guaranteed by ACGF)\. ACGF will be responsible for preparing the report\. This indicator monitors the minimum coverage ratio of Quarterly ADIC ADIC DIF Minimum Coverage Ratio the Deposit Insurance Fund (DIF) calculated as: DIF / 44  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) total insured deposits\. This indicator monitors the upgrade of DAB's Core Banking System\. This indicator will be considered DAB DAB Core Banking System Modernized achieved following the procurement and installation of the required IT system at DAB\. This indicator monitors the IT modernization of the Collateral Registry (CR) and Public Credit Registry (PCR) at DAB\. The indicator will be DAB Core credit infrastructure modernized considered achieved following procurement and installation/upgrade of the required IT systems at CR and PCR\. ME IO Table SPACE 45  The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) VIII\. INDICATIVE TERMS AND CONDITIONS FOR THE GUARANTEE (When Applicable) Not applicable 46 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Afghanistan Strengthening Afghanistan’s Financial Intermediation Implementation and Institutional Arrangements 1\. The Ministry of Finance will be the implementing agency for Components 1 and 2 and ACGF will be the implementing partner for these two components\. DAB will be the implementing agency for Components 3, 4, 5 and 6\. The project will be governed with the following agreements: i) Financing Agreement between the World Bank and MOF; ii) Project Agreement between World Bank and DAB; and iii) Subsidiary Agreement between MOF and DAB\. Implementation of Components 1 and 2 will be governed by an Implementing Partner Agreement (IPA) between MOF and ACGF\. Implementation of Components 3-6 will be governed with the Project Agreement and Subsidiary Agreement\. Responsibility for implementation of Component 7 will be determined in case of a relevant crisis event that affects financial sector\. Figure 1: ACGF Organizational Setup 2\. The FSSPD at DAB will have the operational responsibility for implementation of Components 3, 4, 5 and 6 in lieu of a standalone project implementation unit\. FSSPD acts as Project Implementation Unit for all World-Bank funded projects administered by DAB, including the ongoing PAISA project\. This component will fund relevant project management costs such as required consultants and operational expenses\. The project management functions include ensuring compliance with fiduciary requirements 47 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) such as procurement, financial management, audits, processing of withdrawal and disbursement requests, and reporting\. FSSPD will develop the Operations Manual governing implementation of components under its responsibility\. The FSSPD Director General is the Project Director for all World Bank Projects administered by DAB and will be supported by the Deputy Director General\. In addition, a Project Committee, chaired by the Governor, and including heads of DAB’s relevant technical departments will be established with a coordination and oversight mandate, with further details specified in the Operations Manual applicable to Components 3-6\. 3\. ACGF will be the implementing partner under Component 1: Strengthening Guarantee Fund and Component 2: SME Matching Grants Program governed by the IPA between MOF and ACGF, in alignment with the arrangements under the ongoing Access to Finance Project\. Advance payment to ACGF to capitalize credit guarantee fund, technical assistance (TA) and administration of matching grants is required\. Specifically, the capital for the issuance of partial guarantees needs to be provided in advance by design as it is a prior requirement for the issuance of guarantees\. Similarly, as ACGF is administering TA and matching grants on behalf of the government (as its implementing partner) it will need to access funding for the activities it is tasked to implement\. The World Bank will transfer the funds directly to ACGF in line with the IPA and Financing Agreement, including the Disbursement and Financial Information Letter\. The ACGF will use the funds to provide TA to PFIs and to provide guarantees to PFIs under Component 1 and to administer matching grants program under Component 2\. In light of critical need to ensure that approved matching grants are paid promptly to SMEs a revolving advance facility for payments of approved matching grants to SMEs (from MOF to ACGF) will be considered\. Detailed funds flow under Component 1 is included below\. Figure 2: Flow of funds Under Components 1 and 2 48 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Implementation Support Plan 4\. The World Bank task team will provide regular implementation support to MOF, FSSPD, ADIC and other technical departments within DAB as well as ACGF with regular technical and operational advice necessary to facilitate the achievement of the PDO\. Given the capacity constraints, in particular related to procurement, intensive support will be required from the outset, with the following envisaged activities: • the task team will work closely with all stakeholders to provide technical, procurement, financial management, environmental and social risk management, and administrative guidance ensuring compliance with World Bank requirements; • the task team will be complemented with specialized technical experience from other relevant practices both from the Country Office for Afghanistan and other World Bank offices as well as expert consultants to leverage comparative skills and provide regular support to the project on technical matters; • the task team will coordinate closely with other development partners including IFC, IMF, KfW Development Bank, US Treasury, UNODC, and relevant bilateral donors to ensure full complementarity of respective activities; • at least two formal implementation support missions per year throughout the project implementation period with regular periodic engagement and ad hoc missions; • during implementation support missions, as a standard component of mission tasks, the Bank team will request information about any issues reported related to potential fraud and corruption and document these in mission documents; • MOF, FSSPD, ADIC and ACGF staff tasked with project implementation responsibility will be provided with relevant capacity support (as required) on World Bank operational processes and procedures, financial management, disbursement, and procurement guidelines, monitoring and evaluation, strategic communications, grievance redress, and project management\. Procurement 5\. The Procurement risk is assessed as ‘High’\. Procurement for the project will be carried out in accordance with the World Bank’s Procurement Regulations for Investment Project Financing (IPF) Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016 (revised in November 2017 and August 2018)\. The only exceptions are Components 1 and 2 which include credit guarantees, matching grants and related technical assistance and rely on ACGF as the implementing partner of the Ministry of Finance mirroring the same arrangement under the ongoing Access to Finance Project funded by the World Bank\. 6\. FSSPD, as the implementing directorate in DAB, will have delegated authority to carry out procurement up to US$100,000 for Goods, Works, Non-Consulting Services and Consulting Services under the World Bank Procurement Regulations\. National Shopping method will be used for procurement of Goods, Works, Non-Consulting Services and Consultant Qualification Based Selection (CQS) method will be used for procurement of consulting services\. FSSPD will also have delegated authority to use Direct Contracting up to US$100,000 subject to meeting all requirements of the World Bank Procurement Regulations\. 49 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 7\. All procurement under the project above US$100,000 will be undertaken by the dedicated unit for undertaking and facilitating procurement under Asian Development Bank/World Bank projects in the National Procurement Authority (NPA)\. Memorandum of Understanding (MOU) between NPA and DAB will govern the standard operating procedures including requisitioning procurement, NPA access to Systematic Tracking of Exchanges in Procurement (STEP) system, roles and responsibilities of DAB and NPA for defining specifications/terms of reference, participation in shortlisting/pre-qualification, conducting technical and commercial evaluation, and so forth\. 8\. To operationalize this arrangement, there is a need for DAB and NPA to mutually agree on the administration and decision management matrix for procurement management through an MOU\. The MOU will clearly define the procurement process management role of NPA\. It will also clarify the technical leadership role of DAB in development of terms of reference/specifications, setting shortlisting and technical evaluation criteria, participation in evaluation committees, and the need for clearance of evaluation reports by DAB Management before NPA seeks its internal approvals\. MoU will also detail responsibilities of DAB and NPA for joint presentation of cases to National Procurement Commission (NPC)41\. It will also specify service-level standards (including timelines) for all stakeholders involved in the process\. In order to provide adequately support the two World Bank-funded projects at DAB (i\.e\. SAFI and PAISA), a dedicated procurement specialist funded by the project will be identified/hired by NPA\. 9\. The proposed arrangement will be provisional and the full procurement management responsibilities will be returned to DAB upon verification of specific technical criteria\. These include the following confirmations: i) DAB’s Procurement Department is fully staffed; ii) all procurement staff are trained and certified by National Procurement Institute to the three levels (i\.e\. basic, intermediate and advanced) as required under the Afghanistan Procurement Cadre regulations; and iii) DAB as an institution obtains full procurement accreditation from NPC after due technical assessment\. Upon completion of inter-governmental accreditation process, the World Bank will conduct a new assessment of DAB’s procurement capacity to confirm full delegation of procurement responsibility to DAB\. 10\. Based on the review of implementation progress within one year of project effectiveness a decision will be made to either retain existing procurement arrangements or to explore and establish an alternative approach\. 11\. As part of project preparation, a draft Project Procurement Strategy for Development (PPSD), including the initial procurement plan, was developed by FSSPD with the support from the World Bank\. The PPSD will guide the procurement implementation and would be subject to revisions in case of major changes or project restructuring\. 12\. Procurement will be carried out in accordance with the World Bank Procurement Regulations for IPF Borrowers, hereinafter referred to as ‘Procurement Regulations’, dated July 1, 2016, revised November 2017 and August 2018\. The project will be subject to the World Bank’s Anticorruption 41As regards joint presentation of cases to NPC, the current procedure requires NPA’s procurement commentary along with the submission of documents to NPC\. The possibility of assigning DAB with sole responsibility for presentation of procurement cases to NPC will be explored in the context of finalization of the MOU subject to agreement between DAB and NPA\. 50 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Guidelines, dated October 15, 2006\. The World Bank’s Standard Procurement Documents, Requests for Proposals, and Forms of Consultant Contract shall be used for Open International Competition\. All procurement using national procurement procedures will be subject to the National Procurement Conditions detailed in the Procurement Plan and use the agreed Model National Procurement documents for Afghanistan\. 13\. The World Bank procurement team has completed procurement review which informed the Procurement Risk Assessment and Management System - PRAMS for the project\. The review had also identified certain specific risks related to DAB’s procurement responsibilities that could impact the procurement outcomes\. Risks and agreed mitigation measures with responsible entities for managing the same are presented in the table below\. Table 1: Procurement Risk Assessment # Risk Description Mitigation Measures Risk Owner 1 Difference in country World Bank Procurement Regulations will DAB procurement procedures and take precedence\. World Bank procurement framework\. 2 Lack of sufficient capacity for DAB is expected to hire technical advisors DAB preparing technical and senior specialists under the project to specifications and terms of enhance and complement technical capacity reference of its technical departments\. 3 Limited availability or DAB will be advertising the assignments DAB reluctance of international widely to attract the most suitable technical technical advisors to provide experts/advisors with competitive technical support remuneration packages\. 4 Contract monitoring and DAB will benefit from World Bank DAB and management expertise are implementation support to increase contract World Bank weak management capacity of officials involved in contract management\. 5 Complaints and redressal DAB will be developing online mechanisms DAB system need to be for procurement complaints as part of strengthened\. digitization of work processes\. All procurement complaints will require mandatory filing in the STEP system\. 6 Lack of knowledge or interest DAB will be organizing orientation sessions DAB amongst the local and and market engagement with potential international bidding consultants, especially with international community/consultants on the bidders, to enhance their knowledge and new procurement regulations update them on various bidding documents requirements requirements on regular basis\. 7 Delay in obtaining timely The associated risk will be minimized through DAB 51 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) # Risk Description Mitigation Measures Risk Owner approvals and coordination development of annual work plans and among DAB’s technical procurement plans and regular meetings and departments information sharing through the Project Committee\. 8 Delay with consultant and Different technical departments involved in DAB supplier payments will have an project implementation will be closely adverse effect on overall coordinating and made responsible for project implementation contract monitoring issues under their respective components to avoid undue delays in payments to the suppliers and consultants\. 9 Change in currency exchange Though this cannot be managed or controlled DAB rate by DAB suitable budget provisions will be incorporated in annual work plans to address these risks\. 10 Decision making delays related DAB will prepare and adhere to a timeline for DAB to on procurement actions each procurement activity\. 11 Delays in technical and DAB will establish technical evaluation DAB financial evaluation and lack of committees consisting of up to 4 members clarity in roles and including majority of technical experts and responsibilities of evaluation one procurement official\. All committees committees shall be established in advance before the bids/proposals are opened and plans will be made to ensure that evaluations are completed within the agreed timelines\. The committees will have full authority for making the final recommendations\. 14\. As stated earlier, the procurement activities below the threshold of US$100,000 will be carried by FSSPD at DAB and all activities above this threshold will be managed by National Procurement Authority\. Based on the initial procurement capacity assessment of the Implementation Agencies, the procurement risk is rated “High”\. 15\. Contract management is an area that requires considerable capacity building within DAB\. There is no contract administration system at DAB\. The World Bank will work closely with relevant units on the procurement and contract administration systems and capacity building\. 16\. The following specific requirements will be adhered to while undertaking procurement under the project: • Systematic Tracking of Exchanges in Procurement (STEP) and procurement planning\. The project will implement STEP, the World Bank planning and tracking system, which would provide data on procurement activities, and establish benchmarks\. Procurement Plan will be prepared in STEP and the same will be updated in agreement with the project team annually or as required to reflect 52 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) the actual project implementation needs and improvements in institutional capacity\. It is mandatory to use STEP for all procurement activities under the project\. • Frequency of Procurement Supervision by the World Bank: In addition to the prior review, supervision shall be carried out by the World Bank team\. There will be two Implementation Support Missions (ISMs) per year and the Bank team will provide ongoing implementation support in between these\. • Procurement audit and review\. In addition to prior review, WB staff or WB-appointed Consultants shall carry out post procurement review once per year and the Government of Afghanistan (GoA) auditing institutions will be doing the procurement audit\. 17\. Governance and Anticorruption\. All the contract opportunities and contract awards will be widely published in the Internet, https://ageops\.net, Afghanistan Government e-Procurement system, implementing agency’s website, and when required in United Nations Development Business (UNDB)\. Other actions are: a) alerting implementing agencies’ officials/staff about any fraud and corruption issues; b) alerting bidders against adopting fraud and corruption practices; c) awarding contracts within the initial bid validity period, and closely monitoring the timing; d) taking action against any corrupt bidder in accordance with the law of the GoA and informing the World Bank’s Integrity Vice Presidency (INT); e) preserving records and all documents regarding public procurement, in accordance with the Procurement Law provisions; f) publishing contract award information in UNDB online, NPA’s website, and agencies’ websites within two weeks of contract award; g) ensuring timely payments to the suppliers/contractors/consultants and imposing liquidated damages for delayed completion; and h) enforcing a procurement filing system\. 18\. Grievance Redress Mechanisms: Complaints Handling: With regard to procurement complaints, the DAB shall be guided by the World Bank’s Procurement Regulations for Borrowers for Goods, Works, Non-Consulting, and Consulting Services and applicable to IPF hereinafter referred to as ‘Regulations’\. The implementing agencies will inform the World Bank through the Complaints Management system integrated within STEP as soon as a procurement complaint is received and its final outcome subsequently\. The implementing agencies will work on online complain management system part of the digitization work and a comprehensive complain handling mechanism and this will be published in NPA and implementing agencies websites\. This mechanism should have a system to register and monitor the receipt and resolving of complaints, such as through the proposed hotlines\. The progress of such action will be reviewed during supervision missions\. 19\. The implementing agencies will ensure that all Invitations for Bids, Expressions of Interest are given wide publicity using its own website, the NPA website, UNDB, and national newspapers\. It will be mandatory to publish all bidding and consulting opportunities in the Afghanistan e-Procurement portal https://ageops\.net Further for individual consultants, the Request for Expression of Interest/vacancy notice will be published on the following websites: www\.npa\.gov\.af , www\.acbar\.org , www\.devnetjobs\.org , and www\.reliefweb\.int\. 20\. Incremental Operating Cost (IOC): IOC will be procured using the Afghanistan’s procurement law procedures\. The operating costs will include operations and maintenance of equipment and vehicles, hiring of vehicles, office rent, costs of consumable, fuel, office utilities and supplies, and Bank charges, advertising expenses, training fees for individuals with prior agreement with the bank for professional 53 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) development, but exclude any salaries and allowances of civil servants and for non-essential staff\. Any regular procurement of equipment and goods shall be included in the Procurement Plan\. 21\. Project Implementation staff/individuals: Project Components shall distinctly identify financial resources allocated for Project Implementation Staff/Individuals costs with details of proposed positions and number, required minimum qualifications, time scale and fee/salaries\. As per Procurement Framework 2016, Procurement Regulations for IPF Borrowers July 2016, such Project Implementation Staff/Individuals contracted by Borrower are not treated as Individual Consultants for the project\. Such Project Implementation Staff/Individuals may be selected by the Borrower according to its hiring procedures agreed between the Bank and GoA for such activities\. The project will submit the TOR and selection details including proposed candidates to the Bank for review and clearance\. It may be noted that ‘Individual Consultants’ required for delivering a specific assignment under the project will be different from Project Implementation Staff/Individuals\. Individual consultants are hired when a team of experts is not required; no additional home office professional support is required; and the experience and qualifications of the individual are of paramount requirement for delivering the assignment\. All Individual Consultants will be included in the Procurement Plan and the selection will be subject to provisions in the Procurement Regulations\. While the project may rely on individual consultants to support the client on the technical activities\. All procurement positions regardless of value and nature will be subject to prior review of the World Bank\. 22\. Procurement Methods and Thresholds: Following value thresholds will be applicable for different categories and methods of procurement: A\. Goods and Non-Consulting Services Table 2: Goods and Non-Consulting Services: Selection Methods and Thresholds Procurement Method Threshold for Methods Comment (US$) 1 Open International (Goods) 200,000 Equivalent or more 2 Open National (Goods) 200,000 Equivalent or less 3 Open International (Non-Consulting 200,000 Equivalent or more Services) 4 Open International (Non-Consulting 200,000 Equivalent or less Services) 5 RFQ (Goods) 50,000 Equivalent or less B\. Consulting Services Table 3: Consultants: Selection Methods and Thresholds Selection Method Threshold Comments 1 CQS for Firms US$300,000 equivalent or less 2 QCBS, QBS, FBS, LCS Depending on the nature 54 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) and complexity of assignment 23\. Procurement Prior Review Threshold: In the case of contracts subject to prior review, the Implementing Agency shall seek the World Bank’s no objection before granting/agreeing to: a) an extension of the stipulated time for performance of a contract that either increases the contract price or has an impact on the planned completion of the project; b) any substantial modification of the scope of works, goods, non-consulting services or consulting services, other significant changes to the terms and conditions of the contract; c) any variation order or amendment (except in cases of extreme urgency) which singly or combined with all variation orders or amendments previously issued, increase the original contract amount by more than 15 percent; d) the proposed termination of the contract\. A copy of all amendments to the contract shall be furnished to the Bank for its record\. Table 4: Prior Review Thresholds Type of Procurement In US$ Million Works (including turnkey, Supply & installation of 5 plant and Equipment, and PPP) Goods, information technology and Non-consulting 1\.5 services Consultants: firms 0\.5 **Consultants: individuals 0\.2 National Procurement Procedure 24\. National Procurement Arrangements: In accordance with paragraph 5\.3 of the Procurement Regulations, when approaching the national market (as specified in the Procurement Plan tables in STEP), the procurement documents agreed by the Bank shall be used\. When the Borrower uses its own national open competitive procurement arrangements as set forth in the Procurement Law of the Islamic Republic of Afghanistan dated 27/06/13965 (September 17, 2016) published in the Official Gazette No\.1223, such arrangements shall be subject to paragraph 5\.4 of the Procurement Regulations and the following National Procurement Procedure Conditions for Afghanistan: i\. The eligibility of bidders shall be as defined under Section III of the World Bank Procurement Regulations for IPF Borrowers (Procurement Regulations)\. Accordingly, no bidder or potential bidder shall be declared ineligible for contracts financed by the Bank for reasons other than those provided in Section III of the Procurement Regulations (PR)\. ii\. Only the model bidding documents acceptable to the World Bank shall be used for all national open competitive procurement\. iii\. The bidding documents shall require that bidders/proposers submitting bids/proposals present a signed acceptance at the time of bidding, to be incorporated in any resulting contracts, confirming application of, and compliance with, the Bank’s Anti-Corruption Guidelines, including without limitation the Bank’s right to sanction and the Bank’s inspection and audit rights\. iv\. Procurement Documents include provisions, as agreed with the Bank, intended to adequately mitigate against environmental, social (including sexual exploitation and abuse and gender-based violence), health and safety (“ESHS”) risks and impacts\. 55 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) v\. There shall be no negotiations of contract price at post contract stage or termination of the contract - on grounds of operation of Price Adjustment stipulated in a signed contract exceeding a specified percentage\. vi\. No preference of any kind shall be given to national bidders in the bidding process\. vii\. When other national procurement arrangements other than national open competitive procurement arrangements are applied by the Borrower, such arrangements shall be subject to paragraph 5\.5 of the Procurement Regulations\. Financial Management 25\. Given the high fiduciary risk across the Afghanistan portfolio, the World Bank has introduced a series of measures to enhance its fiduciary oversight of the World Bank-financed projects in Afghanistan, including the proposed SAFI Project\. These enhanced measures, specially identified for this project, supplement the standard fiduciary arrangements to mitigate the potential perceived risks\. KEY FIDUCIARY RISKS AND CONTROLS 26\. Low Budget Utilization\. The Bank funded FSRRP, implemented by DAB, closed in December 2019 after seven years with only 48 percent grant utilization\. The implementation arrangements for FSRRP budget preparation and monitoring were not executed as designed\. The project's budget committee was established with a delay, remained dormant during most of the project implementation period, and did not meet regularly to monitor budget preparation and execution\. Under SAFI project, DAB will establish a budget committee (as part of the Project Committee) within a month of project effectiveness\. The budget committee will be chaired by the DAB’s Second Deputy Governor and will include FSSPD Director, Head of Finance, and Heads of DAB’s technical units responsible for project implementation as committee members\. The budget committee will supervise the annual budgeting process and will review the budget utilization at least on a quarterly basis\. Each project progress report will include an update on the functioning and the meetings of the budget committee\. The World Bank will also monitor the budget utilization in semiannual IUFRs\. 27\. There are various fiduciary risks that could affect the matching grants program\. Some of the risks include selecting SMEs that do not meet the eligibility criteria, political influence related to grant awards, the SME recipients not financing their matching contributions or utilizing the grants as per approved proposals, and solicitation of bribe from SMEs to award the grants\. Different mitigation measures have been incorporated into the project design to address these fiduciary risks\. The Matching Grants Operations Manual will provide the detailed eligibility and selection criteria for the matching grants, as well as the whole grant administration process from receiving applications to disbursements and monitoring implementation\. The adoption of the Matching Grants Operations Manual satisfactory to the World Bank is a disbursement condition\. ACGF will implement the matching grants component and will be responsible to independently decide and disburse grants to the SMEs, which reduces the risk of political influence\. There are multiple layers of oversight including government, third-party monitoring and external audits\. The MOF will review compliance in award and disbursement of grants when liquidating the matching grant advances to ACGF\. A third-party monitoring firm will be hired or an internal audit department will be established by the project for physical inspections of SME activities and the use of matching grant funds\. The World Bank’s TPMA would also conduct physical and financial monitoring, 56 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) on a sample basis\. An independent external audit firm will be hired to conduct a financial audit of the ACGF including related to the grant decision-making process\. 28\. Weak Contract Management\. The recently closed FSRRP has experienced issues related to the quality of the consultants’ deliverables and reimbursable expenses paid as lump-sum without properly documenting expenditure\. Under SAFI project, procurement arrangements have been strengthened as described in the above section on procurement\. The World Bank has changed the disbursement method from a report (IUFR) to transaction (SOE) basis, and each quarterly SOE will be prior reviewed by the World Bank’s TPMA to ensure the expenditure documentation and compliance\. 29\. Grant recipients and implementing agencies’ staff will be required to sign a declaration to comply with the World Bank's Anti-Corruption Guidelines\. The signed agreements with the beneficiary SMEs will include standard provisions on anti-corruption, World Bank’s inspection and audit rights\. The implementing agencies’ staff involved into decision-making, procurement, and financial management processes would be required to sign a statement confirming that: i) they are fully aware of the World Bank’s Anti-Corruption requirements; and; ii) that they will inform the World Bank about their potential Conflict of Interest associated with a particular bidding procedure as well as any fraud and corruption issue that may come to their attention\. All members of the evaluation committees and other persons involved in the procurement process will be required to also sign confidentiality agreements\. 30\. World Bank’s prior review and approval of the Staffing and Operating Cost: the operating cost, including payroll, would be eligible for financing to the extent approved by the Bank as part of staffing and operating cost plan\. Each implementing agency will prepare a detailed plan for staffing and operating costs specifying the cost elements and justification for their financing\. The plan would also detail the staff positions, the recruitment method, duration of the contract, proposed salary, and justification for the position\. The World Bank would review the plan and cost estimate for eligibility as per the legal agreement, relevance to the project objectives, considerations of alternate sources of financing, and economy and efficiency of the proposal\. Any changes to the operating plan during implementation would require prior approval of the World Bank\. The TPMA and external auditors would monitor compliance with the approved staffing and operating cost plan, and any operating expense incurred beyond the approved plan would be considered ineligible\. 31\. Financial Management Framework\. The FMM for IDA and ARTF projects in Afghanistan, issued by the MOF (shumara no\. 109 dated 16/10/1398), will be used for all FM aspects of the project\. The manual includes details on the FM arrangements, internal controls, disbursement procedures, reporting lines, allotment and payment processes, documents retention control mechanism at various levels, and service standards\. 32\. Oversight through TPMA and External Audit\. The World Bank’s TPMA will provide independent assurance on compliance with the Project's control framework (operations and FM manuals, and the Bank Procurement Regulations), grants management, delivery of goods, works and services as per contracts, and proper documentation of the expenditure\. ACGF will appoint independent external auditors as per the TORs acceptable to the World Bank, to conduct annual audits of the TA grant, the capital grant for the guarantee fund, and the matching grants\. The reports of these audits will be shared with the World Bank within six months of the close of the fiscal year\. Similarly, once the money is transferred to the Deposit 57 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Insurance Fund, FSSPD will also submit annual audit reports of the fund to the World Bank\. SAO will carry out annual external audits of the project and will submit the reports to the World Bank\. 33\. Monitoring of fiduciary performance and implementation support plan\. The fiduciary performance will be assessed through the following indicators: a) timely submission of SOEs, IUFRs, and audited financial statements; b) maintenance of adequate books of accounts and supporting documents as per FMM; c) compliance with legal covenants, and internal controls as prescribed in the project appraisal document, operations manual and FMM; d) timely processing of allotments and payments per the service standards prescribed in manuals; and e) timely resolution of fiduciary issues raised during World Bank supervision, internal audit, external audit, and any other reviews\. Initially, the World Bank will carry out quarterly FM reviews and would change the frequency to semesterly once the implementation arrangements are fully in place\. The implementation support will include monitoring of fiduciary performance based on identified indicators, review of SOEs, IUFRs, and audit reports, review of compliance with legal covenants, review of progress on agreed actions, and review of a sample of transactions\. Financial Management and Disbursement – Implementation Arrangements 34\. MOF will have the financial management responsibility for Components 1 and 2 (beyond the responsibilities of ACGF under the IPA) and FSSPD at DAB will have the financial management responsibility for Components 3, 4, 5 and 6\. Government budgeting processes will apply, and the project’s budget will be part of the Government’s annual budget\. The accounting records will be maintained at the central level by the MOF in AFMIS based on M16s, and FSSPD will maintain detailed subsidiary records\. The FMM provides a comprehensive internal control framework and will be applicable\. The internal audit of the will be conducted by the Internal Audit Departments of MOF and DAB on annual basis, and the reports will be submitted to the World Bank within four months of the close of the financial year\. The project’s financial statements will be prepared in accordance with cash-basis International Public-Sector Accounting Standards (IPSAS) and audited by the SAO in accordance with the terms of reference agreed with the World Bank\. The audited financial statements will be submitted to the World Bank within nine months of the close of the financial year\. The accounting, reporting, and external audit requirements for the activities implemented by ACGF will be detailed in the implementing partner agreement between MOF and ACGF\. 35\. Financial Management in ACGF: As part of the project preparation, the financial management arrangements of ACGF were assessed and found adequate\. ACGF has a qualified and experienced FM team with a well-established FM system\. ACGF will use its own Financial Management and Accounting Manual for all the FM aspects of the project\. The said manual has been approved by the World Bank in 2017 related to the Access to Finance Project\. ACGF financial statements will be prepared and audited in accordance with the German Commercial Code and in compliance with German Generally Accepted Standards for Financial Statement Audits\. 36\. Personnel: The existing FM team in the FSSPD consists of a Senior Finance Manager, a Financial Management Specialist and a Senior Finance Officer who are all civil servants\. In addition, hiring a Financial Management Specialist through the PAISA project is under way and DAB is also deputing an accountant\. This unit will be responsible for both PAISA and SAFI projects and the existing staffing arrangements are 58 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) adequate\. For Components 1 and 2, the AMD in MOF will hire an FM Consultant (NTA) who will be responsible for all the financial management and disbursement arrangements of these components\. 37\. Budgeting: MOF guidelines for budget preparation will be followed\. The project budget will be prepared based on the annual work plan and procurement plan\. The budget committee assigned for the FSSPD, headed by the second Deputy Governor of DAB, will review and finalize the budget, work plan, cash plan and expenditure of the project on a quarterly basis\. The FSSPD Director and senior finance manager will be a part of the budget committee of the project\. For the MOF related components, the AMD will be responsible for the budget preparation and execution of the project\. The annual budget will be broken down into quarters to facilitate budget monitoring\. The budget utilization of the project will be assessed in each IUFR\. There is a separate sheet in the IUFRs to compare the planned and actual expenditures at the subcomponent level\. Any variance of more than 15 percent will be explained by the project team with proper justification\. 38\. Accounting and Financial Reporting: The cash basis of accounting will be followed for the project\. The MOF will process payments and maintain records at the central level using the AFMIS in accordance with the Government’s Treasury Accounting Manual\. DAB and AMD will be responsible to prepare SOEs and semi-annual IUFRs\. The project will submit IUFRs to the World Bank within 45 days of the close of each semester\. Both the implementing agencies will maintain all books of accounts and records prescribed by the FM Manual for IDA and ARTF financed project including Cash/ Bank Book, General Ledger, Asset Register, Invoice Register, Contract Register, M-16 register, Advance register, and Taminat Register\. 39\. Internal Controls: At FSSPD and AMD, there is proper segregation of duties and payment requests (M16s) are processed on time\. The MOF has issued he Financial Management Manual (shumara no\. 109 dated 16/10/1398) for IDA and ARTF projects in Afghanistan that will be used for all FM aspects of the SAFI project\. The manual includes details on the FM arrangements, internal controls, disbursement procedures, reporting lines, allotment and payment processes, documents retention control mechanism at various levels, and service standards\. 40\. Grants: The project will provide TA Grants and Capital Grants to ACGF, and it will also be responsible to manage the SME matching grants components\. Table 5: FM Arrangements of Grants Description Amount FM Arrangements (US$) Technical Assistance 5,000,000 Downstream accounting\. ACGF will maintain books of Grant to ACGF accounts and expenditure details in accordance with the Implementing Partner Agreement\. The AMD will make advance payments to ACGF’s bank account and the ACGF will report the expenditures on a quarterly basis to the AMD\. ACGF will appoint independent external auditors for the annual audit of the TA grant, submit the audit report to MOF and World Bank by June 30, each year\. 59 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) SME Matching Grant 10,500,000 Advances will be provided to ACGF based on 6 months Administration and forecast that will be replenished upon reporting of actual Implementation Cost and expenditure\. The amount actually expended by ACGF from funding for MOF’s the advance will be reported as expenditure in the SOEs to administration of be submitted to the Bank\. Implementing Partner Agreement with ACGF The US$10\.5 million also includes two consultants (NTAs) at Aid Management Unit at MOF to support the MOF with the administration of implementing partner agreement with ACGF (i\.e\. coordination and financial management)\. Capital Grant to ACGF for 15,000,000 Upstream Accounting\. The Bank will recognize the amount the provision of Partial disbursed as an expenditure\. Credit Guarantees The proposed US$15 million grant would be the Government of Afghanistan’s capital contribution to the ACGF’s guarantee fund for the provision of partial credit guarantees to financial institutions\. The grant would be disbursed as per the Implementing Partner Agreement to be signed between MOF and ACGF, which would specify how the grant is converted into ACGF’s equity owned by the Government of Afghanistan\. ACGF financial statements will be prepared and audited in accordance with the German Commercial Code and the audited financial statements will be provided to the Bank and MOF within 6 months of the close of the financial year\. In addition, ACGF will provide the portfolio report and the financial reports related to the Credit Guarantee operations to the Bank and MOF on a quarterly basis\. Matching grants to SMEs 29,500,000 Upstream Accounting\. The World Bank will recognize the for capital and non- amount disbursed to SMEs as an expenditure\. The grants capital costs would be disbursed as per the Matching Grants Operations Manual to be developed by the ACGF and its approval by the World Bank will be a disbursement condition for the disbursement of matching grants\. MOF will provide the revolving advance facility of US$5 million with monthly replenishments for the SME grants component\. These arrangements will be discussed in detail in the Matching Grants Operations Manual\. Capital Grant to Deposit 15,000,000 Upstream Accounting\. The World Bank will recognize the Insurance Fund to amount disbursed as an expenditure\. The proposed US$15 strengthen is payout million grant would be capital injection to deposit insurance capacity fund and would be disbursed in two tranches\. Once the money is transferred to the Deposit Insurance Fund, it would be subject to the submission of annual audit reports 60 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) to the World Bank\. 41\. Internal Audit: Internal audit for the project will be conducted annually by the Internal Audit Departments (IADs) of DAB and MOF\. The annual internal audit reports will be submitted to the World Bank within 4 months of the close of the fiscal year\. There are enough staff and capacity at the IADs of DAB and MOF, to carry out the internal audit of the project\. 42\. External Audit: The SAO carries out the annual audit for all World Bank-funded projects in Afghanistan following INTOSAI auditing standards\. The same audit arrangements will also be used for the project\. The SAO will submit annual audited project financial statements and management letters (one for MOF and other for DAB) to the Bank, within nine months of the close of the fiscal year\. The first audit report will be due on September 21, 2021\. The audit will include field visits to project sites for physical verification of assets created or the activities financed from the grant\. ACGF will appoint a private sector audit firm for the annual audit of the Components 1 and 2 and will submit the audit report to the World Bank by June 30 of each project year\. 43\. The fiscal year 2019 audit reports for the other IDA-ARTF financed projects implemented by the SAFI project implementing agencies were due on June 21, 2020\. Due to the pandemic, the government initially announced lockdown and subsequently reduced office hours and limited on-site staff, which is continuing\. These restrictions, coupled with the departure of expat audit mangers due to the pandemic, limited the SAO’s ability to carry out its oversight and reporting responsibilities\. The World Bank team has been closely working with MOF and SAO to hasten finalization of the annual financial statements and the associated audits\. An action plan has been agreed with MOF and SAO to submit the overdue audit reports of Afghanistan projects in batches\. The first batch would be submitted by July 31, and all project audited financial statements would be submitted to the World Bank by October 21, 2020, i\.e\., within four months of the due date\. Following on consistent updates from SAO on the likelihood of meeting the dates agreed on the above audits, the task team will work with the fiduciary team to take advantage of “Enhanced Monitoring of Audit Compliance under these flexible arrangements” issued by World Bank’s Operations Policy and Country Services department\. Exceptions Memo will be shared with the Practice Manager for approval on revised audit due dates should the situation for due audit submission dates not improve\. 44\. Disbursement and Funds Flow Arrangements: The disbursements would be SOE based with quarterly replenishments\. The project funds will flow through two segregated designated accounts (one each for MOF and DAB) to be set up in Da Afghanistan Bank and controlled by MOF\. Disbursements from the grant will be made as advance, special commitments, reimbursements and direct payments\. MOF DAB Two Designated Accounts IDA IDA DA Celling US$8 million US$5 million Currency of DA and Expenditure United States Dollar (US$) DAs will be Opened at Da Afghanistan Bank (DAB) Basis of Expenditure Documentation SOE verified by the TPMA Frequency of SOE Quarterly 45\. MOF will allow revolving advance from the designated accounts to the ACGF for project 61 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) implementation in accordance with the Implementation Partner Agreement\. ACGF will keep the funds in a commercial bank and will submit monthly SOE and documents for the account replenishment\. MOF’s Treasury will pre-audit the reported expenditure and replenish the account\. Table 6: Disbursement Categories IDA Financing Amount Amount Percentage Disbursement Categories US$ SDR (inclusive of Taxes) (1) Goods, works, non-consulting services, consulting services, Incremental Operating Costs, Training for 30,200,000 21,381,600 100% Components 1 and 2 of the Project (except for Matching Grants) (2) Matching Grants under Sub-Component 2\.1 of the 29,500,000 20,886,000 100% Project (3) Goods, works, non-consulting services, consulting services, Incremental Operating Costs, and Training for 24,850,000 17,593,800 100% Components 3, 4, 5 and 6 of the Project (except for Capitalization of DIF) (4) (a) First Tranche of Financial Support under Sub-component 10,000,000 7,080,000 3\.2 of the Project 100% (b) Second Tranche of Financial Support under Sub- 5,000,000 3,540,000 component 3\.2 of the Project (5) Project Implementation Staff for Components 1 and 2 300,000 212,400 100% (6) Project Implementation Staff for Components 3, 4, 5 150,000 106,200 100% and 6 (7) Contingent Emergency Response under Component 7 of 0 0 100% the Project TOTAL AMOUNT 100,000,000 70,800,000 46\. Project effectiveness and disbursement conditions are listed in the Project Appraisal Document Datasheet\. 62 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) ANNEX 2: Detailed Description of Deposit Insurance Context and Required Reforms 1\. Deposit insurance schemes (DIS)42 have been recognized globally as an important pillar of financial safety net contributing to public trust and confidence in financial system, mitigating risks associated with bank runs in cases of distress and enhancing overall financial stability\. While approaches to DIS may vary across jurisdictions, only a well-designed, accountable and transparent DIS with a clear mandate and appropriate powers can fulfill its objectives\. A key prerequisite for a well governed DIS is the legal and regulatory framework\. For DIS to be viable and able to organize fast, accurate and efficient deposit payout as needed, a dedicated legal act (i\.e\. Law on DIS) needs to be adopted and complemented with adequate regulations and procedures to facilitate establishment and operations of an explicit DIS (i\.e\. established via formal legal act)\. On institutional level, a DIS authority should be operationally independent and must include capable and well-trained staff, management information system (i\.e\. hardware and software for deposit payout) and budget to implement its mandate\. As of January 2020, there were 145 jurisdictions worldwide with explicit DIS\. Although an official web page of International Association of Deposit Insurers (IADI) lists Afghanistan as one of the jurisdictions with explicit DIS, lack of explicit legal and regulatory framework and absence of structured operational guidance and procedures would qualify Afghanistan’ DIS as implicit only\. 2\. To facilitate development of deposit insurance, DAB established the Afghan Deposit Insurance Corporation (ADIC) in 2010 (i\.e\. DIS Authority43) as a department within DAB with six full time staff; however, ADIC has yet to be fully operationalized, both legally and institutionally and the DIS publicly announced and implemented\. The basis for the establishment of ADIC included recommendations of the Afghanistan’s Cabinet of Ministers’ and DAB’ Supreme Council’s Resolution, along with expectation of the subsequent adoption of the appropriate legal framework to support ADIC’ operation as a full-fledged DIS authority (i\.e\. amendments to the Banking Law, DAB Law, and development of a separate DIS law)\. To date no separate legal framework has been developed, leaving ADIC in a legislative vacuum whereby the features of the implicit DIS (i\.e\. proposed coverage level for operational purposes which has not been publicly announced and which represents only 11\.3 percent of the total deposits value) were agreed between DAB, commercial banks and/or the Ministry of Finance and communicated through drafts, notes and circulars which is insufficient for the functioning of DIS\. ADIC is referred to as a corporation although it remains a department within DAB without ability to issue necessary regulation and procedures\. There is also a lack of transparent and consistent disclosure of information on DIS and the scheme has not been tested in real cases\. By the end of 2019, ADIC collected a total AFN5\.2 billion (i\.e\. approximately US$67 million) mainly from banks through initial and regular contribution as well as contributions from DAB and the Ministry of Finance in the amount of AFN500 million and AFN200 million respectively\. Despite its establishment, though implicit in nature, and initial capitalization, the DIS has not been fully operationalized and publicly announced\. 42 Deposit insurance schemes (DIS) -- Established and legally recognized insurance of certain categories of deposits up to prescribed amount (i\.e\. coverage level) collected by deposit-taking institutions from eligible depositors, provided by deposit insurance authority in case of unavailability of deposits and occurrence of insured event\. 43 DIS authority -- Entity empowered with a deposit insurance mandate\. 63 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 3\. The current DIS structure in Afghanistan is not sustainable and requires urgent reform to facilitate public confidence and trust in the financial system\. To this end the following steps are required: i) development and adoption of legal and regulatory framework for deposit including ensuring ADIC’s operational autonomy; ii) continued enhancement of ADIC’s technical capacity and operational capabilities, including management information system, staffing and budget; and iii) ensuring a well- capitalized deposit insurance fund (DIF)44 commensurate with the level of appropriate deposit insurance coverage prior to DIS roll out and public announcement of deposit insurance coverage\. 4\. Establishment of an explicit DIS legal and regulatory framework seeks to institutionalize an explicit DIS in Afghanistan with a clear legal mandate and creation of credible and operationally autonomous deposit insurance fund\. In order to preserve collected funds contributed by banks since 2010, these funds would need to be transferred onto special purpose DIF account (for sourcing and using funds, e\.g\., for premiums and payouts in accordance with the law) of a newly established DIS\. The Ministry of Finance (MOF) initially committed to inject a total of AFN500 million to DIS and has so far paid AFN200 million\. ADIC expects that the remaining balance of AFN300 million will be contributed upon approval of the Law on DIS\. For operational purposes (such as premium collection), DAB has, in agreement with banks, set a cap on the amount of insured deposits for operational purposes but this information is not publicly disclosed as the scheme has not been formally announced\. In order to ensure credibility of newly established transparent DIS, the determination of the appropriate coverage level – which has yet to be formally set and publicly announced - should be aligned with international guidelines and backed with sufficient funds in DIF\. It is recommended to initially provide full coverage for minimum 15 percent, and ideally not more than 20 percent, of the total deposit value in order to avoid moral hazard\. 5\. The Law on DIS will need to be complemented with the appropriate regulatory framework, including related to emergency funding to ensure that the funds collected are invested in compliance with international standards for DIS, through an approved investment policy\. Banks will be required to contribute to DIS in accordance with their risk rating, based on credible risk-based methodology\. A target fund level for DIF will need to be established based on approved methodology\. To this end, the following activities are envisaged: i) development and adoption of the Law on DIS; ii) confirmation of a legal authority with DIS mandate (i\.e\. ADIC); iii) creation of ex ante DIF from transfer of funds collected for the purpose of DIS since 2010 and future regular banks’ contributions; iv) determining the status of MOF’s remaining commitment of AFN300 million to DIF; v) gradual compliance with international guidelines on establishment of appropriate coverage level (“90:20” rule45), with recommended minimum of 15 percent of total values of deposits to be fully insured at the time of enactment of the law on deposit insurance; vi) adoption of secondary regulation provisioning risk-based regular contributions by banks; vii) adoption of regulation provisioning emergency funding framework; viii) adoption of an investment policy; ix) setting a DIF target level based on credible methodology; and x) adoption of secondary regulation on compensation of eligible depositors in case of occurrence of an event warranting payout of insured deposits\. 44 Deposit Insurance Fund (also DIS capital, reserves) -- total deposit insurance financial resources (funds) collected in advance (ex-ante) on a regular basis for the purpose of deposit insurance\. 45 “90:20” rule refers to international rule of thumb for establishment of coverage level where a minimum 90 percent of all deposit accounts and a minimum 20 per cent of value of total deposits would be fully covered\. 64 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) 6\. Further, there is a need to strengthen DIS ability to compensate depositors in compliance with international standards\. The required support includes activities ensuring DIS’ operational preparedness for insured deposits payout including through enabling DIS authority to share information with DAB and access information on problem and failing banks in advance\. A set of secondary regulation will therefore need to be developed to support DIS’ payout function including but not limited to those regulating insured deposits payout through Single Customer View (SCV) data on depositors and development of a tailor- made software in support of compensation process\. In order to improve DIS authority’s ability to compensate depositors in compliance with international standards the following activities are recommended: i) DIS authority and DAB to sign Memorandum of Understanding regulating flow of information; ii) DIS authority to approve regulation on insured deposits compensation; and iii) DIS authority to develop MIS in support for deposit payout\. 7\. Finally, the above activities need to be complemented with continued capacity building of DIS Authority (i\.e\. ADIC) and additional capital injection to DIF in support of its institutional mandate\. The required capacity building support will be aimed towards operationalization of DIS, development of relevant policies, methodologies and training\. Additional capital injection will enable DIS to establish, sustain and/or increase the appropriate level of deposit insurance coverage without compromising the sustainability of the fund\. 65 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) ANNEX 3: Background on the Afghan Credit Guarantee Foundation 1\. To facilitate access to finance, the ACGF was established in 2014 to provide partial credit guarantees to eligible financial intermediaries for lending to MSME sectors46\. ACGF is registered as a not-for profit foundation under German law, with a local subsidiary − SME Client Support Afghanistan LLC (SCSA) − set up in 2015 which has offices in Kabul and Mazar-i-Sharif to support ACGF’s operations in the country\. ACGF currently guarantees loans from four participating financial institutions (PFIs), three commercial banks (FMFB, AIB and Ghazanfar Bank) and one micro-finance institution (OXUS-Afghanistan)\. It also provides technical assistance to commercial banks to strengthen their MSME lending capacity (i\.e\. “downscaling”) and to microfinance institutions to lend to graduate microentrepreneurs and smaller enterprises (i\.e\. “upscaling”)\. External evaluation47 completed in 2019 confirmed ACGF’s positive track record with facilitating access to finance in Afghanistan\. Specifically, in 2017, ACGF had covered 55 percent of the total small and medium enterprise (SME) loan volume in Afghanistan with guarantees\. The survey among 380 Afghan firms that received a guarantee-backed loan further showed that these companies grew their employment numbers by an average 38 percent since receiving the loan\. For 91 percent, the loan resulted in growth of the business, and for 85 percent this led to an increase in their income\. ACGF’s credit guarantees were found to fill an important void in the Afghan market according to a relate survey of PFIs confirmed that ACGF helped them start and grow their SME lending operations\. 2\. Since May 2017, ACGF has received US$8\.1 million towards its guarantee operations and technical assistance supported through the ongoing IDA-funded Access to Finance (A2F) Project (IDA Grant H894-AF)\. Through this project, MOF has contributed US$5\.6 million in capital funding towards the expansion of the guarantee fund to support MSME loan demand and to onboard new PFIs\. The government is currently the largest contributor with an equity share of 59 percent as of end-December 2019\. The A2F project has also financed technical assistance to ACGF and partner financial institutions for a total amount of US$2\.5 million\. As of end-December 2019, the volume of outstanding MSME loans in ACGF’s portfolio stood at US$19\.3 million, with 520 loans partially covered by credit guarantees (maximum coverage of up to 72 percent)\. On a cumulative basis, since inception, close to 5,500 MSME loans for a total value of approximately US$233 million have been guaranteed by ACGF\. See Box 1 on ACGF’s current portfolio and achievements under A2F project\. 46 ACGF was established as a legally independent German Charity Foundation in 2014 to take over the operations of the Credit Guarantee Facility for Afghanistan which was financed by the German Federal Ministry for Economic Cooperation and Development (BMZ) and the United States Agency for International Development (USAID) and managed by DEG - Deutsche Investitions und Entwicklungsgesellschaft mbH (using USAID funds) since inception in 2005\. While ACGF and SCSA are not regulated and supervised in Afghanistan they are subject to a number of oversight measures in Germany\. ACGF founders are DEG and BMZ and each of these institutions as well as the Afghan Ministry of Finance have a representative on ACGF’s Board of Trustees\. In addition to mandatory annual external audits (currently done by PricewaterhouseCoopers), it is also subject to audit by BMZ’s external audit department\. Also, as a company owned by the German state it is subject to Federal Audit Court\. ACGF is supervised by the Comptroller of German Foundations and it is also subject to certain conditions from the German Authority for Supervision of Financial Institutions\. The original due diligence and subsequent monitoring of ACGF was done under the ongoing World Bank funded Access to Finance Project confirming fully satisfactory performance\. ACGF’s technical and financial performance will continue to be monitored under SAFI Project\. 47 An assessment of ACGF’s performance and impact\. Steward Redqueen, 2019\. 66 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) Box 1: Highlights of ACGF’ Achievements As of end-December 2019, the volume of outstanding MSME loans guaranteed by ACGF through its participating financial institutions was US$19\.3 million\. Despite the overall lower volume of MSME lending and significantly above-average claims due to portfolio deterioration in 2019, ACGF’s guarantee portfolio ha s evolved significantly in the past three years on several important dimensions for SMEs: • DAB recognition of ACGF: Since 2018, ACGF guarantees are recognized as collateral by the central bank\. The portion of the loan covered by ACGF guarantees carries a risk weight of 20 percent only (i\.e\. low risk rating)\. In line with the observed impact of credit guarantees around the world, PFIs have increasingly used ACGF guarantees to gradually lower collateral requirements for MSMEs and they consider the use of ACGF’s guarantees as partial collateral substitutes to different extents, but mostly for smaller loans (below US$100K)\. In April 2020, DAB has issued a circular reducing provisioning requirements for loans that are covered ACGF guarantees\. Through the relaxation of provisioning requirement for loans that are partially secured by ACGF credit guarantees, banks would be required to apply provisions only for the unsecured portion\. • Addition of new partners: OXUS (MFI) and Ghazanfar Bank became PFIs for ACGF’s guarant ee operations in 2018 and 2019 respectively\. These additions have contributed to mitigating the negative portfolio growth of existing partners\. • MSME lending is increasingly flowing to the “missing middle”, i\.e\. mid -size businesses\. While in end- 2016 mid-size loans (US$100K-500K) accounted for a quarter of the portfolio, they now represent 38 percent portfolio (recent decrease from 45 percent in 2019 Q2 due to economic downturn)\. By number of employees, mid-size businesses Afghanistan (more than 50 employees) are receiving relatively more financing\. • The average maturity of loans has gradually increased to 27 months\. Almost half of the loan portfolio (48 percent) has a maturity of 2\.5 to 5 years, compared only 15 percent in end-2016\. Actually 9 out of 10 loans have a maturity greater than one year\. • Local currency lending to MSMEs is increasing\. The share of US dollar-denominated loans decreased from 52 percent to 20 percent\. • Trade and service still account for the lion’s share of ACGF portfolio, but financ ing of manufacturing and agriculture activities have increased from 6 to 29 percent of the MSME loan portfolio\. 3\. ACGF has contributed to the availability of both pro-cyclical and countercyclical financing of MSMEs\. Between 2017 and 2018, ACGF portfolio grew by 25 percent, reflecting higher investor confidence and appetite for private investments but considerable higher than banking sector performance\. In 2019, MSME lending in Afghanistan has been significantly affected by the deteriorated security situation and the political uncertainty which has implied both a lower demand for loans by MSMEs and lower risk appetite by financial institutions\. ACGF guarantee portfolio has decreased to 2017 levels in volume but is still growing in terms of the number of MSMEs supported\. In a context of unchanged overall credit to the private sector even during good times and sharp contraction during uncertain periods, the impact of ACGF operations on SME financing is noticeable\. As of end-December 2019, the volume of outstanding MSME loans in ACGF’s portfolio stood at US$19\.3 million, with 520 loans partially covered by credit guarantees (maximum coverage of up to 72 percent)\. Portfolio quality has returned to previous levels, after sharp deterioration in the second half of 2019\. Consequently, ACGF experienced a record US$1\.7 million in claims disbursed in 2019\. These can be explained by the difficult operating environment and economic situation in Iran which affected trade in Afghanistan\. 4\. ACGF’s current growth projections show that its capital will be fully leveraged by mid-2020 and the project aims to support ACGF with technical assistance and capital to facilitate greater outreach of 67 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) PFIs to MSMEs as well as to devise measures in response to COVID-19\. The leverage varies per PFIs and ranges between 3 and 5, with 5 being the maximum allowed leverage for ACGF\. The demand for MSME financing has picked up slowly in the first two months of 2020 (as evidenced by the recent increase in guarantee requests received from PFIs) but will likely be dampened by the political uncertainty and the impact of the outbreak of the COVID-19\. 68 The World Bank Strengthening Afghanistan’s Financial Intermediation (P171886) ANNEX 4: Team List COUNTRY: Afghanistan Strengthening Afghanistan’s Financial Intermediation Name Role Specialization Unit Task Team Leader (ADM Andrej Popovic Senior Financial Sector Specialist ESAF1 Responsible) Aminata Ndiaye Team Member Senior Financial Sector Specialist ESAF1 Suhail Kassim Team Member Senior Private Sector Specialist ESAF1 Saidel Mayar Team Member Operations Officer SACKB Mohammad Sulaiman Akbari Team Member Private Sector Specialist ESAF1 Kaoru Chikushi Team Member Operations Analyst EMNF2 Djurdjica Ognjenovic Team Member Deposit Insurance Consultant EEAF2 Helen Luskin Gradstein Team Member Financial Sector Specialist EFNFI Leila Aghabarari Team Member Consultant ESAF1 Ahmed Mohamed Tawfick Rostom Team Member Senior Financial Sector Specialist EAWF2 Karol Karpinski Team Member Financial Sector Specialist EFNFI Subika Farazi Team Member Economist ETIFE Muhammad Abbas Rahimi Team Member Procurement Specialist ESARU Kalesh Kumar Anandavalliamma Team Member Senior Procurement Specialist ESARU Karunakarakurup Akbar Ali Mohammadi Team Member Financial Management Analyst ESAG1 Senior Financial Management Syed Waseem Abbas Kazmi Team Member ESAG1 Specialist Senior Social Development Edda Mwakaselo Ivan Smith Team Member SSAS2 Specialist Mohammad Arif Rasuli Team Member Senior Environmental Specialist SSAEN Ria Nuri Dharmawan Team Member Counsel LEGES Zhuo Yu Team Member Senior Finance Officer WFACS Ahmad Shakeeb Safai Team Member Operations Officer SACKB Bibi Zainab Kakar Team Member Team Assistant SACKB Mohammad Asif Qurishi Team Member Program Assistant ESAF1 Parwana Wawreena Nasiri Team Member Program Assistant SACKB 69

APPROVAL

P007857

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 4843 PROJECT PERFORMANCE AUDIT REPORT PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) December 23, 1981 Ot Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performan-& qf their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) TABLE OF CONTENTS Page No\. Preface \. \. i Basic Data Sheet \. 11 Highlights \. iv PROJECT PERFORMANCE AUDIT MEMORANDUM I\. PROJECT BACKGROUND AND SUMMARY \.1 II\. PROJECT IMPLEMENTATION 2\. 2 Physical Implementation and Project Management \.2 Furniture and Equipment 2\. 2 Compliance with Covenants \. 3 Technical Assistance 3\.3 IDA Performance 3\.3 Costs and Disbursements \. 3 III\. EDUCATIONAL ACHIEVEMENTS \. 4 Curricula and Syllabi \. 5 Enrollments \. 5 Teaching Staff 6\. 6 School Facilities 6\. 6 Students' Achievements 7\. 7 IV\. CONCLUSIONS AND LESSONS \. 7 PROJECT COMPLETION REPORT 1\. Introduction \. \.11 II\. Content and Project Objectives \. 12 III\. Project Experience \. 13 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. TABLE OF CONTENTS (continued) Page Mo\. Annexes 1 - The Project Cycle \.27 2 - Estimated and Actual Implementation and Disbursements \. 3 - Disbursenents - Estimated and Actual \. 4 - Comparative Disbursements by Category \. 5 - Ercollment by School and Grade, 1979 \. 31 6 - Se'oadary Education Enrollment by Sector, 1971-1978 32 7 - Secondary Education Enrollment by Sex, Age and Level, 1978 \. 33 8 - Compliance with Credit Covenants \. 34 9 - Full-time Teachers, 1979 \. 36 10 - Teacher Qualification \.37 11 - Teacher Training Courses \. 12 - Budgetary Allocation by Project School, 1977-1980 \. 39 13 - Project-Related Legal Regulations Enacted by the Government\. 40 Attachment I - List of Persons K4et and Places Visited\.41 - 1 - PROJECT PERFORMANCE AUDIT REPORT PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) PREFACE This is a Performance Audit Report of the First Education Project * (Credit 347-PA) in Paraguay, for which a credit in the aiount of US$5\.1 mil- lion was approved on December 12, 1972\. The credit was fully disbursed by December 31, 1979\. The audit report consists of (a) a Project Performance Audit Memorandum prepared by the Operations Evaluation Department (OED) for which a field visit was undertaken and discussions were held with Borrower represen- tatives in February/March 1983, and (b) a Project Completion Report (PCR) prepared by the Latin America and the Caribbean Regional Office and dated June 30, 1980, based on the Borrower's Completion Report (BCR) which is available on file\. The audit memorandum is based on a review of the Appraisal Report No\. PE-43a of November 3, 1972, the President's Report No\. P-1149 of November 29, 1972, the PCR, the BCR and material in the Bank's files pertaining to this project\. Discussions were held with IDA staff cur- rently and formerly associated with the project\. On the basis of this review, the audit agrees with the main findings and conclusions of the PCR, and provides updating information ob- tained during the field visit\. As is customary in the preparation of audit reports, copies of the draft audit report--in a Spanish tr\.-nslation--were sent to the represen- tatives of the Borrower; this was done on August 31, 1983\. No reply has been received from the Borrower\. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) KEY PROJECT DATA Appraisal Expectation Actual Total Project Cost (US$ million) 7\.34 8\.68/a Overrun (%) 18 Original Credit Amount (US$ million) 5\.10 5\.10 Disbursed 5\.10 5\.10 Cancelled - - Repaid to ) 09/30/83 - 0\.05 Outstanding as of) - 5\.05 Date Physical Ccmponents Completed 06/77 06/79 In Months Since Credit Signature 54 78 Percentage Completed by Original Date 100 80 Proportion of Time Overrun (%) - 44 Institutional Performance Very Good Cumulative Estimates and Actual Disbursements (US$ million) FY74 FY75 FY76 FY77 FY78 FY79 FY80 (i) Estimated at Appraisal 0\.03 0\.11 1\.22 4\.27 4\.75 4\.99 5\.10 (ii) Actual Disbursement 0 0\.02 0\.43 2\.56 4\.54 4\.98 5\.10 (iii) (ii) as % of (1) 0 18 35 60 96 100 100 OTHER PROJECT DATA Original Plan Actual First Mention in Files 05/66 Government's Application 04/70 Negotiations 10/07/72 Board Approval 08/24/72 12/12/72 Credit Agreement Date 12/22/72 12/22/72 Effectiveness Date 03/30/73 10/30/73 Closing Date 12/31/79 12/31/79 Borrower Republic of Paraguay Executing Agency Ministry of Education Follow-on Projects: Second Educ\. Third Educ\. Fourth Educ\. Project Project Project Loan/Cred\.t Number Ln\. 1252-T-PA Ln\. 1346/ Ln\. 1992-PA Cr\. 667-PA Loan/Creiit Amount (US$ million) 4\.0 12\.0 17\.0 Loan/Credit Agreement Date 05/13/76 12/22/76 07/16/81 /a Including the cost of equipment for the technical school (US$0\.75 mil- lion) which was financed with proceeds from the Third Education Project (Loan 1346/Credit 667-PA), the total project cost would be US$9\.44 mil- lion, an increase of about 29% over the original appraisal estimate\. - iti - MISSION DATA Month/ No\. of No\. of Man- Report Typeof Mission Sent by Year Day Persons weeks/a Date Identification/ UNESCO 09/66 20 3 12\.0 04/67 Sector Work Reconnaissance IBRD/UNESCO 12/67 4 3 2\.4 01/68 Reconnaissance IDA 12/69 6 1 1\.2 02/70 Reconnaissance IDA/UNESCO 10/70 10 2 4\.0 12/70 Preparation UNESCO 03/71 15 4 12\.0 04/71 Appraisal IDA 09/71 15 4 12\.0 03/11/72 Total 70 43\.6 * Supervision 1 IDA 10/73 4 1 0\.8 11/12/73 Supervision 2 IDA 03/74 5 1 1\.0 04/30/74 Supervision 3 IDA 11/74 5 1 1\.0 01/20/75 Supervision 4 IDA 04/75 7 2 1\.8 05/05/75 Supervision 5 IDA 10/75 2 2 1\.0 11/25/76 Supervision 6 IDA 04/76 2 1 0\.5 05/03/76 Supervision 7 /b IDA/IBRD 06/76 4 1 0\.8 07/15/76 Supervision 8 7- IDA/IBRD 11/76 2 3 1\.2 02/24/77 Supervision 9 7c IDA/IBRD 04/77 2 2 0\.8 07/07/77 Supervision 10/c IDA/IBRD 11/77 1 1 0\.2 11/22/77 Supervision I1 IDA/IBRD 05/78 2 2 0\.8 06/14/78 Supervision 127- IDA/IBRD 01/79 2 1 0\.4 03/22/79 Completion IDA/IBRD 02/80 10 2 5\.0 06/30/80 Total 54 15\.3 CURRENCY EXCHANGE RATES Name of Currency: Guarani Abbreviation: G Exchange Rates: Appraisal year US$1\.00 - G 126\.00 At time if completion and audit missions US$1\.00 - G 126\.00 Average during implementation period US$1\.00 = G 126\.00 FISCAL YEAR OF BORROWER January 1 - December 31 ALLOCATION OF CREDIT PROCEEDS (in US$) Comparative Dislursements by Category As Disbursed As Indicated in As Amended up to Category Credit Agreement Nlovember 3, 1977 December 31, 1979 I\. Furniture & Equipment 1,600,000 1,650,000 1,675,503\.38 11\. Technical Assistance & Equipment for Project Unit 800,000 500,000 486,035\.25 Ill\. Construction 1,600,000 2,827,000 2,816,314\.29 IV\. Professional Architecrural Services 100,000 123,000 122,247\.08 V\. Unallocated 1,000,000 -- -- Total 5,100,000 5,100,000 5,100,000\.00 La Time spent in the field (on the first project only)\. /b Joint mission with Loan 1252-T-PA\. 7_ Joint mission with Loan 1346/Credit 667-PA\. - iv - PROJECT PERFORMANCE AUDIT REPORT PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) EIGLIGHTS The project supported important reforms in Paraguay's system of secondary education to make it more responsive to the changing economic and social needs of the country\. Thanks to careful (though time consuming) proj- ect preparation, strong Government and IDA comnitment, and an efficient project implementation unit, the project was successfully executed and important benefits were realized\. There were some coit overruns and time delays, but the closing date did not have to be extended\. Subsequent Bank- sponsored projects have built on the achievements of this first project and further contributed to the modernization and expansion of Paraguay's educa- tion system (PPAM, paras\. 1, 2, 21, 23 and 24)\. The project provided for the construction of seven multilateral schools and one new upper secondary level technical school, as well as for the extension of an existing secondary school, and the extension of a voca- tional training center\. The project also included 33 man-years of technical assistance and 23 man-years of fellowships for the training of local staff to work with the newly developed curriculum (in particular to teach technical subjects) and to increase the managerial and technical capacity of project unit personnel\. During project implementation, the following minor changes were requested by the Borrower and approved by the Bank: (a) the vocational training center was deleted and later financed by the Japanese Government, and (b) most of the equipment purchases for the upper secondary evel tech- nical school were transferred to the third education project (ECR, para\. 2\.01)\. These changes, however, did not alter the project's original objectives\. They included assisting the government in (a) reforming the secondary education system, (b) improving the quality and content of second- ary education by striking a better balance between general and technical/ vocational studies, and (c) introducing training programs for middle level technicians\. These objectives were fully achieved\. The project contributed to the reform of secondary schools by providing well-constructed and well- equipped schools with workshops, laboratories, and instructional materials\. The Government demonstrated its support of the project by providing trained principals, a growing number of qualified teachers, and adequate budgetary support for the project schools\. Sites were well selected and facilitated the accommodation of related extra-curricular activities (PCR, para\. 3\.06)\. Late acquisition of some of the sites, however, caused some delays and should have been under- taken at an earlier stage (PCR, para\. 3\.06)\. Physical components were largely completed on schedule\. The standardized school designs provided - v - functional facilities and contributed to timely implementation of the project (PCR, para\. 3\.07)\. The designing and selecting of furniture by the project unit improved as experience increased (PCR, para\. 3\.10)\. Equipment in both the science laboratories and practical areas was satisfactory in both quantity and quality (PCR, para\. 3\.11)\. Project facilities are now well maintained\. Enrollment targets exceed appraisal estimates in urban areas while rural schools are slightly underenrolled (PPAM, para\. 16)\. Effective technical assistance provided by Latin-American experts resulted in sub- stantial cost savings\. The fellowship program successfully trained technical school teachers in the local Institute of Higher Education and the University of Vork in Brazil (PCR, paras\. 3\.31-3\.33)\. Other points of interest are: - the importance of the creation and strengthening of the Depart- ment of Technical and Vocational Education by the Government to provide leadership for the development of technical and voca- tional education (PCR, para\. 3\.19); - the effective use of counterpart staff as key personnel in the Department of Vocational and Technical Education, as school directors, and as heads of departments (PCR, para\. 3\.36); and - the need to check workloads of contractors before bids are awarded (PCR, para\. 3\.09)\. PROJECT PERFORMANCE AUDIT MEMORANDUM PARAGUAY FIRST EDUCATION PROJECT (CREDIT 347-PA) I\. PROJECT BACKGROUND AND SUMMARY 1\. The project fitted into the Paraguayan Educational Development Plan 1969-80 and represented the first Bank Group effort to meet Paraguay's needs in the areas of general, technical and vocational secondary education and training\. The general objectives of the project were to assist the Govern- ment in: (a) reforming secondary education by improving its quality and content and by reducing the imbalance between general and technical/voca- tional education; and in (b) implementing a national scheme for training middle level manpower needed in industry, commerce and agriculture\. More specifically, the project intended to: (a) establish sevei prototype multi- lateral secondary schools which would emphasize science and practical sub- jects; (b) extend an existing secondary school; (c) establish a new technical secondary school for training middle level technicians; and (d) remodel and equip a vocational training center to offer nonformal programs\. In addition, the project undertook to (a) introduce a system of full-time qualified teachers, (b) train 24 technical teachers, and (c) provide technical assistance to develop new curricula and syllabi for technical courses in the various project institutions (PCR, paras\. 2\.01, 2\.03, and 2\.04)\. 2\. Project generation took an unusually long period (five years)\. This was partly due to insufficient sectoral information but more importantly to the time-consuming excercise of programming the reform \.f the secondary education system which required detailed preparatory work in curriculum development, institutional and physical planning\. Moreover, substantial time was needed by the authorities to take a number of important decisions in preparation of the reform\. 3\. During implementation, the project was altered twice without formal amendments to the Credit Agreement\. The changes included: (a) deletion of the vocational training center, which instead was financed by the Japanese Government;1/ and (b) transfer of most of the purchase of the technical school's equipment to the Third Education Project\. 4\. The project, as modified, has been physically implemented without extension of the initial closing date\. Total estimated project costs amounted to US$8\.68 million and the Government met the overrun of about 18%\. As far as can be ascertained at this stage, the project's educational achievements have been promising\. This has been confirmed by the auditor's ftndings\. 1/ This center has outstanding facilities and a well-trained, full-time staff of instructors\. The success in attracting the Japanese Govern- ment's interest in financing the vocational training center was partly due to the competence gained in this project by the Project Unit in develop,iil and inplementing education projects\. II\. PROJECT IMPLEMENTATION Physical Implementation and Project Management 5\. PIU's management of the project's hardware and software components was outstanding due to the quality and continuity of managers and profes- sional staff, which facilitated access to decision-makers and coordination with education departments\. Furthermore, two other favorable factors were the project's reasonable size and realistic implementation schedule\. 6\. Physical implementation has been successful, in spite of construc- tion delay during the last phase of the schedule\. Almost 80% of the project was completed within the original schedule and an extension of the closing date was not required\. Professional services from architectural consultant firms were satisfactory\. As has been observed in some other projects, con- struction supervision for the later phases was assumed by the Project Unit for economic reasons\. Site selection caused some unforeseen problems and should have been part of the project preparation stage\. The designs were of good quality, but the PCR is correct to suggest that architectural consul- tants should evaluate exterior works more carefully to obtain more realistic cost estimates (PCR, para\. 3\.07)\. The quality of the construction in all project institutions is good\. The delays which occured in the last phase of implementation could have been reduced if bidders' work capacity had been checked prior to actual award (PCR, paras\. 3\.05-3\.09)\. Furniture and Equipment 7\. Furniture procurement went smoothly and the furniture is generally of good quality; minor problems encountered in designing the furniture have provided lessons for subsequent projects\. The equipment was satisfactory in quantity and quality, thanks to the cooperative efforts of the project unit educator, specialist teachers and expatriate experts\. There were a few shortcomings in the use of some of the equipment due to lack of expertise\. In the view of the Borrower, however, the cost of equipment had been grossly underestimated at project generation stage, to the extent that a major portion of the equipment of the technical secondary school had to be trans- ferred to the third project\. PIU tried an experimental approach for procure- ment of equipment (mainly for physics, chemistry and biology courses), whereby an automatic preselection of suppliers allowed them to prepare their own lists for package-bidding on the basis of educational objectives, class size, teaching methods, etc\., per subject\. This procedure encouraged sup- pliers to inflate their proposals\. The approach was finally abandoned and PIU returned to its traditional method\. School maintenance is satisfactory\. A handbook for maintenance procedures and standards which was to be prepared is now available (PCR, paras\. 3\.10-3\.14)\. -3- Compliance with Covenants 8\. The Government and the Ministry of Education enacted the required laws and regulations to comply with most of the Credit Agreement condltions (PCR, Annex 13)\. Most of the principal covenants were fully implemented, two are partially realized and one has not been fulfilled but has been added to the Fourth Education Project (PCR, Anne% 8)\. The requiirement for all teach- ers in the project schools to be qualified and working full-time could not be met due to shortage of funds\. The evaluation capability which was to be established to provide a reliable data base for judging the project effec- \. tiveness and impact was included in the Third and Fourth projects (PCR, para\. 3\.39)\. Technical Assistance 9\. The technical assistance and fellowship components of the project were fully implemented\. Furthermore, thanks to an arrangement with OAS (Organization of American States) and the recruitment of a group of expatri- ate specialists from the region, considerable savings were realized in this category (nearly 40% of appraisal estimates)\. Under a chief coordinator, the group was fully integrated for lk years with counterpart staff\. Equally suc- cessful was the fellowship program (also implemented within the region and complemented by ESI courses given in the Institute of Higher Education in Asuncion) both in training the required teachers for the project schools and in savings realized\. More technical teachers were trained than had been planned at appraisal and the surplus provided teachers for some non-project schools\. This was accomplished at very little additional cost\. IDA Performance 10\. Overall, IDA performed well, showing flexibility when necessary, while conscientiously guiding and monitoring the project\. Field staff con- tinuity was maintained and project institutions were frequently visited by supervision missions\. A visit from a technical educator could have been beneficial, as the project had important technical education components, such as the technical school,2/ the staff development program, and the manpower and liaison with industry\. Also, at the project generation stage, partici- pation of a technical education specialist was inadequate\. Costs and Disbursements 11\. Total project cost was US$8\.68 million with a cost overrun of 18% which was absorbed by the Borrower\. This overrun was due to higher construc- tion and furniture costs, which were partly offset by significant lower costs for technical assistance\.3/ The capital cost per student place for the new multilateral project schools nearly doubled from Phase I to Phase II--rising from US$938 to nearly US$1,700--reflecting considerable inflation during 2/ The vocational training center was still a project component for ten of the twelve supervision missions\. 3/ The decrease was attributed to the recruitment of Latin American spe- cialists rather than international experts (PCR, Dara\. 3\.15)\. project I mpl\.mentIatton\. Tbe unit cost per student place for the teclinLcal school (which was built in Phase II1) was slightly over US$4,000\. The per student costs, however, are reasonable compared wLth other Bank group proj- ects in Latin America (PCR, para\. 3\.16)\. Disbursements were slow up to the end of 1976, (the date of effectiveness was delayed by one year) but from 1978 up to 1980 disbursements were almost on schedule 4/ 12\. The Government made a commendable effort in meeting the operational ro Ls of the project schools by (a) providing funds to implement the teach- ersi new salary scale; (b) increasing the number of full-time teachers; and (c) assuming the cost of consumable materials for laboratory and workshops (after the project's initial two-year provision of funds for this purpose)\. Also, the Government increased its recurrent budget by 60% fron 1979 to 1980 for the nine project institutions\.5/ The 1979 operational costs per student for project schools were double those of the national average for public sciools but low relative to other Latin American countries (PCR, para\. 3\.32)\. III\. EDUCATIONAL ACHIEVEMENTS 13\. The project achieved a major institutional objective by assisting in the establishment of a strong and efficient Department of Technical Edu- cation and Vocational Training\. This department which is staffed by former counterparts of expatriate specialists, carries out guidance and monitoring functions for public and private schools\. The department's significance is recognized by the generous financial support it receives from the Government which increased its budget nearly six-fold from 1977 to 1980\. One of the main functions of the Department was to establish a joint advisory committee composed of representatives of the Government and industry\. This committee is no longer the main focus of an efficient collaboration with the private sector, as it is now believed by the Paraguayan officials that a decentralia- ed, more direct contact between schools and private business is more effi- cient and more likely to bring results\. Since the project's physical compon- ents were completed at various times (more than half the schools were com- pleted by 1978 and two since 1980) , the opening of the schools had to be staggered over a four year period\. 4/ At the end of 1977, the unallocated part of the loan plus almost 40% of the initial amount earmarked for technical assistance and equipment of the P\.U\. were transferred to construction\. 5/ The increase of the recurrent budget for the technical secondary school alone was 78% from 1980 to 1981, the average increase bEtween 1980 and 1983 being 34%\. For both types of schools there was a marginal partici- pation of students amounting to about US$2 per month for expendable materials per student\. -5- Curricula and Syllabi 14\. Both curricula and syllabi were revised6/ for the two cycles of secondary education and are now being satisfactorily applied in the project schools; the latter are seen by the teaching staff as having the country's best facilities and equipment\. As for the techniczal streams (in the multi- lateral and technical schools), syllabi have been written carefully with the assiscance of the expatriate specialists, and are accompanied by explanatory teacher's manuals\. Enrollments 15\. At the time of the completion mission, enrollmetnL for the seven multilateral schools was nearly 8,000,7/ which was slightly more than the aniaisal estimate of 7,920\. The three schools built in the first phase had 5,506 students, compared to the 4,560 appraisal estimate\. This surplus was due to the operation of a third shift in the evenings, and consequently did not affect the quality of teaching\. The four remaining rural schools were still underenrolled at the time of the completion mission, with 2,464 students instead of the originally anticipated 3,360 students\. Under- enrollment occurs mostly in the higher grades, but this situation will change as larger numbers progress through these grades\. 16\. By the time of the audit, most schools had filled their grades\. Total enrollment was 10,615 in 1982\. The rural schools were all slightly underenrolled, whereas all schools in or near Asuncion were overenrolled (with an evening shift) except the one which started operating in 1980\. By replacing 14 inadequate neighborhood schools, the new project schools have played an important role in the consolidation process envisaged at the time of project generation\. They also have demonstrated the effective implemen- tation of Government's policy of democratizing secondary education by offering more and better public schooling (PCR, para\. 3\.24), as is reflected by the higher increase in enrollment in public secondary schools as compared to that in the private secondary sector (11% vs\. 1\.6% per year for the period 1971-78)\. Originally, secondary enrollment was 52% in public schools and 48% in private schools but in 1982 enrollment in public schools had reached 73%\. The projections used for the next ten-year plan indicate that the figure will stabilize at about 70% for public sector enrollment\. 17\. As for the Technical Institute in Asuncion, it was in full cpera- tion in 1982 and enrolled nearly 750 students,8/ with an average of 94 6/ Published as "Educational Innovations" in 1973 by the Ministry of Educa- tion\. 7/ In the schools outside Asuncion, three-fourths of the student body is drawn from farm families, while in the city the schools are addressing the middle to low-income groups\. 8/ Compared to the expected 840 students at the appraisal stage\. students in each of the eight specializations\. In 1982 the output of graduates was 186\. It is expected to attract 1,500 applicants this year for an intake of 320 students\. Teaching Staff 18\. About 30% of the teachers in project schools are full-time, whereas this percentage is only 10% in non-project schools\. Contrary to the opti- mistic expectations at appraisal which assumed that 100% of teachers would be full-time, part-time teachers will continue to be used, essentially for economic reasons\. As for teachers' salaries, improvements have been made and a new salary scale is progressively being applied to an increasing number of secondary teachers\.9/ Although the project did not specifically provide financial or technical assistance for staff development of the project schools10/ (except for teachers of technical subjects), 8% of project multilateral school teachers were considered fully qualified (PCR, para\. 3\.30), as opposed to 56% for all secondary school teachers countrywide\. All, however, have benefitted from various upgrading courses which were aimed at carrying out innovative approaches in the classroom\. At the technical school, all the staff are qualified, mainly as a result of a policy to re- train and regularly upgrade management and technical staff, including guidance personnel and pedagogical advisors\. The teaching staff of 82 com- prises 45 full-time teachers and 37 part-time teachers: the latter are equivalent to about eight full-time teachers\. The result, therefore, was the expected teacher-student ratio for this level and type of courses of 1:15\. School Facilities 19\. All project schools offer excellent facilities11/ for practical subjects and are very well kept\. The use factor of the workshops is high and the past difficulties encountered in relation to the timely supply of con- sumable materials and to the delivery of equipment parts have, to a large extent, disappeared\. The audit mission ascertained that the use of science 9/ By the end of 1979, 70% of the secondary teachers had come under the new salary scale\. 10/ This gap was strongly felt by the responsible Paraguayans\. However, many schemes have been under way for several years, sometimes with the rssistance of bilateral or multilateral aid, to train and retrain teach- ers of various subjects and instructors of technical/vocational areas\. This was done within the country or by means of fellowships abroad (Japan, Brazil, Argentina, etc\.)\. In particular, the ISE (Higher Educa- tIon Institute) built with US aid support, is contributing considerably every year by training and retraining teachers and instructors, covering upgrading as well as pedagogical complements intended for subject specialists\. 11/ The teaching staff consider that they have the best facilities and equipment in the country, even relative to the private sector\. The auditor's visits to the schools confirmed that the project schools in- deed offer an outstanding learning environment with keen teachers and principals as well as very well maintained furniture, equipment and buildings\. - 7 - laboratories and the presence of qualifed instructors in the workshops has improved considerably since project completion\. This improvement is to a large extent the result of either ESI's in-service teacher training or training obtained through overseas fellowships\. Students' Achievements 20\. Based on the data the audit mission collected in the field, both the secondary multilateral schools and the secondary technical school have a high internal efficiency, especially in comparison to the average internal efficiency of public secondary schools in the country\. Records indicate that 88% (1982) of the multilateral school students and 87% (1982) of the tech- nical school students satisfactorily completed their courses, whereas the national average for completion is 56% (1981)\.12/ Th- external productivity of the system cannot yet be assessed but a tracer system has been incor- porated in the fourth education project to follow the educational and employ- ment activities of secondary school graduates\. IV\. CONCLUSIONS AND LESSONS 21\. Project generation was extended over a f:ve-year period due to insufficient sector information and time-consuming preparation by the author- ities of a major reform of secondary education (PPAM, para\. 2)\. The careful preparation, however, facilitated project implementation and contributed sub- stantially to the successful outcome of the project\. 22\. Thanks to careful planning during pro\. act preparation, only a few minor changes were made during implementation (PPANX, para\. 3) which include: a\. the deletion of the vocational training center which was instead financed by Japan; and b\. the transfer of the purchase of equipment for the upper second- ary level technical school to the Third Education Project\. These changes helped the project to be implenented on time and kept its over- all cost within reasonable limits\. 23\. An efficient project unit with well-qualified staff, the project unit director's direct access to the Minister of Education, as well as the project unit's continuous communication with educational leaders, teachers and school administrators contributed greatly to successful project implemen- tation (PPAM, para\. 5)\. The hiring of technical assistance personnel, from other Latin American countries, resulted in optimal utilization of resources as they completed their tasks in less time and at less cost than originally expected\. The fellowship training program, completed in the local Institute of Higher Education and Brazil's University of Work, was successful in pre- paring teachers to work effectively with the new curricula (PPAN, para\. 9)\. 12/ No repeater figures are available for either projEct or public sclools\. - 8 - Government's commitment and interest in the project were demonstrated by: (a) the establishment of a Department of Technical and Vocational Education; (b) revision of teacher salaries; (c) increase in the number of full-time teachers; (d) training teachers and school administrators; and (e) adequate budgetary support for the replenishment of consumable materipls and school maintenance (PPAM, paras\. 12, 13 and 18)\. 24\. In addition to the contribution the project made to the quantita- tive and qualitative inprovement of secondary education, important institu- tion building was achieved through the project unit's effective implemen- tation of the project\. After the project closed, the project unit remained with the Ministry of Education to implement follow-on projects, to develop new educational projects and to provide technical assistance to other counities\. The PIU also made a commendable effort in preparing its com- pletion report which was further evidence of the high level of competence gained by the project unit's management group\. Counterpart staff have been trained and assigned to important leadership positions in the newly reformed general, vocational and technical secondary schools\. 25\. The main lessons learned from this experience were: (a) the crucial role of educational planning and programming for success in project implementation; and (b) the importance of continuity and\. stability of key responsible officers, in the Ministry of Education, the PIT and in project schools\. Other experience gained relates to the importance of serious com- mitment of Government to the project content and covenants, and of timely and full implementation of the technical assistance components, whether it be the expatriate expertise or the staff development programs through the use of fellowships (PCR, para\. 3\.40)\. PROJECT COMPLETION REPORT PARAGUAY FIRST EDUCATION PROJECT CREDIT 347-PA June 30, 1980 Projects Department Latin America and the Caribbean Regional Office - 11 - PARAGUAY Credit 347-PA FIRST EDUCATION PROJECT Completion Report I\. INTRODUCTION 1\.01 In accordance with terms of reference, dated January 23, 1980, a mission composed of Messrs\. R\. Corradine (Architect/Facilities Planner) and A\. Freire (General Educator) visited Paraguay during February 14-28, 1980, to carry out a completion review of the First Education Project (Credit 347-PA)\. The mission was expected to compa:e the objectives, assumptions and implemon- tation plans of the project, as conceived during project appraisal in the Development Credit Agreement with the actual results achieved to date\. From this review and comparison the mission was expected also to derive lessons and recommendations for the development and implementation of other education projects, insofar as they were identifiable during the mission\. 1\.02 The main basis of the mission review has been the Borrower's Completion Report (BCR: dated December 1979) prepared by the Project Unit\. The mission has analyzed the adequacy of the coverage, content and assessment of the report and has filled the gaps as needed by (a) carrying out a study of records, reports and other data available in the Bank; (b) making visits to all project institutions; and (c) having interviews with the headmasters of the project institutions and with all the key officials of the Project Unit\. 1\.03 The Borrower's Completion Report (available on file) examines all phy- sical as well as education implementation aspects of the project\. Although the first part is devoted almost entirely to the paraphrasing of the description of the project and the responsibilities of the Project Unit as they were spe- cified in the Credit Agreement and Working Papers, the second part is devoted to self-evaluation of the project implementation\. The mission feels that this BCR is indicative of the acceptable quality of the work of the Project Unit, and represents the first example of self-evaluation by a borrower in the \. education sector in the Latin American and the Caribbean Region\. 1\.04 Although this Completion Mission's report follows the usual format for Bank completion reports, it mainly highlights the data, analyses, criti- cal remarks and conclusions included in the above-mentioned BCR\. The mission report provides additional information, points out differences in analyses and interpretations, and derives further lessons and recommendations inasmuch as they can be derived at this moment\. 1\.05 The Project Unit has developed a thorough system of data collection, processing and presentation of information on management, which can be readily employed for present/future projects\. 1\.06 Key persons met and places visited during the mission are listed in Attachment 1\. - 12 - Ii\. CONTENT AND PROJECT OBJECTIVES 2\.01 The project consisted of the construction, furnishing and equipping of (a) seven new multilateral schools; (b) one new upper secondary-level technical school; (c) the extension of an existing secondary school; and (d) the exten- sion of one vocational training center\. The project included 33 man-years of technical assistance and 23 man-years of fellowhips for local staff in sup- port of curriculum development, teaching of technical subjects and project implementation\. During project implementation, however, the project content underwent the following two changes: (a) the vocational training center was deleted from the project and financed with a grant from the Japanese Govern- ment, and (b) the equipping of the upper secondary-level technical school was transferred to the subsequent Third Education Project\. 2\.02 Project costs were estimated at US$7\.3 million financed by an Association Credit of US$5\.1 million and a Government contribution of US$2\.25 million\. In November 1978 proceeds of the loan were reallocated, mainly to meet civil works cost overruns\. 2\.03 'The general educational objectives of the project were: (a) To assist the government in carrying out a reform of the education system, especially of the secondary general and technical educa- tion subsystem, to make it more responsive to the economic and social needs of the country by improving the quality and content of secondary education and reducing the imbalance between general and technical/vocational education; and (b) To assist the government in implementing a national scheme for training middle level manpower needed in industry, commerce and agriculture\. 2\.04 In furtherance of the above general educational objectives the fol- lowing specific objectives were to be pursued: (a) to establish prototype multilateral (diversified) secondary schools, adequately equipped and staffed, for implementing a reform curri- culum of secondary education\. The lower secondary cycle (grades 7- 9) would emphasize the study of natural sciences, mathematics and practical prevocational subjects, such as industrial arts, home economics and agriculture, while the upper secondary cycle (grades 10-12) would offer a diversified curriculum, including carses in industrial subjects, commerce and humanities/sciences\. Students would receive guidance services, medical and dental care and other services; (b) to establish a new technical secondary school for training, in a three-year course at the upper-secondary level, about 260 middle level technicians: 60 in electrical trades, 100 in mechanics, 60 in civil construction, and 40 in industrial chemistry; - 13 - (c) to remodel and equip a vocational training center to train annually, ir\. a flexible nonformal program, about 1,000 youths and adults as skilled workers in carpentry, automechanics, electrical installa- tion, plumbing, welding and other trades where the demand is greatest; (d) to train about 24 technical teachers who would be responsible for implementing the curriculum in the project technical and multilateral schools; (e) to develop and implement new curricula and syllabi for the techni- cal courses in the multilateral, vocational and technical schools\. To meet this objective the Department of Vocational and Technical Education would be established and be assisted by a joint committee representing government and industry and by international specialists in organization, administration, electrical engineering, mechanical engineering, industrial chemistry, and civil works and construc- tion (about 30 man-years in total); and (f) to improve the quality of internal and external school efficiency through the establishment of a system of full-time qualified teachers in public secondary schools and a new salary scale that would allow secondary school teachers to pursue their profession on a full-time basis\. III\. PROJECT EXPERIENCE Project Generation 3\.01 The project's formulation extended over five years and involved three reconnaissance missions, one preparation mission and the appraisal mission\. Progress was slow, mainly because: (a) little sectoral information was available to the Bank, as the project was the Bank's first education sector operation in the country; (b) a number of basic governmental decisions were required as to the reform of the secondary education system to meet the educational and economic needs of the country; and (c) a great deal of pre- paratory work required before appraisal\. A chronological outline of project generation is shown in Annex 1\. Project Management 3\.02 Project Unit\. Responsibility for physical execution was assigned to a Project Unit established in accordance with Schedule 4 of the Credit Agreement\. The organization of the Project Unit as well as its performance were sound, and the project was implemented efficiently ana economically\._1/ 1/ Technical and administrative staff had the opportunities for in-service training provided during the execution of the project (EDI courses)\. This Project Unit, which is also in charge of implementing the Third Education Project (Loan 1346/Credit 667-PA), has provided consultancy services to a project unit in Bolivia\. - 14 - The Project Unit's efficiency was due mainly to: (a) the staffing of quali- fied professionals; (b) its special status within the hinistry of Education's organization, whereby the Project Unit Director reports directly to the Minis- ter and coordinates with the Ministry's various education departments through the Director General of Education; L/ (c) the stability at managerial and key staff levels; (d) tractable size of the project; and (e) the realistic imple- mentation schedule established at appraisal\. (Description of the Project Unit's establishment, personnel and activities are included in BCR, paras\. 1\.5 and 2\.1\.) 3\.03 Implementation Schedule\. The Credit was approved by the Board on December 22, 1972\. However, project implementation began only when the Project Unit was established on October 24, 1973, and Credit 347-PA became effective on October 30, 1973\. The delay in establishing the Project Unit was due to the national budget, which had been approved without adequate provision for Project Unit staff salaries\. The buildings were constructed, furnished and equipped in three separate stages over six years\. Some delays occured in construction during the third implementation stage\. However, almost 80% of the project was implemented within the original schedule, and no extension of the original closing date was necessary\. Annex 2 provides an historical perspective of the progress of implementation of the key elements of the project as compared with the appraisal schedule (see details in BCR, pars\. 5\.7)\. 3\.04 Supervision Visits\. Between 1973 and 1979 there were 12 supervision visits at intervals of between three to eight months; 17\.4 man-weeks were committed to these visits (an average of 7\.3 man-days per year)\. Association assistance to the Project Unit with a fairly even participation of three architects and one educator, from appraisal through completion, seems adequate\. The continuity of Association staff in project supervision is considered to be an important factor for successful project implementation\. Staff combined most supervision of this project with the Second Education Project (financed under Loan 1252-T-PA) after June 1976, and with the Third Education Project (financed under Loan 1346/Credit 667-PA) after April 1977 (see details in BCR para\. 1\.7)\. Physical Implementation 3\.05 Professional services were provided by (a) the School Construction Center for the Latin America and Caribbean Region (CONESCAL), and (b) three local architectural consultant firms (one firm for each implementation stage) selected in accordance with the Association's guidelines\. CONESCAL's input reflected high professional standards, and in general, the consultants performed well\. For the first implementation stage, the consultant firm accomplished both the development of a common design and the construction supervisory function for the corresponding project items\. Professional fees, which were 2% lower than appraisal estimates, were reasonable\. For the second and third implementation stages, the Project Unit took over construction supervision for economic reasons\. If The Director General of Education also served as Project Unit Educator, and was assisted by a qualified education officer\. - 15 - 3\.06 Sites were generally well-selected insofar as size, topography and catchment areas are concerned\. Site problems in project items A7 and A5, unforeseen at the time of project appraisal, resulted in 3% and 6% cost over- runs, respectively, over the initial construction contracts\. Since identi- fication of some sites took up considerable time in the work plan, it is advisable that site selection should be a part of the project preparation phase (see details in BCR, paras\. 5\.5 and 5\.8)\. 3\.07 Desgns\. A common set of educational specifications and architec- tural briefs was used for all project schools and contributed substantially to the timely implementation of the project\. The schedules of accommodation are very much in line with those planned, except for a justified increase in (a) student places (from 840 to 960), and (b) workshop areas (50%) in all multilateral schools outside Asuncion\. In general, thr architectural designs of project buildings were of good quality in both functional and aesthetic terms\. Some site development designs were omitted at the planning stage (sewerage channels, cuts and fills, embankments, etc\.)\. In this regard, architectural consultants should be required to make more exhaustive studies into the question of exterior works so that costs may be forecast with greater accuracy at the outset and any need for additional works avoided\. (Detailed information on variations of the original schedules of accommodations, the preparation of working drawings and construction/contract documents is in BCR, paras\. 5\.3, 5\.9 and 5\.10\.) 3\.08 Construction\. In conformity with IDA guidelines, invitations to bid were issued to prequalified construction contractors for the three implementation phases\. However, initially the bid evaluation procedure led to the contract award to the bid closest to the official estimate among the bids falling within a margin of plus or minus 10%\. After implementation stage 1, procedures for the evaluation of construction bidding were reviewed to assure conformity with the procurement guidelines under IDA credits (i\.e\., the lowest prequalified bidder is accepted)\. This change produced better results, since it fostered keener price competition among bidders and could be considered one of the institutional improvements made by IDA through the project\. 3\.09 During implementation stages I and II most of the schools were built within the stipulated time except for a few delays due to some additional works\. During implementation stage III, delay was caused mainly by: (a) the lack of local counterpart funds, and (b) the capacity workload at the time successful bidders signed contracts\. In this regard, -information pertaining to successful bidders should be checked again prior to actual award and signature of contracts so that the Project Unit may assure itself that bidders' work capacity is still as stated during the pre-qualification process\. The general building specifications, including the use of materials commonly available in Paraguay and conventional building methods, resulted in few problems during construction and contributed to the relatively short implemen- tation period\. However, the Completion Mission feels that there is room to make building specifications more practical for reasons of economy\. The quality of construction and workmanship in all schools is good in the Paraguayan context\. (Detailed information on pre-qualification of contractors' bidding documents and bid evaluations is in BCR, para\. 5\.15\.) -16 - 3\.10 Furniture procurement presented no major problems\. The design and selection of furniture were carried out by Projezt Unit staff\. Furniture was locally manufactured and, in general, of good quality\. Nevertheless, because of the Project Unit staff's inexperience in designing furniture, some basic furniture, specifically workshop benches, \.ould have been designed and manufac- tured better\. This problem has been recognized, and the experience gained by the Project Unit from this project will serve as a useful guide for the evaluation of future furniture needs\. (See details in BCR, Section 6\.) 3\.11 Equipment\. The preparation of instructional equipment lists zad technical specifications was initially carried out by the Project Unit staff with the aid of the technical assistance experts\. In general terms, equipment for science laboratories and practical areas is satisfactory in quantity and qualLty\. However, the mission found a few examples of equipment not installed or used for want of the necessary expertise\. Besides, insufficient Project Unit personnel were available to receive and check the equipment in some schools\. Clearly, the Project Unit staff should have had more resources or the project schools should have apppointed responsible staff to carry out the exercise of checking equipment and its installation\. 3\.12 The Project Unit tried an experimental approach to equipment pro- curement for general secondary courses, mainly physics, chemistry and biology\. The procurement process began with a system whereby potential bidders, in response to simple bid documents that described educational objectives, level of education, class size, teaching technologies, cost frame, etc\., suggested appropriate equipment items and bid on them\. Drafting of equipment lists was thus transferred from the Project Unit to the supplier\. This method implied an automatic preselection of suppliers, as only a few full-fledged firms with the capacity for preparing adequate lists would be able to bid\. This was not considered a disadvantage, since small firms or dealers who supply equipment on the basis of an already prepared list would be excluded\. This system was tried only once (in 1977), and of the three bids received, (a) one bid offered educationally satisfactory equipment, but was 40% higher than the cost estimate; (b) the second bid did not provide a detailed list of equipment to be included in each kit; and (c) the third, also given by kit, appeared more appropriate for primary schools than for project secondary schools\. The Project Unit concluded that few firms are prepared to respond to such an approach\. This system was dropped and the staff resumed the traditional procedure of bidding on detailed equipment lists prepared by local teachers on the basis of standard Bank lists\. (Chronological description of furniture and equipment procurement procedures during the three implementation phases is in BCR, para\. 6\.) 3\.13 Despite the Association's repeated suggestion, the Project Unit virtually did not take initiatives to follow local procurement procedures for purchasing a furniture and equipment package which was less than US$5,000\. The mission suspects that the reasons for not having used this procedure were (a) the Project Unit believed that adoption of the procedure might incite internal political pressures in the process of bid evaluation; and (b) the Project Unit did not want to take the risk of encountering a case in which the Association might reject financing of the contract\. - 17 - 3\.14 Maintenance of schools is the function and responsibility of school principals and their staff\. The Ministry of Education enacted a regulation providing funds for this purpose\. So far, the schools are being well- maintained\. The preparation of a school facilities maintenance handbook would be useful for establishing procedures and standards; at the suggestion of Bank supervision missions, the Project Unit is in the process of preparing a maintenance handbook which should be distributed by June 1980\. Costs and Financing 3\.15 The final project cost of US$8\.68 represents an increase of US$1\.34 million or 18% over the appraisal estimate, as is shown in the table below: Appraisal Estimate Final Category (incl\. cont\.) Cost Difference (Oct\. 1971) (Dec\. 1979) (%) Construction 3\.71 6\.24 +68 Furniture 0\.36 0\.452/ +17 Equipment 1\.75 1\.23- -30 Technical Assistance 1\.24 0\.49 -60 Professional Services 0\.28 0\.27 - 4 TOTAL 7\.34 8\.683/ +18 The Association financing of US$5\.1 million or 59% of the total cost falls below the originally planned Association share of 70% when the Credit was signed in 1973\. In this context, the cost overrun of US$2\.10 million is mainly the result of (a) an increase of 60% in construction costs, due to a rise in costs of labor and materials following the petroleum crisis, the prior use of the less competitive bid evaluation procedures during the first implementation phase, some under-evaluation in appraisal estimate;, and some additional external works not envisaged at appraisal; (b) an increase of 20% in furniture costs due to higher price escalation than estimated at appraisal; (c) an increase of 13% in equipment costs due to the high price escalation; and (d) a decrease of 60% in technical assistance costs, as a result of direct contracts with specialists from Latin American countries rather than recruitment of international experts through specia3ized agencies (para\. 3\.34)\. (Further detailed information on additional expenditures not eligible for Bank financing--project administration costs and additional civil works costs--is in the BCR, Section 4\.) 1/ Excluding construction for project item C-1\. 2/ Excluding equipment for project items C-1 and B-1\. 3/ Including the cost of equipment for the technical school (US$0\.75 million) which was financed by the Third Education Project, the total project cost would be US$9\.44 million, an increase of about US$2\.10 million or 29% over original appraisal estimates\. - 1B - 3\.16 The caita'l cost per student place for the new project "(chools as constructed is not strictly comparable with uripinal appraisal ot:fmates since the enrollment structure and the areas are not identic;l * ThLe unit costs per student place shown below increased with each ttage of conutruction uhowing the effect of the high inflation during project implementftion; however, compared with average unit conts of other Bank-financed projact,, they are considered reasonable\. Cot Retudent Place in IIS$ Type of Institution App raissal Phase I Phase 11 Phas- 111 19/11972 1975/1976 1976/1977 1978/1979 Multilateral School 663 938 1,686 -- Technical School 2,341 -- -- 4,044 3\.17 Disbursements\. There was no sLbstantial diffureace between apprai- sal and actual disbursements\. Estimated and actual disbursements ire shown graphically in Annex 2, by semester in Annex 3, and by category in Annex 4 (details in BCR, Section 4)\. Educational Aspects 3\.18 Overview\. All project schools are In operation: three since 1977, two since 1978, another two since 1979, and the remaining two since 1980\. They are well equipped; qualified teachers are implementing the reformed curriculum and using laboratories, teaching materials and workshops; trained principals have been able to improve school administration; and student guidance and medical care services are provided\. The mission concurs with the assessment of teachers, parents and students that the project, inasmuch as it can be assessed at this moment, has made the intended impact on the d,velop- ment of public secondary education\. At this time it is premature to approach the problem of employment of school graduates\. The first classes from tech- nical and diversified schools will graduate in 1982-83\. A tracer system to obtain data on further education and employment of secondary school leavers was not established, although that was a Credit covenant (Annex 8)\. The Borrower pointed out that it had not been able to establish such system because the Credit had not provided financial or technical assistance for this purpose\. In the proposed Fourth Education Project, in preparation, measures are being taken to finance the establishment of a tracer system\. 3\.19 The Ministry of Education has strengthened its Department of Technical Education and Vocational Training, which has to put it in line with the present state of development of this field of education in Paraguay\. The department is staffed with specialists in technical disciplines, the majority trained when they were counterparts of the technical assistance specialists\. The department is responsible for the supervision, guidance and inspection of all public and private schools providing technical education and vocational training as well as for the overall planning for training and updating tech- nical teachers\. The department received technical advice from a joint working - 19 - committee with representation ot gover,ment and Industry\. This committee was very cooperative during the design of curricula for technical courses, but since then has not been active\. Governmnot support for the technical department is evident from the rapid growth of the budgetary allocation, which has risen from 02\.3 million in 1977 to more than 013\.0 million in 1980\. During past years the Department of Technical Education and Vocational TrainJng has been able to prepare technical education projects that are alreadv b'eing financed by IDB and the Japanese Covernment\. 3\.20 Curriculum Development\. The Ministry of Education established a new secondary education system comprising two well-defined cycles: basic secondary education (grades 7-9) and the upper dive-sified cycle (grades 10-12)\. The reformed secondary system reflected the need to provide more trained or trainable secondary school leavers to meet the manpower requirements of the changing economy\. As a result of the project, the secondary education system has become more practical in its specialization and brGader in its content\. Industrial arts, home economics workshops and agricultural courses were in- corporated into the basic or lower secondary cycle which introduced youngsters to technological prevocational activities in agriculture, carpentry, mecha- nics and electricity, as well as in cooking, sewing, and child care\. The upper secondary level is designed to offer diversified courses so that stu- dents can specialize in humanities/sciences, commerce and industrial subjects\. The curricula and syllabi for the lower cycle and for the humanities/sciences specialization were revised by local specialists, while curricula as well as syllabi for the industrial upper secondary courses were prepared by inter- national specialists and their counterparts\. 3\.21 The revised curricula are being satisfactorily implemented in proj ect schools\. School directors and teachers have been trained by the Higher Institute of Edt:cation (ISE) in the objectives and content of the new curri- culum, the proper use and maintenance of audiovisual aids, and science/work- shop and school equipment\. Full cooperation and support are provided by the Ministry of Education authorities, staff of the Departments of Secondary and Technical Education, parents and students\. Provision of an adequate budget for school operation has also aided its implementation\. 3\.22 Evaluation of the new curriculum is being carried out by the Depart- ments of Secondary Education and Curriculum Development\. During 1979, data were gathered on implementation of the curriculum for the lower secondary education level and, with Bank financing under the Third Education Project, the data analysis and recommendations will be completed by June 30, 1980\. The proposed Fourth Education Project, which is being prepared by local staff with UNESCO assistance, will include financing for the evaluation of the diversified upper secondary education level\. 3\.23 Students\. As a whole, enrollments of about 8,000 students in opero- ting project schools are substantially in accordance with appraisal estimates\. Schools in operation for about three years have exceeded enrollment estimates by about 20% because they offer evening courses in addition to two day shifts - 20 - envisaged during appraisal\. Project schools in operation for only a year or two (four multilateral schools in the interior) have not yet reached the enrollment target (Annex 5)\. The government has committed itself to limit enrollment to the capacity of each project school in operation on a three-shift basis\. This is satisfactory and assuies quality education\. 3\.24 During project negotiations and approval the government agreed (side letter of December 22, 1972) that the eight new project secondary schools would replace the surrounding 22 smaller secondary schools\. Although the government has been unable to fully implement this consolidation program (only 14 schools have been consolidated into the eight project schools), due partly to political reasons, the remaining eight schools have reached more cost- effective enrollment levels due to the demand for secondary education, which has bc ,n greater than expected at the time of negotiations\. Enrollments in all public secondary schools increased 11% per year during 1971-1978, where- as the increase in private schools was only 1\.6% (Annex 6)\. This trend is the result of effective implementation of government's policy of democratiz- ing secondary education by offering more and better free public schooling\. In addition to project schools, the government has remodeled some schools and plans to expand others with IDB and furthe' Bank financing\. 3\.25 The enrollment pattern in the project schools by sex and age does not d:Lffer substantially from that of the whole secondary education system, where girls are well represented (Annex 7)\. The percentage of overage (14 years and over) students is lower in project schools than in the country because the project schools have established a system of selecting students on the basis of skills and basic education achievement\. In addition, they have reduced the repetition and dropout rates by improving teaching techniques, offering remedial courses, and guiding students in the choice of education/ training courses (see details in BCR, paras\. 7\.1 - 7\.3)\. A local project evaluation team study shows that in the schools located outside Asuncion, 75% of the student body is drawn from farm families, while the city schools serve the middle-to-low income groups (information on the survey of the socio- economic background of students is in BCR, para\. 7\.4)\. 3\.26 Teachers\. During project appraisal and negotiations certain under- standings and agreements were reached regarding the teachers at the project schools\. First, the teacher/student ratio of 1:15 at that time should be increased to about 1:25 by 1980; second, the system of part-time teaching should gradually be replaced by full-time teaching in public secondary schools, and more specifically, by December 31, 1980, two-thirds of the teaching posts in public schools should have been filled by full-time teachers; third, only full-time qualified teachers and principals should be appointed in project institutions and salaries should be determined on a new scale that would allow teachers to pursue their profession on a full-time basis and that would take into account their qualifications and length of service; fourth, teachers should be trained to meet the demands of project schools; and fifth, teachers in secondary schools should receive in-service training in the implementation of new curricula, with emphasis on science and practical subjects\. The majority of the foregoing points were included as covenants in the Credit Agreement (Annex 8)\. - 21 - 3\.27 The teacher/student ratio of 1:21 in project schools is higher than the average ratio for all public secondary schools, which remain as low as 1:15\. Possible reasons for this difference: (a) classrooms and other teach- ing spaces in project schools are large enough to accommodate 40 students, whereas the majority of non-project schools operate in homes where bedrooms have been converted into classrooms, resulting in fewer student places; and (b) the percentage of full-time teachers in project schools (31%) is higher than in non-project schools (10%) (Annex 9)\. 3\.28 The system of part-rime teaching continues\. On the whole, it is expected that by December 31, 1980, only about 10% of public secondary school teachers will be on a full-time basis, whereas in project schools the percen- tage will be about 31 (Annex 9)\. With hindsight, the Credit covenant (Section 4\.03(c)) appears to have been too ambitious\. rhe appointment of full-time teachers would be uneconomical in cases where certain subjects in the curri- culum require only a few hours a week or where only a few students sign up for the courses\. In the future, covenants should be more specific in terms of the target and the schedule of implementation\. 3\.29 Since Credit 347-PA became effective (October 30, 1973), the govern- ment has implemented a new salary scale (Escalafon Docente) and regulations for its implementation, in an effort to improve teachers' salaries and estab- lish economic incentives for in-service training, teaching in rural\. areas, teaching on a full-time basis, and carrying out community and extracurricular activities\. Application of the new salary scale has been designed to be implemented at a slow pace, however\. By the close of 1979 only about 70% of secondary education teachers were benefitting from it\. Although teachers' salaries remain low, during the past five years they have increased more than consumer prices\. Full-time teachers in project schools say their remunera- tion is satisfactory\. 3\.30 Appointment of new staff in project schools has been made on the basis of qualifications and experience\. All have attended upgrading courses on the implementation of the new curricula and syllabi and on the use of audiovisual aids and teaching equipment available in science laboratories and workshops\. However, classification of the teaching staff by certificates held reveals that, of the total, 83% are fully qualified (graduates of secon- dary teacher training courses), 12% are qualified (primary school teachers with approved courses in secondary school techniques), and 5% not qualified (secondary school graduates with teaching experience)\. (The qualification of teachers by project school is detailed in Annex 10 of this report and BCR, para\. 7\.7\.) 3\.31 The project includes financing of a fellowship program to train about 24 technical teachers needed for operating technical courses in project multilateral and technical schools\. This component was carefully planned as part of a more comprehensive, nationwide pre- and in-service teacher training program which included courses for technical and secondary school directors and supervisors; technical/professional personnel; technical teachers and workshop instructors; and industrial arts, home economics and general secondary education teachers\. The Institute of Higher Mducation (ISE), assisted by project technical assistance specialists carried out this program\. Of the 1,800 teachers of the above courses (Annex 11), about 300 were selected to staff project schools (see details in BCR, para\. 7\.6)\. - 22 - 3\.32 Technical teacher training financed by the Credit was given in 1977 in two phases: the first at ISE, lasting four nonths, and the second at the Universidade do Trabalho de Minas Gerals (UTRAMIG) in Belo Horizonte, Brazil, for six months\. With Association approval, the number of participants was expanded from the 24 established during appraisal to 44, in order to have a wider selection and to provide trained personnel for non-project schools at very little additional cost\. The first phase provided general basic instruc- tion in physics, chemistry, mathematics, technical drawing, adolescent psycho- logy, vocational guidance and teaching techniques\. Of the 44 part4c''pants, 35 qualified for the six-month second phase course in Brazil, provided by UTRAMIG, which trained participants in the p7inciples and practice of work- shops and laboratory instruction in the various trade or occupational fields, as follows: general mechanics (7), automechanics (2), diesel mechanics (3), electronics (7), electricity (6), refrigeration (4), civil construction (3), and industrial chemistry (3)\. 3\.33 The actual cost per trainee of the six months course in Brazil was about US$2,600, which is lower than the US$4,000 appraisal estimate\. Selec- tion of a training institute in Brazil and inclusion of the course in a Paraguay-Brazil cultural agreement account for this savings\. At the request of the government, the cost of 24 trainees at UTRAMIG was financed by Credit 347-PA, and of the remaining 10 trainees by Credit 667-PA (Third Education Project)\. This was approved by the Association because (a) the project under Credit 347-PA called for the training of only 24 technical teachers, and (b) it was necessary to reallocate funds to other categories (civil works and equipment) where actual expenditures exceeded the appraisal estimates\. 3\.34 Technical Assistance\. Implementation of the technical assistance component in Paraguay was unique in the sense that a regional organization (Organization of American States) was contracted only for the pre-selection of candidates\. In July 1974 the government signed an agreement with the OAS under which the latter assumed responsibility for providing the government with lists of qualified, available candidates for each of the technical assistance posts identified in the project\. The agreement was effective: the government received the lists of candidates identified within the Latin American region and, in consultation with the Association, contracted the specialists available from the region\. As the result of this approach, the actual cost of about US$23,000 per man-year was 37% lower than the 1972 appraisal estimate of US$36,000, excluding contingencies, for the cost of specialist services\. 3\.35 Although the specialists were contracted on an individual basis, they worked as a team under the direction of the specialist in organization and administration of technical schools\. Except for the chief of the group, who arrived in March 1975, all began working late in 1975 or early 1976, so that for about 18 months the group was fully integrated\. The government assigned competent counterpart staff on a full-time basis to support the services of each specialist, and in addition provided the technical assistance team with adequate office space, materials, secretarial service and internal transportation\. Under these conditions, the specialists were able to complete their tasks in a shorter time (two years) than the appraisal estimate (3-1/2 years)\. (See details in BCR, paras\. 1\.6 and 1\.9\.8)\. - 23 - 3\.36 The technical assistance program, completed in March 1978, was fully satisfactory to the government and the Association\. New curricula, syllabi and manuals prepared by the technical assistance team in consultation with the Joint Committee have been printed and distributed and are the primary reference for operating technical education courses\. Counterpart staff are now appointed as officers in the Technical and Vocational Education Department or as princi- pals of technical and multilateral schools, or as heads of technical streams in project schools\. Since some specialists' contracts terminated before the operation of the project institutions, the Borrower feels that the effective- ness of the specialists could have been enhanced if the same specialists had made a short, second visit while the project institutions were fully in operation\. However, one of the international specialists was contracted under the Third Education Project to continue assisting the government in training and retraining technical and industrial arts teachers and in supervising operations of workshops in schools under the First Education Project\. 3\.37 Operational Costs and Financing\. Proper operation of project schools was made possible by the government's provision of adequate funds for teachers' salaries under the new salary scale and for progressively increasing the number of full-time teachers\. Also, the project financed the cost of about two years of expendable material for science laboratories and workshops\. In 1979, schools in operation more than two years had faced difficulties in obtaining teaching materials\. The government, aware of this problem, in April 1980 increased the operations budget of secondary schools by means of increased student fees\. Budgetary allocations for the three first-phase schools have increased from about 053\.0 million in 1977 to double that (0106\.0 million) in 1980\. As the project schools were ready to begin operations, adequate budgetary provision was made; so the allocation for all nine project institutions in 1979 amounted to 0150\.0 million, and in 1980 to 0240\.0 million, an increase of about 60%, as the project schools became fully operational (see Annex 12 of this report and BCR, para\. 7\.29)\. 3\.38 The operational cost per student in 1979 for project schools was 018,800 (US$149), high if compared with the national average for public secon- dary schools (about 012,000 or US$76), quite similar to the cost per student in private secondary schools ((19,000 or US$151), and lower than other countries in Latin America which are at a similar stage of development\. Conclusions 3\.39 In general, the Completion Mission found that the educational * objectives of the First Education Project in Paraguay under Credit 347-PA had been successfully attained and that project institutions are considered by the government and by the communities involved to be prototypes for making the secondary education system more responsive to the socio-economic needs of the country and training middle-level manpower\. Special covenants of the Credit Agreement were adequately complied with (Annex 8)\. All legal and institutional arrangements made under the project for attainment of the project objectives are summarized in Annex 13\. In addition, the project has been instrumental in increasing the capacity of the MEC to initiate and organize - 24 - further educational investment projects, including the Third Education Project\. The project has brought about an efficient and effective collaboration of architects and educators of the Kinistry of Education in the process of project conceptualization, elaboration, design and monitoring during imple- mentation\. Institutional building in this respect has been a significant benefit\. The government, with Bank assistance (Third and Fourth Education Projects), will continue to evaluate the new curricula for secondary diversi- fied education and will establish a tracer system for secondary schools, including project schools, and other evaluation mechanisms in order to build a reliable data base needed for an in-depth and long-term evaluation of the contribution and effectiveness of the project\. 3\.40 From the review of project implementation, the mission draws the folloveing lessons: (a) Upgrading and training of teaching staff and administrators in implementing new curricula and syllabi, together with adequate budgetary supports, have substantially contributed to the successful implementation of the education reform; (b) The use of regional experts can be more cost-effective than specialtsts recruited from outside the region; (c) The arrival of the members of the technical assistance team at the same time, and the second visit by the same experts while the institutions are fully operational, would be useful, although not essential, if counterparts have been properly trained; (d) The size of this project was well in line with the absorptive capacity of the country's education system; (e) Project Unit staff stability, clear channels of communication, and delegation of authority by the Minister of Education to the Project Unit Director contributed' to the successful implementation of the project; (f) Project implementation should be seen as in-service training for local staff, especially for Project Unit staff, leading to the strengthening of technical and administrative capacity of the Borrower; (g) Continuity of IDA staff in supervising the project also contributed to the success of the project's execution; (h) Physical facilities, in addition to their educational suit- ability, should be adapted to local conditions and capabilities of local contractors and material suppliers; - 25 - (i) Since site identification and designs (including site develop- ment) took considerable tine in the work schedule and had significant implications for construction costs, it is advisable that site selection and designs be completed before the presenta- tion of the project to the Board; (j) Before the signing of civil works contracts, the Project Unit should recheck the workload of the successful bidders; and (k) Bank supervision staff should pay particular attention to (1) making arrangements for and assessment of furniture designs which require technical knowledge; (ii) fully explaining procure- ment procedures which allow the Borrower to use local procedures for items which cannot be grouped economically; and (iii) assuring the availability of personnel to carry out the activities of checking and installing equipment\. THIS PAGE IS BLANK - 27 - ANNEX 1 PARAGUAY Credit 347-PA The Project Cycle YEAR DATE ACTION * Background 1966 May First mention in file 1966 September UNESCO Identification Mission 1967 April Report of UNESCO Mission 1967 December UNESCO Reconnaissance Mission 1969 December IBRD/IDA Reconnaissance Mission 1970 April Application made to the IBRD/IDA TIME ELAPSED: 3 years, 11 months * Preparation 1970 October IDA/UNESCO Reconnaissance Mission 1971 March UNESCO Preparation Mission 1971 September Appraisal Mission 1972 March 11 Appraisal Report 1972 October 7 Negotiations 1972 December 22 Credit Agreement TIME ELAPSED: 2 years, 2 months * Implementation 1973 October 30 Effective Date 1977 October 30 Original Completion Date of Construction 1979 December 31 Original and Actual Closing Date 1980 February 14-28 Completion Mission TIME ELAPSED: 6 years, 2 months - 2 - ANNEX 2 PAZAGUAY Credit 347-PA EstAmard adn Atgal ImP\.leentai,on__and Plp"rgemenia USe Killion 1973 1974 1975 1976 1977 1\.978 1979 1234123412341234123412341234 Organization of P\.U\. & Project Programing XX Civil Works Plans & Specifications I 1 Tendering & Contract Awards Construction Period Guarantee & Closing Period I rnitute & Equipment3\.0 Preparation of Hascer Liage & Tender acuments XK = Contract Awards I X2KM 2\.0 Delivery & Installation Technical Assistance 1\.0 Specialists Fellowsiips Date of Effectiveness OriginsA a Actual Closing Date October 30, 1973 December 31, 1979 lIned aplentation XXKK2XX Actual Implementation -\. -- - Planned Diaburaeuent Actual Disbursementa - 29 - AINEK 3 PARAGUAY Credit 347-PA Disbursements - Estimated and Actual FY Semester Estimate at Actual/ Actual as % of Apraisal Years Appraisal Estimate --------US$millions-------- 1974 1 2 0\.03 - - 1975 1 0\.07 0\.006 9 2 0\.11 0\.02 18 1976 1 0\.31 0\.08 26 2 1\.22 0\.43 35 1977 1 2\.89 1\.69 59 2 4\.27 2\.56 60 1978 1 4\.54 3\.55 78 2 4\.75 4\.54 96 1979 1 4\.89 4\.69 96 2 4\.99 4\.98 100 1980 1 5\.10 5\.10 100 - 30 - AlNEX 4 PARAGUAY Credit 347-PA Comparative Disbursements by Category As Disbursed As Indicated in As Amended up to Category Credit Agreement November 3, 1977 December 31, 1979 I\. Furniture & Equipment 1,600,000 1,650,000 1,675,503\.38 II\. Technical Assistance & Equipment for Project Unit 800,000 500,000 486,035\.25 III\. Construction 1,600,000 2,827,000 2,816,314\.29 IV\. Professional Architectural Services 100,000 123,000 122,147\.08 V\. Unallocated 1,000,000 -- -- TOTAL 5,100,000 5,100,000 5,100,000\.00 PARAGUAY Credit 347-PA Enrollment by School and Grade 1979 Grades School Location 1 2 3 4 5 6 Actual Appraisal A-1 G\. B\. Caballero Asunci'n 470 454 486 418 403 333 2,564 2,000 A-2 Naciones Unidas Asunci6 339 296 239 224 177 152 1,427 1,1280 A-3 F\. de la Mora F\. de la Mora 321 310 278 232 184 190 1,515 1,280 A-4 Pedro P\. Pefia l Coronel Oviedo 181 82 116 118 60 52 609 840 A-5 Francisco Lopez-/ Caaguaz' 196 119 86 42 52 25 520 840 A-6 Pte\. Scroessner - San Ignacio 196 120 113 73 65 49 616 840 A-7 Rail Pefia 1/ Caacupe 170 182 119 102 78 68 719 840 A-8 Asuaci6n Escalade2f Ascunci6n - - - - - - - 2,000 B-1 Tecnico Nacional-V As- - - - - - - 840 z 1/ Began operating in 1978-79 - Will begin operating in 1980 SOURCE: Ministry of Education, Project Unit -32 - ANNEX 6 PARAGUAY Credit 347-PA Secondary Education Enrollment by Sector 1971-1978 Year Total % Public % Private % 1971 58,130 100 30,353 52 27,777 48 1972 62,552 100 34,241 55 28,311 45 1973 66,746 100 39,309 59 27,437 41 1974 71,619 100 44,361 62 27,258 38 1975 75,424 100 47,195 63 28,229 37 1976 81,915 100 53,890 66 28,025 34 1977 92,437 100 61,748 69 30,689 31 1978 101,126 100 69,657 69 31,469 31 Average Annual Increase -- Public 11%, Private 1\.6%\. SOURCE: Ministry of Education, Anuario 1978 - 33 - ANNEX 7 PARAGUJAY Credit 347-PA Secondary Education Enrollment by Sex A ne and Level (Percentage) 1978 etal Overage, Lower Cycle flarranities Commerc ial Techaie41 Country 100 17\.0 100 100 100 NA Boys 51 17\.5 52 47 55 NA Girls 49 17\.0 48 53 45 NA Project 100 11\.00 100 100 100 100 Boys 53 11\.0 52 49 54 95 Girls 47 11\.0 48 51 46 5 - 34 - ANNEX 8 Page 1 of 2 PARAGUAY Credit 347-PA Compliance with Credit Covenants Section Content Conditions Met Comments (%) 2\.02(a)(ii) Condition for withdrawal 100 None 2\.04 Closing Date December 31, 1979 100 With no extension 3\.02(a) Employ architectural consultants 100 None acceptable to the Association 3\.02(b) Employ qualified, experienced 100 Fully satisfactory technical assistance specialist 3\.02(c) Assign competent counterpart 100 None staff to technical assistance specialists 3\.04(a) Maintain until Closing Date a 100 Project Unit became permanent Project Unit staffed with personnel institution for implementing acceptable to the Association education investment programs 3\.07 Acquire sites for construction of 100 None project schools 4\.02 Operate project institutions 100 Fully satisfactory under conditions that will promote educational objective of project 4\.03(a) Formulate program for establish- 100 Government enacted two laws ment of system of full time quali- fied teachers and introduction of a new salary scale 4\.03(b) Progressively put the new salary 100 In 1979 about 70% of scale into effect secondary teachers had been benefited 4\.03(c) Appoint only full time qualified 31 This covenant was too teachers and principals in project ambitious to be met institutions 4\.03(d) Gradually replace part time teach- 17 This covenant is too ambitious ing with full time teaching in Only about 10% of teachers public secondary schools, and by will be on a full time basis\. December 31, 1980, have two-thirds of the teaching posts filled by full time teachers ANNEX 8 - 35 - Page 2 of 2 Section Content Conditions het Comments 4\.03(e) Establish technical education 100 None advisory committee with repre- sentatives of government and industry 4\.03(f) Higher Institute of Education 100 None (ISE) should offer courses to train technical teachers 4\.03(g) Conclude arrangements with 100 Industrialists have offered industry to provide trainees facilities, but trainees have opportunities for practical seldom used them industrial training 4\.03(h)(i) Assess public and private 100 Done by technical assistance industrial training needs specialists 4\.03(h)(ii) Formulate operational program - Vocational Training Center for the Vocational Training deleted from IDA Project Center because government obtained grant from Japan to implement this project component 4\.03(i) Establish tracer system to - This covenant not yet met\. obtain data on further education Project provided neither and employment of secondary financing nor technical assis- school leavers tance, both badly needed\. At government's request, program will be included in next Bank education project, now in preparation 4\.04 Maintain adequately buildings, 100 Law providing secondary equipment and furniture of project schools with additional schools monetary resources was enacted in February 1980 - 36 - ANNEX 9 PARAGUAY Credit 347-PA PROJECT SCHOOLS Full Tine Teachers 1979 Teachers Total Full Time Percentage A-1 G\. B\. Caballero 158 48 30 A-2 Naciones Unidas 66 24 36 A-3 F\. de la Mora 60 20 33 A-4 Pedro P\. Peffa 27 13 48 A-5 Francisco L6pez 19 - - A-6 Pte\. Stroessner 28 - A-7 Rad1 Peia 37 8 22 1/ A-8 Asunci6n Escalada- - B-1 Tecnico Nacional- ___ TOTAL 395 113 31 4 1/ Will begin operating in 1980 Source: Ministry of Education - Project Unit - 37 - ANNEX 10 PARAGUAY Credit 347-FA Teacher Qualification Fully Not Sc]hool To tal_Qugl ed % (g\.ind % Q ifid A-1 G\. b \. Cb \.allero 8 58 \.00 - - A-2 Naciones Unidas 66 63 95 1 2 2 3 A-3 Fdo\. de la Mora 60 57 95 - - 3 5 A-4 Pedro Peia 27 17 63 4 15 6 22 A-5 F\. S\. L6pez 19 15 79 4 21 - - A-6 Pte\. Stroessner 28 17 61 11 39 - - A-7 Rall Pefia 37 17 46 14 38 6 16 TDTA\.L 295 244 83 34 12 17 5 - 38 - ANNEX 11 PARAGUAY Credit 347-PA 1/ Teacher Training Courses2 1977-1979 Participants Length Date No\. Category (Weeks) Content 1977 March 44 Technical Teachers 24 Basic sciences and technology 1978 February 36 Technical Teachers 2 AnaLysis of new curricula March 40 Industrial Arts Teachers 2 Workshop activities March 69 Pre-Services Trainees 36 Formal training course March 24 Secondary School Teachers 26 Evaluation student achievement April 450 Ditto grouped by subject 5 Teaching techniques May 30 Secondary School Teachers 2 Conmunication-Psychology May 30 Principals and Supervisors 2 Methods of learning May 30 Home Economics Te7achers 4 Teaching activities June 32 Administrators 10 Education administration June 94 Secondary School Teachers 10 Innovations in secondary education July 24 Principals and Supervisors 2 School administration July 24 Technical ed\. tech\. teachers 8 Learning-teaching techniques September 30 Secondary School Teachers 2 Science laboratories September 50 Secondary School Teachers 3 Education administration 1979 January 336 Secondary School Teachers 24 Innovations in education March 70 Pre-Service Traine~es 36 Formal training course March 35 Secondary School Teachers 24 Innovations in education April 20 Principals and Supervisors 2 Evaluation procedures May 28 Guidance Staff 2 Tech\./vocational education June 17 Science Teachers 2 Laboratory activities 1 July 30 Secondary School Teachers 12 General education in technical schoolE July 20 Technical Teachers 12 Pedagogy July 39 Secondary School Teachers 4 Teaching techniques July C40 Secondary School Teachers 2 Methodology by area November 20 Technical Teachers 6 Teaching/learning process November 44 Industrial Arts Teachers 8 Workshop practices TOTAL: Courses 27 Participants 1,806 Weeks 272 Financed by OAS, IDA and Government SOURCE*S Ministry of Education, Project Unit PARAGUAY Credit 347-PA Budgetary Allocation by Project School (Guaranies) 1/ 1977-1980 Diversified Secondary Education SCHOOLS 1927 g 1978 % 1979 1 1980 A-1 Gral\. B\. Caballero 24\.568\.880 30\.420\.720 25% 35\.666\.040 16% 45\.992,400 29% A-2 Naciones Unidas 16\.137\.600 20\.645\.840 22% 25*836\.480 20% 33\.020\.400 28% A-3 Fdo\. do la Mora :12\.31?\.040 15\.940\.160 23% 20\.730\.000 23% 26\.848\.300 30% A-4 Pedro P\. Pefa - - 8\.156\.720 14\.585\.040 44% 19\.171\.200 31% A*5 Francisco S\. L6pez * - -- - 5\.5o4\.4oo - 23\.672\.400 430% A-6 Pt\. Stroesoner - 8\.147\.280 - 19\.112\.400 235% A-7 Dr\. Ra6l Peia -- 6\.117\.440 - 12\.367\.680 5o i8\.89o\.4oo i5o A-8 AaunciSn Escalada - - - * 8\.791\.800 - 20\.197\.200 230% B-1 Col\.Tcnico Nacional - * \. * 19\.044\.240 - 34\.520\.160 181% 11 USS 1 = Cuaranies 126 SCURGE; Uiniztry of Education - Project Unit - 40 - AMEX 13 PARAGUAY Credit 347-PA Project-Related Legal Regulations Enacted by the Government The government and, more specifically, the Ministry of Education during the project implementation period enacted laws and regulations for the improvement of secondary education\. Those most closely associated with Credit Agreement 347-PA refer to: (a) establishing the Department of Technical and Vocational Education (December 18, 1973); (b) establishing a new teacher salary scale (Escalafon Docente) (Law 416 of Novenber 2, 1973); (c) regulating the Escalafon Dccente (Decree 7,128 of July 2, 1974); (d) establishing a system of full time teachers (Decree 14,385 of January 31, 1975) and the pertinent regulation (Resolution 31 of February 1, 1975); (e) establishing a system of appointing teachers on the basis of qualifications and experience (Resolution 32 of February 2, 1975); (f) establishing a new system for evaluation of students' achievement (Resolution 16, of February 6, 1975); (g) approving administrative regulations for the operation of diversified secondary schools (Resolution 354 of May 24, 1977); (h) authorizing the establishment of industrial technical courses in secondary schools and regulating school supervision (Resolution 1,132 of May 24, 1979); (i) approving curricula and syllabi for technical secondary education (Resolution 1,121 of May 28, 1979); and (j) providing monetary resources to secondary schools for the maintenance of buildings and equipment and for the procurement of expendable materials for workshops and laboratories (Decree 13,546 of February 15, 1980)\. - 41 - ATTACHMENT 1 PARAGUAY Credit 347-PA List of Persons Met and Places Visited Ministry of Education Dr\. Ra-1 Pefia Minister ' Dr\. Fabio Rivas Director General of Education Ms\. Lina Matta de Ferreira Chief, Programming & Budgeting Mr\. Feliciano Chaparro Chief, Organization Mr\. Renato DeMonte Industrial Arts Specialist Ms\. Margarita Godoy Supervisor Prof\. Jorge Centuri6n Director, Curriculum Department Dr\. Luis Vely Director, Project Unit Mr\. Miguel Samaniego Architect, Project Unit Mr\. Adolfo Mendoza Engineer, Project Unit Prof\. Bls L5pez Officer, Project Procurement Mr\. Victor Centurion Accountant Mrs\. Juana de Pizurno Educator Directors of Schools - principals of all the schools visited by the mission Schools Visited A-1 Colegio Nacional de la Capital Asunci6n A-2 Naciones Unidas Asunci6n A-3 Fernando de la Mora Fernando de la Mora A-4 Pedro P\. Peia Cnel Oviedo A-5 Mcal\. Francisco S\. L6pez CaaguazC A-6 Pte\. Alfredo Stroessner San Ignacio A-7 Dr\. Rafi Pefia Caacupi B-1 Colegio Tecnico Nacional Asuncion C-1 Escuela Tgcnica Vocacional Asunci5n

APPROVAL

P003180

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 10677 PROJECT COMPLETION REPORT ZAMBIA FIFTH EDUCATION PROJECT (CREDIT 1251-ZA) MAY 28, 1992 '4\. ~ A' Population and Human Resources Division Southern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  ABBREVIATIONS AND ACRONYMS AfDF - African Development Fund JGAP - Japanese Grant Aid Program JSS - Junior Secondary Schools MGEC - Ministry of Education and Culture MWS - Ministry of Works and Supply NORAD - Norwegian Agency for Intemational Development PIU - Project Implementation Unit SIDA - Swedish Intemational Development Authority TNDP - Third National Development Plan UNZA - University of Zambia  THE WORLD BANK FOR OMCIAL USE ONLY Washington\. D\.C\. 20433 U\.S\.A\. Office of DirectarCer\.i\.- Opsiathm Evaluaw m May 28, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on ZAMBIA Fifth Education Project (Credit 1251-ZA) Attached, for information, is a copy of a report entitled "Project Completion Report on ZAMBIA - Fifth Education Project (Credit 1251-ZA)" prepared by the Africa Regional Office\. No audit of this project has been made by the Operations Evaluation Department at this time\. Attachment This document has a restricted distribution and may be used by recipients only In the performance of their omcial duties\. Its contents may not otherwise be disclosed without WVorld Bank authorization\.  FOR OMCAL4 USE ONLY PROJECr CC)MPLMRPR ZAMBIA FIFTH EDUCA4TION PROJECI (CREDIT 1251-ZA) TABLE OF COS Page No\. PREFACE \. i EVALUATION SUMMARY \. iii PART I: PROJECT REVIEW FROM IDA'S PERSPECTIVE A\. Project Identity\. \. \.1 B\. Project Background\. 1 1\. Economic Situation \. \. 1 2\. PolicyContext \. 1 3\. Bank Involvement \. \. 2 C Project Objectives and Dscription \. \. 2 4\. Project Objectives \. \. 2 5\. Project Cmponents \. \. 2 D\. Project Design and organization \. \. 3 6\. Identiica ion and -Peparation \.an\. 3 7\. Appraisal \. 3 10\. Negotiations \. \. 4 F\. Project Implementation \. \. 4 11\. Start-up and Project Duation \. \. 4 12 ConstructionGroup 1 \. 4 13\. Construction Group 2 \. \. \. \. \. \. \. 5 14\. Furniture and Equipment \. 5 15\. Senitary System \. 5 16\. Maintenance Program \. 5 17\. Reform Implementation Study \. \. 5 18\. Project Risks and Unforeseen Factors Affecting mplementao \. 6 19\. Decisions Affecting Implementadon \. \. 6 F\. ProjectResults \. 6 20\. Junior Secondary Schools \. \. 6 21\. Maintenance Program \. \. 6 22\. Reform lmplementa ion Study \. \. 7 G\. Project Impact and Sustainabifity \. \. 7 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwie be disclosed without World Bank authorization\.  -2- Table of Contents (cont\.) H\. Performance of Participants \. 8 26\. DA Performance \. 8 30\. BorrowerPerformance \. 8 31\. Project Relationships \. \. 9 32\. ConsultingServices \. \. 9 33\. Project Docwmentation and Data\. 9 L Conclusions and Lessons learned \. 9 35\. LeonssLLearned\. 10 PART IL PROJECT REVIEW FROM BORROWER'S PERSPECTIVE\. 13 PART IE STATISTICAL INFORMATION A\. Related Bank Loans \. 15 B\. Project Tumetable \. 16 36\. Comments on Project Tumetable \. 17 C CreditDisbursements \. \. 18 D\. Project Implementation \. \. 19 37\. Comments on Project Implementation \. \. 19 E\. Project Costs and Fmancing \. : \. \. 20 38 Comment on Project Fnancing \. 20 F\. Project Results \. 22 39\. Comment on Student Enrollments \. \. 22 40\. Comment on Project Studies \. 22 G\. Status of Credit Covenants \. \. 23 H\. Use of Bank Resources \. \. 25 TABLES Table 1 IBRD Loans Relevant to the Project \. 15 Table 2 Planned, Revised and Actual Dates of Project Timetable \. \. 16 Table 3 Cumulative Estimated and Actual Disbursements \. \. 18 Table 4 Planned and Actual Completion Dates of Components \. \. 19 Table 5 P:\.-ject Costs and Fnancing \. 20 Table 6 Allocation of Credit Proceeds \. 20 Table 7 Cost Analysis of Schoos \. 21 Table 8 Comparison of Appraisal Estimates and Actual Student Enrollments (1991) for Tbree Junior Secondary Schools \. \. 22 Table 9 Project Studies \. 22 Table 10 Compliance with Credit Covenants \. \. \. 23 Table 11 Staff Inputs by Stage of Project Cycle in Staff Weeks \. \. 25 Table 12 Mission Data by Stages of Project \. \. \. 26 ANNEX Annexc I Exchange Rate Fluctuations \. 27  PROJECr COMPLETION REPORT ZAMBIA 2-'FJ7H EDUCATION PROJECT (CREDIT j1-A), PREFACE This is the Pro)c-t Completion Report (PCR) for the Fifth Education Project in Zambia, for which Credit 1251-ZA in the sum of US$25\.0 million (SDR 22\.2 million) was approved by the Executive Directors on May 20, 1982\. The Government of Norway, through the Norwegian Agency for International Development (NORAD), provided 25 man years of technical assistance\. The Credit came under suspension on May 1 1987 as part of the genertl suspension of disbursements to Zambia\. The last payment was made in August 1987 under the limited list of exemptions to the suspension of disbursements\. The Credit Account was closed on March 31, 1988, and an undisbursed balance of SDR 13,292,331\.59 was canceled\. The PCR was prepared by the Population and Human Resources Division of the Southern Africa Department (Preface, Evaluation Summary, Parts I and m)\. The Borrower assisted in con cributing cost and enrollment data, but since the project has been closed for more than four years and the original team involved in implementation is no longer attached to the Project Implementation Unit (PIU), Part II could not be completed\. Preparation of the report was, inter alia based on the Staff Appraisal Report and related Working Papers, the President's Report, the Development Credit Agreement, supervision reports, correspondence between the Borrower and the Association, the Project Implementation Monitoring System and PIU progress reports\. Comments were also obtained from IDA project staff, who identified, prepared, appraised and supervised the project\.  PROJECF COMPLETION REPORT ZAMBIA FIfTH EDUCATION PROJECI (CREDIT 1251-ZA) EVALUATION SUMMARY Project Objectives and Content: (i) The project objectives were to assist the Government in carrying out high-priority items of the Education Reform as contained in the Third National Deve!opment Plan\. Specifically, the project would address the equW'y of the basic education system by expanding education access in the rural areas wnd assist in improving the efficiency of the education system by introducing, within the firSt phase of the Education Reform, junior secondary schools, which would become an integral part of basic education\. The project would also continue to develop and improve the maintenance of schools begun under earlier projects and complement ongoing efforts of other donor agencies\. The African Development Bank would finance the construction and equipping of three Junior Secondary Schools during the same period\. (ii) The project included the following components: (a) construction, furnishing and equipping of eight junior secondary schools; (b) renovation of facilities and the establishment of maintenance programs for existing secondary schools; (c) provision of technical assistance to the Project Implementation Unit through parallel financing by NORAD; (d) a study on implications and costs of the transition from the existing education structure to a new system\. Implementation Experience: (iii) Project preparation from identification to Board presentation took five years (1977-1982) due to a lengthy approval process within the Government of the Education Reform and its integration into the Third National Development Plan\. The project became effective in September 1982 and came to a sudden stop in May 1987 with the general suspension of Bank/IDA disbursements to Zambia (para vii)\. Implementation of the schools started well but construction was soon slowed down by the lack of foreign exchange available to the Government and delays in providing counterpart funds\. Despite sereral measures and amendments to the Credit Agreement to alleviate the situation, construction schedules suffered directly from the difficult financial situation\. At the time of suspension, three junior secondary schools had been built, furnished and partly equipped, while a second group consisting of five schools had only reached about 15% completion\. The Maintenance Program achieved rehabilitation of 47 out of 69 schools and provided a full complement of training, while the Reform Implementation Study was carried out and completed\. About 40% of the Credit was disbursed (paras 11-17)\.  -iv- Project Results: (iv) Tbree junior secondary schools with a planned enrollment of 1,200 students and 840 boarding places were fully financed under the credit\. Actual numbers have exceeded these by about 40% because incre3sed social demand for secondary educatiou coupled with demographic pressure has outsoipped the limited supply of classroom space\. Out of 17 Junior Secondary Schools requested by Government &\. Negotiations, 10 were eventually constructed using resources from vario \.s agencies as follows\. Three were constructed using IDA funds, one school was completed using Government funds, three schools were constructed with the support of AfDF and another three were funded by JGAP\. Due to NORAD's financial and technical assistance, the maintenance component was completed in 1989 and a continued plan of action for maintenance of all education bu&'2Ings developed between the Government and NORAD\. The Reform Implenmentation Study, successfully carried out by the University of Zambia, analyzed the implications of atta\.ng universal basic education by the year 2000 and underlined the importance of giving priority, in resource allocation, to primary education (paras 20-23)\. Project Sustainability: (v) The project focused rather narrowly on a single aspect of the Education Reform, admittedly of high prierity to the Government\. The financing of a very limited number of junior secondary schools with boarding facilities has proved unsustainable in the light of the deteriorating economic and social conditions in the country\. The impact of the Maintenance Program, on the other hand, has proved to be an extremely worthwhile investment (paras 24 & 25)\. Conclusions and \.essons Ljarned: (vi) The project came at a time of profound change in the Zambian economy - per capita incomes fell by about 50 per cent in the ten years between project identification and its closure in 1988 The economic downturn made it impossible to attain the 3oal of nine years of universal basic education and put into question the feasibility of expanding junior secondary schools, while resources remained inadequate to finance the first seven years of primary education\. To date many of the Education Reform recommendations remain unimplemented, with the result that the education system remains in the same transitional state it was in during the appraisal of this project\. (vii) Towards the end of the project ycle implementation was greatly slowed down by the suspension in disbursements and by the 1987 World Bank reorganization, which brought about a hiatus in supervision at a critical time in the life of the project\. The impact of the Educational Reform with respect to the new junior secondary structure will require a separate evaluation which would look into the qualitative aspects of the system including relevance, replicability and financial sustainability\. The Maintenance Program was successful due, in great part, to NORAD's technical and financial assistance, while the Education Reform Study constitutes an important framework for future policy and planning in education (para 34)\. (viii) Notwithstanding the unique set of circumstances that bedevilled this project, there are some lessons leamed from this project that may be of value in future projects\. These are: (a) the painful experiences of this project indicate that when a country is undergoing major economic or political upheaval, the project identification process needs to be very  vv - circumspect in order to reconcile priorities of the moment with the anticipated needs of the emerging scenario; (b) if a project is going to ta'ke five years to prepare, as this one did, it is necessary to allow for sufficient flexibility to make design changes in the project\. Even before the project became effective, concerns were raised within the Bank about issues it had failed to address (parn 9)\. It is these issues which later tuumed out to be critical during implementation and which undermined the overall impact of the project; (c) planned and sustained maintenance of physical plant and equipment fR a major form of investment\. A costed maintenance schedule should be an intet * t of project design in projects comprising construction of physical facillties (ps 21); (d) bmreaucratic decisions carried out to the letter without consideration for mitigating circumstances generate unnecessary burdens (para 28)\. Even within the rules governing suspension of disbursements, there were several actions that could have been taken to make the suspension and final closure of this project less abrupt and less costly to the Government; (e) supervision mission teams should contain a skills mix that ensures a technically sound review of the project (para 26)\. A technically sound mid-term review of this project would have indicated the need to recast the project in light of the dramatic changes in the economy and the consequent revisi"-i of priorities; (f) where more than one Government ministry is involved in project implementation, communication delays are likely to slow down implementation unless Bank supervision missions focused more closely on ministerial coordination (paras 19 & 27); (g) gaps in the continuity of supervision can have serious consequences in project outcome (para 29); (h) firm financing commitments on the part of bilateral agencies should be included in credit agreements (para 17); (i) implementation progress reports prepared by Borrowers should be designed to yield information that is operationally useful including explanations for actions taken and general implementation difficulties (para 33)\.  PROJECr COMXPLETION REPORT ZAMBIA FIPTH EDUCATION PROJECT (CREDRIT 1251-ZA) PART I: PROJECT REVIEW FROM IDA'S PERSPECTIVE A\. Project Identity Project name : Fifth Education Project Credit No\. : 1251-ZA RVP Unit : Africa Region, Country Department VI County : Zambia Sector : Population and Human Resources Subsector : Education B\. Project Backgrund 1\. Economic Situation\. An assessment of the project must take into account the difficult economic period during which the project cycle took place, from the initial identification in May 1977, up to the sudden and premature arrest of the project in May 1987, due to the suspension of all Bank disbursements to Zambia, which particularly affected the later stages of implementation\. Economic difficulties were triggered by a 40% fall in the price of copper in 1975, setting off a balance of payments and public finance crisis, and throwing the economy into a deep recession from which it has yet to recover\. These problems were compounded by a decline in copper production and ore grade and by agricultural stagnation from several years of drought\. During the 10-year span of the project, per capita incomes fell by about 50 per cent\. The Government tried several times to restructure the economy, but none of these efforts was sufficiently comprehensive to bring about the structural changes required\. Of these, the most ambitious was the Bank/Fund supported program in 1985-1987, which the Government abandoned in May 1987 on the groun\.,,, that it generated excessive economic and political instability\. 2\. Policy Context At Independence in 1964, very few Zambians had completed secondary or higher education or received skills training, with the result that development programs had to rely almost entirely on expatriates for their implementation\. National development could, therefore, be pursued only through a rigorous emphasis on education and training in the various development plans from Independence up to 1976\. A general feeling that education was not producing the skills conducive to self-reliance and national development precipitated a government review of the sector and the publishing, in 1978, of a draft Education Reform to be implemented in phases, starting with the Third National Development Plan (1979-83)\. The Plan aimed at modifying the  2- existing education structure into 3 stages: (i) a basic education cycle covering the first n;ne yeas of school; (ii) the three-year senior secondary cycle and; (iii) the higher education cycle\. Pwvisions we\.e also to be made for continuing education in' Uding adult literacy and other aspects of non-formal education\. However, implementation of the Plan was delayed, due in largo part to the inability -if the Government to provide adequate recurrent and capital funds to carry out the program\. 3\. Balkl Invkhwment\. The Bank Group has had a lor\.g and extensive involvement with the education sector in Zambia\. Since 196Q, a total of USS69\.0 million has been disbursed under four education loan agre3ments\. The First and Second Education Projects placed particular emphasis on the expapsion and improvement of secondary, technical, higher education, and teacher training, in line with the need to alleviate the acute shortage of trained high\. and middle-level manpower in the years following independence\. With the Third and Fourth Projects, a shift in ervIhasis gave increased attention to farmer and health training, adult education and improvement of suppcrdtve educational services such as curriculum development and school broadcasting\. The Bank also financea an education component in an urban project and project-related training as part of various infrastructure projects\. C Project Objctives and Description 4\. ect The project assisted the Government in carrying out high priority items of the Educhtion Reform as contained in the Third National Development Plan (TNDP)\. Specifically, it addressed the equity of the Basic Education System by expanding education opportunity in the rural areas and assisted in improving the efficiency of the existing education system by introducing, within the firt phase of the Education Reform, junior secondary schools, which would become an integral part of Basic Education\. The project also fostered further efforts to develop and improve the maintenance of schools instituted under earlier Bank education projects and complemented ongoing quality improvement efforts of other donors\. 5\. Prject Omponen\. The project included the following components: a) Junor S a Schools Construction, furnishing and equipping of 8 new junior secondary schools to be located in rural areas, p,oviding 3,120 additional student places Construction of staff houses for all the schools and hostel facilities to accommodate 1,920 boarders at 7 of the schools\. b) ntenace Pm: Renovation of facilities and provision of repair mate rials, spare parts, equipment and vehicles for maintenance of existing secondary schcx is; ) mTech Asce: Provision of about 35 man-years of technical services to the P\. oject Implementation Unit, financed by the Norwegian Agency for International Development (NORAD), for the implementation of the project; and  -3- d) Refom Implmoct So*\. A comprehensive study to produce a detailed plan for the structural transition of the education system according to the recommendations of the government Education Reform\. The Swedish International Development Agency (SIDA) would assist in the financing of the study and provide the necessary specialists to the Ministry of Education\. D\. Poject Desiei and Oanization 6\. Identiaition ad Prenar1M!n Preparation covered a period of 5 years, from the initial identification of the project in May 1977 up to Board presentation it May 1982\. The first project brief of September 1977, based on a draft of the Education Reform, recommended broad sectoral support rather than project-specific lending\. Possibilities of assistance were identified in the areas of upper primary education (academic facilities, currirulum development, teacher trAning, radio services); continuing education and quality improvement (production-orientee; training, distance learning); and higher education (agricultural university)\. At the time, this approach was considered particularly suitable; the reform document articulated the government's overall educational strategy and priorities and provided an appropriate framework for broad sectoral support\. Release of the final Education Reform document in June, 1978 coLncided with the early stages of preparation of the Third Nationa! Development r; n (INDP)\. The launch of the plan was delayed by nearly two years, during which period questions were raised regarding the reform proposals and its cost implications\. Based on the findiags of a re- identification mission in November 1980, a second project brief was drafted in February 1981, by which time it was felt that reverting to a project-specific lending policy would be more appropriate\. 7\. L The project appraisal, carried out in March 1981, retained the government's highest priority component described in the project ',riefE namely the expansion of basic education facilities at the junior secondary levei The report included the continuation of the secondary school maintenance program with the technical assistance of NORAD, which was initiated under the Third Education Project\. It provided for a study on the implementation of the Education Reform to determine the most economic and efficient method to implement the Govemment's future education plan (the Government requested that the study be financed out of the Technical Assistance credit 873-ZA)\. The provision of additional places in the junior secondary schools was in line with the general impetus of the Reform, which proposed the, establishment of a nine-year basic education cycle in v,hich junior secondary schools would constitute the final two grades\. & Following appraisal, processing of the project met with another delay because the Government had omitted to include the project in the three-year investment program for 1981-83, which replaced the TNDP and which had been reviewed by the Bank and agreed on with the IMF in February 1981\. Confirmation from the Ministry of Fnance that the project had been included in the 1982 budget finally came in December 1981\. Once past this hurdle, processing of the project through negotiations and Board approval went smoothly\.  -4- 9\. Durng the period that the project was held up awaiting inclusion in the budget, considerable debate continued within the Bank on several issues: (i) whether it would not be prudent to delay the project and await the findings of the proposed studv in order 'o develop a plan for implementing the Government's ambitious Educational Reform Program; (ii) due to the severely constrained Government finances, whether there was not a considerable risk in assuming counterpart funds for the combined IDA/AfDF project; (iii) the justification of expanding junior secondary education while leaving the senior secondary level unchanged (the issue being that the situation would cause further constriction of the bottleneck between junior and senior levels and of adding significantly to the nuwater of 16-year-olds who may be unemployable in a skills-oriented market); and (iv) whether the project addressed adequately the failure of the education system to provide properly trained technical and professional cadres (the appraisal report which raised the problem did not propose any direct intervention in this respect)\. 10\. Nepfliatiow Negotiations which were held in March 1982 centered on the number of school- to be included in the project Initially, 17 schools were included in the second project brief, but a combination of escalating construction costs and deteriorating country economic conditions made it necessary to reduce this number to 11, since the IDA crndit was fixed at US$25\.0 million\. Once the African Development Fund confirmed its intention of financing three of the schools in a separate project, it was agreed that IDA would finance the remaining eight schools\. As the Government had obtained financing from SIDA for the Educatiun Reform study, IDA Technical Assistance Credit (873-ZA) funds would no longer be used to finance the study\. As it turned out, however, SIDA financing for the study did not materialize, and after a delay of about one year, IDA resources were used to finance it E\. Project Implementation 11\. t-n and eDtion\. The early stages of implementation were relatively problem free\. Following signature of the Credit in June 1982, the project was made effective three months laer, the Government having fulfilled the main condition of opening a special account According to the appraisal report, implementation was scheduled over six years, with project completion set for September 30, 1987 and closing on March 30, 1988\. Actual implementation covered only 56 months because the project came under suspension with the general freezing of disbursements to Zambia in May 1987\. 12\. Construction Group 1: Cbibombo\. Lubwe and Mwen\. At appraisal, tendering and construction of the eight schools was planned in two stages staggered by a six- month intervaL The first group of three schools was tendered essentially as anticipated in April/May 1983, with the corresponding sites selected and designs based on Public Works and Supply (PWS) standards\. Following contract awards, construction started quite well, but progress soon slowed down, reflecting the deteriorating economic situation\. With repeated and drastic devaluation of the Kwacha starting from 1983, combined with a lack of foreign exchange, construction time planned for 15 months almost doubled to an actual 29 months\. Despite several measures proposed to alleviate the situation, such as an increase in the reimbursement percentage of the civil works category from 60 percent to 75 percent (approved in June 1985) and an increase of funds deposited  -5- by IDA in the special account (approved in November 1986), the Government was unable to keep up the replenishment of counterpart funds in the account\. Construction of Group 1 was finally completed in January 1986\. 13\. Construction Group 2: Chiwa Lumezi Mooye Sioma and Sohvw The second group of schools originally scheduled for tendering in September/October 1983 suffered directly from the consequences of currency devaluation and foreign exchange constraints described above\. The tendering process for this group began in 1986, three years behind schedule, the delay having been caused by a lack of resolution on the foreign exchange issue\. After an agreement was reached between the Borrower and IDA on a procedure to provide required foreign currencies to contractors, tenders were finally received in August/September 1986 and contracts awarded in Januaty 1987\. With only a few months to go prior to suspension, construction reached about 15% completion in the case of four schools, while work never commenced on the fifth school (Miooye)\. 14\. Furniture and Equipment Tendering for both furniture and equipment took place early in 1986, with awards made in March of the same year\. Procurement was also affected by the recurrent problem of foreign exchange availability and by local difficulties in the supply of materials\. Security-related problems also affected the distribution of supplies to schools with thefts occurring at warehouses and school sites\. The three completed schools were adequately furnished and provided with some equipment\. The premature closing of the project prevented the PIU from completing the equipment procurement process\. As a result, laboratory equipment is lackdng, and the schools do not have functional laboratories\. 15\. n0i= SRstenm A system of waste disposal referred to as "soakaway", which was selected for the three completed IDA schools, proved almost immediately after occupation, to be inadequate for the capacities of the schools and, in addition, presented a health hazard for the school population\. New plans were developed to convert or ease the pressure on the system by excavating coidation ponds\. Before these revisions could be implemented, the Credit was stopped, and this serious problem remains unresolved to date through lack of funds\. 16\. Maintenance Program This was a continuation of a program started under the Third Education Project (Loan 900-ZA) and was designed to rehabilitate 69 secondary schools through renovation of facilities and procurement of needed repair materials, spare parts, equipment and essential transport\. The program also included the trmining of technical teachers in self-reliance by providing them with special maintenance and repair courses\. In turn, the teachers would be able to organize maintenance in the schools using existing workshop tools and machinery and utilizing the students for the worlk At the time of credit suspension, 47 schools had been rehabilitated, with the remaining 22 schools in the Copperbelt region scheduled to start in 198& Headmasters and teachers/caretakers from all 69 secondary schools had completed their training in school maintenance\. 17\. Reform Implementation Study\. In order to determine the most economic and efficient method to implement the Government's Education Reform, this comprehensive study was designed to produce a detailed plan for she fuil transition from the exdsting education structure into the new structure\. At negotiations, the Zambian representatives stated that the Swedish International Development Agency would finance  - 6 - the study\. This assistance did not materialize, however, and more than one year was lost in starting the study\. The Government then requested that a team from the University of Zambia's School of Education be given the assignment, with fees and expenses paid out of IDAMs Technical Assistance Credit (873-ZA)\. A four member team of the University started work in July 1984 and largely completed its task by January 1986\. They issued an interim report for Government approvaL The contract was extended in December 1985 for the team to carry out a tracer study of graduates of two secondary technical schools\. Partly because of the suspension of disbursements, the tracer study was not completed, nor was the implementation report formally approved by Government\. 18\. fProect Risks and Unforeseen Factors Affecnlg JInnIementation\. The appraisal mission did not foresee major risks affecting the project\. It would have been difficult at the time to prediLt an economic downturn of such proportions as actually occurred, although at appraisal, there were evidently apprehensions of adequate counterpart financing\. The critical foreign exchange issue, which affected the project so dramatically, did not emerge in full force until the end of 1983 and, consequently, could not have been anticipated by the appraisal mission in March 1981\. 19\. Decidsions Affectny Imnlementation\. The foreign exchange issue and the request to the Association for an increase in the reimbursement percentage of civil works took a considerable time to be resolved\. The tendering of the second group of schools, initially scheduled for November 1983, went through several abortive exercises and was not completed until the end of 1986\. Better inter-Ministerial coordination between Public Works (which had to rewrite the bidding documents), Fnance (which had to give its approval) and the Association would have allowed construction to begin at a much earlier date\. Not until IDA's March 1985 supervision mission were these problems fully brought ouL The Association responded favorably to the increase in reimbursement in June 1985, yet it took another year to have this reflected adequately in the tender forms\. These schools would have been near completion in May 1987 had these problems been resolved in a timely fashion\. F\. jectg Rm:uls 20\. Junmor Seondad Schools The proceeds of the Credit directly financed the three schools in the first group, providing physical infrastructure and additional student places for a planned enrollment of 1,200 day-student and 840 boarding places\. Actual numbers in both classroom and boarding facilities have greatly exceeded these numbers (Table 8) due to the heavy demand generated by a rapidly increasing population growth (3\.4%o in 1985) and by a strong social demand for secondary education\. Within the group of schools financed by the project, Mwenzo is a girls' boarding school in line with the Government's policy of providing equal educational opportunities for boys and girls\. Of the schools left uncompleted as a result of the disbursements suspension, the Government completed Solwezi JSS with its own funds in May 1990\. Meanwhile, the African Development Fund completed three JSS as planned (Kasempa, Maamba and Mpongwe) by 1988, and the Japanese Grant Aid Program completed three more schools (Chilubi Jumbe and Kaputa) in 1991\. The number of Junior Secondary Schools built stands presently at 10\.  -7- 21\. Maintenance Profr'm' This is one of the most positive outcomes of the project\. Due in great part to NORAD's sustained assistance, financial as well as technical, the objectives established at appraisal were well on the way to being achieved by mid- 1987\. The continued assistance on the part of NORAD during all the difficulties experienced by the country up to the present speaks highly for this Agency's commitment\. By the end of 1989, all 69 schools had been rehabilitated and the preventive maintenance training completed\. A bilateral agreement was made between the Government and NORAD for a continued plan of action to establish preventive maintenance through committees at the national, provincial and school levels, with the objective of including all secondary schools in Zambia in the maintenance program\. The development of a comprehensive approach to maintenance deserves high praise and could serve as a model for other education systems where enormous resources have been wasted through negligence of physical facilities and a lack of adequate financial provision for maintenance of physical facilities\. 22\. Reform Imiementation Study\. The study subtitled 'Towards the Implementation of Zambia's Educational Reforms under Demographic and Economic Constraints 1986-2000" was never formally adopted by Government mainly because of the national economic crisis that had gripped the country by 1986\. It nevertheless still remains the most comprehensive analysis of the Education Reform and its implications\. The financial implications of achieving both the qualitative and quantitative targets of the reform and many of the options the report proposes are as pertinent today as they were then\. Now that the country is on its way to recovery, the report will no doubt become an important guide in future policy development and investment policies\. The central finding of the report is that priority in the allocation of resources should be given to the implementation of the first phase of the Educational Reform, namely to the development of the primary sector and of the necessary support areas, so that every child of primary school age can be assured of seven years of quality education\. 23\. Key proposals of the report include: (a) improvements in educational quality and relevance for the majority, who will not proceed beyond the first seven years in schooL This entails improvements in (i) teacher education, (ii) teaching materials, and (iii) science and mathematics education; (iv) increased emphasis on practical, production and service activities, with more community involvement in all aspects of school activities; and (v) reforms in the examination systems\. (b) resource mobilization measures including the need to (i) allocate a larger share of the education budget to the primary sector, (ii) phase out spending on student allowances and bursaries; and (iii) share education costs across central government, local governments and consumers\. (c) the need for improved management and supervision within the system; for a greater and more structured involvement of the non-government sector; and for better coordination and clearer setting of priorities of foreign aid\. G\. Project Iupact and Stbilit 24\. With respect to the Junior Secondary Schools, project impact would be related to an assessment of the impact of the Educational Reform on basic and secondary education, including results related to the quality of education and graduates produced by the new structure\. Such an evaluation has not yet been done but should be undertaken in  -8- order to evaluate the financial sustainability and replicability of this project in the dramatically changed economic and demographic scenario\. In quantitative terms, the IDA credit achieved only three-eighths of its target, and the increased enrollment figures for the three schools must be seen as a diminution in quality output\. In total, the 10 JSS completed to date fall short by a wide margin of the 17 requested by the Government at negotiations in 1982\. 25\. Impact and sustainability of the Maintenance component, on the other hand, have left tangible results\. Having reached not only a very satisfactory level of physical maintenance in many schools but also having secured the Government's commitment and cost sharing of preventive maintenance at the national level, continuation and inclusion of such a component in future projects would be highly desirable\. IL Performance of Participants 26\. IDA Performance\. In general, IDA staff contribution to the -project was professional as well as supportive\. The delays in project preparation and appraisal were clearly beyond staff controL As soon as circumstances permitted, the various steps of document preparation leading to credit effectiveness were handled efficiently\. Reservations described earlier (para 9) notwithstanding, project design was simple, with few components, which, under the circumstances, was particularly appropriate\. Supervision missions were fielded at regular intervals and became more frequent as the problems of implementation developed\. Since the uppermost issue of implementation was the lack of foreign exchange and its effect on tendering and construction, the sustained assistance by IDA technical missions was the appropriate approach\. However, it is puzzling that during the whole period of implementation and 11 supervision missions, specialists in general education never reviewed the project from a pedagogical standpoint\. It is clear that the team responsible for the preparation of the Reform Implementation Study would have benefitted from interaction, particularly at the early stages of the study, with such specialists\. It is also clear that such a review would have indicated a need to recast the project to reflect the fast changing situation\. 27\. IDA showed great flexibility in approving measures proposed to alleviate the financial difficulties of the project, through increasing the reimbursement percentage for civil works, increasing deposits in the special account (para 12) and revising tender procedures to provide foreign currencies to contractors (para 13)\. These measures, unfortunately, came too late to have a significant impact on implementation but the delay seems to have been due to the lack of coordination between the Ministries of Education and Public Works, which caused communications delays with IDA\. 28 In retrospect, the one area where performance of the Association could be faulted is in the way the suspension of disbursement was handled\. Too little time was allowed for the settlement of contracts after May 1, 1987, the date of suspension of disbursements\. A deadline for the receipt of commitments and eligible withdrawal applications in Washington was set at June 30, 1987\. Before the message filtered down from Finance to Education and the PIU, to be passed on to contractors and suppliers, the deadline had passed, leaving many of those involved in the lurch\. No flexibility was shown in this case\. In imposing sanctions on the Government, many suppliers were punished in  -9- the process through broken contracts, and the consequences created by this strict bureaucratic decision have yet to be fully assessed\. 29\. There were no supervision missions between October 1986 and the final visit from a Bank architect in November 1987, due most probably to staff constraints related to the reorganization of the Bank\. This was particularly unfortunate in the period just prior to and following suspension, since many financial difficulties described above could have been resolved through active IDA field participation\. 30\. BorowPerformance\. The Project Implementation Unit established in the Ministry of Works and Supply (MWS) for the Third and Fourth Education Projects continued its responsibility under this project\. At the time of effectiveness, the Director of MWS Buildings Branch was also PIU Director\. The Unit was staffed through NORAD's technical assistance program with an assistant director, financial controller, procurement specialist and maintenance specialists\. In October 1984, the PIU was transferred from MWS to MGEC and the assistant PS of MGEC was named Project Director, to replace the former Director, who returned to the Buildings Branch\. Government was prompted to make this personnel change by irregularities in the 1983 audit report, which were later resolved\. Efforts to localize PIU technical posts as they fell vacant when the NORAD experts completed their contracts were not always successful, and the procurement section, in particular, suffered considerably\. These problems were at their peak in 1987 and did not, therefore, directly affect this project except in the general sense of constraining the capacity of the PIU\. This capacity was further reduced by the loss, through theft or accidents, of a sizeable number of vehcles, which were eventually replaced but which left the PIU with severely diminished supervision capacity over a period of nearly two years\. All in all, the performance of the PIU could be qualified as satisfactory\. 31\. Proiect RelationshipsL The qualified success achieved by the project was the result of the amiable working relationships between IDA, the Borrower, NORAD and the various participating groups themselves\. An additional contributing factor was the level of professionalism, which was more than satisfactory among all concerned\. Dialogue between the Government and IDA was sustained, amiable and direct at all times, even in consideration of the slow rate at which the Borrower responded to some specific issues\. 32\. Consulting Seices\. The technical assistance provided by NORAD was of a consistently high level and has been commented on in this report for the Maintenance Program as well as for the PIU\. The MWS input was also satisfactory, with the exception of delays in reflecting modifications to tender documents and procedures and the initial decision of adopting a sewage processing system that failed almost immediately\. The consultant team from the University of Zambia who were responsible for the Reform Implementation Study produced an excellent report\. 33\. Project Documentation and Data\. AU IDA project documents referred to in this report were well prepared\. Of particular help were the supervision reports and the working papers, which provided factual information\. PIU quarterly progress reports on the other hand were not very useful outside broad cost and completion data\. In these reports, a subjective approach to complement costs and other data would have been more valuable for evaluating the circumstances surrounding key decisions and general problems of implementation\.  - 10 - L Conclusions and Lessons Leaned 34\. The Fifth Education Project came at a time of profound change in Zambia when there was a dramatic downturn in its economy\. The long preparation period was indicative of the difficulties encountered in fitting the Reform into the country's national development plans and of hesitations in committing the Government to new financial obligations\. The project focused rather narrowly on a single aspect of the Education Refurm, admittedly of high priority to the Government\. Preparation having taken several years, it would have been preferable to wait for the results of the study on cost implications of the Reform before deciding on the highest priorities, which the report clearly identified as different from those earlier identified for the project\. In retrospect, the financing of a very limited number of junior secondary schools with boarding facilities is questionable in terms of sustainability and replicability\. Although the schools clearly met a very strong demand, their qualitative aspects have yet to be evaluated\. The Maintenance component was successful due, in great part, to NORAD's technical and financial assistance, while the study on cost implications of the Education Reform will constitute an important document in future education investment dialogue between Zambia and the Association\. 35\. IbAn& Notwithstanding the unique set of circumstances that bedeviled this project, there are some lessons learned from this project that may be of value in future projects\. These are: (a) the painful experiences of this project indicate that when a country is undergoing major economic or political upheaval, the project identification process needs to be very circumspect in order to reconcie the priorities of the moment with the anticipated needs of the emerging scenario; (b) if a project is going to take five years to prepare, as this one did, it is necessary to allow for sufficient flexibility to make design changes in the project\. Even before the project became effective, concerns were raised within the Bank about issues it had failed to address (para 9)\. It is these issues which later turned out to be critical during implementation and which undermined the overall impact of the project; (c) planned and sustained maintenance of physical plant and equipment is a major form of investment\. A costed maintenance schedule should be an integral part of project design in projects comprising construction of physical facilities (para 21); (d) bureaucratic decisions carried out to the letter without onsideration for mitigating circumstances generate unnecessary burdens (para 28)\. Even within the rules governing suspension of disbursements, there were several actions that could have been taken to make the suspension and final closure of this project less abrupt and less costly to the Government; (e) supervision mission teams should contain a skills mix that ensures a technically sound review of the project (para 26)\. A technically sound mid-term review of this project would have indicated the need to recast the project in light of the dramatic changes in the economy and the consequent revision of priorities;  - 11 - (f) where more than one Government ministry is involved in project implementation, communication delays are likely to slow down implementation unless Bank supervision missions focused more closely on ministerial coordination (paras 19 & 27); (g) gaps in the continuity of supervision can have serious consequences in project outcome (para 29); (h) firm financing commitments on the part of bilateral agencies should be included in credit agreements (para 17); (i) implementation progress reports prepared by Borrowers should be designed to yield information that is operationally useful including explanations for actions taken and general implementation difficulties (para 33)\.  - 13 - PROJECT COMPLEIION REPORT ZAMBIA FIiX1 EDUCATION PROJEC1 (CRDIT 1251-Z) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Part II was rLot completed\.  - 15 - PROJECT COMPLETION REPORT ZAMBIA FIFTH EDUCATION PRGJ A CT (CREDIT 1251-ZA) PART HI STATISTHCAL INFbORMA1ON A\. Related Bank Loans* Table 1: IBRD Loans Relevant to the Project Loan Number Year of Purpose of Project Title Approval Project Status Comments Ln\. 592-ZA April To provide quantitative expansion Completed Education objectives Education I 1969 and qualitative improvement in the 03/79 basically achieved\. education system to meet urgent Project considered too manpower needs\. Funded 9 new large and ambitious secondary schools, improvement of for a first operation\. 56 existing secondary schools, 2 primary and 2 TTCs and 1 technical school Ln\. 645-ZA Nov\. To increase the supply of high level Completed Facilties provided are Education II 1969 manpower in selected fields by 12/75 effectively utilized\. providing the extensions to the Improvements could UNZA Schools of Engineering and be made through Education\. strengthening of UNZA planning capacity\. Ln\. 900-ZA May Expanding output of medical Completed Project amended in Education HI 1973 assistants; in-service training for 03/80 1980 to include 12 agricultural staff and farmer primary schools and training; curriculum development maintenance program services and additional facilities for for secondary schools\. secondary schools and teacher Implementation training colleges\. complicated by coordination of X All the Projects preceding the one under discussion here were I1RD Loan  - 16- unrelated subcomponents\. Farmer training program ineffective due to policy changes during implementation\. Loan Number Year of Purpose of Project Title Approval Project Status Comments Ln\. 1356-ZA Dec\. Improve education administration, Completed Successful completion Education IV 1976 business education and training of 03/83 of physical facilities\. agricultural staff and farmers Farmer training affected by policychange as for Education m\. Effectiveness of education admin- istration weakened through failure to use technical assistance and fellowships\. B\. Project Timetable abe 2: Planned, Revised and Actual Dates of Project Timetable Planned Date Revised Date Actual Date Identification Mission 05n7 - 08/77 Preparation Mission 01/79 11-12/80 11-12/80 Appraisal Mission 03/81 - 03/81 Credit Negotiations 02/82 03/82 03/82 Board Approval - - 05/20/82 Credit Signature 0)5/82 - 06/14/82 Credit Effectiveness 09/82 - 09/14/82 Project Completion 09/87 Credit Closing 03/31/88 - 03/31/88  - 17 - 36\. Comments on Project Timetable\. Project preparation took five years partly because after the release of the Education Reform document, project design was changed from broad sectoral support to project-specific lending\. A further delay of one year occurred after appraisal because the project had been inadvertently left out of the Govermment's 1981-83 investment program\. The project went into suspension, with the general suspension of disbursements to Zambia in May 1987\. The Credit Account was closed in March 1988, although the last payment was made in August 1987\.  - 18 - C\. Crdit isbursemens Table 3: Cumuladve Esimated and Actual Disbursemen (in US$'000) Bank FY 1983 1984 1985 1986 1987 1988 Apprais3l Esdlate 1\.20 5\.70 11\.70 19\.45 24\.10 2S\.00 Actual 1\.20 3\.86 6\.98 7\.50 9\.28 9\.S1 Actual as % of Esdlmate 100% 68% 60% 39% 38% 38% Date of Final Disbursement 08t21/87 lime I3ne of Plamed and Actual Disbursenent Schedules Cumulative Disbursements Estimated and Actual (in US$ millions) 30 25 - 20 \. 15 10-r 0' 1983 1984 1985 1986 1987 1988 Appraisal Eitimate § Actual Disbursement  \.-19 D\. ftlJee ghMg Iabe 4: Planned and Actual Compledon Dates of Compnents Planmed Actual Months of Project Componans Completion Compledon Delay Civi Worhs 10/85 01/87 IS FuPibr 08/85 0886 12 Equlipment 09/85 10/86 13 Isxbw JSS Civil Wors 1018S 02/87 16 Furnmir 08/85 08/86 12 EqMpmet Wig/8s 10/86 13 Mwemo ISS Cvil Wors 10/85 02/87 16 Furnitue MIS 08/86 12 Equlpmntk 09/85 10/86 13 Civi Worksy 10186 10/88 24 ftcation Rdam MNu*lr 12/83 01/86 25 37\. CommenoBMWMmido\. Tcontimnddedaluatn of the Kwacla coupled with a lack of foreign exchane so slowed dow eip td that by 1987, when weo suspended, only threo out of the eight schools bad been completed\. Consucon time for hese three schools nearly doubled firom an esmated 15 months to 29 months, mainly becau Govenmen was unable to keep up the replenishment of counart fnds in the special aco even after DA increased the Ia npecnge Of the civil woks categor om 60% to 75% and inacread finds deposited i dth Specia Accunt The tending pcs for the olher five schools beg three yeya behid chede becae of a lack of resludon on th foiw e _chag kme Conra were awarded in January 1987; with only four months to go befre suspion of d ;co rea about 15% compleion for four sools, while work never o die ffi stool\. D'Beamn of diffiUltie sa upplying elecucu eVquIpmnt to dw shools, cauapletom W=deayed by 3\.6 maidms\. Y' Maea Poam w complted du toNOOWs fimald esie abw Credft Sqiem  -20- E\. Prlect Costs and Flnancn Table 5: Project Costs and Financing (USS million) Planned Actual IDA 25\.00 9\.54 Government 142Q 4 3 TOTAL I229 38\. Comment on Protjiect Finacng\. NORAD disbursed US$6\. 155 million in the period 1984-19M7 towards technical assistance for project administration and the school maintenance program\. Data on local costs of the project is incomplete and or unavailable, especially on the last 18 months of the project\. This is probably due to the abrupt way in which the project closed\. Ihe data available indicates that total actual local costs amounted to the equivalent of US$million 4\.39 as compared to an original estimate of the equivalent of US$million 14\.20\. Table 6: Allocation of Credit Proceeds (SDRs) Category Original Allocation Actual Disbursements (1) Civil Works 8,000,000 4,965,568 (2) Construction Mateials 5,330,000 1,139,687 (3) Furniture, Equipment and 1,500,000 1,399,577 Vehicles (4) Consultants Services and 600,000 440,079 Project Administration (5) Initial Deposit in Special 1,070,000 962,7581 Account Total Amount Withdrawn - 8,907,669 Canceled Undisbursed - 13,292,331 Balance Credit 22,200,000 22,200,000 Thuis amount represnus the idifference between the SDR equivalent provailing at Xt tmo advances were made and the SDR equivalent provailing at the dme documentaon for the advacs wa submittd\.  -21 - Table 7: Cost Analysis of Schools: Appraisal Estimates and Actual Costs (ZK million) Jldstiatuon Appraisal Actual Difference % a) Civi Worlc 3,385' Academic 1,163 Boarding 808 Staff Hours 1\.= Sub-Total 2,993 3,385 +392 +13% Lubwe JSS a) Civil Works 3,2061l Academic 1,368 Boarding 734 Staff Hours 924 Sub-Total 2,993 3,285 +180 + 6% Mwenzo JSS a) Civil Worhm 3,155 v Academic 1,368 Boarding 734 Staff Hours 924 Sub-Total 2,993 3,155 +129 + 4% ' Final cos basnd on constuct contracts\.  -22 - F\. eg;tResults Iable : Comparison of Appraisal Estimates and Actual Student Enrollments (1991) for 3 Junior Secondary Schools Dnstglkdons Chibombo Lubwe Mwenzo Enrollment Appraisal Actual Appraisal Actual Appraisal Actual Total Enrollment 480 608 360 527 360 557 Boys 240 334 180 302 - - Girls 240 274 180 225 360 557 Boarding 360 519 240 478 240 539 Day Students - 89 - 49 - 18 uiflt Facilities (in sq\. meters) Academic 2,186 2,186 2,106 2,106 2,106 2,106 Boarding 1,772 1,772 1,334 1,334 1,334 1,334 Housing 2,282 2,282 1,711 1,711 1,711 1,711 , of Staff Houses (25) (25) (20) (20) (20) (20) 39\. Comnment on Student Enrollments\. The facilities are over enroiled by about 40 per cent, with the highest over enollment at the girls' school, Mwenzo\. This is because the expansion of physical facilities has not kept pace with the growth in student mnmbers\. While in relative terms the physical facilities built under this project made very generous space allowances, they are now very over crowded\. Sanitation facilities are particularly inadequate, a problem that was not satisfactorily resolved during construction (para 15)\. Table 9\. Project Studies Purpose as Defined Impact at Appraisal Status of Study 1\. Education Reform To produce a detailed Completed Due to Credit Implementation Study and costed plan for suspension never proposed reform of the adopted as a strategy\. education system\. 40\. Comment on ProJect studies\. The interim report submitted by the team was never formaily adopted by Government because of the crisis that had gripped the country by the time it was completed\. Many of the issues it addressed are still very pertinent, and future IDA projects will no doubt incorporate them in the policy dialogue\.  - 23 - G\. Statu of Crdt Covenants Table lQ: Compliance with Credit Covenants Secton C_t tat ofCM 3\.03 (a) In carrying out the Project, the In full compliance (a) and (b) Borrower shall maintain the existence of the PIU; and (b) shall consult with the Association whenever it proposes to make new appointments to the positions of Project Director, Assistant Project Director, Procurement Specialist, Financial Controller, Project Architect and Maintenance Coordinator within the PIU\. 3\.05 (c) Upon the award by the Borrower of any Action as deemed necessary on the contract for goods, works or services to be part of the associaton\. fianced out of the proceeds of the Credit, the Association may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price\. 3\.05 (d) Promptly after completion of the Project, Due to the una cirmstance but in any event not later than five months leading to suspension of after the Closing Date or such later date as disbu t, the project did not may be agreed for this purpose between the close in the anticipated manner and Borrower and the Associaton, a report on as a result the report was not the execution and initial operation of the prepared\. Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Association of their respective obligations under the Credit Agreement and the accomplishment of the purpose of the Credit\. 3\.06 'he Borrower shall, not later th- n in full compliance\. University of December 31, 1982, carry out a reform Zambia, School of Education, implementation study to determine the most completed the study and the final economic and efficient means 4or report was issued in July 1986\. implementing its educaton reform program and to identify future investments in the education sector, and shall furnish to the association the results of said study, not later tanDecember 31, 1983, for the Associaon to comment thereon\.  -24- Section Covenant Status of Compliance 4\.01 (a) The Borrower shall cause PIU: to maintain In full compliance records adequate to reflect, in accordance with consistently maintained appropriate accounting practices, its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditures; 4\.01 (b) to have its accounts and financial statements In full compliance (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; and 4\.01 (c) to furnish to the Association, as soon as ia compliance up to suspension of available but in any case not later than six disbursements montbs after the end of each such year: (i) certified copies of its financial statements for such year as so audited; and (ii) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including, without limitation to the foregoing, a separate opinion by said auditors in respect of the separate accounts referred to in Section 4\.01 (a) of this Agreement and in respect of the expenditures and records referred to in Section 4\.01 (b) of this Agreement, as to whether the proceeds of the Credit made available to it and withdrawn from the Credit Account on the basis of statements of expenditure have been used for the purpose for which they were provided\. 4\.03 (a) The Borrower shall operate the educational compliamrce related to 3 institutions institutions and faciities included in the completed under the project Project in accordance with appropriate administrative and educational practices and with due regard to economy\.  -25- H\. Use of Bank Resources Table II: Staff Inputs by Stage of Project Cycle in Staff Weeks Project Cycle Phase FY 77 78 79 80 81 82 83 84 85 86 87 88 Total 1) Preparation and Pre- Appraisal 12\.3 12\.9 2\.1 2\.6 20\.3 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 50\.2 2) Appraisal 0\.0 0\.0 0\.0 0\.0 24\.4 10'\.6 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 35\.0 3) Negotiations 0\.0 0\.0 0\.0 0\.0 0\.0 19\.7 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 19\.7 4) Supervision 0\.0 0\.0 0\.0 0\.0 0\.0 0\.0 8\.5 21\.4 34\.5 20\.7 11\.3 3\.0 99\.4 TOTAL 204\.3  -26 - Table 12: Mission Data by Stages of Project Project Cycle No\. of Days In Pert\. Stage Date Persons Fleld Specdalizationsy Status Generatio Identification I May 77 3 1S A, E, EP Identification 2 Oct 80 2 10 A, TE Preparation NovlDec 80 2 18 E, GE Appraisal Mar 81 4 16 A, E, GE, TE Suerisio Supervision I Oct 82 3 5 A, E, TE 1 Supervsion 2 May 83 3 4 A, E, TE I Supervislon3 Oct83 2 4 A, TE 1 Supervision 4 Jun 84 4 12 A, E, GE, TE 2 Superision 5 Oct 84 3 13 DC, A, OA 2 Supervision 6 Feb 85 2 13 A, OA 2 Stpervision 7 Jul 85 2 9 A, OA 2 Supervision8 Dec 85 1 8 A 2 Supervision 9 Feb 86 2 10 A, OA 2 Supervision 10 Oct86 2 9 A, OA 2 Supervision 11 Nov 87 1 6 A n\.a\.' * Superision Missions 1-3 also supervised Third and Fourth Projects coming to a close ** Final Supervision - Disbursements suspended as of May, 87\. A - Achiect; B - Economat; BP - Education Plnner, GE = Geneal Educator; OA = Operational Asasaant; DC - Division Chief, TR - Technical Educator  -27- Z\.AAbm ZAMBIA FEI EDUCAIION PROJEUT EXCHANGE RATE FLUCrUATIONS Currency unit of the Country: Zambian Kwacha (ZK) Currency unit of the Credit: Special Drawing Rights (SDR) Year/Month of Appraisal: April 1982 SDR 1 = USS 1\.13 1982 1 US$ = 0\.93 ZK 1 SDR = 1\.13 US$ 1983 1 US$ = 1\.51 ZK 1 SDR = 1\.13US$ 1984 1 US$ = 2\.20 ZK 1 SDR = 1\.12 US$ 1985 1 US$ = 5\.71 ZK 1 SDR = 1\.10 US$ 1986 1 US$ = 12\.82 ZK 1 SDR = 1\.23 US$ 1987 1 US$ = &OO8ZK 1 SDR = 1\.42 US$ 1988 1 USV - ]O\.00 ZK 1 SDR = 1\.35 USS 1992(Jan\.) 1 US$ = 120\.00ZK 1 SDR = 1\.38US$

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